diff --git a/raw/filings/0001893657/2025/0001493152-26-005480/item1.txt b/raw/filings/0001893657/2025/0001493152-26-005480/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..4da82ce0c62c9ba95967b666448cf97e7d437dc4 --- /dev/null +++ b/raw/filings/0001893657/2025/0001493152-26-005480/item1.txt @@ -0,0 +1,449 @@ +Item +1. Business. +Overview +Rubber +Leaf Inc (the “Company”) was incorporated under the laws of the State of Nevada on May 18, 2021. On May 27, 2021, the Company +entered into the Share Exchange Agreement with Xingxiu Hua, the Chief Executive Officer, President and Chairperson of the Company, pursuant +to which the Company issued 40,000,000 shares of common stock to Ms. Hua in consideration of Ms. Hua’s efforts to procure Rubber +Leaf LLC to transfer any and all equity interests in RLSP to the Company. We acquired Rubber Leaf Sealing Products (Zhejiang) Co., Ltd. +on July 1, 2021, through an equity transfer between Rubber Leaf LLC and Rubber Leaf Inc. On November 20, 2025, the Company +completed the disposition of RLSP through a Share Purchase Agreement (“Agreement”) with Shanghai Yongliansen Import +and Export Trading Co., Ltd. (“Yongliansen”), of which our Chief Executive Officer, Ms. Xingxiu Hua, holds 30% of the outstanding +equity. Pursuant to the Agreement, we sold all of our then equity interests in RLSP to Yongliansen for cash consideration of US$3,000,000, +payable in three installments. RLSP has filed the sale and change of sole shareholder with the State Administration for Market Regulation +of the PRC (the “ SAMR ”) with the official registration date being October 28, 2025. Prior to the disposition of RLSP, +we established a wholly owned subsidiary in Hong Kong, Rubber Leaf Limited (“RLHK”), on September 22, 2025, and substantially +transferred all principal orders, customer contracts and supply arrangements formerly associated with RLSP to RLHK. RLHK is now the Company’s +primary operating entity and continues to conduct business specializing in sales of automotive rubber and plastic sealing strips. We +are a well-known auto parts enterprise, and we are also the first-tier supplier of well-known auto brands such as eGT and Volkswagen. +Our +principal business address is Room 2109, 21/F C C WU BLDG 302-308 HENNESSY, ROAD, WANCHAI, HONG KONG. +Business +Strategy +Our +former wholly owned subsidiary RLSP, an automotive rubber and plastic sealing strip manufacturer, has been acknowledged as first-tier +supplier to manufacture sealing strips for some auto Original Equipment Manufacturers, such as eGT and Volkswagen. Since December 2019, +RLSP has been supplying automotive rubber and plastic sealing strips to eGT, a joint venture between Dongfeng and French Renault. Additionally, +RLSP has also been acknowledged as second-tier manufacturer of automotive rubber and plastic sealing strip from some Branded Automobile +Manufacturers (the “Auto Manufacturers”). Despite only entering the Chinese automotive sealing strip market in 2019, RLSP’s +well known customers and our own unique advantages have allowed us to rapidly expand our market presence and increase our market share. +Prior +to the RLSP’s disposition, we transferred all principal orders, customer contracts and supply arrangements formerly associated +with RLSP to RLHK. +Recent +Developments +The +following highlights recent material developments in our business: +● +FAW-Volkswagen +Agreements +In +October 2023, we entered into a joint research and development agreement, confidentiality agreement and integrity cooperation agreement +with FAW-Volkswagen Automotive Company, Ltd. (“FAW-Volkswagen”). Following detailed quotations, technical analyses and cost +control proposals in November 2023, and subsequent facility inspections by the customer, FAW-Volkswagen accepted our quotation and technical +plan in December 2023. +● +Hozon New Energy +Auto Orders +In February 2024, we cooperated +with Hozon New Energy Auto Co., Ltd for whole car rubber window sealing orders. The engagement commenced with technical consultations +in November 2023, leading to the acceptance of our quotation and cost plan in December 2023. Post the inspection of our site, factory +building and equipment, we are scheduled to supply sample products in March 2024, initiate the first batch production in August 2024 +and ramp up production beginning in October 2024. The initial production is forecasted to be between 3,000 to 4,000 rubber window +seal sets, increasing by 2,000 sets monthly, with a peak monthly production of 12,000 sets. +Main +Products +● +Since our establishment, +we have been engaged in the research and development, design, production and sales of auto parts such as automobile sealing strips. +We have strong capabilities in tooling, mold creation, specialized equipment development, and comprehensive product design skills. +We mainly supply sealing strip products for domestic and foreign automobile manufacturers, as well as supporting research and development +and follow-up services. +1 +Technology +Development Advantage +● +With extensive experience +in the rubber industry, we have formed a strong technical advantage in the field of rubber formulations. Our high-hardness rubber +and low-density sponge production technology have reached the domestic leading level. We are also expertise in the areas of rubber +vulcanization, modular development, three-dimensional molding, seamless interface, surface pre-coating, and surface flocking technologies. +We are a leading candidate in the development and application of technology, rubber mixing process technology, CAE, CAD analysis +simultaneous development technology and length control technology, and has applied these technologies to mass production. Moreover, +we have gained experience and technical proficiency necessary for synchronous development with automotive OEMs +Customer +Resource Advantage +● +For auto parts manufacturers +that supply to auto OEMs, establishing and maintaining cooperative relationships with mainstream auto OEMs is the key to their survival +and development. We have established a strong cooperative relationship with internationally renowned automobile manufacturers, become +a supplier for eGT and Volkswagen. Automobile manufacturers enforce stringent criteria for qualifying suppliers, assessing factors +such as enterprise scale, quality system, technology development capabilities, quality capabilities, on-site 5S, procurement management, +process management, quality improvement capabilities, human resource training and other aspects. This evaluation process typically +spans 1-3 years. +Investment +Highlights +● +Our Company’s revenue-generating +activities are anchored in a diverse portfolio of innovative products and services, as detailed in the “Main Products” +subsection of our “Business” section. Central to our success is our range of rubber and plastic car window and door sealing +strips, which have established a strong market presence due to their quality and unique design for different automobiles. These offerings +cater to our OEM customers, addressing key market demands and trends. Our revenue streams are further bolstered by our whole car +rubber and plastic design ability, which complement our main offerings and provide integrated solutions to our clients. This holistic +approach not only diversifies our income sources but also enhances customer retention and satisfaction. Our commitment to innovation, +coupled with a strategic focus on emerging market needs, positions us uniquely in the industry. This approach has enabled us to maintain +a competitive edge and continue to expand our market reach, thereby offering promising investment potential. +Growth +Strategies +● +A key pillar of our growth +plan is to enhance product innovation and development, and expand new customers, allowing us to stay ahead in a rapidly evolving +market and meet the emerging needs of our customers. We are committed to investing in research and development, which will drive +the introduction of new products and improvements to existing ones. +● +Another critical component +of our strategy is geographic expansion. We aim to enter new international markets and increase our share in existing markets by +leveraging our strong distribution networks and marketing strategies. This will not only diversify our customer base but also reduce +our dependency on any single market. +● +Additionally, we plan to +pursue strategic partnerships and acquisitions in different countries (our first target is the U.S.), which will allow us to access +new technologies, expand our product lines and enter new markets more rapidly than organic growth alone would permit. +● +Finally, a focus on operational +efficiency and cost management will ensure that we remain competitive and profitable, even as we invest in growth. By optimizing +our operations and carefully managing expenses, we can reinvest savings into key growth areas. +2 +With +the increasingly fierce competition in the automobile manufacturing industry, auto OEMs demand greater comprehensive strength and industry +experience from their suppliers. The ability to provide support services to mainstream auto OEMs is becoming a more critical criterion +for customers in choosing suppliers. Therefore, the automobile manufacturing industry has gradually become a relatively closed ecosystem, +where only auto parts suppliers with high-quality customer bases can achieve a sustainable cycle of development. +Sales +and Marketing +Our +primary offerings consist of automotive rubber and plastic sealing strips tailored for specific models. These products boast distinctive +personalized customization features, making the direct sales model the predominant approach. We directly engage with the auto OEMs or +their first-tier suppliers to obtain supplier qualifications, define product specifications and models, negotiate product prices and +finalize orders. +All +of our executives are seasoned industry professionals with extensive experience in the automotive sector for more than 20 years. Their +expertise and extensive network facilitate our market expansion for businesses. While securing approval from auto OEMs may be a time-intensive +process, once established as their supplier, our orders demonstrate stability spanning several years. +Our +sales process is generally divided into two stages: product development and mass supply. In the initial product development stage, we +initiate contact with potential customers, gaining entry into the list of qualified suppliers through a series of reviews by them. After +securing projects through bidding or other methods, we will collaborate with automakers and their component suppliers to either enhance +existing seal products for mass-produced models or develop new models that align with the specified functions, performance criteria and +cost requirements. +Prior +to finalizing batch supply agreements, which refer to supply agreements where “batch” means a specific quantity of products +or materials, uniformly processed to maintain quality and identified by a unique number for efficient traceability and distribution, +customers conduct thorough evaluations of our factory area, production lines and management system to verify our capacity for mass supply +and ensure consistency in product quality. This stage is time-consuming, with the improved development of seals for mass-produced models +typically taking around six months. Simultaneous development of new models with auto OEMs and their accessory suppliers often extends +over a year or more. Based on considerations such as cost efficiency and product consistency, auto OEMs generally choose one or two major +suppliers for a given automotive seal product. Therefore, in the batch supply stage, we can generally obtain consistent and stable orders +based on the production and sales volume of the models incorporating our products. At this stage, our primary responsibilities include +providing high-quality products in a timely manner based on customer orders, offering after-sales service, engaging in regular or irregular +price negotiations and formalizing pricing contracts. +Our +sales are substantially dependent on one major customer and related party, Shanghai Xinsen Import & Export Co., Ltd for the year +ended December 31, 2022. Effective on October 1, 2022, Ms. Xingxiu Hua, the Company’s Chief Executive Officer, President, and Chairperson, +reduced her direct ownership in Shanghai Xinsen from 90% to 15%. Concurrently, Ms. Hua stepped down as the Legal Representative and General +Manager of Shanghai Xinsen pursuant to a board resolution of Shanghai Xinsen on the same date. This change in ownership was made and +certified by the local government on October 11, 2022. +Ms. +Hua’s decision to adjust her ownership interest in Shanghai Xinsen forms an integral component of the Group’s comprehensive strategic +restructuring initiative. This restructuring was undertaken to enhance operational efficiency, strengthen corporate governance, optimize +the Group’s business portfolio, and position the organization for sustainable long-term growth. +As +part of this strategic optimization, the Group completed the disposal of RLSP in November 2025. This decision was driven by compelling +business considerations: RLSP had accumulated significant outstanding liabilities and was subject to multiple ongoing legal proceedings, +which posed material risks to the Group’s financial health and operational stability. The disposal of RLSP represents a prudent measure +to eliminate these legacy burdens and mitigate potential future risks to the Group. +3 +Following +the disposal of RLSP, the Group has reorganized its commercial operations through RLHK, a newly incorporated entity established on September +22, 2025. RLHK now serves as the primary platform for sales operations and customer-facing activities. This reorganization was designed +to achieve several strategic objectives: +Risk +Mitigation: Establishment of a clean operational platform free from legacy liabilities and legal encumbrances +Enhanced +Governance: Implementation of improved internal controls and compliance frameworks aligned with regulatory requirements +Operational +Efficiency: Streamlined business processes and strengthened management capabilities +Strategic +Positioning: Creation of a robust foundation to support the Group’s future business development and market expansion +Importantly, +these structural adjustments are internal reorganization measures that do not affect the Group’s underlying commercial relationships +or market position. The Group maintains well-established and mature business relationships with Shanghai Xinsen, built over many years +of successful cooperation. The Group expects its sales volume to Shanghai Xinsen to remain stable and continue at historical levels. +Furthermore, +the continuity of end-user demand remains robust. Two of Shanghai Xinsen’s key downstream customers—Shanghai Hongyang and Wuhu +Huichi—have consistently utilized the Group’s products over an extended period through their commercial arrangements with Shanghai +Xinsen. This established pattern of stable, long-term demand from end-users demonstrates the fundamental strength and resilience of the +Group’s market position, independent of internal corporate restructuring activities. +In +summary, the Group’s reorganization represents a proactive and strategically sound response to optimize its corporate structure, eliminate +legacy risks, and establish a stronger platform for future growth and value creation. +4 +We +currently operate with two sales models, the direct supply model and indirect supply model: +Model +A (Direct Supply Model) +Following +successful on-site inspections by auto OEMs, our operating subsidiary secures listing in its directories as a first-tier supplier that +directly provides products to the OEM. For example, eGT is an auto OEM, and we serve as their first-tier supplier. eGT directly signs +purchase or supply agreements with our subsidiary. This positions our operating subsidiary to independently procure raw materials, manufacture +final products and directly deliver finished goods to the warehouses of the auto OEMs. Our operating subsidiary fulfills its performance +obligation upon the delivery of finished products to their warehouses, following a subsequent quality inspection approved by them. Simultaneously, +they may request product replacements for disqualified items. Ownership and control of our finished products transfer to customers upon +successful inspection and acceptance into an OEM’s warehouse. Revenue recognition occurs upon the transfer of control of our products +to a customer, with payments made directly by the OEM. +Model +B (Indirect Supply Model) +Our +operating subsidiary receives the purchase orders from our related parties-Shanghai Xinsen and Xinsen Sealing Products (Hangzhou) Co., +Ltd (“Hangzhou Xinsen”) (collectively named as “Xinsen Group” for two companies together). The Company’s +Chief Executive Officer, President and Chairperson, Ms. Xingxiu Hua, previously held a 90% ownership interest in Shanghai Xinsen and +Shanghai Xinsen holds a 70% ownership interest in Hangzhou Xinsen. Effective October 1, 2022, Ms. Hua reduced her ownership of Shanghai +Xinsen from 90% to 15%, and accordingly reduced her indirect ownership of Hangzhou Xinsen from 63% to 10.5%. The Xinsen Group is a rubber +product trading expert with 20 years of experience in the auto parts market, who charges 1% of the total sales amount before VAT tax +as sales commission before September 30, 2022, and subsequently 0.25% effective from October 1, 2022 after the renegotiation between +RLSP and Xinsen Group. The sales commission incurred in each period is recorded as part of selling expense of the Company. The Xinsen +Group serves as a certified second-tier supplier for branded Automobile Manufacturers (“Auto Manufacturers”). A second-tier +supplier refers to a supplier that provides products to the first-tier suppliers of the OEM. First-tier suppliers could be suppliers +of car doors, rubber and plastic components and other automobile parts. Auto Manufacturers issue consolidated purchase orders for complete +sets of rubber and plastic auto parts for a particular model to their first-tier suppliers. These first-tier suppliers subcontract the +production of rubber and plastic seals to second-tier suppliers. As a second-tier supplier and a facilitator of production rather than +a direct manufacturer, Xinsen Group coordinates with us to fulfill orders. Upon receipt of purchase orders, our operating subsidiary +procures rubber materials from our vendors. The production process involves outsourcing to third-party manufacturers for either work-in-process +products (“WIP”) or finished products, based on management’s decisions in response to operational circumstances. +We +employ two distinct forms of outsourced processing under Model B. +1) +our operating subsidiary +purchases raw materials and subcontracts production from third-party manufacturers for WIP. Once WIP is finished and delivered to +the warehouse, our operating subsidiary oversights certain manual processes, such as welding and constructing in order to meet the +specification of the purchase orders. The completion of the final products is contingent upon a rigorous quality inspection conducted +by our operating subsidiary, ensuring they meet the highest standards. +2) +our operating subsidiary +purchases raw materials and subcontracts third party manufacturers to produce finished products. Our operating subsidiary +will trace and observe each step of production undertaken by third-party manufacturers, with a primary focus on the final quality +control step. +The +finished products are delivered to the warehouses of Xinsen Group’s upstream first-tier suppliers, either from our locations or +those of the third-party manufacturers. Quality inspection is carried out by assigned inspectors from Xinsen Group upon delivery. RLSP +fulfills its obligation when the finished products reach Xinsen Group’s customers and pass the qualified quality inspection. +5 +In +the event of products that do not pass inspection, the Xinsen Group initiates a product replacement process. Upon confirmation of quality +and quantity, and acceptance of finished products into Xinsen Group’s customers’ warehouses, invoices are provided to us +as proof of delivery. The date of the invoices signifies the transfer of ownership and control of the finished products under model B +from us to Xinsen Group and indirectly to its upstream first-tier suppliers. We recognize at such time as Xinsen Group’s customers +accept delivery of products. +The +following diagram shows how sales are generated, how invoices and payments are processed and how our products are manufactured and distributed +to customers, through our direct and indirect supply models. +Our +Industry and Market Opportunity +We +are confident that the demand for our products is closely linked to the expansion of our customers’ end markets, which are poised +for growth. Insights from IHS Global Insight, a prominent economic and financial analysis firm, predict that starting from 2023, total +vehicle sales in emerging markets (covering regions like Asia, excluding Japan, South America and Eastern Europe) are projected to match +or surpass those in mature markets (encompassing North America, Western Europe and Japan). This forecast is underpinned by escalating +income levels that are fueling secular growth. This upward trajectory in emerging markets signifies a substantial growth prospect for +the global automotive industry, particularly for manufacturers and suppliers of components consisting of rubber materials utilized in +automobile production. We anticipate that the surge in our markets will be bolstered by the enhancement of living standards in emerging +markets, the internationalization of automotive platforms, advancements in fuel efficiency and the escalating demand for lightweight +materials and refined automotive interior materials. Furthermore, there’s an extensive growth in the requirement for quality rubber +materials within the automotive sector. We are in a prime position to leverage these evolving trends and foresee continued benefits from +the improving market dynamics within our industry. Over recent years, there has been a rationalization of higher-cost capacities across +many of our key product lines, accompanied by numerous consolidation activities within the rubber materials sector. We envisage that +our markets will persist in a long-term trend towards consolidation, presenting opportunities for our enterprise due to our scale and +extensive geographical presence. Moreover, market developments pertaining to certain raw materials we use significantly influence our +business operations. +6 +Vendors +To +reduce the purchase cost and enhance the purchase power, our subsidiary, our operating subsidiary +purchases approximately 93% of the raw materials from Shanghai Haozong Rubber & Plastic Technology Co., Ltd. Mr. Jun Tong, +one of the Company’s directors, holds a 30% ownership of Shanghai Haozong. Our current business strategy leads to a significant +reliance on Shanghai Haozong for our supply needs. +Following +the disposition of RLSP, our Hong Kong operating subsidiary, RLHK, currently sources approximately 70% of its raw materials +from Yongliansen and approximately 30% from Shanghai Haozong. These sourcing proportions are subject to change +over time. In particular, purchases from Yongliansen have been steadily increasing and may potentially reach up to 100%, while purchases +from Shanghai Haozong may decline to approximately 0%. +As +a result, our business has become, and may continue to become, substantially dependent on Yongliansen as a primary supplier, +consistent with our current business strategy. +COVID-19 +Even +after the COVID-19 pandemic has subsided, COVID-19 continues to cause operational disruptions to businesses due to factors such as sporadic +outbreaks, new variants and subvariants and varying responses by governments and public health authorities. Any future outbreak may impact +the overall availability and cost of materials and logistics, which may adversely affect our operations and financial results. If there +is another outbreak of COVID-19 or a similar public health threat, it could impact demand for our products, which in turn could adversely +affect our revenue and results of operations. +Geopolitical +Conditions +Our +operations could be disrupted by acts of war, terrorist activity or other similar events, including the Israel-Palestine war in October +2023 and the current or anticipated impact of military conflict and related sanctions imposed on Russia, Belarus and certain individuals +and entities connected to Russian or Belarusian political, business, and financial organizations by the United States and other countries +due to Russia’s invasion of Ukraine in February 2022. It is not possible to predict the broader consequences of the conflicts, +including related geopolitical tensions, and the measures and retaliatory actions taken by the U.S. and other countries in respect thereof +and with regard to the Russia-Ukraine war, any counter measures or retaliatory actions by Russia or Belarus in response, including, for +example, potential cyberattacks or the disruption of energy exports. +In +addition, geopolitical conditions can disrupt global supply chains, affecting both the procurement of essential raw materials and the +delivery of our products. Interruptions or delays in receiving necessary inputs could hinder our manufacturing. This may result in market +volatility, affecting the prices of raw materials and energy. Fluctuations in the cost of rubber and other necessary commodities used +in our manufacturing may impact our profit margins and overall financial stability. In addition, political instability may result in +trade restrictions or economic sanctions, potentially limiting our access to certain markets or sources of materials, impacting our sales +and supply chain. +Competition +According +to the statistics of the Automobile Industry Branch of the China Association of Automobile Manufacturers, the 33 major automobile rubber +sealing strip manufacturers that participated in the statistics in 2020, the scope of supporting cooperation covers almost all automobile +manufacturers in China and all automobile manufacturers including passenger cars and commercial vehicles. In 2020, the rubber sealing +strip industry achieved revenues of about 15.53 billion Chinese RMB, of which main business candidates of the industry accounted for +about 95% of the market share. +There +is significant competition for the rubber sealing strip industry in the PRC. Despite the competitive nature of the market with approximately +200 key players globally holding a significant market share, our Company stands out due to our unique strengths and capabilities. We +hold a competitive edge in two significant areas: +Product +Versatility: We have the unique capability to manufacture both rubber and plastic sealing components. In China, this versatility is matched +only by Cooper Standard. This dual-material production capability allows us to meet a wide range of client requirements and sets us apart +in a market where most competitors specialize in only one type of material. +7 +Comprehensive +Production Line Advantage: Our production lines are designed for the comprehensive assembly of all rubber and plastic sealing components +required for vehicles. While the majority of companies in the sector can only cater to a portion of the sealing components, we specialize +in fulfilling complete vehicle sealing component orders. This holistic approach not only ensures efficiency and consistency in quality +but also positions us as a one-stop solution for our clients’ sealing needs. +As +a small, early-stage company, navigating a market with established and emerging competitors poses its challenges. However, our specialized +products and strategic marketing, coupled with our unique strengths in product versatility and comprehensive production capabilities, +position us favorably. Despite the dynamic nature of this mature and evolving marketplace, we believe these distinctive advantages fortify +our competitive stance, though we continue to recognize the need for agility and innovation to maintain and enhance our market position. +Many +of our competitors are larger than we are and can devote more resources than we can do to the manufacture, distribution and sale of the +rubber sealing strip. In order to successfully compete in our industry, we will need to: +● +Expand our customers basis +and strive for additional orders; +● +Raise funds to support +our operations and expand our capacities; +● +Recruit talent to explore +high technology (e.g., advanced technology in our industry, including, among other things, environmental friendly raw materials, +etc.); and +● +That we provide outstanding +product quality, customer service and rigid integrity in our business dealings. +However, +there can be no assurance that even if we do these things we will be able to compete effectively with the other companies in our industry. +We believe that we have the required management expertise in the rubber sealing strip industry with good development potential and affordable +price. +Government +Regulations +Our +current wholly owned subsidiary, RLHK, is incorporated and operating in Hong Kong. RLHK has obtained the requisite permissions from Hong +Kong authorities to operate its current business in Hong Kong +Corporate +History and Structure +Rubber +Leaf Inc was incorporated under the laws of the State of Nevada on May 18, 2021. On May 27, 2021, the Company entered into the Share +Exchange Agreement with Xingxiu Hua, the Chief Executive Officer, President and Chairperson of the Company, pursuant to which the Company +issued 40,000,000 shares of common stock to Ms. Hua in consideration of Ms. Hua’s efforts to procure Rubber Leaf LLC to transfer +any and all equity interests in RLSP to the Company. We acquired Rubber Leaf Sealing Products (Zhejiang) Co., Ltd. on July 1, 2021, through +an equity transfer between Rubber Leaf LLC and Rubber Leaf Inc. After the acquisition, RLSP became our 100% directly controlled subsidiary +and wholly foreign-owned enterprise in China. All of our business was conducted through RLSP until its disposition on November 20, 2025. +RLSP was established in Fenghua, Ningo, China and commenced operations in July 2019. RLSP was the wholly owned subsidiary of Rubber Leaf +LLC, a Delaware company organized on June 1, 2018, and Xingxiu Hua, our Chief Executive Officer, President and Chairperson of the Board, +was the sole member of Rubber Leaf LLC. RLSP specialized in the production and sales of automotive rubber and plastic sealing strips. +8 +RLSP +completed disposition through a Share Purchase Agreement dated November 20, 2025(“Agreement”) with Shanghai +Yongliansen Import and Export Trading Co., Ltd. (“Yongliansen”), of which our Chief Executive Officer, Ms. Xingxiu Hua, +holds 30% of the outstanding equity. Pursuant to the Agreement, we sold all of our then equity interests in the Former PRC +Subsidiary, RLSP to Yongliansen for cash consideration of US$3,000,000, payable in three installments. RLSP has filed the sale and +change of sole shareholder with the State Administration for Market Regulation of the PRC (the “SAMR”) with the official +registration date being October 28, 2025. +Prior +to the disposition of RLSP, we established a wholly owned subsidiary in Hong Kong, Rubber Leaf Limited on September 22, 2025, and substantially +transferred all principal orders, customer contracts and supply arrangements formerly associated with RLSP to RLHK. RLHK is now the Company’s +primary operating entity and continues to conduct business specializing in sales of automotive rubber and plastic sealing strips. We +are a well-known auto parts enterprise, and we are also the first-tier supplier of well-known auto brands such as eGT and Volkswagen. +Our +principal business address is Room 2109, 21/F C C WU BLDG 302-308 HENNESSY, ROAD, WANCHAI, HONG KONG. +The +following diagram illustrates our corporate structure as of February 6, 2026 +Transfer +of Cash Through our Group +Our +equity structure is a direct holding structure, that is, Rubber Leaf Inc, directly controls . Rubber Leaf Limited, a company established +in Hong Kong. +After +foreign investors’ funds are remitted to RLI at the close of this offering, the funds can be directly transferred to RLHK. +9 +Until +date of the disposition, no cash and other asset transfers have occurred from RLSP to RLI, no dividends or distributions have been made +from RLSP to RLI, and RLI has not paid any dividends to investors. As of the date of this Annual Report on Form 10-K, no cash and other +asset transfers have occurred from RLHK to RLI, no dividends or distributions have been made from RLHK to RLI, and RLI has not paid any +dividends to investors. For the foreseeable future, the Company intends to use any earnings for research and development and to expand +its production capacity. As a result, we do not expect to pay any cash dividends. +If +RLI intends to distribute dividends, RLI will transfer the dividends from RLHK to RLI in accordance with the laws and regulations of +Hong Kong, and then the dividends will be distributed from RLI to all shareholders respectively in proportion to the shares they hold, +regardless of whether the shareholders are U.S. investors or investors in other countries or regions. +As +of December 31, 2025 and December 31, 2024, our Chief Executive Officer, President and Chairperson of the Board, Ms. Xingxiu Hua and +CFO Wanghua, provided loans to the Company and RLHK in the total amount of $ 3,171,929.00 and $ 3,023,625.00 for its daily operation, +respectively. +Until +date of the disposition, no cash and other asset transfers have occurred from RLSP to RLI, no dividends or distributions have been made +from RLSP to RLI, and RLI has not paid any dividends to investors. As of the date of this Annual Report on Form 10-K, no cash and other asset transfers +have occurred from RLHK to RLI, no dividends or distributions have been made from RLHK to RLI, and RLI has not paid any dividends to +investors. For the foreseeable future, the Company intends to use any earnings for research and development and to expand its production +capacity. As a result, we do not expect to pay any cash dividends. +Our +Hong Kong subsidiary’s ability to distribute dividends in the future will be based upon its distributable earnings. Under the current +practice of the Inland Revenue Department of Hong Kong, dividends paid by RLHK are generally not subject to Hong Kong profits tax. The +Mainland China laws and regulations do not currently have any material impact on transfers of cash from RLHK to RLI or from RLI to RLHK. +Cash transfers among RLI, RLHK and investors will be conducted in accordance with applicable Hong Kong laws and regulations +In +addition, if RLHK incurs debt on its own behalf in the future, the instruments governing such debt may restrict its ability to pay dividends. +As of the date of this Annual Report on Form 10-K, other than the transfer of cash in the amount of $ 130,000 from RLI to RLSP as capital contribution +for its daily operation in May 2024, and $125,000 and $2,055,415 from RLI to RLSP as capital contribution for its daily operation during +the year ended December 31, 2023 and 2022, respectively, there were no material cash flows between RLI and RLSP and for the past two +fiscal years, RLSP has not declared any dividends or made other distributions to the Company nor has the Company paid dividends or made +other distributions to its shareholders. We intend to retain most of our available funds and any future earnings after this offering +and cash proceeds from financing activities, including this offering, to fund the development and growth of our business. As a result, +we do not expect to pay cash dividends in the near future. +10 +Human +Capital Resources +As +of February 6, 2026, we have a total of 10 full time employee. +Our +human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing +and new employees, advisors and consultants. The principal purposes of our equity and cash incentive plans are to attract, retain and +reward personnel through the granting of stock-based and cash-based compensation awards, in order to increase stockholder value and the +success of our Company by motivating such individuals to perform to the best of their abilities and achieve our objectives. +Patents +and Trademarks +The +Company currently does not own any patents or trademarks. +Reports +to Security Holders +The +Company’s documents filed with the Securities and Exchange Commission (“SEC”) may be inspected at the SEC’s principal +office in Washington, D.C. Copies of all or any part of the registration statement may be obtained from the Public Reference Section +of the SEC, 100 F Street N.E., Washington, D.C. 20549. Call the SEC at 1-800-SEC-0330 for further information on the operation of the +public reference rooms. The SEC also maintains a web site at www.sec.gov that contains reports, proxy statements and information +regarding registrants that file electronically with the SEC. All of the Company’s filings may be located under the CIK number 0001893657. \ No newline at end of file diff --git a/raw/filings/0001893657/2025/0001493152-26-005480/item13.txt b/raw/filings/0001893657/2025/0001493152-26-005480/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..45adcf1c2b25e720300a02cfb3dfd516fa2706ff --- /dev/null +++ b/raw/filings/0001893657/2025/0001493152-26-005480/item13.txt @@ -0,0 +1,41 @@ +Item +13. Principal Accountant Fees and Services. +The +following table shows the fees that were billed for audit and other services provided by Simon & Edward, LLP, our independent auditors, +for the fiscal year ended December 31, 2025 and 2024, respectively: +Year +ended December 31, +2025 +2024 +Audit Fees +$ +52,500 +$ +57,500 +Audit-Related Fees +$ +- +$ +- +Tax Fees +$ +3,000 +$ +3,000 +All Other Fees +$ +2500 +$ +- +Audit +fees consist of fees related to professional services rendered in connection with the audit of our annual financial statements. All other +fees relate to professional services rendered in connection with the review of the quarterly financial statements. +Pre-Approval +Policy +Our +Board as a whole pre-approves all services provided by Simon & Edward, LLP. For any non-audit or non-audit related services, the +Board must conclude that such services are compatible with the independence as our auditors. Our Audit Committee approved all services +that our independent accountants provided to us in the past two fiscal years. +63 +PART +IV \ No newline at end of file diff --git a/raw/filings/0001893899/2025/0001104659-26-037627/filing.txt b/raw/filings/0001893899/2025/0001104659-26-037627/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..e78c9faf99c6b4574e7dfba53a5b8a693fa918a1 --- /dev/null +++ b/raw/filings/0001893899/2025/0001104659-26-037627/filing.txt @@ -0,0 +1,6590 @@ +ALASKA SILVER CORP._December 31, 2025 +http://fasb.org/us-gaap/2025#RelatedPartyMember FY 0001893899 http://xbrl.sec.gov/country/2025#CA http://fasb.org/us-gaap/2025#RelatedPartyMember 1 Unlimited 0 http://xbrl.sec.gov/country/2025#CA false 0001893899 wamff:FindersWarrantsIssuedOnMay82024Member 2024-04-26 2024-04-26 0001893899 2024-05-08 2024-05-08 0001893899 wamff:U.s.ResidentShareholderMember wamff:ExchangeThroughProportionateSharesOnlyMember wamff:ProportionateVotingSharesMember 2021-01-01 2021-12-31 0001893899 wamff:U.s.ResidentShareholderMember wamff:ExchangeThroughMergerUnitMember wamff:ProportionateVotingSharesMember 2021-01-01 2021-12-31 0001893899 wamff:U.s.ResidentShareholderMember wamff:SubordinateVotingSharesMember 2021-01-01 2021-12-31 0001893899 wamff:NonU.s.ResidentShareholderMember wamff:SubordinateVotingSharesMember 2021-01-01 2021-12-31 0001893899 wamff:RsuGrantJune2025Member wamff:SubordinateVotingSharesMember 2025-06-26 0001893899 wamff:RsuGrantMarch2025Member wamff:SubordinateVotingSharesMember 2025-03-31 0001893899 wamff:RsuGrantDecember2024Member wamff:SubordinateVotingSharesMember 2024-12-27 0001893899 wamff:RsuGrantOctober2024Member wamff:SubordinateVotingSharesMember 2024-10-17 0001893899 wamff:RsuGrantMarch2024Member wamff:SubordinateVotingSharesMember 2024-03-01 0001893899 wamff:RsuGrantDecember2025Member wamff:SubordinateVotingSharesMember 2024-03-01 0001893899 2021-12-31 0001893899 wamff:IllinoisCreekMineProjectAlaskaMember 2021-01-01 2021-12-31 0001893899 wamff:PawPrintPropertyMember 2025-01-01 2025-12-31 0001893899 wamff:KhotolPropertyMember 2025-01-01 2025-12-31 0001893899 wamff:SubordinateVotingSharesMember 2025-10-03 2025-10-03 0001893899 wamff:SubordinateVotingSharesMember 2024-05-08 2024-05-08 0001893899 wamff:AgentWarrantsIssuedOnApril262024Member 2024-04-26 2024-04-26 0001893899 wamff:WesternAlaskaCopperGoldCompanyMember wamff:KhotolPropertyMember 2024-01-01 2024-12-31 0001893899 wamff:RoundTopPropertyAlaskaMember 2025-01-01 2025-12-31 0001893899 wamff:OtherExplorationTargetProjectsAlaskaMember 2025-01-01 2025-12-31 0001893899 wamff:IllinoisCreekMineProjectAlaskaMember 2025-01-01 2025-12-31 0001893899 wamff:HonkerPropertyAlaskaMember 2025-01-01 2025-12-31 0001893899 wamff:RoundTopPropertyAlaskaMember 2024-01-01 2024-12-31 0001893899 wamff:OtherExplorationTargetProjectsAlaskaMember 2024-01-01 2024-12-31 0001893899 wamff:KhotolPropertyMember 2024-01-01 2024-12-31 0001893899 wamff:IllinoisCreekMineProjectAlaskaMember 2024-01-01 2024-12-31 0001893899 wamff:HonkerPropertyAlaskaMember 2024-01-01 2024-12-31 0001893899 wamff:OtherExplorationTargetProjectsAlaskaMember 2023-01-01 2023-12-31 0001893899 wamff:OtherExplorationTargetProjectsAlaskaMember 2022-01-01 2022-12-31 0001893899 wamff:PromissoryNoteMember 2023-09-30 2023-09-30 0001893899 wamff:PromissoryNoteMember 2023-09-30 0001893899 wamff:BrokerWarrantsMember 2025-12-31 0001893899 wamff:PrivatePlacementWarrantsIssuedOnOctober32025Member 2025-01-01 2025-12-31 0001893899 wamff:AgentWarrantsIssuedOnOctober32025Member 2025-01-01 2025-12-31 0001893899 us-gaap:DerivativeMember 2025-01-01 2025-12-31 0001893899 wamff:WesternAlaskaCopperGoldCompanyMember wamff:IllinoisCreekMineProjectAlaskaMember wamff:PromissoryNoteMember 2021-12-31 0001893899 us-gaap:MeasurementInputRiskFreeInterestRateMember 2025-12-31 0001893899 us-gaap:MeasurementInputPriceVolatilityMember 2025-12-31 0001893899 us-gaap:MeasurementInputExpectedTermMember 2025-12-31 0001893899 us-gaap:MeasurementInputExpectedDividendRateMember 2025-12-31 0001893899 us-gaap:MeasurementInputRiskFreeInterestRateMember 2025-10-01 0001893899 us-gaap:MeasurementInputPriceVolatilityMember 2025-10-01 0001893899 us-gaap:MeasurementInputExpectedTermMember 2025-10-01 0001893899 us-gaap:MeasurementInputExpectedDividendRateMember 2025-10-01 0001893899 us-gaap:MeasurementInputRiskFreeInterestRateMember 2025-03-21 0001893899 us-gaap:MeasurementInputPriceVolatilityMember 2025-03-21 0001893899 us-gaap:MeasurementInputExpectedTermMember 2025-03-21 0001893899 us-gaap:MeasurementInputExpectedDividendRateMember 2025-03-21 0001893899 2025-10-01 0001893899 wamff:StockOptionExerciseMember wamff:SubordinateVotingSharesMember us-gaap:SubsequentEventMember 2026-01-01 2026-01-01 0001893899 wamff:AdditionalStockOptionExerciseMember wamff:SubordinateVotingSharesMember us-gaap:SubsequentEventMember 2026-01-01 2026-01-01 0001893899 wamff:SubordinateVotingSharesMember us-gaap:CommonStockMember 2024-01-01 2024-12-31 0001893899 wamff:IllinoisCreekMineProjectAlaskaMember wamff:PromissoryNoteMember 2021-01-01 2021-12-31 0001893899 us-gaap:RetainedEarningsMember 2025-12-31 0001893899 us-gaap:AdditionalPaidInCapitalMember 2025-12-31 0001893899 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2025-12-31 0001893899 us-gaap:RetainedEarningsMember 2024-12-31 0001893899 us-gaap:AdditionalPaidInCapitalMember 2024-12-31 0001893899 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-12-31 0001893899 us-gaap:RetainedEarningsMember 2023-12-31 0001893899 us-gaap:AdditionalPaidInCapitalMember 2023-12-31 0001893899 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-12-31 0001893899 2025-10-03 0001893899 wamff:ExercisePrice3.16Member 2025-12-31 0001893899 wamff:ExercisePrice2.75Member 2025-12-31 0001893899 wamff:ExercisePrice1.65Member 2025-12-31 0001893899 wamff:ExercisePrice0.96Member 2025-12-31 0001893899 wamff:ExercisePrice0.85TwoMember 2025-12-31 0001893899 wamff:ExercisePrice0.85OneMember 2025-12-31 0001893899 wamff:ExercisePrice0.73Member 2025-12-31 0001893899 wamff:ExercisePrice0.64Member 2025-12-31 0001893899 wamff:ExercisePrice0.62TwoMember 2025-12-31 0001893899 wamff:ExercisePrice0.62OneMember 2025-12-31 0001893899 wamff:ExercisePrice0.49Member 2025-12-31 0001893899 wamff:ExercisePrice0.45Member 2025-12-31 0001893899 wamff:ExercisePrice3.16Member 2025-01-01 2025-12-31 0001893899 wamff:ExercisePrice2.75Member 2025-01-01 2025-12-31 0001893899 wamff:ExercisePrice1.65Member 2025-01-01 2025-12-31 0001893899 wamff:ExercisePrice0.96Member 2025-01-01 2025-12-31 0001893899 wamff:ExercisePrice0.85TwoMember 2025-01-01 2025-12-31 0001893899 wamff:ExercisePrice0.85OneMember 2025-01-01 2025-12-31 0001893899 wamff:ExercisePrice0.73Member 2025-01-01 2025-12-31 0001893899 wamff:ExercisePrice0.64Member 2025-01-01 2025-12-31 0001893899 wamff:ExercisePrice0.62TwoMember 2025-01-01 2025-12-31 0001893899 wamff:ExercisePrice0.62OneMember 2025-01-01 2025-12-31 0001893899 wamff:ExercisePrice0.49Member 2025-01-01 2025-12-31 0001893899 wamff:ExercisePrice0.45Member 2025-01-01 2025-12-31 0001893899 us-gaap:EmployeeStockOptionMember 2025-12-31 0001893899 us-gaap:EmployeeStockOptionMember 2024-12-31 0001893899 us-gaap:EmployeeStockOptionMember 2023-12-31 0001893899 us-gaap:EmployeeStockOptionMember 2024-01-01 2024-12-31 0001893899 us-gaap:EmployeeStockOptionMember 2025-06-23 2025-06-23 0001893899 us-gaap:EmployeeStockOptionMember 2025-04-02 2025-04-02 0001893899 us-gaap:EmployeeStockOptionMember 2024-12-27 2024-12-27 0001893899 us-gaap:EmployeeStockOptionMember 2024-06-14 2024-06-14 0001893899 us-gaap:EmployeeStockOptionMember 2024-03-01 2024-03-01 0001893899 us-gaap:EmployeeStockOptionMember 2025-01-01 2025-12-31 0001893899 us-gaap:RestrictedStockUnitsRSUMember 2025-12-31 0001893899 us-gaap:RestrictedStockUnitsRSUMember 2024-12-31 0001893899 us-gaap:RestrictedStockUnitsRSUMember 2025-12-18 2025-12-18 0001893899 us-gaap:RestrictedStockUnitsRSUMember 2025-06-26 2025-06-26 0001893899 us-gaap:RestrictedStockUnitsRSUMember 2025-03-31 2025-03-31 0001893899 us-gaap:RestrictedStockUnitsRSUMember 2024-10-17 2024-10-17 0001893899 us-gaap:RestrictedStockUnitsRSUMember 2024-03-01 2024-03-01 0001893899 us-gaap:RestrictedStockUnitsRSUMember 2024-12-27 2024-12-27 0001893899 wamff:RsuGrantDecember2025Member 2025-12-18 0001893899 wamff:RsuGrantJune2025Member 2025-06-26 0001893899 wamff:RsuGrantMarch2025Member 2025-03-31 0001893899 wamff:RsuGrantDecember2024Member 2024-12-27 0001893899 wamff:RsuGrantOctober2024Member 2024-10-17 0001893899 wamff:RsuGrantMarch2024Member 2024-03-01 0001893899 wamff:RsuGrantDecember2024Member 2024-12-27 2024-12-27 0001893899 wamff:RsuGrantOctober2024Member 2024-10-17 2024-10-17 0001893899 wamff:RsuGrantMarch2024Member 2024-03-01 2024-03-01 0001893899 wamff:PromissoryNoteMember us-gaap:RelatedPartyMember 2025-01-01 2025-12-31 0001893899 wamff:PromissoryNoteMember 2025-01-01 2025-12-31 0001893899 us-gaap:SoftwareAndSoftwareDevelopmentCostsMember 2025-12-31 0001893899 wamff:WarrantExerciseMember wamff:SubordinateVotingSharesMember us-gaap:SubsequentEventMember 2026-01-01 2026-01-01 0001893899 2024-05-14 2024-05-14 0001893899 2024-04-26 2024-04-26 0001893899 2025-10-03 2025-10-03 0001893899 us-gaap:OverAllotmentOptionMember 2025-10-03 2025-10-03 0001893899 us-gaap:RelatedPartyMember 2025-12-31 0001893899 us-gaap:RelatedPartyMember 2024-12-31 0001893899 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2025-01-01 2025-12-31 0001893899 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-01-01 2024-12-31 0001893899 us-gaap:ForeignCountryMember 2025-12-31 0001893899 country:CA 2025-12-31 0001893899 wamff:PromissoryNote2025Member 2025-12-31 0001893899 wamff:PromissoryNote2021Member 2025-12-31 0001893899 wamff:PromissoryNoteMember us-gaap:RelatedPartyMember 2024-12-31 0001893899 wamff:PromissoryNote2021Member 2024-12-31 0001893899 us-gaap:RetainedEarningsMember 2025-01-01 2025-12-31 0001893899 us-gaap:RetainedEarningsMember 2024-01-01 2024-12-31 0001893899 wamff:WesternAlaskaCopperAndGoldCompanyMember 2025-12-31 0001893899 wamff:PiekIncMember 2025-12-31 0001893899 wamff:RoundTopPropertyAlaskaMember 2025-12-31 0001893899 wamff:OtherExplorationTargetProjectsAlaskaMember 2025-12-31 0001893899 wamff:IllinoisCreekMineProjectAlaskaMember 2025-12-31 0001893899 wamff:HonkerPropertyAlaskaMember 2025-12-31 0001893899 wamff:RoundTopPropertyAlaskaMember 2024-12-31 0001893899 wamff:OtherExplorationTargetProjectsAlaskaMember 2024-12-31 0001893899 wamff:IllinoisCreekMineProjectAlaskaMember 2024-12-31 0001893899 wamff:HonkerPropertyAlaskaMember 2024-12-31 0001893899 wamff:RoundTopPropertyAlaskaMember 2023-12-31 0001893899 wamff:OtherExplorationTargetProjectsAlaskaMember 2023-12-31 0001893899 wamff:IllinoisCreekMineProjectAlaskaMember 2023-12-31 0001893899 wamff:HonkerPropertyAlaskaMember 2023-12-31 0001893899 wamff:PromissoryNoteMember 2025-12-31 0001893899 wamff:PromissoryNoteMember 2024-12-31 0001893899 us-gaap:ForeignCountryMember 2025-01-01 2025-12-31 0001893899 country:CA 2025-01-01 2025-12-31 0001893899 us-gaap:ForeignCountryMember 2024-01-01 2024-12-31 0001893899 country:CA 2024-01-01 2024-12-31 0001893899 wamff:SubordinateVotingSharesMember 2025-01-01 2025-12-31 0001893899 wamff:ProportionateVotingSharesMember 2025-01-01 2025-12-31 0001893899 wamff:SubordinateVotingSharesMember 2024-01-01 2024-12-31 0001893899 wamff:ProportionateVotingSharesMember 2024-01-01 2024-12-31 0001893899 wamff:EquipmentAndVehiclesMember 2025-01-01 2025-12-31 0001893899 wamff:EquipmentAndVehiclesMember 2024-01-01 2024-12-31 0001893899 wamff:PromissoryNoteMember us-gaap:SubsequentEventMember 2026-01-01 2026-01-01 0001893899 wamff:PromissoryNoteMember 2025-11-01 2025-11-01 0001893899 wamff:PromissoryNoteMember 2024-04-01 2025-12-31 0001893899 wamff:UnsecuredLoanPromissoryNoteMember us-gaap:MeasurementInputDiscountRateMember 2025-03-21 0001893899 wamff:UnsecuredLoanPromissoryNoteMember 2025-12-31 0001893899 wamff:PromissoryNoteMember 2024-01-01 2024-12-31 0001893899 wamff:PromissoryNoteMember us-gaap:RelatedPartyMember 2025-12-31 0001893899 wamff:PromissoryNoteMember 2021-03-31 0001893899 wamff:UnsecuredLoanPromissoryNoteMember 2025-03-21 2025-03-21 0001893899 wamff:SubordinateVotingSharesMember us-gaap:CommonStockMember 2025-01-01 2025-12-31 0001893899 wamff:SubordinateVotingSharesMember us-gaap:CommonStockMember 2025-12-31 0001893899 wamff:ProportionateVotingSharesMember us-gaap:CommonStockMember 2025-12-31 0001893899 wamff:SubordinateVotingSharesMember 2025-12-31 0001893899 wamff:ProportionateVotingSharesMember 2025-12-31 0001893899 wamff:SubordinateVotingSharesMember us-gaap:CommonStockMember 2024-12-31 0001893899 wamff:ProportionateVotingSharesMember us-gaap:CommonStockMember 2024-12-31 0001893899 wamff:SubordinateVotingSharesMember 2024-12-31 0001893899 wamff:ProportionateVotingSharesMember 2024-12-31 0001893899 wamff:SubordinateVotingSharesMember us-gaap:CommonStockMember 2023-12-31 0001893899 wamff:ProportionateVotingSharesMember us-gaap:CommonStockMember 2023-12-31 0001893899 us-gaap:DerivativeMember 2025-12-31 0001893899 us-gaap:OverAllotmentOptionMember 2025-10-03 0001893899 wamff:FindersWarrantsIssuedOnMay82024Member 2024-05-08 0001893899 wamff:PrivatePlacementWarrantsFinderWarrantsAndPromissoryNoteWarrantsMember wamff:SubordinateVotingSharesMember 2025-12-31 0001893899 wamff:BrokerWarrantsMember wamff:SubordinateVotingSharesMember 2025-12-31 0001893899 wamff:AgentWarrantsIssuedOnApril262024Member wamff:SubordinateVotingSharesMember 2024-04-26 0001893899 wamff:PromissoryNoteWarrantsIssuedOnMarch212025Member 2025-12-31 0001893899 wamff:PrivatePlacementWarrantsIssuedOnSeptember142023Member 2025-12-31 0001893899 wamff:PrivatePlacementWarrantsIssuedOnSeptember12023Member 2025-12-31 0001893899 wamff:PrivatePlacementWarrantsIssuedOnOctober32025Member 2025-12-31 0001893899 wamff:PrivatePlacementWarrantsIssuedOnMay82024Member 2025-12-31 0001893899 wamff:PrivatePlacementWarrantsIssuedOnMay42023Member 2025-12-31 0001893899 wamff:PrivatePlacementWarrantsIssuedOnMay142024Member 2025-12-31 0001893899 wamff:PrivatePlacementWarrantsIssuedOnApril262024Member 2025-12-31 0001893899 wamff:FindersWarrantsIssuedOnMay82024Member 2025-12-31 0001893899 wamff:AgentWarrantsIssuedOnSeptember12023Member 2025-12-31 0001893899 wamff:AgentWarrantsIssuedOnOctober32025Member 2025-12-31 0001893899 wamff:AgentWarrantsIssuedOnApril262024Member 2025-12-31 0001893899 wamff:SubordinateVotingSharesMember us-gaap:OverAllotmentOptionMember 2025-10-03 0001893899 wamff:SubordinateVotingSharesMember 2025-10-03 0001893899 wamff:UnsecuredLoanPromissoryNoteMember 2025-03-21 0001893899 wamff:FindersWarrantsIssuedOnMay82024Member wamff:SubordinateVotingSharesMember 2024-05-08 0001893899 2024-05-08 0001893899 wamff:AgentWarrantsIssuedOnApril262024Member 2024-04-26 0001893899 2024-04-26 0001893899 2023-12-31 0001893899 wamff:WesternAlaskaCopperGoldCompanyMember wamff:IllinoisCreekMineProjectAlaskaMember 2021-01-01 2021-12-31 0001893899 us-gaap:WarrantMember 2025-01-01 2025-12-31 0001893899 us-gaap:RestrictedStockUnitsRSUMember 2025-01-01 2025-12-31 0001893899 us-gaap:EmployeeStockOptionMember 2025-01-01 2025-12-31 0001893899 us-gaap:WarrantMember 2024-01-01 2024-12-31 0001893899 us-gaap:RestrictedStockUnitsRSUMember 2024-01-01 2024-12-31 0001893899 us-gaap:EmployeeStockOptionMember 2024-01-01 2024-12-31 0001893899 wamff:RsuGrantDecember2025Member 2025-12-18 2025-12-18 0001893899 wamff:RsuGrantJune2025Member 2025-06-26 2025-06-26 0001893899 wamff:RsuGrantMarch2025Member 2025-03-31 2025-03-31 0001893899 us-gaap:RestrictedStockUnitsRSUMember wamff:ManagementFeeExpenseMember 2025-01-01 2025-12-31 0001893899 us-gaap:RestrictedStockUnitsRSUMember wamff:ExplorationExpenseMember 2025-01-01 2025-12-31 0001893899 us-gaap:EmployeeStockOptionMember wamff:ManagementFeeExpenseMember 2025-01-01 2025-12-31 0001893899 us-gaap:EmployeeStockOptionMember wamff:ExplorationExpenseMember 2025-01-01 2025-12-31 0001893899 us-gaap:EmployeeStockOptionMember wamff:ConsultingFeesMember 2025-01-01 2025-12-31 0001893899 wamff:RsuGrantOctober2024Member 2025-01-01 2025-12-31 0001893899 wamff:RsuGrantMarch2024Member 2025-01-01 2025-12-31 0001893899 wamff:RsuGrantDecember2024Member 2025-01-01 2025-12-31 0001893899 us-gaap:RestrictedStockUnitsRSUMember wamff:ManagementFeeExpenseMember 2024-01-01 2024-12-31 0001893899 us-gaap:RestrictedStockUnitsRSUMember wamff:ExplorationExpenseMember 2024-01-01 2024-12-31 0001893899 us-gaap:EmployeeStockOptionMember wamff:ManagementFeeExpenseMember 2024-01-01 2024-12-31 0001893899 us-gaap:EmployeeStockOptionMember wamff:ExplorationExpenseMember 2024-01-01 2024-12-31 0001893899 us-gaap:EmployeeStockOptionMember wamff:ConsultingFeesMember 2024-01-01 2024-12-31 0001893899 wamff:RsuGrantOctober2024Member 2024-01-01 2024-12-31 0001893899 wamff:RsuGrantMarch2024Member 2024-01-01 2024-12-31 0001893899 wamff:RsuGrantDecember2024Member 2024-01-01 2024-12-31 0001893899 us-gaap:AdditionalPaidInCapitalMember 2025-01-01 2025-12-31 0001893899 us-gaap:AdditionalPaidInCapitalMember 2024-01-01 2024-12-31 0001893899 us-gaap:VehiclesMember 2025-12-31 0001893899 us-gaap:EquipmentMember 2025-12-31 0001893899 us-gaap:VehiclesMember 2024-12-31 0001893899 us-gaap:EquipmentMember 2024-12-31 0001893899 2024-01-01 2024-12-31 0001893899 2025-12-31 0001893899 2024-12-31 0001893899 2025-10-01 2025-12-31 0001893899 2025-06-30 0001893899 2026-03-16 0001893899 2025-01-01 2025-12-31 wamff:Y wamff:item xbrli:shares iso4217:USD iso4217:CAD xbrli:shares iso4217:USD xbrli:shares xbrli:pure wamff:segment iso4217:CAD wamff:director wamff:employee +Table of Contents +​ +​ +UNITED STATES SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , 2025 +or +☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from to +Commission file number: 333-290204 +ALASKA SILVER CORP. +(Exact name of registrant as specified in its charter) +British Columbia +​ ​ ​ +87-4818470 +(State or other jurisdiction of incorporation or organization) +​ +(I.R.S. Employer Identification No.) +​ +​ +​ +1500-1111 West Hastings St , Vancouver , British Columbia , V6E 2J3 Canada +​ +( 520 ) 200-1667 +(Address of principal executive offices including zip code) +​ +(Registrant’s telephone number, including area code) +​ +SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: +Title of Each Class +​ ​ ​ +Trading Symbol(s) +​ ​ ​ +Name of Each Exchange on Which Registered +None +​ +N/A +​ +N/A +​ +SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer +☐ +Accelerated filer +☐ +Non-accelerated filer +☒ +Smaller reporting company +☒ +​ +​ +Emerging growth company +☒ +​ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ +The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2025, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $ 32,591,074 (based on the closing price of the voting shares of on that date, as reported on the TSXV). +As of March 16, 2026, 88,749,150 subordinate voting shares of the registrant were issued and outstanding. +DOCUMENTS INCORPORATED BY REFERENCE +None. +​ +​ +Table of Contents +TABLE OF CONTENTS +​ +Page +​ +​ +PART I +​ +​ +​ +Item 1 - Business +5 +​ +​ +Item 1A - Risk Factors +9 +​ +​ +Item 1B - Unresolved Staff Comments +28 +​ +​ +Item 1C - Cybersecurity +28 +​ +​ +Item 2 - Properties +29 +​ +​ +Item 3 - Legal Proceedings +43 +​ +​ +Item 4 - Mine Safety Disclosures +43 +​ +​ +PART II +​ +​ +​ +Item 5 - Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +43 +​ +​ +Item 6 - [Reserved] +45 +​ +​ +Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations +45 +​ +​ +Item 7A - Quantitative and Qualitative Disclosures About Market Risk +54 +​ +​ +Item 8 - Financial Statements and Supplementary Data +54 +​ +​ +Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +54 +​ +​ +Item 9A - Controls and Procedures +54 +​ +​ +Item 9B - Other Information +55 +​ +​ +Item 9C - Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +55 +​ +​ +PART III +​ +​ +​ +Item 10 - Directors, Executive Officers, and Corporate Governance +56 +​ +​ +Item 11 - Executive Compensation +60 +​ +​ +Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +66 +​ +​ +Item 13 - Certain Relationships and Related Transactions, and Director Independence +68 +​ +​ +Item 14 - Principal Accounting Fees and Services +69 +​ +​ +PART IV +​ +​ +​ +Item 15 - Exhibits, Financial Statement Schedules +70 +​ +​ +Item 16 – Form 10-K Summary +73 +​ +​ +Signatures +73 +​ +2 +Table of Contents +SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS +This Annual Report on Form 10-K (this “Report”) contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, which represent our expectations or beliefs statements concerning, without limitation, our operations, economic performance, financial condition, growth and acquisition strategies, investments, and future operational plans. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intent,” “could,” “estimate,” “might,” “plan,” “predict” or “continue” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. These statements, by their nature, involve substantial risks and uncertainties, certain of which are beyond our control, and actual results may differ materially depending on a variety of important factors, including uncertainty related to our partnerships, licenses, strategic transactions, governmental regulation, economic conditions, managing and maintaining growth, operations, volatility of our stock price and any other factors discussed in this and other registrant filings with the Securities and Exchange Commission (the “Commission”). Certain forward-looking statements contained in this Report include those regarding, among other things: +● our strategies and objectives, both generally and in respect of our specific mineral properties; +● exploration plans and costs associated with the Illinois Creek Project; +● the timing and cost of our planned exploration programs, and the timing of the receipt of results therefrom; +● our future cash requirements; +● our retention of all available funds and any future earnings; +● general business and economic conditions; +● our ability to meet our financial obligations as they come due, including payments required to maintain our mineral property interests; +● the potential for the expansion of the known mineralized zones; and +● the potential for the amenability of mineralization to respond to proven technologies and methods for recovery of ore. +Although we believe that these statements, including those included elsewhere herein, are reasonable based on the information currently available to us, such forward-looking statement are subject to a number of risks and uncertainties and we can give no assurance that such expectations will prove to be correct. Inherent in forward-looking statements are risks and uncertainties beyond our ability to predict or control, including, but not limited to, those identified under “Part 1, Item 1A. Risk Factors” and those described below. +● We do not insure against all of the risks we face in our operations. +● Our operations rely on adequate infrastructure and without reliable infrastructure, our capital and operating costs may be affected. +● The occurrence of a significant event which disrupts the production of mineral resources at our properties and the subsequent sale thereof for an extended period, could have a material negative impact on our business, financial condition and results of operations. +● Our ability to acquire properties and develop mineral reserves in the future will depend on our ability to develop our present properties and our ability to select and acquire suitable producing properties or prospects for mineral exploration, of which there is a limited supply. +● We may experience an inability to attract or retain qualified personnel. +3 +Table of Contents +● Our mineral resources described in our S-K 1300 Report are only estimates and no assurance can be given that the anticipated tonnages and grades will be achieved, or that the indicated level of recovery will be realized. +Although we have attempted to identify important factors that could cause actual results to differ materially from those described in forward-looking statements, there may be other factors that could cause results not to be as anticipated, estimated or intended. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially and adversely from those anticipated, believed, estimated or expected. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Except as required by law, we disclaim any obligation to revise or update any forward-looking statements or risk factors to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. We qualify all of the forward-looking statements contained or incorporated by reference in this prospectus by the foregoing cautionary statements. +CAUTIONARY NOTE TO INVESTORS REGARDING ESTIMATES OF MEASURED, INDICATED AND INFERRED RESOURCES AND PROVEN AND PROBABLE MINERAL RESERVES +We have adopted the mining disclosure standards of S-K 1300. We are subject to and required to disclose mineral resources and mineral reserves in accordance with S-K 1300. We are also subject to NI 43-101, and while the S-K 1300 rules are similar to the NI 43-101 rules in Canada, they are not identical. Therefore, two reports have been produced for the Illinois Creek project. The information about our mining operations has been prepared under S-K 1300. +As currently reported, there are no material differences in our disclosed, indicated, and inferred resource under each of S-K 1300 and NI 43-101. We have not currently reported any proved or probable mineral reserves or measured mineral resources. The estimation of measured resources and indicated resources involve greater uncertainty as to their existence and economic feasibility than the estimation of proven and probable reserves; therefore, investors are cautioned not to assume that all or any part of measured or indicated resources will ever be converted into reserves. Estimations of inferred resources involve far greater uncertainty as to their existence and economic viability than the estimations of other categories of resources; therefore, it cannot be assumed that all or any part of inferred resources will ever be upgraded to a higher category. Investors are cautioned not to assume that all or any part of inferred resources exist, or that they can be mined legally or economically. +​ +4 +Table of Contents +PART I +Item 1. Business +Company Overview +Alaska Silver Corp. (the “Company,” “we,” “us,” or “our”) is a mineral exploration company. Our portfolio consists of five mineral deposits, which contain gold, silver, copper, lead, and zinc at varying stages of exploration and deposit styles, including a Carbonate Replacement Deposit (“CRD”) and a past-producing oxide gold mine. We hold all claims in the district, which is located in western Alaska near the Yukon River, covering over 80,000 acres. Our mineral deposits include Round Top Property, Alaska; Illinois Creek Mine Project, Alaska; and Honker Property, Alaska. The Round Top Property consists of 92 state mineral claims, located in the Mount McKinley and Nulato mining districts of Alaska. The Honker Property consists of 24 state mineral claims, located in the Mount McKinley mining district of Alaska. Our Illinois Creek Project is located in the Mount McKinley mining district of Alaska. Our exploration target projects in Alaska include Paw Print and Khotol Property. Each of the above projects is described in further detail under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” +Corporate Information +We were incorporated in the province of British Columbia on April 8, 2020, under the Business Corporations Act of British Columbia, or “BCBCA”. We are a public company whose subordinate voting shares are listed for trading on the TSXV under the symbol “WAM” as well as on the OTCQX under the symbol “WAMFF”. Our telephone number is (520) 200-1667. Our head office is located at 1500-1111 West Hastings St, Vancouver, British Columbia, V6E 2J3 Canada. Our internet address is www.alaskasilver.com. +Organizational Structure +We have one directly-held wholly-owned subsidiary, Alaska Silver USA Corp (“ASUS”), formerly known as Western Alaska Copper & Gold Company, and one indirectly-held wholly owned subsidiary, Piek Incorporated (“Piek”). ASUS exists under the laws of Alaska and carries out exploration activities in Alaska. +Our organizational chart is as follows: +Alaska Silver Corp +(British Columbia, Canada) +​ +​ +​ +Alaska Silver USA Corp +(Alaska, USA) +100% +​ +​ +​ +Piek Incorporated +(Alaska, USA) +100% +​ +​ +ASUS is an Alaska corporation incorporated in 2010 for the primary purpose of conducting mineral exploration on the mining claims which it owns. +5 +Table of Contents +Markets +The mining industry is highly competitive. Mining companies compete for, among other things, mining properties from which minerals and other substances can be profitably extracted; personnel with technical expertise to find, develop, and operate mining properties; labor to operate the properties; and capital to finance the development of such properties. Many of our competitors have greater financial resources and technical facilities for the acquisition and development of mineral concessions, claims, leases and other interests, as well as for the recruitment and retention of qualified employees and consultants. Our relatively small size and limited capital resources, and current or future competition, could have a material adverse effect on our ability to develop our mineral projects, recruit and retain qualified personnel, or acquire the capital needed to fund our operations and develop mining projects. +Raw Materials +We use critical components such as water, electrical power, explosives, diesel and propane in our business, all of which are readily available. Potable water is supplied by an on-site water well permitted by the State of Alaska. Water for drilling needs is obtained by surface sources permitted by the State of Alaska. Electrical power is provided by company owned generators on site. Fuel (gasoline, diesel, Jet A and aviation fuel) is purchased from Everts Air Fuel, Inc. (“Everts”), based in Fairbanks, Alaska at competitive prices. Everts purchases fuel direct from the Marathon Petroleum refinery in Kenai, Alaska, which is located approximately 60 miles south of Anchorage, Alaska. No explosives are currently being used. Propane is purchased in Fairbanks, Alaska and delivered to our camp by Wright Air Service, Inc. (“Wright Air Service”). Building materials are purchased in Fairbanks and delivered to site by Wright Air Service. Wood timbers for construction and drill pads are produced on site. +Government Approvals and Regulations +Mining is an extractive industry that impacts the environment. Our goal is to constantly evaluate ways to minimize such impact. We expect to meet or exceed environmental standards at each of the properties (including the Illinois Creek Project) and to continue this approach through effective engagement with affected stakeholders, including local communities, government and regulatory agencies and indigenous groups. +We are currently operating only in Alaska, which has established environmental standards and regulations that we strive to exceed. Our environmental performance is overseen at the board level and environmental performance is our responsibility. We recognize environmental management as a corporate priority and place a strong emphasis on preserving the environment for future generations, while also providing for safe, responsible and profitable operations by developing natural resources for the benefit of our employees, shareholders and communities. +We received a five-year exploration permit known as “APMA” from the Alaska Department of Natural Resources (the “DNR”) at a cost of less than $1,000 per application. We have a plan of operations (“Plan of Operations”), approved by the DNR, for our camp, structures and exploration activities with minimal costs to update. Water source permits for drilling operations (five) currently cost $50 per year. We participate in the State of Alaska Large Mine Permit Team. Annual costs are approximately $25,000 and include fish habitat monitoring by Alaska Department of Fish & Game and coordination of permit and program reviews by various state agencies. Please see “ Risk Factors— The cost of compliance with changes in government regulations has the potential to reduce the profitability of operations” for a more detailed discussion of those regulations .” +Our current exploration operations are subject to certain state and federal regulations aimed at reducing the impact of our business on the environment. In the future, if our project advances to full commercial production, we will be subject to additional state and federal regulations with the same aim. +Currently, our exploration activities are undertaken under state permits that authorize limited surface disturbance and water withdrawals from surface water bodies. We believe we are currently in compliance with the stipulations in those permits, and there is no measurable risk that we will not meet our obligations under those exploration permits in the future. +Our project is located in unincorporated Alaska and not within any local jurisdiction; accordingly, we do not believe there are currently any local statutes applicable to our project. +6 +Table of Contents +Our project is subject to regulations of the DNR, Division of Mining, Land and Water. We operate under a Miscellaneous Land Use permit on our state mining claims and an approved Plan of Operations for our exploration activities on our Upland Mining Lease. One July 1, 2024 we recorded an Upland Mining Lease ADL No. 422236 from the State of Alaska which converted 70 existing claims (11,135 acres) into one lease. The lease term is 20 years and gives the company the right, subject to all necessary permits and approvals, to mine and produce locatable minerals from the leased ground. The Company believes it is currently in full compliance with its exploration permits. Similar DNR statutes will apply to any future mine development including requirements to provide a financial assurance sufficient to fund the likely and reasonable cost of mine reclamation. +Future development of a commercial mine will require us to comply with and maintain compliance with the conditions under a significant number of additional permits from state and federal regulatory agencies, generally with the same aim of protecting the environment. We are already taking initial steps to characterize the pre-mining site environmental conditions through an expanding baseline environmental program to support a robust future mine design and permitting process. However, there is some risk that any future mine may encounter site conditions that are significantly different than anticipated. This could require modifications of mine facilities, operations and permit requirements, potentially with a significant increase in capital and operating costs. See “ Risk Factors—The cost of compliance with changes in government regulations has the potential to reduce the profitability of operations. ” +Costs and Effects of Compliance with Laws and Regulations +We are required to perform annual assessment work in order to maintain the Illinois Creek Project. If annual assessment work is not performed we must pay the assessment amount in cash in order to maintain the claims. Completion of annual assessment work in the amount of $400 per 1/4 section (160 acre) claim or $100 per 1/16 section (40 acre) claim extends the claims for a one-year period. Assessment work performed in excess of the required amount may be carried forward for up to four years to reduce future obligations for assessment work. +We currently have no material costs to comply with environmental laws concerning our exploration program as we are at the pre-development stage. In the future, we will have to sustain the cost of reclamation and environmental remediation for all work undertaken which causes sufficient surface disturbance to necessitate reclamation work. Both reclamation and environmental remediation refer to putting disturbed ground back as close to its original state as possible. Other potential pollution or damage must be cleaned up and renewed along standard guidelines outlined in the usual permits. Reclamation is the process of bringing the land back to a natural state after completion of exploration activities. Environmental remediation refers to the physical activity of taking steps to remediate, or remedy, any environmental damage caused, i.e. refilling trenches after sampling or cleaning up fuel spills. Our initial programs do not require any reclamation or remediation other than minor clean up and removal of supplies because of minimal disturbance to the ground. The amount of these costs is not known at this time as we do not know the extent of the exploration program we will undertake, beyond completion of the recommended three phases described in the chart below. Because there is presently no information on the size, tenor, or quality of any resource or reserve at this time, it is impossible to assess the impact of any capital expenditures on our earnings or competitive position in the event a potentially economic deposit is discovered. +Our fuel storage facility is reviewed by a third-party service for compliance with state regulations at a cost of approximately $1,500 per year. +Employees and Contractors +As of December 31, 2025, we have engaged five contractors and five employees. Contractors serve us part-time, except for one full-time contractor. All employees serve us full-time. These contractors provide management, technical, administrative, accounting and legal services to us. We believe the contractors are an efficient use of our resources, providing us greater flexibility in our cost structure as we commence exploration programs. +Description of Business +Revenue Generating Activities +We have no operating revenues or earnings and have a history of losses. We will have no operating revenues and maintain a history of losses, and no operating revenues are anticipated until one of our projects comes into production, which may or may not occur. We will continue to experience losses unless and until we can successfully develop and begin profitable commercial production at one of our mining properties, and there can be no assurance that we will be able to do so. +7 +Table of Contents +Status of Exploration Efforts +We have announced mineral resources at two of our deposits, the past producing Illinois Creek (“Illinois Creek” or “IC”) Gold-Silver Mine and the high-grade Waterpump Creek (“WPC”) Carbonate Replacement Deposit (silver-zinc-lead-gallium). These resources are end members of a large-scale carbonate replacement mineralizing system. The two resources will utilize different types of metallurgical processing systems. Metallurgical testing is underway on samples from both deposits in order to quantify mineral recoveries. +In 2026, we are currently undergoing an initial options analysis using Fuse Engineering to build economic models for both deposits (IC and WPC). If this work yields positive results, we will decide whether to advance one or both deposits towards a Preliminary Economic Analysis, or “PEA” which will likely require additional test work. +We are a member of the Large Mine Permit Team organized by the Alaska Department of Natural Resources (“Large Mine Permit Team”) and managed by the Office of Project Management & Permitting. The Large Mine Permit Team brings together all state agencies that will be involved in permitting a mining exploration and development project. This is a major part of our effort to advance environmental baseline studies to de-risk both deposits. We have engaged with the Large Mine Permit Team and have initiated discussions with the federal permitting regulators to explore the permitting requirements for a planned Yukon River access route. Previous studies include multiple years of fish habitat studies conducted by Alaska Fish & Game, wetlands delineation and surface water quality sampling. +During 2025, we conducted a trenching program and a short drill program. The trenching program quickly identified a 550m long deeply weathered breccia zone containing distinctive rubbly boulders of massive silver-bearing galena and cerussite (oxidized galena) at the Silver Sage zone, located 4.8km south of Waterpump Creek. Trench sampling returned numerous high-grade silver-lead values, including multiple samples reporting assays above 310 g/t silver (10 oz/T), with grades up to 1,235 g/t silver (40 oz/T). Sampling also returned gold values as high as 0.55 g/t. A short follow-up drilling program was conducted from July 25, 2025 to September 28, 2025. A total of 2,964.0 meters were drilled across 13 exploration drill holes. The 2025 program comprised 2,057 m of drilling in 4 holes at the Waterpump Creek deposit, with WPC25-0035 which cut 5.9m (core length) grading 38 g/t (1.2 oz/T) Ag and 12.1% Zn, including 3.2m grading 67 g/t (2.1 oz/T) Ag and 16.9% Zn. In addition, 906.5 m of drilling in 9 shallow scout holes was completed at the newly discovered high-grade silver-lead zone, Silver Sage. Among these holes, SS25-04 cut 4.4m (core length) reporting 148 g/t (4.8 oz/T) Ag; 0.68% Pb and 0.24% Zn, including 1 m grading 349g/t (11.2 oz/T) Ag 2.2% Pb and 0.20% Zn +The proposed 2026 drill program will consist of a minimum of 6,000 meters of diamond drilling utilizing our two company-owned drill rigs. The 2026 drilling program will focus on multiple priority targets at the high-grade Waterpump Creek deposit and the newly discovered Silver Sage Zone, along with scout drilling of other high priority targets. Building on 2025’s successful discovery of the blind Silver Sage Zone, systematic follow up of legacy and newly generated geochemical and geophysical anomalies will be undertaken in high-potential areas identified within the overall Illinois Creek Project area. Additional surface exploration and trenching will also be undertaken at Illinois Creek property and Round Top Property. +When either or both the Illinois Creek and Waterpump Creek resources produce positive PEAs, we intend to determine if either or both projects are ready to advance to pre-feasibility and feasibility studies. +Seasonal Variations in Business +The mining business is subject to mineral price and investment climate cycles. The marketability of minerals is also affected by worldwide economic and demand cycles. In recent years, the significant demand for minerals in some countries has driven increased commodity process. It is difficult to assess if the current commodity prices are long-term trends, and there is uncertainty as to the recovery, or otherwise, of the world economy. If global conditions weaken, and commodity prices decline as a consequence, a continuing period of lower prices could significantly affect the economic potential of each of the Illinois Creek Project and the other properties. +8 +Table of Contents +Facilities and Equipment +We own the Illinois Creek camp which includes all buildings, kitchen/dining facility, offices, dormitory/sleeping facilities, tents, core sheds, electrical generators, water supply and storage systems, radio and internet communication equipment. Camp personnel capacity is 45 persons. We own our exploration drilling equipment which includes two new mechanized drill rigs and rod sloops purchased in 2023 and 2024 and three older, used drill rigs. We maintain extensive spare parts for its drilling equipment. We own and maintain a fleet of vehicles that include pickup trucks, side by side off road vehicles, fuel and water trucks and a dump truck. Heavy equipment includes a CAT D6 dozer, CAT 630 loader, CAT motor grader for road and runway maintenance, Hitachi excavator, John Deere dozer & excavator, snow machines and numerous miscellaneous minor equipment. +We utilize the State of Alaska-owned 4,400 ft Illinois Creek airstrip for delivery of food, supplies and personnel. Fixed wing support is contracted to Wright Air Service and Everts Air Cargo. Lynden Air Cargo, LLC provides C-130 Hercules cargo aircraft with a 50,000pound payload for drill rigs and other heavy equipment. +We do not lease any buildings or equipment related to the Illinois Creek Project. +Item 1A. Risk Factors +An investment in our securities involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information in this Report, before deciding whether to invest in our securities. If any of the following risks actually occur, our business, financial condition, results of operations, and prospects could be materially and adversely affected. In that case, the trading price of our securities could decline, and you could lose part or all of your investment. The following is a summary of the principal risks we face. +Risks Related to Our Business +We may be unable to make the payments required under the Piek Promissory Note and the Loan (each as defined below) and as a result we may be in default under the Piek Promissory Note and the Loan. +In 2021, ASUS and Piek entered into the Piek Acquisition Agreement (“Piek Acquisition Agreement”), whereby ASUS acquired all of the issued and outstanding shares of common stock of Piek for a total purchase price of $3,698,000, which ASUS satisfied by the issuance of a promissory note (the “Piek Promissory Note”). The Piek Promissory Note requires us to make certain expenditures with respect to our company. Since 2021, the Piek Promissory Note has been amended nine times, and both parties have been previously amenable to make amendments in the best interests of our company, including to postpone or modify the required expenditures by us thereunder. Additionally, on March 21, 2025, we completed an unsecured loan transaction with certain Lenders (the “Loan”) pursuant to which we issued promissory notes in the aggregate principal amount of $1,200,000. On March 21, 2026 we repaid $1,320,000, including accrued interest, under the terms of the Loan. However, if we are unable to make the payments or expenditures required under the Piek Promissory Note and are unable to agree on an amendment to the Piek Promissory Note, we could be in default under the Piek Promissory Note, as applicable, which could have a material adverse effect on our company. In the event of default, non-defaulting parties may accelerate demand for repayment. +We have incurred significant losses and have limited cash on hand, and there is substantial doubt as to our ability to continue as a going concern. +We incurred net losses of $7,279,098 and $8,861,799 for the years ended December 31, 2024 and December 31, 2025, respectively. In its report for the fiscal year ended December 31, 2025, our auditor has expressed that there is substantial doubt as to our ability to continue as a going concern. We have incurred operating losses since our formation, expect to incur substantial losses and negative operating cash flows for the foreseeable future and may never become profitable. We also expect to continue to incur significant operating and capital expenditures for the next several years and anticipate that our expenses will increase substantially in the foreseeable future. We also expect to experience negative cash flow for the foreseeable future as we fund our operating losses and capital expenditures. As a result, we will need to generate significant revenues in order to achieve profitability and maintain our operations. If we are unable to generate the revenue necessary to achieve profitability and maintain our operations in the future, we could be required to cease operations, and, even if we are able to maintain our operations, our inability to achieve or maintain profitability could negatively impact the value of our subordinate voting shares. +9 +Table of Contents +We rely on a limited number of properties, and, unless we acquire additional property interests, adverse developments affecting our current properties could have a material adverse effect upon our business. +The only material property of ours is the Illinois Creek Property located in Alaska. As a result, unless we acquire additional property interests, any adverse developments affecting this property could have a material adverse effect upon our business and would materially and adversely affect the potential mineral resource production, profitability, financial condition and results of operations of our business. While we may seek to acquire additional mineral properties to help us fulfill our business objectives, there can be no assurance that we will be able to identify suitable additional mineral properties or, if we identify suitable properties, that we will have sufficient financial resources to acquire such properties or that such properties will be available on terms acceptable to us or at all. +Our mineral resources described in the S-K 1300 Report are only estimates as we have no established mineral reserves, and the anticipated tonnages and grades described in the S-K 1300 Report may not be achieved, or the indicated level of recovery may never be realized. +We are a resource company focused primarily on the acquisition, exploration and development of mineral properties located in Alaska. Our properties have no established mineral reserves. There can be no assurance that any of our projects can be mined profitably. Any reference to potential quantities and/or grade is conceptual in nature, as there has been insufficient exploration to define any mineral resource, and it is uncertain if further exploration will result in the determination of any mineral resource. Quantities and/or grade described in this registration statement should not be interpreted as assurances of a potential resource or reserve, or of potential future mine life or of the profitability of future operations. Accordingly, we may not realize any profits in the short to medium term, or at all. Any profitability in our future business will be dependent upon developing and commercially mining an economic deposit of minerals, which in itself is subject to numerous risk factors. +We intend to continue exploration on our properties, and we may or may not acquire additional interests in other mineral properties. The search for mineral deposits at our existing properties and any future properties we acquire is extremely risky. We can provide investors with no assurance that exploration on our current properties, or any other property that we may acquire, will establish that any commercially exploitable quantities of mineral deposits exist. There are various ways we may be prevented from discovering any mineral deposits, including unanticipated problems relating to exploration and additional costs and expenses associated with our exploration activities that may exceed current estimates. If we are unable to establish the presence of viable mineral deposits on our properties, our ability to fund future exploration activities will be impeded, we will not be able to operate profitably, and investors may lose all their investment in our company. +We have faced, and may continue to face, liquidity concerns. +In the past, we experienced liquidity issues as a result of excess financial obligations due to our limited available financial assets at various points in time. Similar liquidity challenges may arise in the future, particularly if market conditions deteriorate or unforeseen events impact our business. Our objective in managing liquidity risk is to maintain sufficient readily available cash reserves and credit in order to meet our liquidity requirements at any point in time. The total cost and planned timing of acquisitions and/or other development or construction projects is not currently determinable, and it is not currently known precisely when we will require external financing in future periods. +Mining operations generally involve a high degree of risk, and there is no certainty that the expenditures to be made by us towards the exploration and evaluation of minerals will result in discoveries or production of commercial quantities of minerals. +Mining operations generally involve a high degree of risk. Our operations are subject to all the hazards and risks normally encountered in the exploration, development and production of minerals, including unusual and unexpected geologic formations, seismic activity, rock bursts, cave-ins, flooding and other conditions involved in the drilling and removal of material, any of which could result in damage to, or destruction of, mines and other producing facilities, damage to life or property, environmental damage and possible legal liability. The financing, exploration, development and mining of any of our properties is furthermore subject to a number of macroeconomic, legal and social factors, including commodity prices, laws and regulations, political conditions, currency fluctuations, the ability to hire and retain qualified people, the inability to obtain suitable adequate machinery, equipment or labor and obtaining necessary services in jurisdictions in which we operates. Unfavorable changes to these and other factors have the potential to negatively affect our operations and business. +10 +Table of Contents +Major expenses may be required to locate and establish mineral reserves, to develop metallurgical processes and to construct mining and processing facilities at a particular site. Mining, processing, development and exploration activities depend, to one degree or another, on adequate infrastructure. Reliable roads, bridges, power sources and water supply are important determinants, which affect capital and operating costs. Unusual or infrequent weather phenomena, sabotage, government or other interference in the maintenance or provision of such infrastructure could adversely affect our operations, financial condition and results of operations. It is impossible to ensure that the exploration or development programs planned by us will result in a profitable commercial mining operation. Whether a precious or base metal or mineral deposit will be commercially viable depends on a number of factors, some of which are: the particular attributes of the deposit, such as quantity and quality of mineralization and proximity to infrastructure; mineral prices which are highly cyclical; and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in us not receiving an adequate return on invested capital. +There is no certainty that the expenditures to be made by us towards the exploration and evaluation of minerals will result in discoveries or production of commercial quantities of minerals. In addition, once in production, mineral reserves are finite, and there can be no assurance that we will be able to locate additional reserves as our existing reserves are depleted. +The development and exploration of our properties may require substantial additional financing, and there are significant uncertainties regarding the mineral prices and, by extension, the availability of equity financing for mineral exploration and development. If we fail to obtain such additional financing as and when we need it, further exploration and development of our projects may be delayed or indefinitely postponed. +There are significant uncertainties regarding the price of minerals and the availability of equity financing for the purposes of mineral exploration and development. Our future performance will be largely tied to the operation of the Illinois Creek Property, the development of the Illinois Creek Property, and the commodity and financial markets. Financial markets were volatile throughout 2025 and may continue to be volatile for 2026 and beyond, reflecting ongoing concerns about the stability of the global economy and global growth prospects. These economic trends may impact the interests of investors and, relatedly, the availability of equity financings, limiting our ability to develop and/or further explore the mineral properties in which we currently, or may in the future, hold an interest. If these increased levels of volatility and market uncertainty continue, our operations and the price of our subordinate voting shares could be adversely impacted. +Failure to obtain such additional financing could result in the delay or indefinite postponement of further exploration and development of our projects. +Our business is strongly affected by the world market price of precious and base metals and there can be no assurance we will be able to develop our properties profitably or at all. +Our business is strongly affected by the world market price of precious and base metals. Global metal prices fluctuate widely and are affected by numerous factors beyond our control, including global demand and production levels; political and economic conditions; producer hedging activities; speculative activities; inflation; interest rates; central bank lending, sales and purchases of metals; the strength of, and confidence in, the U.S. dollar, the currency in which the price of metals are generally quoted; and currency exchange rates. +The price of metals has fluctuated widely in recent years, and future sustained metal price declines could cause development of, and commercial production from, our projects to be uneconomic. Depending on the price of metals, our cash flow from any mining operations may be insufficient to meet our operating needs and capital expenditures, and as a result, we could experience losses and/or may curtail or suspend some or all of our exploration, development, construction and mining activities or otherwise revise our mine plans, and exploration, development and construction plans, and could lose our interest in, or be forced to sell, some or all of our properties. Further, if forced to use significantly lower metal prices for Mineral Resource calculations for the Illinois Creek Property life-of-mine could result in material write-downs in Company’s mining properties and increased amortization, reclamation and closure charges. +In addition to adversely affecting our mineral reserve estimates and our financial condition, declining commodity prices could impact operations by requiring a reassessment of the feasibility of our projects, including the Illinois Creek Property. Such a reassessment may be the result of a management decision or may be required under financing mergers related to a particular project. Even if such project is ultimately determined to be economically viable, the need to conduct such a reassessment may cause substantial delays or may interrupt operations until the reassessment can be completed. +11 +Table of Contents +Our operating results are expected to be substantially dependent upon the market price of metals, the prices for which fluctuate widely. The volatility of precious metal prices represents a substantial risk, which no amount of planning or technical expertise can fully eliminate. In the event metal prices decline or remain low for prolonged periods of time, we might be unable to develop our properties, which may adversely affect our results of operations, financial performance and cash flows. +We have no history of mineral production on our properties, and commercial quantities of gold, silver, zinc, gallium or other minerals may never be profitably mined by us. +Other than the Illinois Creek Mine, which was in production from 1996 through 2002, there is no history of mineral production on the properties. As such, we have had no operating revenues and have had a history of losses, and no operating revenues are anticipated until one of our projects comes into production, which may or may not occur. While there was some historical exploration and sampling starting in the 1980’s, the Illinois Creek Property is a high risk, speculative venture, and only a minimal amount of exploration and sampling has been conducted by us. There is no certainty that the expenditures proposed to be made by us towards the search for and evaluation of gold, silver, zinc, gallium or other minerals with regard to the Illinois Creek Property or otherwise will result in discoveries of commercial quantities of gold, silver, zinc, gallium or other minerals. +Furthermore, there can be no assurance that commercial quantities of gold, silver, zinc, gallium or other minerals will be discovered at any future properties nor is there any assurance that any future exploration programs of ours on the properties or any other properties will yield any positive results. Even where commercial properties of minerals are discovered, there can be no assurance that any property of ours will ever be brought to a stage where mineral reserves can be profitably produced thereon. It is difficult to evaluate our prospects, and our future success is more uncertain than if we had a more proven history. We will continue to experience losses unless and until we can successfully develop and begin profitable commercial production at one of our mining properties. +You should not rely on the S-K 1300 Report as an indication that we will have profitable commercial operations in the future. Factors which may limit our ability to produce mineral resources from our properties include, but are not limited to, the price of mineral resources are explored, availability of additional capital and financing and the nature of any mineral deposits. +In addition, we are and will continue to be subject to all the risks associated with establishing new mining operations, including: the timing and cost, which can be considerable, of the construction of mining and processing facilities; the availability and cost of skilled labor and mining equipment; the need to obtain necessary environmental and other government approvals and permits and the timing of the receipt of those approvals and permits; the availability of funds to finance construction and development activities; potential opposition from non- governmental organizations, indigenous peoples, environmental groups or local groups which may delay or prevent development activities; and potential increases in construction and operating costs due to changes in the costs of fuel, power, materials and supplies. +It is common in new mining exploration operations to experience unexpected costs, problems and delays during construction, development and mine start-up. In addition, delays in the early stages of mineral production often occur. Accordingly, our mining operations at our mineral properties may not be, and may never become, profitable. +The development and exploration plans and costs associated with the Illinois Creek Property may differ from the estimates in the S-K 1300 Report. +The S-K 1300 Report contains estimates of future production, development plans, operating and capital costs, financial returns and other economic and technical estimates relating to the Illinois Creek Property. These estimates are based on a variety of factors and assumptions, and there can be no assurance that such production, plans, costs or other estimates will be achieved. Actual costs and financial returns may vary significantly from the estimates in the S-K 1300 Report depending on a variety of factors, many of which are not within our control, including, but not limited to: actual ore mined varying from estimates of grade, tonnage, dilution and metallurgical and other characteristics; the price of gold and silver; short-term operating revisions to mine plans; equipment failures; industrial accidents; natural phenomena; encountering unusual or unexpected geological conditions; changes in power costs and potential power shortages; exchange rate and commodity price fluctuations; shortages of principal supplies needed for development and operations; labor shortages or strikes; high rates of inflation; civil disobedience, protests and acts of civil unrest or terrorism, applicable taxes and restrictions or regulations imposed by governmental or regulatory authorities or other changes in the regulatory environments. Failure to achieve estimates or material increases in costs could have a material adverse impact on our future cash flows, profitability, results of operations and financial condition. +12 +Table of Contents +Equipment failures, natural disasters including severe weather, terrorist acts, acts of war, cyberattacks or other breaches of network systems or security that affect computer systems within our network could lead to disruptions in our business functions. +Equipment failures, natural disasters including severe weather, terrorist acts, acts of war, cyberattacks or other breaches of network systems or security that affect computer systems within our network could disrupt our business functions, including our exploration and any future production activities. The mining industry has become increasingly dependent on digital technologies. We rely on digital technologies to conduct certain exploration and other activities. The mining industry faces various security threats, including cybersecurity threats. Such attacks are increasing and include malicious software, attempts to gain unauthorized access to data and other electronic security breaches that could lead to disruptions to critical systems, unauthorized release of confidential information and corruption of data. A cyberattack could negatively impact our operations. A corruption of Company’s financial or operational data or an operational disruption could, among other potential impacts, result in: (i) distraction of management; (ii) damage to our reputation or our relationship with customers, vendors employees and joint venture partners; or (iii) events of noncompliance, which events could lead to regulatory fines or penalties. Any of the foregoing could have a material adverse impact on our reputation, business, results of operations and financial condition. +Although to date we have not experienced any material losses relating to cyber-attacks or other information security breaches, there can be no assurance that we will not incur such losses in the future. Our risk and exposure to these matters cannot be fully mitigated because of, among other things, the evolving nature of these threats. As a result, cybersecurity and the continued development and enhancement of controls, processes and practices designed to protect systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority. As cyber threats continue to evolve, we may be required to expend additional resources to continue to modify or enhance protective measures or to investigate and remediate any security vulnerabilities. +We are subject to taxation both in Canada and the United States, which could have a material adverse effect on our business, financial condition and results of operations. +Although we are a Canadian corporation, we are also classified as a U.S. domestic corporation for United States federal income tax purposes under Section 7874(b) of the U.S. Tax Code and are subject to United States federal income tax on our worldwide income. However, for Canadian tax purposes, regardless of any application of Section 7874 of the U.S. Tax Code, we are treated as a Canadian resident corporation. As a result, we are subject to taxation both in Canada and the United States, which could have a material adverse effect on our business, financial condition and results of operations. +No dividends on the subordinate voting shares have been paid by us to date. Investors in our securities cannot expect to receive a dividend on their investment in the foreseeable future, if at all. +If we were to pay a dividend, dividends received by holders who are residents of Canada for purposes of the Tax Act and not “U.S. persons” for U.S. federal income tax purposes will generally be subject to U.S. withholding tax at a 30% rate or such lower rate as provided in an applicable tax treaty. In addition, a Canadian foreign tax credit or deduction may not be available under the Tax Act in respect of such taxes. +Dividends received by U.S. persons for U.S. federal income tax purposes will not be subject to U.S. withholding tax but will be subject to Canadian withholding tax under the Tax Act. Dividends paid by us will be characterized as U.S. source income for purposes of the foreign tax credit rules under the U.S. Tax Code. Accordingly, U.S. holders generally will not be able to claim a credit for any Canadian tax withheld unless, depending on the circumstances, they have an excess foreign tax credit limitation due to other foreign source income that is subject to a low or zero rate of foreign tax. +Dividends received by persons that are neither Canadian residents for applicable Canadian tax purposes nor U.S. persons for U.S. federal income tax purposes will generally be subject to U.S. withholding tax and will also be subject to Canadian withholding tax. These dividends may not qualify for a reduced rate of U.S. withholding tax under any income tax treaty otherwise applicable to the recipient, subject to examination of the relevant treaty. +Since we are classified as a U.S. domestic corporation for United States federal income tax purposes under Section 7874(b) of the U.S. Tax Code, the subordinate voting shares will be treated as shares of a U.S. domestic corporation and holders thereof will be subject to the relevant provisions of the U.S. Tax Code and/or the Treaty (as defined below). As a result, the United States gift, estate and generation-skipping transfer tax rules generally apply to a non-U.S. holder of Units, subordinate voting shares or warrants. +13 +Table of Contents +EACH INVESTOR SHOULD SEEK TAX ADVICE, BASED ON SUCH INVESTOR’S PARTICULAR FACTS AND CIRCUMSTANCES, FROM SUCH INVESTOR’S OWN TAX ADVISORS, INCLUDING, WITHOUT LIMITATION, IN CONNECTION WITH OUR CLASSIFICATION AS A U.S. DOMESTIC CORPORATION FOR UNITED STATES FEDERAL INCOME TAX PURPOSES UNDER SECTION 7874(b) OF THE U.S. TAX CODE, THE APPLICATION OF THE U.S. TAX CODE, THE APPLICATION OF THE TREATY, THE APPLICATION OF U.S. FEDERAL ESTATE AND GIFT TAXES, THE APPLICATION OF U.S. FEDERAL TAX WITHHOLDING REQUIREMENTS AND THE APPLICATION OF U.S. TAX RETURN FILING REQUIREMENTS. +There are uncertainties as to title matters in the mining industry, and any defects in title could cause us to lose rights in our mineral properties and jeopardize our business operations. +There are uncertainties as to title matters in the mining industry. Any defects in title could cause us to lose rights in our mineral properties and jeopardize our business operations. Our mineral properties currently consist of mining claims located on lands administered by Alaska Department of Natural Resources to which we only have possessory title. Because title to mining claims is subject to inherent uncertainties, it is difficult to determine conclusively ownership of such claims. These uncertainties relate to such things as sufficiency of mineral discovery, proper location and posting and marking of boundaries, proper and timely payment of annual claim maintenance fees, the existence and terms of royalties, and possible conflicts with other claims not determinable from descriptions of record. +The present status of our mining claims located on public lands allows us the right to mine and remove valuable minerals, such as precious and base metals, from the claims conditioned upon applicable environmental reviews and permitting programs. We are also allowed to use the surface of the land solely for purposes related to mining and processing the mineral-bearing ores. However, legal ownership of the land remains with the State of Alaska. We remain at risk that the mining claims may be forfeited either to the State of Alaska or to rival private claimants due to failure to comply with statutory requirements. +Title on mineral properties and mining rights involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyance history of many mining properties. +We currently do not, and, in the future, do not expect to maintain insurance against title. Title on mineral properties and mining rights involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyance history of many mining properties. Although, with the assistance of legal counsel, we have diligently investigated, and will continue to conduct such investigations going forward as to, title to our mineral claims, we cannot give any assurance that title to properties we acquired individually or through historical share acquisitions will not be impugned and cannot guarantee that we will have or acquire valid title to mining properties. We also may not have, or may not be able to obtain, all necessary surface rights to develop a property. Failure by us to retain title or the necessary surface rights to the properties could have a material adverse effect on us and the value of the subordinate voting shares. +There are risks that title to our properties may be challenged or impugned. Most of our properties are located in Alaska and may be subject to prior unrecorded agreements or transfers or native land claims and title may be affected by undetected defects. There may be valid challenges to the title of such properties which, if successful, could impair development and/or operations. +Mining claims are unique property interests, and are generally considered to be subject to greater title risk than other real property interests because the validity of mining claims is often uncertain. This uncertainty arises, in part, out of the complex federal and state laws and regulations under the General Mining Law. Also mining claims are always subject to possible challenges by third parties. The validity of an mining or mill site claim, in terms of both our location and our maintenance, is dependent on strict compliance with a complex body of state statutory and decisional law. In addition, there are few public records that definitively determine the issues of validity and ownership of mining claims. +We will also be required to make annual claim maintenance payments to Alaska Department of Natural Resources in order to maintain our rights to explore and, if warranted, to develop our mining claims. If we fail to meet these obligations, we will lose the right to explore for minerals on those properties. +14 +Table of Contents +The title to our mineral property interests may be challenged. +There may be challenges to title to the mineral properties in which we hold a material interest. If there are title defects with respect to any properties, we might be required to compensate other persons or perhaps reduce our interest in the affected property. Furthermore, in any such case, the investigation and resolution of any such issues would divert our management’s time from ongoing exploration and development programs, which could have a material adverse impact on our business, financial condition and results of operations. +Joan Marrs or Christopher Marrs may have the ability to influence the outcome of matters submitted to our shareholders for approval, which could include the election and removal of directors, amendments to our corporate governing documents and business combinations. +Joan Marrs (Vice President - Administration) and Christopher Marrs (a director and the CEO of our business) hold, directly or indirectly, approximately 14% of the voting power of our issued and outstanding shares. As a result, Joan Marrs or Christopher Marrs may have the ability to strongly influence the outcome of matters submitted to our shareholders for approval, which could include the election and removal of directors, amendments to our corporate governing documents and business combinations. Our interests and those of Joan Marrs and Christopher Marrs may at times conflict, and any such conflict might be resolved against our interests. The concentration of approximately 14% of the voting power in the hands of these two shareholders may discourage an unsolicited bid for the subordinate voting shares, which may adversely impact the value and trading price of the subordinate voting shares. +The estimation of mineral resources may be materially affected by environmental, permitting, legal, title, taxation, socio- political, marketing, or other relevant issues. +Mineral resource estimates are based upon estimates made by our personnel and independent geologists. These estimates are inherently subject to uncertainty and are based on geological interpretations and inferences drawn from drilling results and sampling analyses and may require revisions based on further exploration or development work. The estimation of mineral resources may be materially affected by environmental, permitting, legal, title, taxation, socio-political, marketing, or other relevant issues. Inferred resources are resources for which there has been insufficient exploration to define as an indicated or measured mineral resource and it is uncertain if further exploration will result in upgrading them to an indicated or measured mineral resource category. +The grade of mineralization that may ultimately be mined may differ from that indicated by drilling results and such differences could be material. The quantity and resulting valuation of mineral reserves and mineral resources may also vary depending on, among other things, mineral prices (which may render mineral reserves and mineral resources uneconomic), cut-off grades applied and estimates of future operating costs (which may be inaccurate). Production can be affected by such factors as permitting regulations and requirements, weather, environmental factors, unforeseen technical difficulties, unusual or unexpected geological formations and work interruptions. Any material change in quantity of mineral resources, mineral reserves, grade, or stripping ratio may also affect the economic viability of any project undertaken by us. In addition, there can be no assurance that mineral recoveries in small scale, and/or pilot laboratory tests will be duplicated in a larger scale test under on-site conditions or during production. +There is no certainty that any of the mineral resources identified on any of our properties will be realized, that any mineral resources will ever be upgraded to mineral reserves, that any anticipated level of recovery of minerals will in fact be realized, or that an identified mineral reserve or mineral resource will ever qualify as a commercially mineable (or viable) deposit which can be legally and economically exploited. Until a deposit is actually mined and processed, the quantity of mineral resources and mineral reserves and grades must be considered as estimates only. +Our business is subject to a number of risks, and such occurrences may result in damage to mineral properties or production facilities. +Our business is subject to a number of risks and hazards generally, including adverse environmental conditions, industrial accidents, labor disputes, unusual or unexpected geological conditions, ground or slope failures, cave-ins, changes in the regulatory environment, natural phenomena such as inclement weather conditions, floods and earthquakes. Such occurrences could result in damage to mineral properties or production facilities, personal injury or death, environmental damage to our properties or the properties of others, delays in the ability to undertake exploration, monetary losses and possible legal liability. +15 +Table of Contents +Although we may maintain insurance to protect against certain risks in such amounts as we consider to be reasonable, our insurance will not cover all the potential risks associated with our mining operations. It is not always possible to fully insure against such risks and, even where such insurance is available we may decide to not take out insurance against such risks. We may also be unable to maintain insurance to cover these risks at economically feasible premiums. Insurance coverage may not continue to be available or may not be adequate to cover any resulting liability. Moreover, insurance against risks such as environmental pollution or other hazards as a result of exploration and production is not generally available to us or to other companies in the mining industry on acceptable terms. We might also become subject to liability for pollution or other hazards which we may not be insured against or which we may elect not to insure against because of premium costs or other reasons. Losses from these events may cause us to incur significant costs that could have a material adverse effect upon our financial performance and results of operations. +ASUS is not currently covered by any form of environmental liability insurance, or political risk insurance, since insurance against such risks (including liability for pollution) may be prohibitively expensive. Should such liabilities arise, they could reduce or eliminate any future profitability and result in increasing costs and a decline in the value of our subordinate voting shares. We may have to suspend operations or take cost interim compliance measures if we are unable to fully fund the cost of remedying an environmental problem, if it occurs. +We do not insure against all of the risks we face in our operations. +We do not maintain insurance to cover all the potential risks and hazards associated with our operations. We may be subject to liability for environmental, pollution or other hazards associated with our exploration, pre-extraction, and extraction activities, which we may not be insured against, which may exceed the limits of our insurance coverage or which we may elect not to insure against because of high premiums or other reasons. Furthermore, we cannot provide assurance that any insurance coverage we currently have will continue to be available at reasonable premiums or that such insurance will adequately cover any resulting liability. +Our operations rely on adequate infrastructure and without reliable infrastructure, our capital and operating costs may be affected. +Mining, processing, development and exploration activities depend, to one degree or another, on adequate infrastructure. Reliable roads, bridges, power sources and water supply are important determinants, which affect capital and operating costs. Unusual or infrequent weather phenomena, sabotage, government or other interference in the maintenance or provision of such infrastructure could adversely affect our business, financial condition and results of operations. +The occurrence of a significant event that disrupts the production of mineral resources at our properties and the subsequent sale thereof for an extended period could have a material negative impact on our business, financial condition and results of operations. +The occurrence of a significant event which disrupts the production of mineral resources at our properties and the subsequent sale thereof for an extended period, could have a material negative impact on our business, financial condition and results of operations. The mining industry is subject to natural events including fires, adverse weather conditions, earthquakes and other similar events that are unforeseeable, irresistible and beyond our control. The occurrence of any one of these events could have a material adverse effect on our business and financial condition. +We may experience an inability to attract or retain qualified personnel. +Our success depends to a large degree upon our ability to attract, retain and train key management personnel, as well as other technical personnel. If we are not successful in retaining or attracting such personnel, our business may be adversely affected. Furthermore, the loss of our key management personnel could materially and adversely affect our business and operations. +As our business becomes more established, we will also be required to recruit additional qualified key financial, administrative, operations and marketing personnel. There will be no guarantee that we will be able to attract and keep such qualified personnel, and, if we are not successful, it could have a material and adverse effect on our business and results from operations. +16 +Table of Contents +Our operations also depend on the timely maintenance, upgrade and replacement of networks, equipment, IT systems and software, as well as pre-emptive expenses to mitigate the risks of failures and any of these events could result in information system failures, delays and/or increase in capital expenses. +Our operations depend, in part, on how well we and our suppliers protect networks, equipment, IT systems and software against damage from a number of threats, including, but not limited to, cable cuts, damage to physical plants, natural disasters, terrorism, fire, power loss, hacking, computer viruses, vandalism and theft. Our operations also depend on the timely maintenance, upgrade and replacement of networks, equipment, IT systems and software, as well as pre-emptive expenses to mitigate the risks of failures. Any of these and other events could result in information system failures, delays and/or increase in capital expenses. The failure of information systems or a component of information systems could, depending on the nature of any such failure, adversely impact our reputation, business, financial condition and results of operations. +We are subject to and required to disclose mineral resources and mineral reserves in accordance with Canadian National Instrument 43-101 Standards of Disclosure for Mineral Projects, or “NI 43-101” and analogous disclosure requirements under S-K 1300 rules, which may result in increased compliance costs. +We have adopted the mining disclosure standards of S-K 1300. We are also subject to Canadian reporting requirements, and, while the S-K 1300 rules are similar to the NI 43-101 rules in Canada, they are not identical and therefore two reports have been produced for the Illinois Creek project. Any revisions to, or interpretations of, S-K 1300 or NI 43-101 could result in us incurring additional costs associated with compliance with those disclosure obligations, both in the U.S. and in Canada. +Risks Related to Government Regulation and Disputes +If we are required to compensate anybody suffering loss or damage from our mining activities, or if we become subject to fines or penalties for violations of law, it could lead to costs, delays and suspensions that may negatively affect our business. +Parties engaged in mining operations or in the exploration or development of mineral properties may be required to compensate those suffering loss or damage by reason of the mining activities and may be subject to civil or criminal fines or penalties imposed for violations of applicable laws or regulations. Any such penalties, fines, sanctions or shutdowns could have a material adverse effect on our business, financial condition and results of operations. +Legislation has been proposed, if enacted, that could significantly affect the mining industry and our business. +Members of the United States Congress have repeatedly introduced bills that would supplant or alter the provisions of the General Mining Law. If enacted, such legislation could change the cost of holding unpatented mining claims and could significantly impact our ability to develop mineralized material on unpatented mining claims. Such bills have proposed, among other things, to either eliminate or greatly limit the right to a mineral patent and to impose a federal royalty on production from unpatented mining claims. Although we cannot predict what legislated royalties might be, the enactment of these proposed bills could adversely affect the potential for development of unpatented mining claims and the economics of existing operating mines on federal unpatented mining claims. Passage of such legislation could adversely affect our financial performance. +Procedures for identifying, isolating and safely removing or reducing impurities or toxic substances from minerals we mine may require strict adherence, and no assurance can be given that employees, contractors or others will not be exposed to or be affected by such impurities and toxic substances, which may subject us to liability. +Mineral ores and mineral products, including gold, silver, zinc and gallium ore, contain naturally occurring impurities and toxic substances. Although we have implemented procedures that are designed to identify, isolate and safely remove or reduce such impurities and substances, such procedures require strict adherence and no assurance can be given that employees, contractors or others will not be exposed to or be affected by such impurities and toxic substances, which may subject us to liability. Standard operating procedures may not identify, isolate and safely remove or reduce such substances. Laws, rules and regulations requiring downstream users of chemical substances, including metals and minerals, to establish that the substances can be handled and used without negatively affecting health or the environment may impact our operations and markets. These potential compliance costs, litigation expenses, regulatory delays, remediation expenses and operational costs could negatively affect our financial results. +17 +Table of Contents +We are subject to extensive laws and regulations. +Mining activities are subject to extensive laws and regulations governing prospecting, development, production, exports, taxes, labor standards, occupational health and safety, water disposal, toxic substances, explosives, management of natural resources, environmental management and protection, mine safety, dealings with native groups, historic and cultural preservation and other matters. Compliance with such laws and regulations increases the costs of planning, designing, drilling, developing, construction, operating and closing mines and other facilities. Compliance with environmental regulations may require significant capital outlays on behalf of our business and may cause material changes or delays in our intended activities. Any breaches of environmental laws could materially and adversely affect us. Failure to comply with applicable laws and regulations may result in civil or criminal fines or penalties or enforcement actions, including orders issued by regulatory or judicial authorities enjoining or curtailing operations, requiring corrective measures or other remedial actions, any of which could result in our incurring significant expenditures. We may be subject to potential legal claims which, if determined adversely to us, could have a material effect on us and/or our financial condition. We may be required to compensate persons suffering loss or damage as a result of any infringement of applicable laws or regulations. +We may also be required to obtain certain other property rights to access, or use, certain of our properties in order to proceed with mining activities. There can be no assurance that all licenses, permits or property rights which we may require for any exploration or development of mining operations will be obtainable on reasonable terms or in a timely manner, or at all, that such terms will not be adversely changed, that required extensions will be granted, or that the issuance of such licenses, permits or property rights will not be challenged by third parties. Delays in obtaining or a failure to obtain such licenses, permits or property rights or extension thereto, challenges to the issuance of such licenses, permits or property rights, whether successful or unsuccessful, changes to the terms of such licenses, permits or property rights, or a failure to comply with the terms of any such licenses, permits or property rights that we have obtained, could have a material adverse effect on us by delaying or preventing or making more expensive exploration, development and/or production. +We have never completed a mining development project and have not generated any revenues from production. The future development of properties found to be economically feasible will require the construction and operation of mines, processing plants and related infrastructure and we do not have any experience in taking a mining project to production. As a result of these factors, it is difficult to evaluate our prospects, and our future success is more uncertain than if it had a more proven history. In addition, we are and will continue to be subject to all the risks associated with establishing new mining operations, including: the timing and cost, which can be considerable, of the construction of mining and processing facilities; the availability and cost of skilled labor and mining equipment; the need to obtain necessary environmental and other governmental approvals and permits and the timing of the receipt of those approvals and permits; the availability of funds to finance construction and development activities; potential opposition from non-governmental organizations, indigenous peoples, environmental groups or local groups which may delay or prevent development activities; and potential increases in construction and operating costs due to changes in the costs of fuel, power, materials and supplies. +It is common in new mining operations to experience unexpected costs, problems and delays during construction, development and mine start-up. In addition, delays in the early stages of mineral production often occur. Accordingly, we cannot provide assurance that our activities will result in profitable mining operations at our mineral properties. +Our operations are subject to various health and safety laws and regulations, and the costs associated with the compliance with such health and safety laws and regulations may be substantial. +Our operations are subject to various health and safety laws and regulations that impose various duties on our operations relating to, among other things, worker safety and obligations in respect of surrounding communities. These laws and regulations also grant the relevant authorities broad powers to, among other things, close unsafe operations and order corrective action relating to health and safety matters. The costs associated with the compliance with such health and safety laws and regulations may be substantial and any amendments to such laws and regulations, or more stringent implementation thereof, could cause additional expenditure or impose restrictions on, or suspensions of, our operations. We expect to make significant expenditure to comply with the extensive laws and regulations governing the protection of the environment, waste disposal, worker safety, mine development and protection of endangered and other special status species, and, to the extent reasonably practicable, to create social and economic benefit in the surrounding communities near our mineral properties. +18 +Table of Contents +The cost of compliance with changes in government regulations has the potential to reduce the profitability of operations. +When we commence development and mining operations, our operations will become subject to extensive federal, state and local laws and regulations governing environmental protection and employee health and safety. Environmental legislation is evolving in a manner that is creating stricter standards, while enforcement, fines and penalties for non-compliance are also increasingly stringent. The cost of compliance with changes in government regulations has the potential to reduce the profitability of operations. Further, any failure by us to comply fully with all applicable laws and regulations could have significant adverse effects on us, including the suspension or cessation of operations. All phases of our operations in Alaska will be subject to extensive federal and state environmental regulation, including: +· +Comprehensive Environmental, Response, Compensation, and Liability Act (“CERCLA”); +· +The Federal Resource Conservation and Recovery Act (the “RCRA”); +· +The Clean Air Act; +· +The National Environmental Policy Act (“NEPA”): +· +The Clean Water Act (the “CWA”); +· +The Safe Drinking Water Act (the “SDWA”); and +· +The Endangered Species Act. +The CERCLA, and comparable state statutes, impose strict, joint and several liabilities on current and former owners and operators of sites and on persons who disposed of or arranged for the disposal of hazardous substances found at such sites. It is not uncommon for the government to file claims requiring cleanup actions, demands for reimbursement for government-incurred cleanup costs, or natural resource damages, or for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by hazardous substances released into the environment. The RCRA, and comparable state statutes, govern the disposal of solid waste and hazardous waste and authorize the imposition of substantial fines and penalties for noncompliance, as well as requirements for corrective actions. CERCLA, RCRA and comparable state statutes can impose liability for clean-up of sites and disposal of substances found on exploration, mining and processing sites long after activities on such sites have been completed +The Clean Air Act, as amended, restricts the emission of air pollutants from many sources, including mining and processing activities. Our mining operations may produce air emissions, including fugitive dust and other air pollutants from stationary equipment, storage facilities and the use of mobile sources such as trucks and heavy construction equipment, which are subject to review, monitoring and/or control requirements under the Clean Air Act and state air quality laws. New facilities may be required to obtain permits before work can begin, and existing facilities may be required to incur capital costs in order to remain in compliance. In addition, permitting rules may impose limitations on our production levels or result in additional capital expenditures in order to comply with the rules. +NEPA requires federal agencies to integrate environmental considerations into their decision-making processes by evaluating the environmental impacts of their proposed actions, including issuance of permits to mining facilities, and assessing alternatives to those actions. If a proposed action could significantly affect the environment, the agency must prepare a detailed statement known as an EIS. The EPA, other federal agencies, and any interested third parties will review and comment on the scoping of the EIS and the adequacy of and findings set forth in the Draft and Final EIS. This process can cause delays in issuance of required permits or result in changes to a project to mitigate our potential environmental impacts, which can in turn impact the economic feasibility of a proposed project. +19 +Table of Contents +The CWA is a federal law where the permitting authority for some permits has been delegated to the State of Alaska Department of Environmental Conservation. The statutes impose restrictions and controls on the discharge of pollutants into waters of the United States. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the EPA or an analogous state agency. The CWA can also regulate storm water from mining facilities and require a storm water discharge permit for certain activities. Such a permit requires the regulated facility to monitor and sample storm water run-off from our operations. The CWA and regulations implemented thereunder also prohibit discharges of dredged and fill materials in wetlands and other waters of the United States unless authorized by the US Army Corps of Engineers an appropriately issued 404 permit. The CWA and comparable state statutes provide for civil, criminal and administrative penalties for unauthorized discharges of pollutants and impose liability on parties responsible for those discharges for the costs of cleaning up any environmental damage caused by the release and for natural resource damages resulting from the release. +SDWA and the UIC program promulgated thereunder, regulate the drilling and operation of subsurface injection wells. The EPA directly administers the UIC program in some states and in others, the responsibility for the program has been delegated to the state. The program requires that a permit be obtained before drilling a disposal or injection well. Violation of these regulations and/or contamination of groundwater by mining related activities may result in fines, penalties, and remediation costs, among other sanctions and liabilities under the SWDA and state laws. In addition, third party claims may be filed by landowners and other parties claiming damages for alternative water supplies, property damages, and bodily injury. +There can be no assurance that future changes in environmental regulation, if any, will not adversely affect our operations. Environmental hazards may exist on the properties on which we hold interests which are unknown to us at present and which have been caused by previous or existing owners or operators of the properties. +We cannot give any assurances that breaches of environmental laws (whether inadvertent or not) or environmental pollution will not materially and adversely affect our financial condition. There can be no assurance that any future changes to environmental regulation, if any, will not adversely affect us. +Land reclamation requirements for our properties may require us to post bonds or other surety to guarantee the cost of post-reclamation mining, which add significant costs to our operations and delays in our projects. +Although variable depending on location and the governing authority, land reclamation requirements are generally imposed on mining and exploration companies in order to minimize long term effects of land disturbance, and to re- establish pre-mining or other acceptable land uses. Reclamation may include requirements to: +· +control dispersion of potentially deleterious effluents; +· +treat ground and surface water to non-degradation standards; and +· +reasonably re-establish pre-disturbance land forms and vegetation. +In Alaska, certain state and federal agencies require that mining operations on lands subject to its regulation obtain an approved plan of operations. On federal lands, this approval is subject to environmental impact evaluation under the National Environmental Policy Act. However, our property is on state land and a state Plan of Operations approval is not subject to NEPA. Mining companies must post a bond or other surety to guarantee the cost of post-mining reclamation. Cash collateral obligations to secure the bonds are typically required and may be increased by the Surety at any point in time up to the face value of the bond.. We plan to set up a provision for our reclamation obligations on properties, as appropriate. If we are required to carry out unanticipated reclamation work, our financial position could be adversely affected. Our mineral exploration operations are required to be covered by reclamation bonds deemed adequate by regulators to cover these risks, which may ultimately not be adequate for our operations. +20 +Table of Contents +We are subject to anti-corruption and anti-bribery laws and liable for any violations of such laws. +Our operations are governed by, and involve interactions with, many levels of the United States and Canadian government. We are required to comply with anti-corruption and anti-bribery laws, including the Canadian Criminal Code, and the Canadian Corruption of Foreign Public Officials Act , as well as the United States Foreign Corrupt Practices Act. In recent years, there has been a general increase in both the frequency of enforcement and the severity of penalties under such laws, resulting in greater scrutiny and punishment to companies convicted of violating anti-corruption and anti-bribery laws. Furthermore, we may be found liable for violations by not only our employees, but also by our contractors and third-party agents. The steps we take to mitigate such risks may not be effective in ensuring that we, our employees, contractors or third-party agents will comply strictly with such laws. If we were subject to an enforcement action or is found to be in violation of such laws, this may result in significant penalties, fines and/or sanctions imposed on us that may result in a material adverse effect on our reputation and results of our operations. +Any failure of any partner to meet its obligations to us or other third parties, or any disputes with respect to third parties’ respective rights and obligations, could have a material adverse effect on our rights under such agreements. +We may in the future enter into other option agreements and/or joint ventures as a means of acquiring property interests. Any failure of any partner to meet its obligations to us or other third parties, or any disputes with respect to third parties’ respective rights and obligations, could have a material adverse effect on our rights under such agreements. Furthermore, we may be unable to exert direct influence over strategic decisions made in respect of properties that are subject to the terms of these agreements, and the result may be a materially adverse impact on the strategic value of the underlying mineral claims. +Some of the lands in which we hold an interest, or the exploration equipment and roads or other means of access which we intend to utilize in carrying out our work programs or general business mandates, may be subject to interests or claims by third party individuals, groups or companies. +Some of the lands in which we hold an interest, or the exploration equipment and roads or other means of access which we intend to utilize in carrying out our work programs or general business mandates, may be subject to interests or claims by third party individuals, groups or companies. In the event that such third parties assert any claims, our work programs may be delayed even if such claims are not meritorious. Such delays may result in significant financial loss and loss of opportunity for us. +Climate change and climate change regulations could have an adverse impact on our cost of operations. +Climate change could have an adverse impact on our cost of operations. The potential physical impacts of climate change on our operations are highly uncertain, and would be particular to the geographic circumstances in areas in which we operate. These may include changes in rainfall and storm patterns and intensities, water shortages, changing sea levels and changing temperatures. These changes in climate could have an impact on the cost of development of our properties and adversely affect the financial performance of our operations. +Regulations and pending legislation governing issues involving climate change could result in increased operating costs, which could have a material adverse effect on the business of ours. A number of governments or government bodies have introduced or are contemplating regulatory changes in response to various climate change interest groups and the potential impact of climate change. Legislation and increased regulation regarding climate change could impose significant costs on us, our venture partners and our suppliers, including costs related to increased energy requirements, capital equipment, environmental monitoring and reporting and other costs to comply with such regulations. Any adopted future climate change regulations could also negatively impact our ability to compete with companies situated in areas not subject to such regulations. Given the emotion, political significance and uncertainty around the impact of climate change and how it should be dealt with, we cannot predict how legislation and regulation will affect our financial condition, operating performance and ability to compete. Furthermore, even without such regulation, increased awareness and any adverse publicity in the global marketplace about potential impacts on climate change by us or other companies in natural resources industry could harm our reputation. +21 +Table of Contents +Our Illinois Creek Property may face indigenous land claims. +Our Illinois Creek Property may in the future be the subject of indigenous land claims. The legal nature of land claims is a matter of considerable complexity. The impact of any such claim on our ownership interest in our properties cannot be predicted with any degree of certainty and no assurance can be given that a broad recognition of indigenous rights in the area in which our properties are located, by way of a negotiated settlement or judicial pronouncement, would not have an adverse effect on our operations. Even in the absence of such recognition, we may at some point be required to negotiate with and seek the approval of holders of such interests to facilitate exploration and development work on our properties, and there can be no assurance that we will be able to establish a practical working relationship with the indigenous groups in the area to allow us to ultimately develop the properties. +General Risks +Our relationships with the communities in which we operate are critical to the future success of our existing operations and the construction and development of our projects. +Our relationships with the communities in which we operate are critical to the future success of our existing operations and the construction and development of our projects. In recent years, there has been ongoing and potentially increasing public concern relating to the effects of resource extraction on the natural landscape, communities and the environment. Certain non-governmental organizations (“NGOs”) that oppose globalization and resource development can be vocal critics of the mining industry and our practices, including the use of cyanide and other hazardous substances in processing activities. In addition, there have been many instances in which local community groups have opposed resource extraction activities, resulting in disruption and delays to the relevant operations. Adverse publicity generated by such NGOs or others related to the mining industry, or to extractive industries generally, could have an adverse effect on our reputation or financial condition and may impact our relationship with the communities in which we operate. NGOs or local community groups could direct adverse publicity against and/or disrupt our operations in respect of one or more of our properties, despite our efforts to comply with and maintain social and environmental best practices. Any such actions and the resulting media coverage could have adverse effects on the reputation and financial condition of our business or our relationships with the communities in which we operate, which could have a material adverse effect on our business, financial condition and results of operations. +Our ability to successfully obtain key permits and approvals to explore for, develop and operate mines and to successfully operate in communities around the world will likely depend on our ability to develop, operate and close mines in a manner that is consistent with the creation of social and economic benefits in the surrounding communities, which may or may not be required by law at the applicable time. Operating our business in accordance with those objectives could increase capital and operating costs and, therefore could have an adverse impact upon our business, financial condition and results of operations. Although we strive to promote improvements in health and safety, human rights, environmental performance and community relations, our ability to operate could be adversely impacted by accidents or events detrimental (or perceived to be detrimental) to the health, safety and well-being of our employees, human rights, the environment or the communities in which we operate. +Public opinions may change, and opposition to mining projects could result in increased operating costs. +Given the emotion, political significance and uncertainty around the environmental consequences of mining on public land, we cannot predict how public opposition could affect legislation and regulation or how this might affect our financial condition, operating performance and ability to compete. Furthermore, even without such current opposition, increased awareness and any adverse publicity in the global marketplace about potential environmental impacts by us or other companies in the mining industry could harm our reputation. A poor reputation in the mining industry directly affects the ability of any mining company to obtain future permits, renew existing permits and/or obtain bonding instruments for the reclamation of mining projects. The realization of any of the forgoing may adversely impact the cost, production and financial performance of our operations. +22 +Table of Contents +The imposition of trade tariffs, particularly those issued by the U.S., or other trade restrictions could have significant repercussions for Canadian businesses, and the broader economy. +The imposition of trade tariffs, particularly those issued by the U.S., or other trade restrictions could have significant repercussions for Canadian businesses and the broader economy. Increased costs of goods and services may contribute to inflation. Higher consumer prices could reduce demand for Canadian goods, leading to a decline in exports which could in turn weaken Canadian Gross Domestic Product, slow economic growth, and increase unemployment. There continues to exist significant uncertainty about the future relationship between the U.S. and other countries with respect to such trade policies, treaties and tariffs. These developments, or the perception that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between the impacted nations and the U.S. Overall, trade policy restrictions create financial uncertainty for companies, disrupt trade relationships, and put downward pressure on economic growth. +For example, raw material costs are impacted by governmental actions, such as tariffs and trade sanctions. The imposition by the U.S. government of tariffs on products imported from certain countries and trade sanctions against certain countries have introduced greater uncertainty with respect to policies affecting trade between the U.S. and other countries and have impacted the cost of certain raw materials. +Our development will depend on the efforts of key management and other key personnel, and any future loss of any of those people could have a material adverse effect on our business. +Our development will depend on the efforts of key management and other key personnel. Loss of any of those people, particularly to competitors, could have a material adverse effect on our business. Further, with respect to future development of our projects, it may become necessary to attract both international and local personnel for such development. The marketplace for key skilled personnel is becoming more competitive, which means the cost of hiring, training and retaining such personnel may increase. Factors outside our control, including competition for human capital and the high level of technical expertise and experience required to execute this development, will affect our ability to employ the specific personnel required. Due to our relatively small size, the failure to retain or attract a sufficient number of key skilled personnel could have a material adverse effect on our business, results of future operations and financial condition. We do not intend to take out ‘key person’ insurance in respect of any directors, officers or other employees. +Certain of our directors and officers also serve as directors and/or officers of other companies involved in natural resource exploration and development, which may give rise to perceived or actual conflicts of interest. +Certain of our directors and officers also serve as directors and/or officers of other companies involved in natural resource exploration and development, which may give rise to perceived or actual conflicts of interest, including decisions relating to pursuing business opportunities, negotiating agreements, or resolving disputes. In addition, our organizational documents and corporate policies do not prohibit our directors, officers, or shareholders from engaging in other business activities, including activities that may compete with us. In the event that a conflict arises, pursuant to the BCBCA, the affected director or officer must disclose the potential conflict or interest in a transaction and then recuse themselves from (and not vote on any) decisions related to the matter from which the conflict arose. +We may be subject to litigation which may materially affect our business. +We may become involved in disputes with other parties in the future which may result in litigation. The results of litigation cannot be predicted with certainty. If we are unable to resolve these disputes favorably, it may have a material adverse impact on our business, financial condition, and results of operations. +23 +Table of Contents +Risks Related to Our Securities +Due to the absence of an established trading market in the U.S. for our securities, potential challenges may arise in selling our shares and broker-dealers may be prohibited or otherwise restricted under the laws of certain U.S. states from being involved in certain transactions involving our securities. +Our securities are currently traded on the OTCQX and the TSXV and are not currently traded on any United States national stock exchange such as The Nasdaq Stock Exchange Market LLC or New York Stock Exchange (NYSE). The demand for our subordinate voting shares in the United States is limited. Because the OTCQX is a quotation service for subscribing members, not an issuer listing service, only market makers can apply to quote securities. There can be no assurance that a market maker will provide quotations for our subordinate voting shares on the OTCQX or, if a market maker provides such quotations, will continue to provide them. If a market maker does not, or ceases to, make a market in our subordinate voting shares, then the liquidity of our subordinate voting shares will be adversely affected, which could result in a situation where realizing any benefit from the investment or liquidating our subordinate voting shares becomes difficult or delayed, if at all possible. +In addition, because we do not intend, now or at any point in the foreseeable future, to list our subordinated voting shares on a U.S. national securities exchange, broker-dealers may not be able to recommend or discuss transactions involving our subordinated voting shares in certain U.S. states, which may adversely affect the market for and liquidity of our subordinated voting shares. +The market price for our subordinate voting shares may be volatile, which could contribute to the loss of all or part of your investment. +The trading price of our subordinate voting shares following is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. +Some of the factors that could negatively affect or result in fluctuations in the market price of our subordinate voting shares include: +· +actual or anticipated fluctuations in our financial conditions and results of operations; +· +the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; +· +announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, results of operations or capital commitments; +· +anticipated or actual changes in laws, regulations or government policies applicable to our business; +· +lawsuits threatened or filed against us; +· +price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; and +· +other factors described in this section of this prospectus titled “ Risk Factors ” and in “ Forward-Looking Statements. ” +Any of the factors listed above could materially and adversely affect your investment in our subordinate voting shares, which could contribute to a loss of all or part of your investment. In such circumstances the trading price of our subordinate voting shares may not recover and may experience a further decline. +In addition, broad market and industry factors could materially adversely affect the market price of our subordinate voting shares, irrespective of our operating performance. The stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of ours, may not be predictable. A loss of investor confidence in our industry or the stocks of other companies that investors perceive to be similar to us, the opportunities in Alaska or the stock market in general could depress our share price regardless of our business, financial condition, results of operations or growth prospects. +24 +Table of Contents +Our subordinate voting shareholders will experience dilution in the future upon any exercise of outstanding warrants and finder warrants. +As described under “ Description of Securities ” in this prospectus, we have issued and outstanding warrants and finder warrants that are exercisable for our common shares. If the warrants and finder warrants are exercised, our subordinate voting shareholders will experience significant dilution and there will be a dilutive effect on our earnings per share, which could adversely affect the market price of subordinate voting shares. +Our dual class structure may adversely affect the trading market for our subordinate voting shares. +We have adopted a dual class structure with different voting rights, and such dual class share structure may result in a lower or more volatile market price of our subordinate voting shares. Our dual class share structure is comprised of subordinate voting shares and proportionate voting shares. In respect of matters requiring the votes of shareholders, each subordinate voting share is entitled to one vote, and each proportionate voting share is entitled to 100 votes. Only the subordinate voting shares are traded on the TSXV and on the OTCQX. As of the date of this filing, there were zero proportionate voting shares outstanding. +We cannot predict whether our dual class structure will result in a lower or more volatile market price of our subordinate voting shares, adverse publicity, or other adverse consequences. Certain stock index providers exclude or limit the ability of companies with multi-class share structures from being added to certain of their indices. In addition, most shareholder advisory firms and many large institutional investors oppose the use of multiple class structures. As a result, our dual class structure may make us ineligible for inclusion in certain indices and may discourage other indices from selecting us for inclusion. Our dual class structure may also cause shareholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure and may result in large institutional investors not purchasing our subordinate voting shares. Given the sustained flow of investment funds into passive strategies that seek to track certain indices, any exclusion from certain stock indices could result in less demand for our subordinate voting shares. Any actions or publications by shareholder advisory firms or institutional investors critical of our corporate governance practices or capital structure could also adversely affect the value of our subordinate voting shares. +The price of our securities, including our subordinate voting shares, our financial results, and our access to the capital required to finance our exploration activities may in the future be adversely affected by short-term changes or declines in the price of precious and base metals. +The price of our securities, our financial results, and our access to the capital required to finance our exploration activities has in the past, and may in the future, be adversely affected by declines in the price of precious and base metals. Securities of mining companies have experienced substantial volatility in the past, often based on factors unrelated to the financial performance or prospects of the companies involved. These factors include macroeconomic developments in North America and globally, market perceptions of the attractiveness of particular industries, the sale or purchase of precious metals by various dealers, central banks and financial institutions, interest rates, exchange rates, inflation or deflation, currency exchange fluctuation, global and regional supply and demand, production and consumption patterns, speculative activities, increased production due to improved mining and production methods, government regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals, environmental protection, and international political and economic trends, conditions and events. The price of the subordinate voting shares is also likely to be significantly affected by short-term changes in mineral prices or in our financial condition or results of operations as reflected in our quarterly earnings reports. Other factors unrelated to our performance that may have an effect on the price of the subordinate voting shares include the following: (i) the extent of analytical coverage available to investors concerning our business may be limited if investment banks with research capabilities do not follow our securities; (ii) lessening in trading volume and general market interest in our securities may affect an investor’s ability to trade significant numbers of subordinate voting shares; (iii) our subordinate voting shares being quoted on the OTCQX rather than a U.S. national securities exchange, which may have an unfavorable impact on our stock price and liquidity; (iv) the size of our public float may limit the ability of some institutions to invest in our securities; and (v) a substantial decline in the price of the subordinate voting shares that persists for a significant period of time could cause our securities, if listed on an exchange, to be delisted from such exchange, further reducing market liquidity. +25 +Table of Contents +A non-U.S. holder will likely be treated as having income that is “effectively connected” with a United States trade or business upon the sale or disposition of our subordinate voting shares or warrants unless (i) our subordinate voting shares are regularly traded on an established securities market and (ii) such non-U.S. holder did not meet certain ownership thresholds during the applicable testing period. +A non-U.S. holder of our Units, subordinate voting shares or warrants generally will incur U.S. federal income tax on any gain realized upon a sale or other disposition of our subordinate voting shares or warrants to the extent our subordinate voting shares or warrants constitute a “United States real property interest” (“USRPI”), under the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”). A USRPI includes stock in a “United States real property holding corporation” within the meaning of Section 897(c)(2) of the U.S. Tax Code (a “USRPHC”). We believe that we are currently and anticipate remaining for the foreseeable future a USRPHC for U.S. federal income tax purposes. +Under FIRPTA, a non-U.S. holder is taxed on any gain realized upon a sale or other disposition of a USRPI as if such gain were “effectively connected” with a United States trade or business of the non-U.S. holder. A non-U.S. holder thus will be taxed on such a gain at the same graduated rates generally applicable to U.S. persons. In addition, a non-U.S. holder will have to file a U.S. federal income tax return reporting that gain. +However, if the subordinate voting shares are regularly traded on an established securities market (the “Regularly Traded Exception”), then gains realized upon a sale or other disposition of the subordinate voting shares will not be treated as gains from the sale of a USRPI, as long as the non-U.S. holder was not a 5% Shareholder (as defined below under the heading “ Material United States Federal Income Tax Considerations ”). No assurance can be provided that our subordinate voting shares will be considered to be regularly traded for purposes of the Regularly Traded Exception. Accordingly, we can provide no assurances that the subordinate voting shares will meet the Regularly Traded Exception at the time a non-U.S. holder purchases such securities or sells, exchanges, or otherwise disposes of such securities. The foregoing summary is qualified in its entirety by the discussion contained herein under the heading “ Material United States Federal Income Tax Considerations .” Non-U.S. investors should consult their own tax advisors regarding the potential application of the FIRPTA regime to their investment in our Units. +Sales of a large number of subordinate voting shares in the public markets, or the potential for such sales, could decrease the trading price of the subordinate voting shares and could impair our ability to raise capital through future sales of subordinate voting shares. +Sales of a large number of subordinate voting shares in the public markets, or the potential for such sales, could decrease the trading price of the subordinate voting shares and could impair our ability to raise capital through future sales of subordinate voting shares. In particular, Joan Marrs and Christopher Marrs beneficially own, directly or indirectly, approximately 14% of the issued and outstanding subordinate voting shares and approximately 140% of the voting power of our issued and outstanding securities. If such shareholders decide to liquidate all or a significant portion of their positions, it could adversely affect the price of our subordinate voting shares. +Our subordinate voting shares are quoted on the OTCQX in U.S. dollars and will also be listed on the TSXV in Canadian dollars, which may result in price variations. +As our subordinate voting shares are quoted on the OTCQX, our subordinate voting shares are quoted in U.S. dollars and are also listed on the TSXV in Canadian dollars, which may result in price variations. Dual-listing in this way may result in price variations between the OTCQX and the TSXV due to a number of factors. Our subordinate voting shares would trade in U.S. dollars on the OTCQX and would trade in Canadian dollars on the TSXX. In addition, the markets have differing holiday schedules. Differences in the trading schedules, as well as volatility in the exchange rate of the two currencies, among other factors, may result in different trading prices for our subordinate voting shares on the OTCQX and the TSXV. +26 +Table of Contents +We may choose to raise capital through acquisitions or equity, resulting in dilution to existing shareholders. +From time to time, it can be expected that we will examine opportunities to acquire additional exploration and/or mining assets and businesses. Any acquisition that we may choose to complete may be of a significant size, may change the scale of our business and operations, and may expose us to new geographic, political, operating, financial and geological risks. Our success in our acquisition activities depends upon our ability to identify suitable acquisition candidates, negotiate acceptable terms for any such acquisition, and integrate the acquired operations successfully with those of our business. Any acquisitions would be accompanied by risks. In the event that we choose to raise debt capital to finance any such acquisitions, our leverage will be increased. If we choose to use equity as consideration for such acquisitions, existing shareholders, as well as warrant holders and holders of other securities exercisable or convertible for our subordinate voting shares, may suffer dilution. Alternatively, we may choose to finance any such acquisitions with our existing resources. There can be no assurance that we would be successful in overcoming these risks or any other problems encountered in connection with such acquisitions. +Since we do not currently plan to register our subordinate voting shares under Section 12 of the Exchange Act, our reporting obligations will be limited under Section 15(d) of the Exchange Act, which may result in reduced transparency for investors. +Currently, we do not intend to register our common stock under Section 12(g) of the Exchange Act. As a result, we will not be subject to the ongoing reporting requirements applicable to issuers with securities registered under Section 12 of the Exchange Act, including the comprehensive disclosure, proxy solicitation, and beneficial ownership reporting obligations that apply to Exchange Act reporting companies. Instead, we will only be required to comply with the more limited reporting obligations under Section 15(d) of the Exchange Act. Specifically, under Section 15(d), we will be required to file periodic reports, including annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, as long as our reporting obligations remain active. However, unlike a company registered under Section 12, we will not be subject to certain requirements of the Exchange Act, including the proxy solicitation rules under Section 14 of the Exchange Act, the insider reporting and short-swing profit rules under Section 16 of the Exchange Act and the corporate governance and disclosure requirements that may otherwise apply to companies with listed securities on a national securities exchange. +Additionally, our obligation to file reports under Section 15(d) may be automatically suspended for any fiscal year if, at the beginning of such year, we have fewer than 300 shareholders of record. If our reporting obligations are suspended, we may cease filing periodic reports, significantly reducing the amount of public information available about our company. +In light of our more limited reporting obligations, investors may have less information about our financial condition and business operations compared to companies that are registered under Section 12 of the Exchange Act, which could adversely impact investor confidence in us and the liquidity of subordinated voting shares. +No dividends on the subordinate voting shares have been paid by us to date, and we do not anticipate paying any dividends in the foreseeable future. +No dividends on the subordinate voting shares have been paid by us to date, and we currently intend to retain our future earnings, if any. Accordingly, investors in our securities should not expect to receive a dividend on their investment in the foreseeable future. As a result, capital appreciation, if any, of our subordinate voting shares will be investors’ sole source of potential gain for the foreseeable future. +We may be subject to securities litigation in the future. +The market price of our subordinate voting shares may be volatile. In the past, companies that have experienced volatility in the market price of their securities, particularly those whose securities are publicly traded in the U.S. where the risk of litigation is higher, have been subject to securities class action litigation. We may be the target of this type of litigation in the future, and our insurance coverage may not be sufficient or adequate to cover such claims. Any such litigation, regardless of its merit or outcome, could result in substantial costs, divert management’s attention and resources, and harm our reputation. In addition, an adverse outcome in any such litigation could result in significant monetary damages or injunctive relief against us, which could have a material adverse effect on our business, financial condition, results of operations, and prospects. There can be no assurance that we will not be subject to securities litigation in the future or that any such litigation would not have a material adverse impact on us. +27 +Table of Contents +As an “emerging growth company” under the JOBS Act, we are permitted to rely on exemptions from certain disclosure requirements. +We qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to: +· +Have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; +· +Provide an auditor attestation with respect to management’s report on the effectiveness of our internal controls over financial reporting; +· +Comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis); +· +Submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and +· +Disclose certain executive compensation related items such as the correlation between executive compensation and performance comparisons of the Chief Executive’s compensation to median employee compensation. +We will remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1,235 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1,235 billion in non-convertible debt during the preceding three year period. Even if we no longer qualify for the exemptions for an emerging growth company, we may still be, in certain circumstances, subject to scaled disclosure requirements as a smaller reporting company. For example, smaller reporting companies, like emerging growth companies, are not required to provide a compensation discussion and analysis under Item 402(b) of Regulation S-K or the auditor attestation of internal controls over financial reporting. +Until such time, however, we cannot predict if investors will find our subordinate voting shares less attractive because we may rely on these exemptions. If some investors find our subordinate voting shares less attractive as a result, there may be a less active trading market for our subordinate voting shares and the share price may be more volatile. +Changes in U.S. tax law may adversely impact certain investors, us and the value of the Units, subordinate voting shares and warrants. +Changes to U.S. tax laws (which changes may have retroactive application) could adversely affect us or holders of the Units, subordinate voting shares and warrants. +​ +Item 1B. Unresolved Staff Comments +None. +​ +Item 1C. Cybersecurity +Risk Management and Strategy +Due to the size of our company, we have not yet developed robust policies and processes for assessing, identifying, and managing material risk from cybersecurity threats. We have implemented access controls with respect to our systems , which we monitor regularly. We currently rely on products and services provided by third-party suppliers to operate certain critical business systems, including cloud-based infrastructure, encryption and authentication technology, email, and other functions. +28 +Table of Contents +We rely on third-party providers and outsourced IT services to monitor and address cybersecurity-related risks, including installing software for threat protection and malware. Such third-party providers are tasked with notifying management of any material risks or cybersecurity concerns that they identify, which management then assesses and may bring to our board of directors to discuss if deemed necessary or appropriate. +To date, we have not (to our knowledge) encountered cybersecurity challenges that have materially impaired our operations or financial standing . Our risk and exposure to these matters cannot be fully mitigated because of, among other things, the evolving nature of these threats. +Governance +Our management team is primarily responsible for assessing and managing our strategic risk exposures, including material risks from cybersecurity threats, with assistance from third-party service providers. Management oversees our cybersecurity process on a day-to-day basis. +Our audit committee is tasked with general oversight of our risk management process, including risks from cybersecurity threats. Members of management provide periodic briefings to the audit committee regarding our cybersecurity risks and activities. Our audit committee provides regular updates to the board of directors on such reports . +​ +Item 2. Properties +We have adopted the mining disclosure standards of S-K 1300. We subject to and required to disclose mineral resources and mineral reserves in accordance with S-K 1300. While the S-K 1300 rules are similar to NI 43-101, rules in Canada, they are not identical and therefore two reports have been produced for the Illinois Creek project. The disclosure in this report related to the Illinois Creek project is based on the S-K 1300 technical report summary entitled “S-K 1300 Technical Report Summary, Illinois Creek Project, Western Alaska, USA”, with an effective date of January 31, 2025 and a signature date of April 30, 2025, and prepared by Bruce Davis, Jack DiMarchi and Deepak Malhotra. Each of Bruce Davis, Jack DiMarchi and Deepak Malhotra is a qualified person within the meaning of S-K 1300 and NI 43-101 and is independent of us within the meaning of NI 43-101. The qualified persons are employed by Bruce Davis Consulting in the case of Bruce Davis, Core Geoscience LLC in the case of Jack DiMarchi, and DM Consulting in the case of Deepak Malhotra. None of the qualified persons or their employers is affiliated with us or any other entity that has an ownership, royalty or other interest in the Illinois Creek project. +Summary +We have interests in five properties in the Illinois Creek District. The Illinois Creek Property is the only property we consider material but we have several key mineral resource projects throughout Alaska. Mineral Resources at the Illinois Creek Property are located in two areas, Illinois Creek and Waterpump Creek. Illinois Creek Mineral Resources consist of Illinois Creek oxide gold-silver mineralization and leach heap pad material from the historical Illinois Creek mine. Mineral Resources at Waterpump Creek consist of near surface oxide lead-zinc-silver and deeper sulfide silver mineralization. See Figure 1.1 and Table 1-1 for our land holdings. +29 +Table of Contents +Figure 1.1: Land Holdings of Alaska Silver in the Illinois Creek Mining District +Table 1-1: Summary of Alaska Silver Lands +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Number +​ +​ +​ +​ +​ +​ +Owner +​ ​ ​ +Property +​ ​ ​ +of Claims +​ ​ ​ +Type +​ ​ ​ +Hectares +​ ​ ​ +Acres +WAC&G +Illinois Creek +247 +State Claims +15,993 +39,520 +​ +Round Top +88 +State Claims +5,698 +14,080 +​ +Honker +24 +State Claims +1,554 +3,840 +​ +Khotol Ridge +19 +State Claims +1,230 +3,040 +​ +Paw Print +18 +State Claims +1,165 +2,880 +Piek Inc. +Illinois Creek +40 +State Claims +2,590 +6,400 +​ +Upland Lease +1 +Upland Lease +4,506 +11,135 +Total +​ +​ +437 +​ +32,736 +80,895 +​ +Illinois Creek Project, Western Alaska, USA +The Illinois Creek Property is located in the southern Kaiyuh Mountains just east of the Yukon River in western Alaska, approximately 490 km west of Fairbanks, 52 km southeast of the village of Kaltag, and 85 km south-southwest of the community of Galena. The Property is in rural Alaska with no current road access or nearby power infrastructure. +The Illinois Creek mining district is characterized by intrusion related hydrothermal systems including porphyry copper/molybdenum/silver deposits (PCDs) and surrounding poly-metallic silver/zinc/lead/copper/gold carbonate replacement deposits (CRDs) along with distal low sulfidation precious-metal veins related to the porphyries. +30 +Table of Contents +In 2019, WACG began evaluation of the historical Illinois Creek oxide mineralization and completed a detailed review of the historical drilling data that led to development of the Illinois Creek Mine. This review led to the publishing of an Illinois Creek mineral resource on October 1, 2019. In 2019, WACG drilled three exploration diamond drill holes for a total of 365.8 meters at the West Illinois Creek Mag Anomaly. In 2020, WACG conducted extensive drilling of the leach pad as part of the corporate strategy to redevelop the oxide mine. A total of 73 reverse circulation drill holes for a total of 646.2 meters were completed on the leach pad. This program enabled the calculation of an indicated and inferred resource for the leach pad and an updated Illinois Creek mineral resource on February 2, 2021. The Illinois Creek Mine mineralization is a deeply weathered, massive sulfide body oxidized to as much as 400 m below the existing surface which contains exploitable Au/Ag/Cu mineralization. +In 2021, WACG began to explore not just for extensions to the Illinois Creek oxide gossan mineralization but made its initial test of sulfide mineralization at Waterpump Creek that had been discovered by Anaconda Minerals Company (Anaconda) in 1983. Drilling in 2021 first targeted oxide gossan mineralization and then drilled down dip of a number of historical Anaconda drill holes that had encountered high-grade sulfide Carbonate Replacement Deposit (CRD) style mineralization. Results from WPC21-09 returned 11.5 m of 522 g/t Ag, 22.5% Zn, and 14.8% Pb. The impact of this high-grade hole caused us to pivot our exploration strategy to focus on the sulfide potential of the Property at Waterpump Creek. In 2021, a total of 17 diamond drill holes for a total of 1,604 meters were completed. +Since 2021, a major reinterpretation of the Property geology has been ongoing using 1) a better understanding of CRD morphologies; 2) a multi-element inductively coupled plasma (ICP) soil database, which was substantially expanded in 2021 and 2022; 3) a reinterpretation and inversions of historical geophysical surveys; 4) a 2022 controlled source audio- magnetotellurics (CSAMT) and a 2023 three-dimensional (3D) resistivity and induced polarization (3DIP) geophysical surveys, undertaken to domain resistivity and chargeability at depth; and 5) ongoing drilling and mapping. +Drilling in 2022 and 2023 at Waterpump Creek has outlined a CRD containing massive to semi-massive sulfide mineralization dominated by coarse-grained sphalerite, argentiferous galena, and pyrite in recrystallized ferroan dolomite. Drilling to date has outlined a sulfide body approximately 495 m in strike length by 25 m to 75 m in width, and with thicknesses varying from 5 m to over 100 m. In 2022, a total of 32 diamond drill holes for a total of 8,842.9 meters were completed. In 2023, a total of 14 diamond drill holes for a total of 5,118.5 meters were completed. The 2021, 2022 and 2023 drill assay results were used to compile and publish an initial inferred mineral resource for Waterpump Creek on April 2, 2024 of 74.9 million silver equivalent (Ag Eq) ounces at a grade of 980 g/t Ag Eq. +In 2024 exploration focused on two targets, the LH target south of Waterpump Creek and the Warm Springs target located 1.5 km southeast of the Illinois Creek Mine. The LH drilling (four holes totaling 1,347 m) intersected a few gossanous breccia intervals, but no significant sulfide manto mineralization. This drilling, along with extensive trench mapping, shows that the LH mineralization is more likely vertically oriented and higher in the CRD system than Waterpump Creek and the high grade manto target is deeper than originally anticipated. Seven of nine drill holes targeting Warms Spring target for a total of 2,883 meters intersected multiple pulses of mineralization including massive to semi-massive pyrite associated with gold, copper, and local silver mineralization, recrystalized ankerite associated with sphalerite (zinc) and galena (lead) mineralization, and extensive gossan (oxide). The mineralization is hosted within an intense silicification and brecciation zone that is an order of magnitude greater in size of Waterpump Creek, thus defining a large CRD hydrothermal system. +The 2025 drill program comprised 2,057 m of drilling in four holes at the Waterpump Creek South Target, with WPC-35 which cut 5.9 m (core length) grading 38 g/t (1.2 oz/st) Ag and 12.1% Zn, including 3.2 m grading 67 g/t (2.1 oz/st) Ag and 16.9% Zn. In addition, 906.5 m of drilling in nine shallow scout holes was completed at the newly discovered high-grade silver-lead zone, Silver Sage, located approximately 4.8 km south of Waterpump Creek. Among these holes, SS25-04 cut 4.4 m (core length) reporting 148 g/t (4.8 oz/st) Ag; 0.68% Pb and 0.24% Zn, including 1 m grading 349 g/t (11.2 oz/st) Ag, 2.2% Pb, and 0.20% Zn. +Other Non-Material Properties +We hold number of other properties that we have determined are not material to our business, including the following properties which total in the aggregate approximately 23,840 acres of mineral claims: +● Honker Property, Western Alaska, USA. The Honker Property covers an area of approximately 3,840 acres and consists of 24 state mining claims. +● Round Top Property, Western Alaska, USA. The Round Top Property covers an area of approximately 14,080 acres and consists of 88 State of Alaska mining claims. +31 +Table of Contents +● Khotol Property, Western Alaska, USA. The Khotol Property covers an area of approximately 3,040 acres and consists of 19 state mining claims. +● Paw Print Property, Western Alaska, USA. The Paw Print Property covers an area of approximately 2,880 acres and consists of 18 state mining claims. +We have a 100% interest in all of our mineral properties. Our mineral properties are all exploration-stage properties, with no production within the last three fiscal years, or during the current fiscal year. +Summary of Mineral Resources +The following tables show our estimates of Mineral Resources as defined in S-K 1300 for our Illinois Creek Project, which includes both Illinois Creek and Waterpump Creek deposits. We have not estimated Mineral Resources or Mineral Reserves on our other properties. +Table 1-2: Mineral Resource Estimate for Illinois Creek In Situ Mineral Resources – January 22, 2026  +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Grade +​ +Contained Metal +Au Price +​ +Ag Price +​ +​ +​ +NSR Cut-off +​ +Tonnes +​ +Au +​ +Ag +​ +Au +​ +Ag +(US$/oz) +​ ​ ​ +(US$/oz) +​ ​ ​ +Class +​ ​ ​ +(US$/t) +​ ​ ​ +(Mt) +​ ​ ​ +(g/t) +​ ​ ​ +(g/t) +​ ​ ​ +(oz) +​ ​ ​ +(Moz) +3500 +45 +Indicated +24 +9.0 +0.92 +29.72 +260,000 +8.33 +3500 +45 +Inferred +24 +10.9 +0.84 +30.11 +290,000 +10.44 +Notes: +1. The definitions for Mineral Resources in S-K 1300, which are consistent with CIM (2014) definitions, were followed for Mineral Resources. +2. In Situ Mineral Resources are constrained within a pit shell developed using metal prices of US$3,500/oz Au and US$45/oz Ag, mining costs of US$4.00/t, processing costs of US$10.25/t, G&A cost of US$9.25/t, 92% metallurgical recovery Au, 65% metallurgical recovery Ag and an average pit slope of 45 degrees. The cut-off grade for resources considered amenable to open pit extraction methods is $24/t NSR. +3. Metal prices are based on 2025 consensus pricing and comparable project comparisons. +4. Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability. There is no certainty that all or any part of the Mineral Resources will be converted into Mineral Reserves. +5. Mineral Resources in the Inferred category have a lower level of confidence than that applied to Indicated Mineral Resources, and, although there is sufficient evidence to imply geologic grade and continuity, these characteristics cannot be verified based on the current data. It is reasonably expected that the majority of Inferred Mineral Resources could be upgraded to Indicated Mineral Resources with continued exploration. +6. Totals may not add due to rounding. +Table 1-3: Mineral Resource Estimate for Leach Pad Mineral Resources – January 22, 2026 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Tonnes +​ +Average Grade +​ +Contained Metal +Class +​ ​ ​ +(000 t) +​ ​ ​ +Au (g/t) +​ ​ ​ +Ag (g/t) +​ ​ ​ +Au (koz) +​ ​ ​ +Ag (Moz) +Indicated +1,300 +0.44 +44.3 +18.6 +1.9 +Inferred +152 +0.37 +42.6 +1.8 +0.2 +Notes: +1. The definitions for Mineral Resources in S-K 1300, which are consistent with CIM (2014) definitions, were followed for Mineral Resources. +2. It is assumed that the entire volume of the material on the leach pad will be processed and therefore, no selectivity is possible, and the Mineral Resources are presented at a zero-cut-off grade. +3. Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability. There is no certainty that all or any part of the Mineral Resources will be converted into Mineral Reserves. +4. Mineral resources in the Inferred category have a lower level of confidence than that applied to Indicated mineral resources, and, although there is sufficient evidence to imply geologic grade and continuity, these characteristics cannot be verified based on the current data. It is reasonably expected that the majority of Inferred mineral resources could be upgraded to Indicated mineral resources with continued exploration. +32 +Table of Contents +5. Totals may not add due to rounding. +Table 1-4: Mineral Resource Estimate for Combined Illinois Creek In Situ and Leach Pad Mineral Resources – January 22, 2026 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Tonnes +​ +Average Grade +​ +Contained Metal +Class +​ ​ ​ +(Mt) +​ ​ ​ +Au (g/t) +​ ​ ​ +Ag (g/t) +​ ​ ​ +Au (koz) +​ ​ ​ +Ag (Moz) +Indicated +10.3 +0.86 +31.6 +280 +10.2 +Inferred +11.1 +0.83 +30.3 +292 +10.6 +Notes: +1. The definitions for Mineral Resources in S-K 1300, which are consistent with CIM (2014) definitions, were followed for Mineral Resources. +2. In-Situ Mineral resources are stated as contained within a pit shell developed using metal prices of US$3,500/oz Au and US$45/oz Ag, mining costs of US$4.00/t, processing costs of US$10.25/t, G&A cost of US$9.75/t, 92% metallurgical recovery Au, 65% metallurgical recovery Ag and an average pit slope of 45 degrees. The cut-off grade for resources considered amenable to open pit extraction methods is $24/t NSR. It is assumed that the entire volume of the material on the leach pad will be processed and therefore, no selectivity is possible, and the Leach Pad Mineral Resources are presented at a zero-cut-off grade. +3. Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability. There is no certainty that all or any part of the Mineral Resources will be converted into Mineral Reserves. +4. Mineral resources in the Inferred category have a lower level of confidence than that applied to Indicated mineral resources, and, although there is sufficient evidence to imply geologic grade and continuity, these characteristics cannot be verified based on the current data. It is reasonably expected that the majority of Inferred mineral resources could be upgraded to Indicated mineral resources with continued exploration. +5. Totals may not add due to rounding. +The following table shows our estimates of Mineral Resources as defined in S-K 1300 for our Waterpump Creek project as of February 20, 2024. We have not estimated Mineral Resources or Mineral Reserves on our other properties. +Table 1-5: Summary In Situ Mineral Resource Estimate for Waterpump Creek - February 20, 2024 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Average Grade +​ +Contained Metal +​ +​ +Tonnes +​ +AgEq +​ +AgEq +​ +Ag +​ +Zn +​ +Pb +​ +ZnEq +​ +AgEq +​ +Ag +​ +Zn +​ +Pb +​ +ZnEq +Class +​ ​ ​ +(Mt) +​ ​ ​ +(g/t) +​ ​ ​ +(oz/st) +​ ​ ​ +(g/t) +​ ​ ​ +(%) +​ ​ ​ +(%) +​ ​ ​ +(%) +​ ​ ​ +(Moz) +​ ​ ​ +(Moz) +​ ​ ​ +(Mlb) +​ ​ ​ +(Mlb) +​ ​ ​ +(Mlb) +Inferred +​ +2.38 +​ +980 +​ +31.5 +​ +279 +​ +11.28 +​ +9.87 +​ +26.4 +​ +74.9 +​ +21.4 +​ +591.2 +​ +517.3 +​ +1,383 +Notes: +1. The definitions for Mineral Resources in S-K 1300, which are consistent with CIM (2014) definitions, were followed for Mineral Resources. +2. Mineral Resources are stated based on estimated recoveries of 75% Ag, 70% Pb, and 84% Zn and metal pricing of US$24/oz Ag, US$1.30/lb Zn, and US$ 1.00/lb Pb. The formulas for AgEq and ZnEq based on the above metal prices are AgEq (g/t) = Ag (g/t) + 28.56 x Pb (%) + 37.12 x Zn (%) and ZnEq (%) = Zn (%) + Pb (%) x 0.7692 + Ag (g/t) x 0.0269. The cut-off grade for resources considered amenable to underground extraction methods is 200 g/t AgEq and includes recoveries in the calculations: AgEq(recovery) = Ag (g/t) x 75% + 28.56 x Pb (%) x 70% + 37.12 x Zn (%) x 84%. +3. Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability. There is no certainty that all or any part of the Mineral Resources will be converted into Mineral Reserves. +4. Mineral resources in the Inferred category have a lower level of confidence than that applied to Indicated mineral resources, and, although there is sufficient evidence to imply geologic grade and continuity, these characteristics cannot be verified based on the current data. It is reasonably expected that the majority of Inferred mineral resources could be upgraded to Indicated mineral resources with continued exploration. +5. Totals may not add due to rounding. +The effective date of the Mineral Resource is February 20, 2024. The QP for the Mineral Resource is Bruce Davis, FAusIMM. The QP has confirmed that there have been no changes in the Mineral Resource estimates since February 20, 2024 at Waterpump Creek. +33 +Table of Contents +High-grade samples were restricted using an outlier strategy for Ag at 1100 ppm, Pb at 33% and Zn at 40% for zone 665 and Ag at 200, Pb at 10% and Zn at 12% for 45 m from the composite. +AgEqR reporting cut-off grade calculation is based on estimated recoveries from preliminary metallurgical test work of 75% Ag, 70% Pb, and 84% Zn and metal prices of US$24.00/oz Ag, US$1.00/lb Pb, and US$1.30/lb Zn and cost inputs suitable for underground extraction method. The AgEq and ZnEq grade calculations are based on the same metal prices and assume full metal recovery. +Material Properties +Illinois Creek Project +Project Description +The Illinois Creek Project is an exploration-stage project located in the southern Kaiyuh Mountains just east of the Yukon River in western Alaska, approximately 490 km west of Fairbanks, 52 km southeast of the village of Kaltag, and 85 km south-southwest of the community of Galena. The Property is geographically isolated with no current road access or nearby power infrastructure. The Illinois Creek Project contains two mineral deposits, the past producing Illinois Creek open pit oxide gold mine and the Waterpump Creek silver-zinc-lead sulphide deposit. Waterpump Creek will likely be an underground mining operation. +Location and Access +The Illinois Creek Project is located in the State of Alaska, approximately 490 km west of Fairbanks, 52 km southeast of the village of Kaltag, and 85 km south-southwest of the regional supply center of Galena (Figure 1.2). Geographic coordinates of the Illinois Creek Property are N64°2’ 7.31” latitude and W157° 54’ 55.92” longitude Universal Transverse Mercator (UTM) North American Datum (NAD) 83, Zone 4W coordinates 7101400N, 553000E. Primary access to the Illinois Creek Property is by air using either fixed-wing aircraft or helicopters. +The Illinois Creek Property is located in the southern Kaiyuh Mountains of west-central Alaska just east of the Yukon River (Figure 1.1). The Illinois Creek Property is in the Nulato A-4 and A-5 quadrangles, Kateel River Meridian T16S, R4E, sections 13, 14, 23 - 25, and 36; T16S, R5E, sections 10 - 36; T16S, R6E, sections 7, 18,19, 30 and 31; T17S, R4E, sections 1, 11 - 14, 23 - 26, 35 and 36; and T17S, R5E, sections 1 - 13, 15 - 24, and 26 - 35. +34 +Table of Contents +Figure 1.2 +Ownership +We own and operate the Illinois Creek Project. We have executed surface use and access agreements and fee mineral leases with the State of Alaska, owner of both surface and mineral rights at the Illinois Creek Project. +35 +Table of Contents +On October 17, 2018, Piek Inc. (Piek) and WACG entered into a joint venture agreement to actively explore and develop the Illinois Creek Property owned 100% by Piek, an Alaska-based corporation. Under the terms of the agreement and amendments to the agreement, a JV Company was established whereby WACG could acquire a 100% ownership in the Illinois Creek Property through a series of milestones. On March 31, 2021, in anticipation of listing WACG on the TSX-V exchange, WACG completed the purchase of the Property from Joe Piekenbrock, the underlying 100% owner of Piek. Under terms of the purchase agreement, WACG exercised its option to purchase the remaining 50% interest in the Property for US$3.698 million via promissory note and 120 shares in WACG. +In October 2021, as a precursor to going public, the Illinois Creek JV was completed and terminated and WACG was vested with 100% interest in the Property by purchasing Piek. WACG then went public in November 2022 by completing a reverse takeover of WACG using a shell company 1246779 B.C. Ltd which subsequently was renamed Western Alaska Minerals Corp., which holds title to both the WACG claims and Piek Inc. claims within WACG. +Subsequent claim staking in 2021, 2022, and 2024 consolidated WAM’s land holdings (through Piek and WACG) in the district. The total land tenure package consists of 436 State of Alaska mining claims which include the following claim groups: Illinois Creek (287 claims and one Upland Mining Lease), Round Top (88 claims), Honker (24 claims), Khotol Ridge (19 claims), and Paw Print (18 claims). The claim holdings cover approximately 32,737 ha (80,895 acres). +In January 2024, Alaska Silver submitted an application to ADNR to convert 70 of the Illinois Creek claims (ICP01 to ICP70) staked and held under Piek Inc. to a single Upland Mining Lease to be held by Piek Inc. The Upland Mining Lease was approved in July 2024 and provides insulation from any challenges to the property on a claim-by-claim basis. The annual fees for the lease are $22,938.10 and the annual work requirement is $27,900. Expenditures in excess of this amount can be carried forward for four additional years. Because of the substantial amount spent in 2024, the lease currently has satisfied the labor requirements for 2025, 2026, 2027, and 2028. +A summary of WACG land holdings is shown in Fig 1.1 and Table 1-1. +On April 25, 2025, Western Alaska Minerals Corp. formally changed its name to Alaska Silver Corp. On January 20, 2026, WAC&G changed its name to Alaska Silver USA Corp. +Infrastructure +Road/Barge +In 1993, during operation of the Illinois Creek mine, the Alaska Industrial Development and Export Authority or “AIDEA” conducted an engineering study of the Yukon access route from a laydown area south of Kaltag to the mine titled the Illinois Creek Transportation Study. That study proposed a 47.5 km (29.5 mile) access road that connected to a port located on the river with a greater than 40 ft draft and serviceable by deep-water barges for five months of the year from either upstream at Nenana or downstream at Saint Mary’s/Emmonak deep-water port. The 1993 AIDEA Transportation Study outlined costs to build the access route, including laydown area, two 100-ft bridges, and a ferry at $12.2M. +Alaska Silver is designing an all-weather access route to connect the Illinois Creek Project to the Yukon River. A three year preliminary PEA level civil engineering plan and profile road design study with material sites was completed by RECON LLC, Steve Rowland, PE in March 2023. In addition, multiple years of baseline studies for wetlands, cultural resources and fish habitat studies have been completed. The company is in discussions with Alaska Dept of Land to determine the feasibility of selecting a Right of Way. +Power +During the mine operation, diesel fuel was transported by DC-6 or C-130 aircraft from Galena to the mine site (fuel was barged down the Yukon River from Nenana near Fairbanks and then staged in Galena). The 1993 AIDEA Transportation Study also looked at the impact of direct shipping to the Kaltag laydown site and outlined a >26% cost savings for fuel. Capital costs (1993) for proposed tankage at the laydown area were $650,000. Current exploration activities rely on the delivery of diesel, and 100 LL fuel to the Illinois Creek airstrip by various aircraft; DC-6s are most cost effective. +36 +Table of Contents +Geology and Mineralization +The Illinois Creek mining district is characterized by intrusion-related hydrothermal systems including porphyry copper/molybdenum/silver deposits (PCDs) and surrounding poly-metallic silver/zinc/lead/copper/gold carbonate replacement deposits (CRDs) along with distal low-sulfidation precious-metal veins related to the porphyries. +At the Illinois Creek Property, mineralization is characterized by the extensive development of Ag/Zn/Pb/Cu/Au carbonate replacement bodies deposited in the over-thickened continental margin carbonate assemblages. The property is divided into two distinct structural blocks herein dubbed the East Block and the West block, that are reinterpreted as thrust sheets. Both blocks show distinctive stratigraphic sequences, but both are overprinted by the same 110 - 114 Ma Illinois Creek mineralization event. That event is metallogenetically related to the relaxation at the end of the compressional event which resulted in the emplacement of the Khotol Mountain suite of intrusions. +Both primary sulfide mineralization and secondary gossan-hosted oxide mineralization are present on the property, and both are viable exploration targets. +Status of Exploration +In conjunction with the 2022 drill program, WAM commissioned a property-wide CSAMT (controlled-source audio-magnetotellurics) survey with Zonge International to better understand the overall structural architecture of the system. CSAMT is a deep-sounding resistivity technique that effectively defines areas of similar resistivity and highlights structures bounding those discrete resistivity domains. Profiles from the CSAMT have improved the understanding of the structural framework and stratigraphic sections permissive for CRD mineralization in both the East and West structural blocks. +A high resolution 3DIP survey was acquired by DIAS Geophysical (DIAS) covering the Waterpump Creek and Last Hurrah target areas during the 2023 summer field season. Over three million dipole combinations were generated using the DIAS common voltage reference technique to provide an extremely data rich survey for resolving both shallow and deep subsurface electrical properties over an area of approximately 11 km2. Inversion modeling with UBC DCIP3D and Loke Res3DInv reveals distinct structural, stratigraphic controls to CRD mineralization as well as outline the increasing alteration halo to the south from Waterpump Creek, through Last Hurrah and into the Illinois Creek area. +In the East Block, the mineralization-controlling NNE-trending Waterpump Creek fault is apparent over the entire 6 km strike length of the survey. With the success of 2022 drilling at Waterpump Creek in the East Block and the potential to greatly expand the mineralization footprint, WAM also commissioned a reinversion of the historical 2005 NovaGold Resources Inc. (NovaGold) pole-dipole IP survey using an updated 3D inversion algorithm. This survey covers 2 km of the Waterpump Creek fault south from the WPC21-09 discovery hole including the currently outlined extent of the mineralized body. The new 3D inversion shows a direct correlation between both resistivity and chargeability with the Waterpump Creek sulfide body. The data also shows the conductive anomaly extending over 1.4 km south of the current Waterpump drilling into the Last Hurrah target area. Extensions to the Waterpump Creek sulfide mineralization and the conductive anomaly was a focus of 2023 drilling. +In the West Block, the new CSAMT profiles have led to the recognition of a slightly oblique fault south of the Illinois Creek fault called the Warm Springs fault. Between the two faults, deep oxidation up to 400 m has formed the Illinois Creek gossan. The oxide resources described in this TRS occur in the gossan. The low-grade East Illinois Creek manto extends east and south of the Illinois Creek gossan. The East Illinois Creek manto appears to lie at or near the contact between the dolomitic quartzites and dolomites. +South of the Warm Springs fault, an extensive greenstone thrust plate caps the permissive stratigraphy and looks to provide an aquitard similar to that seen with the Waterpump Creek (WPC)-LH trend where the Kaiyuh pelitic schists cap the dolomites. Two exploration holes were drilled late in the 2022 season south of the Warm Springs fault along the eastern margin of the West Block. Though both holes were lost after cutting the uppermost 50 m of the dolomitic quartzites, the holes encountered major alteration as multiphase silicification and pyrite with anomalous Pb, Zn and Ag. This permissive stratigraphy occurs in a CRD target area of 4 km x 2 km defined by the CSAMT survey. The target lies to east and south of the Illinois Creek oxide resource pit. In addition to the geophysical support for the Warm Springs target, expanded soil sampling coverage shows a major coincident Cu, Au, Pb, and As anomaly covering a 1.5 km x 1.5 km area south of the Illinois Creek pit. The soil samples suggest that a porphyry target may be developing in this direction. +37 +Table of Contents +Potential analogs to the Illinois Creek style of mineralization include: Hermosa and Magma in Arizona, USA; Tintic and Bingham Canyon in Utah, USA; the Leadville and Gilman districts in Colorado, USA; and a series of deposits including Santa Eulalia, Cinco de Mayo, and Naica in Mexico. Notably, the Hermosa discovery in Arizona and subsequent acquisition by S32, a major Australian mining company, for $1,300,000,000 in 2018, has led to a resurgence in CRD exploration. +Equipment and Facilities +We own the Illinois Creek camp, which includes all buildings, kitchen/dining facility, offices, dormitory/ sleeping facilities, tents, core sheds, electrical generators, water supply and storage systems, radio and internet communication equipment. Camp personnel capacity is 45 persons. We own our exploration drilling equipment, which includes two new mechanized drill rigs and rod sloops purchased in 2023 - 2024 and three older drill rigs. We maintain extensive spare parts for our drilling equipment. We own and maintain a fleet of vehicles that include pickup trucks, side by side off road vehicles, fuel and water trucks and a dump truck. Heavy equipment includes a CAT D6 dozer, CAT 630 loader, CAT motor grader for road and runway maintenance, Hitachi excavator, John Deere dozer & excavator, snow machines and numerous miscellaneous minor equipment. +We utilize the State of Alaska owned 4,400 ft Illinois Creek airstrip for delivery of food, supplies and personnel. Fixed wing support is contracted to Wright Air Service and Everts Air Cargo. Lynden Air Cargo provide C-130 Hercules cargo aircraft with a 50,000 pound payload for drill rigs and other heavy equipment. +We do not lease any buildings or equipment. +History +Regional exploration in the Kaiyuh Hills began with the Anaconda Minerals Company/Cook Inlet Region, Inc., or “CIRI”, joint venture. CIRI is one of the 13 regional native corporations defined in the Alaskan Native Claims Settlement Act. The Anaconda/CIRI joint venture identified prospective mineral-endowed lands for CIRI to select under that federal legislation. +During the 1980s, exploration for minerals in western Alaska began with extensive soil sampling, mapping, and drilling. Soil sampling in the 1980s resulted in the finding of significant intervals of oxidized gossanous mineralization to depths approaching 350 m below surface where sampling was conducted. Soil sampling in 1981 outlined a 2,000 m by 50 m anomaly with very high values of lead, zinc, copper, silver, gold and arsenic with zinc zoned to the east and copper zoned to the west. +Ownership, control, and operation of the project areas has varied greatly since the 1980s. +Permitting and Licensing +Exploration Permits +WACG has renewed the authorization to explore at Illinois Creek under authority of the Alaska Department of Natural Resources (“ADNR”) Miscellaneous Land Use Permit #9831, also referred to as an “APMA” permit, which has an issue date of April 26, 2024, and will expire on December 31, 2028. The permit has reclamation stipulations and includes requirements for filing an annual work plan and an Annual Reclamation Report with ADNR, describing reclamation activities. WACG submitted a Plan of Operations approved on April 26, 2024 by the ADNR under the APMA application F20249831 that will allow for exploration activities on the Upland Mining Lease area for 2024 to 2028. Exploration of the remaining Illinois Creek claims outside of lease are authorized under the same Plan of Operations, though will require an annual Work Plan to be submitted. WACG submits annual Reclamation Reports to ADNR and a Notice of Intent to fulfill any carryover reclamation obligations into the next year. Certain aspects of camp operations, including management of solid wastes, are authorized under permit SWGPCAMP-28. +38 +Table of Contents +A list of likely required major mine permits is shown below: +Table 1.2: Mine Permits +Agency +​ ​ ​ +Authorization +State of Alaska +​ +ADNR +​ +Plan of Operations Approval (including Reclamation Plan and Financial Assurance) +​ +Upland Mining Lease +​ +Mill Site Lease +​ +Reclamation Financial Assurance +​ +Certificate of Approval to Construct a Dam +​ +Certificate of Approval to Operate a Dam +​ +Water Use Authorization to Appropriate Water +ADF&G +​ +Title 16 Permits for Fish Passage (authorize stream crossings, if required) +ADEC +​ +APDES Water Discharge Permit (if required) +​ +Alaska Multi-Sector General Permit (MSGP) for Stormwater Discharge Pollution Prevention Plan (requirement of MSGP) +​ +Section 401 Water Quality Certification of the CWA Section 404 Permit (for CWA Section 404 permit) +​ +Integrated Waste Management Permit +​ +Air Quality Control   -   Construction Permit +​ +Air Quality Control   -   Title V Operating Permit +​ +Reclamation Financial Assurance (shared with ADNR) +Federal Government +​ +EPA +​ +Spill Prevention, Control, and Countermeasure (SPCC) Plan (fuel transport and storage) +USACE +​ +CWA Section 404 Dredge and Fill Permit (if required) +​ +Quality Assurance and Quality Control +We have maintained a consistent Quality Assistance and Quality Control (“QA/QC”) protocol for all drill cores sampling through the 2021 to 2025 field seasons. Our protocol calls for insertion of 11% QA/QC check samples by inserting a blank, a duplicate, and a standard into each set of 27 core samples. +39 +Table of Contents +During the 2021 field program, blank material consisting of sand that had previously been tested by SGS Canada, an independent lab with no ownership interest in our business, using the same analytical suite as the 2021 drill core to determine baseline values of the material. During the 2022 drill program, WACG acquired blank material from ALS Global (“ALS”), an independent lab with no ownership interest in our business, prep lab in Fairbanks, which also analyzed and certified the material. Commercially available marble chips were used in 2023 as blank material. One split was taken from each 50 pound bag (3 splits) and was analyzed separately to establish values for the blanks. During the 2024 drill program WACG acquired blank and standard samples from OREAS LTD, an independent lab with no ownership interest in our business, and samples were shipped to ALS Vancouver, BC and Reno, NV for preparation and analysis. In 2025, two new CRMs were added to the suite – OREAS 628 and OREAS 353b. OREAS 628 was used as a low-grade CRM and OREAS 153c was added for use in barren rock. In 2025, five CRMs were used for the Silver Sage zone – OREAS 620, 317, 628, 136, and 153c and four CRMs were used for the WPC South drilling – OREAS 628, 153c, 620, and 136 +For the 2021 to 2025 drilling campaigns, WACG collected field duplicates of drill core. Each designated duplicate sample was collected by halving the primary sample interval such that the primary sample and duplicate sample were quarter core segments of the entire sample interval. +The QA/QC for the 2025 drilling is currently being completed. +Data Verification +WACG randomly selected the sample data from 15 drill holes including results from across the Illinois Creek area gold drilling programs. The number of samples represent over 4% of the data used in the estimate of mineral resources. A typical industry procedure is to compare approximately 5% of the assay sample results in the database to certificates. If the error rate is less than 1%, then no further action is taken. If the error rate exceeds 1%, a more extensive review is undertaken. The grades in these holes were compared to those contained in the certified assay certificates provided by the laboratories. In this suite of 818 individual samples, there were four errors found in the gold data and three errors in the silver data, an error rate of less than one percent. These results are similar to those achieved during previous database audits. The historical metallurgical studies were reviewed to understand why the historic heap leach process did not work efficiently. Those studies represented valuable background needed to develop a process that could efficiently handle both gold and copper metallurgy as the project progresses. +The sample data from an additional four drill holes from the leach pad area were randomly selected, and the assay results were compared to the values contained in the assay certificates. There were no errors identified. +The sample data from two drill holes from the Waterpump Creek (“WPC”) area were randomly selected, and the assay results in the database were compared to the values contained in the assay certificates. There were no errors identified. +Metallurgy +Initial metallurgical analysis of the Waterpump Creek sulfide mineralization is currently ongoing at ALS In Kamloops, BC. Preliminary results from this test work were used to estimate the recovery of Ag, Pb, and Zn for the silver equivalent (AgEq) calculation at Waterpump Creek. +Historical metallurgical work undertaken for the development of the Illinois Creek oxide Au/Ag deposit indicates that the highly oxidized rocks are amenable to a relatively low-cost leaching extraction of gold and silver using cyanide solutions. Additional work is now being undertaken by DM Consulting, LLC in Lakewood, CO to ascertain the amenability of the oxide resources to Merrill-Crowe and sulfidization, acidification, recycling and thickening (SART) processing to optimize Ag and Cu recoveries, respectively. +Mineral Resources +On March 20, 2019, WACG provided the updated drill hole sample data for the Illinois Creek deposit. Since that time, there has been no additional exploration in the area of the in-situ mineral resources. +The drill hole sample data comprised a series of ASCII files containing collar locations, down- hole survey results, geologic information, and assay results for a total of 583 drill holes representing 51,558 m of drilling. Of these, 505 drill holes, totaling 41,488 m of drilling, test the Illinois Creek deposit and contribute to the estimation of the in-situ mineral resources. The other 78 drill holes are exploratory in nature and test for extensions east of the Illinois Creek deposit or other satellite deposits on the Property. +40 +Table of Contents +The drilling data for the Illinois Creek deposit had initially been reported in the imperial system using a local “drill grid” coordinate system. All of this information was converted to metric units, and the coordinates were rotated to UTM grid coordinates (UTM NAD83 Zone 4W). +Of the 505 holes that test the Illinois Creek deposit, 145 are diamond drill (“DD”) holes and the other 360 holes are reverse circulation (RC) drill holes. Comparisons were made between the data produced from each type of drilling. DD holes tend to provide higher gold grades than RC drilling, but these differences are inconsistent and may only be local occurrences. Previous studies conducted by Mineral Resource Development Inc. (“MRDI”) suggest that the RC drilling may not effectively capture all of the gold in some areas. DD and RC results show local variations, but the results overall, seem to correspond quite well. There were no modifications made to the database based on the type of drill hole. +There is no recovery data included in the database. MRDI, as part of its March 2000 audit, reported that recoveries tend to be quite good in most cases, but some gold losses were observed in holes that encountered poor recoveries. +Drilling on the Illinois Creek deposit was conducted between 1981 and 2006 with the majority of holes completed during campaigns run from 1990 through 1995. Drill holes penetrate the south-southeast dipping Illinois Creek deposit over a strike length of more than 2,500 m and to depths that exceed 200 m below surface. +In the Illinois Creek sample database, a total of 16,936 individual samples, representing 25,611 m of drilling, were analyzed for gold and silver content. About 50% of these samples were also analyzed using a multi-element (whole-rock, 26-element) package. The results for copper, lead and zinc were selected for potential inclusion in this mineral resource evaluation. Further evaluation of the available data show that only about 30% of samples were tested for lead and zinc content, and based on these results, the distributions of lead and zinc data are considered insufficient to support estimates of mineral resources. +Tables presenting an estimate of the Illinois Creek deposit’s mineral resources as at January 22, 2026 are provided above under “Properties - Summary of Mineral Resources”. The Indicated and Inferred mineral resource estimates on Illinois Creek have been updated with new metal prices and costs since the previous S-K 1300 TRS dated April 30, 2025. The Waterpump Creek mineral resources remain the same as previously disclosed. +Mining and Recovery Methods +The Illinois Creek Project is an early exploration project and as such, there have been no recovery methods investigated. +Economic Analysis +The Illinois Creek Project is an early exploration project and as such, no economic analysis has been completed. +Exploration Areas +Since 2021, a major reinterpretation of the Illinois Creek property geology has been ongoing due to the discovery at WPC of sulfide mineralization at depths below previous levels of exploration. +In the East Block the mineralization-controlling north-northeast-trending WPC fault and the look alike Wades fault trend are apparent over the entire 6 km north-south strike length of the controlled source audio-magnetotellurics (“CSAMT”) survey. Immediate extensions to the WPC sulfide mineralization and the 1.4 km low resistivity anomaly was a focus in the 2023 drilling. The extension of WPC mineralization to the north along the WPC fault is still open for exploration and is a target for 2024 drilling. To the south, the WPC mineralization is offset against the E-W 4700N fault, but mineralization is believed to continue south into the LH zone. The primary focus of 2024 exploration drilling will be to explore down-dip of the anomalous soil geochemistry and LH gossan, towards the WPC fault which is shown in the 2023 3D IP low resistivity. +In the West Block, south of the Warm Springs fault, an extensive greenstone sill caps the permissive stratigraphy and looks to provide an aquitard not unlike that seen in the East Block where the pelitic schists provide an aquitard to trap mineralization. The mineralization permissive stratigraphic section below the greenstone sill identified by the CSAMT profiles outline an approximate 4x2 km CRD target area southeast of the Illinois Creek pit. This Warm Springs target zone will be another primary focus of 2024 exploration drilling. +41 +Table of Contents +A Cu, Au, Pb, As soil anomaly covering a 1.5 x 1.5 kms area extending south of the Illinois Creek pit suggests a developing porphyry target in that area. +In addition to the sulfide targets which are the current focus of exploration, additional oxide Au/Ag targets extend in and around the Illinois Creek mine pit. +Planned Work +The total estimated direct program costs are approximately US$11.0 million for Phase 1 and US$15.5 million for Phase 2, which includes site costs such as camp support, overhead and other indirect costs, excluding corporate general and administrative (G&A) costs. +Phase 1 +● Continued exploration and extension drilling of the WPC mineralization to expand the Mineral Resource to both the south and to the north along the Waterpump Creek structure. +● Follow-up drilling of the Silver Sage target and other related soil anomalies and initial drilling of the numerous targets recognized in the 2024 US Geological Survey (USGS)/Alaska Division of Geological & Geophysical Surveys (ADGGS) geophysical program. +● Continued environmental baseline monitoring studies to support environmental and permitting activities. +Phase 2 +Phase 2 is contingent on positive drill results at either Waterpump Creek, Warm Springs, or elsewhere. A sufficient mineral inventory will need to be established before proceeding to in-fill drilling and an Initial Assessment. +● In-fill drilling to convert the majority of current resource and portion of any exploration success in Phase 1 to indicated to support an Initial Assessment. +● Oriented Geotech drilling. +● PQ drilling to attain bulk samples and complete variability and Lock cycle flotation metallurgical test work to de-risk program. +● Continued and Additional Environmental base line studies. +● Initial Assessment +Internal controls disclosure +Historical pre-1999 assays and sample collection did not fully document quality assurance/quality control and (QA/QC) programs are lacking or poorly documented. The last documented and outlined procedures were outlined in 1999. MRDI, then a prominent mineral resource development consulting company, conducted an audit of drilling, sampling, and assay procedures in 1999. They concluded the assays from the various drill campaigns were sufficiently well controlled by QA/QC programs to support mineral resource estimation. They also compared drill results from the different drill campaigns and found results were consistent. Unfortunately, the database of results compiled by MRDI was lost. The current QP’s also compared historical drill results to those obtained by us. They also found those assay results were consistent with the historical assays where drilling intersections were in proximity. The QP’s concurred with the MRDI assessment that pre-1999 drill results are sufficiently controlled to support mineral resource estimation. +QA/QC programs by Western Alaska Copper & Gold for 2020-2024 were documented and observed per the disclosure under Quality Assurance and Quality Control under “Material Properties -  Illinois Creek Project - Quality Assurance and Quality Control. ” +42 +Table of Contents +​ +Item 3. Legal Proceedings +There is no material litigation, arbitration or governmental proceeding currently pending against us or any members of our management team in their capacities as such. +​ +Item 4. Mine Safety Disclosures +There are no operating mines and therefore no mine safety disclosures. +PART II +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +Market Information +Our subordinate voting shares are listed for trading on the TSXV under the symbol “WAM.” Our subordinate voting shares are quoted on the OTCQX Market in the United States under the symbol “WAMFF.” +Holders +As of March16, 2026, there were 249 registered shareholders of subordinate voting shares and zero registered shareholders of proportionate voting shares. +Dividends +We do not anticipate declaring or paying, in the foreseeable future, any cash dividends on our subordinate voting shares. We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business. Any future determination related to our dividend policy will be made at the discretion of our board of directors and will depend upon, among other factors, our business, financial condition, results of operations, capital requirements, contractual restrictions, business prospects and other factors our board of directors may deem relevant. +Transfer Agent and Registrar +The transfer agent and registrar for our subordinate voting shares is Odyssey Trust Company, 350-409 Granville St., Vancouver, British Columbia, V6C 1T2, Canada. +Equity Compensation Plan Information +The following table summarizes information about our equity compensation plans as of December 31, 2025: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Number of +​ ​ ​ +​ +​ ​ ​ +Number of +​ +​ +Securities +​ +Weighted- +​ +Securities +​ +​ +to be Issued +​ +Average +​ +Remaining +​ +​ +Upon +​ +Exercise +​ +Available for +​ +​ +Exercise of +​ +Price of +​ +Future +​ +​ +Outstanding +​ +Outstanding +​ +Issuance +​ +​ +Options, +​ +Options, +​ +Under Equity +​ +​ +Warrants and +​ +Warrants +​ +Compensation +Plan Category +​ ​ ​ +Rights (1) +​ ​ ​ +and Rights (2) +​ ​ ​ +Plans (3) +Equity compensation plans approved by security holders +8,814,359 +​ +$ +0.95 +3,595,035 +Total +​ +​ +​ +​ +(1) Consists of 401,142 restricted stock units, or “RSUs”, and 8,413,217 subordinate voting shares issuable upon exercise of stock options under the Long Term Incentive Plan. +(2) This is the weighted average exercise price of the stock options. The RSUs have no exercise prices. +43 +Table of Contents +(3) Consists of shares available for issuance under the Long Term Incentive Plan. +Recent Sales of Unregistered Securities +We completed the following sales or issuances of unregistered securities during the past three years ending December 31, 2025: +Private Placements +We granted to one shareholder a right of participation in future issuances, by private placement or public offering, of subordinate voting shares (or securities convertible into subordinate voting shares), other than certain excluded offerings. For so long as that shareholder holds not less than 3% of the issued and outstanding subordinate voting shares, we are required to offer to that shareholder the right to subscribe for securities on the same terms and conditions as such securities are being offered to third parties (subject to exceptions provided for in the underlying agreement), so that the shareholder may maintain its proportional ownership. +On May 4, 2023, we issued by private placement an aggregate of 2,982,049 units at a price of C$2.35 per unit for gross proceeds of approximately C$7 million and paid a cash commission of C$405,469 and issued 172,540 broker warrants. Each unit is comprised of one subordinate voting share and one-half of one subordinate voting share purchase warrant. Each warrant is exercisable to purchase one subordinate voting share at a price of C$3.15 for a term of three years. Each broker warrant was exercisable to purchase one unit at a price of C$2.35 for a term of two years. The proceeds from this financing were used for exploration activities and general working capital purposes. This offering was completed pursuant to Rule 506(b) of Regulation D and Regulation S under the Securities Act. +On September 1, 2023, we issued by private placement 756,382 units at a price of C$2.05 per unit for gross proceeds of approximately C$1.55 million and paid a cash commission of C$2,399 and issued 1,170 finder’s warrants. On September 14, 2023, we issued a second tranche of 66,171 units for gross proceeds of C$135,650.55. Each unit is comprised of one subordinate voting share and one-half of one subordinate voting share purchase warrant. Each warrant is exercisable to purchase one subordinate voting share at a price of C$3.15 for a term of three years. Each finder warrant is exercisable to purchase one subordinate voting share at a price of C$3.15 for a term of three years. The proceeds from this financing were used for exploration activities and general working capital purposes. This offering was completed pursuant to Rule 506(b) of Regulation D and Regulation S under the Securities Act. +On April 26, 2024, we issued, by way of shelf prospectus offering in Canada and private placement in the United States, an aggregate of 9,403,352 units at a price of C$0.65 per unit for gross proceeds of approximately C$6.1 million and paid a cash commission of C$366,731 and issued 564,200 broker warrants. Each unit is comprised of one subordinate voting share and one subordinate voting share purchase warrant. Each warrant is exercisable to purchase one subordinate voting share at a price of C$0.90 for a term of three years. Each broker warrant was exercisable to purchase one subordinate voting share at a price of C$0.65 for a term of three years. The proceeds from this financing were used for exploration activities and general working capital purposes. This offering was completed pursuant to Rule 506(b) of Regulation D and Regulation S under the Securities Act. +On May 8, 2024, we issued by private placement 3,812,981 units at a price of C$0.65 per unit in a first tranche, and on May 14, 2024, 200,000 units in a second tranche, for total gross proceeds of approximately C$2.6 million. In connection with the private placement, we paid a cash commission of $82,423 (C$113,200) and issued 92,923 finder’s warrants. Each unit is comprised of one subordinate voting share and one subordinate voting share purchase warrant. Each warrant is exercisable to purchase one subordinate voting share at a price of C$0.90 for a term of three years. Each finder warrant is exercisable to purchase one subordinate voting share at a price of C$0.90 for a term of three years. The proceeds from this financing were used for exploration activities and general working capital purposes. This offering was completed pursuant to Rule 506(b) of Regulation D and Regulation S under the Securities Act. +On March 21, 2025, we issued by private placement promissory notes in the aggregate principal amount of US$1,200,000. The notes mature after three years and bear interest at a rate of 10% per annum. The notes will be repayable by us after 12 months. We also issued an aggregate of 2,697,600 subordinate voting share purchase warrants, each exercisable to purchase one subordinate voting share at an exercise price of C$0.64 for a term of three years. The use of proceeds from this transaction was to advance planning for 2025 exploration and general corporate purposes. This offering was completed pursuant to Rule 506(b) of Regulation D under the Securities Act. +44 +Table of Contents +On October 3, 2025, we issued 21,229,000 units of the Company at a price of US$0.65 per unit for gross proceeds of approximately US$13.8 million. Each unit consist of one subordinate voting share and one subordinate voting share purchase warrant, where each warrant is exercisable for one subordinate voting share of the Company at US$0.97. In connection with the offering, we paid a cash commission of approximately US$1.0 million to a syndicate of underwriters and issued warrants to purchase up to 849,160 subordinate voting shares to the syndicate of underwriters. +Common Shares Issued Upon Exercise or Conversion of Outstanding Securities +During 2023, we issued 505,000 common shares upon the exercise of stock options, at a weighted average exercise price of $0.72 per share. The common shares were issued pursuant to Rule 701 under the Securities Act. +During 2024, we issued 490,000 common shares upon the exercise of stock options, at a weighted average exercise price of $0.66 per share. The common shares were issued pursuant to Rule 701 under the Securities Act. +During 2025, we have issued 1,032,000 common shares upon the exercise of stock options, at a weighted average exercise price of C$0.57 per share. The common shares were issued pursuant to Rule 701 under the Securities Act. +During 2024, we issued 163,181 common shares upon the exercise of warrants, at a weighted average exercise price of C$0.88 per share. When issued in accordance with the warrant indenture governing such warrants, the common shares were issued pursuant to Regulation S under the Securities Act. +During 2025, we have issued (i) 56,200 common shares upon the exercise of warrants, at an exercise price of C$0.64 per share, which were issued pursuant to Section 4(a)(2) the Securities Act; (ii) 403,824 common shares upon the exercise of warrants, at an average exercise price of C$0.90 per share, which were issued outside the United States pursuant to Regulation S under the Securities Act; and (iii) 724,500 common shares upon the exercise of warrants, at an exercise price of C$0.90 per share, which, when issued in accordance with the warrant indenture governing such warrants, were issued pursuant to Regulation S under the Securities Act. +Issuer Purchases of Equity Securities +None. +​ +Item 6. [Reserved] +​ +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +The following discussion should be read in conjunction with our financial statements and related notes thereto included elsewhere in this Report. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed in the sections entitled “Forward-Looking Statements” and “Risk Factors.” We are not undertaking any obligation to update any forward-looking statements or other statements we may make in the following discussion or elsewhere in this document even though these statements may be affected by events or circumstances occurring after the forward-looking statements or other statements were made. Therefore, no reader of this document should rely on these statements being current as of any time other than the date of this Report. +Our Business +We were incorporated in the province of British Columbia on April 8, 2020 under the name 1246779 B.C. LTD. In November 2021, 1246779 B.C. LTD completed a business combination with Western Alaska Copper and Gold Company (“WACG”) and, on November 4, 2021 changed our name to Western Alaska Minerals Corp. On April 25, 2025, we changed our name to Alaska Silver Corp. We are a Canadian public company whose subordinate voting shares are listed for trading on the TSX Venture Exchange (“TSXV”) under the symbol “WAM” and on the OTCQX under the symbol “WAMFF”. +Our principal executive office is located at 1500-1111 West Hastings St, Vancouver, British Columbia, V6E 2J3 Canada. +We have no operating revenue and support our operations through the sale of equity in our company. The value of any of our mineral properties is dependent upon the existence or potential existence of economically recoverable mineral reserves. +45 +Table of Contents +All financial information in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, for current and past years, was accounted for under US GAAP. +Since 2010, we, operating through WACG and Alaska Silver, have been exploring and advancing interests in the Illinois Creek mining district that includes gold, silver, copper, gallium, and zinc exploration targets in western Alaska east of the Yukon River. On January 20, 2026 WACG formerly changed its name to Alaska Silver USA Corp. +Illinois Creek Project, Alaska: Claim Consolidation +On October 17, 2018, WACG and one of its shareholders, Joe Piekenbrock, entered into the Operating Agreement of Illinois Creek Joint Venture LLC (the “JV Operating Agreement”), which formed the Illinois Creek Joint Venture LLC. Pursuant to the JV Operating Agreement, WACG issued 346 WACG common shares valued at $692,000 to Mr. Piekenbrock. On March 31, 2021, the members of the Illinois Creek Joint Venture LLC, agreed to terminate and dissolve the Illinois Creek Joint Venture LLC, and dissolve it, as directed by the Action of Unanimous Written Consent of the members of the Illinois Creek Joint Venture LLC, effective as of March 31, 2021. On March 31, 2021, WACG and Mr. Piekenbrock entered into a Stock Purchase Agreement, whereby WACG acquired 100% of the issued and outstanding common shares of an Alaska private company, Piek Incorporated, in exchange for 120 WACG common shares (valued at $540,000) and $3,698,000 payable by the issuance of a promissory note to Mr. Piekenbrock. Piek is the sole owner of 40 state mineral claims, known as the Illinois Creek Project, located in the Mount McKinley mining district of Alaska. Seventy (70) other Piek claims totaling approximately 11,135 acres were converted to a State of Alaska Uplands Mine Lease in July, 2024. An additional 86 claims were staked by WACG in 2021, after the acquisition of Piek, and 115 new claims were staked by WACG in 2022. An additional 46 claims were staked by WACG in 2025. +The total land package is 32,737 hectares (80,717 acres) and includes: 287 Illinois Creek Claims, 19 Khotol Claims, 18 Paw Print Claims, 24 Honker Claims, 88 Round Top Claims, and 11,135 acres converted to Uplands Mining Lease. +Illinois Creek/Waterpump Creek Property, Alaska +Our most advanced stage asset is the Illinois Creek oxide gold-silver project, a past-producing run of mine (ROM) heap leach mine that operated between 1997 and 2002. The Illinois Creek in-situ resource was updated on January 22, 2026. The Indicated Mineral Resource Estimate is 9.0 Mt at 0.92 g/t gold and 29.72 g/t silver containing 260,000 ounces of gold and 8.3 million ounces of silver. The Inferred Mineral Resource Estimate is 10.9 Mt at 0.84 g/t gold and 30.1 g/t silver containing 290,000 ounces of gold and 10.4 million ounces of silver. The indicated and inferred mineral resources at Illinois Creek are based on an open-pit shell assuming metals prices of US $3,500/oz gold and US $45/oz silver. The mineralization within the Illinois Creek deposit is oxide material which is amenable to heap leach extraction and processing. The oxide mineralization remains open along strike and at depth. +The Illinois Creek project includes a modern, fully operational camp, numerous heavy equipment vehicles (dozer, excavators, CAT loader and miscellaneous transport vehicles), four company owned diamond drill rigs fuel storage tanks and 4,400-foot airstrip. +Our Waterpump Creek property is located within the Illinois Creek project. An exceptional high-grade silver-lead-zinc re-discovery was made in 2021, when we drill tested historically recognized sulfide carbonate replacement deposit (“CRD”) mineralization at depth. Drill hole WPC21-09 cut 10.5-meters (9.1 meters true thickness) of 522 g/t silver, 22.5% zinc and 14.4% lead of massive intergrown sphalerite and argentiferous galena down-dip of the historical drilling. This exceptional high-grade interval redirected the focus to targeting the overall CRD potential on the property. An initial resource estimate was released on February 22, 2024. The (2.4Mt) initial inferred resource includes 74.9Moz AgEq at a grade of 980 g/t AgEq of high-grade silver-zinc-lead + gallium. Zinc, silver and gallium are listed as US Critical Minerals. +Numerous other exploration prospects and targets exist within the Illinois Creek – Waterpump Creek CRD system, such as Warm Springs and the newly discovered Silver Sage zone. The district is underpinned by mineral resource estimates at both the Illinois Creek deposit and the Waterpump Creek deposit, but there are still many exploration opportunities and targets in the surrounding area. +46 +Table of Contents +Honker Property, Alaska +The Honker Property is a gold-silver (Au-Ag) low sulfidation vein system discovered in 1981 located approximately six miles north of the Illinois Creek Mine. It consists of 24 state mineral claims, owned 100% by WACG, located in the Mount McKinley recording district of Alaska. The Honker vein strikes up to 1,000m in length and varies from 1 to 7 meters in width. Numerous grab, channel, and bulk samples returned assays >34 g/t Au from the historic trenching and surface sampling. Numerous historic and more recent (2021) drill programs intercepted the Honker vein. Some highlights include: HK21-06 intercepted a 7.6-meter vein with numerous 1+ meter splays grading from 3 to 5 g/t Au. Drill hole HK-4 intercepted 1.6 meters of 8.68 g/t Au including 0.2 meters of 38.39 g/t Au. Honker could provide high-grade feed to a combined processing operation at Illinois Creek. +Round Top Property, Alaska +The Round Top Property, located 15.5 miles NE of the Illinois Creek project, is a large copper-molybdenum-silver (Cu-Mo-Ag) porphyry system that includes both high grade copper surface discoveries and drill intercepts to a depth of 800 meters. Cu-Mo-Ag mineralization is associated with Cretaceous (+/- 72 Ma) age intrusive rocks. The property consists of 88 state mineral claims, owned 100% by WACG, located in the Mount McKinley and Nulato recording districts of Alaska. +The TG and TG North prospects lie just to the northwest of the Round Top porphyry and are Ag-Pb-Zn CRD targets demonstrated by a 5km by 2 km Ag-Pb-Zn soil anomaly in similar permissive carbonate host rocks as Waterpump Creek and is proximal to a known intrusive source. +Khotol and Paw Print, Alaska +Khotol and Paw Print are the early exploration stage properties we staked in 2022. There are 19 claims for Khotol with 3 additional claims staked in 2024 and 18 claims for Paw Print. Khotol is located directly northwest of the Illinois Creek Property. Paw Print is located approximately 25 miles northeast of the Illinois Creek mine. +The Khotol Claim Block contains three main prospects: Khotol Ridge gossan, Colorado Creek gossan, and Sunny Day gossan. The Khotol Ridge prospect is the most prospective gossan on these claims and is a Ag-Pb-Zn gossan hosted in metasedimentary rocks similar to Illinois Creek. The Sunny Day gossan mineralization is weakly anomalous in Cu, Pb, Ag, and As and consists of scattered limonitic quartzite breccia and minor massive vuggy gossan float in a dry east-west trending gully coincident with a pronounced linear feature (Brewer and Millholland, 1982). The Colorado Creek gossan is a weakly anomalous Ag-Pb-Zn-Cu gossan consisting of quartz breccias and vuggy oxidized gossanous float. +The Paw Print prospect consists of silt and soil anomalies associated with iron seeps along a northeast trending ~4km long linear feature. The seeps and iron-stained streams drain the inferred contact between the graphitic schistose quartzite and the younger unmetamorphosed mafic volcanics and intrusive (JMI Greenstone) (Flanigan, 1994). There seems to be a correlation of the mineralized seeps with the contact between the mafic volcanics and the schistose quartzites (Flanigan, 1994). +Other Corporate Matters +Subordinate Voting and Proportionate Voting Shares +In connection with a reverse takeover transaction in 2021, we created a dual share structure with subordinate voting shares and proportionate voting shares. The subordinate voting shares are listed for trading on the TSXV. The proportionate voting shares are, in effect, subordinate voting shares compressed at the ratio of 100:1 which have voting and economic rights on an as-converted basis. Each proportionate voting share is convertible into 100 subordinate voting shares. The proportionate voting shares are convertible to subordinate voting shares at the request of the shareholder. On March 9, 2026 the Company announced that it has converted all of its proportionate voting shares to subordinate voting shares and that it plans to change the name of the subordinate voting shares to common shares at its next annual general meeting. +Operations +During the year (ended December 31, 2025), our main focus was the exploration and the 2025 drilling season with planning and coordinating for site activities and human resources at our Waterpump Creek project and newly discovered Silver Sage zone, located within the Illinois Creek Project. +47 +Table of Contents +Competition in the mineral exploration industry is intense. We compete with other mining companies, many of which have greater financial resources and technical facilities for the acquisition and development of mineral concessions, claims, leases and other interests, as well as for the recruitment and retention of qualified employees and consultants. The mining business is subject to mineral price and investment climate cycles. The marketability of minerals is also affected by worldwide economic and demand cycles. In recent years, the significant demand for minerals in some countries has driven increased commodity process. It is difficult to assess if the current commodity prices are long-term trends, and there is uncertainty as to the recovery, or otherwise, of the world economy. If the global conditions weaken and commodity prices decline as a consequence, a continuing period of lower prices could significantly affect the economic potential of each of the Illinois Creek Project and the Other Properties. See “Risk Factors - Our business is strongly affected by the world market price of gold and silver and there can be no assurance we will be able to develop our properties.” +Mining is an extractive industry that impacts the environment. Our goal is to regularly evaluate ways to minimize such impact. We expect to meet or exceed environmental standards at each of the Properties (including the Illinois Creek Project) and to continue this approach through effective engagement with affected stakeholders, including local communities, government and regulatory agencies and indigenous groups. +We are currently active only in Alaska, which has established environmental standards and regulations that we strive to exceed. Our environmental performance is overseen at the board level and environmental performance is our responsibility. We recognize environmental management as a corporate priority and place a strong emphasis on preserving the environment for future generations, while also providing for safe, responsible and profitable operations by developing natural resources for the benefit of our employees, shareholders and communities. +The are no significant elements of the income or loss from continuing operations that do not arise from or are not necessarily representative of the ongoing business. +There have not been any unusual or infrequent events or transactions or significant economic changes that materially affected the amount of income or loss from continuing operations. +RESULTS OF OPERATIONS +Comparison of the Year ended December 31, 2025 and December 31, 2024 +​ +​ +​ +​ +​ +​ +​ +Year Ended +​ +Year Ended +​ +​ +December 31, +​ +December 31, +​ +​ +2025 +​ +2024 +Summary of components of Consolidated Statements of Operations and Comprehensive Loss +​ ​ ​ +($) +​ ​ ​ +($) +Operating expenses +​ +(6,144,207) +​ +(7,254,553) +Other items +​ +(2,717,592) +​ +(24,545) +Net loss +​ +(8,861,799) +​ +(7,279,098) +Unrealized foreign exchange on translation of foreign operations +10,659 +(23,653) +Comprehensive loss +(8,851,140) +(7,302,751) +​ +​ +​ +​ +​ +​ +​ +​ +December 31, +​ +December 31, +​ +​ +2025 +​ +2024 +Summary of components of Consolidated Statements of Financial Position +​ ​ ​ +($) +​ ​ ​ +($) +Current assets +9,311,718 +988,308 +Long-term deposits +— +— +Equipment +1,116,998 +1,558,765 +Exploration & evaluation property interests +6,295,910 +6,090,370 +Total assets +16,724,626 +8,637,443 +Current liabilities +8,134,987 +929,671 +Long-term liabilities +2,407,045 +2,462,024 +Shareholders’ equity +6,182,594 +5,245,748 +Total Liabilities and equity +16,724,626 +8,637,443 +​ +48 +Table of Contents +The loss for the year ended December 31, 2025, was $8,861,799 compared to $7,279,098 for the year ended December 31, 2024. The increase in the loss from 2024 to 2025 was primarily due to a loss on the recognition of derivative warrant liabilities offset by lower exploration expenses and management fees in 2025. The most significant operating expense for the year ended December 31, 2025 was our exploration expense incurred on our mineral properties. Exploration expenses include the costs of drilling, assaying as well as the maintenance of a summer camp for drillers and staff. Our other operating expenses include management fees, which is the compensation of executives, directors and management, including any stock-based compensation and also marketing expenses, which is the cost of promoting our business through conferences and promotional activities. +SUMMARY OF QUARTERLY RESULTS +The following is a summary of the Company’s most recent 8 quarterly result: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Dec 31, 2025 +​ ​ ​ +Sep 30, 2025 +​ ​ ​ +June 30, 2025 +​ ​ ​ +Mar 31, 2025 +​ ​ ​ +Dec 31, 2024 +​ ​ ​ +Sep 30, 2024 +​ ​ ​ +Jun 30, 2024 +​ ​ ​ +Mar 31, 2024 +Expenses +​ +$ +1,585,444 +​ +$ +2,496,510 +​ +$ +1,221,013 +​ +$ +841,240 +​ +$ +1,502,302 +​ +$ +2,844,014 +​ +$ +1,867,218 +​ +$ +1,041,019 +Loss for the period +​ +4,087,822 +​ +2,586,127 +​ +1,331,998 +​ +855,852 +​ +1,474,930 +​ +2,858,448 +​ +$ +1,873,047 +​ +1,072,673 +Pre-RTO: Weighted Average number of subordinate voting shares outstanding +​ +N/A +​ +N/A +​ +N/A +​ +N/A +​ +N/A +​ +N/A +​ +N/A +​ +N/A +Post-RTO: Weighted Average number of subordinate voting shares outstanding +​ +64,763,198 +​ +42,618,524 +​ +42,287,602 +​ +42,189,920 +​ +41,989,920 +​ +41,981,678 +​ +37,326,420 +​ +28,120,406 +Weighted Average number of proportional shares outstanding +​ +224,801 +​ +224,801 +​ +224,801 +​ +224,801 +​ +224,801 +​ +224,801 +​ +224,801 +​ +224,801 +Loss per share +​ +(0.02) +​ +(0.02) +​ +(0.02) +​ +(0.01) +​ +(0.02) +​ +(0.05) +​ +(0.03) +​ +(0.02) +Exploration and evaluation assets – additions +​ +$ +189,442 +​ +$ +19,918 +​ +$ +75 +​ +$ +— +​ +$ +7,532 +​ +$ +167,492 +​ +$ +— +​ +$ +181 +​ +Exploration Expenses +We commenced exploration at Illinois Creek in Q3 with drilling commencing on July 25, 2025 and concluding on September 28, 2025. A total of 2,964 meters were drilled across 13 exploration drill holes. Four drill holes consisting of 2,057 meters were drilled at the Waterpump Creek South target (WPC25-35 cut 5.9m (core length) grading 38 g/t (1.2 oz/T) Ag and 12.1% Zn, including 3.2m grading 67 g/t (2.1 oz/T) Ag and 16.9% Zn) and nine drill holes consisting of 907 meters were drilled at a new discovery zone, Silver Sage. Among these holes, SS25-04 cut 4.4m (core length) reporting 148 g/t (4.8 oz/T) Ag; 0.68% Pb and 0.24% Zn, including 1 m grading 349g/t (11.2 oz/T) Ag 2.2% Pb and 0.20% Zn. The Silver Sage zone represents a significant exploration breakthrough, located 4.8km south of the Waterpump Creek resource. The discovery has been confirmed through surface trenching, pit sampling, and initial drilling. Early work confirms Silver Sage as a promising mineralized system with near-surface samples running 1,235 g/t silver (“ Ag ”) with 65% lead (“ Pb ”); and 1,135 g/t Ag with 73% Pb. +In addition, field mapping and geochemical sampling were conducted across the district, targeting new areas of CRD potential identified from the 2024 SkyTEM geophysical survey flown by the US Geological Survey and Alaska Depart of Geological & Geophysical Survey. We also staked 46 new State of Alaska mining claims to expand our claim block. +We incurred fewer exploration expenditures in the year ended December 31, 2025 compared to the prior year as less meters were drilled. In 2024 there were 4,230 meters drilled and in 2025 there were 2,964 meters drilled. With fewer meters drilled, the drilling costs were reduced along with the assaying charges as well as camp costs related to the drill campaign. +General and Administrative Expenses +The significant general and administrative expenses incurred for the year ended December 31, 2025 were management fees, marketing expenses, consulting fees and professional fees. Management fees decreased from $1,561,326 in 2024 to $1,347,419 as our stock-based compensation issued to directors, executives and management decreased in 2025, whilst cash compensation remained relatively consistent. Marketing expenses decreased from $652,608 in 2024 to $315,308 as efforts to promote ourselves and our mineral properties through investor, industry conferences and on-line marketing initiatives decreased in 2025. Consulting fees increased from $306,835 in 2024 to $421,243 as we focused on the technical studies related to the exploitation of minerals at our mineral properties. Professional fees increased from $259,140 in 2024 to $388,918 in 2025 as we registered our securities in the United States. +49 +Table of Contents +Transaction with Related Parties +The Company’s related parties include its subsidiaries, key management personnel, and companies related by way of directors or shareholders in common. Transactions with related parties for goods and services are made on normal commercial terms. +During the year ended December 31, 2025, the Company incurred salaries and management fees related to directors and key management of $1,067,078 (2024 - $850,469). +During the year ended December 31, 2025, the Company incurred share-based compensation related to directors and key management of $252,915 (2024 - $926,373). +LIQUITY AND CAPITAL RESOURCES +Liquidity risk is the risk that we will encounter difficulty in satisfying financial obligations as they become due. We manage our liquidity risk by forecasting cash flows from operations and anticipated investing and financing activities. Our objective in managing liquidity risk is to maintain sufficient readily available reserves to meet its liquidity requirements. +Sources of Liquidity +We do not have operating revenue to finance our existing obligations and therefore must continue to rely on external financing to generate capital to maintain our capacity to meet working capital requirements. We have relied on debt and equity raises to finance our operating activities since incorporation. We intend to continue to rely on the issuance shares and to a lesser extent debt to finance our operations. However, there is a risk that additional financing will not be available on a timely basis or on terms acceptable to us. We do not have any material sources of unused sources of liquid assets. All liquid assets are available for use to finance Company operations. +The following table presents our cash, cash equivalents and restricted cash and working capital as of December 31, 2025 and 2024. +​ +​ +​ +​ +​ +​ +​ +​ +​ +Balances at December 31, +​ +Balances at December 31, +​ +​ ​ ​ +2025 (in thousands) +​ ​ ​ +2024 (in thousands) +Cash, cash equivalents and restricted cash +​ +$ +9,054 +​ +$ +850 +Total current assets +​ +$ +9,312 +​ +$ +988 +Less: total current liabilities (1) +​ +8,135 +​ +930 +Working capital +​ +$ +1,177 +​ +$ +58 +(1) The total current liabilities include non-cash liabilities related to derivative liability of $6.358 million (2024 $Nil). If non-cash liabilities are excluded our working capital would be $7.535 million (2024 $0.06 million) +​ +Debt Transactions +On March 21, 2025, we completed an unsecured loan transaction with certain lenders (the “Lenders”), pursuant to which we issued promissory notes in the aggregate principal amount of $1,200,000 (the “Loan”). The Loan will mature after 36 months and bear interest at rate of 10% per annum. The Loan will be payable by us after 12 months. In addition, we have also issued to the Lenders an aggregate of 2,697,600 bonus warrants. Each bonus warrant entitles the holder to purchase one of our subordinate voting share at an exercise price of C$0.64 for a period of 36 months from the date of issuance. Of the $1,200,000, $175,000 was loaned to the Company by certain executive officers and directors, who also received an aggregate of 393,400 warrants. Subsequent to December 31, 2025, the $1,200,000 loan with $120,000 interest was repaid to the Lenders. +In 2021, WACG entered into the Piek Acquisition Agreement to acquire all of the issued and outstanding shares of common stock of Piek for a total purchase price of $3,698,000, which WACG satisfied by the issuance the Piek Promissory Note. Since 2021, the Piek Promissory Note has been amended eight times and both parties have been previously amenable to make amendments in the best interests of our company. As at December 31, 2025, we owed $1,484,593 to the holder of the Piek Promissory Note. Under the terms of the Piek Promissory Note, as amended, 6% of all equity financings are due and payable upon closing of an equity financing to the holder. The remaining balance and all accrued interest is due on July 1, 2027. +50 +Table of Contents +Equity Transactions +On October 3, 2025, we completed a brokered initial US public offering, aggregate of 21,229,000 units for gross proceeds of $13.799 million, and paid cash commissions of $1.035 million and issued 849,160 compensation warrants. +On May 14, 2024, we completed a non-brokered private placement, aggregate of 4,012,981 units for gross proceeds of C$2.608 million, and paid cash commission of C$113,200 and issued 92,923 compensation warrants. +On April 26, 2024, we completed a brokered shelf prospectus offering, aggregate of 9,403,352 units for gross proceeds of C$6.112 million, and paid cash commission of C$366,731 and issued 564,200 compensation warrants. +Cash flows +The following table presents a summary of our cash flows for the years ended December 31, 2025 and 2024: +​ +​ +​ +​ +​ +​ +​ +​ +​ +For the Years Ended, +(in thousands) +​ ​ ​ +December 31, 2025 +​ ​ ​ +December 31, 2024 +Net cash (used in) provided by: +​ +​ +​ +​ +Operating activities +​ +$ +(4,608,498) +​ +$ +(5,780,968) +Investing activities +​ +(209,435) +​ +(176,109) +Financing activities +​ +13,023,971 +​ +5,638,741 +Effect of exchange rates changes on cash and cash equivalents +​ +(1,407) +​ +(23,653) +Increase (Decrease) in cash, cash equivalents, and restricted cash equivalents +​ +$ +8,204,631 +​ +$ +(341,989) +​ +For the financial year ended December 31, 2025, we had negative operating cash flow of $4,608,498. We have no source of operating cash flow and there can be no assurance that we will ever achieve profitability. Accordingly, we are dependent on third party financing to continue exploration activities on its properties, maintain capacity and satisfy contractual obligations. The amount and timing of expenditures will depend on a number of factors, including in material part the progress of ongoing exploration, the results of consultants’ analyses and recommendations, the entering into of any strategic partnerships and the acquisition of additional property interests. Failure to obtain such additional financing could result in delay or indefinite postponement of further exploration and development of our properties or require us to sell one or more of its properties. +Contractual Obligations and Off-Balance Sheet Financing +On March 21, 2025 we obtained a loan of $1,200,000 from a small group of existing shareholders to sustain general and administrative costs until we are able to complete an equity financing. The Loan has a term of three years and matures on March 21, 2028. However, we are permitted to repay the Loan after one year, and we are currently planning to repay the Loan with interest ($1,320,000) on March 21, 2026. Related to the loan, we issued to the Lenders an aggregate of 2,697,600 bonus warrants (the “Warrants”). Each Warrant entitles the holder to purchase one subordinate voting share at an exercise price of C$0.64 for a period of 36 months from the date of issuance. Subsequent to December 31, 2025, the Company repaid the loan of $1,200,000 with $120,000 interest. +As of December 31, 2025, we owed $1,484,593 to the holder of the Piek Promissory Note. Under the terms of the Piek Promissory Note, as amended, 6% of all equity financings are due and payable upon closing of an equity financing to the holder. The remaining balance and all accrued interest is due on July 1, 2027. +Working Capital +As of December 31, 2025, we had working capital of $1,176,731 (December 31, 2024 - $58,637). +Cash +As of December 31, 2025, we had cash of $9,054,203 (December 31, 2024 - $849,572). +51 +Table of Contents +Cash Used in Operating Activities +Cash used in operating activities during the year ended December 31, 2025, was $4,608,498. Cash was mostly spent on exploration expenses, management fees, marketing fees, professional fees and consulting fees. +Cash Used in Investing Activities +During the year ended December 31, 2025, we spent $209,435 on mineral property claim maintenance costs paid to the State of Alaska. +Financing Activities +During the year ended December 31, 2025, we received net proceeds of $13,023,971 from a US public offering, exercises of stock options and share purchase warrants and repayment of promissory notes compared to net proceeds of $5,638,741 from private placements and exercises of stock options during the year ended December 31, 2024. +On October 3, 2025, we completed a brokered US public offering, aggregate of 21,229,000 units for gross proceeds of $13.799 million, and paid cash commissions of $1.035 million and issued 849,160 compensation warrants. +On May 14, 2024, we completed a non-brokered private placement, aggregate of 4,012,981 units for gross proceeds of C$2.608 million, and paid cash commission of C$113,200 and issued 174,154 compensation warrants. +On April 26, 2024, we completed a brokered shelf prospectus offering, aggregate of 9,403,352 units for gross proceeds of C$6.112 million, and paid cash commission of C$366,731 and issued 564,200 compensation warrants. +Other Liabilities +As of December 31, 2025, we owed $1,342,972 (2024 - $722,989) to three related parties, Christopher “Kit” Marrs, Joan Marrs and Joe Piekenbrock. The liability relates to deferred salaries and reimbursable expenses over the past two years. A further $80,148 (2024 - $nil) is owed to two related parties, Darren Morgans and Patrick Donnelly for compensation accrued in 2025 and subsequently paid. +Capital Resources +We have relied mostly on equity financings since our inception to meet our capital resource needs. On two occasions, we have issued debt in circumstances where equity financing was not available and/or would have been too dilutive. We intend to continue to meet our capital resources needs through equity financings as and when needed. +We do not have any material commitments to make capital expenditures. +CRITICAL ACCOUNTING POLICIES AND ESTIMATES +Critical Accounting Policies and Estimates +Our management’s discussion and analysis of our business, financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the consolidated financial statements and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. +Research and Development Activities +We do not incur significant R&D costs. Our major operating costs are costs associated with our exploration activities. +52 +Table of Contents +Share Information +The following table summarizes the fully diluted number of subordinate voting shares outstanding as of December 31, 2025: +​ +​ +​ +​ +​ +​ +​ +​ +​ +Fully diluted subordinate +​ +​ ​ ​ +Undiluted +​ ​ ​ +voting shares +Subordinate voting shares +65,663,486 +65,663,486 +Proportionate voting shares +224,801 +22,480,100 +Total Subordinate voting shares +​ +88,143,586 +Options +4,765,500 +4,765,500 +Restricted share units +401,142 +401,142 +Warrants +39,404,982 +39,404,982 +Fully Diluted Subordinate voting shares +​ +132,715,210 +​ +Going Concern +The recoverability of amounts shown as mineral exploration and evaluation assets is dependent upon the discovery of economically recoverable reserves, our ability to obtain financing to develop the properties and the ultimate realization of profits through future production or sale of the mineral property interests. Realized values may be substantially different than carrying values as recorded in these financial statements. +Our consolidated financial statements have been prepared on a going concern basis, which assumes that we will be able to continue its operation as a going concern for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. At December 31, 2025, we had not achieved profitable operations and had an accumulated deficit of $49,365,286. +We have no source of revenue, income or cash flow. We are wholly dependent upon raising monies through the sale of our subordinate voting shares to finance our business operations. There can be no assurances that this capital will be available in amounts or on terms acceptable to us, or at all. +Market Risks +Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates, and commodity and equity prices. These fluctuations may be significant. +Interest Rate Risk - We are exposed to interest rate risk to the extent that its cash balances bear variable rates of interest. The interest rate risks on cash and on our obligations are not considered significant. +Foreign Currency Risk - We have identified our functional currency as the US dollar. Business is transacted in Canadian dollars and US dollars. We maintain US dollar bank accounts in Canada and the United States to support the cash needs of our operations. +Commodity Price Risk - While the value of our mineral properties is related to the price of gold and silver and the outlook for these minerals, we do not currently have any operating mines and therefore does not have any hedging or other commodity-based risks with respect to its operating activities. +Historically, the price of gold and silver has fluctuated significantly and is affected by numerous factors outside of our control, including, but not limited to, industrial and retail demand, central bank lending, forward sales by producers and speculators, levels of worldwide production, short-term changes in supply and demand because of speculative hedging activities, and certain other factors related specifically to gold and silver. +Income Taxes +In assessing the probability of realizing income tax assets, management makes estimates related to expectation of future taxable income, applicable tax opportunities, expected timing of reversals of existing temporary differences and the likelihood that tax positions taken will be sustained upon examination by applicable tax authorities. In making its assessments, management gives additional weight to positive and negative evidence that can be objectively verified. +53 +Table of Contents +Use of Estimates and Assumptions +The preparation of these consolidated financial statements in conformity with US GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including valuing equity securities in share-based payment arrangements, estimating the fair value of financial instruments recorded as a warrant liability, useful lives of depreciable assets and definite lived intangible assets, and whether impairment charges may apply, and the determination of whether an asset constitutes a business a business combination or asset acquisition. Management bases these estimates on historical and anticipated results, trends, and various other assumptions that we believe are reasonable under the circumstances, including assumptions as to forecasted amounts and future events. Actual results could differ materially from these estimates under different assumptions or conditions. +​ +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +Not applicable. +​ +Item 8. Financial Statements and Supplementary Data +See the financial statements included in this Annual Report on Form 10-K beginning on page F-1, which are incorporated herein by reference. +​ +Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +None. +​ +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosures. +Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2025, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial and accounting officer have concluded that during the period covered by this Report, our disclosure controls and procedures were effective at a reasonable assurance level and, accordingly, provided reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. +Management’s Report on Internal Controls Over Financial Reporting +This Report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the company’s registered public accounting firm due to a transition period established by rules of the SEC for newly public companies. +Due to the Company’s status as an “emerging growth company” under the JOBS Act, the Company was not required to obtain an attestation report from the Company’s independent registered public accounting firm on the Company’s internal control over financial reporting. +54 +Table of Contents +Changes in Internal Control Over Financial Reporting +Management has not identified any change in the Company’s internal control over financial reporting that occurred during the year ended December 31, 2025 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. +​ +Item 9B. Other Information +N o n e . +​ +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not applicable. +​ +55 +Table of Contents +PART III +Item 10. Directors, Executive Officers, and Corporate Governance +Executive Officers and Directors +The following table provides information regarding our executive officers and directors as of December 31, 2025: +Name +​ ​ ​ +Age +​ ​ ​ +Position(s) +Executive Officers: +​ +​ +​ +​ +Christopher “Kit” Marrs +​ +73 +​ +Chief Executive Officer, President, and Director +Joe Piekenbrock +​ +70 +​ +Chief Exploration Officer +Darren Morgans +​ +51 +​ +Chief Financial Officer +Non-Employee Directors +​ +​ +​ +​ +Nate Brewer +​ +73 +​ +Director +Susan Mitchell +​ +77 +​ +Director +Kevin Nishi +​ +61 +​ +Director +David Smallhouse +​ +69 +​ +Director +​ +The following is a biographical summary of the experience of our executive officers, other senior management and directors. There are no family relationships among any of our executive officers, other senior management or directors. +Executive Officers +Christopher (Kit) Marrs, CEO and Director, 73 +Mr. Marrs has served as our President, CEO and Director since November 2021. Prior to November 2021, Mr. Marrs was the President, CEO and Director of Western Alaska Copper & Gold, the predecessor company to Alaska Silver and currently a 100% owned subsidiary of Alaska Silver, since its inception in 2010. Mr. Marrs has more than 40 years’ experience as an Economic Geologist. +Mr. Marrs was a project geologist for Anaconda, based in Anchorage, Alaska. He managed the Illinois Creek and Round Top Projects in the 1980s, along with a number of other projects throughout Alaska, and participated in the discovery of the Greens Creek deposit in southeast Alaska while working for WGM Consultants. Mr. Marrs was also previously a consulting geologist for Noranda Mining and LAC Minerals in Sonora, Mexico. Mr. Marrs has a B.S. in Geology and a M.S. in Economic and Structural Geology from the University of Arizona and is a member of the Society of Economic Geologists, the Alaska Miners Association, and the Arizona Geological Society. Mr. Marrs currently serves on the University of Arizona Geoscience Department Advisory Board, having previously served between 2005 and 2021. +Joe Piekenbrock, Chief Exploration Officer, 70 +Mr. Piekenbrock has served as our Chief Exploration Officer since November 2021. Mr. Piekenbrock brings over 45 years of experience to the mining exploration and development industry where he has managed all aspects of exploration from grassroots discovery through feasibility. +56 +Table of Contents +From 2014 to 2021, he managed his privately owned exploration assets held in Piek Exploration LLC and provided consulting services and advisory expertise for a variety of Canadian TSX-listed companies including Western Alaska Copper and Gold (now Alaska Silver), Sitka Gold (TSX), and Cappex Minerals (now Highlander Silver). During that period, he also served on the Board of Directors for several TSX-listed exploration companies including Solidusgold (now Valhalla Metals) and Tintina Resources (now Sandfire America). From 2011 to 2014 he served as Senior Vice President of Exploration for NovaCopper (now Trilogy Metals). From 2003 to 2011, he served as Vice President, Exploration, for NovaGold Resources. He developed extensive experience throughout Latin America while working for Placer Dome and was one of the founding members of Brett Resources. Earlier in his career, he was a member of the Cominco Alaska exploration team responsible for the discovery of the Whistler Cu deposit, and the Pebble Cu/Au deposit. After joining the Nova group of companies in 2003, he led a series of discoveries including the Donlin Creek Au deposit, the Bornite Cu and the Galore Creek Cu/Au porphyry deposit in Alaska and British Columbia. He was awarded the Thayer Lindsley medal for International Discovery in 2009 for his role in the discovery of the Donlin Creek deposit and the Colin Spence award for International Discovery in 2015 for his contributions to the discovery of South Reef deposit at Bornite. Mr. Piekenbrock holds a Bachelor of Arts degree in geology from the University of Colorado and a Master of Science degree in economic geology from the University of Arizona. +Darren Morgans, Chief Financial Officer, 51 +Mr. Morgans was appointed as our CFO in June 2024, and he is also currently CFO of Cosa Resources Corp, a uranium explorer in the Athabasca Basin in Canada, where he was appointed in February 2023. Mr. Morgans, a Canadian CPA, has been a practicing finance professional since 1995 and has worked with Canadian and Australian publicly listed resource companies for over 30 years. +Previously, Mr. Morgans was a fractional CFO for Velocity Minerals (December 2019 to April 2024) and Volta Metals (January 2023 to September 2023), both Canadian listed junior explorers. Earlier in his career, Mr. Morgans was the CFO of Perpetua Resources Corp (April 2011 to March 2021) (formerly Midas Gold Corp.). Mr. Morgans joined Perpetua when it was a private company and assisted it through its initial public offering in 2011 on the Toronto Stock Exchange and subsequent capital raises of more than C$200 million in equity, convertible debt, and royalty financings, with the focus of advancing the Stibnite Gold Project from a small resource to a Feasibility Study with almost 5 million ounces in reserves. Prior to joining Perpetua in 2011, he was the Controller and Secretary for Terrane Metals Corp. prior to its acquisition by Thompson Creek Metals. He has also worked for Placer Dome Inc. and Mount Isa Mines. Mr. Morgans began his career with PwC after obtaining a Bachelor of Commerce from the University of Queensland. +Non-Employee Directors +Nathan Brewer, Director, 73 +Mr. Brewer has more than 45 years’ experience as an exploration geologist. Since January 2019, he has been self-employed as a consulting economic geologist and has advised three clients on their gold and gold-copper exploration projects. These are Gold Fields Australia Pty. Ltd, and Newcrest Resources Inc, both major mining companies with global exploration interests; and Andex Minerals, a private Canadian company with a gold-copper project in Chile. He has been a Director of Western Alaska Minerals (now Alaska Silver) since we went public in November 2021. Prior to that, Mr. Brewer served as a Director of Western Alaska Copper & Gold starting in 2019. He also served as a Director for Highlander Silver Corp., a Canadian public company, from August 2021 until February 2023. Prior to his retirement from Gold Fields Ltd. in December 2018, Mr., Brewer was Senior Vice President, Global Greenfields Exploration. During his career he led two South American projects from grass roots discovery through resource delineation, PEA, and Pre-Feasibility and Feasibility stages. One of these projects - Salares Norte commenced production in Q1 2024. He also played a role in the acquisition of the Cerro Corona copper-gold project in Peru and the Veladero gold-silver project in Argentina. Both of these projects have since become profitable mines. In addition to his international experience, he worked for Anaconda Minerals in Alaska in the early 1980’s where he was the Project Manager of the Illinois Creek Project from 1982 through 1985 and played a key role in the discovery of the Waterpump Creek deposit. Mr. Brewer holds a BA in Geology from UC Santa Barbara and is a Certified Professional Geologist and Qualified Person as a member of the American Institute of Professional Geologists. He is also a member of the Society of Economic Geologists and was the President of the Denver Regional Exploration Geologists Society from 2019 to 2021. +57 +Table of Contents +David Smallhouse, Director, 69 +Mr. Smallhouse is a fifth generation Tucsonan, graduated from the University of California at Davis with a Bachelor of Science Degree in Agricultural Economics and holds a Master of Science Degree in Agricultural Economics from the University of Arizona. Since 2002 Mr. Smallhouse has been the Managing Partner of Miramar Ventures, LLC, a firm involved in mining, agribusiness, real estate, private equity and venture capital investments. Miramar Ventures is also an active investor in angel and early-stage ventures. In 2015 Mr. Smallhouse was appointed a board member of Dependable Health Services and its three subsidiaries. Kevin Nishi, Director, 61 +Mr. Nishi is a Chartered Professional Accountant and holds a Bachelor of Business Administration degree from Simon Fraser University. He has held several director positions with exploration stage mining companies. Mr. Nishi was an audit partner with Smythe LLP for 28 years working with several public companies listed on the TSX and TSX Venture exchanges in Canada and in the United States before retiring in December 2023. In the past five years, Mr. Nishi is also an independent director of Outcrop Silver & Gold Corporation, a TSX listed company (from February 2015 to current), and was an independent director of Providence Gold Mines Inc a TSXV listed company (January 2021 - March 2023), both companies being in the resource exploration industry. He also completed a 12-year term as an independent director and 10-year term as the treasurer of the Eagle Ridge Hospital Foundation in Port Moody, Canada in June 2023. Mr. Nishi has served as one of our directors since May 10, 2021. +Susan Mitchell, Director, 77 +Ms. Mitchell brings over 40 years of capital markets experience to Alaska Silver, starting her career with Canadian Imperial Bank of Commerce in Toronto in the Corporate Finance and Treasury divisions, participating in raising over C$1 billion in primary capital. She was also Director of Treasury of Cyprus AMAX Minerals and a Managing Director of Metals & Mining, Global Structured finance for Westdeutsche Landesbannk (WESTLB) in New York, NY, and a Director of Risk Solutions with Standard & Poor’s in New York. For the last five years Ms. Mitchell’s principial occupation has been president of her own consulting firm, S. Mitchell & Associates LLC which provides investment banking services and corporate finance advice. Ms. Mitchell formed S, Mitchell & Associates LLC in 2024. Ms. Mitchell is Managing Director, Pickwick Capital Partners doing global investment banking in the metals and mining industry. Ms. Mitchell obtained her International Board Director Competency Designation in 2023. Ms. Mitchell has served as one of our directors since November 1, 2023. Ms. Mitchell was a director of Talisker Resources Ltd from March 2020 to June 2021. +Significant Employees +Principal Geologist; Sage Langston-Stewart +Ms. Langston-Stewart holds both a Master’s (2022) and a Bachelor’s (2020) degree in Geology and Geological Engineering from the Colorado School of Mines. While at Mines, Sage also worked as a laboratory technician in the thin section and SEM laboratories from 2019 to 2020. She worked on numerous other projects including working with the Center for Advanced Subsurface Earth Resource Models on the Hyperspectral Data Project, Tailings to Glass Project, and Mineralogy Across Scales Case Studies while at Mines. Sage worked at the Caribou-Cross Mine in Nederland, Colorado from January 2021 until May of 2022, where she completed her master’s thesis, conducted core logging, underground mapping, and geological modeling at the alkaline Au-Ag intermediate sulfidation magmatic-hydrothermal vein system. Sage developed a conceptual model for the Caribou-Cross deposits including alteration and metal zoning and improved understanding of ore zonation, related alteration assemblages, mineralogy, and spatial distribution of precious metals using optical petrography, micro-X-ray fluorescence, cathodoluminescence microscopy, fluid inclusion petrography and micro-thermometry, FE-SEM-BSE and -EDS, and SEM based automated mineralogy. Sage started with Alaska Silver in the summer of 2020 as an exploration geologist working on the RC drill rig and collecting soil samples on the Illinois Creek Property. Since then, Sage has been critical in the drill targeting and development of the WPC Resource and exploration drilling. She started full time with Alaska Silver in the fall of 2022. Sage now serves as the Principal Geologist, where she leads drill hole targeting, geologic interpretation, geologic modeling, and leads the geologic team. Additionally, Sage manages the core processing facilities, is involved with overall project management, and plays a key role in advancing the geological understanding of the Illinois Creek - Waterpump Creek CRD system. +58 +Table of Contents +Executive Vice President; Patrick Donnelly +Mr. Donnelly possesses extensive experience in mineral exploration, capital markets, corporate development, and investor relations. His career began nearly three decades ago as a project geologist, exploring for precious and base metals as well as diamonds in western and northern Canada. Following this, he transitioned to a role as a mining analyst with a Canadian securities firm. Most recently Mr. Donnelly was the Vice President of Capital Markets for Tudor Gold Corp. Mr. Donnelly has considerable experience working in Alaska due to his time as Vice President of Corporate Communications and Development for Trilogy Metals Inc., where he played a key role in advancing the Upper Kobuk Mineral Projects in Alaska, USA, alongside its partners. During his six years at Trilogy Metals, Mr. Donnelly developed a key understanding of the permitting and political landscape of the state. Mr. Donnelly also held the position of President at First Mining Gold Corporation for over three years. At First Mining, where he was also a co-founder, he spearheaded the company’s initial public offering and listing on the Toronto Stock Exchange. Noteworthy achievements during his tenure at First Mining include the successful negotiation and completion of eight significant transactions. Mr. Donnelly holds a Master of Business Administration from the University of Toronto and a Bachelor of Science in Geological Sciences from the University of British Columbia. Mr. Donnelly is registered as a Professional Geoscientist with the Engineers and Geoscientists of British Columbia. +Committees of the Board of Directors +Our board of directors has an audit committee, and a compensation committee, each of which, pursuant to its respective charter, will have the composition and responsibilities described below upon the completion of this offering. Following the completion of this offering, copies of the charters for each committee will be available on the investor relations portion of our website. Members serve on these committees until their resignation or until otherwise determined by our board of directors. +Audit Committee +Our audit committee is composed of David Smallhouse, Kevin Nishi, and Susan Mitchell. Kevin Nishi is the chair of our audit committee. The majority of the members of our audit committee meet the independence requirements under SEC rules. Nishi, Smallhouse and Mitchell are considered to be “independent” within the meaning of NI 52-110. Each member of our audit committee is financially literate. In addition, our board of directors has determined that Kevin Nishi is an “audit committee financial expert” as that term is defined in Item 407(d)(5)(ii) of Regulation S-K promulgated under the Securities Act. This designation does not, however, impose on him or her any supplemental duties, obligations, or liabilities beyond those that are generally applicable to the other members of our audit committee and board of directors. Our audit committee’s principal functions are to assist our board of directors in its oversight of: +● review, approve, and recommend for approval: +● Our interim financial statements and management discussion and analysis; +● The auditor’s report, if any, prepared in relation to such financial statements; +● recommend the external auditor to be nominated and determine the compensation of the external auditor; +● oversee the work of the external auditor engaged for the purpose of preparing or issuing an auditor’s report or performing other audit, review or attest services completed for us, including the resolution of disagreements between management and the external auditor regarding financial reporting, establishing procedures for employees to anonymously submit concerns about questionable accounting or audit matters; +● monitor, evaluate and report to the board of directors on the integrity of the financial reporting process and the system of internal controls that management and the board of directors have established; +● monitor the management of the principal risks that could impact our financial reporting; +● establish procedures for: +● the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls, or auditing matters; and +59 +Table of Contents +● the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters; +● pre-approve all non-audit services to be provided to us or its subsidiary entities by our external auditor; +● review and approve our hiring policies regarding partners, employees and former partners and employees of our present and former external auditor, and +● with respect to ensuring the integrity of disclosure controls and internal controls over financial reporting, understand the process utilized by the Chief Executive Officer and the Chief Financial Officer. +Compensation Committee +Our compensation committee is composed of Nathan Brewer, David Smallhouse, and Kevin Nishi. David Smallhouse is the chair of our compensation committee. The members of our compensation committee meet the independence requirements under SEC rules, and NI 52-110. Each member of this committee is also a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act. Our compensation committee is responsible for, among other things: +● Making recommendations to our Board regarding the compensation of our directors and officers. +● From time to time, establishing parameters and guidelines to the magnitude and frequency of security-based compensation arrangements for eligible new hires and other employees, within the parameters set out our LTIP and applicable exchange rules and policies, and recommending such grants to the Board for approval. +● Assessing our objectives in light of our external environment and current business situation. +● Considering and if appropriate recommending if annual bonuses should be granted to executive officers and recommends those grants to the Board. +Code of Ethics +We have adopted a Code of Conduct that applies to all directors, officers and employees. We intend to disclose any future amendments to, or waivers from, certain provisions of our Code of Conduct as required in the future. A copy of our Code of Conduct has been made available on our website at www.alaskasilver.com/investors. +Insider Trading Policy +Our Board has adopted an Insider Trading Policy governing the purchase, sale and/or other dispositions of its securities, by all officers and employees of the Company, all members of the Company’s Board, and any consultants, advisors or contractors to the Company that the Company designates as subject to the Insider Trading Policy, that we believe is reasonably designed to promote compliance with insider trading laws, rules and regulations applicable to us. Our Insider Trading Policy was filed as Exhibit 19.1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. +Item 11. Executive Compensation +Overview +The following discussion contains forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. The actual amount and form of compensation and the compensation policies and practices that we adopt in the future may differ materially from currently planned programs as summarized in this discussion. +As an “emerging growth company,” we have opted to comply with the executive compensation disclosure rules applicable to “smaller reporting companies,” as such term is defined in the rules promulgated under the Securities Act. This section provides an overview of the compensation awarded to, earned by, or paid to each individual who served as our principal executive officer during +60 +Table of Contents +fiscal years 2024 and 2025, and our next two most highly compensated executive officers in respect of their service to our company for fiscal years 2024 and 2025. We refer to these individuals as our “NEOs”. Our NEOs for fiscal years 2024 and 2025 are: +● Christopher “Kit” Marrs, Chief Executive Officer +● Darren Morgans, Chief Financial Officer +● Joe Piekenbrock, Chief Exploration Officer +● Alex Tong, Former Chief Financial Officer (Resigned effective May 31, 2024) +The compensation paid in Canadian dollars was converted to United States dollars using the Bank of Canada daily rate of exchange reported on December 31, 2025, as set forth in this prospectus under the heading “About this Prospectus and Exchange Rates”. +Summary Compensation Table +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +​ +​ ​ ​ +​ +​ ​ ​ +Annual +​ ​ ​ +Option- +​ ​ ​ +​ +​ +​ +Fiscal +​ +Salary +​ +Incentive +​ +awards +​ +Total +Name and principal position +​ ​ ​ +year +​ ​ ​ +($) +​ ​ ​ +Plans ($) +​ ​ ​ +($) (1) +​ ​ ​ +($) +Christopher Marrs, President and Chief Executive Officer +2025 +262,500 +91,875 +6,706 +361,081 +​ +2024 +257,111 +— +131,688 +388,799 +Darren Morgans, Chief Financial Officer (3) +2025 +147,525 +32,965 +34,559 +215,049 +​ +2024 +65,835 +— +39,676 +105,511 +Joe Piekenbrock, Chief Exploration Officer +2025 +36,000 +— +5,582 +41,582 +​ +2024 +49,346 +— +104,318 +153,664 +Alex Tong, Former Chief Financial Officer (4) +2025 +— +— +— +— +​ +2024 +42,357 +— +94,850 +137,207 +(1) Amounts reflect the aggregate grant date fair value of stock options granted to our NEOs, computed in accordance with the provisions of ASC Topic 718, Compensation - Stock Compensation. These amounts do not reflect the actual economic value that will be realized by the employee upon the vesting, settlement or exercise of the stock option. The assumptions that we used to calculate these amounts are discussed in Note 9 to our audited consolidated financial statements for the fiscal year ended December 31, 2025. +(2) Mr. Morgans’ Compensation is dominated in Canadian Dollars. For 2025, Mr. Morgans was paid C$252,308 which is converted to $180,490 at the monthly average exchange rate through the year. For 2024 Mr. Morgans was paid C$88,000 which is converted to $65,835 at the monthly average exchange rate through the year. +(3) Mr. Tong’s compensation is denominated in Canadian Dollars. For 2024 Mr. Tong was paid C$57,292 which was converted to $42,357 at the monthly average exchange rate through the year. +Narrative to 2025 Summary Compensation Table +Base Salaries: Salaries and consulting fees are determined by the Compensation Committee based on market conditions and established in the executive employment agreements described below. +Annual Bonuses: There were annual bonuses paid in 2025; however no annual bonuses were paid in 2024 due to our limited working capital. For the CEO and CFO, who are eligible for annual bonuses, the amount may be up to 50% to 70% of their base salary, as approved by the Board of Directors based on a recommendation from the Compensation Committee after an evaluation of their individual contributions to us during the fiscal year and consideration of our working capital position. +Equity Compensation: We utilize stock options as a long-term incentive plan to attract and retain senior executives. The exercise price is the closing price of our subordinate voting shares on the day before the grant date. The stock options vest ratably over a period of zero to two years, and they are exercisable for a five-year term. +61 +Table of Contents +Grants of Options for 2024 and 2025: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Exercise +​ +​ +​ +Vesting +​ +​ +Name +​ ​ ​ +# of Options +​ ​ ​ +price +​ ​ ​ +Grant date +​ ​ ​ +Schedule +​ ​ ​ +Expiry +Alexander Tong +75,000 +0.34 +​ +March 1, 2024 +1 +​ +March 1, 2029 +Christopher Marrs +75,000 +0.34 +​ +March 1, 2024 +1 +​ +March 1, 2029 +Christopher Marrs +125,000 +0.31 +​ +Dec 27, 2024 +2 +​ +Dec 27, 2029 +Darren Morgans +100,000 +0.59 +​ +June 14, 2024 +1 +​ +June 14, 2029 +Darren Morgans +100,000 +0.31 +​ +Dec 27, 2024 +2 +​ +Dec 27, 2029 +Darren Morgans +100,000 +0.73 +​ +June 23, 2025 +1 +​ +June 23, 2030 +Patrick Donnelly +300,000 +0.73 +​ +June 23, 2025 +1 +​ +June 23, 2030 +Joe Piekenbrock +50,000 +0.34 +​ +March 1, 2024 +1 +​ +March 1, 2029 +Joe Piekenbrock +40,000 +0.31 +​ +Dec 27, 2024 +2 +​ +Dec 27, 2029 +​ +Vesting Schedule 1: These stock options vest 33% upon grant, 33% after one year and 34% after two years. +Vesting Schedule 2: These stock options vest 100% upon grant. +Non-Employee Director Compensation +The following table provides information regarding the total compensation that was earned by or paid to each of our non-employee directors during fiscal year 2025. +Director compensation is limited strictly to non-employee directors. Our director’s compensation philosophy is as follows: +● To provide a compensation level that will attract exceptionally experienced and skilled candidates and encourage them to play an active role in our strategic development; +● To compensate for work on the Board and work on the committees of the Board; and +● To provide share-based compensation to align director compensation with increases in long-term shareholder value. +Annual Cash Retainers +In 2024, we adopted a director compensation policy under which our non-employee directors, other than Ms. Mitchell, received in 2024, a fee of $18,000 for board service, payable in cash or restricted stock units, or “RSUs”, at the election of each director. Each director elected to receive such fee in the form of RSUs. Ms. Mitchell did not receive any director fees in 2024, but was paid, through her limited liability company, an annual cash retainer of $36,000 in equal monthly installments for corporate finance advisory services provided to our company pursuant to an agreement entered in 2023 and terminated in October 2024. +As of January 1, 2025, all of our non-employee directors are entitled to receive annual compensation of $36,000 for board service, payable at the election of each director in cash or RSUs. +Chairs of the Audit and Compensation Committees do not receive additional retainers. +Share-Based Compensation +Non-employee directors are eligible for grants of stock options. The exercise price is the closing price of a share of our subordinate voting shares on the day before the grant date. The stock options vest immediately or over a two year period from the grant date, and they are exercisable for a five-year term. Refer to the table below for details of all stock options granted in the last two fiscal years. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Exercise +​ +​ +​ +Vesting +​ +​ +Name +​ ​ ​ +# of Options +​ ​ ​ +price +​ ​ ​ +Grant date +​ ​ ​ +Schedule +​ ​ ​ +Expiry +Susan Mitchell +75,000 +0.34 +​ +March 1, 2024 +1 +​ +March 1, 2029 +Kevin Nishi +75,000 +0.34 +​ +March 1, 2024 +1 +​ +March 1, 2029 +Nathan Brewer +75,000 +0.34 +​ +March 1, 2024 +1 +​ +March 1, 2029 +62 +Table of Contents +David Smallhouse +75,000 +0.34 +​ +March 1, 2024 +1 +​ +March 1, 2029 +Susan Mitchell +100,000 +0.59 +​ +June 14, 2024 +1 +​ +June 14, 2029 +Susan Mitchell +75,000 +0.31 +​ +Dec 27, 2024 +2 +​ +Dec 27, 2029 +Kevin Nishi +75,000 +0.31 +​ +Dec 27, 2024 +2 +​ +Dec 27, 2029 +Nathan Brewer +75,000 +0.31 +​ +Dec 27, 2024 +2 +​ +Dec 27, 2029 +David Smallhouse +75,000 +0.31 +​ +Dec 27, 2024 +2 +​ +Dec 27, 2029 +​ +Vesting Schedule 1: These stock options vest 33% upon grant, 33% after one year and 34% after two years. +Vesting Schedule 2: These stock options vest 100% upon grant. +Non-employee directors are also eligible to elect to receive their fee for serving as a director of our company in the form of RSUs. As a result, on October 17, 2024 we issued 38,196 RSUs to each of Mr. Smallhouse, Mr. Brewer and Mr. Nishi. Each RSU entitles the holder to be issued one subordinate voting share on vesting. All the RSUs will vest one year from the grant date. Ms. Mitchell did not receive any director fees in 2024 but instead was paid, through her limited liability company, S. Mitchell & Associates, LLC, an annual cash retainer of $36,000 in equal monthly installments for corporate finance advisory services provided to our company pursuant to an agreement entered in 2023 and terminated in October 2024. +RSUs accrue dividends that are only paid out on the vesting of the underlying subordinate voting shares. Each stock option and RSU award will vest in full upon a Change of Control, as previously defined under Executive Compensation - Termination and Change of Control Benefits. +The following table sets forth the total compensation for our non-employee directors for the fiscal year ended December 31, 2025. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Non-equity incentive +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +plan compensation +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +($) +​ +​ +​ +​ +​ +​ +​ +​ +Fees +​ +​ +​ +​ +​ +​ +​ +​ +​ +Nonqualified +​ +​ +​ +​ +​ +​ +earned +​ +​ +​ +​ +​ +​ +​ +Long- +​ +deferred +​ +​ +​ +​ +​ +​ +or paid +​ +Stock +​ +Option +​ +Annual +​ +term +​ +compensation +​ +All other +​ +​ +​ +​ +in cash +​ +awards (1) +​ +awards (1) +​ +incentive +​ +incentive +​ +earnings +​ +compensation +​ +Total +Name +​ ​ ​ +($) +​ ​ ​ +($) +​ ​ ​ +($) +​ ​ ​ +plans +​ ​ ​ +plans +​ ​ ​ +($) +​ ​ ​ +($) +​ ​ ​ +($) +Nathan Brewer +​ +— +​ +36,000 +​ +— +​ +— +​ +— +​ +— +​ +— +​ +36,000 +David Smallhouse +​ +— +​ +36,000 +​ +— +​ +— +​ +— +​ +— +​ +— +​ +36,000 +Kevin Nishi +​ +— +​ +36,000 +​ +— +​ +— +​ +— +​ +— +​ +— +​ +36,000 +Susan Mitchell +36,000 +— +— +— +— +— +— +36,000 +(1) Amounts reflect the aggregate grant date fair value of RSUs and stock options granted to our non-employee directors, computed in accordance with the provisions of ASC Topic 718, Compensation - Stock Compensation. These amounts do not reflect the actual economic value that will be realized by the director upon the vesting, settlement or exercise of the RSU or stock option. The assumptions that we used to calculate these amounts are discussed in Note 9 to our audited consolidated financial statements for the fiscal year ended December 31, 2025. +The table below shows the aggregate numbers of our subordinate voting shares subject to unvested RSUs or outstanding stock options (exercisable and unexercisable) held as of December 31, 2025 by each non-employee director who served on our Board during 2025. +​ +​ +​ +​ +​ +​ +​ +Options +​ +RSUs +​ +​ +Outstanding at +​ +Outstanding at +​ +​ +Year End +​ +Year End +Name +​ ​ ​ +(#) +​ ​ ​ +(#) +Nathan Brewer +315,000 +96,762 +David Smallhouse +160,500 +96,762 +Kevin Nishi +210,000 +96,762 +Susan Mitchell +250,000 +— +63 +Table of Contents +Executive Employment Agreements +The following are descriptions of the employment agreements with our NEOs. For a discussion of the severance pay and other benefits to be provided in connection with a termination of employment and/or a change in control under the arrangements with our NEOs, please see “Non-Employee Director Compensation - Termination and Change of Control Benefits” below. +Chief Executive Officer Agreement +We have in place an executive employment agreement with Christopher Marrs effective January 1, 2023 (the “CEO Agreement”), pursuant to which Mr. Marrs provides President and Chief Executive Officer services to us at an annual salary of $262,500 (the “CEO Fee”). Mr. Marrs is entitled to an annual bonus of up to 70% of the CEO Fee subject to approval of the Board of Directors based on a recommendation by the Compensation Committee. +Chief Financial Officer Agreement +We have in place a executive employment agreement with 1397257 BC Ltd, a company controlled by Mr. Morgans, effective May 20, 2024 (the “CFO Agreement”), pursuant to which Mr. Morgans provides Chief Financial Officer services to us at an annual salary of C$144,000. Effective June 1, 2025 Mr. Morgans annual salary was increased to C$157,500. Effective October 1, 2025 Mr. Morgans’ annual salary was increased to C$190,800 (“CFO Fee”) to reflect an increased work load. Mr. Morgans is entitled to an annual bonus of up 50% of the CFO Fee subject to approval of the Board of Directors based on a recommendation by the Compensation Committee. Mr. Morgans dedicates approximately 50% of his time to us. +Chief Exploration Officer Agreement +We had put in place an executive employment agreement with Joe Piekenbrock effective January 1, 2023 (the “CXO Agreement”), pursuant to which Mr. Piekenbrock provides Chief Exploration Officer services to us at an annual salary of $243,750 which was reduced by 75% to $60,937.50 at June 1, 2023 (the “CXO Fee”). Effective July 1, 2024 the agreement was terminated, and Mr. Piekenbrock provided his services through Piek Exploration LLC, where the rate was further reduced to $3,000 per month plus expenses. +64 +Table of Contents +Outstanding Equity Awards at Fiscal Year-End +The following table presents information regarding outstanding equity awards held by our NEOs as of December 31, 2025. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Option Awards +​ +​ +​ +​ +​ +​ +​ +​ +Equity +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Incentive +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Plan +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Awards: +​ +​ +​ +​ +​ +​ +​ +​ +Number of +​ +Number of +​ +Number of +​ +​ +​ +​ +​ +​ +​ +​ +Securities +​ +Securities +​ +Securities +​ +​ +​ +​ +​ +​ +​ +​ +Underlying +​ +Underlying +​ +Underlying +​ +​ +​ +​ +​ +​ +​ +​ +Unexercised +​ +Unexercised +​ +Unexercised +​ +Option +​ +​ +​ +​ +​ +​ +Options +​ +Options +​ +Unearned +​ +Exercise +​ +Option +​ +​ +Grant +​ +(#) +​ +(#) +​ +Options +​ +Price +​ +Expiration +Name +​ ​ ​ +Date (1) +​ ​ ​ +Exercisable +​ ​ ​ +Unexercisable +​ ​ ​ +(#) +​ ​ ​ +(C$) +​ ​ ​ +Date +Christopher Marrs +​ +Mar 1, 2021 +​ ​ ​ +35,000 +​ +— +​ ​ ​ +— +​ +$ +0.45 +​ ​ ​ +Mar 1, 2026 +​ +​ +Jun 15, 2021 +80,000 +​ +— +— +​ +$ +0.45 +​ +Jun 15, 2026 +​ +​ +Nov, 12, 2021 +70,000 +​ +— +— +​ +$ +0.62 +​ +Nov 12, 2026 +​ +​ +Jan 20, 2023 +100,000 +​ +— +— +​ +$ +2.30 +​ +Jan 20, 2028 +​ +​ +Mar 1, 2024 +50,000 +​ +25,000 +— +​ +$ +0.36 +​ +Mar 1, 2029 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Darren Morgans +​ +Jun 14, 2024 +66,666 +​ +33,334 +— +​ +$ +0.62 +​ +Jun 14, 2029 +​ +​ +Dec 27, 2024 +100,000 +​ +— +— +​ +$ +0.32 +​ +Dec 27, 2029 +​ +​ +June 23, 2025 +33,334 +​ +66,666 +— +​ +$ +0.53 +​ +June 23, 2030 +Joe Piekenbrock +​ +Jan 20, 2023 +100,000 +​ +— +— +​ +$ +2.30 +​ +Jan 20, 2028 +​ +​ +Mar 1, 2024 +33,333 +​ +16,667 +— +​ +$ +0.36 +​ +Mar 1, 2029 +​ +​ +Dec 27, 2024 +40,000 +​ +— +— +​ +$ +0.32 +​ +Dec 27, 2029 +(1) These option vests options vest 33% upon grant, 33% after one year and 34% after two years, except for the options granted on Dec 27, 2024 which vested 100% upon grant. +Pension and Other Retirement Benefits +We do not have a defined benefit plan, a deferred contribution plan, a deferred compensation plan or a pension plan. +Termination and Change of Control Benefits +Chief Executive Officer Agreement +Pursuant to the CEO Agreement, we may terminate the CEO Agreement at any time with or without cause. If we terminate the CEO Agreement without cause or if Mr. Marrs resigns under certain allowable circumstances, Mr. Marrs is entitled to a severance payment in an amount equal to (i) 2 times the CEO Fee; (ii) 2 times an amount equal to 70% of the CEO Fee and (iii) any unvested LTIP awards will vest immediately. If we terminate the CEO Agreement with cause or if Mr. Marrs resigns for any other reason, Mr. Marrs is not entitled to a severance payment nor any unvested LTIP awards. If, within 12 months of a Change of Control (as defined below), we terminate the CEO Agreement without cause or if Mr. Marrs resigns under certain allowable circumstances, Mr. Marrs is entitled to a severance payment in an amount equal to (i) 2 times the CEO Fee; (ii) 2 times an amount equal to 70% of the CEO Fee and (iii) any unvested LTIP awards will vest immediately. Under the LTIP, upon termination all LTIP awards terminate 120 days after termination. +Chief Financial Officer Agreement +Pursuant to the CFO Agreement, we may terminate the CFO Agreement at any time with or without cause. If we terminate the CFO Agreement without cause or if Mr. Morgans resigns under certain allowable circumstances, 1397257 BC Ltd is entitled to a severance payment in an amount equal to (i) the CFO Fee and (ii) an amount equal to the bonus paid in the previous year. If we terminate the CFO Agreement with cause or if Mr. Morgans resigns for any other reason, 1397257 BC Ltd is not entitled to a severance payment. If, within 12 months of a Change of Control (as defined below), we terminate the CFO Agreement without cause or if Mr. Morgans resigns under certain allowable circumstances, Mr. Morgans is entitled to a severance payment equal to (i) the CFO Fee and (ii) an amount equal to 50% of the CFO Fee. Under the LTIP, upon termination all LTIP awards terminate 120 days after termination. +65 +Table of Contents +Chief Exploration Officer Agreement +Our current consulting services agreement with Piek Exploration LLC, a company controlled by Mr. Piekenbrock, effective July 1, 2024, does not contain any change of control benefits. It does, however, provide that if termination occurs without cause and while Mr. Piekenbrock is in the field pursuant to the consulting services agreement, we must reimburse Mr. Piekenbrock for all reasonable expenses to return him to Evergreen, Colorado. Under the LTIP, upon termination all LTIP awards terminate 120 days after termination. +For the purposes of the executive employment and consulting agreements discussed above, a “Change of Control” is defined as the occurrence of any of the following: (a) any individual, entity or group of individuals or entities acting jointly or in concert (other than us, our subsidiaries or an employee benefit plan or trust maintained by us or our subsidiaries, or any company owned, directly or indirectly, by our Shareholders in substantially the same proportions as their ownership of Subordinate voting shares) acquiring beneficial ownership, directly or indirectly, of more than 50% of our combined voting power then outstanding securities (excluding any “person” who becomes such a beneficial owner in connection with a transaction described in paragraph (b) below); (b) the consummation of an arrangement, amalgamation, merger, consolidation or other similar business combination transaction or any of our direct or indirect subsidiaries with any other corporation, other than an arrangement, amalgamation, merger, consolidation or other similar business combination transaction which would result in our voting securities outstanding immediately prior to such transaction continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity or any parent thereof) more than 50% of the combined voting power or the total fair market value of our securities or such surviving entity or any parent thereof outstanding immediately after such transaction; provided, however, that an arrangement, amalgamation, merger, consolidation or other similar business combination transaction effected to implement a recapitalization of our business (or similar transaction) in which no person (other than those covered by the exceptions in paragraph (a) of this definition) acquires more than 50% of our combined voting power then outstanding securities shall not constitute a Change in Control of our business; or (c) a complete liquidation or dissolution of our business or the consummation of any sale, lease, exchange or other transfer (in one transaction or a series of transactions) of all or substantially all of our assets; other than such liquidation, sale or disposition to a person or persons who beneficially own, directly or indirectly, more than 50% of the combined voting power of our outstanding voting securities at the time of the sale. +Option Grant Policy and Practices +As a general practice, our Compensation Committee grants options prior to January 15 of each year and does not grant stock options or similar awards in anticipation of the release of material nonpublic information that is likely to result in changes to the price of our subordinate voting shares and we do not time the public release of such information based on stock option grant dates. In the event material nonpublic information becomes known to the Compensation Committee before granting an equity-based compensation award, the Compensation Committee will consider such information and use its business judgment to determine whether to delay the grant of equity to avoid any appearance of impropriety. +​ +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The table below sets forth information known to us regarding the beneficial ownership of our subordinate voting shares as of March 16, 2026 for: +● each person we believe beneficially owns more than 5% of our outstanding subordinate voting shares; +● each of our directors and NEOs; and +● all our directors and executive officers as a group. +We have determined beneficial ownership in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Except as otherwise indicated, the persons in the table below have sole voting and investment power with respect to all subordinate voting shares shown as beneficially owned by them, subject to community property laws where applicable. We do not know of any arrangement, the operation of which may at a subsequent date result in a change in control of us. +Beneficial ownership is based on 88,749,150 subordinate voting shares outstanding as of March 16,, 2026. The number of subordinate voting shares beneficially owned by a person includes shares subject to options held by that person that are currently exercisable or that become exercisable within 60 days of March 16, 2026. Percentage calculations assume, for each person and group, +66 +Table of Contents +that all subordinate voting shares that may be acquired by such person or group pursuant to options or other securities currently exercisable or convertible or that become exercisable or convertible within 60 days of March 16, 2026 are outstanding for the purpose of computing the percentage of subordinate voting shares owned by such person or group. However, such unissued subordinate voting shares described above are not deemed to be outstanding for calculating the percentage of subordinate voting shares owned by any other person. +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Number of +​ ​ ​ +​ +​ +​ +Subordinate +​ +Percentage of +​ +​ +Voting +​ +Subordinate +​ +​ +Shares +​ +Voting Shares +​ +​ +Beneficially +​ +Beneficially +Name and Address of Beneficial Ownership +​ +Owned (1) +​ +Owned (%) +Nate Brewer (1500‑1111 West Hastings St, Vancouver, British Columbia, V6E 2J3, Canada) +488,984 +(2) ​ +* +​ +Christopher “Kit” Marrs (1500‑1111 West Hastings St, Vancouver, British Columbia, V6E 2J3, Canada +12,050,605 +(3) ​ +13.6 +% +Susan Mitchell (1500‑ 1111 West Hastings St, Vancouver, British Columbia, V6E 2J3, Canada) +218,000 +(4) ​ +* +​ +Darren Morgans (1500‑1111 West Hastings St, Vancouver, British Columbia, V6E 2J3, Canada) +267,000 +(5) ​ +* +​ +Kevin Nishi (1500‑1111 West Hastings St, Vancouver, British Columbia, V6E 2J3, Canada) +314,500 +(6) ​ +* +​ +Joe Piekenbrock (1500‑1111 West Hastings St, Vancouver, British Columbia, V6E 2J3, Canada) +1,987,140 +(7) ​ +2.2 +% +David Smallhouse (1500‑1111 West Hastings St, Vancouver, British Columbia, V6E 2J3, Canada) +4,277,636 +(8) ​ +4.8 +% +Crescat Portfolio Management LLC (44 Cook Street, Suite 100, Denver, CO. 80206) +14,815,322 +(9) ​ +16.7 +% +​ +​ +​ +​ +​ +​ +All executive officers and directors as a group +19,703,349 +22.2 +% +* +Less than 1%. +(2) Consists of 100,000 subordinate voting shares, 79,984 subordinate voting shares issuable upon the vesting of RSUs and 315,000 subordinate voting shares issuable upon exercise of options. +(3) Consists of (a) 5,558,947 subordinate voting shares, 325,00 subordinate voting shares issuable upon exercise of options, and 207,042 subordinate voting shares issuable upon exercise of warrants, in each case, held by Christopher “Kit” Marrs, and (b) 5,457,574 subordinate voting shares, 295,000 subordinate voting shares issuable upon exercise of options, and 207,042 subordinate voting shares issuable upon exercise of warrants, in each case held by Joan Marrs, who is Christopher “Kit” Marrs’s spouse. +(4) Consists of 2,000 subordinate voting shares and 216,000 subordinate voting shares issuable upon exercise of options. +(5) Consists of 267,000 subordinate voting shares issuable upon exercise of options. +(6) Consists of 130,000 subordinate voting shares, 73,984 subordinate voting shares issuable upon vesting of RSUs and 210,000 subordinate voting shares issuable upon exercise of options. +(7) Consists of 1,740,940 subordinate voting shares, 190,000 subordinate voting shares issuable upon exercise of options, and 56,200 subordinate voting shares issuable upon exercise of 56,200 warrants. +(8) Consists of (a) 304,500 subordinate voting shares, 165,500 subordinate voting shares issuable upon exercise of options, 73,984 subordinate voting shares issuable upon vesting of RSUs and 65,000 subordinate voting shares upon exercise of warrants, in each case held by Mr. Smallhouse; (b) 710,000 subordinate voting shares and 81,200 subordinate voting shares issuable upon exercise of 81,200 warrants, in each case, held by Miramar Ventures LLC, a company controlled by Mr. Smallhouse; (c) 60,000 subordinate voting shares held by Arch Partners, LLC, a company controlled by Mr., Smallhouse; and (d) 2,248,286 subordinate voting shares, and 574,166 subordinate voting shares issuable upon the exercise of 574,166 warrants, in each case, held by SBS Ventures, LLC, a company controlled by Mr. Smallhouse’ s spouse. +(9) Consists of 11,784,924 subordinate voting shares and 3,030,398 subordinate voting shares issuable upon exercise of warrants all held by entities managed by Crescat Portfolio Management LLC (“Crescat” and such entities managed by Crescat, the “Funds”), which consist of (a) Crescat Global Macro Master Fund Ltd, which beneficially owns 4,232,565 subordinate voting shares and +67 +Table of Contents +536,637 subordinate voting shares issuable upon exercise of warrants; (b) Crescat Institutional Commodity Master Fund Ltd, which beneficially owns 349,016 subordinate voting shares and 57,343 subordinate voting shares issuable upon exercise of warrants, (c) Crescat Institutional Macro Master Fund Ltd, which beneficially owns 373,780 subordinate voting shares and 32,565 warrants exercisable for 35,565 subordinate voting shares, (d) Crescat Long/Short Master Fund Ltd, which beneficially owns 695,973 subordinate voting shares and 114,439 warrants exercisable for 114,439 subordinate voting shares, and (e) Crescat Precious Metals Master Fund Ltd, which beneficially owns 6,133,590 subordinate voting shares and 2,289,414 warrants exercisable for 2,289,414 subordinate voting shares. Crescat has the sole power to direct the vote and disposition of the securities held by the Funds. +​ +Item 13. Certain Relationships and Related Transactions, and Director Independence +Related Party Transactions +Christopher “Kit” Marrs, our Chief Executive Officer, President and Director, directly, and indirectly through his wife Joan Marrs, loaned us $125,000 on March 21, 2025 as part of a $1,200,000 that included other shareholders. The Loan is due to be repaid on March 21, 2028 and will accrue interest at 10% per year, payable at maturity of the Loan. The Loan may be repaid early but not before March 21, 2026. Related to the Loan, Christopher “Kit” Marrs, and indirectly through his wife Joan Marrs, received 281,000 warrants to acquire subordinate voting shares at an exercise price of C$0.64 per share. The warrants expire on March 21, 2028. On March 23, 2026 the loan principal and interest was repaid in full. +In 2021, ASUS entered into the Piek Acquisition Agreement to acquire all of the issued and outstanding shares of common stock of Piek for a total purchase price of $3,698,000, which ASUS satisfied by the issuance the Piek Promissory Note. Since 2021, the Piek Promissory Note has been amended seven times. As at December 31, 2024, we owed $1,484,593 to Joe Piekenbrock, our Chief Exploration Officer, who is the holder of the Piek Promissory Note. Under the terms of the Piek Promissory Note, as amended, 6% of all equity financings are due and payable upon closing of an equity financing to the holder. The remaining balance and all accrued interest is be due on July 1, 2027. +Indemnification Agreements +Our amended and restated certificate of incorporation contains provisions limiting the liability of directors, and our amended and restated articles provide that we will indemnify each of our directors and officers to the fullest extent permitted under law. In addition, we have entered into an indemnification agreement with each of our directors and our Chief Financial Officer, which requires us to indemnify them. +Policies and Procedures for Transactions with Related Persons +We adopted a written policy that our executive officers, directors, nominees for election as a director, beneficial owners of more than 5% of our issued and outstanding subordinate voting shares and any members of the immediate family of any of the foregoing persons are not permitted to enter into a related person transaction with us without the approval or ratification of our Board or our audit committee. Any request for us to enter into a transaction with an executive officer, director, nominee for election as a director, beneficial owner of more than 5% of our issued and outstanding subordinate voting shares, or any member of the immediate family of any of the foregoing persons, in which the amount involved exceeds $120,000 and such person would have a direct or indirect interest, will be required to be presented to our Board or our audit committee for review, consideration and approval. In approving or rejecting any such proposal, our Board or our audit committee will consider the material facts of the transaction, including whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction. +68 +Table of Contents +Item 14. Principal Accounting Fees and Services +Independent Registered Public Accounting Firm Fee Information +The following table sets forth the aggregate fees billed by Davidson & Company LLP (“Davidson”), independent registered public accounting firm, for the services indicated for each of the years ended December 31, 2025 and 2024: +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +December 31, +​ ​ ​ +December 31, +​ +​ +2025 +​ +2024 +Audit fees +​ +$ +111,293 +​ +$ +83,500 +Audit related fees +​ +— +​ +— +Tax fees +​ +— +​ +— +All other fees +​ +— +​ +— +Total +​ +$ +111,293 +​ +$ +83,500 +​ +Audit Committee Pre-Approval Policies and Procedures +Our Audit Committee pre-approves all auditing services and the terms of non-audit services provided by our independent registered public accounting firm, but only to the extent that the non-audit services are not prohibited under applicable law and the committee determines that the non-audit services do not impair the independence of the independent registered public accounting firm. Under our Audit Committees pre-approval policies and procedures, the Audit Committee generally pre-approves specified services in defined categories up to specified amounts. Pre-approval may also be given as part of the Audit Committee’s approval of the scope of the engagement of the independent registered public accounting firm or on a case-by-case basis for specific tasks before engagement. Our Audit Committee has considered and determined that the provision of the non-audit services described is compatible with maintaining the independence of our registered public accounting firm. +​ +69 +Table of Contents +PART IV +Item 15. Exhibits, Financial Statement Schedules +(a) +(1) Financial Statements +The financial statements are included in this Annual Report on Form 10-K beginning on page F-1. +(2) Financial Statement Schedules +All financial statement schedules have been omitted since the information is either not applicable or required or was included in the financial statements or notes included in this Annual Report on Form 10-K. +(3) List of Exhibits required by Item 601 of Regulation S-K. See part (b) below. +(b) Exhibits. The following exhibits are filed or furnished with this report. +EXHIBIT INDEX +Exhibit +No. +​ ​ ​ +Description of Exhibit +​ ​ ​ +Incorporated +by Reference +​ ​ ​ +Filing Date +​ ​ ​ +Filed +Herewith +1.1 +​ +Underwriting Agreement, dated September 30, 2025 +​ +10-Q +​ +11/13/2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +3.1 +​ +Notice of Articles +​ +S-1 +​ +9/12/2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +3.2 +​ +Articles of Incorporation +​ +S-1 +​ +9/12/2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +4.1 +​ +Form of Warrant +​ +S-1/A +​ +9/29/2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +4.2 +​ +Form of Underwriter’s Warrant +​ +S-1/A +​ +9/29/2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +4.3 +​ +Form of Warrant Agency Agreement +​ +S-1/A +​ +9/29/2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +10.1 +​ +Promissory Note dated March 31, 2021 by and between our company and Joe Piekenbrock +​ +S-1 +​ +9/12/2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +10.2 +​ +First Amendment to Promissory Note effective August 16, 2021 by and between Western Alaska Copper & Gold and Joe Piekenbrock +​ +S-1 +​ +9/12/2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +10.3 +​ +Second Amendment to Promissory Note effective October 1, 2021 by and between the Western Alaska Copper & Gold and Joe Piekenbrock +​ +S-1 +​ +9/12/2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +10.4 +​ +Third Amendment to Promissory Note effective March 31, 2022 by and between the Western Alaska Copper & Gold and Joe Piekenbrock +​ +S-1 +​ +9/12/2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +10.5 +​ +Fourth Amendment to Promissory Note effective March 31, 2023 by and between the Western Alaska Copper & Gold and Joe Piekenbrock +​ +S-1 +​ +9/12/2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +10.6 +​ +Fifth Amendment to Promissory Note effective September 30, 2023 by and between the Western Alaska Copper & Gold and Joe Piekenbrock +​ +S-1 +​ +9/12/2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +70 +Table of Contents +10.7 +​ +Sixth Amendment to Promissory Note effective October 31, 2023 by and between the Western Alaska Copper & Gold and Joe Piekenbrock +​ +S-1 +​ +9/12/2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +10.8 +​ +Seventh Amendment to Promissory Note effective December 31, 2024 by and between the Western Alaska Copper & Gold and Joe Piekenbrock +​ +S-1 +​ +9/12/2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +10.9 +​ +Eighth Amendment to Promissory Note, dated as of December 17, 2025, by and between Western Alaska Copper & Gold Company and Joe Piekenbrock +​ +8-K +​ +12/22/2026 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +10.10 +​ +Contractor Agreement, dated May 20, 2024, by and between our company and 1397257 BC Ltd +​ +S-1 +​ +9/12/2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +10.11 +​ +Corporate Finance Advice Letter Agreement dated October 26, 2023 by and between our company and S. Mitchell & Associates LLC +​ +S-1 +​ +9/12/2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +10.12 +​ +Western Alaska Minerals Corp. Long-Term Incentive Plan dated November 5, 2021, as amended May 27, 2022 and May 20, 2025 +​ +S-1 +​ +9/12/2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +10.13 +​ +Executive Employment Agreement dated January 1, 2023 by and between our company and Christopher “Kit” Marrs +​ +S-1 +​ +9/12/2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +10.14 +​ +Consulting Service Agreement dated July 1, 2024 by and between our company and Piek Exploration LLC +​ +S-1 +​ +9/12/2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +10.15 +​ +Consulting Service Agreement dated August 7, 2025, by and between our company and Piek Exploration LLC +​ +S-1 +​ +9/12/2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +10.16 +​ +Grant of Participation Right Agreement, dated October 14, 2021, by and between Crescat Portfolio Management LLC and 1246779 B.C. Ltd. +​ +S-1 +​ +9/12/2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +19.1 +​ +Insider Trading Policy +​ +​ +​ +​ +​ +X +​ +​ +​ +​ +​ +​ +​ +​ +​ +21.1 +​ +Subsidiaries +​ +S-1 +​ +9/12/2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +31.1** +​ +Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +​ +​ +​ +​ +​ +X +​ +​ +​ +​ +​ +​ +​ +​ +​ +31.2** +​ +Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +​ +​ +​ +​ +​ +X +​ +​ +​ +​ +​ +​ +​ +​ +​ +32.1 +​ +Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +​ +​ +​ +​ +​ +X +​ +​ +​ +​ +​ +​ +​ +​ +​ +96.1 +​ +S-K 1300 Technical Report Summary Illinois Creek Project, Western Alaska, USA +​ +​ +​ +​ +​ +X +71 +Table of Contents +​ +​ +101.INS +Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because +XBRL tags are embedded within the Inline XBRL document.* +101.SCH +Inline XBRL Taxonomy Extension Schema Document* +101.CAL +Inline XBRL Taxonomy Extension Calculation Linkbase Document* +101.DEF +Inline XBRL Taxonomy Extension Definition Linkbase Document* +101.LAB +Inline XBRL Taxonomy Extension Label Linkbase Document* +101.PRE +Inline XBRL Taxonomy Extension Presentation Linkbase Document* +104 +Cover Page Interactive Data File (embedded within the Inline XBRL document)* +​ +** Furnished, not filed. +​ +72 +Table of Contents +Item 16. Form 10-K Summary +​ +None. +​ +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +Date: March 31, 2026 +ALASKA SILVER CORP. +​ +​ +​ +By: +/s/ Christopher “Kit” Marrs +​ +​ +​ +Christopher “Kit” Marrs +​ +​ +​ +Chief Executive Officer +​ +​ +​ +( Principal Executive Officer ) +​ +​ +73 +Table of Contents +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Name +​ ​ ​ +Title +​ ​ ​ +Date +​ +​ +​ +​ +​ +/s/ Christopher “Kit” Marrs +​ +Chief Executive Officer and Director ( Principal Executive Officer ) +​ +March 31, 2026 +​ +​ +​ +​ +​ +Christopher “Kit” Marrs +​ +​ +​ +​ +​ +​ +​ +​ +​ +/s/ Darren Morgans +​ +Chief Financial Officer ( Principal Financial Officer and Principal +Accounting Officer ) +​ +March 31, 2026 +​ +​ +​ +​ +​ +Darren Morgans +​ +​ +​ +​ +​ +​ +​ +​ +​ +/s/ Nathan Brewer +​ +Director +​ +March 31, 2026 +​ +​ +​ +​ +​ +Nathan Brewer +​ +​ +​ +​ +​ +​ +​ +​ +​ +/s/ David Smallhouse +​ +Director +​ +March 31, 2026 +​ +​ +​ +​ +​ +David Smallhouse +​ +​ +​ +​ +​ +​ +​ +​ +​ +/s/ Kevin Nishi +​ +Director +​ +March 31, 2026 +​ +​ +​ +​ +​ +Kevin Nishi +​ +​ +​ +​ +​ +​ +​ +​ +​ +/s/ Susan Mitchell +​ +Director +​ +March 31, 2026 +​ +​ +​ +​ +​ +Susan Mitchell +​ +​ +​ +​ +​ +​ +​ +74 +Table of Contents +ALASKA SILVER CORP. +INDEX TO ANNUAL REPORT ON FORM 10-K +FOR THE YEAR ENDED DECEMBER 31, 2025 +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +​ +​ ​ +Page Number +PART I. FINANCIAL INFORMATION +​ +​ +Item 1. +​ +Financial Statements +​ +​ +​ +​ +Report of Independent Registered Public Accounting Firm (Davidson & Company LLP, Vancouver, Canada, PCAOB ID 731 ) +​ +2 +​ +​ +Consolidated Balance Sheet +​ +3 +​ +​ +Consolidated Statements Of Loss And Comprehensive Loss) +​ +4 +​ +​ +Consolidated Statements Of Cash Flows +​ +5 +​ +​ +Consolidated Statements Of Stockholders’ Equity +​ +6 +​ +​ +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +​ +7 +​ +​ +​ +​ +Table of Contents +​ +ALASKA SILVER CORP. +CONSOLIDATED FINANCIAL STATEMENTS +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +(EXPRESSED IN UNITED STATES DOLLARS) +​ +​ +​ +​ +​ +Table of Contents +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To the Shareholders and Directors of +Alaska Silver Corp. +Opinion on the Consolidated Financial Statements +We have audited the accompanying consolidated balance sheets of Alaska Silver Corp. (the “Company”), as of December 31, 2025 and 2024, and the related consolidated statements of loss and comprehensive loss, stockholders’ equity, and cash flows for the years ended December 31, 2025 and 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of Alaska Silver Corp. as of December 31, 2025 and 2024, and the results of its operations and its cash flows for the years ended December 31, 2025, and 2024 in conformity with accounting principles generally accepted in the United States of America. +Going Concern +The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has no current source of operating revenue, has incurred a current loss of $8,861,799 during the year ended December 31, 2025, and as at that date, has an accumulated operating deficit of $49,365,286 which cast substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. +Basis for Opinion +These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material misstatements of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. +We have served as the Company’s auditor since 2024. +/s/ DAVIDSON & COMPANY LLP +​ +​ +​ +Chartered Professional Accountants +Vancouver, Canada +​ +​ +March 26, 2026 +​ +​ +DAVIDSON & COMPANY LLP +​ ​ ​ +1200-609 Granville Street +​ ​ ​ +604 687 0947 +​ +​ +PO BOX 10372, Pacific Centre +​ +davidson-co.com +​ +​ +Vancouver, BC V7Y 1G6 +​ +​ +​ +​ +2 +Table of Contents +ALASKA SILVER CORP. +CONSOLIDATED BALANCE SHEET +(Expressed in United States Dollars) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Notes +​ ​ ​ +December 31, 2025 +​ ​ ​ +December 31, 2024 +ASSETS +​ +​ +​ +​ +​ +​ +​ +​ +Current Assets +​ +​ +​ +​ +​ +​ +​ +​ +Cash and cash equivalents +​ +​ +$ +9,054,203 +​ +$ +849,572 +GST receivable +​ +​ +52,433 +​ +33,389 +Prepaid and deposits +​ +​ +205,082 +​ +105,347 +Total current assets +​ +​ +9,311,718 +​ +988,308 +Non-Current Assets +​ +​ +​ +​ +​ +Equipment +3 +​ +1,116,998 +​ +1,558,765 +Mineral properties +4 +​ +6,295,910 +​ +6,090,370 +TOTAL ASSETS +​ +​ +$ +16,724,626 +​ +$ +8,637,443 +LIABILITIES AND STOCKHOLDERS’ EQUITY +​ +​ +​ +​ +​ +Current Liabilities +​ +​ +​ +​ +​ +Accounts payable and accrued liabilities +5 +​ +$ +314,463 +​ +$ +86,682 +Due to related parties +6 +​ +1,342,972 +​ +722,989 +Promissory note – current portion +​ +8 +​ +​ +120,000 +​ +​ +120,000 +Derivative warrant liabilities +10 +​ +6,357,552 +​ +— +Total current liabilities +​ +​ +8,134,987 +​ +929,671 +Non-Current Liabilities +​ +​ +​ +​ +​ +Asset retirement obligation +7 +​ +230,437 +​ +225,959 +Promissory note +8 +​ +2,176,608 +​ +2,236,065 +TOTAL LIABILITIES +​ +​ +10,542,032 +​ +3,391,695 +STOCKHOLDERS’ EQUITY +​ +​ +​ +​ +​ +Capital stock +9 +​ +​ +​ +​ +Authorized: +​ +​ +​ +​ +​ +Unlimited without par value +​ +​ +​ +​ +​ +Issued and outstanding: +​ +​ +​ +​ +​ +65,663,486 subordinate voting shares at December 31, 2025 and 42,189,920 at December 31, 2024; 224,801 proportionate voting shares at December 31, 2025 and 2024 +​ +​ +— +​ +— +Additional paid-in capital +9 +​ +55,757,668 +​ +45,969,682 +Cumulative translation adjustment +​ +​ +( 209,788 ) +​ +( 220,447 ) +Deficit +​ +​ +( 49,365,286 ) +​ +( 40,503,487 ) +TOTAL SHAREHOLDERS’ EQUITY +​ +​ +6,182,594 +​ +5,245,748 +TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY +​ +​ +$ +16,724,626 +​ +$ +8,637,443 +Nature of operations and going concern +​ +1 +​ +​ +​ +​ +​ +​ +Subsequent events +​ +13 +​ +​ +​ +​ +​ +​ +​ +Approved by the Board of Directors : +​ ​ ​ +​ +​ +​ +​ +“Christopher (Kit) Marrs ” +​ +“Kevin Nishi ” +Directo r +​ +Directo r +​ +The accompanying notes are integral to these consolidated financial statements. +​ +3 +Table of Contents +ALASKA SILVER CORP. +CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +(Expressed in United States Dollars) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +​ +​ ​ ​ +December 31, +​ +December 31, +​ +​ +Notes +​ +2025 +​ ​ ​ +2024 +EXPENSES +​ +​ +​ +​ +​ +Accretion expense +​ +​ +$ +8,373 +​ +$ +8,656 +Consulting fees +​ +9 +​ +421,243 +​ +306,835 +Depreciation expense +​ +3 +​ +358 +​ +​ +61 +Exploration expenses +9 +​ +3,249,459 +​ +4,218,109 +Filing and regulatory fees +​ +​ +​ +146,238 +​ +66,697 +Insurance +​ +​ +​ +58,482 +​ +49,068 +Management fees +​ +9 +​ +1,347,419 +​ +1,561,326 +Marketing expenses +​ +​ +​ +315,308 +​ +652,608 +Office and sundry +​ +​ +​ +208,409 +​ +132,053 +Professional fees +​ +​ +​ +388,918 +​ +259,140 +​ +​ +​ +​ +​ +( 6,144,207 ) +​ +​ +( 7,254,553 ) +OTHER ITEMS +​ +​ +​ +​ +​ +​ +Foreign exchange gain (loss) +​ +​ +​ +( 171,551 ) +​ +29,814 +Loss on derivative warrant liability revaluation +​ +10 +​ +​ +( 2,381,301 ) +​ +​ +— +Interest expense +8 +​ +( 258,559 ) +​ +( 120,065 ) +Interest income +​ +​ +​ +93,819 +​ +65,706 +NET LOSS +​ +​ +​ +​ +( 8,861,799 ) +​ +​ +( 7,279,098 ) +OTHER COMPREHENSIVE INCOME (LOSS) +​ +​ +​ +​ +​ +​ +Unrealized foreign exchange gain (loss) on translation of foreign operations +​ +​ +​ +10,659 +​ +( 23,653 ) +COMPREHENSIVE LOSS +​ +​ +​ +$ +( 8,851,140 ) +​ +$ +( 7,302,751 ) +LOSS PER SHARE – BASIC AND DILUTED +​ +​ +​ +$ +( 0.13 ) +​ +$ +( 0.12 ) +WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING –  BASIC AND DILUTED +9 +​ +70,588,703 +​ +59,859,899 +​ +The accompanying notes are integral to these consolidated financial statements. +​ +4 +Table of Contents +ALASKA SILVER CORP. +CONSOLIDATED STATEMENTS OF CASH FLOWS +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +(Expressed in United States Dollars) +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +December 31, 2025 +​ ​ ​ +December 31, 2024 +Cash flows used in operating activities: +​ +​ +​ +​ +​ +​ +Loss for the year +$ +( 8,861,799 ) +$ +( 7,279,098 ) +Adjustments for non-cash items: +​ +​ +​ +​ +​ +​ +Accretion expense +​ +​ +8,373 +​ +​ +8,656 +Depreciation expense +​ +​ +441,359 +​ +​ +441,733 +Share-based payments +​ +​ +315,212 +​ +​ +987,431 +Loss on derivative warrant liability revaluation +​ +​ +2,381,301 +​ +​ +— +Unrealized foreign exchange loss +​ +​ +119,699 +​ +​ +— +Interest accrued on Promissory Note +​ +​ +257,964 +​ +​ +120,065 +​ +​ +​ +( 5,337,891 ) +​ +​ +( 5,721,213 ) +Changes in non-cash working capital +​ +​ +​ +​ +​ +​ +GST receivable +​ +​ +( 19,044 ) +​ +​ +2,374 +Prepaids and deposits +​ +​ +( 99,735 ) +​ +​ +65,132 +Accounts payable and accrued liabilities +​ +​ +228,189 +​ +​ +( 326,493 ) +Due to related parties +​ +​ +619,983 +​ +​ +199,232 +​ +​ +​ +( 4,608,498 ) +​ +​ +( 5,780,968 ) +​ +​ +​ +​ +​ +​ +​ +Cash flows (used in) from investing activities: +​ +​ +​ +​ +​ +​ +Purchase of equipment +​ +​ +— +​ +​ +( 1,085 ) +Mineral properties acquisition costs +​ +​ +( 209,435 ) +​ +​ +( 175,024 ) +​ +​ +​ +( 209,435 ) +​ +​ +( 176,109 ) +Cash flows from (used in) financing activities: +​ +​ +​ +​ +​ +​ +Issuance of subordinate voting shares, net +​ +​ +11,625,657 +​ +​ +5,865,837 +Exercise of stock options +​ +​ +420,783 +​ +​ +250,870 +Exercise of warrants +​ +​ +760,479 +​ +​ +105,117 +Issuance of promissory notes, net +​ +​ +1,179,983 +​ +​ +— +Repayment of promissory note +​ +​ +( 962,931 ) +​ +​ +( 583,083 ) +​ +​ +​ +13,023,971 +​ +​ +5,638,741 +Effect of exchange rate changes on cash +​ +​ +( 1,407 ) +​ +​ +( 23,653 ) +Net change in cash for the year +​ +​ +8,204,631 +​ +​ +( 341,989 ) +Cash and cash equivalents, beginning of year +​ +​ +849,572 +​ +​ +1,191,561 +Cash and cash equivalents, end of year +$ +9,054,203 +$ +849,572 +​ +​ +​ +​ +​ +​ +​ +Supplemental disclosure with respect to cash flows +​ +​ +​ +​ +​ +​ +Revision in ARO estimate +​ +$ +( 3,895 ) +​ +$ +( 7,532 ) +Value of warrants issued with debt instruments +$ +534,473 +$ +— +Value of derivative warrant liability at exercise +$ +41,962 +$ +— +Interest paid in cash +$ +— +$ +— +​ +The accompanying notes are integral to these consolidated financial statements. +​ +5 +Table of Contents +ALASKA SILVER CORP. +CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY +(Expressed in United States Dollars, except number of shares) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +​ ​ ​ +​ ​ ​ +​ ​ ​ +​ ​ ​ +​ +​ ​ ​ +​ ​ ​ +Accumulated +​ ​ ​ +​ +​ ​ ​ +​ ​ ​ +​ +​ ​ ​ +​ +​ +Shares +​ +Additional +​ +Other +​ +​ +​ +​ +​ +​ +​ +Subordinate +​ +Proportionate +​ +Paid-In +​ +Comprehensive +​ +Accumulated +​ +​ +​ +​ +Voting +​ +Voting +​ +Capital +​ +Loss +​ +Deficit +​ +Total +December 31, 2023 +28,120,406 +​ +224,801 +​ +$ +38,760,427 +$ +( 196,794 ) +$ +( 33,224,389 ) +$ +5,339,244 +Private placements, net +13,416,333 +​ +— +​ +​ +5,865,837 +​ +​ +— +​ +​ +— +​ +​ +5,865,837 +Exercise of stock options +490,000 +​ +— +​ +​ +250,870 +​ +​ +— +​ +​ +— +​ +​ +250,870 +Exercise of warrants +163,181 +​ +— +​ +​ +105,117 +​ +​ +— +​ +​ +— +​ +​ +105,117 +Stock-based compensation +— +​ +— +​ +​ +987,431 +​ +​ +— +​ +​ +— +​ +​ +987,431 +Foreign translation exchange loss +​ +— +​ +— +​ +​ +— +​ +​ +( 23,653 ) +​ +​ +— +​ +​ +( 23,653 ) +Net loss +​ +— +​ +— +​ +​ +— +​ +​ +— +​ +​ +( 7,279,098 ) +​ +​ +( 7,279,098 ) +December 31, 2024 +42,189,920 +​ +224,801 +​ +​ +45,969,682 +​ +​ +( 220,447 ) +​ +​ +( 40,503,487 ) +​ +​ +5,245,748 +Private placements, net +​ +21,229,000 +​ +— +​ +​ +11,625,657 +​ +​ +— +​ +​ +— +​ +​ +11,625,657 +Exercise of stock options +​ +1,032,000 +​ +— +​ +​ +420,783 +​ +​ +— +​ +​ +— +​ +​ +420,783 +Exercise of warrants +​ +1,184,884 +​ +— +​ +​ +802,441 +​ +​ +— +​ +​ +— +​ +​ +802,441 +Exercise of RSUs +​ +27,682 +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Issuance of warrants +​ +— +​ +— +​ +​ +534,473 +​ +​ +— +​ +​ +— +​ +​ +534,473 +Revaluation of warrants +​ +— +​ +— +​ +​ +( 3,910,580 ) +​ +​ +— +​ +​ +— +​ +​ +( 3,910,580 ) +Stock-based compensation +​ +— +​ +— +​ +​ +315,212 +​ +​ +— +​ +​ +— +​ +​ +315,212 +Foreign translation exchange gain +​ +— +​ +— +​ +​ +— +​ +​ +10,659 +​ +​ +— +​ +​ +10,659 +Net loss +​ +— +​ +— +​ +​ +— +​ +​ +— +​ +​ +( 8,861,799 ) +​ +​ +( 8,861,799 ) +December 31, 2025 +65,663,486 +* +224,801 +* +$ +55,757,668 +$ +( 209,788 ) +$ +( 49,365,286 ) +$ +6,182,594 +* +The proportionate voting shares are exchangeable into a total of 22,480,100 subordinate voting shares, for no additional consideration. See Note 9. +The accompanying notes are integral to these consolidated financial statements. +​ +​ +​ +6 +Table of Contents +ALASKA SILVER CORP. +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +(Expressed in United States Dollars) +​ +1. NATURE OF OPERATIONS AND GOING CONCERN +Alaska Silver Corp., (formerly Western Alaska Minerals Corp.), (“Alaska Silver” or the “Company”) was incorporated under the Business Corporations Act of British Columbia on April 8, 2020, as 1246779 B.C. Ltd. (“779”). The Company is a public company whose subordinate voting shares are listed for trading on the TSX Venture Exchange (“TSXV”) under the symbol “WAM”. The Company’s registered office 1500 – 1111 West Hastings, Vancouver, BC, Canada V6E 2J3. As discussed further below, the Company is in the mineral exploration and development business. +Going Concern +These consolidated financial statements have been prepared with the going concern assumption, which assumes that the Company will continue in operation for the foreseeable future and, accordingly, will be able to realize its assets and discharge its liabilities in the normal course of operations. The Company has no current source of operating revenue, has incurred a current loss of $ 8,861,799 and has an accumulated operating deficit of $ 49,365,286 . The Company will require further financing to operate and further develop its business. The Company’s ability to realize its assets and discharge its liabilities is dependent upon it obtaining financing as necessary and ultimately upon its ability to dispose of its mineral property interests on a profitable basis or otherwise achieve profitable operations. These material uncertainties cast substantial doubt on the Company’s ability to continue as a going concern. Failure to arrange adequate financing on acceptable terms and/or achieve profitability may have an adverse effect on the Company’s financial position, operational success, cash flow, and prospects. These consolidated financial statements do not give effect to adjustments to assets or liabilities that would be necessary should the Company be unable to continue as a going concern. These adjustments could be material. +​ +2. +BASIS OF PRESENTATION AND MATERIAL ACCOUNTING POLICIES +Statement of Compliance +These consolidated financial statements have been prepared in conformity with generally accepted accounting principles of the United States of America (“US GAAP”). +Basis of Presentation +These consolidated financial statements have been prepared on a historical cost basis, modified where applicable. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting except for cash flow information. +Basis of Consolidation +These consolidated financial statements include the accounts of the Company and its wholly owned and controlled entities. Control is achieved when the Company has the power to govern the financial operating policies of an entity so as to obtain benefits from its activities. Subsidiaries are fully consolidated from the date on which control is transferred to the Company until the date on which control ceases. +The following subsidiaries have been consolidated from all dates presented within these financial statements: +​ +​ +​ +​ +​ +​ +Subsidiary +​ ​ ​ +Ownership +​ ​ ​ +Location +Western Alaska Copper & Gold Company (“WACG”) +100 +% +USA +Piek Inc. +100 +% +USA +​ +All intercompany transactions, balances, income and expenses are eliminated upon consolidation. +​ +7 +Table of Contents +ALASKA SILVER CORP. +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +(Expressed in United States Dollars) +​ +2. +BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) +Basis of Consolidation (continued) +These consolidated financial statements are presented in United States dollars. Management has assessed the functional currency of both WACG and Piek Inc. to be the US Dollar (“USD”). Effective October 1, 2025, the functional currency of Alaska Silver was changed to USD as management assessed that the currency of the primary economic environment in which the Company operates changed to USD on that date. The key factor influencing this decision was the change in the Company’s primary funding from Canadian dollars (“CAD”) to USD, whereas the functional currency of its subsidiaries was unchanged and remained in USD. Prior to October 1, 2025, the functional currency of the Company was CAD and the functional currencies of its subsidiaries was the USD. Changes to the Company’s functional currency have been accounted for on a prospective basis from October 1, 2025. The Company’s consolidated reporting currency, which is determined on a discretionary basis, is USD. Exchange differences arising on the translation of Alaska Silver’s accounts to USD for reporting purposes, including the translation of non-monetary items using period end rates, are reported in net loss. +Use of Estimates and Assumptions +The preparation of these consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant areas requiring the use of estimates include the carrying value and recoverability of mineral properties, valuation of asset retirement obligation, valuation of derivative warrant liabilities, valuation of stock-based compensation and the recognition of deferred tax assets based on the change in unrecognized deductible temporary tax differences. Actual results could differ from those estimates and would impact future results of operations and cash flows. +Financial Instruments +The Company’s financial instruments consist of cash and cash equivalents, accounts payable and accrued liabilities, due to related parties, derivative warrant liabilities and promissory notes. The fair values of these financial instruments approximate their carrying values unless otherwise noted. +Fair Value of Financial Assets and Liabilities +The Company measures the fair value of financial assets and liabilities based on US GAAP guidance which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. +The Company classifies financial assets and liabilities as held-for-trading, available-for-sale, held-to-maturity, loans and receivables or other financial liabilities depending on their nature. Financial assets and financial liabilities are recognized at fair value on their initial recognition. +Fair Value of Financial Assets and Liabilities +Financial assets and liabilities classified as held-for-trading are measured at fair value, with gains and losses recognized in net income. Financial assets classified as held-to-maturity, loans and receivables, and financial liabilities other than those classified as held-for-trading are measured at amortized cost, using the effective interest rate method. Financial assets classified as available-for-sale are measured at fair value, with unrealized gains and losses being recognized as other comprehensive income until realized, or if an unrealized loss is considered other than temporary, the unrealized loss is recorded in income. +The following indicates the fair value hierarchy of the valuation techniques the Company utilizes to determine the fair value of financial assets that are measured at fair value on a recurring basis. +Level 1 Unadjusted quoted prices in active markets for identical assets and liabilities; +Level 2 Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, and +8 +Table of Contents +ALASKA SILVER CORP. +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +(Expressed in United States Dollars) +​ +2. +BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) +Fair Value of Financial Assets and Liabilities (continued) +Level 3 Inputs that are not based on observable market data. +Cash is considered level 1 and classified as cash on hand and held at banks. +Financial instruments, including accounts payable, accrued liabilities, due to related parties and loans payable are classified as other financial liabilities and are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments. +Concentration of Credit Risk +The financial instrument which potentially subjects the Company to concentration of credit risk is cash. The Company maintains cash in bank accounts that, at times, may exceed federally insured limits. However, the Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts. +Cash and Cash Equivalents +Cash and cash equivalents are comprised of cash at banks and on hand, and short-term deposits with an original maturity of three months or less, which are readily convertible into a known amount of cash. The Company’s cash is held with major financial institutions in business accounts, bankers’ acceptances and in government treasury bills which are available on demand by the Company for its programs and are not invested in any asset backed deposits/investments. +Mineral Properties +The costs of acquiring mineral rights are capitalized at the date of acquisition. After acquisition, various factors can affect the recoverability of the capitalized costs. If, after review, management concludes that the carrying amount of a mineral property is impaired, it will be written down to estimated fair value. Exploration costs incurred on mineral properties are expensed as incurred. Development costs incurred on proven and probable reserves will be capitalized. Upon commencement of production, capitalized costs will be amortized using the unit-of-production method over the estimated life of the ore body based on proven and probable reserves (which exclude non-recoverable and anticipated processing losses). When the Company receives an option payment related to a property, the proceeds of the payment are applied to reduce the carrying value of the exploration asset. +Long-Lived Assets +Long-lived assets, consisting of equipment held and used by the Company, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed using undiscounted net cash flows related to the long-lived assets. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. +Equipment +Equipment is recorded at cost less accumulated depreciation. Depreciation is provided over the assets’ useful lives on a straight-line basis. Management estimated the useful lives of its computer software to be 1 year ; equipment to be 5 years and vehicles to be 10 years . +9 +Table of Contents +ALASKA SILVER CORP. +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +(Expressed in United States Dollars) +​ +2. +BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) +Asset Retirement Obligations +Future obligations to retire an asset, including dismantling, remediation and ongoing treatment and monitoring of the site, are recognized and recorded as a liability at fair value at the time when they are incurred or when the event giving rise to such an obligation occurs. The liability is increased (accreted) over time through periodic charges to earnings. The corresponding asset retirement cost is capitalized as part of the asset’s carrying value and is amortized over the asset’s estimated useful life. The amount of the liability is subject to re-measurement at each reporting period. +The Company is subject to laws and regulations relating to environmental matters in all jurisdictions in which it operates, including provisions relating to property reclamation, discharge of hazardous material and other matters. The Company may also be held liable should environmental problems be discovered that were caused by former owners and operators of its properties and properties in which it has previously had an interest. The Company conducts its exploration and evaluation activities in compliance with applicable environment protection legislation. The Company is not aware of any existing environmental problems related to any of its current or former properties that may result in material liability to the Company. +Stock-Based Compensation +The Company accounts for share-based compensation under the provisions of ASC 718 Compensation-Stock Compensation . Under the fair value recognition provisions, stock-based compensation expense is measured at the fair value of the consideration received, or the fair value of the equity instruments issued, or liabilities incurred, whichever is more reliably measured. Share-based compensation for all stock-based awards to employees and directors is recognized as an expense over the requisite service periods, which is generally the vesting period. The Black-Scholes option valuation model is used to calculate fair value. +Related Party Transactions +Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control. Related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. +Income Taxes +The Company accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Current income taxes are recognized for the estimated income taxes payable or receivable on taxable income or loss from the current year and any adjustment to income taxes payable related to previous years. Current income taxes are determined using tax rates and tax laws that have been enacted or subsequently enacted by the year-end date. +Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under the asset and liability method the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion or all of the deferred tax asset will not be recognized. +10 +Table of Contents +ALASKA SILVER CORP. +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +(Expressed in United States Dollars) +​ +2. +BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) +Loss Per Share +The Company is required to calculate basic and diluted loss per share using the two-class method. The two-class method is required because the Company’s Proportionate Shares, each of which are in effect, Subordinate Voting Shares compressed at the ratio of 100 :1 have voting and economic rights on an as-converted basis. The Proportionate Shares are convertible to Subordinate Voting Shares at the request of the shareholder and with the consent of the Company. Under the two-class method, earnings/loss for the period are allocated on a pro-rata basis to the Subordinate and Proportionate stockholders. The weighted average number of Subordinate Shares and Proportionate Shares (on an as converted basis) outstanding during the period is then used to calculate basic earnings or loss for each class of shares. +Stock options and other potential subordinate voting shares are included in the calculation of diluted earnings per share (“diluted EPS”). The Company uses the treasury stock method for calculating dilutive potential subordinate voting shares. In calculating diluted EPS, such shares are assumed to be exercised or converted, except when their effect would be anti-dilutive. +Potentially dilutive shares as of December 31, 2025 and 2024, are as follows: +​ +​ +​ +​ +​ +​ +​ +​ +December 31, +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +Share purchase options +4,765,500 +5,627,500 +Share purchase warrants +39,404,982 +15,986,286 +Restricted share units +401,142 +278,126 +Total +44,571,624 +21,891,912 +​ +All potentially dilutive shares were excluded from the calculation of diluted loss per share as their exercise and conversion would be anti-dilutive. +Foreign Currency Translation +The functional currency of each entity in the consolidated group is the currency of the primary economic environment in which that entity operates. The foreign currency transactions of each entity are translated into the functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the period-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. Exchange differences arising on the translation of monetary items or on settlement of monetary items are recognized in profit or loss in the period in which they arise. +Recently Adopted Accounting Standards +In fiscal year 2025, we adopted Accounting Standards Update (“ASU”) 2023-07 “Segment Reporting - Improvements to Reportable Segment Disclosures”. Management has evaluated the Company’s operations and concluded it has one reportable operating segment. The new standard expands segment disclosure requirements. This standard has not changed the processing, recording, or presentation of financial data, other than providing additional disclosures regarding management oversight for the Company’s single operating segment. The additional disclosures required by the standard are included in Note 12. +In fiscal year 2025, we adopted ASU 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires public entities on an annual basis to (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5% of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate). +​ +11 +Table of Contents +ALASKA SILVER CORP. +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +(Expressed in United States Dollars) +​ +2. +BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) +Recent Accounting Pronouncements +In December 2025, the FASB issued Accounting Standards Update 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements, which clarifies the scope, form, and content of interim financial statements. The update centralizes interim disclosure requirements into Topic 270 and establishes a principle requiring disclosure of any events or transactions occurring since the prior year-end that have a material effect on the entity. The amendments are effective for interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of this guidance. +​ +3. EQUIPMENT +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +December 31, 2025 +​ ​ ​ +December 31, 2024 +​ ​ ​ +​ +​ +​ +($) +​ +($) +​ +Life +Cost: +​ +​ +​ +Equipment +2,118,332 +2,118,332 +5 years +Vehicles +180,859 +180,859 +10 years +​ +2,299,191 +2,299,191 +​ +​ +Accumulated Amortization: +​ +​ +​ +Equipment +( 1,121,477 ) +( 697,795 ) +​ +Vehicles +( 60,716 ) +( 42,631 ) +​ +​ +( 1,182,193 ) +( 740,426 ) +​ +​ +Total +1,116,998 +1,558,765 +​ +​ +For the year ended December 31, 2025 depreciation of equipment and vehicles of $ 441,001 is included in exploration expenses (2024 — $ 441,672 ). +​ +4. MINERAL PROPERTIES +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Round Top +​ ​ ​ +Honker +​ ​ ​ +Illinois Creek +​ ​ ​ +Others +​ ​ ​ +Total +​ +​ +($) +​ +($) +​ +($) +​ +($) +​ +($) +Total Costs: +​ +​ +​ +​ +​ +Balance at December 31, 2023 +479,592 +96,644 +5,334,664 +11,978 +5,922,878 +Additions +72,600 +19,800 +81,881 +743 +175,024 +ARO change in estimates +( 13 ) +( 181 ) +( 7,338 ) +— +( 7,532 ) +Balance at December 31, 2024 +552,179 +116,263 +5,409,207 +12,721 +6,090,370 +Additions +86,600 +19,800 +89,705 +13,330 +209,435 +ARO change in estimates +( 7 ) +( 92 ) +( 3,796 ) +— +( 3,895 ) +Balance at December 31, 2025 +638,772 +135,971 +5,495,116 +26,051 +6,295,910 +​ +Round Top Property, Alaska +The Round Top Property consists of 88 state mineral claims, owned 100 % by WACG, located in the Mount McKinley and Nulato mining districts of Alaska. +12 +Table of Contents +ALASKA SILVER CORP. +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +(Expressed in United States Dollars) +​ +4. MINERAL PROPERTIES (continued) +Honker Property Alaska +The Honker Property consists of 24 state mineral claims, owned 100 % by WACG, located in the Mount McKinley mining district of Alaska. +Illinois Creek Mine Project, Alaska +WAGC acquired a 100 % interest in the Illinois Creek Mine Project in fiscal 2021 through the issuance of 120 WACG common shares (valued at $ 540,000 ) and $ 3,698,000 payable by the issuance of a promissory note (note 8). As part of the acquisition in fiscal 2021, the Company also terminated a joint venture agreement on the project dating back to fiscal 2018 and reclassified share consideration under the operating agreement of which consisted of 346 common shares (valued at $ 692,000 ). +The Illinois Creek Mine Project is comprised of various state mineral claims located in Alaska. +Other Exploration Target Projects, Alaska +Paw Print Property +The Paw Print Property consists of 18 state mineral claims, owned 100 % by WACG, located in the Mount McKinley and Nulato mining districts of Alaska. +Khotol Property +The Khotol Property consists of 16 state mineral claims, owned 100 % by WACG, located in the Mount McKinley and Nulato mining districts of Alaska. +In 2024, the Company staked 3 new claims in the Khotol property for a cost of $ 743 . +The Company staked the claims of both Paw Print and Khotol properties for a total of $ 6,368 and $ 6,353 in 2022 and 2023 respectively. +​ +5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +December 31, 2025 +​ ​ ​ +December 31, 2024 +Accounts payable +$ +289,177 +$ +73,255 +Other payable +​ +​ +25,286 +​ +​ +13,427 +​ +$ +314,463 +$ +86,682 +​ +​ +13 +Table of Contents +ALASKA SILVER CORP. +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +(Expressed in United States Dollars) +​ +6. RELATED PARTY TRANSACTIONS +Due to/from Related Parties +As at December 31, 2025, $ 1,342,972 (December 31, 2024 — $ 722,989 ) was due to related parties for management fees and exploration expenses. Promissory notes (Note 8) in the amount of $ 1,634,592 (December 31, 2024 — $ 2,356,065 ) are owed to related parties. +During the year ended December 31, 2025, $ 175,000 in promissory notes with 393,400 warrants were issued to related parties (Note 8) while principal repayments of $ 962,931 were made on the promissory notes issued for the Illinois Creek Agreement. +Amounts owing to related parties for management fees and exploration expenses are non-interest bearing and have no specific terms of repayment. Amounts owing to related parties for promissory notes are interest bearing and have repayment terms, refer Note 8. +​ +7. ASSET RETIRMENT OBLIGATIONS +The following table presents the reconciliation of the beginning and ending obligations associated with the retirement of the properties: +​ +​ +​ +​ +​ +​ +​ ​ ​ +Total +Balance, December 31, 2023 +$ +224,835 +Accretion expense +​ +​ +8,656 +Change in estimates +​ +​ +( 7,532 ) +Balance, December 31, 2024 +​ +​ +225,959 +Accretion expense +​ +​ +8,373 +Change in estimates +​ +​ +( 3,895 ) +Balance, December 31, 2025 +$ +230,437 +​ +As at December 31, 2025, the total undiscounted amount of estimated cash flows required to settle the Company’s asset retirement obligations was $ 240,572 (2024 — $ 232,272 ) over the next 4 years at an annual inflation rate of 2.6 % (2024 —  3 %) and discounted using an average discount rate of 3.70 % (2024 —  3.70 %). +During the years ended December 31, 2025 and 2024, the Company did not incur any reclamation expenditures. +Estimated future reclamation costs are based on the extent of work required and the associated costs are dependent on the requirements of relevant authorities and the Company’s environmental policies. In view of uncertainties concerning asset retirement obligations, the ultimate costs could be materially different from the amounts estimated. +8. PROMISSORY NOTE +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +December 31, 2025 +​ ​ ​ +December 31, 2024 +Promissory Notes – 2021 +​ +$ +1,484,593 +$ +2,356,065 +Promissory Notes – 2025 +​ +812,015 +​ +— +Total +​ +2,296,608 +​ +2,356,065 +Less: Current Portion +​ +( 120,000 ) +​ +( 120,000 ) +​ +​ +$ +2,176,608 +$ +2,236,065 +​ +On March 31, 2021, and in accordance with the share purchase agreement entered upon the dissolution of the Illinois Creek Joint Venture LLC, WACG issued a promissory note of $ 3,698,000 . The promissory note accrued interest at 2.0 % per annum. +14 +Table of Contents +ALASKA SILVER CORP. +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +(Expressed in United States Dollars) +​ +8. PROMISSORY NOTE (continued) +On September 30, 2023, the promissory note was amended by both parties as follows: +(i) +The Company will commence monthly principal repayments of $ 25,000 at the later of March 31, 2024 or at the closing of the Company’s next financings; +(ii) +The Company will make additional principal reduction payments equal to 6 % of all future equity financings; +(iii) +A principal reduction payment of $ 750,000 will be due on May 1, 2025; +(iv) +A principal reduction payment of the remaining balance and all accrued interest will be due on December 1, 2025. +On December 31, 2024, the promissory note was once again amended by both parties as follows: +(i) +The Company will commence monthly principal repayments of $ 10,000 until the closing of the next financing, at which time the monthly principal payments will increase to $ 25,000 ; +(ii) +The Company will make additional principal reduction payments equal to 6 % of all equity financings, plus accrued interest on the outstanding principal balance, due and payable upon closing of each round; +(iii) +A principal reduction payment of $ 750,000 will be due on June 1, 2026; +(iv) +A principal reduction payment of the remaining balance and all accrued interest will be due on December 1, 2026. +On November 1, 2025, the promissory note was once again amended by both parties as follows: +(i) +The Company will commence monthly principal repayments of $ 10,000 ; +(ii) +The Company will make additional principal reduction payments equal to 6 % of all equity financings; +(iii) +The remaining balance and all accrued interest will be due on July 1, 2027; +During the year ended December 31, 2025, the Company repaid $ 962,931 (2024— $ 583,083 ) in principal repayments. As at December 31, 2025, the balance of the promissory note was $ 1,484,593 (2024 —  $ 2,356,065 ) with $ 330,606 (2024 — $ 239,148 ) being accrued interest. +On March 21, 2025, the Company completed unsecured loan transactions with certain lenders (the “Lenders”), pursuant to which the Company has issued debt units for total consideration of $ 1,200,000 . Each debt unit included one promissory note in the principal amount of $ 1,000 and 2,248 subordinate voting share purchase warrants. The promissory notes will mature after 36 months and bear interest at rate of 10 % per annum. A total of 2,697,600 subordinate voting share purchase warrants (the “Warrants”) were issued as part of the debt units. Each Warrant entitles the holder to purchase one subordinate voting share of the Company at an exercise price of CAD$ 0.64 for a period of 36 months from the date of issuance. +The net proceeds were allocated between the debt and equity components using the relative fair value method. Based on the fair values determined on the issuance date the Company allocated $ 645,510 of the proceeds to the promissory notes and $ 534,473 to the Warrants, net of share issuance costs of $ 20,017 . +The warrants were valued at $ 747,488 using the Black-Scholes Option Pricing Model with the following assumptions: annualized volatility of 93.14 %, risk-free interest rate of 2.52 %, expected life of 3 years and a dividend rate of Nil . The debt was valued at $ 902,778 using a discount rate of 20 %. +The promissory notes carry an effective interest rate of 29.75 % and have a net book value of $ 812,015 with accrued accretion of $ 166,505 at December 31, 2025. Subsequent to December 31, 2025, the Company repaid the loan of $ 1,200,000 with $ 120,000 interest. +15 +Table of Contents +ALASKA SILVER CORP. +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +(Expressed in United States Dollars) +​ +9. SHARE CAPITAL +Authorized Capital +The Company is authorized to issue an unlimited number of subordinate voting shares without par value. +Subordinate voting and Proportionate Stock +Pursuant to the reverse take-over (“RTO”) transaction in 2021, each WACG common share held by a U.S. resident shareholder was exchanged for either (i) a “Merger Unit”, comprised of 1,000 Alaska Silver subordinate voting shares (“Subordinate Voting Shares”) and 90 Proportionate Shares (“Proportionate Shares”); or (ii) 100 Proportionate Shares; and each WACG common share held by a non-U.S. resident shareholder was exchanged for 10,000 Subordinate Voting Shares. The Proportionate Shares are, in effect, Subordinate Voting Shares compressed at the ratio of 100 :1 which have voting and economic rights on an as-converted basis. The Proportionate Shares are convertible to Subordinate Voting Shares at the request of the shareholder and with the consent of the Company. +Issued Share Capital +On October 3, 2025, the Company issued 21,229,000 units (“Units”) of the Company at a price of $ 0.65 per unit for gross proceeds of $ 13,798,850 . Each Unit consists of one Subordinate Voting Share and one Subordinate Voting Share purchase warrant (“Warrant”). Each Warrant is exercisable for Subordinate Voting Share at $ 0.97 until October 3, 2028. The Company incurred $ 2,170,703 in share issuance costs including $ 1,034,914 in commissions to the underwriters and issued 849,160 share purchase warrants (“Underwriters’ Warrants”) to the underwriters. Each Underwriters’ Warrant entitles the holder to acquire one Subordinate Voting Share at $ 0.97 until March 31, 2027. +During the year ended December 31, 2025, the Company issued 1,032,000 Subordinate Voting Shares to option holders who exercised their options in return for gross proceeds of $ 420,783 . +During the year ended December 31, 2025, the Company issued 1,184,884 Subordinate Voting Shares to warrant holders who exercised their warrants in return for gross proceeds of $ 760,479 . +During the year ended December 31, 2025, the Company issued 27,682 Subordinate Voting Shares on the exercise of RSUs. +During the year ended December 31, 2024, the Company issued 490,000 Subordinate Voting Shares to option holders who exercised their options in return for gross proceeds of $ 250,870 . +During the year ended December 31, 2024, the Company issued 163,181 Subordinate Voting Shares to warrant holders who exercised their warrants in return for gross proceeds of $ 105,117 . +On May 8, 2024, the Company issued 3,812,981 units in the first tranche of a non-brokered private placement for CAD$ 0.65 per unit, and on May 14, 2024, the Company issued 200,000 units in the final tranche, for total gross proceeds of $ 1,897,758 (CAD$ 2,608,438 ). Each unit consists of one Subordinate Voting Share and one warrant with an exercise price of CAD$ 0.90 for a period of 36 months . In addition, the Company paid a cash commission $ 82,423 (CAD$ 113,200 ) and issued 92,923 finders warrants to the finders. Each finders warrant entitles the holder to purchase one Subordinate Voting Share at CAD$ 0.90 for a period of 36 months from issuance date. The Company also incurred professional fees of $ 152,646 related to this financing. +On April 26, 2024, the Company issued 9,403,352 units in a brokered shelf prospectus offering for CAD$ 0.65 per unit for gross proceeds of $ 4,466,627 (CAD$ 6,112,179 ). Each unit consists of one Subordinate Voting Share and one warrant with an exercise price of CAD$ 0.90 for a period of 36 months . In addition, the Company paid a cash commission $ 268,313 (CAD$ 366,731 ) and issued 564,200 agent warrants to the agents. Each agent warrant entitles the holder to purchase one Subordinate Voting Share at CAD$ 0.65 for a period of 36 months from issuance date. The Company also incurred professional fees of $ 7,323 related to this financing. +16 +Table of Contents +ALASKA SILVER CORP. +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +(Expressed in United States Dollars) +​ +9. SHARE CAPITAL (continued) +Issued Share Capital (continued) +Basic and diluted weighted average number of shares outstanding +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +Weighted Average number of shares outstanding +​ +​ +​ +​ +Subordinate Voting shares +​ +48,108,603 +​ +37,379,799 +Proportionate Voting shares (as converted) +​ +22,480,100 +​ +22,480,100 +Weighted averages shares outstanding – basic and diluted +​ +70,588,703 +​ +59,859,899 +​ +​ +​ +​ +​ +​ +​ +Loss attributed to owners +​ +$ +( 8,861,799 ) +​ +$ +( 7,279,098 ) +​ +​ +​ +​ +​ +​ +​ +Loss per share +​ +$ +( 0.13 ) +​ +$ +( 0.12 ) +Loss attributed to Subordinate Voting shares +​ +$ +( 0.09 ) +​ +$ +( 0.07 ) +Loss attributed to Proportionate Voting shares (as converted) +​ +$ +( 0.04 ) +​ +$ +( 0.05 ) +​ +Stock Options +The Company has a stock option plan under which the Board of Directors may grant options to acquire subordinate voting shares of the Company to qualified directors, officers, employees, and other service providers. The stock option vests according to the provisions of the individual option agreements approved by the directors’ resolutions and have a maximum of 10 years until expiry. The plan allows for the issuance up to 10 % of the number of issued and outstanding subordinate voting shares and proportionate shares of the Company at any time on a non-diluted basis. +The changes in stock options are summarized as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Weighted Average +​ ​ ​ +Number of Shares +​ +​ +Exercise Price* +​ +Issued or +​ +​ +(CAD) +​ +Issuable on Exercise* +Balance at December 31, 2023 +​ ​ ​ +$ +1.69 +* +3,817,500 +Granted +​ +​ +0.54 +2,545,000 +Exercised +​ +​ +0.66 +( 490,000 ) +Expired +​ +​ +0.81 +( 20,000 ) +Forfeited +​ +​ +1.69 +( 225,000 ) +Balance at December 31, 2024 +​ +​ +1.26 +5,627,500 +Granted +​ +​ +0.72 +480,000 +Exercised +​ +​ +0.57 +( 1,032,000 ) +Forfeited +​ +​ +2.28 +​ +( 310,000 ) +Balance at December 31, 2025 +​ +$ +1.30 +4,765,500 +* The weighted average exercise price and number of subordinate voting shares issued or issuable on exercise have been adjusted for 1: 10,000 split. +17 +Table of Contents +ALASKA SILVER CORP. +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +(Expressed in United States Dollars) +​ +9. +SHARE CAPITAL (continued) +Stock Options (continued) +The following assumptions were used for the Black-Scholes pricing model calculations: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +March 1, 2024 +​ ​ ​ +June 14, 2024 +​ ​ ​ +December 27, 2024 +​ ​ ​ +April 2, 2025 +​ ​ ​ +June 23, 2025 +Risk-free interest rate +​ +3.50 +% +3.51 +% +3.05 +% +2.58 +% +2.90 +% +Expected stock price volatility +72.61 +% +67.89 +% +67.89 +% +92.43 +% +90.33 +% +Expected option life in years +5 years +5 years +5 years +5 years +5 years +​ +Dividend rate +Nil +Nil +Nil +Nil +Nil +​ +​ +Stock-based compensation related to stock options was allocated as follows: +- $ 143,592 (2024 —  $ 567,225 ) was allocated to management fees; +- $ 13,155 (2024 —  $ 226,112 ) was allocated to exploration expenses; +- $ 47,605 (2024 —  $ 156,288 ) was allocated to consulting fees. +Stock options outstanding and exercisable on December 31, 2025, are summarized as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Outstanding +​ +Exercisable +​ +​ +​ +​ ​ ​ +​ +​ ​ ​ +Number of +​ ​ ​ +​ +​ +​ +Number of +​ +​ +​ +Subordinate +​ +​ +​ +Subordinate Voting +​ +Weighted Average +​ +Voting Shares +​ +Weighted Average +​ +​ +Shares Issuable on +Remaining Life +Issuable on +Remaining Life +Exercise Price (CAD) +Exercise +​ +(Years) +​ +Exercise +​ +(Years) +$ 0.62 +80,000 +0.16 +80,000 +0.16 +$ 0.62 +630,000 +0.45 +630,000 +0.45 +$ 0.85 +367,500 +0.87 +367,500 +0.87 +$ 0.96 +25,000 +1.07 +25,000 +1.07 +$ 1.65 +275,000 +1.38 +275,000 +1.38 +$ 2.75 +175,000 +1.85 +175,000 +1.85 +$ 3.16 +1,000,000 +2.05 +1,000,000 +2.05 +$ 0.49 +733,000 +3.17 +488,667 +3.17 +$ 0.85 +450,000 +3.45 +300,000 +3.45 +$ 0.45 +550,000 +3.99 +550,000 +3.99 +$ 0.64 +80,000 +4.25 +40,000 +4.25 +$ 0.73 +400,000 +4.48 +133,333 +4.48 +​ +4,765,500 +2.44 +4,064,500 +2.44 +​ +As at December 31, 2025, the market price of the Company’s subordinate voting share was CAD$ 1.24 per share. The intrinsic value of the stock options was $ 1,530,552 (CAD$ 2,097,775 ). +​ +18 +Table of Contents +ALASKA SILVER CORP. +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +(Expressed in United States Dollars) +​ +9. SHARE CAPITAL (continued) +Warrants +​ +​ +​ +​ +​ +​ +​ +​ +​ +Weighted +​ +​ +​ +​ +Average Exercise +​ +Number of Shares +​ +​ +Price +​ +Issued or Issuable +​ +​ ​ ​ +(CAD) +​ ​ ​ +on Exercise +Balance at December 31, 2023 +​ +$ +2.89 +2,076,011 +Granted +​ +$ +0.89 +14,073,456 +Exercised +​ +$ +0.88 +( 163,181 ) +Balance at December 31, 2024 +​ +$ +1.15 +15,986,286 +Granted +​ +$ +1.25 +24,775,760 +Expired +​ +$ +2.35 +( 172,540 ) +Exercised +​ +$ +0.89 +( 1,184,524 ) +Balance at December 31, 2025 +​ +$ +1.26 +39,404,982 +​ +Warrants outstanding and exercisable on December 31, 2025, are summarized as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +​ +​ ​ ​ +​ +​ ​ ​ +Exercise +​ ​ ​ +Number of Warrants +​ +​ +Date Issued +​ +Expiry Date +​ +Price (CAD) +​ +Outstanding +Private placement warrants +May 4, 2023 +May 4, 2026 +​ +$ +3.15 +1,491,024 +* +Private placement warrants +September 1, 2023 +September 1, 2026 +​ +$ +3.15 +378,191 +* +Agents warrants +September 1, 2023 +September 1, 2026 +​ +$ +3.15 +1,170 +​ +Private placement warrants +September 14, 2023 +September 14, 2026 +​ +$ +3.15 +33,086 +* +Private placement warrants +April 26, 2024 +April 26, 2027 +​ +$ +0.90 +8,533,852 +* +Agents warrants +April 26, 2024 +April 26, 2027 +​ +$ +0.65 +545,964 +​ +Private placement warrants +May 8, 2024 +May 8, 2027 +​ +$ +0.90 +3,409,212 +* +Finders warrants +May 8, 2024 +May 8, 2027 +​ +$ +0.90 +92,923 +​ +Private placement warrants +May 14, 2024 +May 14, 2027 +​ +$ +0.90 +200,000 +* +Promissory note warrants +​ +March 21, 2025 +​ +March 21, 2028 +​ +$ +0.64 +​ +2,641,400 +* +Private placement warrants +October 3, 2025 +October 3, 2028 +​ +​ +US$ 0.97 +21,229,000 +​ +Agents warrants +​ +October 3, 2025 +​ +March 31, 2027 +​ +​ +US$ 0.97 +​ +849,160 +​ +​ +​ +​ +​ +​ +​ +$ +1.23 +** +39,404,982 +​ +* reclassified as a derivative warrant liability, refer to Note 10 +** The weighted average life was 2.11 years. +As at December 31, 2025, the market price of the Company’s Subordinate Voting share was CAD$ 1.24 per share. The intrinsic value of the warrants was $ 4,426,670 (CAD$ 6,067,194 ). The Company’s Private placement warrants and Finder warrants are warrants that when exercised by the holder, the Company will issue one subordinate voting share for each warrant exercise. For the Broker warrants, the holder receives one subordinate voting share and one Private placement warrant for each Broker warrant exercise. +19 +Table of Contents +ALASKA SILVER CORP. +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +(Expressed in United States Dollars) +​ +9. SHARE CAPITAL (continued) +Restricted Share Units +On December 18, 2025, the Company issued 68,334 RSUs to three directors with a vesting date being one year from the grant date. Each RSU entitles the holder to be issued one Subordinate Voting Share of the Company on vesting. These RSUs are valued at the date of grant at $ 53,405 of which $ 1,897 was recorded as share-based payment during the year ended December 31, 2025. +On June 26, 2025, the Company issued 46,950 RSUs to three directors with a vesting date being one year from the grant date. Each RSU entitles the holder to be issued one Subordinate Voting Share of the Company on vesting. These RSUs are valued at the date of grant at $ 26,498 of which $ 13,290 was recorded as share-based payment during the year ended December 31, 2025. +On March 31, 2025, the Company issued 60,414 RSUs to three directors with a vesting date being one year from the grant date. Each RSU entitles the holder to be issued one Subordinate Voting Share of the Company on vesting. These RSUs are valued at the date of grant at $ 28,156 of which $ 24,486 was recorded as share-based payment during the year ended December 31, 2025. +On December 27, 2024, the Company issued 75,000 RSUs to two employees and an officer with a vesting date being one year from the grant date. Each RSU entitles the holder to be issued one Subordinate Voting Share of the Company on vesting. These RSUs are valued at the date of grant at $ 23,411 , of which $ 23,888 was recorded as share-based payment during the year ended December 31, 2025 (2024 - $ 257 ). +On October 17, 2024, the Company issued 114,588 RSUs to three directors with a vesting date being one year from grant date. Each RSU entitles the holder to be issued one Subordinate Voting Share of the Company on vesting. These RSUs are valued at the date of grant at $ 51,666 , of which $ 42,330 was recorded as stock-based compensation during the year ended December 31, 2025 (2024 - $ 10,617 ). +On March 1, 2024, the Company issued 88,538 restricted share units (“RSU”) to two employees with a vesting date being one year from the grant date. Each RSU entitles the holder to be issued one Subordinate Voting Share of the Company on vesting. These RSUs are valued at the date of grant at $ 31,984 , of which $ 4,969 was recorded as stock-based compensation during the year ended December 31, 2025 (2024 - $ 26,727 ). +Share-based payments for the RSUs was allocated as follows: +- $ 85,283 (2024 — $ 11,233 ) from RSUs was allocated to management fees; +- $ 25,577 (2024 —  $ 26,573 ) from RSUs was allocated to exploration expenses; +The following table summarizes information about RSUs outstanding as at December 31, 2025: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Date Issued +​ ​ ​ +Vesting Date +​ ​ ​ +No. of RSUs +Grant +March 1, 2024 +March 1, 2025 +88,538 +Grant +October 17, 2024 +October 17, 2025 +114,588 +Grant +December 27, 2024 +December 27, 2025 +75,000 +Outstanding at December 31, 2024 +​ +​ +​ +​ +​ +278,126 +Grant +​ +March 31, 2025 +​ +March 31, 2026 +​ +60,414 +Grant +​ +June 26, 2025 +​ +June 26, 2026 +​ +46,950 +Exercised +​ +March 1, 2024 +​ +​ +​ +( 27,682 ) +Grant +December 18, 2025 +December 19, 2026 +68,334 +Forfeited +December 27, 2024 +​ +( 25,000 ) +Outstanding at December 31, 2025 +​ +​ +401,142 +​ +​ +20 +Table of Contents +ALASKA SILVER CORP. +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +(Expressed in United States Dollars) +​ +10. DERIVATIVE WARRANT LIABILITY +Prior to October 1, 2025, the Company had outstanding share purchase warrants that were exercisable for Subordinate Voting shares of the Company at a fixed exercise price denominated in CAD dollars. While the Company’s functional currency was CAD, the warrants were classified as equity instruments as the warrants were indexed to the Company’s own stock and met the criteria for equity classification. +Upon the change in functional currency from CAD to USD, the exercise price of the warrants, which is denominated in CAD, is no longer considered indexed solely to the Company’s own stock. Accordingly, the warrants no longer qualify for equity classification. +Effective October 1, 2025, the Company reclassified the warrants from additional paid-in capital to a derivative warrant liability and measured the warrants at fair value on the date of reclassification. The fair value of the warrants was determined to be $ 3,910,580 using the Black-Scholes pricing model with the following weighted-average assumptions: +​ +​ +​ +​ +​ +Risk-free interest rate +​ ​ ​ +2.47 +% +Expected stock price volatility +77.6 +% +Expected warrant life in years +1.6 years +​ +Dividend rate +Nil +​ +​ +Subsequent to October 1, 2025, the warrants are measured at fair value at each reporting date, with changes in fair value recognized in the consolidated statements of loss. On December 31, 2025, the fair value of the warrants was determined to be $ 6,357,552 using the Black-Scholes pricing model with the following weighted-average assumptions: +​ +​ +​ +​ +​ +Risk-free interest rate +​ ​ ​ +2.55 +% +Expected stock price volatility +72.7 +% +Expected warrant life in years +1.4 years +​ +Dividend rate +Nil +​ +​ +The following table summarizes information about the derivative warrant liability as at December 31, 2025: +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Number of +​ ​ ​ +​ +Description +​ +Warrants +​ +​ +$ +Balance at December 31, 2024 +— +​ +— +Reclassification of warrants to a derivative liability +16,902,905 +​ +3,910,580 +Exercise of warrants +( 216,140 ) +​ +( 41,959 ) +Revaluation of warrants +— +​ +2,381,301 +Currency translation difference +— +​ +107,600 +Balance at December 31, 2025 +16,686,765 +​ +6,357,552 +​ +​ +​ +21 +Table of Contents +ALASKA SILVER CORP. +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +(Expressed in United States Dollars) +​ +11. INCOME TAXES +A reconciliation of the expected income tax recovery to the actual income tax recovery is as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +December 31, 2025 +​ ​ ​ +% +​ ​ ​ +December 31, 2024 +​ ​ ​ +% +Net loss before tax +​ +$ +( 8,861,799 ) +​ +​ +​ +$ +( 7,279,098 ) +​ +​ +State and local income tax, net of federal income tax effect +​ +( 2,392,686 ) +​ +27 +​ +( 1,965,356 ) +​ +27 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Foreign tax effects: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +United States +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Statutory tax rate difference between United States and Canada +​ +​ +280,210 +​ +( 3 ) +​ +​ +— +​ +— +Adjustment to prior years provision versus statutory tax returns and others +​ +​ +3,911,402 +​ +( 44 ) +​ +​ +( 192,617 ) +​ +3 +Changes in valuation allowance +​ +​ +( 2,930,667 ) +​ +33 +​ +​ +1,564,509 +​ +( 22 ) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Non-deductible expenditures +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Stock-based payments +​ +​ +85,107 +​ +( 1 ) +​ +​ +247,859 +​ +( 4 ) +Revaluation loss – derivative liability +​ +​ +642,951 +​ +( 7 ) +​ +​ +— +​ +— +Others +​ +— +​ +​ +​ +158 +​ +— +Share issuance costs +​ +( 278,591 ) +​ +3 +​ +( 136,584 ) +​ +2 +Adjustment to prior years provision versus statutory tax returns +​ +66,211 +​ +( 1 ) +​ +94,017 +​ +( 1 ) +Impact of foreign exchange rates and others +​ +​ +( 94,611 ) +​ +1 +​ +​ +— +​ +— +Change in valuation allowances +​ +710,674 +​ +( 8 ) +​ +388,014 +​ +( 5 ) +Income tax recovery +​ +$ +— +​ +​ +​ +$ +— +​ +​ +​ +The significant components of deferred tax assets that have not been included on the statements of financial position are as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +December 31, 2025 +​ ​ ​ +December 31, 2024 +Share issuance costs +​ +$ +398,982 +​ +$ +268,150 +Non-capital losses available for future period (USA) +​ +4,195,062 +​ +2,381,162 +Non-capital losses available for future period (Canada) +​ +1,988,003 +​ +1,408,434 +Exploration and evaluation assets +​ +2,600,277 +​ +7,070,105 +Asset retirement obligation +​ +48,392 +​ +— +Equipment +​ +​ +( 116,180 ) +​ +​ +206,678 +Total deferred tax pools, net +​ +9,114,536 +​ +11,334,529 +Valuation allowance +​ +( 9,114,536 ) +​ +( 11,334,529 ) +​ +​ +$ +— +​ +$ +— +​ +The Company has approximately $ 7,363,000 of non-capital losses in Canada which expire between 2041 and 2044 and approximately $ 19,976,000 of non-capital losses in the US. Tax attributes are subject to review and potential adjustment by tax authorities. +​ +​ +22 +Table of Contents +ALASKA SILVER CORP. +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +(Expressed in United States Dollars) +​ +12. SEGMENTED INFORMATION +A reporting segment is defined as a component of the Company that: +(i) +Engages in business activities from which it may earn revenues and incur expenses; +(ii) +Operating results are reviewed regularly by the entity’s chief operating decision maker (“CODM”); and +(iii) +Discrete financial information is available. +The CODM is the CEO of the Company. The Company has determined that it operates its business in one geographical segment located in Alaska, United States, where the majority of its equipment and all of its mineral properties are located. +The CODM is responsible for evaluating performance, allocating resources, and making strategic decisions. The primary measure used to assess the Company’s profitability is consolidated net loss, which is used to compare budgeted versus actual results and informs operating cash flow decisions. The financial position, results of operations, and cash flows of the Company’s single reportable segment align with the consolidated financial statements presented herein. The measure of segment assets is reported on the consolidated balance sheet as total assets. +The CODM primarily evaluates the Company’s performance based on consolidated net loss and reviews significant expenses, when applicable, on a consolidated basis, consistent with the presentation in the consolidated statements of operations. While the CODM’s primary focus is on overall consolidated results, supplemental information on exploration costs is also reviewed. +13. SUBSEQUENT EVENTS +The Company issued 256,564 Subordinate Voting Shares for the exercise of warrants for gross proceeds of CAD$ 190,738 . +The Company issued 320,000 Subordinate Voting Shares for the exercise of stock options for gross proceeds of $ 144,000 . +The Company issued 29,000 Subordinate Voting Shares for the exercise of stock options for gross proceeds of CAD$ 18,710 . +On March 9, 2026 the Company converted all of its proportionate voting shares to subordinate voting shares. +​ +​ +23 \ No newline at end of file diff --git a/raw/filings/0001893899/2025/0001104659-26-037627/filing_metadata.csv b/raw/filings/0001893899/2025/0001104659-26-037627/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..93d5440a03e6bfa9b861006ede3e2f3a0564b4d3 --- /dev/null +++ b/raw/filings/0001893899/2025/0001104659-26-037627/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001893899,WAMFF,Alaska Silver Corp.,2025,10-K,2026-03-31,2025-12-31,2026-03-31T19:00:52.000Z,0001104659-26-037627,wamff-20251231x10k.htm,10-K,27226247,1,1,https://www.sec.gov/Archives/edgar/data/1893899/000110465926037627/wamff-20251231x10k.htm,https://www.sec.gov/Archives/edgar/data/1893899/000110465926037627/ diff --git a/raw/filings/0001893899/2025/0001104659-26-037627/item1.txt b/raw/filings/0001893899/2025/0001104659-26-037627/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..911f04e5c8569ac4ff18499451edb712375850fb --- /dev/null +++ b/raw/filings/0001893899/2025/0001104659-26-037627/item1.txt @@ -0,0 +1,68 @@ +Item 1. Business +Company Overview +Alaska Silver Corp. (the “Company,” “we,” “us,” or “our”) is a mineral exploration company. Our portfolio consists of five mineral deposits, which contain gold, silver, copper, lead, and zinc at varying stages of exploration and deposit styles, including a Carbonate Replacement Deposit (“CRD”) and a past-producing oxide gold mine. We hold all claims in the district, which is located in western Alaska near the Yukon River, covering over 80,000 acres. Our mineral deposits include Round Top Property, Alaska; Illinois Creek Mine Project, Alaska; and Honker Property, Alaska. The Round Top Property consists of 92 state mineral claims, located in the Mount McKinley and Nulato mining districts of Alaska. The Honker Property consists of 24 state mineral claims, located in the Mount McKinley mining district of Alaska. Our Illinois Creek Project is located in the Mount McKinley mining district of Alaska. Our exploration target projects in Alaska include Paw Print and Khotol Property. Each of the above projects is described in further detail under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” +Corporate Information +We were incorporated in the province of British Columbia on April 8, 2020, under the Business Corporations Act of British Columbia, or “BCBCA”. We are a public company whose subordinate voting shares are listed for trading on the TSXV under the symbol “WAM” as well as on the OTCQX under the symbol “WAMFF”. Our telephone number is (520) 200-1667. Our head office is located at 1500-1111 West Hastings St, Vancouver, British Columbia, V6E 2J3 Canada. Our internet address is www.alaskasilver.com. +Organizational Structure +We have one directly-held wholly-owned subsidiary, Alaska Silver USA Corp (“ASUS”), formerly known as Western Alaska Copper & Gold Company, and one indirectly-held wholly owned subsidiary, Piek Incorporated (“Piek”). ASUS exists under the laws of Alaska and carries out exploration activities in Alaska. +Our organizational chart is as follows: +Alaska Silver Corp +(British Columbia, Canada) +​ +​ +​ +Alaska Silver USA Corp +(Alaska, USA) +100% +​ +​ +​ +Piek Incorporated +(Alaska, USA) +100% +​ +​ +ASUS is an Alaska corporation incorporated in 2010 for the primary purpose of conducting mineral exploration on the mining claims which it owns. +5 +Table of Contents +Markets +The mining industry is highly competitive. Mining companies compete for, among other things, mining properties from which minerals and other substances can be profitably extracted; personnel with technical expertise to find, develop, and operate mining properties; labor to operate the properties; and capital to finance the development of such properties. Many of our competitors have greater financial resources and technical facilities for the acquisition and development of mineral concessions, claims, leases and other interests, as well as for the recruitment and retention of qualified employees and consultants. Our relatively small size and limited capital resources, and current or future competition, could have a material adverse effect on our ability to develop our mineral projects, recruit and retain qualified personnel, or acquire the capital needed to fund our operations and develop mining projects. +Raw Materials +We use critical components such as water, electrical power, explosives, diesel and propane in our business, all of which are readily available. Potable water is supplied by an on-site water well permitted by the State of Alaska. Water for drilling needs is obtained by surface sources permitted by the State of Alaska. Electrical power is provided by company owned generators on site. Fuel (gasoline, diesel, Jet A and aviation fuel) is purchased from Everts Air Fuel, Inc. (“Everts”), based in Fairbanks, Alaska at competitive prices. Everts purchases fuel direct from the Marathon Petroleum refinery in Kenai, Alaska, which is located approximately 60 miles south of Anchorage, Alaska. No explosives are currently being used. Propane is purchased in Fairbanks, Alaska and delivered to our camp by Wright Air Service, Inc. (“Wright Air Service”). Building materials are purchased in Fairbanks and delivered to site by Wright Air Service. Wood timbers for construction and drill pads are produced on site. +Government Approvals and Regulations +Mining is an extractive industry that impacts the environment. Our goal is to constantly evaluate ways to minimize such impact. We expect to meet or exceed environmental standards at each of the properties (including the Illinois Creek Project) and to continue this approach through effective engagement with affected stakeholders, including local communities, government and regulatory agencies and indigenous groups. +We are currently operating only in Alaska, which has established environmental standards and regulations that we strive to exceed. Our environmental performance is overseen at the board level and environmental performance is our responsibility. We recognize environmental management as a corporate priority and place a strong emphasis on preserving the environment for future generations, while also providing for safe, responsible and profitable operations by developing natural resources for the benefit of our employees, shareholders and communities. +We received a five-year exploration permit known as “APMA” from the Alaska Department of Natural Resources (the “DNR”) at a cost of less than $1,000 per application. We have a plan of operations (“Plan of Operations”), approved by the DNR, for our camp, structures and exploration activities with minimal costs to update. Water source permits for drilling operations (five) currently cost $50 per year. We participate in the State of Alaska Large Mine Permit Team. Annual costs are approximately $25,000 and include fish habitat monitoring by Alaska Department of Fish & Game and coordination of permit and program reviews by various state agencies. Please see “ Risk Factors— The cost of compliance with changes in government regulations has the potential to reduce the profitability of operations” for a more detailed discussion of those regulations .” +Our current exploration operations are subject to certain state and federal regulations aimed at reducing the impact of our business on the environment. In the future, if our project advances to full commercial production, we will be subject to additional state and federal regulations with the same aim. +Currently, our exploration activities are undertaken under state permits that authorize limited surface disturbance and water withdrawals from surface water bodies. We believe we are currently in compliance with the stipulations in those permits, and there is no measurable risk that we will not meet our obligations under those exploration permits in the future. +Our project is located in unincorporated Alaska and not within any local jurisdiction; accordingly, we do not believe there are currently any local statutes applicable to our project. +6 +Table of Contents +Our project is subject to regulations of the DNR, Division of Mining, Land and Water. We operate under a Miscellaneous Land Use permit on our state mining claims and an approved Plan of Operations for our exploration activities on our Upland Mining Lease. One July 1, 2024 we recorded an Upland Mining Lease ADL No. 422236 from the State of Alaska which converted 70 existing claims (11,135 acres) into one lease. The lease term is 20 years and gives the company the right, subject to all necessary permits and approvals, to mine and produce locatable minerals from the leased ground. The Company believes it is currently in full compliance with its exploration permits. Similar DNR statutes will apply to any future mine development including requirements to provide a financial assurance sufficient to fund the likely and reasonable cost of mine reclamation. +Future development of a commercial mine will require us to comply with and maintain compliance with the conditions under a significant number of additional permits from state and federal regulatory agencies, generally with the same aim of protecting the environment. We are already taking initial steps to characterize the pre-mining site environmental conditions through an expanding baseline environmental program to support a robust future mine design and permitting process. However, there is some risk that any future mine may encounter site conditions that are significantly different than anticipated. This could require modifications of mine facilities, operations and permit requirements, potentially with a significant increase in capital and operating costs. See “ Risk Factors—The cost of compliance with changes in government regulations has the potential to reduce the profitability of operations. ” +Costs and Effects of Compliance with Laws and Regulations +We are required to perform annual assessment work in order to maintain the Illinois Creek Project. If annual assessment work is not performed we must pay the assessment amount in cash in order to maintain the claims. Completion of annual assessment work in the amount of $400 per 1/4 section (160 acre) claim or $100 per 1/16 section (40 acre) claim extends the claims for a one-year period. Assessment work performed in excess of the required amount may be carried forward for up to four years to reduce future obligations for assessment work. +We currently have no material costs to comply with environmental laws concerning our exploration program as we are at the pre-development stage. In the future, we will have to sustain the cost of reclamation and environmental remediation for all work undertaken which causes sufficient surface disturbance to necessitate reclamation work. Both reclamation and environmental remediation refer to putting disturbed ground back as close to its original state as possible. Other potential pollution or damage must be cleaned up and renewed along standard guidelines outlined in the usual permits. Reclamation is the process of bringing the land back to a natural state after completion of exploration activities. Environmental remediation refers to the physical activity of taking steps to remediate, or remedy, any environmental damage caused, i.e. refilling trenches after sampling or cleaning up fuel spills. Our initial programs do not require any reclamation or remediation other than minor clean up and removal of supplies because of minimal disturbance to the ground. The amount of these costs is not known at this time as we do not know the extent of the exploration program we will undertake, beyond completion of the recommended three phases described in the chart below. Because there is presently no information on the size, tenor, or quality of any resource or reserve at this time, it is impossible to assess the impact of any capital expenditures on our earnings or competitive position in the event a potentially economic deposit is discovered. +Our fuel storage facility is reviewed by a third-party service for compliance with state regulations at a cost of approximately $1,500 per year. +Employees and Contractors +As of December 31, 2025, we have engaged five contractors and five employees. Contractors serve us part-time, except for one full-time contractor. All employees serve us full-time. These contractors provide management, technical, administrative, accounting and legal services to us. We believe the contractors are an efficient use of our resources, providing us greater flexibility in our cost structure as we commence exploration programs. +Description of Business +Revenue Generating Activities +We have no operating revenues or earnings and have a history of losses. We will have no operating revenues and maintain a history of losses, and no operating revenues are anticipated until one of our projects comes into production, which may or may not occur. We will continue to experience losses unless and until we can successfully develop and begin profitable commercial production at one of our mining properties, and there can be no assurance that we will be able to do so. +7 +Table of Contents +Status of Exploration Efforts +We have announced mineral resources at two of our deposits, the past producing Illinois Creek (“Illinois Creek” or “IC”) Gold-Silver Mine and the high-grade Waterpump Creek (“WPC”) Carbonate Replacement Deposit (silver-zinc-lead-gallium). These resources are end members of a large-scale carbonate replacement mineralizing system. The two resources will utilize different types of metallurgical processing systems. Metallurgical testing is underway on samples from both deposits in order to quantify mineral recoveries. +In 2026, we are currently undergoing an initial options analysis using Fuse Engineering to build economic models for both deposits (IC and WPC). If this work yields positive results, we will decide whether to advance one or both deposits towards a Preliminary Economic Analysis, or “PEA” which will likely require additional test work. +We are a member of the Large Mine Permit Team organized by the Alaska Department of Natural Resources (“Large Mine Permit Team”) and managed by the Office of Project Management & Permitting. The Large Mine Permit Team brings together all state agencies that will be involved in permitting a mining exploration and development project. This is a major part of our effort to advance environmental baseline studies to de-risk both deposits. We have engaged with the Large Mine Permit Team and have initiated discussions with the federal permitting regulators to explore the permitting requirements for a planned Yukon River access route. Previous studies include multiple years of fish habitat studies conducted by Alaska Fish & Game, wetlands delineation and surface water quality sampling. +During 2025, we conducted a trenching program and a short drill program. The trenching program quickly identified a 550m long deeply weathered breccia zone containing distinctive rubbly boulders of massive silver-bearing galena and cerussite (oxidized galena) at the Silver Sage zone, located 4.8km south of Waterpump Creek. Trench sampling returned numerous high-grade silver-lead values, including multiple samples reporting assays above 310 g/t silver (10 oz/T), with grades up to 1,235 g/t silver (40 oz/T). Sampling also returned gold values as high as 0.55 g/t. A short follow-up drilling program was conducted from July 25, 2025 to September 28, 2025. A total of 2,964.0 meters were drilled across 13 exploration drill holes. The 2025 program comprised 2,057 m of drilling in 4 holes at the Waterpump Creek deposit, with WPC25-0035 which cut 5.9m (core length) grading 38 g/t (1.2 oz/T) Ag and 12.1% Zn, including 3.2m grading 67 g/t (2.1 oz/T) Ag and 16.9% Zn. In addition, 906.5 m of drilling in 9 shallow scout holes was completed at the newly discovered high-grade silver-lead zone, Silver Sage. Among these holes, SS25-04 cut 4.4m (core length) reporting 148 g/t (4.8 oz/T) Ag; 0.68% Pb and 0.24% Zn, including 1 m grading 349g/t (11.2 oz/T) Ag 2.2% Pb and 0.20% Zn +The proposed 2026 drill program will consist of a minimum of 6,000 meters of diamond drilling utilizing our two company-owned drill rigs. The 2026 drilling program will focus on multiple priority targets at the high-grade Waterpump Creek deposit and the newly discovered Silver Sage Zone, along with scout drilling of other high priority targets. Building on 2025’s successful discovery of the blind Silver Sage Zone, systematic follow up of legacy and newly generated geochemical and geophysical anomalies will be undertaken in high-potential areas identified within the overall Illinois Creek Project area. Additional surface exploration and trenching will also be undertaken at Illinois Creek property and Round Top Property. +When either or both the Illinois Creek and Waterpump Creek resources produce positive PEAs, we intend to determine if either or both projects are ready to advance to pre-feasibility and feasibility studies. +Seasonal Variations in Business +The mining business is subject to mineral price and investment climate cycles. The marketability of minerals is also affected by worldwide economic and demand cycles. In recent years, the significant demand for minerals in some countries has driven increased commodity process. It is difficult to assess if the current commodity prices are long-term trends, and there is uncertainty as to the recovery, or otherwise, of the world economy. If global conditions weaken, and commodity prices decline as a consequence, a continuing period of lower prices could significantly affect the economic potential of each of the Illinois Creek Project and the other properties. +8 +Table of Contents +Facilities and Equipment +We own the Illinois Creek camp which includes all buildings, kitchen/dining facility, offices, dormitory/sleeping facilities, tents, core sheds, electrical generators, water supply and storage systems, radio and internet communication equipment. Camp personnel capacity is 45 persons. We own our exploration drilling equipment which includes two new mechanized drill rigs and rod sloops purchased in 2023 and 2024 and three older, used drill rigs. We maintain extensive spare parts for its drilling equipment. We own and maintain a fleet of vehicles that include pickup trucks, side by side off road vehicles, fuel and water trucks and a dump truck. Heavy equipment includes a CAT D6 dozer, CAT 630 loader, CAT motor grader for road and runway maintenance, Hitachi excavator, John Deere dozer & excavator, snow machines and numerous miscellaneous minor equipment. +We utilize the State of Alaska-owned 4,400 ft Illinois Creek airstrip for delivery of food, supplies and personnel. Fixed wing support is contracted to Wright Air Service and Everts Air Cargo. Lynden Air Cargo, LLC provides C-130 Hercules cargo aircraft with a 50,000pound payload for drill rigs and other heavy equipment. +We do not lease any buildings or equipment related to the Illinois Creek Project. \ No newline at end of file diff --git a/raw/filings/0001893899/2025/0001104659-26-037627/item13.txt b/raw/filings/0001893899/2025/0001104659-26-037627/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..b41aad297c12adf51d30ab917c755e95baa074de --- /dev/null +++ b/raw/filings/0001893899/2025/0001104659-26-037627/item13.txt @@ -0,0 +1,4 @@ +Item 13 - Certain Relationships and Related Transactions, and Director Independence +68 +​ +​ \ No newline at end of file diff --git a/raw/filings/0001894525/2024/0001213900-25-032206/filing.txt b/raw/filings/0001894525/2024/0001213900-25-032206/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..2ef50fb945bc9fe3f91e41dfc23e17658bf60c04 --- /dev/null +++ b/raw/filings/0001894525/2024/0001213900-25-032206/filing.txt @@ -0,0 +1,3874 @@ +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +(Mark One) +☒ ANNUAL REPORT PURSUANT TO SECTION 13 +OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , 2024 +☐ TRANSITION REPORT PURSUANT TO SECTION +13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from to +Commission File Number: 001-42545 +Apimeds Pharmaceuticals US, Inc. +(Exact name of registrant as specified in its charter) +Delaware 85-1099700 +(State or other jurisdiction of +incorporation or organization) (IRS Employer +Identification No.) +2 East Broad Street 2 nd Floor +Hopewell , NJ 08425 +(Address of principal executive offices) (Zip Code) +808 - 209-7887 +(Registrant’s telephone number, including +area code) +Not applicable +(Former name, former address and former fiscal +year, if changed since last report) +Securities registered pursuant to Section 12(b) of the Act: +Title of each class Trading Symbol(s) Name of each exchange on which registered +Common Stock, par value $0.01 N/A N/A +Securities registered pursuant to Section 12(g) of the Act: None. +Indicate by check mark if the registrant is a +well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate by check mark if the registrant is not +required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ +Indicate by check mark whether the registrant +(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months +(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements +for the past 90 days. Yes ☒ No ☐ +Indicate by check mark whether the registrant +has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 +of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes ☒ +No ☐ +Indicate by check mark whether the registrant +is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. +See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” +and “emerging growth company” in Rule 12b-2 of the Exchange Act: +Large accelerated filer ☐ Accelerated filer ☐ +Non-accelerated filer ☒ Smaller reporting company ☒ +Emerging growth company ☒ +If an emerging growth company, indicate by check +mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting +standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant +has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial +reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or +issued its audit report. ☐ +If securities are registered pursuant to Section +12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction +of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error +corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s +executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant +is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ +As of June 28, 2024, the last business day of +the registrant’s last completed second quarter, there was no established public market for the registrant’s common stock. +As of April 15, 2025, there were 8,193,398 +shares of the registrant’s common stock, par value $0.01 per share, issued and outstanding. +TABLE OF CONTENTS +Page +Part I +1 +Item 1. Business +1 +Item 1A. Risk Factors +24 +Item 1B. Unresolved Staff Comments +24 +Item 1C. Cybersecurity +25 +Item 2. Properties +26 +Item 3. Legal Proceedings +26 +Item 4. Mine Safety Disclosures +26 +Part II +27 +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +27 +Item 6. [Reserved] +27 +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +27 +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +32 +Item 8. Financial Statements and Supplementary Data +32 +Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +32 +Item 9A. Controls and Procedures +32 +Item 9B. Other Information +33 +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +33 +Part III +34 +Item 10. Directors, Executive Officers and Corporate Governance +34 +Item 11. Executive Compensation +38 +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +41 +Item 13. Certain Relationships and Related Transactions, and Director Independence +46 +Item 14. Principal Accountant Fees and Services +49 +Part IV +50 +Item 15. Exhibits and Financial Statement Schedules +50 +Item 16. Form 10-K Summary +52 +Signature Page +53 +Index to Financial Statements +F-1 +i +SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS +Various statements in this +Annual Report on Form 10-K (the “Annual Report”) of Apimeds Pharmaceuticals US, Inc. are “forward-looking statements” +within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve substantial risks and uncertainties. +All statements, other than statements of historical facts, included in this report, including statements regarding our strategy, future +operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking +statements. These statements are subject to risks and uncertainties (some of which are beyond our control) and are based on information +currently available to our management. Words such as “anticipate,” “believe,” “estimate,” “expect,” +“intend,” “may,” “plan,” “contemplates,” “predict,” “project,” +“target,” “likely,” “potential,” “continue,” “ongoing,” “will,” +“would,” “should,” “could,” or the negative of these terms and similar expressions or words, identify +forward-looking statements. The events and circumstances reflected in our forward-looking statements may not occur and actual results +could differ materially from those projected in our forward-looking statements. Such forward-looking statements are based on current expectations +and involve inherent risks and uncertainties, including risks and uncertainties that could delay, divert or change these expectations, +and could cause actual results to differ materially from those projected in these forward-looking statements. These risks and uncertainties +include, but are not limited to, those factors described under Part I, Item 1A: “Risk Factors.” Should one or more of these +risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from +those projected in these forward-looking statements. +This Annual Report contains +market data and industry forecasts that were obtained from industry publications. These data involve a number of assumptions and limitations, +and you are cautioned not to give undue weight to such estimates. We have not independently verified any third-party information. While +we believe the market position, market opportunity and market size information included in this report is generally reliable, such information +is inherently imprecise and subject to change. +All written and oral forward-looking +statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements +contained or referred to in this section. We caution investors not to rely on the forward-looking statements we make or that are made +on our behalf as predictions of future events. We undertake no obligation and specifically decline any obligation to update or revise +any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable +securities laws. +We encourage you to read +the management’s discussion and analysis of our financial condition and results of operations and our financial statements contained +in this Annual Report. There can be no assurance that we will in fact achieve the actual results or developments we anticipate or, even +if we do substantially realize them, that they will have the expected consequences to, or effects on, us. Therefore, we can give no assurances +that we will achieve the outcomes stated in those forward-looking statements, projections and estimates. +ii +PART I +Item 1. Business +We are a clinical stage biopharmaceutical company +in the process of developing Apitox, an intradermally administered bee venom-based toxin. Our focus is primarily on developing innovative +therapies that address inflammation and pain management symptoms associated with knee OA and, to a lesser extent, MS. Apitox is currently +marketed and sold by Apimeds Inc. (“Apimeds Korea”) in South Korea as “Apitoxin” for the treatment of OA. Apimeds +US is not associated with the market, sale and revenues generated from Apitoxin in South Korea, and Apitoxin has not yet been approved +by the FDA for any indication. +Apitox is a purified, pharmaceutical grade venom +(bee venom), of the Apis mellifera, or western honeybee, which is classified by the FDA as an active pharmaceutical ingredient +(“API”). Bee venom has been used in Asia and Europe to treat pain for hundreds of years. While not FDA approved in a +controlled, prescription based biologic environment for defined indications, the use of bee venom has been FDA approved as a “under +the skin injection” to reduce the allergic reactions to bee stings. Apimeds Korea has developed a proprietary method and process +for turning extracted bee venom into a lyophilized powder for reconstitution prior to intradermal dose injections, which they sell in +South Korea as Apitoxin. We intend to use a similar process with respect to Apitox, pursuant to the Business Agreement, which gives us +a license to utilize all prior clinical development data associated with Apitoxin. The advancement of extracted bee venom for treatment +of inflammatory conditions, including but not limited to knee OA and MS is speculative but based on direction provided by prior clinical +data. +Apimeds Korea successfully completed Phase I, +Phase II, and Phase III trials in OA in 2003, at which point Apitoxin was approved by the Korean Ministry of Food and Drug Safety (“MFDA”) +to treat pain and mobility in patients with OA. Since 2003, a post-marketing/approval safety study in South Korea followed 3,194 patients +from 2003 through 2009, with no serious adverse events. The purpose of a Phase I trial is to test to determine whether a new +treatment is safe and look for the best way to give the treatment. Phase II trials test to determine whether a condition or disease +responds to the new treatment. Phase III trials test to determine whether a new treatment is better than a standard treatment. +In 2013, the first of two required U.S. Phase +III clinical trials was authorized to enroll patients to study the use of Apitoxin to study the same indication as approved in South Korea +in 2023 — treatment of pain and lack of mobility in patients with OA (the “Apimeds Korea Phase III OA Trial”). +The Apimeds Korea Phase III OA Trial (330 patients) was completed in 2018, and displayed no serious adverse events. +Based on the results from the Apimeds Korea Phase +III OA Trial, which demonstrated therapeutic (statistical and clinically significant improvements in all outcome measures of pain, physical +function, and disease assessment) effect compared to the placebo group, but in combination with prior development by Apimeds Korea, did +not meet the FDA’s standards for approval, as the study population was too small and the methods for handling missing data were +inadequate, resulting in a study that did not demonstrate a significant treatment effect. We will be pursuing a second Phase III trial +to meet agreed upon FDA standards. Based on results from the Apimeds Korea Phase III OA Trial, we have evaluated the most appropriate +population, defined as advanced knee OA patients, which will range from defined grade 2, 3 and 4 within this treatment group, to continue +to progress our own Phase III trial. Pursuant to our previous correspondence with the FDA, we have designed and will implement our Phase +III trial to best address our patient population, appropriate dosing, and the most effective way to evaluate Apitox in meeting the patient +population’s needs. +We believe the progress we are making in clinical +trials provides us support in our belief in the potential of Apitox to be an innovative therapy. We aim to treat the inflammation and +pain management symptoms associated with knee OA and to help manage the devastating symptoms of this disease. In the future, we also aim +to leverage our research in knee OA to investigate how Apitox may be used to treat similar symptoms associated with MS. +Treatment of OA +OA is typically treated with painkillers known +as non-steroidal anti-inflammatory drugs (NSAIDs). These medications have an anti-inflammatory and pain-relieving effect. These medications +include ibuprofen (Motrin, Advil) naproxen (Aleve) and diclofenac (Voltaren and others). All of these medications work by blocking enzymes +that cause pain and swelling. The problem is that some of those enzymes also help blood to clot and protect the lining of your stomach. +Without them, you can bruise easily, develop ulcers and may even bleed in your intestines. NSAIDs also increase your chance of heart attack, +stroke and heart failure. The risk increases the longer you use them and the more you take. We believe Apitox could be a successful alternative +to NSAIDs in the treatment of the inflammation and pain management symptoms associated with OA without the harmful side effects. +1 +According to MedicalNewsToday, OA is the most +common form of arthritis, affecting around 500 million people worldwide, or around 7% of the global population. Currently, in the +United States, over 32 million people suffer from OA. As the 15 th highest cause of years lived +with disability (YLDs) worldwide, the burden OA poses to individuals is substantial, characterized by pain, activity limitations, and +reduced quality of life. The economic impact of OA, which includes direct and indirect (time) costs, is also substantial, ranging +from 1 to 2.5% of gross national product (GNP) in countries with established market economies, like the United States. Though trends +in OA prevalence vary by geography, the prevalence of OA is projected to rise in regions with established market economies such as North +America and Europe, where populations are aging and the prevalence of obesity is rising. +While OA can occur in any joint, it occurs most +frequently in the knee, which, according to ScienceDirect, currently accounts for 365 million cases worldwide and 61% of YLDs lost +due to OA, followed by the hand. +Our current efforts are focused on the development +of Apitox in the United States for the treatment of inflammation and pain management relating to OA in the knee. +Treatment of MS +Additionally, we believe the previous clinical +trial success of Apimeds Korea with respect to the use of Apitoxin to treat symptoms associated with knee OA, and pending the success +of our anticipated Phase III trial in knee OA, we will be in a position to further explore the use of Apitox as a potential treatment +for the symptoms of MS. MS is a chronic disease of the central nervous system. It is an autoimmune condition that is characterized +by the body’s own immune cells (macrophages and lymphocytes) attacking the myelin that coats nerve cells, which can lead to +inflammation throughout the central nervous system. MS is an unpredictable disease that affects people differently. Some people with MS +may have only mild symptoms. Others may lose their ability to see clearly, write, speak, or walk when communication between the brain +and other parts of the body becomes disrupted. +MS is the most common progressive neurologic disease +of young adults worldwide. A study funded by the National MS Society estimates that nearly one million individuals are currently +affected by this disease in the United States. The total economic burden of MS in the United States is estimated to be $85.4 billion, +with $63.3 billion in direct medical costs and $22.1 billion in indirect and nonmedical costs. MS typically affects patients +at a young age, resulting in a greater loss of productivity and quality of life. +Beta interferon drugs are among the most common +medications used to treat MS. Interferons are signaling molecules that regulate immune cells. Potential side effects of these drugs +include flu-like symptoms (which usually fade with continued therapy), depression, or elevation of liver enzymes. +Pain from MS can be felt in different +parts of the body. Trigeminal neuralgia (facial pain) is treated with anticonvulsant or antispasmodic drugs, or less commonly, painkillers. +Central pain, a syndrome caused by damage to the brain and/or spinal cord, can be treated with gabapentin and nortriptyline. Treatments +for chronic back or other musculoskeletal pain may include heat, massage, ultrasound, and physical therapy. +OA and the Current Standard of Care +OA is a degenerative joint disease in which +the tissues in the joint break down over time. It is the most common type of arthritis and is more common in older people. People with +osteoarthritis usually have joint pain and, after rest or inactivity, stiffness for a short period of time. +There are four stages of OA: (1) Minor — minor +wear-and-tear in the joints and little to no pain in the affected area, (2) Mild — more noticeable bone spurs, the +affected area feels stiff after sedentary periods and patients may need a brace, (3) Moderate — cartilage in the +affected area begins to erode, the joint becomes inflamed and causes discomfort during normal activities, and (4) Severe — the +patient is in a lot of pain, the cartilage is almost completely gone leading to an inflammatory response from the joint, and overgrowth +of bony spurs may cause severe pain. +2 +With the progression of OA of the knee, there +is obvious joint inflammation which causes frequent pain when walking, running, squatting, extending or kneeling. Along with joint stiffness +after sitting for long or when waking up in the morning, there may be popping or snapping sounds when walking. +The data from the Apimeds Korea Phase III OA Trial +suggest that Apitox would have the most potential in treating OA in stages 3 and 4. +MS and the Current Standard of Care +MS is increasingly recognized as a neurodegenerative +disease triggered by an inflammatory attack of the central nervous system. There is no cure for multiple sclerosis. Treatment typically +focuses on speeding recovery from attacks, reducing new radiographic and clinical relapses, slowing the progression of the disease, +and managing MS symptoms. +MS is unpredictable and can vary substantially +from person to person. MS is divided into four types: clinically isolated syndrome (CIS), relapsing-remitting MS (RRMS), secondary +progressive MS (SPMS) and primary progressive MS (PPMS). +CIS refers to a first episode of neurologic symptoms +caused by inflammation and demyelination in the central nervous system. +RRMS, the most common disease course, shows clearly +defined attacks of new or increasing neurologic symptoms. These attacks are also called relapses or exacerbations. They are followed +by periods of partial or complete recovery, or remission. In remissions, all symptoms may disappear or some symptoms may continue and +become permanent. However, during those periods, the disease does not seem to progress. +SPMS follows the initial relapsing-remitting course. +Some people diagnosed with RRMS eventually go on to have a secondary progressive course, in which neurologic function worsens progressively +or disability accumulates over time. +With PPMS, neurologic function worsens or disability +accumulates as soon as symptoms appear, without early relapses or remissions. PPMS can be further characterized as either active (with +an occasional relapse and/or evidence of new MRI activity over a specified period of time) or not active, as well as with progression +(evidence of disability accrual over time, with or without relapse or new MRI activity) or without progression. +Patients with MS tend to be more educated about +their disease and better organized than patients with other diseases, resulting in patients that are aggressive in their approach to treatment. +This is due to MS impacting otherwise healthy people in the prime of their lives. +MS treatment has undergone significant evolution +in the last ten years with the development and approval of certain new drugs, including several oral agents such as Ocrevus, in the +United States. These new agents not only give patients additional treatment options, but also have improved the efficacy and safety +of treatment for MS overall. In general, these drugs are “disease modifying agents,” intended to slow down the immune mediated +damage to the myelin sheaths that underlie symptoms in MS. However, they often do not adequately address the symptoms that MS patients +experience such as walking problems, bladder control, dizziness, and especially pain. A 2022 study estimated that the average cost of +treatment for patients with MS is approximately $88,000 annually. The out-of-pocket expense for patients can be significantly reduced +through certain insurance plans. However, we believe there is the ability for Apitox to be positioned as an important and cost-effective +therapy. +We believe the data from the Apimeds Korea Phase III +OA Trial suggest that Apitox may have the potential as an adjunctive therapy for all four types of MS. We intend to Apitox as a potential +adjunctive therapy through non-registered corporate sponsorship studies to begin determining the appropriate MS patient populations. +Market Opportunity +We believe there is a significant market opportunity +in the United States for Apitox in the treatment of certain symptoms of knee OA and eventually MS. According to Precedence Research +the osteoarthritis therapeutics market size accounted for $8.28 billion in 2022 and it is expected to hit around $20.24 billion +by 2032, expanding at a CAGR of 9.4% from 2023 to 2032. Although OA can damage any joint, the disorder most commonly affects joints in +your hands, knees, hips and spine. OA symptoms can usually be managed, although the damage to joints can’t be reversed. Apitox +has certain anti-inflammatory properties, which we believe give it significant potential to help treat the symptoms of certain chronic +diseases that involve difficult to control pain and inflammation. +3 +According to Pharmaceutical Technology the MS +market size in the United States accounted for $10.73 billion in 2022 and is expected to hit $24.4 billion by 2030, expanding +at a CAGR of 10.32%. Starting in the first quarter of 2025, we intend to begin the early prosecution of appropriate MS patient populations +through non-registered corporate sponsorship studies. Subject to FDA approval, our development of Apitox in the United States will +in the near term, have two distinct focuses (i) the treatment of the certain symptoms of knee OA and (ii) the quality of life +issues surrounding knee OA, such as pain and lack of mobility. +Living with a chronic disease is challenging, +as it interferes with physical, mental, and social functions and thus greatly affects a person’s quality of life. Indeed, chronically +ill patients are facing major struggles such as higher expenditures, social isolation and loneliness, disabilities, fatigue, pain/discomfort, +feelings of distress, anger, hopelessness, frustration, anxiety, and depression. There is the general assumption that symptom reduction +increases a patient’s quality of life. Our approach with Apitox centers around this concept — effectively treating +certain symptoms of the patient’s disease, thus improving their overall quality of life. Bee venom has been shown to have anti-inflammatory +effects. At low doses, bee venom can suppress inflammatory cytokines such as interleukin-6 (IL-6), IL-8, interferon-γ (IFN-γ), +and tumor necrosis factor-α (TNF-α). A decrease in the signaling pathways responsible for the activation of inflammatory cytokines, +such as nuclear factor-kappa B (NF-κB), extracellular signal-regulated kinases (ERK1/2) and protein kinase Akt, and porphyromonas +gingivalis lipopolysaccharide (PgLPS)-treated human keratinocytes has been associated with treatments involving bee venom. We believe +the driver of pain in the highest category of OA is correlated to the key inflammatory elements treated by bee venom, meaning the evaluation +of our Phase III data may lead to a small indication for narcotic use reduction in the treatment of stage 4 OA. +Our Product Candidate +Apitox is purified honeybee (Apis mellifera) venom +manufactured as a lyophilized powder for reconstitution in 0.5% preservative-free lidocaine (lmg/mg) prior to intradermal dose injections +that are administered up to 1,500 micrograms per weekly visit. The biologically active components include melittin (40-50%), apamin (2-3%), +mast cell degranulating (“MCD”) peptide (Peptide 401,2-3%), phospholipase A2 (10-15%), hyaluronidase (1.5-2%) and other components +in small amounts, including dopamine and norepinephrine. According to a publication entitled “ Pharmacological effects and mechanisms +of bee venom and its main components: Recent progress and perspective ” by Shi et al., certain components of honeybee venom have +been found to have both anti-inflammatory and analgesic effects. The anti-inflammatory and analgesic effects are attributed to the presence +of Peptide 401, adolapin and other components that inhibit prostaglandin synthesis. The hormone-stimulating effects are attributed to +the presence of melittin, cardiopep and other components that stimulate the pituitary-adrenal axis to produce cortisol. Results from an +animal study entitled “ Effect of bee venom and melittin on plasma cortisol in the unanesthetized monkey ” published +by Vick et al., indicate that melittin appears to stimulate the production of cortisol from the adrenal gland. The immune-modulating effects, +especially as it pertains to MS, are suggested to be mediated by CD4+CD2S+Foxp3+ regulatory T cells (Tregs) that are influenced by phospholipase +A2. While the exact mechanism of action of Apitox is not fully understood, research such as the publication entitled “ Therapeutic +Use of Bee Venom and Potential Applications in Veterinary Medicine ” by Bava et al., suggests that certain components in Apitox +may ameliorate immune-inflammatory responses associated with MS. Such studies suggested that treatments with melittin prevent inflammatory +cytokine expression and produces anti-inflammatory effects. The proposed indication for Apitox is to provide add-on therapy for the signs +and symptoms of MS in patients whose condition is relapsing-remitting (RRMS), primary-progressive (PPMS) or secondary progressive (SPMS). +4 +Clinical Development History +Founded in 1989, Apimeds Korea pursued a traditional +drug development process in South Korea for Apis mellifera, the bee venom API for Apitoxin. Apimeds Korea completed a formal preclinical +study to validate dosing and safety for human administration with a focus on antigenicity and toxicology in 1993. +A Phase I trial was completed in 1994, studying +the toxicity and safety of Apitoxin in 20 healthy subjects. The purpose of the Phase I trial was to determine if therapeutic doses of +Apitoxin was safe and to identify possible side-effects, if any. Injections of Apitoxin were given two to three times a week, for a total +of 12 sessions spanning over four to six weeks. Laboratory and physical examination of the subjects included (i) serum cortisol levels +(to see if Apitoxin stimulated the release of cortisol), (ii) serum ionized calcium level (to determine if Apitoxin decreased the serum +calcium level), (iii) urinalysis, (iv) hematology and blood chemistry, and (v) vital signs. The Phase I trial demonstrated that there +were no significant changes pre- and post-testing of the serum cortisol levels, serum ionized calcium levels, hematology, blood chemistry, +urinalysis, and vital signs after the subjects were injected with Apitoxin according to the protocol. There were no significant physiological +changes in the clinical evaluations of the subjects and localized itching was the most frequent side effect and was managed with ice packs +or external anti-itching gels. No severe side effects or aftereffects were observed. The Phase I trial indicated that Apitox is safe for +humans when applied in therapeutic doses. +The Phase I trial was followed by a Phase II trial +in 101 subjects to determine the efficacy of Apitoxin at various dose levels. This was a randomized active-controlled clinical trial with +three groups receiving the study drug at various dose levels and one group receiving the control drug (nabumetone) for a six-week period. +Patients received twice weekly injections of Apitox intradermally at dosages titrated to a maximum of 0.7 mg (Group A), 1.5 mg (Group +B), and 2.0 mg (Group C) for a period of six weeks. Control group patients (Group D) received 1,000 mg of nabumetone orally each day for +the same six-week period. There were 25, 26, 25 and 25 patients assigned to Groups A, B, C and D, respectively. Efficacy of treatment +was evaluated by the physician investigators using a 4-point Likert-like symptom severity rating scale developed by the authors to assess +Pain, Disability and Physical Signs. A similar 5-point scale was used for patient self-evaluation. Safety of the Apitoxin injection was +evaluated by patient reaction, hematologic examination, and laboratory chemistry analysis of blood and urine. Efficacy data was reported +for the 81 patients who completed the study. While there were no significant differences in symptom severity scores among the four groups +at baseline, symptom scores were significantly better in the bee venom injection groups than in the control group at six weeks and 10 +weeks after the start of treatment (p<0.01). A treatment was considered effective if there was a 20% improvement from baseline in symptom +scores after 6 weeks of treatment. Based on this definition, therapy demonstrated overall efficacy in 70.0% of patients in Group A, 85.7% +in Group B, 90.0% in Group C, and 61.9% in Group D (drug control). Overall efficacy was significantly greater in treatment Groups +B and C combined than in the nabumetone-treated control group D (p<0.0177). Importantly, efficacy of treatment among all patients treated +with Apitoxin injection was greater than among nabumetone-treated patients for each category assessed: Pain: 85.2% versus 76.2%; Disability: +77.0% versus 71.4%; and Physical Signs: 62.3% vs. 23.8%. It is also noteworthy that, unlike the drug control group, the Apitoxin injection +groups continued to demonstrate improved symptom scores at four weeks after the last treatment (10 weeks). There were no significant changes +in vital signs or results of laboratory examinations of any patient in this clinical trial. Localized itching was experienced by all patients +who received Apitox injections. Itching at the injection site generally lasted for two to three weeks; several patients had this reaction +for a longer period. This Phase II study showed that Apitoxin was significantly more effective than the control drug, nabumetone, in the +treatment of knee and spinal osteoarthritis patients. It clearly showed that improvement in pain, disability and physical signs was greater +in the bee venom injection groups than in the nabumetone control group. No significant side effects developed at the therapeutic doses +studied. However, research should be continued to minimize itching and pain at bee venom injection sites, and possible allergic reaction +should always be considered with treatment at high doses. +5 +In 2002, a formal Phase III double-blind, placebo-controlled +trial was completed with 407 subjects (311 of which obeyed the trial protocol and completed the clinical study). The purpose of the Phase +III trial was conducted to verify the efficacy and safety of the medicine resulting from the prior Phase I and Phase II trials. The therapeutic +course treatment included a total of 12 injections over a period of 6 weeks. Final evaluations were completed in the 8 th week, +following two weeks of no injections. During the trial period, laboratory tests were carried out three times (before injection, in the +second week, in the sixth week), and the efficacy evaluation was performed four times (before injection, in the second week, in the sixth +week, and in the eighth week). Safety of the Apitoxin injection was evaluated by, hematologic examination, measurement of cortisol and +calcium levels, and laboratory chemistry analysis of blood and urine. The primary efficacy variable for the trial was the ratio of the +subjects who showed more than 20% improvement in the total points of test items for efficacy evaluation 6 weeks after injection, compared +with the total points before injection of the medicine (the “improvement rate”). Data obtained from subjects of the clinical +test were analyzed by two methods, ITT (Intention to Treat) analysis and PP (Per Protocol) Among 310 subjects who participated in the +efficacy evaluation, 153 and 157 patients belonged to the Apitoxin group and the nabumetone group, respectively. For the Apitoxin group, +the ratio of the subjects who showed more than 20% improvement in the total points was 48.70% (75/154 subjects, 95% confidence interval +(“CI”): 40.8~56.6%), while for the nabumetone group, it was 46.15% (72/156 subjects, 95% CI: 38.3~54.0%), indicating that +the improvement rate in the Apitoxin group was greater than in the nabumetone group; however, there was no statistical significance. (p=0.6533). +Among a total of 407 subjects (Apitoxin group: 204; Nabumetone group: 203), 38.24% (78/204) of the Apitoxin group showed more than 20% +improvement during the 6 th week of injection, while 38.42% of the Nabumetone group improved by more than 20%, indicating that +the two groups showed similar improvement rate (p=0.9688). The second efficacy variable was the improvement rate during the 8 th +week (2 weeks after the completion of the final injection). According to results from comparing the total points of efficacy evaluation +items during the second week after completion of injection (during the 8 th week after injection) with the total points before +injection, 58.44% (90/154) of the Apitoxin group showed a higher improvement rate than during the 6 th week (48.70%), while +42.95% (67/156) of the Nabumetone group showed lower improvement rate than during the 6 th week (46.15%). There was statistical +difference in total point of efficacy evaluation items between the two groups (p=0.0064). These results suggest that even after treatment +stops, the efficacy of Apitoxin continues. With respect to safety, among a total of 407 subjects who participated in the safety evaluation, +69 (33.82%) of the Apitoxin group showed an adverse event, while 59 (29.06%) of the Nabumetone indicated adverse event. These results +indicate that the Apitoxin group had an elevated adverse event rate than the Nabumetone group, but there was no statistically significant +difference between the two groups (p=0.3526). +In May 2003, MFDA granted approval for the +use of Apitoxin in the treatment of pain and mobility in patients with OA. A post-marketing/approval safety study in South Korea +followed 3,194 patients from 2003 through 2009, with no serious adverse events or negative safety signals. +In 2013, preliminary Phase III clinical trials +were authorized to enroll patients by the FDA to study the same indication approved in South Korea — treatment of pain +and lack of mobility in patients with OA. The results of the preliminary Phase III clinical trial indicated statistical and clinically +significant improvements in all outcome measures of pain, physical function, and disease assessment in the study group. The study group +included 330 patients with diagnosed osteoarthritis of the knee. The subjects were evaluated for relief of pain using Western Ontario +and McMaster Osteoarthritis Index (WOMAC) and physician and patient global assessments. The primary efficacy measure was relief of pain +and inflammation over a 12-week treatment period after randomization into the trial. The secondary efficacy measure was improvement of +mobility. Treatment effect will be compared in a 2-1 Apitox vs active control. Compared with the placebo group (histamine), subjects in +the Apitox group who received a maximum dose (1500 micrograms) at each weekly visit over 12 weeks showed a significantly more improvement +in all outcome measures (WOMAC pain, WOMAC physical function, visual analog scale (“VAS”) pain, patient and physician global +assessments of OA). Further, post hoc analyses showed that a statistically significant greater percentage of Apitox-treated subjects had +at least a 40% and 60% reduction in WOMAC pain as compared to placebo-treated subjects. Sensitivity analyses confirmed the validity of +the statistical methods and population definitions. The improvements in pain endpoints were highly significant for both the modified intention +to treat and per protocol populations and the improvement was sustained during the four weeks following Apitox treatment. +Except for an expected higher incidence of injection +site reactions (<5%) in the Apitox group, the overall safety profiles were comparable between the treatment groups. A serious adverse +event of the anaphylactic reaction occurred in an Apitox-treated subject because of a quick injection rate. However, the subject was treated, +and the event was resolved within one day. The incidence of adverse events overall was similar between the Apitox and Placebo groups (49.0% +and 46.3%, respectively), and there were no clinically meaningful changes, within and between groups, in laboratory parameters, vital +signs, physical examination, or electrocardiogram results. +6 +During Apimeds Korea meetings with the FDA, the +FDA highlighted concerns regarding the opioid crisis. As Apitoxin has been previously approved in South Korea, we believe Apitox could +be a viable treatment option within the United States after additional clinical investigation, including our anticipated Phase III +trial. Initially, Apimeds Korea elected not to pursue the OA indication in the United States based on its evaluation of potential +market adoption and the existing competitive environment for OA. Based on results from the Apimeds Korea Phase III OA Trial and correspondence +with the FDA, we believe we are now in a position to continue to advance our Phase III trial for knee OA. +We intend to conduct an additional Phase III +trial in knee OA. Based on our previous correspondence with the FDA, we have started to design and will implement our Phase III trial +to best address our patient population of patients with grade 2, 3 and 4 knee OA, appropriate dosing, and the most effective way to evaluate +Apitox in meeting a patient’s needs. This trial will be an update to the plan of execution based on review of data, discussions +with former principal investigators from Apimeds Korea. Upon successful completion and FDA clearance of our Phase III trial in knee OA, +we will be positioned to submit a BLA. +We intend that the purpose of this trial will +be to evaluate the effectiveness of Apitox in the treatment of grade 2, 3 and 4 OA of the knee. The trial will be designed with a specific +focus on the identified subgroup from which we see the highest degree of benefit. +The following table summarizes the preliminary +clinical trial activity by Apimeds Korea with respect to Apitoxin: +Preliminary Clinical Data in MS Patients +The United States data from the literature +on bee venom studies in MS patients, Table A (Hauser et al. 2001) below, showed clinically significant improvements in disability symptoms +following treatment. +In Table A, results were categorized into the +following groups: dramatic disability improvement (>12 points on the Related Observable Symptom Scale (“ROSS”), good improvement +(7-12 points on ROSS), minimal improvement (<7 points on ROSS), no improvement (<2 points on ROSS), and negative (any total negative +response on ROSS). Descriptive analysis of the ROSS clinical outcomes showed that more than 68% of MS patients showed some kind of positive +improvement in disability (dramatic, good or minimal) and 58% demonstrated a marked improvement (dramatic or good). +Table A. Summary of Patient Disability +Improvement to Bee Venom Treatment Using ROSS +N +% of +Participants +Follow-up Survey +(% improvement) +Related Observable +Symptoms Scale +(points improvement) +Dramatic +15 +29.4 +% +>30%, or +>12 points +Good +15 +29.4 +% +10 – 29%, or +7 – 12 points +Minimal +5 +9.8 +% +<10%, or +< 7 points +None +15 +29.4 +% +<2%, or +< 2 points +Negative +1 +2.0 +% +Any total negative response +Any total negative response +7 +After 1 year of bee-venom injections, 68.6 percent +of participants showed improvement. N = number of participants. +Apimeds Korea used data from its first Phase III +clinical trial for OA and peer reviewed publications, including those referenced in Table A above and formal Phase I (the “Castro +Phase I Trial”) and Phase II (the “Wesselius Phase II Trial”) publications specific to MS, to support its submission +in 2014 of its Investigational New Drug Application (“IND”) 122804 (A Phase III, Multi-Center, Randomized, Double-Blind, +Placebo-Controlled, Parallel Group Study to Evaluate the Safety and Efficacy of Apitox Add-on Therapy for Improving Disability and Quality +of Life in Patients with Multiple Sclerosis). +Castro Phase I Trial +The Castro Phase I Trial involved a total of nine +bee venom nonallergic patients with progressive forms of MS, who were 21–55 years of age with no other illnesses. The subjects distributed +across four groups (A, B, C, and D) and followed a structured 1-year immunization schedule. Hyperreactivity to bee venom was evaluated +by questionnaire, physical examination, and a battery of hematologic, metabolic, and immunologic tests. Responses to therapy were evaluated +by questionnaire, functional neurological tests, and changes in measurement of somatosensory-evoked potentials. While no serious adverse +allergic reactions were observed in any of the subjects, four experienced worsening of neurological symptoms, requiring their discontinuation +in the study. The observed negative effects could not be conclusively attributed to adverse reactions arising from the administered therapy. +Of the remaining five subjects, three reported subjective amelioration of symptoms and two exhibited objective improvement. Despite suggesting +safety in this preliminary study, the small sample size precluded definitive conclusions regarding the efficacy of the treatment for MS. +Larger and more carefully conducted multicenter studies were required to establish efficacy. +Wesselius Phase II Trial +The Wesselius Phase II Trial involved a randomized +crossover study of 26 patients diagnosed with relapsing-remitting or relapsing secondary progressive MS. Participants were assigned to +24 weeks of medically supervised bee sting therapy, or a control period of 24 weeks of no treatment. Live bees (up to a maximum of 20) +were used to administer bee venom three times per week. The primary outcome was the cumulative number of new gadolinium-enhancing lesions +on T1-weighted MRI of the brain. Secondary outcomes were lesion load on T2*-weighted MRI, relapse rate, disability (Expanded Disability +Status Scale, Multiple Sclerosis Functional Composite, Guy’s Neurologic Disability Scale), fatigue (Abbreviated Fatigue Questionnaire, +Fatigue Impact Scale), and health-related quality of life (Medical Outcomes Study 36-Item Short Form General Health Survey). The results +of the Wesselous Phase II Trial indicated that during bee sting therapy, there was no significant reduction in the cumulative number of +new gadolinium-enhancing lesions. The T2*-weighted lesion load further progressed, and there was no significant reduction in relapse rate. +There was no improvement of disability, fatigue, and quality of life. Bee sting therapy was well tolerated, and there were no serious +adverse events. In this trial, treatment with bee venom in patients with relapsing multiple sclerosis did not reduce disease activity, +disability, or fatigue and did not improve quality of life measured using gadolinium-enhancing MRI. +From June 2014 to June 2018, Apimeds +Korea corresponded with the FDA and there were no clinical holds at that time. Sponsorship of IND 122804 was transferred from Apimeds +Korea to us in October 2020. On September 21, 2021, we responded to customary non-clinical hold comments from the FDA. In +November 2021, we received a customary clinical hold from the FDA due to the retirement of the former principal investigator. We +have subsequently updated the FDA with a new principal investigator via our Chief Medical Officer, Dr. Christopher Kim. In February +2023, the FDA removed the clinical hold and concluded it may be initiated. We have subsequently made the strategic decision to focus our +efforts and capital on our Phase III trial in knee OA, and instead focus our MS efforts on the early prosecution of appropriate MS patient +populations through non-registered corporate sponsorship studies. +Our Commercialization Strategy +We are dedicated to the effective implementation +of regulatory, clinical and legal strategies to create value in Apitox. The effective execution of this strategy will provide us the opportunity +to evaluate and potentially acquire other assets that fit within our space for development. +8 +Manufacturing +We intend to continue to engage a third-party +manufacturer, Piramal Pharma Solutions, in Lexington, Kentucky to support our Phase III trial and, if Apitox is approved by the FDA, +commercial manufacturing. This manufacturer has dedicated experience in development and technology transfer of sterile dose formulations, +including liquid and lyophilized formulations. +Research and Development +We are currently engaged exclusively in the clinical +development of Apitox for continued use in knee OA through a Phase III trial in knee OA and potential use for MS through the early prosecution +of appropriate patient populations through non-registered corporate sponsorship studies. +Sales and Marketing +The healthcare providers associated with the treatment +of inflammation and pain management symptoms associated with OA and MS are not limited to one specialist but involve a comprehensive team +of providers focused on slowing the progression of the disease along with the physical, emotional and day-to-day management of the +condition. Each of these providers represents a potential customer for Apitox. +Apitoxin, which will be known as Apitox in the +United States, has established technological credibility through its preclinical testing, Phase I, Phase II and preliminary +Phase III clinical studies completed by Apimeds Korea. Apimeds Korea received regulatory approval for Apitoxin by the MFDA in South +Korea, as well as long-term safety data from treatment of patients in Korea from 2003 to 2009. There were no serious adverse events from +over 3,000 patients monitored, and Apitoxin has been approved and marketed in South Korea for OA since 2003. We update the FDA annually +on safety data generated by Apimeds Korea from South Korea. +We aim to obtain FDA approval for Apitox in the +United States market for treatment of inflammation and pain management symptoms associated with knee OA, and eventually MS, and expand +the indication portfolio in the autoimmune market with a strategic marketing partner. The marketing partner strategy is common in the +pharmaceutical marketplace, as the infrastructure, overhead, and barriers to entry dilute the focus and can rapidly erode the financial +well-being of small, product development-based companies such as us. By identifying the strategic marketing partner at an early stage, +the companies can deliver a final product, or family of products, in a form factor or variety of form factors over time, that specifically +suit the target market. We believe that Apitox represents a significant opportunity as a platform technology, with numerous product-line +extensions, and the potential for new, ancillary products such as delivery devices. +9 +Reimbursement Strategy +Apimeds expects to apply to the Centers for Medicare +and Medicaid Studies (“CMS”) for temporary generic reimbursement codes 12 to 18 months prior to a BLA approval. Temporary +codes are used until manufacturers apply for, and receive, permanent codes, which identify the drug and its therapeutic class. Permanent +codes are issued by CMS on a rolling quarterly basis. +We will engage third party contractors to assist +the us with reimbursement, coding and policy development prior to, during and at the time of approval of Apitox. We will look for a contractor +to provide the following services to us: +● Coding Assessment and Strategy/Execution — CPT +Review of Apitox Administration by Multiple Intradermal Injections . Assess the landscape to ensure a clear understanding of the key +dynamics and analyze relevant proxies and precedent. Further assess relevant drug administration codes and whether appropriate codes +exist. +● Medical Coverage Policy Analysis — Provide +a framework and set expectations for Medicare’s anticipated coverage approach to Apitox, specifically in the context of intra articular +hyaluronic acid use agent coverage policies and implications of their efficacy uncertainty. +● Medicare Local Coverage Analysis and Implications — Given +the significance of Medicare policy standards, local and national Medicare policies often shape payer and provider perceptions and decisions. +As complex statutory and regulatory guidance shape Medicare decision-making, ADVI analyzes, investigates, and synthesize Medicare policies +that could affect access (coverage, coding and reimbursement) for Apitox. +● Medicaid and Commercial Coverage Analysis and Implications — Analyze +available medical policies for five large state Medicaid agencies (based on population and geographic variation) and major commercial +payers (where publicly available). +● Payer Policy Internal Expert Interviews — Conduct +payer interviews with relevant Medicare, Medicaid and commercial policy advisors. +● HCPCS Coding and Payment Assessment — Assess +the coding and reimbursement landscape to ensure Apimeds has a clear understanding of the key dynamics with the HCPCS application process +and the Medicare Hospital Outpatient Prospective Payment System (OPPS) pass-through status application process. Through this assessment, +identify the areas of concern, expectations, timing, timelines, and processes associated. This is especially relevant given the 2020 +implementation of a new HCPCS review process. +● Address key Part B/medical benefit implications to Apitox +in the following fields: +● HCPCS and OPPS application timelines (and potential evolution +leading to launch). +● Coding/access implications prior to code assignment (e.g., +NOC/miscellaneous codes), review the merits/risks of Q-code. +● further review the application processes, expectations, case +examples, timelines, and hurdles that APUS may face across settings of care, payers, and with CMS, +● Case examples, timelines, and hurdles across settings of care +with payers and CMS, +● Review of reimbursement implications; and +● Methodologies (ASP, WAC, AWP), role of sequestration, 340B, +patient financial burden +● Develop Payer (with Emphasis on Medicare) Launch Recommendations — Based +on the above primary and secondary research, synthesize the discussions and summarize the overall findings of the payer survey, highlighting +themes, and provide recommendations and considerations for optimizing market access, given the current and evolving reimbursement landscape. +This section will include payer (emphasis on Medicare) launch strategy recommendations (including timeline) and a local/national Medicare +engagement strategy. +10 +Competition +We compete in an industry characterized by rapidly +advancing technologies, intense competition, a changing regulatory and legislative landscape and a strong emphasis on the benefits of +intellectual property protection and regulatory exclusivities. +Like any biopharmaceutical company, we face competition +from multiple sources, including large or established pharmaceutical, biotechnology, and wellness companies, academic research institutions, +government agencies, and private institutions. We believe our drug candidate will prevail amid the competitive landscape through its efficacy, +safety, administration methods, cost, public and institutional demand, intellectual property portfolio, and treatment of the root cause +of many age-associated diseases. +Many of our competitors, either alone or with +strategic partners, have substantially greater financial, technical, and human resources than we do. Accordingly, our competitors may +be more successful in obtaining approval for treatments and achieving widespread market acceptance, rendering our treatments obsolete +or non-competitive. Accelerated merger and acquisition activity in the biotechnology and biopharmaceutical industries may result +in even more resources concentrated among a smaller number of our competitors. These companies also compete with us in recruiting and +retaining qualified scientific and management personnel, establishing clinical study sites, patient registration for clinical studies, +and acquiring technologies complementary to, or necessary for, our programs. Smaller or early-stage companies may also prove to be significant +competitors, particularly through collaborative arrangements with large and established companies. Our commercial opportunity could be +substantially limited in the event that our competitors develop and commercialize products that are more effective, safer, more tolerable, +more convenient, or less expensive than our comparable products. In geographies that are critical to our commercial success, competitors +may also obtain regulatory approvals before us, resulting in our competitors building a strong market position in advance of our products’ +entry. We believe the factors determining the success of our programs will be the efficacy, safety, and convenience of our drug candidates. +Additionally, consumer preference for branded, +generic or private label products sold by competitors could adversely impact our financial performance. Our competitors, which differ +within individual geographic markets, include large-scale retailers, smaller high-growth companies (which often operate on a regional +basis and offer aggressive competition), multinational corporations moving into or expanding their presence in the consumer healthcare +market, and “private-label” products sold by retailers. +Our aim is to reduce the use of NSAIDS and opioid +use as it relates to the pain management associated with OA. We believe that if approved by the FDA, Apitox may be a non-addictive +option to patients experiencing debilitating pain. +Business Agreement +On August 2, 2021, we entered into an agreement +with Apimeds Korea, a principal stockholder of the Company (the “Business Agreement”). Pursuant to the Business Agreement, +Apimeds Korea granted to the Company a sublicensable, royalty-bearing license to utilize all prior clinical development data associated +with Apitoxin, Apitox, and all related names, advance clinical research, develop, manufacture and commercialize and sell Apitox in the +United States. In exchange for this license, the Company will pay Apimeds Korea a perpetual royalty of 5% of the Company’s +earnings before interest and taxes (as determined consistent with GAAP, derived from the sale or license of Apitox, less any shipping, +handling, and insurance charges, credits (arising from returns or other adjustments), discounts, rebates, or allowances of any kind (if +any). The Business Agreement can be terminated by mutual written agreement by the parties and will automatically terminate upon the bankruptcy +or dissolution of the Company. +Assignment Agreement +On October 12, 2021, we entered into an intellectual +property assignment agreement (the “Assignment Agreement”), which was effective as of May 12, 2020, with Apimeds Korea +and Dr. Christopher Kim, the Company’s Chairman and Chief Medical Officer and the founder of Apimeds Korea. During Dr. Kim’s +engagement with Apimeds Korea, he contributed to the development of the intellectual property as it relates to Apitoxin, which will be +marketed in the United States as Apitox (the “Assigned IP”). +11 +Pursuant to the Assignment Agreement, Dr. Kim +sold, transferred, and conveyed all his rights, title and interest in the Assigned IP to Apimeds Korea. Dr. Kim retained no right +to use the Assigned IP. Additionally, the Assignment Agreement acknowledged that the Assigned IP was licensed to us to use via the +Business Agreement. +Intellectual Property +Apitox’s API is bee venom, a natural, non-synthetic +compound that is not patentable, so we rely principally on trade secrets to protect our rights to Apitox, particularly the method and +process of manufacturing Apitox. +Supplier +We purchase venom from our United States +supplier, Apico, Inc. (“Apico”), via a letter agreement. Pursuant to the letter agreement, Apico agreed that for a period +of ten years, or until November 3, 2031 it would not supply Apis Mellifea venom for pharmaceutical use for any buyer +other than us; provided that Apico may also supply Apimeds Korea for its use outside of the United States. The letter agreement +excludes customers using venom for immunology, cosmetic or any other “non-pharmaceutical” use. The letter agreement may be +terminated upon mutual written consent of both Apico and the Company. +Apico has developed and practices a proprietary +method of harvesting venom. It operates under and is certified in current good manufacturing practice regulations enforced by the FDA +and has an active and current Drug Master File (“DMF”) with the FDA. DMF’s are submissions to the FDA used to provide +confidential, detailed information about facilities, processes, or articles used in the manufacturing, processing, packaging, and storing +of human drug products. We have an exclusive relationship with our supplier for pharmaceutical use in the United States and they +are not permitted to sell to any other party for pharmaceutical use. +Apimeds Korea has a number of proprietary analytical +methods for the classification and identification of specific pharmacologically active fractions of its venom, along with numerous manufacturing +processes from filtration, vial filing and lyophilization required to produce Apitoxin. Apitoxin is the only approved and commercially +available therapeutic product containing purified and sterile bee venom that is registered as an API in South Korea. The proprietary methods +developed and practiced for the commercial manufacturing of Apitoxin include dilution, filtering, vial staging and lyophilization parameters +and cycles. +We plan to file Apitox as a BLA with the Centers +for Biologics and Research of the FDA following the successful completion of our Phase III trial for knee OA. The FDA provides 12-year +market exclusivity at the time of approval of a BLA, with the potential for a six-month extension upon approval for pediatric use. If +the BLA is approved, the 12-year period would be retroactive to the date of the application. +We intend to file a U.S. trademark application +for “Apitox”. +Regulatory Environment +Government Regulation and Product Approval +In the United States, biological products +are subject to regulation under the Federal Food, Drug, and Cosmetic Act (the “FDCA”), and the Public Health Service Act (the +“PHSA”), and other federal, state, and local statutes and regulations. Both the FDCA and PHSA and their corresponding regulations +govern, among other things, the research, development, clinical trials, testing, manufacturing, quality control, safety, purity and potency +(efficacy), labeling, packaging, storage, record keeping, distribution, reporting, marketing, promotion, advertising, post-approval monitoring, +and post-approval reporting involving biological products. Along with third-party contractors, we will be required to navigate the various +preclinical and clinical regulatory obligations and the commercial approval requirements of the governing regulatory agencies of the countries +in which we wish to conduct studies or seek approval or licensure of our product candidate. The processes for obtaining regulatory approvals +in the United States, along with subsequent compliance with applicable laws and regulations and other regulatory authorities, require +the expenditure of substantial time and financial resources. +12 +Government policies may change, and additional +government regulations may be enacted that could prevent or delay further development or regulatory approval of any product candidates, +product or manufacturing changes, additional disease indications or label changes. We cannot predict the likelihood, nature or extent +of government regulation that might arise from future legislative or administrative action. +Review and Approval for Licensing Biologics +in the United States +In the United States, FDA regulates our current +product candidate as a biological product, or biologics, under the FDCA, the PHSA, and associated implementing regulations. Biologics, +like other drugs, are used for the diagnosis, cure, mitigation, treatment, or prevention of disease in humans. In contrast to low molecular +weight drugs, which have a well-defined structure and can be thoroughly characterized, biologics are generally derived from living material +(human, animal, or microorganism), are complex in structure, and thus are usually not fully characterized. +Biologics are also subject to other federal, state, +and local statutes and regulations. The failure to comply with applicable statutory and regulatory requirements at any time during the +product development process, approval process, or after approval may subject a sponsor or applicant to administrative or judicial enforcement +actions. These actions could include the suspension or termination of clinical trials by FDA, FDA’s refusal to approve pending applications +or supplemental applications, withdrawal of an approval, issuance of warning or untitled letters, product recalls, product seizures, total +or partial suspension of production or distribution, import detention, injunctions, fines, refusals of government contracts, restitution, +disgorgement of profits, or civil or criminal investigations and penalties brought by FDA, the Department of Justice (“DOJ”), +and other governmental entities. +An applicant seeking approval to market and distribute +a biologic in the United States must typically undertake the following: +● completion of non-clinical laboratory tests and studies performed +in accordance with FDA’s good laboratory practice (“GLP”) regulations; +● manufacture, labeling and distribution of investigational +drugs in compliance with FDA’s current good manufacturing practice (“cGMP”) requirements; +● submission to FDA of an investigational new drug application +(“IND”), which must become effective before clinical trials may begin and must be updated annually and when significant changes +are made; +● approval by an independent institutional review board (“IRB”) +for each clinical site before each clinical trial may be initiated; +● performance of adequate and well-controlled human clinical +trials in accordance with FDA’s Good Clinical Practices (“GCP”) to establish the safety, purity, and potency of the +proposed biological product candidate for its intended purpose; +● after completion of all pivotal clinical trials, preparation +of and submission to FDA of a BLA requesting marketing approval, which includes providing sufficient evidence to establish the efficacy, +safety, purity, and potency of the proposed biological product for its intended use, including from results of nonclinical testing and +clinical trials; +● satisfactory completion of an FDA advisory committee review, +when appropriate, as may be requested by FDA to assist with its review; +● satisfactory completion of one or more FDA inspections of +the manufacturing facility or facilities at which the proposed product, or certain components thereof, are produced to assess compliance +with cGMP and data integrity requirements to assure that the facilities, methods, and controls are adequate to preserve the biological +product’s identity, strength, quality, and purity and, if applicable, FDA’s good tissue practice (“GTP”) requirements +for human cellular and tissue products; +● satisfactory completion of FDA inspections of selected clinical +investigation sites to assure compliance with GCP requirements and the integrity of the clinical data; +● satisfactory completion of an FDA sponsor GCP inspection, +often conducted at the applicant’s headquarters facility; +13 +● payment of user fees (unless there is a waiver, exemption, +or reduction) under the Prescription Drug User Fee Act (“PDUFA”) for the relevant year; +● FDA’s review and approval of the BLA to permit commercial +marketing of the licensed biologic for particular indications for use in the United States; +● compliance with post-approval requirements, including the +potential requirements to implement a risk evaluation and mitigation strategy (“REMS”), to report adverse events and biological +product deviations, and to complete any post-approval studies; and +● completion of any post-approval clinical studies required +by FDA, such as confirmatory trials or pediatric studies. +From time to time, legislation is drafted, introduced, +and passed in Congress that could significantly change the statutory provisions governing the testing, approval, manufacturing, and marketing +of biological products regulated by FDA. In addition to new legislation, FDA regulations, guidance documents, and policies are often +revised or interpreted by the agency in ways that may significantly affect the regulation of biological products in the United States. +It is impossible to predict whether further legislative changes will be enacted or whether FDA regulations, guidance, policies, or interpretations +will change, and the effects of any such changes. +Preclinical and Clinical Development +Before an applicant can begin testing the potential +product candidate in human subjects, the applicant must first conduct preclinical studies. Preclinical studies may include laboratory +evaluations of product chemistry, toxicity, and formulation, as well as in vitro and animal studies to assess the potential safety and +activity of the drug for initial testing in humans and to establish a rationale for therapeutic use. Preclinical studies are subject to +federal regulations and requirements, including GLP regulations, which govern the conduct of animal studies designed to test a product’s +safety. None of our preclinical studies to date have been animal studies. The results of an applicant’s preclinical studies are +submitted to FDA as part of an IND. +An IND is a request for authorization from FDA +to administer an investigational new drug product to humans. An IND is an exemption from the FDCA that allows an unapproved drug to be +shipped in interstate commerce for use in a clinical trial. Such authorization must be secured prior to interstate shipment and administration +of a biological drug that is not subject of an approved BLA. In support of an IND, applicants must submit a protocol for each clinical +trial, which details, among other things, the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness +criteria to be evaluated. A separate submission to the existing IND must be made for each successive clinical trial conducted during product +development and for any subsequent protocol amendments. +Human clinical trials may not begin until an IND +is effective. The IND automatically becomes effective 30 days after receipt by FDA, unless FDA raises safety concerns or questions +about the proposed clinical trial within the 30-day time period. In such a case, FDA may place the IND on clinical hold and the IND sponsor +must resolve any of FDA’s outstanding concerns or questions before the clinical trial can begin. Submission of an IND therefore +may or may not result in regulatory authorization to begin a clinical trial. +FDA may also place a clinical hold or partial +clinical hold on a clinical trial following commencement of the trial under an IND. A clinical hold is an order issued by FDA to +the sponsor to delay a proposed clinical investigation or to suspend an ongoing investigation. A partial clinical hold is a delay or suspension +of only part of the clinical work requested under the IND. For example, under a partial clinical hold, FDA may instruct a sponsor +not to enroll any new patients into a study but permit the previously enrolled patients to continue in the study. No more than 30 days +after imposition of a clinical hold or partial clinical hold, FDA will provide the sponsor a written explanation of the basis for the +hold. Following issuance of a clinical hold or partial clinical hold, an investigation may only resume after the FDA has notified the +sponsor that the investigation may proceed. FDA will base that determination on information provided by the sponsor addressing the deficiencies +previously cited or otherwise satisfying FDA that the investigation can proceed. +Clinical trials involve the administration of +the investigational product to human subjects under the supervision of qualified investigators in accordance with GCP regulations, which +include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. If a +sponsor chooses to conduct a foreign clinical study under an IND, all FDA IND requirements must be met unless waived. When the foreign +clinical study is not conducted under an IND, the sponsor must ensure that the study complies with GCP regulations in order to use the +study as support for an IND or application for marketing approval, including review and approval by an IRB and informed consent from subjects. +14 +Furthermore, an independent IRB for all sites +participating in a clinical trial must review and approve the plan for any clinical trial and its informed consent form before the clinical +trial begins at each site and must monitor the trial until completed. Regulatory authorities, the IRB, or the sponsor may suspend a clinical +trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk or that the +trial is unlikely to meet its stated objectives. +Some trials also include oversight by an independent +group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board (“DSMB”). DSMBs +review unblinded study data at pre-specified times during the course of the study. If the DSMB determines that there is an unacceptable +safety risk for subjects or other grounds, such as no demonstration of efficacy, the DSMB can make a recommendation to the sponsor to +modify or stop the trial. +Other grounds for a sponsor’s decision to +suspend or terminate a study may be made based on evolving business objectives or the competitive climate. +For purposes of BLA approval, clinical trials +are typically conducted in the following sequential phases: +● Phase 1: The investigational product is initially introduced into a small group of +healthy human subjects or patients with the target disease or condition. These trials are designed to test the safety, dosage +tolerance, absorption, metabolism and distribution of the investigational product in humans and the side effects associated with +increasing doses. These trials may also yield early evidence of effectiveness. +● Phase 2: The investigational +product is administered to a slightly larger patient population with a specified disease or condition to evaluate the preliminary efficacy, +optimal dosages, and dosing schedule and to identify possible adverse side effects and safety risks. Multiple Phase 2 clinical trials +may be conducted to obtain information prior to beginning larger and more expensive Phase III clinical trials. +● Phase 3: The investigational +product is administered to an expanded patient population to further evaluate dosage, to provide statistically significant evidence of +clinical efficacy and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These clinical +trials are intended to generate sufficient data to statistically demonstrate the efficacy and safety of the product, to establish the +overall risk/benefit ratio of the investigational product, and to provide an adequate basis for product approval by FDA. +These phases may overlap or be combined. In some +cases, FDA may require, or companies may voluntarily pursue, additional clinical trials after a product are approved to gain more information +about the product, referred to as Phase 4 trials. Post-approval trials are conducted following initial approval, often to develop +additional data and information relating to the use of the product in new indications. +Progress reports detailing the results of the +clinical trials must be submitted at least annually to FDA. In addition, IND safety reports must be submitted to FDA for any of the +following: serious and unexpected suspected adverse reactions in study subjects; findings from epidemiological studies, pooled analysis +of multiple studies, animal or in vitro testing, or other clinical studies, whether or not conducted under an IND, and whether or not +conducted by the sponsor, that suggest a significant risk in humans exposed to the drug; and any clinically important increase in the +rate of a serious suspected adverse reaction over such rate listed in the protocol or investigator brochure. +A sponsor’s planned clinical trials may +not be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a clinical +trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. +Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical +trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious +harm to patients. FDA will typically inspect one or more clinical sites to assure compliance with GCP and the integrity of the clinical +data submitted. +15 +During clinical development, the sponsor often +refines the indication and endpoints on which the BLA will be based. For endpoints based on patient-reported outcomes (“PROs”), +the process typically is an iterative one. FDA has issued guidance on the framework it uses to evaluate PRO instruments. Although the +agency may offer advice on optimizing PRO instruments during the clinical development process, FDA usually reserves final judgment until +it reviews the BLA. +Concurrent with clinical trials, companies often +complete additional animal studies, and develop additional information about the chemistry and physical characteristics of the drug and +finalize a process for manufacturing the product in commercial quantities in accordance with cGMP. The manufacturing process must +be capable of consistently producing quality batches of the drug candidate and, among other things, must develop methods for testing the +identity, strength, quality, purity and potency of the final drug. Additionally, appropriate packaging must be selected and tested, and +stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf +life. +BLA Submission and Review +Assuming successful completion of all required +clinical testing in accordance with all applicable regulatory requirements, an applicant may submit a BLA requesting licensing to market +the biologic for one or more indications in the United States. The BLA must include the results of nonclinical studies and clinical +trials; detailed information on the product’s chemistry, manufacture, controls; and proposed labeling. Under the PDUFA, a BLA submission +is subject to an application user fee, unless a waiver, reduction, or exemption applies. +FDA will initially review the BLA for completeness +before accepting it for filing. Under FDA’s procedures, the agency has 60 days from its receipt of a BLA to determine whether +the application will be accepted for filing and substantive review. If the agency determines that the application does not meet this initial +threshold standard, FDA may refuse to file the application and request additional information, in which case the application must be resubmitted +with the requested information and review of the application delayed. +After the BLA is accepted for filing, FDA reviews +the BLA to determine, among other things, whether a product is safe, pure, and potent and if the facility in which it is manufactured, +processed, packed, or held meets standards designed to assure the product’s continued identity, strength, quality, safety, purity, +and potency. To ensure cGMP, GLP, GCP, GTP, and other regulatory compliance, an applicant must incur significant expenditure of time, +money, and effort in the areas of training, record keeping, production and quality control. In addition, FDA expects that all data be +reliable and accurate, and requires sponsors to implement meaningful and effective strategies to manage data integrity risks. Data integrity +is an important component of the sponsor’s responsibility to ensure the safety, efficacy and quality of its product or products. +For cellular products, FDA will not approve the +product if the manufacturer is not in compliance with the GTPs, to the extent applicable. GTPs are FDA regulations and guidance documents +that govern the methods used in, and the facilities and controls used for, the manufacture of human cells, tissue, and cellular and tissue-based +products (“HCT/Ps”), which are human cells or tissue intended for implantation, transplant, infusion, or transfer into a human +recipient. The primary intent of the GTP requirements is to ensure that cell and tissue-based products are manufactured in a manner designed +to prevent the introduction, transmission and spread of communicable disease. FDA regulations also specify how HCT/P establishments must +register and list their HCT/Ps with FDA and how they must evaluate donors through screening and testing, where applicable. +If the FDA determines that the application, manufacturing +process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional +testing or information. Notwithstanding the submission of any requested additional information, FDA ultimately may decide that the application +does not satisfy the regulatory criteria for approval. +The performance goals and policies implemented +by FDA under the PDUFA generally provide for FDA action on an original BLA within 10 months of filing, which (as discussed above) +typically occurs within 60 days of submission, but that deadline is extended in certain circumstances. Furthermore, the review process +is often significantly extended by FDA’s requests for additional information or clarification. +16 +FDA may refer applications for novel products +or products that present difficult questions of safety or efficacy to an advisory committee. Typically, an advisory committee consists +of a panel that includes clinicians and other experts who will review, evaluate, and provide a recommendation as to whether the application +should be approved and, if so, under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers +such recommendations carefully when making decisions and usually has followed such recommendations. +After FDA evaluates a BLA and conducts inspections +of manufacturing facilities where the investigational product and/or its components will be produced, FDA may issue an approval letter +or a Complete Response Letter (“CRL”). An approval letter authorizes commercial marketing of the biological with specific +prescribing information for specific indications. A CRL will describe all of the deficiencies that FDA has identified in the BLA, except +that where FDA determines that the data supporting the application are inadequate to support approval, FDA may issue the CRL without first +conducting required inspections, testing submitted product lots and/or reviewing proposed labeling. If and when the deficiencies have +been addressed to FDA’s satisfaction in a resubmission of the BLA, FDA will issue an approval letter. In issuing the CRL, the FDA +may recommend actions that the applicant might take to place the BLA in condition for approval, including requests for additional data, +information, or clarification. FDA may delay or refuse approval of a BLA if applicable regulatory criteria are not satisfied and may require +additional testing or information and/or require new clinical trials. Even with submission of this additional information, FDA ultimately +may decide that the application does not satisfy the regulatory criteria for approval. +During the approval process, FDA will determine +whether a REMS is necessary to help ensure the benefits outweigh the risks of the biologic. A REMS is a safety strategy to manage a known +or potential serious risk associated with a product and to enable patients to have continued access to such medicines by managing their +safe use, and could include medication guides, physician communication plans or elements to assure safe use, such as restricted distribution +methods, patient registries and other risk minimization tools. If FDA concludes that a REMS is needed, the BLA sponsor must submit a proposed +REMS and FDA will not approve the BLA without a REMS that the agency has determined is acceptable. +If the FDA approves a product, it may limit the +approved indications for use for the product, or require that contraindications, warnings, or precautions be included in the product labeling. +FDA may also require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess the drug’s +safety after approval. FDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance +programs. +FDA may also require testing and surveillance +programs to monitor the product after commercialization. For biologics, such testing may include official lot release, which requires +the manufacturer to perform certain tests on each lot of the product before it is released for distribution. The manufacturer then typically +must submit samples of each lot of products to the FDA, together with a release protocol showing a summary of the history of manufacture +of the lot and the results of all of the manufacturer’s tests performed on the lot. The FDA may also perform certain confirmatory +tests on lots of some products itself, before releasing the lots for distribution by the manufacturer. +In general, an approved BLA only allows the sponsor +to market the biologic as approved, without modification. If, for example, a sponsor modifies an approved T cell product to target different +peptides or in our case to target another HLA type, the sponsor would be required to either file a supplemental BLA with FDA or receive +FDA approval for a comparability protocol in order to implement this change into the final product. +The FDA may withdraw the product approval if compliance +with pre- and post-marketing requirements is not maintained or if problems occur after the product reaches the marketplace. +Post-Approval Requirements +Any products manufactured or distributed pursuant +to FDA approvals are subject to pervasive and continuing regulation by FDA, including, among other things, requirements relating to recordkeeping, +periodic reporting, reporting of certain deviations and adverse experiences, product sampling and distribution, and advertising and promotion +of the product. After approval, many types of changes to the approved product, such as adding new indications, manufacturing changes and +additional labeling claims, are often subject to further testing requirements and FDA review and approval, depending on the nature of +the post-approval change. There also are continuing user fee requirements, under which FDA assesses an annual program fee for each product +identified in an approved BLA. Biologic manufacturers and their third-party contractors are required to register their facilities +with the FDA and certain state agencies. These facilities are subject to routine and periodic unannounced inspections by FDA and certain +state agencies for compliance with cGMP, post-marketing safety reporting and data integrity requirements, which impose certain procedural +and documentation requirements to assure quality of manufacturing and product. FDA has increasingly observed cGMP violations involving +data integrity during site inspections and is a significant focus of its oversight. Requirements with respect to data integrity include, +among other things, controls ensuring complete and secure data; activities documented at the time of performance; audit trail functionality; +authorized access and limitations; validated computer systems; and review of records for accuracy, completeness, and compliance with established +standards. +17 +Post-approval changes to the manufacturing process +are strictly regulated, and, depending on the significance of the change, may require FDA approval before being implemented. FDA regulations +also require investigation and correction of any deviations from cGMP and impose reporting requirements upon the sponsor and any third-party +manufacturers that the sponsor may use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production +and quality control to maintain compliance with cGMP, data integrity, pharmacovigilance, and other aspects of regulatory compliance. +The FDA may withdraw the approval if compliance +with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery +of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing +processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; +imposition of post-approval studies to assess new safety risks; or imposition of distribution or other restrictions under a REMS. Other +potential consequences include, for example: +● restrictions on the marketing or manufacturing of a product, +complete withdrawal of the product from the market, or product recalls; +● fines, warning or untitled letters, or holds on post-approval +clinical studies; +● refusal of FDA to approve pending applications or supplements +to approved applications, or suspension or revocation of existing product approvals; +● product seizure or detention, or refusal of FDA to permit +the import or export of products; or +● permanent injunctions and consent decrees, including the +imposition of civil or criminal penalties. +FDA strictly regulates the marketing, labeling, +advertising, and promotion of prescription drug products placed on the market. A company can make only those claims relating to safety +and efficacy, purity and potency that are approved by the FDA and in accordance with the provisions of the approved labeling. FDA’s +regulation includes, among other things, standards and regulations for direct-to-consumer advertising, communications regarding unapproved +uses, industry-sponsored scientific and educational activities and promotional activities involving the Internet and social media. Promotional +claims relating to a product’s safety or effectiveness are prohibited before the drug is approved. After approval, a product generally +may not be promoted for uses that are not approved by FDA, as reflected in the product’s prescribing information. In the United States, +healthcare professionals are generally permitted to prescribe drugs for such uses not described in the drug’s labeling, known as +off-label uses, because FDA does not regulate the practice of medicine. However, FDA regulations impose rigorous restrictions on manufacturers’ +communications and prohibit the promotion of off-label uses. It may be permissible, under very specific, narrow conditions, for a manufacturer +to engage in non-promotional, non-misleading communication regarding off-label information, such as distributing scientific or medical +journal information. +If a company is found to have promoted off-label +uses, it may become subject to adverse public relations and administrative and judicial enforcement by FDA, the DOJ, or the Office of +the Inspector General of the Department of Health and Human Services (“HHS”), as well as other federal and state authorities. +This could subject a company to a range of penalties that could have a significant commercial impact, including civil, administrative, +and criminal fines, penalties, and agreements that materially restrict the manner in which a company promotes or distributes products. +The federal government has levied large civil, administrative, and criminal fines and penalties against companies for alleged improper +promotion and has also requested that companies enter into Corporate Integrity Agreements and Consent Decrees of Permanent Injunction +under which specified promotional conduct is changed or curtailed. +18 +The distribution of prescription drugs and biologics +are subject to the Drug Supply Chain Security Act (“DSCSA”), which requires manufacturers and other stakeholders to comply +with product identification, tracing, verification, detection and response, notification, and licensing requirements. In addition, the +Prescription Drug Marketing Act and its implementing regulations and state laws limit the distribution of prescription pharmaceutical +product samples, and the DSCSA imposes requirements to ensure accountability in distribution and to identify and remove prescription drug +and biological products that may be counterfeit, stolen, contaminated, or otherwise harmful from the market. +Expedited Development and Review Programs +FDA offers a number of expedited development and +review programs for qualifying product candidates. The fast-track program is intended to expedite or facilitate the process of reviewing +new products that meet certain criteria. Specifically, new products are eligible for fast-track designation if they are intended to treat +a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. +A product intended to treat a serious or life-threatening disease or condition may also be eligible for breakthrough therapy designation +to expedite its development and review. Any marketing application for a biologic submitted to FDA for approval, including a product with +a fast-track designation and/or breakthrough therapy designation, may be eligible for other types of FDA programs intended to expedite +FDA review and approval process, such as priority review and accelerated approval. FDA also may grant accelerated approval to certain +products studied for their safety and effectiveness in treating serious or life-threatening diseases or conditions. +The RMAT designation, which we are currently planning +to seek for some of our therapies, is intended to facilitate an efficient development program for, and expedite review of, any drug that +meets the following criteria: (1) the drug is a cell therapy, therapeutic tissue engineering product, human cell and tissue product, +or any combination product using such therapies or products, with limited exceptions; (2) the drug is intended to treat, modify, +reverse, or cure a serious or life-threatening disease or condition; and (3) preliminary clinical evidence indicates that the drug +has the potential to address unmet medical needs for such a disease or condition. Like breakthrough therapy designation, RMAT designation +provides potential benefits that include more frequent meetings with FDA to discuss the development plan for the product candidate and +eligibility for rolling review and priority review. Products granted RMAT designation may also be eligible for accelerated approval on +the basis of a surrogate or intermediate endpoint reasonably likely to predict long-term clinical benefit, or reliance upon data obtained +from a meaningful number of sites (including through expansion to additional sites) so as to remove any likelihood of site-specific or +investigator-specific bias on the evidence of effectiveness. Once approved, when appropriate, FDA can permit fulfillment of post-approval +requirements for RMATs receiving accelerated approval through the submission of clinical evidence, clinical studies, patient registries, +or other sources of real-world evidence such as electronic health records; through the collection of larger confirmatory datasets; or +through post-approval monitoring of all patients treated with the therapy prior to approval. +Fast track designation, breakthrough therapy designation, +priority review, accelerated approval, and RMAT designation do not change the standards for approval but may expedite the development +or approval process. +Patent Term Restoration and Marketing Exclusivity +After approval, owners of relevant drug or biological +product patents may apply for up to a five year term patent extension to restore a portion of patent term lost during product development +and FDA review of a BLA if approval of the application is the first permitted commercial marketing or use of a drug or biologic containing +the active ingredient under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman +Act. The allowable patent term extension is calculated as one-half of the product’s testing phase, which is the time between the +effective date of an IND and initial BLA submission, and all of the approval phase, which is the time between BLA submission and approval, +up to a maximum of five years. The time can be shortened if the FDA determines that the applicant did not pursue approval with due +diligence. The total patent term after the extension may not exceed 14 years from the date of FDA approval of the product. Only one +patent claiming each approved product is eligible for restoration and the patent holder must apply for restoration within 60 days +of approval, even if the product cannot be commercially marketed at that time. The USPTO, in consultation with FDA, reviews and approves +the application for patent term restoration. +For patents that might expire during the BLA application +phase, the patent owner may request an interim patent extension. An interim patent extension increases the patent term by one year and +may be renewed up to four times. For each interim patent extension granted, the post-approval patent extension is reduced by one year. +The director of the USPTO must determine that approval of the product candidate covered by the patent for which a patent extension is +being sought is likely. Interim patent extensions are not available for a product candidate for which a BLA has not been submitted. +19 +Biosimilars and Marketing Exclusivities +The Biologics Price Competition and Innovation +Act (“BPCIA”) created an abbreviated approval pathway for biological product candidates shown to be highly similar to or interchangeable +with an FDA licensed biological product. A biological product on which another biological product candidate’s BLA relies to establish +bio similarity is known as a reference product. Bio similarity sufficient to reference a prior FDA-approved product requires that there +be no differences in conditions of use, route of administration, dosage form and strength, and no clinically meaningful differences between +the biological product candidate and the reference product in terms of safety, purity, and potency. Bio similarity must be shown through +analytical trials, animal trials and at least one clinical trial, unless the Secretary of HHS waives a required element. A biosimilar +product candidate may be deemed interchangeable with a prior approved product if it meets the higher hurdle of demonstrating that it can +be expected to produce the same clinical results as the reference product and, for products administered multiple times, the biological +product candidate and the reference biologic may be switched after one has been previously administered without increasing safety risks +or risks of diminished efficacy relative to exclusive use of the reference biologic. Complexities associated with the larger, and often +more complex, structures of biologics, as well as the process by which such products are manufactured, pose significant hurdles to implementation +of the abbreviated approval pathway that are still being resolved by FDA. +A reference biologic is granted 12 years +of exclusivity from the time of first licensure of the reference product, and no application for a biosimilar can be submitted for four years +from the date of licensure of the reference product. The first biological product candidate submitted under the abbreviated approval pathway +that is determined to be interchangeable with the reference product has exclusivity against a finding of interchangeability for other +biologics for the same condition of use for the lesser of (i) one year after first commercial marketing of the first interchangeable +biosimilar, (ii) 18 months after the first interchangeable biosimilar is approved if there is no patent challenge, (iii) 18 months +after resolution of a lawsuit over the patents of the reference biologic in favor of the first interchangeable biosimilar applicant, or +(iv) 42 months after the first interchangeable biosimilar’s application has been approved if a patent lawsuit is ongoing +within the 42 month period. At this time, it is unclear whether products deemed “interchangeable” by FDA will, in fact, be +readily substituted by pharmacies, which are governed by state pharmacy laws and regulations. +Healthcare Regulation +Coverage, Pricing, and Reimbursement +Our ability to successfully commercialize any +products for which we receive regulatory approval for commercial sale will depend, in part, on the extent to which third-party payors +provide coverage and establish adequate reimbursement levels for such products, and significant uncertainty exists as to the coverage +and reimbursement status of any products for which may we obtain regulatory approval. In the United States, third-party payors include +federal and state health care programs, private managed care providers, health insurers and other organizations. The process for determining +whether a third-party payor will provide coverage for a product may be separate from the process for setting the price of a product or +for establishing the reimbursement rate that such a payor will pay for the product. Third-party payors may limit coverage to specific +products on an approved list, also known as a formulary, which might not include all of the FDA-approved products for a particular indication. +Third-party payors are increasingly challenging the price, examining the medical necessity, and reviewing the cost-effectiveness of medical +products, therapies, and services, in addition to questioning their safety and efficacy. We may need to conduct expensive pharmaco-economic +studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain +the FDA approvals. Our product candidates may not be considered medically necessary or cost-effective. A payor’s decision to provide +coverage for a product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to +provide coverage for a product does not assure that other payors will also provide coverage for the product. Adequate third-party reimbursement +may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. +20 +The marketability of any product candidates for +which we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate +coverage and reimbursement. In addition, emphasis on managed care in the United States has increased and we expect will continue +to increase the pressure on healthcare pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if +favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable +coverage policies and reimbursement rates may be implemented in the future. +Other Healthcare Laws and Compliance +Requirements +Although we currently do not have any commercialized +products, our current and future business operations may be subject to additional healthcare regulation and enforcement by the federal +government and by authorities in the states and foreign jurisdictions in which we conduct our business. Such laws include, without limitation, +state and federal anti-kickback, fraud and abuse, false claims, privacy and security, price reporting and physician sunshine laws. Some +of our pre-commercial activities are subject to some of these laws. +The federal Anti-Kickback Statute makes it illegal +for any person or entity, including a prescription drug manufacturer or a party acting on its behalf to knowingly and willfully, directly +or indirectly, solicit, receive, offer, or pay any remuneration in cash or in kind that is intended to induce or reward the referral of +business, including the purchase, order, or lease of any item or service for which payment may be made under a federal healthcare program, +such as Medicare or Medicaid. The term “remuneration” has been broadly interpreted to include anything of value. The Anti-Kickback +Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, formulary +managers and beneficiaries on the other. +Although there are a number of statutory exceptions +and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices +that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny +if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception +or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement +will be evaluated on a case-by-case basis based on a cumulative review of all its facts and circumstances. Several courts have found that +the Anti-Kickback Statute may be violated if any one purpose of an arrangement involving remuneration is to induce referrals of federal +healthcare program business. In addition, liability may be established without actual knowledge of the statute or specific intent to violate +it. Violations of this law are punishable by up to ten years in prison, and can also result in criminal fines, civil money penalties +and exclusion from participation in federal healthcare programs. +Moreover, a claim including items or services +resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil +False Claims Act. +The federal civil False Claims Act prohibits, +among other things, individuals or entities from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment +of government funds or knowingly making, using, or causing to be made or used, a false record or statement material to an obligation to +pay money to the government or knowingly concealing or knowingly and improperly avoiding, decreasing, or concealing an obligation to pay +money to the federal government. Persons and entities can be held liable under these laws if they are deemed to “cause” the +submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers or promoting +a product off-label. Many pharmaceutical and other healthcare companies have been investigated and have reached substantial financial +settlements with the federal government under the civil False Claims Act for a variety of alleged improper marketing activities, including: +providing free product to customers with the expectation that the customers would bill federal programs for the product; providing sham +consulting fees, grants, free travel and other benefits to physicians to induce them to prescribe the company’s products; and inflating +prices reported to private price publication services, which are used to set drug payment rates under government healthcare programs. +Penalties for federal civil False Claims Act violations may include up to three times the actual damages sustained by the government, +plus mandatory civil penalties of between $13,508 and $27,018 for each separate false claim, and the potential for exclusion from participation +in federal healthcare programs. In addition, although the federal False Claims Act is a civil statute, False Claims Act violations may +also implicate various federal criminal statutes. +The healthcare fraud provisions of the Health +Insurance Portability and Accountability Act (“HIPAA”) prohibit knowingly and willfully executing, or attempting to execute, +a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing +from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully +falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection +with the delivery of or payment for healthcare benefits, items or services. Like the federal Anti-Kickback Statute, a person or entity +does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. +21 +Many states have analogous laws and regulations, +such as: state anti-kickback and false claims laws that may apply to sales or marketing arrangements and claims involving healthcare items +or services reimbursed by non-governmental third-party payors, including private insurers; laws that require pharmaceutical companies +to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by +the federal government or otherwise restrict payments that may be made to certain healthcare providers; laws that require drug manufacturers +to report information related to clinical trials or information related to payments and other transfers of value to physicians and other +healthcare providers or marketing expenditures; laws that restrict the ability of manufacturers to offer co-pay support to patients for +certain prescription drugs; and laws and local ordinances that require identification or licensing of sales representatives. +HIPAA, as amended by the Health Information Technology +for Economic and Clinical Health Act (“HITECH”), and their implementing regulations, mandates, among other things, the adoption +of uniform standards for the electronic exchange of information in common healthcare transactions, as well as standards relating to the +privacy and security of individually identifiable health information, which require the adoption of administrative, physical and technical +safeguards to protect such information. Among other things, HITECH makes HIPAA’s security standards directly applicable to business +associates, defined as independent contractors or agents of covered entities that create, receive, or obtain protected health information +in connection with providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that +may be imposed against covered entities and business associates and gave state attorneys general new authority to file civil actions for +damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing +federal civil actions. In addition, certain state laws govern the privacy and security of health information in certain circumstances, +some of which are more stringent than HIPAA and many of which differ from each other in significant ways and may not have the same effect, +thus complicating compliance efforts. Failure to comply with these laws, where applicable, can result in the imposition of significant +civil and/or criminal penalties. +The U.S. federal Physician Payment Sunshine +Act, implemented as the Open Payments Program, requires manufacturers of drugs, devices, biologics, and medical supplies for which payment +is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to +CMS information related to direct or indirect payments and other transfers of value to physicians and teaching hospitals (and certain +other practitioners as of 2022), as well as ownership and investment interests held in the company by physicians and their immediate family +members. +Because we intend to commercialize products that +could be reimbursed under a federal health care program and other governmental healthcare programs, we intend to develop a comprehensive +compliance program that establishes internal control to facilitate adherence to the rules and program requirements to which we will or +may become subject. Although the development and implementation of compliance programs designed to establish internal control and facilitate +compliance can mitigate the risk of investigation, prosecution, and penalties assessed for violations of these laws, the risks cannot +be entirely eliminated. +If our operations are found to be in violation +of any of such laws or any other governmental regulations that apply to us, we may be subject to penalties, including, without limitation, +administrative, civil and criminal penalties, damages, fines, disgorgement, contractual damages, reputational harm, diminished profits +and future earnings, the curtailment or restructuring of our operations, exclusion from participation in federal and state healthcare +programs and individual imprisonment, any of which could adversely affect our ability to operate our business and our financial results +Health Care Reform +In the United States and some foreign jurisdictions, +there have been, and continue to be, legislative and regulatory changes and proposed changes regarding the healthcare system that could +prevent or delay marketing approval of product candidates, restrict or regulate post-approval activities, and affect the ability to profitably +sell product candidates for which marketing approval is obtained. Among policy makers and payors in the United States and elsewhere, +there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving +quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and +has been significantly affected by major legislative initiatives. +22 +For example, the Affordable Care Act (“ACA”) +substantially changed the way healthcare is financed by both the government and private insurers, and significantly impacts the U.S. pharmaceutical +industry. The ACA contains provisions that may reduce the profitability of drug products through increased rebates for drugs reimbursed +by Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D +beneficiaries, and annual fees based on pharmaceutical companies’ share of sales to federal health care programs. The ACA made several +changes to the Medicaid Drug Rebate Program, including increasing pharmaceutical manufacturers’ rebate liability by raising the +minimum basic Medicaid rebate. The ACA also expanded the universe of Medicaid utilization subject to drug rebates by requiring pharmaceutical +manufacturers to pay rebates on Medicaid managed care utilization and by enlarging the population potentially eligible for Medicaid drug +benefits. +There have been judicial challenges to certain +aspects of the ACA, as well as efforts by Congress to modify, and by agencies to alter the implementation of, certain aspects of the ACA. For +example, Congress eliminated the tax penalty for failure to comply with the ACA’s individual mandate to carry health insurance. +Further, the Bipartisan Budget Act of 2018, among other things, amended the ACA to increase from 50 percent to 70 percent the +point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D to close the coverage gap +in most Medicare drug plans, commonly referred to as the donut hole. +It is possible that the ACA, as currently enacted +or as may be amended in the future, as well as other healthcare reform measures, including those that may be adopted in the future, may +result in more rigorous coverage criteria, and less favorable payment methodologies, or other downward pressure on coverage and payment +and the price that we receive for any approved product. Any reduction in reimbursement or restriction on coverage under Medicare or other +federal health care programs may result in a similar reduction or restriction by private payors. +Other legislative changes have been proposed and +adopted in the U.S. since the ACA was enacted. For example, the Inflation Reduction Act introduces several changes to the Medicare +Part D benefit, including a limit on annual out-of-pocket costs and a change in manufacturer liability under the program which could +negatively affect the profitability of our product candidates. The IRA sunsets the current Part D coverage gap discount program starting +in 2025 and replaces it with a new manufacturer discount program. Failure to pay a discount under this new program will be subject to +a civil monetary penalty. In addition, the IRA establishes a Medicare Part B inflation rebate scheme effective January 2023 +and a Medicare Part D inflation rebate scheme effective October 2022, under which, generally speaking, manufacturers will owe +rebates if the price of a Part B or Part D drug increases faster than the pace of inflation. Failure to timely pay a Part B +or D inflation rebate is subject to a civil monetary penalty. The IRA also creates a drug price negotiation program under which the prices +for Medicare units of certain high Medicare spend drugs and biologicals without generic or biosimilar competition will be capped by reference +to, among other things, a specified non-federal average manufacturer price starting in 2026. Failure to comply with requirements under +the drug price negotiation program is subject to an excise tax and/or a civil monetary penalty. Congress continues to examine various +policy proposals that may result in pressure on the prices of prescription drugs with respect to the government health benefit programs +and otherwise. The IRA or other legislative changes could impact the market conditions for our product candidates. +In general, there has been heightened governmental +scrutiny over the manner in which drug manufacturers set prices for their commercial products, which has resulted in several Congressional +inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug product +pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies +for drug products. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control +pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain +product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other +countries and bulk purchasing. +23 +Drug Pedigree Laws +State and federal governments have proposed or +enacted various drug pedigree laws which can require the tracking of all transactions involving prescription drugs from the manufacturer +to the pharmacy (or other dispensing) level. Companies are required to maintain records documenting the chain of custody of prescription +drug products beginning with the purchase of such products from the manufacturer. Compliance with these pedigree laws requires implementation +of extensive tracking systems as well as heightened documentation and coordination with customers and manufacturers. While we fully intend +to comply with these laws, there is uncertainty about future changes in legislation and government enforcement of these laws. Failure +to comply could result in fines or penalties, as well as loss of business that could have a material adverse effect on our financial results. +Federal Regulation of Patent Litigation Settlements and Authorized +Generic Arrangements +As part of the Medicare Prescription Drug, Improvement, +and Modernization Act of 2003, companies are required to file with the U.S. Federal Trade Commission (“FTC”) +and the U.S. Department of Justice certain types of agreements entered into between brand and generic pharmaceutical companies related +to the settlement of patent litigation or manufacture, marketing and sale of generic versions of branded drugs. This requirement could +affect the manner in which generic drug manufacturers resolve intellectual property litigation and other disputes with brand pharmaceutical +companies and could result generally in an increase in private-party litigation against pharmaceutical companies or additional investigations +or proceedings by the FTC or other governmental authorities. +Other +The U.S. federal government, various states +and localities have laws regulating the manufacture and distribution of pharmaceuticals, as well as regulations dealing with the substitution +of generic drugs for branded drugs. Our operations are also subject to regulation, licensing requirements and inspection by the states +and localities in which our operations are located or in which we conduct business. +Certain of our activities are also subject to +FTC enforcement actions. The FTC enforces a variety of antitrust and consumer protection laws designed to ensure that the nation’s +markets function competitively, are vigorous, efficient and free of undue restrictions. Federal, state, local and foreign laws of general +applicability, such as laws regulating working conditions, also govern us. +In addition, we are subject to numerous and increasingly +stringent federal, state and local environmental laws and regulations concerning, among other things, the generation, handling, storage, +transportation, treatment and disposal of toxic and hazardous substances, the discharge of pollutants into the air and water and the cleanup +of contamination. We are required to maintain and comply with environmental permits and controls for some of our operations, and these +permits are subject to modification, renewal and revocation by the issuing authorities. Our environmental capital expenditures and costs +for environmental compliance may increase in the future as a result of changes in environmental laws and regulations or increased manufacturing +activities at any of our facilities. We could incur significant costs or liabilities as a result of any failure to comply with environmental +laws, including fines, penalties, third-party claims and the costs of undertaking a clean-up at a current or former site or at a site +to which our wastes were transported. In addition, we have grown in part by acquisition, and our diligence may not have identified environmental +impacts from historical operations at sites we have acquired in the past or may acquire in the future. +Employees +As of the date of this Annual Report, we have two full time employees. +We have no part-time employees and we engage one consultant. We believe that we maintain good relations with our employees. +Item 1A. Risk Factors +As a smaller reporting company, as defined in +Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item. +Item 1B. Unresolved Staff Comments +Not applicable. +24 +Item 1C. Cybersecurity +Risk Management and Strategy +Managing Material Risks & Integrated Overall +Risk Management +In the normal course of business, we may collect and store certain sensitive +company information, including proprietary and confidential business information. We maintain various protections designed to safeguard +against cyberattacks, including firewalls, key-based authentication, and virtual private networks. We protect against business interruption +by backing up our major systems. We consider these cybersecurity risk management efforts as part of our broader risk management framework. +This integration helps ensure that cybersecurity considerations are a fundamental part of our decision-making processes. Our management +team works with our audit committee and board of directors (the “Board”) to evaluate and address cybersecurity risks in alignment +with our business objectives and operational needs. +Engage Third Parties on Risk Management +To date, we have not engaged independent third +parties to assess the risks associated with our information technology resources and information assets. In the future, we may engage +third parties to analyze data on the interactions of users of our information technology resources, including our employees, and evaluate +the performance of our cybersecurity systems and processes. +Oversee Third Party Risk +We utilize various third-party software applications +in the functioning of our core business. We consider the cybersecurity practices of our third-party service providers, including through +a general security assessment and contractual requirements, as appropriate, before engaging them in order to help protect us from any +related vulnerabilities. Our assessment of risks associated with the use of third-party providers is part of our overall risk management +framework. +Risks from Cybersecurity Threats +We face risk from cybersecurity threats that could +have a material adverse effect on our business, financial condition, results of operations, cash flows or reputation. +To date, we have not experienced any previous +cybersecurity incidents that have materially affected or are reasonably likely to materially affect our business strategy, results of +operations, or financial condition. +25 +Governance +Board of Directors Oversight +Our Board is aware of the critical nature of managing +risks associated with cybersecurity threats, and recognizes the significance of these threats to our operational integrity and stockholder +confidence. +Risk Management Personnel +The audit committee is central to the Board’s +oversight of cybersecurity risks and bears the primary responsibility for this domain as part of its broader responsibility for risk assessment +and management. The audit committee is responsible for escalating significant cybersecurity matters and strategic risk management decisions +to the Board, granting the Board comprehensive oversight and the ability to provide guidance on critical cybersecurity issues. We intend +for the audit committee to review the Company’s cybersecurity posture and the effectiveness of its risk management strategies annually +and brief the full Board with respect to the Company’s cybersecurity posture and potential risks on a regular basis, with a minimum +frequency of once per year. +Management’s Role Managing Risk and Reporting +to the Board +We do not currently have an employee who has significant +and demonstrated professional IT management experience and possesses the requisite education, skills and experience needed to develop +and execute our cybersecurity strategies. Presently, our senior management is responsible for monitoring our cybersecurity risks and maintaining +an ongoing dialogue with the audit committee regarding emerging or potential cybersecurity risks as needed. The relationship between senior +management and the audit committee regarding current and emerging cybersecurity concerns helps to integrate cybersecurity consideration +into the Company’s broader strategic objectives. +Item 2. Properties +We are located at 2 East Broad Street, 2 nd +Floor, Hopewell, NJ 08525. This space is donated to us by one of our officers and we do not pay a monthly fee. We believe our current +facilities are suitable for our current operations. +Item 3. Legal Proceedings +We are not currently subject to any legal proceedings. However, we may from +time to time become a party to various legal proceedings arising in the ordinary course of our business. +Item 4. Mine Safety Disclosures +Not applicable. +26 +PART II +Item 5. Market for Registrant’s Common +Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information +There is no established public trading market for our common stock currently, +nor can we give any assurance that one will develop. The Company intends to seek to list its shares of common stock on a national securities +exchange (an “Exchange Listing”). Any Exchange Listing is subject to future market conditions and there can be no assurance +that any Exchange Listing will occur. Until any Exchange Listing, our common stock is not registered under the Securities Act of 1933, +as amended (the “Securities Act”), or any state securities law, and will be restricted as to transfer by law. +Holders +As of the date of this Annual Report, there were 9 +holders of record of our common stock. +Dividends +We have not paid any cash dividends on our common +stock to date. It is the present intention of our Board to retain all earnings, if any, for use in our business operations and, accordingly, +our Board does not anticipate declaring any dividends in the foreseeable future. +Securities Authorized for Issuance under Equity Compensation Plans +The information required by Item 5 of Form 10-K regarding equity compensation +plans is incorporated herein by reference to Item 12 of Part III of this Annual Report. +Unregistered Sales of Equity Securities +None. +Item 6. [Reserved] +Item 7. Management’s Discussion and Analysis +of Financial Condition and Results of Operations +You should read the following discussion and +analysis of our financial condition and results of operations in conjunction with our financial statements and related notes and other +financial information included elsewhere in this Annual Report. This discussion and analysis and other parts of this prospectus contain +forward-looking statements based upon our current plans and expectations that involve risks, uncertainties and assumptions, such as statements +regarding our plans, objectives, expectations, intentions and beliefs. Our actual results and the timing of events could differ materially +from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the section +entitled “Risk Factors” and elsewhere in this Annual Report. Please also see the section entitled “Special Note Regarding +Forward-Looking Statements. ” +Overview +Apimeds Pharmaceuticals US, Inc. is a clinical +stage biopharmaceutical company that is in the process of developing Apitox, a proprietary intradermally administered bee venom-based +toxin. Our primary focus is to advance Apitox in the treatment of inflammatory conditions in the United States, specifically osteoarthritis +(“OA”) and, eventually, multiple sclerosis (“MS”). +Apitox, is currently marketed and sold by Apimeds, +Inc. in South Korea (“Apimeds Korea”) as “Apitoxin” for the treatment of inflammation and pain management symptoms +associated with OA. There is an extensive history of use of bee venom, both in the United States and around the world, to assist with +pain management. We believe that, in addition to knee OA and MS, Apitox has the potential to help manage difficult to control pain and +inflammation issues, which we will explore in the future. +27 +Our Product Candidate +Our product candidate Apitox is a purified, pharmaceutical +grade venom of the Apis mellifera, or honeybee, which is classified by the U.S Food and Drug Administration (“FDA”) as an +active pharmaceutical ingredient (“API”). Apimeds Korea has developed a proprietary method and process of turning extracted +bee venom into a lyophilized powder for reconstitution prior to intradermal dose injections, which they sell in Korea as South Apitoxin. +Apimeds Korea has exclusively licensed to us all rights to develop, commercialize, market and sell Apitoxin as “Apitox” in +the United States in exchange for a sales royalty. See “ Item 13. Certain Relationships and Related Transactions, and Director +Independence — Certain Relationships and Related Transactions — Business Agreement .” +The success of the Company is dependent on obtaining +the necessary regulatory approvals of its product candidates, marketing its products and achieving profitable operations. The continuation +of the research and development activities and the commercialization of its products, if approved, are dependent on the Company’s +ability to successfully complete these activities and to obtain additional financing through a combination of financing activities and +operations. It is not possible to predict either the outcome of future research and development or commercialization programs, or the +Company’s ability to fund these programs. +Financial Results +Since inception, Apimeds has incurred significant +operating losses. For the years ended December 31, 2024 and 2023, Apimeds Pharmaceuticals US, Inc. net loss was $1,389,990 and $777,694, +respectively. As of December 31, 2024, Apimeds Pharmaceuticals US, Inc. had an accumulated deficit of $4,391,924, a stockholders’ +deficit of $1,358,121 and a working capital deficit of $1,011,277. +Going Concern +The Company has evaluated whether there are any conditions and events, +considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year beyond the +issuance date of these financial statements. As of December 31, 2024, the Company had accumulated deficit amount to $4,391,924. The Company +incurred net losses of $1,389,990 for the year ended December 31, 2024, and expects to continue to incur substantial losses in the future. +Based on such conditions and the Company’s current plans, which are subject to change, management believes that the Company’s +existing cash as of December 31, 2024, is not sufficient to satisfy its operating cash needs for 12 months from the issuance date of the +report. +The accompanying financial statements have been +prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlement +of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability +and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability +to continue as a going concern. +The success of the Company is dependent on obtaining +the necessary regulatory approvals of its product candidates, marketing its products and achieving profitable operations. The continuation +of the research and development activities and the commercialization of its products, if approved, are dependent on the Company’s +ability to successfully complete these activities and to obtain additional financing through a combination of financing activities and +operations. If the Company is unable to maintain sufficient financial resources, its business, financial condition and results of operations +will be materially and adversely affected. This could affect future development and business activities and potential future clinical +studies and/or other future ventures. There can be no assurance that the Company will be able to obtain the needed financing on acceptable +terms or at all. +28 +Results of operations for the years ended December 31, 2024 and +2023 +Operating Expense +The following table sets forth the Company’s selected statements +of operations data for the following periods: +Years Ended December 31, +2024 +2023 +Change +Operating expenses +Research and development expenses +$ - +$ 98,544 +$ (98,544 ) +General and administrative expenses +1,275,095 +648,892 +626,203 +Loss from operations +(1,275,095 ) +(747,436 ) +(527,659 ) +Other expenses +Interest income +2,824 +7,811 +(4,987 ) +Interest expense +(117,719 ) +(38,069 ) +(79,650 ) +Net loss +$ (1,389,990 ) +$ (777,694 ) +$ (612,296 ) +Revenues +For the years ended December 31, 2024 and 2023, the Company had +no revenue. +Research and Development Expenses +The following table summarizes the year-over-year +changes in research and development expenses for the periods presented: +Years Ended December 31, +2024 +2023 +Change +Research and development expenses +$ - +$ 98,544 +$ (98,544 ) +Total research and development expenses +$ - +$ 98,544 +$ (98,544 ) +Research and development expenses were $0 for +the year ended December 31, 2024, compared to $98,544 for the same period in 2023, representing a decrease of $98,544. The decrease in +research and development expenses was primarily attributed to a decrease as the Company was not performing any R&D activities currently +in 2024. +General and administrative expenses +The following table summarizes the year-over-year +changes in general and administrative expenses for the years presented: +Years Ended December 31, +2024 +2023 +Change +Payroll expenses +$ 413,404 +$ 114,000 +$ 299,404 +Professional services +815,271 +485,949 +329,322 +Office expenses +16,257 +33,539 +(17,282 ) +General administrative +30,163 +15,404 +14,759 +$ 1,275,095 +$ 648,892 +$ 626,203 +General and administrative expenses were $1,2750,95 +for the year ended December 31, 2024, compared to $648,892 for the same period in 2023, representing an increase of $626,203. The +increase was mostly attributable to an increase in professional expenses for a total of approximately $329,000 and an increase in payroll +expenses for the officers of the Company for a total of approximately $299,000. +29 +Other Expense +The following table summarizes the year-over-year +changes in general and administrative expenses for the years presented: +Years Ended December 31, +2024 +2023 +Change +Interest income +$ 2,824 +$ 7,811 +$ (4,987 ) +Interest expense +(117,719 ) +(38,069 ) +(79,650 ) +$ (114,895 ) +$ (30,258 ) +$ (84,637 ) +Other expense was $114,895 for the year ended +December 31, 2024, compared to $30,258 for the same period in 2023. Representing an increase of $84,637. The increase was mainly due to +an increase in interest expense for a total of approximately $80,000. +Net Loss +Net loss was $1,389,990 for the year ended December 31, 2024, compared +to $777,694 in the same period of 2023, representing an increase of $612,296. The increase was mainly due to the increase in general and +administrative expenses, specifically professional fees associated with the filing of the registration statement on Form S-1 with the +U.S. Securities and Exchange Commission (the “SEC”) and pre-IPO expenses as well as an increase in payroll expenses. +Liquidity and Capital Resources +The Company has generated no revenue, has incurred +operating losses since inception, expects to continue to incur significant operating losses for the foreseeable future and may never become +profitable. Until such time as the Company is able to establish a revenue stream, it is dependent upon obtaining necessary equity and/or +debt financing to continue operations. The Company cannot make any assurances that sales will commence in the near term or that additional +financing will be available to it on acceptable terms or at all. This could negatively impact our business and operations and could also +lead to the reduction of our operations. +Cash Flows +The following table presents selected financial information and statistics +for each of the periods shown below: +2024 +2023 +Change +Net cash used in operating activities +$ (733,526 ) +$ (627,790 ) +$ (105,736 ) +Net cash used in investing activities +- +- +- +Net cash provided by financing activities +326,500 +1,032,100 +(705,600 ) +Net (decrease) increase in cash +$ (407,026 ) +$ 404,310 +$ (811,336 ) +During the year ended December 31, 2024, operating activities used +approximately $734,000 of cash, primarily resulting from a net loss of $1,389,990, partially offset by non-cash interest expense-related +parties of $37,766, accretion expense of $79,953, and changes in operating assets and liabilities of $538,745. +During the year ended December 31, 2023, operating activities used +approximately $628,000 of cash, primarily resulting from a net loss of $777,694, partially offset by stock compensation expense of +$69,993, non-cash interest expense-related parties of $33,000, accretion expense of $5,069, and changes in operating assets and liabilities +of $41,842. +30 +Investing +activities +During the years ended December 31, 2024 and 2023 investing activities +used $0. +Financing activities +During the year ended December 31, 2024, financing +activities provided $326,500 of cash resulting from $250,000 in proceeds from notes payable from related parties and cash advances +from related parties of $76,500. +During the year ended December 31, 2023, financing +activities provided $1,032,100 of cash resulting from $1,055,000 in proceeds from issuance of shares, cash advances from related +parties of $9,000, offset by repayments to cash advances from related parties of $31,900. +Contractual Obligations and Commitments +See Note 4 – Debt, and Note 6 – Commitments and Contingencies, +of the notes to the Company’s financial statements as of and for the year ended December 31, 2024 included elsewhere in this Annual +Report for further discussion of the Company’s commitments and contingencies. +Off-Balance Sheet Arrangements +The Company is not party to any off-balance sheet +transactions. The Company has no guarantees or obligations other than those which arise out of normal business operations. +Critical Accounting Policies and Significant Judgments and Estimates +The Company’s management’s discussion and +analysis of its financial condition and results of operations is based on its financial statements, which have been prepared in accordance +with generally accepted accounting principles in the United States of America (“GAAP”). The preparation of these financial +statements requires Apimeds Pharmaceuticals US, Inc. to make estimates, judgments and assumptions that affect the reported amounts of +assets and liabilities, disclosure of contingent assets and liabilities as of the date of the balance sheet and the reported amounts of +expenses during the reporting period. In accordance with GAAP, Apimeds Pharmaceuticals US, Inc. evaluates its estimates and judgments +on an ongoing basis. The most significant estimates relate to convertible instruments. Apimeds Pharmaceuticals US, Inc. bases its estimates +and assumptions on current facts, historical experiences, and various other factors that Apimeds Pharmaceuticals US, Inc. believes are +reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities +that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. +The Company defines its critical accounting policies +as those accounting principles that require it to make subjective estimates and judgments about matters that are uncertain and are likely +to have a material impact on its financial condition and results of operations, as well as the specific manner in which the Company applies +those principles. While its significant accounting policies are more fully described in Note 2 to its financial statements, the Company +believes the following are the critical accounting policies used in the preparation of its financial statements that require significant +estimates and judgments. +Convertible +Instruments +The Company evaluates and accounts for conversion +options embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities”. +The Company accounts for convertible instruments +(when we have determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: The Company +records when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based +upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective +conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their +stated date of redemption. +31 +Item 7A. Quantitative and Qualitative Disclosures +about Market Risk +As a smaller reporting company, we are not required +to provide the information required by this Item. +Item 8. Financial Statements and Supplementary Data +The financial statements required pursuant to +this item are included in Part IV, Item 15 of this Annual Report, beginning on page F-1. +Item 9. Changes in and Disagreements With Accountants on Accounting +and Financial Disclosure +Not applicable. +Item 9A. Controls and Procedures +(a) Evaluation +of Disclosure Controls and Procedures +We maintain “disclosure +controls and procedures,” as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act, designed to ensure that +information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized and reported +within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our +management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding +required disclosures. +In designing and evaluating +the disclosure controls and procedures, we recognized that any controls and procedures, no matter how well designed and operated, can +provide only reasonable assurance of achieving the desired control objectives, and we were required to apply our judgment in evaluating +the cost-benefit relationship of possible controls and procedures. We have carried out an evaluation as of December 31, 2024 under the +supervision, and with the participation, of our management, including our Chief Executive Officer (who serves as our principal executive +officer) and our Chief Financial Officer (who serves as our principal financial officer), of the effectiveness of the design and operation +of our disclosure controls and procedures. +Based on that evaluation, +our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December +31, 2024 in providing reasonable assurance of achieving the desired control objectives. +32 +Management ’ s +Report on Internal Control over Financial Reporting +Our management is responsible for establishing and maintaining adequate +internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over +financial reporting refers to the process designed by, or under the supervision of, our principal executive officer and principal financial +officer, and effected by our Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial +reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, +and includes those policies and procedures that: +(1) pertain to the maintenance of records that in reasonable +detail accurately and fairly reflect the transactions and dispositions of our assets +(2) provide reasonable assurance that transactions are recorded +as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being +made only in accordance with authorization of our management and directors; and +(3) provide reasonable assurance regarding prevention or timely +detection of unauthorized acquisitions, use or disposition of our assets that could have a material effect on the financial statements. +Internal control over +financial reporting has inherent limitations. Internal control over financial reporting is a process that involves human diligence and +compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting +also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements +may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are +known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not +eliminate, this risk. +We have conducted an assessment +of the effectiveness of our internal control over financial reporting as of December 31, 2024, based on the framework established in Internal +Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO Framework). +This assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness +of those controls. Based on that evaluation, as a result of the material weaknesses described below, management has concluded that +our internal control over financial reporting was not effective as of December 31, 2024. +A material weakness in internal +controls is a deficiency in internal control, or combination of control deficiencies, that adversely affects our ability to initiate, +authorize, record, process, or report external financial data reliably in accordance with GAAP such that there is more than a remote likelihood +that a material misstatement of our annual or interim financial statements that is more than inconsequential will not be prevented or +detected. In the course of making our assessment of the effectiveness of internal controls over financial reporting, we identified material +weaknesses in our internal control over financial reporting. Specifically, we do not have sufficiently documented procedures or +control activities in place to support a reliable financial reporting process. This includes an absence of controls over the review and +approval of journal entries, segregation of duties, reconciliations, and other fundamental accounting processes. +Based on our assessment under +the criteria described above, we have concluded that our internal control over financial reporting was not effective as of December 31, +2024. +(b) Changes +in Internal Control Over Financial Reporting +There were no changes in the Company’s internal +controls over financial reporting that occurred during the year ended December 31, 2024 that have materially affected, or are reasonably +likely to materially affect, the Company’s internal control over financial reporting. The Company continues to review its disclosure +controls and procedures, including its internal control over financial reporting, and may from time to time make changes aimed at enhancing +their effectiveness and to ensure that the Company’s systems evolve with its business. +Item 9B. Other Information +None of our officers or directors, as defined +in Rule 16a-1(f) of the Exchange Act, adopted and/or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 +trading arrangement,” each as defined in Regulation S-K Item 408, during the last fiscal quarter. +Item 9C. Disclosure Regarding Foreign Jurisdiction that Prevents +Inspections +Not applicable. +33 +PART III - OTHER INFORMATION +Item 10. Directors, Executive Officers and +Corporate Governance +Information Regarding Directors and Executive +Officers +The following table sets forth information regarding our executive +officers and non-employee directors. +Name +Age +Position +Dr. Christopher Kim, MD +74 +Chairman and Chief Medical Officer +Erik Emerson +54 +Chief Executive Officer and Director +Mark Corrao +67 +Chief Financial Officer +Jakap Koo +64 +Director +Dr. Bennett Weintraub, PhD. +56 +Director +Hankil Yoon +62 +Director +Carol O’Donnell +67 +Director +Elona Kogan +55 +Director +Christopher Kim, MD. — Chairman and Chief Medical +Officer +Dr. Christopher Kim has been our Chairman +and Chief Medical Officer since our inception and served as our interim Chief Executive Officer from July 2022 to September 2023. Dr. Kim +is the inventor and developer of Apitox and the founder of Apimeds Korea, where he has served as a director since its inception. Mr. Kim +served as the Chief Executive Officer of Apimeds Korea from May 2003 to August 2011. Prior to founding Apimeds Korea, Dr. Kim +lead with the support of Guju Pharmaceuticals, clinical trials for Apitoxin in Korea, which was approved by the Korea Food and Drug Administration +in 2003 for relief of pain and inflammation for patients with Osteoarthritis. In 2005, he began focusing on the clinical development of +Apitox in the United States, including the first of two-Phase III clinical studies for Osteoarthritis. Prior to his time with +Apimeds Korea, Dr. Kim served as the President of the International Pain Institute of New Jersey from January 1983 to May 2003, a +center for chronic pain and other disabling diseases that conducted clinical research and provided treatment. He served as a professor +at Biomedical Center, CHA Graduate School of Medicine in Korea from March 2005 to February 2017. Dr. Kim is a licensed +physician in New Jersey, New York and Korea and a Pain Medicine Specialist (American Board). Over the past twenty years, Dr. Kim +has treated thousands of chronically disabled patients with autoimmune diseases, including MS. Dr. Kim received his medical +degree from the School of Medicine, CN University in Korea. +We believe Dr. Kim’s extensive experience in pharmaceutical +development and the biopharmaceutical industry, as well as his research and treatment of autoimmune diseases, and institutional knowledge +of our product candidate, qualifies him to serve on our Board. +Erik Emerson — Chief Executive Officer +Erik Emerson has been our Chief Executive Officer +since September 2023. Mr. Emerson is a 25-year veteran of the biopharmaceutical industry. He also serves as an advisor to Odyssey +Neuropharma, Inc. where he has served since August 2022. In this role, Mr. Emerson leads business development and positioning efforts +for a Phase II asset in evaluation for the treatment of mild traumatic brain injury (concussion). Mr. Emerson was the Chief +Commercial Officer for Mezzion Pharmaceuticals, a Korean company establishing operations in the United States, for treatment of Single +Ventricle Heart Disease post Fontan surgery, from February 2017 to January 2020. At Adhera Therapeutics, previously known as +Marina Biotech, Mr. Emerson served as the Chief Commercial Officer and board member from February 2018 to November 2019. +Prior to that Mr. Emerson served as the Executive Chairman and Chief Executive Officer of BioMarisLLC from July 2017 to November 2019. +He also served as the President and Chief Executive Officer of Symplmed Pharmaceuticals & Technologies from July 2013 to May 2018. +From May 2010 to July 2013, he served as the Senior Director of Commercial Development, Xoma Ltd. He was the director of marketing at +Gilead Sciences from May 2007 to May 2010. Mr. Emerson has served as an advisory board member to NuGen Medical Devices since +August 2022. Mr. Emerson began his career in sales, sales training and marketing with King Pharmaceuticals from September 2001 +to May 2007. Mr. Emerson received a Bachelor’s in Arts in Political Science from the University of Oregon. +We believe Mr. Erikson’s extensive experience in the biopharmaceutical +industry, as well as his prior executive-level experience at similarly situated companies, qualifies him to serve on our Board. +34 +Mark Corrao — Chief Financial Officer +Mr. Mark Corrao has served as our Chief Financial +Officer since October 2024. Mr. Corrao is currently serving as the chief financial officer for Ealixir, Inc. (OTC:EAXR), a publicly traded +software company specializing in the management and protection of digital identities. He began serving in this role in January 2024. Previously, +Mr. Corrao was the chief financial officer for Amesite, Inc. (OTC:AMST), a publicly traded software company from December 2021 through +December 2022. Since February 2012, Mr. Corrao has served as the chief financial officer of Neuropathix, Inc., a private biopharmaceutical +company. From June 2012 to July 2020 Mr. Corrao was a Managing Director of The CFO Squad LLC, where he is currently an advisor. From January +2017 to June 2021 Mr. Corrao was the chief financial officer for Generex Biotechnology Corp (OTC:GNBT) and its subsidiaries. From December +2018 to October 2021, Mr. Corrao was the chief financial officer for Brain Scientific, Inc., a medical device company. Mr. Corrao served +as the chairman of the audit committee for Success Holdings Group International from January 2015 through December 2017. In February 2003, +Mr. Corrao founded Strikeforce Technology, Inc. (OTC:SFOR), a publicly traded software development and services company and served as +the chief financial officer until June 2010, and he remained a board member until August 2013. Prior to starting Strikeforce, Mr. Corrao +was a director at Applied Digital Solutions from December 2000 through December 2001. Mr. Corrao was one of the founders and a Vice President +at Advanced Communication Sciences from June 1997 through December 2000, when the company was sold. Mr. Corrao has spent numerous years +in the public accounting arena specializing in certified auditing, SEC accounting, corporate taxation and financial planning. Mr. Corrao’s +background also includes numerous years on Wall Street with Merrill Lynch, Spear Leeds & Kellogg and Greenfield Arbitrage Partners. +While on Wall Street, Mr. Corrao was involved in several initial public offerings and has been a guiding influence in several startup +companies. Mr. Corrao has a B.S. in Accounting from The City University of New York. +Jakap Koo — Director +Mr. Jakap Koo has served as a director since +October 2023. Mr. Koo is also the Chief Executive Officer and President of both Apimeds Korea and its parent company, Inscobee +Inc. (KRX: 006490), where he has served since March 2020. Before joining Apimeds Korea and Inscobee, from March 2015 to December 2019 +he served as the Chief Executive Officer at Lotte Auto Lease Co. Ltd., where he grew company revenue through various financial services +of car rental, installment payment, automobile leasing and investment banking to both B2B and B2C clients. Mr. Koo has spent more +than 35 years mostly as C-level executives in various financial institutions and IT companies. His management and operational experiences +cover banking, asset management, venture capital, private equity, and biotechnology companies. Mr. Koo has received his MBA from +Stern School of New York University. He graduated from Seoul National University majoring in Law. +We believe Mr. Koo’s extensive financial knowledge qualifies +him to serve on our Board. +Independent Directors: +Dr. Bennett Weintraub, PhD. +Dr. Weintraub has served as a director since +October 2023. Dr. Weintraub currently serves as the President of inThought Research (“inThought”), a +healthcare business intelligence consulting firm which he founded in 2009. inThought provides business development support, +competitive intelligence monitoring, medical conference coverage, and other services both to professional investors and to pharma/ +biotech companies. Dr. Weintraub has also served as the Chief Scientific Officer of inPhronesis since 2018. +After completing his training in immunology and +biochemistry, Dr. Weintraub co-founded Biotech Tracker, an online tool for investors, where he served as a financial analyst from +2000 to 2008. From 2006 to 2008, Dr. Weintraub served as an analyst at Reuters Insight, providing analysis of drug development and +trends in medicine to professional investors. Dr. Weintraub served as a licensed security analyst with Variant Research from 2005 +to 2006. +35 +From 1999 to 2000, Dr. Weintraub was senior +scientific editor for the biology research journals Cell and Molecular Cell. Dr. Weintraub performed biochemistry and immunology +research at Stanford University and at the John Curtin School of Medical Research in Canberra, Australia. He earned his doctorate in Biology +from the University of California, San Diego, and a Bachelor of Science in Life Science from the Massachusetts Institute of Technology. +We believe Mr. Weintraub’s extensive science background +qualifies him to serve on our Board. +Carol O’Donnell +Carol O’Donnell has served as a director +since October 2023. Ms. O’Donnell is currently a Director and Member of the Audit Committee of Sono-Tek Corporation (NASDAQ: +SOTK), where she has served since November 2018. Prior to that, she served as General Counsel to Boothbay Fund Management LLC, a +registered investment adviser, from December 2019 through May 2021. Ms. O’Donnell joined Protégé Partners +and MOV37, an industry leading firm investing in and seeding smaller and emerging hedge fund managers in April 2016 and has served +as Chief Executive Officer since January 2018. Prior to joining Protégé Partners and MOV37, Ms. O’Donnell was +the Director of Legal and Compliance with DARA Capital US, Inc., a Swiss-owned boutique registered investment advisory and wealth management +firm from January 2013 to March 2016. She served as General Counsel and Chief Compliance Officer of each of the Permal Group +and Framework Investment Group from June 2004 through February 2011 and from January 2002 to May 2004, respectively. +She also served as a director of FSI Low Beta from 2012 to 2021. Ms. O’Donnell was named one of the Top 50 Women in Hedge Funds +in September 2018 and is currently admitted to practice law in the State of Connecticut. +We believe Ms. O’Donnell’s extensive experience in the +financial industry qualifies her to serve on our Board. +Hankil Yoon, PhD. +Hankil Yoon has served as a director since October 2023. +Dr. Yoon has extensive experience in front-end business areas such as product strategy and planning, software technology and product +development, mobile services, global partnership, sales, investment, and mergers and acquisitions and extensive knowledge of the entire +software stack, ranging from firmware and OS, middleware. He is the owner of multiple patents on data mining and mobile technology. +Dr. Yoon was previously the Chief Executive +Officer of Digital Domain Virtual Human, Inc. from January 2020 to November 2021 where he managed a global organization of developers +throughout the United States, Canada and Taiwan using AI technology to implement best quality digital human at optimal speed using +minimal amount of facial data and created partnerships with Google, Amazon, and Microsoft to implement “AI with a human face”. +He served as the Executive Advisor to the Chief Executive Officer of Flipboard, Inc. from January 2019 to December 2020. Prior +to that, Mr. Yoon served as the Senior Vice President at Samsung Electronics, from May 2005 to December 2018. He served +as the Chairperson at the Tizen Association from January 2015 to December 2018. Mr. Yoon served as the Chief Technology +Officer at Oracle Corporation, US, from August 2000 to May 2005. Dr. Yoon has BS in Computer Engineering, Seoul National +University (1985) and an MBA (2017) in Global Management, an MS in Electrical & Computer Engineering, University of +California at Irvine (1995), PhD, in Computer & Information Science & Engineering, University of Florida (2000). +We believe Mr. Yoon’s extensive experience in product strategy +and planning, software technology and product development qualifies him to serve on our Board. +Elona Kogan +Elona Kogan has served as a director since October +2024. Beginning in August 2024, Ms. Kogan has served as the Chief Legal Officer of Terns Pharmaceutical, Inc. (Nasdaq: TERNS), a publicly +traded biopharmaceutical company, Prior to joining us, from November 2020 through August 2024, Ms. Kogan served as the General Counsel +and Chief Legal Officer of Seer Inc. (Nasdaq: SEER), a publicly traded life science company. From May 2018 through August 2021, Ms. Kogan +served as a director of Cardax, Inc., a biotechnology company operating in the inflammatory health space. From March 2019 through August +2020, Ms. Kogan served as the General Counsel of Selecta Biosciences, Inc., a clinical-stage biotechnology company. Ms. Kogan is a graduate +of Southwestern University School of Law. Ms. Kogan graduated from Columbia University, Barnard College, with a B.A. in Economics. +36 +We believe Ms. Kogan’s extensive experience in biopharmaceutical +and life science space, in addition to her experience serving as general counsel and chief legal officer of other publicly traded companies +qualifies her to serve on our Board. +Family Relationships +There are no family relationships among any of our executive officers +or directors. +Involvement in Certain Legal Proceedings +To the best of our knowledge, none of our executive +officers or directors were involved in any legal proceedings described in Item 401(f) of Regulation S-K in the past ten years. +Compliance with Section 16(a) of the Exchange +Act +Section 16(a) of the Securities Exchange Act of +1934, requires our directors, executive officers and persons who own more than 10% of our common stock to file with the SEC initial reports +of ownership and reports of changes in ownership of common stock and other of our equity securities. During the year ended December 31, +2024, our officers, directors and 10% stockholders were not required to make filings pursuant to Section 16(a). +Code of Business Conduct and Ethics +In accordance with the information required by this Item 10 relating +to the code of ethics required by Item 406 of Regulation S-K, the Company has a Code of Business Conduct and Ethics (the “Code”), +which applies to its directors, officers (including its principal executive officer, the principal financial officer and principal accounting +officer), and all other employees (collectively, the “Covered Persons” and each a “Covered Person”). The full +text of the Code is available on the “Investors” section of the Company’s website. The Company intends to satisfy the +SEC’s requirements regarding amendments to, or waivers from, the Code by posting such information on its website or by filing a +Current Report on Form 8-K to disclose such information. +Procedures for Stockholders to Recommend +Director Nominees +The Company’s bylaws (the “Bylaws”) were adopted +on May 12, 2020. On February 7, 2025, the Company established the nominating and corporate governance committee of the Board and adopted +the nominating and corporate governance committee’s written charter. Pursuant to the nominating and corporate governance committee’s +charter, the committee may, if it deems appropriate, establish procedures to be followed by stockholders in submitting recommendations +for Board candidates. Except as discussed in the foregoing sentences, there have been no material changes to the procedures by which security +holders may recommend nominees to our Board. +Audit Committee Information +The Company’s Board has a standing audit committee. Our audit +committee is chaired by Carol O’Donnell and its other members are Elona Kogan and Dr. Bennet Weintraub. Each member of the audit +committee is financially literate. Carol O’Donnell qualifies as an “audit committee financial expert” as defined in +applicable SEC rules. +Insider Trading Policy +The Company has an insider trading policy (the +“Insider Trading Policy”) which prohibits Covered Persons from buying or selling the Company’s securities while the Covered +Person is aware of material nonpublic information about the Company. The Company believes that its Insider Trading Policy is reasonably +designed to promote compliance with insider trading laws, rules and regulations, and any applicable listing standards. A copy of the Insider +Trading Policy is filed as Exhibit 19.1 to this Annual Report. +37 +Item 11. Executive Compensation +The following discussion contains forward-looking +statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. +The actual amount and form of compensation and the compensation policies and practices that we adopt in the future may differ materially +from currently planned programs as summarized in this discussion. +As an “emerging growth company,” we have opted to comply +with the executive compensation disclosure rules applicable to “smaller reporting companies,” as such term is defined in the +rules promulgated under the Securities Act. Accordingly, we are required to provide a Summary Compensation Table, as well as limited narrative +disclosures regarding executive compensation for our last two completed fiscal years and an Outstanding Equity Awards at Fiscal Year End +Table for our last completed fiscal year. These reporting obligations extend only to “named executive officers.” Individuals +we refer to as our “named executive officers” include (i) all individuals serving as our principal executive officer during +the fiscal year ended December 31, 2024 and (ii) our two most highly compensated executive officers, as defined in Exchange Act Rule 3b-7, +other than our principal executive officer, who were serving as executive officers at the end of the fiscal year ended December 31, 2024, +whose salary and bonus for services rendered in all capacities exceeded $100,000 during the fiscal year ended December 31, 2024. +Our named executive officer for the year ended +December 31, 2024, was our principal executive officer, Erik Emerson. No other executive officer of the Company received total compensation +during the fiscal year ended December 31, 2024 in excess of $100,000, and thus disclosure is not required for any other person. +Summary Compensation Table +The following table sets forth information concerning the compensation +of our named executive officer for the years ended December 31, 2024, and 2023. +Name and Principal Position +Year +Salary +($) +Bonus +($) +Option +Awards +($) +Nonequity +Incentive +Plan +Compensation +($) +All +Other +Compensation +($) +Total +($) +Erik Emerson +2024 +300,000 +— +— +— +— +300,000 +Chief Executive Officer +2023 +90,000 +— +— +— +— +90,000 +Narrative to Summary Compensation +Table +Our executive compensation program is based on +a pay for performance philosophy. Compensation for our Chief Executive Officer is composed primarily of the following main components: +base salary, bonus, and equity incentives in the form of stock options. Like all full-time employees, our Chief Executive Officer is +eligible to participate in our health and welfare benefit plans. As we transition from a private company to a publicly traded company, +we intend to evaluate our compensation philosophy and compensation plans and arrangements as circumstances require. +Employment Agreement with Erik Emerson +The Company entered into an employment agreement +with Erik Emerson on September 21, 2023 (the “Emerson Agreement”). Pursuant to the Emerson Employment Agreement, he will serve +as the Company’s Chief Executive Officer and receive a yearly salary of $300,000. Mr. Emerson’s employment shall continue +for one year from the date of execution and shall automatically renew for successive one year periods in the event of a closing on a public +offering of the company during the initial term unless either party gives 30 days’ written notice of its intent not to renew the +Emerson Agreement prior to the end of the then-current term. +If Mr. Emerson becomes disabled such that he is +unable to perform his obligations hereunder, with or without reasonable accommodation, for a period of 180 days or more over a rolling +consecutive twelve month period of time, or it is determined that Mr. Emerson is not able to perform the essential functions of his duties +(incurs a “Disability”) the Company may terminate Mr. Emerson’s employment, unless otherwise required by law. In the +event employment is terminated as a result of Mr. Emerson Disability, the Company shall have no further obligation to pay any unaccrued +compensation or unaccrued benefits to Mr. Emerson for periods after the date of such termination. +38 +Mr. Emerson may be terminated with or without +Cause (as defined in the Emerson Agreement) upon thirty (30) days’ written notice to Mr. Emerson. +Mr. Emerson will not be eligible to receive an annual bonus at any +time prior to the closing on a public offering (as defined in the Emerson Agreement) of the Company For all fiscal years following +the closing on a public offering of the Company, including any fiscal year during which the closing on a public offering occurs, Mr. Emerson +will be eligible to receive an annual bonus based on the achievement of goals for the Company’s and/or Mr. Emerson’s performance, +as determined by the Board in its sole discretion. +Mr. Emerson is entitled to receive such other +employee benefits and perquisites offered by the Company to any of the Company’s similarly-situated corporate employees, provided +that the Company shall retain discretion to cancel, modify or amend such benefits provided to Mr. Emerson and similarly situated employees +in its discretion. +Upon the closing on a public offering, Mr. Emerson shall receive an +incentive stock option to purchase a number of shares of the Company’s common stock equal to 3% of the post-public offering capitalization +of the Company (the “Equity Award”), of which 40% of the options shall vest upon grant and the remainder will vest in three +equal installments on the annual anniversary of the date of grant. Mr. Emerson will agree not to sell any shares underlying the Equity +Award, even if exercised, for a period of three years from the date of grant. Mr. Emerson will be eligible for future equity incentive +awards in the discretion of the Board. +Mr. Emerson irrevocably assigns to the Company +(or its designees), and agrees to hold in trust for the sole right and benefit of the Company, without any additional consideration, and +to promptly make full written disclosure to the Company of, all of his right, title, and interest in and to any and all Inventions (as +defined in the Emerson Agreement) that Mr. Emerson invents during his employment and for a period of one year following the termination +of his employment with the Company. +There is customary confidentiality and non-solicitation +clauses in Mr. Emerson’s agreement whereby he has agreed to keep all confidential information confidential and will not directly +or indirectly solicit any of the Company’s employees or vendors after his employment with the Company ends. +While the Company employs Mr. Emerson, he agrees that he will not, +without the Board’s prior written consent, directly or indirectly, provide services to any other person for which Mr. Emerson receives +compensation, nor will he otherwise engage in activities that would conflict or interfere with his full and faithful performance of his +duties as an employee of the Company. +Stock Option Award to Dr. Christopher Kim +On May 12, 2020 the Company granted Dr. Christopher +Kim, the Company’s Chairman and Chief Medical Officer, a non-qualified stock option award to purchase 138,900 shares of the Company’s +common stock at an exercise price of $11.28 per share. The option vested in three equal installments and vested fully on May 12, +2023. The options have a term of ten years from the date of grant and shall terminate at the expiration of that period, unless it +is terminated at an earlier date pursuant to the provisions of the option grant agreement between the Company and Dr. Kim. +Consulting Agreement with Mark Corrao +On October 4, 2024, the Company entered into a +consulting agreement with Mark Corrao (the “CFO Consulting Agreement”) to engage Mr. Corrao (the “Consultant”), +to provide consulting services as the Company’s non-employee chief financial officer prior to the completion of the Company’s +initial public offering. It is anticipated that following the completion of the Company’s initial public offering, the Consultant +will become an employee of the Company on a full-time basis. +The Consultant has been duly appointed as the chief financial officer +and principal financial and accounting officer of the Company and will remain as an executive officer of the Company during the term of +the CFO Consulting Agreement. The Consultant will report directly to Erik Emerson, Chief Executive Officer and to any other party designated +by Mr. Emerson in connection with the performance of the duties under the CFO Consulting Agreement and shall fulfill any other duties +reasonably requested by the Company and agreed to by the Consultant. +39 +The initial term of the CFO Consulting Agreement is one year. The CFO +Consulting Agreement may only be extended thereafter by mutual agreement, unless earlier terminated. Either party may terminate the CFO +Consulting Agreement at any time by providing thirty days’ written notice to the other party. +As compensation for the services rendered pursuant to the CFO Consulting +Agreement, the Company shall pay Consultant a minimum $2,500 upon signing, and $2,500 per month for up to eight hours of services rendered +per month, payable on the first business day of each month. Additional hours in excess of eight hours per month, if any, shall be billed +at $250.00 per hour. +Outstanding Equity Awards at Fiscal-Year End +2024 +There were no outstanding equity-based awards of the Company held by +the named executive officer as of December 31, 2024. +Policies and Practices for Granting Certain Equity Awards +We do not schedule equity award grants in anticipation of the release +of material nonpublic information, nor do we time the release of material nonpublic information based on equity grant dates. +Director Compensation Table +None of our directors received any form of compensation for the year +ended December 31, 2024. +40 +Item 12. Security Ownership of Certain +Beneficial Owners and Management and Related Stockholder Matters Securities +Authorized for Issuance under Share-Based +Compensation Plans +Equity Compensation Plan Information +The following table sets forth, as of December +31, 2024, information regarding awards previously granted and outstanding, and securities authorized for future issuance, under the Company’s +equity compensation plans. +Plan Category +Number of +Securities +to be Issued +Upon +Exercise of +Outstanding +Options, +Warrants or +Rights +Weighted-Average +Exercise Price of +Outstanding +Options, +Warrants or +Rights +Number of +Securities +Remaining +Available for +Future +Issuance +Under Equity +Compensation +Plans +(Excluding Outstanding +Options, +Warrants, or +Rights) +Equity compensation plans approved by shareholders +— +— +1,000,000 +Equity compensation plans not approved by shareholders +213,692 +7.332 +— +(1) Represents shares available for grant under the Company’s +Equity Incentive Plan (defined below) as of December 31, 2024. +Apimeds Pharmaceuticals US, Inc. Equity Incentive Plan +On September 18, 2024, we adopted an equity incentive plan +for our employees, the Apimeds Pharmaceuticals US, Inc. 2024 Equity Incentive Plan (the “Equity Incentive Plan”). The purposes +of the Equity Incentive Plan are to provide additional incentives to selected employees, directors and independent contractors of, and +consultants to, the Company or its affiliates, to strengthen their commitment, motivate them to faithfully and diligently perform their +responsibilities and to attract and retain competent and dedicated persons who are essential to the success of our business and whose +efforts will impact our long-term growth and profitability. +Awards +The Equity Incentive Plan allows the Company to +make equity and equity-based incentive awards to officers, employees, directors, consultants, and advisors. The Board anticipates that +providing such persons with a direct stake in the Company will assure a closer alignment of the interests of such individuals with those +of the Company and its stockholders, thereby stimulating their efforts on the Company’s behalf and strengthening their desire to +remain with the Company. +The Equity Incentive Plan provides for the grant +of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonus +awards, and performance compensation awards. All awards will be set forth in an award agreement which will detail all terms and conditions +of the awards, including any applicable vesting and payment terms and post-termination exercise limitations. +A brief description of each award type follows. +● Non-Qualified Stock Options means the right to purchase +shares pursuant to terms and conditions that are not intended to be, or do not qualify as, an Incentive Stock Options; +● Incentive Stock Options means the right to purchase +shares pursuant terms and conditions that are intended to qualify as, and that satisfy the requirements applicable to, an incentive equity +option within the meaning of Code Section 422 of the United States Internal Revenue Code of 1986, as amended; +● Stock Appreciation Rights means a right, designated +as an SAR, to receive the appreciation in the fair market value of shares; +41 +● Restricted Stock means an award of shares subject +to vesting conditions; +● Restricted Stock Units shall mean a right to receive +shares or cash upon vesting; +● Stock Bonus Awards means unrestricted common stock, or +other awards denominated in common stock, either alone or in tandem with other awards; and +● Performance Compensation Awards means an award granted +to a participant that entitles the participant to delivery of shares or cash upon achievement of performance goals. +1,000,000 shares of common stock have initially +been reserved for the issuance of awards under the Equity Incentive Plan (the “Initial Limit”). The Initial Limit is subject +to adjustment in the event of a reorganization, recapitalization, reclassification, stock split, stock dividend, reverse stock split or +other similar change in the Company’s capitalization. The maximum aggregate number of shares of common stock of the Company that +may be issued upon exercise of incentive stock options under the Equity Incentive Plan shall not exceed the Initial Limit, as adjusted. +Shares underlying any awards under the Equity Incentive Plan that are forfeited, cancelled, held back upon exercise of an option or settlement +of an award to cover the exercise price or tax withholding, satisfied without the issuance of stock or otherwise terminated (other than +by exercise) will be added back to the shares available for issuance under the Equity Incentive Plan and, to the extent permitted under +Section 422 of the Code and the regulations promulgated thereunder, the shares that may be issued as incentive stock options. +The Equity Incentive Plan is currently administered +by a committee of at least two people as the Board may appoint to administer the Equity Incentive Plan or, if no such committee has +been appointed by the Board, the Board, pursuant to the terms of the Equity Incentive Plan (the “Committee”). The plan administrator, +which initially will be the Committee, has full power to select, from among the individuals eligible for awards, the individuals to whom +awards will be granted, to make any combination of awards to participants, and to determine the specific terms and conditions of each +award, subject to the provisions of the Equity Incentive Plan. The plan administrator may delegate to a committee consisting of one or +more officers of the Company, the authority to awards to individuals who are not subject to the reporting and other provisions of Section 16 +of the Exchange Act and not members of the delegated committee, subject to certain limitations and guidelines. +Persons eligible to participate in the Equity +Incentive Plan will be officers, employees, non-employee directors, consultants, and advisors of the Company and its subsidiaries +as selected from time to time by the plan administrator in its discretion. As of the date of this Annual Report, approximately 12 individuals +are eligible to participate in the Equity Incentive Plan, which includes approximately two officers, no employees who are not officers, +five non-employee directors, and five consultants/independent contractors. +Options +The Equity Incentive Plan permits the granting +of both options to purchase common stock of the Company intended to qualify as incentive stock options under Section 422 of the Code +and options that do not so qualify. Options granted under the Equity Incentive Plan will be non-qualified options if they fail +to qualify as incentive stock options or exceed the annual limit on incentive stock options. Incentive stock options may only be granted +to employees of the Company and its subsidiaries. Non-qualified options may be granted to any persons eligible to receive awards +under the Equity Incentive Plan. The option exercise price of each option will be determined by the plan administrator but generally may +not be less than 100% of the fair market value of the common stock of the Company on the date of grant or, in the case of an incentive +stock option granted to a ten percent stockholder, 110% of such share’s fair market value. The term of each option will be fixed +by the plan administrator and may not exceed ten years from the date of grant. The plan administrator will determine at what time +or times each option may be exercised, including the ability to accelerate the vesting of such options. +Upon exercise of options, the option exercise +price must be paid in full either in cash, by certified or bank check or other instrument acceptable to the plan administrator or by delivery +(or attestation to the ownership) of shares of common stock of the Company that are beneficially owned by the optionee free of restrictions +or were purchased in the open market. Subject to applicable law, the exercise price may also be delivered by a broker pursuant to irrevocable +instructions to the broker from the optionee. In addition, the plan administrator may permit non-qualified options to be exercised +using a “net exercise” arrangement that reduces the number of shares issued to the optionee by the largest whole number of +shares with fair market value that does not exceed the aggregate exercise price. +42 +Stock Appreciation Rights +The plan administrator may award stock appreciation +rights subject to such conditions and restrictions as it may determine. Stock appreciation rights entitle the recipient to shares of common +stock of the Company, or cash, equal to the value of the appreciation in the Company’s stock price over the exercise price. The +exercise price generally may not be less than 100% of the fair market value of common stock of the Company on the date of grant. The term +of each stock appreciation right will be fixed by the plan administrator and may not exceed ten years from the date of grant. The +plan administrator will determine at what time or times each stock appreciation right may be exercised, including the ability to accelerate +the vesting of such stock appreciation rights. +Restricted Stock and Restricted Stock Units +The plan administrator may award restricted shares +of common stock of the Company and restricted stock units to participants subject to such conditions and restrictions as it may determine. +These conditions and restrictions may include the achievement of certain performance goals and/or continued employment with the Company +through a specified vesting period. The plan administrator may also grant shares of common stock of the Company that are free from any +restrictions under the Equity Incentive Plan. Unrestricted stock may be granted to participants in recognition of past services or for +other valid consideration and may be issued in lieu of cash compensation due to such participant. The plan administrator may grant dividend +equivalent rights to participants that entitle the recipient to receive credits for dividends that would be paid if the recipient had +held a specified number of shares of common stock of the Company. +Stock Bonus Awards +The plan administration may issue unrestricted +common stock, or other awards denominated in common stock, under the Equity Incentive Plan to participants, either alone or in tandem +with other awards, in such amounts as the plan administration shall from time to time in its sole discretion determine. +Performance Compensation Awards +The plan administrator may grant awards under +the Equity Incentive Plan to participants, which may be cash-based, subject to the achievement of certain performance goals, including +continued employment with the Company. +Other Material Features +The Equity Incentive Plan requires the plan administrator +to make appropriate adjustments to the number of shares of common stock that are subject to the Equity Incentive Plan, to certain limits +in the Equity Incentive Plan, and to any outstanding awards to reflect stock dividends, stock splits, extraordinary cash dividends and +similar events. +Except as set forth in a stock award agreement +issued under the Equity Incentive Plan, in the event of (i) a transfer of all or substantially all of the Company’s assets, +(ii) a merger, consolidation or other capital reorganization or business combination transaction of the Company with or into another +corporation, entity or person, or (iii) the consummation of a transaction, or series of related transactions, in which any person +becomes the beneficial owner directly or indirectly, of more than 50% of Company’s then outstanding capital stock, each outstanding +stock award (vested or unvested) will be treated as the plan administrator determines, which may include (a) Company’s continuation +of such outstanding stock awards (if Company is the surviving corporation); (b) the assumption of such outstanding stock awards by +the surviving corporation or its parent; (c) the substitution by the surviving corporation or its parent of new stock options or +other equity awards for such stock awards; (d) the cancellation of such stock awards in exchange for a payment to the participants +equal to the excess of (1) the fair market value of the shares subject to such stock awards as of the closing date of such corporate +transaction over (2) the exercise price or purchase price paid or to be paid (if any) for the shares subject to the stock awards +(which payment may be subject to the same conditions that apply to the consideration that will be paid to holders of shares in connection +with the transaction, subject to applicable law); or (e) the opportunity for participants to exercise the stock options prior to +the occurrence of the corporate transaction and the termination (for no consideration) upon the consummation of such corporate transaction +of any stock options not exercised prior thereto. +The Equity Incentive Plan provides that a stock +award may be subject to additional acceleration of vesting and exercisability upon or after a “Change in Control” (as defined +in the Equity Incentive Plan) as may be provided in the award agreement for such stock award or as may be provided in any other written +agreement between the Company or any affiliate and the participant, but in the absence of such provision, no such acceleration will occur. +43 +Participants in the Equity Incentive Plan are +responsible for the payment of any federal, state or local taxes that the Company or its subsidiaries are required by law to withhold +upon the exercise of options or stock appreciation rights or vesting of other awards. The plan administrator may cause any tax withholding +obligation of the Company or its subsidiaries to be satisfied, in whole or in part, by the applicable entity withholding from shares of +common stock of the Company to be issued pursuant to an award shares with an aggregate fair market value that would satisfy the withholding +amount due. The plan administrator may also require any tax withholding obligation of the Company or its subsidiaries to be satisfied, +in whole or in part, by an arrangement whereby a certain number of shares issued pursuant to any award are immediately sold and proceeds +from such sale are remitted to the Company or its subsidiaries in an amount that would satisfy the withholding amount due. +The Equity Incentive Plan generally does not allow +for the transfer or assignment of awards, other than by will or by the laws of descent and distribution or pursuant to a domestic relations +order; however, the plan administrator may permit the transfer of non-qualified stock options by gift to an immediate family +member, to trusts for the benefit of family members, or to partnerships in which such family members are the only partners. +The plan administrator may amend or discontinue +the Equity Incentive Plan and the plan administrator may amend or cancel outstanding awards for purposes of satisfying changes in law +or any other lawful purpose, but no such action may materially and adversely affect rights under an award without the holder’s consent. +Certain amendments to the Equity Incentive Plan will require the approval of the Company’s stockholders. Generally, without shareholder +approval, (i) no amendment or modification of the Equity Incentive Plan may reduce the exercise price of any stock option or the +strike price of any stock appreciation right, (ii) the plan administrator may not cancel any outstanding stock option or stock appreciation +right where the fair market value of the common stock underlying such stock option or stock appreciation right is less than its exercise +price and replace it with a new option or stock appreciation right, another award or cash and (iii) the plan administrator may not +take any other action that is considered a “repricing” for purposes of the shareholder approval rules of the applicable securities +exchange. +All awards granted under the Equity Incentive Plan will be subject +to recoupment in accordance with any clawback policy that Company is required to adopt pursuant to the listing standards of any national +securities exchange or association on which Company securities are listed or as is otherwise required by the U.S. Dodd-Frank Wall +Street Reform and Consumer Protection Act or other applicable law. In addition, the Board may impose such other clawback, recovery or +recoupment provisions in a stock award agreement as the Board determines necessary or appropriate. +No options or stock appreciation rights may be +granted under the Equity Incentive Plan after the date that is ten years from the Equity Incentive Plan Effective Date. No awards +under the Equity Incentive Plan have been made prior to the date of this Annual Report. +Security Ownership of Certain Beneficial +Owners and Management +The following table sets forth, as of April 15, +2025, certain information as to the Company’s common stock beneficially owned by persons known by the Company to own in excess of +5% of the outstanding shares of such stock. In addition, the table includes information regarding the shares of the Company’s common +stock beneficially owned by (i) each named executive officer, (ii) each of the Company’s directors and (iii) the Company’s +directors and executive officers as a group. Management knows of no person, except as listed below, who beneficially owned more than 5% +of the outstanding shares of the Company’s common stock as of April 15, 2025. Except as otherwise indicated, the information provided +in the following table was obtained from filings with the SEC and the Company pursuant to the Exchange Act. For purposes of the following +table, in accordance with Rule 13d-3 under the Exchange Act, a person is deemed to be the beneficial owner of any shares of the Company’s +common stock which he or she has or shares, directly or indirectly, voting or investment power, or which he or she has the right to acquire +beneficial ownership of at any time within 60 days after April 15, 2025. As used herein, “voting power” is the power to vote, +or direct the voting of, shares, and “investment power” includes the power to dispose of, or direct the disposition of, such +shares. Unless otherwise noted, each beneficial owner has sole voting and sole investment power over the shares beneficially owned. Unless +otherwise noted, the business address of each of the following entities or individuals is 65-1277 Ki Rd., Kamuela, Hawaii 96743. +44 +Name of Beneficial Owner +Number of +Shares +Beneficially +Owned +% of Common Stock +Directors and Named Executive Officers: +Christopher Kim, MD (1) +213,692 +2.54 % +Erik Emerson +— +— +Mark Corrao +— +— +Bennett Weintraub, PhD +— +— +Hankil Yoon +— +— +Carol O’Donnell +— +— +Jakap Koo +615,385 +7.32 % +All directors and officers as a group (7 individuals) +829,077 +9.86 % +5% or Greater Stockholders: +Inscobee Inc. (2) +5,908,783 +70.28 % +Dominus IB, Inc. (3) +800,000 +9.52 % +Seed 1 ho (4) +600,000 +7.14 % +(1) Represents 213,692 shares issuable pursuant to outstanding options, +which are exercisable within 60 days of the date hereof. +(2) Represents 1,596,760 shares or 18.99% held directly by Inscobee +Inc. and 4,312,023 shares or 51.29% held through its wholly owned subsidiary, Apimeds Inc. Inscobee Inc. has voting and investment control +over the shares held by Apimeds Inc. Millenium Holdings has voting and investment control with respect to the shares held by Inscobee +Inc. Millenium Holdings is controlled by You In Soo, and as such, Mr. Yoo may be deemed to have beneficial ownership over the shares +held by both Inscobee Inc. and Apimeds Inc. The business address for Inscobee Inc. is Room 613, Digital-ro 130, 6F, Geumcheon-gu, Seoul, +08580 Republic of Korea. The business address for Millenium Holdings is 107, Gasan Digital 2-ro, Geumcheon-gu, Seoul, Korea. Each of +the parties named in this footnote disclaims any beneficial ownership of the reported shares other than to the extent of any pecuniary +interest the party may have therein. +(3) Dominus IB, Inc. is controlled by its Chief Executive Officer +and largest shareholder, Park Kyoung Jin, who may be deemed to have voting and investment control with respect to the shares held by +Dominus IB, Inc. The business address for Dominus IB, Inc. is 144, Dobong-ro, Gangbuk, Seoul, Republic of Korea. +(4) Seed 1 ho is controlled by its Chief Executive Officer and largest +shareholder, Son Hyoung Jin, who may be deemed to have voting and investment control with respect to the shares held by Seed 1 ho. The +business address for Seed 1 ho is 116, Sindae-gil, Okcheon-myeon, Yangpyeong-gun, Gyeonggi-do, Republic of Korea. +Changes in Control +Management of the Company knows of no arrangements, +including any pledge by any person or securities of the Company, the operation of which may at a subsequent date result in a change in +control of the registrant. +45 +Item 13. Certain Relationships and Related Transactions, and Director +Independence +Certain Relationships and Related Transactions +Other than as listed below, during 2024 and 2023, we were not a participant +in any transaction or series of transactions in which the amount involved did exceed or may exceed the lesser of $120,000 or 1% of the +average of our total assets at year-end for 2024 and 2023 in which any directors, director nominees, executive officers, greater than +5% beneficial owners and their respective immediate family members (each, a “Related Person”) had or will have a direct or +indirect material interest, other than the compensation arrangements (including with respect to equity compensation) described in “Executive +Compensation” beginning on page 38 and “Director Compensation” on page 40. +Business Agreement +On August 2, 2021, we entered into an agreement +with Apimeds Korea, a principal stockholder of the Company (the “Business Agreement”). Pursuant to the Business Agreement, +Apimeds Korea granted to the Company a sublicensable, royalty-bearing license to research, develop, manufacture and commercialize and +sell Apitox in the United States. In exchange for this license, the Company will pay Apimeds Korea a perpetual royalty of 5% of the +Company’s earnings before interest and taxes as determined consistent with GAAP, derived from the sale or license of Apitox, less +any shipping, handling, and insurance charges, credits (arising from returns or other adjustments), discounts, rebates, or allowances +of any kind (if any). The Business Agreement may be terminated by mutual written agreement by the parties and will automatically terminate +upon the bankruptcy or dissolution of the Company. +Assignment Agreement +On October 12, 2021 we entered into an intellectual +property assignment agreement (the “Assignment Agreement”) with Apimeds Korea and Dr. Christopher Kim, the Company’s +Chairman and Chief Medical Officer and founder of Apimeds Korea, effective as of May 12, 2021. Pursuant to the Assignment Agreement +Dr. Kim transferred to Apimeds Korea all right, title, interest and good will in all of the intellectual property as it relates to Apitoxin, +which will be marketed in the United States as Apitox (the “Assigned IP”). +Dr. Kim retained no right to use the Assigned +IP. Additionally, the Assignment Agreement acknowledged that the Assigned IP was licensed to us to use via the Business Agreement, +as described above. +Patent License Agreement +On October 12, 2021, we entered into a patent +license agreement (the “Patent License Agreement”) Dr. Christopher Kim, the Company’s Chairman and Chief Medical Officer +and the founder of Apimeds Korea. During Dr. Kim’s engagement with Apimeds Korea, he contributed to the development of the +intellectual property as it relates to Apitoxin. Pursuant to the Patent License Agreement, we were licensed certain patents. In consideration +of its license under the Patent License Agreement, the Company paid Dr. Kim $1.00. +The patents expired in 2023 and, presently, the +Company does not intend renew the expired patents or apply for any additional patents. +Business Establishment Agreement +On March 3, 2020, Apimeds Korea entered into +a business establishment agreement with the Company pursuant to which Apimeds Korea agreed provide funding to us in the form of two tranches +consisting of $500,000 each (for a total of $1,000,000). The first tranche was funded in March 2020 and the second tranche was funded +in May 2020. +August 2021 Promissory Note +The Company issued to Apimeds Korea a convertible +promissory note in the principal amount of $400,000, on August 30, 2021 (the “August 2021 Note”). The August 2021 +Note is due and payable on the earlier of (i) August 30, 2026 or (ii) a sale of the Company (as defined in the August 2021 +Note) (the “Maturity Date”). The August 2021 Note bears interest at an annual rate equal to the lesser of (i) 5% +per annum, or (ii) the maximum rate permissible by law. +The Company may prepay the August 2021 Note +at any time without penalty. If not previously paid by the Company, principal and accrued interest on the August 2021 Note will automatically +convert into common stock (i) immediately prior to the closing of the Company’s firm commitment underwritten initial public +offering resulting in at least $40,000,000 gross proceeds to the Company (a “Qualified IPO”), (ii) immediately prior +to the closing of the Company’s initial listing of its common stock on an international exchange by means of an effective registration +statement on Form S-1 that results in at least $40,000,000 of gross proceeds to the selling stockholders (a “Qualified Direct +Listing”), or (iii) upon the consummation of the Company’s merger, consolidation, share exchange or other transaction +with a publicly traded “special purpose acquisition company” resulting in a stock exchange listing (a “SPAC Transaction”). +The number of shares of common stock shall be determined by dividing (x) the outstanding principal balance of the Apimeds Korea Note +plus accrued but unpaid interest by (y) as applicable, (i) in case of a Qualified IPO, the per share price for which shares +of common stock are initially offered in the Qualified IPO as reflected in the final prospectus, (b) in case of a Qualified Direct +Listing, the fist closing price of the common stock on the first trading day, following the Qualified Direct Listing, and (c) in +case of a SPAC Transaction, the price per share of the successor entity that is established in connection with such SPAC Transaction. +46 +If there shall be any Event of Default (as defined +below), the August 2021 Note shall accelerate and all principal and unpaid accrued interest shall become immediately due and payable, +provided that the Company shall have 20 days from receipt of such notice to cure an Event of Default. The occurrence of any one or +more of the following shall constitute an “Event of Default”: (a) the Company fails to pay timely all or any part of +the principal amount or accrued interest due under the August 2021 Note, (b) the Company files any petition or action for relief +under any bankruptcy, reorganization, insolvency or moratorium law or any other law for the relief of, or relating to, debtors, or makes +any assignment for the benefit of creditors or takes any corporate action in furtherance of any of the foregoing, or (c) an involuntary +petition is filed against the Company, or a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) +is appointed to take possession, custody or control of any property of the Company. +The terms of the August 2021 Note may only +be amended with the written consent of both parties and my only be transferred upon its surrender to the Company for registration of transfer +or accompanied by a duly executed written instrument of transfer in the form satisfactory to the Company. +On December 5, 2023, the Company and Apimeds Korea +amended the August 2021 Note (the “August 2021 Note Amendment”) as follows: the maturity date was extended to the earlier +of (i) December 31, 2026, or (ii) the consummation of an offering of our common stock (and other securities potentially) resulting in +the listing for trading of our common stock on the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global +Select Market or the New York Stock Exchange (or any successors to any of the foregoing) (“Qualified Offering”). +Additionally, the August 2021 Note Amendment provided +for conversion of the note, including accrued and unpaid interest, at a conversion price of $2.60 per share as follows: (i) at the option +of the holder, in its sole discretion, in whole or in part, and (ii) mandatorily simultaneous with the consummation of a Qualified Offering, +in each case, into fully paid and nonassessable shares of common stock at the conversion price. +On June 12, 2024, Apimeds Korea assigned the August +2021 Note to Inscobee, Inc. a South Korean company, and the parent company of Apimeds Korea, (“Inscobee”). +If not converted earlier, upon the closing of a Qualified Offering, the August 2021 Note will automatically convert +into approximately 179,283 shares of common stock. +March 2022 Promissory Note +The Company issued to Apimeds Korea, a promissory +note in the principal amount of $160,000 on March 21, 2022 (the “March 2022 Note”). The March 2022 Note bears +interest at a rate equal to 5% per annum (the “Interest Rate”). The March 2022 Note is due and payable on the earlier +of (i) the closing of an equity financing by the Company with gross proceeds to the Company of at least $3,000,000, or (ii) July 15, +2022. +The Company may prepay the March 2022 Note +at any time without penalty. If any payment due on the March 2022 Note is not paid within five days after the amount becomes due, +the payment shall be considered in default and the interest rate will increase by an additional 5% on the defaulted payment amount and +Inscobee may also, in its sole discretion, without notice or demand, declare the entire unpaid principal balance plus accrued interest +due and payable immediately. +On December 5, 2023, the Company and Apimeds +Korea amended the March 2022 Note (the “March 2022 Note Amendment”) as follows: the maturity date was extended +to the earlier of (i) December 31, 2026, or (ii) the consummation of a Qualified Offering. +Additionally, the March 2022 Note Amendment +provided for conversion of the note, including accrued and unpaid interest, at a conversion price of $2.60 per share as follows: (i) at +the option of the holder, in its sole discretion, in whole or in part, and (ii) mandatorily simultaneous with the consummation of +a Qualified Offering, in each case, into fully paid and nonassessable shares of common stock at the conversion price. +On June 12, 2024, Apimeds Korea assigned the March +2022 Note to Inscobee. +If not converted earlier, upon the closing of a Qualified Offering, the +March 2022 Note will automatically convert into approximately 70,002 shares of common stock. +47 +June 2022 Promissory Note +On June 3, 2022, the Company issued to Inscobee, +Inc. a South Korean company, and the parent company of Apimeds Korea, (“Inscobee”) a $100,000 promissory note (the “June 2022 +Note”). Interest on the outstanding principal balance of the Second Loan accrues at a rate equal to 5% per annum, and interest on +the outstanding principal balance of the First Loan shall accrue and be payable on the maturity date. The maturity date was the earlier +of (i) the closing of an equity financing by the Company with gross proceeds to the Company of at least $3,000,000), and (ii) July 15, +2022. +On December 5, 2023, the Company and Inscobee +amended the June 2022 Note (the “June 2022 Note Amendment”) as follows: the maturity date was extended to (i) December 31, +2026, or (ii) consummation of a Qualified Offering. +Additionally, the June 2022 Note Amendment +provided for conversion of the note, including accrued and unpaid interest, at a conversion price of $2.60 per share as follows: (i) at +the option of the holder, in its sole discretion, in whole or in part, and (ii) mandatorily simultaneous with the consummation of +a Qualified Offering, in each case, into fully paid and nonassessable shares of common stock at the conversion price. +Upon the closing of a Qualified Offering, the June 2022 Note +will automatically convert into approximately 43,361 shares of common stock. +On June 12, 2024, the Company and Inscobee amended +the June 2022 Note to correct a scrivener’s error. +May 2024 Promissory Note +On May 20, 2024, the Company issued to Inscobee +a $100,000 promissory note (the “May 2024 Note”). The May 2024 Note bears interest at a rate equal to 5% per annum (the “Interest +Rate”). The May 2024 Note is due and payable on the earlier of (i) the closing of an equity financing by the Company with gross +proceeds to the Company of at least $3,000,000, or (ii) May 19, 2025. +The Company may prepay the May 2024 Note at any +time without penalty. If any payment due on the May 2024 Note is not paid within five days after the amount becomes due, the payment shall +be considered in default and the interest rate will increase by an additional 5% on the defaulted payment amount and Inscobee may also, +in its sole discretion, without notice or demand, declare the entire unpaid principal balance plus accrued interest due and payable immediately. +August 2024 Note +On August 19, 2024, the Company issued to Inscobee +a $150,000 principal amount promissory note (the “August 2024 Note”). The August 2024 Note bears interest at a rate equal +to 5% per annum (the “Interest Rate”). The August 2024 Note is due and payable on the earlier of (i) the closing of an equity +financing by the Company with gross proceeds to the Company of at least $3,000,000, or (ii) May 19, 2025. The outstanding principal and +interest on the August 2024 Note will be repaid upon the closing of a Qualified Offering. +The Company may prepay the August 2024 Note at +any time without penalty. If any payment due on the August 2024 Note is not paid within five days after the amount becomes due, the payment +shall be considered in default and the interest rate will increase by an additional 5% on the defaulted payment amount and Inscobee may +also, in its sole discretion, without notice or demand, declare the entire unpaid principal balance plus accrued interest due and payable +immediately. +March 2025 Promissory Note +On March 31, 2025, the Company received $250,000 +in a promissory note (the “March 2025 Note”) agreement with Apimeds, Inc., one of its shareholders. The Promissory Notes bear +interest at 5% per annum and mature on the earlier of (a) December 31, 2026 or (b) consummation of a Qualified Offering (the “Maturity +Date”). “Qualified Offering” shall mean an offering of Common Stock (and other securities potentially) resulting in +the listing for trading of the Common Stock on the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global +Select Market or the New York Stock Exchange (or any successors to any of the foregoing). +The +Company may prepay the March 2025 Note at any time without penalty. If any payment due on the March 2025 Note is not paid within five +days after the amount becomes due, the payment shall be considered in default and the interest rate will increase by an additional 5% +on the defaulted payment amount and may also, in its sole discretion, without notice or demand, declare the entire unpaid principal balance +plus accrued interest due and payable immediately. +Cash Advance Loans +On October 5, 2022, November 10, 2022 and March +16, 2023, Dr. Christopher Kim, the Company’s Chairman and Chief Medical Officer and founder of Apimeds Korea, loaned the Company +$9,900, $13,000 and $9,000 respectively. These loans carried no interest and did not have a maturity date. The loans were used for operating +purposes. As of September 2023, all the loan amounts were repaid. +48 +Policies and Procedures for Transaction with +Related Persons +It is the responsibility of our audit committee to review and approval +all related party transactions that would need to be disclosed pursuant to Item 404(a) of Regulation S-K (each a “Related Party +Transaction”). The Board has adopted a related party transaction policy that makes up a part of the audit committee’s charter +(the “Related Party Transactions Policy”). Pursuant to the Related Party Transactions Policy, each of the Company’s +directors and executive officers shall promptly inform the chairperson of the audit committee of any potential Related Party Transactions. +In addition, each such director and executive officer shall complete a questionnaire on an annual basis designed to elicit information +about any potential Related Party Transactions. Any potential Related Party Transactions that are brought to the audit committee’s +attention shall be analyzed by the audit committee, in consultation with outside counsel or members of management, as appropriate, to +determine whether the transaction or relationship does, in fact, constitute a Related Party Transaction requiring compliance with the +Related Party Transactions Policy. In determining whether to approve a Related Party Transaction, the audit committee shall consider, +among other factors, the following factors to the extent relevant to the Related Party Transaction: (i) whether the terms of the Related +Party Transaction are fair to the Company and on the same basis as would apply if the transaction did not involve a Related Party (as +defined in the Related Party Transactions Policy); (ii) whether there are business reasons for the Company to enter into the Related Party +Transaction; (iii) whether the Related Party Transaction would impair the independence of an outside director; (iv) whether the Related +Party Transaction would present an improper conflict of interest for any director or executive officer of the Company, taking into account +the size of the transaction, the overall financial position of the director, executive officer or Related Party, the direct or indirect +nature of the director’s, executive officer’s or Related Party’s interest in the transaction and the ongoing nature +of any proposed relationship, and any other factors the Committee deems relevant; and (v) any pre-existing contractual obligations. All +of the transactions described in this section occurred prior to the adoption of this policy. +Director Independence +The Company’s Board has determined that Dr. Bennet Weintraub +PhD, Dr. Hankil Yoon PhD, Carol O’Donnell and Elona Kogan, who together comprise a majority of the Board, are independent under +applicable rules and regulations of the SEC. The Board made such independence determinations using the definition of independence set +forth in the rules of the NYSE American based on a review of transactions and relationships between each director or any member of his +or her immediate family, on the one hand, and the Company and its subsidiaries and affiliates, on the other hand, as well as transactions +and relationships between each director or his affiliates, on the one hand, and members of the Company’s management or their affiliates, +on the other hand. +Item 14. Principal Accountant Fees and Services +Kreit & Chiu CPA LLP served as the independent +registered public accounting firm for the Company for 2024 and 2023. The following table sets forth the fees billed to the Company by +Kreit & Chiu CPA LLP for 2024 and 2023. +2024 +2023 +(in thousands) +Audit Fees (1) +$ +142,918 +$ +74,950 +Audit-Related Fees +- +- +All Other Fees +- +-  +Total Fees +$ +142,918 +$ +74,950  +(1) Represents, for each year, fees for services related to the Company’s +annual financial statement audit and quarterly reviews. +Under its charter, the Company’s audit committee must review +and pre-approve both audit and permitted non-audit services provided by the Company’s independent registered public accounting firm +and shall not engage the independent registered public accounting firm to perform any non-audit services prohibited by law or regulation. +The independent registered public accounting firm’s retention to audit the Company’s financial statements, including the associated +fee, is subject to approval each year by the audit committee. The audit committee does not regularly evaluate potential engagements of +the independent registered public accounting firm and approve or reject such potential engagements. At each audit committee meeting, the +audit committee receives updates on the services actually provided by the independent registered public accounting firm, and management +may present additional services for pre-approval. The audit committee may delegate to the chairman of the audit committee the authority +to evaluate and approve engagements on behalf of the audit committee in the event that a need arises for pre-approval between regular +audit committee meetings. If the chairman so approves any such engagements, he will report that approval to the full audit committee at +the next audit committee meeting. The audit committee was established on February 7, 2025, and therefore, the Company’s audit committee +did not pre-approve all of the foregoing services. +49 +PART IV +Item 15. Exhibit and Financial Statement Schedules +(a) Documents filed as part of this report +(1) All financial statements +Report of Independent Registered +Public Accounting Firm (PCAOB ID: 6651) +F-2 +Balance Sheets as of December 31, 2024 and 2023 +F-3 +Statements of Operations for the Years Ended December +31, 2024 and 2023 +F-4 +Statements of Changes in Stockholders’ Equity +(Deficit) for the Years Ended December 31, 2024 and 2023 +F-5 +Statements of Cash Flows for the Years Ended December +31, 2024 and 2023 +F-6 +Notes to Financial Statements +F-7 +(2) Financial Statement Schedules +All financial statement schedules are omitted +because they are either inapplicable or not required, or because the required information is included in the Financial Statements or notes +thereto contained in this Annual Report on Form 10-K. +(3) Exhibits required by Item 601 of Regulation S-K +Exhibit No. +Description +3.1 +Amended and Restated Certificate of Incorporation of Apimeds Pharmaceuticals US, Inc. (incorporated herein by reference to Exhibit 3.1 to our Registration Statement on Form S-1 filed on September 25, 2024). +3.2* +Certificate of Amendment to the Amended and Restated Certificate of Incorporation +3.3* +Amended and Restated Bylaws of Apimeds Pharmaceuticals US, Inc. +4.1* +Description of Securities +10.1 +Letter Agreement by and between Apimeds Pharmaceuticals US, Inc. and Apico Inc., dated November +3, 2021 (incorporated herein by reference to Exhibit 10.1 to our Registration Statement on Form S-1 filed on September 25, 2024). +10.2 +Business Agreement by and between Apimeds Pharmaceuticals US, Inc. and Apimeds Inc., dated August 2, 2021 (incorporated herein by reference to Exhibit 10.2 to our Registration Statement on Form S-1 filed on September 25, 2024). +10.3 +Assignment Agreement by and between Apimeds Pharmaceuticals US, Inc. and Apimeds Inc., dated October 12, 2021 (incorporated herein by reference to Exhibit 10.3 to our Registration Statement on Form S-1 filed on September 25, 2024). +10.4 +Apimeds Pharmaceuticals US, Inc. 2024 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.4 to our Registration Statement on Form S-1 filed on September 25, 2024). +10.5 +Business Establishment Agreement by and between Apimeds Pharmaceuticals US, Inc. and Apimeds Inc., dated March 3, 2020 (incorporated herein by reference to Exhibit 10.5 to our Registration Statement on Form S-1 filed on September 25, 2024). +10.6 +August 2021 Promissory Note by and between Apimeds Pharmaceuticals US, Inc. and Apimeds Inc., dated August 30, 2021 (incorporated herein by reference to Exhibit 10.6 to our Registration Statement on Form S-1 filed on September 25, 2024). +10.7 +Amendment to the August 2021 Promissory Note by and between Apimeds Pharmaceuticals US, Inc. and Apimeds Inc., dated December 5, 2023 (incorporated herein by reference to Exhibit 10.7 to our Registration Statement on Form S-1 filed on September 25, 2024). +50 +10.8 +March 2022 Promissory Note by and between Apimeds Pharmaceuticals US, Inc. and Apimeds Inc., dated +March 21, 2022 (incorporated herein by reference to Exhibit 10.8 to our Registration Statement on Form S-1 filed on September 25, +2024). +10.9 +Amendment to the March 2022 Promissory Note by and between Apimeds Pharmaceuticals US, Inc. and Apimeds Inc., dated December 5, 2023 (incorporated herein by reference to Exhibit 10.9 to our Registration Statement on Form S-1 filed on September 25, 2024). +10.10 +June 2022 Promissory Note by and between Apimeds Pharmaceuticals US, Inc. and Inscobee Inc., dated June 3, 2022 (incorporated herein by reference to Exhibit 10.10 to our Registration Statement on Form S-1 filed on September 25, 2024). +10.11 +Amendment to the June 2022 Promissory Note by and between Apimeds Pharmaceuticals US, Inc. and Inscobee Inc., dated December 5, 2023 (incorporated herein by reference to Exhibit 10.11 to our Registration Statement on Form S-1 filed on September 25, 2024). +10.12 +Intellectual Property Assignment Agreement by and between Apimeds Pharmaceuticals US, Inc. Apimeds Inc. and Christopher Kim, dated October 12, 2021 (incorporated herein by reference to Exhibit 10.12 to our Registration Statement on Form S-1 filed on September 25, 2024). +10.13 +Patent License Agreement by and between Apimeds Pharmaceuticals US, Inc. and Dr. Christopher Kim, dated October 12, 2021 (incorporated herein by reference to Exhibit 10.13 to our Registration Statement on Form S-1 filed on September 25, 2024). +10.14 +Employment Agreement dated September 21, 2023 between Apimeds Pharmaceuticals US, Inc. and Erik Emerson (incorporated herein by reference to Exhibit 10.14 to our Registration Statement on Form S-1 filed on September 25, 2024). +10.15 +Form of Indemnification Agreement (incorporated herein by reference to Exhibit 10.15 to our Registration Statement on Form S-1 filed on September 25, 2024) +10.16 +Loan Agreement by and between Apimeds Pharmaceuticals US, Inc. and Dr. Christopher Kim, dated October 5, 2022 (incorporated herein by reference to Exhibit 10.16 to our Registration Statement on Form S-1 filed on September 25, 2024). +10.17 +Loan Agreement by and between Apimeds Pharmaceuticals US, Inc. and Dr. Christopher Kim, dated November 10, 2022 (incorporated herein by reference to Exhibit 10.17 to our Registration Statement on Form S-1 filed on September 25, 2024). +10.18 +Loan Agreement by and between Apimeds Pharmaceuticals US, Inc. and Dr. Christopher Kim, dated March 16, 2023(incorporated herein by reference to Exhibit 10.18 to our Registration Statement on Form S-1 filed on September 25, 2024). +10.19 +Advisory Agreement by and between Apimeds Pharmaceuticals US, Inc. and Murdock Capital Partners, dated September 8, 2023 (incorporated herein by reference to Exhibit 10.19 to our Registration Statement on Form S-1 filed on September 25, 2024). +10.20 +May 2024 Promissory Note by and between Apimeds Pharmaceuticals US, Inc. and Inscobee Inc., dated May 20, 2024 (incorporated herein by reference to Exhibit 10.20 to our Registration Statement on Form S-1 filed on September 25, 2024). +10.21 +Convertible Note Assignment Agreement (August 2021 Promissory Note), by and between Apimeds Pharmaceuticals US, Inc., Apimeds, Inc., and Inscobee Inc., dated June 12, 2024 (incorporated herein by reference to Exhibit 10.21 to our Registration Statement on Form S-1 filed on September 25, 2024). +10.22 +Convertible Note Assignment Agreement (March 2022 Promissory Note), by and between Apimeds Pharmaceuticals US, Inc., Apimeds, Inc., and Inscobee Inc., dated June 12, 2024 (incorporated herein by reference to Exhibit 10.22 to our Registration Statement on Form S-1 filed on September 25, 2024). +10.23 +Amended Amendment to the June 2022 Promissory Note by and between Apimeds Pharmaceuticals US, Inc. and Inscobee Inc., dated June 12, 2024 (incorporated herein by reference to Exhibit 10.23 to our Registration Statement on Form S-1 filed on September 25, 2024). +10.24 +CFO Consulting Agreement, by and between Apimeds Pharmaceuticals US, Inc. and Mark Corrao, dated October 4, 2024 (incorporated herein by reference to Exhibit 10.24 to our Registration Statement on Form S-1 filed on September 25, 2024). +10.25 +August 2024 Promissory Note by and between Apimeds Pharmaceuticals US, Inc. and Inscobee Inc., dated August 19, 2024 (incorporated herein by reference to Exhibit 10.25 to our Registration Statement on Form S-1 filed on September 25, 2024). +10.26* +March 2025 Promissory Note by and between Apimeds Pharmaceuticals US, Inc. and Apimeds, Inc., dated March 21, 2025. +14.1 +Code of Business Conduct and Ethics (incorporated herein by reference to Exhibit 99.1 to our Registration Statement on Form S-1 filed on September 25, 2024). +19.1* +Insider Trading Policy. +51 +21.1 +Subsidiaries of the Registrant (incorporated herein by reference to Exhibit 21.1 to our Registration Statement on Form S-1 filed on September 25, 2024). +31.1* +Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +31.2* +Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +32.1* +Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +32.2* +Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 . +97.1* +Executive Compensation Recovery Policy. +101.INS +Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. +101.SCH +Inline XBRL Taxonomy Extension Schema Document. +101.CAL +Inline XBRL Taxonomy Extension Calculation Linkbase Document. +101.DEF +Inline XBRL Taxonomy Extension Definition Linkbase Document. +101.LAB +Inline XBRL Taxonomy Extension Labels Linkbase Document. +101.PRE +Inline XBRL Taxonomy Extension Presentation Linkbase Document. +104 +Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit). +101.INS +Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. +101.SCH +Inline XBRL Taxonomy Extension Schema Document. +* Filed or furnished herewith. +Item 16. Form 10-K Summary +None. +52 +INDEX TO FINANCIAL STATEMENTS +Contents +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID: 6651 ) F-2 +Financial Statements +Balance Sheets as of December 31, 2024 and 2023 F-3 +Statements of Operations for the Years Ended December 31, 2024 and 2023 F-4 +Statements of Changes in Stockholders’ Equity (deficit) for the Years Ended December 31, 2024 and 2023 F-5 +Statements of Cash Flows for the Years Ended December 31, 2024 and 2023 F-6 +Notes to Financial Statements F-7 +F- 1 +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING +FIRM +Board of Directors and Shareholders +Apimeds Pharmaceuticals US, Inc. +Opinion on the Financial Statements +We have audited the accompanying balance sheets of Apimeds Pharmaceuticals +US, Inc. as of December 31, 2024 and 2023, and the related statements of operations, changes in shareholders’ equity (deficit), +and cash flows for each of the two years then ended, and the related notes (collectively referred to as the “financial statements”). +In our opinion, the financial statements present fairly, in all material respects, the financial position of the Apimeds Pharmaceuticals +US, Inc. as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years then ended, +in conformity with accounting principles generally accepted in the United States of America. +Going Concern +The accompanying financial statements have been prepared assuming +that the entity will continue as a going concern. As discussed in Note 1 to the financial statements, the entity has suffered +recurring losses from operations and has accumulated deficit that raise substantial doubt about its ability to continue as a going +concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. +Basis for Opinion +These financial statements are the responsibility of the entity’s +management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting +firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent +with respect to Apimeds Pharmaceuticals US, Inc. in accordance with the U.S. federal securities laws and the applicable rules and regulations +of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. +Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free +of material misstatement, whether due to error or fraud. Apimeds Pharmaceuticals US, Inc. is not required to have, nor were we engaged +to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding +of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity's internal +control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material +misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures +included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included +evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation +of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ Kreit & Chiu CPA LLP +We have served as Apimeds Pharmaceuticals US, Inc.’s auditor since +2023. +New York, New York +April 15, 2025 +F- 2 +Apimeds Pharmaceuticals US, Inc. +Balance Sheets +December 31, +December 31, +2024 +2023 +Assets +Current assets: +Cash +$ 3,455 +$ 410,481 +Prepaid expenses and other current assets +9,602 +11,595 +Total current assets +13,057 +422,076 +Total assets +$ 13,057 +$ 422,076 +Liabilities and shareholders’ equity (deficit) +Current liabilities: +Accounts payable and accrued expenses +$ 591,191 +$ 54,438 +Accrued interest - related party +106,643 +68,878 +Advance payable to related party +76,500 +- +Notes payable - related party +250,000 +- +Total current liabilities +1,024,334 +123,316 +Convertible note - related party +346,844 +266,891 +Total liabilities +1,371,178 +390,207 +Commitments and contingencies (note 6) +Shareholders’ equity (deficit): +Preferred stock, par value $ 0.01 , 10,000,000 shares authorized; none issued and outstanding as of December 31, 2024 and December 31, 2023 +- +- +Common stock, par value $ 0.01 , 100,000,000 shares authorized; 7,903,850 issued and outstanding as of December 31, 2024 and December 31, 2023 +79,039 +79,039 +Additional paid-in capital +2,954,764 +2,954,764 +Accumulated deficit +( 4,391,924 ) +( 3,001,934 ) +Total shareholders’ equity (deficit) +( 1,358,121 ) +31,869 +Total liabilities and shareholders’ equity (deficit) +$ 13,057 +$ 422,076 +The accompanying notes +are an integral part of these financial statements. +F- 3 +Apimeds +Pharmaceuticals US, Inc. +Statements +of Operations +For the year ended +December 31, +2024 +2023 +Operating expenses: +Research and development expenses +$ +- +$ 98,544 +General and administrative expenses +1,275,095 +648,892 +Loss from operations +( 1,275,095 ) +( 747,436 ) +Other (expenses) income +Interest income +2,824 +7,811 +Interest expense +( 117,719 ) +( 38,069 ) +Total other expense +( 114,895 ) +( 30,258 ) +Net loss +$ ( 1,389,990 ) +$ ( 777,694 ) +Weighted average shares outstanding +7,903,850 +4,598,265 +Basic and diluted loss per share +$ ( 0.18 ) +$ ( 0.17 ) +The accompanying notes +are an integral part of these financial statements. +F- 4 +Apimeds +Pharmaceuticals US, Inc. +Statement +of Changes in Shareholders’ Equity (Deficit) +Preferred Stock +Common Stock +Additional +Number of Shares +Amount +Number of Shares +Amount +Paid-in capital +Accumulated +Deficit +Total +Balance at December 31, 2022 +- +$ +- +3,846,154 +$ 38,462 +$ 1,472,172 +$ ( 2,224,240 ) +$ ( 713,606 ) +Stock-based compensation expense +- +- +- +- +69,993 +- +69,993 +Issuance of shares to shareholders +- +- +4,057,696 +40,577 +1,014,423 +- +1,055,000 +Embedded conversion feature of convertible notes +- +- +- +- +398,176 +- +398,176 +Net loss +- +- +- +- +- +( 777,694 ) +( 777,694 ) +Balance at December 31, 2023 +- +$ +- +7,903,850 +$ 79,039 +$ 2,954,764 +$ ( 3,001,934 ) +$ 31,869 +Net loss +- +- +- +- +- +( 1,389,990 ) +( 1,389,990 ) +Balance at December 31, 2024 +- +$ +- +7,903,850 +$ 79,039 +$ 2,954,764 +$ ( 4,391,924 ) +$ ( 1,358,121 ) +The accompanying notes +are an integral part of these financial statements. +F- 5 +Apimeds Pharmaceuticals US, Inc. +Statements of Cash flows +For the Years Ended +December 31, +2024 +2023 +Cash flows from operating activities: +Net loss +$ ( 1,389,990 ) +$ ( 777,694 ) +Adjustments to reconcile net loss to net cash used in operating activities: +Stock-based compensation expense +- +69,993 +Accrued interest expense - +related parties +37,766 +33,000 +Accretion expense +79,953 +5,069 +Changes in operating assets and liabilities +Prepaid expenses and other current assets +1,993 +( 11,594 ) +Accounts payable and accrued expenses +536,752 +53,436 +Net cash used in operating activities +( 733,526 ) +( 627,790 ) +Cash flows from investing activities: +Net cash provided by investing activities +- +- +Cash flows from financing activities: +Proceeds from notes payable - related parties +250,000 +- +Cash advances from related parties +76,500 +9,000 +Cash advances paid to related parties +- +( 31,900 ) +Issuance of shares for cash received +- +1,055,000 +Net cash provided by financing activities +326,500 +1,032,100 +Net (decrease) increase in cash +( 407,026 ) +404,310 +Cash, beginning of year +410,481 +6,171 +Cash, end of year +$ 3,455 +$ 410,481 +The accompanying notes are an integral part +of these financial statements. +F- 6 +Apimeds Pharmaceuticals US, Inc. +Notes to Financial Statements +1. DESCRIPTION OF BUSINESS +Business Description +Apimeds Pharmaceuticals +US, Inc. (the “Company” or “Apimeds”) was formed as a corporation in May 2020 and was incorporated in the State +of Delaware. On August 21, 2021, Apimeds Inc., the shareholder of the Company (“Apimeds Korea”), and Apimeds Pharmaceuticals +US Inc. entered into the business agreement, under which the Company was designated to operate a pharmaceutical business which provides +the biological drug named Apitox™ to clients in the biological drug commercial transaction area. +Apimeds +is a clinical stage company that is in the process of developing Apitox™, a proprietary intradermally administered bee venom-based +toxin which completed a positive Phase 3 trial for the treatment of pain associated with Osteoarthritis in 2018 and is now proceeding +with FDA discussions on next steps in approval. In the future, the Company plans to investigate potential uses for Apitox™ for in +treating multiple sclerosis (“MS”), and intends to conduct non-registered corporate sponsorship studies to identify appropriate +MS patient populations. Apitox™ is currently marketed +and sold by Apimeds Korea in South Korea (Republic of Korea) as “Apitoxin” for the treatment of osteoarthritis. Apimeds Inc. +holds the majority of the Company’s outstanding common stock and is a subsidiary of Inscobee Inc. (“Inscobee”). +The success of the Company is dependent on obtaining +the necessary regulatory approvals of its product candidates, marketing its products and achieving profitable operations. The continuation +of the research and development activities and the commercialization of its products, if approved, are dependent on the Company’s +ability to successfully complete these activities and to obtain additional financing through a combination of financing activities and +operations. It is not possible to predict either the outcome of future research and development or commercialization programs, or the +Company’s ability to fund these programs. +Going Concern +The Company has evaluated whether there are any +conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within +one year beyond the issuance date of these financial statements. As of December 31, 2024, the Company had accumulated losses amount to +$ 4,391,924 . The Company incurred net losses of $ 1,389,990 for the year ended December 31, 2024, and expects to continue to incur substantial +losses in the future. Based on such conditions and the Company’s current plans, which are subject to change, management believes +that the Company’s existing cash as of December 31, 2024, is not sufficient to satisfy its operating cash needs for 12 months from +the issuance date of the report +The accompanying financial statements have been +prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlement +of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability +and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability +to continue as a going concern. +If the Company is unable to obtain sufficient +financial resources, its business, financial condition and results of operations will be materially and adversely affected. This could +affect future development and business activities and potential future clinical studies and/or other future ventures. There can be no +assurance that the Company will be able to obtain the needed financing on acceptable terms or at all. +F- 7 +2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Basis of Presentation +The Company has prepared its financial statements +in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as found in the +Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASUs”) promulgated by the Financial +Accounting Standards Board (“FASB”). +Use of Estimates +The preparation of financial statements in conformity +with U.S. GAAP requires management to make certain estimates, judgements and assumptions that affect the reported amounts of assets and +liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses +during the reporting period. Significant estimates and assumptions made in the accompanying financial statements include, but are not +limited to, stock-based compensation and estimates that are related to convertible instruments. Actual results could differ from those +estimates, and such differences could be material to the financial statements. +Fair Value Measurement +The fair value of the Company’s financial +assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale +of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the +measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of +observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions +about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities +based on the observable inputs and unobservable inputs used in order to value the assets and liabilities: +Level 1 — Quoted +prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions +for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. +Level 2 — +Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar +assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. +Level 3 — Unobservable +inputs based on the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability. +In some circumstances, the inputs used to measure +fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is +categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement. +Common Stock Reverse Stock Split +On February 7,2025 , the Board +approved and implemented a reverse stock split ratio of 1-for-2.6, which provided that every 2.6 shares of its issued +and outstanding Common Stock was automatically be combined into one issued and outstanding share of Common Stock, +without any change in the par value per share. All share and per share amounts in the accompanying financial statements and footnotes +have been retrospectively adjusted for the reverse split. +Concentrations of Credit Risk +Financial instruments that potentially subject +the Company to concentration of credit risk consist of cash accounts in financial institutions which, at times, may exceed the federal +depository insurance corporation limit of $ 250,000 . As of December 31, 2024, the Company has not experienced losses on these accounts +and management believes the Company is not exposed to significant risks on such accounts. +F- 8 +Segment Information +Operating segments are identified as components +of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker +(“CODM”), or decision-making group, in making decisions on how to allocate resources and assess performance. The Company has +one operating segment. +Cash +The Company considers all highly liquid investments +with an original maturity of three months or less at the date of purchase to be cash equivalents. As of December 31, 2024 and 2023, the +Company had no cash equivalents. +Accrued Expenses +Accrued expenses consist of accrued interest for +the convertible and promissory notes held with related parties, monies owed to vendors, as well as others, such as the taxing authority +and employees. +As December 31, 2024, and 2023, the accounts payable +and accrued expenses balance consists of the following: +As of December 31, +2024 +2023 +Professional fees payable +$ 410,641 +$ 54,438 +Accrued compensation +180,550 +- +$ 591,191 +$ 54,438 +Convertible +Instruments +The Company evaluates and accounts for conversion +options embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities”. +Applicable U.S. GAAP requires companies to bifurcate +conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain +criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument +are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that +embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other U.S. GAAP with changes +in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument +would be considered a derivative instrument. +The Company accounts for convertible instruments +(when we have determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: The Company +records when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based +upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective +conversion price embedded in the note. Debt discounts under these arrangements are accreted over the term of the related debt to their +stated date of redemption. +If a security or instrument becomes convertible +only upon the occurrence of a future event outside the control of the Company, or, is convertible from inception, but contains conversion +terms that change upon the occurrence of a future event, then any contingent beneficial conversion feature is measured and recognized +when the triggering event occurs and contingency has been resolved. +F- 9 +Patent Costs +All patent-related costs incurred in connection +with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. +Amounts incurred are classified as general and administrative expenses in the accompanying statements of operations. +Leases +The Company accounts for a contract as a lease +when it has the right to direct the use of the asset for a period of time while obtaining substantially all of the asset’s economic +benefits. The Company determines the initial classification and measurement of its right-of-use assets (“ROU”) and lease liabilities +at the lease commencement date and thereafter if modified. ROU assets and liabilities are to be represented on the balance sheet at the +present value of future minimum lease payments to be made over the lease term. The Company has elected as an accounting policy not to +apply the recognition requirements in ASC 2016-02, Leases (“ASC 842”) to short-term leases. Short-term leases are leases +that have a term of 12 months or less and do not include an option to purchase the underlying asset that the Company is reasonably certain +to exercise. The Company recognizes the lease payments for short-term leases on a straight-line basis over the lease term. As of December +31, 2024 and 2023, the Company did not have leases that qualified as ROU assets. +Related Parties +The Company follows ASC 850, “ Related Party Disclosures” for +the identification of related parties and disclosure of related party transactions. +General and Administrative +General and administrative expenses consist primarily +of management personnel costs, professional service fees, and other general overhead and facility costs, including rent and insurance, +which relate to the Company’s general and administrative functions. +Research and Development +Research and development expenses consist primarily +of consulting, regulatory and manufacturing related costs, third-party license fees and external costs of vendors engaged to conduct preclinical +development activities. These costs are expensed as incurred and non-refundable prepayments for goods or services that will be used or +rendered for future research and development activities are deferred and capitalized in prepaid expenses and other current assets. +The Company enters into arrangements with contract +research organizations in connection with pre-clinical and clinical trials. Such arrangements often provide for payment prior to commencing +the project or based upon predetermined milestones throughout the period during which services are expected to be performed. As part of +the process of preparing the Company’s financial statements, management is required to estimate prepaid and accrued clinical trial +expenses. The date on which services commence, the level of services performed on or before a given date, and the cost of such services +are often determined based on subjective judgments informed by the facts and circumstances known to management from the terms of the contract +and the Company’s ongoing monitoring of service performance. The Company makes these judgments based upon the facts and circumstances +known to management based on the terms of the contract and the Company’s ongoing monitoring of service performance. +In line with the guidance suggested under ASC +450, Contingencies and ASC 730, Research and Development, all research and development costs will be expensed as incurred. +Development and regulatory milestone payments are accounted for by estimating the probability of milestone achievement. +Stock Based Compensation +The Company accounts for share-based compensation +in accordance with the fair value recognition provision of FASB ASC 718, Compensation – Stock Compensation (“ASC 718”), +which prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. +Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee +stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are +recognized as compensation expense in the financial statements based on the estimated grant date fair values. That expense is recognized +over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period +(usually the vesting period). The Company accounts for forfeitures as they occur. The Company classifies share-based compensation expense +in its statements of operations in the same manner in which the award recipient’s cash compensation costs are classified. +F- 10 +Given the absence of an active market for the +Company’s equity, the Company and the board of directors were required to estimate the fair value of the Company’s common +stock and equity awards at the time of each grant. The Company and the board of directors determined the estimated fair value of the Company’s +equity instruments based on a number of factors, including external market conditions affecting the pharmaceutical industry sector. The +Company and the board of directors utilized various valuation methodologies in accordance with the framework of the American Institute +of Certified Public Accountants’ Technical Practice Aid, Valuation of Privately Held Company Equity Securities Issued as Compensation, +to estimate the fair value of its equity instrument. Each valuation methodology includes estimates and assumptions that require the Company’s +judgment. +Income Taxes +The Company accounts for income taxes using the +asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences +attributable to differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for +income tax reporting purposes and for operating loss and tax credit carryforwards. Changes in deferred tax assets and liabilities are +recorded in the provision for income taxes. +The Company’s deferred tax assets and liabilities +are measured using enacted tax rates expected to apply in the years in which these temporary differences are expected to be recovered +or settled. A valuation allowance is recorded to reduce deferred tax assets if it is determined that it is more likely than not that all +or a portion of the deferred tax asset will not be realized. The Company considers many factors when assessing the likelihood of future +realization of deferred tax assets, including recent earnings results, expectations of future taxable income, carryforward periods available +and other relevant factors. The Company records changes in the required valuation allowance in the period that the determination is made. +The Company assesses its income tax position and +records tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances and information +available as of the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, the +Company records the largest amount of tax benefit with a greater than 50 % likelihood of being realized upon ultimate settlement with a +taxing authority having full knowledge of all relevant information. For those income tax positions where it is not more likely than not +that a tax benefit will be sustained, the Company does not recognize a tax benefit in the financial statements. The Company records interest +and penalties related to uncertain tax positions, if applicable, as a component of income tax expense. +Basic and Diluted Loss per share +Basic loss per share data for each period presented +is computed using the weighted average number of shares of common stock outstanding during each such period. Diluted net loss per share +is computed by giving effect to all potential shares of common stock to the extent they are dilutive. +F- 11 +The following table sets forth the number of potential +shares of common stock that have been excluded from basic net loss per share because their effect was anti-dilutive: +As of December 31, +2024 +2023 +Employee stock options +211,538 +211,538 +Convertible notes and interest +294,863 +280,337 +506,401 +491,875 +Emerging Growth Company +The Company intends to elect as an Emerging Growth Company, as defined +in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under +the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the +JOBS Act, until such time as those standards apply to private companies. The Company has elected to use this extended transition period +for complying with new or revised accounting standards that have different effective dates for public and private companies until the +earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended +transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with +the new or revised accounting pronouncements as of public company effective dates. +Prior period reclassifications +We have reclassified certain amounts in prior +periods to conform with current presentation. Accrued interest – related party in the amount of $ 68,878 , was reported within accounts +payable and accrued expenses at December 31, 2023, amd have been reclassified on the balance sheet and statement of cash flows. +Recently Issued Accounting Pronouncements +The Company considers the applicability and impact +of all Accounting Standard Updates. ASUs not discussed in these financial statements were assessed and determined to be either not applicable +or are expected to have minimal impact on the financial statements. +In November 2023, the Financial Accounting Standards +Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07 - Segment Reporting (ASC 280): Improvements +to Reportable Segment Disclosures, which enables investors to better understand an entity’s overall performance and assess potential +future cash flows through improved reportable segment disclosure requirements. The amendments enhance disclosures about significant segment +expenses, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure +requirements for entities with a single reportable segment, and contain other disclosure requirements. ASU 2023-07 is effective for annual +periods beginning after December 15, 2023. The Company adopted ASU No. 2023-07 on December 31, 2024. The adoption of the standard did +not result in any significant disclosure changes in the Notes to the Financial Statements. +In December 2023, the FASB issued ASU No. 2023-09, +Income Taxes – Improvements to Income Tax Disclosures (Topic 740) . The amendments require that public business entities on +an annual basis disclose specific categories in the rate reconciliation and provide additional information for reconciling items that +meet a quantitative threshold. The amendments also require that all entities disclose on an annual basis the income taxes paid disaggregated +by jurisdiction. The amendments eliminate the requirement for all entities to disclose the nature and estimate of the range of the reasonably +possible change in the unrecognized tax benefits balance in the next 12 months or make a statement that an estimate of the range cannot +be made. The amendments are effective for fiscal years beginning after December 15, 2024. The amendments should be applied on a prospective +basis, although early adoption is permitted. The Company is currently evaluating the potential impact adopting ASU 2023-09 will have on +the Company’s financial statements and related disclosures. +In November 2024, the FASB issued Accounting +Standards Update No. 2024-03, Disaggregation of Income Statement Expenses . This guidance will require additional disclosures +and disaggregation of certain costs and expenses presented on the face of the income statement. The amendments are effective for annual +reporting periods beginning after December 15, 2026 and interim reporting period beginning after December 15, 2027 with early adoption +permitted. The Company is currently evaluating the impact of this new guidance to our financial statements. +F- 12 +3. LICENSE AGREEMENTS +On August 2, 2021, the Company entered into a +business agreement with Apimeds Korea. Under the agreement, the Company received the right to continue any clinical trial and acquire +the permits and approval necessary from the U.S. Food and Drug Administration. The Company will pay Apimeds Korea a royalty of 5 % of the +earnings before interest and taxes, delivered from the sale or license of Apitox less any credits and charges, however, the royalty terms +shall not apply when shares of the Company are transferred or sold through merger, acquisition, or share transfer agreement to a third +party. +On October 12, 2021, the Company entered into +an exclusive patent license agreement with Apimeds Korea, a shareholder of the Company. Under the agreement, the Company was granted the +exclusive right and license under the licensed patents to make and sell the licensed products in the United States of America. +The agreement shall commence on the effective +date and shall remain in force for each licensed product on a licensed-product-by-licensed-product basis for rights and obligations concerning +the licensed patent, until the expiration of the last to expire valid claim of a licensed patent. The total consideration exchanged for +the exclusive license agreement was $ 1 . +4. DEBT +2022 Convertible notes (amended from notes +payable) – related parties +On March 21, 2022, the Company entered into a +promissory note agreement in the amount of $ 160,000 with Inscobee, one of its shareholders. On June 3, 2022, the Company received an +additional $ 100,000 from Inscobee, as part of another promissory note agreement (together as “2022 Convertible Notes ”). +The 2022 Convertible Notes bear interest at 5 % per annum and mature on the earlier of (a) the closing of an equity financing with +proceeds to the Company of at least $ 3 million, or (b) July 15, 2022. +On December 5, 2023, the Company amended their +promissory notes to be convertible and extended the maturity date of the convertible notes with the related parties to be the earlier +of (i) December 31, 2026 or (ii) consummation of a qualified offering. The notes are convertible at a price of $ 1 per share. The purchase +of convertible notes and cancellation of the old promissory notes was accounted for as a debt extinguishment that did not result in a +gain/loss on extinguishment due to related party treatment. The conversion option was valued utilizing the Black-Scholes model, with the +following inputs: volatility of 92.22 %, current stock price of $ 1.96 , expected dividend yield of 0 % and a risk-free rate of return of +4.33 %. The resulting value of the convertible option of $ 158,099 based on the allocation of relative fair value to cash proceeds, was +applied towards additional paid-in capital and added as a discount on the convertible note. The note will be accreted over the remaining +period through maturity at the calculated effective interest rate of approximately 41.4 %. +As of December 31, 2024 and 2023, there was accrued +interest in connection to the 2022 Convertible Notes of $ 34,745 and $ 22,137 , respectively. Interest expenses were $ 12,608 and $ 13,000 +for the years ended December 31, 2024 and 2023, respectively, and are included within accrued interest - related party on the accompanying +balance sheet. There was accretion on the note’s debt discount of $ 31,569 and $ 1,997 for the years ended December 31, +2024 and 2023. +F- 13 +As of December +31, 2024 and 2023, the outstanding balance on the 2022 Convertible notes agreement, net of the unamortized debt discounts of $ 124,534 +and $ 156,102 , was $ 135,466 and $ 103,898 , respectively. +2021 Convertible note – related party +On August 30, 2021, the Company received $ 400,000 +in a convertible note agreement (“2021 Convertible Note”) with Apimeds Korea, one of its shareholders. The 2021 Convertible +Note bears interest at 5 % per annum and matures on the earlier of (a) the sale of the Company or (b) August 30, 2026. The 2021 Convertible +Note is convertible at any time up through the maturity date. The number of shares of common stock shall be determined by dividing (x) +the outstanding principal balance hereof plus accrued but unpaid interest by the first closing price on the first day of trading following +a Qualified Direct Listing. +On December 5, 2023, the Company amended their +convertible note to be convertible at $ 1 per share and extended the maturity date to be the earlier of (i) December 31, 2026 or (ii) consummation +of a qualified offering. The repurchase and cancellation of the old note was accounted for as a debt extinguishment that did not result +in any gain/loss on extinguishment due to related party treatment. The conversion option was valued utilizing the Black-Scholes model, +with the following inputs: volatility of 92.22 %, the fair value of the stock of $ 1.96 , expected dividend yield of 0 %, and a risk-free +rate of return of 4.33 %. The resulting value of the convertible option of $ 240,079 , based on the allocation of relative fair value to +cash proceeds, was applied towards additional paid-in capital and added as a discount on the convertible note. The note will be accreted +over the remaining period through maturity at the calculated effective interest rate of approximately 40.6 %. +As +December 31, 2024 and 2023, there was accrued interest in connection with the 2021 Convertible Note of $ 66,137 and $ 46,740 , respectively, +and is included within accrued interest - related party on the accompanying unaudited condensed balance sheets. Interest expense was $ 19,397 +and 20,000 as of December 31, 2024 and 2023, respectively. Accretion on the 2021 Convertible Note +discount was $ 48,385 for year ended December 31, 2024 respectively, which is included within interest expense on the unaudited condensed +statement of operations. There was accretion on the 2021 Convertible +Note debt discount of $ 48,385 and $ 3,072 for the years ended December 31, 2024 and 2023. +As of December 31, +2024 and 2023, the outstanding balance on the 2021 Convertible Note, net of the unamortized debt discounts of $ 188,622 and $ 237,007 , +was $ 211,378 and $ 162,993 , respectively. +2024 +Promissory Notes – Related Parties +On May +20, 2024, the Company received $ 100,000 in a promissory note agreement with Inscobee Inc., one of its shareholders. On Aug 19, 2024, +the Company received an additional $ 150,000 from Inscobee, as part of another promissory note agreement (together as “2024 Promissory +Notes ”). The 2024 Promissory Notes bear interest at 5 % per annum and mature on the earlier of (a) the closing of an equity +financing by the Company with gross proceeds of at least $ 3,000,000 ; or (b) May 19, 2025. +As of December +31, 2024, there was accrued interest in connection with the 2024 Promissory Notes of $ 5,760 . Interest expense was $ 5,760 for the year +ended December 31, 2024, and is included within accrued interest - related party on the accompanying +unaudited condensed balance sheet. +2024 +Short Term Borrowing +On July 19, 2024, the Company entered into a non-interest-bearing +loan agreement with a private lender for $ 20,000 . The note matured on August 31, 2024 , or may be extended upon mutual agreement. This +loan was paid off in full on August 27, 2024. +F- 14 +5. ADVANCE PAYABLE – RELATED PARTY +As of December 31, 2024, the Company received +$ 76,500 from an officer of the Company that is outstanding as of the year ended December 31, 2024. +In March 2023, the Company received $ 9,000 from +the officer and remitted $ 31,900 back to the officer, leaving a net balance of $ 22,900 as of December 31, 2023. +These advance payables carry no interest and do +not have a maturity date. The cash proceeds from these advance payables were used for operating purposes. +6. COMMITMENTS AND CONTINGENCIES +Legal +Periodically, the Company reviews the status of +any significant matters that exist and assesses its potential financial exposure. If the potential loss from any claim or legal claim +is considered probable and the amount can be estimated, the Company accrues a liability for the estimated loss. Legal proceedings are +subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on the best information +available at the time. As additional information becomes available, the Company reassesses the potential liability related to pending +claims and litigation. As of December 31, 2024 and 2023, there are no pending claims or litigation that are expected to materially affect +the Company’s results going forward. +Executive employee agreement +On September 21, 2023, the Company signed an executive +employee agreement with the CEO of the Company. Under the executive employee agreement terms, if the Company closes on a public offering, +the CEO will be eligible to receive an incentive stock option to purchase a number of shares of the Company’s common stock equal +to 3 % of the post-Public Offering capitalization of the Company. 40 % of the options shall vest immediately upon grant and the remainder +will vest in three equal installments on the annual anniversary of the date of grant. +7. SHAREHOLDERS’ DEFICIT +Common Stock +As of December 31, 2024 and 2023, the Company +had 100,000,000 authorized shares of common stock, respectively, at a par value of $ 0.01 . The Company had 7,903,850 common shares issued +and outstanding, as of December 31, 2024 and 2023, respectively. Each Common share is entitled to one vote. +On February 7, 2025, the Board +approved and implemented a reverse stock split ratio of 1-for-2.6, which provided that every 2.6 shares of its +issued and outstanding Common Stock were automatically combined into one issued and outstanding share of +Common Stock, without any change in the par value per share. All share and per share amounts in the accompanying financial +statements and footnotes have been retrospectively adjusted for the reverse split +Preferred Stock +On December 5, 2023, the Company authorized 10,000,000 +shares of preferred stock with a par value of $ 0.01 . The rights and preferences of preferred shareholders have not been determined as +of the date of filing. The Company had no preferred shares issued or outstanding as of the year ended December 31, 2024 and 2023, respectively. +Activity during the period ended December 31, +2023 +On September 7, 2023, the Company issued 1,923,076 +shares of common stock of the Company to related parties for cash consideration in aggregate of $ 500,000 . +On December 5, 2023, the Company established a preferred +stock class by authorizing 10,000,000 shares with a par value of $ 0.01 . +On December 6, 2023, the Company issued 2,134,616 +shares of common stock of the Company to related parties for cash consideration in aggregate of $ 555,000 . +F- 15 +8. STOCK-BASED COMPENSATION +Stock Options +On September 18, 2024, the Company adopted an equity incentive plan +for its employees, the Apimeds Pharmaceuticals US, Inc. 2024 Equity Incentive Plan (the “2024 Equity Incentive Plan”). 1,000,000 +shares of common stock have initially been reserved for the issuance of awards under the 2024 Equity Incentive Plan with no stock options +granted or outstanding as of the issuance date of the financial statements. +On May 12, 2020, the Company granted one of its +executive officers a total of 213,692 nonqualified stock option awards issued outside of the 2024 Equity Incentive Plan. The +stock options vested in three equal tranches of 71,231 on the grant anniversary date through May 12, 2023. The shares have an exercise +price of $ 7.33 per share and expire in 10 years on May 12, 2030. +The following is a summary of stock options issued +and outstanding as of December 31, 2024 and 2023: +Number of +Options Weighted +Average +Exercise +Price Weighted +Average +Remaining +Life (in years) Aggregate +Intrinsic +Value +Outstanding as of December 31, 2023 213,692 $ 7.33 6.37 +— +Granted +— +— +— — +Exercised +— +— +— — +Forfeited +— +— +— — +Outstanding as of December 31, 2024 213,692 $ 7.33 5.36 — +Exercisable as of December 31, 2024 213,692 $ 7.33 5.36 +— +During the years ended December 31, 2024 and 2023, +there was $ 0 and $ 69,993 , respectively, of stock-based compensation recognized. +The options were valued utilizing the Black-Scholes +options pricing model with the following inputs: 0.20 % risk-free rate, 66.8 % volatility, 0 % dividend rate, vesting term of 3 years, and +the expected term of 6.5 years. The total fair value of shares vested during each of the years ended December 31, 2023 was $ 69,993 . +As of December 31, 2024, there were no remaining +unrecognized compensation costs related to unvested options. +9. INCOME TAXES +There were no income tax expenses reflected in +the results of operations for the years ended December 31, 2024 and 2023. +Year Ended December 31, +2024 +2023 +Net loss per book +$ ( 1,389,990 ) +$ ( 777,694 ) +Federal statutory income tax rate ( 21 %) +( 291,899 ) +( 163,315 ) +State income tax, net of federal benefit +( 62,455 ) +( 32,268 ) +State rate change +- +34,245 +Permanent item +16,888 +1,083 +Prior period adjustment +( 3,228 ) +3,549 +Change in valuation allowance +340,694 +156,706 +Income tax +$ +- +$ +- +F- 16 +The tax effects of temporary differences which +give rise to deferred tax assets (liabilities) are summarized as follows: +Year Ended December 31, +2024 +2023 +Net operating loss carry forwards +$ +741,321 +$ +537,878 +Stock-based compensation +151,750 +172,436 +Accrued compensation +182,509 +- +Capitalized research and development +66,117 +90,501 +Intangible assets +( 824 +) +( 638 +) +Total deferred tax assets +1,140,873 +800,177 +Valuation allowance +( 1,140,873 +) +( 800,177 +) +Net deferred tax assets +$ +- +$ +- +The Company had cumulative federal net operating losses of approximately +$ 2.85 million and state net operating losses of approximately $ 2.76 million, which do not expire but are subject to an 80 % utilization +against future taxable income. +In assessing the realization of deferred tax assets, +management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate +realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary +differences become deductible. Deferred tax assets consist primarily of the tax effect of NOL carry-forwards. The Company has provided +a full valuation allowance on the deferred tax assets because of the uncertainty regarding its realizability. +The Company’s policy is to record interest +and penalties associated with unrecognized tax benefits as additional income taxes in the statement of operations. As of December 31, +2024, the Company had no unrecognized tax benefits. There were no changes in the Company’s unrecognized tax benefits during the +years ended December 31, 2024 and 2023. The Company did not recognize any interest or penalties during the 2024 fiscal year related to +unrecognized tax benefits. +10. SUBSEQUENT EVENTS +The Company evaluated subsequent events through +the issuance date of the financial statements and determined that there have been no subsequent events except those mentioned throughout +the footnotes that would require recognition in the financial statements or disclosure in the notes to the financial statements. +Subsequent to the year ended December 31, 2024, +the Company received an additional $ 17,000 from an officer of the Company as advance payable to the related patty. +March +2025 Promissory Note +On March +31, 2025, the Company received $ 250,000 in a promissory note agreement with Apimeds, Inc., one of its shareholders. The Promissory Notes +bear interest at 5 % per annum and mature on the earlier of (a) December 31, 2026 or (b) consummation of a Qualified Offering (the “Maturity +Date”). “Qualified Offering” shall mean an offering of Common Stock (and other securities potentially) resulting in +the listing for trading of the Common Stock on the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global +Select Market or the New York Stock Exchange (or any successors to any of the foregoing). +The Company may prepay the March 2025 Note at any time without penalty. +If any payment due on the March 2025 Note is not paid within five days after the amount becomes due, the payment shall be considered in +default and the interest rate will increase by an additional 5 % on the defaulted payment amount and may also, in its sole discretion, +without notice or demand, declare the entire unpaid principal balance plus accrued interest due and payable immediately. +F- 17 +SIGNATURES +Pursuant to the requirements of Section 13 or +15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the +undersigned, thereunto duly authorized. +APIMEDS PharmaCEUTICALS US, Inc. +Date: April 15, 2025 +/s/ Erik C. Emerson +Name: +Erik C. Emerson +Title: +Chief Executive Officer +(Principal Executive Officer) t +Pursuant to the requirements of the Securities +Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities +and on the dates indicated. +SIGNATURE +TITLE +DATE +/s/ Erik Emerson +Chief Executive Officer and Director +April 15, 2025 +Erik Emerson +(Principal Executive Officer) +/s/ Mark Corrao +Chief Financial Officer +April 15, 2025 +Mark Corrao +(Principal Financial Officer and Principal Accounting Officer) +/s/ Dr. Christopher Kim +Chairman of the Board and Chief Medical Officer +April 15, 2025 +Dr. Christopher Kim +/s/ Jakap Koo +Director +April 15, 2025 +Jakap Koo +/s/ Bennett Weintraub, PhD +Director +April 15, 2025 +Bennett Weintraub, PhD +/s/ Hankil Yoon +Director +April 15, 2025 +Hankil Yoon +/s/ Carol O’Donnell +Director +April 15, 2025 +Carol O’Donnell +/s/ Elona Kogan +Director +April 15, 2025 +Elona Kogan +53 +NONE +0001894525 +false +FY +0001894525 +2024-01-01 +2024-12-31 +0001894525 +2024-06-28 +0001894525 +2025-04-15 +0001894525 +2024-12-31 +0001894525 +2023-12-31 +0001894525 +us-gaap:RelatedPartyMember +2024-12-31 +0001894525 +us-gaap:RelatedPartyMember +2023-12-31 +0001894525 +2023-01-01 +2023-12-31 +0001894525 +us-gaap:PreferredStockMember +2022-12-31 +0001894525 +us-gaap:CommonStockMember +2022-12-31 +0001894525 +us-gaap:AdditionalPaidInCapitalMember +2022-12-31 +0001894525 +us-gaap:RetainedEarningsMember +2022-12-31 +0001894525 +2022-12-31 +0001894525 +us-gaap:PreferredStockMember +2023-01-01 +2023-12-31 +0001894525 +us-gaap:CommonStockMember +2023-01-01 +2023-12-31 +0001894525 +us-gaap:AdditionalPaidInCapitalMember +2023-01-01 +2023-12-31 +0001894525 +us-gaap:RetainedEarningsMember +2023-01-01 +2023-12-31 +0001894525 +us-gaap:PreferredStockMember +2023-12-31 +0001894525 +us-gaap:CommonStockMember +2023-12-31 +0001894525 +us-gaap:AdditionalPaidInCapitalMember +2023-12-31 +0001894525 +us-gaap:RetainedEarningsMember +2023-12-31 +0001894525 +us-gaap:PreferredStockMember +2024-01-01 +2024-12-31 +0001894525 +us-gaap:CommonStockMember +2024-01-01 +2024-12-31 +0001894525 +us-gaap:AdditionalPaidInCapitalMember +2024-01-01 +2024-12-31 +0001894525 +us-gaap:RetainedEarningsMember +2024-01-01 +2024-12-31 +0001894525 +us-gaap:PreferredStockMember +2024-12-31 +0001894525 +us-gaap:CommonStockMember +2024-12-31 +0001894525 +us-gaap:AdditionalPaidInCapitalMember +2024-12-31 +0001894525 +us-gaap:RetainedEarningsMember +2024-12-31 +0001894525 +us-gaap:CommonStockMember +us-gaap:SubsequentEventMember +2025-02-07 +0001894525 +us-gaap:SubsequentEventMember +2025-02-07 +0001894525 +apus:EmployeeStockOptionsMember +2024-01-01 +2024-12-31 +0001894525 +apus:EmployeeStockOptionsMember +2023-01-01 +2023-12-31 +0001894525 +apus:ConvertibleNotesAndInterestMember +2024-01-01 +2024-12-31 +0001894525 +apus:ConvertibleNotesAndInterestMember +2023-01-01 +2023-12-31 +0001894525 +apus:TwoThousandTwentyTwoConvertibleNotesMember +2022-03-21 +0001894525 +apus:TwoThousandTwentyTwoConvertibleNotesMember +2022-06-03 +2022-06-03 +0001894525 +apus:TwoThousandTwentyTwoConvertibleNotesMember +2023-12-05 +0001894525 +us-gaap:MeasurementInputPriceVolatilityMember +2023-12-05 +0001894525 +us-gaap:MeasurementInputSharePriceMember +2023-12-05 +0001894525 +us-gaap:MeasurementInputExpectedDividendRateMember +2023-12-05 +0001894525 +us-gaap:MeasurementInputRiskFreeInterestRateMember +2023-12-05 +0001894525 +apus:TwoThousandTwentyTwoConvertibleNotesMember +2023-12-05 +2023-12-05 +0001894525 +apus:TwoThousandTwentyTwoConvertibleNotesMember +2024-01-01 +2024-12-31 +0001894525 +apus:TwoThousandTwentyTwoConvertibleNotesMember +2023-01-01 +2023-12-31 +0001894525 +apus:TwoThousandTwentyTwoConvertibleNotesMember +2024-12-31 +0001894525 +apus:TwoThousandTwentyTwoConvertibleNotesMember +2023-12-31 +0001894525 +apus:TwoThousandTwentyTwoConvertibleNotesMember +us-gaap:RelatedPartyMember +2024-12-31 +0001894525 +apus:TwoThousandTwentyTwoConvertibleNotesMember +us-gaap:RelatedPartyMember +2023-12-31 +0001894525 +2021-08-30 +2021-08-30 +0001894525 +apus:TwoThousandTwentyOneConvertibleNoteMember +2024-08-30 +2024-08-30 +0001894525 +2023-12-05 +0001894525 +apus:TwoThousandTwentyOneConvertibleNoteMember +2023-12-05 +0001894525 +apus:TwoThousandTwentyOneConvertibleNoteMember +2023-12-05 +2023-12-05 +0001894525 +apus:TwoThousandTwentyOneConvertibleNoteMember +2024-01-01 +2024-12-31 +0001894525 +apus:TwoThousandTwentyOneConvertibleNoteMember +2023-01-01 +2023-12-31 +0001894525 +apus:TwoThousandTwentyOneConvertibleNoteMember +us-gaap:RelatedPartyMember +2024-12-31 +0001894525 +apus:TwoThousandTwentyOneConvertibleNoteMember +us-gaap:RelatedPartyMember +2023-12-31 +0001894525 +apus:TwoThousandTwentyOneConvertibleNoteMember +2024-12-31 +0001894525 +apus:TwoThousandTwentyOneConvertibleNoteMember +2023-12-31 +0001894525 +apus:TwoThousandTwentyFourPromissoryNotesMember +2024-05-20 +2024-05-20 +0001894525 +2024-08-19 +0001894525 +apus:TwoThousandTwentyFourPromissoryNotesMember +2024-12-31 +0001894525 +2024-08-19 +2024-08-19 +0001894525 +apus:TwoThousandTwentyFourPromissoryNotesMember +2024-01-01 +2024-12-31 +0001894525 +2024-07-19 +0001894525 +apus:TwoThousandTwentyFourShortTermBorrowingMember +2024-01-01 +2024-12-31 +0001894525 +2023-03-31 +2023-03-31 +0001894525 +2023-09-21 +0001894525 +2023-09-21 +2023-09-21 +0001894525 +us-gaap:RelatedPartyMember +2023-09-07 +0001894525 +2023-09-07 +2023-09-07 +0001894525 +us-gaap:PreferredStockMember +2023-12-05 +0001894525 +us-gaap:RelatedPartyMember +2023-12-06 +0001894525 +2023-12-06 +2023-12-06 +0001894525 +apus:TwoThousandTwentyFourEquityIncentivePlanMember +2024-09-18 +0001894525 +apus:TwoThousandTwentyFourEquityIncentivePlanMember +2020-05-12 +2020-05-12 +0001894525 +2023-12-31 +2023-12-31 +0001894525 +us-gaap:RelatedPartyMember +us-gaap:SubsequentEventMember +2025-03-31 +2025-03-31 +0001894525 +us-gaap:SubsequentEventMember +2025-03-31 +0001894525 +us-gaap:SubsequentEventMember +2025-03-31 +2025-03-31 +iso4217:USD +xbrli:shares +iso4217:USD +xbrli:shares +apus:Segments +xbrli:pure \ No newline at end of file diff --git a/raw/filings/0001894525/2024/0001213900-25-032206/filing_metadata.csv b/raw/filings/0001894525/2024/0001213900-25-032206/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..6381fe814a9cdd522ab7bcf8b1ff3bcef29b5c10 --- /dev/null +++ b/raw/filings/0001894525/2024/0001213900-25-032206/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001894525,APUS,"Apimeds Pharmaceuticals US, Inc.",2024,10-K,2025-04-15,2024-12-31,2025-04-15T21:24:45.000Z,0001213900-25-032206,ea0237283-10k_apimeds.htm,ANNUAL REPORT,4278794,1,1,https://www.sec.gov/Archives/edgar/data/1894525/000121390025032206/ea0237283-10k_apimeds.htm,https://www.sec.gov/Archives/edgar/data/1894525/000121390025032206/ diff --git a/raw/filings/0001894525/2024/0001213900-25-032206/item1.txt b/raw/filings/0001894525/2024/0001213900-25-032206/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..dc7bbd8d4a9a239b436362c83c9e9dc89837e41c --- /dev/null +++ b/raw/filings/0001894525/2024/0001213900-25-032206/item1.txt @@ -0,0 +1,1121 @@ +Item 1. Business +We are a clinical stage biopharmaceutical company +in the process of developing Apitox, an intradermally administered bee venom-based toxin. Our focus is primarily on developing innovative +therapies that address inflammation and pain management symptoms associated with knee OA and, to a lesser extent, MS. Apitox is currently +marketed and sold by Apimeds Inc. (“Apimeds Korea”) in South Korea as “Apitoxin” for the treatment of OA. Apimeds +US is not associated with the market, sale and revenues generated from Apitoxin in South Korea, and Apitoxin has not yet been approved +by the FDA for any indication. +Apitox is a purified, pharmaceutical grade venom +(bee venom), of the Apis mellifera, or western honeybee, which is classified by the FDA as an active pharmaceutical ingredient +(“API”). Bee venom has been used in Asia and Europe to treat pain for hundreds of years. While not FDA approved in a +controlled, prescription based biologic environment for defined indications, the use of bee venom has been FDA approved as a “under +the skin injection” to reduce the allergic reactions to bee stings. Apimeds Korea has developed a proprietary method and process +for turning extracted bee venom into a lyophilized powder for reconstitution prior to intradermal dose injections, which they sell in +South Korea as Apitoxin. We intend to use a similar process with respect to Apitox, pursuant to the Business Agreement, which gives us +a license to utilize all prior clinical development data associated with Apitoxin. The advancement of extracted bee venom for treatment +of inflammatory conditions, including but not limited to knee OA and MS is speculative but based on direction provided by prior clinical +data. +Apimeds Korea successfully completed Phase I, +Phase II, and Phase III trials in OA in 2003, at which point Apitoxin was approved by the Korean Ministry of Food and Drug Safety (“MFDA”) +to treat pain and mobility in patients with OA. Since 2003, a post-marketing/approval safety study in South Korea followed 3,194 patients +from 2003 through 2009, with no serious adverse events. The purpose of a Phase I trial is to test to determine whether a new +treatment is safe and look for the best way to give the treatment. Phase II trials test to determine whether a condition or disease +responds to the new treatment. Phase III trials test to determine whether a new treatment is better than a standard treatment. +In 2013, the first of two required U.S. Phase +III clinical trials was authorized to enroll patients to study the use of Apitoxin to study the same indication as approved in South Korea +in 2023 — treatment of pain and lack of mobility in patients with OA (the “Apimeds Korea Phase III OA Trial”). +The Apimeds Korea Phase III OA Trial (330 patients) was completed in 2018, and displayed no serious adverse events. +Based on the results from the Apimeds Korea Phase +III OA Trial, which demonstrated therapeutic (statistical and clinically significant improvements in all outcome measures of pain, physical +function, and disease assessment) effect compared to the placebo group, but in combination with prior development by Apimeds Korea, did +not meet the FDA’s standards for approval, as the study population was too small and the methods for handling missing data were +inadequate, resulting in a study that did not demonstrate a significant treatment effect. We will be pursuing a second Phase III trial +to meet agreed upon FDA standards. Based on results from the Apimeds Korea Phase III OA Trial, we have evaluated the most appropriate +population, defined as advanced knee OA patients, which will range from defined grade 2, 3 and 4 within this treatment group, to continue +to progress our own Phase III trial. Pursuant to our previous correspondence with the FDA, we have designed and will implement our Phase +III trial to best address our patient population, appropriate dosing, and the most effective way to evaluate Apitox in meeting the patient +population’s needs. +We believe the progress we are making in clinical +trials provides us support in our belief in the potential of Apitox to be an innovative therapy. We aim to treat the inflammation and +pain management symptoms associated with knee OA and to help manage the devastating symptoms of this disease. In the future, we also aim +to leverage our research in knee OA to investigate how Apitox may be used to treat similar symptoms associated with MS. +Treatment of OA +OA is typically treated with painkillers known +as non-steroidal anti-inflammatory drugs (NSAIDs). These medications have an anti-inflammatory and pain-relieving effect. These medications +include ibuprofen (Motrin, Advil) naproxen (Aleve) and diclofenac (Voltaren and others). All of these medications work by blocking enzymes +that cause pain and swelling. The problem is that some of those enzymes also help blood to clot and protect the lining of your stomach. +Without them, you can bruise easily, develop ulcers and may even bleed in your intestines. NSAIDs also increase your chance of heart attack, +stroke and heart failure. The risk increases the longer you use them and the more you take. We believe Apitox could be a successful alternative +to NSAIDs in the treatment of the inflammation and pain management symptoms associated with OA without the harmful side effects. +1 +According to MedicalNewsToday, OA is the most +common form of arthritis, affecting around 500 million people worldwide, or around 7% of the global population. Currently, in the +United States, over 32 million people suffer from OA. As the 15 th highest cause of years lived +with disability (YLDs) worldwide, the burden OA poses to individuals is substantial, characterized by pain, activity limitations, and +reduced quality of life. The economic impact of OA, which includes direct and indirect (time) costs, is also substantial, ranging +from 1 to 2.5% of gross national product (GNP) in countries with established market economies, like the United States. Though trends +in OA prevalence vary by geography, the prevalence of OA is projected to rise in regions with established market economies such as North +America and Europe, where populations are aging and the prevalence of obesity is rising. +While OA can occur in any joint, it occurs most +frequently in the knee, which, according to ScienceDirect, currently accounts for 365 million cases worldwide and 61% of YLDs lost +due to OA, followed by the hand. +Our current efforts are focused on the development +of Apitox in the United States for the treatment of inflammation and pain management relating to OA in the knee. +Treatment of MS +Additionally, we believe the previous clinical +trial success of Apimeds Korea with respect to the use of Apitoxin to treat symptoms associated with knee OA, and pending the success +of our anticipated Phase III trial in knee OA, we will be in a position to further explore the use of Apitox as a potential treatment +for the symptoms of MS. MS is a chronic disease of the central nervous system. It is an autoimmune condition that is characterized +by the body’s own immune cells (macrophages and lymphocytes) attacking the myelin that coats nerve cells, which can lead to +inflammation throughout the central nervous system. MS is an unpredictable disease that affects people differently. Some people with MS +may have only mild symptoms. Others may lose their ability to see clearly, write, speak, or walk when communication between the brain +and other parts of the body becomes disrupted. +MS is the most common progressive neurologic disease +of young adults worldwide. A study funded by the National MS Society estimates that nearly one million individuals are currently +affected by this disease in the United States. The total economic burden of MS in the United States is estimated to be $85.4 billion, +with $63.3 billion in direct medical costs and $22.1 billion in indirect and nonmedical costs. MS typically affects patients +at a young age, resulting in a greater loss of productivity and quality of life. +Beta interferon drugs are among the most common +medications used to treat MS. Interferons are signaling molecules that regulate immune cells. Potential side effects of these drugs +include flu-like symptoms (which usually fade with continued therapy), depression, or elevation of liver enzymes. +Pain from MS can be felt in different +parts of the body. Trigeminal neuralgia (facial pain) is treated with anticonvulsant or antispasmodic drugs, or less commonly, painkillers. +Central pain, a syndrome caused by damage to the brain and/or spinal cord, can be treated with gabapentin and nortriptyline. Treatments +for chronic back or other musculoskeletal pain may include heat, massage, ultrasound, and physical therapy. +OA and the Current Standard of Care +OA is a degenerative joint disease in which +the tissues in the joint break down over time. It is the most common type of arthritis and is more common in older people. People with +osteoarthritis usually have joint pain and, after rest or inactivity, stiffness for a short period of time. +There are four stages of OA: (1) Minor — minor +wear-and-tear in the joints and little to no pain in the affected area, (2) Mild — more noticeable bone spurs, the +affected area feels stiff after sedentary periods and patients may need a brace, (3) Moderate — cartilage in the +affected area begins to erode, the joint becomes inflamed and causes discomfort during normal activities, and (4) Severe — the +patient is in a lot of pain, the cartilage is almost completely gone leading to an inflammatory response from the joint, and overgrowth +of bony spurs may cause severe pain. +2 +With the progression of OA of the knee, there +is obvious joint inflammation which causes frequent pain when walking, running, squatting, extending or kneeling. Along with joint stiffness +after sitting for long or when waking up in the morning, there may be popping or snapping sounds when walking. +The data from the Apimeds Korea Phase III OA Trial +suggest that Apitox would have the most potential in treating OA in stages 3 and 4. +MS and the Current Standard of Care +MS is increasingly recognized as a neurodegenerative +disease triggered by an inflammatory attack of the central nervous system. There is no cure for multiple sclerosis. Treatment typically +focuses on speeding recovery from attacks, reducing new radiographic and clinical relapses, slowing the progression of the disease, +and managing MS symptoms. +MS is unpredictable and can vary substantially +from person to person. MS is divided into four types: clinically isolated syndrome (CIS), relapsing-remitting MS (RRMS), secondary +progressive MS (SPMS) and primary progressive MS (PPMS). +CIS refers to a first episode of neurologic symptoms +caused by inflammation and demyelination in the central nervous system. +RRMS, the most common disease course, shows clearly +defined attacks of new or increasing neurologic symptoms. These attacks are also called relapses or exacerbations. They are followed +by periods of partial or complete recovery, or remission. In remissions, all symptoms may disappear or some symptoms may continue and +become permanent. However, during those periods, the disease does not seem to progress. +SPMS follows the initial relapsing-remitting course. +Some people diagnosed with RRMS eventually go on to have a secondary progressive course, in which neurologic function worsens progressively +or disability accumulates over time. +With PPMS, neurologic function worsens or disability +accumulates as soon as symptoms appear, without early relapses or remissions. PPMS can be further characterized as either active (with +an occasional relapse and/or evidence of new MRI activity over a specified period of time) or not active, as well as with progression +(evidence of disability accrual over time, with or without relapse or new MRI activity) or without progression. +Patients with MS tend to be more educated about +their disease and better organized than patients with other diseases, resulting in patients that are aggressive in their approach to treatment. +This is due to MS impacting otherwise healthy people in the prime of their lives. +MS treatment has undergone significant evolution +in the last ten years with the development and approval of certain new drugs, including several oral agents such as Ocrevus, in the +United States. These new agents not only give patients additional treatment options, but also have improved the efficacy and safety +of treatment for MS overall. In general, these drugs are “disease modifying agents,” intended to slow down the immune mediated +damage to the myelin sheaths that underlie symptoms in MS. However, they often do not adequately address the symptoms that MS patients +experience such as walking problems, bladder control, dizziness, and especially pain. A 2022 study estimated that the average cost of +treatment for patients with MS is approximately $88,000 annually. The out-of-pocket expense for patients can be significantly reduced +through certain insurance plans. However, we believe there is the ability for Apitox to be positioned as an important and cost-effective +therapy. +We believe the data from the Apimeds Korea Phase III +OA Trial suggest that Apitox may have the potential as an adjunctive therapy for all four types of MS. We intend to Apitox as a potential +adjunctive therapy through non-registered corporate sponsorship studies to begin determining the appropriate MS patient populations. +Market Opportunity +We believe there is a significant market opportunity +in the United States for Apitox in the treatment of certain symptoms of knee OA and eventually MS. According to Precedence Research +the osteoarthritis therapeutics market size accounted for $8.28 billion in 2022 and it is expected to hit around $20.24 billion +by 2032, expanding at a CAGR of 9.4% from 2023 to 2032. Although OA can damage any joint, the disorder most commonly affects joints in +your hands, knees, hips and spine. OA symptoms can usually be managed, although the damage to joints can’t be reversed. Apitox +has certain anti-inflammatory properties, which we believe give it significant potential to help treat the symptoms of certain chronic +diseases that involve difficult to control pain and inflammation. +3 +According to Pharmaceutical Technology the MS +market size in the United States accounted for $10.73 billion in 2022 and is expected to hit $24.4 billion by 2030, expanding +at a CAGR of 10.32%. Starting in the first quarter of 2025, we intend to begin the early prosecution of appropriate MS patient populations +through non-registered corporate sponsorship studies. Subject to FDA approval, our development of Apitox in the United States will +in the near term, have two distinct focuses (i) the treatment of the certain symptoms of knee OA and (ii) the quality of life +issues surrounding knee OA, such as pain and lack of mobility. +Living with a chronic disease is challenging, +as it interferes with physical, mental, and social functions and thus greatly affects a person’s quality of life. Indeed, chronically +ill patients are facing major struggles such as higher expenditures, social isolation and loneliness, disabilities, fatigue, pain/discomfort, +feelings of distress, anger, hopelessness, frustration, anxiety, and depression. There is the general assumption that symptom reduction +increases a patient’s quality of life. Our approach with Apitox centers around this concept — effectively treating +certain symptoms of the patient’s disease, thus improving their overall quality of life. Bee venom has been shown to have anti-inflammatory +effects. At low doses, bee venom can suppress inflammatory cytokines such as interleukin-6 (IL-6), IL-8, interferon-γ (IFN-γ), +and tumor necrosis factor-α (TNF-α). A decrease in the signaling pathways responsible for the activation of inflammatory cytokines, +such as nuclear factor-kappa B (NF-κB), extracellular signal-regulated kinases (ERK1/2) and protein kinase Akt, and porphyromonas +gingivalis lipopolysaccharide (PgLPS)-treated human keratinocytes has been associated with treatments involving bee venom. We believe +the driver of pain in the highest category of OA is correlated to the key inflammatory elements treated by bee venom, meaning the evaluation +of our Phase III data may lead to a small indication for narcotic use reduction in the treatment of stage 4 OA. +Our Product Candidate +Apitox is purified honeybee (Apis mellifera) venom +manufactured as a lyophilized powder for reconstitution in 0.5% preservative-free lidocaine (lmg/mg) prior to intradermal dose injections +that are administered up to 1,500 micrograms per weekly visit. The biologically active components include melittin (40-50%), apamin (2-3%), +mast cell degranulating (“MCD”) peptide (Peptide 401,2-3%), phospholipase A2 (10-15%), hyaluronidase (1.5-2%) and other components +in small amounts, including dopamine and norepinephrine. According to a publication entitled “ Pharmacological effects and mechanisms +of bee venom and its main components: Recent progress and perspective ” by Shi et al., certain components of honeybee venom have +been found to have both anti-inflammatory and analgesic effects. The anti-inflammatory and analgesic effects are attributed to the presence +of Peptide 401, adolapin and other components that inhibit prostaglandin synthesis. The hormone-stimulating effects are attributed to +the presence of melittin, cardiopep and other components that stimulate the pituitary-adrenal axis to produce cortisol. Results from an +animal study entitled “ Effect of bee venom and melittin on plasma cortisol in the unanesthetized monkey ” published +by Vick et al., indicate that melittin appears to stimulate the production of cortisol from the adrenal gland. The immune-modulating effects, +especially as it pertains to MS, are suggested to be mediated by CD4+CD2S+Foxp3+ regulatory T cells (Tregs) that are influenced by phospholipase +A2. While the exact mechanism of action of Apitox is not fully understood, research such as the publication entitled “ Therapeutic +Use of Bee Venom and Potential Applications in Veterinary Medicine ” by Bava et al., suggests that certain components in Apitox +may ameliorate immune-inflammatory responses associated with MS. Such studies suggested that treatments with melittin prevent inflammatory +cytokine expression and produces anti-inflammatory effects. The proposed indication for Apitox is to provide add-on therapy for the signs +and symptoms of MS in patients whose condition is relapsing-remitting (RRMS), primary-progressive (PPMS) or secondary progressive (SPMS). +4 +Clinical Development History +Founded in 1989, Apimeds Korea pursued a traditional +drug development process in South Korea for Apis mellifera, the bee venom API for Apitoxin. Apimeds Korea completed a formal preclinical +study to validate dosing and safety for human administration with a focus on antigenicity and toxicology in 1993. +A Phase I trial was completed in 1994, studying +the toxicity and safety of Apitoxin in 20 healthy subjects. The purpose of the Phase I trial was to determine if therapeutic doses of +Apitoxin was safe and to identify possible side-effects, if any. Injections of Apitoxin were given two to three times a week, for a total +of 12 sessions spanning over four to six weeks. Laboratory and physical examination of the subjects included (i) serum cortisol levels +(to see if Apitoxin stimulated the release of cortisol), (ii) serum ionized calcium level (to determine if Apitoxin decreased the serum +calcium level), (iii) urinalysis, (iv) hematology and blood chemistry, and (v) vital signs. The Phase I trial demonstrated that there +were no significant changes pre- and post-testing of the serum cortisol levels, serum ionized calcium levels, hematology, blood chemistry, +urinalysis, and vital signs after the subjects were injected with Apitoxin according to the protocol. There were no significant physiological +changes in the clinical evaluations of the subjects and localized itching was the most frequent side effect and was managed with ice packs +or external anti-itching gels. No severe side effects or aftereffects were observed. The Phase I trial indicated that Apitox is safe for +humans when applied in therapeutic doses. +The Phase I trial was followed by a Phase II trial +in 101 subjects to determine the efficacy of Apitoxin at various dose levels. This was a randomized active-controlled clinical trial with +three groups receiving the study drug at various dose levels and one group receiving the control drug (nabumetone) for a six-week period. +Patients received twice weekly injections of Apitox intradermally at dosages titrated to a maximum of 0.7 mg (Group A), 1.5 mg (Group +B), and 2.0 mg (Group C) for a period of six weeks. Control group patients (Group D) received 1,000 mg of nabumetone orally each day for +the same six-week period. There were 25, 26, 25 and 25 patients assigned to Groups A, B, C and D, respectively. Efficacy of treatment +was evaluated by the physician investigators using a 4-point Likert-like symptom severity rating scale developed by the authors to assess +Pain, Disability and Physical Signs. A similar 5-point scale was used for patient self-evaluation. Safety of the Apitoxin injection was +evaluated by patient reaction, hematologic examination, and laboratory chemistry analysis of blood and urine. Efficacy data was reported +for the 81 patients who completed the study. While there were no significant differences in symptom severity scores among the four groups +at baseline, symptom scores were significantly better in the bee venom injection groups than in the control group at six weeks and 10 +weeks after the start of treatment (p<0.01). A treatment was considered effective if there was a 20% improvement from baseline in symptom +scores after 6 weeks of treatment. Based on this definition, therapy demonstrated overall efficacy in 70.0% of patients in Group A, 85.7% +in Group B, 90.0% in Group C, and 61.9% in Group D (drug control). Overall efficacy was significantly greater in treatment Groups +B and C combined than in the nabumetone-treated control group D (p<0.0177). Importantly, efficacy of treatment among all patients treated +with Apitoxin injection was greater than among nabumetone-treated patients for each category assessed: Pain: 85.2% versus 76.2%; Disability: +77.0% versus 71.4%; and Physical Signs: 62.3% vs. 23.8%. It is also noteworthy that, unlike the drug control group, the Apitoxin injection +groups continued to demonstrate improved symptom scores at four weeks after the last treatment (10 weeks). There were no significant changes +in vital signs or results of laboratory examinations of any patient in this clinical trial. Localized itching was experienced by all patients +who received Apitox injections. Itching at the injection site generally lasted for two to three weeks; several patients had this reaction +for a longer period. This Phase II study showed that Apitoxin was significantly more effective than the control drug, nabumetone, in the +treatment of knee and spinal osteoarthritis patients. It clearly showed that improvement in pain, disability and physical signs was greater +in the bee venom injection groups than in the nabumetone control group. No significant side effects developed at the therapeutic doses +studied. However, research should be continued to minimize itching and pain at bee venom injection sites, and possible allergic reaction +should always be considered with treatment at high doses. +5 +In 2002, a formal Phase III double-blind, placebo-controlled +trial was completed with 407 subjects (311 of which obeyed the trial protocol and completed the clinical study). The purpose of the Phase +III trial was conducted to verify the efficacy and safety of the medicine resulting from the prior Phase I and Phase II trials. The therapeutic +course treatment included a total of 12 injections over a period of 6 weeks. Final evaluations were completed in the 8 th week, +following two weeks of no injections. During the trial period, laboratory tests were carried out three times (before injection, in the +second week, in the sixth week), and the efficacy evaluation was performed four times (before injection, in the second week, in the sixth +week, and in the eighth week). Safety of the Apitoxin injection was evaluated by, hematologic examination, measurement of cortisol and +calcium levels, and laboratory chemistry analysis of blood and urine. The primary efficacy variable for the trial was the ratio of the +subjects who showed more than 20% improvement in the total points of test items for efficacy evaluation 6 weeks after injection, compared +with the total points before injection of the medicine (the “improvement rate”). Data obtained from subjects of the clinical +test were analyzed by two methods, ITT (Intention to Treat) analysis and PP (Per Protocol) Among 310 subjects who participated in the +efficacy evaluation, 153 and 157 patients belonged to the Apitoxin group and the nabumetone group, respectively. For the Apitoxin group, +the ratio of the subjects who showed more than 20% improvement in the total points was 48.70% (75/154 subjects, 95% confidence interval +(“CI”): 40.8~56.6%), while for the nabumetone group, it was 46.15% (72/156 subjects, 95% CI: 38.3~54.0%), indicating that +the improvement rate in the Apitoxin group was greater than in the nabumetone group; however, there was no statistical significance. (p=0.6533). +Among a total of 407 subjects (Apitoxin group: 204; Nabumetone group: 203), 38.24% (78/204) of the Apitoxin group showed more than 20% +improvement during the 6 th week of injection, while 38.42% of the Nabumetone group improved by more than 20%, indicating that +the two groups showed similar improvement rate (p=0.9688). The second efficacy variable was the improvement rate during the 8 th +week (2 weeks after the completion of the final injection). According to results from comparing the total points of efficacy evaluation +items during the second week after completion of injection (during the 8 th week after injection) with the total points before +injection, 58.44% (90/154) of the Apitoxin group showed a higher improvement rate than during the 6 th week (48.70%), while +42.95% (67/156) of the Nabumetone group showed lower improvement rate than during the 6 th week (46.15%). There was statistical +difference in total point of efficacy evaluation items between the two groups (p=0.0064). These results suggest that even after treatment +stops, the efficacy of Apitoxin continues. With respect to safety, among a total of 407 subjects who participated in the safety evaluation, +69 (33.82%) of the Apitoxin group showed an adverse event, while 59 (29.06%) of the Nabumetone indicated adverse event. These results +indicate that the Apitoxin group had an elevated adverse event rate than the Nabumetone group, but there was no statistically significant +difference between the two groups (p=0.3526). +In May 2003, MFDA granted approval for the +use of Apitoxin in the treatment of pain and mobility in patients with OA. A post-marketing/approval safety study in South Korea +followed 3,194 patients from 2003 through 2009, with no serious adverse events or negative safety signals. +In 2013, preliminary Phase III clinical trials +were authorized to enroll patients by the FDA to study the same indication approved in South Korea — treatment of pain +and lack of mobility in patients with OA. The results of the preliminary Phase III clinical trial indicated statistical and clinically +significant improvements in all outcome measures of pain, physical function, and disease assessment in the study group. The study group +included 330 patients with diagnosed osteoarthritis of the knee. The subjects were evaluated for relief of pain using Western Ontario +and McMaster Osteoarthritis Index (WOMAC) and physician and patient global assessments. The primary efficacy measure was relief of pain +and inflammation over a 12-week treatment period after randomization into the trial. The secondary efficacy measure was improvement of +mobility. Treatment effect will be compared in a 2-1 Apitox vs active control. Compared with the placebo group (histamine), subjects in +the Apitox group who received a maximum dose (1500 micrograms) at each weekly visit over 12 weeks showed a significantly more improvement +in all outcome measures (WOMAC pain, WOMAC physical function, visual analog scale (“VAS”) pain, patient and physician global +assessments of OA). Further, post hoc analyses showed that a statistically significant greater percentage of Apitox-treated subjects had +at least a 40% and 60% reduction in WOMAC pain as compared to placebo-treated subjects. Sensitivity analyses confirmed the validity of +the statistical methods and population definitions. The improvements in pain endpoints were highly significant for both the modified intention +to treat and per protocol populations and the improvement was sustained during the four weeks following Apitox treatment. +Except for an expected higher incidence of injection +site reactions (<5%) in the Apitox group, the overall safety profiles were comparable between the treatment groups. A serious adverse +event of the anaphylactic reaction occurred in an Apitox-treated subject because of a quick injection rate. However, the subject was treated, +and the event was resolved within one day. The incidence of adverse events overall was similar between the Apitox and Placebo groups (49.0% +and 46.3%, respectively), and there were no clinically meaningful changes, within and between groups, in laboratory parameters, vital +signs, physical examination, or electrocardiogram results. +6 +During Apimeds Korea meetings with the FDA, the +FDA highlighted concerns regarding the opioid crisis. As Apitoxin has been previously approved in South Korea, we believe Apitox could +be a viable treatment option within the United States after additional clinical investigation, including our anticipated Phase III +trial. Initially, Apimeds Korea elected not to pursue the OA indication in the United States based on its evaluation of potential +market adoption and the existing competitive environment for OA. Based on results from the Apimeds Korea Phase III OA Trial and correspondence +with the FDA, we believe we are now in a position to continue to advance our Phase III trial for knee OA. +We intend to conduct an additional Phase III +trial in knee OA. Based on our previous correspondence with the FDA, we have started to design and will implement our Phase III trial +to best address our patient population of patients with grade 2, 3 and 4 knee OA, appropriate dosing, and the most effective way to evaluate +Apitox in meeting a patient’s needs. This trial will be an update to the plan of execution based on review of data, discussions +with former principal investigators from Apimeds Korea. Upon successful completion and FDA clearance of our Phase III trial in knee OA, +we will be positioned to submit a BLA. +We intend that the purpose of this trial will +be to evaluate the effectiveness of Apitox in the treatment of grade 2, 3 and 4 OA of the knee. The trial will be designed with a specific +focus on the identified subgroup from which we see the highest degree of benefit. +The following table summarizes the preliminary +clinical trial activity by Apimeds Korea with respect to Apitoxin: +Preliminary Clinical Data in MS Patients +The United States data from the literature +on bee venom studies in MS patients, Table A (Hauser et al. 2001) below, showed clinically significant improvements in disability symptoms +following treatment. +In Table A, results were categorized into the +following groups: dramatic disability improvement (>12 points on the Related Observable Symptom Scale (“ROSS”), good improvement +(7-12 points on ROSS), minimal improvement (<7 points on ROSS), no improvement (<2 points on ROSS), and negative (any total negative +response on ROSS). Descriptive analysis of the ROSS clinical outcomes showed that more than 68% of MS patients showed some kind of positive +improvement in disability (dramatic, good or minimal) and 58% demonstrated a marked improvement (dramatic or good). +Table A. Summary of Patient Disability +Improvement to Bee Venom Treatment Using ROSS +N +% of +Participants +Follow-up Survey +(% improvement) +Related Observable +Symptoms Scale +(points improvement) +Dramatic +15 +29.4 +% +>30%, or +>12 points +Good +15 +29.4 +% +10 – 29%, or +7 – 12 points +Minimal +5 +9.8 +% +<10%, or +< 7 points +None +15 +29.4 +% +<2%, or +< 2 points +Negative +1 +2.0 +% +Any total negative response +Any total negative response +7 +After 1 year of bee-venom injections, 68.6 percent +of participants showed improvement. N = number of participants. +Apimeds Korea used data from its first Phase III +clinical trial for OA and peer reviewed publications, including those referenced in Table A above and formal Phase I (the “Castro +Phase I Trial”) and Phase II (the “Wesselius Phase II Trial”) publications specific to MS, to support its submission +in 2014 of its Investigational New Drug Application (“IND”) 122804 (A Phase III, Multi-Center, Randomized, Double-Blind, +Placebo-Controlled, Parallel Group Study to Evaluate the Safety and Efficacy of Apitox Add-on Therapy for Improving Disability and Quality +of Life in Patients with Multiple Sclerosis). +Castro Phase I Trial +The Castro Phase I Trial involved a total of nine +bee venom nonallergic patients with progressive forms of MS, who were 21–55 years of age with no other illnesses. The subjects distributed +across four groups (A, B, C, and D) and followed a structured 1-year immunization schedule. Hyperreactivity to bee venom was evaluated +by questionnaire, physical examination, and a battery of hematologic, metabolic, and immunologic tests. Responses to therapy were evaluated +by questionnaire, functional neurological tests, and changes in measurement of somatosensory-evoked potentials. While no serious adverse +allergic reactions were observed in any of the subjects, four experienced worsening of neurological symptoms, requiring their discontinuation +in the study. The observed negative effects could not be conclusively attributed to adverse reactions arising from the administered therapy. +Of the remaining five subjects, three reported subjective amelioration of symptoms and two exhibited objective improvement. Despite suggesting +safety in this preliminary study, the small sample size precluded definitive conclusions regarding the efficacy of the treatment for MS. +Larger and more carefully conducted multicenter studies were required to establish efficacy. +Wesselius Phase II Trial +The Wesselius Phase II Trial involved a randomized +crossover study of 26 patients diagnosed with relapsing-remitting or relapsing secondary progressive MS. Participants were assigned to +24 weeks of medically supervised bee sting therapy, or a control period of 24 weeks of no treatment. Live bees (up to a maximum of 20) +were used to administer bee venom three times per week. The primary outcome was the cumulative number of new gadolinium-enhancing lesions +on T1-weighted MRI of the brain. Secondary outcomes were lesion load on T2*-weighted MRI, relapse rate, disability (Expanded Disability +Status Scale, Multiple Sclerosis Functional Composite, Guy’s Neurologic Disability Scale), fatigue (Abbreviated Fatigue Questionnaire, +Fatigue Impact Scale), and health-related quality of life (Medical Outcomes Study 36-Item Short Form General Health Survey). The results +of the Wesselous Phase II Trial indicated that during bee sting therapy, there was no significant reduction in the cumulative number of +new gadolinium-enhancing lesions. The T2*-weighted lesion load further progressed, and there was no significant reduction in relapse rate. +There was no improvement of disability, fatigue, and quality of life. Bee sting therapy was well tolerated, and there were no serious +adverse events. In this trial, treatment with bee venom in patients with relapsing multiple sclerosis did not reduce disease activity, +disability, or fatigue and did not improve quality of life measured using gadolinium-enhancing MRI. +From June 2014 to June 2018, Apimeds +Korea corresponded with the FDA and there were no clinical holds at that time. Sponsorship of IND 122804 was transferred from Apimeds +Korea to us in October 2020. On September 21, 2021, we responded to customary non-clinical hold comments from the FDA. In +November 2021, we received a customary clinical hold from the FDA due to the retirement of the former principal investigator. We +have subsequently updated the FDA with a new principal investigator via our Chief Medical Officer, Dr. Christopher Kim. In February +2023, the FDA removed the clinical hold and concluded it may be initiated. We have subsequently made the strategic decision to focus our +efforts and capital on our Phase III trial in knee OA, and instead focus our MS efforts on the early prosecution of appropriate MS patient +populations through non-registered corporate sponsorship studies. +Our Commercialization Strategy +We are dedicated to the effective implementation +of regulatory, clinical and legal strategies to create value in Apitox. The effective execution of this strategy will provide us the opportunity +to evaluate and potentially acquire other assets that fit within our space for development. +8 +Manufacturing +We intend to continue to engage a third-party +manufacturer, Piramal Pharma Solutions, in Lexington, Kentucky to support our Phase III trial and, if Apitox is approved by the FDA, +commercial manufacturing. This manufacturer has dedicated experience in development and technology transfer of sterile dose formulations, +including liquid and lyophilized formulations. +Research and Development +We are currently engaged exclusively in the clinical +development of Apitox for continued use in knee OA through a Phase III trial in knee OA and potential use for MS through the early prosecution +of appropriate patient populations through non-registered corporate sponsorship studies. +Sales and Marketing +The healthcare providers associated with the treatment +of inflammation and pain management symptoms associated with OA and MS are not limited to one specialist but involve a comprehensive team +of providers focused on slowing the progression of the disease along with the physical, emotional and day-to-day management of the +condition. Each of these providers represents a potential customer for Apitox. +Apitoxin, which will be known as Apitox in the +United States, has established technological credibility through its preclinical testing, Phase I, Phase II and preliminary +Phase III clinical studies completed by Apimeds Korea. Apimeds Korea received regulatory approval for Apitoxin by the MFDA in South +Korea, as well as long-term safety data from treatment of patients in Korea from 2003 to 2009. There were no serious adverse events from +over 3,000 patients monitored, and Apitoxin has been approved and marketed in South Korea for OA since 2003. We update the FDA annually +on safety data generated by Apimeds Korea from South Korea. +We aim to obtain FDA approval for Apitox in the +United States market for treatment of inflammation and pain management symptoms associated with knee OA, and eventually MS, and expand +the indication portfolio in the autoimmune market with a strategic marketing partner. The marketing partner strategy is common in the +pharmaceutical marketplace, as the infrastructure, overhead, and barriers to entry dilute the focus and can rapidly erode the financial +well-being of small, product development-based companies such as us. By identifying the strategic marketing partner at an early stage, +the companies can deliver a final product, or family of products, in a form factor or variety of form factors over time, that specifically +suit the target market. We believe that Apitox represents a significant opportunity as a platform technology, with numerous product-line +extensions, and the potential for new, ancillary products such as delivery devices. +9 +Reimbursement Strategy +Apimeds expects to apply to the Centers for Medicare +and Medicaid Studies (“CMS”) for temporary generic reimbursement codes 12 to 18 months prior to a BLA approval. Temporary +codes are used until manufacturers apply for, and receive, permanent codes, which identify the drug and its therapeutic class. Permanent +codes are issued by CMS on a rolling quarterly basis. +We will engage third party contractors to assist +the us with reimbursement, coding and policy development prior to, during and at the time of approval of Apitox. We will look for a contractor +to provide the following services to us: +● Coding Assessment and Strategy/Execution — CPT +Review of Apitox Administration by Multiple Intradermal Injections . Assess the landscape to ensure a clear understanding of the key +dynamics and analyze relevant proxies and precedent. Further assess relevant drug administration codes and whether appropriate codes +exist. +● Medical Coverage Policy Analysis — Provide +a framework and set expectations for Medicare’s anticipated coverage approach to Apitox, specifically in the context of intra articular +hyaluronic acid use agent coverage policies and implications of their efficacy uncertainty. +● Medicare Local Coverage Analysis and Implications — Given +the significance of Medicare policy standards, local and national Medicare policies often shape payer and provider perceptions and decisions. +As complex statutory and regulatory guidance shape Medicare decision-making, ADVI analyzes, investigates, and synthesize Medicare policies +that could affect access (coverage, coding and reimbursement) for Apitox. +● Medicaid and Commercial Coverage Analysis and Implications — Analyze +available medical policies for five large state Medicaid agencies (based on population and geographic variation) and major commercial +payers (where publicly available). +● Payer Policy Internal Expert Interviews — Conduct +payer interviews with relevant Medicare, Medicaid and commercial policy advisors. +● HCPCS Coding and Payment Assessment — Assess +the coding and reimbursement landscape to ensure Apimeds has a clear understanding of the key dynamics with the HCPCS application process +and the Medicare Hospital Outpatient Prospective Payment System (OPPS) pass-through status application process. Through this assessment, +identify the areas of concern, expectations, timing, timelines, and processes associated. This is especially relevant given the 2020 +implementation of a new HCPCS review process. +● Address key Part B/medical benefit implications to Apitox +in the following fields: +● HCPCS and OPPS application timelines (and potential evolution +leading to launch). +● Coding/access implications prior to code assignment (e.g., +NOC/miscellaneous codes), review the merits/risks of Q-code. +● further review the application processes, expectations, case +examples, timelines, and hurdles that APUS may face across settings of care, payers, and with CMS, +● Case examples, timelines, and hurdles across settings of care +with payers and CMS, +● Review of reimbursement implications; and +● Methodologies (ASP, WAC, AWP), role of sequestration, 340B, +patient financial burden +● Develop Payer (with Emphasis on Medicare) Launch Recommendations — Based +on the above primary and secondary research, synthesize the discussions and summarize the overall findings of the payer survey, highlighting +themes, and provide recommendations and considerations for optimizing market access, given the current and evolving reimbursement landscape. +This section will include payer (emphasis on Medicare) launch strategy recommendations (including timeline) and a local/national Medicare +engagement strategy. +10 +Competition +We compete in an industry characterized by rapidly +advancing technologies, intense competition, a changing regulatory and legislative landscape and a strong emphasis on the benefits of +intellectual property protection and regulatory exclusivities. +Like any biopharmaceutical company, we face competition +from multiple sources, including large or established pharmaceutical, biotechnology, and wellness companies, academic research institutions, +government agencies, and private institutions. We believe our drug candidate will prevail amid the competitive landscape through its efficacy, +safety, administration methods, cost, public and institutional demand, intellectual property portfolio, and treatment of the root cause +of many age-associated diseases. +Many of our competitors, either alone or with +strategic partners, have substantially greater financial, technical, and human resources than we do. Accordingly, our competitors may +be more successful in obtaining approval for treatments and achieving widespread market acceptance, rendering our treatments obsolete +or non-competitive. Accelerated merger and acquisition activity in the biotechnology and biopharmaceutical industries may result +in even more resources concentrated among a smaller number of our competitors. These companies also compete with us in recruiting and +retaining qualified scientific and management personnel, establishing clinical study sites, patient registration for clinical studies, +and acquiring technologies complementary to, or necessary for, our programs. Smaller or early-stage companies may also prove to be significant +competitors, particularly through collaborative arrangements with large and established companies. Our commercial opportunity could be +substantially limited in the event that our competitors develop and commercialize products that are more effective, safer, more tolerable, +more convenient, or less expensive than our comparable products. In geographies that are critical to our commercial success, competitors +may also obtain regulatory approvals before us, resulting in our competitors building a strong market position in advance of our products’ +entry. We believe the factors determining the success of our programs will be the efficacy, safety, and convenience of our drug candidates. +Additionally, consumer preference for branded, +generic or private label products sold by competitors could adversely impact our financial performance. Our competitors, which differ +within individual geographic markets, include large-scale retailers, smaller high-growth companies (which often operate on a regional +basis and offer aggressive competition), multinational corporations moving into or expanding their presence in the consumer healthcare +market, and “private-label” products sold by retailers. +Our aim is to reduce the use of NSAIDS and opioid +use as it relates to the pain management associated with OA. We believe that if approved by the FDA, Apitox may be a non-addictive +option to patients experiencing debilitating pain. +Business Agreement +On August 2, 2021, we entered into an agreement +with Apimeds Korea, a principal stockholder of the Company (the “Business Agreement”). Pursuant to the Business Agreement, +Apimeds Korea granted to the Company a sublicensable, royalty-bearing license to utilize all prior clinical development data associated +with Apitoxin, Apitox, and all related names, advance clinical research, develop, manufacture and commercialize and sell Apitox in the +United States. In exchange for this license, the Company will pay Apimeds Korea a perpetual royalty of 5% of the Company’s +earnings before interest and taxes (as determined consistent with GAAP, derived from the sale or license of Apitox, less any shipping, +handling, and insurance charges, credits (arising from returns or other adjustments), discounts, rebates, or allowances of any kind (if +any). The Business Agreement can be terminated by mutual written agreement by the parties and will automatically terminate upon the bankruptcy +or dissolution of the Company. +Assignment Agreement +On October 12, 2021, we entered into an intellectual +property assignment agreement (the “Assignment Agreement”), which was effective as of May 12, 2020, with Apimeds Korea +and Dr. Christopher Kim, the Company’s Chairman and Chief Medical Officer and the founder of Apimeds Korea. During Dr. Kim’s +engagement with Apimeds Korea, he contributed to the development of the intellectual property as it relates to Apitoxin, which will be +marketed in the United States as Apitox (the “Assigned IP”). +11 +Pursuant to the Assignment Agreement, Dr. Kim +sold, transferred, and conveyed all his rights, title and interest in the Assigned IP to Apimeds Korea. Dr. Kim retained no right +to use the Assigned IP. Additionally, the Assignment Agreement acknowledged that the Assigned IP was licensed to us to use via the +Business Agreement. +Intellectual Property +Apitox’s API is bee venom, a natural, non-synthetic +compound that is not patentable, so we rely principally on trade secrets to protect our rights to Apitox, particularly the method and +process of manufacturing Apitox. +Supplier +We purchase venom from our United States +supplier, Apico, Inc. (“Apico”), via a letter agreement. Pursuant to the letter agreement, Apico agreed that for a period +of ten years, or until November 3, 2031 it would not supply Apis Mellifea venom for pharmaceutical use for any buyer +other than us; provided that Apico may also supply Apimeds Korea for its use outside of the United States. The letter agreement +excludes customers using venom for immunology, cosmetic or any other “non-pharmaceutical” use. The letter agreement may be +terminated upon mutual written consent of both Apico and the Company. +Apico has developed and practices a proprietary +method of harvesting venom. It operates under and is certified in current good manufacturing practice regulations enforced by the FDA +and has an active and current Drug Master File (“DMF”) with the FDA. DMF’s are submissions to the FDA used to provide +confidential, detailed information about facilities, processes, or articles used in the manufacturing, processing, packaging, and storing +of human drug products. We have an exclusive relationship with our supplier for pharmaceutical use in the United States and they +are not permitted to sell to any other party for pharmaceutical use. +Apimeds Korea has a number of proprietary analytical +methods for the classification and identification of specific pharmacologically active fractions of its venom, along with numerous manufacturing +processes from filtration, vial filing and lyophilization required to produce Apitoxin. Apitoxin is the only approved and commercially +available therapeutic product containing purified and sterile bee venom that is registered as an API in South Korea. The proprietary methods +developed and practiced for the commercial manufacturing of Apitoxin include dilution, filtering, vial staging and lyophilization parameters +and cycles. +We plan to file Apitox as a BLA with the Centers +for Biologics and Research of the FDA following the successful completion of our Phase III trial for knee OA. The FDA provides 12-year +market exclusivity at the time of approval of a BLA, with the potential for a six-month extension upon approval for pediatric use. If +the BLA is approved, the 12-year period would be retroactive to the date of the application. +We intend to file a U.S. trademark application +for “Apitox”. +Regulatory Environment +Government Regulation and Product Approval +In the United States, biological products +are subject to regulation under the Federal Food, Drug, and Cosmetic Act (the “FDCA”), and the Public Health Service Act (the +“PHSA”), and other federal, state, and local statutes and regulations. Both the FDCA and PHSA and their corresponding regulations +govern, among other things, the research, development, clinical trials, testing, manufacturing, quality control, safety, purity and potency +(efficacy), labeling, packaging, storage, record keeping, distribution, reporting, marketing, promotion, advertising, post-approval monitoring, +and post-approval reporting involving biological products. Along with third-party contractors, we will be required to navigate the various +preclinical and clinical regulatory obligations and the commercial approval requirements of the governing regulatory agencies of the countries +in which we wish to conduct studies or seek approval or licensure of our product candidate. The processes for obtaining regulatory approvals +in the United States, along with subsequent compliance with applicable laws and regulations and other regulatory authorities, require +the expenditure of substantial time and financial resources. +12 +Government policies may change, and additional +government regulations may be enacted that could prevent or delay further development or regulatory approval of any product candidates, +product or manufacturing changes, additional disease indications or label changes. We cannot predict the likelihood, nature or extent +of government regulation that might arise from future legislative or administrative action. +Review and Approval for Licensing Biologics +in the United States +In the United States, FDA regulates our current +product candidate as a biological product, or biologics, under the FDCA, the PHSA, and associated implementing regulations. Biologics, +like other drugs, are used for the diagnosis, cure, mitigation, treatment, or prevention of disease in humans. In contrast to low molecular +weight drugs, which have a well-defined structure and can be thoroughly characterized, biologics are generally derived from living material +(human, animal, or microorganism), are complex in structure, and thus are usually not fully characterized. +Biologics are also subject to other federal, state, +and local statutes and regulations. The failure to comply with applicable statutory and regulatory requirements at any time during the +product development process, approval process, or after approval may subject a sponsor or applicant to administrative or judicial enforcement +actions. These actions could include the suspension or termination of clinical trials by FDA, FDA’s refusal to approve pending applications +or supplemental applications, withdrawal of an approval, issuance of warning or untitled letters, product recalls, product seizures, total +or partial suspension of production or distribution, import detention, injunctions, fines, refusals of government contracts, restitution, +disgorgement of profits, or civil or criminal investigations and penalties brought by FDA, the Department of Justice (“DOJ”), +and other governmental entities. +An applicant seeking approval to market and distribute +a biologic in the United States must typically undertake the following: +● completion of non-clinical laboratory tests and studies performed +in accordance with FDA’s good laboratory practice (“GLP”) regulations; +● manufacture, labeling and distribution of investigational +drugs in compliance with FDA’s current good manufacturing practice (“cGMP”) requirements; +● submission to FDA of an investigational new drug application +(“IND”), which must become effective before clinical trials may begin and must be updated annually and when significant changes +are made; +● approval by an independent institutional review board (“IRB”) +for each clinical site before each clinical trial may be initiated; +● performance of adequate and well-controlled human clinical +trials in accordance with FDA’s Good Clinical Practices (“GCP”) to establish the safety, purity, and potency of the +proposed biological product candidate for its intended purpose; +● after completion of all pivotal clinical trials, preparation +of and submission to FDA of a BLA requesting marketing approval, which includes providing sufficient evidence to establish the efficacy, +safety, purity, and potency of the proposed biological product for its intended use, including from results of nonclinical testing and +clinical trials; +● satisfactory completion of an FDA advisory committee review, +when appropriate, as may be requested by FDA to assist with its review; +● satisfactory completion of one or more FDA inspections of +the manufacturing facility or facilities at which the proposed product, or certain components thereof, are produced to assess compliance +with cGMP and data integrity requirements to assure that the facilities, methods, and controls are adequate to preserve the biological +product’s identity, strength, quality, and purity and, if applicable, FDA’s good tissue practice (“GTP”) requirements +for human cellular and tissue products; +● satisfactory completion of FDA inspections of selected clinical +investigation sites to assure compliance with GCP requirements and the integrity of the clinical data; +● satisfactory completion of an FDA sponsor GCP inspection, +often conducted at the applicant’s headquarters facility; +13 +● payment of user fees (unless there is a waiver, exemption, +or reduction) under the Prescription Drug User Fee Act (“PDUFA”) for the relevant year; +● FDA’s review and approval of the BLA to permit commercial +marketing of the licensed biologic for particular indications for use in the United States; +● compliance with post-approval requirements, including the +potential requirements to implement a risk evaluation and mitigation strategy (“REMS”), to report adverse events and biological +product deviations, and to complete any post-approval studies; and +● completion of any post-approval clinical studies required +by FDA, such as confirmatory trials or pediatric studies. +From time to time, legislation is drafted, introduced, +and passed in Congress that could significantly change the statutory provisions governing the testing, approval, manufacturing, and marketing +of biological products regulated by FDA. In addition to new legislation, FDA regulations, guidance documents, and policies are often +revised or interpreted by the agency in ways that may significantly affect the regulation of biological products in the United States. +It is impossible to predict whether further legislative changes will be enacted or whether FDA regulations, guidance, policies, or interpretations +will change, and the effects of any such changes. +Preclinical and Clinical Development +Before an applicant can begin testing the potential +product candidate in human subjects, the applicant must first conduct preclinical studies. Preclinical studies may include laboratory +evaluations of product chemistry, toxicity, and formulation, as well as in vitro and animal studies to assess the potential safety and +activity of the drug for initial testing in humans and to establish a rationale for therapeutic use. Preclinical studies are subject to +federal regulations and requirements, including GLP regulations, which govern the conduct of animal studies designed to test a product’s +safety. None of our preclinical studies to date have been animal studies. The results of an applicant’s preclinical studies are +submitted to FDA as part of an IND. +An IND is a request for authorization from FDA +to administer an investigational new drug product to humans. An IND is an exemption from the FDCA that allows an unapproved drug to be +shipped in interstate commerce for use in a clinical trial. Such authorization must be secured prior to interstate shipment and administration +of a biological drug that is not subject of an approved BLA. In support of an IND, applicants must submit a protocol for each clinical +trial, which details, among other things, the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness +criteria to be evaluated. A separate submission to the existing IND must be made for each successive clinical trial conducted during product +development and for any subsequent protocol amendments. +Human clinical trials may not begin until an IND +is effective. The IND automatically becomes effective 30 days after receipt by FDA, unless FDA raises safety concerns or questions +about the proposed clinical trial within the 30-day time period. In such a case, FDA may place the IND on clinical hold and the IND sponsor +must resolve any of FDA’s outstanding concerns or questions before the clinical trial can begin. Submission of an IND therefore +may or may not result in regulatory authorization to begin a clinical trial. +FDA may also place a clinical hold or partial +clinical hold on a clinical trial following commencement of the trial under an IND. A clinical hold is an order issued by FDA to +the sponsor to delay a proposed clinical investigation or to suspend an ongoing investigation. A partial clinical hold is a delay or suspension +of only part of the clinical work requested under the IND. For example, under a partial clinical hold, FDA may instruct a sponsor +not to enroll any new patients into a study but permit the previously enrolled patients to continue in the study. No more than 30 days +after imposition of a clinical hold or partial clinical hold, FDA will provide the sponsor a written explanation of the basis for the +hold. Following issuance of a clinical hold or partial clinical hold, an investigation may only resume after the FDA has notified the +sponsor that the investigation may proceed. FDA will base that determination on information provided by the sponsor addressing the deficiencies +previously cited or otherwise satisfying FDA that the investigation can proceed. +Clinical trials involve the administration of +the investigational product to human subjects under the supervision of qualified investigators in accordance with GCP regulations, which +include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. If a +sponsor chooses to conduct a foreign clinical study under an IND, all FDA IND requirements must be met unless waived. When the foreign +clinical study is not conducted under an IND, the sponsor must ensure that the study complies with GCP regulations in order to use the +study as support for an IND or application for marketing approval, including review and approval by an IRB and informed consent from subjects. +14 +Furthermore, an independent IRB for all sites +participating in a clinical trial must review and approve the plan for any clinical trial and its informed consent form before the clinical +trial begins at each site and must monitor the trial until completed. Regulatory authorities, the IRB, or the sponsor may suspend a clinical +trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk or that the +trial is unlikely to meet its stated objectives. +Some trials also include oversight by an independent +group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board (“DSMB”). DSMBs +review unblinded study data at pre-specified times during the course of the study. If the DSMB determines that there is an unacceptable +safety risk for subjects or other grounds, such as no demonstration of efficacy, the DSMB can make a recommendation to the sponsor to +modify or stop the trial. +Other grounds for a sponsor’s decision to +suspend or terminate a study may be made based on evolving business objectives or the competitive climate. +For purposes of BLA approval, clinical trials +are typically conducted in the following sequential phases: +● Phase 1: The investigational product is initially introduced into a small group of +healthy human subjects or patients with the target disease or condition. These trials are designed to test the safety, dosage +tolerance, absorption, metabolism and distribution of the investigational product in humans and the side effects associated with +increasing doses. These trials may also yield early evidence of effectiveness. +● Phase 2: The investigational +product is administered to a slightly larger patient population with a specified disease or condition to evaluate the preliminary efficacy, +optimal dosages, and dosing schedule and to identify possible adverse side effects and safety risks. Multiple Phase 2 clinical trials +may be conducted to obtain information prior to beginning larger and more expensive Phase III clinical trials. +● Phase 3: The investigational +product is administered to an expanded patient population to further evaluate dosage, to provide statistically significant evidence of +clinical efficacy and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These clinical +trials are intended to generate sufficient data to statistically demonstrate the efficacy and safety of the product, to establish the +overall risk/benefit ratio of the investigational product, and to provide an adequate basis for product approval by FDA. +These phases may overlap or be combined. In some +cases, FDA may require, or companies may voluntarily pursue, additional clinical trials after a product are approved to gain more information +about the product, referred to as Phase 4 trials. Post-approval trials are conducted following initial approval, often to develop +additional data and information relating to the use of the product in new indications. +Progress reports detailing the results of the +clinical trials must be submitted at least annually to FDA. In addition, IND safety reports must be submitted to FDA for any of the +following: serious and unexpected suspected adverse reactions in study subjects; findings from epidemiological studies, pooled analysis +of multiple studies, animal or in vitro testing, or other clinical studies, whether or not conducted under an IND, and whether or not +conducted by the sponsor, that suggest a significant risk in humans exposed to the drug; and any clinically important increase in the +rate of a serious suspected adverse reaction over such rate listed in the protocol or investigator brochure. +A sponsor’s planned clinical trials may +not be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a clinical +trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. +Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical +trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious +harm to patients. FDA will typically inspect one or more clinical sites to assure compliance with GCP and the integrity of the clinical +data submitted. +15 +During clinical development, the sponsor often +refines the indication and endpoints on which the BLA will be based. For endpoints based on patient-reported outcomes (“PROs”), +the process typically is an iterative one. FDA has issued guidance on the framework it uses to evaluate PRO instruments. Although the +agency may offer advice on optimizing PRO instruments during the clinical development process, FDA usually reserves final judgment until +it reviews the BLA. +Concurrent with clinical trials, companies often +complete additional animal studies, and develop additional information about the chemistry and physical characteristics of the drug and +finalize a process for manufacturing the product in commercial quantities in accordance with cGMP. The manufacturing process must +be capable of consistently producing quality batches of the drug candidate and, among other things, must develop methods for testing the +identity, strength, quality, purity and potency of the final drug. Additionally, appropriate packaging must be selected and tested, and +stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf +life. +BLA Submission and Review +Assuming successful completion of all required +clinical testing in accordance with all applicable regulatory requirements, an applicant may submit a BLA requesting licensing to market +the biologic for one or more indications in the United States. The BLA must include the results of nonclinical studies and clinical +trials; detailed information on the product’s chemistry, manufacture, controls; and proposed labeling. Under the PDUFA, a BLA submission +is subject to an application user fee, unless a waiver, reduction, or exemption applies. +FDA will initially review the BLA for completeness +before accepting it for filing. Under FDA’s procedures, the agency has 60 days from its receipt of a BLA to determine whether +the application will be accepted for filing and substantive review. If the agency determines that the application does not meet this initial +threshold standard, FDA may refuse to file the application and request additional information, in which case the application must be resubmitted +with the requested information and review of the application delayed. +After the BLA is accepted for filing, FDA reviews +the BLA to determine, among other things, whether a product is safe, pure, and potent and if the facility in which it is manufactured, +processed, packed, or held meets standards designed to assure the product’s continued identity, strength, quality, safety, purity, +and potency. To ensure cGMP, GLP, GCP, GTP, and other regulatory compliance, an applicant must incur significant expenditure of time, +money, and effort in the areas of training, record keeping, production and quality control. In addition, FDA expects that all data be +reliable and accurate, and requires sponsors to implement meaningful and effective strategies to manage data integrity risks. Data integrity +is an important component of the sponsor’s responsibility to ensure the safety, efficacy and quality of its product or products. +For cellular products, FDA will not approve the +product if the manufacturer is not in compliance with the GTPs, to the extent applicable. GTPs are FDA regulations and guidance documents +that govern the methods used in, and the facilities and controls used for, the manufacture of human cells, tissue, and cellular and tissue-based +products (“HCT/Ps”), which are human cells or tissue intended for implantation, transplant, infusion, or transfer into a human +recipient. The primary intent of the GTP requirements is to ensure that cell and tissue-based products are manufactured in a manner designed +to prevent the introduction, transmission and spread of communicable disease. FDA regulations also specify how HCT/P establishments must +register and list their HCT/Ps with FDA and how they must evaluate donors through screening and testing, where applicable. +If the FDA determines that the application, manufacturing +process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional +testing or information. Notwithstanding the submission of any requested additional information, FDA ultimately may decide that the application +does not satisfy the regulatory criteria for approval. +The performance goals and policies implemented +by FDA under the PDUFA generally provide for FDA action on an original BLA within 10 months of filing, which (as discussed above) +typically occurs within 60 days of submission, but that deadline is extended in certain circumstances. Furthermore, the review process +is often significantly extended by FDA’s requests for additional information or clarification. +16 +FDA may refer applications for novel products +or products that present difficult questions of safety or efficacy to an advisory committee. Typically, an advisory committee consists +of a panel that includes clinicians and other experts who will review, evaluate, and provide a recommendation as to whether the application +should be approved and, if so, under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers +such recommendations carefully when making decisions and usually has followed such recommendations. +After FDA evaluates a BLA and conducts inspections +of manufacturing facilities where the investigational product and/or its components will be produced, FDA may issue an approval letter +or a Complete Response Letter (“CRL”). An approval letter authorizes commercial marketing of the biological with specific +prescribing information for specific indications. A CRL will describe all of the deficiencies that FDA has identified in the BLA, except +that where FDA determines that the data supporting the application are inadequate to support approval, FDA may issue the CRL without first +conducting required inspections, testing submitted product lots and/or reviewing proposed labeling. If and when the deficiencies have +been addressed to FDA’s satisfaction in a resubmission of the BLA, FDA will issue an approval letter. In issuing the CRL, the FDA +may recommend actions that the applicant might take to place the BLA in condition for approval, including requests for additional data, +information, or clarification. FDA may delay or refuse approval of a BLA if applicable regulatory criteria are not satisfied and may require +additional testing or information and/or require new clinical trials. Even with submission of this additional information, FDA ultimately +may decide that the application does not satisfy the regulatory criteria for approval. +During the approval process, FDA will determine +whether a REMS is necessary to help ensure the benefits outweigh the risks of the biologic. A REMS is a safety strategy to manage a known +or potential serious risk associated with a product and to enable patients to have continued access to such medicines by managing their +safe use, and could include medication guides, physician communication plans or elements to assure safe use, such as restricted distribution +methods, patient registries and other risk minimization tools. If FDA concludes that a REMS is needed, the BLA sponsor must submit a proposed +REMS and FDA will not approve the BLA without a REMS that the agency has determined is acceptable. +If the FDA approves a product, it may limit the +approved indications for use for the product, or require that contraindications, warnings, or precautions be included in the product labeling. +FDA may also require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess the drug’s +safety after approval. FDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance +programs. +FDA may also require testing and surveillance +programs to monitor the product after commercialization. For biologics, such testing may include official lot release, which requires +the manufacturer to perform certain tests on each lot of the product before it is released for distribution. The manufacturer then typically +must submit samples of each lot of products to the FDA, together with a release protocol showing a summary of the history of manufacture +of the lot and the results of all of the manufacturer’s tests performed on the lot. The FDA may also perform certain confirmatory +tests on lots of some products itself, before releasing the lots for distribution by the manufacturer. +In general, an approved BLA only allows the sponsor +to market the biologic as approved, without modification. If, for example, a sponsor modifies an approved T cell product to target different +peptides or in our case to target another HLA type, the sponsor would be required to either file a supplemental BLA with FDA or receive +FDA approval for a comparability protocol in order to implement this change into the final product. +The FDA may withdraw the product approval if compliance +with pre- and post-marketing requirements is not maintained or if problems occur after the product reaches the marketplace. +Post-Approval Requirements +Any products manufactured or distributed pursuant +to FDA approvals are subject to pervasive and continuing regulation by FDA, including, among other things, requirements relating to recordkeeping, +periodic reporting, reporting of certain deviations and adverse experiences, product sampling and distribution, and advertising and promotion +of the product. After approval, many types of changes to the approved product, such as adding new indications, manufacturing changes and +additional labeling claims, are often subject to further testing requirements and FDA review and approval, depending on the nature of +the post-approval change. There also are continuing user fee requirements, under which FDA assesses an annual program fee for each product +identified in an approved BLA. Biologic manufacturers and their third-party contractors are required to register their facilities +with the FDA and certain state agencies. These facilities are subject to routine and periodic unannounced inspections by FDA and certain +state agencies for compliance with cGMP, post-marketing safety reporting and data integrity requirements, which impose certain procedural +and documentation requirements to assure quality of manufacturing and product. FDA has increasingly observed cGMP violations involving +data integrity during site inspections and is a significant focus of its oversight. Requirements with respect to data integrity include, +among other things, controls ensuring complete and secure data; activities documented at the time of performance; audit trail functionality; +authorized access and limitations; validated computer systems; and review of records for accuracy, completeness, and compliance with established +standards. +17 +Post-approval changes to the manufacturing process +are strictly regulated, and, depending on the significance of the change, may require FDA approval before being implemented. FDA regulations +also require investigation and correction of any deviations from cGMP and impose reporting requirements upon the sponsor and any third-party +manufacturers that the sponsor may use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production +and quality control to maintain compliance with cGMP, data integrity, pharmacovigilance, and other aspects of regulatory compliance. +The FDA may withdraw the approval if compliance +with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery +of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing +processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; +imposition of post-approval studies to assess new safety risks; or imposition of distribution or other restrictions under a REMS. Other +potential consequences include, for example: +● restrictions on the marketing or manufacturing of a product, +complete withdrawal of the product from the market, or product recalls; +● fines, warning or untitled letters, or holds on post-approval +clinical studies; +● refusal of FDA to approve pending applications or supplements +to approved applications, or suspension or revocation of existing product approvals; +● product seizure or detention, or refusal of FDA to permit +the import or export of products; or +● permanent injunctions and consent decrees, including the +imposition of civil or criminal penalties. +FDA strictly regulates the marketing, labeling, +advertising, and promotion of prescription drug products placed on the market. A company can make only those claims relating to safety +and efficacy, purity and potency that are approved by the FDA and in accordance with the provisions of the approved labeling. FDA’s +regulation includes, among other things, standards and regulations for direct-to-consumer advertising, communications regarding unapproved +uses, industry-sponsored scientific and educational activities and promotional activities involving the Internet and social media. Promotional +claims relating to a product’s safety or effectiveness are prohibited before the drug is approved. After approval, a product generally +may not be promoted for uses that are not approved by FDA, as reflected in the product’s prescribing information. In the United States, +healthcare professionals are generally permitted to prescribe drugs for such uses not described in the drug’s labeling, known as +off-label uses, because FDA does not regulate the practice of medicine. However, FDA regulations impose rigorous restrictions on manufacturers’ +communications and prohibit the promotion of off-label uses. It may be permissible, under very specific, narrow conditions, for a manufacturer +to engage in non-promotional, non-misleading communication regarding off-label information, such as distributing scientific or medical +journal information. +If a company is found to have promoted off-label +uses, it may become subject to adverse public relations and administrative and judicial enforcement by FDA, the DOJ, or the Office of +the Inspector General of the Department of Health and Human Services (“HHS”), as well as other federal and state authorities. +This could subject a company to a range of penalties that could have a significant commercial impact, including civil, administrative, +and criminal fines, penalties, and agreements that materially restrict the manner in which a company promotes or distributes products. +The federal government has levied large civil, administrative, and criminal fines and penalties against companies for alleged improper +promotion and has also requested that companies enter into Corporate Integrity Agreements and Consent Decrees of Permanent Injunction +under which specified promotional conduct is changed or curtailed. +18 +The distribution of prescription drugs and biologics +are subject to the Drug Supply Chain Security Act (“DSCSA”), which requires manufacturers and other stakeholders to comply +with product identification, tracing, verification, detection and response, notification, and licensing requirements. In addition, the +Prescription Drug Marketing Act and its implementing regulations and state laws limit the distribution of prescription pharmaceutical +product samples, and the DSCSA imposes requirements to ensure accountability in distribution and to identify and remove prescription drug +and biological products that may be counterfeit, stolen, contaminated, or otherwise harmful from the market. +Expedited Development and Review Programs +FDA offers a number of expedited development and +review programs for qualifying product candidates. The fast-track program is intended to expedite or facilitate the process of reviewing +new products that meet certain criteria. Specifically, new products are eligible for fast-track designation if they are intended to treat +a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. +A product intended to treat a serious or life-threatening disease or condition may also be eligible for breakthrough therapy designation +to expedite its development and review. Any marketing application for a biologic submitted to FDA for approval, including a product with +a fast-track designation and/or breakthrough therapy designation, may be eligible for other types of FDA programs intended to expedite +FDA review and approval process, such as priority review and accelerated approval. FDA also may grant accelerated approval to certain +products studied for their safety and effectiveness in treating serious or life-threatening diseases or conditions. +The RMAT designation, which we are currently planning +to seek for some of our therapies, is intended to facilitate an efficient development program for, and expedite review of, any drug that +meets the following criteria: (1) the drug is a cell therapy, therapeutic tissue engineering product, human cell and tissue product, +or any combination product using such therapies or products, with limited exceptions; (2) the drug is intended to treat, modify, +reverse, or cure a serious or life-threatening disease or condition; and (3) preliminary clinical evidence indicates that the drug +has the potential to address unmet medical needs for such a disease or condition. Like breakthrough therapy designation, RMAT designation +provides potential benefits that include more frequent meetings with FDA to discuss the development plan for the product candidate and +eligibility for rolling review and priority review. Products granted RMAT designation may also be eligible for accelerated approval on +the basis of a surrogate or intermediate endpoint reasonably likely to predict long-term clinical benefit, or reliance upon data obtained +from a meaningful number of sites (including through expansion to additional sites) so as to remove any likelihood of site-specific or +investigator-specific bias on the evidence of effectiveness. Once approved, when appropriate, FDA can permit fulfillment of post-approval +requirements for RMATs receiving accelerated approval through the submission of clinical evidence, clinical studies, patient registries, +or other sources of real-world evidence such as electronic health records; through the collection of larger confirmatory datasets; or +through post-approval monitoring of all patients treated with the therapy prior to approval. +Fast track designation, breakthrough therapy designation, +priority review, accelerated approval, and RMAT designation do not change the standards for approval but may expedite the development +or approval process. +Patent Term Restoration and Marketing Exclusivity +After approval, owners of relevant drug or biological +product patents may apply for up to a five year term patent extension to restore a portion of patent term lost during product development +and FDA review of a BLA if approval of the application is the first permitted commercial marketing or use of a drug or biologic containing +the active ingredient under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman +Act. The allowable patent term extension is calculated as one-half of the product’s testing phase, which is the time between the +effective date of an IND and initial BLA submission, and all of the approval phase, which is the time between BLA submission and approval, +up to a maximum of five years. The time can be shortened if the FDA determines that the applicant did not pursue approval with due +diligence. The total patent term after the extension may not exceed 14 years from the date of FDA approval of the product. Only one +patent claiming each approved product is eligible for restoration and the patent holder must apply for restoration within 60 days +of approval, even if the product cannot be commercially marketed at that time. The USPTO, in consultation with FDA, reviews and approves +the application for patent term restoration. +For patents that might expire during the BLA application +phase, the patent owner may request an interim patent extension. An interim patent extension increases the patent term by one year and +may be renewed up to four times. For each interim patent extension granted, the post-approval patent extension is reduced by one year. +The director of the USPTO must determine that approval of the product candidate covered by the patent for which a patent extension is +being sought is likely. Interim patent extensions are not available for a product candidate for which a BLA has not been submitted. +19 +Biosimilars and Marketing Exclusivities +The Biologics Price Competition and Innovation +Act (“BPCIA”) created an abbreviated approval pathway for biological product candidates shown to be highly similar to or interchangeable +with an FDA licensed biological product. A biological product on which another biological product candidate’s BLA relies to establish +bio similarity is known as a reference product. Bio similarity sufficient to reference a prior FDA-approved product requires that there +be no differences in conditions of use, route of administration, dosage form and strength, and no clinically meaningful differences between +the biological product candidate and the reference product in terms of safety, purity, and potency. Bio similarity must be shown through +analytical trials, animal trials and at least one clinical trial, unless the Secretary of HHS waives a required element. A biosimilar +product candidate may be deemed interchangeable with a prior approved product if it meets the higher hurdle of demonstrating that it can +be expected to produce the same clinical results as the reference product and, for products administered multiple times, the biological +product candidate and the reference biologic may be switched after one has been previously administered without increasing safety risks +or risks of diminished efficacy relative to exclusive use of the reference biologic. Complexities associated with the larger, and often +more complex, structures of biologics, as well as the process by which such products are manufactured, pose significant hurdles to implementation +of the abbreviated approval pathway that are still being resolved by FDA. +A reference biologic is granted 12 years +of exclusivity from the time of first licensure of the reference product, and no application for a biosimilar can be submitted for four years +from the date of licensure of the reference product. The first biological product candidate submitted under the abbreviated approval pathway +that is determined to be interchangeable with the reference product has exclusivity against a finding of interchangeability for other +biologics for the same condition of use for the lesser of (i) one year after first commercial marketing of the first interchangeable +biosimilar, (ii) 18 months after the first interchangeable biosimilar is approved if there is no patent challenge, (iii) 18 months +after resolution of a lawsuit over the patents of the reference biologic in favor of the first interchangeable biosimilar applicant, or +(iv) 42 months after the first interchangeable biosimilar’s application has been approved if a patent lawsuit is ongoing +within the 42 month period. At this time, it is unclear whether products deemed “interchangeable” by FDA will, in fact, be +readily substituted by pharmacies, which are governed by state pharmacy laws and regulations. +Healthcare Regulation +Coverage, Pricing, and Reimbursement +Our ability to successfully commercialize any +products for which we receive regulatory approval for commercial sale will depend, in part, on the extent to which third-party payors +provide coverage and establish adequate reimbursement levels for such products, and significant uncertainty exists as to the coverage +and reimbursement status of any products for which may we obtain regulatory approval. In the United States, third-party payors include +federal and state health care programs, private managed care providers, health insurers and other organizations. The process for determining +whether a third-party payor will provide coverage for a product may be separate from the process for setting the price of a product or +for establishing the reimbursement rate that such a payor will pay for the product. Third-party payors may limit coverage to specific +products on an approved list, also known as a formulary, which might not include all of the FDA-approved products for a particular indication. +Third-party payors are increasingly challenging the price, examining the medical necessity, and reviewing the cost-effectiveness of medical +products, therapies, and services, in addition to questioning their safety and efficacy. We may need to conduct expensive pharmaco-economic +studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain +the FDA approvals. Our product candidates may not be considered medically necessary or cost-effective. A payor’s decision to provide +coverage for a product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to +provide coverage for a product does not assure that other payors will also provide coverage for the product. Adequate third-party reimbursement +may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. +20 +The marketability of any product candidates for +which we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate +coverage and reimbursement. In addition, emphasis on managed care in the United States has increased and we expect will continue +to increase the pressure on healthcare pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if +favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable +coverage policies and reimbursement rates may be implemented in the future. +Other Healthcare Laws and Compliance +Requirements +Although we currently do not have any commercialized +products, our current and future business operations may be subject to additional healthcare regulation and enforcement by the federal +government and by authorities in the states and foreign jurisdictions in which we conduct our business. Such laws include, without limitation, +state and federal anti-kickback, fraud and abuse, false claims, privacy and security, price reporting and physician sunshine laws. Some +of our pre-commercial activities are subject to some of these laws. +The federal Anti-Kickback Statute makes it illegal +for any person or entity, including a prescription drug manufacturer or a party acting on its behalf to knowingly and willfully, directly +or indirectly, solicit, receive, offer, or pay any remuneration in cash or in kind that is intended to induce or reward the referral of +business, including the purchase, order, or lease of any item or service for which payment may be made under a federal healthcare program, +such as Medicare or Medicaid. The term “remuneration” has been broadly interpreted to include anything of value. The Anti-Kickback +Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, formulary +managers and beneficiaries on the other. +Although there are a number of statutory exceptions +and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices +that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny +if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception +or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement +will be evaluated on a case-by-case basis based on a cumulative review of all its facts and circumstances. Several courts have found that +the Anti-Kickback Statute may be violated if any one purpose of an arrangement involving remuneration is to induce referrals of federal +healthcare program business. In addition, liability may be established without actual knowledge of the statute or specific intent to violate +it. Violations of this law are punishable by up to ten years in prison, and can also result in criminal fines, civil money penalties +and exclusion from participation in federal healthcare programs. +Moreover, a claim including items or services +resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil +False Claims Act. +The federal civil False Claims Act prohibits, +among other things, individuals or entities from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment +of government funds or knowingly making, using, or causing to be made or used, a false record or statement material to an obligation to +pay money to the government or knowingly concealing or knowingly and improperly avoiding, decreasing, or concealing an obligation to pay +money to the federal government. Persons and entities can be held liable under these laws if they are deemed to “cause” the +submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers or promoting +a product off-label. Many pharmaceutical and other healthcare companies have been investigated and have reached substantial financial +settlements with the federal government under the civil False Claims Act for a variety of alleged improper marketing activities, including: +providing free product to customers with the expectation that the customers would bill federal programs for the product; providing sham +consulting fees, grants, free travel and other benefits to physicians to induce them to prescribe the company’s products; and inflating +prices reported to private price publication services, which are used to set drug payment rates under government healthcare programs. +Penalties for federal civil False Claims Act violations may include up to three times the actual damages sustained by the government, +plus mandatory civil penalties of between $13,508 and $27,018 for each separate false claim, and the potential for exclusion from participation +in federal healthcare programs. In addition, although the federal False Claims Act is a civil statute, False Claims Act violations may +also implicate various federal criminal statutes. +The healthcare fraud provisions of the Health +Insurance Portability and Accountability Act (“HIPAA”) prohibit knowingly and willfully executing, or attempting to execute, +a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing +from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully +falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection +with the delivery of or payment for healthcare benefits, items or services. Like the federal Anti-Kickback Statute, a person or entity +does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. +21 +Many states have analogous laws and regulations, +such as: state anti-kickback and false claims laws that may apply to sales or marketing arrangements and claims involving healthcare items +or services reimbursed by non-governmental third-party payors, including private insurers; laws that require pharmaceutical companies +to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by +the federal government or otherwise restrict payments that may be made to certain healthcare providers; laws that require drug manufacturers +to report information related to clinical trials or information related to payments and other transfers of value to physicians and other +healthcare providers or marketing expenditures; laws that restrict the ability of manufacturers to offer co-pay support to patients for +certain prescription drugs; and laws and local ordinances that require identification or licensing of sales representatives. +HIPAA, as amended by the Health Information Technology +for Economic and Clinical Health Act (“HITECH”), and their implementing regulations, mandates, among other things, the adoption +of uniform standards for the electronic exchange of information in common healthcare transactions, as well as standards relating to the +privacy and security of individually identifiable health information, which require the adoption of administrative, physical and technical +safeguards to protect such information. Among other things, HITECH makes HIPAA’s security standards directly applicable to business +associates, defined as independent contractors or agents of covered entities that create, receive, or obtain protected health information +in connection with providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that +may be imposed against covered entities and business associates and gave state attorneys general new authority to file civil actions for +damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing +federal civil actions. In addition, certain state laws govern the privacy and security of health information in certain circumstances, +some of which are more stringent than HIPAA and many of which differ from each other in significant ways and may not have the same effect, +thus complicating compliance efforts. Failure to comply with these laws, where applicable, can result in the imposition of significant +civil and/or criminal penalties. +The U.S. federal Physician Payment Sunshine +Act, implemented as the Open Payments Program, requires manufacturers of drugs, devices, biologics, and medical supplies for which payment +is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to +CMS information related to direct or indirect payments and other transfers of value to physicians and teaching hospitals (and certain +other practitioners as of 2022), as well as ownership and investment interests held in the company by physicians and their immediate family +members. +Because we intend to commercialize products that +could be reimbursed under a federal health care program and other governmental healthcare programs, we intend to develop a comprehensive +compliance program that establishes internal control to facilitate adherence to the rules and program requirements to which we will or +may become subject. Although the development and implementation of compliance programs designed to establish internal control and facilitate +compliance can mitigate the risk of investigation, prosecution, and penalties assessed for violations of these laws, the risks cannot +be entirely eliminated. +If our operations are found to be in violation +of any of such laws or any other governmental regulations that apply to us, we may be subject to penalties, including, without limitation, +administrative, civil and criminal penalties, damages, fines, disgorgement, contractual damages, reputational harm, diminished profits +and future earnings, the curtailment or restructuring of our operations, exclusion from participation in federal and state healthcare +programs and individual imprisonment, any of which could adversely affect our ability to operate our business and our financial results +Health Care Reform +In the United States and some foreign jurisdictions, +there have been, and continue to be, legislative and regulatory changes and proposed changes regarding the healthcare system that could +prevent or delay marketing approval of product candidates, restrict or regulate post-approval activities, and affect the ability to profitably +sell product candidates for which marketing approval is obtained. Among policy makers and payors in the United States and elsewhere, +there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving +quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and +has been significantly affected by major legislative initiatives. +22 +For example, the Affordable Care Act (“ACA”) +substantially changed the way healthcare is financed by both the government and private insurers, and significantly impacts the U.S. pharmaceutical +industry. The ACA contains provisions that may reduce the profitability of drug products through increased rebates for drugs reimbursed +by Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D +beneficiaries, and annual fees based on pharmaceutical companies’ share of sales to federal health care programs. The ACA made several +changes to the Medicaid Drug Rebate Program, including increasing pharmaceutical manufacturers’ rebate liability by raising the +minimum basic Medicaid rebate. The ACA also expanded the universe of Medicaid utilization subject to drug rebates by requiring pharmaceutical +manufacturers to pay rebates on Medicaid managed care utilization and by enlarging the population potentially eligible for Medicaid drug +benefits. +There have been judicial challenges to certain +aspects of the ACA, as well as efforts by Congress to modify, and by agencies to alter the implementation of, certain aspects of the ACA. For +example, Congress eliminated the tax penalty for failure to comply with the ACA’s individual mandate to carry health insurance. +Further, the Bipartisan Budget Act of 2018, among other things, amended the ACA to increase from 50 percent to 70 percent the +point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D to close the coverage gap +in most Medicare drug plans, commonly referred to as the donut hole. +It is possible that the ACA, as currently enacted +or as may be amended in the future, as well as other healthcare reform measures, including those that may be adopted in the future, may +result in more rigorous coverage criteria, and less favorable payment methodologies, or other downward pressure on coverage and payment +and the price that we receive for any approved product. Any reduction in reimbursement or restriction on coverage under Medicare or other +federal health care programs may result in a similar reduction or restriction by private payors. +Other legislative changes have been proposed and +adopted in the U.S. since the ACA was enacted. For example, the Inflation Reduction Act introduces several changes to the Medicare +Part D benefit, including a limit on annual out-of-pocket costs and a change in manufacturer liability under the program which could +negatively affect the profitability of our product candidates. The IRA sunsets the current Part D coverage gap discount program starting +in 2025 and replaces it with a new manufacturer discount program. Failure to pay a discount under this new program will be subject to +a civil monetary penalty. In addition, the IRA establishes a Medicare Part B inflation rebate scheme effective January 2023 +and a Medicare Part D inflation rebate scheme effective October 2022, under which, generally speaking, manufacturers will owe +rebates if the price of a Part B or Part D drug increases faster than the pace of inflation. Failure to timely pay a Part B +or D inflation rebate is subject to a civil monetary penalty. The IRA also creates a drug price negotiation program under which the prices +for Medicare units of certain high Medicare spend drugs and biologicals without generic or biosimilar competition will be capped by reference +to, among other things, a specified non-federal average manufacturer price starting in 2026. Failure to comply with requirements under +the drug price negotiation program is subject to an excise tax and/or a civil monetary penalty. Congress continues to examine various +policy proposals that may result in pressure on the prices of prescription drugs with respect to the government health benefit programs +and otherwise. The IRA or other legislative changes could impact the market conditions for our product candidates. +In general, there has been heightened governmental +scrutiny over the manner in which drug manufacturers set prices for their commercial products, which has resulted in several Congressional +inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug product +pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies +for drug products. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control +pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain +product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other +countries and bulk purchasing. +23 +Drug Pedigree Laws +State and federal governments have proposed or +enacted various drug pedigree laws which can require the tracking of all transactions involving prescription drugs from the manufacturer +to the pharmacy (or other dispensing) level. Companies are required to maintain records documenting the chain of custody of prescription +drug products beginning with the purchase of such products from the manufacturer. Compliance with these pedigree laws requires implementation +of extensive tracking systems as well as heightened documentation and coordination with customers and manufacturers. While we fully intend +to comply with these laws, there is uncertainty about future changes in legislation and government enforcement of these laws. Failure +to comply could result in fines or penalties, as well as loss of business that could have a material adverse effect on our financial results. +Federal Regulation of Patent Litigation Settlements and Authorized +Generic Arrangements +As part of the Medicare Prescription Drug, Improvement, +and Modernization Act of 2003, companies are required to file with the U.S. Federal Trade Commission (“FTC”) +and the U.S. Department of Justice certain types of agreements entered into between brand and generic pharmaceutical companies related +to the settlement of patent litigation or manufacture, marketing and sale of generic versions of branded drugs. This requirement could +affect the manner in which generic drug manufacturers resolve intellectual property litigation and other disputes with brand pharmaceutical +companies and could result generally in an increase in private-party litigation against pharmaceutical companies or additional investigations +or proceedings by the FTC or other governmental authorities. +Other +The U.S. federal government, various states +and localities have laws regulating the manufacture and distribution of pharmaceuticals, as well as regulations dealing with the substitution +of generic drugs for branded drugs. Our operations are also subject to regulation, licensing requirements and inspection by the states +and localities in which our operations are located or in which we conduct business. +Certain of our activities are also subject to +FTC enforcement actions. The FTC enforces a variety of antitrust and consumer protection laws designed to ensure that the nation’s +markets function competitively, are vigorous, efficient and free of undue restrictions. Federal, state, local and foreign laws of general +applicability, such as laws regulating working conditions, also govern us. +In addition, we are subject to numerous and increasingly +stringent federal, state and local environmental laws and regulations concerning, among other things, the generation, handling, storage, +transportation, treatment and disposal of toxic and hazardous substances, the discharge of pollutants into the air and water and the cleanup +of contamination. We are required to maintain and comply with environmental permits and controls for some of our operations, and these +permits are subject to modification, renewal and revocation by the issuing authorities. Our environmental capital expenditures and costs +for environmental compliance may increase in the future as a result of changes in environmental laws and regulations or increased manufacturing +activities at any of our facilities. We could incur significant costs or liabilities as a result of any failure to comply with environmental +laws, including fines, penalties, third-party claims and the costs of undertaking a clean-up at a current or former site or at a site +to which our wastes were transported. In addition, we have grown in part by acquisition, and our diligence may not have identified environmental +impacts from historical operations at sites we have acquired in the past or may acquire in the future. +Employees +As of the date of this Annual Report, we have two full time employees. +We have no part-time employees and we engage one consultant. We believe that we maintain good relations with our employees. \ No newline at end of file diff --git a/raw/filings/0001894525/2024/0001213900-25-032206/item13.txt b/raw/filings/0001894525/2024/0001213900-25-032206/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..e4893809a21727a7095512d7cf36ac5bb21bfc17 --- /dev/null +++ b/raw/filings/0001894525/2024/0001213900-25-032206/item13.txt @@ -0,0 +1,2 @@ +Item 13. Certain Relationships and Related Transactions, and Director Independence +46 \ No newline at end of file diff --git a/raw/filings/0001894525/2025/0001213900-26-051139/filing.txt b/raw/filings/0001894525/2025/0001213900-26-051139/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..0024bb5c07e0ab011c9a2d94cb71e8af52a1ef50 --- /dev/null +++ b/raw/filings/0001894525/2025/0001213900-26-051139/filing.txt @@ -0,0 +1,5421 @@ +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +(Mark One) +☒ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , 2025 +☐ +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from to +Commission File Number: 001-42545 +Apimeds Pharmaceuticals US, Inc. +(Exact name of registrant as specified in its charter) +Delaware 85-1099700 +(State or other jurisdiction of +incorporation or organization) (IRS Employer +Identification No.) +100 Matawan Rd , Suite 325 +Matawan , New Jersey +07747 +(Address of principal executive offices) (Zip Code) +848 - 201-5010 +(Registrant’s telephone number, including area +code) +Not applicable +(Former name, former address and former fiscal year, +if changed since last report) +Securities registered pursuant to Section 12(b) of the Act: +Title of each class Trading Symbol(s) Name of each exchange on which registered +Common Stock, par value $0.01 APUS NYSE American LLC +Securities registered pursuant to Section 12(g) of the Act: None. +Indicate by check mark if the registrant is a well-known +seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ +No ☒ +Indicate by check mark if the registrant is not required +to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ +No ☒ +Indicate by check mark whether the registrant (1) +has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months +(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements +for the past 90 days. Yes ☒ No ☐ +Indicate by check mark whether the registrant has +submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 +of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes ☒ +No ☐ +Indicate by check mark whether the registrant is a +large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See +the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and +“emerging growth company” in Rule 12b-2 of the Exchange Act: +Large accelerated filer ☐ Accelerated filer ☐ +Non-accelerated filer ☒ Smaller reporting company ☒ +Emerging growth company ☒ +If an emerging growth company, indicate by check mark +if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards +provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant has +filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting +under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its +audit report. ☐ +If securities are registered pursuant to Section 12(b) +of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of +an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error +corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s +executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a +shell company (as defined in Rule 12b-2 of the Exchange Act). +Yes ☐ +No ☒ +As of June 30, 2025 the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock outstanding, other than securities held by persons who may be deemed affiliates of the registrant, computed by reference to the closing sales price of $1.76 on June 30, 2025, for the registrant’s common stock, trading on such date, as reported on NYSE American LLC, was approximately $ 7,811,096.48 . +As +of April 30 2026, there were 12,575,983 shares of the registrant’s common stock, par value $0.01 per share, issued and outstanding. +DOCUMENTS INCORPORATED BY REFERENCE +None . +TABLE OF CONTENTS +Page +Part I +1 +Item 1. Business +1 +Item 1A. Risk Factors +38 +Item 1B. Unresolved Staff Comments +38 +Item 1C. Cybersecurity +39 +Item 2. Properties +40 +Item 3. Legal Proceedings +40 +Item 4. Mine Safety Disclosures +40 +Part II +41 +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +41 +Item 6. [Reserved] +41 +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +41 +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +46 +Item 8. Financial Statements and Supplementary Data +46 +Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +47 +Item 9A. Controls and Procedures +47 +Item 9B. Other Information +48 +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +48 +Part III +49 +Item 10. Directors, Executive Officers and Corporate Governance +49 +Item 11. Executive Compensation +55 +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +57 +Item 13. Certain Relationships and Related Transactions, and Director Independence +66 +Item 14. Principal Accountant Fees and Services +70 +Part IV +71 +Item 15. Exhibits and Financial Statement Schedules +71 +Item 16. Form 10-K Summary +72 +Signature Page +73 +Index to Financial Statements +F-1 +i +SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS +Various statements in this Annual +Report on Form 10-K (the “Annual Report”) of Apimeds Pharmaceuticals US, Inc. are “forward-looking statements” +within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve substantial risks and uncertainties. +All statements, other than statements of historical facts, included in this report, including statements regarding our strategy, future +operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking +statements. These statements are subject to risks and uncertainties (some of which are beyond our control) and are based on information +currently available to our management. Words such as “anticipate,” “believe,” “estimate,” “expect,” +“intend,” “may,” “plan,” “contemplates,” “predict,” “project,” +“target,” “likely,” “potential,” “continue,” “ongoing,” “will,” +“would,” “should,” “could,” or the negative of these terms and similar expressions or words, identify +forward-looking statements. The events and circumstances reflected in our forward-looking statements may not occur and actual results +could differ materially from those projected in our forward-looking statements. Such forward-looking statements are based on current expectations +and involve inherent risks and uncertainties, including risks and uncertainties that could delay, divert or change these expectations, +and could cause actual results to differ materially from those projected in these forward-looking statements. These risks and uncertainties +include, but are not limited to, those factors described under Part I, Item 1A: “Risk Factors.” Should one or more of these +risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from +those projected in these forward-looking statements. +This Annual Report contains market +data and industry forecasts that were obtained from industry publications. These data involve a number of assumptions and limitations, +and you are cautioned not to give undue weight to such estimates. We have not independently verified any third-party information. While +we believe the market position, market opportunity and market size information included in this report is generally reliable, such information +is inherently imprecise and subject to change. +All written and oral forward-looking +statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements +contained or referred to in this section. We caution investors not to rely on the forward-looking statements we make or that are made +on our behalf as predictions of future events. We undertake no obligation and specifically decline any obligation to update or revise +any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable +securities laws. +We encourage you to read the +management’s discussion and analysis of our financial condition and results of operations and our financial statements contained +in this Annual Report. There can be no assurance that we will in fact achieve the actual results or developments we anticipate or, even +if we do substantially realize them, that they will have the expected consequences to, or effects on, us. Therefore, we can give no assurances +that we will achieve the outcomes stated in those forward-looking statements, projections and estimates. +ii +PART I +Item 1. Business +Overview +On December 1, 2025, Apimeds Pharmaceuticals US, Inc., +a Delaware corporation (“ APUS ”, the “ Company ,” “ we ,” “ us ,” +or “ our ”) entered into and closed an Agreement and Plan of Merger (the “ Merger Agreement ”), with +Apimeds Merger Sub, Inc., a Delaware corporation (“ Merger Sub ”), MindWave Innovations Inc, a Delaware corporation (“ MindWave ”), +Lokahi Therapeutics, Inc., a Nevada corporation (“ Bio Sub ”), and Erik Emerson, solely in his capacity as representative +for the Bio Business (the “ Bio Business Representative ”). The transactions contemplated by the Merger Agreement are +referred to herein as the “ Transactions ” and the closing of the Transactions is referred to herein as the “ Closing ”. +Pursuant to the terms and conditions of the Merger +Agreement, immediately prior to the Closing, a certificate of merger (the “ Certificate of Merger ”) was filed with the +Secretary of State of the State of Delaware (the “ DE SOS ”) (such time of the filing of the Certificate of Merger, the +“ Effective Time ”), in accordance with the DGCL. Pursuant to the Certificate of Merger, Merger Sub was merged with +and into MindWave (the “ Merger ”), with MindWave surviving the Merger as the surviving corporation (the “ Surviving +Corporation ”). As a result of the Merger, MindWave became a direct wholly owned subsidiary of the Company. At the Effective +Time, all of the property, rights, privileges, powers and franchises of MindWave and Merger Sub vested in the Surviving Corporation and +all of the debts, liabilities and duties of MindWave and Merger Sub became the debts, liabilities and duties of the Surviving Corporation. +The Closing occurred simultaneously with the execution and delivery of the Merger Agreement on the Closing Date. +At the Effective Time, (i) each share of MindWave +common stock issued and outstanding immediately prior to the Effective Time shall be canceled and converted into the right to receive +a portion of the Merger Consideration, consisting of shares of Company Preferred Stock; and (ii) each holder of such shares shall +receive, for each share of MindWave Common Stock held immediately prior to the Effective Time, a pro rata portion of the Merger Consideration, +allocated as follows: (A) a number of duly authorized, validly issued, fully paid and nonassessable shares of Company Common Stock, +such that the aggregate number of shares of Company Common Stock issued to all holders of MindWave Common Stock shall equal 0% of the +total number of shares of Company Common Stock issued and outstanding as of the date of the Merger Agreement (the “ Common Stock +Cap ”), with each holder’s allocation rounded down to the nearest whole share; and (B) a number of duly authorized, +validly issued, fully paid and nonassessable shares of Company Preferred Stock, such that, immediately following the Effective Time, the +holders of MindWave Common Stock collectively hold, on an as-converted to Company Common Stock basis, 90.9% of the total issued and +outstanding equity securities of the Company (exclusive of the Company Common Stock issued pursuant to clause (A) and calculated +on a fully diluted basis). The shares of Company Common Stock and Company Preferred Stock issued to holders of MindWave Common Stock pursuant +to the Merger Agreement, on an as-converted and fully diluted basis, shall collectively represent 90.9% of the equity capital of +the Company as of the Closing. For purposes of the Merger Agreement, the shares of Company Common Stock, Company Preferred Stock, and +MindWave Common Stock issued pursuant to the Merger Agreement are collectively referred to as the “ Merger Consideration .” +In connection with the Merger Agreement, on December 1, +2025, certain stockholders of the Company, collectively holding approximately 51% of the Company’s shares of common stock, par value +$0.01 per share (the “ Common Stock ”), approved by written consent in lieu of a special meeting (the “ Written +Consent ”), in accordance with Section 228 of the Delaware General Corporation Law (the “ DGCL ”) and the +Company’s Amended and Restated Certificate of Incorporation, the following actions (the “ Corporate Actions ”): +1. The Preferred Stock Conversion and Issuance : the issuance of Company Common Stock upon +the conversion (the “ Preferred Stock Conversion ”) of the Series A Convertible Preferred Stock, par value $0.01 +per share of the Company (the “ Preferred Stock ”); +2. The Notes Conversion and Issuance : the issuance of Company Common Stock upon the conversion +of the convertible notes (the “ Notes Conversion ”) issued by the Company pursuant to that certain Securities Purchase +Agreement, entered into by the Company and certain institutional investors on December 1, 2025, and amended by that certain Amendment +No. 1 to Securities Purchase Agreement on December 8, 2025; +1 +3. The Reverse Stock Split : a 1-for-10 reverse stock split (the “ Reverse +Stock Split ”) of the Company’s Common Stock, a change in the par value per share of the Company’s Common Stock from +$0.01 to $0.001 (the “ Change in Par Value ”), and a corresponding amendment (the “ Charter Amendment ”) +to the Company’s Amended and Restated Certificate of Incorporation (the “ Charter ”) to (i) authorize the +Board of Directors to effect the Reverse Stock split and (ii) the Change in Par Value; +4. The 2024 Plan Share Increase : an amendment to the Apimeds Pharmaceuticals US, Inc. +2024 Equity Incentive Plan (the “ 2024 Plan ”) to increase the number of shares of Common Stock issuable under the 2024 +Plan to 2,096,679; and +5. The 2025 Equity Plan : the approval and adoption the Apimeds Pharmaceuticals US, Inc. +2025 Equity Incentive Plan (the “ 2025 Plan ”). +In connection with such Corporate Actions, the Company +filed and mailed an information statement (the “ Information Statement ”) to its stockholders pursuant to Rule 14c-2 +under the Securities Act of 1934, as amended. The Corporate Actions will not become effective until at least 20 calendar days after the +mailing of the definitive Information Statement (the “ Waiting Period ”). Following the expiration of the Waiting Period, +or March 25, 2026, the Company expects to file the Charter Amendment with the Secretary of State of the State of Delaware to effect the +Reverse Stock Split and the Change in Par Value. +As a result of the Merger, the Preferred Stock Conversion, +and the Notes Conversion, a change in control of the Company will occur within the meaning of the NYSE American Company Guide. Accordingly, +the Company will be required to submit a new listing application to NYSE American (the “ Listing Application ”). Although +stockholder approval of the Preferred Stock Conversion and the Notes Conversion has been obtained by the Written Consent, which will become +effective at the Action Effective Time, the Company does not intend to effect the Preferred Stock Conversion and the Notes Conversion +unless and until NYSE American has approved the Listing Application. There can be no assurance that NYSE American will approve the Listing +Application. If such approval is not obtained, the Preferred Stock Conversion and the Notes Conversion will not be completed. +INFORMATION ABOUT THE BUSINESS OF APIMEDS PHARMACEUTICALS +US, INC. +Unless the context otherwise indicates or requires, +all references in this section to “we,” “us,” “our,” “our company” “the Company” +and “Apimeds US” refer to Apimeds Pharmaceuticals US, Inc. +The Company conducts its business through two +wholly-owned operating subsidiaries, Lokahi Therapeutics, Inc.and MindWave Innovations Inc. +INFORMATION ABOUT THE BUSINESS OF LOKAHI THERAPEUTICS, +INC. +Unless the context otherwise indicates or requires, +all references in this section to “we,” “us,” “our,” “our company” “the Company” +and “Lokahi” refer to Lokahi Therapeutics, Inc. +We are a clinical stage biopharmaceutical company +in the process of developing Apitox, an intradermally administered bee venom-based toxin. Our focus is primarily on developing innovative +therapies that address inflammation and pain management symptoms associated with knee OA and, to a lesser extent, MS. Apitox is currently +marketed and sold by Apimeds Inc. (“ Apimeds Korea ”) in South Korea as “Apitoxin” for the treatment of OA. Apimeds +US is not associated with the market, sale and revenues generated from Apitoxin in South Korea, and Apitoxin has not yet been approved +by the FDA for any indication. +Apitox is a purified, pharmaceutical grade venom (bee +venom), of the Apis mellifera, or western honeybee, which is classified by the FDA as an active pharmaceutical ingredient +(“ API ”). Bee venom has been used in Asia and Europe to treat pain for hundreds of years. While not FDA approved +in a controlled, prescription based biologic environment for defined indications, the use of bee venom has been FDA approved as a “under +the skin injection” to reduce the allergic reactions to bee stings. Apimeds Korea has developed a proprietary method and process +for turning extracted bee venom into a lyophilized powder for reconstitution prior to intradermal dose injections, which they sell in +South Korea as Apitoxin. We intend to use a similar process with respect to Apitox, pursuant to the Business Agreement, which gives us +a license to utilize all prior clinical development data associated with Apitoxin. The advancement of extracted bee venom for treatment +of inflammatory conditions, including but not limited to knee OA and MS is speculative but based on direction provided by prior clinical +data. +2 +Apimeds Korea successfully completed Phase I, +Phase II, and Phase III trials in OA in 2003, at which point Apitoxin was approved by the Korean Ministry of Food and Drug Safety +(“MFDA”) to treat pain and mobility in patients with OA. Since 2003, a post-marketing/approval safety study in South +Korea followed 3,194 patients from 2003 through 2009, with no serious adverse events. The purpose of a Phase I trial is to test +to determine whether a new treatment is safe and look for the best way to give the treatment. Phase II trials test to determine whether +a condition or disease responds to the new treatment. Phase III trials test to determine whether a new treatment is better than a +standard treatment. +In 2013, the first of two required U.S. Phase III +clinical trials was authorized to enroll patients to study the use of Apitoxin to study the same indication as approved in South Korea +in 2023 — treatment of pain and lack of mobility in patients with OA (the “ Apimeds Korea Phase III OA Trial ”). +The Apimeds Korea Phase III OA Trial (330 patients) was completed in 2018, and displayed no serious adverse events. +Based on the results from the Apimeds Korea Phase III +OA Trial, which demonstrated therapeutic (statistical and clinically significant improvements in all outcome measures of pain, physical +function, and disease assessment) effect compared to the placebo group, but in combination with prior development by Apimeds Korea, did +not meet the FDA’s standards for approval, as the study population was too small and the methods for handling missing data were +inadequate, resulting in a study that did not demonstrate a significant treatment effect. We will be pursuing a second Phase III +trial to meet agreed upon FDA standards. Based on results from the Apimeds Korea Phase III OA Trial, we have evaluated the most appropriate +population, defined as advanced knee OA patients, which will range from defined grade 2, 3 and 4 within this treatment group, to continue +to progress our own Phase III trial. Pursuant to our previous correspondence with the FDA, we have designed and will implement our +Phase III trial to best address our patient population, appropriate dosing, and the most effective way to evaluate Apitox in meeting +the patient population’s needs. +We believe the progress we are making in clinical +trials provides us support in our belief in the potential of Apitox to be an innovative therapy. We aim to treat the inflammation and +pain management symptoms associated with knee OA and to help manage the devastating symptoms of this disease. In the future, we also aim +to leverage our research in knee OA to investigate how Apitox may be used to treat similar symptoms associated with MS. +Treatment of OA +OA is typically treated with painkillers known as non-steroidal +anti-inflammatory drugs (NSAIDs). These medications have an anti-inflammatory and pain-relieving effect. These medications include ibuprofen +(Motrin, Advil) naproxen (Aleve) and diclofenac (Voltaren and others). All of these medications work by blocking enzymes that cause pain +and swelling. The problem is that some of those enzymes also help blood to clot and protect the lining of your stomach. Without them, +you can bruise easily, develop ulcers and may even bleed in your intestines. NSAIDs also increase your chance of heart attack, stroke +and heart failure. The risk increases the longer you use them and the more you take. We believe Apitox could be a successful alternative +to NSAIDs in the treatment of the inflammation and pain management symptoms associated with OA without the harmful side effects. +According to MedicalNewsToday, OA is the most common +form of arthritis, affecting around 500 million people worldwide, or around 7% of the global population. Currently, in the United States, over +32 million people suffer from OA. As the 15 th highest cause of years lived with disability (YLDs) +worldwide, the burden OA poses to individuals is substantial, characterized by pain, activity limitations, and reduced quality of +life. The economic impact of OA, which includes direct and indirect (time) costs, is also substantial, ranging from 1 to 2.5% of gross +national product (GNP) in countries with established market economies, like the United States. Though trends in OA prevalence vary +by geography, the prevalence of OA is projected to rise in regions with established market economies such as North America and Europe, +where populations are aging and the prevalence of obesity is rising. +While OA can occur in any joint, it occurs most frequently +in the knee, which, according to ScienceDirect, currently accounts for 365 million cases worldwide and 61% of YLDs lost due to OA, +followed by the hand. +Our current efforts are focused on the development +of Apitox in the United States for the treatment of inflammation and pain management relating to OA in the knee. +3 +Treatment of MS +Additionally, we believe the previous clinical trial +success of Apimeds Korea with respect to the use of Apitoxin to treat symptoms associated with knee OA, and pending the success of our +anticipated Phase III trial in knee OA, we will be in a position to further explore the use of Apitox as a potential treatment for +the symptoms of MS. MS is a chronic disease of the central nervous system. It is an autoimmune condition that is characterized by +the body’s own immune cells (macrophages and lymphocytes) attacking the myelin that coats nerve cells, which can lead to inflammation +throughout the central nervous system. MS is an unpredictable disease that affects people differently. Some people with MS may have only +mild symptoms. Others may lose their ability to see clearly, write, speak, or walk when communication between the brain and other parts +of the body becomes disrupted. +MS is the most common progressive neurologic disease +of young adults worldwide. A study funded by the National MS Society estimates that nearly one million individuals are currently +affected by this disease in the United States. The total economic burden of MS in the United States is estimated to be $85.4 billion, +with $63.3 billion in direct medical costs and $22.1 billion in indirect and nonmedical costs. MS typically affects patients +at a young age, resulting in a greater loss of productivity and quality of life. +Beta interferon drugs are among the most common medications +used to treat MS. Interferons are signaling molecules that regulate immune cells. Potential side effects of these drugs include flu-like +symptoms (which usually fade with continued therapy), depression, or elevation of liver enzymes. +Pain from MS can be felt in different +parts of the body. Trigeminal neuralgia (facial pain) is treated with anticonvulsant or antispasmodic drugs, or less commonly, painkillers. +Central pain, a syndrome caused by damage to the brain and/or spinal cord, can be treated with gabapentin and nortriptyline. Treatments +for chronic back or other musculoskeletal pain may include heat, massage, ultrasound, and physical therapy. +OA and the Current Standard of Care +OA is a degenerative joint disease in which the +tissues in the joint break down over time. It is the most common type of arthritis and is more common in older people. People with osteoarthritis +usually have joint pain and, after rest or inactivity, stiffness for a short period of time. +There are four stages of OA: (1) Minor — minor +wear-and-tear in the joints and little to no pain in the affected area, (2) Mild — more noticeable bone spurs, the +affected area feels stiff after sedentary periods and patients may need a brace, (3) Moderate — cartilage in the +affected area begins to erode, the joint becomes inflamed and causes discomfort during normal activities, and (4) Severe — the +patient is in a lot of pain, the cartilage is almost completely gone leading to an inflammatory response from the joint, and overgrowth +of bony spurs may cause severe pain. +With the progression of OA of the knee, there is obvious +joint inflammation which causes frequent pain when walking, running, squatting, extending or kneeling. Along with joint stiffness after +sitting for long or when waking up in the morning, there may be popping or snapping sounds when walking. +The data from the Apimeds Korea Phase III OA +Trial suggest that Apitox would have the most potential in treating OA in stages 3 and 4. +MS and the Current Standard of Care +MS is increasingly recognized as a neurodegenerative +disease triggered by an inflammatory attack of the central nervous system. There is no cure for multiple sclerosis. Treatment typically +focuses on speeding recovery from attacks, reducing new radiographic and clinical relapses, slowing the progression of the disease, +and managing MS symptoms. +MS is unpredictable and can vary substantially +from person to person. MS is divided into four types: clinically isolated syndrome (CIS), relapsing-remitting MS (RRMS), secondary +progressive MS (SPMS) and primary progressive MS (PPMS). +CIS refers to a first episode of neurologic symptoms +caused by inflammation and demyelination in the central nervous system. +4 +RRMS, the most common disease course, shows clearly +defined attacks of new or increasing neurologic symptoms. These attacks are also called relapses or exacerbations. They are followed +by periods of partial or complete recovery, or remission. In remissions, all symptoms may disappear or some symptoms may continue and +become permanent. However, during those periods, the disease does not seem to progress. +SPMS follows the initial relapsing-remitting course. +Some people diagnosed with RRMS eventually go on to have a secondary progressive course, in which neurologic function worsens progressively +or disability accumulates over time. +With PPMS, neurologic function worsens or disability +accumulates as soon as symptoms appear, without early relapses or remissions. PPMS can be further characterized as either active (with +an occasional relapse and/or evidence of new MRI activity over a specified period of time) or not active, as well as with progression +(evidence of disability accrual over time, with or without relapse or new MRI activity) or without progression. +Patients with MS tend to be more educated about their +disease and better organized than patients with other diseases, resulting in patients that are aggressive in their approach to treatment. +This is due to MS impacting otherwise healthy people in the prime of their lives. +MS treatment has undergone significant evolution in +the last ten years with the development and approval of certain new drugs, including several oral agents such as Ocrevus, in the +United States. These new agents not only give patients additional treatment options, but also have improved the efficacy and safety +of treatment for MS overall. In general, these drugs are “disease modifying agents,” intended to slow down the immune mediated +damage to the myelin sheaths that underlie symptoms in MS. However, they often do not adequately address the symptoms that MS patients +experience such as walking problems, bladder control, dizziness, and especially pain. A 2022 study estimated that the average cost of +treatment for patients with MS is approximately $88,000 annually. The out-of-pocket expense for patients can be significantly reduced +through certain insurance plans. However, we believe there is the ability for Apitox to be positioned as an important and cost-effective +therapy. +We believe the data from the Apimeds Korea Phase III +OA Trial suggest that Apitox may have the potential as an adjunctive therapy for all four types of MS. We intend to explore Apitox +as a potential adjunctive therapy through non-registered corporate sponsorship studies to begin determining the appropriate MS patient +populations. +Market Opportunity +We believe there is a significant market opportunity +in the United States for Apitox in the treatment of certain symptoms of knee OA and eventually MS. According to Precedence Research +the osteoarthritis therapeutics market size accounted for $8.28 billion in 2022 and it is expected to hit around $20.24 billion +by 2032, expanding at a CAGR of 9.4% from 2023 to 2032. Although OA can damage any joint, the disorder most commonly affects joints in +your hands, knees, hips and spine. OA symptoms can usually be managed, although the damage to joints can’t be reversed. Apitox +has certain anti-inflammatory properties, which we believe give it significant potential to help treat the symptoms of certain chronic +diseases that involve difficult to control pain and inflammation. +According to Pharmaceutical Technology the MS market +size in the United States accounted for $10.73 billion in 2022 and is expected to hit $24.4 billion by 2030, expanding +at a CAGR of 10.32%. Starting in the first quarter of 2025, we intend to begin the early prosecution of appropriate MS patient populations +through non-registered corporate sponsorship studies. Subject to FDA approval, our development of Apitox in the United States will +in the near term, have two distinct focuses (i) the treatment of the certain symptoms of knee OA and (ii) the quality of life +issues surrounding knee OA, such as pain and lack of mobility. +Living with a chronic disease is challenging, +as it interferes with physical, mental, and social functions and thus greatly affects a person’s quality of life. Indeed, chronically +ill patients are facing major struggles such as higher expenditures, social isolation and loneliness, disabilities, fatigue, pain/discomfort, +feelings of distress, anger, hopelessness, frustration, anxiety, and depression. There is the general assumption that symptom reduction +increases a patient’s quality of life. Our approach with Apitox centers around this concept — effectively treating +certain symptoms of the patient’s disease, thus improving their overall quality of life. Bee venom has been shown to have anti-inflammatory +effects. At low doses, bee venom can suppress inflammatory cytokines such as interleukin-6 (IL-6), IL-8, interferon-γ (IFN-γ), +and tumor necrosis factor-α (TNF-α). A decrease in the signaling pathways responsible for the activation of inflammatory cytokines, +such as nuclear factor-kappa B (NF-κB), extracellular signal-regulated kinases (ERK1/2) and protein kinase Akt, and porphyromonas +gingivalis lipopolysaccharide (PgLPS)-treated human keratinocytes has been associated with treatments involving bee venom. We believe +the driver of pain in the highest category of OA is correlated to the key inflammatory elements treated by bee venom, meaning the evaluation +of our Phase III data may lead to a small indication for narcotic use reduction in the treatment of stage 4 OA. Lokahi partners with +universities to give students hands-on exposure to the strategic side of biopharma, from evaluating clinical assets to understanding intellectual +property, market dynamics, and go-to-market strategies. The ai² Futures Lab™ functions as both a discovery engine for potential +therapeutic assets and a training ground for the next generation of biotech and business leaders. +5 +Our Product Candidate +Apitox is purified honeybee (Apis mellifera) venom +manufactured as a lyophilized powder for reconstitution in 0.5% preservative-free lidocaine (lmg/mg) prior to intradermal dose injections +that are administered up to 1,500 micrograms per weekly visit. The biologically active components include melittin (40-50%), apamin (2-3%), +mast cell degranulating (“MCD”) peptide (Peptide 401,2-3%), phospholipase A2 (10-15%), hyaluronidase (1.5-2%) and other components +in small amounts, including dopamine and norepinephrine. According to a publication entitled “ Pharmacological effects and mechanisms +of bee venom and its main components: Recent progress and perspective ” by Shi et al., certain components of honeybee venom have +been found to have both anti-inflammatory and analgesic effects. The anti-inflammatory and analgesic effects are attributed to the presence +of Peptide 401, adolapin and other components that inhibit prostaglandin synthesis. The hormone-stimulating effects are attributed to +the presence of melittin, cardiopep and other components that stimulate the pituitary-adrenal axis to produce cortisol. Results from an +animal study entitled “ Effect of bee venom and melittin on plasma cortisol in the unanesthetized monkey ” published +by Vick et al., indicate that melittin appears to stimulate the production of cortisol from the adrenal gland. The immune-modulating effects, +especially as it pertains to MS, are suggested to be mediated by CD4+CD2S+Foxp3+ regulatory T cells (Tregs) that are influenced by phospholipase +A2. While the exact mechanism of action of Apitox is not fully understood, research such as the publication entitled “ Therapeutic +Use of Bee Venom and Potential Applications in Veterinary Medicine ” by Bava et al., suggests that certain components in Apitox +may ameliorate immune-inflammatory responses associated with MS. Such studies suggested that treatments with melittin prevent inflammatory +cytokine expression and produces anti-inflammatory effects. The proposed indication for Apitox is to provide add-on therapy for the signs +and symptoms of MS in patients whose condition is relapsing-remitting (RRMS), primary-progressive (PPMS) or secondary progressive (SPMS). +Clinical Development History +Founded in 1989, Apimeds Korea pursued a traditional +drug development process in South Korea for Apis mellifera, the bee venom API for Apitoxin. Apimeds Korea completed a formal preclinical +study to validate dosing and safety for human administration with a focus on antigenicity and toxicology in 1993. +A Phase I trial was completed in 1994, studying +the toxicity and safety of Apitoxin in 20 healthy subjects. The purpose of the Phase I trial was to determine if therapeutic doses +of Apitoxin was safe and to identify possible side-effects, if any. Injections of Apitoxin were given two to three times a week, for a +total of 12 sessions spanning over four to six weeks. Laboratory and physical examination of the subjects included (i) serum +cortisol levels (to see if Apitoxin stimulated the release of cortisol), (ii) serum ionized calcium level (to determine if Apitoxin +decreased the serum calcium level), (iii) urinalysis, (iv) hematology and blood chemistry, and (v) vital signs. The Phase I +trial demonstrated that there were no significant changes pre- and post-testing of the serum cortisol levels, serum ionized calcium levels, +hematology, blood chemistry, urinalysis, and vital signs after the subjects were injected with Apitoxin according to the protocol. There +were no significant physiological changes in the clinical evaluations of the subjects and localized itching was the most frequent side +effect and was managed with ice packs or external anti-itching gels. No severe side effects or aftereffects were observed. The Phase I +trial indicated that Apitox is safe for humans when applied in therapeutic doses. +6 +The Phase I trial was followed by a Phase II +trial in 101 subjects to determine the efficacy of Apitoxin at various dose levels. This was a randomized active-controlled clinical trial +with three groups receiving the study drug at various dose levels and one group receiving the control drug (nabumetone) for a six-week +period. Patients received twice weekly injections of Apitox intradermally at dosages titrated to a maximum of 0.7 mg (Group A), 1.5 mg +(Group B), and 2.0 mg (Group C) for a period of six weeks. Control group patients (Group D) received 1,000 mg of nabumetone +orally each day for the same six-week period. There were 25, 26, 25 and 25 patients assigned to Groups A, B, C and D, respectively. +Efficacy of treatment was evaluated by the physician investigators using a 4-point Likert-like symptom severity rating scale developed +by the authors to assess Pain, Disability and Physical Signs. A similar 5-point scale was used for patient self-evaluation. Safety of +the Apitoxin injection was evaluated by patient reaction, hematologic examination, and laboratory chemistry analysis of blood and urine. +Efficacy data was reported for the 81 patients who completed the study. While there were no significant differences in symptom severity +scores among the four groups at baseline, symptom scores were significantly better in the bee venom injection groups than in the control +group at six weeks and 10 weeks after the start of treatment (p<0.01). A treatment was considered effective if there was +a 20% improvement from baseline in symptom scores after 6 weeks of treatment. Based on this definition, therapy demonstrated overall +efficacy in 70.0% of patients in Group A, 85.7% in Group B, 90.0% in Group C, and 61.9% in Group D (drug control). Overall efficacy +was significantly greater in treatment Groups B and C combined than in the nabumetone-treated control group D (p<0.0177). Importantly, +efficacy of treatment among all patients treated with Apitoxin injection was greater than among nabumetone-treated patients for each category +assessed: Pain: 85.2% versus 76.2%; Disability: 77.0% versus 71.4%; and Physical Signs: 62.3% vs. 23.8%. It is also noteworthy that, unlike +the drug control group, the Apitoxin injection groups continued to demonstrate improved symptom scores at four weeks after the last +treatment (10 weeks). There were no significant changes in vital signs or results of laboratory examinations of any patient in this +clinical trial. Localized itching was experienced by all patients who received Apitox injections. Itching at the injection site generally +lasted for two to three weeks; several patients had this reaction for a longer period. This Phase II study showed that Apitoxin +was significantly more effective than the control drug, nabumetone, in the treatment of knee and spinal osteoarthritis patients. It clearly +showed that improvement in pain, disability and physical signs was greater in the bee venom injection groups than in the nabumetone control +group. No significant side effects developed at the therapeutic doses studied. However, research should be continued to minimize itching +and pain at bee venom injection sites, and possible allergic reaction should always be considered with treatment at high doses. +In 2002, a formal Phase III double-blind, +placebo-controlled trial was completed with 407 subjects (311 of which obeyed the trial protocol and completed the clinical study). The +purpose of the Phase III trial was conducted to verify the efficacy and safety of the medicine resulting from the prior Phase I +and Phase II trials. The therapeutic course treatment included a total of 12 injections over a period of 6 weeks. Final evaluations +were completed in the 8 th week, following two weeks of no injections. During the trial period, laboratory tests +were carried out three times (before injection, in the second week, in the sixth week), and the efficacy evaluation was performed four +times (before injection, in the second week, in the sixth week, and in the eighth week). Safety of the Apitoxin injection was evaluated +by hematologic examination, measurement of cortisol and calcium levels, and laboratory chemistry analysis of blood and urine. The primary +efficacy variable for the trial was the ratio of the subjects who showed more than 20% improvement in the total points of test items for +efficacy evaluation 6 weeks after injection, compared with the total points before injection of the medicine (the “improvement +rate”). Data obtained from subjects of the clinical test were analyzed by two methods, ITT (Intention to Treat) analysis and PP +(Per Protocol) Among 310 subjects who participated in the efficacy evaluation, 153 and 157 patients belonged to the Apitoxin group and +the nabumetone group, respectively. For the Apitoxin group, the ratio of the subjects who showed more than 20% improvement in the total +points was 48.70% (75/154 subjects, 95% confidence interval (“CI”): 40.8~56.6%), while for the nabumetone group, it was 46.15% +(72/156 subjects, 95% CI: 38.3~54.0%), indicating that the improvement rate in the Apitoxin group was greater than in the nabumetone group; +however, there was no statistical significance. (p=0.6533). Among a total of 407 subjects (Apitoxin group: 204; Nabumetone group: 203), +38.24% (78/204) of the Apitoxin group showed more than 20% improvement during the 6 th week of injection, while 38.42% +of the Nabumetone group improved by more than 20%, indicating that the two groups showed similar improvement rate (p=0.9688). The second +efficacy variable was the improvement rate during the 8 th week (2 weeks after the completion of the final injection). +According to results from comparing the total points of efficacy evaluation items during the second week after completion of injection +(during the 8 th week after injection) with the total points before injection, 58.44% (90/154) of the Apitoxin group +showed a higher improvement rate than during the 6 th week (48.70%), while 42.95% (67/156) of the Nabumetone group +showed lower improvement rate than during the 6 th week (46.15%). There was statistical difference in total point +of efficacy evaluation items between the two groups (p=0.0064). These results suggest that even after treatment stops, the efficacy of +Apitoxin continues. With respect to safety, among a total of 407 subjects who participated in the safety evaluation, 69 (33.82%) of the +Apitoxin group showed an adverse event, while 59 (29.06%) of the Nabumetone indicated adverse event. These results indicate that the Apitoxin +group had an elevated adverse event rate than the Nabumetone group, but there was no statistically significant difference between the +two groups (p=0.3526). +In May 2003, MFDA granted approval for the use +of Apitoxin in the treatment of pain and mobility in patients with OA. A post-marketing/approval safety study in South Korea followed +3,194 patients from 2003 through 2009, with no serious adverse events or negative safety signals. +7 +In 2013, preliminary Phase III clinical trials +were authorized to enroll patients by the FDA to study the same indication approved in South Korea — treatment of pain +and lack of mobility in patients with OA. The results of the preliminary Phase III clinical trial indicated statistical and +clinically significant improvements in all outcome measures of pain, physical function, and disease assessment in the study group. The +study group included 330 patients with diagnosed osteoarthritis of the knee. The subjects were evaluated for relief of pain using Western +Ontario and McMaster Osteoarthritis Index (WOMAC) and physician and patient global assessments. The primary efficacy measure was relief +of pain and inflammation over a 12-week treatment period after randomization into the trial. The secondary efficacy measure was improvement +of mobility. Treatment effect will be compared in a 2-1 Apitox vs active control. Compared with the placebo group (histamine), subjects +in the Apitox group who received a maximum dose (1500 micrograms) at each weekly visit over 12 weeks showed a significantly more +improvement in all outcome measures (WOMAC pain, WOMAC physical function, visual analog scale (“VAS”) pain, patient and physician +global assessments of OA). Further, post hoc analyses showed that a statistically significant greater percentage of Apitox-treated subjects +had at least a 40% and 60% reduction in WOMAC pain as compared to placebo-treated subjects. Sensitivity analyses confirmed the validity +of the statistical methods and population definitions. The improvements in pain endpoints were highly significant for both the modified +intention to treat and per protocol populations and the improvement was sustained during the four weeks following Apitox treatment. +Except for an expected higher incidence of injection +site reactions (<5%) in the Apitox group, the overall safety profiles were comparable between the treatment groups. A serious adverse +event of the anaphylactic reaction occurred in an Apitox-treated subject because of a quick injection rate. However, the subject was treated, +and the event was resolved within one day. The incidence of adverse events overall was similar between the Apitox and Placebo groups +(49.0% and 46.3%, respectively), and there were no clinically meaningful changes, within and between groups, in laboratory parameters, +vital signs, physical examination, or electrocardiogram results. +During Apimeds Korea meetings with the FDA, the FDA +highlighted concerns regarding the opioid crisis. As Apitoxin has been previously approved in South Korea, we believe Apitox could be +a viable treatment option within the United States after additional clinical investigation, including our anticipated Phase III +trial. Initially, Apimeds Korea elected not to pursue the OA indication in the United States based on its evaluation of potential +market adoption and the existing competitive environment for OA. Based on results from the Apimeds Korea Phase III OA Trial +and correspondence with the FDA, we believe we are now in a position to continue to advance our Phase III trial for knee OA. +We intend to conduct an additional Phase III +trial in knee OA. Based on our previous correspondence with the FDA, we have started to design and will implement our Phase III +trial to best address our patient population of patients with grade 2, 3 and 4 knee OA, appropriate dosing, and the most effective way +to evaluate Apitox in meeting a patient’s needs. This trial will be an update to the plan of execution based on review of data, +discussions with former principal investigators from Apimeds Korea. Upon successful completion and FDA clearance of our Phase III +trial in knee OA, we will be positioned to submit a BLA. +We intend that the purpose of this trial will be to +evaluate the effectiveness of Apitox in the treatment of grade 2, 3 and 4 OA of the knee. The trial will be designed with a specific focus +on the identified subgroup from which we see the highest degree of benefit. +8 +The following table summarizes the preliminary clinical +trial activity by Apimeds Korea with respect to Apitoxin: +Preliminary Clinical Data in MS Patients +The United States data from the literature on +bee venom studies in MS patients, Table A (Hauser et al. 2001) below, showed clinically significant improvements in disability symptoms +following treatment. +In Table A, results were categorized into the following +groups: dramatic disability improvement (>12 points on the Related Observable Symptom Scale (“ROSS”), good improvement +(7-12 points on ROSS), minimal improvement (<7 points on ROSS), no improvement (<2 points on ROSS), and negative (any total negative +response on ROSS). Descriptive analysis of the ROSS clinical outcomes showed that more than 68% of MS patients showed some kind of positive +improvement in disability (dramatic, good or minimal) and 58% demonstrated a marked improvement (dramatic or good). +Table A. Summary +of Patient Disability Improvement to Bee Venom Treatment Using ROSS +N +% of +Participants +Follow-up Survey +(% improvement) +Related Observable +Symptoms Scale +(points improvement) +Dramatic +15 +29.4 % +>30%, or +>12 points +Good +15 +29.4 % +10 – 29%, or +7 – 12 points +Minimal +5 +9.8 % +<10%, or +<7 points +None +15 +29.4 % +<2%, or +<2 points +Negative +1 +2.0 % +Any total negative response +Any total negative response +After 1 year of bee-venom injections, 68.6 percent +of participants showed improvement. N = number of participants. +Apimeds Korea used data from its first Phase III +clinical trial for OA and peer reviewed publications, including those referenced in Table A above and formal Phase I (the “Castro +Phase I Trial”) and Phase II (the “Wesselius Phase II Trial”) publications specific to MS, to support +its submission in 2014 of its Investigational New Drug Application (“IND”) 122804 (A Phase III, Multi-Center, Randomized, +Double-Blind, Placebo-Controlled, Parallel Group Study to Evaluate the Safety and Efficacy of Apitox Add-on Therapy for Improving Disability +and Quality of Life in Patients with Multiple Sclerosis). +9 +Castro Phase I Trial +The Castro Phase I Trial involved a total of +nine bee venom nonallergic patients with progressive forms of MS, who were 21 – 55 years of age with no other illnesses. +The subjects distributed across four groups (A, B, C, and D) and followed a structured 1-year immunization schedule. Hyperreactivity to +bee venom was evaluated by questionnaire, physical examination, and a battery of hematologic, metabolic, and immunologic tests. Responses +to therapy were evaluated by questionnaire, functional neurological tests, and changes in measurement of somatosensory-evoked potentials. +While no serious adverse allergic reactions were observed in any of the subjects, four experienced worsening of neurological symptoms, +requiring their discontinuation in the study. The observed negative effects could not be conclusively attributed to adverse reactions +arising from the administered therapy. Of the remaining five subjects, three reported subjective amelioration of symptoms and two exhibited +objective improvement. Despite suggesting safety in this preliminary study, the small sample size precluded definitive conclusions regarding +the efficacy of the treatment for MS. Larger and more carefully conducted multicenter studies were required to establish efficacy. +Wesselius Phase II Trial +The Wesselius Phase II Trial involved a randomized +crossover study of 26 patients diagnosed with relapsing-remitting or relapsing secondary progressive MS. Participants were assigned +to 24 weeks of medically supervised bee sting therapy, or a control period of 24 weeks of no treatment. Live bees (up to a maximum +of 20) were used to administer bee venom three times per week. The primary outcome was the cumulative number of new gadolinium-enhancing +lesions on T1-weighted MRI of the brain. Secondary outcomes were lesion load on T2*-weighted MRI, relapse rate, disability (Expanded Disability +Status Scale, Multiple Sclerosis Functional Composite, Guy’s Neurologic Disability Scale), fatigue (Abbreviated Fatigue Questionnaire, +Fatigue Impact Scale), and health-related quality of life (Medical Outcomes Study 36-Item Short Form General Health Survey). +The results of the Wesselous Phase II Trial indicated that during bee sting therapy, there was no significant reduction in the cumulative +number of new gadolinium-enhancing lesions. The T2*-weighted lesion load further progressed, and there was no significant reduction in +relapse rate. There was no improvement of disability, fatigue, and quality of life. Bee sting therapy was well tolerated, and there were +no serious adverse events. In this trial, treatment with bee venom in patients with relapsing multiple sclerosis did not reduce disease +activity, disability, or fatigue and did not improve quality of life measured using gadolinium-enhancing MRI. +From June 2014 to June 2018, Apimeds Korea +corresponded with the FDA and there were no clinical holds at that time. Sponsorship of IND 122804 was transferred from Apimeds Korea +to us in October 2020. On September 21, 2021, we responded to customary non-clinical hold comments from the FDA. In November 2021, +we received a customary clinical hold from the FDA due to the retirement of the former principal investigator. We have subsequently updated +the FDA with a new principal investigator via our Chief Medical Officer, Dr. Christopher Kim. In February 2023, the FDA removed +the clinical hold and concluded it may be initiated. We have subsequently made the strategic decision to focus our efforts and capital +on our Phase III trial in knee OA, and instead focus our MS efforts on the early prosecution of appropriate MS patient populations +through non-registered corporate sponsorship studies. +10 +Our Commercialization Strategy +We are dedicated to the effective implementation of +regulatory, clinical and legal strategies to create value in Apitox. The effective execution of this strategy will provide us the opportunity +to evaluate and potentially acquire other assets that fit within our space for development. +Manufacturing +We intend to continue to engage a third-party manufacturer, +Piramal Pharma Solutions, in Lexington, Kentucky to support our Phase III trial and, if Apitox is approved by the FDA, commercial +manufacturing. This manufacturer has dedicated experience in development and technology transfer of sterile dose formulations, including +liquid and lyophilized formulations. +Research and Development +We are currently engaged exclusively in the clinical +development of Apitox for continued use in knee OA through a Phase III trial in knee OA and potential use for MS through the early +prosecution of appropriate patient populations through non-registered corporate sponsorship studies. +Sales and Marketing +The healthcare providers associated with the treatment +of inflammation and pain management symptoms associated with OA and MS are not limited to one specialist but involve a comprehensive team +of providers focused on slowing the progression of the disease along with the physical, emotional and day-to-day management of the +condition. Each of these providers represents a potential customer for Apitox. +Apitoxin, which will be known as Apitox in the United States, +has established technological credibility through its preclinical testing, Phase I, Phase II and preliminary Phase III +clinical studies completed by Apimeds Korea. Apimeds Korea received regulatory approval for Apitoxin by the MFDA in South Korea, as well +as long-term safety data from treatment of patients in Korea from 2003 to 2009. There were no serious adverse events from over 3,000 patients +monitored, and Apitoxin has been approved and marketed in South Korea for OA since 2003. We update the FDA annually on safety data generated +by Apimeds Korea from South Korea. +We aim to obtain FDA approval for Apitox in the United States +market for treatment of inflammation and pain management symptoms associated with knee OA, and eventually MS, and expand the indication +portfolio in the autoimmune market with a strategic marketing partner. The marketing partner strategy is common in the pharmaceutical +marketplace, as the infrastructure, overhead, and barriers to entry dilute the focus and can rapidly erode the financial well-being of +small, product development-based companies such as us. By identifying the strategic marketing partner at an early stage, the companies +can deliver a final product, or family of products, in a form factor or variety of form factors over time, that specifically suit the +target market. We believe that Apitox represents a significant opportunity as a platform technology, with numerous product-line extensions, +and the potential for new, ancillary products such as delivery devices. +Reimbursement Strategy +Apimeds expects to apply to the Centers for Medicare +and Medicaid Studies (“CMS”) for temporary generic reimbursement codes 12 to 18 months prior to a BLA approval. Temporary +codes are used until manufacturers apply for, and receive, permanent codes, which identify the drug and its therapeutic class. Permanent +codes are issued by CMS on a rolling quarterly basis. +11 +We will engage third party contractors to assist the +us with reimbursement, coding and policy development prior to, during and at the time of approval of Apitox. We will look for a contractor +to provide the following services to us: +● Coding Assessment and Strategy/Execution — CPT +Review of Apitox Administration by Multiple Intradermal Injections . Assess the landscape to ensure a clear understanding of the key +dynamics and analyze relevant proxies and precedent. Further assess relevant drug administration codes and whether appropriate codes +exist. +● Medical Coverage Policy Analysis — Provide +a framework and set expectations for Medicare’s anticipated coverage approach to Apitox, specifically in the context of intra articular +hyaluronic acid use agent coverage policies and implications of their efficacy uncertainty. +● Medicare Local Coverage Analysis and Implications — Given +the significance of Medicare policy standards, local and national Medicare policies often shape payer and provider perceptions and decisions. +As complex statutory and regulatory guidance shape Medicare decision-making, ADVI analyzes, investigates, and synthesize Medicare policies +that could affect access (coverage, coding and reimbursement) for Apitox. +● Medicaid and Commercial Coverage Analysis and Implications — Analyze +available medical policies for five large state Medicaid agencies (based on population and geographic variation) and major commercial +payers (where publicly available). +● Payer Policy Internal Expert Interviews — Conduct +payer interviews with relevant Medicare, Medicaid and commercial policy advisors. +● HCPCS Coding and Payment Assessment — Assess +the coding and reimbursement landscape to ensure Apimeds has a clear understanding of the key dynamics with the HCPCS application process +and the Medicare Hospital Outpatient Prospective Payment System (OPPS) pass-through status application process. Through this assessment, +identify the areas of concern, expectations, timing, timelines, and processes associated. This is especially relevant given the 2020 +implementation of a new HCPCS review process. +● Address key Part B/medical benefit implications to Apitox +in the following fields: +● HCPCS and OPPS application timelines (and potential evolution +leading to launch), +● coding/access implications prior to code assignment (e.g., NOC/miscellaneous +codes), review the merits/risks of Q-code, +● further review the application processes, expectations, case +examples, timelines, and hurdles that APUS may face across settings of care, payers, and with CMS, +● case examples, timelines, and hurdles across settings of care +with payers and CMS, +● review of reimbursement implications, and +● methodologies (ASP, WAC, AWP), role of sequestration, 340B, +patient financial burden. +● Develop Payer (with Emphasis on Medicare) Launch Recommendations — Based +on the above primary and secondary research, synthesize the discussions and summarize the overall findings of the payer survey, highlighting +themes, and provide recommendations and considerations for optimizing market access, given the current and evolving reimbursement landscape. +This section will include payer (emphasis on Medicare) launch strategy recommendations (including timeline) and a local/national Medicare +engagement strategy. +Competition +We compete in an industry characterized by rapidly +advancing technologies, intense competition, a changing regulatory and legislative landscape and a strong emphasis on the benefits of +intellectual property protection and regulatory exclusivities. +12 +Like any biopharmaceutical company, we face competition +from multiple sources, including large or established pharmaceutical, biotechnology, and wellness companies, academic research institutions, +government agencies, and private institutions. We believe our drug candidate will prevail amid the competitive landscape through its efficacy, +safety, administration methods, cost, public and institutional demand, intellectual property portfolio, and treatment of the root cause +of many age-associated diseases. +Many of our competitors, either alone or with strategic +partners, have substantially greater financial, technical, and human resources than we do. Accordingly, our competitors may be more successful +in obtaining approval for treatments and achieving widespread market acceptance, rendering our treatments obsolete or non-competitive. Accelerated +merger and acquisition activity in the biotechnology and biopharmaceutical industries may result in even more resources concentrated among +a smaller number of our competitors. These companies also compete with us in recruiting and retaining qualified scientific and management +personnel, establishing clinical study sites, patient registration for clinical studies, and acquiring technologies complementary to, +or necessary for, our programs. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative +arrangements with large and established companies. Our commercial opportunity could be substantially limited in the event that our competitors +develop and commercialize products that are more effective, safer, more tolerable, more convenient, or less expensive than our comparable +products. In geographies that are critical to our commercial success, competitors may also obtain regulatory approvals before us, resulting +in our competitors building a strong market position in advance of our products’ entry. We believe the factors determining the success +of our programs will be the efficacy, safety, and convenience of our drug candidates. +Additionally, consumer preference for branded, generic +or private label products sold by competitors could adversely impact our financial performance. Our competitors, which differ within individual +geographic markets, include large-scale retailers, smaller high-growth companies (which often operate on a regional basis and offer aggressive +competition), multinational corporations moving into or expanding their presence in the consumer healthcare market, and “private-label” +products sold by retailers. +Our aim is to reduce the use of NSAIDS and opioid +use as it relates to the pain management associated with OA. We believe that if approved by the FDA, Apitox may be a non-addictive +option to patients experiencing debilitating pain. +Business Agreement +On August 2, 2021, we entered into an agreement +with Apimeds Korea, a principal stockholder of the Company (the “Business Agreement”). Pursuant to the Business Agreement, +Apimeds Korea granted to the Company a sublicensable, royalty-bearing license to utilize all prior clinical development data associated +with Apitoxin, Apitox, and all related names, advance clinical research, develop, manufacture and commercialize and sell Apitox in the +United States. In exchange for this license, the Company will pay Apimeds Korea a perpetual royalty of 5% of the Company’s +earnings before interest and taxes (as determined consistent with GAAP, derived from the sale or license of Apitox, less any shipping, +handling, and insurance charges, credits (arising from returns or other adjustments), discounts, rebates, or allowances of any kind (if +any). The Business Agreement can be terminated by mutual written agreement by the parties and will automatically terminate upon the bankruptcy +or dissolution of the Company. +Assignment Agreement +On October 12, 2021, we entered into an intellectual +property assignment agreement (the “Assignment Agreement”), which was effective as of May 12, 2020, with Apimeds Korea +and Dr. Christopher Kim, the Company’s Chairman and Chief Medical Officer and the founder of Apimeds Korea. During Dr. Kim’s +engagement with Apimeds Korea, he contributed to the development of the intellectual property as it relates to Apitoxin, which will be +marketed in the United States as Apitox (the “Assigned IP”). +Pursuant to the Assignment Agreement, Dr. Kim +sold, transferred, and conveyed all his rights, title and interest in the Assigned IP to Apimeds Korea. Dr. Kim retained no right +to use the Assigned IP. Additionally, the Assignment Agreement acknowledged that the Assigned IP was licensed to us to use via the +Business Agreement. +Intellectual Property +Apitox’s API is bee venom, a natural, non-synthetic +compound that is not patentable, so we rely principally on trade secrets to protect our rights to Apitox, particularly the method and +process of manufacturing Apitox. +13 +Supplier +We purchase venom from our United States supplier, +Apico, Inc. (“Apico”), via a letter agreement. Pursuant to the letter agreement, Apico agreed that for a period of ten years, +or until November 3, 2031 it would not supply Apis Mellifea venom for pharmaceutical use for any buyer other than +us; provided that Apico may also supply Apimeds Korea for its use outside of the United States. The letter agreement +excludes customers using venom for immunology, cosmetic or any other “non-pharmaceutical” use. The letter agreement may be +terminated upon mutual written consent of both Apico and the Company. +Apico has developed and practices a proprietary method +of harvesting venom. It operates under and is certified in current good manufacturing practice regulations enforced by the FDA and has +an active and current Drug Master File (“DMF”) with the FDA. DMF’s are submissions to the FDA used to provide confidential, +detailed information about facilities, processes, or articles used in the manufacturing, processing, packaging, and storing of human drug +products. We have an exclusive relationship with our supplier for pharmaceutical use in the United States and they are not permitted +to sell to any other party for pharmaceutical use. +Apimeds Korea has a number of proprietary analytical +methods for the classification and identification of specific pharmacologically active fractions of its venom, along with numerous manufacturing +processes from filtration, vial filing and lyophilization required to produce Apitoxin. Apitoxin is the only approved and commercially +available therapeutic product containing purified and sterile bee venom that is registered as an API in South Korea. The proprietary methods +developed and practiced for the commercial manufacturing of Apitoxin include dilution, filtering, vial staging and lyophilization parameters +and cycles. +We plan to file Apitox as a BLA with the Centers for +Biologics and Research of the FDA following the successful completion of our Phase III trial for knee OA. The FDA provides 12-year +market exclusivity at the time of approval of a BLA, with the potential for a six-month extension upon approval for pediatric use. If +the BLA is approved, the 12-year period would be retroactive to the date of the application. +We intend to file a U.S. trademark application +for “Apitox”. +Regulatory Environment +Government Regulation and Product Approval +In the United States, biological products are +subject to regulation under the Federal Food, Drug, and Cosmetic Act (the “FDCA”), and the Public Health Service Act (the +“PHSA”), and other federal, state, and local statutes and regulations. Both the FDCA and PHSA and their corresponding regulations +govern, among other things, the research, development, clinical trials, testing, manufacturing, quality control, safety, purity and potency +(efficacy), labeling, packaging, storage, record keeping, distribution, reporting, marketing, promotion, advertising, post-approval monitoring, +and post-approval reporting involving biological products. Along with third-party contractors, we will be required to navigate the various +preclinical and clinical regulatory obligations and the commercial approval requirements of the governing regulatory agencies of the countries +in which we wish to conduct studies or seek approval or licensure of our product candidate. The processes for obtaining regulatory approvals +in the United States, along with subsequent compliance with applicable laws and regulations and other regulatory authorities, require +the expenditure of substantial time and financial resources. +Government policies may change, and additional government +regulations may be enacted that could prevent or delay further development or regulatory approval of any product candidates, product or +manufacturing changes, additional disease indications or label changes. We cannot predict the likelihood, nature or extent of government +regulation that might arise from future legislative or administrative action. +Review and Approval for Licensing Biologics +in the United States +In the United States, FDA regulates our current +product candidate as a biological product, or biologics, under the FDCA, the PHSA, and associated implementing regulations. Biologics, +like other drugs, are used for the diagnosis, cure, mitigation, treatment, or prevention of disease in humans. In contrast to low molecular +weight drugs, which have a well-defined structure and can be thoroughly characterized, biologics are generally derived from living material +(human, animal, or microorganism), are complex in structure, and thus are usually not fully characterized. +14 +Biologics are also subject to other federal, state, +and local statutes and regulations. The failure to comply with applicable statutory and regulatory requirements at any time during the +product development process, approval process, or after approval may subject a sponsor or applicant to administrative or judicial enforcement +actions. These actions could include the suspension or termination of clinical trials by FDA, FDA’s refusal to approve pending applications +or supplemental applications, withdrawal of an approval, issuance of warning or untitled letters, product recalls, product seizures, total +or partial suspension of production or distribution, import detention, injunctions, fines, refusals of government contracts, restitution, +disgorgement of profits, or civil or criminal investigations and penalties brought by FDA, the Department of Justice (“DOJ”), +and other governmental entities. +An applicant seeking approval to market and distribute +a biologic in the United States must typically undertake the following: +● completion of non-clinical laboratory tests and studies performed +in accordance with FDA’s good laboratory practice (“GLP”) regulations; +● manufacture, labeling and distribution of investigational drugs +in compliance with FDA’s current good manufacturing practice (“cGMP”) requirements; +● submission to FDA of an investigational new drug application +(“IND”), which must become effective before clinical trials may begin and must be updated annually and when significant changes +are made; +● approval by an independent institutional review board (“IRB”) +for each clinical site before each clinical trial may be initiated; +● performance of adequate and well-controlled human clinical trials +in accordance with FDA’s Good Clinical Practices (“GCP”) to establish the safety, purity, and potency of the proposed +biological product candidate for its intended purpose; +● after completion of all pivotal clinical trials, preparation +of and submission to FDA of a BLA requesting marketing approval, which includes providing sufficient evidence to establish the efficacy, +safety, purity, and potency of the proposed biological product for its intended use, including from results of nonclinical testing and +clinical trials; +● satisfactory completion of an FDA advisory committee review, +when appropriate, as may be requested by FDA to assist with its review; +● satisfactory completion of one or more FDA inspections of the +manufacturing facility or facilities at which the proposed product, or certain components thereof, are produced to assess compliance +with cGMP and data integrity requirements to assure that the facilities, methods, and controls are adequate to preserve the biological +product’s identity, strength, quality, and purity and, if applicable, FDA’s good tissue practice (“GTP”) requirements +for human cellular and tissue products; +● satisfactory completion of FDA inspections of selected clinical +investigation sites to assure compliance with GCP requirements and the integrity of the clinical data; +● satisfactory completion of an FDA sponsor GCP inspection, often +conducted at the applicant’s headquarters facility; +● payment of user fees (unless there is a waiver, exemption, or +reduction) under the Prescription Drug User Fee Act (“PDUFA”) for the relevant year; +● FDA’s review and approval of the BLA to permit commercial +marketing of the licensed biologic for particular indications for use in the United States; +● compliance with post-approval requirements, including the potential +requirements to implement a risk evaluation and mitigation strategy (“REMS”), to report adverse events and biological product +deviations, and to complete any post-approval studies; and +● completion of any post-approval clinical studies required by +FDA, such as confirmatory trials or pediatric studies. +15 +From time to time, legislation is drafted, introduced, +and passed in Congress that could significantly change the statutory provisions governing the testing, approval, manufacturing, and marketing +of biological products regulated by FDA. In addition to new legislation, FDA regulations, guidance documents, and policies are often +revised or interpreted by the agency in ways that may significantly affect the regulation of biological products in the United States. +It is impossible to predict whether further legislative changes will be enacted or whether FDA regulations, guidance, policies, or interpretations +will change, and the effects of any such changes. +Preclinical and Clinical Development +Before an applicant can begin testing the potential +product candidate in human subjects, the applicant must first conduct preclinical studies. Preclinical studies may include laboratory +evaluations of product chemistry, toxicity, and formulation, as well as in vitro and animal studies to assess the potential safety and +activity of the drug for initial testing in humans and to establish a rationale for therapeutic use. Preclinical studies are subject to +federal regulations and requirements, including GLP regulations, which govern the conduct of animal studies designed to test a product’s +safety. None of our preclinical studies to date have been animal studies. The results of an applicant’s preclinical studies are +submitted to FDA as part of an IND. +An IND is a request for authorization from FDA to +administer an investigational new drug product to humans. An IND is an exemption from the FDCA that allows an unapproved drug to be shipped +in interstate commerce for use in a clinical trial. Such authorization must be secured prior to interstate shipment and administration +of a biological drug that is not subject of an approved BLA. In support of an IND, applicants must submit a protocol for each clinical +trial, which details, among other things, the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness +criteria to be evaluated. A separate submission to the existing IND must be made for each successive clinical trial conducted during product +development and for any subsequent protocol amendments. +Human clinical trials may not begin until an IND is +effective. The IND automatically becomes effective 30 days after receipt by FDA, unless FDA raises safety concerns or questions about +the proposed clinical trial within the 30-day time period. In such a case, FDA may place the IND on clinical hold and the IND sponsor +must resolve any of FDA’s outstanding concerns or questions before the clinical trial can begin. Submission of an IND therefore +may or may not result in regulatory authorization to begin a clinical trial. +FDA may also place a clinical hold or partial clinical +hold on a clinical trial following commencement of the trial under an IND. A clinical hold is an order issued by FDA to the sponsor +to delay a proposed clinical investigation or to suspend an ongoing investigation. A partial clinical hold is a delay or suspension of +only part of the clinical work requested under the IND. For example, under a partial clinical hold, FDA may instruct a sponsor not +to enroll any new patients into a study but permit the previously enrolled patients to continue in the study. No more than 30 days +after imposition of a clinical hold or partial clinical hold, FDA will provide the sponsor a written explanation of the basis for the +hold. Following issuance of a clinical hold or partial clinical hold, an investigation may only resume after the FDA has notified the +sponsor that the investigation may proceed. FDA will base that determination on information provided by the sponsor addressing the deficiencies +previously cited or otherwise satisfying FDA that the investigation can proceed. +Clinical trials involve the administration of the +investigational product to human subjects under the supervision of qualified investigators in accordance with GCP regulations, which include +the requirement that all research subjects provide their informed consent for their participation in any clinical trial. If a sponsor +chooses to conduct a foreign clinical study under an IND, all FDA IND requirements must be met unless waived. When the foreign clinical +study is not conducted under an IND, the sponsor must ensure that the study complies with GCP regulations in order to use the study as +support for an IND or application for marketing approval, including review and approval by an IRB and informed consent from subjects. +Furthermore, an independent IRB for all sites participating +in a clinical trial must review and approve the plan for any clinical trial and its informed consent form before the clinical trial begins +at each site and must monitor the trial until completed. Regulatory authorities, the IRB, or the sponsor may suspend a clinical trial +at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk or that the trial +is unlikely to meet its stated objectives. +16 +Some trials also include oversight by an independent +group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board (“DSMB”). DSMBs +review unblinded study data at pre-specified times during the course of the study. If the DSMB determines that there is an unacceptable +safety risk for subjects or other grounds, such as no demonstration of efficacy, the DSMB can make a recommendation to the sponsor to +modify or stop the trial. +Other grounds for a sponsor’s decision to suspend +or terminate a study may be made based on evolving business objectives or the competitive climate. +For purposes of BLA approval, clinical trials are +typically conducted in the following sequential phases: +● Phase 1 : The investigational +product is initially introduced into a small group of healthy human subjects or patients with the target disease or condition. These +trials are designed to test the safety, dosage tolerance, absorption, metabolism and distribution of the investigational product in humans +and the side effects associated with increasing doses. These trials may also yield early evidence of effectiveness. +● Phase 2 : The investigational +product is administered to a slightly larger patient population with a specified disease or condition to evaluate the preliminary efficacy, +optimal dosages, and dosing schedule and to identify possible adverse side effects and safety risks. Multiple Phase 2 clinical trials +may be conducted to obtain information prior to beginning larger and more expensive Phase III clinical trials. +● Phase 3 : The investigational +product is administered to an expanded patient population to further evaluate dosage, to provide statistically significant evidence of +clinical efficacy and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These clinical +trials are intended to generate sufficient data to statistically demonstrate the efficacy and safety of the product, to establish the +overall risk/benefit ratio of the investigational product, and to provide an adequate basis for product approval by FDA. +These phases may overlap or be combined. In some cases, +FDA may require, or companies may voluntarily pursue, additional clinical trials after a product are approved to gain more information +about the product, referred to as Phase 4 trials. Post-approval trials are conducted following initial approval, often to develop +additional data and information relating to the use of the product in new indications. +Progress reports detailing the results of the clinical +trials must be submitted at least annually to FDA. In addition, IND safety reports must be submitted to FDA for any of the following: +serious and unexpected suspected adverse reactions in study subjects; findings from epidemiological studies, pooled analysis of multiple +studies, animal or in vitro testing, or other clinical studies, whether or not conducted under an IND, and whether or not conducted by +the sponsor, that suggest a significant risk in humans exposed to the drug; and any clinically important increase in the rate of a serious +suspected adverse reaction over such rate listed in the protocol or investigator brochure. +A sponsor’s planned clinical trials may not +be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a clinical +trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. +Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical +trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious +harm to patients. FDA will typically inspect one or more clinical sites to assure compliance with GCP and the integrity of the clinical +data submitted. +During clinical development, the sponsor often refines +the indication and endpoints on which the BLA will be based. For endpoints based on patient-reported outcomes (“PROs”), the +process typically is an iterative one. FDA has issued guidance on the framework it uses to evaluate PRO instruments. Although the agency +may offer advice on optimizing PRO instruments during the clinical development process, FDA usually reserves final judgment until it reviews +the BLA. +Concurrent with clinical trials, companies often complete +additional animal studies, and develop additional information about the chemistry and physical characteristics of the drug and finalize +a process for manufacturing the product in commercial quantities in accordance with cGMP. The manufacturing process must be capable +of consistently producing quality batches of the drug candidate and, among other things, must develop methods for testing the identity, +strength, quality, purity and potency of the final drug. Additionally, appropriate packaging must be selected and tested, and stability +studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf life. +17 +BLA Submission and Review +Assuming successful completion of all required clinical +testing in accordance with all applicable regulatory requirements, an applicant may submit a BLA requesting licensing to market the biologic +for one or more indications in the United States. The BLA must include the results of nonclinical studies and clinical trials; detailed +information on the product’s chemistry, manufacture, controls; and proposed labeling. Under the PDUFA, a BLA submission is subject +to an application user fee, unless a waiver, reduction, or exemption applies. +FDA will initially review the BLA for completeness +before accepting it for filing. Under FDA’s procedures, the agency has 60 days from its receipt of a BLA to determine whether +the application will be accepted for filing and substantive review. If the agency determines that the application does not meet this initial +threshold standard, FDA may refuse to file the application and request additional information, in which case the application must be resubmitted +with the requested information and review of the application delayed. +After the BLA is accepted for filing, FDA reviews +the BLA to determine, among other things, whether a product is safe, pure, and potent and if the facility in which it is manufactured, +processed, packed, or held meets standards designed to assure the product’s continued identity, strength, quality, safety, purity, +and potency. To ensure cGMP, GLP, GCP, GTP, and other regulatory compliance, an applicant must incur significant expenditure of time, +money, and effort in the areas of training, record keeping, production and quality control. In addition, FDA expects that all data be +reliable and accurate, and requires sponsors to implement meaningful and effective strategies to manage data integrity risks. Data integrity +is an important component of the sponsor’s responsibility to ensure the safety, efficacy and quality of its product or products. +For cellular products, FDA will not approve the product +if the manufacturer is not in compliance with the GTPs, to the extent applicable. GTPs are FDA regulations and guidance documents that +govern the methods used in, and the facilities and controls used for, the manufacture of human cells, tissue, and cellular and tissue-based +products (“HCT/Ps”), which are human cells or tissue intended for implantation, transplant, infusion, or transfer into a human +recipient. The primary intent of the GTP requirements is to ensure that cell and tissue-based products are manufactured in a manner designed +to prevent the introduction, transmission and spread of communicable disease. FDA regulations also specify how HCT/P establishments must +register and list their HCT/Ps with FDA and how they must evaluate donors through screening and testing, where applicable. +If the FDA determines that the application, manufacturing +process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional +testing or information. Notwithstanding the submission of any requested additional information, FDA ultimately may decide that the application +does not satisfy the regulatory criteria for approval. +The performance goals and policies implemented by +FDA under the PDUFA generally provide for FDA action on an original BLA within 10 months of filing, which (as discussed above) typically +occurs within 60 days of submission, but that deadline is extended in certain circumstances. Furthermore, the review process is often +significantly extended by FDA’s requests for additional information or clarification. +FDA may refer applications for novel products or products +that present difficult questions of safety or efficacy to an advisory committee. Typically, an advisory committee consists of a panel +that includes clinicians and other experts who will review, evaluate, and provide a recommendation as to whether the application should +be approved and, if so, under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers +such recommendations carefully when making decisions and usually has followed such recommendations. +After FDA evaluates a BLA and conducts inspections +of manufacturing facilities where the investigational product and/or its components will be produced, FDA may issue an approval letter +or a Complete Response Letter (“CRL”). An approval letter authorizes commercial marketing of the biological with specific +prescribing information for specific indications. A CRL will describe all of the deficiencies that FDA has identified in the BLA, except +that where FDA determines that the data supporting the application are inadequate to support approval, FDA may issue the CRL without first +conducting required inspections, testing submitted product lots and/or reviewing proposed labeling. If and when the deficiencies have +been addressed to FDA’s satisfaction in a resubmission of the BLA, FDA will issue an approval letter. In issuing the CRL, the FDA +may recommend actions that the applicant might take to place the BLA in condition for approval, including requests for additional data, +information, or clarification. FDA may delay or refuse approval of a BLA if applicable regulatory criteria are not satisfied and may require +additional testing or information and/or require new clinical trials. Even with submission of this additional information, FDA ultimately +may decide that the application does not satisfy the regulatory criteria for approval. +18 +During the approval process, FDA will determine whether +a REMS is necessary to help ensure the benefits outweigh the risks of the biologic. A REMS is a safety strategy to manage a known or potential +serious risk associated with a product and to enable patients to have continued access to such medicines by managing their safe use, and +could include medication guides, physician communication plans or elements to assure safe use, such as restricted distribution methods, +patient registries and other risk minimization tools. If FDA concludes that a REMS is needed, the BLA sponsor must submit a proposed REMS +and FDA will not approve the BLA without a REMS that the agency has determined is acceptable. +If the FDA approves a product, it may limit the approved +indications for use for the product, or require that contraindications, warnings, or precautions be included in the product labeling. +FDA may also require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess the drug’s +safety after approval. FDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance +programs. +FDA may also require testing and surveillance programs +to monitor the product after commercialization. For biologics, such testing may include official lot release, which requires the manufacturer +to perform certain tests on each lot of the product before it is released for distribution. The manufacturer then typically must submit +samples of each lot of products to the FDA, together with a release protocol showing a summary of the history of manufacture of the lot +and the results of all of the manufacturer’s tests performed on the lot. The FDA may also perform certain confirmatory tests on +lots of some products itself, before releasing the lots for distribution by the manufacturer. +In general, an approved BLA only allows the sponsor +to market the biologic as approved, without modification. If, for example, a sponsor modifies an approved T cell product to target different +peptides or in our case to target another HLA type, the sponsor would be required to either file a supplemental BLA with FDA or receive +FDA approval for a comparability protocol in order to implement this change into the final product. +The FDA may withdraw the product approval if compliance +with pre- and post-marketing requirements is not maintained or if problems occur after the product reaches the marketplace. +Post-Approval Requirements +Any products manufactured or distributed pursuant +to FDA approvals are subject to pervasive and continuing regulation by FDA, including, among other things, requirements relating to recordkeeping, +periodic reporting, reporting of certain deviations and adverse experiences, product sampling and distribution, and advertising and promotion +of the product. After approval, many types of changes to the approved product, such as adding new indications, manufacturing changes and +additional labeling claims, are often subject to further testing requirements and FDA review and approval, depending on the nature of +the post-approval change. There also are continuing user fee requirements, under which FDA assesses an annual program fee for each product +identified in an approved BLA. Biologic manufacturers and their third-party contractors are required to register their facilities +with the FDA and certain state agencies. These facilities are subject to routine and periodic unannounced inspections by FDA and certain +state agencies for compliance with cGMP, post-marketing safety reporting and data integrity requirements, which impose certain procedural +and documentation requirements to assure quality of manufacturing and product. FDA has increasingly observed cGMP violations involving +data integrity during site inspections and is a significant focus of its oversight. Requirements with respect to data integrity include, +among other things, controls ensuring complete and secure data; activities documented at the time of performance; audit trail functionality; +authorized access and limitations; validated computer systems; and review of records for accuracy, completeness, and compliance with established +standards. +Post-approval changes to the manufacturing process +are strictly regulated, and, depending on the significance of the change, may require FDA approval before being implemented. FDA regulations +also require investigation and correction of any deviations from cGMP and impose reporting requirements upon the sponsor and any third-party +manufacturers that the sponsor may use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production +and quality control to maintain compliance with cGMP, data integrity, pharmacovigilance, and other aspects of regulatory compliance. +19 +The FDA may withdraw the approval if compliance with +regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of +previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, +or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition +of post-approval studies to assess new safety risks; or imposition of distribution or other restrictions under a REMS. Other potential +consequences include, for example: +● restrictions on the marketing or manufacturing of a product, +complete withdrawal of the product from the market, or product recalls; +● fines, warning or untitled letters, or holds on post-approval +clinical studies; +● refusal of FDA to approve pending applications or supplements +to approved applications, or suspension or revocation of existing product approvals; +● product seizure or detention, or refusal of FDA to permit the +import or export of products; or +● permanent injunctions and consent decrees, including the imposition +of civil or criminal penalties. +FDA strictly regulates the marketing, labeling, advertising, +and promotion of prescription drug products placed on the market. A company can make only those claims relating to safety and efficacy, +purity and potency that are approved by the FDA and in accordance with the provisions of the approved labeling. FDA’s regulation +includes, among other things, standards and regulations for direct-to-consumer advertising, communications regarding unapproved uses, +industry-sponsored scientific and educational activities and promotional activities involving the Internet and social media. Promotional +claims relating to a product’s safety or effectiveness are prohibited before the drug is approved. After approval, a product generally +may not be promoted for uses that are not approved by FDA, as reflected in the product’s prescribing information. In the United States, +healthcare professionals are generally permitted to prescribe drugs for such uses not described in the drug’s labeling, known as +off-label uses, because FDA does not regulate the practice of medicine. However, FDA regulations impose rigorous restrictions on manufacturers’ +communications and prohibit the promotion of off-label uses. It may be permissible, under very specific, narrow conditions, for a manufacturer +to engage in non-promotional, non-misleading communication regarding off-label information, such as distributing scientific or medical +journal information. +If a company is found to have promoted off-label uses, +it may become subject to adverse public relations and administrative and judicial enforcement by FDA, the DOJ, or the Office of the Inspector +General of the Department of Health and Human Services (“HHS”), as well as other federal and state authorities. This could +subject a company to a range of penalties that could have a significant commercial impact, including civil, administrative, and criminal +fines, penalties, and agreements that materially restrict the manner in which a company promotes or distributes products. The federal +government has levied large civil, administrative, and criminal fines and penalties against companies for alleged improper promotion and +has also requested that companies enter into Corporate Integrity Agreements and Consent Decrees of Permanent Injunction under which specified +promotional conduct is changed or curtailed. +The distribution of prescription drugs and biologics +are subject to the Drug Supply Chain Security Act (“DSCSA”), which requires manufacturers and other stakeholders to comply +with product identification, tracing, verification, detection and response, notification, and licensing requirements. In addition, the +Prescription Drug Marketing Act and its implementing regulations and state laws limit the distribution of prescription pharmaceutical +product samples, and the DSCSA imposes requirements to ensure accountability in distribution and to identify and remove prescription drug +and biological products that may be counterfeit, stolen, contaminated, or otherwise harmful from the market. +Expedited Development and Review Programs +FDA offers a number of expedited development and review +programs for qualifying product candidates. The fast-track program is intended to expedite or facilitate the process of reviewing new +products that meet certain criteria. Specifically, new products are eligible for fast-track designation if they are intended to treat +a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. +A product intended to treat a serious or life-threatening disease or condition may also be eligible for breakthrough therapy designation +to expedite its development and review. Any marketing application for a biologic submitted to FDA for approval, including a product with +a fast-track designation and/or breakthrough therapy designation, may be eligible for other types of FDA programs intended to expedite +FDA review and approval process, such as priority review and accelerated approval. FDA also may grant accelerated approval to certain +products studied for their safety and effectiveness in treating serious or life-threatening diseases or conditions. +20 +The RMAT designation, which we are currently planning +to seek for some of our therapies, is intended to facilitate an efficient development program for, and expedite review of, any drug that +meets the following criteria: (1) the drug is a cell therapy, therapeutic tissue engineering product, human cell and tissue product, +or any combination product using such therapies or products, with limited exceptions; (2) the drug is intended to treat, modify, +reverse, or cure a serious or life-threatening disease or condition; and (3) preliminary clinical evidence indicates that the drug +has the potential to address unmet medical needs for such a disease or condition. Like breakthrough therapy designation, RMAT designation +provides potential benefits that include more frequent meetings with FDA to discuss the development plan for the product candidate and +eligibility for rolling review and priority review. Products granted RMAT designation may also be eligible for accelerated approval on +the basis of a surrogate or intermediate endpoint reasonably likely to predict long-term clinical benefit, or reliance upon data obtained +from a meaningful number of sites (including through expansion to additional sites) so as to remove any likelihood of site-specific or +investigator-specific bias on the evidence of effectiveness. Once approved, when appropriate, FDA can permit fulfillment of post-approval +requirements for RMATs receiving accelerated approval through the submission of clinical evidence, clinical studies, patient registries, +or other sources of real-world evidence such as electronic health records; through the collection of larger confirmatory datasets; or +through post-approval monitoring of all patients treated with the therapy prior to approval. +Fast track designation, breakthrough therapy designation, +priority review, accelerated approval, and RMAT designation do not change the standards for approval but may expedite the development +or approval process. +Patent Term Restoration and Marketing Exclusivity +After approval, owners of relevant drug or biological +product patents may apply for up to a five year term patent extension to restore a portion of patent term lost during product development +and FDA review of a BLA if approval of the application is the first permitted commercial marketing or use of a drug or biologic containing +the active ingredient under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman +Act. The allowable patent term extension is calculated as one-half of the product’s testing phase, which is the time between the +effective date of an IND and initial BLA submission, and all of the approval phase, which is the time between BLA submission and approval, +up to a maximum of five years. The time can be shortened if the FDA determines that the applicant did not pursue approval with due +diligence. The total patent term after the extension may not exceed 14 years from the date of FDA approval of the product. Only one +patent claiming each approved product is eligible for restoration and the patent holder must apply for restoration within 60 days +of approval, even if the product cannot be commercially marketed at that time. The USPTO, in consultation with FDA, reviews and approves +the application for patent term restoration. +For patents that might expire during the BLA application +phase, the patent owner may request an interim patent extension. An interim patent extension increases the patent term by one year and +may be renewed up to four times. For each interim patent extension granted, the post-approval patent extension is reduced by one year. +The director of the USPTO must determine that approval of the product candidate covered by the patent for which a patent extension is +being sought is likely. Interim patent extensions are not available for a product candidate for which a BLA has not been submitted. +Biosimilars and Marketing Exclusivities +The Biologics Price Competition and Innovation Act +(“BPCIA”) created an abbreviated approval pathway for biological product candidates shown to be highly similar to or interchangeable +with an FDA licensed biological product. A biological product on which another biological product candidate’s BLA relies to establish +bio similarity is known as a reference product. Bio similarity sufficient to reference a prior FDA-approved product requires that there +be no differences in conditions of use, route of administration, dosage form and strength, and no clinically meaningful differences between +the biological product candidate and the reference product in terms of safety, purity, and potency. Bio similarity must be shown through +analytical trials, animal trials and at least one clinical trial, unless the Secretary of HHS waives a required element. A biosimilar +product candidate may be deemed interchangeable with a prior approved product if it meets the higher hurdle of demonstrating that it can +be expected to produce the same clinical results as the reference product and, for products administered multiple times, the biological +product candidate and the reference biologic may be switched after one has been previously administered without increasing safety risks +or risks of diminished efficacy relative to exclusive use of the reference biologic. Complexities associated with the larger, and often +more complex, structures of biologics, as well as the process by which such products are manufactured, pose significant hurdles to implementation +of the abbreviated approval pathway that are still being resolved by FDA. +21 +A reference biologic is granted 12 years of exclusivity +from the time of first licensure of the reference product, and no application for a biosimilar can be submitted for four years from +the date of licensure of the reference product. The first biological product candidate submitted under the abbreviated approval pathway +that is determined to be interchangeable with the reference product has exclusivity against a finding of interchangeability for other +biologics for the same condition of use for the lesser of (i) one year after first commercial marketing of the first interchangeable +biosimilar, (ii) 18 months after the first interchangeable biosimilar is approved if there is no patent challenge, (iii) 18 months +after resolution of a lawsuit over the patents of the reference biologic in favor of the first interchangeable biosimilar applicant, or +(iv) 42 months after the first interchangeable biosimilar’s application has been approved if a patent lawsuit is ongoing +within the 42 month period. At this time, it is unclear whether products deemed “interchangeable” by FDA will, in fact, be +readily substituted by pharmacies, which are governed by state pharmacy laws and regulations. +Healthcare Regulation +Coverage, Pricing, and Reimbursement +Our ability to successfully commercialize any products +for which we receive regulatory approval for commercial sale will depend, in part, on the extent to which third-party payors provide coverage +and establish adequate reimbursement levels for such products, and significant uncertainty exists as to the coverage and reimbursement +status of any products for which may we obtain regulatory approval. In the United States, third-party payors include federal and +state health care programs, private managed care providers, health insurers and other organizations. The process for determining whether +a third-party payor will provide coverage for a product may be separate from the process for setting the price of a product or for establishing +the reimbursement rate that such a payor will pay for the product. Third-party payors may limit coverage to specific products on an approved +list, also known as a formulary, which might not include all of the FDA-approved products for a particular indication. Third-party payors +are increasingly challenging the price, examining the medical necessity, and reviewing the cost-effectiveness of medical products, therapies, +and services, in addition to questioning their safety and efficacy. We may need to conduct expensive pharmaco-economic studies in order +to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain the FDA approvals. +Our product candidates may not be considered medically necessary or cost-effective. A payor’s decision to provide coverage for a +product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage +for a product does not assure that other payors will also provide coverage for the product. Adequate third-party reimbursement may not +be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. +The marketability of any product candidates for which +we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage +and reimbursement. In addition, emphasis on managed care in the United States has increased and we expect will continue to increase +the pressure on healthcare pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage +and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies +and reimbursement rates may be implemented in the future. +Other Healthcare Laws and Compliance Requirements +Although we currently do not have any commercialized +products, our current and future business operations may be subject to additional healthcare regulation and enforcement by the federal +government and by authorities in the states and foreign jurisdictions in which we conduct our business. Such laws include, without limitation, +state and federal anti-kickback, fraud and abuse, false claims, privacy and security, price reporting and physician sunshine laws. Some +of our pre-commercial activities are subject to some of these laws. +22 +The federal Anti-Kickback Statute makes it illegal +for any person or entity, including a prescription drug manufacturer or a party acting on its behalf to knowingly and willfully, directly +or indirectly, solicit, receive, offer, or pay any remuneration in cash or in kind that is intended to induce or reward the referral of +business, including the purchase, order, or lease of any item or service for which payment may be made under a federal healthcare program, +such as Medicare or Medicaid. The term “remuneration” has been broadly interpreted to include anything of value. The Anti-Kickback +Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, formulary +managers and beneficiaries on the other. +Although there are a number of statutory exceptions +and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices +that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny +if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception +or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement +will be evaluated on a case-by-case basis based on a cumulative review of all its facts and circumstances. Several courts have found that +the Anti-Kickback Statute may be violated if any one purpose of an arrangement involving remuneration is to induce referrals of federal +healthcare program business. In addition, liability may be established without actual knowledge of the statute or specific intent to violate +it. Violations of this law are punishable by up to ten years in prison, and can also result in criminal fines, civil money penalties +and exclusion from participation in federal healthcare programs. +Moreover, a claim including items or services resulting +from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False +Claims Act. +The federal civil False Claims Act prohibits, among +other things, individuals or entities from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment of +government funds or knowingly making, using, or causing to be made or used, a false record or statement material to an obligation to pay +money to the government or knowingly concealing or knowingly and improperly avoiding, decreasing, or concealing an obligation to pay money +to the federal government. Persons and entities can be held liable under these laws if they are deemed to “cause” the submission +of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers or promoting a product +off-label. Many pharmaceutical and other healthcare companies have been investigated and have reached substantial financial settlements +with the federal government under the civil False Claims Act for a variety of alleged improper marketing activities, including: providing +free product to customers with the expectation that the customers would bill federal programs for the product; providing sham consulting +fees, grants, free travel and other benefits to physicians to induce them to prescribe the company’s products; and inflating prices +reported to private price publication services, which are used to set drug payment rates under government healthcare programs. Penalties +for federal civil False Claims Act violations may include up to three times the actual damages sustained by the government, plus mandatory +civil penalties of between $13,508 and $27,018 for each separate false claim, and the potential for exclusion from participation in federal +healthcare programs. In addition, although the federal False Claims Act is a civil statute, False Claims Act violations may also implicate +various federal criminal statutes. +The healthcare fraud provisions of the Health Insurance +Portability and Accountability Act (“HIPAA”) prohibit knowingly and willfully executing, or attempting to execute, a scheme +to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a +healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, +concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery +of or payment for healthcare benefits, items or services. Like the federal Anti-Kickback Statute, a person or entity does not need to +have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. +Many states have analogous laws and regulations, such +as: state anti-kickback and false claims laws that may apply to sales or marketing arrangements and claims involving healthcare items +or services reimbursed by non-governmental third-party payors, including private insurers; laws that require pharmaceutical companies +to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by +the federal government or otherwise restrict payments that may be made to certain healthcare providers; laws that require drug manufacturers +to report information related to clinical trials or information related to payments and other transfers of value to physicians and other +healthcare providers or marketing expenditures; laws that restrict the ability of manufacturers to offer co-pay support to patients for +certain prescription drugs; and laws and local ordinances that require identification or licensing of sales representatives. +23 +HIPAA, as amended by the Health Information Technology +for Economic and Clinical Health Act (“HITECH”), and their implementing regulations, mandates, among other things, the adoption +of uniform standards for the electronic exchange of information in common healthcare transactions, as well as standards relating to the +privacy and security of individually identifiable health information, which require the adoption of administrative, physical and technical +safeguards to protect such information. Among other things, HITECH makes HIPAA’s security standards directly applicable to business +associates, defined as independent contractors or agents of covered entities that create, receive, or obtain protected health information +in connection with providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that +may be imposed against covered entities and business associates and gave state attorneys general new authority to file civil actions for +damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing +federal civil actions. In addition, certain state laws govern the privacy and security of health information in certain circumstances, +some of which are more stringent than HIPAA and many of which differ from each other in significant ways and may not have the same effect, +thus complicating compliance efforts. Failure to comply with these laws, where applicable, can result in the imposition of significant +civil and/or criminal penalties. +The U.S. federal Physician Payment Sunshine Act, +implemented as the Open Payments Program, requires manufacturers of drugs, devices, biologics, and medical supplies for which payment +is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to +CMS information related to direct or indirect payments and other transfers of value to physicians and teaching hospitals (and certain +other practitioners as of 2022), as well as ownership and investment interests held in the company by physicians and their immediate family +members. +Because we intend to commercialize products that could +be reimbursed under a federal health care program and other governmental healthcare programs, we intend to develop a comprehensive compliance +program that establishes internal control to facilitate adherence to the rules and program requirements to which we will or may become +subject. Although the development and implementation of compliance programs designed to establish internal control and facilitate compliance +can mitigate the risk of investigation, prosecution, and penalties assessed for violations of these laws, the risks cannot be entirely +eliminated. +If our operations are found to be in violation of +any of such laws or any other governmental regulations that apply to us, we may be subject to penalties, including, without limitation, +administrative, civil and criminal penalties, damages, fines, disgorgement, contractual damages, reputational harm, diminished profits +and future earnings, the curtailment or restructuring of our operations, exclusion from participation in federal and state healthcare +programs and individual imprisonment, any of which could adversely affect our ability to operate our business and our financial results. +Health Care Reforms +In the United States and some foreign jurisdictions, +there have been, and continue to be, legislative and regulatory changes and proposed changes regarding the healthcare system that could +prevent or delay marketing approval of product candidates, restrict or regulate post-approval activities, and affect the ability to profitably +sell product candidates for which marketing approval is obtained. Among policy makers and payors in the United States and elsewhere, +there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving +quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and +has been significantly affected by major legislative initiatives. +For example, the Affordable Care Act (“ACA”) +substantially changed the way healthcare is financed by both the government and private insurers, and significantly impacts the U.S. pharmaceutical +industry. The ACA contains provisions that may reduce the profitability of drug products through increased rebates for drugs reimbursed +by Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D +beneficiaries, and annual fees based on pharmaceutical companies’ share of sales to federal health care programs. The ACA made several +changes to the Medicaid Drug Rebate Program, including increasing pharmaceutical manufacturers’ rebate liability by raising the +minimum basic Medicaid rebate. The ACA also expanded the universe of Medicaid utilization subject to drug rebates by requiring pharmaceutical +manufacturers to pay rebates on Medicaid managed care utilization and by enlarging the population potentially eligible for Medicaid drug +benefits. +24 +There have been judicial challenges to certain aspects +of the ACA, as well as efforts by Congress to modify, and by agencies to alter the implementation of, certain aspects of the ACA. For +example, Congress eliminated the tax penalty for failure to comply with the ACA’s individual mandate to carry health insurance. +Further, the Bipartisan Budget Act of 2018, among other things, amended the ACA to increase from 50 percent to 70 percent the +point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D to close the coverage gap +in most Medicare drug plans, commonly referred to as the donut hole. +It is possible that the ACA, as currently enacted +or as may be amended in the future, as well as other healthcare reform measures, including those that may be adopted in the future, may +result in more rigorous coverage criteria, and less favorable payment methodologies, or other downward pressure on coverage and payment +and the price that we receive for any approved product. Any reduction in reimbursement or restriction on coverage under Medicare or other +federal health care programs may result in a similar reduction or restriction by private payors. +Other legislative changes have been proposed and adopted +in the U.S. since the ACA was enacted. For example, the Inflation Reduction Act introduces several changes to the Medicare Part D +benefit, including a limit on annual out-of-pocket costs and a change in manufacturer liability under the program which could negatively +affect the profitability of our product candidates. The IRA sunsets the current Part D coverage gap discount program starting in +2025 and replaces it with a new manufacturer discount program. Failure to pay a discount under this new program will be subject to a civil +monetary penalty. In addition, the IRA establishes a Medicare Part B inflation rebate scheme effective January 2023 and a Medicare +Part D inflation rebate scheme effective October 2022, under which, generally speaking, manufacturers will owe rebates if the +price of a Part B or Part D drug increases faster than the pace of inflation. Failure to timely pay a Part B or D inflation +rebate is subject to a civil monetary penalty. The IRA also creates a drug price negotiation program under which the prices for Medicare +units of certain high Medicare spend drugs and biologicals without generic or biosimilar competition will be capped by reference to, among +other things, a specified non-federal average manufacturer price starting in 2026. Failure to comply with requirements under the drug +price negotiation program is subject to an excise tax and/or a civil monetary penalty. Congress continues to examine various policy proposals +that may result in pressure on the prices of prescription drugs with respect to the government health benefit programs and otherwise. +The IRA or other legislative changes could impact the market conditions for our product candidates. +In general, there has been heightened governmental +scrutiny over the manner in which drug manufacturers set prices for their commercial products, which has resulted in several Congressional +inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug product +pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies +for drug products. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control +pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain +product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other +countries and bulk purchasing. +Drug Pedigree Laws +State and federal governments have proposed or enacted +various drug pedigree laws which can require the tracking of all transactions involving prescription drugs from the manufacturer to the +pharmacy (or other dispensing) level. Companies are required to maintain records documenting the chain of custody of prescription drug +products beginning with the purchase of such products from the manufacturer. Compliance with these pedigree laws requires implementation +of extensive tracking systems as well as heightened documentation and coordination with customers and manufacturers. While we fully intend +to comply with these laws, there is uncertainty about future changes in legislation and government enforcement of these laws. Failure +to comply could result in fines or penalties, as well as loss of business that could have a material adverse effect on our financial results. +Federal Regulation of Patent Litigation Settlements +and Authorized Generic Arrangements +As part of the Medicare Prescription Drug, Improvement, +and Modernization Act of 2003, companies are required to file with the U.S. Federal Trade Commission (“FTC”) +and the U.S. Department of Justice certain types of agreements entered into between brand and generic pharmaceutical companies related +to the settlement of patent litigation or manufacture, marketing and sale of generic versions of branded drugs. This requirement could +affect the manner in which generic drug manufacturers resolve intellectual property litigation and other disputes with brand pharmaceutical +companies and could result generally in an increase in private-party litigation against pharmaceutical companies or additional investigations +or proceedings by the FTC or other governmental authorities. +25 +Other +The U.S. federal government, various states and +localities have laws regulating the manufacture and distribution of pharmaceuticals, as well as regulations dealing with the substitution +of generic drugs for branded drugs. Our operations are also subject to regulation, licensing requirements and inspection by the states +and localities in which our operations are located or in which we conduct business. +Certain of our activities are also subject to FTC +enforcement actions. The FTC enforces a variety of antitrust and consumer protection laws designed to ensure that the nation’s markets +function competitively, are vigorous, efficient and free of undue restrictions. Federal, state, local and foreign laws of general applicability, +such as laws regulating working conditions, also govern us. +In addition, we are subject to numerous and increasingly +stringent federal, state and local environmental laws and regulations concerning, among other things, the generation, handling, storage, +transportation, treatment and disposal of toxic and hazardous substances, the discharge of pollutants into the air and water and the cleanup +of contamination. We are required to maintain and comply with environmental permits and controls for some of our operations, and these +permits are subject to modification, renewal and revocation by the issuing authorities. Our environmental capital expenditures and costs +for environmental compliance may increase in the future as a result of changes in environmental laws and regulations or increased manufacturing +activities at any of our facilities. We could incur significant costs or liabilities as a result of any failure to comply with environmental +laws, including fines, penalties, third-party claims and the costs of undertaking a clean-up at a current or former site or at a site +to which our wastes were transported. In addition, we have grown in part by acquisition, and our diligence may not have identified environmental +impacts from historical operations at sites we have acquired in the past or may acquire in the future. +Employees +As of the date of this Annual Report, we have +seven (7) full time employees. We have no part-time employees and we engage one consultant. We believe that we maintain good relations +with our employees. +INFORMATION ABOUT THE BUSINESS OF MINDWAVE INNOVATIONS +INC +Unless the context otherwise indicates or requires, +all references in this section to “we,” “us,” “our,” “our company” “the Company” +and “MindWave” refer to MindWave Innovations Inc +MindWave Innovations Inc (“MindWave,” +the “Company,” “we,” “us” or “our”) is a technology platform company focused on institutional +Digital Asset Treasury (“ DAT ”) solutions, centered on enabling corporations and institutions to hold, manage, and generate +yield on Bitcoin reserves through a compliant, scalable infrastructure. Our strategic model integrates secure digital treasury wallets, +AI-supported Bitcoin yield programs, and a validator-enabled ecosystem supported by our native token, $NILA. TechyTrade Innovations +Pte. Ltd. is a Singapore exempt private company and wholly owned subsidiary of MindWave Innovations Inc (“ TechyTrade (Singapore) ”). TechyTrade +FZ LLC is a limited liability company operating under the laws of the Ras Al Khaimah Economic Zone is a wholly owned subsidiary of TechyTrade +Singapore (“ TechyTrade (Dubai) ”). MindWave operates through an international structure that includes TechyTrade (Singapore) +and TechyTrade (Dubai), which contains the primary business operations of MindWave. +Our balance sheet strategy is designed to align with +our DAT offering. TechyTrade (Dubai) owns or controls 1,000 Bitcoin free of encumbrances, identifiable and segregated within a sub-wallet +architecture created and administered by MindWave Ltd. for the benefit of TechyTrade (Dubai), with private keys and beneficial ownership +retained by TechyTrade (Dubai). TechyTrade (Dubai) has no indebtedness other than trade payables, which were less than fifty percent of +cash on hand. This reserve posture is intended to preserve purchasing power, provide continuous exposure to Bitcoin, and support our yield +infrastructure without requiring asset sales. +26 +We intend to commercialize our principal DAT offerings +for institutional clients, which comprise: (i) secure corporate Bitcoin treasury infrastructure designed for public-company balance +sheets and institutional controls; (ii) AI-supported Bitcoin yield strategies intended to deliver risk-managed, programmatic yield +including InsureTech; and (iii) a validator-enabled ecosystem that supports utility and governance via $NILA across interoperable +verticals, including AdTech engagement platforms and ClimateTech impact systems, as described in our technical materials. Custody of client +assets is expected to occur through regulated third-party providers and institutional-grade wallet solutions, implemented within a segregation +and control framework consistent with institutional compliance requirements. +Our operating framework is designed around Bitcoin +as the core reserve and risk collateral reference for treasury and yield solutions. We expect to avoid hybrid collateral models in favor +of a Bitcoin-centric approach that is transparent, simple, and consistent with our treasury and platform design. Within our ecosystem, +$NILA functions as an economic and governance substrate to activate services, enable staking mechanisms that align incentives, and facilitate +validator economics across our interoperable platforms. +We intend to serve corporate treasuries and institutions +that maintain or plan to maintain Bitcoin reserves and require scalable, compliant DAT capabilities. We also expect to support high-net-worth +individuals and funds seeking institutional controls for Bitcoin reserve management and programmatic yield. Consistent with institutional +practices, our anticipated operations emphasize transparency and risk management, including conservative collateralization where relevant +to client programs, real-time risk monitoring, and robust anti-money laundering (AML) and know-your-customer (KYC) processes. We are pursuing +strategic relationships with financial institutions, placement agents, and digital-asset service providers to support custody, treasury +operations, and capital formation for expansion of our platform. +We believe that our combination of (i) an institutional +Bitcoin reserve posture supported by segregated custody architecture and independent attestation, (ii) AI-enhanced yield strategies +integrated into a controlled DAT stack, and (iii) a validator-enabled ecosystem powered by $NILA positions us to meet emerging institutional +demand for Bitcoin treasury solutions. In connection with our merger with Apimeds Pharmaceuticals US, Inc., our DAT platform is expected +to be operated within a publicly listed structure, with Apimeds’ biopharmaceutical business continuing within a subsidiary post-closing, +and capital formation initiatives contemplated to support both the DAT platform and biopharmaceutical development. We believe this structure +enhances our ability to scale client adoption while maintaining regulatory discipline and institutional-grade controls. +General Development of Our Business +MindWave Innovations Inc was incorporated in the State +of Delaware in 2025. On December 1, 2025, MindWave signed and closed an Agreement and Plan of Merger with Apimeds Pharmaceuticals +US, Inc. (“ Apimeds ”), Apimeds Merger Sub, Inc. (“ Merger Sub ”), Lokahi Therapeutics, Inc., and Erik +Emerson, pursuant to which Merger Sub merged with and into MindWave, with MindWave surviving as a wholly owned subsidiary of Apimeds (the +“ Merger ”). +Following the Merger, we have focused our development +efforts on scaling an institutional DAT platform. Consistent with our treasury reserve posture, our group maintains Bitcoin as its core +reserve asset. As previously mentioned, TechyTrade (Dubai) owns and controls 1,000 Bitcoin, identifiable and segregated in sub-wallets +administered by MindWave Ltd. +Our principal activities consist of: (i) building +our institutional DAT stack, including secure corporate Bitcoin treasury infrastructure and AI-supported Bitcoin yield strategies; (ii) implementing +and attesting to our Bitcoin reserve and segregated custody architecture; and (iii) forming relationships with regulated custodians, +wallet and validator providers, financial institutions, and placement agents to support custody, risk management, compliance (including +AML/KYC), and capital formation. We are in the execution stage and are preparing for commercialization of our DAT offerings. +Roadmap and Milestones +Our near-term priorities focus on: (i) onboarding +initial institutional clients to our corporate Bitcoin treasury infrastructure; (ii) progressing AI-supported, risk-managed yield +programs under defined policy and control frameworks; (iii) standing up enterprise validator services to support network participation +and governance; and (iv) advancing development of our ClimateTech, AdTech, and InsurTech verticals to interoperate with our DAT stack. +Over time, we intend to expand treasury management capabilities, scale validator operations, and develop ecosystem utility, subject to +applicable regulatory requirements, market conditions, and governance approvals. +27 +Our Treasury Strategy and Digital Asset Treasury +Platform +Bitcoin Treasury Strategy +We believe that Bitcoin is an attractive +reserve asset because (i) it can serve as a store of value supported by a robust, public, open-source architecture that is independent +of sovereign monetary policy, (ii) its fixed supply offers the potential to serve as a long-term hedge against inflation and, as +adoption increases, the opportunity for appreciation, and (iii) the Bitcoin network provides infrastructure for financial and technological +innovation. +We were formed with the intention of operating an +institutional-focused Digital Asset Treasury (“DAT”) platform, and our group has adopted a Bitcoin-centric reserve posture aligned +with that platform. Under this posture, our treasury reserve assets consist principally of: +● Cash and cash equivalents sufficient for working capital +and operational needs; and +● Bitcoin held at the operating-subsidiary level as our primary +reserve asset, maintained within a segregated sub-wallet architecture and free of encumbrances, subject to business needs and market +conditions. +Consistent with this reserve posture, we may from +time to time evaluate capital raising transactions to support platform development, working capital, and expansion of our reserve +strategy. We expect future capital allocation decisions to consider market conditions, risk management, regulatory considerations, and +anticipated operating requirements. Our strategy contemplates that we may (i) periodically rebalance or sell Bitcoin for general +corporate purposes, (ii) utilize our Bitcoin reserve within conservative, risk-managed programs that support our yield and validator +infrastructure, and (iii) evaluate compliant structures to generate programmatic returns consistent with institutional practices +and applicable law. +We also plan to conduct advocacy and educational +initiatives regarding institutional Bitcoin treasury standards, custody segregation, controls, and reporting, including thought leadership +and partnerships intended to support the broader adoption of compliant corporate Bitcoin treasury operations. +DAT Yield and Validator Infrastructure +Our core offerings center on an institutional +DAT stack designed to help corporations and institutions hold, manage, and generate yield on Bitcoin reserves. Key components include: +● Institutional treasury infrastructure. Secure +wallet architecture with segregation and controls designed to align with public-company balance sheet requirements and institutional +compliance frameworks. +● AI-supported yield programs. Risk-managed +strategies intended to produce programmatic returns on Bitcoin reserves, with governance and monitoring controls suitable for institutional +participants. +● Validator-enabled ecosystem. Operations +that support network economics and governance across our ecosystem, including utility powered by our native token, $NILA. +Client assets, if and when onboarded, are expected +to be held through regulated third-party custodians or institutional-grade wallet solutions within a segregation and control +framework consistent with AML/KYC and other applicable requirements. We emphasize conservative collateralization (where relevant to client +programs), real-time risk monitoring, and robust compliance processes. +Our Bitcoin Holdings +On March 31, 2025, TechyTrade (Dubai) entered +into an Asset Purchase Agreement with MindWave Ltd., pursuant to which TechyTrade (Dubai) acquired 1,000 bitcoin. The bitcoin are held +free of encumbrances within a segregated sub-wallet architecture administered by MindWave Ltd. We did not sell any bitcoin during 2024 +or 2025. +28 +Our Industry Overview +Bitcoin Industry +Bitcoin is a digital asset that is issued by and transmitted +through an open-source protocol, known as the Bitcoin protocol, collectively maintained by a peer-to-peer network of decentralized user +nodes. This network hosts a public transaction ledger, known as the Bitcoin blockchain, on which bitcoin holdings and all validated transactions +that have ever taken place on the Bitcoin network are recorded. Balances of bitcoin are stored in individual “wallet” functions, +which associate network public addresses with one or more “private keys” that control the transfer of bitcoin. The Bitcoin +blockchain can be updated without any single entity owning or operating the network. +Creation of New Bitcoin and Limits on Supply +The Bitcoin protocol limits the total number of bitcoins +that can be generated over time to 21 million. As of October 2025, approximately 19.93 million bitcoins have been generated. +New bitcoins are created and allocated by the Bitcoin protocol through a “mining” process that rewards users that validate +transactions in the Bitcoin blockchain. Validated transactions are added in “blocks” approximately every 10 minutes. The mining +process serves to validate transactions and secure the Bitcoin network. Mining is a competitive and costly operation that requires a large +amount of computational power to solve complex mathematical algorithms. This expenditure of computing power is known as “proof of +work.” +To incentivize miners to incur the costs of mining +bitcoin, the Bitcoin protocol rewards miners that successfully validate a block of transactions with newly generated bitcoin. The current +reward for miners that successfully validate a block of transactions is 3.125 bitcoin per mined block. The mining reward is reduced by +half, which is referred to as a bitcoin halving, after every 210,000 blocks are mined. This has historically occurred approximately every +four years. The most recent bitcoin halving occurred in April 2024, and the next bitcoin halving is expected to occur sometime +in 2028. +Modifications to the Bitcoin Protocol +Bitcoin is an open-source network that has no central +authority, so no one person can unilaterally make changes to the software that runs the network. However, there is a core group of developers +that maintains the code for the Bitcoin protocol, and they can propose changes to the source code and release periodic updates and other +changes. Unlike most software that has a central entity that can push updates to users, bitcoin is a peer-to-peer network in which individual +network participants, called nodes, decide whether to upgrade the software and accept the new changes. As a practical matter, a modification +becomes part of the Bitcoin protocol only if the proposed changes are accepted by participants collectively having more than 50% of the +processing power, known as hash rate, on the network. If a certain percentage of the nodes reject the changes, then a “fork” +takes place, and participants can choose the version of the software they want to run. +Forms of Attack Against the Bitcoin Network and +Wallets +Blockchain technology has many built-in security features +that make it difficult for hackers and other malicious actors to corrupt the protocol or blockchain. However, as with any computer network, +the Bitcoin network may be subject to certain attacks. Some forms of attack include unauthorized access to wallets that hold bitcoin and +direct attacks, like “51% attacks” or “denial-of-service attacks” on the Bitcoin network. +Bitcoin is controllable only by the possessor of both +the unique public key and private key(s) relating to the local or online digital wallet in which the bitcoin is held. Private keys +used to access bitcoin balances are not widely distributed and are typically held on hardware (which can be physically controlled by the +holder or by a third party such as a custodian) or via software programs on third-party servers. One form of obtaining unauthorized access +to a wallet occurs following a phishing attack where the attacker deceives the victim and manipulates them into sharing their private +keys for their digital wallet or other sensitive information. Other similar attacks may also result in the loss of private keys and the +inability to access, and effective loss of, the corresponding bitcoin. +A “51% attack” may occur when a group +of miners attain more than 50% of the Bitcoin network’s mining power, thereby enabling them to control the Bitcoin network and protocol +and manipulate the blockchain. A “denial-of-service attack” occurs when legitimate users are unable to access information +systems, devices, or other network resources due to the actions of a malicious actor flooding the network with traffic until the network +is unable to respond or crashes. The Bitcoin network has been, and can be in the future, subject to denial-of-service attacks, which can +result in temporary delays in block creation and in the transfer of bitcoin. +29 +Bitcoin Industry Participants +The primary Bitcoin industry participants are miners, +investors and traders, digital asset exchanges and service providers, including custodians, brokers, payment processors, wallet providers +and financial institutions. +Miners. Miners range from bitcoin enthusiasts +to professional mining operations that design and build dedicated mining machines and data centers, including mining pools, which are +groups of miners that act cohesively and combine their processing power to mine bitcoin blocks. See “— Creation +of New Bitcoin and Limits on Supply” above. +Investors and Traders. Bitcoin investors +and traders include individuals and institutional investors who, directly or indirectly, purchase, hold, and sell bitcoin or bitcoin-based +derivatives. On January 10, 2024, the Securities and Exchange Commission (“ SEC ”) issued an order approving several +applications for the listing and trading of shares of spot bitcoin exchange-traded products (“ ETPs ”) on U.S. national +securities exchanges. While the SEC had previously approved exchange-traded funds where the underlying assets were bitcoin futures contracts, +this order represented the first time the SEC approved the listing and trading of ETPs that acquire, hold and sell bitcoin directly. ETPs +can be bought and sold on a stock exchange like traditional stocks, and provide investors with another means of gaining economic exposure +to bitcoin through traditional brokerage accounts. +Digital Asset Exchanges. Digital asset +exchanges provide trading venues for purchases and sales of bitcoin in exchange for fiat or other digital assets. Bitcoin can be exchanged +for fiat currencies, such as the U.S. dollar, at rates of exchange determined by market forces on bitcoin trading platforms, which +are not regulated in the same manner as traditional securities exchanges. In addition to these platforms, over-the-counter markets and +derivatives markets for bitcoin also exist. The value of bitcoin within the market is determined, in part, by the supply of and demand +for bitcoin in the global bitcoin market, market expectations for the adoption of bitcoin as a store of value, the number of merchants +that accept bitcoin as a form of payment, and the volume of peer-to-peer transactions, among other factors. +Service providers. Service providers offer +a multitude of services to other participants in the Bitcoin industry, including custodial and trade execution services, commercial and +retail payment processing, wallet solutions and financial institutions. If adoption of the Bitcoin network continues to materially increase, +we anticipate that service providers may expand the currently available range of services and that additional parties will enter the service +sector for the Bitcoin network. +Other Digital Assets +As of the date of this Annual Report, bitcoin +was the largest digital asset by market capitalization. However, numerous alternative digital assets exist, and many entities, including +consortia and financial institutions, are actively researching and investing resources in blockchain platforms and digital assets that +utilize consensus mechanisms other than proof-of-work mining, which is employed by the Bitcoin network. For example, in late 2022, the +Ethereum network transitioned to a “proof-of-stake” mechanism for validating transactions that requires significantly less +computing power than proof-of-work mining. Other alternative digital assets that compete with bitcoin in certain ways include “stablecoins,” +which are designed to maintain a constant price because of their issuers’ promise to hold high-quality liquid assets (such as U.S. dollar +deposits and short-term U.S. treasury securities) equal to the total value of stablecoins in circulation. Stablecoins have grown +rapidly as an alternative to bitcoin and other digital assets as a medium of exchange and store of value, particularly on digital asset +trading platforms. As of December 31, 2024, two of the eight largest digital assets by market capitalization were U.S. dollar-backed +stablecoins. +Additionally, central banks in some countries have +started to introduce digital forms of legal tender. For example, China’s central bank digital currency (“ CBDC ”) +project was made available to consumers in January 2022, and governments including the United States and the European Union +have discussed the potential creation of new CBDCs. +30 +Our Market Opportunity for Institutional Bitcoin +Treasury and DAT Solutions +The use of Bitcoin as a corporate treasury reserve +asset has expanded as companies and institutions evaluate alternatives to traditional cash management strategies. While fiat currency +and short-term government securities remain predominant, the emergence of U.S. spot Bitcoin exchange-traded funds and increasing +recognition of Bitcoin as an investable asset class have contributed to broader institutional acceptance. A growing number of public and +private companies, investment funds, and other institutional allocators have begun to evaluate or adopt Bitcoin reserves as a potential +long-term store of value and as a component of diversified treasury strategies. +Despite these developments, adoption of Bitcoin for +treasury purposes remains limited relative to the overall size of global corporate treasury balances. We believe this gap highlights a +meaningful market opportunity for institutional-grade platforms that can provide compliant, transparent, and risk-managed infrastructure +for Bitcoin treasury operations. Key needs we see in the market include secure custody with segregation and controls; governance frameworks +aligned with public-company standards; accounting and reporting support; risk-managed yield programs; and integration into existing treasury +workflows. +We believe there is an opportunity to differentiate +by offering an integrated DAT solution that combines: (i) corporate Bitcoin treasury infrastructure designed for institutional policies +and controls; (ii) AI-supported, risk-managed yield programs intended to produce programmatic returns on reserve assets; and (iii) a +validator-enabled ecosystem that supports network participation and governance, with utility powered by our native token, $NILA. As +institutional comfort and regulatory clarity continue to develop, we expect the use of Bitcoin in treasury management to expand, supported +by demand for transparent, regulated, and operationally disciplined solutions. +In our view, market growth will be driven by several +secular trends: increased institutional access to Bitcoin through regulated vehicles and service providers; enhancements in custody, compliance, +and accounting standards; and the need for end-to-end platforms that allow corporate treasury teams to implement Bitcoin strategies without +building bespoke infrastructure. Our platform is being developed to address these requirements by providing segregation, controls, monitoring, +and reporting consistent with institutional expectations, along with programmatic yield and validator capabilities designed to complement +a Bitcoin-centric reserve posture. +Our Products and Services +Our principal planned products and services focus +on delivering an institutional Digital Asset Treasury (“DAT”) platform that enables corporations and institutions to hold, +manage, and generate yield on Bitcoin reserves through a compliant, scalable infrastructure. We are in the development execution stage +and are actively building the underlying architecture, governance, and partnerships necessary to support future commercialization. +Institutional DAT Platform +● Corporate Bitcoin treasury infrastructure. Segregated wallet +architecture, permissions and controls, and reporting designed to align with institutional compliance frameworks and public-company balance +sheet requirements. +● AI-supported yield programs. Risk-managed strategies intended +to produce programmatic returns on Bitcoin reserves, with governance, monitoring, and risk limits tailored for institutional participants. +● Validator-enabled ecosystem. Network operations that support +validator economics and governance across our interoperable platforms, with utility powered by our native token, $NILA. +● Compliance and risk management. Policies and tooling addressing +AML/KYC, ongoing monitoring, collateral and reserve discipline where relevant to client programs, and real-time risk analytics. +● Advisory and enablement. Onboarding and operational support +to help clients adopt institutional Bitcoin treasury standards, including segregation, reconciliation, and controls. +Treasury Reserve and Bitcoin Strategy +Our group maintains a Bitcoin-centric reserve posture +that aligns with our DAT platform. This approach is intended to preserve purchasing power, provide continuous exposure to Bitcoin, and +support our yield and validator infrastructure. From time to time, we may evaluate capital raising transactions to fund platform development, +operations, and reserve strategy, subject to market conditions, risk management, regulatory considerations, and anticipated operating +needs. +31 +Custody and Execution Services +We intend to utilize regulated third-party custodians +and institutional-grade wallet solutions for the safekeeping of any client assets onboarded to our platform, as well as our operating-subsidiary +reserves. These providers are expected to support secure custody, segregation, and controls, and to offer affiliated execution services +for Bitcoin acquisitions and dispositions consistent with institutional best practices. +Ecosystem Verticals Powered by $NILA +In addition to our core Digital Asset Treasury (“ DAT ”) +platform, we operate interoperable verticals powered by our native token, $NILA, which enables governance, utility, and value flow across +our ecosystem. +● ClimateTech (AQUAE Impact). One our ecosystems is a blockchain-powered +sustainability engine intended to generate verifiable, insured environmental impact outcomes, including fractionalized credits linked +to analog forest projects and other conservation efforts. The roadmap contemplates phases focused on expanding analog forest capacity, +introducing water-conservation and biodiversity credits, and building a secondary market for the exchange of such credits. +● AdTech (Wave+). Another ecosystem is a micro-engagement +platform to convert user attention into tokenized value for brand and mission-aligned campaigns. The platform is designed to support +daily active engagement, with contemplated revenue streams from ad placements, partner campaigns, and conversion fees. +● InsurTech (Institutional Insurance Engine). We are designing +an insurance framework to complement digital treasury strategies through surplus-capital-style models backed by strengthened, Bitcoin-centric +balance sheets. The goal is to support treasury protection, parametric digital-asset coverage, and institutional insurance primitives +that can be integrated with our DAT platform. +Validator Infrastructure +We intend to operate enterprise-grade validator nodes +to support network participation, governance, and rewards within our ecosystem and for institutional clients. The validator stack +is being developed with an emphasis on high availability, slashing prevention, hardware security (including HSM/TEE-based protections), +governance controls, and policy-limited MEV/PBS participation. Anticipated revenue drivers include staking rewards, protocol incentives, +enterprise validator service fees, and ecosystem transaction fees. +Revenue Model +Our contemplated revenue model includes multiple streams +that align with institutional treasury adoption: +● Treasury Management Fees: Asset-under-management-based +fees for corporate treasury wallets and related services. +● Performance and Program Fees: Participation in net returns +from AI-supported yield programs, subject to institutional governance and risk policies. +● Validator Services and Protocol Incentives: Enterprise +staking and validator service fees, protocol-derived incentives, and transaction-based revenues tied to ecosystem activity. Monetization +associated with ClimateTech (e.g., fractionalized credits), AdTech (campaign and placement revenue), and InsurTech-related structures, +where applicable. +32 +Our Customers +We target enterprise clients that require institutional +governance, custody segregation, and audit-ready reporting for Bitcoin treasury operations, including public and private corporate treasury +teams, institutional investors and asset managers, financial institutions and intermediaries, and high-net-worth organizations with significant +Bitcoin reserves. We aim to integrate into CFO, treasury, and risk committee workflows, including policy design, compliance and accounting +support, and board-level reporting. +We have generated revenues and do not currently rely +on any single customer for more than 10% of our revenues. +Our Market Positioning +We believe our market positioning is strengthened +by the integration of our institutional Digital Asset Treasury (“ DAT ”) platform, segregated custody architecture, and +Bitcoin-centric reserve posture. Our platform is designed to enable corporations and institutions to implement Bitcoin treasury operations +with the governance, controls, and reporting expected by institutional stakeholders, while complementing those reserves with AI-supported, +risk-managed yield programs and validator participation within our broader ecosystem. +Our Bitcoin holdings are maintained primarily as a +treasury reserve asset intended to support our balance sheet and operational resilience. Our reserve posture reinforces our credibility +with institutional clients by aligning our incentives with a Bitcoin-centric treasury strategy and by demonstrating disciplined custody, +segregation, and control practices. +By maintaining a Bitcoin-centric reserve posture and +building end-to-end DAT infrastructure, we aim to provide a comprehensive, compliant, and scalable pathway for institutions to adopt Bitcoin +in treasury management. This integration of reserve management, custody controls, yield programs, and validator operations is intended +to enhance risk management, support operational discipline, and provide a foundation for long-term value creation. +Our Competitive Strengths +Platform Governance and $NILA Utility +$NILA functions as a governance and utility token +within our ecosystem, facilitating validator participation, program access, and value exchange across verticals. Governance processes +are designed to be policy-driven and auditable, with the objective of aligning incentives among stakeholders while maintaining institutional +controls. Within our validator framework, we intend to limit protocol participation to policy-permitted activities and to maintain +risk controls, including stake diversification, slashing protection, and real-time monitoring. +We believe the following strengths position us to +compete effectively in the emerging institutional Bitcoin treasury market: +● Institutional DAT stack. End-to-end infrastructure for +corporate Bitcoin treasury operations, including secure wallet architecture, permissions and controls, reconciliation, and reporting +aligned with institutional requirements. +● Segregated custody architecture. Use of institutional-grade +wallet solutions and regulated third-party providers for safekeeping, with segregation and control frameworks designed to mitigate counterparty +and operational risks. +● Bitcoin-centric reserve posture. A treasury strategy centered +on Bitcoin reserves intended to preserve purchasing power, maintain continuous exposure, and support platform credibility with institutional +clients. +● AI-supported yield programs. Risk-managed strategies intended +to produce programmatic returns on reserve assets, governed by policies, monitoring, and limits consistent with institutional risk management. +● Validator-enabled ecosystem. Network participation that +supports validator economics and governance across interoperable platforms, with utility powered by our native token, $NILA. +● Compliance and governance. Emphasis on AML/KYC, surveillance, +and real-time risk monitoring, together with operational controls designed to align with institutional and public-company standards. +● Scalable partner network. Strategic relationships with +custodians, wallet providers, financial institutions, and other service partners to support onboarding, execution, and operational scale. +● Operational discipline. A focus on segregation, transparency, +and audit-ready processes to support institutional adoption and long-term sustainability. +33 +We believe our integrated approach — combining +corporate Bitcoin treasury infrastructure, AI-supported yield programs, validator operations, and interoperable verticals powered by $NILA — addresses +key adoption barriers by offering a policy-driven, audit-ready, and scalable pathway for institutions. Our multi-vertical design +is intended to enhance network effects and create diversified revenue opportunities aligned with institutional compliance and governance +expectations. +Custody of Our Bitcoin +Our Bitcoin reserve is maintained within a segregated +sub-wallet architecture created and administered by MindWave Ltd. for the benefit of our operating subsidiary, TechyTrade (Dubai). TechyTrade +(Dubai) holds the private keys and retains full beneficial ownership and control of the segregated wallet(s). The 1,000 Bitcoin are identifiable, +segregated, and held free and clear of any encumbrances. This structure is intended to mitigate counterparty exposure associated with +omnibus custody while maintaining operational controls and traceability over our reserve assets. +We conduct diligence and ongoing oversight of our +wallet architecture and related service providers, focusing on segregation, key-management controls, access permissions, and incident-response +procedures. Our controls emphasize least-privilege access, multi-factor authentication, operational separation of duties, and audit trails +for key interactions and movement authorizations. We supplement these controls with periodic independent attestations to verify the existence, +segregation, and control of our Bitcoin holdings as of specified dates. +For any client assets that may be onboarded to our +platform in the future, we expect to utilize regulated third-party custodians and institutional-grade wallet solutions, implemented within +a segregation and control framework designed to meet institutional compliance requirements (including AML/KYC, monitoring, and reporting). +We anticipate diversifying custody solutions as appropriate to support risk management and operational resilience, and we will evaluate +additional custodial partners over time. +Where we engage third-party providers, we expect to +conduct initial and periodic reviews of their security, operations, and controls, including — but not limited to — key-management +practices, cold-storage policies, cybersecurity programs, business continuity and disaster recovery readiness, and the availability of +third-party assurance reporting. We also seek contractual provisions addressing segregation of assets and clarifying that digital assets +held for our benefit are not part of a custodian’s bankruptcy estate under applicable law. +We continuously monitor the safekeeping of our Bitcoin +through internal controls, reconciliation, and external confirmations, and we will conduct supplemental diligence when warranted by market +conditions or other circumstances. +Policy Framework and Risk Management +We are building our platform around policy-based governance +intended to satisfy institutional requirements and auditor expectations. Core elements include board-approved asset allocation and transaction +policies, segregation of duties, multi-step approval workflows, transaction screening, real-time solvency and exposure limits, and emergency +protocol “kill-switches.” For yield programs, we intend to maintain leverage caps, counterparty concentration limits, daily +reconciliations, and tail-risk hedging parameters. For validator operations, we emphasize uptime targets, redundancy, slashing prevention, +and pre-defined MEV/PBS participation rules. We expect to produce periodic “audit packs,” including reconciliations and +control attestations, for institutional users. +Potential Advantages and Disadvantages of Holding +Bitcoin +We believe that bitcoin is an attractive asset because +it can serve as a store of value, supported by a robust and public open-source architecture, that is untethered to sovereign monetary +policy. We also believe that, due to its limited supply, bitcoin offers the potential to serve as a hedge against inflation in the long-term +and, if its adoption increases, the opportunity for appreciation in value. +34 +Bitcoin exists entirely in electronic form, as virtually +irreversible public transaction ledger entries on the blockchain, and transactions in bitcoin are recorded and authenticated not by a +central repository, but by a decentralized peer-to-peer network. This decentralization mitigates the risks of certain threats common to +centralized computer networks, such as denial-of-service attacks, and reduces the dependency of the bitcoin network on any single system. +The decentralization of user nodes and miners also mitigates the risk of a 51% attack, which would be very costly and difficult to execute +with respect to bitcoin because the Bitcoin network is open source and widely distributed, and transactions on the blockchain require +significant computing power to be validated. However, while the Bitcoin network as a whole is decentralized, the private keys used to +access bitcoin balances are not widely distributed and are susceptible to phishing and other attacks designed to obtain sensitive +information or gain access to password-protected systems. Loss of such private keys can result in an inability to access, and effective +loss of, the corresponding bitcoin. Consequently, bitcoin holdings are susceptible to all of the risks inherent in holding any electronic +data, such as power failure, data corruption, security breach, communication failure and user error, among others. These risks, in turn, +make bitcoin substantially more susceptible to theft, destruction, or loss of value from hackers, corruption, viruses and other technology-specific +factors as compared to conventional fiat currency or other conventional financial assets. +In addition, the Bitcoin network relies on open-source +developers to maintain and improve the Bitcoin protocol. Accordingly, bitcoin may be subject to protocol design changes, governance disputes +such as “forked” protocols, competing protocols, and other open source-specific risks that do not affect conventional proprietary +software. +Government Regulation +The laws and regulations applicable to bitcoin and +digital assets are evolving and subject to interpretation and change. +Governments around the world have reacted differently +to digital assets; certain governments have deemed them illegal, and others have allowed their use and trade without restriction, while +in some jurisdictions, such as the U.S., digital assets are subject to overlapping, uncertain and evolving regulatory requirements. +As digital assets have grown in both popularity and +market size, the U.S. Executive Branch, Congress and a number of U.S. federal and state agencies, including the Financial Crimes +Enforcement Network (“FinCEN”), the Commodity Futures Trading Commission (“CFTC”), the SEC, the Financial Industry +Regulatory Authority (“FINRA”), the Consumer Financial Protection Bureau (“CFPB”), the Department of Justice, +the Department of Homeland Security, the Federal Bureau of Investigation, the Internal Revenue Service (“IRS”) and state financial +regulators, have been examining the operations of digital asset networks, digital asset users and digital asset exchanges, with particular +focus on the extent to which digital assets can be used to violate state or federal laws, including to facilitate the laundering of proceeds +of illegal activities or the funding of criminal or terrorist enterprises, and the safety and soundness and consumer-protective safeguards +of exchanges or other service-providers that hold, transfer, trade or exchange digital assets for users. Many of these state and federal +agencies have issued consumer advisories regarding the risks posed by digital assets to investors. In addition, federal and state agencies, +and other countries have issued rules or guidance regarding the treatment of digital asset transactions and requirements for businesses +engaged in activities related to digital assets. +Depending on the regulatory characterization of bitcoin, +the markets for bitcoin in general, and our activities in particular, our business and our bitcoin strategy may be subject to regulation +by one or more regulators in the United States and globally. Ongoing and future regulatory actions may alter, to a materially adverse +extent, the nature of digital assets markets, the participation of industry participants, including service providers and financial institutions +in these markets, and our ability to pursue our bitcoin strategy. Additionally, U.S. state and federal and foreign regulators and +legislatures have taken action against industry participants, including digital assets businesses, and enacted restrictive regimes in +response to adverse publicity arising from hacks, consumer harm, or criminal activity stemming from digital assets activity. U.S. federal +and state energy regulatory authorities are also monitoring the total electricity consumption of cryptocurrency mining, and the potential +impacts of cryptocurrency mining to the supply and dispatch functionality of the wholesale grid and retail distribution systems. Many +state legislative bodies have passed, or are actively considering, legislation to address the impact of cryptocurrency mining in their +respective states. +The CFTC takes the position that some digital assets, +including bitcoin, fall within the definition of a “commodity” under the Commodities Exchange Act of 1936, +as amended (the “CEA”). Under the CEA, the CFTC has broad enforcement authority to police market manipulation and fraud in +spot digital assets markets in which we may transact. Beyond instances of fraud or manipulation, the CFTC generally does not oversee cash +or spot market exchanges or transactions involving digital asset commodities that do not utilize margin, leverage, or financing. In addition, +CFTC regulations and CFTC oversight and enforcement authority apply with respect to futures, swaps, other derivative products and certain +retail leveraged commodity transactions involving digital asset commodities, including the markets on which these products trade. +35 +The SEC and its staff have taken the position that +certain other digital assets fall within the definition of a “security” under the U.S. federal securities laws. Public +statements made by senior officials and senior members of the staff at the SEC indicate that the SEC does not consider bitcoin to be a +security under the federal securities laws. However, such statements are not official policy statements by the SEC and reflect only the +speakers’ views, which are not binding on the SEC or any other agency or court and cannot be generalized to any other digital assets. +In addition, since transactions in bitcoin provide a degree of anonymity, they are susceptible to misuse for criminal activities, such +as money laundering. This misuse, or the perception of such misuse, could lead to greater regulatory oversight of bitcoin and Bitcoin +platforms, and there is the possibility that law enforcement agencies could close or blacklist bitcoin platforms or other bitcoin-related +infrastructure with little or no notice and prevent users from accessing or retrieving bitcoin held via such platforms or infrastructure. +For example, the U.S. Treasury Department’s Office of Foreign Assets Control has issued updated advisories regarding the use +of virtual currencies, added a number of digital asset exchanges and service providers to the Specially Designated Nationals and +Blocked Persons list and engaged in several enforcement actions, including a series of enforcement actions that have either shut down +or significantly curtailed the operations of several smaller digital asset exchanges associated with Russian and/or North Korean nationals. +Additionally, in January 2025, the Consumer Financial Protection Bureau announced that it is seeking public input on privacy protections +and surveillance in digital payments, particularly those offered through large technology platforms. +As noted above, activities involving bitcoin and other +digital assets may fall within the jurisdiction of more than one financial regulator and various courts and such laws and regulations +are rapidly evolving and increasing in scope. On January 23, 2025, President Trump issued an executive order titled, Strengthening +American Leadership in Digital Financial Technology. While the executive order did not mandate the adoption of any specific regulations, +the executive order identifies certain key objectives to guide agencies involved in crypto regulation, including (i) protecting the +sovereignty of the United States dollar by promoting the development of United States dollar-backed stablecoins, (ii) providing +regulatory clarity and certainty built on technology-neutral regulations for individuals and firms involved in digital assets, including +through well-defined jurisdictional regulatory boundaries, and (iii) taking measures to protect Americans from the risks of Central +Bank Digital Currencies. To achieve these objectives, the executive order established a working group on digital asset markets within +the National Economic Council, comprised of representatives from key federal agencies, with a tight timeline for examining existing regulations +and proposing a new regulatory framework. There have also been several bills introduced in Congress that propose to establish additional +regulation and oversight of the digital asset markets. +Aspects of our business involve collecting, processing, +disclosing, storing, and transmitting personal data, which are subject to certain privacy policies, contractual obligations, and U.S. and +foreign laws, regulations, and directives relating to privacy and data protection. +There are a broad variety of other data protection +laws in the United States that are or may be applicable to our activities, and a wide range of enforcement agencies at both the state +and federal levels that can review companies for privacy and data security concerns based on general consumer protection laws. The Federal +Trade Commission and state Attorneys General all are aggressive in reviewing privacy and data security protections for consumers. New +laws also are being considered at both the state and federal levels. A broad range of legislative measures also have been introduced at +the federal level. Accordingly, failure to comply with federal and state laws (both those currently in effect and future legislation) +regarding privacy and security of personal information could expose us to fines and penalties under such laws. In the event of a security +breach, we also may have obligations to notify our customers or other parties or individuals about this breach, and this can lead to significant +costs and the risk of potential enforcement and/or litigation. There is also a threat of consumer class actions related to these laws +and the overall protection of personal data. Even if we are not determined to have violated these laws, government investigations into +these issues typically require the expenditure of significant resources and generate negative publicity, which could harm our reputation +and our business. +There are similar laws in other countries, including +the General Data Protection Regulation (“GDPR”) in the European Union which imposes requirements regarding the handling and +security of personal data, requires disclosure of data breaches to individuals, customers, and data protection authorities in certain +circumstances, requires companies to honor data subjects’ requests relating to their personal data, permits regulators to impose +fines of up to €20,000,000 or 4% of global annual revenue, whichever is higher, and establishes a private right of action. +36 +In addition to these specific laws, we also are subject +to other privacy, security, and data protection laws around the world. In addition to the laws in place already, other countries are also +considering new or expanded laws governing privacy and data security that may impact our business practices. These laws may impact our +ongoing business activities and our relationships with our business partners, customers and service providers. +Furthermore, the U.S. Congress is considering +comprehensive privacy legislation. At this time, it is unclear whether Congress will pass such a law and if so, when and what it will +require and prohibit. Moreover, it is not clear whether any such legislation would give the Federal Trade Commission (“FTC”) +any new authority to impose civil penalties for violations of the Federal Trade Commission Act in the first instance, whether Congress +will grant the FTC rulemaking authority over privacy and information security, or whether Congress will vest some or all privacy and data +security regulatory authority and enforcement power in a new agency, akin to EU data protection authorities. +Sales and Marketing +Our sales and marketing strategy is designed to expand +awareness of our institutional DAT platform, build credibility with corporate treasury teams and institutional allocators, and drive adoption +of our offerings across target enterprise markets. Key elements include strategic partnerships, targeted distribution through enterprise +sales and channels, and education-led marketing that emphasizes governance, compliance, and risk management. +Strategic Partnerships +We intend to rely on strategic relationships with +regulated custodians, institutional-grade wallet providers, financial institutions, accounting and audit advisors, and other digital-asset +service providers to support our treasury operations and client enablement. Because we are not directly licensed to provide custody, execution, +or intermediation services, we expect these partners to supply the necessary regulatory infrastructure and, in certain cases, act as distribution +channels. These relationships are expected to support secure custody, segregation and control frameworks, execution services for Bitcoin +acquisitions and dispositions, validator operations, and programmatic risk management. We also expect to collaborate with placement agents +and traditional financial institutions to broaden institutional reach and facilitate client onboarding. We will continue to evaluate additional +partnerships with enterprise software integrators, cloud and security vendors, and protocol-level partners to enhance scale, resilience, +and interoperability. +Distribution Methods +We plan to distribute our DAT solutions directly to +enterprise clients through internal business development and relationship management teams focused on corporate treasuries, institutions, +and financial intermediaries. In addition, we expect to leverage partnerships with custodians, wallet providers, and financial institutions +to support client acquisition, onboarding, and ongoing operations. Over time, we anticipate supplementing these channels with participation +in industry conferences and education-led initiatives, including research and thought-leadership publications tailored for CFOs, treasury +leaders, boards, and risk committees. We do not expect to rely on mass-market retail marketing programs. +Marketing +We intend to emphasize education, transparency, and +strategic engagement aligned with institutional standards. We expect to target the following principal audiences: +● Corporate treasury managers and CFO organizations seeking to +integrate Bitcoin into reserve strategies with institutional governance, controls, and reporting. +● Institutional investors and asset managers, including hedge +funds and family offices, seeking institutional-grade custody, risk-managed yield programs, and validator-enabled capabilities. +● Financial institutions and intermediaries evaluating Bitcoin +treasury offerings for their clients and seeking compliant, scalable infrastructure. +● High-net-worth individuals with significant Bitcoin holdings +who require institutional-grade custody, governance, and programmatic operations. +37 +Our marketing strategy is expected to combine targeted +enterprise outreach, channel partnerships, and education-driven content intended to promote responsible adoption of institutional Bitcoin +treasury practices while reinforcing MindWave’s commitment to compliance, governance, and long-term value creation. +Intellectual Property +We rely on a combination of proprietary software, +trade secrets, and contractual protections to develop and operate our DAT platform, including components related to wallet orchestration, +segregation and controls, risk analytics, AI-supported yield programs, and validator operations. We also rely on confidentiality and invention-assignment +agreements with employees, contractors, and partners. From time to time, we may pursue trademark protection for brand names and logos +associated with our products and ecosystem (including, for example, MindWave and $NILA), and we will evaluate additional intellectual +property protections as our platform develops and markets evolve. +Seasonality +Our business is not subject to material seasonal variations. +However, our results of operations may be affected by fluctuations in the market price of bitcoin and by the timing of capital raising +activities, which may not occur evenly throughout the year. +Employees +As of January 11, 2026, we had a total of 9 employees, +none of whom are based in the United States. None of our employees are represented by a labor union. We have not experienced any +work stoppages and generally consider our relations with our employees to be good. +Legal Proceedings +From time to time, we may be involved in legal +proceedings, claims, or regulatory matters arising in the ordinary course of business. As of the date of this Annual Report, we are not +a party to any material pending legal proceedings, nor are we aware of any such proceedings contemplated by governmental authorities. +On April 24, 2026, the Company, MindWave, and +Lokahi Therapeutics, Inc., a Nevada corporation (“ Lokahi ” and, together with the Company and MindWave, the “ Company +Parties ”), together with Erik Emerson, individually and in his capacity as Bio Business Representative under the Merger Agreement, +entered into a Confidential Settlement and Mutual Release Agreement (the “ Settlement Agreement ”) with Inscobee Inc., +a South Korean corporation (“ Inscobee ”), and Apimeds Inc., a South Korean corporation and wholly owned subsidiary of +Inscobee (“ Apimeds Korea ” and, together with Inscobee, the “ Inscobee Parties ”). Concurrently with +the Settlement Agreement, the Company Parties and the Inscobee Parties also entered into a Side Letter Agreement (Merger Unwind Conditions) +(the “ Side Letter ”), which is incorporated into and forms part of the Settlement Agreement. +The Settlement Agreement resolves all outstanding +disputes among the parties arising from the Merger Agreement and related transactions. +Also on April 30, 2026, +the Company entered into a Forbearance Agreement (the “ Forbearance Agreement ”) with Alto Opportunity Master Fund, SPC +– Segregated Master Portfolio B (the “ Investor ”), which holds a senior convertible note in the aggregate original +principal amount of $11,000,000 (the “ Existing Note ”), issued pursuant to a Securities Purchase Agreement, dated +December 1, 2025 (the “ Securities Purchase Agreement ”). +Pursuant to the Forbearance Agreement, the Investor +has agreed to forbear from exercising any of its rights or remedies under the Existing Note with respect to certain existing events of +default (collectively, the “ Existing Defaults ”) during the period commencing on the date of the Forbearance Agreement +through and including June 30, 2026 (or such later date as the Investor may elect in its sole discretion) (the “ Forbearance Period ”). +The Settlement Agreement, the Side Letter, and +the Forbearance Agreement are described in the Company’s Current Report on Form 8-K filed with the SEC on May 3, 2026, and are +incorporated herein by reference. +Facilities +Our principal executive offices are located at 60 +Paya Lebar Road #04-23, Singapore 409051. +Available Information +Our website is located at www.mindwavedao.com . +Item 1A. Risk Factors +As a smaller reporting company, as defined in Rule +12b-2 of the Exchange Act, we are not required to provide the information required by this Item. +Item 1B. Unresolved Staff Comments +Not applicable. +38 +Item 1C. Cybersecurity +Risk Management and Strategy +Managing Material Risks & Integrated Overall +Risk Management +In the normal course of business, we may collect and +store certain sensitive company information, including proprietary and confidential business information. We maintain various protections +designed to safeguard against cyberattacks, including firewalls, key-based authentication, and virtual private networks. We protect against +business interruption by backing up our major systems. We consider these cybersecurity risk management efforts as part of our broader +risk management framework. This integration helps ensure that cybersecurity considerations are a fundamental part of our decision-making +processes. Our management team works with our audit committee and board of directors (the “Board”) to evaluate and address +cybersecurity risks in alignment with our business objectives and operational needs. +Engage Third Parties on Risk Management +To date, we have not engaged independent third parties +to assess the risks associated with our information technology resources and information assets. In the future, we may engage third parties +to analyze data on the interactions of users of our information technology resources, including our employees, and evaluate the performance +of our cybersecurity systems and processes. +Oversee Third Party Risk +We utilize various third-party software applications +in the functioning of our core business. We consider the cybersecurity practices of our third-party service providers, including through +a general security assessment and contractual requirements, as appropriate, before engaging them in order to help protect us from any +related vulnerabilities. Our assessment of risks associated with the use of third-party providers is part of our overall risk management +framework. +Risks from Cybersecurity Threats +We face risk from cybersecurity threats that could +have a material adverse effect on our business, financial condition, results of operations, cash flows or reputation. +To date, we have not experienced any previous cybersecurity +incidents that have materially affected or are reasonably likely to materially affect our business strategy, results of operations, or +financial condition. +Governance +Board of Directors Oversight +Our Board is aware of the critical nature of managing +risks associated with cybersecurity threats, and recognizes the significance of these threats to our operational integrity and stockholder +confidence. +39 +Risk Management Personnel +The audit committee is central to the Board’s +oversight of cybersecurity risks and bears the primary responsibility for this domain as part of its broader responsibility for risk assessment +and management. The audit committee is responsible for escalating significant cybersecurity matters and strategic risk management decisions +to the Board, granting the Board comprehensive oversight and the ability to provide guidance on critical cybersecurity issues. We intend +for the audit committee to review the Company’s cybersecurity posture and the effectiveness of its risk management strategies annually +and brief the full Board with respect to the Company’s cybersecurity posture and potential risks on a regular basis, with a minimum +frequency of once per year. +Management’s Role Managing Risk and Reporting +to the Board +We do not currently have an employee who has significant +and demonstrated professional IT management experience and possesses the requisite education, skills and experience needed to develop +and execute our cybersecurity strategies. Presently, our senior management is responsible for monitoring our cybersecurity risks and maintaining +an ongoing dialogue with the audit committee regarding emerging or potential cybersecurity risks as needed. The relationship between senior +management and the audit committee regarding current and emerging cybersecurity concerns helps to integrate cybersecurity consideration +into the Company’s broader strategic objectives. +Item 2. Properties +Our principal executive offices are located at 100 Matawan Rd, Suite 325, +Matawan, New Jersey 07747. Our Digital Asset Treasury business operations are headquartered at 60 Paya Lebar Road #04-23, Singapore 409051. +We do not own any real property. We believe our current facilities are +suitable for our current operations. +Item 3. Legal Proceedings +From time to time, we may be involved in legal proceedings, claims, or +regulatory matters arising in the ordinary course of business. As of the date of this Annual Report, we are not a party to any material +pending legal proceedings, nor are we aware of any such proceedings contemplated by governmental authorities. +Item 4. Mine Safety Disclosures +Not applicable. +40 +PART II +Item 5. Market for Registrant’s Common Equity, +Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information +Our shares of common stock are traded on the NYSE +American under the symbol “APUS”. +Holders +As of the date of this Annual Report, there were +approximately 10 holders of record of our common stock. +Dividends +We have not paid any cash dividends on our common +stock to date. It is the present intention of our Board to retain all earnings, if any, for use in our business operations and, accordingly, +our Board does not anticipate declaring any dividends in the foreseeable future. +Securities Authorized for Issuance under Equity Compensation Plans +The information required by Item 5 of Form 10-K regarding +equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report. +Recent Sales of Unregistered Securities +On December 1, 2025, in connection with the Merger, +we issued an aggregate of 7,477,017 shares of preferred stock to former stockholders of MindWave Innovations Inc. in exchange for all +of the outstanding shares of MindWave common stock. These shares were issued in reliance upon the exemption from registration provided +by Section 4(a)(2) of the Securities Act of 1933, as amended. +Item 6. [Reserved] +Item 7. Management’s Discussion and Analysis +of Financial Condition and Results of Operations +Overview +Apimeds Pharmaceuticals US, Inc. (“APUS,” +the “Company,” “we,” “us,” or “our”) is a development-stage biopharmaceutical company +incorporated in the State of Delaware. Our primary focus is the clinical development of Apitox, a purified honeybee venom-based drug candidate +being evaluated for the treatment of acute pain and inflammation associated with knee osteoarthritis. We operate our biopharmaceutical +business through our wholly owned subsidiary, Lokahi Therapeutics Inc. (“Lokahi”). +Fiscal year 2025 was a transformative year for +the Company. In addition to advancing our biopharmaceutical pipeline and completing our initial public offering on the New York Stock +Exchange on May 12, 2025, we completed a merger with MindWave Innovations Inc. (“MindWave”) on December 1, 2025. As a result +of the Merger, the Company became a dual-segment operating company, adding a digital asset operations segment alongside our core biopharmaceutical +business. MindWave, now a wholly owned subsidiary, operates the MindWaveDAO blockchain ecosystem and holds digital assets consisting of +Bitcoin (“BTC”), Tether (“USDT”), and the MindWaveDAO native utility token (“NILA Tokens”). The Merger +fundamentally changed the scale and composition of our balance sheet, adding approximately $145.3 million in identifiable net assets, +primarily digital assets, and was effected through the issuance of 7,477,017 shares of Series A Convertible Preferred Stock. +We have not yet generated revenue from our biopharmaceutical +operations and MindWave operations and do not expect to do so until we have successfully advanced Apitox through clinical development +and commercialization. Our ability to continue as a going concern depends on our ability to raise additional capital and execute our operational +plans, as discussed further under “Liquidity and Capital Resources” below. +41 +Key Developments in Fiscal Year 2025 +Initial Public Offering +On May 12, 2025, we completed our IPO on the New York +Stock Exchange, issuing 3,375,000 shares of common stock and generating net proceeds of approximately $11.6 million after deducting underwriting +discounts, commissions, and offering costs. +Business Combination with MindWave Innovations +Inc. +On December 1, 2025, we completed the Merger with +MindWave, which became a wholly owned subsidiary of the Company. The transaction was effected as a non-cash business combination, with +consideration consisting solely of 7,477,017 shares of Series A Convertible Preferred Stock with an aggregate fair value of approximately +$145.4 million, equivalent to the fair value of the net identifiable assets acquired. No goodwill was recorded. Through the Merger, we +acquired digital assets with an aggregate fair value of approximately $146.3 million at the acquisition date, consisting of BTC ($90.8 +million), USDT ($4.7 million), and NILA Tokens ($50.8 million), as well as the operations of the MindWaveDAO blockchain. +PIPE Convertible Note Financing +In connection with the Merger, on December 1, 2025, +we entered into a Securities Purchase Agreement providing for the issuance of senior secured convertible notes in an aggregate maximum +principal amount of $129 million, to be drawn in tranches at our election. On December 8, 2025, we executed the first tranche, issuing +a senior secured convertible note with a principal amount of $10.9 million and gross proceeds of $10 million. Of the proceeds, $8 million +is currently held in a Deposit Account Control Agreement (“DACA”) account, and $1.1 million was disbursed to MindWave to fund +its operations. +Biopharmaceutical Development Activity +During 2025, we significantly increased development +activity related to Apitox, incurring research and development expenses of $1.6 million. We also entered into an agreement with Prevail +InfoWorks Inc., our Clinical Research Organization (“CRO”), establishing a prepaid balance of approximately $2 million to +be applied against future clinical trial execution. +Results of Operations +Year Ended December 31, 2025 Compared to Year Ended +December 31, 2024 +(a) Revenue +We generated no revenue from biopharmaceutical operations +during the years ended December 31, 2025 or 2024. Proceeds from the sale of NILA Tokens are recognized as realized gains on digital assets +and are not classified as revenue under ASC 606. +42 +(b) Research and Development Expenses +Research and development expenses were $1.6 million +for the year ended December 31, 2025, compared to zero for the year ended December 31, 2024. The increase reflects the commencement of +meaningful development activity related to Apitox during 2025, including consulting fees, manufacturing costs, and CRO expenses incurred +in connection with our clinical development program. +(c) General and Administrative Expenses +General and administrative expenses increased to $10.2 million for +the year ended December 31, 2025, from $1.3 million for the year ended December 31, 2024, an increase of approximately $8.9 million. The +increase was driven by a significant expansion of corporate activity and headcount in connection with becoming a public company and completing +the Merger. Key drivers included increased consulting and professional fees, payroll and benefits, stock-based compensation of approximately +$2.0 million (consisting of option grants, common stock grants, and advisory warrants), merger and acquisition related fees, office rent +and supplies, and travel expenses. +(d) Total Operating Expenses +Total operating expenses were $11.9 million for the year ended December +31, 2025, compared to $1.3 million for the year ended December 31, 2024, reflecting the significant increase in both R&D and G&A +activity described above. +(e) Other Income (Expense) +Total other income was $5.9 million for the year +ended December 31, 2025, compared to other expense of approximately $0.1 million for the year ended December 31, 2024. The improvement +was driven mostly by the digital asset activities acquired through the MindWave Merger, which closed on December 1, 2025, and was reflected +in our consolidated results for the period December 1 through December 31, 2025 only. Key components of other income (expense) are as +follows: +● Unrealized gain on digital assets of $1.8 million, reflecting fair value increases in BTC and NILA +Token holdings between the acquisition date and December 31, 2025, partially offset by a decline in BTC value during the period. +● Realized gain on sale of digital assets of $4.2 million, reflecting gains recognized on the sale +of approximately 4.3 million NILA Tokens for aggregate proceeds of approximately $1.8 million in USDT during the period December 1 through +December 31, 2025. These proceeds are noncash, delivered in the form of USDT, described above. These proceeds are used to maintain liquidity +as well as satisfy operational expenses directly pertaining to blockchain and token management. +● Trading gains, net of approximately $97, representing the net of market-making income and expenses +associated with the maintenance and trading activity of the MindWaveDAO NILA token. These gains are non-cash in nature. +● +Change in fair value of derivative liability of $55,146, reflecting the remeasurement of the derivative liability bifurcated +from the PIPE convertible note at issuance on December 8, 2025 through December 31, 2025. The derivative arises from the variable conversion +terms of the note, which allow conversion at a 20% discount to the minimum volume-weighted average price over a five-day lookback period. +● Change in fair value of warrant liability of $22,377, reflecting the remeasurement of the advisory +warrant liability between issuance and reclassification to equity on August 5, 2025. +● Interest income of $0.1 million, earned primarily on IPO proceeds held in a money market account +at PNC Bank. +● Interest expense of $0.3 million, consisting primarily of accretion of the discount attributable +to the PIPE convertible note issued December 8, 2025, as well as accrued interest on the related party notes payable aggregating $500,100 +in principal as of December 31, 2025. +43 +(f) Net Loss +Net loss was $6.0 million for the year ended December 31, 2025, compared +to a net loss of $1.4 million for the year ended December 31, 2024. The increase reflects the scale-up of operations in connection with +the IPO, Merger, and advancement of the Apitox development program, partially offset by digital asset gains recognized following the MindWave +acquisition. +Net loss per common share, basic and diluted, was $(0.55) for the year +ended December 31, 2025, based on weighted-average shares outstanding of 10,881,907. All potentially dilutive securities, including 149.5 +million common share equivalents underlying the Series A Convertible Preferred Stock, 8.3 million shares underlying the PIPE convertible +note, 1.1 million warrant shares, and 0.5 million stock option shares, were excluded from the diluted calculation as their inclusion would +have been anti-dilutive. +Liquidity and Capital Resources +Overview +As of December 31, 2025, we had cash and cash equivalents of $1.6 million +and restricted cash of $8.0 million, for total cash, cash equivalents, and restricted cash of $9.6 million. We also held short-term investments +of $2.0 million, representing a certificate of deposit established by Lokahi to earn interest on funds not deployed in operations. Working +capital, excluding the fair value of digital assets (which are subject to price volatility and liquidity risk and therefore excluded from +management’s assessment of near-term operational liquidity), was approximately $3.2 million as of December 31, 2025. +The $8.0 million of restricted cash represents PIPE +convertible note proceeds currently held in a DACA account, pending release upon conversion of the Series A Convertible Preferred Stock +in accordance with the terms of the note agreement. These funds are not available for general operating purposes until released from the +DACA. +Cash Flows +(a) Operating Activities +Net cash used in operating activities was $8.9 +million for the year ended December 31, 2025, compared to $0.7 million for the year ended December 31, 2024. The increase reflects the +significant expansion of operating activity in connection with the IPO, Merger, and clinical development programs. Non-cash charges included +in operating activities consisted primarily of stock-based compensation of $3.2 million (inclusive of option grants, common stock grants, +and advisory warrants), accretion of debt discount of $0.3 million, and non-cash digital asset operating expenses of $2.4 million, partially +offset by unrealized and realized gains on digital assets. +(b) Investing Activities +Net cash used in investing activities was $10.0 +million for the year ended December 31, 2025, consisting primarily of the $8.0 million deposit into the DACA restricted cash account, +$2.0 million invested in short-term instruments, and $57,333 in purchases of property and equipment (consisting of computer equipment +and furniture), partially offset by $15,345 of cash acquired in the Merger. +(c) Financing Activities +Net cash provided by financing activities was +$20.6 million for the year ended December 31, 2025, consisting primarily of $11.6 million in net proceeds from the IPO, $10.0 million +in gross proceeds from the PIPE convertible note, and $250,100 in proceeds from related party promissory notes, partially offset by $946,000 +in cash issuance costs and $1.1 million disbursed to MindWave from PIPE proceeds. +44 +Future Capital Requirements and Going Concern +Since inception, we have incurred recurring operating losses and negative +cash flows from operations, and we have not generated revenue from our biopharmaceutical operations. For the year ended December 31, 2025, +we reported a net loss of $6.0 million and used $8.9 million in cash in operating activities. As of December 31, 2025, our accumulated +deficit was $10.3 million. We expect to continue to incur significant operating losses as we advance the clinical development of Apitox +and build our operational infrastructure. Significant manufacturing costs related to Apitox development are expected to be incurred beginning +in the first quarter of 2026 and throughout the year. These conditions raise substantial doubt about our ability to continue as a going +concern. +Management’s primary plan to address near-term +liquidity needs is the continued execution of additional tranches under the Securities Purchase Agreement, which provides for the issuance +of up to $129.0 million in aggregate principal of senior secured convertible notes. As of December 31, 2025, only the first tranche of +$10.9 million in principal ($10.0 million gross proceeds) has been drawn, leaving substantial capacity available under the facility. Management +believes that the remaining available tranches under the Securities Purchase Agreement, combined with continued NILA Token sales for USDT +proceeds and potential additional equity or debt financing, represent the primary sources of capital to fund operations over the next +twelve months. However, there can be no assurance that future tranches will be drawn, that NILA Token sales will generate sufficient proceeds, +or that additional financing will be available on acceptable terms or at all. The consolidated financial statements do not include any +adjustments that might result from the outcome of this uncertainty. +Contractual Obligations and Commitments +Our material contractual obligations as of December +31, 2025 include: (i) future minimum lease payments under our San Diego, California office lease of $184,167 in aggregate through December +31, 2028, with $47,527 due in 2026; (ii) principal and accrued interest on related party notes payable aggregating $500,100 in principal, +maturing May 19, 2026; and (iii) the PIPE convertible note with a principal amount of $10.9 million maturing December 8, 2026. We have +also entered into a prepaid services agreement with our CRO, Prevail InfoWorks Inc., with a prepaid balance of approximately $2.0 million +as of December 31, 2025, to be applied against future clinical trial costs. +Segment Information +Following the completion of the MindWave Merger on +December 1, 2025, the Company operates in two segments: (i) the biopharmaceutical segment, which is focused on the clinical development +of Apitox through Lokahi, and (ii) the digital asset operations segment, which encompasses the holding, sale, and advancement of the MindWaveDAO +blockchain and related digital assets through MindWave. +Critical Accounting Estimates +The preparation of our consolidated financial statements +requires management to make estimates and assumptions that affect reported amounts. We consider the following estimates to be the most +critical to understanding our financial results and condition: +Fair Value of Digital Assets. We account for +digital assets, including BTC, USDT, and NILA Tokens, at fair value in accordance with ASU 2023-08. BTC and USDT are classified within +Level 1 of the fair value hierarchy based on quoted prices in active markets. NILA Tokens are classified within Level 2, as they trade +on a limited number of centralized exchanges with modest daily trading volume. Changes in the fair value of digital assets are recognized +in earnings each reporting period. Given the significant concentration of digital assets on our balance sheet of approximately $149.9 +million as of December 31, 2025, changes in the fair value of these assets, particularly BTC and NILA Tokens, could have a material impact +on our reported results. +45 +Fair Value of Stock-Based Compensation. We +measure the fair value of stock options using the Black-Scholes option-pricing model, which requires significant estimates including expected +volatility, expected term, and risk-free interest rate. Changes in these assumptions could materially affect the amount of stock-based +compensation expense recognized. +Fair Value of Derivative Liability. The derivative +liability bifurcated from the PIPE convertible note is measured at fair value each reporting period. The variable conversion feature, +which allows the noteholder to convert at a 20% discount to the minimum VWAP over a five-day lookback period, is sensitive to changes +in our stock price and volatility. Changes in the fair value of the derivative are recognized in earnings and could be material in future +periods. +Going Concern Assessment. Management’s +assessment of the Company’s ability to continue as a going concern requires significant judgment regarding future capital raises, +the availability of remaining PIPE tranches, and the expected pace of operating expenditures. Changes in these assumptions could affect +the going concern conclusion and related disclosures. +Purchase Price Allocation. The allocation +of consideration in the MindWave Merger required management to estimate the fair values of acquired digital assets and assumed liabilities +at the acquisition date. The fair values of NILA Tokens, in particular, involved the use of Level 2 observable inputs and management judgment +regarding market activity and trading volumes. +Recently Issued Accounting Pronouncements +We adopted ASU 2023-08, Accounting for and Disclosure +of Crypto Assets , effective upon the acquisition of digital assets in connection with the MindWave Merger on December 1, 2025. Under +ASU 2023-08, in-scope crypto assets that meet the definition of an intangible asset and are fungible are measured at fair value with changes +recognized in earnings each period. The adoption of ASU 2023-08 did not have a cumulative effect on periods prior to adoption, as the +Company had no digital asset holdings prior to the Merger. +Recent Developments +On April 24, 2026, the Company, MindWave, and Lokahi +Therapeutics, Inc., a Nevada corporation (“ Lokahi ” and, together with the Company and MindWave, the “ Company +Parties ”), together with Erik Emerson, individually and in his capacity as Bio Business Representative under the Merger Agreement, +entered into a Confidential Settlement and Mutual Release Agreement (the “ Settlement Agreement ”) with Inscobee Inc., +a South Korean corporation (“ Inscobee ”), and Apimeds Inc., a South Korean corporation and wholly owned subsidiary of +Inscobee (“ Apimeds Korea ” and, together with Inscobee, the “ Inscobee Parties ”). Concurrently with +the Settlement Agreement, the Company Parties and the Inscobee Parties also entered into a Side Letter Agreement (Merger Unwind Conditions) +(the “ Side Letter ”), which is incorporated into and forms part of the Settlement Agreement. +The Settlement Agreement resolves all outstanding +disputes among the parties arising from the Merger Agreement and related transactions. +Also on April 30, 2026, +the Company entered into a Forbearance Agreement (the “ Forbearance Agreement ”) with Alto Opportunity Master Fund, SPC +– Segregated Master Portfolio B (the “ Investor ”), which holds a senior convertible note in the aggregate original +principal amount of $11,000,000 (the “ Existing Note ”), issued pursuant to a Securities Purchase Agreement, dated +December 1, 2025 (the “ Securities Purchase Agreement ”). +Pursuant to the Forbearance Agreement, the Investor +has agreed to forbear from exercising any of its rights or remedies under the Existing Note with respect to certain existing events of +default (collectively, the “ Existing Defaults ”) during the period commencing on the date of the Forbearance Agreement +through and including June 30, 2026 (or such later date as the Investor may elect in its sole discretion) (the “ Forbearance Period ”). +The Settlement Agreement, the Side Letter, and the Forbearance Agreement +are described in the Company’s Current Report on Form 8-K filed with the SEC on May 3, 2026, and are incorporated herein by reference. +Item 7A. Quantitative and Qualitative Disclosures +about Market Risk +As a smaller reporting company, we are not required +to provide the information required by this Item. +Item 8. Financial Statements and Supplementary Data +This information appears following Item 15 of this +Report and is incorporated herein by reference. +46 +Item 9. Changes in and Disagreements With Accountants on Accounting +and Financial Disclosure +None. +Item 9A. Controls and Procedures +(a) Evaluation of Disclosure Controls and Procedures +We maintain “disclosure controls and procedures,” +as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act, designed to ensure that information required to be disclosed +in our reports filed pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in +the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal +executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosures. +In designing and evaluating the disclosure controls +and procedures, we recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable +assurance of achieving the desired control objectives, and we were required to apply our judgment in evaluating the cost-benefit relationship +of possible controls and procedures. We have carried out an evaluation as of December 31, 2025 under the supervision, and with the participation, +of our management, including our Chief Executive Officer, Dr. Vin Menon (who serves as our principal executive officer), and our Chief +Financial Officer, Erick Frim (who serves as our principal financial officer), of the effectiveness of the design and operation of our +disclosure controls and procedures. +Based on that evaluation, our Chief Executive +Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2025 in +providing reasonable assurance of achieving the desired control objectives due to the material weaknesses in internal control over financial +reporting described below. +Management ’ s Report on Internal +Control over Financial Reporting +Our management is responsible for establishing and +maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). +Internal control over financial reporting refers to the process designed by, or under the supervision of, our principal executive officer +and principal financial officer, and effected by our Board, management and other personnel, to provide reasonable assurance regarding +the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally +accepted accounting principles, and includes those policies and procedures that: +(1) pertain to the maintenance of records that in reasonable detail +accurately and fairly reflect the transactions and dispositions of our assets; +(2) provide reasonable assurance that transactions are recorded +as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being +made only in accordance with authorization of our management and directors; and +(3) provide reasonable assurance regarding prevention or timely +detection of unauthorized acquisitions, use or disposition of our assets that could have a material effect on the financial statements. +Material Weakness in Internal Control Over +Financial Reporting +Management has identified a material weakness +in the Company’s internal control over financial reporting. Due to the Company’s limited number of accounting personnel, the +Company does not maintain adequate segregation of duties in certain key processes. As a result, certain individuals have responsibility +for multiple aspects of transactions, including authorization, recording, and review, which increases the risk that a material misstatement +of the financial statements could occur and not be prevented or detected on a timely basis. +A material weakness is a deficiency, or a combination +of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement +of the Company’s financial statements will not be prevented or detected on a timely basis. +Management has concluded that this control deficiency +constitutes a material weakness. Accordingly, management has determined that the Company’s internal control over financial reporting +was not effective as of the date of this Annual Report. +As a smaller reporting company with limited resources, +the Company expects that segregation of duties will remain a challenge; however, management is implementing compensating controls, including +increased management review and oversight procedures, to mitigate the risks associated with this material weakness +47 +Internal control over financial reporting has inherent +limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses +in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion +or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected +on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial +reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. +We have conducted an assessment of the effectiveness +of our internal control over financial reporting as of December 31, 2025, based on the framework established in Internal Control—Integrated +Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Framework”). This +assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness +of those controls. +A material weakness in internal controls is a deficiency +in internal control, or combination of control deficiencies, that adversely affects our ability to initiate, authorize, record, process, +or report external financial data reliably in accordance with GAAP such that there is more than a remote likelihood that a material misstatement +of our annual or interim financial statements that is more than inconsequential will not be prevented or detected. In the course of making +our assessment of the effectiveness of internal controls over financial reporting, we identified material weaknesses in our internal control +over financial reporting. Specifically, we do not have sufficiently documented procedures or control activities in place to support a +reliable financial reporting process. This includes an absence of controls over the review and approval of journal entries, segregation +of duties, reconciliations, and other fundamental accounting processes. +Based on our assessment under the criteria described +above, we have concluded that our internal control over financial reporting was not effective as of December 31, 2025. +(b) Changes in Internal Control Over Financial +Reporting +There were no changes in the Company’s internal +controls over financial reporting that occurred during the year ended December 31, 2025 that have materially affected, or are reasonably +likely to materially affect, the Company’s internal control over financial reporting. The Company continues to review its disclosure +controls and procedures, including its internal control over financial reporting, and may from time to time make changes aimed at enhancing +their effectiveness and to ensure that the Company’s systems evolve with its business. +Item 9B. Other Information +None . +Item 9C. Disclosure Regarding Foreign Jurisdiction that Prevents Inspections +Not applicable. +48 +PART III - OTHER INFORMATION +Item 10. Directors, Executive Officers and Corporate +Governance +Information Regarding Directors and Executive +Officers +The following table sets forth information regarding the Company’s +executive officers and non-employee directors. +Name +Age +Position +Dr. Vin Menon +48 +Chief Executive Officer +Erick Frim +68 +Chief Financial Officer +Christopher Kim, MD. +74 +Chief Medical Officer +Dr. Bennett Weintraub, PhD. +56 +Director +Carol O’Donnell +67 +Director +Elona Kogan +55 +Director +Dr. Vin Menon — Chief +Executive Officer +Dr. Vin Menon has been our Chief Executive Officer +since December 2025. Dr. Menon is a veteran in the technology services industry, who can be credited with the strategic direction +behind several disruptive technology companies. In the corporate world, he has held various leadership positions at multinational corporations +like HP & Compaq with global responsibilities. Driven by his passion for technology and innovation, Dr. Menon has been a +forerunner in technological innovation and has helped create the business ecosystem of disruptive technologies and high-growth companies. +His experience has helped him in the technology space as an entrepreneur and advisor, leading several startups from inception to meteoric +growth across continents. Dr. Menon’s proven track record of setting up motivated and high caliber teams in the technology +and services industry, establishing development centers from scratch to scale, and building company competencies led him to being awarded +‘Entrepreneur of the Year 2012’ by Rotary-ASME, ‘Outstanding Entrepreneur Award 2011’ by APEA, the ’Spirit +of Enterprise 2010’ by SOE Singapore. Dr. Menon was also selected as a ‘Leading Indian Entrepreneur of the Year 2010’ +by the Singapore Indian Chamber of Commerce. From the years 2021 to 2023 he co-founded and served as Strategic Advisor to CGCX, a +Fintech, decentralized finance, and digital assets platform, where he provided strategic advisory services and growth initiatives. He +currently serves as Chief Executive Officer of AQUAE Impact (AQUAE Impact Exchange Co. L.L.C/AQUAE Impact), a sustainable financial and +environmental assets platform that uses blockchain technology and artificial intelligence, which he co-founded and currently forms part +of its executive leadership providing oversight of product and sustainability initiatives. He also currently serves as Chief Executive +Officer of AQUAE Labs Pte Ltd, which is the research and development and technology arm of AQUAE Impact, where he provides product and +technology leadership, measurement, reporting, and verification of environmental credits. Additionally, he currently occupies the role +of Strategic Advisor of TechyTrade FZ-LLC, which is a bitcoin-backed company that operates in the digital asset and treasury innovation +space. Dr. Menon is also a champion of techno-preneurship and was serving on the Board of Directors of the Spirit of Enterprise (SOE) +and the Mentoring Programme under Action Community for Entrepreneurship (ACE) by SPRING Singapore. Moreover, he completed his bachelor’s +degree in computer applications from India, with first-class honors. He has also completed the following programs: Advanced Management +Program (AMP) at NTU-Berkeley (Haas Business School, California) and Advanced Management Program (AMP) at The Wharton School (University +of Pennsylvania, USA) specialized in Finance. Dr. Menon obtained an EMBA from the Nanyang Technological University (NTU) in Singapore. +Lastly, he completed his PhD, Blockchain for Impact in Healthcare from The Open International University for Complementary Medicine +in collaboration with Al-Farabi Kazakh National University, Kazakhstan 2019. We believe that these experiences provide Dr. Menon +with the skills necessary to lead the Company as its Chief Executive officer, including overseeing the Company’s strategy, operations, +financial performance, and overall corporate governance. +49 +Erick Frim — Chief Financial +Officer +Erick Frim has over 40 years of experience as an accountant, +financial executive and consultant. Mr. Frim joined Apimeds as CFO in July of 2025. In 2019, he joined CFO Squad and as a partner in the +CFO Squad, LLC Mr. Frim advised clients on technical accounting and regulatory compliance, assisting numerous companies with their initial +public offerings. Prior to the CFO Squad, Mr. Frim served as a director in the public company audit practice of EisnerAmper LLP. Mr. Frim +as also served as a financial executive for digital media pioneer DIVA Systems Corporation. A former CPA, he has a BS in Accounting from +Ball State University. +Christopher Kim, MD. — Chief Medical +Officer +Dr. Christopher Kim has been our Chairman and +Chief Medical Officer since our inception and served as our interim Chief Executive Officer from July 2022 to September 2023. +Dr. Kim is the inventor and developer of Apitox and the founder of Apimeds Korea, where he has served as a director since its inception. +Mr. Kim served as the Chief Executive Officer of Apimeds Korea from May 2003 to August 2011. Prior to founding Apimeds +Korea, Dr. Kim lead with the support of Guju Pharmaceuticals, clinical trials for Apitoxin in Korea, which was approved by the Korea +Food and Drug Administration in 2003 for relief of pain and inflammation for patients with Osteoarthritis. In 2005, he began focusing +on the clinical development of Apitox in the United States, including the first of two-Phase III clinical studies for Osteoarthritis. +Prior to his time with Apimeds Korea, Dr. Kim served as the President of the International Pain Institute of New Jersey from January 1983 +to May 2003, a center for chronic pain and other disabling diseases that conducted clinical research and provided treatment. He served +as a professor at Biomedical Center, CHA Graduate School of Medicine in Korea from March 2005 to February 2017. Dr. Kim +is a licensed physician in New Jersey, New York and Korea and a Pain Medicine Specialist (American Board). Over the past twenty years, +Dr. Kim has treated thousands of chronically disabled patients with autoimmune diseases, including MS. Dr. Kim received +his medical degree from the School of Medicine, CN University in Korea. +We believe Dr. Kim’s extensive experience +in pharmaceutical development and the biopharmaceutical industry, as well as his research and treatment of autoimmune diseases, and institutional +knowledge of our product candidate, qualifies him to serve as of Chief Medical Officer. +Independent Directors: +Dr. Bennett Weintraub, PhD. +Dr. Weintraub has served as a director since +October 2024. Dr. Weintraub currently serves as the President of inThought Research (“inThought”), a healthcare +business intelligence consulting firm which he founded in 2009. inThought provides business development support, competitive intelligence +monitoring, medical conference coverage, and other services both to professional investors and to pharma/biotech companies. Dr. Weintraub +has also served as the Chief Scientific Officer of inPhronesis since 2018. +After completing his training in immunology and biochemistry, +Dr. Weintraub co-founded Biotech Tracker, an online tool for investors, where he served as a financial analyst from 2000 to 2008. +From 2006 to 2008, Dr. Weintraub served as an analyst at Reuters Insight, providing analysis of drug development and trends in medicine +to professional investors. Dr. Weintraub served as a licensed security analyst with Variant Research from 2005 to 2006. +From 1999 to 2000, Dr. Weintraub was senior scientific +editor for the biology research journals Cell and Molecular Cell. Dr. Weintraub performed biochemistry and immunology research at +Stanford University and at the John Curtin School of Medical Research in Canberra, Australia. He earned his doctorate in Biology from +the University of California, San Diego, and a Bachelor of Science in Life Science from the Massachusetts Institute of Technology. +We believe Mr. Weintraub’s +extensive science background qualifies him to serve on our Board of Directors. +From 1999 to 2000, Dr. Weintraub was senior scientific +editor for the biology research journals Cell and Molecular Cell. Dr. Weintraub performed biochemistry and immunology research at Stanford +University and at the John Curtin School of Medical Research in Canberra, Australia. He earned his doctorate in Biology from the University +of California, San Diego, and a Bachelor of Science in Life Science from the Massachusetts Institute of Technology. +We believe Mr. Weintraub’s extensive science +background qualifies him to serve on our Board. +50 +Carol O’Donnell +Carol O’Donnell has served as a director since +October 2024. Ms. O’Donnell is currently a Director and Member of the Audit Committee of Sono-Tek Corporation (NASDAQ: SOTK), +where she has served since November 2018. Prior to that, she served as General Counsel to Boothbay Fund Management LLC, a registered +investment adviser, from December 2019 through May 2021. Ms. O’Donnell joined Protégé Partners and +MOV37, an industry leading firm investing in and seeding smaller and emerging hedge fund managers in April 2016 and has served as +Chief Executive Officer since January 2018. Prior to joining Protégé Partners and MOV37, Ms. O’Donnell was the +Director of Legal and Compliance with DARA Capital US, Inc., a Swiss-owned boutique registered investment advisory and wealth management +firm from January 2013 to March 2016. She served as General Counsel and Chief Compliance Officer of each of the Permal Group +and Framework Investment Group from June 2004 through February 2011 and from January 2002 to May 2004, respectively. +She also served as a director of FSI Low Beta from 2012 to 2021. Ms. O’Donnell was named one of the Top 50 Women in Hedge Funds +in September 2018 and is currently admitted to practice law in the State of Connecticut. +We believe Ms. O’Donnell’s extensive experience +in the financial industry qualifies her to serve on our Board of Directors. +Elona Kogan +Elona Kogan has served as a director since October 2024. +Beginning in August 2024, Most recently, Ms. Kogan served as the Chief Legal Officer of Terns Pharmaceutical, Inc. (Nasdaq: TERNS), +a publicly traded biopharmaceutical company, Prior to joining us, from November 2020 through August 2024, Ms. Kogan served as +the General Counsel and Chief Legal Officer of Seer Inc. (Nasdaq: SEER), a publicly traded life science company. From May 2018 through +August 2021, Ms. Kogan served as a director of Cardax, Inc., a biotechnology company operating in the wellness health care space. +From March 2019 through August 2020, Ms. Kogan served as the General Counsel of Selecta Biosciences, Inc., a clinical-stage +biotechnology company. Ms. Kogan is a graduate of Southwestern University School of Law. Ms. Kogan graduated from Columbia University, +Barnard College, with a B.A. in Economics. +We believe Ms. Kogan’s extensive experience +as an operating executive in biopharmaceutical and life science space, in addition to her experience leading government relations, and +serving as general counsel and chief legal officer of other publicly traded companies qualifies her to serve on our Board of Directors. +51 +Family Relationships +There are no family relationships among any of our executive officers or +directors. +Involvement in Certain Legal Proceedings +To the best of our knowledge, none of our executive +officers or directors were involved in any legal proceedings described in Item 401(f) of Regulation S-K in the past ten years. +Compliance with Section 16(a) of the Exchange +Act +Section 16(a) of the Securities Exchange Act of 1934, +requires our directors, executive officers and persons who own more than 10% of our common stock to file with the SEC initial reports +of ownership and reports of changes in ownership of common stock and other of our equity securities. During the year ended December 31, +2025, our officers, directors and 10% stockholders were not required to make filings pursuant to Section 16(a). +Code of Business Conduct and Ethics +In accordance with the information required by this +Item 10 relating to the code of ethics required by Item 406 of Regulation S-K, the Company has a Code of Business Conduct and Ethics (the +“Code”), which applies to its directors, officers (including its principal executive officer, the principal financial officer +and principal accounting officer), and all other employees (collectively, the “Covered Persons” and each a “Covered +Person”). The full text of the Code is available on the “Investors” section of the Company’s website. The Company +intends to satisfy the SEC’s requirements regarding amendments to, or waivers from, the Code by posting such information on its +website or by filing a Current Report on Form 8-K to disclose such information. +Procedures for Stockholders to Recommend Director +Nominees +The Company’s Amended and Restated Bylaws (the +“Bylaws”) were originally adopted on May 12, 2020, amended and restated on April 11, 2025, and further amended on October +15, 2025. The Bylaws authorize the Board of Directors to designate one or more committees, each consisting of one or more directors. On +February 7, 2025, the Board established the Nominating and Corporate Governance Committee and adopted a written charter for such committee. +Pursuant to the Nominating and Corporate Governance Committee’s charter, the committee may, if it deems appropriate, establish procedures +to be followed by stockholders in submitting recommendations for Board candidates. +C ommittees +of the Board of Directors +Our Board of Directors established three standing +committees: an audit committee, a compensation committee and the nominating and corporate governance committee. +52 +Audit Committee +The members of the audit committee are Carol O’Donnell +(chair), Elona Kogan, and Dr. Bennett Weintraub. Upon his appointment to the Board of Directors, Amir Dossal is expected to be appointed +as a member of the audit committee. Our Board of Directors has determined that each of the members of the audit committee is an “independent +director” as defined by and meet the other requirements of the NYSE American listing standards and applicable SEC rules. +Each member of the audit committee is financially +literate. Carol O’Donnell qualifies as an “audit committee financial expert” as defined in applicable SEC rules and +meets the financial sophistication requirements of the NYSE rules. In making this determination, our Board of Directors considered Ms. +O’Donnell’s previous and current experience in actively supervising individuals in financial and accounting roles. The primary +purpose of the audit committee is to discharge the responsibilities of the Board of Directors with respect to our accounting, financial, +and other reporting and internal control practices and to oversee our independent registered accounting firm. Specific responsibilities +of our audit committee include: +● assisting board oversight of (1) the integrity +of our financial statements, (2) our compliance with legal and regulatory requirements, (3) our independent auditor’s +qualifications and independence, and (4) the performance of our internal audit function and independent auditors; +● reviewing the appointment, compensation, retention, +replacement, and oversight of the work of the independent auditors and any other independent registered public accounting firm engaged +by us; +● pre-approving all audit and non-audit services +to be provided by the independent auditors or any other registered public accounting firm engaged by us, and establishing pre-approval policies +and procedures; +● reviewing and discussing with the independent +auditors all relationships the auditors have with us in order to evaluate their continued independence; +● setting clear hiring policies for employees or +former employees of the independent auditors; +● setting clear policies for audit partner rotation +in compliance with applicable laws and regulations; +● obtaining and reviewing a report, at least annually, +from the independent auditors describing (1) the independent auditor’s internal quality-control procedures and (2) any +material issues raised by the most recent internal quality-control review, or peer review, of the audit firm, or by any inquiry or +investigation by governmental or professional authorities, within the preceding five years respecting one or more independent audits +carried out by the firm and any steps taken to deal with such issues; +● meeting to review and discuss our annual audited +financial statements and quarterly financial statements with management and the independent auditor, including reviewing our specific +disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; +● reviewing and approving any related party transaction +required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the SEC prior to us entering into such transaction; +and +● reviewing with management, the independent auditors, +and our legal advisors, as appropriate, any legal, regulatory or compliance matters, including any correspondence with regulators or government +agencies and any employee complaints or published reports that raise material issues regarding our financial statements or accounting +policies and any significant changes in accounting standards or rules promulgated by the Financial Accounting Standards Board, the SEC +or other regulatory authorities. +Compensation Committee +The members of the compensation committee are +Carol O’Donnell (chair) and Dr. Bennett Weintraub. Upon his appointment to the Board of Directors, Amir Dossal is expected to be +appointed as a member of the compensation committee. Under the NYSE American listing standards and applicable SEC rules, we are required +to have at least two members of the compensation committee, all of whom must be independent. Our Board of Directors has determined that +each of the members of the compensation committee is an “independent director” as defined by and meet the other requirements +of the NYSE American listing standards and applicable SEC rules. +53 +Specific responsibilities of our compensation committee +include: +● reviewing and approving on an annual basis the +corporate goals and objectives relevant to our Chief Executive Officer’s compensation, evaluating our Chief Executive Officer’s +performance in light of such goals and objectives and determining and approving the remuneration (if any) of our Chief Executive Officer +based on such evaluation; +● reviewing and making recommendations to our Board +of Directors with respect to (or approving, if such authority is so delegated by our board of directors) the compensation, and any incentive-compensation and +equity-based plans that are subject to board approval of all of our other officers; +● reviewing our executive compensation policies +and plans; +● implementing and administering our incentive +compensation equity-based remuneration plans; +● assisting management in complying with our proxy +statement and annual report disclosure requirements; +● approving all special perquisites, special cash +payments and other special compensation and benefit arrangements for our officers and employees; +● producing a report on executive compensation +to be included in our annual proxy statement; and +● reviewing, evaluating and recommending changes, +if appropriate, to the remuneration for directors. +Nominating and Governance Committee +The members of the nominating and corporate governance +committee are Elona Kogan (chair) and Carol O’Donnell. Upon his appointment to the Board of Directors, Amir Dossal is expected to +be appointed as a member of the nominating and corporate governance committee. Our Board of Directors has determined that each of the +members of the nominating and corporate governance committee is an “independent director” as defined by and meet the other +requirements of the NYSE American listing standards and applicable SEC rules. +Specific responsibilities of our nominating and corporate +governance committee include: +● identifying and evaluating candidates, including +the nomination of incumbent directors for reelection and nominees recommended by stockholders, to serve on our Board of Directors; +● considering and making recommendations to our +Board of Directors regarding the composition and chairmanship of the committees of our Board of Directors; +● developing and making recommendations to our +Board of Directors regarding corporate governance guidelines and matters; and +● overseeing periodic evaluations of the board +of directors’ performance, including committees of the Board of Directors. +In +general, in identifying and evaluating nominees for director, the committee considers educational background, diversity of professional +experience, knowledge of our business, integrity, professional reputation, independence, wisdom, and the ability to represent the best +interests of our stockholders +Insider Trading Policy +The Company has an insider trading policy (the “Insider +Trading Policy”) which prohibits Covered Persons from buying or selling the Company’s securities while the Covered Person +is aware of material nonpublic information about the Company. The Company believes that its Insider Trading Policy is reasonably designed +to promote compliance with insider trading laws, rules and regulations, and any applicable listing standards. A copy of the Insider Trading +Policy is filed as Exhibit 19.1 to this Annual Report. +54 +Item 11. Executive Compensation +The following discussion contains forward-looking +statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. +The actual amount and form of compensation and the compensation policies and practices that we adopt in the future may differ materially +from currently planned programs as summarized in this discussion. +As an “emerging growth company,” we have +opted to comply with the executive compensation disclosure rules applicable to “smaller reporting companies,” as such term +is defined in the rules promulgated under the Securities Act. Accordingly, we are required to provide a Summary Compensation Table, as +well as limited narrative disclosures regarding executive compensation for our last two completed fiscal years and an Outstanding Equity +Awards at Fiscal Year End Table for our last completed fiscal year. These reporting obligations extend only to “named executive +officers.” Individuals we refer to as our “named executive officers” include (i) all individuals serving as our principal +executive officer during the fiscal year ended December 31, 2025 and (ii) our two most highly compensated executive officers, as defined +in Exchange Act Rule 3b-7, other than our principal executive officer, who were serving as executive officers at the end of the fiscal +year ended December 31, 2025, whose salary and bonus for services rendered in all capacities exceeded $100,000 during the fiscal year +ended December 31, 2025. +The Company’s “named executive officers” +consist of (i) the Company’s Chief Executive Officer, (ii) the Company’s Chief Financial Officer, and (iii) each +other executive officer who served during fiscal year 2025 and whose compensation exceeded $100,000, if any. +Summary Compensation Table +The following table sets forth information concerning +compensation earned by each of the Company’s named executive officers for the fiscal years ended December 31, 2025 and +2024: +* All option awards derived using Black-Scholes Pricing Model +Name and Principal Position +Year +Salary +($) +Bonus +($) +Option +Awards +($) +Nonequity +Incentive Plan +Compensation +($) +All Other +Compensation +($) +Total +($) +Erik Emerson +2025 +$ 250,000 +— +$ 699,703.49 +— +$ +1,275,000 (2) +$ 2,224,703.49 +Former Chief Executive Officer +2024 +300,000 +— +— +— +— +300,000 +Erick Frim +2025 +$ 10,128 (1) +— +— +— +— +$ 10,128 +Chief Financial Officer (Advisory) +2024 +— +— +— +— +— +— +Christopher Kim, MD +2025 +$ 200,000 +— +$ 4,045.80 +— +$ +425,000 (2) +$ 629,045.80 +Chief Medical Officer +2024 +96,000 +— +— +— +— +96,000 +(1) This figure represents compensation paid for six months, +reflecting that the executive’s compensation commenced during fiscal year 2025. +(2) These figures represent common stock issued to executives and +valued at the observable market price at closing of the grant date: May 16, 2025. +Narrative to Summary Compensation Table +Our executive compensation program is based on a pay +for performance philosophy. Compensation for our executive officers is composed primarily of the following main components: base salary, +bonus, and equity incentives in the form of stock options. Like all full-time employees, our executive officers are eligible to participate +in our health and welfare benefit plans. +55 +Employment Agreement with Erik Emerson +The Company entered into an employment agreement with +Erik Emerson on September 21, 2023 (the “ Emerson Employment Agreement ”). Pursuant to the Emerson Employment Agreement, +he would serve as the Company’s Chief Executive Officer and receive a yearly salary of $300,000. Mr. Emerson’s employment +continued for one year from the date of execution and shall automatically renew for successive one year periods in the event of a closing +on a public offering of the company during the initial term unless either party gives 30 days’ written notice of its intent +not to renew the Emerson Agreement prior to the end of the then-current term. +Mr. Emerson may be terminated with or without +Cause (as defined in the Emerson Agreement) upon thirty (30) days’ written notice to Mr. Emerson. +On November 13, 2025, the Company entered into +an amendment to the Emerson Employment Agreement, increasing Mr. Emerson’s annual base salary to $500,000. It also provided +that if Mr. Emerson is terminated by the Company without cause, Mr. Emerson will be entitled to severance payment equal to twenty-four +(24) months of base salary and benefits and immediate vesting of all unvested equity, subject to Mr. Emerson’s execution +of a release of claims against the Company. The amendment further clarifies that, upon termination by the Company for cause or by Mr. Emerson +without good reason, any unvested equity will be automatically forfeited without payment or consideration by the Company. +In connection with and pursuant to the Merger Agreement, +Mr. Emerson resigned from his position as Chief Executive Officer effective as of December 1, 2025. +Stock Option Award to Dr. Christopher Kim +On May 12, 2020 the Company granted Dr. Christopher +Kim, the Company’s Chairman and Chief Medical Officer, a non-qualified stock option award to purchase 138,900 shares of the Company’s +common stock at an exercise price of $11.28 per share. The option vested in three equal installments and vested fully on May 12, +2023. The options have a term of ten years from the date of grant and shall terminate at the expiration of that period, unless it +is terminated at an earlier date pursuant to the provisions of the option grant agreement between the Company and Dr. Kim. +Outstanding Equity Awards at Fiscal-Year End 2025 +There were no outstanding equity-based awards of the +Company held by the named executive officer as of December 31, 2025. +Policies and Practices for Granting Certain Equity +Awards +We do not schedule equity award grants in anticipation +of the release of material nonpublic information, nor do we time the release of material nonpublic information based on equity grant dates. +Director Compensation Table +* All option awards derived using Black-Scholes Pricing Model +Name & Principal Position +Year +Nonemployee +Compensation +(Director Fees) +Option Awards +($) +Total +Carol O’Donnell +2025 +$ 16,000 +$ 29,717.63 +$ 45,717.63 +Director +Hankil Yoon +2025 +$ 10,000 +$ 29,717.63 +$ 39,717.63 +Director +Elona Kogan +2025 +$ 13,000 +$ 29,717.63 +$ 42,717.63 +Director +Bennett Weintraub +2025 +$ 10,000 +$ 29,717.63 +$ 39,717.63 +Director +56 +Item 12. Security Ownership of Certain Beneficial +Owners and Management and Related Stockholder Matters Securities +Authorized for Issuance under Share-Based Compensation +Plans +Equity Compensation Plan Information +The following table sets forth, as of December 31, +2025, information regarding awards previously granted and outstanding, and securities authorized for future issuance, under the Company’s +equity compensation plans. +Plan Category +Number of +Securities +to be Issued +Upon +Exercise of +Outstanding +Options, +Warrants or +Rights +Weighted-Average +Exercise +Price of +Outstanding +Options, +Warrants or +Rights +Number of +Securities +Remaining +Available for +Future +Issuance +Under Equity +Compensation +Plans +(Excluding Outstanding +Options, +Warrants, or +Rights) +Equity compensation plans approved by shareholders +— +— +1,000,000 +Equity compensation plans not approved by shareholders +- +Apimeds Pharmaceuticals US, Inc. 2024 Equity Incentive Plan +On September 18, 2024, we adopted an equity incentive +plan for our employees, the Apimeds Pharmaceuticals US, Inc. 2024 Equity Incentive Plan (the “2024 Equity Incentive Plan”). +The purposes of the Equity Incentive Plan are to provide additional incentives to selected employees, directors and independent contractors +of, and consultants to, the Company or its affiliates, to strengthen their commitment, motivate them to faithfully and diligently perform +their responsibilities and to attract and retain competent and dedicated persons who are essential to the success of our business and +whose efforts will impact our long-term growth and profitability. +On December 1, 2025, in connection with the Merger, +the Company’s stockholders approved an amendment to the 2024 Plan to increase the aggregate number of shares of common stock authorized +for issuance under the 2024 Plan from 1,538,462 shares to 2,096,679 shares (the “2024 Plan Share Increase”). The 2024 Plan +Share Increase was necessary as the 2024 Plan did not have a sufficient number of authorized shares to be issued in connection with the +transactions contemplated by the Merger Agreement. +Awards +The 2024 Equity Incentive Plan allows the Company +to make equity and equity-based incentive awards to officers, employees, directors, consultants, and advisors. The Board anticipates that +providing such persons with a direct stake in the Company will assure a closer alignment of the interests of such individuals with those +of the Company and its stockholders, thereby stimulating their efforts on the Company’s behalf and strengthening their desire to +remain with the Company. +The 2024 Equity Incentive Plan provides for the grant +of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonus +awards, and performance compensation awards. All awards will be set forth in an award agreement which will detail all terms and conditions +of the awards, including any applicable vesting and payment terms and post-termination exercise limitations. +57 +A brief description of each award type follows. +● +Non-Qualified Stock Options means the right to purchase shares pursuant to terms and conditions that are not intended to be, or do not qualify as, an Incentive Stock Options; +● +Incentive Stock Options means the right to purchase shares pursuant terms and conditions that are intended to qualify as, and that satisfy the requirements applicable to, an incentive equity option within the meaning of Code Section 422 of the United States Internal Revenue Code of 1986, as amended; +● +Stock Appreciation Rights means a right, designated as an SAR, to receive the appreciation in the fair market value of shares; +● +Restricted Stock means an award of shares subject to vesting conditions; +● +Restricted Stock Units shall mean a right to receive shares or cash upon vesting; +● +Stock Bonus Awards means unrestricted common stock, or other awards denominated in common stock, either alone or in tandem with other awards; and +● +Performance Compensation Awards means an award granted to a participant that entitles the participant to delivery of shares or cash upon achievement of performance goals. +1,000,000 shares of common stock have initially been +reserved for the issuance of awards under the 2024 Equity Incentive Plan (the “Initial Limit”). The Initial Limit is subject +to adjustment in the event of a reorganization, recapitalization, reclassification, stock split, stock dividend, reverse stock split or +other similar change in the Company’s capitalization. The maximum aggregate number of shares of common stock of the Company that +may be issued upon exercise of incentive stock options under the 2024 Equity Incentive Plan shall not exceed the Initial Limit, as adjusted. +Shares underlying any awards under the 2024 Equity Incentive Plan that are forfeited, cancelled, held back upon exercise of an option +or settlement of an award to cover the exercise price or tax withholding, satisfied without the issuance of stock or otherwise terminated +(other than by exercise) will be added back to the shares available for issuance under the 2024 Equity Incentive Plan and, to the extent +permitted under Section 422 of the Code and the regulations promulgated thereunder, the shares that may be issued as incentive stock options. +The 2024 Equity Incentive Plan is currently administered +by a committee of at least two people as the Board may appoint to administer the 2024 Equity Incentive Plan or, if no such committee has +been appointed by the Board, the Board, pursuant to the terms of the 2024 Equity Incentive Plan (the “Committee”). The plan +administrator, which initially will be the Committee, has full power to select, from among the individuals eligible for awards, the individuals +to whom awards will be granted, to make any combination of awards to participants, and to determine the specific terms and conditions +of each award, subject to the provisions of the 2024 Equity Incentive Plan. The plan administrator may delegate to a committee consisting +of one or more officers of the Company, the authority to awards to individuals who are not subject to the reporting and other provisions +of Section 16 of the Exchange Act and not members of the delegated committee, subject to certain limitations and guidelines. +Persons eligible to participate in the 2024 Equity +Incentive Plan will be officers, employees, non-employee directors, consultants, and advisors of the Company and its subsidiaries as selected +from time to time by the plan administrator in its discretion. As of the date of this Annual Report, approximately 12 individuals are +eligible to participate in the 2024 Equity Incentive Plan, which includes approximately two officers, no employees who are not officers, +five non-employee directors, and five consultants/independent contractors. +58 +Options +The 2024 Equity Incentive Plan permits the granting +of both options to purchase common stock of the Company intended to qualify as incentive stock options under Section 422 of the Code and +options that do not so qualify. Options granted under the 2024 Equity Incentive Plan will be non-qualified options if they fail to qualify +as incentive stock options or exceed the annual limit on incentive stock options. Incentive stock options may only be granted to employees +of the Company and its subsidiaries. Non-qualified options may be granted to any persons eligible to receive awards under the 2024 Equity +Incentive Plan. The option exercise price of each option will be determined by the plan administrator but generally may not be less than +100% of the fair market value of the common stock of the Company on the date of grant or, in the case of an incentive stock option granted +to a ten percent stockholder, 110% of such share’s fair market value. The term of each option will be fixed by the plan administrator +and may not exceed ten years from the date of grant. The plan administrator will determine at what time or times each option may be exercised, +including the ability to accelerate the vesting of such options. +Upon exercise of options, +the option exercise price must be paid in full either in cash, by certified or bank check or other instrument acceptable to the plan administrator +or by delivery (or attestation to the ownership) of shares of common stock of the Company that are beneficially owned by the optionee +free of restrictions or were purchased in the open market. Subject to applicable law, the exercise price may also be delivered by a broker +pursuant to irrevocable instructions to the broker from the optionee. In addition, the plan administrator may permit non-qualified options +to be exercised using a “net exercise” arrangement that reduces the number of shares issued to the optionee by the largest +whole number of shares with fair market value that does not exceed the aggregate exercise price. +Stock Appreciation Rights +The plan administrator may award stock appreciation +rights subject to such conditions and restrictions as it may determine. Stock appreciation rights entitle the recipient to shares of common +stock of the Company, or cash, equal to the value of the appreciation in the Company’s stock price over the exercise price. The +exercise price generally may not be less than 100% of the fair market value of common stock of the Company on the date of grant. The term +of each stock appreciation right will be fixed by the plan administrator and may not exceed ten years from the date of grant. The plan +administrator will determine at what time or times each stock appreciation right may be exercised, including the ability to accelerate +the vesting of such stock appreciation rights. +Restricted Stock and Restricted Stock Units +The plan administrator may award restricted shares +of common stock of the Company and restricted stock units to participants subject to such conditions and restrictions as it may determine. +These conditions and restrictions may include the achievement of certain performance goals and/or continued employment with the Company +through a specified vesting period. The plan administrator may also grant shares of common stock of the Company that are free from any +restrictions under the 2024 Equity Incentive Plan. Unrestricted stock may be granted to participants in recognition of past services or +for other valid consideration and may be issued in lieu of cash compensation due to such participant. The plan administrator may grant +dividend equivalent rights to participants that entitle the recipient to receive credits for dividends that would be paid if the recipient +had held a specified number of shares of common stock of the Company. +Stock Bonus Awards +The plan administration may issue unrestricted common +stock, or other awards denominated in common stock, under the 2024 Equity Incentive Plan to participants, either alone or in tandem with +other awards, in such amounts as the plan administration shall from time to time in its sole discretion determine. +Performance Compensation Awards +The plan administrator may grant awards under the +2024 Equity Incentive Plan to participants, which may be cash-based, subject to the achievement of certain performance goals, including +continued employment with the Company. +Other Material Features +The 2024 Equity Incentive Plan requires the plan administrator +to make appropriate adjustments to the number of shares of common stock that are subject to the 2024 Equity Incentive Plan, to certain +limits in the 2024 Equity Incentive Plan, and to any outstanding awards to reflect stock dividends, stock splits, extraordinary cash dividends +and similar events. +59 +Except as set forth in a stock award agreement issued +under the 2024 Equity Incentive Plan, in the event of (i) a transfer of all or substantially all of the Company’s assets, (ii) a +merger, consolidation or other capital reorganization or business combination transaction of the Company with or into another corporation, +entity or person, or (iii) the consummation of a transaction, or series of related transactions, in which any person becomes the beneficial +owner directly or indirectly, of more than 50% of Company’s then outstanding capital stock, each outstanding stock award (vested +or unvested) will be treated as the plan administrator determines, which may include (a) Company’s continuation of such outstanding +stock awards (if Company is the surviving corporation); (b) the assumption of such outstanding stock awards by the surviving corporation +or its parent; (c) the substitution by the surviving corporation or its parent of new stock options or other equity awards for such stock +awards; (d) the cancellation of such stock awards in exchange for a payment to the participants equal to the excess of (1) the fair market +value of the shares subject to such stock awards as of the closing date of such corporate transaction over (2) the exercise price or purchase +price paid or to be paid (if any) for the shares subject to the stock awards (which payment may be subject to the same conditions that +apply to the consideration that will be paid to holders of shares in connection with the transaction, subject to applicable law); or (e) +the opportunity for participants to exercise the stock options prior to the occurrence of the corporate transaction and the termination +(for no consideration) upon the consummation of such corporate transaction of any stock options not exercised prior thereto. +The 2024 Equity Incentive +Plan provides that a stock award may be subject to additional acceleration of vesting and exercisability upon or after a “Change +in Control” (as defined in the 2024 Equity Incentive Plan) as may be provided in the award agreement for such stock award or as +may be provided in any other written agreement between the Company or any affiliate and the participant, but in the absence of such provision, +no such acceleration will occur. +Participants in the 2024 Equity Incentive Plan are +responsible for the payment of any federal, state or local taxes that the Company or its subsidiaries are required by law to withhold +upon the exercise of options or stock appreciation rights or vesting of other awards. The plan administrator may cause any tax withholding +obligation of the Company or its subsidiaries to be satisfied, in whole or in part, by the applicable entity withholding from shares of +common stock of the Company to be issued pursuant to an award shares with an aggregate fair market value that would satisfy the withholding +amount due. The plan administrator may also require any tax withholding obligation of the Company or its subsidiaries to be satisfied, +in whole or in part, by an arrangement whereby a certain number of shares issued pursuant to any award are immediately sold and proceeds +from such sale are remitted to the Company or its subsidiaries in an amount that would satisfy the withholding amount due. +The 2024 Equity Incentive Plan generally does not +allow for the transfer or assignment of awards, other than by will or by the laws of descent and distribution or pursuant to a domestic +relations order; however, the plan administrator may permit the transfer of non-qualified stock options by gift to an immediate family +member, to trusts for the benefit of family members, or to partnerships in which such family members are the only partners. +The plan administrator may amend or discontinue the +2024 Equity Incentive Plan and the plan administrator may amend or cancel outstanding awards for purposes of satisfying changes in law +or any other lawful purpose, but no such action may materially and adversely affect rights under an award without the holder’s consent. +Certain amendments to the 2024 Equity Incentive Plan will require the approval of the Company’s stockholders. Generally, without +shareholder approval, (i) no amendment or modification of the 2024 Equity Incentive Plan may reduce the exercise price of any stock option +or the strike price of any stock appreciation right, (ii) the plan administrator may not cancel any outstanding stock option or stock +appreciation right where the fair market value of the common stock underlying such stock option or stock appreciation right is less than +its exercise price and replace it with a new option or stock appreciation right, another award or cash and (iii) the plan administrator +may not take any other action that is considered a “repricing” for purposes of the shareholder approval rules of the applicable +securities exchange. +All awards granted under the 2024 Equity Incentive +Plan will be subject to recoupment in accordance with any clawback policy that Company is required to adopt pursuant to the listing standards +of any national securities exchange or association on which Company securities are listed or as is otherwise required by the U.S. Dodd-Frank +Wall Street Reform and Consumer Protection Act or other applicable law. In addition, the Board may impose such other clawback, recovery +or recoupment provisions in a stock award agreement as the Board determines necessary or appropriate. +No options or stock appreciation rights may be granted +under the 2024 Equity Incentive Plan after the date that is ten years from the 2024 Equity Incentive Plan Effective Date. No awards under +the 2024 Equity Incentive Plan have been made prior to the date of this Annual Report. +60 +2025 Equity Incentive Plan +Apimeds Pharmaceuticals US, Inc. 2025 Equity Incentive +Plan +On December 1, 2025, in connection with the Merger, +the Company adopted the Apimeds Pharmaceuticals US, Inc. 2025 Equity Incentive Plan (the “2025 Plan”). The purpose of the +2025 Plan is to advance the interests of the Company, its subsidiaries, affiliates, and stockholders by providing an incentive to attract +and retain the best qualified personnel to perform services for the Company, by motivating such individuals to contribute to the growth +and the profitability of the Company by aligning such individuals with the interests of the Company’s stockholders, and by rewarding +such individuals for their services by tying a significant portion of their compensation to the success of the Company. +Awards +The 2025 Plan allows the Company to make equity and +equity-based incentive awards to officers, employees, directors, consultants, and advisors. The Board of Directors anticipates that providing +such persons with a direct stake in the Company will assure a closer alignment of the interests of such individuals with those of the +Company and its stockholders, thereby stimulating their efforts on the Company’s behalf and strengthening their desire to remain +with the Company. +The 2025 Plan provides for the grant of stock options, +stock appreciation rights, restricted stock, restricted stock units, and other stock-based awards. All awards are set forth in an award +agreement which details all terms and conditions of the awards, including any applicable vesting and payment terms and post-termination +exercise limitations. +A brief description of each award type follows: +● Stock Options means an option granted under the 2025 Plan to purchase shares of common +stock, whether designated as an Incentive Stock Option or a Nonqualified Stock Option; +● Stock Appreciation Rights means a right, designated as a SAR, to receive the appreciation +in the fair market value of shares; +● Restricted Stock means shares, subject to a period of restriction or certain other +specified restrictions (including, without limitation, a requirement that the participant remain continuously employed or provide continuous +service for a specific period of time), granted under the 2025 Plan or issued pursuant to the early exercise of a Stock Option; +● Restricted Stock Units means an unfunded and unsecured promise to deliver shares, cash, +other securities, or other property, subject to certain restrictions (including, without limitation, a requirement that the participant +remain continuously employed or provide continuous service for a specific period of time) granted under the 2025 Plan; and +● Other Stock-Based Awards means any other awards not specifically described in the 2025 +Plan that are valued in whole or in part by reference to, or are otherwise based on, shares and are created by the plan administrator +pursuant to the 2025 Plan. +The maximum aggregate number of shares that may be +issued under the 2025 Plan is ten percent (10%) of the shares outstanding on December 1, 2025 (the “Plan Share Limit”). The +shares subject to the 2025 Plan may be authorized, but unissued, or reacquired shares. On the first day of each calendar year during the +term of the 2025 Plan, commencing on January 1, 2026 and continuing until (and including) January 1, 2035, the number of shares available +under the Plan Share Limit automatically increases by a number equal to the lesser of (i) three percent (3%) of the total number of shares +issued and outstanding on December 31 of the calendar year immediately preceding the date of such increase and (ii) a number of shares +determined by the Board of Directors. +61 +Upon payment in shares pursuant to the exercise or +settlement of an award, the number of shares available for issuance under the 2025 Plan is reduced only by the number of shares actually +issued in such payment. If a participant pays the exercise price (or purchase price, if applicable) of an award through the tender of +shares, or if the shares are tendered or withheld to satisfy any tax withholding obligations, the number of shares so tendered or withheld +again become available for issuance pursuant to future awards under the 2025 Plan, although such shares do not again become available +for issuance as incentive stock options. Shares are not deemed to have been issued pursuant to the 2025 Plan with respect to any portion +of an award that is settled in cash. If any outstanding award expires or is terminated or canceled without having been exercised or settled +in full, or if the shares acquired pursuant to an award subject to forfeiture or repurchase are forfeited or repurchased by the Company, +the shares allocable to the terminated portion of such award or such forfeited or repurchased shares again become available for grant +under the 2025 Plan. No more than ten percent (10%) of the shares outstanding on December 1, 2025 (subject to adjustment pursuant to the +2025 Plan) may be issued under the 2025 Plan upon the exercise of incentive stock options. +The 2025 Plan is administered by a committee of at +least one person as the Board of Directors may appoint or, if no such committee has been appointed by the Board of Directors, the 2025 +Plan is administered by the Board of Directors (the “Administration Committee”). The plan administrator, which initially is +the Administration Committee, has full power to select, from among the individuals eligible for awards, the individuals to whom awards +will be granted, to make any combination of awards to participants, and to determine the specific terms and conditions of each award, +subject to the provisions of the 2025 Plan. The plan administrator may delegate to one or more officers of the Company some or all of +its authority under the 2025 Plan, including the authority to grant all types of awards to individuals who are not subject to the reporting +and other provisions of Section 16 of the Exchange Act, subject to certain limitations and guidelines. +Persons eligible to participate in the 2025 Plan are +officers, employees, non-employee directors, consultants, and advisors of the Company and its subsidiaries as selected from time to time +by the plan administrator in its discretion. As of the date of this Annual Report, approximately sixteen individuals are eligible to participate +in the 2025 Plan, which includes approximately two officers, no employees who are not officers, six non-employee directors, and one consultant/independent +contractor. +Stock Options +The 2025 Plan permits the granting of stock options +to officers, employees, non-employee directors, consultants, and advisors of the Company and its subsidiaries as selected from time to +time by the plan administrator in its discretion. The per share exercise price for shares to be issued pursuant to exercise of a stock +option is determined by the plan administrator but may be no less than 100% of the fair market value per share on the date of grant. +The exercise period of stock options is determined +by the plan administrator, subject to the limitations set forth in the 2025 Plan. Upon exercise of the stock options, the exercise price +must be paid by either (i) cash, (ii) check, (iii) if approved by the plan administrator, as determined in its sole discretion, surrender +of other shares which meet the conditions established by the plan administrator to avoid adverse accounting consequences to the Company +(as determined by the plan administrator), (iv) if approved by the plan administrator, as determined in its sole discretion, by a broker-assisted +cashless exercise in accordance with procedures approved by the plan administrator, (v) if approved by the plan administrator for a nonqualified +stock option, as determined in its sole discretion, by delivery of a notice of “net exercise” to the Company, pursuant to +which the participant receives the number of shares underlying the stock option so exercised reduced by the number of shares equal to +the aggregate exercise price of the stock option divided by the fair market value on the date of exercise, and (vi) such other method +of payment permitted by applicable law. +Stock Appreciation Rights +The plan administrator may award stock appreciation +rights subject to such conditions and restrictions as it may determine. Stock appreciation rights entitle the recipient to shares of common +stock of the Company, or cash, equal to the value of the appreciation in the Company’s stock price over the exercise price. The +exercise price generally may not be less than 100% of the fair market value of common stock of the Company on the date of grant. The plan +administrator determines at what time or times each stock appreciation right may be exercised, including the ability to accelerate the +vesting of such stock appreciation rights. +62 +Restricted Stock and Restricted Stock Units +The plan administrator may award restricted shares +of common stock of the Company and restricted stock units to participants subject to such conditions and restrictions as it may determine. +These conditions and restrictions may include the achievement of certain performance goals and/or continued employment with the Company +through a specified vesting period. Unless the plan administrator determines otherwise, restricted stock is held by the Company as escrow +agent until the restrictions on such restricted stock have lapsed. The plan administrator, in its discretion, may accelerate the time +at which any restrictions lapse or are removed. Restricted stock may be granted to participants in recognition of past services or for +other valid consideration and may be issued in lieu of cash compensation due to such participant. The plan administrator may grant dividend +equivalent rights to participants that entitle the recipient to receive credits for dividends that would be paid if the recipient had +held a specified number of shares of common stock of the Company. +Other Stock-Based Awards +Other stock-based awards may be granted either alone, +in addition to, or in tandem with, other awards granted under the 2025 Plan and/or cash awards made outside of the 2025 Plan. The plan +administrator has authority to determine the participants to whom and the time or times at which other stock-based awards are made, the +amount of such other stock-based awards, and all other conditions of the other stock-based awards including any dividend and/or voting +rights. +Other Material Features +The 2025 Plan requires the plan administrator to make +appropriate adjustments to the number of shares of common stock that are subject to the 2025 Plan, to certain limits in the 2025 Plan, +and to any outstanding awards to reflect stock dividends, stock splits, extraordinary cash dividends and similar events. +In the event of a change in control, each outstanding +award is assumed or an equivalent award substituted by the acquiring or successor corporation or a parent of the acquiring or successor +corporation. Unless determined otherwise by the plan administrator, in the event that the successor corporation refuses to assume or substitute +the award, (A) the participant fully vests in and has the right to exercise the award as to all of the shares, including those as to which +it would not otherwise be vested or exercisable; (B) all applicable restrictions lapse; and (C) all performance objectives and other vesting +criteria are deemed achieved at targeted levels. If a stock option or a stock appreciation right is not assumed or substituted in the +event of a change in control, the plan administrator notifies the respective participant that the stock option or the stock appreciation +right is exercisable, to the extent vested, for a period of up to fifteen (15) days from the date of such notice, and the stock option +or stock appreciation right terminates upon the expiration of such period. +Unless determined otherwise by the plan administrator, +an award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner, except to the participant’s +estate or legal representative, and may be exercised, during the lifetime of the participant, only by the participant, although the plan +administrator, in its discretion, may permit award transfers for purposes of estate planning or charitable giving. +The Board of Directors may at any time amend, alter, +suspend, or terminate the 2025 Plan. The Company may obtain stockholder approval of the 2025 Plan to the extent necessary or, as determined +by the plan administrator, desirable to comply with applicable laws, including any amendment that (i) increases the number of shares available +for issuance under the 2025 Plan, or (ii) changes the persons or class of persons eligible to receive awards. +All awards granted under the 2025 Plan are subject +to recoupment in accordance with any clawback policy that the Company is required to adopt pursuant to the listing standards of any national +securities exchange or association on which Company securities are listed or as is otherwise required by the U.S. Dodd-Frank Wall Street +Reform and Consumer Protection Act or other applicable law. In addition, the Board of Directors may impose such other clawback, recovery +or recoupment provisions in an award agreement as the Board of Directors determines necessary or appropriate. +No awards under the 2025 Plan have been made prior +to the date of this Annual Report. +63 +Security Ownership of Certain Beneficial Owners +and Management +The following table sets forth, as of May 1, +2026, certain information as to the Company’s common stock beneficially owned by persons known by the Company to own in excess of +5% of the outstanding shares of such stock. In addition, the table includes information regarding the shares of the Company’s common +stock beneficially owned by (i) each named executive officer, (ii) each of the Company’s directors and (iii) the Company’s +directors and executive officers as a group. Management knows of no person, except as listed below, who beneficially owned more than 5% +of the outstanding shares of the Company’s common stock as of April 29. 2026. Except as otherwise indicated, the information provided +in the following table was obtained from filings with the SEC and the Company pursuant to the Exchange Act. For purposes of the following +table, in accordance with Rule 13d-3 under the Exchange Act, a person is deemed to be the beneficial owner of any shares of the Company’s +common stock which he or she has or shares, directly or indirectly, voting or investment power, or which he or she has the right to acquire +beneficial ownership of at any time within 60 days after April 29. 2026. As used herein, “voting power” is the power to vote, +or direct the voting of, shares, and “investment power” includes the power to dispose of, or direct the disposition of, such +shares. Unless otherwise noted, each beneficial owner has sole voting and sole investment power over the shares beneficially owned. Unless +otherwise noted, the business address of each of the following entities or individuals is 100 Matawan Rd, Suite 325, Matawan, New Jersey +07747. +Name of Beneficial Owner +Number of +Shares +Beneficially +Owned as of +Information +Statement +Date (8) +% of +Common +Stock as of +Information +Statement Date +Number of +Shares +Beneficially +Owned Post +Conversions +and Post Split (9) +% of +Common +Stock Post +Conversions +and Post Split +Directors and Named Executive Officers: +Dr. Vin Menon (1) +— +— +969,550 +5.92 % +Erick Frim +— +— +— +— +Jakap Koo +615,385 +4.89 % +61,539 +0.38 % +Christopher Kim, MD. +— +— +— +— +Bennett Weintraub, PhD +— +— +— +— +Elona Kogan +— +— +— +— +Carol O’Donnell +— +— +— +— +All directors and officers as a group (7 individuals) +615,385 +4.89 % +1,031,089 +6.36 % +5% or Greater Stockholders: +Apimeds Inc. (2) +4,316,618 +34.32 % +431,662 +2.64 % +Inscobee Inc. (3) +2,099,747 +16.67 % +209,975 +1.28 % +Dominus IB, Inc (4) +800,000 +6.36 % +80,000 +0.49 % +Calfin Capital Private Limited (5) +— +— +10,158,584 +62.13 % +Sea Rider Capital, LLC (6) +— +— +969,548 +5.93 % +Alto Opportunity Master Fund, SPC – Segregated Master Portfolio B (7) +— +— +— +— +(1) Dr. Vin Menon received 484,775 shares of Preferred Stock +as part of the Merger Consideration. Following the Preferred Stock Conversion, such shares of Preferred Stock will convert into 9,695,500 +shares of Common Stock pursuant to the applicable conversion ratio of 20-for-1. Following the Reverse Stock Split at a ratio of 1-for-10, +such stockholder will hold 969,550 shares of Common Stock. +(2) Represents shares held directly by Apimeds Inc., based solely +on information reported in the Schedule 13D filed with the SEC on January 26, 2026. Apimeds Inc. is a wholly owned subsidiary +of Inscobee Inc. Inscobee Inc. has voting and investment control over the shares held by Apimeds Inc. Millenium Holdings is controlled +by You In Soo, and as such, Mr. Yoo may be deemed to have beneficial ownership over the shares held by both Inscobee Inc. and Apimeds +Inc. The business address for Apimeds Inc. is 107, Gasan Digital 2-ro, Geumcheon-gu, Seoul, Korea. The business address for Millenium +Holdings is 107, Gasan Digital 2-ro, Geumcheon-gu, Seoul, Korea. Each of the parties named in this footnote disclaims any beneficial +ownership of the reported shares other than to the extent of any pecuniary interest the party may have therein. +64 +(3) Represents shares held directly by Inscobee Inc., based solely +on information reported in the Schedule 13D filed with the SEC on January 26, 2026. Millenium Holdings has voting and investment +control with respect to the shares held by Inscobee Inc. Millenium Holdings is controlled by You In Soo, and as such, Mr. Yoo may +be deemed to have beneficial ownership over the shares held by both Inscobee Inc. and Apimeds Inc. The business address for Inscobee +Inc. is Room 613, Digital-ro 130, 6F, Geumcheon-gu, Seoul, 08580 Republic of Korea. The business address for Millenium Holdings is 107, +Gasan Digital 2-ro, Geumcheon-gu, Seoul, Korea. Each of the parties named in this footnote disclaims any beneficial ownership of the +reported shares other than to the extent of any pecuniary interest the party may have therein. +(4) Dominus IB, Inc. is controlled by its Chief Executive Officer +and largest shareholder, Park Kyoung Jin, who may be deemed to have voting and investment control with respect to the shares held by +Dominus IB, Inc. The business address for Dominus IB, Inc. is 144, Dobong-ro, Gangbuk, Seoul, Republic of Korea. +(5) Calfin Capital Private Limited received 5,079,292 shares of +Preferred Stock as part of the Merger Consideration. Following the Preferred Stock Conversion, such shares of Preferred Stock will convert +into 101,585,840 shares of Common Stock pursuant to the applicable conversion ratio of 20-for-1. Following the Reverse Stock Split at +a ratio of 1-for-10, such stockholder will hold 10,158,584 shares of Common Stock. The business address for Calfin Capital Private Limited +is 60 Paya Lebar Road, #04-23, Paya Lebar Square, Singapore 409051. +(6) Sea Rider Capital, LLC received 484,774 shares of Preferred +Stock as part of the Merger Consideration. Following the Preferred Stock Conversion, such shares of Preferred Stock will convert into +9,695,480 shares of Common Stock pursuant to the applicable conversion ratio of 20-for-1. Following the Reverse Stock Split at a ratio +of 1-for-10, such stockholder will hold 969,548 shares of Common Stock. The business address for Sea Rider Capital, LLC is 850 New Burton +Road, Suite 201, Dover, County of Kent, Delaware 19904, USA. +(7) Based solely on information reported in the Schedule 13G +filed with the SEC on February 11, 2026. Represents 1,397,021 shares of Common Stock issuable on the conversion of certain convertible +notes (the “ Notes ”) held by the Reporting Persons. The issuable shares of Common Stock related to the conversion of +the Notes are subject to a 9.99% beneficial ownership blocker. The shares reported herein represent Common Stock of the Company held +by Alto Opportunity Master Fund, SPC- Segregated Master Portfolio B, a Cayman Islands exempted company (the “ Fund ”). +The business address for the Fund is Suite #7 Grand Pavilion Commercial Centre, 802 West Bay Road, Grand Cayman, P.O. Box 10250, +Cayman Islands. The Fund is a private investment vehicle for which Ayrton Capital LLC, a Delaware limited liability company (the “ Investment +Manager ”), serves as the investment manager. The business address for the Investment Manager is 55 Post Rd West, 2 nd +Floor Westport, CT 06880. Waqas Khatri serves as the managing member of the Investment Manager (all of the foregoing, collectively, +the “ Reporting Persons ”). The business address for Waqas Khatri is 55 Post Rd West, 2 nd Floor Westport, +CT 06880. The 1,397,021 shares of Common Stock are prior to giving effect to the Reverse Stock Split. After giving effect to the +Reverse Stock Split the Fund will hold 139,703 shares of Common Stock. +(8) Represents +beneficial ownership of the Company’s Common Stock based on 12,575,983 shares of our Common Stock issued and outstanding as of +February 26, 2026, the date of filing of this Annual Report, prior to giving effect to the Preferred Stock Conversion, the Notes Conversion, +and the Reverse Stock Split. The beneficial ownership information set forth herein does not reflect any adjustments resulting from the +Preferred Stock Conversion, the Notes Conversion, and the Reverse Stock Split. +(9) Represents beneficial ownership of the Company’s Common +Stock based on 16,351,336 shares of our Common Stock, calculated on a proforma basis, after giving effect to the Preferred Stock Conversion, +the Notes Conversion, and the Reverse Stock Split. +Changes in Control +On December 1, 2025, the Company completed the Merger +with MindWave Innovations Inc. See “Item 1. Business” for a description of the Merger. +Other than the Merger, management of the Company knows +of no arrangements, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result +in a change in control of the registrant. +65 +Item 13. Certain Relationships and Related Transactions, and Director +Independence +Certain Relationships and Related Transactions +Other than as listed below, during 2025 and 2024, +we were not a participant in any transaction or series of transactions in which the amount involved did exceed or may exceed the lesser +of $120,000 or 1% of the average of our total assets at year-end for 2025 and 2024 in which any directors, director nominees, executive +officers, greater than 5% beneficial owners and their respective immediate family members (each, a “Related Person”) had or +will have a direct or indirect material interest, other than the compensation arrangements (including with respect to equity compensation) +described in “Executive Compensation” beginning on page 55 and “Director Compensation” on page 56. +Business Agreement +On August 2, 2021, we entered into an agreement with +Apimeds Korea, a principal stockholder of the Company (the “Business Agreement”). Pursuant to the Business Agreement, Apimeds +Korea granted to the Company a sublicensable, royalty-bearing license to research, develop, manufacture and commercialize and sell Apitox +in the United States. In exchange for this license, the Company will pay Apimeds Korea a perpetual royalty of 5% of the Company’s +earnings before interest and taxes as determined consistent with GAAP, derived from the sale or license of Apitox, less any shipping, +handling, and insurance charges, credits (arising from returns or other adjustments), discounts, rebates, or allowances of any kind (if +any). The Business Agreement may be terminated by mutual written agreement by the parties and will automatically terminate upon the bankruptcy +or dissolution of the Company. +Assignment Agreement +On October 12, 2021 we entered into an intellectual +property assignment agreement (the “Assignment Agreement”) with Apimeds Korea and Dr. Christopher Kim, the Company’s +Chairman and Chief Medical Officer and founder of Apimeds Korea, effective as of May 12, 2021. Pursuant to the Assignment Agreement Dr. +Kim transferred to Apimeds Korea all right, title, interest and good will in all of the intellectual property as it relates to Apitoxin, +which will be marketed in the United States as Apitox (the “Assigned IP”). +Dr. Kim retained no right to use the Assigned IP. +Additionally, the Assignment Agreement acknowledged that the Assigned IP was licensed to us to use via the Business Agreement, as described +above. +Patent License Agreement +On October 12, 2021, we entered into a patent license +agreement (the “Patent License Agreement”) Dr. Christopher Kim, the Company’s Chairman and Chief Medical Officer and +the founder of Apimeds Korea. During Dr. Kim’s engagement with Apimeds Korea, he contributed to the development of the intellectual +property as it relates to Apitoxin. Pursuant to the Patent License Agreement, we were licensed certain patents. In consideration of its +license under the Patent License Agreement, the Company paid Dr. Kim $1.00. +The patents expired in 2023 and, presently, the Company +does not intend renew the expired patents or apply for any additional patents. +Business Establishment Agreement +On March 3, 2020, Apimeds Korea entered into a business +establishment agreement with the Company pursuant to which Apimeds Korea agreed provide funding to us in the form of two tranches consisting +of $500,000 each (for a total of $1,000,000). The first tranche was funded in March 2020 and the second tranche was funded in May 2020. +August 2021 Promissory Note +The Company issued to Apimeds Korea a convertible +promissory note in the principal amount of $400,000, on August 30, 2021 (the “August 2021 Note”). The August 2021 Note is +due and payable on the earlier of (i) August 30, 2026 or (ii) a sale of the Company (as defined in the August 2021 Note) (the “Maturity +Date”). The August 2021 Note bears interest at an annual rate equal to the lesser of (i) 5% per annum, or (ii) the maximum rate +permissible by law. +66 +The Company may prepay the August 2021 Note at any +time without penalty. If not previously paid by the Company, principal and accrued interest on the August 2021 Note will automatically +convert into common stock (i) immediately prior to the closing of the Company’s firm commitment underwritten initial public offering +resulting in at least $40,000,000 gross proceeds to the Company (a “Qualified IPO”), (ii) immediately prior to the closing +of the Company’s initial listing of its common stock on an international exchange by means of an effective registration statement +on Form S-1 that results in at least $40,000,000 of gross proceeds to the selling stockholders (a “Qualified Direct Listing”), +or (iii) upon the consummation of the Company’s merger, consolidation, share exchange or other transaction with a publicly traded +“special purpose acquisition company” resulting in a stock exchange listing (a “SPAC Transaction”). The number +of shares of common stock shall be determined by dividing (x) the outstanding principal balance of the Apimeds Korea Note plus accrued +but unpaid interest by (y) as applicable, (i) in case of a Qualified IPO, the per share price for which shares of common stock are initially +offered in the Qualified IPO as reflected in the final prospectus, (b) in case of a Qualified Direct Listing, the fist closing price of +the common stock on the first trading day, following the Qualified Direct Listing, and (c) in case of a SPAC Transaction, the price per +share of the successor entity that is established in connection with such SPAC Transaction. +If there shall be any Event of Default (as defined +below), the August 2021 Note shall accelerate and all principal and unpaid accrued interest shall become immediately due and payable, +provided that the Company shall have 20 days from receipt of such notice to cure an Event of Default. The occurrence of any one or more +of the following shall constitute an “Event of Default”: (a) the Company fails to pay timely all or any part of the principal +amount or accrued interest due under the August 2021 Note, (b) the Company files any petition or action for relief under any bankruptcy, +reorganization, insolvency or moratorium law or any other law for the relief of, or relating to, debtors, or makes any assignment for +the benefit of creditors or takes any corporate action in furtherance of any of the foregoing, or (c) an involuntary petition is filed +against the Company, or a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) is appointed +to take possession, custody or control of any property of the Company. +The terms of the August 2021 Note may only be amended +with the written consent of both parties and my only be transferred upon its surrender to the Company for registration of transfer or +accompanied by a duly executed written instrument of transfer in the form satisfactory to the Company. +On December 5, 2023, the Company and Apimeds Korea +amended the August 2021 Note (the “August 2021 Note Amendment”) as follows: the maturity date was extended to the earlier +of (i) December 31, 2026, or (ii) the consummation of an offering of our common stock (and other securities potentially) resulting in +the listing for trading of our common stock on the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global +Select Market or the New York Stock Exchange (or any successors to any of the foregoing) (“Qualified Offering”). +Additionally, the August 2021 Note Amendment provided +for conversion of the note, including accrued and unpaid interest, at a conversion price of $2.60 per share as follows: (i) at the option +of the holder, in its sole discretion, in whole or in part, and (ii) mandatorily simultaneous with the consummation of a Qualified Offering, +in each case, into fully paid and nonassessable shares of common stock at the conversion price. +On June 12, 2024, Apimeds Korea assigned the August +2021 Note to Inscobee, Inc. a South Korean company, and the parent company of Apimeds Korea, (“Inscobee”). +If not converted earlier, upon the closing of a Qualified +Offering, the August 2021 Note will automatically convert into approximately 179,283 shares of common stock. +March 2022 Promissory Note +The Company issued to Apimeds Korea, a promissory +note in the principal amount of $160,000 on March 21, 2022 (the “March 2022 Note”). The March 2022 Note bears interest at +a rate equal to 5% per annum (the “Interest Rate”). The March 2022 Note is due and payable on the earlier of (i) the closing +of an equity financing by the Company with gross proceeds to the Company of at least $3,000,000, or (ii) July 15, 2022. +The Company may prepay the March 2022 Note at any +time without penalty. If any payment due on the March 2022 Note is not paid within five days after the amount becomes due, the payment +shall be considered in default and the interest rate will increase by an additional 5% on the defaulted payment amount and Inscobee may +also, in its sole discretion, without notice or demand, declare the entire unpaid principal balance plus accrued interest due and payable +immediately. +67 +On December 5, 2023, the Company and Apimeds Korea +amended the March 2022 Note (the “March 2022 Note Amendment”) as follows: the maturity date was extended to the earlier of +(i) December 31, 2026, or (ii) the consummation of a Qualified Offering. +Additionally, the March 2022 Note Amendment provided +for conversion of the note, including accrued and unpaid interest, at a conversion price of $2.60 per share as follows: (i) at the option +of the holder, in its sole discretion, in whole or in part, and (ii) mandatorily simultaneous with the consummation of a Qualified Offering, +in each case, into fully paid and nonassessable shares of common stock at the conversion price. +On June 12, 2024, Apimeds Korea assigned the March +2022 Note to Inscobee. +If not converted earlier, upon the closing of a Qualified +Offering, the March 2022 Note will automatically convert into approximately 70,002 shares of common stock. +June 2022 Promissory Note +On June 3, 2022, the Company issued to Inscobee, Inc. +a South Korean company, and the parent company of Apimeds Korea, (“Inscobee”) a $100,000 promissory note (the “June +2022 Note”). Interest on the outstanding principal balance of the Second Loan accrues at a rate equal to 5% per annum, and interest +on the outstanding principal balance of the First Loan shall accrue and be payable on the maturity date. The maturity date was the earlier +of (i) the closing of an equity financing by the Company with gross proceeds to the Company of at least $3,000,000), and (ii) July 15, +2022. +On December 5, 2023, the Company and Inscobee amended +the June 2022 Note (the “June 2022 Note Amendment”) as follows: the maturity date was extended to (i) December 31, 2026, or +(ii) consummation of a Qualified Offering. +Additionally, the June 2022 Note Amendment provided +for conversion of the note, including accrued and unpaid interest, at a conversion price of $2.60 per share as follows: (i) at the option +of the holder, in its sole discretion, in whole or in part, and (ii) mandatorily simultaneous with the consummation of a Qualified Offering, +in each case, into fully paid and nonassessable shares of common stock at the conversion price. +Upon the closing of a Qualified Offering, the June +2022 Note will automatically convert into approximately 43,361 shares of common stock. +On June 12, 2024, the Company and Inscobee amended +the June 2022 Note to correct a scrivener’s error. +May 2024 Promissory Note +On May 20, 2024, the Company issued to Inscobee a +$100,000 promissory note (the “May 2024 Note”). The May 2024 Note bears interest at a rate equal to 5% per annum (the “Interest +Rate”). The May 2024 Note is due and payable on the earlier of (i) the closing of an equity financing by the Company with gross +proceeds to the Company of at least $3,000,000, or (ii) May 19, 2025. +The Company may prepay the May 2024 Note at any time +without penalty. If any payment due on the May 2024 Note is not paid within five days after the amount becomes due, the payment shall +be considered in default and the interest rate will increase by an additional 5% on the defaulted payment amount and Inscobee may also, +in its sole discretion, without notice or demand, declare the entire unpaid principal balance plus accrued interest due and payable immediately. +August 2024 Note +On August 19, 2024, the Company issued to Inscobee +a $150,000 principal amount promissory note (the “August 2024 Note”). The August 2024 Note bears interest at a rate equal +to 5% per annum (the “Interest Rate”). The August 2024 Note is due and payable on the earlier of (i) the closing of an equity +financing by the Company with gross proceeds to the Company of at least $3,000,000, or (ii) May 19, 2025. The outstanding principal and +interest on the August 2024 Note will be repaid upon the closing of a Qualified Offering. +68 +The Company may prepay the August 2024 Note at any +time without penalty. If any payment due on the August 2024 Note is not paid within five days after the amount becomes due, the payment +shall be considered in default and the interest rate will increase by an additional 5% on the defaulted payment amount and Inscobee may +also, in its sole discretion, without notice or demand, declare the entire unpaid principal balance plus accrued interest due and payable +immediately. +March 2025 Promissory Note +On March 31, 2025, the Company received $250,000 in +a promissory note (the “March 2025 Note”) agreement with Apimeds, Inc., one of its shareholders. The Promissory Notes bear +interest at 5% per annum and mature on the earlier of (a) December 31, 2026 or (b) consummation of a Qualified Offering (the “Maturity +Date”). “Qualified Offering” shall mean an offering of Common Stock (and other securities potentially) resulting in +the listing for trading of the Common Stock on the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global +Select Market or the New York Stock Exchange (or any successors to any of the foregoing). +The Company may prepay the March 2025 Note at any +time without penalty. If any payment due on the March 2025 Note is not paid within five days after the amount becomes due, the payment +shall be considered in default and the interest rate will increase by an additional 5% on the defaulted payment amount and may also, in +its sole discretion, without notice or demand, declare the entire unpaid principal balance plus accrued interest due and payable immediately. +Cash Advance Loans +On October 5, 2022, November 10, 2022 and March 16, +2023, Dr. Christopher Kim, the Company’s Chairman and Chief Medical Officer and founder of Apimeds Korea, loaned the Company $9,900, +$13,000 and $9,000 respectively. These loans carried no interest and did not have a maturity date. The loans were used for operating purposes. +As of September 2023, all the loan amounts were repaid. +Policies and Procedures for Transaction with Related +Persons +It is the responsibility of our audit committee to +review and approval all related party transactions that would need to be disclosed pursuant to Item 404(a) of Regulation S-K (each a “Related +Party Transaction”). The Board has adopted a related party transaction policy that makes up a part of the audit committee’s +charter (the “Related Party Transactions Policy”). Pursuant to the Related Party Transactions Policy, each of the Company’s +directors and executive officers shall promptly inform the chairperson of the audit committee of any potential Related Party Transactions. +In addition, each such director and executive officer shall complete a questionnaire on an annual basis designed to elicit information +about any potential Related Party Transactions. Any potential Related Party Transactions that are brought to the audit committee’s +attention shall be analyzed by the audit committee, in consultation with outside counsel or members of management, as appropriate, to +determine whether the transaction or relationship does, in fact, constitute a Related Party Transaction requiring compliance with the +Related Party Transactions Policy. In determining whether to approve a Related Party Transaction, the audit committee shall consider, +among other factors, the following factors to the extent relevant to the Related Party Transaction: (i) whether the terms of the Related +Party Transaction are fair to the Company and on the same basis as would apply if the transaction did not involve a Related Party (as +defined in the Related Party Transactions Policy); (ii) whether there are business reasons for the Company to enter into the Related Party +Transaction; (iii) whether the Related Party Transaction would impair the independence of an outside director; (iv) whether the Related +Party Transaction would present an improper conflict of interest for any director or executive officer of the Company, taking into account +the size of the transaction, the overall financial position of the director, executive officer or Related Party, the direct or indirect +nature of the director’s, executive officer’s or Related Party’s interest in the transaction and the ongoing nature +of any proposed relationship, and any other factors the Committee deems relevant; and (v) any pre-existing contractual obligations. All +of the transactions described in this section occurred prior to the adoption of this policy. +69 +Director Independence +The Company’s Board has determined that Dr. +Bennett Weintraub, PhD, Carol O’Donnell, and Elona Kogan, who together comprise a majority of the Board, are independent under applicable +rules and regulations of the SEC. The Board made such independence determinations using the definition of independence set forth in the +rules of the NYSE American based on a review of transactions and relationships between each director or any member of his or her immediate +family, on the one hand, and the Company and its subsidiaries and affiliates, on the other hand, as well as transactions and relationships +between each director or his affiliates, on the one hand, and members of the Company’s management or their affiliates, on the other +hand. +Item 14. Principal Accountant Fees and Services +Kreit & Chiu CPA LLP served as the independent +registered public accounting firm for the Company for 2025 and 2024. The following table sets forth the fees billed to the Company by +Kreit & Chiu CPA LLP for 2025 and 2024. +2025 +2024 +(in thousands) +Audit Fees (1) +$ 206,933 +$ 142,918 +Audit-Related Fees +- +All Other Fees +- +- +Total Fees +$ 206,933 +$ 142,918 +Under its charter, the Company’s audit committee +must review and pre-approve both audit and permitted non-audit services provided by the Company’s independent registered public +accounting firm and shall not engage the independent registered public accounting firm to perform any non-audit services prohibited by +law or regulation. The independent registered public accounting firm’s retention to audit the Company’s financial statements, +including the associated fee, is subject to approval each year by the audit committee. The audit committee does not regularly evaluate +potential engagements of the independent registered public accounting firm and approve or reject such potential engagements. At each audit +committee meeting, the audit committee receives updates on the services actually provided by the independent registered public accounting +firm, and management may present additional services for pre-approval. The audit committee may delegate to the chairman of the audit committee +the authority to evaluate and approve engagements on behalf of the audit committee in the event that a need arises for pre-approval between +regular audit committee meetings. If the chairman so approves any such engagements, he will report that approval to the full audit committee +at the next audit committee meeting. +The audit committee was established on February 7, +2025. Accordingly, audit and audit-related services rendered prior to February 7, 2025 were not pre-approved by the audit committee. All +audit and audit-related services rendered after February 7, 2025, including services related to the audit of the Company’s financial +statements for the fiscal year ended December 31, 2025, were pre-approved by the audit committee in accordance with the foregoing procedures. +70 +PART IV +Item 15. Exhibit and Financial Statement Schedules +(a) Documents filed as part of this report +(1) All financial statements +Contents +Page +Report of Independent Registered Public Accounting Firm (Kreit and Chiu CPA LLP (PCAOB Firm ID 6651)) +F-2 +Consolidated Balance Sheets December 31, 2025 and 2024 +F-3 +Consolidated +Statements of Operations for the Years Ended December 31, 2025 and 2024 +F-4 +Consolidated Statements of Changes +in Shareholders’ Equity (Deficit) for the Years Ended December 31, 2025, and 2024 +F-5 +Consolidated +Statements of Cash Flows for the Years Ended December 31, 2025 and 2024 +F-6 +Notes +to Consolidated Financial Statements +F-8 +(2) Financial Statement Schedules +All financial statement schedules are omitted because +they are either inapplicable or not required, or because the required information is included in the Financial Statements or notes thereto +contained in this Annual Report on Form 10-K. +(3) Exhibits required by Item 601 of Regulation S-K +Exhibit No. +Description +2.1 +Agreement and Plan of Merger, dated December 1, 2025 (incorporated by reference to our Schedule 14C filed on February 27, 2026). +2.2 +Securities Purchase Agreement, dated December 1, 2025 (incorporated by reference to our Schedule 14C filed on February 27, 2026). +2.3 +Amendment No. 1 to Securities Purchase Agreement, dated December 8, 2025 (incorporated by reference to our Schedule 14C filed on February 27, 2026). +3.1 +Amended and Restated Certificate of Incorporation of Apimeds Pharmaceuticals US, Inc. (incorporated by reference to our Schedule 14C filed on February 27, 2026). +3.2 +Amended and Restated Bylaws of Apimeds Pharmaceuticals US, Inc. (incorporated by reference to our Schedule 14C filed on February 27, 2026). +3.3 +Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Apimeds Pharmaceuticals US, Inc. (incorporated by reference to our Schedule 14C filed on February 27, 2026). +4.1* +Description of Securities. +10.1 +Apimeds Pharmaceuticals US, Inc. 2024 Equity Incentive Plan (incorporated by reference to our Schedule 14C filed on February 27, 2026). +10.2 +Amendment to the Apimeds Pharmaceuticals US, Inc. 2024 Equity Incentive Plan (incorporated by reference to our Schedule 14C filed on February 27, 2026). +10.3 +Apimeds Pharmaceuticals US, Inc. 2025 Equity Incentive Plan (incorporated by reference to our Schedule 14C filed on February 27, 2026). +10.4 +Settlement Agreement (incorporated by reference to our Current Report on Form 8-K filed on May 3, 2026). +10.5 +Side Letter (incorporated by reference to our Current Report on Form 8-K filed on May 3, 2026). +10.6 +Forbearance Agreement (incorporated by reference to our Current Report on Form 8-K filed on May 3, 2026). +14.1 +Code of Business Conduct and Ethics (incorporated herein by reference to Exhibit 99.1 to our Registration Statement on Form S-1 filed on September 25, 2024). +19.1* +Insider Trading Policy. +71 +21.1* +Subsidiaries of the Registrant. +31.1* +Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +31.2* +Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32.1* +Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +32.2* +Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97.1* +Executive Compensation Recovery Policy. +101.INS +Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. +101.SCH +Inline XBRL Taxonomy Extension Schema Document. +101.CAL +Inline XBRL Taxonomy Extension Calculation Linkbase Document. +101.DEF +Inline XBRL Taxonomy Extension Definition Linkbase Document. +101.LAB +Inline XBRL Taxonomy Extension Labels Linkbase Document. +101.PRE +Inline XBRL Taxonomy Extension Presentation Linkbase Document. +104 +Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit). +101.INS +Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. +101.SCH +Inline XBRL Taxonomy Extension Schema Document. +* Filed or furnished herewith. +Item 16. Form 10-K Summary +None. +72 +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) +of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, +thereunto duly authorized. +APIMEDS PharmaCEUTICALS US, Inc. +Date: May 3, 2026 +/s/ Dr. Vin Menon +Name: +Dr. Vin Menon +Title: +Chief Executive Officer +Pursuant to the requirements of the Securities Exchange +Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and +on the dates indicated. +SIGNATURE +TITLE +DATE +/s/ Dr. Vin Menon +Chief Executive Officer +May 3, 2026 +Dr. Vin Menon +(Principal Executive Officer) +/s/ Erick Frim +Chief Financial Officer +May 3, 2026 +Erick Frim +(Principal Financial Officer and Principal Accounting Officer) +/s/ Dr. Bennett Weintraub, PhD +Director +May 3, 2026 +Dr. Bennett Weintraub, PhD +/s/ Carol O’Donnell +Director +May 3, 2026 +Carol O’Donnell +/s/ Elona Kogan +Director +May 3, 2026 +Elona Kogan +73 +INDEX TO FINANCIAL STATEMENTS +Contents Page +Report of Independent Registered Public Accounting Firm (Kreit and Chiu CPA LLP (PCAOB Firm ID 6651 )) F-2 +Consolidated Balance Sheets December 31, 2025 and 2024 F-3 +Consolidated Statements of Operations for the Years Ended December 31, 2025 and 2024 F-4 +Consolidated Statements of Changes +in Shareholders’ Equity (Deficit) for the Years Ended December 31, 2025, and 2024 F-5 +Consolidated Statements of Cash Flows for the Years Ended December 31, 2025 and 2024 F-6 +Notes to Consolidated Financial Statements F-8 +F- 1 +Report of Independent Registered Public Accounting +Firm +Board of Directors and Shareholders +Apimeds Pharmaceuticals US, Inc. +Opinion on the Consolidated Financial Statements +We have audited the accompanying consolidated +balance sheets of Apimeds Pharmaceuticals US, Inc. (the “Company”) as of December 31, 2025, and 2024, and the related consolidated +statements of operations, statements of changes in shareholders’ equity (deficit), and cash flows for each of the two years in the +period ended December 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”). +In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company +as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the two years in the period ended December +31, 2025, in conformity with accounting principles generally accepted in the United States of America. +Explanatory Paragraph – Going Concern +The accompanying consolidated financial statements +have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, +the Company has suffered recurring losses from operations and negative cash flows from operations which raise substantial doubt about its ability to +continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial +statements do not include any adjustments that might result from the outcome of this uncertainty. +Basis for Opinion +These consolidated financial statements are the +responsibility of the entity’s management. Our responsibility is to express an opinion on these consolidated financial statements +based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") +and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable +rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the +standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial +statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged +to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding +of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s +internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to +assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures +that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the +consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made +by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable +basis for our opinion. +/s/ Kreit & Chiu CPA LLP +We have served as the Company’s auditor +since 2023. +New York, New York +May 3, 2026 +F- 2 +Apimeds Pharmaceuticals US, Inc. +Consolidated +Balance Sheets +December 31, +December 31, +2025 +2024 +Assets +Current assets: +Cash & Cash Equivalents +$ 1,636,655 +$ 3,455 +Restricted Cash +8,000,000 +Short Term Investments +2,000,000 +Prepaid Expenses +2,298,704 +9,602 +Other Current Assets +48,500 +- +Total current assets +13,983,859 +13,057 +Digital assets, at fair value +149,885,371 +- +Long-term portion of prepaid expenses +75,485 +- +Operating Lease ROU Asset +187,395 +Property and Equipment, net +51,626 +Total assets +$ 164,183,736 +$ 13,057 +Liabilities and shareholders’ equity +Current liabilities: +Accounts payable and accrued expenses +$ 918,649 +$ 591,191 +Accrued offering costs +500,000 +Accrued interest - related party +27,952 +106,643 +Advance payable to related party +12,000 +76,500 +Notes payable - related party +500,100 +250,000 +Derivative Liability +1,616,913 +Convertible Notes, net +7,091,263 +- +Operating Lease Liability +39,578 +- +Total current liabilities +10,706,455 +1,024,334 +Long-term liabilities +Long-Term Portion of Operating Lease Liability +129,454 +Long-term convertible notes payable – related party +- +346,844 +Total liabilities +10,835,909 +1,371,178 +Commitments and contingencies +Shareholders’ equity: +Preferred stock, par value $ 0.01 , 10,000,000 shares authorized: 7,477,017 and none issued and outstanding at December 31,2025 and 2024, respectively +74,770 +- +Common stock, par value $ 0.01 , 100,000,000 shares authorized; 12,575,983 and 7,903,850 issued and outstanding as of December 31, 2025 and December 31, 2024, respectively +125,760 +79,039 +Additional paid-in capital +163,540,358 +2,954,764 +Retained Earnings (Deficit) +( 10,393,061 ) +( 4,391,924 ) +Total shareholders’ equity (deficit) +153,347,827 +( 1,358,121 ) +Total liabilities and shareholders’ equity +$ 164,183,736 +$ 13,057 +The accompanying notes are an integral part of these consolidated financial statements. +F- 3 +Apimeds Pharmaceuticals US, Inc. +Consolidated Statements of Operations +For the year ended +December 31, +2025 +2024 +Operating expenses: +Research and development expenses +$ 1,632,581 +$ +General and administrative expenses +10,279,981 +1,275,095 +Total operating expenses +11,912,562 +1,275,095 +Loss from operations +( 11,912,562 ) +( 1,275,095 ) +Other income (expense) +Unrealized gain from changes in fair value of digital assets +1,812,348 +- +Realized gain on sale of digital assets +4,197,394 +- +Trading gains, net +97 +- +Foreign currency gains/(losses), net +( 521 ) +Change in FV of warrant liability +22,377 +- +Change in FV of derivative +55,146 +Interest income +107,595 +2,824 +Interest expense +( 283,011 ) +( 117,719 ) +Total other income (expense) +5,911,425 +( 114,895 ) +Net loss +$ ( 6,001,137 ) +$ ( 1,389,990 ) +Net loss per common share - basic and diluted +$ ( 0.55 ) +$ ( 0.18 ) +Weighted average common shares outstanding +10,881,907 +7,903,850 +The accompanying notes are an integral part of these consolidated financial statements. +F- 4 +Apimeds Pharmaceuticals US, Inc . +Consolidated Statement of Changes in Shareholders +Equity (Deficit) +Preferred Stock +Common Stock +Additional +Number of +Shares +Amount +Number of +Shares +Amount +Paid-in +capital +Accumulated +Deficit +Total +Balance at December 31, 2023 +- +$ +- +7,903,850 +$ 79,039 +$ 2,954,764 +$ ( 3,001,934 ) +$ 31,869 +Net loss for the period ended December 31, 2024 +- +- +- +- +- +( 1,389,990 ) +( 1,389,990 ) +Balance at December 31, 2024 +- +- +7,903,850 +79,039 +2,954,764 +( 4,391,924 ) +( 1,358,121 ) +Stock-based compensation - stock options +- +- +- +- +344,186 +- +344,186 +Stock-based compensation – common stock grants +- +- +1,000,000 +10,000 +1,690,000 +- +1,700,000 +Conversion of convertible debt - related party +- +- +297,133 +2,971 +496,251 +- +499,222 +Issuance of Representative Warrants in connection with IPO +- +- +- +- +139,388 +- +139,388 +Issuance of common stock in IPO (net of $ 1,599,060 in offering costs and warrant liability) +- +- +3,375,000 +33,750 +11,595,977 +- +11,629,727 +Issuance of Representative Warrants in connection with IPO +- +- +- +- +161,554 +- +161,554 +Issuance of Advisory Warrants in connection with Merger +- +- +- +- +898,300 +- +898,300 +Issuance of preferred stock in Merger +7,477,017 +74,770 +145,259,938 +- +145,334,708 +Net loss for the period ended December 31, 2025 +- +- +- +- +- +( 6,001,137 ) +( 6,001,137 ) +Balance at December 31, 2025 +7,477,017 +$ 74,770 +12,575,983 +$ 125,760 +$ 163,540,358 +$ ( 10,393,061 ) +$ 153,347,827 +The accompanying notes are an integral part of these consolidated financial statements. +F- 5 +Apimeds Pharmaceuticals US, Inc. +Consolidated Statements of Cash Flows +For the years ended +December 31 +2025 +2024 +Cash flows from operating activities: +Net loss +$ ( 6,001,137 ) +$ ( 1,389,990 ) +Adjustments to reconcile net loss to net cash used in operating activities: +Stock based compensation - Common Stock Grants +1,700,000 +- +Stock based compensation - stock options and warrants +1,565,806 +- +Change in fair value of warrant liability +( 22,377 ) +- +Change in fair value of derivative liability +( 55,146 ) +- +Depreciation expense +5,706 +- +Interest expense +283,010 +117,719 +Unrealized gain from changes in fair value of digital assets +( 6,009,838 ) +- +Non-cash digital asset operating expenses +2,429,487 +- +Changes in operating assets and liabilities: +Prepaid expenses and other current assets +( 2,413,087 ) +1,993 +Accounts payable and accrued expenses +( 408,201 ) +536,752 +Net cash used in operating activities +( 8,925,777 ) +( 733,526 ) +Cash flows from investing activities: +Cash from short term investments +( 2,000,000 ) +- +Restricted cash +( 8,000,000 ) +- +Purchases of PP&E +( 57,333 ) +- +Cash paid to acquire operating lease +( 18,363 ) +Cash acquired in accordance with merger +15,345 +- +Net cash used in investing activities +( 10,060,351 ) +- +F- 6 +Apimeds Pharmaceuticals US, Inc. +Consolidated Statements of Cash Flows +(continued) +For the years ended +December 31 +2025 +2024 +Cash flows from financing activities: +Cash proceeds from issuance of common stock in IPO +11,629,727 +- +Proceeds from notes payable - related parties +250,100 +250,000 +Proceeds from PIPE convertible note +10,000,000 +- +Payment of debt issuance costs +( 946,000 +) +Cash advances from related parties +29,300 +76,500 +Cash advances paid to related parties +( 343,800 +) +Net cash provided by financing activities +20,619,327 +326,500 +Net increase (decrease) in cash, cash equivalents +1,633,200 +( 407,026 +) +Cash, cash equivalents, beginning of period +3,455 +410,481 +Restricted cash +8,000,000 +- +Cash, cash equivalents, and restricted cash, end of period +$ +9,636,655 +$ +3,455 +Supplemental disclosure of cash flow information: +Cash paid for interest +$ +- +$ +- +Cash paid for taxes +$ +- +- +Non-cash investing and financing activities: +Net Assets Acquired in the Merger +15,347 +- +Operating Lease +( 18,363 +) +- +Reconciliation of cash, cash equivalents, and restricted cash: +Cash and cash equivalents +1,636,655 +3,455 +Restricted cash +8,000,000 +- +Total cash, cash equivalents, and restricted cash +$ +9,636,655 +$ +3,455 +The accompanying notes are an integral part of these +consolidated financial statements +F- 7 +Note 1 ORGANIZATION AND DESCRIPTION OF BUSINESS +Apimeds Pharmaceuticals US, Inc. (“APUS” or the “Company”) +is a development-stage biopharmaceutical company incorporated in the State of Delaware as a C-Corporation. The Company is focused on the +development of Apitox, a purified honeybee venom-based drug for the treatment of acute pain and inflammation associated with knee osteoarthritis. +On December 1, 2025, the Company completed a merger (the “Merger”) with MindWave Innovations Inc. (“MindWave”), whereby +MindWave became a wholly owned subsidiary of the Company (see Note 4). In connection with the Merger, the Company acquired digital assets, +including Bitcoin (“BTC”), Tether (“USDT”), and MindWaveDAO NILA tokens (“NILA Tokens”), and assumed certain +operations related to digital asset activities. +The Company operates its biopharmaceutical business through Lokahi Therapeutics +Inc. (“Lokahi”), a wholly owned subsidiary. As of December 31, 2025, the Company’s corporate structure is as follows: +● APUS — Public parent and SEC registrant (Delaware C-Corporation) +o Lokahi Therapeutics Inc. (“The BioBusiness”) : Wholly owned subsidiary; operates the BioBusiness segment +o MindWave Innovations Inc.: (acquired December 1, 2025); operates the digital asset segment +The Company has not yet generated revenue from its biopharmaceutical operations +and is subject to the risks and uncertainties common to development-stage companies in the biotechnology industry. +Note 2 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +(a) Basis of Presentation and Principles of Consolidation +The accompanying consolidated financial statements have been prepared in +accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules +and regulations of the U.S. Securities and Exchange Commission (“SEC”). The consolidated financial statements include the accounts +of the Company and its wholly owned subsidiaries, Lokahi Therapeutics Inc. and effective December 1, 2025, MindWave Innovations Inc. All +intercompany balances and transactions have been eliminated in consolidation. The results of operations MindWave are included in the consolidated +financial statements from the date of acquisition, December 1, 2025, through December 31, 2025. Prior-period amounts reflect the operations +of the BioBusiness only. +(b) Use of Estimates +The preparation of financial statements in conformity with U.S. GAAP requires +management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent +assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting +period. Significant estimates include, but are not limited to, the fair value of consideration transferred and net assets acquired in +the Merger, the fair value of digital assets, the fair value of stock-based compensation awards, the fair value of warrants, the valuation +allowance on deferred tax assets, and the assessment of the Company’s ability to continue as a going concern. Actual results could +differ materially from those estimates. +(c) Segment Reporting +In accordance with ASC 280, Segment Reporting, the Company has determined +that it operates as two segments: (i) the BioBusiness segment, which advances the Company’s lead product candidate, Apitox, and related +preclinical and translational research activities; and (ii) the Digital Assets segment, which encompasses the Company’s digital asset +holdings (Bitcoin, Tether, and NILA Tokens) acquired in connection with the MindWave acquisition and the activities associated with the +MindWaveDAO ecosystem. The Company’s chief operating decision maker (“CODM”), who is the Chief Executive Officer , regularly +reviews discrete financial information for each segment, including key segment expenses, and segment loss, for purposes of making operating +decisions, allocating resources, and evaluating financial performance. +F- 8 +The following tables present the Company’s segmented results for the years +ended December 31, 2025. The Company has two reportable segments: The BioBusiness segment and the Digital Assets segment. Prior to the +merger transaction (See note 4), the Company operated entirely as a biopharmaceutical entity, therefore all activity operating expenses +before the date December 1, 2025, have been consolidated to the BioBusiness segment of operations. In accordance with transaction accounting +(See note 4), The segmented results below reflect the results of MindWave Innovations Inc. from December 1, 2025, the date of acquisition, +with all pre-acquisition equity balances eliminated in consolidation. +For the Year ended December 31, 2025 +BioBusiness +Segment +Digital Asset +Segment +Corporate +Consolidated +Revenue +$ +- +$ +- +$ +- +$ +- +Operating expenses: +Research and development +1,632,581 +- +- +1,632,581 +General and administrative +7,179,165 +3,100,816 +- +10,279,981 +Total operating expenses +$ 8,811,746 +$ 3,100,816 +$ +- +$ 11,912,562 +Loss from operations +( 8,811,746 ) +( 3,100,816 ) +- +( 11,912,562 ) +Other income (expense), net: +Realized gain on sale of digital assets +- +4,197,394 +- +4,197,394 +Trading gains, net +- +97 +- +97 +Unrealized gain on digital assets +- +1,812,348 +- +1,812,348 +Change in FV of derivative +- +55,146 +55,146 +Change in FV of warrant liability +- +22,377 +22,377 +Interest income +- +107,595 +107,595 +Interest expense +- +( 283,011 ) +( 283,011 ) +Foreign currency transaction loss +- +( 521 ) +- +( 521 ) +Total other income (expense), net +$ +- +$ 6,009,317 +$ ( 97,867 ) +$ 5,911,425 +Net loss +$ ( 8,811,746 ) +$ 2,908,502 +$ ( 97,867 ) +$ ( 6,001,137 ) +(d) Cash and Cash Equivalents +The Company considers all highly liquid investments with an original maturity +of three months or less at the date of acquisition to be cash equivalents. Cash and cash equivalents consist primarily of amounts held +in demand deposit accounts . +(e) Digital Assets +Digital assets consist of Bitcoin (“BTC”), Tether (“USDT”), +and MindWaveDAO NILA tokens (“NILA Tokens”). Effective upon the adoption of ASU 2023-08, Accounting for and Disclosure of +Crypto Assets , the Company accounts for in-scope crypto assets that meet the definition of an intangible asset and are fungible as +follows: +● BTC — Measured at fair value with changes in fair value recognized +in the consolidated statement of operations within “Unrealized gain (loss) on digital assets.” BTC meets the criteria of ASU +2023-08 and is classified within Level 1 of the fair value hierarchy based on quoted prices in active markets. +● USDT — Tether is a stablecoin pegged to the U.S. dollar. The Company +measures USDT at fair value and classifies USDT within Level 1 of the fair value hierarchy based on quoted prices on active cryptocurrency +exchanges. Because USDT is designed to maintain a stable value relative to the U.S. dollar, changes in fair value are generally not material. +● NILA Tokens — The NILA Tokens are utility tokens issued within the +MindWaveDAO ecosystem. NILA Tokens trade on a limited number of centralized cryptocurrency exchanges, primarily the NILA/USDT trading +pair. The Company measures NILA Tokens at fair value and classifies them within Level 2 of the fair value hierarchy based on quoted prices +for identical or similar assets in markets that are not considered active due to the limited number of trading venues and relatively low +trading volume. Gains and losses realized upon the sale of NILA Tokens are recognized within “Realized gain (loss) on sale of digital +assets” in the consolidated statement of operations. Unsold NILA Tokens are remeasured at fair value at each reporting date, with +unrealized changes recognized within “Unrealized gain (loss) on digital assets” in the consolidated statement of operations. +F- 9 +The Company is not a broker-dealer, exchange, or investment company. Digital +asset activities are limited to the holding, sale, and conversion of tokens acquired in the Merger accordingly, the digital assets are +classified as noncurrent in the accompanying consolidated balance sheet. +(f) Fair Value Measurements +The Company follows a three-level hierarchy for fair value measurements +as follows: +Level 1 Quoted prices in active markets for identical +assets or liabilities that the Company can access at the measurement date +Level 2 Observable inputs other than quoted prices in +Level 1 +Level 3 Unobservable inputs requiring management estimates +(g) Mergers and Acquisitions +The Company accounts for mergers and acquisitions in accordance with ASC +805, Business Combinations. Under this standard, the Company determines whether the acquiree meets the requirements to constitute a business +in accordance with ASC 805-10-55-5A. If the acquiree meets the requirements to constitute a business, the acquisition method of accounting +is applied, whereby the results of operations of acquired businesses are included in the consolidated financial statements from the date +of acquisition. The identifiable assets acquired and liabilities assumed are recognized at their estimated fair value at the acquisition +date. Regarding the merger transaction dated December 1, 2025, the acquiree, MindWave Innovations Inc, maintains substantially all fair +value of gross assets in a singular identifiable asset category. Therefore, the transaction is accounted for as an asset acquisition wherein +the fair value of the net assets assumed by the company was determined to be equivalent to the Series A Convertible Preferred Stock issued +as consideration. In accordance with an asset acquisition, no goodwill was recorded (See note 4). +(h) Stock-Based Compensation +The Company accounts for stock-based compensation using the fair value +of equity awards measured at the grant date and recognized as expense over the requisite service period. Stock-based compensation issued +to the employees of subsidiaries is recognized as a capital contribution from the Company to the respective subsidiaries (See note 8). +(i) Warrants +The Company classifies warrants as either equity or liabilities. Warrants +that are indexed to the Company’s own stock and meet the criteria for equity classification are recorded in stockholders’ equity. Warrants +previously classified as liabilities are measured at fair value each reporting period, with changes recognized within “Change in +fair value of warrant liabilities” in the consolidated statement of operations. +(j) Revenue Recognition +The Company has not generated revenue from its biopharmaceutical operations. +Proceeds from the sale of cryptocurrencies maintained by the Company, inclusive of USDT; BTC; and NILA Tokens, are recognized as realized +gains or losses on sale of digital assets and are not considered revenue. +F- 10 +(k) Leases +The Company classifies its leases as either operating or financing. For +operating leases with terms greater than 12 months, at the commencement date, the Company recognizes a right-of-use (“ROU”) +asset and a corresponding lease liability. The lease liability is measured at the present value of future lease payments, discounted using +the Company’s incremental borrowing rate when the rate implicit in the lease is not readily determinable. For finance leases, the Company +will recognize an asset as property and equipment and a corresponding liability. +(l) Income Taxes +The Company accounts for income taxes using the asset and liability method. +Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the financial +statement carrying amounts and the tax bases of assets and liabilities. A valuation allowance is established when it is more likely than +not that some or all of the deferred tax assets will not be realized. +(m) Loss Per Share +Basic loss per share is computed by dividing net loss attributable to common +stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share is computed +similarly, except that the denominator includes potentially dilutive securities when their effect is dilutive. For all periods presented, +diluted loss per share is the same as basic loss per share because the Company was in a net loss position, and the inclusion of potentially +dilutive securities would be anti-dilutive. +(n) Concentration of Credit Risk +Financial instruments that potentially subject the Company to concentration +of credit risk consist primarily of cash deposits and digital assets. Cash is maintained at financial institutions in amounts that may +exceed federally insured limits. The Company has not experienced any losses on such accounts. +(o) Deferred Offering Costs +Costs directly attributable to a proposed offering +of equity securities are deferred and recorded as an asset and charged against the proceeds of the offering. In the event debt offering +costs are deferred, the unamortized balance is reflected as a debt discount to the principal value of the debt issued. If the offering +is abandoned, deferred offering costs are charged to expense (See note 7). +Note 3 GOING CONCERN +The accompanying consolidated financial statements have been prepared +assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities +in the normal course of business. Since inception, the Company has incurred recurring operating losses and negative cash flows from operations. +For the year ended December 31, 2025, the Company reported a net loss of $ 6,001,137 and used cash in operations of $ 8,925,777 . As of December +31, 2025, the Company had an accumulated deficit of $ 10,393,061 , cash and cash equivalents of $ 1,636,655 , and working capital of $ 3,277,403 . +The measurement of working capital for The Company excludes the fair value of aggregate digital assets, primarily consisting of Bitcoin, +and is not subject to liquidity and volatility risks consistent with cryptocurrency with regards to working capital. The Company has not +generated revenue from its biopharmaceutical operations and expects significant manufacturing costs in association with continued development +of the BioBusiness’ lead asset, Apitox, to be incurred in the first quarter and onward into 2026. The Company does receive proceeds +in the form of USDT from the sale of NILA tokens, which are used, in part, to satisfy select operating expenses directly related to the +digital asset segment of the business. However, these proceeds are not sufficient to sustain the Company’s operations for the twelve +months following issuance of these financial statements. In addition, proceeds from the PIPE convertible note offering have been dispersed +with allocation described within (see note 7). These conditions raise substantial doubt about the Company’s ability to continue +as a going concern. Management’s plans to mitigate these conditions include: (i) continuing sales of NILA Tokens for USDT to ensure +immediate liquidity to digital asset operations (ii) pursuing access to future PIPE convertible note proceeds; (iii) seeking additional +equity or debt financing; and (iv) implementing cost reduction measures. There can be no assurance that the Company will be successful +in implementing these plans. The consolidated financial statements do not include any adjustments that might result from the outcome of +this uncertainty. +F- 11 +Note 4 ACQUISITION OF MINDWAVE INNOVATIONS +Description of the Transaction +On December 1, 2025, Apimeds Pharmaceuticals US, +Inc, a Delaware corporation (the Company or “Apimeds”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) +with (i) Apimeds Merger Sub, Inc., a Delaware corporation, (ii) MindWave Innovations Inc, a Delaware corporation (“MindWave”), +(iii) Lokahi Therapeutics, Inc., a Nevada corporation, and (iv) Erik Emerson, solely in his capacity as representative for the BioBusiness. +Unless otherwise defined herein, the capitalized terms used below are defined in the Merger Agreement. On December 10, 2025, the Merger +Agreement was amended to correct scrivener’s errors in the original document. +Pursuant to the terms and conditions of the Merger +Agreement, a certificate of merger (the “Certificate of Merger”) was filed with the Secretary of State of the State of Delaware +(the “DE SOS”) (such time of the filing of the Certificate of Merger, the “Effective Time”), in accordance with +the General Corporation Law of the State of Delaware (the “DGCL”). Pursuant to the Certificate of Merger, Merger Sub was +merged with and into the MindWave (the “Merger”), with the MindWave surviving the Merger as the Surviving Corporation. As +a result of the Merger, the Company MindWave became a direct wholly owned subsidiary of the Company. At the Effective Time, all the property, +rights, privileges, powers and franchises of MindWave and Merger Sub were vested in Apimeds Pharmaceuticals US, the Surviving Corporation, +and all the debts, liabilities and duties of the MindWave and Merger Sub became the debts, liabilities and duties of the Surviving Corporation. +The Closing occurred simultaneously with the execution and delivery of the Merger Agreement on the Closing Date. +The Company determined that it is the accounting acquirer in the transaction +as the consideration issued does not provide MindWave with voting control of the combined entity, MindWave does not have the ability to +appoint members to the Company’s board of directors, and the senior management of the Company remains largely intact following the transaction. +In applying the concentration test practical expedient under ASC 805-10-55-5A, +the Company determined that substantially all the fair value of MindWave’s gross assets, approximately 99.9 %, is concentrated in digital +assets, which represents a group of similar identifiable assets. Accordingly, the acquired set does not meet the definition of a business, +and the transaction has been accounted for as an asset acquisition under ASC 805-50. +The assets and liabilities of MindWave at the acquisition date were determined +to approximate fair value, as the digital assets held by MindWave are measured at fair value and remeasured each reporting period through +earnings, and the remaining assets and liabilities are short-term in nature such that their carrying values approximate fair value. +Consideration Transferred +As the transaction was consummated through the issuance of non-cash consideration +in the form of Series A Convertible Preferred Stock, which is not publicly traded and does not have a readily determinable market value, +the Company measured the transaction using the more readily determinable fair value of the net assets acquired in accordance with ASC +805-50-30-2. +F- 12 +Assets Acquired and Liabilities Assumed +The following table summarizes the fair values of the identifiable assets +acquired and liabilities assumed as of the Closing Date. Because the transaction was deemed an asset acquisition, as seen in “Description +of the Transaction” no goodwill was recorded. +Fair Value at +December 1, +2025 +Assets acquired: +Cash and cash equivalents +$ 15,345 +Digital assets: BTC +90,838,200 +Digital assets: USDT +4,662,517 +Digital assets: NILA Tokens +50,804,304 +Other assets +1,002 +Total identifiable assets acquired +146,321,367 +Liabilities assumed: +Accounts payable and accrued liabilities +$ 669,570 +Other liabilities +316,090 +Total liabilities assumed +985,659 +Net identifiable assets acquired +145,335,708 +Goodwill +- +Total consideration transferred +$ 145,335,708 +The allocation of the purchase price is based on management’s assessment +of the fair values of the identifiable assets acquired and liabilities assumed as of the Closing Date. +Non-Cash Consideration Disclosure +Pursuant to the terms and conditions of the Merger Agreement, Series A +Convertible Preferred Stock was issued to the respective owners of MindWave Innovations. Being a non-cash transaction, the company used +the fair value of the net assets acquired by the company at the closing date of the merger, December 1, 2025, to measure the consideration +as the fair value of the assets was readily determinable. +The issuance of 7,477,017 shares of Series A Convertible Preferred Stock +with an aggregate fair value of $ 145,335,708 in connection with the Merger represents a non-cash investing and financing activity and +is disclosed in the supplemental schedule of non-cash activities accompanying the consolidated statement of cash flows. +The digital assets acquired in the Merger with an aggregate fair value +of $ 146,305,021 (consisting of BTC $ 90,838,200 , USDT $ 4,662,517 , and NILA Tokens $ 50,804,304 ) represent non-cash assets acquired in a +business combination. +Note 5 DIGITAL ASSETS AND TOKEN ACTIVITIES +As a result of the Merger, the Company acquired digital assets consisting +of BTC, USDT, and NILA Tokens on December 1, 2025. The Company holds digital assets primarily for liquidity and volatility mitigation +purposes and is not a broker-dealer, exchange, or investment company. +F- 13 +Digital Asset Holdings +Activity During the Period (December 1, 2025, through December 31, 2025) +BTC +USDT +NILA Tokens +Total +Balance acquired in Merger (12/1/2025) +$ 90,838,200 +4,662,517 +50,804,304 +146,305,021 +Tokens sold (NILA for USDT) +$ +- +1,822,115 +( 4,251,507 ) +( 2,429,392 ) +Realized gain (loss) on sale of NILA Tokens +$ +- +- +4,197,394 +4,197,394 +Unrealized gain (loss) recognized +$ ( 2,519,250 ) +- +4,331,598 +1,812,348 +Balance at December 31, 2025 +$ 88,318,950 +6,484,632 +55,081,789 +149,885,371 +Realized Gains and Losses +During the period from December 1, 2025, through December 31, 2025, the +Company sold 4,251,507 NILA Tokens for aggregate proceeds of 1,822,115 USDT (approximately $ 1,822,115 ). Realized gains and losses on the +sale of digital assets are presented within “Realized gain (loss) on sale of digital assets” in the consolidated statement of +operations. +Unrealized Gains and Losses +For the period from December 1, 2025, through December 31, 2025, the Company +recognized unrealized gains (losses) on digital assets of $ 1,812,348 , presented within “Unrealized gain (loss) on digital assets” +in the consolidated statement of operations. +Custody and Risks +The Company is exposed to risks inherent in +digital asset holdings, including price volatility, cybersecurity risks, regulatory uncertainty, and concentration risk. The Company +does not insure its digital asset holdings against loss or theft. USDT is a stablecoin that seeks to maintain a 1:1 peg with the +U.S. dollar. The Company is exposed to the risk that USDT could trade materially below its pegged value, that the USDT issuer +(Tether Limited) may not maintain adequate reserves, or that regulatory actions could affect the redeemability or value of USDT. +NILA Tokens trade on a limited number of centralized cryptocurrency exchanges. The Company is exposed to liquidity risk, as there +can be no assurance that the Company will be able to sell NILA Tokens at prices equal to or exceeding their carrying value. Daily +trading volumes for NILA Tokens have historically been modest, and significant sales by the Company could adversely affect the +trading price. +Cash Flow Statement Presentation +Proceeds from sales of digital assets are presented within investing activities +in the consolidated statement of cash flows. Non-cash changes in the fair value of digital assets are reconciling items in the operating +activities section. +FAIR VALUE MEASUREMENTS +Assets and Liabilities Measured at Fair Value on a Recurring Basis +As of December 31, 2025: +Level 1 +Level 2 +Level 3 +Total +Assets: +Digital assets — BTC +$ 88,318,950 +- +- +88,318,950 +Digital assets — USDT +$ 6,484,632 +- +- +6,484,632 +Digital assets — NILA Tokens +$ +- +55,081,789 +- +55,081,789 +Total assets at fair value +$ 94,803,582 +55,081,789 +- +149,885,371 +Liabilities: +Warrant liabilities +- +- +- +- +Derivative liability +$ +- +1,616,913 +1,616,913 +Total liabilities at fair value +$ +- +- +- +1,616,913 +F- 14 +The warrant liability as of May 12, 2025 (IPO date), +was valued utilizing the Black-Scholes options pricing model with the following inputs: $ 1.81 of stock price, 4.09 % risk-free rate, 78.29 % +volatility, 0 % dividend rate, and the expected term of 5 years. The warrant liability as of August 5 , 2025, was valued utilizing the +Black-Scholes options pricing model with the following inputs: $ 1.78 of stock price, 3.74 % risk-free rate, 77.11 % volatility, 0 % dividend +rate, and the expected term of 5 years. Upon issuance of the advisor warrants on August 5, 2025, the Advisor Warrants were reclassified +to additional paid-in capital and will remain equity classified. +Level 2 Valuation — NILA Tokens +NILA Tokens are classified within Level 2 of the fair value hierarchy. +The fair value of NILA Tokens is determined using quoted prices for the NILA/USDT trading pair on centralized cryptocurrency exchanges. +Although NILA Tokens have observable pricing on exchanges including LBank, the limited number of trading venues (two exchanges as of December +31, 2025) and relatively modest daily trading volume (ranging from approximately $ 200,000 to $ 350,000 in 24-hour volume) indicate that +the market does not meet the “active market” threshold required for Level 1 classification. Management considers the exchange-quoted +prices to represent observable market inputs that are corroborated by transaction data, supporting Level 2 classification. +Level 3 Valuation — Derivative Liability +The derivative liability associated with the variable conversion feature +of the PIPE convertible note is classified within Level 3 of the fair value hierarchy. The fair value is determined using a Monte Carlo +simulation wherein a probability-weighted scenario analysis incorporating the Company’s stock price, expected volatility, remaining term +of the note, and the contractual 20 % discount to the minimum volume-weighted average price over a five-day lookback period is run. Changes +in the fair value of the derivative liability are recognized in other income (expense) in the consolidated statements of operations. +Level 3 Roll forward — Derivative Liability +Beginning Balance - December 31, 2024 +$ +- +Initial Recognition upon Issuance +1,672,059 +Re-measurement adjustments: +Change in fair value of derivative liability +( 55,146 ) +Ending balance – December 31, 2025 +$ 1,616,913 +The change in fair value of derivative liability recognized in earnings +during the year ended December 31, 2025, was $ 55,146 and is included in “Change in FV of derivative liability” in the consolidated +statement of operations. +Level 3 Roll forward — Warrant Liabilities +Beginning Balance - December 31, 2024 +$ +- +Advisor warrant liability incurred in connection with the IPO +183,931 +Re-measurement adjustments: +Change in fair value of warrant liability +( 22,377 ) +Re-classification to equity upon issuance of warrants +( 161,554 ) +Ending balance – December 31, 2025 +$ +- +The change in fair value of warrant liabilities recognized in earnings +during the year ended December 31, 2025 (prior to reclassification) was $ 22,377 and is included in “Change in FV of warrant liability” +in the consolidated statement of operations. +F- 15 +Note 6 DEBT AND FINANCING ARRANGEMENTS +Convertible Notes +In connection with the merger, the company executed a securities purchase +agreement on December 1, 2025, of an aggregate maximum principal amount equal to $ 129,000,000 to be assigned in tranches, when or if the +company desires to exercise said tranches. Each note is issued in the form of senior secured convertible notes to be converted into common +shares of the company stock at any time the investor (“ the buyer” ) elects to do so. +On the date December 8, 2025, the company executed the first, and only, +senior secured convertible note (“the note”) in connection with the securities purchase agreement disclosed herein +for a principal amount of $ 10,900,000 . The gross issuance of the note was equal to $ 10,000,000 , of which, the company recorded issuance +costs of $ 1,446,000 (inclusive of $ 500,000 deferred offering costs) and a derivative liability addressing variable conversion terms equivalent +to $ 1,672,059 upon issuance of the note. The note maintains an issuance date of December 8, 2025 and a maturity date one year from issuance, +December 8, 2026 . Upon issuance, the Company disbursed a total amount of $ 1,104,000 to its respective subsidiary, MindWave Innovations, +and currently holds an amount of $ 8,000,000 in an investor-controlled Deposit Account Control Agreement wherein the Company does not possess +the ability to actively draw upon the dollar amount described. This total of $ 8,000,000 is disclosed on the financial statements as restricted +cash, given the funding has not been released to the Company as of December 31, 2025, or the subsequent period thereafter. In accordance +with one year maturity, the note net of issuance costs, derivative, and original issue discount, are recorded as a current liability. +Related Party Notes +On the date March 21, 2025, the Company was issued +an unsecured promissory note in the principal amount of $ 250,000 by Inscobee Inc. (“Inscobee”), a stockholder of the Company. +The note bears interest at a rate of 5 % per annum, with principal and accrued interest due and payable on May 19, 2026. The note is prepayable +by the Company at any time without penalty. The note is classified as a current liability on the consolidated balance sheet based on the +May 19, 2026 maturity date. The note is in addition to two notes issued by the same party in the previous year of 2024, combining to an +aggregate principal amount of $ 500,100 as of December 31, 2025. +At December 31, 2025, the company had an advance payable to its CEO of $ 12,000 reflected as advance payable related party on the accompanying +consolidated balance sheet. +Note 7 STOCKHOLDERS’ EQUITY +Authorized Capital +As of December 31, 2025, the Company’s authorized capital stock consisted +of: +Class +Shares Authorized +Par Value +Common Stock +100,000,000 +0.001 +Preferred Stock +10,000,000 +0.001 +Of the authorized preferred stock, 7,477,017 shares have been designated +as Series A Convertible Preferred Stock. +Common Stock +As of December 31, 2025, and the subsequent period thereafter, there were +12,575,983 shares of common stock issued and outstanding. +F- 16 +Series A Convertible Preferred Stock +In connection with the Merger (see Note 4), on December 1, 2025, the Company +issued 7,477,017 shares of Series A Convertible Preferred Stock to the former stockholders of MindWave Innovations. The aggregate fair +value of the Series A Preferred Stock was equivalent to the fair value of the net assets acquired from MindWave. The material terms of +the Series A Preferred Stock are as follows: +● Conversion: Each share of Series A Preferred Stock is convertible into 20 +shares of common stock, which convert automatically upon majority shareholder approval. +● Voting rights: The Series A Preferred Stock does not maintain any voting +rights. +● Redemption: The Preferred Stock issued is not redeemable +The Company evaluated the Series A Preferred Stock under ASC 480 and determined +that the instrument is classified in permanent equity based on the terms of the Merger. The issuance of 7,477,017 shares of Series A Preferred +Stock at an aggregate fair value of $ 145,335,708 represents a non-cash financing activity and is disclosed in the supplemental schedule +of non-cash activities. +Note 8 STOCK-BASED COMPENSATION +Equity Incentive Plan +The Company maintains the 2024 Equity Incentive Plan (the “Plan”), +under which the Company may grant stock options, restricted stock units, and other equity awards to employees, directors, and consultants. +As of December 31, 2025, 2,096,679 shares were authorized for issuance under the Plan, of which 1,096,679 shares were granted in the form +of stock options, and 1,000,000 shares were issued to executives in the form of common stock. The Plan currently maintains 0 shares available +for issuance. +Stock Option Activity +Number of Options Weighted Average Exercise Price Weighted-Average Remaining Contractual Term +(In Years) +Issued and outstanding, December 31, 2024 213,692 $ 7.33 4.45 +Granted 1,096,679 $ 1.94 9.70 +Exercised +- +- +- +Forfeited/Expired +- +- +- +Issued and outstanding, December 31, 2025 1,310,371 $ 2.82 8.85 +Exercisable at December 31, 2025 432,645 $ 4.57 7.04 +Stock-Based Compensation Expense +Year Ended +Year Ended +12/31/2025 +12/31/2024 +Research and development +$ 468,329 +$ +- +General and administrative +1,575,857 +69,993 +Total stock-based compensation +$ 2,044,186 +$ 69,993 +F- 17 +As of December 31, 2025, total unrecognized compensation cost related to +unvested awards was $ 1,121,242 , which is expected to be recognized over a weighted-average period of 2.56 years. +Parent Awards to Subsidiary Employees +Certain equity awards of the Company have been granted to employees who +are now employees of Lokahi Therapeutics (“the BioBusiness”). Because there is no recharge arrangement (an agreement in which +the subsidiary reimburses the parent for the cost of stock-based awards granted to the subsidiary’s employees), between the Company and +the BioBusiness, the Company recognizes the stock-based compensation expense associated with these awards in its consolidated statement +of operations. In the standalone financial statements of Lokahi, the expense is offset by a corresponding capital contribution from the +Company. For the year end December 31, 2025, stock-based compensation of $ 38,055 was attributable to Lokahi employees. +Note 9 WARRANTS +Outstanding Warrants +As of December 31, 2025, the following warrants were outstanding: +Description Shares Exercise Price Classification +Representative Warrants 168,750 5.00 Equity +Representative Warrants 202,500 4.00 Equity +Advisory Warrants 745,663 1.78 Equity +Total 1,116,913 +Reclassification from Liabilities to Equity +During the year ended December 31, 2025, the Company reclassified warrants +previously classified as liabilities to stockholders’ equity. Prior to the reclassification, the warrants were measured at fair value +at each reporting date in accordance with ASC 815-40, with changes in fair value recognized within “Change in fair value of warrant +liabilities” in the consolidated statement of operations. The reclassification occurred on August 5, 2025, as a result of official +issuance. On the date of reclassification, the warrants had a fair value of $ 161,554 , which was reclassified from warrant liabilities +to additional paid-in capital . +Fair Value Changes Prior to Reclassification +For the year ended December 31, 2025, the Company recognized a loss of +$ 22,377 related to the change in fair value of warrant liabilities (from January 1, 2025, through the reclassification date). This amount +is included within “Change in fair value of warrant liabilities” in the consolidated statement of operations. +Note 10 Net Loss Per Share +The Company’s basic net loss per share is calculated by dividing net loss +by the weighted-average number of shares of common stock outstanding for the period. +Diluted net loss per share is computed by giving effect to all potential +shares of common stock, to the extent dilutive, including shares underlying the Series A convertible preferred shares, senior secured +convertible notes, stock options, and stock warrants. Potential shares of common stock are excluded from the computation of diluted net +loss per share if their effect would have been anti-dilutive for the periods presented or if the issuance of shares is contingent upon +events that did not occur by the end of the period. +F- 18 +The following table encapsulates all potential shares of common stock that +were excluded from the computation of weighted-average diluted shares. +Common Share Equivalents +Series A convertible preferred shares ( 1:20 conversion ratio) 149,540,340 +Stock options 512,620 +Warrants 1,116,913 +PIPE convertible note 8,307,927 +Total anti-dilutive shares excluded 159,477,800 +Note 11 LEASES +Operating Lease +On December 12, 2025, the Company entered into an operating lease for office +space located in San Diego California, United States. The lease has a term of 3 years, commencing on January 1, 2026, and expiring on +December 31, 2028 . The lease provides for monthly base rent of $ 5,940.90 , subject to annual escalation of 3 %. The Company’s incremental +borrowing rate used to discount the lease liability was 5 %. +As of December 31, 2025, the Company had made only the initial signing +payment of $ 18,362 . Remaining future lease payments had not yet commenced. +Balance Sheet Classification +Operating Lease +December 31, 2025 +Right-of-use asset, net +$ 187,395 +Lease liability — current +$ 39,578 +Lease liability — non-current +129,454 +Total lease liability +$ 169,032 +Lease Cost +Year Ended +12/31/2025 +Operating lease cost +$ +- +Short-term lease cost +- +Total lease cost +$ +- +Future Minimum Lease Payments +Year Ending December 31, 2025 +Amount +2026 +$ 47,527 +2027 +67,310 +2028 +69,330 +Thereafter +- +Total undiscounted lease payments +184,167 +Less: imputed interest +( 15,135 ) +Present value of lease liabilities +$ 169,032 +F- 19 +Supplemental Information +Year Ended +12/31/2025 +Cash paid for amounts included in lease liabilities $ +- +Weighted-average remaining lease term (years) 2.9 +Weighted-average discount rate 5.0 % +Note 12 RELATED PARTY AND INTERCOMPANY TRANSACTIONS +Related Party Transactions +On March 21, 2025, the Company received $ 250,000 in loan proceeds from +Inscobee Inc. (“Inscobee”), a majority stockholder of the Company, pursuant to an unsecured promissory note maturing on December +31, 2026. See note 7 for additional information regarding terms and conditions. +During the year, an officer of the Company advanced +the Company $ 250,000 the Company repaid this amount in full. At December 31, 2025, the Company owed this officer $ 12,000 for additional +unreimbursed expenses. +Note 13 INCOME TAXES +Income Tax Expense (Benefit) +The Company recorded income tax expense (benefit) of $0 for the year ended +December 31, 2025. +Effective Tax Rate Reconciliation +The Company adopted Accounting Standards Update (ASU) 2023-09, “Improvements +to Income Tax Disclosures,” on a retrospective basis within its annual reporting for the year ended December 31, 2025. The adoption +of ASU 2023-09 resulted in enhanced disclosures related to the effective tax-rate reconciliation, including additional disaggregation +requirements prescribed by the standards. +During 2025, the Company elected accelerated amortization under the transition +provisions of the One Big Beautiful Bill Act for previously capitalized domestic research and experimental expenditures. As a result of +accelerating the deduction of the remaining $ 252,981 of capitalized costs, the related deferred tax asset was fully reversed during the +year. +For the years ended December 31, +2025 +2024 +U.S. Federal statutory tax rate +( 1,260,238 ) +21.0 % +$ ( 291,898 ) +21.0 % +State and local income tax, net of federal income tax effect +New Jersey +( 295,523 ) +4.9 % +( 62,529 ) +4.5 % +Valuation allowance +295,523 +- 4.9 % +62,529 +- 4.5 % +Changes in valuation allowances +1,209,037 +- 20.0 % +278,165 +- 20.0 % +Nontaxable or nondeductible items +Accretion expense +52,322 +- 0.9 % +16,790 +- 1.2 % +Other +1,665 +0.0 % +172 +0.0 % +Other Adjustments +Intangible true-up +( 2,786 ) +0.1 % +( 3,228 ) +0.2 % +Income tax +$ +- +0.0 % +$ +- +0.0 % +F- 20 +Deferred Tax Assets and Liabilities +For the years ended +December 31, +2025 +2024 +Net operating loss carry forwards +$ 2,470,869 +$ 741,321 +Stock based compensation +685,998 +151,750 +Accruals +( 0 ) +182,509 +Capitalized research and development +- +66,117 +Intangible assets +1,776 +( 824 ) +Fixed Assets +( 14,496 ) +- +Right of use assets +( 4,799 ) +- +Change in fair value of digital assets +( 473,657 ) +- +Change in fair value of warrant liabilities +( 5,848 ) +- +Change in fair value of derivatives +( 14,412 ) +- +Total deferred tax assets +2,645,231 +1,140,873 +Valuation allowance +( 2,645,231 ) +( 1,140,873 ) +Net deferred tax assets +$ +- +$ +- +The Company has cumulative federal net operating losses of $ 9,473,032 +and state net operating losses of $ 9,377,473 which do not expire but are subject to an 80 % utilization against future taxable income. +In assessing the realization of deferred tax assets, management considers +whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred +tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. +Deferred tax assets consist primarily of the tax effect of NOL carry-forwards. The Company has provided a full valuation allowance on +the deferred tax assets because of the uncertainty regarding its realizability. +The Company’s policy is to record interest and penalties associated +with unrecognized tax benefits as additional income taxes in the statement of operations. As of December 31, 2025, the Company had no +unrecognized tax benefits. There were no changes in the Company’s unrecognized tax benefits during the years ended December 31, +2025 and 2024. The Company did not recognize any interest or penalties during the 2025 fiscal year related to unrecognized tax benefits. +F- 21 +Note 14 COMMITMENTS AND CONTINGENCIES +License Agreement +On August 2, 2021, the Company entered into a +business agreement with Apimeds Korea. Under the agreement, the Company received the right to continue any clinical trial and acquire +the permits and approval necessary from the U.S. Food and Drug Administration. The Company will pay Apimeds Korea a royalty of 5 % of the +earnings before interest and taxes, delivered from the sale or license of Apitox less any credits and charges, however, the royalty terms +shall not apply when shares of the Company are transferred or sold through merger, acquisition, or share transfer agreement to a third +party. On October 12, 2021, the Company entered into an exclusive patent license agreement with Apimeds Korea, a shareholder of the Company. +Under the agreement, the Company was granted the exclusive right and license under the licensed patents to make and sell the licensed +products in the United States of America. The agreement commenced on the effective date and shall remain in force for each licensed product +on a licensed product-by-licensed-product basis for rights and obligations concerning the licensed patent, until the expiration of the +last to expire valid claim of a licensed patent. The total consideration exchanged for the exclusive license agreement was $ 1 . +Legal Proceedings +From time to time, the Company may be involved in legal proceedings arising +in the ordinary course of business. As of December 31, 2025, the Company was not a party to any legal proceedings that management believes +would have a material adverse effect on the Company’s financial position, results of operations, or cash flows. +Future Commitments +During the year ended December 31, 2025, the Company entered into an agreement +to accumulate a prepaid balance with its respective Clinical Research Organization, Prevail InfoWorks Inc, pertaining to future clinical +trial execution. The total remaining obligation associated with this agreement is $ 1,065,405 as of December 31, 2025. +During the year ended December 31, 2025 the +Company entered into an agreement with Piramal Pharma Solutions, Inc. to manufacture clinical trial material for its lead +Biopharmaceutical asset, Apitox. +The Company holds customary employment agreements +with its key executives. These employment agreements provide for compensation in the form of salary, employee benefits, stock compensation, +discretionary bonuses. The contract in place for the President of Lokahi Therapeutics (“The BioBusiness”) includes a severance +package equivalent to twenty four (24) months of salary and benefits, or $ 1,000,000 . These employment agreements have been assigned to +the BioBusiness, Lokahi Therapeutics. +Indemnification Agreements +The Company has entered into indemnification agreements with its directors +and officers. Under these agreements, the Company may be required to indemnify its directors and officers against certain liabilities +that may arise by reason of their status or service. The Company has not incurred material costs related to these indemnification provisions +and has not accrued any liabilities related to such obligations as of December 31, 2025. +Note 14 SUBSEQUENT EVENTS +The Company has evaluated subsequent events the date on which the consolidated +financial statements were available to be issued. +● Pursuant to the securities purchase agreement outlined in note 6, the company +expects to continue funding operations through the execution of additional convertible notes in accordance with the maximum aggregate +principal to fund operations of the parent, and its respective subsidiaries. +● On March 30, 2026, the BioBusiness issued a $ 1,000,000 secured +promissory note (“The 2026 Promissory Note”) to Keren Eliyahu Charitable Trust. The 2026 Promissory Note bears a non-compounding +return (“The Repayment Amount”) equivalent to one hundred and ten percent ( 110 %) of the principal amount. The 2026 Promissory +Note maintains a maturity date of May 15, 2026 , upon which, the Repayment Amount of $ 1,100,000 shall be due. As collateral within the +agreement, the BioBusiness has pledged it’s Certificate of Deposit (“The CD”) having a value equal to or greater than +$ 1,700,000 towards payment of the aggregate principle and interest on the 2026 Promissory Note. +● On February 5, 2026, MindWave +issued a $ 750,000 intercompany note (“The Interco Note”) to the BioBusiness. The Interco Note bears zero percent interest +in the event that the principal amount of $ 750,000 is paid in full to the BioBusiness no longer than 10 days following the preferred +share conversion (see note 4). Upon a failure to repay the Interco Note principal amount in full within the time window provided, the +note will then bear an eight percent ( 8 %) interest rate per annum. +● On April 24, 2026, the Company and its respective subsidiaries +entered into a Settlement Agreement which resolves all outstanding disputes among related parties. Pursuant to the Settlement Agreement, +the Company plans to issue 2,515,194 shares of common stock to investment banking advisory partners. +F- 22 +http://fasb.org/srt/2025#ChiefExecutiveOfficerMember +0001894525 +false +FY +0001894525 +2025-01-01 +2025-12-31 +0001894525 +2025-06-30 +0001894525 +2026-04-30 +0001894525 +2025-12-31 +0001894525 +2024-12-31 +0001894525 +2024-01-01 +2024-12-31 +0001894525 +us-gaap:PreferredStockMember +2023-12-31 +0001894525 +us-gaap:CommonStockMember +2023-12-31 +0001894525 +us-gaap:AdditionalPaidInCapitalMember +2023-12-31 +0001894525 +us-gaap:RetainedEarningsMember +2023-12-31 +0001894525 +2023-12-31 +0001894525 +us-gaap:PreferredStockMember +2024-01-01 +2024-12-31 +0001894525 +us-gaap:CommonStockMember +2024-01-01 +2024-12-31 +0001894525 +us-gaap:AdditionalPaidInCapitalMember +2024-01-01 +2024-12-31 +0001894525 +us-gaap:RetainedEarningsMember +2024-01-01 +2024-12-31 +0001894525 +us-gaap:PreferredStockMember +2024-12-31 +0001894525 +us-gaap:CommonStockMember +2024-12-31 +0001894525 +us-gaap:AdditionalPaidInCapitalMember +2024-12-31 +0001894525 +us-gaap:RetainedEarningsMember +2024-12-31 +0001894525 +us-gaap:PreferredStockMember +2025-01-01 +2025-12-31 +0001894525 +us-gaap:CommonStockMember +2025-01-01 +2025-12-31 +0001894525 +us-gaap:AdditionalPaidInCapitalMember +2025-01-01 +2025-12-31 +0001894525 +us-gaap:RetainedEarningsMember +2025-01-01 +2025-12-31 +0001894525 +us-gaap:PreferredStockMember +2025-12-31 +0001894525 +us-gaap:CommonStockMember +2025-12-31 +0001894525 +us-gaap:AdditionalPaidInCapitalMember +2025-12-31 +0001894525 +us-gaap:RetainedEarningsMember +2025-12-31 +0001894525 +apus:BioBusinessSegmentMember +2025-01-01 +2025-12-31 +0001894525 +apus:DigitalAssetSegmentMember +2025-01-01 +2025-12-31 +0001894525 +us-gaap:CorporateMember +2025-01-01 +2025-12-31 +0001894525 +2025-12-01 +0001894525 +apus:MindWaveMember +apus:SeriesAConvertiblePreferredStockMember +2025-12-01 +0001894525 +us-gaap:SeriesOfIndividuallyImmaterialBusinessAcquisitionsMember +2025-12-01 +0001894525 +apus:NILATokensMember +2025-01-01 +2025-12-31 +0001894525 +apus:USDTMember +2025-01-01 +2025-12-31 +0001894525 +us-gaap:MeasurementInputSharePriceMember +2025-05-12 +0001894525 +us-gaap:MeasurementInputRiskFreeInterestRateMember +2025-05-12 +0001894525 +us-gaap:MeasurementInputPriceVolatilityMember +2025-05-12 +0001894525 +us-gaap:MeasurementInputExpectedDividendRateMember +2025-05-12 +0001894525 +us-gaap:MeasurementInputExpectedTermMember +2025-05-12 +0001894525 +us-gaap:MeasurementInputExpectedTermMember +2025-08-05 +0001894525 +us-gaap:MeasurementInputSharePriceMember +2025-08-05 +0001894525 +us-gaap:MeasurementInputRiskFreeInterestRateMember +2025-08-05 +0001894525 +us-gaap:MeasurementInputPriceVolatilityMember +2025-08-05 +0001894525 +us-gaap:MeasurementInputExpectedDividendRateMember +2025-08-05 +0001894525 +srt:MinimumMember +2025-01-01 +2025-12-31 +0001894525 +srt:MaximumMember +2025-01-01 +2025-12-31 +0001894525 +us-gaap:MeasurementInputDiscountRateMember +2025-12-31 +0001894525 +apus:BTCMember +apus:DigitalAssetHoldingsMember +2024-12-31 +0001894525 +apus:USDTMember +apus:DigitalAssetHoldingsMember +2024-12-31 +0001894525 +apus:NILATokensMember +apus:DigitalAssetHoldingsMember +2024-12-31 +0001894525 +apus:DigitalAssetHoldingsMember +2024-12-31 +0001894525 +apus:BTCMember +apus:DigitalAssetHoldingsMember +2025-01-01 +2025-12-31 +0001894525 +apus:USDTMember +apus:DigitalAssetHoldingsMember +2025-01-01 +2025-12-31 +0001894525 +apus:NILATokensMember +apus:DigitalAssetHoldingsMember +2025-01-01 +2025-12-31 +0001894525 +apus:DigitalAssetHoldingsMember +2025-01-01 +2025-12-31 +0001894525 +apus:BTCMember +apus:DigitalAssetHoldingsMember +2025-12-31 +0001894525 +apus:USDTMember +apus:DigitalAssetHoldingsMember +2025-12-31 +0001894525 +apus:NILATokensMember +apus:DigitalAssetHoldingsMember +2025-12-31 +0001894525 +apus:DigitalAssetHoldingsMember +2025-12-31 +0001894525 +apus:DigitalAssetsBTCMember +us-gaap:FairValueInputsLevel1Member +2025-12-31 +0001894525 +apus:DigitalAssetsBTCMember +us-gaap:FairValueInputsLevel2Member +2025-12-31 +0001894525 +apus:DigitalAssetsBTCMember +us-gaap:FairValueInputsLevel3Member +2025-12-31 +0001894525 +apus:DigitalAssetsBTCMember +2025-12-31 +0001894525 +apus:DigitalAssetsUSDTMember +us-gaap:FairValueInputsLevel1Member +2025-12-31 +0001894525 +apus:DigitalAssetsUSDTMember +us-gaap:FairValueInputsLevel2Member +2025-12-31 +0001894525 +apus:DigitalAssetsUSDTMember +us-gaap:FairValueInputsLevel3Member +2025-12-31 +0001894525 +apus:DigitalAssetsUSDTMember +2025-12-31 +0001894525 +apus:DigitalAssetsNILATokensMember +us-gaap:FairValueInputsLevel1Member +2025-12-31 +0001894525 +apus:DigitalAssetsNILATokensMember +us-gaap:FairValueInputsLevel2Member +2025-12-31 +0001894525 +apus:DigitalAssetsNILATokensMember +us-gaap:FairValueInputsLevel3Member +2025-12-31 +0001894525 +apus:DigitalAssetsNILATokensMember +2025-12-31 +0001894525 +us-gaap:FairValueInputsLevel1Member +2025-12-31 +0001894525 +us-gaap:FairValueInputsLevel2Member +2025-12-31 +0001894525 +us-gaap:FairValueInputsLevel3Member +2025-12-31 +0001894525 +apus:DerivativeLiabilityMember +2024-12-31 +0001894525 +apus:DerivativeLiabilityMember +2025-01-01 +2025-12-31 +0001894525 +apus:DerivativeLiabilityMember +2025-12-31 +0001894525 +apus:WarrantLiabilitiesMember +2024-12-31 +0001894525 +apus:WarrantLiabilitiesMember +2025-01-01 +2025-12-31 +0001894525 +apus:WarrantLiabilitiesMember +2025-12-31 +0001894525 +apus:ConvertibleNotesMember +2025-12-01 +0001894525 +apus:SeniorSecuredConvertibleNoteMember +2025-12-08 +0001894525 +2025-12-08 +2025-12-08 +0001894525 +2025-12-08 +0001894525 +apus:SeniorSecuredConvertibleNoteMember +2025-12-08 +2025-12-08 +0001894525 +apus:InscobeeMember +2025-03-21 +0001894525 +apus:UnsecuredPromissoryNoteMember +2025-01-01 +2025-12-31 +0001894525 +us-gaap:SeriesAPreferredStockMember +2025-12-31 +0001894525 +us-gaap:SeriesAPreferredStockMember +2025-12-01 +0001894525 +us-gaap:SeriesAPreferredStockMember +2025-01-01 +2025-12-31 +0001894525 +apus:TwoThousandTwentyFourEquityIncentivePlanMember +2025-12-31 +0001894525 +apus:TwoThousandTwentyFourEquityIncentivePlanMember +2025-01-01 +2025-12-31 +0001894525 +apus:TwoThousandTwentyFourEquityIncentivePlanMember +us-gaap:CommonStockMember +2025-01-01 +2025-12-31 +0001894525 +apus:LokahiEmployeesMember +2025-01-01 +2025-12-31 +0001894525 +us-gaap:ResearchAndDevelopmentExpenseMember +2025-01-01 +2025-12-31 +0001894525 +us-gaap:ResearchAndDevelopmentExpenseMember +2024-01-01 +2024-12-31 +0001894525 +us-gaap:GeneralAndAdministrativeExpenseMember +2025-01-01 +2025-12-31 +0001894525 +us-gaap:GeneralAndAdministrativeExpenseMember +2024-01-01 +2024-12-31 +0001894525 +apus:RepresentativeWarrantsMember +2025-12-31 +0001894525 +apus:RepresentativeWarrantsMember +2025-01-01 +2025-12-31 +0001894525 +apus:RepresentativeWarrants1Member +2025-12-31 +0001894525 +apus:RepresentativeWarrants1Member +2025-01-01 +2025-12-31 +0001894525 +apus:AdvisoryWarrantsMember +2025-12-31 +0001894525 +apus:AdvisoryWarrantsMember +2025-01-01 +2025-12-31 +0001894525 +apus:SeriesAConvertiblePreferredSharesMember +2025-01-01 +2025-12-31 +0001894525 +us-gaap:EmployeeStockOptionMember +2025-01-01 +2025-12-31 +0001894525 +us-gaap:WarrantMember +2025-01-01 +2025-12-31 +0001894525 +us-gaap:ConvertibleDebtSecuritiesMember +2025-01-01 +2025-12-31 +0001894525 +2025-12-12 +0001894525 +2025-12-12 +2025-12-12 +0001894525 +apus:InscobeeIncMember +2025-05-21 +2025-05-21 +0001894525 +us-gaap:RelatedPartyMember +2025-12-31 +0001894525 +2021-08-02 +2021-08-02 +0001894525 +2021-08-02 +0001894525 +us-gaap:SubsequentEventMember +2026-03-30 +0001894525 +apus:TwoThousandTwentySixPromissoryNoteMember +us-gaap:SubsequentEventMember +2026-03-30 +0001894525 +apus:TwoThousandTwentySixPromissoryNoteMember +us-gaap:SubsequentEventMember +2026-03-30 +2026-03-30 +0001894525 +us-gaap:SubsequentEventMember +2026-03-30 +2026-03-30 +0001894525 +us-gaap:SubsequentEventMember +2026-02-05 +2026-02-05 +0001894525 +us-gaap:SubsequentEventMember +2026-02-05 +0001894525 +srt:ScenarioForecastMember +2026-04-24 +iso4217:USD +xbrli:shares +iso4217:USD +xbrli:shares +apus:Segments +xbrli:pure \ No newline at end of file diff --git a/raw/filings/0001894525/2025/0001213900-26-051139/filing_metadata.csv b/raw/filings/0001894525/2025/0001213900-26-051139/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..368d9b6ae990f07fb7fde79152d642f56edb4f0b --- /dev/null +++ b/raw/filings/0001894525/2025/0001213900-26-051139/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001894525,APUS,"Apimeds Pharmaceuticals US, Inc.",2025,10-K,2026-05-04,2025-12-31,2026-05-04T10:57:17.000Z,0001213900-26-051139,ea0288344-10k_apimeds.htm,ANNUAL REPORT,6878411,1,1,https://www.sec.gov/Archives/edgar/data/1894525/000121390026051139/ea0288344-10k_apimeds.htm,https://www.sec.gov/Archives/edgar/data/1894525/000121390026051139/ diff --git a/raw/filings/0001894525/2025/0001213900-26-051139/item1.txt b/raw/filings/0001894525/2025/0001213900-26-051139/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..a4c789264d19f7efa289bd093bfa23c5cdc6e92d --- /dev/null +++ b/raw/filings/0001894525/2025/0001213900-26-051139/item1.txt @@ -0,0 +1,1793 @@ +Item 1. Business +Overview +On December 1, 2025, Apimeds Pharmaceuticals US, Inc., +a Delaware corporation (“ APUS ”, the “ Company ,” “ we ,” “ us ,” +or “ our ”) entered into and closed an Agreement and Plan of Merger (the “ Merger Agreement ”), with +Apimeds Merger Sub, Inc., a Delaware corporation (“ Merger Sub ”), MindWave Innovations Inc, a Delaware corporation (“ MindWave ”), +Lokahi Therapeutics, Inc., a Nevada corporation (“ Bio Sub ”), and Erik Emerson, solely in his capacity as representative +for the Bio Business (the “ Bio Business Representative ”). The transactions contemplated by the Merger Agreement are +referred to herein as the “ Transactions ” and the closing of the Transactions is referred to herein as the “ Closing ”. +Pursuant to the terms and conditions of the Merger +Agreement, immediately prior to the Closing, a certificate of merger (the “ Certificate of Merger ”) was filed with the +Secretary of State of the State of Delaware (the “ DE SOS ”) (such time of the filing of the Certificate of Merger, the +“ Effective Time ”), in accordance with the DGCL. Pursuant to the Certificate of Merger, Merger Sub was merged with +and into MindWave (the “ Merger ”), with MindWave surviving the Merger as the surviving corporation (the “ Surviving +Corporation ”). As a result of the Merger, MindWave became a direct wholly owned subsidiary of the Company. At the Effective +Time, all of the property, rights, privileges, powers and franchises of MindWave and Merger Sub vested in the Surviving Corporation and +all of the debts, liabilities and duties of MindWave and Merger Sub became the debts, liabilities and duties of the Surviving Corporation. +The Closing occurred simultaneously with the execution and delivery of the Merger Agreement on the Closing Date. +At the Effective Time, (i) each share of MindWave +common stock issued and outstanding immediately prior to the Effective Time shall be canceled and converted into the right to receive +a portion of the Merger Consideration, consisting of shares of Company Preferred Stock; and (ii) each holder of such shares shall +receive, for each share of MindWave Common Stock held immediately prior to the Effective Time, a pro rata portion of the Merger Consideration, +allocated as follows: (A) a number of duly authorized, validly issued, fully paid and nonassessable shares of Company Common Stock, +such that the aggregate number of shares of Company Common Stock issued to all holders of MindWave Common Stock shall equal 0% of the +total number of shares of Company Common Stock issued and outstanding as of the date of the Merger Agreement (the “ Common Stock +Cap ”), with each holder’s allocation rounded down to the nearest whole share; and (B) a number of duly authorized, +validly issued, fully paid and nonassessable shares of Company Preferred Stock, such that, immediately following the Effective Time, the +holders of MindWave Common Stock collectively hold, on an as-converted to Company Common Stock basis, 90.9% of the total issued and +outstanding equity securities of the Company (exclusive of the Company Common Stock issued pursuant to clause (A) and calculated +on a fully diluted basis). The shares of Company Common Stock and Company Preferred Stock issued to holders of MindWave Common Stock pursuant +to the Merger Agreement, on an as-converted and fully diluted basis, shall collectively represent 90.9% of the equity capital of +the Company as of the Closing. For purposes of the Merger Agreement, the shares of Company Common Stock, Company Preferred Stock, and +MindWave Common Stock issued pursuant to the Merger Agreement are collectively referred to as the “ Merger Consideration .” +In connection with the Merger Agreement, on December 1, +2025, certain stockholders of the Company, collectively holding approximately 51% of the Company’s shares of common stock, par value +$0.01 per share (the “ Common Stock ”), approved by written consent in lieu of a special meeting (the “ Written +Consent ”), in accordance with Section 228 of the Delaware General Corporation Law (the “ DGCL ”) and the +Company’s Amended and Restated Certificate of Incorporation, the following actions (the “ Corporate Actions ”): +1. The Preferred Stock Conversion and Issuance : the issuance of Company Common Stock upon +the conversion (the “ Preferred Stock Conversion ”) of the Series A Convertible Preferred Stock, par value $0.01 +per share of the Company (the “ Preferred Stock ”); +2. The Notes Conversion and Issuance : the issuance of Company Common Stock upon the conversion +of the convertible notes (the “ Notes Conversion ”) issued by the Company pursuant to that certain Securities Purchase +Agreement, entered into by the Company and certain institutional investors on December 1, 2025, and amended by that certain Amendment +No. 1 to Securities Purchase Agreement on December 8, 2025; +1 +3. The Reverse Stock Split : a 1-for-10 reverse stock split (the “ Reverse +Stock Split ”) of the Company’s Common Stock, a change in the par value per share of the Company’s Common Stock from +$0.01 to $0.001 (the “ Change in Par Value ”), and a corresponding amendment (the “ Charter Amendment ”) +to the Company’s Amended and Restated Certificate of Incorporation (the “ Charter ”) to (i) authorize the +Board of Directors to effect the Reverse Stock split and (ii) the Change in Par Value; +4. The 2024 Plan Share Increase : an amendment to the Apimeds Pharmaceuticals US, Inc. +2024 Equity Incentive Plan (the “ 2024 Plan ”) to increase the number of shares of Common Stock issuable under the 2024 +Plan to 2,096,679; and +5. The 2025 Equity Plan : the approval and adoption the Apimeds Pharmaceuticals US, Inc. +2025 Equity Incentive Plan (the “ 2025 Plan ”). +In connection with such Corporate Actions, the Company +filed and mailed an information statement (the “ Information Statement ”) to its stockholders pursuant to Rule 14c-2 +under the Securities Act of 1934, as amended. The Corporate Actions will not become effective until at least 20 calendar days after the +mailing of the definitive Information Statement (the “ Waiting Period ”). Following the expiration of the Waiting Period, +or March 25, 2026, the Company expects to file the Charter Amendment with the Secretary of State of the State of Delaware to effect the +Reverse Stock Split and the Change in Par Value. +As a result of the Merger, the Preferred Stock Conversion, +and the Notes Conversion, a change in control of the Company will occur within the meaning of the NYSE American Company Guide. Accordingly, +the Company will be required to submit a new listing application to NYSE American (the “ Listing Application ”). Although +stockholder approval of the Preferred Stock Conversion and the Notes Conversion has been obtained by the Written Consent, which will become +effective at the Action Effective Time, the Company does not intend to effect the Preferred Stock Conversion and the Notes Conversion +unless and until NYSE American has approved the Listing Application. There can be no assurance that NYSE American will approve the Listing +Application. If such approval is not obtained, the Preferred Stock Conversion and the Notes Conversion will not be completed. +INFORMATION ABOUT THE BUSINESS OF APIMEDS PHARMACEUTICALS +US, INC. +Unless the context otherwise indicates or requires, +all references in this section to “we,” “us,” “our,” “our company” “the Company” +and “Apimeds US” refer to Apimeds Pharmaceuticals US, Inc. +The Company conducts its business through two +wholly-owned operating subsidiaries, Lokahi Therapeutics, Inc.and MindWave Innovations Inc. +INFORMATION ABOUT THE BUSINESS OF LOKAHI THERAPEUTICS, +INC. +Unless the context otherwise indicates or requires, +all references in this section to “we,” “us,” “our,” “our company” “the Company” +and “Lokahi” refer to Lokahi Therapeutics, Inc. +We are a clinical stage biopharmaceutical company +in the process of developing Apitox, an intradermally administered bee venom-based toxin. Our focus is primarily on developing innovative +therapies that address inflammation and pain management symptoms associated with knee OA and, to a lesser extent, MS. Apitox is currently +marketed and sold by Apimeds Inc. (“ Apimeds Korea ”) in South Korea as “Apitoxin” for the treatment of OA. Apimeds +US is not associated with the market, sale and revenues generated from Apitoxin in South Korea, and Apitoxin has not yet been approved +by the FDA for any indication. +Apitox is a purified, pharmaceutical grade venom (bee +venom), of the Apis mellifera, or western honeybee, which is classified by the FDA as an active pharmaceutical ingredient +(“ API ”). Bee venom has been used in Asia and Europe to treat pain for hundreds of years. While not FDA approved +in a controlled, prescription based biologic environment for defined indications, the use of bee venom has been FDA approved as a “under +the skin injection” to reduce the allergic reactions to bee stings. Apimeds Korea has developed a proprietary method and process +for turning extracted bee venom into a lyophilized powder for reconstitution prior to intradermal dose injections, which they sell in +South Korea as Apitoxin. We intend to use a similar process with respect to Apitox, pursuant to the Business Agreement, which gives us +a license to utilize all prior clinical development data associated with Apitoxin. The advancement of extracted bee venom for treatment +of inflammatory conditions, including but not limited to knee OA and MS is speculative but based on direction provided by prior clinical +data. +2 +Apimeds Korea successfully completed Phase I, +Phase II, and Phase III trials in OA in 2003, at which point Apitoxin was approved by the Korean Ministry of Food and Drug Safety +(“MFDA”) to treat pain and mobility in patients with OA. Since 2003, a post-marketing/approval safety study in South +Korea followed 3,194 patients from 2003 through 2009, with no serious adverse events. The purpose of a Phase I trial is to test +to determine whether a new treatment is safe and look for the best way to give the treatment. Phase II trials test to determine whether +a condition or disease responds to the new treatment. Phase III trials test to determine whether a new treatment is better than a +standard treatment. +In 2013, the first of two required U.S. Phase III +clinical trials was authorized to enroll patients to study the use of Apitoxin to study the same indication as approved in South Korea +in 2023 — treatment of pain and lack of mobility in patients with OA (the “ Apimeds Korea Phase III OA Trial ”). +The Apimeds Korea Phase III OA Trial (330 patients) was completed in 2018, and displayed no serious adverse events. +Based on the results from the Apimeds Korea Phase III +OA Trial, which demonstrated therapeutic (statistical and clinically significant improvements in all outcome measures of pain, physical +function, and disease assessment) effect compared to the placebo group, but in combination with prior development by Apimeds Korea, did +not meet the FDA’s standards for approval, as the study population was too small and the methods for handling missing data were +inadequate, resulting in a study that did not demonstrate a significant treatment effect. We will be pursuing a second Phase III +trial to meet agreed upon FDA standards. Based on results from the Apimeds Korea Phase III OA Trial, we have evaluated the most appropriate +population, defined as advanced knee OA patients, which will range from defined grade 2, 3 and 4 within this treatment group, to continue +to progress our own Phase III trial. Pursuant to our previous correspondence with the FDA, we have designed and will implement our +Phase III trial to best address our patient population, appropriate dosing, and the most effective way to evaluate Apitox in meeting +the patient population’s needs. +We believe the progress we are making in clinical +trials provides us support in our belief in the potential of Apitox to be an innovative therapy. We aim to treat the inflammation and +pain management symptoms associated with knee OA and to help manage the devastating symptoms of this disease. In the future, we also aim +to leverage our research in knee OA to investigate how Apitox may be used to treat similar symptoms associated with MS. +Treatment of OA +OA is typically treated with painkillers known as non-steroidal +anti-inflammatory drugs (NSAIDs). These medications have an anti-inflammatory and pain-relieving effect. These medications include ibuprofen +(Motrin, Advil) naproxen (Aleve) and diclofenac (Voltaren and others). All of these medications work by blocking enzymes that cause pain +and swelling. The problem is that some of those enzymes also help blood to clot and protect the lining of your stomach. Without them, +you can bruise easily, develop ulcers and may even bleed in your intestines. NSAIDs also increase your chance of heart attack, stroke +and heart failure. The risk increases the longer you use them and the more you take. We believe Apitox could be a successful alternative +to NSAIDs in the treatment of the inflammation and pain management symptoms associated with OA without the harmful side effects. +According to MedicalNewsToday, OA is the most common +form of arthritis, affecting around 500 million people worldwide, or around 7% of the global population. Currently, in the United States, over +32 million people suffer from OA. As the 15 th highest cause of years lived with disability (YLDs) +worldwide, the burden OA poses to individuals is substantial, characterized by pain, activity limitations, and reduced quality of +life. The economic impact of OA, which includes direct and indirect (time) costs, is also substantial, ranging from 1 to 2.5% of gross +national product (GNP) in countries with established market economies, like the United States. Though trends in OA prevalence vary +by geography, the prevalence of OA is projected to rise in regions with established market economies such as North America and Europe, +where populations are aging and the prevalence of obesity is rising. +While OA can occur in any joint, it occurs most frequently +in the knee, which, according to ScienceDirect, currently accounts for 365 million cases worldwide and 61% of YLDs lost due to OA, +followed by the hand. +Our current efforts are focused on the development +of Apitox in the United States for the treatment of inflammation and pain management relating to OA in the knee. +3 +Treatment of MS +Additionally, we believe the previous clinical trial +success of Apimeds Korea with respect to the use of Apitoxin to treat symptoms associated with knee OA, and pending the success of our +anticipated Phase III trial in knee OA, we will be in a position to further explore the use of Apitox as a potential treatment for +the symptoms of MS. MS is a chronic disease of the central nervous system. It is an autoimmune condition that is characterized by +the body’s own immune cells (macrophages and lymphocytes) attacking the myelin that coats nerve cells, which can lead to inflammation +throughout the central nervous system. MS is an unpredictable disease that affects people differently. Some people with MS may have only +mild symptoms. Others may lose their ability to see clearly, write, speak, or walk when communication between the brain and other parts +of the body becomes disrupted. +MS is the most common progressive neurologic disease +of young adults worldwide. A study funded by the National MS Society estimates that nearly one million individuals are currently +affected by this disease in the United States. The total economic burden of MS in the United States is estimated to be $85.4 billion, +with $63.3 billion in direct medical costs and $22.1 billion in indirect and nonmedical costs. MS typically affects patients +at a young age, resulting in a greater loss of productivity and quality of life. +Beta interferon drugs are among the most common medications +used to treat MS. Interferons are signaling molecules that regulate immune cells. Potential side effects of these drugs include flu-like +symptoms (which usually fade with continued therapy), depression, or elevation of liver enzymes. +Pain from MS can be felt in different +parts of the body. Trigeminal neuralgia (facial pain) is treated with anticonvulsant or antispasmodic drugs, or less commonly, painkillers. +Central pain, a syndrome caused by damage to the brain and/or spinal cord, can be treated with gabapentin and nortriptyline. Treatments +for chronic back or other musculoskeletal pain may include heat, massage, ultrasound, and physical therapy. +OA and the Current Standard of Care +OA is a degenerative joint disease in which the +tissues in the joint break down over time. It is the most common type of arthritis and is more common in older people. People with osteoarthritis +usually have joint pain and, after rest or inactivity, stiffness for a short period of time. +There are four stages of OA: (1) Minor — minor +wear-and-tear in the joints and little to no pain in the affected area, (2) Mild — more noticeable bone spurs, the +affected area feels stiff after sedentary periods and patients may need a brace, (3) Moderate — cartilage in the +affected area begins to erode, the joint becomes inflamed and causes discomfort during normal activities, and (4) Severe — the +patient is in a lot of pain, the cartilage is almost completely gone leading to an inflammatory response from the joint, and overgrowth +of bony spurs may cause severe pain. +With the progression of OA of the knee, there is obvious +joint inflammation which causes frequent pain when walking, running, squatting, extending or kneeling. Along with joint stiffness after +sitting for long or when waking up in the morning, there may be popping or snapping sounds when walking. +The data from the Apimeds Korea Phase III OA +Trial suggest that Apitox would have the most potential in treating OA in stages 3 and 4. +MS and the Current Standard of Care +MS is increasingly recognized as a neurodegenerative +disease triggered by an inflammatory attack of the central nervous system. There is no cure for multiple sclerosis. Treatment typically +focuses on speeding recovery from attacks, reducing new radiographic and clinical relapses, slowing the progression of the disease, +and managing MS symptoms. +MS is unpredictable and can vary substantially +from person to person. MS is divided into four types: clinically isolated syndrome (CIS), relapsing-remitting MS (RRMS), secondary +progressive MS (SPMS) and primary progressive MS (PPMS). +CIS refers to a first episode of neurologic symptoms +caused by inflammation and demyelination in the central nervous system. +4 +RRMS, the most common disease course, shows clearly +defined attacks of new or increasing neurologic symptoms. These attacks are also called relapses or exacerbations. They are followed +by periods of partial or complete recovery, or remission. In remissions, all symptoms may disappear or some symptoms may continue and +become permanent. However, during those periods, the disease does not seem to progress. +SPMS follows the initial relapsing-remitting course. +Some people diagnosed with RRMS eventually go on to have a secondary progressive course, in which neurologic function worsens progressively +or disability accumulates over time. +With PPMS, neurologic function worsens or disability +accumulates as soon as symptoms appear, without early relapses or remissions. PPMS can be further characterized as either active (with +an occasional relapse and/or evidence of new MRI activity over a specified period of time) or not active, as well as with progression +(evidence of disability accrual over time, with or without relapse or new MRI activity) or without progression. +Patients with MS tend to be more educated about their +disease and better organized than patients with other diseases, resulting in patients that are aggressive in their approach to treatment. +This is due to MS impacting otherwise healthy people in the prime of their lives. +MS treatment has undergone significant evolution in +the last ten years with the development and approval of certain new drugs, including several oral agents such as Ocrevus, in the +United States. These new agents not only give patients additional treatment options, but also have improved the efficacy and safety +of treatment for MS overall. In general, these drugs are “disease modifying agents,” intended to slow down the immune mediated +damage to the myelin sheaths that underlie symptoms in MS. However, they often do not adequately address the symptoms that MS patients +experience such as walking problems, bladder control, dizziness, and especially pain. A 2022 study estimated that the average cost of +treatment for patients with MS is approximately $88,000 annually. The out-of-pocket expense for patients can be significantly reduced +through certain insurance plans. However, we believe there is the ability for Apitox to be positioned as an important and cost-effective +therapy. +We believe the data from the Apimeds Korea Phase III +OA Trial suggest that Apitox may have the potential as an adjunctive therapy for all four types of MS. We intend to explore Apitox +as a potential adjunctive therapy through non-registered corporate sponsorship studies to begin determining the appropriate MS patient +populations. +Market Opportunity +We believe there is a significant market opportunity +in the United States for Apitox in the treatment of certain symptoms of knee OA and eventually MS. According to Precedence Research +the osteoarthritis therapeutics market size accounted for $8.28 billion in 2022 and it is expected to hit around $20.24 billion +by 2032, expanding at a CAGR of 9.4% from 2023 to 2032. Although OA can damage any joint, the disorder most commonly affects joints in +your hands, knees, hips and spine. OA symptoms can usually be managed, although the damage to joints can’t be reversed. Apitox +has certain anti-inflammatory properties, which we believe give it significant potential to help treat the symptoms of certain chronic +diseases that involve difficult to control pain and inflammation. +According to Pharmaceutical Technology the MS market +size in the United States accounted for $10.73 billion in 2022 and is expected to hit $24.4 billion by 2030, expanding +at a CAGR of 10.32%. Starting in the first quarter of 2025, we intend to begin the early prosecution of appropriate MS patient populations +through non-registered corporate sponsorship studies. Subject to FDA approval, our development of Apitox in the United States will +in the near term, have two distinct focuses (i) the treatment of the certain symptoms of knee OA and (ii) the quality of life +issues surrounding knee OA, such as pain and lack of mobility. +Living with a chronic disease is challenging, +as it interferes with physical, mental, and social functions and thus greatly affects a person’s quality of life. Indeed, chronically +ill patients are facing major struggles such as higher expenditures, social isolation and loneliness, disabilities, fatigue, pain/discomfort, +feelings of distress, anger, hopelessness, frustration, anxiety, and depression. There is the general assumption that symptom reduction +increases a patient’s quality of life. Our approach with Apitox centers around this concept — effectively treating +certain symptoms of the patient’s disease, thus improving their overall quality of life. Bee venom has been shown to have anti-inflammatory +effects. At low doses, bee venom can suppress inflammatory cytokines such as interleukin-6 (IL-6), IL-8, interferon-γ (IFN-γ), +and tumor necrosis factor-α (TNF-α). A decrease in the signaling pathways responsible for the activation of inflammatory cytokines, +such as nuclear factor-kappa B (NF-κB), extracellular signal-regulated kinases (ERK1/2) and protein kinase Akt, and porphyromonas +gingivalis lipopolysaccharide (PgLPS)-treated human keratinocytes has been associated with treatments involving bee venom. We believe +the driver of pain in the highest category of OA is correlated to the key inflammatory elements treated by bee venom, meaning the evaluation +of our Phase III data may lead to a small indication for narcotic use reduction in the treatment of stage 4 OA. Lokahi partners with +universities to give students hands-on exposure to the strategic side of biopharma, from evaluating clinical assets to understanding intellectual +property, market dynamics, and go-to-market strategies. The ai² Futures Lab™ functions as both a discovery engine for potential +therapeutic assets and a training ground for the next generation of biotech and business leaders. +5 +Our Product Candidate +Apitox is purified honeybee (Apis mellifera) venom +manufactured as a lyophilized powder for reconstitution in 0.5% preservative-free lidocaine (lmg/mg) prior to intradermal dose injections +that are administered up to 1,500 micrograms per weekly visit. The biologically active components include melittin (40-50%), apamin (2-3%), +mast cell degranulating (“MCD”) peptide (Peptide 401,2-3%), phospholipase A2 (10-15%), hyaluronidase (1.5-2%) and other components +in small amounts, including dopamine and norepinephrine. According to a publication entitled “ Pharmacological effects and mechanisms +of bee venom and its main components: Recent progress and perspective ” by Shi et al., certain components of honeybee venom have +been found to have both anti-inflammatory and analgesic effects. The anti-inflammatory and analgesic effects are attributed to the presence +of Peptide 401, adolapin and other components that inhibit prostaglandin synthesis. The hormone-stimulating effects are attributed to +the presence of melittin, cardiopep and other components that stimulate the pituitary-adrenal axis to produce cortisol. Results from an +animal study entitled “ Effect of bee venom and melittin on plasma cortisol in the unanesthetized monkey ” published +by Vick et al., indicate that melittin appears to stimulate the production of cortisol from the adrenal gland. The immune-modulating effects, +especially as it pertains to MS, are suggested to be mediated by CD4+CD2S+Foxp3+ regulatory T cells (Tregs) that are influenced by phospholipase +A2. While the exact mechanism of action of Apitox is not fully understood, research such as the publication entitled “ Therapeutic +Use of Bee Venom and Potential Applications in Veterinary Medicine ” by Bava et al., suggests that certain components in Apitox +may ameliorate immune-inflammatory responses associated with MS. Such studies suggested that treatments with melittin prevent inflammatory +cytokine expression and produces anti-inflammatory effects. The proposed indication for Apitox is to provide add-on therapy for the signs +and symptoms of MS in patients whose condition is relapsing-remitting (RRMS), primary-progressive (PPMS) or secondary progressive (SPMS). +Clinical Development History +Founded in 1989, Apimeds Korea pursued a traditional +drug development process in South Korea for Apis mellifera, the bee venom API for Apitoxin. Apimeds Korea completed a formal preclinical +study to validate dosing and safety for human administration with a focus on antigenicity and toxicology in 1993. +A Phase I trial was completed in 1994, studying +the toxicity and safety of Apitoxin in 20 healthy subjects. The purpose of the Phase I trial was to determine if therapeutic doses +of Apitoxin was safe and to identify possible side-effects, if any. Injections of Apitoxin were given two to three times a week, for a +total of 12 sessions spanning over four to six weeks. Laboratory and physical examination of the subjects included (i) serum +cortisol levels (to see if Apitoxin stimulated the release of cortisol), (ii) serum ionized calcium level (to determine if Apitoxin +decreased the serum calcium level), (iii) urinalysis, (iv) hematology and blood chemistry, and (v) vital signs. The Phase I +trial demonstrated that there were no significant changes pre- and post-testing of the serum cortisol levels, serum ionized calcium levels, +hematology, blood chemistry, urinalysis, and vital signs after the subjects were injected with Apitoxin according to the protocol. There +were no significant physiological changes in the clinical evaluations of the subjects and localized itching was the most frequent side +effect and was managed with ice packs or external anti-itching gels. No severe side effects or aftereffects were observed. The Phase I +trial indicated that Apitox is safe for humans when applied in therapeutic doses. +6 +The Phase I trial was followed by a Phase II +trial in 101 subjects to determine the efficacy of Apitoxin at various dose levels. This was a randomized active-controlled clinical trial +with three groups receiving the study drug at various dose levels and one group receiving the control drug (nabumetone) for a six-week +period. Patients received twice weekly injections of Apitox intradermally at dosages titrated to a maximum of 0.7 mg (Group A), 1.5 mg +(Group B), and 2.0 mg (Group C) for a period of six weeks. Control group patients (Group D) received 1,000 mg of nabumetone +orally each day for the same six-week period. There were 25, 26, 25 and 25 patients assigned to Groups A, B, C and D, respectively. +Efficacy of treatment was evaluated by the physician investigators using a 4-point Likert-like symptom severity rating scale developed +by the authors to assess Pain, Disability and Physical Signs. A similar 5-point scale was used for patient self-evaluation. Safety of +the Apitoxin injection was evaluated by patient reaction, hematologic examination, and laboratory chemistry analysis of blood and urine. +Efficacy data was reported for the 81 patients who completed the study. While there were no significant differences in symptom severity +scores among the four groups at baseline, symptom scores were significantly better in the bee venom injection groups than in the control +group at six weeks and 10 weeks after the start of treatment (p<0.01). A treatment was considered effective if there was +a 20% improvement from baseline in symptom scores after 6 weeks of treatment. Based on this definition, therapy demonstrated overall +efficacy in 70.0% of patients in Group A, 85.7% in Group B, 90.0% in Group C, and 61.9% in Group D (drug control). Overall efficacy +was significantly greater in treatment Groups B and C combined than in the nabumetone-treated control group D (p<0.0177). Importantly, +efficacy of treatment among all patients treated with Apitoxin injection was greater than among nabumetone-treated patients for each category +assessed: Pain: 85.2% versus 76.2%; Disability: 77.0% versus 71.4%; and Physical Signs: 62.3% vs. 23.8%. It is also noteworthy that, unlike +the drug control group, the Apitoxin injection groups continued to demonstrate improved symptom scores at four weeks after the last +treatment (10 weeks). There were no significant changes in vital signs or results of laboratory examinations of any patient in this +clinical trial. Localized itching was experienced by all patients who received Apitox injections. Itching at the injection site generally +lasted for two to three weeks; several patients had this reaction for a longer period. This Phase II study showed that Apitoxin +was significantly more effective than the control drug, nabumetone, in the treatment of knee and spinal osteoarthritis patients. It clearly +showed that improvement in pain, disability and physical signs was greater in the bee venom injection groups than in the nabumetone control +group. No significant side effects developed at the therapeutic doses studied. However, research should be continued to minimize itching +and pain at bee venom injection sites, and possible allergic reaction should always be considered with treatment at high doses. +In 2002, a formal Phase III double-blind, +placebo-controlled trial was completed with 407 subjects (311 of which obeyed the trial protocol and completed the clinical study). The +purpose of the Phase III trial was conducted to verify the efficacy and safety of the medicine resulting from the prior Phase I +and Phase II trials. The therapeutic course treatment included a total of 12 injections over a period of 6 weeks. Final evaluations +were completed in the 8 th week, following two weeks of no injections. During the trial period, laboratory tests +were carried out three times (before injection, in the second week, in the sixth week), and the efficacy evaluation was performed four +times (before injection, in the second week, in the sixth week, and in the eighth week). Safety of the Apitoxin injection was evaluated +by hematologic examination, measurement of cortisol and calcium levels, and laboratory chemistry analysis of blood and urine. The primary +efficacy variable for the trial was the ratio of the subjects who showed more than 20% improvement in the total points of test items for +efficacy evaluation 6 weeks after injection, compared with the total points before injection of the medicine (the “improvement +rate”). Data obtained from subjects of the clinical test were analyzed by two methods, ITT (Intention to Treat) analysis and PP +(Per Protocol) Among 310 subjects who participated in the efficacy evaluation, 153 and 157 patients belonged to the Apitoxin group and +the nabumetone group, respectively. For the Apitoxin group, the ratio of the subjects who showed more than 20% improvement in the total +points was 48.70% (75/154 subjects, 95% confidence interval (“CI”): 40.8~56.6%), while for the nabumetone group, it was 46.15% +(72/156 subjects, 95% CI: 38.3~54.0%), indicating that the improvement rate in the Apitoxin group was greater than in the nabumetone group; +however, there was no statistical significance. (p=0.6533). Among a total of 407 subjects (Apitoxin group: 204; Nabumetone group: 203), +38.24% (78/204) of the Apitoxin group showed more than 20% improvement during the 6 th week of injection, while 38.42% +of the Nabumetone group improved by more than 20%, indicating that the two groups showed similar improvement rate (p=0.9688). The second +efficacy variable was the improvement rate during the 8 th week (2 weeks after the completion of the final injection). +According to results from comparing the total points of efficacy evaluation items during the second week after completion of injection +(during the 8 th week after injection) with the total points before injection, 58.44% (90/154) of the Apitoxin group +showed a higher improvement rate than during the 6 th week (48.70%), while 42.95% (67/156) of the Nabumetone group +showed lower improvement rate than during the 6 th week (46.15%). There was statistical difference in total point +of efficacy evaluation items between the two groups (p=0.0064). These results suggest that even after treatment stops, the efficacy of +Apitoxin continues. With respect to safety, among a total of 407 subjects who participated in the safety evaluation, 69 (33.82%) of the +Apitoxin group showed an adverse event, while 59 (29.06%) of the Nabumetone indicated adverse event. These results indicate that the Apitoxin +group had an elevated adverse event rate than the Nabumetone group, but there was no statistically significant difference between the +two groups (p=0.3526). +In May 2003, MFDA granted approval for the use +of Apitoxin in the treatment of pain and mobility in patients with OA. A post-marketing/approval safety study in South Korea followed +3,194 patients from 2003 through 2009, with no serious adverse events or negative safety signals. +7 +In 2013, preliminary Phase III clinical trials +were authorized to enroll patients by the FDA to study the same indication approved in South Korea — treatment of pain +and lack of mobility in patients with OA. The results of the preliminary Phase III clinical trial indicated statistical and +clinically significant improvements in all outcome measures of pain, physical function, and disease assessment in the study group. The +study group included 330 patients with diagnosed osteoarthritis of the knee. The subjects were evaluated for relief of pain using Western +Ontario and McMaster Osteoarthritis Index (WOMAC) and physician and patient global assessments. The primary efficacy measure was relief +of pain and inflammation over a 12-week treatment period after randomization into the trial. The secondary efficacy measure was improvement +of mobility. Treatment effect will be compared in a 2-1 Apitox vs active control. Compared with the placebo group (histamine), subjects +in the Apitox group who received a maximum dose (1500 micrograms) at each weekly visit over 12 weeks showed a significantly more +improvement in all outcome measures (WOMAC pain, WOMAC physical function, visual analog scale (“VAS”) pain, patient and physician +global assessments of OA). Further, post hoc analyses showed that a statistically significant greater percentage of Apitox-treated subjects +had at least a 40% and 60% reduction in WOMAC pain as compared to placebo-treated subjects. Sensitivity analyses confirmed the validity +of the statistical methods and population definitions. The improvements in pain endpoints were highly significant for both the modified +intention to treat and per protocol populations and the improvement was sustained during the four weeks following Apitox treatment. +Except for an expected higher incidence of injection +site reactions (<5%) in the Apitox group, the overall safety profiles were comparable between the treatment groups. A serious adverse +event of the anaphylactic reaction occurred in an Apitox-treated subject because of a quick injection rate. However, the subject was treated, +and the event was resolved within one day. The incidence of adverse events overall was similar between the Apitox and Placebo groups +(49.0% and 46.3%, respectively), and there were no clinically meaningful changes, within and between groups, in laboratory parameters, +vital signs, physical examination, or electrocardiogram results. +During Apimeds Korea meetings with the FDA, the FDA +highlighted concerns regarding the opioid crisis. As Apitoxin has been previously approved in South Korea, we believe Apitox could be +a viable treatment option within the United States after additional clinical investigation, including our anticipated Phase III +trial. Initially, Apimeds Korea elected not to pursue the OA indication in the United States based on its evaluation of potential +market adoption and the existing competitive environment for OA. Based on results from the Apimeds Korea Phase III OA Trial +and correspondence with the FDA, we believe we are now in a position to continue to advance our Phase III trial for knee OA. +We intend to conduct an additional Phase III +trial in knee OA. Based on our previous correspondence with the FDA, we have started to design and will implement our Phase III +trial to best address our patient population of patients with grade 2, 3 and 4 knee OA, appropriate dosing, and the most effective way +to evaluate Apitox in meeting a patient’s needs. This trial will be an update to the plan of execution based on review of data, +discussions with former principal investigators from Apimeds Korea. Upon successful completion and FDA clearance of our Phase III +trial in knee OA, we will be positioned to submit a BLA. +We intend that the purpose of this trial will be to +evaluate the effectiveness of Apitox in the treatment of grade 2, 3 and 4 OA of the knee. The trial will be designed with a specific focus +on the identified subgroup from which we see the highest degree of benefit. +8 +The following table summarizes the preliminary clinical +trial activity by Apimeds Korea with respect to Apitoxin: +Preliminary Clinical Data in MS Patients +The United States data from the literature on +bee venom studies in MS patients, Table A (Hauser et al. 2001) below, showed clinically significant improvements in disability symptoms +following treatment. +In Table A, results were categorized into the following +groups: dramatic disability improvement (>12 points on the Related Observable Symptom Scale (“ROSS”), good improvement +(7-12 points on ROSS), minimal improvement (<7 points on ROSS), no improvement (<2 points on ROSS), and negative (any total negative +response on ROSS). Descriptive analysis of the ROSS clinical outcomes showed that more than 68% of MS patients showed some kind of positive +improvement in disability (dramatic, good or minimal) and 58% demonstrated a marked improvement (dramatic or good). +Table A. Summary +of Patient Disability Improvement to Bee Venom Treatment Using ROSS +N +% of +Participants +Follow-up Survey +(% improvement) +Related Observable +Symptoms Scale +(points improvement) +Dramatic +15 +29.4 % +>30%, or +>12 points +Good +15 +29.4 % +10 – 29%, or +7 – 12 points +Minimal +5 +9.8 % +<10%, or +<7 points +None +15 +29.4 % +<2%, or +<2 points +Negative +1 +2.0 % +Any total negative response +Any total negative response +After 1 year of bee-venom injections, 68.6 percent +of participants showed improvement. N = number of participants. +Apimeds Korea used data from its first Phase III +clinical trial for OA and peer reviewed publications, including those referenced in Table A above and formal Phase I (the “Castro +Phase I Trial”) and Phase II (the “Wesselius Phase II Trial”) publications specific to MS, to support +its submission in 2014 of its Investigational New Drug Application (“IND”) 122804 (A Phase III, Multi-Center, Randomized, +Double-Blind, Placebo-Controlled, Parallel Group Study to Evaluate the Safety and Efficacy of Apitox Add-on Therapy for Improving Disability +and Quality of Life in Patients with Multiple Sclerosis). +9 +Castro Phase I Trial +The Castro Phase I Trial involved a total of +nine bee venom nonallergic patients with progressive forms of MS, who were 21 – 55 years of age with no other illnesses. +The subjects distributed across four groups (A, B, C, and D) and followed a structured 1-year immunization schedule. Hyperreactivity to +bee venom was evaluated by questionnaire, physical examination, and a battery of hematologic, metabolic, and immunologic tests. Responses +to therapy were evaluated by questionnaire, functional neurological tests, and changes in measurement of somatosensory-evoked potentials. +While no serious adverse allergic reactions were observed in any of the subjects, four experienced worsening of neurological symptoms, +requiring their discontinuation in the study. The observed negative effects could not be conclusively attributed to adverse reactions +arising from the administered therapy. Of the remaining five subjects, three reported subjective amelioration of symptoms and two exhibited +objective improvement. Despite suggesting safety in this preliminary study, the small sample size precluded definitive conclusions regarding +the efficacy of the treatment for MS. Larger and more carefully conducted multicenter studies were required to establish efficacy. +Wesselius Phase II Trial +The Wesselius Phase II Trial involved a randomized +crossover study of 26 patients diagnosed with relapsing-remitting or relapsing secondary progressive MS. Participants were assigned +to 24 weeks of medically supervised bee sting therapy, or a control period of 24 weeks of no treatment. Live bees (up to a maximum +of 20) were used to administer bee venom three times per week. The primary outcome was the cumulative number of new gadolinium-enhancing +lesions on T1-weighted MRI of the brain. Secondary outcomes were lesion load on T2*-weighted MRI, relapse rate, disability (Expanded Disability +Status Scale, Multiple Sclerosis Functional Composite, Guy’s Neurologic Disability Scale), fatigue (Abbreviated Fatigue Questionnaire, +Fatigue Impact Scale), and health-related quality of life (Medical Outcomes Study 36-Item Short Form General Health Survey). +The results of the Wesselous Phase II Trial indicated that during bee sting therapy, there was no significant reduction in the cumulative +number of new gadolinium-enhancing lesions. The T2*-weighted lesion load further progressed, and there was no significant reduction in +relapse rate. There was no improvement of disability, fatigue, and quality of life. Bee sting therapy was well tolerated, and there were +no serious adverse events. In this trial, treatment with bee venom in patients with relapsing multiple sclerosis did not reduce disease +activity, disability, or fatigue and did not improve quality of life measured using gadolinium-enhancing MRI. +From June 2014 to June 2018, Apimeds Korea +corresponded with the FDA and there were no clinical holds at that time. Sponsorship of IND 122804 was transferred from Apimeds Korea +to us in October 2020. On September 21, 2021, we responded to customary non-clinical hold comments from the FDA. In November 2021, +we received a customary clinical hold from the FDA due to the retirement of the former principal investigator. We have subsequently updated +the FDA with a new principal investigator via our Chief Medical Officer, Dr. Christopher Kim. In February 2023, the FDA removed +the clinical hold and concluded it may be initiated. We have subsequently made the strategic decision to focus our efforts and capital +on our Phase III trial in knee OA, and instead focus our MS efforts on the early prosecution of appropriate MS patient populations +through non-registered corporate sponsorship studies. +10 +Our Commercialization Strategy +We are dedicated to the effective implementation of +regulatory, clinical and legal strategies to create value in Apitox. The effective execution of this strategy will provide us the opportunity +to evaluate and potentially acquire other assets that fit within our space for development. +Manufacturing +We intend to continue to engage a third-party manufacturer, +Piramal Pharma Solutions, in Lexington, Kentucky to support our Phase III trial and, if Apitox is approved by the FDA, commercial +manufacturing. This manufacturer has dedicated experience in development and technology transfer of sterile dose formulations, including +liquid and lyophilized formulations. +Research and Development +We are currently engaged exclusively in the clinical +development of Apitox for continued use in knee OA through a Phase III trial in knee OA and potential use for MS through the early +prosecution of appropriate patient populations through non-registered corporate sponsorship studies. +Sales and Marketing +The healthcare providers associated with the treatment +of inflammation and pain management symptoms associated with OA and MS are not limited to one specialist but involve a comprehensive team +of providers focused on slowing the progression of the disease along with the physical, emotional and day-to-day management of the +condition. Each of these providers represents a potential customer for Apitox. +Apitoxin, which will be known as Apitox in the United States, +has established technological credibility through its preclinical testing, Phase I, Phase II and preliminary Phase III +clinical studies completed by Apimeds Korea. Apimeds Korea received regulatory approval for Apitoxin by the MFDA in South Korea, as well +as long-term safety data from treatment of patients in Korea from 2003 to 2009. There were no serious adverse events from over 3,000 patients +monitored, and Apitoxin has been approved and marketed in South Korea for OA since 2003. We update the FDA annually on safety data generated +by Apimeds Korea from South Korea. +We aim to obtain FDA approval for Apitox in the United States +market for treatment of inflammation and pain management symptoms associated with knee OA, and eventually MS, and expand the indication +portfolio in the autoimmune market with a strategic marketing partner. The marketing partner strategy is common in the pharmaceutical +marketplace, as the infrastructure, overhead, and barriers to entry dilute the focus and can rapidly erode the financial well-being of +small, product development-based companies such as us. By identifying the strategic marketing partner at an early stage, the companies +can deliver a final product, or family of products, in a form factor or variety of form factors over time, that specifically suit the +target market. We believe that Apitox represents a significant opportunity as a platform technology, with numerous product-line extensions, +and the potential for new, ancillary products such as delivery devices. +Reimbursement Strategy +Apimeds expects to apply to the Centers for Medicare +and Medicaid Studies (“CMS”) for temporary generic reimbursement codes 12 to 18 months prior to a BLA approval. Temporary +codes are used until manufacturers apply for, and receive, permanent codes, which identify the drug and its therapeutic class. Permanent +codes are issued by CMS on a rolling quarterly basis. +11 +We will engage third party contractors to assist the +us with reimbursement, coding and policy development prior to, during and at the time of approval of Apitox. We will look for a contractor +to provide the following services to us: +● Coding Assessment and Strategy/Execution — CPT +Review of Apitox Administration by Multiple Intradermal Injections . Assess the landscape to ensure a clear understanding of the key +dynamics and analyze relevant proxies and precedent. Further assess relevant drug administration codes and whether appropriate codes +exist. +● Medical Coverage Policy Analysis — Provide +a framework and set expectations for Medicare’s anticipated coverage approach to Apitox, specifically in the context of intra articular +hyaluronic acid use agent coverage policies and implications of their efficacy uncertainty. +● Medicare Local Coverage Analysis and Implications — Given +the significance of Medicare policy standards, local and national Medicare policies often shape payer and provider perceptions and decisions. +As complex statutory and regulatory guidance shape Medicare decision-making, ADVI analyzes, investigates, and synthesize Medicare policies +that could affect access (coverage, coding and reimbursement) for Apitox. +● Medicaid and Commercial Coverage Analysis and Implications — Analyze +available medical policies for five large state Medicaid agencies (based on population and geographic variation) and major commercial +payers (where publicly available). +● Payer Policy Internal Expert Interviews — Conduct +payer interviews with relevant Medicare, Medicaid and commercial policy advisors. +● HCPCS Coding and Payment Assessment — Assess +the coding and reimbursement landscape to ensure Apimeds has a clear understanding of the key dynamics with the HCPCS application process +and the Medicare Hospital Outpatient Prospective Payment System (OPPS) pass-through status application process. Through this assessment, +identify the areas of concern, expectations, timing, timelines, and processes associated. This is especially relevant given the 2020 +implementation of a new HCPCS review process. +● Address key Part B/medical benefit implications to Apitox +in the following fields: +● HCPCS and OPPS application timelines (and potential evolution +leading to launch), +● coding/access implications prior to code assignment (e.g., NOC/miscellaneous +codes), review the merits/risks of Q-code, +● further review the application processes, expectations, case +examples, timelines, and hurdles that APUS may face across settings of care, payers, and with CMS, +● case examples, timelines, and hurdles across settings of care +with payers and CMS, +● review of reimbursement implications, and +● methodologies (ASP, WAC, AWP), role of sequestration, 340B, +patient financial burden. +● Develop Payer (with Emphasis on Medicare) Launch Recommendations — Based +on the above primary and secondary research, synthesize the discussions and summarize the overall findings of the payer survey, highlighting +themes, and provide recommendations and considerations for optimizing market access, given the current and evolving reimbursement landscape. +This section will include payer (emphasis on Medicare) launch strategy recommendations (including timeline) and a local/national Medicare +engagement strategy. +Competition +We compete in an industry characterized by rapidly +advancing technologies, intense competition, a changing regulatory and legislative landscape and a strong emphasis on the benefits of +intellectual property protection and regulatory exclusivities. +12 +Like any biopharmaceutical company, we face competition +from multiple sources, including large or established pharmaceutical, biotechnology, and wellness companies, academic research institutions, +government agencies, and private institutions. We believe our drug candidate will prevail amid the competitive landscape through its efficacy, +safety, administration methods, cost, public and institutional demand, intellectual property portfolio, and treatment of the root cause +of many age-associated diseases. +Many of our competitors, either alone or with strategic +partners, have substantially greater financial, technical, and human resources than we do. Accordingly, our competitors may be more successful +in obtaining approval for treatments and achieving widespread market acceptance, rendering our treatments obsolete or non-competitive. Accelerated +merger and acquisition activity in the biotechnology and biopharmaceutical industries may result in even more resources concentrated among +a smaller number of our competitors. These companies also compete with us in recruiting and retaining qualified scientific and management +personnel, establishing clinical study sites, patient registration for clinical studies, and acquiring technologies complementary to, +or necessary for, our programs. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative +arrangements with large and established companies. Our commercial opportunity could be substantially limited in the event that our competitors +develop and commercialize products that are more effective, safer, more tolerable, more convenient, or less expensive than our comparable +products. In geographies that are critical to our commercial success, competitors may also obtain regulatory approvals before us, resulting +in our competitors building a strong market position in advance of our products’ entry. We believe the factors determining the success +of our programs will be the efficacy, safety, and convenience of our drug candidates. +Additionally, consumer preference for branded, generic +or private label products sold by competitors could adversely impact our financial performance. Our competitors, which differ within individual +geographic markets, include large-scale retailers, smaller high-growth companies (which often operate on a regional basis and offer aggressive +competition), multinational corporations moving into or expanding their presence in the consumer healthcare market, and “private-label” +products sold by retailers. +Our aim is to reduce the use of NSAIDS and opioid +use as it relates to the pain management associated with OA. We believe that if approved by the FDA, Apitox may be a non-addictive +option to patients experiencing debilitating pain. +Business Agreement +On August 2, 2021, we entered into an agreement +with Apimeds Korea, a principal stockholder of the Company (the “Business Agreement”). Pursuant to the Business Agreement, +Apimeds Korea granted to the Company a sublicensable, royalty-bearing license to utilize all prior clinical development data associated +with Apitoxin, Apitox, and all related names, advance clinical research, develop, manufacture and commercialize and sell Apitox in the +United States. In exchange for this license, the Company will pay Apimeds Korea a perpetual royalty of 5% of the Company’s +earnings before interest and taxes (as determined consistent with GAAP, derived from the sale or license of Apitox, less any shipping, +handling, and insurance charges, credits (arising from returns or other adjustments), discounts, rebates, or allowances of any kind (if +any). The Business Agreement can be terminated by mutual written agreement by the parties and will automatically terminate upon the bankruptcy +or dissolution of the Company. +Assignment Agreement +On October 12, 2021, we entered into an intellectual +property assignment agreement (the “Assignment Agreement”), which was effective as of May 12, 2020, with Apimeds Korea +and Dr. Christopher Kim, the Company’s Chairman and Chief Medical Officer and the founder of Apimeds Korea. During Dr. Kim’s +engagement with Apimeds Korea, he contributed to the development of the intellectual property as it relates to Apitoxin, which will be +marketed in the United States as Apitox (the “Assigned IP”). +Pursuant to the Assignment Agreement, Dr. Kim +sold, transferred, and conveyed all his rights, title and interest in the Assigned IP to Apimeds Korea. Dr. Kim retained no right +to use the Assigned IP. Additionally, the Assignment Agreement acknowledged that the Assigned IP was licensed to us to use via the +Business Agreement. +Intellectual Property +Apitox’s API is bee venom, a natural, non-synthetic +compound that is not patentable, so we rely principally on trade secrets to protect our rights to Apitox, particularly the method and +process of manufacturing Apitox. +13 +Supplier +We purchase venom from our United States supplier, +Apico, Inc. (“Apico”), via a letter agreement. Pursuant to the letter agreement, Apico agreed that for a period of ten years, +or until November 3, 2031 it would not supply Apis Mellifea venom for pharmaceutical use for any buyer other than +us; provided that Apico may also supply Apimeds Korea for its use outside of the United States. The letter agreement +excludes customers using venom for immunology, cosmetic or any other “non-pharmaceutical” use. The letter agreement may be +terminated upon mutual written consent of both Apico and the Company. +Apico has developed and practices a proprietary method +of harvesting venom. It operates under and is certified in current good manufacturing practice regulations enforced by the FDA and has +an active and current Drug Master File (“DMF”) with the FDA. DMF’s are submissions to the FDA used to provide confidential, +detailed information about facilities, processes, or articles used in the manufacturing, processing, packaging, and storing of human drug +products. We have an exclusive relationship with our supplier for pharmaceutical use in the United States and they are not permitted +to sell to any other party for pharmaceutical use. +Apimeds Korea has a number of proprietary analytical +methods for the classification and identification of specific pharmacologically active fractions of its venom, along with numerous manufacturing +processes from filtration, vial filing and lyophilization required to produce Apitoxin. Apitoxin is the only approved and commercially +available therapeutic product containing purified and sterile bee venom that is registered as an API in South Korea. The proprietary methods +developed and practiced for the commercial manufacturing of Apitoxin include dilution, filtering, vial staging and lyophilization parameters +and cycles. +We plan to file Apitox as a BLA with the Centers for +Biologics and Research of the FDA following the successful completion of our Phase III trial for knee OA. The FDA provides 12-year +market exclusivity at the time of approval of a BLA, with the potential for a six-month extension upon approval for pediatric use. If +the BLA is approved, the 12-year period would be retroactive to the date of the application. +We intend to file a U.S. trademark application +for “Apitox”. +Regulatory Environment +Government Regulation and Product Approval +In the United States, biological products are +subject to regulation under the Federal Food, Drug, and Cosmetic Act (the “FDCA”), and the Public Health Service Act (the +“PHSA”), and other federal, state, and local statutes and regulations. Both the FDCA and PHSA and their corresponding regulations +govern, among other things, the research, development, clinical trials, testing, manufacturing, quality control, safety, purity and potency +(efficacy), labeling, packaging, storage, record keeping, distribution, reporting, marketing, promotion, advertising, post-approval monitoring, +and post-approval reporting involving biological products. Along with third-party contractors, we will be required to navigate the various +preclinical and clinical regulatory obligations and the commercial approval requirements of the governing regulatory agencies of the countries +in which we wish to conduct studies or seek approval or licensure of our product candidate. The processes for obtaining regulatory approvals +in the United States, along with subsequent compliance with applicable laws and regulations and other regulatory authorities, require +the expenditure of substantial time and financial resources. +Government policies may change, and additional government +regulations may be enacted that could prevent or delay further development or regulatory approval of any product candidates, product or +manufacturing changes, additional disease indications or label changes. We cannot predict the likelihood, nature or extent of government +regulation that might arise from future legislative or administrative action. +Review and Approval for Licensing Biologics +in the United States +In the United States, FDA regulates our current +product candidate as a biological product, or biologics, under the FDCA, the PHSA, and associated implementing regulations. Biologics, +like other drugs, are used for the diagnosis, cure, mitigation, treatment, or prevention of disease in humans. In contrast to low molecular +weight drugs, which have a well-defined structure and can be thoroughly characterized, biologics are generally derived from living material +(human, animal, or microorganism), are complex in structure, and thus are usually not fully characterized. +14 +Biologics are also subject to other federal, state, +and local statutes and regulations. The failure to comply with applicable statutory and regulatory requirements at any time during the +product development process, approval process, or after approval may subject a sponsor or applicant to administrative or judicial enforcement +actions. These actions could include the suspension or termination of clinical trials by FDA, FDA’s refusal to approve pending applications +or supplemental applications, withdrawal of an approval, issuance of warning or untitled letters, product recalls, product seizures, total +or partial suspension of production or distribution, import detention, injunctions, fines, refusals of government contracts, restitution, +disgorgement of profits, or civil or criminal investigations and penalties brought by FDA, the Department of Justice (“DOJ”), +and other governmental entities. +An applicant seeking approval to market and distribute +a biologic in the United States must typically undertake the following: +● completion of non-clinical laboratory tests and studies performed +in accordance with FDA’s good laboratory practice (“GLP”) regulations; +● manufacture, labeling and distribution of investigational drugs +in compliance with FDA’s current good manufacturing practice (“cGMP”) requirements; +● submission to FDA of an investigational new drug application +(“IND”), which must become effective before clinical trials may begin and must be updated annually and when significant changes +are made; +● approval by an independent institutional review board (“IRB”) +for each clinical site before each clinical trial may be initiated; +● performance of adequate and well-controlled human clinical trials +in accordance with FDA’s Good Clinical Practices (“GCP”) to establish the safety, purity, and potency of the proposed +biological product candidate for its intended purpose; +● after completion of all pivotal clinical trials, preparation +of and submission to FDA of a BLA requesting marketing approval, which includes providing sufficient evidence to establish the efficacy, +safety, purity, and potency of the proposed biological product for its intended use, including from results of nonclinical testing and +clinical trials; +● satisfactory completion of an FDA advisory committee review, +when appropriate, as may be requested by FDA to assist with its review; +● satisfactory completion of one or more FDA inspections of the +manufacturing facility or facilities at which the proposed product, or certain components thereof, are produced to assess compliance +with cGMP and data integrity requirements to assure that the facilities, methods, and controls are adequate to preserve the biological +product’s identity, strength, quality, and purity and, if applicable, FDA’s good tissue practice (“GTP”) requirements +for human cellular and tissue products; +● satisfactory completion of FDA inspections of selected clinical +investigation sites to assure compliance with GCP requirements and the integrity of the clinical data; +● satisfactory completion of an FDA sponsor GCP inspection, often +conducted at the applicant’s headquarters facility; +● payment of user fees (unless there is a waiver, exemption, or +reduction) under the Prescription Drug User Fee Act (“PDUFA”) for the relevant year; +● FDA’s review and approval of the BLA to permit commercial +marketing of the licensed biologic for particular indications for use in the United States; +● compliance with post-approval requirements, including the potential +requirements to implement a risk evaluation and mitigation strategy (“REMS”), to report adverse events and biological product +deviations, and to complete any post-approval studies; and +● completion of any post-approval clinical studies required by +FDA, such as confirmatory trials or pediatric studies. +15 +From time to time, legislation is drafted, introduced, +and passed in Congress that could significantly change the statutory provisions governing the testing, approval, manufacturing, and marketing +of biological products regulated by FDA. In addition to new legislation, FDA regulations, guidance documents, and policies are often +revised or interpreted by the agency in ways that may significantly affect the regulation of biological products in the United States. +It is impossible to predict whether further legislative changes will be enacted or whether FDA regulations, guidance, policies, or interpretations +will change, and the effects of any such changes. +Preclinical and Clinical Development +Before an applicant can begin testing the potential +product candidate in human subjects, the applicant must first conduct preclinical studies. Preclinical studies may include laboratory +evaluations of product chemistry, toxicity, and formulation, as well as in vitro and animal studies to assess the potential safety and +activity of the drug for initial testing in humans and to establish a rationale for therapeutic use. Preclinical studies are subject to +federal regulations and requirements, including GLP regulations, which govern the conduct of animal studies designed to test a product’s +safety. None of our preclinical studies to date have been animal studies. The results of an applicant’s preclinical studies are +submitted to FDA as part of an IND. +An IND is a request for authorization from FDA to +administer an investigational new drug product to humans. An IND is an exemption from the FDCA that allows an unapproved drug to be shipped +in interstate commerce for use in a clinical trial. Such authorization must be secured prior to interstate shipment and administration +of a biological drug that is not subject of an approved BLA. In support of an IND, applicants must submit a protocol for each clinical +trial, which details, among other things, the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness +criteria to be evaluated. A separate submission to the existing IND must be made for each successive clinical trial conducted during product +development and for any subsequent protocol amendments. +Human clinical trials may not begin until an IND is +effective. The IND automatically becomes effective 30 days after receipt by FDA, unless FDA raises safety concerns or questions about +the proposed clinical trial within the 30-day time period. In such a case, FDA may place the IND on clinical hold and the IND sponsor +must resolve any of FDA’s outstanding concerns or questions before the clinical trial can begin. Submission of an IND therefore +may or may not result in regulatory authorization to begin a clinical trial. +FDA may also place a clinical hold or partial clinical +hold on a clinical trial following commencement of the trial under an IND. A clinical hold is an order issued by FDA to the sponsor +to delay a proposed clinical investigation or to suspend an ongoing investigation. A partial clinical hold is a delay or suspension of +only part of the clinical work requested under the IND. For example, under a partial clinical hold, FDA may instruct a sponsor not +to enroll any new patients into a study but permit the previously enrolled patients to continue in the study. No more than 30 days +after imposition of a clinical hold or partial clinical hold, FDA will provide the sponsor a written explanation of the basis for the +hold. Following issuance of a clinical hold or partial clinical hold, an investigation may only resume after the FDA has notified the +sponsor that the investigation may proceed. FDA will base that determination on information provided by the sponsor addressing the deficiencies +previously cited or otherwise satisfying FDA that the investigation can proceed. +Clinical trials involve the administration of the +investigational product to human subjects under the supervision of qualified investigators in accordance with GCP regulations, which include +the requirement that all research subjects provide their informed consent for their participation in any clinical trial. If a sponsor +chooses to conduct a foreign clinical study under an IND, all FDA IND requirements must be met unless waived. When the foreign clinical +study is not conducted under an IND, the sponsor must ensure that the study complies with GCP regulations in order to use the study as +support for an IND or application for marketing approval, including review and approval by an IRB and informed consent from subjects. +Furthermore, an independent IRB for all sites participating +in a clinical trial must review and approve the plan for any clinical trial and its informed consent form before the clinical trial begins +at each site and must monitor the trial until completed. Regulatory authorities, the IRB, or the sponsor may suspend a clinical trial +at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk or that the trial +is unlikely to meet its stated objectives. +16 +Some trials also include oversight by an independent +group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board (“DSMB”). DSMBs +review unblinded study data at pre-specified times during the course of the study. If the DSMB determines that there is an unacceptable +safety risk for subjects or other grounds, such as no demonstration of efficacy, the DSMB can make a recommendation to the sponsor to +modify or stop the trial. +Other grounds for a sponsor’s decision to suspend +or terminate a study may be made based on evolving business objectives or the competitive climate. +For purposes of BLA approval, clinical trials are +typically conducted in the following sequential phases: +● Phase 1 : The investigational +product is initially introduced into a small group of healthy human subjects or patients with the target disease or condition. These +trials are designed to test the safety, dosage tolerance, absorption, metabolism and distribution of the investigational product in humans +and the side effects associated with increasing doses. These trials may also yield early evidence of effectiveness. +● Phase 2 : The investigational +product is administered to a slightly larger patient population with a specified disease or condition to evaluate the preliminary efficacy, +optimal dosages, and dosing schedule and to identify possible adverse side effects and safety risks. Multiple Phase 2 clinical trials +may be conducted to obtain information prior to beginning larger and more expensive Phase III clinical trials. +● Phase 3 : The investigational +product is administered to an expanded patient population to further evaluate dosage, to provide statistically significant evidence of +clinical efficacy and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These clinical +trials are intended to generate sufficient data to statistically demonstrate the efficacy and safety of the product, to establish the +overall risk/benefit ratio of the investigational product, and to provide an adequate basis for product approval by FDA. +These phases may overlap or be combined. In some cases, +FDA may require, or companies may voluntarily pursue, additional clinical trials after a product are approved to gain more information +about the product, referred to as Phase 4 trials. Post-approval trials are conducted following initial approval, often to develop +additional data and information relating to the use of the product in new indications. +Progress reports detailing the results of the clinical +trials must be submitted at least annually to FDA. In addition, IND safety reports must be submitted to FDA for any of the following: +serious and unexpected suspected adverse reactions in study subjects; findings from epidemiological studies, pooled analysis of multiple +studies, animal or in vitro testing, or other clinical studies, whether or not conducted under an IND, and whether or not conducted by +the sponsor, that suggest a significant risk in humans exposed to the drug; and any clinically important increase in the rate of a serious +suspected adverse reaction over such rate listed in the protocol or investigator brochure. +A sponsor’s planned clinical trials may not +be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a clinical +trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. +Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical +trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious +harm to patients. FDA will typically inspect one or more clinical sites to assure compliance with GCP and the integrity of the clinical +data submitted. +During clinical development, the sponsor often refines +the indication and endpoints on which the BLA will be based. For endpoints based on patient-reported outcomes (“PROs”), the +process typically is an iterative one. FDA has issued guidance on the framework it uses to evaluate PRO instruments. Although the agency +may offer advice on optimizing PRO instruments during the clinical development process, FDA usually reserves final judgment until it reviews +the BLA. +Concurrent with clinical trials, companies often complete +additional animal studies, and develop additional information about the chemistry and physical characteristics of the drug and finalize +a process for manufacturing the product in commercial quantities in accordance with cGMP. The manufacturing process must be capable +of consistently producing quality batches of the drug candidate and, among other things, must develop methods for testing the identity, +strength, quality, purity and potency of the final drug. Additionally, appropriate packaging must be selected and tested, and stability +studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf life. +17 +BLA Submission and Review +Assuming successful completion of all required clinical +testing in accordance with all applicable regulatory requirements, an applicant may submit a BLA requesting licensing to market the biologic +for one or more indications in the United States. The BLA must include the results of nonclinical studies and clinical trials; detailed +information on the product’s chemistry, manufacture, controls; and proposed labeling. Under the PDUFA, a BLA submission is subject +to an application user fee, unless a waiver, reduction, or exemption applies. +FDA will initially review the BLA for completeness +before accepting it for filing. Under FDA’s procedures, the agency has 60 days from its receipt of a BLA to determine whether +the application will be accepted for filing and substantive review. If the agency determines that the application does not meet this initial +threshold standard, FDA may refuse to file the application and request additional information, in which case the application must be resubmitted +with the requested information and review of the application delayed. +After the BLA is accepted for filing, FDA reviews +the BLA to determine, among other things, whether a product is safe, pure, and potent and if the facility in which it is manufactured, +processed, packed, or held meets standards designed to assure the product’s continued identity, strength, quality, safety, purity, +and potency. To ensure cGMP, GLP, GCP, GTP, and other regulatory compliance, an applicant must incur significant expenditure of time, +money, and effort in the areas of training, record keeping, production and quality control. In addition, FDA expects that all data be +reliable and accurate, and requires sponsors to implement meaningful and effective strategies to manage data integrity risks. Data integrity +is an important component of the sponsor’s responsibility to ensure the safety, efficacy and quality of its product or products. +For cellular products, FDA will not approve the product +if the manufacturer is not in compliance with the GTPs, to the extent applicable. GTPs are FDA regulations and guidance documents that +govern the methods used in, and the facilities and controls used for, the manufacture of human cells, tissue, and cellular and tissue-based +products (“HCT/Ps”), which are human cells or tissue intended for implantation, transplant, infusion, or transfer into a human +recipient. The primary intent of the GTP requirements is to ensure that cell and tissue-based products are manufactured in a manner designed +to prevent the introduction, transmission and spread of communicable disease. FDA regulations also specify how HCT/P establishments must +register and list their HCT/Ps with FDA and how they must evaluate donors through screening and testing, where applicable. +If the FDA determines that the application, manufacturing +process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional +testing or information. Notwithstanding the submission of any requested additional information, FDA ultimately may decide that the application +does not satisfy the regulatory criteria for approval. +The performance goals and policies implemented by +FDA under the PDUFA generally provide for FDA action on an original BLA within 10 months of filing, which (as discussed above) typically +occurs within 60 days of submission, but that deadline is extended in certain circumstances. Furthermore, the review process is often +significantly extended by FDA’s requests for additional information or clarification. +FDA may refer applications for novel products or products +that present difficult questions of safety or efficacy to an advisory committee. Typically, an advisory committee consists of a panel +that includes clinicians and other experts who will review, evaluate, and provide a recommendation as to whether the application should +be approved and, if so, under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers +such recommendations carefully when making decisions and usually has followed such recommendations. +After FDA evaluates a BLA and conducts inspections +of manufacturing facilities where the investigational product and/or its components will be produced, FDA may issue an approval letter +or a Complete Response Letter (“CRL”). An approval letter authorizes commercial marketing of the biological with specific +prescribing information for specific indications. A CRL will describe all of the deficiencies that FDA has identified in the BLA, except +that where FDA determines that the data supporting the application are inadequate to support approval, FDA may issue the CRL without first +conducting required inspections, testing submitted product lots and/or reviewing proposed labeling. If and when the deficiencies have +been addressed to FDA’s satisfaction in a resubmission of the BLA, FDA will issue an approval letter. In issuing the CRL, the FDA +may recommend actions that the applicant might take to place the BLA in condition for approval, including requests for additional data, +information, or clarification. FDA may delay or refuse approval of a BLA if applicable regulatory criteria are not satisfied and may require +additional testing or information and/or require new clinical trials. Even with submission of this additional information, FDA ultimately +may decide that the application does not satisfy the regulatory criteria for approval. +18 +During the approval process, FDA will determine whether +a REMS is necessary to help ensure the benefits outweigh the risks of the biologic. A REMS is a safety strategy to manage a known or potential +serious risk associated with a product and to enable patients to have continued access to such medicines by managing their safe use, and +could include medication guides, physician communication plans or elements to assure safe use, such as restricted distribution methods, +patient registries and other risk minimization tools. If FDA concludes that a REMS is needed, the BLA sponsor must submit a proposed REMS +and FDA will not approve the BLA without a REMS that the agency has determined is acceptable. +If the FDA approves a product, it may limit the approved +indications for use for the product, or require that contraindications, warnings, or precautions be included in the product labeling. +FDA may also require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess the drug’s +safety after approval. FDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance +programs. +FDA may also require testing and surveillance programs +to monitor the product after commercialization. For biologics, such testing may include official lot release, which requires the manufacturer +to perform certain tests on each lot of the product before it is released for distribution. The manufacturer then typically must submit +samples of each lot of products to the FDA, together with a release protocol showing a summary of the history of manufacture of the lot +and the results of all of the manufacturer’s tests performed on the lot. The FDA may also perform certain confirmatory tests on +lots of some products itself, before releasing the lots for distribution by the manufacturer. +In general, an approved BLA only allows the sponsor +to market the biologic as approved, without modification. If, for example, a sponsor modifies an approved T cell product to target different +peptides or in our case to target another HLA type, the sponsor would be required to either file a supplemental BLA with FDA or receive +FDA approval for a comparability protocol in order to implement this change into the final product. +The FDA may withdraw the product approval if compliance +with pre- and post-marketing requirements is not maintained or if problems occur after the product reaches the marketplace. +Post-Approval Requirements +Any products manufactured or distributed pursuant +to FDA approvals are subject to pervasive and continuing regulation by FDA, including, among other things, requirements relating to recordkeeping, +periodic reporting, reporting of certain deviations and adverse experiences, product sampling and distribution, and advertising and promotion +of the product. After approval, many types of changes to the approved product, such as adding new indications, manufacturing changes and +additional labeling claims, are often subject to further testing requirements and FDA review and approval, depending on the nature of +the post-approval change. There also are continuing user fee requirements, under which FDA assesses an annual program fee for each product +identified in an approved BLA. Biologic manufacturers and their third-party contractors are required to register their facilities +with the FDA and certain state agencies. These facilities are subject to routine and periodic unannounced inspections by FDA and certain +state agencies for compliance with cGMP, post-marketing safety reporting and data integrity requirements, which impose certain procedural +and documentation requirements to assure quality of manufacturing and product. FDA has increasingly observed cGMP violations involving +data integrity during site inspections and is a significant focus of its oversight. Requirements with respect to data integrity include, +among other things, controls ensuring complete and secure data; activities documented at the time of performance; audit trail functionality; +authorized access and limitations; validated computer systems; and review of records for accuracy, completeness, and compliance with established +standards. +Post-approval changes to the manufacturing process +are strictly regulated, and, depending on the significance of the change, may require FDA approval before being implemented. FDA regulations +also require investigation and correction of any deviations from cGMP and impose reporting requirements upon the sponsor and any third-party +manufacturers that the sponsor may use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production +and quality control to maintain compliance with cGMP, data integrity, pharmacovigilance, and other aspects of regulatory compliance. +19 +The FDA may withdraw the approval if compliance with +regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of +previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, +or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition +of post-approval studies to assess new safety risks; or imposition of distribution or other restrictions under a REMS. Other potential +consequences include, for example: +● restrictions on the marketing or manufacturing of a product, +complete withdrawal of the product from the market, or product recalls; +● fines, warning or untitled letters, or holds on post-approval +clinical studies; +● refusal of FDA to approve pending applications or supplements +to approved applications, or suspension or revocation of existing product approvals; +● product seizure or detention, or refusal of FDA to permit the +import or export of products; or +● permanent injunctions and consent decrees, including the imposition +of civil or criminal penalties. +FDA strictly regulates the marketing, labeling, advertising, +and promotion of prescription drug products placed on the market. A company can make only those claims relating to safety and efficacy, +purity and potency that are approved by the FDA and in accordance with the provisions of the approved labeling. FDA’s regulation +includes, among other things, standards and regulations for direct-to-consumer advertising, communications regarding unapproved uses, +industry-sponsored scientific and educational activities and promotional activities involving the Internet and social media. Promotional +claims relating to a product’s safety or effectiveness are prohibited before the drug is approved. After approval, a product generally +may not be promoted for uses that are not approved by FDA, as reflected in the product’s prescribing information. In the United States, +healthcare professionals are generally permitted to prescribe drugs for such uses not described in the drug’s labeling, known as +off-label uses, because FDA does not regulate the practice of medicine. However, FDA regulations impose rigorous restrictions on manufacturers’ +communications and prohibit the promotion of off-label uses. It may be permissible, under very specific, narrow conditions, for a manufacturer +to engage in non-promotional, non-misleading communication regarding off-label information, such as distributing scientific or medical +journal information. +If a company is found to have promoted off-label uses, +it may become subject to adverse public relations and administrative and judicial enforcement by FDA, the DOJ, or the Office of the Inspector +General of the Department of Health and Human Services (“HHS”), as well as other federal and state authorities. This could +subject a company to a range of penalties that could have a significant commercial impact, including civil, administrative, and criminal +fines, penalties, and agreements that materially restrict the manner in which a company promotes or distributes products. The federal +government has levied large civil, administrative, and criminal fines and penalties against companies for alleged improper promotion and +has also requested that companies enter into Corporate Integrity Agreements and Consent Decrees of Permanent Injunction under which specified +promotional conduct is changed or curtailed. +The distribution of prescription drugs and biologics +are subject to the Drug Supply Chain Security Act (“DSCSA”), which requires manufacturers and other stakeholders to comply +with product identification, tracing, verification, detection and response, notification, and licensing requirements. In addition, the +Prescription Drug Marketing Act and its implementing regulations and state laws limit the distribution of prescription pharmaceutical +product samples, and the DSCSA imposes requirements to ensure accountability in distribution and to identify and remove prescription drug +and biological products that may be counterfeit, stolen, contaminated, or otherwise harmful from the market. +Expedited Development and Review Programs +FDA offers a number of expedited development and review +programs for qualifying product candidates. The fast-track program is intended to expedite or facilitate the process of reviewing new +products that meet certain criteria. Specifically, new products are eligible for fast-track designation if they are intended to treat +a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. +A product intended to treat a serious or life-threatening disease or condition may also be eligible for breakthrough therapy designation +to expedite its development and review. Any marketing application for a biologic submitted to FDA for approval, including a product with +a fast-track designation and/or breakthrough therapy designation, may be eligible for other types of FDA programs intended to expedite +FDA review and approval process, such as priority review and accelerated approval. FDA also may grant accelerated approval to certain +products studied for their safety and effectiveness in treating serious or life-threatening diseases or conditions. +20 +The RMAT designation, which we are currently planning +to seek for some of our therapies, is intended to facilitate an efficient development program for, and expedite review of, any drug that +meets the following criteria: (1) the drug is a cell therapy, therapeutic tissue engineering product, human cell and tissue product, +or any combination product using such therapies or products, with limited exceptions; (2) the drug is intended to treat, modify, +reverse, or cure a serious or life-threatening disease or condition; and (3) preliminary clinical evidence indicates that the drug +has the potential to address unmet medical needs for such a disease or condition. Like breakthrough therapy designation, RMAT designation +provides potential benefits that include more frequent meetings with FDA to discuss the development plan for the product candidate and +eligibility for rolling review and priority review. Products granted RMAT designation may also be eligible for accelerated approval on +the basis of a surrogate or intermediate endpoint reasonably likely to predict long-term clinical benefit, or reliance upon data obtained +from a meaningful number of sites (including through expansion to additional sites) so as to remove any likelihood of site-specific or +investigator-specific bias on the evidence of effectiveness. Once approved, when appropriate, FDA can permit fulfillment of post-approval +requirements for RMATs receiving accelerated approval through the submission of clinical evidence, clinical studies, patient registries, +or other sources of real-world evidence such as electronic health records; through the collection of larger confirmatory datasets; or +through post-approval monitoring of all patients treated with the therapy prior to approval. +Fast track designation, breakthrough therapy designation, +priority review, accelerated approval, and RMAT designation do not change the standards for approval but may expedite the development +or approval process. +Patent Term Restoration and Marketing Exclusivity +After approval, owners of relevant drug or biological +product patents may apply for up to a five year term patent extension to restore a portion of patent term lost during product development +and FDA review of a BLA if approval of the application is the first permitted commercial marketing or use of a drug or biologic containing +the active ingredient under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman +Act. The allowable patent term extension is calculated as one-half of the product’s testing phase, which is the time between the +effective date of an IND and initial BLA submission, and all of the approval phase, which is the time between BLA submission and approval, +up to a maximum of five years. The time can be shortened if the FDA determines that the applicant did not pursue approval with due +diligence. The total patent term after the extension may not exceed 14 years from the date of FDA approval of the product. Only one +patent claiming each approved product is eligible for restoration and the patent holder must apply for restoration within 60 days +of approval, even if the product cannot be commercially marketed at that time. The USPTO, in consultation with FDA, reviews and approves +the application for patent term restoration. +For patents that might expire during the BLA application +phase, the patent owner may request an interim patent extension. An interim patent extension increases the patent term by one year and +may be renewed up to four times. For each interim patent extension granted, the post-approval patent extension is reduced by one year. +The director of the USPTO must determine that approval of the product candidate covered by the patent for which a patent extension is +being sought is likely. Interim patent extensions are not available for a product candidate for which a BLA has not been submitted. +Biosimilars and Marketing Exclusivities +The Biologics Price Competition and Innovation Act +(“BPCIA”) created an abbreviated approval pathway for biological product candidates shown to be highly similar to or interchangeable +with an FDA licensed biological product. A biological product on which another biological product candidate’s BLA relies to establish +bio similarity is known as a reference product. Bio similarity sufficient to reference a prior FDA-approved product requires that there +be no differences in conditions of use, route of administration, dosage form and strength, and no clinically meaningful differences between +the biological product candidate and the reference product in terms of safety, purity, and potency. Bio similarity must be shown through +analytical trials, animal trials and at least one clinical trial, unless the Secretary of HHS waives a required element. A biosimilar +product candidate may be deemed interchangeable with a prior approved product if it meets the higher hurdle of demonstrating that it can +be expected to produce the same clinical results as the reference product and, for products administered multiple times, the biological +product candidate and the reference biologic may be switched after one has been previously administered without increasing safety risks +or risks of diminished efficacy relative to exclusive use of the reference biologic. Complexities associated with the larger, and often +more complex, structures of biologics, as well as the process by which such products are manufactured, pose significant hurdles to implementation +of the abbreviated approval pathway that are still being resolved by FDA. +21 +A reference biologic is granted 12 years of exclusivity +from the time of first licensure of the reference product, and no application for a biosimilar can be submitted for four years from +the date of licensure of the reference product. The first biological product candidate submitted under the abbreviated approval pathway +that is determined to be interchangeable with the reference product has exclusivity against a finding of interchangeability for other +biologics for the same condition of use for the lesser of (i) one year after first commercial marketing of the first interchangeable +biosimilar, (ii) 18 months after the first interchangeable biosimilar is approved if there is no patent challenge, (iii) 18 months +after resolution of a lawsuit over the patents of the reference biologic in favor of the first interchangeable biosimilar applicant, or +(iv) 42 months after the first interchangeable biosimilar’s application has been approved if a patent lawsuit is ongoing +within the 42 month period. At this time, it is unclear whether products deemed “interchangeable” by FDA will, in fact, be +readily substituted by pharmacies, which are governed by state pharmacy laws and regulations. +Healthcare Regulation +Coverage, Pricing, and Reimbursement +Our ability to successfully commercialize any products +for which we receive regulatory approval for commercial sale will depend, in part, on the extent to which third-party payors provide coverage +and establish adequate reimbursement levels for such products, and significant uncertainty exists as to the coverage and reimbursement +status of any products for which may we obtain regulatory approval. In the United States, third-party payors include federal and +state health care programs, private managed care providers, health insurers and other organizations. The process for determining whether +a third-party payor will provide coverage for a product may be separate from the process for setting the price of a product or for establishing +the reimbursement rate that such a payor will pay for the product. Third-party payors may limit coverage to specific products on an approved +list, also known as a formulary, which might not include all of the FDA-approved products for a particular indication. Third-party payors +are increasingly challenging the price, examining the medical necessity, and reviewing the cost-effectiveness of medical products, therapies, +and services, in addition to questioning their safety and efficacy. We may need to conduct expensive pharmaco-economic studies in order +to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain the FDA approvals. +Our product candidates may not be considered medically necessary or cost-effective. A payor’s decision to provide coverage for a +product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage +for a product does not assure that other payors will also provide coverage for the product. Adequate third-party reimbursement may not +be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. +The marketability of any product candidates for which +we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage +and reimbursement. In addition, emphasis on managed care in the United States has increased and we expect will continue to increase +the pressure on healthcare pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage +and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies +and reimbursement rates may be implemented in the future. +Other Healthcare Laws and Compliance Requirements +Although we currently do not have any commercialized +products, our current and future business operations may be subject to additional healthcare regulation and enforcement by the federal +government and by authorities in the states and foreign jurisdictions in which we conduct our business. Such laws include, without limitation, +state and federal anti-kickback, fraud and abuse, false claims, privacy and security, price reporting and physician sunshine laws. Some +of our pre-commercial activities are subject to some of these laws. +22 +The federal Anti-Kickback Statute makes it illegal +for any person or entity, including a prescription drug manufacturer or a party acting on its behalf to knowingly and willfully, directly +or indirectly, solicit, receive, offer, or pay any remuneration in cash or in kind that is intended to induce or reward the referral of +business, including the purchase, order, or lease of any item or service for which payment may be made under a federal healthcare program, +such as Medicare or Medicaid. The term “remuneration” has been broadly interpreted to include anything of value. The Anti-Kickback +Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, formulary +managers and beneficiaries on the other. +Although there are a number of statutory exceptions +and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices +that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny +if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception +or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement +will be evaluated on a case-by-case basis based on a cumulative review of all its facts and circumstances. Several courts have found that +the Anti-Kickback Statute may be violated if any one purpose of an arrangement involving remuneration is to induce referrals of federal +healthcare program business. In addition, liability may be established without actual knowledge of the statute or specific intent to violate +it. Violations of this law are punishable by up to ten years in prison, and can also result in criminal fines, civil money penalties +and exclusion from participation in federal healthcare programs. +Moreover, a claim including items or services resulting +from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False +Claims Act. +The federal civil False Claims Act prohibits, among +other things, individuals or entities from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment of +government funds or knowingly making, using, or causing to be made or used, a false record or statement material to an obligation to pay +money to the government or knowingly concealing or knowingly and improperly avoiding, decreasing, or concealing an obligation to pay money +to the federal government. Persons and entities can be held liable under these laws if they are deemed to “cause” the submission +of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers or promoting a product +off-label. Many pharmaceutical and other healthcare companies have been investigated and have reached substantial financial settlements +with the federal government under the civil False Claims Act for a variety of alleged improper marketing activities, including: providing +free product to customers with the expectation that the customers would bill federal programs for the product; providing sham consulting +fees, grants, free travel and other benefits to physicians to induce them to prescribe the company’s products; and inflating prices +reported to private price publication services, which are used to set drug payment rates under government healthcare programs. Penalties +for federal civil False Claims Act violations may include up to three times the actual damages sustained by the government, plus mandatory +civil penalties of between $13,508 and $27,018 for each separate false claim, and the potential for exclusion from participation in federal +healthcare programs. In addition, although the federal False Claims Act is a civil statute, False Claims Act violations may also implicate +various federal criminal statutes. +The healthcare fraud provisions of the Health Insurance +Portability and Accountability Act (“HIPAA”) prohibit knowingly and willfully executing, or attempting to execute, a scheme +to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a +healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, +concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery +of or payment for healthcare benefits, items or services. Like the federal Anti-Kickback Statute, a person or entity does not need to +have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. +Many states have analogous laws and regulations, such +as: state anti-kickback and false claims laws that may apply to sales or marketing arrangements and claims involving healthcare items +or services reimbursed by non-governmental third-party payors, including private insurers; laws that require pharmaceutical companies +to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by +the federal government or otherwise restrict payments that may be made to certain healthcare providers; laws that require drug manufacturers +to report information related to clinical trials or information related to payments and other transfers of value to physicians and other +healthcare providers or marketing expenditures; laws that restrict the ability of manufacturers to offer co-pay support to patients for +certain prescription drugs; and laws and local ordinances that require identification or licensing of sales representatives. +23 +HIPAA, as amended by the Health Information Technology +for Economic and Clinical Health Act (“HITECH”), and their implementing regulations, mandates, among other things, the adoption +of uniform standards for the electronic exchange of information in common healthcare transactions, as well as standards relating to the +privacy and security of individually identifiable health information, which require the adoption of administrative, physical and technical +safeguards to protect such information. Among other things, HITECH makes HIPAA’s security standards directly applicable to business +associates, defined as independent contractors or agents of covered entities that create, receive, or obtain protected health information +in connection with providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that +may be imposed against covered entities and business associates and gave state attorneys general new authority to file civil actions for +damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing +federal civil actions. In addition, certain state laws govern the privacy and security of health information in certain circumstances, +some of which are more stringent than HIPAA and many of which differ from each other in significant ways and may not have the same effect, +thus complicating compliance efforts. Failure to comply with these laws, where applicable, can result in the imposition of significant +civil and/or criminal penalties. +The U.S. federal Physician Payment Sunshine Act, +implemented as the Open Payments Program, requires manufacturers of drugs, devices, biologics, and medical supplies for which payment +is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to +CMS information related to direct or indirect payments and other transfers of value to physicians and teaching hospitals (and certain +other practitioners as of 2022), as well as ownership and investment interests held in the company by physicians and their immediate family +members. +Because we intend to commercialize products that could +be reimbursed under a federal health care program and other governmental healthcare programs, we intend to develop a comprehensive compliance +program that establishes internal control to facilitate adherence to the rules and program requirements to which we will or may become +subject. Although the development and implementation of compliance programs designed to establish internal control and facilitate compliance +can mitigate the risk of investigation, prosecution, and penalties assessed for violations of these laws, the risks cannot be entirely +eliminated. +If our operations are found to be in violation of +any of such laws or any other governmental regulations that apply to us, we may be subject to penalties, including, without limitation, +administrative, civil and criminal penalties, damages, fines, disgorgement, contractual damages, reputational harm, diminished profits +and future earnings, the curtailment or restructuring of our operations, exclusion from participation in federal and state healthcare +programs and individual imprisonment, any of which could adversely affect our ability to operate our business and our financial results. +Health Care Reforms +In the United States and some foreign jurisdictions, +there have been, and continue to be, legislative and regulatory changes and proposed changes regarding the healthcare system that could +prevent or delay marketing approval of product candidates, restrict or regulate post-approval activities, and affect the ability to profitably +sell product candidates for which marketing approval is obtained. Among policy makers and payors in the United States and elsewhere, +there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving +quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and +has been significantly affected by major legislative initiatives. +For example, the Affordable Care Act (“ACA”) +substantially changed the way healthcare is financed by both the government and private insurers, and significantly impacts the U.S. pharmaceutical +industry. The ACA contains provisions that may reduce the profitability of drug products through increased rebates for drugs reimbursed +by Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D +beneficiaries, and annual fees based on pharmaceutical companies’ share of sales to federal health care programs. The ACA made several +changes to the Medicaid Drug Rebate Program, including increasing pharmaceutical manufacturers’ rebate liability by raising the +minimum basic Medicaid rebate. The ACA also expanded the universe of Medicaid utilization subject to drug rebates by requiring pharmaceutical +manufacturers to pay rebates on Medicaid managed care utilization and by enlarging the population potentially eligible for Medicaid drug +benefits. +24 +There have been judicial challenges to certain aspects +of the ACA, as well as efforts by Congress to modify, and by agencies to alter the implementation of, certain aspects of the ACA. For +example, Congress eliminated the tax penalty for failure to comply with the ACA’s individual mandate to carry health insurance. +Further, the Bipartisan Budget Act of 2018, among other things, amended the ACA to increase from 50 percent to 70 percent the +point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D to close the coverage gap +in most Medicare drug plans, commonly referred to as the donut hole. +It is possible that the ACA, as currently enacted +or as may be amended in the future, as well as other healthcare reform measures, including those that may be adopted in the future, may +result in more rigorous coverage criteria, and less favorable payment methodologies, or other downward pressure on coverage and payment +and the price that we receive for any approved product. Any reduction in reimbursement or restriction on coverage under Medicare or other +federal health care programs may result in a similar reduction or restriction by private payors. +Other legislative changes have been proposed and adopted +in the U.S. since the ACA was enacted. For example, the Inflation Reduction Act introduces several changes to the Medicare Part D +benefit, including a limit on annual out-of-pocket costs and a change in manufacturer liability under the program which could negatively +affect the profitability of our product candidates. The IRA sunsets the current Part D coverage gap discount program starting in +2025 and replaces it with a new manufacturer discount program. Failure to pay a discount under this new program will be subject to a civil +monetary penalty. In addition, the IRA establishes a Medicare Part B inflation rebate scheme effective January 2023 and a Medicare +Part D inflation rebate scheme effective October 2022, under which, generally speaking, manufacturers will owe rebates if the +price of a Part B or Part D drug increases faster than the pace of inflation. Failure to timely pay a Part B or D inflation +rebate is subject to a civil monetary penalty. The IRA also creates a drug price negotiation program under which the prices for Medicare +units of certain high Medicare spend drugs and biologicals without generic or biosimilar competition will be capped by reference to, among +other things, a specified non-federal average manufacturer price starting in 2026. Failure to comply with requirements under the drug +price negotiation program is subject to an excise tax and/or a civil monetary penalty. Congress continues to examine various policy proposals +that may result in pressure on the prices of prescription drugs with respect to the government health benefit programs and otherwise. +The IRA or other legislative changes could impact the market conditions for our product candidates. +In general, there has been heightened governmental +scrutiny over the manner in which drug manufacturers set prices for their commercial products, which has resulted in several Congressional +inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug product +pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies +for drug products. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control +pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain +product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other +countries and bulk purchasing. +Drug Pedigree Laws +State and federal governments have proposed or enacted +various drug pedigree laws which can require the tracking of all transactions involving prescription drugs from the manufacturer to the +pharmacy (or other dispensing) level. Companies are required to maintain records documenting the chain of custody of prescription drug +products beginning with the purchase of such products from the manufacturer. Compliance with these pedigree laws requires implementation +of extensive tracking systems as well as heightened documentation and coordination with customers and manufacturers. While we fully intend +to comply with these laws, there is uncertainty about future changes in legislation and government enforcement of these laws. Failure +to comply could result in fines or penalties, as well as loss of business that could have a material adverse effect on our financial results. +Federal Regulation of Patent Litigation Settlements +and Authorized Generic Arrangements +As part of the Medicare Prescription Drug, Improvement, +and Modernization Act of 2003, companies are required to file with the U.S. Federal Trade Commission (“FTC”) +and the U.S. Department of Justice certain types of agreements entered into between brand and generic pharmaceutical companies related +to the settlement of patent litigation or manufacture, marketing and sale of generic versions of branded drugs. This requirement could +affect the manner in which generic drug manufacturers resolve intellectual property litigation and other disputes with brand pharmaceutical +companies and could result generally in an increase in private-party litigation against pharmaceutical companies or additional investigations +or proceedings by the FTC or other governmental authorities. +25 +Other +The U.S. federal government, various states and +localities have laws regulating the manufacture and distribution of pharmaceuticals, as well as regulations dealing with the substitution +of generic drugs for branded drugs. Our operations are also subject to regulation, licensing requirements and inspection by the states +and localities in which our operations are located or in which we conduct business. +Certain of our activities are also subject to FTC +enforcement actions. The FTC enforces a variety of antitrust and consumer protection laws designed to ensure that the nation’s markets +function competitively, are vigorous, efficient and free of undue restrictions. Federal, state, local and foreign laws of general applicability, +such as laws regulating working conditions, also govern us. +In addition, we are subject to numerous and increasingly +stringent federal, state and local environmental laws and regulations concerning, among other things, the generation, handling, storage, +transportation, treatment and disposal of toxic and hazardous substances, the discharge of pollutants into the air and water and the cleanup +of contamination. We are required to maintain and comply with environmental permits and controls for some of our operations, and these +permits are subject to modification, renewal and revocation by the issuing authorities. Our environmental capital expenditures and costs +for environmental compliance may increase in the future as a result of changes in environmental laws and regulations or increased manufacturing +activities at any of our facilities. We could incur significant costs or liabilities as a result of any failure to comply with environmental +laws, including fines, penalties, third-party claims and the costs of undertaking a clean-up at a current or former site or at a site +to which our wastes were transported. In addition, we have grown in part by acquisition, and our diligence may not have identified environmental +impacts from historical operations at sites we have acquired in the past or may acquire in the future. +Employees +As of the date of this Annual Report, we have +seven (7) full time employees. We have no part-time employees and we engage one consultant. We believe that we maintain good relations +with our employees. +INFORMATION ABOUT THE BUSINESS OF MINDWAVE INNOVATIONS +INC +Unless the context otherwise indicates or requires, +all references in this section to “we,” “us,” “our,” “our company” “the Company” +and “MindWave” refer to MindWave Innovations Inc +MindWave Innovations Inc (“MindWave,” +the “Company,” “we,” “us” or “our”) is a technology platform company focused on institutional +Digital Asset Treasury (“ DAT ”) solutions, centered on enabling corporations and institutions to hold, manage, and generate +yield on Bitcoin reserves through a compliant, scalable infrastructure. Our strategic model integrates secure digital treasury wallets, +AI-supported Bitcoin yield programs, and a validator-enabled ecosystem supported by our native token, $NILA. TechyTrade Innovations +Pte. Ltd. is a Singapore exempt private company and wholly owned subsidiary of MindWave Innovations Inc (“ TechyTrade (Singapore) ”). TechyTrade +FZ LLC is a limited liability company operating under the laws of the Ras Al Khaimah Economic Zone is a wholly owned subsidiary of TechyTrade +Singapore (“ TechyTrade (Dubai) ”). MindWave operates through an international structure that includes TechyTrade (Singapore) +and TechyTrade (Dubai), which contains the primary business operations of MindWave. +Our balance sheet strategy is designed to align with +our DAT offering. TechyTrade (Dubai) owns or controls 1,000 Bitcoin free of encumbrances, identifiable and segregated within a sub-wallet +architecture created and administered by MindWave Ltd. for the benefit of TechyTrade (Dubai), with private keys and beneficial ownership +retained by TechyTrade (Dubai). TechyTrade (Dubai) has no indebtedness other than trade payables, which were less than fifty percent of +cash on hand. This reserve posture is intended to preserve purchasing power, provide continuous exposure to Bitcoin, and support our yield +infrastructure without requiring asset sales. +26 +We intend to commercialize our principal DAT offerings +for institutional clients, which comprise: (i) secure corporate Bitcoin treasury infrastructure designed for public-company balance +sheets and institutional controls; (ii) AI-supported Bitcoin yield strategies intended to deliver risk-managed, programmatic yield +including InsureTech; and (iii) a validator-enabled ecosystem that supports utility and governance via $NILA across interoperable +verticals, including AdTech engagement platforms and ClimateTech impact systems, as described in our technical materials. Custody of client +assets is expected to occur through regulated third-party providers and institutional-grade wallet solutions, implemented within a segregation +and control framework consistent with institutional compliance requirements. +Our operating framework is designed around Bitcoin +as the core reserve and risk collateral reference for treasury and yield solutions. We expect to avoid hybrid collateral models in favor +of a Bitcoin-centric approach that is transparent, simple, and consistent with our treasury and platform design. Within our ecosystem, +$NILA functions as an economic and governance substrate to activate services, enable staking mechanisms that align incentives, and facilitate +validator economics across our interoperable platforms. +We intend to serve corporate treasuries and institutions +that maintain or plan to maintain Bitcoin reserves and require scalable, compliant DAT capabilities. We also expect to support high-net-worth +individuals and funds seeking institutional controls for Bitcoin reserve management and programmatic yield. Consistent with institutional +practices, our anticipated operations emphasize transparency and risk management, including conservative collateralization where relevant +to client programs, real-time risk monitoring, and robust anti-money laundering (AML) and know-your-customer (KYC) processes. We are pursuing +strategic relationships with financial institutions, placement agents, and digital-asset service providers to support custody, treasury +operations, and capital formation for expansion of our platform. +We believe that our combination of (i) an institutional +Bitcoin reserve posture supported by segregated custody architecture and independent attestation, (ii) AI-enhanced yield strategies +integrated into a controlled DAT stack, and (iii) a validator-enabled ecosystem powered by $NILA positions us to meet emerging institutional +demand for Bitcoin treasury solutions. In connection with our merger with Apimeds Pharmaceuticals US, Inc., our DAT platform is expected +to be operated within a publicly listed structure, with Apimeds’ biopharmaceutical business continuing within a subsidiary post-closing, +and capital formation initiatives contemplated to support both the DAT platform and biopharmaceutical development. We believe this structure +enhances our ability to scale client adoption while maintaining regulatory discipline and institutional-grade controls. +General Development of Our Business +MindWave Innovations Inc was incorporated in the State +of Delaware in 2025. On December 1, 2025, MindWave signed and closed an Agreement and Plan of Merger with Apimeds Pharmaceuticals +US, Inc. (“ Apimeds ”), Apimeds Merger Sub, Inc. (“ Merger Sub ”), Lokahi Therapeutics, Inc., and Erik +Emerson, pursuant to which Merger Sub merged with and into MindWave, with MindWave surviving as a wholly owned subsidiary of Apimeds (the +“ Merger ”). +Following the Merger, we have focused our development +efforts on scaling an institutional DAT platform. Consistent with our treasury reserve posture, our group maintains Bitcoin as its core +reserve asset. As previously mentioned, TechyTrade (Dubai) owns and controls 1,000 Bitcoin, identifiable and segregated in sub-wallets +administered by MindWave Ltd. +Our principal activities consist of: (i) building +our institutional DAT stack, including secure corporate Bitcoin treasury infrastructure and AI-supported Bitcoin yield strategies; (ii) implementing +and attesting to our Bitcoin reserve and segregated custody architecture; and (iii) forming relationships with regulated custodians, +wallet and validator providers, financial institutions, and placement agents to support custody, risk management, compliance (including +AML/KYC), and capital formation. We are in the execution stage and are preparing for commercialization of our DAT offerings. +Roadmap and Milestones +Our near-term priorities focus on: (i) onboarding +initial institutional clients to our corporate Bitcoin treasury infrastructure; (ii) progressing AI-supported, risk-managed yield +programs under defined policy and control frameworks; (iii) standing up enterprise validator services to support network participation +and governance; and (iv) advancing development of our ClimateTech, AdTech, and InsurTech verticals to interoperate with our DAT stack. +Over time, we intend to expand treasury management capabilities, scale validator operations, and develop ecosystem utility, subject to +applicable regulatory requirements, market conditions, and governance approvals. +27 +Our Treasury Strategy and Digital Asset Treasury +Platform +Bitcoin Treasury Strategy +We believe that Bitcoin is an attractive +reserve asset because (i) it can serve as a store of value supported by a robust, public, open-source architecture that is independent +of sovereign monetary policy, (ii) its fixed supply offers the potential to serve as a long-term hedge against inflation and, as +adoption increases, the opportunity for appreciation, and (iii) the Bitcoin network provides infrastructure for financial and technological +innovation. +We were formed with the intention of operating an +institutional-focused Digital Asset Treasury (“DAT”) platform, and our group has adopted a Bitcoin-centric reserve posture aligned +with that platform. Under this posture, our treasury reserve assets consist principally of: +● Cash and cash equivalents sufficient for working capital +and operational needs; and +● Bitcoin held at the operating-subsidiary level as our primary +reserve asset, maintained within a segregated sub-wallet architecture and free of encumbrances, subject to business needs and market +conditions. +Consistent with this reserve posture, we may from +time to time evaluate capital raising transactions to support platform development, working capital, and expansion of our reserve +strategy. We expect future capital allocation decisions to consider market conditions, risk management, regulatory considerations, and +anticipated operating requirements. Our strategy contemplates that we may (i) periodically rebalance or sell Bitcoin for general +corporate purposes, (ii) utilize our Bitcoin reserve within conservative, risk-managed programs that support our yield and validator +infrastructure, and (iii) evaluate compliant structures to generate programmatic returns consistent with institutional practices +and applicable law. +We also plan to conduct advocacy and educational +initiatives regarding institutional Bitcoin treasury standards, custody segregation, controls, and reporting, including thought leadership +and partnerships intended to support the broader adoption of compliant corporate Bitcoin treasury operations. +DAT Yield and Validator Infrastructure +Our core offerings center on an institutional +DAT stack designed to help corporations and institutions hold, manage, and generate yield on Bitcoin reserves. Key components include: +● Institutional treasury infrastructure. Secure +wallet architecture with segregation and controls designed to align with public-company balance sheet requirements and institutional +compliance frameworks. +● AI-supported yield programs. Risk-managed +strategies intended to produce programmatic returns on Bitcoin reserves, with governance and monitoring controls suitable for institutional +participants. +● Validator-enabled ecosystem. Operations +that support network economics and governance across our ecosystem, including utility powered by our native token, $NILA. +Client assets, if and when onboarded, are expected +to be held through regulated third-party custodians or institutional-grade wallet solutions within a segregation and control +framework consistent with AML/KYC and other applicable requirements. We emphasize conservative collateralization (where relevant to client +programs), real-time risk monitoring, and robust compliance processes. +Our Bitcoin Holdings +On March 31, 2025, TechyTrade (Dubai) entered +into an Asset Purchase Agreement with MindWave Ltd., pursuant to which TechyTrade (Dubai) acquired 1,000 bitcoin. The bitcoin are held +free of encumbrances within a segregated sub-wallet architecture administered by MindWave Ltd. We did not sell any bitcoin during 2024 +or 2025. +28 +Our Industry Overview +Bitcoin Industry +Bitcoin is a digital asset that is issued by and transmitted +through an open-source protocol, known as the Bitcoin protocol, collectively maintained by a peer-to-peer network of decentralized user +nodes. This network hosts a public transaction ledger, known as the Bitcoin blockchain, on which bitcoin holdings and all validated transactions +that have ever taken place on the Bitcoin network are recorded. Balances of bitcoin are stored in individual “wallet” functions, +which associate network public addresses with one or more “private keys” that control the transfer of bitcoin. The Bitcoin +blockchain can be updated without any single entity owning or operating the network. +Creation of New Bitcoin and Limits on Supply +The Bitcoin protocol limits the total number of bitcoins +that can be generated over time to 21 million. As of October 2025, approximately 19.93 million bitcoins have been generated. +New bitcoins are created and allocated by the Bitcoin protocol through a “mining” process that rewards users that validate +transactions in the Bitcoin blockchain. Validated transactions are added in “blocks” approximately every 10 minutes. The mining +process serves to validate transactions and secure the Bitcoin network. Mining is a competitive and costly operation that requires a large +amount of computational power to solve complex mathematical algorithms. This expenditure of computing power is known as “proof of +work.” +To incentivize miners to incur the costs of mining +bitcoin, the Bitcoin protocol rewards miners that successfully validate a block of transactions with newly generated bitcoin. The current +reward for miners that successfully validate a block of transactions is 3.125 bitcoin per mined block. The mining reward is reduced by +half, which is referred to as a bitcoin halving, after every 210,000 blocks are mined. This has historically occurred approximately every +four years. The most recent bitcoin halving occurred in April 2024, and the next bitcoin halving is expected to occur sometime +in 2028. +Modifications to the Bitcoin Protocol +Bitcoin is an open-source network that has no central +authority, so no one person can unilaterally make changes to the software that runs the network. However, there is a core group of developers +that maintains the code for the Bitcoin protocol, and they can propose changes to the source code and release periodic updates and other +changes. Unlike most software that has a central entity that can push updates to users, bitcoin is a peer-to-peer network in which individual +network participants, called nodes, decide whether to upgrade the software and accept the new changes. As a practical matter, a modification +becomes part of the Bitcoin protocol only if the proposed changes are accepted by participants collectively having more than 50% of the +processing power, known as hash rate, on the network. If a certain percentage of the nodes reject the changes, then a “fork” +takes place, and participants can choose the version of the software they want to run. +Forms of Attack Against the Bitcoin Network and +Wallets +Blockchain technology has many built-in security features +that make it difficult for hackers and other malicious actors to corrupt the protocol or blockchain. However, as with any computer network, +the Bitcoin network may be subject to certain attacks. Some forms of attack include unauthorized access to wallets that hold bitcoin and +direct attacks, like “51% attacks” or “denial-of-service attacks” on the Bitcoin network. +Bitcoin is controllable only by the possessor of both +the unique public key and private key(s) relating to the local or online digital wallet in which the bitcoin is held. Private keys +used to access bitcoin balances are not widely distributed and are typically held on hardware (which can be physically controlled by the +holder or by a third party such as a custodian) or via software programs on third-party servers. One form of obtaining unauthorized access +to a wallet occurs following a phishing attack where the attacker deceives the victim and manipulates them into sharing their private +keys for their digital wallet or other sensitive information. Other similar attacks may also result in the loss of private keys and the +inability to access, and effective loss of, the corresponding bitcoin. +A “51% attack” may occur when a group +of miners attain more than 50% of the Bitcoin network’s mining power, thereby enabling them to control the Bitcoin network and protocol +and manipulate the blockchain. A “denial-of-service attack” occurs when legitimate users are unable to access information +systems, devices, or other network resources due to the actions of a malicious actor flooding the network with traffic until the network +is unable to respond or crashes. The Bitcoin network has been, and can be in the future, subject to denial-of-service attacks, which can +result in temporary delays in block creation and in the transfer of bitcoin. +29 +Bitcoin Industry Participants +The primary Bitcoin industry participants are miners, +investors and traders, digital asset exchanges and service providers, including custodians, brokers, payment processors, wallet providers +and financial institutions. +Miners. Miners range from bitcoin enthusiasts +to professional mining operations that design and build dedicated mining machines and data centers, including mining pools, which are +groups of miners that act cohesively and combine their processing power to mine bitcoin blocks. See “— Creation +of New Bitcoin and Limits on Supply” above. +Investors and Traders. Bitcoin investors +and traders include individuals and institutional investors who, directly or indirectly, purchase, hold, and sell bitcoin or bitcoin-based +derivatives. On January 10, 2024, the Securities and Exchange Commission (“ SEC ”) issued an order approving several +applications for the listing and trading of shares of spot bitcoin exchange-traded products (“ ETPs ”) on U.S. national +securities exchanges. While the SEC had previously approved exchange-traded funds where the underlying assets were bitcoin futures contracts, +this order represented the first time the SEC approved the listing and trading of ETPs that acquire, hold and sell bitcoin directly. ETPs +can be bought and sold on a stock exchange like traditional stocks, and provide investors with another means of gaining economic exposure +to bitcoin through traditional brokerage accounts. +Digital Asset Exchanges. Digital asset +exchanges provide trading venues for purchases and sales of bitcoin in exchange for fiat or other digital assets. Bitcoin can be exchanged +for fiat currencies, such as the U.S. dollar, at rates of exchange determined by market forces on bitcoin trading platforms, which +are not regulated in the same manner as traditional securities exchanges. In addition to these platforms, over-the-counter markets and +derivatives markets for bitcoin also exist. The value of bitcoin within the market is determined, in part, by the supply of and demand +for bitcoin in the global bitcoin market, market expectations for the adoption of bitcoin as a store of value, the number of merchants +that accept bitcoin as a form of payment, and the volume of peer-to-peer transactions, among other factors. +Service providers. Service providers offer +a multitude of services to other participants in the Bitcoin industry, including custodial and trade execution services, commercial and +retail payment processing, wallet solutions and financial institutions. If adoption of the Bitcoin network continues to materially increase, +we anticipate that service providers may expand the currently available range of services and that additional parties will enter the service +sector for the Bitcoin network. +Other Digital Assets +As of the date of this Annual Report, bitcoin +was the largest digital asset by market capitalization. However, numerous alternative digital assets exist, and many entities, including +consortia and financial institutions, are actively researching and investing resources in blockchain platforms and digital assets that +utilize consensus mechanisms other than proof-of-work mining, which is employed by the Bitcoin network. For example, in late 2022, the +Ethereum network transitioned to a “proof-of-stake” mechanism for validating transactions that requires significantly less +computing power than proof-of-work mining. Other alternative digital assets that compete with bitcoin in certain ways include “stablecoins,” +which are designed to maintain a constant price because of their issuers’ promise to hold high-quality liquid assets (such as U.S. dollar +deposits and short-term U.S. treasury securities) equal to the total value of stablecoins in circulation. Stablecoins have grown +rapidly as an alternative to bitcoin and other digital assets as a medium of exchange and store of value, particularly on digital asset +trading platforms. As of December 31, 2024, two of the eight largest digital assets by market capitalization were U.S. dollar-backed +stablecoins. +Additionally, central banks in some countries have +started to introduce digital forms of legal tender. For example, China’s central bank digital currency (“ CBDC ”) +project was made available to consumers in January 2022, and governments including the United States and the European Union +have discussed the potential creation of new CBDCs. +30 +Our Market Opportunity for Institutional Bitcoin +Treasury and DAT Solutions +The use of Bitcoin as a corporate treasury reserve +asset has expanded as companies and institutions evaluate alternatives to traditional cash management strategies. While fiat currency +and short-term government securities remain predominant, the emergence of U.S. spot Bitcoin exchange-traded funds and increasing +recognition of Bitcoin as an investable asset class have contributed to broader institutional acceptance. A growing number of public and +private companies, investment funds, and other institutional allocators have begun to evaluate or adopt Bitcoin reserves as a potential +long-term store of value and as a component of diversified treasury strategies. +Despite these developments, adoption of Bitcoin for +treasury purposes remains limited relative to the overall size of global corporate treasury balances. We believe this gap highlights a +meaningful market opportunity for institutional-grade platforms that can provide compliant, transparent, and risk-managed infrastructure +for Bitcoin treasury operations. Key needs we see in the market include secure custody with segregation and controls; governance frameworks +aligned with public-company standards; accounting and reporting support; risk-managed yield programs; and integration into existing treasury +workflows. +We believe there is an opportunity to differentiate +by offering an integrated DAT solution that combines: (i) corporate Bitcoin treasury infrastructure designed for institutional policies +and controls; (ii) AI-supported, risk-managed yield programs intended to produce programmatic returns on reserve assets; and (iii) a +validator-enabled ecosystem that supports network participation and governance, with utility powered by our native token, $NILA. As +institutional comfort and regulatory clarity continue to develop, we expect the use of Bitcoin in treasury management to expand, supported +by demand for transparent, regulated, and operationally disciplined solutions. +In our view, market growth will be driven by several +secular trends: increased institutional access to Bitcoin through regulated vehicles and service providers; enhancements in custody, compliance, +and accounting standards; and the need for end-to-end platforms that allow corporate treasury teams to implement Bitcoin strategies without +building bespoke infrastructure. Our platform is being developed to address these requirements by providing segregation, controls, monitoring, +and reporting consistent with institutional expectations, along with programmatic yield and validator capabilities designed to complement +a Bitcoin-centric reserve posture. +Our Products and Services +Our principal planned products and services focus +on delivering an institutional Digital Asset Treasury (“DAT”) platform that enables corporations and institutions to hold, +manage, and generate yield on Bitcoin reserves through a compliant, scalable infrastructure. We are in the development execution stage +and are actively building the underlying architecture, governance, and partnerships necessary to support future commercialization. +Institutional DAT Platform +● Corporate Bitcoin treasury infrastructure. Segregated wallet +architecture, permissions and controls, and reporting designed to align with institutional compliance frameworks and public-company balance +sheet requirements. +● AI-supported yield programs. Risk-managed strategies intended +to produce programmatic returns on Bitcoin reserves, with governance, monitoring, and risk limits tailored for institutional participants. +● Validator-enabled ecosystem. Network operations that support +validator economics and governance across our interoperable platforms, with utility powered by our native token, $NILA. +● Compliance and risk management. Policies and tooling addressing +AML/KYC, ongoing monitoring, collateral and reserve discipline where relevant to client programs, and real-time risk analytics. +● Advisory and enablement. Onboarding and operational support +to help clients adopt institutional Bitcoin treasury standards, including segregation, reconciliation, and controls. +Treasury Reserve and Bitcoin Strategy +Our group maintains a Bitcoin-centric reserve posture +that aligns with our DAT platform. This approach is intended to preserve purchasing power, provide continuous exposure to Bitcoin, and +support our yield and validator infrastructure. From time to time, we may evaluate capital raising transactions to fund platform development, +operations, and reserve strategy, subject to market conditions, risk management, regulatory considerations, and anticipated operating +needs. +31 +Custody and Execution Services +We intend to utilize regulated third-party custodians +and institutional-grade wallet solutions for the safekeeping of any client assets onboarded to our platform, as well as our operating-subsidiary +reserves. These providers are expected to support secure custody, segregation, and controls, and to offer affiliated execution services +for Bitcoin acquisitions and dispositions consistent with institutional best practices. +Ecosystem Verticals Powered by $NILA +In addition to our core Digital Asset Treasury (“ DAT ”) +platform, we operate interoperable verticals powered by our native token, $NILA, which enables governance, utility, and value flow across +our ecosystem. +● ClimateTech (AQUAE Impact). One our ecosystems is a blockchain-powered +sustainability engine intended to generate verifiable, insured environmental impact outcomes, including fractionalized credits linked +to analog forest projects and other conservation efforts. The roadmap contemplates phases focused on expanding analog forest capacity, +introducing water-conservation and biodiversity credits, and building a secondary market for the exchange of such credits. +● AdTech (Wave+). Another ecosystem is a micro-engagement +platform to convert user attention into tokenized value for brand and mission-aligned campaigns. The platform is designed to support +daily active engagement, with contemplated revenue streams from ad placements, partner campaigns, and conversion fees. +● InsurTech (Institutional Insurance Engine). We are designing +an insurance framework to complement digital treasury strategies through surplus-capital-style models backed by strengthened, Bitcoin-centric +balance sheets. The goal is to support treasury protection, parametric digital-asset coverage, and institutional insurance primitives +that can be integrated with our DAT platform. +Validator Infrastructure +We intend to operate enterprise-grade validator nodes +to support network participation, governance, and rewards within our ecosystem and for institutional clients. The validator stack +is being developed with an emphasis on high availability, slashing prevention, hardware security (including HSM/TEE-based protections), +governance controls, and policy-limited MEV/PBS participation. Anticipated revenue drivers include staking rewards, protocol incentives, +enterprise validator service fees, and ecosystem transaction fees. +Revenue Model +Our contemplated revenue model includes multiple streams +that align with institutional treasury adoption: +● Treasury Management Fees: Asset-under-management-based +fees for corporate treasury wallets and related services. +● Performance and Program Fees: Participation in net returns +from AI-supported yield programs, subject to institutional governance and risk policies. +● Validator Services and Protocol Incentives: Enterprise +staking and validator service fees, protocol-derived incentives, and transaction-based revenues tied to ecosystem activity. Monetization +associated with ClimateTech (e.g., fractionalized credits), AdTech (campaign and placement revenue), and InsurTech-related structures, +where applicable. +32 +Our Customers +We target enterprise clients that require institutional +governance, custody segregation, and audit-ready reporting for Bitcoin treasury operations, including public and private corporate treasury +teams, institutional investors and asset managers, financial institutions and intermediaries, and high-net-worth organizations with significant +Bitcoin reserves. We aim to integrate into CFO, treasury, and risk committee workflows, including policy design, compliance and accounting +support, and board-level reporting. +We have generated revenues and do not currently rely +on any single customer for more than 10% of our revenues. +Our Market Positioning +We believe our market positioning is strengthened +by the integration of our institutional Digital Asset Treasury (“ DAT ”) platform, segregated custody architecture, and +Bitcoin-centric reserve posture. Our platform is designed to enable corporations and institutions to implement Bitcoin treasury operations +with the governance, controls, and reporting expected by institutional stakeholders, while complementing those reserves with AI-supported, +risk-managed yield programs and validator participation within our broader ecosystem. +Our Bitcoin holdings are maintained primarily as a +treasury reserve asset intended to support our balance sheet and operational resilience. Our reserve posture reinforces our credibility +with institutional clients by aligning our incentives with a Bitcoin-centric treasury strategy and by demonstrating disciplined custody, +segregation, and control practices. +By maintaining a Bitcoin-centric reserve posture and +building end-to-end DAT infrastructure, we aim to provide a comprehensive, compliant, and scalable pathway for institutions to adopt Bitcoin +in treasury management. This integration of reserve management, custody controls, yield programs, and validator operations is intended +to enhance risk management, support operational discipline, and provide a foundation for long-term value creation. +Our Competitive Strengths +Platform Governance and $NILA Utility +$NILA functions as a governance and utility token +within our ecosystem, facilitating validator participation, program access, and value exchange across verticals. Governance processes +are designed to be policy-driven and auditable, with the objective of aligning incentives among stakeholders while maintaining institutional +controls. Within our validator framework, we intend to limit protocol participation to policy-permitted activities and to maintain +risk controls, including stake diversification, slashing protection, and real-time monitoring. +We believe the following strengths position us to +compete effectively in the emerging institutional Bitcoin treasury market: +● Institutional DAT stack. End-to-end infrastructure for +corporate Bitcoin treasury operations, including secure wallet architecture, permissions and controls, reconciliation, and reporting +aligned with institutional requirements. +● Segregated custody architecture. Use of institutional-grade +wallet solutions and regulated third-party providers for safekeeping, with segregation and control frameworks designed to mitigate counterparty +and operational risks. +● Bitcoin-centric reserve posture. A treasury strategy centered +on Bitcoin reserves intended to preserve purchasing power, maintain continuous exposure, and support platform credibility with institutional +clients. +● AI-supported yield programs. Risk-managed strategies intended +to produce programmatic returns on reserve assets, governed by policies, monitoring, and limits consistent with institutional risk management. +● Validator-enabled ecosystem. Network participation that +supports validator economics and governance across interoperable platforms, with utility powered by our native token, $NILA. +● Compliance and governance. Emphasis on AML/KYC, surveillance, +and real-time risk monitoring, together with operational controls designed to align with institutional and public-company standards. +● Scalable partner network. Strategic relationships with +custodians, wallet providers, financial institutions, and other service partners to support onboarding, execution, and operational scale. +● Operational discipline. A focus on segregation, transparency, +and audit-ready processes to support institutional adoption and long-term sustainability. +33 +We believe our integrated approach — combining +corporate Bitcoin treasury infrastructure, AI-supported yield programs, validator operations, and interoperable verticals powered by $NILA — addresses +key adoption barriers by offering a policy-driven, audit-ready, and scalable pathway for institutions. Our multi-vertical design +is intended to enhance network effects and create diversified revenue opportunities aligned with institutional compliance and governance +expectations. +Custody of Our Bitcoin +Our Bitcoin reserve is maintained within a segregated +sub-wallet architecture created and administered by MindWave Ltd. for the benefit of our operating subsidiary, TechyTrade (Dubai). TechyTrade +(Dubai) holds the private keys and retains full beneficial ownership and control of the segregated wallet(s). The 1,000 Bitcoin are identifiable, +segregated, and held free and clear of any encumbrances. This structure is intended to mitigate counterparty exposure associated with +omnibus custody while maintaining operational controls and traceability over our reserve assets. +We conduct diligence and ongoing oversight of our +wallet architecture and related service providers, focusing on segregation, key-management controls, access permissions, and incident-response +procedures. Our controls emphasize least-privilege access, multi-factor authentication, operational separation of duties, and audit trails +for key interactions and movement authorizations. We supplement these controls with periodic independent attestations to verify the existence, +segregation, and control of our Bitcoin holdings as of specified dates. +For any client assets that may be onboarded to our +platform in the future, we expect to utilize regulated third-party custodians and institutional-grade wallet solutions, implemented within +a segregation and control framework designed to meet institutional compliance requirements (including AML/KYC, monitoring, and reporting). +We anticipate diversifying custody solutions as appropriate to support risk management and operational resilience, and we will evaluate +additional custodial partners over time. +Where we engage third-party providers, we expect to +conduct initial and periodic reviews of their security, operations, and controls, including — but not limited to — key-management +practices, cold-storage policies, cybersecurity programs, business continuity and disaster recovery readiness, and the availability of +third-party assurance reporting. We also seek contractual provisions addressing segregation of assets and clarifying that digital assets +held for our benefit are not part of a custodian’s bankruptcy estate under applicable law. +We continuously monitor the safekeeping of our Bitcoin +through internal controls, reconciliation, and external confirmations, and we will conduct supplemental diligence when warranted by market +conditions or other circumstances. +Policy Framework and Risk Management +We are building our platform around policy-based governance +intended to satisfy institutional requirements and auditor expectations. Core elements include board-approved asset allocation and transaction +policies, segregation of duties, multi-step approval workflows, transaction screening, real-time solvency and exposure limits, and emergency +protocol “kill-switches.” For yield programs, we intend to maintain leverage caps, counterparty concentration limits, daily +reconciliations, and tail-risk hedging parameters. For validator operations, we emphasize uptime targets, redundancy, slashing prevention, +and pre-defined MEV/PBS participation rules. We expect to produce periodic “audit packs,” including reconciliations and +control attestations, for institutional users. +Potential Advantages and Disadvantages of Holding +Bitcoin +We believe that bitcoin is an attractive asset because +it can serve as a store of value, supported by a robust and public open-source architecture, that is untethered to sovereign monetary +policy. We also believe that, due to its limited supply, bitcoin offers the potential to serve as a hedge against inflation in the long-term +and, if its adoption increases, the opportunity for appreciation in value. +34 +Bitcoin exists entirely in electronic form, as virtually +irreversible public transaction ledger entries on the blockchain, and transactions in bitcoin are recorded and authenticated not by a +central repository, but by a decentralized peer-to-peer network. This decentralization mitigates the risks of certain threats common to +centralized computer networks, such as denial-of-service attacks, and reduces the dependency of the bitcoin network on any single system. +The decentralization of user nodes and miners also mitigates the risk of a 51% attack, which would be very costly and difficult to execute +with respect to bitcoin because the Bitcoin network is open source and widely distributed, and transactions on the blockchain require +significant computing power to be validated. However, while the Bitcoin network as a whole is decentralized, the private keys used to +access bitcoin balances are not widely distributed and are susceptible to phishing and other attacks designed to obtain sensitive +information or gain access to password-protected systems. Loss of such private keys can result in an inability to access, and effective +loss of, the corresponding bitcoin. Consequently, bitcoin holdings are susceptible to all of the risks inherent in holding any electronic +data, such as power failure, data corruption, security breach, communication failure and user error, among others. These risks, in turn, +make bitcoin substantially more susceptible to theft, destruction, or loss of value from hackers, corruption, viruses and other technology-specific +factors as compared to conventional fiat currency or other conventional financial assets. +In addition, the Bitcoin network relies on open-source +developers to maintain and improve the Bitcoin protocol. Accordingly, bitcoin may be subject to protocol design changes, governance disputes +such as “forked” protocols, competing protocols, and other open source-specific risks that do not affect conventional proprietary +software. +Government Regulation +The laws and regulations applicable to bitcoin and +digital assets are evolving and subject to interpretation and change. +Governments around the world have reacted differently +to digital assets; certain governments have deemed them illegal, and others have allowed their use and trade without restriction, while +in some jurisdictions, such as the U.S., digital assets are subject to overlapping, uncertain and evolving regulatory requirements. +As digital assets have grown in both popularity and +market size, the U.S. Executive Branch, Congress and a number of U.S. federal and state agencies, including the Financial Crimes +Enforcement Network (“FinCEN”), the Commodity Futures Trading Commission (“CFTC”), the SEC, the Financial Industry +Regulatory Authority (“FINRA”), the Consumer Financial Protection Bureau (“CFPB”), the Department of Justice, +the Department of Homeland Security, the Federal Bureau of Investigation, the Internal Revenue Service (“IRS”) and state financial +regulators, have been examining the operations of digital asset networks, digital asset users and digital asset exchanges, with particular +focus on the extent to which digital assets can be used to violate state or federal laws, including to facilitate the laundering of proceeds +of illegal activities or the funding of criminal or terrorist enterprises, and the safety and soundness and consumer-protective safeguards +of exchanges or other service-providers that hold, transfer, trade or exchange digital assets for users. Many of these state and federal +agencies have issued consumer advisories regarding the risks posed by digital assets to investors. In addition, federal and state agencies, +and other countries have issued rules or guidance regarding the treatment of digital asset transactions and requirements for businesses +engaged in activities related to digital assets. +Depending on the regulatory characterization of bitcoin, +the markets for bitcoin in general, and our activities in particular, our business and our bitcoin strategy may be subject to regulation +by one or more regulators in the United States and globally. Ongoing and future regulatory actions may alter, to a materially adverse +extent, the nature of digital assets markets, the participation of industry participants, including service providers and financial institutions +in these markets, and our ability to pursue our bitcoin strategy. Additionally, U.S. state and federal and foreign regulators and +legislatures have taken action against industry participants, including digital assets businesses, and enacted restrictive regimes in +response to adverse publicity arising from hacks, consumer harm, or criminal activity stemming from digital assets activity. U.S. federal +and state energy regulatory authorities are also monitoring the total electricity consumption of cryptocurrency mining, and the potential +impacts of cryptocurrency mining to the supply and dispatch functionality of the wholesale grid and retail distribution systems. Many +state legislative bodies have passed, or are actively considering, legislation to address the impact of cryptocurrency mining in their +respective states. +The CFTC takes the position that some digital assets, +including bitcoin, fall within the definition of a “commodity” under the Commodities Exchange Act of 1936, +as amended (the “CEA”). Under the CEA, the CFTC has broad enforcement authority to police market manipulation and fraud in +spot digital assets markets in which we may transact. Beyond instances of fraud or manipulation, the CFTC generally does not oversee cash +or spot market exchanges or transactions involving digital asset commodities that do not utilize margin, leverage, or financing. In addition, +CFTC regulations and CFTC oversight and enforcement authority apply with respect to futures, swaps, other derivative products and certain +retail leveraged commodity transactions involving digital asset commodities, including the markets on which these products trade. +35 +The SEC and its staff have taken the position that +certain other digital assets fall within the definition of a “security” under the U.S. federal securities laws. Public +statements made by senior officials and senior members of the staff at the SEC indicate that the SEC does not consider bitcoin to be a +security under the federal securities laws. However, such statements are not official policy statements by the SEC and reflect only the +speakers’ views, which are not binding on the SEC or any other agency or court and cannot be generalized to any other digital assets. +In addition, since transactions in bitcoin provide a degree of anonymity, they are susceptible to misuse for criminal activities, such +as money laundering. This misuse, or the perception of such misuse, could lead to greater regulatory oversight of bitcoin and Bitcoin +platforms, and there is the possibility that law enforcement agencies could close or blacklist bitcoin platforms or other bitcoin-related +infrastructure with little or no notice and prevent users from accessing or retrieving bitcoin held via such platforms or infrastructure. +For example, the U.S. Treasury Department’s Office of Foreign Assets Control has issued updated advisories regarding the use +of virtual currencies, added a number of digital asset exchanges and service providers to the Specially Designated Nationals and +Blocked Persons list and engaged in several enforcement actions, including a series of enforcement actions that have either shut down +or significantly curtailed the operations of several smaller digital asset exchanges associated with Russian and/or North Korean nationals. +Additionally, in January 2025, the Consumer Financial Protection Bureau announced that it is seeking public input on privacy protections +and surveillance in digital payments, particularly those offered through large technology platforms. +As noted above, activities involving bitcoin and other +digital assets may fall within the jurisdiction of more than one financial regulator and various courts and such laws and regulations +are rapidly evolving and increasing in scope. On January 23, 2025, President Trump issued an executive order titled, Strengthening +American Leadership in Digital Financial Technology. While the executive order did not mandate the adoption of any specific regulations, +the executive order identifies certain key objectives to guide agencies involved in crypto regulation, including (i) protecting the +sovereignty of the United States dollar by promoting the development of United States dollar-backed stablecoins, (ii) providing +regulatory clarity and certainty built on technology-neutral regulations for individuals and firms involved in digital assets, including +through well-defined jurisdictional regulatory boundaries, and (iii) taking measures to protect Americans from the risks of Central +Bank Digital Currencies. To achieve these objectives, the executive order established a working group on digital asset markets within +the National Economic Council, comprised of representatives from key federal agencies, with a tight timeline for examining existing regulations +and proposing a new regulatory framework. There have also been several bills introduced in Congress that propose to establish additional +regulation and oversight of the digital asset markets. +Aspects of our business involve collecting, processing, +disclosing, storing, and transmitting personal data, which are subject to certain privacy policies, contractual obligations, and U.S. and +foreign laws, regulations, and directives relating to privacy and data protection. +There are a broad variety of other data protection +laws in the United States that are or may be applicable to our activities, and a wide range of enforcement agencies at both the state +and federal levels that can review companies for privacy and data security concerns based on general consumer protection laws. The Federal +Trade Commission and state Attorneys General all are aggressive in reviewing privacy and data security protections for consumers. New +laws also are being considered at both the state and federal levels. A broad range of legislative measures also have been introduced at +the federal level. Accordingly, failure to comply with federal and state laws (both those currently in effect and future legislation) +regarding privacy and security of personal information could expose us to fines and penalties under such laws. In the event of a security +breach, we also may have obligations to notify our customers or other parties or individuals about this breach, and this can lead to significant +costs and the risk of potential enforcement and/or litigation. There is also a threat of consumer class actions related to these laws +and the overall protection of personal data. Even if we are not determined to have violated these laws, government investigations into +these issues typically require the expenditure of significant resources and generate negative publicity, which could harm our reputation +and our business. +There are similar laws in other countries, including +the General Data Protection Regulation (“GDPR”) in the European Union which imposes requirements regarding the handling and +security of personal data, requires disclosure of data breaches to individuals, customers, and data protection authorities in certain +circumstances, requires companies to honor data subjects’ requests relating to their personal data, permits regulators to impose +fines of up to €20,000,000 or 4% of global annual revenue, whichever is higher, and establishes a private right of action. +36 +In addition to these specific laws, we also are subject +to other privacy, security, and data protection laws around the world. In addition to the laws in place already, other countries are also +considering new or expanded laws governing privacy and data security that may impact our business practices. These laws may impact our +ongoing business activities and our relationships with our business partners, customers and service providers. +Furthermore, the U.S. Congress is considering +comprehensive privacy legislation. At this time, it is unclear whether Congress will pass such a law and if so, when and what it will +require and prohibit. Moreover, it is not clear whether any such legislation would give the Federal Trade Commission (“FTC”) +any new authority to impose civil penalties for violations of the Federal Trade Commission Act in the first instance, whether Congress +will grant the FTC rulemaking authority over privacy and information security, or whether Congress will vest some or all privacy and data +security regulatory authority and enforcement power in a new agency, akin to EU data protection authorities. +Sales and Marketing +Our sales and marketing strategy is designed to expand +awareness of our institutional DAT platform, build credibility with corporate treasury teams and institutional allocators, and drive adoption +of our offerings across target enterprise markets. Key elements include strategic partnerships, targeted distribution through enterprise +sales and channels, and education-led marketing that emphasizes governance, compliance, and risk management. +Strategic Partnerships +We intend to rely on strategic relationships with +regulated custodians, institutional-grade wallet providers, financial institutions, accounting and audit advisors, and other digital-asset +service providers to support our treasury operations and client enablement. Because we are not directly licensed to provide custody, execution, +or intermediation services, we expect these partners to supply the necessary regulatory infrastructure and, in certain cases, act as distribution +channels. These relationships are expected to support secure custody, segregation and control frameworks, execution services for Bitcoin +acquisitions and dispositions, validator operations, and programmatic risk management. We also expect to collaborate with placement agents +and traditional financial institutions to broaden institutional reach and facilitate client onboarding. We will continue to evaluate additional +partnerships with enterprise software integrators, cloud and security vendors, and protocol-level partners to enhance scale, resilience, +and interoperability. +Distribution Methods +We plan to distribute our DAT solutions directly to +enterprise clients through internal business development and relationship management teams focused on corporate treasuries, institutions, +and financial intermediaries. In addition, we expect to leverage partnerships with custodians, wallet providers, and financial institutions +to support client acquisition, onboarding, and ongoing operations. Over time, we anticipate supplementing these channels with participation +in industry conferences and education-led initiatives, including research and thought-leadership publications tailored for CFOs, treasury +leaders, boards, and risk committees. We do not expect to rely on mass-market retail marketing programs. +Marketing +We intend to emphasize education, transparency, and +strategic engagement aligned with institutional standards. We expect to target the following principal audiences: +● Corporate treasury managers and CFO organizations seeking to +integrate Bitcoin into reserve strategies with institutional governance, controls, and reporting. +● Institutional investors and asset managers, including hedge +funds and family offices, seeking institutional-grade custody, risk-managed yield programs, and validator-enabled capabilities. +● Financial institutions and intermediaries evaluating Bitcoin +treasury offerings for their clients and seeking compliant, scalable infrastructure. +● High-net-worth individuals with significant Bitcoin holdings +who require institutional-grade custody, governance, and programmatic operations. +37 +Our marketing strategy is expected to combine targeted +enterprise outreach, channel partnerships, and education-driven content intended to promote responsible adoption of institutional Bitcoin +treasury practices while reinforcing MindWave’s commitment to compliance, governance, and long-term value creation. +Intellectual Property +We rely on a combination of proprietary software, +trade secrets, and contractual protections to develop and operate our DAT platform, including components related to wallet orchestration, +segregation and controls, risk analytics, AI-supported yield programs, and validator operations. We also rely on confidentiality and invention-assignment +agreements with employees, contractors, and partners. From time to time, we may pursue trademark protection for brand names and logos +associated with our products and ecosystem (including, for example, MindWave and $NILA), and we will evaluate additional intellectual +property protections as our platform develops and markets evolve. +Seasonality +Our business is not subject to material seasonal variations. +However, our results of operations may be affected by fluctuations in the market price of bitcoin and by the timing of capital raising +activities, which may not occur evenly throughout the year. +Employees +As of January 11, 2026, we had a total of 9 employees, +none of whom are based in the United States. None of our employees are represented by a labor union. We have not experienced any +work stoppages and generally consider our relations with our employees to be good. +Legal Proceedings +From time to time, we may be involved in legal +proceedings, claims, or regulatory matters arising in the ordinary course of business. As of the date of this Annual Report, we are not +a party to any material pending legal proceedings, nor are we aware of any such proceedings contemplated by governmental authorities. +On April 24, 2026, the Company, MindWave, and +Lokahi Therapeutics, Inc., a Nevada corporation (“ Lokahi ” and, together with the Company and MindWave, the “ Company +Parties ”), together with Erik Emerson, individually and in his capacity as Bio Business Representative under the Merger Agreement, +entered into a Confidential Settlement and Mutual Release Agreement (the “ Settlement Agreement ”) with Inscobee Inc., +a South Korean corporation (“ Inscobee ”), and Apimeds Inc., a South Korean corporation and wholly owned subsidiary of +Inscobee (“ Apimeds Korea ” and, together with Inscobee, the “ Inscobee Parties ”). Concurrently with +the Settlement Agreement, the Company Parties and the Inscobee Parties also entered into a Side Letter Agreement (Merger Unwind Conditions) +(the “ Side Letter ”), which is incorporated into and forms part of the Settlement Agreement. +The Settlement Agreement resolves all outstanding +disputes among the parties arising from the Merger Agreement and related transactions. +Also on April 30, 2026, +the Company entered into a Forbearance Agreement (the “ Forbearance Agreement ”) with Alto Opportunity Master Fund, SPC +– Segregated Master Portfolio B (the “ Investor ”), which holds a senior convertible note in the aggregate original +principal amount of $11,000,000 (the “ Existing Note ”), issued pursuant to a Securities Purchase Agreement, dated +December 1, 2025 (the “ Securities Purchase Agreement ”). +Pursuant to the Forbearance Agreement, the Investor +has agreed to forbear from exercising any of its rights or remedies under the Existing Note with respect to certain existing events of +default (collectively, the “ Existing Defaults ”) during the period commencing on the date of the Forbearance Agreement +through and including June 30, 2026 (or such later date as the Investor may elect in its sole discretion) (the “ Forbearance Period ”). +The Settlement Agreement, the Side Letter, and +the Forbearance Agreement are described in the Company’s Current Report on Form 8-K filed with the SEC on May 3, 2026, and are +incorporated herein by reference. +Facilities +Our principal executive offices are located at 60 +Paya Lebar Road #04-23, Singapore 409051. +Available Information +Our website is located at www.mindwavedao.com . \ No newline at end of file diff --git a/raw/filings/0001894525/2025/0001213900-26-051139/item13.txt b/raw/filings/0001894525/2025/0001213900-26-051139/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..10b4f4524975420246a60b84b5d4e01ec9e29d40 --- /dev/null +++ b/raw/filings/0001894525/2025/0001213900-26-051139/item13.txt @@ -0,0 +1,2 @@ +Item 13. Certain Relationships and Related Transactions, and Director Independence +66 \ No newline at end of file diff --git a/raw/filings/0001894562/2024/0001628280-25-008884/filing.txt b/raw/filings/0001894562/2024/0001628280-25-008884/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..c7b124d52f0d0cd0ff6266e92262914df9836960 --- /dev/null +++ b/raw/filings/0001894562/2024/0001628280-25-008884/filing.txt @@ -0,0 +1,2360 @@ +prme-20241231 +0001894562 false 2024 FY iso4217:USD xbrli:shares iso4217:USD xbrli:shares prme:tradingDay utr:sqft xbrli:pure prme:vote 0001894562 2024-01-01 2024-12-31 0001894562 2024-06-30 0001894562 2025-02-20 0001894562 2024-10-01 2024-12-31 0001894562 2024-12-31 0001894562 2023-12-31 0001894562 us-gaap:NonrelatedPartyMember 2024-12-31 0001894562 us-gaap:NonrelatedPartyMember 2023-12-31 0001894562 us-gaap:RelatedPartyMember 2024-12-31 0001894562 us-gaap:RelatedPartyMember 2023-12-31 0001894562 us-gaap:RelatedPartyMember 2024-01-01 2024-12-31 0001894562 us-gaap:RelatedPartyMember 2023-01-01 2023-12-31 0001894562 us-gaap:NonrelatedPartyMember 2024-01-01 2024-12-31 0001894562 us-gaap:NonrelatedPartyMember 2023-01-01 2023-12-31 0001894562 2023-01-01 2023-12-31 0001894562 us-gaap:RelatedPartyMember us-gaap:ResearchAndDevelopmentExpenseMember 2024-01-01 2024-12-31 0001894562 us-gaap:RelatedPartyMember us-gaap:ResearchAndDevelopmentExpenseMember 2023-01-01 2023-12-31 0001894562 us-gaap:CommonStockMember 2022-12-31 0001894562 us-gaap:AdditionalPaidInCapitalMember 2022-12-31 0001894562 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-12-31 0001894562 us-gaap:RetainedEarningsMember 2022-12-31 0001894562 2022-12-31 0001894562 us-gaap:CommonStockMember 2023-01-01 2023-12-31 0001894562 us-gaap:AdditionalPaidInCapitalMember 2023-01-01 2023-12-31 0001894562 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-01-01 2023-12-31 0001894562 us-gaap:RetainedEarningsMember 2023-01-01 2023-12-31 0001894562 us-gaap:CommonStockMember 2023-12-31 0001894562 us-gaap:AdditionalPaidInCapitalMember 2023-12-31 0001894562 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-12-31 0001894562 us-gaap:RetainedEarningsMember 2023-12-31 0001894562 prme:PublicOfferingMember 2024-01-01 2024-12-31 0001894562 us-gaap:CommonStockMember prme:PublicOfferingMember 2024-01-01 2024-12-31 0001894562 us-gaap:AdditionalPaidInCapitalMember prme:PublicOfferingMember 2024-01-01 2024-12-31 0001894562 us-gaap:WarrantMember 2024-01-01 2024-12-31 0001894562 us-gaap:AdditionalPaidInCapitalMember 2024-01-01 2024-12-31 0001894562 us-gaap:CommonStockMember prme:SecuritiesPurchaseAgreementMember 2024-01-01 2024-12-31 0001894562 us-gaap:AdditionalPaidInCapitalMember prme:SecuritiesPurchaseAgreementMember 2024-01-01 2024-12-31 0001894562 prme:SecuritiesPurchaseAgreementMember 2024-01-01 2024-12-31 0001894562 us-gaap:CommonStockMember 2024-01-01 2024-12-31 0001894562 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-01-01 2024-12-31 0001894562 us-gaap:RetainedEarningsMember 2024-01-01 2024-12-31 0001894562 us-gaap:CommonStockMember 2024-12-31 0001894562 us-gaap:AdditionalPaidInCapitalMember 2024-12-31 0001894562 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-12-31 0001894562 us-gaap:RetainedEarningsMember 2024-12-31 0001894562 prme:PublicOfferingMember 2024-02-01 2024-02-29 0001894562 us-gaap:OverAllotmentOptionMember 2024-02-01 2024-02-29 0001894562 prme:PublicOfferingMember 2024-02-29 0001894562 prme:WarrantPurchaseAgreementMemberMember prme:PublicOfferingMember 2024-02-29 0001894562 2024-02-01 2024-02-29 0001894562 us-gaap:CommonStockMember prme:JunoTherapeuticsInc.Member prme:CollaborativeArrangementResearchCollaborationAndLicenseAgreementMember 2024-09-28 2024-09-28 0001894562 prme:JunoTherapeuticsInc.Member prme:CollaborativeArrangementResearchCollaborationAndLicenseAgreementMember 2024-09-28 2024-09-28 0001894562 prme:LaboratoryEquipmentMember 2024-12-31 0001894562 us-gaap:FurnitureAndFixturesMember 2024-12-31 0001894562 us-gaap:ComputerEquipmentMember 2024-12-31 0001894562 prme:ReportableSegmentMember 2024-01-01 2024-12-31 0001894562 prme:ReportableSegmentMember 2023-01-01 2023-12-31 0001894562 us-gaap:FairValueInputsLevel1Member us-gaap:MoneyMarketFundsMember 2024-12-31 0001894562 us-gaap:FairValueInputsLevel2Member us-gaap:MoneyMarketFundsMember 2024-12-31 0001894562 us-gaap:FairValueInputsLevel3Member us-gaap:MoneyMarketFundsMember 2024-12-31 0001894562 us-gaap:MoneyMarketFundsMember 2024-12-31 0001894562 us-gaap:FairValueInputsLevel1Member us-gaap:CorporateDebtSecuritiesMember 2024-12-31 0001894562 us-gaap:FairValueInputsLevel2Member us-gaap:CorporateDebtSecuritiesMember 2024-12-31 0001894562 us-gaap:FairValueInputsLevel3Member us-gaap:CorporateDebtSecuritiesMember 2024-12-31 0001894562 us-gaap:CorporateDebtSecuritiesMember 2024-12-31 0001894562 us-gaap:FairValueInputsLevel1Member us-gaap:NonrelatedPartyMember prme:USTreasuryBillsAndGovernmentSecuritiesMember 2024-12-31 0001894562 us-gaap:FairValueInputsLevel2Member us-gaap:NonrelatedPartyMember prme:USTreasuryBillsAndGovernmentSecuritiesMember 2024-12-31 0001894562 us-gaap:FairValueInputsLevel3Member us-gaap:NonrelatedPartyMember prme:USTreasuryBillsAndGovernmentSecuritiesMember 2024-12-31 0001894562 us-gaap:NonrelatedPartyMember prme:USTreasuryBillsAndGovernmentSecuritiesMember 2024-12-31 0001894562 us-gaap:FairValueInputsLevel1Member us-gaap:RelatedPartyMember 2024-12-31 0001894562 us-gaap:FairValueInputsLevel2Member us-gaap:RelatedPartyMember 2024-12-31 0001894562 us-gaap:FairValueInputsLevel3Member us-gaap:RelatedPartyMember 2024-12-31 0001894562 us-gaap:FairValueInputsLevel1Member 2024-12-31 0001894562 us-gaap:FairValueInputsLevel2Member 2024-12-31 0001894562 us-gaap:FairValueInputsLevel3Member 2024-12-31 0001894562 us-gaap:FairValueInputsLevel1Member us-gaap:MoneyMarketFundsMember 2023-12-31 0001894562 us-gaap:FairValueInputsLevel2Member us-gaap:MoneyMarketFundsMember 2023-12-31 0001894562 us-gaap:FairValueInputsLevel3Member us-gaap:MoneyMarketFundsMember 2023-12-31 0001894562 us-gaap:MoneyMarketFundsMember 2023-12-31 0001894562 us-gaap:FairValueInputsLevel1Member us-gaap:NonrelatedPartyMember prme:USTreasuryBillsAndGovernmentSecuritiesMember 2023-12-31 0001894562 us-gaap:FairValueInputsLevel2Member us-gaap:NonrelatedPartyMember prme:USTreasuryBillsAndGovernmentSecuritiesMember 2023-12-31 0001894562 us-gaap:FairValueInputsLevel3Member us-gaap:NonrelatedPartyMember prme:USTreasuryBillsAndGovernmentSecuritiesMember 2023-12-31 0001894562 us-gaap:NonrelatedPartyMember prme:USTreasuryBillsAndGovernmentSecuritiesMember 2023-12-31 0001894562 us-gaap:FairValueInputsLevel1Member us-gaap:RelatedPartyMember 2023-12-31 0001894562 us-gaap:FairValueInputsLevel2Member us-gaap:RelatedPartyMember 2023-12-31 0001894562 us-gaap:FairValueInputsLevel3Member us-gaap:RelatedPartyMember 2023-12-31 0001894562 us-gaap:FairValueInputsLevel1Member 2023-12-31 0001894562 us-gaap:FairValueInputsLevel2Member 2023-12-31 0001894562 us-gaap:FairValueInputsLevel3Member 2023-12-31 0001894562 prme:USTreasuryBillsAndGovernmentSecuritiesMember 2024-12-31 0001894562 prme:USTreasuryBillsAndGovernmentSecuritiesMember 2023-12-31 0001894562 prme:LaboratoryEquipmentMember 2023-12-31 0001894562 us-gaap:LeaseholdImprovementsMember 2024-12-31 0001894562 us-gaap:LeaseholdImprovementsMember 2023-12-31 0001894562 us-gaap:FurnitureAndFixturesMember 2023-12-31 0001894562 us-gaap:ComputerEquipmentMember 2023-12-31 0001894562 us-gaap:ConstructionInProgressMember 2024-12-31 0001894562 us-gaap:ConstructionInProgressMember 2023-12-31 0001894562 2023-11-30 0001894562 prme:A38SidneyStreetCambridgeMassachusettsLeaseMember 2021-07-01 2021-07-31 0001894562 prme:A38SidneyStreetCambridgeMassachusettsLeaseMember 2021-07-31 0001894562 prme:A64SidneyStreetCambridgeMassachusettsLeaseMember 2021-07-01 2021-07-31 0001894562 prme:A64SidneyStreetCambridgeMassachusettsLeaseMember 2021-07-31 0001894562 prme:A60FirstStreetCambridgeMassachusettsLeaseMember 2021-11-30 0001894562 prme:A60FirstStreetCambridgeMassachusettsLeaseMember 2024-12-31 0001894562 prme:A60FirstStreetCambridgeMassachusettsLeaseMember 2023-12-31 0001894562 srt:RevisionOfPriorPeriodReclassificationAdjustmentMember prme:A60FirstStreetCambridgeMassachusettsLeaseMember 2024-12-31 0001894562 prme:A480ArsenalAmendmentMember 2024-08-31 0001894562 prme:A500ArsenalLeaseMember 2024-09-30 0001894562 prme:ExpansionSpaceMember 2024-08-31 0001894562 prme:ExpansionSpaceTerminationPeriodOneMember 2024-08-01 2024-08-31 0001894562 prme:ExpansionSpaceTerminationPeriodTwoMember 2024-08-01 2024-08-31 0001894562 prme:A500ArsenalLeaseMember 2024-12-31 0001894562 prme:A500ArsenalLeaseAdditionalTenantImprovementAllowanceMember 2024-12-31 0001894562 us-gaap:OperatingLeaseLeaseNotYetCommencedMember 2024-12-31 0001894562 us-gaap:IPOMember 2024-02-01 2024-02-29 0001894562 us-gaap:IPOMember 2024-02-29 0001894562 prme:UnregisteredOfferingMember 2024-09-01 2024-09-30 0001894562 prme:WarrantPurchaseAgreementMember prme:PublicOfferingMember 2024-02-29 0001894562 prme:SalesAgreementMember 2023-11-01 2023-11-30 0001894562 us-gaap:EmployeeStockOptionMember prme:A2022StockOptionAndIncentivePlanMember 2022-02-01 2022-02-28 0001894562 prme:A2022EmployeeStockPurchasePlanMember us-gaap:EmployeeStockMember us-gaap:SubsequentEventMember 2025-01-01 0001894562 us-gaap:EmployeeStockOptionMember prme:A2022StockOptionAndIncentivePlanAnd2019EquityIncentivePlanMember 2024-12-31 0001894562 us-gaap:EmployeeStockOptionMember prme:A2022StockOptionAndIncentivePlanMember 2024-12-31 0001894562 us-gaap:EmployeeStockMember prme:A2022EmployeeStockPurchasePlanMember 2022-02-28 0001894562 us-gaap:EmployeeStockMember prme:A2022EmployeeStockPurchasePlanMember 2022-02-01 2022-02-28 0001894562 us-gaap:EmployeeStockMember prme:A2022EmployeeStockPurchasePlanMember 2024-12-31 0001894562 us-gaap:EmployeeStockMember prme:A2022EmployeeStockPurchasePlanMember 2024-01-01 2024-12-31 0001894562 us-gaap:EmployeeStockMember prme:A2022EmployeeStockPurchasePlanMember 2023-01-01 2023-12-31 0001894562 us-gaap:EmployeeStockOptionMember 2024-01-01 2024-12-31 0001894562 us-gaap:EmployeeStockOptionMember 2023-01-01 2023-12-31 0001894562 prme:TimeBasedStockOptionsMember 2023-12-31 0001894562 prme:TimeBasedStockOptionsMember 2023-01-01 2023-12-31 0001894562 prme:TimeBasedStockOptionsMember 2024-01-01 2024-12-31 0001894562 prme:TimeBasedStockOptionsMember 2024-12-31 0001894562 prme:PerformanceBasedStockOptionsMember 2023-12-31 0001894562 prme:PerformanceBasedStockOptionsMember 2023-01-01 2023-12-31 0001894562 prme:PerformanceBasedStockOptionsMember 2024-01-01 2024-12-31 0001894562 prme:PerformanceBasedStockOptionsMember 2024-12-31 0001894562 prme:RestrictedStockTimeBasedMember 2024-01-01 2024-12-31 0001894562 prme:RestrictedStockTimeBasedMember 2023-12-31 0001894562 prme:RestrictedStockTimeBasedMember 2024-12-31 0001894562 prme:RestrictedStockPerformanceBasedMember 2023-12-31 0001894562 prme:RestrictedStockPerformanceBasedMember 2024-01-01 2024-12-31 0001894562 prme:RestrictedStockPerformanceBasedMember 2024-12-31 0001894562 us-gaap:ResearchAndDevelopmentExpenseMember 2024-01-01 2024-12-31 0001894562 us-gaap:ResearchAndDevelopmentExpenseMember 2023-01-01 2023-12-31 0001894562 us-gaap:GeneralAndAdministrativeExpenseMember 2024-01-01 2024-12-31 0001894562 us-gaap:GeneralAndAdministrativeExpenseMember 2023-01-01 2023-12-31 0001894562 prme:BroadInstituteIncMember prme:CollaborativeArrangementLicenseAgreementMember 2019-09-01 2019-09-30 0001894562 prme:BroadInstituteIncMember prme:CollaborativeArrangementLicenseAgreementMember 2019-09-30 0001894562 prme:BroadInstituteIncMember prme:CollaborativeArrangementLicenseAgreementMember 2024-12-31 0001894562 prme:BroadInstituteIncMember prme:CollaborativeArrangement2022LicenseAgreementMember 2022-12-01 2022-12-31 0001894562 prme:BroadInstituteIncAndHarvardUniversityMember prme:CollaborativeAgreementPledgeMember 2021-02-01 2021-02-28 0001894562 prme:BroadInstituteIncAndHarvardUniversityMember prme:CollaborativeAgreementPledgeMember 2023-01-01 2023-12-31 0001894562 prme:BroadInstituteIncAndHarvardUniversityMember prme:CollaborativeAgreementPledgeMember 2024-01-01 2024-12-31 0001894562 prme:BeamTherapeuticsMember prme:CollaborativeArrangementRelatedPartyMember 2019-09-01 2019-09-30 0001894562 prme:BeamTherapeuticsMember prme:NonSickleCellDiseaseMember prme:CollaborativeArrangementRelatedPartyMember 2019-09-30 0001894562 prme:BeamTherapeuticsMember prme:SickleCellDiseaseMember prme:CollaborativeArrangementRelatedPartyMember 2019-09-30 0001894562 prme:BeamTherapeuticsMember prme:CollaborativeArrangementRelatedPartyMember 2019-09-30 0001894562 us-gaap:CommonStockMember prme:BeamTherapeuticsMember prme:CollaborativeArrangementRelatedPartyMember 2020-09-01 2020-09-30 0001894562 us-gaap:CommonStockMember prme:BeamTherapeuticsMember prme:CollaborativeArrangementRelatedPartyMember 2020-10-01 2020-10-31 0001894562 us-gaap:CommonStockMember prme:BeamTherapeuticsMember prme:CollaborativeArrangementRelatedPartyMember 2019-09-01 2019-09-30 0001894562 prme:BeamTherapeuticsMember prme:CollaborativeArrangementRelatedPartyMember 2024-01-01 2024-12-31 0001894562 prme:BeamTherapeuticsMember prme:CollaborativeArrangementRelatedPartyMember 2023-01-01 2023-12-31 0001894562 prme:JunoTherapeuticsInc.Member prme:CollaborativeArrangementResearchCollaborationAndLicenseAgreementMember 2024-09-28 0001894562 us-gaap:CommonStockMember prme:JunoTherapeuticsInc.Member prme:CollaborativeArrangementStockPurchaseAgreementMember 2024-09-28 2024-09-28 0001894562 prme:JunoTherapeuticsInc.Member prme:CollaborativeArrangementBMSCollaborationAgreementAccountingMember 2024-09-28 2024-09-28 0001894562 prme:JunoTherapeuticsInc.Member prme:CollaborativeArrangementResearchCollaborationAndLicenseAgreementMember 2024-12-31 0001894562 prme:JunoTherapeuticsInc.Member prme:CollaborativeArrangementResearchCollaborationAndLicenseAgreementMember 2023-12-31 0001894562 us-gaap:EmployeeStockOptionMember 2024-01-01 2024-12-31 0001894562 us-gaap:EmployeeStockOptionMember 2023-01-01 2023-12-31 0001894562 us-gaap:RestrictedStockMember 2024-01-01 2024-12-31 0001894562 us-gaap:RestrictedStockMember 2023-01-01 2023-12-31 0001894562 us-gaap:DomesticCountryMember 2024-12-31 0001894562 us-gaap:DomesticCountryMember 2023-12-31 0001894562 us-gaap:StateAndLocalJurisdictionMember 2024-12-31 0001894562 us-gaap:StateAndLocalJurisdictionMember 2023-12-31 0001894562 us-gaap:RelatedPartyMember prme:CoFounderShareholderMember prme:ScientificConsultingMember 2024-01-01 2024-12-31 0001894562 us-gaap:RelatedPartyMember prme:CoFounderShareholderMember prme:ScientificConsultingMember 2023-01-01 2023-12-31 0001894562 us-gaap:RelatedPartyMember prme:MyeloidTherapeuticsMember prme:ReimbursementOfResearchAndDevelopmentExpensesMember 2024-01-01 2024-01-31 0001894562 us-gaap:RelatedPartyMember prme:JeffreyMarrazzoMember 2024-02-01 2024-02-29 0001894562 us-gaap:RelatedPartyMember prme:AdvisoryServicesAgreementMember prme:JeffreyMarrazzoMember 2024-02-01 2024-02-29 0001894562 us-gaap:RelatedPartyMember prme:AdvisoryServicesAgreementMember prme:JeffreyMarrazzoMember 2024-02-29 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +Form 10-K +(Mark One) +☑ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , 2024 +OR +☐ +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from ___________________ to ___________________ +Commission File Number: 001-41536 +PRIME MEDICINE, INC. +(Exact name of registrant as specified in its charter) +Delaware +84-3097762 +(State or other jurisdiction of incorporation or organization) +(IRS Employer Identification No.) +60 First Street , Cambridge , MA +02141 +(Address of principal executive offices) (Zip Code) +Registrant’s telephone number, including area code: +(617) 465-0013 +Securities registered pursuant to Section 12(b) of the Act: +Title of Class +Trading symbol(s) +Name of Exchange on Which Registered +Common stock, par value $0.00001 per share PRME Nasdaq Global Market +Securities registered pursuant to Section 12(g) of the Act: None +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑ +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. +Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☑ Smaller reporting company ☑ Emerging growth company ☑ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑ +As of June 28, 2024, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $ 296,732,308 based on a closing price of $5.14 per share as quoted by the Nasdaq Global Market as of such date. In determining the market value of non-affiliate common stock, shares of the registrant’s common stock beneficially owned by officers, directors and affiliates have been excluded. This determination of affiliate status is not necessarily a conclusive determination for other purposes. +As of February 20, 2025, there were 131,160,842 shares of Common Stock, $0.00001 par value per share, outstanding. +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the registrant’s definitive proxy statement for its 2025 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A within 120 days of the end of the registrant’s fiscal year ended December 31, 2024 are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent stated herein. +Table of contents +PART I +Page +Item 1. +Business +1 +Item 1A. +Risk Factors +44 +Item 1B. +Unresolved Staff Comments +110 +Item 1C. +Cybersecurity +110 +Item 2. +Properties +111 +Item 3. +Legal Proceedings +111 +Item 4. +Mine Safety Disclosures +111 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +112 +Item 6. +[Reserved] +112 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +113 +Item 7A. +Quantitative and Qualitative Disclosures about Market Risk +121 +Item 8. +Financial Statements and Supplementary Data +122 +Item 9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +122 +Item 9A. +Controls and Procedures +122 +Item 9B. +Other Information +123 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +123 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +124 +Item 11. +Executive Compensation +124 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +124 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +124 +Item 14. +Principal Accountant Fees and Services +124 +PART IV +Item 15. +Exhibits and Financial Statement Schedules +125 +Item 16. +Form 10-K Summary +127 +i +References to Prime Medicine +Throughout this Annual Report on Form 10-K, “Prime Medicine,” “the Company,” “we,” “us,” and “our,” and similar expressions, except where the context requires otherwise, refer to Prime Medicine, Inc. and its consolidated subsidiaries, and “our board of directors” refers to the board of directors of Prime Medicine, Inc. +From time to time we may use our website, our X, formerly Twitter, account (@PrimeMedicine) or our LinkedIn profile at https://www.linkedin.com/company/prime-medicine to distribute material information. Our financial and other material information is routinely posted to and accessible on the Investors section of our website, available at www.primemedicine.com. Investors are encouraged to review the Investors section of our website because we may post material information on that site that is not otherwise disseminated by us. Information that is contained in and can be accessed through our website or our social media is not incorporated into, and does not form a part of, this Annual Report on Form 10-K. We intend to apply for various trademarks that we use in connection with the operation of our business. This Annual Report on Form 10-K may also contain trademarks, service marks and trade names of third parties, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or products in this Annual Report on Form 10-K is not intended to, and does not imply a relationship with, or endorsement or sponsorship by us. Solely for convenience, the trademarks, service marks and trade names referred to in this Annual Report on Form 10-K may appear without the ®, SM and ™ symbols, but the omission of such references is not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable owner of these trademarks, service marks and trade names. +ii +Cautionary Note Regarding Forward-looking Information +This Annual Report on Form 10-K contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements, other than statements of historical facts, contained in this Annual Report on Form 10-K, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “envision,” “estimate,” “expect,” “goal,” “intend,” “may,” “plan,” “predict,” “project,” “strategy,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” “contemplate,” “vision” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. +Our business and our forward-looking statements in this Annual Report on Form 10-K involve substantial known and unknown risks and uncertainties, including, among other things, the risks and uncertainties inherent in our statements regarding: +• the initiation, timing, progress and results of our research and development programs, product candidates, preclinical studies and future clinical trials; +• our ability to demonstrate, and the timing of, preclinical proof-of-concept in vivo for multiple programs; +• our ability to advance any current and future product candidates that we may identify and successfully complete any clinical studies, including the manufacture of any such product candidates; +• our ability to pursue our areas of focus and any other additional programs we may advance; +• our ability to quickly leverage programs within our initial target indications and to progress additional programs to further develop our pipeline; +• the timing of our investigational new drug, or IND, application submissions; +• the ability of our Prime Editing technology to address unmet medical needs in patients; +• the implementation of our strategic plans for our business, programs and technology; +• the scope and duration of protection we are able to establish and maintain for intellectual property rights covering our Prime Editing technology; +• developments related to our competitors and our industry; +• our ability to leverage the clinical, regulatory, and manufacturing advancements made by gene therapy and gene editing programs to accelerate our clinical trials and approval of product candidates; +• our ability to maintain collaborations or strategic relationships and the ability to identify and enter into future license agreements and collaborations; +• developments related to our Prime Editing technology; +• regulatory developments in the United States and foreign countries; +• our ability to attract and retain key scientific and management personnel; +• our estimates of our expenses, capital requirements, needs for additional financing; +• the effect of unfavorable macroeconomic conditions or market volatility resulting from global economic conditions or geopolitical developments, including rising inflation and capital market disruptions, international tariffs, trade protection measures, economic sanctions and economic slowdowns or recessions; +• our expectations regarding the anticipated timeline of our cash runway, future financial performance and our ability to continue as a going concern; and +• other risks and uncertainties, including those listed under the caption “Risk Factors.” +iii +We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and these statements may be affected by inaccurate assumptions or by known or unknown risks and uncertainties. You should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in this Annual Report on Form 10-K, particularly in the "Summary Risk Factors" and “Risk Factors” sections, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Unless otherwise disclosed, our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures or investments we may make or enter into. +You should read this Annual Report on Form 10-K and the documents that we reference herein and have filed as exhibits to this Annual Report on Form 10-K or other filings with the Securities and Exchange Commission, or the SEC, completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Annual Report on Form 10-K are made as of the date hereof, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise after the date of such statements, except as required by applicable law. +This Annual Report on Form 10-K also contains estimates, projections and other information concerning our industry, our business and the markets for our product candidates. Such information is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained statistical and other industry and market data from our own internal estimates and research, as well as from reports, industry publications and research, surveys, studies and similar data prepared by third parties, industry, medical and general publications, government data and similar sources. While we are not aware of any misstatements regarding any third-party information presented in this Annual Report on Form 10-K, their estimates, in particular as they relate to projections, involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such data. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of important factors, including those described in the sections titled “Summary Risk Factors” and “Risk Factors.” +iv +Summary of the Material Risks Associated with Our Business +Our business is subject to a number of risks that if realized could materially affect our business, financial condition, results of operations, cash flows and access to liquidity. These risks are discussed more fully in the “Risk Factors” section of this Annual Report on Form 10-K. Our principal risks include the following: +• We have incurred significant losses since inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability. +• Because our existing cash, cash equivalents, and investments will not be sufficient to fund our operations, as currently planned, for more than one year beyond the filing date of this Annual Report on Form 10-K, we have determined that there is substantial doubt regarding our ability to continue as a going concern. +• We will need substantial additional funding. If we are unable to raise capital when needed, we will be forced to delay, reduce, eliminate or prioritize among our research and product development programs or future commercialization efforts. +• Gene editing, including platforms such as Prime Editing, is a relatively new technology that has not been extensively clinically validated for human therapeutic use. The approach we are taking to discover and develop novel therapeutics is unproven and may never lead to marketable products. We may incur unexpected costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of any product candidates. +• Clinical drug development involves a lengthy and expensive process, with an uncertain outcome. Because gene editing is novel and the regulatory landscape that will govern our current and future product candidates is uncertain and may change, we cannot predict the time and cost of obtaining regulatory approval, if we receive it at all, for our current and future product candidates. +• We may enter into collaborations with collaborators and strategic partners such as Beam Therapeutics or other third parties for the research, development, delivery, manufacturing and commercialization of Prime Editing technology and certain of the product candidates we may develop. If any such collaborations are not successful, we may not be able to capitalize on the market potential of our Prime Editing platform or product candidates. +• If conflicts arise between us and our collaborators or strategic partners, these parties may act in a manner adverse to us and could limit our ability to implement our strategies. +• If we are unable to obtain and maintain patent and other intellectual property protection for any product candidates we develop and for our Prime Editing technology, or if the scope of the patent and other intellectual property protection obtained is not sufficiently broad, third parties could develop and commercialize products and technology similar or identical to ours and our ability to successfully commercialize any product candidates we may develop and our Prime Editing technology may be adversely affected. +• Our rights to develop and commercialize our Prime Editing platform technology and product candidates are subject to the terms and conditions of licenses granted to us by others. If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that are important to our business. +• Our in-licensed issued patents and owned and in-licensed patent applications may not provide sufficient protection of our Prime Editing technologies and our future product candidates or result in any competitive advantage. +• The intellectual property landscape around the technologies we use or plan to use, including gene editing technology, is highly dynamic, and third parties may initiate legal proceedings alleging that we are infringing, misappropriating, or otherwise violating their intellectual property rights, the outcome of which would be uncertain and may prevent, delay or otherwise interfere with our product discovery and development efforts. +v +• We expect to expand our research, development, delivery, manufacturing, commercialization, regulatory and future sales and marketing capabilities over time, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations. +• The FDA, the EMA and the National Institutes of Health, or NIH, have demonstrated caution as well as concern regarding potential long term impacts in their regulation of gene therapy treatments, and ethical and legal concerns about gene therapy and genetic testing may result in additional regulations or restrictions on the development and commercialization of any product candidates we may develop, which may be difficult to predict. +vi +PART I +ITEM 1. Business +Overview +We are a biotechnology company committed to delivering a new class of differentiated one-time curative genetic therapies. We are deploying Prime Editing technology, which we believe is a versatile, precise, and efficient gene editing technology. +The field of genetic medicine has rapidly evolved over the last decade, with groundbreaking advances in gene therapy, cell therapy, ribonucleic acid, or RNA, therapy, and, more recently, gene editing. This includes the approval of the first CRISPR/Cas9-based gene editing therapy by the U.S. Food and Drug Administration, or the FDA, for the treatment of sickle cell disease. These technologies represent significant advancements for genetic medicines but we believe Prime Editing is the only gene editing technology that, by itself, can edit, correct, insert and delete deoxyribonucleic acid, or DNA, sequences in any target tissue. We believe Prime Editing technology has transformative potential that could change the course of how many diseases are treated and overcome the challenges associated with current genetic therapies. +Prime Editing can correct mutations across many tissues, organs, and cell types, in both dividing and non-dividing human cells. For example, Prime Editing technology has the ability to repair diverse mutations, including all types of point mutations, deletion mutations, insertion and duplication mutations and insertion-deletion mutations. Our analysis of more than 75,000 pathological, or disease-causing, mutations found in the National Center for Biotechnology Information ClinVar Database shows that those addressable by Prime Editing technology account for approximately 90 percent of genetic variants associated with disease. As such, we believe Prime Editing technology has the theoretical potential to repair approximately 90 percent of known disease-causing mutations across many tissues, organs and cell types. +In addition, we believe our Prime Assisted Site-Specific Integrase Gene Editing, or PASSIGE TM technology, may enable Prime Editing to precisely insert gene-sized sequences. PASSIGE uses Prime Editing to insert one or more recombinase recognition sequences at precisely chosen locations in the genome. In our preclinical studies, we have shown that a site-specific recombinase can locate the recombinase recognition sequence and carry out DNA recombination, resulting in the desired large DNA sequence insertion at the desired location in the genome. We believe that such a technology has the potential to precisely insert “gene-sized” pieces of DNA, at a predetermined and specific site in the genome. Taken together, Prime Editing’s versatile gene editing capabilities have the potential to unlock opportunities across thousands of potential indications. +Prime Editors have the ability to create permanent modifications at their natural genomic location, resulting in durable edits that retain their native physiological control and are passed on to daughter cells. Our next generation gene editing technology is designed to produce a wide variety of precise, predictable and efficient genetic outcomes at the targeted sequence, while minimizing unwanted bystander edits and off-target edits and avoiding double-stranded DNA breaks. Our Prime Editors are designed to make only the right edit at the right position within a gene. +If nuclease gene editing approaches are “scissors” for the genome, and base editors are “pencils,” erasing and rewriting a subset of single letters in the gene, then Prime Editing is a “word processor,” searching for the correct location and replacing or repairing a wide variety of target DNA. +Recent highlights of the programs in our portfolio include the following: +• In April 2024, the FDA cleared our IND application for PM359 for the treatment of chronic granulomatous disease, or CGD, a serious life-threatening disease that presents in childhood, enabling us to initiate our global Phase 1/2 clinical trial in the United States. The Phase 1/2 clinical trial is a multinational, first-in-human trial designed to assess the safety and efficacy of PM359 in adult and pediatric study participants. PM359, our first product candidate within our hematology, immunology and oncology area of focus, targets the p47phox variant of CGD. PM359 is comprised of autologous hematopoietic stem cells, or HSC, modified ex vivo using Prime Editors that have been designed to correct cells containing the disease-causing mutation. We believe Prime Editing is uniquely well-suited to address this form of CGD. We have received rare pediatric drug designation, or RPDD, and orphan drug designation, or ODD, from the FDA +1 +for PM359 in January 2024. We also have received fast track designation from the FDA for PM359 in November 2024. +• We have demonstrated Prime Editing of cells in preclinical studies at predicted therapeutically relevant levels for Wilson’s Disease in our liver area of focus. In October 2024, we presented in vivo proof-of-concept data demonstrating successful correction of a disease-causing mutation in Wilson’s Disease in a fully humanized mouse model and precise editing of the genomic site in non-human primate, or NHP, models using our proprietary, universal liver-targeted lipid nanoparticle, or LNP, platform to deliver the Prime Editor. +• We continue to advance multiple Prime Editors in our lung area of focus for the treatment of Cystic Fibrosis, or CF. In January 2024, we entered into a therapeutic development agreement with the Cystic Fibrosis Foundation, or CFF, in which CFF agreed to provide Prime Medicine with up to $15 million to support development of hotspot editing with PASSIGE in CF, as well as our ongoing efforts to develop delivery to the lung. Through hotspot editing, we aim to address multiple mutations at mutational hotspots using a small number of Prime Editors, potentially addressing a large percentage of individuals with CF with only a few Prime Editors. In parallel, using PASSIGE, we aim to address nearly all people with CF using a single superexon insertion strategy. +• In September 2024, we entered into a strategic research collaboration and license agreement, or the BMS Collaboration Agreement, with Bristol Myers Squibb, or BMS, via its wholly owned subsidiary, Juno Therapeutics, Inc., or Juno, in which BMS agreed to provide us with a $55.0 million upfront payment and a $55.0 million equity investment in exchange for developing reagents for the next generation of ex vivo T-cell therapies. BMS will be responsible for development, manufacturing and commercialization of the next generation cell therapies, with support from us in gene editing strategy and reagent development. We are eligible to receive more than $3.5 billion in milestones, including up to $185.0 million in preclinical milestones, up to $1.2 billion in development milestones and up to $2.1 billion in commercialization milestones, along with royalties on net sales. +• To maximize the potential of our Prime Editing technology, in September 2024, we strategically focused our portfolio to a set of high value programs in the following core areas of focus: hematology, immunology and oncology, liver, and lung. We are identifying partnership opportunities to advance our other programs, including those for neurological diseases, cell therapy, ocular diseases and hearing loss. +Our Strategy +Our goal is to transform the lives of patients with debilitating diseases through the application of our Prime Editing platform and technology. We are committed to developing safe and efficient therapeutics using Prime Editing approaches to address high unmet need across a broad spectrum of diseases, from rare genetic diseases to severe, chronic and acute diseases. Key components of our strategy are as follows: +• Maximize the potential of Prime Editing to benefit patients. We believe our Prime Editing technology and capabilities represent the future of gene editing, with broad applications in medicine and life sciences. Through our proprietary rights to and ongoing advancements building upon this ground breaking gene-editing approach, we have established a clear leadership position in the Prime Editing field. We have built a cross-disciplinary team consisting of dedicated employees and other experts in Prime Editing and drug development who are passionate about our common goal of helping patients live longer, healthier lives. +• Deploy our technology to extend the application of one time potentially curative therapeutics to areas that we believe were not addressable before. To unlock the full potential of our Prime Editing technology across a wide range of therapeutic applications, we intend to advance multiple therapeutic programs into the clinic. We are currently focused on high-value programs for genetic diseases that we believe have a fast, direct path to treating patients, and those with high unmet need not currently addressable using other gene-editing approaches. Over time, we intend to push new and innovative technological developments to maximize Prime Editing’s versatile therapeutic potential, and unlock broad opportunities beyond the genetic diseases in our strategically focused pipeline, potentially including immunological diseases, cancers, infectious diseases, and targeting genetic risk factors in common diseases. +2 +• Advance our pipeline while simultaneously enhancing, validating and enabling our modular platform. We are pursuing a diverse pipeline of investigational therapeutic programs organized around a set of high value programs in our core areas of focus: hematology, immunology and oncology, liver, and lung. We have designed a modular platform within each core area, which we believe will accelerate our ongoing efforts and enable rapid generation of new product candidates. We believe the core components, such as Prime Editors, off-target assays, delivery, manufacturing, clinical, and regulatory can be leveraged to accelerate our pipeline to clinical trials and potential approval. +To unlock the full potential of our Prime Editing technology across each of our areas of focus, we intend to use the delivery modality with the most compelling biodistribution and Prime Editing efficiency. We are currently focusing on electroporation for delivery to blood cells and immune cells ex vivo , LNP for non-viral in vivo delivery to the liver, lung and potentially other organs in the future and adeno-associated viruses, or AAV, for viral in vivo delivery to the eye, ear, and potentially the central nervous system, lung and muscle. Our goal is to develop highly modular delivery systems that allow us to rapidly develop new products targeting the same cells/tissues/organs by leveraging the approaches and data that precedes them. +• Continue to push the frontier of innovation in gene editing by optimizing and expanding our Prime Editing technology and capabilities. We plan to continue investing in our technology, team and intellectual property with a focus on reinforcing our leadership position and making fundamental progress towards better therapies for patients. +• Opportunistically evaluate synergistic and value-creating partnerships to maximize the broad potential of our platform. Our pipeline programs have been internally generated, and we retain worldwide development and commercialization rights to all of our programs except for certain ex vivo chimeric antigen receptor T-cell, or CAR T-cell, programs that are partnered with BMS. Given the broad potential of our technology, we intend business development to play an important role in building Prime Medicine, with the goal of accelerating our pipeline, bolstering our financial resources, and maximizing the potential of Prime Editing. Our overall partnership strategy includes: 1) partnering within our core areas to accelerate and globalize our current pipeline programs at the “right” stage of development; 2) outside our core areas, entering into collaboration or license agreements for programs now that we would not otherwise pursue in the near term; and 3) accessing enabling innovations, such as delivery and manufacturing capabilities. In 2024, we executed on this strategy by entering into a therapeutic development agreement with CFF and a collaboration agreement with BMS. +• Lead with our culture of integrity, ethics, innovation and respect in everything we do. We believe the potential of Prime Editing can only be achieved through the coordinated effort of our team and the support of our partners across academia and industry. To push the boundaries of where gene editing can go, we are committed to jointly defining and maintaining a culture that is transparent, develops trust, values integrity and ethics, puts patients first, is science and data driven, and encourages innovation. +Current Challenges for the Field of Genetic Medicines +Despite significant progress within gene therapy, gene editing, cell therapy, and RNA therapeutics, there remain considerable limitations to current genetic medicine approaches that impede their ability to truly deliver on the promise of a curative, one-time therapy to the broadest set of patients. +Non-targeted gene therapy includes using viral vectors, such as AAV, retroviruses such as lentiviruses, or mobile gene elements, such as retrotransposons and transposons, to deliver new copies of genes, or transgenes, to cells. These approaches generally do not correct genes but insert new copies of genes or parts of genes into cells in a non-targeted manner. While having some important benefits, non-targeted gene therapy approaches have many key limitations including limited durability, inability to be re-dosed, variable gene expression, and random integration of transgenes into the genome, which carries the risk of insertional mutagenesis. +First generation gene editing methods rely on a class of enzymes called nucleases, such as CRISPR, ZFNs, engineered meganucleases and TALENs, to create double-stranded breaks in DNA at a targeted location. While nuclease-based gene editing approaches can be useful to inactivate a gene, they have several key limitations, including random creation of indels, or chromosomal insertions and deletions, low percentage editing efficiency to +3 +make corrections, replacements, or insertions in a gene, the ability to edit only in dividing cells, and unwanted DNA modifications associated with double-stranded breaks, including cell death response, genomic instability, off-target editing and the potential for oncogenesis. +Base editing is an emerging gene editing technology that can enable C-to-T, T-to-C, G-to-A or A-to-G base substitutions edits using either a Cytosine Base Editor, or CBE, or Adenine Base Editor, or ABE, respectively. However, base editing has several key limitations including the ability to reliably correct only 4 out of 12 possible single base mutations, the inability to make or correct insertion or deletions, unwanted on-target by-products, called bystander edits, near the targeted site, and limited optionality for targeting mutations due to its smaller editing window. +Prime Editing: A Next Generation Gene Editing Approach +Prime Editing is a next generation gene editing approach that we believe can address the genetic cause of disease and potentially provide patients with long-lasting cures. Although Prime Editing is a developing technology and is not yet validated in clinical studies, it has been extensively validated in vitro and in animal studies, both by our company and in hundreds of papers published in the primary scientific literature to date. +Advantages of our Prime Editing Platform +We believe Prime Editing is a versatile, precise, efficient and broad gene editing technology with the following key advantages: +Versatility: Deep and highly differentiated toolbox of editing capabilities to enable a wide variety of therapeutic applications +• Applicable to a wide range of target mutations or alterations of DNA, including all twelve types of single base pair corrections, as well the ability to insert and delete DNA sequences. +• Direct correction of DNA with no requirement for delivery of the corrected DNA sequence in many applications of Prime Editing. +• Modular for targeting a broad set of mutations, meaning that by redesigning the Prime Editing guide RNA, or pegRNA, a new mutation can be targeted for correction while leaving the other Prime Editor components largely unchanged. +• Multiple potential therapeutic applications, including but not limited to targeted gene correction, gene silencing or activation such as by altering the regulatory regions of genes, inserting or creating premature stop codons, or modifying splicing sequences, hotspot region replacement, multiplex editing of several genes simultaneously, and wild-type variant modification to protect against or modify risk for a disease. +• Capable of inserting, deleting or inverting kilobase amounts of genomic DNA by combining Prime Editing with proprietary recombinase technology in an approach we call PASSIGE. +Precision: Highly specific and predictable gene editing +• Designed to specifically make only the directed type of Prime Edit at the desired target location. +• Avoids the potential negative impacts associated with double-stranded DNA breaks, which results in minimal to potentially no unwanted on-target or off-target by-products and preservation of cell viability. +• Limited potential for bystander editing at the target site, a potential unwanted effect of base editing. +Efficiency: Durable gene edits with potential for superior therapeutic activity +• Single treatment resulting in permanent correction of disease-causing mutations by restoring the targeted gene back to its wild-type, or non-diseased sequence. +4 +• Permanent, durable edits that persist in a cell and are passed along to daughter cells, creating potential for a life-long, “once and done” therapeutic outcome. +• Preservation of natural regulation and a normal number of copies of the gene in the cell by modification of genes under endogenous control, or in their native genomic setting. +Breadth: Able to address a wide range of diseases in multiple tissue types +• Applicability in a wide range of human cells, including both dividing and non-dividing human cells, a wide range of organs, tissues and cell types, including primary cells such as hepatocytes, HSC and neurons. +• Potential ability to repair approximately 90 percent of all types of mutations known to cause genetically driven disease. +• Broad therapeutic potential extending beyond rare genetic diseases to also potentially include severe, chronic, and acute diseases. In addition to correcting disease-causing mutations, potential for gene modification to edit naturally occurring variations within genes known to protect against or modify risk for a disease. +Prime Editing Technology +Prime Editors have at least two major components, a Prime Editor protein and a pegRNA. Our Prime Editor proteins contain two protein domains. The first domain is a programmable DNA binding domain, often a CRISPR-Cas protein domain, or Cas domain. Cas domains enable targeting of specific DNA sequences, and they have been adapted and engineered to target desired genomic locations in human cells with high specificity. In Prime Editors, programmable DNA binding domains, such as Cas domains, are typically modified such that they do not cause a double-stranded break in the DNA. The second protein domain of Prime Editors is a DNA polymerase domain, often a reverse transcriptase enzyme domain, or RT domain. Reverse transcriptases are DNA polymerase enzymes that write new DNA sequences by copying from an RNA template. In Prime Editing, the RT domain copies the edited DNA sequence directly into the target genomic site where the edit is made. +The other main component in Prime Editing is the pegRNA. The pegRNA contains a search sequence, also known as a spacer, which provides a target genomic address for the Prime Editor. This enables the Prime Editor to specifically target a desired gene sequence. The pegRNA also contains a second sequence unique to Prime Editing, a replace sequence, or edit template, which provides a blueprint for the edit that will be made to the target DNA sequence. +As shown in the second panel in the figure below, a Prime Editor protein, exemplified using a fusion protein containing a Cas domain and an RT protein domain, and the pegRNA locate the DNA target site using the pegRNA’s search sequence. As exemplified in the figure, when the correct DNA target is found (referred to as “edit check 1,” as described below), the Prime Editor’s Cas domain cleaves, or nicks, one of the two DNA strands, creating a single-stranded 3’ flap. The other DNA strand remains intact and is not cleaved by the Prime Editor, thus avoiding the formation of double-stranded DNA breaks. As shown in the third panel of the figure, the 3’ flap binds to a region of the replace sequence in the pegRNA (“edit check 2”) and “primes” the DNA synthesis. The Prime Editor’s RT domain copies a portion of the replace sequence, which incorporates the desired edit, as shown in the fourth panel. After the desired edit is copied, cellular DNA repair preferentially incorporates the corrected 3’ flap into the gene (“edit check 3”) while removing the excess original DNA sequence. The complementary DNA strand is also corrected through cellular DNA repair, using the Prime-Edited DNA strand as a template. Incorporation of the correction into the complementary DNA strand can be made more efficient by adding a nicking guide RNA, or ngRNA, where the Prime Editor also transiently nicks the complementary strand. The overall result is a target gene sequence that is corrected on both strands of DNA. +As highlighted in the figure below, there are three distinct steps in the Prime Editing pathway that require sequence complementarity between the target DNA and pegRNA sequences. Thus, the process of Prime Editing efficiently institutes three “edit checks,” or three sequential steps where the next step occurs when there is sequence complementarity. In addition to the lack of double-stranded DNA breaks, we believe that these “edit checks” are also important in helping to ensure that the right sequence in the genome is precisely edited in the desired manner, thereby minimizing both on- target and off-target mis-editing. +5 +Illustration of Editing Mechanism by Prime Editor – No Double-Stranded DNA Breaks +Enhancing the Prime Editing Platform +The versatile nature of Prime Editing allows for the selection of the right tools for a specific gene edit to optimize for desired effects with high efficiency and precision at the targeted site, while minimizing off-target edits at more distant chromosomal sites. Since Prime Editing was first described, an increase in efficiency as well as an expansion in the scope of applications have been demonstrated and reported in multiple publications and abstracts as well as contributions from our team. +Multiple enhancements to our Prime Editing platform, including engineered and chemically modified pegRNAs, enhanced Prime Editors, and DNA mismatch repair modulation, provide us with a versatile toolbox for applying Prime Editing to a wide range of diseases. In addition, our focus on high-throughput screening and machine learning are allowing us to grow our internal technical expertise for Prime Editing optimization and are being used to develop Prime Editors that are both more efficient and more precise. Finally, we are broadening the types of edits that we can make by incorporating recent innovations in Prime Editing, including dual-flap Prime Editing, long-flap Prime Editing, and PASSIGE. +Dual-flap Prime Editing and long-flap Prime Editing +We have in-licensed certain dual-flap Prime Editing technology developed by Dr. David Liu’s laboratory at Broad Institute, and expanded and improved on its uses. Compared to single-flap Prime Editing, dual-flap Prime Editing uses two Prime Editors instead of one. Dual-flap Prime Editing is designed to achieve efficient editing of a broad range of edit types, including the precise replacement or insertion of DNA sequences that are greater than a hundred bases in length with high efficiency. In addition, dual-flap Prime Editing can precisely delete up to thousands of bases of DNA. Dual-flap Prime Editing has been shown in preclinical studies to achieve similar levels of precision and similarly low off-target editing as single-flap Prime Editing. Dual-flap Prime Editing is being used for PASSIGE™, to replace mutation hotspots with corrected sequences, and could be used to delete expanded repeat sequences, such as those that occur in repeat expansion diseases. +Additionally, we have developed a long-flap Prime Editing approach that, compared to our standard single-flap Prime Editing, is designed to more efficiently insert or replace larger stretches of DNA that are a hundred bases or more in length, while also enabling precise deletions of up to thousands of base pairs. Long-flap Prime Editing can be used for editing of hotspot regions in DNA, insertions of recombinase sites for PASSIGE, and the excision of expanded repeats. Together, dual-flap Prime Editing and long-flap Prime Editing broaden the capabilities of our Prime Editing platform. +PASSIGE™ – Precise introduction of gene-sized pieces of DNA into the genome +We have in-licensed from the Broad Institute and are further internally developing a technology that allows us to expand our gene editing toolbox to include programmable insertion, deletion, or inversion of thousands of bases of DNA. By combining Prime Editing with an integrase or site-specific recombinase enzyme, we can harness the precision of Prime Editing with the ability to introduce large gene-sized cargo into the genome as a potential one-time therapy for patients. This proprietary approach expands the versatility of Prime Editing and we believe +6 +broadens the range of permanent genomic edits that Prime Editing can make to encompass the ability to insert entire genes precisely into a patient’s genome to treat disease. +PASSIGE leverages the programmability of Prime Editing to insert recombinase recognition sequences at precisely chosen targeted locations in the genome, as shown in the figure below. A site-specific recombinase, either fused to the Prime Editor or transiently delivered as a separate enzyme into target cells, locates the recognition sequence or sequences and carries out DNA recombination at those recognition sequences, resulting in the desired large DNA sequence edit at the desired location in the genome. We believe that such a technology has the potential to precisely insert “gene-sized” pieces of DNA at a predetermined and specific site in the genome. +PASSIGE may be used to insert DNA that contains a therapeutic gene, such as a chimeric antigen receptor, or CAR, or the open reading frame of any other gene. Alternatively, using multiplex Prime Editing, two recombinase DNA target sequences can be inserted so that site-specific recombinases can replace, delete, or invert the intervening DNA sequences. These editing capabilities enable therapeutic opportunities to potentially treat genetic mutations occurring across a large region of DNA sequences within a single gene, and enable therapeutic opportunities to engineer cell therapies to treat disease. +PASSIGE™ – Extending Prime Editing to insert gene sized sequences precisely in the genome +Translating Prime Editors into Product Candidates - Optimizing Prime Editor Components and Delivery Modalities +The optimal design and efficient generation of our Prime Editors are fundamental for the development of our pipeline. We have established capabilities to design and optimize our Prime Editors, and to design and develop the components needed for LNPs, vector genomes, Prime Editing of ex vivo cells, as well as to develop the manufacturing processes and analytical assays to ensure robust, scalable production of quality intermediates and products to support our programs. Many of these workflows are automated to allow rapid machine learning and/or artificial intelligence-based data analysis, correlation, visualization, and iterative optimization and innovation. +For each program in our pipeline, we determine the best option for delivering the Prime Editor and select the delivery technology with the most compelling biodistribution for a given tissue type. Our current programs rely on two distinct delivery modalities: (a) electroporation for delivery to blood cells and immune cells ex vivo ; and (b) LNPs, for non-viral in vivo delivery to the liver, lung and potentially other organs in the future. We also can deliver Prime Editors using AAVs for viral in vivo delivery to the eye and ear, and potentially the central nervous system, lung and muscle. A key feature of Prime Editing and associated delivery methods is the modularity of the technology platforms. Once the first program for each delivery platform is established, the design algorithms, workflows, non-clinical and CMC data, as well as the manufacturing process and majority of assays can be leveraged and applied to the next program which differs only in the pegRNA. +7 +We believe these delivery technologies are foundational to successfully advancing our pipeline programs to the clinic and we are strategically developing our delivery platforms and generating data to accelerate our pipeline progress. Moreover, we continue to assess the many advancements in novel and experimental delivery approaches that are being made in the cell and gene therapy field and intend to license innovative delivery technologies that prove to provide a breakthrough. +We are designing Prime Editing product candidates to provide a “once and done” treatment. Our multi-pronged approach to enable our portfolio includes the following: +• pegRNA Design, High Throughput Screening and Synthesis: An important element of our capability is leveraging high throughput automated screening and design algorithms to identify promising pegRNA sequences. The data is also used to develop proprietary machine learning algorithms for pegRNA activity prediction. Internal chemistry capabilities facilitate high-throughput optimization and manufacture of pegRNA for in vivo studies. We have established internal high-throughput pegRNA synthesis, pegRNA modifications with structure-activity-relationship to improve drug candidate properties, and pegRNA process chemistry. +• Optimization of Prime Editing proteins and recombinase proteins: We have developed internal protein engineering capabilities to optimize the Prime Editor proteins and recombinase proteins (for PASSIGE) for human therapeutic use, and have developed internal messenger RNA, or mRNA, design and optimization, enzymatic chemistry, and process development capabilities to enhance drug candidate properties and characterize the mRNA for efficient, well-tolerated, and consistent delivery and translation of the Prime Editor protein. +• Prime Editing Specificity and Assays: A robust and unbiased evaluation of all potential off-target activities is a critical element of our efforts. Our approach to minimizing off-target editing is to start by screening for Prime Editor candidates with very low off-target activity. We then use comprehensive, sensitive, and state-of-the-art methods to identify all putative off-target sites by identifying places where a Prime Editor has a possibility (no matter how small) to nick the DNA. We have developed multiple, complementary, but distinct, methods to measure such possible events. Our approach includes evaluation of: (a) off-target activity in the genome that is specific to the sequence of a particular pegRNA or the ngRNA; (b) similar activity that is independent of the pegRNA or ngRNA sequences; and (c) genomic rearrangements. +• Electroporation: Electroporation is a clinically and commercially validated technology for ex vivo delivery to CD34+ cells which utilizes electrical pulses to increase the cell membrane permeability to deliver the Prime Editing components. Electroporation is being used in our CGD program with ex vivo CD34+ cells. We have established a modular cell processing manufacturing platform process that can be used for autologous CD34+ cells, and it can be leveraged for the next ex vivo HSC programs, as well as for allogeneic T-cells with multiplexing. +• LNP: LNP delivery has initially focused on in vivo delivery of Prime Editing to the liver. We have established end-to-end capabilities across our R&D organization consisting of lipid design, lipid synthesis, high throughput LNP discovery from our proprietary lipid library using screening with bar coding technology, LNP formulation process development for tissue targeted delivery, and manufacturing to support our preclinical and IND enabling studies. We are developing a universal liver targeting LNP comprised of 5 components and plan to leverage its modularity for our various programs aimed at Prime Editing in the liver, as well as to address additional mutations within the same indication. Similar approaches are being taken for developing modular LNPs to lung, and HSCs and T-cells. +• Viral Delivery: We are able to use viral delivery to tissues and locations that can currently only be reached with AAV. To enable this delivery approach, we have developed capabilities to design and optimize the vector genome to efficiently deliver Prime Editors to the target tissue. We use our internal AAV Reagent Production Core, analytical development team, as well as outsourced resources and partners to generate AAV Prime Editors, quality control test as well as characterize them. +• Strategic Manufacturing Partnerships: Our overall strategy is to design manufacturing platforms to make the Prime Editing components and associated delivery systems with high throughput, high quality, high purity, modularity, and scalability. We are developing manufacturing processes and analytical methods +8 +both internally and partnering with suppliers to ensure the quality and consistency of the Prime Editor components and Prime Edited drug products needed for preclinical studies, IND application submission, and future clinical studies. +Our Pipeline +To maximize the potential of our Prime Editing technology, we are currently pursuing a diversified portfolio of high value investigational therapeutic programs organized around core areas of focus: hematology, immunology and oncology, liver, and lung. The following table summarizes our pipeline: +Our Hematology, Immunology & Oncology Programs +Chronic Granulomatous Disease +The Disease +CGD is a rare inherited hematologic disorder characterized by susceptibility to severe, difficult-to-treat infections, and inflammatory/autoimmune complications. CGD is caused by mutations in any one of the subunits comprising the NADPH oxidase complex, which is required for phagocytic cells, in particular neutrophils, to destroy many invasive microorganisms. CGD causative mutations are estimated to occur between one in 100,000 and one in 200,000 births in the United States, and most children are diagnosed within the first three years of life. Beginning in childhood, patients with CGD develop infections from a range of both typical and unusual bacteria, fungi and mycobacteria. These infections may present in various organ systems, and protracted infections can lead to long-term organ damage and failure. In addition, patients have non-infectious inflammatory disease, most commonly presenting as inflammatory bowel disease, soft tissue granulomas, and strictures of the urinary or digestive tract. Undiagnosed or untreated, the infectious manifestations of CGD are rapidly fatal. Approximately 60 percent of patients with CGD reach age 30 and refractory or antimicrobial resistant infection is the leading cause of mortality. +The NADPH oxidase complex has five domains encoded by five separate genes. Loss-of-function mutations in any of these genes can present as CGD. The second most common form, which represents approximately 25 percent of cases, is caused by biallelic loss-of-function mutations, in both copies of the NCF1 gene encoding the p47phox protein. More than 78 percent of p47phox CGD patients have a specific, 2-nucleotide deletion, or ΔGT, in the NCF1 gene. The NCF1 gene location is complex, and also contains pseudogenes, or copies of the NCF1 gene that in most healthy individuals, and in individuals with CGD, are inactivated by the ΔGT mutation. Preclinical studies have demonstrated that correcting just one copy of the ΔGT mutation in either the NCF1 gene or any pseudogene restores protein expression and full NADPH oxidase activity. +X-linked CGD, or X-CGD, is the most common form of CGD, representing approximately 65 percent of cases. X-CGD is caused by mutations in the CYBB gene, which encodes the p91-phox protein. X-CGD primarily affects male patients because the CYBB gene is located on the X chromosome. +9 +Our Approach and Results: Direct correction of prevalent CGD mutations or hotspots +PM359, our first product candidate within our hematology, immunology and oncology area of focus, targets the p47phox variant of CGD. We have been able to demonstrate that Prime Editing precisely corrects the ΔGT mutation in the NCF1 gene to restore p47phox protein expression and NADPH oxidase activity. PM359 is comprised of autologous HSCs modified ex vivo using Prime Editors that have been designed to correct a high percentage of cells containing the disease-causing mutation. PM359 is delivered as an autologous HSC transplant, and is designed to restore normal immunologic function in individuals with p47phox CGD, without the risks of graft-versus-host disease, or GVHD, graft rejection and post-transplant immunosuppression associated with allogeneic transplantation. +In order to develop PM359, a therapeutic product candidate to treat patients with p47phox CGD, we screened pegRNA and ngRNA to identify Prime Editing guides and guide pairs that have high activity and perform precise editing at the NCF1 locus. Because healthy donors have NCF1 pseudogenes bearing the same ΔGT mutation, we have been able to utilize healthy donor CD34+ HSCs to demonstrate precise editing of the ΔGT mutation. Using healthy donor CD34+ HSCs we also have been able to demonstrate a very low off-target potential, and robust engraftment and hematopoietic functionality of Prime Edited HSCs in mouse models. We have confirmed these findings using p47phox CGD patient-derived HSCs, and in addition have demonstrated that Prime Editing is able to restore NADPH oxidase activity in patient-derived cells. +The overall process for generating PM359 follows a similar paradigm to that employed by other investigational ex vivo HSC CRISPR-Cas9 therapeutics that have been validated in the clinic, with a few notable modifications. The Prime Editor components, comprised of the Prime Editor mRNA, pegRNA and ngRNA, are delivered to CD34+ HSCs using electroporation. +We have developed Prime Editor components that are able to correct over 80% of healthy donor CD34+ cells or CGD patient CD34+ cells at at least one ΔGT locus (pseudogene in healthy donor; pseudogene or NCF1 in patient). In order to be able to understand the effects of Prime Editing on the functionality of modified CD34+ cells and to determine the ability of Prime Edited cells to persist in vivo , we administered Prime Edited CD34+ cells to a specialized immunocompromised mouse model, the NBSGW mouse, which is capable of supporting engraftment of human HSCs. As shown in the figure below, mice are typically followed for 16 weeks in these experiments to allow for engraftment of the long-term HSCs and repopulation of the immune system by long-term HSCs and then evaluated for durability of effect. +When Prime Edited healthy donor or CGD patient CD34+ cells were administered to NBSGW mice, they were able to engraft, and edited cells proliferated to repopulate the hematopoietic system. The left and middle panels in the figure below demonstrate results from a representative experiment in which healthy donor CD34+ cells, either Prime Edited or mock treated, were administered to NBSGW mice. In the left panel of the figure below, human hematopoietic cells, distinguished by the human CD45+ surface marker, were able to successfully engraft at high efficiency, with no differences between mock treated and Prime Edited cells. In the middle panel, after 16 weeks in the mice, long-term engrafted human CD34+ HSCs retained a very high degree of editing: over 80% of cells exhibited correction of the ΔGT mutation at at least one locus, compared to 0% of mock edited cells. Based on natural history studies of carriers of CGD-causative mutations, restoration of p47phox function in a minimum of 20% of neutrophils is believed to be sufficient to confer protection from serious infection with CGD-associated pathogens. Together these data suggest that Prime Editing is able to correct the ΔGT mutation at an efficiency many-fold above the lower bound of the projected threshold for therapeutic benefit, and that Prime Edited cells may effectively home to and stably engraft in the marrow after infusion. +CD34+ HSCs from an individual with p47phox CGD were Prime Edited ex vivo , and these cells were differentiated ex vivo to allow assessment of NADPH oxidase activity in myeloid progeny. The panel on the right in the figure +10 +below demonstrates the results of one commonly used measure of NADPH oxidase activity, the dihydrorhodamine (DHR) assay. Mock edited CGD patient-derived and differentiated cells produced negligible amounts of NADPH oxidase, reflected in the absence of any DHR positive cells. In contrast, NADPH oxidase activity was restored in approximately 80 percent of Prime Edited CGD patient cells, very closely corresponding to the editing rate observed in healthy donor CD34+ cells in the middle panel. This level significantly exceeds the projected therapeutic minimum threshold of DHR activity in 20 percent of neutrophils thought to be sufficient to prevent serious infection based on natural history studies. Additionally, these results confirm that editing rates in CGD patient derived CD34+ cells are similar to those in healthy donor cells, and that healthy donor cells are a useful proxy for understanding the Prime Editing reagents used to generate PM359. +__________ +HSC = hematopoietic stem cell; LT-HSC = long term HSC; DHR = dihydrorhodamine; normalized to healthy donor control. Data presented at ASGCT and ESGCT 2023. +Prime Edited CD34+ cells exhibited no significant off-target editing and no detectable evidence of deletions or translocations above the level of significance. Extensive in silico, ex vivo and in vivo analyses have been performed. The figure below demonstrates representative analyses. In the left panel, 550 of the most likely candidate off-target sites were nominated based on in silico assessment, and then interrogated for off-targeting editing in Prime Edited healthy donor CD34+ cells; no significant off-target editing was detected. In the middle panel, the marrow of NBSGW mice receiving either mock or Prime Edited human CD34+ cells was assessed for large deletions or translocations 16 weeks after engraftment; there was no difference between mock treated and Prime Edited cells, and neither had any detectable evidence of deletions or translocations above the level of significance. In the right panel, a human cell line was transfected with spCas9 targeting NCF1 without the Prime Editing machinery. Unlike Prime Editing, spCas9 introduces double strand breaks in DNA as part of its expected mechanism of action. In contrast to the Prime Editor, spCas9 by itself introduced a high rate of translocations. +__________ +1 Analysis of edited CD34+ cells from CGD program: Targeted in vitro Analysis of 550 potential off-target sites of off-target editing. 2 Data from in vivo analysis from mouse bone marrow harvested 16 weeks after engraftment was complete. 3 Positive control. +11 +In August 2023, we received RPDD from the FDA for PM359 for the treatment of CGD. Companies that receive approval for a New Drug Application, or NDA, or Biologics License Application, or BLA, for a rare pediatric disease may be eligible to receive a voucher for priority review of a subsequent marketing application for a different product. If we receive a priority review voucher, or PRV, it may be used by us or sold to a third party. In January 2024, we received Orphan Drug designation from the FDA for PM359 for the treatment of CGD. We also have received fast track designation from the FDA for PM359 in November 2024. +In April 2024, the FDA cleared our IND application for PM359 for the treatment of CGD, enabling us to initiate our global Phase 1/2 clinical trial in the United States. The Phase 1/2 clinical trial is a multinational, first-in-human trial designed to assess the safety and efficacy of PM359 initially in adult study participants and then in adolescent and pediatric study participants who have p47phox CGD due to the ΔGT mutation in NCF1, and are medically suitable to undergo autologous HSCT. Autologous CD34+ cells will be collected from study participants and edited with Prime Editing reagents to generate PM359. PM359 is then infused into study participants after myeloablative conditioning, who will be followed for three years in the primary study, and an additional 12 years as part of the long-term follow-up period. Participants will be followed for safety, including engraftment and reconstitution of the hematopoietic system, as well as early biological markers of restored immune function including the DHR assay, and for the long-term resolution and prevention of infectious and inflammatory complications of CGD. The Phase 1/2 clinical trial is currently enrolling patients, and we anticipate sharing initial clinical data from this trial in 2025. +Next Steps +After obtaining clinical data from the Phase 1/2 clinical trial and alignment with the FDA, we intend to enroll study participants in a pivotal clinical trial for PM359. +We also are continuing our preclinical development of Prime Editors to treat X-CGD. Using PASSIGE, we believe we can address greater than 90 percent of mutations in the CYBB gene and intend to leverage modular elements of our PM359 program to aid in advancement of this program. +Our Liver Program +Wilson’s Disease +The Disease +Wilson’s disease, or WD, is a devastating rare disease of the liver, with manifestations throughout the body, that is caused by copper accumulation. Most people are diagnosed with WD between ages five and 35 years and with reported prevalence rates ranging between one in 10,000 and one in 30,000, it is expected to affect upwards of 35,000 to 100,000 patients in the United States and Europe. It is also understood that there may be significant under-diagnosis of WD. +12 +Normally, excessive copper is excreted through the liver as bile. For patients with WD, copper is not eliminated correctly and accumulates to toxic levels. While the key site of pathology is the liver, and many patients present with liver disease, patients often show persistent neurological problems including involuntary movements, tremor, gait disturbance, and kidney, hematological or psychiatric problems. +WD is an autosomal recessive disorder, meaning that there are mutations in both genomic copies of the ATP7B gene, which encodes a copper transporter protein that removes excess copper. Two predominant mutations have been described in WD: +1. H1069Q, found in approximately 30 to 50 percent of all WD patients in the United States and 18 to 72 percent of WD patients in Europe; and +2. R778L, frequently found in Asian WD patients and those of Asian ancestry, reported in 46 percent of Chinese WD patients, 38 percent of Korean WD patients, and 25 percent of Japanese WD patients. +We are currently designing Prime Editors for both of these mutations, which lie adjacent to hotspots or areas with other pathogenic mutations. +Our Approach and Results: Direct correction of prevalent ATP7B mutations +Our initial approach to WD is to correct the prevalent mutations ATP7B H1069Q and R778L in hepatocytes of the liver at their genomic location. A Prime Editor that corrects R778L will also correct R778W and R778G mutations, rarer mutations that are observed in the U.S. and Europe. We have performed pegRNA and ngRNA screens and identified guide combinations that correct the disease-causing point mutations. We believe correction of the gene in the liver should address all aspects of the disease by normalizing the process in which the body removes copper in the liver. +We have identified a formulation, PM577, comprising a Prime Editor encapsulated as RNA cargo in a liver-targeted lipid nanoparticle (LNP), as a lead candidate to precisely correct the H1069Q mutation in ATP7B. In vivo administration of PM577 in a fully humanized homozygous p.H1069Q ATP7B mouse model achieved greater than 70 percent precise correction of hepatocytes (left panel, figure below) leading to a greater than 75% reduction of copper in the liver 28 days following treatment (middle panel, figure below). We have also observed up to 51 percent precise correction of NHP hepatocytes in vivo following intravenous administration of an LNP-encapsulated, surrogate Prime Editor (right panel, figure below). No off-target edits or unintended edits at the target site were detected in the in vivo humanized mouse or NHP studies. +Next Steps +We have initiated IND enabling studies to develop PM577 for the treatment of WD and are on track to submit an IND and/or Clinical Trial Application, or CTA, in the first half of 2026. +13 +Non-Viral Delivery In Vivo with Lipid Nanoparticles +LNPs are multicomponent systems that encapsulate the Prime Editor cargo to prevent its degradation by the ubiquitous endonucleases present in biological fluids, thereby enabling the transient delivery and expression of the Prime Editor in cells. We are investing strategically to build our LNP formulations for delivery as a platform technology to enable target tissue delivery. Specifically, we are establishing end-to-end capabilities including design and synthesis of proprietary lipids, high-throughput LNP screening in vivo using complementary and orthogonal approaches such as DNA bar coding and next generation sequencing, LNP formulation process development, manufacturing of preclinical and clinical formulations, and in vivo evaluation of LNP delivered Prime Editors. We are integrating automation, analytical quality control, characterization data, in vitro and in vivo preclinical data, along with data knowledge management tools such as machine learning to develop correlative analyses that we believe can expedite LNP discovery and inform drug product formulation development and drug product specification setting. We believe that building an iterative and integrated system will increase efficiencies in identifying potent and safe LNPs capable of delivering Prime Editors to extra-hepatic tissues. +We have developed a Universal LNP delivery system (see schematic in figure below) that is targeted to the liver, and specifically targets the LNP to the hepatocytes. This approach, we believe, improves biodistribution to the target cell type. We expect that the LNP system will be modular in that simply swapping out the pegRNA (and ngRNA where required) will result in a new product, with the potential to accelerate the development of additional liver programs thereafter. +Our Lung Program +Cystic Fibrosis +The Disease +CF is a progressive lung disease characterized by production of thick mucus lung secretions which lead to blockage of airways, inflammation, and lung infection, progressing ultimately to lung failure. It also affects the pancreas gland and biliary system of the liver in a similar way, leading to exocrine pancreatic failure and mild to moderate cholestatic liver disease in some patients. Overall CF prevalence in the United States and Europe is approximately 70,000 to 90,000 people (~40,000 in the United States), and while significant progress in the last decade has created therapeutic options for many patients (e.g., TRIKAFTOR ® ), there is no cure and existing treatments are ineffective or not tolerated for approximately 15 percent of patients. +14 +The disease is an autosomal recessive disorder caused by loss-of-function mutations in a chloride protein transporter called the CF transmembrane conductance regulator, or CFTR. Approximately 65 to 75 percent of CF patients have a three-nucleotide deletion in the CFTR gene known as F508del. The vast majority of remaining patients have one of several prevalent mutations in a small number of genetic hotspots in the CFTR gene, including mutations such as N1303K, W1282X, G542X, or G553X / G551D and I507del. +Our Approach: Correct prevalent mutations and mutational hotspots in the CFTR gene +We intend to progress two distinct strategies for applying Prime Editing to treat CF: hotspot editing and PASSIGE. Through hotspot editing, we aim to address multiple mutations at CFTR mutational hotspots with a small number of Prime Editors. In parallel, with PASSIGE, we aim to address nearly all people with CF with a single CFTR superexon insertion strategy. The hotspot editing strategy has the potential to address a large percentage of individuals having CF with only a few Prime Editors, with a particular focus on the 15 percent of patients who cannot be treated with current therapy. Preclinical data generated by us suggest that using only eight hotspot Prime Editors could benefit more than 93 percent of all people with CF, including those living with nonsense and rare mutations whose disease is not amenable to treatment with currently approved therapies, as well as those who do not tolerate existing therapies. +We have achieved greater than 60% precise editing of the G542X mutational hotspot in human lung progenitor cells and showed phenotypic restoration of CFTR protein in differentiated human lung cells in air-liquid interface culture (see figure below). We believe the human lung progenitor data are the most predictive of in vivo efficacy. +Next Steps +Pursuant to our therapeutic development agreement with the Cystic Fibrosis Foundation, or CFF, we are aiming to deliver a one-time therapy that would offer the first cure to patients living with CF, including those with high unmet need mutations. We are continuing preclinical development of our hotspot Prime Editors and a superexon insertion approach using PASSIGE technology, including testing in animal models and developing delivery systems. +Our License and Collaboration Agreements +License agreements with Broad Institute +In September 2019, we entered into a license agreement with Broad Institute, and in May 2020, February 2021, December 2022, and September 2024 we entered into amendments to that license agreement. We refer to this amended license agreement as the Broad License Agreement. Under the Broad License Agreement, Broad Institute grants to us certain rights and licenses under certain patent rights it owns or controls related to editing of DNA sequences using a Prime Editor. Certain of the licensed patent rights are co-owned by Broad Institute with MIT and Harvard and certain are co-owned by Broad Institute with Harvard. In December 2022, following the timely exercise of an option under an existing option agreement with Broad Institute we entered into a second license agreement +15 +with Broad Institute, which we refer to as the 2022 Broad License Agreement. Under the 2022 Broad License Agreement, Broad Institute grants to us certain rights and licenses under certain patent rights it owns or controls related to MMR inhibition and prime editing improvements. The licensed patent rights are co-owned by Broad Institute with Harvard, The Trustees of Princeton University, or Princeton, and The Regents of the University of California, or University of California. +Broad License Agreement +The licenses Broad Institute grants to us under the Broad License Agreement are limited to the field of prevention or treatment of human disease, and most licenses granted to us under the Broad License are further limited to the prevention or treatment of human disease by editing (including modifying or converting) or targeting DNA ex vivo , in vivo , or through xeno-transplantation methods. We refer to this field as the Prime Broad Field. +Under the Broad License Agreement, Broad Institute grants to us (i) an exclusive, worldwide license under the licensed patent rights solely to offer for sale, sell, have sold and import products covered by such licensed patent rights, or licensed products, solely for use within the Prime Broad Field (subject to certain specified limitations and exclusions with respect to certain applications), (ii) a non-exclusive, worldwide license under the licensed patent rights solely to make, have made, offer for sale, sell, have sold, and import licensed products solely for use in the Prime Broad Field, (iii) a non-exclusive, worldwide license under the licensed patent rights solely to make, have made, offer for sale, sell, have sold and import other products that are enabled by (a) the licensed patent rights or (b) the use of certain materials transferred to us by Broad Institute, solely for the prevention or treatment of human diseases, which we refer to as enabled products, and (iv) a non-exclusive, worldwide license solely for internal research. +All of the above license grants specifically exclude human germline modification, the stimulation of biased inheritance of particular genes or traits within a plant or animal population, and certain modifications of the tobacco plant, and are subject to certain retained rights of Broad Institute, MIT and Harvard and the U.S. federal government. Broad Institute also retains certain rights for itself, MIT and Harvard and for other non-for-profit research organizations and government agencies to practice the licensed patent rights for research, teaching, educational and scholarly purposes. In addition, because an employee of HHMI was an inventor on certain of the licensed patent rights, the licenses granted to us with respect to such patent rights are subject to a non-exclusive, irrevocable, worldwide license to HHMI to exercise any such patent rights for research purposes. +We are permitted to sublicense the licensed patent rights to our affiliates and third parties, subject to certain requirements, including that any such sublicense agreement be in compliance with and be consistent with the terms of the Broad License Agreement. In addition, any such sublicense agreement must include certain customary provisions to ensure our ability to comply with the Broad License Agreement. We are also responsible for any breaches of a sublicense agreement by the applicable sublicensee and for all payments due to Broad Institute under the Broad License Agreement by operation of any such sublicense. +Our licenses are subject to Broad Institute’s inclusive innovation model, pursuant to which Broad Institute retains the right, under specified circumstances, to grant to third parties (other than specified competitors of ours) licenses under the licensed patent rights that would otherwise fall within the scope of the exclusive license granted to us. If a third party provides Broad Institute with a bona fide proposal to develop a product covered by the licensed patents and directed to a particular gene target, Broad Institute may notify us of the proposal, including the identity of such gene target and the proposing third party. Broad Institute is not required to share any other information provided by the requester with us in connection with the inclusive innovation model. Within a specified time period following such notification, we may provide Broad Institute with evidence that either (i) we (ourselves, or through our affiliates or sublicensees) are currently developing one or more licensed products directed to the applicable gene target or (ii) we have a good faith interest in developing licensed products directed to such gene target (ourselves, or through our affiliates or sublicensees) or sublicensing our rights to such gene target directly to such third party or another third party. If we notify Broad Institute that we are currently developing licensed products directed to such gene target or that we have a good faith interest in developing licensed products directed to such gene target, we have a specified period of time to evidence such activities or interest by providing Broad Institute with a development plan and either continuing or commencing, respectively, such activities under such development plan. We must continue to use commercially reasonable efforts to continue to progress such activities. If we notify Broad +16 +Institute that we have a good faith interest in sublicensing our rights to such third party or another third party, we have a specified period of time to negotiate and enter into a sublicense agreement with a third party. If we (i) notify Broad Institute that we are not interested in developing such product (internally or with another third party) or do not respond to the proposed product notice, or (ii) notify Broad Institute of our interest as outlined above and do not complete or, for an internal program, commence, those activities within the specified time periods, Broad Institute has the right, subject to certain conditions, to terminate our rights to such gene target and may grant to such proposing third party an exclusive or non-exclusive license under the patent rights to exploit products covered by the licensed patent rights and directed to such gene target, which we refer to as a march-in license. Broad has not yet granted any march-in license to a third party. +In addition to the inclusive innovation model, our licenses are also subject to Broad Institute’s right to designate a single-digit number of gene targets per year in which it has a good faith interest in reserving for its own development of products covered by the patent rights directed to such gene targets. Such reserved gene targets are referred to as a reserved Broad Institute targets. If Broad Institute notifies us that it desires to exercise such right for a given gene target, and we do not, within a specified time period, evidence that we (ourselves or through an affiliate or sublicensee) have an on-going program or good faith interest in pursuing a program for Prime Editor products for such gene target, Broad Institute may terminate our license with respect to such gene target, with such gene target becoming a reserved Broad Institute target. We have a right to negotiate a sublicense with a third-party for-profit company interested in licensing the rights to such reserved Broad Institute targets, which we must complete within a specified period of time, after which Broad Institute may grant such rights to such third party. Broad Institute has not yet exercised its right to designate any reserved gene targets. +Under the Broad License Agreement, we are required to use commercially reasonable efforts to develop licensed products in the Prime Broad Field in accordance with a development plan that we prepared and submitted to Broad Institute, which includes several developmental milestones for licensed products that we are required to meet within a specified number of years. We may update the development plan from time to time if we believe, in our good faith judgment, that such update is needed to improve our ability to meet such development milestones. Broad Institute has the right to terminate the Broad License Agreement if we fail to use commercially reasonable efforts or to achieve a development milestone, subject to our right to extend or amend such milestone in accordance with certain procedures. We may request an extension of the development milestone timelines by providing a reasonable explanation and plan to Broad Institute, and following Broad Institute’s approval of the request to delay, the applicable milestone deadline will be automatically amended (to the extent we request an extension of less than a specified number of years). We have not yet requested any such extension and have met the deadlines for diligence milestones that have already occurred. If we are successfully able to gain regulatory approval for any licensed product, we are required to use commercially reasonable efforts to introduce any such licensed product into the commercial market and to commercialize and make such licensed products reasonably available to the public. +As partial consideration for the rights granted to us under the Broad License Agreement, we paid Broad Institute an upfront fee of $0.5 million, and issued Broad Institute an aggregate of 623,529 shares of our common stock. Under the February 2021 and December 2022 amendments, as partial consideration for the addition of licensed patent rights relating to prime editing improvements, we paid Broad Institute amendment fees of approximately $0.1 million and $0.1 million, respectively. +We also are obligated to pay to Broad Institute an annual license maintenance fee in the low six-figures for the term of the Agreement. Broad Institute is also entitled to receive clinical and regulatory milestone payments up to a total of $20.0 million per licensed product, depending on the patient population to be treated by the licensed product achieving the applicable milestone. If we undergo a change of control at any time during the term of the Broad License Agreement, certain of the clinical and regulatory milestone payments will increase by a specified percentage. Broad Institute is also entitled to sales-based milestone payments up to a total of $54.0 million per licensed product, depending on the patient population to be treated by the licensed product achieving the applicable milestone. Broad Institute is entitled to lower payments to the extent the clinical and regulatory milestones or sales-based milestones are achieved by enabled products, rather than licensed products. +Broad Institute is entitled to receive mid-single digit percentage royalties on net sales of licensed products, and low single-digit percentage royalties of enabled products. Royalties payable to Broad Institute are subject to customary offsets and reductions with respect to a product in a given country, to a floor. On a country-by-country and product- +17 +by-product basis, the royalty term for a product in a country will terminate on the latest of: (i) the expiration of the last to expire valid claim of an issued patent or pending patent application within the licensed patent rights covering such product in such country, (ii) the period of regulatory exclusivity for such product in such country or (iii) ten (10) years after the first commercial sale of such product in such country. Broad Institute is also entitled to a percentage of consideration that we receive from our sublicensees, with such percentage at low double-digits and decreasing to high single digits, dependent on the development stage of products under the Broad License Agreement at the time of sublicense execution. +Broad Institute is responsible for the prosecution and maintenance of all licensed patent rights, although we are entitled to certain consultation, comment and review rights with respect to such prosecution and maintenance activities of the exclusively licensed patent rights. We are obligated to reimburse Broad Institute for its documented, out-of-pocket costs incurred while prosecuting and maintaining such licensed patent rights. So long as we remain the exclusive licensee of licensed patent rights in the Prime Broad Field, we have the first right to enforce the licensed patent rights in the Prime Broad Field. +Unless earlier terminated, the Broad License Agreement will remain in effect until the later of (i) the last to expire valid claim of an issued patent or pending patent application within the licensed patent rights covering our licensed products or (ii) the expiration of the last royalty term for a licensed product in a country. We can terminate the Broad License Agreement for our convenience following prior written notice to Broad Institute. Each party may terminate the Broad License Agreement for the other party’s uncured material breach. Broad Institute may also immediately terminate the Broad License Agreement (i) to the extent we (or our affiliates or sublicensees) challenge a licensed patent right, (ii) upon our bankruptcy or insolvency or (iii) if we fail to procure and maintain insurance. +2024 Amendment to The Broad License Agreement +In connection with the BMS Collaboration Agreement, we entered into a Letter Agreement, or the 2024 Amendment, with Broad Institute in September 2024, which amends the Broad License Agreement to modify certain of our obligations and rights of Broad Institute in relation to the BMS Collaboration Agreement as a sublicense under the Broad License Agreement. The 2024 Amendment, among other things, modifies the royalty and certain commercial milestones that we are obligated to pay to Broad Institute on net sales of products under the BMS Collaboration Agreement. +2022 License Agreement with Broad Institute +Other than as summarized below, the general terms of the 2022 Broad License Agreement, including the scope and field of the license grants, are the same in all material respects as the terms of the Broad License Agreement, as summarized above. +The patent rights licensed under the 2022 Broad License Agreement are co-owned by Broad Institute, Harvard, Princeton, and University of California, collectively referred to as the 2022 Broad License Agreement Co-Owners. The license grants under the 2022 Broad License Agreement are subject to the same retained rights as set forth in the Broad License Agreement for the 2022 Broad License Agreement Co-Owners, as well as the U.S. federal government and HHMI. +As partial consideration for the rights granted to us under the 2022 Broad License Agreement, we paid Broad Institute an upfront fee of $0.2 million and are obligated to pay to Broad Institute an annual license maintenance fee in the mid-five figures for the term of the Agreement. +Broad Institute is entitled to receive clinical and regulatory milestone payments for a limited category of licensed products or enabled products, which category we refer to as royalty-bearing products, up to a total of $2.0 million per royalty-bearing product. Broad Institute is entitled to sales-based milestone payments up to a total of $3.0 million per royalty-bearing product, depending on the patient population to be treated by the royalty-bearing product achieving the applicable milestone. If we undergo a change of control at any time during the term of the 2022 Broad License Agreement, certain of the clinical and regulatory milestone payments will increase by a specified percentage. Broad Institute is entitled to lower payments to the extent the clinical and regulatory milestones or sales-based milestones are achieved by royalty-bearing products that are enabled products, rather than royalty-bearing products that are licensed products. Broad Institute is entitled to receive royalties of less than 0.2% +18 +on net sales of royalty-bearing products that are licensed products and lower royalties on net sales of for royalty-bearing products that are enabled products. Royalties payable to Broad Institute are subject to limited customary offsets and reductions. Broad Institute is entitled to a percentage of consideration that we receive from our sublicensees, with such percentage dependent on the development stage of products under the 2022 Broad License Agreement at the time of sublicense execution, all below 1%. The royalty term for a royalty-bearing product under the 2022 Broad License Agreement is determined in the same way as in the Broad License Agreement. +Pledge to Broad Institute and Harvard +In February 2021, we committed to donate $5.0 million to Broad Institute and Harvard annually for 14 years, commencing in 2021, or the Pledge. The Pledge is intended to be used for research and development related to new genome editing technologies, for example Prime Editing, improve on existing genome-editing technologies, identify delivery mechanisms for these technologies and apply these technologies to the understanding and treatment of rare genetic diseases. We can terminate the Pledge at our discretion, subject to providing one year of funding from the date of termination. In August 2022, we amended and restated the Pledge to clarify that the funds may be used by the laboratory of David Liu, who is a member of Broad Institute and a faculty member at Harvard. +Collaboration and License Agreement with Beam Therapeutics +In September 2019, we entered into a collaboration and license agreement, which we refer to as the Beam Collaboration Agreement, with Beam Therapeutics Inc., or Beam. One of our founders, David Liu, is also a founder of Beam. +Under the Beam Collaboration Agreement, we grant to Beam an exclusive (even as to us and our affiliates), worldwide license under (i) certain Prime Editing know-how that we control during the initial term, and improvements thereto that we control for a specified number of years following the initial term, and patent rights that cover such Prime Editing know-how during the term of the Agreement, and (ii) our interest in certain jointly-owned collaboration technology, in each case, solely to develop, make, have made, use, offer for sale, sell, import and commercialize licensed products only in the Beam field. The Beam field is limited to (a) the prevention, modification, improvement, amelioration or treatment of human disease, including cell-based therapies and the creation of one or more protective mutations, through administration of a licensed product that incorporates or contains a qualifying Prime Editing agent, which is a macromolecule or macromolecular complex that uses Prime Editing to make one or more transition point mutations (that is, C to T, T to C, A to G or G to A) in the sequence of one or more DNA targets, without intentionally making any non-transition mutations or other changes, including insertions, deletions, duplications, indels, transversions or combinations thereof, and does not incorporate or contain any other Prime Editing agent or other gene editing approach that is not a qualifying Prime Editing agent or (b) the prevention, modification, improvement, amelioration or treatment of sickle cell disease through administration of a licensed product that incorporates or contains a more broadly defined Prime Editing agent. We refer to each of clause (a) and clause (b) of the Beam field as subfields. We also grant to Beam a non-exclusive, worldwide license under certain CRISPR or delivery-related technology, know-how and patent rights that we control during the initial term, and improvements thereto that we control for a specified number of years following the initial term, solely to develop, make, have made, use, offer for sale, sell, import and commercialize licensed products only in the Beam field. +Under the Beam Collaboration Agreement, Beam grants to us certain non-exclusive, worldwide licenses under certain technology, know-how and patent rights, including under certain CRISPR or delivery-related technology, know-how and patent rights, that it controls during the initial term, and improvements thereto that Beam controls for a specified number of years following the initial term, solely to develop, make, have made, use, offer for sale, sell, import and commercialize products only in the Prime field, which is limited to the prevention, modification, improvement, amelioration or treatment of human disease (excluding sickle cell disease), including cell-based therapies and the creation of one or more protective mutations, through administration of a product or service containing or incorporating a Prime Editing agent that is not a qualifying Prime Editing agent, but excluding (a) the Beam field, (b) the administration of any product or service containing or incorporating a base editor and (c) a field related to microbial cells in the human flora in certain Asia territories and the development of products targeting four named gene targets. For clarity, the Prime field includes products or services that contain or incorporate (x) at least one Prime Editing agent that is not a qualifying Prime Editing agent and (y) any other gene-editing approach, +19 +including other Prime Editing agents, which may include one or more qualifying Prime Editing agents, subject to the aforementioned exclusions. The licenses granted to us by Beam under the Beam Collaboration Agreement are subject to the terms of certain third-party agreements and certain rights retained by third parties. +In addition to the ongoing licenses, under the Beam Collaboration Agreement, we are both obligated to adhere to a technology transfer plan, under which each of us agrees to disclose or otherwise share the technology, know-how and patent rights licensed to the other and to provide the other party with reasonable assistance in the exercise of its licenses. +The licenses granted to each party under the Beam Collaboration Agreement are sublicensable to affiliates and third parties, subject to certain requirements, including providing the other party a copy of each executed sublicense agreement, and ensuring any sublicensee comply with the terms of the Beam Collaboration Agreement. +Unless we exercise our profit sharing option for a licensed product, as described below, Beam is solely responsible for the development and commercialization of licensed products in the Beam field under the Beam Collaboration Agreement. Beam is required to use commercially reasonable efforts to develop and seek marketing approval for at least one licensed product in each subfield of the Beam field in each of (a) the United States and (b) one other specified major market country, and to commercialize any such licensed product that achieves marketing approval. As described further below, we are entitled to receive ongoing milestone and royalty payments from Beam based on Beam’s development and commercialization of each licensed product. +Subject to the provisions in the next paragraph, on a licensed product-by-licensed product basis, we have the right to elect to share equally with Beam in the profits and losses in the United States for Beam’s licensed products. We may exercise such right for each licensed product within a specified period of time. Any such licensed product for which we exercise such right we refer to as a collaboration product. If we exercise such right, we agree to share equally in the costs, profits and losses of each such collaboration product in the United States, rather than receiving milestones and royalties based on development and sales thereof by Beam in the United States. For clarity, we are still entitled to receive milestones and royalties on the development and sales of each such collaboration product outside of the United States. We also have the right to elect, within a specified time period, to co-promote with Beam each collaboration product in the United States, in addition to sharing in the profits and losses. To the extent we exercise our co-promote option with respect to a given collaboration product, we and Beam must use commercially reasonable efforts to commercialize such collaboration product, in each case, in the Beam field in the major markets in which marketing authorization has been obtained. After we have exercised our right to profit share on a collaboration product, we are able to, at any time during the term of the Beam Collaboration Agreement, on a collaboration product-by-collaboration product basis, opt-out of the profit and loss share and co-promotion activities with respect to any collaboration product with prior written notice to Beam within a certain time period. +Notwithstanding the rights described above, at any time prior to or within 30 days of the filing of an IND for a licensed product, Beam may designate up to a mid-single digit number of licensed products for which (i) we are not permitted to exercise our profit sharing right, and (ii) Beam assumes sole control and decision-making authority and bears all costs and expenses, with respect to the development and commercialization of such products. Under the Beam Collaboration Agreement, a “protected product” is a licensed product for which either (a) we have not exercised our profit share option or (b) Beam has designated as a protected product pursuant to the foregoing sentence. For clarity, we are entitled to ongoing milestones and royalties from Beam based on its development and commercialization of protected products worldwide. Upon Beam’s designation of a licensed product as a protected product , Beam is required to pay us $5.0 million if the product is developed for non-sickle cell disease or $10.0 million if the product is developed for sickle cell disease. +As partial consideration for the licenses and rights granted to each other under the Beam Collaboration Agreement, Beam issued to us $5.0 million in shares of its common stock and we issued to Beam an aggregate of 1,608,337 shares of our common stock. Beam was also entitled to appoint a representative to our board of directors, which right has expired. +We are entitled to receive development milestone payments from Beam on Beam’s development of protected products (which, for clarity, includes any licensed product for which we have not exercised our profit share option) and collaboration products. For protected products, we are entitled to receive up to a total of $35.5 million on a protected product-by-protected product basis based on Beam’s development of such protected product and, for +20 +collaboration products, up to a total of approximately $17.8 million on a collaboration product-by-collaboration product basis based on Beam’s development of such collaboration product outside of the United States, in each case, with such amounts lowered if such licensed product achieves a given milestone for use in treating an orphan disease. We are also entitled to receive sales-based milestone payments from Beam based on net sales of licensed products. For protected products, we are entitled to receive up to a total of $84.5 million on a protected product-by-protected product basis based on net sales of such protected product worldwide, and, for collaboration products, up to a total of approximately $42.3 million on a collaboration product-by-collaboration product basis based on net sales of collaboration products outside of the United States. +The sickle cell disease product partnered with Beam is a licensed product under the Beam Collaboration Agreement. Beam has not designated this product as a protected product and we have not received any development or sales-based milestones with respect to Beam’s exploitation thereof. +Beam is obligated to pay to us tiered royalties ranging from a high-single digit percentage to a low double-digit percentage, but less than teens on net sales of protected products worldwide on a protected product-by-protected product basis and net sales of collaboration products outside of the United States on a collaboration product-by-collaboration product basis. Our royalties are subject to customary offsets and reductions, to a floor that takes into account any royalties we are obligated to pay to our third-party licensors, including Broad Institute. In addition, certain of the rights licensed under the Beam Collaboration Agreement are sublicensed from third parties, and Beam agrees to reimburse us for certain payments we are required to make to our third-party licensors attributable to Beam’s exercise of any sublicense we grant to Beam, including payments we make to Broad Institute under the Broad License Agreement. +If we develop a product that is covered by the technology, know-how or patent rights that Beam licenses to us under the Beam Collaboration Agreement, which we refer to as a Prime product, we are obligated to pay to Beam a low single digit percentage royalty on our worldwide net sales of any such product on a Prime product-by-Prime product and country-by-country basis, subject to certain customary reductions, to a floor. +Each party’s obligation to pay the other royalties expires on a country-by-country and product-by-product basis on the latest of (a) the expiration of the last to expire valid claim of an issued patent or pending patent application within the applicable licensed patent rights that cover such product in such country, (b) the expiration of regulatory exclusivity for such product in such country or (c) ten (10) years after the first commercial sale of such product in such country. +If we exercise our option to profit share on collaboration products, we share equally in the profits and losses of any such collaboration product in the United States and share in a lower portion of any development or commercialization costs attributable to such collaboration product outside of the United States. +Under the Beam Collaboration Agreement, Beam assigns ownership to us of certain improvements Beam makes, itself or jointly with us or others, to certain technology, know-how and patent rights we license to Beam, and we assign to Beam ownership of all improvements we make, ourselves or jointly with Beam or others, certain technology, know-how and patent rights Beam licenses to us. Each party grants back to the other certain exclusive and non-exclusive licenses to such improvements. Except for any such improvements, each party owns any other inventions that it developed under the Beam Collaboration Agreement and an equal, undivided interest with the other party in any inventions jointly developed. +We are responsible for prosecution and maintenance of the patent rights we license to Beam, while keeping Beam reasonably informed and providing Beam the opportunity to provide comments and make requests of us, in each case regarding the patent rights that we exclusively license to Beam in the field of the exclusive license. Beam has a step-in right to the extent we decline or fail to prosecute any patent rights that are exclusively licensed to Beam and applicable to the Beam field. Beam is responsible for prosecution and maintenance of the patent rights it licenses to us, while keeping us reasonably informed and providing us the opportunity to provide comments and make requests of us, in each case with respect to any patent rights that Beam exclusively licenses to us in the field of the exclusive license. +Beam has the first right to enforce any patent rights we exclusively license to Beam in the Beam field against any third party developing a product in the Beam field that is competitive with a licensed product Beam is developing +21 +under the Beam Collaboration Agreement. We have a step-in right on any such enforcement to the extent Beam declines or fails to initiate such enforcement action. +Unless earlier terminated in accordance with its terms, the Beam Collaboration Agreement will expire on the later of (a) expiration of the last royalty term for a product on which a party is obligated to pay royalties to the other party or (b) with respect to any collaboration product, the date on which neither party is developing or commercializing any such collaboration product in the United States. +After expiration of the initial term, Beam can terminate the Beam Collaboration Agreement for convenience in its entirety, or on a licensed product-by-licensed product or subfield-by-subfield basis, with ninety (90) days’ prior written notice to Prime. Each party may terminate the Beam Collaboration Agreement for (a) the other party’s uncured material breach within ninety (90) days of notice of such breach, (b) upon the insolvency or bankruptcy of the other party if such proceeding is not dismissed within ninety (90) days after the filing thereof or (c) immediately to the extent the other party (or its affiliates or sublicensees) challenges a patent right licensed to such party. +Research Collaboration and License Agreement with BMS +In September 2024, we entered into the BMS Collaboration Agreement with Juno, a wholly owned subsidiary of BMS. +Under the terms of the BMS Collaboration Agreement, we granted to BMS an exclusive worldwide license to certain Prime Editing technology for developing, manufacturing and commercializing ex-vivo T-cell therapeutic products directed to select targets. We are responsible for designing the Prime Editing reagents to be used by BMS. +We received a $55.0 million upfront payment under the BMS Collaboration Agreement and a $55.0 million equity investment under a Securities Purchase Agreement with BMS. We are also eligible to receive more than $3.5 billion in milestones, including up to $185.0 million in preclinical milestones, up to $1.2 billion in development milestones and up to $2.1 billion in commercialization milestones, along with royalties on net sales. +Unless earlier terminated, the term of the BMS Collaboration Agreement continues until expiration of the last royalty term for the applicable product in the applicable country. The BMS Collaboration Agreement is subject to customary termination provisions, including termination by a party for the other party’s uncured, material breach. +Our Business Development and Partnering Strategy +Our vision is to establish Prime Medicine as a leader in the field of gene editing by building a fully integrated biopharmaceutical company utilizing our Prime Editing platform to pioneer the discovery, development and commercialization of Prime Editing therapeutics that can have a transformative impact on the treatment of a wide spectrum of diseases with high unmet medical need. The potential therapeutic applications of our Prime Editing technology are broad, and we aspire to fully develop that potential. +To achieve our vision, and in addition to independently discovering, developing, and commercializing Prime Editing products, we will seek to selectively enter strategic collaborations to maximize the potential of the Prime Editing platform. Such collaborations may also facilitate our entry into additional therapeutic or geographic areas by leveraging the established capabilities of our partners as well as by funding the development of new Prime Editing platform or corporate capabilities which we can then utilize for additional Prime Medicine products outside such partnerships. In certain cases, we may use partnerships to create value in areas which we may not intend to enter ourselves in the near term. In our collaborations, we may cooperatively develop and commercialize products with our partners, have options to do so, or out-license products for development and commercialization by our partners. In each case, we expect to receive value in the form of upfront payments and milestones which will provide us with additional capital in the nearer term as well as royalties and where applicable, profit sharing, to participate in the value created through commercializing Prime Editing products. +We may also seek to access or develop enabling technologies or specific capabilities through licenses or partnerships. We will evaluate partnerships with both academic and corporate entities, and these potential collaborations may vary in both structure and scope. Technologies that may enable the application of Prime Editing may include viral and non-viral delivery modalities, manufacturing, and technologies that may be synergistic with Prime Editing or Prime Editing products. +22 +Competition +The pharmaceutical and biotechnology industries, including the gene therapy and gene editing fields, are characterized by rapidly advancing technologies, intense competition and a strong defense of intellectual property. We believe that our Prime Editing technology is highly differentiated and that our considerable expertise in Prime Editing and our expansion of its capabilities, as well as our team’s extensive drug development and manufacturing experience, together with exclusive licenses to this technology have positioned us at the forefront of the field of advanced precision genetic medicines and provided us with significant competitive advantages. Nevertheless, we face potential competition from a variety of companies. There are several companies utilizing CRISPR/Cas9 nuclease technology, including Caribou Biosciences, Inc., Editas Medicine, Inc., CRISPR Therapeutics AG, Intellia Therapeutics, Inc. and Kamau Therapeutics, Inc., among others. Several additional companies such as Sangamo Therapeutics, Inc., Precision BioSciences, Inc. and bluebird bio, Inc. utilize alternative nuclease-based genome editing technologies, including ZFNs, engineered meganucleases and TALENs. Beam Therapeutics Inc. utilizes base editing technology. In addition, other private companies such as Tessera Therapeutics, Inc. have announced their work in recombinase DNA and RNA gene writers, although little is known publicly about their science or portfolio. Other companies have announced intentions to enter the gene editing field, such as Moderna, Inc. and Pfizer Inc. Most recently, new epigenetic editing companies have emerged, such as nChroma Bio, Inc. and Tune Therapeutics, Inc. In addition, we face competition from companies utilizing gene therapy, oligonucleotides and cell therapy therapeutic approaches. Several companies such as Arbor Biotechnologies, Inc., Scribe Therapeutics Inc., Mammoth Biosciences, Inc. and Metagenomi, Inc. are actively searching for novel genome editing components, have reported the discovery of new DNA-cutting enzymes, and have announced gene editing programs. Other companies are active in LNP delivery technologies and advancing those into therapeutics using genetic therapies, including Recode Therapeutics, Inc., Verve Therapeutics, Inc., Generation Bio Co. and Beam Therapeutics Inc., among others. +Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future that are approved to treat the same diseases for which we may obtain approval for our product candidates. This may include gene editing companies with other approaches to editing, as well as other types of therapies, such as small molecule, RNAi, antibody and/or protein therapies. +In addition, many of our current or potential competitors, either alone or with their collaboration partners, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials and approved products than we do today. Mergers and acquisitions in the pharmaceutical, biotechnology and gene therapy industries may result in resources becoming increasingly concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. We also compete with these companies in recruiting, hiring and retaining qualified scientific and management talent, establishing clinical trial sites and patient registration for clinical trials, obtaining manufacturing slots at contract manufacturing organizations and in acquiring technologies complementary to, or necessary for, our programs. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, particularly if they represent cures, have fewer or less severe side effects, are more convenient, or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. The key competitive factors affecting the success of all of our programs are likely to be their efficacy, safety, convenience and availability of reimbursement. +Manufacturing +We currently have no commercial manufacturing capabilities. For our initial wave of clinical programs, we intend to use qualified third-party contract manufacturing organizations, or CMOs, with relevant manufacturing experience in genetic medicines to make our clinical candidates using current good manufacturing practices, or cGMP. We plan to partner with suppliers to produce critical raw materials, bulk compounds, formulated compounds, viral vectors or engineered cells for early-stage clinical trials. At the appropriate time in the product development process, we will determine whether to establish in-house cGMP manufacturing capabilities for some core technologies or continue to rely on third parties to manufacture commercial quantities for any products that we may successfully develop. +23 +Intellectual Property +Overview +We achieved many major milestones in 2024, including the issuance of two in-licensed U.S. patents, the allowance of another in-licensed U.S. patent application that has since issued as a U.S. patent, the issuance of five ex-U.S. patents, and the allowance of another two ex-U.S. patent applications, one of which has since issued as an ex-U.S. patent. As of February 20, 2025, we have six in-licensed U.S. patents or allowed patent applications and seven in-licensed ex-U.S. patents or allowed patent applications, all of which cover Prime Editing methods and its components and systems. Our success depends in large part on our ability to obtain and maintain additional intellectual property protection for our platform technology, our programs and know-how related to our business, defend and enforce our intellectual property rights, in particular, our patent rights, preserve the confidentiality of our trade secrets and other confidential or proprietary information and operate without infringing, misappropriating or otherwise violating any intellectual property rights of others. We seek to protect our proprietary position by, among other things, exclusively licensing U.S. and certain foreign patent applications and issued patents and filing patent applications related to our platform technology, existing and planned programs and improvements that are important to the development of our business, where patent protection is available. While we in-license four issued patents, we do not currently own any issued patents in any jurisdiction covering our Prime Editing technology or product candidates. For information regarding the risks related to our intellectual property, please see “Risk Factors—Risks Related To Our Intellectual Property.” +Our wholly owned patent applications and our in-licensed issued patents and patent applications cover various aspects of our Prime Editing platform and our programs, including: +• Prime Editors +• pegRNA, and modified pegRNAs +• Prime Editing complexes and methods +• Dual-Flap Prime Editing technology +• Program-specific pegRNAs and therapeutic methods +• Prime Editors with enhanced activities or properties +• Engineered pegRNAs +• Delivery modalities +We intend to continue to pursue, when possible, additional patent protection, including composition of matter, method of use, delivery modality and process claims, directed to our platform technology and the programs in our portfolio. We also intend to expand and extend our Prime Editing platform and programs, as well as obtain rights to delivery modalities, through one or more licenses from third parties. +Owned Patents +As of February 20, 2025, we owned approximately 13 pending U.S. provisional patent applications, 16 pending PCT applications, 21 pending U.S. non-provisional patent applications and 39 pending ex-U.S. patent applications. The patent applications outside of the United States were filed in the European Patent Office, Japan, China and certain other foreign jurisdictions. Our owned patent applications are generally related to our Prime Editing technology, including claims to modified pegRNAs; Prime Editors with enhanced activities or properties (e.g., improved Prime Editing efficiency or smaller Prime Editors) and methods of using such Prime Editors and pegRNAs; program-specific pegRNAs directed to targeting and correcting specific mutations and methods of using such pegRNAs therapeutically; PASSIGE systems including Prime Editors and integrases or recombinases, and methods of using PASSIGE; off-target testing methods; methods for synthesizing pegRNAs; and novel lipids and LNPs for delivery of Prime Editors. The provisional patent applications are not eligible to become issued patents until, among other things, we file non-provisional patent applications within 12 months of filing one or more of our related provisional patent applications. Any U.S. non-provisional patent applications timely filed based on any of these U.S. provisional patent applications, if issued, and if the appropriate maintenance or annuity fees are paid, are expected to expire as +24 +early as 2045, excluding any additional term for patent term adjustments or patent term extensions or similar provisions in foreign jurisdictions. Our current owned U.S. non-provisional and PCT patent applications, if issued and if the appropriate maintenance or annuity fees are paid, are expected to expire as early as 2042, excluding any additional term for patent term adjustments or patent term extensions or similar provisions in foreign jurisdictions. +In-licensed Patents +As of February 20, 2025, we have in-licensed five issued U.S. patents, six granted ex-U.S. patents, approximately 16 pending U.S. non-provisional patent applications, one pending PCT application, and 80 pending ex-U.S. patent applications, in each case, related to Prime Editing, from Broad Institute. The patent applications outside of the United States were filed in the European Patent Office, Japan, China and certain other foreign jurisdictions. The issued patents and patent applications from our in-licensed portfolio for Prime Editing are generally related to Prime Editors, pegRNAs, Prime Editing complexes and systems; compositions including the Prime Editors, pegRNAs and Prime Editing complexes as a component; methods of using such Prime Editors, pegRNAs and Prime Editing complexes and systems, including methods for therapeutic indications; pegRNAs that target and correct therapeutically relevant DNA sequences; program-specific pegRNAs directed to targeting and correcting specific mutations; systems comprising Prime Editors and integrases or recombinases for use in PASSIGE; and delivery modalities for Prime Editing systems, including the use of AAV, in a split AAV system for viral delivery of a Prime Editor. The in-licensed issued patents and patent applications cover various aspects related to the Prime Editing platform technology, including Prime Editors that employ Cas domains, such as Cas9 nickases and DNA polymerase domains, such as RT domains. The exclusive in-licensed patents and patent applications also cover dual-flap Prime Editing technology, including dual-flap Prime Editing compositions and methods of using such technology for therapeutic indications, and engineered pegRNAs, including compositions and methods comprising such pegRNAs. Our current in-licensed U.S. and foreign patents and patent applications, if issued and if the appropriate maintenance or annuity fees are paid, are expected to expire as early as 2040, excluding any additional term for patent term adjustments or patent term extensions or similar provisions in foreign jurisdictions. +Additional Intellectual Property +We also rely on trade secrets, know-how, continuing technological innovation and confidential information to develop and maintain our proprietary position and protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. We seek to protect our proprietary technology and processes, in part, by confidentiality agreements with our employees, consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. +Government Regulation +In the United States, biological products, including gene editing products, are subject to regulation under the Federal Food, Drug, and Cosmetic Act, or FD&C Act, and the Public Health Service Act, or PHS Act, and other federal, state, local and foreign statutes and regulations. Both the FD&C Act and the PHS Act and their corresponding regulations govern, among other things, the research, development, clinical trials, testing, manufacturing, safety, efficacy, labeling, packaging, storage, record keeping, distribution, reporting, advertising and other promotional practices involving biological products. Each clinical trial protocol for a gene therapy or gene editing product must be reviewed and approved by the FDA before initiating clinical trials in the United States. In addition, FDA approval must be obtained before the marketing of biological products in the United States. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources and we may not be able to obtain the required regulatory approvals. +25 +U.S. Biological Products Development Process +The process required by the FDA before a biological product may be marketed in the United States generally involves the following: +• completion of nonclinical laboratory tests and animal studies, including those requiring performance in accordance with good laboratory practices, or GLPs, unless justified and applicable requirements for the humane use of laboratory animals or other applicable regulations; +• submission to the FDA of an application for an IND, which must become effective before human clinical trials may begin; +• approval of the protocol and related documentation by an independent institutional review board, or IRB, or ethics committee at each clinical trial site before each study may be initiated; +• performance of adequate and well-controlled human clinical trials according to the FDA’s regulations commonly referred to as good clinical practices, or GCPs, and any additional requirements for the protection of human research subjects and their health information, to establish the safety, purity and potency of the proposed biological product for its intended use; +• submission to the FDA of a BLA for marketing approval that includes sufficient evidence of establishing the safety, purity and potency of the proposed biological product for its intended indication, including from results of nonclinical testing and clinical trials; +• satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the biological product is produced to assess compliance with cGMP to assure that the facilities, methods and controls are adequate to preserve the biological product’s identity, strength, quality and purity and, if applicable, the FDA’s current good tissue practices, or CGTPs, for the use of human cellular and tissue products; +• potential FDA audit of the nonclinical study and clinical trial sites that generated the data in support of the BLA; +• review of the product candidate by an FDA advisory committee, where appropriate or if applicable; +• payment of user fees for FDA review of the BLA (unless a fee waiver applies); and +• FDA review and approval, or licensure, of the BLA. +Before testing any biological product, including a gene editing product, in humans, the product candidate enters the preclinical testing stage. Preclinical tests, also referred to as nonclinical studies, include laboratory evaluations of a product candidate’s biological characteristics, chemistry, toxicity and formulation, as well as animal studies to assess the potential safety and activity of the product candidate. The conduct of the preclinical tests must comply with federal regulations and requirements, including GLPs for certain nonclinical studies. +An IND is an exemption from the FD&C Act that allows an unapproved product candidate to be shipped in interstate commerce for use in an investigational clinical trial and a request for FDA authorization to administer such investigational product to humans. Such authorization must be secured before interstate shipment and administration of any product candidate that is not the subject of an approved BLA or existing IND. In support of a request for an IND, applicants must submit a protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND application. In addition, the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical trials, among other things, must be submitted to the FDA as part of an IND application. The FDA requires a 30-day waiting period after the filing of each IND before clinical trials may begin. This waiting period is designed to allow the FDA to review the IND to determine whether human research subjects will be exposed to unreasonable health risks. At any time during this 30-day period the FDA may raise concerns or questions about the conduct of the trials as outlined in the IND and impose a clinical hold, which may be full or partial. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin. +Following commencement of a clinical trial, the FDA may also place a full or partial clinical hold on that trial. A clinical hold is an order issued by the FDA to the sponsor to delay a proposed clinical investigation or to suspend an ongoing investigation. A partial clinical hold is a delay or suspension of only part of the clinical investigation +26 +conducted under the IND. No more than 30 days after imposition of a full or partial clinical hold, the FDA will provide the sponsor a written explanation of the basis for the hold. Following issuance of a full or partial clinical hold, an investigation may only resume after the FDA has notified the sponsor that the investigation may proceed. There also are requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries. Information about certain clinical trials, including clinical trial results, must be submitted within specific timeframes for publication on the www.clinicaltrials.gov website. +A sponsor may choose, but is not required, to conduct a foreign clinical trial under an IND. When a foreign clinical trial is conducted under an IND, all FDA IND requirements must be met unless waived. When a foreign clinical trial is not conducted under an IND, the sponsor must ensure that the study complies with certain regulatory requirements of the FDA in order to use the study as support for an IND or application for marketing approval or licensing. In particular, such studies must be conducted in accordance with GCP, including review and approval by an independent ethics committee, or IEC, and informed consent from subjects. The FDA must be able to validate the data through an onsite inspection, if deemed necessary by the FDA. +An IRB representing each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct continuing review and reapprove the study at least annually. The IRB must review and approve, among other things, the study protocol and informed consent information to be provided to study subjects. An IRB must operate in compliance with FDA regulations. An IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the product candidate has been associated with unexpected serious harm to patients. +Some trials are overseen by an independent group of qualified experts organized by the trial sponsor, known as a data safety monitoring board or committee, or DSMB. This group provides advice to the sponsor as to whether or not a trial may move forward at designated check points based on pre-specified criteria and access to unblinded data from the study. +In addition to the submission of an IND to the FDA before initiation of a clinical trial in the United States, certain human clinical trials involving recombinant or synthetic nucleic acid molecules are subject to oversight of institutional biosafety committees, or IBCs, as set forth in the National Institutes of Health, or NIH, Guidelines for Research Involving Recombinant or Synthetic Nucleic Acid Molecules, or NIH Guidelines. Specifically, under the NIH Guidelines, supervision of human gene transfer trials includes evaluation and assessment by an IBC, a local institutional committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid molecules at that institution. The IBC assesses the safety of the research and identifies any potential risk to public health or the environment, and such review may result in some delay before initiation of a clinical trial. While the NIH Guidelines are not mandatory unless the research in question is being conducted at or sponsored by institutions receiving NIH funding for recombinant or synthetic nucleic acid molecule research, many companies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them. Regulatory requirements governing the development of gene therapy products have also changed frequently and may continue to change in the future. +Clinical trials typically are conducted in three sequential phases that may overlap or be combined: +• Phase 1. The biological product is initially introduced into healthy human subjects and tested for safety. In the case of some products for severe or life-threatening diseases, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients. +• Phase 2. The biological product is evaluated in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance, optimal dosage and dosing schedule. +• Phase 3. The biological product undergoes more extensive clinical trials to further evaluate dosage, efficacy, potency and safety in an expanded patient population at geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for approval and product labeling. +Post-approval clinical trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These clinical trials are used to gather additional data from the treatment of patients in the intended +27 +therapeutic indication, particularly for long-term safety follow-up. The FDA generally recommends that sponsors of human gene therapy products integrating vectors such as gammaretroviral and lentiviral vectors and transposon elements as well as gene editing product sponsors observe subjects for potential gene therapy-related delayed adverse events for up to a 15-year period, including five years of annual examinations followed by ten years of annual queries, either by telephone or by questionnaire, of study subjects. +Both the FDA and the European Medicines Agency, or the EMA, provide expedited pathways for the development of drug product candidates for treatment of rare diseases, particularly life-threatening diseases with high unmet medical need. Such drug product candidates may be eligible to proceed to registration following a single clinical trial in a limited patient population, sometimes referred to as a Phase 1/2 trial, but which may be deemed a pivotal or registrational trial following review of the trial’s design and primary endpoints by the applicable regulatory agencies. Determination of the requirements to be deemed a pivotal or registrational trial is subject to the applicable regulatory authority’s scientific judgement and these requirements may differ in the U.S. and the European Union, or EU. +During all phases of clinical development, the FDA requires extensive monitoring and auditing of all clinical activities, clinical data, and clinical trial investigators. Annual progress reports detailing the results of the clinical trials must be submitted to the FDA. Written IND safety reports must be promptly submitted to the FDA, the NIH and the investigators for serious and unexpected adverse events, any findings from other studies, tests in laboratory animals or in vitro testing that suggest a significant risk for human subjects, or any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. The sponsor must submit an IND safety report within 15 calendar days after the sponsor determines that the information qualifies for reporting. The sponsor also must notify the FDA of any unexpected fatal or life-threatening suspected adverse reaction within seven calendar days after the sponsor’s initial receipt of the information. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, if at all. The FDA or the sponsor, acting on its own or based on a recommendation from the sponsor’s data safety monitoring board may suspend a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the biological product has been associated with unexpected serious harm to patients. +Concurrent with clinical trials, companies usually complete additional animal studies and also must develop additional information about the physical characteristics of the biological product as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. To help reduce the risk of the introduction of adventitious agents with use of biological products, the PHS Act emphasizes the importance of manufacturing control for products whose attributes cannot be precisely defined. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the sponsor must develop methods for testing the identity, strength, quality, potency and purity of the final biological product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the biological product candidate does not undergo unacceptable deterioration over its shelf life. +U.S. Review and Approval Processes +After the completion of clinical trials of a biological product, FDA approval of a BLA must be obtained before commercial marketing of the biological product in the United States. The BLA must include results of product development, laboratory and animal studies, human studies, information on the manufacture and composition of the product, proposed labeling and other relevant information. +Within 60 days following submission of the application, the FDA reviews a BLA to determine if it is substantially complete before the FDA accepts it for filing. The FDA may refuse to file any BLA that it deems incomplete or not properly reviewable at the time of submission and may request additional information. In this event, the BLA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. In most cases, the submission of a BLA is subject to a substantial application user fee, although the fee may be waived under certain circumstances. Under the performance goals and policies implemented by the FDA under the Prescription Drug User Fee Act, or PDUFA, for original BLAs, the FDA targets 10 months from the filing date in which to complete its initial review of a standard application and respond to the applicant, and six +28 +months from the filing date for an application with priority review. The FDA does not always meet its PDUFA goal dates, and the review process is often significantly extended by FDA requests for additional information or clarification. This review typically takes 12 months from the date the BLA is submitted to the FDA because the FDA has approximately two months to make a ‘‘filing’’ decision. The review process and the PDUFA goal date may be extended by three months if the FDA requests or the BLA sponsor otherwise provides additional information or clarification regarding information already provided in the submission within the last three months before the PDUFA goal date. +Once the submission is accepted for filing, the FDA begins an in-depth substantive review of the BLA. The FDA reviews the BLA to determine, among other things, whether the proposed product is safe, pure and potent, for its intended use, and whether the product is being manufactured in accordance with cGMP to ensure the continued safety, purity and potency of such product. The FDA may refer applications for novel biological products or biological products that present difficult or novel questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. During its BLA review, the FDA also will determine whether a Risk Evaluation and Mitigation Strategy, or REMS, is necessary to assure the safe use of the biological product. If the FDA concludes a REMS is needed, the sponsor of the BLA must submit a proposed REMS; the FDA will not approve the BLA without a REMS, if required. +Before approving a BLA, the FDA typically will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. For a gene therapy or gene editing product, the FDA also will not approve the product if the manufacturer is not in compliance with the CGTPs. These are FDA regulations that govern the methods used in, and the facilities and controls used for, the manufacture of human cells, tissues and cellular and tissue-based products, or HCT/Ps, which are human cells or tissue intended for implantation, transplant, infusion, or transfer into a human recipient. The primary intent of the CGTP requirements is to ensure that cell and tissue-based products are manufactured in a manner designed to prevent the introduction, transmission and spread of communicable disease. FDA regulations also require tissue establishments to register and list their HCT/Ps with the FDA and, when applicable, to evaluate donors through appropriate screening and testing. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure that the clinical trials were conducted in compliance with IND study requirements and GCP requirements. To assure cGMP, CGTP and GCP compliance, an applicant must incur significant expenditure of time, money and effort in the areas of training, record keeping, production and quality control. +Under the Pediatric Research Equity Act, or PREA, a BLA or supplement to a BLA for a novel product (e.g., new active ingredient, new indication, etc.) must contain data to assess the safety and effectiveness of the biological product for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers. Unless otherwise required by regulation, PREA does not apply to any biological product for an indication for which orphan designation has been granted. +Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the BLA does not satisfy its regulatory criteria for approval and deny approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret the same data. If the FDA decides not to approve the BLA in its present form, the FDA will issue a complete response letter that usually describes all of the specific deficiencies in the BLA identified by the FDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical trials. Additionally, the complete response letter may include recommended actions that the applicant might take to place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the BLA, addressing all of the deficiencies identified in the letter or withdraw the application. +If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, including to subpopulations of patients, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings precautions +29 +or interactions be included in the product labeling. The FDA may impose restrictions and conditions on product distribution, prescribing or dispensing in the form of a REMS, or otherwise limit the scope of any approval. In addition, the FDA may require post-approval clinical trials designed to further assess a biological product’s safety, purity or potency, and testing and surveillance programs to monitor the safety of approved products that have been commercialized. +Orphan Drug Designation +Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biological product intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making a drug or biological product available in the United States for this type of disease or condition will be recovered from sales of the product. Orphan product designation must be requested before submitting a BLA. After the FDA grants orphan product designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. +Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. Orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug or biological product for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity. Competitors, however, may receive approval of different products for the indication for which the orphan product has exclusivity or obtain approval for the same product but for a different indication for which the orphan product has exclusivity. If a drug or biological product designated as an orphan product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan product exclusivity. Orphan drug designation status in the EU has similar, but not identical, benefits. +Rare Pediatric Disease Designation and Priority Review Vouchers +Under the FD&C Act, the FDA incentivizes the development of drugs and biological products that meet the definition of a “rare pediatric disease,” defined to mean a serious or life-threatening disease in which the serious of life-threatening manifestations primarily affect individuals aged from birth to 18 years and the disease affects fewer than 200,000 individuals in the United States or affects more than 200,000 in the United States and for which there is no reasonable expectation that the cost of developing and making in the United States a drug or biological product for such disease or condition will be received from sales in the United States of such drug or biological product. The sponsor of a product candidate for a rare pediatric disease may be eligible for a voucher that can be used to obtain a priority review for a subsequent human drug or biological product application after the date of approval of the rare pediatric disease drug or biological product, referred to as a PRV. A sponsor may request rare pediatric disease designation from the FDA prior to the submission of its BLA. A rare pediatric disease designation does not guarantee that a sponsor will receive a PRV upon approval of its BLA. Moreover, a sponsor who chooses not to submit a rare pediatric disease designation request may nonetheless receive a PRV upon approval of their marketing application if they request such a voucher in their original marketing application and meet all of the eligibility criteria. If a PRV is received, it may be sold or transferred an unlimited number of times. The FDA’s rare pediatric disease priority voucher program began to sunset on December 20, 2024, on failure to pass a continuing resolution package that included its reauthorization. Under the amended statutory sunset provisions, after December 20, 2024, the FDA may award a PRV for an approved rare pediatric disease product application only if the sponsor has rare pediatric disease designation for the drug and if that designation was granted by December 20, 2024. After September 30, 2026, the FDA may not award any rare pediatric disease PRVs. Congress may vote to reauthorize this program, but its future remains unknown at this time. +Expedited Development and Review Programs +The FDA has various programs, including fast track designation, breakthrough therapy designation, accelerated approval and priority review, that are intended to expedite or simplify the process for the development and FDA +30 +review of drugs and biologics that are intended for the treatment of serious or life-threatening diseases or conditions. These programs do not change the standards for approval but may help expedite the development or approval process. To be eligible for fast track designation, new drugs and biological products must be intended to treat a serious or life-threatening condition and demonstrate the potential to address unmet medical needs for the condition. Fast track designation applies to the combination of the product and the specific indication for which it is being studied. The sponsor of a new drug or biologic may request the FDA to designate the drug or biologic as a fast track product at any time during the clinical development of the product. One benefit of fast track designation, for example, is that the FDA may consider for review sections of the marketing application for a product that has received fast track designation on a rolling basis before the complete application is submitted. +Under the FDA’s breakthrough therapy program, products intended to treat a serious or life-threatening disease or condition may be eligible for the benefits of the fast track program when preliminary clinical evidence demonstrates that such product may have substantial improvement on one or more clinically significant endpoints over existing therapies. Additionally, the FDA will seek to ensure the sponsor of a breakthrough therapy product receives timely advice and interactive communications to help the sponsor design and conduct a development program as efficiently as possible. +Any product is eligible for priority review if it has the potential to provide safe and effective therapy where no satisfactory alternative therapy exists or a significant improvement in the treatment, diagnosis or prevention of a disease compared to marketed products. The FDA will attempt to direct additional resources to the evaluation of an application for a new drug or biological product designated for priority review in an effort to facilitate the review. Under priority review, the FDA’s goal is to review an application in six months once it is filed, compared to ten months for a standard review. +Additionally, a product may be eligible for accelerated approval. Drug or biological products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval, which means that they may be approved on the basis of adequate and well-controlled clinical trials establishing that the product has an effect on a surrogate endpoint that is reasonably likely to predict a clinical benefit, or on the basis of an effect on an intermediate clinical endpoint other than survival or irreversible morbidity. As a condition of approval, the FDA may require that a sponsor of a drug or biological product receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials with due diligence, and, under the Food and Drug Omnibus Reform Act of 2022, or FDORA, the FDA is permitted to require, as appropriate, that such trials be underway prior to approval or within a specific time period after the date of approval for a product granted accelerated approval. Under FDORA, the FDA has increased authority for expedited procedures to withdraw approval of a product or indication approved under accelerated approval if, for example, the confirmatory trial fails to verify the predicted clinical benefit of the product. In addition, for products being considered for accelerated approval, the FDA generally requires, unless otherwise informed by the agency, that all advertising and promotional materials intended for dissemination or publication be submitted to the agency for review, which could adversely affect the timing of the commercial launch of the product. +Under FDORA, a platform technology incorporated within or utilized by a drug or biological product is eligible for designation as a designated platform technology if certain conditions are met. A sponsor may request the FDA to designate a platform technology as a designated platform technology concurrently with, or at any time after, submission of an IND application for a drug that incorporates or utilizes the platform technology that is the subject of the request. If so designated, the FDA may expedite the development and review of any subsequent original NDA or BLA for a drug that uses or incorporates the platform technology. Designated platform technology status does not ensure that a drug will be developed more quickly or receive FDA approval. In addition, the FDA may revoke a designation if the FDA determines that a designated platform technology no longer meets the criteria for such designation. +RMAT Designation +Congress amended the FD&C Act to facilitate an efficient development program for, and expedite review of regenerative medicine advanced therapy, or RMAT, which include cell and gene therapies, therapeutic tissue engineering products, human cell and tissue products and combination products using any such therapies or products. RMAT do not include those HCT/Ps regulated solely under section 361 of the PHS Act and 21 CFR Part 1271. This program is intended to facilitate efficient development and expedite review of regenerative medicine +31 +therapies, which are intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition and qualify for RMAT designation. A drug sponsor may request that FDA designate a drug as a RMAT concurrently with or at any time after submission of an IND. FDA has 60 calendar days to determine whether the drug meets the criteria, including whether there is preliminary clinical evidence indicating that the drug has the potential to address unmet medical needs for a serious or life-threatening disease or condition. A BLA for a regenerative medicine therapy that has received RMAT designation may be eligible for priority review or accelerated approval through use of surrogate or intermediate endpoints reasonably likely to predict long-term clinical benefit, or reliance upon data obtained from a meaningful number of sites. Benefits of RMAT designation also include early interactions with FDA to discuss any potential surrogate or intermediate endpoint to be used to support accelerated approval. A regenerative medicine therapy with RMAT designation that is granted accelerated approval and is subject to post-approval requirements may fulfill such requirements through the submission of clinical evidence from clinical trials, patient registries, or other sources of real world evidence, such as electronic health records; the collection of larger confirmatory data sets; or post-approval monitoring of all patients treated with such therapy prior to its approval. Like some of the FDA’s other expedited development programs, RMAT designation does not change the standards for approval but may help expedite the development or approval process. +Post-Approval Requirements +Maintaining substantial compliance with applicable federal, state and local statutes and regulations requires the expenditure of substantial time and financial resources. Rigorous and extensive FDA regulation of biological products continues after approval, particularly with respect to cGMP. We currently rely, and may continue to rely, on third parties for the production of clinical and commercial quantities of any products that we may commercialize. Manufacturers of our products are required to comply with applicable requirements in the cGMP regulations, including quality control and quality assurance and maintenance of records and documentation. Other post-approval requirements applicable to biological products, include reporting of cGMP deviations that may affect the identity, potency, purity and overall safety of a distributed product, record-keeping requirements, reporting of adverse effects, reporting updated safety and efficacy information, and complying with electronic record and signature requirements. After a BLA is approved, the product also may be subject to official lot release. As part of the manufacturing process, the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official release by the FDA, the manufacturer submits samples of each lot of product to the FDA together with a release protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s tests performed on the lot. The FDA also may perform certain confirmatory tests on lots of some products before releasing the lots for distribution by the manufacturer. In addition, the FDA conducts laboratory research related to the regulatory standards on the safety, purity, potency and effectiveness of biological products. +We also must comply with the FDA’s advertising and promotion requirements, such as those related to direct-to-consumer advertising, the prohibition on promoting products for uses or in patient populations that are not described in the product’s approved labeling, or off-label use, industry-sponsored scientific and educational activities, and promotional activities involving the internet. Discovery of previously unknown problems or the failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market as well as possible civil or criminal sanctions. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant or manufacturer to administrative or judicial civil or criminal sanctions and adverse publicity. FDA sanctions could include refusal to approve pending applications, withdrawal of an approval, clinical holds, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, mandated corrective advertising or communications with doctors or other stakeholders, debarment, restitution, disgorgement of profits, or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us. +Biological product manufacturers and other entities involved in the manufacture and distribution of approved biological products, and those supplying products, ingredients, and components of them, are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP +32 +compliance. Discovery of problems with a product after approval may result in restrictions on a product, manufacturer, or holder of an approved BLA, including withdrawal of the product from the market. In addition, changes to the manufacturing process or facility generally require prior FDA approval before being implemented and other types of changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further FDA review and approval. +From time to time, legislation is drafted, introduced, passed in Congress and signed into law that could significantly change the statutory provisions governing the approval, manufacturing, and marketing of products regulated by the FDA. In addition to new legislation, FDA regulations, guidance, and policies are often revised or reinterpreted by the agency in ways that may significantly affect the manner in which pharmaceutical products are regulated and marketed. +U.S. Patent Term Restoration and Marketing Exclusivity +Depending upon the timing, duration and specifics of any FDA approval of the use of our product candidates, some U.S. patents that may issue from our pending patent applications may be eligible for limited patent term extension under the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND and the submission date of a BLA plus the time between the submission date of a BLA and the approval of that application, except that the review period is reduced by any time during which the applicant failed to exercise due diligence. Only one patent applicable to an approved biological product is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. In addition, only those claims covering the approved product, a method for using it, or a method for manufacturing it may be extended, and a patent can only be extended once and only for a single product. The USPTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we may apply for restoration of patent term for one of the patents that may issue from our pending patent applications, if and as applicable, to add patent life beyond its current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant BLA. However, there can be no assurance that our pending patent applications will issue or that we will benefit from any patent term extension or favorable adjustments to the terms of any patents we may own or in-license in the future. +A biological product can obtain pediatric market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing exclusivity periods for all formulations, dosage forms, and indications of the biologic. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric study in accordance with an FDA-issued “Written Request” for such a study, provided that at the time pediatric exclusivity is granted there is not less than nine months of term remaining. +The ACA created an abbreviated approval pathway for biological products shown to be similar to, or interchangeable with, an FDA-licensed reference biological product. This amendment to the PHS Act attempts to minimize duplicative testing. Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and the reference product in terms of safety, purity and potency, can be shown through analytical studies, animal studies and a clinical trial or trials. Interchangeability requires that a product is biosimilar to the reference product and the product must demonstrate that it can be expected to produce the same clinical results as the reference product and, for products administered multiple times, the biologic and the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. +A reference biological product is granted four- and 12-year exclusivity periods from the time of first licensure of the product. The FDA will not accept an application for a biosimilar or interchangeable product based on the reference biological product until four years after the date of first licensure of the reference product, and the FDA will not approve an application for a biosimilar or interchangeable product based on the reference biological product until 12 years after the date of first licensure of the reference product. “First licensure” typically means the initial date the particular product at issue was licensed in the United States. Date of first licensure does not include the date of +33 +licensure of (and a new period of exclusivity is not available for) a biological product if the licensure is for a supplement for the biological product or for a subsequent application by the same sponsor or manufacturer of the biological product (or licensor, predecessor in interest, or other related entity) for a change (not including a modification to the structure of the biological product) that results in a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery device or strength, or for a modification to the structure of the biological product that does not result in a change in safety, purity, or potency. Therefore, one must determine whether a new product includes a modification to the structure of a previously licensed product that results in a change in safety, purity, or potency to assess whether the licensure of the new product is a first licensure that triggers its own period of exclusivity. Whether a subsequent application, if approved, warrants exclusivity as the “first licensure” of a biological product is determined on a case-by-case basis with data submitted by the sponsor. +Additional Regulation +In addition to the foregoing, state and federal laws regarding environmental protection and hazardous substances, including the Occupational Safety and Health Act, the Resource Conservancy and Recovery Act and the Toxic Substances Control Act, affect our business. These and other laws govern our use, handling and disposal of various biological, chemical and radioactive substances used in, and wastes generated by, our operations. If our operations result in contamination of the environment or expose individuals to hazardous substances, we could be liable for damages and governmental fines. We believe that we are in material compliance with applicable environmental laws and that continued compliance therewith will not have a material adverse effect on our business. We cannot predict, however, how changes in these laws may affect our future operations. +U.S. Foreign Corrupt Practices Act +The U.S. Foreign Corrupt Practices Act, or FCPA, to which we are subject, prohibits corporations and individuals from engaging in certain activities to obtain or retain business or to influence a person working in an official capacity. It is illegal to pay, offer to pay or authorize the payment of anything of value to any foreign government official, government staff member, political party or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity. +Government Regulation Outside of the United States +In addition to regulations in the United States, we are subject to a variety of regulations in other jurisdictions governing, among other things, research and development, clinical trials, testing, manufacturing, safety, efficacy, labeling, packaging, storage, record keeping, distribution, reporting, advertising and other promotional practices involving biological products as well as authorization and approval of our products. Because biologically sourced raw materials are subject to unique contamination risks, their use may be restricted in some countries. +The requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, the clinical trials must be conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension of clinical trials, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution. +EU Clinical Trials Regulation +In April 2014, the EU overhauled the system of approvals for clinical trials in the EU. The transitory provisions of the new Clinical Trials Regulation provide that, by January 31, 2025, all ongoing clinical trials must have transitioned to the new Regulation. Specifically, the new Regulation, which is directly applicable in all Member States (meaning that no national implementing legislation in each EU Member State is required), aims at simplifying and streamlining the approval of clinical trials in the EU. In the EU, clinical trials are governed by the Clinical Trials Regulation (EU) No 536/2014, or CTR. The CTR provides for a streamlined application procedure via a single entry point (the Clinical Trials Information System) and strictly defined deadlines for the assessment of CTAs. +34 +EU Drug Review and Approval +In the EU, medicinal products can only be commercialized after obtaining a marketing authorization. To obtain regulatory approval of a medicinal product in the EU, we must submit a marketing authorization application, or MAA. A centralized marketing authorization is issued by the European Commission through the centralized procedure, based on the opinion of the Committee for Medicinal Products for Human Use, or CHMP, of the EMA, and is valid throughout the EU, and in the additional member states of the EEA (Norway, Iceland and Liechtenstein). The centralized procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products, advanced-therapy medicinal products (gene-therapy, somatic cell-therapy or tissue-engineered medicines), and medicinal products containing a new active substance indicated for the treatment of HIV, AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and other immune dysfunctions, and viral diseases. The centralized procedure is optional for products containing a new active substance not yet authorized in the EU, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in the interest of public health in the EU. +Under the centralized procedure the maximum timeframe for the evaluation of an MAA by the EMA is 210 days, excluding clock stops, when additional written or oral information is to be provided by the applicant in response to questions asked by the CHMP. Clock stops may extend the timeframe of evaluation of an MAA considerably beyond 210 days. Where the CHMP gives a positive opinion, it provides the opinion together with supporting documentation to the European Commission, who make the final decision to grant a marketing authorization, which is issued within 67 days of receipt of the EMA’s recommendation. Accelerated assessment might be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of major public health interest, particularly from the point of view of therapeutic innovation. The timeframe for the evaluation of an MAA under the accelerated assessment procedure is 150 days, excluding clock stops, but it is possible that the CHMP may revert to the standard time limit for the centralized procedure if it determines that the application is no longer appropriate to conduct an accelerated assessment. +Periods of Authorization and Renewals +A marketing authorization is valid for five years, in principle, and it may be renewed after five years on the basis of a re-evaluation of the risk benefit balance by the EMA for a centrally authorized product, or by the competent authority of the authorizing Member State for a nationally authorized product. Once renewed, the marketing authorization is valid for an unlimited period, unless the European Commission or the competent authority decides, on justified grounds relating to pharmacovigilance, to proceed with one additional five-year renewal period. Any authorization that is not followed by the placement of the product on the EU market (in the case of the centralized procedure) or on the market of the authorizing Member State (for a nationally authorized product) within three years after authorization, or if the product is removed from the market for three consecutive years, ceases to be valid (the so-called sunset clause). +Data and Marketing Exclusivity +The EU also provides opportunities for market exclusivity. Upon receiving marketing authorization in the EU, innovative medicinal products generally receive eight years of data exclusivity and an additional two years of market exclusivity. If granted, data exclusivity prevents generic or biosimilar applicants from referencing the innovator’s preclinical and clinical trial data contained in the dossier of the reference product when applying for a generic or biosimilar marketing authorization in the EU, during a period of eight years from the date on which the reference product was first authorized in the EU. During the additional two-year period of market exclusivity, a generic or biosimilar marketing authorization can be submitted and the innovator’s data may be referenced, but no generic or biosimilar product can be marketed until the expiration of the market exclusivity period. The overall ten-year period will be extended to a maximum of eleven years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to authorization, is held to bring a significant clinical benefit in comparison with existing therapies. Even if an innovative medicinal product gains the prescribed period of data exclusivity, another company may market another version of the product if such company obtained a marketing authorization based on an MAA with a complete independent data package of pharmaceutical tests, preclinical tests and clinical trials. There is, +35 +however, no guarantee that a product will be considered by the EU’s regulatory authorities to be an innovative medicinal product, and products may therefore not qualify for data exclusivity. +Orphan Drug Designation and Exclusivity +The criteria for designating an “orphan medicinal product” in the EU are similar in principle to those in the United States. Orphan medicinal products are eligible for financial incentives such as reduction of fees or fee waivers. The application for orphan designation must be submitted before the application for marketing authorization. The applicant will receive a fee reduction for the MAA if the orphan designation has been granted, but not if the designation is still pending at the time the marketing authorization is submitted. Orphan designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. +Products with an orphan designation in the EU can receive 10 years of market exclusivity, during which time no “similar medicinal product” for the same indication may be placed on the market. A “similar medicinal product” is defined as a medicinal product containing a similar active substance or substances as contained in an authorized orphan medicinal product, and which is intended for the same therapeutic indication. An orphan medicinal product can also obtain an additional two years of market exclusivity in the EU where an agreed pediatric investigation plan for pediatric studies has been complied with. No extension to any supplementary protection certificate, or SPC, can be granted on the basis of pediatric studies for products with an orphan designation. +The 10-year market exclusivity may be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan designation, for example, if the product is sufficiently profitable not to justify maintenance of market exclusivity. Otherwise, an orphan medicinal product marketing exclusivity may be revoked only in very select cases, such as if: +• a second applicant can establish that its product, although similar, is safer, more effective or otherwise clinically superior to the authorized orphan medicinal product; +• the marketing authorization holder of the authorized orphan medicinal product consents to a second medicinal product application; or +• the marketing authorization holder of the authorized orphan medicinal product cannot supply enough orphan medicinal product. +Pediatric Development +In the EU, companies developing a new medicinal product must agree upon a Pediatric Investigation Plan, or PIP, with the EMA’s Pediatric Committee, or PDCO, and must conduct pediatric clinical trials in accordance with that PIP, unless a waiver applies, (e.g., because the relevant disease or condition occurs only in adults). The PIP sets out the timing and measures proposed to generate data to support a pediatric indication of the product for which marketing authorization is being sought. The marketing authorization application for the product must include the results of pediatric clinical trials conducted in accordance with the PIP, unless a waiver applies or a deferral has been granted by the PDCO of the obligation to implement some or all of the measures of the PIP until there are sufficient data to demonstrate the efficacy and safety of the product in adults, in which case the pediatric clinical trials must be completed at a later date. Products that are granted a marketing authorization with the results of the pediatric clinical trials conducted in accordance with the PIP are eligible for a six month extension of the protection under an SPC, even where the trial results are negative, provided an application for such extension is made at the same time as filing the SPC application for the product, or at any point up to two years before the SPC expires. In the case of orphan medicinal products, a two year extension of the orphan market exclusivity may be available. This pediatric reward is subject to specific conditions and is not automatically available when data in compliance with the PIP are developed and submitted. +PRIME Designation +In March 2016, the EMA launched an initiative to facilitate development of product candidates in indications, often rare, for which few or no therapies currently exist. The PRIority MEdicines, or PRIME, scheme is intended to encourage product development in areas of unmet medical need and provides accelerated assessment of products representing substantial innovation, where the MAA will be made through the centralized procedure. Eligible +36 +products must target conditions for which there is an unmet medical need (there is no satisfactory method of diagnosis, prevention or treatment in the EU or, if there is, the new medicine will bring a major therapeutic advantage) and they must demonstrate the potential to address the unmet medical need by introducing new methods of therapy or improving existing ones. Applicants will typically be at the exploratory clinical trial phase of development and will have preliminary clinical evidence in patients to demonstrate the promising activity of the medicine and its potential to address, to a significant extent, an unmet medical need. Products from small- and medium-sized enterprises may qualify for earlier entry into the PRIME scheme than larger companies if the applicant has compelling non-clinical data and tolerability data from initial clinical trials of the product. Many benefits accrue to sponsors of product candidates with PRIME designation, including but not limited to, early and proactive regulatory dialogue with the EMA, frequent discussions on clinical trial designs and other development program elements and accelerated MAA assessment once a dossier has been submitted. Importantly, a dedicated Agency contact and rapporteur from the CHMP or CAT are appointed early in the PRIME scheme facilitating increased understanding of the product at EMA’s Committee level. A kick-off meeting initiates these relationships and includes a team of multidisciplinary experts at the EMA to provide guidance on the overall development and regulatory strategies. Where, during the course of development, a medicine no longer meets the eligibility criteria, support under the PRIME scheme may be withdrawn. +Post-Approval Controls +Following approval, the holder of the marketing authorization is required to comply with a range of requirements applicable to the manufacturing, marketing, promotion and sale of the medicinal product. These include the following: +• The holder of a marketing authorization must establish and maintain a pharmacovigilance system and appoint an individual qualified person for pharmacovigilance, who is responsible for oversight of that system. Key obligations include expedited reporting of suspected serious adverse reactions and submission of periodic safety update reports, or PSURs. +• All new MAAs must include a risk management plan, or RMP, describing the risk management system that the company will put in place to prevent or minimize the risks associated with the product. The regulatory authorities may also impose specific obligations as a condition of the marketing authorization. Such risk-minimization measures or post-authorization obligations may include additional safety monitoring, more frequent submission of PSURs or the conduct of additional clinical trials or post-authorization safety studies. RMPs and PSURs are routinely available to third parties requesting access, subject to limited redactions. +• All advertising and promotional activities for the product must be consistent with the approved Summary of Product Characteristics and therefore all off-label promotion is prohibited. Direct-to-consumer advertising of prescription medicines is also prohibited in the EU. Although general requirements for advertising and promotion of medicinal products are established under EU directives, the details are governed by regulations in each EU Member State and can differ from one country to another. +All the aforementioned EU rules are generally applicable in the EEA. +Reform of the Regulatory Framework in the EU +The European Commission introduced legislative proposals in April 2023 that, if implemented, will replace the current regulatory framework in the EU for all medicines (including those for rare diseases and for children). The European Commission has provided the legislative proposals to the European Parliament and the European Council for their review and approval, and, in April 2024, the European Parliament proposed amendments to the legislative proposals. Once the European Commission’s legislative proposals are approved (with or without amendment), they will be adopted into EU law. +Brexit and the Regulatory Framework in the United Kingdom +The United Kingdom, or UK, formally left the EU on January 31, 2020. The Windsor Framework was approved by the EU-UK Joint Committee on March 24, 2023, and the medicines aspects of the Windsor Framework have applied since January 1, 2025. The MHRA is responsible for approving all medicinal products destined for the UK market +37 +(i.e., Great Britain and Northern Ireland). A single UK-wide marketing authorization will be granted by the MHRA for all novel medicinal products to be sold in the UK, enabling products to be sold in a single pack and under a single authorization throughout the UK. Although a separate authorization is now required to market medicinal products in the UK, under an international recognition procedure which was put in place by the MHRA on January 1, 2024, the MHRA may take into account decisions on the approval of a marketing authorization from the EMA (and certain other regulators) when considering an application for a UK marketing authorization. +Other Healthcare Laws and Compliance Requirements +Insurance and coverage +In the United States and markets in other countries, patients generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors is critical to new product acceptance. Our ability to successfully commercialize our product candidates will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. The availability of coverage and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford treatments such as gene therapy products. Sales of these or other product candidates that we may identify will depend substantially, both domestically and abroad, on the extent to which the costs of our product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors. If coverage and adequate reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize our product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investment. +There is also significant uncertainty related to the insurance coverage and reimbursement of newly approved products and coverage may be more limited than the purposes for which the medicine is approved by the FDA or comparable foreign regulatory authorities. In the United States, the principal decisions about reimbursement for new medicines are typically made by the Centers for Medicare & Medicaid Services, or CMS, an agency within the U.S. Department of Health and Human Services, or HHS. CMS decides whether and to what extent a new medicine will be covered and reimbursed under Medicare and private payors tend to follow CMS to a substantial degree. Factors payors consider in determining reimbursement are based on whether the product is: +• a covered benefit under its health plan; +• safe, effective and medically necessary; +• appropriate for the specific patient; +• cost-effective; and +• neither experimental nor investigational. +In addition, many third-party payors are increasingly limiting both coverage and the level of reimbursement of new drugs. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that reimbursement will be available for any product candidate that we commercialize and, if reimbursement is available, the level of reimbursement. In addition, many pharmaceutical manufacturers must calculate and report certain price reporting metrics to the government, such as average sales price, or ASP, and best price. Penalties may apply in some cases when such metrics are not submitted accurately and timely. Further, these prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs. Net prices for drugs may be also reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by +38 +any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. +Other healthcare laws +In the United States, our current and future operations are subject to regulation by various federal, state and local authorities in addition to the FDA, including but not limited to, CMS, other divisions of HHS (such as the Office of Inspector General, Office for Civil Rights and the Health Resources and Service Administration), the U.S. Department of Justice, or DOJ, and individual U.S. Attorney offices within the DOJ, and state and local governments. For example, our clinical research, sales, marketing and scientific/educational grant programs may have to comply with the anti-fraud and abuse provisions of the Social Security Act, the false claims laws, the privacy and security provisions of the Health Insurance Portability and Accountability Act of 1996, or HIPAA, and similar state laws, each as amended, as applicable: +• the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order, arrangement or recommendation of any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs; a person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it to have committed a violation. Violations are subject to civil and criminal fines and penalties for each violation, plus up to three times the remuneration involved, imprisonment, and exclusion from government healthcare programs. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act or federal civil monetary penalties. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand, and prescribers, purchasers and formulary managers, among others, on the other. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act or federal civil money penalties statute; +• the federal civil and criminal false claims laws and civil monetary penalty laws, including the False Claims Act, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, false or fraudulent claims for payment to, or approval by, Medicare, Medicaid, or other federal healthcare programs, knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim or obligation to pay or transmit money or property to the federal government, or knowingly concealing or knowingly and improperly avoiding or decreasing or concealing an obligation to pay money to the federal government. A claim that includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim under the False Claims Act. Manufacturers can be held liable under the False Claims Act even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. The False Claims Act also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the False Claims Act and to share in any monetary recovery; +• HIPAA, which created additional federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false, fictitious, or fraudulent statements or representations in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; +• HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective implementing regulations, including the Final Omnibus Rule published in January 2013, which impose requirements on certain covered healthcare providers, health plans, and healthcare +39 +clearinghouses as well as their respective business associates that perform services for them that involve the use, or disclosure of, individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health information. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions; +• the federal transparency requirements under the Affordable Care Act, or ACA, including the provision commonly referred to as the Physician Payments Sunshine Act, and its implementing regulations, which require applicable manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to CMS, information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain other licensed healthcare practitioners and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members; +• federal government price reporting laws, which require us to calculate and report complex pricing metrics in an accurate and timely manner to government programs; +• federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; +• analogous state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers or patients; state laws that require pharmaceutical companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state and local laws that require the licensure of sales representatives; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures and pricing information; data privacy and security laws and regulations in foreign jurisdictions some of which may be more stringent than those in the United States (such as the EU, which adopted the General Data Protection Regulation, which became effective in May 2018); and numerous state laws governing the privacy and security of health information, many of which differ from each other in significant ways regarding their applicability, compliance requirements and enforcement; and +• state laws related to insurance fraud in the case of claims involving private insurers. +Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. +Law enforcement authorities are increasingly focused on enforcing fraud and abuse laws, and it is possible that some of our practices may be challenged under these laws. Efforts to ensure that our current and future business arrangements with third parties, and our business generally, will comply with applicable healthcare laws and regulations will involve substantial costs. If our operations, including our arrangements with physicians and other healthcare providers, are found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject to penalties, including, without limitation, administrative, criminal and/or civil penalties, damages, fines, disgorgement, reputational harm, imprisonment, the exclusion or suspension from federal and state healthcare programs such as Medicare and Medicaid and debarment from contracting with the U.S. government, and/or the curtailment or restructuring of our operations, as well as additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws. If any of the physicians or other healthcare providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, they may be subject to similar penalties. +The risk of our being found in violation of these laws is increased by the fact that many of these laws have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. The shifting compliance environment and the need to build and maintain a robust system to comply with +40 +multiple jurisdictions with different compliance and reporting requirements increases the possibility that a healthcare company may violate one or more of the requirements. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial cost. +Healthcare reform +In the United States and some foreign jurisdictions, there have been, and likely will continue to be, a number of legislative and regulatory changes and proposed changes regarding the healthcare system directed at broadening the availability of healthcare, improving the quality of healthcare, and containing or lowering the cost of healthcare. For example, in 2010, the ACA was enacted which includes changes to the coverage and payment for products under government health care programs. Among other things, the ACA: +• expanded manufacturers’ rebate liability under the Medicaid Drug Rebate Program; +• extended the Medicaid Drug Rebate Program to utilization of prescriptions of individuals enrolled in Medicaid managed care plans; +• established annual fees and taxes on manufacturers of certain branded prescription drugs; +• created a Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70 percent point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.; and +• expanded the entities eligible for discounts under the 340B Drug Pricing Program. +In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. For example, on March 22, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminated the statutory Medicaid drug rebate cap, currently set at 100 percent of a drug’s average manufacturer price, for single source and innovator multiple source drugs. Further, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress that include aggregate reductions of Medicare payments to providers of up to two percent per fiscal year, which will remain in effect through 2031. The American Taxpayer Relief Act of 2012 further reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These laws and regulations may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used. +Further, in 2018, the Right to Try Act, was signed into law. The law, among other things, provides a federal framework for certain patients to access certain IND products that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a pharmaceutical manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act. +The prices of prescription pharmaceuticals in the United States and foreign jurisdictions are subject to considerable legislative and executive actions and could impact the prices we obtain for our products, if and when licensed. +In August 2022, the Inflation Reduction Act, or the IRA, was signed into law. The IRA includes several provisions that will affect our business to varying degrees, including provisions that create a $2,000 out-of-pocket cap for Medicare Part D beneficiaries, impose new manufacturer financial liability on all drugs in Medicare Part D, allow the U.S. government to negotiate Medicare Part B and Part D pricing for certain high-cost drugs and biologics without generic or biosimilar competition, require companies to pay rebates to Medicare for drug prices that increase faster than inflation, and delay the rebate rule that would require pass through of pharmacy benefit manager rebates to beneficiaries. Further, under the IRA, orphan drugs are exempted from the Medicare drug price negotiation program, but only if they have one orphan designation and for which the only approved indication is for that disease or condition. If a product receives multiple orphan designations or has multiple approved indications, it may not qualify for the orphan drug exemption. The implementation of the IRA is currently subject to ongoing litigation +41 +challenging the constitutionality of the IRA’s Medicare drug price negotiation program. The effects of the IRA on our business and the healthcare industry in general is not yet known. +In addition to pricing regulations, reforms of regulatory approval frameworks may adversely affect our pricing strategy. At a federal level, President Trump reversed some of President Biden’s executive orders including rescinding Executive Order 14087 entitled “Lowering Prescription Drug Costs for Americans.” President Trump may issue new executive orders designed to impact drug pricing. A number of these and other proposed measures may require authorization through additional legislation to become effective. Congress and the Trump administration have indicated that they will continue to seek new legislative measures to control drug costs. +Individual states in the United States have also become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. State legislatures have also been increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. +It is difficult to predict the future legislative landscape in healthcare and the effect on our business, results of operations, financial condition and prospects. However, we expect that additional state and federal healthcare reform measures will be adopted in the future. +Employees and Human Capital Resources +As of December 31, 2024, we had 214 full-time employees, of which 101 have M.D. or Ph.D. degrees. Within our workforce, 184 employees are engaged in research and development and 30 are engaged in business development, finance, legal, and general management and administration. None of our employees are represented by labor unions or covered by collective bargaining agreements. We consider our relationship with our employees to be good. +Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and new employees, advisors and consultants. The principal purposes of our equity incentive plans are to attract, retain and reward personnel through the granting of equity-based compensation awards in order to increase shareholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives. +Our Corporate Information +We were incorporated under the laws of the state of Delaware in September 2019 under the name Prime Medicine, Inc. Our principal executive offices are located at 60 First Street, Cambridge, MA 02141. Our telephone number is (617) 465-0013 and our website is located at www.primemedicine.com. References to our website are inactive textual references only and the content of our website should not be deemed incorporated by reference into this Annual Report on Form 10-K. +Available Information +Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of charge on our website located at www.primemedicine.com as soon as reasonably practicable after they are filed with or furnished to the Securities and Exchange Commission, or SEC. These reports are also available at the SEC’s website at www.sec.gov. +Our Code of Business Conduct and Ethics is posted on our website located at https://investors.primemedicine.com/corporate-governance/documents-charters. A copy of our Corporate Governance Guidelines, and the charters of the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee are posted on our website, www.primemedicine.com, under the heading “Investors—Corporate Governance” and are available in +42 +print to any person who requests copies by contacting us by calling (617) 465-0013 or by writing to Prime Medicine, Inc., 60 First Street, Cambridge, Massachusetts 02141. +43 +Item 1A. Risk Factors +Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all the other information in this Annual Report on Form 10-K, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes, before you make an investment decision with respect to our securities. The risks and uncertainties described below and in our other filings with the SEC may not be the only ones we face. The occurrence of any of the events or developments described below, if they actually occur, could harm our business, financial condition, results of operations and growth prospects. As a result, the market price of our common stock could decline, and you may lose all or part of your investment in our common stock. +Risks Related To Our Financial Position and Need for Additional Capital +We have incurred significant losses since inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability. +Since inception, we have incurred significant operating losses. Our net loss was $195.9 million and $198.1 million for the years ended December 31, 2024, and 2023, respectively. As of December 31, 2024, we had an accumulated deficit of $687.2 million. To date, we have financed our operations primarily through proceeds from our initial public offering, or IPO, follow-on public offering, and private placements of our preferred stock. Substantially all of our losses have resulted from expenses incurred in connection with our research and development and from general and administrative costs associated with our operations. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. The net losses we incur may fluctuate significantly from year to year such that a period-to-period comparison of our results of operations may not be a good indication of our future performance. We anticipate that our expenses will increase substantially if and as we: +• continue our current research programs and preclinical development of any product candidates we have identified or may identify in the future; +• seek to identify and progress additional research programs and product candidates; +• initiate preclinical studies and clinical trials for any product candidates we have identified or may identify in the future; +• experience any delays or interruptions due to global health crises, including delays in preclinical testing and clinical trials or interruptions in the supply chain for any current or future product candidates; +• further develop our in-licensed and company-owned gene editing platform, which we call our Prime Editing platform; +• maintain, expand, enforce, defend and protect our intellectual property portfolio and provide reimbursement of third-party expenses related to our patent portfolio; +• seek marketing approvals for any product candidates that successfully complete clinical trials; +• ultimately establish a sales, marketing and distribution infrastructure to commercialize any therapies for which we may obtain marketing approval; +• develop, maintain and enhance a sustainable, scalable, reproducible and transferable manufacturing process for the product candidates we may develop; +• hire additional research and development personnel beyond our current projections; +• hire clinical, operations, regulatory and commercial personnel; +• add operational, financial and management information systems and personnel, including personnel to support our product development; +• acquire or in-license product candidates, intellectual property and technologies and/or work with strategic partners to support and expand our scientific and clinical programs; +• establish and maintain collaborations; +44 +• should we decide to do so, build and maintain a commercial-scale cGMP, manufacturing facility; +• operate as a public company; and +• identify new opportunities to expand the use of Prime Editing beyond those currently available scientifically and clinically. +We expect that it will be many years, if ever, before we have a product candidate ready for commercialization. To become and remain profitable, we must develop and, either directly or through collaborators, eventually commercialize a therapy or therapies with market potential. This will require us to be successful in a range of challenging activities, including identifying product candidates, completing preclinical studies and clinical trials of product candidates, obtaining marketing approval for these product candidates, manufacturing, marketing and selling those therapies for which we may obtain marketing approval and satisfying any post-marketing requirements. We may never succeed in these activities and, even if we do, may never generate revenues that are significant or large enough to achieve profitability. +We have transitioned from research and development to clinical development for our lead product candidate. Because of the numerous risks and uncertainties associated with developing Prime Editing product candidates, we are unable to predict the extent of any future losses or when we will become profitable, if at all. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment. +Because our existing cash, cash equivalents, and investments will not be sufficient to fund our operations, as currently planned, for more than one year beyond the filing date of this Annual Report on Form 10-K, we have determined that there is substantial doubt regarding our ability to continue as a going concern. +Based on our existing cash, cash equivalents, short-term investments, and related party short-term investments as of December 31, 2024, our current and forecasted level of operations and our forecasted cash flows, our ability to continue as a going concern is dependent upon our ability to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. We plan to provide for our capital requirements through financing or other transactions, and selling shares of our common stock under our “at the market offering” program. There can be no assurance that we will be able to raise additional capital to fund operations with terms acceptable to us, or at all. Because our existing cash, cash equivalents, and investments will not be sufficient to fund our operations for more than one year from the date of issuance of the consolidated financial statements appearing in this Annual Report on Form 10-K, we have determined that there is substantial doubt regarding our ability to continue as a going concern. +The substantial doubt about our ability to continue as a going concern may adversely affect our stock price and our ability to raise capital. If we are unable to obtain additional capital, we may not be able to continue our operations on the scope or scale as currently conducted, and that could have a material adverse effect on our business, results of operations and financial condition. +We will need substantial additional funding. If we are unable to raise capital when needed, we will be forced to delay, reduce, eliminate or prioritize among our research and product development programs or future commercialization efforts. +We expect our expenses to continue to increase in connection with our ongoing activities, particularly as we identify, continue the research and development of, initiate preclinical studies and clinical trials of, and seek marketing approval for, product candidates. Because we have limited financial and managerial resources, we have prioritized our research programs and lead optimization efforts in specific indications among many potential options. Specifically, our current areas of focus are hematology, immunology and oncology, liver, and lung indications. As a result of this prioritization, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater clinical or commercial potential and we may need to reprioritize our focus in the future. For example, in September 2024 we strategically focused our portfolio to a set of high value programs in our current areas of focus referenced above, and are identifying partnership opportunities to advance +45 +our other programs, including those for neurological diseases, cell therapy, ocular diseases and hearing loss. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable therapies. +In addition, if we obtain marketing approval for any product candidates we may develop, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of a collaborator. Furthermore, we have incurred, and will continue to incur, costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and product development programs or future commercialization efforts. +As of December 31, 2024, our cash, cash equivalents, and investments were $190.4 million, excluding restricted cash, or $204.5 million, including restricted cash. Based on our current operating plan, we believe that our existing cash and cash equivalents and short-term investments will be sufficient to fund our operating expenses and capital expenditure requirements into the first half of 2026. However, our operating plan may change as a result of factors currently unknown to us, and we may need to seek funding sooner than planned. Our future capital requirements will depend on many factors, including those discussed in the risk factor entitled “We have incurred significant losses since inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.” +Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize any product candidates we may develop. We cannot be certain that additional funding will be available on acceptable terms or at all. We have no committed source of additional capital and, if we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of any product candidates or other research and development initiatives. Our license and collaboration agreements and any future collaboration agreements may also be terminated if we are unable to meet the payment or other obligations under the agreements. We could be required to seek collaborators for current or future potential product candidates earlier than we would otherwise plan or on terms that are less favorable than might otherwise be available. We could also be required to relinquish or license our rights to product candidates on unfavorable terms in certain markets where we otherwise would seek to pursue development or commercialization ourselves. +Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates we may develop. +Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, declaring dividends and possibly other restrictions. In addition, if we raise funds through additional license and collaboration agreements, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our intellectual property, technologies, future revenue streams, research programs or product candidates we may develop, or we may have to grant licenses on terms that may not be favorable to us. +Our short operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability. +We are an early-stage company. We were founded in September 2019 and commenced operations in July 2020. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, acquiring and developing our platform and technology, identifying and advancing preclinical testing of current and future product candidates, and running our ongoing Phase 1/2 clinical trial. All of our programs are in the research, +46 +preclinical stage, or clinical stage of development and their risk of failure is high. We have not yet demonstrated an ability to successfully complete any clinical trials, including large-scale, pivotal clinical trials, obtain marketing approvals, manufacture a commercial-scale therapy, arrange for a third party to do so on our behalf or conduct sales and marketing activities necessary for successful commercialization. Typically, it takes about 10 to 15 years to develop a new therapy from the time it is discovered to when it is available for treating patients. +Our limited operating history, particularly in light of the rapidly evolving gene editing field, may make it difficult to evaluate our technology and industry and predict our future performance. Our very short history as an operating company makes any assessment of our future success or viability subject to significant uncertainty. We will encounter risks and difficulties frequently experienced by very early stage companies in rapidly evolving fields. If we do not address these risks successfully, our business will suffer. +In addition, as a new business, we may encounter other unforeseen expenses, difficulties, complications, delays, and other known and unknown factors. We will need to transition from a company with a research focus to a company capable of supporting commercial activities. We may not be successful in such a transition. +We have never generated revenue from product sales and may never become profitable. +Our ability to generate revenue from product sales and achieve profitability depends on our ability, alone or with collaborative partners, to successfully complete the development of, and obtain the regulatory approvals necessary to commercialize, product candidates we may identify for development. We do not anticipate generating revenues from product sales for many years, if ever. Our ability to generate future revenues from product sales depends heavily on our, or our collaborators’, ability to successfully: +• identify product candidates and successfully complete research development of any product candidates we may identify; +• seek and obtain regulatory and marketing approvals for any product candidates for which we complete clinical trials; +• launch and commercialize any product candidates for which we may obtain regulatory and marketing approval by establishing a sales force, marketing and distribution infrastructure, or alternatively, collaborating with a commercialization partner; +• qualify for adequate coverage and reimbursement by government and third-party payors for any product candidates for which we may obtain regulatory and marketing approval; +• establish and maintain supply and manufacturing relationships with third parties that can provide adequate, in both amount and quality, products and services to support clinical development and the market demand for any product candidates for which we obtain regulatory and marketing approval; +• develop, maintain and enhance a sustainable, scalable, reproducible and transferable manufacturing process for the product candidates we may develop; +• address competing technological and market developments; +• negotiate favorable terms in any collaboration, licensing or other arrangements into which we may enter and performing our obligations in such collaborations; +• receive market acceptance by physicians, patients, healthcare payors, and others in the medical community; +• maintain, protect, enforce, defend and expand our portfolio of intellectual property and other proprietary rights, including patents, trade secrets and know-how; +• defend against third party intellectual property claims of infringement, misappropriation or other violation; and +• attract, hire and retain qualified personnel. +Our expenses could increase beyond expectations if we are required by the FDA, EMA, or other regulatory authorities to perform clinical and other studies in addition to those that we currently anticipate. Even if one or more of the product candidates we may develop are approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Additionally, such products may become +47 +subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives. Even if we are able to generate revenues from the sale of any approved product candidates, we may not become profitable and may need to obtain additional funding to continue operations. +Our future ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited. +Since our inception, we have incurred losses and we may never achieve profitability. To the extent that we continue to generate taxable losses, under current law, our unused U.S. federal net operating losses, or NOLs, may be carried forward to offset a portion of future taxable income, if any. Additionally, we continue to generate business tax credits, including research and development tax credits, which generally may be carried forward to offset a portion of future taxable income, if any, subject to expiration of such credit carryforwards. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” generally defined as one or more stockholders or groups of stockholders who own at least five percent of the corporation’s equity increasing their equity ownership in the aggregate by more than 50 percentage points (by value) over a three-year period, the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes (such as research and development tax credits) to offset its post-change income or taxes may be limited. Similar rules may apply under state tax laws. Our prior equity offerings and other changes in our stock ownership may have resulted in such ownership changes in the past. In addition, we may experience ownership changes in the future due to shifts in our stock ownership, some of which are outside of our control. As a result, if we earn net taxable income, our ability to use our pre-change NOLs or other pre-change tax attributes to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us. Additional limitations on our ability to utilize our NOLs to offset future taxable income may arise as a result of our corporate structure whereby NOLs generated by our subsidiary may not be available to offset taxable income earned by our subsidiary. There is a risk that due to changes under the tax law, regulatory changes or other unforeseen reasons, our existing NOLs or business tax credits could expire or otherwise be unavailable to offset future income tax liabilities. At the state level, there may also be periods during which the use of NOLs or business tax credits is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. For these reasons, we may not be able to realize a tax benefit from the use of our NOLs or tax credits, even if we attain profitability. +Unfavorable macroeconomic conditions or market volatility resulting from geopolitical developments or national or global economic conditions, including those affecting the financial services industry, could adversely affect our business, financial condition or results of operations. +Adverse macroeconomic conditions or market volatility resulting from national or global economic developments, political unrest, high inflation, rising interest rates, international tariffs, changes in international trade relationships and military conflicts, such as the ongoing conflict between Russia and Ukraine, the potential for significant changes in U.S. policies or regulatory environment, or other factors, could materially and adversely affect our business operations. Sanctions imposed by the U.S. and other countries in response to such conflicts may also continue to adversely impact the financial markets and the global economy, and any economic countermeasures by the affected countries or others could exacerbate market and economic instability. Tariffs levied by the U.S. and other countries also may adversely affect financial markets and the global economy. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. For instance, actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. Investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all. In addition, any further deterioration in the macroeconomic economy or financial services industry could lead to losses or defaults by our suppliers, which in turn, could have a material adverse effect on our current and/or planned business operations and our current or projected results of operations and financial condition. For example, there has been proposed U.S. legislation that may restrict the ability of U.S. biopharmaceutical companies to purchase services or products from, or otherwise collaborate with, certain Chinese biotechnology companies of concern without losing the ability to contract with, or otherwise receive funding from, the U.S. government. We continue to assess the legislation as it +48 +develops to determine whether it could have an effect on our contractual relationships. Also, current inflationary trends in the global economy may impact salaries and wages, costs of goods and transportation expenses, among other things, and recent and potential future disruptions in access to bank deposits or lending commitments due to bank failures may create market and economic instability. +A severe or prolonged economic downturn or additional global financial crises could result in a variety of risks to our business, including weakened demand for any product candidates we develop or our ability to raise additional capital when needed on acceptable terms, if at all. +Further, U.S. government appropriations have been affected by larger U.S. government budgetary issues and related legislation. In addition, in the past, U.S. debt ceiling and budget deficit concerns have increased the possibility of additional credit-rating downgrades and economic slowdowns, or a recession in the U.S. Although U.S. lawmakers passed legislation to raise the federal debt ceiling on multiple occasions, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on the U.S. The impact of this or any further downgrades to the U.S. government’s sovereign credit rating or its perceived creditworthiness could adversely affect the U.S. and global financial markets and economic conditions. As a result,government spending levels are difficult to predict beyond the near term due to numerous factors, including the external threat environment, future government priorities and the state of government finances. Significant changes in government spending or changes in U.S. government priorities, policies and requirements could have a material adverse effect on our results of operations, financial condition or liquidity. +Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business. +Risks Related To Discovery, Development and Commercialization +Gene editing, including platforms such as Prime Editing, is a relatively new technology that has not been extensively clinically validated for human therapeutic use. The approach we are taking to discover and develop novel therapeutics is unproven and may never lead to marketable products. We may incur unexpected costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of any product candidates. +We are focused on developing therapies utilizing gene editing technology, which is relatively new and has not been extensively clinically validated. The Prime Editing technologies that we have licensed and that we are utilizing in our research programs have not yet been clinically tested, nor are we aware of any clinical trials for safety or efficacy having been completed by third parties using Prime Editing or similar technologies. The scientific evidence to support the feasibility of developing product candidates based on gene editing technologies is both preliminary and limited. Successful development of product candidates will require us to safely deliver a gene editor into target cells, optimize the efficiency and specificity of such product candidates and ensure the therapeutic selectivity of such product candidates. We may need to address other safety issues as well, and to demonstrate the full value of these products, we will need to achieve these goals with single administration and demonstrate a permanent correction. There can be no assurance that our Prime Editing platform will achieve these goals, lead to the development of gene editing therapies, or be successful in solving any or all of these issues. +Our future success is highly dependent on the successful development of gene editing technologies, cellular delivery methods and therapeutic applications of that technology. We may decide to alter or abandon our initial programs as new data become available and we gain experience in developing gene editing therapeutics. We cannot be sure that our technologies will yield satisfactory products that are safe and effective, scalable or profitable in our initial indications or any other indication we pursue. Adverse developments in the clinical development efforts of other gene editing or gene therapy technology companies could adversely affect our efforts or the perception of any product candidates we may develop by both investors and regulatory authorities. +Similarly, other gene editing or gene therapy approaches may be determined to be more attractive than Prime Editing. Moreover, if we decide to develop gene editing technologies other than those involving Prime Editing, we cannot be certain we will be able to obtain rights to such technologies. +49 +Additionally, public perception and related media coverage relating to the adoption of new therapeutics or novel approaches to treatment, as well as ethical concerns related specifically to gene editing, may adversely influence the willingness of subjects to participate in clinical trials, or, if any therapeutic is approved, of physicians and patients to accept these novel and personalized treatments. Physicians, health care providers and third-party payors often are slow to adopt new products, technologies and treatment practices, particularly those that may also require additional upfront costs and training. Physicians may not be willing to undergo training to adopt these novel and potentially personalized therapies, may decide the particular therapy is too complex or potentially risky to adopt without appropriate training, and may choose not to administer the therapy. Furthermore, due to health conditions, genetic profile or other reasons, certain patients may not be candidates for the therapies. In addition, responses by federal and state agencies, Congressional committees and foreign governments to negative public perception, ethical concerns or financial considerations may result in new legislation, regulations or medical standards that could limit our ability to develop or commercialize any product candidates, obtain or maintain regulatory approval or otherwise achieve profitability. New government requirements may be established that could delay or prevent regulatory approval of any product candidates we may develop. It is impossible to predict whether legislative changes will be enacted, regulations, policies or guidance changed, or interpretations by agencies or courts changed, or what the impact of such changes, if any, may be. Based on these and other factors, health care providers and payors may decide that the benefits of these new therapies do not or will not outweigh their costs. +Clinical drug development involves a lengthy and expensive process, with an uncertain outcome. Because gene editing is relatively new and the regulatory landscape that will govern any product candidates we may develop is uncertain and may change, we cannot predict the time and cost of obtaining regulatory approval, if we receive it at all, for any product candidates. +The time required to obtain approval for any of our current or future product candidates from the FDA, the European Commission or other comparable foreign regulatory authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of regulatory authorities. Clinical trials may fail to demonstrate that our product candidates are safe for humans and effective for indicated uses. Even if initial clinical trials in any of our product candidates we may develop are successful, such product candidates may fail to show the desired safety and efficacy in later stages of clinical development despite having successfully advanced through preclinical studies and initial clinical trials. There is a high failure rate for drugs and biologics proceeding through clinical trials. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in later stage clinical trials even after achieving promising results in earlier stage clinical trials. The U.S. Supreme Court’s July 2024 decision to overturn prior established case law giving deference to regulatory agencies’ interpretations of ambiguous statutory language has introduced uncertainty regarding the extent to which FDA’s regulations, policies and decisions may become subject to increasing legal challenges, delays, and/or changes. +Because gene editing is relatively new, the regulatory requirements that will govern any novel gene editing product candidates we develop may continue to evolve. Within the broader genetic therapy field, a limited number of gene therapy products have received marketing authorization from the FDA and the European Commission to date. Even with respect to more established products that fit into the categories of gene therapies or cell therapies, the regulatory landscape is still developing. Regulatory requirements governing the development of gene therapy products and cell therapy products have changed frequently and may continue to change in the future. Moreover, there is substantial, and sometimes uncoordinated, overlap in those responsible for regulation of existing gene therapy products and cell therapy products. The FDA’s Office of Therapeutic Products, or OTP, reviews gene and cell therapies and related products and has been elevated to a “Super Office” to meet its growing cell and gene therapy workload. Gene therapy clinical trials may also be subject to review and oversight by an institutional biosafety committee, or IBC, a local institutional committee that reviews and oversees certain basic and clinical research conducted at the institution participating in the clinical trial. Although the FDA decides whether individual gene therapy protocols may proceed, the review process and determinations of other reviewing bodies, such as an IBC, can impede or delay the initiation of a clinical trial, even if the FDA has reviewed the trial and approved its initiation. For example, more recently, some gene editing companies have seen significant delays in receiving FDA authorization to allow the initiation of their clinical trials, and has suspended ongoing trials, due to the FDA’s placement of clinical holds on their IND applications. +50 +The same applies in the EU. The EMA’s Committee for Advanced Therapies, or CAT, is responsible for assessing the quality, safety and efficacy of advanced-therapy medicinal products (i.e. gene therapy, somatic-cell therapy or tissue-engineered medicines). The role of the CAT is to prepare a draft opinion on an application for marketing authorization for a gene therapy medicinal candidate that is submitted to the Committee for Medicinal Products for Human Use, or CHMP, before the CHMP adopts its opinion which is submitted to the European Commission for the final decision on whether to grant a marketing authorization or not. In the EU, the EMA publishes guidelines for the development and evaluation of gene therapy medicinal products to assist in preparing marketing authorization applications, however these are continually under review. The EMA may issue new guidelines concerning the development and marketing authorization for gene therapy medicinal products and require that we comply with these new guidelines. +Adverse developments in post-marketing experience or in clinical trials conducted by others of gene therapy products, cell therapy products or products developed through the application of gene editing technology may cause the FDA, the EMA and other regulatory bodies to revise the requirements for development or approval of our current or future product candidates or limit the use of products utilizing gene editing technologies, either of which could materially harm our business. In addition, the clinical trial requirements of the FDA, the EMA and other regulatory authorities and the criteria these regulators use to determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of the potential products. The regulatory approval process for novel product candidates can be more expensive and take longer than for other, better known or more extensively studied pharmaceutical or other product candidates. Regulatory agencies administering existing or future regulations or legislation may not allow production and marketing of products utilizing gene editing technology in a timely manner or under technically or commercially feasible conditions. In addition, regulatory action or private litigation could result in expenses, delays or other impediments to our research programs or the commercialization of resulting products. +We and our collaborators, if any, may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize any product candidates we may identify and develop, including regulatory delays, negative or inconclusive results from our clinical trials, difficulty in designing well-controlled clinical trials, lack of regulatory authorization for our clinical trials, and patients or clinical trial sites dropping out of a trial. +The regulatory review committees and advisory groups described above and the new guidelines they promulgate may lengthen the regulatory review process, require us to perform additional studies or trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of these treatment candidates or lead to significant post-approval limitations or restrictions. As we advance our research programs and develop future product candidates, we will be required to consult with these regulatory and advisory groups and to comply with applicable guidelines. If we fail to do so, we may be required to delay or discontinue development of any product candidates we identify and develop. +Because we are developing product candidates in the field of genetic medicines in which there is little clinical experience, there is increased risk that the FDA, the EMA or other regulatory authorities may not consider the endpoints of our clinical trials to provide clinically meaningful results and that these results may be difficult to analyze. +In order to proceed into clinical development of any product candidates we identify, we will need to submit applications to regulatory authorities, such as IND applications and CTAs and obtain regulatory clearance to commence clinical development. Because the product candidates we identify are based on novel gene-editing technology, we may be unsuccessful in obtaining clearance from regulatory authorities to proceed into clinical development. In order to commence clinical development, we will need to identify success criteria and endpoints such that the FDA, the EMA or other regulatory authorities will be able to determine the clinical efficacy and safety profile of any product candidates we may develop. As we are initially seeking to identify and develop product candidates to treat diseases in which there is little clinical experience using new technologies, and while we may have opportunities to discuss our clinical development plans with regulatory authorities prior to commencing clinical development, there is heightened risk that the FDA, the EMA or other regulatory authorities may not consider the clinical trial endpoints that we propose to provide clinically meaningful results (reflecting a tangible benefit to patients), or may ask for additional endpoints to assess patient safety. In addition, the resulting clinical data and +51 +results may be difficult to analyze. Even if the FDA does find our success criteria to be sufficiently validated and clinically meaningful, we may not achieve the pre-specified endpoints to a degree of statistical significance. This may be a particularly significant risk for many of the genetically defined diseases for which we plan to develop product candidates because many of these diseases have small patient populations, and designing and executing a rigorous clinical trial with appropriate statistical power is more difficult than with diseases that have larger patient populations. Furthermore, even if we do achieve the pre-specified criteria, we may produce results that are unpredictable or inconsistent with the results of the non-primary endpoints or other relevant data. The FDA also weighs the benefits of a product against its risks, and the FDA may view the efficacy results in the context of safety as not being supportive of regulatory approval. Other regulatory authorities in the European Union and other countries may make similar comments with respect to these endpoints and data. Any product candidates we may develop will be based on a relatively new technology that makes it difficult to predict the time and cost of development and of subsequently obtaining regulatory approval. Further, we expect our clinical trials to include surrogate endpoints, which may be novel or for which the FDA or regulatory authorities lack familiarity or experience, and which may increase the risk that the FDA or other regulatory authorities may disagree that such endpoints are sufficient, and could require that additional trials are conducted. Very few gene therapy products have received marketing authorization or marketing approval from the European Commission or the FDA, and only one gene editing therapeutic product has been approved in the United States and in Europe. Some of these gene therapy products have taken years to register and have had to deal with significant issues in their post-marketing experience. +We are early in our development efforts. As a result, we expect it will be many years before we commercialize any product candidate, if ever. If we are unable to advance our current or future product candidates into and through clinical trials, obtain marketing approval and ultimately commercialize our product candidates or experience significant delays in doing so, our business will be materially harmed. +The success of our business depends primarily upon our ability to identify, develop and commercialize product candidates. We are early in our development efforts and have not yet completed our Phase 1/2 clinical trial for our lead product candidate, PM359, for the treatment of CGD. Our other product candidates are in earlier stages of development. Although we believe we can demonstrate many of the key advantages of Prime Editing, because we are early in our development efforts, we are not yet certain of the results we may achieve, which may be important for registration and commercialization of our products. Such uncertainties include but are not limited to the actual size of the set of pathogenic mutations we can address, the level of editing efficiency we can produce, the degree of unwanted byproducts we may encounter, our ability to achieve editing success in a single administration or the permanence of our edits. We have also not yet shown that preclinical editing efficacy can result in clinically important effects, nor that results of biomarker studies in our preclinical models can translate into positive results in clinical trials. One particular form of Prime Editing that uses recombinases to insert targeted “gene-sized” DNA into the genome, is in an earlier stage of research and development than our CGD and Wilson’s Disease programs. We believe this promising form of Prime Editing needs more than one source of DNA as a template and may deliver with less efficacy. +All of our product development programs are still in the research or preclinical stage of development, except for PM359, for which we commenced a Phase 1/2 clinical trial. Our research methodology may be unsuccessful in identifying other product candidates, our product candidates may be shown to have harmful side effects in preclinical in vitro experiments or animal model studies, they may not show promising signals of therapeutic effect in such experiments or studies or they may have other characteristics that may make the product candidates impractical to manufacture, unmarketable, or unlikely to receive marketing approval. We may experience delays in conducting or completing preclinical studies due to supply chain interruptions that could lead to shortages in materials or animals required for such studies. For example, it has been reported that there is a shortage of non-human primates for biomedical research, which are used in preclinical studies. We have not achieved preclinical proof of concept for many of our programs. Our proposed delivery methods with current or future product candidates have never been evaluated in human clinical trials. Moreover, we are not aware of any clinical trials involving Prime Editing technology. Our ability to generate product revenue, which we do not expect will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of any product candidates we may develop, which may never occur. We currently generate no revenue from sales of any product, and we may never be able to develop or commercialize a marketable product. +52 +In addition, although we believe Prime Editing will position us to rapidly expand our portfolio of product candidates beyond the initial product candidates we may develop after only minimal changes to the product candidate construct, we have not yet successfully developed any product candidate and our ability to expand our portfolio may never materialize. +Commencing clinical trials in the United States is also subject to acceptance by the FDA of our IND application and finalizing the trial design based on discussions with the FDA and other regulatory authorities. Even after we receive and incorporate guidance from these regulatory authorities, the FDA or other regulatory authorities could disagree that we have satisfied their requirements to commence our clinical trial or change their position on the acceptability of our trial design or the clinical endpoints selected, which may require us to complete additional studies or trials or impose stricter approval conditions than we currently expect. For example, gene therapy companies have been subject to a clinical hold before IND acceptance, in which the FDA has requested further information such as additional control data for preclinical studies and further analyses of certain off-target editing experiments. Accordingly, we may not obtain an immediate IND acceptance on submission and the FDA may request additional information or studies. There are equivalent processes and risks applicable to CTAs in other countries, including in Europe. +Some of our approaches may require interaction and approval from regulatory authorities beyond the specific requirements for individual product candidates. For example, our “march up the chromosome” personalized medicine approach may require the use of umbrella or basket clinical studies, studies where more than one mutation in a disease or more than one disease are studied in a single clinical trial or even studies where mutations in different diseases are studied in a single clinical trial. Some of our approaches may also require studying more than one Prime Editor under a single IND or applying for registration for a suite of Prime Editor products to allow broad therapeutic coverage for a wide range of mutations in a single disease. +Even if we complete the necessary clinical trials, we cannot predict when, or if, we will obtain regulatory approval to commercialize our current or future product candidates in the United States or any other jurisdiction, if at all, and any such approval may be for a narrower indication than we seek. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country. We may conduct one or more of our clinical trials with one or more trial sites that are located outside the United States. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of these data is subject to conditions imposed by the FDA, and there can be no assurance that the FDA will accept data from trials conducted outside of the United States. If the FDA does not accept the data from any trial that we conduct outside the United States, it would likely result in the need for additional trials, which would be costly and time-consuming and could delay or permanently halt our development of the applicable product candidates. Similarly, marketing approval by the FDA in the United States, if obtained, does not ensure approval by regulatory authorities in other countries or jurisdictions. Approval processes vary among countries and can involve additional product candidate testing and validation and additional administrative review periods. +Commercialization of any product candidates we may develop will also require preclinical and clinical development; regulatory and marketing approval in multiple jurisdictions, including by the FDA and the EMA; manufacturing supply, capacity and expertise; building of a commercial organization; and significant marketing efforts. +The success of product candidates we may identify and develop will depend on many factors, including the following: +• timely and successful completion of preclinical studies, including toxicology studies, biodistribution studies and minimally efficacious dose studies in animals, where applicable; +• effective IND applications or comparable foreign applications that allow commencement of our planned clinical trials or future clinical trials for any product candidates we may develop; +• successful enrollment and completion of clinical trials, including under the FDA’s current GCPs, current GLPs, and any additional regulatory requirements from foreign regulatory authorities; +• positive results from our future clinical trials that support a finding of safety and effectiveness and an acceptable risk-benefit profile in the intended populations; +53 +• receipt of marketing approvals from applicable regulatory authorities; +• establishment of arrangements through our own facilities or with third-party manufacturers for clinical supply and, where applicable, commercial manufacturing capabilities; +• establishment, maintenance, defense and enforcement of patent, trademark, trade secret and other intellectual property protection or regulatory exclusivity for any product candidates we may develop; +• commercial launch of any product candidates we may develop, if approved, whether alone or in collaboration with others; +• acceptance of the benefits and use of our product candidates we may develop, including method of administration, if and when approved, by patients, the medical community and third-party payers; +• effective competition with other therapies; +• maintenance of a continued acceptable safety, tolerability and efficacy profile of any product candidates we may develop following approval; and +• establishment and maintenance of healthcare coverage and adequate reimbursement by payers. +If we do not successfully commercialize any product candidates we may develop, we could experience a material harm to our business. +We may find it difficult to enroll patients in our clinical trials given the limited number of patients who have the diseases any product candidates we identify or develop are intended to target. If we experience delays or difficulties in the enrollment of patients in clinical trials, our clinical development activities and our receipt of necessary regulatory approvals could be delayed or prevented. +As we progress our programs, we may not be able to initiate or continue clinical trials for any product candidates we identify or develop if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA, the EMA or other analogous regulatory authorities outside the United States, or as needed to provide appropriate statistical power for a given trial. Enrollment may be particularly challenging for some of the rare genetically defined diseases we are targeting in our most advanced programs. In addition, if patients are unwilling to participate in our gene editing trials because of negative publicity from adverse events related to the biotechnology, gene therapy or gene editing fields, competitive clinical trials for similar patient populations, clinical trials in competing products or for other reasons, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of our potential product candidates may be delayed. Moreover, some of our competitors may have ongoing clinical trials for product candidates that would treat the same indications as our current or future product candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates. +Patient enrollment is also affected by other factors, some of which may include: +• severity of the disease under investigation; +• size of the patient population and process for identifying patients, including proximity and availability of clinical trial sites for prospective patients with conditions that have small patient pools; +• design of the trial protocol, including efforts to facilitate timely enrollment in clinical trials; +• availability and efficacy of approved medications for the disease under investigation; +• availability of genetic testing for potential patients and ability to monitor patients adequately during and after treatment; +• ability to obtain and maintain patient informed consent; +• risk that enrolled patients will drop out before completion of the trial; +• eligibility and exclusion criteria for the trial in question; +54 +• perceived risks and benefits of the product candidate under investigation and gene editing as a therapeutic approach; and +• patient referral practices of physicians. +In addition, our ability to successfully initiate, enroll and complete a clinical trial in any foreign country is subject to numerous risks unique to conducting business in foreign countries, some of which may include: +• difficulty in establishing or managing relationships with CROs and physicians; +• different standards for the conduct of clinical trials; +• different standard-of-care for patients with a particular disease; +• difficulty in locating qualified local consultants, physicians and partners; and +• potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the regulation of pharmaceutical and biotechnology products and treatment and of gene editing technologies. +Enrollment delays in our clinical trials may result in increased development costs for our current or future product candidates, which would cause the value of our company to decline and limit our ability to obtain additional financing. If we or our collaborators have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may need to delay, limit or terminate ongoing or planned clinical trials or entire clinical programs, any of which would have an adverse effect on our business, financial condition, results of operations and prospects. +The gene editing field is relatively new and is evolving rapidly, making us subject to additional development challenges and risks. We are focusing our research and development efforts on gene editing using Prime Editing technology, but other gene editing technologies may be discovered that provide significant advantages over Prime Editing, which could materially harm our business. +To date, we have focused our efforts on our Prime Editing platform. However, there are numerous other companies advancing gene editing and gene therapy product candidates that are in preclinical or clinical development. Some of these other companies have previously undertaken research and development of gene editing technologies using clustered regularly interspaced short palindromic repeats, or CRISPR, or other forms such as base editing, zinc finger nucleases, or ZFNs, engineered meganucleases and transcription activator-like effector nucleases, or TALENs, but to date none has obtained marketing approval for a product candidate. There can be no certainty that Prime Editing technology will lead to the development of gene editing therapies or that other gene editing technologies will not be considered better or more attractive for the development of therapies. For example, transposons, or “jumping genes,” can insert themselves into different places in the genome and carry specific DNA sequences to specific sites without the need for making double-stranded breaks in DNA, although such methods currently cannot target specific locations. Multiple companies are also developing alternative gene editing technologies, including Tessera Therapeutics, which states it is pioneering Gene Writing™, a new genome engineering technology that writes therapeutic messages into the genome to treat diseases at their source; Metagenomi, which states it is using metagenomics – the study of genetic material recovered from organisms found in the world’s natural microbial environments) – and machine learning to discover novel genome editing systems for therapeutics development; Arbor Biotechnologies, which states it is developing genetic medicines through the discovery of programmable DNA editors to enable curative outcomes for patients; and nChroma Bio, Inc. and Moonwalk Biosciences, both of which are focused on epigenetic editing to treat disease. In addition, Beam Therapeutics is developing novel base editing technology. We have entered into a collaboration and license agreement with Beam Therapeutics, under which we grant Beam Therapeutics certain exclusive and non-exclusive rights in our Prime Editing technology in certain fields. Our license grant to Beam Therapeutics does not cover all fields and applications of Prime Editing and we retain the majority of rights to use the licensed Prime Editing technology outside of the fields licensed to Beam Therapeutics. It is possible that base editing or other gene editing technology developed by Beam Therapeutics will be competitive with our business, and it is also possible that such editing technology may be considered more attractive than Prime Editing. Therefore, Beam Therapeutics may develop competing products using such technology. For more information regarding our agreement with Beam +55 +Therapeutics, see “Business—Our License and Collaboration Agreements—Strategic relationship with Beam Therapeutics.” +Similarly, other new gene editing technologies that have not been discovered yet may be determined to be more attractive than Prime Editing. Moreover, if we decide to develop gene editing technologies other than those involving Prime Editing, we cannot be certain we will be able to obtain rights to such technologies. There are also a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of the disease indications for which we have research programs, using approaches other than gene editing approaches. Any of these factors could reduce or eliminate our commercial opportunity, and could have a material adverse effect on our business, financial condition, results of operations and prospects. +Moreover, because our in vivo technology may involve gene editing across multiple cell and tissue types, we are subject to many of the challenges and risks that other gene editing therapeutics and gene therapies face, including evolving regulatory guidance governing gene and gene editing therapy products, the potential risk of improper modulation of a gene sequence and extended follow-up observation periods that may be required by regulatory agencies. +We have only recently initiated our first clinical trial and any favorable results we may have may not be predictive of results that may be observed in later clinical trials or, in the case of our preclinical product candidates, in later preclinical studies. If our current or potential product candidates, our Prime Editing technology or the delivery modes we rely on to administer them lack efficacy or cause serious adverse events, undesirable side effects or unexpected characteristics, such results could delay or prevent regulatory approval of the product candidates, limit the commercial potential or result in significant negative consequences following any potential marketing approval. +We are developing a broad set of delivery technologies to support our Prime Editing programs. This will lead to significant challenges to develop a corresponding set of technical capabilities in support of these programs. In particular, a variety of serious adverse events, undesirable side effects or unexpected characteristics may occur. Such events, side effects or characteristics could delay or prevent regulatory approval of any product candidates we may develop, limit the commercial potential or result in significant negative consequences following any potential marketing approval. In addition, our Prime Editing technology itself, may lead to other issues, such as inability to deliver the desired efficacy or safety-related consequences as it is tested in clinical trials. +We have only recently initiated our first clinical trial and any favorable results we may have may not be predictive of results that may be observed in later clinical trials, or in the case of our preclinical product candidates, in later preclinical studies. Furthermore, we have not generated any clinical trial results to date. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their product candidates. Many product candidates that initially showed promise in early stage testing for treating a variety of diseases have later been found to lack efficacy or to cause side effects that prevented further clinical development of the product candidates. +Moreover, there have been only a very limited number of clinical trials involving the use of any gene editing technologies and none involving gene editing technology similar to our Prime Editing technology. It is impossible to predict when or if any product candidates we may develop will prove safe in humans. In the gene therapy field, there have been several significant adverse events from gene therapy treatments in the past, including both the impact of the technology for editing, as well as the delivery methods used to convey the gene editing technology. These include a variety of safety concerns, including reported cases of leukemia, other cancers, significant morbidities and death. There can be no assurance that gene editing technologies such as our Prime Editing technology or the delivery methods we plan to use will not cause such undesirable side effects. +We cannot be sure that our Prime Editing technology or any of our planned delivery methods will not result in adverse effects in the long-term, such as improper editing of a patient’s DNA that leads to lymphoma, leukemia, other cancers or other aberrantly functioning cells or other as yet unidentified findings. Many times, side effects manifest or are only detectable after investigational products are tested in larger scale, pivotal clinical trials or, in some cases, after they are made available to patients on a commercial scale after approval. FDA guidance advises +56 +that patients treated with gene therapies undergo long-term follow-up observation for identification of potential adverse events for as long as 15 years. If additional clinical or long-term follow-up experience indicates that any of our current or future product candidates have side effects or cause serious or life-threatening side effects, the development of the product candidate may fail or be delayed, or, if the product candidate has received regulatory approval, such approval may be revoked or limited. It is also possible that serious or life-threatening side effects may cause significant delay or altered perception of any product candidates we may develop, even if we are able to later show these effects are unrelated to our product candidates. Any adverse events may cause us to delay, limit or terminate other planned clinical trials, for example any that use a similar delivery method or those that use similar aspects of Prime Editing, any of which would have a material adverse effect on our business, financial condition, results of operations and prospects. In addition, many product candidates that initially showed promise in early-stage testing have later been found to cause later side effects that prevented further clinical development of the product candidates. +Additionally, a significant risk in any gene editing product candidate is that “off-target” edits, or edits far from the intended site of gene editing, or unintended consequences of on- and off-target editing may occur, which could cause serious adverse events, undesirable side effects or unexpected characteristics. One major causative factor leading to “off target” edits is the formation of double-strand breaks during gene editing. If double-strand breaks were to occur, they can also lead to decreased cell viability in edited cells, and an increase in large deletions or structural rearrangements of DNA, chromosomal translocations or joining of one chromosome to another. In certain uses of Prime Editing, such as the use of dual flaps methods, or in some cases of use of nick-guide RNAs, more than one edit occurs along the target site, and it is possible that the use of these variations of Prime Editing could result in adverse effects similar to those observed with double-strand breaks. It is possible that we will detect such off-target edits or other unintended consequences of on- or off-target edits in our current or future product candidates. Our preclinical information for our current or future product candidates is limited, and we cannot be certain that Prime Editing with any product candidates we may develop will not cause rare double-strand breaks or that off-target editing or other unintended consequences of on- or off-target editing will not occur and cause serious adverse events in any of our future clinical trials. Furthermore, the lack of observed serious side effects in any preclinical studies to date does not guarantee that such side effects will not occur in human clinical trials of any product candidates we may develop, which would adversely impact our product development programs and business. +There is also the potential risk of delayed adverse events following exposure to Prime Editing therapy due to the permanence of edits to DNA or due to other components of product candidates used to carry the genetic material. In addition, because Prime Editing makes a permanent change, the therapy cannot be withdrawn, even after a side effect is observed. These risks also apply to “on-target” mis-edits, also often called “indels,” or edits that are not intended but occur at the target site of gene correction, which might also have all of the above consequences, as well as yet unforeseen adverse effects. +Within our hematology, immunology and oncology area of focus, we are developing next generation CAR T-cell product(s) for autoimmune or oncology indication(s). While we believe our potential CAR T-cell product is differentiated from current products, our approach uses PASSIGE technology, which requires the use of a recombinase enzyme and Prime Editing. The use of recombinase enzymes in a human therapeutic is new, and has the potential to result in off-target insertions in the genome. The FDA has recently placed black box warnings on all CAR T-cell products based on their oncological risks, including secondary T-cell malignancies, caused by integrating vectors such as lentiviral or retroviral vectors. We cannot be sure that our approach will not result in adverse events or be subject to future black box warnings. Although we and others have demonstrated the ability to engineer gene editors which are designed to improve the specificity of their edits in a laboratory setting, we cannot be sure that our engineering efforts will be effective in any product candidates that we may develop. For example, we might not be able to engineer an editor to make the desired change, could diminish the effectiveness of an edit that we make or lead to adverse effects. Some Prime Editing approaches, such as those that use mismatch repair, or MMR, inhibition, may potentially also lead to adverse effects. +We also cannot be sure that our Prime Editing technology or any of our planned delivery methods will not result in adverse effects including allergic reactions, other changes in safety parameters, increases in liver function tests or many other potential concerns noted in clinical trials. It is also possible that our Prime Editors or our delivery methods will result in significant immunogenicity that may lead to adverse effects and could also prevent any chance of reapplication of a delivery method, or gene editing method in the future, if needed. +57 +In certain of our programs, such as in our liver area of focus, we plan to use lipid nanoparticles, or LNPs, to deliver our Prime Editors. While LNPs have been used to deliver smaller molecules, such as RNAi, there is limited clinical evidence of their ability to deliver large RNA molecules, such as the ones we intend to use for our Prime Editors. LNPs have been reported to result in liver toxicity in clinical trials, and in preclinical studies LNPs have been shown to induce oxidative stress in the liver at certain doses. While we aim to continue to optimize our LNPs, there can be no assurance that our LNPs will not have undesired effects. Our LNPs could contribute, in whole or in part, to one or more of the following: immune reactions, infusion reactions, complement reactions, opsonization reactions, antibody reactions including IgA, IgM, IgE or IgG or some combination thereof, or reactions to the PEG from some lipids or PEG otherwise associated with the LNP. Certain aspects of our investigational therapies may induce immune reactions from either the mRNA or the lipid as well as adverse reactions within liver pathways or degradation of the mRNA or the LNP, any of which could lead to significant adverse events in one or more of our future clinical trials. Many of these types of side effects have been seen for legacy LNPs. There may be uncertainty as to the underlying cause of any such adverse event, which would make it difficult to accurately predict side effects in future clinical trials and would result in significant delays in our programs. +We may use AAVs, which is a relatively new approach for disease treatment. AAV vectors have known side effects and additional risks could develop in the future. In past clinical trials that were conducted by others with AAV vectors, several significant side effects were caused by gene therapy treatments, including, among others, reported cases of neurotoxicity, hepatotoxicity and death. Other potential side effects could include immunologic reactions and insertional oncogenesis, which is the process whereby the insertion of a functional gene near a gene that is important in cell growth or division results in uncontrolled cell division, which could potentially enhance the risk of malignant transformation. AAV vectors may also persist in the cell for long periods, potentially permanently, and may result in long-term adverse effects. If the AAV vectors we use demonstrate similar side effects or other adverse events, we may be required to halt or delay further clinical development of any of our current or future product candidates. Furthermore, the FDA has stated that non-AAV vectors possess characteristics that may pose high risks of delayed adverse events. +In addition to side effects and adverse events caused by any product candidates we may develop, the conditioning, administration process or related procedures which may be used in our programs using electroporation also can cause adverse side effects and adverse events. A gene therapy patient is generally administered cytotoxic drugs to remove stem cells from the bone marrow to create sufficient space in the bone marrow for the modified stem cells to engraft and produce new cells. This procedure compromises the patient’s immune system. In the future, if we are unable to demonstrate that such adverse events were caused by the conditioning regimens used, the administration process or a related procedure, the FDA, the EMA or other regulatory authorities could order us to cease further development of, or deny approval of, any product candidates we may develop for any or all target indications. Even if we are able to demonstrate that adverse events are not related to the drug product or the administration of such drug product, such occurrences could affect patient recruitment, the ability of enrolled patients to complete the clinical trial or the commercial viability of any product candidates that obtain regulatory approval. While we are developing a cell shielding approach which, combined with antibody depletion of bone marrow stem cells, has the potential to be a benign method to condition patients for hematopoietic stem cell transplant, antibody-mediated conditioning with cell shielding is at the preclinical stage, and may not be successful or may have unexpected safety concerns. +We may also consider additional delivery modes, which may carry additional known and unknown risks. +We may also consider additional delivery modes, which may carry additional known and unknown risks. For example, we may use a novel split intein technology for AAV gene therapy that allows us to deliver the Prime Editor and guide RNA construct by co-infection with two viruses, where each virus contains one half of the editor. The scientific evidence to support the feasibility of developing product candidates based on this technology is limited. Furthermore, as with many AAV-mediated gene therapy approaches, certain patients’ immune systems might prohibit the successful delivery, thereby potentially limiting treatment outcomes of these patients. Even if initial clinical trials in any of our current or future product candidates we may develop are successful, these product candidates we may develop may fail to show the desired safety and efficacy in later stages of clinical development despite having successfully advanced through preclinical studies and initial clinical trials. +58 +In the future, if we are unable to demonstrate that any of the above adverse events were caused by factors other than our product candidates or our delivery methods, the FDA, the EMA or other regulatory authorities could order us to cease further development of, or deny approval of, any product candidates we are able to develop for any or all targeted indications. Even if we are able to demonstrate that all future serious adverse events are not product- and/or delivery-related, such occurrences could affect patient recruitment or the ability of enrolled patients to complete the trial or may cause significant delays to our programs and potential registration. Moreover, if we elect, or are required, to delay, suspend or terminate any clinical trials, the commercial prospects of such product candidates may be harmed and our ability to generate product revenues from any of these product candidates may be delayed or eliminated. Any of these occurrences may harm our ability to identify and develop product candidates, and may harm our business, financial condition, result of operations and prospects significantly. +We face significant competition in an environment of rapid technological change, and there is a possibility that our competitors may achieve regulatory approval before us or develop therapies that are safer or more advanced or effective than ours, which may harm our financial condition and our ability to successfully market or commercialize any product candidates we may develop. +The development and commercialization of new drug products is highly competitive. Moreover, the gene editing field is characterized by rapidly changing technologies, significant competition and a strong emphasis on intellectual property. We will face competition with respect to any product candidates that we may seek to develop or commercialize in the future from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent or other intellectual property protection and establish collaborative arrangements for research, development, manufacturing and commercialization. +There are a number of pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of the disease indications for which we have research programs. Some of these competitive products and therapies are based on scientific approaches that are the same as or similar to our approach, while others are based on entirely different approaches. +There are several companies utilizing Cas9 nuclease technology, including Caribou Biosciences, Inc., Editas Medicine, Inc., CRISPR Therapeutics AG, Intellia Therapeutics, Inc. and Kamau Therapeutics, Inc., among others. Several additional companies such as Sangamo Therapeutics, Inc., Precision BioSciences, Inc. and bluebird bio, Inc. utilize alternative nuclease-based genome editing technologies, including ZFNs, engineered meganucleases and TALENs. Beam Therapeutics and Verve Therapeutics, Inc. are among a number of companies that utilize base editing technology. In addition, other private companies such as Tessera Therapeutics, Inc. have announced their work in recombinase DNA and RNA gene writers. Other companies have announced intentions to enter the gene editing field, such as Moderna, Inc. and Pfizer Inc. Most recently, new epigenetic editing companies have emerged, such as Moonwalk Biosciences, Inc., nChroma Bio, Inc. and Tune Therapeutics, Inc. In addition, we face competition from companies utilizing gene therapy, oligonucleotides and cell therapy therapeutic approaches. Several companies such as Arbor Biotechnologies, Inc., Scribe Therapeutics Inc., Mammoth Biosciences, Inc. and Metagenomi, Inc. are actively searching for novel genome editing components, have reported the discovery of new DNA-cutting enzymes, and have announced gene editing programs. Other companies are active in LNP delivery technologies and advancing those into therapeutics using genetic therapies, including Recode Therapeutics, Inc., Verve Therapeutics, Inc., Generation Bio Co. and Beam Therapeutics, among others. +Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future that are approved to treat the same diseases for which we may obtain approval for any product candidates we may develop. This may include other types of therapies, such as small molecule, antibody and/or protein therapies. +Many of our current or potential competitors, either alone or with their collaboration partners, may have significantly greater financial resources and expertise in research and development, manufacturing, conducting preclinical studies and clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and gene therapy industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may +59 +also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize product candidates that are safer, more effective, have fewer or less severe side effects, are more convenient, or are less expensive than any product candidates that we may develop or that would render any product candidates that we may develop obsolete or non-competitive. Our competitors also may obtain FDA or other regulatory approval for their product candidates more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. Additionally, technologies developed by our competitors may render our current or future product candidates uneconomical or obsolete, and we may not be successful in marketing any product candidates we may develop against competitors. +In addition, as a result of the expiration or successful challenge of our patent or other intellectual property rights, we could face risks relating to our ability to successfully prevent or delay launch of competitors’ products. The availability of our competitors’ products could limit the demand and the price we are able to charge for any product candidates that we may develop and commercialize. +Adverse public perception of genetic therapies and of gene editing and Prime Editing in particular, may negatively impact regulatory approval of, and/or demand for, our potential products. +Our potential therapeutic products involve editing the human genome and making permanent changes that may not be reversible. The clinical and commercial success of our potential products will depend in part on public understanding and acceptance of the use of gene editing therapy for the prevention or treatment of human diseases. Public attitudes may be influenced by claims that gene editing is unsafe, unethical or immoral, and, consequently, any product candidates we may develop may not gain the acceptance of the public or the medical community. For example, the death of a patient with an ultra-rare form of Duchenne Muscular Dystrophy enrolled in a clinical trial assessing a personalized, CRISPR-based gene therapy product candidate initiated by Cure Rare Disease, a non-profit organization, was reported to be caused by an immune response to the vector used in the gene therapy. In addition, a serious adverse event was reported in the first patient dosed in a clinical trial of an investigational gene therapy conducted by Graphite Bio, Inc., and Graphite Bio, Inc. later announced the discontinuation of further development of its gene therapy product candidate after the company concluded that the event was likely related to study treatment. These reports have raised concerns about gene editing approaches that may persist until, or after, details are available. Moreover, our success will depend upon physicians prescribing, and their patients being willing to receive, treatments that involve the use of product candidates we may develop in lieu of, or in addition to, existing treatments with which they are already familiar and for which greater clinical data may be available. +In addition, gene editing technology is subject to public debate and heightened regulatory scrutiny due to ethical concerns relating to the application of gene editing technology to human embryos or the human germline. For example, academic scientists in several countries, including the United States, have reported on their attempts to edit the gene of human embryos as part of basic research. +Although we do not, and will not use our technologies to edit human embryos or the human germline, such public debate about the use of gene editing technologies in human embryos and heightened regulatory scrutiny on this issue, could prevent or delay our development of product candidates. More restrictive government regulations or negative public opinion would have a negative effect on our business or financial condition and may delay or impair our development and commercialization of product candidates or demand for any product candidates we may develop. Adverse events in our preclinical studies or clinical trials or those of our competitors or of academic researchers utilizing gene editing technologies, even if not ultimately attributable to product candidates we may identify and develop, and negative publicity could result in increased governmental regulation, unfavorable public perception, potential regulatory delays in the testing or approval of current or future product candidates stricter labeling requirements for those product candidates that are approved, and a decrease in demand for any such product candidates. +If the market opportunities for any product candidates we may develop are smaller than we believe they are, our potential revenues may be adversely affected and our business may suffer. Because the target patient populations +60 +for many of the product candidates we may develop are small, we must be able to successfully identify patients and achieve market acceptance in the medical community in order to secure a significant market share to maintain profitability and growth. +We focus our research and product development on treatments for rare genetically defined diseases. Many of the product candidates we may develop are expected to target a single, often predominant mutation; as a result, the relevant patient population may therefore be small. Although we are aiming to expand beyond our immediate target indications, including into broader populations, these approaches will require regulatory approval as discussed in the risk factor entitled “ We are early in our development efforts. As a result, we expect it will be many years before we commercialize any product candidate, if ever. If we are unable to advance our current or future product candidates into and through clinical trials, obtain marketing approval and ultimately commercialize our product candidates or experience significant delays in doing so, our business will be materially harmed .” In rare genetically defined diseases, our projections of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with product candidates we may develop, are based on estimates. These estimates may prove to be incorrect and new studies may change the estimated incidence or prevalence of these diseases. The number of patients in the United States, Europe and elsewhere may turn out to be lower than expected, and patients may not be amenable to treatment with the product candidates we may develop, or may become increasingly difficult to identify or gain access to, all of which would adversely affect our business, financial condition, results of operations and prospects. Additionally, because of the potential that any product candidates we develop could cure a target disease, we may not receive recurring revenues from patients and may deplete the patient population prevalence through curative therapy. +Clinical trial and product liability lawsuits against us could divert our resources and could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop. +We will face an inherent risk of clinical trial and product liability exposure related to the testing of our product candidates in human clinical trials, and we will face an even greater risk if we commercially sell any products that we may develop. While we currently have no products that have been approved for commercial sale, the use of product candidates by us in clinical trials, and the sale of any approved products in the future, may expose us to liability claims. These claims might be made by patients that use the product, healthcare providers, pharmaceutical companies or others selling such products. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in: +• decreased demand for any product candidates or products that we may develop; +• termination of clinical trials; +• injury to our reputation and significant negative media attention; +• withdrawal of clinical trial participants; +• significant costs to defend any related litigation; +• substantial monetary awards to trial participants or patients; +• loss of revenue; +• reduced resources of our management to pursue our business strategy; and +• the inability to commercialize any products that we may develop. +We currently hold clinical trial liability insurance coverage and we plan to obtain further insurance coverage if we expand our clinical trials and/or if we commence commercialization of our product candidates. Insurance coverage is increasingly expensive. We may not be able to obtain and maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. If a successful clinical trial or product liability claim or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, our assets may not be sufficient to cover such claims and our business operations could be impaired. +61 +If we or any contract manufacturers and suppliers we engage fail to comply with environmental, health, and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business. +We and any contract manufacturers and suppliers we engage are subject to numerous federal, state, and local environmental, health, and safety laws, regulations, and permitting requirements, including those governing laboratory procedures; the generation, handling, use, storage, treatment, and disposal of hazardous and regulated materials and wastes; the emission and discharge of hazardous materials into the ground, air, and water; and employee health and safety. Our operations involve the use of hazardous and flammable materials, including chemicals and biological and radioactive materials. Our operations also produce hazardous waste. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. Under certain environmental laws, we could be held responsible for costs relating to any contamination at our current or past facilities and at third-party facilities. We also could incur significant costs associated with civil or criminal fines and penalties. +Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair our research and product development efforts. In addition, we cannot entirely eliminate the risk of accidental injury or contamination from these materials or wastes. Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We carry specific biological or hazardous waste insurance coverage (under which we currently have an aggregate of approximately $2.0 million in coverage). However, in the event of contamination or injury, we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended, which could have a material adverse effect on our business, financial condition, results of operations, and prospects. +In addition, we may incur substantial costs in order to comply with current or future environmental, health, and safety laws, regulations, and permitting requirements. These current or future laws, regulations, and permitting requirements may impair our research, development, or production efforts. Failure to comply with these laws, regulations, and permitting requirements also may result in substantial fines, penalties, or other sanctions or business disruption, which could have a material adverse effect on our business, financial condition, results of operations, and prospects. +Any third-party contract manufacturers and suppliers we engage will also be subject to these and other environmental, health, and safety laws and regulations. Liabilities they incur pursuant to these laws and regulations could result in significant costs or an interruption in operations, which could have a material adverse effect on our business, financial condition, results of operations, and prospects. +Gene editing therapies are novel, and any product candidates we develop may be complex and difficult to manufacture. We could experience delays in satisfying regulatory authorities or production problems that result in delays in our development programs, limit the supply of the product candidates we may develop or otherwise harm our business. +Any product candidates we may develop will likely require processing steps that are more complex than those required for most chemical pharmaceuticals. For example, we currently obtain pegRNA from partners and vendors. Future needs could require additional pegRNA lengths or increased purity, potentially beyond what our partners and vendors can currently supply. Moreover, unlike chemical pharmaceuticals, the physical and chemical properties of a biologic such as the product candidates we intend to develop generally cannot be fully characterized. As a result, assays of the finished product candidate may not be sufficient to ensure that the product candidate will perform in the intended manner. Problems with the manufacturing process, even minor deviations from the normal process, could result in product defects or manufacturing failures that result in lot failures, product recalls, product liability claims, insufficient inventory or potentially delay progression of our potential IND filings. If we successfully develop product candidates, we may encounter problems achieving adequate quantities and quality of clinical-grade materials that meet the FDA, the EMA or other comparable applicable foreign standards or specifications with +62 +consistent and acceptable production yields and costs. For example, the current approach of manufacturing AAV vectors may fall short of supplying required number of doses needed for advanced stages of preclinical studies or clinical trials, and the FDA may ask us to demonstrate that we have the appropriate manufacturing processes in place to support the higher-dose group in our preclinical studies or clinical trials. In addition, any product candidates we may develop will require complicated delivery methods, such as electroporation, LNPs or viral vectors, each of which will introduce additional complexities in the manufacturing process. We may also have similar issues to other companies that have had difficulties in receiving FDA, or other regulatory agency approval for key potency assays needed for regulatory approval and/or drug release from the manufacturer. +In addition, the FDA, the EMA and other regulatory authorities may require us to submit samples of any lot of any approved product together with the protocols showing the results of applicable tests at any time. Under some circumstances, the FDA, the EMA or other regulatory authorities may require that we not distribute a lot until the agency authorizes its release. Slight deviations in the manufacturing process, including those affecting quality attributes and stability, may result in unacceptable changes in the product that could result in lot failures or product recalls. Lot failures or product recalls could cause us to delay clinical trials or product launches, which could be costly to us and otherwise harm our business, financial condition, results of operations and prospects. +Furthermore, we intend to use novel technology for gene editing. Our novel Prime Editors have two main components that act together to edit DNA: (i) a Prime Editor protein, typically comprising a fusion between a Cas protein domain and a reverse transcriptase domain, and (ii) a pegRNA, that targets the Prime Editor to a specific genomic location and provides a template for making the desired edit to the target DNA sequence. In addition, we are broadening the types of edits that we can make by incorporating innovations in Prime Editing, including dual-flap Prime Editing and PASSIGE. The scientific evidence to support the feasibility of developing product candidates based on these technologies is both preliminary and limited and has yet to be produced at a clinical scale. +We also may encounter problems hiring and retaining the experienced scientific, quality control and manufacturing personnel needed to manage our manufacturing process, which could result in delays in our production or difficulties in maintaining compliance with applicable regulatory requirements. +Given the nature of biologics manufacturing there is a risk of contamination during manufacturing. Any contamination could materially harm our ability to produce product candidates on schedule and could harm our results of operations and cause reputational damage. Some of the raw materials that we anticipate will be required in our manufacturing process are derived from biologic sources. Such raw materials are difficult to procure and may be subject to contamination or recall. A material shortage, contamination, recall or restriction on the use of biologically derived substances in the manufacture of any product candidates we may develop could adversely impact or disrupt the commercial manufacturing or the production of clinical material, which could materially harm our development timelines and our business, financial condition, results of operations and prospects. +Any problems in our manufacturing process or the facilities with which we contract could make us a less attractive collaborator for potential partners, including larger pharmaceutical companies and academic research institutions, which could limit our access to additional attractive development programs. Problems in third-party manufacturing process or facilities also could restrict our ability to ensure sufficient clinical material for any clinical trials we may be conducting or are planning to conduct and meet market demand for any product candidates we develop and commercialize. +If preclinical studies or clinical trials of any product candidates we may identify and develop fail to demonstrate safety and efficacy to the satisfaction of regulatory authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of such product candidates. +Before obtaining marketing approval from regulatory authorities for the sale of any product candidates we may identify and develop, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete, and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. +63 +Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their product candidates. +We and our collaborators, if any, may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize any product candidates we may identify and develop, including: +• delays in reaching a consensus with regulators on trial design; +• regulators, institutional review boards, or IRBs, or independent ethics committees may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site; +• delays in reaching or failing to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective CROs and clinical trial sites; +• clinical trials of any product candidates we may develop may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development or research programs; +• delays if a clinical trial is suspended or terminated by us, by the IRBs or their ethics committees, the data review committee or data safety monitoring board for such trial or by the FDA, EMA or other foreign regulatory authorities due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the regulatory authorities; +• difficulty in designing well-controlled clinical trials due to ethical considerations which may render it inappropriate to conduct a trial with a control arm that can be effectively compared to a treatment arm; +• difficulty in designing clinical trials and selecting endpoints for diseases that have not been well-studied and for which the natural history and course of the disease is poorly understood; +• the number of patients required for clinical trials of any product candidates we may develop may be larger than we anticipate; enrollment of suitable participants in these clinical trials, which may be particularly challenging for some of the rare genetically defined diseases we are targeting in our most advanced programs, may be delayed or slower than we anticipate; or patients may drop out of these clinical trials at a higher rate than we anticipate; +• our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all; +• regulators, IRBs, or independent ethics committees may require that we or our investigators suspend or terminate clinical research or clinical trials of any product candidates we may develop for various reasons, including noncompliance with regulatory requirements, a finding of undesirable side effects or other unexpected characteristics, or that the participants are being exposed to unacceptable health risks or after an inspection of our clinical trial operations or trial sites; +• the cost of clinical trials of any product candidates we may develop may be greater than we anticipate; +• the supply or quality of any product candidates we may develop or other materials necessary to conduct clinical trials of any product candidates we may develop may be insufficient or inadequate, including as a result of delays in the testing, validation, manufacturing, and delivery of any product candidates we may develop to the clinical sites by us or by third parties with whom we have contracted to perform certain of those functions; +• delays in having patients complete participation in a trial or return for post-treatment follow-up; +• clinical trial sites dropping out of a trial; +• selection of clinical endpoints that require prolonged periods of clinical observation or analysis of the resulting data; +64 +• occurrence of serious adverse events associated with any product candidates we may develop that are viewed to outweigh their potential benefits; or +• occurrence of serious adverse events in trials of the same class of agents conducted by other sponsors; and changes in regulatory requirements and guidance that require amending or submitting new clinical protocols. +If we or our collaborators are required to conduct additional clinical trials or other testing of any product candidates we may develop beyond those that we currently contemplate, if we or our collaborators are unable to successfully complete clinical trials or other testing of any product candidates we may develop, or if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we or our collaborators may: +• be delayed in obtaining marketing approval for any such product candidates we may develop or not obtain marketing approval at all; +• obtain approval for indications or patient populations that are not as broad as intended or desired; +• obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings; +• be subject to changes in the way the product is administered; +• be required to perform additional clinical trials to support approval or be subject to additional post-marketing testing requirements; +• have regulatory authorities withdraw, or suspend, their approval of the product or impose restrictions on its distribution in the form of a Risk Evaluation and Mitigation Strategy, or REMS, or through modification to an existing REMS; +• be sued; or +• experience damage to our reputation. +Product development costs will also increase if we or our collaborators experience delays in clinical trials or other testing or in obtaining marketing approvals. We do not know whether any clinical trials will begin as planned, will need to be restructured, or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize any product candidates we may develop, could allow our competitors to bring products to market before we do, and could impair our ability to successfully commercialize any product candidates we may develop, any of which may harm our business, financial condition, results of operations, and prospects. +Social media campaigns and demand for expanded access to our current and future product candidates could negatively affect our reputation and harm our business. +We are developing product candidates in areas of unmet medical need where there are currently limited or no available therapeutic options and may receive requests in the future for right to try access or expanded access on a compassionate use basis to certain of our current and future product candidates. It is possible for individuals or groups to target companies with disruptive social media campaigns related to a request for access to unapproved drugs for patients with significant unmet medical need. If we experience a similar social media campaign regarding our decision to provide or not provide access to any of our current and future product candidates under an expanded access policy, our reputation may be negatively affected and our business may be harmed. +In addition, some patients who receive access to drugs prior to their commercial approval through compassionate use, expanded access programs or right to try access have life-threatening illnesses and have exhausted all other available therapies. The risk for serious adverse events in this patient population is high, which could have a negative impact on the safety profile of our potential product candidates if we were to provide them to these patients, which could cause significant delays or an inability to successfully commercialize our current and future product candidates, which could materially harm our business. If we were to provide patients with our current and future product candidates under an expanded access program, we may in the future need to restructure or pause any compassionate use and/or expanded access programs in order to perform the controlled clinical trials required for +65 +regulatory approval and successful commercialization of our current and future product candidates, which could prompt adverse publicity or other disruptions related to current or potential participants in such programs. +Risks Related To Our Relationships with Third Parties +We have entered into collaborations, and may enter into additional collaborations, with third parties for the research, development, delivery, manufacturing and commercialization of Prime Editing technology and certain of the product candidates we may develop. If any such collaborations are not successful, we may not be able to capitalize on the market potential of our Prime Editing platform or product candidates. +As part of our strategy, we have entered into collaborations and intend to seek to enter into additional collaborations with third parties for one or more of our programs or product candidates we may develop. Our likely collaborators for any other collaboration arrangements include pharmaceutical and biotechnology companies, academic institutions, and foundations. We may seek such third-party collaborators and strategic partners for the research, development, delivery, manufacturing and commercialization of certain of the product candidates we may develop. If we enter into any such arrangements with any third parties, we will likely have limited control over the amount and timing of resources that our collaborators dedicate to collaboration, including the development, delivery, manufacturing or commercialization of any product candidates we may seek to develop with them. Our ability to generate revenues from these arrangements will depend on our collaborators’ and strategic partners’ abilities to successfully perform the functions assigned to them in these arrangements. We cannot predict the success of any collaboration that we enter into. +Collaborations involving our research, development, expansion of our technology or for any product candidates we may develop pose numerous risks to us, including the following: +• Collaborators and strategic partners have significant discretion in determining the efforts and resources that they will apply to these collaborations, may not pursue development and commercialization of any product candidates we may develop or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborator’s strategic focus or available funding or external factors such as an acquisition that diverts resources or creates competing priorities. +• Collaborators and strategic partners may have significant overlap in their areas of interest and capabilities, research and development activities and product candidates with us, which may result in potential conflicts of interest. +• The transfer of key technology between our collaborators and strategic partners and us may be incomplete, delayed or not meet our standards of quality. +• Collaborators and strategic partners may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing. +• Collaborators and strategic partners could independently develop or develop with third parties, products that compete directly or indirectly with our therapies or product candidates we may develop if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours. +• Collaborators and strategic partners with marketing and distribution rights to one or more therapies may not commit sufficient resources to the marketing and distribution of such therapy or therapies. +• Collaborators and strategic partners may have rights or may believe they have rights to sub-license our Prime Editing technology more broadly than anticipated for the collaboration. +• Collaborators and strategic partners may not properly obtain, maintain, enforce or defend our intellectual property or proprietary rights or may use our intellectual property or proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation. +66 +• Collaborators and strategic partners may not properly use our technology, perform activities below quality standards or wrongly interpret results, any of which may result in adverse public perception of Prime Editing or negatively impact the regulatory approval of, and/or demand for, our current and future product candidates. +• There may be areas of ambiguity in the interpretation of obligations and deliverables under any collaboration agreements we have entered or may enter into, including disputes that may arise between the collaborators and strategic partners and us that result in the delay or termination of the research, development or commercialization of our therapies or product candidates or that result in costly litigation or arbitration that diverts management attention and resources. +• We may lose certain valuable rights under circumstances identified in our collaborations, including if we undergo a change of control, and may have a reduced ability to prioritize programs and allocate resources. +• Collaborations may be terminated and, if terminated, may leave incomplete some or all of the goals that were set for such collaboration or result in a need for additional capital to pursue further development or commercialization of the applicable product candidates we may develop. +• Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all. If a present or future collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product development or commercialization program under such collaboration could be delayed, diminished or terminated. +If our collaborations do not result in successful research or delivery approaches or successful development and commercialization of product candidates, or if one of our collaborators or strategic partners terminates its agreement with us, there may be adverse consequences. For example, we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do not receive the funding we expect under these agreements, our development of product candidates could be delayed, and we may need additional resources to develop product candidates. In addition, if one of our collaborators or strategic partners terminates its agreement with us, we may find it more difficult to find a suitable replacement or attract a new collaboration, lose access to key technology or our development programs may be delayed or the perception of us in the business and financial communities could be adversely affected. All of the risks relating to product development, regulatory approval and commercialization apply to the activities of our collaborators and strategic partners. +These relationships, or those like them, may require us to incur non-recurring and other charges, increase our near- and long-term expenditures, issue securities that dilute our existing stockholders, result in a loss of value to our stock or disrupt our management and business. For example, we issued and sold 11,006,163 shares of our common stock to BMS as part of the BMS Collaboration Agreement. In addition, we could face significant competition in seeking appropriate collaborators and strategic partners and the negotiation process is time-consuming and complex. Our ability to reach a definitive collaboration agreement will depend, among other things, upon our assessment of the collaborator’s and strategic partner’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of several factors. If we license rights to any product candidates we may develop we or our collaborators and strategic partners may develop, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture. +If conflicts arise between us and our collaborators or strategic partners, these parties may act in a manner adverse to us and could limit our ability to implement our strategies. +If conflicts arise between our corporate or academic collaborators or strategic partners and us, the other party may act in a manner adverse to us and could limit our ability to implement our strategies. Some of our academic collaborators and strategic partners are conducting multiple product development efforts within each area that is the subject of the collaboration with us. Our collaborators or strategic partners, however, may develop, either alone or with others, products in related fields that are competitive with the product candidates we may develop that are the subject of these collaborations with us. Competing products, either developed by the collaborators or strategic partners or to which the collaborators or strategic partners have rights, may result in the withdrawal of partner support for any product candidates we may develop. +67 +Some of our collaborators or strategic partners could also become our competitors in the future. For example, Beam Therapeutics, currently one of our strategic partners, may develop product candidates in areas where both companies have freedom to pursue development. For more information regarding our agreement with Beam Therapeutics, see the risk factor entitled “ The gene editing field is relatively new and is evolving rapidly, making us subject to additional development challenges and risks. We are focusing our research and development efforts on gene editing using Prime Editing technology, but other gene editing technologies may be discovered that provide significant advantages over Prime Editing, which could materially harm our business. ” +Our collaborators or strategic partners could develop competing products, preclude us from entering into collaborations with their competitors, fail to obtain timely regulatory approvals, prevent us from obtaining timely regulatory approvals, terminate their agreements with us prematurely or fail to devote sufficient resources to the collaboration efforts, including development, delivery, manufacturing and commercialization of products. Any of these developments could harm our company and product development efforts. +We expect to rely on third parties to conduct our clinical trials and some aspects of our research, as well as some aspects of our delivery methods, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials, research or testing. +We currently, and expect to continue to, rely on third parties, such as CROs, clinical data management organizations, medical institutions, preclinical laboratories and clinical investigators, to conduct some aspects of our research. For example, we may rely on a third party to conduct electroporation, to supply LNPs, or to conduct some of our preclinical animal experiments. Any of these third parties may terminate their engagements with us at any time under certain criteria. If we need to enter into alternative arrangements, it may delay our product development activities. +Our reliance on these third parties for research and development activities will reduce our control over these activities but will not relieve us of our responsibilities. For example, we will remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA, the EMA and other regulatory authorities require us and the study sites and investigators we work with to comply with standards, commonly referred to as GLPs and GCPs for conducting, recording and reporting the results of preclinical studies and clinical trials to assure, amongst other things, that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. In the United States, we also are required to register certain clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions. +Although we designed the clinical trial for our current product candidate, PM359, and intend to design the clinical trials for future product candidates, a CRO is conducting our clinical trial for PM359, and CROs will conduct some or all of our future clinical trials. As a result, many important aspects of our development programs, including their conduct and timing, will be outside of our direct control. Our reliance on third parties to conduct preclinical studies and current and future clinical trials will also result in less direct control over the management of data developed through preclinical studies and clinical trials than would be the case if we were relying entirely upon our own staff. Communicating with outside parties can also be challenging, potentially leading to mistakes as well as difficulties in coordinating activities. Among other reasons that may delay or impact the development of our current and future product candidates, outside parties may: +• have staffing difficulties; +• fail to comply with contractual obligations; +• experience regulatory compliance issues; +• undergo changes in priorities or become financially distressed; or +• form relationships with other entities, some of which may be our competitors. +These factors may materially adversely affect the willingness or ability of third parties to conduct our preclinical studies and clinical trials and may subject us to unexpected cost increases that are beyond our control. If the CROs +68 +and other third parties do not perform such preclinical studies and current and future clinical trials in a satisfactory manner, breach their obligations to us or fail to comply with regulatory requirements, the development, regulatory approval and commercialization of our current and future product candidates may be delayed, we may not be able to obtain regulatory approval and commercialize our potential product candidates or our development programs may be materially and irreversibly harmed. If we are unable to rely on preclinical and clinical data collected by our CROs and other third parties, we could be required to repeat, extend the duration of or increase the size of any preclinical studies or clinical trials we conduct and this could significantly delay commercialization and require greater expenditures. +We also rely on third parties to store and distribute drug supplies for our current clinical trial and expect to rely on third parties to do the same for future clinical trials. Any performance failure on the part of our distributors could delay clinical development or marketing approval of any product candidates we may develop or commercialization of our therapies, producing additional losses and depriving us of potential product revenue. +We contract with third parties for the manufacture of materials for our research programs and current clinical trial, and expect to continue to do so for future clinical trials and for any commercialization of product candidates that we may develop. This reliance on third parties increases the risk that we will not have sufficient quantities of such materials, product candidates or any therapies that we may develop and commercialize, or that such supply will not be available to us on time or at an acceptable cost. +We do not have any manufacturing facilities at the present time. We currently rely on third-party manufacturers to manufacture many of our materials for research, preclinical studies and clinical trials, and expect to continue to do so. We have not yet formulated our plans for commercial supply of any product candidates that we may develop or for which we or our collaborators may in the future obtain marketing approval, but our future decisions may be subject to similar risks to the ones discussed below. +We may be unable to establish any agreements with third-party manufacturers or to do so on acceptable terms. Even if we are able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, some of which may include: +• the possible breach of the manufacturing agreement by the third party; +• tariffs (including tariffs that have been or may in the future be imposed by the United States or other countries), trade protection measures, import or export licensing requirements, trade embargoes, sanctions (including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury), other trade barriers (including further legislation or actions taken by the United States or other countries that restrict trade), and protectionist or retaliatory measures taken by the United States or other countries; +• the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us; and +• reliance on the third party for regulatory compliance and quality assurance. +Third-party manufacturers may not be able to comply with cGMP regulations or similar regulatory requirements outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocations, seizures or recalls of product candidates or therapies, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our therapies and harm our business, financial condition, results of operations and prospects. +Any therapies that we may develop may compete with other product candidates and products for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us. +Any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval. We do not currently have arrangements in place for redundant supply for bulk drug substances. If any third party-manufacturer with whom we contract fails to perform its obligations, we may be forced to manufacture the materials ourselves, for which we may not have the facilities or resources, or enter into an agreement with a different third party-manufacturer, which we may not be able to do on reasonable terms, if at all. +69 +In either scenario, our clinical trials supply could be delayed significantly as we establish alternative supply sources. In some cases, the technical skills required to manufacture our products or product candidates may be unique or proprietary to the original third party-manufacturer and we may have difficulty, or there may be contractual restrictions prohibiting us from, transferring such skills to a back-up or alternate supplier, or we may be unable to transfer such skills at all. In addition, if we are required to change third party-manufacturers for any reason, we will be required to verify that the new third party-manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations. We will also need to verify, such as through a manufacturing comparability study, that any new manufacturing process will produce our current and future product candidates according to the specifications previously submitted to the FDA or another regulatory authority. The delays associated with the verification of a new third party-manufacturer could negatively affect our ability to develop product candidates or commercialize our products in a timely manner or within budget. Furthermore, a third party-manufacturer may possess technology related to the manufacture of our product candidate that such third party-manufacturer owns independently. This would increase our reliance on such third party-manufacturer or require us to obtain a license from such third party-manufacturer in order to have another third party-manufacturer manufacture our product candidates, which may not be available on commercially reasonable terms, or at all. In addition, changes in manufacturers often involve changes in manufacturing procedures and processes, which could require that we conduct bridging studies between our prior clinical supply used in our clinical trials and that of any new manufacturer. We may be unsuccessful in demonstrating the comparability of clinical supplies which could require the conduct of additional clinical trials. +In addition, regional or single-source dependencies may in some cases accentuate these risks. For example, the pharmaceutical industry generally, and in some instances we or our collaborators or other third parties on which we rely, depend on China-based suppliers or service providers for certain raw materials, goods, including biologically derived substances, products and services, or other activities. Our ability or the ability of our collaborators or such other third parties to continue to engage these China-based suppliers or service provides and Chinese biotech companies for certain preclinical research programs and clinical development programs could be restricted due to geopolitical developments between the United States and China, including as a result of the escalation of tariffs or other trade restrictions or if the previously proposed federal legislation known as the BIOSECURE Act or a similar law were to be enacted. +Our current and anticipated future dependence upon others for the manufacture of any product candidates or therapies we may develop may adversely affect our future profit margins and our ability to commercialize any therapies that receive marketing approval on a timely and competitive basis. +If we are not able to establish collaborations on a timely basis, on commercially reasonable terms, or at all, we may have to alter, reduce or delay our development and commercialization plans or increase our expenditures to fund development or commercialization activities at our own expense. +For some of the product candidates we may develop, we may decide to collaborate with other pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates, which is a complex and time-consuming process to negotiate and document. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator or strategic partner’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator or strategic partner’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA, the European Commission or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator or strategic partner may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us. In addition, we and the collaborator or strategic partner may have differences in risk tolerance, which may affect the development and execution of such collaborations with respect to timing and other considerations. +We may also be restricted under existing collaboration agreements from entering into future collaboration agreements on certain terms with potential collaborators. In addition, there have been a significant number of recent +70 +business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators, which further increases competition we face in seeking potential collaborations. +We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to develop product candidates or bring them to market and generate product revenue. +Risks Related To Our Intellectual Property +If we are unable to obtain and maintain patent and other intellectual property protection for any product candidates we develop and for our Prime Editing technology, or if the scope of the patent and other intellectual property protection obtained is not sufficiently broad, third parties could develop and commercialize products and technology similar or identical to ours and our ability to successfully commercialize any product candidates we may develop and our Prime Editing technology may be adversely affected. +Our commercial success will depend in large part on our ability to obtain and maintain patent, trademark, trade secret and other intellectual property protection of our Prime Editing technology, product candidates and other technology, methods used to manufacture them and methods of treatment, as well as to successfully defend our patent and other intellectual property rights against third-party challenges. It is difficult and costly to protect our Prime Editing technology and product candidates, and we may not be able to ensure their protection. Our ability to stop unauthorized third parties from making, using, selling, offering to sell, importing or otherwise commercializing our product candidates we may develop is dependent upon the extent to which we have established rights under valid and enforceable patents or trade secrets that cover these activities. +We seek to protect our proprietary position by in-licensing intellectual property relating to our platform technology and filing patent applications in the United States and abroad related to our Prime Editing technology and product candidates that are important to our business. If we or our licensors are unable to obtain or maintain patent protection with respect to our Prime Editing technology and product candidates we may develop, or if the scope of the patent protection secured is not sufficiently broad, third parties could develop and commercialize products and technology similar or identical to ours and our ability to commercialize any product candidates we may develop may be adversely affected. +The patent prosecution process is expensive, time-consuming and complex, and we may not be able to file, prosecute, maintain, enforce, defend or license all necessary or desirable patent applications at a reasonable cost or in a timely manner. In addition, we may not pursue or obtain patent protection in all relevant markets. It is also possible that we will fail to identify patentable aspects of our research and development output in time to obtain patent protection. Although we enter into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development output, such as our employees, corporate collaborators, outside scientific collaborators, CROs, contract manufacturers, consultants, advisors and other third parties, any of these parties may breach the agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patent protection. In addition, our ability to obtain and maintain valid and enforceable patents depends on whether the differences between our inventions and the prior art allow our inventions to be patentable over the prior art. Furthermore, publications of discoveries in the scientific literature often lag behind the actual discoveries and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we or our licensors were the first to make the inventions claimed in our owned or licensed pending patent applications or in-licensed issued patents, or that we or our licensors were the first to file for patent protection of such inventions. If a third party can establish that we or our licensors were not the first to make or the first to file for patent protection of such inventions, our owned or licensed patent applications may not issue as patents and even if issued, may be challenged and invalidated or rendered unenforceable. +71 +The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has been the subject of much litigation in recent years. The field of genome editing has been the subject of extensive patenting activity and litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain and we may become involved in complex and costly litigation. Our pending and future patent applications may not result in patents being issued which protect our Prime Editing technology and product candidates we may develop or which effectively prevent others from commercializing competitive technologies and product candidates. For example, our provisional applications may never result in issued patents. A provisional patent application is not eligible to become an issued patent until, among other things, we file a non-provisional patent application within 12 months of filing the related provisional patent application. If we do not timely file non-provisional patent applications, we may lose our priority dates with respect to our provisional patent applications and any patent protection on the inventions disclosed in our provisional patent applications. While we intend to timely file non-provisional patent applications relating to our provisional patent applications, we cannot predict whether any of our patent applications for our technology and product candidates will result in the issuance of patents that effectively protect our technology and product candidates. Any failure to obtain or maintain patent protection with respect to our technology and product candidates would have a material adverse effect on our business, financial condition, results of operations and prospects. +No consistent policy regarding the scope of claims allowable in the field of genome editing, including for Prime Editing technology, has emerged in the United States. The scope of patent protection outside of the United States is also uncertain. Changes in either the patent laws or their interpretation in the United States and other countries may diminish our ability to protect our inventions, obtain, maintain, enforce and defend our intellectual property rights and, more generally, could affect the value of our intellectual property or narrow the scope of our owned and licensed patent rights. With respect to both in-licensed and owned intellectual property, we cannot predict whether the patent applications we and our licensors are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will be valid and enforceable and provide sufficient protection from third parties. +Moreover, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance. Even if patent applications we license or own currently or in the future issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors or other third parties from competing with us, or otherwise provide us with any competitive advantage. Any patent applications that we own or in-license may, if issued as patents, be challenged, narrowed, circumvented, or invalidated by third parties. Consequently, we do not know whether any of our platform advances and product candidates we may develop will be protectable or remain protected by valid and enforceable patents. Our competitors or other third parties may be able to circumvent our patents that may be issued from our patent applications by developing similar or alternative technologies or products in a non-infringing manner. In addition, given the amount of time required for the development, testing and regulatory review of new product candidates, patents that may be issued protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our intellectual property may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. +Some of our owned and in-licensed patent applications are, and may in the future be, co-owned with third parties. With respect to any patent applications co-owned by third parties, we may require exclusive licenses to such co-owners’ interest to such patents. If we are unable to obtain an exclusive license to any such third-party co-owners’ interest in such patent applications, we may be unable to prevent such co-owner from licensing their rights under the patent applications to other third parties, including our competitors, and our competitors may be able to market competing products and technology. In addition, we may need the cooperation of any such co-owners of our future patents in order to enforce such future patents against third parties, and such cooperation may not be provided to us. +Our rights to develop and commercialize our Prime Editing platform technology and product candidates are subject to the terms and conditions of licenses granted to us by others. If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or otherwise experience +72 +disruptions to our business relationships with our licensors, we could lose license rights that are important to our business. +We do not currently own any issued patents and are heavily reliant upon certain patent rights and proprietary technology we have licensed from third parties that are important or necessary to the development of our Prime Editing technology and product candidates. For example, we are a party to two license agreements with Broad Institute. In September 2019, we entered into a license agreement with Broad Institute, or the Broad License Agreement, and in May 2020, February 2021, December 2022, and September 2024, we entered into amendments to such license agreement. In December 2022, we entered into a new license agreement with Broad Institute, or the 2022 Broad License Agreement. Under the amended Broad License Agreement and the 2022 Broad License Agreement, Broad Institute grants us certain rights and licenses under certain patent rights it owns or controls relating to our Prime Editing technology and product candidates. Each license agreement imposes various diligence, milestone payment, royalty, insurance and other obligations on us. Our licenses are subject to Broad Institute’s inclusive innovation model, pursuant to which Broad Institute retains the right, in certain circumstances, to grant to third parties (other than specified competitors of ours) licenses under the licensed patent rights that would otherwise fall within the scope of the exclusive license granted to us. All gene targets, which are any human genes to which a program is directed, are subject to Broad Institute’s march-in license, which means Broad Institute has the right to terminate our license to gene targets under certain conditions and could make one or more gene targets unavailable to us. However, if we initiate a program for a gene target, in accordance with the terms of each license agreement, we may block a march-in request by making certain showing and by continuing to use commercially reasonable efforts to continue to progress such development. Internally, we determine when a program for a gene target has been initiated by considering factors such as whether a gene target has been identified as the subject of a program, how much time or resources have been dedicated to researching, developing, and/or designing and using reagents for a program, and the amount of preclinical testing in process for such program. If we fail to comply with these or other obligations in our current or future license agreements, our licensors may have the right to terminate our license, in which event we would not be able to develop or market our Prime Editing technology or any other technology or product candidates covered by the intellectual property licensed under this agreement. Our business would be seriously harmed if any current or future licenses terminate, if our licensors fail to abide by the terms of the license, if our licensors fail to enforce licensed patents against infringing third parties, if the licensed patents or other rights are found to be invalid or unenforceable, or if we are unable to enter into necessary licenses on acceptable terms. If our license agreements terminate, or we experience a reduction or elimination of licensed rights under these agreements, we may have to negotiate new or reinstated licenses with less favorable terms or we may not have sufficient intellectual property rights to operate our business. Moreover, if certain of our license agreements terminate, we may be required to continue to license or assign certain of our intellectual property to the applicable counterparty. +Certain of the patent rights that we license from Broad Institute under the Broad License Agreement are co-owned by Broad Institute with Harvard and certain of the licensed patent rights under the Broad License Agreement are co-owned by Broad Institute, Harvard, and Massachusetts Institute of Technology, or MIT. The patent rights that we license from Broad Institute under the 2022 Broad License Agreement are co-owned by Broad Institute with Harvard, the Trustees of Princeton University, or Princeton, and the Regents of the University of California, or University of California. In addition, some of the inventors of the licensed patent and patent applications are or were employees of HHMI, which retains certain rights to patents and patent applications invented by their employees. Our rights to our in-licensed patents and patent applications from Broad Institute are dependent, in part, on inter-institutional or other operating agreements between Broad Institute, Harvard, MIT, University of California, Princeton and HHMI. If Broad Institute, Harvard, MIT, University of California, Princeton or HHMI breaches or terminates such inter-institutional or operating agreements, our rights to such in-licensed patents and patent applications may be adversely affected. We have also licensed certain improvements to Prime Editing from Dr. Liu’s laboratory at Broad Institute. For example, Dr. Liu’s laboratory at Broad Institute developed engineered pegRNAs, or epegRNAs, which we have exclusively in-licensed. Dr. Liu has entered into an agreement with us pursuant to which he is obligated to assign to us any inventions with respect to the services he performs for us. However, such obligations are subject to limitations and do not extend to his work in other fields or to the intellectual property arising from his employment with Harvard, HHMI and Broad Institute. To obtain such +73 +intellectual property rights, we would need to enter into license agreements with such institutions, and such license agreements may not be available on commercially reasonable terms or at all. +Additionally, in September 2019, we established a strategic relationship with Beam Therapeutics, a biotechnology company developing gene editing products using its proprietary base editing technology. Under our license and collaboration agreement with Beam Therapeutics, or the Beam Collaboration Agreement, each party grants to the other certain exclusive and non-exclusive licenses and rights to certain Prime Editing, CRISPR and delivery technologies for use in certain specified fields. Activities performed by Prime and Beam Therapeutics under the Beam Collaboration Agreement may lead to co-owned patents and patent applications. +These and other licenses may not provide exclusive rights to use such intellectual property and technology in all relevant fields of use and in all territories in which we may wish to develop or commercialize our Prime Editing technology and product candidates in the future. Some licenses granted to us are expressly subject to certain preexisting rights held by the licensors or certain third parties. As a result, we may not be able to prevent third parties from developing and commercializing competitive products in certain territories or fields. For example, the rights granted to us under each license agreement are subject to certain retained rights of Broad Institute, MIT, Harvard, Princeton, University of California, HHMI and the U.S. federal government, and the rights granted to us under the Beam Collaboration Agreement are subject to certain third party agreements and certain rights retained by third parties. Additionally, each license agreement with Broad Institute provides that our field of use is limited to the field of prevention or treatment of human disease, and most licenses granted to us under each license agreement with Broad Institute are further limited to the prevention or treatment of human disease by editing (including modifying or converting) or targeting DNA ex vivo , in vivo , or through xeno-transplantation methods and includes other specified exclusions. If we determine that rights to additional fields, including the specifically excluded fields, are necessary to commercialize our product candidates or maintain our competitive advantage, we may need to obtain a license from Broad Institute and/or other third parties in order to continue developing, manufacturing or marketing our product candidates. We may not be able to obtain such a license on an exclusive basis, on commercially reasonable terms, or at all, which could prevent us from commercializing our product candidates or allow our competitors or other third parties the chance to access technology that is important to our business. +We do not control the preparation, filing, prosecution and maintenance of the patents and patent applications covering the technology that we license from Broad Institute or Beam Therapeutics. For example, pursuant to our licenses with Broad Institute and Beam Therapeutics, our licensors retain control of preparation, filing, prosecution and maintenance of their wholly-owned patents and patent applications. We rely on such licensors to determine inventorship and perfect priority of their patent applications. We cannot be certain that these patents and patent applications will be prepared, filed, prosecuted, maintained and defended in a manner consistent with the best interests of our business. If Broad Institute or Beam Therapeutics fails to prosecute or maintain such patents and patent applications or loses rights to such patents and patent applications, the rights we have licensed may be reduced or eliminated, our right to develop and commercialize any of our product candidates we may develop that are the subject of such licensed rights could be adversely affected and we may not be able to prevent third parties from making, using and selling competing products. In addition, we do not control all enforcement of the patents and patent applications we license from Broad Institute. It is possible that our licensors’ enforcement of patents against infringers or defense of such patents against challenges of validity or claims of enforceability may be less vigorous than if we had conducted them ourselves, or may not be conducted in accordance with our best interests. +Our licensors may have relied on third-party consultants or collaborators or on funds from third parties such that our licensors are not the sole and exclusive owners of the patent rights we have in-licensed. If other third parties have ownership rights to our in-licensed issued patents and patent applications, the license granted to us in jurisdictions where the consent of a co-owner is necessary to grant such a license may not be valid, and such co-owners for which we do not secure exclusive licenses may be able to license such patent rights to third parties, including our competitors, and such third parties may be able to market competing products and technology. +Furthermore, inventions contained within some of our in-licensed issued patents and patent applications were made using U.S. government funding. We rely on our licensors to ensure compliance with applicable obligations arising from such funding, such as timely reporting, an obligation associated with our in-licensed patents and patent applications. The failure of our licensors to meet their obligations may lead to a loss of rights or the unenforceability of relevant patents that may issue from such applications. For example, the U.S. government could have certain +74 +rights in such in-licensed issued patent and patent applications, including a non-exclusive license authorizing the U.S. government to use the invention or to have others use the invention on its behalf. If the U.S. government decides to exercise these rights, it is not required to engage us as its contractor in connection with doing so. The U.S. government’s rights may also permit it to disclose the funded inventions and technology to third parties and to exercise march-in rights to use or allow third parties to use the technology we have licensed that was developed using U.S. government funding. The U.S. government may also exercise its march-in rights if it determines that action is necessary because we or our licensors failed to achieve practical application of the U.S. government-funded technology, because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations, or to give preference to U.S. industry. For example, if the U.S. government determines it is necessary, the U.S. government may exercise its march-in rights and license to third-party manufacturers any or all of our future products or current or future product candidates covered by in-licensed patents and patent applications made using U.S. government funding. In addition, our rights in such in-licensed U.S. government-funded inventions may be subject to certain requirements to manufacture product candidates embodying such inventions in the United States. Any of the foregoing could harm our business, financial condition, results of operations, and prospects significantly. +In the event that any of our third-party licensors determines that, in spite of our efforts, we have materially breached a license agreement or have failed to meet certain obligations thereunder, it may elect to terminate the license agreement or, in some cases, one or more license(s) under the applicable license agreement and such termination would result in us no longer having the ability to develop and commercialize product candidates and technology covered by that license agreement or license. In the event of such termination of a third-party in-license, or if the underlying patent rights under a third-party in-license fail to provide the intended exclusivity, third parties may be able to seek regulatory approval of, and to market, products identical to ours. Moreover, our licensors may own or control intellectual property that has not been licensed to us and, as a result, we may be subject to claims, regardless of their merit, that we are infringing or otherwise violating the licensor’s rights. Any of these events could have a material adverse effect on our competitive position, business, financial conditions, results of operations and prospects. +Pursuant to our license agreements with Beam Therapeutics and Broad Institute, we are generally responsible for bringing any actions against any third party for infringing on certain of the patent rights we have licensed from such counterparty, subject to certain conditions. Certain provisions of each license agreement with Broad Institute also require us to meet development thresholds within specified timeframes to maintain the license, including establishing a set timeline for developing and commercializing products, while some provisions of the Beam Collaboration Agreement require us to use commercially reasonable efforts to conduct development activities for collaboration products. In spite of our efforts, Broad Institute, Beam Therapeutics, or any future licensor from whom we may seek to license intellectual property rights might conclude that we have materially breached our obligations under such license agreements and might therefore terminate the license agreements, thereby removing or limiting our ability to develop and commercialize products and technology covered by these license agreements. If these licenses agreements are terminated, or if the underlying patent rights fail to provide the intended exclusivity, competitors or other third parties may be able to seek regulatory approval of, and to market, products identical to ours and we may be required to cease our development and commercialization of our Prime Editing technology or product candidates. Any of the foregoing could have a material adverse effect on our competitive position, business, financial condition, results of operations and growth prospects. Disputes may arise regarding intellectual property subject to a licensing agreement, including: +• the scope of rights granted under the license agreement and other interpretation-related issues; +• the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement; +• the sublicensing of patent rights to third parties under our collaborative development relationships; +• our diligence obligations under the license agreement with respect to the use of the licensed technology in relation to our development and commercialization of our product candidates and what activities satisfy those diligence obligations; +75 +• the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensor and us and our partners; and +• the priority of invention of patented technology. +In addition, the agreements under which we currently license intellectual property rights from Beam Therapeutics and Broad Institute are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise under our existing license agreements or future license agreements into which we may enter could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology or broaden what we believe to be the scope of the licensor’s rights to our intellectual property and technology, or increase what we believe to be our financial or other obligations under the relevant agreement, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects. For example, we have exclusively licensed and sublicensed certain of our owned and licensed intellectual property rights to Beam Therapeutics under the Beam Collaboration Agreement in certain fields. Such agreement may be susceptible to multiple interpretations and the resolution of any contract interpretation disagreement could expand the field of exclusivity or other rights we have granted to Beam Therapeutics and therefore, narrow our field of exclusivity or rights with respect to such licensed intellectual property rights. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates. As a result, any termination of or disputes over our intellectual property licenses could result in the loss of our ability to develop and commercialize our Prime Editing technology or other product candidates or we could lose other significant rights, any of which could have a material adverse effect on our business, financial conditions, results of operations and prospects. It is also possible that a third party could be granted limited licenses to some of the same technology, in certain circumstances. +Our in-licensed issued patents and owned and in-licensed patent applications may not provide sufficient protection of our Prime Editing technologies and our future product candidates or result in any competitive advantage. +We have in-licensed five issued U.S. patents, six granted ex-U.S. patents, and own and have in-licensed a number of patent applications that cover Prime Editing methods and its components and systems. We and our licensors have filed patent applications intended to specifically cover our Prime Editing technology and uses with respect to treatment of particular diseases and conditions. While we in-license five issued U.S. patents, we do not currently own any, or in-license any other, issued U.S. patents. +We have five in-licensed issued U.S. patents and six granted ex-U.S. patents, all of which cover Prime Editing methods and its components and systems. Our owned and in-licensed patent applications contain claims directed to compositions of matter for our Prime Editing product candidates, as well as methods directed to the use of such product candidates for gene therapy treatment. Method-of-use patents do not prevent a competitor or other third party from developing or marketing an identical product for an indication that is outside the scope of the patented method. Moreover, with respect to method-of-use patents, even if competitors or other third parties do not actively promote their product for our targeted indications or uses for which we may obtain patents, providers may recommend that patients use these products off-label, or patients may do so themselves. +The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. The issuance of a patent is not conclusive as to its inventorship, scope, validity, or enforceability, and our or our licensors’ current and future patents may be challenged in the courts or patent offices in the United States and abroad. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our product candidates or uses thereof in the United States or in other foreign countries. For example, while our or our licensors’ patent applications are pending, such patent applications may now or in the future be subject to a third-party pre-issuance submission of prior art to the U.S. Patent and Trademark Office, or USPTO, or become involved in interference or derivation proceedings or equivalent proceedings in foreign jurisdictions. For example, prior art was submitted by one or more third parties with respect to certain of our Patent Cooperation Treaty, or PCT, patent applications as well as in patent applications filed in the European Patent Office in-licensed from Broad Institute directed to Prime Editing. Third parties may challenge the inventorship, priority of invention, validity, enforceability or scope of our in-licensed patents and our or our licensors’ patent applications +76 +that successfully issue, including through opposition, revocation, reexamination, post-grant and inter partes review proceedings and litigation. Moreover, we, or one of our licensors, may have to participate in interference proceedings declared by the USPTO to determine priority of invention or in post grant challenge proceedings, such as oppositions in a foreign patent office, that challenge priority of invention or other features of patentability. An adverse determination in any such submission, proceeding or litigation may result in loss of patent rights, loss of exclusivity, or in patent claims being narrowed, invalidated, or held unenforceable, which could limit our ability to stop others from using or commercializing similar or identical technology and products, allow third parties to commercialize our technology or product candidates and compete directly with us, without payment to us, limit the duration of the patent protection of our technology and product candidates, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. Furthermore, even if they are unchallenged, our patent rights may not adequately protect our intellectual property or prevent others from designing around our platform technology or product candidates. If the breadth or strength of protection provided by our in-licensed patents or patents that may issue from the patent applications we own or in-license with respect to our Prime Editing technology and product candidates is threatened, it could dissuade companies from collaborating with us to develop, and threaten our ability to commercialize, our product candidates. Further, if we encounter delays in development, testing and regulatory review of new product candidates, the period of time during which we could market our product candidates under patent protection would be reduced. +Given that patent applications in the United States and other countries are confidential for a period of time after filing, at any moment in time, we cannot be certain that we or our licensors were in the past or will be in the future the first to file any patent application related to our Prime Editing technology or product candidates. In addition, some patent applications in the United States may be maintained in secrecy until the patents are issued. As a result, there may be prior art of which we or our licensors are not aware that may affect the validity or enforceability of a patent claim, and we or our licensors may be subject to priority disputes. For our in-licensed patent portfolios, we rely on our licensors to determine inventorship and to obtain and file inventor assignments of priority applications before their conversion as PCT applications. A failure to do so in a timely fashion may give rise to a challenge to entitlement of priority for foreign applications nationalized from such PCT applications. We or our licensors may in the future become a party to proceedings or priority disputes in Europe or other foreign jurisdictions. The loss of priority for, or the loss of, any European or other foreign patent rights could have a material adverse effect on the conduct of our business. +We may be required to disclaim part or all of the term of certain patents that may issue from our owned or in-licensed patent applications. There may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim. There also may be prior art of which we or our licensors are aware, but which we or our licensors do not believe affects the validity or enforceability of a claim, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim. No assurance can be given that, if challenged, our in-licensed patents and patent applications, if issued, would be declared by a court, patent office or other governmental authority to be valid or enforceable, or that even if the patent claims were found to be not invalid or unenforceable, a third party’s technology or product would be found by a court to infringe our patent rights. Moreover, even if our in-licensed patents and patent applications, if issued, are declared to be valid and enforceable and a third party’s technology or product found to infringe our patent rights, a court or other governmental authority may refuse to prevent a third party’s technology or product from being marketed, and the court or governmental authority would determine the royalty rate to be paid by the third party to us. We analyze patents or patent applications of third parties that we believe are relevant to our activities, but third parties may achieve issued claims, including in patents we consider to be unrelated, that block our efforts or potentially result in our product candidates or our activities infringing such claims. It is possible that third parties may have filed, and may in the future file, patent applications covering our products or gene editing technology similar to ours. Those patent applications may have priority over our in-licensed patents and owned and in-licensed patent applications, which could require us to obtain rights to issued patents covering such technologies. The possibility also exists that others will develop products that have the same effect as our product candidates on an independent basis that do not infringe our in-licensed patents or patents that may issue from our own or in-licensed patent applications, or other intellectual property rights, or will design around the claims of our in-licensed patents or our patents that may issue from our owned or in-licensed patent applications that cover our product candidates. +77 +Likewise, our in-licensed issued patents and currently owned and in-licensed patent applications, if issued as patents, directed to our in-licensed and company-owned Prime Editing technologies and our product candidates are expected to expire between 2040 and 2045, without taking into account any possible patent term adjustments or extensions. Our in-licensed issued patents, or owned or in-licensed patent applications, if issued as patents, may expire before, or soon after, our first product candidate achieves marketing approval in the United States or foreign jurisdictions. Additionally, no assurance can be given that the USPTO or relevant foreign patent offices will grant any of the pending patent applications we own or in-license currently or in the future. Upon the expiration of such patents that may issue from our current owned or in-licensed patent applications, we may lose the right to exclude others from practicing these inventions. The expiration of these patent rights could also have a similar material adverse effect on our business, financial condition, results of operations and prospects. +Our in-licensed issued patents and owned and in-licensed patent applications and other intellectual property may be subject to priority, inventorship or ownership disputes and similar proceedings. If we or our licensors are unsuccessful in any of these proceedings, we may be required to obtain licenses from third parties, which may not be available on commercially reasonable terms or at all, or to cease the development, manufacture and commercialization of one or more of our product candidates, which could have a material adverse impact on our business. +We or our licensors may be subject to claims that former employees, collaborators, or other third parties have an interest in our in-licensed issued patents or owned or in-licensed patent applications or other intellectual property as an inventor or co-inventor. If we or our licensors are unsuccessful in any interference proceedings or other priority, validity (including any patent oppositions), inventorship or ownership disputes to which we or they are subject, we may lose valuable intellectual property rights through the loss of part or all of our owned or licensed patent rights, the loss of exclusive ownership of or the exclusive right to use our owned or in-licensed patent rights, or the narrowing, invalidation, or unenforceability of our or our licensors’ patent claims. In the event of loss of patent rights as a result of any of these disputes, we may be required to obtain and maintain licenses from third parties, including parties involved in any such interference proceeding or other priority, inventorship or ownership disputes. Such licenses may not be available on commercially reasonable terms or at all, or may be non-exclusive. If we are unable to obtain and maintain such licenses, we may need to cease the development, manufacture and commercialization of one or more of our product candidates. The loss of exclusivity or the narrowing of our patent rights could limit our ability to stop others from using or commercializing similar or identical technology and product candidates. Even if we or our licensors are successful in an inventorship or ownership dispute, it could result in substantial costs and be a distraction to management and other employees. Any of the foregoing could result in a material adverse effect on our business, financial condition, results of operations, or prospects. +We have limited foreign intellectual property rights and may not be able to protect our intellectual property and proprietary rights throughout the world. +We currently have in-licensed one ex-U.S. granted patent that covers Prime Editing components and methods of use. Although we own and have in-licensed numerous ex-U.S. patent applications, we have limited intellectual property rights outside the United States. Filing, prosecuting and defending patents on our Prime Editing technologies and product candidates in all countries throughout the world would be prohibitively expensive and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. The laws of foreign countries do not protect intellectual property rights to the same extent as federal and state laws of the United States, even in jurisdictions where we or our licensors do pursue patent protection. In addition, our intellectual property license agreements may not always include worldwide rights. Consequently, we or our licensors may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Third parties may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection but where enforcement is not as strong as that in the United States. These products may compete with our product candidates and patents that may issue from our or our licensors’ pending patent applications or other intellectual property rights may not be effective or sufficient to prevent them from competing. +78 +Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology and pharmaceutical products, which could make it difficult for us to stop the infringement of our future patents or marketing of competing products by third parties in violation of our intellectual property and proprietary rights generally. Proceedings to enforce our future patents or our licensors’ patent or future patents and intellectual property rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our future patents or our licensors’ patent or future patents at risk of being invalidated or interpreted narrowly and our or our licensors’ patent applications at risk of not issuing and could provoke third parties to assert claims against us or our licensors. We may not prevail in any lawsuits that we or our licensors initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Moreover, the initiation of proceedings by third parties to challenge the scope or validity of our or our licensors’ patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business. Accordingly, our or our licensors’ efforts to enforce our or our licensors’ intellectual property and proprietary rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license. +Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we or our licensors are forced to grant one or more licenses to third parties with respect to any patent or future patents relevant to our business, our competitive position may be impaired, and our business, financial condition, results of operations and prospects may be adversely affected. +We may not be successful in acquiring or in-licensing necessary rights to key technologies or any product candidates we may develop. +We currently have rights to intellectual property, through licenses from third parties, to identify and develop product candidates, and we expect to seek to expand our product candidate pipeline in part by in-licensing additional rights to key technologies. The future growth of our business will depend in part on our ability to in-license or otherwise acquire the rights to additional product candidates and technologies. Although we have succeeded in licensing technologies from Beam Therapeutics and Broad Institute in the past, we cannot guarantee that we will be able to in-license or acquire additional rights to any product candidates or technologies from Beam Therapeutics, Broad Institute, or other third parties on acceptable terms or at all. For example, Broad Institute is developing improvements to the Prime Editing technology for which we may find it necessary or useful to obtain a license. In addition, our agreements with Beam Therapeutics and Broad Institute provide that our fields of use exclude particular fields. If we determine that rights to such fields are necessary to commercialize our technology or product candidates or maintain our competitive advantage, we may need to obtain a license from Beam Therapeutics or Broad Institute in order to continue developing, manufacturing or marketing our technology or product candidates. In addition, we may seek to obtain additional licenses from our licensors and, in connection with obtaining such licenses, we may agree to amend our existing licenses in a manner that may be more favorable to the licensors, including by agreeing to terms that could enable third parties (potentially including our competitors) to receive licenses to a portion of the intellectual property that is subject to our existing licenses. Additionally, upon our finalization of our product candidates, we may determine that there are third parties who possess technologies related to gene editing or other technologies which we may need to in-license, including intellectual property covering the use of Cas domains and RTs. We may not be able to obtain such a license on an exclusive basis, on commercially reasonable terms, or at all, which could prevent us from commercializing our product candidates or allow our competitors or other third parties the chance to access technology that is important to our business. +Furthermore, there has been extensive patenting activity in the field of gene editing. Pharmaceutical companies, biotechnology companies and academic institutions are competing with us or are expected to compete with us in the in the field of gene editing technology and filing patent applications potentially relevant to our business and we are aware of certain third-party patent applications that, if issued, may allow the third party to circumvent our patent rights. For example, we are aware of several third-party patents and patent applications that may be construed to cover or be relevant to our Prime Editing and PASSIGE technologies and product candidates. In order to market our +79 +product candidates, we may find it necessary or prudent to obtain licenses from such third-party intellectual property holders. However, we may be unable to secure such licenses or otherwise acquire or in-license any compositions, methods of use, processes, or other intellectual property rights from third parties that we identify as necessary for product candidates we may develop and our Prime Editing technology. We may also require licenses from third parties for certain additional technologies, including technologies relating to Prime Editing, such as guide RNA modification, target sequences, Cas domains such as Cas9, reverse transcriptases such as Moloney murine leukemia virus reverse transcriptase, as well as delivery technologies for product candidates we may develop. For our PASSIGE technology, we may require additional licenses from third parties for recombinase technologies. +Additionally, we may collaborate with academic institutions to accelerate our research or development under written agreements with these institutions. In certain cases, these institutions may provide us with an option to negotiate a license to any of the institution’s rights in technology resulting from the collaboration. Even if we hold such an option, we may be unable to negotiate a license from the institution within the specified timeframe or under terms that are acceptable to us. If we are unable to do so, such institution may offer the intellectual property rights to others, potentially blocking our ability to pursue our program. +The licensing or acquisition of third-party intellectual property rights is a highly competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, capital resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment or at all. If we are unable to successfully obtain rights to required third party intellectual property rights or maintain the existing intellectual property rights we have, we may have to abandon development of the relevant program or product candidate, which could have a material adverse effect on our business, financial condition, results of operations and prospects. +The intellectual property landscape around the technologies we use or plan to use, including gene editing technology, is highly dynamic, and third parties may initiate legal proceedings alleging that we are infringing, misappropriating, or otherwise violating their intellectual property rights, the outcome of which would be uncertain and may prevent, delay or otherwise interfere with our product discovery and development efforts. +The field of gene editing is still relatively new, and only one therapeutic gene editing product has reached the market. Due to the intense research and development that is taking place by several companies, including by us and our competitors, in this field, the intellectual property landscape is evolving and in flux, and it may remain uncertain for the coming years. There may be significant intellectual property related litigation and administrative proceedings relating to our owned and in-licensed, and other third-party, intellectual property and proprietary rights in the future. +Our commercial success depends upon our ability and the ability of our collaborators and present and future licensees to develop, manufacture, market and sell any product candidates that we may develop and use our proprietary technologies without infringing, misappropriating, or otherwise violating the intellectual property and proprietary rights of third parties. The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual property rights as well as administrative proceedings for challenging patents, including interference, derivation, inter partes review, post grant review and reexamination proceedings before the USPTO or oppositions and other comparable proceedings in foreign jurisdictions. We may be subject to and may in the future become party to, or threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our Prime Editing and PASSIGE technologies and product candidates we may develop, including interference proceedings, post-grant review, inter partes review, derivation proceedings and reexamination proceedings before the USPTO and similar proceedings in foreign jurisdictions such as oppositions before the European Patent Office, or EPO. Numerous U.S. and foreign issued patents and pending patent applications that are owned by third parties exist in the fields in which we are developing our product candidates and they may assert infringement claims against us based on existing patents or patents that may be granted in the future, regardless of their merit. +As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our Prime Editing technology and product candidates may give rise to claims of infringement of the patent rights of +80 +others. Moreover, it is not always clear to industry participants, including us, which patents cover various types of therapies, products or their methods of use or manufacture. There may be third-party patents of which we are currently unaware with claims to technologies, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that our product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. +Numerous third-party U.S. and foreign issued patents and pending patent applications exist in the fields in which we are developing product candidates. Our product candidates make use of CRISPR-based technology, which is a field that is highly active for patent filings. As of March 2022, it was reported that over 11,000 patent families worldwide related to CRISPR gene editing inventions and their uses. The extensive patent filings related to CRISPR make it difficult for us to assess the full extent of relevant patents and pending applications that may cover our Prime Editing technology and product candidates and their use or manufacture. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our Prime Editing platform technology and product candidates. We are aware of multiple patents and patent applications directed to CRISPR technologies, Cas domains, including Cas9, and their uses in gene editing. For example, we are aware of a patent portfolio that is co-owned by the University of California, University of Vienna and Emmanuelle Charpentier, which we refer to together as CVC, which contains multiple patents and pending applications directed to gene editing. We are also aware of patents and patent applications directed to gene editing, including ones that may be relevant to our Prime Editing and PASSIGE technologies, owned or co-owned by Broad Institute, MIT, Rockefeller University, Harvard, Toolgen Inc. and Sigma-Aldrich. Additional patents and patent applications that we are aware of and directed to gene editing, including ones that may be relevant to our Prime Editing and PASSIGE technologies, are owned or co-owned by The General Hospital Corporation, BASF, SNIPR Technologies Ltd., Novartis, Columbia University, Agilent Technologies, Thermo Fisher Scientific, University of California, Intellia Therapeutics, Editas Medicine, Flagship Pioneering Innovations, Caribou Biosciences, Pairwise Plants Services, University of Washington, University of California, Stanford University, Cellectis, and Inscripta. +Our ability to commercialize our product candidates may be adversely affected if we require but cannot obtain a license to these patents. We may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be nonexclusive, thereby giving our competitors and other third parties access to the same technologies licensed to us, and it could require us to make substantial licensing and royalty payments. If we are unable to obtain a necessary license to a third-party patent on commercially reasonable terms, we may be unable to commercialize our Prime Editing technology or product candidates or such commercialization efforts may be significantly delayed, which could in turn significantly harm our business. +Several patents and pending applications with claims directed to foundational aspects of CRISPR-Cas9 gene editing are currently involved in interference proceedings at the USPTO. The Patent Trial and Appeal Board, or PTAB, of the USPTO declared a second interference between 14 pending applications co-owned by the CVC and 13 patents and one pending application co-owned by Broad Institute, MIT, Rockefeller University and Harvard, which we refer to as the Boston Licensing Parties, in 2019 after the first interference between the two parties was terminated in 2018. In February 2022, the PTAB issued a decision in the second interference, granting priority to the patents and pending application co-owned by the Boston Licensing Parties over the pending applications co-owned by the CVC. In September 2022, the CVC appealed the PTAB’s decision, at the U.S. Court of Appeals for the Federal Circuit and the appeal is ongoing. While the second interference was in progress, Toolgen joined the patent dispute and two more interferences were declared in December 2020, between a pending application owned by Toolgen and several pending applications co-owned by the CVC or patents and pending applications co-owned by the Boston Licensing Parties. In June 2021, two additional interferences were declared between patents and applications co-owned by the Boston Licensing Parties or pending applications co-owned by the CVC and pending applications owned by Sigma-Aldrich. The PTAB subsequently suspended the interferences involving Toolgen and Sigma-Aldrich until the Federal Circuit issues a decision in the appeal between the CVC and the Boston Licensing Parties over the PTAB’s decision in the second interference. It is presently unclear who will prevail in these proceedings and own or partially own the patents subject to such interferences. If it is necessary for us to obtain a license to one or more of the patents currently involved in such interference proceedings, such patents may not be available to license on commercially +81 +reasonable terms or at all. For example, we are aware that the Boston Licensing Parties and CVC have previously licensed certain of such patents to third parties. Our ability to commercialize our product candidates in the United States and abroad may be adversely affected if we cannot obtain a license on commercially reasonable terms to relevant third-party patents that cover our product candidates or Prime Editing technology. +Because of the large number of patents issued and patent applications filed in our field, third parties may allege they have patent rights encompassing our product candidates, technologies or methods. Third parties may assert that we are employing their proprietary technology without authorization and may file patent infringement claims or lawsuits against us, and if we are found to infringe such third-party patents, we may be required to pay damages, cease commercialization of the infringing technology, or obtain a license from such third parties, which may not be available on commercially reasonable terms or at all. In addition, we have in the past, and may in the future, receive an offer for license from third parties regarding their proprietary intellectual property for which they may believe encompass our product candidates and technologies. We will evaluate such offers for relevance to our business. +Even if we believe third-party claims that we or our technology or product candidates are infringing, misappropriating or otherwise violating such third party's intellectual property are without merit, there is no assurance that a court would find in our favor on questions of infringement, validity, enforceability, or priority. A court of competent jurisdiction could hold that these third-party patents are valid, enforceable and infringed, which could materially and adversely affect our ability to commercialize our product candidates and any other product candidates or technologies covered by the asserted third-party patents. In order to successfully challenge the validity of any such U.S. patent in federal court, we would need to overcome a presumption of validity. As this burden is a high one requiring us to present clear and convincing evidence as to the invalidity of any such U.S. patent claim, there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent. Further, even if we were successful in defending against any such claims, such claims could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business. If we are found to infringe a third party’s intellectual property rights, and we are unsuccessful in demonstrating that such patents are invalid or unenforceable, we could be forced, including by court order, to cease developing, manufacturing and commercializing the infringing technology or product candidates. In addition, we could be found liable for significant monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent or other intellectual property right. We also could be required to obtain a license from such third party to continue developing, manufacturing and marketing product candidates we may develop and our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors and other third parties access to the same technologies licensed to us, and it could require us to make substantial licensing and royalty payments. If we are unable to obtain a necessary license to a third-party patent on commercially reasonable terms, we may be unable to commercialize our Prime Editing technology or product candidates or such commercialization efforts may be significantly delayed, which could in turn significantly harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar material adverse effect on our business, financial condition, results of operations and prospects. +In addition, our agreements with certain suppliers and other third parties with whom we do business require us to defend or indemnify such parties to the extent they become involved in patent infringement claims. We could also voluntarily agree to defend or indemnify third parties in instances where we are not obligated to do so if we determine it would be important to our business relationships. If we are required or agree to defend or indemnify third parties in connection with any infringement claims, we could incur significant costs and expenses that could adversely affect our business, operating results or financial condition. +Defense of third-party claims of infringement of misappropriation, or violation of intellectual property rights involves substantial litigation expense and would be a substantial diversion of management and employee time and resources from our business. Some third parties may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations or could otherwise have a material adverse effect on our business, financial condition, results of operations and prospects. There could also be public announcements of the results of hearings, motions, or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Any of the +82 +foregoing events could have a material adverse effect on our business, financial condition, results of operations and prospects. +We may become involved in lawsuits to protect or enforce our future patents, or the issued patents or future patents of our licensors, which could be expensive, time consuming and unsuccessful and could result in a finding that such patents are unenforceable or invalid. +Competitors and other third parties may infringe, misappropriate or otherwise violate our future patents or the issued or future patents of our licensors, or we may be required to defend against claims of infringement, misappropriation or other violation. In addition, our future patents, or the issued or future patents of our licensors also may become involved in inventorship, priority, validity or enforceability disputes. Countering or defending against such claims can be expensive and time consuming. In an infringement proceeding, a court may decide that a patent owned or in-licensed by us is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our future owned patents and in-licensed patents and future patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our future owned patents or in-licensed patents or future patents at risk of being invalidated or interpreted narrowly. +In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace, and there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. These types of mechanisms include re-examination, post-grant review, inter partes review, interference proceedings, derivation proceedings and equivalent proceedings in foreign jurisdictions ( e.g. , opposition proceedings). These types of proceedings could result in revocation or amendment to our in-licensed patents or future patents such that they no longer cover our product candidates. The outcome for any particular patent following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we, our licensor, our patent counsel and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, or if we are otherwise unable to adequately protect our rights, we would lose at least part, and perhaps all, of the patent protection on our technology and/or product candidates. Defense of these types of claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. +Conversely, we may choose to challenge the patentability of claims in a third party’s U.S. patent by requesting that the USPTO review the patent claims in re-examination, post-grant review, inter partes review, interference proceedings, derivation proceedings and equivalent proceedings in foreign jurisdictions ( e.g. , opposition proceedings). We may choose to challenge third-party patents in patent opposition proceedings in the EPO or another foreign patent office. Even if successful, the costs of these opposition proceedings could be substantial and may consume our time or other resources. If we fail to obtain a favorable result at the USPTO, EPO or other patent office then we may be exposed to litigation by a third party alleging that their patent may be infringed by our product candidates, Prime Editing technology or other proprietary technologies. +Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our personnel from their normal responsibilities. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions, or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing, or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Certain third parties, including our competitors, may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature +83 +and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. +Even if we established infringement of any of our future patents or issued or future in-licensed patents by a competitive product, a court may decide not to grant an injunction against further infringing activity, thus allowing the infringing product to continue to be marketed by the competitor. It is difficult to obtain an injunction in U.S. patent litigation and a court could decide that the competitor should instead pay us a “reasonable royalty” as determined by the court, and/or other monetary damages. A reasonable royalty or other monetary damages may or may not be an adequate remedy. Loss of exclusivity and/or competition from a competitive product would have a material adverse impact on our business. +Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by government patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. +Periodic maintenance fees, renewal fees, annuity fees and various other government fees on patents and applications are due to be paid to the USPTO and foreign patent agencies outside of the United States over the lifetime of our in-licensed patents, owned or licensed patent applications and patents that may issue from such applications. In certain circumstances, we rely on our licensors to pay these fees due to U.S. and non-U.S. patent agencies. The USPTO and foreign patent agencies require compliance with several procedural, documentary, fee payment and other similar provisions during the patent application process. We are also dependent on our licensors to take the necessary action to comply with these requirements with respect to our licensed intellectual property. While an inadvertent lapse or non-compliance with such requirements can sometimes be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which non-compliance can result a partial or complete loss of patent rights in the relevant jurisdiction. Were a noncompliance event to occur, third parties might be able to enter the market with similar or identical products or technology, which could have a material adverse effect on our business, financial condition, results of operations and prospects. +Changes in patent law in the United States and in non-U.S. jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect our Prime Editing platform technology and product candidates. +As is the case with other biotech and pharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involve both technological and legal complexity, and is therefore costly, time-consuming and inherently uncertain. Changes in either the patent laws or interpretation of the patent laws could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of our issued in-licensed patents and future issued patents. +The U.S. Congress is responsible for passing laws establishing patentability standards. Interpretation of patent standards can change significantly over time. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the validity and enforceability of patents, once obtained. Depending on future actions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could weaken our ability to obtain new patents or to enforce patents that we or our licensors have obtained or might obtain in the future. +For example, in the case Assoc. for Molecular Pathology v. Myriad Genetics, Inc., the U.S. Supreme Court held that certain claims to DNA molecules are not patentable. The application of Myriad to biotechnology inventions has continued to develop and may continue to change over time. +In addition, the U.S. Supreme Court recently decided the case Amgen Inc. v. Sanofi , which pertained to patent claims that defined a class of antibodies solely by their binding to a particular antigen. The U.S. Supreme Court determined that Amgen’s claims broadly covered an entire class of antibodies while the patent specification described only a few antibodies and a trial and error approach to make and use all of the claimed antibodies. The U.S. Supreme Court held that the patent claims were invalid because Amgen’s patent specification did not enable the claims over their broad scope. Certain claims in our patent portfolio relate to broad classes of gene editors. To the extent that a court +84 +finds that our patent specifications do not enable such broad classes of gene editors, a court could find such claims invalid. +Similarly, foreign courts have made, and will likely continue to make, changes in how the patent laws in their respective jurisdictions are interpreted. We cannot predict future changes in the interpretation of patent laws or changes to patent laws that might be enacted into law by foreign legislative bodies. Any similar adverse changes in the patent laws of other jurisdictions could also have a material adverse effect on our business, financial condition, results of operations and prospects. +For example, a new court system relating solely to patent cases recently became operational in the EU. The Unified Patent Court, or the UPC, began accepting patent cases on June 1, 2023. The UPC is a common patent court with jurisdiction over patent infringement and revocation proceedings effective for multiple member states of the EU. The broad geographic reach of the UPC could enable third parties to seek revocation of any of our European patents that are subject to the jurisdiction of the UPC in a single proceeding at the UPC. Under the UPC, a successful revocation proceeding for a European Patent under the UPC could result in the partial or complete loss of patent protection in numerous EU countries. Such a loss of patent protection could have a material adverse impact on our business, including our ability to commercialize our technology and product candidates. Moreover, the controlling laws and regulations of the UPC will develop over time and we cannot predict what the outcomes of cases tried before the UPC will be. The case law of the UPC may adversely affect our ability to enforce or defend the validity of our European patents. Patent owners have the option to opt-out their European Patents from the jurisdiction of the UPC, defaulting to pre-UPC enforcement mechanisms. We have decided to opt out all of our European patents and patent applications from the UPC at this time. However, if certain formalities and requirements are not met, our European patents and patent applications could be subject to the jurisdiction of the UPC. Further, our future European patents and patent applications may not be subject to the opt-out provisions. +Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time. +Patents have a limited lifespan. The terms of individual patents depend upon the legal term for patents in the countries in which they are granted. In most countries, including the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest non-provisional filing date in the applicable country. However, the actual protection afforded by a patent varies from country to country and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the patent. Various extensions including patent term extensions, or PTEs, and patent term adjustments, or PTAs, may be available, but the life of a patent and the protection it affords is limited. Even if patents covering our product candidates are obtained, once the patent life has expired, we may be open to competition from competitive products, including generics or biosimilars. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting our product candidates might expire before or shortly after we or our partners commercialize those candidates. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. +If we do not obtain PTE for any product candidates we may develop, our business may be materially harmed. +Depending upon the timing, duration and specifics of any FDA marketing approval of product candidates we may develop, one or more of our U.S. patents may be eligible for limited PTE under the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Amendments. The Hatch-Waxman Amendments provides a PTE term of up to five years as compensation for patent term lost during the FDA regulatory review process. A PTE cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent per product may be extended and only those claims covering the approved product, a method for using it, or a method for manufacturing it may be extended. However, even if we were to seek a PTE, it may not be granted because of, for example, the failure to exercise due diligence during the testing phase or regulatory review process, the failure or inability to apply within applicable deadlines, the failure to apply prior to expiration of relevant patents, or any other failure to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. In addition, to the extent we wish to pursue a PTE based on a patent that we in-license from a third party, we would need the cooperation of that third +85 +party, which may not be available. If we are unable to obtain PTE or term of any such extension is less than we request, third parties may obtain approval of competing products following our patent expiration, and our business, financial condition, results of operations and prospects could be materially harmed. +If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed. +In addition to seeking patent protection for our technology and product candidates, we also rely on know-how and trade secret protection, as well as confidentiality agreements, non-disclosure agreements and invention assignment agreements with our employees, consultants and third-parties, to protect our confidential and proprietary information, especially where we do not believe patent protection is appropriate or obtainable. +It is our policy to require our employees, corporate collaborators, outside scientific collaborators, CROs, contract manufacturers, consultants, advisors and other third parties to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements generally provide that all confidential information concerning our business or financial affairs developed by or made known to the individual or entity during the course of the party’s relationship with us is to be kept confidential and not disclosed to third parties, except in certain specified circumstances. In the case of employees, the agreements generally provide that all inventions conceived by the individual, and that are related to our current or planned business or research and development or made during normal working hours, on our premises or using our equipment or proprietary information, are our exclusive property. In the case of consultants and other third parties, the agreements generally provide that all inventions conceived in connection with the services provided are our exclusive property. However, we cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or proprietary technology and processes or who were involved in the development of intellectual property. Additionally, the assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. We may not be able to prevent the unauthorized disclosure or use of our technical know-how or other trade secrets by the parties to these agreements. Monitoring unauthorized uses and disclosures is difficult and we do not know whether the steps we have taken to protect our proprietary technology will be effective. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. +In addition to contractual measures, we try to protect the confidential nature of our proprietary information through other appropriate precautions, such as physical and technological security measures. However, trade secrets and know-how can be difficult to protect and we do not have a formal trade secret policy at this time. These measures may not, for example, in the case of misappropriation of a trade secret by an employee or third party with authorized access, provide adequate protection for our proprietary information. Our security measures may not prevent an employee or consultant from misappropriating our trade secrets and providing them to a third party, and any recourse we might take against this type of misconduct may not provide an adequate remedy to protect our interests fully. In addition, trade secrets may be independently developed by others in a manner that could prevent us from receiving legal recourse. If any of our confidential or proprietary information, such as our trade secrets, were to be disclosed or misappropriated, or if any of that information was independently developed by a third party, our competitive position could be harmed. +In addition, some courts inside and outside the United States are sometimes less willing or unwilling to protect trade secrets. If we choose to go to court to stop a third party from using any of our trade secrets, we may incur substantial costs. Even if we are successful, these types of lawsuits may consume our time and other resources. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects. +86 +Third parties may assert that our employees, consultants, or advisors have wrongfully used or disclosed confidential information or misappropriated trade secrets. +As is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously employed at universities, research institutions, or other biotechnology and pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, and although we try to ensure that our employees, consultants, independent contractors or other third parties do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants, independent contractors or other third parties have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. This type of litigation or proceeding could substantially increase our operating losses and reduce our resources available for development activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Certain third parties, including our competitors, may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other intellectual property related proceedings could adversely affect our ability to compete in the marketplace. +If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected. +We do not currently own any registered trademarks. Our unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in our markets of interest. At times, competitors or other third parties may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely affect our business, financial condition, results of operations and growth prospects. +Intellectual property rights do not necessarily address all potential threats. +The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example: +• our product candidates, if approved, will eventually become commercially available in generic or biosimilar product forms; +• others may be able to make gene therapy products that are similar to our product candidates or utilize similar gene editing technology but that are not covered by the claims of the issued patents or patent applications that we own or license or the patents that we may own or license in the future; +• we, our licensors, or our current or future collaborators, might not have been the first to make the inventions covered by the issued patents or pending patent applications that we license or may own in the future; +87 +• we, our licensors, or our current or future collaborators, might not have been the first to file patent applications covering certain of our or their inventions; +• we, our licensors, or our current or future collaborators, may fail to meet our obligations to the U.S. government regarding any in-licensed patents or patent applications funded by U.S. government grants, leading to the loss or unenforceability of patent rights; +• others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our owned or licensed intellectual property rights; +• it is possible that our pending, owned or licensed patent applications or those that we may own in the future will not lead to issued patents; +• it is possible that there are prior public disclosures that could invalidate our owned or in-licensed patent rights, or parts of our owned or in-licensed patent rights; +• it is possible that there are unpublished patent applications or patent applications maintained in secrecy that may later issue with claims covering our product candidates or technology similar to ours; +• it is possible that our owned or in-licensed patents or patent applications omit individual(s) that should be listed as inventor(s) or include individual(s) that should not be listed as inventor(s), which may cause the patent or patents issuing from these patent applications to be held invalid or unenforceable; +• patents, if and when issued, that we obtain in the future may be held invalid, unenforceable, or narrowed in scope, including as a result of legal challenges by third parties, including our competitors; +• the claims of our owned or in-licensed patents, if and when issued, may not cover our product candidates; +• the laws of foreign countries may not protect our proprietary rights or the proprietary rights of license partners or current or future collaborators to the same extent as the laws of the United States; +• the inventors of our owned or in-licensed patent or patent applications may become involved with competitors, develop products or processes that design around our patent or patent applications, or become hostile to us or the patent, patent applications or patents that may issue from such patent applications on which they are named as inventors; +• third parties might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; +• we have engaged in scientific collaborations in the past and will continue to do so in the future and our collaborators may develop adjacent or competing products that are outside the scope of our patent or patent applications; +• we may not develop additional proprietary technologies that are patentable; +• any product candidates we develop may be covered by third-parties’ patents or other exclusive rights; +• the patents of others may harm our business; or +• we may choose not to file a patent in order to maintain certain trade secrets or know-how and a third party may subsequently file a patent covering such intellectual property. +Should any of these events occur, they could have a material adverse effect on our business, financial condition, results of operations and prospects. +Risks Related To Regulatory and Other Legal Compliance Matters +The FDA, the EMA and the National Institutes of Health, or NIH, have demonstrated caution in their regulation of gene therapy treatments, and ethical and legal concerns about gene therapy and genetic testing may result in +88 +additional regulations or restrictions on the development and commercialization of any product candidates we may develop, which may be difficult to predict. +The FDA, the EMA and the NIH have each expressed interest in further regulating biotechnology, including gene therapy and genetic testing. For example, the EMA advocates a risk-based approach to the development of a gene therapy product. Agencies at both the federal and state level in the United States, as well as the U.S. congressional committees and other governments or governing agencies, have also expressed interest in further regulating the biotechnology industry. Such action may delay or prevent commercialization of any product candidates we may develop. Additionally, gene therapies may be associated with undesirable or unacceptable side effects, unexpected characteristics or other serious adverse events, including death, off-target cuts of DNA, or the introduction of cuts in DNA at locations other than the target sequence. These off-target cuts could lead to disruption of a gene or a genetic regulatory sequence at an unintended site in the DNA, or, in those instances where we also provide a segment of DNA to serve as a repair template, it is possible that following off-target cut events, DNA from such repair template could be integrated into the genome at an unintended site, potentially disrupting another important gene or genomic element. There also is the potential risk of delayed adverse events following exposure to gene therapies due to persistent biologic activity of the genetic material or other components of products used to carry the genetic material. Due to concerns from regulatory agencies on the development of gene therapies and their potential for unknown long-term effects, participants in gene-therapy clinical trials may also require long-term follow-up for as long as 15 years. +Regulatory requirements in the United States and in other jurisdictions governing the development of gene therapy products have changed frequently and may continue to change in the future. Recently, the FDA issued several new guidance documents on gene therapy products, and in January 2024, the FDA finalized its guidance document providing recommendations for human genome editing gene therapy products. In addition to the government regulators, the IBC and IRB of each institution at which we will conduct clinical trials of our current or future product candidates, or a central IRB if appropriate, would need to review the proposed clinical trial to assess the safety of the trial. In addition, adverse developments in clinical trials of gene therapy product candidates conducted by others may cause the FDA or other oversight bodies to change the requirements for approval of any of our potential product candidates. Similarly, the EMA governs the development of gene therapies in the European Union and may issue new guidelines concerning the development and marketing authorization for gene therapy products and require that we comply with these new guidelines. These regulatory review agencies and committees and the new requirements or guidelines they promulgate may lengthen the regulatory review process, require us to perform additional studies or trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of any product candidates we may develop or lead to significant post-approval limitations or restrictions. As we advance our current and future product candidates, we will be required to consult with these regulatory agencies and committees and comply with applicable requirements and guidelines. If we fail to do so, we may be required to delay or discontinue development of such product candidates. These additional processes may result in a review and approval process that is longer than we otherwise would have expected. Delays as a result of an increased or lengthier regulatory approval process or further restrictions on the development of our current and future product candidates can be costly and could negatively impact our or our collaborators’ ability to complete clinical trials and commercialize our current and future product candidates in a timely manner, if at all. +Even if we, or any of our collaborators or strategic partners, obtain marketing approvals for any product candidates we may develop, the terms of approvals and ongoing regulation of such product candidates could require the substantial expenditure of resources and may limit how we, or they, manufacture and market such product candidates, which could materially impair our ability to generate revenue. +Any product candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for such product, will be subject to continual requirements of and review by the FDA, the EMA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, facility registration and drug listing requirements, cGMP requirements relating to quality control, quality assurance and corresponding maintenance of records and documents, applicable product tracking and tracing requirements and requirements regarding the distribution of samples to physicians and recordkeeping. In addition, our manufacturing and testing facilities will be +89 +required to undergo pre-license inspections and pre-approval inspections. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the products may be marketed or to the conditions of approval, or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the products. +Accordingly, assuming we, or any collaborators we may have, receive marketing approval for one or more product candidates we develop, we, and such collaborators, and our and their contract manufacturers will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance and quality control. If we and such collaborators are not able to comply with post-approval regulatory requirements, we and such collaborators could have the marketing approvals for our products withdrawn by regulatory authorities and our, or such collaborators’, ability to market any future products could be limited, which could adversely affect our ability to achieve or sustain profitability. Furthermore, the cost of compliance with post-approval regulations may have a negative effect on our business, operating results, financial condition and prospects. +Reductions in government operations may also delay necessary manufacturing facility inspections by regulators and adversely affect the supply of any product candidates we may develop. +Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, approved, or commercialized in a timely manner or at all, which could negatively impact our business. +Currently, federal agencies in the U.S. are operating under a continuing resolution that is set to expire on March 14, 2025. Without appropriation of additional funding to federal agencies, our business operations related to our product development activities for the U.S. market could be impacted. Inadequate funding for the FDA, the SEC and other government agencies, including from government shut downs, or other disruptions to these agencies’ operations, could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business. +The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory, and policy changes, the FDA’s ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the FDA’s ability to perform routine functions. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at the FDA and other agencies may also slow the time necessary for biologics or modifications to approved biologics to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. +If we fail to comply with healthcare laws, we could face substantial penalties and our business, operations and financial conditions could be adversely affected. +Healthcare providers, physicians and third-party payors in the United States and elsewhere play a primary role in the recommendation and prescription of pharmaceutical products. Arrangements with third-party payors and customers can expose pharmaceutical manufacturers to broadly applicable fraud and abuse and other healthcare laws and regulations, which may constrain the business or financial arrangements and relationships through which such companies sell, market and distribute pharmaceutical products. In particular, the promotion, sales and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry, are subject to extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of ownership, pricing, discounting, marketing and promotion, structuring and commission(s), certain customer incentive programs and other business arrangements generally. Activities subject to these laws also involve the improper use of information obtained in the course of patient recruitment for clinical trials. For more information, see “ Business – Other Healthcare Laws and Compliance Requirements – Other healthcare laws .” Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available, it is possible that some of our business activities, including +90 +compensation of physicians with stock or stock options, could, despite efforts to comply, be subject to challenge under one or more of such laws. Additionally, the FDA or foreign regulators may not agree that we have mitigated any risk of bias in our clinical trials due to payments or equity interests provided to investigators or institutions which could limit a regulator’s acceptance of those clinical trial data in support of a marketing application. Moreover, efforts to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs. It is possible that governmental and enforcement authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant civil, criminal and administrative penalties, damages, disgorgement, monetary fines, exclusion from participation in Medicare, Medicaid and other federal healthcare programs, integrity and oversight agreements to resolve allegations of non-compliance, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. In addition, the approval and commercialization of any of our product candidates outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws. +Healthcare and other reform legislation may increase the difficulty and cost for us and any collaborators we may have to obtain marketing approval of and commercialize any product candidates we may develop and affect the prices we, or they, may obtain. +In the United States and some foreign jurisdictions, there have been and continue to be ongoing efforts to implement legislative and regulatory changes regarding the healthcare system. Such changes could prevent or delay marketing approval of any product candidates that we may develop, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidates for which we obtain marketing approval. Although we cannot predict what healthcare or other reform efforts will be successful, such efforts may result in more rigorous coverage criteria, in additional downward pressure on the price that we, or our future collaborators, may receive for any approved products or in other consequences that may adversely affect our ability to achieve or maintain profitability. +Within the United States, the federal government and individual states have aggressively pursued healthcare reform, as evidenced by the passing of the Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the ACA, and the ongoing efforts to modify or repeal that legislation. The ACA substantially changed the way healthcare is financed by both governmental and private insurers and contains a number of provisions that affect coverage and reimbursement of drug products and/or that could potentially reduce the demand for pharmaceutical products such as increasing drug rebates under state Medicaid programs for brand name prescription drugs and extending those rebates to Medicaid managed care and assessing a fee on manufacturers and importers of brand name prescription drugs reimbursed under certain government programs, including Medicare and Medicaid. Other aspects of healthcare reform, such as expanded government enforcement authority and heightened standards that could increase compliance-related costs, could also affect our business. Modifications have been implemented under the former Trump administration and additional modifications or repeal may occur. For more information, see “Business – Other Healthcare Laws and Compliance Requirements – Healthcare Reform.” +The continuing efforts of the government, insurance companies, managed care organizations and other payers of healthcare services to contain or reduce costs of healthcare may adversely affect: +• the demand for any of our product candidates, if approved; +• the ability to set a price that we believe is fair for any of our product candidates, if approved; +• our ability to generate revenues and achieve or maintain profitability; +• the level of taxes that we are required to pay; and +• the availability of capital. +Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical and biologic products. We cannot be sure whether additional legislative +91 +changes will be enacted, or whether FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements. +Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for our product candidates. There has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. For example, the IRA, that was signed into law in August 2022, contains several provisions that are intended to limit prices of pharmaceutical and biologic products, including creating a $2,000 out-of-pocket cap for Medicare Part D beneficiaries, imposing new manufacturer financial liability on all drugs in Medicare Part D, and allowing the U.S. government to negotiate Medicare Part B and Part D pricing for certain high-cost pharmaceutical and biologic drugs without generic or biosimilar competition. +We expect that the healthcare reform measures that have been adopted and may be adopted in the future may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product and could seriously harm our future revenues. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our products. +The insurance coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for our product candidates could limit our product revenues. +Sales of our products will depend, in part, on the extent to which our products will be covered by third-party payors, such as government health programs, commercial insurance and managed healthcare organizations. In the United States, no uniform policy of coverage and reimbursement for drug or biological products exists. Accordingly, decisions regarding the extent of coverage and amount of reimbursement to be provided for any of our products will be made on a payor-by-payor basis. The process for determining whether a third-party payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors are increasingly challenging the prices charged, examining the medical necessity, and reviewing the cost-effectiveness of medical products and services and imposing controls to manage costs. Third-party payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the approved products for a particular indication. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained. For more information, see “ Business – Other Healthcare Laws and Compliance Requirements – Insurance and Coverage. ” +In the European Union, similar political, economic and regulatory developments may affect our ability to profitably commercialize our potential product candidates. In markets outside of the United States and the European Union, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies. In some countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of any product candidates we may develop to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially. +92 +While we intend to seek designations for our current and future product candidates with the FDA and comparable foreign regulatory authorities that are intended to confer benefits such as a faster development process or an accelerated regulatory pathway, there can be no assurance that we will successfully obtain such designations. In addition, even if one or more of our current or future product candidates are granted such designations, we may not be able to realize the intended benefits of such designations. +The FDA and comparable foreign regulatory authorities offer certain designations for product candidates that are designed to encourage the research and development of product candidates that are intended to address conditions with significant unmet medical need. These designations may confer benefits such as additional interaction with regulatory authorities, a potentially accelerated regulatory pathway and priority review. However, there can be no assurance that we will successfully obtain such designations for any product candidates. In addition, while such designations could expedite the development or approval process, they generally do not change the standards for approval. Even if we obtain such designations for one or more of our current or future product candidates, there can be no assurance that we will realize their intended benefits. For example, we may seek fast track designation for some of our current and future product candidates. If a therapy is intended for the treatment of a serious or life threatening condition and the therapy nonclinical or clinical data demonstrates the potential to address unmet medical needs for this condition, the therapy sponsor may apply for fast track designation. The FDA has broad discretion whether or not to grant this designation, so even if we believe a particular product candidate is eligible for this designation, there can be no assurance that the FDA would decide to grant it. Even if we do receive fast track designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures, and receiving a fast track designation does not provide assurance of ultimate FDA approval. In addition, the FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program. Additionally, we may seek a breakthrough therapy designation for some of our current or future product candidates. A breakthrough therapy is defined as a therapy that is intended, alone or in combination with one or more other therapies, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the therapy may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For therapies that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Therapies designated as breakthrough therapies by the FDA may also be eligible for accelerated approval. Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our current or future product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a breakthrough therapy designation for a product candidate may not result in a faster development process, review or approval compared to therapies considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our current or future product candidates qualify as breakthrough therapies, the FDA may later decide that such product candidates no longer meet the conditions for qualification. In addition, we may seek a regenerative medicine advanced therapy, or RMAT, designation for some of our current or future product candidates. An RMAT is defined as cell therapies, therapeutic tissue engineering products, human cell and tissue products and combination products using any such therapies or products. Gene therapies, including genetically modified cells that lead to a durable modification of cells or tissues may meet the definition of a regenerative medicine therapy. The RMAT program is intended to facilitate efficient development and expedite review of RMATs, which are intended to treat, modify, reverse or cure a serious or life-threatening disease or condition. A new drug application or a BLA for an RMAT may be eligible for priority review or accelerated approval through (1) surrogate or intermediate endpoints reasonably likely to predict long-term clinical benefit or (2) reliance upon data obtained from a meaningful number of sites. Benefits of such designation also include early interactions with FDA to discuss any potential surrogate or intermediate endpoint to be used to support accelerated approval. A regenerative medicine therapy that is granted accelerated approval and is subject to post-approval requirements may fulfill such requirements through the submission of clinical evidence, clinical trials, patient registries or other sources of real world evidence, such as electronic health records; the collection of larger confirmatory data sets; or post-approval monitoring of all patients treated with such therapy prior to its approval. RMAT designation is within the discretion of the FDA. Accordingly, even if we believe one of our current or future product candidates meets the criteria for designation as a regenerative medicine advanced therapy, the FDA may disagree and instead determine not to make such designation. In any +93 +event, the receipt of RMAT designation for a product candidate may not result in a faster development process, review or approval compared to drugs considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our current or future product candidates qualify as for RMAT designation, the FDA may later decide that the biological products no longer meet the conditions for qualification. +In the future, we may also seek approval of product candidates under the FDA’s accelerated approval pathway. A product may be eligible for accelerated approval if it is designed to treat a serious or life-threatening disease or condition and generally provides a meaningful advantage over available therapies upon a determination that the product candidate has an effect on a surrogate endpoint or intermediate clinical endpoint that is reasonably likely to predict clinical benefit or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, or IMM, that is reasonably likely to predict an effect on IMM or other clinical benefit. The FDA considers a clinical benefit to be a positive therapeutic effect that is clinically meaningful in the context of a given disease, such as IMM. For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. An intermediate clinical endpoint is a clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit. The accelerated approval pathway may be used in cases in which the advantage of a new drug over available therapy may not be a direct therapeutic advantage, but is a clinically important improvement from a patient and public health perspective. If granted, accelerated approval is usually contingent on the sponsor’s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe the drug’s clinical benefit. Under FDORA, the FDA is permitted to require, as appropriate, that a post-approval confirmatory study or studies be underway prior to approval or within a specified time period after the date of approval for a product granted accelerated approval. FDORA also requires sponsors to send updates to the FDA every 180 days on the status of such studies, including progress toward enrollment targets, and the FDA must promptly post this information publicly. FDORA also gives the FDA increased authority to withdraw approval of a drug or biologic granted accelerated approval on an expedited basis if the sponsor fails to conduct such studies in a timely manner, send the necessary updates to the FDA, or if such post-approval studies fail to verify the drug’s predicted clinical benefit. Under FDORA, the FDA is empowered to take action, such as issuing fines, against companies that fail to conduct with due diligence any post-approval confirmatory study or submit timely reports to the agency on their progress. In addition, for products being considered for accelerated approval, the FDA generally requires, unless otherwise informed by the Agency, that all advertising and promotional materials intended for dissemination or publication be submitted to the Agency for review. There can be no assurance that FDA would allow any of the product candidates we may develop to proceed on an accelerated approval pathway, and even if FDA did allow such pathway, there can be no assurance that such submission or application will be accepted or that any expedited development, review or approval will be granted on a timely basis, or at all. Moreover, even if we received accelerated approval, any post-approval studies required to confirm and verify clinical benefit may not show such benefit, which could lead to withdrawal of any approvals we have obtained. Receiving accelerated approval does not assure that the product’s accelerated approval will eventually be converted to a traditional approval. +If the FDA determines that a product candidate offers a treatment for a serious condition and, if approved, the product would provide a significant improvement in safety or effectiveness, the FDA may designate the product candidate for priority review. A priority review designation means that the goal for the FDA to review an application is six months, rather than the standard review period of ten months. We may request priority review for the product candidates that we may develop. The FDA has broad discretion with respect to whether or not to grant priority review status to a product candidate, so even if we believe a particular product candidate is eligible for such designation or status, the FDA may decide not to grant it. Moreover, a priority review designation does not necessarily result in an expedited regulatory review or approval process or necessarily confer any advantage with respect to approval compared to conventional FDA procedures. Receiving priority review from the FDA does not guarantee approval within the six-month review cycle or at all. +In addition, in the European Union, we may seek to participate in the PRIME scheme for our product candidates. The PRIME scheme is intended to encourage drug development in areas of unmet medical need and provides accelerated assessment of products representing substantial innovation, where the marketing authorization +94 +application will be made through the centralized procedure in the European Union. Eligible products must target conditions for which there is an unmet medical need (there is no satisfactory method of diagnosis, prevention or treatment in the European Union or, if there is, the new medicine will bring a major therapeutic advantage) and they must demonstrate the potential to address the unmet medical need by introducing new methods of therapy or improving existing ones. Many benefits accrue to sponsors of product candidates with PRIME designation, including but not limited to, early and proactive regulatory dialogue with the EMA, frequent discussions on clinical trial designs and other development program elements, and accelerated marketing authorization application assessment once a dossier has been submitted. There is no guarantee, however, that our product candidates would be deemed eligible for the PRIME scheme and even if we do participate in the PRIME scheme, where during the course of development a medicine no longer meets the eligibility criteria, support under the PRIME scheme may be withdrawn. +We may not be able to obtain orphan drug designation or exclusivity for our current or future product candidates, and even if we do, that designation may not provide an expedited development or regulatory review or approval process and any orphan drug exclusivity we may receive for approved products may not prevent the FDA or the European Commission from approving other competing products. +We received orphan drug designation from the FDA for PM359 for the treatment of CGD. We may also seek rare orphan disease designation for some of our other current or future product candidates. Under the Orphan Drug Act, the FDA may designate a product candidate as an orphan drug if it is a drug or biologic intended to treat a rare disease or condition. A similar regulatory scheme governs approval of orphan product candidates by the European Commission in the European Union. Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the FDA or the European Commission (as applicable) from approving another marketing authorizations application for another similar product candidate for the same orphan therapeutic indication for that time period. The applicable period is seven years in the United States and ten years in the European Union (which can be extended to 12 years if the sponsor complies with an agreed upon pediatric investigation plan). The exclusivity period in the European Union can be reduced to six years if at the end of the fifth year it is determined that a product no longer meets the criteria for orphan designation, including if the product is sufficiently profitable so that market exclusivity is no longer justified. +In order for the FDA to grant orphan drug exclusivity to one of our current or future product candidates, the agency must find that the product candidate is indicated for the treatment of a condition or disease that affects fewer than 200,000 individuals in the United States or that affects 200,000 or more individuals in the United States and for which there is no reasonable expectation that the cost of developing and making the product candidate available for the disease or condition will be recovered from sales of the product in the United States. The FDA may conclude that the condition or disease for which we seek orphan drug exclusivity does not meet this standard. Even if we obtain orphan drug exclusivity for a product candidate, that exclusivity may not effectively protect the product candidate from competition because different product candidates can be approved for the same condition. In addition, even after an orphan drug is approved, the FDA can subsequently approve the same product candidate for the same condition if the FDA concludes that the later product candidate is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care compared with the product that has orphan exclusivity. Orphan drug exclusivity may also be lost if the FDA or EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of the patients with the rare disease or condition. +The FDA may reevaluate the Orphan Drug Act and its regulations and policies. We do not know if, when, or how the FDA may change the orphan drug regulations and policies in the future, and it is uncertain how any changes might affect our business. In addition, the European Commission introduced a legislative proposal in April 2023 that, if implemented, could reduce the current 10-year marketing exclusivity period in the EU for certain orphan medicines. Depending on what changes the FDA and the European Commission may make to its orphan drug regulations and policies, our business could be adversely impacted. +95 +We may seek rare pediatric disease designation for certain of our current or future product candidates, but we might not receive such designation, and even if we do, we may not be able to realize the intended benefits of such designation. +We received rare pediatric disease designation from the FDA for PM359 for the treatment of CGD. We may also seek rare pediatric disease designation for some of our other current or future product candidates. Designation of a product candidate as a product for a rare pediatric disease does not guarantee that a marketing application for such product candidate will meet the eligibility criteria for a rare pediatric disease PRV at the time the application is approved. Under the Federal Food, Drug, and Cosmetic Act we will need to request a rare pediatric disease PRV in our original marketing application for any potential product candidates for which we have received rare pediatric disease designation. The FDA may determine that a marketing application for any such product candidates, if approved, does not meet the eligibility criteria for a PRV. Under the current statutory sunset provisions, after December 20, 2024, the FDA may only award a PRV for an approved rare pediatric disease product application if the sponsor has rare pediatric disease designation for the drug or biologic that is the subject of such application, and that designation was granted by September 30, 2024. After December 20, 2026, the FDA may not award any rare pediatric disease PRVs. However, it is possible the authority for FDA to award rare pediatric disease PRV will be further extended by Congress. As such, if we do not obtain approval of a marketing application for any of our current or future product candidates on or before September 30, 2026, and if the PRV program is not extended by Congressional action, we may not receive a PRV. +We may seek designation for our Prime Editing platform technology as a designated platform technology, but we might not receive such designation, and even if we do, such designation may not lead to a faster regulatory review or approval process. +We may seek designation for our Prime Editing platform technology as a designated platform technology. Under FDORA, a platform technology incorporated within or utilized by a drug or biological product is eligible for designation as a designated platform technology if: (1) the platform technology is incorporated in, or utilized by, a drug approved under an NDA or BLA; (2) preliminary evidence submitted by the sponsor of the approved or licensed drug, or a sponsor that has been granted a right of reference to data submitted in the application for such drug, demonstrates that the platform technology has the potential to be incorporated in, or utilized by, more than one drug without an adverse effect on quality, manufacturing, or safety; and (3) data or information submitted by the applicable person indicates that incorporation or utilization of the platform technology has a reasonable likelihood to bring significant efficiencies to the drug development or manufacturing process and to the review process. A sponsor may request the FDA to designate a platform technology as a designated platform technology concurrently with, or at any time after, submission of an IND application for a drug that incorporates or utilizes the platform technology that is the subject of the request. If so designated, the FDA may expedite the development and review of any subsequent original NDA or BLA for a drug that uses or incorporates the platform technology. Even if we believe our Prime Editing platform technology meets the criteria for such designation, the FDA may disagree and instead determine not to grant such designation. In addition, the receipt of such designation for a platform technology does not ensure that a drug will be developed more quickly or receive a faster FDA review or approval process. Moreover, the FDA may revoke a designation if the FDA determines that a designated platform technology no longer meets the criteria for such designation. +Our employees, principal investigators, consultants and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading. +We are exposed to the risk of fraud or other misconduct by our employees, consultants and commercial partners, and, as we commence clinical trials, our principal investigators. Misconduct by these parties could include intentional failures to comply with FDA regulations or the regulations applicable in the European Union and other jurisdictions, provide accurate information to the FDA, the EMA and other regulatory authorities, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business +96 +arrangements. Such misconduct also could involve the improper use of information obtained in the course of clinical trials or interactions with the FDA, the EMA or other regulatory authorities, which could result in regulatory sanctions and cause serious harm to our reputation. We are also exposed to risks in connection with any insider trading violations by employees or others affiliated with us. W e adopted a code of conduct and an insider trading policy applicable to all of our employees, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from government investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, financial condition, results of operations and prospects, including the imposition of significant fines or other sanctions. +Laws and regulations governing any international operations we may have in the future may preclude us from developing, manufacturing and selling certain product candidates outside of the United States and require us to develop and implement costly compliance programs. +We are subject to numerous laws and regulations in each jurisdiction outside the United States in which we operate. The creation, implementation and maintenance of international business practices compliance programs is costly and such programs are difficult to enforce, particularly where reliance on third parties is required. +The FCPA prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. The anti-bribery provisions of the FCPA are enforced primarily by the Department of Justice. The SEC is involved with enforcement of the books and records provisions of the FCPA. +Similarly, the U.K. Bribery Act 2010 has extra-territorial effect for companies and individuals having a connection with the UK. The U.K. Bribery Act prohibits inducements both to public officials and private individuals and organizations. Compliance with the FCPA and the U.K. Bribery Act is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions. +Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain non-U.S. nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. Our expansion outside of the United States has required, and will continue to require, us to dedicate additional resources to comply with these laws, and these laws may preclude us from developing, manufacturing or selling certain drugs and drug candidates outside of the United States, which could limit our growth potential and increase our development costs. The failure to comply with laws governing international business practices may result in substantial penalties, including suspension or debarment from government contracting. Violation of the FCPA can result in significant civil and criminal penalties. Indictment alone under the FCPA can lead to suspension of the right to do business with the U.S. government until the pending claims are resolved. Conviction of a violation of the FCPA can result in long-term disqualification as a government contractor. The termination of a government contract or relationship as a result of our failure to satisfy any of our obligations under laws governing international business practices would have a negative impact on our operations and harm our reputation and ability to procure government contracts. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions. +97 +We are subject to stringent laws, rules, regulations, policies, standards and contractual obligations related to data privacy and security and changes in such laws, rules, regulations, policies, standards and contractual obligations could adversely affect our business. +We are, or may become, subject to a number of data privacy and protection laws, rules, regulations, policies, standards and contractual obligations that apply to our collection, transmission, storage, use, disclosure, transfer, maintenance and other processing of personal information. The legislative and regulatory landscape for privacy and data protection is rapidly evolving in the U.S. and Europe, as well as other jurisdictions worldwide, which may lead to increased regulatory scrutiny on privacy and data protection requirements. As a result of the increasing complexity of data privacy and protection laws and regulations applicable to our business, and the uncertainty in how such regulations will be applied and interpreted, we cannot guarantee that we are, or have been, in compliance with all such regulations. Additionally, we rely on certain third-party vendors to process certain confidential, sensitive or personal information on our behalf. Failure or perceived failure by us or our third-party vendors to comply with any of these laws, rules, regulations, contractual obligations or standards could result in notification obligations to affected individuals and regulators, enforcement actions, regulatory investigations or inquiries, significant fines, imprisonment of company officials and public censure, and litigation, including claims for damages by affected individuals, customers or business partners, damage to our reputation and loss of goodwill, any of which could have a material adverse effect on our business, financial condition, results of operations or prospects. +In the U.S., federal and state laws, rules and regulations related to the privacy and security of personal information apply, or may apply, to our business. At the federal level, for example, HIPAA establishes data privacy and security standards that limit the use and disclosure of individually identifiable health information, or protected health information, and require the implementation of administrative, physical and technical safeguards to protect the confidentiality, integrity and availability of electronic protected health information. +If we fail to comply with applicable HIPAA privacy and security standards, we could face significant civil and criminal penalties. HHS has the discretion to impose penalties without attempting to resolve violations through informal means. Such enforcement activity can result in financial liability and reputational harm, and our responses to such enforcement activity can consume significant internal resources. +U.S. state laws also govern the privacy and protection of personal information. For example, the California Consumer Privacy Act, or the CCPA, establishes data privacy rights for individuals located in California and imposes certain requirements on how businesses can collect, use, and share personal information about such individuals. The California Privacy Rights Act, or the CPRA, significantly modifies the CCPA and imposes additional obligations on companies covered by the legislation, including by expanding consumers’ rights with respect to personal information, and establishes a state agency vested with the authority to enforce the CCPA. More than a dozen other states have passed similar, comprehensive privacy and data protection legislation. Moreover, some states have passed laws geared to protect specific categories of personal information, most notably Washington’s My Health Data Act, which provides an additional layer of protection to consumer health data which includes a private right of action. Many state privacy and data protection laws differ from each other in significant ways, and it is not yet fully clear how such laws will be enforced and interpreted. Thus, we may be required to incur substantial costs and expenses in an effort to comply with them, and may be required to modify or restrict our data collection and use practices. +Additionally, all 50 states have laws in place which may require businesses to provide notice to customers whose personal information has been disclosed as a result of a data breach. Determining whether personal information has been handled in compliance with applicable state breach notification requirements, privacy standards and our contractual obligations can be complex and may be subject to statutory and contractual interpretation, thus potentially complicating our compliance efforts. +Further, the Federal Trade Commission, or FTC, as well as other state attorneys general, regulate the content of our privacy policies and other public statements that provide promises and assurances about our data privacy and protection practices. We make public statements about our use, collection, disclosure and other processing of personal information through our privacy policies, information provided on our website and press statements. Although we endeavor to comply with our public statements and documentation, we may at times fail to do so or be alleged to have failed to do so. If such statements are found to be deceptive, unfair or misrepresentative of our actual +98 +practices, we may subject us to government enforcement actions or other legal claims. Additionally, the FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business and the cost of available tools to improve security and reduce vulnerabilities. Over the past year, the FTC has focused enforcement efforts on protecting privacy in the context of personal health information, and failing to take appropriate steps to keep consumers’ personal information secure may constitute unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act, 15 U.S.C § 45(a). Additionally, through executive and legislative action, the federal government has taken steps to restrict data transactions involving certain sensitive data categories – including health data, genetic data, and biospecimens – with persons affiliated with China, Russia, and other countries of concern. +In the EU, the collection and processing of personal information is governed by the EU’s General Data Protection Regulation, or the EU GDPR, and in the UK the EU GDPR has been incorporated into the laws of the UK GDPR, together with the EU GDPR, the GDPR. The GDPR in the EU and the UK, which have been incorporated into their respective laws, impose stringent requirements on the processing of health and other sensitive data. These requirements encompass: (i) providing information to individuals regarding data processing activities; (ii) ensuring a legal basis or condition applies to the processing of personal information and, where applicable, obtaining consent from individuals to whom the data processing relates; (iii) responding to data subject requests; (iv) imposing requirements to notify the competent national data protection authorities and data subjects of personal data breaches; (v) implementing safeguards in connection with the security and confidentiality of the personal information; (vi) accountability requirements; and (vii) taking certain measures when engaging third-party processor. Failure to comply with the requirements of the GDPR may result in significant fines and other administrative penalties. In addition, we may be required to put in place additional mechanisms to comply with current and future privacy and data protection regulations in Europe and other worldwide jurisdictions which are or will become applicable to our business. This may interrupt or delay our development activities and/or require us to change our business practices, which could adversely affect our business, financial condition, results of operations and prospects. +Data privacy and protection legislation and enforcement will continue to be an evolving landscape at both the domestic and international level, with new laws, rules and regulations coming into effect and presenting novel legal challenges, and our efforts to comply with them may be unsuccessful. It is possible that these laws, rules and regulations will be interpreted and applied in a manner that is inconsistent with our practices. We may be required to devote significant resources to understanding and complying with such legislation, and the lack of a unified approach to data privacy and protection laws in the U.S. could lead to complicated and potentially conflicting compliance requirements. Any failure or perceived failure to comply with these laws, rules or regulations, or with any related government investigations, may require the expenditure of significant resources and generate negative publicity, which could harm our business, financial condition, results of operations or prospects. +Existing regulatory policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. +The United States Supreme Court’s June 2024 decision in Loper Bright Enterprises v. Raimondo overturned the longstanding Chevron doctrine, under which courts were required to give deference to regulatory agencies’ reasonable interpretations of ambiguous federal statutes. The Loper decision could result in additional legal challenges to regulations and guidance issued by federal agencies, including the FDA, on which we rely. Any such legal challenges, if successful, could have a material impact on our business. Additionally, the Loper decision may result in increased regulatory uncertainty, inconsistent judicial interpretations, and other impacts to the agency rulemaking process, any of which could adversely impact our business and operations. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action or as a result of legal challenges, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, our business could be materially harmed. +99 +Risks Related To Employee Matters, Managing Growth and Information Technology +Our future success depends on our ability to retain our key employees and to attract, retain and motivate qualified personnel. +We are highly dependent on our key executives and other principal members of our management, scientific and clinical team. Although we have entered into employment agreements and/or offer letters with our executive officers, they are engaged “at will,” meaning we or they may terminate the relationship at any time. We do not maintain “key person” insurance for any of our executives or other employees. The loss of the services of any of these persons could impede the achievement of our research, development and commercialization objectives. +Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. In addition, our company-building efforts and establishment of a company culture will also be important to developing an innovative company in a high-evolving area. We may not be able to succeed in these efforts to build Prime Medicine as an attractive and exciting place to build a career or to attract and retain these types of personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors, may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. The inability to recruit, or loss of services of, certain executives, key employees, consultants or advisors, may impede the progress of our research, development and commercialization objectives and have a material adverse effect on our business, financial condition, results of operations and prospects. +We expect to expand our research, development, delivery, manufacturing, commercialization, regulatory and future sales and marketing capabilities over time, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations. +In connection with the growth and advancement of our pipeline and being a public company, we expect to increase the number of our employees and the scope of our operations, particularly in the areas of drug development, regulatory affairs and sales and marketing. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities, and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expected expansion of our operations or recruit and train additional qualified personnel. Any inability to manage growth could delay the execution of our business plans or disrupt our operations. +As a growing biotechnology company, we are actively pursuing new platforms and product candidates in many therapeutic areas and across a wide range of diseases. Successfully developing product candidates for and fully understanding the regulatory and manufacturing pathways to all of these therapeutic areas and disease states requires a significant depth of talent, resources and corporate processes in order to allow simultaneous execution across multiple areas. Due to our limited resources, we may not be able to effectively manage this simultaneous execution and the expansion of our operations or recruit and train additional qualified personnel. This may result in weaknesses in our infrastructure, give rise to operational mistakes, legal or regulatory compliance failures, loss of business opportunities, loss of employees and reduced productivity among remaining employees. The physical expansion of our operations may lead to significant costs and may divert financial resources from other projects, such as the development of our current or future product candidates. If our management is unable to effectively manage our expected development and expansion, our expenses may increase more than expected, our ability to generate or increase our revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to compete effectively and commercialize any product candidates we may develop will depend in part on our ability to effectively manage the future development and expansion of our company. +Our internal computer and information technology systems, or those of our third-party vendors, collaborators, contractors, consultants or other third parties, may fail or suffer cybersecurity incidents, data breaches, loss or +100 +leakage of data and other disruptions which could result in the material disruption of our product development programs, compromise confidential, sensitive or personal information related to our business or prevent us from accessing critical information, potentially exposing us to liability or otherwise adversely affecting our business. +Like other companies in our industry, our internal computer and information technology systems and those of our current and any future third-party vendors, collaborators, contractors, consultants or other third parties, are vulnerable to damage or interruption from, among other things, computer viruses, computer hackers, phishing attacks, ransomware, malware, social engineering, malicious code, employee theft, fraud, misconduct or misuse, denial-of-service attacks, sophisticated nation-state and nation-state-supported actors, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures, as well as data breaches or cybersecurity incidents. The risk of cyber incidents could also be increased by cyberwarfare in connection with the current conflict between Russia and Ukraine, including potential proliferation of malware into systems unrelated to the conflict. In addition, part of our workforce is currently working remotely. This could increase our cybersecurity risk, create data accessibility concerns, and make us more susceptible to communication disruptions. While we seek to protect our information technology systems from system failure, accident and security compromise or breach, we have in the past and may in the future experience phishing and other security incidents which could result in a disruption of our development programs and our business operations, whether due to a loss of our trade secrets or other proprietary, personal or confidential information or other disruptions. For example, the loss of clinical trial data from future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. +Controls employed by our information technology department and other third parties could prove inadequate, and our ability to monitor such third parties’ data security practices is limited. Due to applicable laws, rules, regulations and standards or contractual obligations, we may be held responsible for any information security compromise or failure or cybersecurity attack attributed to our third-party vendors as they relate to infrastructure they support or the information we share with them. +If we were to experience a cybersecurity compromise or breach or other security incident relating to our information systems or data, the costs, time and effort associated with the investigation, remediation and potential notification of the breach to counterparties, regulators and data subjects could be material. We may incur significant costs in an effort to detect and prevent security incidents, and we may face increased costs and requirements to expend substantial resources in the event of an actual or perceived security incident. In addition, techniques used to sabotage or to obtain unauthorized access to networks in which data is stored or through which data is transmitted change frequently, become more complex over time and generally are not recognized until launched against a target. As a result, we and our third-party vendors may be unable to anticipate these techniques or implement adequate preventative measures quickly enough to prevent either an electronic intrusion into our systems or services or a compromise of critical information. Further, our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts will be sufficient to protect us from liabilities, damages, or claims related to our privacy and data security obligations. We cannot guarantee that we will be able to detect or prevent any such incidents, and our remediation efforts may not be successful or timely. Our efforts to improve security and protect systems and data from compromise may also identify previously undiscovered instances of data breaches or other cybersecurity incidents. If we do not allocate and effectively manage the resources necessary to build and sustain the proper technology and cybersecurity infrastructure, we could suffer significant business disruption, including transaction errors, supply chain or manufacturing interruptions, processing inefficiencies, data loss or the loss of or damage to intellectual property or other proprietary, personal or confidential information. Additionally, while we currently maintain cybersecurity insurance, coverage may not be sufficient to cover actual losses, or may not apply to the circumstances relating to any particular loss. +To the extent that any disruption, compromise or security breach were to result in a loss of, or damage to, our or our third-party vendors’, collaborators’, contractors’, consultants’ or other third parties’ data, including confidential, personal, or proprietary data, or applications or inappropriate disclosure, loss, destruction or alteration of, or access to, confidential, personal or proprietary information, we could incur significant liability including litigation exposure, substantial penalties and fines, we could become the subject of regulatory action, inquiry or investigation, our competitive position could be harmed, we could incur significant reputational damage and the further +101 +development and commercialization of any product candidates we may develop could be delayed. Any of the above could have a material adverse effect on our business, financial condition, results of operations or prospects. +Artificial intelligence presents risks and challenges that can impact our business including by posing security risks to our confidential information, proprietary information, and personal data. +Issues in the development and use of artificial intelligence, combined with an uncertain regulatory environment, may result in reputational harm, liability, or other adverse consequences to our business operations. As with many technological innovations, artificial intelligence presents risks and challenges that could impact our business. We may adopt and integrate generative artificial intelligence tools into our systems for specific use cases reviewed by legal and information security. Our vendors may incorporate generative artificial intelligence tools into their offerings without disclosing this use to us, and the providers of these generative artificial intelligence tools may not meet existing or rapidly evolving regulatory or industry standards with respect to privacy and data protection and may inhibit our or our vendors’ ability to maintain an adequate level of service and experience. A growing number of legislators and regulators are adopting laws and regulations and have focused enforcement efforts on the adoption of artificial intelligence, and use of such technologies in compliance with ethical standards and societal expectations. These developments may increase our compliance burden and costs in connection with use of artificial intelligence and lead to legal liability if we fail to meet evolving legal standards or if use of such technologies results in harms or other causes of action we did not predict. For example, the EU’s Artificial Intelligence Act, or AI Act, entered into force on August 1, 2024, with most provisions becoming effective on August 2, 2026. This legislation imposes significant obligations on providers and deployers of high risk artificial intelligence systems, and encourages providers and deployers of artificial intelligence systems to account for EU ethical principles in their development and use of these systems. The scope of requirements depends on legal and risk determinations that rely on novel legal provisions that have not yet been interpreted by courts or regulators, and non-compliance can lead to significant fines. Likewise, in the U.S., several states, including Colorado and California, passed laws that will take effect in 2026, to regulate various uses of artificial intelligence, including to make consequential decisions. In addition, various federal regulators have issued guidance and focused enforcement efforts on the use of AI in regulated sectors. If we develop or use AI systems that are governed by these laws or regulations, we will need to meet higher standards of data quality, transparency, and human oversight, and we would need to adhere to specific and potentially burdensome and costly ethical, accountability, and administrative requirements, with the potential for significant enforcement or litigation in the event of any perceived non-compliance. +The rapid evolution of artificial intelligence will require the application of significant resources to design, develop, test and maintain our products and services to help ensure that artificial intelligence is implemented in accordance with applicable law and regulation and in a socially responsible manner and to minimize any real or perceived unintended harmful impacts. If we, our vendors, or our third-party partners experience an actual or perceived breach or privacy or security incident because of the use of generative artificial intelligence, we may lose valuable intellectual property and confidential information and our reputation and the public perception of the effectiveness of our security measures could be harmed. Further, bad actors around the world use increasingly sophisticated methods, including the use of artificial intelligence, to engage in illegal activities involving the theft and misuse of personal information, confidential information, and intellectual property. Any of these outcomes could damage our reputation, result in the loss of valuable property and information, and adversely impact our business. +Risks Related To Ownership of Our Common Stock +We do not know whether a market will be sustained for our common stock or what the market price of our common stock will be, and, as a result, it may be difficult for you to sell your shares of our common stock. +Although our common stock is listed on the Nasdaq Global Market, an active trading market for our common stock may not be sustained. If a market for our common stock is not sustained, it may be difficult for you to sell your shares of common stock at an attractive price or at all. We cannot predict the prices at which our common stock will trade. It is possible that in one or more future periods our results of operations may be below the expectations of public market analysts and investors, and, as a result of these and other factors, the price of our common stock may fall. +The market price of our common stock may be volatile, which could result in substantial losses for investors. +102 +The market price for our common stock may be influenced by those factors discussed in this “Risk Factors” section and many others, some of which may include: +• the success of existing or new competitive product candidates or technologies; +• the timing and results of preclinical studies and clinical trials for any product candidates we may develop; +• failure or discontinuation of any of our development and research programs; +• results of any preclinical studies, clinical trials or regulatory approvals of product candidates of our competitors, or announcements about new research programs or product candidates of our competitors; +• developments or changing views regarding the use of genetic therapies, including those that involve gene editing; +• commencement or termination of collaborations for our product development and research programs; +• regulatory or legal developments in the United States and other countries; +• developments or disputes concerning patent applications, issued patents or other intellectual property or proprietary rights; +• the recruitment or departure of key personnel; +• the level of expenses related to any of our research programs, clinical development programs or product candidates that we may develop; +• the results of our efforts to develop product candidates; +• actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts, if any, that cover our stock; +• announcement or expectation of additional financing efforts; +• sales of our common stock by us, our insiders or other stockholders; +• expiration of market stand-off or lock-up agreements; +• variations in our financial results or those of companies that are perceived to be similar to us; +• changes in the structure of healthcare payment systems; +• market conditions in the pharmaceutical and biotechnology sectors; +• public health crises, pandemics, natural disasters or major catastrophic events; +• general economic, industry and market conditions; and +• the other factors described in this “Risk Factors” section. +In recent years, the stock market in general and the market for pharmaceutical and biotechnology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to changes in the operating performance of the companies whose stock is experiencing those price and volume fluctuations. In particular, in relation to uncertainty around inflation and the U.S. Federal Reserve’s measures to slow inflation, the stock market has been exceptionally volatile. Market and industry factors may seriously affect the market price of our common stock, regardless of our actual operating performance. Following periods of such volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Because of the potential volatility of our stock price, we may become the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and resources from our business. +103 +If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our stock, the price of our stock could decline. +The trading market for our common stock relies in part on the research and reports that industry or financial analysts publish about us or our business. If one or more of the analysts covering our business downgrade their evaluations of our stock, the price of our stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline. +Future sales of our common stock in the public market could cause our stock price to fall. +Our stock price could decline as a result of sales of a large number of shares of our common stock or the perception that these sales could occur. These sales, or the perception that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. +As of December 31, 2024, we had 131,160,842 shares of common stock outstanding. Shares of unvested restricted stock that were issued and outstanding will become available for sale immediately upon the vesting of such shares, as applicable. Shares issued upon the exercise of stock options pursuant to future awards that may be granted under our equity incentive plans or pursuant to future awards granted under those plans will become available for sale in the public market to the extent permitted by the provisions of applicable vesting schedules, any applicable market stand-off and lock-up agreements and Rule 144 and Rule 701 under the Securities Act. +Certain holders of our common stock have rights, subject to some conditions, to require us to file registration statements covering the sale of their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We have registered the offer and sale of all shares of common stock that we may issue under our equity compensation plans, and those shares are available for sale in the open market, unless such shares are subject to vesting restrictions with us or the lock-up restrictions described above. Once we register the offer and sale of shares for the holders of registration rights, they can be freely sold in the public market upon issuance, subject to the lock-up agreements. +In addition, in the future, we may issue additional shares of common stock or other equity or debt securities convertible into common stock in connection with a financing, acquisition, litigation settlement, employee arrangements or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and could cause our stock price to decline. +Insiders have substantial influence over us, which could limit your ability to affect the outcome of key transactions, including a change of control. +Our directors and executive officers and their affiliates beneficially own a significant percentage of our outstanding common stock. As a result, these stockholders, if they act together, will be able to influence our management and affairs and all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control of our company and might affect the market price of our common stock. +We are an “emerging growth company” and a “smaller reporting company,” and the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies may make our common stock less attractive to investors. +We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company for up to five years. For so long as we remain an emerging growth company, we are permitted and plan to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or SOX Section 404, not being required to comply with any requirement for a supplement to the auditor’s report providing additional information about the audit and the financial statements, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a +104 +result, the information we provide stockholders will be different than the information that is available with respect to certain other public companies. +In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption, and, therefore, while we are an emerging growth company, we will not be subject to the new or revised accounting standards at the same time that they become applicable to other public companies that are not emerging growth companies. As a result of this election, our financial statements may not be comparable to those of other public companies that comply with new or revised accounting pronouncements as of public company effective dates. +We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates is less than $700 million and our annual revenue is less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation. +We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. +We have incurred, and continue to incur, increased costs as a result of operating as a public company, and our management must devote substantial time to compliance initiatives and corporate governance practices. +As a public company, and particularly after we are no longer an “emerging growth company,” we have incurred, and will continue to incur, significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The Nasdaq Global Market and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. We expect that we will continue to need to hire additional accounting, finance and other personnel in connection with our efforts to comply with the requirements of being, a public company. Our management and other personnel will need to devote a substantial amount of time towards maintaining compliance with these requirements. These requirements will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, the rules and regulations applicable to us as a public company make it more difficult and more expensive for us to maintain director and officer liability insurance, which could make it more difficult for us to attract and retain qualified members of our Board of Directors. We are currently evaluating these rules and regulations and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. +Pursuant to SOX Section 404, we are required to furnish a report by our management on our internal control over financial reporting. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with SOX Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants, adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps +105 +to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by SOX Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. +We do not expect to pay any dividends for the foreseeable future. Investors may never obtain a return on their investment. +You should not rely on an investment in our common stock to provide dividend income. We do not anticipate that we will pay any dividends to holders of our common stock in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our existing operations. In addition, any future credit facility may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase our common stock. +Increased attention to, and evolving expectations for, environmental, climate change, social, and governance, or ESG, initiatives could increase our costs, harm our reputation, or otherwise adversely impact our business. +Companies across industries are facing increasing scrutiny from a variety of stakeholders related to their ESG and sustainability practices. Expectations regarding voluntary ESG initiatives and disclosures may result in increased costs (including but not limited to increased costs related to compliance, stakeholder engagement, contracting and insurance), enhanced compliance or disclosure obligations, or other adverse impacts to our business, financial condition, or results of operations. +While we may at times engage in voluntary initiatives (such as voluntary disclosures, certifications, or goals, among others) to improve the ESG profile of the Company, such initiatives may be costly and may not have the desired effect. Moreover, we may not be able to successfully complete such initiatives due to factors that are within or outside of our control. Even if this is not the case, our actions may subsequently be determined to be insufficient by various stakeholders, and we may be subject to investor or regulator engagement on our ESG efforts, even if such initiatives are currently voluntary. +Certain market participants, including major institutional investors and capital providers, use third-party benchmarks and scores to assess companies’ ESG profiles in making investment or voting decisions. Unfavorable ESG ratings could lead to increased negative investor sentiment towards us, which could negatively impact our share price as well as our access to and cost of capital. To the extent ESG matters negatively impact our reputation, it may also impede our ability to compete as effectively to attract and retain employees, which may adversely impact our operations. +In addition, we expect there will likely be increasing levels of regulation, disclosure-related and otherwise, with respect to ESG matters. For example, the SEC has issued rules that require companies to provide significantly expanded climate-related disclosures in their periodic reporting, which may require us to incur significant additional costs to comply, including the implementation of significant additional internal controls processes and procedures regarding matters that have not been subject to such controls in the past, and impose increased oversight obligations on our management and board of directors. These and other changes in stakeholder expectations will likely lead to increased costs as well as scrutiny that could heighten all of the risks identified in this risk factor. Additionally, our business partners may be subject to similar expectations, which may augment or create additional risks, including risks that may not be known to us. +At the same time, stakeholders and regulators have increasingly expressed or pursued opposing views, legislation and investment expectations with respect to ESG initiatives. In recent years, “anti-ESG” sentiment has gained momentum across the U.S., with many states, Congress, and the President having proposed or enacted “anti-ESG” policies, legislation, executive orders or initiatives or issued related legal opinions. Such anti-ESG-related policies, legislation, initiatives, litigation, legal opinions, and scrutiny could result in Prime facing additional compliance obligations, becoming the subject of investigations and enforcement actions, or sustaining reputational harm. +106 +General Risks Factors +Changes in tax laws or in their implementation or interpretation may adversely affect our business and financial condition. +The rules dealing with U.S. federal, state and local income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service, the U.S. Treasury Department and non-U.S. taxing authorities. Changes to tax laws (which changes may have retroactive application) could adversely affect our business and our financial condition. In recent years, many such changes have been made and changes are likely to continue to occur in the future. We cannot predict whether, when, in what form or with what effective dates, tax laws, regulations and rulings may be enacted, promulgated or decided or whether they could increase our tax liability or require changes in the manner in which we operate in order to minimize increases in our tax liability. +If we fail to establish and maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business could be harmed. +Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. We will continue the process of reviewing and making appropriate changes to our internal controls and procedures for compliance with SOX Section 404, which requires annual management assessment of the effectiveness of our internal control over financial reporting. +Implementing any appropriate changes to our internal controls may distract our officers and employees, entail substantial costs to modify our existing processes and take significant time to complete. These changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy or consequent inability to produce accurate financial statements on a timely basis could increase our operating costs and harm our business. In addition, investors’ perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements on a timely basis may harm our common share price and make it more difficult for us to effectively market and sell our service to new and existing customers. +If we fail to maintain effective internal control over financial reporting in the future, we may not be able to accurately report our financial condition or results of operations which may adversely affect investor confidence in us and, as a result, the value of our common stock. +The process of designing and implementing effective internal control over financial reporting is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources that are adequate to satisfy our reporting obligations. We have not performed a formal evaluation of our internal control over financial reporting, as required by the rules and regulations of the SEC, nor are we required to have an independent registered public accounting firm perform an audit of our internal control over financial reporting as of any balance sheet date or for any period reported in our financial statements. Pursuant to SOX Section 404, we are required to furnish a report by our management on our internal control over financial reporting. Our independent registered public accounting firm will first be required to attest to the effectiveness of our internal control over financial reporting for our Annual Report on Form 10-K for the first year we are no longer an “emerging growth company” or a “smaller reporting company.” Failure to comply with the rules and regulations of the SEC could potentially subject us to sanctions or investigations by the SEC, the applicable stock exchange or other regulatory authorities, which would require additional financial and management resources. We have begun the process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with the rules and regulations of the SEC in the future, but we may not be able to complete our evaluation, testing and any required remediation in a timely fashion. An independent assessment of the effectiveness of our internal control over financial reporting could detect deficiencies in our internal control over financial reporting that our management’s assessment might not. Undetected material weaknesses in our internal control over financial reporting could lead to financial statement restatements and require us to incur the expense of remediation. +107 +Provisions in our third amended and restated certificate of incorporation, as amended, our second amended and restated by-laws and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders, and may prevent attempts by our stockholders to replace or remove our current management. +Our third amended and restated certificate of incorporation, as amended, our second amended and restated by-laws and Delaware law contain provisions that may have the effect of discouraging, delaying or preventing a change in control of us or changes in our management that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. Our third amended and restated certificate of incorporation, as amended, and second amended and restated by-laws include provisions that: +• authorize “blank check” preferred stock, which could be issued by our Board of Directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock; +• create a classified Board of Directors whose members serve staggered three-year terms; +• specify that special meetings of our stockholders can be called only by our board of directors; +• prohibit stockholder action by written consent; +• establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our Board of Directors; +• provide that vacancies on our Board of Directors may be filled only by a majority of directors then in office, even though less than a quorum; +• provide that our directors may be removed only for cause; +• specify that no stockholder is permitted to cumulate votes at any election of directors; +• expressly authorized our Board of Directors to make, alter, amend or repeal our second amended and restated by-laws; and +• require supermajority votes of the holders of our common stock to amend specified provisions of our third amended and restated certificate of incorporation, as amended and second amended and restated by-laws. +These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. +In addition, because we are incorporated in the State of Delaware, we are governed by the provisions of Section 203 of the General Corporation Law of the State of Delaware, or the DGCL, which prohibits a person who owns in excess of 15 percent of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15 percent of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. +Any provision of our third amended and restated certificate of incorporation, as amended, and second amended and restated by-laws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock. +Our second amended and restated bylaws designate specific courts as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit stockholders’ ability to obtain a favorable judicial forum for disputes with us. +Pursuant to our second amended and restated bylaws, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for any state law claims for (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of or based on a breach of a fiduciary duty owed by any director, officer or other employee of ours to us or our stockholders; (iii) any action asserting a claim pursuant to any provision of the DGCL, our third amended and restated certificate of incorporation, as amended, or our second amended and restated bylaws or as to which the DGCL confers +108 +jurisdiction on the Court of Chancery of the State of Delaware; or (iv) any action asserting a claim governed by the internal affairs doctrine, or the Delaware Forum Provision. The Delaware Forum Provision will not apply to any causes of action arising under the Securities Act or the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our second amended and restated bylaws further provide that unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, the Exchange Act, the respective rules and regulations promulgated thereunder or the Federal Forum Provision. In addition, our second amended and restated bylaws provide that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the Delaware Forum Provision and the Federal Forum Provision; provided, however, that stockholders cannot and will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder. +We recognize that the Delaware Forum Provision and the Federal Forum Provision in our second amended and restated bylaws may impose additional litigation costs on stockholders in pursuing any such claims, particularly if the stockholders do not reside in or near the State of Delaware. Additionally, the forum selection clauses in our second amended and restated bylaws may limit our stockholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers or employees, which may discourage the filing of lawsuits against us and our directors, officers and employees, even though an action, if successful, might benefit our stockholders. In addition, while the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court are “facially valid” under Delaware law, there is uncertainty as to whether other courts will enforce our Federal Forum Provision. If the Federal Forum Provision is found to be unenforceable, we may incur additional costs associated with resolving such matters. The Federal Forum Provision may also impose additional litigation costs on stockholders who assert that the provision is not enforceable or invalid. The Court of Chancery of the State of Delaware and the federal district courts of the United States may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than our stockholders. +We face risks related to health epidemics, pandemics and other widespread outbreaks of contagious disease, which could significantly disrupt our operations, impact our financial results or otherwise adversely impact our business. +Significant outbreaks of contagious diseases and other adverse public health developments could have a material impact on our business operations and operating results. For example, COVID-19 and the post-COVID environment, and supply chain, labor market and other disruptions, as well as volatility in the global financial markets, in each case driven by the pandemic, affected segments of the global economy and our operations. Worldwide pandemics or outbreaks of any highly infectious or contagious diseases may adversely impact our operations, research and development, and as we continue development, any preclinical studies, clinical trials and manufacturing activities we may conduct, some of which may include: +• delays or disruptions in research programs, preclinical studies, clinical trials or IND-enabling studies that we or our collaborators may conduct; +• interruption or delays in the operations of the FDA, the EMA and comparable foreign regulatory agencies; +• interruption of, or delays in receiving and distributing, supplies of drug substance and drug product from our contract manufacturing organizations, or CMOs, to preclinical or clinical research sites or delays or disruptions in any preclinical studies or clinical trials performed by contract research organizations, or CROs; +• limitations imposed on our business operations by local, state or federal authorities to address a pandemic or similar public health crises; and +• business disruptions caused by potential workplace, laboratory and office closures and an increased reliance on employees working from home, disruptions to or delays in ongoing laboratory experiments and operations, staffing shortages, travel limitations, and cybersecurity and data accessibility or security issues. +In addition, health pandemics and epidemics, such as COVID-19, could continue to produce significant and prolonged disruption of or volatility in global financial markets, reducing our ability to access capital, which could +109 +in the future negatively affect our liquidity. If we or any of the third parties with whom we engage were to experience additional shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively affected, which could have a material adverse impact on our business, financial condition, our results of operations and prospects. Furthermore, any future pandemic or other outbreak of contagious disease could exacerbate the other risks described in this section. +Our operations are vulnerable to interruption by disasters, terrorist activity, pandemics and other events beyond our control, which could harm our business. +Our facilities are located in Massachusetts. We have not undertaken a systematic analysis of the potential consequences to our business and financial results from a major flood, power loss, terrorist activity, pandemics or other disasters and do not have a recovery plan for such events. In addition, we do not carry sufficient insurance to compensate us for actual losses from interruption of our business that may occur, and any losses or damages incurred by us could harm our business. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. +The U.S. Congress, the Trump administration, or any new administration may make substantial changes to fiscal, tax, and other federal policies that may adversely affect our business. +In 2017, the U.S. Congress and the Trump administration made substantial changes to U.S. policies, which included comprehensive corporate and individual tax reform. In addition, the Trump administration called for significant changes to U.S. trade, healthcare, immigration and government regulatory policy. With the transition to the Biden administration in early 2021, changes to U. S. policy occurred and since the start of the Trump Administration in 2025, U.S. policy changes have been implemented at a rapid pace and additional changes are likely. Changes to U.S. policy implemented by the U.S. Congress, the Trump administration or any new administration have impacted and may in the future impact, among other things, the U.S. and global economy, international trade relations, unemployment, immigration, healthcare, taxation, the U.S. regulatory environment, inflation and other areas. Although we cannot predict the impact, if any, of these changes to our business, they could adversely affect our business. Until we know what policy changes are made, whether those policy changes are challenged and subsequently upheld by the court system and how those changes impact our business and the business of our competitors over the long term, we will not know if, overall, we will benefit from them or be negatively affected by them. +Item 1B. Unresolved Staff Comments +None. +Item 1C. Cybersecurity +Risk Management and Strategy +Our cybersecurity risk management program is a significant part of our overall risk management program. Teams of internal and third-party cybersecurity professionals oversee cybersecurity risk management , which incorporates elements of the National Institute for Standards and Technology Cybersecurity Framework. +We also maintain a comprehensive process for identifying, assessing, and managing material risks from cybersecurity threats. We also have a process in place to oversee and vet our third party resources, including, for critical vendors and as appropriate, through reviews of Service Organization Control Type 2 reports. +We maintain an ongoing end-user cybersecurity awareness program that is designed to raise awareness of cybersecurity threats to reduce our vulnerability as well as to encourage consideration of cybersecurity risks across functions, including quarterly training and simulated phishing campaigns. +Although we have not experienced a material cybersecurity incident, like other organizations in our industry, we face a number of cybersecurity risks in connection with our business and recognize the growing threat within the general marketplace and our industry. For more information about the cybersecurity risks we face, see the section entitled “Risk Factors — Risks Related to Information Technology and Data Privacy”. +110 +Oversight and Governance +Members of our senior management, including our Chief Executive Officer, Chief Financial Officer, and leaders from our legal and information technology functions , maintain responsibility for assessing and managing cybersecurity threats. This team has deep expertise in building and leading information systems and cybersecurity teams across a variety of institutions. Our Head of Information Technology has approximately 20 years of information security experience. +Cybersecurity risk governance has been delegated by our Board of Directors to the Audit Committee of the Board of Directors, or the Audit Committee. As provided in the Audit Committee Charter, the Audit Committee is responsible for reviewing, assessing, and considering, in consultation with management and the Board, as appropriate, the overall risk management policies and procedures of the Company, including our major risk exposures such as cybersecurity. +The Audit Committee and Board of Directors receive routine updates from senior management, including leaders from our information technology and legal functions regarding matters of cybersecurity. These updates include existing and new cybersecurity risks, status on how management is addressing and mitigating those risks, cybersecurity and data privacy incidents, if any, and status on key information security initiatives. +Item 2. Properties +We currently lease and occupy the following spaces: +• approximately 50,000 square feet of laboratory and office space at 60 First Street, Cambridge, MA 02141 under a lease term that expires in February 2034; +• approximately 27,000 square feet of combined laboratory and office space at 64 Sidney Street, Cambridge, MA 02139 under a lease term that expires in April 2025; and +• approximately 16,000 square feet of combined laboratory and office space at 480 Arsenal Street, Watertown, MA 02472 under a lease term that expires in April 2027. +In addition to these spaces, we have secured approximately 99,000 square feet of additional office and laboratory space at 60 First Street, Cambridge, MA 02141 and 49,000 square feet of new office and laboratory space at 500 Arsenal Street, Watertown, MA 02472. We expect to begin to occupy these spaces in the first half of 2025. +We believe that our facilities are adequate for our current needs and for the foreseeable future and that suitable additional or substitute space at commercially reasonable terms will be available as and when needed. +Item 3. Legal Proceedings +We are not currently a party to any material legal or arbitration proceedings. No governmental proceedings are pending or, to our knowledge, contemplated against us. We are not currently a party to any material proceedings in which any director, member of senior management or affiliate of ours is either a party adverse to us or our subsidiaries or has a material interest adverse to us or our subsidiaries. In the ordinary course of business, we are from time to time involved in lawsuits, claims, investigations, proceedings, and threats of litigation related to intellectual property, commercial arrangements, and other matters. The outcome of any such legal proceedings, regardless of the merits, is inherently uncertain. In addition, litigation and related matters are costly and may divert the attention of our management and other resources that would otherwise be engaged in other activities. If we were unable to prevail in any such legal proceedings, our business, results of operations, liquidity, and financial condition could be adversely affected. +Item 4. Mine Safety Disclosures +Not applicable. +111 +PART II +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information +Our common stock has been publicly traded on the Nasdaq Global Market under the symbol “PRME” since October 20, 2022. Prior to that time, there was no public market for our common stock. +Holders +As of February 20, 2025, there were approximately 77 holders of record of our common stock. This number does not include beneficial owners whose shares are held by nominees in street name. +Dividends +We have not declared or paid any cash dividends on our capital stock since our inception. We intend to retain future earnings, if any, to finance the operation and expansion of our business and do not anticipate paying any cash dividends to holders of common stock in the foreseeable future. +Securities Authorized for Issuance under Equity Compensation Plans +Information about our equity compensation plans is incorporated herein by reference to Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters , of this Annual Report on Form 10-K. +Recent Sales of Unregistered Securities +In September 2024, we entered into the BMS Purchase Agreement with BMS, pursuant to which we agreed to issue and sell, and BMS agreed to purchase 11,006,163 shares of common stock for an aggregate purchase price of $55.0 million pursuant to the terms and conditions thereof. +The BMS Purchase Agreement includes lock-up restrictions with respect to the common stock purchased. Pursuant to the terms of the BMS Purchase Agreement, BMS has agreed not to, directly or indirectly, sell or transfer any of the shares until September 30, 2027 subject to specified conditions and exceptions. In addition, the Company agreed, among other things, to file with the SEC a registration statement covering the resale of the shares and to use commercially reasonable efforts to cause such registration statement to become effective on or prior to ninety (90) calendar days after closing. The Company filed the registration statement on Form S-3 covering the resale of the shares with the SEC on December 13, 2024, which became effective on December 20, 2024. +Issuer Purchases of Equity Securities +We did not purchase any of our registered equity securities during the period covered by this Annual Report on Form 10-K. +Item 6. [Reserved] +Not applicable. +112 +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review "Item 1A, Risk Factors" of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. +Overview +We are a biotechnology company committed to delivering a new class of differentiated one-time curative genetic therapies. We are deploying Prime Editing technology, which we believe is a versatile, precise, and efficient gene editing technology. +In September 2024, we announced that we are strategically focusing our pipeline on a set of high value programs organized around the following core areas of focus: hematology, immunology and oncology, liver, and lung. Each program is targeting a disease with well-understood biology and a clearly defined clinical development and regulatory path and the programs are expected to provide the foundation for expansion into additional opportunities. Each prioritized program is also intended to serve as a beachhead, in that the modularity of the Prime Editing platform is expected to allow Prime Medicine to generate follow-on candidates rapidly and efficiently. In addition, we are identifying partnership opportunities to advance other programs. +CGD, is our most advanced blood program, and we have designated PM359 as our candidate in the treatment of this disease. +We believe our Prime Editing programs are well-positioned to leverage the clinical, regulatory, and manufacturing advancements made to date across gene therapy, gene editing, and delivery modalities to accelerate progression to clinical trials and potential approval. +Components of Our Results of Operations +Revenues +Our revenues to date have been generated through research collaboration and license agreements. We recognize revenue over the expected performance period under each agreement. We expect that our revenue for the next several years will be derived primarily from our current collaboration agreements and any additional collaborations that we may enter into in the future. To date, we have not generated any revenue from product sales or royalties and do not expect to generate any revenue from the sale of products or royalties for the foreseeable future. +Research and Development Expenses +Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts, and the development of our product candidates. These expenses include: +• personnel-related expenses, including salaries, bonuses, benefits, and stock-based compensation for employees engaged in manufacturing, research and development functions; +• expenses incurred in connection with continuing our current research programs and preclinical and clinical development of any product candidates we may identify, including under agreements with third parties, such as consultants and contractors; +• the cost of developing and validating our manufacturing process for use in our preclinical and clinical studies; +• laboratory supplies and research materials; +113 +• facilities, depreciation and other expenses related to research and development activities, which include direct or allocated expenses for rent and maintenance of facilities, and utilities; +• the cost allocated to acquire in-process research and development, with no alternative future use associated with asset acquisitions or transactions to license intellectual property, such as our Broad License Agreement; and +• expenses incurred in connection with our Pledge to Broad Institute. +We expense all research and development costs in the periods in which they are incurred. Most of our research and development expenses have been related to early stage development activities. External research and development costs for any individual product candidate will be tracked upon the FDA’s clearance of the IND application for that product candidate. We do not allocate employee costs, costs associated with our discovery efforts, laboratory supplies, and facilities expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple programs and our platform and, as such, are not separately classified. +Upfront and milestone payments made are accrued for and expensed when the achievement of the milestone is probable up to the point of regulatory approval. Milestone payments made upon regulatory approval will be capitalized and amortized over the remaining useful life of the related product. +We expect our research and development expenses to continue to increase substantially for the foreseeable future with our planned research and development activities related to developing any future product candidates, including investments in manufacturing, as we advance any product candidates we may identify and conduct clinical trials, and with our obligations under the BMS Collaboration Agreement. +General and Administrative Expenses +General and administrative expenses consist of salaries and personnel-related costs, including stock-based compensation, for our personnel in executive, legal, finance and accounting, human resources and other administrative functions. General and administrative expenses also include legal fees relating to patents and corporate matters; professional fees paid for accounting, auditing, consulting and tax service; insurance costs; office and information technology costs; and facilities, depreciation and other general and administrative expenses, which include direct or allocated expenses for rent and maintenance of facilities and utilities. +We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support research and development activities; increased accounting, legal, insurance, and investor and public relations costs as we continue to operate as a public company; and additional intellectual property-related expenses as we file patent applications to protect innovations arising from our research and development activities. +Other Income (Expense) +Other income (expense), net consists of: +• interest and other income earned on our short-term investments; and +• the change in the fair value of our short-term investment in Beam Therapeutics Inc., or Beam, a related party, in connection with the Beam Collaboration Agreement, which is discussed in greater detail in Item 1. Business , of this Annual Report on Form 10-K. +114 +Results of Operations — Comparison of the Years Ended December 31, 2024 and 2023 +Operating Expenses +Research and Development Expenses +Year ended December 31, +(in thousands) 2024 2023 Change +Research and development expenses: +Personnel expenses $ 59,988 $ 51,095 $ 8,893 +Research costs 41,678 59,609 (17,931) +Facility related 35,509 24,221 11,288 +License, intellectual property fees, and other 8,060 6,135 1,925 +Professional and consultant fees 5,919 6,845 (926) +Clinical expense 4,135 — 4,135 +Total research and development expenses $ 155,289 $ 147,905 $ 7,384 +The $7.4 million increase in research and development expense for the year ended December 31, 2024 as compared to the year ended December 31, 2023 is primarily driven by: +• $11.3 million increase in facility-related expense primarily due to the expansion and build out of our laboratory space. +• $8.9 million increase in personnel expense, including an increase in stock-based compensation expense of $4.8 million, driven by the higher headcount of our research and development function as compared to the prior year; +• $4.1 million increase in clinical expenses related to PM359, our candidate to treat chronic granulomatous disease; and +• $1.9 million increase in license fees for amounts due to the Broad resulting from the BMS Collaboration Agreement. +This is offset by a $17.9 million decrease in lab supplies expense as materials used in the current year for our ongoing Phase 1 clinical trial were purchased in advance in 2023. +Settlement Payment — Related Party +In January 2024, we entered into a settlement agreement with Myeloid Therapeutics, Inc., or Myeloid, to resolve two arbitration proceedings. Under the terms of the agreement, the parties agreed to resolve and settle all disputes between the parties and release all claims between them relating to the parties’ license agreement and the arbitrations in exchange for our payment to Myeloid of $13.5 million, certain mutual covenants, and other consideration. +General and Administrative Expenses +Year ended December 31, +(in thousands) 2024 2023 Change +General and administrative expenses: +Personnel expenses $ 26,569 $ 17,076 $ 9,493 +Professional and consultant fees 13,459 17,642 (4,183) +Facility related and other 10,133 8,669 1,464 +Total general and administrative expenses $ 50,161 $ 43,387 $ 6,774 +115 +The $6.8 million increase in general and administrative expense for the year ended December 31, 2024 as compared to the year ended December 31, 2023 is primarily driven by: +• $9.5 million increase in personnel expense, a majority of which was an increase in non-cash stock-based compensation expense of $7.4 million; and +• $1.5 million increase in facility related and other primarily related to the ongoing build out of our facility at 60 First Street. +This was offset by a $4.2 million decrease in professional and consultant fees for legal services. +Other Income (Expense) +Year ended December 31, +(in thousands) 2024 2023 Change +Other income: +Interest income 3,522 2,811 711 +Accretion (amortization) of investments $ 3,507 $ 5,677 $ (2,170) +Change in fair value of short-term investment — related party (485) (2,382) 1,897 +Other income, net 41 274 (233) +Total other income, net $ 6,585 $ 6,380 $ 205 +Accretion of investments +Accretion (amortization) of investments for each of the periods presented is a result of the price at which our investments are purchased. If the investments are purchased at a price different from their par value, the difference is accreted, if lower than par, or amortized, if higher than par, until the investment matures or is sold. +Change in Fair Value of Related Party Short-Term Investment +The change in fair value of related party short-term investment for each of the periods presented is a result of Beam’s stock price movement. +Liquidity and Capital Resources +Since our inception, we have incurred significant operating losses. We expect to incur significant expenses and operating losses for the foreseeable future as we commence the clinical development of our programs and continue our platform development and early-stage research activities. We have not yet commercialized any products and we do not expect to generate revenue from sales of products for several years, if at all. To date, we have funded our operations primarily with proceeds from sales of preferred stock, public offerings of our common stock, and through payments from our collaboration partners. As of December 31, 2024, we had cash and cash equivalents, short-term investments, and related party short-term investments of $190.4 million, excluding our restricted cash, or $204.5 million, including restricted cash. +In November 2023, we entered into an Open Market Sale Agreement SM , or the Sales Agreement, with Jefferies LLC, or Jefferies, under which we may, from time to time, issue and sell shares of our common stock having an aggregate sales proceeds of up to $300.0 million, in a series of one or more at-the-market equity offerings, or the 2023 ATM Program. Jefferies is not required to sell any specific share amounts but acts as our sales agent, using commercially reasonable efforts consistent with its normal trading and sales practices. We will pay Jefferies a commission equal to 3.0% of the aggregate gross proceeds we receive from each sale of our shares of common stock. Pursuant to the Sales Agreement, any shares will be sold pursuant to our shelf registration statement on Form S-3 (File No. 333-275321) filed with the SEC on November 3, 2023, including the base prospectus contained therein, as declared effective by the SEC on November 13, 2023. Our common stock will be sold at prevailing market prices at the time of the sale, and as a result, prices may vary. As of December 31, 2024, we have not sold any shares of common stock under the 2023 ATM Program. +116 +In February 2024, we issued and sold 22,560,001 shares of our common stock, including 3,360,000 shares pursuant to the exercise of the underwriters’ option to purchase additional shares, at a price to the public of $6.25 per share. Further, in lieu of common stock to certain investors, we sold pre-funded warrants to purchase 3,200,005 shares of common stock at a public offering price of $6.24999 per pre-funded warrant, which represents the per share public offering price of each share of common stock less the $0.00001 per share exercise price for each pre-funded warrant. As a result of the offering, we received approximately $150.9 million in net proceeds, after deducting underwriting discounts, commissions and estimated offering costs of $10.1 million. +Going Concern +Since our inception, we have incurred substantial losses. As of December 31, 2024, we had an accumulated deficit of $687.2 million and we expect to generate operating losses and negative operating cash flows for the foreseeable future. As stated above, as of December 31, 2024, we maintained cash, cash equivalents, short-term investments, and related party short-term investments of $190.4 million. +In accordance with Accounting Standards Codification, or ASC, 205-40, Going Concern , or ASC 205-40, we evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date on which this Annual Report on Form 10-K is filed. Based on the our cash, cash equivalents, short-term investments, and related party short-term investments as of December 31, 2024, our current and forecasted level of operations and forecasted cash flows, our ability to continue as a going concern is dependent upon our ability to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. Management plans to provide for capital requirements through financing or other transactions, and selling shares under our “at the market offering” program. There can be no assurance that we will be able to raise additional capital to fund operations with terms acceptable to us, or at all. Because certain elements of our plans to mitigate the conditions that raised substantial doubt about our ability to continue as a going concern are outside of our control, including the ability to raise capital through an equity or other financing, those elements cannot be considered probable according to ASC 205-40, and therefore cannot be considered in the evaluation of mitigating factors. As a result, we concluded that substantial doubt exists about our ability to continue as a going concern for 12 months from the date these consolidated financial statements are issued. +The consolidated financial statements as of December 31, 2024 have been prepared under the assumption that we will continue as a going concern for the next 12 months and that contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. Our ability to continue as a going concern is dependent upon our uncertain ability to obtain additional capital, reduce expenditures and/or execute on its business plan. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. +Cash Flows +The following table summarizes our sources and uses of cash for each of the periods presented: +Year ended December 31, +(in thousands) 2024 2023 +Net change in cash, cash equivalents, and restricted cash +Net cash used in operating activities $ (122,865) $ (165,412) +Net cash provided by investing activities 68,457 18,711 +Net cash provided by financing activities 195,876 655 +Net change in cash, cash equivalents, and restricted cash $ 141,468 $ (146,046) +117 +Operating Activities +Net cash used in operating activities for the year ended December 31, 2024 was driven primarily by the following uses of cash: +• $195.9 million net loss; +• $15.9 million change in prepaid expenses and other current assets; +• $13.5 million change in accrued settlement payment — related party; +• $6.5 million change in lease liabilities; and +• $5.3 million change in accounts payable. +These were offset by: +• $70.3 million change in deferred revenue; +• $41.9 million of non-cash amounts included in net loss, which consisted primarily of stock-based compensation expense, non-cash lease expense, depreciation and amortization expense, and change in fair value of short-term investment — related party; and +• $1.8 million change in accrued expenses and other assets. +Net cash used in operating activities for the year ended December 31, 2023 was driven primarily by the following uses of cash: +• $198.1 million net loss; +• $12.3 million change in lease liabilities; and +• $9.5 million change in prepaid expenses and other current assets. +These were offset by: +• $30.1 million of non-cash amounts included in net loss, which primarily consisted of change in non-cash lease expense, fair value of short-term investment — related party, and stock-based compensation expense; +• $13.5 million change in accrued settlement payment — related party; +• $9.1 million change in accounts payable; and +• $1.8 million change in accrued expenses and other current liabilities. +Investing Activities +Net cash provided by investing activities for the year ended December 31, 2024 was driven primarily by the following: +• $74.8 million of maturities of short-term investments, net of purchases; offset by +• $7.3 million of purchases of property and equipment. +Net cash provided by investing activities for the year ended December 31, 2023 was driven primarily by the following: +• $27.6 million of maturities of short-term investments, net of purchases; and +• $8.7 million of purchases of property and equipment. +118 +Financing Activities +Net cash provided by financing activities for the year ended December 31, 2024 was driven primarily by the following: +• $132.1 million of proceeds from issuances of common stock with our February 2024 public offering; +• $38.1 million of proceeds from issuance of common stock to BMS in September 2024; +• $18.8 million of proceeds from issuance of pre-funded warrants contemporaneous with our February 2024 public offering; and +• $6.0 million of proceeds received under our agreement with Cystic Fibrosis Foundation. +Funding Requirements +To date, we have not generated any revenue from product sales. We do not expect to generate revenue from product sales unless and until we successfully complete preclinical and clinical development of, receive regulatory approval for, and commercialize a product candidate and we do not know when, or if at all, that will occur. We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and studies and initiate clinical trials. In addition, if we obtain regulatory approval for any product candidates, we expect to incur significant expenses related to product sales, marketing, and distribution to the extent that such sales, marketing and distribution are not the responsibility of potential collaborators. Further, we have incurred, and expect to continue to incur, costs associated with operating as a public company. The timing and amount of our operating expenditures will depend largely on the factors set out above. For more information, see “Risk Factors—Risks Related To Our Financial Position and Need for Additional Capital.” +We believe our existing cash, cash equivalents, and investments will be sufficient to fund our operating expenses and capital expenditure requirements into the first half of 2026. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. We expect that we will require additional funding to: +• continue our current research development activities; +• identify product candidates; +• initiate preclinical testing and clinical trials for our future product candidates we identify; +• develop, maintain, expand and protect our intellectual property portfolio; +• further develop our Prime Editing platform; and +• hire additional research, clinical and scientific personnel. +If we receive regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to commercialize ourselves. +Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of private and public equity offerings, debt financings, additional collaborations, strategic alliances, and marketing, distribution or licensing arrangements with third parties. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interest may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, strategic alliances or marketing, or distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, any future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, reduce or eliminate our product development or future +119 +commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. +Contractual Obligations and Other Commitments +Leases +Refer to Note 6, Leases, to our consolidated financial statements appearing within this Annual Report on Form 10-K for information on our lease obligations. +Under our license and collaboration agreements, we are potentially obligated to pay certain milestones, royalty fees, licensing maintenance fees, and reimbursement of patent maintenance costs. These amounts are contingent upon the occurrence of future events and the timing and likelihood of such potential obligations are not known with certainty. +Critical Accounting Policies and Significant Judgments and Estimates +Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses incurred during the reporting periods. We base our estimates on historical experience, known trends and events, and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities recorded revenues and expenses that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. +While our significant accounting policies are described in more detail in Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements appearing within this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements. +Stock-Based Compensation Expense +We measure stock-based awards granted to employees, directors, and non-employees based on their fair value on the date of the grant using the Black-Scholes option-pricing model for stock options. Compensation expense for those awards is recognized over the requisite service period, which is generally the vesting period of the respective award, using the straight-line method. We account for forfeitures of stock-based awards as they occur. +The Black-Scholes option pricing model used to determine the fair value of our stock options includes various assumptions, including the expected term of the award, the expected volatility, and the expected risk-free interest rate, expected dividend payments, and the fair value of the common stock underlying the stock-based award. +We consider the expected volatility to be a critical accounting estimate. As we do not have sufficient trading history, we use the average historical volatility of a representative group of publicly traded biopharmaceutical companies to calculate the expected volatility for use in the Black-Scholes option pricing model. This assumption reflects our best estimate; but determining a representative peer group involves subjective considerations. As a result, if a different peer group is used to estimate volatility, the resulting volatility could have a material impact on our stock-based compensation expense. +Prepaid and Accrued Research and Development Expenses +As part of preparing our consolidated financial statements, we are required to estimate research and development expenses. This process involves reviewing quotations and contracts, identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. These estimates of the expenses incurred are based on facts and circumstances known to us at that time. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative +120 +to the actual status and timing of services performed may vary and could have a significant impact on reported amounts. +If the payments made exceed the expenses incurred, the excess amount is reflected as prepaid expenses and other current assets. If the expenses incurred exceed payments made, the difference is reflected as accrued expenses and other current liabilities. +Non-refundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized in prepaid expenses and other current assets. The capitalized amounts are expensed as the related goods are delivered or services are performed. +Revenues from contracts +We account for our revenue in accordance with ASC, 606, Revenue from Contracts with Customers , or ASC 606. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, we perform the following five steps at inception of the agreement or upon material modification of the agreement: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. +We consider the pattern of satisfaction of the performance obligations under step (v) above to be a critical accounting estimate. More specifically, the determination of the level of achievement of research and development service performance obligations, whose pattern of satisfaction is measured using costs incurred to date as compared to total costs incurred and expected to be incurred in the future is driven by a critical accounting estimate. +In estimating the costs expected to be incurred in the future, we use our most recent budget and long-range plan, adjusted for any pertinent information. While this is our best estimate as of the reporting period, costs expected to be incurred in the future require management judgment as the scope and timing of research and development activities may change significantly over time. Change in our estimate of the scope and timing of research and development services performed relative to the actual scope and timing may have a significant impact on revenue recognition. +Recently Issued and Adopted Accounting Pronouncements +A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2, Summary of Significant Accounting Policies , to our consolidated financial statements appearing within this Annual Report on Form 10-K. +Emerging Growth Company Status +The JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. As a result of this election, our consolidated financial statements may not be comparable to other public companies that comply with new or revised accounting pronouncements as of public company effective dates. We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies. +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +Interest Rate Risk +We are exposed to market risk related to changes in interest rates of our investment portfolio of cash equivalents and short-term investments. As of December 31, 2024, we held cash and cash equivalents, investments, and restricted +121 +cash $204.5 million. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. The fair value of our cash equivalents, consisted of our money market funds, and investments are subject to change as a result of potential changes in market interest rates. Due to the short-term maturities of our cash equivalents and investments and the low risk profile of our investments, an immediate 10 percent change in interest rates would not have a material effect on the fair market value of our cash equivalents or investments. +Effects of Inflation +Inflation generally affects us by increasing our cost of labor and research and development costs. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience some effect in the future due to an impact on the costs to conduct research and development, labor costs we incur to attract and retain qualified personnel, and other operational costs. +Item 8. Financial Statements and Supplementary Data +The financial statements required to be filed pursuant to this Item 8 are appended to this Annual Report on Form 10-K. An index of those financial statements is found in Item 15, Exhibits and Financial Statement Schedules , of this Annual Report on Form 10-K. +Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +None. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +Our management, with the participation of our principal executive officer and our principal financial officer, evaluated, as of the end of the period covered by this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. +Based on the evaluation of our disclosure controls and procedures as of December 31, 2024, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures as of such date are effective at the reasonable assurance level. +Management’s Annual Report on Internal Controls Over Financial Reporting +Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external +122 +purposes in accordance with United States GAAP. Our internal control over financial reporting includes those policies and procedures that: +• pertain to the maintenance of records that, in reasonable detail, accurately, and fairly reflect our transactions and dispositions of our assets; +• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with United States GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and +• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. +Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2024. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in its 2013 Internal Control – Integrated Framework. Based on our assessment, our management has concluded that, as of December 31, 2024, our internal control over financial reporting is effective based on those criteria. +Attestation Report of the Registered Public Accounting Firm +This Annual Report does not include an attestation report of out registered public accounting firm regarding our internal control over financial reporting due to an exemption provided by the JOBS Act for “emerging growth companies.” +Changes in Internal Control over Financial Reporting +We continuously seek to improve the efficiency and effectiveness of our internal controls, which may result in changes to our systems and refinements to our processes. However, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. +Item 9B. Other Information +From time to time, our officers (as defined in Rule 16a–1(f)) and directors may enter into Rule 10b5-1 or non-Rule 10b5-1 trading arrangements (as each such term is defined in Item 408 of Regulation S-K). During the three months ended December 31, 2024, none of the Company’s directors or officers adopted , modified or terminated a plan or other arrangement intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any non-Rule 10b5-1 trading arrangements (as defined in Item 408(c) of Regulation S-K). +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not applicable. +123 +PART III +Item 10. Directors, Executive Officers and Corporate Governance +The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2024. +Item 11. Executive Compensation +The information required under this item (excluding the information under the subheading “Pay Versus Performance”) is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2024. +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2024. +Item 13. Certain Relationships and Related Transactions, and Director Independence +The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2024. +Item 14. Principal Accountant Fees and Services +The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2024. +124 +PART IV +Item 15. Exhibits and Financial Statement Schedules +(1) Financial Statements +For a list of the financial statements included herein, see Index to the Consolidated Financial Statements on page F-1 of this Annual Report on Form 10-K, incorporated into this Item by reference. +(2) Financial Statement Schedules +Schedules have been omitted since they are either not required or not applicable or the information is otherwise included herein. +(3) Exhibits +Exhibit number +Description of exhibit +3.1 +Third Amended and Restated Certificate of Incorporation of Prime Medicine, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on October 24, 2022) +3.2 +Certificate of Amendment to Third Amended and Restated Certificate of Incorporation of Prime Medicine, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on June 12, 2024). +3.3 +Second Amended and Restated Bylaws of Prime Medicine, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on May 21, 2024). +4.1 +Amended and Restated Investors’ Rights Agreement among the Registrant and certain of its stockholders, dated April 20, 2021 (incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +4.2 +Form of Common Stock Certificate (incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +4.3 +Description of Securities (incorporated by reference to Exhibit 4.3 of the Registrant’s Annual Report on Form 10-K, filed with the SEC on March 9, 2023) +4.4 +Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K, filed with the SEC on February 16, 2024) +10.1# +2019 Stock Option and Grant Plan, as amended, and forms of award agreements thereunder (incorporated by reference to Exhibit 10.1 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +10.2# +2022 Stock Option and Incentive Plan and forms of award agreements thereunder (incorporated by reference to Exhibit 10.2 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +10.3# +2022 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.3 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +10.4# +Senior Executive Cash Incentive Bonus Plan (incorporated by reference to Exhibit 10.4 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +10.5# +Amended and Restated Non-Employee Director Compensation Policy (incorporated by reference to Exhibit 10. 1 of the Registrant’s Q uarterly Report on Form 10-Q, filed with the SEC on A u gust 8, 2024) +10.6# +Form of Officer Indemnification Agreement (incorporated by reference to Exhibit 10.6 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +10.7# +Form of Director Indemnification Agreement (incorporated by reference to Exhibit 10.7 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +125 +Exhibit number +Description of exhibit +10.8# +Amended and Restated Employment Agreement, dated July 7, 2022, between the Registrant and Keith Gottesdiener (incorporated by reference to Exhibit 10.8 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +10.9# +Amended and Restated Employment Agreement, dated July 20, 2022, between the Registrant and Jeremy Duffield (incorporated by reference to Exhibit 10.9 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +10.10# +Amended and Restated Employment Agreement, dated July 11, 2022, between the Registrant and Ann Lee (incorporated by reference to Exhibit 10.10 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +10.11# +Amended and Restated Employment Agreement, dated July 7, 2022, between the Registrant and Carman Alenson (incorporated by reference to Exhibit 10.11 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579), filed with the SEC on October 17, 2022 +10.12# +Amended and Restated Employment Agreement, dated July 7, 2022, between the Registrant and Meredith Goldwasser (incorporated by reference to Exhibit 10.12 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579), filed with the SEC on October 17, 2022) +10.13# +Employment Agreement, effective as of January 17, 2024, between the Registrant and Allan Reine (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on January 5, 2024) +10.14† +Collaboration and License Agreement, dated September 26, 2019, between Beam Therapeutics Inc. and the Registrant (incorporated by reference to Exhibit 10.13 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +10.15† +License Agreement, dated September 26, 2019, between The Broad Institute, Inc. and the Registrant, as amended (incorporated by reference to Exhibit 10.14 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +10.16† +Amendment No. 1 to License Agreement, dated May 5, 2020, between The Broad Institute, Inc. and the Registrant (incorporated by reference to Exhibit 10.15 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +10.17† +Amendment No. 2 to License Agreement, dated February 18, 2021, between The Broad Institute, Inc. and the Registrant (incorporated by reference to Exhibit 10.16 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +10.18† +Amendment No. 3 to License Agreement, dated December 22, 2022, between The Broad Institute, Inc. and the Registrant (incorporated by reference to Exhibit 10.17 of the Registrant’s Annual Report on Form 10-K, filed with the SEC on March 9, 2023) +10.19†* +Amendment No. 4 to License Agreement, dated September 27, 2024, between The Broad Institute, Inc. and the Registrant (incorporated by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 12, 2024) +10.20† +License Agreement, dated December 22, 2022, between The Broad Institute, Inc. and the Registrant (incorporated by reference to Exhibit 10.1 8 of the Registrant’s Annual Report on Form 10-K, filed with the SEC on March 9, 2023) +10.21 +Pledge from Prime Medicine, amended and restated August 2022, between The Broad Institute, Inc. and the Registrant (incorporated by reference to Exhibit 10.17 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +10.22+ +Andrew Anzalone Offer Letter, dated December 20, 2019 (incorporated by reference to Exhibit 10.21 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed on October 17, 2022) +10.23 +Andrew Anzalone Confidentiality, Assignment and Nonsolicitation Agreement, dated October 16, 2020 (incorporated by reference to Exhibit 10.22 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed on October 17, 2022) +10.24# +Form of Executive Employment Agreement (incorporated by reference to Exhibit 10.23 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022 +10.25# +Amendment No. 1 to Amended and Restated Employment Agreement, dated July 6, 2023, between Registrant and Keith Gottesdiener (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 3, 2023). +126 +Exhibit number +Description of exhibit +10.26 +Lease Agreement, dated as of November 22, 2021, between NW Cambridge Property Owner, LLC and the Registrant (incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 7, 2023) +10.27+† +Securities Purchase Agreement, dated September 28, 2024, by and between Juno Therapeutics, Inc. and the Registrant (incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q, filed with the SEC on November 12, 2024) +10.28+† +Research Collaboration and License Agreement, dated September 28, 2024, by and between Juno Therapeutics, Inc. and the Registrant (incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 12, 2024) +19.1*† +P rime Medicine, Inc . Amended and Restated Insider Trading Policy +21.1* +Subsidiaries of the Registrant +23.1* +Consent of PricewaterhouseCoopers, LLP, Independent Registered Public Accounting Firm +31.1* +Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +31.2* +Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32.1** +Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +32.2** +Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97.1 +Prime Medicine, Inc. Compensation Recovery Policy, dated September 15, 2023 (incorporated by reference to Exhibit 97.1 of the Registrant’s Annual Report on Form 10-K, filed with the SEC on March 1, 2024) +101.INS* Inline XBRL Instance Document +101.SCH* Inline XBRL Taxonomy Extension Schema Document +101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document +101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document +101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document +101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document +104* Cover Page Interactive Data File (embedded within the Inline XBRL document) +__________________ +* Filed herewith. +** The certifications furnished in Exhibit 32.1 and Exhibit 32.2 hereto are deemed to accompany this Annual Report on Form 10-K and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference. +# Indicates a management contract or any compensatory plan, contract or arrangement. +† Portions of this exhibit (indicated by asterisks) have been omitted pursuant to Item 601(b)(10) of Regulation S-K. ++ Certain exhibits and schedules to these agreements have been omitted pursuant to Item 601(a)(5) and (6) of Regulation S-K. The registrant will furnish copies of any of the exhibits and schedules to the Securities and Exchange Commission upon request. +Item 16. Form 10-K Summary +None. +127 +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +Prime Medicine, Inc. +February 28, 2025 +By: /s/ Keith Gottesdiener +Keith Gottesdiener +President and Chief Executive Officer +POWER OF ATTORNEY AND SIGNATURES +Each person whose individual signature appears below hereby authorizes and appoints Keith Gottesdiener, Allan Reine, and Carman Alenson, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his or her substitute or substitutes may lawfully do or cause to be done by virtue thereof. +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Signature Title Date +/s/ Keith Gottesdiener +President, Chief Executive Officer and Director +(Principal Executive Officer) +February 28, 2025 +Keith Gottesdiener +/s/ Allan Reine +Chief Financial Officer +(Principal Financial Officer) +February 28, 2025 +Allan Reine +/s/ Carman Alenson +Chief Accounting Officer +(Principal Accounting Officer) +February 28, 2025 +Carman Alenson +/s/ Thomas Cahill Director +February 28, 2025 +Thomas Cahill +/s/ Wendy Chung Director +February 28, 2025 +Wendy Chung +/s/ Kaye Foster Director +February 28, 2025 +Kaye Foster +/s/ Michael Kelly +Director +February 28, 2025 +Michael Kelly +/s/ Jeff Marrazzo Director +February 28, 2025 +Jeff Marrazzo +/s/ Robert Nelsen Director +February 28, 2025 +Robert Nelsen +/s/ David Schenkein +Director +February 28, 2025 +David Schenkein +128 +PRIME MEDICINE, INC. +INDEX TO CONSOLIDATED FINANCIAL STATEMENTS +Page +Report of Independent Registered Public Accounting Firm (PCAOB ID: 238 ) +F- 2 +Consolidated Balance Sheets +F- 3 +Consolidated Statements of Operations and Comprehensive Loss +F- 4 +Consolidated Statements of Stockholders’ Equity +F- 5 +Consolidated Statements of Cash Flows +F- 6 +Notes to Consolidated Financial Statements +F- 8 +F-1 +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To the Board of Directors and Stockholders of Prime Medicine, Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheets of Prime Medicine, Inc. and its subsidiary (the "Company") as of December 31, 2024 and 2023, and the related consolidated statements of operations and comprehensive loss, stockholders' equity and of cash flows for the years then ended, including the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. +Substantial Doubt About the Company's Ability to Continue as a Going Concern +The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred recurring losses from operations, has an accumulated deficit, and needs to raise additional capital to fund future operations, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. +Basis for Opinion +These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ PricewaterhouseCoopers LLP +Boston, Massachusetts +February 28, 2025 +We have served as the Company's auditor since 2021. +F-2 +PRIME MEDICINE, INC. +CONSOLIDATED BALANCE SHEETS +December 31, +(in thousands, except share and per share amounts) 2024 2023 +Assets +Current assets: +Cash and cash equivalents $ 182,476 $ 41,574 +Short-term investments 2,998 74,639 +Short-term investment — related party 4,968 5,452 +Prepaid expenses 6,777 19,057 +Other current assets 14,667 2,254 +Total current assets 211,886 142,976 +Property and equipment, net 24,404 22,659 +Operating lease right-of-use assets 47,156 13,941 +Restricted cash 14,062 13,496 +Other assets — 779 +Total assets $ 297,508 $ 193,851 +Liabilities and Stockholders’ Deficit +Current liabilities: +Accounts payable $ 11,351 $ 19,537 +Accrued expenses and other current liabilities 15,904 14,110 +Accrued settlement payment — related party — 13,500 +Deferred revenue — related party 7,092 — +Operating lease liability 3,614 9,276 +Total current liabilities 37,961 56,423 +Deferred revenue, net of current — related party 63,218 — +Operating lease liability, net of current 37,180 4,357 +Research and development funding liability 6,000 — +Total liabilities 144,359 60,780 +Commitments and contingencies (Note 12) +Stockholders’ equity +Common stock, par value of $ 0.00001 per share; 775,000,000 shares authorized; 131,160,842 and 97,377,121 shares issued and outstanding as of December 31, 2024 and 2023, respectively +2 2 +Additional paid-in capital 840,358 624,414 +Accumulated other comprehensive loss 1 ( 15 ) +Accumulated deficit ( 687,212 ) ( 491,330 ) +Total stockholders’ equity 153,149 133,071 +Total liabilities and stockholders’ equity $ 297,508 $ 193,851 +The accompanying notes are an integral part of these consolidated financial statements. +F-3 +PRIME MEDICINE, INC. +CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS +Year Ended December 31, +(in thousands, except share and per share amounts) 2024 2023 +Revenue: +Collaboration revenue — related party $ 1,609 $ — +Collaboration revenue 1,374 — +Total revenue 2,983 — +Operating expenses: +Research and development (1) +155,289 147,905 +Settlement payment — related party — 13,500 +General and administrative 50,161 43,387 +Total operating expenses 205,450 204,792 +Loss from operations ( 202,467 ) ( 204,792 ) +Other income: +Interest income 3,522 2,811 +Accretion (amortization) of investments 3,507 5,677 +Change in fair value of short-term investment — related party ( 485 ) ( 2,382 ) +Other income, net 41 274 +Total other income, net 6,585 6,380 +Net loss before income taxes ( 195,882 ) ( 198,412 ) +Benefit from income taxes — 279 +Net loss attributable to common stockholders $ ( 195,882 ) $ ( 198,133 ) +Net loss per share attributable to common stockholders, basic and diluted $ ( 1.65 ) $ ( 2.18 ) +Weighted-average common shares outstanding, basic and diluted 118,600,381 90,969,327 +Comprehensive loss: +Net loss $ ( 195,882 ) $ ( 198,133 ) +Change in unrealized loss on investments, net of tax 16 369 +Comprehensive loss $ ( 195,866 ) $ ( 197,764 ) +__________________ +(1) Includes related party amounts of $ — million and $ 0.6 million for the years ended December 31, 2024 and 2023, respectively. +The accompanying notes are an integral part of these consolidated financial statements. +F-4 +PRIME MEDICINE, INC. +CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY +Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders' Equity +(in thousands, except share amounts) Shares Amount +Balances at December 31, 2022 97,209,213 $ 2 $ 609,849 $ ( 384 ) $ ( 293,197 ) $ 316,270 +Issuance of common stock upon exercise of stock options 167,908 — 655 — — 655 +Stock-based compensation expense — — 13,910 — — 13,910 +Change in unrealized loss on investments, net of tax — — — 369 — 369 +Net loss — — — — ( 198,133 ) ( 198,133 ) +Balances at December 31, 2023 97,377,121 $ 2 $ 624,414 $ ( 15 ) $ ( 491,330 ) $ 133,071 +Issuance of common stock from public offering, net of issuance costs of $ 8.9 million +22,560,001 — 132,055 — — 132,055 +Issuance of pre-funded warrants, net of issuance costs of $ 1.2 million +— — 18,800 — — 18,800 +Issuance of common stock under the Securities Purchase Agreement to BMS — related party (Note 9) 11,006,163 — 38,081 — — 38,081 +Issuances of common stock under the employee stock purchase plan 189,509 — 837 — — 837 +Issuances of common stock upon exercise of stock options 28,048 — 103 — — 103 +Stock-based compensation expense — — 26,068 — — 26,068 +Change in unrealized loss on investments, net of tax — — — 16 — 16 +Net loss — — — — ( 195,882 ) ( 195,882 ) +Balances at December 31, 2024 131,160,842 $ 2 $ 840,358 $ 1 $ ( 687,212 ) $ 153,149 +The accompanying notes are an integral part of these consolidated financial statements. +F-5 +PRIME MEDICINE, INC. +CONSOLIDATED STATEMENTS OF CASH FLOWS +Year Ended December 31, +(in thousands) 2024 2023 +Cash flows used in operating activities: +Net loss $ ( 195,882 ) $ ( 198,133 ) +Adjustments to reconcile net loss to net cash used in operating activities: +Stock-based compensation expense 26,068 13,910 +Non cash lease expense 12,355 12,788 +Depreciation expense 6,128 4,653 +Change in fair value of short-term investment — related party 484 2,382 +Loss on disposal of property and equipment — 28 +Amortization of premiums and discount on short-term investments ( 3,094 ) ( 3,408 ) +Deferred income taxes — ( 279 ) +Changes in operating assets and liabilities: +Prepaid expenses and other current assets ( 15,859 ) ( 9,455 ) +Accounts payable ( 5,257 ) 9,140 +Accrued expenses and other current liabilities 1,843 1,758 +Accrued settlement payment — related party ( 13,500 ) 13,500 +Deferred revenue — related party 70,310 — +Lease liability ( 6,461 ) ( 12,296 ) +Net cash used in operating activities ( 122,865 ) ( 165,412 ) +Cash flows provided by investing activities: +Maturities of investments 204,200 132,556 +Purchases of investments ( 129,449 ) ( 104,951 ) +Purchases of property and equipment ( 7,294 ) ( 8,724 ) +Return (payment) of security deposit 1,000 ( 170 ) +Net cash provided by investing activities 68,457 18,711 +Cash flows provided by financing activities: +Proceeds from follow-on offering, net of issuance costs 132,055 — +Proceeds from issuance of pre-funded warrants, net of issuance costs 18,800 — +Proceeds from issuance of common stock under the BMS Securities Purchase Agreement — related party 38,081 — +Proceeds from research and development funding liability 6,000 — +Proceeds from ESPP offerings 837 — +Net proceeds from stock option exercises 103 655 +Net cash provided by financing activities 195,876 655 +Net change in cash, cash equivalents, and restricted cash 141,468 ( 146,046 ) +Cash, cash equivalents, and restricted cash at beginning of period 55,070 201,116 +Cash, cash equivalents, and restricted cash at end of period $ 196,538 $ 55,070 +The accompanying notes are an integral part of these consolidated financial statements. +F-6 +PRIME MEDICINE, INC. +CONSOLIDATED STATEMENTS OF CASH FLOWS +Year Ended December 31, +(in thousands) 2024 2023 +Reconciliation of cash, cash equivalents and restricted cash: +Cash, cash equivalents, and restricted cash at end of period $ 196,538 $ 55,070 +Less: restricted cash 14,062 13,496 +Total cash, and cash equivalents $ 182,476 $ 41,574 +Supplemental cash flow information: +Right-of-use assets obtained in exchange for new operating lease liabilities $ 44,935 $ 3,265 +Decrease in right-of-use assets due to lease termination $ — $ 6,081 +Supplemental disclosure of non-cash investing and financing activities: +Purchases of property and equipment included in accounts payable and accrued expenses $ 1,154 $ 575 +The accompanying notes are an integral part of these consolidated financial statements. +F-7 +PRIME MEDICINE, INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +1. Nature of the Business and Basis of Presentation +Prime Medicine, Inc., together with its consolidated subsidiary (the “Company”) is a biotechnology company committed to delivering a new class of differentiated one-time curative treatments. The Company is deploying Prime Editing technology, which it believes is a versatile, precise, and efficient gene editing technology. The Company was incorporated in the State of Delaware in September 2019. Its principal offices are in Cambridge, Massachusetts. +Liquidity and Capital Resources +Since its inception, the Company has devoted substantially all of its resources to building its Prime editing platform and advancing development of its portfolio of programs, establishing and protecting its intellectual property, conducting research and development activities, organizing and staffing the company, business planning, raising capital and providing general and administrative support for these operations. To date, the Company has funded its operations primarily with proceeds from sales of preferred stock and from public offerings of its common stock. +In February 2024, the Company issued and sold 22,560,001 shares of its common stock, including 3,360,000 shares pursuant to the exercise of the underwriters’ option to purchase additional shares, at a price to the public of $ 6.25 per share. Further, in lieu of common stock to certain investors, the Company sold pre-funded warrants to purchase 3,200,005 shares of common stock at a public offering price of $ 6.24999 per pre-funded warrant, which represents the per share public offering price of each share of common stock less the $ 0.00001 per share exercise price for each pre-funded warrant. As a result of the offering, the Company received approximately $ 150.9 million in net proceeds, after deducting underwriting discounts, commissions and offering costs of $ 10.1 million. +On September 28, 2024 (the “Effective Date”), the Company entered into a Research Collaboration and License Agreement (the “BMS Collaboration Agreement”) with Juno Therapeutics, Inc., a wholly-owned subsidiary of the Bristol-Myers Squibb Company (“BMS”). Additionally, on the Effective Date, the Company entered into a Securities Purchase Agreement (the “BMS Purchase Agreement”) with BMS, pursuant to which the Company agreed to sell and issue shares of its common stock to BMS. The BMS Collaboration Agreement and the BMS Purchase Agreement are discussed in greater detail in Note 9, License and Collaboration Agreements . Under the BMS Collaboration Agreement, the Company received a $ 55.0 million equity investment and a $ 55.0 million upfront payment. +Since its inception, the Company has incurred substantial losses. As of December 31, 2024, the Company had an accumulated deficit of $ 687.2 million and expects to generate operating losses and negative operating cash flows for the foreseeable future. As of December 31, 2024, the Company maintains cash, cash equivalents, short-term investments, and related party short-term investments of $ 190.4 million. +Going Concern +In accordance with Accounting Standards Codification (“ASC”) 205-40, Going Concern , ("ASC 205-40") the Company evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date on which this Annual Report on Form 10-K is filed. Based on the Company's cash, cash equivalents, short-term investments, and related party short-term investments as of December 31, 2024, the Company's current and forecasted level of operations, and its forecasted cash flows, the Company’s ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management plans to provide for the Company’s capital requirements through financing or other transactions, and selling shares under the Company's “at the market offering” program. There can be no assurance that the Company will be able to raise additional capital to fund operations with terms acceptable to the Company, or at all. Because certain elements of management’s plans to mitigate the conditions that raised substantial doubt about the Company’s ability to continue as a going concern are outside of the Company’s control, including the ability to raise capital through an equity or other financing, those elements cannot be considered +F-8 +probable according to ASC 205-40, and therefore cannot be considered in the evaluation of mitigating factors. As a result, management has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for 12 months from the date these consolidated financial statements are issued. +The consolidated financial statements as of December 31, 2024 have been prepared under the assumption that the Company will continue as a going concern for the next 12 months and that contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. The Company’s ability to continue as a going concern is dependent upon its uncertain ability to obtain additional capital, reduce expenditures and/or execute on its business plan. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. +Risks and Uncertainties +The Company is subject to risks and uncertainties common to early stage companies in the biotechnology industry, including, but not limited to, completing preclinical studies and clinical trials, obtaining regulatory approval for product candidates, market acceptance of products, development by competitors of new technological innovations, dependence on key personnel, the ability to attract and retain qualified employees, reliance on third-party organizations, protection of proprietary technology, compliance with government regulations, and the ability to raise additional capital to fund operations. The Company’s product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure, and extensive compliance-reporting capabilities. Even if the Company’s development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales. +The Company will need to raise additional capital to support its continuing operations and to pursue its growth strategy. Until such time as the Company can generate significant revenue from product sales, if ever, it expects to finance its operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. The Company may be unable to raise additional capital or enter into such other agreements when needed on favorable terms or at all. The inability to raise capital as and when needed would have a negative impact on the Company’s financial condition and its ability to pursue its business strategy. The Company will need to generate significant revenue to achieve profitability, and it may never do so. +Basis of Presentation +The accompanying consolidated financial statements reflect the operations of the Company and its wholly-owned subsidiary. Intercompany balances and transactions have been eliminated in consolidation. The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). +Principles of Consolidation +The Company’s consolidated financial statements include the accounts of Prime Medicine, Inc. and its wholly owned subsidiary Prime Medicine Securities Corp., a Massachusetts securities corporation. All significant intercompany balances and transactions have been eliminated in consolidation. +Change in Presentation +For the year ended December 31, 2024, “Other income, net” as presented on the consolidated statements of operations and comprehensive loss was disaggregated into “Accretion (amortization) of investments,” “Interest income,” and “Other income, net”. In addition, the Company updated its presentation of accrued expenses footnote to better represent the nature of the accrued expense. As a result, a portion of “Accrued professional fees” was disaggregated into “Facility related” and the remaining amounts were included as “Other”. These presentations have been conformed for all previous periods presented and had no impact on previously reported results. +F-9 +2. Summary of Significant Accounting Policies +Use of Estimates +The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions reflected within these consolidated financial statements include, but are not limited to, the valuation of the Company’s stock-based awards. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Actual results may differ materially from those estimates or assumptions. +Concentrations of Credit Risk +Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, and restricted cash. Under its investment policy, the Company invests in U.S. Treasury, government securities, and corporate debt and maintains its cash and cash equivalents at high-quality and accredited financial institutions in amounts that could exceed federally insured limits. Cash equivalents are invested in money market funds. However, the Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. +Cash and Cash Equivalents +The Company considers all highly liquid investments with an original maturity of three months or less at the time of initial purchase to be cash equivalents. +Restricted Cash +Restricted cash consists of letters of credit that are required to be maintained in connection with the Company’s lease arrangements. +Short-term Investments and Related Party Short-Term Investment +The Company’s short-term investments consist of investments in securities with remaining maturities beyond three months at the date of purchase and one year or less from the balance sheet date. The Company classifies its investments as available-for-sale and carries them at fair market value. The unrealized losses on the Company’s available-for-sale debt securities are recorded in other comprehensive loss in the consolidated statements of operations and comprehensive loss. +Short-term debt securities are considered impaired when a decline in fair value is judged to be other-than-temporary. The Company consults with its investment managers and considers available quantitative and qualitative evidence in evaluating potential impairment of its short-term investments on a quarterly basis. If the cost of an individual investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, the duration and extent to which the fair value is less than cost and its intent and ability to hold the investment. Once a decline in fair value is determined to be other-than-temporary, an impairment charge will be recorded to other income (expense), net, in the consolidated statements of operations and comprehensive loss. +The Company’s short-term investment — related party was obtained from the collaboration agreement with Beam, which is a public company trading on the Nasdaq Exchange. At each reporting date, the Company recognizes the fair value of the short-term investment — related party on the consolidated balance sheets. Unrealized and realized gains and losses on the Company’s equity investment is included as a component of other income (expense) in the consolidated statements of operations and comprehensive loss. The costs of debt and equity securities for purposes of computing realized and unrealized gains and losses is based on the specific identification method. +F-10 +Fair Value Measurements +Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: +• Level 1 — Quoted prices in active markets for identical assets or liabilities. +• Level 2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. +• Level 3 — Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. +The Company’s cash equivalents and short-term investments are carried at fair value, determined according to the fair value hierarchy described above. The carrying values of the Company’s accounts payable and accrued expenses approximate their fair values due to the short-term nature of these liabilities. +Property and Equipment +Property and equipment are stated at cost less accumulated depreciation. Depreciation expense is recognized using the straight-line method over the estimated useful life of each asset as follows: +Asset Class +Estimated Useful Life +Laboratory equipment 5 years +Furniture and fixtures 5 years +Computer hardware and software +3 years +Leasehold improvements Shorter of remaining lease term or useful life +Costs for capital assets not yet placed into service are capitalized and are depreciated once placed into service. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is included in loss from operations. Expenditures for repairs and maintenance that do not improve or extend the life of the respective assets are charged to expense as incurred. +Leases +The Company accounts for leases in accordance with ASC 842, Leases . In accordance with ASC 842, the Company determines if an arrangement is or contains a lease at inception. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company classifies leases at the lease commencement date as operating or finance leases and records a right-of-use asset and a lease liability on the consolidated balance sheet for all leases with an initial lease term of greater than 12 months. Leases with an initial term of 12 months or less are not recorded in the balance sheet, but payments are recognized as expense on a straight-line basis over the lease term. The Company has elected not to recognize leases with terms of 12 months or less. +A lease qualifies as a finance lease if any of the following criteria are met at the inception of the lease: (i) there is a transfer of ownership of the leased asset to the Company by the end of the lease term, (ii) the Company holds an option to purchase the leased asset that it is reasonably certain to exercise, (iii) the lease term is for a major part of the remaining economic life of the leased asset, (iv) the present value of the sum of lease payments equals or exceeds substantially all of the fair value of the leased asset, or (v) the nature of the leased asset is specialized to the +F-11 +point that it is expected to provide the lessor no alternative use at the end of the lease term. All other leases are recorded as operating leases. +The Company enters into contracts that contain both lease and non-lease components. Non-lease components may include maintenance, utilities, and other operating costs. The Company combines the lease and non-lease components of fixed costs in its lease arrangements as a single lease component. Variable costs, such as utilities or maintenance costs, are not included in the measurement of right-of-use assets and lease liabilities, but rather are expensed when the event determining the amount of variable consideration to be paid occurs. +Finance and operating lease assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term using the discount rate implicit in the lease. If the rate implicit is not readily determinable, the Company utilizes an estimate of its incremental borrowing rate based upon the available information at the lease commencement date. Operating lease assets are further adjusted for prepaid or accrued lease payments. Operating lease payments are expensed using the straight-line method as an operating expense over the lease term. Certain of the Company’s leases include options to extend or terminate the lease. The amounts determined for the Company’s right-of-use assets and lease liabilities generally do not assume that renewal options or early-termination provisions, if any, are exercised, unless it is reasonably certain that the Company will exercise such options. If initially determined that it is not reasonably certain but subsequently the Company determines that it is reasonably certain to exercise its renewal options or early-termination provisions, the Company would reassess the lease classification, remeasure the lease liability, and adjust the right-of-use asset. +In addition to evaluating arrangement that are leases, the Company examines other contracts with suppliers, vendors and outside parties to identify whether such contracts contain an embedded lease and, as applicable, records such embedded leases in accordance with ASC 842. +Impairment of Long-Lived Assets +Long-lived assets consist primarily of property and equipment, and operating lease right-of-use assets. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. +If an impairment review is performed to evaluate a long-lived asset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset group to its carrying value. An impairment loss would be recognized in loss from operations when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its carrying amount. If such asset group is considered to be impaired, the impairment loss to be recognized is measured based on the excess of the carrying value of the impaired asset group over its fair value. +Revenue recognition +The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers , (“ASC 606”). This standard applies to all contracts with customers, except for contracts that are within the scope of other standards. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. +The Company enters into collaboration and licensing agreements with partners under which it may exclusively license rights to research, develop, manufacture, and commercialize product candidates to third parties. The terms of these arrangements typically include payment to the Company of one or more of the following: (1) non-refundable, upfront fees; (2) equity investment; (3) reimbursement of certain costs; (4) customer option fees for additional goods or services; (5) milestone payments; and (6) royalties on net sales of licensed products. +In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including +F-12 +whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. As part of the accounting for these arrangements, the Company must use its judgment to determine: (a) the number of performance obligations based on the determination under step (ii) above; (b) the transaction price under step (iii) above; (c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above; and (d) the contract term and pattern of satisfaction of the performance obligations under step (v) above. The Company also uses judgment to determine whether milestones or other variable consideration, except for royalties, should be included in the transaction price as described further below. The transaction price is allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. +Amounts due to the Company for satisfying the revenue recognition criteria or that are contractually due based upon the terms of the collaboration agreements are recorded as collaboration receivable in the Company’s consolidated balance sheet. Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the Company’s consolidated balance sheets. Deferred revenue expected to be recognized as revenue within 12 months following the balance sheet date are classified as current deferred revenue. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current. +Milestone payments +At the inception of each arrangement that includes milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The Company evaluates factors such as the scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the particular milestone in making this assessment. There is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur. At the end of each subsequent reporting period, the Company reevaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment. +Research and Development Expenses +Research and development expenses are expensed as incurred. Research and development expenses may consist of costs incurred in connection with acquired in-process research and development and performing research and development activities, including amounts incurred under agreements with external vendors and consultants engaged to perform preclinical studies and to manufacture research and development materials for use in such studies, salaries and related personnel costs, stock-based compensation, consultant fees, and third-party license fees. +Upfront payments payable by the Company under license agreements are expensed upon receipt of the license, and annual maintenance fees under license agreements are expensed over the maintenance period. Milestone payments payable by the Company under license agreements are accrued, with a corresponding expense being recognized, in the period in which the milestone is determined to be probable of achievement and the related amount is reasonably estimable. +Nonrefundable advance payments made by the Company for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed. +F-13 +Acquired In-Process Research and Development +The Company measures and recognizes asset acquisitions or licenses to intellectual property that are not deemed to be business combinations based on the cost to acquire or license the asset or group of assets, which includes transaction costs. Goodwill is not recognized in asset acquisitions or transaction to license intellectual property. In an asset acquisition or license to intellectual property, the cost allocated to acquire in-process research and development (“IPR&D”) with no alternative future use is recognized as research and development expense on the acquisition date. +Upfront and milestone payments made are accrued for and expensed when the achievement of the milestone is probable up to the point of regulatory approval. Milestone payments made upon regulatory approval are capitalized and amortized over the remaining useful life of the related product. +Patent Costs +The Company expenses all patent-related costs incurred in connection with filing and prosecuting patent applications in the period incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses in the statements of operations and comprehensive loss. +Contingencies +The Company is subject to contingent liabilities, such as legal proceedings and claims, that arise in the ordinary course of business activities. The Company accrues for loss contingencies when losses become probable and are reasonably estimable. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability on the consolidated balance sheets. The Company does not accrue for contingent losses that, in its judgment, are considered to be reasonably possible, but not probable; however, it discloses the range of reasonably possible losses. +Stock-Based Compensation +The Company measures stock-based awards granted to employees, directors and non-employees based on the fair value of the awards on the date of grant using the Black-Scholes option-pricing model. +The Black-Scholes option pricing model estimates the fair value of the equity award using the expected term, expected volatility, risk-free interest rate, dividend rate, and the fair value of the common stock underlying the stock-based award. +The Company estimates the expected life stock options using the “simplified” method, whereby, the expected life equals the arithmetic average of the vesting term and the original contractual term of the option. Due to the lack of sufficient company-specific historical and implied volatility data, the Company has based its computation of expected volatility on the historical volatility of a representative group of public companies with similar characteristics to the Company, including stage of product development and life science industry focus. The risk-free interest rates for periods within the expected life of the option were based on the U.S. Treasury yield curve in effect during the period the options were granted. The expected dividend yield is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock. The Company recognizes forfeitures as they occur. The fair value of the common stock underlying shared based awards is the quoted market price of the Company’s common stock on the date of the grant. +The Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period of the awards for service-based awards, which is generally the vesting period. Stock-based compensation expense is classified in the consolidated statements of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified. +Warrants +Management assesses warrants under ASC 480, Distinguishing Liabilities from Equity , to determine whether they should be classified as equity or liability. If the classification is determined to be equity, proceeds received for the warrants are recorded as an increase to additional paid-in capital in the consolidated balance sheets. If classified as a +F-14 +liability, the Company records the warrant as a liability on its consolidated balance sheet and remeasures this liability to fair value at each reporting date and recognizes changes in the fair value of the warrant liability as a component of other expense in the consolidated statements of operations and comprehensive loss. +Comprehensive Loss +Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. The Company’s only element of other comprehensive loss is unrealized gains and losses on marketable securities. +Net Loss per Share Attributable to Common Stockholders +The Company applies the two-class method when computing net loss per share attributable to common stockholders as the Company has issued shares that meet the definition of participating securities. The two-class method determines net loss per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires loss available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to share in the undistributed earnings as if all loss for the period had been distributed. There is no allocation required under the two-class method during periods of loss since the participating securities do not have a contractual obligation to share in the losses of the Company. The Company has no participating securities outstanding. +Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period, excluding potentially dilutive common shares and of unvested restricted common stock. Diluted net loss per share attributable to common stockholders is computed by adjusting net loss attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net loss per share attributable to common stockholders is computed by dividing the diluted net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period, including potential dilutive common shares. +In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is generally the same as basic net loss per share attributable to common stockholders since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. +Income Taxes +The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Company’s tax returns. Deferred tax assets and liabilities are determined based on the differences between the financial statement basis and tax basis of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies. +The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more likely than not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties. +F-15 +Segment Information +Under ASC 280, Segment Reporting , operating segment is a component of a public entity that 1) engages in business activities from which it may recognize revenues and incur expenses, 2) its operating results are regularly reviewed by the entity’s chief operating decision maker, or CODM, to make decisions about resource allocation or performance assessment, and 3) its discrete financial information is available. The Company operates and manages its business as a single segment for the purposes of assessing performance and making operating decisions. +Our chief executive officer, who is the CODM, manages and allocates resources to the operations of our company on a total company basis by assessing the overall level of resources available and how to best deploy these resources across functions and research and development projects that are in line with our long-term company-wide strategic goals. In making these decisions, the CODM uses consolidated financial information for purposes of evaluating performance, forecasting future period financial results, allocating resources and setting incentive targets. The CODM performs this assessment based on the Company’s consolidated net loss. Through this analysis, the CODM assesses performance by comparing actual net loss verses the budget, and then decides how to allocate resources to invest in the Company’s research and development programs. The measure of segment assets is reported on the consolidated balance sheets as total assets. +The following table contains additional information on our consolidated net loss, including significant segment expenses: +Year Ended December 31, +(in thousands) +2024 2023 +Total revenue $ 2,983 $ — +Operating expenses: +Research and development expenses +Personnel expenses 59,988 51,095 +Research costs 41,678 59,609 +Facility related 35,509 24,221 +General and administrative expenses: +Personnel expenses 26,569 17,076 +Other segment items (1) +41,706 52,791 +Total operating expenses +205,450 204,792 +Total other income, net 6,585 6,380 +Benefit from income taxes — 279 +Net loss $ ( 195,882 ) $ ( 198,133 ) +(1) Other segment items consist of professional and consultant fees, license and intellectual property fees, general and administrative facility costs, and settlement costs. +Recently Issued Accounting Pronouncements Not Yet Adopted +In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , which requires enhanced income tax disclosures, including specific categories and disaggregation of information in the effective tax rate reconciliation, disaggregated information related to income taxes paid, income or loss from continuing operations before income tax expense or benefit, and income tax expense or benefit from continuing operations. This guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently in the process of evaluating the impact of this pronouncement on its related disclosures. +In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses , and in January 2025, issued ASU 2025-01, Clarifying the Effective Date , which requires more detailed information about specified categories of expenses included in certain expense captions presented on the face of the income statement. This ASU is effective for the first annual reporting period beginning after December 15, 2026, and for interim reporting +F-16 +periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments may be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of this ASU or (2) retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact this ASU will have on its disclosures. +Other accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s financial statements upon adoption. +3. Fair Value Measurements +The following tables present the Company’s fair value hierarchy for its assets that are measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair value: +December 31, 2024 +(in thousands) Level 1 Level 2 Level 3 Total +Cash equivalents: +Money market funds $ — $ 178,212 $ — $ 178,212 +Corporate debt securities — 3,793 — 3,793 +Short-term investments: +U.S. Treasury and government securities — 2,998 — 2,998 +Related party short-term investment: +Beam equity securities 4,968 — — 4,968 +Total cash equivalents and investments $ 4,968 $ 185,003 $ — $ 189,971 +December 31, 2023 +(in thousands) Level 1 Level 2 Level 3 Total +Cash equivalents: +Money market funds $ — $ 24,209 $ — $ 24,209 +Short-term investment: +U.S. Treasury and government securities — 74,639 — 74,639 +Related party short-term investment: +Beam equity securities 5,452 — — 5,452 +Total cash equivalents and investments $ 5,452 $ 98,848 $ — $ 104,300 +The Company classifies its investments as short-term based on each instrument’s underlying contractual maturity date. The fair value of investments classified as Level 2 are valued using observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. +Investments in Debt Securities +Unrealized gains and losses of investments in debt securities consisted of the following: +December 31, 2024 +(in thousands) Amortized Cost Unrealized Gains Unrealized Losses Fair Value +Short-term investments in debt securities: +U.S. Treasury and government securities $ 2,997 $ 1 $ — $ 2,998 +F-17 +December 31, 2023 +(in thousands) Amortized Cost Unrealized Gains Unrealized Losses Fair Value +Short-term investments in debt securities: +U.S. Treasury and government securities $ 74,654 $ 7 $ ( 22 ) $ 74,639 +The contractual maturities of the Company’s investments in debt securities held were as follows: +(in thousands) December 31, +2024 December 31, +2023 +Due within one year $ 2,998 $ 74,639 +There were no marketable securities in unrealized loss positions as of December 31, 2024. Based on factors such as historical experience, market data, issuer-specific factors, and current economic conditions, the Company did not record an allowance for credit losses as of December 31, 2024 related to these investments. Further, given the lack of significant change in the credit risk, the Company does not consider these investments to be impaired. +4. Property and Equipment, Net +Property and equipment, net consisted of the following: +December 31, +(in thousands) 2024 2023 +Property and equipment: +Laboratory equipment $ 27,343 $ 23,873 +Leasehold improvement 5,136 579 +Furniture and fixture 1,075 278 +Computer hardware and software 869 11 +Construction in progress 3,578 5,402 +Total property and equipment 38,001 30,143 +Less: Accumulated depreciation ( 13,597 ) ( 7,484 ) +Total property and equipment, net $ 24,404 $ 22,659 +Depreciation expense related to property and equipment is as follows: +Year ended December 31, +(in thousands) 2024 2023 +Depreciation expense $ 6,128 $ 4,653 +F-18 +5. Accrued Expenses and Other Current Liabilities +Accrued expenses and other current liabilities consisted of the following: +December 31, +(in thousands) 2024 2023 +Accrued expenses and other current liabilities +Employee compensation and benefits +$ 8,976 $ 8,270 +Facility related +2,811 1,239 +License fee 1,938 — +Research and clinical costs 907 1,962 +Other 1,272 2,639 +Total accrued expenses and other current liabilities $ 15,904 $ 14,110 +6. Leases +21 Erie Street, Cambridge, Massachusetts Lease +In March 2020, the Company entered into an operating lease to sublease office and laboratory space located at 21 Erie Street, Cambridge, Massachusetts. This lease was subject to various amendments and the amended lease agreement provided for escalating monthly rental payments with fixed costs for expenses and property taxes included in each payment. In November 2023, the Company exercised its option to terminate this lease with a seven-month notice. +38 Sidney Street, Cambridge, Massachusetts Lease +In July 2021, the Company entered into a non-cancelable operating lease to sublease office space in Cambridge, Massachusetts. The lease commenced in August 2021 and contained escalating monthly rental payments. The lease expired in December 2024 and the Company did not exercise its right to extend the lease for one additional six-month period. +64 Sidney Street, Cambridge, Massachusetts Lease +In July 2021, the Company entered into a non-cancelable operating lease to sublease office space located at 64 Sidney Street, Cambridge, Massachusetts . The lease commenced in April 2022 and contained escalating monthly rental payments. The lease term expires in April 2025. The Company has a right to extend the lease for one additional six-month period at a market rate, which is not probable of being exercised by the Company. The lease requires the Company to share in prorated expenses and property taxes based on actual amounts incurred . +60 First Street, Cambridge, Massachusetts Lease +In November 2021, the Company entered into a lease for three floors of office and laboratory space at 60 First Street, Cambridge, Massachusetts, with rent commencing in March 2024, subject to any credits pursuant to the terms of the lease (the “60 First Street Lease”). Subsequent to the initial non-cancelable term of the lease of ten years , the Company has an option to extend the lease for an additional period of ten years with the rent during the extension term being the then fair market rent. The Company secured the lease with a $ 13.1 million security deposit, which was recorded as restricted cash on the consolidated balance sheets as of December 31, 2024 and December 31, 2023. +Accounting Considerations +The Company determined that the lease contained three separate lease components, each of which represents a right of use that the Company can benefit from on its own and are neither highly dependent nor highly related to each other. The Company allocated the consideration among the three lease components based on their relative fair market values. +F-19 +In accordance with ASC 842, Leases , the lease commenced for one of the lease components in March 2024 and the Company recorded a right-of-use asset of $ 44.9 million, and a corresponding lease liability of $ 33.6 million on the lease commencement date; this includes a reclass of $ 11.3 million from prepaid expenses to right-of-use asset related to build out costs which were determined to be owned by the lessor. As the exercise of the option to extend the lease term is not reasonably certain, the Company will recognize lease expense for this lease component through February 2034. +The lease commencement for the other two lease components is expected to occur in the first half of 2025. Any consideration paid to lease components for which the lease has not commenced are recorded as prepaid expense on the consolidated balance sheets. +In June, 2024, the Company filed a complaint in Massachusetts Superior Court against NW Cambridge Property Owner, LLC (“NWC”), the Company’s landlord at 60 First Street, alleging that NWC had breached the 60 First Street Lease by, among other reasons, refusing to provide the Company with certain rental credits for the late delivery of the leased space. While this lawsuit is pending, the Company has and is expecting to continue to make certain disputed payments under the 60 First Street Lease under protest. As the Company expects this lawsuit to be resolved in its favor and for the payments made under protest to be refunded to the Company, these payments are recorded within other current assets on the Company’s consolidated balance sheets. As of December 31, 2024, total payments made under dispute was $ 10.8 million. +Arsenal Street, Watertown, Massachusetts Lease +In August 2024, the Company entered into the third amendment to its existing lease for approximately 16,000 square feet of combined laboratory and office space at 480 Arsenal Street, Watertown Massachusetts (the “480 Arsenal Amendment”). In September 2024, the Company entered into a new lease for approximately 48,500 square feet of combined laboratory and office space at 500 Arsenal Street, Watertown, Massachusetts (the “500 Arsenal Lease”). The landlords of the spaces at 480 Arsenal Street and 500 Arsenal Street are affiliates. +The 480 Arsenal Amendment provides the Company with an additional 9,400 square feet of combined laboratory and office space (the “Expansion Space”) at no additional cost and also provides an early termination date for the existing space and the Expansion Space as the later of: 1) the date occurring 150 days after the lease commencement of 500 Arsenal Lease, or 2) 30 days after substantial completion of tenant improvements at 500 Arsenal Street. +The 500 Arsenal Lease term commenced in December 2024 with a base term of 11 months. Subsequent to the base term, the Company has an option to extend the lease through August 2028. The Company secured the lease with a $ 0.6 million security deposit, which was recorded as restricted cash on the consolidated balance sheets as of December 31, 2024. The 500 Arsenal Lease also provides a tenant improvement allowance of $ 2.4 million and an additional tenant improvement allowance of $ 1.2 million, which the Company would be obligated to repay to the landlord. +Accounting Considerations +As the 480 Arsenal Amendment and the 500 Arsenal Lease meet the criteria for combining contracts under ASC 842, the Company determined that both 480 Arsenal Amendment and the 500 Arsenal Lease are modifications to its existing lease at 480 Arsenal Street. Within the combined contract the Company identified two separate lease components, each of which represents a right of use that the Company can benefit from on its own and which are neither highly dependent nor highly related to the other. The Company allocated the consideration under the combined contract among the two lease components based on their relative fair market value. In calculating the allocable consideration and the fair market value of each lease component, the Company determined it is probable that it will exercise the option to extend the lease term provided under the 500 Arsenal Lease. +In accordance with ASC 842, the Company possessed the ability to control and derive the economic benefit for its leased space at 480 Arsenal on the effective date of the modification. Therefore, on the effective date, the Company recorded a right-of-use asset and a corresponding lease liability, which were not materially different from the existing right-of-use asset and lease liability as of the modification date. +F-20 +For accounting purposes, the lease commencement for 500 Arsenal is expected to occur in the first quarter of 2025. Consideration paid for this lease component is recorded as prepaid expense on the consolidated balance sheets and is not recognized until lease commences. +Summary of lease costs recognized +The following tables contains a summary of the lease costs recognized under ASC 842 and other information pertaining to the Company’s operating leases for the years ended December 31, 2024 and December 31, 2023 . +The components of lease cost were as follows: +Year Ended December 31, +(in thousands) 2024 2023 +Lease cost: +Operating lease cost $ 15,175 $ 13,664 +Variable lease cost 5,716 2,145 +Short-term lease cost 3,512 2,816 +Sublease income ( 168 ) ( 168 ) +Total lease cost $ 24,235 $ 18,457 +The weighted-average remaining lease term and discount rate were as follows: +December 31, +2024 2023 +Weighted average remaining lease term (in years) 8.4 years 1.9 years +Weighted average discount rate 12.83 % 6.92 % +Future annual lease payments under non-cancelable operating leases as of December 31, 2024 w ere as follows: +(in thousands) Undiscounted +Amounts +Undiscounted lease payments: +2025 $ 19,773 +2026 23,387 +2027 22,921 +2028 22,294 +2029 21,478 +Thereafter 96,601 +Total undiscounted lease payments 206,454 +Less: payments related to leases not commenced ( 136,637 ) +Less: imputed interest ( 29,023 ) +Total operating lease liability $ 40,794 +7. Stockholder’s Equity +Common Stock +Under the Third Amended and Restated of Certificate of Incorporation, the Company’s common stock had a par value of $ 0.0001 and each share of common stock entitles the holder to one vote on all matters submitted to the stockholders for a vote. The holders of common stock are entitled to receive dividends, if any, as declared by the Company’s board of directors. +F-21 +As previously discussed, in February 2024, the Company issued and sold 22,560,001 shares of its common stock, including 3,360,000 shares pursuant to the exercise of the underwriters’ option to purchase additional shares, at a price to the public of $ 6.25 per share. +In September 2024, the Company entered into the BMS Purchase Agreement pursuant to which the Company issued, and BMS purchased, in an unregistered offering (the “Offering”), 11,006,163 shares (the “Shares”) of the Company’s common stock for an aggregate purchase price of $ 55.0 million pursuant to the terms and conditions thereof. The BMS Purchase Agreement includes lock-up restrictions with respect to the Shares. Pursuant to the terms of the BMS Purchase Agreement, BMS has agreed not to, directly or indirectly, sell or transfer any of the Shares until September 30, 2027 subject to specified conditions and exceptions. In December 2024, the Company filed a registration statement with the Securities and Exchange Commission (the “SEC”) covering the resale of the Shares. Please refer to Note 9, License and Collaboration Agreements , for additional discussion of the BMS Collaboration Agreement. +Pre-funded Warrants +As discussed in Note 1, Nature of the Business and Basis of Presentation , in February 2024, the Company sold pre-funded warrants to purchase 3,200,005 shares of common stock at a public offering price of $ 6.24999 per pre-funded warrant, which represents the per share public offering price of each share of common stock less the $ 0.00001 per share exercise price for each pre-funded warrant. Subject to certain requirements, the pre-funded warrants can be exercised by the holder at any time. As of December 31, 2024, there have not been any exercises of the pre-funded warrants. +The pre-funded warrants meet the definition of an equity instrument under ASC 815-40 and funds received were recorded as an increase in additional paid-in capital in the consolidated balance sheets. Funds received upon exercise of warrants will be recorded as common stock in the consolidated balance sheets as the exercise price represents the par value of the underlying common stock. +At-The-Market Equity Program +In November 2023, the Company entered into Open Market Sale Agreement SM (the “Sales Agreement”) with Jefferies LLC, acting as the Company’s agent and/or principal (the “Sales Agent”), with respect to an “at the market offering” program under which the Company may, from time to time, at its sole discretion, issue and sell shares of its common stock having an aggregate offering price of up to $ 300.0 million through the Sales Agent. As of December 31, 2024, there have been no sales of common stock pursuant to the Sales Agreement. +8. Stock-Based Compensation +2019 Equity Incentive Plan +The Company’s 2019 Stock Option and Grant Plan (the “2019 Plan”) provides for the Company to grant incentive stock options, non-qualified stock options, unrestricted stock awards, restricted stock awards and other stock-based awards to the officers, employees, consultants and other key persons of the Company. The 2019 Plan is administered by the board of directors, or at the discretion of the board of directors, by a committee of the board of directors. The exercise prices, vesting and other restrictions are determined at the discretion of the board of directors, or its committee if so delegated. +In October 2022, the Company completed its IPO, and in connection with the closing, the board of directors determined that no further awards would be granted under the 2019 Plan. +2022 Stock Option and Incentive Plan +In February 2022, the Company’s board of directors adopted, and in October 2022 its stockholders approved, the 2022 Plan, which became effective immediately preceding the date on which the registration statement for the Company’s IPO was declared effective by the SEC. The 2022 Plan allows the Company to make equity-based and cash-based incentive awards to its officers, employees, directors, and consultants. The 2022 Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted common stock +F-22 +awards, restricted stock units and other stock-based awards. Stock options awarded under the 2022 Plan expire 10 years after the grant date and typically vest over four years . +The shares of common stock underlying any awards under the 2022 Plan and the 2019 Plan that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of stock, expire, or are otherwise terminated (other than by exercise) will be added back to the shares of common stock available for issuance under the 2022 Plan. The number of shares reserved and available for issuance under the 2022 Plan will increase on January 1 of each year, by five percent of the outstanding number of shares of common stock on the immediately preceding December 31 or such lesser number of shares as determined by the Compensation Committee. On January 1, 2025, the annual increase for the 2022 Plan resulted in an additional 6,558,042 shares authorized for issuance being added to the 2022 Plan. +As of December 31, 2024, the Company had 21,522,110 shares reserved under the 2022 Plan and the 2019 Plan, and 9,049,689 shares available for issuance under the 2022 Plan. +2022 Employee Stock Purchase Plan +In February 2022, the Company’s board of directors adopted, and in October 2022 its stockholders approved, the 2022 Employee Stock Purchase Plan (the “2022 ESPP”). +The 2022 ESPP provides for an annual increase on January 1 each year through January 1, 2032, by the least of (i) 971,350 shares of common stock, (ii) one percent of the outstanding number of shares of common stock on the immediately preceding December 31, or (iii) such number of shares of common stock as determined by the administrator of the 2022 ESPP. There was no annual increase for the 2022 ESPP on January 1, 2025. As of December 31, 2024, the Company had 1,753,191 shares available for issuance under the 2022 ESPP. +Under the 2022 ESPP, the Company issued 189,509 shares of the Company’s common stock during the year ended December 31, 2024. No shares of the Company’s common stock were issued during the year ended December 31, 2023 under the 2022 ESPP. +Stock Option Valuation +The following table presents, on a weighted-average basis, the assumptions used in the Black-Scholes option-pricing model to determine the fair value of stock options granted: +Year ended December 31, +2024 2023 +Risk-free interest rate 4.2 % 3.7 % +Expected term (in years) 5.8 6.0 +Expected volatility 78.4 % 80.0 % +Expected dividend yield — % — % +F-23 +Time-Based Stock Options +The following table summarizes the Company’s time-based stock option activity for the year ended December 31, 2024: +Number of Options Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) +Outstanding at December 31, 2023 7,641,863 $ 9.79 8.68 $ 12,014 +Granted 4,476,710 7.99 +Exercised ( 28,048 ) 3.69 +Forfeited ( 679,834 ) 10.16 +Outstanding at December 31, 2024 11,410,691 $ 9.08 8.10 $ — +Vested and exercisable at December 31, 2024 4,888,933 $ 8.72 7.34 $ — +Vested and expected to vest at December 31, 2024 11,410,691 $ 9.08 8.10 $ — +Other information related to the time-based stock option activity of the Company was as follows: +Year ended December 31, +2024 2023 +Weighted-average fair value of options granted $ 5.60 $ 8.96 +Intrinsic value of options exercised (in thousands) $ 70 $ 1,368 +As of December 31, 2024 there was $ 39.3 million of total unrecognized compensation cost related to time-based unvested stock options, and the Company expects to recognize such amount over a remaining weighted-average period of 2.2 years. +Performance-Based Stock Options +The Company has granted stock options to certain employees to purchase shares of common stock that contain performance-based vesting criteria related to corporate milestones. The fair value of each option grant under the performance share option plan was estimated on the date of grant. Recognition of stock-based compensation expense associated with these performance-based stock options commences when the performance condition is considered probable of achievement, using management’s best estimates, which consider the inherent risk and uncertainty regarding the future outcomes of the milestones. +The following table summarizes the Company’s performance-based stock option activity for the year ended December 31, 2024: +Number of Options Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) +Outstanding at December 31, 2023 411,730 $ 6.65 8.15 $ 1,362 +Granted 650,000 7.74 +Exercised — — +Forfeited — — +Outstanding at December 31, 2024 1,061,730 $ 7.31 8.35 $ — +Vested and exercisable at December 31, 2024 490,230 $ 6.81 7.87 $ — +F-24 +Other information related to the performance-based stock option activity of the Company was as follows: +Year ended December 31, +2024 2023 +Weighted-average fair value of options granted $ 5.27 $ — +As of December 31, 2024 there was $ 3.0 million of total unrecognized compensation cost related to performance-based stock options. +Restricted Common Stock Awards +The Company awarded restricted common stock to employees and non-employees under its 2019 Plan and may continue to award restricted common stock to employees and non-employees under the 2022 Plan. The fair value of each share of restricted common stock is based on the market price of the Company's common stock on the date of grant. The vesting of these restricted stock awards are time-based or performance-based. +For a period of up to six months from a grantee’s termination, the Company has the right and option to repurchase unvested restricted common stock at the lower of (i) the original purchase price per share or (ii) the fair market value per share as of the date of the Company elects to exercise its repurchase right. +Time-Based Restricted Common Stocks Awards +Restricted common stock that have time-based vesting conditions vest over a four-year period, subject to the employee’s continued employment with, or service to, the Company on such vesting date. Compensation expense is recognized on a straight-line basis over the vesting period. +The following table summarizes the Company’s time-based restricted common stock award activity for the year ended December 31, 2024: +Number of Shares Weighted-Average Grant-Date Fair Value +Unvested restricted common stock at December 31, 2023 903,227 $ 0.17 +Issued — — +Vested ( 873,873 ) 0.16 +Repurchased ( 4,423 ) 0.34 +Unvested restricted common stock at December 31, 2024 24,931 $ 0.16 +Performance-Based Restricted Common Stock Awards +Performance‑based restricted common stock awards vest upon the achievement of performance‑based milestones related to corporate milestones. +Stock-based compensation expense associated with the performance-based restricted common stock is recognized if the performance condition is considered probable of achievement using the Company’s best estimates of the time to vesting for the achievement of the performance‑based milestones. Each reporting period, the Company updates its assessment of the probability that the performance-based milestones will be achieved. The fair value of the restricted common stock was based on the fair market value of the Company’s common stock on the date of grant. +F-25 +The following table summarizes the Company’s performance-based restricted common stock award activity for the year ended December 31, 2024: +Number of Shares Weighted-Average Grant-Date Fair Value +Unvested restricted common stock at December 31, 2023 3,832,769 $ 0.07 +Issued — — +Vested ( 360,226 ) 0.18 +Repurchased — — +Unvested restricted common stock at December 31, 2024 3,472,543 $ 0.06 +Stock-Based Compensation +The following table below summarizes the classification of the Company’s stock-based compensation expense related to stock options and restricted common stock awards in the consolidated statements of operations and comprehensive loss: +Year ended December 31, +(in thousands) 2024 2023 +Stock-based compensation expense: +Research and development $ 12,704 $ 7,950 +General and administrative 13,364 5,960 +Total stock-based compensation expense $ 26,068 $ 13,910 +9. License and Collaboration Agreements +License Agreements with Broad Institute +2019 License Agreement with Broad Institute +In September 2019, the Company entered into a license agreement with Broad Institute, Inc. (“Broad Institute”) for certain patents related to the field of prevention or treatment of human disease by editing or targeting DNA (the “Broad License Agreement”). In subsequent periods, the Broad License Agreement has been subject to amendments. Under the Broad License Agreement, Broad Institute granted the Company (i) an exclusive, worldwide license under the licensed patent rights solely to offer for sale, sell, have sold and import products covered by such licensed patent rights, or licensed products, solely for use within the Prime Broad Field (subject to certain specified limitations and exclusions with respect to certain applications), (ii) a non-exclusive, worldwide license under the licensed patent rights solely to make, have made, offer for sale, sell, have sold, and import licensed products solely for use in the Prime Broad Field, (iii) a non-exclusive, worldwide license under the licensed patent rights solely to make, have made, offer for sale, sell, have sold and import other products that are enabled by (a) the licensed patent rights or (b) the use of certain materials transferred to the Company by Broad Institute, solely for the prevention or treatment of human diseases and (iv) a non-exclusive, worldwide license solely for internal research. Further, with respect to DNA delivery or targeting applications covered by the licensed patent rights, the exclusive license granted to the Company by Broad Institute is limited only to “prime editor” products and specifically excludes applications relating to the production or processing of small or large molecules, including for the prevention or treatment of human disease. Under the Broad License Agreement, the Company also has the right to grant sublicenses to its affiliates and third parties, subject to certain requirements. As partial consideration for the license, the Company made a upfront payment of $ 0.5 million to Broad Institute. +Under the Broad License Agreement, the Company is obligated to pay Broad Institute an annual license maintenance fee of low six-figures dollar amount beginning in 2022. Broad Institute is also entitled to receive clinical and regulatory milestone payments up to a total of $ 20.0 million and sales-based milestone payments up to a total of $ 54.0 million per licensed product. Further, the Broad Institute is entitled to receive mid-single digit +F-26 +percentage royalties, subject to customary offsets and reductions, on net sales of licensed products, and low single-digit percentage royalties of enabled products. +Unless earlier terminated, the Broad License Agreement will remain in effect until the later of (i) the last to expire valid claim of an issued patent or pending patent application within the licensed patent rights covering the Company’s licensed products or (ii) the expiration of the last royalty term for a licensed product in a country. The Company can terminate the Broad License Agreement for convenience after a certain period of time following prior written notice to Broad Institute. Each party may terminate the Broad License Agreement for the other party’s uncured material breach within a specified time period following notice of such breach. Broad Institute may also immediately terminate the Broad License Agreement (i) to the extent the Company (or its affiliates or sublicensees) challenges a licensed patent right, (ii) upon the Company’s bankruptcy or insolvency or (iii) if the Company fails to procure and maintain insurance. +2022 License Agreement with Broad Institute +In December 2022, the Company entered into a second license agreement with Broad Institute, (the “2022 Broad License Agreement”). Under the 2022 Broad License Agreement, Broad Institute grants to us certain rights and licenses under the patent rights it owns or controls related to MMR inhibition and prime editing improvements and specifically, (i) an exclusive, worldwide license under the licensed patent rights solely to offer for sale, sell, have sold and import products covered by such licensed patent rights, or licensed products, solely for use within the Prime Broad Field (subject to certain specified limitations and exclusions with respect to certain applications), (ii) a non-exclusive, worldwide license under the licensed patent rights solely to make, have made, offer for sale, sell, have sold, and import licensed products solely for use in the Prime Broad Field, (iii) a non-exclusive, worldwide license under the licensed patent rights solely to make, have made, offer for sale, sell, have sold and import other products that are enabled by (a) the licensed patent rights or (b) the use of certain materials transferred to us by Broad Institute, solely for the prevention or treatment of human diseases and (iv) a non-exclusive, worldwide license solely for internal research. Further, with respect to DNA delivery or targeting applications covered by the licensed patent rights, the exclusive license granted to us by Broad Institute is limited only to “prime editor” products and specifically excludes applications relating to the production or processing of small or large molecules, including for the prevention or treatment of human disease. Under the Broad License Agreement, the Company also has the right to grant sublicenses to its affiliates and third parties, subject to certain requirements. +The Company is also obligated to pay Broad Institute an annual license maintenance fee of mid five-figures for the term of the Agreement. Broad Institute is also entitled to receive clinical and regulatory milestone payments for a limited category of royalty-bearing products, up to a total of $ 2.0 million and sales-based milestone payments up to a total of $ 3.0 million. Further, Broad Institute is entitled to receive royalties of less than 0.2 % on net sales of royalty bearing products. +Unless earlier terminated, the 2022 Broad License Agreement will remain in effect until the later of (i) the last to expire valid claim of an issued patent or pending patent application within the licensed patent rights covering our licensed products or (ii) the expiration of the last royalty term for a royalty bearing product in a country. The Company can terminate the 2022 Broad License Agreement for convenience following prior written notice to Broad Institute. Each party may terminate the 2022 Broad License Agreement for the other party’s uncured material breach. Broad Institute may also immediately terminate the 2022 Broad License Agreement (i) to the extent we (or our affiliates or sublicensees) challenge a licensed patent right, (ii) upon our bankruptcy or insolvency or (iii) if we fail to procure and maintain insurance. +Amendment No. 4 to The Broad Institute License Agreement +In connection with the BMS Collaboration Agreement, discussed below, the Company entered into a Letter Agreement (the “2024 Broad Amendment”) with Broad Institute in September 2024, which amends the Broad License Agreement to modify certain obligations of Company and rights of Broad Institute in relation to the BMS Collaboration Agreement as a sublicense under the Broad License Agreement. The 2024 Broad Amendment, among other things, modifies the royalty and certain commercial milestones that the Company is obligated to pay to Broad Institute on net sales of products under the BMS Collaboration Agreement. Except as expressly stated in the 2024 Broad Amendment, all other terms and provisions of the Broad License Agreement remain in full force and effect. +F-27 +Amounts due to Broad Institute as a result of the BMS Collaboration Agreement are recorded as accrued expenses on the consolidated balance sheet as of December 31, 2024. +Broad Pledge +In February 2021, the Company committed to donate $ 5.0 million to Broad Institute and Harvard University annually for 14 years, commencing in 2022 (the “Pledge”). The Pledge is intended to be used for research and development related to new genome editing technologies, for example Prime Editing, improve on existing genome-editing technologies, identify delivery mechanisms for these technologies and apply these technologies to the understanding and treatment of rare genetic diseases. The Company can terminate the Pledge at its discretion, subject to providing one year of funding from the date of termination. In August 2022, the Company amended and restated the Pledge to clarify that the funds may be used by the laboratory of David Liu, who is a member of Broad Institute and a faculty member at Harvard. +The Company accounts for this Pledge as research and development expenses as it has access to certain data generated as a result of the Pledge. For both the years ended December 31, 2024 and 2023, the Company recognized $ 5.0 million of research and development expense in connection with the Pledge. +Beam Collaboration Agreement — Related Party +In September 2019, the Company entered into a collaboration agreement with Beam (the “Beam Collaboration Agreement”) to collaborate on the research, development, manufacture and commercialization of certain Prime Editing products within a specified field and provide each other with access and licenses to certain proprietary technology to advance the other’s progress. Under the Beam Collaboration Agreement, the Company granted Beam an exclusive (even as to the Company and its affiliates), worldwide license under (i) certain Prime Editing technology, know-how and patent rights that the Company controls during the initial term, and improvements thereto that the Company controls for a specified number of years following the initial term, and (ii) the Company’s interest in certain jointly-owned collaboration technology, in each case, solely to develop, make, have made, use, offer for sale, sell, import and commercialize licensed products only in the Beam field. Beam granted to the Company certain non-exclusive, worldwide licenses under certain technology, know-how and patent rights, including under certain CRISPR or delivery-related technology, know-how and patent rights, that it controls during the initial term, and improvements thereto that Beam controls for a specified number of years following the initial term, solely to develop, make, have made, use, offer for sale, sell, import and commercialize products only in the Company’s field. +Subject to certain provisions, on a licensed product-by-licensed product basis, we have the right to elect to share equally with Beam in the profits and losses in the United States for Beam’s licensed products. We may exercise such right for each licensed product within a specified period of time. Any such licensed product for which we exercise such right we refer to as a collaboration product. +Before and within 30 days after the filing of an IND for a development candidate being developed under the Beam Collaboration Agreement, Beam has the option to designate up to a mid-single digit number of licensed products for which the Company is not permitted to exercise the profit share right (the “Beam Option”). Under the Beam Collaboration Agreement, a licensed product for which the Company has not exercised its profit share option or for which Beam has exercised the Beam Option is collectively referred to as “protected product.” Unless the Company exercises its profit sharing option for a licensed product, Beam is solely responsible for the development and commercialization of licensed products in the Beam field under the Beam Collaboration Agreement. If Beam exercises its option for a protected product, Beam will owe Prime a payment of $ 5.0 million if the product is developed for non-sickle cell disease or $ 10.0 million if the product is developed for sickle cell disease. +F-28 +Under the terms of the Beam Collaboration Agreement, the Company is entitled to following milestones: +Development milestones +Protected product +Up to $ 35.5 million +Collaboration product +Up to $ 17.8 million +Sales milestones +Protected product +Up to $ 84.5 million +Collaboration product +Up to $ 42.3 million +For eligible products, Beam is obligated to pay the Company tiered royalties, subject to customary offsets and reductions, ranging from a high-single digit percentage to a low double-digit percentage, but less than teens on net sales of protected products worldwide and net sales of collaboration products outside of the United States. In addition, Beam must reimburse the Company for certain payments the Company is required to make to its third-party licensors attributable to Beam’s exercise of any sublicense the Company grants to Beam, including payments it makes to Broad Institute under the Broad License Agreement. +If the Company develops a product that is covered by the technology, know-how or patent rights that Beam licenses to the Company under the Beam Collaboration Agreement, which it refers to as a Prime product, the Company is obligated to pay to Beam a low single digit royalty on its worldwide net sales of such any product on a Prime product-by-Prime product and country-by-country basis, subject to certain customary reductions, to a floor. +Unless earlier terminated in accordance with its terms, the Beam Collaboration Agreement will expire on the later of (a) expiration of the last royalty term for a product on which a party is obligated to pay royalties to the other party or (b) with respect to any collaboration product, the date on which neither party is developing or commercializing any such collaboration product in the United States. +After expiration of the initial term, Beam can terminate the Beam Collaboration Agreement for convenience in its entirety, or on a licensed product-by-licensed product or subfield-by-subfield basis, with prior written notice to the Company. Each party may terminate the Beam Collaboration Agreement for (a) the other party’s uncured material breach, (b) upon the insolvency or bankruptcy of the other party or (c) immediately to the extent the other party (or its affiliates or sublicensees) challenges a patent right licensed to such party. +On the first anniversary of the Beam Collaboration Agreement, the Company received 200,307 shares of Beam common stock, with a fair value of $ 5.5 million and, in return, the Company issued to Beam 1,608,337 shares of the Company’s common stock, with a fair value of $ 0.2 million. +Accounting Considerations +The Company concluded that the Beam Collaboration Agreement and the Beam Mutual Subscription Agreement should be combined and treated as a single arrangement for accounting purposes as the agreements were entered into contemporaneously and in contemplation of one another. The Company determined that the combined agreements are accounted for under ASC 606, Revenue Recognition. The Company identified the following performance obligations: (i) exclusive, worldwide license to certain Prime patents, (ii) non-exclusive, worldwide licenses to CRISPR technology and (iii) joint research committee participation. +The Company also evaluated whether the Beam Option and the Company’s right to elect collaboration products in the Beam Collaboration Agreement represented material rights that would give rise to a performance obligation and concluded that neither the Beam Option nor the Company’s right to elect collaboration products convey a material right to Beam and therefore are not considered separate performance obligations within the Beam Collaboration Agreement. There have been no protected product or collaboration products to date. Under the Beam Collaboration Agreement, the Company is eligible to receive certain milestones and royalties regardless of whether any options are exercised, which are considered variable consideration. At each reporting period, the Company evaluates whether milestones are considered probable of being reached and, to the extent that a significant reversal would not occur in future periods, estimates the amount to be included in the transaction price. During the years ended December 31, 2024 and 2023 the Company did not receive any milestone payments and all variable consideration related to the +F-29 +Beam Collaboration Agreement remained fully constrained. The Company assessed the above promises and determined that the exclusive license for certain Prime products and non-exclusive licenses to CRISPR technology represent performance obligations within the scope of Topic 606. The exclusive license for certain Prime products and non-exclusive licenses to CRISPR technology are considered functional intellectual property and distinct from other promises under the contract. The exclusive license for certain Prime products and non-exclusive licenses to CRISPR technology are considered functional licenses that are distinct in the context of the Beam Collaboration Agreement as Beam can benefit from the licenses on its own or together with other readily available resources. As the exclusive license for certain Prime products and non-exclusive licenses to CRISPR technology are delivered at the same time, they are considered one performance obligation at contract inception. The joint research committee performance promise is immaterial in the context of the contract. +The Company determined the transaction price under ASC 606 at the inception of the Beam Collaboration Agreement to be $ 5.2 million, consisting of the value of the Beam equity investment under the Beam Mutual Subscription Agreement, when measured at fair value, less the value of the Prime shares issued to Beam of $ 0.2 million. The shares Prime issued to Beam represents a payment to a customer and is therefore a reduction of the transaction price. +The Company recognizes revenue for the license performance obligations at a point in time, as control of these licenses are transferred upon issuance and Beam could begin to use and benefit from the licenses. There was no revenue recognized under the Beam Collaboration Agreement during the years ended December 31, 2024 or 2023. +The change fair value of the related party short-term investment consisting of Beam shares are recognized as unrealized gain (loss) i n the consolidated statements of operations and comprehensive loss. +Bristol-Myers Squibb — Related Party +In September 2024, the Company entered into the BMS Collaboration Agreement with Juno Therapeutics, Inc., a wholly-owned subsidiary of BMS. Under the terms of the BMS Collaboration Agreement, the Company granted to BMS an exclusive worldwide license to certain Prime Editing technology for developing, manufacturing and commercializing ex vivo T-cell therapeutic products directed to select targets. Additionally, on the Effective Date, the Company entered into the BMS Purchase Agreement with BMS, pursuant which the Company agreed to sell and issue shares of its common stock to BMS. +Research Collaboration and License Agreement +Pursuant to the BMS Collaboration Agreement, the Company will design Prime Editing reagents to be used by BMS to develop, manufacture and commercialize ex vivo T-cell therapeutic products directed to specific targets selected by BMS. +Under the BMS Collaboration Agreement, the Company received a $ 55.0 million upfront payment and received a $ 55.0 million equity investment from BMS (as described below). The Company is also eligible to receive more than $ 3.5 billion in milestones, including up to $ 185 million in preclinical milestones, up to $ 1.2 billion in development milestones, and up to $ 2.1 billion in commercialization milestones, along with royalties on net sales. +Unless earlier terminated, the term of the BMS Collaboration Agreement continues until expiration of the last royalty term for the applicable product in the applicable country. The BMS Collaboration Agreement is subject to customary termination provisions, including termination by a party for the other party’s uncured, material breach. +Stock Purchase Agreement +On the Effective Date, the Company entered into the BMS Purchase Agreement with BMS, pursuant to which the Company agreed to issue and sell, and BMS agreed to purchase, in the Offering, 11,006,163 Shares of the Company’s Common Stock for an aggregate purchase price of $ 55.0 million pursuant to the terms and conditions thereof. Pursuant to the terms of the BMS Purchase Agreement, BMS has agreed not to, directly or indirectly, sell or transfer any of the Shares until September 30, 2027 subject to specified conditions and exceptions. The BMS Collaboration Agreement and Stock Purchase Agreement were accounted for as a combined contract. The Common Stock were recorded at their fair value as permanent equity. +F-30 +Accounting Considerations +The Company assessed the BMS Collaboration Agreement and concluded that BMS is a customer. The Company identified the following promises under the contract: (i) a license to develop, manufacture and commercialize the ex vivo T-cell therapeutic products to select targets, (ii) obligation to perform research services, (iii) participation in various committees, (iv) technology transfer services, and (v) regulatory support services. The Company assessed the promised goods and services to determine if they are distinct. Based on this assessment, the Company determined that BMS cannot benefit from the promised goods and services separately from the others as they are highly interrelated and interdependent and therefore not distinct. Accordingly, the promised goods and services represent one combined performance obligation and the entire transaction price will be allocated to that single combined performance obligation. +At contract inception, the transaction price was determined to be $ 72.0 million, which represents the aggregate of the upfront nonrefundable payment for the BMS Collaboration Agreement and the premium paid by BMS on its equity investment in the Company. Development milestones were fully constrained. The Company recognizes the portion of the transaction price as the single performance obligation is satisfied, using an input method, in proportion to costs incurred to date as compared to total costs incurred and expected to be incurred in the future to satisfy the underlying obligation. The transfer of control occurs over this period and, in management’s judgment, is the best measure of progress towards satisfying the performance obligation. Cost to perform the Company’s obligations under the BMS Collaboration Agreement will be recognized as research and development expenses in the period incurred. +Revenue recognized from the BMS Collaboration Agreement was as follows: +Year Ended December 31, +(in thousands) 2024 2023 +Collaboration revenue — related party $ 1,609 $ — +Supplemental information related to the BMS Collaboration Agreement consisted of the following: +December 31, +(in thousands) 2024 2023 +Deferred revenue — related party $ 7,092 $ — +Deferred revenue, net of current — related party 63,218 — +10. Net Loss per Share +As described in Note 2, Summary of Significant Accounting Policies , for periods in which the Company reports a net loss, potentially dilutive securities have been excluded from the computation of diluted net loss per share as their effects would be anti-dilutive. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share is the same. The Company excluded the following potential common shares presented based on amounts outstanding at period end, from the computation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect: +Year Ended December 31, +2024 2023 +Anti-dilutive common stock equivalents: +Stock options to purchase common stock 11,900,921 7,763,023 +Unvested restricted common stock awards 3,497,474 4,735,996 +Total anti-dilutive common stock equivalents 15,398,395 12,499,019 +F-31 +Basic and diluted loss per share is computed by dividing net loss by the weighted-average common shares outstanding: +Year Ended December 31, +(in thousands, except share and per share data) 2024 2023 +Numerator: +Net loss attributable to common stockholders $ ( 195,882 ) $ ( 198,133 ) +Denominator: +Weighted-average common shares outstanding, basic and diluted 118,600,381 90,969,327 +Net loss per share attributable to common stockholders, basic and diluted $ ( 1.65 ) $ ( 2.18 ) +The weighted-average number of common shares outstanding used in the basic and diluted net loss per share calculations includes the weighted-average effect of pre-funded warrants sold by the Company to purchase 3,200,005 shares of the Company's common stock. The shares of common stock underlying the pre-funded warrants are considered outstanding for the purposes of computing earnings per share, because the shares may be issued for little or no consideration, they are fully vested, and the pre-funded warrants are immediately exercisable upon their issuance date. +11. Income Taxes +Income tax (benefit) expense consists of the following: +Year Ended December 31, +(in thousands) 2024 2023 +Deferred income tax benefit: +Federal $ — $ ( 279 ) +State — — +Total deferred income tax benefit — ( 279 ) +Total provision (benefit) from income taxes $ — $ ( 279 ) +A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows: +Year Ended December 31, +2024 2023 +Federal income tax expense at statutory rate 21.0 % 21.0 % +State income taxes, net of federal benefit 7.4 % 7.3 % +Tax credits 2.6 % 2.0 % +Permanent differences ( 0.9 ) % ( 0.9 ) % +Other 0.8 % ( 0.4 ) % +Change in valuation allowance ( 30.8 ) % ( 28.9 ) % +Effective income tax rate — % 0.1 % +F-32 +Net deferred tax assets (liabilities) consisted of the following: +December 31, +(in thousands) 2024 2023 +Deferred tax assets: +Capitalized research and development costs $ 74,605 $ 49,990 +U.S. and state net operating loss carryforwards 61,501 35,977 +Depreciation and amortization 12,829 13,204 +Tax credits 22,986 12,863 +Accrual 2,334 5,817 +Lease Liability 12,228 3,711 +Stock Compensation 6,005 1,473 +Other 141 9 +Total deferred tax assets 192,629 123,044 +Deferred tax liabilities: +Right of Use Asset ( 12,852 ) ( 3,794 ) +Total deferred tax liabilities ( 12,852 ) ( 3,794 ) +Valuation allowance ( 179,777 ) ( 119,250 ) +Net deferred tax assets (liabilities) $ — $ — +The following is a summary of the Company’s net operating loss and tax credit carryforwards, both of which may be available to reduce future tax liabilities: +December 31, +(in thousands) 2024 2023 +U.S. federal net operating loss - do not expire $ 226,904 $ 131,608 +State net operating loss - expire at various dates beginning in 2039 +219,351 132,009 +Federal research and development tax credits - expire at various dates beginning in 2040 +15,082 8,085 +State research and development tax credits - expire at various dates beginning in 2036 +10,005 6,047 +Utilization of the U.S. federal and state net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, and corresponding provisions of state law, due to certain ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income and tax liabilities. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study. If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before their utilization. Further, until a study is completed by the Company and any limitation is known, no amounts are being presented as an uncertain tax position. +The Tax Cuts and Jobs Act requires taxpayers to capitalize and amortize research and development expenditures under section 174 for tax years beginning after December 31, 2021. This rule became effective for the Company for the year ended December 31, 2022. For the years ended December 31, 2024 and 2023, the Company capitalized +F-33 +R&D costs of $ 141.1 million and $ 137.2 million, respectively. The Company will amortize these costs for tax purposes over five years if the R&D was performed in the U.S. and over 15 years if the R&D was performed outside the U.S. +The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company’s history of cumulative net losses incurred since inception, expectation of future losses and lack of other positive evidence. For the years ended December 31, 2024 and 2023, the Company was in a net deferred tax asset position and therefore recorded a valuation allowance against the portion of its deferred tax assets that cannot be fully supported by the future reversal of existing deferred tax liabilities. The Company reevaluates the positive and negative evidence at each reporting period. +For the year ended December 31, 2024, the valuation allowance increased primarily due to the increases in net operating loss carryforwards, capitalized research and development costs, and research and development tax credit carryforwards. The changes in the valuation allowance were as follows: +Year Ended December 31, +(in thousands) 2024 2023 +Valuation allowance at beginning of year $ 119,250 $ 62,132 +Increases (decreases) recorded to income tax provision 60,527 57,118 +Valuation allowance at end of year $ 179,777 $ 119,250 +The Company assesses the uncertainty in its income tax positions to determine whether a tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related appeals of litigation processes, based on the technical merits of the position. For tax positions meeting the more-likely-than-not threshold, the tax amount recognized in the financial statements is reduced by the largest benefit that has a greater than 50 percent likelihood of being realized upon the ultimate settlement with the relevant taxing authority. As of December 31, 2024, the Company had not recorded any reserves for uncertain tax positions or related interest and penalties. +The Company files income tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all years in which a loss carryforward is available. As of December 31, 2024, there were no pending tax examinations. The Company is open to future tax examination under statute from 2019 to the present. +12. Commitments and Contingencies +Leases +The Company’s commitments under its operating leases are described in Note 6, Leases . +License and Collaboration Agreements +The Company entered into various license and collaboration agreements under which it is obligated to make fixed and contingent payments as described in Note 9, License and Collaboration Agreements . +Legal Proceedings +From time to time, the Company may become involved in legal proceedings or other litigation relating to claims arising in the ordinary course of business. The Company accrues a liability for such matters when it is probable that future expenditures will be made and that such expenditures can be reasonably estimated. Significant judgment is required to determine both probability and estimated exposure amount. Legal fees and other costs associated with such proceedings are expensed as incurred. Except as described in Note 6, Leases , as it relates to our facility at 60 First Street, Cambridge, we do not have any ongoing legal proceedings that, based on our estimates, could have a material effect on our consolidated financial statements. +F-34 +13. Related Party Transactions +Founder Consulting Services +For the years ended December 31, 2024, and 2023 the Company made payments of $ 0.1 million and $ 0.2 million, respectively, to one of the co-founder shareholders for scientific consulting and other expenses. As of December 31, 2024 and 2023 , there were no amounts included within accounts payable. +Myeloid Therapeutics +In December 2021, the Company and Myeloid entered into the Myeloid Collaboration Agreement and Myeloid Subscription Agreement during which time the Company and Myeloid had one common board member, who is also an affiliate of Newpath, one of the Company’s holders of common stock. In 2023, the Company terminated the Myeloid Collaboration Agreement. +In January 2024, the Company and Myeloid entered into a settlement agreement resolving two arbitration proceedings. Under the terms of the settlement agreement, the parties agreed to resolve and settle all disputes between the parties and release all claims between them relating to the License Agreement and the arbitrations in exchange for the Company's payment to Myeloid of $ 13.5 million, certain mutual covenants, and other consideration. The settlement was accrued on the Company’s consolidated balance sheet as of December 31, 2023 and paid during the year ended December 31, 2024. As of December 31, 2024, there were no amounts included within accounts payable or accrued expenses. +Advisory Services Agreement with Jeffrey Marrazzo +In February 2024, the Company entered into an advisory services agreement (“Marrazzo Agreement”) with Jeffrey Marrazzo, a member of the Board of Directors. Under the Marrazzo Agreement, Mr. Marrazzo agreed to provide certain professional services to the Company separate from and in addition to his service as a Board member. For his services, the Company agreed to pay Mr. Marrazzo an annual fee of $ 50,000 per year in addition to the grant of an option to purchase 250,000 shares of the Company’s common stock, which has a grant date fair value of $ 1.5 million. +The term of the Marrazzo Agreement runs through February 2025 and may be terminated or extended by mutual written agreement. If the Company terminates the Marrazzo Agreement without “Cause,” the administrator of the 2022 Plan will accelerate the vesting of the option such that the pro rata portion of the option will vest and be immediately exercisable. +Bristol-Myers Squibb +In September 2024, the Company and BMS, a related party, entered into the BMS Collaboration Agreement and the BMS Purchase Agreement. BMS is a related party due to its share of ownership of the Company. For amounts recognized under the BMS Collaboration Agreement, refer to Note 9, Licenses and Collaboration Agreements . +F-35 \ No newline at end of file diff --git a/raw/filings/0001894562/2024/0001628280-25-008884/filing_metadata.csv b/raw/filings/0001894562/2024/0001628280-25-008884/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..d1690089732d24ea3d19b33c6eb5586bb926af3a --- /dev/null +++ b/raw/filings/0001894562/2024/0001628280-25-008884/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001894562,PRME,"Prime Medicine, Inc.",2024,10-K,2025-02-28,2024-12-31,2025-02-28T13:13:01.000Z,0001628280-25-008884,prme-20241231.htm,10-K,17872579,1,1,https://www.sec.gov/Archives/edgar/data/1894562/000162828025008884/prme-20241231.htm,https://www.sec.gov/Archives/edgar/data/1894562/000162828025008884/ diff --git a/raw/filings/0001894562/2024/0001628280-25-008884/item1.txt b/raw/filings/0001894562/2024/0001628280-25-008884/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..edb741ec36267b74e323d7731965a151404ef59f --- /dev/null +++ b/raw/filings/0001894562/2024/0001628280-25-008884/item1.txt @@ -0,0 +1,426 @@ +ITEM 1. Business +Overview +We are a biotechnology company committed to delivering a new class of differentiated one-time curative genetic therapies. We are deploying Prime Editing technology, which we believe is a versatile, precise, and efficient gene editing technology. +The field of genetic medicine has rapidly evolved over the last decade, with groundbreaking advances in gene therapy, cell therapy, ribonucleic acid, or RNA, therapy, and, more recently, gene editing. This includes the approval of the first CRISPR/Cas9-based gene editing therapy by the U.S. Food and Drug Administration, or the FDA, for the treatment of sickle cell disease. These technologies represent significant advancements for genetic medicines but we believe Prime Editing is the only gene editing technology that, by itself, can edit, correct, insert and delete deoxyribonucleic acid, or DNA, sequences in any target tissue. We believe Prime Editing technology has transformative potential that could change the course of how many diseases are treated and overcome the challenges associated with current genetic therapies. +Prime Editing can correct mutations across many tissues, organs, and cell types, in both dividing and non-dividing human cells. For example, Prime Editing technology has the ability to repair diverse mutations, including all types of point mutations, deletion mutations, insertion and duplication mutations and insertion-deletion mutations. Our analysis of more than 75,000 pathological, or disease-causing, mutations found in the National Center for Biotechnology Information ClinVar Database shows that those addressable by Prime Editing technology account for approximately 90 percent of genetic variants associated with disease. As such, we believe Prime Editing technology has the theoretical potential to repair approximately 90 percent of known disease-causing mutations across many tissues, organs and cell types. +In addition, we believe our Prime Assisted Site-Specific Integrase Gene Editing, or PASSIGE TM technology, may enable Prime Editing to precisely insert gene-sized sequences. PASSIGE uses Prime Editing to insert one or more recombinase recognition sequences at precisely chosen locations in the genome. In our preclinical studies, we have shown that a site-specific recombinase can locate the recombinase recognition sequence and carry out DNA recombination, resulting in the desired large DNA sequence insertion at the desired location in the genome. We believe that such a technology has the potential to precisely insert “gene-sized” pieces of DNA, at a predetermined and specific site in the genome. Taken together, Prime Editing’s versatile gene editing capabilities have the potential to unlock opportunities across thousands of potential indications. +Prime Editors have the ability to create permanent modifications at their natural genomic location, resulting in durable edits that retain their native physiological control and are passed on to daughter cells. Our next generation gene editing technology is designed to produce a wide variety of precise, predictable and efficient genetic outcomes at the targeted sequence, while minimizing unwanted bystander edits and off-target edits and avoiding double-stranded DNA breaks. Our Prime Editors are designed to make only the right edit at the right position within a gene. +If nuclease gene editing approaches are “scissors” for the genome, and base editors are “pencils,” erasing and rewriting a subset of single letters in the gene, then Prime Editing is a “word processor,” searching for the correct location and replacing or repairing a wide variety of target DNA. +Recent highlights of the programs in our portfolio include the following: +• In April 2024, the FDA cleared our IND application for PM359 for the treatment of chronic granulomatous disease, or CGD, a serious life-threatening disease that presents in childhood, enabling us to initiate our global Phase 1/2 clinical trial in the United States. The Phase 1/2 clinical trial is a multinational, first-in-human trial designed to assess the safety and efficacy of PM359 in adult and pediatric study participants. PM359, our first product candidate within our hematology, immunology and oncology area of focus, targets the p47phox variant of CGD. PM359 is comprised of autologous hematopoietic stem cells, or HSC, modified ex vivo using Prime Editors that have been designed to correct cells containing the disease-causing mutation. We believe Prime Editing is uniquely well-suited to address this form of CGD. We have received rare pediatric drug designation, or RPDD, and orphan drug designation, or ODD, from the FDA +1 +for PM359 in January 2024. We also have received fast track designation from the FDA for PM359 in November 2024. +• We have demonstrated Prime Editing of cells in preclinical studies at predicted therapeutically relevant levels for Wilson’s Disease in our liver area of focus. In October 2024, we presented in vivo proof-of-concept data demonstrating successful correction of a disease-causing mutation in Wilson’s Disease in a fully humanized mouse model and precise editing of the genomic site in non-human primate, or NHP, models using our proprietary, universal liver-targeted lipid nanoparticle, or LNP, platform to deliver the Prime Editor. +• We continue to advance multiple Prime Editors in our lung area of focus for the treatment of Cystic Fibrosis, or CF. In January 2024, we entered into a therapeutic development agreement with the Cystic Fibrosis Foundation, or CFF, in which CFF agreed to provide Prime Medicine with up to $15 million to support development of hotspot editing with PASSIGE in CF, as well as our ongoing efforts to develop delivery to the lung. Through hotspot editing, we aim to address multiple mutations at mutational hotspots using a small number of Prime Editors, potentially addressing a large percentage of individuals with CF with only a few Prime Editors. In parallel, using PASSIGE, we aim to address nearly all people with CF using a single superexon insertion strategy. +• In September 2024, we entered into a strategic research collaboration and license agreement, or the BMS Collaboration Agreement, with Bristol Myers Squibb, or BMS, via its wholly owned subsidiary, Juno Therapeutics, Inc., or Juno, in which BMS agreed to provide us with a $55.0 million upfront payment and a $55.0 million equity investment in exchange for developing reagents for the next generation of ex vivo T-cell therapies. BMS will be responsible for development, manufacturing and commercialization of the next generation cell therapies, with support from us in gene editing strategy and reagent development. We are eligible to receive more than $3.5 billion in milestones, including up to $185.0 million in preclinical milestones, up to $1.2 billion in development milestones and up to $2.1 billion in commercialization milestones, along with royalties on net sales. +• To maximize the potential of our Prime Editing technology, in September 2024, we strategically focused our portfolio to a set of high value programs in the following core areas of focus: hematology, immunology and oncology, liver, and lung. We are identifying partnership opportunities to advance our other programs, including those for neurological diseases, cell therapy, ocular diseases and hearing loss. +Our Strategy +Our goal is to transform the lives of patients with debilitating diseases through the application of our Prime Editing platform and technology. We are committed to developing safe and efficient therapeutics using Prime Editing approaches to address high unmet need across a broad spectrum of diseases, from rare genetic diseases to severe, chronic and acute diseases. Key components of our strategy are as follows: +• Maximize the potential of Prime Editing to benefit patients. We believe our Prime Editing technology and capabilities represent the future of gene editing, with broad applications in medicine and life sciences. Through our proprietary rights to and ongoing advancements building upon this ground breaking gene-editing approach, we have established a clear leadership position in the Prime Editing field. We have built a cross-disciplinary team consisting of dedicated employees and other experts in Prime Editing and drug development who are passionate about our common goal of helping patients live longer, healthier lives. +• Deploy our technology to extend the application of one time potentially curative therapeutics to areas that we believe were not addressable before. To unlock the full potential of our Prime Editing technology across a wide range of therapeutic applications, we intend to advance multiple therapeutic programs into the clinic. We are currently focused on high-value programs for genetic diseases that we believe have a fast, direct path to treating patients, and those with high unmet need not currently addressable using other gene-editing approaches. Over time, we intend to push new and innovative technological developments to maximize Prime Editing’s versatile therapeutic potential, and unlock broad opportunities beyond the genetic diseases in our strategically focused pipeline, potentially including immunological diseases, cancers, infectious diseases, and targeting genetic risk factors in common diseases. +2 +• Advance our pipeline while simultaneously enhancing, validating and enabling our modular platform. We are pursuing a diverse pipeline of investigational therapeutic programs organized around a set of high value programs in our core areas of focus: hematology, immunology and oncology, liver, and lung. We have designed a modular platform within each core area, which we believe will accelerate our ongoing efforts and enable rapid generation of new product candidates. We believe the core components, such as Prime Editors, off-target assays, delivery, manufacturing, clinical, and regulatory can be leveraged to accelerate our pipeline to clinical trials and potential approval. +To unlock the full potential of our Prime Editing technology across each of our areas of focus, we intend to use the delivery modality with the most compelling biodistribution and Prime Editing efficiency. We are currently focusing on electroporation for delivery to blood cells and immune cells ex vivo , LNP for non-viral in vivo delivery to the liver, lung and potentially other organs in the future and adeno-associated viruses, or AAV, for viral in vivo delivery to the eye, ear, and potentially the central nervous system, lung and muscle. Our goal is to develop highly modular delivery systems that allow us to rapidly develop new products targeting the same cells/tissues/organs by leveraging the approaches and data that precedes them. +• Continue to push the frontier of innovation in gene editing by optimizing and expanding our Prime Editing technology and capabilities. We plan to continue investing in our technology, team and intellectual property with a focus on reinforcing our leadership position and making fundamental progress towards better therapies for patients. +• Opportunistically evaluate synergistic and value-creating partnerships to maximize the broad potential of our platform. Our pipeline programs have been internally generated, and we retain worldwide development and commercialization rights to all of our programs except for certain ex vivo chimeric antigen receptor T-cell, or CAR T-cell, programs that are partnered with BMS. Given the broad potential of our technology, we intend business development to play an important role in building Prime Medicine, with the goal of accelerating our pipeline, bolstering our financial resources, and maximizing the potential of Prime Editing. Our overall partnership strategy includes: 1) partnering within our core areas to accelerate and globalize our current pipeline programs at the “right” stage of development; 2) outside our core areas, entering into collaboration or license agreements for programs now that we would not otherwise pursue in the near term; and 3) accessing enabling innovations, such as delivery and manufacturing capabilities. In 2024, we executed on this strategy by entering into a therapeutic development agreement with CFF and a collaboration agreement with BMS. +• Lead with our culture of integrity, ethics, innovation and respect in everything we do. We believe the potential of Prime Editing can only be achieved through the coordinated effort of our team and the support of our partners across academia and industry. To push the boundaries of where gene editing can go, we are committed to jointly defining and maintaining a culture that is transparent, develops trust, values integrity and ethics, puts patients first, is science and data driven, and encourages innovation. +Current Challenges for the Field of Genetic Medicines +Despite significant progress within gene therapy, gene editing, cell therapy, and RNA therapeutics, there remain considerable limitations to current genetic medicine approaches that impede their ability to truly deliver on the promise of a curative, one-time therapy to the broadest set of patients. +Non-targeted gene therapy includes using viral vectors, such as AAV, retroviruses such as lentiviruses, or mobile gene elements, such as retrotransposons and transposons, to deliver new copies of genes, or transgenes, to cells. These approaches generally do not correct genes but insert new copies of genes or parts of genes into cells in a non-targeted manner. While having some important benefits, non-targeted gene therapy approaches have many key limitations including limited durability, inability to be re-dosed, variable gene expression, and random integration of transgenes into the genome, which carries the risk of insertional mutagenesis. +First generation gene editing methods rely on a class of enzymes called nucleases, such as CRISPR, ZFNs, engineered meganucleases and TALENs, to create double-stranded breaks in DNA at a targeted location. While nuclease-based gene editing approaches can be useful to inactivate a gene, they have several key limitations, including random creation of indels, or chromosomal insertions and deletions, low percentage editing efficiency to +3 +make corrections, replacements, or insertions in a gene, the ability to edit only in dividing cells, and unwanted DNA modifications associated with double-stranded breaks, including cell death response, genomic instability, off-target editing and the potential for oncogenesis. +Base editing is an emerging gene editing technology that can enable C-to-T, T-to-C, G-to-A or A-to-G base substitutions edits using either a Cytosine Base Editor, or CBE, or Adenine Base Editor, or ABE, respectively. However, base editing has several key limitations including the ability to reliably correct only 4 out of 12 possible single base mutations, the inability to make or correct insertion or deletions, unwanted on-target by-products, called bystander edits, near the targeted site, and limited optionality for targeting mutations due to its smaller editing window. +Prime Editing: A Next Generation Gene Editing Approach +Prime Editing is a next generation gene editing approach that we believe can address the genetic cause of disease and potentially provide patients with long-lasting cures. Although Prime Editing is a developing technology and is not yet validated in clinical studies, it has been extensively validated in vitro and in animal studies, both by our company and in hundreds of papers published in the primary scientific literature to date. +Advantages of our Prime Editing Platform +We believe Prime Editing is a versatile, precise, efficient and broad gene editing technology with the following key advantages: +Versatility: Deep and highly differentiated toolbox of editing capabilities to enable a wide variety of therapeutic applications +• Applicable to a wide range of target mutations or alterations of DNA, including all twelve types of single base pair corrections, as well the ability to insert and delete DNA sequences. +• Direct correction of DNA with no requirement for delivery of the corrected DNA sequence in many applications of Prime Editing. +• Modular for targeting a broad set of mutations, meaning that by redesigning the Prime Editing guide RNA, or pegRNA, a new mutation can be targeted for correction while leaving the other Prime Editor components largely unchanged. +• Multiple potential therapeutic applications, including but not limited to targeted gene correction, gene silencing or activation such as by altering the regulatory regions of genes, inserting or creating premature stop codons, or modifying splicing sequences, hotspot region replacement, multiplex editing of several genes simultaneously, and wild-type variant modification to protect against or modify risk for a disease. +• Capable of inserting, deleting or inverting kilobase amounts of genomic DNA by combining Prime Editing with proprietary recombinase technology in an approach we call PASSIGE. +Precision: Highly specific and predictable gene editing +• Designed to specifically make only the directed type of Prime Edit at the desired target location. +• Avoids the potential negative impacts associated with double-stranded DNA breaks, which results in minimal to potentially no unwanted on-target or off-target by-products and preservation of cell viability. +• Limited potential for bystander editing at the target site, a potential unwanted effect of base editing. +Efficiency: Durable gene edits with potential for superior therapeutic activity +• Single treatment resulting in permanent correction of disease-causing mutations by restoring the targeted gene back to its wild-type, or non-diseased sequence. +4 +• Permanent, durable edits that persist in a cell and are passed along to daughter cells, creating potential for a life-long, “once and done” therapeutic outcome. +• Preservation of natural regulation and a normal number of copies of the gene in the cell by modification of genes under endogenous control, or in their native genomic setting. +Breadth: Able to address a wide range of diseases in multiple tissue types +• Applicability in a wide range of human cells, including both dividing and non-dividing human cells, a wide range of organs, tissues and cell types, including primary cells such as hepatocytes, HSC and neurons. +• Potential ability to repair approximately 90 percent of all types of mutations known to cause genetically driven disease. +• Broad therapeutic potential extending beyond rare genetic diseases to also potentially include severe, chronic, and acute diseases. In addition to correcting disease-causing mutations, potential for gene modification to edit naturally occurring variations within genes known to protect against or modify risk for a disease. +Prime Editing Technology +Prime Editors have at least two major components, a Prime Editor protein and a pegRNA. Our Prime Editor proteins contain two protein domains. The first domain is a programmable DNA binding domain, often a CRISPR-Cas protein domain, or Cas domain. Cas domains enable targeting of specific DNA sequences, and they have been adapted and engineered to target desired genomic locations in human cells with high specificity. In Prime Editors, programmable DNA binding domains, such as Cas domains, are typically modified such that they do not cause a double-stranded break in the DNA. The second protein domain of Prime Editors is a DNA polymerase domain, often a reverse transcriptase enzyme domain, or RT domain. Reverse transcriptases are DNA polymerase enzymes that write new DNA sequences by copying from an RNA template. In Prime Editing, the RT domain copies the edited DNA sequence directly into the target genomic site where the edit is made. +The other main component in Prime Editing is the pegRNA. The pegRNA contains a search sequence, also known as a spacer, which provides a target genomic address for the Prime Editor. This enables the Prime Editor to specifically target a desired gene sequence. The pegRNA also contains a second sequence unique to Prime Editing, a replace sequence, or edit template, which provides a blueprint for the edit that will be made to the target DNA sequence. +As shown in the second panel in the figure below, a Prime Editor protein, exemplified using a fusion protein containing a Cas domain and an RT protein domain, and the pegRNA locate the DNA target site using the pegRNA’s search sequence. As exemplified in the figure, when the correct DNA target is found (referred to as “edit check 1,” as described below), the Prime Editor’s Cas domain cleaves, or nicks, one of the two DNA strands, creating a single-stranded 3’ flap. The other DNA strand remains intact and is not cleaved by the Prime Editor, thus avoiding the formation of double-stranded DNA breaks. As shown in the third panel of the figure, the 3’ flap binds to a region of the replace sequence in the pegRNA (“edit check 2”) and “primes” the DNA synthesis. The Prime Editor’s RT domain copies a portion of the replace sequence, which incorporates the desired edit, as shown in the fourth panel. After the desired edit is copied, cellular DNA repair preferentially incorporates the corrected 3’ flap into the gene (“edit check 3”) while removing the excess original DNA sequence. The complementary DNA strand is also corrected through cellular DNA repair, using the Prime-Edited DNA strand as a template. Incorporation of the correction into the complementary DNA strand can be made more efficient by adding a nicking guide RNA, or ngRNA, where the Prime Editor also transiently nicks the complementary strand. The overall result is a target gene sequence that is corrected on both strands of DNA. +As highlighted in the figure below, there are three distinct steps in the Prime Editing pathway that require sequence complementarity between the target DNA and pegRNA sequences. Thus, the process of Prime Editing efficiently institutes three “edit checks,” or three sequential steps where the next step occurs when there is sequence complementarity. In addition to the lack of double-stranded DNA breaks, we believe that these “edit checks” are also important in helping to ensure that the right sequence in the genome is precisely edited in the desired manner, thereby minimizing both on- target and off-target mis-editing. +5 +Illustration of Editing Mechanism by Prime Editor – No Double-Stranded DNA Breaks +Enhancing the Prime Editing Platform +The versatile nature of Prime Editing allows for the selection of the right tools for a specific gene edit to optimize for desired effects with high efficiency and precision at the targeted site, while minimizing off-target edits at more distant chromosomal sites. Since Prime Editing was first described, an increase in efficiency as well as an expansion in the scope of applications have been demonstrated and reported in multiple publications and abstracts as well as contributions from our team. +Multiple enhancements to our Prime Editing platform, including engineered and chemically modified pegRNAs, enhanced Prime Editors, and DNA mismatch repair modulation, provide us with a versatile toolbox for applying Prime Editing to a wide range of diseases. In addition, our focus on high-throughput screening and machine learning are allowing us to grow our internal technical expertise for Prime Editing optimization and are being used to develop Prime Editors that are both more efficient and more precise. Finally, we are broadening the types of edits that we can make by incorporating recent innovations in Prime Editing, including dual-flap Prime Editing, long-flap Prime Editing, and PASSIGE. +Dual-flap Prime Editing and long-flap Prime Editing +We have in-licensed certain dual-flap Prime Editing technology developed by Dr. David Liu’s laboratory at Broad Institute, and expanded and improved on its uses. Compared to single-flap Prime Editing, dual-flap Prime Editing uses two Prime Editors instead of one. Dual-flap Prime Editing is designed to achieve efficient editing of a broad range of edit types, including the precise replacement or insertion of DNA sequences that are greater than a hundred bases in length with high efficiency. In addition, dual-flap Prime Editing can precisely delete up to thousands of bases of DNA. Dual-flap Prime Editing has been shown in preclinical studies to achieve similar levels of precision and similarly low off-target editing as single-flap Prime Editing. Dual-flap Prime Editing is being used for PASSIGE™, to replace mutation hotspots with corrected sequences, and could be used to delete expanded repeat sequences, such as those that occur in repeat expansion diseases. +Additionally, we have developed a long-flap Prime Editing approach that, compared to our standard single-flap Prime Editing, is designed to more efficiently insert or replace larger stretches of DNA that are a hundred bases or more in length, while also enabling precise deletions of up to thousands of base pairs. Long-flap Prime Editing can be used for editing of hotspot regions in DNA, insertions of recombinase sites for PASSIGE, and the excision of expanded repeats. Together, dual-flap Prime Editing and long-flap Prime Editing broaden the capabilities of our Prime Editing platform. +PASSIGE™ – Precise introduction of gene-sized pieces of DNA into the genome +We have in-licensed from the Broad Institute and are further internally developing a technology that allows us to expand our gene editing toolbox to include programmable insertion, deletion, or inversion of thousands of bases of DNA. By combining Prime Editing with an integrase or site-specific recombinase enzyme, we can harness the precision of Prime Editing with the ability to introduce large gene-sized cargo into the genome as a potential one-time therapy for patients. This proprietary approach expands the versatility of Prime Editing and we believe +6 +broadens the range of permanent genomic edits that Prime Editing can make to encompass the ability to insert entire genes precisely into a patient’s genome to treat disease. +PASSIGE leverages the programmability of Prime Editing to insert recombinase recognition sequences at precisely chosen targeted locations in the genome, as shown in the figure below. A site-specific recombinase, either fused to the Prime Editor or transiently delivered as a separate enzyme into target cells, locates the recognition sequence or sequences and carries out DNA recombination at those recognition sequences, resulting in the desired large DNA sequence edit at the desired location in the genome. We believe that such a technology has the potential to precisely insert “gene-sized” pieces of DNA at a predetermined and specific site in the genome. +PASSIGE may be used to insert DNA that contains a therapeutic gene, such as a chimeric antigen receptor, or CAR, or the open reading frame of any other gene. Alternatively, using multiplex Prime Editing, two recombinase DNA target sequences can be inserted so that site-specific recombinases can replace, delete, or invert the intervening DNA sequences. These editing capabilities enable therapeutic opportunities to potentially treat genetic mutations occurring across a large region of DNA sequences within a single gene, and enable therapeutic opportunities to engineer cell therapies to treat disease. +PASSIGE™ – Extending Prime Editing to insert gene sized sequences precisely in the genome +Translating Prime Editors into Product Candidates - Optimizing Prime Editor Components and Delivery Modalities +The optimal design and efficient generation of our Prime Editors are fundamental for the development of our pipeline. We have established capabilities to design and optimize our Prime Editors, and to design and develop the components needed for LNPs, vector genomes, Prime Editing of ex vivo cells, as well as to develop the manufacturing processes and analytical assays to ensure robust, scalable production of quality intermediates and products to support our programs. Many of these workflows are automated to allow rapid machine learning and/or artificial intelligence-based data analysis, correlation, visualization, and iterative optimization and innovation. +For each program in our pipeline, we determine the best option for delivering the Prime Editor and select the delivery technology with the most compelling biodistribution for a given tissue type. Our current programs rely on two distinct delivery modalities: (a) electroporation for delivery to blood cells and immune cells ex vivo ; and (b) LNPs, for non-viral in vivo delivery to the liver, lung and potentially other organs in the future. We also can deliver Prime Editors using AAVs for viral in vivo delivery to the eye and ear, and potentially the central nervous system, lung and muscle. A key feature of Prime Editing and associated delivery methods is the modularity of the technology platforms. Once the first program for each delivery platform is established, the design algorithms, workflows, non-clinical and CMC data, as well as the manufacturing process and majority of assays can be leveraged and applied to the next program which differs only in the pegRNA. +7 +We believe these delivery technologies are foundational to successfully advancing our pipeline programs to the clinic and we are strategically developing our delivery platforms and generating data to accelerate our pipeline progress. Moreover, we continue to assess the many advancements in novel and experimental delivery approaches that are being made in the cell and gene therapy field and intend to license innovative delivery technologies that prove to provide a breakthrough. +We are designing Prime Editing product candidates to provide a “once and done” treatment. Our multi-pronged approach to enable our portfolio includes the following: +• pegRNA Design, High Throughput Screening and Synthesis: An important element of our capability is leveraging high throughput automated screening and design algorithms to identify promising pegRNA sequences. The data is also used to develop proprietary machine learning algorithms for pegRNA activity prediction. Internal chemistry capabilities facilitate high-throughput optimization and manufacture of pegRNA for in vivo studies. We have established internal high-throughput pegRNA synthesis, pegRNA modifications with structure-activity-relationship to improve drug candidate properties, and pegRNA process chemistry. +• Optimization of Prime Editing proteins and recombinase proteins: We have developed internal protein engineering capabilities to optimize the Prime Editor proteins and recombinase proteins (for PASSIGE) for human therapeutic use, and have developed internal messenger RNA, or mRNA, design and optimization, enzymatic chemistry, and process development capabilities to enhance drug candidate properties and characterize the mRNA for efficient, well-tolerated, and consistent delivery and translation of the Prime Editor protein. +• Prime Editing Specificity and Assays: A robust and unbiased evaluation of all potential off-target activities is a critical element of our efforts. Our approach to minimizing off-target editing is to start by screening for Prime Editor candidates with very low off-target activity. We then use comprehensive, sensitive, and state-of-the-art methods to identify all putative off-target sites by identifying places where a Prime Editor has a possibility (no matter how small) to nick the DNA. We have developed multiple, complementary, but distinct, methods to measure such possible events. Our approach includes evaluation of: (a) off-target activity in the genome that is specific to the sequence of a particular pegRNA or the ngRNA; (b) similar activity that is independent of the pegRNA or ngRNA sequences; and (c) genomic rearrangements. +• Electroporation: Electroporation is a clinically and commercially validated technology for ex vivo delivery to CD34+ cells which utilizes electrical pulses to increase the cell membrane permeability to deliver the Prime Editing components. Electroporation is being used in our CGD program with ex vivo CD34+ cells. We have established a modular cell processing manufacturing platform process that can be used for autologous CD34+ cells, and it can be leveraged for the next ex vivo HSC programs, as well as for allogeneic T-cells with multiplexing. +• LNP: LNP delivery has initially focused on in vivo delivery of Prime Editing to the liver. We have established end-to-end capabilities across our R&D organization consisting of lipid design, lipid synthesis, high throughput LNP discovery from our proprietary lipid library using screening with bar coding technology, LNP formulation process development for tissue targeted delivery, and manufacturing to support our preclinical and IND enabling studies. We are developing a universal liver targeting LNP comprised of 5 components and plan to leverage its modularity for our various programs aimed at Prime Editing in the liver, as well as to address additional mutations within the same indication. Similar approaches are being taken for developing modular LNPs to lung, and HSCs and T-cells. +• Viral Delivery: We are able to use viral delivery to tissues and locations that can currently only be reached with AAV. To enable this delivery approach, we have developed capabilities to design and optimize the vector genome to efficiently deliver Prime Editors to the target tissue. We use our internal AAV Reagent Production Core, analytical development team, as well as outsourced resources and partners to generate AAV Prime Editors, quality control test as well as characterize them. +• Strategic Manufacturing Partnerships: Our overall strategy is to design manufacturing platforms to make the Prime Editing components and associated delivery systems with high throughput, high quality, high purity, modularity, and scalability. We are developing manufacturing processes and analytical methods +8 +both internally and partnering with suppliers to ensure the quality and consistency of the Prime Editor components and Prime Edited drug products needed for preclinical studies, IND application submission, and future clinical studies. +Our Pipeline +To maximize the potential of our Prime Editing technology, we are currently pursuing a diversified portfolio of high value investigational therapeutic programs organized around core areas of focus: hematology, immunology and oncology, liver, and lung. The following table summarizes our pipeline: +Our Hematology, Immunology & Oncology Programs +Chronic Granulomatous Disease +The Disease +CGD is a rare inherited hematologic disorder characterized by susceptibility to severe, difficult-to-treat infections, and inflammatory/autoimmune complications. CGD is caused by mutations in any one of the subunits comprising the NADPH oxidase complex, which is required for phagocytic cells, in particular neutrophils, to destroy many invasive microorganisms. CGD causative mutations are estimated to occur between one in 100,000 and one in 200,000 births in the United States, and most children are diagnosed within the first three years of life. Beginning in childhood, patients with CGD develop infections from a range of both typical and unusual bacteria, fungi and mycobacteria. These infections may present in various organ systems, and protracted infections can lead to long-term organ damage and failure. In addition, patients have non-infectious inflammatory disease, most commonly presenting as inflammatory bowel disease, soft tissue granulomas, and strictures of the urinary or digestive tract. Undiagnosed or untreated, the infectious manifestations of CGD are rapidly fatal. Approximately 60 percent of patients with CGD reach age 30 and refractory or antimicrobial resistant infection is the leading cause of mortality. +The NADPH oxidase complex has five domains encoded by five separate genes. Loss-of-function mutations in any of these genes can present as CGD. The second most common form, which represents approximately 25 percent of cases, is caused by biallelic loss-of-function mutations, in both copies of the NCF1 gene encoding the p47phox protein. More than 78 percent of p47phox CGD patients have a specific, 2-nucleotide deletion, or ΔGT, in the NCF1 gene. The NCF1 gene location is complex, and also contains pseudogenes, or copies of the NCF1 gene that in most healthy individuals, and in individuals with CGD, are inactivated by the ΔGT mutation. Preclinical studies have demonstrated that correcting just one copy of the ΔGT mutation in either the NCF1 gene or any pseudogene restores protein expression and full NADPH oxidase activity. +X-linked CGD, or X-CGD, is the most common form of CGD, representing approximately 65 percent of cases. X-CGD is caused by mutations in the CYBB gene, which encodes the p91-phox protein. X-CGD primarily affects male patients because the CYBB gene is located on the X chromosome. +9 +Our Approach and Results: Direct correction of prevalent CGD mutations or hotspots +PM359, our first product candidate within our hematology, immunology and oncology area of focus, targets the p47phox variant of CGD. We have been able to demonstrate that Prime Editing precisely corrects the ΔGT mutation in the NCF1 gene to restore p47phox protein expression and NADPH oxidase activity. PM359 is comprised of autologous HSCs modified ex vivo using Prime Editors that have been designed to correct a high percentage of cells containing the disease-causing mutation. PM359 is delivered as an autologous HSC transplant, and is designed to restore normal immunologic function in individuals with p47phox CGD, without the risks of graft-versus-host disease, or GVHD, graft rejection and post-transplant immunosuppression associated with allogeneic transplantation. +In order to develop PM359, a therapeutic product candidate to treat patients with p47phox CGD, we screened pegRNA and ngRNA to identify Prime Editing guides and guide pairs that have high activity and perform precise editing at the NCF1 locus. Because healthy donors have NCF1 pseudogenes bearing the same ΔGT mutation, we have been able to utilize healthy donor CD34+ HSCs to demonstrate precise editing of the ΔGT mutation. Using healthy donor CD34+ HSCs we also have been able to demonstrate a very low off-target potential, and robust engraftment and hematopoietic functionality of Prime Edited HSCs in mouse models. We have confirmed these findings using p47phox CGD patient-derived HSCs, and in addition have demonstrated that Prime Editing is able to restore NADPH oxidase activity in patient-derived cells. +The overall process for generating PM359 follows a similar paradigm to that employed by other investigational ex vivo HSC CRISPR-Cas9 therapeutics that have been validated in the clinic, with a few notable modifications. The Prime Editor components, comprised of the Prime Editor mRNA, pegRNA and ngRNA, are delivered to CD34+ HSCs using electroporation. +We have developed Prime Editor components that are able to correct over 80% of healthy donor CD34+ cells or CGD patient CD34+ cells at at least one ΔGT locus (pseudogene in healthy donor; pseudogene or NCF1 in patient). In order to be able to understand the effects of Prime Editing on the functionality of modified CD34+ cells and to determine the ability of Prime Edited cells to persist in vivo , we administered Prime Edited CD34+ cells to a specialized immunocompromised mouse model, the NBSGW mouse, which is capable of supporting engraftment of human HSCs. As shown in the figure below, mice are typically followed for 16 weeks in these experiments to allow for engraftment of the long-term HSCs and repopulation of the immune system by long-term HSCs and then evaluated for durability of effect. +When Prime Edited healthy donor or CGD patient CD34+ cells were administered to NBSGW mice, they were able to engraft, and edited cells proliferated to repopulate the hematopoietic system. The left and middle panels in the figure below demonstrate results from a representative experiment in which healthy donor CD34+ cells, either Prime Edited or mock treated, were administered to NBSGW mice. In the left panel of the figure below, human hematopoietic cells, distinguished by the human CD45+ surface marker, were able to successfully engraft at high efficiency, with no differences between mock treated and Prime Edited cells. In the middle panel, after 16 weeks in the mice, long-term engrafted human CD34+ HSCs retained a very high degree of editing: over 80% of cells exhibited correction of the ΔGT mutation at at least one locus, compared to 0% of mock edited cells. Based on natural history studies of carriers of CGD-causative mutations, restoration of p47phox function in a minimum of 20% of neutrophils is believed to be sufficient to confer protection from serious infection with CGD-associated pathogens. Together these data suggest that Prime Editing is able to correct the ΔGT mutation at an efficiency many-fold above the lower bound of the projected threshold for therapeutic benefit, and that Prime Edited cells may effectively home to and stably engraft in the marrow after infusion. +CD34+ HSCs from an individual with p47phox CGD were Prime Edited ex vivo , and these cells were differentiated ex vivo to allow assessment of NADPH oxidase activity in myeloid progeny. The panel on the right in the figure +10 +below demonstrates the results of one commonly used measure of NADPH oxidase activity, the dihydrorhodamine (DHR) assay. Mock edited CGD patient-derived and differentiated cells produced negligible amounts of NADPH oxidase, reflected in the absence of any DHR positive cells. In contrast, NADPH oxidase activity was restored in approximately 80 percent of Prime Edited CGD patient cells, very closely corresponding to the editing rate observed in healthy donor CD34+ cells in the middle panel. This level significantly exceeds the projected therapeutic minimum threshold of DHR activity in 20 percent of neutrophils thought to be sufficient to prevent serious infection based on natural history studies. Additionally, these results confirm that editing rates in CGD patient derived CD34+ cells are similar to those in healthy donor cells, and that healthy donor cells are a useful proxy for understanding the Prime Editing reagents used to generate PM359. +__________ +HSC = hematopoietic stem cell; LT-HSC = long term HSC; DHR = dihydrorhodamine; normalized to healthy donor control. Data presented at ASGCT and ESGCT 2023. +Prime Edited CD34+ cells exhibited no significant off-target editing and no detectable evidence of deletions or translocations above the level of significance. Extensive in silico, ex vivo and in vivo analyses have been performed. The figure below demonstrates representative analyses. In the left panel, 550 of the most likely candidate off-target sites were nominated based on in silico assessment, and then interrogated for off-targeting editing in Prime Edited healthy donor CD34+ cells; no significant off-target editing was detected. In the middle panel, the marrow of NBSGW mice receiving either mock or Prime Edited human CD34+ cells was assessed for large deletions or translocations 16 weeks after engraftment; there was no difference between mock treated and Prime Edited cells, and neither had any detectable evidence of deletions or translocations above the level of significance. In the right panel, a human cell line was transfected with spCas9 targeting NCF1 without the Prime Editing machinery. Unlike Prime Editing, spCas9 introduces double strand breaks in DNA as part of its expected mechanism of action. In contrast to the Prime Editor, spCas9 by itself introduced a high rate of translocations. +__________ +1 Analysis of edited CD34+ cells from CGD program: Targeted in vitro Analysis of 550 potential off-target sites of off-target editing. 2 Data from in vivo analysis from mouse bone marrow harvested 16 weeks after engraftment was complete. 3 Positive control. +11 +In August 2023, we received RPDD from the FDA for PM359 for the treatment of CGD. Companies that receive approval for a New Drug Application, or NDA, or Biologics License Application, or BLA, for a rare pediatric disease may be eligible to receive a voucher for priority review of a subsequent marketing application for a different product. If we receive a priority review voucher, or PRV, it may be used by us or sold to a third party. In January 2024, we received Orphan Drug designation from the FDA for PM359 for the treatment of CGD. We also have received fast track designation from the FDA for PM359 in November 2024. +In April 2024, the FDA cleared our IND application for PM359 for the treatment of CGD, enabling us to initiate our global Phase 1/2 clinical trial in the United States. The Phase 1/2 clinical trial is a multinational, first-in-human trial designed to assess the safety and efficacy of PM359 initially in adult study participants and then in adolescent and pediatric study participants who have p47phox CGD due to the ΔGT mutation in NCF1, and are medically suitable to undergo autologous HSCT. Autologous CD34+ cells will be collected from study participants and edited with Prime Editing reagents to generate PM359. PM359 is then infused into study participants after myeloablative conditioning, who will be followed for three years in the primary study, and an additional 12 years as part of the long-term follow-up period. Participants will be followed for safety, including engraftment and reconstitution of the hematopoietic system, as well as early biological markers of restored immune function including the DHR assay, and for the long-term resolution and prevention of infectious and inflammatory complications of CGD. The Phase 1/2 clinical trial is currently enrolling patients, and we anticipate sharing initial clinical data from this trial in 2025. +Next Steps +After obtaining clinical data from the Phase 1/2 clinical trial and alignment with the FDA, we intend to enroll study participants in a pivotal clinical trial for PM359. +We also are continuing our preclinical development of Prime Editors to treat X-CGD. Using PASSIGE, we believe we can address greater than 90 percent of mutations in the CYBB gene and intend to leverage modular elements of our PM359 program to aid in advancement of this program. +Our Liver Program +Wilson’s Disease +The Disease +Wilson’s disease, or WD, is a devastating rare disease of the liver, with manifestations throughout the body, that is caused by copper accumulation. Most people are diagnosed with WD between ages five and 35 years and with reported prevalence rates ranging between one in 10,000 and one in 30,000, it is expected to affect upwards of 35,000 to 100,000 patients in the United States and Europe. It is also understood that there may be significant under-diagnosis of WD. +12 +Normally, excessive copper is excreted through the liver as bile. For patients with WD, copper is not eliminated correctly and accumulates to toxic levels. While the key site of pathology is the liver, and many patients present with liver disease, patients often show persistent neurological problems including involuntary movements, tremor, gait disturbance, and kidney, hematological or psychiatric problems. +WD is an autosomal recessive disorder, meaning that there are mutations in both genomic copies of the ATP7B gene, which encodes a copper transporter protein that removes excess copper. Two predominant mutations have been described in WD: +1. H1069Q, found in approximately 30 to 50 percent of all WD patients in the United States and 18 to 72 percent of WD patients in Europe; and +2. R778L, frequently found in Asian WD patients and those of Asian ancestry, reported in 46 percent of Chinese WD patients, 38 percent of Korean WD patients, and 25 percent of Japanese WD patients. +We are currently designing Prime Editors for both of these mutations, which lie adjacent to hotspots or areas with other pathogenic mutations. +Our Approach and Results: Direct correction of prevalent ATP7B mutations +Our initial approach to WD is to correct the prevalent mutations ATP7B H1069Q and R778L in hepatocytes of the liver at their genomic location. A Prime Editor that corrects R778L will also correct R778W and R778G mutations, rarer mutations that are observed in the U.S. and Europe. We have performed pegRNA and ngRNA screens and identified guide combinations that correct the disease-causing point mutations. We believe correction of the gene in the liver should address all aspects of the disease by normalizing the process in which the body removes copper in the liver. +We have identified a formulation, PM577, comprising a Prime Editor encapsulated as RNA cargo in a liver-targeted lipid nanoparticle (LNP), as a lead candidate to precisely correct the H1069Q mutation in ATP7B. In vivo administration of PM577 in a fully humanized homozygous p.H1069Q ATP7B mouse model achieved greater than 70 percent precise correction of hepatocytes (left panel, figure below) leading to a greater than 75% reduction of copper in the liver 28 days following treatment (middle panel, figure below). We have also observed up to 51 percent precise correction of NHP hepatocytes in vivo following intravenous administration of an LNP-encapsulated, surrogate Prime Editor (right panel, figure below). No off-target edits or unintended edits at the target site were detected in the in vivo humanized mouse or NHP studies. +Next Steps +We have initiated IND enabling studies to develop PM577 for the treatment of WD and are on track to submit an IND and/or Clinical Trial Application, or CTA, in the first half of 2026. +13 +Non-Viral Delivery In Vivo with Lipid Nanoparticles +LNPs are multicomponent systems that encapsulate the Prime Editor cargo to prevent its degradation by the ubiquitous endonucleases present in biological fluids, thereby enabling the transient delivery and expression of the Prime Editor in cells. We are investing strategically to build our LNP formulations for delivery as a platform technology to enable target tissue delivery. Specifically, we are establishing end-to-end capabilities including design and synthesis of proprietary lipids, high-throughput LNP screening in vivo using complementary and orthogonal approaches such as DNA bar coding and next generation sequencing, LNP formulation process development, manufacturing of preclinical and clinical formulations, and in vivo evaluation of LNP delivered Prime Editors. We are integrating automation, analytical quality control, characterization data, in vitro and in vivo preclinical data, along with data knowledge management tools such as machine learning to develop correlative analyses that we believe can expedite LNP discovery and inform drug product formulation development and drug product specification setting. We believe that building an iterative and integrated system will increase efficiencies in identifying potent and safe LNPs capable of delivering Prime Editors to extra-hepatic tissues. +We have developed a Universal LNP delivery system (see schematic in figure below) that is targeted to the liver, and specifically targets the LNP to the hepatocytes. This approach, we believe, improves biodistribution to the target cell type. We expect that the LNP system will be modular in that simply swapping out the pegRNA (and ngRNA where required) will result in a new product, with the potential to accelerate the development of additional liver programs thereafter. +Our Lung Program +Cystic Fibrosis +The Disease +CF is a progressive lung disease characterized by production of thick mucus lung secretions which lead to blockage of airways, inflammation, and lung infection, progressing ultimately to lung failure. It also affects the pancreas gland and biliary system of the liver in a similar way, leading to exocrine pancreatic failure and mild to moderate cholestatic liver disease in some patients. Overall CF prevalence in the United States and Europe is approximately 70,000 to 90,000 people (~40,000 in the United States), and while significant progress in the last decade has created therapeutic options for many patients (e.g., TRIKAFTOR ® ), there is no cure and existing treatments are ineffective or not tolerated for approximately 15 percent of patients. +14 +The disease is an autosomal recessive disorder caused by loss-of-function mutations in a chloride protein transporter called the CF transmembrane conductance regulator, or CFTR. Approximately 65 to 75 percent of CF patients have a three-nucleotide deletion in the CFTR gene known as F508del. The vast majority of remaining patients have one of several prevalent mutations in a small number of genetic hotspots in the CFTR gene, including mutations such as N1303K, W1282X, G542X, or G553X / G551D and I507del. +Our Approach: Correct prevalent mutations and mutational hotspots in the CFTR gene +We intend to progress two distinct strategies for applying Prime Editing to treat CF: hotspot editing and PASSIGE. Through hotspot editing, we aim to address multiple mutations at CFTR mutational hotspots with a small number of Prime Editors. In parallel, with PASSIGE, we aim to address nearly all people with CF with a single CFTR superexon insertion strategy. The hotspot editing strategy has the potential to address a large percentage of individuals having CF with only a few Prime Editors, with a particular focus on the 15 percent of patients who cannot be treated with current therapy. Preclinical data generated by us suggest that using only eight hotspot Prime Editors could benefit more than 93 percent of all people with CF, including those living with nonsense and rare mutations whose disease is not amenable to treatment with currently approved therapies, as well as those who do not tolerate existing therapies. +We have achieved greater than 60% precise editing of the G542X mutational hotspot in human lung progenitor cells and showed phenotypic restoration of CFTR protein in differentiated human lung cells in air-liquid interface culture (see figure below). We believe the human lung progenitor data are the most predictive of in vivo efficacy. +Next Steps +Pursuant to our therapeutic development agreement with the Cystic Fibrosis Foundation, or CFF, we are aiming to deliver a one-time therapy that would offer the first cure to patients living with CF, including those with high unmet need mutations. We are continuing preclinical development of our hotspot Prime Editors and a superexon insertion approach using PASSIGE technology, including testing in animal models and developing delivery systems. +Our License and Collaboration Agreements +License agreements with Broad Institute +In September 2019, we entered into a license agreement with Broad Institute, and in May 2020, February 2021, December 2022, and September 2024 we entered into amendments to that license agreement. We refer to this amended license agreement as the Broad License Agreement. Under the Broad License Agreement, Broad Institute grants to us certain rights and licenses under certain patent rights it owns or controls related to editing of DNA sequences using a Prime Editor. Certain of the licensed patent rights are co-owned by Broad Institute with MIT and Harvard and certain are co-owned by Broad Institute with Harvard. In December 2022, following the timely exercise of an option under an existing option agreement with Broad Institute we entered into a second license agreement +15 +with Broad Institute, which we refer to as the 2022 Broad License Agreement. Under the 2022 Broad License Agreement, Broad Institute grants to us certain rights and licenses under certain patent rights it owns or controls related to MMR inhibition and prime editing improvements. The licensed patent rights are co-owned by Broad Institute with Harvard, The Trustees of Princeton University, or Princeton, and The Regents of the University of California, or University of California. +Broad License Agreement +The licenses Broad Institute grants to us under the Broad License Agreement are limited to the field of prevention or treatment of human disease, and most licenses granted to us under the Broad License are further limited to the prevention or treatment of human disease by editing (including modifying or converting) or targeting DNA ex vivo , in vivo , or through xeno-transplantation methods. We refer to this field as the Prime Broad Field. +Under the Broad License Agreement, Broad Institute grants to us (i) an exclusive, worldwide license under the licensed patent rights solely to offer for sale, sell, have sold and import products covered by such licensed patent rights, or licensed products, solely for use within the Prime Broad Field (subject to certain specified limitations and exclusions with respect to certain applications), (ii) a non-exclusive, worldwide license under the licensed patent rights solely to make, have made, offer for sale, sell, have sold, and import licensed products solely for use in the Prime Broad Field, (iii) a non-exclusive, worldwide license under the licensed patent rights solely to make, have made, offer for sale, sell, have sold and import other products that are enabled by (a) the licensed patent rights or (b) the use of certain materials transferred to us by Broad Institute, solely for the prevention or treatment of human diseases, which we refer to as enabled products, and (iv) a non-exclusive, worldwide license solely for internal research. +All of the above license grants specifically exclude human germline modification, the stimulation of biased inheritance of particular genes or traits within a plant or animal population, and certain modifications of the tobacco plant, and are subject to certain retained rights of Broad Institute, MIT and Harvard and the U.S. federal government. Broad Institute also retains certain rights for itself, MIT and Harvard and for other non-for-profit research organizations and government agencies to practice the licensed patent rights for research, teaching, educational and scholarly purposes. In addition, because an employee of HHMI was an inventor on certain of the licensed patent rights, the licenses granted to us with respect to such patent rights are subject to a non-exclusive, irrevocable, worldwide license to HHMI to exercise any such patent rights for research purposes. +We are permitted to sublicense the licensed patent rights to our affiliates and third parties, subject to certain requirements, including that any such sublicense agreement be in compliance with and be consistent with the terms of the Broad License Agreement. In addition, any such sublicense agreement must include certain customary provisions to ensure our ability to comply with the Broad License Agreement. We are also responsible for any breaches of a sublicense agreement by the applicable sublicensee and for all payments due to Broad Institute under the Broad License Agreement by operation of any such sublicense. +Our licenses are subject to Broad Institute’s inclusive innovation model, pursuant to which Broad Institute retains the right, under specified circumstances, to grant to third parties (other than specified competitors of ours) licenses under the licensed patent rights that would otherwise fall within the scope of the exclusive license granted to us. If a third party provides Broad Institute with a bona fide proposal to develop a product covered by the licensed patents and directed to a particular gene target, Broad Institute may notify us of the proposal, including the identity of such gene target and the proposing third party. Broad Institute is not required to share any other information provided by the requester with us in connection with the inclusive innovation model. Within a specified time period following such notification, we may provide Broad Institute with evidence that either (i) we (ourselves, or through our affiliates or sublicensees) are currently developing one or more licensed products directed to the applicable gene target or (ii) we have a good faith interest in developing licensed products directed to such gene target (ourselves, or through our affiliates or sublicensees) or sublicensing our rights to such gene target directly to such third party or another third party. If we notify Broad Institute that we are currently developing licensed products directed to such gene target or that we have a good faith interest in developing licensed products directed to such gene target, we have a specified period of time to evidence such activities or interest by providing Broad Institute with a development plan and either continuing or commencing, respectively, such activities under such development plan. We must continue to use commercially reasonable efforts to continue to progress such activities. If we notify Broad +16 +Institute that we have a good faith interest in sublicensing our rights to such third party or another third party, we have a specified period of time to negotiate and enter into a sublicense agreement with a third party. If we (i) notify Broad Institute that we are not interested in developing such product (internally or with another third party) or do not respond to the proposed product notice, or (ii) notify Broad Institute of our interest as outlined above and do not complete or, for an internal program, commence, those activities within the specified time periods, Broad Institute has the right, subject to certain conditions, to terminate our rights to such gene target and may grant to such proposing third party an exclusive or non-exclusive license under the patent rights to exploit products covered by the licensed patent rights and directed to such gene target, which we refer to as a march-in license. Broad has not yet granted any march-in license to a third party. +In addition to the inclusive innovation model, our licenses are also subject to Broad Institute’s right to designate a single-digit number of gene targets per year in which it has a good faith interest in reserving for its own development of products covered by the patent rights directed to such gene targets. Such reserved gene targets are referred to as a reserved Broad Institute targets. If Broad Institute notifies us that it desires to exercise such right for a given gene target, and we do not, within a specified time period, evidence that we (ourselves or through an affiliate or sublicensee) have an on-going program or good faith interest in pursuing a program for Prime Editor products for such gene target, Broad Institute may terminate our license with respect to such gene target, with such gene target becoming a reserved Broad Institute target. We have a right to negotiate a sublicense with a third-party for-profit company interested in licensing the rights to such reserved Broad Institute targets, which we must complete within a specified period of time, after which Broad Institute may grant such rights to such third party. Broad Institute has not yet exercised its right to designate any reserved gene targets. +Under the Broad License Agreement, we are required to use commercially reasonable efforts to develop licensed products in the Prime Broad Field in accordance with a development plan that we prepared and submitted to Broad Institute, which includes several developmental milestones for licensed products that we are required to meet within a specified number of years. We may update the development plan from time to time if we believe, in our good faith judgment, that such update is needed to improve our ability to meet such development milestones. Broad Institute has the right to terminate the Broad License Agreement if we fail to use commercially reasonable efforts or to achieve a development milestone, subject to our right to extend or amend such milestone in accordance with certain procedures. We may request an extension of the development milestone timelines by providing a reasonable explanation and plan to Broad Institute, and following Broad Institute’s approval of the request to delay, the applicable milestone deadline will be automatically amended (to the extent we request an extension of less than a specified number of years). We have not yet requested any such extension and have met the deadlines for diligence milestones that have already occurred. If we are successfully able to gain regulatory approval for any licensed product, we are required to use commercially reasonable efforts to introduce any such licensed product into the commercial market and to commercialize and make such licensed products reasonably available to the public. +As partial consideration for the rights granted to us under the Broad License Agreement, we paid Broad Institute an upfront fee of $0.5 million, and issued Broad Institute an aggregate of 623,529 shares of our common stock. Under the February 2021 and December 2022 amendments, as partial consideration for the addition of licensed patent rights relating to prime editing improvements, we paid Broad Institute amendment fees of approximately $0.1 million and $0.1 million, respectively. +We also are obligated to pay to Broad Institute an annual license maintenance fee in the low six-figures for the term of the Agreement. Broad Institute is also entitled to receive clinical and regulatory milestone payments up to a total of $20.0 million per licensed product, depending on the patient population to be treated by the licensed product achieving the applicable milestone. If we undergo a change of control at any time during the term of the Broad License Agreement, certain of the clinical and regulatory milestone payments will increase by a specified percentage. Broad Institute is also entitled to sales-based milestone payments up to a total of $54.0 million per licensed product, depending on the patient population to be treated by the licensed product achieving the applicable milestone. Broad Institute is entitled to lower payments to the extent the clinical and regulatory milestones or sales-based milestones are achieved by enabled products, rather than licensed products. +Broad Institute is entitled to receive mid-single digit percentage royalties on net sales of licensed products, and low single-digit percentage royalties of enabled products. Royalties payable to Broad Institute are subject to customary offsets and reductions with respect to a product in a given country, to a floor. On a country-by-country and product- +17 +by-product basis, the royalty term for a product in a country will terminate on the latest of: (i) the expiration of the last to expire valid claim of an issued patent or pending patent application within the licensed patent rights covering such product in such country, (ii) the period of regulatory exclusivity for such product in such country or (iii) ten (10) years after the first commercial sale of such product in such country. Broad Institute is also entitled to a percentage of consideration that we receive from our sublicensees, with such percentage at low double-digits and decreasing to high single digits, dependent on the development stage of products under the Broad License Agreement at the time of sublicense execution. +Broad Institute is responsible for the prosecution and maintenance of all licensed patent rights, although we are entitled to certain consultation, comment and review rights with respect to such prosecution and maintenance activities of the exclusively licensed patent rights. We are obligated to reimburse Broad Institute for its documented, out-of-pocket costs incurred while prosecuting and maintaining such licensed patent rights. So long as we remain the exclusive licensee of licensed patent rights in the Prime Broad Field, we have the first right to enforce the licensed patent rights in the Prime Broad Field. +Unless earlier terminated, the Broad License Agreement will remain in effect until the later of (i) the last to expire valid claim of an issued patent or pending patent application within the licensed patent rights covering our licensed products or (ii) the expiration of the last royalty term for a licensed product in a country. We can terminate the Broad License Agreement for our convenience following prior written notice to Broad Institute. Each party may terminate the Broad License Agreement for the other party’s uncured material breach. Broad Institute may also immediately terminate the Broad License Agreement (i) to the extent we (or our affiliates or sublicensees) challenge a licensed patent right, (ii) upon our bankruptcy or insolvency or (iii) if we fail to procure and maintain insurance. +2024 Amendment to The Broad License Agreement +In connection with the BMS Collaboration Agreement, we entered into a Letter Agreement, or the 2024 Amendment, with Broad Institute in September 2024, which amends the Broad License Agreement to modify certain of our obligations and rights of Broad Institute in relation to the BMS Collaboration Agreement as a sublicense under the Broad License Agreement. The 2024 Amendment, among other things, modifies the royalty and certain commercial milestones that we are obligated to pay to Broad Institute on net sales of products under the BMS Collaboration Agreement. +2022 License Agreement with Broad Institute +Other than as summarized below, the general terms of the 2022 Broad License Agreement, including the scope and field of the license grants, are the same in all material respects as the terms of the Broad License Agreement, as summarized above. +The patent rights licensed under the 2022 Broad License Agreement are co-owned by Broad Institute, Harvard, Princeton, and University of California, collectively referred to as the 2022 Broad License Agreement Co-Owners. The license grants under the 2022 Broad License Agreement are subject to the same retained rights as set forth in the Broad License Agreement for the 2022 Broad License Agreement Co-Owners, as well as the U.S. federal government and HHMI. +As partial consideration for the rights granted to us under the 2022 Broad License Agreement, we paid Broad Institute an upfront fee of $0.2 million and are obligated to pay to Broad Institute an annual license maintenance fee in the mid-five figures for the term of the Agreement. +Broad Institute is entitled to receive clinical and regulatory milestone payments for a limited category of licensed products or enabled products, which category we refer to as royalty-bearing products, up to a total of $2.0 million per royalty-bearing product. Broad Institute is entitled to sales-based milestone payments up to a total of $3.0 million per royalty-bearing product, depending on the patient population to be treated by the royalty-bearing product achieving the applicable milestone. If we undergo a change of control at any time during the term of the 2022 Broad License Agreement, certain of the clinical and regulatory milestone payments will increase by a specified percentage. Broad Institute is entitled to lower payments to the extent the clinical and regulatory milestones or sales-based milestones are achieved by royalty-bearing products that are enabled products, rather than royalty-bearing products that are licensed products. Broad Institute is entitled to receive royalties of less than 0.2% +18 +on net sales of royalty-bearing products that are licensed products and lower royalties on net sales of for royalty-bearing products that are enabled products. Royalties payable to Broad Institute are subject to limited customary offsets and reductions. Broad Institute is entitled to a percentage of consideration that we receive from our sublicensees, with such percentage dependent on the development stage of products under the 2022 Broad License Agreement at the time of sublicense execution, all below 1%. The royalty term for a royalty-bearing product under the 2022 Broad License Agreement is determined in the same way as in the Broad License Agreement. +Pledge to Broad Institute and Harvard +In February 2021, we committed to donate $5.0 million to Broad Institute and Harvard annually for 14 years, commencing in 2021, or the Pledge. The Pledge is intended to be used for research and development related to new genome editing technologies, for example Prime Editing, improve on existing genome-editing technologies, identify delivery mechanisms for these technologies and apply these technologies to the understanding and treatment of rare genetic diseases. We can terminate the Pledge at our discretion, subject to providing one year of funding from the date of termination. In August 2022, we amended and restated the Pledge to clarify that the funds may be used by the laboratory of David Liu, who is a member of Broad Institute and a faculty member at Harvard. +Collaboration and License Agreement with Beam Therapeutics +In September 2019, we entered into a collaboration and license agreement, which we refer to as the Beam Collaboration Agreement, with Beam Therapeutics Inc., or Beam. One of our founders, David Liu, is also a founder of Beam. +Under the Beam Collaboration Agreement, we grant to Beam an exclusive (even as to us and our affiliates), worldwide license under (i) certain Prime Editing know-how that we control during the initial term, and improvements thereto that we control for a specified number of years following the initial term, and patent rights that cover such Prime Editing know-how during the term of the Agreement, and (ii) our interest in certain jointly-owned collaboration technology, in each case, solely to develop, make, have made, use, offer for sale, sell, import and commercialize licensed products only in the Beam field. The Beam field is limited to (a) the prevention, modification, improvement, amelioration or treatment of human disease, including cell-based therapies and the creation of one or more protective mutations, through administration of a licensed product that incorporates or contains a qualifying Prime Editing agent, which is a macromolecule or macromolecular complex that uses Prime Editing to make one or more transition point mutations (that is, C to T, T to C, A to G or G to A) in the sequence of one or more DNA targets, without intentionally making any non-transition mutations or other changes, including insertions, deletions, duplications, indels, transversions or combinations thereof, and does not incorporate or contain any other Prime Editing agent or other gene editing approach that is not a qualifying Prime Editing agent or (b) the prevention, modification, improvement, amelioration or treatment of sickle cell disease through administration of a licensed product that incorporates or contains a more broadly defined Prime Editing agent. We refer to each of clause (a) and clause (b) of the Beam field as subfields. We also grant to Beam a non-exclusive, worldwide license under certain CRISPR or delivery-related technology, know-how and patent rights that we control during the initial term, and improvements thereto that we control for a specified number of years following the initial term, solely to develop, make, have made, use, offer for sale, sell, import and commercialize licensed products only in the Beam field. +Under the Beam Collaboration Agreement, Beam grants to us certain non-exclusive, worldwide licenses under certain technology, know-how and patent rights, including under certain CRISPR or delivery-related technology, know-how and patent rights, that it controls during the initial term, and improvements thereto that Beam controls for a specified number of years following the initial term, solely to develop, make, have made, use, offer for sale, sell, import and commercialize products only in the Prime field, which is limited to the prevention, modification, improvement, amelioration or treatment of human disease (excluding sickle cell disease), including cell-based therapies and the creation of one or more protective mutations, through administration of a product or service containing or incorporating a Prime Editing agent that is not a qualifying Prime Editing agent, but excluding (a) the Beam field, (b) the administration of any product or service containing or incorporating a base editor and (c) a field related to microbial cells in the human flora in certain Asia territories and the development of products targeting four named gene targets. For clarity, the Prime field includes products or services that contain or incorporate (x) at least one Prime Editing agent that is not a qualifying Prime Editing agent and (y) any other gene-editing approach, +19 +including other Prime Editing agents, which may include one or more qualifying Prime Editing agents, subject to the aforementioned exclusions. The licenses granted to us by Beam under the Beam Collaboration Agreement are subject to the terms of certain third-party agreements and certain rights retained by third parties. +In addition to the ongoing licenses, under the Beam Collaboration Agreement, we are both obligated to adhere to a technology transfer plan, under which each of us agrees to disclose or otherwise share the technology, know-how and patent rights licensed to the other and to provide the other party with reasonable assistance in the exercise of its licenses. +The licenses granted to each party under the Beam Collaboration Agreement are sublicensable to affiliates and third parties, subject to certain requirements, including providing the other party a copy of each executed sublicense agreement, and ensuring any sublicensee comply with the terms of the Beam Collaboration Agreement. +Unless we exercise our profit sharing option for a licensed product, as described below, Beam is solely responsible for the development and commercialization of licensed products in the Beam field under the Beam Collaboration Agreement. Beam is required to use commercially reasonable efforts to develop and seek marketing approval for at least one licensed product in each subfield of the Beam field in each of (a) the United States and (b) one other specified major market country, and to commercialize any such licensed product that achieves marketing approval. As described further below, we are entitled to receive ongoing milestone and royalty payments from Beam based on Beam’s development and commercialization of each licensed product. +Subject to the provisions in the next paragraph, on a licensed product-by-licensed product basis, we have the right to elect to share equally with Beam in the profits and losses in the United States for Beam’s licensed products. We may exercise such right for each licensed product within a specified period of time. Any such licensed product for which we exercise such right we refer to as a collaboration product. If we exercise such right, we agree to share equally in the costs, profits and losses of each such collaboration product in the United States, rather than receiving milestones and royalties based on development and sales thereof by Beam in the United States. For clarity, we are still entitled to receive milestones and royalties on the development and sales of each such collaboration product outside of the United States. We also have the right to elect, within a specified time period, to co-promote with Beam each collaboration product in the United States, in addition to sharing in the profits and losses. To the extent we exercise our co-promote option with respect to a given collaboration product, we and Beam must use commercially reasonable efforts to commercialize such collaboration product, in each case, in the Beam field in the major markets in which marketing authorization has been obtained. After we have exercised our right to profit share on a collaboration product, we are able to, at any time during the term of the Beam Collaboration Agreement, on a collaboration product-by-collaboration product basis, opt-out of the profit and loss share and co-promotion activities with respect to any collaboration product with prior written notice to Beam within a certain time period. +Notwithstanding the rights described above, at any time prior to or within 30 days of the filing of an IND for a licensed product, Beam may designate up to a mid-single digit number of licensed products for which (i) we are not permitted to exercise our profit sharing right, and (ii) Beam assumes sole control and decision-making authority and bears all costs and expenses, with respect to the development and commercialization of such products. Under the Beam Collaboration Agreement, a “protected product” is a licensed product for which either (a) we have not exercised our profit share option or (b) Beam has designated as a protected product pursuant to the foregoing sentence. For clarity, we are entitled to ongoing milestones and royalties from Beam based on its development and commercialization of protected products worldwide. Upon Beam’s designation of a licensed product as a protected product , Beam is required to pay us $5.0 million if the product is developed for non-sickle cell disease or $10.0 million if the product is developed for sickle cell disease. +As partial consideration for the licenses and rights granted to each other under the Beam Collaboration Agreement, Beam issued to us $5.0 million in shares of its common stock and we issued to Beam an aggregate of 1,608,337 shares of our common stock. Beam was also entitled to appoint a representative to our board of directors, which right has expired. +We are entitled to receive development milestone payments from Beam on Beam’s development of protected products (which, for clarity, includes any licensed product for which we have not exercised our profit share option) and collaboration products. For protected products, we are entitled to receive up to a total of $35.5 million on a protected product-by-protected product basis based on Beam’s development of such protected product and, for +20 +collaboration products, up to a total of approximately $17.8 million on a collaboration product-by-collaboration product basis based on Beam’s development of such collaboration product outside of the United States, in each case, with such amounts lowered if such licensed product achieves a given milestone for use in treating an orphan disease. We are also entitled to receive sales-based milestone payments from Beam based on net sales of licensed products. For protected products, we are entitled to receive up to a total of $84.5 million on a protected product-by-protected product basis based on net sales of such protected product worldwide, and, for collaboration products, up to a total of approximately $42.3 million on a collaboration product-by-collaboration product basis based on net sales of collaboration products outside of the United States. +The sickle cell disease product partnered with Beam is a licensed product under the Beam Collaboration Agreement. Beam has not designated this product as a protected product and we have not received any development or sales-based milestones with respect to Beam’s exploitation thereof. +Beam is obligated to pay to us tiered royalties ranging from a high-single digit percentage to a low double-digit percentage, but less than teens on net sales of protected products worldwide on a protected product-by-protected product basis and net sales of collaboration products outside of the United States on a collaboration product-by-collaboration product basis. Our royalties are subject to customary offsets and reductions, to a floor that takes into account any royalties we are obligated to pay to our third-party licensors, including Broad Institute. In addition, certain of the rights licensed under the Beam Collaboration Agreement are sublicensed from third parties, and Beam agrees to reimburse us for certain payments we are required to make to our third-party licensors attributable to Beam’s exercise of any sublicense we grant to Beam, including payments we make to Broad Institute under the Broad License Agreement. +If we develop a product that is covered by the technology, know-how or patent rights that Beam licenses to us under the Beam Collaboration Agreement, which we refer to as a Prime product, we are obligated to pay to Beam a low single digit percentage royalty on our worldwide net sales of any such product on a Prime product-by-Prime product and country-by-country basis, subject to certain customary reductions, to a floor. +Each party’s obligation to pay the other royalties expires on a country-by-country and product-by-product basis on the latest of (a) the expiration of the last to expire valid claim of an issued patent or pending patent application within the applicable licensed patent rights that cover such product in such country, (b) the expiration of regulatory exclusivity for such product in such country or (c) ten (10) years after the first commercial sale of such product in such country. +If we exercise our option to profit share on collaboration products, we share equally in the profits and losses of any such collaboration product in the United States and share in a lower portion of any development or commercialization costs attributable to such collaboration product outside of the United States. +Under the Beam Collaboration Agreement, Beam assigns ownership to us of certain improvements Beam makes, itself or jointly with us or others, to certain technology, know-how and patent rights we license to Beam, and we assign to Beam ownership of all improvements we make, ourselves or jointly with Beam or others, certain technology, know-how and patent rights Beam licenses to us. Each party grants back to the other certain exclusive and non-exclusive licenses to such improvements. Except for any such improvements, each party owns any other inventions that it developed under the Beam Collaboration Agreement and an equal, undivided interest with the other party in any inventions jointly developed. +We are responsible for prosecution and maintenance of the patent rights we license to Beam, while keeping Beam reasonably informed and providing Beam the opportunity to provide comments and make requests of us, in each case regarding the patent rights that we exclusively license to Beam in the field of the exclusive license. Beam has a step-in right to the extent we decline or fail to prosecute any patent rights that are exclusively licensed to Beam and applicable to the Beam field. Beam is responsible for prosecution and maintenance of the patent rights it licenses to us, while keeping us reasonably informed and providing us the opportunity to provide comments and make requests of us, in each case with respect to any patent rights that Beam exclusively licenses to us in the field of the exclusive license. +Beam has the first right to enforce any patent rights we exclusively license to Beam in the Beam field against any third party developing a product in the Beam field that is competitive with a licensed product Beam is developing +21 +under the Beam Collaboration Agreement. We have a step-in right on any such enforcement to the extent Beam declines or fails to initiate such enforcement action. +Unless earlier terminated in accordance with its terms, the Beam Collaboration Agreement will expire on the later of (a) expiration of the last royalty term for a product on which a party is obligated to pay royalties to the other party or (b) with respect to any collaboration product, the date on which neither party is developing or commercializing any such collaboration product in the United States. +After expiration of the initial term, Beam can terminate the Beam Collaboration Agreement for convenience in its entirety, or on a licensed product-by-licensed product or subfield-by-subfield basis, with ninety (90) days’ prior written notice to Prime. Each party may terminate the Beam Collaboration Agreement for (a) the other party’s uncured material breach within ninety (90) days of notice of such breach, (b) upon the insolvency or bankruptcy of the other party if such proceeding is not dismissed within ninety (90) days after the filing thereof or (c) immediately to the extent the other party (or its affiliates or sublicensees) challenges a patent right licensed to such party. +Research Collaboration and License Agreement with BMS +In September 2024, we entered into the BMS Collaboration Agreement with Juno, a wholly owned subsidiary of BMS. +Under the terms of the BMS Collaboration Agreement, we granted to BMS an exclusive worldwide license to certain Prime Editing technology for developing, manufacturing and commercializing ex-vivo T-cell therapeutic products directed to select targets. We are responsible for designing the Prime Editing reagents to be used by BMS. +We received a $55.0 million upfront payment under the BMS Collaboration Agreement and a $55.0 million equity investment under a Securities Purchase Agreement with BMS. We are also eligible to receive more than $3.5 billion in milestones, including up to $185.0 million in preclinical milestones, up to $1.2 billion in development milestones and up to $2.1 billion in commercialization milestones, along with royalties on net sales. +Unless earlier terminated, the term of the BMS Collaboration Agreement continues until expiration of the last royalty term for the applicable product in the applicable country. The BMS Collaboration Agreement is subject to customary termination provisions, including termination by a party for the other party’s uncured, material breach. +Our Business Development and Partnering Strategy +Our vision is to establish Prime Medicine as a leader in the field of gene editing by building a fully integrated biopharmaceutical company utilizing our Prime Editing platform to pioneer the discovery, development and commercialization of Prime Editing therapeutics that can have a transformative impact on the treatment of a wide spectrum of diseases with high unmet medical need. The potential therapeutic applications of our Prime Editing technology are broad, and we aspire to fully develop that potential. +To achieve our vision, and in addition to independently discovering, developing, and commercializing Prime Editing products, we will seek to selectively enter strategic collaborations to maximize the potential of the Prime Editing platform. Such collaborations may also facilitate our entry into additional therapeutic or geographic areas by leveraging the established capabilities of our partners as well as by funding the development of new Prime Editing platform or corporate capabilities which we can then utilize for additional Prime Medicine products outside such partnerships. In certain cases, we may use partnerships to create value in areas which we may not intend to enter ourselves in the near term. In our collaborations, we may cooperatively develop and commercialize products with our partners, have options to do so, or out-license products for development and commercialization by our partners. In each case, we expect to receive value in the form of upfront payments and milestones which will provide us with additional capital in the nearer term as well as royalties and where applicable, profit sharing, to participate in the value created through commercializing Prime Editing products. +We may also seek to access or develop enabling technologies or specific capabilities through licenses or partnerships. We will evaluate partnerships with both academic and corporate entities, and these potential collaborations may vary in both structure and scope. Technologies that may enable the application of Prime Editing may include viral and non-viral delivery modalities, manufacturing, and technologies that may be synergistic with Prime Editing or Prime Editing products. +22 +Competition +The pharmaceutical and biotechnology industries, including the gene therapy and gene editing fields, are characterized by rapidly advancing technologies, intense competition and a strong defense of intellectual property. We believe that our Prime Editing technology is highly differentiated and that our considerable expertise in Prime Editing and our expansion of its capabilities, as well as our team’s extensive drug development and manufacturing experience, together with exclusive licenses to this technology have positioned us at the forefront of the field of advanced precision genetic medicines and provided us with significant competitive advantages. Nevertheless, we face potential competition from a variety of companies. There are several companies utilizing CRISPR/Cas9 nuclease technology, including Caribou Biosciences, Inc., Editas Medicine, Inc., CRISPR Therapeutics AG, Intellia Therapeutics, Inc. and Kamau Therapeutics, Inc., among others. Several additional companies such as Sangamo Therapeutics, Inc., Precision BioSciences, Inc. and bluebird bio, Inc. utilize alternative nuclease-based genome editing technologies, including ZFNs, engineered meganucleases and TALENs. Beam Therapeutics Inc. utilizes base editing technology. In addition, other private companies such as Tessera Therapeutics, Inc. have announced their work in recombinase DNA and RNA gene writers, although little is known publicly about their science or portfolio. Other companies have announced intentions to enter the gene editing field, such as Moderna, Inc. and Pfizer Inc. Most recently, new epigenetic editing companies have emerged, such as nChroma Bio, Inc. and Tune Therapeutics, Inc. In addition, we face competition from companies utilizing gene therapy, oligonucleotides and cell therapy therapeutic approaches. Several companies such as Arbor Biotechnologies, Inc., Scribe Therapeutics Inc., Mammoth Biosciences, Inc. and Metagenomi, Inc. are actively searching for novel genome editing components, have reported the discovery of new DNA-cutting enzymes, and have announced gene editing programs. Other companies are active in LNP delivery technologies and advancing those into therapeutics using genetic therapies, including Recode Therapeutics, Inc., Verve Therapeutics, Inc., Generation Bio Co. and Beam Therapeutics Inc., among others. +Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future that are approved to treat the same diseases for which we may obtain approval for our product candidates. This may include gene editing companies with other approaches to editing, as well as other types of therapies, such as small molecule, RNAi, antibody and/or protein therapies. +In addition, many of our current or potential competitors, either alone or with their collaboration partners, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials and approved products than we do today. Mergers and acquisitions in the pharmaceutical, biotechnology and gene therapy industries may result in resources becoming increasingly concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. We also compete with these companies in recruiting, hiring and retaining qualified scientific and management talent, establishing clinical trial sites and patient registration for clinical trials, obtaining manufacturing slots at contract manufacturing organizations and in acquiring technologies complementary to, or necessary for, our programs. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, particularly if they represent cures, have fewer or less severe side effects, are more convenient, or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. The key competitive factors affecting the success of all of our programs are likely to be their efficacy, safety, convenience and availability of reimbursement. +Manufacturing +We currently have no commercial manufacturing capabilities. For our initial wave of clinical programs, we intend to use qualified third-party contract manufacturing organizations, or CMOs, with relevant manufacturing experience in genetic medicines to make our clinical candidates using current good manufacturing practices, or cGMP. We plan to partner with suppliers to produce critical raw materials, bulk compounds, formulated compounds, viral vectors or engineered cells for early-stage clinical trials. At the appropriate time in the product development process, we will determine whether to establish in-house cGMP manufacturing capabilities for some core technologies or continue to rely on third parties to manufacture commercial quantities for any products that we may successfully develop. +23 +Intellectual Property +Overview +We achieved many major milestones in 2024, including the issuance of two in-licensed U.S. patents, the allowance of another in-licensed U.S. patent application that has since issued as a U.S. patent, the issuance of five ex-U.S. patents, and the allowance of another two ex-U.S. patent applications, one of which has since issued as an ex-U.S. patent. As of February 20, 2025, we have six in-licensed U.S. patents or allowed patent applications and seven in-licensed ex-U.S. patents or allowed patent applications, all of which cover Prime Editing methods and its components and systems. Our success depends in large part on our ability to obtain and maintain additional intellectual property protection for our platform technology, our programs and know-how related to our business, defend and enforce our intellectual property rights, in particular, our patent rights, preserve the confidentiality of our trade secrets and other confidential or proprietary information and operate without infringing, misappropriating or otherwise violating any intellectual property rights of others. We seek to protect our proprietary position by, among other things, exclusively licensing U.S. and certain foreign patent applications and issued patents and filing patent applications related to our platform technology, existing and planned programs and improvements that are important to the development of our business, where patent protection is available. While we in-license four issued patents, we do not currently own any issued patents in any jurisdiction covering our Prime Editing technology or product candidates. For information regarding the risks related to our intellectual property, please see “Risk Factors—Risks Related To Our Intellectual Property.” +Our wholly owned patent applications and our in-licensed issued patents and patent applications cover various aspects of our Prime Editing platform and our programs, including: +• Prime Editors +• pegRNA, and modified pegRNAs +• Prime Editing complexes and methods +• Dual-Flap Prime Editing technology +• Program-specific pegRNAs and therapeutic methods +• Prime Editors with enhanced activities or properties +• Engineered pegRNAs +• Delivery modalities +We intend to continue to pursue, when possible, additional patent protection, including composition of matter, method of use, delivery modality and process claims, directed to our platform technology and the programs in our portfolio. We also intend to expand and extend our Prime Editing platform and programs, as well as obtain rights to delivery modalities, through one or more licenses from third parties. +Owned Patents +As of February 20, 2025, we owned approximately 13 pending U.S. provisional patent applications, 16 pending PCT applications, 21 pending U.S. non-provisional patent applications and 39 pending ex-U.S. patent applications. The patent applications outside of the United States were filed in the European Patent Office, Japan, China and certain other foreign jurisdictions. Our owned patent applications are generally related to our Prime Editing technology, including claims to modified pegRNAs; Prime Editors with enhanced activities or properties (e.g., improved Prime Editing efficiency or smaller Prime Editors) and methods of using such Prime Editors and pegRNAs; program-specific pegRNAs directed to targeting and correcting specific mutations and methods of using such pegRNAs therapeutically; PASSIGE systems including Prime Editors and integrases or recombinases, and methods of using PASSIGE; off-target testing methods; methods for synthesizing pegRNAs; and novel lipids and LNPs for delivery of Prime Editors. The provisional patent applications are not eligible to become issued patents until, among other things, we file non-provisional patent applications within 12 months of filing one or more of our related provisional patent applications. Any U.S. non-provisional patent applications timely filed based on any of these U.S. provisional patent applications, if issued, and if the appropriate maintenance or annuity fees are paid, are expected to expire as +24 +early as 2045, excluding any additional term for patent term adjustments or patent term extensions or similar provisions in foreign jurisdictions. Our current owned U.S. non-provisional and PCT patent applications, if issued and if the appropriate maintenance or annuity fees are paid, are expected to expire as early as 2042, excluding any additional term for patent term adjustments or patent term extensions or similar provisions in foreign jurisdictions. +In-licensed Patents +As of February 20, 2025, we have in-licensed five issued U.S. patents, six granted ex-U.S. patents, approximately 16 pending U.S. non-provisional patent applications, one pending PCT application, and 80 pending ex-U.S. patent applications, in each case, related to Prime Editing, from Broad Institute. The patent applications outside of the United States were filed in the European Patent Office, Japan, China and certain other foreign jurisdictions. The issued patents and patent applications from our in-licensed portfolio for Prime Editing are generally related to Prime Editors, pegRNAs, Prime Editing complexes and systems; compositions including the Prime Editors, pegRNAs and Prime Editing complexes as a component; methods of using such Prime Editors, pegRNAs and Prime Editing complexes and systems, including methods for therapeutic indications; pegRNAs that target and correct therapeutically relevant DNA sequences; program-specific pegRNAs directed to targeting and correcting specific mutations; systems comprising Prime Editors and integrases or recombinases for use in PASSIGE; and delivery modalities for Prime Editing systems, including the use of AAV, in a split AAV system for viral delivery of a Prime Editor. The in-licensed issued patents and patent applications cover various aspects related to the Prime Editing platform technology, including Prime Editors that employ Cas domains, such as Cas9 nickases and DNA polymerase domains, such as RT domains. The exclusive in-licensed patents and patent applications also cover dual-flap Prime Editing technology, including dual-flap Prime Editing compositions and methods of using such technology for therapeutic indications, and engineered pegRNAs, including compositions and methods comprising such pegRNAs. Our current in-licensed U.S. and foreign patents and patent applications, if issued and if the appropriate maintenance or annuity fees are paid, are expected to expire as early as 2040, excluding any additional term for patent term adjustments or patent term extensions or similar provisions in foreign jurisdictions. +Additional Intellectual Property +We also rely on trade secrets, know-how, continuing technological innovation and confidential information to develop and maintain our proprietary position and protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. We seek to protect our proprietary technology and processes, in part, by confidentiality agreements with our employees, consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. +Government Regulation +In the United States, biological products, including gene editing products, are subject to regulation under the Federal Food, Drug, and Cosmetic Act, or FD&C Act, and the Public Health Service Act, or PHS Act, and other federal, state, local and foreign statutes and regulations. Both the FD&C Act and the PHS Act and their corresponding regulations govern, among other things, the research, development, clinical trials, testing, manufacturing, safety, efficacy, labeling, packaging, storage, record keeping, distribution, reporting, advertising and other promotional practices involving biological products. Each clinical trial protocol for a gene therapy or gene editing product must be reviewed and approved by the FDA before initiating clinical trials in the United States. In addition, FDA approval must be obtained before the marketing of biological products in the United States. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources and we may not be able to obtain the required regulatory approvals. +25 +U.S. Biological Products Development Process +The process required by the FDA before a biological product may be marketed in the United States generally involves the following: +• completion of nonclinical laboratory tests and animal studies, including those requiring performance in accordance with good laboratory practices, or GLPs, unless justified and applicable requirements for the humane use of laboratory animals or other applicable regulations; +• submission to the FDA of an application for an IND, which must become effective before human clinical trials may begin; +• approval of the protocol and related documentation by an independent institutional review board, or IRB, or ethics committee at each clinical trial site before each study may be initiated; +• performance of adequate and well-controlled human clinical trials according to the FDA’s regulations commonly referred to as good clinical practices, or GCPs, and any additional requirements for the protection of human research subjects and their health information, to establish the safety, purity and potency of the proposed biological product for its intended use; +• submission to the FDA of a BLA for marketing approval that includes sufficient evidence of establishing the safety, purity and potency of the proposed biological product for its intended indication, including from results of nonclinical testing and clinical trials; +• satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the biological product is produced to assess compliance with cGMP to assure that the facilities, methods and controls are adequate to preserve the biological product’s identity, strength, quality and purity and, if applicable, the FDA’s current good tissue practices, or CGTPs, for the use of human cellular and tissue products; +• potential FDA audit of the nonclinical study and clinical trial sites that generated the data in support of the BLA; +• review of the product candidate by an FDA advisory committee, where appropriate or if applicable; +• payment of user fees for FDA review of the BLA (unless a fee waiver applies); and +• FDA review and approval, or licensure, of the BLA. +Before testing any biological product, including a gene editing product, in humans, the product candidate enters the preclinical testing stage. Preclinical tests, also referred to as nonclinical studies, include laboratory evaluations of a product candidate’s biological characteristics, chemistry, toxicity and formulation, as well as animal studies to assess the potential safety and activity of the product candidate. The conduct of the preclinical tests must comply with federal regulations and requirements, including GLPs for certain nonclinical studies. +An IND is an exemption from the FD&C Act that allows an unapproved product candidate to be shipped in interstate commerce for use in an investigational clinical trial and a request for FDA authorization to administer such investigational product to humans. Such authorization must be secured before interstate shipment and administration of any product candidate that is not the subject of an approved BLA or existing IND. In support of a request for an IND, applicants must submit a protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND application. In addition, the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical trials, among other things, must be submitted to the FDA as part of an IND application. The FDA requires a 30-day waiting period after the filing of each IND before clinical trials may begin. This waiting period is designed to allow the FDA to review the IND to determine whether human research subjects will be exposed to unreasonable health risks. At any time during this 30-day period the FDA may raise concerns or questions about the conduct of the trials as outlined in the IND and impose a clinical hold, which may be full or partial. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin. +Following commencement of a clinical trial, the FDA may also place a full or partial clinical hold on that trial. A clinical hold is an order issued by the FDA to the sponsor to delay a proposed clinical investigation or to suspend an ongoing investigation. A partial clinical hold is a delay or suspension of only part of the clinical investigation +26 +conducted under the IND. No more than 30 days after imposition of a full or partial clinical hold, the FDA will provide the sponsor a written explanation of the basis for the hold. Following issuance of a full or partial clinical hold, an investigation may only resume after the FDA has notified the sponsor that the investigation may proceed. There also are requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries. Information about certain clinical trials, including clinical trial results, must be submitted within specific timeframes for publication on the www.clinicaltrials.gov website. +A sponsor may choose, but is not required, to conduct a foreign clinical trial under an IND. When a foreign clinical trial is conducted under an IND, all FDA IND requirements must be met unless waived. When a foreign clinical trial is not conducted under an IND, the sponsor must ensure that the study complies with certain regulatory requirements of the FDA in order to use the study as support for an IND or application for marketing approval or licensing. In particular, such studies must be conducted in accordance with GCP, including review and approval by an independent ethics committee, or IEC, and informed consent from subjects. The FDA must be able to validate the data through an onsite inspection, if deemed necessary by the FDA. +An IRB representing each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct continuing review and reapprove the study at least annually. The IRB must review and approve, among other things, the study protocol and informed consent information to be provided to study subjects. An IRB must operate in compliance with FDA regulations. An IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the product candidate has been associated with unexpected serious harm to patients. +Some trials are overseen by an independent group of qualified experts organized by the trial sponsor, known as a data safety monitoring board or committee, or DSMB. This group provides advice to the sponsor as to whether or not a trial may move forward at designated check points based on pre-specified criteria and access to unblinded data from the study. +In addition to the submission of an IND to the FDA before initiation of a clinical trial in the United States, certain human clinical trials involving recombinant or synthetic nucleic acid molecules are subject to oversight of institutional biosafety committees, or IBCs, as set forth in the National Institutes of Health, or NIH, Guidelines for Research Involving Recombinant or Synthetic Nucleic Acid Molecules, or NIH Guidelines. Specifically, under the NIH Guidelines, supervision of human gene transfer trials includes evaluation and assessment by an IBC, a local institutional committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid molecules at that institution. The IBC assesses the safety of the research and identifies any potential risk to public health or the environment, and such review may result in some delay before initiation of a clinical trial. While the NIH Guidelines are not mandatory unless the research in question is being conducted at or sponsored by institutions receiving NIH funding for recombinant or synthetic nucleic acid molecule research, many companies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them. Regulatory requirements governing the development of gene therapy products have also changed frequently and may continue to change in the future. +Clinical trials typically are conducted in three sequential phases that may overlap or be combined: +• Phase 1. The biological product is initially introduced into healthy human subjects and tested for safety. In the case of some products for severe or life-threatening diseases, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients. +• Phase 2. The biological product is evaluated in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance, optimal dosage and dosing schedule. +• Phase 3. The biological product undergoes more extensive clinical trials to further evaluate dosage, efficacy, potency and safety in an expanded patient population at geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for approval and product labeling. +Post-approval clinical trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These clinical trials are used to gather additional data from the treatment of patients in the intended +27 +therapeutic indication, particularly for long-term safety follow-up. The FDA generally recommends that sponsors of human gene therapy products integrating vectors such as gammaretroviral and lentiviral vectors and transposon elements as well as gene editing product sponsors observe subjects for potential gene therapy-related delayed adverse events for up to a 15-year period, including five years of annual examinations followed by ten years of annual queries, either by telephone or by questionnaire, of study subjects. +Both the FDA and the European Medicines Agency, or the EMA, provide expedited pathways for the development of drug product candidates for treatment of rare diseases, particularly life-threatening diseases with high unmet medical need. Such drug product candidates may be eligible to proceed to registration following a single clinical trial in a limited patient population, sometimes referred to as a Phase 1/2 trial, but which may be deemed a pivotal or registrational trial following review of the trial’s design and primary endpoints by the applicable regulatory agencies. Determination of the requirements to be deemed a pivotal or registrational trial is subject to the applicable regulatory authority’s scientific judgement and these requirements may differ in the U.S. and the European Union, or EU. +During all phases of clinical development, the FDA requires extensive monitoring and auditing of all clinical activities, clinical data, and clinical trial investigators. Annual progress reports detailing the results of the clinical trials must be submitted to the FDA. Written IND safety reports must be promptly submitted to the FDA, the NIH and the investigators for serious and unexpected adverse events, any findings from other studies, tests in laboratory animals or in vitro testing that suggest a significant risk for human subjects, or any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. The sponsor must submit an IND safety report within 15 calendar days after the sponsor determines that the information qualifies for reporting. The sponsor also must notify the FDA of any unexpected fatal or life-threatening suspected adverse reaction within seven calendar days after the sponsor’s initial receipt of the information. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, if at all. The FDA or the sponsor, acting on its own or based on a recommendation from the sponsor’s data safety monitoring board may suspend a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the biological product has been associated with unexpected serious harm to patients. +Concurrent with clinical trials, companies usually complete additional animal studies and also must develop additional information about the physical characteristics of the biological product as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. To help reduce the risk of the introduction of adventitious agents with use of biological products, the PHS Act emphasizes the importance of manufacturing control for products whose attributes cannot be precisely defined. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the sponsor must develop methods for testing the identity, strength, quality, potency and purity of the final biological product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the biological product candidate does not undergo unacceptable deterioration over its shelf life. +U.S. Review and Approval Processes +After the completion of clinical trials of a biological product, FDA approval of a BLA must be obtained before commercial marketing of the biological product in the United States. The BLA must include results of product development, laboratory and animal studies, human studies, information on the manufacture and composition of the product, proposed labeling and other relevant information. +Within 60 days following submission of the application, the FDA reviews a BLA to determine if it is substantially complete before the FDA accepts it for filing. The FDA may refuse to file any BLA that it deems incomplete or not properly reviewable at the time of submission and may request additional information. In this event, the BLA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. In most cases, the submission of a BLA is subject to a substantial application user fee, although the fee may be waived under certain circumstances. Under the performance goals and policies implemented by the FDA under the Prescription Drug User Fee Act, or PDUFA, for original BLAs, the FDA targets 10 months from the filing date in which to complete its initial review of a standard application and respond to the applicant, and six +28 +months from the filing date for an application with priority review. The FDA does not always meet its PDUFA goal dates, and the review process is often significantly extended by FDA requests for additional information or clarification. This review typically takes 12 months from the date the BLA is submitted to the FDA because the FDA has approximately two months to make a ‘‘filing’’ decision. The review process and the PDUFA goal date may be extended by three months if the FDA requests or the BLA sponsor otherwise provides additional information or clarification regarding information already provided in the submission within the last three months before the PDUFA goal date. +Once the submission is accepted for filing, the FDA begins an in-depth substantive review of the BLA. The FDA reviews the BLA to determine, among other things, whether the proposed product is safe, pure and potent, for its intended use, and whether the product is being manufactured in accordance with cGMP to ensure the continued safety, purity and potency of such product. The FDA may refer applications for novel biological products or biological products that present difficult or novel questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. During its BLA review, the FDA also will determine whether a Risk Evaluation and Mitigation Strategy, or REMS, is necessary to assure the safe use of the biological product. If the FDA concludes a REMS is needed, the sponsor of the BLA must submit a proposed REMS; the FDA will not approve the BLA without a REMS, if required. +Before approving a BLA, the FDA typically will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. For a gene therapy or gene editing product, the FDA also will not approve the product if the manufacturer is not in compliance with the CGTPs. These are FDA regulations that govern the methods used in, and the facilities and controls used for, the manufacture of human cells, tissues and cellular and tissue-based products, or HCT/Ps, which are human cells or tissue intended for implantation, transplant, infusion, or transfer into a human recipient. The primary intent of the CGTP requirements is to ensure that cell and tissue-based products are manufactured in a manner designed to prevent the introduction, transmission and spread of communicable disease. FDA regulations also require tissue establishments to register and list their HCT/Ps with the FDA and, when applicable, to evaluate donors through appropriate screening and testing. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure that the clinical trials were conducted in compliance with IND study requirements and GCP requirements. To assure cGMP, CGTP and GCP compliance, an applicant must incur significant expenditure of time, money and effort in the areas of training, record keeping, production and quality control. +Under the Pediatric Research Equity Act, or PREA, a BLA or supplement to a BLA for a novel product (e.g., new active ingredient, new indication, etc.) must contain data to assess the safety and effectiveness of the biological product for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers. Unless otherwise required by regulation, PREA does not apply to any biological product for an indication for which orphan designation has been granted. +Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the BLA does not satisfy its regulatory criteria for approval and deny approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret the same data. If the FDA decides not to approve the BLA in its present form, the FDA will issue a complete response letter that usually describes all of the specific deficiencies in the BLA identified by the FDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical trials. Additionally, the complete response letter may include recommended actions that the applicant might take to place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the BLA, addressing all of the deficiencies identified in the letter or withdraw the application. +If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, including to subpopulations of patients, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings precautions +29 +or interactions be included in the product labeling. The FDA may impose restrictions and conditions on product distribution, prescribing or dispensing in the form of a REMS, or otherwise limit the scope of any approval. In addition, the FDA may require post-approval clinical trials designed to further assess a biological product’s safety, purity or potency, and testing and surveillance programs to monitor the safety of approved products that have been commercialized. +Orphan Drug Designation +Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biological product intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making a drug or biological product available in the United States for this type of disease or condition will be recovered from sales of the product. Orphan product designation must be requested before submitting a BLA. After the FDA grants orphan product designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. +Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. Orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug or biological product for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity. Competitors, however, may receive approval of different products for the indication for which the orphan product has exclusivity or obtain approval for the same product but for a different indication for which the orphan product has exclusivity. If a drug or biological product designated as an orphan product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan product exclusivity. Orphan drug designation status in the EU has similar, but not identical, benefits. +Rare Pediatric Disease Designation and Priority Review Vouchers +Under the FD&C Act, the FDA incentivizes the development of drugs and biological products that meet the definition of a “rare pediatric disease,” defined to mean a serious or life-threatening disease in which the serious of life-threatening manifestations primarily affect individuals aged from birth to 18 years and the disease affects fewer than 200,000 individuals in the United States or affects more than 200,000 in the United States and for which there is no reasonable expectation that the cost of developing and making in the United States a drug or biological product for such disease or condition will be received from sales in the United States of such drug or biological product. The sponsor of a product candidate for a rare pediatric disease may be eligible for a voucher that can be used to obtain a priority review for a subsequent human drug or biological product application after the date of approval of the rare pediatric disease drug or biological product, referred to as a PRV. A sponsor may request rare pediatric disease designation from the FDA prior to the submission of its BLA. A rare pediatric disease designation does not guarantee that a sponsor will receive a PRV upon approval of its BLA. Moreover, a sponsor who chooses not to submit a rare pediatric disease designation request may nonetheless receive a PRV upon approval of their marketing application if they request such a voucher in their original marketing application and meet all of the eligibility criteria. If a PRV is received, it may be sold or transferred an unlimited number of times. The FDA’s rare pediatric disease priority voucher program began to sunset on December 20, 2024, on failure to pass a continuing resolution package that included its reauthorization. Under the amended statutory sunset provisions, after December 20, 2024, the FDA may award a PRV for an approved rare pediatric disease product application only if the sponsor has rare pediatric disease designation for the drug and if that designation was granted by December 20, 2024. After September 30, 2026, the FDA may not award any rare pediatric disease PRVs. Congress may vote to reauthorize this program, but its future remains unknown at this time. +Expedited Development and Review Programs +The FDA has various programs, including fast track designation, breakthrough therapy designation, accelerated approval and priority review, that are intended to expedite or simplify the process for the development and FDA +30 +review of drugs and biologics that are intended for the treatment of serious or life-threatening diseases or conditions. These programs do not change the standards for approval but may help expedite the development or approval process. To be eligible for fast track designation, new drugs and biological products must be intended to treat a serious or life-threatening condition and demonstrate the potential to address unmet medical needs for the condition. Fast track designation applies to the combination of the product and the specific indication for which it is being studied. The sponsor of a new drug or biologic may request the FDA to designate the drug or biologic as a fast track product at any time during the clinical development of the product. One benefit of fast track designation, for example, is that the FDA may consider for review sections of the marketing application for a product that has received fast track designation on a rolling basis before the complete application is submitted. +Under the FDA’s breakthrough therapy program, products intended to treat a serious or life-threatening disease or condition may be eligible for the benefits of the fast track program when preliminary clinical evidence demonstrates that such product may have substantial improvement on one or more clinically significant endpoints over existing therapies. Additionally, the FDA will seek to ensure the sponsor of a breakthrough therapy product receives timely advice and interactive communications to help the sponsor design and conduct a development program as efficiently as possible. +Any product is eligible for priority review if it has the potential to provide safe and effective therapy where no satisfactory alternative therapy exists or a significant improvement in the treatment, diagnosis or prevention of a disease compared to marketed products. The FDA will attempt to direct additional resources to the evaluation of an application for a new drug or biological product designated for priority review in an effort to facilitate the review. Under priority review, the FDA’s goal is to review an application in six months once it is filed, compared to ten months for a standard review. +Additionally, a product may be eligible for accelerated approval. Drug or biological products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval, which means that they may be approved on the basis of adequate and well-controlled clinical trials establishing that the product has an effect on a surrogate endpoint that is reasonably likely to predict a clinical benefit, or on the basis of an effect on an intermediate clinical endpoint other than survival or irreversible morbidity. As a condition of approval, the FDA may require that a sponsor of a drug or biological product receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials with due diligence, and, under the Food and Drug Omnibus Reform Act of 2022, or FDORA, the FDA is permitted to require, as appropriate, that such trials be underway prior to approval or within a specific time period after the date of approval for a product granted accelerated approval. Under FDORA, the FDA has increased authority for expedited procedures to withdraw approval of a product or indication approved under accelerated approval if, for example, the confirmatory trial fails to verify the predicted clinical benefit of the product. In addition, for products being considered for accelerated approval, the FDA generally requires, unless otherwise informed by the agency, that all advertising and promotional materials intended for dissemination or publication be submitted to the agency for review, which could adversely affect the timing of the commercial launch of the product. +Under FDORA, a platform technology incorporated within or utilized by a drug or biological product is eligible for designation as a designated platform technology if certain conditions are met. A sponsor may request the FDA to designate a platform technology as a designated platform technology concurrently with, or at any time after, submission of an IND application for a drug that incorporates or utilizes the platform technology that is the subject of the request. If so designated, the FDA may expedite the development and review of any subsequent original NDA or BLA for a drug that uses or incorporates the platform technology. Designated platform technology status does not ensure that a drug will be developed more quickly or receive FDA approval. In addition, the FDA may revoke a designation if the FDA determines that a designated platform technology no longer meets the criteria for such designation. +RMAT Designation +Congress amended the FD&C Act to facilitate an efficient development program for, and expedite review of regenerative medicine advanced therapy, or RMAT, which include cell and gene therapies, therapeutic tissue engineering products, human cell and tissue products and combination products using any such therapies or products. RMAT do not include those HCT/Ps regulated solely under section 361 of the PHS Act and 21 CFR Part 1271. This program is intended to facilitate efficient development and expedite review of regenerative medicine +31 +therapies, which are intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition and qualify for RMAT designation. A drug sponsor may request that FDA designate a drug as a RMAT concurrently with or at any time after submission of an IND. FDA has 60 calendar days to determine whether the drug meets the criteria, including whether there is preliminary clinical evidence indicating that the drug has the potential to address unmet medical needs for a serious or life-threatening disease or condition. A BLA for a regenerative medicine therapy that has received RMAT designation may be eligible for priority review or accelerated approval through use of surrogate or intermediate endpoints reasonably likely to predict long-term clinical benefit, or reliance upon data obtained from a meaningful number of sites. Benefits of RMAT designation also include early interactions with FDA to discuss any potential surrogate or intermediate endpoint to be used to support accelerated approval. A regenerative medicine therapy with RMAT designation that is granted accelerated approval and is subject to post-approval requirements may fulfill such requirements through the submission of clinical evidence from clinical trials, patient registries, or other sources of real world evidence, such as electronic health records; the collection of larger confirmatory data sets; or post-approval monitoring of all patients treated with such therapy prior to its approval. Like some of the FDA’s other expedited development programs, RMAT designation does not change the standards for approval but may help expedite the development or approval process. +Post-Approval Requirements +Maintaining substantial compliance with applicable federal, state and local statutes and regulations requires the expenditure of substantial time and financial resources. Rigorous and extensive FDA regulation of biological products continues after approval, particularly with respect to cGMP. We currently rely, and may continue to rely, on third parties for the production of clinical and commercial quantities of any products that we may commercialize. Manufacturers of our products are required to comply with applicable requirements in the cGMP regulations, including quality control and quality assurance and maintenance of records and documentation. Other post-approval requirements applicable to biological products, include reporting of cGMP deviations that may affect the identity, potency, purity and overall safety of a distributed product, record-keeping requirements, reporting of adverse effects, reporting updated safety and efficacy information, and complying with electronic record and signature requirements. After a BLA is approved, the product also may be subject to official lot release. As part of the manufacturing process, the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official release by the FDA, the manufacturer submits samples of each lot of product to the FDA together with a release protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s tests performed on the lot. The FDA also may perform certain confirmatory tests on lots of some products before releasing the lots for distribution by the manufacturer. In addition, the FDA conducts laboratory research related to the regulatory standards on the safety, purity, potency and effectiveness of biological products. +We also must comply with the FDA’s advertising and promotion requirements, such as those related to direct-to-consumer advertising, the prohibition on promoting products for uses or in patient populations that are not described in the product’s approved labeling, or off-label use, industry-sponsored scientific and educational activities, and promotional activities involving the internet. Discovery of previously unknown problems or the failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market as well as possible civil or criminal sanctions. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant or manufacturer to administrative or judicial civil or criminal sanctions and adverse publicity. FDA sanctions could include refusal to approve pending applications, withdrawal of an approval, clinical holds, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, mandated corrective advertising or communications with doctors or other stakeholders, debarment, restitution, disgorgement of profits, or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us. +Biological product manufacturers and other entities involved in the manufacture and distribution of approved biological products, and those supplying products, ingredients, and components of them, are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP +32 +compliance. Discovery of problems with a product after approval may result in restrictions on a product, manufacturer, or holder of an approved BLA, including withdrawal of the product from the market. In addition, changes to the manufacturing process or facility generally require prior FDA approval before being implemented and other types of changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further FDA review and approval. +From time to time, legislation is drafted, introduced, passed in Congress and signed into law that could significantly change the statutory provisions governing the approval, manufacturing, and marketing of products regulated by the FDA. In addition to new legislation, FDA regulations, guidance, and policies are often revised or reinterpreted by the agency in ways that may significantly affect the manner in which pharmaceutical products are regulated and marketed. +U.S. Patent Term Restoration and Marketing Exclusivity +Depending upon the timing, duration and specifics of any FDA approval of the use of our product candidates, some U.S. patents that may issue from our pending patent applications may be eligible for limited patent term extension under the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND and the submission date of a BLA plus the time between the submission date of a BLA and the approval of that application, except that the review period is reduced by any time during which the applicant failed to exercise due diligence. Only one patent applicable to an approved biological product is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. In addition, only those claims covering the approved product, a method for using it, or a method for manufacturing it may be extended, and a patent can only be extended once and only for a single product. The USPTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we may apply for restoration of patent term for one of the patents that may issue from our pending patent applications, if and as applicable, to add patent life beyond its current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant BLA. However, there can be no assurance that our pending patent applications will issue or that we will benefit from any patent term extension or favorable adjustments to the terms of any patents we may own or in-license in the future. +A biological product can obtain pediatric market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing exclusivity periods for all formulations, dosage forms, and indications of the biologic. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric study in accordance with an FDA-issued “Written Request” for such a study, provided that at the time pediatric exclusivity is granted there is not less than nine months of term remaining. +The ACA created an abbreviated approval pathway for biological products shown to be similar to, or interchangeable with, an FDA-licensed reference biological product. This amendment to the PHS Act attempts to minimize duplicative testing. Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and the reference product in terms of safety, purity and potency, can be shown through analytical studies, animal studies and a clinical trial or trials. Interchangeability requires that a product is biosimilar to the reference product and the product must demonstrate that it can be expected to produce the same clinical results as the reference product and, for products administered multiple times, the biologic and the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. +A reference biological product is granted four- and 12-year exclusivity periods from the time of first licensure of the product. The FDA will not accept an application for a biosimilar or interchangeable product based on the reference biological product until four years after the date of first licensure of the reference product, and the FDA will not approve an application for a biosimilar or interchangeable product based on the reference biological product until 12 years after the date of first licensure of the reference product. “First licensure” typically means the initial date the particular product at issue was licensed in the United States. Date of first licensure does not include the date of +33 +licensure of (and a new period of exclusivity is not available for) a biological product if the licensure is for a supplement for the biological product or for a subsequent application by the same sponsor or manufacturer of the biological product (or licensor, predecessor in interest, or other related entity) for a change (not including a modification to the structure of the biological product) that results in a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery device or strength, or for a modification to the structure of the biological product that does not result in a change in safety, purity, or potency. Therefore, one must determine whether a new product includes a modification to the structure of a previously licensed product that results in a change in safety, purity, or potency to assess whether the licensure of the new product is a first licensure that triggers its own period of exclusivity. Whether a subsequent application, if approved, warrants exclusivity as the “first licensure” of a biological product is determined on a case-by-case basis with data submitted by the sponsor. +Additional Regulation +In addition to the foregoing, state and federal laws regarding environmental protection and hazardous substances, including the Occupational Safety and Health Act, the Resource Conservancy and Recovery Act and the Toxic Substances Control Act, affect our business. These and other laws govern our use, handling and disposal of various biological, chemical and radioactive substances used in, and wastes generated by, our operations. If our operations result in contamination of the environment or expose individuals to hazardous substances, we could be liable for damages and governmental fines. We believe that we are in material compliance with applicable environmental laws and that continued compliance therewith will not have a material adverse effect on our business. We cannot predict, however, how changes in these laws may affect our future operations. +U.S. Foreign Corrupt Practices Act +The U.S. Foreign Corrupt Practices Act, or FCPA, to which we are subject, prohibits corporations and individuals from engaging in certain activities to obtain or retain business or to influence a person working in an official capacity. It is illegal to pay, offer to pay or authorize the payment of anything of value to any foreign government official, government staff member, political party or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity. +Government Regulation Outside of the United States +In addition to regulations in the United States, we are subject to a variety of regulations in other jurisdictions governing, among other things, research and development, clinical trials, testing, manufacturing, safety, efficacy, labeling, packaging, storage, record keeping, distribution, reporting, advertising and other promotional practices involving biological products as well as authorization and approval of our products. Because biologically sourced raw materials are subject to unique contamination risks, their use may be restricted in some countries. +The requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, the clinical trials must be conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension of clinical trials, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution. +EU Clinical Trials Regulation +In April 2014, the EU overhauled the system of approvals for clinical trials in the EU. The transitory provisions of the new Clinical Trials Regulation provide that, by January 31, 2025, all ongoing clinical trials must have transitioned to the new Regulation. Specifically, the new Regulation, which is directly applicable in all Member States (meaning that no national implementing legislation in each EU Member State is required), aims at simplifying and streamlining the approval of clinical trials in the EU. In the EU, clinical trials are governed by the Clinical Trials Regulation (EU) No 536/2014, or CTR. The CTR provides for a streamlined application procedure via a single entry point (the Clinical Trials Information System) and strictly defined deadlines for the assessment of CTAs. +34 +EU Drug Review and Approval +In the EU, medicinal products can only be commercialized after obtaining a marketing authorization. To obtain regulatory approval of a medicinal product in the EU, we must submit a marketing authorization application, or MAA. A centralized marketing authorization is issued by the European Commission through the centralized procedure, based on the opinion of the Committee for Medicinal Products for Human Use, or CHMP, of the EMA, and is valid throughout the EU, and in the additional member states of the EEA (Norway, Iceland and Liechtenstein). The centralized procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products, advanced-therapy medicinal products (gene-therapy, somatic cell-therapy or tissue-engineered medicines), and medicinal products containing a new active substance indicated for the treatment of HIV, AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and other immune dysfunctions, and viral diseases. The centralized procedure is optional for products containing a new active substance not yet authorized in the EU, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in the interest of public health in the EU. +Under the centralized procedure the maximum timeframe for the evaluation of an MAA by the EMA is 210 days, excluding clock stops, when additional written or oral information is to be provided by the applicant in response to questions asked by the CHMP. Clock stops may extend the timeframe of evaluation of an MAA considerably beyond 210 days. Where the CHMP gives a positive opinion, it provides the opinion together with supporting documentation to the European Commission, who make the final decision to grant a marketing authorization, which is issued within 67 days of receipt of the EMA’s recommendation. Accelerated assessment might be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of major public health interest, particularly from the point of view of therapeutic innovation. The timeframe for the evaluation of an MAA under the accelerated assessment procedure is 150 days, excluding clock stops, but it is possible that the CHMP may revert to the standard time limit for the centralized procedure if it determines that the application is no longer appropriate to conduct an accelerated assessment. +Periods of Authorization and Renewals +A marketing authorization is valid for five years, in principle, and it may be renewed after five years on the basis of a re-evaluation of the risk benefit balance by the EMA for a centrally authorized product, or by the competent authority of the authorizing Member State for a nationally authorized product. Once renewed, the marketing authorization is valid for an unlimited period, unless the European Commission or the competent authority decides, on justified grounds relating to pharmacovigilance, to proceed with one additional five-year renewal period. Any authorization that is not followed by the placement of the product on the EU market (in the case of the centralized procedure) or on the market of the authorizing Member State (for a nationally authorized product) within three years after authorization, or if the product is removed from the market for three consecutive years, ceases to be valid (the so-called sunset clause). +Data and Marketing Exclusivity +The EU also provides opportunities for market exclusivity. Upon receiving marketing authorization in the EU, innovative medicinal products generally receive eight years of data exclusivity and an additional two years of market exclusivity. If granted, data exclusivity prevents generic or biosimilar applicants from referencing the innovator’s preclinical and clinical trial data contained in the dossier of the reference product when applying for a generic or biosimilar marketing authorization in the EU, during a period of eight years from the date on which the reference product was first authorized in the EU. During the additional two-year period of market exclusivity, a generic or biosimilar marketing authorization can be submitted and the innovator’s data may be referenced, but no generic or biosimilar product can be marketed until the expiration of the market exclusivity period. The overall ten-year period will be extended to a maximum of eleven years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to authorization, is held to bring a significant clinical benefit in comparison with existing therapies. Even if an innovative medicinal product gains the prescribed period of data exclusivity, another company may market another version of the product if such company obtained a marketing authorization based on an MAA with a complete independent data package of pharmaceutical tests, preclinical tests and clinical trials. There is, +35 +however, no guarantee that a product will be considered by the EU’s regulatory authorities to be an innovative medicinal product, and products may therefore not qualify for data exclusivity. +Orphan Drug Designation and Exclusivity +The criteria for designating an “orphan medicinal product” in the EU are similar in principle to those in the United States. Orphan medicinal products are eligible for financial incentives such as reduction of fees or fee waivers. The application for orphan designation must be submitted before the application for marketing authorization. The applicant will receive a fee reduction for the MAA if the orphan designation has been granted, but not if the designation is still pending at the time the marketing authorization is submitted. Orphan designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. +Products with an orphan designation in the EU can receive 10 years of market exclusivity, during which time no “similar medicinal product” for the same indication may be placed on the market. A “similar medicinal product” is defined as a medicinal product containing a similar active substance or substances as contained in an authorized orphan medicinal product, and which is intended for the same therapeutic indication. An orphan medicinal product can also obtain an additional two years of market exclusivity in the EU where an agreed pediatric investigation plan for pediatric studies has been complied with. No extension to any supplementary protection certificate, or SPC, can be granted on the basis of pediatric studies for products with an orphan designation. +The 10-year market exclusivity may be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan designation, for example, if the product is sufficiently profitable not to justify maintenance of market exclusivity. Otherwise, an orphan medicinal product marketing exclusivity may be revoked only in very select cases, such as if: +• a second applicant can establish that its product, although similar, is safer, more effective or otherwise clinically superior to the authorized orphan medicinal product; +• the marketing authorization holder of the authorized orphan medicinal product consents to a second medicinal product application; or +• the marketing authorization holder of the authorized orphan medicinal product cannot supply enough orphan medicinal product. +Pediatric Development +In the EU, companies developing a new medicinal product must agree upon a Pediatric Investigation Plan, or PIP, with the EMA’s Pediatric Committee, or PDCO, and must conduct pediatric clinical trials in accordance with that PIP, unless a waiver applies, (e.g., because the relevant disease or condition occurs only in adults). The PIP sets out the timing and measures proposed to generate data to support a pediatric indication of the product for which marketing authorization is being sought. The marketing authorization application for the product must include the results of pediatric clinical trials conducted in accordance with the PIP, unless a waiver applies or a deferral has been granted by the PDCO of the obligation to implement some or all of the measures of the PIP until there are sufficient data to demonstrate the efficacy and safety of the product in adults, in which case the pediatric clinical trials must be completed at a later date. Products that are granted a marketing authorization with the results of the pediatric clinical trials conducted in accordance with the PIP are eligible for a six month extension of the protection under an SPC, even where the trial results are negative, provided an application for such extension is made at the same time as filing the SPC application for the product, or at any point up to two years before the SPC expires. In the case of orphan medicinal products, a two year extension of the orphan market exclusivity may be available. This pediatric reward is subject to specific conditions and is not automatically available when data in compliance with the PIP are developed and submitted. +PRIME Designation +In March 2016, the EMA launched an initiative to facilitate development of product candidates in indications, often rare, for which few or no therapies currently exist. The PRIority MEdicines, or PRIME, scheme is intended to encourage product development in areas of unmet medical need and provides accelerated assessment of products representing substantial innovation, where the MAA will be made through the centralized procedure. Eligible +36 +products must target conditions for which there is an unmet medical need (there is no satisfactory method of diagnosis, prevention or treatment in the EU or, if there is, the new medicine will bring a major therapeutic advantage) and they must demonstrate the potential to address the unmet medical need by introducing new methods of therapy or improving existing ones. Applicants will typically be at the exploratory clinical trial phase of development and will have preliminary clinical evidence in patients to demonstrate the promising activity of the medicine and its potential to address, to a significant extent, an unmet medical need. Products from small- and medium-sized enterprises may qualify for earlier entry into the PRIME scheme than larger companies if the applicant has compelling non-clinical data and tolerability data from initial clinical trials of the product. Many benefits accrue to sponsors of product candidates with PRIME designation, including but not limited to, early and proactive regulatory dialogue with the EMA, frequent discussions on clinical trial designs and other development program elements and accelerated MAA assessment once a dossier has been submitted. Importantly, a dedicated Agency contact and rapporteur from the CHMP or CAT are appointed early in the PRIME scheme facilitating increased understanding of the product at EMA’s Committee level. A kick-off meeting initiates these relationships and includes a team of multidisciplinary experts at the EMA to provide guidance on the overall development and regulatory strategies. Where, during the course of development, a medicine no longer meets the eligibility criteria, support under the PRIME scheme may be withdrawn. +Post-Approval Controls +Following approval, the holder of the marketing authorization is required to comply with a range of requirements applicable to the manufacturing, marketing, promotion and sale of the medicinal product. These include the following: +• The holder of a marketing authorization must establish and maintain a pharmacovigilance system and appoint an individual qualified person for pharmacovigilance, who is responsible for oversight of that system. Key obligations include expedited reporting of suspected serious adverse reactions and submission of periodic safety update reports, or PSURs. +• All new MAAs must include a risk management plan, or RMP, describing the risk management system that the company will put in place to prevent or minimize the risks associated with the product. The regulatory authorities may also impose specific obligations as a condition of the marketing authorization. Such risk-minimization measures or post-authorization obligations may include additional safety monitoring, more frequent submission of PSURs or the conduct of additional clinical trials or post-authorization safety studies. RMPs and PSURs are routinely available to third parties requesting access, subject to limited redactions. +• All advertising and promotional activities for the product must be consistent with the approved Summary of Product Characteristics and therefore all off-label promotion is prohibited. Direct-to-consumer advertising of prescription medicines is also prohibited in the EU. Although general requirements for advertising and promotion of medicinal products are established under EU directives, the details are governed by regulations in each EU Member State and can differ from one country to another. +All the aforementioned EU rules are generally applicable in the EEA. +Reform of the Regulatory Framework in the EU +The European Commission introduced legislative proposals in April 2023 that, if implemented, will replace the current regulatory framework in the EU for all medicines (including those for rare diseases and for children). The European Commission has provided the legislative proposals to the European Parliament and the European Council for their review and approval, and, in April 2024, the European Parliament proposed amendments to the legislative proposals. Once the European Commission’s legislative proposals are approved (with or without amendment), they will be adopted into EU law. +Brexit and the Regulatory Framework in the United Kingdom +The United Kingdom, or UK, formally left the EU on January 31, 2020. The Windsor Framework was approved by the EU-UK Joint Committee on March 24, 2023, and the medicines aspects of the Windsor Framework have applied since January 1, 2025. The MHRA is responsible for approving all medicinal products destined for the UK market +37 +(i.e., Great Britain and Northern Ireland). A single UK-wide marketing authorization will be granted by the MHRA for all novel medicinal products to be sold in the UK, enabling products to be sold in a single pack and under a single authorization throughout the UK. Although a separate authorization is now required to market medicinal products in the UK, under an international recognition procedure which was put in place by the MHRA on January 1, 2024, the MHRA may take into account decisions on the approval of a marketing authorization from the EMA (and certain other regulators) when considering an application for a UK marketing authorization. +Other Healthcare Laws and Compliance Requirements +Insurance and coverage +In the United States and markets in other countries, patients generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors is critical to new product acceptance. Our ability to successfully commercialize our product candidates will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. The availability of coverage and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford treatments such as gene therapy products. Sales of these or other product candidates that we may identify will depend substantially, both domestically and abroad, on the extent to which the costs of our product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors. If coverage and adequate reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize our product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investment. +There is also significant uncertainty related to the insurance coverage and reimbursement of newly approved products and coverage may be more limited than the purposes for which the medicine is approved by the FDA or comparable foreign regulatory authorities. In the United States, the principal decisions about reimbursement for new medicines are typically made by the Centers for Medicare & Medicaid Services, or CMS, an agency within the U.S. Department of Health and Human Services, or HHS. CMS decides whether and to what extent a new medicine will be covered and reimbursed under Medicare and private payors tend to follow CMS to a substantial degree. Factors payors consider in determining reimbursement are based on whether the product is: +• a covered benefit under its health plan; +• safe, effective and medically necessary; +• appropriate for the specific patient; +• cost-effective; and +• neither experimental nor investigational. +In addition, many third-party payors are increasingly limiting both coverage and the level of reimbursement of new drugs. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that reimbursement will be available for any product candidate that we commercialize and, if reimbursement is available, the level of reimbursement. In addition, many pharmaceutical manufacturers must calculate and report certain price reporting metrics to the government, such as average sales price, or ASP, and best price. Penalties may apply in some cases when such metrics are not submitted accurately and timely. Further, these prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs. Net prices for drugs may be also reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by +38 +any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. +Other healthcare laws +In the United States, our current and future operations are subject to regulation by various federal, state and local authorities in addition to the FDA, including but not limited to, CMS, other divisions of HHS (such as the Office of Inspector General, Office for Civil Rights and the Health Resources and Service Administration), the U.S. Department of Justice, or DOJ, and individual U.S. Attorney offices within the DOJ, and state and local governments. For example, our clinical research, sales, marketing and scientific/educational grant programs may have to comply with the anti-fraud and abuse provisions of the Social Security Act, the false claims laws, the privacy and security provisions of the Health Insurance Portability and Accountability Act of 1996, or HIPAA, and similar state laws, each as amended, as applicable: +• the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order, arrangement or recommendation of any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs; a person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it to have committed a violation. Violations are subject to civil and criminal fines and penalties for each violation, plus up to three times the remuneration involved, imprisonment, and exclusion from government healthcare programs. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act or federal civil monetary penalties. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand, and prescribers, purchasers and formulary managers, among others, on the other. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act or federal civil money penalties statute; +• the federal civil and criminal false claims laws and civil monetary penalty laws, including the False Claims Act, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, false or fraudulent claims for payment to, or approval by, Medicare, Medicaid, or other federal healthcare programs, knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim or obligation to pay or transmit money or property to the federal government, or knowingly concealing or knowingly and improperly avoiding or decreasing or concealing an obligation to pay money to the federal government. A claim that includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim under the False Claims Act. Manufacturers can be held liable under the False Claims Act even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. The False Claims Act also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the False Claims Act and to share in any monetary recovery; +• HIPAA, which created additional federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false, fictitious, or fraudulent statements or representations in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; +• HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective implementing regulations, including the Final Omnibus Rule published in January 2013, which impose requirements on certain covered healthcare providers, health plans, and healthcare +39 +clearinghouses as well as their respective business associates that perform services for them that involve the use, or disclosure of, individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health information. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions; +• the federal transparency requirements under the Affordable Care Act, or ACA, including the provision commonly referred to as the Physician Payments Sunshine Act, and its implementing regulations, which require applicable manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to CMS, information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain other licensed healthcare practitioners and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members; +• federal government price reporting laws, which require us to calculate and report complex pricing metrics in an accurate and timely manner to government programs; +• federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; +• analogous state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers or patients; state laws that require pharmaceutical companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state and local laws that require the licensure of sales representatives; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures and pricing information; data privacy and security laws and regulations in foreign jurisdictions some of which may be more stringent than those in the United States (such as the EU, which adopted the General Data Protection Regulation, which became effective in May 2018); and numerous state laws governing the privacy and security of health information, many of which differ from each other in significant ways regarding their applicability, compliance requirements and enforcement; and +• state laws related to insurance fraud in the case of claims involving private insurers. +Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. +Law enforcement authorities are increasingly focused on enforcing fraud and abuse laws, and it is possible that some of our practices may be challenged under these laws. Efforts to ensure that our current and future business arrangements with third parties, and our business generally, will comply with applicable healthcare laws and regulations will involve substantial costs. If our operations, including our arrangements with physicians and other healthcare providers, are found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject to penalties, including, without limitation, administrative, criminal and/or civil penalties, damages, fines, disgorgement, reputational harm, imprisonment, the exclusion or suspension from federal and state healthcare programs such as Medicare and Medicaid and debarment from contracting with the U.S. government, and/or the curtailment or restructuring of our operations, as well as additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws. If any of the physicians or other healthcare providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, they may be subject to similar penalties. +The risk of our being found in violation of these laws is increased by the fact that many of these laws have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. The shifting compliance environment and the need to build and maintain a robust system to comply with +40 +multiple jurisdictions with different compliance and reporting requirements increases the possibility that a healthcare company may violate one or more of the requirements. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial cost. +Healthcare reform +In the United States and some foreign jurisdictions, there have been, and likely will continue to be, a number of legislative and regulatory changes and proposed changes regarding the healthcare system directed at broadening the availability of healthcare, improving the quality of healthcare, and containing or lowering the cost of healthcare. For example, in 2010, the ACA was enacted which includes changes to the coverage and payment for products under government health care programs. Among other things, the ACA: +• expanded manufacturers’ rebate liability under the Medicaid Drug Rebate Program; +• extended the Medicaid Drug Rebate Program to utilization of prescriptions of individuals enrolled in Medicaid managed care plans; +• established annual fees and taxes on manufacturers of certain branded prescription drugs; +• created a Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70 percent point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.; and +• expanded the entities eligible for discounts under the 340B Drug Pricing Program. +In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. For example, on March 22, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminated the statutory Medicaid drug rebate cap, currently set at 100 percent of a drug’s average manufacturer price, for single source and innovator multiple source drugs. Further, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress that include aggregate reductions of Medicare payments to providers of up to two percent per fiscal year, which will remain in effect through 2031. The American Taxpayer Relief Act of 2012 further reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These laws and regulations may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used. +Further, in 2018, the Right to Try Act, was signed into law. The law, among other things, provides a federal framework for certain patients to access certain IND products that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a pharmaceutical manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act. +The prices of prescription pharmaceuticals in the United States and foreign jurisdictions are subject to considerable legislative and executive actions and could impact the prices we obtain for our products, if and when licensed. +In August 2022, the Inflation Reduction Act, or the IRA, was signed into law. The IRA includes several provisions that will affect our business to varying degrees, including provisions that create a $2,000 out-of-pocket cap for Medicare Part D beneficiaries, impose new manufacturer financial liability on all drugs in Medicare Part D, allow the U.S. government to negotiate Medicare Part B and Part D pricing for certain high-cost drugs and biologics without generic or biosimilar competition, require companies to pay rebates to Medicare for drug prices that increase faster than inflation, and delay the rebate rule that would require pass through of pharmacy benefit manager rebates to beneficiaries. Further, under the IRA, orphan drugs are exempted from the Medicare drug price negotiation program, but only if they have one orphan designation and for which the only approved indication is for that disease or condition. If a product receives multiple orphan designations or has multiple approved indications, it may not qualify for the orphan drug exemption. The implementation of the IRA is currently subject to ongoing litigation +41 +challenging the constitutionality of the IRA’s Medicare drug price negotiation program. The effects of the IRA on our business and the healthcare industry in general is not yet known. +In addition to pricing regulations, reforms of regulatory approval frameworks may adversely affect our pricing strategy. At a federal level, President Trump reversed some of President Biden’s executive orders including rescinding Executive Order 14087 entitled “Lowering Prescription Drug Costs for Americans.” President Trump may issue new executive orders designed to impact drug pricing. A number of these and other proposed measures may require authorization through additional legislation to become effective. Congress and the Trump administration have indicated that they will continue to seek new legislative measures to control drug costs. +Individual states in the United States have also become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. State legislatures have also been increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. +It is difficult to predict the future legislative landscape in healthcare and the effect on our business, results of operations, financial condition and prospects. However, we expect that additional state and federal healthcare reform measures will be adopted in the future. +Employees and Human Capital Resources +As of December 31, 2024, we had 214 full-time employees, of which 101 have M.D. or Ph.D. degrees. Within our workforce, 184 employees are engaged in research and development and 30 are engaged in business development, finance, legal, and general management and administration. None of our employees are represented by labor unions or covered by collective bargaining agreements. We consider our relationship with our employees to be good. +Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and new employees, advisors and consultants. The principal purposes of our equity incentive plans are to attract, retain and reward personnel through the granting of equity-based compensation awards in order to increase shareholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives. +Our Corporate Information +We were incorporated under the laws of the state of Delaware in September 2019 under the name Prime Medicine, Inc. Our principal executive offices are located at 60 First Street, Cambridge, MA 02141. Our telephone number is (617) 465-0013 and our website is located at www.primemedicine.com. References to our website are inactive textual references only and the content of our website should not be deemed incorporated by reference into this Annual Report on Form 10-K. +Available Information +Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of charge on our website located at www.primemedicine.com as soon as reasonably practicable after they are filed with or furnished to the Securities and Exchange Commission, or SEC. These reports are also available at the SEC’s website at www.sec.gov. +Our Code of Business Conduct and Ethics is posted on our website located at https://investors.primemedicine.com/corporate-governance/documents-charters. A copy of our Corporate Governance Guidelines, and the charters of the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee are posted on our website, www.primemedicine.com, under the heading “Investors—Corporate Governance” and are available in +42 +print to any person who requests copies by contacting us by calling (617) 465-0013 or by writing to Prime Medicine, Inc., 60 First Street, Cambridge, Massachusetts 02141. +43 \ No newline at end of file diff --git a/raw/filings/0001894562/2024/0001628280-25-008884/item13.txt b/raw/filings/0001894562/2024/0001628280-25-008884/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..8e26d9eaf600d82229380364b101ae5c174a11ea --- /dev/null +++ b/raw/filings/0001894562/2024/0001628280-25-008884/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions, and Director Independence +124 \ No newline at end of file diff --git a/raw/filings/0001894562/2025/0001628280-26-013569/filing.txt b/raw/filings/0001894562/2025/0001628280-26-013569/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..d174223ea753657851e8782bc575e4079a339617 --- /dev/null +++ b/raw/filings/0001894562/2025/0001628280-26-013569/filing.txt @@ -0,0 +1,2959 @@ +prme-20251231 +0001894562 false 2025 FY 1 1 iso4217:USD xbrli:shares iso4217:USD xbrli:shares prme:segment prme:security utr:sqft xbrli:pure prme:vote 0001894562 2025-01-01 2025-12-31 0001894562 2025-06-30 0001894562 2026-02-20 0001894562 2025-10-01 2025-12-31 0001894562 2025-12-31 0001894562 2024-12-31 0001894562 us-gaap:NonrelatedPartyMember 2025-12-31 0001894562 us-gaap:NonrelatedPartyMember 2024-12-31 0001894562 us-gaap:RelatedPartyMember 2025-12-31 0001894562 us-gaap:RelatedPartyMember 2024-12-31 0001894562 us-gaap:RelatedPartyMember 2025-01-01 2025-12-31 0001894562 us-gaap:RelatedPartyMember 2024-01-01 2024-12-31 0001894562 us-gaap:NonrelatedPartyMember 2025-01-01 2025-12-31 0001894562 us-gaap:NonrelatedPartyMember 2024-01-01 2024-12-31 0001894562 2024-01-01 2024-12-31 0001894562 us-gaap:CommonStockMember 2023-12-31 0001894562 us-gaap:AdditionalPaidInCapitalMember 2023-12-31 0001894562 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-12-31 0001894562 us-gaap:RetainedEarningsMember 2023-12-31 0001894562 2023-12-31 0001894562 prme:PublicOfferingMember 2024-01-01 2024-12-31 0001894562 prme:PublicOfferingMember us-gaap:CommonStockMember 2024-01-01 2024-12-31 0001894562 prme:PublicOfferingMember us-gaap:AdditionalPaidInCapitalMember 2024-01-01 2024-12-31 0001894562 us-gaap:WarrantMember 2024-01-01 2024-12-31 0001894562 us-gaap:AdditionalPaidInCapitalMember 2024-01-01 2024-12-31 0001894562 prme:SecuritiesPurchaseAgreementMember us-gaap:CommonStockMember 2024-01-01 2024-12-31 0001894562 prme:SecuritiesPurchaseAgreementMember us-gaap:AdditionalPaidInCapitalMember 2024-01-01 2024-12-31 0001894562 prme:SecuritiesPurchaseAgreementMember 2024-01-01 2024-12-31 0001894562 us-gaap:CommonStockMember 2024-01-01 2024-12-31 0001894562 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-01-01 2024-12-31 0001894562 us-gaap:RetainedEarningsMember 2024-01-01 2024-12-31 0001894562 us-gaap:CommonStockMember 2024-12-31 0001894562 us-gaap:AdditionalPaidInCapitalMember 2024-12-31 0001894562 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-12-31 0001894562 us-gaap:RetainedEarningsMember 2024-12-31 0001894562 prme:PublicOfferingMember 2025-01-01 2025-12-31 0001894562 prme:PublicOfferingMember us-gaap:CommonStockMember 2025-01-01 2025-12-31 0001894562 prme:PublicOfferingMember us-gaap:AdditionalPaidInCapitalMember 2025-01-01 2025-12-31 0001894562 us-gaap:CommonStockMember 2025-01-01 2025-12-31 0001894562 us-gaap:AdditionalPaidInCapitalMember 2025-01-01 2025-12-31 0001894562 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2025-01-01 2025-12-31 0001894562 us-gaap:RetainedEarningsMember 2025-01-01 2025-12-31 0001894562 us-gaap:CommonStockMember 2025-12-31 0001894562 us-gaap:AdditionalPaidInCapitalMember 2025-12-31 0001894562 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2025-12-31 0001894562 us-gaap:RetainedEarningsMember 2025-12-31 0001894562 2025-08-01 2025-08-31 0001894562 us-gaap:OverAllotmentOptionMember 2025-08-01 2025-08-31 0001894562 2025-08-31 0001894562 prme:PublicStockOfferingMember 2025-08-01 2025-08-31 0001894562 prme:LaboratoryEquipmentMember 2025-12-31 0001894562 us-gaap:FurnitureAndFixturesMember 2025-12-31 0001894562 us-gaap:ComputerEquipmentMember 2025-12-31 0001894562 prme:ReportableSegmentMember 2025-01-01 2025-12-31 0001894562 prme:ReportableSegmentMember 2024-01-01 2024-12-31 0001894562 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member 2025-12-31 0001894562 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel2Member 2025-12-31 0001894562 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel3Member 2025-12-31 0001894562 us-gaap:MoneyMarketFundsMember 2025-12-31 0001894562 prme:USTreasuryBillsAndGovernmentSecuritiesMember us-gaap:FairValueInputsLevel1Member 2025-12-31 0001894562 prme:USTreasuryBillsAndGovernmentSecuritiesMember us-gaap:FairValueInputsLevel2Member 2025-12-31 0001894562 prme:USTreasuryBillsAndGovernmentSecuritiesMember us-gaap:FairValueInputsLevel3Member 2025-12-31 0001894562 prme:USTreasuryBillsAndGovernmentSecuritiesMember 2025-12-31 0001894562 us-gaap:CorporateDebtSecuritiesMember us-gaap:FairValueInputsLevel1Member 2025-12-31 0001894562 us-gaap:CorporateDebtSecuritiesMember us-gaap:FairValueInputsLevel2Member 2025-12-31 0001894562 us-gaap:CorporateDebtSecuritiesMember us-gaap:FairValueInputsLevel3Member 2025-12-31 0001894562 us-gaap:CorporateDebtSecuritiesMember 2025-12-31 0001894562 prme:USTreasuryBillsAndGovernmentSecuritiesMember us-gaap:FairValueInputsLevel1Member us-gaap:NonrelatedPartyMember 2025-12-31 0001894562 prme:USTreasuryBillsAndGovernmentSecuritiesMember us-gaap:FairValueInputsLevel2Member us-gaap:NonrelatedPartyMember 2025-12-31 0001894562 prme:USTreasuryBillsAndGovernmentSecuritiesMember us-gaap:FairValueInputsLevel3Member us-gaap:NonrelatedPartyMember 2025-12-31 0001894562 prme:USTreasuryBillsAndGovernmentSecuritiesMember us-gaap:NonrelatedPartyMember 2025-12-31 0001894562 us-gaap:CorporateDebtSecuritiesMember us-gaap:FairValueInputsLevel1Member us-gaap:NonrelatedPartyMember 2025-12-31 0001894562 us-gaap:CorporateDebtSecuritiesMember us-gaap:FairValueInputsLevel2Member us-gaap:NonrelatedPartyMember 2025-12-31 0001894562 us-gaap:CorporateDebtSecuritiesMember us-gaap:FairValueInputsLevel3Member us-gaap:NonrelatedPartyMember 2025-12-31 0001894562 us-gaap:CorporateDebtSecuritiesMember us-gaap:NonrelatedPartyMember 2025-12-31 0001894562 us-gaap:FairValueInputsLevel1Member 2025-12-31 0001894562 us-gaap:FairValueInputsLevel2Member 2025-12-31 0001894562 us-gaap:FairValueInputsLevel3Member 2025-12-31 0001894562 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member 2024-12-31 0001894562 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel2Member 2024-12-31 0001894562 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel3Member 2024-12-31 0001894562 us-gaap:MoneyMarketFundsMember 2024-12-31 0001894562 us-gaap:CorporateDebtSecuritiesMember us-gaap:FairValueInputsLevel1Member 2024-12-31 0001894562 us-gaap:CorporateDebtSecuritiesMember us-gaap:FairValueInputsLevel2Member 2024-12-31 0001894562 us-gaap:CorporateDebtSecuritiesMember us-gaap:FairValueInputsLevel3Member 2024-12-31 0001894562 us-gaap:CorporateDebtSecuritiesMember 2024-12-31 0001894562 prme:USTreasuryBillsAndGovernmentSecuritiesMember us-gaap:FairValueInputsLevel1Member us-gaap:NonrelatedPartyMember 2024-12-31 0001894562 prme:USTreasuryBillsAndGovernmentSecuritiesMember us-gaap:FairValueInputsLevel2Member us-gaap:NonrelatedPartyMember 2024-12-31 0001894562 prme:USTreasuryBillsAndGovernmentSecuritiesMember us-gaap:FairValueInputsLevel3Member us-gaap:NonrelatedPartyMember 2024-12-31 0001894562 prme:USTreasuryBillsAndGovernmentSecuritiesMember us-gaap:NonrelatedPartyMember 2024-12-31 0001894562 us-gaap:FairValueInputsLevel1Member us-gaap:RelatedPartyMember 2024-12-31 0001894562 us-gaap:FairValueInputsLevel2Member us-gaap:RelatedPartyMember 2024-12-31 0001894562 us-gaap:FairValueInputsLevel3Member us-gaap:RelatedPartyMember 2024-12-31 0001894562 us-gaap:FairValueInputsLevel1Member 2024-12-31 0001894562 us-gaap:FairValueInputsLevel2Member 2024-12-31 0001894562 us-gaap:FairValueInputsLevel3Member 2024-12-31 0001894562 prme:USTreasuryBillsAndGovernmentSecuritiesMember 2025-12-31 0001894562 us-gaap:CorporateDebtSecuritiesMember 2025-12-31 0001894562 prme:USTreasuryBillsAndGovernmentSecuritiesMember 2024-12-31 0001894562 prme:LaboratoryEquipmentMember 2024-12-31 0001894562 us-gaap:LeaseholdImprovementsMember 2025-12-31 0001894562 us-gaap:LeaseholdImprovementsMember 2024-12-31 0001894562 us-gaap:FurnitureAndFixturesMember 2024-12-31 0001894562 us-gaap:ComputerEquipmentMember 2024-12-31 0001894562 us-gaap:ConstructionInProgressMember 2025-12-31 0001894562 us-gaap:ConstructionInProgressMember 2024-12-31 0001894562 prme:A60FirstStreetCambridgeMassachusettsLeaseMember 2021-11-30 0001894562 prme:A60FirstStreetCambridgeMassachusettsLeaseMember 2025-12-31 0001894562 prme:A60FirstStreetCambridgeMassachusettsLeaseMember 2024-12-31 0001894562 prme:A60FirstStreetCambridgeMassachusettsLeaseMember srt:RevisionOfPriorPeriodReclassificationAdjustmentMember 2025-12-31 0001894562 prme:A60FirstStreetCambridgeMassachusettsLeaseMember 2025-03-31 0001894562 prme:A60FirstStreetCambridgeMassachusettsLeaseMember 2025-11-30 0001894562 prme:A480ArsenalAmendmentMember 2024-08-31 0001894562 prme:A500ArsenalLeaseMember 2024-09-30 0001894562 prme:A480ArsenalAmendmentExpansionSpaceMember 2024-08-31 0001894562 prme:A500ArsenalLeaseMember 2025-12-31 0001894562 prme:A500ArsenalLeaseMember 2024-12-31 0001894562 prme:A500ArsenalLeaseAdditionalTenantImprovementAllowanceMember 2025-12-31 0001894562 prme:A500ArsenalLeaseMember 2025-03-31 0001894562 prme:A500ArsenalLeaseMember 2025-03-01 2025-03-31 0001894562 prme:WarrantPurchaseAgreementMember prme:PublicOfferingMember 2024-02-29 0001894562 prme:WarrantPurchaseAgreementMember prme:PublicOfferingMember 2025-05-31 0001894562 us-gaap:CommonStockMember 2025-05-01 2025-05-31 0001894562 prme:SalesAgreementMember 2023-11-01 2023-11-30 0001894562 prme:A2022StockOptionAndIncentivePlanMember us-gaap:EmployeeStockOptionMember 2022-02-01 2022-02-28 0001894562 us-gaap:EmployeeStockMember prme:A2022EmployeeStockPurchasePlanMember us-gaap:SubsequentEventMember 2026-01-01 0001894562 prme:A2022StockOptionAndIncentivePlanAnd2019EquityIncentivePlanMember us-gaap:EmployeeStockOptionMember 2025-12-31 0001894562 prme:A2022StockOptionAndIncentivePlanMember us-gaap:EmployeeStockOptionMember 2025-12-31 0001894562 prme:A2022EmployeeStockPurchasePlanMember us-gaap:EmployeeStockMember 2022-02-28 0001894562 prme:A2022EmployeeStockPurchasePlanMember us-gaap:EmployeeStockMember 2022-02-01 2022-02-28 0001894562 prme:A2022EmployeeStockPurchasePlanMember us-gaap:EmployeeStockMember 2025-12-31 0001894562 prme:A2022EmployeeStockPurchasePlanMember us-gaap:EmployeeStockMember 2025-01-01 2025-12-31 0001894562 prme:A2022EmployeeStockPurchasePlanMember us-gaap:EmployeeStockMember 2024-01-01 2024-12-31 0001894562 us-gaap:EmployeeStockOptionMember 2025-01-01 2025-12-31 0001894562 us-gaap:EmployeeStockOptionMember 2024-01-01 2024-12-31 0001894562 prme:TimeBasedStockOptionsMember 2024-12-31 0001894562 prme:TimeBasedStockOptionsMember 2024-01-01 2024-12-31 0001894562 prme:TimeBasedStockOptionsMember 2025-01-01 2025-12-31 0001894562 prme:TimeBasedStockOptionsMember 2025-12-31 0001894562 prme:PerformanceBasedStockOptionsMember 2024-12-31 0001894562 prme:PerformanceBasedStockOptionsMember 2024-01-01 2024-12-31 0001894562 prme:PerformanceBasedStockOptionsMember 2025-01-01 2025-12-31 0001894562 prme:PerformanceBasedStockOptionsMember 2025-12-31 0001894562 prme:ShareBasedPaymentArrangementOptionMarketBasedMember 2024-12-31 0001894562 prme:ShareBasedPaymentArrangementOptionMarketBasedMember 2024-01-01 2024-12-31 0001894562 prme:ShareBasedPaymentArrangementOptionMarketBasedMember 2025-01-01 2025-12-31 0001894562 prme:ShareBasedPaymentArrangementOptionMarketBasedMember 2025-12-31 0001894562 2025-06-22 2025-06-22 0001894562 2025-08-01 2025-08-01 0001894562 prme:EligibleOptionsMember 2025-12-31 0001894562 prme:EligibleOptionsMember 2025-01-01 2025-12-31 0001894562 prme:RestrictedStockPerformanceBasedMember 2024-12-31 0001894562 prme:RestrictedStockPerformanceBasedMember 2025-01-01 2025-12-31 0001894562 prme:RestrictedStockPerformanceBasedMember 2025-12-31 0001894562 us-gaap:RestrictedStockUnitsRSUMember 2025-01-01 2025-12-31 0001894562 us-gaap:ResearchAndDevelopmentExpenseMember 2025-01-01 2025-12-31 0001894562 us-gaap:ResearchAndDevelopmentExpenseMember 2024-01-01 2024-12-31 0001894562 us-gaap:GeneralAndAdministrativeExpenseMember 2025-01-01 2025-12-31 0001894562 us-gaap:GeneralAndAdministrativeExpenseMember 2024-01-01 2024-12-31 0001894562 prme:BroadInstituteIncMember prme:CollaborativeArrangementLicenseAgreementMember 2019-09-01 2019-09-30 0001894562 prme:BroadInstituteIncMember prme:CollaborativeArrangementLicenseAgreementMember 2019-09-30 0001894562 prme:BroadInstituteIncMember prme:CollaborativeArrangementLicenseAgreementMember 2022-12-31 0001894562 prme:BroadInstituteIncMember prme:CollaborativeArrangement2022LicenseAgreementMember 2022-12-01 2022-12-31 0001894562 prme:BroadInstituteIncAndHarvardUniversityMember prme:CollaborativeAgreementPledgeMember 2021-02-01 2021-02-28 0001894562 prme:BroadInstituteIncAndHarvardUniversityMember prme:CollaborativeAgreementPledgeMember 2024-01-01 2024-12-31 0001894562 prme:BroadInstituteIncAndHarvardUniversityMember prme:CollaborativeAgreementPledgeMember 2025-01-01 2025-12-31 0001894562 prme:BeamTherapeuticsMember prme:CollaborativeArrangementRelatedPartyMember 2019-09-01 2019-09-30 0001894562 prme:NonSickleCellDiseaseMember prme:CollaborativeArrangementRelatedPartyMember prme:BeamTherapeuticsMember 2019-09-30 0001894562 prme:SickleCellDiseaseMember prme:CollaborativeArrangementRelatedPartyMember prme:BeamTherapeuticsMember 2019-09-30 0001894562 prme:BeamTherapeuticsMember prme:CollaborativeArrangementRelatedPartyMember 2019-09-30 0001894562 prme:CollaborativeArrangementRelatedPartyMember us-gaap:CommonStockMember prme:BeamTherapeuticsMember 2020-09-01 2020-09-30 0001894562 prme:CollaborativeArrangementRelatedPartyMember us-gaap:CommonStockMember prme:BeamTherapeuticsMember 2020-10-01 2020-10-31 0001894562 prme:CollaborativeArrangementRelatedPartyMember us-gaap:CommonStockMember prme:BeamTherapeuticsMember 2019-09-01 2019-09-30 0001894562 prme:BeamTherapeuticsMember prme:CollaborativeArrangementRelatedPartyMember 2024-01-01 2024-12-31 0001894562 prme:BeamTherapeuticsMember prme:CollaborativeArrangementRelatedPartyMember 2025-01-01 2025-12-31 0001894562 prme:JunoTherapeuticsInc.Member prme:CollaborativeArrangementResearchCollaborationAndLicenseAgreementMember 2024-09-28 2024-09-28 0001894562 prme:CollaborativeArrangementResearchCollaborationAndLicenseAgreementMember us-gaap:CommonStockMember prme:JunoTherapeuticsInc.Member 2024-09-28 2024-09-28 0001894562 prme:JunoTherapeuticsInc.Member prme:CollaborativeArrangementResearchCollaborationAndLicenseAgreementMember 2024-09-28 0001894562 prme:CollaborativeArrangementStockPurchaseAgreementMember us-gaap:CommonStockMember prme:JunoTherapeuticsInc.Member 2024-09-28 2024-09-28 0001894562 prme:JunoTherapeuticsInc.Member prme:CollaborativeArrangementBMSCollaborationAgreementAccountingMember 2024-09-28 2024-09-28 0001894562 prme:JunoTherapeuticsInc.Member prme:CollaborativeArrangementResearchCollaborationAndLicenseAgreementMember 2025-12-31 0001894562 prme:JunoTherapeuticsInc.Member prme:CollaborativeArrangementResearchCollaborationAndLicenseAgreementMember 2024-12-31 0001894562 prme:CysticFibrosisFoundationMember prme:CollaborativeArrangementCysticFibrosisFoundationAgreementMember 2025-07-01 2025-07-31 0001894562 prme:CysticFibrosisFoundationMember prme:CollaborativeArrangementCysticFibrosisFoundationAgreementMember 2025-08-01 2025-08-31 0001894562 prme:CysticFibrosisFoundationMember prme:CollaborativeArrangementCysticFibrosisFoundationAgreementMember 2025-07-31 0001894562 prme:CysticFibrosisFoundationMember prme:CollaborativeArrangementCysticFibrosisFoundationAgreementMember 2024-12-31 0001894562 us-gaap:EmployeeStockOptionMember 2025-01-01 2025-12-31 0001894562 us-gaap:EmployeeStockOptionMember 2024-01-01 2024-12-31 0001894562 us-gaap:RestrictedStockMember 2025-01-01 2025-12-31 0001894562 us-gaap:RestrictedStockMember 2024-01-01 2024-12-31 0001894562 us-gaap:DomesticCountryMember 2025-12-31 0001894562 us-gaap:DomesticCountryMember 2024-12-31 0001894562 us-gaap:StateAndLocalJurisdictionMember 2025-12-31 0001894562 us-gaap:StateAndLocalJurisdictionMember 2024-12-31 0001894562 us-gaap:RelatedPartyMember prme:JeffreyMarrazzoMember prme:AdvisoryServicesAgreementMember 2024-02-01 2024-02-29 0001894562 us-gaap:RelatedPartyMember prme:JeffreyMarrazzoMember prme:AdvisoryServicesAgreementMember 2024-02-29 0001894562 us-gaap:RelatedPartyMember prme:JeffreyMarrazzoMember prme:ExecutiveChairAgreementMember 2025-05-01 2025-05-31 0001894562 prme:TimeBasedStockOptionsMember us-gaap:RelatedPartyMember prme:JeffreyMarrazzoMember prme:ExecutiveChairAgreementMember 2025-05-01 2025-05-31 0001894562 prme:PerformanceBasedStockOptionsMember us-gaap:RelatedPartyMember prme:JeffreyMarrazzoMember prme:ExecutiveChairAgreementMember 2025-05-01 2025-05-31 0001894562 prme:ShareBasedPaymentArrangementOptionMarketBasedMember us-gaap:RelatedPartyMember prme:JeffreyMarrazzoMember prme:ExecutiveChairAgreementMember 2025-05-01 2025-05-31 0001894562 us-gaap:RelatedPartyMember prme:JeffreyMarrazzoMember prme:ExecutiveChairAgreementMember 2025-05-31 0001894562 us-gaap:RelatedPartyMember prme:JeffreyMarrazzoMember prme:ExecutiveChairAgreementMember prme:TimeBasedStockOptionsMember srt:MinimumMember 2022-02-01 2022-02-28 0001894562 us-gaap:RelatedPartyMember prme:JeffreyMarrazzoMember prme:ExecutiveChairAgreementMember prme:TimeBasedStockOptionsMember srt:MaximumMember 2022-02-01 2022-02-28 0001894562 prme:TimeBasedStockOptionsMember us-gaap:RelatedPartyMember prme:JeffreyMarrazzoMember prme:ExecutiveChairAgreementMember 2022-02-01 2022-02-28 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +Form 10-K +(Mark One) +☑ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , 2025 +OR +☐ +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from ___________________ to ___________________ +Commission File Number: 001-41536 +PRIME MEDICINE, INC. +(Exact name of registrant as specified in its charter) +Delaware +84-3097762 +(State or other jurisdiction of incorporation or organization) +(IRS Employer Identification No.) +60 First Street , Cambridge , MA +02141 +(Address of principal executive offices) (Zip Code) +Registrant’s telephone number, including area code: +(617) 465-0013 +Securities registered pursuant to Section 12(b) of the Act: +Title of Class Trading symbol(s) Name of Exchange on Which Registered +Common stock, par value $0.00001 per share PRME Nasdaq Global Market +Securities registered pursuant to Section 12(g) of the Act: None +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑ +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. +Large accelerated filer +☐ +Accelerated filer +☐ +Non-accelerated filer +☑ +Smaller reporting company +☑ +Emerging growth company +☑ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑ +As of June 30, 2025, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $ 238,759,057 based on a closing price of $2.47 per share as quoted by the Nasdaq Global Market as of such date. In determining the market value of non-affiliate common stock, shares of the registrant’s common stock beneficially owned by officers, directors and affiliates have been excluded. This determination of affiliate status is not necessarily a conclusive determination for other purposes. +As of February 20, 2026, there were 180,552,179 shares of Common Stock, $0.00001 par value per share, outstanding. +Table of Contents +PART I +Page +Item 1. +Business +1 +Item 1A. +Risk Factors +37 +Item 1B. +Unresolved Staff Comments +107 +Item 1C. +Cybersecurity +108 +Item 2. +Properties +109 +Item 3. +Legal Proceedings +110 +Item 4. +Mine Safety Disclosures +111 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +112 +Item 6. +[Reserved] +113 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +114 +Item 7A. +Quantitative and Qualitative Disclosures about Market Risk +123 +Item 8. +Financial Statements and Supplementary Data +124 +Item 9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +125 +Item 9A. +Controls and Procedures +125 +Item 9B. +Other Information +126 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +126 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +127 +Item 11. +Executive Compensation +139 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +149 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +153 +Item 14. +Principal Accountant Fees and Services +157 +PART IV +Item 15. +Exhibits and Financial Statement Schedules +158 +Item 16. +Form 10-K Summary +161 +i +References to Prime Medicine +Throughout this Annual Report on Form 10-K, “Prime Medicine,” “Prime,” “the Company,” “we,” “us,” and “our,” and similar expressions, except where the context requires otherwise, refer to Prime Medicine, Inc. and its consolidated subsidiaries, and “our board of directors” refers to the board of directors of Prime Medicine, Inc. +From time to time we may use our website, our X, formerly Twitter, account (@PrimeMedicine) or our LinkedIn profile at https://www.linkedin.com/company/prime-medicine to distribute material information. Our financial and other material information is routinely posted to and accessible on the Investors section of our website, available at www.primemedicine.com. Investors are encouraged to review the Investors section of our website because we may post material information on that site that is not otherwise disseminated by us. Information that is contained in and can be accessed through our website or our social media is not incorporated into, and does not form a part of, this Annual Report on Form 10-K. +We intend to apply for various trademarks that we use in connection with the operation of our business. This Annual Report on Form 10-K may also contain trademarks, service marks and trade names of third parties, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or products in this Annual Report on Form 10-K is not intended to, and does not imply a relationship with, or endorsement or sponsorship by us. Solely for convenience, the trademarks, service marks and trade names referred to in this Annual Report on Form 10-K may appear without the ®, SM and ™ symbols, but the omission of such references is not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable owner of these trademarks, service marks and trade names. +ii +Cautionary Note Regarding Forward-looking Information +This Annual Report on Form 10-K contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements, other than statements of historical facts, contained in this Annual Report on Form 10-K, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “envision,” “estimate,” “expect,” “goal,” “intend,” “may,” “plan,” “predict,” “project,” “strategy,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” “contemplate,” “vision” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. +Our business and our forward-looking statements in this Annual Report on Form 10-K involve substantial known and unknown risks and uncertainties, including, among other things, the risks and uncertainties inherent in our statements regarding: +• the initiation, timing, progress and results of our research and development programs, product candidates, and ongoing and future preclinical studies and future clinical trials; +• our ability to demonstrate, and the timing of, preclinical proof-of-concept in vivo for multiple programs; +• our ability to advance any current and future product candidates that we may identify and successfully complete any clinical trials, including the manufacture of any such product candidates; +• our ability to pursue our areas of focus and any other additional programs we may advance; +• our ability to quickly leverage programs within our initial target indications and to progress additional programs to further develop our pipeline; +• the timing of our investigational new drug, or IND, application submissions; +• the ability of our Prime Editing technology to address unmet medical needs in patients; +• the implementation of our strategic plans for our business, programs and technology; +• the scope and duration of protection we are able to establish and maintain for intellectual property rights covering our Prime Editing technology; +• developments related to our competitors and our industry; +• our ability to leverage the clinical, regulatory, and manufacturing advancements made by gene therapy and gene editing programs to accelerate our clinical trials and approval of product candidates; +• our ability to maintain existing collaborations or strategic relationships, to identify and enter into future license agreements and collaborations on favorable terms, if at all, and to realize the intended and potential benefits of such agreements and collaborations; +• developments related to our Prime Editing technology; +• regulatory developments in the United States and foreign countries; +• our ability to attract and retain key scientific and management personnel; +• the accuracy of our estimates regarding our expenses, capital requirements and needs for additional financing; +• our planned regulatory interactions with the U.S. Food and Drug Administration, or FDA, based on the data from our Phase 1/2 trial of PM359 for the treatment of chronic granulomatous disease, or CGD, and the outcomes of any such interactions; +• our ability to maintain an effective system of internal controls; +• the effect of unfavorable macroeconomic conditions or market volatility resulting from national or global economic conditions or geopolitical developments, including high inflation and capital market disruptions, +iii +changes in or disruptions of U.S. governmental agencies, whether from a U.S. federal government shutdown or reduced resources, new or increased international tariffs and retaliatory tariffs, trade protection measures, economic sanctions and economic slowdowns or recessions that may result from such developments which could harm our research and development efforts as well as the value of our securities and our ability to access capital markets; +• our expectations regarding the anticipated timeline of our cash runway, future financial performance and our ability to continue as a going concern; and +• other risks and uncertainties, including those listed under the caption “Risk Factors.” +We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and these statements may be affected by inaccurate assumptions or by known or unknown risks and uncertainties. You should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in this Annual Report on Form 10-K, particularly in the "Summary of the Material Risks Associated with Our Business" and “Risk Factors” sections, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Unless otherwise disclosed, our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures or investments we may make or enter into. +You should read this Annual Report on Form 10-K and the documents that we reference herein and have filed as exhibits to this Annual Report on Form 10-K or other filings with the Securities and Exchange Commission, or the SEC, completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Annual Report on Form 10-K are made as of the date hereof, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise after the date of such statements, except as required by applicable law. +This Annual Report on Form 10-K also contains estimates, projections and other information concerning our industry, our business and the markets for our product candidates. Such information is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained statistical and other industry and market data from our own internal estimates and research, as well as from reports, industry publications and research, surveys, studies and similar data prepared by third parties, industry, medical and general publications, government data and similar sources. While we are not aware of any misstatements regarding any third-party information presented in this Annual Report on Form 10-K, their estimates, in particular as they relate to projections, involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such data. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of important factors, including those described in the sections titled “Summary of the Material Risks Associated with Our Business” and “Risk Factors.” +iv +Summary of the Material Risks Associated with Our Business +Our business is subject to a number of risks that if realized could materially affect our business, financial condition, results of operations, cash flows and access to liquidity. These risks are discussed more fully in the “Risk Factors” section of this Annual Report on Form 10-K. Our principal risks include the following: +• We have incurred significant losses since inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability. +• Because our existing cash, cash equivalents, and investments will not be sufficient to fund our operations, as currently planned, for more than one year beyond the filing date of this Annual Report on Form 10-K, we have determined that there is substantial doubt regarding our ability to continue as a going concern. +• We will need substantial additional funding. If we are unable to raise capital when needed, we will be forced to delay, reduce, eliminate or prioritize among our research and product development programs or future commercialization efforts. +• Gene editing, including platforms such as Prime Editing, is a relatively new technology that has not been extensively clinically validated for human therapeutic use. The approach we are taking to discover and develop novel therapeutics is unproven and may never lead to marketable products. We may incur unexpected costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of any product candidates. +• Clinical drug development involves a lengthy and expensive process, with an uncertain outcome. Because gene editing is novel and the regulatory landscape that will govern our current and future product candidates is uncertain and may change, we cannot predict the time and cost of obtaining regulatory approval, if we receive it at all, for our current and future product candidates. +• We may enter into collaborations with collaborators and strategic partners such as Beam Therapeutics Inc., or Beam, or other third parties for the research, development, delivery, manufacturing and commercialization of Prime Editing technology and certain of the product candidates we may develop. If any such collaborations are not successful, we may not be able to capitalize on the market potential of our Prime Editing platform or product candidates. +• If conflicts arise between us and our collaborators or strategic partners, these parties may act in a manner adverse to us and could limit our ability to implement our strategies. +• If we are unable to obtain and maintain patent and other intellectual property protection for any product candidates we develop and for our Prime Editing technology, or if the scope of the patent and other intellectual property protection obtained is not sufficiently broad, third parties could develop and commercialize products and technology similar or identical to ours and our ability to successfully commercialize any product candidates we may develop and our Prime Editing technology may be adversely affected. +• Our rights to develop and commercialize our Prime Editing platform technology and product candidates are subject to the terms and conditions of licenses granted to us by others. If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that are important to our business. +• Our in-licensed issued patents and owned and in-licensed patent applications may not provide sufficient protection of our Prime Editing technologies and our future product candidates or result in any competitive advantage. +• The intellectual property landscape around the technologies we use or plan to use, including gene editing technology, is highly dynamic, and third parties may initiate legal proceedings alleging that we are infringing, misappropriating, or otherwise violating their intellectual property rights, the outcome of which would be uncertain and may prevent, delay or otherwise interfere with our product discovery and development efforts. +v +• We expect to expand our research, development, delivery, manufacturing, commercialization, regulatory and future sales and marketing capabilities over time, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations. +• The FDA the European Medicines Agency, or the EMA, and the National Institutes of Health, or NIH, have demonstrated caution as well as concern regarding potential long term impacts in their regulation of gene therapy treatments, and ethical and legal concerns about gene therapy and genetic testing may result in additional regulations or restrictions on the development and commercialization of any product candidates we may develop, which may be difficult to predict. +vi +PART I +ITEM 1. Business +Overview +We are a biotechnology company focused on developing a new class of genetic medicines designed to provide durable, and potentially curative, treatment options for patients with diseases driven by defined genetic alterations, acquired cellular dysfunction, or dysregulated gene expression. Our approach is grounded in Prime Editing, a next-generation gene editing technology that enables targeted modifications to genomic DNA without introducing double-stranded breaks. We believe Prime Editing represents the most versatile and precise method for rewriting, replacing, or repairing DNA sequences and may allow us to address a broad spectrum of diseases with an improved safety and specificity profile relative to earlier editing technologies. We are advancing a pipeline of wholly owned in vivo programs targeting diseases of the liver, Cystic Fibrosis, or CF, programs with the support of the Cystic Fibrosis Foundation, or CFF, and partnered ex vivo programs with Bristol-Myers Squibb, or BMS, supported by our modular delivery and Prime Editor platform. Early clinical data from our ex vivo program, PM359 for CGD, have demonstrated restoration of functional protein activity in treated patients, providing clinical validation of Prime Editing and a potentially curative treatment for CGD patients. +Genetic diseases affecting the liver and lung, as well as hematologic disorders addressed through ex vivo editing, represent our initial development priorities. Many of these diseases arise from well-characterized mutations, have established natural histories, and impose meaningful clinical burdens on patients, caregivers and physicians despite available standard-of-care therapies. We believe these attributes enable efficient clinical development, clear biomarker-driven readouts, and the potential to demonstrate meaningful patient benefit in early-stage clinical studies. +Our lead program, PM577 for Wilson Disease, is designed to initially correct the H1069Q mutation in the ATP7B gene and is supported by preclinical data showing targeted correction and restoration of copper homeostasis in animal models. We are also developing follow-on Prime Editors capable of addressing additional ATP7B mutations, enabling a modular and efficient expansion of the Wilson franchise. In addition, PM647 is being advanced for alpha-1 antitrypsin deficiency, or AATD, another liver targeted disease with substantial unmet need. Beyond these efforts, we are progressing a program in CF using Prime Editing delivered via lipid nanoparticles, or LNPs, or adeno-associated viruses, or AAVs. +We have constructed an integrated Prime Editing platform engineered to support rapid iteration, standardized manufacturing, and shared toxicology and Chemistry, Manufacturing, and Controls, or CMC, pathways across programs, thereby enabling efficient advancement of multiple therapeutic candidates. By maintaining core delivery and editor components while altering program-specific guide RNAs and repair templates, we believe we can leverage platform-level knowledge to expedite new candidate identification and streamline IND-enabling activities, especially within common tissues. +Our organization is intentionally structured to support clinical development and regulatory engagement as we prepare for multiple parallel clinical trials. We are investing in scalable manufacturing and quality systems capable of supporting clinical supply for our lead programs. Consistent with industry practice, we also seek to augment our internal capabilities through collaborations. Our partnership with BMS, focused on applying Prime Editing to ex vivo T-cell engineering, reflects the potential applicability of Prime Editing across therapeutic modalities. We believe the insights gained through this collaboration may inform future applications of Prime Editing in immunology and oncology. +Looking ahead, our strategy is to advance Prime Editing programs through clinical development, leverage our modular platform to expand into additional indications, and pursue disciplined portfolio prioritization anchored in clear scientific, development, and commercial criteria. We expect our focus on liver-directed in vivo editing, combined with the modularity of our platform, will allow us to build a pipeline with breadth and depth while maintaining operational efficiency and disciplined capital deployment. Ultimately, our goal is to translate Prime Editing into a clinically and commercially validated therapeutic modality for the treatment across an array of severe genetic diseases and tissue types. +1 +Prime Editing Technology +Prime Editing is a gene editing approach that uses a Cas9 nickase fused to a reverse transcriptase and guided by a prime editing guide RNA, or pegRNA, to introduce defined edits at specified genomic locations. Unlike CRISPR nuclease systems that rely on double-stranded DNA breaks, or DSBs, and endogenous repair pathways such as non-homologous end joining, Prime Editing creates a single-stranded nick and directs the incorporation of a desired edit through reverse transcription using the pegRNA as a template. This method enables the precise correction, insertion, deletion, or replacement of DNA sequences and is capable of addressing a wide range of genetic abnormalities, including those not amenable to base editing or traditional homology-directed repair approaches. +The pegRNA used in Prime Editing contains three functional components: (i) a spacer sequence that directs the Prime Editor to the target genomic locus; (ii) a primer binding site that anneals to the nicked target DNA strand; and (iii) a reverse transcription template that encodes the desired edit. Upon binding to the target site, the Cas9 nickase creates a single-stranded break, enabling hybridization of DNA to the primer binding site of the pegRNA to initiate reverse transcription. The reverse transcriptase enzyme then extends the DNA strand using the pegRNA as a template, and the edit-containing DNA strand is incorporated through endogenous repair mechanisms. +We believe Prime Editing offers several potential advantages. Because it does not require DSBs, it eliminates the formation of indels, chromosomal rearrangements, or large-scale genomic disruptions, each of which has been observed with nuclease-based genome editing. Prime Editing also enables multi-base edits, transversion base pair edits, and the installation or removal of long DNA sequences, allowing for broad applicability across mutation types. Preclinical data across various disease models have demonstrated high editing efficiencies with undetectable off-target activity. As a platform, Prime Editing benefits from modular design principles: core editing machinery can be paired with disease-specific pegRNAs, enabling rapid adaptation to new targets while maintaining consistent delivery and CMC characteristics. +We have developed a suite of Prime Editors optimized for different cell types and genomic contexts. These include Prime Editor variants with enhanced activity, increased specificity, expanded PAM compatibility, and/or reduced size which can be delivered by LNP or AAV. Our platform uses systematic, high-throughput screening of Prime Editor components to identify optimal combinations of guide RNAs, reverse transcriptase templates, Cas9, and reverse transcriptase, or RT, protein variants tailored to specific gene targets and programs. We believe continued innovation in editor engineering, guide design, and delivery technologies will support the expansion of Prime Editing across therapeutic areas. +Differentiation of Prime Editors vs. CRISPR Nucleases, Base Editors, and RNA Editors +The gene editing landscape includes several modalities, each with distinct mechanisms, capabilities, and risk profiles. Prime Editing is differentiated from CRISPR nucleases, base editors, and RNA editing tools on multiple dimensions, including precision, versatility, and expected genomic stability. +CRISPR nucleases, such as Cas9 and Cas12a, introduce DSBs at target sites, triggering endogenous DNA repair mechanisms that can result in unintended insertions or deletions (indels). These outcomes can disrupt gene function and may lead to chromosomal rearrangements or translocations. While nuclease-based editing has demonstrated clinical efficacy for disruption of genes or regulatory elements through the formation of indels, the risk of DSB-associated genomic instability remains a consideration. By contrast, Prime Editing uses a single-strand nick, which reduces reliance on error-prone repair pathways and is associated with a lower frequency of indels or structural variants in preclinical studies. Moreover, Prime Editing is capable of making a variety of precise edits including those that directly correct pathogenic variants. +Base editors primarily perform targeted C•G-to-T•A or A•T-to-G•C conversions without generating DSBs but are constrained to specific substitution types and may introduce bystander edits at adjacent nucleotides within the editing window. These unintended edits may alter protein function or introduce novel variants with unknown effects. Prime Editing enables broader editing outcomes, including transversions, multi-base corrections, and small insertions and deletions, while eliminating bystander activity through the use of a reverse transcription template that encodes only the intended edit. +2 +RNA editing technologies, including ADAR-based tools, modify RNA transcripts rather than genomic DNA. These approaches enable transient modification of gene expression but do not provide permanent correction and must be repeatedly administered to maintain therapeutic effect. Furthermore, RNA editing is typically limited to A-to-I or C-to-U transitions and cannot address many pathogenic variants. Prime Editing produces permanent genomic changes and can address mutation types not amenable to RNA editing. +Across multiple preclinical programs, including Wilson Disease and AATD, Prime Editing has demonstrated high editing efficiencies and favorable specificity profiles. For example, our lead Wilson program has shown targeted correction exceeding 80% in humanized mouse models with normalization of disease-relevant biomarkers with no detectable off-target editing. In AATD, comparative analyses with other gene editing approaches have highlighted Prime Editing’s ability to restore wild-type protein expression. While clinical data will be required to determine the relative benefits of each modality, we believe Prime Editing has the potential to enable precise and durable correction across a broad range of genetically defined diseases. +Prime Editing Platform Architecture +The core components of our platform include the Prime Editor enzyme, pegRNAs, and delivery vehicles. We use Cas9 nickase-reverse transcriptase fusion proteins engineered for enhanced activity and specificity. For pegRNA design, our modular process incorporates computational modeling, high-throughput screening, and empirical testing to identify optimal guide and template configurations. This design framework allows us to rapidly adjust pegRNAs for new mutations while maintaining the same underlying editor and delivery system. +Modularity and Development Efficiency +Modularity is central to our platform. The core editing machinery and delivery system can be held constant while substituting mutation-specific pegRNAs and, frequently, the mRNA. Modular design supports several anticipated efficiencies: +• High-Throughput Modular Editor Screening: Our systematic screening of editor variants and pegRNA constructs allows us to identify optimal combinations for each target with reduced development timelines. +• Shared Toxicology Framework: When delivery systems and editors are conserved, toxicology packages may be broadly informative across programs. This approach supports the rationale for an umbrella-IND strategy in certain mutation clusters, such as Wilson Disease, where multiple ATP7B mutations may be addressed using editors delivered via the same LNP backbone. +• Shared CMC and Manufacturing Pathways: Retaining common LNP compositions and editor constructs across programs allows us to leverage prior manufacturing experience, reduce analytical complexity, and streamline scale-up. +• Guide-RNA Swapping and Mutation-Specific Scalability: Because only the pegRNA sequence changes to address a new mutation, we can generate follow-on candidates rapidly and evaluate them using standardized in vitro and in vivo assays. +• Clinical Development: Conserved delivery systems and editor architectures across programs enables harmonized clinical trial designs, shared biomarker strategies, and standardized dose-escalation frameworks. This modularity has the potential to reduce protocol complexity, support cross-program learning, and improve capital efficiency as multiple mutation-specific candidates advance through clinical development. +• Regulatory: Consistency in editor components, delivery systems, and manufacturing processes may facilitate more efficient regulatory interactions by allowing prior nonclinical, CMC, and clinical experience to inform subsequent submissions. We believe this platform-level continuity supports a more predictable regulatory review process, particularly for follow-on candidates targeting distinct mutations within the same gene or disease area. +3 +Corporate Strategy +Our corporate strategy is designed to advance Prime Editing as a differentiated therapeutic modality, with a focus on operational discipline, scientific rigor, and development credibility. We intend to pursue a sequenced development approach that emphasizes indications with clear genetic etiology, substantial unmet medical need, and well-defined clinical and regulatory pathways. Liver-directed diseases represent our initial strategic priority because they are driven by mutations in genes expressed in hepatocytes, generally rely on established biomarkers and imaging modalities for assessing treatment response, and are amenable to LNP-based systemic delivery. These characteristics support efficient early clinical development and alignment with regulatory agencies. +A core strategic objective is to utilize the modularity of our Prime Editing platform to expand our pipeline while maintaining development efficiency. By conserving our Prime Editor architecture and LNP delivery system across programs, we aim to reduce CMC and toxicology burden for follow-on candidates and potentially enable umbrella regulatory strategies in diseases with heterogeneous mutation landscapes and across diseases utilizing shared Prime Editing components. This approach is particularly relevant for Wilson Disease, where multiple ATP7B mutations account for a large portion of the global patient population. Through continued investment in editor optimization and guide design, we intend to develop and advance mutation-specific editors that leverage shared platform components. +We also seek to maintain disciplined portfolio prioritization. As disclosed in prior periods, we narrowed our internal focus from a broader set of early-stage programs to a concentrated pipeline centered on in vivo liver-directed editing, where we believe Prime Editing can offer the most immediate clinical and regulatory impact. We intend to evaluate additional indications using a structured framework that considers scientific feasibility, clinical and regulatory tractability, and long-term commercial value. Future investments will be guided by a balanced assessment of risk, resource requirements, and strategic value. +Partnerships represent another core component of our strategy. We intend to collaborate with organizations that offer complementary capabilities, such as cell therapy expertise, manufacturing scale, or disease-area specialization. Our partnership with BMS exemplifies this approach, enabling the application of Prime Editing to ex vivo T-cell engineering without diverting internal resources from our core in vivo pipeline. We will continue to evaluate collaborations that allow us to expand the reach of Prime Editing and bolster our financial resources while focusing internal efforts on areas of highest strategic priority. +Finally, we are investing in manufacturing, quality systems, and regulatory infrastructure to support the advancement of multiple programs into clinical trials. These investments include LNP manufacturing processes, analytical method development, and IND-enabling studies. We intend to maintain readiness for multiple IND/Clinical Trial Application, or CTA, submissions and to support the transition to clinical-stage operations, including potential early-phase trial execution and regulatory interactions. +Pipeline Overview +Our pipeline includes wholly owned in vivo programs targeting liver genetic diseases - Wilson Disease, AATD - as well as early-stage discovery efforts in CF. In addition, our PM359 program in chronic granulomatous disease serves as a validation of Prime Editing in humans and we plan to submit a BLA following final regulatory alignment. We also have a collaboration with BMS to apply Prime Editing to ex vivo T-cell engineering for oncology and immunology indications. +PM359 for Chronic Granulomatous Disease +Clinical Overview and Data Summary +PM359 is an ex vivo Prime Editing program designed to correct the ΔGT mutation in the NCF1 gene, the most common cause of CGD. We believe this program provides important validation of Prime Editing in human cells. In a Phase 1/2 clinical study conducted in patients undergoing autologous hematopoietic stem cell transplantation, PM359 demonstrated rapid and durable restoration of NADPH oxidase activity to levels exceeding established therapeutic thresholds, accompanied by prompt neutrophil and platelet engraftment within two to three weeks post-transplant. Both patients remained free of new CGD-related complications or significant intercurrent illness during follow-up, with one patient showing improvement in inflammatory markers, supporting the potential for clinically +4 +meaningful disease modification rather than biomarker correction alone. No serious adverse events attributable to Prime Editing were reported as of disclosed data cutoffs. +Scientific Importance +The PM359 clinical data support the feasibility of Prime Editing in human cells, providing evidence of on-target correction, restoration of protein function, and clinically meaningful cellular activity. These results contribute to the validation of Prime Editing as a therapeutic modality and inform our ongoing development of in vivo programs. +Regulatory and Clinical Development Plans +Given the severity of CGD, its limited patient population and encouraging initial clinical data, we believe there may be an expedited path forward to ensure patient access to PM359. Discussions are underway with the FDA to explore a potential accelerated path to approval in the United States. +PM577 for Wilson Disease +Disease Background and Prevalence +Wilson Disease is a rare autosomal recessive disorder caused by loss-of-function mutations in ATP7B, a copper-transporting ATPase expressed in hepatocytes. This commonly results in impaired biliary copper excretion and copper accumulation in the liver, brain, and other tissues. The condition affects an estimated 1 in 30,000 individuals across the United States, Europe, and Japan. The H1069Q mutation is the most prevalent variant in North America and Europe, accounting for approximately 30% to 50% of affected individuals in the United States. Six of the most common mutations – including H1069Q and R778L – account for up to 26,000 patients across the United States, Europe, and Japan. Clinical manifestations range from hepatic steatosis and compensated cirrhosis to acute liver failure and neurological impairment. Existing standard-of-care therapies include copper chelators and zinc salts, which require lifelong adherence, are associated with significant pill burden, have tolerability issues, and reflect a disease paradigm with a continued high unmet need. +Prime Medicine’s Therapeutic Approach +PM577 is an in vivo Prime Editing candidate designed to correct the H1069Q mutation and restore ATP7B function in hepatocytes. Because only a single nucleotide is altered in the H1069Q variant, PM577 is designed to rewrite this specific position to restore expression of the wild-type ATP7B protein and reestablish copper transport and excretion. PM577 comprises a Prime Editor enzyme delivered with a mutation-specific pegRNA via our universal liver-targeted LNP. We have optimized our liver-targeted LNP for hepatocyte delivery with a goal of high on-target editing, and no detectable off-target activity in pre-clinical models. +Key Preclinical Data +Preclinical studies of PM577 have demonstrated efficient correction of the H1069Q mutation in vitro and in vivo . In a partially humanized homozygous H1069Q mouse model, Prime Editing achieved greater than 80% correction of hepatocytes at clinically relevant doses. Importantly, copper-64 PET imaging showed restoration of physiological copper distribution, including normalization of hepatic copper metabolism by eight weeks post-treatment and increased fecal copper excretion consistent with wild-type animals. Histological and biochemical analyses confirmed reductions in hepatic copper concentrations, and no off-target edits were detected in initial assessments. +Regulatory and Clinical Development Plans +We plan to submit an IND/CTA for PM577 in 1H 2026. The planned Phase 1/2 clinical trial is expected to enroll adult patients with H1069Q-variant Wilson Disease who are maintained on standard-of-care therapies at baseline. Consistent with regulatory precedent in metabolic liver diseases, primary endpoints will focus on safety and tolerability, with secondary endpoints including changes in ceruloplasmin, serum copper, urinary copper, and imaging-based assessment of copper distribution. We expect to obtain initial clinical data in 2027, subject to regulatory clearance and trial execution. +5 +Follow-on Wilson Editors (R778L and other variants) +Variant Background and Prevalence +In addition to H1069Q, multiple ATP7B mutations contribute to Wilson Disease pathogenicity. The R778L variant is particularly prevalent in Asian populations, accounting for up to 35% of individuals with Wilson Disease in Japan and representing up to 10% of cases in the United States. Similar to H1069Q, these variants impair ATP7B trafficking and copper transport, leading to progressive hepatic and neurological disease. +Modular Development Approach +Our follow-on Wilson Disease candidates are designed to correct R778 variants using the same LNP and editor architecture as PM577, with only the pegRNA template varied. This modular design has enabled us to identify multiple editors capable of achieving >90% correction of R778L in fully humanized mouse models, supported by modular editor-component screening and guide-RNA optimization. +Umbrella-IND Implications +Given the shared delivery system, editor backbone, and manufacturing processes across H1069Q and R778 programs, we are evaluating an umbrella-IND strategy that could allow multiple ATP7B-targeting candidates to be advanced under a single regulatory framework. This approach, if aligned with regulatory feedback, could streamline development and reduce incremental toxicology and CMC requirements for follow-on editors. The modularity of our Prime Editing platform, including guide swapping and standardized LNP formulations, underpins this potential regulatory efficiency. +PM647 for AATD +Disease Background and Unmet Need +AATD is a genetic disorder caused by mutations in the SERPINA1 gene, resulting in production of misfolded Z-AAT protein (PiZZ genotype) that accumulates in the liver and leads to hepatocellular injury, cirrhosis, and increased risk of hepatocellular carcinoma. AATD also causes progressive lung disease due to insufficient circulating AAT. In the United States, approximately 100,000 individuals – many of whom are undiagnosed - have AATD, with PiZZ patients representing the most severe form. Currently available treatments primarily address pulmonary manifestations and do not correct the underlying hepatic pathology. Liver transplantation is the only curative option for advanced disease. +Prime Medicine’s Therapeutic Approach +PM647 is designed to correct the Z-AAT mutation in hepatocytes via in vivo Prime Editing delivered with our universal liver-targeted LNP. By rewriting the disease-causing E342K substitution to restore wild-type M-AAT protein sequence, PM647 aims to reduce accumulation of toxic Z-AAT polymers in hepatocytes and reestablish systemic AAT levels. The biology of AATD, including the relationship between genotype and hepatic burden, makes it an attractive candidate for precise allele correction. Importantly, we believe that Prime Editing offers a potential best-in-class approach given the lack of bystander edits, off-target editing profile and ability for patients’ normal physiology to modulate AAT levels under native transcriptional control – which is critical for protection of the lung from acute inflammatory insults, such as viral infection. +Key Preclinical Data +In preclinical in vivo studies, PM647 demonstrated efficient and dose-dependent correction of the disease-causing mutations in SERPINA1 in hepatocytes, resulting in near complete restoration of wild-type M-AAT protein expression at clinically relevant dose levels. This correction translated into robust production of corrected M-AAT protein, with M-AAT representing the majority of total human AAT isoforms detected in treated animals. Consistent with these findings, circulating serum M-AAT concentrations increased into or above the normal human reference range following PM647 administration, while untreated control animals showed no detectable M-AAT protein. We +6 +believe these data support a direct relationship between in vivo Prime Editing–mediated correction, restoration of wild-type protein expression, and systemic exposure to functional AAT at levels associated with clinical relevance. +Regulatory and Clinical Development Plans +We expect to submit an IND/CTA for PM647 in mid-2026 with initial clinical data anticipated in 2027. +Cystic Fibrosis Program +Disease Background and Genetic Heterogeneity +CF is caused by mutations in the CFTR gene, which impair chloride transport and lead to progressive pulmonary, gastrointestinal, and pancreatic disease. More than 2,000 CFTR variants have been identified, with a subset of mutational clusters accounting for the majority of clinical cases. While small-molecule modulators have transformed CF care, a substantial portion of patients either cannot tolerate modulators or harbor mutations that are not responsive to current therapies. We believe gene editing approaches hold the potential to restore CFTR function at the genomic level. +Prime Editing Approach for CF +We are evaluating Prime Editing strategies to correct CFTR mutations through in vivo delivery to airway epithelial cells focusing on direct delivery to the airway. To enable delivery to the lung, we are assessing both LNP and AAV delivery modalities in parallel. Our early research initially focuses on mutation clusters where Prime Editing may restore full-length CFTR function. +Development Stage +The program is currently in the lead optimization phase. Key activities include identification of mutation-specific editing strategies, optimization of editor variants for airway tissue, and characterization of delivery performance in epithelial models. We expect to progress toward IND-enabling activities following completion of preclinical proof-of-concept studies, with initial candidates anticipated to leverage platform learnings from our liver-directed programs. +Our License and Collaboration Agreements +Research Collaboration and License Agreement with BMS +In September 2024, we entered into a research collaboration and license agreement, or the BMS Collaboration Agreement, with Juno Therapeutics, Inc., a wholly owned subsidiary of BMS, or Juno. +Under the terms of the BMS Collaboration Agreement, we granted to BMS an exclusive worldwide license to certain Prime Editing technology for developing, manufacturing and commercializing ex-vivo T-cell therapeutic products directed to select targets. We are responsible for designing the Prime Editing reagents to be used by BMS. +We received a $55.0 million upfront payment under the BMS Collaboration Agreement and a $55.0 million equity investment under a Securities Purchase Agreement with BMS. We are also eligible to receive more than $3.5 billion in milestones, including up to $185.0 million in preclinical milestones, up to $1.2 billion in development milestones and up to $2.1 billion in commercialization milestones, along with royalties on net sales. +Unless earlier terminated, the term of the BMS Collaboration Agreement continues until expiration of the last royalty term for the applicable product in the applicable country. The BMS Collaboration Agreement is subject to customary termination provisions, including termination by a party for the other party’s uncured, material breach. +Cystic Fibrosis Foundation +2024 Agreement +In January 2024, we entered into an agreement with CFF, or the 2024 CFF Agreement, under which CFF agreed to provide up to $15.0 million, payable in multiple tranches, to support the development of Prime Editors for the +7 +treatment of CF. We are obligated to return any of the funding not used in development of the program covered by the 2024 CFF Agreement. +In return, we have agreed to pay to CFF royalties on future sales of any products covered under the 2024 CFF Agreement, to be determined based on the aggregate annual net sales of products and net amount of funding received by us. In addition, in the event of a sale, license or transfer to a third-party of rights in the technology developed under the 2024 CFF Agreement, or a change of control transaction, we will pay a percentage of the proceeds received to CFF, up to 2.5 times the net funding received. +2025 Agreement +In July 2025, we entered into an agreement with CFF, or the 2025 CFF Agreement and together with the 2024 CFF Agreement, the CFF Agreements, under which CFF agreed to provide up to $24.0 million in additional funding to accelerate the development of Prime Editors designed to permanently correct CF-related lung disease. The $24.0 million funding includes two equal tranches, subject to certain closing conditions and scientific milestones. The first tranche included a $6.0 million cash funding, or Royalty Funding, and a $6.0 million equity investment in our company. Any proceeds under the second tranche are payable subject to achieving specific milestones which have not been achieved to date. We are obligated to return any of the Royalty Funding not used in development of the program covered by the 2025 CFF Agreement. +In return, we have agreed to pay to CFF royalties on future sales of any products covered under the 2025 CFF Agreement, to be determined based on the aggregate annual net sales of products and net amount of Royalty Funding received by us. In addition, in the event of a sale, license or transfer to a third-party of rights in the technology developed under the 2025 CFF Agreement, or a change of control transaction, we will pay a percentage of the proceeds received to CFF, up to 2.5 times the net Royalty Funding received. +CFF’s additional investment builds on initial funding received under the 2024 CFF Agreement. +License agreements with Broad Institute +In September 2019, we entered into a license agreement with Broad Institute, or the Broad License Agreement, and in May 2020, February 2021, December 2022, September 2024, and September 2025 we entered into amendments to that Broad License Agreement. Under the Broad License Agreement, Broad Institute grants to us certain rights and licenses under certain patent rights it owns or controls related to editing of DNA sequences using a Prime Editor. Certain of the licensed patent rights are co-owned by Broad Institute with the Massachusetts Institute of Technology, or MIT, and Harvard University, or Harvard, and certain are co-owned by Broad Institute with Harvard. In December 2022, following the timely exercise of an option under an existing option agreement with Broad Institute we entered into a second license agreement with Broad Institute, or the 2022 Broad License Agreement. Under the 2022 Broad License Agreement, Broad Institute grants to us certain rights and licenses under certain patent rights it owns or controls related to MMR inhibition and prime editing improvements. The licensed patent rights are co-owned by Broad Institute with Harvard, The Trustees of Princeton University, or Princeton, and The Regents of the University of California, or University of California. +Broad License Agreement +The licenses Broad Institute grants to us under the Broad License Agreement are limited to the field of prevention or treatment of human disease, and most licenses granted to us under the Broad License are further limited to the prevention or treatment of human disease by editing (including modifying or converting) or targeting DNA ex vivo , in vivo , or through xeno-transplantation methods. We refer to this field as the Prime Broad Field. +Under the Broad License Agreement, Broad Institute grants to us (i) an exclusive, worldwide license under the licensed patent rights solely to offer for sale, sell, have sold and import products covered by such licensed patent rights, or licensed products, solely for use within the Prime Broad Field (subject to certain specified limitations and exclusions with respect to certain applications), (ii) a non-exclusive, worldwide license under the licensed patent rights solely to make, have made, offer for sale, sell, have sold, and import licensed products solely for use in the Prime Broad Field, (iii) a non-exclusive, worldwide license under the licensed patent rights solely to make, have made, offer for sale, sell, have sold and import other products that are enabled by (a) the licensed patent rights or (b) +8 +the use of certain materials transferred to us by Broad Institute, solely for the prevention or treatment of human diseases, which we refer to as enabled products, and (iv) a non-exclusive, worldwide license solely for internal research. +All of the above license grants specifically exclude human germline modification, the stimulation of biased inheritance of particular genes or traits within a plant or animal population, and certain modifications of the tobacco plant, and are subject to certain retained rights of Broad Institute, MIT and Harvard and the U.S. federal government. Broad Institute also retains certain rights for itself, MIT and Harvard and for other non-for-profit research organizations and government agencies to practice the licensed patent rights for research, teaching, educational and scholarly purposes. In addition, because an employee of the Howard Hughes Medical Institute, or HHMI, was an inventor on certain of the licensed patent rights, the licenses granted to us with respect to such patent rights are subject to a non-exclusive, irrevocable, worldwide license to HHMI to exercise any such patent rights for research purposes. +We are permitted to sublicense the licensed patent rights to our affiliates and third parties, subject to certain requirements, including that any such sublicense agreement be in compliance with and be consistent with the terms of the Broad License Agreement. In addition, any such sublicense agreement must include certain customary provisions to ensure our ability to comply with the Broad License Agreement. We are also responsible for any breaches of a sublicense agreement by the applicable sublicensee and for all payments due to Broad Institute under the Broad License Agreement by operation of any such sublicense. +Our licenses are subject to Broad Institute’s inclusive innovation model, pursuant to which Broad Institute retains the right, under specified circumstances, to grant to third parties (other than specified competitors of ours) licenses under the licensed patent rights that would otherwise fall within the scope of the exclusive license granted to us. If a third party provides Broad Institute with a bona fide proposal to develop a product covered by the licensed patents and directed to a particular gene target, Broad Institute may notify us of the proposal, including the identity of such gene target and the proposing third party. Broad Institute is not required to share any other information provided by the requester with us in connection with the inclusive innovation model. Within a specified time period following such notification, we may provide Broad Institute with evidence that either (i) we (ourselves, or through our affiliates or sublicensees) are currently developing one or more licensed products directed to the applicable gene target or (ii) we have a good faith interest in developing licensed products directed to such gene target (ourselves, or through our affiliates or sublicensees) or sublicensing our rights to such gene target directly to such third party or another third party. If we notify Broad Institute that we are currently developing licensed products directed to such gene target or that we have a good faith interest in developing licensed products directed to such gene target, we have a specified period of time to evidence such activities or interest by providing Broad Institute with a development plan and either continuing or commencing, respectively, such activities under such development plan. We must continue to use commercially reasonable efforts to continue to progress such activities. If we notify Broad Institute that we have a good faith interest in sublicensing our rights to such third party or another third party, we have a specified period of time to negotiate and enter into a sublicense agreement with a third party. If we (i) notify Broad Institute that we are not interested in developing such product (internally or with another third party) or do not respond to the proposed product notice, or (ii) notify Broad Institute of our interest as outlined above and do not complete or, for an internal program, commence, those activities within the specified time periods, Broad Institute has the right, subject to certain conditions, to terminate our rights to such gene target and may grant to such proposing third party an exclusive or non-exclusive license under the patent rights to exploit products covered by the licensed patent rights and directed to such gene target, which we refer to as a march-in license. Broad has not yet granted any march-in license to a third party. +In addition to the inclusive innovation model, our licenses are also subject to Broad Institute’s right to designate a single-digit number of gene targets per year in which it has a good faith interest in reserving for its own development of products covered by the patent rights directed to such gene targets. Such reserved gene targets are referred to as a reserved Broad Institute targets. If Broad Institute notifies us that it desires to exercise such right for a given gene target, and we do not, within a specified time period, evidence that we (ourselves or through an affiliate or sublicensee) have an on-going program or good faith interest in pursuing a program for Prime Editor products for such gene target, Broad Institute may terminate our license with respect to such gene target, with such gene target becoming a reserved Broad Institute target. We have a right to negotiate a sublicense with a third-party for-profit company interested in licensing the rights to such reserved Broad Institute targets, which we must complete within a +9 +specified period of time, after which Broad Institute may grant such rights to such third party. Broad Institute has not yet exercised its right to designate any reserved gene targets. +Under the Broad License Agreement, we are required to use commercially reasonable efforts to develop licensed products in the Prime Broad Field in accordance with a development plan that we prepared and submitted to Broad Institute, which includes several developmental milestones for licensed products that we are required to meet within a specified number of years. We may update the development plan from time to time if we believe, in our good faith judgment, that such update is needed to improve our ability to meet such development milestones. Broad Institute has the right to terminate the Broad License Agreement if we fail to use commercially reasonable efforts or to achieve a development milestone, subject to our right to extend or amend such milestone in accordance with certain procedures. We may request an extension of the development milestone timelines by providing a reasonable explanation and plan to Broad Institute, and following Broad Institute’s approval of the request to delay, the applicable milestone deadline will be automatically amended (to the extent we request an extension of less than a specified number of years). We have not yet requested any such extension and have met the deadlines for diligence milestones that have already occurred. If we are successfully able to gain regulatory approval for any licensed product, we are required to use commercially reasonable efforts to introduce any such licensed product into the commercial market and to commercialize and make such licensed products reasonably available to the public. +We also are obligated to pay to Broad Institute an annual license maintenance fee in the low six-figures for the term of the Agreement. Broad Institute is also entitled to receive clinical and regulatory milestone payments up to a total of $20.0 million per licensed product, depending on the patient population to be treated by the licensed product achieving the applicable milestone. If we undergo a change of control at any time during the term of the Broad License Agreement, certain of the clinical and regulatory milestone payments will increase by a specified percentage. Broad Institute is also entitled to sales-based milestone payments up to a total of $54.0 million per licensed product, depending on the patient population to be treated by the licensed product achieving the applicable milestone. Broad Institute is entitled to lower payments to the extent the clinical and regulatory milestones or sales-based milestones are achieved by enabled products, rather than licensed products. +Broad Institute is entitled to receive mid-single digit percentage royalties on net sales of licensed products, and low single-digit percentage royalties of enabled products. Royalties payable to Broad Institute are subject to customary offsets and reductions with respect to a product in a given country, to a floor. On a country-by-country and product-by-product basis, the royalty term for a product in a country will terminate on the latest of: (i) the expiration of the last to expire valid claim of an issued patent or pending patent application within the licensed patent rights covering such product in such country, (ii) the period of regulatory exclusivity for such product in such country or (iii) ten (10) years after the first commercial sale of such product in such country. Broad Institute is also entitled to a percentage of consideration that we receive from our sublicensees, with such percentage at low double-digits and decreasing to high single digits, dependent on the development stage of products under the Broad License Agreement at the time of sublicense execution. +Broad Institute is responsible for the prosecution and maintenance of all licensed patent rights, although we are entitled to certain consultation, comment and review rights with respect to such prosecution and maintenance activities of the exclusively licensed patent rights. We are obligated to reimburse Broad Institute for its documented, out-of-pocket costs incurred while prosecuting and maintaining such licensed patent rights. So long as we remain the exclusive licensee of licensed patent rights in the Prime Broad Field, we have the first right to enforce the licensed patent rights in the Prime Broad Field. +Unless earlier terminated, the Broad License Agreement will remain in effect until the later of (i) the last to expire valid claim of an issued patent or pending patent application within the licensed patent rights covering our licensed products or (ii) the expiration of the last royalty term for a licensed product in a country. We can terminate the Broad License Agreement for our convenience following prior written notice to Broad Institute. Each party may terminate the Broad License Agreement for the other party’s uncured material breach. Broad Institute may also immediately terminate the Broad License Agreement (i) to the extent we (or our affiliates or sublicensees) challenge a licensed patent right, (ii) upon our bankruptcy or insolvency or (iii) if we fail to procure and maintain insurance. +10 +Amendment No. 4 and Amendment No. 5 to The Broad License Agreement +In September 2025, we entered into a Fourth Amendment to License Agreement, or the Fourth Amendment, and Fifth Amendment to License Agreement, or the Fifth Amendment and, together with the Fourth Amendment, the 2025 Amendments, with Broad Institute, which amended the Broad License Agreement, to, among other things, modify certain licensed patent applications listed therein. Except as expressly stated in the 2025 Amendments, all other terms and provisions of the Broad License Agreement shall remain in full force and effect. +Side Letter No. 2 to The Broad Institute License Agreement +In connection with the 2025 Amendments, we also entered into a second letter agreement, or the Second Letter Agreement, with Broad Institute in September 2025, which amends the Broad License Agreement. The Second Letter Agreement, among other things, modifies certain development milestones and related payment obligations under the BMS Collaboration Agreement. Except as expressly stated in the Second Letter Agreement, all other terms and provisions of the Broad License Agreement shall remain in full force and effect. +Side Letter No. 1 to The Broad License Agreement +In connection with the BMS Collaboration Agreement, we entered into a Letter Agreement, or the First Letter Agreement, with Broad Institute in September 2024, which amends the Broad License Agreement to modify certain of our obligations and rights of Broad Institute in relation to the BMS Collaboration Agreement as a sublicense under the Broad License Agreement. The First Letter Agreement, among other things, modifies the royalty and certain commercial milestones that we are obligated to pay to Broad Institute on net sales of products under the BMS Collaboration Agreement. +2022 License Agreement with Broad Institute +Other than as summarized below, the general terms of the 2022 Broad License Agreement, including the scope and field of the license grants, are the same in all material respects as the terms of the Broad License Agreement, as summarized above. +The patent rights licensed under the 2022 Broad License Agreement are co-owned by Broad Institute, Harvard, Princeton, and University of California, collectively referred to as the 2022 Broad License Agreement Co-Owners. The license grants under the 2022 Broad License Agreement are subject to the same retained rights as set forth in the Broad License Agreement for the 2022 Broad License Agreement Co-Owners, as well as the U.S. federal government and HHMI. +As partial consideration for the rights granted to us under the 2022 Broad License Agreement, we paid Broad Institute an upfront fee of $0.2 million and are obligated to pay to Broad Institute an annual license maintenance fee in the mid-five figures for the term of the Agreement. +Broad Institute is entitled to receive clinical and regulatory milestone payments for a limited category of licensed products or enabled products, which category we refer to as royalty-bearing products, up to a total of $2.0 million per royalty-bearing product. Broad Institute is entitled to sales-based milestone payments up to a total of $3.0 million per royalty-bearing product, depending on the patient population to be treated by the royalty-bearing product achieving the applicable milestone. If we undergo a change of control at any time during the term of the 2022 Broad License Agreement, certain of the clinical and regulatory milestone payments will increase by a specified percentage. Broad Institute is entitled to lower payments to the extent the clinical and regulatory milestones or sales-based milestones are achieved by royalty-bearing products that are enabled products, rather than royalty-bearing products that are licensed products. Broad Institute is entitled to receive royalties of less than 0.2% on net sales of royalty-bearing products that are licensed products and lower royalties on net sales of for royalty-bearing products that are enabled products. Royalties payable to Broad Institute are subject to limited customary offsets and reductions. Broad Institute is entitled to a percentage of consideration that we receive from our sublicensees, with such percentage dependent on the development stage of products under the 2022 Broad License Agreement at the time of sublicense execution, all below 1%. The royalty term for a royalty-bearing product under the 2022 Broad License Agreement is determined in the same way as in the Broad License Agreement. +11 +Pledge to Broad Institute and Harvard +In February 2021, we committed to donate $5.0 million to Broad Institute and Harvard annually for 14 years, commencing in 2021, or the Pledge. The Pledge is intended to be used for research and development related to new genome editing technologies, for example Prime Editing, improve on existing genome-editing technologies, identify delivery mechanisms for these technologies and apply these technologies to the understanding and treatment of rare genetic diseases. We can terminate the Pledge at our discretion, subject to providing one year of funding from the date of termination. In August 2022, we amended and restated the Pledge to clarify that the funds may be used by the laboratory of David Liu, who is a member of Broad Institute and a faculty member at Harvard. +Collaboration and License Agreement with Beam +In September 2019, we entered into a collaboration and license agreement, which we refer to as the Beam Collaboration Agreement, with Beam. One of our founders, David Liu, is also a founder of Beam. +Under the Beam Collaboration Agreement, we grant to Beam an exclusive (even as to us and our affiliates), worldwide license under (i) certain Prime Editing know-how that we control during the initial term, and improvements thereto that we control for a specified number of years following the initial term, and patent rights that cover such Prime Editing know-how during the term of the Agreement, and (ii) our interest in certain jointly-owned collaboration technology, in each case, solely to develop, make, have made, use, offer for sale, sell, import and commercialize licensed products only in the Beam field. The Beam field is limited to (a) the prevention, modification, improvement, amelioration or treatment of human disease, including cell-based therapies and the creation of one or more protective mutations, through administration of a licensed product that incorporates or contains a qualifying Prime Editing agent, which is a macromolecule or macromolecular complex that uses Prime Editing to make one or more transition point mutations (that is, C to T, T to C, A to G or G to A) in the sequence of one or more DNA targets, without intentionally making any non-transition mutations or other changes, including insertions, deletions, duplications, indels, transversions or combinations thereof, and does not incorporate or contain any other Prime Editing agent or other gene editing approach that is not a qualifying Prime Editing agent or (b) the prevention, modification, improvement, amelioration or treatment of sickle cell disease through administration of a licensed product that incorporates or contains a more broadly defined Prime Editing agent. We refer to each of clause (a) and clause (b) of the Beam field as subfields. We also grant to Beam a non-exclusive, worldwide license under certain CRISPR or delivery-related technology, know-how and patent rights that we control during the initial term, and improvements thereto that we control for a specified number of years following the initial term, solely to develop, make, have made, use, offer for sale, sell, import and commercialize licensed products only in the Beam field. +Under the Beam Collaboration Agreement, Beam grants to us certain non-exclusive, worldwide licenses under certain technology, know-how and patent rights, including under certain CRISPR or delivery-related technology, know-how and patent rights, that it controls during the initial term, and improvements thereto that Beam controls for a specified number of years following the initial term, solely to develop, make, have made, use, offer for sale, sell, import and commercialize products only in the Prime field, which is limited to the prevention, modification, improvement, amelioration or treatment of human disease (excluding sickle cell disease), including cell-based therapies and the creation of one or more protective mutations, through administration of a product or service containing or incorporating a Prime Editing agent that is not a qualifying Prime Editing agent, but excluding (a) the Beam field, (b) the administration of any product or service containing or incorporating a base editor and (c) a field related to microbial cells in the human flora in certain Asia territories and the development of products targeting four named gene targets. For clarity, the Prime field includes products or services that contain or incorporate (x) at least one Prime Editing agent that is not a qualifying Prime Editing agent and (y) any other gene-editing approach, including other Prime Editing agents, which may include one or more qualifying Prime Editing agents, subject to the aforementioned exclusions. The licenses granted to us by Beam under the Beam Collaboration Agreement are subject to the terms of certain third-party agreements and certain rights retained by third parties. +In addition to the ongoing licenses, under the Beam Collaboration Agreement, we are both obligated to adhere to a technology transfer plan, under which each of us agrees to disclose or otherwise share the technology, know-how and patent rights licensed to the other and to provide the other party with reasonable assistance in the exercise of its licenses. +12 +The licenses granted to each party under the Beam Collaboration Agreement are sublicensable to affiliates and third parties, subject to certain requirements, including providing the other party a copy of each executed sublicense agreement, and ensuring any sublicensee comply with the terms of the Beam Collaboration Agreement. +Unless we exercise our profit sharing option for a licensed product, as described below, Beam is solely responsible for the development and commercialization of licensed products in the Beam field under the Beam Collaboration Agreement. Beam is required to use commercially reasonable efforts to develop and seek marketing approval for at least one licensed product in each subfield of the Beam field in each of (a) the United States and (b) one other specified major market country, and to commercialize any such licensed product that achieves marketing approval. As described further below, we are entitled to receive ongoing milestone and royalty payments from Beam based on Beam’s development and commercialization of each licensed product. +Subject to the provisions in the next paragraph, on a licensed product-by-licensed product basis, we have the right to elect to share equally with Beam in the profits and losses in the United States for Beam’s licensed products. We may exercise such right for each licensed product within a specified period of time. Any such licensed product for which we exercise such right we refer to as a collaboration product. If we exercise such right, we agree to share equally in the costs, profits and losses of each such collaboration product in the United States, rather than receiving milestones and royalties based on development and sales thereof by Beam in the United States. For clarity, we are still entitled to receive milestones and royalties on the development and sales of each such collaboration product outside of the United States. We also have the right to elect, within a specified time period, to co-promote with Beam each collaboration product in the United States, in addition to sharing in the profits and losses. To the extent we exercise our co-promote option with respect to a given collaboration product, we and Beam must use commercially reasonable efforts to commercialize such collaboration product, in each case, in the Beam field in the major markets in which marketing authorization has been obtained. After we have exercised our right to profit share on a collaboration product, we are able to, at any time during the term of the Beam Collaboration Agreement, on a collaboration product-by-collaboration product basis, opt-out of the profit and loss share and co-promotion activities with respect to any collaboration product with prior written notice to Beam within a certain time period. +Notwithstanding the rights described above, at any time prior to or within 30 days of the filing of an IND for a licensed product, Beam may designate up to a mid-single digit number of licensed products for which (i) we are not permitted to exercise our profit sharing right, and (ii) Beam assumes sole control and decision-making authority and bears all costs and expenses, with respect to the development and commercialization of such products. Under the Beam Collaboration Agreement, a “protected product” is a licensed product for which either (a) we have not exercised our profit share option or (b) Beam has designated as a protected product pursuant to the foregoing sentence. For clarity, we are entitled to ongoing milestones and royalties from Beam based on its development and commercialization of protected products worldwide. Upon Beam’s designation of a licensed product as a protected product , Beam is required to pay us $5.0 million if the product is developed for non-sickle cell disease or $10.0 million if the product is developed for sickle cell disease. +As partial consideration for the licenses and rights granted to each other under the Beam Collaboration Agreement, Beam issued to us $5.0 million in shares of its common stock and we issued to Beam an aggregate of 1,608,337 shares of our common stock. Beam was also entitled to appoint a representative to our board of directors, which right has expired. +We are entitled to receive development milestone payments from Beam on Beam’s development of protected products (which, for clarity, includes any licensed product for which we have not exercised our profit share option) and collaboration products. For protected products, we are entitled to receive up to a total of $35.5 million on a protected product-by-protected product basis based on Beam’s development of such protected product and, for collaboration products, up to a total of approximately $17.8 million on a collaboration product-by-collaboration product basis based on Beam’s development of such collaboration product outside of the United States, in each case, with such amounts lowered if such licensed product achieves a given milestone for use in treating an orphan disease. We are also entitled to receive sales-based milestone payments from Beam based on net sales of licensed products. For protected products, we are entitled to receive up to a total of $84.5 million on a protected product-by-protected product basis based on net sales of such protected product worldwide, and, for collaboration products, up to a total of approximately $42.3 million on a collaboration product-by-collaboration product basis based on net sales of collaboration products outside of the United States. +13 +The sickle cell disease product partnered with Beam is a licensed product under the Beam Collaboration Agreement. Beam has not designated this product as a protected product and we have not received any development or sales-based milestones with respect to Beam’s exploitation thereof. +Beam is obligated to pay to us tiered royalties ranging from a high-single digit percentage to a low double-digit percentage, but less than teens on net sales of protected products worldwide on a protected product-by-protected product basis and net sales of collaboration products outside of the United States on a collaboration product-by-collaboration product basis. Our royalties are subject to customary offsets and reductions, to a floor that takes into account any royalties we are obligated to pay to our third-party licensors, including Broad Institute. In addition, certain of the rights licensed under the Beam Collaboration Agreement are sublicensed from third parties, and Beam agrees to reimburse us for certain payments we are required to make to our third-party licensors attributable to Beam’s exercise of any sublicense we grant to Beam, including payments we make to Broad Institute under the Broad License Agreement. +If we develop a product that is covered by the technology, know-how or patent rights that Beam licenses to us under the Beam Collaboration Agreement, which we refer to as a Prime product, we are obligated to pay to Beam a low single digit percentage royalty on our worldwide net sales of any such product on a Prime product-by-Prime product and country-by-country basis, subject to certain customary reductions, to a floor. +Each party’s obligation to pay the other royalties expires on a country-by-country and product-by-product basis on the latest of (a) the expiration of the last to expire valid claim of an issued patent or pending patent application within the applicable licensed patent rights that cover such product in such country, (b) the expiration of regulatory exclusivity for such product in such country or (c) ten (10) years after the first commercial sale of such product in such country. +If we exercise our option to profit share on collaboration products, we share equally in the profits and losses of any such collaboration product in the United States and share in a lower portion of any development or commercialization costs attributable to such collaboration product outside of the United States. +Under the Beam Collaboration Agreement, Beam assigns ownership to us of certain improvements Beam makes, itself or jointly with us or others, to certain technology, know-how and patent rights we license to Beam, and we assign to Beam ownership of all improvements we make, ourselves or jointly with Beam or others, certain technology, know-how and patent rights Beam licenses to us. Each party grants back to the other certain exclusive and non-exclusive licenses to such improvements. Except for any such improvements, each party owns any other inventions that it developed under the Beam Collaboration Agreement and an equal, undivided interest with the other party in any inventions jointly developed. +We are responsible for prosecution and maintenance of the patent rights we license to Beam, while keeping Beam reasonably informed and providing Beam the opportunity to provide comments and make requests of us, in each case regarding the patent rights that we exclusively license to Beam in the field of the exclusive license. Beam has a step-in right to the extent we decline or fail to prosecute any patent rights that are exclusively licensed to Beam and applicable to the Beam field. Beam is responsible for prosecution and maintenance of the patent rights it licenses to us, while keeping us reasonably informed and providing us the opportunity to provide comments and make requests of us, in each case with respect to any patent rights that Beam exclusively licenses to us in the field of the exclusive license. +Beam has the first right to enforce any patent rights we exclusively license to Beam in the Beam field against any third party developing a product in the Beam field that is competitive with a licensed product Beam is developing under the Beam Collaboration Agreement. We have a step-in right on any such enforcement to the extent Beam declines or fails to initiate such enforcement action. +Unless earlier terminated in accordance with its terms, the Beam Collaboration Agreement will expire on the later of (a) expiration of the last royalty term for a product on which a party is obligated to pay royalties to the other party or (b) with respect to any collaboration product, the date on which neither party is developing or commercializing any such collaboration product in the United States. +After expiration of the initial term, Beam can terminate the Beam Collaboration Agreement for convenience in its entirety, or on a licensed product-by-licensed product or subfield-by-subfield basis, with ninety (90) days’ prior +14 +written notice to Prime. Each party may terminate the Beam Collaboration Agreement for (a) the other party’s uncured material breach within ninety (90) days of notice of such breach, (b) upon the insolvency or bankruptcy of the other party if such proceeding is not dismissed within ninety (90) days after the filing thereof or (c) immediately to the extent the other party (or its affiliates or sublicensees) challenges a patent right licensed to such party. +Our Business Development and Partnering Strategy +Our vision is to establish Prime Medicine as a leader in the field of gene editing by building a fully integrated biopharmaceutical company utilizing our Prime Editing platform to pioneer the discovery, development and commercialization of Prime Editing therapeutics that can have a transformative impact on the treatment of a wide spectrum of diseases with high unmet medical need. The potential therapeutic applications of our Prime Editing technology are broad, and we aspire to fully develop that potential. +To achieve our vision, and in addition to independently discovering, developing, and commercializing Prime Editing products, we will seek to selectively enter strategic collaborations to maximize the potential of the Prime Editing platform, such as our Beam Collaboration Agreement and BMS Collaboration Agreement. Such collaborations may also facilitate our entry into additional therapeutic or geographic areas by leveraging the established capabilities of our partners as well as by funding the development of new Prime Editing platform or corporate capabilities which we can then utilize for additional Prime Medicine products outside such partnerships. In certain cases, we may use partnerships to create value in areas which we may not intend to enter ourselves in the near term. In our collaborations, we may cooperatively develop and commercialize products with our partners, have options to do so, or out-license products for development and commercialization by our partners. In each case, we expect to receive value in the form of upfront payments and milestones which will provide us with additional capital in the nearer term as well as royalties and where applicable, profit sharing, to participate in the value created through commercializing Prime Editing products. +We may also seek to access or develop enabling technologies or specific capabilities through licenses or partnerships, such as the CFF Agreements. We will evaluate partnerships with various types of entities, including academia, corporations, and foundations, and these potential collaborations may vary in both structure and scope. Technologies that may enable the application of Prime Editing may include viral and non-viral delivery modalities, manufacturing, and technologies that may be synergistic with Prime Editing or Prime Editing products. +Competition +The development of genetic medicines is highly competitive and rapidly evolving, with multiple companies pursuing therapeutic approaches across gene editing, RNA-based therapies, and gene replacement modalities. Several companies, including CRISPR Therapeutics, Editas Medicine, Intellia Therapeutics, and Caribou Biosciences, among others, are advancing CRISPR nuclease–based genome editing technologies, which introduce double-stranded DNA breaks to disrupt, delete, or modify target genes. These approaches have demonstrated clinical activity in certain settings, particularly ex vivo hematologic applications. However, they rely on endogenous DNA repair pathways that can result in heterogeneous editing outcomes, including insertions, deletions, and structural variants. Other companies, including Beam and Verve Therapeutics, recently acquired by Eli Lilly and Company, are developing base editing technologies that enable targeted single-nucleotide transitions without double-stranded breaks. However, base editors are generally limited to specific substitution types and may introduce bystander edits within the editing window. In contrast, Prime Editing is designed to enable precise rewriting of DNA sequences, including transversions, small insertions and deletions, and multi-base edits, while avoiding double-stranded DNA breaks. +Other companies, including Tessera Therapeutics, CRISPR Therapeutics, Metagenomi Therapeutics, Scribe Therapeutics and Arbor Biotechnologies, among others, are developing proprietary genome editing or gene writing technologies that may also enable precise genomic modifications without reliance on double-stranded DNA breaks, and which could compete with Prime Editing across overlapping therapeutic indications. +In addition to genome editing approaches, companies including Ionis Pharmaceuticals, Alnylam Pharmaceuticals, Sarepta Therapeutics, Wave Life Sciences, and Moderna are developing RNA-based therapies, including antisense oligonucleotides, small interfering RNAs, messenger RNA therapies, and RNA editing technologies. These modalities typically do not alter genomic DNA and may require chronic or repeated administration to maintain +15 +therapeutic effect. Gene replacement therapies, most commonly delivered via adeno-associated viral vectors and being developed by companies such as Ultragenyx, Genetix Biotherapeutics, 4D Molecular Therapeutics, and others, seek to introduce functional copies of genes but may be limited by vector payload constraints, durability of expression, immunogenicity, and challenges associated with redosing. For diseases such as AATD and CF, multiple companies including Vertex Pharmaceuticals, Arrowhead Pharmaceuticals, and others are pursuing combinations of gene editing, RNA-based suppression or augmentation, and gene therapy approaches. Competition may also arise from existing and emerging small-molecule therapies, supportive care regimens, or future technologies that are currently unknown. We believe that the precision, versatility, and modularity of Prime Editing represent potential differentiating attributes, but the ultimate competitive position of our programs will depend on several factors such as clinical outcomes, regulatory considerations, manufacturing scalability, and commercial execution. +Manufacturing +We currently have no commercial manufacturing capabilities. For our initial wave of clinical programs, we have established a robust manufacturing supply chain network for making our clinical candidates using current good manufacturing practices, or cGMP. This includes both qualified third-party contract manufacturing organizations and contract testing organizations with relevant manufacturing and/or testing experience in genetic medicines, as well as in-house cGMP manufacturing and testing capabilities for some core technologies to produce early-stage clinical genetic medicine supplies. At the appropriate time in the product development process, we will determine whether to establish in-house cGMP manufacturing capabilities for some core technologies or continue to rely on third parties for manufacturing and/or testing commercial products that we may successfully develop. +Intellectual Property +Overview +We achieved many major milestones in 2025, including the issuance of two in-licensed U.S. patents, the allowance of an additional three in-licensed U.S. patent applications, the issuance of eight ex-U.S. patents, and the allowance of another seven ex-U.S. patent applications. As of February 27, 2026, we hold 10 in-licensed U.S. patents or allowed patent applications and 20 in-licensed ex-U.S. patents or allowed patent applications, all of which cover Prime Editing methods and its components and systems. Our success depends in large part on our ability to obtain and maintain additional intellectual property protection for our platform technology, our programs and know-how related to our business, defend and enforce our intellectual property rights, in particular, our patent rights, preserve the confidentiality of our trade secrets and other confidential or proprietary information and operate without infringing, misappropriating or otherwise violating any intellectual property rights of others. We seek to protect our proprietary position by, among other things, exclusively licensing U.S. and certain foreign patent applications and issued patents and filing patent applications related to our platform technology, existing and planned programs and improvements that are important to the development of our business, where patent protection is available. While we in-license 30 issued patents or allowed applications, we do not currently own any issued patents in any jurisdiction covering our Prime Editing technology or product candidates. For information regarding the risks related to our intellectual property, please see “ Risk Factors—Risks Related To Our Intellectual Property. ” +Our wholly owned patent applications and our in-licensed issued patents and patent applications cover various aspects of our Prime Editing platform and our programs, including: +• Prime Editors +• pegRNA, and modified pegRNAs +• Prime Editing complexes and methods +• Dual-Flap Prime Editing technology +• Program-specific pegRNAs and therapeutic methods +• Prime Editors with enhanced activities or properties +16 +• Engineered pegRNAs +• Delivery modalities +We intend to continue to pursue, when possible, additional patent protection, including composition of matter, method of use, delivery modality and process claims, directed to our platform technology and the programs in our portfolio. We also intend to expand and extend our Prime Editing platform and programs, as well as obtain rights to delivery modalities, through one or more licenses from third parties. +Owned Patents +As of February 27, 2026, we owned approximately eight pending U.S. provisional patent applications, seven pending PCT applications, 29 pending U.S. non-provisional patent applications and 99 pending ex-U.S. patent applications. Patent applications have been filed outside of the United States in the European Patent Office, Japan, China, and certain other foreign jurisdictions. Our owned patent applications are generally related to our Prime Editing technology, including claims to modified pegRNAs; Prime Editors with enhanced activities or properties (e.g., improved Prime Editing efficiency or smaller Prime Editors) and methods of using such Prime Editors and pegRNAs; program-specific pegRNAs directed to targeting and correcting specific mutations and methods of using such pegRNAs therapeutically; PASSIGE systems including Prime Editors and integrases or recombinases, and methods of using PASSIGE; off-target testing methods; methods for synthesizing pegRNAs; novel lipids and LNPs for delivery of Prime Editors; and compositions of matter covering officially declared drug candidates. The provisional patent applications are not eligible to become issued patents until, among other things, we file non-provisional patent applications within 12 months of filing one or more of our related provisional patent applications. Any U.S. non-provisional patent applications timely filed based on any of these U.S. provisional patent applications, if issued, and if the appropriate maintenance or annuity fees are paid, are expected to expire as early as 2047, excluding any additional term for patent term adjustments or patent term extensions or similar provisions in foreign jurisdictions. Our current owned U.S. non-provisional and PCT patent applications, if issued and if the appropriate maintenance or annuity fees are paid, are expected to expire as early as 2042, excluding any additional term for patent term adjustments or patent term extensions or similar provisions in foreign jurisdictions. +In-licensed Patents +As of February 27, 2026, we have in-licensed 10 issued U.S. patents or allowed U.S. patent applications, 20 granted ex-U.S. patents or allowed ex-U.S. patent applications, approximately eight pending U.S. non-provisional patent applications, and 90 pending ex-U.S. patent applications, in each case, related to Prime Editing, from Broad Institute. Patent applications have been filed outside of the United States in the European Patent Office, Japan, China, and certain other foreign jurisdictions. The issued patents and patent applications from our in-licensed portfolio for Prime Editing are generally related to Prime Editors, pegRNAs, Prime Editing complexes and systems; compositions including the Prime Editors, pegRNAs and Prime Editing complexes as a component; methods of using such Prime Editors, pegRNAs and Prime Editing complexes and systems, including methods for therapeutic indications; pegRNAs that target and correct therapeutically relevant DNA sequences; program-specific pegRNAs directed to targeting and correcting specific mutations; systems comprising Prime Editors and integrases or recombinases for use in PASSIGE; and delivery modalities for Prime Editing systems, including the use of AAV, in a split AAV system for viral delivery of a Prime Editor. The in-licensed issued patents and patent applications cover various aspects related to the Prime Editing platform technology, including Prime Editors that employ Cas domains, such as Cas9 nickases and DNA polymerase domains, such as RT domains. The exclusive in-licensed patents and patent applications also cover dual-flap Prime Editing technology, including dual-flap Prime Editing compositions and methods of using such technology for therapeutic indications, and engineered pegRNAs, including compositions and methods comprising such pegRNAs. Our current in-licensed U.S. and foreign patents and patent applications, if issued and if the appropriate maintenance or annuity fees are paid, are expected to expire as early as 2040, excluding any additional term for patent term adjustments or patent term extensions or similar provisions in foreign jurisdictions. +17 +Additional Intellectual Property +We also rely on trade secrets, know-how, continuing technological innovation and confidential information to develop and maintain our proprietary position and protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. We seek to protect our proprietary technology and processes, in part, by confidentiality agreements with our employees, consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. +Government Regulation +In the United States, biological products, including gene editing products, are subject to regulation under the Federal Food, Drug, and Cosmetic Act, or FD&C Act, and the Public Health Service Act, or PHS Act, and other federal, state, local and foreign statutes and regulations. Both the FD&C Act and the PHS Act and their corresponding regulations govern, among other things, the research, development, clinical trials, testing, manufacturing, safety, efficacy, labeling, packaging, storage, record keeping, distribution, reporting, advertising and other promotional practices involving biological products. Each clinical trial protocol for a gene therapy or gene editing product must be reviewed and approved by the FDA before initiating clinical trials in the United States. In addition, FDA approval must be obtained before the marketing of biological products in the United States. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources and we may not be able to obtain the required regulatory approvals. +U.S. Biological Products Development Process +The process required by the FDA before a biological product may be marketed in the United States generally involves the following: +• completion of nonclinical laboratory tests and animal studies, including those requiring performance in accordance with good laboratory practices, or GLPs, unless justified and applicable requirements for the humane use of laboratory animals or other applicable regulations; +• submission to the FDA of an application for an IND, which must become effective before human clinical trials may begin; +• approval of the protocol and related documentation by an independent institutional review board, or IRB, or ethics committee at each clinical trial site before each study may be initiated; +• performance of adequate and well-controlled human clinical trials according to the FDA’s regulations commonly referred to as good clinical practices, or GCPs, and any additional requirements for the protection of human research subjects and their health information, to establish the safety, purity and potency of the proposed biological product for its intended use; +• submission to the FDA of a BLA for marketing approval that includes sufficient evidence of establishing the safety, purity and potency of the proposed biological product for its intended indication, including from results of nonclinical testing and clinical trials; +• satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the biological product is produced to assess compliance with cGMP to assure that the facilities, methods and controls are adequate to preserve the biological product’s identity, strength, quality and purity and, if applicable, the FDA’s current good tissue practices, or CGTPs, for the use of human cellular and tissue products; +• potential FDA audit of the nonclinical study and clinical trial sites that generated the data in support of the BLA; +• review of the product candidate by an FDA advisory committee, where appropriate or if applicable; +• payment of user fees for FDA review of the BLA (unless a fee waiver applies); and +• FDA review and approval, or licensure, of the BLA. +18 +Before testing any biological product, including a gene editing product, in humans, the product candidate enters the preclinical testing stage. Preclinical tests, also referred to as nonclinical studies, include laboratory evaluations of a product candidate’s biological characteristics, chemistry, toxicity and formulation, as well as animal studies to assess the potential safety and activity of the product candidate. The conduct of the preclinical tests must comply with federal regulations and requirements, including GLPs for certain nonclinical studies. +An IND is an exemption from the FD&C Act that allows an unapproved product candidate to be shipped in interstate commerce for use in an investigational clinical trial and a request for FDA authorization to administer such investigational product to humans. Such authorization must be secured before interstate shipment and administration of any product candidate that is not the subject of an approved BLA or existing IND. In support of a request for an IND, applicants must submit a protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND application. In addition, the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical trials, among other things, must be submitted to the FDA as part of an IND application. The FDA requires a 30-day waiting period after the filing of each IND before clinical trials may begin. This waiting period is designed to allow the FDA to review the IND to determine whether human research subjects will be exposed to unreasonable health risks. At any time during this 30-day period the FDA may raise concerns or questions about the conduct of the trials as outlined in the IND and impose a clinical hold, which may be full or partial. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin. +Following commencement of a clinical trial, the FDA may also place a full or partial clinical hold on that trial. A clinical hold is an order issued by the FDA to the sponsor to delay a proposed clinical investigation or to suspend an ongoing investigation. A partial clinical hold is a delay or suspension of only part of the clinical investigation conducted under the IND. No more than 30 days after imposition of a full or partial clinical hold, the FDA will provide the sponsor a written explanation of the basis for the hold. Following issuance of a full or partial clinical hold, an investigation may only resume after the FDA has notified the sponsor that the investigation may proceed. There also are requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries. Information about certain clinical trials, including clinical trial results, must be submitted within specific timeframes for publication on the www.clinicaltrials.gov website. Although sponsors are obligated to disclose the results of their clinical trials after completion, disclosure of the results can be delayed in some cases for up to two years after the date of completion of the trial. Failure to timely register a covered clinical study or to submit study results as provided for in the law can give rise to public notification of noncompliance, civil monetary penalties and also prevent the non-compliant party from receiving future grant funds from the federal government. +A sponsor may choose, but is not required, to conduct a foreign clinical trial under an IND. When a foreign clinical trial is conducted under an IND, all FDA IND requirements must be met unless waived. When a foreign clinical trial is not conducted under an IND, the sponsor must ensure that the study complies with certain regulatory requirements of the FDA in order to use the study as support for an IND or application for marketing approval or licensing. In particular, such studies must be conducted in accordance with GCP, including review and approval by an independent ethics committee, or IEC, and informed consent from subjects. The FDA must be able to validate the data through an onsite inspection, if deemed necessary by the FDA. +An IRB representing each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct continuing review and reapprove the study at least annually. The IRB must review and approve, among other things, the study protocol and informed consent information to be provided to study subjects. An IRB must operate in compliance with FDA regulations. An IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the product candidate has been associated with unexpected serious harm to patients. +Some trials are overseen by an independent group of qualified experts organized by the trial sponsor, known as a data safety monitoring board or committee, or DSMB. This group provides advice to the sponsor as to whether or not a trial may move forward at designated check points based on pre-specified criteria and access to unblinded data from the study. +In addition to the submission of an IND to the FDA before initiation of a clinical trial in the United States, certain human clinical trials involving recombinant or synthetic nucleic acid molecules are subject to oversight of +19 +institutional biosafety committees, or IBCs, as set forth in the NIH Guidelines for Research Involving Recombinant or Synthetic Nucleic Acid Molecules, or NIH Guidelines. Specifically, under the NIH Guidelines, supervision of human gene transfer trials includes evaluation and assessment by an IBC, a local institutional committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid molecules at that institution. The IBC assesses the safety of the research and identifies any potential risk to public health or the environment, and such review may result in some delay before initiation of a clinical trial. While the NIH Guidelines are not mandatory unless the research in question is being conducted at or sponsored by institutions receiving NIH funding for recombinant or synthetic nucleic acid molecule research, many companies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them. Regulatory requirements governing the development of gene therapy products have also changed frequently and may continue to change in the future. +Clinical trials typically are conducted in three sequential phases that may overlap or be combined: +• Phase 1. The biological product is initially introduced into healthy human subjects and tested for safety. In the case of some products for severe or life-threatening diseases, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients. +• Phase 2. The biological product is evaluated in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance, optimal dosage and dosing schedule. +• Phase 3. The biological product undergoes more extensive clinical trials to further evaluate dosage, efficacy, potency and safety in an expanded patient population at geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for approval and product labeling. +Post-approval clinical trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These clinical trials are used to gather additional data from the treatment of patients in the intended therapeutic indication, particularly for long-term safety follow-up. The FDA generally recommends that sponsors of human gene therapy products integrating vectors such as gammaretroviral and lentiviral vectors and transposon elements as well as gene editing product sponsors observe subjects for potential gene therapy-related delayed adverse events for up to a 15-year period, including five years of annual examinations followed by ten years of annual queries, either by telephone or by questionnaire, of study subjects. +Both the FDA and the EMA provide expedited pathways for the development of drug product candidates for treatment of rare diseases, particularly life-threatening diseases with high unmet medical need. Such drug product candidates may be eligible to proceed to registration following a single clinical trial in a limited patient population, sometimes referred to as a Phase 1/2 trial, but which may be deemed a pivotal or registrational trial following review of the trial’s design and primary endpoints by the applicable regulatory agencies. Determination of the requirements to be deemed a pivotal or registrational trial is subject to the applicable regulatory authority’s scientific judgment and these requirements may differ in the U.S. and the European Union, or EU. +During all phases of clinical development, the FDA requires extensive monitoring and auditing of all clinical activities, clinical data, and clinical trial investigators. Annual progress reports detailing the results of the clinical trials must be submitted to the FDA. Written IND safety reports must be promptly submitted to the FDA, the NIH and the investigators for serious and unexpected adverse events, any findings from other studies, tests in laboratory animals or in vitro testing that suggest a significant risk for human subjects, or any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. The sponsor must submit an IND safety report within 15 calendar days after the sponsor determines that the information qualifies for reporting. The sponsor also must notify the FDA of any unexpected fatal or life-threatening suspected adverse reaction within seven calendar days after the sponsor’s initial receipt of the information. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, if at all. The FDA or the sponsor, acting on its own or based on a recommendation from the sponsor’s data safety monitoring board may suspend a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the biological product has been associated with unexpected serious harm to patients. +20 +Concurrent with clinical trials, companies usually complete additional animal studies and also must develop additional information about the physical characteristics of the biological product as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. To help reduce the risk of the introduction of adventitious agents with use of biological products, the PHS Act emphasizes the importance of manufacturing control for products whose attributes cannot be precisely defined. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the sponsor must develop methods for testing the identity, strength, quality, potency and purity of the final biological product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the biological product candidate does not undergo unacceptable deterioration over its shelf life. +U.S. Review and Approval Processes +After the completion of clinical trials of a biological product, FDA approval of a BLA must be obtained before commercial marketing of the biological product in the United States. The BLA must include results of product development, laboratory and animal studies, human studies, information on the manufacture and composition of the product, proposed labeling and other relevant information. +Within 60 days following submission of the application, the FDA reviews a BLA to determine if it is substantially complete before the FDA accepts it for filing. The FDA may refuse to file any BLA that it deems incomplete or not properly reviewable at the time of submission and may request additional information. In this event, the BLA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. In most cases, the submission of a BLA is subject to a substantial application user fee, although the fee may be waived under certain circumstances. Under the performance goals and policies implemented by the FDA under the Prescription Drug User Fee Act, or PDUFA, for original BLAs, the FDA targets 10 months from the filing date in which to complete its initial review of a standard application and respond to the applicant, and six months from the filing date for an application with priority review. The FDA does not always meet its PDUFA goal dates, and the review process is often significantly extended by FDA requests for additional information or clarification. This review typically takes 12 months from the date the BLA is submitted to the FDA because the FDA has approximately two months to make a ‘‘filing’’ decision. The review process and the PDUFA goal date may be extended by three months if the FDA requests or the BLA sponsor otherwise provides additional information or clarification regarding information already provided in the submission within the last three months before the PDUFA goal date. +Once the submission is accepted for filing, the FDA begins an in-depth substantive review of the BLA. The FDA reviews the BLA to determine, among other things, whether the proposed product is safe, pure and potent, for its intended use, and whether the product is being manufactured in accordance with cGMP to ensure the continued safety, purity and potency of such product. The FDA may refer applications for novel biological products or biological products that present difficult or novel questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. During its BLA review, the FDA also will determine whether a Risk Evaluation and Mitigation Strategy, or REMS, is necessary to assure the safe use of the biological product. If the FDA concludes a REMS is needed, the sponsor of the BLA must submit a proposed REMS; the FDA will not approve the BLA without a REMS, if required. +Before approving a BLA, the FDA typically will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. For a gene therapy or gene editing product, the FDA also will not approve the product if the manufacturer is not in compliance with the CGTPs. These are FDA regulations that govern the methods used in, and the facilities and controls used for, the manufacture of human cells, tissues and cellular and tissue-based products, or HCT/Ps, which are human cells or tissue intended for implantation, transplant, infusion, or transfer into a human recipient. The primary intent of the CGTP requirements is to ensure that cell and tissue-based products are manufactured in a manner designed to prevent the introduction, transmission and spread of communicable disease. FDA regulations also require tissue establishments to register and list their HCT/Ps with the FDA and, when applicable, to evaluate donors through appropriate screening and testing. Additionally, before approving a BLA, the +21 +FDA will typically inspect one or more clinical sites to assure that the clinical trials were conducted in compliance with IND study requirements and GCP requirements. To assure cGMP, CGTP and GCP compliance, an applicant must incur significant expenditure of time, money and effort in the areas of training, record keeping, production and quality control. +Under the Pediatric Research Equity Act, or PREA, a BLA or supplement to a BLA for a novel product (e.g., new active ingredient, new indication, etc.) must contain data to assess the safety and effectiveness of the biological product for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers. Unless otherwise required by regulation, PREA does not apply to any biological product for an indication for which orphan designation has been granted. +Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the BLA does not satisfy its regulatory criteria for approval and deny approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret the same data. If the FDA decides not to approve the BLA in its present form, the FDA will issue a complete response letter that usually describes all of the specific deficiencies in the BLA identified by the FDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical trials. Additionally, the complete response letter may include recommended actions that the applicant might take to place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the BLA, addressing all of the deficiencies identified in the letter or withdraw the application. +If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, including to subpopulations of patients, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings precautions or interactions be included in the product labeling. The FDA may impose restrictions and conditions on product distribution, prescribing or dispensing in the form of a REMS, or otherwise limit the scope of any approval. In addition, the FDA may require post-approval clinical trials designed to further assess a biological product’s safety, purity or potency, and testing and surveillance programs to monitor the safety of approved products that have been commercialized. +Orphan Drug Designation +Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biological product intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making a drug or biological product available in the United States for this type of disease or condition will be recovered from sales of the product. Orphan product designation must be requested before submitting a BLA. After the FDA grants orphan product designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. +Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. Orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug or biological product for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity. Competitors, however, may receive approval of different products for the indication for which the orphan product has exclusivity or obtain approval for the same product but for a different indication for which the orphan product has exclusivity. If a drug or biological product designated as an orphan product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan product exclusivity. Orphan drug designation status in the EU has similar, but not identical, benefits. +22 +Rare Pediatric Disease Designation and Priority Review Vouchers +Under the FD&C Act, the FDA incentivizes the development of drugs and biological products that meet the definition of a “rare pediatric disease,” defined to mean a serious or life-threatening disease in which the serious of life-threatening manifestations primarily affect individuals aged from birth to 18 years and the disease affects fewer than 200,000 individuals in the United States or affects more than 200,000 in the United States and for which there is no reasonable expectation that the cost of developing and making in the United States a drug or biological product for such disease or condition will be received from sales in the United States of such drug or biological product. The sponsor of a product candidate for a rare pediatric disease may be eligible for a voucher that can be used to obtain a priority review for a subsequent human drug or biological product application after the date of approval of the rare pediatric disease drug or biological product, referred to as a PRV. A sponsor may request rare pediatric disease designation from the FDA prior to the submission of its BLA. A rare pediatric disease designation does not guarantee that a sponsor will receive a PRV upon approval of its BLA. Moreover, a sponsor who chooses not to submit a rare pediatric disease designation request may nonetheless receive a PRV upon approval of their marketing application if they request such a voucher in their original marketing application and meet all of the eligibility criteria. If a PRV is received, it may be sold or transferred an unlimited number of times. Congress has extended the PRV program through September 30, 2029. +Expedited Development and Review Programs +The FDA has various programs, including fast track designation, breakthrough therapy designation, accelerated approval and priority review, that are intended to expedite or simplify the process for the development and FDA review of drugs and biologics that are intended for the treatment of serious or life-threatening diseases or conditions. These programs do not change the standards for approval but may help expedite the development or approval process. To be eligible for fast track designation, new drugs and biological products must be intended to treat a serious or life-threatening condition and demonstrate the potential to address unmet medical needs for the condition. Fast track designation applies to the combination of the product and the specific indication for which it is being studied. The sponsor of a new drug or biologic may request the FDA to designate the drug or biologic as a fast track product at any time during the clinical development of the product. One benefit of fast track designation, for example, is that the FDA may consider for review sections of the marketing application for a product that has received fast track designation on a rolling basis before the complete application is submitted. +Under the FDA’s breakthrough therapy program, products intended to treat a serious or life-threatening disease or condition may be eligible for the benefits of the fast track program when preliminary clinical evidence demonstrates that such product may have substantial improvement on one or more clinically significant endpoints over existing therapies. Additionally, the FDA will seek to ensure the sponsor of a breakthrough therapy product receives timely advice and interactive communications to help the sponsor design and conduct a development program as efficiently as possible. +Any product is eligible for priority review if it has the potential to provide safe and effective therapy where no satisfactory alternative therapy exists or a significant improvement in the treatment, diagnosis or prevention of a disease compared to marketed products. The FDA will attempt to direct additional resources to the evaluation of an application for a new drug or biological product designated for priority review in an effort to facilitate the review. Under priority review, the FDA’s goal is to review an application in six months once it is filed, compared to ten months for a standard review. +Additionally, a product may be eligible for accelerated approval. Drug or biological products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval, which means that they may be approved on the basis of adequate and well-controlled clinical trials establishing that the product has an effect on a surrogate endpoint that is reasonably likely to predict a clinical benefit, or on the basis of an effect on an intermediate clinical endpoint other than survival or irreversible morbidity. As a condition of approval, the FDA may require that a sponsor of a drug or biological product receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials with due diligence, and, under the Food and Drug Omnibus Reform Act of 2022, or FDORA, the FDA is permitted to require, as appropriate, that such trials be underway prior to approval or within a specific time period after the date of approval for a product granted accelerated approval. Under FDORA, the FDA has increased authority for +23 +expedited procedures to withdraw approval of a product or indication approved under accelerated approval if, for example, the confirmatory trial fails to verify the predicted clinical benefit of the product. In addition, for products being considered for accelerated approval, the FDA generally requires, unless otherwise informed by the agency, that all advertising and promotional materials intended for dissemination or publication be submitted to the agency for review, which could adversely affect the timing of the commercial launch of the product. +Under FDORA, a platform technology incorporated within or utilized by a drug or biological product is eligible for designation as a designated platform technology if certain conditions are met. A sponsor may request the FDA to designate a platform technology as a designated platform technology concurrently with, or at any time after, submission of an IND application for a drug that incorporates or utilizes the platform technology that is the subject of the request. If so designated, the FDA may expedite the development and review of any subsequent original NDA or BLA for a drug that uses or incorporates the platform technology. Designated platform technology status does not ensure that a drug will be developed more quickly or receive FDA approval. In addition, the FDA may revoke a designation if the FDA determines that a designated platform technology no longer meets the criteria for such designation. +RMAT Designation +Congress amended the FD&C Act to facilitate an efficient development program for, and expedite review of regenerative medicine advanced therapy, or RMAT, which include cell and gene therapies, therapeutic tissue engineering products, human cell and tissue products and combination products using any such therapies or products. RMAT do not include those HCT/Ps regulated solely under section 361 of the PHS Act and 21 CFR Part 1271. This program is intended to facilitate efficient development and expedite review of regenerative medicine therapies, which are intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition and qualify for RMAT designation. A drug sponsor may request that FDA designate a drug as a RMAT concurrently with or at any time after submission of an IND. FDA has 60 calendar days to determine whether the drug meets the criteria, including whether there is preliminary clinical evidence indicating that the drug has the potential to address unmet medical needs for a serious or life-threatening disease or condition. A BLA for a regenerative medicine therapy that has received RMAT designation may be eligible for priority review or accelerated approval through use of surrogate or intermediate endpoints reasonably likely to predict long-term clinical benefit, or reliance upon data obtained from a meaningful number of sites. Benefits of RMAT designation also include early interactions with FDA to discuss any potential surrogate or intermediate endpoint to be used to support accelerated approval. A regenerative medicine therapy with RMAT designation that is granted accelerated approval and is subject to post-approval requirements may fulfill such requirements through the submission of clinical evidence from clinical trials, patient registries, or other sources of real world evidence, such as electronic health records; the collection of larger confirmatory data sets; or post-approval monitoring of all patients treated with such therapy prior to its approval. Like some of the FDA’s other expedited development programs, RMAT designation does not change the standards for approval but may help expedite the development or approval process. +Post-Approval Requirements +Maintaining substantial compliance with applicable federal, state and local statutes and regulations requires the expenditure of substantial time and financial resources. Rigorous and extensive FDA regulation of biological products continues after approval, particularly with respect to cGMP. We currently rely, and may continue to rely, on third parties for the production of clinical and commercial quantities of any products that we may commercialize. Manufacturers of our products are required to comply with applicable requirements in the cGMP regulations, including quality control and quality assurance and maintenance of records and documentation. Other post-approval requirements applicable to biological products, include reporting of cGMP deviations that may affect the identity, potency, purity and overall safety of a distributed product, record-keeping requirements, reporting of adverse effects, reporting updated safety and efficacy information, and complying with electronic record and signature requirements. After a BLA is approved, the product also may be subject to official lot release. As part of the manufacturing process, the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official release by the FDA, the manufacturer submits samples of each lot of product to the FDA together with a release protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s tests performed on the lot. The FDA also may perform certain confirmatory tests on lots of some products before releasing the lots for distribution by the manufacturer. In addition, the FDA +24 +conducts laboratory research related to the regulatory standards on the safety, purity, potency and effectiveness of biological products. +We also must comply with the FDA’s advertising and promotion requirements, such as those related to direct-to-consumer advertising, the prohibition on promoting products for uses or in patient populations that are not described in the product’s approved labeling, or off-label use, industry-sponsored scientific and educational activities, and promotional activities involving the internet. Discovery of previously unknown problems or the failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market as well as possible civil or criminal sanctions. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant or manufacturer to administrative or judicial civil or criminal sanctions and adverse publicity. FDA sanctions could include refusal to approve pending applications, withdrawal of an approval, clinical holds, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, mandated corrective advertising or communications with doctors or other stakeholders, debarment, restitution, disgorgement of profits, or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us. +Biological product manufacturers and other entities involved in the manufacture and distribution of approved biological products, and those supplying products, ingredients, and components of them, are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance. Discovery of problems with a product after approval may result in restrictions on a product, manufacturer, or holder of an approved BLA, including withdrawal of the product from the market. In addition, changes to the manufacturing process or facility generally require prior FDA approval before being implemented and other types of changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further FDA review and approval. +From time to time, legislation is drafted, introduced, passed in Congress and signed into law that could significantly change the statutory provisions governing the approval, manufacturing, and marketing of products regulated by the FDA. In addition to new legislation, FDA regulations, guidance, and policies are often revised or reinterpreted by the agency in ways that may significantly affect the manner in which pharmaceutical products are regulated and marketed. +U.S. Patent Term Restoration and Marketing Exclusivity +Depending upon the timing, duration and specifics of any FDA approval of the use of our product candidates, some U.S. patents that may issue from our pending patent applications may be eligible for limited patent term extension under the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND and the submission date of a BLA plus the time between the submission date of a BLA and the approval of that application, except that the review period is reduced by any time during which the applicant failed to exercise due diligence. Only one patent applicable to an approved biological product is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. In addition, only those claims covering the approved product, a method for using it, or a method for manufacturing it may be extended, and a patent can only be extended once and only for a single product. The U.S. Patent and Trademark Office, or USPTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we may apply for restoration of patent term for one of the patents that may issue from our pending patent applications, if and as applicable, to add patent life beyond its current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant BLA. However, there can be no assurance that our pending patent applications will issue or that we will benefit from any patent term extension or favorable adjustments to the terms of any patents we may own or in-license in the future. +25 +A biological product can obtain pediatric market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing exclusivity periods for all formulations, dosage forms, and indications of the biologic. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric study in accordance with an FDA-issued “Written Request” for such a study, provided that at the time pediatric exclusivity is granted there is not less than nine months of term remaining. +The ACA created an abbreviated approval pathway for biological products shown to be similar to, or interchangeable with, an FDA-licensed reference biological product. This amendment to the PHS Act attempts to minimize duplicative testing. Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and the reference product in terms of safety, purity and potency, can be shown through analytical studies, animal studies and a clinical trial or trials. Interchangeability requires that a product is biosimilar to the reference product and the product must demonstrate that it can be expected to produce the same clinical results as the reference product and, for products administered multiple times, the biologic and the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. +A reference biological product is granted four- and 12-year exclusivity periods from the time of first licensure of the product. The FDA will not accept an application for a biosimilar or interchangeable product based on the reference biological product until four years after the date of first licensure of the reference product, and the FDA will not approve an application for a biosimilar or interchangeable product based on the reference biological product until 12 years after the date of first licensure of the reference product. “First licensure” typically means the initial date the particular product at issue was licensed in the United States. Date of first licensure does not include the date of licensure of (and a new period of exclusivity is not available for) a biological product if the licensure is for a supplement for the biological product or for a subsequent application by the same sponsor or manufacturer of the biological product (or licensor, predecessor in interest, or other related entity) for a change (not including a modification to the structure of the biological product) that results in a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery device or strength, or for a modification to the structure of the biological product that does not result in a change in safety, purity, or potency. Therefore, one must determine whether a new product includes a modification to the structure of a previously licensed product that results in a change in safety, purity, or potency to assess whether the licensure of the new product is a first licensure that triggers its own period of exclusivity. Whether a subsequent application, if approved, warrants exclusivity as the “first licensure” of a biological product is determined on a case-by-case basis with data submitted by the sponsor. +Additional Regulation +In addition to the foregoing, state and federal laws regarding environmental protection and hazardous substances, including the Occupational Safety and Health Act, the Resource Conservancy and Recovery Act and the Toxic Substances Control Act, affect our business. These and other laws govern our use, handling and disposal of various biological, chemical and radioactive substances used in, and wastes generated by, our operations. If our operations result in contamination of the environment or expose individuals to hazardous substances, we could be liable for damages and governmental fines. We believe that we are in material compliance with applicable environmental laws and that continued compliance therewith will not have a material adverse effect on our business. We cannot predict, however, how changes in these laws may affect our future operations. +U.S. Foreign Corrupt Practices Act +The U.S. Foreign Corrupt Practices Act, or FCPA, to which we are subject, prohibits corporations and individuals from engaging in certain activities to obtain or retain business or to influence a person working in an official capacity. It is illegal to pay, offer to pay or authorize the payment of anything of value to any foreign government official, government staff member, political party or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity. +26 +Government Regulation Outside of the United States +In addition to regulations in the United States, we are subject to a variety of regulations in other jurisdictions governing, among other things, research and development, clinical trials, testing, manufacturing, safety, efficacy, labeling, packaging, storage, record keeping, distribution, reporting, advertising and other promotional practices involving biological products as well as authorization and approval of our products. Because biologically sourced raw materials are subject to unique contamination risks, their use may be restricted in some countries. +The requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, the clinical trials must be conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension of clinical trials, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution. +EU Clinical Trials Regulation +In April 2014, the EU adopted the Clinical Trials Regulation, (EU) No 536/2014, which replaced the previous Clinical Trials Directive 2001/20/EC on 31 January 2022. The Clinical Trials Regulation is directly applicable in all EU Member States meaning no national implementing legislation in each EU Member State is required. The Clinical Trials Regulation aims to simplify and streamline the approval of clinical trials in the EU. The main characteristics of the Regulation include: a streamlined application procedure via a single-entry point through the Clinical Trials Information System, or CTIS; a single set of documents to be prepared and submitted for the application as well as simplified reporting procedures for clinical trial sponsors; and a harmonized procedure for the assessment of applications for clinical trials. +EU Drug Review and Approval +In the EU, medicinal products can only be commercialized after obtaining a marketing authorization. To obtain regulatory approval of a medicinal product in the EU, we must submit a marketing authorization application, or MAA. A centralized marketing authorization is issued by the European Commission through the centralized procedure, based on the opinion of the Committee for Medicinal Products for Human Use, or CHMP, of the EMA, and is valid throughout the EU, and in the additional member states of the EEA (Norway, Iceland and Liechtenstein). The centralized procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products, advanced-therapy medicinal products (gene-therapy, somatic cell-therapy or tissue-engineered medicines), and medicinal products containing a new active substance indicated for the treatment of HIV, AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and other immune dysfunctions, and viral diseases. The centralized procedure is optional for products containing a new active substance not yet authorized in the EU, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in the interest of public health in the EU. +Under the centralized procedure the maximum timeframe for the evaluation of an MAA by the EMA is 210 days, excluding clock stops, when additional written or oral information is to be provided by the applicant in response to questions asked by the CHMP. Clock stops may extend the timeframe of evaluation of an MAA considerably beyond 210 days. Where the CHMP gives a positive opinion, it provides the opinion together with supporting documentation to the European Commission, who make the final decision to grant a marketing authorization, which is issued within 67 days of receipt of the EMA’s recommendation. Accelerated assessment may be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of major public health interest, particularly from the point of view of therapeutic innovation. The timeframe for the evaluation of an MAA under the accelerated assessment procedure is 150 days, excluding clock stops, but it is possible that the CHMP may revert to the standard time limit for the centralized procedure if it determines that the application is no longer appropriate to conduct an accelerated assessment. +27 +Periods of Authorization and Renewals +A marketing authorization is valid for five years, in principle, and it may be renewed after five years on the basis of a re-evaluation of the risk benefit balance by the EMA for a centrally authorized product, or by the competent authority of the authorizing Member State for a nationally authorized product. Once renewed, the marketing authorization is valid for an unlimited period, unless the European Commission or the competent authority decides, on justified grounds relating to pharmacovigilance, to proceed with one additional five-year renewal period. Any authorization that is not followed by the placement of the product on the EU market (in the case of the centralized procedure) or on the market of the authorizing Member State (for a nationally authorized product) within three years after authorization, or if the product is removed from the market for three consecutive years, ceases to be valid (the so-called sunset clause). +Data and Marketing Exclusivity +The EU also provides opportunities for market exclusivity. Upon receiving marketing authorization in the EU, innovative medicinal products generally receive eight years of data exclusivity and an additional two years of market exclusivity. If granted, data exclusivity prevents generic or biosimilar applicants from referencing the innovator’s preclinical and clinical trial data contained in the dossier of the reference product when applying for a generic or biosimilar marketing authorization in the EU, during a period of eight years from the date on which the reference product was first authorized in the EU. During the additional two-year period of market exclusivity, a generic or biosimilar marketing authorization can be submitted and the innovator’s data may be referenced, but no generic or biosimilar product can be marketed until the expiration of the market exclusivity period. The overall ten-year period will be extended to a maximum of eleven years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to authorization, are held to bring a significant clinical benefit in comparison with existing therapies. Even if an innovative medicinal product gains the prescribed period of data exclusivity, another company may market another version of the product if such company obtained a marketing authorization based on an MAA with a complete independent data package of pharmaceutical tests, preclinical tests and clinical trials. There is, however, no guarantee that a product will be considered by the EU’s regulatory authorities to be an innovative medicinal product, and products may therefore not qualify for data exclusivity. +Orphan Drug Designation and Exclusivity +The criteria for designating an “orphan medicinal product” in the EU are similar in principle to those in the United States. Orphan medicinal products are eligible for financial incentives such as reduction of fees or fee waivers. The application for orphan designation must be submitted before the application for marketing authorization. The applicant will receive a fee reduction for the MAA if the orphan designation has been granted, but not if the designation is still pending at the time the marketing authorization is submitted. Orphan designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. +Products with an orphan designation in the EU can receive 10 years of market exclusivity, during which time, subject to limited exceptions, no “similar medicinal product” for the same indication may be placed on the market. A “similar medicinal product” is defined as a medicinal product containing a similar active substance or substances as contained in an authorized orphan medicinal product, and which is intended for the same therapeutic indication. An orphan medicinal product can also obtain an additional two years of market exclusivity in the EU where an agreed pediatric investigation plan for pediatric studies has been complied with. No extension to any supplementary protection certificate, or SPC, can be granted on the basis of pediatric studies for products with an orphan designation. +The 10-year market exclusivity may be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan designation, for example, if the product is sufficiently profitable not to justify maintenance of market exclusivity. Otherwise, an orphan medicinal product marketing exclusivity may be revoked only in very select cases, such as if: +• a second applicant can establish that its product, although similar, is safer, more effective or otherwise clinically superior to the authorized orphan medicinal product; +28 +• the marketing authorization holder of the authorized orphan medicinal product consents to a second medicinal product application; or +• the marketing authorization holder of the authorized orphan medicinal product cannot supply enough orphan medicinal product. +Pediatric Development +In the EU, companies developing a new medicinal product must agree upon a Pediatric Investigation Plan, or PIP, with the EMA’s Pediatric Committee, or PDCO, and must conduct pediatric clinical trials in accordance with that PIP, unless a waiver applies, (e.g., because the relevant disease or condition occurs only in adults). The PIP sets out the timing and measures proposed to generate data to support a pediatric indication of the product for which marketing authorization is being sought. The marketing authorization application for the product must include the results of pediatric clinical trials conducted in accordance with the PIP, unless a waiver applies or a deferral has been granted by the PDCO of the obligation to implement some or all of the measures of the PIP until there are sufficient data to demonstrate the efficacy and safety of the product in adults, in which case the pediatric clinical trials must be completed at a later date. Products that are granted a marketing authorization with the results of the pediatric clinical trials conducted in accordance with the PIP are eligible for a six month extension of the protection under an SPC, even where the trial results are negative, provided an application for such extension is made at the same time as filing the SPC application for the product, or at any point up to two years before the SPC expires. In the case of orphan medicinal products, a two year extension of the orphan market exclusivity may be available. This pediatric reward is subject to specific conditions and is not automatically available when data in compliance with the PIP are developed and submitted. +PRIME Designation +In March 2016, the EMA launched an initiative to facilitate development of product candidates in indications, often rare, for which few or no therapies currently exist. The PRIority MEdicines, or PRIME, scheme is intended to encourage product development in areas of unmet medical need and accelerated assessment of products representing substantial innovation, where the MAA will be made through the centralized procedure. Eligible products must target conditions for which there is an unmet medical need (there is no satisfactory method of diagnosis, prevention or treatment in the EU or, if there is, the new medicine will bring a major therapeutic advantage) and they must demonstrate the potential to address the unmet medical need by introducing new methods of therapy or improving existing ones. Applicants will typically be at the exploratory clinical trial phase of development and will have preliminary clinical evidence in patients to demonstrate the promising activity of the medicine and its potential to address, to a significant extent, an unmet medical need. Products from small- and medium-sized enterprises may qualify for earlier entry into the PRIME scheme than larger companies if the applicant has compelling non-clinical data and tolerability data from initial clinical trials of the product. Many benefits accrue to sponsors of product candidates with PRIME designation, including but not limited to, early and proactive regulatory dialogue with the EMA, frequent discussions on clinical trial designs and other development program elements and the opportunity for accelerated MAA assessment once a dossier has been submitted. Importantly, a dedicated Agency contact and rapporteur from the CHMP or CAT are appointed early in the PRIME scheme, facilitating increased understanding of the product at EMA’s Committee level. A kick-off meeting initiates these relationships and includes a team of multidisciplinary experts at the EMA to provide guidance on the overall development and regulatory strategies. Where, during the course of development, a medicine no longer meets the eligibility criteria, support under the PRIME scheme may be withdrawn. +Post-Approval Controls +Following approval, the holder of the marketing authorization is required to comply with a range of requirements applicable to the manufacturing, marketing, promotion and sale of the medicinal product. These include the following: +• The holder of a marketing authorization must establish and maintain a pharmacovigilance system and appoint an individual qualified person for pharmacovigilance, who is responsible for oversight of that system. Key +29 +obligations include expedited reporting of suspected serious adverse reactions and submission of periodic safety update reports, or PSURs. +• All new MAAs must include a risk management plan, or RMP, describing the risk management system that the company will put in place to prevent or minimize the risks associated with the product. The regulatory authorities may also impose specific obligations as a condition of the marketing authorization. Such risk-minimization measures or post-authorization obligations may include additional safety monitoring, more frequent submission of PSURs or the conduct of additional clinical trials or post-authorization safety studies. RMPs and PSURs are routinely available to third parties requesting access, subject to limited redactions. +• All advertising and promotional activities for the product must be consistent with the approved Summary of Product Characteristics and therefore all off-label promotion is prohibited. Direct-to-consumer advertising of prescription medicines is also prohibited in the EU. Although general requirements for advertising and promotion of medicinal products are established under EU directives, the details are governed by regulations in each EU Member State and can differ from one country to another. +All the aforementioned EU rules are generally applicable in the EEA. +Reform of the Regulatory Framework in the EU +The European Commission introduced legislative proposals in April 2023 that, if implemented, will replace the current regulatory framework in the EU for all medicines (including those for rare diseases and for children). In April 2024, the European Parliament adopted its position on the legislative proposals and, in June 2025, the Council of the European Union adopted its position. A common position on the text has been agreed upon on December 11, 2025, in the context of subsequent inter-institutional trilogue negotiations. The proposed revisions remain to be adopted, and are not expected to become applicable before 2028. +Regulatory Framework in the United Kingdom +Following the end of the Brexit transition period on January 1, 2021 and the implementation of the Windsor Framework on January 1, 2025, the UK is not generally subject to EU laws in respect of medicines. The EU laws that have been transposed into UK law through secondary legislation remain applicable in the UK, however, new legislation such as the EU Clinical Trials Regulation is not applicable in the UK. As a result of the Northern Ireland protocol, different rules applied in Northern Ireland than in England, Wales, and Scotland (together, Great Britain, or GB) for a period following Brexit, which continued to follow the EU regulatory regime. However, on January 1, 2025 a new arrangement called the Windsor Framework came into effect and reintegrated Northern Ireland under the regulatory authority of the MHRA with respect to medicinal products. The Windsor Framework removes EU licensing processes and EU labeling and serialization requirements in relation to Northern Ireland and introduces a UK-wide licensing process for medicines. The MHRA is responsible for approving all medicinal products destined for the UK market (i.e., Great Britain and Northern Ireland). A single UK-wide marketing authorization will be granted by the MHRA for all novel medicinal products to be sold in the UK, enabling products to be sold in a single pack and under a single authorization throughout the UK. In addition, the new arrangements require, for packs placed on the UK market on or after January 1, 2025, a "UK Only" label, indicating they are not for sale in the EU. Although a separate authorization is now required to market medicinal products in the UK, under an international recognition procedure which was put in place by the MHRA on January 1, 2024, the MHRA may take into account decisions on the approval of a marketing authorization from the EMA (and certain other regulators) when considering an application for a UK marketing authorization. There is no pre-marketing authorization orphan designation in the UK. Instead, the MHRA reviews applications for orphan designation with the corresponding marketing authorization application. The criteria are essentially the same, but have been tailored for the market, i.e., the prevalence of the condition in the UK, rather than the EU, must be more than five in 10,000. Should an orphan designation be granted, the period of market exclusivity will be set from the date of first approval of the product in the UK. +30 +Other Healthcare Laws and Compliance Requirements +Insurance and coverage +In the United States and markets in other countries, patients generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors is critical to new product acceptance. Our ability to successfully commercialize our product candidates will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. The availability of coverage and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford treatments such as gene therapy products. Sales of these or other product candidates that we may identify will depend substantially, both domestically and abroad, on the extent to which the costs of our product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors. If coverage and adequate reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize our product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investment. +There is also significant uncertainty related to the insurance coverage and reimbursement of newly approved products and coverage may be more limited than the purposes for which the medicine is approved by the FDA or comparable foreign regulatory authorities. In the United States, the principal decisions about reimbursement for new medicines are typically made by the Centers for Medicare & Medicaid Services, or CMS, an agency within the U.S. Department of Health and Human Services, or HHS. CMS decides whether and to what extent a new medicine will be covered and reimbursed under Medicare and private payors tend to follow CMS to a substantial degree. Factors payors consider in determining reimbursement are based on whether the product is: +• a covered benefit under its health plan; +• safe, effective and medically necessary; +• appropriate for the specific patient; +• cost-effective; and +• neither experimental nor investigational. +In addition, many third-party payors are increasingly limiting both coverage and the level of reimbursement of new drugs. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that reimbursement will be available for any product candidate that we commercialize and, if reimbursement is available, the level of reimbursement. In addition, many pharmaceutical manufacturers must calculate and report certain price reporting metrics to the government, such as average sales price, or ASP, and best price. Penalties may apply in some cases when such metrics are not submitted accurately and timely. Further, these prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs. Net prices for drugs may be also reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. +Other healthcare laws +In the United States, our current and future operations are subject to regulation by various federal, state and local authorities in addition to the FDA, including but not limited to, CMS, other divisions of HHS (such as the Office of Inspector General, Office for Civil Rights and the Health Resources and Service Administration), the U.S. +31 +Department of Justice, or DOJ, and individual U.S. Attorney offices within the DOJ, and state and local governments. For example, our clinical research, sales, marketing and scientific/educational grant programs may have to comply with the anti-fraud and abuse provisions of the Social Security Act, the false claims laws, the privacy and security provisions of the Health Insurance Portability and Accountability Act of 1996, or HIPAA, and similar state laws, each as amended, as applicable: +• the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order, arrangement or recommendation of any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs; a person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it to have committed a violation. Violations are subject to civil and criminal fines and penalties for each violation, plus up to three times the remuneration involved, imprisonment, and exclusion from government healthcare programs. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act or federal civil monetary penalties. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand, and prescribers, purchasers and formulary managers, among others, on the other. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act or federal civil money penalties statute; +• the federal civil and criminal false claims laws and civil monetary penalty laws, including the False Claims Act, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, false or fraudulent claims for payment to, or approval by, Medicare, Medicaid, or other federal healthcare programs, knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim or obligation to pay or transmit money or property to the federal government, or knowingly concealing or knowingly and improperly avoiding or decreasing or concealing an obligation to pay money to the federal government. A claim that includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim under the False Claims Act. Manufacturers can be held liable under the False Claims Act even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. The False Claims Act also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the False Claims Act and to share in any monetary recovery; +• HIPAA, which created additional federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false, fictitious, or fraudulent statements or representations in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; +• HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective implementing regulations, including the Final Omnibus Rule published in January 2013, which impose requirements on certain covered healthcare providers, health plans, and healthcare clearinghouses as well as their respective business associates that perform services for them that involve the use, or disclosure of, individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health information. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions; +32 +• the federal transparency requirements under the Affordable Care Act, or ACA, including the provision commonly referred to as the Physician Payments Sunshine Act, and its implementing regulations, which require applicable manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to CMS, information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain other licensed healthcare practitioners and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members; +• federal government price reporting laws, which require us to calculate and report complex pricing metrics in an accurate and timely manner to government programs; +• federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; +• analogous state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers or patients; state laws that require pharmaceutical companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state and local laws that require the licensure of sales representatives; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures and pricing information; data privacy and security laws and regulations in foreign jurisdictions some of which may be more stringent than those in the United States (such as the EU, which adopted the General Data Protection Regulation, which became effective in May 2018); and numerous state laws governing the privacy and security of health information, many of which differ from each other in significant ways regarding their applicability, compliance requirements and enforcement; and +• state laws related to insurance fraud in the case of claims involving private insurers. +Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. +Law enforcement authorities are increasingly focused on enforcing fraud and abuse laws, and it is possible that some of our practices may be challenged under these laws. Efforts to ensure that our current and future business arrangements with third parties, and our business generally, will comply with applicable healthcare laws and regulations will involve substantial costs. If our operations, including our arrangements with physicians and other healthcare providers, are found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject to penalties, including, without limitation, administrative, criminal and/or civil penalties, damages, fines, disgorgement, reputational harm, imprisonment, the exclusion or suspension from federal and state healthcare programs such as Medicare and Medicaid and debarment from contracting with the U.S. government, and/or the curtailment or restructuring of our operations, as well as additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws. If any of the physicians or other healthcare providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, they may be subject to similar penalties. +The risk of our being found in violation of these laws is increased by the fact that many of these laws have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. The shifting compliance environment and the need to build and maintain a robust system to comply with multiple jurisdictions with different compliance and reporting requirements increases the possibility that a healthcare company may violate one or more of the requirements. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial cost. +33 +Healthcare reform +In the United States and some foreign jurisdictions, there have been, and likely will continue to be, a number of legislative and regulatory changes and proposed changes regarding the healthcare system directed at broadening the availability of healthcare, improving the quality of healthcare, and containing or lowering the cost of healthcare. For example, in 2010, the ACA was enacted which includes changes to the coverage and payment for products under government health care programs. Among other things, the ACA: +• expanded manufacturers’ rebate liability under the Medicaid Drug Rebate Program; +• extended the Medicaid Drug Rebate Program to utilization of prescriptions of individuals enrolled in Medicaid managed care plans; +• established annual fees and taxes on manufacturers of certain branded prescription drugs; +• created a Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70 percent point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.; and +• expanded the entities eligible for discounts under the 340B Drug Pricing Program. +In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. For example, on March 22, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminated the statutory Medicaid drug rebate cap, currently set at 100 percent of a drug’s average manufacturer price, for single source and innovator multiple source drugs. Such laws and regulations may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used. +Further, in 2018, the Right to Try Act, was signed into law. The law, among other things, provides a federal framework for certain patients to access certain IND products that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a pharmaceutical manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act. +The prices of prescription pharmaceuticals in the United States and foreign jurisdictions are subject to considerable legislative and executive actions and could impact the prices we obtain for our products, if and when licensed. +In August 2022, the Inflation Reduction Act, or the IRA, was signed into law. The IRA includes several provisions that will affect our business to varying degrees, including provisions that create a $2,000 out-of-pocket cap for Medicare Part D beneficiaries, impose new manufacturer financial liability on all drugs in Medicare Part D, allow the U.S. government to negotiate Medicare Part B and Part D pricing for certain high-cost drugs and biologics without generic or biosimilar competition, require companies to pay rebates to Medicare for drug prices that increase faster than inflation, and delay the rebate rule that would require pass through of pharmacy benefit manager rebates to beneficiaries. Further, under the IRA, orphan drugs are exempted from the Medicare drug price negotiation program, but only if they have one orphan designation and for which the only approved indication is for that disease or condition. Under the One Big Beautiful Bill Act of 2025, or the OBBBA, this restriction was eliminated; and effective for the 2028 initial price applicability year, all orphan drugs, regardless of the number of orphan drug designations or indications, are exempt from the Medicare drug price negotiation program. The implementation of the IRA is currently subject to ongoing litigation challenging the constitutionality of the IRA’s Medicare drug price negotiation program. Although the effects of the IRA on our business and the healthcare industry in general is not yet known, we are taking into consideration the potential impact of the IRA on our development and commercialization activities. +In addition to pricing regulations, reforms of regulatory approval frameworks may adversely affect our pricing strategy. At a federal level, President Trump reversed some of President Biden’s executive orders including rescinding Executive Order 14087 entitled “Lowering Prescription Drug Costs for Americans.” President Trump +34 +may issue new executive orders designed to impact drug pricing. A number of these and other proposed measures may require authorization through additional legislation to become effective. Congress and the Trump administration have indicated that they will continue to seek new legislative measures to control drug costs. +On December 19, 2025, CMS released two proposed rules that would incorporate most‑favored nation, or MFN, pricing principles into federal reimbursement for prescription drugs. The first proposal, the Global Benchmark for Efficient Drug Pricing Model, or GLOBE, for Medicare Part B, would require manufacturers of specified single‑source drugs and sole‑source biologics to pay incremental rebates based on international benchmark prices, with participation triggered for products meeting CMS’s spending and eligibility criteria. The second proposal, the Guarding U.S. Medicare Against Rising Drug Costs, or GUARD, model for Medicare Part D, would similarly mandate manufacturer rebates for qualifying sole‑source drugs where the Medicare net price exceeds an MFN benchmark derived from international reference pricing methodologies. As proposed, GLOBE would begin a five‑year performance period on October 1, 2026 and GUARD would begin its performance period in 2027. These proposals will likely be subject to legal challenges that could delay their implementation or modify their impact on manufacturer pricing and revenue. Additionally, in November 2025, CMS introduced the GENErating cost Reductions for U.S. Medicaid, or GENEROUS, Model, a voluntary MFN framework for manufacturers participating in the Medicaid Drug Rebate Program. Although it is voluntary, the GENEROUS Model could also impact the drug pricing landscape for manufacturers. +Individual states in the United States have also become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. State legislatures have also been increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. +It is difficult to predict the future legislative landscape in healthcare and the effect on our business, results of operations, financial condition and prospects. However, we expect that additional state and federal healthcare reform measures will be adopted in the future. +Employees and Human Capital Resources +As of December 31, 2025, we had 146 full-time employees, of whom 63 have M.D. or Ph.D. degrees. Within our workforce, 119 employees are engaged in research and development and 27 are engaged in business development, finance, legal, and general management and administration. None of our employees are represented by labor unions or covered by collective bargaining agreements. We consider our relationship with our employees to be good. +Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and new employees, advisors and consultants. The principal purposes of our equity incentive plans are to attract, retain and reward personnel through the granting of equity-based compensation awards in order to increase shareholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives. +Our Corporate Information +We were incorporated under the laws of the state of Delaware in September 2019 under the name Prime Medicine, Inc. Our principal executive offices are located at 60 First Street, Cambridge, MA 02141. Our telephone number is (617) 465-0013 and our website is located at www.primemedicine.com. References to our website are inactive textual references only and the content of our website should not be deemed incorporated by reference into this Annual Report on Form 10-K. +35 +Available Information +Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of charge on our website located at www.primemedicine.com as soon as reasonably practicable after they are filed with or furnished to the Securities and Exchange Commission, or the SEC. These reports are also available at the SEC’s website at www.sec.gov. +Our Code of Business Conduct and Ethics is posted on our website located at investors.primemedicine.com/corporate-governance/documents-charters. A copy of our Corporate Governance Guidelines, and the charters of the audit committee, compensation committee, and nominating and corporate governance committee are posted on our website, www.primemedicine.com, under the heading “Investors—Corporate Governance” and are available in print to any person who requests copies by contacting us by calling (617) 465-0013 or by writing to Prime Medicine, Inc., 60 First Street, Cambridge, Massachusetts 02141. +36 +Item 1A. Risk Factors +Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all the other information in this Annual Report on Form 10-K, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes, before you make an investment decision with respect to our securities. The risks and uncertainties described below and in our other filings with the SEC may not be the only ones we face. The occurrence of any of the events or developments described below, if they actually occur, could harm our business, financial condition, results of operations and growth prospects. As a result, the market price of our common stock could decline, and you may lose all or part of your investment in our common stock. +Risks Related To Our Financial Position and Need for Additional Capital +We have incurred significant losses since inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability. +Since inception, we have incurred significant operating losses. Our net loss was $201.1 million and $195.9 million for the years ended December 31, 2025, and 2024, respectively. As of December 31, 2025, we had an accumulated deficit of $888.4 million. To date, we have financed our operations primarily through proceeds from sales of preferred stock and from our public offerings, including our initial public offering, or IPO, and through payments from our collaboration partners. Substantially all of our losses have resulted from expenses incurred in connection with our research and development and from general and administrative costs associated with our operations. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. The net losses we incur may fluctuate significantly from year to year such that a period-to-period comparison of our results of operations may not be a good indication of our future performance. We anticipate that our expenses will increase substantially if and as we: +• continue our current research programs and preclinical development of any product candidates we have identified or may identify in the future; +• seek to identify and progress additional research programs and product candidates; +• evaluate strategic alternatives and potential partnership opportunities for PM359, including our ability to execute and realize the anticipated benefits of any strategic alternatives we may pursue; +• initiate preclinical studies and clinical trials for any product candidates we have identified or may identify in the future; +• experience any delays or interruptions due to global health crises, including delays in preclinical testing and clinical trials or interruptions in the supply chain for any current or future product candidates; +• further develop our in-licensed and company-owned gene editing platform, which we call our Prime Editing platform; +• maintain, expand, enforce, defend and protect our intellectual property portfolio and provide reimbursement of third-party expenses related to our patent portfolio; +• seek marketing approvals for any product candidates that successfully complete clinical trials; +• ultimately establish a sales, marketing and distribution infrastructure to commercialize any therapies for which we may obtain marketing approval; +• develop, maintain and enhance a sustainable, scalable, reproducible and transferable manufacturing process for the product candidates we may develop; +• hire additional personnel to support our strategic priorities; +• hire clinical, operations, regulatory and commercial personnel; +• add operational, financial and management information systems and personnel, including personnel to support our product development; +37 +• acquire or in-license product candidates, intellectual property and technologies and/or work with strategic partners to support and expand our scientific and clinical programs; +• maintain existing collaborations or strategic relationships and identify and enter into future license agreements and collaborations with third parties; +• should we decide to do so, build and maintain a commercial-scale cGMP, manufacturing facility; +• operate as a public company; and +• identify new opportunities to expand the use of Prime Editing beyond those currently available scientifically and clinically. +We expect that it will be many years, if ever, before we have a product candidate ready for commercialization. To become and remain profitable, we must develop and, either directly or through collaborators, eventually commercialize a therapy or therapies with market potential. This will require us to be successful in a range of challenging activities, including identifying product candidates, completing preclinical studies and clinical trials of product candidates, obtaining marketing approval for these product candidates, manufacturing, marketing and selling those therapies for which we may obtain marketing approval and satisfying any post-marketing requirements. We may never succeed in these activities and, even if we do, may never generate revenues that are significant or large enough to achieve profitability. +Because of the numerous risks and uncertainties associated with developing Prime Editing product candidates, we are unable to predict the extent of any future losses or when we will become profitable, if at all. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment. +Because our existing cash, cash equivalents, and investments will not be sufficient to fund our operations, as currently planned, for more than one year beyond the filing date of this Annual Report on Form 10-K, we have determined that there is substantial doubt regarding our ability to continue as a going concern. +Based on our existing cash, cash equivalents, short-term investments, and related party short-term investments as of December 31, 2025, our current and forecasted level of operations and our forecasted cash flows, our ability to continue as a going concern is dependent upon our ability to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. We plan to provide for our capital requirements through financing or other transactions, and selling shares of our common stock under our “at the market offering” program. There can be no assurance that we will be able to raise additional capital to fund operations with terms acceptable to us, or at all. Because our existing cash, cash equivalents, and investments will not be sufficient to fund our operations for more than one year from the date of issuance of the consolidated financial statements appearing in this Annual Report on Form 10-K, we have determined that there is substantial doubt regarding our ability to continue as a going concern. +The substantial doubt about our ability to continue as a going concern may adversely affect our stock price and our ability to raise capital. If we are unable to obtain additional capital, we may not be able to continue our operations on the scope or scale as currently conducted, and that could have a material adverse effect on our business, results of operations and financial condition. +We will need substantial additional funding. If we are unable to raise capital when needed, we will be forced to delay, reduce, eliminate or prioritize among our research and product development programs or future commercialization efforts. +We expect our expenses to continue to increase in connection with our ongoing activities, particularly as we identify, continue the research and development of, initiate preclinical studies and clinical trials of, and seek marketing approval for, product candidates. Because we have limited financial and managerial resources, we have prioritized our research programs and lead optimization efforts in specific indications among many potential options. Specifically, our current areas of focus are hematology, immunology and oncology, liver, and lung indications. As a +38 +result of this prioritization, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater clinical or commercial potential and we may need to reprioritize our focus in the future. For example, in September 2024 and May 2025, we strategically focused our portfolio to a set of high value programs in our current areas of focus referenced above, and are identifying opportunities to advance our other programs, including those for neurological diseases, cell therapy, ocular diseases and hearing loss, in partnership or through internal efforts in the future. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable therapies. +In addition, if we obtain marketing approval for any product candidates we may develop, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of a collaborator. Furthermore, we have incurred, and will continue to incur, costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and product development programs or future commercialization efforts. +As of December 31, 2025, our cash, cash equivalents, and investments were $177.7 million, excluding restricted cash, or $191.4 million, including restricted cash. Based on our current operating plan, we believe that our existing cash and cash equivalents and short-term investments will be sufficient to fund our operating expenses and capital expenditure requirements into 2027. However, our operating plan may change as a result of factors currently unknown to us, and we may need to seek funding sooner than planned. Our future capital requirements will depend on many factors, including those discussed in the risk factor entitled “We have incurred significant losses since inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.” +Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize any product candidates we may develop. We cannot be certain that additional funding will be available on acceptable terms or at all. We have no committed source of additional capital and, if we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of any product candidates or other research and development initiatives. Our license and collaboration agreements and any future collaboration agreements may also be terminated if we are unable to meet the payment or other obligations under the agreements. We could be required to seek collaborators for current or future potential product candidates earlier than we would otherwise plan or on terms that are less favorable than might otherwise be available. We could also be required to relinquish or license our rights to product candidates on unfavorable terms in certain markets where we otherwise would seek to pursue development or commercialization ourselves. +Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates we may develop. +Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of public and private equity offerings, debt financings, collaborations, strategic partnerships and alliances and licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, declaring dividends and possibly other restrictions. In addition, if we raise funds through additional license and collaboration agreements, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our intellectual property, technologies, future revenue streams, research programs or product candidates we may develop, or we may have to grant licenses on terms that may not be favorable to us. +39 +Our short operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability. +We are an early-stage company. We were founded in September 2019 and commenced operations in July 2020. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, acquiring and developing our platform and technology, identifying and advancing preclinical testing of current and future product candidates, and running our Phase 1/2 clinical trial of PM359. All of our current programs are in the research or preclinical stage of development and their risk of failure is high. We have not yet demonstrated an ability to successfully complete any clinical trials, including large-scale, pivotal clinical trials, obtain marketing approvals, manufacture a commercial-scale therapy, arrange for a third party to do so on our behalf or conduct sales and marketing activities necessary for successful commercialization. Typically, it takes about 10 to 15 years to develop a new therapy from the time it is discovered to when it is available for treating patients. +Our limited operating history, particularly in light of the rapidly evolving gene editing field, may make it difficult to evaluate our technology and industry and predict our future performance. Our very short history as an operating company makes any assessment of our future success or viability subject to significant uncertainty. We will encounter risks and difficulties frequently experienced by very early stage companies in rapidly evolving fields. If we do not address these risks successfully, our business will suffer. +In addition, as a new business, we may encounter other unforeseen expenses, difficulties, complications, delays, and other known and unknown factors. We will need to transition from a company with a research focus to a company capable of supporting commercial activities. We may not be successful in such a transition. +We have never generated revenue from product sales and may never become profitable. +Our ability to generate revenue from product sales and achieve profitability depends on our ability, alone or with collaborative partners, to successfully complete the development of, and obtain the regulatory approvals necessary to commercialize, product candidates we may identify for development. We do not anticipate generating revenues from product sales for many years, if ever. Our ability to generate future revenues from product sales depends heavily on our, or our collaborators’, ability to successfully: +• identify product candidates and successfully complete research development of any product candidates we may identify; +• seek and obtain regulatory and marketing approvals for any product candidates for which we complete clinical trials; +• launch and commercialize any product candidates for which we may obtain regulatory and marketing approval by establishing a sales force, marketing and distribution infrastructure, or alternatively, collaborating with a commercialization partner; +• qualify for adequate coverage and reimbursement by government and third-party payors for any product candidates for which we may obtain regulatory and marketing approval; +• establish and maintain supply and manufacturing relationships with third parties that can provide adequate, in both amount and quality, products and services to support clinical development and the market demand for any product candidates for which we obtain regulatory and marketing approval; +• develop, maintain and enhance a sustainable, scalable, reproducible and transferable manufacturing process for the product candidates we may develop; +• address competing technological and market developments; +• negotiate favorable terms in any collaboration, licensing or other arrangements into which we may enter and performing our obligations in such collaborations; +• receive market acceptance by physicians, patients, healthcare payors, and others in the medical community; +• maintain, protect, enforce, defend and expand our portfolio of intellectual property and other proprietary rights, including patents, trade secrets and know-how; +40 +• defend against third party intellectual property claims of infringement, misappropriation or other violation; and +• attract, hire and retain qualified personnel. +Our expenses could increase beyond expectations if we are required by the FDA, EMA, or other regulatory authorities to perform clinical and other studies in addition to those that we currently anticipate. Even if one or more of the product candidates we may develop are approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Additionally, such products may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives. Even if we are able to generate revenues from the sale of any approved product candidates, we may not become profitable and may need to obtain additional funding to continue operations. +Our future ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited. +Since our inception, we have incurred losses and we may never achieve profitability. To the extent that we continue to generate taxable losses, under current law, our unused U.S. federal net operating losses, or NOLs, may be carried forward to offset a portion of future taxable income, if any. Additionally, we continue to generate business tax credits, including research and development tax credits, which generally may be carried forward to offset a portion of future taxable income, if any, subject to expiration of such credit carryforwards. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” generally defined as one or more stockholders or groups of stockholders who own at least five percent of the corporation’s equity increasing their equity ownership in the aggregate by more than 50 percentage points (by value) over a three-year period, the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes (such as research and development tax credits) to offset its post-change income or taxes may be limited. Similar rules may apply under state tax laws. Our prior equity offerings and other changes in our stock ownership may have resulted in such ownership changes in the past. In addition, we may experience ownership changes in the future due to shifts in our stock ownership, some of which are outside of our control. As a result, if we earn net taxable income, our ability to use our pre-change NOLs or other pre-change tax attributes to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us. Additional limitations on our ability to utilize our NOLs to offset future taxable income may arise as a result of our corporate structure whereby NOLs generated by our subsidiary may not be available to offset taxable income earned by our subsidiary. There is a risk that due to changes under the tax law, regulatory changes or other unforeseen reasons, our existing NOLs or business tax credits could expire or otherwise be unavailable to offset future income tax liabilities. At the state level, there may also be periods during which the use of NOLs or business tax credits is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. For these reasons, we may not be able to realize a tax benefit from the use of our NOLs or tax credits, even if we attain profitability. +Unfavorable macroeconomic conditions or market volatility resulting from geopolitical developments or national or global economic conditions, including those affecting the financial services industry, could adversely affect our business, financial condition or results of operations. +Adverse macroeconomic conditions or market volatility resulting from national or global economic developments, political unrest, high inflation, changing interest rates, international tariffs, changes in international trade relationships and military conflicts, such as the ongoing conflict between Russia and Ukraine, changes in or the disruptions of U.S. governmental agencies, whether from a prolonged U.S. federal government shutdown or reduced resources, disruptions in capital markets, the potential for significant changes in U.S. policies or regulatory environment, or other factors, could materially and adversely affect our business operations. Sanctions imposed by the U.S. and other countries in response to such conflicts may also continue to adversely impact the financial markets and the global economy, and any economic countermeasures by the affected countries or others could exacerbate market and economic instability. For example, on September 25, 2025, the current U.S. administration announced a 100% tariff on brand-name or patented drugs unless pharmaceutical companies expand their manufacturing operations in the U.S., and may impose more restrictions on goods. Although the pharmaceutical tariff is currently on hold, this could have a material adverse effect on our supply chain and business prospects as well as the larger biopharmaceutical industry. While certain tariffs have subsequently been suspended, modified or +41 +temporarily reduced, we cannot predict the results of the U.S. government’s trade negotiations or the outcome of ongoing legal challenges to specific tariff policies. +Moreover, there can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. For instance, actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. Investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all. In addition, any further deterioration in the macroeconomic economy or financial services industry could lead to losses or defaults by our suppliers, which in turn, could have a material adverse effect on our current and/or planned business operations and our current or projected results of operations and financial condition. For example, on December 18, 2025, the U.S. enacted the BIOSECURE Act, which prohibits U.S. federal agencies from entering into or renewing a contract with any company that uses biotechnology equipment or services produced or provided by a “biotechnology company of concern” in the performance of that contract. It also prohibits loans or grant funding from U.S. federal agencies to entities that use any biotechnology equipment or services produced or provided by a “biotechnology company of concern” in the performance of the government grant or loan. The BIOSECURE Act does not identify any specific companies as “biotechnology companies of concern” but treats any company on the Department of Defense 1260H list of “Chinese military companies” as a “biotechnology company of concern.” By December 18, 2026, the Director of the Office of Management, or OMB, and Budget will publish a full list of “biotechnology companies of concern” based on recommendations from key federal Secretaries and Directors, including Defense, Justice, HHS, Commerce, National Intelligence, Homeland Security, State, and National Cyber. The Director of OMB will thereafter review and update that list at least annually, based on recommendations from those key federal Secretaries and Directors. Although there is a five-year safe harbor for existing contracts with companies later designated as “biotechnology companies of concern,” the safe harbor is unavailable for existing contracts with companies named on the 1260H list as of December 18, 2025. As a result of this legislation, we may not be able to engage a backup or alternative supplier or service provider in a timely manner or at all. This, in turn, could materially and adversely affect our or our collaborators’ ability to manufacture or supply product candidates or advance our clinical development programs, which could materially and adversely affect our business and future prospects. We continue to assess the impact of the legislation and its potential impacts on our contractual relationships. Also, current inflationary trends in the global economy may impact salaries and wages, costs of goods and transportation expenses, among other things, and recent and potential future disruptions in access to bank deposits or lending commitments due to bank failures may create market and economic instability. +A severe or prolonged economic downturn or additional global financial crises could result in a variety of risks to our business, including weakened demand for any product candidates we develop or our ability to raise additional capital when needed on acceptable terms, if at all. For example, on October 1, 2025, the U.S. federal government shutdown through November 12, 2025, suspending services deemed non-essential as a result of the failure by Congress to enact regular appropriations for the 2026 fiscal year. If we experience another prolonged government shutdown, it could result in increased uncertainty and volatility in the global economy and financial markets which could have a material adverse effect on our business. Weak economic conditions or significant uncertainty regarding the stability of financial markets related to stock market volatility, inflation, recession, changes in tariffs or other trade restrictions, trade agreements, trade wars or governmental fiscal, monetary and tax policies, among others, could adversely impact our business, financial condition and operating results. +Further, U.S. government appropriations have been affected by larger U.S. government budgetary issues and related legislation. In addition, in the past, U.S. debt ceiling and budget deficit concerns have increased the possibility of additional credit-rating downgrades and economic slowdowns, or a recession in the U.S. Although U.S. lawmakers passed legislation to raise the federal debt ceiling on multiple occasions, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on the U.S. The impact of this or any further downgrades to the U.S. government’s sovereign credit rating or its perceived creditworthiness could adversely affect the U.S. and global financial markets and economic conditions. As a result, government spending levels are difficult to predict beyond +42 +the near term due to numerous factors, including the external threat environment, future government priorities and the state of government finances. Significant changes in government spending or changes in U.S. government priorities, policies and requirements could have a material adverse effect on our results of operations, financial condition or liquidity. +Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business. +Risks Related To Discovery, Development and Commercialization +Gene editing, including platforms such as Prime Editing, is a relatively new technology that has not been extensively clinically validated for human therapeutic use. The approach we are taking to discover and develop novel therapeutics is unproven and may never lead to marketable products. We may incur unexpected costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of any product candidates. +We are focused on developing therapies utilizing gene editing technology, which is relatively new and has not been extensively clinically validated. The Prime Editing technologies that we have licensed and that we are utilizing in our research programs have not yet been clinically tested, nor are we aware of any clinical trials for safety or efficacy having been completed by third parties using Prime Editing or similar technologies. The scientific evidence to support the feasibility of developing product candidates based on gene editing technologies is both preliminary and limited. Successful development of product candidates will require us to safely deliver a gene editor into target cells, optimize the efficiency and specificity of such product candidates and ensure the therapeutic selectivity of such product candidates. We may need to address other safety issues as well, and to demonstrate the full value of these products, we will need to achieve these goals with single administration and demonstrate a permanent correction. There can be no assurance that our Prime Editing platform will achieve these goals, lead to the development of gene editing therapies, or be successful in solving any or all of these issues. +Our future success is highly dependent on the successful development of gene editing technologies, cellular delivery methods and therapeutic applications of that technology. We may decide to alter or abandon our initial programs as new data become available and we gain experience in developing gene editing therapeutics. We cannot be sure that our technologies will yield satisfactory products that are safe and effective, scalable or profitable in our initial indications or any other indication we pursue. Adverse developments in the clinical development efforts of other gene editing or gene therapy technology companies could adversely affect our efforts or the perception of any product candidates we may develop by both investors and regulatory authorities. +Similarly, other gene editing or gene therapy approaches may be determined to be more attractive than Prime Editing. Moreover, if we decide to develop gene editing technologies other than those involving Prime Editing, we cannot be certain we will be able to obtain rights to such technologies. +Additionally, public perception and related media coverage relating to the adoption of new therapeutics or novel approaches to treatment, as well as ethical concerns related specifically to gene editing, may adversely influence the willingness of subjects to participate in clinical trials, or, if any therapeutic is approved, of physicians and patients to accept these novel and personalized treatments. Physicians, health care providers and third-party payors often are slow to adopt new products, technologies and treatment practices, particularly those that may also require additional upfront costs and training. Physicians may not be willing to undergo training to adopt these novel and potentially personalized therapies, may decide the particular therapy is too complex or potentially risky to adopt without appropriate training, and may choose not to administer the therapy. Furthermore, due to health conditions, genetic profile or other reasons, certain patients may not be candidates for the therapies. In addition, responses by federal and state agencies, Congressional committees and foreign governments to negative public perception, ethical concerns or financial considerations may result in new legislation, regulations or medical standards that could limit our ability to develop or commercialize any product candidates, obtain or maintain regulatory approval or otherwise achieve profitability. New government requirements may be established that could delay or prevent regulatory approval of any product candidates we may develop. It is impossible to predict whether legislative changes will be enacted, regulations, policies or guidance changed, or interpretations by agencies or courts changed, or what the +43 +impact of such changes, if any, may be. Based on these and other factors, health care providers and payors may decide that the benefits of these new therapies do not or will not outweigh their costs. +Clinical drug development involves a lengthy and expensive process, with an uncertain outcome. Because gene editing is relatively new and the regulatory landscape that will govern any product candidates we may develop is uncertain and may change, we cannot predict the time and cost of obtaining regulatory approval, if we receive it at all, for any product candidates. +The time required to obtain approval for any of our current or future product candidates from the FDA, the European Commission or other comparable foreign regulatory authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of regulatory authorities. Clinical trials may fail to demonstrate that our product candidates are safe for humans and effective for indicated uses. Even if initial clinical trials in any of our product candidates we may develop are successful, such product candidates may fail to show the desired safety and efficacy in later stages of clinical development despite having successfully advanced through preclinical studies and initial clinical trials. There is a high failure rate for drugs and biologics proceeding through clinical trials. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in later stage clinical trials even after achieving promising results in earlier stage clinical trials. The U.S. Supreme Court’s July 2024 decision to overturn prior established case law giving deference to regulatory agencies’ interpretations of ambiguous statutory language has introduced uncertainty regarding the extent to which FDA’s regulations, policies and decisions may become subject to increasing legal challenges, delays, and/or changes. +Because gene editing is relatively new, the regulatory requirements that will govern any novel gene editing product candidates we develop may continue to evolve. Within the broader genetic therapy field, a limited number of gene therapy products have received marketing authorization from the FDA and the European Commission to date. Even with respect to more established products that fit into the categories of gene therapies or cell therapies, the regulatory landscape is still developing. Regulatory requirements governing the development of gene therapy products and cell therapy products have changed frequently and may continue to change in the future. Moreover, there is substantial, and sometimes uncoordinated, overlap in those responsible for regulation of existing gene therapy products and cell therapy products. The FDA’s Office of Therapeutic Products, or OTP, reviews gene and cell therapies and related products and has been elevated to a “Super Office” to meet its growing cell and gene therapy workload. Gene therapy clinical trials may also be subject to review and oversight by an institutional biosafety committee, or IBC, a local institutional committee that reviews and oversees certain basic and clinical research conducted at the institution participating in the clinical trial. Although the FDA decides whether individual gene therapy protocols may proceed, the review process and determinations of other reviewing bodies, such as an IBC, can impede or delay the initiation of a clinical trial, even if the FDA has reviewed the trial and approved its initiation. For example, more recently, some gene editing companies have seen significant delays in receiving FDA authorization to allow the initiation of their clinical trials, and has suspended ongoing trials, due to the FDA’s placement of clinical holds on their IND applications. +The same applies in the EU. The EMA’s Committee for Advanced Therapies, or CAT, is responsible for assessing the quality, safety and efficacy of advanced-therapy medicinal products (i.e. gene therapy, somatic-cell therapy or tissue-engineered medicines). The role of the CAT is to prepare a draft opinion on an application for marketing authorization for a gene therapy medicinal candidate that is submitted to the Committee for Medicinal Products for Human Use, or CHMP, before the CHMP adopts its opinion which is submitted to the European Commission for the final decision on whether to grant a marketing authorization or not. In the EU, the EMA publishes guidelines for the development and evaluation of gene therapy medicinal products to assist in preparing marketing authorization applications, however these are continually under review. The EMA may issue new guidelines concerning the development and marketing authorization for gene therapy medicinal products and require that we comply with these new guidelines. +Adverse developments in post-marketing experience or in clinical trials conducted by others of gene therapy products, cell therapy products or products developed through the application of gene editing technology may cause the FDA, the EMA and other regulatory bodies to revise the requirements for development or approval of our current or future product candidates or limit the use of products utilizing gene editing technologies, either of which could materially harm our business. In addition, the clinical trial requirements of the FDA, the EMA and other +44 +regulatory authorities and the criteria these regulators use to determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of the potential products. The regulatory approval process for novel product candidates can be more expensive and take longer than for other, better known or more extensively studied pharmaceutical or other product candidates. Regulatory agencies administering existing or future regulations or legislation may not allow production and marketing of products utilizing gene editing technology in a timely manner or under technically or commercially feasible conditions. In addition, regulatory action or private litigation could result in expenses, delays or other impediments to our research programs or the commercialization of resulting products. +We and our collaborators, if any, may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize any product candidates we may identify and develop, including regulatory delays, negative or inconclusive results from our clinical trials, difficulty in designing well-controlled clinical trials, lack of regulatory authorization for our clinical trials, and patients or clinical trial sites dropping out of a trial. +The regulatory review committees and advisory groups described above and the new guidelines they promulgate may lengthen the regulatory review process, require us to perform additional studies or trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of these treatment candidates or lead to significant post-approval limitations or restrictions. As we advance our research programs and develop future product candidates, we will be required to consult with these regulatory and advisory groups and to comply with applicable guidelines. If we fail to do so, we may be required to delay or discontinue development of any product candidates we identify and develop. +Because we are developing product candidates in the field of genetic medicines in which there is little clinical experience, there is increased risk that the FDA, the EMA or other regulatory authorities may not consider the endpoints of our clinical trials to provide clinically meaningful results and that these results may be difficult to analyze. +In order to proceed into clinical development of any product candidates we identify, we will need to submit applications to regulatory authorities, such as IND applications and CTAs and obtain regulatory clearance to commence clinical development. Because the product candidates we identify are based on novel gene-editing technology, we may be unsuccessful in obtaining clearance from regulatory authorities to proceed into clinical development. In order to commence clinical development, we will need to identify success criteria and endpoints such that the FDA, the EMA or other regulatory authorities will be able to determine the clinical efficacy and safety profile of any product candidates we may develop. As we are initially seeking to identify and develop product candidates to treat diseases in which there is little clinical experience using new technologies, and while we may have opportunities to discuss our clinical development plans with regulatory authorities prior to commencing clinical development, there is heightened risk that the FDA, the EMA or other regulatory authorities may not consider the clinical trial endpoints that we propose to provide clinically meaningful results (reflecting a tangible benefit to patients), or may ask for additional endpoints to assess patient safety. In addition, the resulting clinical data and results may be difficult to analyze. Even if the FDA does find our success criteria to be sufficiently validated and clinically meaningful, we may not achieve the pre-specified endpoints to a degree of statistical significance. This may be a particularly significant risk for many of the genetically defined diseases for which we plan to develop product candidates because many of these diseases have small patient populations, and designing and executing a rigorous clinical trial with appropriate statistical power is more difficult than with diseases that have larger patient populations. Furthermore, even if we do achieve the pre-specified criteria, we may produce results that are unpredictable or inconsistent with the results of the non-primary endpoints or other relevant data. The FDA also weighs the benefits of a product against its risks, and the FDA may view the efficacy results in the context of safety as not being supportive of regulatory approval. Other regulatory authorities in the European Union and other countries may make similar comments with respect to these endpoints and data. Any product candidates we may develop will be based on a relatively new technology that makes it difficult to predict the time and cost of development and of subsequently obtaining regulatory approval. Further, we expect our clinical trials to include surrogate endpoints, which may be novel or for which the FDA or regulatory authorities lack familiarity or experience, and which may increase the risk that the FDA or other regulatory authorities may disagree that such endpoints are sufficient, and could require that additional trials are conducted. Very few gene therapy products have +45 +received marketing authorization or marketing approval from the European Commission or the FDA, and only one gene editing therapeutic product has been approved in the United States and in Europe. Some of these gene therapy products have taken years to register and have had to deal with significant issues in their post-marketing experience. +We are early in our development efforts. As a result, we expect it will be many years before we commercialize any product candidate, if ever. If we are unable to advance our current or future product candidates into and through clinical trials, obtain marketing approval and ultimately commercialize our product candidates or experience significant delays in doing so, our business will be materially harmed. +The success of our business depends primarily upon our ability to identify, develop and commercialize product candidates. We are early in our development efforts and are focused on identifying and advancing our current targeted disease indications to IND-enabling studies and towards initiating clinical trials. We are also continuing to engage in regulatory interactions with the FDA based on the current data set from our Phase 1/2 clinical trial for PM359 for the treatment of CGD. Although we believe we can demonstrate many of the key advantages of Prime Editing, because we are early in our development efforts, we are not yet certain of the results we may achieve, which may be important for registration and commercialization of our products. Such uncertainties include but are not limited to the actual size of the set of pathogenic mutations we can address, the level of editing efficiency we can produce, the degree of unwanted byproducts we may encounter, and our ability to achieve editing success in a single administration or the permanence of our edits. One particular form of Prime Editing that uses recombinases to insert targeted “gene-sized” DNA into the genome, is in an earlier stage of research and development than our CGD, AATD, and Wilson Disease programs. We believe this promising form of Prime Editing needs more than one source of DNA as a template and may deliver with less efficacy. +All of our current product development programs are still in the research or preclinical stage of development. PM359, for which we commenced a Phase 1/2 clinical trial in 2024, was deprioritized in May 2025, though we continue to engage in regulatory interactions with the FDA based on the current data set from the clinical trial. Our research methodology may be unsuccessful in identifying other product candidates, our product candidates may be shown to have harmful side effects in preclinical in vitro experiments or animal model studies, they may not show promising signals of therapeutic effect in such experiments or studies or they may have other characteristics that may make the product candidates impractical to manufacture, unmarketable, or unlikely to receive marketing approval. We may experience delays in conducting or completing preclinical studies due to supply chain interruptions that could lead to shortages in materials or animals required for such studies. For example, it has been reported that there is a shortage of non-human primates for biomedical research, which are used in preclinical studies. We have not achieved preclinical proof of concept for many of our programs. Our proposed in-vivo delivery methods with current or future product candidates have never been evaluated in human clinical trials. Moreover, we are not aware of any clinical trials involving Prime Editing technology. Our ability to generate product revenue, which we do not expect will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of any product candidates we may develop, which may never occur. We currently generate no revenue from sales of any product, and we may never be able to develop or commercialize a marketable product. +In addition, although we believe Prime Editing will position us to rapidly expand our portfolio of product candidates beyond the initial product candidates we may develop after only minimal changes to the product candidate construct, we have not yet successfully developed any product candidate and our ability to expand our portfolio may never materialize. +Commencing clinical trials in the United States is also subject to acceptance by the FDA of our IND application and finalizing the trial design based on discussions with the FDA and other regulatory authorities. Even after we receive and incorporate guidance from these regulatory authorities, the FDA or other regulatory authorities could disagree that we have satisfied their requirements to commence our clinical trial or change their position on the acceptability of our trial design or the clinical endpoints selected, which may require us to complete additional studies or trials or impose stricter approval conditions than we currently expect. For example, gene therapy companies have been subject to a clinical hold before IND acceptance, in which the FDA has requested further information such as additional control data for preclinical studies and further analyses of certain off-target editing experiments. Accordingly, we may not obtain an immediate IND acceptance on submission and the FDA may request additional +46 +information or studies. There are equivalent processes and risks applicable to CTAs in other countries, including in Europe. +Some of our approaches may require interaction and approval from regulatory authorities beyond the specific requirements for individual product candidates. For example, our “march up the chromosome” personalized medicine approach may require the use of umbrella or basket clinical studies, studies where more than one mutation in a disease or more than one disease are studied in a single clinical trial or even studies where mutations in different diseases are studied in a single clinical trial. Some of our approaches may also require studying more than one Prime Editor under a single IND or applying for registration for a suite of Prime Editor products to allow broad therapeutic coverage for a wide range of mutations in a single disease. +Even if we complete the necessary clinical trials, we cannot predict when, or if, we will obtain regulatory approval to commercialize our current or future product candidates in the United States or any other jurisdiction, if at all, and any such approval may be for a narrower indication than we seek. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country. We may conduct one or more of our clinical trials with one or more trial sites that are located outside the United States. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of these data is subject to conditions imposed by the FDA, and there can be no assurance that the FDA will accept data from trials conducted outside of the United States. If the FDA does not accept the data from any trial that we conduct outside the United States, it would likely result in the need for additional trials, which would be costly and time-consuming and could delay or permanently halt our development of the applicable product candidates. Similarly, marketing approval by the FDA in the United States, if obtained, does not ensure approval by regulatory authorities in other countries or jurisdictions. Approval processes vary among countries and can involve additional product candidate testing and validation and additional administrative review periods. +Commercialization of any product candidates we may develop will also require preclinical and clinical development; regulatory and marketing approval in multiple jurisdictions, including by the FDA and the EMA; manufacturing supply, capacity and expertise; building of a commercial organization; and significant marketing efforts. +The success of product candidates we may identify and develop will depend on many factors, including the following: +• timely and successful completion of preclinical studies, including toxicology studies, biodistribution studies and minimally efficacious dose studies in animals, where applicable; +• effective IND applications or comparable foreign applications that allow commencement of our planned clinical trials or future clinical trials for any product candidates we may develop; +• successful enrollment and completion of clinical trials, including under the FDA’s current GCPs, current GLPs, and any additional regulatory requirements from foreign regulatory authorities; +• positive results from our future clinical trials that support a finding of safety and effectiveness and an acceptable risk-benefit profile in the intended populations; +• receipt of marketing approvals from applicable regulatory authorities; +• establishment of arrangements through our own facilities or with third-party manufacturers for clinical supply and, where applicable, commercial manufacturing capabilities; +• establishment, maintenance, defense and enforcement of patent, trademark, trade secret and other intellectual property protection or regulatory exclusivity for any product candidates we may develop; +• commercial launch of any product candidates we may develop, if approved, whether alone or in collaboration with others; +• acceptance of the benefits and use of our product candidates we may develop, including method of administration, if and when approved, by patients, the medical community and third-party payers; +• effective competition with other therapies; +47 +• maintenance of a continued acceptable safety, tolerability and efficacy profile of any product candidates we may develop following approval; and +• establishment and maintenance of healthcare coverage and adequate reimbursement by payers. +If we do not successfully commercialize any product candidates we may develop, we could experience a material harm to our business. +We may find it difficult to enroll patients in our clinical trials given the limited number of patients who have the diseases any product candidates we identify or develop are intended to target. If we experience delays or difficulties in the enrollment of patients in clinical trials, our clinical development activities and our receipt of necessary regulatory approvals could be delayed or prevented. +As we progress our programs, we may not be able to initiate or continue clinical trials for any product candidates we identify or develop if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA, the EMA or other analogous regulatory authorities outside the United States, or as needed to provide appropriate statistical power for a given trial. Enrollment may be particularly challenging for some of the rare genetically defined diseases we are targeting in our most advanced programs. In addition, if patients are unwilling to participate in our gene editing trials because of negative publicity from adverse events related to the biotechnology, gene therapy or gene editing fields, competitive clinical trials for similar patient populations, clinical trials in competing products or for other reasons, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of our potential product candidates may be delayed. Moreover, some of our competitors may have ongoing clinical trials for product candidates that would treat the same indications as our current or future product candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates. +Patient enrollment is also affected by other factors, some of which may include: +• severity of the disease under investigation; +• size of the patient population and process for identifying patients, including proximity and availability of clinical trial sites for prospective patients with conditions that have small patient pools; +• design of the trial protocol, including efforts to facilitate timely enrollment in clinical trials; +• availability and efficacy of approved medications for the disease under investigation; +• availability of genetic testing for potential patients and ability to monitor patients adequately during and after treatment; +• ability to obtain and maintain patient informed consent; +• risk that enrolled patients will drop out before completion of the trial; +• eligibility and exclusion criteria for the trial in question; +• perceived risks and benefits of the product candidate under investigation and gene editing as a therapeutic approach; and +• patient referral practices of physicians. +In addition, our ability to successfully initiate, enroll and complete a clinical trial in any foreign country is subject to numerous risks unique to conducting business in foreign countries, some of which may include: +• difficulty in establishing or managing relationships with CROs and physicians; +• different standards for the conduct of clinical trials; +• different standard-of-care for patients with a particular disease; +48 +• difficulty in locating qualified local consultants, physicians and partners; and +• potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the regulation of pharmaceutical and biotechnology products and treatment and of gene editing technologies. +Enrollment delays in our clinical trials may result in increased development costs for our current or future product candidates, which would cause the value of our company to decline and limit our ability to obtain additional financing. If we or our collaborators have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may need to delay, limit or terminate ongoing or planned clinical trials or entire clinical programs, any of which would have an adverse effect on our business, financial condition, results of operations and prospects. +The gene editing field is relatively new and is evolving rapidly, making us subject to additional development challenges and risks. We are focusing our research and development efforts on gene editing using Prime Editing technology, but other gene editing technologies may be discovered that provide significant advantages over Prime Editing, which could materially harm our business. +To date, we have focused our efforts on our Prime Editing platform. However, there are numerous other companies advancing gene editing and gene therapy product candidates that are in preclinical or clinical development. Some of these other companies have previously undertaken research and development of gene editing technologies using clustered regularly interspaced short palindromic repeats, or CRISPR, or other forms such as base editing, zinc finger nucleases, or ZFNs, engineered meganucleases and transcription activator-like effector nucleases, or TALENs, but to date none has obtained marketing approval for a product candidate. There can be no certainty that Prime Editing technology will lead to the development of gene editing therapies or that other gene editing technologies will not be considered better or more attractive for the development of therapies. For example, transposons, or “jumping genes,” can insert themselves into different places in the genome and carry specific DNA sequences to specific sites without the need for making double-stranded breaks in DNA, although such methods currently cannot target specific locations. Multiple companies are also developing alternative gene editing technologies, including Tessera Therapeutics, which states it is pioneering Gene Writing™, a new genome engineering technology that writes therapeutic messages into the genome to treat diseases at their source; Metagenomi, which states it is using metagenomics – the study of genetic material recovered from organisms found in the world’s natural microbial environments – and machine learning to discover novel genome editing systems for therapeutics development; Arbor Biotechnologies, which states it is developing genetic medicines through the discovery of programmable DNA editors to enable curative outcomes for patients; and nChroma Bio, Inc. and Moonwalk Biosciences, both of which are focused on epigenetic editing to treat disease. I n addition, Beam is developing novel base editing technology. We have entered into a collaboration and license agreement with Beam, under which we grant Beam certain exclusive and non-exclusive rights in our Prime Editing technology in certain fields. Our license grant to Beam does not cover all fields and applications of Prime Editing and we retain the majority of rights to use the licensed Prime Editing technology outside of the fields licensed to Beam. It is possible that base editing or other gene editing technology developed by Beam will be competitive with our business, and it is also possible that such editing technology may be considered more attractive than Prime Editing. Therefore, Beam may develop competing products using such technology. For more information regarding our agreement with Beam, see “ Business—Our License and Collaboration Agreements—Strategic relationship with Beam. ” +Similarly, other new gene editing technologies that have not been discovered yet may be determined to be more attractive than Prime Editing. Moreover, if we decide to develop gene editing technologies other than those involving Prime Editing, we cannot be certain we will be able to obtain rights to such technologies. There are also a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of the disease indications for which we have research programs, using approaches other than gene editing approaches. Any of these factors could reduce or eliminate our commercial opportunity, and could have a material adverse effect on our business, financial condition, results of operations and prospects. +Moreover, because our in vivo technology may involve gene editing across multiple cell and tissue types, we are subject to many of the challenges and risks that other gene editing therapeutics and gene therapies face, including +49 +evolving regulatory guidance governing gene and gene editing therapy products, the potential risk of improper modulation of a gene sequence and extended follow-up observation periods that may be required by regulatory agencies. +Any favorable results from our clinical trials, including the results from our Phase 1/2 clinical trial of PM359, may not be predictive of results that may be observed in later clinical trials or, in the case of our preclinical product candidates, in later preclinical studies. If our current or potential product candidates, our Prime Editing technology or the delivery modes we rely on to administer them lack efficacy or cause serious adverse events, undesirable side effects or unexpected characteristics, such results could delay or prevent regulatory approval of the product candidates, limit the commercial potential or result in significant negative consequences following any potential marketing approval. +We are developing a broad set of delivery technologies to support our Prime Editing programs. This will lead to significant challenges to develop a corresponding set of technical capabilities in support of these programs. In particular, a variety of serious adverse events, undesirable side effects or unexpected characteristics may occur. Such events, side effects or characteristics could delay or prevent regulatory approval of any product candidates we may develop, limit the commercial potential or result in significant negative consequences following any potential marketing approval. In addition, our Prime Editing technology itself, may lead to other issues, such as inability to deliver the desired efficacy or safety-related consequences as it is tested in clinical trials. +Any favorable results we may have from our clinical trials, including the results from our Phase 1/2 clinical trial of PM359, may not be predictive of results that may be observed in later clinical trials, or in the case of our preclinical product candidates, in later preclinical studies. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their product candidates. Many product candidates that initially showed promise in early stage testing for treating a variety of diseases have later been found to lack efficacy or to cause side effects that prevented further clinical development of the product candidates. +Moreover, there have been only a very limited number of clinical trials involving the use of any gene editing technologies and, aside from our Phase 1/2 trial of PM359, none involving gene editing technology similar to our Prime Editing technology. It is impossible to predict when or if any product candidates we may develop will prove safe in humans. In the gene therapy field, there have been several significant adverse events from gene therapy treatments in the past, including both the impact of the technology for editing, as well as the delivery methods used to convey the gene editing technology. These include a variety of safety concerns, including reported cases of leukemia, other cancers, significant morbidities and death. There can be no assurance that gene editing technologies such as our Prime Editing technology or the delivery methods we plan to use will not cause such undesirable side effects. +We cannot be sure that our Prime Editing technology or any of our planned delivery methods will not result in adverse effects in the long-term, such as improper editing of a patient’s DNA that leads to lymphoma, leukemia, other cancers or other aberrantly functioning cells or other as yet unidentified findings. Many times, side effects manifest or are only detectable after investigational products are tested in larger scale, pivotal clinical trials or, in some cases, after they are made available to patients on a commercial scale after approval. FDA guidance advises that patients treated with gene therapies undergo long-term follow-up observation for identification of potential adverse events for as long as 15 years. If additional clinical or long-term follow-up experience indicates that any of our current or future product candidates have side effects or cause serious or life-threatening side effects, the development of the product candidate may fail or be delayed, or, if the product candidate has received regulatory approval, such approval may be revoked or limited. It is also possible that serious or life-threatening side effects may cause significant delay or altered perception of any product candidates we may develop, even if we are able to later show these effects are unrelated to our product candidates. Any adverse events may cause us to delay, limit or terminate other planned clinical trials, for example any that use a similar delivery method or those that use similar aspects of Prime Editing, any of which would have a material adverse effect on our business, financial condition, results of operations and prospects. In addition, many product candidates that initially showed promise in early-stage testing have later been found to cause later side effects that prevented further clinical development of the product candidates. +50 +Additionally, a significant risk in any gene editing product candidate is that “off-target” edits, or edits far from the intended site of gene editing, or unintended consequences of on- and off-target editing may occur, which could cause serious adverse events, undesirable side effects or unexpected characteristics. One major causative factor leading to “off target” edits is the formation of double-strand breaks during gene editing. If double-strand breaks were to occur, they can also lead to decreased cell viability in edited cells, and an increase in large deletions or structural rearrangements of DNA, chromosomal translocations or joining of one chromosome to another. In certain uses of Prime Editing, such as the use of dual flaps methods, or in some cases of use of nick-guide RNAs, more than one edit occurs along the target site, and it is possible that the use of these variations of Prime Editing could result in adverse effects similar to those observed with double-strand breaks. It is possible that we will detect such off-target edits or other unintended consequences of on- or off-target edits in our current or future product candidates. Our clinical and preclinical information for our current or future product candidates is limited, and we cannot be certain that Prime Editing with any product candidates we may develop will not cause rare double-strand breaks or that off-target editing or other unintended consequences of on- or off-target editing will not occur and cause serious adverse events in any of our future clinical trials. Furthermore, the lack of observed serious side effects in our Phase 1/2 clinical trial or any preclinical studies to date does not guarantee that such side effects will not occur in later human clinical trials of any product candidates we may develop, which would adversely impact our product development programs and business. +There is also the potential risk of delayed adverse events following exposure to Prime Editing therapy due to the permanence of edits to DNA or due to other components of product candidates used to carry the genetic material. In addition, because Prime Editing makes a permanent change, the therapy cannot be withdrawn, even after a side effect is observed. These risks also apply to “on-target” mis-edits, also often called “indels,” or edits that are not intended but occur at the target site of gene correction, which might also have all of the above consequences, as well as yet unforeseen adverse effects. +Within our hematology, immunology and oncology area of focus, we are developing next generation CAR T-cell product(s) for autoimmune or oncology indication(s). While we believe our potential CAR T-cell product is differentiated from current products, our approach uses PASSIGE technology, which requires the use of a recombinase enzyme and Prime Editing. The use of recombinase enzymes in a human therapeutic is new, and has the potential to result in off-target insertions in the genome. In 2024, the FDA placed black box warnings on all CAR T-cell products based on their oncological risks, including secondary T-cell malignancies, caused by integrating vectors such as lentiviral or retroviral vectors. We cannot be sure that our approach will not result in adverse events or be subject to future black box warnings. Although we and others have demonstrated the ability to engineer gene editors which are designed to improve the specificity of their edits in a laboratory setting, we cannot be sure that our engineering efforts will be effective in any product candidates that we may develop. For example, we might not be able to engineer an editor to make the desired change, could diminish the effectiveness of an edit that we make or lead to adverse effects. Some Prime Editing approaches, such as those that use mismatch repair, or MMR, inhibition, may potentially also lead to adverse effects. +We also cannot be sure that our Prime Editing technology or any of our planned delivery methods will not result in adverse effects including allergic reactions, other changes in safety parameters, increases in liver function tests or many other potential concerns noted in clinical trials. It is also possible that our Prime Editors or our delivery methods will result in significant immunogenicity that may lead to adverse effects and could also prevent any chance of reapplication of a delivery method, or gene editing method in the future, if needed. +In certain of our programs, such as in our liver area of focus, we plan to use lipid nanoparticles, or LNPs, to deliver our Prime Editors. While LNPs have been used to deliver smaller molecules, such as RNAi, there is limited clinical evidence of their ability to deliver large RNA molecules, such as the ones we intend to use for our Prime Editors. LNPs have been reported to result in liver toxicity in clinical trials, and in preclinical studies LNPs have been shown to induce oxidative stress in the liver at certain doses. While we aim to continue to optimize our LNPs, there can be no assurance that our LNPs will not have undesired effects. Our LNPs could contribute, in whole or in part, to one or more of the following: immune reactions, infusion reactions, complement reactions, opsonization reactions, antibody reactions including IgA, IgM, IgE or IgG or some combination thereof, or reactions to the PEG from some lipids or PEG otherwise associated with the LNP. Certain aspects of our investigational therapies may induce immune reactions from either the mRNA or the lipid as well as adverse reactions within liver pathways or degradation of the mRNA or the LNP, any of which could lead to significant adverse events in one or more of our future clinical trials. +51 +Many of these types of side effects have been seen for legacy LNPs. There may be uncertainty as to the underlying cause of any such adverse event, which would make it difficult to accurately predict side effects in future clinical trials and would result in significant delays in our programs. If the LNPs we use demonstrate similar side effects or other adverse events, we may be unable to get IND/CTA clearance to begin clinical development or may be required to halt or delay further clinical development of any of our current or future product candidates. +We may use AAVs, which is a relatively new approach for disease treatment. AAV vectors have known side effects and additional risks could develop in the future. In past clinical trials that were conducted by others with AAV vectors, several significant side effects were caused by gene therapy treatments, including, among others, reported cases of neurotoxicity, hepatotoxicity and death. Other potential side effects could include immunologic reactions and insertional oncogenesis, which is the process whereby the insertion of a functional gene near a gene that is important in cell growth or division results in uncontrolled cell division, which could potentially enhance the risk of malignant transformation. AAV vectors may also persist in the cell for long periods, potentially permanently, and may result in long-term adverse effects. If the AAV vectors we use demonstrate similar side effects or other adverse events, we may be unable to get IND/CTA clearance to begin clinical development or may be required to halt or delay further clinical development of any of our current or future product candidates. Furthermore, the FDA has stated that non-AAV vectors possess characteristics that may pose high risks of delayed adverse events. +In addition to side effects and adverse events caused by any product candidates we may develop, the conditioning, administration process or related procedures which may be used in our programs using electroporation also can cause adverse side effects and adverse events. A gene therapy patient is generally administered cytotoxic drugs to remove stem cells from the bone marrow to create sufficient space in the bone marrow for the modified stem cells to engraft and produce new cells. This procedure compromises the patient’s immune system. In the future, if we are unable to demonstrate that such adverse events were caused by the conditioning regimens used, the administration process or a related procedure, the FDA, the EMA or other regulatory authorities could order us to cease further development of, or deny approval of, any product candidates we may develop for any or all target indications. Even if we are able to demonstrate that adverse events are not related to the drug product or the administration of such drug product, such occurrences could affect patient recruitment, the ability of enrolled patients to complete the clinical trial or the commercial viability of any product candidates that obtain regulatory approval. While we are developing a cell shielding approach which, combined with antibody depletion of bone marrow stem cells, has the potential to be a benign method to condition patients for hematopoietic stem cell transplant, antibody-mediated conditioning with cell shielding is at the preclinical stage, and may not be successful or may have unexpected safety concerns. +We may also consider additional delivery modes, which may carry additional known and unknown risks. +We may also consider additional delivery modes, which may carry additional known and unknown risks. For example, we may use a novel split intein technology for AAV gene therapy that allows us to deliver the Prime Editor and guide RNA construct by co-infection with two viruses, where each virus contains one half of the editor. The scientific evidence to support the feasibility of developing product candidates based on this technology is limited. Furthermore, as with many AAV-mediated gene therapy approaches, certain patients’ immune systems might prohibit the successful delivery, thereby potentially limiting treatment outcomes of these patients. Even if initial clinical trials in any of our current or future product candidates we may develop are successful, these product candidates we may develop may fail to show the desired safety and efficacy in later stages of clinical development despite having successfully advanced through preclinical studies and initial clinical trials. +In the future, if we are unable to demonstrate that any of the above adverse events were caused by factors other than our product candidates or our delivery methods, the FDA, the EMA or other regulatory authorities could order us to cease further development of, or deny approval of, any product candidates we are able to develop for any or all targeted indications. Even if we are able to demonstrate that all future serious adverse events are not product- and/or delivery-related, such occurrences could affect patient recruitment or the ability of enrolled patients to complete the trial or may cause significant delays to our programs and potential registration. Moreover, if we elect, or are required, to delay, suspend or terminate any clinical trials, the commercial prospects of such product candidates may be harmed and our ability to generate product revenues from any of these product candidates may be delayed or eliminated. Any of these occurrences may harm our ability to identify and develop product candidates, and may harm our business, financial condition, result of operations and prospects significantly. +52 +We face significant competition in an environment of rapid technological change, and there is a possibility that our competitors may achieve regulatory approval before us or develop therapies that are safer or more advanced or effective than ours, which may harm our financial condition and our ability to successfully market or commercialize any product candidates we may develop. +The development and commercialization of new drug products is highly competitive. Moreover, the gene editing field is characterized by rapidly changing technologies, significant competition and a strong emphasis on intellectual property. We will face competition with respect to any product candidates that we may seek to develop or commercialize in the future from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent or other intellectual property protection and establish collaborative arrangements for research, development, manufacturing and commercialization. +There are a number of pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of the disease indications for which we have research programs. Some of these competitive products and therapies are based on scientific approaches that are the same as or similar to our approach, while others are based on entirely different approaches. +There are several companies utilizing Cas9 nuclease technology, including Caribou Biosciences, Inc., Editas Medicine, Inc., CRISPR Therapeutics AG, Intellia Therapeutics, Inc. and Kamau Therapeutics, Inc., among others. Several additional companies such as Sangamo Therapeutics, Inc., Precision BioSciences, Inc. and Genetix Biotherapeutics, Inc. utilize alternative nuclease-based genome editing technologies, including ZFNs, engineered meganucleases and TALENs. Beam is one of a number of companies that utilize base editing technology. In addition, other private companies such as Tessera Therapeutics, Inc. have announced their work in recombinase DNA and RNA gene writers. Other companies have announced intentions to enter the gene editing field, such as Moderna, Inc. and Pfizer Inc. Most recently, new epigenetic editing companies have emerged, such as Moonwalk Biosciences, Inc., nChroma Bio, Inc. and Tune Therapeutics, Inc. In addition, we face competition from companies utilizing gene therapy, oligonucleotides and cell therapy therapeutic approaches. Several companies such as Arbor Biotechnologies, Inc., Scribe Therapeutics Inc., Mammoth Biosciences, Inc. and Metagenomi, Inc. are actively searching for novel genome editing components, have reported the discovery of new DNA-cutting enzymes, and have announced gene editing programs. Other companies are active in LNP delivery technologies and advancing those into therapeutics using genetic therapies, including Recode Therapeutics, Inc., Verve Therapeutics, Inc., recently acquired by Eli Lilly and Company, Generation Bio Co. and Beam, among others. +Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future that are approved to treat the same diseases for which we may obtain approval for any product candidates we may develop. This may include other types of therapies, such as small molecule, antibody and/or protein therapies. +Many of our current or potential competitors, either alone or with their collaboration partners, may have significantly greater financial resources and expertise in research and development, manufacturing, conducting preclinical studies and clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and gene therapy industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize product candidates that are safer, more effective, have fewer or less severe side effects, are more convenient, or are less expensive than any product candidates that we may develop or that would render any product candidates that we may develop obsolete or non-competitive. Our competitors also may obtain FDA or other regulatory approval for their product candidates more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. Additionally, technologies developed by our competitors may render our current or +53 +future product candidates uneconomical or obsolete, and we may not be successful in marketing any product candidates we may develop against competitors. +In addition, as a result of the expiration or successful challenge of our patent or other intellectual property rights, we could face risks relating to our ability to successfully prevent or delay launch of competitors’ products. The availability of our competitors’ products could limit the demand and the price we are able to charge for any product candidates that we may develop and commercialize. +Adverse public perception of genetic therapies and of gene editing and Prime Editing in particular, may negatively impact regulatory approval of, and/or demand for, our potential products. +Our potential therapeutic products involve editing the human genome and making permanent changes that may not be reversible. The clinical and commercial success of our potential products will depend in part on public understanding and acceptance of the use of gene editing therapy for the prevention or treatment of human diseases. Public attitudes may be influenced by claims that gene editing is unsafe, unethical or immoral, and, consequently, any product candidates we may develop may not gain the acceptance of the public or the medical community. For example, the death of a patient with an ultra-rare form of Duchenne Muscular Dystrophy enrolled in a clinical trial assessing a personalized, CRISPR-based gene therapy product candidate initiated by Cure Rare Disease, a non-profit organization, was reported to be caused by an immune response to the vector used in the gene therapy. In addition, a serious adverse event was reported in the first patient dosed in a clinical trial of an investigational gene therapy conducted by Graphite Bio, Inc., and Graphite Bio, Inc. later announced the discontinuation of further development of its gene therapy product candidate after the company concluded that the event was likely related to study treatment. These reports have raised concerns about gene editing approaches that may persist until, or after, details are available. Moreover, our success will depend upon physicians prescribing, and their patients being willing to receive, treatments that involve the use of product candidates we may develop in lieu of, or in addition to, existing treatments with which they are already familiar and for which greater clinical data may be available. +In addition, gene editing technology is subject to public debate and heightened regulatory scrutiny due to ethical concerns relating to the application of gene editing technology to human embryos or the human germline. For example, academic scientists in several countries, including the United States, have reported on their attempts to edit the gene of human embryos as part of basic research. +Although we do not, and will not use our technologies to edit human embryos or the human germline, such public debate about the use of gene editing technologies in human embryos and heightened regulatory scrutiny on this issue, could prevent or delay our development of product candidates. More restrictive government regulations or negative public opinion would have a negative effect on our business or financial condition and may delay or impair our development and commercialization of product candidates or demand for any product candidates we may develop. Adverse events in our preclinical studies or clinical trials or those of our competitors or of academic researchers utilizing gene editing technologies, even if not ultimately attributable to product candidates we may identify and develop, and negative publicity could result in increased governmental regulation, unfavorable public perception, potential regulatory delays in the testing or approval of current or future product candidates stricter labeling requirements for those product candidates that are approved, and a decrease in demand for any such product candidates. +If the market opportunities for any product candidates we may develop are smaller than we believe they are, our potential revenues may be adversely affected and our business may suffer. Because the target patient populations for many of the product candidates we may develop are small, we must be able to successfully identify patients and achieve market acceptance in the medical community in order to secure a significant market share to maintain profitability and growth. +We focus our research and product development on treatments for rare genetically defined diseases. Many of the product candidates we may develop are expected to target a single, often predominant mutation; as a result, the relevant patient population may therefore be small. Although we are aiming to expand beyond our immediate target indications, including into broader populations, these approaches will require regulatory approval as discussed in the risk factor entitled “ We are early in our development efforts. As a result, we expect it will be many years before we commercialize any product candidate, if ever. If we are unable to advance our current or future product candidates +54 +into and through clinical trials, obtain marketing approval and ultimately commercialize our product candidates or experience significant delays in doing so, our business will be materially harmed .” In rare genetically defined diseases, our projections of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with product candidates we may develop, are based on estimates. These estimates may prove to be incorrect and new studies may change the estimated incidence or prevalence of these diseases. The number of patients in the United States, Europe and elsewhere may turn out to be lower than expected, and patients may not be amenable to treatment with the product candidates we may develop, or may become increasingly difficult to identify or gain access to, all of which would adversely affect our business, financial condition, results of operations and prospects. Additionally, because of the potential that any product candidates we develop could cure a target disease, we may not receive recurring revenues from patients and may deplete the patient population prevalence through curative therapy. +Clinical trial and product liability lawsuits against us could divert our resources and could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop. +We will face an inherent risk of clinical trial and product liability exposure related to the testing of our product candidates in human clinical trials, and we will face an even greater risk if we commercially sell any products that we may develop. While we currently have no products that have been approved for commercial sale, the use of product candidates by us in clinical trials, and the sale of any approved products in the future, may expose us to liability claims. These claims might be made by patients that use the product, healthcare providers, pharmaceutical companies or others selling such products. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in: +• decreased demand for any product candidates or products that we may develop; +• termination of clinical trials; +• injury to our reputation and significant negative media attention; +• withdrawal of clinical trial participants; +• significant costs to defend any related litigation; +• substantial monetary awards to trial participants or patients; +• loss of revenue; +• reduced resources of our management to pursue our business strategy; and +• the inability to commercialize any products that we may develop. +We currently hold clinical trial liability insurance coverage and we plan to obtain further insurance coverage if we expand our clinical trials and/or if we commence commercialization of our product candidates. Insurance coverage is increasingly expensive. We may not be able to obtain and maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. If a successful clinical trial or product liability claim or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, our assets may not be sufficient to cover such claims and our business operations could be impaired. +If we or any contract manufacturers and suppliers we engage fail to comply with environmental, health, and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business. +We and any contract manufacturers and suppliers we engage are subject to numerous federal, state, and local environmental, health, and safety laws, regulations, and permitting requirements, including those governing laboratory procedures; the generation, handling, use, storage, treatment, and disposal of hazardous and regulated materials and wastes; the emission and discharge of hazardous materials into the ground, air, and water; and employee health and safety. Our operations involve the use of hazardous and flammable materials, including chemicals and biological and radioactive materials. Our operations also produce hazardous waste. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of +55 +contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. Under certain environmental laws, we could be held responsible for costs relating to any contamination at our current or past facilities and at third-party facilities. We also could incur significant costs associated with civil or criminal fines and penalties. +Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair our research and product development efforts. In addition, we cannot entirely eliminate the risk of accidental injury or contamination from these materials or wastes. Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We carry specific biological or hazardous waste insurance coverage (under which we currently have an aggregate of approximately $2.0 million in coverage). However, in the event of contamination or injury, we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended, which could have a material adverse effect on our business, financial condition, results of operations, and prospects. +In addition, we may incur substantial costs in order to comply with current or future environmental, health, and safety laws, regulations, and permitting requirements. These current or future laws, regulations, and permitting requirements may impair our research, development, or production efforts. Failure to comply with these laws, regulations, and permitting requirements also may result in substantial fines, penalties, or other sanctions or business disruption, which could have a material adverse effect on our business, financial condition, results of operations, and prospects. +Any third-party contract manufacturers and suppliers we engage will also be subject to these and other environmental, health, and safety laws and regulations. Liabilities they incur pursuant to these laws and regulations could result in significant costs or an interruption in operations, which could have a material adverse effect on our business, financial condition, results of operations, and prospects. +Gene editing therapies are novel, and any product candidates we develop may be complex and difficult to manufacture. We could experience delays in satisfying regulatory authorities or production problems that result in delays in our development programs, limit the supply of the product candidates we may develop or otherwise harm our business. +Any product candidates we may develop will likely require processing steps that are more complex than those required for most chemical pharmaceuticals. Moreover, unlike chemical pharmaceuticals, the physical and chemical properties of a biologic such as the product candidates we intend to develop generally cannot be fully characterized. As a result, assays of the finished product candidate may not be sufficient to ensure that the product candidate will perform in the intended manner. Problems with the manufacturing process, even minor deviations from the normal process, could result in product defects or manufacturing failures that result in lot failures, product recalls, product liability claims, insufficient inventory or potentially delay progression of our potential IND filings. If we successfully develop product candidates, we may encounter problems achieving adequate quantities and quality of clinical-grade materials that meet the FDA, the EMA or other comparable applicable foreign standards or specifications with consistent and acceptable production yields and costs. For example, the current approach of manufacturing AAV vectors may fall short of supplying required number of doses needed for advanced stages of preclinical studies or clinical trials, and the FDA may ask us to demonstrate that we have the appropriate manufacturing processes in place to support the higher-dose group in our preclinical studies or clinical trials. In addition, any product candidates we may develop will require complicated delivery methods, such as electroporation, LNPs or viral vectors, each of which will introduce additional complexities in the manufacturing process. We may also have similar issues to other companies that have had difficulties in receiving FDA, or other regulatory agency approval for key potency assays needed for regulatory approval and/or drug release from the manufacturer. +In addition, the FDA, the EMA and other regulatory authorities may require us to submit samples of any lot of any approved product together with the protocols showing the results of applicable tests at any time. Under some circumstances, the FDA, the EMA or other regulatory authorities may require that we not distribute a lot until the +56 +agency authorizes its release. Slight deviations in the manufacturing process, including those affecting quality attributes and stability, may result in unacceptable changes in the product that could result in lot failures or product recalls. Lot failures or product recalls could cause us to delay clinical trials or product launches, which could be costly to us and otherwise harm our business, financial condition, results of operations and prospects. +Furthermore, we intend to use novel technology for gene editing. Our novel Prime Editors have two main components that act together to edit DNA: (i) a Prime Editor protein, typically comprising a fusion between a Cas protein domain and a reverse transcriptase domain, and (ii) a pegRNA, that targets the Prime Editor to a specific genomic location and provides a template for making the desired edit to the target DNA sequence. In addition, we are broadening the types of edits that we can make by incorporating innovations in Prime Editing, including dual-flap Prime Editing and PASSIGE. The scientific evidence to support the feasibility of developing product candidates based on these technologies is both preliminary and limited and has yet to be produced at a clinical scale. +We also may encounter problems hiring and retaining the experienced scientific, quality control and manufacturing personnel needed to manage our manufacturing process, which could result in delays in our production or difficulties in maintaining compliance with applicable regulatory requirements. +Given the nature of biologics manufacturing there is a risk of contamination during manufacturing. Any contamination could materially harm our ability to produce product candidates on schedule and could harm our results of operations and cause reputational damage. Some of the raw materials that we anticipate will be required in our manufacturing process are derived from biologic sources. Such raw materials are difficult to procure and may be subject to contamination or recall. A material shortage, contamination, recall or restriction on the use of biologically derived substances in the manufacture of any product candidates we may develop could adversely impact or disrupt the commercial manufacturing or the production of clinical material, which could materially harm our development timelines and our business, financial condition, results of operations and prospects. +Any problems in our manufacturing process or the facilities with which we contract could make us a less attractive collaborator for potential partners, including larger pharmaceutical companies and academic research institutions, which could limit our access to additional attractive development programs. Problems in third-party manufacturing process or facilities also could restrict our ability to ensure sufficient clinical material for any clinical trials we may be conducting or are planning to conduct and meet market demand for any product candidates we develop and commercialize. +If preclinical studies or clinical trials of any product candidates we may identify and develop fail to demonstrate safety and efficacy to the satisfaction of regulatory authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of such product candidates. +Before obtaining marketing approval from regulatory authorities for the sale of any product candidates we may identify and develop, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete, and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. +Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their product candidates. +We and our collaborators, if any, may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize any product candidates we may identify and develop, including: +• delays in reaching a consensus with regulators on trial design; +• regulators, institutional review boards, or IRBs, or independent ethics committees may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site; +57 +• delays in reaching or failing to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective CROs and clinical trial sites; +• clinical trials of any product candidates we may develop may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development or research programs; +• delays if a clinical trial is suspended or terminated by us, by the IRBs or their ethics committees, the data review committee or data safety monitoring board for such trial or by the FDA, EMA or other foreign regulatory authorities due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the regulatory authorities; +• difficulty in designing well-controlled clinical trials due to ethical considerations which may render it inappropriate to conduct a trial with a control arm that can be effectively compared to a treatment arm; +• difficulty in designing clinical trials and selecting endpoints for diseases that have not been well-studied and for which the natural history and course of the disease is poorly understood; +• the number of patients required for clinical trials of any product candidates we may develop may be larger than we anticipate; enrollment of suitable participants in these clinical trials, which may be particularly challenging for some of the rare genetically defined diseases we are targeting in our most advanced programs, may be delayed or slower than we anticipate; or patients may drop out of these clinical trials at a higher rate than we anticipate; +• our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all; +• regulators, IRBs, or independent ethics committees may require that we or our investigators suspend or terminate clinical research or clinical trials of any product candidates we may develop for various reasons, including noncompliance with regulatory requirements, a finding of undesirable side effects or other unexpected characteristics, or that the participants are being exposed to unacceptable health risks or after an inspection of our clinical trial operations or trial sites; +• the cost of clinical trials of any product candidates we may develop may be greater than we anticipate; +• the supply or quality of any product candidates we may develop or other materials necessary to conduct clinical trials of any product candidates we may develop may be insufficient or inadequate, including as a result of delays in the testing, validation, manufacturing, and delivery of any product candidates we may develop to the clinical sites by us or by third parties with whom we have contracted to perform certain of those functions; +• delays in having patients complete participation in a trial or return for post-treatment follow-up; +• clinical trial sites dropping out of a trial; +• selection of clinical endpoints that require prolonged periods of clinical observation or analysis of the resulting data; +• occurrence of serious adverse events associated with any product candidates we may develop that are viewed to outweigh their potential benefits; or +• occurrence of serious adverse events in trials of the same class of agents conducted by other sponsors; and changes in regulatory requirements and guidance that require amending or submitting new clinical protocols. +If we or our collaborators are required to conduct additional clinical trials or other testing of any product candidates we may develop beyond those that we currently contemplate, if we or our collaborators are unable to successfully +58 +complete clinical trials or other testing of any product candidates we may develop, or if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we or our collaborators may: +• be delayed in obtaining marketing approval for any such product candidates we may develop or not obtain marketing approval at all; +• obtain approval for indications or patient populations that are not as broad as intended or desired; +• obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings; +• be subject to changes in the way the product is administered; +• be required to perform additional clinical trials to support approval or be subject to additional post-marketing testing requirements; +• have regulatory authorities withdraw, or suspend, their approval of the product or impose restrictions on its distribution in the form of a Risk Evaluation and Mitigation Strategy, or REMS, or through modification to an existing REMS; +• be sued; or +• experience damage to our reputation. +Product development costs will also increase if we or our collaborators experience delays in clinical trials or other testing or in obtaining marketing approvals. We do not know whether any clinical trials will begin as planned, will need to be restructured, or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize any product candidates we may develop, could allow our competitors to bring products to market before we do, and could impair our ability to successfully commercialize any product candidates we may develop, any of which may harm our business, financial condition, results of operations, and prospects. +Social media campaigns and demand for expanded access to our current and future product candidates could negatively affect our reputation and harm our business. +We are developing product candidates in areas of unmet medical need where there are currently limited or no available therapeutic options and may receive requests in the future for right to try access or expanded access on a compassionate use basis to certain of our current and future product candidates. It is possible for individuals or groups to target companies with disruptive social media campaigns related to a request for access to unapproved drugs for patients with significant unmet medical need. If we experience a similar social media campaign regarding our decision to provide or not provide access to any of our current and future product candidates under an expanded access policy, our reputation may be negatively affected and our business may be harmed. +Media attention to individual patients’ expanded access requests has resulted in the introduction and enactment of legislation at the local and national level referred to as “Right to Try” laws, such as the federal Right to Try Act of 2017, which are intended to allow patients access to unapproved therapies earlier than traditional expanded access programs. A possible consequence of both activism and legislation in this area may be the need for us to initiate an unanticipated expanded access program or to make our drug candidates more widely available sooner than anticipated. +In addition, some patients who receive access to drugs prior to their commercial approval through compassionate use, expanded access programs or right to try access have life-threatening illnesses and have exhausted all other available therapies. The risk for serious adverse events in this patient population is high, which could have a negative impact on the safety profile of our potential product candidates if we were to provide them to these patients, which could cause significant delays or an inability to successfully commercialize our current and future product candidates, which could materially harm our business. If we were to provide patients with our current and future product candidates under an expanded access program, we may in the future need to restructure or pause any compassionate use and/or expanded access programs in order to perform the controlled clinical trials required for regulatory approval and successful commercialization of our current and future product candidates, which could prompt adverse publicity or other disruptions related to current or potential participants in such programs. +59 +Risks Related To Our Relationships with Third Parties +We have entered into collaborations, and may enter into additional collaborations, with third parties for the research, development, delivery, manufacturing and commercialization of Prime Editing technology and certain of the product candidates we may develop. If any such collaborations are not successful, we may not be able to capitalize on the market potential of our Prime Editing platform or product candidates. +As part of our strategy, we have entered into collaborations and intend to seek to enter into additional collaborations with third parties for one or more of our programs or product candidates we may develop. Our likely collaborators for any other collaboration arrangements include pharmaceutical and biotechnology companies, academic institutions, and foundations. We may seek such third-party collaborators and strategic partners for the research, development, delivery, manufacturing and commercialization of certain of the product candidates we may develop. If we enter into any such arrangements with any third parties, we will likely have limited control over the amount and timing of resources that our collaborators dedicate to collaboration, including the development, delivery, manufacturing or commercialization of any product candidates we may seek to develop with them. Our ability to generate revenues from these arrangements will depend on our collaborators’ and strategic partners’ abilities to successfully perform the functions assigned to them in these arrangements. We cannot predict the success of any collaboration that we enter into. +Collaborations involving our research, development, expansion of our technology or for any product candidates we may develop pose numerous risks to us, including the following: +• Collaborators and strategic partners have significant discretion in determining the efforts and resources that they will apply to these collaborations, may not pursue development and commercialization of any product candidates we may develop or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborator’s strategic focus or available funding or external factors such as an acquisition that diverts resources or creates competing priorities. +• Collaborators and strategic partners may have significant overlap in their areas of interest and capabilities, research and development activities and product candidates with us, which may result in potential conflicts of interest. +• The transfer of key technology between our collaborators and strategic partners and us may be incomplete, delayed or not meet our standards of quality. +• Collaborators and strategic partners may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing. +• Collaborators and strategic partners could independently develop or develop with third parties, products that compete directly or indirectly with our therapies or product candidates we may develop if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours. +• Collaborators and strategic partners with marketing and distribution rights to one or more therapies may not commit sufficient resources to the marketing and distribution of such therapy or therapies. +• Collaborators and strategic partners may have rights or may believe they have rights to sub-license our Prime Editing technology more broadly than anticipated for the collaboration. +• Collaborators and strategic partners may not properly obtain, maintain, enforce or defend our intellectual property or proprietary rights or may use our intellectual property or proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation. +• Collaborators and strategic partners may not properly use our technology, perform activities below quality standards or wrongly interpret results, any of which may result in adverse public perception of Prime Editing or negatively impact the regulatory approval of, and/or demand for, our current and future product candidates. +60 +• There may be areas of ambiguity in the interpretation of obligations and deliverables under any collaboration agreements we have entered or may enter into, including disputes that may arise between the collaborators and strategic partners and us that result in the delay or termination of the research, development or commercialization of our therapies or product candidates or that result in costly litigation or arbitration that diverts management attention and resources. +• We may lose certain valuable rights under circumstances identified in our collaborations, including if we undergo a change of control, and may have a reduced ability to prioritize programs and allocate resources. +• Collaborations may be terminated and, if terminated, may leave incomplete some or all of the goals that were set for such collaboration or result in a need for additional capital to pursue further development or commercialization of the applicable product candidates we may develop. +• Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all. If a present or future collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product development or commercialization program under such collaboration could be delayed, diminished or terminated. +If our collaborations do not result in successful research or delivery approaches or successful development and commercialization of product candidates, or if one of our collaborators or strategic partners terminates its agreement with us, there may be adverse consequences. For example, we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do not receive the funding we expect under these agreements, our development of product candidates could be delayed, and we may need additional resources to develop product candidates. In addition, if one of our collaborators or strategic partners terminates its agreement with us, we may find it more difficult to find a suitable replacement or attract a new collaboration, lose access to key technology or our development programs may be delayed or the perception of us in the business and financial communities could be adversely affected. All of the risks relating to product development, regulatory approval and commercialization apply to the activities of our collaborators and strategic partners. +These relationships, or those like them, may require us to incur non-recurring and other charges, increase our near- and long-term expenditures, issue securities that dilute our existing stockholders, result in a loss of value to our stock or disrupt our management and business. For example, we issued and sold 11,006,163 shares of our common stock to BMS as part of the BMS Collaboration Agreement. In addition, we could face significant competition in seeking appropriate collaborators and strategic partners and the negotiation process is time-consuming and complex. Our ability to reach a definitive collaboration agreement will depend, among other things, upon our assessment of the collaborator’s and strategic partner’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of several factors. If we license rights to any product candidates we may develop we or our collaborators and strategic partners may develop, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture. +If conflicts arise between us and our collaborators or strategic partners, these parties may act in a manner adverse to us and could limit our ability to implement our strategies or we could lose license rights that are important to our business . +We are, and expect to continue to be, reliant upon certain patent rights and proprietary technology we have licensed from third parties that may be important or necessary to the development of our Prime Editing technology and product candidates. If conflicts arise between our corporate or academic collaborators or strategic partners and us, the other party may act in a manner adverse to us and could limit our ability to implement our strategies or we could lose license rights that are important to our business. For instance, we have entered into license and collaboration agreements with Beam and Broad Institute related to the research, development, delivery, manufacturing, and commercialization of Prime Editing technology and certain product candidates we may develop. +Moreover, disputes over intellectual property that we have licensed could prevent or impair our ability to maintain our current licensing arrangements on commercially acceptable terms. If we are unable to maintain such arrangements, we may be unable to successfully develop or commercialize the affected product candidates. Any termination of, or dispute relating to, our intellectual property licenses could result in the loss of our ability to develop and commercialize product candidates or the loss of other significant rights, any of which could have a +61 +material adverse effect on our business, financial condition, results of operations and prospects. For example, we are currently engaged in arbitration proceedings with Beam regarding the Beam Collaboration Agreement. A dispute arose between us and Beam following our March 18, 2025 announcement that we are developing a Prime Editing-based treatment for AATD. On April 16, 2025, Beam filed an arbitration demand with the American Arbitration Association, or the AAA, alleging that we have breached the Beam Collaboration Agreement by developing a product for the treatment of AATD and by allegedly not complying with certain obligations to transfer technical information to Beam pursuant to the Beam Collaboration Agreement. On April 18, 2025, we filed an arbitration demand with the AAA seeking a declaration that our AATD program is within our “Field” as defined by the Beam Collaboration Agreement. The arbitrations have been consolidated, and the consolidated proceeding remains ongoing. If the final resolution of the matter is adverse to us, the arbitration panel may provide Beam with relief including, among other things, monetary damages and/or an order that we cease work on our AATD program and transfer such program to Beam. Such a relief could have a material adverse effect on our competitive position, business, financial condition, results of operations and growth prospects. For more information regarding our agreement with Beam, see the risk factor entitled “ Our rights to develop and commercialize our Prime Editing platform technology and product candidates are subject to the terms and conditions of licenses granted to us by others. If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that are important to our business. ” +Our collaborators or strategic partners could also develop competing products, preclude us from entering into collaborations with their competitors, fail to obtain timely regulatory approvals, prevent us from obtaining timely regulatory approvals, terminate their agreements with us prematurely or fail to devote sufficient resources to the collaboration efforts, including development, delivery, manufacturing and commercialization of products. Any of these developments could harm our company and product development efforts. +We expect to rely on third parties to conduct our clinical trials and some aspects of our research, as well as some aspects of our delivery methods, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials, research or testing. +We currently, and expect to continue to, rely on third parties, such as CROs, clinical data management organizations, medical institutions, preclinical laboratories and clinical investigators, to conduct some aspects of our research. For example, we may rely on a third party to conduct electroporation, to supply LNPs, or to conduct some of our preclinical animal experiments. Any of these third parties may terminate their engagements with us at any time under certain criteria. If we need to enter into alternative arrangements, it may delay our product development activities. +Our reliance on these third parties for research and development activities will reduce our control over these activities but will not relieve us of our responsibilities. For example, we will remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA, the EMA and other regulatory authorities require us and the study sites and investigators we work with to comply with standards, commonly referred to as GLPs and GCPs for conducting, recording and reporting the results of preclinical studies and clinical trials to assure, amongst other things, that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. In the United States, we also are required to register certain clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions. +Although we designed the clinical trial for PM359 and intend to design the clinical trials for future product candidates, a CRO conducted our clinical trial for PM359, and CROs will conduct some or all of our future clinical trials. As a result, many important aspects of our development programs, including their conduct and timing, will be outside of our direct control. Our reliance on third parties to conduct preclinical studies and future clinical trials will also result in less direct control over the management of data developed through preclinical studies and clinical trials than would be the case if we were relying entirely upon our own staff. Communicating with outside parties can also +62 +be challenging, potentially leading to mistakes as well as difficulties in coordinating activities. Among other reasons that may delay or impact the development of our current and future product candidates, outside parties may: +• have staffing difficulties; +• fail to comply with contractual obligations; +• experience regulatory compliance issues; +• undergo changes in priorities or become financially distressed; or +• form relationships with other entities, some of which may be our competitors. +These factors may materially adversely affect the willingness or ability of third parties to conduct our preclinical studies and clinical trials and may subject us to unexpected cost increases that are beyond our control. If the CROs and other third parties do not perform such preclinical studies and current and future clinical trials in a satisfactory manner, breach their obligations to us or fail to comply with regulatory requirements, the development, regulatory approval and commercialization of our current and future product candidates may be delayed, we may not be able to obtain regulatory approval and commercialize our potential product candidates or our development programs may be materially and irreversibly harmed. If we are unable to rely on preclinical and clinical data collected by our CROs and other third parties, we could be required to repeat, extend the duration of or increase the size of any preclinical studies or clinical trials we conduct and this could significantly delay commercialization and require greater expenditures. +We also relied on third parties to store and distribute drug supplies for our past clinical trial and expect to rely on third parties to do the same for future clinical trials. Any performance failure on the part of our distributors could delay clinical development or marketing approval of any product candidates we may develop or commercialization of our therapies, producing additional losses and depriving us of potential product revenue. +We contract with third parties for the manufacture of materials for our research programs, and expect to continue to do so for future clinical trials and for any commercialization of product candidates that we may develop. This reliance on third parties increases the risk that we will not have sufficient quantities of such materials, product candidates or any therapies that we may develop and commercialize, or that such supply will not be available to us on time or at an acceptable cost. +We have limited internal manufacturing capabilities at the present time. We currently rely on third-party manufacturers to manufacture many of our materials for research, preclinical studies and clinical trials, and expect to continue to do so. We have not yet formulated our plans for commercial supply of any product candidates that we may develop or for which we or our collaborators may in the future obtain marketing approval, but our future decisions may be subject to similar risks to the ones discussed below. +We may be unable to establish any agreements with third-party manufacturers or to do so on acceptable terms. Even if we are able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, some of which may include: +• the possible breach of the manufacturing agreement by the third party; +• tariffs (including tariffs that have been or may in the future be imposed by the United States or other countries), trade protection measures, import or export licensing requirements, trade embargoes, sanctions (including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury), other trade barriers (including further legislation or actions taken by the United States or other countries that restrict trade), and protectionist or retaliatory measures taken by the United States or other countries; +• the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us; and +• reliance on the third party for regulatory compliance and quality assurance. +Third-party manufacturers may not be able to comply with cGMP regulations or similar regulatory requirements outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable +63 +regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocations, seizures or recalls of product candidates or therapies, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our therapies and harm our business, financial condition, results of operations and prospects. +Any therapies that we may develop may compete with other product candidates and products for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us. +Any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval. We do not currently have arrangements in place for redundant supply for bulk drug substances. If any third party-manufacturer with whom we contract fails to perform its obligations, we may be forced to manufacture the materials ourselves, for which we may not have the facilities or resources, or enter into an agreement with a different third party-manufacturer, which we may not be able to do on reasonable terms, if at all. In either scenario, our clinical trials supply could be delayed significantly as we establish alternative supply sources. In some cases, the technical skills required to manufacture our products or product candidates may be unique or proprietary to the original third party-manufacturer and we may have difficulty, or there may be contractual restrictions prohibiting us from, transferring such skills to a back-up or alternate supplier, or we may be unable to transfer such skills at all. In addition, if we are required to change third party-manufacturers for any reason, we will be required to verify that the new third party-manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations. We will also need to verify, such as through a manufacturing comparability study, that any new manufacturing process will produce our current and future product candidates according to the specifications previously submitted to the FDA or another regulatory authority. The delays associated with the verification of a new third party-manufacturer could negatively affect our ability to develop product candidates or commercialize our products in a timely manner or within budget. Furthermore, a third party-manufacturer may possess technology related to the manufacture of our product candidate that such third party-manufacturer owns independently. This would increase our reliance on such third party-manufacturer or require us to obtain a license from such third party-manufacturer in order to have another third party-manufacturer manufacture our product candidates, which may not be available on commercially reasonable terms, or at all. In addition, changes in manufacturers often involve changes in manufacturing procedures and processes, which could require that we conduct bridging studies between our prior clinical supply used in our clinical trials and that of any new manufacturer. We may be unsuccessful in demonstrating the comparability of clinical supplies which could require the conduct of additional clinical trials. +In addition, regional or single-source dependencies may in some cases accentuate these risks. For example, the pharmaceutical industry generally, and in some instances we or our collaborators or other third parties on which we rely, depend on China-based suppliers or service providers for certain raw materials, goods, including biologically derived substances, products and services, or other activities. Our ability or the ability of our collaborators or such other third parties to continue to engage these China-based suppliers or service provides and Chinese biotech companies for certain preclinical research programs and clinical development programs could be restricted due to geopolitical developments between the United States and China, including as a result of the escalation of tariffs, other trade restrictions or the enactment of the BIOSECURE Act or similar legislation. While the BIOSECURE Act is primarily directed at U.S. government procurement and funding and has not yet been fully implemented through final regulations, there remains a continued policy interest in limiting U.S. companies’ relationships with biotechnology providers with relationships with foreign adversaries. For instance, if our, our collaborators’, or other third parties’ China-based suppliers or service providers were named as a “biotechnology company of concern,” such designation could have the downstream effect of restricting our ability to enter into contracts with or receive funding from U.S. federal agencies from purchasing services or equipment involving the use of those Chinese biotechnology companies, as well as supply chain disruptions or delays. This, in turn, could materially and adversely affect our or our collaborators’ ability to manufacture or supply product candidates or advance our clinical development programs, which could materially and adversely affect our business and future prospects. +Our current and anticipated future dependence upon others for the manufacture of any product candidates or therapies we may develop may adversely affect our future profit margins and our ability to commercialize any therapies that receive marketing approval on a timely and competitive basis. +64 +If we are not able to establish collaborations on a timely basis, on commercially reasonable terms, or at all, we may have to alter, reduce or delay our development and commercialization plans or increase our expenditures to fund development or commercialization activities at our own expense. +For some of the product candidates we may develop, we may decide to collaborate with other pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates, which is a complex and time-consuming process to negotiate and document. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator or strategic partner’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator or strategic partner’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA, the European Commission or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator or strategic partner may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us. In addition, we and the collaborator or strategic partner may have differences in risk tolerance, which may affect the development and execution of such collaborations with respect to timing and other considerations. +We may also be restricted under existing collaboration agreements from entering into future collaboration agreements on certain terms with potential collaborators. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators, which further increases competition we face in seeking potential collaborations. +We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to develop product candidates or bring them to market and generate product revenue. +Risks Related To Our Intellectual Property +If we are unable to obtain and maintain patent and other intellectual property protection for any product candidates we develop and for our Prime Editing technology, or if the scope of the patent and other intellectual property protection obtained is not sufficiently broad, third parties could develop and commercialize products and technology similar or identical to ours and our ability to successfully commercialize any product candidates we may develop and our Prime Editing technology may be adversely affected. +Our commercial success will depend in large part on our ability to obtain and maintain patent, trademark, trade secret and other intellectual property protection of our Prime Editing technology, product candidates and other technology, methods used to manufacture them and methods of treatment, as well as to successfully defend our patent and other intellectual property rights against third-party challenges. It is difficult and costly to protect our Prime Editing technology and product candidates, and we may not be able to ensure their protection. Our ability to stop unauthorized third parties from making, using, selling, offering to sell, importing or otherwise commercializing our product candidates we may develop is dependent upon the extent to which we have established rights under valid and enforceable patents or trade secrets that cover these activities. +We seek to protect our proprietary position by in-licensing intellectual property relating to our platform technology and filing patent applications in the United States and abroad related to our Prime Editing technology and product candidates that are important to our business. If we or our licensors are unable to obtain or maintain patent protection with respect to our Prime Editing technology and product candidates we may develop, or if the scope of the patent protection secured is not sufficiently broad, third parties could develop and commercialize products and +65 +technology similar or identical to ours and our ability to commercialize any product candidates we may develop may be adversely affected. +The patent prosecution process is expensive, time-consuming and complex, and we may not be able to file, prosecute, maintain, enforce, defend or license all necessary or desirable patent applications at a reasonable cost or in a timely manner. In addition, we may not pursue or obtain patent protection in all relevant markets. It is also possible that we will fail to identify patentable aspects of our research and development output in time to obtain patent protection. Although we enter into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development output, such as our employees, corporate collaborators, outside scientific collaborators, CROs, contract manufacturers, consultants, advisors and other third parties, any of these parties may breach the agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patent protection. In addition, our ability to obtain and maintain valid and enforceable patents depends on whether the differences between our inventions and the prior art allow our inventions to be patentable over the prior art. Furthermore, publications of discoveries in the scientific literature often lag behind the actual discoveries and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we or our licensors were the first to make the inventions claimed in our owned or licensed pending patent applications or in-licensed issued patents, or that we or our licensors were the first to file for patent protection of such inventions. If a third party can establish that we or our licensors were not the first to make or the first to file for patent protection of such inventions, our owned or licensed patent applications may not issue as patents and even if issued, may be challenged and invalidated or rendered unenforceable. +The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has been the subject of much litigation in recent years. The field of genome editing has been the subject of extensive patenting activity and litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain and we may become involved in complex and costly litigation. Our pending and future patent applications may not result in patents being issued which protect our Prime Editing technology and product candidates we may develop or which effectively prevent others from commercializing competitive technologies and product candidates. For example, our provisional applications may never result in issued patents. A provisional patent application is not eligible to become an issued patent until, among other things, we file a non-provisional patent application within 12 months of filing the related provisional patent application. If we do not timely file non-provisional patent applications, we may lose our priority dates with respect to our provisional patent applications and any patent protection on the inventions disclosed in our provisional patent applications. While we intend to timely file non-provisional patent applications relating to our provisional patent applications, we cannot predict whether any of our patent applications for our technology and product candidates will result in the issuance of patents that effectively protect our technology and product candidates. Any failure to obtain or maintain patent protection with respect to our technology and product candidates would have a material adverse effect on our business, financial condition, results of operations and prospects. +No consistent policy regarding the scope of claims allowable in the field of genome editing, including for Prime Editing technology, has emerged in the United States. The scope of patent protection outside of the United States is also uncertain. Changes in either the patent laws or their interpretation in the United States and other countries may diminish our ability to protect our inventions, obtain, maintain, enforce and defend our intellectual property rights and, more generally, could affect the value of our intellectual property or narrow the scope of our owned and licensed patent rights. With respect to both in-licensed and owned intellectual property, we cannot predict whether the patent applications we and our licensors are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will be valid and enforceable and provide sufficient protection from third parties. +Moreover, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance. Even if patent applications we license or own currently or in the future issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors or other third parties from competing with us, or otherwise provide us with any competitive advantage. Any patent applications that we own or in-license may, if issued as patents, be challenged, narrowed, circumvented, or invalidated by third parties. Consequently, we do not know whether any of our platform advances and product candidates we may develop will be protectable or remain protected by valid and enforceable patents. Our +66 +competitors or other third parties may be able to circumvent our patents that may be issued from our patent applications by developing similar or alternative technologies or products in a non-infringing manner. In addition, given the amount of time required for the development, testing and regulatory review of new product candidates, patents that may be issued protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our intellectual property may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. +Some of our owned and in-licensed patent applications are, and may in the future be, co-owned with third parties. With respect to any patent applications co-owned by third parties, we may require exclusive licenses to such co-owners’ interest to such patents. If we are unable to obtain an exclusive license to any such third-party co-owners’ interest in such patent applications, we may be unable to prevent such co-owner from licensing their rights under the patent applications to other third parties, including our competitors, and our competitors may be able to market competing products and technology. In addition, we may need the cooperation of any such co-owners of our future patents in order to enforce such future patents against third parties, and such cooperation may not be provided to us. +Our rights to develop and commercialize our Prime Editing platform technology and product candidates are subject to the terms and conditions of licenses granted to us by others. If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that are important to our business. +We do not currently own any issued patents and are heavily reliant upon certain patent rights and proprietary technology we have licensed from third parties that are important or necessary to the development of our Prime Editing technology and product candidates. For example, we are a party to two license agreements with Broad Institute. In September 2019, we entered into a license agreement with Broad Institute, or the Broad License Agreement, and in May 2020, February 2021, December 2022, September 2024, and September 2025, we entered into amendments to such license agreement. In December 2022, we entered into a new license agreement with Broad Institute, or the 2022 Broad License Agreement. Under the amended Broad License Agreement and the 2022 Broad License Agreement, Broad Institute grants us certain rights and licenses under certain patent rights it owns or controls relating to our Prime Editing technology and product candidates. Each license agreement imposes various diligence, milestone payment, royalty, insurance and other obligations on us. Our licenses are subject to Broad Institute’s inclusive innovation model, pursuant to which Broad Institute retains the right, in certain circumstances, to grant to third parties (other than specified competitors of ours) licenses under the licensed patent rights that would otherwise fall within the scope of the exclusive license granted to us. All gene targets, which are any human genes to which a program is directed, are subject to Broad Institute’s march-in license, which means Broad Institute has the right to terminate our license to gene targets under certain conditions and could make one or more gene targets unavailable to us. However, if we initiate a program for a gene target, in accordance with the terms of each license agreement, we may block a march-in request by making certain showing and by continuing to use commercially reasonable efforts to continue to progress such development. Internally, we determine when a program for a gene target has been initiated by considering factors such as whether a gene target has been identified as the subject of a program, how much time or resources have been dedicated to researching, developing, and/or designing and using reagents for a program, and the amount of preclinical testing in process for such program. If we fail to comply with these or other obligations in our current or future license agreements, our licensors may have the right to terminate our license, in which event we would not be able to develop or market our Prime Editing technology or any other technology or product candidates covered by the intellectual property licensed under this agreement. Our business would be seriously harmed if any current or future licenses terminate, if our licensors fail to abide by the terms of the license, if our licensors fail to enforce licensed patents against infringing third parties, if the licensed patents or other rights are found to be invalid or unenforceable, or if we are unable to enter into necessary licenses on acceptable terms. If our license agreements terminate, or we experience a reduction or elimination of licensed rights under these agreements, we may have to negotiate new or reinstated licenses with less favorable terms or we may not have sufficient intellectual property rights to operate our business. Moreover, if certain of our license agreements terminate, we may be required to continue to license or assign certain of our intellectual property to the applicable counterparty. +67 +Certain of the patent rights that we license from Broad Institute under the Broad License Agreement are co-owned by Broad Institute with Harvard and certain of the licensed patent rights under the Broad License Agreement are co-owned by Broad Institute, Harvard, and MIT. The patent rights that we license from Broad Institute under the 2022 Broad License Agreement are co-owned by Broad Institute with Harvard, Princeton, and the University of California. In addition, some of the inventors of the licensed patent and patent applications are or were employees of HHMI, which retains certain rights to patents and patent applications invented by their employees. Our rights to our in-licensed patents and patent applications from Broad Institute are dependent, in part, on inter-institutional or other operating agreements between Broad Institute, Harvard, MIT, University of California, Princeton and HHMI. If Broad Institute, Harvard, MIT, University of California, Princeton or HHMI breaches or terminates such inter-institutional or operating agreements, our rights to such in-licensed patents and patent applications may be adversely affected. We have also licensed certain improvements to Prime Editing from Dr. Liu’s laboratory at Broad Institute. For example, Dr. Liu’s laboratory at Broad Institute developed engineered pegRNAs, or epegRNAs, which we have exclusively in-licensed. +Additionally, in September 2019, we established a strategic relationship with Beam, a biotechnology company developing gene editing products using its proprietary base editing technology. Under our license and collaboration agreement with Beam, or the Beam Collaboration Agreement, each party grants to the other certain exclusive and non-exclusive licenses and rights to certain Prime Editing, CRISPR and delivery technologies for use in certain specified fields. Activities performed by Prime and Beam under the Beam Collaboration Agreement may lead to co-owned patents and patent applications. +These and other licenses may not provide exclusive rights to use such intellectual property and technology in all relevant fields of use and in all territories in which we may wish to develop or commercialize our Prime Editing technology and product candidates in the future. Some licenses granted to us are expressly subject to certain preexisting rights held by the licensors or certain third parties. As a result, we may not be able to prevent third parties from developing and commercializing competitive products in certain territories or fields. For example, the rights granted to us under each license agreement are subject to certain retained rights of, among others, Broad Institute, MIT, Harvard, Princeton, University of California, HHMI and the U.S. federal government, and the rights granted to us under the Beam Collaboration Agreement are subject to certain third party agreements and certain rights retained by third parties. Additionally, each license agreement with Broad Institute provides that our field of use is limited to the field of prevention or treatment of human disease, and most licenses granted to us under each license agreement with Broad Institute are further limited to the prevention or treatment of human disease by editing (including modifying or converting) or targeting DNA ex vivo , in vivo , or through xeno-transplantation methods and includes other specified exclusions. If we determine that rights to additional fields, including the specifically excluded fields, are necessary to commercialize our product candidates or maintain our competitive advantage, we may need to obtain a license from Broad Institute and/or other third parties in order to continue developing, manufacturing or marketing our product candidates. We may not be able to obtain such a license on an exclusive basis, on commercially reasonable terms, or at all, which could prevent us from commercializing our product candidates or allow our competitors or other third parties the chance to access technology that is important to our business. +We do not control the preparation, filing, prosecution and maintenance of the patents and patent applications covering the technology that we license from Broad Institute or Beam. For example, pursuant to our licenses with Broad Institute and Beam, our licensors retain control of preparation, filing, prosecution and maintenance of their wholly-owned patents and patent applications. We rely on such licensors to determine inventorship and perfect priority of their patent applications. We cannot be certain that these patents and patent applications will be prepared, filed, prosecuted, maintained and defended in a manner consistent with the best interests of our business. If Broad Institute or Beam fails to prosecute or maintain such patents and patent applications or loses rights to such patents and patent applications, the rights we have licensed may be reduced or eliminated, our right to develop and commercialize any of our product candidates we may develop that are the subject of such licensed rights could be adversely affected and we may not be able to prevent third parties from making, using and selling competing products. In addition, we do not control all enforcement of the patents and patent applications we license from Broad Institute. It is possible that our licensors’ enforcement of patents against infringers or defense of such patents against challenges of validity or claims of enforceability may be less vigorous than if we had conducted them ourselves, or may not be conducted in accordance with our best interests. +68 +Our licensors may have relied on third-party consultants or collaborators or on funds from third parties such that our licensors are not the sole and exclusive owners of the patent rights we have in-licensed. If other third parties have ownership rights to our in-licensed issued patents and patent applications, the license granted to us in jurisdictions where the consent of a co-owner is necessary to grant such a license may not be valid, and such co-owners for which we do not secure exclusive licenses may be able to license such patent rights to third parties, including our competitors, and such third parties may be able to market competing products and technology. +Furthermore, inventions contained within some of our in-licensed issued patents and patent applications were made using U.S. government funding. We rely on our licensors to ensure compliance with applicable obligations arising from such funding, such as timely reporting, an obligation associated with our in-licensed patents and patent applications. The failure of our licensors to meet their obligations may lead to a loss of rights or the unenforceability of relevant patents that may issue from such applications. For example, the U.S. government could have certain rights in such in-licensed issued patent and patent applications, including a non-exclusive license authorizing the U.S. government to use the invention or to have others use the invention on its behalf. If the U.S. government decides to exercise these rights, it is not required to engage us as its contractor in connection with doing so. The U.S. government’s rights may also permit it to disclose the funded inventions and technology to third parties and to exercise march-in rights to use or allow third parties to use the technology we have licensed that was developed using U.S. government funding. The U.S. government may also exercise its march-in rights if it determines that action is necessary because we or our licensors failed to achieve practical application of the U.S. government-funded technology, because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations, or to give preference to U.S. industry. For example, if the U.S. government determines it is necessary, the U.S. government may exercise its march-in rights and license to third-party manufacturers any or all of our future products or current or future product candidates covered by in-licensed patents and patent applications made using U.S. government funding. In addition, our rights in such in-licensed U.S. government-funded inventions may be subject to certain requirements to manufacture product candidates embodying such inventions in the United States. Any of the foregoing could harm our business, financial condition, results of operations, and prospects significantly. +In the event that any of our third-party licensors determines that, in spite of our efforts, we have materially breached a license agreement or have failed to meet certain obligations thereunder, it may elect to terminate the license agreement or, in some cases, one or more license(s) under the applicable license agreement and such termination would result in us no longer having the ability to develop and commercialize product candidates and technology covered by that license agreement or license. In the event of such termination of a third-party in-license, or if the underlying patent rights under a third-party in-license fail to provide the intended exclusivity, third parties may be able to seek regulatory approval of, and to market, products identical to ours. Moreover, our licensors may own or control intellectual property that has not been licensed to us and, as a result, we may be subject to claims, regardless of their merit, that we are infringing or otherwise violating the licensor’s rights. Any of these events could have a material adverse effect on our competitive position, business, financial conditions, results of operations and prospects. +Pursuant to our license agreements with Beam and Broad Institute, we are generally responsible for bringing any actions against any third party for infringing on certain of the patent rights we have licensed from such counterparty, subject to certain conditions. Certain provisions of each license agreement with Broad Institute also require us to meet development thresholds within specified timeframes to maintain the license, including establishing a set timeline for developing and commercializing products, while some provisions of the Beam Collaboration Agreement require us to use commercially reasonable efforts to conduct development activities for collaboration products. In spite of our efforts, Broad Institute, Beam, or any future licensor from whom we may seek to license intellectual property rights might conclude that we have materially breached our obligations under such license agreements and might therefore terminate the license agreements, thereby removing or limiting our ability to develop and commercialize products and technology covered by these license agreements. If these licenses agreements are terminated, or if the underlying patent rights fail to provide the intended exclusivity, competitors or other third parties may be able to seek regulatory approval of, and to market, products identical to ours and we may be required to cease our development and commercialization of our Prime Editing technology or product candidates. Any of the foregoing could have a material adverse effect on our competitive position, business, financial condition, results of +69 +operations and growth prospects. Disputes may arise regarding intellectual property subject to a licensing agreement, including: +• the scope of rights granted under the license agreement and other interpretation-related issues; +• the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement; +• the sublicensing of patent rights to third parties under our collaborative development relationships; +• our diligence obligations under the license agreement with respect to the use of the licensed technology in relation to our development and commercialization of our product candidates and what activities satisfy those diligence obligations; +• the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensor and us and our partners; and +• the priority of invention of patented technology. +In addition, the agreements under which we currently license intellectual property rights from Beam and Broad Institute are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise under our existing license agreements or future license agreements into which we may enter could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology or broaden what we believe to be the scope of the licensor’s rights to our intellectual property and technology, or increase what we believe to be our financial or other obligations under the relevant agreement, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects. For example, we have exclusively licensed and sublicensed certain of our owned and licensed intellectual property rights to Beam pursuant to the Beam Collaboration Agreement in certain fields. The parties have presented differing contractual interpretations, the resolution of which could expand the field of exclusivity or other rights that we believe were granted to Beam, and therefore narrow what we believe to be our field of exclusivity or rights with respect to such licensed intellectual property rights. For more information, see the risk factor entitled “ If conflicts arise between us and our collaborators or strategic partners, these parties may act in a manner adverse to us and could limit our ability to implement our strategies or we could lose license rights that are important to our business .” Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates. As a result, any termination of or disputes over our intellectual property licenses could result in the loss of our ability to develop and commercialize our Prime Editing technology or other product candidates or we could lose other significant rights, any of which could have a material adverse effect on our business, financial conditions, results of operations and prospects. It is also possible that a third party could be granted limited licenses to some of the same technology, in certain circumstances. +Our in-licensed issued patents and owned and in-licensed patent applications may not provide sufficient protection of our Prime Editing technologies and our future product candidates or result in any competitive advantage. +We have in-licensed 10 issued U.S. patents or allowed U.S. patent applications, 20 granted ex-U.S. patents or allowed ex-U.S. patent applications, and own and have in-licensed a number of patent applications that cover Prime Editing methods and its components and systems. We and our licensors have filed patent applications intended to specifically cover our Prime Editing technology and uses with respect to treatment of particular diseases and conditions. While we in-license 10 issued U.S. patents or allowed U.S. patent applications, we do not currently own any, or in-license any other, issued U.S. patents. +We have 10 in-licensed issued U.S. patents or allowed U.S. patent applications and 20 granted ex-U.S. patents or allowed ex-U.S. patent applications, all of which cover Prime Editing methods and its components and systems. Our owned and in-licensed patent applications contain claims directed to compositions of matter for our Prime Editing product candidates, as well as methods directed to the use of such product candidates for gene therapy treatment. Method-of-use patents do not prevent a competitor or other third party from developing or marketing an +70 +identical product for an indication that is outside the scope of the patented method. Moreover, with respect to method-of-use patents, even if competitors or other third parties do not actively promote their product for our targeted indications or uses for which we may obtain patents, providers may recommend that patients use these products off-label, or patients may do so themselves. +The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. The issuance of a patent is not conclusive as to its inventorship, scope, validity, or enforceability, and our or our licensors’ current and future patents may be challenged in the courts or patent offices in the United States and abroad. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our product candidates or uses thereof in the United States or in other foreign countries. For example, while our or our licensors’ patent applications are pending, such patent applications may now or in the future be subject to a third-party pre-issuance submission of prior art to the USPTO or become involved in interference or derivation proceedings or equivalent proceedings in foreign jurisdictions. For example, prior art was submitted by one or more third parties with respect to certain of our Patent Cooperation Treaty, or PCT, patent applications as well as in patent applications filed in the European Patent Office in-licensed from Broad Institute directed to Prime Editing. Third parties may challenge the inventorship, priority of invention, validity, enforceability or scope of our in-licensed patents and our or our licensors’ patent applications that successfully issue, including through opposition, revocation, reexamination, post-grant and inter partes review proceedings and litigation. Moreover, we, or one of our licensors, may have to participate in interference proceedings declared by the USPTO to determine priority of invention or in post grant challenge proceedings, such as oppositions in a foreign patent office, that challenge priority of invention or other features of patentability. An adverse determination in any such submission, proceeding or litigation may result in loss of patent rights, loss of exclusivity, or in patent claims being narrowed, invalidated, or held unenforceable, which could limit our ability to stop others from using or commercializing similar or identical technology and products, allow third parties to commercialize our technology or product candidates and compete directly with us, without payment to us, limit the duration of the patent protection of our technology and product candidates, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. Furthermore, even if they are unchallenged, our patent rights may not adequately protect our intellectual property or prevent others from designing around our platform technology or product candidates. If the breadth or strength of protection provided by our in-licensed patents or patents that may issue from the patent applications we own or in-license with respect to our Prime Editing technology and product candidates is threatened, it could dissuade companies from collaborating with us to develop, and threaten our ability to commercialize, our product candidates. Further, if we encounter delays in development, testing and regulatory review of new product candidates, the period of time during which we could market our product candidates under patent protection would be reduced. +Given that patent applications in the United States and other countries are confidential for a period of time after filing, at any moment in time, we cannot be certain that we or our licensors were in the past or will be in the future the first to file any patent application related to our Prime Editing technology or product candidates. In addition, some patent applications in the United States may be maintained in secrecy until the patents are issued. As a result, there may be prior art of which we or our licensors are not aware that may affect the validity or enforceability of a patent claim, and we or our licensors may be subject to priority disputes. For our in-licensed patent portfolios, we rely on our licensors to determine inventorship and to obtain and file inventor assignments of priority applications before their conversion as PCT applications. A failure to do so in a timely fashion may give rise to a challenge to entitlement of priority for foreign applications nationalized from such PCT applications. We or our licensors may in the future become a party to proceedings or priority disputes in Europe or other foreign jurisdictions. The loss of priority for, or the loss of, any European or other foreign patent rights could have a material adverse effect on the conduct of our business. +We may be required to disclaim part or all of the term of certain patents that may issue from our owned or in-licensed patent applications. There may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim. There also may be prior art of which we or our licensors are aware, but which we or our licensors do not believe affects the validity or enforceability of a claim, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim. No assurance can be given that, if challenged, our in-licensed patents and patent applications, if issued, would be declared by a court, patent office or other governmental authority to be valid or enforceable, or that even if the patent claims were found to be not invalid or unenforceable, a +71 +third party’s technology or product would be found by a court to infringe our patent rights. Moreover, even if our in-licensed patents and patent applications, if issued, are declared to be valid and enforceable and a third party’s technology or product found to infringe our patent rights, a court or other governmental authority may refuse to prevent a third party’s technology or product from being marketed, and the court or governmental authority would determine the royalty rate to be paid by the third party to us. We analyze patents or patent applications of third parties that we believe are relevant to our activities, but third parties may achieve issued claims, including in patents we consider to be unrelated, that block our efforts or potentially result in our product candidates or our activities infringing such claims. It is possible that third parties may have filed, and may in the future file, patent applications covering our products or gene editing technology similar to ours. Those patent applications may have priority over our in-licensed patents and owned and in-licensed patent applications, which could require us to obtain rights to issued patents covering such technologies. The possibility also exists that others will develop products that have the same effect as our product candidates on an independent basis that do not infringe our in-licensed patents or patents that may issue from our own or in-licensed patent applications, or other intellectual property rights, or will design around the claims of our in-licensed patents or our patents that may issue from our owned or in-licensed patent applications that cover our product candidates. +Likewise, our in-licensed issued patents and currently owned and in-licensed patent applications, if issued as patents, directed to our in-licensed and company-owned Prime Editing technologies and our product candidates are expected to expire between 2040 and 2047, without taking into account any possible patent term adjustments or extensions. Our in-licensed issued patents, or owned or in-licensed patent applications, if issued as patents, may expire before, or soon after, our first product candidate achieves marketing approval in the United States or foreign jurisdictions. Additionally, no assurance can be given that the USPTO or relevant foreign patent offices will grant any of the pending patent applications we own or in-license currently or in the future. Upon the expiration of such patents that may issue from our current owned or in-licensed patent applications, we may lose the right to exclude others from practicing these inventions. The expiration of these patent rights could also have a similar material adverse effect on our business, financial condition, results of operations and prospects. +Our in-licensed issued patents and owned and in-licensed patent applications and other intellectual property may be subject to priority, inventorship or ownership disputes and similar proceedings. If we or our licensors are unsuccessful in any of these proceedings, we may be required to obtain licenses from third parties, which may not be available on commercially reasonable terms or at all, or to cease the development, manufacture and commercialization of one or more of our product candidates, which could have a material adverse impact on our business. +We or our licensors may be subject to claims that former employees, collaborators, or other third parties have an interest in our in-licensed issued patents or owned or in-licensed patent applications or other intellectual property as an inventor or co-inventor. If we or our licensors are unsuccessful in any interference proceedings or other priority, validity (including any patent oppositions), inventorship or ownership disputes to which we or they are subject, we may lose valuable intellectual property rights through the loss of part or all of our owned or licensed patent rights, the loss of exclusive ownership of or the exclusive right to use our owned or in-licensed patent rights, or the narrowing, invalidation, or unenforceability of our or our licensors’ patent claims. In the event of loss of patent rights as a result of any of these disputes, we may be required to obtain and maintain licenses from third parties, including parties involved in any such interference proceeding or other priority, inventorship or ownership disputes. Such licenses may not be available on commercially reasonable terms or at all, or may be non-exclusive. If we are unable to obtain and maintain such licenses, we may need to cease the development, manufacture and commercialization of one or more of our product candidates. The loss of exclusivity or the narrowing of our patent rights could limit our ability to stop others from using or commercializing similar or identical technology and product candidates. Even if we or our licensors are successful in an inventorship or ownership dispute, it could result in substantial costs and be a distraction to management and other employees. Any of the foregoing could result in a material adverse effect on our business, financial condition, results of operations, or prospects. +72 +We have limited foreign intellectual property rights and may not be able to protect our intellectual property and proprietary rights throughout the world. +We currently have in-licensed 20 ex-U.S. granted patents or allowed ex-U.S. patent applications that cover Prime Editing components and methods of use. Although we own and have in-licensed numerous ex-U.S. patent applications, we have limited intellectual property rights outside the United States. Filing, prosecuting and defending patents on our Prime Editing technologies and product candidates in all countries throughout the world would be prohibitively expensive and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. The laws of foreign countries do not protect intellectual property rights to the same extent as federal and state laws of the United States, even in jurisdictions where we or our licensors do pursue patent protection. In addition, our intellectual property license agreements may not always include worldwide rights. Consequently, we or our licensors may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Third parties may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection but where enforcement is not as strong as that in the United States. These products may compete with our product candidates and patents that may issue from our or our licensors’ pending patent applications or other intellectual property rights may not be effective or sufficient to prevent them from competing. +Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology and pharmaceutical products, which could make it difficult for us to stop the infringement of our future patents or marketing of competing products by third parties in violation of our intellectual property and proprietary rights generally. Proceedings to enforce our future patents or our licensors’ patent or future patents and intellectual property rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our future patents or our licensors’ patent or future patents at risk of being invalidated or interpreted narrowly and our or our licensors’ patent applications at risk of not issuing and could provoke third parties to assert claims against us or our licensors. We may not prevail in any lawsuits that we or our licensors initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Moreover, the initiation of proceedings by third parties to challenge the scope or validity of our or our licensors’ patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business. Accordingly, our or our licensors’ efforts to enforce our or our licensors’ intellectual property and proprietary rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license. +Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we or our licensors are forced to grant one or more licenses to third parties with respect to any patent or future patents relevant to our business, our competitive position may be impaired, and our business, financial condition, results of operations and prospects may be adversely affected. +We may not be successful in acquiring or in-licensing necessary rights to key technologies or any product candidates we may develop. +We currently have rights to intellectual property, through licenses from third parties, to identify and develop product candidates, and we expect to seek to expand our product candidate pipeline in part by in-licensing additional rights to key technologies. The future growth of our business will depend in part on our ability to in-license or otherwise acquire the rights to additional product candidates and technologies. Although we have succeeded in licensing technologies from Beam and Broad Institute in the past, we cannot guarantee that we will be able to in-license or acquire additional rights to any product candidates or technologies from Beam, Broad Institute, or other third parties on acceptable terms or at all. For example, Broad Institute is developing improvements to the Prime Editing technology for which we may find it necessary or useful to obtain a license. In addition, our agreements with Beam +73 +and Broad Institute provide that our fields of use exclude particular fields. If we determine that rights to such fields are necessary to commercialize our technology or product candidates or maintain our competitive advantage, we may need to obtain a license from Beam or Broad Institute in order to continue developing, manufacturing or marketing our technology or product candidates. In addition, we may seek to obtain additional licenses from our licensors and, in connection with obtaining such licenses, we may agree to amend our existing licenses in a manner that may be more favorable to the licensors, including by agreeing to terms that could enable third parties (potentially including our competitors) to receive licenses to a portion of the intellectual property that is subject to our existing licenses. Additionally, upon our finalization of our product candidates, we may determine that there are third parties who possess technologies related to gene editing or other technologies which we may need to in-license, including intellectual property covering the use of Cas domains and RTs. We may not be able to obtain such a license on an exclusive basis, on commercially reasonable terms, or at all, which could prevent us from commercializing our product candidates or allow our competitors or other third parties the chance to access technology that is important to our business. +Furthermore, there has been extensive patenting activity in the field of gene editing. Pharmaceutical companies, biotechnology companies and academic institutions are competing with us or are expected to compete with us in the in the field of gene editing technology and filing patent applications potentially relevant to our business. For example, we are aware of several third-party patents and patent applications that may be construed to cover or be relevant to our Prime Editing and PASSIGE technologies and product candidates. In order to market our product candidates, we may find it necessary or prudent to obtain licenses from such third-party intellectual property holders. However, we may be unable to secure such licenses or otherwise acquire or in-license any compositions, methods of use, processes, or other intellectual property rights from third parties that we identify as necessary for product candidates we may develop and our Prime Editing technology. We may also require licenses from third parties for certain additional technologies, including technologies relating to Prime Editing, such as guide RNA modification, target sequences, Cas domains such as Cas9, reverse transcriptases such as Moloney murine leukemia virus reverse transcriptase, as well as delivery technologies for product candidates we may develop. For our PASSIGE technology, we may require additional licenses from third parties for recombinase technologies. +Additionally, we may collaborate with academic institutions to accelerate our research or development under written agreements with these institutions. In certain cases, these institutions may provide us with an option to negotiate a license to any of the institution’s rights in technology resulting from the collaboration. Even if we hold such an option, we may be unable to negotiate a license from the institution within the specified timeframe or under terms that are acceptable to us. If we are unable to do so, such institution may offer the intellectual property rights to others, potentially blocking our ability to pursue our program. +The licensing or acquisition of third-party intellectual property rights is a highly competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, capital resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment or at all. If we are unable to successfully obtain rights to required third party intellectual property rights or maintain the existing intellectual property rights we have, we may have to abandon development of the relevant program or product candidate, which could have a material adverse effect on our business, financial condition, results of operations and prospects. +The intellectual property landscape around the technologies we use or plan to use, including gene editing technology, is highly dynamic, and third parties may initiate legal proceedings alleging that we are infringing, misappropriating, or otherwise violating their intellectual property rights, the outcome of which would be uncertain and may prevent, delay or otherwise interfere with our product discovery and development efforts. +The field of gene editing is still relatively new, and only one therapeutic gene editing product has reached the market. Due to the intense research and development that is taking place by several companies, including by us and our competitors, in this field, the intellectual property landscape is evolving and in flux, and it may remain uncertain for the coming years. There may be significant intellectual property related litigation and administrative proceedings relating to our owned and in-licensed, and other third-party, intellectual property and proprietary rights in the future. +74 +Our commercial success depends upon our ability and the ability of our collaborators and present and future licensees to develop, manufacture, market and sell any product candidates that we may develop and use our proprietary technologies without infringing, misappropriating, or otherwise violating the intellectual property and proprietary rights of third parties. The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual property rights as well as administrative proceedings for challenging patents, including interference, derivation, inter partes review, post grant review and reexamination proceedings before the USPTO or oppositions and other comparable proceedings in foreign jurisdictions. We may be subject to and may in the future become party to, or threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our Prime Editing and PASSIGE technologies and product candidates we may develop, including interference proceedings, post-grant review, inter partes review, derivation proceedings and reexamination proceedings before the USPTO and similar proceedings in foreign jurisdictions such as oppositions before the European Patent Office, or EPO. Numerous U.S. and foreign issued patents and pending patent applications that are owned by third parties exist in the fields in which we are developing our product candidates and they may assert infringement claims against us based on existing patents or patents that may be granted in the future, regardless of their merit. +As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our Prime Editing technology and product candidates may give rise to claims of infringement of the patent rights of others. Moreover, it is not always clear to industry participants, including us, which patents cover various types of therapies, products or their methods of use or manufacture. There may be third-party patents of which we are currently unaware with claims to technologies, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that our product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. +Numerous third-party U.S. and foreign issued patents and pending patent applications exist in the fields in which we are developing product candidates. Our product candidates make use of CRISPR-based technology, which is a field that is highly active for patent filings. As of March 2022, it was reported that over 11,000 patent families worldwide related to CRISPR gene editing inventions and their uses. The extensive patent filings related to CRISPR make it difficult for us to assess the full extent of relevant patents and pending applications that may cover our Prime Editing technology and product candidates and their use or manufacture. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our Prime Editing platform technology and product candidates. We are aware of multiple patents and patent applications directed to CRISPR technologies, Cas domains, including Cas9, and their uses in gene editing. For example, we are aware of a patent portfolio that is co-owned by the University of California, University of Vienna and Emmanuelle Charpentier, which we refer to together as CVC, which contains multiple patents and pending applications directed to gene editing. We are also aware of patents and patent applications directed to gene editing, including ones that may be relevant to our Prime Editing and PASSIGE technologies, owned or co-owned by Broad Institute, MIT, Rockefeller University, Harvard, Toolgen Inc. and Sigma-Aldrich. Additional patents and patent applications that we are aware of and directed to gene editing, including ones that may be relevant to our Prime Editing and PASSIGE technologies, are owned or co-owned by The General Hospital Corporation, BASF, SNIPR Technologies Ltd., Novartis, Columbia University, Agilent Technologies, Thermo Fisher Scientific, University of California, Intellia Therapeutics, Editas Medicine, Flagship Pioneering Innovations, Caribou Biosciences, Pairwise Plants Services, University of Washington, University of California, Stanford University, Cellectis, and Inscripta. +Our ability to commercialize our product candidates may be adversely affected if we require but cannot obtain a license to these patents. We may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be nonexclusive, thereby giving our competitors and other third parties access to the same technologies licensed to us, and it could require us to make substantial licensing and royalty payments. If we are unable to obtain a necessary license to a third-party patent on commercially reasonable terms, we may be unable to commercialize our Prime Editing technology or product candidates or such commercialization efforts may be significantly delayed, which could in turn significantly harm our business. +75 +Several patents and pending applications with claims directed to foundational aspects of CRISPR-Cas9 gene editing are currently involved in interference proceedings at the USPTO. The Patent Trial and Appeal Board, or PTAB, of the USPTO declared a second interference between 14 pending applications co-owned by the CVC and 13 patents and one pending application co-owned by Broad Institute, MIT, Rockefeller University and Harvard, which we refer to as the Boston Licensing Parties, in 2019 after the first interference between the two parties was terminated in 2018. In February 2022, the PTAB issued a decision in the second interference, granting priority to the patents and pending application co-owned by the Boston Licensing Parties over the pending applications co-owned by the CVC. In September 2022, the CVC appealed the PTAB’s decision, at the U.S. Court of Appeals for the Federal Circuit. On May 12, 2025, the Federal Circuit vacated and remanded the PTAB’s priority determination, ruling that the PTAB applied an incorrect legal standard but declining to decide the substantive priority issue. The PTAB has not yet issued a final decision following the remand. While the second interference was in progress, Toolgen joined the patent dispute and two more interferences were declared in December 2020, between a pending application owned by Toolgen and several pending applications co-owned by the CVC or patents and pending applications co-owned by the Boston Licensing Parties. In June 2021, two additional interferences were declared between patents and applications co-owned by the Boston Licensing Parties or pending applications co-owned by the CVC and pending applications owned by Sigma-Aldrich. The PTAB subsequently suspended the interferences involving Toolgen and Sigma-Aldrich until the Federal Circuit issues a decision in the appeal between the CVC and the Boston Licensing Parties over the PTAB’s decision in the second interference. It is presently unclear who will prevail in these proceedings and own or partially own the patents subject to such interferences. If it is necessary for us to obtain a license to one or more of the patents currently involved in such interference proceedings, such patents may not be available to license on commercially reasonable terms or at all. For example, we are aware that the Boston Licensing Parties and CVC have previously licensed certain of such patents to third parties. Our ability to commercialize our product candidates in the United States and abroad may be adversely affected if we cannot obtain a license on commercially reasonable terms to relevant third-party patents that cover our product candidates or Prime Editing technology. +Because of the large number of patents issued and patent applications filed in our field, third parties may allege they have patent rights encompassing our product candidates, technologies or methods. Third parties may assert that we are employing their proprietary technology without authorization and may file patent infringement claims or lawsuits against us, and if we are found to infringe such third-party patents, we may be required to pay damages, cease commercialization of the infringing technology, or obtain a license from such third parties, which may not be available on commercially reasonable terms or at all. In addition, we have in the past, and may in the future, receive an offer for license from third parties regarding their proprietary intellectual property for which they may believe encompass our product candidates and technologies. We will evaluate such offers for relevance to our business. +Even if we believe third-party claims that we or our technology or product candidates are infringing, misappropriating or otherwise violating such third party's intellectual property are without merit, there is no assurance that a court would find in our favor on questions of infringement, validity, enforceability, or priority. A court of competent jurisdiction could hold that these third-party patents are valid, enforceable and infringed, which could materially and adversely affect our ability to commercialize our product candidates and any other product candidates or technologies covered by the asserted third-party patents. In order to successfully challenge the validity of any such U.S. patent in federal court, we would need to overcome a presumption of validity. As this burden is a high one requiring us to present clear and convincing evidence as to the invalidity of any such U.S. patent claim, there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent. Further, even if we were successful in defending against any such claims, such claims could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business. If we are found to infringe a third party’s intellectual property rights, and we are unsuccessful in demonstrating that such patents are invalid or unenforceable, we could be forced, including by court order, to cease developing, manufacturing and commercializing the infringing technology or product candidates. In addition, we could be found liable for significant monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent or other intellectual property right. We also could be required to obtain a license from such third party to continue developing, manufacturing and marketing product candidates we may develop and our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors and other third parties access to the same technologies licensed to us, and it could require us to make substantial licensing and +76 +royalty payments. If we are unable to obtain a necessary license to a third-party patent on commercially reasonable terms, we may be unable to commercialize our Prime Editing technology or product candidates or such commercialization efforts may be significantly delayed, which could in turn significantly harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar material adverse effect on our business, financial condition, results of operations and prospects. +In addition, our agreements with certain suppliers and other third parties with whom we do business require us to defend or indemnify such parties to the extent they become involved in patent infringement claims. We could also voluntarily agree to defend or indemnify third parties in instances where we are not obligated to do so if we determine it would be important to our business relationships. If we are required or agree to defend or indemnify third parties in connection with any infringement claims, we could incur significant costs and expenses that could adversely affect our business, operating results or financial condition. +Defense of third-party claims of infringement of misappropriation, or violation of intellectual property rights involves substantial litigation expense and would be a substantial diversion of management and employee time and resources from our business. Some third parties may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations or could otherwise have a material adverse effect on our business, financial condition, results of operations and prospects. There could also be public announcements of the results of hearings, motions, or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Any of the foregoing events could have a material adverse effect on our business, financial condition, results of operations and prospects. +We may become involved in lawsuits to protect or enforce our future patents, or the issued patents or future patents of our licensors, which could be expensive, time consuming and unsuccessful and could result in a finding that such patents are unenforceable or invalid. +Competitors and other third parties may infringe, misappropriate or otherwise violate our future patents or the issued or future patents of our licensors, or we may be required to defend against claims of infringement, misappropriation or other violation. In addition, our future patents, or the issued or future patents of our licensors also may become involved in inventorship, priority, validity or enforceability disputes. Countering or defending against such claims can be expensive and time consuming. In an infringement proceeding, a court may decide that a patent owned or in-licensed by us is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our future owned patents and in-licensed patents and future patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our future owned patents or in-licensed patents or future patents at risk of being invalidated or interpreted narrowly. +In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace, and there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. These types of mechanisms include re-examination, post-grant review, inter partes review, interference proceedings, derivation proceedings and equivalent proceedings in foreign jurisdictions ( e.g. , opposition proceedings). These types of proceedings could result in revocation or amendment to our in-licensed patents or future patents such that they no longer cover our product candidates. The outcome for any particular patent following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we, our licensor, our patent counsel and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, or if we are otherwise unable to adequately protect our rights, we would lose at least part, and perhaps all, of the patent protection on our technology and/or product candidates. Defense of these types of claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. +77 +Conversely, we may choose to challenge the patentability of claims in a third party’s U.S. patent by requesting that the USPTO review the patent claims in re-examination, post-grant review, inter partes review, interference proceedings, derivation proceedings and equivalent proceedings in foreign jurisdictions ( e.g. , opposition proceedings). We may choose to challenge third-party patents in patent opposition proceedings in the EPO or another foreign patent office. Even if successful, the costs of these opposition proceedings could be substantial and may consume our time or other resources. If we fail to obtain a favorable result at the USPTO, EPO or other patent office then we may be exposed to litigation by a third party alleging that their patent may be infringed by our product candidates, Prime Editing technology or other proprietary technologies. +Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our personnel from their normal responsibilities. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions, or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing, or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Certain third parties, including our competitors, may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. +Even if we established infringement of any of our future patents or issued or future in-licensed patents by a competitive product, a court may decide not to grant an injunction against further infringing activity, thus allowing the infringing product to continue to be marketed by the competitor. It is difficult to obtain an injunction in U.S. patent litigation and a court could decide that the competitor should instead pay us a “reasonable royalty” as determined by the court, and/or other monetary damages. A reasonable royalty or other monetary damages may or may not be an adequate remedy. Loss of exclusivity and/or competition from a competitive product would have a material adverse impact on our business. +Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by government patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. +Periodic maintenance fees, renewal fees, annuity fees and various other government fees on patents and applications are due to be paid to the USPTO and foreign patent agencies outside of the United States over the lifetime of our in-licensed patents, owned or licensed patent applications and patents that may issue from such applications. In certain circumstances, we rely on our licensors to pay these fees due to U.S. and non-U.S. patent agencies. The USPTO and foreign patent agencies require compliance with several procedural, documentary, fee payment and other similar provisions during the patent application process. We are also dependent on our licensors to take the necessary action to comply with these requirements with respect to our licensed intellectual property. While an inadvertent lapse or non-compliance with such requirements can sometimes be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which non-compliance can result a partial or complete loss of patent rights in the relevant jurisdiction. Were a noncompliance event to occur, third parties might be able to enter the market with similar or identical products or technology, which could have a material adverse effect on our business, financial condition, results of operations and prospects. +Changes in patent law in the United States and in non-U.S. jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect our Prime Editing platform technology and product candidates. +As is the case with other biotech and pharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involve both technological and legal complexity, and is therefore costly, time-consuming and inherently uncertain. Changes in either the patent laws or interpretation of the patent laws could increase the uncertainties and costs surrounding the +78 +prosecution of patent applications and the enforcement or defense of our issued in-licensed patents and future issued patents. +The U.S. Congress is responsible for passing laws establishing patentability standards. Interpretation of patent standards can change significantly over time. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the validity and enforceability of patents, once obtained. Depending on future actions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could weaken our ability to obtain new patents or to enforce patents that we or our licensors have obtained or might obtain in the future. +For example, in the case Assoc. for Molecular Pathology v. Myriad Genetics, Inc., the U.S. Supreme Court held that certain claims to DNA molecules are not patentable. The application of Myriad to biotechnology inventions has continued to develop and may continue to change over time. +In addition, the U.S. Supreme Court recently decided the case Amgen Inc. v. Sanofi , which pertained to patent claims that defined a class of antibodies solely by their binding to a particular antigen. The U.S. Supreme Court determined that Amgen’s claims broadly covered an entire class of antibodies while the patent specification described only a few antibodies and a trial and error approach to make and use all of the claimed antibodies. The U.S. Supreme Court held that the patent claims were invalid because Amgen’s patent specification did not enable the claims over their broad scope. Certain claims in our patent portfolio relate to broad classes of gene editors. To the extent that a court finds that our patent specifications do not enable such broad classes of gene editors, a court could find such claims invalid. +Similarly, foreign courts have made, and will likely continue to make, changes in how the patent laws in their respective jurisdictions are interpreted. We cannot predict future changes in the interpretation of patent laws or changes to patent laws that might be enacted into law by foreign legislative bodies. Any similar adverse changes in the patent laws of other jurisdictions could also have a material adverse effect on our business, financial condition, results of operations and prospects. +For example, a new court system relating solely to patent cases recently became operational in the EU. The Unified Patent Court, or the UPC, began accepting patent cases on June 1, 2023. The UPC is a common patent court with jurisdiction over patent infringement and revocation proceedings effective for multiple member states of the EU. The broad geographic reach of the UPC could enable third parties to seek revocation of any of our European patents that are subject to the jurisdiction of the UPC in a single proceeding at the UPC. Under the UPC, a successful revocation proceeding for a European Patent under the UPC could result in the partial or complete loss of patent protection in numerous EU countries. Such a loss of patent protection could have a material adverse impact on our business, including our ability to commercialize our technology and product candidates. Moreover, the controlling laws and regulations of the UPC will develop over time and we cannot predict what the outcomes of cases tried before the UPC will be. The case law of the UPC may adversely affect our ability to enforce or defend the validity of our European patents. Patent owners have the option to opt-out their European Patents from the jurisdiction of the UPC, defaulting to pre-UPC enforcement mechanisms. We have decided to opt out all of our European patents and patent applications from the UPC at this time. However, if certain formalities and requirements are not met, our European patents and patent applications could be subject to the jurisdiction of the UPC. Further, our future European patents and patent applications may not be subject to the opt-out provisions. +Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time. +Patents have a limited lifespan. The terms of individual patents depend upon the legal term for patents in the countries in which they are granted. In most countries, including the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest non-provisional filing date in the applicable country. However, the actual protection afforded by a patent varies from country to country and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the patent. Various extensions including patent term extensions, or PTEs, and patent term adjustments, or PTAs, may be +79 +available, but the life of a patent and the protection it affords is limited. Even if patents covering our product candidates are obtained, once the patent life has expired, we may be open to competition from competitive products, including generics or biosimilars. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting our product candidates might expire before or shortly after we or our partners commercialize those candidates. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. +If we do not obtain PTE for any product candidates we may develop, our business may be materially harmed. +Depending upon the timing, duration and specifics of any FDA marketing approval of product candidates we may develop, one or more of our U.S. patents may be eligible for limited PTE under the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Amendments. The Hatch-Waxman Amendments provides a PTE term of up to five years as compensation for patent term lost during the FDA regulatory review process. A PTE cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent per product may be extended and only those claims covering the approved product, a method for using it, or a method for manufacturing it may be extended. However, even if we were to seek a PTE, it may not be granted because of, for example, the failure to exercise due diligence during the testing phase or regulatory review process, the failure or inability to apply within applicable deadlines, the failure to apply prior to expiration of relevant patents, or any other failure to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. In addition, to the extent we wish to pursue a PTE based on a patent that we in-license from a third party, we would need the cooperation of that third party, which may not be available. If we are unable to obtain PTE or term of any such extension is less than we request, third parties may obtain approval of competing products following our patent expiration, and our business, financial condition, results of operations and prospects could be materially harmed. +If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed. +In addition to seeking patent protection for our technology and product candidates, we also rely on know-how and trade secret protection, as well as confidentiality agreements, non-disclosure agreements and invention assignment agreements with our employees, consultants and third-parties, to protect our confidential and proprietary information, especially where we do not believe patent protection is appropriate or obtainable. +It is our policy to require our employees, corporate collaborators, outside scientific collaborators, CROs, contract manufacturers, consultants, advisors and other third parties to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements generally provide that all confidential information concerning our business or financial affairs developed by or made known to the individual or entity during the course of the party’s relationship with us is to be kept confidential and not disclosed to third parties, except in certain specified circumstances. In the case of employees, the agreements generally provide that all inventions conceived by the individual, and that are related to our current or planned business or research and development or made during normal working hours, on our premises or using our equipment or proprietary information, are our exclusive property. In the case of consultants and other third parties, the agreements generally provide that all inventions conceived in connection with the services provided are our exclusive property. However, we cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or proprietary technology and processes or who were involved in the development of intellectual property. Additionally, the assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. We may not be able to prevent the unauthorized disclosure or use of our technical know-how or other trade secrets by the parties to these agreements. Monitoring unauthorized uses and disclosures is difficult and we do not know whether the steps we have taken to protect our proprietary technology will be effective. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. +80 +In addition to contractual measures, we try to protect the confidential nature of our proprietary information through other appropriate precautions, such as physical and technological security measures. However, trade secrets and know-how can be difficult to protect and we do not have a formal trade secret policy at this time. These measures may not, for example, in the case of misappropriation of a trade secret by an employee or third party with authorized access, provide adequate protection for our proprietary information. Our security measures may not prevent an employee or consultant from misappropriating our trade secrets and providing them to a third party, and any recourse we might take against this type of misconduct may not provide an adequate remedy to protect our interests fully. In addition, trade secrets may be independently developed by others in a manner that could prevent us from receiving legal recourse. If any of our confidential or proprietary information, such as our trade secrets, were to be disclosed or misappropriated, or if any of that information was independently developed by a third party, our competitive position could be harmed. +In addition, some courts inside and outside the United States are sometimes less willing or unwilling to protect trade secrets. If we choose to go to court to stop a third party from using any of our trade secrets, we may incur substantial costs. Even if we are successful, these types of lawsuits may consume our time and other resources. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects. +Third parties may assert that our employees, consultants, or advisors have wrongfully used or disclosed confidential information or misappropriated trade secrets. +As is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously employed at universities, research institutions, or other biotechnology and pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, and although we try to ensure that our employees, consultants, independent contractors or other third parties do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants, independent contractors or other third parties have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer or other third parties. Furthermore, any disclosure, either intentional or unintentional, by our employees, consultants or vendors, or misappropriation by third parties (such as through a cybersecurity breach) of our trade secrets or proprietary information could enable competitors to duplicate or surpass our technological achievements, thus eroding our competitive position in our market. Such risk of disclosure can be increased by our use of artificial intelligence, or AI, technologies and can result in misappropriation and other security incidents and breached. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. This type of litigation or proceeding could substantially increase our operating losses and reduce our resources available for development activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Certain third parties, including our competitors, may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other intellectual property related proceedings could adversely affect our ability to compete in the marketplace. +If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected. +We do not currently own any registered trademarks. Our unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in our markets of interest. At times, competitors or other third parties may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market +81 +confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely affect our business, financial condition, results of operations and growth prospects. +Intellectual property rights do not necessarily address all potential threats. +The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example: +• our product candidates, if approved, will eventually become commercially available in generic or biosimilar product forms; +• others may be able to make gene therapy products that are similar to our product candidates or utilize similar gene editing technology but that are not covered by the claims of the issued patents or patent applications that we own or license or the patents that we may own or license in the future; +• we, our licensors, or our current or future collaborators, might not have been the first to make the inventions covered by the issued patents or pending patent applications that we license or may own in the future; +• we, our licensors, or our current or future collaborators, might not have been the first to file patent applications covering certain of our or their inventions; +• we, our licensors, or our current or future collaborators, may fail to meet our obligations to the U.S. government regarding any in-licensed patents or patent applications funded by U.S. government grants, leading to the loss or unenforceability of patent rights; +• others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our owned or licensed intellectual property rights; +• it is possible that our pending, owned or licensed patent applications or those that we may own in the future will not lead to issued patents; +• it is possible that there are prior public disclosures that could invalidate our owned or in-licensed patent rights, or parts of our owned or in-licensed patent rights; +• it is possible that there are unpublished patent applications or patent applications maintained in secrecy that may later issue with claims covering our product candidates or technology similar to ours; +• it is possible that our owned or in-licensed patents or patent applications omit individual(s) that should be listed as inventor(s) or include individual(s) that should not be listed as inventor(s), which may cause the patent or patents issuing from these patent applications to be held invalid or unenforceable; +• patents, if and when issued, that we obtain in the future may be held invalid, unenforceable, or narrowed in scope, including as a result of legal challenges by third parties, including our competitors; +• the claims of our owned or in-licensed patents, if and when issued, may not cover our product candidates; +• the laws of foreign countries may not protect our proprietary rights or the proprietary rights of license partners or current or future collaborators to the same extent as the laws of the United States; +• the inventors of our owned or in-licensed patent or patent applications may become involved with competitors, develop products or processes that design around our patent or patent applications, or become hostile to us or the patent, patent applications or patents that may issue from such patent applications on which they are named as inventors; +82 +• third parties might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; +• we have engaged in scientific collaborations in the past and will continue to do so in the future and our collaborators may develop adjacent or competing products that are outside the scope of our patent or patent applications; +• we may not develop additional proprietary technologies that are patentable; +• any product candidates we develop may be covered by third-parties’ patents or other exclusive rights; +• the patents of others may harm our business; or +• we may choose not to file a patent in order to maintain certain trade secrets or know-how and a third party may subsequently file a patent covering such intellectual property. +Should any of these events occur, they could have a material adverse effect on our business, financial condition, results of operations and prospects. +Risks Related To Regulatory and Other Legal Compliance Matters +The FDA, the EMA and the NIH have demonstrated caution in their regulation of gene therapy treatments, and ethical and legal concerns about gene therapy and genetic testing may result in additional regulations or restrictions on the development and commercialization of any product candidates we may develop, which may be difficult to predict. +The FDA, the EMA and the NIH have each expressed interest in further regulating biotechnology, including gene therapy and genetic testing. For example, the EMA advocates a risk-based approach to the development of a gene therapy product. Agencies at both the federal and state level in the United States, as well as the U.S. congressional committees and other governments or governing agencies, have also expressed interest in further regulating the biotechnology industry. Such action may delay or prevent commercialization of any product candidates we may develop. Additionally, gene therapies may be associated with undesirable or unacceptable side effects, unexpected characteristics or other serious adverse events, including death, off-target cuts of DNA, or the introduction of cuts in DNA at locations other than the target sequence. These off-target cuts could lead to disruption of a gene or a genetic regulatory sequence at an unintended site in the DNA, or, in those instances where we also provide a segment of DNA to serve as a repair template, it is possible that following off-target cut events, DNA from such repair template could be integrated into the genome at an unintended site, potentially disrupting another important gene or genomic element. There also is the potential risk of delayed adverse events following exposure to gene therapies due to persistent biologic activity of the genetic material or other components of products used to carry the genetic material. Due to concerns from regulatory agencies on the development of gene therapies and their potential for unknown long-term effects, participants in gene-therapy clinical trials may also require long-term follow-up for as long as 15 years. +Regulatory requirements in the United States and in other jurisdictions governing the development of gene therapy products have changed frequently and may continue to change in the future. The FDA issued several guidance documents and draft guidance documents on gene therapy products, including on innovative clinical trial designs for gene therapy products in small populations. In January 2024, the FDA finalized its guidance document providing recommendations for human genome editing gene therapy products. In addition to the government regulators, the IBC and IRB of each institution at which we will conduct clinical trials of our current or future product candidates, or a central IRB if appropriate, would need to review the proposed clinical trial to assess the safety of the trial. In addition, adverse developments in clinical trials of gene therapy product candidates conducted by others may cause the FDA or other oversight bodies to change the requirements for approval of any of our potential product candidates. Similarly, the EMA governs the development of gene therapies in the European Union and may issue new guidelines concerning the development and marketing authorization for gene therapy products and require that we comply with these new guidelines. These regulatory review agencies and committees and the new requirements or guidelines they promulgate may lengthen the regulatory review process, require us to perform additional studies or trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent +83 +approval and commercialization of any product candidates we may develop or lead to significant post-approval limitations or restrictions. As we advance our current and future product candidates, we will be required to consult with these regulatory agencies and committees and comply with applicable requirements and guidelines. If we fail to do so, we may be required to delay or discontinue development of such product candidates. These additional processes may result in a review and approval process that is longer than we otherwise would have expected. Delays as a result of an increased or lengthier regulatory approval process or further restrictions on the development of our current and future product candidates can be costly and could negatively impact our or our collaborators’ ability to complete clinical trials and commercialize our current and future product candidates in a timely manner, if at all. +Even if we, or any of our collaborators or strategic partners, obtain marketing approvals for any product candidates we may develop, the terms of approvals and ongoing regulation of such product candidates could require the substantial expenditure of resources and may limit how we, or they, manufacture and market such product candidates, which could materially impair our ability to generate revenue. +Any product candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling, sampling, advertising and promotional activities for such product, will be subject to continual requirements of and review by the FDA, the EMA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, facility registration and drug listing requirements, cGMP requirements relating to quality control, quality assurance and corresponding maintenance of records and documents, applicable product tracking and tracing requirements and requirements regarding the distribution of samples to physicians and recordkeeping. In addition, our manufacturing and testing facilities will be required to undergo pre-license inspections and pre-approval inspections. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the products may be marketed or to the conditions of approval, or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the products. +Accordingly, assuming we, or any collaborators we may have, receive marketing approval for one or more product candidates we develop, we, and such collaborators, and our and their contract manufacturers will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance and quality control. If we and such collaborators are not able to comply with post-approval regulatory requirements, we and such collaborators could have the marketing approvals for our products withdrawn by regulatory authorities and our, or such collaborators’, ability to market any future products could be limited, which could adversely affect our ability to achieve or sustain profitability. Furthermore, the cost of compliance with post-approval regulations may have a negative effect on our business, operating results, financial condition and prospects. +Reductions in government operations may also delay necessary manufacturing facility inspections by regulators and adversely affect the supply of any product candidates we may develop. +Disruptions at the FDA, the SEC and other U.S. government agencies caused by reductions in staffing, funding shortages or global health concerns could hinder their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, approved, or commercialized in a timely manner or at all, or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business. +Federal agencies in the U.S., including the FDA, the SEC and other comparable regulatory authorities, operate pursuant to annual appropriations and other political and budgetary processes, and may from time to time be subject to continuing resolutions, funding lapses, or other fiscal constraints. The FDA is currently funded through September 30, 2026. Without appropriation of sufficient funding to federal agencies, our business operations related to our product development activities for the U.S. market could be impacted. Inadequate funding for the FDA, the SEC, the USPTO and other U.S. government agencies, including from government shutdowns, or other disruptions to these agencies’ operations, could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business. +84 +The ability of the FDA and other comparable regulatory authorities to review and approve new products can be affected by a variety of factors, including government budget and funding levels, availability of personnel and other resources, statutory, regulatory, and policy changes, the FDA’s or other comparable regulatory authorities’ ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the FDA’s or other comparable regulatory authorities’ ability to perform routine functions. Average review times at the FDA and other comparable regulatory authorities have fluctuated in recent years and may continue to fluctuate as a result of these factors. In addition, government funding of the SEC and other U.S. government agencies on which our operations may rely, including those that fund research and development activities, is subject to the political process, including executive and congressional priorities, which is inherently fluid and unpredictable. For example, the Trump administration has issued executive orders seeking to greatly reduce the size of the federal workforce, including through layoffs and severance packages offered to employees of federal agencies within the executive branch and independent agencies, including the FDA. Any such reduction in personnel may result in longer review times by the FDA and other agencies. +Disruptions and personnel turnover, as a result of leadership changes, staff reductions or otherwise, at the FDA, the SEC, the USPTO and other agencies may also slow the time necessary for biologics or modifications to approved biologics to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. Changes and cuts in FDA staffing have been reported by some in the pharmaceutical industry as creating instances of delays in the FDA’s responsiveness or in its ability to review investigational new drug submissions or applications, issue regulations or guidance, or implement or enforce regulatory requirements in a timely fashion or at all. For example, over the last several years, the U.S. government has shut down several times, most recently in October 1, 2025 through November 12, 2025, and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical employees and stop critical activities. If a prolonged government shutdown occurs again, such as the one that occurred in October 2025, or if global health concerns, funding shortages or staffing limitations hinder or prevent the FDA, the SEC or other regulatory authorities from conducting their regulatory inspections, reviews or other regulatory activities, including formal or informal interactions with product developers, it could significantly impact the ability of the FDA or other such regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, in our operations as a public company, government shutdowns and/or substantial leadership, personnel, and policy changes at the SEC could impact our business by delaying review of our public filings, which in turn could delay or frustrate our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations or delay the review or effectiveness of required regulatory or securities filings. +If we fail to comply with healthcare laws, we could face substantial penalties and our business, operations and financial conditions could be adversely affected. +Healthcare providers, physicians and third-party payors in the United States and elsewhere play a primary role in the recommendation and prescription of pharmaceutical products. Arrangements with third-party payors and customers can expose pharmaceutical manufacturers to broadly applicable fraud and abuse and other healthcare laws and regulations, which may constrain the business or financial arrangements and relationships through which such companies sell, market and distribute pharmaceutical products. In particular, the promotion, sales and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry, are subject to extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of ownership, pricing, discounting, marketing and promotion, structuring and commission(s), certain customer incentive programs and other business arrangements generally. Activities subject to these laws also involve the improper use of information obtained in the course of patient recruitment for clinical trials. For more information, see “ Business – Other Healthcare Laws and Compliance Requirements – Other healthcare laws .” Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available, it is possible that some of our business activities, including compensation of physicians with stock or stock options, could, despite efforts to comply, be subject to challenge under one or more of such laws. Additionally, the FDA or foreign regulators may not agree that we have mitigated any risk of bias in our clinical trials due to payments or equity interests provided to investigators or institutions which could limit a regulator’s acceptance of those clinical trial data in support of a marketing application. Moreover, efforts to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs. It is possible that governmental and enforcement authorities will conclude that our business +85 +practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant civil, criminal and administrative penalties, damages, disgorgement, monetary fines, exclusion from participation in Medicare, Medicaid and other federal healthcare programs, integrity and oversight agreements to resolve allegations of non-compliance, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. In addition, the approval and commercialization of any of our product candidates outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws. +Healthcare and other reform legislation may increase the difficulty and cost for us and any collaborators we may have to obtain marketing approval of and commercialize any product candidates we may develop and affect the prices we, or they, may obtain. +In the United States and some foreign jurisdictions, there have been and continue to be ongoing efforts to implement legislative and regulatory changes regarding the healthcare system. Such changes could prevent or delay marketing approval of any product candidates that we may develop, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidates for which we obtain marketing approval. Although we cannot predict what healthcare or other reform efforts will be successful, such efforts may result in more rigorous coverage criteria, in additional downward pressure on the price that we, or our future collaborators, may receive for any approved products or in other consequences that may adversely affect our ability to achieve or maintain profitability. +Within the United States, the federal government and individual states have aggressively pursued healthcare reform, as evidenced by the passing of the Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or the ACA, and the ongoing efforts to modify or repeal that legislation. The ACA substantially changed the way healthcare is financed by both governmental and private insurers and contains a number of provisions that affect coverage and reimbursement of drug products and/or that could potentially reduce the demand for pharmaceutical products such as increasing drug rebates under state Medicaid programs for brand name prescription drugs and extending those rebates to Medicaid managed care and assessing a fee on manufacturers and importers of brand name prescription drugs reimbursed under certain government programs, including Medicare and Medicaid. Other aspects of healthcare reform, such as expanded government enforcement authority and heightened standards that could increase compliance-related costs, could also affect our business. Modifications have been implemented under the former Trump administration and additional modifications or repeal may occur. For more information, see “Business – Other Healthcare Laws and Compliance Requirements – Healthcare Reform.” +The continuing efforts of the government, insurance companies, managed care organizations and other payers of healthcare services to contain or reduce costs of healthcare may adversely affect: +• the demand for any of our product candidates, if approved; +• the ability to set a price that we believe is fair for any of our product candidates, if approved; +• our ability to generate revenues and achieve or maintain profitability; +• the level of taxes that we are required to pay; and +• the availability of capital. +Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical and biologic products. We cannot be sure whether additional legislative changes will be enacted, or whether FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements. +Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for +86 +newly approved products and, as a result, they may not cover or provide adequate payment for our product candidates. There has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. +On April 15, 2025, the Trump Administration published Executive Order 14273, “Lowering Drug Prices by Once Again Putting Americans First,” which generally directs the HHS to take measures to reduce drug prices, including eliminating the so-called “pill penalty” under the IRA that creates a distinction between small molecule and large molecule products for purposes of determining when a drug may be eligible for drug price negotiation. On May 12, 2025, the Trump Administration published Executive Order 14297, “Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients” which generally, among other things, directs certain executive officials to establish and communicate MFN price targets to pharmaceutical manufacturers to bring prices for American patients in line with comparably developed nations. Further, the Executive Order directs the federal government to support regulatory paths to allow direct-to-patient sales for companies that meet these targets. It also states that the Administration will take additional aggressive action (for example, examining whether marketing approvals should be modified or rescinded or opening the door for individual drug importation waivers) should manufacturers fail to offer American consumers the MFN lowest price. It also directs the Secretary of Commerce and the U.S. Trade Representative to “take all necessary and appropriate action to ensure foreign countries are not engaged in any act, policy, or practice that may be unreasonable or discriminatory or that may impair United States national security . . . including by suppressing the price of pharmaceutical products below fair market value in foreign countries.” Notably, a similar “Most Favored Nation” pricing rule enacted under the first Trump Administration was subject to an injunction resulting from judicial challenges to the rule, which was formally rescinded by the former Biden Administration in August 2021. CMS’s recent proposals stemming from these executive orders, including the GLOBE, GUARD, and GENEROUS, could materially impact the Company’s revenue. +In addition, at the state level, legislatures have increasingly passed legislation and implemented regulations similar to those under consideration at the federal level, as well as laws designed to control pharmaceutical and biotherapeutic product pricing, including restrictions on pricing or reimbursement at the state government level, limitations on discounts to patients, marketing cost disclosure and transparency measures, restrictions or other limitations on patient assistance, and, in some cases, policies to encourage importation from other countries (subject to federal approval) and bulk purchasing. Certain states are also pursuing cost containment efforts through Prescription Drug Affordability Boards, or PDAB, and similar entities. While many PDABs have been granted authority to promote drug price transparency and reporting, some states have granted PDABs more expansive authority, including to set Upper Payment Limits, or UPLs, on select, high price drugs. The adoption and implementation of UPLs may put downward pressure on drug prices and impact our company’s future revenues. +We expect that the healthcare reform measures that have been adopted and may be adopted in the future may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product and could seriously harm our future revenues. We cannot be sure whether additional legislative changes will be enacted, or whether FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our products and future product candidates, if any, may be. In addition, increased scrutiny by Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our products. +The insurance coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for our product candidates could limit our product revenues. +Sales of our products will depend, in part, on the extent to which our products will be covered by third-party payors, such as government health programs, commercial insurance and managed healthcare organizations. In the United States, no uniform policy of coverage and reimbursement for drug or biological products exists. Accordingly, decisions regarding the extent of coverage and amount of reimbursement to be provided for any of our products will +87 +be made on a payor-by-payor basis. The process for determining whether a third-party payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors are increasingly challenging the prices charged, examining the medical necessity, and reviewing the cost-effectiveness of medical products and services and imposing controls to manage costs. Third-party payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the approved products for a particular indication. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained. For more information, see “ Business – Other Healthcare Laws and Compliance Requirements – Insurance and Coverage. ” +In the European Union, similar political, economic and regulatory developments may affect our ability to profitably commercialize our potential product candidates. In markets outside of the United States and the European Union, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies. In some countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of any product candidates we may develop to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially. +While we intend to seek designations for our current and future product candidates with the FDA and comparable foreign regulatory authorities that are intended to confer benefits such as a faster development process or an accelerated regulatory pathway, there can be no assurance that we will successfully obtain such designations. In addition, even if one or more of our current or future product candidates are granted such designations, we may not be able to realize the intended benefits of such designations. +The FDA and comparable foreign regulatory authorities offer certain designations for product candidates that are designed to encourage the research and development of product candidates that are intended to address conditions with significant unmet medical need. These designations may confer benefits such as additional interaction with regulatory authorities, a potentially accelerated regulatory pathway and priority review. However, there can be no assurance that we will successfully obtain such designations for any product candidates. In addition, while such designations could expedite the development or approval process, they generally do not change the standards for approval. Even if we obtain such designations for one or more of our current or future product candidates, there can be no assurance that we will realize their intended benefits. For example, we may seek fast track designation for some of our current and future product candidates. If a therapy is intended for the treatment of a serious or life threatening condition and the therapy nonclinical or clinical data demonstrates the potential to address unmet medical needs for this condition, the therapy sponsor may apply for fast track designation. The FDA has broad discretion whether or not to grant this designation, so even if we believe a particular product candidate is eligible for this designation, there can be no assurance that the FDA would decide to grant it. Even if we do receive fast track designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures, and receiving a fast track designation does not provide assurance of ultimate FDA approval. In addition, the FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program. Additionally, we may seek a breakthrough therapy designation for some of our current or future product candidates. A breakthrough therapy is defined as a therapy that is intended, alone or in combination with one or more other therapies, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the therapy may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For therapies that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Therapies designated as breakthrough therapies by the FDA may also be eligible for accelerated approval. Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our current or future product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine +88 +not to make such designation. In any event, the receipt of a breakthrough therapy designation for a product candidate may not result in a faster development process, review or approval compared to therapies considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our current or future product candidates qualify as breakthrough therapies, the FDA may later decide that such product candidates no longer meet the conditions for qualification. In addition, we may seek a regenerative medicine advanced therapy, or RMAT, designation for some of our current or future product candidates. An RMAT is defined as cell therapies, therapeutic tissue engineering products, human cell and tissue products and combination products using any such therapies or products. Gene therapies, including genetically modified cells that lead to a durable modification of cells or tissues may meet the definition of a regenerative medicine therapy. The RMAT program is intended to facilitate efficient development and expedite review of RMATs, which are intended to treat, modify, reverse or cure a serious or life-threatening disease or condition. A new drug application or a BLA for an RMAT may be eligible for priority review or accelerated approval through (1) surrogate or intermediate endpoints reasonably likely to predict long-term clinical benefit or (2) reliance upon data obtained from a meaningful number of sites. Benefits of such designation also include early interactions with FDA to discuss any potential surrogate or intermediate endpoint to be used to support accelerated approval. A regenerative medicine therapy that is granted accelerated approval and is subject to post-approval requirements may fulfill such requirements through the submission of clinical evidence, clinical trials, patient registries or other sources of real world evidence, such as electronic health records; the collection of larger confirmatory data sets; or post-approval monitoring of all patients treated with such therapy prior to its approval. RMAT designation is within the discretion of the FDA. Accordingly, even if we believe one of our current or future product candidates meets the criteria for designation as a regenerative medicine advanced therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of RMAT designation for a product candidate may not result in a faster development process, review or approval compared to drugs considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our current or future product candidates qualify as for RMAT designation, the FDA may later decide that the biological products no longer meet the conditions for qualification. +In the future, we may also seek approval of product candidates under the FDA’s accelerated approval pathway. A product may be eligible for accelerated approval if it is designed to treat a serious or life-threatening disease or condition and generally provides a meaningful advantage over available therapies upon a determination that the product candidate has an effect on a surrogate endpoint or intermediate clinical endpoint that is reasonably likely to predict clinical benefit or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, or IMM, that is reasonably likely to predict an effect on IMM or other clinical benefit. The FDA considers a clinical benefit to be a positive therapeutic effect that is clinically meaningful in the context of a given disease, such as IMM. For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. An intermediate clinical endpoint is a clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit. The accelerated approval pathway may be used in cases in which the advantage of a new drug over available therapy may not be a direct therapeutic advantage, but is a clinically important improvement from a patient and public health perspective. If granted, accelerated approval is usually contingent on the sponsor’s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe the drug’s clinical benefit. Under FDORA, the FDA is permitted to require, as appropriate, that a post-approval confirmatory study or studies be underway prior to approval or within a specified time period after the date of approval for a product granted accelerated approval. FDORA also requires sponsors to send updates to the FDA every 180 days on the status of such studies, including progress toward enrollment targets, and the FDA must promptly post this information publicly. FDORA also gives the FDA increased authority to withdraw approval of a drug or biologic granted accelerated approval on an expedited basis if the sponsor fails to conduct such studies in a timely manner, send the necessary updates to the FDA, or if such post-approval studies fail to verify the drug’s predicted clinical benefit. Under FDORA, the FDA is empowered to take action, such as issuing fines, against companies that fail to conduct with due diligence any post-approval confirmatory study or submit timely reports to the agency on their progress. In addition, for products being considered for accelerated approval, the FDA generally requires, unless otherwise informed by the Agency, that all advertising and promotional materials intended for dissemination or publication be submitted to the Agency for review. There can be no assurance that FDA would +89 +allow any of the product candidates we may develop to proceed on an accelerated approval pathway, and even if FDA did allow such pathway, there can be no assurance that such submission or application will be accepted or that any expedited development, review or approval will be granted on a timely basis, or at all. Moreover, even if we received accelerated approval, any post-approval studies required to confirm and verify clinical benefit may not show such benefit, which could lead to withdrawal of any approvals we have obtained. Receiving accelerated approval does not assure that the product’s accelerated approval will eventually be converted to a traditional approval. +If the FDA determines that a product candidate offers a treatment for a serious condition and, if approved, the product would provide a significant improvement in safety or effectiveness, the FDA may designate the product candidate for priority review. A priority review designation means that the goal for the FDA to review an application is six months, rather than the standard review period of ten months. We may request priority review for the product candidates that we may develop. The FDA has broad discretion with respect to whether or not to grant priority review status to a product candidate, so even if we believe a particular product candidate is eligible for such designation or status, the FDA may decide not to grant it. Moreover, a priority review designation does not necessarily result in an expedited regulatory review or approval process or necessarily confer any advantage with respect to approval compared to conventional FDA procedures. Receiving priority review from the FDA does not guarantee approval within the six-month review cycle or at all. +In addition, in the European Union, we may seek to participate in the PRIME scheme for our product candidates. The PRIME scheme is intended to encourage drug development in areas of unmet medical need and accelerated assessment of products representing substantial innovation, where the marketing authorization application will be made through the centralized procedure in the European Union. Eligible products must target conditions for which there is an unmet medical need (there is no satisfactory method of diagnosis, prevention or treatment in the European Union or, if there is, the new medicine will bring a major therapeutic advantage) and they must demonstrate the potential to address the unmet medical need by introducing new methods of therapy or improving existing ones. Many benefits accrue to sponsors of product candidates with PRIME designation, including but not limited to, early and proactive regulatory dialogue with the EMA, frequent discussions on clinical trial designs and other development program elements, and the potential for accelerated marketing authorization application assessment once a dossier has been submitted. There is no guarantee, however, that our product candidates would be deemed eligible for the PRIME scheme and even if we do participate in the PRIME scheme, where during the course of development a medicine no longer meets the eligibility criteria, support under the PRIME scheme may be withdrawn. +We may not be able to obtain orphan drug designation or exclusivity for our current or future product candidates, and even if we do, that designation may not provide an expedited development or regulatory review or approval process and any orphan drug exclusivity we may receive for approved products may not prevent the FDA or the European Commission from approving other competing products. +We received orphan drug designation from the FDA for PM359 for the treatment of CGD. We may also seek rare orphan disease designation for some of our other current or future product candidates. Under the Orphan Drug Act, the FDA may designate a product candidate as an orphan drug if it is a drug or biologic intended to treat a rare disease or condition. A similar regulatory scheme governs approval of orphan product candidates by the European Commission in the European Union. Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the FDA or the European Commission (as applicable) from approving another marketing authorizations application for another similar product candidate for the same orphan therapeutic indication for that time period. The applicable period is seven years in the United States and ten years in the European Union (which can be extended to 12 years if the sponsor complies with an agreed upon pediatric investigation plan). The exclusivity period in the European Union can be reduced to six years if at the end of the fifth year it is determined that a product no longer meets the criteria for orphan designation, including if the product is sufficiently profitable so that market exclusivity is no longer justified. +In order for the FDA to grant orphan drug exclusivity to one of our current or future product candidates, the agency must find that the product candidate is indicated for the treatment of a condition or disease that affects fewer than 200,000 individuals in the United States or that affects 200,000 or more individuals in the United States and for +90 +which there is no reasonable expectation that the cost of developing and making the product candidate available for the disease or condition will be recovered from sales of the product in the United States. The FDA may conclude that the condition or disease for which we seek orphan drug exclusivity does not meet this standard. Even if we obtain orphan drug exclusivity for a product candidate, that exclusivity may not effectively protect the product candidate from competition because different product candidates can be approved for the same condition. In addition, even after an orphan drug is approved, the FDA can subsequently approve the same product candidate for the same condition if the FDA concludes that the later product candidate is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care compared with the product that has orphan exclusivity. Orphan drug exclusivity may also be lost if the FDA or EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of the patients with the rare disease or condition. +The FDA may reevaluate the Orphan Drug Act and its regulations and policies. We do not know if, when, or how the FDA may change the orphan drug regulations and policies in the future, and it is uncertain how any changes might affect our business. In addition, the European Commission introduced a legislative proposal in April 2023 that, if implemented, could reduce the current 10-year marketing exclusivity period in the EU for certain orphan medicines. Depending on what changes the FDA and the European Commission may make to its orphan drug regulations and policies, our business could be adversely impacted. +We may seek rare pediatric disease designation for certain of our current or future product candidates, but we might not receive such designation, and even if we do, we may not be able to realize the intended benefits of such designation. +We received rare pediatric disease designation from the FDA for PM359 for the treatment of CGD. We may also seek rare pediatric disease designation for some of our other current or future product candidates. Designation of a product candidate as a product for a rare pediatric disease does not guarantee that a marketing application for such product candidate will meet the eligibility criteria for a rare pediatric disease PRV at the time the application is approved. Under the Federal Food, Drug, and Cosmetic Act we will need to request a rare pediatric disease PRV in our original marketing application for any potential product candidates for which we have received rare pediatric disease designation. The FDA may determine that a marketing application for any such product candidates, if approved, does not meet the eligibility criteria for a PRV. Congress has extended the PRV program through September 30, 2029. +We may seek designation for our Prime Editing platform technology as a designated platform technology, but we might not receive such designation, and even if we do, such designation may not lead to a faster regulatory review or approval process. +We may seek designation for our Prime Editing platform technology as a designated platform technology. Under FDORA, a platform technology incorporated within or utilized by a drug or biological product is eligible for designation as a designated platform technology if: (1) the platform technology is incorporated in, or utilized by, a drug approved under an NDA or BLA; (2) preliminary evidence submitted by the sponsor of the approved or licensed drug, or a sponsor that has been granted a right of reference to data submitted in the application for such drug, demonstrates that the platform technology has the potential to be incorporated in, or utilized by, more than one drug without an adverse effect on quality, manufacturing, or safety; and (3) data or information submitted by the applicable person indicates that incorporation or utilization of the platform technology has a reasonable likelihood to bring significant efficiencies to the drug development or manufacturing process and to the review process. A sponsor may request the FDA to designate a platform technology as a designated platform technology concurrently with, or at any time after, submission of an IND application for a drug that incorporates or utilizes the platform technology that is the subject of the request. If so designated, the FDA may expedite the development and review of any subsequent original NDA or BLA for a drug that uses or incorporates the platform technology. Even if we believe our Prime Editing platform technology meets the criteria for such designation, the FDA may disagree and instead determine not to grant such designation. In addition, the receipt of such designation for a platform technology does not ensure that a drug will be developed more quickly or receive a faster FDA review or approval process. Moreover, the FDA may revoke a designation if the FDA determines that a designated platform technology no longer meets the criteria for such designation. For example, in July 2025, the FDA revoked Sarepta Therapeutics’ +91 +platform technology designation for AAVrh74 given new safety information that suggested the preliminary evidence on which the designation was based was insufficient to demonstrate that its platform technology had the potential to be incorporated in, or utilized by, more than one drug without an adverse effect on safety. +Our employees, principal investigators, consultants and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading. +We are exposed to the risk of fraud or other misconduct by our employees, consultants and commercial partners, and, as we commence clinical trials, our principal investigators. Misconduct by these parties could include intentional failures to comply with FDA regulations or the regulations applicable in the European Union and other jurisdictions, provide accurate information to the FDA, the EMA and other regulatory authorities, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Such misconduct also could involve the improper use of information obtained in the course of clinical trials or interactions with the FDA, the EMA or other regulatory authorities, which could result in regulatory sanctions and cause serious harm to our reputation. We are also exposed to risks in connection with any insider trading violations by employees or others affiliated with us. W e adopted a code of conduct and an insider trading policy applicable to all of our employees, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from government investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, financial condition, results of operations and prospects, including the imposition of significant fines or other sanctions. +Laws and regulations governing any international operations we may have in the future may preclude us from developing, manufacturing and selling certain product candidates outside of the United States and require us to develop and implement costly compliance programs. +We are subject to numerous laws and regulations in each jurisdiction outside the United States in which we operate. The creation, implementation and maintenance of international business practices compliance programs is costly and such programs are difficult to enforce, particularly where reliance on third parties is required. +The FCPA prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. The anti-bribery provisions of the FCPA are enforced primarily by the Department of Justice. The SEC is involved with enforcement of the books and records provisions of the FCPA. +Similarly, the U.K. Bribery Act 2010 has extra-territorial effect for companies and individuals having a connection with the UK. The U.K. Bribery Act prohibits inducements both to public officials and private individuals and organizations. Compliance with the FCPA and the U.K. Bribery Act is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions. +92 +Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain non-U.S. nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. Our expansion outside of the United States has required, and will continue to require, us to dedicate additional resources to comply with these laws, and these laws may preclude us from developing, manufacturing or selling certain drugs and drug candidates outside of the United States, which could limit our growth potential and increase our development costs. The failure to comply with laws governing international business practices may result in substantial penalties, including suspension or debarment from government contracting. Violation of the FCPA can result in significant civil and criminal penalties. Indictment alone under the FCPA can lead to suspension of the right to do business with the U.S. government until the pending claims are resolved. Conviction of a violation of the FCPA can result in long-term disqualification as a government contractor. The termination of a government contract or relationship as a result of our failure to satisfy any of our obligations under laws governing international business practices would have a negative impact on our operations and harm our reputation and ability to procure government contracts. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions. +We are subject to stringent laws, rules, regulations, policies, standards and contractual obligations related to data privacy and security and changes in such laws, rules, regulations, policies, standards and contractual obligations could adversely affect our business. +We are, or may become, subject to a number of data privacy and protection laws, rules, regulations, policies, standards and contractual obligations that apply to our collection, transmission, storage, use, disclosure, transfer, maintenance and other processing of personal information. The legislative and regulatory landscape for privacy and data protection has been rapidly evolving in the U.S. and Europe, as well as other jurisdictions worldwide, which may lead to increased regulatory scrutiny on privacy and data protection requirements. As a result of the increasing complexity of data privacy and protection laws and regulations applicable to our business, and the uncertainty in how such regulations will be applied and interpreted, we cannot guarantee that we are, or have been, in compliance with all such regulations. Additionally, we rely on certain third-party vendors to process certain confidential, sensitive or personal information on our behalf. Failure or perceived failure by us or our third-party vendors to comply with any of these laws, rules, regulations, contractual obligations or standards could result in notification obligations to affected individuals and regulators, enforcement actions, regulatory investigations or inquiries, significant fines, imprisonment of company officials and public censure, and litigation, including claims for damages by affected individuals, customers or business partners, damage to our reputation and loss of goodwill, any of which could have a material adverse effect on our business, financial condition, results of operations or prospects. +In the U.S., federal and state laws, rules and regulations related to the privacy and security of personal information apply, or may apply, to our business. At the federal level, for example, HIPAA establishes data privacy and security standards that limit the use and disclosure of individually identifiable health information, or protected health information, and require the implementation of administrative, physical and technical safeguards to protect the confidentiality, integrity and availability of electronic protected health information. +If we fail to comply with applicable HIPAA privacy and security standards, we could face significant civil and criminal penalties. HHS has the discretion to impose penalties without attempting to resolve violations through informal means. Such enforcement activity can result in financial liability and reputational harm, and our responses to such enforcement activity can consume significant internal resources. +U.S. state laws also govern the privacy and protection of personal information. For example, the California Consumer Privacy Act, or the CCPA, establishes data privacy rights for individuals located in California and imposes certain requirements on how businesses can collect, use, and share personal information about such individuals. The California Privacy Rights Act, or the CPRA, significantly modifies the CCPA and imposes additional obligations on companies covered by the legislation, including by expanding consumers’ rights with respect to personal information, and establishes a state agency vested with the authority to enforce the CCPA. So far, more than half of all U.S. states have proposed or passed similarly comprehensive privacy and data protection legislation. Moreover, some states have passed laws focused on protecting consumer health information specifically, most notably Washington’s My Health Data Act, which provides an additional layer of protection and includes a private right of action. Many state privacy and data protection laws differ from each other in significant ways, and it is not yet fully clear how such laws will be enforced and interpreted. Thus, we may be required to incur substantial +93 +costs and expenses in an effort to comply with them, and may be required to modify or restrict our data collection and use practices. +Additionally, all 50 states have laws in place which may require businesses to provide notice to customers whose personal information has been disclosed as a result of a data breach. Determining whether personal information has been handled in compliance with applicable state breach notification requirements, privacy standards and our contractual obligations can be complex and may be subject to statutory and contractual interpretation, thus potentially complicating our compliance efforts. +Further, the Federal Trade Commission, or FTC, as well as other state attorneys general, regulate the content of our privacy policies and other public statements that provide promises and assurances about our data privacy and protection practices. We make public statements about our use, collection, disclosure and other processing of personal information through our privacy policies, information provided on our website and press statements. Although we endeavor to comply with our public statements and documentation, we may at times fail to do so or be alleged to have failed to do so. If such statements are found to be deceptive, unfair or misrepresentative of our actual practices, we may subject us to government enforcement actions or other legal claims. Additionally, the FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business and the cost of available tools to improve security and reduce vulnerabilities. Over the past years, the FTC has focused enforcement efforts on protecting privacy in the context of consumer health information, and failing to take appropriate steps to keep consumers’ personal information secure may result in investigations or enforcement actions. +Additionally, through executive and legislative action, the federal government has taken steps to restrict data transactions involving certain sensitive data categories – including health data, genetic data, and biospecimens – with persons affiliated with China, Russia, and other countries of concern. For example, the Department of Justice’s January 8, 2025, Rule on Preventing Access to U.S Sensitive Personal Data and Government-Related Data by Countries of Concern or Covered Persons, prohibits transfers of data, including health data, genetic data, and biospecimens, to countries of concern, including China. The rule also prohibits covered business from granting access to certain investment agreements, employment agreements and vendor agreements involving such data to countries of concern, absent specified cybersecurity controls. Actual or alleged violations of these regulations may be punishable by criminal and/or civil sanctions, and may result in exclusion from participation in federal and state programs and could restrict our ability to use certain vendors, sites, investigators, or service providers in global clinical trials. +In the EU, the collection and processing of personal information is governed by the EU’s General Data Protection Regulation, or the EU GDPR, and in the UK the EU GDPR has been incorporated into the laws of the UK GDPR, together with the EU GDPR, the GDPR. The GDPR in the EU and the UK, which have been incorporated into their respective laws, impose stringent requirements on the processing of health and other sensitive data. These requirements encompass: (i) providing information to individuals regarding data processing activities; (ii) ensuring a legal basis or condition applies to the processing of personal information and, where applicable, obtaining consent from individuals to whom the data processing relates; (iii) responding to data subject requests; (iv) imposing requirements to notify the competent national data protection authorities and data subjects of personal data breaches; (v) implementing safeguards in connection with the security and confidentiality of the personal information; (vi) accountability requirements; and (vii) taking certain measures when engaging third-party processor. Failure to comply with the requirements of the GDPR may result in significant fines and other administrative penalties. In addition, we may be required to put in place additional mechanisms to comply with current and future privacy and data protection regulations in Europe and other worldwide jurisdictions which are or will become applicable to our business. This may interrupt or delay our development activities and/or require us to change our business practices, which could adversely affect our business, financial condition, results of operations and prospects. +Data privacy and protection legislation and enforcement will continue to be an evolving landscape at both the domestic and international level, with new laws, rules and regulations coming into effect and presenting novel legal challenges, and our efforts to comply with them may be unsuccessful. It is possible that these laws, rules and regulations will be interpreted and applied in a manner that is inconsistent with our practices. We may be required to devote significant resources to understanding and complying with such legislation, and the lack of a unified approach to data privacy and protection laws in the U.S. and other countries could lead to complicated and +94 +potentially conflicting compliance requirements. Any failure or perceived failure to comply with these laws, rules or regulations, or with any related government investigations, may require the expenditure of significant resources and generate negative publicity, which could harm our business, financial condition, results of operations or prospects. +Existing regulatory policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. +The United States Supreme Court’s June 2024 decision in Loper Bright Enterprises v. Raimondo overturned the longstanding Chevron doctrine, under which courts were required to give deference to regulatory agencies’ reasonable interpretations of ambiguous federal statutes. The Loper decision could result in additional legal challenges to regulations and guidance issued by federal agencies, including the FDA, on which we rely. Any such legal challenges, if successful, could have a material impact on our business. Additionally, the Loper decision may result in increased regulatory uncertainty, inconsistent judicial interpretations, and other impacts to the agency rulemaking process, any of which could adversely impact our business and operations. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action or as a result of legal challenges, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, our business could be materially harmed. +Risks Related To Employee Matters, Managing Growth and Information Technology +Our future success depends on our ability to retain our key employees and to attract, retain and motivate qualified personnel. +We are highly dependent on our key executives and other principal members of our management, scientific and clinical team. Although we have entered into employment agreements and/or offer letters with our executive officers, they are engaged “at will,” meaning we or they may terminate the relationship at any time. We do not maintain “key person” insurance for any of our executives or other employees. The loss of the services of any of these persons could impede the achievement of our research, development and commercialization objectives. +Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. In addition, our company-building efforts and establishment of a company culture will also be important to developing an innovative company in a high-evolving area. We may not be able to succeed in these efforts to build Prime Medicine as an attractive and exciting place to build a career or to attract and retain these types of personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. The inability to recruit, or loss of services of, certain executives, key employees, consultants or advisors, may impede the progress of our research, development and commercialization objectives and have a material adverse effect on our business, financial condition, results of operations and prospects. +To motivate and retain qualified employees, executive officers and directors who we believe best represent our Company values and can make meaningful contributions towards achieving our purpose of delivering a new class of differentiated one-time curative genetic therapies to address the widest spectrum of diseases by deploying our Prime Editing technology, in addition to salary and cash incentives, as applicable, we have provided stock options that vest over time. The value to employees and directors of stock options that vest over time may be significantly affected by movements in our stock price that are beyond our control and may at any time be insufficient to counteract more lucrative offers from other companies. To the extent our stock price declines, our ability to incentivize, retain or attract qualified talent could be negatively impacted. For example, in recent years, the stock market in general, and the market for pharmaceutical and biotechnology companies in particular, has experienced extreme price and volume fluctuations, often unrelated or disproportionate to changes in the operating performance of the affected companies. As a biotechnology company, the market price of our common stock has historically been volatile, reflecting the risks and uncertainties inherent in the development of product candidates. Since 2024, the market price +95 +of our common stock has experienced material fluctuations and declined from a high of approximately $9.39 on February 27, 2024 to a low of approximately $1.15 on April 8, 2025. As a result, certain of our employees and directors now hold options with exercise prices meaningfully above the recent trading range of our common stock (often referred to as “underwater” or “out-of-the-money”), rendering the options a less effective means of incentivizing and retaining such holders. +Although we continue to believe that stock options are an important component of the Company’s compensation program, underwater options may be perceived by their holders as having little or no incentive or retention value due to the disparity between the exercise prices and the current stock price. To provide added incentives to retain and motivate key contributors and to improve morale among our employees and directors to ensure alignment and motivation to execute on the Company’s strategy, our stockholders approved a one-time repricing of certain outstanding stock options that have been granted under our 2019 Stock Option and Grant Plan and/or the 2022 Stock Option and Incentive Plan at the special meeting of stockholders held on August 1, 2025. Despite this, we may have difficulty retaining key personnel, which could adversely affect our business and further development of our product candidates. +We expect to expand our research, development, delivery, manufacturing, commercialization, regulatory and future sales and marketing capabilities over time, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations. +In connection with the growth and advancement of our pipeline and being a public company, we expect to increase the number of our employees and the scope of our operations, particularly in the areas of drug development, regulatory affairs and sales and marketing. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities, and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expected expansion of our operations or recruit and train additional qualified personnel. Any inability to manage growth could delay the execution of our business plans or disrupt our operations. +As a growing biotechnology company, we are actively pursuing new platforms and product candidates in many therapeutic areas and across a wide range of diseases. Successfully developing product candidates for and fully understanding the regulatory and manufacturing pathways to all of these therapeutic areas and disease states requires a significant depth of talent, resources and corporate processes in order to allow simultaneous execution across multiple areas. Due to our limited resources, we may not be able to effectively manage this simultaneous execution and the expansion of our operations or recruit and train additional qualified personnel. This may result in weaknesses in our infrastructure, give rise to operational mistakes, legal or regulatory compliance failures, loss of business opportunities, loss of employees and reduced productivity among remaining employees. The physical expansion of our operations may lead to significant costs and may divert financial resources from other projects, such as the development of our current or future product candidates. If our management is unable to effectively manage our expected development and expansion, our expenses may increase more than expected, our ability to generate or increase our revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to compete effectively and commercialize any product candidates we may develop will depend in part on our ability to effectively manage the future development and expansion of our company. +Our internal computer and information technology systems, or those of our third-party vendors, collaborators, contractors, consultants or other third parties, may fail or suffer cybersecurity incidents, data breaches, loss or leakage of data and other disruptions which could result in the material disruption of our product development programs, compromise confidential, sensitive or personal information related to our business or prevent us from accessing critical information, potentially exposing us to liability or otherwise adversely affecting our business. +Like other companies in our industry, our internal computer and information technology systems and those of our current and any future third-party vendors, collaborators, contractors, consultants or other third parties, are vulnerable to damage or interruption from, among other things, computer viruses, computer hackers, phishing attacks, ransomware, malware, social engineering, malicious code, employee theft, fraud, misconduct or misuse, denial-of-service attacks, sophisticated nation-state and nation-state-supported actors, unauthorized access, natural +96 +disasters, terrorism, war and telecommunication and electrical failures, as well as data breaches or cybersecurity incidents. The risk of cyber incidents could also be increased by cyberwarfare in connection with the current conflict between Russia and Ukraine, including potential proliferation of malware into systems unrelated to the conflict. In addition, part of our workforce is currently working remotely. This could increase our cybersecurity risk, create data accessibility concerns, and make us more susceptible to communication disruptions. Furthermore, the use of AI technologies by us and third-party vendors can also give rise to cybersecurity risks as well as intellectual property risks, including the disclosure or compromise of our confidential information or other proprietary intellectual property through the use of generative AI tools, or the ability to assert or defend ownership rights in intellectual property created with the use of generative AI tools. Any of these effects could damage our reputation, result in the loss of valuable property and information, cause us to breach applicable laws and regulations, and adversely impact our business. +While we seek to protect our information technology systems from system failure, accident and security compromise or breach, we have in the past and may in the future experience phishing and other security incidents which could result in a disruption of our development programs and our business operations, whether due to a loss of our trade secrets or other proprietary, personal or confidential information or other disruptions. For example, the loss of clinical trial data from future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. +Controls employed by our information technology department and other third parties could prove inadequate, and our ability to monitor such third parties’ data security practices is limited. Due to applicable laws, rules, regulations and standards or contractual obligations, we may be held responsible for any information security compromise or failure or cybersecurity attack attributed to our third-party vendors as they relate to infrastructure they support or the information we share with them. +If we were to experience a cybersecurity compromise or breach or other security incident relating to our information systems or data, the costs, time and effort associated with the investigation, remediation and potential notification of the breach to counterparties, regulators and data subjects could be material. We may incur significant costs in an effort to detect and prevent security incidents, and we may face increased costs and requirements to expend substantial resources in the event of an actual or perceived security incident. Further, attacks upon information technology systems, including ransomware attacks and digital extortion, business email compromises, social engineering, including phishing attacks, denial of service attacks, computer malware, malicious codes, viruses, wrongful intrusions, wrongful conduct by insider employees or vendors, data breaches, and other malicious internet-based activity are increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives, capabilities, and expertise, and may be enhanced or facilitated by AI. For example, bad actors around the world are increasingly using AI to engage in illegal activities involving the theft and misuse of personal information, confidential information and intellectual property. In addition, techniques used to sabotage or to obtain unauthorized access to networks in which data is stored or through which data is transmitted change frequently, become more complex over time and generally are not recognized until launched against a target. As a result, we and our third-party vendors may be unable to anticipate these techniques or implement adequate preventative measures quickly enough to prevent either an electronic intrusion into our systems or services or a compromise of critical information. Further, our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts will be sufficient to protect us from liabilities, damages, or claims related to our privacy and data security obligations. We cannot guarantee that we will be able to detect or prevent any such incidents, and our remediation efforts may not be successful or timely. Our efforts to improve security and protect systems and data from compromise may also identify previously undiscovered instances of data breaches or other cybersecurity incidents. If we do not allocate and effectively manage the resources necessary to build and sustain the proper technology and cybersecurity infrastructure, we could suffer significant business disruption, including transaction errors, supply chain or manufacturing interruptions, processing inefficiencies, data loss or the loss of or damage to intellectual property or other proprietary, personal or confidential information. Additionally, while we currently maintain cybersecurity insurance, coverage may not be sufficient to cover actual losses, or may not apply to the circumstances relating to any particular loss. +To the extent that any disruption, compromise or security breach were to result in a loss of, or damage to, our or our third-party vendors’, collaborators’, contractors’, consultants’ or other third parties’ data, including confidential, +97 +personal, or proprietary data, or applications or inappropriate disclosure, loss, destruction or alteration of, or access to, confidential, personal or proprietary information, we could incur significant liability including litigation exposure, substantial penalties and fines, we could become the subject of regulatory action, inquiry or investigation, our competitive position could be harmed, we could incur significant reputational damage and the further development and commercialization of any product candidates we may develop could be delayed. Any of the above could have a material adverse effect on our business, financial condition, results of operations or prospects. Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims related to our privacy and data security obligations. Further, although we maintain cyber liability insurance, this insurance may not provide adequate coverage against potential liabilities related to any experienced cybersecurity incident or data breach. +Artificial intelligence presents risks and challenges that can impact our business including by posing security risks to our confidential information, proprietary information, and personal data. +Issues in the development and use of AI, combined with an uncertain regulatory environment, may result in reputational harm, liability, or other adverse consequences to our business operations. As with many technological innovations, AI presents risks and challenges that could impact our business, including cybersecurity, data privacy, IT, intellectual property, regulatory, legal, operational, competitive, reputational, and other risks and challenges that could affect our business. We may adopt and integrate generative AI tools into our systems for specific use cases based on internal review and guidance. AI technologies, including generative AI tools, may create content, analyses or recommendations without human intervention that take or suggest actions based on incomplete or inaccurate data, “hallucinatory” inferences, or flawed training inputs or contain copyrighted or other protected material, and if individuals use this flawed or protected content or materials to their detriment, we may be exposed to brand or reputational harm, competitive harm, and/or legal liability. +A growing number of legislators and regulators are adopting laws and regulations and have focused enforcement efforts on the adoption of AI, and use of such technologies in compliance with ethical standards and societal expectations. These developments may increase our compliance burden and costs in connection with use of AI and lead to legal liability if we fail to meet evolving legal standards or if use of such technologies results in harms or other causes of action we did not predict. For example, the EU’s Artificial Intelligence Act, or AI Act, entered into force on August 1, 2024, with additional provisions becoming effective on August 2, 2026. As currently enacted, this legislation, which may be amended as part of the EU’s Digital Omnibus, imposes significant obligations on providers and deployers of high risk AI systems, and encourages providers and deployers of AI systems to account for EU ethical principles in their development and use of these systems. The scope of requirements depends on legal and risk determinations that rely on novel legal provisions that have not yet been interpreted by courts or regulators, and non-compliance can lead to significant fines. +Likewise, in the U.S., the regulatory environment is complex and uncertain. Recently, states have advanced, and in some cases passed, dozens of laws focusing on AI governance and regulation, including on deployment of AI in healthcare settings. At the federal level, the Trump Administration has endorsed a federal moratorium on the enforcement of state AI laws, including through a December 11, 2025, executive order on “Ensuring a National Policy Framework for Artificial Intelligence.” So far, these efforts have not been successful at curtailing state action on AI regulation, contributing to a complicated legislative patchwork, which may be litigated in state and federal courts. In addition, there is continued uncertainty regarding the application of existing federal and state legal frameworks to uses and development of AI, and legal norms and market standards regarding AI continue to evolve. For example, various federal and state regulators have issued guidance and focused enforcement efforts on the use of AI in regulated sectors. The FDA, for example, issued guidance on the use of AI in medical devices, requiring detailed risk management and review processes to obtain approval. In addition, several states, including Colorado California, and Texas passed laws that will take effect in 2026, to regulate various uses of AI, including making consequential decisions and requiring companies to disclose sources of training data for AI technologies, among other requirements. If we develop or use AI systems that are governed by these laws or regulations, we will need to meet higher standards of data quality, transparency, and human oversight, and we would need to adhere to specific and potentially burdensome and costly ethical, accountability, and administrative requirements, with the potential for significant enforcement or litigation in the event of any perceived non-compliance. +98 +Our vendors may incorporate AI tools into their offerings without disclosing this use to us, and the providers of these AI tools may not meet existing or rapidly evolving regulatory or industry standards with respect to privacy and data protection and may inhibit our or our vendors’ ability to maintain an adequate level of service and experience. If we, our vendors, or our third-party partners experience an actual or perceived breach or privacy or security incident because of the use of generative AI, we may lose valuable intellectual property and confidential information and our reputation and the public perception of the effectiveness of our security measures could be harmed. Further, bad actors around the world use increasingly sophisticated methods, including the use of AI, to engage in illegal activities involving the theft and misuse of personal information, confidential information, and intellectual property. Any of these outcomes could damage our reputation, result in the loss of valuable property and information, and adversely impact our business. +Risks Related To Ownership of Our Common Stock +We do not know whether a market will be sustained for our common stock or what the market price of our common stock will be, and, as a result, it may be difficult for you to sell your shares of our common stock. +Although our common stock is listed on the Nasdaq Global Market, an active trading market for our common stock may not be sustained. If a market for our common stock is not sustained, it may be difficult for you to sell your shares of common stock at an attractive price or at all. We cannot predict the prices at which our common stock will trade. It is possible that in one or more future periods our results of operations may be below the expectations of public market analysts and investors, and, as a result of these and other factors, the price of our common stock may fall. +The market price of our common stock may be volatile, which could result in substantial losses for investors. +The market price for our common stock may be influenced by those factors discussed in this “Risk Factors” section and many others, some of which may include: +• the success of existing or new competitive product candidates or technologies; +• the timing and results of preclinical studies and clinical trials for any product candidates we may develop; +• failure or discontinuation of any of our development and research programs; +• results of any preclinical studies, clinical trials or regulatory approvals of product candidates of our competitors, or announcements about new research programs or product candidates of our competitors; +• developments or changing views regarding the use of genetic therapies, including those that involve gene editing; +• commencement or termination of collaborations for our product development and research programs; +• regulatory or legal developments in the United States and other countries; +• developments or disputes concerning patent applications, issued patents or other intellectual property or proprietary rights; +• the recruitment or departure of key personnel; +• the level of expenses related to any of our research programs, clinical development programs or product candidates that we may develop; +• the results of our efforts to develop product candidates; +• actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts, if any, that cover our stock; +• announcement or expectation of additional financing efforts; +• sales of our common stock by us, our insiders or other stockholders; +• expiration of market stand-off or lock-up agreements; +99 +• variations in our financial results or those of companies that are perceived to be similar to us; +• changes in the structure of healthcare payment systems; +• market conditions in the pharmaceutical and biotechnology sectors; +• public health crises, pandemics, natural disasters or major catastrophic events; +• general macroeconomic, geopolitical, industry and market conditions such as recessions, interest rates, fuel prices, foreign currency fluctuations, tariffs (including tariffs that have been or may in the future be imposed by the United States or other countries), sanctions, trade protection measures or other trade barriers (including further legislation or actions taken by the United States or other countries that restrict trade), social, political and economic risks and military acts of war or terrorism; and +• the other factors described in this “Risk Factors” section. +In recent years, the stock market in general and the market for pharmaceutical and biotechnology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to changes in the operating performance of the companies whose stock is experiencing those price and volume fluctuations. In particular, in relation to uncertainty around inflation and the U.S. Federal Reserve’s measures to slow inflation, the stock market has been exceptionally volatile. Market and industry factors may seriously affect the market price of our common stock, regardless of our actual operating performance. Following periods of such volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Because of the potential volatility of our stock price, we may become the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and resources from our business. +If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our stock, the price of our stock could decline. +The trading market for our common stock relies in part on the research and reports that industry or financial analysts publish about us or our business. If one or more of the analysts covering our business downgrade their evaluations of our stock, the price of our stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline. +Future sales or issuances of our common stock in the public market, or the perception of such sales, could cause our stock price to fall. +Our stock price could decline as a result of sales of a large number of shares of our common stock or other securities convertible into or exchangeable for our common stock in the public market or the perception that these sales could occur. These sales, or the perception that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. +As of December 31, 2025, we had 180,514,014 shares of common stock outstanding. Shares of unvested restricted stock that were issued and outstanding will become available for sale immediately upon the vesting of such shares, as applicable. Shares issued upon the exercise of stock options pursuant to future awards that may be granted under our equity incentive plans or pursuant to future awards granted under those plans will become available for sale in the public market to the extent permitted by the provisions of applicable vesting schedules, any applicable market stand-off and lock-up agreements and Rule 144 and Rule 701 under the Securities Act. +Certain holders of our common stock have rights, subject to some conditions, to require us to file registration statements covering the sale of their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We have registered the offer and sale of all shares of common stock that we may issue under our equity compensation plans, and those shares are available for sale in the open market, unless such shares are subject to vesting restrictions with us or the lock-up restrictions described above. Once we register the offer and sale of shares for the holders of registration rights, they can be freely sold in the public market upon issuance, subject to the lock-up agreements. +100 +In addition, in the future, we may issue additional shares of common stock or other equity or debt securities convertible into common stock in connection with a financing, acquisition, litigation settlement, employee arrangements or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and could cause our stock price to decline. +Insiders have substantial influence over us, which could limit your ability to affect the outcome of key transactions, including a change of control. +Our directors and executive officers and their affiliates beneficially own a significant percentage of our outstanding common stock. As a result, these stockholders, if they act together, will be able to influence our management and affairs and all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control of our company and might affect the market price of our common stock. +We are an “emerging growth company” and a “smaller reporting company,” and the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies may make our common stock less attractive to investors. +We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company for up to five years. For so long as we remain an emerging growth company, we are permitted and plan to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or SOX Section 404, not being required to comply with any requirement for a supplement to the auditor’s report providing additional information about the audit and the financial statements, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, the information we provide stockholders will be different than the information that is available with respect to certain other public companies. +In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption, and, therefore, while we are an emerging growth company, we will not be subject to the new or revised accounting standards at the same time that they become applicable to other public companies that are not emerging growth companies. As a result of this election, our financial statements may not be comparable to those of other public companies that comply with new or revised accounting pronouncements as of public company effective dates. +We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates is less than $700 million and our annual revenue is less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation. +We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. +101 +We have incurred, and continue to incur, increased costs as a result of operating as a public company, and our management must devote substantial time to compliance initiatives and corporate governance practices. +As a public company, and particularly after we are no longer an “emerging growth company,” we have incurred, and will continue to incur, significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The Nasdaq Global Market and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. We expect that we will continue to need to hire additional accounting, finance and other personnel in connection with our efforts to comply with the requirements of being a public company. Our management and other personnel will need to devote a substantial amount of time towards maintaining compliance with these requirements. These requirements will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, the rules and regulations applicable to us as a public company make it more difficult and more expensive for us to maintain director and officer liability insurance, which could make it more difficult for us to attract and retain qualified members of our board of directors. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. +Pursuant to SOX Section 404, we are required to furnish a report by our management on our internal control over financial reporting. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with SOX Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants, adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by SOX Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. +We do not expect to pay any dividends for the foreseeable future. Investors may never obtain a return on their investment. +You should not rely on an investment in our common stock to provide dividend income. We have never declared or paid cash dividends on shares of our common stock and do not anticipate that we will pay any dividends to holders of our common stock in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our existing operations. In addition, any future credit facility may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase our common stock. +Increased attention to, and evolving expectations for, environmental, climate change, social, and governance, or ESG, initiatives could increase our costs, harm our reputation, or otherwise adversely impact our business. +Companies across industries are facing increasing scrutiny from a variety of stakeholders related to their ESG and sustainability practices. Expectations regarding voluntary ESG initiatives and disclosures may result in increased costs (including but not limited to increased costs related to compliance, stakeholder engagement, contracting and insurance), enhanced compliance or disclosure obligations, or other adverse impacts to our business, financial condition, or results of operations. +While we may at times engage in voluntary initiatives (such as voluntary disclosures, certifications, or goals, among others) to improve the ESG profile of the Company, such initiatives may be costly and may not have the desired effect. Moreover, we may not be able to successfully complete such initiatives due to factors that are within or +102 +outside of our control. Even if this is not the case, our actions may subsequently be determined to be insufficient by various stakeholders, and we may be subject to investor or regulator engagement on our ESG efforts, even if such initiatives are currently voluntary. +Certain market participants, including major institutional investors and capital providers, use third-party benchmarks and scores to assess companies’ ESG profiles in making investment or voting decisions. Unfavorable ESG ratings could lead to increased negative investor sentiment towards us, which could negatively impact our share price as well as our access to and cost of capital. To the extent ESG matters negatively impact our reputation, it may also impede our ability to compete as effectively to attract and retain employees, which may adversely impact our operations. +In addition, we expect there will likely be increasing levels of regulation, disclosure-related and otherwise, with respect to ESG matters. For example, the SEC has issued rules that require companies to provide significantly expanded climate-related disclosures in their periodic reporting, which may require us to incur significant additional costs to comply, including the implementation of significant additional internal controls processes and procedures regarding matters that have not been subject to such controls in the past, and impose increased oversight obligations on our management and board of directors. These and other changes in stakeholder expectations will likely lead to increased costs as well as scrutiny that could heighten all of the risks identified in this risk factor. Additionally, our business partners may be subject to similar expectations, which may augment or create additional risks, including risks that may not be known to us. +At the same time, stakeholders and regulators have increasingly expressed or pursued opposing views, legislation and investment expectations with respect to ESG initiatives. In recent years, “anti-ESG” sentiment has gained momentum across the U.S., with many states, Congress, and the President having proposed or enacted “anti-ESG” policies, legislation, executive orders or initiatives or issued related legal opinions. Such anti-ESG-related policies, legislation, initiatives, litigation, legal opinions, and scrutiny could result in Prime facing additional compliance obligations, becoming the subject of investigations and enforcement actions, or sustaining reputational harm. +General Risks Factors +Changes in tax laws or in their implementation or interpretation may adversely affect our business and financial condition. +The rules dealing with U.S. federal, state and local and non-U.S. taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service, the U.S. Treasury Department and non-U.S. taxing authorities. Changes to tax laws, tax rulings, or changes in interpretations of existing laws (which changes may have retroactive application) could adversely affect our business and our financial condition or the holders of our common stock. These changes could subject us to additional income-based and non-income taxes (such as payroll, sales, use, value-added, net worth, property, and goods and services taxes), which in turn could materially affect our financial position and results of operations. New, changed, modified, or newly interpreted or applied tax laws could increase our compliance, operating and other costs. In recent years, many such changes have been made and changes are likely to continue to occur in the future. For example, the OBBBA was signed into law on July 4, 2025 and made significant changes to U.S. federal tax law. Key corporate tax provisions include the restoration of 100% bonus depreciation, immediate expensing for domestic research and experimental expenditures, changes to Section 163(j) interest limitations, updates to “GILTI” and “FDII” rules, amendments to energy credits, and expanded Section 162(m) aggregation requirements. We cannot predict whether, when, in what form or with what effective dates, tax laws, regulations and rulings may be enacted, promulgated or decided or whether they could increase our tax liability or require changes in the manner in which we operate in order to minimize increases in our tax liability. Any changes in the U.S. and non-U.S. taxation of business activities may impact our effective tax rate, result in higher tax payments and harm our business, financial condition, cash flows and results of operations. +If we fail to establish and maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business could be harmed. +Ensuring that we have adequate internal financial and accounting controls and procedures in place, in compliance with SOX Section 404, so that we can produce accurate financial statements on a timely basis is a costly and time- +103 +consuming effort that needs to be re-evaluated frequently. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with SOX Section 404, or any subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Inadequate internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock. +Implementing any appropriate changes to our internal controls may entail substantial costs to modify our existing processes and take significant time to complete. These changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy or consequent inability to produce accurate financial statements on a timely basis could increase our operating costs and harm our business. In addition, investors’ perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements on a timely basis may harm our common share price and make it more difficult for us to effectively market and sell our service to new and existing customers. +If we experience material weaknesses in the future or otherwise fail to maintain effective internal control over financial reporting in the future, we may not be able to accurately or timely report our financial condition or results of operations which may adversely affect investor confidence in us and, as a result, the value of our common stock. +We may in the future discover material weaknesses in our system of internal financial and accounting controls and procedures that could result in a material misstatement of our financial statements. The process of designing and implementing effective internal control over financial reporting is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources that are adequate to satisfy our reporting obligations. Our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected. These inherent limitations include the possibility that judgments in decision-making may be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by the collusion of two or more people or by an unauthorized override of controls. Accordingly, because of these inherent limitations, misstatements due to error or fraud may occur and not be detected. +Pursuant to SOX Section 404, we are required to disclose changes made in our internal controls and procedures on a quarterly basis and furnish a report by our management on our internal control over financial reporting annually. However,for as long as we are an “emerging growth company”or a non-accelerated filer, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to SOX Section 404. Failure to comply with the rules and regulations of the SEC could potentially subject us to sanctions or investigations by the SEC, the applicable stock exchange or other regulatory authorities, which would require additional financial and management resources. An independent assessment of the effectiveness of our internal control over financial reporting could detect deficiencies in our internal control over financial reporting that our management’s assessment might not. Undetected material weaknesses in our internal control over financial reporting could lead to financial statement restatements and require us to incur the expense of remediation. +Provisions in our third amended and restated certificate of incorporation, as amended, our second amended and restated by-laws and Delaware law may have anti-takeover effects that could discourage an acquisition of us by +104 +others, even if an acquisition would be beneficial to our stockholders, and may prevent attempts by our stockholders to replace or remove our current management. +Our third amended and restated certificate of incorporation, as amended, our second amended and restated by-laws and Delaware law contain provisions that may have the effect of discouraging, delaying or preventing a change in control of us or changes in our management that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. Our third amended and restated certificate of incorporation, as amended, and second amended and restated by-laws include provisions that: +• authorize “blank check” preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock; +• create a classified board of directors whose members serve staggered three-year terms; +• specify that special meetings of our stockholders can be called only by our board of directors; +• prohibit stockholder action by written consent; +• establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board of directors; +• provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum; +• provide that our directors may be removed only for cause; +• specify that no stockholder is permitted to cumulate votes at any election of directors; +• expressly authorized our board of directors to make, alter, amend or repeal our second amended and restated by-laws; and +• require supermajority votes of the holders of our common stock to amend specified provisions of our third amended and restated certificate of incorporation, as amended and second amended and restated by-laws. +These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. +In addition, because we are incorporated in the State of Delaware, we are governed by the provisions of Section 203 of the General Corporation Law of the State of Delaware, or the DGCL, which prohibits a person who owns in excess of 15 percent of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15 percent of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. +Any provision of our third amended and restated certificate of incorporation, as amended, and second amended and restated by-laws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock. +Our second amended and restated bylaws designate specific courts as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit stockholders’ ability to obtain a favorable judicial forum for disputes with us. +Pursuant to our second amended and restated bylaws, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for any state law claims for (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of or based on a breach of a fiduciary duty owed by any director, officer or other employee of ours to us or our stockholders; (iii) any action asserting a claim pursuant to any provision of the DGCL, our third amended and restated certificate of incorporation, as amended, or our second amended and restated bylaws or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware; or (iv) any action asserting a claim governed by the +105 +internal affairs doctrine, or the Delaware Forum Provision. The Delaware Forum Provision will not apply to any causes of action arising under the Securities Act or the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our second amended and restated bylaws further provide that unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, the Exchange Act, the respective rules and regulations promulgated thereunder or the Federal Forum Provision. In addition, our second amended and restated bylaws provide that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the Delaware Forum Provision and the Federal Forum Provision; provided, however, that stockholders cannot and will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder. +We recognize that the Delaware Forum Provision and the Federal Forum Provision in our second amended and restated bylaws may impose additional litigation costs on stockholders in pursuing any such claims, particularly if the stockholders do not reside in or near the State of Delaware. Additionally, the forum selection clauses in our second amended and restated bylaws may limit our stockholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers or employees, which may discourage the filing of lawsuits against us and our directors, officers and employees, even though an action, if successful, might benefit our stockholders. In addition, while the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court are “facially valid” under Delaware law, there is uncertainty as to whether other courts will enforce our Federal Forum Provision. If the Federal Forum Provision is found to be unenforceable, we may incur additional costs associated with resolving such matters. The Federal Forum Provision may also impose additional litigation costs on stockholders who assert that the provision is not enforceable or invalid. The Court of Chancery of the State of Delaware and the federal district courts of the United States may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than our stockholders. +We face risks related to health epidemics, pandemics and other widespread outbreaks of contagious disease, which could significantly disrupt our operations, impact our financial results or otherwise adversely impact our business. +Significant outbreaks of contagious diseases and other adverse public health developments could have a material impact on our business operations and operating results. Worldwide pandemics or outbreaks of any highly infectious or contagious diseases may adversely impact our operations, research and development, and as we continue development, any preclinical studies, clinical trials and manufacturing activities we may conduct, some of which may include: +• delays or disruptions in research programs, preclinical studies, clinical trials or IND-enabling studies that we or our collaborators may conduct; +• interruption or delays in the operations of the FDA, the EMA and comparable foreign regulatory agencies; +• interruption of, or delays in receiving and distributing, supplies of drug substance and drug product from our contract manufacturing organizations, or CMOs, to preclinical or clinical research sites or delays or disruptions in any preclinical studies or clinical trials performed by contract research organizations, or CROs; +• limitations imposed on our business operations by local, state or federal authorities to address a pandemic or similar public health crises; and +• business disruptions caused by potential workplace, laboratory and office closures and an increased reliance on employees working from home, disruptions to or delays in ongoing laboratory experiments and operations, staffing shortages, travel limitations, and cybersecurity and data accessibility or security issues. +In addition, health pandemics and epidemics could produce significant and prolonged disruption of or volatility in global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. If we or any of the third parties with whom we engage were to experience shutdowns or other business disruptions due to a pandemic or epidemic, our ability to conduct our business in the manner and on the timelines +106 +presently planned could be materially and negatively affected, which could have a material adverse impact on our business, financial condition, our results of operations and prospects. Furthermore, any future pandemic or other outbreak of contagious disease could exacerbate the other risks described in this section. +Our operations are vulnerable to interruption by disasters, terrorist activity, business disruptions and other events beyond our control, which could harm our business. +Our facilities are located in Massachusetts. We have not undertaken a systematic analysis of the potential consequences to our business and financial results from a major flood, power loss, terrorist activity or other natural disasters and do not have a recovery plan for such events. In addition, we do not carry sufficient insurance to compensate us for actual losses from interruption of our business that may occur, and any losses or damages incurred by us could harm our business. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. +The U.S. Congress, the Trump administration, or any new administration may make substantial changes to fiscal, tax, and other federal policies that may adversely affect our business. +Since the start of the Trump Administration in 2025, U.S. policy changes have been implemented at a rapid pace and additional changes are likely. For example, the U.S. government has adopted new approaches to trade policy and in some cases may renegotiate, or potentially terminate, certain existing bilateral or multi-lateral trade agreements. The U.S. government has also imposed substantial tariffs on most countries throughout the world and has further threatened to continue to broadly impose tariffs, which could lead to corresponding punitive actions by the countries with which the U.S. trades. While certain tariffs have subsequently been suspended, modified or temporarily reduced, we cannot predict the results of the U.S. government’s trade negotiations or the outcome of ongoing legal challenges to specific tariff policies. Changes to U.S. policy implemented by the U.S. Congress, the Trump administration or any new administration have impacted and may in the future impact, among other things, the U.S. and global economy, international trade relations, unemployment, immigration, healthcare, taxation, the U.S. regulatory environment, inflation and other areas. Although we cannot predict the impact, if any, of these changes to our business, they could adversely affect our business. Until we know what policy changes are made, whether those policy changes are challenged and subsequently upheld by the court system and how those changes impact our business and the business of our competitors over the long term, we will not know if, overall, we will benefit from them or be negatively affected by them. +The increasing use of social media platforms presents risks and challenges. +Social media practices in the biopharmaceutical industry and the FDA's regulation of social media continues to evolve. This evolution creates uncertainty and risk of noncompliance with regulations applicable to our business, resulting in potential regulatory actions against us. For example,we and our employees are increasingly utilizing social media tools as a means of communication both internally and externally. Despite our efforts to monitor evolving social media communication guidelines and comply with applicable rules, there is risk that the use of social media by us or our employees to communicate about our product candidates, operations, or business may cause us to be found in violation of applicable legal or contractual requirements. In addition, our employees may knowingly or inadvertently make use of social media in ways that may not comply with our social media policy or other legal or contractual requirements, which may give rise to liability, lead to the loss of trade secrets or other intellectual property, or result in public exposure of personal information of our employees, clinical trial patients, collaboration partners, and others, and which could have an adverse effect on our business, financial conditions and results of operations. Furthermore, negative posts or comments about us or our product candidates in social media could seriously damage our reputation, brand image and goodwill. +Item 1B. Unresolved Staff Comments +None. +107 +Item 1C. Cybersecurity +Risk Management and Strategy +Our cybersecurity risk management program is a significant part of our overall risk management program. Teams of internal and third-party cybersecurity professionals oversee cybersecurity risk management , which incorporates elements of the National Institute for Standards and Technology Cybersecurity Framework. +We also maintain a comprehensive process for identifying, assessing, and managing material risks from cybersecurity threats. We also have a process in place to oversee and assess our third party resources, including, for critical vendors and as appropriate, through reviews of Service Organization Control Type 2 reports. +We maintain an ongoing end-user cybersecurity awareness program that is designed to raise awareness of cybersecurity threats to reduce our vulnerability as well as to encourage consideration of cybersecurity risks across functions, including quarterly training and simulated phishing campaigns. +Although we have not experienced a material cybersecurity incident, like other organizations in our industry, we face a number of cybersecurity risks in connection with our business and recognize the growing threat within the general marketplace and our industry. For more information about the cybersecurity risks we face, see the section entitled “ Risk Factors — Risks Related to Information Technology and Data Privacy. ” +Oversight and Governance +Members of our senior management, including our Chief Executive Officer and leaders from our legal and information technology functions , maintain responsibility for assessing and managing cybersecurity threats. This team has deep expertise in building and leading information systems and cybersecurity teams across a variety of institutions. Our head of information technology has approximately 20 years of information security experience. +Cybersecurity risk governance has been delegated by our board of directors to the a udit committee of the board of directors, or the audit committee. As provided in the audit committee charter, the audit committee is responsible for reviewing, assessing, and considering, in consultation with management and our board of directors, as appropriate, the overall risk management policies and procedures of the Company, including our major risk exposures such as cybersecurity. +The audit committee and board of directors receive routine updates from senior management, including leaders from our information technology and legal functions regarding matters of cybersecurity. These updates include existing and new cybersecurity risks, status on how management is addressing and mitigating those risks, cybersecurity and data privacy incidents, if any, and status on key information security initiatives. +108 +Item 2. Properties +We currently lease and occupy the following spaces: +• approximately 149,000 square feet of laboratory and office space at 60 First Street, Cambridge, MA 02141 under a lease term that expires in February 2034; +• approximately 48,500 square feet of combined laboratory and office space at 500 Arsenal Street, Watertown, MA 02472 under a lease term that expires in August 2028. +We believe that our facilities are adequate for our current needs and for the foreseeable future and that suitable additional or substitute space at commercially reasonable terms will be available as and when needed. +109 +Item 3. Legal Proceedings +We are currently engaged in arbitration proceedings with Beam regarding the Beam Collaboration Agreement. A dispute arose between the parties following our March 18, 2025 announcement that we are developing a Prime Editing-based treatment for AATD. Refer to Note 9, License and Collaboration Agreements, to our consolidated financial statements appearing elsewhere within this Annual Report on Form 10-K for information of our ongoing arbitration proceedings with Beam. +110 +Item 4. Mine Safety Disclosures +Not applicable. +111 +PART II +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information +Our common stock has been publicly traded on the Nasdaq Global Market under the symbol “PRME” since October 20, 2022. Prior to that time, there was no public market for our common stock. +Holders +As of February 20, 2026, there were approximately 14 holders of record of our common stock. This number does not include beneficial owners whose shares are held by nominees in street name. +Dividends +We have not declared or paid any cash dividends on our capital stock since our inception. We intend to retain future earnings, if any, to finance the operation and expansion of our business and do not anticipate paying any cash dividends to holders of common stock in the foreseeable future. +Securities Authorized for Issuance under Equity Compensation Plans +Information about our equity compensation plans is incorporated herein by reference to Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters , of this Annual Report on Form 10-K. +Recent Sales of Unregistered Securities +None. +Issuer Purchases of Equity Securities +We did not purchase any of our registered equity securities during the period covered by this Annual Report on Form 10-K. +112 +Item 6. [Reserved] +Not applicable. +113 +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review "Item 1A, Risk Factors" of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. +Overview +We are a biotechnology company focused on developing a new class of genetic medicines designed to provide durable, and potentially curative, treatment options for patients with diseases driven by defined genetic alterations, acquired cellular dysfunction, or dysregulated gene expression. +We are focused on advancing our in vivo liver franchise, where we are advancing programs to cure two of the largest genetic liver diseases, Wilson Disease and AATD. Both programs are currently in late stages of pre-clinical development and are on track for IND and/or CTA filings in the first half of 2026 for Wilson Disease and the middle of 2026 for AATD. We intend to leverage the modularity of our platform to expeditiously and efficiently develop these programs supported by our universal liver lipid nanoparticle along with potential regulatory, clinical and other synergies from our modular technology. +We also continue to advance our in vivo Cystic Fibrosis program with support from CFF, and our efforts to develop Prime Edited CAR-T products for hematology, immunology and oncology in partnership with BMS. In addition, we will continue to pursue additional business development opportunities to accelerate innovation, ensure the broadest application of Prime Editing, and further bolster our financial resources. +In August 2025, we announced additional data from the first patient dosed and initial data from the second patient dosed in our Phase 1/2 trial in CGD. Discussions are underway with the FDA to explore a potential accelerated path to approval in the United States. +Components of Our Results of Operations +Revenues +To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products for the foreseeable future. Our revenues to date have been generated through research collaboration and license agreements. We recognize revenue over the expected performance period under each agreement. We expect that our revenue for the next several years will be derived primarily from our current collaboration agreements and any additional collaborations that we may enter into in the future. To date, we have not received any royalties under any of our existing collaboration agreements. +Research and Development Expenses +Research and development expenses consist primarily of costs incurred in connection with the development and research of our immediate target indications and our differentiation target indications. These expenses include: +• personnel-related expenses, including salaries, bonuses, benefits and stock-based compensation for employees engaged in manufacturing, and research and development functions; +• expenses incurred in connection with continuing our current research programs and preclinical and clinical development of any product candidates we may identify, including under agreements with third parties, such as consultants and contractors; +• the cost of developing and validating our manufacturing process for use in our preclinical and clinical studies; +114 +• laboratory supplies and research materials; +• facilities, depreciation and other expenses related to research and development activities, which include direct or allocated expenses for rent and maintenance of facilities, and utilities; +• the cost allocated to acquire in-process research and development, with no alternative future use associated with asset acquisitions or transactions to license intellectual property, such as our Broad License Agreement; and +• expenses incurred in connection with our Pledge to Broad Institute. +We expense all research and development costs in the periods in which they are incurred. Most of our research and development expenses have been related to early stage development activities. In the future, external research and development costs for any individual product candidate will be tracked commencing upon product candidate nomination. We do not allocate employee costs, costs associated with our discovery efforts, laboratory supplies, and facilities expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple programs and our platform and, as such, are not separately classified. +Upfront and milestone payments made are accrued for and expensed when the achievement of the milestone is probable up to the point of regulatory approval. Milestone payments made upon regulatory approval will be capitalized and amortized over the remaining useful life of the related product. +We expect our research and development expenses may continue to increase in the future with our planned research and development activities related to developing any future product candidates, including investments in manufacturing, as we advance any product candidates we may identify and begin to conduct clinical trials, and with our obligations under the BMS Collaboration Agreement. +General and Administrative Expenses +General and administrative expenses consist of salaries and personnel-related costs, including stock-based compensation, for our personnel in executive, legal, finance and accounting, human resources and other administrative functions. General and administrative expenses also include legal fees relating to patents and corporate matters; professional fees paid for accounting, auditing, consulting and tax service; insurance costs; office and information technology costs; and facilities, depreciation and other general and administrative expenses, which include direct or allocated expenses for rent and maintenance of facilities and utilities. +We anticipate that our general and administrative expenses will increase in the future if we increase our headcount to support research and development activities; increased accounting, legal, insurance, and investor and public relations costs as we continue to operate as a public company; and additional intellectual property-related expenses as we file patent applications to protect innovations arising from our research and development activities. +Other Income (Expense) +Other income (expense), net consists of: +• interest and amortization related to our short-term investments; and +• the change in the fair value of our short-term investment in Beam, a related party, in connection with the Beam Collaboration Agreement, which is discussed in greater detail in Item 1. Business , of this Annual Report on Form 10-K. +115 +Results of Operations — Comparison of the Years Ended December 31, 2025 and 2024 +Operating Expenses +Research and Development Expenses +Year ended December 31, +(in thousands) 2025 2024 Change +Research and development expenses: +Personnel expenses $ 50,661 $ 59,988 $ (9,327) +Research costs 35,453 41,678 (6,225) +Facility related 46,506 35,509 10,997 +License, intellectual property fees, and other 14,957 8,060 6,897 +Professional and consultant fees 7,681 5,919 1,762 +Clinical expense 5,378 4,135 1,243 +Total research and development expenses $ 160,636 $ 155,289 $ 5,347 +The $5.3 million increase in research and development expense for the year ended December 31, 2025 as compared to the year ended December 31, 2024 is primarily driven by: +• $11.0 million increase in facility-related expense primarily due to the expansion and build out of our laboratory space at 60 First Street and 500 Arsenal Street and due to a higher amount of facility costs being allocated to our research and development function; +• $6.9 million increase in license and IP costs, primarily due to the issuance of restricted stock units; +• $1.8 million increase in professional and consultant fees, primarily related to our in-house vivarium; and +• $1.2 million increase in clinical expense as we advance our Wilson Disease and AATD programs, both of which are on track for IND and/or CTA filings in 2026. +These were offset by: +• $9.3 million decrease in personnel expenses resulting from the workforce reduction announced in May 2025; and +• $6.2 million decrease in research costs, primarily due to the deprioritization of our CGD programs as we strategically focus our internal efforts on advancing our in vivo liver franchise. +General and Administrative Expenses +Year ended December 31, +(in thousands) 2025 2024 Change +General and administrative expenses: +Personnel expenses $ 23,026 $ 26,569 $ (3,543) +Professional and consultant fees 20,500 13,459 7,041 +Facility related and other 8,820 10,133 (1,313) +Total general and administrative expenses $ 52,346 $ 50,161 $ 2,185 +116 +The $2.2 million increase in general and administrative expense for the year ended December 31, 2025 as compared to the year ended December 31, 2024 is primarily driven by a $7.0 million increase in professional and consultant fees due to an increase in corporate legal expenses. This is offset by: +• $3.5 million decrease in personnel expense, due to a decrease in non-cash stock-based compensation expense of $3.5 million; and +• $1.3 million decrease in facility related and other primarily due to a higher proportion of our facility space being utilized in research and development activities. +Other Income (Expense) +Year ended December 31, +(in thousands) 2025 2024 Change +Other income: +Interest income 4,149 3,522 627 +Accretion (amortization) of investments $ 2,479 $ 3,507 $ (1,028) +Change in fair value of short-term investment — related party 432 (485) 917 +Other income, net 148 41 107 +Total other income, net $ 7,208 $ 6,585 $ 623 +Accretion (amortization) of investments +Accretion (amortization) of investments for each of the periods presented is a result of increase (decrease) in the value of the our marketable securities purchased at a discount (premium) to their face value. +Liquidity and Capital Resources +Since our inception, we have incurred significant operating losses. We expect to incur significant expenses and operating losses for the foreseeable future as we commence the clinical development of our programs and continue our platform development and early-stage research activities. We have not yet commercialized any products and we do not expect to generate revenue from sales of products for several years, if at all. To date, we have funded our operations primarily with proceeds from sales of preferred stock, public offerings of our common stock, and through payments from our collaboration partners. As of December 31, 2025, we had cash and cash equivalents, and short-term investments of $177.7 million, excluding our restricted cash, or $191.4 million, including restricted cash. +In November 2023, we filed a shelf registration statement on Form S-3 (File No. 333-275321), including a base prospectus and sales agreement prospectus, or the Prior Registration Statement, for the issuance and sale of up to $500.0 million of our common stock, preferred stock, debt securities, warrants and/or units, as declared effective by the SEC on November 13, 2023. +In November 2025, we filed an automatic shelf registration statement on Form S-3ASR (File No. 333-291348), including a base prospectus and sales agreement prospectus, or the New Registration Statement, to replace the Prior Registration Statement that was set to expire on November 13, 2026, for the registration of an unspecified amount of our common stock, preferred stock, debt securities, warrants and/or units or any combination thereof. The New Registration Statement became automatically effective upon filing, and in accordance with Rule 415(a)(6) under the Securities Act, the offering of securities under the Prior Registration Statement is deemed terminated as of the date of effectiveness of the New Registration Statement. Concurrently with the filing of this Annual Report on Form 10-K, we plan to convert the New Registration Statement on Form S-3ASR to Form S-3 by post-effective amendments. +In November 2023, we entered into an Open Market Sale Agreement SM , or the Sales Agreement, with Jefferies LLC, or Jefferies, under which we may, from time to time, issue and sell shares of our common stock having an aggregate sales proceeds of up to $300.0 million, in a series of one or more at-the-market equity offerings, or the 2023 ATM Program. Any shares will be sold pursuant to the New Registration Statement and the sales agreement prospectus filed therewith, which covers the offer and sale of shares of our common stock under the 2023 ATM Program having an aggregate offering price of up to $200.0 million of the $300.0 million authorized under the Sales Agreement. If +117 +we wish to offer and sell additional shares of our common stock under the Sales Agreement in excess of the $200.0 million registered under the New Registration Statement, for up to an additional $100.0 million, we must file with the SEC one or more additional prospectus supplements to register under the Securities Act, the offer and sale of any such additional shares of our common stock we wish to offer and sell from time to time under the Sales Agreement. Jefferies is not required to sell any specific share amounts but acts as our sales agent, using commercially reasonable efforts consistent with its normal trading and sales practices. We will pay Jefferies a commission equal to 3.0% of the aggregate gross proceeds we receive from each sale of our shares of common stock. Our common stock will be sold at prevailing market prices at the time of the sale, and as a result, prices may vary. As of December 31, 2025, we have not sold any shares of common stock under the 2023 ATM Program. +In August 2025, we issued and sold 43,700,000 shares of our common stock, including 5,700,000 shares pursuant to the exercise of the underwriters’ option to purchase additional shares, at a price to the public of $3.30 per share. As a result of the offering, we received approximately $138.4 million in net proceeds, after deducting underwriting discounts, commissions and offering costs of approximately $5.8 million. +Going Concern +Since our inception, we have incurred substantial losses. As of December 31, 2025, we had an accumulated deficit of $888.4 million and we expect to generate operating losses and negative operating cash flows for the foreseeable future. As stated above, as of December 31, 2025, we maintained cash, cash equivalents, short-term investments, and related party short-term investments of $177.7 million. +In accordance with Accounting Standards Codification, or ASC, 205-40, Going Concern , or ASC 205-40, we evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date on which this Annual Report on Form 10-K is filed. Based on the our cash, cash equivalents, and short-term investments as of December 31, 2025, our current and forecasted level of operations and forecasted cash flows, our ability to continue as a going concern is dependent upon our ability to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. Management plans to provide for capital requirements through financing or other transactions, and selling shares under our “at the market offering” program. There can be no assurance that we will be able to raise additional capital to fund operations with terms acceptable to us, or at all. Because certain elements of our plans to mitigate the conditions that raised substantial doubt about our ability to continue as a going concern are outside of our control, including the ability to raise capital through an equity or other financing, those elements cannot be considered probable according to ASC 205-40, and therefore cannot be considered in the evaluation of mitigating factors. As a result, we concluded that substantial doubt exists about our ability to continue as a going concern for 12 months from the date these consolidated financial statements are issued. +The consolidated financial statements as of December 31, 2025 have been prepared under the assumption that we will continue as a going concern for the next 12 months and that contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. Our ability to continue as a going concern is dependent upon our uncertain ability to obtain additional capital, reduce expenditures and/or execute on its business plan. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. +118 +Cash Flows +The following table summarizes our sources and uses of cash for each of the periods presented: +Year ended December 31, +(in thousands) 2025 2024 +Net change in cash, cash equivalents, and restricted cash +Net cash used in operating activities $ (162,564) $ (122,865) +Net cash (used in) provided by investing activities (108,763) 68,457 +Net cash provided by financing activities 151,512 195,876 +Net change in cash, cash equivalents, and restricted cash $ (119,815) $ 141,468 +Operating Activities +Net cash used in operating activities for the year ended December 31, 2025 was driven primarily by the following uses of cash: +• $201.1 million net loss; +• $5.4 million change in lease liabilities; +• $4.4 million change in deferred revenue; and +• $1.2 million change in accrued expenses and other assets. +These were offset by: +• $43.9 million of non-cash amounts included in net loss, which consisted primarily of stock-based compensation expense, non-cash lease expense, and depreciation and amortization expense; and +• $4.5 million change in prepaid expenses and other current assets; +Net cash used in operating activities for the year ended December 31, 2024 was driven primarily by the following uses of cash: +• $195.9 million net loss; +• $15.9 million change in prepaid expenses and other current assets; +• $13.5 million change in accrued settlement payment — related party; +• $6.5 million change in lease liabilities; and +• $5.3 million change in accounts payable. +These were offset by: +• $70.3 million change in deferred revenue; +• $41.9 million of non-cash amounts included in net loss, which consisted primarily of stock-based compensation expense, non-cash lease expense, depreciation and amortization expense, and change in fair value of short-term investment — related party; and +Investing Activities +Net cash used in investing activities for the year ended December 31, 2025 was driven primarily by the following: +• $109.6 million of purchases of short-term investments, net of maturities; and +• $4.5 million of purchases of property and equipment. +These were offset by $5.4 million from sales of investments — related party. +119 +Net cash provided by investing activities for the year ended December 31, 2024 was driven primarily by the following: +• $74.8 million of maturities of short-term investments, net of purchases; offset by +• $7.3 million of purchases of property and equipment. +Financing Activities +Net cash provided by financing activities for the year ended December 31, 2025 was driven primarily by the following: +• $138.4 million of proceeds from issuances of common stock with our August 2025 public offering; and +• $12.0 million of proceeds received under the CFF Agreement. +Net cash provided by financing activities for the year ended December 31, 2024 was driven primarily by the following: +• $132.1 million of proceeds from issuances of common stock with our February 2024 public offering; +• $38.1 million of proceeds from issuance of common stock to BMS in September 2024; +• $18.8 million of proceeds from issuance of pre-funded warrants contemporaneous with our February 2024 public offering; and +• $6.0 million of proceeds received under the CFF Agreement. +Funding Requirements +To date, we have not generated any revenue from product sales. We do not expect to generate revenue from product sales unless and until we successfully complete preclinical and clinical development of, receive regulatory approval for, and commercialize a product candidate and we do not know when, or if at all, that will occur. We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and studies and initiate clinical trials. In addition, if we obtain regulatory approval for any product candidates, we expect to incur significant expenses related to product sales, marketing, and distribution to the extent that such sales, marketing and distribution are not the responsibility of potential collaborators. Further, we have incurred, and expect to continue to incur, costs associated with operating as a public company. The timing and amount of our operating expenditures will depend largely on the factors set out above. For more information, see “ Risk Factors—Risks Related To Our Financial Position and Need for Additional Capital .” +We believe our existing cash, cash equivalents, and investments will be sufficient to fund our operating expenses and capital expenditure requirements into 2027. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. We expect that we will require additional funding to: +• continue our current research development activities; +• identify product candidates; +• evaluate strategic alternatives and potential partnership opportunities for PM359, including our ability to execute and realize the anticipated benefits of any strategic alternatives we may pursue; +• develop, maintain, expand and protect our intellectual property portfolio and defend intellectual property-related claims; +• maintain existing collaborations or strategic relationships and identify and enter into future license agreements and collaborations with third parties; +• initiate preclinical testing and clinical trials for our future product candidates we identify; +120 +• further develop our Prime Editing platform; and +• hire additional personnel to support our strategic priorities. +If we receive regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to commercialize ourselves. +Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of private and public equity offerings, debt financings, additional collaborations, strategic alliances, and marketing, distribution or licensing arrangements with third parties. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interest may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, strategic alliances or marketing, or distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, any future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, reduce or eliminate our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. +Contractual Obligations and Other Commitments +Leases +Refer to Note 6, Leases, to our consolidated financial statements appearing elsewhere within this Annual Report on Form 10-K for information on our lease obligations. +Under our license and collaboration agreements, we are potentially obligated to pay certain milestones, royalty fees, licensing maintenance fees, and reimbursement of patent maintenance costs. These amounts are contingent upon the occurrence of future events and the timing and likelihood of such potential obligations are not known with certainty. +Critical Accounting Policies and Significant Judgments and Estimates +Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses incurred during the reporting periods. We base our estimates on historical experience, known trends and events, and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities recorded revenues and expenses that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. +While our significant accounting policies are described in more detail in Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements appearing within this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements. +Stock-Based Compensation Expense +We measure stock-based awards granted to employees, directors, and non-employees based on their fair value on the date of the grant using the Black-Scholes option-pricing model for stock options. Compensation expense for those awards is recognized over the requisite service period, which is generally the vesting period of the respective award, using the straight-line method. We account for forfeitures of stock-based awards as they occur. +121 +The Black-Scholes option pricing model used to determine the fair value of our stock options includes various assumptions, including the expected term of the award, the expected volatility, and the expected risk-free interest rate, expected dividend payments, and the fair value of the common stock underlying the stock-based award. +We consider the expected volatility to be a critical accounting estimate. As we do not have sufficient trading history, we use the average historical volatility of a representative group of publicly traded biopharmaceutical companies to calculate the expected volatility for use in the Black-Scholes option pricing model. This assumption reflects our best estimate; but determining a representative peer group involves subjective considerations. As a result, if a different peer group is used to estimate volatility, the resulting volatility could have a material impact on our stock-based compensation expense. +Prepaid and Accrued Research and Development Expenses +As part of preparing our consolidated financial statements, we are required to estimate research and development expenses. This process involves reviewing quotations and contracts, identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. These estimates of the expenses incurred are based on facts and circumstances known to us at that time. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could have a significant impact on reported amounts. +If the payments made exceed the expenses incurred, the excess amount is reflected as prepaid expenses and other current assets. If the expenses incurred exceed payments made, the difference is reflected as accrued expenses and other current liabilities. +Non-refundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized in prepaid expenses and other current assets. The capitalized amounts are expensed as the related goods are delivered or services are performed. +Revenues from contracts +We account for our revenue in accordance with ASC, 606, Revenue from Contracts with Customers , or ASC 606. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, we perform the following five steps at inception of the agreement or upon material modification of the agreement: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. +We consider the pattern of satisfaction of the performance obligations under step (v) above to be a critical accounting estimate. More specifically, the determination of the level of achievement of research and development service performance obligations, whose pattern of satisfaction is measured using costs incurred to date as compared to total costs incurred and expected to be incurred in the future is driven by a critical accounting estimate. +In estimating the costs expected to be incurred in the future, we use our most recent budget and long-range plan, adjusted for any pertinent information. While this is our best estimate as of the reporting period, costs expected to be incurred in the future require management judgment as the scope and timing of research and development activities may change significantly over time. Change in our estimate of the scope and timing of research and development services performed relative to the actual scope and timing may have a significant impact on revenue recognition. +Recently Issued and Adopted Accounting Pronouncements +A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2, Summary of Significant Accounting Policies , to our consolidated financial statements appearing within this Annual Report on Form 10-K. +122 +Emerging Growth Company and Smaller Reporting Company Status +The JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. As a result of this election, our consolidated financial statements may not be comparable to other public companies that comply with new or revised accounting pronouncements as of public company effective dates. We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies. +We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation. +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +Interest Rate Risk +We are exposed to market risk related to changes in interest rates of our investment portfolio of cash equivalents and short-term investments. As of December 31, 2025, we held cash and cash equivalents, investments, and restricted cash, which are exposed to interest income sensitivity affected by changes in the general level of U.S. interest rates. The fair value of our cash equivalents, consisted of our money market funds, and investments are subject to change as a result of potential changes in market interest rates. Due to the short-term maturities of our cash equivalents and investments and the low risk profile of our investments, an immediate 10 percent change in interest rates would not have a material effect on the fair market value of our cash equivalents or investments. +Effects of Inflation +Inflation generally affects us by increasing our cost of labor and research and development costs. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience some effect in the future due to an impact on the costs to conduct research and development, labor costs we incur to attract and retain qualified personnel, and other operational costs. +123 +Item 8. Financial Statements and Supplementary Data +The financial statements required to be filed pursuant to this Item 8 are appended to this Annual Report on Form 10-K. An index of those financial statements is found in Item 15, Exhibits and Financial Statement Schedules , of this Annual Report on Form 10-K. +124 +Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +None. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +Our management, with the participation of our Chief Executive Officer (who serves as both our principal executive officer and our principal financial officer), evaluated, as of the end of the period covered by this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. +Based on the evaluation of our disclosure controls and procedures as of December 31, 2025, our Chief Executive Officer concluded that our disclosure controls and procedures as of such date are effective at the reasonable assurance level. +Management’s Annual Report on Internal Controls Over Financial Reporting +Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with United States GAAP. Our internal control over financial reporting includes those policies and procedures that: +• pertain to the maintenance of records that, in reasonable detail, accurately, and fairly reflect our transactions and dispositions of our assets; +• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with United States GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and +• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. +Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2025. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in its 2013 Internal Control – Integrated Framework. Based on our assessment, our management has concluded that, as of December 31, 2025, our internal control over financial reporting is effective based on those criteria. +125 +Attestation Report of the Registered Public Accounting Firm +This Annual Report does not include an attestation report of out registered public accounting firm regarding our internal control over financial reporting due to an exemption provided by the JOBS Act for “emerging growth companies.” +Changes in Internal Control over Financial Reporting +We continuously seek to improve the efficiency and effectiveness of our internal controls, which may result in changes to our systems and refinements to our processes. However, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended December 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. +Item 9B. Other Information +(a) +None. +(b) +From time to time, our officers (as defined in Rule 16a–1(f)) and directors may enter into Rule 10b5-1 or non-Rule 10b5-1 trading arrangements (as each such term is defined in Item 408 of Regulation S-K). During the three months ended December 31, 2025, none of our directors or officers adopted , modified or terminated a plan or other arrangement intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any non-Rule 10b5-1 trading arrangements (as defined in Item 408(c) of Regulation S-K). +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not applicable. +126 +PART III +Item 10. Directors, Executive Officers and Corporate Governance +Executive officers and directors +Our executive officers and directors, and their ages and positions as of March 3, 2026, are as set forth below. +Name Age Position +Allan Reine, M.D. 51 +Chief Executive Officer and Director (Class II) +Ann Lee, Ph.D. 64 Chief Technical Officer +Thomas Cahill, M.D., Ph.D. 39 +Director (Class III) +Wendy Chung, M.D., Ph.D. 57 +Director (Class II) +Kaye Foster 66 +Director (Class II) +Michael Kelly 69 +Director (Class I) +Jeffrey Marrazzo +47 +Director (Class II) +Robert Nelsen 62 +Director (Class III) +David Schenkein, M.D. 68 +Director (Class I) +Executive Officers +Allan Reine, M.D. has served as our Chief Executive Officer and a member of our board of directors since May 2025. He previously served as our former Chief Financial Officer from January 2024 to May 2025 . Prior to joining Prime, Dr. Reine served as Chief Financial Officer of Foghorn Therapeutics Inc. from September 2019 to January 2024, and as Chief Financial Officer of Pieris Pharmaceuticals, Inc. from August 2017 to September 2019. From August 2012 through August 2017, Dr. Reine was a portfolio manager at Lombard Odier Asset Management, where he ran a healthcare portfolio focused on biotechnology and pharmaceutical companies. Before joining Lombard Odier, from 2003 through August 2012, Dr. Reine served as a healthcare portfolio manager at various funds, including Citi Principal Strategies, SAC Capital, Trivium Capital and Alexandra Investment Management. Dr. Reine began his career in 2001 at CIBC World Markets where he worked in both biotechnology investment banking and biotechnology equity research. Dr. Reine received his M.D. from the University of Toronto and his B.Sc. in Statistical Sciences from the University of Western Ontario. We believe that Dr. Reine is qualified to serve on our board of directors based on his extensive experience as a senior executive in the pharmaceutical industry, his public company experience, as well as his knowledge of our company based on his role as our former Chief Financial Officer and current Chief Executive Officer. +Ann L. Lee, Ph.D. has served as our Chief Technical Officer since October 2021. Prior to that, Dr. Lee served as Senior Vice President and Head of Cell Therapy Development and Operations at BMS from November 2019 to July 2021, as Executive Vice President of Cell Therapy Development and Operations at Celgene Corporation, a biopharmaceutical company, from April 2018 to November 2019 and as Executive Vice President of Technical Operations at Juno from November 2017 to April 2018. From April 2009 to November 2017, Dr. Lee served as Senior Vice President and Global Head of Pharma Technical Development at Genentech, Inc., a Roche Group subsidiary and a biotechnology company. She currently serves on the board of directors and audit and compensation committees of Coya Therapeutics, Inc. Dr. Lee received her Ph.D. in biochemical engineering from Yale University and her B.S. in chemical engineering from Cornell University. +Non-employee directors +Thomas Cahill, M.D., Ph.D. has served as a member of our board of directors since November 2021. Dr. Cahill is the Founder and has served as the Managing Partner of Newpath Partners, a Boston-based life science venture fund focused on therapeutic companies, since October 2018. Dr. Cahill is the founding investor and director of nChroma Bio, Inc., Exo Therapeutics, Inc., Kisbee Therapeutics, Inc., Magnet Biomedicine, Inc., Myeloid Therapeutics, Inc., or Myeloid, Convergence Bio, Inc., Autobahn Therapeutics, Inc., Leal Therapeutics, Inc. and Amplitude Therapeutics , Inc. Prior to Newpath Partners, Dr. Cahill served as an Advisor at Raptor Group Holdings, where he +127 +helped further establish and lead the life science and technology investment portfolio, from September 2016 to May 2018. Dr. Cahill received both his M.D. and Ph.D. from Duke University and his M.S. from Stanford University. We believe that Dr. Cahill is qualified to serve on our board of directors based on his experience in the medical and venture capital industries. +Wendy Chung, M.D., Ph.D. has served as a member of our board of directors since November 2021. Dr. Chung is an American Board of Medical Genetics certified clinical and molecular geneticist and serves as the Chair of the Department of Pediatrics at Boston Children’s Hospital, a position she has held since July 2023. Previously, she led the Precision Medicine Resource in the Irving Institute at Columbia University from February 2014 to June 2023. Dr. Chung was on the faculty at Columbia University from 2002 to June 2023, most recently as the Kennedy Family Professor of Pediatrics and Medicine at Columbia University. Prior to that, she was an Associate Professor at Columbia University. Dr. Chung has served as a member of the board of directors of Rallybio Corporation, a public biotechnology company, since August 2022. She received her B.A. in Biochemistry from Cornell University, her M.D. from Cornell University Medical College, and her Ph.D. in Genetics from The Rockefeller University. We believe that Dr. Chung is qualified to serve on our board of directors because of her extensive experience in medicine and genetics research. +Kaye Foster has served as a member of our board of directors since December 2021. Ms. Foster has been a Senior Advisor at the Boston Consulting Group since August 2014 and a Venture Partner at ARCH since January 2022. Previously, she was Senior Vice President, Global Human Resources at Onyx Pharmaceuticals, Inc., an Amgen, Inc. subsidiary and a biopharmaceutical company, from October 2010 to January 2014. At Onyx, she led all aspects of human resources for U.S. and global operations. Prior to joining Onyx, Ms. Foster was Global Vice President of Human Resources and an Executive Committee member at Johnson and Johnson Corporation, a healthcare company, from May 2003 to March 2010. Before Johnson and Johnson, Ms. Foster held several senior human resources executive positions with Pfizer Inc., a pharmaceuticals company. She currently serves on the board of directors and compensation committee of National Resilience Inc.; on the board of directors and the compensation and nominating and corporate governance committees of Agios Pharmaceuticals, Inc.; and on the board of trustees and the human resources committee of Spelman College. Ms. Foster previously served on the board of directors and real estate and nominations committees of Stanford Health Care, a hospital and healthcare system, and chaired the Glide Memorial Foundation Board of Trustees. She received her B.B.A. in Business Administration from Baruch College of the City University of New York and her M.B.A. from Columbia University, Graduate School of Business. We believe Ms. Foster is qualified to serve on our board of directors because of her extensive experience as an executive in the pharmaceuticals industry, including her experience in people management, compensation planning and driving and maintaining corporate culture. +Michael A. Kelly has served as a member of our board of directors since November 2021. Mr. Kelly is currently acting as Founder & President of Sentry Hill Partners, LLC, a global life sciences transformation and management consulting business founded by Mr. Kelly in January 2018. From February 2003 to December 2017, he was a senior executive of Amgen, Inc., a biotechnology company, where he most recently served as Senior Vice President, Global Business Services and Vice President & Chief Financial Officer, International Commercial Operations. He also serves on the boards of directors of: Amicus Therapeutics, Inc., a biotechnology company, which he joined in December 2020; DMC Global Inc., a composite materials and oil field products company, which he joined in July 2020; NeoGenomics Laboratories, Inc., a genetics testing company, which he joined in July 2020, and nChroma Bio, Inc., a biotechnology company, which he joined in December 2024. Mr. Kelly previously served on the boards of directors of Aprea Therapeutics, Inc., a biotechnology company, from September 2020 to May 2022, Hookipa Pharma Inc., a biopharmaceutical company, from February 2019 to April 2023, and Chroma Medicine (which merged with Nvelop Therapeutics in December 2024 to form nChroma Bio, Inc.), a biotechnology company, from February 2023 to December 2024 . Mr. Kelly has also held positions at Tanox, Inc., Biogen, Inc., and Nutrasweet Kelco Company, a division of Monsanto Life Sciences. He also serves on the Council of Advisors and was the former audit committee chairman for Direct Relief, a humanitarian aid organization focused on health outcomes and disaster relief. Mr. Kelly received his B.Sc. in Business Administration from Florida A&M University, concentrating in Finance and Industrial Relations. We believe that Mr. Kelly is qualified to serve on our board of directors because of his extensive experience in managing and growing global healthcare and biotechnology companies. +128 +Jeffrey D. Marrazzo has served as a member of our board of directors since May 2023 and as Executive Chair of our board of directors since May 2025. Currently, Mr. Marrazzo chairs the board of directors of several privately-held biotechnology companies including Dispatch Biotherapeutics and nChroma Bio. Previously, Mr. Marrazzo served as co-founder and Chief Executive Officer of Spark Therapeutics, Inc. from May 2013 to April 2022 and as a member of its board of directors from May 2013 to December 2019. In addition, Mr. Marrazzo launched and was Chief Business Officer of the U.S. division of Molecular Health, Inc. from 2011 to 2013. Mr. Marrazzo was part of the founding management of Generation Health from 2009 to 2011, up to and through the acquisition of a majority of the company’s shares by CVS Caremark. From 2008 to 2009, Mr. Marrazzo served as an employee and independent consultant to the business development and finance teams at Tengion Inc. and, from 2011 to 2013, Mr. Marrazzo served as an independent consultant to the Children’s Hospital of Philadelphia, or CHOP. Previously, Mr. Marrazzo served as healthcare advisor to former Pennsylvania Governor Edward G. Rendell and as an IBM management consultant to global pharmaceutical companies. Mr. Marrazzo holds a B.S.E. and B.A. in Systems Science and Engineering and Economics from the University of Pennsylvania and a dual M.B.A./M.P.A. from The Wharton School and Harvard University. We believe that Mr. Marrazzo is qualified to serve on our board of directors because of his extensive leadership experience in the life sciences industry. +Robert Nelsen has served as a member of our board of directors since September 2020. Mr. Nelsen co-founded ARCH Venture Partners, L.P., a venture capital firm focused on early-stage technology companies, in 1986 and has served as a Managing Director of ARCH Venture Partners or its affiliated entities since 1994. Mr. Nelsen currently serves on the board of directors of Sana Biotechnology, Inc. and Hua Medicine, Inc., each a public biotechnology company, and currently serves on the board of directors of a number of private companies. Mr. Nelsen previously served on the board of directors of a number of public biotechnology companies, including Vir Biotechnology, Inc., from 2017 to May 2025, Lyell Immunopharma, Inc. from 2018 to May 2025, Brii Biosciences Limited from 2019 to June 2024, Revolution Healthcare Acquisition Corp. from 2021 to April 2022, Denali Therapeutics Inc. from 2015 to June 2022, Beam from 2017 to June 2021, Karuna Therapeutics, Inc. from 2018 to June 2021, Unity Biotechnology, Inc. from 2015 to December 2020, Agios Pharmaceuticals, Inc. from 2007 to June 2017, Syros Pharmaceuticals, Inc. from 2012 to June 2018, Juno Therapeutics, Inc. (acquired by Celgene Corporation in January 2018) from 2013 to March 2018, Sienna Biopharmaceuticals, Inc. from 2015 to September 2018 and Gossamer Bio, Inc. from 2017 to December 2018 (prior to its initial public offering). Mr. Nelsen received his M.B.A. from the University of Chicago and his B.S. from the University of Puget Sound in Economics and Biology. We believe that Mr. Nelsen is qualified to serve on our board of directors because of his extensive experience as a venture capitalist, building and serving boards of many public and private emerging companies, including multiple life sciences, biotechnology and pharmaceutical companies. +David Schenkein, M.D. has served as a member of our board of directors since September 2019. Dr. Schenkein currently serves as a partner in GV, the venture capital investment arm of Alphabet Inc., which he joined in February 2019. Previously, Dr. Schenkein served as President and Chief Executive Officer of Agios Pharmaceuticals, Inc. from August 2009 to February 2019. From April 2006 to July 2009, Dr. Schenkein served as a Senior Vice President of Oncology Development at Genentech Inc. Dr. Schenkein currently serves on the board of directors of Denali Therapeutics Inc. and Regeneron Pharmaceuticals, Inc. He is also on the boards of the private companies Leyden Laboratories B.V., Aera Therapeutics, Inc. and Treeline Biosciences, Inc. Previously, Dr. Schenkein served on the board of directors of Agios Pharmaceuticals, Inc. from 2009 to February 2025 and bluebird bio, Inc. from 2013 to 2021. He also currently serves as an adjunct attending physician in hematology at Tufts Medical Center. Dr. Schenkein received his M.D. from the State University of New York Upstate Medical School and his B.A. in Chemistry from Wesleyan University. We believe that Dr. Schenkein is qualified to serve on our board of directors because of his extensive background in the biotechnology industry and leadership experience as a senior executive and director of biotechnology companies. +We believe that all of our current board of directors members possess the professional and personal qualifications necessary for service on our board of directors and have highlighted particularly noteworthy attributes for each board of directors member in the individual biographies above. +Role of Board in Risk Oversight Process +Our board of directors has an active role, as a whole and also at the committee level, in overseeing the management of our risks. Our board of directors is responsible for general oversight of risks and regular review of information +129 +regarding our risks, including credit risks, liquidity risks, operational risks and cybersecurity. The audit committee is responsible for overseeing the management of risks relating to accounting matters and financial reporting. The compensation committee is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements. The nominating and corporate governance committee is responsible for overseeing the management of risks associated with the independence of our board of directors and potential conflicts of interest. Although each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire board of directors is regularly informed through discussions from committee members about such risks. Our board of directors believes its administration of its risk oversight function has not negatively affected our board of director’s leadership structure. +Board Committees +Our board of directors has established an audit committee, a compensation committee, and a nominating and corporate governance committee, each of which operates pursuant to a charter adopted by our board of directors. We believe that the composition and functioning of all of our committees comply with the applicable requirements of Nasdaq, the Sarbanes-Oxley Act of 2002, and SEC rules and regulations that are applicable to us. We intend to comply with future requirements to the extent they become applicable to us. +The full text of our audit committee charter, compensation committee charter and nominating and corporate governance committee charter are posted on the “Corporate Governance” portion of our website at https://www.primemedicine.com . We do not incorporate the information contained on, or accessible through, our corporate website into this Annual Report on Form 10-K, and you should not consider it a part of this Annual Report on Form 10-K. +The following table describes which directors serve on each of our board of directors’s committees as of March 3, 2026. +Name Audit +Committee Compensation +Committee +Nominating and +Corporate Governance +Committee +Thomas Cahill, M.D., Ph.D. +Member Member +Wendy Chung, M.D., Ph.D. +Member Member +Kaye Foster Chair +Michael Kelly Chair +Robert Nelsen Member +David Schenkein, M.D. +Member Chair +Audit Committee +Among other things, our audit committee’s responsibilities include: +• appointing, approving the compensation of, and assessing the independence of our independent registered public accounting firm; +• pre-approving auditing and permissible non-audit services, and the terms of such services, to be provided by our independent registered public accounting firm; +• reviewing the overall audit plan with our independent registered public accounting firm and members of management responsible for preparing our financial statements; +• reviewing and discussing with management and our independent registered public accounting firm our annual and quarterly financial statements and related disclosures as well as critical accounting policies and practices used by us; +• coordinating the oversight and reviewing the adequacy of our internal control over financial reporting; +• establishing policies and procedures for the receipt and retention of accounting-related complaints and concerns; +130 +• recommending based upon the audit committee’s review and discussions with management and our independent registered public accounting firm whether our audited financial statements shall be included in our Annual Report on Form 10-K; +• monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to our financial statements and accounting matters; +• preparing the audit committee report required by SEC rules to be included in our annual proxy statement; +• reviewing all related person transactions for potential conflict of interest situations and approving all such transactions; +• discussing and reviewing items of enterprise risk management and considering major risk exposures, including financial, operational, privacy, security, cybersecurity, competition, legal, regulatory, hedging and accounting risk exposures; +• evaluating the performance, responsibilities, budget and staffing of our internal audit function and reviewing the internal audit plan; and +• reviewing quarterly earnings releases. +All audit services and all permitted non-audit services to be provided to us by our independent registered public accounting firm must be approved in advance by our audit committee. +The members of our audit committee are Michael Kelly, Thomas Cahill and Wendy Chung. Mr. Kelly chairs the audit committee. All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the Nasdaq listing rules. Our board of directors has determined that Mr. Kelly qualifies as an “audit committee financial expert” within the meaning of applicable SEC regulations. In making this determination, our board of directors considered the nature and scope of experience that Michael Kelly has previously had with public reporting companies, including service as a principal financial officer and principal accounting officer. Our board of directors has determined that all of the members of our audit committee satisfy the relevant independence requirements for service on the audit committee set forth in the rules of the SEC and the Nasdaq listing rules. Both our independent registered public accounting firm and management periodically meet privately with our audit committee. Our audit committee charter, which has been adopted by our board of directors, is available on our website. +Compensation Committee +Among other things, our compensation committee’s responsibilities include: +• reviewing and reassessing periodically (and making recommendations to our board of directors if advisable) our processes and procedures for the consideration and determination of director and executive officer compensation; +• annually reviewing and approving the corporate goals and objectives relevant to the compensation of our Chief Executive Officer; +• evaluating the performance of our Chief Executive Officer in light of such corporate goals and objectives and based on such evaluation (i) recommending to our board of directors the cash compensation of our Chief Executive Officer and (ii) recommending to our board of directors any grants and awards to our Chief Executive Officer under equity-based plans; +• reviewing and approving the compensation of our other executive officers; +• providing oversight of management’s decisions regarding the compensation of our other members of senior management; +• overseeing and administering our incentive-based compensation and equity-based plans; +• evaluating and assessing potential and current compensation consultants or advisors in accordance with the independence standards identified in the applicable Nasdaq listing rules; +131 +• reviewing and approving grants and awards under incentive-based compensation plans and equity-based plans, in each case consistent with the terms of such plans; +• reviewing and recommending to our board of directors our policies and procedures for the grant of equity-based awards; +• administering our compensation recovery policy; +• reviewing and recommending to our board of directors the compensation of our directors; +• preparing our compensation committee report if and when required by SEC rules, to be included in our annual proxy statement or Annual Report on Form 10-K in accordance with the rules and regulations of the SEC, the Nasdaq Stock Market rules and any other rules and regulations applicable to us; +• reviewing and discussing annually with management our “Compensation Discussion and Analysis,” if and when required, to be included in our annual proxy statement or Annual Report on Form 10-K; and +• reviewing and approving the retention or termination of any consulting firm or outside advisor to assist in the evaluation of compensation matters. +The members of our compensation committee are Kaye Foster, David Schenkein and Robert Nelsen. Ms. Foster chairs the compensation committee. Each member of our compensation committee is a non-employee director, as defined in Rule 16b-3 promulgated under the Exchange Act. Our compensation committee may delegate any of the responsibilities of the full committee to subcommittees and may delegate certain responsibilities of the full committee to our executive officers and other persons as may be permitted by applicable laws, rules or regulations and in accordance with the listing standards set forth by Nasdaq. Accordingly, our compensation committee has delegated authority to our Chief Executive Officer to make certain equity awards under our 2022 Stock Option and Incentive Plan, or the 2022 Plan, to our new hires and our existing employees at the senior vice president level and below who are not (and are not reasonably expected to be upon hiring) officers (as defined in Section 16 of the Exchange Act and Rule 16a-1 promulgated thereunder) in connection with promotions, market adjustments, employee recognition or retention, in each case, subject to certain limitations. Our compensation committee charter, which has been adopted by our board of directors, is available on our website. +Compensation Consultant +Our compensation committee has engaged Alpine Rewards, LLC, or Alpine Rewards, as its independent compensation consultant. When requested, Alpine Rewards consultants attend meetings of our compensation committee, including executive sessions in which executive compensation-related matters are discussed without the presence of our management. Alpine Rewards reports to our compensation committee and not to our management, although Alpine Rewards meets with our management for purposes of gathering information for its analyses and recommendations. +Our compensation committee assessed the independence of Alpine Rewards from management, taking into consideration relevant factors, including the other services provided to our Company by Alpine Rewards, the amount of fees our Company paid to Alpine Rewards as a percentage of Alpine Rewards’ total revenue, the policies and procedures of Alpine Rewards that are designed to prevent conflicts of interest, any business or personal relationship of the individual compensation advisors employed by Alpine Rewards with any executive officer of the Company, any business or personal relationship the individual compensation advisors employed by Alpine Rewards have with any member of our compensation committee and any stock of our Company owned by Alpine Rewards or the individual compensation advisors employed by Alpine Rewards. On the basis of that assessment and taking into consideration the independence factors that are required to be considered under applicable stock exchange rules, our compensation committee determined that no relationships existed that would create a conflict of interest or that would compromise Alpine Rewards’ independence, and that Alpine Rewards is independent pursuant to the independence standards set forth in the Nasdaq listing standards promulgated pursuant to Section 10C of the Exchange Act. +132 +Nominating and Corporate Governance Committee +Among other things, our nominating and corporate governance committee’s responsibilities include: +• developing and recommending to our board of directors criteria for our board of directors and committee membership; +• establishing procedures for identifying and evaluating our board of director candidates, including nominees recommended by stockholders; +• to the extent deemed appropriate, retaining third-party search firms or other advisors to identify and evaluate director nominee candidates; +• reviewing the composition of our board of directors to ensure that it is composed of members containing the appropriate skills and expertise to advise us; +• identifying individuals qualified to become members of our board of directors; +• recommending to our board of directors the persons to be nominated for election as directors and to each of the committees of our board of directors; +• developing, recommending to our board of directors and periodically assessing the adequacy of a set of corporate governance guidelines and a code of conduct and business ethics; +• overseeing the evaluation of our board of directors; and +• reviewing and discussing with our board of directors corporate succession plans for our Chief Executive Officer and our other key officers. +The members of our nominating and corporate governance committee are David Schenkein, Wendy Chung and Thomas Cahill. Dr. Schenkein chairs our nominating and corporate governance committee. Our board of directors has determined that each member of our nominating and corporate governance committee satisfies the independence standards of the applicable rules of Nasdaq. Our nominating and corporate governance committee charter, which has been adopted by our board of directors, is available on our website. +Code of Business Conduct and Ethics +Our board of directors adopted a Code of Business Conduct and Ethics, which applies to all of our employees, officers (including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions), agents and representatives, including directors and consultants. +If we make any substantive future amendments to certain provisions of our Code of Business Conduct and Ethics, or grant any waivers from our Code of Business Conduct and Ethics for any officer or director, we will disclose the nature of such amendment or waiver on our website identified below or in a Current Report on Form 8-K. The full text of our Code of Business Conduct and Ethics and our Code of Ethics is posted on our website at https://www.primemedicine.com . The inclusion of our website address in this Annual Statement on Form 10-K does not include or incorporate by reference the information on our website into this Annual Report on Form 10-K, and you should not consider that information a part of this Annual Report on Form 10-K. +Director Nomination Process +No material changes have been made to the procedures by which our stockholders may recommend nominees to our board of directors from those that were described in our annual proxy statement filed with the SEC on April 22, 2025. +Policy on Trading, Pledging and Hedging of Company Stock +Certain transactions in our securities (such as purchases and sales of publicly traded put and call options, and short sales) create a heightened compliance risk or could create the appearance of misalignment between management and stockholders. In addition, securities held in a margin account or pledged as collateral may be sold without consent if the owner fails to meet a margin call or defaults on the loan, thus creating the risk that a sale may occur at a time +133 +when an officer or director is aware of material, non-public information or otherwise is not permitted to trade in our securities. Our insider trading policy expressly prohibits short sales and derivative transactions of our stock and purchases or sales of puts, calls, or our other derivative securities or any derivative securities that provide the economic equivalent of ownership of any of our securities or an opportunity, direct or indirect, to profit from any change in the value of our securities or engage in any other hedging transaction with respect to our securities, at any time, by our executive officers, directors and employees. +Insider Trading Policy +We have adopted an Insider Trading Policy governing the purchase, sale, and/or other dispositions of our securities by directors, officers, employees and designated consultants and contractors that we believe is reasonably designed to promote compliance with insider trading laws, rules and regulations, and the Nasdaq Stock Market listing standards that are applicable to us. A copy of our Second Amended and Restated Insider Trading Policy is included as Exhibit 19.1 in this Annual Report on Form 10-K. +Our Insider Trading Policy permits our officers, directors, employees and certain other persons to enter into trading plans complying with Rule 10b5-1 under the Exchange Act. Generally, under these trading plans, the individual relinquishes control over the transactions once the trading plan is put into place and can only put such plans into place while the individual is not in possession of material non-public information. Accordingly, sales under these plans may occur at any time, including possibly before, simultaneously with, or immediately after significant events involving us. +A copy of our Second Amended and Restated Insider Trading Policy is filed as Exhibit 19.1 to this Annual Report on Form 10-K. +In addition, with regard to trading in our own securities, it is the our policy to comply with applicable insider trading laws, rules and regulations, and any exchange listing standards when engaging in transactions in our securities. +Compensation Recovery Policy +In accordance with the requirements of the SEC and Nasdaq listing rules, our board of directors adopted a compensation recovery policy on September 15, 2023, effective as of October 2, 2023. The compensation recovery policy provides that in the event we are required to prepare a restatement of financial statements due to material noncompliance with any financial reporting requirement under securities laws, we will seek to recover any incentive-based compensation that was based upon the attainment of a financial reporting measure and that was received by any current or former executive officer during the three-year period preceding the date that the restatement was required if such compensation exceeds the amount that the executive officers would have received based on the restated financial statements. +Policies and Practices Related to the Grant of Certain Equity Awards +We have adopted an Equity Award Grant Policy that sets forth the process and timing for us to follow when we grant equity awards for shares of our common stock to our employees or advisors or consultants (other than our non-employee directors) pursuant to our equity compensation plans. All grants of equity awards must be approved in advance by our board of directors, the compensation committee or, subject to the delegation requirements in the policy, our Chief Executive Officer. The equity award granting authority delegated to our Chief Executive Officer applies to employees at the senior vice president level and below who are not (and are not reasonably expected to be upon hiring) officers (as defined in Section 16 of the Exchange Act and Rule 16a-1 promulgated thereunder) and to equity awards within the specific ranges and subject to a maximum annual aggregate amount as may be set forth in the policy, as approved by the compensation committee from time to time. +Generally, equity awards are granted on the following regularly scheduled basis as set forth in the Equity Award Grant Policy: (a) equity awards granted in connection with the hiring of a new employee or the promotion of an existing employee or the engagement of a new consultant will generally be granted, if at all, regularly (either monthly or quarterly) and will be effective on the first day of the month immediately following the month in which such individual’s employment or consulting term begins or promotion occurs, as applicable; (b) equity awards granted to existing employees (other than in connection with a promotion or other special grant) will generally be +134 +granted, if at all, on an annual basis and will be effective on the date such grant is approved or such future date as approved by our board of directors, compensation committee or Chief Executive Officer, as applicable; and (c) any special grants to existing employees will be made, if at all, periodically and will be effective on the date such grant is approved or such future date as approved by our board of directors, compensation committee or Chief Executive Officer, as applicable. +Our board of directors, compensation committee and Chief Executive Officer do not take into account any material nonpublic information when determining the timing and terms of equity awards. We do not time our equity award grants either to take advantage of a depressed stock price, or an anticipated increase in stock price, and we have limited the amount of discretion that can be exercised in connection with the timing of equity award grants. We also do not time the release of material nonpublic information based on equity award grant dates. +The following table contains information required by Item 402(x)(2) of Regulation S-K about stock options granted to the our named executive officers, or NEOs, in the last completed fiscal year during the period beginning four business days before and ending one business day after the filing of our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, or the filing or furnishing of any of our Current Reports on Form 8-K that discloses material nonpublic information. +Name +Grant Date +Number of +Securities +Underlying +the Award +Exercise +Price of +the Award +($ per share) +Grant Date +Fair Value +of the +Award +($) +Percentage change in the closing market price of the securities underlying the award between the trading day ending immediately prior to the disclosure of material nonpublic information and the trading day beginning immediately following the disclosure of material nonpublic information +Allan Reine, M.D. +02/27/2025 275,000 2.42 471,598 +(1) +4% +Ann Lee, Ph.D. +02/27/2025 275,000 2.42 471,598 +(1) +4% +Jeremy Duffield, M.D., Ph.D., FRCP +02/27/2025 275,000 2.42 471,598 +(1) +4% +Keith Gottesdiener, M.D. +02/28/2025 500,000 2.52 892,200 +(1) +4% +Allan Reine, M.D. +05/19/2025 2,000,000 1.34 1,911,400 +(1) +(16)% +Allan Reine, M.D. +05/19/2025 500,000 1.34 — +(1) +(16)% +Allan Reine, M.D. +08/01/2025 850,000 4.04 445,801 +(2) +8% +Ann Lee, Ph.D. +08/01/2025 180,995 4.04 197,786 +(2) +8% +Ann Lee, Ph.D. +08/01/2025 180,995 4.04 120,691 +(2) +8% +(1) Amounts reflect the aggregate grant date fair value of option awards granted during the applicable year calculated in accordance with the provisions of Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 718, Compensation—Stock Compensation . Such grant date fair values do not take into account any estimated forfeitures. Refer to Note 2, Summary of Significant Accounting Policies , to our consolidated financial statements appearing elsewhere within this Annual Report on Form 10-K for assumptions underlying the valuation of equity awards. The grant date fair value of Dr. Reine’s performance-based stock options grant for 500,000 shares, based on probable achievement of the applicable performance metrics, was $0; the grant date fair value of such performance-based stock option grant, based on maximum achievement of the applicable performance metrics, was $556,800. The amounts reported in this column reflect the accounting cost for these options and do not correspond to the actual economic value that may be received by our NEOs upon the exercise of the options or any sale of the underlying shares of common stock. +(2) These options were repriced on August 1, 2025 under our stockholder approved option repricing plan, which is discussed in greater detail in Note 8, Stock-based Compensation , to our consolidated financial statements appearing elsewhere within this Annual Report on Form 10-K. Amounts reflect the aggregate incremental fair value of the repriced options, calculated in accordance with the provisions of FASB ASC Topic 718. Such grant date fair values do not take into account any estimated forfeitures. Refer to Note 2, Summary of Significant +135 +Accounting Policies , to our consolidated financial statements appearing elsewhere within this Annual Report on Form 10-K for assumptions underlying the valuation of equity awards. The amounts reported in this column reflect the accounting cost for these options and do not correspond to the actual economic value that may be received by our NEOs upon the exercise of the options or any sale of the underlying shares of common stock. +Director Compensation +The following table presents the total compensation for each person who served as a non-employee member of our board of directors during the fiscal year ended December 31, 2025. Other than as set forth in the table and described more above, we did not pay any compensation, grant any equity awards or non-equity awards to, or pay any other compensation to any of the non-employee members of our board of directors during the fiscal year ended December 31, 2025. Dr. Reine, who is our Chief Executive Officer, and Dr. Gottesdiener, who was our former Chief Executive Officer, did not receive any additional compensation for their services as directors. The compensation received by Dr. Reine and Dr. Gottesdiener, as NEOs of the Company, are presented in the “2025 Summary Compensation Table”. +Name Fees Earned +or Paid in Cash +($) (1) +Option Awards +($) (2) +All Other +Compensation +($) Total +($) +Thomas Cahill, M.D., Ph.D. (3) +60,000 133,924 — 193,924 +Wendy Chung, M.D., Ph.D. (3) +60,000 162,079 — 222,079 +Kaye Foster (3) +60,000 162,359 — 222,359 +Michael Kelly (3) +65,000 162,079 — 227,079 +Jeffrey Marrazzo (4) +45,000 1,199,949 95,161 1,340,110 +Robert Nelsen (3) +52,500 133,924 — 186,424 +David Schenkein, M.D. (3) +62,500 133,924 — 196,424 +(1) Amounts represent annual cash compensation earned for services rendered as directors by non-employee members of our board of directors and the committees thereof during the fiscal year ended December 31, 2025. +(2) Amounts reflect the aggregate grant date fair value of option awards granted during 2025 in accordance with our Non-employee Director Compensation Policy, described below, calculated in accordance with the provisions of FASB ASC Topic 718, Compensation—Stock Compensation . Such grant date fair values do not take into account any estimated forfeitures. The grant date fair value of Mr. Marrazzo’s performance-based stock option grant for 200,000 shares, based on probable achievement of the applicable performance metrics, was $0; the grant date fair value of such performance-based stock option grants, based on maximum achievement of the applicable performance metrics, was $223,900. In addition to grant date fair value of options granted during 2025, the amounts also include the incremental fair value of options repriced during 2025. The aggregate incremental fair value of repriced options were $83,456 for each of Dr. Cahill, Mr. Nelsen, and Dr. Schenkein; $111,611 for each of Dr. Chung and Mr. Kelly; $111,891 for Ms. Foster; and $348,821 for Mr. Marrazzo. Refer to Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements appearing elsewhere within this Annual Report on Form 10-K for assumptions underlying the valuation of equity awards. The amounts reported in this column reflect the accounting cost for these options and do not correspond to the actual economic value that may be received by our directors upon the exercise of the options or any sale of the underlying shares of common stock. +(3) As part of the annual board of directors member grants, Dr. Cahill, Dr. Chung, Ms. Foster, Mr. Kelly, Mr. Nelsen, and Dr. Schenkein received options to purchase 55,000 shares of our common stock. As of December 31, 2025, Dr. Cahill, Mr. Nelsen, and Dr. Schenkein each held options to purchase an aggregate of 139,062 shares of common stock, and Dr. Chung, Ms. Foster, and Mr. Kelly each held options to purchase an aggregate of 161,578 shares of common stock. +(4) Upon his appointment as the Executive Chair of the our board of directors, Mr. Marrazzo received options to purchase 1,000,000 shares of our common stock. In addition, for his services as a director, as part of the annual board of directors member grants, Mr. Marrazzo received options to purchase an additional 55,000 shares of our common stock. Under his advisory services agreement with the Company, the details of which are discussed in +136 +the “Item 13. Certain Relationships and Related Transactions, and Director Independence”, Mr. Marrazzo also received fees totaling $95,161 during the year ended December 31, 2025. As of December 31, 2025, Mr. Marrazzo held options to purchase an aggregate of 1,442,000 shares of common stock. +Non-Employee Director Compensation Policy +We adopted a non-employee director compensation policy in May 2022 designed to enable us to attract and retain, on a long-term basis, highly qualified non-employee directors, which was amended and restated on May 17, 2024. On May 16, 2025, our board of directors approved a second amended and restated non-employee director compensation policy based upon the recommendations of our compensation committee and Alpine Rewards, our independent compensation consultant. +Under the second amended and restated policy, our non-employee directors are eligible to receive annual cash retainers (which are payable quarterly in arrears and prorated for partial years of service) and equity awards as set forth below: +Annual Retainer for Board of Directors +All non-employee members +$ 45,000 +Additional Retainer for Board Chair +$ 30,000 +Additional Retainer for Audit Committee +Chair +$ 20,000 +Non-chair members +$ 10,000 +Additional Retainer for Compensation Committee +Chair +$ 15,000 +Non-chair members +$ 7,500 +Additional Retainer for Nominating and Corporate Governance Committee +Chair $ 10,000 +Non-chair members $ 5,000 +In addition, our policy provides that, upon initial election or appointment to our board of directors, each new non-employee director will be granted a one-time grant of a non-statutory stock option to purchase 110,000 shares of our common stock on the date of such director’s election or appointment to our board of directors (the “Initial Director Grant”). The Initial Director Grant will vest in substantially equal annual installments over three years, subject to the non-employee director’s continued services to the Company. On the date of each annual meeting of stockholders of the Company, each non-employee director who will continue as a non-employee director following such meeting, other than a non-employee director receiving an Initial Director Grant, will be granted an annual award of a non-statutory stock option to purchase 55,000 shares of common stock (the “Annual Director Grant”). Notwithstanding the foregoing, if a non-employee director was initially elected to our board of directors on a date other than the date of an annual meeting, then upon such initial election or appointment, the non-employee director shall receive, in lieu of an Annual Director Grant, a grant that is pro-rated on a monthly basis for time served as a non-employee director between the date of the non-employee director’s initial election or appointment and the date of the next annual meeting. The Annual Director Grant (including any pro-rated amount) will vest in full on the earlier of the one-year anniversary of the grant date or on the date of our next annual meeting of stockholders, subject to the non-employee director’s continued services to the Company. Such awards are subject to fully accelerated vesting upon the sale of the Company. All vested options remain exercisable for twelve months if a non-employee director resigns from the board of directors or otherwise ceases to serve as a director. +The aggregate amount of compensation, including both equity compensation and cash compensation, paid to any non-employee director for service as a non-employee director in a calendar year period will not exceed $1,600,000 in the first calendar year such individual becomes a non-employee director and $1,000,000 in any other calendar year. +We reimburse all reasonable out-of-pocket expenses incurred by directors for their attendance at meetings of our board of directors or any committee thereof. +137 +Employee directors receive no additional compensation for their service as a director. +138 +Item 11. Executive Compensation +Our NEOs for the fiscal year ended December 31, 2025 were: +• Allan Reine, M.D., our current Chief Executive Officer; +• Keith Gottesdiener, M.D., our former President and Chief Executive Officer from January to May 2025; +• Ann Lee, Ph.D., our Chief Technical Officer; and +• Jeremy Duffield, M.D., Ph.D., FRCP, our former Chief Scientific Officer from January to July 2025. +2025 Summary Compensation Table +The following table sets forth the compensation provided to our NEOs for the fiscal years ended December 31, 2025 and 2024. +Name and Principal Position Year Salary +($) Bonus +($) Option +Awards +($) (1) Non-Equity +Incentive Plan +Compensation +($) (2) All Other +Compensation +($) Total +($) +Allan Reine, M.D. +(3) (4) 2025 606,212 — 2,828,798 402,000 57,177 3,894,187 +Chief Executive Officer 2024 479,489 176,000 3,699,775 200,000 68,538 4,623,802 +Keith Gottesdiener, M.D. +(5) 2025 259,568 — 1,185,802 — 762,400 2,207,770 +Former Chief Executive Officer 2024 652,792 — 1,165,030 395,010 32,785 2,245,617 +Ann Lee, Ph.D. +(6) 2025 505,375 — 790,075 243,960 10,706 1,550,116 +Chief Technical Officer +Jeremy Duffield, M.D., Ph.D., FRCP +(7) 2025 268,271 — 668,600 — 380,926 1,317,797 +Former Chief Scientific Officer 2024 480,417 — 1,092,033 293,400 11,727 1,877,577 +(1) Amounts reflect the aggregate grant date fair value of option awards granted during the applicable year calculated in accordance with the provisions of FASB ASC Topic 718, Compensation—Stock Compensation . Such grant date fair values do not take into account any estimated forfeitures. Refer to Note 2, Summary of Significant Accounting Policies , to our consolidated financial statements appearing elsewhere within this Annual Report on Form 10-K for assumptions underlying the valuation of equity awards. The amounts reported in this column reflect the accounting cost for these options and do not correspond to the actual economic value that may be received by our NEOs upon the exercise of the options or any sale of the underlying shares of common stock. For the year ended December 31, 2025, Dr. Reine was granted time-based and performance-based stock options. The grant date fair value of Dr. Reine’s time-based stock option grant was $2,382,997. The grant date fair value of Dr. Reine’s performance-based stock option grant, based on probable achievement of the applicable performance metrics, was $0; the grant date fair value of such performance-based stock option grant, based on maximum achievement of the applicable performance metrics, was $556,800. Dr. Gottesdiener, Dr. Lee, and Dr. Duffield were granted only time-based stock options during the year ended December 31, 2025. Additionally, the aggregate incremental fair value, calculated in accordance with FASB ASC Topic 718, for the repricing of certain options in 2025 were $445,801 for Dr. Reine and $318,478 for Dr. Lee. Dr. Gottesdiener and Dr. Duffield were not eligible to participate in our option repricing program. Furthermore, the aggregate incremental fair value, calculated in accordance with FASB ASC Topic 718, with respect to the extension of the post-termination exercise period in 2025 for certain options held by Dr. Gottesdiener and Dr. Duffield were $293,602 and $197,002, respectively. +(2) The amounts reflect the annual cash incentive compensation earned by our NEOs for the applicable year based on our achievement of certain corporate performance goals. +139 +(3) Dr. Reine was appointed as our Chief Executive Officer in May 2025. Prior to his appointment, Dr. Reine served as our Chief Financial Officer. Dr. Reine’s 2025 base salary represents his salary as our former Chief Financial Officer through his transition to Chief Executive Officer and, subsequently, his salary in the role as our Chief Executive Officer. Similarly, Dr. Reine’s annual bonus includes a proration for his tenure as our former Chief Financial Officer. +(4) All other compensation for Dr. Reine for 2025 consists of (i) $32,965 in reimbursements for housing expenses, which includes $8,965 for related tax gross-ups, (ii) $13,352 in reimbursement for commuting expenses, which includes $1,702 related tax gross-ups, (iii) $10,500 for matching contributions under our 401(k) plan, and (iv) $360 in wellness reimbursements. +(5) All other compensation for Dr. Gottesdiener for 2025 consists of (i) $646,067 of severance, which includes $10,000 of legal reimbursements, (ii) $99,299 in consulting fees under the KMG Consulting Agreement, which is described in greater detail below, (iii) $6,534 in reimbursements for commuting expenses, which includes $846 for related tax gross-ups, and (iv) $10,500 for matching contributions under our 401(k) plan. +(6) Dr. Lee was not an NEO for 2024. All other compensation for Dr. Lee for 2025 consists of (i) $10,500 for matching contributions under our 401(k) plan, and (ii) $206 in reimbursements for commuting expense. +(7) All other compensation for Dr. Duffield for 2025 consists of (i) $321,154 of severance payments, (ii) $48,900 in consulting fees under the Duffield Consulting Agreement, which is described in greater detail below, (iii) $10,500 for matching contributions under our 401(k) plan, and (iv) $372 in reimbursements for commuting expense. +Overview +Our executive compensation program is designed to attract, motivate and retain key employees who we believe best represent our values and can make significant contributions towards achieving our purpose of delivering a new class of differentiated one-time curative genetic therapies to address the widest spectrum of diseases by deploying our Prime Editing technology. Our program’s purpose is to incentivize them based on the achievement of key performance goals, and to align their interests with the interests of our stockholders. Under this program, our NEOs’ compensation is based on the achievement of key strategic and business goals that were developed based on our mission. The program consists of a combination of base salary, an annual cash bonus, long-term equity incentive compensation and other employee benefits generally available to our employees, and is designed to align our executive compensation program with the interests of our stockholders by reflecting a pay-for-performance philosophy that supports our business strategy. At the same time, our board of directors believes that the program does not encourage excessive risk-taking by management. +Our compensation committee is generally responsible for determining the compensation of our executive officers (and recommending to our board of directors such compensation for our Chief Executive Officer). In setting executive base salaries and bonuses and granting equity incentive awards, the compensation committee considers compensation for comparable positions in the market, the historical compensation levels of our executive officers, internal equity, our desire to motivate our employees to achieve short- and long-term results that are in the best interests of our stockholders, and a long-term commitment to us. We target a general competitive position, based on independent third-party benchmark analytics to inform the mix of compensation of base salary, bonus and long-term incentives. Our compensation committee typically reviews and discusses management’s proposed compensation with our Chief Executive Officer for all executives other than the Chief Executive Officer. Based on those discussions and its discretion, taking into account the factors noted above, the compensation committee then sets the compensation for each executive officer other than the Chief Executive Officer. For the Chief Executive Officer, our compensation committee recommends our Chief Executive Officer’s compensation for approval by our board of directors. Our compensation committee may delegate certain authorities to one of our officers, as described above in “ Corporate Governance—Compensation Committee ”. +Our compensation committee has the authority to engage the services of a consulting firm or other outside advisor to assist it in designing our executive compensation programs and in making compensation decisions. +During the fiscal year ended December 31, 2025, our compensation committee engaged Alpine Rewards to assist it in evaluating our executive and director compensation practices, including program design, identification of an +140 +appropriate peer group for compensation comparison purposes and providing pay benchmarking data. Alpine Rewards also provided (i) analysis and recommendations to our compensation committee regarding trends and emerging topics with respect to executive compensation; (ii) compensation programs for executives, directors and our employees generally; and (iii) stock utilization and related metrics. For further information, see “Corporate Governance—Compensation Committee—Compensation Consultant.” +Alpine Rewards reports directly to our compensation committee and did not provide any additional services other than as described above. Our compensation committee annually assesses its independence consistent with Nasdaq listing standards and concluded that the engagement of such consultant did not raise any conflict of interest. +2025 Base Salary +Our NEOs each receive a base salary to compensate them for services rendered to us. The base salary payable to each NEO is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role and responsibilities. Base salaries may be adjusted from time to time to realign salaries with market levels after taking into account individual responsibilities, performance and experience. For the fiscal year ended December 31, 2025, the annual base salaries for our NEOs were as follows: +Name +Annual Base Salary from +January 1, 2025 through +February 28, 2025 +Annual Base Salary from +March 1, 2025 through +May 18, 2025 +Annual Base Salary from +May 19, 2025 through +December 31, 2025 +Allan Reine, M.D. +(1) +$500,000 +$517,500 +$665,000 +Keith Gottesdiener, M.D. +(2) +$658,350 +$681,500 +$0 +Ann Lee, Ph.D. +$491,000 +$508,250 +$508,250 +Jeremy Duffield, M.D., Ph.D., FRCP +(2) +$483,500 +$500,500 +$500,500 +(1) Dr. Reine was appointed as our Chief Executive Officer effective May 19, 2025. Prior to May 19, 2025, Dr. Reine served as our Chief Financial Officer. +(2) Dr. Gottesdiener’s employment with us ceased on May 18, 2025 and Dr. Duffield’s employment with us ceased on July 15, 2025. These NEOs’ base salaries were pro-rated accordingly. +2025 Annual Bonus +For the fiscal year ended December 31, 2025, each of the NEOs was eligible to earn an annual cash bonus determined by our compensation committee for NEOs other than the Chief Executive Officer and by our board of directors on the recommendation of our compensation committee, for our principal executive officer, based on our corporate performance. The target annual bonus for each of our NEOs for the fiscal year ended December 31, 2025 was equal to the percentage of the executive’s respective annual base salary as of December 31, 2025 specified below: +Name Target Bonus Percentage +Allan Reine, M.D. +(1) +60% +Keith Gottesdiener, M.D. +60% +Ann Lee, Ph.D. 40% +Jeremy Duffield, M.D., Ph.D., FRCP +40% +(1) During his tenure as our former Chief Financial Officer, Dr. Reine’s target bonus percentage was 40%. Upon becoming our Chief Executive Officer, Dr. Reine’s target bonus percentage increased to 60%. +In 2025, annual bonuses for our Chief Executive Officer and Chief Technical Officer were based entirely on the level of corporate achievement against our 2025 corporate objectives. With respect to the fiscal year ended December 31, 2025, our compensation committee approved a cash bonus payout in an amount of 120% of target for Dr. Lee and our board of directors approved a cash bonus payout in an amount of 120% of target for Dr. Reine. Dr. Gottesdiener and Dr. Duffield did not earn any annual bonuses for 2025 as a result of their separations from us. +141 +Equity-Based Compensation +We believe that long-term equity incentives provide our executives with a strong link to our long-term performance and create an ownership culture. These equity awards are a key aspect of our compensation philosophy and serve to align the interests of our executive officers with our stockholders, as they are tied to future increases in the value of our stock. Further, we believe that equity awards with a time-based vesting feature promote retention because this feature incentivizes our NEOs to remain in our employment during the vesting period. Additionally, we believe that equity awards with a performance-based vesting feature further incentivize our executive officers to achieve important milestones. Accordingly, our compensation committee periodically reviews the equity incentive compensation of our NEOs and may grant equity incentive awards to them from time to time. For additional information regarding outstanding equity awards held by our NEOs as of December 31, 2025, see the “Outstanding Equity Awards at Fiscal Year End” table below. +Perquisites/Personal Benefits +We do not provide significant perquisites or other personal benefits to our executive officers, including our NEOs, except for reimbursements for wellness, commuting and/or housing for certain NEOs, as well as certain related tax gross-ups as described above in the “2025 Summary Compensation Table.” +401(k) Plan +We maintain a retirement savings plan, or the 401(k) plan, that is intended to qualify for favorable tax treatment under Section 401(a) of the Code and contains a cash or deferred feature that is intended to meet the requirements of Section 401(k) of the Code. U.S. employees are generally eligible to participate in the 401(k) plan, subject to certain criteria. Participants may make pre-tax and certain after-tax (Roth) salary deferral contributions to the plan from their eligible earnings up to the statutorily prescribed annual limit under the Code. Participants who are 50 years of age or older may contribute additional amounts based on the statutory limits for catch-up contributions. Participants who are 60 to 63 years of age may also contribute additional amounts based on the statutory limits for super catch-up contributions. All deferrals made to the standard catch-up or the super catch-up may only be made on Roth contributions. Participant contributions are held in trust as required by law. We provide matching contributions equal to 50% of an employee’s contributions, subject to a maximum of six percent of eligible compensation. +142 +Outstanding Equity Awards at 2025 Fiscal Year-End Table +The following table lists all outstanding equity awards held by our NEOs as of December 31, 2025. Equity awards granted prior to our IPO in October 2022 were under our 2019 Stock Option and Grant Plan, as amended from time to time, or the 2019 Plan, and equity awards granted following our IPO were under our 2022 Plan. +Options +Name Grant +Date Vesting +Commencement +Date Number of Securities Underlying Unexercised Option (#) Exercisable Number of Securities Underlying Unexercised Option (#) Unexercisable Equity Incentive Plan Awards: +Number of Securities Underlying Unexercised Unearned Option (#) Option +Exercise +Price +($) Option +Expiration +Date +Allan Reine, M.D. 05/19/2025 (1) 05/19/2025 — 2,000,000 — 1.34 05/19/2035 +05/19/2025 (2) 05/19/2025 — — 500,000 1.34 05/19/2035 +02/27/2025 (3) 02/27/2025 57,291 217,709 — 2.42 02/27/2035 +01/17/2024 (1) 01/17/2024 287,500 312,500 — 4.04 +(8) +01/17/2034 +01/17/2024 (4) 01/17/2024 250,000 — — 4.04 +(8) +01/17/2034 +Keith Gottesdiener, M.D. 02/28/2025 (5) 02/28/2025 104,166 395,834 — 2.52 02/28/2035 +02/25/2024 (5) 02/25/2024 45,833 54,167 — 8.32 02/25/2034 +02/25/2024 (6) 02/25/2025 200,000 — 200,000 8.32 02/25/2034 +03/31/2023 (5) 03/31/2023 342,194 155,544 — 12.30 03/31/2033 +10/27/2021 (5) 10/27/2021 241,250 — — 3.67 10/27/2031 +Ann Lee, Ph.D. 02/27/2025 (3) 02/27/2025 57,291 217,709 — 2.42 02/27/2035 +02/21/2024 (3) 02/21/2024 82,956 98,039 — 4.04 +(8) +02/21/2034 +03/31/2023 (3) 03/31/2023 124,434 56,561 — 4.04 +(8) +03/31/2033 +10/27/2021 (4) 10/04/2021 482,501 — — 3.67 10/26/2031 +10/27/2021 +(4) +10/04/2021 241,248 — — 3.67 10/26/2031 +Jeremy Duffield, M.D., Ph.D., FRCP 02/27/2025 +(7) +02/27/2025 57,291 217,709 — 2.42 02/27/2035 +02/21/2024 +(7) +02/21/2024 82,956 98,039 — 8.49 02/21/2034 +03/31/2023 +(7) +03/31/2023 124,434 56,561 — 12.30 03/31/2033 +10/27/2021 +(7) +10/27/2021 16,083 — — 3.67 10/27/2031 +143 +(1) The shares underlying these options vest as follows: 25 percent vest on the 1-year anniversary of the vesting commencement date, and 1/48th of the shares vest on a monthly basis thereafter, in each case subject to the applicable NEO’s continuous service relationship with us through each applicable vesting date. The stock options are also subject to certain acceleration of vesting provisions as provided in the applicable NEO’s employment agreement. +(2) The underlying shares vest upon the achievement of pre-determined milestone(s), subject to the applicable NEO’s continuous service relationship with us through the applicable vesting date. As of December 31, 2025, the applicable milestone(s) have not been satisfied. +(3) The shares underlying these options vest in equal monthly installments over 48 months commencing on the vesting commencement date, subject to the applicable NEO’s continuous service relationship with us through each applicable vesting date. The stock options are also subject to certain acceleration of vesting provisions as provided in the applicable NEO’s employment agreement. +(4) The underlying shares are fully vested as of December 31, 2025. +(5) The shares underlying these options vest in equal monthly installments over 48 months commencing on the vesting commencement date. Under the terms of the Gottesdiener Separation Agreement, as defined and described in greater detail below, options granted to Dr. Gottesdiener while an employee will continue to vest for one additional year following the cessation of his employment, subject to Dr. Gottesdiener’s continued service relationship with us through each applicable vesting date. +(6) The underlying shares vest in four tranches (consisting of 100,000 shares each) upon the achievement of a pre-determined milestone for each tranche prior to one year additional vesting period provided for under the defined the Gottesdiener Separation Agreement, subject to Dr. Gottesdiener’s continued service relationship with us through each applicable vesting date. As of December 31, 2025, two of the four tranches have not vested. +(7) The shares underlying these options vest in equal monthly installments over 48 months commencing on the vesting commencement date and through March 31, 2026, the last date of Duffield Consulting Agreement, as defined and described in detail below, subject to Dr. Duffield’s continued service relationship with us through each applicable vesting date. +(8) All options issued under the 2019 Plan and 2022 Plan to Dr. Lee and Dr. Reine with an exercise price greater than $4.04 were repriced on August 1, 2025, as approved by our stockholders. Refer to Note 8, Stock-based Compensation, to our consolidated financial statements appearing elsewhere within this Annual Report on Form 10-K for greater detail. +Agreements with our NEOs +We have entered into a new employment agreement with Dr. Reine that was effective as of May 2025. Previously, we entered into an employment agreement with Dr. Reine that was effective as of January 2024. We entered into employment agreements with Dr. Gottesdiener, Dr. Duffield, and Dr. Lee that were effective in July 2022. We entered into a separation agreement with Dr. Gottesdiener and a consulting agreement with a limited liability company managed by Dr. Gottesdiener in May 2025. We entered into a separation agreement and consulting agreement with Dr. Duffield in July 2025. +Each of our NEOs are subject to standard confidentiality and nondisclosure, assignment of intellectual property work product and post-termination non-solicitation of employees, consultants and customers covenants and, in certain circumstances, non-competition covenants. +Allan Reine, M.D. +CEO Agreement +In connection with Dr. Reine’s appointment as our Chief Executive Officer, we entered into an Amended and Restated Employment Agreement, or the Reine CEO Employment Agreement, effective May 19, 2025. The Reine CEO Employment Agreement provides for at-will employment. The agreement also sets forth initial base salary, initial annual target bonus and eligibility to participate in our benefit plans generally. In addition, Dr. Reine is +144 +entitled to reimbursement for commuting expenses, which include all reasonable costs for his commute between his residence in New York, New York and our corporate headquarters in Cambridge, Massachusetts, as well as reimbursement for housing expenses in or near Cambridge, Massachusetts. +Pursuant to the Reine CEO Employment Agreement, in the event Dr. Reine is terminated by us without “Cause” or he resigns for “Good Reason” (as such terms are defined in the Reine CEO Employment Agreement), in each case subject to the delivery of and compliance with a fully effective separation agreement that shall include, without limitation, a general release of claims, reaffirmation of applicable restrictive covenants and, in our discretion, a one year non-competition agreement, Dr. Reine will be entitled to (i) an amount equal to the sum of (A) twelve (12) months of his then-current base salary plus (B) 1.0 times his target annual bonus for the then current year, in each case subject to reductions by any amount received by him pursuant to a restrictive covenant agreement, and (ii) subject to Dr. Reine’s co-payment of premium amounts at the applicable active employees’ rate and proper election to continue COBRA health coverage, payment of the portion of the premium equal to the amount we would have paid to provide health insurance had he remained employed by us until the earliest of (A) twelve (12) months following his termination, (B) his eligibility for group medical plan benefits under any other employer’s group medical plan or (C) the end of his COBRA health continuation period. These amounts shall be paid out in substantially equal installments in accordance with our payroll practice over a period of twelve (12) months. In addition, subject to the delivery of the fully effective separation agreement, the bonus amount (if any) that Dr. Reine would have been paid if he had remained employed through the payment date, if such termination occurs on or after January 1 but before the date bonuses are paid for the prior year to our other executives, will be paid to Dr. Reine on the date our other executives receive their bonuses. +In the event Dr. Reine is terminated by us without “Cause” or he resigns for “Good Reason”, in each case within three months prior and 12 months following a “Change in Control” (as such terms are defined in the Reine CEO Employment Agreement), subject to the delivery of and compliance with a fully effective separation agreement (as described above), Dr. Reine will be entitled to the following, in lieu of the benefits above: (i) a lump sum cash payment equal to the sum of (A) 18 months of his then-current base salary (or his base salary in effect immediately prior to the “Change in Control,” if higher) plus (B) 1.5 times his target annual bonus for the then current year (or target in effect immediately prior to the “Change in Control,” if higher), in each case subject to reductions by any amount received by him pursuant to a restrictive covenant agreement, (ii) subject to Dr. Reine’s co-payment of premium amounts at the applicable active employees’ rate and proper election to continue COBRA health coverage, payment of the portion of the premium equal to the amount we would have paid to provide health insurance had he remained employed by us until the earliest of (A) 18 months from the date of his separation, (B) his eligibility for group medical plan benefits under any other employer’s group medical plan or (C) the end of his COBRA health continuation period, and (iii) the bonus amount (if any) that Dr. Reine would have been paid if he had remained employed through the payment date, if such termination occurs on or after January 1 but before the date bonuses are paid for the prior year to our other executives. In addition, in the event Dr. Reine is terminated by us without Cause or he resigns for Good Reason, in each case within three months prior and 12 months following a “Change in Control,” all of the then-outstanding and unvested portion of his stock options and other stock-based awards that are subject solely to time-based vesting shall become fully vested and exercisable or non-forfeitable immediately as of the date of termination, with any such performance-based awards vesting at target. +The payments and benefits provided under the Reine CEO Employment Agreement in connection with a “Change in Control” may not be eligible for federal income tax deduction for us pursuant to Section 280G of the Code. These payments and benefits may also be subject to an excise tax under Section 4999 of the Code. If the payments or benefits payable to Dr. Reine in connection with a “Change in Control” would be subject to the excise tax imposed under Section 4999 of the Code, then those payments or benefits will be reduced if such reduction would result in a higher net after-tax benefit to him. +CFO Agreement +In January 2024, we entered into an employment agreement with Dr. Reine pursuant to which we employed Dr. Reine as our former Chief Financial Officer, or the Reine CFO Employment Agreement. The agreement set forth Dr. Reine’s initial base salary, initial annual target bonus and eligibility to participate in our benefit plans generally. In addition, Dr. Reine was entitled to reimbursement for commuting expenses, which include all reasonable costs for his commute between his residence in New York, New York and our corporate headquarters in Cambridge, +145 +Massachusetts, as well as reimbursement for housing expenses in or near Cambridge, Massachusetts, for up to $2,000 per month for 12 months from the commencement of his employment. +Keith M. Gottesdiener, M.D. +Employment Agreement +The employment agreement with Dr. Gottesdiener, or the Gottesdiener Employment Agreement, provided for at-will employment. The agreement also set forth initial base salary, initial annual target bonus and eligibility to participate in our benefit plans generally. In addition, pursuant to Amendment No. 1 to the Gottesdiener Employment Agreement, Dr. Gottesdiener was entitled to reimbursement for commuting expenses, which include all reasonable costs for his commute between his family’s residence in New York, New York and our corporate headquarters in Cambridge, Massachusetts. +Separation Agreement +In May 2025, we entered into a separation agreement with Dr. Gottesdiener, or the Gottesdiener Separation Agreement, pursuant to which Dr. Gottesdiener is entitled to receive certain severance benefits in accordance with the terms of the Gottesdiener Employment Agreement. +Pursuant to the Gottesdiener Separation Agreement, in exchange for, among other things, a release of claims, reaffirmation of applicable restrictive covenants, and a one-year non-competition agreement, Dr. Gottesdiener is entitled to (i) an amount equal to the sum of (A) 12 months of his then-current base salary plus (B) one times his target bonus (as defined in the Gottesdiener Employment Agreement) for 2025, to be paid out in substantially equal installments in accordance with our payroll practices over a period of 12 months, (ii) subject to his copayment of premium amounts at the applicable active employees’ rate and his proper election to receive COBRA health coverage, payment of the portion of the premium equal to the amount we would have paid to provide health insurance had he remained employed by us until the earliest of (A) 12 months following his termination, (B) his eligibility for group medical plan benefits under any other employer’s group medical plan or (C) the end of his COBRA health continuation period. +The Gottesdiener Separation Agreement also provides that, if Dr. Gottesdiener enters into the Gottesdiener Advisor Agreement, as defined and described below, with us, he will continue to vest in his outstanding unvested equity awards during the advisory period (for up to one-year following the date of separation of employment), subject to the terms of the Gottesdiener Advisor Agreement, the applicable equity award agreements, and the 2019 Plan and 2022 Plan. +Consulting Agreement +In May 2025, pursuant to the Gottesdiener Separation Agreement and Gottesdiener Employment Agreement, we entered into a consulting agreement with KMG Strategic Consulting, LLC, or the KMG Consulting Agreement, a limited liability company managed by Dr. Gottesdiener, to provide for Dr. Gottesdiener’s continued consulting services to us. +Pursuant to the KMG Consulting Agreement, Dr. Gottesdiener will provide advice and assistance in the area of his expertise. In exchange, we agreed to pay KMG an hourly rate of $1,000 and reimburse KMG for any pre-approved actual expenses incurred. The KMG Consulting Agreement has a term of one-year unless (i) earlier terminated by one of the parties or (ii) extended upon mutual written agreement of the parties. +Advisory Services Agreement +In May 2025, pursuant to the Gottesdiener Separation Agreement and Gottesdiener Employment Agreement, we entered into an advisory services agreement with Dr. Gottesdiener, or the Gottesdiener Advisor Agreement, to retain certain non-exclusive, limited consulting and advisory services of Dr. Gottesdiener for a period of up to one year from the date of his separation. +Pursuant to the Gottesdiener Advisor Agreement, Dr. Gottesdiener will provide advice and assistance in the area of his expertise. In exchange, (i) Dr. Gottesdiener will continue to vest in his outstanding, unvested equity awards +146 +during the term of the Gottesdiener Advisor Agreement; (ii) following the termination of the Gottesdiener Advisor Agreement, the post-termination exercise period for any vested stock options as of the last date of the term of the Gottesdiener Advisor Agreement will be extended to the earlier of (A) the 48 month anniversary of the last date of the term, or (B) the original expiration of such stock options, as applicable; and (iii) we agreed to reimburse Dr. Gottesdiener for any pre-approved actual expenses incurred. The Gottesdiener Advisor Agreement has a term of one-year unless earlier terminated in accordance with the terms described therein. +Ann L. Lee, Ph.D. +The employment agreement with Dr. Lee, or the Lee Employment Agreement, provides for at-will employment. The agreement also sets forth initial base salary, initial annual target bonus and eligibility to participate in our benefit plans generally. The agreement also sets forth initial base salary, initial annual target bonus and eligibility to participate in our benefit plans generally. +Pursuant to the Lee Employment Agreement, in the event Dr. Lee is terminated by us without “Cause” or she resigns for “Good Reason” (as such terms are defined in the Lee Employment Agreement), in each case subject to the delivery of and compliance with a fully effective separation agreement that shall include, without limitation, a release of claims, reaffirmation of applicable restrictive covenants and, in our discretion, a one year non-competition agreement, Dr. Lee will be entitled to (i) an amount equal to the sum of (A) nine months of her then-current base salary plus (B) 0.75 times her target annual bonus for the then current year, in each case subject to reductions by any amount received by her pursuant to a restrictive covenant agreement, and (ii) subject to Dr. Lee’s co-payment of premium amounts at the applicable active employees’ rate and proper election to continue COBRA health coverage, payment of the portion of the premium equal to the amount we would have paid to provide health insurance had she remained employed by us until the earliest of (A) nine months following her termination, (B) her eligibility for group medical plan benefits under any other employer’s group medical plan or (C) the end of her COBRA health continuation period. These amounts shall be paid out in substantially equal installments in accordance with our payroll practice over a period of nine months. In addition, subject to the delivery of the fully effective separation agreement, the bonus amount (if any) that Dr. Lee would have been paid if she had remained employed through the payment date, if such termination occurs on or after January 1 but before the date bonuses are paid for the prior year to our other executives, will be paid to Dr. Lee on the date our other executives receive their bonuses. +In the event Dr. Lee is terminated by us without “Cause” or she resigns for “Good Reason”, in each case within 12 months following a ”Change in Control” (as defined in the Lee Employment Agreement), subject to the delivery of and compliance with a fully effective separation agreement (as described above), Dr. Lee will be entitled to the following, in lieu of the benefits above: (i) a lump sum cash payment equal to the sum of (A) 12 months of her then-current base salary (or her base salary in effect immediately prior to the “Change in Control,” if higher) plus (B) 1.0 times her target annual bonus for the then current year (or target in effect immediately prior to the “Change in Control,” if higher), in each case subject to reductions by any amount received by her pursuant to a restrictive covenant agreement, (ii) subject to Dr. Lee’s co-payment of premium amounts at the applicable active employees’ rate and proper election to continue COBRA health coverage, payment of the portion of the premium equal to the amount we would have paid to provide health insurance had she remained employed by us until the earliest of (A) 12 months from the date of her separation, (B) her eligibility for group medical plan benefits under any other employer’s group medical plan or (C) the end of her COBRA health continuation period, and (iii) the bonus amount (if any) that Dr. Lee would have been paid if she had remained employed through the payment date, if such termination occurs on or after January 1 but before the date bonuses are paid for the prior year to our other executives. In addition, in the event Dr. Lee is terminated by us without Cause or she resigns for Good Reason, in each case within 12 months following a “Change in Control” (as defined in the Lee Employment Agreement), all of the then-outstanding and unvested portion of her stock options and other stock-based awards that (i) are subject solely to time-based vesting or (ii) were granted to Dr. Lee prior to the effective date of the Lee Employment Agreement and are subject to performance-based vesting shall become fully vested and exercisable or non-forfeitable immediately as of the date of termination, with any such performance-based awards vesting at target. +The payments and benefits provided under the Lee Employment Agreement in connection with a “Change in Control” may not be eligible for federal income tax deduction for us pursuant to Section 280G of the Code. These payments and benefits may also be subject to an excise tax under Section 4999 of the Code. If the payments or benefits payable to Dr. Lee in connection with a “Change in Control” would be subject to the excise tax imposed +147 +under Section 4999 of the Code, then those payments or benefits will be reduced if such reduction would result in a higher net after-tax benefit to her. +Jeremy Duffield, M.D. Ph.D., FRCP +Employment Agreement +The employment agreement with Dr. Duffield, or the Duffield Employment Agreement, provided for at-will employment. The agreement also set forth his initial base salary, initial annual target bonus and eligibility to participate in our benefit plans generally. +Separation Agreement +In July 2025, Dr. Duffield entered into a Separation Agreement with us, or the Duffield Separation Agreement, pursuant to which Dr. Duffield is entitled to receive certain severance benefits in accordance with the terms of the Duffield Employment Agreement. +Pursuant to the Duffield Separation Agreement, in exchange for, among other things, a release of claims, reaffirmation of applicable restrictive covenants, and a one-year noncompetition agreement, Dr. Duffield is entitled to (i) an amount equal to the sum of (A) nine months of his then-current base salary plus (B) 0.75 his target bonus (as defined in the Duffield Employment Agreement) for 2025, to be paid out in substantially equal installments in accordance with our payroll practices over a period of nine months, (ii) subject to his copayment of premium amounts at the applicable active employees’ rate and his proper election to receive COBRA health coverage, payment of the portion of the premium equal to the amount we would have paid to provide health insurance had he remained employed by us until the earliest of (A) 12 months following his termination, (B) his eligibility for group medical plan benefits under any other employer’s group medical plan or (C) the end of his COBRA health continuation period. +The Duffield Separation Agreement also provides that his service relationship for the purposes of vesting in any of the Company’s outstanding unvested stock options ends on the later of (i) the date his employment terminated, or (ii) the termination of a consulting agreement entered into between Dr. Duffield and us in July 2025, or the Duffield Consulting Agreement. The Duffield Separation Agreement further provides that upon the termination of the Duffield Consulting Agreement, any and all stock options held by him that are outstanding and vested shall be exercisable until the date that is four months following the termination of the Duffield Consulting Agreement. In July 2025, our compensation committee approved an extension of the post-termination exercise period for such options until 12 months following the termination of the Duffield Consulting Agreement. +Consulting Agreement +In July 2025, Dr. Duffield entered into the Duffield Consulting Agreement with us, pursuant to which Dr. Duffield will provide advice and assistance in the area of his expertise. In exchange, we agree to pay Dr. Duffield an hourly rate of $600 and reimburse him for any pre-approved actual expenses incurred. The Duffield Consulting Agreement will continue until March 31, 2026, unless (i) earlier terminated by one of the parties or (ii) extended upon mutual written agreement of the parties. +148 +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. +Equity Compensation Plan Information +The following table provides information as of December 31, 2025 with respect to the shares of our common stock that may be issued under our existing equity compensation plans: +Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column) +Equity compensation plans approved by security holders +Stock options (1) (2) 17,966,867 $ 3.76 7,891,263 +2022 Employee Stock Purchase Plan (3) (4) — — 1,522,025 +Equity compensation plans not approved by security holders — — — +Total 17,966,867 $ 3.76 9,413,288 +(1) Number of shares to be issued pursuant to outstanding options includes 15,637,303 time-based stock options with a weighted-average exercise price of $3.76 outstanding under our 2019 Plan and our 2022 Plan, 2,029,564 performance-based stock options with a weighted-average exercise price of $4.10 under our 2019 Plan and our 2022 Plan, and 300,000 market-based stock options with a weighted-average exercise price of $1.34 under our 2022 Plan. +(2) Shares of our common stock available for future issuance as of December 31, 2025 pursuant to the 2022 Plan excludes the 9,025,700 shares that were added to the plan as a result of the automatic annual increase on January 1, 2026. The 2022 Plan provides that the number of shares reserved and available for issuance under the 2022 Plan will automatically increase on January 1, 2023 and each January 1 thereafter, by five percent of the outstanding number of shares of common stock on the immediately preceding December 31 or such lesser number of shares as determined by the compensation committee. The Company no longer makes grants under the 2019 Plan. The shares of common stock underlying any awards under the 2022 Plan and the 2019 Plan that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of stock, expire or are otherwise terminated (other than by exercise) will be added back to the shares of common stock available for issuance under the 2022 Plan. +(3) Number of securities to be issued upon exercise of outstanding options, warrants and rights excludes purchase rights accruing under the 2022 Employee Stock Purchase Plan, as amended from time to time, or the 2022 ESPP, because the purchase rights (and, therefore, the number of shares to be purchased) will not be determined until the end of the offering period, which will occur after December 31, 2025. +(4) Shares of our common stock available for future issuance as of December 31, 2025 pursuant to the 2022 ESPP includes shares that are expected to be issued at the close of the ESPP offering period that was ongoing at December 31, 2025, as the exact number of shares to be issued will not be known until the end of the offering period, which will occur after December 31, 2025. The 2022 ESPP provides that the number of shares common stock that may be issued under the 2022 ESPP plan shall cumulatively increase beginning on January 1, 2023 and each January 1 thereafter through January 1, 2032, by the least of (i) 971,350 shares of common stock, (ii) one percent of the outstanding number of shares of common stock on the immediately preceding December 31 or (iii) such number of shares of common stock as determined by the administrator of the 2022 ESPP. The Company did not add shares to the 2022 ESPP on January 1, 2026. +149 +Security Ownership of Certain Beneficial Owners and Management +The following table sets forth information, as of February 12, 2026, unless otherwise indicated, regarding the beneficial ownership of our common stock for (i) stockholders who beneficially owned more than 5% of our common stock, (ii) each of our directors and NEOs, and (iii) all of our directors and executive officers as a group. +The number of shares beneficially owned by each stockholder is determined under rules issued by the SEC. Under these rules, a person is deemed to be a “beneficial” owner of a security if that person has or shares voting power or investment power, which includes the power to dispose of or to direct the disposition of such security. Except as indicated in the footnotes below, we believe, based on the information furnished to us, that the individuals and entities named in the table below have sole voting and investment power with respect to all shares of common stock beneficially owned by them, subject to any applicable community property laws. +In computing the number of shares beneficially owned by an individual or entity, shares of common stock subject to options, warrants, restricted stock units or other rights held by such person that are currently exercisable or have vested or that will become exercisable or will have vested within 60 days of February 12, 2026 are considered outstanding, although these shares are not considered outstanding for purposes of computing the percentage ownership of any other person. On February 12, 2026, there were 180,551,436 shares of our common stock outstanding. Unless noted otherwise, the address of all listed stockholders is c/o Prime Medicine, Inc., 60 First Street, Cambridge, MA 02141. +Shares of Common Stock +Beneficially Owned Percentage of Shares +Beneficially Owned +5% or Greater Stockholders +David Liu (1) 20,334,460 11.26 % +Entities affiliated with ARCH Venture Partners (2) 18,486,894 10.24 % +Entities affiliated with GV (3) 16,562,498 9.17 % +Bristol-Myers Squibb Company (4) 11,006,163 6.10 % +Directors and Named Executive Officers +Allan Reine (5) 774,479 * +Keith Gottesdiener (6) 5,363,130 2.97 % +Ann Lee (7) 1,128,242 * +Jeremy Duffield (8) 1,285,577 * +Thomas Cahill (9) 84,062 * +Wendy Chung (9) 106,578 * +Kaye Foster (9) 106,578 * +Michael Kelly (9) 106,578 * +Jeffrey Marrazzo (9) 564,666 * +Robert Nelsen (2) (10) 18,587,036 10.29 % +David Schenkein (9) 84,062 * +All executive officers and directors as a group (11 persons) +28,190,988 15.61 % +* Less than one percent. +(1) Consists of: (a) 20,240,945 shares of common stock, and (b) 93,515 shares of common stock underlying options exercisable within 60 days of February 12, 2026. +(2) Information herein is based on Schedule 13D/A filed with the SEC on August 11, 2025 by (1) ARCH Venture Fund X, L.P., or AVF X, (2) ARCH Venture Partners X, L.P., or AVP X LP, which is the sole general partner of AVF X, (3) ARCH Venture Partners X, LLC, or AVP X LLC, which is the sole general partner of AVP X LP and AVP X Overage LP (defined below), (4) ARCH Venture Fund X Overage, L.P., or AVF X Overage, (5) ARCH Venture Partners X Overage, L.P., or AVP X Overage LP, which is the sole general partner of AVF X +150 +Overage, (6) ARCH Venture Fund XII, L.P., or AVF XII, (7) ARCH Venture Partners XII, L.P., or AVP XII LP, which is the sole general partner of AVF XII, (8) ARCH Venture Partners XII, LLC, or AVP XII LLC, which is the sole general partner of AVP XII LP, (9) Keith Crandell, or Crandell, (10) Robert Nelsen, or Nelsen, a member of our board of directors, (11) Kristina Burow, or Burow, and (12) Steven Gillis, or Gillis”, and together with Nelsen, Crandell and Burow, referred to individually as “Committee Member or collectively as either the “AVP X Investment Committee Members” or the “AVP XII Investment Committee Members. Each of the individuals and entities above shall be referred to herein as an “ARCH Reporting Person” and collectively as the “ARCH Reporting Persons.” AVP X LP and AVP X Overage LP may be deemed to beneficially own the shares held by AVF X and AVF X Overage, respectively; AVP X LLC may be deemed to beneficially own the shares held by AVF X; AVP XII LP may be deemed to beneficially own the shares held by AVF XII; AVP XII LLC may be deemed to beneficially own the shares held by AVF XII; and each of the Committee Members may be deemed to share the power to direct the disposition and vote of the shares held by AVF X, AVF X Overage and AVF XII. The ARCH Reporting Persons each disclaims beneficial ownership except to any pecuniary interest therein. +Consists of: (a) 6,128,297 shares of common stock held by AVF X, (b) 6,128,297 shares of common stock held by AVF X Overage, and (c) 6,230,300 shares of common stock held by AVF XII. +The address of all entities and individuals referenced in this footnote is 8755 W. Higgins Road, Suite 1025, Chicago, IL 60631. +(3) Information herein is based on Schedule 13G/A filed with the SEC on November 12, 2025 by GV 2019, L.P., GV 2019 GP, L.P., GV 2019 GP, L.L.C., GV 2021, L.P., GV 2021 GP, L.P., GV 2021 GP, L.L.C., GV 2023, L.P., GV 2023 GP, L.P., GV 2023 GP, L.L.C., Alphabet Holdings LLC, XXVI Holdings Inc. and Alphabet Inc. Consists of: (a) 10,100,058 shares of common stock held by GV 2019, L.P., or GV 2019, (b) 3,262,440 shares of common stock held by GV 2021, L.P., or GV 2021, and (c) 3,200,000 shares of common stock held by GV 2023, L.P., or GV 2023. +The general partner of the GV 2019, L.P., or the 2019 Partnership, is GV 2019 GP, L.P., or 2019 GP. The general partner of 2019 GP is GV 2019 GP, L.L.C., or 2019 LLC. The sole member of 2019 LLC is Alphabet Holdings LLC, or Alphabet Holdings. The sole member of Alphabet Holdings is XXVI Holdings Inc., or XXVI. The controlling stockholder of XXVI is Alphabet Inc. (Alphabet Inc., together with 2019 GP, 2019 LLC, Alphabet Holdings, and XXVI may be collectively referred to as the 2019 Partnership Affiliates. Each of the 2019 Partnership Affiliates may be deemed to indirectly beneficially own (as that term is defined in Rule 13d-3 of the Exchange Act) the securities directly beneficially owned by the 2019 Partnership. +The general partner of the GV 2021, L.P., or the 2021 Partnership is GV 2021 GP, L.P., or 2021 GP. The general partner of 2021 GP is GV 2021 GP, L.L.C., or 2021 LLC. The sole member of 2021 LLC is Alphabet Holdings. The sole member of Alphabet Holdings is XXVI. The controlling stockholder of XXVI is Alphabet Inc. (Alphabet Inc., together with 2021 GP, 2021 LLC, Alphabet Holdings, and XXVI may be referred to as the 2021 Partnership Affiliates). Each of the 2021 Partnership Affiliates may be deemed to indirectly beneficially own (as that term is defined in Rule 13d-3 of the Exchange Act) the securities directly beneficially owned by the 2021 Partnership. +The general partner of the GV 2023, L.P., or the 2023 Partnership is GV 2023 GP, L.P., or 2023 GP. The general partner of 2023 GP is GV 2023 GP, L.L.C., or 2023 LLC. The sole member of 2023 LLC is Alphabet Holdings. The sole member of Alphabet Holdings is XXVI. The controlling stockholder of XXVI is Alphabet Inc. (Alphabet Inc., together with 2023 GP, 2023 LLC, Alphabet Holdings, and XXVI may be referred to as the 2023 Partnership Affiliates. Each of the 2023 Partnership Affiliates may be deemed to indirectly beneficially own (as that term is defined in Rule 13d-3 of the Exchange Act) the securities directly beneficially owned by the 2023 Partnership. +The principal business address for all entities referenced in this footnote is 1600 Amphitheatre Parkway, Mountain View, CA 94043. +(4) Information herein is based on Schedule 13G filed with the SEC on October 4, 2024 by BMS. The address of BMS is Route 206 & Province Line Road, Princeton, NJ 08543. +151 +(5) Consists of: (a) 125,000 shares of common stock held by Dr. Reine, and (b) 649,479 shares of common stock underlying options exercisable within 60 days of February 12, 2026. +(6) Information herein is based solely on Form 4 filed with the SEC on October 10, 2024 by the Company on behalf of Dr. Gottesdiener and on the Company’s records. Dr. Gottesdiener shareholdings consists of: (a) 2,310,837 shares of common stock held by Dr. Gottesdiener, (b) 50,241 shares of common stock held by Dr. Gottesdiener’s spouse, (c) 682,259 shares of common stock held by the Coolidge GST Trust-2022, or the Coolidge Trust Shares, and (d) 1,317,741 shares of common stock held by the Gottesdiener Family GST Trust, or the Gottesdiener Family Trust Shares. Dr. Gottesdiener disclaims beneficial ownership of the Coolidge Trust Shares and the Gottesdiener Family Trust Shares. In addition, this is also inclusive of 1,002,052 shares of common stock underlying options exercisable within 60 days of February 12, 2026. +(7) Consists of: (a) 100,000 shares of common stock held by Dr. Lee, and (b) 1,028,242 shares of common stock underlying options exercisable within 60 days of February 12, 2026. +(8) Information herein is based solely on Form 4 filed with the SEC on October 19, 2022 by the Company on behalf of Dr. Duffield and on the Company’s records. Dr. Duffield directly holds 965,001 shares of common stock. In addition, this is also inclusive of 320,576 shares of common stock underlying options exercisable within 60 days of February 12, 2026. +(9) Consists entirely of shares of common stock underlying options exercisable within 60 days of February 12, 2026. +(10) Consists of: (a) 84,062 shares of common stock underlying options exercisable within 60 days of February 12, 2026 and (b) 16,080 shares of common stock held by a trust for the benefit of Mr. Nelsen’s family members. +152 +Item 13. Certain Relationships and Related Transactions, and Director Independence +Other than the compensation arrangements for our NEOs and our directors described in Item 11, Executive Compensation , of this Annual Report on Form 10-K, set forth below is a description of transactions or series of transactions since January 1, 2024, to which we were or will be a party, and in which: +• the amount involved in the transaction exceeds, or will exceed, $120,000 (or, if less, 1% of the average of our total asset amounts at December 31, 2024 and 2025); and +• in which any of our executive officers, directors or holder of five percent or more of any class of our capital stock, including their immediate family members or affiliated entities, had or will have a direct or indirect material interest. +Participation in our Follow-on Public Offerings +Our 5% stockholders, their affiliates, and certain affiliated entities affiliated with our directors purchased an aggregate of (i) 7,200,000 shares of our common stock in our follow-on public offering in February 2024 at the public offering price, and (ii) an aggregate of 4,545,455 shares of our common stock in our follow-on public offering in August 2025 at the public offering price. The following table sets forth the number of shares of our common stock purchased by our 5% stockholders, their affiliates, and certain affiliated entities affiliated with our directors and the aggregate purchase price paid for such shares. +Stockholder(1) +Shares of common stock Total purchase price +February 2024 follow-on public offering +GV 2023, L.P. (2) +3,200,000 $ 20,000,000 +Entities affiliated with ARCH Venture Partners (3) +3,200,000 $ 20,000,000 +Newpath Partners, L.P. (4) +800,000 $ 5,000,000 +August 2025 follow-on public offering +Entities affiliated with ARCH Venture Partners (3) +3,030,303 $ 9,999,990 +GV 2021, L.P. (2) +1,515,152 $ 5,000,002 +(1) Additional details regarding certain of these investors and their equity holdings are provided in Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters , of this Annual Report on Form 10-K. +(2) David Schenkein serves as a member of our board of directors and is an affiliate of GV, of which GV 2021, L.P. and GV 2023, L.P. are affiliated funds. Entities affiliated with GV collectively hold more than five percent of our voting securities. +(3) Robert Nelsen serves as a member of our board of directors and is an affiliate of ARCH Venture Partners, of which ARCH Venture Fund X Overage, L.P., ARCH Venture Fund X, L.P., and ARCH Venture Fund XII, L.P. are affiliated funds. Entities affiliated with ARCH Venture Partners collectively hold more than five percent of our voting securities. +(4) Thomas Cahill serves as a member of our board of directors and is an affiliate of Newpath Partners, of which Newpath Partners, L.P. is an affiliated fund. +Agreements with BMS +Research Collaboration and License Agreement +In September 2024, we entered into the BMS Collaboration Agreement with Juno. BMS became a beneficial owner of more than 5% of our voting securities as a result of this transaction. Pursuant to the BMS Collaboration Agreement, we granted to BMS an exclusive worldwide license to certain Prime Editing technology for developing, manufacturing and commercializing ex vivo T-cell therapeutic products directed to select targets. Under the BMS Collaboration Agreement, we received a $55.0 million upfront payment and received a $55.0 million equity +153 +investment from BMS (as described below). We are also eligible to receive more than $3.5 billion in milestones, including up to $185.0 million in preclinical milestones, up to $1.2 billion in development milestones, and up to $2.1 billion in commercialization milestones, along with royalties on net sales. +Unless earlier terminated, the term of the BMS Collaboration Agreement continues until expiration of the last royalty term for the applicable product in the applicable country. The BMS Collaboration Agreement is subject to customary termination provisions, including termination by a party for the other party’s uncured, material breach. +Stock Purchase Agreement +In September 2024, we entered into a stock purchase agreement with BMS, or the BMS Purchase Agreement, pursuant to which we agreed to issue and sell, and BMS agreed to purchase, 11,006,163 shares of our common stock, or the BMS Shares, for an aggregate purchase price of $55.0 million pursuant to the terms and conditions thereof. Pursuant to the terms of the BMS Purchase Agreement, BMS has agreed not to, directly or indirectly, sell or transfer any of the BMS Shares until September 30, 2027 subject to specified conditions and exceptions. In addition, we agreed, among other things, to file with the SEC a registration statement covering the resale of the BMS Shares and to use commercially reasonable efforts to cause such registration statement to become effective on or prior to ninety (90) calendar days after closing. We filed the registration statement on Form S-3 covering the resale of the BMS Shares with the SEC on December 13, 2024, which became effective on December 20, 2024. +We have also agreed to customary indemnification obligations under the BMS Purchase Agreement. +Advisory Services Agreement with Jeffrey Marrazzo +Pursuant to an advisory services agreement with Jeffrey Marrazzo, a member of our board of directors, or the Marrazzo Agreement, dated February 29, 2024, Mr. Marrazzo agreed to provide certain professional services to the Company separate from and in addition to his service as a member of our board of directors, and we agreed to pay Mr. Marrazzo an annual fee of $50,000 per year in addition to the grant of an option to purchase 250,000 shares of the Company’s common stock. +The Marrazzo Agreement expired in February 2025. From January 1, 2024 through the termination date, we paid Mr. Marrazzo $50,000 and granted Mr. Marrazzo 250,000 stock options under the Marrazzo Agreement. +Executive Chair Agreement with Jeffrey Marrazzo +Pursuant to an executive chair agreement with Jeffrey Marrazzo, a member of our board of directors, or the Executive Chair Agreement, dated May 19, 2025, Mr. Marrazzo agreed to provide services as the executive chair of our board of directors, and we agreed to pay Mr. Marrazzo an annual fee of $100,000 per year in addition to the grant of options to purchase a total of 1,000,000 shares of the Company’s common stock consisting of (i) a time-based option to purchase 500,000 shares, (ii) a performance-based option to purchase 200,000 shares, and (iii) a stock price-based option to purchase 300,000 shares. +The Executive Chair Agreement will continue indefinitely until terminated in accordance with its terms. If the Executive Chair Agreement is terminated between six-months and one-year of its effective date, a minimum of 250,000 shares subject to the time-based option will vest. +In the event of a Sale Event (as defined in the 2022 Plan), all of the then-outstanding and unvested portions of the time-based option, 50% of the then-outstanding and unvested portions of the performance-based option, and any of the then-outstanding and unvested portions of the stock price-based option for which the applicable stock-price milestone has been satisfied in connection with the Sale Event, will become vested and exercisable. +Settlement Agreement with Myeloid +In December 2021, we entered into a research collaboration and exclusive option agreement, or the Myeloid Collaboration Agreement, with Myeloid, during which time we and Myeloid had one common board member, Dr. Cahill, who is also an affiliate of Newpath Partners, L.P. and holds more than 30% of Myeloid’s voting securities. In 2023, we terminated the Myeloid Collaboration Agreement. +In January 2024, we entered into a settlement agreement, or the Settlement Agreement, with Myeloid resolving two arbitration proceedings. Under the terms of the Settlement Agreement, the parties agreed to resolve and settle all +154 +disputes between the parties and release all claims between them relating to the Myeloid Collaboration Agreement and the arbitrations in exchange for our payment to Myeloid of $13.5 million, certain mutual covenants, and other consideration. Accordingly, for the year ended December 31, 2023, we recorded a charge of $13.5 million, and paid the $13.5 million during the year ended December 31, 2024. +Indemnification Agreements +We have entered into agreements to indemnify our directors and executive officers. These agreements, among other things, require us to indemnify these individuals for certain expenses (including attorneys’ fees), judgments, fines and settlement amounts reasonably incurred by such person in any action or proceeding, including any action by or in our right, on account of any services undertaken by such person on behalf of our company or that person’s status as a member of our board of directors or our executive officer to the maximum extent allowed under Delaware law. +Policies for Approval of Related Party Transactions +Our board of directors reviews and approves transactions with directors, officers and holders of 5 percent or more of our voting securities and their affiliates, each a related party. The material facts as to the related party’s relationship or interest in the transaction were disclosed to our board of directors prior to their consideration of such transaction, and the transaction was not considered approved by our board of directors unless a majority of the directors who are not interested in the transaction approved the transaction. Further, when stockholders were entitled to vote on a transaction with a related party, the material facts of the related party’s relationship or interest in the transaction were disclosed to the stockholders, who were obligated to approve the transaction in good faith. +We adopted a written related party transactions policy that provides that such transactions must be approved by our audit committee. Pursuant to this policy, the audit committee has the primary responsibility for reviewing and approving or disapproving “related party transactions,” which are transactions between us and related persons in which the aggregate amount involved exceeds or may be expected to exceed $120,000 and in which a related person has or will have a direct or indirect material interest. In reviewing any such proposal, our audit committee or other committee of independent directors are to consider the relevant facts of the transaction, including the risks, costs and benefits to us and whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances. For purposes of this policy, a related person is defined as a director, executive officer, nominee for director, or greater than 5 percent beneficial owner of our common stock, in each case since the beginning of the most recently completed year, and their immediate family members. +Director Independence +Our common stock is listed on the Nasdaq Global Market. Under the Nasdaq listing rules, independent directors must comprise a majority of a listed company’s board of directors within twelve months from the date of listing. In addition, the Nasdaq listing rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and corporate governance committees be independent within twelve months from the date of listing. Audit committee members must also satisfy additional independence criteria, including those set forth in Rule 10A-3 under the Exchange Act and compensation committee members must also satisfy the independence criteria set forth in Rule 10C-1 under the Exchange Act. Under Nasdaq listing rules, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In order to be considered independent for purposes of Rule 10A-3 under the Exchange Act, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors or any other board committee: (i) accept, directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries, other than compensation for board service; or (ii) be an affiliated person of the listed company or any of its subsidiaries. In order to be considered independent for purposes of Rule 10C-1, the board of directors must consider, for each member of a compensation committee of a listed company, all factors specifically relevant to determining whether a director has a relationship to such company which is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to: the source of compensation of the director, including any consulting advisory or other compensatory fee paid by such +155 +company to the director, and whether the director is affiliated with the company or any of its subsidiaries or affiliates. +In February of 2026, our board of directors undertook a review of the composition of our board of directors and its committees and the independence of each director. Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family relationships, our board of directors has determined that all members of our board of directors, except Allan Reine and Jeffrey Marrazzo, are independent directors, including for purposes of Nasdaq and the SEC rules. In making that determination, our board of directors considered the relationships that each director has with us and all other facts and circumstances the board of directors deemed relevant in determining independence, including the potential deemed beneficial ownership of our capital stock by each director, including non-employee directors that are affiliated with certain of our major stockholders. We believe that the composition and functioning of our board of directors and each of our committees complies with all applicable requirements of Nasdaq and the rules and regulations of the SEC. There are no family relationships between or among any of our executive officers and directors. The principal occupation and employment during the past five years of each of our directors was carried on, in each case except as specifically identified, with a corporation or organization that is not a parent, subsidiary or other affiliate of us. There is no arrangement or understanding between any of our directors and any other person or persons pursuant to which he or she is to be selected as a director. +There are no material legal proceedings to which any of our directors, executive officers, or affiliates is a party adverse to us or our subsidiary or in which any such person has a material interest adverse to us or our subsidiary. +156 +Item 14. Principal Accountant Fees and Services +PricewaterhouseCoopers LLP, or PwC, served as independent registered public accounting firm for our Company with respect to the audit of the Company’s consolidated financial statements for the fiscal year ended December 31, 2025 The aggregate fees billed by categories of services are as follows for each of the years ended December 31: +Fee Category 2025 2024 +Audit Fees (1) $ 970,000 $ 1,092,000 +Audit-Related Fees — — +Tax Fees — — +All Other Fees (2) 2,125 2,125 +Total Fees $ 972,125 $ 1,094,125 +(1) “Audit Fees” consist of fees billed for professional services performed by PwC for the audit of our annual consolidated financial statements, the review of interim consolidated financial statements, review of the registration statement on Form S-3 and Form S-8, comfort letters issued for financing, and related services that are normally provided in connection with statutory and regulatory filings or engagements. +(2) All other fees consist of database subscription fees. +Pre-Approval by Audit Committee of Principal Accountant Services +Our audit committee (or a subcommittee delegated to it by the audit committee) approves in advance all services proposed to be performed for our Company or its subsidiaries by any independent registered public accounting firm that performs (or proposes to perform) audit, review or attest services for our Company or its subsidiaries. +157 +PART IV +Item 15. Exhibits and Financial Statement Schedules +(1) Financial Statements +For a list of the financial statements included herein, see Index to the Consolidated Financial Statements on page F-1 of this Annual Report on Form 10-K, incorporated into this Item by reference. +(2) Financial Statement Schedules +Schedules have been omitted since they are either not required or not applicable or the information is otherwise included herein. +(3) Exhibits +Exhibit number +Description of exhibit +3.1 +Third Amended and Restated Certificate of Incorporation of Prime Medicine, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on October 24, 2022) +3.2 +Certificate of Amendment to Third Amended and Restated Certificate of Incorporation of Prime Medicine, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on June 12, 2024). +3.3 +Second Amended and Restated Bylaws of Prime Medicine, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on May 21, 2024). +4.1 +Amended and Restated Investors’ Rights Agreement among the Registrant and certain of its stockholders, dated April 20, 2021 (incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +4.2 +Form of Common Stock Certificate (incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +4.3 +Description of Securities (incorporated by reference to Exhibit 4.3 of the Registrant’s Annual Report on Form 10-K, filed with the SEC on March 9, 2023) +10.1# +2019 Stock Option and Grant Plan, as amended, and forms of award agreements thereunder (incorporated by reference to Exhibit 10.1 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +10.2# +2022 Stock Option and Incentive Plan and forms of award agreements thereunder (incorporated by reference to Exhibit 10.2 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +10.3# +2022 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.3 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +10.4# +Form of Executive Employment Agreement (incorporated by reference to Exhibit 10.23 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +10.5# +Senior Executive Cash Incentive Bonus Plan (incorporated by reference to Exhibit 10.4 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +10.6# +Second Amended and Restated Non-Employee Director Compensation Policy (incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q, filed with the SEC on August 7 , 202 5 ) +10.7# +Form of Officer Indemnification Agreement (incorporated by reference to Exhibit 10.6 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +10.8# +Form of Director Indemnification Agreement (incorporated by reference to Exhibit 10.7 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +158 +Exhibit number +Description of exhibit +10.9# +Amended and Restated Employment Agreement, dated July 7, 2022, between the Registrant and Keith Gottesdiener (incorporated by reference to Exhibit 10.8 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +10.10# +Amended and Restated Employment Agreement, dated July 7, 2022, between the Registrant and Carman Alenson (incorporated by reference to Exhibit 10.11 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579), filed with the SEC on October 17, 2022) +10.11# +Amended and Restated Employment Agreement, dated July 11, 2022, between the Registrant and Ann Lee (incorporated by reference to Exhibit 10.10 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +10.12# +Amended and Restated Employment Agreement, dated July 20, 2022, between the Registrant and Jeremy Duffield (incorporated by reference to Exhibit 10.9 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +10.13# +Amendment No. 1 to Amended and Restated Employment Agreement, dated July 6, 2023, between Registrant and Keith Gottesdiener (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 3, 2023). +10.14# +Employment Agreement, effective as of January 17, 2024, between the Registrant and Allan Reine (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on January 5, 2024) +10.15# +Separation Agreement, dated May 18, 2025, between the Registrant and Keith Gottesdiener (incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 7, 2025) +10.16# +Consulting Agreement, dated May 18, 2025, between the Registrant and KMG Strategic Consulting LLC (incorporated by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 7, 2025) +10.17# +Amended and Restated Employment Agreement, effective May 19, 2025, between the Registrant and Allan Reine (incorporated by reference to Exhibit 10.4 of the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 7, 2025) +10.18# +Consulting Agreement, dated July 15, 2025, between the Registrant and Jeremy Duffield (incorporated by reference to Exhibit 10.6 of the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 7, 2025) +10.19# +Separation Agreement, dated July 17, 2025, between the Registrant and Jeremy Duffield (incorporated by reference to Exhibit 10.5 of the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 7, 2025) +10.20† +Collaboration and License Agreement, dated September 26, 2019, between Beam Therapeutics Inc. and the Registrant (incorporated by reference to Exhibit 10.13 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +10.21† +License Agreement, dated September 26, 2019, between The Broad Institute, Inc. and the Registrant, as amended (incorporated by reference to Exhibit 10.14 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +10.22† +Amendment No. 1 to License Agreement, dated May 5, 2020, between The Broad Institute, Inc. and the Registrant (incorporated by reference to Exhibit 10.15 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +10.23† +Amendment No. 2 to License Agreement, dated February 18, 2021, between The Broad Institute, Inc. and the Registrant (incorporated by reference to Exhibit 10.16 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +10.24† +Amendment No. 3 to License Agreement, dated December 22, 2022, between The Broad Institute, Inc. and the Registrant (incorporated by reference to Exhibit 10.17 of the Registrant’s Annual Report on Form 10-K, filed with the SEC on March 9, 2023) +10.25† +Side Letter No. 1 to License Agreement, dated September 27, 2024, between The Broad Institute, Inc. and the Registrant (incorporated by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 12, 2024) +10.26† +License Agreement, dated December 22, 2022, between The Broad Institute, Inc. and the Registrant (incorporated by reference to Exhibit 10.18 of the Registrant’s Annual Report on Form 10-K, filed with the SEC on March 9, 2023) +159 +Exhibit number +Description of exhibit +10.27† +Pledge from Prime Medicine, amended and restated August 2022, between The Broad Institute, Inc. and the Registrant (incorporated by reference to Exhibit 10.17 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-267579) filed with the SEC on October 17, 2022) +10.28† +Amendment No. 4 to License Agreement, dated September 11, 2025, between The Broad Institute, Inc. and the Registrant (incorporated by reference to Exhibit 10. 1 of the Registrant’s Quarterly Reporting on Form 10-Q filed with the SEC on November 7, 2025) +10.29† +Amendment No. 5 to License Agreement, dated September 11, 2025, between The Broad Institute, Inc. and the Registrant (incorporated by reference to Exhibit 10. 2 of the Registrant’s Quarterly Reporting on Form 10-Q filed with the SEC on November 7, 2025) +10.30† +Side Letter No. 2 to License Agreement, dated September 11, 2025, between The Broad Institute, Inc. and the Registrant (incorporated by reference to Exhibit 10.3 of the Registrant ’ s Quarterly Reporting on Form 10-Q filed with the SEC on November 7, 2025) +10.31 +Lease Agreement, dated as of November 22, 2021, between NW Cambridge Property Owner, LLC and the Registrant (incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 7, 2023) +10.32+† +Securities Purchase Agreement, dated September 28, 2024, by and between Juno Therapeutics, Inc. and the Registrant (incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q, filed with the SEC on November 12, 2024) +10.33+† +Research Collaboration and License Agreement, dated September 28, 2024, by and between Juno Therapeutics, Inc. and the Registrant (incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 12, 2024) +19.1*† +Prime Medicine, Inc. Second Amended and Restated Insider Trading Policy +21.1* +Subsidiaries of the Registrant +23.1* +Consent of PricewaterhouseCoopers, LLP, Independent Registered Public Accounting Firm +31.1* +Certification of Principal Executive Officer and Prin cipal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +32.1** +Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97.1 +Prime Medicine, Inc. Compensation Recovery Policy, dated September 15, 2023 (incorporated by reference to Exhibit 97.1 of the Registrant’s Annual Report on Form 10-K, filed with the SEC on March 1, 2024) +101.INS* Inline XBRL Instance Document +101.SCH* Inline XBRL Taxonomy Extension Schema Document +101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document +101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document +101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document +101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document +104* Cover Page Interactive Data File (embedded within the Inline XBRL document) +__________________ +* Filed herewith. +** The certifications furnished in Exhibit 32.1 and Exhibit 32.2 hereto are deemed to accompany this Annual Report on Form 10-K and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference. +# Indicates a management contract or any compensatory plan, contract or arrangement. +† Portions of this exhibit (indicated by asterisks) have been omitted pursuant to Item 601(b)(10) of Regulation S-K. ++ Certain exhibits and schedules to these agreements have been omitted pursuant to Item 601(a)(5) and (6) of Regulation S-K. The registrant will furnish copies of any of the exhibits and schedules to the Securities and Exchange Commission upon request. +160 +Item 16. Form 10-K Summary +None. +161 +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +Prime Medicine, Inc. +March 3, 2026 +By: +/s/ Allan Reine +Allan Reine +Chief Executive Officer +POWER OF ATTORNEY AND SIGNATURES +Each person whose individual signature appears below hereby authorizes and appoints Allan Reine and Carman Alenson, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his or her substitute or substitutes may lawfully do or cause to be done by virtue thereof. +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Signature Title Date +/s/ Allan Reine +Chief Financial Officer +(Principal Executive Officer and Principal Financial Officer) +March 3, 2026 +Allan Reine +/s/ Carman Alenson +Chief Accounting Officer +(Principal Accounting Officer) +March 3, 2026 +Carman Alenson +/s/ Thomas Cahill +Director +March 3, 2026 +Thomas Cahill +/s/ Wendy Chung +Director +March 3, 2026 +Wendy Chung +/s/ Kaye Foster +Director +March 3, 2026 +Kaye Foster +/s/ Michael Kelly +Director +March 3, 2026 +Michael Kelly +/s/ Jeff Marrazzo +Director +March 3, 2026 +Jeff Marrazzo +/s/ Robert Nelsen +Director +March 3, 2026 +Robert Nelsen +/s/ David Schenkein +Director +March 3, 2026 +David Schenkein +162 +PRIME MEDICINE, INC. +INDEX TO CONSOLIDATED FINANCIAL STATEMENTS +Page +Report of Independent Registered Public Accounting Firm (PCAOB ID: 238 ) +F- 2 +Consolidated Balance Sheets +F- 3 +Consolidated Statements of Operations and Comprehensive Loss +F- 4 +Consolidated Statements of Stockholders’ Equity +F- 5 +Consolidated Statements of Cash Flows +F- 6 +Notes to Consolidated Financial Statements +F- 8 +F-1 +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To the Board of Directors and Stockholders of Prime Medicine, Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheets of Prime Medicine, Inc. and its subsidiary (the "Company") as of December 31, 2025 and 2024, and the related consolidated statements of operations and comprehensive loss, of stockholders' equity and of cash flows for the years then ended, including the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. +Substantial Doubt About the Company's Ability to Continue as a Going Concern +The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred recurring losses from operations and has an accumulated deficit, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. +Basis for Opinion +These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ PricewaterhouseCoopers LLP +Boston, Massachusetts +March 3, 2026 +We have served as the Company's auditor since 2021. +F-2 +PRIME MEDICINE, INC. +CONSOLIDATED BALANCE SHEETS +December 31, +(in thousands, except share and per share amounts) 2025 2024 +Assets +Current assets: +Cash and cash equivalents $ 63,032 $ 182,476 +Short-term investments 114,648 2,998 +Short-term investment — related party — 4,968 +Prepaid expenses 2,939 6,777 +Other current assets 674 14,667 +Total current assets 181,293 211,886 +Property and equipment, net 20,572 24,404 +Operating lease right-of-use assets 126,177 47,156 +Restricted cash 13,691 14,062 +Other assets 1,000 — +Total assets $ 342,733 $ 297,508 +Liabilities and Stockholders’ Equity +Current liabilities: +Accounts payable $ 8,887 $ 11,351 +Accrued expenses and other current liabilities 12,600 15,904 +Deferred revenue — related party 7,824 7,092 +Operating lease liability 8,137 3,614 +Total current liabilities 37,448 37,961 +Deferred revenue, net of current — related party 58,127 63,218 +Operating lease liability, net of current 108,290 37,180 +Research and development funding liability 18,000 6,000 +Total liabilities 221,865 144,359 +Commitments and contingencies (Note 12) +Stockholders’ equity +Common stock, par value of $ 0.00001 per share; 775,000,000 shares authorized; 180,514,014 and 131,160,842 shares issued and outstanding as of December 31, 2025 and 2024, respectively +2 2 +Additional paid-in capital 1,009,138 840,358 +Accumulated other comprehensive income 82 1 +Accumulated deficit ( 888,354 ) ( 687,212 ) +Total stockholders’ equity 120,868 153,149 +Total liabilities and stockholders’ equity $ 342,733 $ 297,508 +The accompanying notes are an integral part of these consolidated financial statements. +F-3 +PRIME MEDICINE, INC. +CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS +Year Ended December 31, +(in thousands, except share and per share amounts) 2025 2024 +Revenue: +Collaboration revenue — related party $ 4,586 $ 1,609 +Collaboration revenue 46 1,374 +Total revenue 4,632 2,983 +Operating expenses: +Research and development 160,636 155,289 +General and administrative 52,346 50,161 +Total operating expenses 212,982 205,450 +Loss from operations ( 208,350 ) ( 202,467 ) +Other income: +Interest income 4,149 3,522 +Accretion (amortization) of investments 2,479 3,507 +Change in fair value of short-term investment — related party 432 ( 485 ) +Other income, net 148 41 +Total other income, net 7,208 6,585 +Net loss attributable to common stockholders $ ( 201,142 ) $ ( 195,882 ) +Net loss per share attributable to common stockholders, basic and diluted $ ( 1.35 ) $ ( 1.65 ) +Weighted-average common shares outstanding, basic and diluted 148,758,527 118,600,381 +Comprehensive loss: +Net loss $ ( 201,142 ) $ ( 195,882 ) +Change in unrealized loss on investments, net of tax 81 16 +Comprehensive loss $ ( 201,061 ) $ ( 195,866 ) +The accompanying notes are an integral part of these consolidated financial statements. +F-4 +PRIME MEDICINE, INC. +CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY +Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders' Equity +(in thousands, except share amounts) Shares Amount +Balances at December 31, 2023 97,377,121 $ 2 $ 624,414 $ ( 15 ) $ ( 491,330 ) $ 133,071 +Issuance of common stock from public offering, net of issuance costs of $ 8.9 million +22,560,001 — 132,055 — — 132,055 +Issuance of pre-funded warrants, net of issuance costs of $ 1.2 million +— — 18,800 — — 18,800 +Issuance of common stock under the Securities Purchase Agreement to BMS — related party (Note 9) 11,006,163 — 38,081 — — 38,081 +Issuances of common stock under the employee stock purchase plan 189,509 — 837 — — 837 +Issuances of common stock upon exercise of stock options 28,048 — 103 — — 103 +Stock-based compensation expense — — 26,068 — — 26,068 +Change in unrealized loss on investments, net of tax — — — 16 — 16 +Net loss — — — — ( 195,882 ) ( 195,882 ) +Balances at December 31, 2024 131,160,842 $ 2 $ 840,358 $ 1 $ ( 687,212 ) $ 153,149 +Issuance of common stock from public offering, net of issuance costs of $ 5.8 million +43,700,000 — 138,390 — — 138,390 +Issuance of restricted stock units 2,000,000 — — — — — +Exercise of pre-funded warrants 3,199,984 — — — — — +Issuance of common stock under the employee stock purchase plan 231,166 — 341 — — 341 +Issuance of common stock upon exercise of stock options 222,022 — 781 — — 781 +Stock-based compensation expense — — 29,268 — — 29,268 +Change in unrealized loss on investments, net of tax — — — 81 — 81 +Net loss — — — — ( 201,142 ) ( 201,142 ) +Balances at December 31, 2025 180,514,014 $ 2 $ 1,009,138 $ 82 $ ( 888,354 ) $ 120,868 +The accompanying notes are an integral part of these consolidated financial statements. +F-5 +PRIME MEDICINE, INC. +CONSOLIDATED STATEMENTS OF CASH FLOWS +Year Ended December 31, +(in thousands) +2025 2024 +Cash flows used in operating activities: +Net loss $ ( 201,142 ) $ ( 195,882 ) +Adjustments to reconcile net loss to net cash used in operating activities: +Stock-based compensation expense 29,268 26,068 +Non cash lease expense 9,698 12,355 +Depreciation expense 7,321 6,128 +Change in fair value of short-term investment — related party ( 432 ) 484 +Amortization of premiums and discount on short-term investments ( 1,937 ) ( 3,094 ) +Changes in operating assets and liabilities: +Prepaid expenses and other current assets 4,545 ( 15,859 ) +Accounts payable 996 ( 5,257 ) +Accrued expenses and other current liabilities ( 1,160 ) 1,843 +Accrued settlement payment — related party — ( 13,500 ) +Deferred revenue — related party ( 4,359 ) 70,310 +Lease liability ( 5,362 ) ( 6,461 ) +Net cash used in operating activities ( 162,564 ) ( 122,865 ) +Cash flows (used in) provided by investing activities: +Maturities of investments 95,781 204,200 +Sales of investments — related party 5,400 — +Purchases of investments ( 205,413 ) ( 129,449 ) +Purchases of property and equipment ( 4,531 ) ( 7,294 ) +Return (payment) of security deposit — 1,000 +Net cash (used in) provided by investing activities ( 108,763 ) 68,457 +Cash flows provided by financing activities: +Proceeds from follow-on offering, net of issuance costs 138,390 132,055 +Proceeds from research and development funding liability 12,000 6,000 +Net proceeds from stock option exercises 781 103 +Proceeds from ESPP offerings 341 837 +Proceeds from issuance of common stock under the BMS Securities Purchase Agreement — related party — 38,081 +Proceeds from issuance of pre-funded warrants, net of issuance costs — 18,800 +Net cash provided by financing activities 151,512 195,876 +Net change in cash, cash equivalents, and restricted cash ( 119,815 ) 141,468 +Cash, cash equivalents, and restricted cash at beginning of period 196,538 55,070 +Cash, cash equivalents, and restricted cash at end of period $ 76,723 $ 196,538 +The accompanying notes are an integral part of these consolidated financial statements. +F-6 +PRIME MEDICINE, INC. +CONSOLIDATED STATEMENTS OF CASH FLOWS +Year Ended December 31, +(in thousands) +2025 2024 +Reconciliation of cash, cash equivalents and restricted cash: +Cash, cash equivalents, and restricted cash at end of period $ 76,723 $ 196,538 +Less: restricted cash 13,691 14,062 +Total cash, and cash equivalents $ 63,032 $ 182,476 +Supplemental cash flow information: +Right-of-use assets obtained in exchange for new operating lease liabilities $ 83,757 $ 44,935 +Decrease in right-of-use assets due to lease termination $ 3,120 $ — +Increase in right-of-use assets upon settlement with landlord $ 10,911 $ — +Supplemental disclosure of non-cash investing and financing activities: +Purchases of property and equipment included in accounts payable and accrued expenses $ 114 $ 1,154 +The accompanying notes are an integral part of these consolidated financial statements. +F-7 +PRIME MEDICINE, INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +1. Nature of the Business and Basis of Presentation +Prime Medicine, Inc., together with its consolidated subsidiary, or the Company, is a biotechnology company committed to delivering a new class of differentiated one-time curative treatments. The Company is deploying Prime Editing technology, which it believes is a versatile, precise, and efficient gene editing technology. The Company was incorporated in the State of Delaware in September 2019. Its principal offices are in Cambridge, Massachusetts. +Liquidity and Capital Resources +Since its inception, the Company has devoted substantially all of its resources to building its Prime editing platform and advancing development of its portfolio of programs, establishing and protecting its intellectual property, conducting research and development activities, organizing and staffing the company, business planning, raising capital and providing general and administrative support for these operations. To date, the Company has funded its operations primarily with proceeds from sales of preferred stock, public offerings of its common stock, and through payments from our collaboration partners. +In August 2025, the Company issued and sold 43,700,000 shares of its common stock, including 5,700,000 shares pursuant to the exercise of the underwriters’ option to purchase additional shares, at a price to the public of $ 3.30 per share. As a result of the offering, the Company received approximately $ 138.4 million in net proceeds, after deducting underwriting discounts, commissions and offering costs of $ 5.8 million. +Since its inception, the Company has incurred substantial losses. As of December 31, 2025, the Company had an accumulated deficit of $ 888.4 million and expects to generate operating losses and negative operating cash flows for the foreseeable future. As of December 31, 2025, the Company maintains cash, cash equivalents, short-term investments, and related party short-term investments of $ 177.7 million. +Going Concern +In accordance with Accounting Standards Codification, or ASC, 205-40, Going Concern , or ASC 205-40, the Company evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date on which this Annual Report on Form 10-K is filed. Based on the Company's cash, cash equivalents, and short-term investments as of December 31, 2025, the Company's current and forecasted level of operations, and its forecasted cash flows, the Company’s ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management plans to provide for the Company’s capital requirements through financing or other transactions, and selling shares under the Company's “at the market offering” program. There can be no assurance that the Company will be able to raise additional capital to fund operations with terms acceptable to the Company, or at all. Because certain elements of management’s plans to mitigate the conditions that raised substantial doubt about the Company’s ability to continue as a going concern are outside of the Company’s control, including the ability to raise capital through an equity or other financing, those elements cannot be considered probable according to ASC 205-40, and therefore cannot be considered in the evaluation of mitigating factors. As a result, management has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for 12 months from the date these consolidated financial statements are issued. +The consolidated financial statements as of December 31, 2025 have been prepared under the assumption that the Company will continue as a going concern for the next 12 months and that contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. The Company’s ability to continue as a going concern is dependent upon its uncertain ability to obtain additional capital, reduce expenditures and/or execute on its business plan. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. +F-8 +Risks and Uncertainties +The Company is subject to risks and uncertainties common to early stage companies in the biotechnology industry, including, but not limited to, completing preclinical studies and clinical trials, obtaining regulatory approval for product candidates, market acceptance of products, development by competitors of new technological innovations, dependence on key personnel, the ability to attract and retain qualified employees, reliance on third-party organizations, protection of proprietary technology, compliance with government regulations, and the ability to raise additional capital to fund operations. The Company’s product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure, and extensive compliance-reporting capabilities. Even if the Company’s development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales. +The Company will need to raise additional capital to support its continuing operations and to pursue its growth strategy. Until such time as the Company can generate significant revenue from product sales, if ever, it expects to finance its operations through a combination of private and public equity offerings, debt financings, collaborations, strategic alliances, licensing or other arrangements with third parties, or other similar transactions. The Company may be unable to raise additional capital or enter into such other agreements when needed on favorable terms or at all. The inability to raise capital as and when needed would have a negative impact on the Company’s financial condition and its ability to pursue its business strategy. The Company will need to generate significant revenue to achieve profitability, and it may never do so. +Basis of Presentation +The accompanying consolidated financial statements reflect the operations of the Company and its wholly-owned subsidiary. Intercompany balances and transactions have been eliminated in consolidation. The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, or GAAP. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the ASC and Accounting Standards Updates, or ASU of the Financial Accounting Standards Board, or FASB. +Principles of Consolidation +The Company’s consolidated financial statements include the accounts of Prime Medicine, Inc. and its wholly owned subsidiary, Prime Medicine Securities Corp., a Massachusetts securities corporation. All significant intercompany balances and transactions have been eliminated in consolidation. +2. Summary of Significant Accounting Policies +Use of Estimates +The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions reflected within these consolidated financial statements include, but are not limited to, the valuation of the Company’s stock-based awards. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Actual results may differ materially from those estimates or assumptions. +Concentrations of Credit Risk +Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, and restricted cash. Under its investment policy, the Company invests in U.S. Treasury, government securities, and corporate debt and maintains its cash and cash equivalents at high- +F-9 +quality and accredited financial institutions in amounts that could exceed federally insured limits. Cash equivalents are invested in money market funds. However, the Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. +Cash and Cash Equivalents +The Company considers all highly liquid investments with an original maturity of three months or less at the time of initial purchase to be cash equivalents. +Restricted Cash +Restricted cash consists of letters of credit that are required to be maintained in connection with the Company’s lease arrangements. +Short-term Investments and Related Party Short-Term Investment +The Company’s short-term investments consist of investments in securities with remaining maturities beyond three months at the date of purchase and one year or less from the balance sheet date. The Company classifies its investments as available-for-sale and carries them at fair market value. The unrealized losses on the Company’s available-for-sale debt securities are recorded in other comprehensive loss in the consolidated statements of operations and comprehensive loss. +Short-term debt securities are considered impaired when a decline in fair value is judged to be other-than-temporary. The Company consults with its investment managers and considers available quantitative and qualitative evidence in evaluating potential impairment of its short-term investments on a quarterly basis. If the cost of an individual investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, the duration and extent to which the fair value is less than cost and its intent and ability to hold the investment. Once a decline in fair value is determined to be other-than-temporary, an impairment charge will be recorded to other income (expense), net, in the consolidated statements of operations and comprehensive loss. +The Company’s short-term investment — related party was obtained from the collaboration agreement with Beam Therapeutics, Inc., or Beam, which is a public company trading on the Nasdaq Exchange. At each reporting date, the Company recognizes the fair value of the short-term investment — related party on the consolidated balance sheets. Unrealized and realized gains and losses on the Company’s equity investment is included as a component of other income (expense) in the consolidated statements of operations and comprehensive loss. The costs of debt and equity securities for purposes of computing realized and unrealized gains and losses is based on the specific identification method. +Fair Value Measurements +Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: +• Level 1 — Quoted prices in active markets for identical assets or liabilities. +• Level 2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. +• Level 3 — Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. +F-10 +The Company’s cash equivalents and short-term investments are carried at fair value, determined according to the fair value hierarchy described above. The carrying values of the Company’s accounts payable and accrued expenses approximate their fair values due to the short-term nature of these liabilities. +Property and Equipment +Property and equipment are stated at cost less accumulated depreciation. Depreciation expense is recognized using the straight-line method over the estimated useful life of each asset as follows: +Asset Class +Estimated Useful Life +Laboratory equipment 5 years +Furniture and fixtures 5 years +Computer hardware and software +3 years +Leasehold improvements Shorter of remaining lease term or useful life +Costs for capital assets not yet placed into service are capitalized and are depreciated once placed into service. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is included in loss from operations. Expenditures for repairs and maintenance that do not improve or extend the life of the respective assets are charged to expense as incurred. +Leases +The Company accounts for leases in accordance with ASC 842, Leases . In accordance with ASC 842, the Company determines if an arrangement is or contains a lease at inception. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company classifies leases at the lease commencement date as operating or finance leases and records a right-of-use asset and a lease liability on the consolidated balance sheet for all leases with an initial lease term of greater than 12 months. Leases with an initial term of 12 months or less are not recorded in the balance sheet, but payments are recognized as expense on a straight-line basis over the lease term. The Company has elected not to recognize leases with terms of 12 months or less. +A lease qualifies as a finance lease if any of the following criteria are met at the inception of the lease: (i) there is a transfer of ownership of the leased asset to the Company by the end of the lease term, (ii) the Company holds an option to purchase the leased asset that it is reasonably certain to exercise, (iii) the lease term is for a major part of the remaining economic life of the leased asset, (iv) the present value of the sum of lease payments equals or exceeds substantially all of the fair value of the leased asset, or (v) the nature of the leased asset is specialized to the point that it is expected to provide the lessor no alternative use at the end of the lease term. All other leases are recorded as operating leases. +The Company enters into contracts that contain both lease and non-lease components. Non-lease components may include maintenance, utilities, and other operating costs. The Company combines the lease and non-lease components of fixed costs in its lease arrangements as a single lease component. Variable costs, such as utilities or maintenance costs, are not included in the measurement of right-of-use assets and lease liabilities, but rather are expensed when the event determining the amount of variable consideration to be paid occurs. +Finance and operating lease assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term using the discount rate implicit in the lease. If the rate implicit is not readily determinable, the Company utilizes an estimate of its incremental borrowing rate based upon the available information at the lease commencement date. Operating lease assets are further adjusted for prepaid or accrued lease payments. Operating lease payments are expensed using the straight-line method as an operating expense over the lease term. Certain of the Company’s leases include options to extend or terminate the lease. The amounts determined for the Company’s right-of-use assets and lease liabilities generally do not assume that renewal options or early-termination provisions, if any, are exercised, unless it is reasonably certain that the Company will exercise such options. If initially determined that it is not reasonably certain but subsequently the Company +F-11 +determines that it is reasonably certain to exercise its renewal options or early-termination provisions, the Company would reassess the lease classification, remeasure the lease liability, and adjust the right-of-use asset. +In addition to evaluating arrangement that are leases, the Company examines other contracts with suppliers, vendors and outside parties to identify whether such contracts contain an embedded lease and, as applicable, records such embedded leases in accordance with ASC 842. +Impairment of Long-Lived Assets +Long-lived assets consist primarily of property and equipment, and operating lease right-of-use assets. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. +If an impairment review is performed to evaluate a long-lived asset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset group to its carrying value. An impairment loss would be recognized in loss from operations when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its carrying amount. If such asset group is considered to be impaired, the impairment loss to be recognized is measured based on the excess of the carrying value of the impaired asset group over its fair value. +Revenue recognition +The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers . This standard applies to all contracts with customers, except for contracts that are within the scope of other standards. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. +The Company enters into collaboration and licensing agreements with partners under which it may exclusively license rights to research, develop, manufacture, and commercialize product candidates to third parties. The terms of these arrangements typically include payment to the Company of one or more of the following: (1) non-refundable, upfront fees; (2) equity investment; (3) reimbursement of certain costs; (4) customer option fees for additional goods or services; (5) milestone payments; and (6) royalties on net sales of licensed products. +In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. As part of the accounting for these arrangements, the Company must use its judgment to determine: (a) the number of performance obligations based on the determination under step (ii) above; (b) the transaction price under step (iii) above; (c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above; and (d) the contract term and pattern of satisfaction of the performance obligations under step (v) above. The Company also uses judgment to determine whether milestones or other variable consideration, except for royalties, should be included in the transaction price as described further below. The transaction price is allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. +Amounts due to the Company for satisfying the revenue recognition criteria or that are contractually due based upon the terms of the collaboration agreements are recorded as collaboration receivable in the Company’s consolidated balance sheet. Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue +F-12 +in the Company’s consolidated balance sheets. Deferred revenue expected to be recognized as revenue within 12 months following the balance sheet date are classified as current deferred revenue. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current. +Milestone payments +At the inception of each arrangement that includes milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The Company evaluates factors such as the scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the particular milestone in making this assessment. There is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur. At the end of each subsequent reporting period, the Company reevaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment. +Research and Development Expenses +Research and development expenses are expensed as incurred. Research and development expenses may consist of costs incurred in connection with acquired in-process research and development and performing research and development activities, including amounts incurred under agreements with external vendors and consultants engaged to perform preclinical studies and to manufacture research and development materials for use in such studies, salaries and related personnel costs, stock-based compensation, consultant fees, and third-party license fees. +Upfront payments payable by the Company under license agreements are expensed upon receipt of the license, and annual maintenance fees under license agreements are expensed over the maintenance period. Milestone payments payable by the Company under license agreements are accrued, with a corresponding expense being recognized, in the period in which the milestone is determined to be probable of achievement and the related amount is reasonably estimable. +Nonrefundable advance payments made by the Company for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed. +Acquired In-Process Research and Development +The Company measures and recognizes asset acquisitions or licenses to intellectual property that are not deemed to be business combinations based on the cost to acquire or license the asset or group of assets, which includes transaction costs. Goodwill is not recognized in asset acquisitions or transactions to license intellectual property. In an asset acquisition or license to intellectual property, the cost allocated to acquire in-process research and development with no alternative future use is recognized as research and development expense on the acquisition date. +Upfront and milestone payments made are accrued for and expensed when the achievement of the milestone is probable up to the point of regulatory approval. Milestone payments made upon regulatory approval are capitalized and amortized over the remaining useful life of the related product. +Patent Costs +The Company expenses all patent-related costs incurred in connection with filing and prosecuting patent applications in the period incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses in the statements of operations and comprehensive loss. +F-13 +Contingencies +The Company is subject to contingent liabilities, such as legal proceedings and claims, that arise in the ordinary course of business activities. The Company accrues for loss contingencies when losses become probable and are reasonably estimable. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability on the consolidated balance sheets. The Company does not accrue for contingent losses that, in its judgment, are considered to be reasonably possible, but not probable; however, it discloses the range of reasonably possible losses. +Stock-Based Compensation +The Company measures stock-based awards granted to employees, directors and non-employees based on the fair value of the awards on the date of grant using the Black-Scholes option-pricing model. +The Black-Scholes option pricing model estimates the fair value of the equity award using the expected term, expected volatility, risk-free interest rate, dividend rate, and the fair value of the common stock underlying the stock-based award. +The Company estimates the expected life of stock options using the “simplified” method, whereby, the expected life equals the arithmetic average of the vesting term and the original contractual term of the option. Due to the lack of sufficient company-specific historical and implied volatility data, the Company has based its computation of expected volatility on the historical volatility of a representative group of public companies with similar characteristics to the Company, including stage of product development and life science industry focus. The risk-free interest rates for periods within the expected life of the option were based on the U.S. Treasury yield curve in effect during the period the options were granted. The expected dividend yield is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock. The Company recognizes forfeitures as they occur. The fair value of the common stock underlying shared based awards is the quoted market price of the Company’s common stock on the date of the grant. +The Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period of the awards for service-based awards, which is generally the vesting period. Stock-based compensation expense is classified in the consolidated statements of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified. +Warrants +Management assesses warrants under ASC 480, Distinguishing Liabilities from Equity , to determine whether they should be classified as equity or liability. If the classification is determined to be equity, proceeds received for the warrants are recorded as an increase to additional paid-in capital in the consolidated balance sheets. If classified as a liability, the Company records the warrant as a liability on its consolidated balance sheet and remeasures this liability to fair value at each reporting date and recognizes changes in the fair value of the warrant liability as a component of other expense in the consolidated statements of operations and comprehensive loss. +Comprehensive Loss +Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. The Company’s only element of other comprehensive loss is unrealized gains and losses on marketable securities. +Net Loss per Share Attributable to Common Stockholders +The Company applies the two-class method when computing net loss per share attributable to common stockholders as the Company has issued shares that meet the definition of participating securities. The two-class method determines net loss per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires loss available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to share in the undistributed earnings as if all loss for the period had been distributed. There is no +F-14 +allocation required under the two-class method during periods of loss since the participating securities do not have a contractual obligation to share in the losses of the Company. The Company has no participating securities outstanding. +Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period, excluding potentially dilutive common shares and of unvested restricted common stock. Diluted net loss per share attributable to common stockholders is computed by adjusting net loss attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net loss per share attributable to common stockholders is computed by dividing the diluted net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period, including potential dilutive common shares. +In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is generally the same as basic net loss per share attributable to common stockholders since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. +Income Taxes +The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Company’s tax returns. Deferred tax assets and liabilities are determined based on the differences between the financial statement basis and tax basis of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies. +The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more likely than not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties. +Segment Information +Under ASC 280, Segment Reporting , operating segment is a component of a public entity that 1) engages in business activities from which it may recognize revenues and incur expenses, 2) its operating results are regularly reviewed by the entity’s chief operating decision maker, or CODM, to make decisions about resource allocation or performance assessment, and 3) its discrete financial information is available. The Company operates and manages its business as a single segment for the purposes of assessing performance and making operating decisions. +Our chief executive officer, who is the CODM, manages and allocates resources to the operations of our company on a total company basis by assessing the overall level of resources available and how to best deploy these resources across functions and research and development projects that are in line with our long-term company-wide strategic goals. In making these decisions, the CODM uses consolidated financial information for purposes of evaluating performance, forecasting future period financial results, allocating resources and setting incentive targets. The CODM performs this assessment based on the Company’s consolidated net loss. Through this analysis, the CODM assesses performance by comparing actual net loss verses the budget, and then decides how to allocate resources to invest in the Company’s research and development programs. The measure of segment assets is reported on the consolidated balance sheets as total assets. +F-15 +The following table contains additional information on our consolidated net loss, including significant segment expenses: +Year Ended December 31, +(in thousands) +2025 2024 +Total revenue $ 4,632 $ 2,983 +Operating expenses: +Research and development expenses +Personnel expenses 50,661 59,988 +Facility related 46,506 35,509 +Research costs 35,453 41,678 +General and administrative expenses: +Personnel expenses 23,026 26,569 +Other segment items (1) +57,336 41,706 +Total operating expenses +212,982 205,450 +Total other income, net 7,208 6,585 +Net loss $ ( 201,142 ) $ ( 195,882 ) +(1) Other segment items consist of professional and consultant fees, license and intellectual property fees, clinical expense, and general and administrative facility costs. +Recently Issued Accounting Pronouncements +In December 2023, the FASB issued ASU, 2023-09, Income Taxes (Topics 740): Improvements to Income Tax Disclosures , to expand the disclosure requirements for income taxes. Upon adoption, companies will be required to disclose additional specified categories in the rate reconciliation. Companies will also be required to disclose the amount of income taxes paid disaggregated by jurisdiction, among other disclosure requirements. The standard is effective for annual periods beginning after December 15, 2024, and can be applied either prospectively or retrospectively. The Company adopted the standard during the year ended December 31, 2025 and have included required disclosures in Note 11, Income Taxes . +In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses , and in January 2025, issued ASU 2025-01, Clarifying the Effective Date , which requires more detailed information about specified categories of expenses included in certain expense captions presented on the face of the income statement. This ASU is effective for the first annual reporting period beginning after December 15, 2026, and for interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments may be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of this ASU or (2) retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact this ASU will have on its disclosures. +In September 2025, the FASB issued ASU No. 2025-07, Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606): Derivatives Scope Refinements and Scope Clarification for Share-Based Noncash Consideration from a Customer in a Revenue Contract . This update introduces a scope exception to derivative accounting for certain contracts with underlyings tied to operations or activities specific to one of the parties. Additionally, the update clarifies that share-based noncash consideration received from a customer should be accounted for under Topic 606 until the right to receive or retain the consideration becomes unconditional. The amendments can be applied prospectively or modified retrospectively and are effective for annual and interim periods beginning after December 15, 2026. The Company is currently evaluating the impact to the Company’s consolidated financial statements. +In December 2025, the FASB issue ASU No. 2025-11, Interim Reporting (Topic 270): Narrow-scope Improvements , which improves the navigability of interim reporting guidance. The ASU also addresses the form and content of financial statements, adds lists to ASC 270 of the interim disclosures required by all other codification topics, and establishes a principle under which an entity must “disclose events since the end of the last annual +F-16 +reporting period that have a material impact on the entity.” This ASU is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact this ASU will have on its interim disclosures. +Other accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s financial statements upon adoption. +3. Fair Value Measurements +The following tables present the Company’s fair value hierarchy for its assets that are measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair value: +December 31, 2025 +(in thousands) Level 1 Level 2 Level 3 Total +Cash equivalents: +Money market funds $ — $ 57,282 $ — $ 57,282 +U.S. Treasury and government securities — 2,739 — 2,739 +Corporate debt securities — 2,698 — 2,698 +Short-term investments: +U.S. Treasury and government securities — 78,152 — 78,152 +Corporate debt securities — 36,496 — 36,496 +Total cash equivalents and investments $ — $ 177,367 $ — $ 177,367 +December 31, 2024 +(in thousands) Level 1 Level 2 Level 3 Total +Cash equivalents: +Money market funds $ — $ 178,212 $ — $ 178,212 +Corporate debt securities — 3,793 — 3,793 +Short-term investment: +U.S. Treasury and government securities — 2,998 — 2,998 +Related party short-term investment: +Beam equity securities 4,968 — — 4,968 +Total cash equivalents and investments $ 4,968 $ 185,003 $ — $ 189,971 +The Company classifies its investments as short-term based on each instrument’s underlying contractual maturity date. The fair value of investments classified as Level 2 are valued using observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. +Investments in Debt Securities +Unrealized gains and losses of investments in debt securities consisted of the following: +December 31, 2025 +(in thousands) Amortized Cost Unrealized Gains Unrealized Losses Fair Value +Short-term investments in debt securities: +U.S. Treasury and government securities $ 78,074 $ 78 $ — $ 78,152 +Corporate debt securities 36,492 7 ( 3 ) $ 36,496 +Total short-term investments in debt securities $ 114,566 $ 85 $ ( 3 ) $ 114,648 +F-17 +December 31, 2024 +(in thousands) Amortized Cost Unrealized Gains Unrealized Losses Fair Value +Short-term investments in debt securities: +U.S. Treasury and government securities $ 2,997 $ 1 $ — $ 2,998 +The contractual maturities of the Company’s investments in debt securities held were as follows: +(in thousands) December 31, +2025 December 31, +2024 +Due within one year $ 114,648 $ 2,998 +Marketable securities in unrealized loss positions consisted of the following: +As of December 31, 2025: +(in thousands, except number of securities) Number of Securities Fair Value Gross Unrealized Losses +Investments in continuous loss position for less than 12 months: +Corporate debt securities 8 8,446 ( 3 ) +Based on factors such as historical experience, market data, issuer-specific factors, and current economic conditions, the Company did not record an allowance for credit losses as of December 31, 2025 related to these investments. Further, given the lack of significant change in the credit risk, the Company does not consider these investments to be impaired. +4. Property and Equipment, Net +Property and equipment, net consisted of the following: +December 31, +(in thousands) 2025 2024 +Property and equipment: +Laboratory equipment $ 29,744 $ 27,343 +Leasehold improvement 7,911 5,136 +Furniture and fixture 1,864 1,075 +Computer hardware and software 1,122 869 +Construction in progress 365 3,578 +Total property and equipment 41,006 38,001 +Less: Accumulated depreciation ( 20,434 ) ( 13,597 ) +Total property and equipment, net $ 20,572 $ 24,404 +Depreciation expense related to property and equipment is as follows: +Year ended December 31, +(in thousands) 2025 2024 +Depreciation expense $ 7,321 $ 6,128 +F-18 +5. Accrued Expenses and Other Current Liabilities +Accrued expenses and other current liabilities consisted of the following: +December 31, +(in thousands) 2025 2024 +Accrued expenses and other current liabilities +Employee compensation and benefits +$ 7,337 $ 8,976 +License fee 1,562 1,938 +Research and clinical costs 1,997 907 +Facility related +— 2,811 +Other 1,704 1,272 +Total accrued expenses and other current liabilities $ 12,600 $ 15,904 +6. Leases +64 Sidney Street, Cambridge, Massachusetts Lease +In July 2021, the Company entered into a non-cancelable operating lease to sublease office space located at 64 Sidney Street, Cambridge, Massachusetts . The lease commenced in April 2022 and contained escalating monthly rental payments. The lease term expired in April 2025. The lease required the Company to share in prorated expenses and property taxes based on actual amounts incurred . +60 First Street, Cambridge, Massachusetts Lease +In November 2021, the Company entered into a lease for three floors of office and laboratory space at 60 First Street, Cambridge, Massachusetts, with rent commencing in March 2024, subject to any credits pursuant to the terms of the lease, or the 60 First Street Lease. Subsequent to the initial non-cancelable term of the lease of ten years , the Company has an option to extend the lease for an additional period of ten years with the rent during the extension term being the then fair market rent. The Company secured the lease with a $ 13.1 million security deposit, which was recorded as restricted cash on the consolidated balance sheets as of December 31, 2025 and 2024. +Accounting Considerations +The Company determined that the lease contained three separate lease components, each of which represents a right of use that the Company can benefit from on its own and are neither highly dependent nor highly related to each other. The Company allocated the consideration among the three lease components based on their relative fair market values. +In accordance with ASC 842, the lease commenced for one of the lease components in March 2024 and the Company recorded a right-of-use asset of $ 44.9 million, and a corresponding lease liability of $ 33.6 million on the lease commencement date; this includes a reclass of $ 11.3 million from prepaid expenses to right-of-use asset related to build out costs which were determined to be owned by the lessor. In March 2025, the Company determined that the lease commenced on the remaining two lease components and recorded right-of-use assets of $ 76.8 million, and a corresponding lease liability of $ 78.6 million on the lease commencement date. As the exercise of the option to extend the lease term is not reasonably certain, the Company will recognize lease expense for this lease component through February 2034. +In June 2024, the Company filed a complaint in Massachusetts Superior Court against NW Cambridge Property Owner, LLC, or NWC, the Company’s landlord at 60 First Street. While the lawsuit was pending, the Company continued to make the disputed payments under the 60 First Street Lease under protest. The disputed payments were recorded within other current assets on the Company’s consolidated balance sheets and was $ 10.8 million as of and December 31, 2024. +In November 2025, the Company entered into a settlement agreement with NWC. Under the terms of the settlement agreement, the parties agreed to resolve and settle the lawsuit and release all claims between them relating to the +F-19 +disputed payments. As a result of the settlement, the Company reclassified $ 10.9 million of the disputed payments to right-of-use asset. This amount will be amortized over the remaining lease term of the 60 First Street Lease. +Arsenal Street, Watertown, Massachusetts Lease +In August 2024, the Company entered into the third amendment to its existing lease for approximately 16,000 square feet of combined laboratory and office space at 480 Arsenal Street, Watertown Massachusetts, or the 480 Arsenal Amendment. In September 2024, the Company entered into a new lease for approximately 48,500 square feet of combined laboratory and office space at 500 Arsenal Street, Watertown, Massachusetts, or the 500 Arsenal Lease. The landlords of the spaces at 480 Arsenal Street and 500 Arsenal Street are affiliates. +The 480 Arsenal Amendment provides the Company with an additional 9,400 square feet of combined laboratory and office space, or the Expansion Space, at no additional cost and also provides an early termination date for the existing space and the Expansion Space. The lease for space at 480 Arsenal Street, including the Expansion Space, terminated on April 30, 2025. +The 500 Arsenal Lease term commenced in December 2024 with a base term of 11 months. In December 2024, the Company began constructing improvements to the space, the construction for which was completed in 2025. Subsequent to the base term, the Company has an option to extend the lease through August 2028, which it exercised in February 2025. The Company secured the lease with a $ 0.6 million security deposit, which was recorded as restricted cash on the consolidated balance sheets as of December 31, 2025 and 2024. The 500 Arsenal Lease also provides a tenant improvement allowance of $ 2.4 million and an additional tenant improvement allowance of $ 1.2 million, which the Company would be obligated to repay to the landlord. The Company did not use the additional tenant improvement allowance. +Accounting Considerations +As the 480 Arsenal Amendment and the 500 Arsenal Lease met the criteria for combining contracts under ASC 842, the Company determined that both 480 Arsenal Amendment and the 500 Arsenal Lease are modifications to its existing lease at 480 Arsenal Street. Within the combined contract the Company identified two separate lease components, each of which represents a right of use that the Company can benefit from on its own and which are neither highly dependent nor highly related to the other. The Company allocated the consideration under the combined contract among the two lease components based on their relative fair market value. In calculating the allocable consideration and the fair market value of each lease component, the Company determined it is probable that it will exercise the option to extend the lease term provided under the 500 Arsenal Lease. +In accordance with ASC 842, the Company possessed the ability to control and derive the economic benefit for its leased space at 480 Arsenal on the effective date of the modification. Therefore, on the effective date, the Company recorded a right-of-use asset and a corresponding lease liability, which were not materially different from the existing right-of-use asset and lease liability as of the modification date. +For accounting purposes, as the construction of the lessor assets were completed, the Company determined that the 500 Arsenal Lease commenced in March 2025 and recorded right-of-use assets of $ 7.0 million, and a corresponding lease liability of $ 5.5 million on the lease commencement date. Concurrently, the Company also determined that the termination of its leased space at 480 Arsenal Street was reasonably certain, and the Company recorded a $ 3.1 million reduction to the Company’s operating lease liability and its operating lease right-of-use asset on the consolidated balance sheet. +Summary of lease costs recognized +The following tables contains a summary of the lease costs recognized under ASC 842 and other information pertaining to the Company’s operating leases for the years ended December 31, 2025 and 2024 . +F-20 +The components of lease cost were as follows: +Year Ended December 31, +(in thousands) 2025 2024 +Lease cost: +Operating lease cost $ 22,956 $ 15,175 +Variable lease cost 9,454 5,716 +Short-term lease cost 1,797 3,512 +Sublease income ( 212 ) ( 168 ) +Total lease cost $ 33,995 $ 24,235 +The weighted-average remaining lease term and discount rate were as follows: +December 31, +2025 2024 +Weighted average remaining lease term (in years) 7.9 years 8.4 years +Weighted average discount rate 12.24 % 12.83 % +Future annual lease payments under non-cancelable operating leases as of December 31, 2025 w ere as follows: +(in thousands) Undiscounted +Amounts +Undiscounted lease payments: +2026 $ 21,703 +2027 22,355 +2028 22,294 +2029 21,478 +2030 22,123 +Thereafter 74,478 +Total undiscounted lease payments 184,431 +Less: imputed interest ( 68,004 ) +Total operating lease liability $ 116,427 +7. Stockholder’s Equity +Common Stock +Under the Third Amended and Restated of Certificate of Incorporation, the Company’s common stock had a par value of $ 0.0001 and each share of common stock entitles the holder to one vote on all matters submitted to the stockholders for a vote. The holders of common stock are entitled to receive dividends, if any, as declared by the Company’s board of directors. +Pre-funded Warrants +In February 2024, the Company sold pre-funded warrants to purchase 3,200,005 shares of common stock at a public offering price of $ 6.24999 per pre-funded warrant, which represents the per share public offering price of each share of common stock less the $ 0.00001 per share exercise price for each pre-funded warrant. Subject to certain requirements, the pre-funded warrants can be exercised by the holder at any time. In May 2025, the holder exercised all 3,200,005 of its pre-funded warrants on a cashless basis and received 3,199,984 shares of the Company’s common stock. Following this exercise, the Company has no pre-funded warrants outstanding. +F-21 +The pre-funded warrants met the definition of an equity instrument under ASC 815-40 and funds received were recorded as an increase in additional paid-in capital in the consolidated balance sheets. Funds received upon exercise of warrants will be recorded as common stock in the consolidated balance sheets as the exercise price represents the par value of the underlying common stock. +August 2025 Offering +In August 2025, the Company issued and sold 43,700,000 shares of its common stock, including 5,700,000 shares pursuant to the exercise of the underwriters’ option to purchase additional shares, at a price to the public of $ 3.30 per share. As a result of the offering, the Company received approximately $ 138.4 million in net proceeds, after deducting underwriting discounts, commissions and offering costs of $ 5.8 million. +At-The-Market Equity Program +In November 2023, the Company entered into Open Market Sale Agreement SM , or the Sales Agreement, with Jefferies LLC, acting as the Company’s agent and/or principal, or the Sales Agent, with respect to an “at the market offering” program under which the Company may, from time to time, at its sole discretion, issue and sell shares of its common stock having an aggregate offering price of up to $ 300.0 million through the Sales Agent. Pursuant to the Sales Agreement, any shares will be sold pursuant to the automatic shelf registration statement on Form S-3ASR (File No. 333-291348) filed with the SEC on November 7, 2025, which became automatically effective upon filing, including the base prospectus contained therein. Concurrently with the filing of this Annual Report on Form 10K, the Company plans to convert the Form S-3ASR to Form S-3 by post-effective amendments. The common stock will be sold at prevailing market prices at the time of the sale, and as a result, prices may vary. As of December 31, 2025, there have been no sales of common stock pursuant to the Sales Agreement. +8. Stock-Based Compensation +2019 Equity Incentive Plan +The Company’s 2019 Stock Option and Grant Plan, or the 2019 Plan, provides for the Company to grant incentive stock options, non-qualified stock options, unrestricted stock awards, restricted stock awards and other stock-based awards to the officers, employees, consultants and other key persons of the Company. The 2019 Plan is administered by the board of directors, or at the discretion of the board of directors, by a committee of the board of directors. The exercise prices, vesting and other restrictions are determined at the discretion of the board of directors, or its committee if so delegated. +In October 2022, the Company completed its IPO, and in connection with the closing, the board of directors determined that no further awards would be granted under the 2019 Plan. +2022 Stock Option and Incentive Plan +In February 2022, the Company’s board of directors adopted, and in October 2022 its stockholders approved, the 2022 Plan, which became effective immediately preceding the date on which the registration statement for the Company’s IPO was declared effective by the SEC. The 2022 Plan allows the Company to make equity-based and cash-based incentive awards to its officers, employees, directors, and consultants. The 2022 Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted common stock awards, restricted stock units and other stock-based awards. Stock options awarded under the 2022 Plan expire 10 years after the grant date and typically vest over four years . +The shares of common stock underlying any awards under the 2022 Plan and the 2019 Plan that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of stock, expire, or are otherwise terminated (other than by exercise) will be added back to the shares of common stock available for issuance under the 2022 Plan. The number of shares reserved and available for issuance under the 2022 Plan will increase on January 1 of each year, by five percent of the outstanding number of shares of common stock on the immediately preceding December 31 or such lesser number of shares as determined by the compensation committee. On January +F-22 +1, 2026, the annual increase for the 2022 Plan resulted in an additional 9,025,700 shares authorized for issuance being added to the 2022 Plan. +As of December 31, 2025, the Company had 25,558,130 shares reserved under the 2022 Plan and the 2019 Plan, and 7,891,263 shares available for issuance under the 2022 Plan. +2022 Employee Stock Purchase Plan +In February 2022, the Company’s board of directors adopted, and in October 2022 its stockholders approved, the 2022 Employee Stock Purchase Plan, or the 2022 ESPP. +The 2022 ESPP provides for an annual increase on January 1 each year through January 1, 2032, by the least of (i) 971,350 shares of common stock, (ii) one percent of the outstanding number of shares of common stock on the immediately preceding December 31, or (iii) such number of shares of common stock as determined by the administrator of the 2022 ESPP. There was no annual increase for the 2022 ESPP on January 1, 2026. As of December 31, 2025, the Company had 1,522,025 shares available for issuance under the 2022 ESPP. +Under the 2022 ESPP, the Company issued 231,166 shares of the Company’s common stock during the year ended December 31, 2025. 189,509 shares of the Company’s common stock were issued during the year ended December 31, 2024 under the 2022 ESPP. +Stock Option Valuation +The following table presents, on a weighted-average basis, the assumptions used in the Black-Scholes option-pricing model to determine the fair value of stock options granted: +Year ended December 31, +2025 2024 +Risk-free interest rate 3.9 % 4.2 % +Expected term (in years) 6.2 5.8 +Expected volatility 75.8 % 78.4 % +Expected dividend yield — % — % +Time-Based Stock Options +The following table summarizes the Company’s time-based stock option activity for the year ended December 31, 2025: +Number of Options +Weighted-Average Exercise Price 1 +Weighted-Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) +Outstanding at December 31, 2024 11,410,691 $ 5.92 8.10 $ — +Granted 7,952,594 2.21 +Exercised ( 222,022 ) 3.52 +Forfeited ( 3,503,960 ) 7.20 +Outstanding at December 31, 2025 15,637,303 $ 3.76 7.29 $ 9,880 +Vested and exercisable at December 31, 2025 7,184,947 $ 4.72 6.12 $ 976 +Vested and expected to vest at December 31, 2025 15,637,303 $ 3.76 7.29 $ 9,880 +1 Weighted-average exercise price for shares outstanding at the beginning of the period and at the end of period reflect the exercise price resulting from the one-time repricing, which is discussed in detail below. +F-23 +Other information related to the time-based stock option activity of the Company was as follows: +Year ended December 31, +2025 2024 +Weighted-average fair value of options granted $ 1.57 $ 5.60 +Intrinsic value of options exercised (in thousands) $ 419 $ 70 +As of December 31, 2025 there was $ 27.5 million of total unrecognized compensation cost related to time-based unvested stock options, and the Company expects to recognize such amount over a remaining weighted-average period of 2.5 years. +Performance-Based Stock Options +The Company has granted stock options to certain employees to purchase shares of common stock that contain performance-based vesting criteria related to corporate milestones. The fair value of each option grant was estimated on the date of grant. Recognition of stock-based compensation expense associated with these performance-based stock options commences when the performance condition is considered probable of achievement, using management’s best estimates, which consider the inherent risk and uncertainty regarding the future outcomes of the milestones. +The following table summarizes the Company’s performance-based stock option activity for the year ended December 31, 2025: +Number of Options +Weighted-Average Exercise Price 1 +Weighted-Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) +Outstanding at December 31, 2024 1,061,730 $ 5.90 8.35 $ — +Granted 1,000,000 2.30 +Exercised — — +Forfeited ( 32,166 ) 7.96 +Outstanding at December 31, 2025 2,029,564 $ 4.10 7.53 $ 1,495 +Vested and exercisable at December 31, 2025 813,480 $ 5.26 5.88 $ — +1 Weighted-average exercise price for shares outstanding at the beginning of the period and at the end of period reflect the exercise price resulting from the one-time repricing, which is discussed in detail below. +Other information related to the performance-based stock option activity of the Company was as follows: +Year ended December 31, +2025 2024 +Weighted-average fair value of options granted $ 1.76 $ 5.27 +As of December 31, 2025 there was $ 3.1 million of total unrecognized compensation cost related to performance-based stock options. +Market-Based Stock Options +The Company has granted stock options to purchase shares of common stock that contain market-based vesting criteria. The fair value of each option grant was estimated on the date of grant using the Monte Carlo valuation method. Expense is recognized when the option vests upon the satisfaction of certain performance criteria tied to the Company’s stock price. +F-24 +Number of Options Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) +Outstanding at December 31, 2024 — $ — 0.00 $ — +Granted 300,000 1.34 +Exercised — — +Forfeited — — +Outstanding at December 31, 2025 300,000 $ 1.34 9.38 $ 641 +Vested and exercisable at December 31, 2025 — $ — 0.00 $ — +Other information related to the market-based stock option activity of the Company was as follows: +Year ended December 31, +2025 2024 +Weighted-average fair value of options granted $ 1.12 $ — +Repricing of Certain Outstanding Stock Options +On June 22, 2025, the Company’s board of directors approved, and on August 1, 2025, or the Repricing Date, the Company’s stockholders approved, a one-time repricing, or the Option Repricing, of certain outstanding stock options granted to, and held by, certain of the Company’s current employees, including its executive officers, and members of the board of directors through the Repricing Date, or, collectively, the Eligible Optionholders, under the 2019 Plan and 2022 Plan, or collectively, the Plans. The Option Repricing impacted shares of common stock, or Eligible Options, that have exercise prices in excess of $ 4.04 , or the Repriced Exercise Price, which was the closing trading price per share of the Company’s common stock on The Nasdaq Global Market on the Repricing Date. +Effective as of the Repricing Date, the per share exercise price of each Eligible Option held by an Eligible Optionholder on the Repricing Date was automatically reduced to the Repriced Exercise Price. Under the terms of the Option Repricing, a Repriced Option will revert to its original exercise price per share if: +i. exercised prior to the 18-month anniversary of the Repricing Date for Repriced Options held by members of the board of directors or executive officers of the Company, as applicable, or the one-year anniversary of the Repricing Date for Repriced Options held by all other employees of the Company, each referred to as a Retention Date; +ii. an Eligible Optionholder’s Service Relationship (as defined in the Plans) is terminated by the Company for Cause (as defined in the applicable award agreement) prior to the applicable Retention Date; or +iii. an Eligible Optionholder resigns from the Company (including as a member of the board of directors) for any reason prior to the applicable Retention Date, other than described below. +Notwithstanding the foregoing, each Repriced Option shall retain the Repriced Exercise Price, to the extent it has not otherwise reverted to its original exercise price per share in accordance with the foregoing, and the ability to exercise such Repriced Option may be accelerated to earlier than the applicable Retention Date in the event of: +i. a Sale Event (as defined in the Plans) prior to the applicable Retention Date; +ii. the termination of the Eligible Optionholder’s Service Relationship by the Company without Cause or for “good reason,” or resignation by the Eligible Optionholder for “good reason,” to the extent provided for in the Eligible Optionholder’s employment agreement, offer letter or severance plan (as applicable); or +iii. the Eligible Optionholder’s death or disability (as determined in accordance with the Plans, as applicable). +Except as modified by the Option Repricing, all other terms and conditions of the Repriced Options, including, without limitation, any provisions with respect to vesting and term of the Repriced Options, will remain in full force and effect. As a result of the option repricing, the Company expects to recognize the incremental expense of +F-25 +$ 5.1 million over a weighted average period of 2.3 years. As of December 31, 2025, there was $ 3.5 million of unrecognized incremental expense, which is expected to be recognized over a period of 1.6 years. +Performance-Based Restricted Common Stock Awards +The Company awarded performance-based restricted common stock to employees and non-employees under its 2019 Plan. The fair value of each share of performance-based restricted common stock is based on the market price of the Company's common stock on the date of grant. Performance‑based restricted common stock awards vest upon the achievement of performance‑based milestones related to corporate milestones. +Stock-based compensation expense associated with the performance-based restricted common stock is recognized if the performance condition is considered probable of achievement using the Company’s best estimates of the time to vesting for the achievement of the performance‑based milestones. Each reporting period, the Company updates its assessment of the probability that the performance-based milestones will be achieved. The fair value of the restricted common stock was based on the fair market value of the Company’s common stock on the date of grant. +The following table summarizes the Company’s performance-based restricted common stock award activity for the year ended December 31, 2025: +Number of Shares Weighted-Average Grant-Date Fair Value +Unvested restricted common stock at December 31, 2024 3,472,546 $ 0.06 +Issued — — +Vested — — +Repurchased — — +Unvested restricted common stock at December 31, 2025 3,472,546 $ 0.06 +Restricted Stock Units +During the year ended December 31, 2025, the Company issued 2,000,000 restricted stock units. Further, the Company determined that as the obligation underlying the restricted stock units were satisfied during the period, the $ 8.2 million expense related to the restricted stock units shall be recognized in full during the year ended December 31, 2025. The amount is recorded as research and development expense on the Company’s consolidated statements of operations. +Stock-Based Compensation +The following table below summarizes the classification of the Company’s stock-based compensation expense related to stock options and restricted common stock awards in the consolidated statements of operations and comprehensive loss: +Year ended December 31, +(in thousands) 2025 2024 +Stock-based compensation expense: +Research and development $ 19,372 $ 12,704 +General and administrative 9,896 13,364 +Total stock-based compensation expense $ 29,268 $ 26,068 +F-26 +9. License and Collaboration Agreements +License Agreements with Broad Institute +2019 License Agreement with Broad Institute +In September 2019, the Company entered into a license agreement with Broad Institute, Inc., or Broad Institute, for certain patents related to the field of prevention or treatment of human disease by editing or targeting DNA, or the Broad License Agreement. In subsequent periods, the Broad License Agreement has been subject to amendments. Under the Broad License Agreement, Broad Institute granted the Company (i) an exclusive, worldwide license under the licensed patent rights solely to offer for sale, sell, have sold and import products covered by such licensed patent rights, or licensed products, solely for use within the Prime Broad Field (subject to certain specified limitations and exclusions with respect to certain applications), (ii) a non-exclusive, worldwide license under the licensed patent rights solely to make, have made, offer for sale, sell, have sold, and import licensed products solely for use in the Prime Broad Field, (iii) a non-exclusive, worldwide license under the licensed patent rights solely to make, have made, offer for sale, sell, have sold and import other products that are enabled by (a) the licensed patent rights or (b) the use of certain materials transferred to the Company by Broad Institute, solely for the prevention or treatment of human diseases and (iv) a non-exclusive, worldwide license solely for internal research. Further, with respect to DNA delivery or targeting applications covered by the licensed patent rights, the exclusive license granted to the Company by Broad Institute is limited only to “prime editor” products and specifically excludes applications relating to the production or processing of small or large molecules, including for the prevention or treatment of human disease. Under the Broad License Agreement, the Company also has the right to grant sublicenses to its affiliates and third parties, subject to certain requirements. As partial consideration for the license, the Company made a upfront payment of $ 0.5 million to Broad Institute. +Under the Broad License Agreement, the Company is obligated to pay Broad Institute an annual license maintenance fee of low six-figures dollar amount beginning in 2022. Broad Institute is also entitled to receive clinical and regulatory milestone payments up to a total of $ 20.0 million and sales-based milestone payments up to a total of $ 54.0 million per licensed product. Further, the Broad Institute is entitled to receive mid-single digit percentage royalties, subject to customary offsets and reductions, on net sales of licensed products, and low single-digit percentage royalties of enabled products. +Unless earlier terminated, the Broad License Agreement will remain in effect until the later of (i) the last to expire valid claim of an issued patent or pending patent application within the licensed patent rights covering the Company’s licensed products or (ii) the expiration of the last royalty term for a licensed product in a country. The Company can terminate the Broad License Agreement for convenience after a certain period of time following prior written notice to Broad Institute. Each party may terminate the Broad License Agreement for the other party’s uncured material breach within a specified time period following notice of such breach. Broad Institute may also immediately terminate the Broad License Agreement (i) to the extent the Company (or its affiliates or sublicensees) challenges a licensed patent right, (ii) upon the Company’s bankruptcy or insolvency or (iii) if the Company fails to procure and maintain insurance. +2022 License Agreement with Broad Institute +In December 2022, the Company entered into a second license agreement with Broad Institute, or the 2022 Broad License Agreement. Under the 2022 Broad License Agreement, Broad Institute grants to us certain rights and licenses under the patent rights it owns or controls related to MMR inhibition and prime editing improvements and specifically, (i) an exclusive, worldwide license under the licensed patent rights solely to offer for sale, sell, have sold and import products covered by such licensed patent rights, or licensed products, solely for use within the Prime Broad Field (subject to certain specified limitations and exclusions with respect to certain applications), (ii) a non-exclusive, worldwide license under the licensed patent rights solely to make, have made, offer for sale, sell, have sold, and import licensed products solely for use in the Prime Broad Field, (iii) a non-exclusive, worldwide license under the licensed patent rights solely to make, have made, offer for sale, sell, have sold and import other products that are enabled by (a) the licensed patent rights or (b) the use of certain materials transferred to us by Broad Institute, solely for the prevention or treatment of human diseases and (iv) a non-exclusive, worldwide license solely for internal research. Further, with respect to DNA delivery or targeting applications covered by the licensed patent +F-27 +rights, the exclusive license granted to us by Broad Institute is limited only to “prime editor” products and specifically excludes applications relating to the production or processing of small or large molecules, including for the prevention or treatment of human disease. Under the Broad License Agreement, the Company also has the right to grant sublicenses to its affiliates and third parties, subject to certain requirements. +The Company is also obligated to pay Broad Institute an annual license maintenance fee of mid five-figures for the term of the Agreement. Broad Institute is also entitled to receive clinical and regulatory milestone payments for a limited category of royalty-bearing products, up to a total of $ 2.0 million and sales-based milestone payments up to a total of $ 3.0 million. Further, Broad Institute is entitled to receive royalties of less than 0.2 % on net sales of royalty bearing products. +Unless earlier terminated, the 2022 Broad License Agreement will remain in effect until the later of (i) the last to expire valid claim of an issued patent or pending patent application within the licensed patent rights covering our licensed products or (ii) the expiration of the last royalty term for a royalty bearing product in a country. The Company can terminate the 2022 Broad License Agreement for convenience following prior written notice to Broad Institute. Each party may terminate the 2022 Broad License Agreement for the other party’s uncured material breach. Broad Institute may also immediately terminate the 2022 Broad License Agreement (i) to the extent we (or our affiliates or sublicensees) challenge a licensed patent right, (ii) upon our bankruptcy or insolvency or (iii) if we fail to procure and maintain insurance. +Side Letter No. 1 to The Broad Institute License Agreement +In connection with the BMS Collaboration Agreement, discussed below, the Company entered into a Letter Agreement, or the First Letter Agreement, with Broad Institute in September 2024, which amends the Broad License Agreement to modify certain obligations of Company and rights of Broad Institute in relation to the BMS Collaboration Agreement as a sublicense under the Broad License Agreement. The First Letter Agreement, among other things, modifies the royalty and certain commercial milestones that the Company is obligated to pay to Broad Institute on net sales of products under the BMS Collaboration Agreement. Except as expressly stated in the 2024 Broad Amendment, all other terms and provisions of the Broad License Agreement remain in full force and effect. Amounts due to Broad Institute as a result of the BMS Collaboration Agreement are recorded as accrued expenses on the consolidated balance sheet as of December 31, 2025. +Amendment No. 4 and Amendment No. 5 to The Broad Institute License Agreement +In September 2025, the Company entered into a Fourth Amendment to License Agreement, or the Fourth Amendment, and Fifth Amendment to License Agreement, or the Fifth Amendment, and, together with the Fourth Amendment, the Amendments, with Broad Institute, which amended the Broad License Agreement, to, among other things, modify certain licensed patent applications listed therein. Except as expressly stated in the Amendments, all other terms and provisions of the Broad License Agreement shall remain in full force and effect. +Side Letter No. 2 to The Broad Institute License Agreement +In connection with the Amendments, the Company also entered into a second letter agreement, or the Second Letter Agreement, with Broad Institute in September 2025, which amends the Broad License Agreement. The Second Letter Agreement, among other things, modifies certain development milestones and related payment obligations under the BMS Collaboration Agreement. Except as expressly stated in the Second Letter Agreement, all other terms and provisions of the Broad License Agreement shall remain in full force and effect. +Broad Pledge +In February 2021, the Company committed to donate $ 5.0 million to Broad Institute and Harvard University annually for 14 years, commencing in 2022, or the Pledge. The Pledge is intended to be used for research and development related to new genome editing technologies, for example Prime Editing, improve on existing genome-editing technologies, identify delivery mechanisms for these technologies and apply these technologies to the understanding and treatment of rare genetic diseases. The Company can terminate the Pledge at its discretion, subject to providing one year of funding from the date of termination. In August 2022, the Company amended and +F-28 +restated the Pledge to clarify that the funds may be used by the laboratory of David Liu, who is a member of Broad Institute and a faculty member at Harvard. +The Company accounts for this Pledge as research and development expenses as it has access to certain data generated as a result of the Pledge. For both the years ended December 31, 2025 and 2024, the Company recognized $ 5.0 million of research and development expense in connection with the Pledge. +Beam Collaboration Agreement — Related Party +In September 2019, the Company entered into a collaboration agreement with Beam, or the Beam Collaboration Agreement, to collaborate on the research, development, manufacture and commercialization of certain Prime Editing products within a specified field and provide each other with access and licenses to certain proprietary technology to advance the other’s progress. Under the Beam Collaboration Agreement, the Company granted Beam an exclusive (even as to the Company and its affiliates), worldwide license under (i) certain Prime Editing technology, know-how and patent rights that the Company controls during the initial term, and improvements thereto that the Company controls for a specified number of years following the initial term, and (ii) the Company’s interest in certain jointly-owned collaboration technology, in each case, solely to develop, make, have made, use, offer for sale, sell, import and commercialize licensed products only in the Beam field. Beam granted to the Company certain non-exclusive, worldwide licenses under certain technology, know-how and patent rights, including under certain CRISPR or delivery-related technology, know-how and patent rights, that it controls during the initial term, and improvements thereto that Beam controls for a specified number of years following the initial term, solely to develop, make, have made, use, offer for sale, sell, import and commercialize products only in the Company’s field. +Subject to certain provisions, on a licensed product-by-licensed product basis, we have the right to elect to share equally with Beam in the profits and losses in the United States for Beam’s licensed products. We may exercise such right for each licensed product within a specified period of time. Any such licensed product for which we exercise such right we refer to as a collaboration product. +Before and within 30 days after the filing of an IND for a development candidate being developed under the Beam Collaboration Agreement, Beam has the option to designate up to a mid-single digit number of licensed products for which the Company is not permitted to exercise the profit share right, or the Beam Option. Under the Beam Collaboration Agreement, a licensed product for which the Company has not exercised its profit share option or for which Beam has exercised the Beam Option is collectively referred to as “protected product.” Unless the Company exercises its profit sharing option for a licensed product, Beam is solely responsible for the development and commercialization of licensed products in the Beam field under the Beam Collaboration Agreement. If Beam exercises its option for a protected product, Beam will owe Prime a payment of $ 5.0 million if the product is developed for non-sickle cell disease or $ 10.0 million if the product is developed for sickle cell disease. +Under the terms of the Beam Collaboration Agreement, the Company is entitled to following milestones: +Development milestones +Protected product +Up to $ 35.5 million +Collaboration product +Up to $ 17.8 million +Sales milestones +Protected product +Up to $ 84.5 million +Collaboration product +Up to $ 42.3 million +For eligible products, Beam is obligated to pay the Company tiered royalties, subject to customary offsets and reductions, ranging from a high-single digit percentage to a low double-digit percentage, but less than teens on net sales of protected products worldwide and net sales of collaboration products outside of the United States. In addition, Beam must reimburse the Company for certain payments the Company is required to make to its third-party licensors attributable to Beam’s exercise of any sublicense the Company grants to Beam, including payments it makes to Broad Institute under the Broad License Agreement. +F-29 +If the Company develops a product that is covered by the technology, know-how or patent rights that Beam licenses to the Company under the Beam Collaboration Agreement, which it refers to as a Prime product, the Company is obligated to pay to Beam a low single digit royalty on its worldwide net sales of such any product on a Prime product-by-Prime product and country-by-country basis, subject to certain customary reductions, to a floor. +Unless earlier terminated in accordance with its terms, the Beam Collaboration Agreement will expire on the later of (a) expiration of the last royalty term for a product on which a party is obligated to pay royalties to the other party or (b) with respect to any collaboration product, the date on which neither party is developing or commercializing any such collaboration product in the United States. +After expiration of the initial term, Beam can terminate the Beam Collaboration Agreement for convenience in its entirety, or on a licensed product-by-licensed product or subfield-by-subfield basis, with prior written notice to the Company. Each party may terminate the Beam Collaboration Agreement for (a) the other party’s uncured material breach, (b) upon the insolvency or bankruptcy of the other party or (c) immediately to the extent the other party (or its affiliates or sublicensees) challenges a patent right licensed to such party. +On the first anniversary of the Beam Collaboration Agreement, the Company received 200,307 shares of Beam common stock, with a fair value of $ 5.5 million and, in return, the Company issued to Beam 1,608,337 shares of the Company’s common stock, with a fair value of $ 0.2 million. +The Company is currently engaged in arbitration proceedings with Beam regarding the Beam Collaboration Agreement. A dispute arose between the parties following the Company’s March 18, 2025 announcement that it is developing a Prime Editing-based treatment for alpha-1 antitrypsin deficiency, or AATD. On April 16, 2025, Beam filed an arbitration demand with the American Arbitration Association, or AAA, alleging that the Company has breached the Agreement by developing a product for the treatment of AATD and by allegedly not complying with certain obligations to transfer technical information to Beam pursuant to the Beam Collaboration Agreement. Beam also makes related claims for trade secret misappropriation and various business torts based on similar allegations, including allegations made on information and belief. Beam seeks both declaratory, injunctive, and monetary relief, but has not yet quantified the amount of damages it seeks. On April 18, 2025, the Company filed an arbitration demand with the AAA seeking a declaration that the Company’s AATD program is within our “Field” as defined by the Beam Collaboration Agreement. The arbitrations have been consolidated, and the consolidated proceeding remains ongoing. If the final resolution of the matter is adverse to the Company, the arbitration panel may provide Beam with relief including, among other things, monetary damages and/or an order that the Company cease work on its AATD program and transfer such program to Beam. +Accounting Considerations +The Company concluded that the Beam Collaboration Agreement and the Beam Mutual Subscription Agreement should be combined and treated as a single arrangement for accounting purposes as the agreements were entered into contemporaneously and in contemplation of one another. The Company determined that the combined agreements are accounted for under ASC 606 . The Company identified the following performance obligations: (i) exclusive, worldwide license to certain Prime patents, (ii) non-exclusive, worldwide licenses to CRISPR technology and (iii) joint research committee participation. +The Company also evaluated whether the Beam Option and the Company’s right to elect collaboration products in the Beam Collaboration Agreement represented material rights that would give rise to a performance obligation and concluded that neither the Beam Option nor the Company’s right to elect collaboration products convey a material right to Beam and therefore are not considered separate performance obligations within the Beam Collaboration Agreement. There have been no protected product or collaboration products to date. Under the Beam Collaboration Agreement, the Company is eligible to receive certain milestones and royalties regardless of whether any options are exercised, which are considered variable consideration. At each reporting period, the Company evaluates whether milestones are considered probable of being reached and, to the extent that a significant reversal would not occur in future periods, estimates the amount to be included in the transaction price. During the years ended December 31, 2025 and 2024 the Company did not receive any milestone payments and all variable consideration related to the Beam Collaboration Agreement remained fully constrained. The Company assessed the above promises and determined that the exclusive license for certain Prime products and non-exclusive licenses to CRISPR technology represent performance obligations within the scope of ASC 606. The exclusive license for certain Prime products +F-30 +and non-exclusive licenses to CRISPR technology are considered functional intellectual property and distinct from other promises under the contract. The exclusive license for certain Prime products and non-exclusive licenses to CRISPR technology are considered functional licenses that are distinct in the context of the Beam Collaboration Agreement as Beam can benefit from the licenses on its own or together with other readily available resources. As the exclusive license for certain Prime products and non-exclusive licenses to CRISPR technology are delivered at the same time, they are considered one performance obligation at contract inception. The joint research committee performance promise is immaterial in the context of the contract. +The Company determined the transaction price under ASC 606 at the inception of the Beam Collaboration Agreement to be $ 5.2 million, consisting of the value of the Beam equity investment under the Beam Mutual Subscription Agreement, when measured at fair value, less the value of the Prime shares issued to Beam of $ 0.2 million. The shares Prime issued to Beam represents a payment to a customer and is therefore a reduction of the transaction price. +The Company recognizes revenue for the license performance obligations at a point in time, as control of these licenses are transferred upon issuance and Beam could begin to use and benefit from the licenses. There was no revenue recognized under the Beam Collaboration Agreement during the years ended December 31, 2025 or 2024. +The change fair value of the related party short-term investment consisting of Beam shares are recognized as unrealized gain (loss) i n the consolidated statements of operations and comprehensive loss. +Bristol-Myers Squibb — Related Party +In September 2024, the Company entered into the BMS Collaboration Agreement with Juno Therapeutics, Inc., a wholly-owned subsidiary of Bristol-Myers Squibb, or BMS. Under the terms of the BMS Collaboration Agreement, the Company granted to BMS an exclusive worldwide license to certain Prime Editing technology for developing, manufacturing and commercializing ex vivo T-cell therapeutic products directed to select targets. Additionally, on the Effective Date, the Company entered into the BMS Purchase Agreement with BMS, pursuant which the Company agreed to sell and issue shares of its common stock to BMS. +Research Collaboration and License Agreement +Pursuant to the BMS Collaboration Agreement, the Company will design Prime Editing reagents to be used by BMS to develop, manufacture and commercialize ex vivo T-cell therapeutic products directed to specific targets selected by BMS. +Under the BMS Collaboration Agreement, the Company received a $ 55.0 million upfront payment and received a $ 55.0 million equity investment from BMS (as described below). The Company is also eligible to receive more than $ 3.5 billion in milestones, including up to $ 185 million in preclinical milestones, up to $ 1.2 billion in development milestones, and up to $ 2.1 billion in commercialization milestones, along with royalties on net sales. +Unless earlier terminated, the term of the BMS Collaboration Agreement continues until expiration of the last royalty term for the applicable product in the applicable country. The BMS Collaboration Agreement is subject to customary termination provisions, including termination by a party for the other party’s uncured, material breach. +Stock Purchase Agreement +On the Effective Date, the Company entered into the BMS Purchase Agreement with BMS, pursuant to which the Company agreed to issue and sell, and BMS agreed to purchase, in the Offering, 11,006,163 Shares of the Company’s Common Stock for an aggregate purchase price of $ 55.0 million pursuant to the terms and conditions thereof. Pursuant to the terms of the BMS Purchase Agreement, BMS has agreed not to, directly or indirectly, sell or transfer any of the Shares until September 30, 2027 subject to specified conditions and exceptions. The BMS Collaboration Agreement and Stock Purchase Agreement were accounted for as a combined contract. The Common Stock were recorded at their fair value as permanent equity. +F-31 +Accounting Considerations +The Company assessed the BMS Collaboration Agreement and concluded that BMS is a customer. The Company identified the following promises under the contract: (i) a license to develop, manufacture and commercialize the ex vivo T-cell therapeutic products to select targets, (ii) obligation to perform research services, (iii) participation in various committees, (iv) technology transfer services, and (v) regulatory support services. The Company assessed the promised goods and services to determine if they are distinct. Based on this assessment, the Company determined that BMS cannot benefit from the promised goods and services separately from the others as they are highly interrelated and interdependent and therefore not distinct. Accordingly, the promised goods and services represent one combined performance obligation and the entire transaction price will be allocated to that single combined performance obligation. +At contract inception, the transaction price was determined to be $ 72.0 million, which represents the aggregate of the upfront nonrefundable payment for the BMS Collaboration Agreement and the premium paid by BMS on its equity investment in the Company. Development milestones were fully constrained. The Company recognizes the portion of the transaction price as the single performance obligation is satisfied, using an input method, in proportion to costs incurred to date as compared to total costs incurred and expected to be incurred in the future to satisfy the underlying obligation. The transfer of control occurs over this period and, in management’s judgment, is the best measure of progress towards satisfying the performance obligation. Cost to perform the Company’s obligations under the BMS Collaboration Agreement will be recognized as research and development expenses in the period incurred. +Revenue recognized from the BMS Collaboration Agreement was as follows: +Year Ended December 31, +(in thousands) 2025 2024 +Collaboration revenue — related party $ 4,586 $ 1,609 +Supplemental information related to the BMS Collaboration Agreement consisted of the following: +December 31, +(in thousands) 2025 2024 +Deferred revenue — related party $ 7,824 $ 7,092 +Deferred revenue, net of current — related party 58,127 63,218 +Cystic Fibrosis Foundation +In July 2025, the Company entered into an agreement with the Cystic Fibrosis Foundation, or CFF, under which CFF has agreed to provide up to $ 24 million in additional funding to accelerate the development of Prime Editors designed to permanently correct cystic fibrosis-related lung disease. The $ 24 million funding includes two equal tranches, subject to certain closing conditions and scientific milestones. The first tranche included a $ 6 million cash funding, or Royalty Funding, received in August 2025, and a $ 6 million equity investment in the Company, which was received as part of the August 2025 offering. Any proceeds under the second tranche are payable subject to achieving specific milestones which have not been achieved to date. The Company is obligated to return any of the Royalty Funding not used in development of the program covered by this agreement. +In return, the Company has agreed to pay to CFF royalties on future sales of any products covered under this agreement, to be determined based on the aggregate annual net sales of products and net amount of Royalty Funding received by the Company. In addition, in the event of a sale, license or transfer to a third-party of rights in the technology developed under this agreement, or a change of control transaction, the Company will pay a percentage of the proceeds received to CFF, up to 2.5 x the net Royalty Funding received. +CFF’s additional investment builds on initial funding received under the Company’s therapeutic development agreement with CFF in January 2024. +F-32 +Accounting Considerations +Due to the Company’s obligation to repay the Royalty Funding in the event of a change in control regardless of the outcome of the research and development associated with the payment, the Company determined that CFF’s $ 6 million Royalty Funding represented a liability. This amount, along with the $ 12.0 million received under the CFF agreement entered into in 2024, half of which was received in 2024 and half of which was received in 2025, is recorded as research funding liability on the condensed consolidated balance sheets. +10. Net Loss per Share +As described in Note 2, Summary of Significant Accounting Policies , for periods in which the Company reports a net loss, potentially dilutive securities have been excluded from the computation of diluted net loss per share as their effects would be anti-dilutive. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share is the same. The Company excluded the following potential common shares presented based on amounts outstanding at period end, from the computation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect: +Year Ended December 31, +2025 2024 +Anti-dilutive common stock equivalents: +Stock options to purchase common stock 16,450,783 11,900,921 +Unvested restricted common stock awards 3,472,546 3,497,474 +Total anti-dilutive common stock equivalents 19,923,329 15,398,395 +Basic and diluted loss per share is computed by dividing net loss by the weighted-average common shares outstanding: +Year Ended December 31, +(in thousands, except share and per share data) 2025 2024 +Numerator: +Net loss attributable to common stockholders $ ( 201,142 ) $ ( 195,882 ) +Denominator: +Weighted-average common shares outstanding, basic and diluted 148,758,527 118,600,381 +Net loss per share attributable to common stockholders, basic and diluted $ ( 1.35 ) $ ( 1.65 ) +The weighted-average number of common shares outstanding used in the basic and diluted net loss per share calculations for the year ended December 31, 2024 includes the weighted-average effect of pre-funded warrants sold by the Company to purchase 3,200,005 shares of the Company's common stock. The shares of common stock underlying the pre-funded warrants are considered outstanding for the purposes of computing earnings per share, because the shares may be issued for little or no consideration, they are fully vested, and the pre-funded warrants are immediately exercisable upon their issuance date. Refer to Note 7, Stockholder’s Equity , for details on the holder’s May 2025 exercise of the pre-funded warrants. +F-33 +11. Income Taxes +The Company did not have any income tax expense (benefit) during the years ended ended December 31, 2025 or 2024. A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate for the year ended December 31, 2025 is as follows: +Rate +(%) Amount +(in thousands) +U.S. federal statutory tax rate 21.0 % Year Ended $ ( 42,240 ) +State and local taxes, net of federal effect — % Year Ended — +Tax credits Year Ended +Research and development credit 2.3 % Year Ended ( 4,634 ) +Changes in valuation allowances ( 22.3 ) % Year Ended 44,865 +Nontaxable or nondeductible items Year Ended +Stock compensation ( 0.3 ) % Year Ended 633 +162(m) Comp Limit — % Year Ended 62 +Other items ( 0.1 ) % Year Ended 291 +Other Adjustments ( 0.6 ) % Year Ended 1,023 +Effective income tax rate — % Year Ended $ — +A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate for the year ended December 31, 2024 is as follows: +Rate +(%) +Federal income tax expense at statutory rate 21.0 % +State income taxes, net of federal benefit 7.4 % +Tax credits 2.6 % +Permanent differences ( 0.9 ) % +Other 0.8 % +Change in valuation allowance ( 30.8 ) % +Effective income tax rate — % +F-34 +Net deferred tax assets (liabilities) consisted of the following: +December 31, +(in thousands) 2025 2024 +Deferred tax assets: +Capitalized research and development costs $ 50,092 $ 74,605 +U.S. and state net operating loss carryforwards 116,777 61,501 +Depreciation and amortization 14,060 12,829 +Tax credits 30,004 22,986 +Accrual 19,830 2,334 +Lease Liability 31,826 12,228 +Stock Compensation 11,315 6,005 +Other — 141 +Total deferred tax assets 273,904 192,629 +Deferred tax liabilities: +Right of Use Asset ( 34,491 ) ( 12,852 ) +Total deferred tax liabilities ( 34,491 ) ( 12,852 ) +Valuation allowance ( 239,413 ) ( 179,777 ) +Net deferred tax assets (liabilities) $ — $ — +The following is a summary of the Company’s net operating loss and tax credit carryforwards, both of which may be available to reduce future tax liabilities: +December 31, +(in thousands) 2025 2024 +U.S. federal net operating loss - do not expire $ 429,230 $ 226,904 +State net operating loss - expire at various dates beginning in 2039 +421,882 219,351 +Federal research and development tax credits - expire at various dates beginning in 2040 +19,717 15,082 +State research and development tax credits - expire at various dates beginning in 2036 +13,021 10,005 +Utilization of the U.S. federal and state net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, and corresponding provisions of state law, due to certain ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income and tax liabilities. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study. If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before their utilization. Further, until a study is completed by the Company and any limitation is known, no amounts are being presented as an uncertain tax position. +On July 4, 2025, President Trump signed H.R. 1, the “One Big Beautiful Bill Act”, or the Act, into law. The legislation includes several changes to federal tax law that are designed to allow for more favorable deductibility of certain business expenses and more favorable rules for determining the limitation on business interest expense. The +F-35 +Company will continue to capitalize foreign R&D costs this year and amortize over 15 years. For US R&D costs, the Company expensed 2025 expenses and continues to amortize previously capitalized R&D costs over the original 5-year life. For the years ended December 31, 2025 and 2024, the Company capitalized foreign R&D costs of $ 11.7 million and $ 8.3 million, respectively. +The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company’s history of cumulative net losses incurred since inception, expectation of future losses and lack of other positive evidence. For the years ended December 31, 2025 and 2024, the Company was in a net deferred tax asset position and therefore recorded a valuation allowance against the portion of its deferred tax assets that cannot be fully supported by the future reversal of existing deferred tax liabilities. The Company reevaluates the positive and negative evidence at each reporting period. +For the year ended December 31, 2025, the valuation allowance increased primarily due to the increases in net operating loss carryforwards, capitalized research and development costs, and research and development tax credit carryforwards. The changes in the valuation allowance were as follows: +Year Ended December 31, +(in thousands) 2025 2024 +Valuation allowance at beginning of year $ 179,777 $ 119,250 +Increases (decreases) recorded to income tax provision 59,636 60,527 +Valuation allowance at end of year $ 239,413 $ 179,777 +The Company assesses the uncertainty in its income tax positions to determine whether a tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related appeals of litigation processes, based on the technical merits of the position. For tax positions meeting the more-likely-than-not threshold, the tax amount recognized in the financial statements is reduced by the largest benefit that has a greater than 50 percent likelihood of being realized upon the ultimate settlement with the relevant taxing authority. As of December 31, 2025, the Company had not recorded any reserves for uncertain tax positions or related interest and penalties. +The Company files income tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all years in which a loss carryforward is available. As of December 31, 2025, there were no pending tax examinations. The Company is open to future tax examination under statute from 2019 to the present. +12. Commitments and Contingencies +Leases +The Company’s commitments under its operating leases are described in Note 6, Leases . +License and Collaboration Agreements +The Company entered into various license and collaboration agreements under which it is obligated to make fixed and contingent payments as described in Note 9, License and Collaboration Agreements . +Legal Proceedings +From time to time, the Company may become involved in legal proceedings or other litigation relating to claims arising in the ordinary course of business. The Company accrues a liability for such matters when it is probable that future expenditures will be made and that such expenditures can be reasonably estimated. Significant judgment is required to determine both probability and estimated exposure amount. Legal fees and other costs associated with such proceedings are expensed as incurred. Except as described in Note 9, License and Collaboration Agreements , +F-36 +we do not have any ongoing legal proceedings that, based on our estimates, could have a material effect on our consolidated financial statements. +13. Related Party Transactions +Agreements with Jeffrey Marrazzo +In February 2024, the Company entered into an advisory services agreement, or Marrazzo Agreement, with Jeffrey Marrazzo, a member of the board of directors. Under the Marrazzo Agreement, Mr. Marrazzo agreed to provide certain professional services to the Company separate from and in addition to his service as a member of our board of directors. For his services, the Company agreed to pay Mr. Marrazzo an annual fee of $ 50,000 per year in addition to the grant of an option to purchase 250,000 shares of the Company’s common stock, which has a grant date fair value of $ 1.5 million. The Marrazzo Agreement expired in February 2025. +Additionally, Mr. Marrazzo and the Company entered into an executive chair agreement, or the Executive Chair Agreement, in May 2025. Under the Executive Chair Agreement, Mr. Marrazzo agreed to provide services as the executive chair of our board of directors, and the Company agreed to pay Mr. Marrazzo an annual fee of $ 100,000 per year in addition to the grant of options to purchase a total of 1,000,000 shares of the Company’s common stock consisting of (i) a time-based option to purchase 500,000 shares, (ii) a performance-based option to purchase 200,000 shares, and (iii) a market-based option to purchase 300,000 shares. The grant of options has a aggregate grant date fair value of $ 1.0 million. +The Executive Chair Agreement will continue indefinitely until terminated in accordance with its terms. If the Executive Chair Agreement is terminated between six-months and one-year of its effective date, a minimum of 250,000 shares subject to the time-based option will vest. +In the event of a Sale Event (as defined in the 2022 Plan), all of the then-outstanding and unvested portions of the time-based option, 50 % of the then-outstanding and unvested portions of the performance-based option, and any of the then-outstanding and unvested portions of the market-based option for which the applicable stock-price milestone has been satisfied in connection with the Sale Event, will become vested and exercisable. +Bristol-Myers Squibb +In September 2024, the Company and BMS, a related party, entered into the BMS Collaboration Agreement and the BMS Purchase Agreement. BMS is a related party due to its share of ownership of the Company. For amounts recognized under the BMS Collaboration Agreement, refer to Note 9, Licenses and Collaboration Agreements . +F-37 \ No newline at end of file diff --git a/raw/filings/0001894562/2025/0001628280-26-013569/filing_metadata.csv b/raw/filings/0001894562/2025/0001628280-26-013569/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..ff1c1babffcccc5e06b9dcdc786a998a0f11ad70 --- /dev/null +++ b/raw/filings/0001894562/2025/0001628280-26-013569/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001894562,PRME,"Prime Medicine, Inc.",2025,10-K,2026-03-03,2025-12-31,2026-03-03T13:19:51.000Z,0001628280-26-013569,prme-20251231.htm,10-K,9790035,1,1,https://www.sec.gov/Archives/edgar/data/1894562/000162828026013569/prme-20251231.htm,https://www.sec.gov/Archives/edgar/data/1894562/000162828026013569/ diff --git a/raw/filings/0001894562/2025/0001628280-26-013569/item1.txt b/raw/filings/0001894562/2025/0001628280-26-013569/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..5a4d4dea5998ab05ec8b52cc1115bdd32430149f --- /dev/null +++ b/raw/filings/0001894562/2025/0001628280-26-013569/item1.txt @@ -0,0 +1,361 @@ +ITEM 1. Business +Overview +We are a biotechnology company focused on developing a new class of genetic medicines designed to provide durable, and potentially curative, treatment options for patients with diseases driven by defined genetic alterations, acquired cellular dysfunction, or dysregulated gene expression. Our approach is grounded in Prime Editing, a next-generation gene editing technology that enables targeted modifications to genomic DNA without introducing double-stranded breaks. We believe Prime Editing represents the most versatile and precise method for rewriting, replacing, or repairing DNA sequences and may allow us to address a broad spectrum of diseases with an improved safety and specificity profile relative to earlier editing technologies. We are advancing a pipeline of wholly owned in vivo programs targeting diseases of the liver, Cystic Fibrosis, or CF, programs with the support of the Cystic Fibrosis Foundation, or CFF, and partnered ex vivo programs with Bristol-Myers Squibb, or BMS, supported by our modular delivery and Prime Editor platform. Early clinical data from our ex vivo program, PM359 for CGD, have demonstrated restoration of functional protein activity in treated patients, providing clinical validation of Prime Editing and a potentially curative treatment for CGD patients. +Genetic diseases affecting the liver and lung, as well as hematologic disorders addressed through ex vivo editing, represent our initial development priorities. Many of these diseases arise from well-characterized mutations, have established natural histories, and impose meaningful clinical burdens on patients, caregivers and physicians despite available standard-of-care therapies. We believe these attributes enable efficient clinical development, clear biomarker-driven readouts, and the potential to demonstrate meaningful patient benefit in early-stage clinical studies. +Our lead program, PM577 for Wilson Disease, is designed to initially correct the H1069Q mutation in the ATP7B gene and is supported by preclinical data showing targeted correction and restoration of copper homeostasis in animal models. We are also developing follow-on Prime Editors capable of addressing additional ATP7B mutations, enabling a modular and efficient expansion of the Wilson franchise. In addition, PM647 is being advanced for alpha-1 antitrypsin deficiency, or AATD, another liver targeted disease with substantial unmet need. Beyond these efforts, we are progressing a program in CF using Prime Editing delivered via lipid nanoparticles, or LNPs, or adeno-associated viruses, or AAVs. +We have constructed an integrated Prime Editing platform engineered to support rapid iteration, standardized manufacturing, and shared toxicology and Chemistry, Manufacturing, and Controls, or CMC, pathways across programs, thereby enabling efficient advancement of multiple therapeutic candidates. By maintaining core delivery and editor components while altering program-specific guide RNAs and repair templates, we believe we can leverage platform-level knowledge to expedite new candidate identification and streamline IND-enabling activities, especially within common tissues. +Our organization is intentionally structured to support clinical development and regulatory engagement as we prepare for multiple parallel clinical trials. We are investing in scalable manufacturing and quality systems capable of supporting clinical supply for our lead programs. Consistent with industry practice, we also seek to augment our internal capabilities through collaborations. Our partnership with BMS, focused on applying Prime Editing to ex vivo T-cell engineering, reflects the potential applicability of Prime Editing across therapeutic modalities. We believe the insights gained through this collaboration may inform future applications of Prime Editing in immunology and oncology. +Looking ahead, our strategy is to advance Prime Editing programs through clinical development, leverage our modular platform to expand into additional indications, and pursue disciplined portfolio prioritization anchored in clear scientific, development, and commercial criteria. We expect our focus on liver-directed in vivo editing, combined with the modularity of our platform, will allow us to build a pipeline with breadth and depth while maintaining operational efficiency and disciplined capital deployment. Ultimately, our goal is to translate Prime Editing into a clinically and commercially validated therapeutic modality for the treatment across an array of severe genetic diseases and tissue types. +1 +Prime Editing Technology +Prime Editing is a gene editing approach that uses a Cas9 nickase fused to a reverse transcriptase and guided by a prime editing guide RNA, or pegRNA, to introduce defined edits at specified genomic locations. Unlike CRISPR nuclease systems that rely on double-stranded DNA breaks, or DSBs, and endogenous repair pathways such as non-homologous end joining, Prime Editing creates a single-stranded nick and directs the incorporation of a desired edit through reverse transcription using the pegRNA as a template. This method enables the precise correction, insertion, deletion, or replacement of DNA sequences and is capable of addressing a wide range of genetic abnormalities, including those not amenable to base editing or traditional homology-directed repair approaches. +The pegRNA used in Prime Editing contains three functional components: (i) a spacer sequence that directs the Prime Editor to the target genomic locus; (ii) a primer binding site that anneals to the nicked target DNA strand; and (iii) a reverse transcription template that encodes the desired edit. Upon binding to the target site, the Cas9 nickase creates a single-stranded break, enabling hybridization of DNA to the primer binding site of the pegRNA to initiate reverse transcription. The reverse transcriptase enzyme then extends the DNA strand using the pegRNA as a template, and the edit-containing DNA strand is incorporated through endogenous repair mechanisms. +We believe Prime Editing offers several potential advantages. Because it does not require DSBs, it eliminates the formation of indels, chromosomal rearrangements, or large-scale genomic disruptions, each of which has been observed with nuclease-based genome editing. Prime Editing also enables multi-base edits, transversion base pair edits, and the installation or removal of long DNA sequences, allowing for broad applicability across mutation types. Preclinical data across various disease models have demonstrated high editing efficiencies with undetectable off-target activity. As a platform, Prime Editing benefits from modular design principles: core editing machinery can be paired with disease-specific pegRNAs, enabling rapid adaptation to new targets while maintaining consistent delivery and CMC characteristics. +We have developed a suite of Prime Editors optimized for different cell types and genomic contexts. These include Prime Editor variants with enhanced activity, increased specificity, expanded PAM compatibility, and/or reduced size which can be delivered by LNP or AAV. Our platform uses systematic, high-throughput screening of Prime Editor components to identify optimal combinations of guide RNAs, reverse transcriptase templates, Cas9, and reverse transcriptase, or RT, protein variants tailored to specific gene targets and programs. We believe continued innovation in editor engineering, guide design, and delivery technologies will support the expansion of Prime Editing across therapeutic areas. +Differentiation of Prime Editors vs. CRISPR Nucleases, Base Editors, and RNA Editors +The gene editing landscape includes several modalities, each with distinct mechanisms, capabilities, and risk profiles. Prime Editing is differentiated from CRISPR nucleases, base editors, and RNA editing tools on multiple dimensions, including precision, versatility, and expected genomic stability. +CRISPR nucleases, such as Cas9 and Cas12a, introduce DSBs at target sites, triggering endogenous DNA repair mechanisms that can result in unintended insertions or deletions (indels). These outcomes can disrupt gene function and may lead to chromosomal rearrangements or translocations. While nuclease-based editing has demonstrated clinical efficacy for disruption of genes or regulatory elements through the formation of indels, the risk of DSB-associated genomic instability remains a consideration. By contrast, Prime Editing uses a single-strand nick, which reduces reliance on error-prone repair pathways and is associated with a lower frequency of indels or structural variants in preclinical studies. Moreover, Prime Editing is capable of making a variety of precise edits including those that directly correct pathogenic variants. +Base editors primarily perform targeted C•G-to-T•A or A•T-to-G•C conversions without generating DSBs but are constrained to specific substitution types and may introduce bystander edits at adjacent nucleotides within the editing window. These unintended edits may alter protein function or introduce novel variants with unknown effects. Prime Editing enables broader editing outcomes, including transversions, multi-base corrections, and small insertions and deletions, while eliminating bystander activity through the use of a reverse transcription template that encodes only the intended edit. +2 +RNA editing technologies, including ADAR-based tools, modify RNA transcripts rather than genomic DNA. These approaches enable transient modification of gene expression but do not provide permanent correction and must be repeatedly administered to maintain therapeutic effect. Furthermore, RNA editing is typically limited to A-to-I or C-to-U transitions and cannot address many pathogenic variants. Prime Editing produces permanent genomic changes and can address mutation types not amenable to RNA editing. +Across multiple preclinical programs, including Wilson Disease and AATD, Prime Editing has demonstrated high editing efficiencies and favorable specificity profiles. For example, our lead Wilson program has shown targeted correction exceeding 80% in humanized mouse models with normalization of disease-relevant biomarkers with no detectable off-target editing. In AATD, comparative analyses with other gene editing approaches have highlighted Prime Editing’s ability to restore wild-type protein expression. While clinical data will be required to determine the relative benefits of each modality, we believe Prime Editing has the potential to enable precise and durable correction across a broad range of genetically defined diseases. +Prime Editing Platform Architecture +The core components of our platform include the Prime Editor enzyme, pegRNAs, and delivery vehicles. We use Cas9 nickase-reverse transcriptase fusion proteins engineered for enhanced activity and specificity. For pegRNA design, our modular process incorporates computational modeling, high-throughput screening, and empirical testing to identify optimal guide and template configurations. This design framework allows us to rapidly adjust pegRNAs for new mutations while maintaining the same underlying editor and delivery system. +Modularity and Development Efficiency +Modularity is central to our platform. The core editing machinery and delivery system can be held constant while substituting mutation-specific pegRNAs and, frequently, the mRNA. Modular design supports several anticipated efficiencies: +• High-Throughput Modular Editor Screening: Our systematic screening of editor variants and pegRNA constructs allows us to identify optimal combinations for each target with reduced development timelines. +• Shared Toxicology Framework: When delivery systems and editors are conserved, toxicology packages may be broadly informative across programs. This approach supports the rationale for an umbrella-IND strategy in certain mutation clusters, such as Wilson Disease, where multiple ATP7B mutations may be addressed using editors delivered via the same LNP backbone. +• Shared CMC and Manufacturing Pathways: Retaining common LNP compositions and editor constructs across programs allows us to leverage prior manufacturing experience, reduce analytical complexity, and streamline scale-up. +• Guide-RNA Swapping and Mutation-Specific Scalability: Because only the pegRNA sequence changes to address a new mutation, we can generate follow-on candidates rapidly and evaluate them using standardized in vitro and in vivo assays. +• Clinical Development: Conserved delivery systems and editor architectures across programs enables harmonized clinical trial designs, shared biomarker strategies, and standardized dose-escalation frameworks. This modularity has the potential to reduce protocol complexity, support cross-program learning, and improve capital efficiency as multiple mutation-specific candidates advance through clinical development. +• Regulatory: Consistency in editor components, delivery systems, and manufacturing processes may facilitate more efficient regulatory interactions by allowing prior nonclinical, CMC, and clinical experience to inform subsequent submissions. We believe this platform-level continuity supports a more predictable regulatory review process, particularly for follow-on candidates targeting distinct mutations within the same gene or disease area. +3 +Corporate Strategy +Our corporate strategy is designed to advance Prime Editing as a differentiated therapeutic modality, with a focus on operational discipline, scientific rigor, and development credibility. We intend to pursue a sequenced development approach that emphasizes indications with clear genetic etiology, substantial unmet medical need, and well-defined clinical and regulatory pathways. Liver-directed diseases represent our initial strategic priority because they are driven by mutations in genes expressed in hepatocytes, generally rely on established biomarkers and imaging modalities for assessing treatment response, and are amenable to LNP-based systemic delivery. These characteristics support efficient early clinical development and alignment with regulatory agencies. +A core strategic objective is to utilize the modularity of our Prime Editing platform to expand our pipeline while maintaining development efficiency. By conserving our Prime Editor architecture and LNP delivery system across programs, we aim to reduce CMC and toxicology burden for follow-on candidates and potentially enable umbrella regulatory strategies in diseases with heterogeneous mutation landscapes and across diseases utilizing shared Prime Editing components. This approach is particularly relevant for Wilson Disease, where multiple ATP7B mutations account for a large portion of the global patient population. Through continued investment in editor optimization and guide design, we intend to develop and advance mutation-specific editors that leverage shared platform components. +We also seek to maintain disciplined portfolio prioritization. As disclosed in prior periods, we narrowed our internal focus from a broader set of early-stage programs to a concentrated pipeline centered on in vivo liver-directed editing, where we believe Prime Editing can offer the most immediate clinical and regulatory impact. We intend to evaluate additional indications using a structured framework that considers scientific feasibility, clinical and regulatory tractability, and long-term commercial value. Future investments will be guided by a balanced assessment of risk, resource requirements, and strategic value. +Partnerships represent another core component of our strategy. We intend to collaborate with organizations that offer complementary capabilities, such as cell therapy expertise, manufacturing scale, or disease-area specialization. Our partnership with BMS exemplifies this approach, enabling the application of Prime Editing to ex vivo T-cell engineering without diverting internal resources from our core in vivo pipeline. We will continue to evaluate collaborations that allow us to expand the reach of Prime Editing and bolster our financial resources while focusing internal efforts on areas of highest strategic priority. +Finally, we are investing in manufacturing, quality systems, and regulatory infrastructure to support the advancement of multiple programs into clinical trials. These investments include LNP manufacturing processes, analytical method development, and IND-enabling studies. We intend to maintain readiness for multiple IND/Clinical Trial Application, or CTA, submissions and to support the transition to clinical-stage operations, including potential early-phase trial execution and regulatory interactions. +Pipeline Overview +Our pipeline includes wholly owned in vivo programs targeting liver genetic diseases - Wilson Disease, AATD - as well as early-stage discovery efforts in CF. In addition, our PM359 program in chronic granulomatous disease serves as a validation of Prime Editing in humans and we plan to submit a BLA following final regulatory alignment. We also have a collaboration with BMS to apply Prime Editing to ex vivo T-cell engineering for oncology and immunology indications. +PM359 for Chronic Granulomatous Disease +Clinical Overview and Data Summary +PM359 is an ex vivo Prime Editing program designed to correct the ΔGT mutation in the NCF1 gene, the most common cause of CGD. We believe this program provides important validation of Prime Editing in human cells. In a Phase 1/2 clinical study conducted in patients undergoing autologous hematopoietic stem cell transplantation, PM359 demonstrated rapid and durable restoration of NADPH oxidase activity to levels exceeding established therapeutic thresholds, accompanied by prompt neutrophil and platelet engraftment within two to three weeks post-transplant. Both patients remained free of new CGD-related complications or significant intercurrent illness during follow-up, with one patient showing improvement in inflammatory markers, supporting the potential for clinically +4 +meaningful disease modification rather than biomarker correction alone. No serious adverse events attributable to Prime Editing were reported as of disclosed data cutoffs. +Scientific Importance +The PM359 clinical data support the feasibility of Prime Editing in human cells, providing evidence of on-target correction, restoration of protein function, and clinically meaningful cellular activity. These results contribute to the validation of Prime Editing as a therapeutic modality and inform our ongoing development of in vivo programs. +Regulatory and Clinical Development Plans +Given the severity of CGD, its limited patient population and encouraging initial clinical data, we believe there may be an expedited path forward to ensure patient access to PM359. Discussions are underway with the FDA to explore a potential accelerated path to approval in the United States. +PM577 for Wilson Disease +Disease Background and Prevalence +Wilson Disease is a rare autosomal recessive disorder caused by loss-of-function mutations in ATP7B, a copper-transporting ATPase expressed in hepatocytes. This commonly results in impaired biliary copper excretion and copper accumulation in the liver, brain, and other tissues. The condition affects an estimated 1 in 30,000 individuals across the United States, Europe, and Japan. The H1069Q mutation is the most prevalent variant in North America and Europe, accounting for approximately 30% to 50% of affected individuals in the United States. Six of the most common mutations – including H1069Q and R778L – account for up to 26,000 patients across the United States, Europe, and Japan. Clinical manifestations range from hepatic steatosis and compensated cirrhosis to acute liver failure and neurological impairment. Existing standard-of-care therapies include copper chelators and zinc salts, which require lifelong adherence, are associated with significant pill burden, have tolerability issues, and reflect a disease paradigm with a continued high unmet need. +Prime Medicine’s Therapeutic Approach +PM577 is an in vivo Prime Editing candidate designed to correct the H1069Q mutation and restore ATP7B function in hepatocytes. Because only a single nucleotide is altered in the H1069Q variant, PM577 is designed to rewrite this specific position to restore expression of the wild-type ATP7B protein and reestablish copper transport and excretion. PM577 comprises a Prime Editor enzyme delivered with a mutation-specific pegRNA via our universal liver-targeted LNP. We have optimized our liver-targeted LNP for hepatocyte delivery with a goal of high on-target editing, and no detectable off-target activity in pre-clinical models. +Key Preclinical Data +Preclinical studies of PM577 have demonstrated efficient correction of the H1069Q mutation in vitro and in vivo . In a partially humanized homozygous H1069Q mouse model, Prime Editing achieved greater than 80% correction of hepatocytes at clinically relevant doses. Importantly, copper-64 PET imaging showed restoration of physiological copper distribution, including normalization of hepatic copper metabolism by eight weeks post-treatment and increased fecal copper excretion consistent with wild-type animals. Histological and biochemical analyses confirmed reductions in hepatic copper concentrations, and no off-target edits were detected in initial assessments. +Regulatory and Clinical Development Plans +We plan to submit an IND/CTA for PM577 in 1H 2026. The planned Phase 1/2 clinical trial is expected to enroll adult patients with H1069Q-variant Wilson Disease who are maintained on standard-of-care therapies at baseline. Consistent with regulatory precedent in metabolic liver diseases, primary endpoints will focus on safety and tolerability, with secondary endpoints including changes in ceruloplasmin, serum copper, urinary copper, and imaging-based assessment of copper distribution. We expect to obtain initial clinical data in 2027, subject to regulatory clearance and trial execution. +5 +Follow-on Wilson Editors (R778L and other variants) +Variant Background and Prevalence +In addition to H1069Q, multiple ATP7B mutations contribute to Wilson Disease pathogenicity. The R778L variant is particularly prevalent in Asian populations, accounting for up to 35% of individuals with Wilson Disease in Japan and representing up to 10% of cases in the United States. Similar to H1069Q, these variants impair ATP7B trafficking and copper transport, leading to progressive hepatic and neurological disease. +Modular Development Approach +Our follow-on Wilson Disease candidates are designed to correct R778 variants using the same LNP and editor architecture as PM577, with only the pegRNA template varied. This modular design has enabled us to identify multiple editors capable of achieving >90% correction of R778L in fully humanized mouse models, supported by modular editor-component screening and guide-RNA optimization. +Umbrella-IND Implications +Given the shared delivery system, editor backbone, and manufacturing processes across H1069Q and R778 programs, we are evaluating an umbrella-IND strategy that could allow multiple ATP7B-targeting candidates to be advanced under a single regulatory framework. This approach, if aligned with regulatory feedback, could streamline development and reduce incremental toxicology and CMC requirements for follow-on editors. The modularity of our Prime Editing platform, including guide swapping and standardized LNP formulations, underpins this potential regulatory efficiency. +PM647 for AATD +Disease Background and Unmet Need +AATD is a genetic disorder caused by mutations in the SERPINA1 gene, resulting in production of misfolded Z-AAT protein (PiZZ genotype) that accumulates in the liver and leads to hepatocellular injury, cirrhosis, and increased risk of hepatocellular carcinoma. AATD also causes progressive lung disease due to insufficient circulating AAT. In the United States, approximately 100,000 individuals – many of whom are undiagnosed - have AATD, with PiZZ patients representing the most severe form. Currently available treatments primarily address pulmonary manifestations and do not correct the underlying hepatic pathology. Liver transplantation is the only curative option for advanced disease. +Prime Medicine’s Therapeutic Approach +PM647 is designed to correct the Z-AAT mutation in hepatocytes via in vivo Prime Editing delivered with our universal liver-targeted LNP. By rewriting the disease-causing E342K substitution to restore wild-type M-AAT protein sequence, PM647 aims to reduce accumulation of toxic Z-AAT polymers in hepatocytes and reestablish systemic AAT levels. The biology of AATD, including the relationship between genotype and hepatic burden, makes it an attractive candidate for precise allele correction. Importantly, we believe that Prime Editing offers a potential best-in-class approach given the lack of bystander edits, off-target editing profile and ability for patients’ normal physiology to modulate AAT levels under native transcriptional control – which is critical for protection of the lung from acute inflammatory insults, such as viral infection. +Key Preclinical Data +In preclinical in vivo studies, PM647 demonstrated efficient and dose-dependent correction of the disease-causing mutations in SERPINA1 in hepatocytes, resulting in near complete restoration of wild-type M-AAT protein expression at clinically relevant dose levels. This correction translated into robust production of corrected M-AAT protein, with M-AAT representing the majority of total human AAT isoforms detected in treated animals. Consistent with these findings, circulating serum M-AAT concentrations increased into or above the normal human reference range following PM647 administration, while untreated control animals showed no detectable M-AAT protein. We +6 +believe these data support a direct relationship between in vivo Prime Editing–mediated correction, restoration of wild-type protein expression, and systemic exposure to functional AAT at levels associated with clinical relevance. +Regulatory and Clinical Development Plans +We expect to submit an IND/CTA for PM647 in mid-2026 with initial clinical data anticipated in 2027. +Cystic Fibrosis Program +Disease Background and Genetic Heterogeneity +CF is caused by mutations in the CFTR gene, which impair chloride transport and lead to progressive pulmonary, gastrointestinal, and pancreatic disease. More than 2,000 CFTR variants have been identified, with a subset of mutational clusters accounting for the majority of clinical cases. While small-molecule modulators have transformed CF care, a substantial portion of patients either cannot tolerate modulators or harbor mutations that are not responsive to current therapies. We believe gene editing approaches hold the potential to restore CFTR function at the genomic level. +Prime Editing Approach for CF +We are evaluating Prime Editing strategies to correct CFTR mutations through in vivo delivery to airway epithelial cells focusing on direct delivery to the airway. To enable delivery to the lung, we are assessing both LNP and AAV delivery modalities in parallel. Our early research initially focuses on mutation clusters where Prime Editing may restore full-length CFTR function. +Development Stage +The program is currently in the lead optimization phase. Key activities include identification of mutation-specific editing strategies, optimization of editor variants for airway tissue, and characterization of delivery performance in epithelial models. We expect to progress toward IND-enabling activities following completion of preclinical proof-of-concept studies, with initial candidates anticipated to leverage platform learnings from our liver-directed programs. +Our License and Collaboration Agreements +Research Collaboration and License Agreement with BMS +In September 2024, we entered into a research collaboration and license agreement, or the BMS Collaboration Agreement, with Juno Therapeutics, Inc., a wholly owned subsidiary of BMS, or Juno. +Under the terms of the BMS Collaboration Agreement, we granted to BMS an exclusive worldwide license to certain Prime Editing technology for developing, manufacturing and commercializing ex-vivo T-cell therapeutic products directed to select targets. We are responsible for designing the Prime Editing reagents to be used by BMS. +We received a $55.0 million upfront payment under the BMS Collaboration Agreement and a $55.0 million equity investment under a Securities Purchase Agreement with BMS. We are also eligible to receive more than $3.5 billion in milestones, including up to $185.0 million in preclinical milestones, up to $1.2 billion in development milestones and up to $2.1 billion in commercialization milestones, along with royalties on net sales. +Unless earlier terminated, the term of the BMS Collaboration Agreement continues until expiration of the last royalty term for the applicable product in the applicable country. The BMS Collaboration Agreement is subject to customary termination provisions, including termination by a party for the other party’s uncured, material breach. +Cystic Fibrosis Foundation +2024 Agreement +In January 2024, we entered into an agreement with CFF, or the 2024 CFF Agreement, under which CFF agreed to provide up to $15.0 million, payable in multiple tranches, to support the development of Prime Editors for the +7 +treatment of CF. We are obligated to return any of the funding not used in development of the program covered by the 2024 CFF Agreement. +In return, we have agreed to pay to CFF royalties on future sales of any products covered under the 2024 CFF Agreement, to be determined based on the aggregate annual net sales of products and net amount of funding received by us. In addition, in the event of a sale, license or transfer to a third-party of rights in the technology developed under the 2024 CFF Agreement, or a change of control transaction, we will pay a percentage of the proceeds received to CFF, up to 2.5 times the net funding received. +2025 Agreement +In July 2025, we entered into an agreement with CFF, or the 2025 CFF Agreement and together with the 2024 CFF Agreement, the CFF Agreements, under which CFF agreed to provide up to $24.0 million in additional funding to accelerate the development of Prime Editors designed to permanently correct CF-related lung disease. The $24.0 million funding includes two equal tranches, subject to certain closing conditions and scientific milestones. The first tranche included a $6.0 million cash funding, or Royalty Funding, and a $6.0 million equity investment in our company. Any proceeds under the second tranche are payable subject to achieving specific milestones which have not been achieved to date. We are obligated to return any of the Royalty Funding not used in development of the program covered by the 2025 CFF Agreement. +In return, we have agreed to pay to CFF royalties on future sales of any products covered under the 2025 CFF Agreement, to be determined based on the aggregate annual net sales of products and net amount of Royalty Funding received by us. In addition, in the event of a sale, license or transfer to a third-party of rights in the technology developed under the 2025 CFF Agreement, or a change of control transaction, we will pay a percentage of the proceeds received to CFF, up to 2.5 times the net Royalty Funding received. +CFF’s additional investment builds on initial funding received under the 2024 CFF Agreement. +License agreements with Broad Institute +In September 2019, we entered into a license agreement with Broad Institute, or the Broad License Agreement, and in May 2020, February 2021, December 2022, September 2024, and September 2025 we entered into amendments to that Broad License Agreement. Under the Broad License Agreement, Broad Institute grants to us certain rights and licenses under certain patent rights it owns or controls related to editing of DNA sequences using a Prime Editor. Certain of the licensed patent rights are co-owned by Broad Institute with the Massachusetts Institute of Technology, or MIT, and Harvard University, or Harvard, and certain are co-owned by Broad Institute with Harvard. In December 2022, following the timely exercise of an option under an existing option agreement with Broad Institute we entered into a second license agreement with Broad Institute, or the 2022 Broad License Agreement. Under the 2022 Broad License Agreement, Broad Institute grants to us certain rights and licenses under certain patent rights it owns or controls related to MMR inhibition and prime editing improvements. The licensed patent rights are co-owned by Broad Institute with Harvard, The Trustees of Princeton University, or Princeton, and The Regents of the University of California, or University of California. +Broad License Agreement +The licenses Broad Institute grants to us under the Broad License Agreement are limited to the field of prevention or treatment of human disease, and most licenses granted to us under the Broad License are further limited to the prevention or treatment of human disease by editing (including modifying or converting) or targeting DNA ex vivo , in vivo , or through xeno-transplantation methods. We refer to this field as the Prime Broad Field. +Under the Broad License Agreement, Broad Institute grants to us (i) an exclusive, worldwide license under the licensed patent rights solely to offer for sale, sell, have sold and import products covered by such licensed patent rights, or licensed products, solely for use within the Prime Broad Field (subject to certain specified limitations and exclusions with respect to certain applications), (ii) a non-exclusive, worldwide license under the licensed patent rights solely to make, have made, offer for sale, sell, have sold, and import licensed products solely for use in the Prime Broad Field, (iii) a non-exclusive, worldwide license under the licensed patent rights solely to make, have made, offer for sale, sell, have sold and import other products that are enabled by (a) the licensed patent rights or (b) +8 +the use of certain materials transferred to us by Broad Institute, solely for the prevention or treatment of human diseases, which we refer to as enabled products, and (iv) a non-exclusive, worldwide license solely for internal research. +All of the above license grants specifically exclude human germline modification, the stimulation of biased inheritance of particular genes or traits within a plant or animal population, and certain modifications of the tobacco plant, and are subject to certain retained rights of Broad Institute, MIT and Harvard and the U.S. federal government. Broad Institute also retains certain rights for itself, MIT and Harvard and for other non-for-profit research organizations and government agencies to practice the licensed patent rights for research, teaching, educational and scholarly purposes. In addition, because an employee of the Howard Hughes Medical Institute, or HHMI, was an inventor on certain of the licensed patent rights, the licenses granted to us with respect to such patent rights are subject to a non-exclusive, irrevocable, worldwide license to HHMI to exercise any such patent rights for research purposes. +We are permitted to sublicense the licensed patent rights to our affiliates and third parties, subject to certain requirements, including that any such sublicense agreement be in compliance with and be consistent with the terms of the Broad License Agreement. In addition, any such sublicense agreement must include certain customary provisions to ensure our ability to comply with the Broad License Agreement. We are also responsible for any breaches of a sublicense agreement by the applicable sublicensee and for all payments due to Broad Institute under the Broad License Agreement by operation of any such sublicense. +Our licenses are subject to Broad Institute’s inclusive innovation model, pursuant to which Broad Institute retains the right, under specified circumstances, to grant to third parties (other than specified competitors of ours) licenses under the licensed patent rights that would otherwise fall within the scope of the exclusive license granted to us. If a third party provides Broad Institute with a bona fide proposal to develop a product covered by the licensed patents and directed to a particular gene target, Broad Institute may notify us of the proposal, including the identity of such gene target and the proposing third party. Broad Institute is not required to share any other information provided by the requester with us in connection with the inclusive innovation model. Within a specified time period following such notification, we may provide Broad Institute with evidence that either (i) we (ourselves, or through our affiliates or sublicensees) are currently developing one or more licensed products directed to the applicable gene target or (ii) we have a good faith interest in developing licensed products directed to such gene target (ourselves, or through our affiliates or sublicensees) or sublicensing our rights to such gene target directly to such third party or another third party. If we notify Broad Institute that we are currently developing licensed products directed to such gene target or that we have a good faith interest in developing licensed products directed to such gene target, we have a specified period of time to evidence such activities or interest by providing Broad Institute with a development plan and either continuing or commencing, respectively, such activities under such development plan. We must continue to use commercially reasonable efforts to continue to progress such activities. If we notify Broad Institute that we have a good faith interest in sublicensing our rights to such third party or another third party, we have a specified period of time to negotiate and enter into a sublicense agreement with a third party. If we (i) notify Broad Institute that we are not interested in developing such product (internally or with another third party) or do not respond to the proposed product notice, or (ii) notify Broad Institute of our interest as outlined above and do not complete or, for an internal program, commence, those activities within the specified time periods, Broad Institute has the right, subject to certain conditions, to terminate our rights to such gene target and may grant to such proposing third party an exclusive or non-exclusive license under the patent rights to exploit products covered by the licensed patent rights and directed to such gene target, which we refer to as a march-in license. Broad has not yet granted any march-in license to a third party. +In addition to the inclusive innovation model, our licenses are also subject to Broad Institute’s right to designate a single-digit number of gene targets per year in which it has a good faith interest in reserving for its own development of products covered by the patent rights directed to such gene targets. Such reserved gene targets are referred to as a reserved Broad Institute targets. If Broad Institute notifies us that it desires to exercise such right for a given gene target, and we do not, within a specified time period, evidence that we (ourselves or through an affiliate or sublicensee) have an on-going program or good faith interest in pursuing a program for Prime Editor products for such gene target, Broad Institute may terminate our license with respect to such gene target, with such gene target becoming a reserved Broad Institute target. We have a right to negotiate a sublicense with a third-party for-profit company interested in licensing the rights to such reserved Broad Institute targets, which we must complete within a +9 +specified period of time, after which Broad Institute may grant such rights to such third party. Broad Institute has not yet exercised its right to designate any reserved gene targets. +Under the Broad License Agreement, we are required to use commercially reasonable efforts to develop licensed products in the Prime Broad Field in accordance with a development plan that we prepared and submitted to Broad Institute, which includes several developmental milestones for licensed products that we are required to meet within a specified number of years. We may update the development plan from time to time if we believe, in our good faith judgment, that such update is needed to improve our ability to meet such development milestones. Broad Institute has the right to terminate the Broad License Agreement if we fail to use commercially reasonable efforts or to achieve a development milestone, subject to our right to extend or amend such milestone in accordance with certain procedures. We may request an extension of the development milestone timelines by providing a reasonable explanation and plan to Broad Institute, and following Broad Institute’s approval of the request to delay, the applicable milestone deadline will be automatically amended (to the extent we request an extension of less than a specified number of years). We have not yet requested any such extension and have met the deadlines for diligence milestones that have already occurred. If we are successfully able to gain regulatory approval for any licensed product, we are required to use commercially reasonable efforts to introduce any such licensed product into the commercial market and to commercialize and make such licensed products reasonably available to the public. +We also are obligated to pay to Broad Institute an annual license maintenance fee in the low six-figures for the term of the Agreement. Broad Institute is also entitled to receive clinical and regulatory milestone payments up to a total of $20.0 million per licensed product, depending on the patient population to be treated by the licensed product achieving the applicable milestone. If we undergo a change of control at any time during the term of the Broad License Agreement, certain of the clinical and regulatory milestone payments will increase by a specified percentage. Broad Institute is also entitled to sales-based milestone payments up to a total of $54.0 million per licensed product, depending on the patient population to be treated by the licensed product achieving the applicable milestone. Broad Institute is entitled to lower payments to the extent the clinical and regulatory milestones or sales-based milestones are achieved by enabled products, rather than licensed products. +Broad Institute is entitled to receive mid-single digit percentage royalties on net sales of licensed products, and low single-digit percentage royalties of enabled products. Royalties payable to Broad Institute are subject to customary offsets and reductions with respect to a product in a given country, to a floor. On a country-by-country and product-by-product basis, the royalty term for a product in a country will terminate on the latest of: (i) the expiration of the last to expire valid claim of an issued patent or pending patent application within the licensed patent rights covering such product in such country, (ii) the period of regulatory exclusivity for such product in such country or (iii) ten (10) years after the first commercial sale of such product in such country. Broad Institute is also entitled to a percentage of consideration that we receive from our sublicensees, with such percentage at low double-digits and decreasing to high single digits, dependent on the development stage of products under the Broad License Agreement at the time of sublicense execution. +Broad Institute is responsible for the prosecution and maintenance of all licensed patent rights, although we are entitled to certain consultation, comment and review rights with respect to such prosecution and maintenance activities of the exclusively licensed patent rights. We are obligated to reimburse Broad Institute for its documented, out-of-pocket costs incurred while prosecuting and maintaining such licensed patent rights. So long as we remain the exclusive licensee of licensed patent rights in the Prime Broad Field, we have the first right to enforce the licensed patent rights in the Prime Broad Field. +Unless earlier terminated, the Broad License Agreement will remain in effect until the later of (i) the last to expire valid claim of an issued patent or pending patent application within the licensed patent rights covering our licensed products or (ii) the expiration of the last royalty term for a licensed product in a country. We can terminate the Broad License Agreement for our convenience following prior written notice to Broad Institute. Each party may terminate the Broad License Agreement for the other party’s uncured material breach. Broad Institute may also immediately terminate the Broad License Agreement (i) to the extent we (or our affiliates or sublicensees) challenge a licensed patent right, (ii) upon our bankruptcy or insolvency or (iii) if we fail to procure and maintain insurance. +10 +Amendment No. 4 and Amendment No. 5 to The Broad License Agreement +In September 2025, we entered into a Fourth Amendment to License Agreement, or the Fourth Amendment, and Fifth Amendment to License Agreement, or the Fifth Amendment and, together with the Fourth Amendment, the 2025 Amendments, with Broad Institute, which amended the Broad License Agreement, to, among other things, modify certain licensed patent applications listed therein. Except as expressly stated in the 2025 Amendments, all other terms and provisions of the Broad License Agreement shall remain in full force and effect. +Side Letter No. 2 to The Broad Institute License Agreement +In connection with the 2025 Amendments, we also entered into a second letter agreement, or the Second Letter Agreement, with Broad Institute in September 2025, which amends the Broad License Agreement. The Second Letter Agreement, among other things, modifies certain development milestones and related payment obligations under the BMS Collaboration Agreement. Except as expressly stated in the Second Letter Agreement, all other terms and provisions of the Broad License Agreement shall remain in full force and effect. +Side Letter No. 1 to The Broad License Agreement +In connection with the BMS Collaboration Agreement, we entered into a Letter Agreement, or the First Letter Agreement, with Broad Institute in September 2024, which amends the Broad License Agreement to modify certain of our obligations and rights of Broad Institute in relation to the BMS Collaboration Agreement as a sublicense under the Broad License Agreement. The First Letter Agreement, among other things, modifies the royalty and certain commercial milestones that we are obligated to pay to Broad Institute on net sales of products under the BMS Collaboration Agreement. +2022 License Agreement with Broad Institute +Other than as summarized below, the general terms of the 2022 Broad License Agreement, including the scope and field of the license grants, are the same in all material respects as the terms of the Broad License Agreement, as summarized above. +The patent rights licensed under the 2022 Broad License Agreement are co-owned by Broad Institute, Harvard, Princeton, and University of California, collectively referred to as the 2022 Broad License Agreement Co-Owners. The license grants under the 2022 Broad License Agreement are subject to the same retained rights as set forth in the Broad License Agreement for the 2022 Broad License Agreement Co-Owners, as well as the U.S. federal government and HHMI. +As partial consideration for the rights granted to us under the 2022 Broad License Agreement, we paid Broad Institute an upfront fee of $0.2 million and are obligated to pay to Broad Institute an annual license maintenance fee in the mid-five figures for the term of the Agreement. +Broad Institute is entitled to receive clinical and regulatory milestone payments for a limited category of licensed products or enabled products, which category we refer to as royalty-bearing products, up to a total of $2.0 million per royalty-bearing product. Broad Institute is entitled to sales-based milestone payments up to a total of $3.0 million per royalty-bearing product, depending on the patient population to be treated by the royalty-bearing product achieving the applicable milestone. If we undergo a change of control at any time during the term of the 2022 Broad License Agreement, certain of the clinical and regulatory milestone payments will increase by a specified percentage. Broad Institute is entitled to lower payments to the extent the clinical and regulatory milestones or sales-based milestones are achieved by royalty-bearing products that are enabled products, rather than royalty-bearing products that are licensed products. Broad Institute is entitled to receive royalties of less than 0.2% on net sales of royalty-bearing products that are licensed products and lower royalties on net sales of for royalty-bearing products that are enabled products. Royalties payable to Broad Institute are subject to limited customary offsets and reductions. Broad Institute is entitled to a percentage of consideration that we receive from our sublicensees, with such percentage dependent on the development stage of products under the 2022 Broad License Agreement at the time of sublicense execution, all below 1%. The royalty term for a royalty-bearing product under the 2022 Broad License Agreement is determined in the same way as in the Broad License Agreement. +11 +Pledge to Broad Institute and Harvard +In February 2021, we committed to donate $5.0 million to Broad Institute and Harvard annually for 14 years, commencing in 2021, or the Pledge. The Pledge is intended to be used for research and development related to new genome editing technologies, for example Prime Editing, improve on existing genome-editing technologies, identify delivery mechanisms for these technologies and apply these technologies to the understanding and treatment of rare genetic diseases. We can terminate the Pledge at our discretion, subject to providing one year of funding from the date of termination. In August 2022, we amended and restated the Pledge to clarify that the funds may be used by the laboratory of David Liu, who is a member of Broad Institute and a faculty member at Harvard. +Collaboration and License Agreement with Beam +In September 2019, we entered into a collaboration and license agreement, which we refer to as the Beam Collaboration Agreement, with Beam. One of our founders, David Liu, is also a founder of Beam. +Under the Beam Collaboration Agreement, we grant to Beam an exclusive (even as to us and our affiliates), worldwide license under (i) certain Prime Editing know-how that we control during the initial term, and improvements thereto that we control for a specified number of years following the initial term, and patent rights that cover such Prime Editing know-how during the term of the Agreement, and (ii) our interest in certain jointly-owned collaboration technology, in each case, solely to develop, make, have made, use, offer for sale, sell, import and commercialize licensed products only in the Beam field. The Beam field is limited to (a) the prevention, modification, improvement, amelioration or treatment of human disease, including cell-based therapies and the creation of one or more protective mutations, through administration of a licensed product that incorporates or contains a qualifying Prime Editing agent, which is a macromolecule or macromolecular complex that uses Prime Editing to make one or more transition point mutations (that is, C to T, T to C, A to G or G to A) in the sequence of one or more DNA targets, without intentionally making any non-transition mutations or other changes, including insertions, deletions, duplications, indels, transversions or combinations thereof, and does not incorporate or contain any other Prime Editing agent or other gene editing approach that is not a qualifying Prime Editing agent or (b) the prevention, modification, improvement, amelioration or treatment of sickle cell disease through administration of a licensed product that incorporates or contains a more broadly defined Prime Editing agent. We refer to each of clause (a) and clause (b) of the Beam field as subfields. We also grant to Beam a non-exclusive, worldwide license under certain CRISPR or delivery-related technology, know-how and patent rights that we control during the initial term, and improvements thereto that we control for a specified number of years following the initial term, solely to develop, make, have made, use, offer for sale, sell, import and commercialize licensed products only in the Beam field. +Under the Beam Collaboration Agreement, Beam grants to us certain non-exclusive, worldwide licenses under certain technology, know-how and patent rights, including under certain CRISPR or delivery-related technology, know-how and patent rights, that it controls during the initial term, and improvements thereto that Beam controls for a specified number of years following the initial term, solely to develop, make, have made, use, offer for sale, sell, import and commercialize products only in the Prime field, which is limited to the prevention, modification, improvement, amelioration or treatment of human disease (excluding sickle cell disease), including cell-based therapies and the creation of one or more protective mutations, through administration of a product or service containing or incorporating a Prime Editing agent that is not a qualifying Prime Editing agent, but excluding (a) the Beam field, (b) the administration of any product or service containing or incorporating a base editor and (c) a field related to microbial cells in the human flora in certain Asia territories and the development of products targeting four named gene targets. For clarity, the Prime field includes products or services that contain or incorporate (x) at least one Prime Editing agent that is not a qualifying Prime Editing agent and (y) any other gene-editing approach, including other Prime Editing agents, which may include one or more qualifying Prime Editing agents, subject to the aforementioned exclusions. The licenses granted to us by Beam under the Beam Collaboration Agreement are subject to the terms of certain third-party agreements and certain rights retained by third parties. +In addition to the ongoing licenses, under the Beam Collaboration Agreement, we are both obligated to adhere to a technology transfer plan, under which each of us agrees to disclose or otherwise share the technology, know-how and patent rights licensed to the other and to provide the other party with reasonable assistance in the exercise of its licenses. +12 +The licenses granted to each party under the Beam Collaboration Agreement are sublicensable to affiliates and third parties, subject to certain requirements, including providing the other party a copy of each executed sublicense agreement, and ensuring any sublicensee comply with the terms of the Beam Collaboration Agreement. +Unless we exercise our profit sharing option for a licensed product, as described below, Beam is solely responsible for the development and commercialization of licensed products in the Beam field under the Beam Collaboration Agreement. Beam is required to use commercially reasonable efforts to develop and seek marketing approval for at least one licensed product in each subfield of the Beam field in each of (a) the United States and (b) one other specified major market country, and to commercialize any such licensed product that achieves marketing approval. As described further below, we are entitled to receive ongoing milestone and royalty payments from Beam based on Beam’s development and commercialization of each licensed product. +Subject to the provisions in the next paragraph, on a licensed product-by-licensed product basis, we have the right to elect to share equally with Beam in the profits and losses in the United States for Beam’s licensed products. We may exercise such right for each licensed product within a specified period of time. Any such licensed product for which we exercise such right we refer to as a collaboration product. If we exercise such right, we agree to share equally in the costs, profits and losses of each such collaboration product in the United States, rather than receiving milestones and royalties based on development and sales thereof by Beam in the United States. For clarity, we are still entitled to receive milestones and royalties on the development and sales of each such collaboration product outside of the United States. We also have the right to elect, within a specified time period, to co-promote with Beam each collaboration product in the United States, in addition to sharing in the profits and losses. To the extent we exercise our co-promote option with respect to a given collaboration product, we and Beam must use commercially reasonable efforts to commercialize such collaboration product, in each case, in the Beam field in the major markets in which marketing authorization has been obtained. After we have exercised our right to profit share on a collaboration product, we are able to, at any time during the term of the Beam Collaboration Agreement, on a collaboration product-by-collaboration product basis, opt-out of the profit and loss share and co-promotion activities with respect to any collaboration product with prior written notice to Beam within a certain time period. +Notwithstanding the rights described above, at any time prior to or within 30 days of the filing of an IND for a licensed product, Beam may designate up to a mid-single digit number of licensed products for which (i) we are not permitted to exercise our profit sharing right, and (ii) Beam assumes sole control and decision-making authority and bears all costs and expenses, with respect to the development and commercialization of such products. Under the Beam Collaboration Agreement, a “protected product” is a licensed product for which either (a) we have not exercised our profit share option or (b) Beam has designated as a protected product pursuant to the foregoing sentence. For clarity, we are entitled to ongoing milestones and royalties from Beam based on its development and commercialization of protected products worldwide. Upon Beam’s designation of a licensed product as a protected product , Beam is required to pay us $5.0 million if the product is developed for non-sickle cell disease or $10.0 million if the product is developed for sickle cell disease. +As partial consideration for the licenses and rights granted to each other under the Beam Collaboration Agreement, Beam issued to us $5.0 million in shares of its common stock and we issued to Beam an aggregate of 1,608,337 shares of our common stock. Beam was also entitled to appoint a representative to our board of directors, which right has expired. +We are entitled to receive development milestone payments from Beam on Beam’s development of protected products (which, for clarity, includes any licensed product for which we have not exercised our profit share option) and collaboration products. For protected products, we are entitled to receive up to a total of $35.5 million on a protected product-by-protected product basis based on Beam’s development of such protected product and, for collaboration products, up to a total of approximately $17.8 million on a collaboration product-by-collaboration product basis based on Beam’s development of such collaboration product outside of the United States, in each case, with such amounts lowered if such licensed product achieves a given milestone for use in treating an orphan disease. We are also entitled to receive sales-based milestone payments from Beam based on net sales of licensed products. For protected products, we are entitled to receive up to a total of $84.5 million on a protected product-by-protected product basis based on net sales of such protected product worldwide, and, for collaboration products, up to a total of approximately $42.3 million on a collaboration product-by-collaboration product basis based on net sales of collaboration products outside of the United States. +13 +The sickle cell disease product partnered with Beam is a licensed product under the Beam Collaboration Agreement. Beam has not designated this product as a protected product and we have not received any development or sales-based milestones with respect to Beam’s exploitation thereof. +Beam is obligated to pay to us tiered royalties ranging from a high-single digit percentage to a low double-digit percentage, but less than teens on net sales of protected products worldwide on a protected product-by-protected product basis and net sales of collaboration products outside of the United States on a collaboration product-by-collaboration product basis. Our royalties are subject to customary offsets and reductions, to a floor that takes into account any royalties we are obligated to pay to our third-party licensors, including Broad Institute. In addition, certain of the rights licensed under the Beam Collaboration Agreement are sublicensed from third parties, and Beam agrees to reimburse us for certain payments we are required to make to our third-party licensors attributable to Beam’s exercise of any sublicense we grant to Beam, including payments we make to Broad Institute under the Broad License Agreement. +If we develop a product that is covered by the technology, know-how or patent rights that Beam licenses to us under the Beam Collaboration Agreement, which we refer to as a Prime product, we are obligated to pay to Beam a low single digit percentage royalty on our worldwide net sales of any such product on a Prime product-by-Prime product and country-by-country basis, subject to certain customary reductions, to a floor. +Each party’s obligation to pay the other royalties expires on a country-by-country and product-by-product basis on the latest of (a) the expiration of the last to expire valid claim of an issued patent or pending patent application within the applicable licensed patent rights that cover such product in such country, (b) the expiration of regulatory exclusivity for such product in such country or (c) ten (10) years after the first commercial sale of such product in such country. +If we exercise our option to profit share on collaboration products, we share equally in the profits and losses of any such collaboration product in the United States and share in a lower portion of any development or commercialization costs attributable to such collaboration product outside of the United States. +Under the Beam Collaboration Agreement, Beam assigns ownership to us of certain improvements Beam makes, itself or jointly with us or others, to certain technology, know-how and patent rights we license to Beam, and we assign to Beam ownership of all improvements we make, ourselves or jointly with Beam or others, certain technology, know-how and patent rights Beam licenses to us. Each party grants back to the other certain exclusive and non-exclusive licenses to such improvements. Except for any such improvements, each party owns any other inventions that it developed under the Beam Collaboration Agreement and an equal, undivided interest with the other party in any inventions jointly developed. +We are responsible for prosecution and maintenance of the patent rights we license to Beam, while keeping Beam reasonably informed and providing Beam the opportunity to provide comments and make requests of us, in each case regarding the patent rights that we exclusively license to Beam in the field of the exclusive license. Beam has a step-in right to the extent we decline or fail to prosecute any patent rights that are exclusively licensed to Beam and applicable to the Beam field. Beam is responsible for prosecution and maintenance of the patent rights it licenses to us, while keeping us reasonably informed and providing us the opportunity to provide comments and make requests of us, in each case with respect to any patent rights that Beam exclusively licenses to us in the field of the exclusive license. +Beam has the first right to enforce any patent rights we exclusively license to Beam in the Beam field against any third party developing a product in the Beam field that is competitive with a licensed product Beam is developing under the Beam Collaboration Agreement. We have a step-in right on any such enforcement to the extent Beam declines or fails to initiate such enforcement action. +Unless earlier terminated in accordance with its terms, the Beam Collaboration Agreement will expire on the later of (a) expiration of the last royalty term for a product on which a party is obligated to pay royalties to the other party or (b) with respect to any collaboration product, the date on which neither party is developing or commercializing any such collaboration product in the United States. +After expiration of the initial term, Beam can terminate the Beam Collaboration Agreement for convenience in its entirety, or on a licensed product-by-licensed product or subfield-by-subfield basis, with ninety (90) days’ prior +14 +written notice to Prime. Each party may terminate the Beam Collaboration Agreement for (a) the other party’s uncured material breach within ninety (90) days of notice of such breach, (b) upon the insolvency or bankruptcy of the other party if such proceeding is not dismissed within ninety (90) days after the filing thereof or (c) immediately to the extent the other party (or its affiliates or sublicensees) challenges a patent right licensed to such party. +Our Business Development and Partnering Strategy +Our vision is to establish Prime Medicine as a leader in the field of gene editing by building a fully integrated biopharmaceutical company utilizing our Prime Editing platform to pioneer the discovery, development and commercialization of Prime Editing therapeutics that can have a transformative impact on the treatment of a wide spectrum of diseases with high unmet medical need. The potential therapeutic applications of our Prime Editing technology are broad, and we aspire to fully develop that potential. +To achieve our vision, and in addition to independently discovering, developing, and commercializing Prime Editing products, we will seek to selectively enter strategic collaborations to maximize the potential of the Prime Editing platform, such as our Beam Collaboration Agreement and BMS Collaboration Agreement. Such collaborations may also facilitate our entry into additional therapeutic or geographic areas by leveraging the established capabilities of our partners as well as by funding the development of new Prime Editing platform or corporate capabilities which we can then utilize for additional Prime Medicine products outside such partnerships. In certain cases, we may use partnerships to create value in areas which we may not intend to enter ourselves in the near term. In our collaborations, we may cooperatively develop and commercialize products with our partners, have options to do so, or out-license products for development and commercialization by our partners. In each case, we expect to receive value in the form of upfront payments and milestones which will provide us with additional capital in the nearer term as well as royalties and where applicable, profit sharing, to participate in the value created through commercializing Prime Editing products. +We may also seek to access or develop enabling technologies or specific capabilities through licenses or partnerships, such as the CFF Agreements. We will evaluate partnerships with various types of entities, including academia, corporations, and foundations, and these potential collaborations may vary in both structure and scope. Technologies that may enable the application of Prime Editing may include viral and non-viral delivery modalities, manufacturing, and technologies that may be synergistic with Prime Editing or Prime Editing products. +Competition +The development of genetic medicines is highly competitive and rapidly evolving, with multiple companies pursuing therapeutic approaches across gene editing, RNA-based therapies, and gene replacement modalities. Several companies, including CRISPR Therapeutics, Editas Medicine, Intellia Therapeutics, and Caribou Biosciences, among others, are advancing CRISPR nuclease–based genome editing technologies, which introduce double-stranded DNA breaks to disrupt, delete, or modify target genes. These approaches have demonstrated clinical activity in certain settings, particularly ex vivo hematologic applications. However, they rely on endogenous DNA repair pathways that can result in heterogeneous editing outcomes, including insertions, deletions, and structural variants. Other companies, including Beam and Verve Therapeutics, recently acquired by Eli Lilly and Company, are developing base editing technologies that enable targeted single-nucleotide transitions without double-stranded breaks. However, base editors are generally limited to specific substitution types and may introduce bystander edits within the editing window. In contrast, Prime Editing is designed to enable precise rewriting of DNA sequences, including transversions, small insertions and deletions, and multi-base edits, while avoiding double-stranded DNA breaks. +Other companies, including Tessera Therapeutics, CRISPR Therapeutics, Metagenomi Therapeutics, Scribe Therapeutics and Arbor Biotechnologies, among others, are developing proprietary genome editing or gene writing technologies that may also enable precise genomic modifications without reliance on double-stranded DNA breaks, and which could compete with Prime Editing across overlapping therapeutic indications. +In addition to genome editing approaches, companies including Ionis Pharmaceuticals, Alnylam Pharmaceuticals, Sarepta Therapeutics, Wave Life Sciences, and Moderna are developing RNA-based therapies, including antisense oligonucleotides, small interfering RNAs, messenger RNA therapies, and RNA editing technologies. These modalities typically do not alter genomic DNA and may require chronic or repeated administration to maintain +15 +therapeutic effect. Gene replacement therapies, most commonly delivered via adeno-associated viral vectors and being developed by companies such as Ultragenyx, Genetix Biotherapeutics, 4D Molecular Therapeutics, and others, seek to introduce functional copies of genes but may be limited by vector payload constraints, durability of expression, immunogenicity, and challenges associated with redosing. For diseases such as AATD and CF, multiple companies including Vertex Pharmaceuticals, Arrowhead Pharmaceuticals, and others are pursuing combinations of gene editing, RNA-based suppression or augmentation, and gene therapy approaches. Competition may also arise from existing and emerging small-molecule therapies, supportive care regimens, or future technologies that are currently unknown. We believe that the precision, versatility, and modularity of Prime Editing represent potential differentiating attributes, but the ultimate competitive position of our programs will depend on several factors such as clinical outcomes, regulatory considerations, manufacturing scalability, and commercial execution. +Manufacturing +We currently have no commercial manufacturing capabilities. For our initial wave of clinical programs, we have established a robust manufacturing supply chain network for making our clinical candidates using current good manufacturing practices, or cGMP. This includes both qualified third-party contract manufacturing organizations and contract testing organizations with relevant manufacturing and/or testing experience in genetic medicines, as well as in-house cGMP manufacturing and testing capabilities for some core technologies to produce early-stage clinical genetic medicine supplies. At the appropriate time in the product development process, we will determine whether to establish in-house cGMP manufacturing capabilities for some core technologies or continue to rely on third parties for manufacturing and/or testing commercial products that we may successfully develop. +Intellectual Property +Overview +We achieved many major milestones in 2025, including the issuance of two in-licensed U.S. patents, the allowance of an additional three in-licensed U.S. patent applications, the issuance of eight ex-U.S. patents, and the allowance of another seven ex-U.S. patent applications. As of February 27, 2026, we hold 10 in-licensed U.S. patents or allowed patent applications and 20 in-licensed ex-U.S. patents or allowed patent applications, all of which cover Prime Editing methods and its components and systems. Our success depends in large part on our ability to obtain and maintain additional intellectual property protection for our platform technology, our programs and know-how related to our business, defend and enforce our intellectual property rights, in particular, our patent rights, preserve the confidentiality of our trade secrets and other confidential or proprietary information and operate without infringing, misappropriating or otherwise violating any intellectual property rights of others. We seek to protect our proprietary position by, among other things, exclusively licensing U.S. and certain foreign patent applications and issued patents and filing patent applications related to our platform technology, existing and planned programs and improvements that are important to the development of our business, where patent protection is available. While we in-license 30 issued patents or allowed applications, we do not currently own any issued patents in any jurisdiction covering our Prime Editing technology or product candidates. For information regarding the risks related to our intellectual property, please see “ Risk Factors—Risks Related To Our Intellectual Property. ” +Our wholly owned patent applications and our in-licensed issued patents and patent applications cover various aspects of our Prime Editing platform and our programs, including: +• Prime Editors +• pegRNA, and modified pegRNAs +• Prime Editing complexes and methods +• Dual-Flap Prime Editing technology +• Program-specific pegRNAs and therapeutic methods +• Prime Editors with enhanced activities or properties +16 +• Engineered pegRNAs +• Delivery modalities +We intend to continue to pursue, when possible, additional patent protection, including composition of matter, method of use, delivery modality and process claims, directed to our platform technology and the programs in our portfolio. We also intend to expand and extend our Prime Editing platform and programs, as well as obtain rights to delivery modalities, through one or more licenses from third parties. +Owned Patents +As of February 27, 2026, we owned approximately eight pending U.S. provisional patent applications, seven pending PCT applications, 29 pending U.S. non-provisional patent applications and 99 pending ex-U.S. patent applications. Patent applications have been filed outside of the United States in the European Patent Office, Japan, China, and certain other foreign jurisdictions. Our owned patent applications are generally related to our Prime Editing technology, including claims to modified pegRNAs; Prime Editors with enhanced activities or properties (e.g., improved Prime Editing efficiency or smaller Prime Editors) and methods of using such Prime Editors and pegRNAs; program-specific pegRNAs directed to targeting and correcting specific mutations and methods of using such pegRNAs therapeutically; PASSIGE systems including Prime Editors and integrases or recombinases, and methods of using PASSIGE; off-target testing methods; methods for synthesizing pegRNAs; novel lipids and LNPs for delivery of Prime Editors; and compositions of matter covering officially declared drug candidates. The provisional patent applications are not eligible to become issued patents until, among other things, we file non-provisional patent applications within 12 months of filing one or more of our related provisional patent applications. Any U.S. non-provisional patent applications timely filed based on any of these U.S. provisional patent applications, if issued, and if the appropriate maintenance or annuity fees are paid, are expected to expire as early as 2047, excluding any additional term for patent term adjustments or patent term extensions or similar provisions in foreign jurisdictions. Our current owned U.S. non-provisional and PCT patent applications, if issued and if the appropriate maintenance or annuity fees are paid, are expected to expire as early as 2042, excluding any additional term for patent term adjustments or patent term extensions or similar provisions in foreign jurisdictions. +In-licensed Patents +As of February 27, 2026, we have in-licensed 10 issued U.S. patents or allowed U.S. patent applications, 20 granted ex-U.S. patents or allowed ex-U.S. patent applications, approximately eight pending U.S. non-provisional patent applications, and 90 pending ex-U.S. patent applications, in each case, related to Prime Editing, from Broad Institute. Patent applications have been filed outside of the United States in the European Patent Office, Japan, China, and certain other foreign jurisdictions. The issued patents and patent applications from our in-licensed portfolio for Prime Editing are generally related to Prime Editors, pegRNAs, Prime Editing complexes and systems; compositions including the Prime Editors, pegRNAs and Prime Editing complexes as a component; methods of using such Prime Editors, pegRNAs and Prime Editing complexes and systems, including methods for therapeutic indications; pegRNAs that target and correct therapeutically relevant DNA sequences; program-specific pegRNAs directed to targeting and correcting specific mutations; systems comprising Prime Editors and integrases or recombinases for use in PASSIGE; and delivery modalities for Prime Editing systems, including the use of AAV, in a split AAV system for viral delivery of a Prime Editor. The in-licensed issued patents and patent applications cover various aspects related to the Prime Editing platform technology, including Prime Editors that employ Cas domains, such as Cas9 nickases and DNA polymerase domains, such as RT domains. The exclusive in-licensed patents and patent applications also cover dual-flap Prime Editing technology, including dual-flap Prime Editing compositions and methods of using such technology for therapeutic indications, and engineered pegRNAs, including compositions and methods comprising such pegRNAs. Our current in-licensed U.S. and foreign patents and patent applications, if issued and if the appropriate maintenance or annuity fees are paid, are expected to expire as early as 2040, excluding any additional term for patent term adjustments or patent term extensions or similar provisions in foreign jurisdictions. +17 +Additional Intellectual Property +We also rely on trade secrets, know-how, continuing technological innovation and confidential information to develop and maintain our proprietary position and protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. We seek to protect our proprietary technology and processes, in part, by confidentiality agreements with our employees, consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. +Government Regulation +In the United States, biological products, including gene editing products, are subject to regulation under the Federal Food, Drug, and Cosmetic Act, or FD&C Act, and the Public Health Service Act, or PHS Act, and other federal, state, local and foreign statutes and regulations. Both the FD&C Act and the PHS Act and their corresponding regulations govern, among other things, the research, development, clinical trials, testing, manufacturing, safety, efficacy, labeling, packaging, storage, record keeping, distribution, reporting, advertising and other promotional practices involving biological products. Each clinical trial protocol for a gene therapy or gene editing product must be reviewed and approved by the FDA before initiating clinical trials in the United States. In addition, FDA approval must be obtained before the marketing of biological products in the United States. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources and we may not be able to obtain the required regulatory approvals. +U.S. Biological Products Development Process +The process required by the FDA before a biological product may be marketed in the United States generally involves the following: +• completion of nonclinical laboratory tests and animal studies, including those requiring performance in accordance with good laboratory practices, or GLPs, unless justified and applicable requirements for the humane use of laboratory animals or other applicable regulations; +• submission to the FDA of an application for an IND, which must become effective before human clinical trials may begin; +• approval of the protocol and related documentation by an independent institutional review board, or IRB, or ethics committee at each clinical trial site before each study may be initiated; +• performance of adequate and well-controlled human clinical trials according to the FDA’s regulations commonly referred to as good clinical practices, or GCPs, and any additional requirements for the protection of human research subjects and their health information, to establish the safety, purity and potency of the proposed biological product for its intended use; +• submission to the FDA of a BLA for marketing approval that includes sufficient evidence of establishing the safety, purity and potency of the proposed biological product for its intended indication, including from results of nonclinical testing and clinical trials; +• satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the biological product is produced to assess compliance with cGMP to assure that the facilities, methods and controls are adequate to preserve the biological product’s identity, strength, quality and purity and, if applicable, the FDA’s current good tissue practices, or CGTPs, for the use of human cellular and tissue products; +• potential FDA audit of the nonclinical study and clinical trial sites that generated the data in support of the BLA; +• review of the product candidate by an FDA advisory committee, where appropriate or if applicable; +• payment of user fees for FDA review of the BLA (unless a fee waiver applies); and +• FDA review and approval, or licensure, of the BLA. +18 +Before testing any biological product, including a gene editing product, in humans, the product candidate enters the preclinical testing stage. Preclinical tests, also referred to as nonclinical studies, include laboratory evaluations of a product candidate’s biological characteristics, chemistry, toxicity and formulation, as well as animal studies to assess the potential safety and activity of the product candidate. The conduct of the preclinical tests must comply with federal regulations and requirements, including GLPs for certain nonclinical studies. +An IND is an exemption from the FD&C Act that allows an unapproved product candidate to be shipped in interstate commerce for use in an investigational clinical trial and a request for FDA authorization to administer such investigational product to humans. Such authorization must be secured before interstate shipment and administration of any product candidate that is not the subject of an approved BLA or existing IND. In support of a request for an IND, applicants must submit a protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND application. In addition, the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical trials, among other things, must be submitted to the FDA as part of an IND application. The FDA requires a 30-day waiting period after the filing of each IND before clinical trials may begin. This waiting period is designed to allow the FDA to review the IND to determine whether human research subjects will be exposed to unreasonable health risks. At any time during this 30-day period the FDA may raise concerns or questions about the conduct of the trials as outlined in the IND and impose a clinical hold, which may be full or partial. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin. +Following commencement of a clinical trial, the FDA may also place a full or partial clinical hold on that trial. A clinical hold is an order issued by the FDA to the sponsor to delay a proposed clinical investigation or to suspend an ongoing investigation. A partial clinical hold is a delay or suspension of only part of the clinical investigation conducted under the IND. No more than 30 days after imposition of a full or partial clinical hold, the FDA will provide the sponsor a written explanation of the basis for the hold. Following issuance of a full or partial clinical hold, an investigation may only resume after the FDA has notified the sponsor that the investigation may proceed. There also are requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries. Information about certain clinical trials, including clinical trial results, must be submitted within specific timeframes for publication on the www.clinicaltrials.gov website. Although sponsors are obligated to disclose the results of their clinical trials after completion, disclosure of the results can be delayed in some cases for up to two years after the date of completion of the trial. Failure to timely register a covered clinical study or to submit study results as provided for in the law can give rise to public notification of noncompliance, civil monetary penalties and also prevent the non-compliant party from receiving future grant funds from the federal government. +A sponsor may choose, but is not required, to conduct a foreign clinical trial under an IND. When a foreign clinical trial is conducted under an IND, all FDA IND requirements must be met unless waived. When a foreign clinical trial is not conducted under an IND, the sponsor must ensure that the study complies with certain regulatory requirements of the FDA in order to use the study as support for an IND or application for marketing approval or licensing. In particular, such studies must be conducted in accordance with GCP, including review and approval by an independent ethics committee, or IEC, and informed consent from subjects. The FDA must be able to validate the data through an onsite inspection, if deemed necessary by the FDA. +An IRB representing each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct continuing review and reapprove the study at least annually. The IRB must review and approve, among other things, the study protocol and informed consent information to be provided to study subjects. An IRB must operate in compliance with FDA regulations. An IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the product candidate has been associated with unexpected serious harm to patients. +Some trials are overseen by an independent group of qualified experts organized by the trial sponsor, known as a data safety monitoring board or committee, or DSMB. This group provides advice to the sponsor as to whether or not a trial may move forward at designated check points based on pre-specified criteria and access to unblinded data from the study. +In addition to the submission of an IND to the FDA before initiation of a clinical trial in the United States, certain human clinical trials involving recombinant or synthetic nucleic acid molecules are subject to oversight of +19 +institutional biosafety committees, or IBCs, as set forth in the NIH Guidelines for Research Involving Recombinant or Synthetic Nucleic Acid Molecules, or NIH Guidelines. Specifically, under the NIH Guidelines, supervision of human gene transfer trials includes evaluation and assessment by an IBC, a local institutional committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid molecules at that institution. The IBC assesses the safety of the research and identifies any potential risk to public health or the environment, and such review may result in some delay before initiation of a clinical trial. While the NIH Guidelines are not mandatory unless the research in question is being conducted at or sponsored by institutions receiving NIH funding for recombinant or synthetic nucleic acid molecule research, many companies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them. Regulatory requirements governing the development of gene therapy products have also changed frequently and may continue to change in the future. +Clinical trials typically are conducted in three sequential phases that may overlap or be combined: +• Phase 1. The biological product is initially introduced into healthy human subjects and tested for safety. In the case of some products for severe or life-threatening diseases, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients. +• Phase 2. The biological product is evaluated in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance, optimal dosage and dosing schedule. +• Phase 3. The biological product undergoes more extensive clinical trials to further evaluate dosage, efficacy, potency and safety in an expanded patient population at geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for approval and product labeling. +Post-approval clinical trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These clinical trials are used to gather additional data from the treatment of patients in the intended therapeutic indication, particularly for long-term safety follow-up. The FDA generally recommends that sponsors of human gene therapy products integrating vectors such as gammaretroviral and lentiviral vectors and transposon elements as well as gene editing product sponsors observe subjects for potential gene therapy-related delayed adverse events for up to a 15-year period, including five years of annual examinations followed by ten years of annual queries, either by telephone or by questionnaire, of study subjects. +Both the FDA and the EMA provide expedited pathways for the development of drug product candidates for treatment of rare diseases, particularly life-threatening diseases with high unmet medical need. Such drug product candidates may be eligible to proceed to registration following a single clinical trial in a limited patient population, sometimes referred to as a Phase 1/2 trial, but which may be deemed a pivotal or registrational trial following review of the trial’s design and primary endpoints by the applicable regulatory agencies. Determination of the requirements to be deemed a pivotal or registrational trial is subject to the applicable regulatory authority’s scientific judgment and these requirements may differ in the U.S. and the European Union, or EU. +During all phases of clinical development, the FDA requires extensive monitoring and auditing of all clinical activities, clinical data, and clinical trial investigators. Annual progress reports detailing the results of the clinical trials must be submitted to the FDA. Written IND safety reports must be promptly submitted to the FDA, the NIH and the investigators for serious and unexpected adverse events, any findings from other studies, tests in laboratory animals or in vitro testing that suggest a significant risk for human subjects, or any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. The sponsor must submit an IND safety report within 15 calendar days after the sponsor determines that the information qualifies for reporting. The sponsor also must notify the FDA of any unexpected fatal or life-threatening suspected adverse reaction within seven calendar days after the sponsor’s initial receipt of the information. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, if at all. The FDA or the sponsor, acting on its own or based on a recommendation from the sponsor’s data safety monitoring board may suspend a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the biological product has been associated with unexpected serious harm to patients. +20 +Concurrent with clinical trials, companies usually complete additional animal studies and also must develop additional information about the physical characteristics of the biological product as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. To help reduce the risk of the introduction of adventitious agents with use of biological products, the PHS Act emphasizes the importance of manufacturing control for products whose attributes cannot be precisely defined. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the sponsor must develop methods for testing the identity, strength, quality, potency and purity of the final biological product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the biological product candidate does not undergo unacceptable deterioration over its shelf life. +U.S. Review and Approval Processes +After the completion of clinical trials of a biological product, FDA approval of a BLA must be obtained before commercial marketing of the biological product in the United States. The BLA must include results of product development, laboratory and animal studies, human studies, information on the manufacture and composition of the product, proposed labeling and other relevant information. +Within 60 days following submission of the application, the FDA reviews a BLA to determine if it is substantially complete before the FDA accepts it for filing. The FDA may refuse to file any BLA that it deems incomplete or not properly reviewable at the time of submission and may request additional information. In this event, the BLA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. In most cases, the submission of a BLA is subject to a substantial application user fee, although the fee may be waived under certain circumstances. Under the performance goals and policies implemented by the FDA under the Prescription Drug User Fee Act, or PDUFA, for original BLAs, the FDA targets 10 months from the filing date in which to complete its initial review of a standard application and respond to the applicant, and six months from the filing date for an application with priority review. The FDA does not always meet its PDUFA goal dates, and the review process is often significantly extended by FDA requests for additional information or clarification. This review typically takes 12 months from the date the BLA is submitted to the FDA because the FDA has approximately two months to make a ‘‘filing’’ decision. The review process and the PDUFA goal date may be extended by three months if the FDA requests or the BLA sponsor otherwise provides additional information or clarification regarding information already provided in the submission within the last three months before the PDUFA goal date. +Once the submission is accepted for filing, the FDA begins an in-depth substantive review of the BLA. The FDA reviews the BLA to determine, among other things, whether the proposed product is safe, pure and potent, for its intended use, and whether the product is being manufactured in accordance with cGMP to ensure the continued safety, purity and potency of such product. The FDA may refer applications for novel biological products or biological products that present difficult or novel questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. During its BLA review, the FDA also will determine whether a Risk Evaluation and Mitigation Strategy, or REMS, is necessary to assure the safe use of the biological product. If the FDA concludes a REMS is needed, the sponsor of the BLA must submit a proposed REMS; the FDA will not approve the BLA without a REMS, if required. +Before approving a BLA, the FDA typically will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. For a gene therapy or gene editing product, the FDA also will not approve the product if the manufacturer is not in compliance with the CGTPs. These are FDA regulations that govern the methods used in, and the facilities and controls used for, the manufacture of human cells, tissues and cellular and tissue-based products, or HCT/Ps, which are human cells or tissue intended for implantation, transplant, infusion, or transfer into a human recipient. The primary intent of the CGTP requirements is to ensure that cell and tissue-based products are manufactured in a manner designed to prevent the introduction, transmission and spread of communicable disease. FDA regulations also require tissue establishments to register and list their HCT/Ps with the FDA and, when applicable, to evaluate donors through appropriate screening and testing. Additionally, before approving a BLA, the +21 +FDA will typically inspect one or more clinical sites to assure that the clinical trials were conducted in compliance with IND study requirements and GCP requirements. To assure cGMP, CGTP and GCP compliance, an applicant must incur significant expenditure of time, money and effort in the areas of training, record keeping, production and quality control. +Under the Pediatric Research Equity Act, or PREA, a BLA or supplement to a BLA for a novel product (e.g., new active ingredient, new indication, etc.) must contain data to assess the safety and effectiveness of the biological product for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers. Unless otherwise required by regulation, PREA does not apply to any biological product for an indication for which orphan designation has been granted. +Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the BLA does not satisfy its regulatory criteria for approval and deny approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret the same data. If the FDA decides not to approve the BLA in its present form, the FDA will issue a complete response letter that usually describes all of the specific deficiencies in the BLA identified by the FDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical trials. Additionally, the complete response letter may include recommended actions that the applicant might take to place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the BLA, addressing all of the deficiencies identified in the letter or withdraw the application. +If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, including to subpopulations of patients, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings precautions or interactions be included in the product labeling. The FDA may impose restrictions and conditions on product distribution, prescribing or dispensing in the form of a REMS, or otherwise limit the scope of any approval. In addition, the FDA may require post-approval clinical trials designed to further assess a biological product’s safety, purity or potency, and testing and surveillance programs to monitor the safety of approved products that have been commercialized. +Orphan Drug Designation +Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biological product intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making a drug or biological product available in the United States for this type of disease or condition will be recovered from sales of the product. Orphan product designation must be requested before submitting a BLA. After the FDA grants orphan product designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. +Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. Orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug or biological product for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity. Competitors, however, may receive approval of different products for the indication for which the orphan product has exclusivity or obtain approval for the same product but for a different indication for which the orphan product has exclusivity. If a drug or biological product designated as an orphan product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan product exclusivity. Orphan drug designation status in the EU has similar, but not identical, benefits. +22 +Rare Pediatric Disease Designation and Priority Review Vouchers +Under the FD&C Act, the FDA incentivizes the development of drugs and biological products that meet the definition of a “rare pediatric disease,” defined to mean a serious or life-threatening disease in which the serious of life-threatening manifestations primarily affect individuals aged from birth to 18 years and the disease affects fewer than 200,000 individuals in the United States or affects more than 200,000 in the United States and for which there is no reasonable expectation that the cost of developing and making in the United States a drug or biological product for such disease or condition will be received from sales in the United States of such drug or biological product. The sponsor of a product candidate for a rare pediatric disease may be eligible for a voucher that can be used to obtain a priority review for a subsequent human drug or biological product application after the date of approval of the rare pediatric disease drug or biological product, referred to as a PRV. A sponsor may request rare pediatric disease designation from the FDA prior to the submission of its BLA. A rare pediatric disease designation does not guarantee that a sponsor will receive a PRV upon approval of its BLA. Moreover, a sponsor who chooses not to submit a rare pediatric disease designation request may nonetheless receive a PRV upon approval of their marketing application if they request such a voucher in their original marketing application and meet all of the eligibility criteria. If a PRV is received, it may be sold or transferred an unlimited number of times. Congress has extended the PRV program through September 30, 2029. +Expedited Development and Review Programs +The FDA has various programs, including fast track designation, breakthrough therapy designation, accelerated approval and priority review, that are intended to expedite or simplify the process for the development and FDA review of drugs and biologics that are intended for the treatment of serious or life-threatening diseases or conditions. These programs do not change the standards for approval but may help expedite the development or approval process. To be eligible for fast track designation, new drugs and biological products must be intended to treat a serious or life-threatening condition and demonstrate the potential to address unmet medical needs for the condition. Fast track designation applies to the combination of the product and the specific indication for which it is being studied. The sponsor of a new drug or biologic may request the FDA to designate the drug or biologic as a fast track product at any time during the clinical development of the product. One benefit of fast track designation, for example, is that the FDA may consider for review sections of the marketing application for a product that has received fast track designation on a rolling basis before the complete application is submitted. +Under the FDA’s breakthrough therapy program, products intended to treat a serious or life-threatening disease or condition may be eligible for the benefits of the fast track program when preliminary clinical evidence demonstrates that such product may have substantial improvement on one or more clinically significant endpoints over existing therapies. Additionally, the FDA will seek to ensure the sponsor of a breakthrough therapy product receives timely advice and interactive communications to help the sponsor design and conduct a development program as efficiently as possible. +Any product is eligible for priority review if it has the potential to provide safe and effective therapy where no satisfactory alternative therapy exists or a significant improvement in the treatment, diagnosis or prevention of a disease compared to marketed products. The FDA will attempt to direct additional resources to the evaluation of an application for a new drug or biological product designated for priority review in an effort to facilitate the review. Under priority review, the FDA’s goal is to review an application in six months once it is filed, compared to ten months for a standard review. +Additionally, a product may be eligible for accelerated approval. Drug or biological products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval, which means that they may be approved on the basis of adequate and well-controlled clinical trials establishing that the product has an effect on a surrogate endpoint that is reasonably likely to predict a clinical benefit, or on the basis of an effect on an intermediate clinical endpoint other than survival or irreversible morbidity. As a condition of approval, the FDA may require that a sponsor of a drug or biological product receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials with due diligence, and, under the Food and Drug Omnibus Reform Act of 2022, or FDORA, the FDA is permitted to require, as appropriate, that such trials be underway prior to approval or within a specific time period after the date of approval for a product granted accelerated approval. Under FDORA, the FDA has increased authority for +23 +expedited procedures to withdraw approval of a product or indication approved under accelerated approval if, for example, the confirmatory trial fails to verify the predicted clinical benefit of the product. In addition, for products being considered for accelerated approval, the FDA generally requires, unless otherwise informed by the agency, that all advertising and promotional materials intended for dissemination or publication be submitted to the agency for review, which could adversely affect the timing of the commercial launch of the product. +Under FDORA, a platform technology incorporated within or utilized by a drug or biological product is eligible for designation as a designated platform technology if certain conditions are met. A sponsor may request the FDA to designate a platform technology as a designated platform technology concurrently with, or at any time after, submission of an IND application for a drug that incorporates or utilizes the platform technology that is the subject of the request. If so designated, the FDA may expedite the development and review of any subsequent original NDA or BLA for a drug that uses or incorporates the platform technology. Designated platform technology status does not ensure that a drug will be developed more quickly or receive FDA approval. In addition, the FDA may revoke a designation if the FDA determines that a designated platform technology no longer meets the criteria for such designation. +RMAT Designation +Congress amended the FD&C Act to facilitate an efficient development program for, and expedite review of regenerative medicine advanced therapy, or RMAT, which include cell and gene therapies, therapeutic tissue engineering products, human cell and tissue products and combination products using any such therapies or products. RMAT do not include those HCT/Ps regulated solely under section 361 of the PHS Act and 21 CFR Part 1271. This program is intended to facilitate efficient development and expedite review of regenerative medicine therapies, which are intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition and qualify for RMAT designation. A drug sponsor may request that FDA designate a drug as a RMAT concurrently with or at any time after submission of an IND. FDA has 60 calendar days to determine whether the drug meets the criteria, including whether there is preliminary clinical evidence indicating that the drug has the potential to address unmet medical needs for a serious or life-threatening disease or condition. A BLA for a regenerative medicine therapy that has received RMAT designation may be eligible for priority review or accelerated approval through use of surrogate or intermediate endpoints reasonably likely to predict long-term clinical benefit, or reliance upon data obtained from a meaningful number of sites. Benefits of RMAT designation also include early interactions with FDA to discuss any potential surrogate or intermediate endpoint to be used to support accelerated approval. A regenerative medicine therapy with RMAT designation that is granted accelerated approval and is subject to post-approval requirements may fulfill such requirements through the submission of clinical evidence from clinical trials, patient registries, or other sources of real world evidence, such as electronic health records; the collection of larger confirmatory data sets; or post-approval monitoring of all patients treated with such therapy prior to its approval. Like some of the FDA’s other expedited development programs, RMAT designation does not change the standards for approval but may help expedite the development or approval process. +Post-Approval Requirements +Maintaining substantial compliance with applicable federal, state and local statutes and regulations requires the expenditure of substantial time and financial resources. Rigorous and extensive FDA regulation of biological products continues after approval, particularly with respect to cGMP. We currently rely, and may continue to rely, on third parties for the production of clinical and commercial quantities of any products that we may commercialize. Manufacturers of our products are required to comply with applicable requirements in the cGMP regulations, including quality control and quality assurance and maintenance of records and documentation. Other post-approval requirements applicable to biological products, include reporting of cGMP deviations that may affect the identity, potency, purity and overall safety of a distributed product, record-keeping requirements, reporting of adverse effects, reporting updated safety and efficacy information, and complying with electronic record and signature requirements. After a BLA is approved, the product also may be subject to official lot release. As part of the manufacturing process, the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official release by the FDA, the manufacturer submits samples of each lot of product to the FDA together with a release protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s tests performed on the lot. The FDA also may perform certain confirmatory tests on lots of some products before releasing the lots for distribution by the manufacturer. In addition, the FDA +24 +conducts laboratory research related to the regulatory standards on the safety, purity, potency and effectiveness of biological products. +We also must comply with the FDA’s advertising and promotion requirements, such as those related to direct-to-consumer advertising, the prohibition on promoting products for uses or in patient populations that are not described in the product’s approved labeling, or off-label use, industry-sponsored scientific and educational activities, and promotional activities involving the internet. Discovery of previously unknown problems or the failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market as well as possible civil or criminal sanctions. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant or manufacturer to administrative or judicial civil or criminal sanctions and adverse publicity. FDA sanctions could include refusal to approve pending applications, withdrawal of an approval, clinical holds, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, mandated corrective advertising or communications with doctors or other stakeholders, debarment, restitution, disgorgement of profits, or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us. +Biological product manufacturers and other entities involved in the manufacture and distribution of approved biological products, and those supplying products, ingredients, and components of them, are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance. Discovery of problems with a product after approval may result in restrictions on a product, manufacturer, or holder of an approved BLA, including withdrawal of the product from the market. In addition, changes to the manufacturing process or facility generally require prior FDA approval before being implemented and other types of changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further FDA review and approval. +From time to time, legislation is drafted, introduced, passed in Congress and signed into law that could significantly change the statutory provisions governing the approval, manufacturing, and marketing of products regulated by the FDA. In addition to new legislation, FDA regulations, guidance, and policies are often revised or reinterpreted by the agency in ways that may significantly affect the manner in which pharmaceutical products are regulated and marketed. +U.S. Patent Term Restoration and Marketing Exclusivity +Depending upon the timing, duration and specifics of any FDA approval of the use of our product candidates, some U.S. patents that may issue from our pending patent applications may be eligible for limited patent term extension under the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND and the submission date of a BLA plus the time between the submission date of a BLA and the approval of that application, except that the review period is reduced by any time during which the applicant failed to exercise due diligence. Only one patent applicable to an approved biological product is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. In addition, only those claims covering the approved product, a method for using it, or a method for manufacturing it may be extended, and a patent can only be extended once and only for a single product. The U.S. Patent and Trademark Office, or USPTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we may apply for restoration of patent term for one of the patents that may issue from our pending patent applications, if and as applicable, to add patent life beyond its current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant BLA. However, there can be no assurance that our pending patent applications will issue or that we will benefit from any patent term extension or favorable adjustments to the terms of any patents we may own or in-license in the future. +25 +A biological product can obtain pediatric market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing exclusivity periods for all formulations, dosage forms, and indications of the biologic. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric study in accordance with an FDA-issued “Written Request” for such a study, provided that at the time pediatric exclusivity is granted there is not less than nine months of term remaining. +The ACA created an abbreviated approval pathway for biological products shown to be similar to, or interchangeable with, an FDA-licensed reference biological product. This amendment to the PHS Act attempts to minimize duplicative testing. Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and the reference product in terms of safety, purity and potency, can be shown through analytical studies, animal studies and a clinical trial or trials. Interchangeability requires that a product is biosimilar to the reference product and the product must demonstrate that it can be expected to produce the same clinical results as the reference product and, for products administered multiple times, the biologic and the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. +A reference biological product is granted four- and 12-year exclusivity periods from the time of first licensure of the product. The FDA will not accept an application for a biosimilar or interchangeable product based on the reference biological product until four years after the date of first licensure of the reference product, and the FDA will not approve an application for a biosimilar or interchangeable product based on the reference biological product until 12 years after the date of first licensure of the reference product. “First licensure” typically means the initial date the particular product at issue was licensed in the United States. Date of first licensure does not include the date of licensure of (and a new period of exclusivity is not available for) a biological product if the licensure is for a supplement for the biological product or for a subsequent application by the same sponsor or manufacturer of the biological product (or licensor, predecessor in interest, or other related entity) for a change (not including a modification to the structure of the biological product) that results in a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery device or strength, or for a modification to the structure of the biological product that does not result in a change in safety, purity, or potency. Therefore, one must determine whether a new product includes a modification to the structure of a previously licensed product that results in a change in safety, purity, or potency to assess whether the licensure of the new product is a first licensure that triggers its own period of exclusivity. Whether a subsequent application, if approved, warrants exclusivity as the “first licensure” of a biological product is determined on a case-by-case basis with data submitted by the sponsor. +Additional Regulation +In addition to the foregoing, state and federal laws regarding environmental protection and hazardous substances, including the Occupational Safety and Health Act, the Resource Conservancy and Recovery Act and the Toxic Substances Control Act, affect our business. These and other laws govern our use, handling and disposal of various biological, chemical and radioactive substances used in, and wastes generated by, our operations. If our operations result in contamination of the environment or expose individuals to hazardous substances, we could be liable for damages and governmental fines. We believe that we are in material compliance with applicable environmental laws and that continued compliance therewith will not have a material adverse effect on our business. We cannot predict, however, how changes in these laws may affect our future operations. +U.S. Foreign Corrupt Practices Act +The U.S. Foreign Corrupt Practices Act, or FCPA, to which we are subject, prohibits corporations and individuals from engaging in certain activities to obtain or retain business or to influence a person working in an official capacity. It is illegal to pay, offer to pay or authorize the payment of anything of value to any foreign government official, government staff member, political party or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity. +26 +Government Regulation Outside of the United States +In addition to regulations in the United States, we are subject to a variety of regulations in other jurisdictions governing, among other things, research and development, clinical trials, testing, manufacturing, safety, efficacy, labeling, packaging, storage, record keeping, distribution, reporting, advertising and other promotional practices involving biological products as well as authorization and approval of our products. Because biologically sourced raw materials are subject to unique contamination risks, their use may be restricted in some countries. +The requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, the clinical trials must be conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension of clinical trials, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution. +EU Clinical Trials Regulation +In April 2014, the EU adopted the Clinical Trials Regulation, (EU) No 536/2014, which replaced the previous Clinical Trials Directive 2001/20/EC on 31 January 2022. The Clinical Trials Regulation is directly applicable in all EU Member States meaning no national implementing legislation in each EU Member State is required. The Clinical Trials Regulation aims to simplify and streamline the approval of clinical trials in the EU. The main characteristics of the Regulation include: a streamlined application procedure via a single-entry point through the Clinical Trials Information System, or CTIS; a single set of documents to be prepared and submitted for the application as well as simplified reporting procedures for clinical trial sponsors; and a harmonized procedure for the assessment of applications for clinical trials. +EU Drug Review and Approval +In the EU, medicinal products can only be commercialized after obtaining a marketing authorization. To obtain regulatory approval of a medicinal product in the EU, we must submit a marketing authorization application, or MAA. A centralized marketing authorization is issued by the European Commission through the centralized procedure, based on the opinion of the Committee for Medicinal Products for Human Use, or CHMP, of the EMA, and is valid throughout the EU, and in the additional member states of the EEA (Norway, Iceland and Liechtenstein). The centralized procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products, advanced-therapy medicinal products (gene-therapy, somatic cell-therapy or tissue-engineered medicines), and medicinal products containing a new active substance indicated for the treatment of HIV, AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and other immune dysfunctions, and viral diseases. The centralized procedure is optional for products containing a new active substance not yet authorized in the EU, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in the interest of public health in the EU. +Under the centralized procedure the maximum timeframe for the evaluation of an MAA by the EMA is 210 days, excluding clock stops, when additional written or oral information is to be provided by the applicant in response to questions asked by the CHMP. Clock stops may extend the timeframe of evaluation of an MAA considerably beyond 210 days. Where the CHMP gives a positive opinion, it provides the opinion together with supporting documentation to the European Commission, who make the final decision to grant a marketing authorization, which is issued within 67 days of receipt of the EMA’s recommendation. Accelerated assessment may be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of major public health interest, particularly from the point of view of therapeutic innovation. The timeframe for the evaluation of an MAA under the accelerated assessment procedure is 150 days, excluding clock stops, but it is possible that the CHMP may revert to the standard time limit for the centralized procedure if it determines that the application is no longer appropriate to conduct an accelerated assessment. +27 +Periods of Authorization and Renewals +A marketing authorization is valid for five years, in principle, and it may be renewed after five years on the basis of a re-evaluation of the risk benefit balance by the EMA for a centrally authorized product, or by the competent authority of the authorizing Member State for a nationally authorized product. Once renewed, the marketing authorization is valid for an unlimited period, unless the European Commission or the competent authority decides, on justified grounds relating to pharmacovigilance, to proceed with one additional five-year renewal period. Any authorization that is not followed by the placement of the product on the EU market (in the case of the centralized procedure) or on the market of the authorizing Member State (for a nationally authorized product) within three years after authorization, or if the product is removed from the market for three consecutive years, ceases to be valid (the so-called sunset clause). +Data and Marketing Exclusivity +The EU also provides opportunities for market exclusivity. Upon receiving marketing authorization in the EU, innovative medicinal products generally receive eight years of data exclusivity and an additional two years of market exclusivity. If granted, data exclusivity prevents generic or biosimilar applicants from referencing the innovator’s preclinical and clinical trial data contained in the dossier of the reference product when applying for a generic or biosimilar marketing authorization in the EU, during a period of eight years from the date on which the reference product was first authorized in the EU. During the additional two-year period of market exclusivity, a generic or biosimilar marketing authorization can be submitted and the innovator’s data may be referenced, but no generic or biosimilar product can be marketed until the expiration of the market exclusivity period. The overall ten-year period will be extended to a maximum of eleven years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to authorization, are held to bring a significant clinical benefit in comparison with existing therapies. Even if an innovative medicinal product gains the prescribed period of data exclusivity, another company may market another version of the product if such company obtained a marketing authorization based on an MAA with a complete independent data package of pharmaceutical tests, preclinical tests and clinical trials. There is, however, no guarantee that a product will be considered by the EU’s regulatory authorities to be an innovative medicinal product, and products may therefore not qualify for data exclusivity. +Orphan Drug Designation and Exclusivity +The criteria for designating an “orphan medicinal product” in the EU are similar in principle to those in the United States. Orphan medicinal products are eligible for financial incentives such as reduction of fees or fee waivers. The application for orphan designation must be submitted before the application for marketing authorization. The applicant will receive a fee reduction for the MAA if the orphan designation has been granted, but not if the designation is still pending at the time the marketing authorization is submitted. Orphan designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. +Products with an orphan designation in the EU can receive 10 years of market exclusivity, during which time, subject to limited exceptions, no “similar medicinal product” for the same indication may be placed on the market. A “similar medicinal product” is defined as a medicinal product containing a similar active substance or substances as contained in an authorized orphan medicinal product, and which is intended for the same therapeutic indication. An orphan medicinal product can also obtain an additional two years of market exclusivity in the EU where an agreed pediatric investigation plan for pediatric studies has been complied with. No extension to any supplementary protection certificate, or SPC, can be granted on the basis of pediatric studies for products with an orphan designation. +The 10-year market exclusivity may be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan designation, for example, if the product is sufficiently profitable not to justify maintenance of market exclusivity. Otherwise, an orphan medicinal product marketing exclusivity may be revoked only in very select cases, such as if: +• a second applicant can establish that its product, although similar, is safer, more effective or otherwise clinically superior to the authorized orphan medicinal product; +28 +• the marketing authorization holder of the authorized orphan medicinal product consents to a second medicinal product application; or +• the marketing authorization holder of the authorized orphan medicinal product cannot supply enough orphan medicinal product. +Pediatric Development +In the EU, companies developing a new medicinal product must agree upon a Pediatric Investigation Plan, or PIP, with the EMA’s Pediatric Committee, or PDCO, and must conduct pediatric clinical trials in accordance with that PIP, unless a waiver applies, (e.g., because the relevant disease or condition occurs only in adults). The PIP sets out the timing and measures proposed to generate data to support a pediatric indication of the product for which marketing authorization is being sought. The marketing authorization application for the product must include the results of pediatric clinical trials conducted in accordance with the PIP, unless a waiver applies or a deferral has been granted by the PDCO of the obligation to implement some or all of the measures of the PIP until there are sufficient data to demonstrate the efficacy and safety of the product in adults, in which case the pediatric clinical trials must be completed at a later date. Products that are granted a marketing authorization with the results of the pediatric clinical trials conducted in accordance with the PIP are eligible for a six month extension of the protection under an SPC, even where the trial results are negative, provided an application for such extension is made at the same time as filing the SPC application for the product, or at any point up to two years before the SPC expires. In the case of orphan medicinal products, a two year extension of the orphan market exclusivity may be available. This pediatric reward is subject to specific conditions and is not automatically available when data in compliance with the PIP are developed and submitted. +PRIME Designation +In March 2016, the EMA launched an initiative to facilitate development of product candidates in indications, often rare, for which few or no therapies currently exist. The PRIority MEdicines, or PRIME, scheme is intended to encourage product development in areas of unmet medical need and accelerated assessment of products representing substantial innovation, where the MAA will be made through the centralized procedure. Eligible products must target conditions for which there is an unmet medical need (there is no satisfactory method of diagnosis, prevention or treatment in the EU or, if there is, the new medicine will bring a major therapeutic advantage) and they must demonstrate the potential to address the unmet medical need by introducing new methods of therapy or improving existing ones. Applicants will typically be at the exploratory clinical trial phase of development and will have preliminary clinical evidence in patients to demonstrate the promising activity of the medicine and its potential to address, to a significant extent, an unmet medical need. Products from small- and medium-sized enterprises may qualify for earlier entry into the PRIME scheme than larger companies if the applicant has compelling non-clinical data and tolerability data from initial clinical trials of the product. Many benefits accrue to sponsors of product candidates with PRIME designation, including but not limited to, early and proactive regulatory dialogue with the EMA, frequent discussions on clinical trial designs and other development program elements and the opportunity for accelerated MAA assessment once a dossier has been submitted. Importantly, a dedicated Agency contact and rapporteur from the CHMP or CAT are appointed early in the PRIME scheme, facilitating increased understanding of the product at EMA’s Committee level. A kick-off meeting initiates these relationships and includes a team of multidisciplinary experts at the EMA to provide guidance on the overall development and regulatory strategies. Where, during the course of development, a medicine no longer meets the eligibility criteria, support under the PRIME scheme may be withdrawn. +Post-Approval Controls +Following approval, the holder of the marketing authorization is required to comply with a range of requirements applicable to the manufacturing, marketing, promotion and sale of the medicinal product. These include the following: +• The holder of a marketing authorization must establish and maintain a pharmacovigilance system and appoint an individual qualified person for pharmacovigilance, who is responsible for oversight of that system. Key +29 +obligations include expedited reporting of suspected serious adverse reactions and submission of periodic safety update reports, or PSURs. +• All new MAAs must include a risk management plan, or RMP, describing the risk management system that the company will put in place to prevent or minimize the risks associated with the product. The regulatory authorities may also impose specific obligations as a condition of the marketing authorization. Such risk-minimization measures or post-authorization obligations may include additional safety monitoring, more frequent submission of PSURs or the conduct of additional clinical trials or post-authorization safety studies. RMPs and PSURs are routinely available to third parties requesting access, subject to limited redactions. +• All advertising and promotional activities for the product must be consistent with the approved Summary of Product Characteristics and therefore all off-label promotion is prohibited. Direct-to-consumer advertising of prescription medicines is also prohibited in the EU. Although general requirements for advertising and promotion of medicinal products are established under EU directives, the details are governed by regulations in each EU Member State and can differ from one country to another. +All the aforementioned EU rules are generally applicable in the EEA. +Reform of the Regulatory Framework in the EU +The European Commission introduced legislative proposals in April 2023 that, if implemented, will replace the current regulatory framework in the EU for all medicines (including those for rare diseases and for children). In April 2024, the European Parliament adopted its position on the legislative proposals and, in June 2025, the Council of the European Union adopted its position. A common position on the text has been agreed upon on December 11, 2025, in the context of subsequent inter-institutional trilogue negotiations. The proposed revisions remain to be adopted, and are not expected to become applicable before 2028. +Regulatory Framework in the United Kingdom +Following the end of the Brexit transition period on January 1, 2021 and the implementation of the Windsor Framework on January 1, 2025, the UK is not generally subject to EU laws in respect of medicines. The EU laws that have been transposed into UK law through secondary legislation remain applicable in the UK, however, new legislation such as the EU Clinical Trials Regulation is not applicable in the UK. As a result of the Northern Ireland protocol, different rules applied in Northern Ireland than in England, Wales, and Scotland (together, Great Britain, or GB) for a period following Brexit, which continued to follow the EU regulatory regime. However, on January 1, 2025 a new arrangement called the Windsor Framework came into effect and reintegrated Northern Ireland under the regulatory authority of the MHRA with respect to medicinal products. The Windsor Framework removes EU licensing processes and EU labeling and serialization requirements in relation to Northern Ireland and introduces a UK-wide licensing process for medicines. The MHRA is responsible for approving all medicinal products destined for the UK market (i.e., Great Britain and Northern Ireland). A single UK-wide marketing authorization will be granted by the MHRA for all novel medicinal products to be sold in the UK, enabling products to be sold in a single pack and under a single authorization throughout the UK. In addition, the new arrangements require, for packs placed on the UK market on or after January 1, 2025, a "UK Only" label, indicating they are not for sale in the EU. Although a separate authorization is now required to market medicinal products in the UK, under an international recognition procedure which was put in place by the MHRA on January 1, 2024, the MHRA may take into account decisions on the approval of a marketing authorization from the EMA (and certain other regulators) when considering an application for a UK marketing authorization. There is no pre-marketing authorization orphan designation in the UK. Instead, the MHRA reviews applications for orphan designation with the corresponding marketing authorization application. The criteria are essentially the same, but have been tailored for the market, i.e., the prevalence of the condition in the UK, rather than the EU, must be more than five in 10,000. Should an orphan designation be granted, the period of market exclusivity will be set from the date of first approval of the product in the UK. +30 +Other Healthcare Laws and Compliance Requirements +Insurance and coverage +In the United States and markets in other countries, patients generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors is critical to new product acceptance. Our ability to successfully commercialize our product candidates will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. The availability of coverage and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford treatments such as gene therapy products. Sales of these or other product candidates that we may identify will depend substantially, both domestically and abroad, on the extent to which the costs of our product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors. If coverage and adequate reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize our product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investment. +There is also significant uncertainty related to the insurance coverage and reimbursement of newly approved products and coverage may be more limited than the purposes for which the medicine is approved by the FDA or comparable foreign regulatory authorities. In the United States, the principal decisions about reimbursement for new medicines are typically made by the Centers for Medicare & Medicaid Services, or CMS, an agency within the U.S. Department of Health and Human Services, or HHS. CMS decides whether and to what extent a new medicine will be covered and reimbursed under Medicare and private payors tend to follow CMS to a substantial degree. Factors payors consider in determining reimbursement are based on whether the product is: +• a covered benefit under its health plan; +• safe, effective and medically necessary; +• appropriate for the specific patient; +• cost-effective; and +• neither experimental nor investigational. +In addition, many third-party payors are increasingly limiting both coverage and the level of reimbursement of new drugs. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that reimbursement will be available for any product candidate that we commercialize and, if reimbursement is available, the level of reimbursement. In addition, many pharmaceutical manufacturers must calculate and report certain price reporting metrics to the government, such as average sales price, or ASP, and best price. Penalties may apply in some cases when such metrics are not submitted accurately and timely. Further, these prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs. Net prices for drugs may be also reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. +Other healthcare laws +In the United States, our current and future operations are subject to regulation by various federal, state and local authorities in addition to the FDA, including but not limited to, CMS, other divisions of HHS (such as the Office of Inspector General, Office for Civil Rights and the Health Resources and Service Administration), the U.S. +31 +Department of Justice, or DOJ, and individual U.S. Attorney offices within the DOJ, and state and local governments. For example, our clinical research, sales, marketing and scientific/educational grant programs may have to comply with the anti-fraud and abuse provisions of the Social Security Act, the false claims laws, the privacy and security provisions of the Health Insurance Portability and Accountability Act of 1996, or HIPAA, and similar state laws, each as amended, as applicable: +• the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order, arrangement or recommendation of any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs; a person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it to have committed a violation. Violations are subject to civil and criminal fines and penalties for each violation, plus up to three times the remuneration involved, imprisonment, and exclusion from government healthcare programs. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act or federal civil monetary penalties. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand, and prescribers, purchasers and formulary managers, among others, on the other. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act or federal civil money penalties statute; +• the federal civil and criminal false claims laws and civil monetary penalty laws, including the False Claims Act, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, false or fraudulent claims for payment to, or approval by, Medicare, Medicaid, or other federal healthcare programs, knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim or obligation to pay or transmit money or property to the federal government, or knowingly concealing or knowingly and improperly avoiding or decreasing or concealing an obligation to pay money to the federal government. A claim that includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim under the False Claims Act. Manufacturers can be held liable under the False Claims Act even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. The False Claims Act also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the False Claims Act and to share in any monetary recovery; +• HIPAA, which created additional federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false, fictitious, or fraudulent statements or representations in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; +• HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective implementing regulations, including the Final Omnibus Rule published in January 2013, which impose requirements on certain covered healthcare providers, health plans, and healthcare clearinghouses as well as their respective business associates that perform services for them that involve the use, or disclosure of, individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health information. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions; +32 +• the federal transparency requirements under the Affordable Care Act, or ACA, including the provision commonly referred to as the Physician Payments Sunshine Act, and its implementing regulations, which require applicable manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to CMS, information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain other licensed healthcare practitioners and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members; +• federal government price reporting laws, which require us to calculate and report complex pricing metrics in an accurate and timely manner to government programs; +• federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; +• analogous state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers or patients; state laws that require pharmaceutical companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state and local laws that require the licensure of sales representatives; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures and pricing information; data privacy and security laws and regulations in foreign jurisdictions some of which may be more stringent than those in the United States (such as the EU, which adopted the General Data Protection Regulation, which became effective in May 2018); and numerous state laws governing the privacy and security of health information, many of which differ from each other in significant ways regarding their applicability, compliance requirements and enforcement; and +• state laws related to insurance fraud in the case of claims involving private insurers. +Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. +Law enforcement authorities are increasingly focused on enforcing fraud and abuse laws, and it is possible that some of our practices may be challenged under these laws. Efforts to ensure that our current and future business arrangements with third parties, and our business generally, will comply with applicable healthcare laws and regulations will involve substantial costs. If our operations, including our arrangements with physicians and other healthcare providers, are found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject to penalties, including, without limitation, administrative, criminal and/or civil penalties, damages, fines, disgorgement, reputational harm, imprisonment, the exclusion or suspension from federal and state healthcare programs such as Medicare and Medicaid and debarment from contracting with the U.S. government, and/or the curtailment or restructuring of our operations, as well as additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws. If any of the physicians or other healthcare providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, they may be subject to similar penalties. +The risk of our being found in violation of these laws is increased by the fact that many of these laws have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. The shifting compliance environment and the need to build and maintain a robust system to comply with multiple jurisdictions with different compliance and reporting requirements increases the possibility that a healthcare company may violate one or more of the requirements. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial cost. +33 +Healthcare reform +In the United States and some foreign jurisdictions, there have been, and likely will continue to be, a number of legislative and regulatory changes and proposed changes regarding the healthcare system directed at broadening the availability of healthcare, improving the quality of healthcare, and containing or lowering the cost of healthcare. For example, in 2010, the ACA was enacted which includes changes to the coverage and payment for products under government health care programs. Among other things, the ACA: +• expanded manufacturers’ rebate liability under the Medicaid Drug Rebate Program; +• extended the Medicaid Drug Rebate Program to utilization of prescriptions of individuals enrolled in Medicaid managed care plans; +• established annual fees and taxes on manufacturers of certain branded prescription drugs; +• created a Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70 percent point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.; and +• expanded the entities eligible for discounts under the 340B Drug Pricing Program. +In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. For example, on March 22, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminated the statutory Medicaid drug rebate cap, currently set at 100 percent of a drug’s average manufacturer price, for single source and innovator multiple source drugs. Such laws and regulations may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used. +Further, in 2018, the Right to Try Act, was signed into law. The law, among other things, provides a federal framework for certain patients to access certain IND products that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a pharmaceutical manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act. +The prices of prescription pharmaceuticals in the United States and foreign jurisdictions are subject to considerable legislative and executive actions and could impact the prices we obtain for our products, if and when licensed. +In August 2022, the Inflation Reduction Act, or the IRA, was signed into law. The IRA includes several provisions that will affect our business to varying degrees, including provisions that create a $2,000 out-of-pocket cap for Medicare Part D beneficiaries, impose new manufacturer financial liability on all drugs in Medicare Part D, allow the U.S. government to negotiate Medicare Part B and Part D pricing for certain high-cost drugs and biologics without generic or biosimilar competition, require companies to pay rebates to Medicare for drug prices that increase faster than inflation, and delay the rebate rule that would require pass through of pharmacy benefit manager rebates to beneficiaries. Further, under the IRA, orphan drugs are exempted from the Medicare drug price negotiation program, but only if they have one orphan designation and for which the only approved indication is for that disease or condition. Under the One Big Beautiful Bill Act of 2025, or the OBBBA, this restriction was eliminated; and effective for the 2028 initial price applicability year, all orphan drugs, regardless of the number of orphan drug designations or indications, are exempt from the Medicare drug price negotiation program. The implementation of the IRA is currently subject to ongoing litigation challenging the constitutionality of the IRA’s Medicare drug price negotiation program. Although the effects of the IRA on our business and the healthcare industry in general is not yet known, we are taking into consideration the potential impact of the IRA on our development and commercialization activities. +In addition to pricing regulations, reforms of regulatory approval frameworks may adversely affect our pricing strategy. At a federal level, President Trump reversed some of President Biden’s executive orders including rescinding Executive Order 14087 entitled “Lowering Prescription Drug Costs for Americans.” President Trump +34 +may issue new executive orders designed to impact drug pricing. A number of these and other proposed measures may require authorization through additional legislation to become effective. Congress and the Trump administration have indicated that they will continue to seek new legislative measures to control drug costs. +On December 19, 2025, CMS released two proposed rules that would incorporate most‑favored nation, or MFN, pricing principles into federal reimbursement for prescription drugs. The first proposal, the Global Benchmark for Efficient Drug Pricing Model, or GLOBE, for Medicare Part B, would require manufacturers of specified single‑source drugs and sole‑source biologics to pay incremental rebates based on international benchmark prices, with participation triggered for products meeting CMS’s spending and eligibility criteria. The second proposal, the Guarding U.S. Medicare Against Rising Drug Costs, or GUARD, model for Medicare Part D, would similarly mandate manufacturer rebates for qualifying sole‑source drugs where the Medicare net price exceeds an MFN benchmark derived from international reference pricing methodologies. As proposed, GLOBE would begin a five‑year performance period on October 1, 2026 and GUARD would begin its performance period in 2027. These proposals will likely be subject to legal challenges that could delay their implementation or modify their impact on manufacturer pricing and revenue. Additionally, in November 2025, CMS introduced the GENErating cost Reductions for U.S. Medicaid, or GENEROUS, Model, a voluntary MFN framework for manufacturers participating in the Medicaid Drug Rebate Program. Although it is voluntary, the GENEROUS Model could also impact the drug pricing landscape for manufacturers. +Individual states in the United States have also become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. State legislatures have also been increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. +It is difficult to predict the future legislative landscape in healthcare and the effect on our business, results of operations, financial condition and prospects. However, we expect that additional state and federal healthcare reform measures will be adopted in the future. +Employees and Human Capital Resources +As of December 31, 2025, we had 146 full-time employees, of whom 63 have M.D. or Ph.D. degrees. Within our workforce, 119 employees are engaged in research and development and 27 are engaged in business development, finance, legal, and general management and administration. None of our employees are represented by labor unions or covered by collective bargaining agreements. We consider our relationship with our employees to be good. +Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and new employees, advisors and consultants. The principal purposes of our equity incentive plans are to attract, retain and reward personnel through the granting of equity-based compensation awards in order to increase shareholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives. +Our Corporate Information +We were incorporated under the laws of the state of Delaware in September 2019 under the name Prime Medicine, Inc. Our principal executive offices are located at 60 First Street, Cambridge, MA 02141. Our telephone number is (617) 465-0013 and our website is located at www.primemedicine.com. References to our website are inactive textual references only and the content of our website should not be deemed incorporated by reference into this Annual Report on Form 10-K. +35 +Available Information +Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of charge on our website located at www.primemedicine.com as soon as reasonably practicable after they are filed with or furnished to the Securities and Exchange Commission, or the SEC. These reports are also available at the SEC’s website at www.sec.gov. +Our Code of Business Conduct and Ethics is posted on our website located at investors.primemedicine.com/corporate-governance/documents-charters. A copy of our Corporate Governance Guidelines, and the charters of the audit committee, compensation committee, and nominating and corporate governance committee are posted on our website, www.primemedicine.com, under the heading “Investors—Corporate Governance” and are available in print to any person who requests copies by contacting us by calling (617) 465-0013 or by writing to Prime Medicine, Inc., 60 First Street, Cambridge, Massachusetts 02141. +36 \ No newline at end of file diff --git a/raw/filings/0001894562/2025/0001628280-26-013569/item13.txt b/raw/filings/0001894562/2025/0001628280-26-013569/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..622d42009ec66f1c3b26e9420bd6c311fdd623df --- /dev/null +++ b/raw/filings/0001894562/2025/0001628280-26-013569/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions, and Director Independence +153 \ No newline at end of file diff --git a/raw/filings/0001894954/2024/0001903596-25-000145/filing.txt b/raw/filings/0001894954/2024/0001903596-25-000145/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..d81c166ecb52610464aa1898bbd83e816114e689 --- /dev/null +++ b/raw/filings/0001894954/2024/0001903596-25-000145/filing.txt @@ -0,0 +1,5140 @@ +false +2024 +FY +0001894954 +0001894954 +2024-01-01 +2024-12-31 +0001894954 +2024-06-30 +0001894954 +2025-03-25 +0001894954 +2024-10-01 +2024-12-31 +0001894954 +2024-12-31 +0001894954 +2023-12-31 +0001894954 +2023-01-01 +2023-12-31 +0001894954 +us-gaap:CommonStockMember +2022-12-31 +0001894954 +us-gaap:AdditionalPaidInCapitalMember +2022-12-31 +0001894954 +us-gaap:RetainedEarningsMember +2022-12-31 +0001894954 +2022-12-31 +0001894954 +us-gaap:CommonStockMember +2023-12-31 +0001894954 +us-gaap:AdditionalPaidInCapitalMember +2023-12-31 +0001894954 +us-gaap:RetainedEarningsMember +2023-12-31 +0001894954 +us-gaap:CommonStockMember +2023-01-01 +2023-12-31 +0001894954 +us-gaap:AdditionalPaidInCapitalMember +2023-01-01 +2023-12-31 +0001894954 +us-gaap:RetainedEarningsMember +2023-01-01 +2023-12-31 +0001894954 +us-gaap:CommonStockMember +2024-01-01 +2024-12-31 +0001894954 +us-gaap:AdditionalPaidInCapitalMember +2024-01-01 +2024-12-31 +0001894954 +us-gaap:RetainedEarningsMember +2024-01-01 +2024-12-31 +0001894954 +us-gaap:CommonStockMember +2024-12-31 +0001894954 +us-gaap:AdditionalPaidInCapitalMember +2024-12-31 +0001894954 +us-gaap:RetainedEarningsMember +2024-12-31 +0001894954 +srt:AsiaMember +2024-12-31 +0001894954 +srt:AsiaMember +2023-12-31 +0001894954 +xpon:OneCustomerMember +us-gaap:SalesRevenueNetMember +us-gaap:CustomerConcentrationRiskMember +2024-01-01 +2024-12-31 +0001894954 +xpon:OneCustomerMember +us-gaap:AccountsReceivableMember +us-gaap:CustomerConcentrationRiskMember +2024-01-01 +2024-12-31 +0001894954 +xpon:FourOtherCustomersMember +us-gaap:SalesRevenueNetMember +us-gaap:CustomerConcentrationRiskMember +2024-12-31 +0001894954 +xpon:FourOtherCustomersMember +us-gaap:AccountsReceivableMember +us-gaap:CustomerConcentrationRiskMember +2024-01-01 +2024-12-31 +0001894954 +xpon:TwoCustomersMember +us-gaap:SalesRevenueNetMember +us-gaap:CustomerConcentrationRiskMember +2023-01-01 +2023-12-31 +0001894954 +xpon:FourOtherCustomersMember +us-gaap:SalesRevenueNetMember +us-gaap:CustomerConcentrationRiskMember +2023-12-31 +0001894954 +xpon:FourOtherCustomersMember +us-gaap:AccountsReceivableMember +us-gaap:CustomerConcentrationRiskMember +2023-01-01 +2023-12-31 +0001894954 +xpon:WarrantsOptionsAndRestrictedStockUnitsMember +2024-01-01 +2024-12-31 +0001894954 +xpon:WarrantsOptionsAndRestrictedStockUnitsMember +2023-01-01 +2023-12-31 +0001894954 +srt:MinimumMember +xpon:VehiclesAndTransportationEquipmentMember +2024-12-31 +0001894954 +xpon:VehiclesAndTransportationEquipmentMember +srt:MaximumMember +2024-12-31 +0001894954 +xpon:ManufacturingEquipmentMember +srt:MinimumMember +2024-12-31 +0001894954 +srt:MaximumMember +xpon:ManufacturingEquipmentMember +2024-12-31 +0001894954 +xpon:OfficeFurnitureAndEquipmentMember +srt:MinimumMember +2024-12-31 +0001894954 +srt:MaximumMember +xpon:OfficeFurnitureAndEquipmentMember +2024-12-31 +0001894954 +xpon:WarehouseEquipmentMember +srt:MinimumMember +2024-12-31 +0001894954 +srt:MaximumMember +xpon:WarehouseEquipmentMember +2024-12-31 +0001894954 +xpon:QAEquipmentMember +srt:MinimumMember +2024-12-31 +0001894954 +srt:MaximumMember +xpon:QAEquipmentMember +2024-12-31 +0001894954 +xpon:ToolingAndMoldsMember +srt:MinimumMember +2024-12-31 +0001894954 +srt:MaximumMember +xpon:ToolingAndMoldsMember +2024-12-31 +0001894954 +us-gaap:WarrantMember +2024-01-01 +2024-12-31 +0001894954 +us-gaap:WarrantMember +2023-01-01 +2023-12-31 +0001894954 +us-gaap:WarrantMember +xpon:SeriesAwarrantsMember +2024-01-01 +2024-12-31 +0001894954 +us-gaap:WarrantMember +xpon:SeriesAwarrantsMember +2023-01-01 +2023-12-31 +0001894954 +us-gaap:WarrantMember +xpon:SeriesBwarrantsMember +2024-01-01 +2024-12-31 +0001894954 +us-gaap:WarrantMember +xpon:SeriesBwarrantsMember +2023-01-01 +2023-12-31 +0001894954 +xpon:StockOptionsMember +2024-01-01 +2024-12-31 +0001894954 +xpon:StockOptionsMember +2023-01-01 +2023-12-31 +0001894954 +us-gaap:RestrictedStockUnitsRSUMember +2024-01-01 +2024-12-31 +0001894954 +us-gaap:RestrictedStockUnitsRSUMember +2023-01-01 +2023-12-31 +0001894954 +xpon:VehiclesAndTransportationEquipmentMember +2024-12-31 +0001894954 +xpon:VehiclesAndTransportationEquipmentMember +2023-12-31 +0001894954 +xpon:ManufacturingEquipmentMember +2024-12-31 +0001894954 +xpon:ManufacturingEquipmentMember +2023-12-31 +0001894954 +xpon:OfficeFurnitureEquipmentMember +2024-12-31 +0001894954 +xpon:OfficeFurnitureEquipmentMember +2023-12-31 +0001894954 +xpon:WarehouseEquipmentMember +2024-12-31 +0001894954 +xpon:WarehouseEquipmentMember +2023-12-31 +0001894954 +us-gaap:LeaseholdImprovementsMember +2024-12-31 +0001894954 +us-gaap:LeaseholdImprovementsMember +2023-12-31 +0001894954 +xpon:QAEquipmentMember +2024-12-31 +0001894954 +xpon:QAEquipmentMember +2023-12-31 +0001894954 +us-gaap:NotesPayableToBanksMember +2024-01-01 +2024-12-31 +0001894954 +us-gaap:NotesPayableToBanksMember +2024-12-31 +0001894954 +us-gaap:NotesPayableToBanksMember +2023-12-31 +0001894954 +xpon:NotePayableCreditUnionMember +2023-01-01 +2023-12-31 +0001894954 +xpon:NotePayableCreditUnionMember +2023-12-31 +0001894954 +xpon:NotePayableCreditUnionMember +2024-12-31 +0001894954 +xpon:NotePayableSBAMember +2024-01-01 +2024-12-31 +0001894954 +xpon:NotePayableSBAMember +2024-12-31 +0001894954 +xpon:NotePayableSBAMember +2023-12-31 +0001894954 +xpon:GMFinancialMember +2024-01-01 +2024-12-31 +0001894954 +xpon:GMFinancialMember +2024-12-31 +0001894954 +xpon:GMFinancialMember +2023-12-31 +0001894954 +xpon:UnsecuredPromissoryNotesMember +2024-12-31 +0001894954 +xpon:UnsecuredPromissoryNotesMember +2023-12-31 +0001894954 +xpon:UnsecuredPromissoryNotesMember +2024-01-01 +2024-12-31 +0001894954 +xpon:UnsecuredPromissoryNotesMember +2023-01-01 +2023-12-31 +0001894954 +xpon:CommonUnitsMember +2024-08-08 +0001894954 +xpon:PreFundedUnitsMember +2024-08-08 +0001894954 +xpon:SeriesAwarrantsMember +2024-08-07 +2024-08-08 +0001894954 +xpon:SeriesBwarrantsMember +2024-08-07 +2024-08-08 +0001894954 +us-gaap:WarrantMember +2024-08-08 +0001894954 +xpon:PreReverseStockSplitMember +2024-08-08 +0001894954 +xpon:PreReverseStockSplitMember +2024-08-07 +2024-08-08 +0001894954 +xpon:PostReverseStockSplitMember +xpon:SeriesAWarrantMember +2024-09-26 +2024-09-27 +0001894954 +xpon:PostReverseStockSplitMember +xpon:SeriesAWarrantMember +2024-09-27 +0001894954 +xpon:PostReverseStockSplitMember +xpon:SeriesAWarrantMember +2024-09-30 +0001894954 +xpon:SeriesAWarrantMember +2024-12-31 +0001894954 +xpon:PreReverseStockSplitMember +2024-09-30 +0001894954 +xpon:PostReverseStockSplitMember +xpon:SeriesBWarrantMember +2024-09-30 +0001894954 +xpon:SeriesBWarrantMember +2024-11-12 +0001894954 +xpon:EquityLineOfCreditMember +xpon:August2024PublicOfferingMember +2024-08-29 +2024-08-30 +0001894954 +xpon:EquityLineOfCreditMember +xpon:August2024PublicOfferingMember +2024-08-30 +0001894954 +xpon:SeriesAWarrantMember +2024-01-01 +2024-12-31 +0001894954 +xpon:LongTermNonCancellableOperatingLeaseAgreementsMember +2022-03-31 +0001894954 +xpon:LongTermNonCancellableOperatingLeaseAgreementsMember +2022-01-01 +2022-03-31 +0001894954 +xpon:LongTermNonCancellableOperatingLeaseAgreementsMember +2021-03-31 +0001894954 +xpon:LongTermNonCancellableOperatingLeaseAgreementsMember +2021-01-01 +2021-03-31 +0001894954 +xpon:SinhaMember +2022-11-21 +2022-11-22 +0001894954 +xpon:SinhaMember +2023-03-20 +2023-03-21 +0001894954 +xpon:TerminationAgreementMember +xpon:AlexanderMember +2024-05-01 +2024-05-02 +0001894954 +xpon:TerminationAgreementMember +xpon:AlexanderMember +2024-06-29 +2024-07-01 +0001894954 +xpon:PreReverseStockSplitMember +2024-12-31 +0001894954 +xpon:PostReverseStockSplitMember +2024-12-31 +0001894954 +xpon:PreFundedWarrantsMember +2024-12-31 +0001894954 +us-gaap:CommonStockMember +2024-08-31 +0001894954 +us-gaap:CommonStockMember +2024-08-01 +2024-08-31 +0001894954 +us-gaap:CommonStockMember +2024-05-02 +0001894954 +us-gaap:CommonStockMember +2023-05-31 +0001894954 +us-gaap:CommonStockMember +2023-01-16 +0001894954 +us-gaap:CommonStockMember +us-gaap:IPOMember +2022-04-01 +0001894954 +us-gaap:CommonStockMember +us-gaap:IPOMember +2022-03-30 +2022-04-01 +0001894954 +xpon:WarrantsOptionsMember +2023-12-31 +0001894954 +xpon:WarrantsOptionsMember +xpon:PostReverseStockSplitMember +2023-12-31 +0001894954 +xpon:WarrantsOptionsMember +2024-01-01 +2024-12-31 +0001894954 +xpon:WarrantsOptionsMember +2024-12-31 +0001894954 +xpon:WarrantsOptionsMember +xpon:ConversionOptionMember +2023-12-31 +0001894954 +xpon:WarrantsOptionsMember +xpon:ConversionOptionMember +us-gaap:CommonStockMember +2023-12-31 +0001894954 +xpon:WarrantsOptionsMember +xpon:CashBasisMember +2023-12-31 +0001894954 +xpon:WarrantsOptionsMember +xpon:CashBasisMember +us-gaap:CommonStockMember +2023-12-31 +0001894954 +xpon:WarrantsOptionsMember +xpon:ConversionOptionMember +2024-12-31 +0001894954 +xpon:WarrantsOptionsMember +xpon:ConversionOptionMember +us-gaap:CommonStockMember +2024-12-31 +0001894954 +xpon:WarrantsOptionsMember +us-gaap:CommonStockMember +2024-12-31 +0001894954 +xpon:WarrantsOptionsMember +us-gaap:CommonStockMember +2024-01-01 +2024-12-31 +0001894954 +xpon:WarrantsOptionsMember +2023-08-01 +2023-08-10 +0001894954 +xpon:WarrantsOptionsMember +2023-08-10 +0001894954 +xpon:WarrantsOptionsMember +2023-05-02 +0001894954 +xpon:WarrantsOptionsMember +2024-04-30 +2024-05-02 +0001894954 +xpon:WarrantsOptionsMember +srt:MaximumMember +2024-05-02 +0001894954 +xpon:WarrantsOptionsMember +srt:MinimumMember +2024-05-02 +0001894954 +xpon:WarrantsOptionsMember +xpon:SeriesBwarrantsMember +us-gaap:StockOptionMember +2023-05-02 +0001894954 +xpon:WarrantsOptionsMember +us-gaap:StockOptionMember +xpon:SeriesBwarrantsMember +2024-05-02 +0001894954 +xpon:WarrantsOptionsMember +xpon:SeriesBwarrantsMember +xpon:CashBasisMember +2023-05-02 +0001894954 +xpon:WarrantsOptionsMember +xpon:CashBasisMember +xpon:SeriesBwarrantsMember +2024-05-02 +0001894954 +xpon:WarrantsOptionsMember +xpon:SeriesBwarrantsMember +2023-05-02 +0001894954 +xpon:SeriesAwarrantsMember +2023-12-31 +0001894954 +xpon:WarrantsOptionsMember +xpon:SeriesAwarrantsMember +2023-12-31 +0001894954 +xpon:WarrantsOptionsMember +xpon:SeriesAwarrantsMember +2024-12-31 +0001894954 +xpon:WarrantsOptionsMember +xpon:SeriesAwarrantsMember +2023-05-02 +0001894954 +xpon:NonPlanMember +2024-01-01 +2024-12-31 +0001894954 +us-gaap:RestrictedStockUnitsRSUMember +2024-01-01 +2024-12-31 +0001894954 +us-gaap:StockOptionMember +2024-01-01 +2024-12-31 +0001894954 +xpon:PostReverseStockSplitMember +2024-01-01 +2024-12-31 +0001894954 +xpon:IncentiveAwardPlan2021Member +2024-12-31 +0001894954 +us-gaap:EmployeeStockOptionMember +xpon:IncentiveAwardPlan2021Member +2024-12-31 +0001894954 +us-gaap:RestrictedStockUnitsRSUMember +xpon:IncentiveAwardPlan2021Member +2024-12-31 +0001894954 +xpon:EmployeeStockPurchasePlan2021Member +2024-12-31 +0001894954 +us-gaap:StockOptionMember +2023-01-01 +2023-12-31 +0001894954 +us-gaap:EmployeeStockMember +2024-01-01 +2024-12-31 +0001894954 +xpon:NonEmployeeStockMember +2023-01-01 +2023-12-31 +0001894954 +xpon:NonEmployeeStockMember +2024-01-01 +2024-12-31 +0001894954 +xpon:ExercisePrice1Member +2024-12-31 +0001894954 +xpon:ExercisePrice2Member +2024-12-31 +0001894954 +xpon:ExercisePrice2Member +2024-01-01 +2024-12-31 +0001894954 +xpon:ExercisePrice3Member +2024-12-31 +0001894954 +xpon:ExercisePrice3Member +2024-01-01 +2024-12-31 +0001894954 +xpon:ExercisePrice4Member +2024-12-31 +0001894954 +xpon:ExercisePrice4Member +2024-01-01 +2024-12-31 +0001894954 +xpon:ExercisePrice5Member +2024-12-31 +0001894954 +xpon:ExercisePrice5Member +2024-01-01 +2024-12-31 +0001894954 +xpon:ExercisePrice6Member +2024-12-31 +0001894954 +xpon:ExercisePrice6Member +2024-01-01 +2024-12-31 +0001894954 +xpon:IncentiveAwardPlan2021Member +2023-12-31 +0001894954 +xpon:IncentiveAwardPlan2021Member +2024-01-01 +2024-12-31 +0001894954 +us-gaap:RestrictedStockUnitsRSUMember +xpon:IncentiveAwardPlan2021Member +2023-12-31 +0001894954 +us-gaap:RestrictedStockUnitsRSUMember +xpon:IncentiveAwardPlan2021Member +2024-01-01 +2024-12-31 +0001894954 +us-gaap:WarrantMember +2024-12-31 +0001894954 +xpon:ExerciseOfStockOptionsMember +2024-12-31 +0001894954 +xpon:ExerciseOfRestrictedStockUnitsMember +2024-12-31 +0001894954 +us-gaap:WarrantMember +us-gaap:SeriesAMember +2024-12-31 +0001894954 +us-gaap:WarrantMember +us-gaap:SeriesBMember +2024-12-31 +0001894954 +us-gaap:SubsequentEventMember +2025-01-01 +2025-01-03 +0001894954 +us-gaap:SubsequentEventMember +xpon:UnregisteredWarrantsMember +2025-01-03 +0001894954 +us-gaap:SubsequentEventMember +2025-01-03 +iso4217:USD +xbrli:shares +iso4217:USD +xbrli:shares +xbrli:pure +UNITED +STATES +SECURITIES +AND EXCHANGE COMMISSION +Washington, +D.C. 20549 +FORM +10-K +(Mark +One) +☒ +ANNUAL +REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the fiscal year ended December 31 , 2024 +OR +☐ +TRANSITION +REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the transition period from to +Commission +file number 001-41347 +Expion360 Inc. +(Exact +name of registrant as specified in its charter) +Nevada +81-2701049 +(State +or other jurisdiction of incorporation or organization) +(I.R.S. +Employer Identification No.) +2025 SW Deerhound Avenue , Redmond , OR +97756 +(Address +of principal executive offices) +(Zip +Code) +(Registrant’s +telephone number, including area code): ( 541 ) 797-6714 +Securities +registered pursuant to Section 12(b) of the Act: +Title +of each class +Trading +Symbol(s) +Name +of each exchange on which registered +Common +Stock, $0.001 par value per share +XPON +The +Nasdaq Capital Market +Securities +registered pursuant to Section 12(g) of the Act: None. +Indicate +by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate +by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ +Indicate +by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities +Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), +and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate +by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule +405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant +was required to submit such files). Yes ☒ No ☐ +Indicate +by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting +company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” +“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large +accelerated filer +☐ +Accelerated filer +☐ +Non-accelerated filer +☒ +Smaller reporting company +☒ +Emerging +growth company +☒ +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying +with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate +by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness +of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered +public accounting firm that prepared or issued its audit report. ☐ +If +securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant +included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate +by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation +received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate +by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ +No ☒ +The aggregate market +value of the registrant’s common stock held by non-affiliates, based on the closing sale price as reported by The Nasdaq Capital +Market on June 28, 2024, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately +$ 6 .0 million. Shares of common stock beneficially owned by each executive officer, director and holder of more than 10% of common stock +have been excluded in that such persons may be deemed to be affiliates. +As of March 25, 2025, there were 3,144,468 shares of +the registrant’s common stock outstanding. +DOCUMENTS INCORPORATED BY REFERENCE: Portions +of the registrant’s definitive Proxy Statement on Schedule 14A relating to its 2025 annual meeting of stockholders, to be filed +with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K +are incorporated herein by reference in Part III of this Annual Report on Form 10-K. +Expion360 Inc. +TABLE OF CONTENTS +CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS and industry data +4 +PART I +6 +ITEM 1. BUSINESS +6 +ITEM 1A. RISK FACTORS +13 +ITEM 1B. UNRESOLVED STAFF COMMENTS +32 +ITEM +1C. CYBERSECURITY +32 +ITEM 2. PROPERTIES +33 +ITEM 3. LEGAL PROCEEDINGS +33 +ITEM 4. MINE SAFETY DISCLOSURES +33 +PART II +34 +ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES +34 +ITEM 6. [RESERVED] +34 +ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS +34 +ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK +48 +ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA +48 +ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE +48 +ITEM 9A. CONTROLS AND PROCEDURES +48 +ITEM 9B. OTHER INFORMATION +49 +ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION +49 +PART III +50 +ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE +50 +ITEM 11. EXECUTIVE COMPENSATION +50 +ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS +50 +ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE +50 +ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES +50 +PART IV +51 +ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES +51 +ITEM 16. FORM 10-K SUMMARY +52 +SIGNATURES +53 +Index to Consolidated Financial Statements +54 +CAUTIONARY NOTE REGARDING +FORWARD-LOOKING STATEMENTS and industry data +This Annual Report on Form 10-K (this “Annual +Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended +(the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). +All statements in this Annual Report, other than statements of historical fact, are “forward-looking statements” for purposes +of these provisions, including, without limitation, any projections regarding the markets where we operate, any statements of the plans +and objectives of our management for future operations, any statements concerning proposed new products or services, any statements regarding +expected capital expenditures, any statements regarding future economic conditions or performance, and any statements of assumptions underlying +any of the foregoing. All forward-looking statements included in this Annual Report are made as of the date hereof and are based on information +available to us as of such date. We assume no obligation to update any forward-looking statement. In some cases, forward-looking statements +can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” +“should,” “anticipates,” “intends,” “seeks,” “believes,” “estimates,” +“potential,” “forecasts,” “continue,” or other forms of these words or similar words or expressions, +or the negative thereof or other comparable terminology. Although we believe the expectations reflected in the forward-looking statements +contained herein are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove +to be correct. Actual results will likely differ, and could differ materially, from those projected or assumed in the forward-looking +statements. Prospective investors are cautioned not to unduly rely on any such forward-looking statements. +Forward-looking statements are neither historical +facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations, and assumptions regarding +the future of our business, future plans and strategies, projections, anticipated events and trends, the economy, and other future conditions. +Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances +that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially +from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important +factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements +include, among others, the following: +· We operate in an extremely competitive industry +and are subject to pricing pressures. +· We have a history of losses. As our costs increase, +we may not be able to generate sufficient revenue to achieve and sustain profitability. +· Our audited financial statements include a statement +that there is a substantial doubt about our ability to continue as a going concern and a continuation of negative financial trends could +result in our inability to continue as a going concern. +· Our results of operations could be adversely +affected by changes in the cost and availability of raw materials and we are dependent on third-party manufacturers and suppliers. +· Increases in costs, disruption of supply or shortage +of any of our battery components, such as electronic and mechanical parts, or raw materials used in the production of such parts, could +harm our business. +· Our business and future growth depends on the +needs and success of our customers. +· We have substantial customer concentration, with +a limited number of customers accounting for a substantial portion of our sales in 2024 and 2023. +· If we fail to expand our sales and distribution +channels, our business could suffer. +· The uncertainty in global economic conditions +could negatively affect our results of operations. +· We are currently, and will likely continue to +be, dependent on our two warehouse facilities. If our facilities become inoperable for any reason, our ability to produce our products +could be negatively impacted. +· We could face potential product liability or +warranty claims relating to our products, including the components thereof, which could reduce market adoption, result in reputation damage, +and result in significant costs and liabilities, which would reduce our profitability. +· Our operations expose us to litigation, tax, +environmental, and other legal compliance risks. +· Our failure to introduce new products and product +enhancements that respond to customer and end consumer demand, and any broad market acceptance of new technologies introduced by our competitors, +could adversely affect our business. +· We may not be able to adequately protect our +proprietary intellectual property and technology and we may need to defend ourselves against intellectual property infringement claims. +· Any acquisitions that we complete may dilute +stockholder ownership interests in the Company, may have adverse effects on our financial condition and results of operations and may +cause unanticipated liabilities. +· If our electronic data is compromised, or we +experience a failure in our information technology or storage systems, our business could be significantly harmed. +· Our ability to raise capital in the future may +be limited, which could make us unable to fund our capital requirements and our stockholders may be diluted by future securities offerings. +· We depend on our senior management team and other +key employees, and significant attrition within our management team or unsuccessful succession planning could adversely affect our business. +· Our stock price may fluctuate significantly, +and you may lose all or a part of your investment. +· Sales of substantial amounts of our securities +in the public markets, or the perception that such sales might occur, could reduce the price of our securities and may dilute your voting +power and your ownership interest in us. +· The exercise of outstanding warrants may result +in a substantial increase in the number of shares of our common stock that are outstanding. +· The Series A Warrants and Series B Warrants may +have an adverse effect on the market price of our common stock and make it more difficult to effect a business combination. +· The Reverse Stock Split cash true-up payment +provision in the Series A Warrants we sold in the August 2024 Public Offering may have a material adverse impact on our financial condition, +may impede our ability to raise additional capital, and may discourage an acquisition of us by a third party. +· Our long-term lease and debt obligations could +adversely affect our ability to raise additional capital to fund operations and limit our ability to enter into certain transactions. +4 +All forward-looking statements attributable to us +or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Our actual results will likely +differ, and may differ materially, from anticipated results. Financial estimates are subject to change and are not intended to be relied +upon as predictions of future results of operations, and we assume no obligation to update or disclose revisions to those estimates. If +we do update or correct one or more forward-looking statements, investors and others should not conclude that we will make additional +updates or corrections. +MARKET, INDUSTRY, AND OTHER DATA +This Annual Report includes statistical and other +industry and market data that we obtained from industry publications and research, surveys, and studies conducted by third parties as +well as our own estimates. All of the market data used in this report involve a number of assumptions and limitations, and you are cautioned +not to give undue weight to such data. Industry publications and third-party research, surveys, and studies generally indicate that their +information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such +information. Our estimates of the potential market opportunities for our products include several key assumptions based on our industry +knowledge, industry publications, third-party research, and other surveys, which may be based on a small sample size and may fail to accurately +reflect market opportunities. While we believe our internal assumptions are reasonable, no independent source has verified such assumptions. +NOTICE REGARDING TRADEMARKS +This Annual Report includes trademarks, tradenames, +and service marks that are our property or the property of others. Solely for convenience, such trademarks and tradenames sometimes appear +without any “™” or “®” symbol. However, failure to include such symbols is not intended to suggest, +in any way, that we will not assert our rights or the rights of any applicable licensor, to these trademarks and tradenames. +FINANCIAL INFORMATION +Unless +otherwise noted, prior period results included in this Annual Report, including share and per share data, as well as stockholders’ +equity balances, have been adjusted retroactively, as applicable, to reflect a 1-for-100 reverse stock split, which was effective +at 5:00 p.m. Pacific Time on October 8, 2024 (the “Reverse Stock Split”). See “ Management’s Discussion and +Analysis of Financial Condition and Results of Operations— Reverse Stock Split and Reverse +Stock Split True-Up Payment ” below for additional information +about the Reverse Stock Split. +5 +PART I +ITEM 1. BUSINESS +Our Company +Expion360 focuses on the design, assembly, manufacturing, +and sale of lithium iron phosphate (“LiFePO4”) batteries and supporting accessories for recreational vehicles (“RVs”), +marine applications and home energy storage products with plans to expand into industrial applications. Our high-powered, lithium battery +solutions incorporate innovative concepts and have been designed to include some of the most dense and minimal-footprint batteries in +the RV and marine industries. In addition, in January 2025 we began selling our e360 Home Energy Storage Solutions, which consist of two +LiFePO4 battery storage solutions and seek to provide consumers with a cost-effective, low barrier of entry, flexible system to power +their homes utilizing solar energy, wind, or grid back-up. We are deploying multiple intellectual property strategies with research and +products to sustain and scale our business. This includes design, development and collaboration, using our IP to bring safety, quality +and service to our customers. Our customers consist of dealers, wholesalers, private-label customers, and original equipment manufacturers +(“OEMs”) who then sell our products to end consumers and drive brand awareness nationally. +Our primary target markets are currently the RV, marine, +and home energy storage industries. We believe we are well-positioned to capitalize on the rapid market conversion from lead-acid to lithium +batteries as the primary method of power sourcing in these industries. We are also focused on expanding into the home energy storage market +with the introduction of our e360 Home Energy Storage Solutions, and we hope to establish a new standard in the industry for barrier price, +flexibility, and integration with this offering. Along with the RV, marine and home energy storage markets, we aim to provide additional +capacities to the expanding electric forklift and industrial material handling markets. +We launched our e360 product line, which is manufactured +for the RV and marine industries, in December 2020. The e360 product line, through its sales growth, has shown to be a preferred conversion +solution for lead-acid batteries. In December 2023, we announced our entrance into the home energy storage market with our introduction +of two LiFePO4 battery storage solutions that enable residential and small business customers to create their own stable micro-energy +grid and lessen the impact of increasing power fluctuations and outages. As of January 2025, we have begun shipping orders of our e360 +Home Energy Storage Solutions. +We currently operate Expion360 as one reportable business +segment, Energy Storage (ES). +Our products provide numerous advantages for various +industries that are looking to migrate to lithium-based energy storage. They incorporate detailed-oriented design and engineering, strong +case materials, and internal and structural layouts, and are backed by responsive customer service. +Our Market Opportunity +The trend of vehicle electrification is expected to +be a significant growth catalyst for lithium compounds over the next decade and beyond. According to ReportLinker, the global light electric +vehicle market is growing at a 9.4% compound annual growth rate (“CAGR”) and is expected to reach $122.7 billion by 2027. +Similarly, the global golf cart battery market is growing at a 5.9% CAGR and is anticipated to reach $216.5 million by 2031 according +to Allied Market Research. +Furthermore, the global RV market was $57.3 billion +in 2021, and is anticipated to have a CAGR of 7.6% from 2022 to 2031, with an anticipated market of $117.0 billion by 2031, per Allied +Market Research. +In addition, the global residential solar energy storage +market is expected to increase from $20.5 billion in 2023, to an anticipated $518.8 billion in 2032, a CAGR of 43.16%, according to Market +Data Forecast. +At the intersection of both these trends lies the +rapidly expanding lithium battery market. According to IMARC, the market for lithium-ion batteries is projected to grow at 13.2% CAGR +to reach $93.3 billion by 2028. +6 +The vast expansion of the lithium battery market can +be attributed to global trends promoting clean energy, as well as the compact and flexible nature of lithium battery packs, which make +them easy to install in RVs and boats. Our technology, which we believe offers industry-leading battery pack flexibility for the most +efficient energy storage, is poised to be able to offer power to these large vehicles such as RVs and recreational boats. +Expion360 is focused on expanding its position in +the deep cycle, off-grid, and stationary energy storage markets. According to the Federal Consortium for Advanced Batteries, the United +States has five goals in mind to secure battery materials and the U.S. technology supply chain. They include (i) securing access to raw +materials; (ii) support of the U.S. materials-processing base; (iii) stimulation of U.S. electrode, cell, and pack manufacturing; (iv) +enabling recycling and reuse of critical materials; and (v) support of scientific R&D, STEM education and workforce development. Expion360 +is well-positioned to benefit from this national focus. +Lithium-based batteries power our daily lives, from +consumer electronics to national defense. They enable electrification of the transportation sector and provide stationary grid storage, +critical to developing the clean-energy economy. The U.S. has a strong research community, a robust innovation infrastructure for technological +advancement of batteries, and an emerging lithium-based battery manufacturing industry, according to the U.S. Department of Energy. +It is our objective to work closely with federal, +state and local governments, as well as private industry to help America be the leader in lithium battery technology. +Competitive Strengths +We believe the following strengths +differentiate Expion360 and create long-term, sustainable competitive advantages: +Superior Capacity to Lead-Acid Competitors +Lead-acid batteries have historically been the standard +in RV and marine transportation vehicles, but these industries are experiencing a rapid conversion from lead-acid to lithium batteries +as the primary method of power sourcing. Our lithium-ion batteries offer superior capacity to our lead-acid competitors with an expected +lifespan of approximately 12 years—three to four times the lifespan of certain lead-acid batteries—and ten times the number +of charging cycles. Furthermore, our typical battery may provide three times the power of the typical, lead-acid battery despite being +half the weight (comparing, for example, a typical lead-acid battery like the Renogy Deep Cycle AGM, which is rated at 100Ah, to our +own LFP 100Ah battery and assuming slow discharge at a 0.1C rate). +In addition, we offer a 4.5 Ah 26650 lithium-ion phosphate +battery cell, which allows us to increase energy density by over 32% compared to traditional 3.4 Ah 26650 cells. +Expansion into New Markets +Our proprietary e360 SmartTalk mobile app is included +in many of our battery models and allows the seamless integration and management of e360 Bluetooth-enabled LiFePO4 batteries. The technology +enables users to wirelessly monitor and manage e360 batteries, providing a comprehensive view of both individual battery conditions and +performance, and a power bank consisting of multiple e360 batteries. The 48 Volt GC2 LiFePO4 battery was our first e360 SmartTalk Battery +for powering electric golf carts and other light electric vehicles. +In December 2023, we entered the home energy storage +market with our introduction of two LiFePO4 battery storage solutions comprising our e360 Home Energy Storage Solution: a wall mounted +all-in-one inverter and 10kWh battery and an expandable server rack style battery cabinet system. We believe our new home energy storage +product line will benefit from a fast-growing battery energy storage market, which is forecasted by Markets and Markets to grow at a 26.4% +CAGR to reach $17.5 billion by 2028. Further, according to Clean Energy Group, approximately 3.2 million homes in the United States have +solar panels installed, but only about 6% of residential solar systems have battery storage. Our home energy storage products are currently +completing UL testing and certification, as well as other requirements for various Authorities Having Jurisdiction. +7 +In January 2024, we introduced our next generation +12V GC2 and Group 27 series LiFePO4 batteries. These new versions include higher amp-hour options (4.0Ah and 4.5Ah cell technology) and +the latest advancements in power technology features, including Expion360’s proprietary Vertical Heat Conduction™ internal +heating, Bluetooth®, and controller area network (“CANBus”) communication. We began delivering the new 12V GC2 and Group +27 batteries to customers in the second quarter of 2024. +In July 2024, we launched our new Edge battery, which +offers a slim design and adds greater flexibility during installation. The Edge is offered in both 12V and 48V versions. We are seeing +high customer interest and started shipping the new Edge in July 2024. +Strong National Retail Customers and Distribution +Channels +We have sales relationships with many major RV and +marine retailers and plan to use our strong reputation in the lithium battery space to create an even stronger distribution channel. Current +and former members of management have used their decades of experience in the energy and RV industries to cultivate relationships with +numerous retailers in the space, including Camping World, a leading national RV retailer; and Meyer Distributing, Inc., a leading national +marketer and distributor of automotive and RV specialty products. +Home Energy Integration +We are currently having discussions with integration +partners. This is key for the development of our home energy storage products and subsequent sales growth. +Expion360 Products +We have historically focused on the design, assembly, +and sales of LiFePO4 batteries and supporting accessories for RV and marine applications, and have recently expanded into home energy +storage solutions. Our batteries are designed and engineered in-house using premium lithium iron phosphate cells with quality controls +at every step. We use high-grade LiFePO4 batteries meeting the UL 1642 standard (UL File No. MH64383). We believe our materials and engineering +enhance the reliability, stability, and safety of our products relative to those of our competitors. We reimagined the standard battery +case and included built-in rubber feet, radiused corners, 96.7% larger terminal connection pads, interior molded ribs for structural security, +and the highest-grade ABS plastics with additives for fire retardancy. To maximize the power and efficiency of our batteries, we welded +our cells via thick copper/tin-machined collector plates, welded all interior pack points, added a press break flange at each end to create +a mechanical backbone for the battery monitoring system (“BMS”), used high-grade wiring and ring terminals throughout, and +treated connections with industrial epoxy for long-lasting protection. Our internal “smart” BMS design includes multiple safety +and performance features, such as low temperature discharge, auto shutoff, short circuit protection, low- and high-voltage shutoffs, and +overcurrent disconnect. Our structurally sound BMS board features a bolted design, eliminating all unnecessary solder, resulting in one +cohesive pack with a long lifespan. We hold our lithium batteries to high safety standards, which has enabled us to achieve a UL 1973 +compliance. We stand by our batteries with a robust 12-year warranty. +To enable us to provide a full range of components +to complement our battery offerings, we offer a suite of accessories and components for new installations or conversions which includes +but is not limited to chargers, monitors, inverters, and solar components from brands such as Victron Energy and RedArc. +As of December 31, 2024, we offered the following products for sale: +12V Batteries: +· Group 24: +o e360 60Ah LiFePO4 battery +o e360 80Ah LiFePO4 battery +o e360 95Ah LiFePO4 battery +· Group 27: +o e360 100Ah LiFePO4 battery +o e360 120Ah LiFePO4 battery +o e360 100Ah LiFePO4 battery with SmartTalk, CANBus, and VHS Internal Heating +o e360 100Ah LiFePO4 battery with SmartTalk, CANBus, and VHS Internal Heating +· GC2: +o e360 162Ah LiFePO4 battery with SmartTalk, CANBus, and VHC Internal Heating +· EX1 Custom: +o e360 368Ah LiFePO4 battery +o e360 368Ah LiFePO4 battery with SmartTalk +o e360 450Ah LiFePO4 battery with SmartTalk +· EX2 Edge Custom: +o e360 240Ah LiFePO4 battery with SmartTalk, CANBus, and VHC Internal Heating +48V Batteries: +· GC2: +o e360 36Ah LiFePO4 battery with SmartTalk and CANBus +· EX2 Edge Custom: +o e360 60Ah LiFePO4 battery with SmartTalk, CANBus, and VHC Internal Heating +· 3U Server Rack Home Energy Battery: +o e360 100Ah Home Energy LiFePO4 battery with CANBus +Accessories: +· Battery Monitors +· DC-DC Battery Chargers +· AC-DC Battery Chargers +· Solar Charge Controller Battery Chargers +· CANBus Communication Cables +· 120W Portable Solar Panel +· Industrial Battery Mounting Kits – 10 models +· Terminal Blocks +· Bus Bars +· AURA Powercap 600W Inverter +· e360 SmartTalk mobile app +8 +As of December +31, 2024, we had the following products in our pipeline: +· In September 2023, we introduced a new 4.5 Ah +26650 lithium-ion phosphate battery cell and 12 Volt 450 Ah e360 SmartTalk™ lithium-ion battery. We have been regularly shipping +the battery to our customers, including OEMs, since March 2024. +· In December 2023, we introduced a wall mounted +all-in-one inverter and 10kW battery and an expandable server rack style battery cabinet system and begun taking orders for the new e360 +Home Energy Storage Solutions, which began shipping to customers in January 2025. See the section above titled “ Competitive Strengths — Expansion +into New Markets ” for additional information about the new home energy storage solutions. +Competitors +Our competitors include lithium-ion battery manufacturers, +such as Relion (which was acquired by Brunswick Corporation in September 2021); Dragonfly Energy Holdings Corp (Nasdaq: DFLI), the manufacturer +of Battle Born Batteries; Renogy; and Dakota Lithium. Lead-acid battery manufactures also continue to have a presence in the marketplace. +We have designed custom form factors in both the industry standard Group 24 and Group 27 battery sizes allowing us to visually and structurally +differentiate Expion360 within the market space. We believe our custom 360Ah battery also provides a unique capacity to footprint ratio +compared to lead-acid and lithium battery competitors. Our batteries utilize lithium iron phosphate and therefore are expected to have +a lifespan of approximately 12 years—three to four times that of certain lead-acid batteries—and ten times the number of charging +cycles. Furthermore, our typical battery may provide three times the power of the typical lead-acid battery despite being half the weight +(comparing, for example, a typical lead-acid battery like Renogy Deep Cycle AGM, which is rated at 100Ah, to our own LFP 100Ah battery +and assuming slow discharge at a 0.1C rate). +9 +Manufacturing and Supply Chain +Our batteries are manufactured by multiple third-party +manufacturers located in Asia, which also produce our battery cells. While we do not have long-term purchase agreements with these manufacturers +and our purchases are completed on a purchase-order basis, we maintain strong relationships with our manufacturers and cell suppliers, +reflected in our ability to increase our purchase order volumes (qualifying us for related volume-based discounts). The strength of these +relationships has helped us moderate increased supply-related costs associated with inflation, currency fluctuations, and U.S. government +tariffs imposed on our imports, and avoid potential shipment delays. We aim to maintain an appropriate level of inventory to satisfy our +expected supply requirements. We believe we could locate suitable alternative third-party manufacturers to fulfill our requirements if +needed. +Our third-party manufacturers source the raw materials +and battery components required for the production of our batteries directly from third-party suppliers that meet our approval and quality +standards and, as a result, we may have limited control over the agreed pricing for these raw materials and battery components. We estimate +that raw material costs account for over half of our cost of goods sold. Lithium, which is extracted from mined ore, is a key raw material +used to produce our battery cells and, as a result, the cost of our battery cells is dependent on the price and availability of lithium, +which may be volatile and unpredictable and beyond our control. Additionally, availability of the raw materials used to manufacture our +products may be limited at times, resulting in higher prices and/or the need to find alternative suppliers. Our battery cell manufacturers +have joint venture factories outside of Asia and have secured sourcing contracts from lithium suppliers in South America and Australia. +In addition, we have a secondary source for lithium iron phosphate cells used in our batteries from a supplier in Europe, enabling us +to source materials outside of Asia in the event it becomes necessary to do so. +In addition to increased mining and newly located +reserves, there is an industry push to provide more efficient ways to extract lithium from mined ore. Another development of the past +few years is lithium cell recycling. This process will recapture the raw lithium from the cell for reuse in future cells. However, notwithstanding +any efforts to improve the sustainability and efficiency of lithium mining, the price of lithium is volatile. We continue to monitor developments +that may adversely affect our supply chain. +Management expects that products from our Asian third-party +manufacturers will be subject to additional tariffs in 2025. We believe that we can protect our margins through a combination of supplier +concessions, customer price increases and efficiencies gained as sales continue to grow. +Customers +We currently have more than 300 customers across the +United States consisting of dealers, wholesalers, private-label customers and OEMs who then sell our products to end consumers. Our sales +are completed on a purchase order basis and most are without firm, long-term revenue commitments or sales arrangements. Expion360 has +sales relationships with many major RV retailers, including Camping World, a leading national RV retailer and Meyer Distributing, Inc., +a leading national marketer and distributor of automotive and RV specialty products. In addition, we also sell products directly to end +consumers. We intend to continue to focus on our sales and distribution channels to develop existing customer relationships and grow our +customer base. We also offer a high level of technical support to our customers before and after product sales. +We currently derive a significant portion of our revenue +from a limited number of customers. During the year ended December 31, 2024, sales to one customer accounted for approximately 14% of +our gross sales. This customer accounted for 6% of our accounts receivable as of December 31, 2024. Sales to each of our other customers +did not exceed 10% during this period. Four other customers accounted for 60% of our accounts receivable as of December 31, 2024. +Intellectual Property +The success of our business and our technology leadership +is supported by our proprietary battery technology. We have filed 11 patent applications in the United States to provide protection for +our technology, including seven design patent applications and four utility patent applications. In addition, we rely upon a combination +of trademark and trade secret laws in the United States, as well as license +agreements and other contractual protections, to establish, maintain and enforce rights in our proprietary technologies. We also seek +to protect our intellectual property rights through non-disclosure and invention assignment agreements with our employees and consultants +and through non-disclosure agreements with business partners and other third parties. +10 +We periodically review our development efforts to +assess the existence and patentability of new intellectual property. We pursue the registration of our domain names and trademarks and +service marks in the United States and in an effort to protect our brand, as of December 31, 2024, we have 18 trademarks registered or +pending registration to cover our house marks in the United States and have 9 trademarks registered or pending registration in Canada. +Government Regulation +We are subject to inspections by federal, state, and +local regulators overseeing environmental health and safety, which could result in possible citations and/or fines. Lithium-ion battery +shipments are categorized as “dangerous goods” and are subject to rules governing their transportation. We have implemented +policies and procedures, trained our employees, and conducted internal audits to verify compliance with environmental health and safety +regulations. +Our Group 24 and Group 27 batteries and our custom +360Ah battery have passed UL 1973 certification. +Employees +As of December 31, 2024, we had 20 employees, all +of whom worked for us full time. None of our employees are covered by collective bargaining agreements and we have never experienced an +organized work stoppage, strike, or labor dispute. We believe working conditions and compensation packages are competitive with those +offered by competitors and consider our relations with our employees to be good. +Environmental, Health, and Safety +We and our third-party manufacturers and suppliers +are, and could become, subject to a wide range of international, federal, state, provincial, and local governmental regulations directed +at preventing or mitigating environmental harm, as well as to the storage, discharge, handling, generation, disposal and labeling of toxic +or other hazardous substances. Although we outsource our manufacturing, the manufacturing of our products by our third-party manufacturers +and suppliers require the use of hazardous materials that similarly subject these third parties, and therefore our business, to such environmental +laws and regulations. Our failure or the failure of these third parties to comply with these laws or regulations can result in regulatory, +civil, or criminal penalties, fines, and legal liabilities, suspension of production, alteration of manufacturing processes, including +for our products, reputational damage, and negative impact on our operations or sales of our products and services. Increased compliance +costs by our third-party manufacturing partners may also result in increased costs to our business. Our business and operations are also +subject to health and safety laws and regulations adopted by government agencies such as the Occupational Safety and Health Administration. +Although we believe we are in material compliance with applicable laws concerning matters relating to health, safety, and the environment, +the risk of liability relating to these matters cannot be eliminated completely. To date, we have not incurred significant expenditures +relating to environmental compliance nor have we experienced any material issues relating to employee health and safety. See the section +titled “ Risk Factors ” for additional information. +Implications of Being an Emerging Growth Company +and a Smaller Reporting Company +We qualify as an “emerging growth company” +as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). As an emerging growth company, we have elected +to take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. +These provisions include: +· the requirement that we provide only two years +of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s +Discussion and Analysis of Financial Condition and Results of Operations” disclosure; +· reduced disclosure about our executive compensation +arrangements; +· an exemption from the requirement that we hold +a non-binding advisory vote on executive compensation or golden parachute arrangements; and +· an exemption from the auditor attestation in +the assessment of our internal control over financial reporting. +11 +We may take advantage of these exemptions for up to +five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the +date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenue of $1.235 billion or more; +(ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of our initial public offering; (iii) +the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which +we are deemed to be a “large accelerated filer” under SEC rules. +We are also a “smaller +reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer +an emerging growth company. We may take advantage of certain of the reduced reporting requirements available to smaller reporting companies +and will be able to take advantage of these reduced reporting requirements for so long as our voting and non-voting Common Stock held +by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is +less than $100.0 million during the most recently completed fiscal year and our voting and non-voting Common Stock held by non-affiliates +is less than $700.0 million measured on the last business day of our second fiscal quarter. +Company Information +Expion360 Inc. was initially organized as a limited +liability company under the name Yozamp Products Company, LLC in the State of Oregon on June 16, 2016 and converted to a Nevada corporation +on November 16, 2021. +Our website is found at expion360.com and on +the Investor Relations section of our website, we post or will post, as applicable, the following filings as soon as reasonably practicable +after they are electronically filed with or furnished to the SEC: our Annual Reports on Form 10-K, our Proxy Statement on Schedule 14A, +our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to +Section 13(a) or 15(d) of the Exchange Act. +All of the information on our Investor Relations web +page is available to be viewed free of charge. Information contained on our website is not part of this Annual Report or our other filings +with the SEC. We assume no obligation to update or revise any forward-looking statements in this Annual Report whether as a result of +new information, future events or otherwise, unless we are required to do so by law. +The SEC also maintains a website found at http://www.sec.gov/ +that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. +12 +ITEM 1A. RISK FACTORS +Investing +in our common stock involves significant risk and uncertainty. Before you make a decision to buy our common stock, in addition to the +risks and uncertainties discussed below under “ Cautionary Note Regarding Forward-Looking Statements, ” you should +carefully consider the specific risks set forth below, as well as the other information in this Annual Report, including our consolidated +financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of +Operations.” If any of these risks actually occur, it may materially and adversely affect our business, financial condition, liquidity, +results of operations, and prospects. As a result, the market price of our common stock could decline, and you could lose all or part +of your investment. Additionally, the risks and uncertainties described in this Annual Report are not the only risks and uncertainties +that we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may become material +and adversely affect our business. If any of the following risks or other risks not specified below materialize, our business, financial +condition and results of operations could be materially and adversely affected. In that case, the trading price of our shares of common +stock could decline. +Risk Factor Summary +The following is a summary of the most significant +risks and uncertainties that we believe could adversely affect our business, financial condition and results of operations. The summary +should be read in conjunction with the more detailed risk factors set forth in this “Risk Factors” section and the other information +contained in this Annual Report. +Risks Related to Our Business +· We operate in an extremely competitive industry +and are subject to pricing pressures. +· We have a history of losses. As our costs increase, +we may not be able to generate sufficient revenue to achieve and sustain profitability. +· Our audited financial statements include a statement +that there is a substantial doubt about our ability to continue as a going concern and a continuation of negative financial trends could +result in our inability to continue as a going concern. +· Our results of operations could be adversely +affected by changes in the cost and availability of raw materials and we are dependent on third-party manufacturers and suppliers. +· Increases in costs, disruption of supply or shortage +of any of our battery components, such as electronic and mechanical parts, or raw materials used in the production of such parts, could +harm our business. +· Our business and future growth depends on the +needs and success of our customers. +· We have substantial customer concentration, with +a limited number of customers accounting for a substantial portion of our sales in 2024 and 2023. +· If we fail to expand our sales and distribution +channels, our business could suffer. +· The uncertainty in global economic conditions +could negatively affect our results of operations. +· We are currently, and will likely continue to +be, dependent on our two warehouse facilities. If our facilities become inoperable for any reason, our ability to produce our products +could be negatively impacted. +· We could face potential product liability or +warranty claims relating to our products, including the components thereof, which could reduce market adoption, result in reputation damage, +and result in significant costs and liabilities, which would reduce our profitability. +· Our operations expose us to litigation, tax, +environmental, and other legal compliance risks. +· Our failure to introduce new products and product +enhancements that respond to customer and end consumer demand, and any broad market acceptance of new technologies introduced by our competitors, +could adversely affect our business. +· We may not be able to adequately protect our +proprietary intellectual property and technology and we may need to defend ourselves against intellectual property infringement claims. +· Any acquisitions that we complete may dilute +stockholder ownership interests in the Company, may have adverse effects on our financial condition and results of operations and may +cause unanticipated liabilities. +· If our electronic data is compromised, or we +experience a failure in our information technology or storage systems, our business could be significantly harmed. +· Our ability to raise capital in the future may +be limited, which could make us unable to fund our capital requirements and our stockholders may be diluted by future securities offerings. +· We depend on our senior management team and other +key employees, and significant attrition within our management team or unsuccessful succession planning could adversely affect our business. +13 +Risks Related to +Ownership of our Common Stock +· Our stock price may fluctuate significantly, +and you may lose all or a part of your investment. +· Sales of substantial amounts of our securities +in the public markets, or the perception that such sales might occur, could reduce the price of our securities and may dilute your voting +power and your ownership interest in us. +· The exercise of outstanding warrants may result +in a substantial increase in the number of shares of our common stock that are outstanding. +· The Series A Warrants and Series B Warrants may +have an adverse effect on the market price of our common stock and make it more difficult to effect a business combination. +· The Reverse Stock Split cash true-up payment +provision in the Series A Warrants we sold in the August 2024 Public Offering may have a material adverse impact on our financial condition, +may impede our ability to raise additional capital, and may discourage an acquisition of us by a third party. +Risk Related to Our Capital Structure +· Our long-term lease and debt obligations could +adversely affect our ability to raise additional capital to fund operations and limit our ability to enter into certain transactions. +Risks Related to Our Business +We operate in an extremely competitive industry +and are subject to pricing pressures. +We compete with a number of major international and +domestic manufacturers, assemblers and distributors, as well as a large number of smaller, regional competitors. In addition, our customers +have many choices for energy storage solutions in the markets that we serve, including both traditional lead-acid products as well as +lithium-ion products. We believe our main competitive advantage in displacing incumbent lead-acid batteries is that we produce a lighter, +safer, higher performing, cost-effective battery with a longer lifespan. We believe our product offerings, proven reliability, and relationships +with dealers, private-label direct to consumer and OEMs enable us to compete effectively against other battery manufacturers and position +us favorably to expand into new addressable markets. However, OEM sales typically result in lower average selling prices and related margins, +which could result in overall margin erosion, affect our growth, or require us to raise our prices. As a result, we may be unable to our +competitive advantage. +Our current competitors have, and future competitors +may have, greater resources than we do. Our competitors may be able to devote greater resources to the development of their current and +future technologies. For example, foreign producers may be able to employ labor at significantly lower costs than producers in the U.S., +expand their export capacity and increase their marketing presence in major America markets. In addition, several of our competitors may +be able to devote greater resources to technical, marketing, sales, manufacturing, distribution and other resources, as well as significant +name recognition, established positions in the market and long-standing relationships with OEMs and other customers. These advantages +may afford them greater access to customers, and may be able to establish cooperative or strategic relationships amongst themselves or +with third parties that may further enhance their competitive positioning. Our failure to adapt to or address these factors could have +a material adverse effect on our business, financial condition, and results of operations. +In addition, our ability to maintain and improve our +operating margins has depended, and continues to depend, on our ability to control and reduce our costs. We cannot assure you that we +will be able to continue to control our operating, assembly and manufacturing expenses, to raise or maintain our prices or increase our +unit volume or unit mix, in order to maintain or improve our results of operations. +We have a history of losses. As our costs increase, +we may not be able to generate sufficient revenue to achieve and sustain profitability. +We have experienced net losses in each period since +inception. We generated net losses of $13.5 million and $7.5 million for the years ended December 31, 2024 and 2023, respectively. +14 +Part of our business strategy is to focus on our long-term +growth. As a result, our profitability may be lower in the near-term than it would be if our strategy were to maximize short-term profitability. +Significant expenditures on sales and marketing efforts, expanding our platform, products, features, and functionality, and expanding +our research and development, each of which we intend to continue to invest in, may not ultimately grow our business or cause long-term +profitability. If we are ultimately unable to achieve profitability at the level anticipated by industry or financial analysts and our +stockholders, our stock price may decline. +Our efforts to grow our business may be costlier than +we expect, or our revenue growth rate may be slower than we expect, and we may not be able to increase our revenue enough to offset the +increase in operating expenses resulting from these investments. If we are unable to continue to grow our revenue, the value of our business +and common stock may significantly decrease, which may in turn have a material adverse effect on our ability to raise capital to grow +our business. +Our audited financial statements include a statement +that there is a substantial doubt about our ability to continue as a going concern and a continuation of negative financial trends could +result in our inability to continue as a going concern. +Our audited financial statements as of and for the +years ended December 31, 2024 and 2023 were prepared on the assumption that we would continue as a going concern. For the years ended +December 31, 2024 and 2023, we sustained recurring losses and negative cash flows from operations. These factors raise substantial doubt +about our ability to continue as a going concern over the next 12 months and our independent auditors have included a “going concern” +explanatory paragraph in their report on our financial statements as of and for the years ended December 31, 2024 and 2023. If our results +of operations fail to improve and/or if we fail to raise additional debt or equity financing, then our financial condition could render +us unable to continue as a going concern. +Our results of operations could be adversely +affected by changes in the cost and availability of raw materials and we are dependent on third-party manufacturers and suppliers. +We currently rely on multiple third-party manufacturers +located in Asia to manufacture our batteries and battery cells, and we intend to continue to rely on these suppliers going forward. Lithium-ion +batteries are our most significant raw material and are used along with significant amounts of plastics, steel, copper and other materials +in our assembly and manufacturing processes. Our third-party manufacturers source the raw materials and battery components required for +the production of our batteries directly from third-party suppliers and thus we may have limited control over the agreed pricing for these +raw materials and battery components. We estimate that raw material costs account for over half of our cost of goods sold. The costs of +these raw materials, particularly lithium-ion batteries, are volatile and beyond our control. Additionally, availability of the raw materials +used to manufacture our products may be limited at times resulting in higher prices and/or the need to find alternative suppliers. Furthermore, +the cost of raw materials may also be influenced by transportation costs. Volatile raw material costs can significantly affect our results +of operations and make period-to-period comparisons extremely difficult. We cannot assure you that we will be able to either hedge the +costs or that we or our third-party manufacturers will be able to secure the availability of our raw material requirements at a reasonable +level or that we will be able to pass on to our customers the increased costs of our raw materials without affecting demand, or that limited +availability of materials will not impact our production capabilities. Our inability to raise the price of our products in response to +increases in prices of raw materials or to maintain a proper supply of raw materials could have an adverse effect on our revenue, operating +profit, and net income. +In addition, during the years ended December 31, 2024 +and 2023, approximately 82% and 70%, respectively, of inventory purchases were made from foreign suppliers in Asia. Our dependence on +a limited number of key third-party manufacturers and suppliers exposes us to challenges and risks in ensuring that we maintain adequate +supplies required to produce our batteries. We do not have long-term purchase arrangements with our third-party manufacturers and our +purchases are completed on a purchase order basis. Thus, although we carefully manage our inventory and lead times, we may experience +a delay or disruption in our supply chain and/or our current suppliers may not continue to provide us with lithium-ion batteries in our +required quantities or to our required specifications and quality levels or at attractive prices. Our close working relationships with +our foreign suppliers to date, reflected in our ability to increase our purchase order volumes (qualifying us for related volume-based +discounts) and to order and receive delivery of components in advance of required demand, +has helped us moderate or offset increased supply-related costs associated with inflation, currency fluctuations, and tariffs imposed +on our battery imports by the U.S. government. However, if we are unable to enter into or maintain commercial arrangements with these +suppliers on favorable terms, or if any of these suppliers experience unanticipated delays, disruptions or shutdowns or other difficulties +ramping up their supply of products or materials to meet our requirements, our assembly operations and customer deliveries would be seriously +impacted, potentially resulting in liquidated damages and harm to our customer relationships. Although we believe we could locate alternative +suppliers to fulfill our needs, we may be unable to find a sufficient alternative supply in a reasonable time or on commercially reasonable +terms. +15 +Further, our dependence on these third-party suppliers +entails additional risks, including: +· inability, failure, or unwillingness of third-party +suppliers to comply with regulatory requirements; +· breach of supply agreements by the third-party +supplies; +· misappropriation or disclosure of our proprietary +information, including our trade secrets and know-how; +· relationships that third-party suppliers may +have with others, which may include our competitors, and failure of third-party suppliers to adequately fulfill contractual duties, resulting +in the need to enter into alternative arrangements, which may not be available, desirable, or cost-effective; and +· termination or non-renewal of agreements by third-party +suppliers at times that are costly or inconvenient for us. +Several of our key manufacturers and suppliers are +located in China, and we are exposed to the possibility of product supply disruption and increased costs in the event of changes in the +policies, laws, rules and regulations of the United States or Chinese governments, as well as political unrest or unstable economic conditions +in China. For example, trade tensions between the United States and China have been escalating in recent years. Notably, the lithium-ion +battery industry has been subjected to tariffs implemented by the United States government on goods imported from China. There is an ongoing +risk of new or additional tariffs being put in place on lithium-ion batteries or related parts which would significantly increase our +cost of goods sold, which could require us to increase prices to our customers or, if we are unable to do so, result in lower gross margins +on the products sold by us. In addition, these tariffs could make our products less competitive than those of our competitors whose inputs +are not subject to these tariffs. These U.S. tariff impositions against Chinese exports have been followed by a round of retaliatory Chinese +tariffs on U.S. exports to China. The imposition of additional tariffs by the United States could trigger the adoption of tariffs by other +countries as well. Any resulting escalation of trade tensions, including a “trade war,” could have a significant adverse effect +on world trade and the world economy, as well as on our results of operations. At this time, we cannot predict how such enacted tariffs +will impact our business. We may otherwise experience supply disruptions or delays, and although we carefully manage our inventory and +lead-times, our suppliers may not continue to provide us with battery components in our required quantities, to our required specifications +and quality levels or at attractive prices. +Further, we may be unable to control price fluctuations +for these components or negotiate supply arrangements on favorable terms to us. We may also be exposed to fluctuations in the value of +the U.S. dollar relative to the Renminbi with any appreciation in the value of the Renminbi increasing our costs for lithium-ion batteries +and other raw materials sourced from China. Substantial increases in the prices for our lithium-ion batteries and other raw materials +would increase our operating costs and negatively impact our results of operations. In addition, foreign currency fluctuations relative +to the value of the U.S. dollar could affect the price of components and materials used in our batteries and sourced from countries other +than the United States. +Increases in costs, disruption of supply or +shortage of any of our battery components, such as electronic and mechanical parts, or raw materials used in the production of such parts, +could harm our business. +From time to time, we may experience increases in +the cost or a sustained interruption in the supply or shortage of battery components. For example, a global shortage and component supply +disruptions of electronic battery components are currently being reported, and the full impact to us is yet unknown. Other examples of +shortages and component supply disruptions could include the supply of electronic components and raw materials (such as resins and other +raw metal materials) that go into the production of our battery components. Any such cost increase or supply interruption could materially +and negatively impact our business, prospects, financial condition and results of operations. +16 +The prices for our battery components fluctuate depending +on market conditions and global demand, and could adversely affect our business, prospects, financial condition and results of operations. +For instance, we are exposed to multiple risks relating to price fluctuations for battery cells. These risks include, but are not limited +to: +· supply shortages caused by the inability or unwillingness +of suppliers and their competitors to build or operate component production facilities to supply the numbers of battery components requires +to support the rapid growth of the electric RV and marine component vehicle industry and other industries in which we operate as demand +for such components increases; +· disruption in the supply of electronic circuits +due to quality issues or insufficient raw materials +· a decrease in the number of manufacturers of +battery components; and +· an increase in the cost of raw materials. +We are dependent on the continued supply of battery +components for our products. Any disruption in the supply of battery components could temporarily disrupt production of our products by +our third-party manufacturers until a different supplier is fully qualified. The cost of our battery products depends in part upon the +prices and availability of raw materials such as lithium, nickel, cobalt, and/or other metals which are used to produce battery components. +Our third-party manufacturers source the raw materials and battery components required for the production of our batteries directly from +third-party suppliers and thus we may have limited control over the agreed pricing for these raw materials and battery components. The +prices for these materials fluctuate and their available supply may be unstable, depending on market conditions and global demand for +these materials, including as a result of increased global production of electric vehicles and energy storage products. Furthermore, fluctuations +or shortages in petroleum and other economic conditions may cause us to experience significant increases in freight charges. Any reduced +availability of these raw materials or substantial increases in the prices for such materials may increase the cost of our components +and consequently, the cost of our products. There can be no assurance that we will be able to recoup increasing costs of our components +by increasing prices, which in turn could damage our brand, business, prospects, financial condition and results of operations. +Our business and future growth depends on the +needs and success of our customers. +Our customers include dealers, wholesalers, private-label +customers and OEMs. The demand for our products ultimately depends on consumers in our current end markets (primarily owners of RVs and +marine vessels). These markets can be impacted by numerous factors, including, consumer spending, travel restrictions, fuel costs and +energy demands (including an increasing trend towards the use of green energy) and overall economic conditions. Increases or decreases +in these variables may significantly impact the demand for our products. If we fail to accurately predict demand, we may be unable to +meet our customers’ needs, resulting in the loss of potential sales, or we may produce excess products, resulting in increased inventory +and overcapacity in our production facilities, increasing our unit production cost and decreasing our operating margins. +We have substantial customer concentration, +with a limited number of customers accounting for a substantial portion of our sales in 2024 and 2023. +We currently derive a significant portion of our revenue +from a limited number of customers. Sales to one customer totaled approximately 14% of our gross sales during the year ended December +31, 2024, and four other customers had accounts receivable balances representing 60% of our total accounts receivable as of December 31, +2024. During the year ended December 31, 2023, sales to two customers totaled approximately 21% of our gross sales, and four other customers +had accounts receivable balances representing 92% of total accounts receivable as of December 31, 2023. There are inherent risks whenever +a large percentage of gross sales are concentrated with a limited number of customers. In addition, our sales are completed on a purchase +order basis and most are without firm, long-term revenue commitments or sales arrangements. It is not possible for us to predict the future +level of demand for our products and services that will be generated by our customers or the future demand for the products and services +of our other customers. If any of our customers experience declining or delayed sales due to market, economic or competitive conditions, +we could be pressured to reduce the prices we charge for our products which could have an adverse effect on our margins and financial +position and could negatively affect our revenue and results of operations and/or trading price of our common stock. Furthermore, there +is inherent risk associated with accounts receivable concentration as a deterioration in the financial condition of a limited number of +account debtors, or any other factor which affects their ability or willingness to pay could in turn have a material adverse effect on +our financial condition. +17 +We may not be able to successfully manage our +growth. +We have been continuously expanding our operations +since our founding in 2016. As we continue to grow, we must continue to improve our managerial, technical and operational knowledge and +allocation of resources, and to implement an effective management information system. To effectively manage our expanded operations, we +need to continue to recruit and train managerial, accounting, internal audit, engineering, assembly and manufacturing, technical, sales +and other staff to satisfy our development requirements and there are currently significant labor shortages in the market. In order to +fund our ongoing operations and our future growth, we need to have sufficient internal sources of liquidity or access to additional financing +from external sources. Furthermore, we will be required to manage relationships with a greater number of customers, suppliers, contractors, +service providers, lenders and other third parties. We will need to further strengthen our internal control and compliance functions to +ensure that we are able to comply with our legal and contractual obligations and to reduce our operational and compliance risks. We cannot +assure you that we will not experience issues such as capital constraints, construction delays, operational difficulties at new locations, +or difficulties in expanding our existing business and operations and in recruiting and training an increasing number of personnel to +manage and operate the expanded business. Our expansion plans may also adversely affect our existing operations and thereby have a material +adverse effect on our business, prospects, financial condition and results of operations. +Our results of operations may be negatively +impacted by public health epidemics or outbreaks. +We are exposed to risks associated with public health +crises and epidemics or pandemics. A widespread health crisis could adversely affect the global economy, resulting in an economic downturn +that could impact our operations and demand for our products and therefore have a material adverse effect on our business and results +of operations. For example, the COVID-19 global pandemic adversely impacted our operations, supply chains, and distribution systems as +well as those of our third-party suppliers and manufacturers, which are located in the United States, Asia and Europe. A future public +health epidemic or outbreak may make it more difficult for us and our third-party manufacturers to find sufficient components or raw materials +and component parts on a timely basis or at a cost-effective price. Any performance failure on the part of any of our significant suppliers +or third-party manufacturers could interrupt production of our products, which would have a material adverse effect on our business, financial +condition and results of operations. In addition, during the pandemic we experienced shortages and workforce slowdowns due to stay-at-home +mandates, illness among our workforce, delays in shipping finished products to customers, and delays in our receiving batteries and certain +components. The highly competitive labor market made it difficult to recruit and maintain a workforce properly sized and suited for our +operational and strategic needs, which further adversely impacted our business, and any future incidence of disease could similarly impact +our business. In addition, while the pandemic positively impacted our battery sales due to more consumers adopting the RV lifestyle, there +is no guarantee that any such increase would be sustained, which could cause our results of operations to fluctuate. +If we fail to expand our sales and distribution +channels, our business could suffer. +Our success, and our ability to increase sales and +operate profitably, depends on our ability to identify target customers and convert these customers into meaningful orders, as well as +our continued development of existing customer relationships. If we are unable to expand our sales and distribution channels, we may not +be able to increase revenue or achieve market acceptance of our products. We are expanding our direct sales force and plan to recruit +additional sales personnel. New sales personnel will require training and take time to achieve full productivity, and there is strong +competition for qualified sales personnel in our business. In addition, we believe our future success is dependent upon establishing successful +relationships with a variety of distribution partners. To date, we have entered into agreements with only a small number of these distribution +partners. We cannot be certain that we will be able to reach agreement with additional distribution partners on a timely basis or at all, +or that these distribution partners will devote adequate resources to selling our products. Furthermore, if our distribution partners +fail to adequately market or support our products, the reputation of our products in the market may suffer. In addition, we will need +to manage potential conflicts between our direct sales force and any third-party reselling efforts. There can be no assurances that any +of our efforts to expand our sales and distribution channels will be successful. +18 +Our ability to expand into international markets +is uncertain. +Our strategy is to expand our operations into international +markets. In addition to general risks associated with international expansion, such as foreign currency fluctuations and political and +economic instability, we face the following risks and uncertainties any of which could prevent us from selling our products in a particular +country or harm our business operations once we have established operations in that country: +the difficulties and costs of localizing products +for foreign markets; +the need to modify our products to comply with +local requirements in each country; and +our lack of a direct sales presence in other countries, +our need to establish relationships with distribution partners to sell our products in these markets and our reliance on the capabilities +and performance of these distribution partners. +If we are unable to expand into international markets +in the manner expected, our business, financial condition, results of operations and prospects may be materially and adversely affected. +Nearly all of our raw materials enter the United +States through a limited number of ports and we rely on third parties to store and ship some of our inventory; labor unrest at these ports +or other product deliver difficulties could interfere with our distribution plans and reduce our revenue. +We currently rely exclusively on foreign manufacturers +to manufacture the lithium-ion batteries used as raw materials in our products, as well as certain other of our raw materials. We may +suffer delays in receiving raw materials due to work stoppages, strikes or lockouts or other bottlenecks at the ports through which our +raw materials are shipped. Likewise, we rely on trucking carriers to deliver products from the port of arrival to our distribution facilities +and from our distribution facilities to our customers. Additionally, in some cases, third parties sort, store, and direct-ship products +to our customers. Labor unrest or other disruptions could result in product shortages and delays in distributing our products to retailers, +which could materially and adversely affect our business, financial condition, results of operations, and prospects. +The uncertainty in global economic conditions +could negatively affect our results of operations. +Our results of operations are directly affected by +the general global economic conditions of the industries in which our major customer groups operate. Our business is also highly dependent +on the economic and market conditions in each of the geographic areas in which we operate. Our products are heavily dependent on the end +markets that we serve and our results of operations will vary by location, depending on the economic environment in these markets. Sales +of our RV and marine power products, for example, depend significantly on demand for new electric products for RVs and marine applications, +which, in turn, depends on end-user demand for RVs and boats. The uncertainty in global economic conditions varies by geographic location +and can result in substantial volatility in global credit markets, particularly in the United States. These conditions, including levels +of consumer spending, economic recessions, slow economic growth, economic and pricing instability, inflation levels, increase of interest +rates, credit market volatility and adverse developments affecting financial institutions, could affect our business by reducing prices +that our customers may be able or willing to pay for our products or by reducing the demand for our products. In addition, the Russia-Ukraine +war and the Israel-Palestine conflict has and may continue to further exacerbate disruptions in the global supply chain. As a result of +sanctions imposed in relation to the Russia-Ukraine conflict, gas prices in the United States have risen to historic levels, and geopolitical +tensions in the Middle East have impacted global shipping routes. Any rise in the cost of fuel may cause a decrease in RV travel, which +could ultimately negatively impact sales of our batteries for RVs. We have also historically experienced increased shipping costs as a +result of increased fuel costs and shutdowns at the ports through which our lithium-ion batteries and other raw materials are shipped, +and such costs could adversely impact our results of operations in future periods. Any of the above factors could, in turn, negatively +impact our sales and earnings generation and result in a material adverse effect on our business, cash flow, results of operations and +financial position. +Government reviews, inquiries, investigations, +and actions could harm our business or reputation. +As we operate in various locations around the world, +our operations in certain countries are subject to significant governmental scrutiny and may be adversely impacted by the results of such +scrutiny. The regulatory environment with regard to our business is evolving, and officials often exercise broad discretion in deciding +how to interpret and apply applicable regulations. From time to time, +we receive formal and informal inquiries from various government regulatory authorities, as well as self-regulatory organizations, about +our business and compliance with local laws, regulations or standards. Any determination that our operations or activities, or the activities +of our employees, are not in compliance with existing laws, regulations or standards could result in the imposition of substantial fines, +interruptions of business, loss of supplier, vendor, customer or other third-party relationships, termination of necessary licenses and +permits, or similar results, all of which could potentially harm our business and/or reputation. Even if an inquiry does not result in +these types of determinations, regulatory authorities could cause us to incur substantial costs or require us to change our business practices +in a manner materially adverse to our business, and it potentially could create negative publicity which could harm our business and/or +reputation. +19 +We are currently, and will likely continue to +be, dependent on our two warehouse facilities. If our facilities become inoperable for any reason, our ability to produce our products +could be negatively impacted. +We have a warehouse location in Redmond, Oregon and +another in Elkhart, Indiana. +Our facilities may be harmed or rendered inoperable +by natural or man-made disasters, including earthquakes, flooding, fire and power outages, utility and transportation infrastructure disruptions, +acts of war or terrorism, or by public health crises, which may render it difficult or impossible for us to assemble our products for +an extended period of time. The inability to produce our products or the backlog that could develop if any of our facilities is inoperable +for even a short period of time may result in increased costs, harm to our reputation, a loss of customers or a material adverse effect +on our business, financial condition or results of operations. Although we maintain property damage and business interruption insurance, +this insurance may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, +if at all. +Our long-term target is to onshore the manufacturing +of most of our components and assemblies, including cell manufacturing, to the United States. Our plans for expansion may experience delays, +incur additional costs, or cause disruption to our existing production lines. The costs to successfully achieve our expansion goals may +be greater than we expect, and we may fail to achieve our anticipated cost efficiencies, which could have a material adverse effect on +our business, financial condition and results of operations. Furthermore, while we are generally responsible for delivering products to +the customer, we do not maintain our own fleet of delivery vehicles and outsource this function to third parties. Any shortages in trucking +capacity, any increase in the cost thereof or any other disruption to the highway systems could limit our ability to deliver our products +in a timely manner or at all. +Lithium-ion battery cells have been observed +to catch fire or release smoke and flame, which may have a negative impact on our reputation and business. +Our lithium-ion batteries use LiFePO4 as the cathode +material for lithium-ion cells. On rare occasions, lithium-ion cells can rapidly release the energy they contain by releasing smoke and +flames in a manner that can ignite nearby materials and other lithium-ion cells. This faulty result could subject us to lawsuits, product +recalls, or redesign efforts, all of which would be time-consuming and expensive. Further, negative public perceptions regarding the suitability +or safety of lithium-ion cells or any future incident involving lithium-ion cells, such as a vehicle or other fire, even if such incident +does not involve our products, could seriously harm our business and reputation. +To facilitate an uninterrupted supply of lithium-ion +batteries, we store a significant number of lithium-ion batteries at our facilities. Any mishandling, other safety issue or fire related +to the cells or batteries could disrupt our operations. In addition, any accident, whether occurring at our facilities or from the use +of our batteries, may result in significant production interruption, delays or claims for substantial damages caused by personal injuries +or property damage. Such damage or injury could lead to adverse publicity and potentially a product recall, which could have a material +adverse effect on our brand, business, financial condition and results of operations. +We could face product liability or warranty +claims relating to our products, including the components thereof, which could reduce market adoption, result in reputation damage, and +result in significant costs and liabilities, which would reduce our profitability. +Our product offerings and energy storage solutions, +which are complex, could contain design- or manufacturing-related defects, or may not operate at expected performance levels. We face +an inherent business risk of exposure to product liability claims in the event that the use of any of our products results in personal +injury or property damage. +20 +In the event that any of our products prove to be +defective, we may be required to recall or redesign such products, which would result in significant unexpected costs. Any insurance we +maintain may not be available on terms acceptable to us or such coverage may not be adequate for liabilities actually incurred. Further, +any claim or product recall could result in adverse publicity against us, which could adversely affect our sales or increase our costs. +We are also exposed to potential liability and product +performance warranty risks that are inherent in the design, assemble, manufacture and sale of our products. We sell the majority of our +products to customers with conditional repair or replacement warranties. For example, our branded DC mobile chargers are warrantied for +two years from the date of sale, and our branded VPR 4EVER Classic and Platinum batteries are warrantied at gradually lesser levels over +a 12-year period from date of sale. As a result, we bear the risk of warranty claims long after we have sold the product and recognized +revenue. In addition, under real world operating conditions, which may vary by location and design, as well as environmental conditions, +our products may perform in a different way than under standard test conditions or other failure data sets. We depend significantly on +our reputation for safety and reliability and high-quality products and services, exceptional customer service, and our brand name to +attract new customers and maintain our current customers, and grow our business. If our products do not perform as anticipated or we experience +unexpected reliability problems or widespread product failures, our brand and market reputation could be significantly impaired and we +may lose, or be unable to gain or retain, customers which could impact our business and results of operations. +We have been required to make assumptions and apply +judgments, including the durability and reliability of our products, regarding their performance over the estimated warranty period and +our anticipated rate of warranty claims. We have a relatively limited operating history and must project how our offerings will perform +over the estimated warranty period and the estimated reserve may have material changes. Historically, there have been very few claims +and costs for repairs or replacement parts have been nominal. However, warranty reserves include our management’s best estimates +of the projected costs to repair or replace items under warranty, which is based on estimated failure rates. Our assumptions could prove +to be materially different from the actual performance of our products, causing us to incur substantial expense to repair or replace defective +products in the future. An increase in our estimates of future warranty obligations could cause us to increase the amount of warranty +obligations. If our warranty reserves are inadequate to cover future warranty claims on our energy storage products, our financial condition +and results of operations could be adversely affected. +Our operations expose us to litigation, tax, +environmental and other legal compliance risks. +We are subject to a variety of litigation, tax, environmental, +health and safety and other legal compliance risks. These risks include, among other things, possible liability relating to product liability +matters, personal injuries, intellectual property rights, contract-related claims, government contracts, taxes, health and safety liabilities, +environmental matters and compliance with competition laws and laws governing improper business practices. We could be charged with wrongdoing +as a result of such matters. If convicted or found liable, we could be subject to significant fines, penalties, repayments or other damages +(in certain cases, treble damages). In the area of taxes, changes in tax laws and regulations, as well as changes in related interpretations +and other tax guidance could materially impact our tax receivables and liabilities and our deferred tax assets and tax liabilities. +We plan to manufacture lithium-ion batteries in the +future which involves processing, storing, disposing of and otherwise moving large amounts of hazardous materials, and federal, state, +and local regulations impose significant environmental requirements on the manufacturing, storage, transportation, and disposal of various +components of advanced energy storage systems. As a result, we will be subject to extensive and changing environmental, health and safety +laws, and regulations governing, among other things, the generation, handling, storage, use, transportation and disposal of hazardous +materials; remediation of polluted ground or water; emissions or discharges of hazardous materials into the ground, air or water; and +the health and safety of our employees. Although we believe our operations are in material compliance with applicable environmental regulations, +there can be no assurance that changes in such laws and regulations will not impose costly compliance requirements on us or otherwise +subject us to future liabilities. Our ongoing compliance with environmental, health and safety laws, regulations and permits could require +us to incur significant expenses, limit our ability to modify or expand our facilities or continue production and require us to install +additional pollution control equipment and make other capital improvements. In addition, private parties, including employees, could bring +personal injury or other claims against us due to the presence of, or exposure to, hazardous substances used, stored or disposed of by +us or contained in our products. +21 +Certain environmental laws assess liability on owners +or operators of real property for the cost of investigation, removal or remediation of hazardous substances at their current or former +properties or at properties at which they have disposed of hazardous substances. These laws may also assess costs to repair damage to +natural resources. We may be responsible for remediating damage to our properties caused by former owners by our existing operations or +by our future operations. +Changes in environmental and climate laws or regulations +could lead to new or additional investment in production designs and could increase environmental compliance expenditures. For example, +the United States Environmental Protection Agency has promulgated regulations applicable to projects involving greenhouse gas emissions +above a certain threshold, and the United States and certain states within the United States have enacted, or are considering, limitations +on greenhouse gas emissions. +Changes in climate change concerns, or in the regulation +of such concerns, including greenhouse gas emissions, could subject us to additional costs and restrictions, including increased energy +and raw materials costs. Additionally, we cannot assure you that we have been or at all times will be in compliance with environmental +laws and regulations or that we will not be required to expend significant funds to comply with, or discharge liabilities arising under, +environmental laws, regulations and permits, or that we will not be exposed to material environmental, health or safety litigation. +We are subject to anti-corruption, anti-bribery, anti-money +laundering, financial and economic sanctions and similar laws and regulations in the jurisdictions in which we conduct or in the future +may conduct activities, including, the U.S. Foreign Corrupt Practices Act (the “FCPA”). The FCPA generally prohibits companies +and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. The FCPA +applies to companies, individual directors, officers, employees and agents. Under the FCPA, U.S. companies may be held liable for actions +taken by strategic or local partners or representatives. The FCPA also imposes accounting standards and requirements on publicly traded +U.S. corporations and their foreign affiliates, which are intended to prevent the diversion of corporate funds to the payment of bribes +and other improper payments. Our policies mandate compliance with these antibribery laws. Despite meaningful measures that we undertake +to facilitate lawful conduct, which include training and internal control policies, these measures may not always prevent reckless or +criminal acts by our employees or agents as we expand our operations from the United States domestically to abroad. As a result, we could +be subject to criminal and civil penalties, disgorgement, further changes or enhancements to our procedures, policies and controls, personnel +changes or other remedial actions. Violations of these laws, or allegations of such violations, could disrupt our operations, involve +significant management distraction and result in a material adverse effect on our competitive position, results of operations, cash flows +or financial condition. +Our failure to introduce new products and product +enhancements that respond to customer and end consumer demand, and any broad market acceptance of new technologies introduced by our competitors, +could adversely affect our business. +Our success will depend on our ability to develop +new products and capabilities that respond to consumer demand, industry trends, or developments by our competitors. There is no assurance +that we will be able to successfully develop new products and capabilities that adequately respond to these forces. In addition, many +new energy storage technologies have been introduced over the past several years. For certain important and growing markets, such as aerospace +and defense, lithium-based battery technologies have a large and growing market share. Our ability to achieve significant and sustained +penetration of key developing markets, including the RV marine, and home energy markets, will depend upon our success in developing or +acquiring these and other technologies, either independently, through joint ventures, or through acquisitions, which in each case may +require significant capital. In addition, new product introductions and technologies are risky, and may suffer from a lack of market acceptance, +delays in related product development and failure of new products to operate properly. Any failure by us to successfully launch new products, +or a failure by us to meet our customers criteria in order to accept such products, could adversely affect our results. If we fail to +develop or acquire, assemble and manufacture and sell, products that satisfy our customers’ demands, or we fail to respond effectively +to new product announcements by our competitors by quickly introducing competitive products, then we may fail to maintain our competitive +position in our markets, and our business and financial condition could be adversely affected. We cannot assure you that our portfolio +of primarily lithium-ion products will remain competitive with products based on new technologies. +22 +We may not be able to adequately protect our +proprietary intellectual property and technology and we may need to defend ourselves against intellectual property infringement claims. +We rely on a combination of copyright, trademark, +patent and trade secret laws, non-disclosure agreements and other confidentiality procedures and contractual provisions to establish, +protect and maintain our proprietary intellectual property and technology and other confidential information. Certain of these technologies, +especially battery case construction, are important to our business and are not protected by patents. Despite our efforts to protect our +proprietary intellectual property and technology and other confidential information, unauthorized parties may attempt to copy or otherwise +obtain and use our intellectual property and proprietary technologies. If we are unable to protect our intellectual property and technology, +we may lose any technological advantage we currently enjoy and may be required to take an impairment charge with respect to the carrying +value of such intellectual property or goodwill established in connection with the acquisition thereof. In either case, our results of +operations and net income may be adversely affected. In addition, entities holding intellectual property rights relating to our technology +may bring suits alleging infringement of such rights or otherwise asserting their rights and seeking licenses. Any such litigation or +claims, whether or not valid or successful, could result in substantial costs and diversion of resources and our management’s attention. +If we are determined to have infringed upon a third-party’s intellectual property rights, we may have to pay substantial damages, +obtain a license or cease making certain products, which in turn could have a material adverse effect on our business, results of operations +and financial condition. +Quality problems with our products could harm +our reputation and erode our competitive position. +The success of our business will depend upon the quality +of our products and our relationships with customers. In the event that our products fail to meet our customers’ standards, our +reputation could be harmed, which would adversely affect our marketing and sales efforts. We cannot assure you that our customers will +not experience quality problems with our products. +Any acquisitions that we complete may dilute +stockholder ownership interests in the Company, may have adverse effects on our financial condition and results of operations and may +cause unanticipated liabilities. +As part of our growth strategy, we may make future +investments in businesses, new technologies, services and other assets that complement our business. Future acquisitions may involve the +issuance of our equity securities as payment, in part or in full, for the businesses or assets acquired. Any future issuances of equity +securities would dilute stockholder ownership interests. In addition, future acquisitions might not increase, and may even decrease, our +earnings or earnings per share and the benefits derived by us from an acquisition might not outweigh or might not exceed the dilutive +effect of the acquisition. We also may incur additional debt or suffer adverse tax and accounting consequences in connection with any +future acquisitions. +If our electronic data is compromised, or we +experience a failure in our information technology or storage systems, our business could be significantly harmed. +We and our business partners maintain significant +amounts of data electronically in locations around the world. This data relates to all aspects of our business, including current and +future products and services under development, and also contains certain customer, supplier, partner and employee data. Our ability to +execute our business strategy depends, in part, on the continued and uninterrupted performance of our information technology systems, +which support our operations. We maintain systems and processes designed to protect this data, but notwithstanding such protective measures, +there is a risk of intrusion, cyberattacks, tampering, theft, misplaced or lost data, programming and/or human errors that could compromise +the integrity and privacy of this data, improper use of our systems, software solutions or networks, unauthorized access, use, disclosure, +modification or destruction of information, defective products, production downtimes and operational disruptions, which in turn could +adversely affect our reputation, competitiveness, and results of operations. High-profile security breaches at other companies and in +government agencies have increased in recent years, and cyber-attacks are becoming more sophisticated and frequent, and in some cases +have caused significant harm. Computer hackers and others routinely attempt to breach the security of technology products, services and +systems, and to fraudulently induce employees, customers, or others to disclose information or unwittingly provide access to systems or +data. While we devote significant resources to security measures to protect our systems and data, these measures cannot provide absolute +security. +23 +In addition, we provide confidential and proprietary +information to our third-party business partners in certain cases where doing so is necessary to conduct our business. While we obtain +assurances from those parties that they have systems and processes in place to protect such data, and where applicable, that they will +take steps to assure the protections of such data by third parties, nonetheless those partners may also be subject to data intrusion or +otherwise compromise the protection of such data. Any compromise of the confidential data of our customers, suppliers, partners, employees +or ourselves, or failure to prevent or mitigate the loss of or damage to this data through breach of our information technology systems +or other means could substantially disrupt our operations, harm our customers, employees and other business partners, damage our reputation, +violate applicable laws and regulations, subject us to potentially significant costs and liabilities and result in a loss of business +that could be material. We operate a number of critical computer systems throughout our business that can fail for a variety of reasons. +If such a failure were to occur, we may not be able to sufficiently recover from the failure in time to avoid the loss of data or any +adverse impact on certain of our operations that are dependent on such systems. This could result in lost sales and the inefficient operation +of our facilities for the duration of such a failure. +Our ability to raise capital in the future may +be limited, which could make us unable to fund our capital requirements and our stockholders may be diluted by future securities offerings. +Our business and operations may consume resources +faster than we anticipate. In the future, we may need to raise additional funds through the issuance of new equity securities, debt or +a combination of both or by entering into credit facilities or securing other types of financing. Additional financing may not be available +on favorable terms or at all. If adequate funds are not available on acceptable terms, or at all, we may be unable to fund our capital +requirements. Further, we may be restricted in our ability to access existing sources of liquidity. +In addition, actual events involving limited liquidity, +defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies +in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds +or other similar risks. If banks or financial institutions enter receivership or become insolvent in response to financial conditions +affecting the banking system and financial markets, our ability to raise additional financing or to access our existing cash, cash equivalents +and investments may be threatened. +If we incur new debt, the debt holders would have +rights senior to common stockholders to make claims on our assets, and the terms of any debt could restrict our operations, including +our ability to pay dividends on our common stock. If we issue additional equity securities, existing stockholders may experience dilution, +and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in any future +offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature +of our future offerings. Thus, our stockholders bear the risk of our future securities offerings reducing the market price of our common +stock and diluting their interest. +We depend on our senior management team and +other key employees, and significant attrition within our management team or unsuccessful succession planning could adversely affect our +business. +Our success depends in part on our ability to attract, +retain and motivate senior management and other key employees. Achieving this objective may be difficult due to many factors, including +fluctuations in global economic and industry conditions, competitors’ hiring practices, cost reduction activities, and the effectiveness +of our compensation programs. Competition for qualified personnel can be very intense. We must continue to recruit, retain and motivate +senior management and other key employees sufficient to maintain our current business and support our future projects. We are vulnerable +to attrition among our current senior management team and other key employees. A loss of any such personnel, or the inability to recruit +and retain qualified personnel in the future, could have an adverse effect on our business, financial condition and results of operations. +For example, John Yozamp, our co-founder, former Chief Business Development Officer, and former Chief Executive Officer, pioneered multiple +new recreational concepts in the RV industry and leveraged extensive relationships in the RV OEM business to establish our company. Mr. +Yozamp retired as Chief Business Development Officer as of December 31, 2023. In addition, Greg Aydelott, our Chief Financial Officer, +resigned from his role as of December 31, 2024. While we believe we have successfully transitioned from these departures and have sufficient +experience among our management team, any additional attrition among senior management or key employees could adversely impact us. The +board has commenced a search for a new Chief Financial Officer. If we are unsuccessful +in our succession planning efforts, the continuity of our business and results of operations could be adversely affected. +24 +Changes in tax laws or tax rulings could materially +affect our financial position, results of operations, and cash flows. +The income and non-income tax regimes we are subject +to or operate under are unsettled and may be subject to significant change. Changes in tax laws or tax rulings, or changes in interpretations +of existing laws, could materially affect our financial position, results of operations, and cash flows. The overall tax environment remains +uncertain and increasingly complex. Future changes in tax laws, treaties or regulations, and their interpretation or enforcement, may +be unpredictable, particularly as taxing jurisdictions face an increasing number of political, budgetary, and other fiscal challenges. +In the U.S., various proposals to change corporate income taxes are periodically considered. Tax rates in the jurisdictions in which we +operate may change as a result of macroeconomic and other factors outside of our control, making it increasingly difficult to operate +with certainty about taxation. For example, changes to U.S. tax laws enacted in December 2017 had a significant impact on our tax obligations +and effective tax rate beginning 2018, and the full consequences of the significant changes to U.S. tax laws as a result of the Tax Cuts +and Jobs Act of 2017 (the “Tax Cuts and Jobs Act”) have not yet been fully determined. These enactments and future possible +guidance from the applicable taxing authorities may have a material impact on our results of operations. In addition, regulatory or legislative +developments may arise from various U.S. tax reform proposals, some of which include proposed changes to the U.S. tax laws, which, if +adopted, could result in increased taxation of our business operations. We closely monitor these proposals as they arise in the countries +where it operates. Changes to the statutory tax rate may occur at any time, and any related expense or benefit recorded may be material +to the fiscal quarter and year in which the law change is enacted. We regularly assess the likely outcomes of our tax audits and disputes +to determine the appropriateness of our tax reserves. However, any tax authority could take a position on tax treatment that is contrary +to our expectations, which could result in tax liabilities in excess of reserves. In addition, the foregoing items, as well as any future +changes in tax laws, could have a material adverse effect on our business, cash flow, financial condition, or results of operations. +A failure to keep pace with developments in +technology could impair our operations or competitive position. +Our business continues to demand the use of sophisticated +systems and technology. These systems and technologies must be refined, updated and replaced with more advanced systems on a regular basis +in order for us to meet our customers’ demands and expectations. If we are unable to do so on a timely basis or within reasonable +cost parameters, or if we are unable to appropriately and timely train our employees to operate any of these new systems, our business +could suffer. We also may not achieve the benefits that we anticipate from any new system or technology, such as fuel abatement technologies, +and a failure to do so could result in higher than anticipated costs or could impair our results of operations. +Risks Related to Ownership of Our Common Stock +Our stock price may fluctuate significantly, +and you may lose all or a part of your investment. +The trading price of our securities may be volatile +and subject to wide price fluctuations in response to various factors, including: +· market conditions in the broader stock market; +· actual or anticipated fluctuations in our quarterly +financial condition and results of operations, or those of other companies in our industry; +· actual or anticipated strategic, technological, +or regulatory threats, whether or not warranted by actual events; +· whether any securities analysts cover our stock; +· issuance of new or changed securities analysts’ +reports or recommendations, if any; +· investor perceptions of our Company, the lithium +battery and accessory industry; +· the volume of trading in our stock; +· changes in accounting standards, policies, guidance, +interpretations, or principles; +· sales, or anticipated sales, of large blocks +of our stock; +· additions or departures of key management personnel, +creative, or other talent; +· regulatory or political developments, including +changes in laws or regulations that are applicable to our business; +· litigation and governmental investigations; +· sales or distributions of our common stock by +significant stockholders, the entity through which our controlling stockholder holds its investment, or other insiders; +· natural disasters and other calamities; and +· macroeconomic conditions. +25 +Furthermore, the stock market has experienced extreme +volatility that in some cases has been unrelated or disproportionate to the operating performance of particular companies. These and other +factors may cause the market price and demand for our securities to fluctuate substantially, which may limit or prevent investors from +readily selling their securities and it may otherwise negatively affect the liquidity of our securities. In addition, in the past, when +the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against +the company that issued the stock. If any of our stockholders were to bring a lawsuit against us, we could incur substantial costs defending +the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business. +We do not anticipate paying dividends on our +common stock in the foreseeable future, and you may not receive any return on investment unless you sell your common stock for a price +greater than that which you paid for it. +We do not anticipate paying any dividends in the foreseeable +future on our common stock. We intend to retain all future earnings for the operation and expansion of our business and the repayment +of outstanding debt. Any future debt facilities we may enter into may contain restrictions on our ability to pay dividends or make distributions, +and any new credit facilities we may enter into may contain similar restrictions. As a result, capital appreciation, if any, of our common +stock may be your major source of gain for the foreseeable future. While we may change this policy at some point in the future, we cannot +assure you that we will make such a change. +If securities or industry analysts do not publish +research or reports about our business, if they adversely change their recommendations regarding our stock, or if our results of operations +do not meet their expectations, our stock price and trading volume could decline. +The trading market for our securities may be influenced +by the research and reports that securities or industry analysts publish about us or our business (or the absence of such research or +reports). If one or more of these analysts cease coverage of our Company or fail to publish reports on us regularly, we could lose visibility +in the financial markets, which in turn could cause our stock prices or trading volume to decline. Moreover, if one or more of the analysts +who cover us downgrade recommendations regarding our stock, or if our results of operations do not meet their expectations, our stock +prices could decline and such decline could be material. +You may be diluted by the future issuance of +additional common stock in connection with our incentive plans, acquisitions or otherwise. +You will experience additional dilution upon the exercise +of options and warrants to purchase our common stock, including those options currently outstanding and possibly those granted in the +future, and the issuance of restricted stock or other equity awards under our stock incentive plans. As of December 31, 2024, we had 200,000,000 +shares of common stock authorized, of which 2,096,082 were issued. Subsequent to December 31, 2024, we issued to certain institutional +investors in connection with a registered direct offering (i) 474,193 shares of common stock; and (ii) 574,193 pre-funded warrants (the +“January 2025 Pre-Funded Warrants”) to purchase up to 574,193 shares of common stock (the “January 2025 Pre-Funded Warrant +Shares”). The January 2025 Pre-Funded Warrants were all exercised immediately upon issuance. In a concurrent private placement that +closed January 3, 2025, the Company also issued to the institutional investors unregistered warrants (the “January 2025 Warrants”) +to purchase up to an aggregate of 1,048,386 shares of common stock. See “ Management’s Discussion and Analysis of Financial +Condition and Results of Operations—January 2025 Registered Direct Offering and Warrant Private Placement ” for additional +information regarding the offering. +26 +Our Articles of Incorporation authorizes us to issue +shares of common stock and options, rights, warrants and appreciation rights relating to common stock for the consideration and on the +terms and conditions established by our Board in its sole discretion, whether in connection with our incentive plans, acquisitions or +otherwise. We have reserved 10,000 shares of common stock for issuance upon the exercise of outstanding stock options under the 2021 Incentive +Award Plan and 25,000 shares of common stock for issuance pursuant to our 2021 Employee Stock Purchase Plan. In addition, as of December +31, 2024, there were outstanding warrants to purchase up to 5,380,965 shares of common stock. In addition, there are 11,430 shares of +common stock issuable upon the exercise of equity incentive awards outstanding under our 2021 Incentive Award Plan as of December 31, +2024. Any common stock that we issue, including stock issued under our 2021 Incentive Award Plan or other equity incentive plans that +we may adopt in the future, as well as under outstanding options or warrants would dilute the percentage ownership held by our common +stockholders. To the extent we raise additional capital by issuing equity securities, our stockholders may also experience substantial +additional dilution. +Sales of substantial amounts of our securities +in the public markets, or the perception that such sales might occur, could reduce the price of our securities and may dilute your voting +power and your ownership interest in us. +If our existing stockholders sell substantial amounts +of our securities in the public market, including the shares of common stock issued or issuable upon the exercise of the August 2024 Pre-Funded +Warrants, Series A Warrants and Series B Warrants issued in the August 2024 Public Offering, as well as shares of common stock issued +in the January 2025 Registered Direct Offering (including the January 2025 Pre-Funded Warrant Shares) and upon the issuance of shares +of common stock upon the exercise, if any, of the January 2025 Warrants, and shares issued as consideration in any future acquisitions, +or the market perceives that such sales may occur, the market price of our securities could fall and we may be unable to sell our securities +in the future. See the section titled “ Management’s Discussion and Analysis of Financial Condition and Results of Operations—August +2024 Public Offering and Subsequent Warrant Exercises and Adjustments to Warrant Exercise and Reset Prices ” and “ —January +2025 Registered Direct Offering and Warrant Private Placement ” for additional information regarding the August 2024 Public Offering +and January 2025 Registered Direct Offering, respectively. The perception in the public market that our stockholders might sell securities +could also depress our market price. As of March 25, 2025, we had 3,144,468 shares of common stock outstanding. Pursuant to the terms +of the warrants issued to the underwriters (or their designees) in connection with our initial public offering (the “Underwriter +Warrants”), the holders of the Underwriter Warrants have the right, subject to certain conditions, to require us to register the +sale of the shares of our common stock underlying their Underwriter Warrants under the Securities Act. +If the holders of the Underwriter Warrants exercise +their registration rights, the market price of shares of our securities may drop significantly. In addition, all of the shares of common +stock issuable upon exercise of outstanding stock options under the 2021 Incentive Award Plan and all of the shares of common stock issuable +pursuant to the 2021 Employee Stock Purchase Plan have been registered for public resale under the Securities Act. A decline in the price +of shares of our securities might impede our ability to raise capital through the issuance of additional shares of our common stock or +other equity securities. +Although our common stock is listed on Nasdaq, +the exchange could subsequently delist our common stock if we fail to comply with ongoing listing standards. +Our common stock currently is listed on Nasdaq. We +are required to meet specified financial requirements in order to maintain such listing, including a requirement that the bid price for +our common stock remain above $1.00. On September 6, 2024, as expected, we received a staff determination from The Nasdaq Listing Qualifications +Department of The Nasdaq Stock Market (“Nasdaq”) to delist our common stock from Nasdaq. On September 12, 2024, we requested +an appeal hearing, staying the delisting of the common stock pending a decision from a hearings panel. Upon successful completion of the +Reverse Stock Split, we received a letter from Nasdaq staff on October 23, 2024, advising us that we had regained compliance with the +continued listing requirements in Listing Rule 5550(a)(2) and that we are therefore in compliance with Nasdaq’s listing requirements. +Consequently, the scheduled hearing before the hearings panel on October 24, 2024, was cancelled. See the section titled “ Legal +Proceedings ” for further information on the delisting notice. +27 +While shares of our common stock continue to be listed +and traded on Nasdaq, there can be no assurance that we will continue to meet Nasdaq listing standards. Any potential delisting of our +common stock from Nasdaq may have materially adverse consequences to our stockholders, including: +a reduced market price and liquidity with respect +to our shares of common stock, which could make our ability to raise new investment capital more difficult; +limited dissemination of the market price of our +common stock; +limited news coverage; +limited interest by investors in our common stock; +volatility of the prices of our common stock due +to low trading volume; +our common stock being considered a “penny +stock,” which would result in broker-dealers participating in sales of our common stock being subject to the regulations set forth +in Rules 15g-2 through 15g-0 promulgated under the Exchange Act; +increased difficulty in selling our common stock +in certain states due to “blue sky” restrictions; and +limited ability to issue additional securities +or secure additional financing. +The exercise of outstanding warrants may result +in a substantial increase in the number of shares of our common stock that are outstanding. +As of December 31, 2024, 114,676,797 Series A Warrants, +exercisable for 5,286,692 shares of common stock, at $5.206 per share (post-Adjustment), and 3,075,000 Series B Warrants exercisable for +87,384 shares of common stock, at $0.10 per share (post-Adjustment) were outstanding. In addition, subsequent to December 31, 2024, we +issued to certain institutional investors the January 2025 Warrants to purchase up to an aggregate of 1,048,386 shares of common stock +at an exercise price of $2.36 per share, subject to adjustment for reverse stock splits, recapitalizations, and reorganizations. The exercise +of the Series A Warrants and, to a lesser extent, the Series B Warrants and January 2025 Warrants could result and have resulted in a +substantial increase in the number of shares of common stock outstanding and therefore materially dilute the ownership percentage of currently +outstanding shares of common stock. See the section titled “ Management’s Discussion and Analysis of Financial Condition +and Results of Operations—January 2025 Registered Direct Offering and Warrant Private Placement ” and “ —August +2024 Public Offering and Subsequent Warrant Exercises and Adjustments to Warrant Exercise and Reset Prices ” for additional information +regarding the January 2025 Registered Direct Offering and August 2024 Public Offering, respectively. +Provisions of the Series A Warrants and Series +B Warrants we sold in the August 2024 Public Offering may discourage an acquisition of us by a third party. +Certain provisions of the Series A Warrants and Series +B Warrants we sold in the August 2024 Public Offering could make it more difficult or expensive for a third-party to acquire us. The Series +A Warrants and Series B Warrants each prohibit us from engaging in certain transactions constituting “fundamental transactions” +unless, among other things, the surviving entity assumes our obligations under the applicable warrants. These and other provisions of +the Series A Warrants and Series B Warrants could prevent or deter a third-party from acquiring us even where the acquisition could be +beneficial to our investors. +The Series A Warrants and Series B Warrants +may have an adverse effect on the market price of our common stock and make it more difficult to effect a business combination. +To the extent we issue shares of common stock to affect +a future business combination, the potential for the issuance of a substantial number of additional shares of common stock upon exercise +of the Series A Warrants and, to a lesser extent, the Series B Warrants could make us a less attractive acquisition vehicle in the eyes +of a target business. Such Series A Warrants and Series B Warrants, when exercised, will increase the number of issued and outstanding +shares of common stock and reduce the value of the shares issued to complete the business combination. Accordingly, the Series A and Series +B Warrants may make it more difficult to effectuate a business combination or increase the cost of acquiring a target business. Additionally, +the sale, or even the possibility of a sale, of the shares of common stock underlying the August 2024 Pre-Funded Warrants, Series A Warrants, +and Series B Warrants could have an adverse effect on the market price for our securities or on our ability to obtain future financing. +If and to the extent the Series A Warrants and Series B Warrants are exercised, our investors may experience dilution to their holdings. +28 +The Reverse Stock Split cash true-up payment +provision in the Series A Warrants we sold in the August 2024 Public Offering may have a material adverse impact on our financial condition, +may impede our ability to raise additional capital, and may discourage an acquisition of us by a third party. +As a result of the daily volume weighted average price +(“VWAP”) of the common stock during the five trading days before and after the Reverse Stock Split, the Reverse Stock Split +cash true-up payment provision in the Series A Warrants, which is capped at $5.0 million in the aggregate under all Series A Warrants, +was triggered, but the payment of the Reverse Stock Split cash true-up payment is currently suspended in accordance with the terms of +the Series A Warrants. However, in connection with the January 2025 Registered Direct Offering, we used approximately $500,000 +of the $2.2 million in net proceeds to satisfy a portion of amounts owed to our Series A Warrant holders pursuant to the terms of the +outstanding Series A Warrants. The obligation to make the Reverse Stock Split cash true-up payment could impede our ability to +raise additional capital and could prevent or deter a third party from acquiring us even where the acquisition could be beneficial to +our investors. In the event that the conditions for suspension of the Reverse Stock Split cash true-up payment under the terms of the +Series A Warrants become no longer applicable, the payment of the Reverse Stock Split cash true-up payment could have a material adverse +impact on our financial condition. +We continue to incur considerable legal costs +as a result of operating as a public company, and our management will be required to devote substantial time to comply with public company +regulations. +As a public company, and particularly after we cease +to be an “emerging growth company,” as defined in the JOBS Act, we will continue to incur significant legal, accounting and +other expenses. In addition, the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), as well as rules promulgated by the SEC and +Nasdaq require us to adopt corporate governance practices applicable to U.S. public companies. Compliance with these rules and regulations +will continue to increase our legal and financial compliance costs. +Sarbanes-Oxley, as well as rules and regulations subsequently +implemented by the SEC and Nasdaq, have imposed increased disclosure and enhanced corporate governance practices for public companies. +Our efforts to continue to comply with evolving laws, regulations and standards are likely to result in increased expenses and a diversion +of management’s time and attention from revenue-generating activities to compliance activities. We may not be successful in continuing +to implement these requirements and implementing them could adversely affect our business, results of operations and financial condition. +In addition, if we fail to implement the requirements with respect to our internal accounting and audit functions, our ability to report +our financial results on a timely and accurate basis could be impaired. +Our management team has limited experience managing +a public company. +Most members of our management team have limited experience +managing a publicly traded company, interacting with public company investors, and complying with the increasingly complex laws pertaining +to public companies. These obligations and constituents require significant attention from our senior management and can divert their +attention away from the day-to-day management of our business, which can harm our business, results of operations and financial condition. +We are an “emerging growth company” +and elect to comply with certain reduced reporting requirements applicable to emerging growth companies, which could make our securities +less attractive to investors. +As an “emerging growth company,” we take +advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging +growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 +of Sarbanes-Oxley, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions +from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute +payments not previously approved. We cannot predict if investors will find our securities less attractive because we chose to rely on +these exemptions. If some investors find our securities less attractive as a result, there may be a less active trading market for our +securities and the prices of our securities may be more volatile. +29 +Section 107 of the JOBS Act also provides that an +“emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities +Act for complying with new or revised accounting standards. We choose to avail ourselves of this extended transition period and defer +adoption of certain changes in accounting standards. +As described in Section 101 of the JOBS Act, the “emerging +growth company” classification can be retained for up to five years following our initial public offering or until the earlier occurrence +of the following: the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which +we have total annual gross revenue of at least $1.235 billion, or (c) in which we deemed to be a large accelerated filer, which means +the market value of our common stock that is held by non-affiliates exceeded $700.0 million as of the prior June 30; or the date on which +we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. +If some investors find our +securities less attractive as a result of any choices to reduce future disclosure, there may be a less active market for our securities +and our stock price may be more volatile. +Failure to maintain effective internal control +over financial reporting in accordance with Section 404 of Sarbanes-Oxley could have a material adverse effect on our business and stock +price. +We are required to comply +with certain SEC rules that implement Sections 302 and 404 of Sarbanes-Oxley, which require management to certify financial and other +information in our quarterly and annual reports and provide an annual management report on the effectiveness of our internal control over +financial reporting. Though we are required to disclose changes made in our internal control procedures on a quarterly basis, we take +advantage of certain exceptions from reporting requirements that are available to “emerging growth companies” under the JOBS +Act. For example, each independent registered public accounting firm that performs an audit for us has not been required to attest to +and report on our annual assessment of our internal controls over financial reporting pursuant to Section 404 and will not be required +to do so until we are no longer an “emerging growth company” as defined in the JOBS Act and a non-accelerated filer in accordance +with Rule 12b-2 under the Exchange Act. While we expect to be ready to comply with Section 404 of Sarbanes-Oxley by the applicable deadline, +we cannot assure you that this will be the case. Furthermore, we may identify material weaknesses that we may be unable to remediate in +time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404 of Sarbanes-Oxley. In addition, +if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from +time to time, we may be unable to conclude that we have effective internal controls over financial reporting in accordance with Section +404 of Sarbanes-Oxley. If we are unable to implement the requirements of Section 404 of Sarbanes-Oxley in a timely manner or with adequate +compliance, our independent registered public accounting firm may issue an adverse opinion due to ineffective internal controls over financial +reporting and we may be subject to sanctions or investigation by regulatory authorities, such as the SEC. As a result, there could be +a negative reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. In addition, +we may be required to incur costs in improving our internal control system and the hiring of additional personnel. Any such action could +have a material adverse effect on our business, prospects, results of operations, and financial condition. +If our shares become subject to the penny stock +rules, it would become more difficult to trade our shares. +The SEC has adopted +rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity +securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized +for quotation on certain automated quotation systems, provided that current price and volume information with respect to +transactions in such securities is provided by the exchange or system. If we do not retain a listing on Nasdaq or another national +securities exchange and if the price of our common stock is less than $5.00, our common stock could be deemed a penny stock. The +penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a +standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before +effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written +determination that the penny stock is a suitable investment for the purchaser and receive: (i) the purchaser’s written +acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and +(iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity +in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares. +30 +Risks Related to Our Capital Structure +Our long-term lease and debt obligations could +adversely affect our ability to raise additional capital to fund operations and limit our ability to enter into certain transactions. +As of December 31, 2024, we had total liabilities +of $6.6 million, of which $5.0 million is the suspended liability for the true-up payment related to the August 8, 2024 capital raise, +$799,000 was related to operating lease liabilities, and $230,000 was related to debt obligations. +If we cannot generate sufficient cash flow from operations +to service our lease and debt obligations or the Reverse Stock Split cash true-up payment, we may need to further refinance our debt, +dispose of assets or issue equity to obtain necessary funds. We do not know whether we will be able to do any of this on a timely basis +or on terms satisfactory to us, or at all. Our substantial lease and debt obligations could have important consequences, including: +· our ability to obtain additional debt or equity +financing for working capital, capital expenditures, debt service requirements, acquisitions, and general corporate or other purposes +may be limited; +· a portion of our cash flows from operations will +be dedicated to payments on our lease and debt obligations and will not be available for other purposes, including operations, capital +expenditures and future business opportunities; +· we may be vulnerable in a downturn in general +economic conditions or in business or may be unable to carry on capital spending that is important to our growth; +· restrictive covenants in our debt documents may +impose significant operating and financial restrictions on us, including our ability to pay dividends and make other restricted payments +or sell our collateral (other than inventory in the ordinary course of business); +· our ability to introduce new products or new +technologies or exploit business opportunities may be restricted; and +· we may be placed at a disadvantage compared with +competitors that have proportionately less lease and debt obligations. +Our Articles of Incorporation provide that the +Nevada Eighth Judicial District Court of Clark County, Nevada shall be the exclusive forum for certain litigation that may be initiated +by our stockholders, including claims under the Securities Act, which could limit our stockholders’ ability to obtain a favorable +judicial forum for disputes with us or our directors, officers, or employees. +Our Articles of Incorporation provides that, subject +to limited exceptions, the Nevada Eighth Judicial District Court of Clark County, Nevada shall be, to the fullest extent permitted by +law, be the sole and exclusive forum for: (i) any derivative action or proceeding brought in the name or right of the Corporation or on +its behalf, (ii) any action asserting a claim for breach of a fiduciary duty owed by any of our directors, officers, employees or agents +to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of Nevada Revised Statutes Chapters 78 +or 92A, our Articles of incorporation or our Bylaws, (iv) any action to interpret, apply, enforce or determine the validity of our Articles +of Incorporation or Bylaws, or (v) any action asserting a claim governed by the internal affairs doctrine. +Although these choice of forum provisions would not +apply to suits brought to enforce any duty or liability created by the Exchange Act or rules and regulations thereunder, and suits brought +to enforce the Securities Act or rules and regulations thereunder are granted concurrent jurisdiction in federal and state courts pursuant +to preemptive federal law, these choice of forum provisions may otherwise limit a stockholder’s ability to bring a claim in a judicial +forum that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits +against us and our directors, officers, employees and agents. Stockholders who do bring a claim in the Nevada Eighth Judicial District +Court of Clark County, Nevada could face additional litigation costs in pursuing any such claim, particularly if they do not reside in +or near the State of Nevada. The Nevada Eighth Judicial District Court of Clark County, Nevada may also reach different judgments or results +than would other courts, including courts where a stockholder considering an action may be located +or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders. Alternatively, +if a court were to find the choice of forum provision contained in our Articles of Incorporation to be inapplicable or unenforceable in +an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our +business and financial condition. +31 +I TEM 1B. +UNRESOLVED STAFF COMMENTS +None. +Item +1c. cybersecurity +Risk Management and Strategy +We maintain an information security and cybersecurity +program, as well as a cybersecurity governance framework, which are designed to protect our information systems against operational risks +related to cybersecurity. +Cybersecurity Risk Management and Strategy +We recognize the importance of assessing, identifying, +and managing material risks associated with cybersecurity threats which include, among other things, operational risks, intellectual property +theft, fraud or extortion, harm to employees or customers, violation of privacy or security laws and related litigation and legal risk, +and reputational risks. +We have developed and implemented a cybersecurity +risk management program intended to protect the confidentiality, integrity, and availability of our critical systems and information, +and detect and contain any cybersecurity incidents that impact us. We regularly engage with third-party consultants in connection with +our cybersecurity risk management program, which is overseen by our Chief Operating Officer. The program is integrated into our overall +risk management systems and processes, and includes a cybersecurity risk assessment process that routinely evaluates potential impacts +of cybersecurity risks on our business, including our operations, financial stability, and reputation. The Audit Committee also reviews +with management the implementation and effectiveness of the Company’s controls to monitor and mitigate cybersecurity risks. +Our cybersecurity risk management program also includes +processes to triage, assess the severity of, escalate, contain, investigate, and remediate an incident, as well as to comply with potentially +applicable legal obligations and mitigate brand and reputational damage. If a cybersecurity incident is determined to be a potentially +material cybersecurity incident, our disclosure controls and procedures define the steps to determine materiality and disclose such a +material cybersecurity incident. +While we do not believe that our business strategy, +results of operations or financial condition have been materially adversely affected by any cybersecurity incidents, cybersecurity threats +are pervasive and, similar to other global financial institutions, we, as well as our employees, customers, regulators, service providers, +and other third parties have experienced a significant increase in information security and cybersecurity risk in recent years and will +likely continue to be the target of cyber attacks. We continue to assess the risks and changes in the cyber environment, invest in enhancements +to our cybersecurity capabilities, and engage in industry and government forums to promote advancements in our cybersecurity capabilities, +as well as the broader financial services cybersecurity ecosystem. For more information on risks to us from cybersecurity threats, see +the section titled “ Risk Factors—If our electronic data is compromised, or we experience a failure in our information technology +or storage systems, our business could be significantly harmed ” included within this Annual Report. +Cybersecurity Governance +Our Board is actively involved in overseeing risks +from cybersecurity threats. At least once a year, our Board discusses our programs and policies related to cybersecurity and risk initiatives +and considers them closely both from a risk management perspective and as part of our business strategy. Our Audit Committee has the authority +to oversee and review the adequacy of our cybersecurity, information and technology security, and data privacy programs, procedures, and +policies. +32 +The Audit Committee regularly receives updates from +management with respect to our efforts to manage data protection, cybersecurity, and information and technology risks, and assesses the +results of reviews from internal audits. Materials presented to our Audit Committee include updates on our data security posture, results +from internal audit and third-party assessments, our incident response plan, and certain cybersecurity threat risks or incidents and developments, +as well as the steps management has taken to respond to such risks. The Audit Committee also regularly engages with Management on technology +risk-related topics. +Our processes also allow for our Board and the Audit +Committee to be informed of key cybersecurity risks outside the regular reporting schedule. While regular meetings of the Audit Committee +are scheduled on a quarterly cadence, the Audit Committee is authorized to meet with management or individual directors at any time it +deems appropriate to discuss matters relevant to the committee. Our policy is for the Board and the Audit Committee to receive prompt +and timely information regarding any significant cybersecurity incidents, as well as ongoing updates regarding any such incidents. +ITEM 2. PROPERTIES +Our corporate headquarters are in +Redmond, Oregon, and house our engineering, sales, accounting, and operations staff. Our primary product warehouse is also located there. +Our headquarters is approximately 15,000 square feet, leased at a base rent that increases 3.0% annually on January 31st of each year. +From January 31, 2024 to January 30, 2025, the rental cost of our headquarters was approximately $19,600 per month. +We previously leased a facility +in Redmond, Oregon, which was primarily used for warehousing. The square footage of this facility is approximately 33,770 square feet, +and from February 1, 2024 to September 30, 2024, the rental cost of this facility was approximately $33,340 per month. On September 24, +2024, we voluntarily terminated the lease, effective as of October 1, 2024 as part of an effort to identify cost reduction opportunities. +We plan to continue operating our warehousing out of its Redmond, Oregon headquarters and Elkhart, Indiana locations. In connection with +the termination of the lease, we paid one extra month’s rent, a $30,000 fee, and a broker commission of approximately $89,000. The +lease termination is expected to result in approximately $40,000 of cost savings per month over the 51 months following its termination. +We also lease a property in Elkhart, +Indiana. In 2024, it served to provide a stocking location for several large manufacturers in the area. Elkhart is a hub for RV manufacturing +in the United States. Currently, it is primarily used for office space and as a backup location for warehousing and distribution to local +customers. The square footage of this facility is approximately 7,000 square feet, leased at a cost of $4,900 per month. +We believe these facilities are +sufficient to meet our current and anticipated needs in the near term and that additional space can be obtained on commercially reasonable +terms as needed. +ITEM 3. LEGAL PROCEEDINGS +We may become, from time to time, +involved in routine litigation or subject to disputes or claims related to our business activities. We are not currently party to any +pending legal proceedings that we believe would, individually or in the aggregate, have a material adverse effect on our financial condition, +cash flows or results of operations. +On September 6, 2024, we +received a staff determination from The Nasdaq Listing Qualifications Department of Nasdaq to delist our Common Stock from Nasdaq indicating +that (i) we were not in compliance with Nasdaq Listing Rule 5550(a)(2) because the closing bid price per share for our Common Stock had +closed below $1.00 for the previous 30 consecutive business days, and (ii) we are subject to the provisions contemplated under Nasdaq +Listing Rule 5810(c)(3)(A)(iii) because, as of September 5, 2024, our Common Stock had a closing bid price of $0.10 or less for at least +ten consecutive trading days (the “Staff Determination”). +On September 12, 2024, the +Company requested an appeal hearing on the Staff Determination from a Hearings Panel (the “Panel”) by filing a hearing request +with Nasdaq pursuant to the procedures set forth in the Nasdaq Listing Rules, staying the delisting of the Company’s common stock +pending the Panel’s decision Upon successful completion of the Reverse Stock Split, we received a letter from the Nasdaq Office +of General Counsel on October 23, 2024, advising us that we had regained compliance with the minimum bid price continued listing requirements +in Listing Rule 5550(a)(2) and that we are therefore in compliance with Nasdaq’s listing requirements. Consequently, the scheduled +hearing before the Panel on October 24, 2024 was cancelled. Our Common Stock continues to be listed and traded on Nasdaq. +ITEM 4. MINE SAFETY DISCLOSURES +Not applicable. +33 +PART II +ITEM 5. MARKET FOR REGISTRANT’S COMMON +EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES +Market Information +Our common stock began trading on +Nasdaq on April 1, 2022 under the symbol “XPON.” As of March 25, 2025, there were approximately 16 registered holders of our +common stock, which does not include beneficial owners of our common stock whose shares are held in the names of various securities brokers, +dealers, and registered clearing agencies . +Dividend Policy +We have never declared or paid cash +dividends on our common stock. We do not anticipate declaring or paying any cash dividends on our common stock in the foreseeable future. +We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development +of our business. Any future determination related to our dividend policy will be made at the discretion of our Board and will depend upon, +among other factors, our results of operations, financial condition, capital requirements, contractual restrictions, business prospects, +and other factors our Board may deem relevant. Further, any future debt facilities we may enter into may contain restrictions on our ability +to pay dividends or make distributions, and any new credit facilities we may enter into may contain similar restrictions. +Stock Performance Graph +As a smaller reporting company (as +defined in Rule 12b-2 of the Exchange Act), we are not required to provide the information called for by Item 201(e) of Regulation S-K. +Recent Sales of Unregistered Securities from +Registered Securities +There were no sales of unregistered +equity securities during the fiscal year ended December 31, 2024 that were not previously reported in a Quarterly Report on Form 10-Q +or Current Report on Form 8-K. +Purchases of Equity Securities by the Issuer +and Affiliated Purchasers +None. +ITEM 6. [RESERVED] +ITEM 7. MANAGEMENT’S DISCUSSION AND +ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS +The following discussion and +analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and +related notes for the fiscal years ended December 31, 2024 and 2023, included in this Annual Report. Our future financial condition and +results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties that may adversely impact +our operations and financial results. These risks and uncertainties are discussed in this Annual Report, including in Item 1A. “Risk +Factors” and “Cautionary Note Concerning Forward-Looking Statements and Industry Data.” Percentage amounts included +in this section have not in all cases been calculated on the basis of rounded figures, but on the basis of such amounts prior to rounding. +For this reason, percentage amounts in this section may vary from those obtained by performing the same calculations using the figures +in our consolidated financial statements included elsewhere in this Annual Report. Certain other amounts that appear in this section may +not sum due to rounding. +Unless otherwise noted, all references to shares and per +share amounts for the years ended December 31, 2024 and 2023 presented in this section have been adjusted retroactively to reflect a +1-for-100 reverse stock split, which was effective at 5:00 p.m. Pacific Time on October 8, 2024 (the “Reverse Stock Split”). +See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Reverse Stock Split and Reverse +Stock Split True-Up Payment” below for additional information about the Reverse Stock Split. +34 +Overview +Expion360 focuses on the design, assembly, manufacturing, +and sale of lithium iron phosphate (“LiFePO4”) batteries and supporting accessories for recreational vehicles (“RVs”), +marine applications and home energy storage products with plans to expand into industrial applications. Our high-powered, lithium battery +solutions incorporate innovative concepts and have been designed to include some of the most dense and minimal-footprint batteries in +the RV and marine industries. In addition, in January 2025 we began selling our e360 Home Energy Storage Solutions, which consist of two +LiFePO4 battery storage solutions and seek to provide consumers with a cost-effective, low barrier of entry, flexible system to power +their homes utilizing solar energy, wind, or grid back-up. We are deploying multiple intellectual property strategies with research and +products to sustain and scale our business. This includes design, development and collaboration, using our IP to bring safety, quality +and service to our customers. Our customers consist of dealers, wholesalers, private-label customers, and original equipment manufacturers +(“OEMs”) who then sell our products to end consumers and drive brand awareness nationally. +Our primary target markets are currently the RV, marine, +and home energy storage industries. We believe we are well-positioned to capitalize on the rapid market conversion from lead-acid to lithium +batteries as the primary method of power sourcing in these industries. We are also focused on expanding into the home energy storage market +with the introduction of our e360 Home Energy Storage Solutions, and we hope to establish a new standard in the industry for barrier price, +flexibility, and integration with this offering. Along with the RV, marine and home energy storage markets, we aim to provide additional +capacities to the expanding electric forklift and industrial material handling markets. +We launched our e360 product line, which is manufactured +for the RV and marine industries, in December 2020. The e360 product line, through its sales growth, has shown to be a preferred conversion +solution for lead-acid batteries. In December 2023, we announced our entrance into the home energy storage market with our introduction +of two LiFePO4 battery storage solutions that enable residential and small business customers to create their own stable micro-energy +grid and lessen the impact of increasing power fluctuations and outages. As of January 2025, we have begun shipping orders of our e360 +Home Energy Storage Solutions. +We currently operate Expion360 as one reportable business +segment, Energy Storage (ES). +Our products provide numerous advantages for various +industries that are looking to migrate to lithium-based energy storage. They incorporate detailed-oriented design and engineering, strong +case materials, and internal and structural layouts, and are backed by responsive customer service. +Recent Developments +January +2025 Registered Direct Offering and Warrant Private Placement +On January 3, 2025, we sold +to certain institutional investors, in a registered direct offering, an aggregate of (i) 474,193 shares of common stock; and (ii) 574,193 +pre-funded warrants (the “January 2025 Pre-Funded Warrants”) to purchase up to 574,193 shares of common stock (the “January +2025 Pre-Funded Warrant Shares”). The offering price per share was $2.48 and the offering price per January 2025 Pre-Funded Warrant +was $2.479. Each January 2025 Pre-Funded Warrant was exercisable for one share of common stock for $0.001 immediately and the January +2025 Pre-Funded Warrants were all exercised immediately upon issuance. The number of January 2025 Pre-Funded Warrant Shares are subject +to adjustments for stock splits, recapitalizations, and reorganizations. +In a concurrent private placement +that closed January 3, 2025, we also issued to the institutional investors unregistered warrants (the “January 2025 Warrants”) +to purchase up to an aggregate of 1,048,386 shares of common stock (the “January 2025 Warrant Shares”) at an exercise price +of $2.36 per share, subject to adjustment for reverse stock splits, recapitalizations, and reorganizations. The January 2025 Warrants +were immediately exercisable and can be exercised until January 3, 2030. In connection with the private placement, we filed a registration +statement on Form S-1 (File No. 333-284354), which was +declared effective by the SEC on February 11, 2025, covering the resale of the January 2025 Warrant Shares. +35 +We received net proceeds of approximately $2.2 million +from the offering and used approximately $500,000 of the net proceeds to satisfy a portion of certain amounts +owed to our Series A Warrant holders pursuant to the terms of the outstanding Series A Warrants. +Chief +Operating Officer Medical Leave of Absence +On November +16, 2024, Paul Shoun, our Co-Founder, President, Chief Operating Officer, and Chairman of the Board, commenced a temporary medical leave +of absence from his duties as Chief Operating Officer. During his leave, Mr. Shoun continued to perform his duties as President and Chairman +of the Board during his leave. Mr. Shoun resumed his duties as Chief Operating Officer in February 2025. In connection with Mr. Shoun’s +return to his full responsibilities, Carson Heagen, our Vice President of Operations, who temporarily assumed the role of Chief Operating +Officer, ceased serving in that capacity. +Resignation of Chief Financial Officer +and Appointment of Interim Chief Financial Officer +On +December 16, 2024, Greg Aydelott, our Chief Financial Officer, notified us of his resignation effective December 31, 2024, due to family +health concerns. Mr. Aydelott is remaining with the Company in a consulting role on an ongoing basis. In +connection with Mr. Aydelott’s resignation, on December 20, 2024, our Board appointed Brian Schaffner, who serves as our Chief Executive +Officer and as a member of the Board, to serve as our interim Chief Financial Officer effective immediately upon Mr. Aydelott’s +resignation. The Board has commenced a search for a new Chief Financial Officer. +Reverse +Stock Split and Reverse Stock Split True-Up Payment +Effective +as of 5:00 p.m. Pacific Time on October 8, 2024 (the “Effective Date”), we effected a 1-for-100 reverse stock split of our +common stock (the “Reverse Stock Split”), which was approved by the Board on September 27, 2024, following stockholder approval +at our annual meeting of stockholders held on September 27, 2024. No fractional shares of common stock were issued as a result of the +Reverse Stock Split and instead each holder of Common Stock who was otherwise entitled to receive a fractional share as a result of the +Reverse Stock Split received one whole share of common stock in lieu of such fractional share. As a result of this, 210,668 shares were +issued on or before October 17, 2024. In addition, the Reverse Stock Split effected a reduction in the number of shares issuable pursuant +to our equity awards, warrants and non-plan options outstanding as of the Effective Date, and a corresponding increase in the respective +exercise prices, conversion prices, reset prices and the like thereunder. +As a result +of the daily VWAP of the common stock during the five trading days before and after the Reverse Stock Split, a Reverse Stock Split cash +true-up payment provision in the Series A Warrants, which is capped at $5.0 million in the aggregate under all Series A Warrants, was +triggered, but the payment of the Reverse Stock Split cash true-up payment was suspended in accordance with the terms of the Series A +Warrants. In connection with the closing of the January 3, 2025 offering, we used $500,000 of the net proceeds from the offering to satisfy +a portion of certain amounts owed to the holders of the Series A Warrants pursuant to the terms thereof. +August 2024 Public Offering and Subsequent +Warrant Exercises and Adjustments to Warrant Exercise and Reset Prices +On August +8, 2024, we sold in a public offering (the “August 2024 Public Offering”) (i) 33,402,000 common units (the “Common Units,” +pre-Reverse Stock Split), each consisting of one share of common stock, two Series A warrants each to purchase one share of common stock +(pre-Reverse Stock Split and pre-Adjustment (as defined below) and each, a “Series A Warrant”) and one Series B warrant to +purchase such number of shares of common stock as determined in the Series B warrant (each, a “Series B Warrant”), and (ii) +16,598,000 pre-funded units (the “Pre-Funded Units,” and together with the Common Units, the “Units,” pre-Reverse +Stock Split), each consisting of one pre-funded warrant to purchase one share of common stock (each, an “August 2024 Pre-Funded +Warrant”), two Series A Warrants, and one Series B Warrant, through Aegis Capital Corp. serving as underwriter (in its capacity +as such, the “Underwriter”). +The Common Units were sold at a price of $0.20 per unit and the August 2024 Pre-Funded Warrants were sold at a price of $0.199 per unit +(pre-Reverse Stock Split). +36 +In addition, +we granted the Underwriter a 45-day option to purchase additional shares of common stock and/or August 2024 Pre-Funded Warrants and/or +Series A Warrants and/or Series B Warrants, representing up to 15% of the number of the respective securities sold in the August 2024 +Public Offering, solely to cover over-allotments, if any. The Underwriter partially exercised its over-allotment option with respect to +15,000,000 Series A Warrants and 7,500,000 Series B Warrants (pre-Reverse Stock Split). +The August +2024 Pre-Funded Warrants were immediately exercisable at an exercise price of $0.001 per share (pre-Reverse Stock Split) and could be +exercised at any time until exercised in full. All August 2024 Pre-Funded Warrants have been exercised. +Each Series +A Warrant is exercisable at any time or times beginning on September 30, 2024, which was the first trading day following our notice to +the Series A Warrant holders of stockholder approval received at the 2024 Annual Meeting, and will expire five years from such date. Each +Series A Warrant was initially exercisable at an exercise price of $24.00 per share of common stock (post-Reverse Stock Split). The exercise +price of the Series A Warrants was subject to reduction on the 11th trading day after the stockholder approval to the greater of +the lowest daily VWAP during the ten-trading-day period following the stockholder approval and the floor price of $5.206 (representing +20% of the lower of our common stock’s closing price on Nasdaq on the date that we priced the August 2024 Public Offering, post-Reverse +Stock Split) or our common stock’s average closing price on Nasdaq for the five trading days ending on such date (such lower price, +without giving effect to such 20% reduction, the “Nasdaq Minimum Price”), and the number of shares issuable upon exercise +would be proportionately adjusted such that the aggregate exercise price would remain unchanged. As of September 30, 2024, there +would have been 5,301,592 shares of common stock (post-Reverse Stock Split and assuming the Adjustment had occurred on September 30, 2024) +issuable upon exercise of the Series A Warrants as of that date. Subsequent to September 30, 2024, the exercise price under the Series +A Warrants was reduced to the floor price of $5.206 (representing 20% of the Nasdaq Minimum Price, post-Reverse Stock Split), beginning +on October 14, 2024, the 11th trading day following stockholder approval. As of December 31, 2024, 14,900 shares of common stock +have been issued upon exercise of Series A Warrants and 5,286,692 shares of common stock remain issuable upon exercise of Series A Warrants. +Each Series +B Warrant was exercisable immediately upon issuance at an exercise price of $0.10 per share (post-Reverse Stock Split). The number of +shares of common stock issuable under the Series B Warrants were subject to adjustment using +a reset price based on the weighted average price of common stock over a rolling five-trading-day period between the issuance date of +the Class B Warrants and the close of trading on the tenth trading day following stockholder approval, subject to certain floor prices. +As of December 31, 2024, 1,294,367 shares of common stock (post-Reverse Stock Split) had been issued upon exercise of Series B Warrants +and there were 1,032,198 shares of common stock (post-Reverse Stock Split) issuable upon exercise of Series B Warrants based on the reset +price of $5.45 (representing the lowest arithmetic average of the daily VWAP during the five-trading-day period from September 12, 2024 +through September 18, 2024). Effective October 8, 2024, after market close, the Reverse Stock Split occurred and as of December 31, 2024, +87,384 shares of common stock remain issuable upon exercise of Series B Warrants using the +reset price, which was reduced to the floor price of $5.206 (representing 20% of the Nasdaq Minimum Price (post-Reverse Stock Split and +post-Adjustment). +Key Factors Affecting Our Results of Operations +Our results of operations and financial performance +are significantly dependent on the following factors: +Consumer Demand +Although our sales are primarily generated from dealers, +wholesalers, private-label customers and OEMs focused on the RV, marine, and home energy markets, the demand for our products from these +customers depends on consumer demand. Our sales are completed on a purchase order basis, and most are without firm, long-term revenue +commitments or sales arrangements, which we expect to continue going forward. Accordingly, our growth prospects and future sales are +subject to risks and uncertainties related in part to consumer demand for our products, which is affected by a number of factors, including +fuel costs, discretionary spending, macroeconomic conditions, including inflation, changes in tariffs and interest rates, geopolitical +pressures, and volatility in the RV, marine, and home energy markets. In recent years we have seen a rise in fuel costs, higher interest +rates, and other changes in macroeconomic conditions, which have resulted in decreased consumer spending decisions and affecting our +industry as a whole. In addition, we expect escalating tensions between the U.S. and China, where several of our key manufacturers and +suppliers are located, as well as the ongoing risk of new or additional tariffs impacting lithium-ion batteries or related parts, to +increase our cost of goods sold, which could require us to increase prices to our customers or result in lower gross margins on our products. +These conditions have had, and may continue to have, a negative effect on our business, financial condition, and results of operations. +37 +While RV and marine applications have historically +driven our revenue, in January 2025, we began shipping orders of our e360 Home Energy Storage Solution, comprised of two LiFePO4 battery +storage solutions. Our e360 Home Energy Storage Solutions aim to provide consumers with a cost-effective, low barrier of entry, flexible +system to power their homes utilizing solar energy, wind, or grid back-up. The success of our strategy depends on (i) the continued growth +of these addressable markets in line with our expectations, and (ii) our ability to successfully enter and maintain a competitive position +in the RV, marine, and home energy markets with commercially viable products. We expect to incur significant marketing costs understanding +and growing our presence within these markets, and researching and targeting customers in these markets, and our efforts may not be successful +in generating sales. If we fail to execute on this growth strategy in accordance with our expectations, our sales growth could be limited +to the growth of existing products and existing end markets. +Expion360 has recently added several new distributors +and OEM customers in RV and marine markets. Management believes that orders resulting from these new relationships will result in significant +new revenue streams in the year ending December 31, 2025. In addition, Expion360 began shipping Home Energy Storage Systems in January +2025. +Manufacturing and Supply Chain +Our batteries are manufactured by multiple third-party +manufacturers located in Asia, which also produce our battery cells. While we do not have long-term purchase agreements with these manufacturers +and our purchases are completed on a purchase-order basis, we maintain strong relationships with our manufacturers and cell suppliers, +reflected in our ability to increase our purchase order volumes (qualifying us for related volume-based discounts). The strength of these +relationships has helped us moderate increased supply-related costs associated with inflation, currency fluctuations, and U.S. government +tariffs imposed on our imports, and avoid potential shipment delays. We aim to maintain an appropriate level of inventory to satisfy our +expected supply requirements. We believe we could locate suitable alternative third-party manufacturers to fulfill our requirements if +needed. +Our third-party manufacturers source the raw materials +and battery components required for the production of our batteries directly from third-party suppliers that meet our approval and quality +standards and, as a result, we may have limited control over the agreed pricing for these raw materials and battery components. We estimate +that raw material costs account for over half of our cost of goods sold. Lithium, which is extracted from mined ore, is a key raw material +used to produce our battery cells and, as a result, the cost of our battery cells is dependent on the price and availability of lithium, +which may be volatile and unpredictable and beyond our control. Additionally, availability of the raw materials used to manufacture our +products may be limited at times, resulting in higher prices and/or the need to find alternative suppliers. Our battery cell manufacturers +have joint venture factories outside of Asia and have secured sourcing contracts from lithium suppliers in South America and Australia. +In addition, we have a secondary source for lithium iron phosphate cells used in our batteries from a supplier in Europe, enabling us +to source materials outside of Asia in the event it becomes necessary to do so. +In addition to increased mining and newly located +reserves, there is an industry push to provide more efficient ways to extract lithium from mined ore. Another development of the past +few years is lithium cell recycling. This process will recapture the raw lithium from the cell for reuse in future cells. However, notwithstanding +efforts to improve the sustainability and efficiency of lithium mining, the price of lithium is volatile. We continue to monitor developments +that may adversely affect our supply chain. +38 +Management expects that products from our Asian third-party +manufacturers will be subject to additional tariffs in 2025. We believe that we can protect our margins through a combination of supplier +concessions, customer price increases and efficiencies gained as sales continue to grow. +For additional information regarding, see the section +titled “ Risk Factors—Our results of operations could be adversely affected by changes in the cost and availability of raw +materials and we are dependent on third-party manufacturers and suppliers ” and “ Risk Factors—Increases in costs, +disruption of supply or shortage of any of our battery components, such as electronic and mechanical parts, or raw materials used in the +production of such parts could harm our business .” +Product and Customer Mix +As of December 31, 2024, we sell 15 models of LiFEPO4 +batteries, the Aura 600, and various individual or bundled accessories for battery systems. Our products are sold to different customers +(i.e., dealers, wholesalers, private-label customers, OEMs, etc.) at differing prices and have varying costs. The average selling price +and costs of goods sold for a particular product will vary with changes in the sales channel mix, volume of products sold, and the prices +of such products sold relative to other products. While we work with our suppliers to limit price and supply cost increases, our products +may see price increases resulting from a rise in supply costs due to currency fluctuations, inflation, and tariffs. Accessory and OEM +sales typically have lower average selling prices and resulting margins, which could decrease our margins and negatively affect our growth +or require us to increase the prices of our products. However, the benefits of increased sales volumes typically offset these reductions. +The relative margins of products sold also impact our results of operations. As we introduce new products, we may see a change in product +and sales channel mix, which could result in period-to-period fluctuations in our overall gross margin. +Competition +We compete with both traditional lead-acid and lithium-ion +battery manufacturers that primarily either import their products and/or components or manufacture their products and/or components under +a private label. As we develop new products and expand into new markets, we may experience competition with a broader range of companies. +These companies may have more resources than us and be able to allocate more resources to their current and future products. Our competitors +may source products or components at lower costs than us, which may require us to evaluate our own costs, lower our product prices, or +increase our sales volume to maintain our expected profitability levels. +Research and Development +We anticipate that additional investments in our infrastructure +and research and development spending will be required to scale our operations and increase productivity, address the needs of our customers, +further develop and enhance our products and services, and expand into new geographic areas and market segments. +New technologies are rapidly emerging in the markets +where we conduct business and many new energy storage technologies have been introduced over the past several years. Our ability to achieve +significant and sustained penetration of key developing markets, including the RV, marine, residential energy storage, and small commercial +energy storage markets, will depend upon our success in developing these and other technologies, either independently, through joint ventures, +or through acquisitions, which in each case may require significant capital and commitment of resources to research and development. Accordingly, +we may need to seek additional debt and equity financing to fund our research and development efforts and planned growth. +Certifications +We have completed the final requirements +to obtain UL Safety Certifications on our new 12V Group 27 100Ah and 132Ah batteries, and on our 12V GC2 battery. Now that these certifications +have been completed, all of the batteries produced by us will have a UL Safety Certification, emphasizing our commitment to quality, safety +and service for our customers. +39 +Key Line Items +Net Sales +Our revenue is generated from the sale of products +consisting primarily of batteries and accessories. We recognize revenue when control of goods or services is transferred to our customers +in an amount that reflects the consideration it is expected to be entitled to in exchange for those goods or services. All of our sales +are primarily within the United States. +Cost of Sales +Our primary cost of sales as a percentage of sales +is related to our direct product and landing costs. Direct labor costs consist of payroll costs (including taxes and benefits) of employees +directly engaged in assembly activities. Per full absorption cost accounting, overhead related to our cost of sales is added, consisting +primarily of warehouse rent and utilities. The costs can increase or decrease based on costs of product and assembly parts (purchased +at market pricing), customer supply requirements, and the amount of labor required to assemble a product, along with the allocation of +fixed overhead. +Selling, General, and Administrative Expenses +Selling, general, and administrative expenses consist +primarily of salaries and benefits, legal and professional fees, and sales and marketing costs. Other costs include facility and related +costs, research and development, software and information technology, and insurance. +Interest and Other Income, net +Interest expense consists of interest costs on loans +with interest rates ranging from 3.75% to 10.0% and amortization of convertible note costs. The amortized convertible note costs were +$667,000 and $0 for the years ended December 31, 2024 and 2023, respectively. +Provision for Income Taxes +We are subject to corporate federal and state income +taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial +statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets, including tax loss +and credit carryforwards, and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in +which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change +in tax rates is recognized in income in the period that included the enactment date. Deferred income tax expense represents the change +during the period in the deferred tax assets and deferred tax liabilities. Deferred tax assets are reduced by a valuation allowance when, +in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. +We have adopted the provisions in ASC 740, Income +Taxes , related to accounting for uncertain tax positions, which require recognition of the impact of a tax position in the financial +statements if the position is more likely than not to be sustained upon examination and on the technical merits of the position. We have +concluded there were no material unrecognized tax benefits as of December 31, 2024 or December 31, 2023. +Our practice is to recognize interest and/or penalties +related to income tax matters as income tax expense. We had no accrual for interest or penalties on our balance sheet at December 31, +2024 or December 31, 2023, and did not recognize any interest or penalties in our statement of operations for the years ended December +31, 2024 or 2023, since there are no material unrecognized tax benefits. We do not expect any material change to the amount of unrecognized +tax benefits to occur within the next 12 months. +Off-Balance Sheet Arrangements +We do not have any material off-balance +sheet arrangements. +40 +Use of Non-GAAP Financial Measures +We disclose financial +measures calculated and presented in accordance with generally accepted accounting principles in the United States (US GAAP); however, +we provide certain financial information on a non-GAAP basis (non-GAAP financial measures). We provide non-GAAP financial measures to +provide information that may assist investors in understanding our results of operations and assessing our prospects for future performance, +which consist of adjusted cost of sales. We believe evaluating certain financial and operating measures on an adjusted basis is important +as it excludes liquidation costs that are not indicative of our core results of operations and are largely outside of our control. However, +our non-GAAP financial measures are not intended to represent and should not be considered more meaningful measures than, or alternatives +to, measures of financial or operating performance as determined in accordance with US GAAP. +We calculate our +adjusted cost of sales non-GAAP financial measures for current period financial information by excluding the effect of liquidation of +non-core product in the consolidated financial statements. The information presented on an adjusted cost of sales basis, as we present +such information, may not necessarily be comparable to similarly titled information presented by other companies, and may not be appropriate +measures for comparing our performance relative to other companies. +41 +Results of Operations +Year Ended December 31, 2024, Compared to the +Year Ended December 31, 2023 +The following table sets forth certain operational +data as a percentage of sales: +Fiscal Years Ended December 31, +2024 +2023 +$ +% of Net sales +$ +% of Net sales +Net sales +$ 5,624,939 +100.0 % +$ 5,981,134 +100.0 % +Cost of sales +4,469,711 +79.5 +4,405,611 +73.7 +Gross profit +1,155,228 +20.5 +1,575,523 +26.3 +Selling, general, and administrative expenses +7,909,219 +140.6 +8,745,135 +146.2 +Loss from operations +(6,753,991 ) +(120.1 ) +(7,169,612 ) +(119.9 ) +Other expense - net +6,727,032 +119.6 +283,369 +4.7 +Loss before income taxes +(13,481,023 ) +(239.7 ) +(7,452,981 ) +(124.6 ) +Net loss +(13,479,475 ) +(239.6 ) +(7,456,274 ) +(124.7 ) +Net Sales +Net sales for the year ended December +31, 2024 decreased by $356,000, or 6.0%, compared to the year ended December 31, 2023. Sales were $5.6 million for the year ended December +31, 2024 and $6.0 million for the year ended December 31, 2023. The year-over-year decrease was primarily attributable to decreases in +the consumer market, driving decreases in OEM sales. Our net sales for the three months ended December 31, 2024, however, increased by +$1.1 million, or 131%, compared to the three months ended December 31, 2023. Sales were $2.0 million for the three months ended December +31, 2024 and $859,000 for the three months ended December 31, 2023. +Cost of Sales +Cost of sales for the year ended +December 31, 2024 increased by $64,000, or 1.5%, compared to the year ended December 31, 2023. Cost of sales were $4.5 million for the +year ended December 31, 2024 and $4.4 million for the year ended December 31, 2023. Cost of sales as a percentage of sales increased by +5.8% in 2024. The change in cost of sales was primarily related to a decrease in overall sales, resulting in a decrease in economies of +scale pertaining to fixed costs, as well as the liquidation of some non-core product in 2024 increasing our cost of sales above what they +would have been without the liquidation. +During the year ended December 31, +2024, we liquidated some non-core product, which was a factor in reducing leased warehouse space. If we had not done the liquidation, +cost of sales for the year ended December 31, 2024 would have decreased by $42,000, or 0.9%, compared to the year ended December 31, 2023. +Cost of sales would have been $4.4 million for the year ended December 31, 2024 and $4.4 million for the year ended December 31, 2023. +Cost of sales as a percentage of sales would have increased by 4.5% in the year ended December 31, 2024 compared to the prior year. +Gross Profit +Our gross profit for the year ended +December 31, 2024 decreased by $420,000, or 26.7%, compared to the year ended December 31, 2023. Gross profit was $1.2 million for the +year ended December 31, 2024 and $1.6 million for the year ended December 31, 2023. Gross profit as a percentage of sales decreased by +5.8% for the year ended December 31, 2024, to 20.5% compared to 26.3% for the year ended December 31, 2023. The decrease in gross profit +for the year ended December 31, 2024 was primarily attributable to lower sales volumes due to the slowdown in the RV industry resulting +in lower economies of scale on our fixed costs, as well as the liquidation of non-core product increasing our cost of sales above what +they would have been without the liquidation. +42 +Selling, General, and Administrative Expenses +Selling, general, and administrative +expenses for the year ended December 31, 2024 decreased by $836,000, or 9.6%, compared to the year ended December 31, 2023. Selling, general, +and administrative expenses were $7.9 million for the year ended December 31, 2024 and $8.7 million for the year ended December 31, 2023. +The decrease in selling, general, and administrative expenses was primarily due to decreases in legal and professional fees as well as +salaries and benefits, which was partially offset by an increase in licenses and fees, due to cash premium fees paid when making repayment +on our convertible note as well as fees for exiting the warehouse lease. +Presented in the table below is the composition of +selling, general and administrative expenses: +Fiscal Years Ended December 31, +2024 +2023 +Salaries and benefits +$ 3,260,866 +$ 3,681,410 +Legal and professional +1,584,589 +2,034,374 +Sales and marketing +926,430 +929,220 +Rents, maintenance, utilities +449,997 +573,652 +Research and development +295,292 +397,662 +Software, fees, tech support +274,780 +234,285 +Insurance +263,930 +179,989 +Depreciation +155,315 +182,825 +Travel expenses +137,298 +199,845 +Supplies, office +23,876 +58,049 +Other +536,846 +273,824 +Total +$ 7,909,219 +$ 8,745,135 +Other Expense +Other expense for the years ended +December 31, 2024 and 2023 was $6.7 million and $283,000, respectively. Other expense for the year ended December 31, 2024 was made up +of $5.0 million in suspended liability expense due to the Reverse Stock Split cash true-up payment provision in the Series A Warrants +we sold in the August 2024 Public Offering, as well as $977,000 in interest expense and $709,000 in settlement expense. Other expense +for the year ended December 31, 2023 was made up almost entirely of settlement expense, with interest income and interest expense offsetting +each other at $126,000 and $125,000, respectively. +Net Loss +Our net loss for the years ended +December 31, 2024 and 2023 was $13.5 million and $7.5 million, respectively. The net loss in the year ended December 31, 2024 was primarily +the result of the $5.0 million in suspended liability expense due to the Reverse Stock Split cash true-up payment provision in the Series +A Warrants we sold in the August 2024 Public Offering, as well as the increased interest due to the 3i Note (as defined in Note 7, “ Equity +and Debt Financings—Convertible Note Financing ”) and increased settlement expense. +Liquidity and Capital Resources +Overview +Our operations have been financed primarily through +net proceeds from sales of our common stock and equity and debt financings. As of December 31, 2024 and 2023, our current assets exceeded +current liabilities by $2.0 million and $4.3 million, respectively, and we had cash and cash equivalents of $548,000 and $3.9 million, +respectively. +We generally consider our short-term liquidity requirements +to consist of those items that are expected to be incurred within the next 12 months and believe those requirements to consist primarily +of funds necessary to pay operating expenses, interest and principal payments on our debt. +As of December 31, 2024, our short-term liquidity +requirements included (a) principal debt payments totaling approximately $32,000 net of amortization, (b) lease obligation payments of +approximately $256,000, including imputed interest, and (c) $5.0 million in suspended +liability expense due to the Reverse Stock Split cash true-up payment provision in the Series A Warrants we sold in the August 2024 Public +Offering. +43 +We generally consider our long-term liquidity requirements +to consist of those items that are expected to be incurred beyond the next 12 months. Our activities are subject to significant risks +and uncertainties, including failing to secure additional funding before we achieve sustainable revenue and profit from operations. We +expect to continue to incur additional losses for the foreseeable future, and we may need to raise additional debt or equity financing +to expand our presence in the marketplace, develop new products, achieve operating efficiencies, and accomplish our long-term business +plans over the next several years. There can be no assurance as to the availability or terms upon which such financing and capital might +be available to us. For the years ended December 31, 2024 and 2023, we sustained recurring losses and negative cash flows from operations. +These factors raise substantial doubt about our ability to continue as a going concern within 12 months after the date the financial statements +for the year ended December 31, 2024 are issued. However, management is working to address its cash flow challenges, including by raising +additional capital, managing inventory levels, identifying alternative supply chain resources, and managing operational expenses. For +additional information regarding risks associated with our ability to continue as a going concern, please see the risk factor titled “ Our +audited financial statements include a statement that there is a substantial doubt about our ability to continue as a going concern and +a continuation of negative financial trends could result in our inability to continue as a going concern ” in Item 1A, “ Risk +Factors ” of this Annual Report. +Financing Obligations +As of December 31, 2024, our long-term +debt totaled $230,000, comprised of $143,000 outstanding under a COVID-19 Economic Injury Disaster Loan, $84,000 outstanding under vehicle +financing arrangements, and an equipment loan for $3,000. In January 2024, we repaid $62,500 in principal on a stockholder promissory +note with an interest rate of 10.0%, and in August 2024, we repaid two shareholder loans with principal of $500,000 and $200,000, respectively, +both with interest rates of 10.0%. In February and March 2024, we sold three vehicles including repayment of the related vehicle loans +with interest rates of 5.5%-5.9% in the total amount of approximately $88,000, which included principal and interest. In August 2024, +we repaid a short-term convertible note for a total of $2.7 million including principal, interest, and fees. +Stockholder Promissory Notes +Stockholder promissory notes had +an outstanding principal balance of $0 as of December 31, 2024, as they were repaid in August 2024. See Note 6 - Stockholder Promissory +Notes for further information on stockholder promissory notes. +Vehicle Financing Arrangements +As of December 31, 2024, the Company has three notes +payable to GM Financial for vehicles. In addition, in April 2022, the Company secured a commercial line of up to $300,000 to be used to +finance vehicle purchases, which was increased to $350,000 in April 2023, renewed in April 2024 for the same amount, and expires in April +2025, which we plan to renew again. The notes are payable in aggregate monthly installments of approximately $2,560, including interest +at rates ranging from 6.1% to 7.3% per annum, mature at various dates from October 2027 to May 2028, and are secured by the related vehicles. +Two of the notes are personally guaranteed by a co-founder of the Company. A separate vehicle financing note has been repaid in connection +with the sale of the related vehicle. See Note 5, Long-Term Debt. +Convertible Note Financing +On December 27, 2023, we entered +into a securities purchase agreement with 3i, LP (“3i”) pursuant to which we sold, and 3i purchased, the 3i Note in the aggregate +original principal amount of $2,750,000, for gross proceeds of $2.5 million. On August 8, 2024, in connection with the closing of the +August 2024 Public Offering, we repaid the 3i Note, and our obligations under the 3i Note were fully satisfied and discharged. Prior to +the closing of the August 2024 Public Offering, we had issued 415 shares of common stock (post-Reverse Stock Split) for the payment of +$90,839 in interest . +44 +Equity Line of Credit +On December 27, 2023, we +entered into the Common Stock Purchase Agreement, pursuant to which we had the right, but not the obligation, to sell to Tumim Stone Capital, +LLC (“Tumim”), and Tumim was obligated to purchase, up to the lesser of (a) $20,000,000 in aggregate gross purchase price +of newly issued common stock and (b) the Exchange Cap (as defined in the purchase agreement) (the “Equity Line of Credit”). +In connection with the August 2024 Public Offering, we mutually agreed with Tumim to terminate the Equity Line of Credit, effective immediately +upon the closing of the August 2024 Public Offering. Prior to the closing of the August 2024 Public Offering, we had sold 4,336 shares +of common stock (post-Reverse Stock Split) under the Equity Line of Credit for an aggregate amount of $828,491, of which $434,958 was +used to repay a portion of the balance under the 3i Note, consisting of $380,042 to the loan principal, $34,204 to interest, and $20,712 +as a redemption premium . +Operating Lease Liabilities +Our estimated future obligations consist of total +operating lease liabilities. As of December 31, 2024, we had $799,000 in total operating lease liabilities, including the current portion. +Other Indebtedness +As of December 31, 2024, our long-term debt totaled +$230,170, including the current portion, which consists of $31,758. +Cash Flows +The following table shows a summary +of our cash flows for the periods presented: +Years Ended +December 31, +2024 +2023 +Net cash used in operating activities +$ (9,562,545 ) +$ (5,531,232 ) +Net cash provided by investing activities +$ 113,408 +$ 16,578 +Net cash provided by financing activities +$ 6,064,004 +$ 2,246,108 +Cash flows used in operating activities +Our largest source of operating +cash is cash collection from sales of our products. Our primary use of cash for operating activities are related to legal and professional +fees, sales and marketing expenses, and research and development. In the last several years, we have generated negative cash flows from +operating activities and have supplemented working capital requirements through net proceeds from sales of our common stock. +We generated negative cash flows +from operating activities of $9.6 million for the year ended December 31, 2024, compared to negative cash flows of $5.5 million for the +corresponding period in 2023. Factors affecting operating cash flows during the periods included: +· For the year ended December 31, 2024, our net loss of $13.5 million was +reduced by non-cash transactions including approximately $5.0 million in suspended liability expense due to the Reverse Stock Split cash +true-up payment provision in the Series A Warrants we sold in the August 2024 Public Offering, amortization of convertible note costs +of approximately $667,000, stock-based compensation of $617,000, stock-based settlement of $209,000, and depreciation of $174,000. For +the year ended December 31, 2023, our net loss of $7.5 million was reduced by non-cash transactions including stock-based compensation +of $560,000, stock-based settlement of $252,000, and depreciation of $206,000. +· Cash provided / (used) by accounts receivable was ($458,000) and $162,000 +for the years ended December 31, 2024 and 2023, respectively, representing an increase in accounts receivable for the year ended December +31, 2024 and a decrease in accounts receivable for the year ended December 31, 2023. Sales are generally collected within 30 to 45 days. +These changes are mainly due to timing between sales being recognized and payment being received. +· Cash used for increases in (or provided by decreases in) inventory and +prepaid inventories were $2.5 million and ($682,000) for the years ended December 31, 2024 and 2023, respectively. These changes are primarily +due to the timing of significant purchases and prepayments of inventory. Turnaround time for receiving inventory from foreign sources +can take up to 120 days, with prepayments required. +45 +Cash flows provided by / (used in) investing +activities +Cash provided by investing activities +was $113,000 for the year ended December 31, 2024. Cash used for capital purchases of property and equipment for quality assurance and +leasehold improvements to our testing lab totaled $19,000 during the year ended December 31, 2023. This was offset by net proceeds of +$132,000 received for the sale and disposal of property and equipment during the year ended December 31, 2024, which included property +and equipment and leasehold improvements related to the warehouse lease terminated in September 2024, as well as the sale of three vehicles. +Cash provided by investing activities +was $17,000 for the year ended December 31, 2023. Cash used for capital purchases of property and equipment related to research and development, +quality assurance, and logistics equipment was $20,000 during the year ended December 31, 2023. This was offset by net proceeds of $37,000 +received for the sale and disposal of property and equipment during the year ended December 31, 2023. +Cash flows provided by financing activities +Cash provided by financing activities +was $6.1 million for the year ended December 31, 2024. For the year ended December 31, 2024, we paid down debt principal of $3.6 million, +which was offset by net cash proceeds of $9.5 million from issuance of common stock and $185,000 net cash proceeds from exercise of warrants. +Cash provided by financing activities +was $2.2 million for the year ended December 31, 2023. For the year ended December 31, 2023, we paid down debt principal of $224,000, +which was offset by net cash proceeds of $2.4 million from incurrence of short-term debt and net cash proceeds of $50,000 from the exercise +of warrants. +Critical Accounting Estimates +The above discussion and analysis +of our financial condition and results of operations is based upon our financial statements. The preparation of financial statements in +conformity with the generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates +and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosures of contingent assets and +liabilities. We base our estimates on historical experience, known trends and events, and various other factors that we believe are reasonable +under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities +that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. +On a recurring basis, we evaluate our judgments and estimates in light of changes in circumstances, facts, and experience. The effects +of material revisions in an estimate, if any, will be reflected in the consolidated financial statements prospectively from the date of +the change in the estimate. +Critical accounting estimates are +those that we consider to be the most important in portraying our financial condition and results of operations and also require the greatest +number of judgments by management. Judgments or uncertainties regarding the application of these policies may result in materially different +amounts being reported under different conditions or using different assumptions. We consider the following policies to be the most critical +in understanding the judgments that are involved in preparing the financial statements. +46 +Property and Equipment +Property and equipment are stated at cost less depreciation +calculated on the straight-line basis over the estimated useful lives of the related assets as follows: +Vehicles and transportation equipment +5 – 7 years +Office furniture and equipment +3 – 7 years +Manufacturing equipment +3 – 10 years +Warehouse equipment +3 – 10 years +QA equipment +3 – 10 years +Tooling and molds +5 – 10 years +Leasehold improvements are amortized over the shorter +of the lease term or their estimated useful lives. +Useful life is estimated for each item at the time +of purchase based on the typical useful life in our experience and best judgment, and remaining useful life of existing assets is evaluated +regularly. If an estimated useful life were to be inaccurate, there would not be a material effect on our financials, and the estimated +depreciation would be trued up at the time of disposal or impairment. It is our experience that the estimated useful lives of our assets +are generally materially accurate. +Leases +We determine if an arrangement is a lease at inception. +Operating lease right-of-use (“ROU”) assets represent our right to use an underlying asset during the lease term, and operating +lease liabilities represent our obligation to make lease payments arising from the lease. Operating leases are included in ROU assets, +current operating lease liabilities, and long-term operating lease liabilities on our balance sheets. We do not have any finance leases. +We recognize operating lease assets and lease liabilities +in the consolidated balance sheets on the lease commencement date, based on the present value of the outstanding lease payments over the +reasonably certain lease term. The lease term includes the non-cancelable period at the lease commencement date, plus any additional periods +covered by an option to extend (or not to terminate) the lease that is reasonably certain to be exercised, or an option to extend (or +not to terminate) a lease that is controlled by the lessor. +We discount unpaid lease payments using the interest +rate implicit in the lease or, if the rate cannot be readily determined, our incremental borrowing rate (IBR). +See Note 8, “Commitments and Contingencies,” +of our consolidated financial statements within this Annual Report for further information, including more details of our accounting policy +elections and disclosures and remaining minimum operating lease commitments. +Revenue Recognition +Our revenue is generated from the sale of products +consisting primarily of batteries and accessories. We recognize revenue when control of goods or services is transferred to our customers +in an amount that reflects the consideration we are expected to be entitled to in exchange for those goods or services. Revenue is recognized +upon shipment or delivery to the customer, as that is when the customer obtains control of the promised goods and our performance obligation +is considered satisfied. +Warrants +Warrants are measured at fair value upon issuance +and are not subsequently remeasured unless they are required to be reclassified. See “ Note 7—Equity and Debt Financings ” +and “Note 9—Stockholders’ Equity” in our accompanying consolidated financial statements for information +on the warrants. Changes in assumptions used to estimate fair value could occur from stock pricing volatility depending on our performance +and our position in the industry and changes in market interest rates which can result in materially different results. +47 +Stock-Based Compensation +We use the Black-Scholes option-pricing model to determine +the fair value of option grants. In estimating fair value, management is required to make certain assumptions and estimates such as the +expected life of units, volatility of our future share price, risk-free rates, future dividend yields and estimated forfeitures at the +initial grant date. Restricted stock unit awards are valued based on the closing trading price of our common stock on the date of grant. +Changes in assumptions used to estimate fair value could occur from stock pricing volatility depending on our performance and our position +in the industry and changes in market interest rates which can result in materially different results. +Income Taxes +Effective November 1, 2021, the Company converted +from an LLC to a C corporation and, as a result, became subject to corporate federal and state income taxes. Income taxes are accounted +for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable +to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax +bases. Deferred tax assets and liabilities are measured using enacted tax rates that will be in effect for the years in which those tax +assets and liabilities are expected to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount +that is believed more likely than not to be realized. We believe it is more likely than not that forecasted income, together with future +reversals of existing taxable temporary differences, will be sufficient to recover our deferred tax assets. In the event that we determine +all, or part of our net deferred tax assets are not realizable in the future, we will record an adjustment to the valuation allowance +and a corresponding charge to earnings in the period such determination is made. +The calculation of tax liabilities involves significant +judgment in estimating the impact of uncertainties in the application of US GAAP and complex tax laws. Resolution of these uncertainties +in a manner inconsistent with our expectations could have a material impact on our financial condition and results of operations. We recognize +tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by +the taxing authorities, based on the technical merits of the position. The tax benefits recorded in the consolidated financial statements +from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate +settlement. +On March 27, 2020, the United States enacted the Coronavirus +Aid, Relief and Economic Security Act (the “CARES Act”). As of December 31, 2024 and 2023, we have not recorded any income +tax provision/(benefit) resulting from the CARES Act, mainly due to our history of net operating losses. +See “Note 11—Income Taxes” +of our consolidated financial statements within this Annual Report for further information on our income taxes. +ITEM 7A. +QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK +As a smaller reporting company (as +defined in Rule 12b-2 of the Exchange Act), we are not required to provide the information called for by Item 305 of Regulation S-K. +ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY +DATA +The information called for by this +Item 8 is found in a separate section of this Annual Report starting on page F-1. See the “Index to Financial Statements” +on page F-1. +ITEM 9. CHANGES IN AND DISAGREEMENTS WITH +ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE +None. +ITEM 9A. +CONTROLS AND PROCEDURES +Evaluation of Disclosure Controls and Procedures +Our management is responsible for establishing and +maintaining adequate disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act, for our Company. Consequently, +our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness +of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act as of December 31, 2024. In designing and +evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed +and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure +controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment +in evaluating the benefits of possible controls and procedures relative to their costs. Based on that evaluation, our principal executive +officer and principal financial officer concluded that our disclosure controls and procedures are designed at a reasonable assurance level +as of December 31, 2024. +48 +Management’s Annual Report on Internal +Control Over Financial Reporting +Our management is responsible for +establishing and maintaining adequate internal control over financial reporting. “Internal control over financial reporting,” +as defined in Rule 13a-15(f) under the Exchange Act, means a process designed to provide reasonable assurance regarding the reliability +of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our management, with +the participation and supervision of our principal executive officer and our principal financial and accounting officer, assessed the +effectiveness of our internal control over financial reporting. +In making this assessment, our management +used the criteria set forth in Internal Control – Integrated Framework (2013) as issued by the Committee of Sponsoring Organizations +of the Treadway Commission. Based on this assessment, our management concluded that our internal control over financial reporting was +effective as of December 31, 2024. +This Annual Report does not include +an attestation report of the Company’s registered public accounting firm due to an exemption established by SEC rules for emerging +growth companies. +Changes in Internal Control Over Financial Reporting +During the three months +ended December 31, 2024, there were no changes in our internal control over financial reporting that materially affected, or are reasonably +likely to materially affect, our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under +the Securities Exchange Act of 1934). +Limitation on Effectiveness +of Controls and Procedures +In designing and evaluating +our controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide +only reasonable and not absolute assurance of achieving the desired control objectives. In assessing whether our disclosure controls and +procedures were effective at a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating +the cost-benefit relationship of possible controls and procedures. There are inherent limitations to the effectiveness of any system of +controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. +In addition, the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and +there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, +controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. +Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. +ITEM 9B. OTHER INFORMATION +Rule 10b5-1 Plan and Non-Rule +10b5-1 Trading Arrangement Adoptions, Terminations, and Modifications +Our directors and officers +may enter into trading plans or other arrangements with financial institutions to purchase or sell shares of our common stock, which plans +or arrangements are intended to comply with the affirmative defense provisions of Rule 10b5-1 +of the Exchange Act or which may represent a non-Rule 10b5-1 trading arrangement, as defined under Item 408(a) of Regulation S-K. +During the three months ended +December 31, 2024, none of our directors or officers adopted , terminated or modified a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 +trading arrangement. +ITEM 9C. +DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION +Not applicable. +49 +PART III +ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE +GOVERNANCE +Insider Trading Policy +We have adopted an Insider Trading Policy governing +the purchase, sale and/or other dispositions of our securities by our directors, officers and employees that are reasonably designed to +promote compliance with insider trading laws, rules and regulations. The Insider Trading Policy is filed as an exhibit to this Annual +Report. +The remaining information for this item will be included +in our definitive proxy statement for our 2025 annual meeting of stockholders (the “2025 Proxy Statement"), to be filed with +the SEC no later than 120 days after December 31, 2024, and is incorporated herein by reference. +ITEM 11. EXECUTIVE COMPENSATION +The information required by this item will be included +in the 2025 Proxy Statement and is incorporated herein by reference. +ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL +OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS +The information required by this item will be included +in the 2025 Proxy Statement and is incorporated herein by reference. +ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND +DIRECTOR INDEPENDENCE +The information required by this item will be included +in the 2025 Proxy Statement and is incorporated herein by reference. +ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES +The information required by this item will be included +in the 2025 Proxy Statement and is incorporated herein by reference. +50 +PART IV +ITEM 15. EXHIBITS AND FINANCIAL STATEMENT +SCHEDULES +(a)(1) Financial Statements +Our financial statements are listed +in the “Index to the Financial Statements,” which appears on page F-1 of this Annual Report. +(a)(2) Financial Statement Schedules +All financial statement schedules +are omitted because the information called for is not required or is shown either in the financial statements or the notes thereto. +(a)(3) Exhibits +The following is a list of exhibits filed as part +of this Annual Report. +Incorporated by Reference +Exhibit +Number +Description +Form +Exhibit +Filing +Date +3.1 +Articles +of Incorporation of the Company, effective as of November 4, 2021 +S-1 +3.1 +3/31/2022 +3.2 +Certificate +of Amendment of Articles of Incorporation, effective as of October 8, 2024 +8-K +3.1 +10/7/2024 +3.3 +Amended +and Restated Bylaws of the Company, dated August 21, 2024 +8-K +3.1 +8/27/2024 +4.1 +Form +of the Company’s Common Stock Certificate +S-1 +4.1 +3/31/2022 +4.2 +Form +of Representative’s Warrant Agreement +S-1 +4.4 +3/31/2022 +4.3 +Form +of Senior Secured Promissory Note issued to bridge loan investors +S-1 +4.5 +3/31/2022 +4.4 +Description +of Capital Stock +- +- +- +4.5 +Form +of Warrant with an Exercise Price of $2.90 +10-K +10.15 +3/30/2023 +4.6 +Form +of Warrant with an Exercise Price of $3.32 +10-K +10.16 +3/30/2023 +4.7 +Form +of Convertible Note +8-K +4.1 +12/29/2023 +4.8 +Form +of Pre-Funded Warrant +8-K +4.1 +8/9/2024 +4.9 +Form +of Series A Warrant +8-K +4.2 +8/9/2024 +4.10 +Form +of Series B Warrant +8-K +4.3 +8/9/2024 +10.1 +Form +of Common Stock Warrant Issued to Selling Stockholders +S-1 +10.1 +3/31/2022 +10.2† +Expion360 +Inc. 2021 Incentive Award Plan +S-1 +10.2 +3/31/2022 +10.3† +Amendment +to Expion360 Inc. 2021 Incentive Award Plan +10-K +10.3 +3/28/2024 +10.4† +Expion360 +Inc. 2021 Employee Stock Purchase Plan +S-1 +10.3 +3/31/2022 +10.5 +Form +of Security Agreement Issued to Bridge Loan Investors +S-1 +10.7 +3/31/2022 +10.6 +Commercial +Lease of premises at 2045 SW Deerhound Avenue Redmond, OR +S-1 +10.8 +3/31/2022 +10.7 +Commercial +Lease of premises at 1266 SW Lake Blvd., Redmond, OR +S-1 +10.11 +3/31/2022 +10.8† +Amended +and Restated Employment Agreement, between Brian Schaffner and Expion360 Inc., dated January 26, 2023 +8-K +10.2 +2/01/2023 +10.9† +Amended +and Restated Employment Agreement, between Paul Shoun and Expion360 Inc., dated January 26, 2023 +8-K +10.3 +2/01/2023 +10.10† +Amended +and Restated Employment Agreement, between Greg Aydelott and Expion360 Inc., dated January 26, 2023 +8-K +10.4 +2/01/2023 +10.11* +Securities +Purchase Agreement, dated December 27, 2023, between Expion360 Inc. and 3i, LP +8-K +10.1 +12/29/2023 +10.12* +Common +Stock Purchase Agreement, dated December 27, 2023, between Expion360 Inc. and Tumim Stone Capital, LLC +8-K +10.2 +12/29/2023 +51 +10.13* +Registration Rights Agreement, dated December 27, 2023, between Expion360 Inc. and Tumim Stone Capital, LLC +8-K +10.3 +12/29/2023 +10.14* +Underwriting Agreement, dated August 7, 2024, between Expion360 Inc. and Aegis Capital Corp. +8-K +1.1 +8/9/2024 +21.1 +Subsidiaries of the Company +10-K +21.1 +3/28/2024 +19.1 +Expion360 Inc. Insider Trading Policy +- +- +- +23.1 +Consent of M&K CPAS PLLC +- +- +- +24.1 +Power of Attorney (reference is made to the signature page hereto) +- +- +- +31.1 +Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +- +- +- +32.1# +Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +- +- +- +97.1 +Expion360 Inc. Executive Compensation Clawback Policy +10-K +97.1 +3/28/2024 +101.INS +XBRL Instance Document. +- +- +- +101.SCH +XBRL Taxonomy Extension Schema Document. +- +- +- +101.CAL +XBRL Taxonomy Extension Calculation Linkbase Document. +- +- +- +101.DEF +XBRL Taxonomy Extension Definition Linkbase Document. +- +- +- +101.LAB +XBRL Taxonomy Extension Label Linkbase Document. +- +- +- +101.PRE +XBRL Taxonomy Extension Presentation Linkbase Document. +- +- +- +104 +Cover Page Interactive Data File (formatted as Inline XBRL and included in Exhibit 101). +- +- +- +† Indicates a management +contract or compensatory plan or arrangement. +# This certification is deemed not filed for purpose of Section 18 of the Exchange Act or otherwise subject +to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange +Act. +* The schedules and exhibits to this agreement have been omitted pursuant +to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request. +ITEM 16. FORM 10-K SUMMARY +None. +52 +SIGNATURES +Pursuant to the requirements of +Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to +be signed on its behalf by the undersigned thereunto duly authorized. +Expion360 Inc. +By: +/s/ Brian Schaffner +Brian Schaffner +Chief Executive Officer and Interim Chief Financial Officer +( Principal Executive, Financial and Accounting Officer ) +Date: +March 31, 2025 +POWER OF ATTORNEY +Each person whose signature appears +below constitutes and appoints Brian Schaffner as his or her true and lawful attorneys-in-fact, proxies and agents, each with full power +of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and +all amendments to this Annual Report on Form 10-K and to file the same, with any exhibits thereto and other documents in connection +therewith, with the Securities and Exchange Commission, granting unto such attorneys-in-fact, proxies and agents full power and authority +to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and +purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact, proxies and agents, or their +or his or her substitutes, may lawfully do or cause to be done by virtue hereof. +Pursuant to the requirements of +the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following persons on behalf +of the Registrant in the capacities and on the dates indicated. +Name +Title +Date +/s/ Brian Schaffner +Chief Executive Officer, Interim Chief Financial Officer and Director +March 31, 2025 +Brian Schaffner +(Principal Executive, Financial and Accounting Officer) +/s/ George Lefevre +Director +March 31, 2025 +George Lefevre +/s/ Steven M Shum +Director +March 31, 2025 +Steven M. Shum +/s/ Tien Q. Nguyen +Director +March 31, 2025 +Tien Q. Nguyen +/s/ Paul Shoun +Chief Operating Officer, President and Chairman of the Board of Directors +March 31, 2025 +Paul Shoun +53 +Index to Consolidated +Financial Statements +Report of Independent Registered Public Accounting Firm (PCAOB ID # 2738 ) +F-1 +Balance Sheets +F-3 +Statements of Operations +F-4 +Statements of Stockholders’ Equity (Deficit) +F-5 +Statements of Cash Flows +F-6 +Notes to the Consolidated Financial Statements +F-8 +54 +FINANCIAL INFORMATION +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING +FIRM +To the Board of Directors and Stockholders of Expion360, +Inc. +Opinion on the Financial Statements +We have audited the accompanying balance sheets of +Expion360, Inc. (the Company) as of December 31, 2024 and 2023, and the related statements of operations and comprehensive loss, +stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2024, and the related +notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material +respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash +flows for each of the years in the two-year period ended December 31, 2024, in conformity with accounting principles generally accepted +in the United States of America. +Going Concern +The accompanying financial statements have been prepared +assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company suffered a +net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. +Management’s plans regarding those matters are also described in Note 2. The financial statements do not include any adjustments +that might result from the outcome of this uncertainty. +Basis for Opinion +These financial statements are the responsibility +of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our +audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are +required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and +regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards +of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements +are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, +an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal +control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal +control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks +of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. +Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits +also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall +presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +F- 1 +Critical Audit Matter +The critical audit matters +communicated below are matters arising from the current period audit of the financial statements that were communicated or required to +be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and +(2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter +in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, +providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. +Going Concern +Due to the recurring net loss for the year and net +cash used in operating activities, the Company evaluated the need for a going concern. See discussion in Note 2. +Auditing management’s evaluation of a going +concern can be a significant judgement given the fact that the Company uses management estimates on future revenues and expenses which +are not able to be substantiated. +To evaluate the appropriateness of the lack of going +concern, we examined and evaluated the financial information that was the initial cause along with management’s plans to mitigate +the going concern and managements lack of disclosure on going concern. +/s/ M&K CPAS, PLLC +We have served as the Company’s auditor since 2021. +The Woodlands, TX +March 31, 2025 +F- 2 +Expion360 Inc. +Balance Sheets +As of December 31, 2024 +As of December 31, 2023 +Assets +Current Assets +Cash and cash equivalents +$ 547,565 +$ 3,932,698 +Accounts receivable, net +613,022 +154,935 +Inventory +4,831,461 +3,825,390 +Prepaid/in-transit inventory +1,612,686 +163,948 +Prepaid expenses and other current assets +236,461 +189,418 +Total current assets +7,841,195 +8,266,389 +Property and equipment +914,081 +1,348,326 +Accumulated depreciation +( 430,191 ) +( 430,295 ) +Property and equipment, net +483,890 +918,031 +Other Assets +Operating leases – right-of-use asset +754,832 +2,662,015 +Deposits +27,471 +58,896 +Total other assets +782,303 +2,720,911 +Total assets +$ 9,107,388 +$ 11,905,331 +Liabilities and stockholders’ equity +Current liabilities +Accounts payable +$ 338,091 +$ 286,985 +Customer deposits +48,474 +17,423 +Accrued expenses and other current liabilities +187,464 +292,515 +Convertible note +— +2,082,856 +Current portion of operating lease liability +256,153 +522,764 +Current portion of stockholder promissory notes +— +762,500 +Current portion of long-term debt +31,758 +50,839 +Suspended Liability +4,985,948 +— +Total current liabilities +5,847,888 +4,015,882 +Long-term debt, net of current portion and discount +198,412 +298,442 +Operating lease liability, net of current portion +542,764 +2,241,325 +Total liabilities +$ 6,589,064 +$ 6,555,649 +Stockholders’ equity +Preferred stock, par value $ .001 ; 20,000,000 +shares authorized; zero 0 shares issued and outstanding +— +— +Common stock, par value $ .001 ; 200,000,000 shares authorized; 2,096,082 and 69,230 issued and outstanding as of December 31, 2024 and 2023, respectively +2,096 +69 +Additional paid-in capital +37,091,468 +26,445,378 +Accumulated deficit +( 34,575,240 ) +( 21,095,765 ) +Total stockholders’ equity +2,518,324 +5,349,682 +Total liabilities and stockholders’ equity +$ 9,107,388 +$ 11,905,331 +The accompanying notes are an integral part of these financial statements. +F- 3 +Expion360 Inc. +Statements of Operations +For the Years Ended December 31, +2024 +2023 +Net sales +$ 5,624,939 +$ 5,981,134 +Cost of sales +4,469,711 +4,405,611 +Gross profit +1,155,228 +1,575,523 +Selling, general and administrative +7,909,219 +8,745,135 +Loss from operations +( 6,753,991 ) +( 7,169,612 ) +Other (Income) / Expense +Interest income +( 86,121 ) +( 125,854 ) +Interest expense +976,618 +124,511 +Loss on sale of property and equipment +146,760 +3,426 +Settlement expense +709,900 +281,680 +Suspended liability expense +4,985,948 +— +Other income +( 6,073 ) +( 394 ) +Total other expense +6,727,032 +283,369 +Loss before taxes +( 13,481,023 ) +( 7,452,981 ) +Tax (income) / expense +( 1,548 ) +3,293 +Net loss +$ ( 13,479,475 ) +$ ( 7,456,274 ) +Net loss per share (basic and diluted) +$ ( 21.03 ) +$ ( 108.25 ) +Weighted-average number of common shares outstanding +641,011 +68,882 +The accompanying notes are an integral part of these financial statements. +F- 4 +Expion360 Inc. +Statements of Stockholders’ Equity (Deficit) +for Years Ended December 31, 2024 and 2023 +Common Stock +Additional Paid-in Capital +Accumulated Deficit +Total Stockholders’ Equity (Deficit) +Shares +Amount +Balance at December 31, 2022 +68,025 +$ 68 +$ 25,246,388 +$ ( 13,639,491 ) +$ 11,606,965 +Proceeds received from cashless exercise of warrants +413 +— +( 24 ) +— +( 24 ) +Proceeds received from cash exercise of warrants +150 +— +49,800 +— +49,800 +Stock issued as a result of litigation settlement +520 +1 +251,679 +— +251,680 +Issuance of warrants +— +— +65,046 +— +65,046 +Issuance of stock options +— +— +371,071 +— +371,071 +Issuance of RSUs +— +— +124,249 +— +124,249 +Settlement of vested RSUs +122 +— +— +— +— +Issuance of common stock in exchange for short-term loan costs +— +— +337,169 +— +337,169 +Net loss +— +— +— +( 7,456,274 ) +( 7,456,274 ) +Balance at December 31, 2023 +69,230 +$ 69 +$ 26,445,378 +$ ( 21,095,765 ) +$ 5,349,682 +Stock issued for ELOC +4,336 +4 +828,487 +— +828,491 +Proceeds received from cashless exercise of warrants +16 +— +( 4 ) +— +( 4 ) +Proceeds received from cash exercise of warrants +— +— +26 +— +26 +Stock issued for interest payment +414 +— +90,839 +— +90,839 +Issuance of stock options +— +— +464,328 +— +464,328 +Issuance of RSUs +— +— +141,417 +— +141,417 +Settlement of vested RSUs +525 +— +46,889 +— +46,889 +Settlement of commitment shares +635 +1 +( 1 ) +— +— +Stock issued as a result of litigation settlement +1,000 +1 +208,999 +— +209,000 +Issuance shares and pre-funded warrants, follow-on offering, net of issuance costs +500,000 +500 +8,681,190 +— +8,681,690 +Proceeds from exercise of Series A warrants +14,900 +15 +77,555 +— +77,570 +Proceeds from exercise of Series B warrants +1,294,367 +1,296 +106,575 +— +107,871 +Shares issued for true-up upon reverse stock split +210,659 +210 +( 210 ) +— +— +Net loss +— +— +— +( 13,479,475 ) +( 13,479,475 ) +Balance at December 31, 2023 +2,096,082 +$ 2,096 +$ 37,091,468 +$ ( 34,575,240 ) +$ 2,518,324 +The accompanying notes are an integral part of these financial statements. +F- 5 +Expion360 Inc. +Statements of Cash Flows +For the Years Ended December 31, +2024 +2023 +Cash flows from operating activities +Net loss +$ ( 13,479,475 ) +$ ( 7,456,274 ) +Adjustments to reconcile net loss to net cash provided by (used in) operating activities: +Depreciation +173,973 +205,723 +Amortization of convertible note costs +667,144 +— +Loss on sale of property and equipment +146,760 +3,426 +Decrease in allowance for doubtful accounts +— +( 18,804 ) +Stock-based settlement +209,000 +251,680 +Stock-based compensation +616,632 +560,365 +Decrease in right-of-use assets and lease liabilities +( 67,778 ) +— +Increase in suspended liability +4,985,948 +— +Changes in operating assets and liabilities: +(Increase) / Decrease in accounts receivable +( 458,087 ) +161,904 +(Increase) / Decrease in inventory +( 1,006,071 ) +704,746 +Increase in prepaid/in-transit inventory +( 1,448,738 ) +( 22,338 ) +Increase in prepaid expenses and other current assets +( 47,043 ) +( 17,626 ) +Decrease in deposits +31,425 +5,005 +Increase in accounts payable +51,106 +56,735 +Increase in customer deposits +31,051 +17,365 +Increase / (Decrease) in accrued expenses and other current liabilities +21,819 +( 13,649 ) +Increase in right-of-use assets and lease liabilities +9,789 +30,510 +Net cash used in operating activities +( 9,562,545 ) +( 5,531,232 ) +Cash flows from investing activities +Purchases of property and equipment +( 19,203 ) +( 20,170 ) +Net proceeds from sale of property and equipment +132,611 +36,748 +Net cash provided by investing activities +113,408 +16,578 +Cash flows from financing activities +Proceed from / (Principal payment on) convertible note +( 2,750,000 ) +2,420,025 +Principal payments on long-term debt +( 119,111 ) +( 161,194 ) +Principal payments on stockholder promissory notes +( 762,500 ) +( 62,500 ) +Proceeds from exercise of warrants +185,434 +49,800 +Settlement of fractional shares for cashless warrant exercise +— +( 23 ) +Net proceeds from issuance of common stock +9,510,181 +— +Net cash provided by financing activities +6,064,004 +2,246,108 +Net change in cash and cash equivalents +( 3,385,133 ) +( 3,268,546 ) +Cash and cash equivalents, beginning +3,932,698 +7,201,244 +Cash and cash equivalents, ending +547,565 +3,932,698 +F- 6 +Expion360 Inc. +Statements of Cash Flows - Continued +For the Years Ended December 31, +Supplemental disclosure of cash flow information: +2024 +2023 +Cash paid for interest +$ 220,714 +$ 121,894 +Cash paid / (received) for franchise taxes +$ ( 258 ) +$ 1,853 +Non-cash financing activities: +Acquisition/modification of operating lease right-of-use asset and lease liability +$ — +$ ( 13,993 ) +Issuance of common stock for payment on accrued interest +$ 90,839 +$ — +Issuance of common stock for payment on accrued compensation +$ 36,029 +$ — +Issuance of common stock in exchange for short-term loan costs +$ — +$ ( 337,169 ) +The accompanying notes are an integral part of these financial statements. +F- 7 +NOTES TO THE FINANCIAL STATEMENTS +1. Organization and Nature +of Operations +Expion360 Inc. (formerly Yozamp Products Company, +LLC dba Expion360) (the “Company”) was incorporated in the state of Nevada in November 2021. Effective November 1, 2021, the +Company converted to a C corporation. Prior to conversion, the Company was a limited liability company (“LLC”) with an indefinite +life organized in the State of Oregon in June 2016. The LLC elected to be treated as a Subchapter S corporation effective January 1, 2017. +Net profits and losses of the LLC and all distributions were allocated among the members in proportion to the ownership units held. The +Original LLC Agreement was amended and restated on January 1, 2021 to add additional members and a non-voting class of member units. Upon +conversion to a C corporation, all existing LLC members at the time of conversion were issued shares of the Company’s common stock, +par value $0.001 per share and became stockholders of the Company. +The Company designs, assembles, and distributes premium +lithium batteries for RV, Marine, Golf, Industrial, Residential, and Off-The-Grid needs. The Company uses lithium iron phosphate (“LiFePO4”) +batteries. LiFePO4 batteries are considered a top choice for high energy density, dependability, longevity, and safety, providing the +ability to power anything, anywhere. +2. Summary of Significant +Accounting Policies +Basis of Presentation +The accompanying audited financial statements have +been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“U.S. +GAAP”) for interim financial information, and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated +by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required +by U.S. GAAP for complete financial statement presentation. However, the Company believes that the disclosures are adequate to make the +information presented not misleading. In the opinion of management, all adjustments (consisting primarily of normal recurring accruals) +considered necessary for a fair presentation have been included. +Unless otherwise noted, all references to shares and +stockholders in the accompanying financial statements have been restated retroactively, to reflect the equity structure of the C corporation +as of the beginning of the first period presented. +Reclassification of Prior Year Presentation +Certain prior year amounts have been reclassified +for consistency with current year presentation. These reclassifications had no effect on the reported results of operations. +Going Concern, Liquidity and Capital Resources +The Company’s activities are subject to significant +risks and uncertainties, including failing to secure additional funding before the Company achieves sustainable revenue and profit from +operations. The Company expects to continue to incur additional losses for the foreseeable future, and the Company may need to raise additional +debt or equity financing to expand its presence in the marketplace, develop new products, achieve operating efficiencies, and accomplish +its long-term business plan over the next several years. There can be no assurance as to the availability or terms upon which such financing +and capital might be available. +As presented in the accompanying financial statements, +the Company has sustained recurring losses and negative cash flows from operations. These factors raise substantial doubt about the Company’s +ability to continue as a going concern within twelve months after the date that the financial statements for the year ended December 31, +2024 are issued. However, management is working to address its cash flow challenges, including raising additional capital, managing inventory +levels, identifying alternative supply chain resources, and managing operational expenses. +F- 8 +Historically, the Company’s growth has been +funded through a combination of sales of equity interests, third party debt, and working capital loans. The Company’s sales for +2024 decreased 6.0 % compared to sales for 2023, as the overall RV market experienced a severe slowdown. For the year ended December 31, +2024, we received net proceeds of $ 9,510,181 from issuance of common stock and an additional $ 185,434 from exercise of warrants. For the +year ended December 31, 2023, we received net proceeds of $ 2,420,025 from issuing commitment shares in exchange for a short-term convertible +note, and $ 49,777 from warrant exercises. On April 1, 2022, the Company completed an initial public offering and listing of its shares +on the Nasdaq Stock Market (IPO). +The accompanying financial statements have been prepared +assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities +and commitments in the normal course of business; however, the above conditions raise substantial doubt about the Company’s ability +to do so. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification +of assets or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern. +Use of Estimates +The preparation of financial statements in conformity +with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure +of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the +reporting period. Actual results could vary materially from the estimates that were used. The Company’s significant accounting estimates +include the carrying value of accounts receivable and inventory, the depreciable lives of fixed assets, and stock-based compensation. +Future events, including the extent and the duration +of the COVID-19-related economic impacts and their effects, cannot be predicted with certainty and, accordingly, the Company’s accounting +estimates require the exercise of judgment. +Cash and Cash Equivalents +The Company considers all cash amounts which are not +subject to withdrawal restrictions or penalties and all highly liquid investments purchased with an original maturity of three months +or less from the date of purchase to be cash equivalents. The Company maintains its cash balances with high-quality financial institutions +located in the United States. Cash accounts are secured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 +per institution. At times, balances may exceed federally insured limits. Investment accounts are placed in funds consisting of US Treasury-related +ultra-short paper, which earned $86,121 and $125,755 during the years ended December 31, 2024 and 2023, respectively. The Company has +not experienced any losses in such accounts and management believes that the Company is not exposed to any significant credit risk with +respect to its cash and cash equivalents. As of December 31, 2024, cash balances exceeded FDIC limits by $277,522 and investment accounts +totaling $712 are invested in US Treasury-related ultra-short paper. +Accounts Receivable +Accounts receivable are recorded at the invoiced amount, +are due within a year or less, and generally do not bear any interest. The Company performs ongoing credit evaluations of its customers +and generally requires no collateral. An allowance for uncollectible accounts is recorded to reduce accounts receivable to the estimated +amount that will be collected. The allowance is based upon management’s review of the accounts receivable aging and specific identification +of potentially uncollectible balances. Recoveries of accounts previously written off and adjustments to the allowance for uncollectible +accounts are recorded as adjustments to bad debt expense. There was no allowance for doubtful accounts as of December 31, 2024 or December +31, 2023, as management believed all outstanding amounts to be fully collectible. +Customer Deposits +As of December 31, 2024 and December 31, 2023, the +Company had customer deposits totaling $ 48,474 and $ 17,423 , respectively. +F- 9 +Inventory +Inventory is stated at the lower of cost (first in, +first out) or net realizable value and consists of batteries and accessories, resale items, components, and related landing costs. As +of December 31, 2024 and December 31, 2023, the Company had inventory that consisted of finished assemblies totaling $ 4,077,013 and $ 2,967,021 , +respectively, and raw materials (inventory components, parts, and packaging) totaling $ 754,448 $ 858,369 , respectively. The valuation of +inventory includes fixed production overhead costs based on normal capacity of the assembly warehouse. +The Company periodically reviews its inventory for +evidence of slow-moving or obsolete inventory and provides for an allowance when considered necessary. The Company determined that no +such reserve was necessary as of December 31, 2024 or December 31, 2023. The Company prepays for inventory purchases from foreign suppliers. +Prepaid inventory totaled $ 1,612,686 and $ 163,948 at December 31, 2024 and December 31, 2023, respectively, and included inventory in +transit where title had passed to the Company but had not yet been physically received. +Vendor and Foreign Concentrations of Inventory +Suppliers +During the years ended December 31, 2024 and 2023, +approximately 82 % and 70 %, respectively, of inventory purchases were made from foreign suppliers in Asia. Any adverse change in either +the economic or political conditions abroad could negatively impact the Company’s supply chain. The inability to obtain product +to meet sales demand could adversely affect results of operations. However, the Company has secured a secondary source for lithium iron +phosphate cells used in its batteries from a supplier in Europe, enabling the Company to source materials outside of Asia in the event +it becomes necessary to do so. +Property and Equipment +Property and equipment are stated at cost less depreciation +calculated on the straight-line basis over the estimated useful lives of the related assets as follows: +Schedule of estimated useful lives +Vehicles and transportation equipment +5 - 7 years +Manufacturing equipment +3 - 10 years +Office furniture and equipment +3 - 7 years +Warehouse equipment +3 - 10 years +QA equipment +3 - 10 years +Tooling and molds +5 - 10 years +Leasehold improvements are amortized over the shorter +of the lease term or their estimated useful lives. +Betterments, renewals, and extraordinary repairs that +extend the lives of the assets are capitalized; other repairs and maintenance charges are expensed as incurred. The cost and related accumulated +depreciation and amortization applicable to assets retired are removed from the accounts, and the gain or loss on disposition is recognized +in the Statements of Operations. +Leases +The Company determines if an arrangement is a lease +at inception. Operating lease right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset during +the lease term, and operating lease liabilities represent +the Company’s obligation to make lease payments +arising from the lease. Operating leases are included in ROU assets, current operating lease liabilities, and long-term operating lease +liabilities on the Company’s Balance Sheets. The Company does not have any finance leases. +Lease ROU assets and lease liabilities are initially +recognized based on the present value of the future minimum lease payments over the lease term at commencement date calculated using the +Company’s incremental borrowing rate applicable to the lease asset, unless the implicit rate is readily determinable. ROU assets +also include any lease payments made at or before lease commencement and exclude any lease incentives received. The Company’s lease +terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Leases with a term of 12 months or less +are not recognized on the Company’s Balance Sheet. The Company’s leases do not contain any residual value guarantees. Lease +expense for minimum lease payments is recognized on a straight-line basis over the lease term. +F- 10 +The Company accounts for lease and non-lease components +as a single lease component for all its leases. +Impairment of Long-Lived Assets +Long-lived assets consist primarily of property and +equipment. When events or circumstances indicate the carrying value of a long-lived asset may be impaired, the Company estimates the future +undiscounted cash flows to be derived from the use and eventual disposition of the asset to assess whether or not a potential impairment +exists. If the carrying value exceeds the estimate of future undiscounted cash flows, the impairment is calculated as the excess of the +carrying value of the asset over the estimate of its fair value. Fair value is determined primarily using the estimated cash flows discounted +at a rate commensurate with the risk involved. No long-lived asset impairment was recognized during the years ended December 31, 2024 +or 2023. +Product Warranties +The Company sells the majority of its products to +customers along with conditional repair or replacement warranties. The Company’s branded DC mobile chargers are warrantied for two +years from the date of sale and its branded VPR 4EVER Classic and Platinum batteries are warrantied at gradually lesser levels over a +twelve-year period from date of sale. The Company determines its estimated liability for warranty claims based on the Company’s +experience of the amount of claims actually made. Management estimates no liability as of December 31, 2024 and 2023 because, historically, +there have been very few claims and costs for repairs or replacement parts have been nominal. It is possible that the Company’s +estimate of liability for product liability claims will change in the near term. +Liability for Refunds +The Company does not have a formal return policy but +does accept returns under its warranty policies. Returns have historically been minimal. No refund liability was recognized in the year +ended December 31, 2023 or December 31, 2024. Revenue is recorded net of this amount. Any returns of discontinued product are not added +back to inventory and therefore related costs are nominal and not recorded as an asset. +Revenue Recognition +The Company’s revenue is generated from the +sale of products consisting primarily of batteries and accessories. The Company recognizes revenue when control of goods or services is +transferred to its customers in an amount that reflects the consideration it is expected to be entitled to in exchange for those goods +or services. To determine revenue recognition, the Company performs the following five steps: (i) identify the contract(s) with a +customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate +the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the performance obligation(s) +are satisfied. Revenue is recognized upon shipment or delivery to the customer, as that is when the customer obtains control of the promised +goods and the Company’s performance obligation is considered satisfied. As such, accounts receivable is recorded at the time of +shipment or will call, when the Company’s right to the consideration becomes unconditional and the Company determines there are +no uncertainties regarding payment terms or transfer of control. +Concentration of Major Customers +A customer is considered a major customer when net +revenue attributable to the customer exceeds 10% of total revenue for the period or outstanding receivable balances exceed 10% of total +receivables. +During the year ended December 31, 2024, sales to +one customer totaled $ 726,292 , or approximately 14 % of our total sales and had 6 % of our outstanding accounts receivable at December 31, +2024. Four other customers had accounts receivable balances totaling $ 339,111 , representing 60 % of total accounts receivable as of December +31, 2024. Sales to each of our other customers did not exceed 10% during this period. During the year ended December 31, 2023, sales to +two customers totaled $ 1,237,232 , or approximately 21 % of our total sales, and these customers did not have any outstanding accounts receivable at December 31, +2023. While these customers did not have accounts receivable balances as of December 31, 2023, four other customers had accounts receivable +balances totaling $ 142,255 , representing 91 % of total accounts receivable as of December 31, 2023. Sales to each of our other customers +did not exceed 10% during this period. +F- 11 +Shipping and Handling Costs +Shipping and handling fees billed to customers are +classified on the Statement of Operations as “Net sales” and totaled $ 99,201 and $ 70,712 during the years ended December 31, +2024 and 2023, respectively. Shipping and handling costs for shipping product to customers totaled $ 260,946 and $ 199,288 during the years +ended December 31, 2024 and 2023, respectively, and are classified in selling, general and administrative expense in the accompanying +Statements of Operations. +Advertising and Marketing Costs +The Company expenses advertising and marketing costs +as incurred. Advertising and marketing expense totaled $ 926,430 and $ 929,220 for the years ended December 31, 2024 and 2023, respectively, +and is included in selling, general and administrative expense in the accompanying Statements of Operations. +Research and Development +Research and development costs are expensed as incurred. +Research and development costs charged to expense amounted to $ 295,292 and $ 397,662 for the years ended December 31, 2024 and 2023, respectively, +and are included in selling, general and administrative expenses in the accompanying Statements of Operations. +Income Taxes +Effective November 1, 2021, the Company converted +from an LLC to a C corporation and, as a result, became subject to corporate federal and state income taxes. Deferred tax assets and liabilities +are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of exiting +assets and liabilities and their respective tax basis. Deferred tax assets, including tax loss and credit carryforwards, and liabilities +are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected +to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the +period that included the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets +and deferred tax liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more +likely than not that some portion or all of the deferred tax assets will not be realized. +On March 27, 2020, the United States enacted the Coronavirus +Aid, Relief and Economic Security Act (the “CARES Act”). The CARES Act is an emergency economic stimulus package that includes +spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19. The CARES +Act provides sweeping tax changes in response to the COVID-19 pandemic. Some of the more significant provisions are removal of certain +limitations on utilization of net operating losses, increasing the loss carryback period for certain losses to five years, and increasing +the ability to deduct interest expense, as well as amending certain provisions of the previously enacted Tax Cuts and JOBS Act. As of +December 31, 2024 and December 31, 2023, the Company has not recorded any income tax provision/(benefit) resulting from the CARES Act, +mainly due to the Company’s history of net operating losses. +On December 27, 2020, the United States enacted the +Consolidated Appropriations Act of 2021 (the “CAA”). The CAA includes provisions extending certain CARES Act provisions and +adds coronavirus relief, tax and health extenders. The Company will continue to evaluate the impact of the CAA and its impact on its financial +statements in 2024 and beyond. +F- 12 +Fair Value of Financial Instruments +The Company accounts for its financial assets and +liabilities in accordance with ASC Topic 820, Fair Value Measurement . ASC Topic 820 establishes a fair value hierarchy that prioritizes +the inputs to valuation techniques used to measure fair value, as follows: +Level 1: Quoted prices (unadjusted) in active +markets for identical assets or liabilities that are accessible at the measurement date. The fair value hierarchy gives the highest priority +to Level 1 inputs. +Level 2: Observable prices that are based on +inputs not quoted on active markets but corroborated by market data. These inputs include quoted prices for similar assets or liabilities; +quoted market prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data +for substantially the full term of the assets or liabilities. +Level 3: Unobservable inputs are used when +little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. In determining fair value, +we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, +as well as consider counterparty credit risk in the assessment of fair value. +The Company’s financial instruments consist +principally of cash and cash equivalents, accounts receivable, accounts payable, short-term revolving loans, stockholder promissory notes, +and long-term debt. The fair value of cash and cash equivalents, accounts receivable, accounts payable, and short-term revolving loans +approximates their respective carrying values because of the short-term nature of those instruments. The fair value of the stockholder +promissory notes, convertible notes, and long-term debt approximates their respective carrying values because the interest rate approximates +market rates available to the Company for similar obligations with the same maturities. +Basic and Diluted Net Loss Per Share +The basic net loss per share is calculated by dividing +the net loss by the weighted average number of shares outstanding during the period. Diluted earnings or loss per share adjusts the basic +earnings or loss per share for the potentially dilutive impact of securities (e.g., options and warrants). +We calculate basic and diluted net loss per share +using the weighted average number of common shares outstanding during the periods presented. In periods of a net loss position, basic +and diluted weighted average common shares are the same. For the diluted earnings per share calculation, we adjust the weighted average +number of common shares outstanding to include dilutive stock options, warrants, unvested restricted stock units and shares associated +with the conversion of any convertible notes or preferred stock, when applicable. We use the if-converted method for calculating any potential +dilutive effect of convertible notes and convertible preferred stock on diluted net loss per share. +The following shows the amounts used in computing +net loss per share: +Schedule of net loss per share +Years Ended December 31, +2024 +2023 +Net loss +$ ( 13,479,475 ) +$ ( 7,456,274 ) +Weighted average common shares outstanding – basic and diluted +641,011 +68,882 +Basic and diluted net loss per share +$ ( 21.03 ) +$ ( 108.25 ) +As of December 31, 2024 and 2023, the Company has +outstanding warrants, options, and restricted stock units (“RSUs”) convertible into 5,392,395 and 19,167 shares of common +stock, respectively. The following table sets forth the number of shares excluded from the computation of diluted loss per share, as their +inclusion would have been anti-dilutive. +Schedule of anti-dilutive share +Years ended December 31, +2024 +2023 +Warrants +6,889 +8,045 +Warrants – Series A +5,286,692 +— +Warrants – Series B +87,384 +— +Stock options +11,430 +10,756 +RSUs +— +366 +5,392,395 +19,167 +F- 13 +Stock-Based Compensation +The Company accounts for stock-based compensation +in accordance with ASC 718, “Compensation—Stock Compensation”, which requires compensation costs to be recognized at +grant date fair value over the requisite service period of each of the awards. The Company recognizes forfeitures of awards as they occur. +The fair value of stock options is determined using +the Black-Scholes-Merton option pricing model. In order to calculate the fair value of the options, certain assumptions are made regarding +the components of the model, including risk-free interest rate, volatility, expected dividend yield and expected life. Changes to assumptions +could cause significant adjustments to the valuation. +New Accounting Pronouncements +In November 2023, the FASB issued ASU 2023-07, “Segment +Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This ASU was issued to clarify reporting requirements for +public entities that are required to report segment information in accordance with Topic 280, Segment Reporting. The Company will adopt +this standard effective January 1, 2024, but does not anticipate an impact on the Company’s financial statements or disclosures +in this Report, as we currently have one reportable segment. +In March 2023, the FASB issued ASU 2023-02, “Investments—Equity +Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” +This ASU was issued to allow reporting entities to consistently account for equity investments made primarily for the purpose of receiving +income tax credits and other income tax benefits. ASU 2023-02 is effective for the Company for fiscal years beginning after December 15, +2023, including interim periods within those fiscal years. The Company will adopt this standard effective January 1, 2024, but does not +anticipate an impact on the Company’s financial statements or disclosures. +In June 2022, the FASB issued ASU 2022-03, “Fair +Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions,” which amends +the guidance in Topic 820, Fair Value Measurement , to clarify that a contractual restriction on the sale of an equity security +is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments +also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. In addition, +the ASU introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair +value. ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years +for public business entities. The Company will adopt this standard effective January 1, 2024, but does not anticipate an impact on the +Company’s financial statements or disclosures. +In July 2023, the FASB issued ASU 2023-03, amending +“Presentation of Financial Statements (Topic 205),” “Income Statement – Reporting Comprehensive Income (Topic +220),” “Distinguishing Liabilities from Equity (Topic 480),” “Equity (Topic 505),” and “Compensation +– Stock Compensation (Topic 718).” The company adopted this standard effective December 15, 2023. +Accounting Guidance Issued but Not Yet Adopted +In November 2024, the FASB issued ASU 2024-03, “Income +Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40).” This ASU was issued +to improve the disclosures about an entity’s expenses, and require certain types of expenses to be disclosed individually. The Company +is currently evaluating the impact of this standard on its financial statement. +F- 14 +In March 2024, the FASB issued ASU 2024-02, “Codification +Improvements—Amendments to Remove References to the Concepts Statements,” to address suggestions received from stakeholders. +The Company is currently evaluating the impact of this standard on its financial statements. +In March 2024, the FASB issued ASU 2024-01, “Compensation—Stock +Compensation,” which adds an illustrative example to demonstrate how to apply the guidance in paragraph 718-10-15-3. The Company +is currently evaluating the impact of this standard on its financial statements. +In October 2023, the FASB issued ASU 2023-06, “Disclosure +Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative,” which affects +a variety of Topics in the Codification. The company is currently evaluating the impact of this standard on our financial statements. +3. Property and Equipment, +Net +Property and equipment consist of the following: +Schedule of property and equipment +Years Ended December 31, +2024 +2023 +Vehicles and transportation equipment +$ 406,013 +$ 551,906 +Manufacturing equipment +168,099 +179,274 +Office furniture and equipment +153,698 +188,131 +Warehouse equipment +72,964 +81,164 +Leasehold improvements +69,725 +314,819 +QA equipment +43,582 +33,032 +914,081 +1,348,326 +Less: accumulated depreciation +( 430,191 ) +( 430,295 ) +Property and equipment, net +$ 483,890 +$ 918,031 +Depreciation expense was $ 173,973 and $ 205,723 for +the years ended December 31, 2024 and 2023, respectively. There were disposals and sales of fixed assets during the years ended December +31, 2024 and 2023 resulting in the net cash received of $ 132,611 and $ 36,748 , respectively. As a result of disposals and sales of fixed +assets we recognized losses during the year ended December 31, 2024 and 2023 of $ 146,760 and $ 3,426 , respectively. The majority of the +disposals in the year ending December 31, 2024 were for equipment and leasehold improvements when we terminated the lease of our second +warehouse in Redmond, Oregon in order to reduce ongoing monthly expenses. +4. Accrued Expenses and Other +Current Liabilities +Accrued expenses and other current liabilities consist +of the following: +Schedule of accrued expenses and other current liabilities +Years Ended December 31, +2024 +2023 +Accrued salaries and payroll liabilities +$ 145,686 +$ 225,685 +Rebate liability +— +31,411 +Commissions +30,913 +12,608 +Deferred income and deposit (sublease) +4,549 +4,445 +Accrued interest +760 +2,839 +Franchise tax +150 +1,840 +Other +5,406 +13,687 +Accrued expenses and other current liabilities +$ 187,464 +$ 292,515 +F- 15 +5. Long-Term Debt +Long-term debt consisted of the following at December +31, 2024 and 2023: +Schedule of long term debt payment +December 31, 2024 +December 31, 2023 +Note payable – bank. Payable in monthly installments of $ 332 , including interest at 5.8 % per annum, due August 2025 , secured by equipment and personally guaranteed by a co-founder. +2,657 +6,317 +Note payable – credit union. Payable in monthly installments of $ 508 , including interest at 5.45 % per annum, due July 2026 , secured by a vehicle and personally guaranteed by a co-founder. This note was paid in full in March 2024. +— +14,196 +Note payable – SBA. Economic Injury Disaster Loan payable in monthly installments of $ 731 , including interest at 3.75 % per annum, due May 2050 , and personally guaranteed by a co-founder. +143,144 +146,926 +Notes payable – The Company has acquired six notes payable to GM Financial for vehicles. In April 2022, the Company secured a commercial line up to $300,000 to be used to finance vehicle purchases. The agreement expired in April 2023 but was renewed for a commercial line up to $350,000 and prevailing GM Financial existing term notes will remain. The new agreement expires in April 2024. One note was paid off when the corresponding vehicle was sold in May 2023, so there are five notes remaining at December 31, 2024. The notes are currently payable in aggregate monthly installments of $ 4,084 , including interest at rates ranging from 5.89% to 7.29% per annum, mature at various dates from October 2027 to May of 2028 , and are secured by the related vehicles. Two of the notes are personally guaranteed by a co-founder. Two of the notes were paid in full in February 2024; these notes had a combined principal balance of $ 72,115 as of December 31, 2024. +84,369 +181,842 +Total +$ 230,170 +$ 349,281 +Less current portion +( 31,758 ) +( 50,839 ) +Long-term debt, net of unamortized debt discount and current portion +$ 198,412 +$ 298,442 +Future maturities of long-term debt are as follows: +Schedule of maturities of long-term debt +Years ending December 31, +2025 +$ +31,758 +2026 +31,058 +2027 +30,590 +2028 +8,212 +2029 +4,002 +Thereafter +124,550 +Total +$ +230,170 +6. Stockholder +Promissory Notes +As of December 31, 2024 and December 31, 2023, the +Company had an outstanding principal balance of $ 0 and $ 762,500 due to stockholders under unsecured Promissory Notes Agreements (“Notes”). +The Notes require monthly interest-only payments at 10 % per annum. The Notes would have matured in September 2024 and December 2024 as +follows: September 2024 - $500,000 (this Note would have matured in August 2023, but in June 2023, an agreement was signed extending the +maturity date to August 2024, and in June 2024, an agreement was signed further extending the maturity date to September 2024); and December +2024 - $200,000. A note for $62,500 that matured in January 2024 was paid in January 2024, and Notes for $500,000 that matured in September +2024 and $200,000 that matured in December 2024 were both paid in August 2024. As of December 31, 2024, there were no Notes outstanding. +F- 16 +Interest paid to the stockholders under the Notes +totaled $ 42,862 and $ 82,508 during the years ended December 31, 2024 and 2023, respectively. There was no accrued interest as of December +31, 2024 or 2023 related to these Notes. +7. Equity and Debt Financings +August 2024 Public Offering +On August 8, 2024, the Company sold +in the August 2024 Public Offering, (i) 33,402,000 Common Units, (pre-Reverse Stock Split), each consisting of one share of common stock, +two Series A Warrants and one Series B Warrant, and (ii) 16,598,000 Pre-Funded Units (pre-Reverse Stock Split), each consisting of one +Pre-Funded Warrant, two Series A Warrants, and one Series B Warrant, through the Underwriter. +In addition, the Company granted +the Underwriter a 45-day option to purchase additional shares of common stock and/or Pre-Funded Warrants and/or Series A Warrants and/or +Series B Warrants, representing up to 15% of the number of the respective securities sold in the August 2024 Public Offering, solely to +cover over-allotments, if any. The Underwriter partially exercised its over-allotment option with respect to 15,000,000 Series A Warrants +and 7,500,000 Series B Warrants (pre-Reverse Stock Split). +The Common Units were sold at a +price of $ 0.20 per unit and the Pre-Funded Warrants were sold at a price of $ 0.199 per unit (pre-Reverse Stock Split). +The Pre-Funded Warrants were immediately +exercisable at an exercise price of $ 0.001 per share (Pre-Reverse Stock Split) and could be exercised at any time until all Pre-Funded +Warrants are exercised in full. As of December 31, 2024, all Pre-Funded Warrants have been exercised. +Each Series A Warrant is exercisable +at any time or times beginning on September 30, 2024, which was the first trading day following the Company’s notice to the Series +A Warrant holders of stockholder approval received at the Company’s annual meeting of stockholders held on September 27, 2024 (the +“2024 Annual Meeting”), and will expire five years from such date. Each Series A Warrant was initially exercisable at an exercise +price of $ 24.00 per share of common stock (post-Reverse Stock Split). The exercise price of the Series A Warrants was subject to reduction +on the 11 th trading day after the stockholder approval to the greater of the lowest daily volume weighted average price (“VWAP”) +during the ten trading day period following the stockholder approval and the floor price of $ 5.206 (representing 20% of the lower of our +common stock’s closing price on The Nasdaq Capital Market on the date that we priced the August 2024 Public Offering (post-Reverse +Stock Split) or our common stock’s average closing price on The Nasdaq Capital Market for the five trading days ending on such date +(such lower price, without giving effect to such 20% reduction, the “Nasdaq Minimum Price”), and the number of shares issuable +upon exercise would be proportionately adjusted such that the aggregate exercise price would remain unchanged. As of September 30, 2024, there +would have been 5,301,592 shares of common stock (post-Reverse Stock Split and assuming the Adjustment had occurred on September +30, 2024) issuable upon exercise of the Series A Warrants. Subsequent to September 30, 2024, the exercise price under the Series A Warrants +was reduced to the floor price of $ 5.206 (representing 20% of the Nasdaq Minimum Price, post-Reverse Stock Split), beginning on October +14, 2024, the 11 th trading day following stockholder approval. As of December 31, 2024, 14,900 shares of common stock have +been issued upon exercise of Series A Warrants and 5,286,692 shares of Common stock remain issuable upon exercise of Series A Warrants. +Each Series B Warrant was exercisable +immediately upon issuance at an exercise price of $0.10 per share (post-Reverse Stock Split). The number of shares of common stock issuable +under the Series B Warrants were subject to adjustment using a reset price based on the weighted average price of common stock over a +rolling five-trading-day period between the issuance date of the Class B Warrants and the close of trading on the tenth trading day following +stockholder approval, subject to certain floor prices. As of September 30, 2024, 342,588 shares of Common stock (post-Reverse Stock Split) +had been issued upon exercise of Series B Warrants and there were 1,032,198 shares of Common stock (post-Reverse Stock Split) issuable +upon exercise of Series B Warrants based on the reset price of $ 5.45 (representing the lowest arithmetic average +of the daily VWAP during the 5 trading day period from September 12, 2024 through September 18, 2024. Effective October 8, 2024, after +market close, a reverse stock split occurred and as of November 12, 2024, 87,384 shares of common stock remain issuable upon exercise +of Series B Warrants using the reset price, which was reduced to the floor price of $ 5.206 (representing 20% of the Nasdaq Minimum Price +(post-Reverse Stock Split and post-Adjustment). +F- 17 +Pursuant to an underwriting agreement +by and between the Company and the Underwriter, the Company paid the Underwriter a total cash underwriting discount of $ 700,000 , equal +to 7% of gross proceeds received in the August 2024 Public Offering, reimbursement for Underwriter expenses of $ 100,000 , equal to 1% of +gross proceeds received, and reimbursement for road show, diligence, legal fees and disbursements of $ 100,000 , equal to 1% of gross proceeds +received, as well as $ 5,000 for investor counsel fee, totaling $ 905,000 in cash fees deducted from cash proceeds. +Convertible Note Financing +On December 27, 2023, the Company entered into a securities +purchase agreement with 3i, LP (“3i”), pursuant to which the Company sold and 3i purchased: (i) a senior unsecured convertible +note issued in the aggregate principal amount of $2,750,000, with an 10.0% original issue discount and an interest rate of 9.0% per annum +(the “3i Note”), (ii) up to $247,500 in newly issued shares of Common stock (the “Interest Shares”), which may +be payable, subject to the fulfillment of certain conditions set forth in the 3i Note, to satisfy interest payments under the 3i Note, +and (iii) 635 shares of Common stock issued to 3i as consideration for its commitment to purchase the 3i Note (collectively, the “Convertible +Note Financing”). The gross proceeds to the Company from the Convertible Note Financing were $2.5 million prior to the payment of +legal fees and transaction expenses. The offering of securities in the Convertible Note Financing was made pursuant to an effective shelf +registration statement on Form S-3 (File No. 333-272956), which the Company filed with the SEC on June 27, 2023 and was declared effective +on July 10, 2023. +On August 8, 2024, in connection with the closing +of the August 2024 Public Offering, the Company repaid the 3i Note, and the Company’s obligations under the 3i Note were fully satisfied +and discharged. Prior to the closing of the August 2024 Public Offering, the Company had issued 414 shares of common stock (post-Reverse +Stock Split) for the payment of $ 90,839 in interest. +Equity Line of Credit +On December 27, 2023, the Company entered into a common +stock purchase agreement with Tumim Stone Capital, LLC (“Tumim”), pursuant to which the Company has the right, but not the +obligation, to sell to Tumim, and Tumim is obligated to purchase, up to the lesser of (a) $20,000,000 in aggregate gross purchase price +of newly issued Common stock and (b) the Exchange Cap (as defined in the purchase agreement) (the “Equity Line of Credit”). +In connection with the Equity Line of Credit, the Company filed a Registration Statement on Form S-1 (File No. 333-276663) with the SEC +on January 23, 2024, which was declared effective on February 9, 2024. +In connection with the August 2024 Public Offering, +the Company and Tumim mutually agreed to terminate the Equity Line of Credit, effective immediately upon the closing of the August 2024 +Public Offering. Prior to the closing of the August 2024 Public Offering, the Company had sold 4,336 shares of common stock (post-Reverse +Stock Split) under the Equity Line of Credit for an aggregate amount of $ 828,491 , of which $ 434,958 was used to repay a portion of the +balance under the 3i Note, consisting of $ 380,042 to the loan principal, $ 34,204 to interest, and $ 20,712 as a redemption premium. +Reverse +Stock Split True-Up Payment +Effective +as of 5:00 p.m. Pacific Time on October 8, 2024 (the “Effective Date”), The Company effected a 1-for-100 reverse stock split +of our common stock (the “Reverse Stock Split”), which was approved by the Board on September 27, 2024, following stockholder +approval at our annual meeting of stockholders held on September 27, 2024. +As a result +of the daily VWAP of the common stock during the five trading days before and after the Reverse Stock Split, a Reverse Stock Split cash +true-up payment provision in the Series A Warrants, which is capped at $5.0 million in the aggregate under all Series A Warrants, was +triggered, but the payment of the Reverse Stock Split cash true-up payment was suspended in accordance with the terms of the Series A +Warrants. +F- 18 +During the +year ended December 31, 2024, $14,052 of this liability was relieved in connection with the exercise of Series A Warrants, leaving a remaining +liability of $ 4,985,948 as of December 31, 2024. We used $ 500,000 of the net proceeds from the registered direct offering and warrant +private placement that closed on January 3, 2025 to satisfy a portion of certain amounts owed to the holders of the Series A Warrants +pursuant to the terms thereof. +8. Commitments and Contingencies +Operating Leases +The Company leases its warehouses and office space +under long-term lease arrangements. None of its leases include characteristics specified in ASC 842, Leases , that require classification +as financing leases, and accordingly, these leases are accounted for as operating leases. The Company does not recognize a right-of-use +asset and lease liability for short term leases, which have terms of 12 months or less. For longer-term lease arrangements that are recognized +on the Company’s Balance Sheet, the right-of-use asset and lease liability are initially measured at the commencement date based +upon the present values of the lease payments due under the leases. +The implicit interest rates of the Company’s +lease arrangements are generally not readily determinable and as such, the Company applies an incremental borrowing rate, which is established +based upon the information available at the lease commencement date, to determine the present value of lease payments due under the arrangement. +Under ASC 842, the incremental borrowing rate (“IBR”) for leases must be (1) a rate of interest over a similar term, and (2) +for an amount that is equal to the lease payments. The Company uses both the Federal Reserve Economic Data U.S. corporate debt effective +yield and the U.S. Treasury rates adjusted for credit spread as the primary data points for purposes of determining the IBR. +In the first quarter of 2022, the Company entered +into two new long-term, non-cancelable operating lease agreements for office and warehouse space resulting in the Company recognizing +an additional lease liability of $ 2,348,509 , representing the present value of the lease payments discounted using an effective interest +rate of 8.07% and 8.86% , and corresponding ROU assets of $ 2,348,509 . The leases expire in December 2026 and December 2028 , the latter +of which contains one three-year option to renew. +In the first quarter of 2021, the Company entered +into a long-term, non-cancelable operating lease agreement for office and warehouse space resulting in the Company recognizing an additional +lease liability totaling of $ 1,268,089 , representing the present value of the lease payments discounted using an effective interest rate +of 7.47% and a corresponding ROU asset of $ 1,268,089 . The lease expires in January 2028 and contains one three-year option to renew. +The Company had another lease that expired in January +2023 and was terminated at that time. The relating right of use asset and lease liability were written off at that time. The company has +one further lease that expires in February 2025. The leases generally provide for annual increases based on a fixed amount and generally +require the Company to pay real estate taxes, insurance, and repairs. +On September 19, 2024, the Company signed a Termination +of Commercial Lease Agreement regarding the lease previously contracted to end in December 2028. The cancelation was effective September +30, 2024. The corresponding ROU asset and lease liability were therefore removed from the Company’s balance sheet effective September +30, 2024. +The following is a summary of total lease costs for +the years ending December 31, 2024 and 2023: +Schedule of lease cost +Years Ended December 31, +2024 +2023 +Operating lease cost +$ 610,549 +$ 749,975 +Short-term lease costs +1,149 +150 +Variable lease costs +— +— +Sublease income +( 42,804 ) +( 49,916 ) +Total lease costs +$ 568,894 +$ 700,209 +F- 19 +The weighted-average remaining lease term was 2.91 +and 4.54 years as of December 31, 2024 and 2023, respectively. The weighted average discount rate was 7.60 % and 8.47 % as of December 31, +2024 and 2023, respectively. Operating cash flows from the operating leases totaled $ 455,690 and $ 469,923 for the years ended December +31, 2024 and 2023, respectively. +The total lease liability as of December 31, 2024 +and 2023 was $ 798,917 and $ 2,764,089 , respectively. +The following is a maturity analysis of the annual +undiscounted cash flows of the operating lease liabilities as of December 31, 2024, for years ending December 31: +Schedule of future minimum lease payment +Total +2025 +$ +307,536 +2026 +307,632 +2027 +256,878 +2028 +21,458 +2029 +— +Thereafter +— +Total future minimum lease payments +893,504 +Less imputed interest +( 94,587 +Total +$ +798,917 +Current lease liability +$ +256,153 +Noncurrent lease liability +542,764 +Total +$ +798,917 +Subleases +As of December 31, 2024, the Company subleases office +and warehouse space under one of its existing operating leases with similar terms as the Company’s lease agreements. Two additional +leases ended in February, 2023. Because the Company is not relieved of its primary obligations under the original lease, the Company accounts +for the subleases as a lessor. Sublease rental income is recorded based on the contractual rental payments which are not substantially +different from recognition on a straight-line basis over the lease term and totaled $ 42,804 and $ 49,916 during the years ended December +31, 2024 and 2023, respectively. As of December 31, 2024 and 2023, deferred income and a sublease deposit totaled $ 4,549 and $ 4,445 , respectively, +and is included in accrued expenses and other current liabilities on the accompanying Balance Sheets. +The total future minimum sublease payments are $ 7,169 , +all due in the year ending December 31, 2025. +Litigation +The Company may be involved from time to time in litigation +or claims arising in the ordinary course of its business. While the ultimate liability, if any, arising from these claims cannot be determined +with certainty, the Company believes that the resolution of any such matters will not likely have a material adverse effect on the Company’s +financial statements. +On November 22, 2022, the Company received +notice of a complaint (the “Complaint”) filed against it in Oregon state court by Ravi Sinha. The Complaint alleged, inter +alia , that Mr. Sinha was entitled to 282,284 shares of the Company's common stock, or +in the alternative, $300,000 plus interest in connection with services he previously rendered the Company as its chief executive officer. +On March 21, 2023, the Company entered into a settlement agreement with Mr. Sinha and the matter has been resolved with $ 30,000 cash and +the issuance of 52,000 shares of common stock at the closing price of $ 4.84 per share on March 31, 2023, for a total settlement value +of $ 281,680 . (see Note 11, Stockholders’ Equity ). +F- 20 +On May 2, 2024, +the Company entered into a Settlement and Mutual Release with Alexander Capital L.P. (“Alexander”), pursuant to which the +parties resolved certain disputes while not admitting any liability or wrongdoing (the “Settlement Agreement”). We agreed +to (i) make a single cash payment of $100,000, (ii) issue 100,000 shares of Common Stock, and (iii) amend certain outstanding warrants +to reduce the per share exercise price from $9.10 to $4.50. The shares of Common Stock were issued pursuant to an effective Registration +Statement on Form S-3 (File No. 333-272956). The Settlement Agreement also contains other customary provisions, including a mutual release +of claims and mutual non-disparagement provision. +On July 1, 2024, +the Company entered into a Mutual Termination Agreement with Alexander (the “Termination Agreement”), pursuant to which the +parties agreed to terminate a certain provision in that certain underwriting agreement, dated March 31, 2022, between the Company and +Alexander, as representative of the underwriters, which granted Alexander a right of first refusal to act as the Company’s financial +advisor, book-runner, book-running manager, manager, placement agent, or underwriter in connection with any transaction contemplated or +consummated by us (the “ROFR Provision”). In exchange for the termination of the ROFR Provision, and in connection with the +closing of the 2024 Public Offering, the Company made a cash payment to Alexander in the amount of $ 400,900 . +Nasdaq Listing Requirement +On September 6, 2024, the Company received a staff +determination from The Nasdaq Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) to delist the Company’s +common stock from The Nasdaq Capital Market indicating that (i) the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2) +because the closing bid price per share for the Company’s common stock had closed below $1.00 for the previous 30 consecutive business +days, and (ii) the Company is subject to the provisions contemplated under Nasdaq Listing Rule 5810(c)(3)(A)(iii) because, as of September +5, 2024, the Company’s common stock had a closing bid price of $0.10 or less for at least ten consecutive trading days (the “Staff +Determination”). +On September 12, 2024, the Company requested an appeal +hearing on the Staff Determination from a Hearings Panel (the “Panel”) by filing a hearing request with Nasdaq pursuant to +the procedures set forth in the Nasdaq Listing Rules, staying the delisting of the common stock pending the Panel’s decision. +Upon successful completion of the Reverse Stock Split, +the Company received a letter from the Nasdaq Office of General Counsel on October 23, 2024, advising the Company that it had regained +compliance with the minimum bid price continued listing requirements in Listing Rule 5550(a)(2) and that the Company is therefore in compliance +with Nasdaq’s listing requirements. Consequently, the scheduled hearing before the Panel on October 24, 2024, was cancelled. +The Company’s common stock continues to be listed and traded on The Nasdaq Capital Market. +See Note 14 – “Subsequent Events” +in this Quarterly Report for additional information about the Reverse Stock Split and the Nasdaq Listing Requirement. +9. Stockholders’ Equity +The Company is authorized to issue an aggregate of +220,000,000 shares of capital stock, par value $ 0.001 per share, consisting of 200,000,000 shares of common stock and 20,000,000 shares +of preferred stock. As of December 31, 2024 and December 31, 2023, 2,096,082 and 69,230 shares, respectively, of common stock were issued +and outstanding. No shares of preferred stock have been issued. +As of December 31, 2024, of the 50,000,000 Units sold +in the August 2024 Public Offering at $ 0.20 per unit (Pre-Reverse Stock Split), 500,000 shares of common stock (post-Reverse Stock Split) +were issued, as all 16,598,000 Pre-Funded Warrants have been exercised. +Prior to the Company’s payoff of the 3i Note +in connection with the closing of the August 2024 Public Offering, the Company had issued 414 shares of common stock for the payment of +$ 90,839 in interest. As of December 31, 2024, the Company has sold 4,336 shares of common stock for an aggregate amount of $ 828,491 , of +which $ 434,958 was used to repay a portion of the balance under the 3i Note, consisting of $ 380,042 to the loan principal, $ 34,204 to +interest and $ 20,712 as a redemption premium. +F- 21 +On May 2, 2024, at the closing price of $ 209.00 per +share, the Company agreed to issue 1,000 shares of common stock valued at $ 209,000 as well as $ 100,000 in cash as part of a settlement +agreement for a total value of $ 309,000 . +On March 31, 2023, at the closing price of $ 484.00 +per share, the Company issued 520 shares of common as part of a settlement agreement for a total value of $ 251,680 . +On January 16, 2023, at the closing price of $ 454 +per share, the Company issued 79 shares of common stock for stock-based compensation that had been accrued in 2023, for a total value +of $ 36,029 . +As of December 31, 2024 and December 31, 2023, 2,096,082 +and 69,230 shares, respectively, of common stock were issued and outstanding. No shares of preferred stock have been issued. +A holder of common stock is entitled to one vote for +each share of common stock. The holders of common stock have no conversion, redemption or preemptive rights and shall be entitled to receive +dividends when, as, and if declared by the board of directors. Upon dissolution, liquidation, or winding up of the Company, after payment +or provision for payment of debts and other liabilities of the Company, subject to the rights, if any, of the holders of any class or +series stock having a preference over the right to participate with common stock with respect to the distribution of assets of the Company +upon such dissolution, liquidation, or winding up of the Company, the holders of common stock shall be entitled to receive the remaining +assets of the Company available for distribution to its stockholders ratably in proportion to the number of shares of common stock held. +Since no shares of preferred stock have been issued, +no rights and privileges of preferred stockholders have been defined. +Initial Public Offering +On April 1, 2022, the Company completed an initial +public offering (“IPO”). A total of 24,668 shares of common stock were sold at $ 700.00 per share in the IPO, for total gross +proceeds of $ 17,267,250 . +Warrants/Options +During the year ended December 31, 2023, 73,000 warrants +exercisable for 730 shares at $ 290.00 per share were exercised using the cashless conversion option which resulted in the issuance of +311 shares of common stock (post-Reverse Stock Split). This left 78,000 warrants remaining, which expired on November 9, 2024 , without +being exercised, and there are no warrants remaining at $ 290.00 per share as of December 31, 2024. +During the year ended December 31, 2023, 22,606 warrants +exercisable for 226 shares of common stock at $ 332.00 per share were exercised using the cashless conversion option, which resulted in +the issuance of 102 shares of common stock, and 15,000 warrants exercisable for 150 shares of common stock at $ 332.00 per share were exercised +on a cash basis, which resulted in the issuance of 150 shares of common stock. During the year ended December 31, 2024, 7,535 warrants +exercisable for 75 shares of common stock at $ 332.00 per share were exercised using the cashless conversion option which resulted in the +issuance of 16 shares of common stock. This leaves 514,290 warrants remaining convertible into 5,149 shares of common stock with an exercise +price of $ 332.00 per share as of December 31, 2024. +On August 10, 2023, the Company issued 25,000 warrants +to their investor relations firm in accordance with a letter of engagement signed July 22, 2022, to purchase 250 shares of common stock +at an exercise price of $500.00 per share. The warrants expire two years from the date of grant on August 9, 2025. The fair value of the +warrants was determined at date of issuance using the Black-Scholes option-pricing model and following assumptions: per share price of +common stock on date of grant $ 5.20 , expected dividend yield of 0 %, expected volatility of 88 %, risk-free interest rate of 4.82 % and expected +life based on contractual life of two years. The fair value of $ 65,045 was recorded as an increase in additional paid-in capital +and expensed to Legal and Professional Services. +As part of a settlement agreement on May 2, 2024, +the Company agreed to modify the exercise price of 88,803 warrants convertible into 891 shares from $ 910.00 to $ 450.00 . +F- 22 +8,125,000 Series B Warrants exercisable for 496,232 +shares at $ 0.10 per share were exercised using the cashless conversion option which resulted in the issuance of 215,678 shares of common +stock (based on a $ 5.206 reset price). Another 46,300,000 Series B Warrants were exercised on a cash basis which resulted in the issuance +of 1,078,689 shares of common stock (based on a $ 5.206 reset price). This leaves 3,075,000 Series B warrants remaining, which are exercisable +for 87,384 shares (post-Adjustment), as of December 31, 2024. In addition, 323,203 Series A Warrants were exercised on a cash basis which +resulted in the issuance of 14,900 of common stock. This leaves 114,676,797 Series A Warrants remaining, which are exercisable for 5,286,692 +shares of common stock, as of December 31, 2024. +As of December 31, 2024 and December 31, 2023, a total +of 687,295 and 772,830 regular warrants to purchase 6,889 and 7,745 shares of common stock, respectively, were issued and outstanding. +As of December 31, 2023, a total of 30,000 options, which were not issued under a specified plan, were outstanding. However, all 30,000 +non-plan options expired on November 8, 2024 , and there are no non-plan options outstanding as of December 31, 2024. +Below is a summary of warrants and stock options issued +and outstanding as of December 31, 2024: +Schedule of various warrants/options issued and outstanding +Number of Warrants +Issuable Shares +Exercise Price per share +Weighted Average Remaining Life (Years) +3,075,000 (1) +87,384 +$ 0.10 +N/A (3) +114,676,797 (2) +5,286,692 +$ 5.206 +4.74 +514,290 +5,149 +$ 332.00 +6.89 +88,803 +891 +$ 450.00 +2.25 +25,000 +250 +$ 500.00 +0.61 +59,202 +599 +$ 910.00 +2.25 +118,439,092 +5,380,965 +(1) +Series B Warrants are subject to reset pricing to determine the number of shares issuable. +(2) +Series A Warrants are subject to reset pricing to determine the number of shares issuable. +(3) +Series B warrants do not have an expiration date. +Equity Plans +As of December 31, 2024, the Company had adopted two +stock-based compensation plans, the 2021 Incentive Award Plan and the 2021 Employee Stock Purchase Plan. +During the year ended December 31, 2024, the Company +granted 161 RSUs, granted 1,045 options, and canceled 100 options (post-Reverse Stock Split) under the 2021 Incentive Award Plan. The +compensation costs that have been charged against operations were $ 581,504 and $ 495,320 for the years ended December 31, 2024 and 2023. +No shares have been issued to date under the 2021 +Employee Stock Purchase Plan. +2021 Incentive Award Plan +The purpose of the Company’s 2021 Incentive +Award Plan is to enhance the Company’s ability to attract, retain and motivate persons who make (or are expected to make) important +contributions to the Company by providing these individuals with equity ownership opportunities. Various stock-based awards may be granted +under the 2021 Incentive Award Plan to eligible employees, consultants, and non-employee directors. The number of shares issued under +the 2021 Incentive Award Plan is subject to limits and is adjusted annually. No more than 1,000,000 shares may be issued pursuant to the +exercise of incentive stock options. The aggregate share limit will be subject to an annual increase on the first day of each calendar +year ending on and including January 1, 2031, by a number of shares equal to the lesser of (i) a number equal to 5% of the aggregate number +of shares of the Company's common stock outstanding on the final day of the immediately preceding calendar year and (ii) such smaller +number of shares as is determined by the Company's board or committee. As of December 31, 2024, the aggregate number of shares that can +be issued under the 2021 Incentive Award Plan is 17,958 , of which 11,430 options and 649 RSUs have been granted. The number of shares granted, the exercise price, and the terms +will be determined at date of grant; however, the exercise price shall not be less than 100% of the fair value on the grant date (110% +for options granted to greater than 10% stockholders, except for options granted to Mr. Yozamp in August 2023, which were at 100%) and +the term shall not exceed ten years. +F- 23 +2021 Employee Stock Purchase Plan +The purpose of the Company’s 2021 Employee Stock +Purchase Plan is to assist eligible employees of the Company in acquiring a stock ownership in the Company and to help such employees +provide for their future security and to encourage them to remain in the employment of the Company. The 2021 Employee Stock Purchase Plan +consists of a Section 423 Component and Non-Section 423 Component. The Section 423 Component is intended to qualify as an employee stock +purchase plan and also authorizes the grant of options. Options granted under the Non-Section 423 Component shall be granted pursuant +to separate offerings containing sub-plans. The Company may make one or more offerings under the 2021 Employee Stock Purchase Plan. The +duration and timing of each offering period may be established or changed by the board, but in no event may an offering period exceed +27 months and in no event may the purchase period for the option exceed the duration of the offering period under which it is established. +On each exercise date for an offering period, each participant shall automatically be deemed to have exercised the option to purchase +the largest number of whole shares which can be purchased under the offering. Option awards are generally granted with an exercise price +equal to 85% of the lesser of the fair market value of a share on (a) the applicable grant date and (b) the applicable exercise date, +or such other price as designated by the administrator, provided that in no event shall the option price be less that the per share par +value price. The maximum number of shares granted under the 2021 Employee Stock Purchase Plan shall not exceed 25,000 shares. +The fair value of each option is estimated on the +date of grant using the Black-Scholes option pricing model. The option-pricing model requires a number of assumptions, of which the most +significant are the expected stock price volatility and the expected option term. Expected volatility was calculated based upon similar +traded companies’ historical share price movements as adequate historical experience is not available to provide a reasonable estimate. +Expected term is calculated based on the simplified method as adequate historical experience is not available to provide a reasonable +estimate. The simplified method will continue to apply until enough historical experience is available to provide a reasonable estimate +of the expected term. The risk-free interest rate is calculated based on the yield from U.S. Treasury zero-coupon bonds with an equivalent +term. The Company has historically not paid dividends and have no foreseeable plans to pay dividends. +The Company has computed the fair value of the 2,455 +options granted during the year ended December 31, 2023 using the following assumptions: +Schedule of fair value of assumptions +Expected volatility +105.27 +% +Expected dividends +None +Expected term (in years) +6.0 +Risk free rate +4.33 % +The Company has computed the fair value of the 1,045 +options granted during the year ended December 31, 2023 using the following assumptions: +Expected volatility +124.35 +% +Expected dividends +None +Expected term (in years) +5.42 +Risk free rate +4.08 % +F- 24 +The following table summarizes the Company’s +stock option activity under the 2021 Incentive Award Plan: +Schedule of stock option activity +(in thousands except number of options and per options data) +Number of options +Weighted average exercise price +Weighted average remaining contractual term (in years) +Aggregate intrinsic value +Outstanding at beginning of period +10,756 +$ +377.28 +— +$ +— +Granted +1,045 +345.00 +— +— +Exercised +— +— +— +— +Canceled +371 +444.06 +— +— +Outstanding at end of period +11,430 +$ +372.16 +7.36 +$ +— +Exercisable at end of period +10,463 +$ +365.88 +7.23 +$ +— +During the years ended December 31, 2024 and 2023, +the weighted-average grant-date fair value of the options granted to employees and non-employees was $ 312,873 and $ 998,915 , respectively. +Unrecognized compensation expense related to employees and non-employees was $ 101,970 as of December 31, 2024. The options granted in +May 2022 were vested 100% at time of grant. The options granted in August 2023 began to vest in equal quarterly installments beginning +September 30, 2023 and ending June 30, 2026. The options granted in March 2024 were vested 50% at the time of grant, then the remainder +continues to vest in 12 equal quarterly installments thereafter, beginning June 30, 2024. +The following table summarizes the Company’s +RSU activity under the 2021 Incentive Award Plan: +Schedule of RSU activity +(in thousands except number of options and per options data) +Number of restricted stock awards +Weighted average grant-date fair value +Nonvested at beginning of year +366 +$ +180,072 +Granted +161 +73,094 +Vested +527 +253,166 +Forfeited +— +— +Nonvested at end of year +— +$ +— +There was no unrecognized compensation cost related +to non-vested RSUs as of December 31, 2024. +Common Stock Reserved for Future Issuance +The following is a summary of common stock shares +reserved for future issuance as of December 31, 2024: +Schedule of common stock shares reserved for future issuance +Exercise of warrants +6,889 +Exercise of stock options – 2021 Incentive Award Plan +11,430 +Exercise of restricted stock units – 2021 Incentive Award Plan +— +Exercise of Series A warrants +5,286,692 +Exercise of Series B warrants +87,384 +Total shares of common stock reserved for future issuances +5,392,395 +10. Segment Reporting +The Company focuses on the design, assembly, manufacturing, +and sale of lithium iron phosphate (“LiFePO4”) batteries and supporting accessories for recreational vehicles (“RVs”), +marine applications and home energy storage products with plans to expand into industrial applications. We sell to wholesalers, distributors, +and OEMs, as well as directly to consumers, and cannot always determine which application our batteries are ultimately used in. +F- 25 +The accounting policies for this segment aligns with +those outlined in the summary of significant accounting policies. The Chief Executive Officer is the Chief Operating Decision Maker (CODM) +and assesses the performance of this segment and allocates resources based on net income or loss, which is reflected on the Statements +of Operations, and the measure of segment assets is represented as total assets on the Balance Sheet, included in the Financial Statements +section of this Annual Report. +The CODM evaluates the net income or loss from our +one reportable segment. Net income or loss is also utilized to monitor the difference between budgeted and actual results, offering insights +into financial performance and guiding any necessary corrective actions. Additionally, the CODM employs net income or loss for competitive +analysis by comparing its financial performance with other competitors in the Energy Storage (ES) space. +The Company does not engage in any intra-entity sales +or transfers. +The Company has identified one reportable segment: +Energy Storage (ES). This segment generates revenue in North America, and the Company manages its product sales and associated expenses +on a total basis. +11. Income Taxes +Our losses before income taxes for the years ended +December 31, 2024 and 2023 were generated primarily from U.S. operations. +We have no current or deferred provision for income +taxes from continuing operations for the years ended December 31, 2024 and 2023. +The significant differences between the U.S. Federal +statutory rate and our effective rate for financial reporting purposes are as follows: +Schedule +of income before income tax, domestic and foreign +Years Ended December 31, +2024 +2023 +Federal statutory tax rate +( 21.0 ) % +( 21.0 )% +State taxes, net of federal tax benefit +( 5.1 ) +( 4.9 ) +Change in valuation allowance +22.6 +19.9 +NQSO Comp – Other +2.1 +2.2 +EQ Comp – Other +0.0 +0.0 +True-up Adjustment +1.5 +3.8 +Effective tax rate +— % +— % +Deferred income taxes reflect the net tax effects +of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used +for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows for the year +ended December 31, 2024 and 2023. +Deferred income tax assets and liabilities consist +of the following: +Schedule +of components of income tax expense +As of December 31, +2024 +2023 +Deferred tax assets: +Net Operating Losses +$ 6,274,519 +$ 3,434,559 +Stock-based compensation +170,064 +153,692 +Depreciation +138,334 +61,547 +Other +256,179 +120,072 +Subtotal +6,839,096 +3,769,870 +Valuation allowance +( 6,839,096 ) +( 3,769,870 ) +Deferred tax liabilities: +— +— +Net deferred tax asset +$ — +$ — +F- 26 +For financial reporting purposes, the Company incurred +losses for the year ended December 31, 2024 and December 31, 2023 and for each period since inception. Accordingly, no benefit for income +taxes has been recorded due to the uncertainty of the realization of any tax assets. At December 31, 2024, the Company had approximately +$ 29,036,703 of federal and state net operating losses. +Accrued income taxes as of the end of each year as +follows: +Schedule +of accrued income taxes +As of December 31, +2024 +2023 +Current: +Federal +$ — +$ — +State Franchise Fees +150 +1,840 +A reconciliation between the amount of income tax +benefit determined by applying the U.S statutory income tax rate to pre-tax loss is as follows: +Summary +of operating loss carryforward +As of December 31, +2024 +2023 +Income tax provision at federal statutory rate +$ ( 2,839,422 ) +$ ( 1,565,126 ) +State taxes +( 689,421 ) +( 361,328 ) +Stock-based compensation +278,572 +163,170 +Penalties and Fines +— +22 +Other +196,608 +283,876 +Valuation allowance +3,053,661 +1,479,386 +Net deferred tax asset +$ — +$ — +Tax positions are evaluated in a two-step process. +The Company first determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position +meets the more-likely-than-not recognition threshold it is then measured to determine the amount of benefit to recognize in the financial +statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate +settlement. The aggregate changes in the balance of gross unrecognized tax benefits, which excludes penalties and interest, for the year +ended December 31, 2024 is zero. +The Company is subject to taxation in the United States +and Oregon. There are no ongoing examinations by taxing authorities at this time. The Company’s various tax years 2018 through 2024 +remain open for examination by various taxing jurisdictions. +The Company recognizes interest and penalties related +to uncertain tax positions in income tax expense. As of December 31, 2024, the Company has not accrued any penalties or interest related +to uncertain tax positions. +In anticipation of an initial public offering, the +Company converted from a limited liability company to a C corporation, a taxable entity, effective November 1, 2021. +For the year ended December 31, 2023, the Company +accrued $ 1,840 for state minimum income taxes, and did not accrue federal income taxes due to net losses in 2023. For the year ended December +31, 2024 the Company adjusted the accrual to $ 150 for state income taxes, as we do not anticipate owing more than the minimum state income +taxes for 2024. +Since converting to a C corporation, the Company has +incurred losses and consequently recorded no provision for state or federal income taxes for the years ended December 31, 2024 and 2023. +The Company maintains a full valuation allowance on all deferred tax assets, as it has concluded that it is more likely than not that +these assets will not be realized. As of December 31, 2024 and December 31, 2023, there were no material unrecognized tax benefits included +in the accompanying balance sheets that would, if recognized, affect the effective tax rate. +F- 27 +12. 401(k) Plan +The Company adopted a 401(k) Plan (“Plan”) +for the benefit of its employees. Employees may contribute to the Plan within defined limits as defined by the Internal Revenue Service. +Substantially all employees are eligible to participate. The Company has the option to make profit sharing contributions at its discretion. +No profit-sharing contributions have been made. +13. Related-Party Transactions +As of December 31, 2023, related party transactions +consisted of the Notes (see Note 6, Stockholder Promissory Notes ). +As of December 31, 2024, there were no outstanding +related-party transactions, as all Stockholder Promissory Notes had been repaid. +14. Subsequent Events +January 2025 Registered Direct Offering and Warrant +Private Placement +On January 3, 2025, the Company +sold to certain institutional investors, in a registered direct offering, an aggregate of (i) 474,193 shares of common stock; and (ii) +574,193 pre-funded warrants (the “January 2025 Pre-Funded Warrants”) to purchase up to 574,193 shares of common stock (the +“January 2025 Pre-Funded Warrant Shares”). The offering price per share was $2.48 and the offering price per January 2025 +Pre-Funded Warrant was $2.479. Each January 2025 Pre-Funded Warrant was exercisable for one share of common stock for $0.001 immediately +upon issuance and the January 2025 Pre-Funded Warrants were all exercised immediately upon issuance. The number of January 2025 Pre-Funded +Warrant Shares are subject to adjustments for stock splits, recapitalizations, and reorganizations. The January 2025 Pre-Funded Warrants +were exercised in full on January 3, 2025. +In a concurrent private placement +that closed January 3, 2025, the Company also issued to the institutional investors unregistered warrants (the “January 2025 Warrants”) +to purchase up to an aggregate of 1,048,386 shares of common stock (the “January 2025 Warrant Shares”) at an exercise price +of $ 2.36 per share, subject to adjustment for reverse stock splits, recapitalizations, and reorganizations. In connection with the private +placement, the Company filed a registration statement on Form S-1 (File No. 333-284354), which was declared effective by the SEC on February +11, 2025, covering the resale of the January 2025 Warrant Shares. +The Company received net proceeds of approximately +$ 2.2 million from the offering and used approximately $ 500,000 of the net proceeds to satisfy a portion of +certain amounts owed to our Series A Warrant holders pursuant to the terms of the outstanding Series A Warrants. +F- 28 \ No newline at end of file diff --git a/raw/filings/0001894954/2024/0001903596-25-000145/filing_metadata.csv b/raw/filings/0001894954/2024/0001903596-25-000145/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..4fa5aa2f7e0835cd743e4743dd8d21d5e4281cb2 --- /dev/null +++ b/raw/filings/0001894954/2024/0001903596-25-000145/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001894954,XPON,Expion360 Inc.,2024,10-K,2025-03-31,2024-12-31,2025-03-31T20:16:53.000Z,0001903596-25-000145,xpon_10k.htm,,7059188,1,1,https://www.sec.gov/Archives/edgar/data/1894954/000190359625000145/xpon_10k.htm,https://www.sec.gov/Archives/edgar/data/1894954/000190359625000145/ diff --git a/raw/filings/0001894954/2024/0001903596-25-000145/item1.txt b/raw/filings/0001894954/2024/0001903596-25-000145/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..670d76640bfb381cfcec2314fb834c7997183a16 --- /dev/null +++ b/raw/filings/0001894954/2024/0001903596-25-000145/item1.txt @@ -0,0 +1,309 @@ +ITEM 1. BUSINESS +Our Company +Expion360 focuses on the design, assembly, manufacturing, +and sale of lithium iron phosphate (“LiFePO4”) batteries and supporting accessories for recreational vehicles (“RVs”), +marine applications and home energy storage products with plans to expand into industrial applications. Our high-powered, lithium battery +solutions incorporate innovative concepts and have been designed to include some of the most dense and minimal-footprint batteries in +the RV and marine industries. In addition, in January 2025 we began selling our e360 Home Energy Storage Solutions, which consist of two +LiFePO4 battery storage solutions and seek to provide consumers with a cost-effective, low barrier of entry, flexible system to power +their homes utilizing solar energy, wind, or grid back-up. We are deploying multiple intellectual property strategies with research and +products to sustain and scale our business. This includes design, development and collaboration, using our IP to bring safety, quality +and service to our customers. Our customers consist of dealers, wholesalers, private-label customers, and original equipment manufacturers +(“OEMs”) who then sell our products to end consumers and drive brand awareness nationally. +Our primary target markets are currently the RV, marine, +and home energy storage industries. We believe we are well-positioned to capitalize on the rapid market conversion from lead-acid to lithium +batteries as the primary method of power sourcing in these industries. We are also focused on expanding into the home energy storage market +with the introduction of our e360 Home Energy Storage Solutions, and we hope to establish a new standard in the industry for barrier price, +flexibility, and integration with this offering. Along with the RV, marine and home energy storage markets, we aim to provide additional +capacities to the expanding electric forklift and industrial material handling markets. +We launched our e360 product line, which is manufactured +for the RV and marine industries, in December 2020. The e360 product line, through its sales growth, has shown to be a preferred conversion +solution for lead-acid batteries. In December 2023, we announced our entrance into the home energy storage market with our introduction +of two LiFePO4 battery storage solutions that enable residential and small business customers to create their own stable micro-energy +grid and lessen the impact of increasing power fluctuations and outages. As of January 2025, we have begun shipping orders of our e360 +Home Energy Storage Solutions. +We currently operate Expion360 as one reportable business +segment, Energy Storage (ES). +Our products provide numerous advantages for various +industries that are looking to migrate to lithium-based energy storage. They incorporate detailed-oriented design and engineering, strong +case materials, and internal and structural layouts, and are backed by responsive customer service. +Our Market Opportunity +The trend of vehicle electrification is expected to +be a significant growth catalyst for lithium compounds over the next decade and beyond. According to ReportLinker, the global light electric +vehicle market is growing at a 9.4% compound annual growth rate (“CAGR”) and is expected to reach $122.7 billion by 2027. +Similarly, the global golf cart battery market is growing at a 5.9% CAGR and is anticipated to reach $216.5 million by 2031 according +to Allied Market Research. +Furthermore, the global RV market was $57.3 billion +in 2021, and is anticipated to have a CAGR of 7.6% from 2022 to 2031, with an anticipated market of $117.0 billion by 2031, per Allied +Market Research. +In addition, the global residential solar energy storage +market is expected to increase from $20.5 billion in 2023, to an anticipated $518.8 billion in 2032, a CAGR of 43.16%, according to Market +Data Forecast. +At the intersection of both these trends lies the +rapidly expanding lithium battery market. According to IMARC, the market for lithium-ion batteries is projected to grow at 13.2% CAGR +to reach $93.3 billion by 2028. +6 +The vast expansion of the lithium battery market can +be attributed to global trends promoting clean energy, as well as the compact and flexible nature of lithium battery packs, which make +them easy to install in RVs and boats. Our technology, which we believe offers industry-leading battery pack flexibility for the most +efficient energy storage, is poised to be able to offer power to these large vehicles such as RVs and recreational boats. +Expion360 is focused on expanding its position in +the deep cycle, off-grid, and stationary energy storage markets. According to the Federal Consortium for Advanced Batteries, the United +States has five goals in mind to secure battery materials and the U.S. technology supply chain. They include (i) securing access to raw +materials; (ii) support of the U.S. materials-processing base; (iii) stimulation of U.S. electrode, cell, and pack manufacturing; (iv) +enabling recycling and reuse of critical materials; and (v) support of scientific R&D, STEM education and workforce development. Expion360 +is well-positioned to benefit from this national focus. +Lithium-based batteries power our daily lives, from +consumer electronics to national defense. They enable electrification of the transportation sector and provide stationary grid storage, +critical to developing the clean-energy economy. The U.S. has a strong research community, a robust innovation infrastructure for technological +advancement of batteries, and an emerging lithium-based battery manufacturing industry, according to the U.S. Department of Energy. +It is our objective to work closely with federal, +state and local governments, as well as private industry to help America be the leader in lithium battery technology. +Competitive Strengths +We believe the following strengths +differentiate Expion360 and create long-term, sustainable competitive advantages: +Superior Capacity to Lead-Acid Competitors +Lead-acid batteries have historically been the standard +in RV and marine transportation vehicles, but these industries are experiencing a rapid conversion from lead-acid to lithium batteries +as the primary method of power sourcing. Our lithium-ion batteries offer superior capacity to our lead-acid competitors with an expected +lifespan of approximately 12 years—three to four times the lifespan of certain lead-acid batteries—and ten times the number +of charging cycles. Furthermore, our typical battery may provide three times the power of the typical, lead-acid battery despite being +half the weight (comparing, for example, a typical lead-acid battery like the Renogy Deep Cycle AGM, which is rated at 100Ah, to our +own LFP 100Ah battery and assuming slow discharge at a 0.1C rate). +In addition, we offer a 4.5 Ah 26650 lithium-ion phosphate +battery cell, which allows us to increase energy density by over 32% compared to traditional 3.4 Ah 26650 cells. +Expansion into New Markets +Our proprietary e360 SmartTalk mobile app is included +in many of our battery models and allows the seamless integration and management of e360 Bluetooth-enabled LiFePO4 batteries. The technology +enables users to wirelessly monitor and manage e360 batteries, providing a comprehensive view of both individual battery conditions and +performance, and a power bank consisting of multiple e360 batteries. The 48 Volt GC2 LiFePO4 battery was our first e360 SmartTalk Battery +for powering electric golf carts and other light electric vehicles. +In December 2023, we entered the home energy storage +market with our introduction of two LiFePO4 battery storage solutions comprising our e360 Home Energy Storage Solution: a wall mounted +all-in-one inverter and 10kWh battery and an expandable server rack style battery cabinet system. We believe our new home energy storage +product line will benefit from a fast-growing battery energy storage market, which is forecasted by Markets and Markets to grow at a 26.4% +CAGR to reach $17.5 billion by 2028. Further, according to Clean Energy Group, approximately 3.2 million homes in the United States have +solar panels installed, but only about 6% of residential solar systems have battery storage. Our home energy storage products are currently +completing UL testing and certification, as well as other requirements for various Authorities Having Jurisdiction. +7 +In January 2024, we introduced our next generation +12V GC2 and Group 27 series LiFePO4 batteries. These new versions include higher amp-hour options (4.0Ah and 4.5Ah cell technology) and +the latest advancements in power technology features, including Expion360’s proprietary Vertical Heat Conduction™ internal +heating, Bluetooth®, and controller area network (“CANBus”) communication. We began delivering the new 12V GC2 and Group +27 batteries to customers in the second quarter of 2024. +In July 2024, we launched our new Edge battery, which +offers a slim design and adds greater flexibility during installation. The Edge is offered in both 12V and 48V versions. We are seeing +high customer interest and started shipping the new Edge in July 2024. +Strong National Retail Customers and Distribution +Channels +We have sales relationships with many major RV and +marine retailers and plan to use our strong reputation in the lithium battery space to create an even stronger distribution channel. Current +and former members of management have used their decades of experience in the energy and RV industries to cultivate relationships with +numerous retailers in the space, including Camping World, a leading national RV retailer; and Meyer Distributing, Inc., a leading national +marketer and distributor of automotive and RV specialty products. +Home Energy Integration +We are currently having discussions with integration +partners. This is key for the development of our home energy storage products and subsequent sales growth. +Expion360 Products +We have historically focused on the design, assembly, +and sales of LiFePO4 batteries and supporting accessories for RV and marine applications, and have recently expanded into home energy +storage solutions. Our batteries are designed and engineered in-house using premium lithium iron phosphate cells with quality controls +at every step. We use high-grade LiFePO4 batteries meeting the UL 1642 standard (UL File No. MH64383). We believe our materials and engineering +enhance the reliability, stability, and safety of our products relative to those of our competitors. We reimagined the standard battery +case and included built-in rubber feet, radiused corners, 96.7% larger terminal connection pads, interior molded ribs for structural security, +and the highest-grade ABS plastics with additives for fire retardancy. To maximize the power and efficiency of our batteries, we welded +our cells via thick copper/tin-machined collector plates, welded all interior pack points, added a press break flange at each end to create +a mechanical backbone for the battery monitoring system (“BMS”), used high-grade wiring and ring terminals throughout, and +treated connections with industrial epoxy for long-lasting protection. Our internal “smart” BMS design includes multiple safety +and performance features, such as low temperature discharge, auto shutoff, short circuit protection, low- and high-voltage shutoffs, and +overcurrent disconnect. Our structurally sound BMS board features a bolted design, eliminating all unnecessary solder, resulting in one +cohesive pack with a long lifespan. We hold our lithium batteries to high safety standards, which has enabled us to achieve a UL 1973 +compliance. We stand by our batteries with a robust 12-year warranty. +To enable us to provide a full range of components +to complement our battery offerings, we offer a suite of accessories and components for new installations or conversions which includes +but is not limited to chargers, monitors, inverters, and solar components from brands such as Victron Energy and RedArc. +As of December 31, 2024, we offered the following products for sale: +12V Batteries: +· Group 24: +o e360 60Ah LiFePO4 battery +o e360 80Ah LiFePO4 battery +o e360 95Ah LiFePO4 battery +· Group 27: +o e360 100Ah LiFePO4 battery +o e360 120Ah LiFePO4 battery +o e360 100Ah LiFePO4 battery with SmartTalk, CANBus, and VHS Internal Heating +o e360 100Ah LiFePO4 battery with SmartTalk, CANBus, and VHS Internal Heating +· GC2: +o e360 162Ah LiFePO4 battery with SmartTalk, CANBus, and VHC Internal Heating +· EX1 Custom: +o e360 368Ah LiFePO4 battery +o e360 368Ah LiFePO4 battery with SmartTalk +o e360 450Ah LiFePO4 battery with SmartTalk +· EX2 Edge Custom: +o e360 240Ah LiFePO4 battery with SmartTalk, CANBus, and VHC Internal Heating +48V Batteries: +· GC2: +o e360 36Ah LiFePO4 battery with SmartTalk and CANBus +· EX2 Edge Custom: +o e360 60Ah LiFePO4 battery with SmartTalk, CANBus, and VHC Internal Heating +· 3U Server Rack Home Energy Battery: +o e360 100Ah Home Energy LiFePO4 battery with CANBus +Accessories: +· Battery Monitors +· DC-DC Battery Chargers +· AC-DC Battery Chargers +· Solar Charge Controller Battery Chargers +· CANBus Communication Cables +· 120W Portable Solar Panel +· Industrial Battery Mounting Kits – 10 models +· Terminal Blocks +· Bus Bars +· AURA Powercap 600W Inverter +· e360 SmartTalk mobile app +8 +As of December +31, 2024, we had the following products in our pipeline: +· In September 2023, we introduced a new 4.5 Ah +26650 lithium-ion phosphate battery cell and 12 Volt 450 Ah e360 SmartTalk™ lithium-ion battery. We have been regularly shipping +the battery to our customers, including OEMs, since March 2024. +· In December 2023, we introduced a wall mounted +all-in-one inverter and 10kW battery and an expandable server rack style battery cabinet system and begun taking orders for the new e360 +Home Energy Storage Solutions, which began shipping to customers in January 2025. See the section above titled “ Competitive Strengths — Expansion +into New Markets ” for additional information about the new home energy storage solutions. +Competitors +Our competitors include lithium-ion battery manufacturers, +such as Relion (which was acquired by Brunswick Corporation in September 2021); Dragonfly Energy Holdings Corp (Nasdaq: DFLI), the manufacturer +of Battle Born Batteries; Renogy; and Dakota Lithium. Lead-acid battery manufactures also continue to have a presence in the marketplace. +We have designed custom form factors in both the industry standard Group 24 and Group 27 battery sizes allowing us to visually and structurally +differentiate Expion360 within the market space. We believe our custom 360Ah battery also provides a unique capacity to footprint ratio +compared to lead-acid and lithium battery competitors. Our batteries utilize lithium iron phosphate and therefore are expected to have +a lifespan of approximately 12 years—three to four times that of certain lead-acid batteries—and ten times the number of charging +cycles. Furthermore, our typical battery may provide three times the power of the typical lead-acid battery despite being half the weight +(comparing, for example, a typical lead-acid battery like Renogy Deep Cycle AGM, which is rated at 100Ah, to our own LFP 100Ah battery +and assuming slow discharge at a 0.1C rate). +9 +Manufacturing and Supply Chain +Our batteries are manufactured by multiple third-party +manufacturers located in Asia, which also produce our battery cells. While we do not have long-term purchase agreements with these manufacturers +and our purchases are completed on a purchase-order basis, we maintain strong relationships with our manufacturers and cell suppliers, +reflected in our ability to increase our purchase order volumes (qualifying us for related volume-based discounts). The strength of these +relationships has helped us moderate increased supply-related costs associated with inflation, currency fluctuations, and U.S. government +tariffs imposed on our imports, and avoid potential shipment delays. We aim to maintain an appropriate level of inventory to satisfy our +expected supply requirements. We believe we could locate suitable alternative third-party manufacturers to fulfill our requirements if +needed. +Our third-party manufacturers source the raw materials +and battery components required for the production of our batteries directly from third-party suppliers that meet our approval and quality +standards and, as a result, we may have limited control over the agreed pricing for these raw materials and battery components. We estimate +that raw material costs account for over half of our cost of goods sold. Lithium, which is extracted from mined ore, is a key raw material +used to produce our battery cells and, as a result, the cost of our battery cells is dependent on the price and availability of lithium, +which may be volatile and unpredictable and beyond our control. Additionally, availability of the raw materials used to manufacture our +products may be limited at times, resulting in higher prices and/or the need to find alternative suppliers. Our battery cell manufacturers +have joint venture factories outside of Asia and have secured sourcing contracts from lithium suppliers in South America and Australia. +In addition, we have a secondary source for lithium iron phosphate cells used in our batteries from a supplier in Europe, enabling us +to source materials outside of Asia in the event it becomes necessary to do so. +In addition to increased mining and newly located +reserves, there is an industry push to provide more efficient ways to extract lithium from mined ore. Another development of the past +few years is lithium cell recycling. This process will recapture the raw lithium from the cell for reuse in future cells. However, notwithstanding +any efforts to improve the sustainability and efficiency of lithium mining, the price of lithium is volatile. We continue to monitor developments +that may adversely affect our supply chain. +Management expects that products from our Asian third-party +manufacturers will be subject to additional tariffs in 2025. We believe that we can protect our margins through a combination of supplier +concessions, customer price increases and efficiencies gained as sales continue to grow. +Customers +We currently have more than 300 customers across the +United States consisting of dealers, wholesalers, private-label customers and OEMs who then sell our products to end consumers. Our sales +are completed on a purchase order basis and most are without firm, long-term revenue commitments or sales arrangements. Expion360 has +sales relationships with many major RV retailers, including Camping World, a leading national RV retailer and Meyer Distributing, Inc., +a leading national marketer and distributor of automotive and RV specialty products. In addition, we also sell products directly to end +consumers. We intend to continue to focus on our sales and distribution channels to develop existing customer relationships and grow our +customer base. We also offer a high level of technical support to our customers before and after product sales. +We currently derive a significant portion of our revenue +from a limited number of customers. During the year ended December 31, 2024, sales to one customer accounted for approximately 14% of +our gross sales. This customer accounted for 6% of our accounts receivable as of December 31, 2024. Sales to each of our other customers +did not exceed 10% during this period. Four other customers accounted for 60% of our accounts receivable as of December 31, 2024. +Intellectual Property +The success of our business and our technology leadership +is supported by our proprietary battery technology. We have filed 11 patent applications in the United States to provide protection for +our technology, including seven design patent applications and four utility patent applications. In addition, we rely upon a combination +of trademark and trade secret laws in the United States, as well as license +agreements and other contractual protections, to establish, maintain and enforce rights in our proprietary technologies. We also seek +to protect our intellectual property rights through non-disclosure and invention assignment agreements with our employees and consultants +and through non-disclosure agreements with business partners and other third parties. +10 +We periodically review our development efforts to +assess the existence and patentability of new intellectual property. We pursue the registration of our domain names and trademarks and +service marks in the United States and in an effort to protect our brand, as of December 31, 2024, we have 18 trademarks registered or +pending registration to cover our house marks in the United States and have 9 trademarks registered or pending registration in Canada. +Government Regulation +We are subject to inspections by federal, state, and +local regulators overseeing environmental health and safety, which could result in possible citations and/or fines. Lithium-ion battery +shipments are categorized as “dangerous goods” and are subject to rules governing their transportation. We have implemented +policies and procedures, trained our employees, and conducted internal audits to verify compliance with environmental health and safety +regulations. +Our Group 24 and Group 27 batteries and our custom +360Ah battery have passed UL 1973 certification. +Employees +As of December 31, 2024, we had 20 employees, all +of whom worked for us full time. None of our employees are covered by collective bargaining agreements and we have never experienced an +organized work stoppage, strike, or labor dispute. We believe working conditions and compensation packages are competitive with those +offered by competitors and consider our relations with our employees to be good. +Environmental, Health, and Safety +We and our third-party manufacturers and suppliers +are, and could become, subject to a wide range of international, federal, state, provincial, and local governmental regulations directed +at preventing or mitigating environmental harm, as well as to the storage, discharge, handling, generation, disposal and labeling of toxic +or other hazardous substances. Although we outsource our manufacturing, the manufacturing of our products by our third-party manufacturers +and suppliers require the use of hazardous materials that similarly subject these third parties, and therefore our business, to such environmental +laws and regulations. Our failure or the failure of these third parties to comply with these laws or regulations can result in regulatory, +civil, or criminal penalties, fines, and legal liabilities, suspension of production, alteration of manufacturing processes, including +for our products, reputational damage, and negative impact on our operations or sales of our products and services. Increased compliance +costs by our third-party manufacturing partners may also result in increased costs to our business. Our business and operations are also +subject to health and safety laws and regulations adopted by government agencies such as the Occupational Safety and Health Administration. +Although we believe we are in material compliance with applicable laws concerning matters relating to health, safety, and the environment, +the risk of liability relating to these matters cannot be eliminated completely. To date, we have not incurred significant expenditures +relating to environmental compliance nor have we experienced any material issues relating to employee health and safety. See the section +titled “ Risk Factors ” for additional information. +Implications of Being an Emerging Growth Company +and a Smaller Reporting Company +We qualify as an “emerging growth company” +as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). As an emerging growth company, we have elected +to take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. +These provisions include: +· the requirement that we provide only two years +of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s +Discussion and Analysis of Financial Condition and Results of Operations” disclosure; +· reduced disclosure about our executive compensation +arrangements; +· an exemption from the requirement that we hold +a non-binding advisory vote on executive compensation or golden parachute arrangements; and +· an exemption from the auditor attestation in +the assessment of our internal control over financial reporting. +11 +We may take advantage of these exemptions for up to +five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the +date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenue of $1.235 billion or more; +(ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of our initial public offering; (iii) +the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which +we are deemed to be a “large accelerated filer” under SEC rules. +We are also a “smaller +reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer +an emerging growth company. We may take advantage of certain of the reduced reporting requirements available to smaller reporting companies +and will be able to take advantage of these reduced reporting requirements for so long as our voting and non-voting Common Stock held +by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is +less than $100.0 million during the most recently completed fiscal year and our voting and non-voting Common Stock held by non-affiliates +is less than $700.0 million measured on the last business day of our second fiscal quarter. +Company Information +Expion360 Inc. was initially organized as a limited +liability company under the name Yozamp Products Company, LLC in the State of Oregon on June 16, 2016 and converted to a Nevada corporation +on November 16, 2021. +Our website is found at expion360.com and on +the Investor Relations section of our website, we post or will post, as applicable, the following filings as soon as reasonably practicable +after they are electronically filed with or furnished to the SEC: our Annual Reports on Form 10-K, our Proxy Statement on Schedule 14A, +our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to +Section 13(a) or 15(d) of the Exchange Act. +All of the information on our Investor Relations web +page is available to be viewed free of charge. Information contained on our website is not part of this Annual Report or our other filings +with the SEC. We assume no obligation to update or revise any forward-looking statements in this Annual Report whether as a result of +new information, future events or otherwise, unless we are required to do so by law. +The SEC also maintains a website found at http://www.sec.gov/ +that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. +12 \ No newline at end of file diff --git a/raw/filings/0001894954/2024/0001903596-25-000145/item13.txt b/raw/filings/0001894954/2024/0001903596-25-000145/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..55a00b5076cb8efad3ca7ca677fa1aa712af4245 --- /dev/null +++ b/raw/filings/0001894954/2024/0001903596-25-000145/item13.txt @@ -0,0 +1,2 @@ +ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE +50 \ No newline at end of file diff --git a/raw/filings/0001894954/2025/0001903596-26-000075/filing.txt b/raw/filings/0001894954/2025/0001903596-26-000075/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..12a4025569e328cb42373bb8ffe98bf408cb2e12 --- /dev/null +++ b/raw/filings/0001894954/2025/0001903596-26-000075/filing.txt @@ -0,0 +1,5861 @@ +false +2025 +FY +0001894954 +0001894954 +2025-01-01 +2025-12-31 +0001894954 +2025-06-30 +0001894954 +2026-03-11 +0001894954 +2025-10-01 +2025-12-31 +0001894954 +2025-12-31 +0001894954 +2024-12-31 +0001894954 +2024-01-01 +2024-12-31 +0001894954 +us-gaap:CommonStockMember +2023-12-31 +0001894954 +us-gaap:AdditionalPaidInCapitalMember +2023-12-31 +0001894954 +us-gaap:RetainedEarningsMember +2023-12-31 +0001894954 +2023-12-31 +0001894954 +us-gaap:CommonStockMember +2024-12-31 +0001894954 +us-gaap:AdditionalPaidInCapitalMember +2024-12-31 +0001894954 +us-gaap:RetainedEarningsMember +2024-12-31 +0001894954 +us-gaap:CommonStockMember +2024-01-01 +2024-12-31 +0001894954 +us-gaap:AdditionalPaidInCapitalMember +2024-01-01 +2024-12-31 +0001894954 +us-gaap:RetainedEarningsMember +2024-01-01 +2024-12-31 +0001894954 +us-gaap:CommonStockMember +2025-01-01 +2025-12-31 +0001894954 +us-gaap:AdditionalPaidInCapitalMember +2025-01-01 +2025-12-31 +0001894954 +us-gaap:RetainedEarningsMember +2025-01-01 +2025-12-31 +0001894954 +us-gaap:CommonStockMember +2025-12-31 +0001894954 +us-gaap:AdditionalPaidInCapitalMember +2025-12-31 +0001894954 +us-gaap:RetainedEarningsMember +2025-12-31 +0001894954 +xpon:OneCustomerMember +us-gaap:SalesRevenueNetMember +us-gaap:CustomerConcentrationRiskMember +2025-01-01 +2025-12-31 +0001894954 +xpon:OneCustomerMember +us-gaap:AccountsReceivableMember +us-gaap:CustomerConcentrationRiskMember +2025-01-01 +2025-12-31 +0001894954 +xpon:OneCustomerMember +us-gaap:SalesRevenueNetMember +us-gaap:CustomerConcentrationRiskMember +2024-01-01 +2024-12-31 +0001894954 +xpon:OneCustomerMember +us-gaap:AccountsReceivableMember +us-gaap:CustomerConcentrationRiskMember +2024-01-01 +2024-12-31 +0001894954 +xpon:CustomerFourMember +us-gaap:SalesRevenueNetMember +us-gaap:CustomerConcentrationRiskMember +2024-01-01 +2024-12-31 +0001894954 +xpon:WarrantsOptionsAndRestrictedStockUnitsMember +2025-01-01 +2025-12-31 +0001894954 +xpon:WarrantsOptionsAndRestrictedStockUnitsMember +2024-01-01 +2024-12-31 +0001894954 +srt:MinimumMember +xpon:VehiclesAndTransportationEquipmentMember +2025-12-31 +0001894954 +xpon:VehiclesAndTransportationEquipmentMember +srt:MaximumMember +2025-12-31 +0001894954 +xpon:ManufacturingEquipmentMember +srt:MinimumMember +2025-12-31 +0001894954 +srt:MaximumMember +xpon:ManufacturingEquipmentMember +2025-12-31 +0001894954 +xpon:OfficeFurnitureAndEquipmentMember +srt:MinimumMember +2025-12-31 +0001894954 +srt:MaximumMember +xpon:OfficeFurnitureAndEquipmentMember +2025-12-31 +0001894954 +xpon:WarehouseEquipmentMember +srt:MinimumMember +2025-12-31 +0001894954 +srt:MaximumMember +xpon:WarehouseEquipmentMember +2025-12-31 +0001894954 +xpon:QAEquipmentMember +srt:MinimumMember +2025-12-31 +0001894954 +srt:MaximumMember +xpon:QAEquipmentMember +2025-12-31 +0001894954 +xpon:ToolingAndMoldsMember +srt:MinimumMember +2025-12-31 +0001894954 +srt:MaximumMember +xpon:ToolingAndMoldsMember +2025-12-31 +0001894954 +us-gaap:WarrantMember +2025-01-01 +2025-12-31 +0001894954 +us-gaap:WarrantMember +2024-01-01 +2024-12-31 +0001894954 +us-gaap:WarrantMember +xpon:SeriesAWarrantsMember +2025-01-01 +2025-12-31 +0001894954 +us-gaap:WarrantMember +xpon:SeriesAWarrantsMember +2024-01-01 +2024-12-31 +0001894954 +us-gaap:WarrantMember +xpon:SeriesBwarrantsMember +2025-01-01 +2025-12-31 +0001894954 +us-gaap:WarrantMember +xpon:SeriesBwarrantsMember +2024-01-01 +2024-12-31 +0001894954 +us-gaap:WarrantMember +xpon:WarrantsJanuary2025Member +2025-01-01 +2025-12-31 +0001894954 +us-gaap:WarrantMember +xpon:WarrantsJanuary2025Member +2024-01-01 +2024-12-31 +0001894954 +xpon:StockOptionsMember +2025-01-01 +2025-12-31 +0001894954 +xpon:StockOptionsMember +2024-01-01 +2024-12-31 +0001894954 +us-gaap:RestrictedStockUnitsRSUMember +2025-01-01 +2025-12-31 +0001894954 +us-gaap:RestrictedStockUnitsRSUMember +2024-01-01 +2024-12-31 +0001894954 +xpon:PreFundedWarrantsMember +2025-01-01 +2025-12-31 +0001894954 +xpon:PreFundedWarrantsMember +2024-01-01 +2024-12-31 +0001894954 +xpon:VehiclesAndTransportationEquipmentMember +2025-12-31 +0001894954 +xpon:VehiclesAndTransportationEquipmentMember +2024-12-31 +0001894954 +xpon:ManufacturingEquipmentMember +2025-12-31 +0001894954 +xpon:ManufacturingEquipmentMember +2024-12-31 +0001894954 +xpon:OfficeFurnitureEquipmentMember +2025-12-31 +0001894954 +xpon:OfficeFurnitureEquipmentMember +2024-12-31 +0001894954 +xpon:WarehouseEquipmentMember +2025-12-31 +0001894954 +xpon:WarehouseEquipmentMember +2024-12-31 +0001894954 +us-gaap:LeaseholdImprovementsMember +2025-12-31 +0001894954 +us-gaap:LeaseholdImprovementsMember +2024-12-31 +0001894954 +xpon:QAEquipmentMember +2025-12-31 +0001894954 +xpon:QAEquipmentMember +2024-12-31 +0001894954 +us-gaap:NotesPayableToBanksMember +2025-01-01 +2025-12-31 +0001894954 +us-gaap:NotesPayableToBanksMember +2025-12-31 +0001894954 +us-gaap:NotesPayableToBanksMember +2024-12-31 +0001894954 +xpon:NotePayableCreditUnionMember +2025-01-01 +2025-12-31 +0001894954 +xpon:NotePayableCreditUnionMember +2025-12-31 +0001894954 +xpon:NotePayableCreditUnionMember +2024-12-31 +0001894954 +xpon:NotePayableSBAMember +2025-01-01 +2025-12-31 +0001894954 +xpon:NotePayableSBAMember +2025-12-31 +0001894954 +xpon:NotePayableSBAMember +2024-12-31 +0001894954 +xpon:GMFinancialMember +2025-01-01 +2025-12-31 +0001894954 +xpon:GMFinancialMember +2025-12-31 +0001894954 +xpon:GMFinancialMember +2024-12-31 +0001894954 +xpon:UnsecuredPromissoryNotesMember +2024-12-31 +0001894954 +xpon:UnsecuredPromissoryNotesMember +2025-01-01 +2025-12-31 +0001894954 +xpon:UnsecuredPromissoryNotesMember +2024-01-01 +2024-12-31 +0001894954 +xpon:October2025PreFundedWarrantMember +2025-10-16 +0001894954 +xpon:CommonUnitsMember +2025-01-31 +0001894954 +xpon:PreFundedUnitsMember +2025-01-31 +0001894954 +xpon:January2025PublicOfferingMember +2025-01-31 +0001894954 +xpon:WarrantsOptionsMember +2025-01-28 +2025-01-31 +0001894954 +xpon:WarrantInducementMember +2025-01-31 +0001894954 +2025-01-31 +0001894954 +2025-08-14 +0001894954 +xpon:CommonUnitsMember +2024-08-08 +0001894954 +xpon:PreFundedUnitsMember +2024-08-08 +0001894954 +xpon:SeriesAWarrantsMember +2024-08-07 +2024-08-08 +0001894954 +xpon:SeriesBwarrantsMember +2024-08-07 +2024-08-08 +0001894954 +xpon:PreReverseStockSplitMember +2024-08-07 +2024-08-08 +0001894954 +xpon:EquityLineOfCreditMember +xpon:August2024PublicOfferingMember +2024-08-29 +2024-08-30 +0001894954 +xpon:EquityLineOfCreditMember +xpon:August2024PublicOfferingMember +2024-08-30 +0001894954 +xpon:LongTermNonCancellableOperatingLeaseAgreementsMember +2025-05-31 +0001894954 +xpon:LongTermNonCancellableOperatingLeaseAgreementsMember +2025-05-01 +2025-05-31 +0001894954 +xpon:LongTermNonCancellableOperatingLeaseAgreementsMember +2022-02-28 +0001894954 +xpon:LongTermNonCancellableOperatingLeaseAgreementsMember +2022-01-01 +2022-01-31 +0001894954 +xpon:LongTermNonCancellableOperatingLeaseAgreementsMember +2022-02-01 +2022-02-28 +0001894954 +xpon:LongTermNonCancellableOperatingLeaseAgreementsMember +2021-01-31 +0001894954 +xpon:LongTermNonCancellableOperatingLeaseAgreementsMember +2021-01-01 +2021-01-31 +0001894954 +xpon:TerminationAgreementMember +xpon:AlexanderMember +2024-05-01 +2024-05-02 +0001894954 +xpon:TerminationAgreementMember +xpon:AlexanderMember +2024-06-29 +2024-07-01 +0001894954 +xpon:UnregisteredSharesOfCommonStockMember +2025-11-30 +0001894954 +xpon:UnregisteredSharesOfCommonStockMember +2025-11-01 +2025-11-30 +0001894954 +us-gaap:RestrictedStockMember +2025-10-31 +0001894954 +us-gaap:CommonStockMember +xpon:IncentiveAwardPlan2021Member +2025-10-01 +2025-10-31 +0001894954 +2025-10-01 +2025-10-31 +0001894954 +xpon:UnregisteredSharesOfCommonStockMember +2025-12-31 +0001894954 +xpon:UnregisteredSharesOfCommonStockMember +2025-01-01 +2025-12-31 +0001894954 +xpon:SeriesAWarrantMember +2025-08-31 +0001894954 +us-gaap:CommonStockMember +2025-08-31 +0001894954 +xpon:SeriesBwarrantsMember +2025-07-31 +0001894954 +us-gaap:RestrictedStockMember +2025-04-30 +0001894954 +us-gaap:CommonStockMember +xpon:IncentiveAwardPlan2021Member +2025-04-01 +2025-04-30 +0001894954 +2025-04-01 +2025-04-30 +0001894954 +us-gaap:CommonStockMember +2025-01-31 +0001894954 +xpon:PreFundedWarrantsMember +2025-01-31 +0001894954 +us-gaap:WarrantMember +2025-01-31 +0001894954 +us-gaap:StockOptionMember +xpon:SeriesBwarrantsMember +2024-12-31 +0001894954 +us-gaap:StockOptionMember +xpon:SeriesBwarrantsMember +xpon:WarrantsOptionsMember +2024-12-31 +0001894954 +xpon:SeriesBwarrantsMember +xpon:CashBasisMember +2024-12-31 +0001894954 +xpon:WarrantsOptionsMember +xpon:CashBasisMember +xpon:SeriesBwarrantsMember +2024-12-31 +0001894954 +xpon:CashBasisMember +2024-12-31 +0001894954 +xpon:SeriesAWarrantsMember +2024-12-31 +0001894954 +xpon:WarrantsOptionsMember +xpon:SeriesAWarrantsMember +2024-12-31 +0001894954 +xpon:WarrantsOptionsMember +xpon:SeriesAWarrantsMember +2025-08-31 +0001894954 +xpon:WarrantsMember +xpon:WarrantsOptionsMember +2025-08-31 +0001894954 +xpon:WarrantsOptionsMember +2025-12-31 +0001894954 +xpon:SeriesAWarrantsMember +xpon:WarrantsOptionsMember +2025-12-31 +0001894954 +xpon:SeriesBwarrantsMember +xpon:WarrantsOptionsMember +2025-12-31 +0001894954 +xpon:WarrantsMember +xpon:WarrantsOptionsMember +2025-12-31 +0001894954 +xpon:WarrantsMember +us-gaap:StockOptionMember +2023-12-31 +0001894954 +us-gaap:CommonStockMember +us-gaap:StockOptionMember +2023-12-31 +0001894954 +us-gaap:WarrantMember +2024-12-31 +0001894954 +xpon:WarrantsMember +us-gaap:StockOptionMember +2024-08-09 +0001894954 +xpon:WarrantsMember +us-gaap:StockOptionMember +2022-12-31 +0001894954 +us-gaap:CommonStockMember +us-gaap:StockOptionMember +2022-12-31 +0001894954 +us-gaap:WarrantMember +2022-12-31 +0001894954 +us-gaap:WarrantMember +2022-01-01 +2022-12-31 +0001894954 +us-gaap:WarrantMember +2024-05-02 +0001894954 +us-gaap:WarrantMember +2022-12-01 +2022-12-31 +0001894954 +us-gaap:WarrantMember +srt:MinimumMember +2024-12-31 +0001894954 +us-gaap:WarrantMember +srt:MaximumMember +2024-12-31 +0001894954 +us-gaap:WarrantMember +2025-12-31 +0001894954 +xpon:WarrantsMember +us-gaap:StockOptionMember +2021-12-31 +0001894954 +us-gaap:CommonStockMember +us-gaap:StockOptionMember +2021-12-31 +0001894954 +us-gaap:WarrantMember +2021-12-31 +0001894954 +us-gaap:WarrantMember +2021-01-01 +2021-12-31 +0001894954 +us-gaap:WarrantMember +2025-01-01 +2025-12-31 +0001894954 +xpon:SeriesAWarrantMember +2025-08-14 +0001894954 +xpon:IncentiveAwardPlan2021Member +2025-12-31 +0001894954 +us-gaap:EmployeeStockOptionMember +xpon:IncentiveAwardPlan2021Member +2025-12-31 +0001894954 +us-gaap:RestrictedStockUnitsRSUMember +xpon:IncentiveAwardPlan2021Member +2025-12-31 +0001894954 +xpon:IncentiveAwardPlan2021Member +2025-01-01 +2025-12-31 +0001894954 +xpon:IncentiveAwardPlan2021Member +2024-01-01 +2024-12-31 +0001894954 +xpon:EmployeeStockPurchasePlan2021Member +2025-12-31 +0001894954 +us-gaap:StockOptionMember +2025-01-01 +2025-12-31 +0001894954 +us-gaap:StockOptionMember +2025-01-01 +2025-12-31 +0001894954 +us-gaap:StockOptionMember +2024-01-01 +2024-12-31 +0001894954 +xpon:ExercisePrice1Member +2025-12-31 +0001894954 +xpon:ExercisePrice2Member +2025-12-31 +0001894954 +xpon:ExercisePrice2Member +2025-01-01 +2025-12-31 +0001894954 +xpon:ExercisePrice3Member +2025-12-31 +0001894954 +xpon:ExercisePrice3Member +2025-01-01 +2025-12-31 +0001894954 +xpon:ExercisePrice4Member +2025-12-31 +0001894954 +xpon:ExercisePrice4Member +2025-01-01 +2025-12-31 +0001894954 +xpon:ExercisePrice5Member +2025-12-31 +0001894954 +xpon:ExercisePrice5Member +2025-01-01 +2025-12-31 +0001894954 +xpon:ExercisePrice6Member +2025-12-31 +0001894954 +xpon:ExercisePrice6Member +2025-01-01 +2025-12-31 +0001894954 +xpon:WarrantSeriesAMember +2025-12-31 +0001894954 +xpon:WarrantSeriesAMember +2025-01-01 +2025-12-31 +0001894954 +xpon:WarrantJanuary2025Member +2025-12-31 +0001894954 +xpon:WarrantJanuary2025Member +2025-01-01 +2025-12-31 +0001894954 +xpon:IncentiveAwardPlan2021Member +2024-12-31 +0001894954 +us-gaap:RestrictedStockUnitsRSUMember +xpon:IncentiveAwardPlan2021Member +2024-12-31 +0001894954 +us-gaap:RestrictedStockUnitsRSUMember +xpon:IncentiveAwardPlan2021Member +2025-01-01 +2025-12-31 +0001894954 +us-gaap:WarrantMember +2025-12-31 +0001894954 +xpon:ExerciseOfStockOptionsMember +2025-12-31 +0001894954 +us-gaap:WarrantMember +us-gaap:SeriesAMember +2025-12-31 +0001894954 +us-gaap:WarrantMember +us-gaap:SeriesBMember +2025-12-31 +0001894954 +us-gaap:WarrantMember +xpon:ExerciseofJanuary2025WarrantsMember +2025-12-31 +0001894954 +us-gaap:WarrantMember +xpon:ExerciseofPreFundedWarrantsMember +2025-12-31 +0001894954 +us-gaap:WarrantMember +xpon:SettlementofRSUsMember +2025-12-31 +0001894954 +us-gaap:SubsequentEventMember +2026-01-31 +iso4217:USD +xbrli:shares +iso4217:USD +xbrli:shares +xbrli:pure +UNITED +STATES +SECURITIES +AND EXCHANGE COMMISSION +Washington, +D.C. 20549 +FORM +10-K +(Mark One) +☒ +ANNUAL +REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the fiscal year ended December 31 , 2025 +OR +☐ +TRANSITION +REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the transition period from to +Commission +file number 001-41347 +Expion360 Inc. +(Exact +name of registrant as specified in its charter) +Nevada +81-2701049 +(State +or other jurisdiction of incorporation or organization) +(I.R.S. +Employer Identification No.) +2025 SW Deerhound Avenue , Redmond , OR +97756 +(Address +of principal executive offices) +(Zip +Code) +(Registrant’s +telephone number, including area code): ( 541 ) 797-6714 +Securities +registered pursuant to Section 12(b) of the Act: +Title +of each class +Trading +Symbol(s) +Name +of each exchange on which registered +Common +Stock, $0.001 par value per share +XPON +The +Nasdaq Capital Market +Securities +registered pursuant to Section 12(g) of the Act: None. +Indicate +by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate +by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ +Indicate +by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities +Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), +and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate +by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule +405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant +was required to submit such files). Yes ☒ No ☐ +Indicate +by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting +company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” +“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large +accelerated filer +☐ +Accelerated filer +☐ +Non-accelerated filer +☒ +Smaller reporting company +☒ +Emerging +growth company +☒ +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying +with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate +by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness +of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered +public accounting firm that prepared or issued its audit report. ☐ +If securities are +registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in +the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by +check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of +the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate +by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ +The +aggregate market value of the registrant’s common stock held by non-affiliates, based on the closing sale price as reported by +the Nasdaq Capital Market on June 30, 2025, the last business day of the registrant’s most recently completed second fiscal quarter, +was approximately $ 3.1 million. Shares of common stock beneficially owned by each executive officer, director and holder of more than +10% of common stock have been excluded in that such persons may be deemed to be affiliates. +As of March 11, 2026, +there were 10,846,135 shares of the registrant’s common stock outstanding. +DOCUMENTS INCORPORATED +BY REFERENCE: Portions of the registrant’s definitive Proxy Statement on Schedule 14A relating to its 2026 annual meeting of +stockholders, to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this +Annual Report on Form 10-K are incorporated herein by reference in Part III of this Annual Report on Form 10-K. +Expion360 Inc. +TABLE +OF CONTENTS +CAUTIONARY +NOTE REGARDING FORWARD-LOOKING STATEMENTS and industry data +4 +PART I +6 +ITEM 1. +BUSINESS +6 +ITEM 1A. +RISK FACTORS +12 +ITEM 1B. +UNRESOLVED STAFF COMMENTS +30 +ITEM +1C. CYBERSECURITY +31 +ITEM 2. +PROPERTIES +32 +ITEM 3. +LEGAL PROCEEDINGS +33 +ITEM 4. +MINE SAFETY DISCLOSURES +32 +PART II +33 +ITEM 5. +MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES +33 +ITEM 6. +[RESERVED] +33 +ITEM 7. +MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS +33 +ITEM 7A. +QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK +45 +ITEM +8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA +45 +ITEM 9. +CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE +45 +ITEM 9A. +CONTROLS AND PROCEDURES +45 +ITEM 9B. +OTHER INFORMATION +46 +ITEM 9C. +DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION +46 +PART III +47 +ITEM +10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE +47 +ITEM +11. EXECUTIVE COMPENSATION +47 +ITEM +12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS +47 +ITEM +13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE +47 +ITEM +14. PRINCIPAL ACCOUNTANT FEES AND SERVICES +47 +PART IV +48 +ITEM 15. +EXHIBITS AND FINANCIAL STATEMENT SCHEDULES +48 +ITEM 16. +FORM 10-K SUMMARY +48 +SIGNATURES +50 +Index +to Financial Statements +5 1 +CAUTIONARY +NOTE REGARDING FORWARD-LOOKING STATEMENTS and industry data +This Annual Report +on Form 10-K (this “Annual Report”) includes “forward-looking statements” within the meaning of Section 27A of +the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as +amended (the “Exchange Act”). All statements in this Annual Report, other than statements of historical fact, are “forward-looking +statements” for purposes of these provisions, including, without limitation, any projections regarding the markets where we operate, +any statements of the plans and objectives of our management for future operations, any statements concerning proposed new products or +services, any statements regarding expected capital expenditures, any statements regarding future economic conditions or performance, +and any statements of assumptions underlying any of the foregoing. All forward-looking statements included in this Annual Report are +made as of the date hereof and are based on information available to us as of such date. We assume no obligation to update any forward-looking +statement. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” +“expects,” “plans,” “should,” “anticipates,” “intends,” “seeks,” +“believes,” “estimates,” “potential,” “forecasts,” “continue,” or other forms +of these words or similar words or expressions, or the negative thereof or other comparable terminology. Although we believe the expectations +reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations or any +of the forward-looking statements will prove to be correct. Prospective investors are cautioned not to unduly rely on any such forward-looking +statements. +Forward-looking statements +are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations, +and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy, +and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, +and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial +condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these +forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those +indicated in the forward-looking statements include, among others, the following: +● +We +operate in an extremely competitive industry and are subject to pricing pressures. +● +We +have a history of losses. As our costs increase, we may not be able to generate sufficient +revenue to achieve and sustain profitability. +● +Our +audited financial statements include a statement that there is a substantial doubt about +our ability to continue as a going concern and a continuation of negative financial trends +could result in our inability to continue as a going concern. +● +Our +results of operations could be adversely affected by changes in the cost and availability +of raw materials and our reliance on third-party manufacturers and suppliers. +● +Increases +in costs, disruption of supply, or shortage of any of our battery components such as electronic +and mechanical parts could harm our business. +● +We +may not be able to raise additional capital on acceptable terms or at all, and our failure +to obtain additional financing could adversely affect our ability to continue as a going +concern. +● +Our +business and future growth depends on the needs and success of our customers. +● +We +have substantial customer concentration, with a limited number of customers accounting for +a substantial portion of our sales, and the loss of or reduction in purchases by any of these +customers could adversely affect our results of operations. +● +If +we fail to expand our sales and distribution channels, our business could suffer. +● +The +uncertainty in global economic conditions could negatively affect our results of operations. +● +Tariffs +on imported battery components may increase our costs, and we may be unable to fully mitigate +such increases. +● +We +are currently, and will likely continue to be, dependent on a limited number of warehouse +facilities. If our facilities become inoperable for any reason, our ability to produce our +products could be negatively impacted. +● +We +could face potential product liability or warranty claims relating to our products, including +the components thereof, which could reduce market adoption, result in reputation damage, +and result in significant costs and liabilities, which would reduce our profitability. +● +Our +operations expose us to litigation, tax, environmental, and other legal compliance risks. +4 +● +Our +failure to introduce new products and product enhancements that respond to customer and end +consumer demand, and any broad market acceptance of new technologies introduced by our competitors, +could adversely affect our business. +● +We +may not be able to adequately protect our proprietary intellectual property and technology +and we may need to defend ourselves against intellectual property infringement claims. +● +Any +acquisitions that we complete may dilute stockholder ownership interests in the Company, +may have adverse effects on our financial condition and results of operations and may cause +unanticipated liabilities. +● +If +our electronic data is compromised, or we experience a failure in our information technology +or storage systems, our business could be significantly harmed. +● +Our +ability to raise capital in the future may be limited, which could make us unable to fund +our capital requirements and our stockholders may be diluted by future securities offerings. +● +We +depend on our senior management team and other key employees, and significant attrition within +our management team or unsuccessful succession planning could adversely affect our business. +● +We +may fail to maintain compliance with the continued listing requirements of The Nasdaq Capital +Market, which could result in the delisting of our common stock. +● +Our +stock price may fluctuate significantly, and you may lose all or a part of your investment. +● +Sales +of substantial amounts of our securities in the public markets, including sales under our +at-the-market program, or the perception that such sales might occur, could reduce the price +of our securities and may dilute your voting power and your ownership interest in us. +● +The +exercise of outstanding warrants may result in a substantial increase in the number of shares +of our common stock that are outstanding, which would result in dilution to our stockholders. +● +The +Series A Warrants and Series B Warrants may have an adverse effect on the market price of +our common stock and make it more difficult to effect a business combination. +● +Our +long-term lease and debt obligations could adversely affect our ability to raise additional +capital to fund operations and limit our ability to enter into certain transactions. +These and other risks +and uncertainties are described in greater detail under “ Risk Factors ” in Item 1A of this Annual Report. All forward-looking +statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. +Our actual results will likely differ, and may differ materially, from anticipated results. Financial estimates are subject to change +and are not intended to be relied upon as predictions of future results of operations, and we assume no obligation to update or disclose +revisions to those estimates except as required by applicable law. If we do update or correct one or more forward-looking statements, +investors and others should not conclude that we will make additional updates or corrections. +MARKET, INDUSTRY, +AND OTHER DATA +This Annual Report +includes statistical and other industry and market data that we obtained from industry publications and research, surveys, and studies +conducted by third parties as well as our own estimates. All of the market data used in this report involve a number of assumptions and +limitations, and you are cautioned not to give undue weight to such data. Industry publications and third-party research, surveys, and +studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee +the accuracy or completeness of such information. Our estimates of the potential market opportunities for our products include several +key assumptions based on our industry knowledge, industry publications, third-party research, and other surveys, which may be based on +a small sample size and may fail to accurately reflect market opportunities. While we believe our internal assumptions are reasonable, +no independent source has verified such assumptions. +NOTICE +REGARDING TRADEMARKS +This Annual Report +includes trademarks, tradenames, and service marks that are our property or the property of others. Solely for convenience, such trademarks +and tradenames sometimes appear without any “™” or “®” symbol. However, failure to include such symbols +is not intended to suggest, in any way, that we will not assert our rights or the rights of any applicable licensor, to these trademarks +and tradenames. +FINANCIAL INFORMATION +Unless +otherwise noted, prior period results included in this Annual Report, including share and per share data, as well as stockholders’ +equity balances, have been adjusted retroactively, as applicable, to reflect a 1-for-100 reverse stock split, which was effective +at 5:00 p.m. Pacific Time on October 8, 2024 (the “Reverse Stock Split”). See “ Management’s Discussion and +Analysis of Financial Condition and Results of Operations— Reverse +Stock Split and Reverse Stock Split True-Up Payment ” +below for additional information about +the Reverse Stock Split. +5 +PART I +ITEM 1. BUSINESS +Our Company +Expion360 focuses +on the design, assembly, manufacturing, and sale of lithium iron phosphate (“LiFePO4”) batteries and supporting accessories +for recreational vehicles (“RVs”), marine, and industrial applications. Our high-powered lithium battery solutions incorporate +innovative concepts and have been designed to include some of the most dense and minimal-footprint batteries in the RV and marine industries. +In addition, we deploy intellectual property strategies to support product development, enhance safety and performance, and strengthen +relationships across our target markets. This includes design, development and collaboration, using our IP to bring safety, quality and +service to our current customers and to build relationships with customers in a variety of industries. Our customers consist of dealers, +wholesalers, private-label customers, and original equipment manufacturers (“OEMs”) who then sell our products to end consumers +and drive brand awareness nationally. +Our primary target +markets include the RV, marine, and industrial power sectors. We believe the ongoing transition from traditional lead-acid batteries +to LiFePO4 battery systems as the preferred power storage solution presents growth opportunities across these industries. In addition +to the RV and marine markets, we are expanding our focus to include industrial, construction, surveillance, remote monitoring, and other +mission-critical applications requiring reliable, high-energy-density battery systems. We are also pursuing opportunities within the +electric forklift and industrial material handling markets, where lithium battery adoption continues to increase. +We launched our e360 +product line in December 2020, initially targeting the RV and marine industries. Through continued sales growth and product development, +the e360 product line has gained adoption among customers transitioning from lead-acid battery systems. We have since expanded our product +portfolio to include next-generation lithium battery models designed to increase capacity, improve energy density, enhance manufacturability, +and expand integration capabilities for OEM and industrial applications. These products are intended to support mobile and off-grid systems +for construction, industrial power, surveillance, and remote monitoring applications. +We currently operate +Expion360 as one reportable business segment, Energy Storage (ES). +Our products provide +numerous advantages for various industries that are looking to migrate to lithium-based energy storage. They incorporate detailed design +and engineering, strong case materials, optimized internal structural layouts, and are supported by responsive customer service. +Our +Market Opportunity +Lithium-based +batteries power a broad range of applications, from consumer electronics to transportation systems and national defense infrastructure. +They support electrification trends across multiple industries and enable both mobile and stationary energy storage solutions. The United +States maintains a strong research ecosystem and an emerging domestic battery manufacturing base, supported by federal initiatives aimed +at strengthening supply chains and advancing battery technology, according to the U.S. Department of Energy. +Expion360 +currently focuses on the deep cycle, off-grid, RV, marine, industrial, and specialty vehicle markets, where high-performance LiFePO4 +battery systems are increasingly displacing legacy lead-acid solutions. These applications require lightweight, high-energy-density, +and durable power systems capable of operating in varied and demanding environmental conditions. +The +global RV market was valued at approximately $60.7 billion in 2022 and is projected to grow at a compound annual growth rate (CAGR) of +11.5% from 2023 through 2030, reaching an estimated $144.55 billion by 2031, according to Grand View Research. Increasing electrification +within RV platforms, including off-grid and extended-runtime applications, continues to support adoption of lithium-based battery systems. +More +broadly, trends toward equipment electrification, reduced generator runtime, remote monitoring infrastructure, and mobile industrial +applications are contributing to sustained demand for advanced battery systems. According to IMARC, the global +lithium-ion battery market exceeded $150 billion in 2025 and continues to expand as electrification advances across transportation, industrial, +and specialty equipment sectors. +6 +Beyond +our established presence in RV and marine applications, we are evaluating opportunities in adjacent light electric vehicle, surveillance, +and remote monitoring applications that require high-reliability battery systems. According to Precedence Research, the global light +electric vehicle market was estimated at $107 billion in 2025 and is projected to reach $268 billion by 2035. While these adjacent markets +represent potential long-term growth opportunities, our current commercial focus remains concentrated in deep-cycle, recreational, and +specialty-use applications. +We +believe the compact form factor, modularity, and high energy density of our lithium battery systems position us to address applications +requiring lightweight, high-capacity power solutions across RVs, marine systems, industrial equipment, and remote monitoring applications. +While +we do not currently manufacture battery cells domestically, we monitor developments in U.S. supply chain policy and manufacturing initiatives +that may influence the industry over time. We periodically evaluate strategic opportunities that could align with our long-term objectives; +however, our current operations rely primarily on established offshore third-party manufacturing partners. Domestic supply chain initiatives +represent potential future developments rather than current operational drivers. +Competitive +Strengths +We +believe the following strengths differentiate Expion360 and create long-term, sustainable competitive advantages: +Superior Capacity +to Lead-Acid Competitors +Lead-acid batteries +have historically been the standard in RV and marine transportation vehicles, but these industries are experiencing a rapid conversion +from lead-acid to lithium batteries as the primary method of power sourcing. Our lithium-ion batteries are designed to offer superior +capacity to traditional lead-acid batteries, with an expected lifespan of approximately 12 years under standard operating conditions—three +to four times that of certain lead-acid batteries—and ten times the number of charge cycles. Furthermore, our typical battery may +provide three times the power of the typical, lead-acid battery despite being half the weight (comparing, for example, a typical lead-acid +battery like the Renogy Deep Cycle AGM, which is rated at 100Ah, to our own LFP 100Ah battery and assuming slow discharge at a 1C rate). +In addition, we offer +a 4.5 Ah 26650 lithium-ion phosphate battery cell, which allows us to increase energy density by over 32% compared to traditional 3.4 +Ah 26650 cells. +Expansion into New Markets +Our proprietary e360 +SmartTalk mobile app is included in many of our battery models and allows the seamless integration and management of e360 Bluetooth-enabled +LiFePO4 batteries. The technology enables users to wirelessly monitor and manage e360 batteries, providing a comprehensive view of both +individual battery conditions and performance as well as information about a power bank consisting of multiple e360 batteries. Our 48 +Volt GC2 LiFePO4 battery was the first model to incorporate e360 SmartTalk for electric golf carts and other light electric vehicle applications. +In 2024, we introduced +our next generation 12V GC2 and Group 27 series LiFePO4 batteries incorporating higher amp-hour cell options (4.0Ah and 4.5Ah) and the +latest technology, including our proprietary Vertical Heat Conduction™ internal heating, Bluetooth®, and controller area network +(“CANBus”) communication. We also launched the Edge battery in 2024, which offers a slim design designed to provide installation +flexibility. The Edge is offered in both 12V and 48V configurations. +In February 2026, +we announced plans to release three next-generation lithium-ion battery models expected to be commercially available in the second half +of 2026. The new models include upgraded Group 27 (12.8V 140Ah), GC2H (12.8V 180Ah), and EX1 (12.8V 420Ah) batteries, each designed to +increase capacity relative to prior generations. These +platforms incorporate our VHC™ internal heating technology, SmartTalk™ Bluetooth connectivity, and CANBus communication, +and are engineered to meet UL 1973 safety standards, with final certification pending. The redesigned batteries are also intended to +support manufacturing efficiencies and margin improvement initiatives. +7 +Also in February +2026, we entered into a strategic partnership with Dealer Accessory Supply (“DAS”) related to the launch of the DASGen Hybrid +Energy Storage System, representing our entry into the industrial energy storage market. DASGen is designed to function as an energy +buffer between diesel generators and jobsite electrical loads and is intended to support reduced generator runtime, subject to site conditions +and usage. Under the partnership, DAS serves as the final system assembler, while we supply the battery technology and lead sales and +marketing efforts. The system utilizes our lithium iron phosphate battery platform and is integrated with industrial power electronics. +Initial field deployments have been completed, with performance dependent on site-specific operating conditions. +Strong National +Retail Customers and Distribution Channels +We maintain sales +relationships with major RV and marine retailers and plan to use our strong reputation in the lithium battery space to create an even +stronger distribution channel. We have decades of experience in the energy and RV industries and cultivate relationships with numerous +retailers in the space, including Camping World, a leading national RV retailer; and Keystone Automotive, a leading national marketer +and distributor of automotive and RV specialty products. +Expion360 Products +We have historically +focused on the design, assembly, and sale of LiFePO4 batteries and supporting accessories for RV and marine applications, and have recently +expanded into home energy storage solutions and the industrial energy storage market. Our batteries are designed and engineered in-house +using premium lithium iron phosphate cells with quality controls at every step. We use high-grade LiFePO4 batteries meeting the UL 1642 +standard (UL File No. MH64383). We believe our materials and engineering enhance the reliability, stability, and safety of our products +relative to those of our competitors. We reimagined the standard battery case and included built-in rubber feet, radiused corners, 96.7% +larger terminal connection pads, interior molded ribs for structural security, and the highest-grade ABS plastics with additives for +fire retardancy. To maximize the power and efficiency of our batteries, we welded our cells via thick copper/tin-machined collector plates, +welded all interior pack points, added a press break flange at each end to create a mechanical backbone for the battery monitoring system +(“BMS”), used high-grade wiring and ring terminals throughout, and treated connections with industrial epoxy for long-lasting +protection. Our internal “smart” BMS design includes multiple safety and performance features, such as low temperature discharge, +auto shutoff, short circuit protection, low- and high-voltage shutoffs, and overcurrent disconnect. Our structurally sound BMS board +features a bolted design, eliminating all unnecessary solder, resulting in one cohesive pack with a long lifespan. We hold our lithium +batteries to high safety standards, which has enabled us to achieve a UL 1973 compliance. We stand by our batteries with a robust 12-year +warranty. +To enable us to provide +a full range of components to complement our battery offerings, we offer a suite of accessories and components for new installations +or conversions which includes but is not limited to chargers, monitors, inverters, and solar components from brands such as Victron Energy +and RedArc. +Competitors +Our competitors include +lithium-ion battery manufacturers, such as Relion (which was acquired by Brunswick Corporation in September 2021); Dragonfly Energy Holdings +Corp (Nasdaq: DFLI), the manufacturer of Battle Born Batteries; Renogy; and Dakota Lithium. Lead-acid battery manufactures also continue +to have a presence in the marketplace. We have designed custom form factors in both the industry standard Group 24 and Group 27 battery +sizes allowing us to visually and structurally differentiate Expion360 within the market space. We believe our custom EX1 battery also +provides a unique capacity to footprint ratio compared to lead-acid and lithium battery competitors. Our lithium iron phosphate batteries +are designed to provide improved cycle life, energy density, and weight relative to traditional lead-acid batteries. +8 +Manufacturing +and Supply Chain +Our batteries are +manufactured by multiple third-party manufacturers located in Asia, which also produce our battery cells. While we do not have long-term +purchase agreements with these manufacturers and generally transact on a purchase order basis, we maintain strong relationships with +our manufacturers and cell suppliers, which historically have enabled us to increase our purchase volumes and qualify for volume-based +discounts. The strength of these relationships has helped us moderate increased supply-related costs associated with inflation, currency +fluctuations, and U.S. government tariffs imposed on our imports, and avoid potential shipment delays. We aim to maintain an appropriate +level of inventory to satisfy our expected supply requirements. We believe we could locate suitable alternative third-party manufacturers +to fulfill our requirements if needed. +Our third-party manufacturers +source the raw materials and battery components required for the production of our batteries directly from third-party suppliers that +meet our approval and quality standards and, as a result, we may have limited control over the agreed pricing for these raw materials +and battery components. We estimate that raw material costs account for over half of our cost of goods sold. Lithium, which is extracted +from mined ore, is a key raw material used to produce our battery cells and, as a result, the cost of our battery cells is dependent +on the price and availability of lithium, which may be volatile and unpredictable and beyond our control. Additionally, availability +of the raw materials used to manufacture our products may be limited at times, resulting in higher prices and/or the need to find alternative +suppliers. Our battery cell manufacturers have joint venture factories outside of Asia and have sourcing contracts from lithium suppliers +in South America and Australia. In addition, we have a secondary source for lithium iron phosphate cells used in our batteries from a +supplier in Europe, enabling us to source materials outside of Asia in the event it becomes necessary to do so. +In addition to increased +mining and reserves, there is an industry push to provide more efficient ways to extract lithium from mined ore. Another development +of the past few years is lithium cell recycling. This process will recapture the raw lithium from the cell for reuse in future cells. +However, notwithstanding any efforts to improve the sustainability and efficiency of lithium mining, the price of lithium is volatile. +We continue to monitor developments that may adversely affect our supply chain. +While we expect that +products from our Asian third-party manufacturers will be subject to additional tariffs in 2026, we believe that we can protect our margins +through a combination of supplier concessions, customer price increases and operational efficiencies gained as sales continue to grow. +U.S. trade policy has been subject to significant legislative, regulatory, and judicial developments in recent years. For example, in +February 2026, the U.S. Supreme Court ruled that the International Emergency Economic Powers Act (“IEEPA”) does not authorize +the President to impose tariffs. While that decision invalidated certain tariffs imposed under that authority, tariffs and other trade +measures may continue to be imposed under other statutory authorities or through future legislation. However, there can be no assurance +that such efforts will fully offset increased costs. +Customers +We currently have +around 300 customers across the United States consisting of dealers, wholesalers, private-label customers and OEMs who then sell our +products to end consumers. Our sales are completed on a purchase-order basis and most are without firm, long-term revenue commitments +or sales arrangements. Expion360 has sales relationships with many major RV retailers, including Camping World, a leading national RV +retailer, and Keystone Automotive, a leading national marketer and distributor of automotive and RV specialty products. In addition, +we also sell products directly to end consumers. We intend to continue to focus on our sales and distribution channels to develop existing +customer relationships and grow our customer base. We also offer a high level of technical support to our customers before and after +product sales. +We currently derive +a significant portion of our revenue from a limited number of customers. During the year ended December 31, 2025, sales to four customers +accounted for approximately 60% of our gross sales. These customers accounted for 69% of our outstanding accounts receivable as of December +31, 2025. Sales to each of our other customers did not exceed 10% during this period. +9 +Intellectual Property +The success of our +business and our technology leadership is supported by our proprietary battery technology. We have filed 11 patent applications in the +United States to provide protection for our technology, including seven design patent applications and four utility patent applications. +In addition, we rely upon a combination of trademark and trade secret laws in the United States, as well as license agreements and other +contractual protections, to establish, maintain and enforce rights in our proprietary technologies. We also seek to protect our intellectual +property rights through non-disclosure and invention assignment agreements with our employees and consultants and through non-disclosure +agreements with business partners and other third parties. +We periodically review +our development efforts to assess the existence and patentability of new intellectual property. We pursue the registration of our domain +names and trademarks and service marks in the United States and in an effort to protect our brand, as of December 31, 2025, we have 18 +trademarks registered or pending registration to cover our house marks in the United States and have nine trademarks registered or pending +registration in Canada. +Government Regulations +We are subject to +inspections by federal, state, and local regulators overseeing environmental health and safety, which could result in possible citations +and/or fines. Lithium-ion battery shipments are categorized as “dangerous goods” and are subject to rules governing their +transportation. We have implemented policies and procedures, trained our employees, and conducted internal audits to verify compliance +with environmental health and safety regulations. +As of December 31, +2025, our currently commercialized lithium iron phosphate batter models have achieved UL 1973 certification. Certain next-generation +models remain subject to final certification. +Employees +As of December 31, +2025, we had 22 employees, all of whom worked for us full time. None of our employees are covered by collective bargaining agreements +and we have never experienced an organized work stoppage, strike, or labor dispute. We believe working conditions and compensation packages +are competitive with those offered by competitors and consider our relations with our employees to be good. +Environmental, +Health, and Safety +We and our third-party +manufacturers and suppliers are, and could become, subject to a wide range of international, federal, state, provincial, and local governmental +regulations directed at preventing or mitigating environmental harm, as well as to the storage, discharge, handling, generation, disposal +and labeling of toxic or other hazardous substances. Although we outsource our manufacturing, the manufacturing of our products by our +third-party manufacturers and suppliers require the use of hazardous materials that similarly subject these third parties, and therefore +our business, to such environmental laws and regulations. Noncompliance by us or third-party manufacturers with applicable environmental +or safety regulations could result in regulatory actions, penalties, or operational disruptions. Increased compliance costs by our third-party +manufacturing partners may also result in increased costs to our business. Our business and operations are also subject to health and +safety laws and regulations adopted by government agencies such as the Occupational Safety and Health Administration. Although we believe +we are in material compliance with applicable laws concerning matters relating to health, safety, and the environment, the risk of liability +relating to these matters cannot be eliminated completely. To date, we have not incurred significant expenditures relating to environmental +compliance nor have we experienced any material issues relating to employee health and safety. See the section titled “ Risk +Factors ” for additional information. +10 +Implications of +Being an Emerging Growth Company and a Smaller Reporting Company +We qualify as an +“emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). As an emerging +growth company, we have elected to take advantage of specified reduced disclosure and other requirements that are otherwise applicable +generally to public companies. These provisions include: +● +the +requirement that we provide only two years of audited financial statements in addition to +any required unaudited interim financial statements with correspondingly reduced “Management’s +Discussion and Analysis of Financial Condition and Results of Operations” disclosure; +● +reduced +disclosure about our executive compensation arrangements; +● +an +exemption from the requirement that we hold a non-binding advisory vote on executive compensation +or golden parachute arrangements; and +● +an +exemption from the auditor attestation in the assessment of our internal control over financial +reporting. +We may take advantage +of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be +an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross +revenue of $1.235 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion +of our initial public offering; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous +three years; or (iv) the date on which we are deemed to be a “large accelerated filer” under SEC rules. +We +are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company +even after we are no longer an emerging growth company. We may take advantage of certain of the reduced reporting requirements available +to smaller reporting companies and will be able to take advantage of these reduced reporting requirements for so long as our voting and +non-voting Common Stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, +or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting Common +Stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter. +Company Information +Expion360 Inc. was +initially organized as a limited liability company under the name Yozamp Products Company, LLC in the State of Oregon in June 2016 and +converted to a Nevada corporation in November 2021. +Our website is found +at expion360.com and on the Investor Relations section of our website, we post the following filings as soon as reasonably practicable +after they are electronically filed with or furnished to the SEC: our Annual Reports on Form 10-K, our Proxy Statement on Schedule 14A, +our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant +to Section 13(a) or 15(d) of the Exchange Act. +All of the information +on our Investor Relations web page is available to be viewed free of charge. Information contained on our website is not part of this +Annual Report or our other filings with the SEC. We assume no obligation to update or revise any forward-looking statements in this Annual +Report whether as a result of new information, future events or otherwise, unless we are required to do so by law. +The SEC also maintains +a website found at http://www.sec.gov/ that contains reports, proxy and information statements and other information regarding +issuers that file electronically with the SEC. +11 +ITEM 1A. +RISK FACTORS +Investing +in our common stock involves significant risk and uncertainty. Before you make a decision to buy our common stock, in addition to the +risks and uncertainties discussed below under “ Cautionary Note Regarding Forward-Looking Statements, ” you should +carefully consider the specific risks set forth below, as well as the other information in this Annual Report, including our financial +statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” +If any of these risks actually occur, it may materially and adversely affect our business, financial condition, liquidity, results of +operations, and prospects. As a result, the market price of our common stock could decline, and you could lose all or part of your investment. +Additionally, the risks and uncertainties described in this Annual Report are not the only risks and uncertainties that we face. Additional +risks and uncertainties not presently known to us or that we currently believe to be immaterial may become material and adversely affect +our business. If any of the following risks or other risks not specified below materialize, our business, financial condition and results +of operations could be materially and adversely affected. In that case, the trading price of our shares of common stock could decline. +Risk Factor Summary +The following is +a summary of the most significant risks and uncertainties that we believe could adversely affect our business, financial condition and +results of operations. The summary should be read in conjunction with the more detailed risk factors set forth in this “ Risk +Factors ” section and the other information contained in this Annual Report. +Risks Related +to Our Business +● +We +operate in an extremely competitive industry and are subject to pricing pressures. +● +We +have a history of losses. As our costs increase, we may not be able to generate sufficient +revenue to achieve and sustain profitability. +● +Our +audited financial statements include a statement that there is a substantial doubt about +our ability to continue as a going concern and a continuation of negative financial trends +could result in our inability to continue as a going concern. +● +Our +results of operations could be adversely affected by changes in the cost and availability +of raw materials and our reliance on third-party manufacturers and suppliers. +● +Increases +in costs, disruption of supply, or shortage of any of our battery components such as electronic +and mechanical parts could harm our business. +● +Our +business and future growth depends on the needs and success of our customers. +● +We +have substantial customer concentration, with a limited number of customers accounting for +a substantial portion of our sales in 2025 and 2024. +● +If +we fail to expand our sales and distribution channels, our business could suffer. +● +The +uncertainty in global economic conditions could negatively affect our results of operations. +● +We +are currently, and will likely continue to be, dependent on a limited number of warehouse +facilities. If our facilities become inoperable for any reason, our ability to produce our +products could be negatively impacted. +● +We +could face potential product liability or warranty claims relating to our products, including +the components thereof, which could reduce market adoption, result in reputation damage, +and result in significant costs and liabilities, which would reduce our profitability. +● +Our +operations expose us to litigation, tax, environmental, and other legal compliance risks. +● +Our +failure to introduce new products and product enhancements that respond to customer and end +consumer demand, and any broad market acceptance of new technologies introduced by our competitors, +could adversely affect our business. +● +We +may not be able to adequately protect our proprietary intellectual property and technology +and we may need to defend ourselves against intellectual property infringement claims. +● +Any +acquisitions that we complete may dilute stockholder ownership interests in the Company, +may have adverse effects on our financial condition and results of operations and may cause +unanticipated liabilities. +● +If +our electronic data is compromised, or we experience a failure in our information technology +or storage systems, our business could be significantly harmed. +● +Our +ability to raise capital in the future may be limited, which could make us unable to fund +our capital requirements and our stockholders may be diluted by future securities offerings. +● +We +depend on our senior management team and other key employees, and significant attrition within +our management team or unsuccessful succession planning could adversely affect our business. +12 +Risks +Related to Ownership of Our Common Stock +● +Our +stock price may fluctuate significantly, and you may lose all or a part of your investment. +● +Sales +of substantial amounts of our securities in the public markets, or the perception that such +sales might occur, could reduce the price of our securities and may dilute your voting power +and your ownership interest in us. +● +The +exercise of outstanding warrants may result in a substantial increase in the number of shares +of our common stock that are outstanding. +Risk Related +to Our Capital Structure +● +Our +long-term lease and debt obligations could adversely affect our ability to raise additional +capital to fund operations and limit our ability to enter into certain transactions. +Risks Related +to Our Business +We operate +in an extremely competitive industry and are subject to pricing pressures. +We compete with a +number of major international and domestic manufacturers, assemblers and distributors, as well as a large number of smaller, regional +competitors. In addition, our customers have many choices for energy storage solutions in the markets that we serve, including both traditional +lead-acid products as well as lithium-ion products. We believe our main competitive advantage in displacing incumbent lead-acid batteries +is that we produce a lighter, safer, higher performing, cost-effective battery with a longer lifespan. We believe our product offerings, +proven reliability, and relationships with dealers, private label direct to consumer and OEMs enable us to compete effectively against +other battery manufacturers and position us favorably to expand into new addressable markets. However, OEM sales typically result in +lower average selling prices and related margins, which could result in overall margin erosion, affect our growth, or require us to raise +our prices. As a result, we may be unable to maintain our competitive advantage. +Our current competitors +have, and future competitors may have, greater resources than we do. Our competitors may be able to devote greater resources to the development +of their current and future technologies. For example, foreign producers may be able to employ labor at significantly lower costs than +producers in the U.S., expand their export capacity and increase their marketing presence in major America markets. In addition, several +of our competitors may be able to devote greater resources to technical, marketing, sales, manufacturing, distribution and other resources, +as well as significant name recognition, established positions in the market and long-standing relationships with OEMs and other customers. +These advantages may afford them greater access to customers, and may be able to establish cooperative or strategic relationships amongst +themselves or with third parties that may further enhance their competitive positioning. Our failure to adapt to or address these factors +could have a material adverse effect on our business, financial condition, and results of operations. +In addition, our +ability to maintain and improve our operating margins has depended, and continues to depend, on our ability to control and reduce our +costs. We cannot assure you that we will be able to continue to control our operating, assembly and manufacturing expenses, to raise +or maintain our prices or increase our unit volume or unit mix, in order to maintain or improve our results of operations. +We have a history +of losses. As our costs increase, we may not be able to generate sufficient revenue to achieve and sustain profitability. +We have experienced +net losses in each period since inception. We generated net losses of $6.2 million and $13.5 million for the years ended December 31, +2025 and 2024, respectively. +13 +Part of our business +strategy is to focus on our long-term growth. As a result, our profitability may be lower in the near-term than it would be if our strategy +were to maximize short-term profitability. Significant expenditures on sales and marketing efforts, expanding our platform, products, +features, and functionality, and expanding our research and development, each of which we intend to continue to invest in, may not ultimately +grow our business or cause long-term profitability. If we are ultimately unable to achieve profitability at the level anticipated by +industry or financial analysts and our stockholders, our stock price may decline. +Our efforts to grow +our business may be costlier than we expect, or our revenue growth rate may be slower than we expect, and we may not be able to increase +our revenue enough to offset the increase in operating expenses resulting from these investments. If we are unable to continue to grow +our revenue, the value of our business and common stock may significantly decrease, which may in turn have a material adverse effect +on our ability to raise capital to grow our business. +Our audited +financial statements include a statement that there is a substantial doubt about our ability to continue as a going concern and a continuation +of negative financial trends could result in our inability to continue as a going concern. +Our audited financial +statements as of and for the years ended December 31, 2025 and 2024 were prepared on the assumption that we would continue as a going +concern. For the years ended December 31, 2025 and 2024, we sustained recurring losses and negative cash flows from operations. These +factors raise substantial doubt about our ability to continue as a going concern over the next 12 months and our independent auditors +have included a “going concern” explanatory paragraph in their report on our financial statements as of and for the years +ended December 31, 2025 and 2024. We expect to continue to incur operating losses for the foreseeable future, and may need to raise additional +debt or equity financing to fund working capital, expand our presence in the marketplace, develop new products, achieve operating efficiencies, +and accomplish our long-term business plan. There can be no assurance that additional financing will be available on acceptable terms +or at all. If we are unable to secure additional funding before we achieve profitability or positive cash flow from operations, then +our financial condition could render us unable to continue as a going concern. +Our results +of operations could be adversely affected by changes in the cost and availability of raw materials and our reliance on third-party manufacturers +and suppliers. +We currently rely +on multiple third-party manufacturers located in Asia to manufacture our batteries and battery cells, and we intend to continue to rely +on these suppliers going forward. Lithium-ion batteries are our most significant raw material and are used along with significant amounts +of plastics, steel, copper and other materials in our assembly and manufacturing processes. Our third-party manufacturers source the +raw materials and battery components required for the production of our batteries directly from third-party suppliers and thus we may +have limited control over the agreed pricing for these raw materials and battery components. We estimate that raw material costs account +for over half of our cost of goods sold. The costs of these raw materials, particularly lithium-ion batteries, are volatile and beyond +our control. Additionally, availability of the raw materials used to manufacture our products may be limited at times resulting in higher +prices and/or the need to find alternative suppliers. Furthermore, the cost of raw materials may also be influenced by transportation +and freight costs. Volatile raw material costs can significantly affect our results of operations and make period-to-period comparisons +extremely difficult. We cannot assure you that we will be able to either hedge the costs or that we or our third-party manufacturers +will be able to secure the availability of our raw material requirements at a reasonable level or that we will be able to pass on to +our customers the increased costs of our raw materials without affecting demand, or that limited availability of materials will not impact +our production capabilities. Our inability to raise the price of our products in response to increases in prices of raw materials or +to maintain a proper supply of raw materials could have an adverse effect on our revenue, operating profit, and net income. +In addition, during +the years ended December 31, 2025 and 2024, approximately 55% and 82%, respectively, of inventory purchases were made from foreign suppliers +in Asia. Our dependence on a limited number of key third-party manufacturers and suppliers exposes us to challenges and risks in ensuring +that we maintain adequate supplies required to produce our batteries. We do not have long-term purchase arrangements with our third-party +manufacturers and generally transact +on a purchase order basis. Thus, although we carefully manage our inventory and lead times, we may face challenges obtaining favorable +pricing, consistent quality specifications, and sufficient quantities of lithium-ion batteries and other materials from these suppliers. +Our close working relationships with our foreign suppliers to date, reflected in our ability to increase our purchase order volumes (qualifying +us for related volume-based discounts) and to order and receive delivery of components in advance of required demand, has helped us moderate +or offset increased supply-related costs associated with inflation, currency fluctuations, and tariffs imposed on our battery imports +by the U.S. government. However, if we are unable to enter into or maintain commercial arrangements with these suppliers on favorable +terms, our assembly operations and customer deliveries would be seriously impacted, potentially resulting in contractual penalties or +other liabilities and harm to our customer relationships. Although we believe we could locate alternative suppliers to fulfill our needs, +we may be unable to find a sufficient alternative supply in a reasonable time or on commercially reasonable terms. +14 +Further, our dependence +on these third-party suppliers entails additional risks, including: +● +inability, +failure, or unwillingness of third-party suppliers to comply with regulatory requirements; +● +breach +of supply agreements by the third-party supplies; +● +misappropriation +or disclosure of our proprietary information, including our trade secrets and know-how; +● +relationships +that third-party suppliers may have with others, which may include our competitors, and failure +of third-party suppliers to adequately fulfill contractual duties, resulting in the need +to enter into alternative arrangements, which may not be available, desirable, or cost-effective; +and +● +termination +or non-renewal of agreements by third-party suppliers at times that are costly or inconvenient +for us. +Several of our key +manufacturers and suppliers are located in China, and we are exposed to the possibility of product supply disruption and increased costs +in the event of changes in the policies, laws, rules and regulations of the United States or Chinese governments, as well as political +unrest or unstable economic conditions in China. For example, trade tensions between the United States and China have been escalating +in recent years. Notably, the lithium-ion battery industry has been subjected to tariffs implemented by the United States government +on goods imported from China. There is an ongoing risk of new or additional tariffs being imposed on lithium-ion batteries or related +parts which would significantly increase our cost of goods sold, which could require us to increase prices to our customers or, if we +are unable to do so, result in lower gross margins on the products sold by us. In addition, these tariffs could make our products less +competitive than those of our competitors whose inputs are not subject to these tariffs. These U.S. tariff impositions against Chinese +exports have been followed by a round of retaliatory Chinese tariffs on U.S. exports to China. Any resulting escalation of trade tensions, +including a “trade war,” could have a significant adverse effect on world trade and the world economy, as well as on our +results of operations. At this time, we cannot predict whether additional tariffs or trade restrictions will be imposed or the extent +to which they may impact our business. +In addition, U.S. +trade policy has been subject to significant volatility in recent years. For example, in February 2026, the U.S. Supreme Court ruled +that the IEEPA does not authorize the President to impose tariffs, invalidating certain tariffs imposed under that authority. However, +tariffs and other trade restrictions may continue to be imposed under other statutory authorities or through future legislation. Any +new tariffs or increases in existing tariffs on battery components or raw materials could increase our cost of goods sold and adversely +affect our business and results of operations. +Further, we may be +unable to control price fluctuations for these components or negotiate supply arrangements on favorable terms to us. We may also be exposed +to fluctuations in the value of the U.S. dollar relative to the Renminbi with any appreciation in the value of the Renminbi increasing +our costs for lithium-ion batteries and other raw materials sourced from China. Substantial increases in the prices for our lithium-ion +batteries and other raw materials would increase our operating costs and negatively impact our results of operations. In addition, foreign +currency fluctuations relative to the value of the U.S. dollar could affect the price of components and materials used in our batteries +and sourced from countries other than the United States. Demand for lithium-ion batteries and other raw materials used in our products +may also increase as a result of growing global demand from EV and energy storage industries, which could further increase the cost or +reduce the availability of these materials. +15 +Increases in +costs, disruption of supply, or shortage of any of our battery components such as electronic and mechanical parts could harm our business. +From time to time, +we may experience increases in the cost or a sustained interruption in the supply or shortage of battery components. Supply chain disruptions +and component shortages have occurred in the past and may occur in the future due to a variety of factors, including geopolitical events, +trade policies and tariffs, manufacturing concentration, transportation disruptions, labor shortages, public health events, and demand-supply +imbalances in specific component categories. The timing, duration and magnitude of any such disruptions are uncertain and may vary by +component type. For example, shortages could affect the supply of electronic components used in the manufacture of our battery components. +Any such cost increase or supply interruption could materially and negatively impact our business, prospects, financial condition and +results of operations. In addition, although we carefully manage our inventory and supplier lead times, our suppliers may not continue +to provide us with battery components in the quantities we require, to our required specifications and quality standards, or at commercially +reasonable prices. +Our business +and future growth depends on the needs and success of our customers. +Our customers include +dealers, wholesalers, private-label customers and OEMs. The demand for our products ultimately depends on consumers in our current end +markets (primarily owners of RVs and marine vessels). These markets can be impacted by numerous factors, including, consumer spending, +travel restrictions, fuel costs and energy demands (including an increasing trend towards the use of green energy) and overall economic +conditions. Increases or decreases in these variables may significantly impact the demand for our products. If we fail to accurately +predict demand, we may be unable to meet our customers’ needs, resulting in the loss of potential sales, or we may produce excess +products, resulting in increased inventory and overcapacity in our production facilities, increasing our unit production cost and decreasing +our operating margins. +We have substantial +customer concentration, with a limited number of customers accounting for a substantial portion of our sales in 2025 and 2024. +We currently derive +a significant portion of our revenue from a limited number of customers. Sales to four customers totaled approximately 60% of our gross +sales during the year ended December 31, 2025, and these customers had accounts receivable balances representing 69% of our total accounts +receivable as of December 31, 2025. During the year ended December 31, 2024, sales to one customer represented approximately 14% of our +gross sales, and four other customers had accounts receivable balances representing 60% of total accounts receivable as of December 31, +2024. There are inherent risks whenever a large percentage of gross sales are concentrated with a limited number of customers. In addition, +most of our sales are completed on a purchase order basis and most are without firm, long-term revenue commitments or sales arrangements. +It is not possible for us to predict the future level of demand for our products and services that will be generated by our customers +or the future demand for the products and services of our other customers. If any of our customers experience declining or delayed sales +due to market, economic or competitive conditions, we could be pressured to reduce the prices we charge for our products which could +have an adverse effect on our margins and financial position and could negatively affect our revenue and results of operations and/or +trading price of our common stock. Furthermore, there is inherent risk associated with accounts receivable concentration as a deterioration +in the financial condition of a limited number of account debtors, or any other factor which affects their ability or willingness to +pay could in turn have a material adverse effect on our financial condition. +We may not +be able to successfully manage our growth. +We have been continuously +expanding our operations since our founding in 2016. As we continue to grow, we must continue to improve our managerial, technical and +operational knowledge and allocation of resources, and to implement an effective management information system. To effectively manage +our expanded operations, we need to continue to recruit and train managerial, accounting, internal audit, engineering, assembly and manufacturing, +technical, sales, and other staff to satisfy our development requirements and there are currently significant labor shortages in the +market. In order to fund our ongoing operations and our future growth, we need to have sufficient internal sources of liquidity or access +to additional financing from external sources. Furthermore, we will be required to manage relationships with a greater number of customers, +suppliers, contractors, service providers, lenders and other third parties. We will need to further strengthen our internal control and +compliance functions to ensure that we are able to comply with our legal and contractual obligations and to reduce our operational and +compliance risks. We cannot assure you +that we will not experience issues such as capital constraints, construction delays, operational difficulties at new locations, or difficulties +in expanding our existing business and operations and in recruiting and training an increasing number of personnel to manage and operate +the expanded business. Our expansion plans may also adversely affect our existing operations and thereby have a material adverse effect +on our business, prospects, financial condition and results of operations. +16 +Our results +of operations may be negatively impacted by public health epidemics or outbreaks. +We are exposed to +risks associated with public health crises, epidemics or pandemics, and other widespread disruptions that could adversely affect the +global economy, supply chain, and demand for our products. For example, the COVID-19 global pandemic adversely impacted our operations, +supply chains, and distribution systems as well as those of our third-party suppliers and manufacturers, and similar disruptions could +occur in the future due to other public health events or comparable global disruptions. A future public health epidemic or outbreak may +make it more difficult for us and our third-party manufacturers to find sufficient components or raw materials and component parts on +a timely basis or at a cost-effective price. Any performance failure on the part of any of our significant suppliers or third-party manufacturers +could interrupt production of our products, which would have a material adverse effect on our business, financial condition and results +of operations. In addition, during the pandemic we experienced shortages and workforce slowdowns due to stay-at-home mandates, illness +among our workforce, delays in shipping finished products to customers, and delays in our receiving batteries and certain components. +The highly competitive labor market made it difficult to recruit and maintain a workforce properly sized and suited for our operational +and strategic needs, which further adversely impacted our business, and any future incidence of disease could similarly impact our business. +In addition, while the pandemic positively impacted our battery sales due to more consumers adopting the RV lifestyle, there is no guarantee +that any such increase would be sustained, which could cause our results of operations to fluctuate. +If we fail +to expand our sales and distribution channels, our business could suffer. +Our success, and +our ability to increase sales and operate profitably, depends on our ability to identify target customers and convert these customers +into meaningful orders, as well as our continued development of existing customer relationships. If we are unable to expand our sales +and distribution channels, we may not be able to increase revenue or achieve market acceptance of our products. The company may expand +its direct sales force by recruiting additional sales personnel. Newly-hired sales personnel will require training and may take time +to achieve full productivity. The Company operates in a competitive market for experienced sales professionals, which may impact recruiting +efforts. In addition, we believe our future success is dependent upon establishing successful relationships with a variety of distribution +partners. To date, we have entered into agreements with only a small number of these distribution partners. We cannot be certain that +we will be able to reach agreement with additional distribution partners on a timely basis or at all, or that these distribution partners +will devote adequate resources to selling our products. Furthermore, if our distribution partners fail to adequately market or support +our products, the reputation of our products in the market may suffer. In addition, we will need to manage potential conflicts between +our direct sales force and any third-party reselling efforts. There can be no assurances that any of our efforts to expand our sales +and distribution channels will be successful. +Our ability +to expand into international markets is uncertain. +Our strategy is to +expand our operations into international markets. In addition to general risks associated with international expansion, such as foreign +currency fluctuations and political and economic instability, we face the following risks and uncertainties any of which could prevent +us from selling our products in a particular country or harm our business operations once we have established operations in that country: +the difficulties +and costs of localizing products for foreign markets; +the need to modify +our products to comply with local requirements in each country; and +our lack of a direct +sales presence in other countries, our need to establish relationships with distribution partners to sell our products in these markets +and our reliance on the capabilities and performance of these distribution partners. +17 +If we are unable +to expand into international markets in the manner expected, our business, financial condition, results of operations and prospects may +be materially and adversely affected. +Nearly all +of our raw materials enter the United States through a limited number of ports and we rely on third parties to store and ship some of +our inventory; labor unrest at these ports or other product deliver difficulties could interfere with our distribution plans and reduce +our revenue. +We currently rely +exclusively on foreign manufacturers to manufacture the lithium-ion batteries used as raw materials in our products, as well as certain +other of our raw materials. We may suffer delays in receiving raw materials due to work stoppages, strikes or lockouts or other bottlenecks +at the ports through which our raw materials are shipped. Likewise, we rely on trucking carriers to deliver products from the port of +arrival to our distribution facilities and from our distribution facilities to our customers. Additionally, in some cases, third parties +sort, store, and direct-ship products to our customers. Labor unrest or other disruptions could result in product shortages and delays +in distributing our products to retailers, which could materially and adversely affect our business, financial condition, results of +operations, and prospects. +The uncertainty +in global economic conditions could negatively affect our results of operations. +Our results of operations +are directly affected by the general global economic conditions of the industries in which our major customer groups operate. Our business +is also highly dependent on the economic and market conditions in each of the geographic areas in which we operate. Our products are +heavily dependent on the end markets that we serve and our results of operations will vary by location, depending on the economic environment +in these markets. Sales of our RV and marine power products, for example, depend significantly on demand for new electric products for +RVs and marine applications, which, in turn, depends on end-user demand for RVs and boats. We are actively expanding our product offerings +and customer base into industrial, commercial, construction, surveillance, remote monitoring, and other adjacent markets in an effort +to diversify revenue sources and reduce reliance on the RV and marine end markets; however, these efforts may not offset fluctuations +in our core markets. The uncertainty in global economic conditions varies by geographic location and can result in substantial volatility +in global credit markets, particularly in the United States. These conditions, including levels of consumer spending, economic recessions, +slow economic growth, economic and pricing instability, inflation levels, increase of interest rates, credit market volatility and adverse +developments affecting financial institutions, could affect our business by reducing prices that our customers may be able or willing +to pay for our products or by reducing the demand for our products. In addition, the Russia-Ukraine war and the Israel-Palestine conflict +has and may continue to further exacerbate disruptions in the global supply chain. As a result of sanctions imposed in relation to the +Russia-Ukraine conflict, gas prices in the United States have risen to historic levels, and geopolitical tensions in the Middle East +have impacted global shipping routes. Any rise in the cost of fuel may cause a decrease in RV travel, which could ultimately negatively +impact sales of our batteries for RVs. We have also historically experienced increased shipping costs as a result of increased fuel costs +and shutdowns at the ports through which our lithium-ion batteries and other raw materials are shipped, and such costs could adversely +impact our results of operations in future periods. Any of the above factors could, in turn, negatively impact our sales and earnings +generation and result in a material adverse effect on our business, cash flows, results of operations, and financial position. +Government +reviews, inquiries, investigations, and actions could harm our business or reputation. +As we operate in +various locations around the world, our operations in certain countries are subject to significant governmental scrutiny and may be adversely +impacted by the results of such scrutiny, including regulations relating to environmental compliance, hazardous materials, product safety, +and international trade. The regulatory environment with regard to our business is evolving, and officials often exercise broad discretion +in deciding how to interpret and apply applicable regulations. From time to time, we receive formal and informal inquiries from various +government regulatory authorities, as well as self-regulatory organizations, about our business and compliance with local laws, regulations +or standards. Any determination that our operations or activities, or the activities of our employees, are not in compliance with existing +laws, regulations or standards could result in the imposition of substantial fines, interruptions of business, loss of supplier, vendor, +customer or other third-party relationships, termination of necessary licenses and permits, or similar results, all of which could potentially +harm our business and/or reputation. Even if an inquiry does not result in these types of determinations, regulatory authorities could +cause us to incur substantial costs or require us to +change our business practices in a manner materially adverse to our business, and it potentially could create negative publicity which +could harm our business and/or reputation. +18 +We are currently, +and will likely continue to be, dependent on a limited number of warehouse facilities. If our facilities become inoperable for any reason, +our ability to produce our products could be negatively impacted. +We have two adjacent +warehouse facilities in Redmond, Oregon and a third warehouse facility in Elkhart, Indiana, which support the storage, assembly, and +distribution of our products. +Our facilities may +be harmed or rendered inoperable by natural or man-made disasters, including earthquakes, flooding, fire and power outages, utility and +transportation infrastructure disruptions, acts of war or terrorism, or by public health crises, which may render it difficult or impossible +for us to assemble our products for an extended period of time. The inability to produce our products or the backlog that could develop +if any of our facilities is inoperable for even a short period of time may result in increased costs, harm to our reputation, a loss +of customers or a material adverse effect on our business, financial condition or results of operations. Although we maintain property +damage and business interruption insurance, this insurance may not be sufficient to cover all of our potential losses and may not continue +to be available to us on acceptable terms, if at all. +Our long-term target +is to onshore the manufacturing of most of our components and assemblies, including cell manufacturing, to the United States. Our plans +for expansion may experience delays, incur additional costs, or cause disruption to our existing production lines. The costs to successfully +achieve our expansion goals may be greater than we expect, and we may fail to achieve our anticipated cost efficiencies, which could +have a material adverse effect on our business, financial condition and results of operations. Furthermore, while we are generally responsible +for delivering products to the customer, we do not maintain our own fleet of delivery vehicles and outsource this function to third parties. +Any shortages in trucking capacity, any increase in the cost thereof or any other disruption to the highway systems could limit our ability +to deliver our products in a timely manner or at all. +Lithium-ion +battery cells have been observed to catch fire or release smoke and flame, which may have a negative impact on our reputation and business. +Our lithium-ion batteries +use LiFePO4 as the cathode material for lithium-ion cells. On rare occasions, lithium-ion cells can rapidly release the energy they contain +by releasing smoke and flames in a manner that can ignite nearby materials and other lithium-ion cells. This could subject us to lawsuits, +product recalls, or redesign efforts, all of which would be time-consuming and expensive. Further, negative public perceptions regarding +the suitability or safety of lithium-ion cells or any future incident involving lithium-ion cells, such as a vehicle or other fire, even +if such incident does not involve our products, could seriously harm our business and reputation. +To facilitate an +uninterrupted supply of lithium-ion batteries, we store a significant number of lithium-ion batteries at our facilities. Any mishandling, +other safety issue, or fire related to the cells or batteries could disrupt our operations. In addition, any accident, whether occurring +at our facilities or from the use of our batteries, may result in significant production interruption, delays or claims for substantial +damages caused by personal injuries or property damage. Such damage or injury could lead to adverse publicity and potentially a product +recall, which could have a material adverse effect on our brand, business, financial condition and results of operations. +We could face +product liability or warranty claims relating to our products, including the components thereof, which could reduce market adoption, +result in reputation damage, and result in significant costs and liabilities, which would reduce our profitability. +Our product offerings +and energy storage solutions, which are complex, could contain design- or manufacturing-related defects, or may not operate at expected +performance levels. We face an inherent business risk of exposure to product liability claims in the event that the use of any of our +products results in personal injury or property damage. In the event that any of our products prove to be defective, we may be required +to recall or redesign such products, which would result in significant unexpected costs. Any insurance we maintain may not be available +on terms acceptable to us or such coverage may not be adequate for liabilities actually incurred. Further, any claim or product recall +could result in adverse publicity against us, which could adversely affect our sales or increase our costs. +19 +We are also exposed +to potential liability and product performance warranty risks that are inherent in the design, assembly, manufacture, and sale of our +products. We sell the majority of our products to customers with conditional repair or replacement warranties. Expion360-branded products +are warrantied for up to twelve years from the date of sale. As a result, we bear the risk of warranty claims long after we have sold +the product and recognized revenue. In addition, under real-world operating conditions, which may vary by location and design, as well +as environmental conditions, our products may perform in a different way than under standard test conditions or other failure data sets. +We depend significantly on our reputation for safety and reliability and high-quality products and services, exceptional customer service, +and our brand name to attract new customers and maintain our current customers, and grow our business. If our products do not perform +as anticipated or we experience unexpected reliability problems or widespread product failures, our brand and market reputation could +be significantly impaired and we may lose, or be unable to gain or retain, customers which could impact our business and results of operations. +We have been required +to make assumptions and apply judgments, including the durability and reliability of our products, regarding their performance over the +estimated warranty period and the anticipated number and value of warranty claims. We have a relatively limited operating history and +must project how our offerings will perform over the estimated warranty period and the estimated reserve may have material changes. Historically, +there have been very few claims and the costs associated with repairs or replacement parts associated with those claims have been +nominal so we expense warranty claims as occurred and do not accrue an allowance. Our assumptions could prove to be materially different +from the actual performance of our products, causing us to incur substantial expense to repair or replace defective products in the future. +An increase in our estimates of future warranty obligations could cause us to increase the amount of warranty obligations. If our warranty +reserves are inadequate to cover future warranty claims on our energy storage products, our financial condition and results of operations +could be adversely affected. +Our operations +expose us to litigation, tax, environmental and other legal compliance risks. +We are subject to +a variety of litigation, tax, environmental, health and safety and other legal compliance risks. These risks include, among other things, +possible liability relating to product liability matters, personal injuries, intellectual property rights, contract-related claims, government +contracts, taxes, health and safety liabilities, environmental matters, and compliance with competition laws and laws governing improper +business practices. We could be charged with wrongdoing as a result of such matters. If convicted or found liable, we could be subject +to significant fines, penalties, repayments, or other damages (in certain cases, treble damages). In the area of taxes, changes in tax +laws and regulations, as well as changes in related interpretations and other tax guidance could materially impact our tax liabilities +and our deferred tax assets and tax liabilities. +We plan to manufacture +lithium-ion batteries in the future which involves processing, storing, disposing of, and otherwise moving large amounts of hazardous +materials, and federal, state, and local regulations impose significant environmental requirements on the manufacturing, storage, transportation, +and disposal of various components of advanced energy storage systems. As a result, we will be subject to extensive and changing environmental, +health and safety laws, and regulations governing, among other things, the generation, handling, storage, use, transportation and disposal +of hazardous materials; remediation of polluted ground or water; emissions or discharges of hazardous materials into the ground, air +or water; and the health and safety of our employees. Although we believe our operations are in material compliance with applicable environmental +regulations, there can be no assurance that changes in such laws and regulations will not impose costly compliance requirements on us +or otherwise subject us to future liabilities. Our ongoing compliance with environmental, health and safety laws, regulations, and permits +could require us to incur significant expenses, limit our ability to modify or expand our facilities or continue production, and require +us to install additional pollution control equipment and make other capital improvements. In addition, private parties, including employees, +could bring personal injury or other claims against us due to the presence of, or exposure to, hazardous substances used, stored or disposed +of by us or contained in our products. +Certain environmental +laws assess liability on owners or operators of real property for the cost of investigation, removal, or remediation of hazardous substances +at their current or former properties or at properties at which they have disposed of hazardous substances. These laws may also assess +costs to repair damage to natural resources. We may be responsible for remediating damage to our properties caused by former owners by +our existing operations or by our future operations. +20 +Changes in environmental +and climate laws or regulations could lead to new or additional investment in production designs and could increase environmental compliance +expenditures. For example, federal and state regulators, including the United States Environmental Protection Agency, have promulgated +and may continue to promulgate regulations relating to greenhouse gas emissions, hazardous air pollutants, energy use, and climate-related +reporting and compliance obligations. In addition, the United States and certain states have enacted, or are considering, limitations +on greenhouse gas emissions, carbon pricing mechanisms, and other climate-related regulatory measures that could affect manufacturing, +supply chains, energy costs, or capital expenditures. +Changes in climate +change concerns, or in the regulation of such concerns, including greenhouse gas emissions, could subject us to additional costs and +restrictions, including increased energy and raw materials costs. Additionally, we cannot assure you that we have been or at all times +will be in compliance with environmental laws and regulations or that we will not be required to expend significant funds to comply with, +or discharge liabilities arising under, environmental laws, regulations and permits, or that we will not be exposed to material environmental, +health or safety litigation. +We are subject to +anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and regulations in the jurisdictions +in which we conduct or in the future may conduct activities, including, the U.S. Foreign Corrupt Practices Act (the “FCPA”). +The FCPA generally prohibits companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of +obtaining or retaining business. The FCPA applies to companies, individual directors, officers, employees, and agents. Under the FCPA, +U.S. companies may be held liable for actions taken by strategic or local partners or representatives. The FCPA also imposes accounting +standards and requirements on publicly traded U.S. corporations and their foreign affiliates, which are intended to prevent the diversion +of corporate funds to the payment of bribes and other improper payments. Our policies mandate compliance with these antibribery laws. +Despite meaningful measures that we undertake to facilitate lawful conduct, which include training and internal control policies, these +measures may not always prevent reckless or criminal acts by our employees or agents as we expand our operations from the United States +domestically to abroad. As a result, we could be subject to criminal and civil penalties, disgorgement, further changes or enhancements +to our procedures, policies and controls, personnel changes or other remedial actions. Violations of these laws, or allegations of such +violations, could disrupt our operations, involve significant management distraction and result in a material adverse effect on our competitive +position, results of operations, cash flows or financial condition. +Our failure +to introduce new products and product enhancements that respond to customer and end consumer demand, and any broad market acceptance +of new technologies introduced by our competitors, could adversely affect our business. +Our success will +depend on our ability to develop new products and capabilities that respond to consumer demand, industry trends, or developments by our +competitors. There is no assurance that we will be able to successfully develop new products and capabilities that adequately respond +to these forces. In addition, many new energy storage technologies have been introduced over the past several years. For certain important +and growing markets, such as aerospace and defense, lithium-based battery technologies have a large and growing market share. Our ability +to achieve significant and sustained penetration of key developing markets, including the RV, marine, and industrial markets, will depend +upon our success in developing or acquiring these and other technologies, either independently, through joint ventures, or through acquisitions, +which in each case may require significant capital. In addition, new product introductions and technologies are risky, and may suffer +from a lack of market acceptance, delays in related product development and failure of new products to operate properly. Any failure +by us to successfully launch new products, or a failure by us to meet our customers’ criteria in order to accept such products, +could adversely affect our results. If we fail to develop or acquire, assemble and manufacture and sell, products that satisfy our customers’ +demands, or we fail to respond effectively to new product announcements by our competitors by quickly introducing competitive products, +then we may fail to maintain our competitive position in our markets, and our business and financial condition could be adversely affected. +We cannot assure you that our portfolio of primarily lithium-ion products will remain competitive with products based on new technologies. +21 +We may not +be able to adequately protect our proprietary intellectual property and technology and we may need to defend ourselves against intellectual +property infringement claims. +We rely on a combination +of copyright, trademark, patent and trade secret laws, non-disclosure agreements, and other confidentiality procedures and contractual +provisions to establish, protect, and maintain our proprietary intellectual property and technology and other confidential information. +Certain of these technologies, especially battery case construction, are important to our business and are not protected by patents, +and certain assets of our technology may not be protected by issued patents and instead rely on trade secret protection and other contractual +safeguards. Despite our efforts to protect our proprietary intellectual property and technology and other confidential information, unauthorized +parties may attempt to copy or otherwise obtain and use our intellectual property and proprietary technologies. If we are unable to protect +our intellectual property and technology, we may lose our competitive position or any technological advantage we may have developed, +and our results of operations and net income may be adversely affected. In addition, entities holding intellectual property rights relating +to our technology may bring suits alleging infringement of such rights or otherwise asserting their rights and seeking licenses. Any +such litigation or claims, whether or not valid or successful, could result in substantial costs and diversion of resources and our management’s +attention. If we are determined to have infringed upon a third-party’s intellectual property rights, we may have to pay substantial +damages, obtain a license, or cease making certain products, which in turn could have a material adverse effect on our business, results +of operations, and financial condition. +Quality problems +with our products could harm our reputation and erode our competitive position. +The success of our +business will depend upon the quality of our products and our relationships with customers. In the event that our products fail to meet +our customers’ standards, our reputation could be harmed, which would adversely affect our marketing and sales efforts. We cannot +assure you that our customers will not experience quality problems with our products. +Any acquisitions +that we complete may dilute stockholder ownership interests in the Company, may have adverse effects on our financial condition and results +of operations, and may cause unanticipated liabilities. +As part of our growth +strategy, we may make future investments in businesses, new technologies, services, and other assets that complement our business. Future +acquisitions may involve the issuance of our equity securities as payment, in part or in full, for the businesses or assets acquired. +Any future issuances of equity securities would dilute stockholder ownership interests. In addition, future acquisitions might not increase, +and may even decrease, our earnings or earnings per share and the benefits derived by us from an acquisition might not outweigh or might +not exceed the dilutive effect of the acquisition. We also may incur additional debt or suffer adverse tax and accounting consequences +in connection with any future acquisitions. +If our electronic +data is compromised, or we experience a failure in our information technology or storage systems, our business could be significantly +harmed. +We and our business +partners maintain significant amounts of data electronically in locations around the world. This data relates to all aspects of our business, +including current and future products and services under development, and also contains certain customer, supplier, partner, and employee +data. Our ability to execute our business strategy depends, in part, on the continued and uninterrupted performance of our information +technology systems, which support our operations. We maintain systems and processes designed to protect this data, but notwithstanding +such protective measures, there is a risk of intrusion, cyberattacks, tampering, theft, misplaced or lost data, programming and/or human +errors that could compromise the integrity and privacy of this data, improper use of our systems, software solutions or networks, unauthorized +access, use, disclosure, modification or destruction of information, defective products, production downtimes, and operational disruptions, +which in turn could adversely affect our reputation, competitiveness, and results of operations. High-profile security breaches at other +companies and in government agencies have increased in recent years, and cyber-attacks are becoming more sophisticated and frequent, +and in some cases have caused significant harm. Computer hackers and others routinely attempt to breach the security of technology products, +services and systems, and to fraudulently induce employees, customers, or others to disclose information or unwittingly provide access +to systems or data. While we devote significant resources to security measures to protect our systems and data, these measures cannot +provide absolute security. +22 +In addition, we provide +confidential and proprietary information to our third-party business partners in certain cases where doing so is necessary to conduct +our business. While we obtain assurances from those parties that they have systems and processes in place to protect such data, and where +applicable, that they will take steps to assure the protections of such data by third parties, nonetheless those partners may also be +subject to data intrusion or otherwise compromise the protection of such data. Any compromise of the confidential data of our customers, +suppliers, partners, employees, or ourselves, or failure to prevent or mitigate the loss of or damage to this data through breach of +our information technology systems or other means could substantially disrupt our operations, harm our customers, employees and other +business partners, damage our reputation, violate applicable laws and regulations, subject us to potentially significant costs and liabilities +and result in a loss of business that could be material. We operate a number of critical computer systems throughout our business that +can fail for a variety of reasons. If such a failure were to occur, we may not be able to sufficiently recover from the failure in time +to avoid the loss of data or any adverse impact on certain of our operations that are dependent on such systems. This could result in +lost sales and the inefficient operation of our facilities for the duration of such a failure. +Our ability +to raise capital in the future may be limited, which could make us unable to fund our capital requirements and our stockholders may be +diluted by future securities offerings. +Our business and +operations may consume resources faster than we anticipate. In the future, we may need to raise additional funds through the issuance +of new equity securities, debt, or a combination of both or by entering into credit facilities or securing other types of financing. +Additional financing may not be available on favorable terms or at all. If adequate funds are not available on acceptable terms, or at +all, we may be unable to fund our capital requirements. Further, we may be restricted in our ability to access existing sources of liquidity. +In addition, actual +events involving limited liquidity, defaults, non-performance, or other adverse developments that affect financial institutions, transactional +counterparties, or other companies in the financial services industry as well as concerns or rumors regarding such events, could adversely +affect the financial services industry generally and our liquidity and financial condition. If banks or financial institutions enter +receivership or become insolvent in response to financial conditions affecting the banking system and financial markets, our ability +to raise additional financing or to access our existing cash, cash equivalents and investments may be threatened. +If we incur new debt, +the debt holders would have rights senior to common stockholders to make claims on our assets, and the terms of any debt could restrict +our operations, including our ability to pay dividends on our common stock. If we issue additional equity securities, existing stockholders +may experience dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to +issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate +the amount, timing, or nature of our future offerings. Thus, our stockholders bear the risk of our future securities offerings reducing +the market price of our common stock and diluting their interest. +We depend on +our senior management team and other key employees, and significant attrition within our management team or unsuccessful succession planning +could adversely affect our business. +Our success depends +in part on our ability to attract, retain, and motivate senior management and other key employees. Achieving this objective may be difficult +due to many factors, including fluctuations in global economic and industry conditions, competitors’ hiring practices, cost reduction +activities, and the effectiveness of our compensation programs. Competition for qualified personnel can be very intense. We must continue +to recruit, retain, and motivate senior management and other key employees sufficient to maintain our current business and support our +future projects. We are vulnerable to attrition among our current senior management team and other key employees. A loss of any such +personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business, financial +condition and results of operations. In 2025, certain members of our senior leadership team departed, and we appointed new executive +officers, including internal promotions to the Chief Financial Officer and Chief Operating Officer roles. Although these executives have +prior experience with the Company and we believe we have maintained operational continuity, leadership transitions may result in temporary +disruption, changes in strategic direction, or uncertainty among employees, customers, or other stakeholders. Any additional attrition +among senior management or key employees, or any failure of our succession planning efforts, could adversely affect our business, financial +condition, and results of operations. +23 +Changes in +tax laws or tax rulings could materially affect our financial position, results of operations, and cash flows. +The income and non-income +tax regimes we are subject to or operate under are unsettled and may be subject to significant change. Changes in tax laws or tax rulings, +or changes in interpretations of existing laws, could materially affect our financial position, results of operations, and cash flows. +The overall tax environment remains uncertain and increasingly complex. Future changes in tax laws, treaties or regulations, and their +interpretation or enforcement, may be unpredictable, particularly as taxing jurisdictions face an increasing number of political, budgetary, +and other fiscal challenges. In the U.S., various proposals to change corporate income taxes are periodically considered. Tax rates in +the jurisdictions in which we operate may change as a result of macroeconomic and other factors outside of our control, making it increasingly +difficult to operate with certainty about taxation. For example, changes to U.S. tax laws enacted in December 2017 had a significant +impact on our tax obligations and effective tax rate beginning 2018, and the full consequences of the significant changes to U.S. tax +laws as a result of the Tax Cuts and Jobs Act of 2017 have not yet been fully determined. These enactments and future possible guidance +from the applicable taxing authorities may have a material impact on our results of operations. In addition, regulatory or legislative +developments may arise from various U.S. tax reform proposals, some of which include proposed changes to the U.S. tax laws, which, if +adopted, could result in increased taxation of our business operations. We closely monitor these proposals as they arise in the countries +where it operates. Changes to the statutory tax rate may occur at any time, and any related expense or benefit recorded may be material +to the fiscal quarter and year in which the law change is enacted. We regularly assess the likely outcomes of our tax audits and disputes +to determine the appropriateness of our tax reserves. However, any tax authority could take a position on tax treatment that is contrary +to our expectations, which could result in tax liabilities in excess of reserves. +A failure to +keep pace with developments in technology could impair our operations or competitive position. +Our business continues +to demand the use of sophisticated systems and technology. These systems and technologies must be refined, updated, and replaced with +more advanced systems on a regular basis in order for us to meet our customers’ demands and expectations. If we are unable to do +so on a timely basis or within reasonable cost parameters, or if we are unable to appropriately and timely train our employees to operate +any of these new systems, our business could suffer. We also may not achieve the benefits that we anticipate from any new system or technology, +such as fuel abatement technologies, and a failure to do so could result in higher than anticipated costs or could impair our results +of operations. +Risks Related +to Ownership of Our Common Stock +Our stock price +may fluctuate significantly, and you may lose all or a part of your investment. +The trading price +of our securities may be volatile and subject to wide price fluctuations in response to various factors, including: +● +market +conditions in the broader stock market; +● +actual +or anticipated fluctuations in our quarterly financial condition and results of operations, +or those of other companies in our industry; +● +actual +or anticipated strategic, technological, or regulatory threats, whether or not warranted +by actual events; +● +whether +any securities analysts cover our stock; +● +issuance +of new or changed securities analysts’ reports or recommendations, if any; +● +investor +perceptions of our Company, the lithium battery and accessory industry; +● +the +volume of trading in our stock; +● +changes +in accounting standards, policies, guidance, interpretations, or principles; +● +sales, +or anticipated sales, of large blocks of our stock; +● +additions +or departures of key management personnel, creative, or other talent; +● +regulatory +or political developments, including changes in laws or regulations that are applicable to +our business; +● +litigation +and governmental investigations; +● +sales +or distributions of our common stock by significant stockholders, the entity through which +our controlling stockholder holds its investment, or other insiders; +● +natural +disasters and other calamities; and +● +macroeconomic +conditions. +24 +Furthermore, the +stock market has experienced extreme volatility that in some cases has been unrelated or disproportionate to the operating performance +of particular companies. These and other factors may cause the market price and demand for our securities to fluctuate substantially, +which may limit or prevent investors from readily selling their securities and it may otherwise negatively affect the liquidity of our +securities. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted +securities class action litigation against the company that issued the stock. If any of our stockholders were to bring a lawsuit against +us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management +from our business. +We do not anticipate +paying dividends on our common stock in the foreseeable future, and you may not receive any return on investment unless you sell your +common stock for a price greater than that which you paid for it. +We do not anticipate +paying any dividends in the foreseeable future on our common stock. We intend to retain all future earnings for the operation and expansion +of our business and the repayment of outstanding debt. Any future debt facilities we may enter into may contain restrictions on our ability +to pay dividends or make distributions, and any new credit facilities we may enter into may contain similar restrictions. As a result, +capital appreciation, if any, of our common stock may be your major source of gain for the foreseeable future. While we may change this +policy at some point in the future, we cannot assure you that we will make such a change. +If securities +or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding +our stock, or if our results of operations do not meet their expectations, our stock price and trading volume could decline. +The trading market +for our securities may be influenced by the research and reports that securities or industry analysts publish about us or our business +(or the absence of such research or reports). If one or more of these analysts cease coverage of our Company or fail to publish reports +on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock prices or trading volume to decline. +Moreover, if one or more of the analysts who cover us downgrade recommendations regarding our stock, or if our results of operations +do not meet their expectations, our stock prices could decline and such decline could be material. +You may be +diluted by the future issuance of additional common stock in connection with our incentive plans, acquisitions, or otherwise. +You will experience +additional dilution upon the exercise of options and warrants to purchase our common stock, including those options currently outstanding +and possibly those granted in the future, and the issuance of restricted stock or other equity awards under our stock incentive plans. +As of December 31, 2025, we had 200,000,000 shares of common stock authorized, of which 9,781,739 were issued. In January 2025, we completed +a registered direct offering and concurrent private placement pursuant to which we issued shares of common stock and warrants to purchase +shares of common stock, and in October 2025 we issued shares of common stock and pre-funded warrants in a private placement. See “ Management’s +Discussion and Analysis of Financial Condition and Results of Operations ” for additional information regarding the offerings. +As of December 31, +2025, there were outstanding warrants to purchase up to 1,359,907 shares of common stock, as well as 144,498 pre-funded warrants, and +269,219 shares of common stock issuable upon the exercise or settlement of equity incentive awards outstanding under our 2021 Incentive +Award Plan. +Our Articles of +Incorporation authorizes us to issue shares of common stock and options, rights, warrants, and appreciation rights relating to +common stock for the consideration and on the terms and conditions established by our Board in its sole discretion, whether in +connection with our incentive plans, acquisitions, or otherwise. We have reserved shares of common stock for issuance under the 2021 +Incentive Award Plan and 2021 Employee Stock Purchase Plan. Any common stock that we issue, including stock issued under our 2021 +Incentive Award Plan or other equity incentive +plans that we may adopt in the future, as well as under outstanding options or warrants, would dilute the percentage ownership held by +our common stockholders. In addition, we have sold, and may continue to sell, shares of common stock under our at-the-market program, +which may result in additional dilution. To the extent we raise additional capital by issuing equity securities, our stockholders may +also experience substantial additional dilution. +25 +Sales of substantial +amounts of our securities in the public markets, or the perception that such sales might occur, could reduce the price of our securities +and may dilute your voting power and your ownership interest in us. +If our existing stockholders +sell substantial amounts of our securities in the public market, including the shares of common stock issued or issuable upon the exercise +of outstanding warrants or warrants that may be issued in the future, and shares issued as consideration in any future acquisitions, +or the market perceives that such sales may occur, the market price of our securities could fall and we may be unable to sell our securities +in the future. See the section titled “ Management’s Discussion and Analysis of Financial Condition and Results of Operations—August +2024 Public Offering and Subsequent Warrant Exercises and Adjustments to Warrant Exercise and Reset Prices ” and “ —January +2025 Registered Direct Offering and Warrant Private Placement ” for additional information regarding the August 2024 Public +Offering and January 2025 Registered Direct Offering, respectively. The perception in the public market that our stockholders might sell +securities could also depress our market price. As of March 11, 2026, we had 10,846,135 shares of common stock outstanding. Pursuant +to the terms of the warrants issued to the underwriters (or their designees) in connection with our initial public offering (the “Underwriter +Warrants”), the holders of the Underwriter Warrants have the right, subject to certain conditions, to require us to register the +sale of the shares of our common stock underlying their Underwriter Warrants under the Securities Act. +If the holders of +the Underwriter Warrants exercise their registration rights, the market price of shares of our securities may drop significantly. In +addition, all of the shares of common stock issuable upon exercise of outstanding options under the 2021 Incentive Award Plan and all +of the shares of common stock issuable pursuant to the 2021 Employee Stock Purchase Plan have been registered for public resale under +the Securities Act. A decline in the price of shares of our securities might impede our ability to raise capital through the issuance +of additional shares of our common stock or other equity securities. +Although our +common stock is listed on Nasdaq, the exchange could subsequently delist our common stock if we fail to comply with ongoing listing standards. +Our common stock +is currently listed on the Nasdaq Capital Market. We are required to meet specified financial requirements in order to maintain such +listing, including a requirement that the bid price for our common stock remain above $1.00. On January 29, 2026, we received a determination +from The Nasdaq Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market (“Nasdaq”) to delist +our common stock from Nasdaq if the closing bid price does not exceed $1.00 for a minimum of ten consecutive business days within the +compliance period of 180 calendar days. See the section titled “ Legal Proceedings ” for further information on the +delisting notice. +While shares of our +common stock continue to be listed and traded on Nasdaq, there can be no assurance that we will continue to meet Nasdaq listing standards. +Any potential delisting of our common stock from Nasdaq may have materially adverse consequences to our stockholders, including: +a reduced market +price and liquidity with respect to our shares of common stock, which could make our ability to raise new investment capital more difficult; +limited dissemination +of the market price of our common stock; +limited news coverage; +limited interest +by investors in our common stock; +volatility of the +prices of our common stock due to low trading volume; +our common stock +being considered a “penny stock,” which would result in broker-dealers participating in sales of our common stock being subject +to the regulations set forth in Rules 15g-2 through 15g-0 promulgated under the Exchange Act; +increased difficulty +in selling our common stock in certain states due to “blue sky” restrictions; and +limited ability +to issue additional securities or secure additional financing. +26 +The exercise +of outstanding warrants may result in a substantial increase in the number of shares of our common stock that are outstanding. +As of December 31, +2025, 19,564,585 Series A Warrants exercisable for 901,943 shares of common stock at $1.31 per share, and 46,246 Series B Warrants exercisable +for 2,132 shares of common stock, at $0.10 per share, and 449,193 January 2025 Warrants exercisable for 449,193 shares of common stock +at $1.31 per share were outstanding. The exercise of these warrants could result and have resulted in a substantial increase in the number +of shares of common stock outstanding and therefore materially dilute the ownership percentage of currently outstanding shares of common +stock. See “ Note 7, Equity and Debt Financings ” for additional information regarding the offerings. +Provisions +of the Series A Warrants and Series B Warrants we sold in the August 2024 Public Offering may discourage an acquisition of us by a third +party. +Certain provisions +of the Series A Warrants and Series B Warrants we sold in the August 2024 Public Offering could make it more difficult or expensive for +a third-party to acquire us. The Series A Warrants and Series B Warrants each prohibit us from engaging in certain transactions constituting +“fundamental transactions” unless, among other things, the surviving entity assumes our obligations under the applicable +warrants. These and other provisions of the Series A Warrants and Series B Warrants could prevent or deter a third-party from acquiring +us even where the acquisition could be beneficial to our investors. +The Series +A Warrants and Series B Warrants may have an adverse effect on the market price of our common stock and make it more difficult to effect +a business combination. +To the extent we +issue shares of common stock to affect a future business combination, the potential for the issuance of a substantial number of additional +shares of common stock upon exercise of the Series A Warrants and, to a lesser extent, the Series B Warrants could make us a less attractive +acquisition vehicle in the eyes of a target business. Such Series A Warrants and Series B Warrants, when exercised, will increase the +number of issued and outstanding shares of common stock and reduce the value of the shares issued to complete the business combination. +Accordingly, the Series A and Series B Warrants may make it more difficult to effectuate a business combination or increase the cost +of acquiring a target business. Additionally, the sale, or even the possibility of a sale, of the shares of common stock underlying the +August 2024 Pre-Funded Warrants, Series A Warrants, and Series B Warrants could have an adverse effect on the market price for our securities +or on our ability to obtain future financing. If and to the extent the Series A Warrants and Series B Warrants are exercised, our investors +may experience dilution to their holdings. +We continue +to incur considerable legal costs as a result of operating as a public company, and our management will be required to devote substantial +time to comply with public company regulations. +As a public company, +and particularly after we cease to be an “emerging growth company,” as defined in the JOBS Act, we will continue to incur +significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), as well +as rules promulgated by the SEC and Nasdaq require us to adopt corporate governance practices applicable to U.S. public companies. Compliance +with these rules and regulations will continue to increase our legal and financial compliance costs. +Sarbanes-Oxley, as +well as rules and regulations subsequently implemented by the SEC and Nasdaq, have imposed increased disclosure and enhanced corporate +governance practices for public companies. Our efforts to continue to comply with evolving laws, regulations, and standards are likely +to result in increased expenses and a diversion of management’s time and attention from revenue-generating activities to compliance +activities. We may not be successful in continuing to implement these requirements and implementing them could adversely affect our business, +results of operations, and financial condition. In addition, if we fail to implement the requirements with respect to our internal accounting +and audit functions, our ability to report our financial results on a timely and accurate basis could be impaired. +27 +Our management +team has limited experience managing a public company. +Most members of our +management team have limited experience managing a publicly traded company, interacting with public company investors, and complying +with the increasingly complex laws pertaining to public companies. These obligations and constituents require significant attention from +our senior management and can divert their attention away from the day-to-day management of our business, which can harm our business, +results of operations, and financial condition. +We are an “emerging +growth company” and elect to comply with certain reduced reporting requirements applicable to emerging growth companies, which +could make our securities less attractive to investors. +As an “emerging +growth company,” we take advantage of certain exemptions from various reporting requirements that are applicable to other public +companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation +requirements of Section 404 of Sarbanes-Oxley, reduced disclosure obligations regarding executive compensation in our periodic reports +and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder +approval of any golden parachute payments not previously approved. We cannot predict if investors will find our securities less attractive +because we chose to rely on these exemptions. If some investors find our securities less attractive as a result, there may be a less +active trading market for our securities and the prices of our securities may be more volatile. +Section 107 of the +JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in +Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We choose to avail ourselves of this +extended transition period and defer adoption of certain changes in accounting standards. +As described in Section +101 of the JOBS Act, the “emerging growth company” classification can be retained for up to five years following our initial +public offering or until the earlier occurrence of the following: the last day of the fiscal year (a) following the fifth anniversary +of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we deemed +to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeded $700.0 million +as of the prior June 30; or the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior +three-year period. +If +some investors find our securities less attractive as a result of any choices to reduce future disclosure, there may be a less active +market for our securities and our stock price may be more volatile. +Failure to +maintain effective internal control over financial reporting in accordance with Section 404 of Sarbanes-Oxley could have a material adverse +effect on our business and stock price. +We +are required to comply with certain SEC rules that implement Sections 302 and 404 of Sarbanes-Oxley, which require management to certify +financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our +internal control over financial reporting. Though we are required to disclose changes made in our internal control procedures on a quarterly +basis, we take advantage of certain exceptions from reporting requirements that are available to “emerging growth companies” +under the JOBS Act. For example, each independent registered public accounting firm that performs an audit for us has not been required +to attest to and report on our annual assessment of our internal controls over financial reporting pursuant to Section 404 and will not +be required to do so until we are no longer an “emerging growth company” as defined in the JOBS Act and a non-accelerated +filer in accordance with Rule 12b-2 under the Exchange Act. While we expect to be ready to comply with Section 404 of Sarbanes-Oxley +by the applicable deadline, we cannot assure you that this will be the case. Furthermore, we may identify material weaknesses that we +may be unable to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404 +of Sarbanes-Oxley. In addition, if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, +supplemented or amended from time to time, we may be unable to conclude that we have effective internal controls over financial reporting +in accordance with Section 404 of Sarbanes-Oxley. If we are unable to implement the requirements of Section 404 of Sarbanes-Oxley in +a timely manner or with adequate compliance, our independent registered public accounting firm may issue an adverse opinion due to ineffective +internal controls over financial reporting and we +may be subject to sanctions or investigation by regulatory authorities, such as the SEC. As a result, there could be a negative reaction +in the financial markets due to a loss of confidence in the reliability of our financial statements. In addition, we may be required +to incur costs in improving our internal control system and the hiring of additional personnel. Any such action could have a material +adverse effect on our business, prospects, results of operations, and financial condition. +28 +If our shares +become subject to the penny stock rules, it would become more difficult to trade our shares. +The +SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally +equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized +for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions +in such securities is provided by the exchange or system. If we do not retain a listing on Nasdaq or another national securities exchange +and if the price of our common stock is less than $5.00, our common stock could be deemed a penny stock. The penny stock rules require +a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure +document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny +stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable +investment for the purchaser and receive: (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; +(ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. +These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and +therefore stockholders may have difficulty selling their shares. +Risks Related +to Our Capital Structure +Our long-term +lease and debt obligations could adversely affect our ability to raise additional capital to fund operations and limit our ability to +enter into certain transactions. +As of December 31, +2025, we had total liabilities of $1.5 million, of which $710,000 was related to operating lease liabilities and $197,000 was related +to debt obligations. +If we cannot generate +sufficient cash flow from operations to service our lease and any current or future debt obligations, we may need to refinance such obligations, +dispose of assets, or issue equity to obtain necessary funds. We do not know whether we will be able to do any of this on a timely basis +or on terms satisfactory to us, or at all. +Our lease and debt +obligations we have or may incur in the future could have important consequences, including: +● +our +ability to obtain additional debt or equity financing for working capital, capital expenditures, +debt service requirements, acquisitions, and general corporate or other purposes may be limited; +● +a +portion of our cash flows from operations will be dedicated to payments on our lease and +debt obligations and will not be available for other purposes, including operations, capital +expenditures, and future business opportunities; +● +we +may be vulnerable in a downturn in general economic conditions or in business or may be unable +to carry on capital spending that is important to our growth; +● +any +debt agreements we enter into may contain restrictive covenants that impose operating and +financial restrictions on us, including limitations on our ability to incur additional indebtedness, +pay dividends, or enter into certain transactions; +● +our +ability to introduce new products or new technologies or exploit business opportunities may +be restricted; and +● +we +may be placed at a disadvantage compared with competitors that have proportionately less +lease and debt obligations. +29 +Our Articles +of Incorporation provide that the Nevada Eighth Judicial District Court of Clark County, Nevada shall be the exclusive forum for certain +litigation that may be initiated by our stockholders, including claims under the Securities Act, which could limit our stockholders’ +ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees. +Our Articles of Incorporation +provide that, subject to limited exceptions, the Nevada Eighth Judicial District Court of Clark County, Nevada shall be, to the fullest +extent permitted by law, the sole and exclusive forum for: (i) any derivative action or proceeding brought in the name or right of the +Corporation or on its behalf, (ii) any action asserting a claim for breach of a fiduciary duty owed by any of our directors, officers, +employees, or agents to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of Nevada Revised +Statutes Chapters 78 or 92A, our Articles of incorporation, or our Bylaws, (iv) any action to interpret, apply, enforce, or determine +the validity of our Articles of Incorporation or Bylaws, or (v) any action asserting a claim governed by the internal affairs doctrine. +Although these choice +of forum provisions would not apply to suits brought to enforce any duty or liability created by the Exchange Act or rules and regulations +thereunder, and suits brought to enforce the Securities Act or rules and regulations thereunder are granted concurrent jurisdiction in +federal and state courts pursuant to preemptive federal law, these choice of forum provisions may otherwise limit a stockholder’s +ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees or agents, +which may discourage such lawsuits against us and our directors, officers, employees and agents. Stockholders who do bring a claim in +the Nevada Eighth Judicial District Court of Clark County, Nevada could face additional litigation costs in pursuing any such claim, +particularly if they do not reside in or near the State of Nevada. The Nevada Eighth Judicial District Court of Clark County, Nevada +may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may +be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders. +Alternatively, if a court were to find the choice of forum provision contained in our Articles of Incorporation to be inapplicable or +unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely +affect our business and financial condition. +I TEM 1B. +UNRESOLVED STAFF COMMENTS +None. +Item +1c. cybersecurity +Risk Management and Strategy +We maintain an information +security and cybersecurity program, as well as a cybersecurity governance framework, which are designed to protect our information systems +against operational risks related to cybersecurity. +Cybersecurity +Risk Management and Strategy +We recognize the +importance of assessing, identifying, and managing material risks associated with cybersecurity threats which include, among other things, +operational risks, intellectual property theft, fraud or extortion, harm to employees or customers, violation of privacy or security +laws and related litigation and legal risk, and reputational risks. +We have developed +and implemented a cybersecurity risk management program intended to protect the confidentiality, integrity, and availability of our critical +systems and information, and detect and contain any cybersecurity incidents that impact us. We regularly engage with third-party consultants +in connection with our cybersecurity risk management program, which is overseen by our Chief Operating Officer. The program is integrated +into our overall risk management systems and processes, and includes a cybersecurity risk assessment process that routinely evaluates +potential impacts of cybersecurity risks on our business, including our operations, financial stability, and reputation. The Audit Committee +also reviews with management the implementation and effectiveness of the Company’s controls to monitor and mitigate cybersecurity +risks. +Our cybersecurity +risk management program also includes processes to triage, assess the severity of, escalate, contain, investigate, and remediate an incident, +as well as to comply with potentially applicable legal obligations and mitigate brand and reputational +damage. If a cybersecurity incident is determined to be a potentially material cybersecurity incident, our disclosure controls and procedures +define the steps to determine materiality and disclose such a material cybersecurity incident. +30 +While we do not believe +that our business strategy, results of operations, or financial condition have been materially adversely affected by any cybersecurity +incidents, cybersecurity threats are pervasive and, similar to other global financial institutions, we, as well as our employees, customers, +regulators, service providers, and other third parties have experienced a significant increase in information security and cybersecurity +risk in recent years and will likely continue to be the target of cyber attacks. We continue to assess the risks and changes in the cyber +environment, invest in enhancements to our cybersecurity capabilities, and engage in industry and government forums to promote advancements +in our cybersecurity capabilities, as well as the broader financial services cybersecurity ecosystem. For more information on risks to +us from cybersecurity threats, see the section titled “ Risk Factors—If our electronic data is compromised, or we experience +a failure in our information technology or storage systems, our business could be significantly harmed ” included within this +Annual Report. +Cybersecurity +Governance +Our Board is actively +involved in overseeing risks from cybersecurity threats. At least once a year, our Board discusses our programs and policies related +to cybersecurity and risk initiatives and considers them closely both from a risk management perspective and as part of our business +strategy. Our Audit Committee has the authority to oversee and review the adequacy of our cybersecurity, information and technology security, +and data privacy programs, procedures, and policies. +The Audit Committee +regularly receives updates from management with respect to our efforts to manage data protection, cybersecurity, and information and +technology risks, and assesses the results of reviews from internal audits. Materials presented to our Audit Committee include updates +on our data security posture, results from internal audit and third-party assessments, our incident response plan, and certain cybersecurity +threat risks or incidents and developments, as well as the steps management has taken to respond to such risks. The Audit Committee also +regularly engages with Management on technology risk-related topics. +Our processes also +allow for our Board and the Audit Committee to be informed of key cybersecurity risks outside the regular reporting schedule. While regular +meetings of the Audit Committee are scheduled on a quarterly cadence, the Audit Committee is authorized to meet with management or individual +director s at any time it deems appropriate to discuss matters relevant to the committee. Our policy is for the Board and the Audit Committee +to receive prompt and timely information regarding any significant cybersecurity incidents, as well as ongoing updates regarding any +such incidents. +ITEM 2. +PROPERTIES +Our +corporate headquarters are in Redmond, Oregon, and house our engineering, sales, accounting, and operations staff. Our primary product +warehouse is also located there. Our headquarters is approximately 15,000 square feet, leased at a base rent that increases 3.0% annually +on January 31st of each year. From January 31, 2025 to January 30, 2026, the rental cost of our headquarters is approximately $20,200 +per month. +In +May of 2025, we leased a warehouse facility next door to our existing warehouse in Redmond, Oregon. The square footage of this facility +is approximately 6,545 square feet, and from May 1, 2025 to April 30, 2028, the rental cost of this warehouse is approximately $6,545 +per month. +We +also lease a property in Elkhart, Indiana that provides office space for sales associates and a stocking location for several large manufacturers +in the area. Elkhart is a hub for RV manufacturing in the United States. The square footage of this facility is approximately 7,000 square +feet and rental cost is approximately $4,900 per month. +We +believe these facilities are sufficient to meet our current and anticipated needs in the near term and that additional space can be obtained +on commercially reasonable terms as needed. +31 +ITEM 3. +LEGAL PROCEEDINGS +We +may become, from time to time, involved in routine litigation or subject to disputes or claims related to our business activities. We +are not currently party to any pending legal proceedings that we believe would, individually or in the aggregate, have a material adverse +effect on our financial condition, cash flows, or results of operations. +On +January 29, 2026, we received a determination from the Staff that the bid price of the common stock had closed below the $1.00 minimum +required by Nasdaq Listing Rule 5550(a)(2) for the prior 30 consecutive business days (the “Minimum Bid Price Requirement”) +and that the Staff had determined to delist our securities from the Nasdaq Capital Market subject to a compliance period. Nasdaq provided +us with a 180-calendar day compliance period, or until July 28, 2026, to regain compliance with the listing rule. We are currently evaluating +options to regain compliance and intend to timely regain compliance with the Minimum Bid Price Requirement. Under Nasdaq rules, we are +currently eligible to conduct a reverse stock split of our common stock to regain compliance if necessary. +ITEM 4. +MINE SAFETY DISCLOSURES +Not +applicable. +32 +PART II +ITEM 5. +MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES +Market +Information +Our +common stock began trading on Nasdaq on April 1, 2022 under the symbol “XPON.” As of March 11, 2026, there were approximately +17 registered holders of our common stock, which does not include beneficial owners of our common stock whose shares are held in the +names of various securities brokers, dealers, and registered clearing agencies . +Dividend +Policy +We +have never declared or paid cash dividends on our common stock. We do not anticipate declaring or paying any cash dividends on our common +stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to support our operations +and finance the growth and development of our business. Any future determination related to our dividend policy will be made at the discretion +of our Board and will depend upon, among other factors, our results of operations, financial condition, capital requirements, contractual +restrictions, business prospects, and other factors our Board may deem relevant. Further, any future debt facilities we may enter into +may contain restrictions on our ability to pay dividends or make distributions, and any new credit facilities we may enter into may contain +similar restrictions. +Stock +Performance Graph +As +a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act), we are not required to provide the information called for +by Item 201(e) of Regulation S-K. +Recent +Sales of Unregistered Securities +None. +Purchases +of Equity Securities by the Issuer and Affiliated Purchasers +None. +ITEM 6. +[RESERVED] +ITEM 7. +MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS +The +following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited +financial statements and related notes for the years ended December 31, 2025 and 2024, included in this Annual Report. Our future financial +condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties that +may adversely impact our operations and financial results. These risks and uncertainties are discussed in this Annual Report, including +in Item 1A. “Risk Factors” and “Cautionary Note Concerning Forward-Looking Statements and Industry Data.” Percentage +amounts included in this section have not in all cases been calculated on the basis of rounded figures, but on the basis of such amounts +prior to rounding. For this reason, percentage amounts in this section may vary from those obtained by performing the same calculations +using the figures in our financial statements included elsewhere in this Annual Report. Certain other amounts that appear in this section +may not sum due to rounding. +Unless +otherwise noted, all references to share and per share data, as well as stockholders’ equity balances for the years ended December +31, 2025 and 2024 presented in this section, have been adjusted retroactively to reflect a 1-for-100 reverse stock split, which +was effective at 5:00 p.m. Pacific Time on October 8, 2024 (the “Reverse Stock Split”). See “Management’s Discussion +and Analysis of Financial Condition and Results of Operations—Reverse Stock Split and Reverse Stock Split True-Up Payment” +below for additional information about the Reverse Stock Split. +33 +Overview +Expion360 focuses +on the design, assembly, manufacturing, and sale of lithium iron phosphate (“LiFePO4”) batteries and supporting accessories +for recreational vehicles (“RVs”), marine applications, and industrial energy storage products. Our high-powered, lithium +battery solutions incorporate innovative concepts and have been designed to include some of the most dense and minimal-footprint batteries +in the RV and marine industries. We deploy intellectual property strategies to support product development, enhance safety and performance, +and strengthen relationships across our target markets. This includes design, development, and collaboration, using our IP to bring safety, +quality, and service to our customers. Our customers consist of dealers, wholesalers, private-label customers, and original equipment +manufacturers (“OEMs”) who then sell our products to end consumers and drive brand awareness nationally. +Our primary target +markets include the RV, marine, industrial, and commercial energy storage industries. Within the industrial sector, we participate in +applications such as electric material handling and forklift equipment, where lithium battery adoption continues to increase as an alternative +to traditional lead-acid systems. We believe the broader transition from lead-acid to lithium batteries presents growth opportunities +across these markets. +In addition to our +current focus areas, we are evaluating opportunities to expand further into industrial and mission-critical commercial applications that +require integrated battery energy storage solutions. These may include mobile and stationary systems supporting remote operations, security +infrastructure, and other high-reliability environments. While we continue to assess these adjacent markets, our current commercial activities +remain concentrated in our established RV, marine, and industrial segments. +We launched our e360 +product line in December 2020, initially targeting the RV and marine industries. The line, through its sales growth, has shown to be +a preferred conversion solution for lead-acid batteries. +We currently operate +Expion360 as one reportable business segment, Energy Storage (ES). +Our products provide +numerous advantages for various industries that are looking to migrate to lithium-based energy storage. They incorporate detailed design +and engineering, strong case materials, optimized internal structural layouts, and are supported by responsive customer service. +Recent Developments +December 2025 +At-The-Market Issuance Sales Agreement +On December 12, 2025 +we signed an at-the-market issuance sales agreement. We commenced sales under the agreement in January 2026 and have sold an aggregate +of 1,064,396 shares for net proceeds of approximately $932,567 through March 11, 2026. +October 2025 +Private Placement and Management Transition +On October 16, 2025, +we entered into a securities purchase agreement (the “Purchase Agreement”) with two institutional investors pursuant to which +we agreed to sell in a private placement (the “October 2025 Private Placement”) an aggregate of (i) 613,077 shares of common +stock, and (ii) a pre-funded warrant (the “October 2025 Pre-Funded Warrant”) to purchase up to 144,498 shares of common stock. +The offering price per share was $1.65 and the offering price per pre-funded warrant share was $1.6499. +We received net proceeds +of approximately $1.1 million from the October 2025 Private Placement after deducting offering expenses payable by us. We used the net +proceeds from the offering to pay severance obligations to certain executive officers that transitioned concurrent with the completion +of the October 2025 Private Placement, and for working capital and other general corporate purposes. See “ Note 7, Equity and +Debt Financings—October 2025 Private Placement ” for additional information regarding the offering. +34 +In connection with +the October 2025 Private Placement, Paul Shoun resigned from his role as President and Chairman of the Board, and Brian Schaffner resigned +from his role as Chief Executive Officer, but retained his role as Director and also acted as a consultant through the transition period. +Also in connection with the private placement, Joseph Hammer was appointed Chief Executive Officer and Chairman of the Board, the Board +increased the number of authorized directors from five to six, and Scott Burell was appointed as a Director. +Key Factors +Affecting Our Results of Operations +Our results of operations +and financial performance are significantly dependent on the following factors: +Consumer Demand +Our sales are primarily +generated from dealers, wholesalers, private-label customers, and OEMs serving the RV, marine, and industrial markets. Because our sales +are generally made on a purchase order basis and are not supported by long-term revenue commitments, the demand for our products from +these customers depends on consumer demand, and our results of operations are sensitive to changes in customer purchasing patterns. During +the year ended December 31, 2025, our revenue increased by 71.6% compared to the prior year. This increase was primarily driven by expanded +distribution relationships in the RV and marine channels, increased adoption of our LiFePO4 battery platforms as customers continued +transitioning from traditional lead-acid systems, growth in sales to select OEM customers, and contributions from recently introduced +product lines, including next-generation GC2, Group 27, and Edge battery models. The growth in sales also reflects improved channel penetration +and broader customer adoption of higher-capacity battery configurations. While macroeconomic factors, including interest rates and fuel +costs, may influence consumer demand in the RV and marine industries, our recent results reflect increased market acceptance of our products +and expansion of our distribution footprint. +We have recently +added several new distributors and OEM customers in RV and marine markets. These relationships contributed to incremental order volume +during 2025 and are expected to support revenue growth in 2026, although the timing and magnitude of future orders will continue to remain +subject to customer demand and overall market conditions. +Manufacturing +and Supply Chain +Our batteries are +manufactured by multiple third-party manufacturers located in Asia, which also produce our battery cells. While we do not have long-term +purchase agreements with these manufacturers and generally transact on a purchase order basis, we maintain strong relationships with +our manufacturers and cell suppliers, which have historically enabled us to increase our purchase volumes and qualify for volume-based +discounts. The strength of these relationships, together with ongoing supplier negotiations and purchasing strategies, have supported +our efforts to manage supply-related costs associated with inflation, currency fluctuations, and U.S. government tariffs imposed on our +imports, as well as to mitigate potential shipment delays. We aim to maintain an appropriate level of inventory to satisfy our expected +supply requirements. While we believe we could locate suitable alternative third-party manufacturers to fulfill our requirements if needed, +transitioning suppliers could require time and result in additional costs. +Our third-party manufacturers +source the raw materials and battery components required for the production of our batteries directly from third-party suppliers that +meet our approval and quality standards. Accordingly, pricing for certain raw materials and components is influenced by market conditions +and supplier negotiations. We estimate that raw material costs account for over half of our cost of goods sold. Lithium, which is extracted +from mined ore, is a key raw material used to produce our battery cells and fluctuations in lithium pricing can affect our battery cell +costs. From time to time, changes in raw material availability may influence pricing dynamics or sourcing strategies. Certain of our +battery cell manufacturers have factories outside of Asia and have secured sourcing contracts from lithium suppliers in South America +and Australia. In addition, we have a secondary source for lithium iron phosphate cells from a supplier in Europe, providing additional +geographic diversification and sourcing flexibility. +35 +Industry initiatives +to expand lithium production capacity and lithium cell recycling may affect long-term supply dynamics. For example, there is an industry +push to provide more efficient ways to extract lithium from mined ore. Another development of the past few years is lithium cell recycling, +which recaptures raw lithium from the cell for reuse in future cells. However, notwithstanding efforts to improve the sustainability +and efficiency of lithium mining, the price of lithium remains subject to market volatility. We continue to monitor developments that +may affect our supply chain. +Management expects that products sourced +from our Asian third-party manufacturers may be subject to additional tariffs in 2026. We intend to mitigate the potential impact on +margins through a combination of supplier negotiations, selective customer price adjustments, ongoing cost optimization initiatives, +and the development of lower-cost product configurations designed to improve manufacturing efficiency and overall unit economics as sales +volumes increase. The effectiveness of these measures will depend on market conditions, sales volume, product mix, and future tariff +developments. +For +additional information regarding supply chain risks, see the section titled “ Risk Factors—Our results of operations could +be adversely affected by changes in the cost and availability of raw materials our reliance on third-party manufacturers and suppliers ” +and “ —Increases in costs, disruption of supply, or shortage of any of our battery components such as electronic and mechanical +parts could harm our business .” +Product and Customer +Mix +As of December 31, +2025, we sell 14 models of LiFEPO4 batteries, the Aura 600, and various individual or bundled accessories for battery systems. Our products +are sold to dealers, wholesalers, private-label customers, and OEMs at differing prices and with varying cost structures. The average +selling price and costs of goods sold for a particular product will vary with changes in the sales channel mix, volume of products sold, +and the prices of such products sold relative to other products. While we work with our suppliers to limit price and supply cost increases, +our products may see price increases resulting from a rise in supply costs due to currency fluctuations, inflation, and tariffs, which +may affect pricing and gross margins. Accessory and OEM sales typically have lower average selling prices and resulting margins relative +to other distribution channels. As a result, shifts in customer mix could decrease our margins and negatively affect our growth or require +us to increase the prices of our products. However, the benefits of increased sales volumes and broader customer penetration typically +has, and may continue to, offset the impact of lower-margin product and customer mix. The relative margins of products sold also impact +our results of operations. As we introduce new products, we may see a change in product and sales channel mix, which could result in +period-to-period fluctuations in our overall gross margin. +Competition +We compete with both +traditional lead-acid and lithium-ion battery manufacturers that primarily either import their products and/or components or manufacture +their products and/or components under a private label. As we develop new products and expand into new markets, we may experience competition +with a broader range of companies. These companies may have more resources than us and be able to allocate more resources to their current +and future products. Our competitors may source products or components at lower costs than us, which may require us to evaluate our own +costs, lower our product prices, or increase our sales volume to maintain our expected profitability levels. +Research and Development +We continue to invest +in research and development to enhance the performance, reliability, and integration capabilities of our LiFePO4 battery systems. Our +R&D efforts focus on battery management systems, thermal management, product durability, system integration, and application-specific +configurations for the RV, marine, industrial, and specialty vehicle markets. +As electrification +trends evolve across mobile and stationary applications, customer requirements continue to develop, including demand for improved energy +density, communication protocols, remote monitoring capabilities, and system-level integration. Our development initiatives are intended +to address these evolving requirements and support competitiveness within our core markets. +36 +We also evaluate +emerging technologies and broader industry developments that may influence future product design, including advancements in cell chemistry, +system architecture, and energy management software. Artificial intelligence (“AI”) and data-driven analytics are increasingly +being incorporated into energy management, predictive maintenance, and supply chain optimization across the battery industry. While AI +is not currently a primary driver of our product offerings, we monitor developments in this area and assess potential applications that +may enhance system diagnostics, performance monitoring, and operational efficiency over time. +Our research and +development spending may fluctuate depending on product development cycles, customer requirements, and broader market conditions. +Certifications +We +have completed the final requirements to obtain UL Safety Certifications on our new 12V Group 27 100Ah and 132Ah batteries, and on our +12V GC2 battery. Now that these certifications have been completed, all of the batteries produced by us will have a UL Safety Certification, +emphasizing our commitment to quality, safety and service for our customers. +Key +Line Items +Net Sales +Our revenue is generated +from the sale of products consisting primarily of batteries and accessories. We recognize revenue when control of goods or services is +transferred to our customers in an amount that reflects the consideration it is expected to be entitled to in exchange for those goods +or services. Our sales are primarily within the United States. +Cost of Sales +Our primary cost +of sales as a percentage of sales is related to our direct product and landing costs. Direct labor costs consist of payroll costs (including +taxes and benefits) of employees directly engaged in assembly activities. Per full absorption cost accounting, overhead related to our +cost of sales is added, consisting primarily of warehouse rent and utilities. The costs can increase or decrease based on costs of product +and assembly parts (purchased at market pricing), customer supply requirements, and the amount of labor required to assemble a product, +along with the allocation of fixed overhead. +Selling, General, +and Administrative Expenses +Selling, general, +and administrative expenses consist primarily of salaries and benefits, legal and professional fees, and sales and marketing costs. Other +significant costs include research and development, software and information technology, insurance, and facility and related costs. +Interest and +Other Income, net +Interest expense +consists of interest costs on loans with interest rates ranging from 3.75% to 10.0% and amortization of convertible note costs. The amortized +convertible note costs were $0 and $667,000 for the years ended December 31, 2025 and 2024, respectively. +Provision for +Income Taxes +We are subject +to corporate federal and state income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences +attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective +tax basis. Deferred tax assets, including tax loss and credit carryforwards, and liabilities are measured using the enacted tax +rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. +The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the +enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax +liabilities. Deferred tax assets are reduced by a valuation +allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not +be realized. +37 +We have adopted the +provisions in ASC 740, Income Taxes , related to accounting for uncertain tax positions, which require recognition of the +impact of a tax position in the financial statements if the position is more likely than not to be sustained upon examination and on +the technical merits of the position. We have concluded there were no material unrecognized tax benefits as of December 31, 2025 or December +31, 2024. +Our practice is to +recognize interest and/or penalties related to income tax matters as income tax expense. We had no accrual for interest or penalties +on our balance sheet at December 31, 2025 or December 31, 2024, and did not recognize any interest or penalties in our statement of operations +for the years ended December 31, 2025 or 2024, since there are no material unrecognized tax benefits. We do not expect any material change +to the amount of unrecognized tax benefits to occur within the next 12 months. +Off-Balance +Sheet Arrangements +We +do not have any material off-balance sheet arrangements. +Use +of Non-GAAP Financial Measures +We +disclose financial measures calculated and presented in accordance with the generally accepted accounting principles in the United States +(“GAAP”); however, we provide certain financial information on a non-GAAP basis (“non-GAAP financial measures”). +We provide non-GAAP financial measures to provide information that may assist investors in understanding our results of operations and +assessing our prospects for future performance, which consist of adjusted cost of sales. We believe evaluating certain financial and +operating measures on an adjusted basis is important as it excludes costs that are not indicative of our core results of operations and +are largely outside of our control. However, our non-GAAP financial measures are not intended to represent and should not be considered +more meaningful measures than, or alternatives to, measures of financial or operating performance as determined in accordance with GAAP. +We +calculate our adjusted cost of sales non-GAAP financial measures for current period financial information by excluding the effect of +an adjustment related to obsolete inventory. The information presented on an adjusted cost of sales basis, as we present such information, +may not necessarily be comparable to similarly-titled information presented by other companies, and may not be appropriate measures for +comparing our performance relative to other companies. +Results +of Operations +Year Ended +December 31, 2025, Compared to the Year Ended December 31, 2024 +The following table +sets forth certain operational data as a percentage of sales: +Years Ended December 31, +2025 +2024 +$ +% of Net sales +$ +% of Net sales +Net sales +$ 9,651,870 +100.0 % +$ 5,624,939 +100.0 % +Cost of sales +8,314,472 +86.1 +4,469,711 +79.5 +Gross profit +1,337,398 +13.9 +1,155,228 +20.5 +Selling, general, and administrative expenses +12,040,903 +124.8 +7,909,219 +140.6 +Loss from operations +(10,703,505 ) +(110.9 ) +(6,753,991 ) +(120.1 ) +Other (income) / expense - net +(4,468,468 ) +(46.3 ) +6,727,032 +119.6 +Loss before income taxes +(6,235,037 ) +(64.6 ) +(13,481,023 ) +(239.7 ) +Net loss +(6,235,187 ) +(64.6 ) +(13,479,475 ) +(239.6 ) +38 +Net Sales +Net +sales for the year ended December 31, 2025 increased by $4.0 million, or 71.6%, compared to the year ended December 31, 2024. Sales were +$9.7 million for the year ended December 31, 2025 and $5.6 million for the year ended December 31, 2024. The year-over-year increase +reflects expansion of our customer base, increased sales to key customers, and broader adoption of our LiFePO4 battery platforms across +distribution and OEM channels. +Cost of Sales +Cost +of sales for the year ended December 31, 2025 increased by $3.8 million, or 86.0%, compared to the year ended December 31, 2024. Cost +of sales were $8.3 million for the year ended December 31, 2025 and $4.5 million for the year ended December 31, 2024. Cost of sales +as a percentage of sales increased by 6.7 percentage points in 2025, to 86.1% compared to 79.5% in 2024. +Cost +of sales for the year ended December 31, 2025 includes a one-time $0.9 million adjustment related to obsolete inventory. Excluding this +adjustment, which management believes is not indicative of ongoing operating performance, cost of sales for the year ended December 31, +2025 would have increased by $2.9 million, or 65.8%, compared to the year ended December 31, 2024, and cost of sales as a percentage +of sales would have decreased by 2.7 percentage points in 2025, to 76.8% compared to 79.5% in 2024. +The +improvement in pre-adjustment cost of sales reflects favorable product mix, including increased sales of higher-margin battery models, +as well as a greater proportion of direct-to-consumer sales through our website, while the increase in adjusted cost of sales is primarily +due to the adjustment for inventory identified as obsolete or overvalued. +Gross Profit +Our +gross profit for the year ended December 31, 2025 increased by $0.2 million, or 15.8%, compared to the year ended December 31, 2024. +Gross profit was $1.3 million for the year ended December 31, 2025 and $1.2 million for the year ended December 31, 2024. Gross profit +as a percentage of sales decreased by 6.7% for the year ended December 31, 2025, to 13.9% compared to 20.5% for the year ended December +31, 2024. For the year ended December 31, 2025, a significant increase in net sales was somewhat offset by an increase in cost of sales, +which includes a one-time adjustment for obsolete inventory, resulting in a decrease in the gross profit margin. Gross profit for the +year ended December 31, 2025 prior to the adjustment would have been $2.2 million, and as a percent of sales, would have increased by +2.7 percentage points, to 23.2%, primarily due to a more favorable product mix and an increase in direct-to-consume sales. +Selling, General, +and Administrative Expenses +Selling, +general, and administrative expenses for the year ended December 31, 2025 increased by $4.1 million, or 52.2%, compared to the year ended +December 31, 2024. Selling, general, and administrative expenses were $12.0 million for the year ended December 31, 2025 and $7.9 million +for the year ended December 31, 2024. The increase in selling, general, and administrative expenses was primarily due to increases in +salaries and benefits, including executive severance and performance-related bonuses, increased stock-based compensation expense associated +with the grant of options and RSUs to executives, directors, and non-executive employees, and increases in legal and professional fees. +Selling, general, and administrative expenses as a percentage of net sales decreased to 124.8% in the year ended December 31, 2025 from +140.6% in the year ended December 31, 2024, reflecting a partial operating leverage resulting from higher revenue, despite increased +personnel and professional expenses. +Presented in the +table below is the composition of selling, general and administrative expenses: +Years Ended December 31, +2025 +2024 +Salaries and benefits +$ 6,417,659 +$ 3,260,866 +Legal and professional +2,736,199 +1,584,589 +Sales and marketing +1,001,730 +926,430 +Research and development +558,882 +295,292 +Software, fees, tech support +290,023 +274,780 +Insurance +273,702 +263,930 +Rents, maintenance, utilities +233,843 +449,997 +Travel expenses +199,583 +137,298 +Depreciation +105,616 +155,315 +Office Supplies +24,144 +23,876 +Other +199,522 +536,846 +Total +$ 12,040,903 +$ 7,909,219 +39 +Other (Income) +/ Expense +Other +income and expense for the year ended December 31, 2025 was income of $4.5 million and for the year ended December 31, 2024 was expense +of $6.7 million. Other income for the year ended December 31, 2025 was mainly due to the reversal of the previously-recognized $4.5 million +suspended liability expense associated with the Reverse Stock Split cash true-up provision contained in the Series A Warrants issued +in the August 2024 offering. The reversal resulted from the repricing of the warrants in August 2025, as further described in “ Note +7, Equity and Debt Financings—Convertible Note Financing .” Other income also included approximately $16,000 in interest +income. These amounts were partially offset by $20,000 interest expense and $13,000 loss on sale of property and equipment. Other expense +for the year ended December 31, 2024 was made up of $5.0 million in suspended liability expense associated with the Reverse Stock Split +cash true-up payment provision in the Series A Warrants, as well as approximately $977,000 in interest expense and $709,000 in settlement +expense. +Net Loss +Our +net loss for the years ended December 31, 2025 and 2024 was $6.2 million and $13.5 million, respectively. The reduction in the net loss +for the year ended December 31, 2025 reflects increased net sales, improved gross margins on inventory sold, notwithstanding the one-time +adjustment for obsolete inventory, and the absence of the prior-year warrant-related expense, partially offset by higher selling, general, +and administrative expenses. The net loss in the year ended December 31, 2024 was primarily the result of the $5.0 million in suspended +liability expense due to the Reverse Stock Split cash true-up payment provision in the Series A Warrants we sold in the August 2024 Public +Offering, as well as increased interest associated with the 3i Note (as defined in “ Note 7, Equity and Debt Financings ”) +and increased settlement expense. +Liquidity +and Capital Resources +Overview +Our operations have +been financed primarily through net proceeds from sales of equity securities and issuances of third-party debt and working capital loans. +As of December 31, 2025 and 2024, our current assets exceeded current liabilities by $6.0 million and $2.0 million, respectively, and +we had cash and cash equivalents of $3.0 million and $0.5 million, respectively. +We generally consider +our short-term liquidity requirements to consist of those items that are expected to be incurred within the next 12 months and believe +those requirements to consist primarily of funds necessary to pay operating expenses, interest, and principal payments on our debt. +As of December 31, +2025, our short-term liquidity requirements included (a) principal debt payments totaling approximately $31,000, (b) lease obligation +payments of approximately $337,000, including imputed interest, and (c) $0.6 million in accrued expenses, accounts payable, and other +current liabilities. +We generally consider +our long-term liquidity requirements to consist of those items that are expected to be incurred beyond the next 12 months. Our activities +are subject to significant risks and uncertainties, including failing to secure additional funding before we achieve sustainable revenue +and profit from operations. We expect to continue to incur additional losses for the foreseeable future, and we may need to raise additional +debt or equity financing to expand +40 +our presence in the +marketplace, develop new products, achieve operating efficiencies, and accomplish our long-term business plans over the next several +years. There can be no assurance as to the availability or terms upon which such financing and capital might be available to us. For +the years ended December 31, 2025 and 2024, we sustained recurring losses and negative cash flows from operations. These factors raise +substantial doubt about our ability to continue as a going concern within 12 months after the date the financial statements for the year +ended December 31, 2025 are issued. However, management is working to address its cash flow challenges, including by raising additional +capital, managing inventory levels, identifying alternative supply chain resources, and managing operational expenses. For additional +information regarding risks associated with our ability to continue as a going concern, please see the risk factor titled “ Our +audited financial statements include a statement that there is a substantial doubt about our ability to continue as a going concern and +a continuation of negative financial trends could result in our inability to continue as a going concern ” in Item 1A, “ Risk +Factors ” of this Annual Report. +Financing +Obligations +As +of December 31, 2025, our long-term debt totaled $197,000, comprised of $139,000 outstanding under a COVID-19 Economic Injury Disaster +Loan and $58,000 outstanding under vehicle financing arrangements. In August 2025, we repaid an equipment loan with an interest rate +of 5.8%. In January 2024, we repaid $62,500 in principal on a stockholder promissory note with an interest rate of 10.0%, and in August +2024, we repaid two shareholder loans with principal of $500,000 and $200,000, respectively, both with interest rates of 10.0%. In February +and March 2024, we sold three vehicles including repayment of the related vehicle loans with interest rates of 5.5%-5.9% in the total +amount of approximately $88,000, which included principal and interest. In August 2024, we repaid a short-term convertible note for a +total of $2.7 million including principal, interest, and fees. This represents reduction of debt by $3.0 million and additional reduction +in lease liability of $2.3 million in 2024 and 2025, an overall improvement to our liquidity over the past two years. +Vehicle Financing +Arrangements +As of December 31, +2025, the Company has three notes payable to GM Financial for vehicles. In April 2022, the Company secured a commercial line of up to +$300,000 to be used to finance vehicle purchases, which was increased to $350,000 in April 2023, renewed in April 2024 and April 2025 +for the same amount, and expires in April 2026, which we plan to renew again for the same amount. The notes are payable in aggregate +monthly installments of approximately $2,560, including interest at rates ranging from 6.1% to 7.3% per annum, mature at various dates +from October 2027 to May 2028, and are secured by the related vehicles. See “ Note 5, Long-Term Debt.” +Operating Lease +Liabilities +Our estimated future +obligations consist of total operating lease liabilities. As of December 31, 2025, we had $710,000 in total operating lease liabilities, +including the current portion. +Other Indebtedness +As of December 31, +2025, our long-term debt totaled $197,000, including the current portion, which consists of $31,000. +Cash Flows +The +following table shows a summary of our cash flows for the periods presented: +Years Ended December 31, +2025 +2024 +Net cash used in operating activities +$ (6,149,263 ) +$ (9,562,545 ) +Net cash provided by investing activities +$ 4,250 +$ 113,408 +Net cash provided by financing activities +$ 8,566,544 +$ 6,064,004 +41 +Cash +flows used in operating activities +Our +largest source of operating cash is cash collected from sales of our products. Our primary uses of cash for operating activities include +purchases of inventory, as well as selling, general, and administrative expenses including salaries and benefits, legal and professional +fees, and sales and marketing expenses. In the last several years, we have generated negative cash flows from operating activities and +have supplemented working capital requirements through net proceeds from sales of our common stock. +We +generated negative cash flows from operating activities of $6.1 million for the year ended December 31, 2025, compared to negative cash +flows of $9.6 million for the corresponding period in 2024. The decrease in cash used in operating activities was primarily attributable +to lower net losses and favorable changes in working capital during 2025. Factors affecting operating cash flows during the periods included: +● +For +the year ended December 31, 2025, our net loss of $6.2 million adjusted for several non-cash +items, including stock-based compensation of $1.2 million, issuance of common stock in exchange +for services of $490,000, depreciation of $117,000, non-cash expense related to asset disposals +of $21,000, and loss on sale of property and equipment of $13,000. These adjustments also +reflect the impact of a decrease in the suspended liability associated with the cash true-up +payments related to the Reverse Stock Split provision in the Series A Warrants. For the year +ended December 31, 2024, our net loss of $13.5 million included several non-cash items, including +approximately $5.0 million in suspended liability expense due to the Reverse Stock Split +cash true-up payment provision in the Series A Warrants we sold in the August 2024 Public +Offering, amortization of convertible note costs of approximately $667,000, stock-based compensation +of $617,000, stock-based settlement of $209,000, and depreciation of $174,000. +● +Cash +provided by a decrease in inventory for the year ended December 31, 2025 was $2.0 million, +and cash used by an increase in inventory for the year ended December 31, 2024 was $1.0 million, +while cash provided by a decrease in prepaid inventory for the year ended December 31, 2025 +was $1.3 million, and cash used by an increase in prepaid inventory for the year ended December +31, 2024 was $1.4 million. These changes primarily reflect the timing of significant inventory +purchases and advance payments to suppliers. Turnaround time for receiving inventory from +foreign sources can take up to 120 days, with prepayments required. +● +Cash +provided by / (used in) other operating activities such as changes in accounts receivable +and accounts payable primarily reflect normal timing differences in customer collections +and vendor payments and were not significant drivers of operating cash flows during the periods +presented. +Cash +flows provided by investing activities +Cash +provided by investing activities was $4,000 for the year ended December 31, 2025 and was related to selling some small vehicles. +Cash +used for capital purchases of property and equipment for quality assurance and leasehold improvements to our testing lab totaled $19,000 +during the year ended December 31, 2024. This was offset by net proceeds of $133,000 received for the sale and disposal of property and +equipment during the year ended December 31, 2024, which included property and equipment and leasehold improvements related to the warehouse +lease terminated in September 2024, as well as the sale of three vehicles. +Cash flows provided +by financing activities +Cash +provided by financing activities was $8.6 million for the year ended December 31, 2025. During that year, we had net proceeds from exercise +of warrants totaling $5.7 million, net proceeds from the issuance of common stock totaling $2.9 million, offset by principal payments +on long-term debt totaling $33,000. +Cash +provided by financing activities was $6.1 million for the year ended December 31, 2024. For the year ended December 31, 2024, we paid +down debt principal of $3.6 million, which was offset by net cash proceeds of $9.5 million from issuance of common stock and $185,000 +net cash proceeds from exercise of warrants. +42 +Critical +Accounting Estimates +The +above discussion and analysis of our financial condition and results of operations is based upon our financial statements. The preparation +of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts +of assets, liabilities, revenue and expenses, and disclosures of contingent assets and liabilities. These estimates involve judgments +that are inherently uncertain and subject to change as future events and conditions evolve. We base our estimates on historical experience, +known trends and events, and various other factors that we believe are reasonable under the circumstances, the results of which form +the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. +Our actual results may differ from these estimates under different assumptions or conditions. On a recurring basis, we evaluate our judgments +and estimates in light of changes in circumstances, facts, and experience. The effects of material revisions in an estimate, if any, +will be reflected in the financial statements prospectively from the date of the change in the estimate. +A +critical accounting estimate is one that involves a significant degree of judgment or complexity and where a different assumption could +reasonably have a material impact on our financial condition or results of operations. The critical accounting estimates below are those +that we consider to be the most important in portraying our financial condition and results of operations and also require the greatest +number of judgments by management. +Inventory +Inventory is stated +at the lower of cost or net realizable value. Cost is determined using first-in, first-out method. Net realizable value represents the +estimated selling price in the ordinary course of business less reasonably predictable costs of sales. +Although our products +have long shelf lives when stored properly, inventory may become obsolete due to technological changes, product redesigns, or shifts +in consumer demand. Management regularly evaluates inventory quantities on hand relative to forecasted demand, product life cycles, and +market conditions, and records adjustments to the valuation of inventory using the allowance method when necessary. +Leases +We determine if an +arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets represent our right to use an underlying +asset during the lease term, and operating lease liabilities represent our obligation to make lease payments arising from the lease. +Operating leases are included in ROU assets, current operating lease liabilities, and long-term operating lease liabilities on our balance +sheets. We do not have any finance leases. +We recognize operating +lease assets and lease liabilities in the balance sheet on the lease commencement date, based on the present value of the outstanding +lease payments over the reasonably certain lease term. The lease term includes the non-cancelable period at the lease commencement date, +plus any additional periods covered by an option to extend (or not to terminate) the lease that is reasonably certain to be exercised, +or an option to extend (or not to terminate) a lease that is controlled by the lessor. +We discount unpaid +lease payments using the interest rate implicit in the lease or, if the rate cannot be readily determined, our incremental borrowing +rate. +See “ Note +8, Commitments and Contingencies,” to our financial statements within this Annual Report for additional information, including +more details of our accounting policy elections and disclosures and remaining minimum operating lease commitments. +43 +Property and Equipment +Property and equipment +are stated at cost less depreciation calculated on the straight-line basis over the estimated useful lives of the related assets as follows: +Vehicles +and transportation equipment +5 +– 7 years +Manufacturing +equipment +3 – 10 years +Office +furniture and equipment +3 – 7 years +Warehouse +equipment +3 – 10 years +QA +equipment +3 – 10 years +Tooling +and molds +5 +– 10 years +Leasehold improvements +are amortized over the shorter of the lease term or their estimated useful lives. +Useful life is estimated +for each item at the time of purchase based on the typical useful life in our experience and best judgment, and remaining useful life +of existing assets is evaluated regularly. If an estimated useful life were to be inaccurate, there would not be a material effect on +our financials, and the estimated depreciation would be trued up at the time of disposal or impairment. It is our experience that the +estimated useful lives of our assets are generally materially accurate. +Warrants +Warrants are measured +at fair value upon issuance and are not subsequently remeasured unless they are required to be reclassified. See “ Note 7, Equity +and Debt Financings ” and “Note 9, Stockholders’ Equity” in our accompanying financial statements for +information on the warrants. Changes in assumptions used to estimate fair value could occur from stock pricing volatility depending on +our performance and our position in the industry and changes in market interest rates which can result in materially different results. +Stock-Based Compensation +We use the Black-Scholes +option-pricing model to determine the fair value of option grants. In estimating fair value, management is required to make certain assumptions +and estimates such as the expected life of options, volatility of our stock price, risk-free interest rates, future dividend yields and +estimated forfeitures at the initial grant date. Restricted stock unit awards are valued based on the closing trading price of our common +stock on the date of grant. Changes to these assumptions or estimates could result in significant changes in the valuations. +Income Taxes +Effective November +1, 2021, the Company converted from an LLC to a C corporation and, as a result, became subject to corporate federal and state income +taxes. Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the +future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and +liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates that will be in +effect for the years in which those tax assets and liabilities are expected to be realized or settled. We record a valuation allowance +to reduce deferred tax assets to the amount that is believed more likely than not to be realized. We believe it is more likely than not +that forecasted income, together with future reversals of existing taxable temporary differences, will be sufficient to recover our deferred +tax assets. In the event that we determine all, or part of our net deferred tax assets are not realizable in the future, we will record +an adjustment to the valuation allowance and a corresponding charge to earnings in the period such determination is made. +The calculation of +tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of GAAP and complex tax laws. +Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our financial condition +and results of operations. We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position +will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recorded +in the financial statements +from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate +settlement. +44 +See “Note +11, Income Taxes” to our financial statements within this Annual Report for further information on our income taxes. +ITEM 7A. +QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK +As +a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act), we are not required to provide the information called for +by Item 305 of Regulation S-K. +ITEM +8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA +The +information called for by this Item 8 is found in a separate section of this Annual Report starting on page F-1. See the “Index +to Financial Statements” on page F-1. +ITEM 9. +CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE +None. +ITEM 9A. +CONTROLS AND PROCEDURES +Evaluation of +Disclosure Controls and Procedures +Our management is +responsible for establishing and maintaining adequate disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange +Act, for our Company. Consequently, our management, with the participation of our principal executive officer and principal financial +officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act as of +December 31, 2025. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, +no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, +the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required +to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Based on that evaluation, +our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are designed at +a reasonable assurance level as of December 31, 2025. +Management’s +Annual Report on Internal Control Over Financial Reporting +Our +management is responsible for establishing and maintaining adequate internal control over financial reporting. “Internal control +over financial reporting,” as defined in Rule 13a-15(f) under the Exchange Act, means a process designed to provide reasonable +assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance +with GAAP. Our management, with the participation and supervision of our principal executive officer and our principal financial and +accounting officer, assessed the effectiveness of our internal control over financial reporting. +In +making this assessment, our management used the criteria set forth in Internal Control – Integrated Framework (2013) as +issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management concluded that +our internal control over financial reporting was effective as of December 31, 2025. +This +Annual Report does not include an attestation report of the Company’s registered public accounting firm due to an exemption established +by SEC rules for emerging growth companies. +45 +Changes in Internal +Control Over Financial Reporting +During +the three months ended December 31, 2025, there were no changes in our internal control over financial reporting that materially affected, +or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) +and 15d-15(f) under the Securities Exchange Act of 1934). +Limitation +on Effectiveness of Controls and Procedures +In +designing and evaluating our controls and procedures, management recognizes that any controls and procedures, no matter how well designed +and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In assessing whether +our disclosure controls and procedures were effective at a reasonable level of assurance, management necessarily was required to apply +its judgment in evaluating the cost-benefit relationship of possible controls and procedures. There are inherent limitations to the effectiveness +of any system of controls and procedures, including the possibility of human error and the circumvention or overriding of the controls +and procedures. In addition, the design of any system of controls is based in part upon certain assumptions about the likelihood of future +events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. +Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may +deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and +not be detected. +ITEM 9B. +OTHER INFORMATION +Rule +10b5-1 Plan and Non-Rule 10b5-1 Trading Arrangement Adoptions, Terminations, and Modifications +Our +directors and officers may enter into trading plans or other arrangements with financial institutions to purchase or sell shares of our +common stock, which plans or arrangements are intended to comply with the affirmative defense provisions of Rule 10b5-1 of the Exchange +Act or which may represent a non-Rule 10b5-1 trading arrangement, as defined under Item 408(a) of Regulation S-K. +During +the three months ended December 31, 2025, none of our directors or officers adopted , terminated or modified a Rule 10b5-1 trading arrangement +or a non-Rule 10b5-1 trading arrangement. +ITEM 9C. +DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION +Not +applicable. +46 +PART III +ITEM +10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE +Code of Business +Conduct and Ethics +We have adopted a +written code of business conduct and ethics, or the Code of Business Conduct and Ethics, which applies to our directors, officers and +employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, and persons +performing similar functions. Our Code of Business Conduct and Ethics is available on our website at www.investors.expion360.com +in the “Corporate Governance” section of the “Investor Relations” page. In addition, we intend to post on our +website all disclosures that are required by law concerning any amendments to, or waivers from, any provision of our Code of Business +Conduct and Ethics. The inclusion of our website address in this Annual Report does not include or incorporate by reference the information +on the website into this Annual Report. +Insider Trading +Policy +We have adopted an +Insider Trading Policy governing the purchase, sale and/or other dispositions of our securities by our directors, officers and employees +that are reasonably designed to promote compliance with insider trading laws, rules and regulations. The Insider Trading Policy is filed +as an exhibit to this Annual Report. +The remaining information +required by this item will be included in our definitive proxy statement for our 2026 annual meeting of stockholders (the “2026 +Proxy Statement"), to be filed with the SEC no later than 120 days after December 31, 2025, and is incorporated herein by reference. +ITEM +11. EXECUTIVE COMPENSATION +The information required +by this item will be included in the 2026 Proxy Statement and is incorporated herein by reference. +ITEM +12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS +The information required +by this item will be included in the 2026 Proxy Statement and is incorporated herein by reference. +ITEM 13. CERTAIN RELATIONSHIPS +AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE +The information required +by this item will be included in the 2026 Proxy Statement and is incorporated herein by reference. +ITEM 14. PRINCIPAL +ACCOUNTANT FEES AND SERVICES +The information required +by this item will be included in the 2026 Proxy Statement and is incorporated herein by reference. +47 +PART IV +ITEM 15. +EXHIBITS AND FINANCIAL STATEMENT SCHEDULES +(a)(1) +Financial Statements +Our +financial statements are listed in the “Index to the Financial Statements,” which appears on page F-1 of this Annual Report. +(a)(2) Financial +Statement Schedules +All +financial statement schedules are omitted because the information called for is not required or is shown either in the financial statements +or the notes thereto. +(a)(3) Exhibits +The following is +a list of exhibits filed as part of this Annual Report. +Incorporated by Reference +Exhibit +Number +Description +Form +Exhibit +Filing +Date +3.1 +Articles +of Incorporation of the Company, effective as of November 4, 2021 +S-1 +3.1 +3/31/2022 +3.2 +Certificate of Amendment +of Articles of Incorporation, effective as of October 8, 2024 +8-K +3.1 +10/7/2024 +3.3 +Amended and Restated +Bylaws of the Company, dated August 21, 2024 +8-K +3.1 +8/27/2024 +4.1 +Form of the Company’s +Common Stock Certificate +S-1 +4.1 +3/31/2022 +4.2 +Form +of Representative’s Warrant Agreement +S-1 +4.4 +3/31/2022 +4.3 +Form +of Senior Secured Promissory Note issued to bridge loan investors +S-1 +4.5 +3/31/2022 +4.4 +Description of Capital Stock +- +- +- +4.5 +March 2022 Form +of Common Stock Warrant +S-1 +10.1 +3/31/2022 +4.6 +March 2023 Form of Warrant +with an Exercise Price of $2.90 +10-K +10.15 +3/30/2023 +4.7 +March 2023 Form of Warrant +with an Exercise Price of $3.32 +10-K +10.16 +3/30/2023 +4.8 +December 2023 Form of +Convertible Note +8-K +4.1 +12/29/2023 +4.9 +August 2024 Form of +Pre-Funded Warrant +8-K +4.1 +8/9/2024 +4.10 +August 2024 Form of +Series A Warrant +8-K +4.2 +8/9/2024 +4.11 +August 2024 Form of +Series B Warrant +8-K +4.3 +8/9/2024 +4.12* +October 2025 Form +of Pre-Funded Warrant +8-K +4.1 +10/17/2025 +4.13* +October 2025 Form of +Common Warrant +8-K +4.2 +10/17/2025 +4.14 +January 2025 Form of +Pre-Funded Warrant +8-K +4.1 +1/3/2025 +4.15 +January 2025 Form of +Common Warrant +8-K +4.2 +1/3/2025 +10.1† +Non-Employee +Director Compensation Policy, effective October 16, 2025 +10-Q +10.6 +11/13/2025 +10.2† +Expion360 +Inc. 2021 Incentive Award Plan +S-1 +10.2 +3/31/2022 +10.3† +Amendment to Expion360 +Inc. 2021 Incentive Award Plan +10-K +10.3 +3/28/2024 +10.4† +Expion360 +Inc. 2021 Employee Stock Purchase Plan +S-1 +10.3 +3/31/2022 +10.5 +Commercial +Lease of premises at 2025 SW Deerhound Avenue Redmond, OR +S-1 +10.8 +3/31/2022 +10.6* +Underwriting +Agreement, dated August 7, 2024, between Expion360 Inc. and Aegis Capital Corp. +8-K +1.1 +8/9/2024 +10.7* +At-The-Market +Issuance Sales Agreement, dated December 12, 2025, by and between Expion360 Inc. and Aegis Capital Corp. +8-K +10.1 +12/15/2025 +10.8† +Employment Agreement, +between Carson Heagen and Expion360 Inc., dated April 1, 2025 +10-Q +10.1 +5/15/2025 +48 +10.9† +Amended +and Restated Employment Agreement, by and between the Company and Shawna Bowin, effective September 3, 2025 +10-Q +10.1 +11/13/2025 +10.10* +Form of Securities Purchase +Agreement, dated as of January 2, 2025, by and among the Company and the purchasers on the signature pages thereto +8-K +10.1 +1/3/2025 +10.11* +Form of Registration +Rights Agreement, dated as of January 2, 2025, by and among the Company and the purchasers on the signature pages thereto +8-K +10.2 +1/3/2025 +10.12* +Form of Securities Purchase +Agreement, dated October 16, 2025 +8-K +10.1 +10/17/2025 +10.13 +Severance +Agreement, Consulting Agreement and General Release, by and between the Company and Brian Schaffner, dated October 16, 2025 +8-K +10.2 +10/17/2025 +10.14 +Severance +Agreement and General Release, by and between the Company and Paul Shoun, dated October 16, 2025 +8-K +10.3 +10/17/2025 +10.15*† +Employment +Agreement, by and between the Company and Joseph Hammer, October 16, 2025 +8-K +10.4 +10/17/2025 +10.16† +Form of Indemnification +Agreement +- +- +- +21.1 +Subsidiaries +of the Company +10-K +21.1 +3/28/2024 +19.1 +Expion360 Inc. Insider +Trading Policy +- +- +- +23.1 +Consent of M&K CPAS +PLLC +- +- +- +24.1 +Power of Attorney (reference +is made to the signature page hereto) +- +- +- +31.1 +Certification of Principal +Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley +Act of 2002 +- +- +- +31.2 +Certification of Principal +Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley +Act of 2002 +- +- +- +32.1# +Certification of Principal +Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +- +- +- +32.2# +Certification of Principal +Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +- +- +- +97.1 +Expion360 Inc. Executive +Compensation Clawback Policy +10-K +97.1 +3/28/2024 +101.INS +XBRL Instance Document. +- +- +- +101.SCH +XBRL Taxonomy Extension +Schema Document. +- +- +- +101.CAL +XBRL Taxonomy Extension +Calculation Linkbase Document. +- +- +- +101.DEF +XBRL Taxonomy Extension +Definition Linkbase Document. +- +- +- +101.LAB +XBRL Taxonomy Extension +Label Linkbase Document. +- +- +- +101.PRE +XBRL Taxonomy Extension +Presentation Linkbase Document. +- +- +- +104 +Cover Page Interactive +Data File (formatted as Inline XBRL and included in Exhibit 101). +- +- +- +† Indicates +a management contract or compensatory plan or arrangement. +# +The +certification shall not be deemed “filed” by the registrant for purposes of Section 18 of the Exchange Act, and shall +not be incorporated by reference into any of the registrant’s filings under the Securities Act or the Exchange Act, whether +made before or after the date of this Quarterly Report, irrespective of any general incorporation language contained in any such +filing. +* +Certain of the schedules +(and similar attachments) to this exhibit have been omitted in accordance with Item 601(a)(5) of Regulation S-K under the Securities +Act because they do not contain information material to an investment decision and that information is not otherwise disclosed in +the exhibit or the disclosure document. The registrant agrees to furnish a copy of all omitted schedules (or similar attachments) +to the Commission upon its request. +ITEM 16. FORM 10-K +SUMMARY +None. +49 +SIGNATURES +Pursuant +to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual +Report on Form 10-K to be signed on its behalf by the undersigned thereunto duly authorized. +Expion360 Inc. +By: +/s/ +Joseph Hammer +Joseph Hammer +Chief +Executive Officer and Chairman of the Board of Directors +( Principal Executive Officer ) +Date: +March 16, 2026 +POWER OF ATTORNEY +Each +person whose signature appears below constitutes and appoints Joseph Hammer and Shawna Bowin, and each of them, as his or her true and +lawful attorneys-in-fact, proxies and agents, each with full power of substitution and resubstitution, for him or her and in his or her +name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file +the same, with any exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting +unto such attorneys-in-fact, proxies and agents full power and authority to do and perform each and every act and thing requisite and +necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying +and confirming all that said attorneys-in-fact, proxies and agents, or their or his or her substitutes, may lawfully do or cause to be +done by virtue hereof. +Pursuant +to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the +following persons on behalf of the Registrant in the capacities and on the dates indicated. +Name +Title +Date +/s/ +Joseph Hammer +Chief +Executive Officer and Chairman of the Board of Directors +( Principal +Executive Officer ) +March +16, 2026 +Joseph +Hammer +/s/ +Shawna Bowin +Chief +Financial Officer +(Principal +Financial and Accounting Officer) +March +16, 2026 +Shawna +Bowin +/s/ +Scott Burell +Director +March +16, 2026 +Scott +Burell +/s/ +George Lefevre +Director +March +16, 2026 +George +Lefevre +/s/ +Tien Q. Nguyen +Director +March +16, 2026 +Tien +Q. Nguyen +/s/ +Brian Schaffner +Director +March +16, 2026 +Brian +Schaffner +/s/ +Steven M. Shum +Director +March +16, 2026 +Steven +M. Shum +50 +Index +to Financial Statements +Report +of Independent Registered Public Accounting Firm (PCAOB ID # 2738 ) +F-1 +Balance +Sheets +F-3 +Statements +of Operations +F-4 +Statements +of Stockholders’ Equity (Deficit) +F-5 +Statements +of Cash Flows +F-6 +Notes +to the Financial Statements +F-8 +51 +REPORT OF INDEPENDENT REGISTERED PUBLIC +ACCOUNTING FIRM +To the Board of Directors and Stockholders +of Expion360, Inc. +Opinion on the Financial Statements +We have audited the accompanying balance +sheets of Expion360, Inc. (the Company) as of December 31, 2025 and 2024, and the related statements of operations, stockholders’ +equity, and cash flows for each of the years in the two-year period ended December 31, 2025, and the related notes (collectively referred +to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position +of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the years in the two-year +period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. +Going Concern +The accompanying financial statements +have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the +Company suffered a net loss from operations and negative cash flows from operations, and has a net capital deficiency, each of which +are factors that raise substantial doubt about its ability to continue as a going concern. Management’s plans to address these +challenges are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of +this uncertainty. +Basis for Opinion +These financial statements are the responsibility +of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our +audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are +required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and +regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance +with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether +the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were +we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an +understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of +the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audits +included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error +or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence +regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles +used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. +We believe that our audits provide a reasonable basis for our opinion. +F- 1 +Critical Audit Matter +The critical audit matter communicated +below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated +to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved +our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our +opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate +opinions on the critical audit matter or on the accounts or disclosures to which it relates. +Going Concern +Due to factors such as the net loss for +the year, negative cash flows from operations, and the net capital deficiency, the Company evaluated the need to include a going concern +qualification in the financial statements. See discussion in Note 2. +Auditing management’s determination +regarding the inclusion of a going concern qualification requires significant judgement given the fact that the Company uses management +estimates of future revenues and expenses, as well as assumptions about future fundraising activity, which are not able to be substantiated. +To evaluate the appropriateness of the +going concern qualification, we examined and evaluated the financial information, including management’s plans to mitigate the +going concern qualification, and management’s disclosure on going concern. +/s/ M&K CPAS, PLLC +We have served as the Company’s +auditor since 2021. +The Woodlands, TX +March 16, 2026 +F- 2 +Expion360 Inc. +Balance Sheets +As of December 31, 2025 +As of December 31, 2024 +Assets +Current Assets +Cash and cash equivalents +$ 2,969,096 +$ 547,565 +Accounts receivable, net +718,964 +613,022 +Inventory +2,858,780 +4,831,461 +Prepaid/in-transit inventory +318,440 +1,612,686 +Prepaid expenses and other current assets +179,645 +236,461 +Total current assets +7,044,925 +7,841,195 +Property and equipment +807,083 +914,081 +Accumulated depreciation +( 478,861 ) +( 430,191 ) +Property and equipment, net +328,222 +483,890 +Other Assets +Operating leases – right-of-use asset +666,199 +754,832 +Deposits +32,016 +27,471 +Total other assets +698,215 +782,303 +Total assets +$ 8,071,362 +$ 9,107,388 +Liabilities and stockholders’ equity +Current liabilities +Accounts payable +$ 403,792 +$ 338,091 +Customer deposits +2,978 +48,474 +Accrued expenses and other current liabilities +221,863 +187,464 +Current portion of operating lease liability +337,246 +256,153 +Current portion of long-term debt +31,058 +31,758 +Suspended liability +— +4,985,948 +Total current liabilities +996,937 +5,847,888 +Long-term debt, net of current portion and discount +166,187 +198,412 +Operating lease liability, net of current portion +372,478 +542,764 +Total liabilities +$ 1,535,602 +$ 6,589,064 +Stockholders’ equity +Preferred stock, par value $ .001 ; 20,000,000 shares authorized; 0 zero shares issued and outstanding +— +— +Common stock, par value $ .001 ; 200,000,000 shares authorized; 9,781,739 and 2,096,082 issued and outstanding as of December 31, 2025 and 2024, respectively +9,782 +2,096 +Additional paid-in capital +47,336,405 +37,091,468 +Accumulated deficit +( 40,810,427 ) +( 34,575,240 ) +Total stockholders’ equity +6,535,760 +2,518,324 +Total liabilities and stockholders’ equity +$ 8,071,362 +$ 9,107,388 +The accompanying notes are an integral +part of these financial statements. +F- 3 +Expion360 Inc. +Statements of Operations +For the Years Ended December 31, +2025 +2024 +Net sales +$ 9,651,870 +$ 5,624,939 +Cost of sales +8,314,472 +4,469,711 +Gross profit +1,337,398 +1,155,228 +Selling, general and administrative +12,040,903 +7,909,219 +Loss from operations +( 10,703,505 ) +( 6,753,991 ) +Other (income) / expense +Interest income +( 16,147 ) +( 86,121 ) +Interest expense +20,226 +976,618 +Loss on sale of property and equipment +13,353 +146,760 +Settlement expense +— +709,900 +Suspended liability expense / (income) +( 4,485,948 ) +4,985,948 +Other (income) / expense +48 +( 6,073 ) +Total other (income) / expense +( 4,468,468 ) +6,727,032 +Loss before taxes +( 6,235,037 ) +( 13,481,023 ) +Tax (income) / expense +150 +( 1,548 ) +Net loss +$ ( 6,235,187 ) +$ ( 13,479,475 ) +Net loss per share (basic and diluted) +$ ( 1.13 ) +$ ( 21.03 ) +Weighted-average number of common shares outstanding +5,511,875 +641,011 +The accompanying notes are an integral +part of these financial statements. +F- 4 +Expion360 Inc. +Statements of Stockholders’ +Equity +Common +Stock +Additional +Paid-in Capital +Accumulated +Deficit +Total +Stockholders’ Equity (Deficit) +Shares +Amount +Balance +at December 31, 2023 +69,230 +$ 69 +$ 26,445,378 +$ ( 21,095,765 ) +$ 5,349,682 +Stock +issued for ELOC +4,336 +4 +828,487 +— +828,491 +Proceeds +received from cashless exercise of warrants +16 +— +( 4 ) +— +( 4 ) +Proceeds +received from cash exercise of warrants +— +— +26 +— +26 +Stock +issued for interest payment +414 +— +90,839 +— +90,839 +Issuance +of stock options +— +— +464,328 +— +464,328 +Issuance +of RSUs +— +— +141,417 +— +141,417 +Settlement +of vested RSUs +525 +— +46,889 +— +46,889 +Settlement +of commitment shares +635 +1 +( 1 ) +— +— +Stock +issued as a result of litigation settlement +1,000 +1 +208,999 +— +209,000 +Issuance +of shares and pre-funded warrants, net of issuance costs +500,000 +500 +8,681,190 +— +8,681,690 +Proceeds +from exercise of Series A warrants +14,900 +15 +77,555 +— +77,570 +Proceeds +from exercise of Series B warrants +1,294,367 +1,296 +106,575 +— +107,871 +Shares +issued for true-up upon completion of Reverse Stock Split +210,659 +210 +( 210 ) +— +— +Net +loss +— +— +— +( 13,479,475 ) +( 13,479,475 ) +Balance +at December 31, 2024 +2,096,082 +$ 2,096 +$ 37,091,468 +$ ( 34,575,240 ) +$ 2,518,324 +Proceeds +received from cash exercise of Series A warrants +4,384,749 +4,386 +4,927,430 +— +4,931,816 +Proceeds +received from cash exercise of Series B warrants +85,252 +85 +8,440 +— +8,525 +Proceeds +received from cash exercise of January 2025 warrants +599,193 +599 +784,344 +— +784,943 +Issuance +of shares and pre-funded warrants, net of issuance cost +1,661,463 +1,661 +2,872,524 +— +2,874,185 +Issuance +of stock options +— +— +482,804 +— +482,804 +Issuance +and settlement of RSUs +505,000 +505 +680,345 +— +680,850 +Issuance +of shares in exchange for services +450,000 +450 +489,050 +— +489,500 +Net +loss +— +— +— +( 6,235,187 ) +( 6,235,187 ) +Balance +at December 31, 2025 +9,781,739 +$ 9,782 +$ 47,336,405 +$ ( 40,810,427 ) +$ 6,535,760 +The accompanying notes are an integral +part of these financial statements. +F- 5 +Expion360 Inc. +Statements of Cash Flows +For +the Years Ended December 31, +2025 +2024 +Cash flows from operating +activities +Net loss +$ ( 6,235,187 ) +$ ( 13,479,475 ) +Adjustments to reconcile net +loss to net cash provided by (used in) operating activities: +Depreciation +116,645 +173,973 +Amortization +of convertible note costs +— +667,144 +Loss on +sale of property and equipment +13,353 +146,760 +Stock-based +settlement +— +209,000 +Stock-based +compensation +1,163,654 +616,632 +Issuance +of common stock in exchange for services +489,500 +— +Non-cash +expense in exchange for asset disposal +21,420 +— +(Increase) +/ Decrease in inventory valuation +903,717 +— +Decrease +in right-of-use assets and lease liabilities +— +( 67,778 ) +Increase +/ (Decrease) in suspended liability +( 4,485,948 ) +4,985,948 +Changes in operating assets +and liabilities: +Increase +in accounts receivable +( 105,942 ) +( 458,087 ) +(Increase) +/ Decrease in inventory +1,068,964 +( 1,006,071 ) +(Increase) +/ Decrease in prepaid/in-transit inventory +1,294,246 +( 1,448,738 ) +(Increase) +/ Decrease in prepaid expenses and other current assets +56,816 +( 47,043 ) +(Increase) +/ Decrease in deposits +( 4,545 ) +31,425 +Increase +in accounts payable +65,701 +51,106 +Increase +/ (Decrease) in customer deposits +( 45,496 ) +31,051 +Increase +in accrued expenses and other current liabilities +34,399 +21,819 +Increase +/ (Decrease) in right-of-use assets and lease liabilities +( 560 ) +9,789 +Decrease +in suspended liability +( 500,000 ) +— +Net cash used in operating +activities +( 6,149,263 ) +( 9,562,545 ) +Cash flows from investing +activities +Purchases +of property and equipment +— +( 19,203 ) +Net +proceeds from sale of property and equipment +4,250 +132,611 +Net cash provided by investing +activities +4,250 +113,408 +Cash flows from financing +activities +Principal +payments on convertible note +— +( 2,750,000 ) +Principal +payments on long-term debt +( 32,925 ) +( 119,111 ) +Principal +payments on stockholder promissory notes +— +( 762,500 ) +Net proceeds +from exercise of warrants +5,725,284 +185,434 +Net +proceeds from issuance of common stock +2,874,185 +9,510,181 +Net cash provided by financing +activities +8,566,544 +6,064,004 +Net change in cash and cash +equivalents +2,421,531 +( 3,385,133 ) +Cash +and cash equivalents, beginning +547,565 +3,932,698 +Cash +and cash equivalents, ending +$ 2,969,096 +$ 547,565 +F- 6 +Expion360 +Inc. +Statements of Cash +Flows - Continued +For +the Years Ended December 31, +Supplemental +disclosure of cash flow information: +2025 +2024 +Cash paid for +interest +$ 20,894 +$ 220,714 +Cash paid / (received) for +franchise taxes +$ 150 +$ ( 258 ) +Non-cash +financing activities: +Acquisition/modification +of operating lease right-of-use asset and lease liability +$ 198,216 +$ — +Issuance +of common stock for payment on accrued interest +$ — +$ 90,839 +Issuance +of common stock for payment on accrued compensation +$ — +$ 36,029 +The accompanying notes are an integral +part of these financial statements. +F- 7 +NOTES TO +THE FINANCIAL STATEMENTS +1. +Organization and Nature of Operations +Expion360 Inc. (the +“Company”) was incorporated in the State of Nevada in November 2021. Effective November 1, 2021, the Company converted to +a C corporation. The Company was originally formed as a limited liability company in the State of Oregon in June 2016. +The Company designs, +assembles, manufactures, and sells lithium iron phosphate (“LiFePO4”) batteries and supporting accessories for recreational +vehicles (“RVs”), marine, and industrial applications. The Company’s lithium battery solutions incorporate innovative +concepts and have been designed to include some of the most dense and minimal-footprint batteries in the RV and marine industries. The +Company’s customers consist of dealers, wholesalers, private-label customers, and original equipment manufacturers (“OEMs”) +who then sell its products to end consumers. The Company currently operates in one reportable business segment, Energy Storage (ES). +2. +Summary of Significant Accounting Policies +Basis +of Presentation +The audited financial +statements and accompanying notes have been prepared by the Company in accordance with accounting principles generally accepted in the +United States of America (“U.S. GAAP”). +Reclassification +of Prior Year Presentation +Certain prior year +amounts have been reclassified for consistency with current year presentation. These reclassifications had no effect on the reported +results of operations. +Going +Concern +The Company’s +activities are subject to significant risks and uncertainties, including that it may be unable to secure additional funding before it +achieves profitability or positive cash flow from operations. The Company expects to continue to incur operating losses for the foreseeable +future, and will need to raise additional debt or equity financing to fund working capital, purchase inventory, expand its presence in +the marketplace, develop new products, achieve operating efficiencies, and accomplish its long-term business plan. There can be no assurance +that additional financing will be available on acceptable terms or at all. +Historically, the +Company’s operations have been funded through a combination of sales of equity securities, and issuances of third party debt and +working capital loans. As presented in the accompanying financial statements, the Company has sustained recurring losses and negative +cash flows from operations and has a significant negative stockholders’ equity balance. The Company incurred net losses of $ 6.2 +million and $ 13.5 +million for the years ended December 31, 2025 and 2024, respectively. +The Company had negative flows from operating activities of $ 6.1 +million and $ 9.6 +million for the years ended December 31, 2025 +and 2024, respectively. In addition, the Company had accumulated deficits of $ 40.8 +million and $ 34.6 +million as of December 31, 2025 and 2024, respectively. The +Company has never achieved profitability or positive cash flows from operations, and may not be able to do so for the foreseeable future. +These factors raise substantial doubt about the Company’s ability to continue as a going concern within twelve months after the +date that the financial statements for the year ended December 31, 2025 are issued. However, management is working to address its operational +and liquidity challenges, including raising additional capital, managing inventory levels, identifying alternative supply chain resources, +and managing operational expenses. +The accompanying +financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization +of assets and the settlement of liabilities and commitments in the normal course of business; however, the above conditions raise substantial +doubt about the Company’s ability to do so. The financial statements do not include any adjustments to reflect the possible future +effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result should the +Company be unable to continue as a going concern. +F- 8 +Use +of Estimates +The preparation of +financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts +of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported +amounts of revenue and expenses during the reporting period. The Company’s significant accounting estimates include the carrying +value of inventory, the depreciable lives of fixed assets, operating lease assets and liabilities, and stock-based compensation and warrant +valuation. Management evaluates its estimates and assumptions on an ongoing basis using historical experience, existing and known circumstances, +authoritative accounting guidance, and other factors management believes to be reasonable and makes adjustments when facts and circumstances +dictate. These estimates are based on information available as of the date of the financial statements. Actual results could differ from +these estimates, which may result in material effects on the Company’s financial condition, results of operations and liquidity. +To the extent there are differences between these estimates and actual results, the Company’s financial statements may be materially +impacted. +Inventory +Inventory is stated +at the lower of cost (first in, first out) or net realizable value and consists of batteries and accessories, resale items, components, +and related landing costs. As of December 31, 2025 and 2024, the Company had inventory that consisted of finished assemblies totaling +$ 2,269,267 and +$ 4,077,013 , +respectively, and raw materials (inventory components, parts, and packaging) totaling $ 589,513 +and $ 754,448 , +respectively. The valuation of inventory includes fixed production overhead costs based on normal capacity of the assembly warehouse. +The Company periodically +reviews its inventory for evidence of slow-moving or obsolete inventory and provides for an allowance when considered necessary. In 2025, +the Company wrote off and wrote down $ 919,730 +in obsolete inventory. A portion of the obsolete inventory +was sold for scrap or recycled, and a portion has been retained to use in marketing promotions and was either written down to its estimated +net realizable value or written off completely. The value of obsolete inventory that remains on the Balance Sheet as of December 31, +2025 is $ 547,294 . +The Company prepays +for inventory purchases from foreign suppliers. Prepaid inventory totaled $ 318,440 +and $ 1,612,686 +at December 31, 2025 and 2024, respectively, and included inventory +in transit where title had passed to the Company but had not yet been physically received. +Vendor +and Foreign Concentrations of Inventory Suppliers +During the years +ended December 31, 2025 and 2024, approximately 55% and 82%, respectively, of inventory purchases were made from foreign suppliers in +Asia. Any adverse change in either the economic or political conditions abroad could negatively impact the Company’s supply chain. +The inability to obtain product to meet sales demand could adversely affect the Company’s results of operations. However, the Company +has secured a secondary source for lithium iron phosphate cells used in its batteries from a supplier in Europe, enabling the Company +to source materials outside of Asia in the event it becomes necessary to do so. +Cash +and Cash Equivalents +The Company considers +all cash amounts which are not subject to withdrawal restrictions or penalties, and all highly liquid investments purchased with an original +maturity of three months or less from the date of purchase to be cash equivalents. The Company maintains its cash and cash equivalents +balances with high-quality financial institutions located in the United States. Cash accounts are secured by the Federal Deposit Insurance +Corporation (“FDIC”) up to $ 250,000 +per institution. At times, balances may exceed federally insured +limits. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to any significant +credit risk with respect to its cash and cash equivalents balances. As of December 31, 2025, the Company had investment accounts with +a balance of $ 1,516,145 that +was invested in U.S. treasury securities. +F- 9 +Revenue +Recognition +The Company’s +revenue is generated from the sale of products consisting primarily of batteries and accessories. The Company recognizes revenue when +control of goods is transferred to its customers in an amount that reflects the consideration it is expected to be entitled to in exchange +for those goods or services. To determine revenue recognition, the Company performs the following five steps: (i) identify the contract(s) +with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate +the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the performance obligation(s) +are satisfied. Revenue is recognized upon shipment or delivery to the customer, as that is when the customer obtains control of the promised +goods and the Company’s performance obligation is considered satisfied. As such, accounts receivable is recorded at the time of +shipment or will call, when the Company’s right to the consideration becomes unconditional and the Company determines there are +no uncertainties regarding payment terms or transfer of control. +Accounts +Receivable +Accounts receivable +are recorded at the invoiced amount, are due within a year or less, and generally do not bear any interest. The Company performs ongoing +credit evaluations of its customers and generally requires no collateral. An allowance for uncollectible accounts is recorded to reduce +accounts receivable to the estimated amount that will be collected. The allowance is based upon management’s review of the accounts +receivable aging and specific identification of potentially uncollectible balances. Recoveries of accounts previously written off and +adjustments to the allowance for uncollectible accounts are recorded as adjustments to bad debt expense. There were no +allowances for doubtful accounts as of December 31, 2025 or +December 31, 2024, as management believed all outstanding amounts to be fully collectible. +Concentration +of Major Customers +A customer is considered +a major customer when net revenue attributable to the customer exceeds 10% of total revenue for the period or the outstanding accounts +receivable balance exceeds 10% of total accounts receivable balances. +During the year ended +December 31, 2025, sales to four customers totaled $ 5,795,965 , +or approximately 60 % +of our total sales, and represented 69 % +of our outstanding accounts receivable at December 31, 2025. During the year ended December 31, 2024, sales to one customer totaled $ 726,292 , +or approximately 14 % +of our total sales and represented approximately 6 % +of our outstanding accounts receivable at December 31, 2024. Four other customers had accounts receivable balances totaling $ 339,111 , +representing 60 % +of total accounts receivable as of December 31, 2024. Sales to each of our other customers did not exceed 10% during the respective periods. +Customer +Deposits +As of December 31, +2025 and 2024, the Company had customer deposits totaling $ 2,978 +and $ 48,474 , +respectively. +Leases +Contractual arrangements +that meet the definition of a lease are classified as an operating lease or finance lease at inception. The Company does not have any +finance leases. +Operating lease right-of-use +(“ROU”) assets represent the Company’s right to use an underlying asset during the lease term, and operating lease +liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating leases are included in +ROU assets, current operating lease liabilities, and long-term operating lease liabilities on the Balance Sheets. +Lease ROU assets +and lease liabilities are initially recognized based on the present value of the future minimum lease payments over the lease term at +commencement date calculated using the Company’s incremental borrowing rate (“IBR”) applicable to the lease asset. +As the implicit rates for the Company's operating leases are generally not determinable, the Company uses an IBR based on the information +available at the respective lease commencement dates to determine the present value of future payments. IBR represents the interest rate +that the Company would expect to incur at +lease commencement to borrow an amount equal to the lease payments on a collateralized basis with similar terms and payments, in an economic +environment where the leased asset is located. +F- 10 +ROU assets also include +any lease payments made at or before lease commencement and exclude any lease incentives received. The Company’s lease terms may +include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Leases with +a term of 12 months or less are not recognized on the Balance Sheets. The Company’s leases do not contain any residual value guarantees. +Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. +The Company accounts +for lease and non-lease components as a single lease component for all of its leases. +Property and Equipment +Property and equipment +are stated at cost less depreciation calculated on the straight-line basis over the estimated useful lives of the related assets as follows: +Schedule +of estimated useful lives +Vehicles +and transportation equipment +5 +- 7 +years +Manufacturing +equipment +3 +- 10 +years +Office +furniture and equipment +3 +- 7 +years +Warehouse +equipment +3 +- 10 +years +QA +equipment +3 +- 10 +years +Tooling +and molds +5 +- 10 +years +Leasehold improvements +are amortized over the shorter of the lease term or their estimated useful lives. +Betterments, renewals, +and extraordinary repairs that extend the lives of the assets are capitalized; other repairs and maintenance charges are expensed as +incurred. The cost and related accumulated depreciation and amortization applicable to assets retired are removed from the accounts, +and the gain or loss on disposition is recognized in the Statements of Operations. +Impairment +of Long-Lived Assets +Long-lived assets +consist primarily of property and equipment. When events or circumstances indicate the carrying value of a long-lived asset may be impaired, +the Company estimates the future undiscounted cash flows to be derived from the use and eventual disposition of the asset to assess whether +or not a potential impairment exists. If the carrying value exceeds the estimate of future undiscounted cash flows, the impairment is +calculated as the excess of the carrying value of the asset over the estimate of its fair value. Fair value is determined primarily using +the estimated cash flows discounted at a rate commensurate with the risk involved. No long-lived asset impairment was recognized during +the years ended December 31, 2025 or 2024. +Product +Warranties +The Company sells +the majority of its products to customers along with conditional repair or replacement warranties. The Company’s branded products +carry warranties ranging from one year to up to twelve years from the date of sale, depending on the specific product. The Company determines +its estimated liability for warranty claims based on the Company’s experience with respect to the number and value of warranty +claims actually made. Historically, there have been very few claims and the costs associated with those claims have been nominal. Accordingly, +management estimated no liabilities associated with warranty claims as of December 31. 2025 and 2024. +Liability +for Refunds +The Company does +not have a formal return policy but does accept returns under its warranty policies. Returns have historically been minimal. Revenue +is recorded net of returns. Any returns of discontinued product are not added back to inventory and therefore related costs are nominal +and not recorded as an asset. No refund liability was recognized in the years ended December 31, 2025 and 2024. +F- 11 +Shipping +and Handling Costs +Shipping and handling +fees billed to customers totaled $ 49,386 +and $ 99,201 +for the years ended December 31, 2025 and 2024, respectively, +and are included in net sales on the Statement of Operations. Shipping and handling costs for shipping product to customers totaled $ 357,484 +and $ 260,946 +for the years ended December 31, 2025 and 2024, respectively, +and are included in selling, general and administrative expense on the Statements of Operations. +Advertising +and Marketing Costs +The Company expenses +advertising and marketing costs as incurred. Advertising and marketing expense totaled $ 1,001,730 +and $ 926,430 +for the years ended December 31, 2025 and 2024, respectively, +and are included in selling, general and administrative expense on the Statements of Operations. +Research +and Development +Research and development +activities primarily consist of product design and engineering, battery cell evaluation and testing, prototype development, performance +validation, certification and compliance testing, and enhancements to existing battery systems and related technologies. Research +and development costs are expensed as incurred. Research and development costs charged to expense amounted to $ 558,882 +and $ 295,292 +for the years ended December 31, 2025 and 2024, respectively, +and are included in selling, general and administrative expenses on the Statements of Operations. +Income +Taxes +The Company uses +the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized +for the future tax consequences attributable to differences between the financial statement carrying amounts of exiting assets and liabilities +and their respective tax basis. Deferred tax assets, including tax loss and credit carryforwards, and liabilities are measured using +the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered +or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included +the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. +Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion +or all of the deferred tax assets will not be realized. +Fair +Value of Financial Instruments +The Company accounts +for its financial assets and liabilities in accordance with ASC Topic 820, Fair Value Measurement. ASC Topic 820 establishes a fair value +hierarchy that prioritizes the inputs to valuation techniques used to measure fair value, as follows: +Level 1: Quoted prices +(unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date. The fair value hierarchy +gives the highest priority to Level 1 inputs. +Level 2: Observable +prices that are based on inputs not quoted on active markets but corroborated by market data. These inputs include quoted prices for +similar assets or liabilities; quoted market prices in markets that are not active; or other inputs that are observable or can be corroborated +by observable market data for substantially the full term of the assets or liabilities. +Level 3: Unobservable +inputs are used when little or no market data is available. Determining fair value requires that we utilize valuation techniques that +maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as consider counterparty +credit risk in the assessment of fair value. The fair value hierarchy gives the lowest priority to Level 3 inputs. +F- 12 +The Company’s +financial instruments consist principally of cash and cash equivalents, accounts receivable, accounts payable, and long-term debt. The +fair value of cash and cash equivalents, accounts receivable, and accounts payable approximates their respective carrying values because +of the short-term nature of those instruments. The fair value of long-term debt approximates their respective carrying values because +the interest rate approximates market rates available to the Company for similar obligations with the same maturities. +Basic +and Diluted Net Loss Per Share +Basic net income +or loss per share is calculated by dividing net income or loss by the weighted average number of shares outstanding during the period +without consideration of potentially dilutive securities. Diluted earnings or loss per share typically adjusts the basic earnings or +loss per share for the potentially dilutive impact of securities. +We calculate both +the basic and diluted net loss per share using the weighted average number of common shares outstanding during the periods presented +without consideration of dilutive securities. The Company’s potentially dilutive securities, which primarily of outstanding warrants, +options and restricted stock units (“RSUs”), were excluded in the calculation of diluted net loss per share as the result +would have been anti-dilutive due to the Company's net loss position in each period presented. As a result, the Company’s basic +and diluted earnings per share are equal for the respective periods. +The following shows +the amounts used in computing net loss (basic and diluted) per share: +Years +Ended December 31, +2025 +2024 +Net loss +$ ( 6,235,187 ) +$ ( 13,479,475 ) +Weighted +average common shares outstanding – basic and diluted +5,511,875 +641,011 +Basic +and diluted net loss per share +$ ( 1.13 ) +$ ( 21.03 ) +As of December 31, +2025 and 2024, the Company had outstanding warrants and options exercisable for, and outstanding RSUs that could be settled for, an aggregate +of 1,773,624 +and 5,392,395 +shares of common stock, respectively. +The following table +sets forth the number of shares excluded from the computation of diluted loss per share for the respective periods, as their inclusion +would have been anti-dilutive. +Years +Ended December 31, +2025 +2024 +Warrants +6,639 +6,889 +Warrants +– Series A +901,943 +5,286,692 +Warrants +– Series B +2,132 +87,384 +Warrants – January +2025 +449,193 +— +Stock +options +214,217 +11,430 +RSUs +55,000 +— +Pre-funded +warrants +144,498 +— +1,773,622 +5,392,395 +Stock-Based +Compensation +The Company accounts +for stock-based compensation in accordance with ASC 718, “Compensation—Stock Compensation”, which requires compensation +costs to be recognized at grant date fair value over the requisite service period of each of the awards. The Company recognizes forfeitures +of awards as they occur. +F- 13 +The fair value of +options is determined using the Black-Scholes option-pricing model. In order to calculate the fair value of options, certain assumptions +and estimates are made with respect to variables such as the expected life of options, volatility of the stock price, risk-free interest +rates, future dividend yields, and estimated forfeitures at the initial grant date. Changes to these assumptions or estimates could cause +result in significant changes to the valuations. +New +Accounting Pronouncements +In December 2025, +the FASB issued ASU 2025-11, “Interim Reporting (Topic 270): Narrow-Scope Improvements.” This ASU was issued to update guidance +on disclosures that should be provided in interim reporting periods. The Company already complies with the guidance in this ASU, so there +will be no impact on its financial statements or disclosures. +Accounting +Guidance Issued but Not Yet Adopted +In November 2024, +the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic +220-40).” This ASU was issued to improve the disclosures about an entity’s expenses, and require certain types of expenses +to be disclosed individually, and is effective for annual reporting periods beginning after December 15, 2027. The Company is currently +evaluating the impact of this standard on its financial statements or disclosures. +3. +Property and Equipment, Net +Property and equipment +consist of the following: +Schedule +of property and equipment +Years +Ended December 31, +2025 +2024 +Vehicles and +transportation equipment +$ 299,015 +$ 406,013 +Manufacturing equipment +168,099 +168,099 +Office furniture and equipment +153,698 +153,698 +Warehouse equipment +72,964 +72,964 +Leasehold improvements +69,725 +69,725 +QA +equipment +43,582 +43,582 +807,083 +914,081 +Less: +accumulated depreciation +( 478,861 ) +( 430,191 ) +Property +and equipment, net +$ 328,222 +$ 483,890 +Depreciation expense +was $ 116,645 and +$ 173,973 for +the years ended December 31, 2025 and 2024, respectively. There were disposals and sales of fixed assets during the years ended December +31, 2025 and 2024 resulting in net cash received of $ 4,250 +and $ 132,611 , +respectively, and the recognition of losses of $ 13,353 +and $ 146,760 , +respectively. The disposals in the year ended December 31, 2025 consisted of the sale of two small vehicles and the exchange of a vehicle +for services rendered. The disposals in the year ended December 31, 2024 primarily related to sales of equipment and leasehold improvements +arising from the termination of a lease. +F- 14 +4. +Accrued Expenses and Other Current Liabilities +Accrued expenses +and other current liabilities consist of the following: +Years +Ended December 31, +2025 +2024 +Accrued salaries +and payroll liabilities +$ 146,407 +$ 145,686 +Commissions +49,505 +30,913 +Deferred income and deposit +(sublease) +17,754 +4,549 +Franchise tax +150 +150 +Accrued interest +92 +760 +Other +7,955 +5,406 +Accrued +expenses and other current liabilities +$ 221,863 +$ 187,464 +5. +Long-Term Debt +Long-term debt consisted +of the following at December 31, 2025 and 2024: +December +31, 2025 +December +31, 2024 +Note payable +– bank. Payable in monthly installments of $ 332 , +including interest at 5.8 % +per annum, secured by equipment. This note was repaid in full in August +2025 . +— +2,657 +Note payable – credit +union. Payable in monthly installments of $ 508 , +including interest at 5.45 % +per annum, , secured by a vehicle. This note was repaid in full in March +2024 . +— +— +Note payable – SBA: +The Economic Injury Disaster Loan is payable in monthly installments of $ 731 , +including interest at 3.75 % +per annum, matures in May +2050 , and is unsecured. +138,853 +143,144 +Notes +payable – The Company has acquired six notes payable to GM Financial for vehicles. In +April 2022, the Company secured a commercial line up to $300,000 to be used to finance vehicle purchases. The original agreement +expired in April 2023 but was renewed for a commercial line up to $350,000 with prevailing GM Financial existing terms each year +since. The current agreement expires in April +2026. One note was paid off when the corresponding vehicle was sold in May 2023, two notes were paid off when the corresponding +vehicles were sold in February 2024, and three notes remain outstanding as of December 31, 2025. The notes are currently payable +in aggregate monthly installments of $ 2,560 , +including interest at rates ranging from 6.14% +to 7.29% per annum, mature at various dates +from October +2027 to May of 2028 , and are secured by the +related vehicles. +58,392 +84,369 +Total +$ 197,245 +$ 230,170 +Less +current portion +( 31,058 ) +( 31,758 ) +Long-term +debt, net of unamortized debt discount and current portion +$ 166,187 +$ 198,412 +F- 15 +Future maturities +of long-term debt are as follows: +Schedule +of maturities of long-term debt +Years ending December 31, +2026 +$ +31,058 +2027 +30,381 +2028 +8,099 +2029 +4,002 +2030 +4,155 +Thereafter +119,550 +Total +$ +197,245 +6. Stockholder +Promissory Notes +The Company previously +issued unsecured promissory notes to certain stockholders (the “Stockholder Notes”). As of December 31, 2025 and 2024, the +Company had no +outstanding principal balance due pursuant to the Stockholder +Notes, which were fully repaid in August 2024. +Interest paid to +stockholders under the Stockholder Notes totaled $ 0 +and $ 42,862 +during the years ended December 31, 2025 and 2024, respectively. +There was no +accrued interest under the Stockholder Notes as of December +31, 2025 or 2024. +7. +Equity and Debt Financings +October 2025 Private +Placement +On October 16, 2025, +the Company entered into a securities purchase agreement (the “Purchase Agreement”) with two institutional investors pursuant +to which the Company agreed to sell in a private placement (the “October 2025 Private Placement”) an aggregate of (i) 613,077 +shares of common stock, and (ii) a pre-funded warrant (the +“October 2025 Pre-Funded Warrant”) to purchase up to 144,498 +shares of common stock. The offering price per share was $1.65 +and the offering price per pre-funded warrant share was $1.649. +The Company received +net proceeds of approximately $1.1 million from the October 2025 Private Placement after deducting offering expenses payable by the Company. +The Company used the net proceeds from the offering to pay severance obligations to certain executive officers that transitioned concurrent +with the completion of the October 2025 Private Placement, and for working capital and other general corporate purposes. +The October 2025 +Pre-Funded Warrant is exercisable immediately upon issuance for cash or on a cashless basis at the discretion of the holder. The exercise +price of the October 2025 Pre-Funded Warrant is $0.001 per share. The number of pre-funded warrant shares that may be issuable is subject +to adjustment for stock splits, recapitalizations, and reorganizations. The holder of the October 2025 Pre-Funded Warrant does not have +any voting rights, but does have the right to participate in any dividends or distributions made by the Company. +The offer and sale +of the securities in the October 2025 Private Placement was made pursuant to the exemption from the registration requirements of the +Securities Act of 1933, as amended (the “Securities Act”), provided by Section 4(a)(2) of the Securities Act and Rule 506 +promulgated thereunder. +January 2025 Public +Offering +In January 2025, +the Company sold in a public offering (the “January 2025 Public Offering”) (i) 474,193 +shares of common stock, (ii) pre-funded warrants (the “January +2025 Pre-Funded Warrants”) to purchase 574,193 +shares of common stock, which were exercised immediately upon +closing, and (iii) warrants to purchase 1,048,386 +shares of common stock at an exercise price of $2.36 per share +(the “January 2025 Warrants”). The offering price per share was $2.48 and the offering price per pre-funded warrant share +was $2.479. +The Company received +net proceeds of approximately $1.8 million from the January 2025 Public Offering after deducting offering expenses payable by the Company. +The Company used the net proceeds from the offering to pay certain obligations under the Series A Warrants (as defined below), and for +working capital and other general corporate purposes. +F- 16 +The January 2025 +Pre-Funded Warrants are exercisable immediately upon issuance for cash or on a cashless basis at the discretion of the holder. The exercise +price of the January 2025 Pre-Funded Warrants is $0.001 per share. The number of pre-funded warrant shares that may be issuable is subject +to adjustment for stock splits, recapitalizations, and reorganizations. The holders of the January 2025 Pre-Funded Warrants do not have +any voting rights, but do have the right to participate in any dividends or distributions made by the Company. +The fair value of +the January 2025 Warrants was determined at the date of issuance using the Black-Scholes option-pricing model based on the following +estimates and assumptions: a per share price of common stock on date of grant of $ 2.22 ; +expected dividend yield of 0 %; +expected volatility of 158.64 %; +risk-free interest rate of 4.41 %; +and expected life of five +years. The warrants were valued at $2.064 per share, with a +total value of $2,163,869. +The offer and sale +of the securities in the January 2025 Public Offering was made pursuant to an effective shelf registration statement on Form S-3 (File +No. 333-272956), which the Company filed with the SEC on June 27, 2023 and was declared effective on July 10, 2023 (the “Shelf +Registration Statement”). The offer and sale of the January 2025 Warrants was made pursuant to a registration statement on Form +S-1 (File No. 333-284354), which the Company filed with the SEC on January 17, 2025 and was declared effective on February 11, 2025. +On August 14, 2025, +the Company entered into inducement offer letter agreements with certain holders of the January 2025 Warrants, which reduced the exercise +price of the January 2025 Warrants from $ 2.36 +per share to $1.31 per share in exchange for the prompt exercise +by such holders of the warrants for cash (the “Warrant Inducement”). The difference between the fair value of the warrants +immediately prior to and following modification was calculated using the Black-Scholes option-pricing model and treated as a transaction +cost, and resulted in $97,746 being netted against the proceeds received from the January 2025 Warrants. As a result of the Warrant Inducement, +January 2025 Warrants covering an aggregate of 599,193 +shares of common stock were exercised, resulting in net proceeds +to the Company of approximately $0.8 million. On August 22, 2025, the Company’s board of directors took action to permanently reduce +the exercise price of the January 2025 Warrants from $2.36 per share to $1.31 per share (the “Exercise Price Reduction” and, +together with the Warrant Inducement, the “Warrant Adjustments”). As of December 31, 2025, January 2025 Warrants covering +an aggregate of 449,193 shares +of common stock remained outstanding. +Reverse Stock Split +Cash True-Up Payment +On October 8, 2024, +the Company effected a 1-for-100 reverse stock split (the “Reverse Stock Split”) of its issued and outstanding shares of +common stock, which was approved by the Company’s board of directors on September 27, 2024, following stockholder approval at the +Company’s annual meeting of stockholders held on September 27, 2024 (the “2024 Annual Meeting”). +As a result of the +lowest daily volume weighted average price (“VWAP”) of the common stock during the five trading days before and after the +Reverse Stock Split being below the minimum threshold set forth in the Series A Warrants, a Reverse Stock Split cash true-up payment +provision in the Series A Warrants was triggered (the “Cash True-up Payment”). The Cash True-Up Payment was capped at $5.0 +million in the aggregate, but the payment was initially suspended in accordance with the terms of the Series A Warrants. See the section +titled “—August 2024 Public Offering” for additional information. +During the year ended +December 31, 2024, $14,052 of the Cash True-up Payment was relieved in connection with the exercise of certain Series A Warrants, leaving +a remaining liability of $4,985,948 as of December 31, 2024. +The Company used +$500,000 of the net proceeds from the January 2025 Public Offering to satisfy a portion of the Cash True-up Payment, leaving a remaining +liability of $ 4,485,948 . +On August 14, 2025, +in connection with the Warrant Inducement, the Company entered into inducement offer letter agreements with certain holders of the Series +A Warrants, which reduced the exercise price of the Series A Warrants from $5.206 per share to $1.31 per share in exchange for the prompt +exercise by such holders of the warrants for cash. The Warrant Inducement had the effect of eliminating the Cash True-up Payment obligation +pursuant to the terms of the Series A Warrants. As a result, the Cash True-up Payment liability of $ 4,485,948 +was no longer payable, and this amount was recorded as a credit +to Other income / (expense) on the Statement of Operations. As of December 31, 2025, the Cash True-up Payment liability balance was $0. +F- 17 +August +2024 Public Offering +On +August 8, 2024, the Company issued and sold in a public offering (the “August 2024 Public Offering”) (i) 33,402,000 +common units (pre-Reverse Stock Split), each consisting of +one share of common stock, two Series A Warrants and one Series B Warrant (collectively, the “Common Units”), and (ii) 16,598,000 +pre-funded units (pre-Reverse Stock Split), each consisting +of one pre-funded warrant (the “August 2024 Pre-Funded Warrant”), two Series A Warrants, and one Series B Warrant (collectively, +the “Pre-Funded Units”). The Common Units were sold at a price of $0.20 per unit and the Pre-Funded Units were sold at a +price of $0.199 per unit (pre-Reverse Stock Split). +In +addition, the Company granted the underwriter a 45-day option to purchase additional shares of common stock and/or August 2024 Pre-Funded +Warrants and/or Series A Warrants and/or Series B Warrants, representing up to 15% of the number of the respective securities sold in +the August 2024 Public Offering, solely to cover over-allotments, if any. The underwriter partially exercised its over-allotment option +with respect to 15,000,000 +Series A Warrants (pre-Reverse Stock Split) and 7,500,000 +Series B Warrants (pre-Reverse Stock Split). +The +Pre-Funded Warrants were immediately exercisable at an exercise price of $ 0.001 +per share (pre-Reverse Stock Split). As of December 31, 2024, +all Pre-Funded Warrants had been exercised. +The +Company received net proceeds of approximately $8.7 million from the August 2024 Public Offering after deducting offering expenses payable +by the Company. The Company used the net proceeds from the offering to satisfy its obligations pursuant to the 3i Note (as defined below), +to satisfy its obligations under the Termination Agreement (as defined below), and for working capital and other general corporate purposes. +Each +Series A Warrant became exercisable on September 30, 2024, and will expire five years from such date. Each Series A Warrant was initially +exercisable at an exercise price of $24.00 per share of common stock (post-Reverse Stock Split). The exercise price of the Series A Warrants +was subsequently reduced to $5.206 (post-Reverse Stock Split) consistent with the terms of the Series A Warrants. +On +August 14, 2025, in connection with the Warrant Inducement, the exercise price of the Series A Warrants was further reduced to $1.31 +per share. The difference between the fair value of the warrants immediately prior to and following modification was calculated using +the Black-Scholes option-pricing model and treated as a transaction cost, and resulted in $1,423,166 being netted against the proceeds +received from the Series A Warrants. As a result of the Warrant Inducement, an aggregate of 95,112,212 Series A Warrants were exercised, +resulting in the issuance of an aggregate of 4,384,749 shares of common stock, resulting in net proceeds to the Company of $4,918,695. +On +August 22, 2025, in connection with the Exercise Price Reduction, the exercise price of all of the outstanding Series A Warrants was +reduced from $5.206 per share to $1.31 per share. As of December 31, 2025, Series A Warrants to purchase an aggregate of 901,943 shares +of common stock remain outstanding. +Each +Series B Warrant was exercisable immediately upon issuance at an exercise price of $0.10 per share (post-Reverse Stock Split). In July +2025, 85,252 shares of common stock were issued upon exercise of Series B Warrants, resulting in net proceeds to the Company of $8,525. +As of December 31, 2025, Series B Warrants to purchase an aggregate of 2,132 shares of common stock remain outstanding. +The +offer and sale of securities in the August 2024 Public Offering was made pursuant to an effective shelf registration statement on Form +S-1 (File No. 333-280996), which the Company initially filed with the SEC on July 25, 2024 and was declared effective on August 6, 2025. +Convertible Note +Financing +On December 27, 2023, +the Company entered into a securities +purchase agreement with 3i, LP (“3i”), pursuant to which the Company issued and sold: (i) a senior unsecured convertible +note in the aggregate principal amount of $2,750,000, with a 10.0% original issue discount and an interest rate of 9.0% per annum (the +“3i Note”), (ii) up to $247,500 in newly issued shares of common stock, which were payable, subject to the fulfillment of +certain conditions set forth in the 3i Note, to satisfy interest payments under the 3i Note (the “Interest Shares”), and +(iii) 635 shares of common stock issued to 3i as consideration for its commitment to purchase the 3i Note (collectively, the “Convertible +Note Financing”). +F- 18 +The Company received +net proceeds of approximately $1.8 million from the Convertible Note Financing after deducting related expenses payable by the Company. +The Company used the net proceeds for working capital and other general corporate purposes. +The offer and sale +of securities in the Convertible Note Financing was made pursuant to the Shelf Registration Statement. +On August 8, 2024, +in connection with the closing of the August 2024 Public Offering, the Company repaid the 3i Note, and the Company’s obligations +under the 3i Note were fully satisfied and discharged. Prior to the satisfaction of the amounts owed pursuant to the 3i Note, the Company +issued 414 shares of common stock (post-Reverse Stock Split) for the payment of $90,839 in interest. +Equity Line of Credit +On +December 27, 2023, the Company entered into a common stock purchase agreement with Tumim Stone Capital, LLC (“Tumim”), pursuant +to which the Company had the right, but not the obligation, to sell to Tumim, and Tumim was obligated to purchase, up to the lesser of +(a) $20,000,000 in aggregate gross purchase price of newly issued shares of common stock and (b) the Exchange Cap (as defined in the +common stock purchase agreement) (the “Equity Line of Credit”). +The offer and sale +of shares to Tumim pursuant to the Equity Line of Credit was made pursuant to the exemption from the registration requirements of the +Securities Act, provided by Section 4(a)(2) of the Securities Act and Rule 506 promulgated thereunder. The resale of the shares sold +to Tumim was registered pursuant to a Registration Statement on Form S-1 (File No. 333-276663) filed with the SEC on January 23, 2024, +which was declared effective on February 9, 2024. +In connection with the August 2024 Public +Offering, the Company and Tumim mutually agreed to terminate the Equity Line of Credit. Prior to termination, the Company had sold 4,336 +shares of common stock under the Equity Line of Credit for +an aggregate amount of $ 828,491 , +of which $ 434,958 +was used to repay a portion of the Company’s obligations +under the 3i Note. +8. +Commitments and Contingencies +Operating Leases +The Company leases +its warehouses and office space under long-term lease arrangements. All of the Company’s leases are accounted for as operating +leases. For longer-term lease arrangements that are recognized on the Balance Sheets, the ROU asset and lease liability are initially +measured at the commencement date based upon the present values of the lease payments. The Company does not recognize a ROU asset and +lease liability for short term leases, which have terms of 12 months or less. See “Note 2, Summary of Significant Accounting Policies—Leases” +for additional information. +In May 2025, the +Company entered into a long-term, non-cancelable operating lease agreement for warehouse space next door to the existing office and warehouse +space in Redmond, Oregon, resulting in the Company recognizing an additional ROU asset and corresponding lease liability of $ 198,216 , +representing the present value of the lease payments discounted using an IBR of 13.49% . +The lease expires in April 2028 and provides for one three-year option to renew. +In January and February +2022, the Company entered into two long-term, non-cancelable operating lease agreements for office and warehouse space resulting in the +Company recognizing an additional ROU asset and corresponding lease liability of $ 2,348,509 , +representing the present value of the lease payments discounted using an IBR of 8.07% +and 8.86% , +respectively. One lease was terminated in September 2024, and the remaining lease expires in December 2026. +F- 19 +In January 2021, +the Company entered into a long-term, non-cancelable operating lease agreement for office and warehouse space resulting in the Company +recognizing an additional ROU asset and lease liability of $ 1,268,089 , +representing the present value of the lease payments discounted using an IBR of 7.47% . +The lease expires in January 2028 and contains one three-year option to renew. +The Company had three +additional leases relating to office and warehouse space that were terminated in January 2023, September 2024, and February 2025, respectively. +The related ROU assets and lease liabilities were removed from the Balance Sheets at the time of termination. +The Company’s +operating leases generally provide for fixed annual increases and require the Company to pay real estate taxes, insurance, and repairs. +The following is +a summary of total lease costs for the years ending December 31, 2025 and 2024: +Years +Ended December 31, +2025 +2024 +Operating lease +cost +$ 359,337 +$ 610,549 +Short-term lease costs +3,652 +1,149 +Sublease +income +( 7,169 ) +( 42,804 ) +Total +lease costs +$ 355,820 +$ 568,894 +The weighted-average +remaining lease term was 2.06 +and 2.91 +years as of December 31, 2025 and 2024, respectively. The weighted-average +IBR was 8.99 % +and 7.60 % +as of December 31, 2025 and 2024, respectively. Operating cash flows from the operating leases totaled $287,409 and $455,690 for the +years ended December 31, 2025 and 2024, respectively. +The total lease liability +as of December 31, 2025 and 2024 was $ 709,724 +and $ 798,917 , +respectively. +The following is +a maturity analysis of the annual undiscounted cash flows of the operating lease liabilities as of December 31, 2025, for years ending +December 31: +Total +2026 +$ +387,742 +2027 +339,392 +2028 +49,233 +2029 +— +Thereafter +— +Total future minimum lease payments +776,367 +Less imputed interest +( 66,643 +) +Total +$ +709,724 +Current lease liability +$ +337,246 +Noncurrent lease liability +372,478 +Total +$ +709,724 +Subleases +As of December 31, +2024, the Company subleased office and warehouse space under one of its operating leases with similar terms as the Company’s lease +agreements. The Company’s lease and corresponding sublease for that property expired in February 2025 and were not renewed. Two +additional subleases ended in February 2023. Because the Company was not relieved of its primary obligations under the original lease, +the Company accounted for the subleases as a lessor. Sublease rental income was recorded based on the contractual rental payments, which +were not substantially different from recognition on a straight-line basis over the lease term. Sublease rental income totaled $ 7,169 +and $ 42,804 +during the years ended December 31, 2025 and 2024, respectively. +As of December 31, 2025 and 2024, deferred sublease income and a sublease deposit totaled $ 0 +and $ 4,549 , +respectively, and is included in accrued expenses and other current liabilities on the Balance Sheets. +The Company has no +subleases as of December 31, 2025. +F- 20 +Litigation +The Company may be +involved from time to time in litigation or claims arising in the ordinary course of its business. While the ultimate liability, if any, +arising from these claims cannot be determined with certainty, the Company believes that the resolution of any such matters are not reasonably +likely have a material adverse effect on the Company’s financial condition, operating results or cash flows. +On May 2, 2024, the +Company entered into a Settlement Agreement and Mutual Release (the “Settlement Agreement”) with Alexander Capital L.P. (“Alexander”), +pursuant to which the parties resolved certain disputes while not admitting any liability or wrongdoing (the “Settlement Agreement”). +Pursuant to the Settlement Agreement, the Company agreed to (i) +make a single cash payment of $100,000, (ii) issue 100,000 shares of common stock, and (iii) amend certain outstanding warrants held +by Alexander to reduce the per share exercise price from $9.10 to $4.50. The shares of common stock were issued pursuant to the Shelf +Registration Statement. The Settlement Agreement +also contained other customary provisions, including a mutual release of claims and mutual non-disparagement provision. +On July 1, 2024, +the Company entered into a Mutual Termination Agreement (the “Termination Agreement”) with Alexander, pursuant to which the +parties agreed to terminate a provision in the Underwriting Agreement, dated March 31, 2022, entered into by and between the Company +and Alexander, which granted Alexander a right of first refusal to act as the Company’s financial advisor, placement agent or underwriter +in connection with certain financing transactions (the “ROFR Provision”). In exchange for the termination of the ROFR Provision, +and in connection with the closing of the August 2024 Public Offering, the Company made a cash payment to Alexander in the amount of +$ 400,900 . +Nasdaq Listing Requirement +On September 6, 2024, +the Company received a determination from The Nasdaq Listing Qualifications Department (the “Staff”) of The Nasdaq Stock +Market (“Nasdaq”) to delist the common stock from the Nasdaq Capital Market indicating that (i) the Company was not in compliance +with Nasdaq Listing Rule 5550(a)(2) because the closing bid price for the common stock had closed below $1.00 for the previous 30 consecutive +business days, and (ii) the Company was subject to Nasdaq Listing Rule 5810(c)(3)(A)(iii) because, as of September 5, 2024, the common +stock had a closing bid price of $0.10 or less for at least ten consecutive trading days (the “September 2024 Staff Determination”). +On September 12, +2024, the Company requested an appeal hearing with respect to the September 2024 Staff Determination from the Nasdaq Hearings Panel (the +“Panel”), which had the effect of staying the delisting of the common stock pending the Panel’s decision. +Upon completion of +the Reverse Stock Split, the Company received a letter from the Staff on October 23, 2024, advising the Company that it had regained +compliance with the minimum bid price requirements and that the Company was therefore in compliance with Nasdaq’s listing requirements. +Consequently, the scheduled hearing before the Panel was cancelled. +On July 1, 2025, +the Company received a determination from the Staff stating that the bid price of the common stock had closed below the $1.00 minimum +required by Nasdaq Listing Rule 5550(a)(2) for the prior 30 consecutive business days (the “Minimum Bid Price Requirement”) +and the Staff had determined to delist its securities from the Nasdaq Capital Market (the “July 2025 Staff Determination”). +The Company timely requested and was granted an appeal hearing before the Panel to appeal the July 2025 Staff Determination, which had +the effect of staying the delisting of the common stock pending the Panel’s decision. As of August 12, 2025, the common stock had +closed above $1.00 for more than ten consecutive trading days. As a result, on August 13, 2025, the Company received a letter from the +Staff advising that it had regained compliance with the Minimum Bid Price Requirement, and that it was therefore in compliance with Nasdaq’s +listing requirements. Consequently, the appeal hearing before the Panel was cancelled. +F- 21 +On August 20, 2025, +the Company received a notification letter (the “August 2025 Staff Notice”) from the Staff notifying it that the stockholders’ +equity balance reported in the Quarterly Report for the three months ended June 30, 2025 was below the $2.5 million required minimum +for continued listing on the Nasdaq Capital Market as set forth in Nasdaq Listing Rule 5550(b)(1). Following the Warrant Adjustments +and resulting warrant exercises, and the elimination of the Cash True-up Payment liability, the Company’s stockholders’ equity +balance increased above the required threshold. On September 17, 2025, the Company received a letter from the Staff confirming it had +regained compliance with Nasdaq’s listing requirements. +See “ Note 14, +Subsequent Events ” for additional information. +9. +Stockholders’ Equity +The Company is authorized +to issue an aggregate of 220,000,000 shares +of capital stock, par value $ 0.001 +per share, consisting of 200,000,000 +shares of common stock and 20,000,000 +shares of preferred stock. As of December 31, 2025 and 2024, +9,781,739 and +2,096,082 shares, +respectively, of common stock were issued and outstanding. No shares of preferred stock have been issued. +Stockholders are +entitled to one vote for each share of common stock. The holders of common stock have no conversion, redemption or preemptive rights +and shall be entitled to receive dividends when, as, and if declared by the board of directors. Upon dissolution, liquidation, or winding +up of the Company, after payment or provision for payment of debts and other liabilities of the Company, subject to the rights, if any, +of the holders of any class or series of capital stock having a preference over the common stock with respect to the distribution of +assets of the Company upon such dissolution, liquidation, or winding up of the Company, the holders of common stock shall be entitled +to receive the remaining assets of the Company available for distribution to its stockholders ratably in proportion to the number of +shares of common stock held. Since no shares of preferred stock have been issued, no rights and privileges of preferred stockholders +have been defined. +In November 2025, +the Company issued 125,000 +unregistered shares of common stock to a vendor in exchange +for services rendered, and recorded a $ 141,250 +expense in legal and professional fees. +In October 2025, +the Company issued 400,000 +RSUs pursuant to the 2021 Plan (as defined below) that were +immediately vested upon issuance and settled for 400,000 +shares of common stock, and recorded $ 600,000 +of stock-based compensation expenses. In addition, the Company +issued an aggregate of 613,077 shares of common stock pursuant to the October 2025 Private Placement. +In September 2025, +the Company issued 200,000 +unregistered shares of common stock to a vendor in exchange +for services rendered, and recorded $ 242,000 +of legal and professional fee expenses. +In August 2025, 4,384,749 +shares of common stock were issued upon exercise of Series +A Warrants, and 599,193 +shares of common stock were issued upon exercise of January +2025 Warrants. +In July 2025, 85,252 +shares of common stock were issued upon exercise of Series +B Warrants. +In April 2025, the +Company issued 105,000 +RSUs pursuant to the 2021 Plan that were immediately vested +and settled for 105,000 +shares of common stock, and 125,000 +shares were granted to a vendor in exchange for services rendered, +and expenses of $ 80,850 +in stock-based compensation and $ 106,250 +in legal and professional fees were recorded +for these two transactions, respectively. +In January 2025, +the Company issued an aggregate of 1,048,386 +shares of common stock pursuant to the January 2025 Public +Offering. +F- 22 +See “ Note 7, +Equity and Debt Financings ” for additional information. +Warrants +In the January 2025 +Public Offering, the Company issued pre-funded warrants, which were immediately exercised for 574,193 +shares of common stock at $ 2.48 +per share, and 1,048,386 +January 2025 Warrants at an exercise price of $ 2.36 +per share. In August 2025, as part of the Warrant Inducement, +the Company issued 599,193 shares of common stock upon exercise of the January 2025 Warrants for a price of $1.31 per share. As of December +31, 2025, 449,193 of the January 2025 Warrants remain outstanding. +In 2024, 8,125,000 +Series B Warrants exercisable for 496,232 +shares at $ 0.10 +per share were exercised using the cashless conversion option +which resulted in the issuance of 215,678 +shares of common stock (based on a $ 5.206 +reset price). Another 46,300,000 +Series B Warrants were exercised on a cash basis which resulted +in the issuance of 1,078,689 +shares of common stock (based on a $ 5.206 +reset price). In July 2025, 3,000,000 +warrants were exercised on a cash basis, which resulted in +the issuance of 85,252 +shares. In 2024, 323,203 +Series A Warrants were exercised on a cash basis which resulted +in the issuance of 14,900 +of common stock. In August 2025, as part of the Warrant Inducement, +the exercise price of the Series A Warrants was reduced to $ 1.31 +per share, and 4,384,749 +shares were issued upon exercise of 95,112,212 +warrants. As of December 31, 2025, there were 19,564,585 +Series A Warrants exercisable for 901,943 +shares and 75,000 +Series B Warrants exercisable for 2,132 +shares outstanding. +In 2023, the Company +issued 25,000 +warrants to purchase 250 +shares of common stock, at an exercise price of $ 500.00 +per share, to its investor relations firm in accordance with +an engagement letter. All 25,000 +warrants expired August 9, 2025 without being exercised. +In 2022, the Company +issued 148,005 +warrants to purchase 1,490 +shares of common stock, at an exercise price of $ 910.00 +per share, with an expiration date of March +31, 2027 . As part of a settlement agreement on +May 2, 2024, the Company agreed to modify the exercise price of 88,803 +warrants convertible into 891 +shares from $ 910.00 +to $ 450.00 . +As of December 31, 2025, all warrants with an exercise price of $ 910.00 +and $ 450.00 +remain outstanding. +In 2021, the Company +issued 559,431 +warrants to purchase 5,602 +shares of common stock at an exercise price of +$ 332.00 +per share, with an expiration date of November +22, 2031 . Warrants were exercised during 2023 +and 2024, and as of December 31, 2025, there were 514,290 +warrants exercisable for 5,149 +shares outstanding. +Below is a summary +of warrants issued and outstanding as of December 31, 2025: +Schedule +of various warrants/options issued and outstanding +Number +of Warrants +Issuable +Shares +Exercise +Price per Share +Weighted +Average Remaining Life (Years) +75,000 +(1) +2,132 +$ +0.10 +N/A +(2) +449,193 +449,193 +$ +1.31 +(3) +4.01 +19,564,585 +(4) +901,943 +$ +1.31 +(5) +3.74 +514,290 +5,149 +$ +332.00 +5.89 +88,803 +891 +$ +450.00 +1.25 +59,202 +599 +$ +910.00 +1.25 +20,751,073 +1,359,907 +(1) +Reflects +Series B Warrants, which are subject to reset pricing to determine the number of shares issuable. +(2) +Series B Warrants do not +have an expiration date. +(3) +Reflects +January 2025 Warrants, which were part of the Warrant Inducement, and their exercise price was reduced from $2.36 to $1.31 per share. +(4) +Reflects +Series A Warrants, which are subject to reset pricing to determine the number of shares issuable. +(5) +The +Series A Warrants were part of the Warrant Inducement, and their exercise price was reduced from $5.206 to $1.31 per share. +F- 23 +Warrant Inducement +and Repricing +On +August 14, 2025, the Company entered into an inducement offer letter agreements with certain holders of the Series A Warrants and the +January 2025 Warrants, which reduced the exercise price of the Series A Warrants from $ 5.206 +to $1.31 per share, and the January 2025 Warrants from 2.36 +to $1.31 per share. The difference between the fair value of +the warrants immediately prior to and following modification was treated as a transaction cost, which is netted against proceeds received. +The difference in fair value for the Series A Warrants was $1,423,166 , +and the difference in fair value for the January 2025 Warrants was $97,746. Both were calculated using the Black-Scholes option-pricing +model and were based on the following assumptions: +Warrant +Stock +Price +Remaining +Life (Years) +Volatility +Risk-Free +Rate +Dividend +Series +A +$ 2.02 +4.12 +129.9 % +3.78 % +— +January +2025 +$ 2.02 +4.39 +129.9 % +3.77 % +— +During +August 2025, 4,384,749 +shares were issued upon exercise of Series A Warrants, and +599,193 +shares were issued upon exercise of January 2025 Warrants, +and the difference in fair value was netted against the gross proceeds along with other issuance costs. +Equity Plans +As of December 31, +2024, the Company had adopted two stock-based compensation plans, the 2021 Incentive Award Plan (the “2021 Plan”) and the +2021 Employee Stock Purchase Plan (the “2021 ESPP”). +2021 Incentive Award +Plan +The purpose of the +2021 Plan is to enhance the Company’s ability to attract, retain and motivate persons who make (or are expected to make) important +contributions to the Company by providing these individuals with equity ownership opportunities. Various stock-based awards may be granted +under the 2021 Plan to eligible employees, consultants, and non-employee directors, including options and RSUs. +The number of shares +issued under the 2021 Plan is subject to an initial limit and is adjusted annually pursuant to an evergreen provision. No more than 1,000,000 +shares may be issued pursuant to the exercise of incentive stock options. The aggregate share limit will be subject to an annual increase +on the first day of each calendar year ending on and including January 1, 2031, by a number of shares equal to the lesser of (i) a number +equal to 5% of the aggregate number of shares of the Company's common stock outstanding on the final day of the immediately preceding +calendar year and (ii) such smaller number of shares as is determined by the Company's board or committee. +The type of award, +number of shares subject to the award, exercise price (if any), vesting provisions (if any), and other terms of the awards will be determined +at date of grant; however, the exercise price of options shall not be less than 100% of the fair value on the grant date and the term +of options shall not exceed ten years. As of December 31, 2025, awards covering an aggregate of 872,762 +shares were eligible to be issued under the 2021 Plan, of which +215,079 +shares underlying options and 560,649 +shares underlying RSUs had been granted. On January 1, 2026, +an aggregate of 489,086 shares were added to the plan reserve pursuant to the evergreen provision based on the number of shares outstanding +as of December 31, 2025. +During the year ended +December 31, 2025, the Company granted RSUs covering an aggregate of 560,000 shares and options covering an aggregate of 203,278 shares, +and canceled options covering an aggregate of 104 shares under the 2021 Plan. The stock-based compensation expenses incurred during the +years ended December 31, 2025 and 2024 were $ 1,163,654 +and $ 581,504 , +respectively. +2021 Employee Stock +Purchase Plan +The purpose of the +2021 ESPP is to assist eligible employees of the Company in acquiring stock ownership in the Company and to help such employees provide +for their future security and to encourage them to remain in the employment of the Company. The 2021 ESPP consists of a Section 423 Component +and Non-Section 423 Component. The Section 423 Component is intended to qualify as an employee stock purchase plan and also authorizes +the grant of options. Options granted under the Non-Section 423 Component shall be granted pursuant to separate offerings containing +sub-plans. The Company may make one or more offerings under the 2021 ESPP. The duration and timing of each offering period may be established +or changed by the board, but in no event may an offering period exceed 27 months and in no event may the purchase period for the option +exceed the duration of the offering period under which it is established. On each exercise date for an offering period, each participant +shall automatically be deemed to have exercised the option to purchase the largest number of whole shares which can be purchased under +the offering. Option awards are generally granted with an exercise price equal to 85% of the lesser of the fair market value of a share +on (a) the applicable grant date and (b) the applicable exercise date, or such other price as designated by the administrator. The maximum +number of shares granted under the 2021 ESPP shall not exceed 25,000 +shares. +F- 24 +As of December 31, +2025, an aggregate of 524,051 +shares were eligible to be issued under the 2021 +ESPP. On January 1, 2026, an aggregate of 97,817 shares were added to the plan reserve pursuant to the evergreen provision based on the +number of shares outstanding as of December 31, 2025. +No shares have been +issued under the 2021 ESPP. +The Company has computed +the fair value of options granted during the year ended December 31, 2025 using the following assumptions: +Schedule +of fair value of assumptions +Expected volatility +124.35 +% +Expected dividends +None +Expected term (in years) +5.42 +Risk free rate +4.08 % +The Company has computed +the fair value of options granted during the year ended December 31, 2024 using the following assumptions: +Expected volatility +124.35 +% +Expected dividends +None +Expected term (in years) +5.42 +Risk free rate +4.08 % +The Company uses +the “simplified method” to estimate expected term. Under the simplified method, an option’s expected term is calculated +as the time until expiration. +The following table +summarizes the option activity under the 2021 Plan during the year ended December 31, 2025: +Schedule +of stock option activity +Number +of options +Weighted +average exercise price +Weighted +average remaining contractual term (in years) +Aggregate +intrinsic value +Outstanding at December 31, 2024 +11,430 +$ +372.16 +— +$ +— +Granted +203,278 +0.78 +— +— +Exercised +— +— +— +— +Canceled +104 +345.00 +— +— +Outstanding at December 31, 2025 +214,604 +$ +20.39 +9.41 +$ +— +Exercisable at December 31, 2025 +214,217 +$ +19.66 +9.41 +$ +— +During the years +ended December 31, 2025 and 2024, the weighted-average grant-date fair value of the options granted to employees and non-employees was +$ 197,444 +and $ 312,873 , +respectively. +The options granted +in July 2025 were vested as to 100% of the underlying shares at the time of grant. The options granted in March 2024 vested as to 50% +of the underlying shares at the time of grant and the remaining shares are +F- 25 +subject to vesting +in 12 equal consecutive quarterly installments commencing September 30, 2024 such that the option will become fully vested on March 31, +2027. +The following table +summarizes the RSU activity under the 2021 Plan during the year ended December 31, 2025: +Number +of RSUs +Weighted +average grant-date fair value +Nonvested at December 31, 2024 +— +$ +— +Granted +560,000 +0.18 +Vested +15,000 +1.17 +Forfeited +— +— +Nonvested at December +31, 2025 +40,000 +$ +— +There was no unrecognized +compensation cost related to non-vested RSUs as of December 31, 2025. +Common Stock Reserved +for Future Issuance +The following is +a summary of shares of common stock reserved for future issuance as of December 31, 2025: +Exercise +of Warrants +6,639 +Exercise +of Stock Options – 2021 Plan +214,217 +Exercise +of Series A Warrants +901,943 +Exercise +of Series B Warrants +2,132 +Exercise +of January 2025 Warrants +449,193 +Exercise +of Pre-Funded Warrants +144,498 +Settlement +of RSUs +55,000 +Total +shares of common stock reserved for future issuances +1,773,622 +10. +Segment Reporting +The Company focuses +on the design, assembly, manufacturing, and sale of LiFePO4 batteries and supporting accessories for RVs, marine, and industrial applications. +The Company sells to wholesalers, distributors, and OEMs, as well as directly to consumers. +The Company has identified +one reportable segment: Energy Storage (ES). This segment generates revenue in North America, and the Company manages its product sales +and associated expenses on a total basis. +The accounting policies +for this segment align with those outlined in the summary of significant accounting policies. The Chief Operating Decision Maker (CODM) +is the Chief Executive Officer. The CODM assesses the performance of this segment and allocates resources based on net income or loss, +which is reflected on the Statements of Operations. The measure of segment assets is total assets, which is reflected on the Balance +Sheets. +The CODM evaluates +the net income or loss from our one reportable segment. Net income or loss is also utilized to monitor the difference between budgeted +and actual results. Additionally, the CODM employs net income or loss for competitive analysis by comparing its financial performance +with other competitors in the Energy Storage (ES) space. +26 +11. +Income Taxes +Our losses before +income taxes for the years ended December 31, 2025 and 2024 were generated primarily from U.S. operations. +We have no current +or deferred provision for income taxes from continuing operations for the years ended December 31, 2025 and 2024. +The significant differences +between the U.S. Federal statutory rate and our effective rate for financial reporting purposes are as follows: +Schedule of significant differences +between the U.S. Federal statutory rate and our effective rate +Years +Ended December 31, +2025 +2024 +Federal statutory tax rate +( 21.0 +) +% +( 21.0 +) +% +State taxes, net of federal tax benefit +( 5.3 +) +( 5.1 +) +Change in valuation allowance +31.4 +22.6 +NQSO Comp – Other +— +2.1 +EQ Comp – Other +— +0.0 +Permanent difference +( 0.2 +) +— +True-up Adjustment +( 4.9 +) +1.5 +Effective tax rate +— +% +— +% +Deferred income taxes +reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes +and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as +follows for the year ended December 31, 2025 and 2024. +Deferred income tax +assets and liabilities consist of the following: +As +of December 31, +2025 +2024 +Deferred +tax assets: +Net +Operating Losses +$ 8,112,158 +$ 6,274,519 +Stock-based +compensation +528,359 +170,064 +Inventory +reserve +143,468 +— +Depreciation +12,784 +138,334 +Other +— +256,179 +Subtotal +8,796,769 +6,839,096 +Valuation +allowance +( 8,796,769 ) +( 6,839,096 ) +Deferred +tax liabilities: +— +— +Net +deferred tax asset +$ — +$ — +For financial reporting +purposes, the Company incurred losses for the years ended December 31, 2025 and 2024 and for each period since inception. Accordingly, +no benefit +for income taxes has been recorded due to the uncertainty of the realization of any tax assets. At December 31, 2025, the Company had +approximately $ 30,945,899 +of federal and state net operating losses. +Accrued income taxes +as of the end of each year as follows: +As +of December 31, +2025 +2024 +Current: +Federal +$ +— +$ +— +State Franchise Fees +150 +150 +A reconciliation +between the amount of income tax benefit determined by applying the U.S statutory income tax rate to pre-tax loss is as follows: +F- 27 +Schedule of reconciliation +As of December 31, +2025 +2024 +Income tax provision at federal statutory rate +$ ( 1,309,389 ) +21.0 % +$ ( 2,839,422 ) +21.0 % +State taxes +( 328,013 ) +5.3 % +( 689,421 ) +5.1 % +Stock-based compensation +— +— % +278,572 +( 2.1 )% +Permanent difference +( 12,326 ) +0.2 % +— +— % +Other +( 307,795 ) +4.9 % +196,608 +- 1.5 % +Change in valuation allowance +1,957,673 +( 31.4 )% +3,053,661 +( 22.7 )% +Effective tax +$ 150 +0.0 % +$ — +— % +Tax positions are +evaluated in a two-step process. The Company first determines whether it is more likely than not that a tax position will be sustained +upon examination. If a tax position meets the more-likely-than-not recognition threshold it is then measured to determine the amount +of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than +50% likely of being realized upon ultimate settlement. The aggregate changes in the balance of gross unrecognized tax benefits, which +excludes penalties and interest, for the year ended December 31, 2025 is zero. +The Company is subject +to taxation in the United States and Oregon. There are no ongoing examinations by taxing authorities at this time. The Company’s +various tax years 2019 through 2025 remain open for examination by various taxing jurisdictions. +The Company recognizes +interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2025, the Company has not accrued +any penalties or interest related to uncertain tax positions. +In anticipation of +an initial public offering, the Company converted from a limited liability company to a C corporation, a taxable entity, effective November +1, 2021. +For the years ended +December 31, 2025 and 2024, the Company accrued $ 150 +for state minimum income taxes each year, and did not accrue +federal income taxes due to net losses in both years. +Since converting +to a C corporation, the Company has incurred losses and consequently recorded no provision for state or federal income taxes for the +years ended December 31, 2025 and 2024. The Company maintains a full valuation allowance on all deferred tax assets, as it has concluded +that it is more likely than not that these assets will not be realized. As of December 31, 2025 and 2024, there were no material unrecognized +tax benefits included in the accompanying balance sheets that would, if recognized, affect the effective tax rate. +12. +401(k) Plan +The Company adopted +a 401(k) Plan (“Plan”) for the benefit of its employees. Employees may contribute to the Plan within defined limits as defined +by the Internal Revenue Service. Substantially all employees are eligible to participate in the Plan. The Company has the option to make +profit-sharing contributions at its discretion. No profit-sharing contributions have been made. +13. +Related-Party Transactions +As of December 31, +2025 and 2024, there were no related-party transactions requiring disclosure under SEC rules and no such transactions were contemplated. +14. +Subsequent Events +The Company evaluated +its financial statements for the year ended December 31, 2025 for subsequent events through the date the financial statements were +available to be issued. The following subsequent events are noted: +December 2025 At-The-Market +Issuance Sales Agreement +On December 12, 2025 +the Company entered into an At-The-Market Issuance Sales Agreement. We commenced sales under the agreement in January 2026 and have sold +an aggregate of 1,064,396 +shares for net proceeds of approximately $ 932,567 +as of March 11, 2026. +January 2026 Nasdaq +Staff Determination Letter +On January 29, 2026, +the Company received a determination from the Staff stating that it did not meet the Minimum Bid Price Requirement and that the Staff +had determined to delist its securities from the Nasdaq Capital Market subject to a compliance period. Nasdaq provided the Company with +a 180-calendar day compliance period, or until July 28, 2026, to regain compliance with the listing rule. The Company is currently evaluating +options to regain compliance and intends to timely regain compliance with the Minimum Bid Price Requirement. Under Nasdaq rules, the +Company is currently eligible to conduct a reverse stock split of its common stock to regain compliance if necessary. +F- 28 \ No newline at end of file diff --git a/raw/filings/0001894954/2025/0001903596-26-000075/filing_metadata.csv b/raw/filings/0001894954/2025/0001903596-26-000075/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..ad088593eb2eef8e689dedf0fc9f9baf5c7ee786 --- /dev/null +++ b/raw/filings/0001894954/2025/0001903596-26-000075/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001894954,XPON,Expion360 Inc.,2025,10-K,2026-03-17,2025-12-31,2026-03-17T12:46:49.000Z,0001903596-26-000075,xpon_10k.htm,,7664504,1,1,https://www.sec.gov/Archives/edgar/data/1894954/000190359626000075/xpon_10k.htm,https://www.sec.gov/Archives/edgar/data/1894954/000190359626000075/ diff --git a/raw/filings/0001894954/2025/0001903596-26-000075/item1.txt b/raw/filings/0001894954/2025/0001903596-26-000075/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..e1a856a0159f2c0b62a1dee6cda051f7baea7b8b --- /dev/null +++ b/raw/filings/0001894954/2025/0001903596-26-000075/item1.txt @@ -0,0 +1,283 @@ +ITEM 1. BUSINESS +Our Company +Expion360 focuses +on the design, assembly, manufacturing, and sale of lithium iron phosphate (“LiFePO4”) batteries and supporting accessories +for recreational vehicles (“RVs”), marine, and industrial applications. Our high-powered lithium battery solutions incorporate +innovative concepts and have been designed to include some of the most dense and minimal-footprint batteries in the RV and marine industries. +In addition, we deploy intellectual property strategies to support product development, enhance safety and performance, and strengthen +relationships across our target markets. This includes design, development and collaboration, using our IP to bring safety, quality and +service to our current customers and to build relationships with customers in a variety of industries. Our customers consist of dealers, +wholesalers, private-label customers, and original equipment manufacturers (“OEMs”) who then sell our products to end consumers +and drive brand awareness nationally. +Our primary target +markets include the RV, marine, and industrial power sectors. We believe the ongoing transition from traditional lead-acid batteries +to LiFePO4 battery systems as the preferred power storage solution presents growth opportunities across these industries. In addition +to the RV and marine markets, we are expanding our focus to include industrial, construction, surveillance, remote monitoring, and other +mission-critical applications requiring reliable, high-energy-density battery systems. We are also pursuing opportunities within the +electric forklift and industrial material handling markets, where lithium battery adoption continues to increase. +We launched our e360 +product line in December 2020, initially targeting the RV and marine industries. Through continued sales growth and product development, +the e360 product line has gained adoption among customers transitioning from lead-acid battery systems. We have since expanded our product +portfolio to include next-generation lithium battery models designed to increase capacity, improve energy density, enhance manufacturability, +and expand integration capabilities for OEM and industrial applications. These products are intended to support mobile and off-grid systems +for construction, industrial power, surveillance, and remote monitoring applications. +We currently operate +Expion360 as one reportable business segment, Energy Storage (ES). +Our products provide +numerous advantages for various industries that are looking to migrate to lithium-based energy storage. They incorporate detailed design +and engineering, strong case materials, optimized internal structural layouts, and are supported by responsive customer service. +Our +Market Opportunity +Lithium-based +batteries power a broad range of applications, from consumer electronics to transportation systems and national defense infrastructure. +They support electrification trends across multiple industries and enable both mobile and stationary energy storage solutions. The United +States maintains a strong research ecosystem and an emerging domestic battery manufacturing base, supported by federal initiatives aimed +at strengthening supply chains and advancing battery technology, according to the U.S. Department of Energy. +Expion360 +currently focuses on the deep cycle, off-grid, RV, marine, industrial, and specialty vehicle markets, where high-performance LiFePO4 +battery systems are increasingly displacing legacy lead-acid solutions. These applications require lightweight, high-energy-density, +and durable power systems capable of operating in varied and demanding environmental conditions. +The +global RV market was valued at approximately $60.7 billion in 2022 and is projected to grow at a compound annual growth rate (CAGR) of +11.5% from 2023 through 2030, reaching an estimated $144.55 billion by 2031, according to Grand View Research. Increasing electrification +within RV platforms, including off-grid and extended-runtime applications, continues to support adoption of lithium-based battery systems. +More +broadly, trends toward equipment electrification, reduced generator runtime, remote monitoring infrastructure, and mobile industrial +applications are contributing to sustained demand for advanced battery systems. According to IMARC, the global +lithium-ion battery market exceeded $150 billion in 2025 and continues to expand as electrification advances across transportation, industrial, +and specialty equipment sectors. +6 +Beyond +our established presence in RV and marine applications, we are evaluating opportunities in adjacent light electric vehicle, surveillance, +and remote monitoring applications that require high-reliability battery systems. According to Precedence Research, the global light +electric vehicle market was estimated at $107 billion in 2025 and is projected to reach $268 billion by 2035. While these adjacent markets +represent potential long-term growth opportunities, our current commercial focus remains concentrated in deep-cycle, recreational, and +specialty-use applications. +We +believe the compact form factor, modularity, and high energy density of our lithium battery systems position us to address applications +requiring lightweight, high-capacity power solutions across RVs, marine systems, industrial equipment, and remote monitoring applications. +While +we do not currently manufacture battery cells domestically, we monitor developments in U.S. supply chain policy and manufacturing initiatives +that may influence the industry over time. We periodically evaluate strategic opportunities that could align with our long-term objectives; +however, our current operations rely primarily on established offshore third-party manufacturing partners. Domestic supply chain initiatives +represent potential future developments rather than current operational drivers. +Competitive +Strengths +We +believe the following strengths differentiate Expion360 and create long-term, sustainable competitive advantages: +Superior Capacity +to Lead-Acid Competitors +Lead-acid batteries +have historically been the standard in RV and marine transportation vehicles, but these industries are experiencing a rapid conversion +from lead-acid to lithium batteries as the primary method of power sourcing. Our lithium-ion batteries are designed to offer superior +capacity to traditional lead-acid batteries, with an expected lifespan of approximately 12 years under standard operating conditions—three +to four times that of certain lead-acid batteries—and ten times the number of charge cycles. Furthermore, our typical battery may +provide three times the power of the typical, lead-acid battery despite being half the weight (comparing, for example, a typical lead-acid +battery like the Renogy Deep Cycle AGM, which is rated at 100Ah, to our own LFP 100Ah battery and assuming slow discharge at a 1C rate). +In addition, we offer +a 4.5 Ah 26650 lithium-ion phosphate battery cell, which allows us to increase energy density by over 32% compared to traditional 3.4 +Ah 26650 cells. +Expansion into New Markets +Our proprietary e360 +SmartTalk mobile app is included in many of our battery models and allows the seamless integration and management of e360 Bluetooth-enabled +LiFePO4 batteries. The technology enables users to wirelessly monitor and manage e360 batteries, providing a comprehensive view of both +individual battery conditions and performance as well as information about a power bank consisting of multiple e360 batteries. Our 48 +Volt GC2 LiFePO4 battery was the first model to incorporate e360 SmartTalk for electric golf carts and other light electric vehicle applications. +In 2024, we introduced +our next generation 12V GC2 and Group 27 series LiFePO4 batteries incorporating higher amp-hour cell options (4.0Ah and 4.5Ah) and the +latest technology, including our proprietary Vertical Heat Conduction™ internal heating, Bluetooth®, and controller area network +(“CANBus”) communication. We also launched the Edge battery in 2024, which offers a slim design designed to provide installation +flexibility. The Edge is offered in both 12V and 48V configurations. +In February 2026, +we announced plans to release three next-generation lithium-ion battery models expected to be commercially available in the second half +of 2026. The new models include upgraded Group 27 (12.8V 140Ah), GC2H (12.8V 180Ah), and EX1 (12.8V 420Ah) batteries, each designed to +increase capacity relative to prior generations. These +platforms incorporate our VHC™ internal heating technology, SmartTalk™ Bluetooth connectivity, and CANBus communication, +and are engineered to meet UL 1973 safety standards, with final certification pending. The redesigned batteries are also intended to +support manufacturing efficiencies and margin improvement initiatives. +7 +Also in February +2026, we entered into a strategic partnership with Dealer Accessory Supply (“DAS”) related to the launch of the DASGen Hybrid +Energy Storage System, representing our entry into the industrial energy storage market. DASGen is designed to function as an energy +buffer between diesel generators and jobsite electrical loads and is intended to support reduced generator runtime, subject to site conditions +and usage. Under the partnership, DAS serves as the final system assembler, while we supply the battery technology and lead sales and +marketing efforts. The system utilizes our lithium iron phosphate battery platform and is integrated with industrial power electronics. +Initial field deployments have been completed, with performance dependent on site-specific operating conditions. +Strong National +Retail Customers and Distribution Channels +We maintain sales +relationships with major RV and marine retailers and plan to use our strong reputation in the lithium battery space to create an even +stronger distribution channel. We have decades of experience in the energy and RV industries and cultivate relationships with numerous +retailers in the space, including Camping World, a leading national RV retailer; and Keystone Automotive, a leading national marketer +and distributor of automotive and RV specialty products. +Expion360 Products +We have historically +focused on the design, assembly, and sale of LiFePO4 batteries and supporting accessories for RV and marine applications, and have recently +expanded into home energy storage solutions and the industrial energy storage market. Our batteries are designed and engineered in-house +using premium lithium iron phosphate cells with quality controls at every step. We use high-grade LiFePO4 batteries meeting the UL 1642 +standard (UL File No. MH64383). We believe our materials and engineering enhance the reliability, stability, and safety of our products +relative to those of our competitors. We reimagined the standard battery case and included built-in rubber feet, radiused corners, 96.7% +larger terminal connection pads, interior molded ribs for structural security, and the highest-grade ABS plastics with additives for +fire retardancy. To maximize the power and efficiency of our batteries, we welded our cells via thick copper/tin-machined collector plates, +welded all interior pack points, added a press break flange at each end to create a mechanical backbone for the battery monitoring system +(“BMS”), used high-grade wiring and ring terminals throughout, and treated connections with industrial epoxy for long-lasting +protection. Our internal “smart” BMS design includes multiple safety and performance features, such as low temperature discharge, +auto shutoff, short circuit protection, low- and high-voltage shutoffs, and overcurrent disconnect. Our structurally sound BMS board +features a bolted design, eliminating all unnecessary solder, resulting in one cohesive pack with a long lifespan. We hold our lithium +batteries to high safety standards, which has enabled us to achieve a UL 1973 compliance. We stand by our batteries with a robust 12-year +warranty. +To enable us to provide +a full range of components to complement our battery offerings, we offer a suite of accessories and components for new installations +or conversions which includes but is not limited to chargers, monitors, inverters, and solar components from brands such as Victron Energy +and RedArc. +Competitors +Our competitors include +lithium-ion battery manufacturers, such as Relion (which was acquired by Brunswick Corporation in September 2021); Dragonfly Energy Holdings +Corp (Nasdaq: DFLI), the manufacturer of Battle Born Batteries; Renogy; and Dakota Lithium. Lead-acid battery manufactures also continue +to have a presence in the marketplace. We have designed custom form factors in both the industry standard Group 24 and Group 27 battery +sizes allowing us to visually and structurally differentiate Expion360 within the market space. We believe our custom EX1 battery also +provides a unique capacity to footprint ratio compared to lead-acid and lithium battery competitors. Our lithium iron phosphate batteries +are designed to provide improved cycle life, energy density, and weight relative to traditional lead-acid batteries. +8 +Manufacturing +and Supply Chain +Our batteries are +manufactured by multiple third-party manufacturers located in Asia, which also produce our battery cells. While we do not have long-term +purchase agreements with these manufacturers and generally transact on a purchase order basis, we maintain strong relationships with +our manufacturers and cell suppliers, which historically have enabled us to increase our purchase volumes and qualify for volume-based +discounts. The strength of these relationships has helped us moderate increased supply-related costs associated with inflation, currency +fluctuations, and U.S. government tariffs imposed on our imports, and avoid potential shipment delays. We aim to maintain an appropriate +level of inventory to satisfy our expected supply requirements. We believe we could locate suitable alternative third-party manufacturers +to fulfill our requirements if needed. +Our third-party manufacturers +source the raw materials and battery components required for the production of our batteries directly from third-party suppliers that +meet our approval and quality standards and, as a result, we may have limited control over the agreed pricing for these raw materials +and battery components. We estimate that raw material costs account for over half of our cost of goods sold. Lithium, which is extracted +from mined ore, is a key raw material used to produce our battery cells and, as a result, the cost of our battery cells is dependent +on the price and availability of lithium, which may be volatile and unpredictable and beyond our control. Additionally, availability +of the raw materials used to manufacture our products may be limited at times, resulting in higher prices and/or the need to find alternative +suppliers. Our battery cell manufacturers have joint venture factories outside of Asia and have sourcing contracts from lithium suppliers +in South America and Australia. In addition, we have a secondary source for lithium iron phosphate cells used in our batteries from a +supplier in Europe, enabling us to source materials outside of Asia in the event it becomes necessary to do so. +In addition to increased +mining and reserves, there is an industry push to provide more efficient ways to extract lithium from mined ore. Another development +of the past few years is lithium cell recycling. This process will recapture the raw lithium from the cell for reuse in future cells. +However, notwithstanding any efforts to improve the sustainability and efficiency of lithium mining, the price of lithium is volatile. +We continue to monitor developments that may adversely affect our supply chain. +While we expect that +products from our Asian third-party manufacturers will be subject to additional tariffs in 2026, we believe that we can protect our margins +through a combination of supplier concessions, customer price increases and operational efficiencies gained as sales continue to grow. +U.S. trade policy has been subject to significant legislative, regulatory, and judicial developments in recent years. For example, in +February 2026, the U.S. Supreme Court ruled that the International Emergency Economic Powers Act (“IEEPA”) does not authorize +the President to impose tariffs. While that decision invalidated certain tariffs imposed under that authority, tariffs and other trade +measures may continue to be imposed under other statutory authorities or through future legislation. However, there can be no assurance +that such efforts will fully offset increased costs. +Customers +We currently have +around 300 customers across the United States consisting of dealers, wholesalers, private-label customers and OEMs who then sell our +products to end consumers. Our sales are completed on a purchase-order basis and most are without firm, long-term revenue commitments +or sales arrangements. Expion360 has sales relationships with many major RV retailers, including Camping World, a leading national RV +retailer, and Keystone Automotive, a leading national marketer and distributor of automotive and RV specialty products. In addition, +we also sell products directly to end consumers. We intend to continue to focus on our sales and distribution channels to develop existing +customer relationships and grow our customer base. We also offer a high level of technical support to our customers before and after +product sales. +We currently derive +a significant portion of our revenue from a limited number of customers. During the year ended December 31, 2025, sales to four customers +accounted for approximately 60% of our gross sales. These customers accounted for 69% of our outstanding accounts receivable as of December +31, 2025. Sales to each of our other customers did not exceed 10% during this period. +9 +Intellectual Property +The success of our +business and our technology leadership is supported by our proprietary battery technology. We have filed 11 patent applications in the +United States to provide protection for our technology, including seven design patent applications and four utility patent applications. +In addition, we rely upon a combination of trademark and trade secret laws in the United States, as well as license agreements and other +contractual protections, to establish, maintain and enforce rights in our proprietary technologies. We also seek to protect our intellectual +property rights through non-disclosure and invention assignment agreements with our employees and consultants and through non-disclosure +agreements with business partners and other third parties. +We periodically review +our development efforts to assess the existence and patentability of new intellectual property. We pursue the registration of our domain +names and trademarks and service marks in the United States and in an effort to protect our brand, as of December 31, 2025, we have 18 +trademarks registered or pending registration to cover our house marks in the United States and have nine trademarks registered or pending +registration in Canada. +Government Regulations +We are subject to +inspections by federal, state, and local regulators overseeing environmental health and safety, which could result in possible citations +and/or fines. Lithium-ion battery shipments are categorized as “dangerous goods” and are subject to rules governing their +transportation. We have implemented policies and procedures, trained our employees, and conducted internal audits to verify compliance +with environmental health and safety regulations. +As of December 31, +2025, our currently commercialized lithium iron phosphate batter models have achieved UL 1973 certification. Certain next-generation +models remain subject to final certification. +Employees +As of December 31, +2025, we had 22 employees, all of whom worked for us full time. None of our employees are covered by collective bargaining agreements +and we have never experienced an organized work stoppage, strike, or labor dispute. We believe working conditions and compensation packages +are competitive with those offered by competitors and consider our relations with our employees to be good. +Environmental, +Health, and Safety +We and our third-party +manufacturers and suppliers are, and could become, subject to a wide range of international, federal, state, provincial, and local governmental +regulations directed at preventing or mitigating environmental harm, as well as to the storage, discharge, handling, generation, disposal +and labeling of toxic or other hazardous substances. Although we outsource our manufacturing, the manufacturing of our products by our +third-party manufacturers and suppliers require the use of hazardous materials that similarly subject these third parties, and therefore +our business, to such environmental laws and regulations. Noncompliance by us or third-party manufacturers with applicable environmental +or safety regulations could result in regulatory actions, penalties, or operational disruptions. Increased compliance costs by our third-party +manufacturing partners may also result in increased costs to our business. Our business and operations are also subject to health and +safety laws and regulations adopted by government agencies such as the Occupational Safety and Health Administration. Although we believe +we are in material compliance with applicable laws concerning matters relating to health, safety, and the environment, the risk of liability +relating to these matters cannot be eliminated completely. To date, we have not incurred significant expenditures relating to environmental +compliance nor have we experienced any material issues relating to employee health and safety. See the section titled “ Risk +Factors ” for additional information. +10 +Implications of +Being an Emerging Growth Company and a Smaller Reporting Company +We qualify as an +“emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). As an emerging +growth company, we have elected to take advantage of specified reduced disclosure and other requirements that are otherwise applicable +generally to public companies. These provisions include: +● +the +requirement that we provide only two years of audited financial statements in addition to +any required unaudited interim financial statements with correspondingly reduced “Management’s +Discussion and Analysis of Financial Condition and Results of Operations” disclosure; +● +reduced +disclosure about our executive compensation arrangements; +● +an +exemption from the requirement that we hold a non-binding advisory vote on executive compensation +or golden parachute arrangements; and +● +an +exemption from the auditor attestation in the assessment of our internal control over financial +reporting. +We may take advantage +of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be +an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross +revenue of $1.235 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion +of our initial public offering; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous +three years; or (iv) the date on which we are deemed to be a “large accelerated filer” under SEC rules. +We +are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company +even after we are no longer an emerging growth company. We may take advantage of certain of the reduced reporting requirements available +to smaller reporting companies and will be able to take advantage of these reduced reporting requirements for so long as our voting and +non-voting Common Stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, +or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting Common +Stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter. +Company Information +Expion360 Inc. was +initially organized as a limited liability company under the name Yozamp Products Company, LLC in the State of Oregon in June 2016 and +converted to a Nevada corporation in November 2021. +Our website is found +at expion360.com and on the Investor Relations section of our website, we post the following filings as soon as reasonably practicable +after they are electronically filed with or furnished to the SEC: our Annual Reports on Form 10-K, our Proxy Statement on Schedule 14A, +our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant +to Section 13(a) or 15(d) of the Exchange Act. +All of the information +on our Investor Relations web page is available to be viewed free of charge. Information contained on our website is not part of this +Annual Report or our other filings with the SEC. We assume no obligation to update or revise any forward-looking statements in this Annual +Report whether as a result of new information, future events or otherwise, unless we are required to do so by law. +The SEC also maintains +a website found at http://www.sec.gov/ that contains reports, proxy and information statements and other information regarding +issuers that file electronically with the SEC. +11 \ No newline at end of file diff --git a/raw/filings/0001894954/2025/0001903596-26-000075/item13.txt b/raw/filings/0001894954/2025/0001903596-26-000075/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..96d9a4c6b5f572607b40e7cb3bc698c2bb1bde21 --- /dev/null +++ b/raw/filings/0001894954/2025/0001903596-26-000075/item13.txt @@ -0,0 +1,3 @@ +ITEM +13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE +47 \ No newline at end of file diff --git a/raw/filings/0001895249/2024/0001558370-25-010044/filing.txt b/raw/filings/0001895249/2024/0001558370-25-010044/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..ebf4bb513a0aa0ef3d064874af2e1e1c767ee323 --- /dev/null +++ b/raw/filings/0001895249/2024/0001558370-25-010044/filing.txt @@ -0,0 +1,11348 @@ +ConnectM Technology Solutions, Inc._December 31, 2024 +0001895249 --12-31 FY false 2028-02-01 http://fasb.org/us-gaap/2024#RelatedPartyMember http://fasb.org/us-gaap/2024#RelatedPartyMember 0 0 0 0 0 0 0 0 http://fasb.org/us-gaap/2024#GoodwillAndIntangibleAssetImpairment http://fasb.org/us-gaap/2024#GoodwillAndIntangibleAssetImpairment http://fasb.org/us-gaap/2024#RelatedPartyMember http://fasb.org/us-gaap/2024#RelatedPartyMember 4 2407843 P3Y P3Y P3Y P8Y P3Y P3Y 1707747 P1Y P1Y 1 0.1 P30D P10D P9Y 150000 0.050 2025-11-01 2026-05-01 2026-12-01 2026-12-01 2025-02-01 2026-07-01 2028-02-01 P3Y 0.005 9200000 3040000 P10Y P12M P4M P6M 0.005 0.005 0.005 http://fasb.org/us-gaap/2024#NonoperatingIncomeExpense P45D P5D P5D P126D P5D P252D P5D 0 P7D P5D P90D P3M 25 P30D P30D 0001895249 cntm:SponsorMember 2024-01-01 2024-12-31 0001895249 cntm:RelatedPartyInvestorTwoMember 2024-01-01 2024-12-31 0001895249 cntm:RelatedPartyInvestorOneMember 2024-01-01 2024-12-31 0001895249 srt:ScenarioPreviouslyReportedMember cntm:SeriesSeedConvertiblePreferredStockMember 2022-12-31 0001895249 srt:ScenarioPreviouslyReportedMember cntm:SeriesSeed1ConvertiblePreferredStockMember 2022-12-31 0001895249 srt:ScenarioPreviouslyReportedMember cntm:SeriesB2ConvertiblePreferredStockMember 2022-12-31 0001895249 srt:ScenarioPreviouslyReportedMember cntm:SeriesB1ConvertiblePreferredStockMember 2022-12-31 0001895249 srt:ScenarioPreviouslyReportedMember cntm:SeriesA1ConvertiblePreferredStockMember 2022-12-31 0001895249 cntm:SponsorMember us-gaap:SubsequentEventMember 2025-01-01 2025-03-31 0001895249 cntm:ShareResetDerivativeLiabilityMember us-gaap:SubsequentEventMember 2025-01-01 2025-03-31 0001895249 cntm:RelatedPartyInvestorTwoMember us-gaap:SubsequentEventMember 2025-01-01 2025-03-31 0001895249 cntm:RelatedPartyInvestorOneMember us-gaap:SubsequentEventMember 2025-01-01 2025-03-31 0001895249 cntm:ShareResetDerivativeLiabilityMember 2025-01-01 2025-03-31 0001895249 cntm:LegacyConnectmMember 2024-01-01 2024-01-31 0001895249 us-gaap:ShareBasedPaymentArrangementNonemployeeMember us-gaap:SubsequentEventMember 2025-06-01 2025-06-30 0001895249 us-gaap:ShareBasedPaymentArrangementEmployeeMember us-gaap:SubsequentEventMember 2025-06-01 2025-06-30 0001895249 us-gaap:ShareBasedPaymentArrangementNonemployeeMember us-gaap:SubsequentEventMember 2025-05-01 2025-05-31 0001895249 us-gaap:ShareBasedPaymentArrangementEmployeeMember us-gaap:SubsequentEventMember 2025-05-01 2025-05-31 0001895249 cntm:MarketingServicesAgreementMember 2024-07-01 2024-07-31 0001895249 cntm:VendorsTwoMember cntm:ShareIssuanceConsiderationForFutureServicesMember 2024-01-01 2024-12-31 0001895249 cntm:VendorsThreeMember cntm:ShareIssuanceConsiderationForFutureServicesMember 2024-01-01 2024-12-31 0001895249 cntm:VendorsOneMember cntm:ShareIssuanceConsiderationForFutureServicesMember 2024-01-01 2024-12-31 0001895249 cntm:VendorsFourMember cntm:ShareIssuanceConsiderationForFutureServicesMember 2024-01-01 2024-12-31 0001895249 cntm:ShareIssuanceConsiderationForFutureServicesMember 2024-01-01 2024-12-31 0001895249 us-gaap:RetainedEarningsMember 2024-12-31 0001895249 us-gaap:ParentMember 2024-12-31 0001895249 us-gaap:NoncontrollingInterestMember 2024-12-31 0001895249 us-gaap:AdditionalPaidInCapitalMember 2024-12-31 0001895249 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-12-31 0001895249 srt:ScenarioPreviouslyReportedMember us-gaap:RetainedEarningsMember 2024-09-30 0001895249 srt:ScenarioPreviouslyReportedMember us-gaap:ParentMember 2024-09-30 0001895249 srt:ScenarioPreviouslyReportedMember us-gaap:CommonStockMember 2024-09-30 0001895249 srt:ScenarioPreviouslyReportedMember us-gaap:AdditionalPaidInCapitalMember 2024-09-30 0001895249 srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember us-gaap:RetainedEarningsMember 2024-09-30 0001895249 srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember us-gaap:ParentMember 2024-09-30 0001895249 srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember us-gaap:CommonStockMember 2024-09-30 0001895249 srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember us-gaap:AdditionalPaidInCapitalMember 2024-09-30 0001895249 us-gaap:RetainedEarningsMember 2024-09-30 0001895249 us-gaap:ParentMember 2024-09-30 0001895249 us-gaap:CommonStockMember 2024-09-30 0001895249 us-gaap:AdditionalPaidInCapitalMember 2024-09-30 0001895249 us-gaap:RetainedEarningsMember 2023-12-31 0001895249 us-gaap:ParentMember 2023-12-31 0001895249 us-gaap:NoncontrollingInterestMember 2023-12-31 0001895249 us-gaap:AdditionalPaidInCapitalMember 2023-12-31 0001895249 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-12-31 0001895249 srt:ScenarioPreviouslyReportedMember us-gaap:RetainedEarningsMember 2022-12-31 0001895249 srt:ScenarioPreviouslyReportedMember us-gaap:ParentMember 2022-12-31 0001895249 srt:ScenarioPreviouslyReportedMember us-gaap:NoncontrollingInterestMember 2022-12-31 0001895249 srt:ScenarioPreviouslyReportedMember us-gaap:AdditionalPaidInCapitalMember 2022-12-31 0001895249 srt:ScenarioPreviouslyReportedMember us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-12-31 0001895249 srt:RestatementAdjustmentMember us-gaap:ParentMember 2022-12-31 0001895249 srt:RestatementAdjustmentMember us-gaap:AdditionalPaidInCapitalMember 2022-12-31 0001895249 srt:RestatementAdjustmentMember cntm:SeriesSeedConvertiblePreferredStockMember 2022-12-31 0001895249 srt:RestatementAdjustmentMember cntm:SeriesSeed1ConvertiblePreferredStockMember 2022-12-31 0001895249 srt:RestatementAdjustmentMember cntm:SeriesB2ConvertiblePreferredStockMember 2022-12-31 0001895249 srt:RestatementAdjustmentMember cntm:SeriesB1ConvertiblePreferredStockMember 2022-12-31 0001895249 srt:RestatementAdjustmentMember cntm:SeriesA1ConvertiblePreferredStockMember 2022-12-31 0001895249 us-gaap:RetainedEarningsMember 2022-12-31 0001895249 us-gaap:ParentMember 2022-12-31 0001895249 us-gaap:NoncontrollingInterestMember 2022-12-31 0001895249 us-gaap:AdditionalPaidInCapitalMember 2022-12-31 0001895249 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-12-31 0001895249 srt:ScenarioPreviouslyReportedMember 2022-12-31 0001895249 srt:RestatementAdjustmentMember 2022-12-31 0001895249 us-gaap:CommonStockMember 2024-12-31 0001895249 us-gaap:CommonStockMember 2023-12-31 0001895249 srt:ScenarioPreviouslyReportedMember us-gaap:CommonStockMember 2022-12-31 0001895249 srt:RestatementAdjustmentMember us-gaap:CommonStockMember 2022-12-31 0001895249 us-gaap:CommonStockMember 2022-12-31 0001895249 srt:MinimumMember us-gaap:SubsequentEventMember 2025-06-30 0001895249 srt:MaximumMember us-gaap:SubsequentEventMember 2025-06-30 0001895249 srt:MinimumMember us-gaap:SubsequentEventMember 2025-05-31 0001895249 srt:MaximumMember us-gaap:SubsequentEventMember 2025-05-31 0001895249 cntm:EquityIncentivePlan2023Member 2024-07-10 0001895249 cntm:CapitalMarketsAdvisoryAgreementMember 2024-07-01 2024-07-31 0001895249 us-gaap:RestrictedStockMember 2024-12-31 0001895249 cntm:M2ServicesAgreementWithServiceProviderTwoMember 2024-12-01 2024-12-31 0001895249 cntm:M1ServicesAgreementWithServiceProviderOneMember 2024-12-01 2024-12-31 0001895249 us-gaap:NonrelatedPartyMember 2024-01-01 2024-12-31 0001895249 us-gaap:OperatingSegmentsMember country:US cntm:OwnedServiceNetworkSegmentMember 2024-01-01 2024-12-31 0001895249 us-gaap:OperatingSegmentsMember country:US cntm:ManagedSolutionsSegmentMember 2024-01-01 2024-12-31 0001895249 us-gaap:OperatingSegmentsMember country:US cntm:LogisticsSegmentMember 2024-01-01 2024-12-31 0001895249 us-gaap:OperatingSegmentsMember cntm:OtherMember cntm:TransportationSegmentMember 2024-01-01 2024-12-31 0001895249 country:US 2024-01-01 2024-12-31 0001895249 cntm:OtherMember 2024-01-01 2024-12-31 0001895249 us-gaap:OperatingSegmentsMember country:US cntm:OwnedServiceNetworkSegmentMember 2023-01-01 2023-12-31 0001895249 us-gaap:OperatingSegmentsMember country:US cntm:ManagedSolutionsSegmentMember 2023-01-01 2023-12-31 0001895249 us-gaap:OperatingSegmentsMember cntm:OtherMember cntm:TransportationSegmentMember 2023-01-01 2023-12-31 0001895249 country:US 2023-01-01 2023-12-31 0001895249 cntm:OtherMember 2023-01-01 2023-12-31 0001895249 cntm:AcaSellerNoteMember 2024-05-01 2024-05-31 0001895249 srt:MinimumMember us-gaap:VehiclesMember 2024-12-31 0001895249 srt:MinimumMember us-gaap:MachineryAndEquipmentMember 2024-12-31 0001895249 srt:MinimumMember us-gaap:FurnitureAndFixturesMember 2024-12-31 0001895249 srt:MaximumMember us-gaap:VehiclesMember 2024-12-31 0001895249 srt:MaximumMember us-gaap:MachineryAndEquipmentMember 2024-12-31 0001895249 srt:MaximumMember us-gaap:FurnitureAndFixturesMember 2024-12-31 0001895249 us-gaap:VehiclesMember 2024-12-31 0001895249 us-gaap:MachineryAndEquipmentMember 2024-12-31 0001895249 us-gaap:FurnitureAndFixturesMember 2024-12-31 0001895249 us-gaap:BuildingMember 2024-12-31 0001895249 us-gaap:BuildingImprovementsMember 2024-12-31 0001895249 us-gaap:VehiclesMember 2023-12-31 0001895249 us-gaap:MachineryAndEquipmentMember 2023-12-31 0001895249 us-gaap:FurnitureAndFixturesMember 2023-12-31 0001895249 us-gaap:BuildingMember 2023-12-31 0001895249 us-gaap:BuildingImprovementsMember 2023-12-31 0001895249 us-gaap:VehiclesMember 2023-01-01 2023-12-31 0001895249 us-gaap:NotesPayableOtherPayablesMember 2025-04-01 2025-05-31 0001895249 cntm:ConvertibleNotes2024Member 2024-01-01 2024-12-31 0001895249 cntm:ConvertibleNotes2023Member 2024-01-01 2024-12-31 0001895249 cntm:ConvertibleNotes2024Member 2023-01-01 2023-12-31 0001895249 cntm:ConvertibleNotes2023Member 2023-01-01 2023-12-31 0001895249 cntm:ConvertibleNotes2022Member 2022-09-01 2022-09-30 0001895249 cntm:SmalBusinessAdministrationLoansMember 2020-01-01 2020-12-31 0001895249 us-gaap:LineOfCreditMember 2023-01-01 2023-01-31 0001895249 cntm:MeteoraSpecialOpportunityFundMember us-gaap:DerivativeFinancialInstrumentsAssetsMember 2024-01-01 2024-12-31 0001895249 us-gaap:SeriesAPreferredStockMember 2024-12-31 0001895249 us-gaap:SeriesAPreferredStockMember 2023-12-31 0001895249 cntm:DeliverycircleLlcMember 2024-12-01 2024-12-31 0001895249 srt:ScenarioPreviouslyReportedMember us-gaap:RelatedPartyMember 2024-09-30 0001895249 srt:ScenarioPreviouslyReportedMember us-gaap:NonrelatedPartyMember 2024-09-30 0001895249 srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember us-gaap:RelatedPartyMember 2024-09-30 0001895249 srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember us-gaap:NonrelatedPartyMember 2024-09-30 0001895249 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-01-01 2024-12-31 0001895249 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-01-01 2023-12-31 0001895249 us-gaap:NotesPayableOtherPayablesMember us-gaap:NonrelatedPartyMember 2024-12-31 0001895249 cntm:VehicleNotesMember us-gaap:NonrelatedPartyMember 2024-12-31 0001895249 cntm:SmalBusinessAdministrationLoansMember us-gaap:NonrelatedPartyMember 2024-12-31 0001895249 cntm:SellerNotesMember us-gaap:NonrelatedPartyMember 2024-12-31 0001895249 cntm:SecuredPromissoryNoteMember us-gaap:NonrelatedPartyMember 2024-12-31 0001895249 cntm:SaleOfFutureReceiptsMember us-gaap:NonrelatedPartyMember 2024-12-31 0001895249 cntm:RealEstatePromissoryNoteMember us-gaap:NonrelatedPartyMember 2024-12-31 0001895249 cntm:PaycheckProtectionProgramMember us-gaap:NonrelatedPartyMember 2024-12-31 0001895249 cntm:BusinessLoanAndSecurityAgreementMember us-gaap:NonrelatedPartyMember 2024-12-31 0001895249 cntm:AvantiNotesMember us-gaap:NonrelatedPartyMember 2024-12-31 0001895249 cntm:VehicleNotesMember us-gaap:NonrelatedPartyMember 2023-12-31 0001895249 cntm:SmalBusinessAdministrationLoansMember us-gaap:NonrelatedPartyMember 2023-12-31 0001895249 cntm:SellerNotesMember us-gaap:NonrelatedPartyMember 2023-12-31 0001895249 cntm:SecuredPromissoryNoteMember us-gaap:NonrelatedPartyMember 2023-12-31 0001895249 cntm:SaleOfFutureReceiptsMember us-gaap:NonrelatedPartyMember 2023-12-31 0001895249 cntm:RealEstatePromissoryNoteMember us-gaap:NonrelatedPartyMember 2023-12-31 0001895249 cntm:PaycheckProtectionProgramMember us-gaap:NonrelatedPartyMember 2023-12-31 0001895249 cntm:AvantiNotesMember us-gaap:NonrelatedPartyMember 2023-12-31 0001895249 us-gaap:RetainedEarningsMember 2024-01-01 2024-12-31 0001895249 us-gaap:RetainedEarningsMember 2023-01-01 2023-12-31 0001895249 us-gaap:NoncontrollingInterestMember 2023-01-01 2023-12-31 0001895249 cntm:EntityThatHasControllingInterestInCustomersMember cntm:RelatedPartyInvestorOneMember 2024-12-31 0001895249 cntm:AbsolutelyCoolAirConditioningLlcMember 2024-05-31 0001895249 cntm:AbsolutelyCoolAirConditioningLlcMember 2023-12-31 0001895249 cntm:SecondMay2024SaleOfFutureReceiptsAgreementMember us-gaap:SubsequentEventMember 2025-05-31 0001895249 cntm:May2024SaleOfFutureReceiptsAgreementMember us-gaap:SubsequentEventMember 2025-05-31 0001895249 cntm:SellerNotesMember 2024-12-31 0001895249 cntm:RealEstatePromissoryNoteMember 2024-12-31 0001895249 cntm:SellerNotesMember 2023-12-31 0001895249 cntm:SellerNotesIssuanceTwoMember 2023-12-31 0001895249 cntm:SellerNotesIssuanceThreeMember 2023-12-31 0001895249 cntm:SellerNotesIssuanceSixMember 2023-12-31 0001895249 cntm:SellerNotesIssuanceSevenMember 2023-12-31 0001895249 cntm:SellerNotesIssuanceOneMember 2023-12-31 0001895249 cntm:SellerNotesIssuanceFourMember 2023-12-31 0001895249 cntm:SellerNotesIssuanceFiveMember 2023-12-31 0001895249 cntm:DeliverycircleLlcMember cntm:January2025NoteMember us-gaap:SubsequentEventMember 2025-06-30 0001895249 cntm:InvestorTwoMember 2024-12-31 0001895249 cntm:InvestorOneMember 2024-12-31 0001895249 us-gaap:NotesPayableOtherPayablesMember 2024-10-15 2024-12-31 0001895249 cntm:OwnedServiceNetworkSegmentMember 2023-01-01 2023-12-31 0001895249 cntm:TransportationSegmentMember 2024-01-01 2024-12-31 0001895249 cntm:OwnedServiceNetworkSegmentMember 2024-01-01 2024-12-31 0001895249 cntm:TransportationSegmentMember 2024-12-31 0001895249 cntm:OwnedServiceNetworkSegmentMember 2024-12-31 0001895249 cntm:OwnedServiceNetworkSegmentMember 2023-12-31 0001895249 cntm:OwnedServiceNetworkSegmentMember 2022-12-31 0001895249 us-gaap:VehiclesMember 2024-01-01 2024-12-31 0001895249 srt:MinimumMember us-gaap:TradeNamesMember 2024-12-31 0001895249 srt:MinimumMember us-gaap:IntellectualPropertyMember 2024-12-31 0001895249 srt:MinimumMember us-gaap:CustomerRelationshipsMember 2024-12-31 0001895249 srt:MinimumMember us-gaap:ComputerSoftwareIntangibleAssetMember 2024-12-31 0001895249 srt:MaximumMember us-gaap:TradeNamesMember 2024-12-31 0001895249 srt:MaximumMember us-gaap:IntellectualPropertyMember 2024-12-31 0001895249 srt:MaximumMember us-gaap:CustomerRelationshipsMember 2024-12-31 0001895249 srt:MinimumMember 2024-12-31 0001895249 srt:MaximumMember 2024-12-31 0001895249 us-gaap:TradeNamesMember 2024-12-31 0001895249 us-gaap:TechnologyBasedIntangibleAssetsMember 2024-12-31 0001895249 us-gaap:NoncompeteAgreementsMember 2024-12-31 0001895249 us-gaap:IntellectualPropertyMember 2024-12-31 0001895249 us-gaap:CustomerRelationshipsMember 2024-12-31 0001895249 us-gaap:TradeNamesMember 2023-12-31 0001895249 us-gaap:NoncompeteAgreementsMember 2023-12-31 0001895249 us-gaap:IntellectualPropertyMember 2023-12-31 0001895249 us-gaap:CustomerRelationshipsMember 2023-12-31 0001895249 us-gaap:ComputerSoftwareIntangibleAssetMember 2023-12-31 0001895249 cntm:GreenEnergyGainsMember 2024-01-01 2024-12-31 0001895249 us-gaap:DerivativeFinancialInstrumentsLiabilitiesMember 2024-12-31 0001895249 us-gaap:ConvertibleDebtMember 2024-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember 2024-12-31 0001895249 us-gaap:ConvertibleDebtMember 2023-12-31 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember cntm:Amended2024ConvertibleNotesMember 2024-01-01 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember 2024-01-01 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember 2024-01-01 2024-12-31 0001895249 cntm:November2024ConsiderationAdjustmentDerivativeLiabilitiesMember 2024-01-01 2024-12-31 0001895249 cntm:December2024ConsiderationAdjustmentDerivativeLiabilitiesMember 2024-01-01 2024-12-31 0001895249 cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember 2024-01-01 2024-12-31 0001895249 cntm:ConvertibleDebt20222023And2024Member 2024-01-01 2024-12-31 0001895249 cntm:UnsecuredPromissoryNoteMember cntm:SponsorMember 2024-09-01 2024-09-30 0001895249 cntm:SaleOfFutureReceiptsMember 2023-01-01 2023-12-31 0001895249 srt:MinimumMember cntm:RelatedPartyInvestorTwoMember 2024-09-30 0001895249 srt:MinimumMember cntm:RelatedPartyInvestorOneMember 2024-09-30 0001895249 cntm:VendorsTwoMember cntm:ShareIssuanceConsiderationForFutureServicesMember 2024-12-31 0001895249 cntm:VendorsThreeMember cntm:ShareIssuanceConsiderationForFutureServicesMember 2024-12-31 0001895249 cntm:VendorsOneMember cntm:ShareIssuanceConsiderationForFutureServicesMember 2024-12-31 0001895249 cntm:VendorsFourMember cntm:ShareIssuanceConsiderationForFutureServicesMember 2024-12-31 0001895249 cntm:SharesIssuedDateTwoMember cntm:ShareIssuanceOnExtinguishmentOfVendorsAndLendersObligationsOneMember 2024-12-31 0001895249 cntm:SharesIssuedDateThreeMember cntm:ShareIssuanceOnExtinguishmentOfVendorsAndLendersObligationsOneMember 2024-12-31 0001895249 cntm:SharesIssuedDateSixMember cntm:ShareIssuanceOnExtinguishmentOfVendorsAndLendersObligationsOneMember 2024-12-31 0001895249 cntm:SharesIssuedDateSevenMember cntm:ShareIssuanceOnExtinguishmentOfVendorsAndLendersObligationsOneMember 2024-12-31 0001895249 cntm:SharesIssuedDateOneMember cntm:ShareIssuanceOnExtinguishmentOfVendorsAndLendersObligationsOneMember 2024-12-31 0001895249 cntm:SharesIssuedDateFourMember cntm:ShareIssuanceOnExtinguishmentOfVendorsAndLendersObligationsOneMember 2024-12-31 0001895249 cntm:SharesIssuedDateFiveMember cntm:ShareIssuanceOnExtinguishmentOfVendorsAndLendersObligationsOneMember 2024-12-31 0001895249 cntm:SharesIssuedDateEightMember cntm:ShareIssuanceOnExtinguishmentOfVendorsAndLendersObligationsOneMember 2024-12-31 0001895249 cntm:ShareIssuanceOnExtinguishmentOfVendorsAndLendersObligationsOneMember 2024-12-31 0001895249 cntm:ShareIssuanceConsiderationForFutureServicesMember 2024-12-31 0001895249 2024-10-31 0001895249 cntm:LegacyConnectmMember 2024-01-31 0001895249 cntm:ServiceAgreementMember 2024-12-31 0001895249 cntm:YaIiPnLtdYorkvilleMember us-gaap:StockOptionMember cntm:StandbyEquityPurchaseAgreementMember 2024-12-01 2024-12-31 0001895249 srt:MinimumMember cntm:ResetDateMember cntm:December2024ConsiderationAdjustmentDerivativeLiabilitiesMember us-gaap:MeasurementInputSharePriceMember 2024-12-31 0001895249 srt:MinimumMember cntm:FirstResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputRemainingTermMember 2024-12-31 0001895249 srt:MaximumMember cntm:ResetDateMember cntm:December2024ConsiderationAdjustmentDerivativeLiabilitiesMember us-gaap:MeasurementInputSharePriceMember 2024-12-31 0001895249 srt:MaximumMember cntm:FirstResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputRemainingTermMember 2024-12-31 0001895249 srt:MinimumMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember us-gaap:MeasurementInputPriceVolatilityMember 2024-12-31 0001895249 srt:MaximumMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember us-gaap:MeasurementInputPriceVolatilityMember 2024-12-31 0001895249 cntm:SecondResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-12-31 0001895249 cntm:SecondResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputRemainingTermMember 2024-12-31 0001895249 cntm:SecondResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputForecastedFiveDayVwapPerShareOfCommonStockMember 2024-12-31 0001895249 cntm:SecondResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputDriftTermMember 2024-12-31 0001895249 cntm:ResetDateMember cntm:November2024ConsiderationAdjustmentDerivativeLiabilitiesMember us-gaap:MeasurementInputSharePriceMember 2024-12-31 0001895249 cntm:ResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember us-gaap:MeasurementInputSharePriceMember 2024-12-31 0001895249 cntm:ResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-12-31 0001895249 cntm:ResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputDriftTermMember 2024-12-31 0001895249 cntm:FirstResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-12-31 0001895249 cntm:FirstResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputDriftTermMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember us-gaap:MeasurementInputPriceVolatilityMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember us-gaap:MeasurementInputPrepaymentRateMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember cntm:MeasurementInputRemainingTermMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember cntm:MeasurementInputPaymentsToBeMadeThroughIssuanceOfSharesOfCommonStockMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember cntm:MeasurementInputPaymentsToBeMadeInCashMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember cntm:MeasurementInputDriftTermMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember cntm:MeasurementInputConversionPriceForPaymentsToBeMadeThroughIssuanceOfCommonStockMember 2024-12-31 0001895249 cntm:November2024ConsiderationAdjustmentDerivativeLiabilitiesMember us-gaap:MeasurementInputSharePriceMember 2024-12-31 0001895249 cntm:November2024ConsiderationAdjustmentDerivativeLiabilitiesMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-12-31 0001895249 cntm:November2024ConsiderationAdjustmentDerivativeLiabilitiesMember us-gaap:MeasurementInputPriceVolatilityMember 2024-12-31 0001895249 cntm:November2024ConsiderationAdjustmentDerivativeLiabilitiesMember cntm:MeasurementInputRemainingTermMember 2024-12-31 0001895249 cntm:November2024ConsiderationAdjustmentDerivativeLiabilitiesMember cntm:MeasurementInputDriftTermMember 2024-12-31 0001895249 cntm:December2024ConsiderationAdjustmentDerivativeLiabilitiesMember us-gaap:MeasurementInputSharePriceMember 2024-12-31 0001895249 cntm:December2024ConsiderationAdjustmentDerivativeLiabilitiesMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-12-31 0001895249 cntm:December2024ConsiderationAdjustmentDerivativeLiabilitiesMember us-gaap:MeasurementInputPriceVolatilityMember 2024-12-31 0001895249 cntm:December2024ConsiderationAdjustmentDerivativeLiabilitiesMember cntm:MeasurementInputRemainingTermMember 2024-12-31 0001895249 cntm:December2024ConsiderationAdjustmentDerivativeLiabilitiesMember cntm:MeasurementInputDriftTermMember 2024-12-31 0001895249 cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember us-gaap:MeasurementInputSharePriceMember 2024-12-31 0001895249 cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputResetPriceFloorMember 2024-12-31 0001895249 cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputResetPriceCeilingMember 2024-12-31 0001895249 cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputForecastedFiveDayVwapPerShareOfCommonStockMember 2024-12-31 0001895249 srt:MinimumMember cntm:ResetDateMember cntm:December2024ConsiderationAdjustmentDerivativeLiabilitiesMember us-gaap:MeasurementInputSharePriceMember 2024-12-27 0001895249 srt:MaximumMember cntm:ResetDateMember cntm:December2024ConsiderationAdjustmentDerivativeLiabilitiesMember us-gaap:MeasurementInputSharePriceMember 2024-12-27 0001895249 cntm:December2024ConsiderationAdjustmentDerivativeLiabilitiesMember us-gaap:MeasurementInputSharePriceMember 2024-12-27 0001895249 cntm:December2024ConsiderationAdjustmentDerivativeLiabilitiesMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-12-27 0001895249 cntm:December2024ConsiderationAdjustmentDerivativeLiabilitiesMember us-gaap:MeasurementInputPriceVolatilityMember 2024-12-27 0001895249 cntm:December2024ConsiderationAdjustmentDerivativeLiabilitiesMember cntm:MeasurementInputRemainingTermMember 2024-12-27 0001895249 cntm:December2024ConsiderationAdjustmentDerivativeLiabilitiesMember cntm:MeasurementInputDriftTermMember 2024-12-27 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-12-17 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember us-gaap:MeasurementInputPriceVolatilityMember 2024-12-17 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember us-gaap:MeasurementInputPrepaymentRateMember 2024-12-17 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember cntm:MeasurementInputRemainingTermMember 2024-12-17 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember cntm:MeasurementInputPaymentsToBeMadeThroughIssuanceOfSharesOfCommonStockMember 2024-12-17 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember cntm:MeasurementInputPaymentsToBeMadeInCashMember 2024-12-17 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember cntm:MeasurementInputDriftTermMember 2024-12-17 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember cntm:MeasurementInputConversionPriceForPaymentsToBeMadeThroughIssuanceOfCommonStockMember 2024-12-17 0001895249 cntm:ResetDateMember cntm:November2024ConsiderationAdjustmentDerivativeLiabilitiesMember us-gaap:MeasurementInputSharePriceMember 2024-11-13 0001895249 cntm:November2024ConsiderationAdjustmentDerivativeLiabilitiesMember us-gaap:MeasurementInputSharePriceMember 2024-11-13 0001895249 cntm:November2024ConsiderationAdjustmentDerivativeLiabilitiesMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-11-13 0001895249 cntm:November2024ConsiderationAdjustmentDerivativeLiabilitiesMember us-gaap:MeasurementInputPriceVolatilityMember 2024-11-13 0001895249 cntm:November2024ConsiderationAdjustmentDerivativeLiabilitiesMember cntm:MeasurementInputRemainingTermMember 2024-11-13 0001895249 cntm:November2024ConsiderationAdjustmentDerivativeLiabilitiesMember cntm:MeasurementInputDriftTermMember 2024-11-13 0001895249 srt:MinimumMember cntm:FirstResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputRemainingTermMember 2024-09-24 0001895249 srt:MaximumMember cntm:FirstResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputRemainingTermMember 2024-09-24 0001895249 srt:MinimumMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember us-gaap:MeasurementInputPriceVolatilityMember 2024-09-24 0001895249 srt:MaximumMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember us-gaap:MeasurementInputPriceVolatilityMember 2024-09-24 0001895249 cntm:SecondResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-09-24 0001895249 cntm:SecondResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputRemainingTermMember 2024-09-24 0001895249 cntm:SecondResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputForecastedFiveDayVwapPerShareOfCommonStockMember 2024-09-24 0001895249 cntm:SecondResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputDriftTermMember 2024-09-24 0001895249 cntm:ResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember us-gaap:MeasurementInputSharePriceMember 2024-09-24 0001895249 cntm:ResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-09-24 0001895249 cntm:ResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputDriftTermMember 2024-09-24 0001895249 cntm:FirstResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-09-24 0001895249 cntm:FirstResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputDriftTermMember 2024-09-24 0001895249 cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember us-gaap:MeasurementInputSharePriceMember 2024-09-24 0001895249 cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputResetPriceFloorMember 2024-09-24 0001895249 cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputResetPriceCeilingMember 2024-09-24 0001895249 cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputForecastedFiveDayVwapPerShareOfCommonStockMember 2024-09-24 0001895249 cntm:ResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember us-gaap:MeasurementInputSharePriceMember 2024-09-12 0001895249 cntm:ResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-09-12 0001895249 cntm:ResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputDriftTermMember 2024-09-12 0001895249 cntm:FirstResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputRemainingTermMember 2024-09-12 0001895249 cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember us-gaap:MeasurementInputSharePriceMember 2024-09-12 0001895249 cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember us-gaap:MeasurementInputPriceVolatilityMember 2024-09-12 0001895249 cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputResetPriceFloorMember 2024-09-12 0001895249 cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputResetPriceCeilingMember 2024-09-12 0001895249 cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputForecastedFiveDayVwapPerShareOfCommonStockMember 2024-09-12 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember 2024-12-31 0001895249 cntm:SponsorMember 2024-12-31 0001895249 cntm:RelatedPartyInvestorTwoMember 2024-12-31 0001895249 cntm:RelatedPartyInvestorOneMember 2024-12-31 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember us-gaap:MeasurementInputSharePriceMember 2024-12-31 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-12-31 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember us-gaap:MeasurementInputPriceVolatilityMember 2024-12-31 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputRemainingTermMember 2024-12-31 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputRecycledSharesHeldByMeteoraMember 2024-12-31 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputProbabilityOfPrepaymentShortfallSettlementScenarioMember 2024-12-31 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputProbabilityOfMaturitySettlementScenarioMember 2024-12-31 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputForecastedPricePerShareOfCommonStockAtMaturityMember 2024-12-31 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputExpectedMarginFromMeteoraSSaleOfRecycledSharesMember 2024-12-31 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputDriftTermMember 2024-12-31 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember us-gaap:MeasurementInputSharePriceMember 2024-12-16 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-12-16 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember us-gaap:MeasurementInputPriceVolatilityMember 2024-12-16 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember cntm:MeasurementInputRemainingTermMember 2024-12-16 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember cntm:MeasurementInputRecycledSharesHeldByMeteoraMember 2024-12-16 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember cntm:MeasurementInputProbabilityOfPrepaymentShortfallSettlementScenarioMember 2024-12-16 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember cntm:MeasurementInputProbabilityOfMaturitySettlementScenarioMember 2024-12-16 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember cntm:MeasurementInputForecastedPricePerShareOfCommonStockAtMaturityMember 2024-12-16 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember cntm:MeasurementInputExpectedMarginFromMeteoraSSaleOfRecycledSharesMember 2024-12-16 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember cntm:MeasurementInputDriftTermMember 2024-12-16 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember us-gaap:MeasurementInputSharePriceMember 2024-12-16 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-12-16 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember us-gaap:MeasurementInputPriceVolatilityMember 2024-12-16 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputRemainingTermMember 2024-12-16 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputRecycledSharesHeldByMeteoraMember 2024-12-16 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputProbabilityOfPrepaymentShortfallSettlementScenarioMember 2024-12-16 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputProbabilityOfMaturitySettlementScenarioMember 2024-12-16 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputForecastedPricePerShareOfCommonStockAtMaturityMember 2024-12-16 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputExpectedMarginFromMeteoraSSaleOfRecycledSharesMember 2024-12-16 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputDriftTermMember 2024-12-16 0001895249 us-gaap:MeasurementInputSharePriceMember 2024-08-02 0001895249 us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-08-02 0001895249 us-gaap:MeasurementInputPriceVolatilityMember 2024-08-02 0001895249 us-gaap:MeasurementInputExpectedTermMember 2024-08-02 0001895249 us-gaap:MeasurementInputExpectedDividendRateMember 2024-08-02 0001895249 us-gaap:MeasurementInputExercisePriceMember 2024-08-02 0001895249 us-gaap:MeasurementInputSharePriceMember 2024-07-12 0001895249 us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-07-12 0001895249 us-gaap:MeasurementInputPriceVolatilityMember 2024-07-12 0001895249 us-gaap:MeasurementInputExpectedTermMember 2024-07-12 0001895249 us-gaap:MeasurementInputExpectedDividendRateMember 2024-07-12 0001895249 us-gaap:MeasurementInputExercisePriceMember 2024-07-12 0001895249 cntm:MeasurementInputProbabilityOfCompletingBusinessCombinationMember 2024-07-12 0001895249 srt:MinimumMember 2024-01-01 2024-12-31 0001895249 cntm:SecondNovember2024SaleOfFutureReceiptsAgreementMember 2024-11-30 0001895249 cntm:November2024SaleOfFutureReceiptsAgreementMember 2024-11-30 0001895249 cntm:November82024SaleOfFutureReceiptsAgreementMember 2024-11-08 0001895249 cntm:October2024SaleOfFutureReceiptsAgreementMember 2024-10-31 0001895249 cntm:September2024SaleOfFutureReceiptsAgreementMember 2024-09-19 0001895249 cntm:July2024SaleOfFutureReceiptsAgreementMember 2024-07-24 0001895249 cntm:SecondMay2024SaleOfFutureReceiptsAgreementMember 2024-05-28 0001895249 cntm:May2024SaleOfFutureReceiptsAgreementMember 2024-05-23 0001895249 cntm:AmendedJanuary2024SaleOfFutureReceiptsAgreementMember 2024-01-30 0001895249 cntm:January2024SaleOfFutureReceiptsAgreementMember 2024-01-04 0001895249 cntm:August2023SaleOfFutureReceiptsAgreementMember 2023-08-07 0001895249 cntm:April2023SaleOfFutureReceiptsAgreementMember 2023-04-25 0001895249 srt:MinimumMember cntm:SecuredPromissoryNoteMember 2024-01-01 2024-12-31 0001895249 srt:MaximumMember cntm:SecuredPromissoryNoteMember 2024-01-01 2024-12-31 0001895249 cntm:BusinessLoanAndSecurityAgreementAugust2024Member 2024-01-01 2024-12-31 0001895249 srt:MinimumMember cntm:ConvertibleNotes2022Member 2023-02-22 2023-02-22 0001895249 us-gaap:NotesPayableOtherPayablesMember 2024-10-01 2024-10-31 0001895249 cntm:DeliverycircleLlcMember cntm:January2025NoteMember us-gaap:SubsequentEventMember 2025-07-01 2025-07-31 0001895249 cntm:BusinessLoanAndSecurityAgreementMay2024Member us-gaap:SubsequentEventMember 2025-05-01 2025-05-31 0001895249 cntm:BusinessLoanAndSecurityAgreementJuly2024Member us-gaap:SubsequentEventMember 2025-05-01 2025-05-31 0001895249 cntm:BusinessLoanAndSecurityAgreementAugust2024Member us-gaap:SubsequentEventMember 2025-05-01 2025-05-31 0001895249 cntm:BusinessLoanAndSecurityAgreementMay2024Member us-gaap:SubsequentEventMember 2025-04-01 2025-04-30 0001895249 cntm:BusinessLoanAndSecurityAgreementJuly2024Member us-gaap:SubsequentEventMember 2025-04-01 2025-04-30 0001895249 cntm:BusinessLoanAndSecurityAgreementAugust2024Member us-gaap:SubsequentEventMember 2025-04-01 2025-04-30 0001895249 cntm:YaIiPnLimitedMember cntm:AfterSecondTrancheOfReceiptOfAdvancesMember cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember 2025-03-01 2025-03-31 0001895249 srt:MinimumMember cntm:ConvertibleDebt20222023And2024Member cntm:MeasurementInputRemainingTermForVoluntaryConversionScenarioMember 2024-12-31 0001895249 srt:MinimumMember cntm:ConvertibleDebt20222023And2024Member cntm:MeasurementInputRemainingTermForConversionAtMaturityScenarioMember 2024-12-31 0001895249 srt:MinimumMember cntm:ConvertibleDebt20222023And2024Member cntm:MeasurementInputProbabilityOfVoluntaryConversionScenarioMember 2024-12-31 0001895249 srt:MinimumMember cntm:ConvertibleDebt20222023And2024Member cntm:MeasurementInputProbabilityOfConversionAtMaturityScenarioMember 2024-12-31 0001895249 srt:MaximumMember cntm:ConvertibleDebt20222023And2024Member cntm:MeasurementInputRemainingTermForVoluntaryConversionScenarioMember 2024-12-31 0001895249 srt:MaximumMember cntm:ConvertibleDebt20222023And2024Member cntm:MeasurementInputRemainingTermForConversionAtMaturityScenarioMember 2024-12-31 0001895249 srt:MaximumMember cntm:ConvertibleDebt20222023And2024Member cntm:MeasurementInputProbabilityOfVoluntaryConversionScenarioMember 2024-12-31 0001895249 srt:MaximumMember cntm:ConvertibleDebt20222023And2024Member cntm:MeasurementInputProbabilityOfConversionAtMaturityScenarioMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember us-gaap:MeasurementInputPriceVolatilityMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember cntm:MeasurementInputRemainingTermMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember cntm:MeasurementInputPaymentsToBeMadeThroughIssuanceOfSharesOfCommonStockMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember cntm:MeasurementInputPaymentsToBeMadeInCashMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember cntm:MeasurementInputDriftTermMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember cntm:MeasurementInputConversionPriceForPaymentsToBeMadeThroughIssuanceOfCommonStockMember 2024-12-31 0001895249 cntm:ConvertibleDebt20222023And2024Member us-gaap:MeasurementInputDiscountRateMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-12-17 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember us-gaap:MeasurementInputPriceVolatilityMember 2024-12-17 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember cntm:MeasurementInputRemainingTermMember 2024-12-17 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember cntm:MeasurementInputPaymentsToBeMadeThroughIssuanceOfSharesOfCommonStockMember 2024-12-17 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember cntm:MeasurementInputPaymentsToBeMadeInCashMember 2024-12-17 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember cntm:MeasurementInputDriftTermMember 2024-12-17 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember cntm:MeasurementInputConversionPriceForPaymentsToBeMadeThroughIssuanceOfCommonStockMember 2024-12-17 0001895249 srt:MinimumMember cntm:ConvertibleDebt20222023And2024Member cntm:MeasurementInputRemainingTermForConversionAtMaturityScenarioMember 2023-12-31 0001895249 srt:MaximumMember cntm:ConvertibleDebt20222023And2024Member cntm:MeasurementInputRemainingTermForConversionAtMaturityScenarioMember 2023-12-31 0001895249 cntm:ConvertibleDebt20222023And2024Member us-gaap:MeasurementInputDiscountRateMember 2023-12-31 0001895249 cntm:ConvertibleDebt20222023And2024Member cntm:MeasurementInputRemainingTermForAutomaticConversionScenarioMember 2023-12-31 0001895249 cntm:ConvertibleDebt20222023And2024Member cntm:MeasurementInputProbabilityOfConversionAtMaturityScenarioMember 2023-12-31 0001895249 cntm:ConvertibleDebt20222023And2024Member cntm:MeasurementInputProbabilityOfAutomaticConversionScenarioMember 2023-12-31 0001895249 cntm:SellerNotesMember 2024-01-01 2024-12-31 0001895249 cntm:SellerNotesIssuanceTwoMember 2024-01-01 2024-12-31 0001895249 cntm:SellerNotesIssuanceThreeMember 2024-01-01 2024-12-31 0001895249 cntm:SellerNotesIssuanceSixMember 2024-01-01 2024-12-31 0001895249 cntm:SellerNotesIssuanceSevenMember 2024-01-01 2024-12-31 0001895249 cntm:SellerNotesIssuanceOneMember 2024-01-01 2024-12-31 0001895249 cntm:SellerNotesIssuanceFourMember 2024-01-01 2024-12-31 0001895249 cntm:SellerNotesIssuanceFiveMember 2024-01-01 2024-12-31 0001895249 cntm:DeliverycircleLlcMember cntm:January2025NoteMember us-gaap:SubsequentEventMember 2025-07-01 0001895249 us-gaap:NotesPayableOtherPayablesMember us-gaap:SubsequentEventMember 2025-05-31 0001895249 cntm:Q12025ConvertibleNotesMember us-gaap:SubsequentEventMember 2025-03-31 0001895249 srt:MinimumMember cntm:VehicleNotesMember 2024-12-31 0001895249 srt:MinimumMember cntm:SecuredPromissoryNoteMember 2024-12-31 0001895249 srt:MaximumMember cntm:VehicleNotesMember 2024-12-31 0001895249 srt:MaximumMember cntm:SecuredPromissoryNoteMember 2024-12-31 0001895249 cntm:SmalBusinessAdministrationLoansMember 2024-12-31 0001895249 cntm:BusinessLoanAndSecurityAgreementMay2024Member 2024-12-31 0001895249 cntm:BusinessLoanAndSecurityAgreementJuly2024Member 2024-12-31 0001895249 cntm:BusinessLoanAndSecurityAgreementAugust2024Member 2024-12-31 0001895249 us-gaap:NotesPayableOtherPayablesMember 2024-10-16 0001895249 cntm:ConvertibleNotes2022Member 2023-02-22 0001895249 us-gaap:LineOfCreditMember 2023-01-31 0001895249 cntm:PaycheckProtectionProgramMember 2020-05-31 0001895249 cntm:YaIiPnLtdYorkvilleMember cntm:ConvertiblePromissoryNotesTrancheTwoMember cntm:StandbyEquityPurchaseAgreementMember 2024-12-31 0001895249 cntm:YaIiPnLtdYorkvilleMember cntm:ConvertiblePromissoryNotesTrancheOneMember cntm:StandbyEquityPurchaseAgreementMember 2024-12-31 0001895249 cntm:YaIiPnLimitedMember srt:MaximumMember cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember 2024-12-31 0001895249 cntm:SellerNotesIssuanceTwoMember 2024-12-31 0001895249 cntm:SellerNotesIssuanceThreeMember 2024-12-31 0001895249 cntm:SellerNotesIssuanceSixMember 2024-12-31 0001895249 cntm:SellerNotesIssuanceSevenMember 2024-12-31 0001895249 cntm:SellerNotesIssuanceFourMember 2024-12-31 0001895249 cntm:SellerNotesIssuanceFiveMember 2024-12-31 0001895249 us-gaap:NotesPayableOtherPayablesMember 2024-10-31 0001895249 cntm:SmalBusinessAdministrationLoansMember 2022-12-31 0001895249 cntm:RealEstatePromissoryNoteMember 2022-12-29 0001895249 cntm:SmalBusinessAdministrationLoansMember 2021-12-31 0001895249 cntm:YaIiPnLtdYorkvilleMember cntm:ScenarioLatePaymentInObligationsMember cntm:ConvertiblePromissoryNotesMember cntm:StandbyEquityPurchaseAgreementMember 2024-12-01 2024-12-31 0001895249 cntm:Q32025ConvertibleNotesMember us-gaap:SubsequentEventMember 2025-07-31 0001895249 srt:MinimumMember cntm:Q22025ConvertibleNotesMember us-gaap:SubsequentEventMember 2025-06-30 0001895249 srt:MaximumMember cntm:Q22025ConvertibleNotesMember us-gaap:SubsequentEventMember 2025-06-30 0001895249 cntm:Q22025ConvertibleNotesMember us-gaap:SubsequentEventMember 2025-06-30 0001895249 srt:MinimumMember cntm:Q12025ConvertibleNotesMember us-gaap:SubsequentEventMember 2025-03-31 0001895249 srt:MaximumMember cntm:Q12025ConvertibleNotesMember us-gaap:SubsequentEventMember 2025-03-31 0001895249 cntm:YaIiPnLimitedMember cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember 2024-12-31 0001895249 cntm:ConvertibleNotes2024IssuanceTwoMember 2024-12-31 0001895249 cntm:ConvertibleNotes2024IssuanceThreeMember 2024-12-31 0001895249 cntm:ConvertibleNotes2024IssuanceTenMember 2024-12-31 0001895249 cntm:ConvertibleNotes2024IssuanceSixMember 2024-12-31 0001895249 cntm:ConvertibleNotes2024IssuanceSevenMember 2024-12-31 0001895249 cntm:ConvertibleNotes2024IssuanceOneMember 2024-12-31 0001895249 cntm:ConvertibleNotes2024IssuanceNineMember 2024-12-31 0001895249 cntm:ConvertibleNotes2024IssuanceFourMember 2024-12-31 0001895249 cntm:ConvertibleNotes2024IssuanceFiveMember 2024-12-31 0001895249 cntm:ConvertibleNotes2024IssuanceElevenMember 2024-12-31 0001895249 cntm:ConvertibleNotes2024IssuanceEightMember 2024-12-31 0001895249 cntm:ConvertibleNotePayableTwoMember srt:ChiefExecutiveOfficerMember 2024-10-10 0001895249 cntm:ConvertibleNotePayableOneMember srt:ChiefExecutiveOfficerMember 2024-10-10 0001895249 cntm:UnsecuredPromissoryNoteMember cntm:SponsorMember 2024-09-30 0001895249 cntm:SellerNotesMember 2024-09-30 0001895249 cntm:SecuredPromissoryNoteMember 2024-09-30 0001895249 cntm:SecondJanuary2024SaleOfFutureReceiptsAgreementMember 2024-01-30 0001895249 us-gaap:LineOfCreditMember 2024-12-31 0001895249 cntm:ShareIssuanceOnExtinguishmentOfVendorObligationsMember 2024-10-02 2024-10-02 0001895249 cntm:LegacyConnectmMember 2024-07-11 2024-07-11 0001895249 cntm:SharesIssuedDateTwoMember cntm:ShareIssuanceOnExtinguishmentOfVendorsAndLendersObligationsOneMember 2024-01-01 2024-12-31 0001895249 cntm:SharesIssuedDateThreeMember cntm:ShareIssuanceOnExtinguishmentOfVendorsAndLendersObligationsOneMember 2024-01-01 2024-12-31 0001895249 cntm:SharesIssuedDateSixMember cntm:ShareIssuanceOnExtinguishmentOfVendorsAndLendersObligationsOneMember 2024-01-01 2024-12-31 0001895249 cntm:SharesIssuedDateSevenMember cntm:ShareIssuanceOnExtinguishmentOfVendorsAndLendersObligationsOneMember 2024-01-01 2024-12-31 0001895249 cntm:SharesIssuedDateOneMember cntm:ShareIssuanceOnExtinguishmentOfVendorsAndLendersObligationsOneMember 2024-01-01 2024-12-31 0001895249 cntm:SharesIssuedDateFourMember cntm:ShareIssuanceOnExtinguishmentOfVendorsAndLendersObligationsOneMember 2024-01-01 2024-12-31 0001895249 cntm:SharesIssuedDateFiveMember cntm:ShareIssuanceOnExtinguishmentOfVendorsAndLendersObligationsOneMember 2024-01-01 2024-12-31 0001895249 cntm:SharesIssuedDateEightMember cntm:ShareIssuanceOnExtinguishmentOfVendorsAndLendersObligationsOneMember 2024-01-01 2024-12-31 0001895249 cntm:ShareIssuanceOnExtinguishmentOfVendorsAndLendersObligationsOneMember 2024-01-01 2024-12-31 0001895249 cntm:ConvertibleNotes2022And2023Member 2024-07-12 2024-07-12 0001895249 cntm:EntityThatHasControllingInterestInCustomersMember 2024-09-01 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember 2024-12-31 0001895249 cntm:Assumed2024NotesMember 2024-12-31 0001895249 cntm:ConvertibleNotes2023Member 2023-12-31 0001895249 cntm:ConvertibleNotes2022Member 2023-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember us-gaap:EstimateOfFairValueFairValueDisclosureMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember us-gaap:CarryingReportedAmountFairValueDisclosureMember 2024-12-31 0001895249 cntm:ConvertibleNotes2024Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2024-12-31 0001895249 cntm:ConvertibleNotes2024Member us-gaap:CarryingReportedAmountFairValueDisclosureMember 2024-12-31 0001895249 cntm:Assumed2024NotesMember us-gaap:EstimateOfFairValueFairValueDisclosureMember 2024-12-31 0001895249 cntm:Assumed2024NotesMember us-gaap:CarryingReportedAmountFairValueDisclosureMember 2024-12-31 0001895249 us-gaap:EstimateOfFairValueFairValueDisclosureMember 2024-12-31 0001895249 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2024-12-31 0001895249 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2023-12-31 0001895249 cntm:ConvertibleNotes2023Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2023-12-31 0001895249 cntm:ConvertibleNotes2023Member us-gaap:CarryingReportedAmountFairValueDisclosureMember 2023-12-31 0001895249 cntm:Amended2022ConvertibleNotesMember us-gaap:EstimateOfFairValueFairValueDisclosureMember 2023-12-31 0001895249 cntm:Amended2022ConvertibleNotesMember us-gaap:CarryingReportedAmountFairValueDisclosureMember 2023-12-31 0001895249 us-gaap:EstimateOfFairValueFairValueDisclosureMember 2023-12-31 0001895249 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2023-12-31 0001895249 2024-07-11 0001895249 us-gaap:SubsequentEventMember 2025-05-06 0001895249 2025-05-06 0001895249 us-gaap:SubsequentEventMember 2025-04-11 0001895249 cntm:LegacyOptionsMember 2022-12-31 0001895249 cntm:MontereyCapitalAcquisitionCorporationMember cntm:PublicWarrantsMember us-gaap:IPOMember 2024-07-12 0001895249 cntm:MontereyCapitalAcquisitionCorporationMember cntm:PrivatePlacementWarrantsMember us-gaap:IPOMember 2024-07-12 0001895249 cntm:MontereyCapitalAcquisitionCorporationMember cntm:SponsorMember cntm:July2024WarrantsMember 2024-07-10 0001895249 cntm:MontereyCapitalAcquisitionCorporationMember cntm:LegacyWarrantsMember 2022-05-10 0001895249 cntm:SecuredPromissoryNoteMember 2022-02-28 0001895249 us-gaap:ComputerSoftwareIntangibleAssetMember 2024-12-31 0001895249 cntm:GreenEnergyGainsMember us-gaap:TradeNamesMember 2024-10-09 0001895249 cntm:GreenEnergyGainsMember us-gaap:TechnologyBasedIntangibleAssetsMember 2024-10-09 0001895249 cntm:GreenEnergyGainsMember us-gaap:CustomerRelationshipsMember 2024-10-09 0001895249 cntm:DeliverycircleLlcMember us-gaap:TradeNamesMember 2024-08-05 0001895249 cntm:DeliverycircleLlcMember us-gaap:DevelopedTechnologyRightsMember 2024-08-05 0001895249 cntm:DeliverycircleLlcMember us-gaap:CustomerRelationshipsMember 2024-08-05 0001895249 cntm:MontereyCapitalAcquisitionCorporationMember cntm:Assumed2024NotesMember 2024-07-12 0001895249 cntm:MontereyCapitalAcquisitionCorporationMember cntm:SponsorMember 2024-07-12 0001895249 srt:MinimumMember cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputTermToPaymentMember 2024-12-31 0001895249 srt:MaximumMember cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputTermToPaymentMember 2024-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember us-gaap:MeasurementInputDiscountRateMember 2024-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputWeightedAverageCostOfCapitalMember 2024-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputRevenueVolatilityMember 2024-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputOperatingLeverageMember 2024-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputLongTermRiskFreeRateMember 2024-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputEbitdaVolatilityMember 2024-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputEarnoutRiskFreeRateMember 2024-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputCorrelationBetweenRevenueAndEbitdaMember 2024-12-31 0001895249 srt:MinimumMember cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputTermToPaymentMember 2024-08-05 0001895249 srt:MaximumMember cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputTermToPaymentMember 2024-08-05 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember us-gaap:MeasurementInputDiscountRateMember 2024-08-05 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputWeightedAverageCostOfCapitalMember 2024-08-05 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputRevenueVolatilityMember 2024-08-05 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputOperatingLeverageMember 2024-08-05 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputLongTermRiskFreeRateMember 2024-08-05 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputEbitdaVolatilityMember 2024-08-05 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputEarnoutRiskFreeRateMember 2024-08-05 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputCorrelationBetweenRevenueAndEbitdaMember 2024-08-05 0001895249 cntm:GregKendallMember cntm:GreenEnergyGainsMember 2024-10-09 0001895249 cntm:DeliverycircleLlcMember 2024-08-05 0001895249 cntm:AirTempServiceCoInc.AndSolarEnergySystemsOfBrevardIncMember us-gaap:SubsequentEventMember 2025-05-01 2025-05-31 0001895249 cntm:AirTempServiceCoInc.AndSolarEnergySystemsOfBrevardIncMember us-gaap:SubsequentEventMember 2025-04-01 2025-04-30 0001895249 cntm:BusinessCombinationLegacyConnectmMember 2024-10-01 2024-10-31 0001895249 cntm:MontereyCapitalAcquisitionCorporationMember cntm:ConnectmTechnologySolutionsIncMember 2024-07-12 2024-07-12 0001895249 cntm:BusinessCombinationLegacyConnectmMember 2024-07-01 2024-07-31 0001895249 cntm:BusinessCombinationLegacyConnectmMember 2024-10-31 0001895249 us-gaap:FairValueMeasurementsRecurringMember 2023-12-31 0001895249 us-gaap:OperatingSegmentsMember cntm:TransportationSegmentMember 2024-12-31 0001895249 us-gaap:OperatingSegmentsMember cntm:OwnedServiceNetworkSegmentMember 2024-12-31 0001895249 us-gaap:OperatingSegmentsMember cntm:ManagedSolutionsSegmentMember 2024-12-31 0001895249 us-gaap:OperatingSegmentsMember cntm:LogisticsSegmentMember 2024-12-31 0001895249 us-gaap:CorporateNonSegmentMember 2024-12-31 0001895249 country:US 2024-12-31 0001895249 us-gaap:OperatingSegmentsMember cntm:TransportationSegmentMember 2023-12-31 0001895249 us-gaap:OperatingSegmentsMember cntm:OwnedServiceNetworkSegmentMember 2023-12-31 0001895249 us-gaap:OperatingSegmentsMember cntm:ManagedSolutionsSegmentMember 2023-12-31 0001895249 us-gaap:CorporateNonSegmentMember 2023-12-31 0001895249 us-gaap:ConvertibleDebtSecuritiesMember 2024-01-01 2024-12-31 0001895249 cntm:LegacyWarrantsMember 2024-01-01 2024-12-31 0001895249 cntm:LegacyOptionsMember 2024-01-01 2024-12-31 0001895249 cntm:SecuredPromissoryNoteMember 2023-01-01 2023-12-31 0001895249 srt:MaximumMember 2024-01-01 2024-12-31 0001895249 cntm:ServiceAgreementMember 2024-01-01 2024-12-31 0001895249 srt:MaximumMember 2023-01-01 2023-12-31 0001895249 2024-10-02 2024-10-02 0001895249 us-gaap:ParentMember 2023-01-01 2023-12-31 0001895249 us-gaap:AdditionalPaidInCapitalMember 2023-01-01 2023-12-31 0001895249 cntm:GreenEnergyGainsMember us-gaap:TradeNamesMember 2024-10-09 2024-10-09 0001895249 cntm:GreenEnergyGainsMember us-gaap:TechnologyBasedIntangibleAssetsMember 2024-10-09 2024-10-09 0001895249 cntm:GreenEnergyGainsMember us-gaap:CustomerRelationshipsMember 2024-10-09 2024-10-09 0001895249 cntm:DeliverycircleLlcMember us-gaap:TradeNamesMember 2024-08-05 2024-08-05 0001895249 cntm:DeliverycircleLlcMember us-gaap:DevelopedTechnologyRightsMember 2024-08-05 2024-08-05 0001895249 cntm:DeliverycircleLlcMember us-gaap:CustomerRelationshipsMember 2024-08-05 2024-08-05 0001895249 srt:ScenarioPreviouslyReportedMember 2024-09-30 0001895249 srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember 2024-09-30 0001895249 2024-09-30 0001895249 cntm:EntityThatHasControllingInterestInCustomersMember 2024-12-31 0001895249 cntm:TireTrackMember 2024-12-31 0001895249 cntm:AirTempServicesMember 2024-12-31 0001895249 2024-10-01 2024-12-31 0001895249 cntm:WarrantsExercisableForOneShareOfCommonStock0.0001ParValuePerShareMember 2024-01-01 2024-12-31 0001895249 cntm:CommonStockParValue0.0001PerShareMember 2024-01-01 2024-12-31 0001895249 2025-07-31 0001895249 cntm:LegacyWarrantsMember 2022-01-01 2022-12-31 0001895249 us-gaap:SubsequentEventMember 2025-01-28 2025-01-28 0001895249 cntm:PublicWarrantsMember 2024-12-31 0001895249 cntm:PrivatePlacementWarrantsMember 2024-12-31 0001895249 cntm:LegacyWarrantsMember 2024-12-31 0001895249 cntm:July2024WarrantsMember 2024-12-31 0001895249 cntm:EquityIncentivePlan2023Member 2024-12-31 0001895249 cntm:EquityIncentivePlan2019Member 2024-12-31 0001895249 cntm:PreExchangeSharesMember 2022-01-01 2022-12-31 0001895249 cntm:PostExchangeSharesMember 2022-01-01 2022-12-31 0001895249 cntm:MeteoraSpecialOpportunityFundMember us-gaap:SubsequentEventMember 2025-04-02 2025-04-02 0001895249 2024-07-12 0001895249 2024-10-01 2024-10-31 0001895249 us-gaap:CommonStockMember 2024-01-01 2024-12-31 0001895249 us-gaap:RestrictedStockMember 2024-06-30 2024-06-30 0001895249 cntm:EquityIncentivePlan2023Member 2024-01-01 2024-12-31 0001895249 cntm:EquityIncentivePlan2023Member 2024-07-10 2024-07-10 0001895249 cntm:CapitalMarketsAdvisoryAgreementMember 2024-07-31 0001895249 cntm:MontereyCapitalAcquisitionCorporationMember 2024-07-12 2024-07-12 0001895249 cntm:CambridgeEnergyResourcesLtdMember us-gaap:SubsequentEventMember 2025-05-15 2025-05-15 0001895249 cntm:MontereyCapitalAcquisitionCorporationMember cntm:WarrantRedemptionScenarioStockPriceOf18.00OrMoreFor20OutOf30TradingDaysMember cntm:PublicWarrantsMember us-gaap:IPOMember 2022-05-10 2022-05-10 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember 2024-01-01 2024-12-31 0001895249 cntm:SellerNotesIssuanceOneMember 2024-12-31 0001895249 cntm:MeteoraSpecialOpportunityFundMember cntm:FpaTerminationAgreementMember us-gaap:SubsequentEventMember 2025-04-02 2025-04-02 0001895249 cntm:PreExchangeSharesMember cntm:SeriesSeedConvertiblePreferredStockMember 2022-12-31 0001895249 cntm:PreExchangeSharesMember cntm:SeriesSeed1ConvertiblePreferredStockMember 2022-12-31 0001895249 cntm:PreExchangeSharesMember cntm:Seriesb2ConvertiblePreferredStockMember 2022-12-31 0001895249 cntm:PreExchangeSharesMember cntm:Seriesb1ConvertiblePreferredStockMember 2022-12-31 0001895249 cntm:PreExchangeSharesMember cntm:Seriesa1ConvertiblePreferredStockMember 2022-12-31 0001895249 cntm:PostExchangeSharesMember cntm:SeriesSeedConvertiblePreferredStockMember 2022-12-31 0001895249 cntm:PostExchangeSharesMember cntm:SeriesSeed1ConvertiblePreferredStockMember 2022-12-31 0001895249 cntm:PostExchangeSharesMember cntm:Seriesb2ConvertiblePreferredStockMember 2022-12-31 0001895249 cntm:PostExchangeSharesMember cntm:Seriesb1ConvertiblePreferredStockMember 2022-12-31 0001895249 cntm:PostExchangeSharesMember cntm:Seriesa1ConvertiblePreferredStockMember 2022-12-31 0001895249 cntm:SeriesConvertiblePreferredStockMember us-gaap:SubsequentEventMember 2025-05-05 2025-05-05 0001895249 cntm:SeriesBConvertiblePreferredStockMember us-gaap:SubsequentEventMember 2025-05-05 2025-05-05 0001895249 us-gaap:SubsequentEventMember 2025-01-29 0001895249 cntm:SeriesConvertiblePreferredStockMember us-gaap:SubsequentEventMember 2025-05-05 0001895249 cntm:SeriesBConvertiblePreferredStockMember us-gaap:SubsequentEventMember 2025-05-05 0001895249 us-gaap:SubsequentEventMember 2025-05-05 0001895249 cntm:Assumed2024NotesMember 2024-07-12 2024-07-12 0001895249 cntm:AbsolutelyCoolAirConditioningLlcMember 2024-05-01 2024-05-31 0001895249 us-gaap:OperatingSegmentsMember cntm:LogisticsSegmentMember 2024-01-01 2024-12-31 0001895249 cntm:VehicleNotesMember 2024-12-31 0001895249 2024-12-01 2024-12-31 0001895249 us-gaap:SubsequentEventMember 2025-06-01 2025-06-30 0001895249 cntm:MeteoraSpecialOpportunityFundMember us-gaap:DerivativeFinancialInstrumentsAssetsMember us-gaap:SubsequentEventMember 2025-04-02 0001895249 cntm:Q12025ConvertibleNotesMember us-gaap:SubsequentEventMember 2025-01-01 2025-03-31 0001895249 cntm:RelatedPartyInvestorsMember 2024-09-01 2024-09-30 0001895249 us-gaap:ConvertibleNotesPayableMember us-gaap:SubsequentEventMember 2025-05-01 2025-05-31 0001895249 cntm:SecuredPromissoryNoteMember us-gaap:SubsequentEventMember 2025-05-01 2025-05-31 0001895249 us-gaap:ConvertibleNotesPayableMember us-gaap:SubsequentEventMember 2025-04-01 2025-04-30 0001895249 cntm:SecuredPromissoryNoteMember us-gaap:SubsequentEventMember 2025-04-01 2025-04-30 0001895249 2024-07-01 2024-07-31 0001895249 cntm:RelatedPartyManagedSolutionsCustomersMember 2024-09-01 2024-12-31 0001895249 cntm:RelatedPartyManagedSolutionsCustomersMember 2024-10-01 2024-10-31 0001895249 cntm:RelatedPartyManagedSolutionsCustomersMember 2024-01-01 2024-12-31 0001895249 us-gaap:NonrelatedPartyMember 2024-12-31 0001895249 us-gaap:NonrelatedPartyMember 2023-12-31 0001895249 cntm:MeteoraSpecialOpportunityFundMember us-gaap:DerivativeFinancialInstrumentsAssetsMember cntm:StandbyEquityPurchaseAgreementMember 2024-12-01 2024-12-31 0001895249 cntm:MeteoraSpecialOpportunityFundMember us-gaap:DerivativeFinancialInstrumentsAssetsMember 2024-08-01 2024-08-31 0001895249 cntm:MakeWholePaymentMember cntm:ShareResetDerivativeLiabilityMember 2024-09-01 2024-09-30 0001895249 cntm:YaIiPnLtdYorkvilleMember srt:MaximumMember cntm:ConvertiblePromissoryNotesMember cntm:StandbyEquityPurchaseAgreementMember 2024-12-31 0001895249 cntm:YaIiPnLtdYorkvilleMember cntm:ConvertiblePromissoryNotesMember cntm:StandbyEquityPurchaseAgreementMember 2024-12-31 0001895249 cntm:October2024SaleOfFutureReceiptsAgreementMember 2024-07-01 2024-12-31 0001895249 cntm:SecondNovember2024SaleOfFutureReceiptsAgreementMember 2024-01-01 2024-12-31 0001895249 cntm:November2024SaleOfFutureReceiptsAgreementMember 2024-01-01 2024-12-31 0001895249 cntm:EmployeeAgreementDisputeMember 2025-01-01 2025-01-31 0001895249 cntm:SecondMay2024SaleOfFutureReceiptsAgreementMember us-gaap:SubsequentEventMember 2025-05-01 2025-05-31 0001895249 cntm:May2024SaleOfFutureReceiptsAgreementMember us-gaap:SubsequentEventMember 2025-05-01 2025-05-31 0001895249 cntm:ConvertibleNotes2024Member 2024-12-31 0001895249 cntm:November2023SaleOfFutureReceiptsRefinancingAgreementMember 2023-10-02 2023-10-02 0001895249 cntm:CambridgeEnergyResourcesLtdMember us-gaap:SubsequentEventMember 2025-05-15 0001895249 cntm:CambridgeEnergyResourcesLtdMember us-gaap:SubsequentEventMember 2025-05-14 0001895249 srt:ScenarioPreviouslyReportedMember 2024-07-01 2024-09-30 0001895249 srt:ScenarioPreviouslyReportedMember 2024-01-01 2024-09-30 0001895249 srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember 2024-07-01 2024-09-30 0001895249 2024-07-01 2024-09-30 0001895249 srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember 2024-01-01 2024-09-30 0001895249 2024-01-01 2024-09-30 0001895249 us-gaap:DerivativeFinancialInstrumentsLiabilitiesMember 2024-01-01 2024-12-31 0001895249 cntm:November2024SaleOfFutureReceiptsAgreementMember 2024-11-01 2024-11-30 0001895249 cntm:MontereyCapitalAcquisitionCorporationMember 2024-07-12 0001895249 cntm:November82024SaleOfFutureReceiptsAgreementMember 2024-11-08 2024-11-08 0001895249 cntm:SecondNovember2024SaleOfFutureReceiptsAgreementMember 2024-11-01 2024-11-30 0001895249 cntm:SecondMay2024SaleOfFutureReceiptsAgreementMember 2024-05-28 2024-05-28 0001895249 cntm:May2024SaleOfFutureReceiptsAgreementMember 2024-05-23 2024-05-23 0001895249 cntm:AmendedJanuary2024SaleOfFutureReceiptsAgreementMember 2024-01-30 2024-01-30 0001895249 cntm:January2024SaleOfFutureReceiptsAgreementMember 2024-01-04 2024-01-04 0001895249 cntm:August2023SaleOfFutureReceiptsAgreementMember 2023-08-07 2023-08-07 0001895249 cntm:April2023SaleOfFutureReceiptsAgreementMember 2023-04-25 2023-04-25 0001895249 us-gaap:ConvertibleDebtMember 2024-01-01 2024-12-31 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember 2024-01-01 2024-12-31 0001895249 us-gaap:ConvertibleDebtMember 2024-01-01 2024-12-31 0001895249 us-gaap:ConvertibleDebtMember 2023-01-01 2023-12-31 0001895249 us-gaap:OperatingSegmentsMember cntm:TransportationSegmentMember 2024-01-01 2024-12-31 0001895249 us-gaap:OperatingSegmentsMember cntm:OwnedServiceNetworkSegmentMember 2024-01-01 2024-12-31 0001895249 us-gaap:OperatingSegmentsMember cntm:ManagedSolutionsSegmentMember 2024-01-01 2024-12-31 0001895249 us-gaap:CorporateNonSegmentMember 2024-01-01 2024-12-31 0001895249 us-gaap:OperatingSegmentsMember cntm:TransportationSegmentMember 2023-01-01 2023-12-31 0001895249 us-gaap:OperatingSegmentsMember cntm:OwnedServiceNetworkSegmentMember 2023-01-01 2023-12-31 0001895249 us-gaap:OperatingSegmentsMember cntm:ManagedSolutionsSegmentMember 2023-01-01 2023-12-31 0001895249 us-gaap:CorporateNonSegmentMember 2023-01-01 2023-12-31 0001895249 2024-12-27 2024-12-27 0001895249 2024-11-13 2024-11-13 0001895249 2024-09-24 2024-09-24 0001895249 cntm:SponsorMember 2024-09-01 2024-09-30 0001895249 cntm:YaIiPnLtdYorkvilleMember cntm:ConvertiblePromissoryNotesMember us-gaap:StockOptionMember cntm:StandbyEquityPurchaseAgreementMember 2024-12-31 0001895249 cntm:December2024ConsiderationAdjustmentDerivativeLiabilitiesMember 2024-12-01 2024-12-31 0001895249 cntm:November2024ConsiderationAdjustmentDerivativeLiabilitiesMember 2024-11-01 2024-11-30 0001895249 cntm:SecondResetSharesMember cntm:ShareResetDerivativeLiabilityMember 2024-09-01 2024-09-30 0001895249 cntm:FirstResetSharesMember cntm:ShareResetDerivativeLiabilityMember 2024-09-01 2024-09-30 0001895249 cntm:ShareResetDerivativeLiabilityMember 2024-09-01 2024-09-30 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember 2024-12-31 0001895249 cntm:MeteoraSpecialOpportunityFundMember cntm:FpaTerminationAgreementMember us-gaap:SubsequentEventMember 2025-04-02 0001895249 cntm:BusinessLoanAndSecurityAgreementMember us-gaap:DebtInstrumentRedemptionPeriodTwoMember 2024-01-01 2024-12-31 0001895249 cntm:BusinessLoanAndSecurityAgreementMember us-gaap:DebtInstrumentRedemptionPeriodOneMember 2024-01-01 2024-12-31 0001895249 cntm:BusinessLoanAndSecurityAgreementMember us-gaap:DebtInstrumentRedemptionPeriodThreeMember 2024-01-01 2024-12-31 0001895249 cntm:BusinessLoanAndSecurityAgreementMay2024Member 2024-01-01 2024-12-31 0001895249 cntm:BusinessLoanAndSecurityAgreementJuly2024Member 2024-01-01 2024-12-31 0001895249 cntm:October2024SaleOfFutureReceiptsAgreementMember 2024-10-01 2024-10-31 0001895249 cntm:September2024SaleOfFutureReceiptsAgreementMember 2024-09-19 2024-09-19 0001895249 cntm:July2024SaleOfFutureReceiptsAgreementMember 2024-07-24 2024-07-24 0001895249 cntm:BusinessLoanAndSecurityAgreementMember 2024-12-31 0001895249 us-gaap:NotesPayableOtherPayablesMember us-gaap:SubsequentEventMember 2025-04-01 2025-05-31 0001895249 cntm:PaycheckProtectionProgramMember 2020-05-01 2020-05-31 0001895249 cntm:YaIiPnLimitedMember cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember 2024-01-01 2024-12-31 0001895249 cntm:Assumed2024NotesMember 2024-01-01 2024-12-31 0001895249 cntm:SecondNovember2023SaleOfFutureReceiptsRefinancingAgreementMember 2023-11-09 2023-11-09 0001895249 cntm:ConvertibleNotes2024Member us-gaap:SubsequentEventMember 2025-05-01 2025-05-31 0001895249 cntm:W4PartnersLlcMember us-gaap:NotesPayableOtherPayablesMember us-gaap:RelatedPartyMember us-gaap:SubsequentEventMember 2025-04-01 2025-05-31 0001895249 cntm:BusinessLoanAndSecurityAgreementMember 2024-01-01 2024-12-31 0001895249 cntm:VehicleNotesMember 2024-01-01 2024-12-31 0001895249 cntm:SecuredPromissoryNoteMember 2024-12-31 0001895249 cntm:DeliverycircleLlcMember cntm:January2025NoteMember us-gaap:SubsequentEventMember 2025-01-31 0001895249 cntm:ConvertibleNotes2024IssuanceTwoMember 2024-01-01 2024-12-31 0001895249 cntm:ConvertibleNotes2024IssuanceThreeMember 2024-01-01 2024-12-31 0001895249 cntm:ConvertibleNotes2024IssuanceTenMember 2024-01-01 2024-12-31 0001895249 cntm:ConvertibleNotes2024IssuanceSixMember 2024-01-01 2024-12-31 0001895249 cntm:ConvertibleNotes2024IssuanceSevenMember 2024-01-01 2024-12-31 0001895249 cntm:ConvertibleNotes2024IssuanceOneMember 2024-01-01 2024-12-31 0001895249 cntm:ConvertibleNotes2024IssuanceNineMember 2024-01-01 2024-12-31 0001895249 cntm:ConvertibleNotes2024IssuanceFourMember 2024-01-01 2024-12-31 0001895249 cntm:ConvertibleNotes2024IssuanceFiveMember 2024-01-01 2024-12-31 0001895249 cntm:ConvertibleNotes2024IssuanceElevenMember 2024-01-01 2024-12-31 0001895249 cntm:ConvertibleNotes2024IssuanceEightMember 2024-01-01 2024-12-31 0001895249 cntm:ConvertibleNotePayableTwoMember srt:ChiefExecutiveOfficerMember 2024-10-10 2024-10-10 0001895249 cntm:ConvertibleNotePayableOneMember srt:ChiefExecutiveOfficerMember 2024-10-10 2024-10-10 0001895249 srt:MinimumMember cntm:Q22025ConvertibleNotesMember us-gaap:SubsequentEventMember 2025-04-01 2025-06-30 0001895249 srt:MaximumMember cntm:Q22025ConvertibleNotesMember us-gaap:SubsequentEventMember 2025-04-01 2025-06-30 0001895249 srt:MinimumMember cntm:Q12025ConvertibleNotesMember us-gaap:SubsequentEventMember 2025-01-01 2025-03-31 0001895249 srt:MaximumMember cntm:Q12025ConvertibleNotesMember us-gaap:SubsequentEventMember 2025-01-01 2025-03-31 0001895249 cntm:ConvertibleNotes2024Member 2024-01-01 2024-12-31 0001895249 cntm:YaIiPnLtdYorkvilleMember cntm:ConvertiblePromissoryNotesMember cntm:StandbyEquityPurchaseAgreementMember 2024-12-01 2024-12-31 0001895249 cntm:Q32025ConvertibleNotesMember us-gaap:SubsequentEventMember 2025-07-01 2025-07-31 0001895249 cntm:Q22025ConvertibleNotesMember us-gaap:SubsequentEventMember 2025-04-01 2025-06-30 0001895249 cntm:SmalBusinessAdministrationLoansMember 2022-01-01 2022-12-31 0001895249 cntm:ConvertibleNotes2022Member 2023-02-22 2023-02-22 0001895249 cntm:Assumed2024NotesMember 2024-12-31 0001895249 cntm:Assumed2024NotesMember 2024-07-12 0001895249 cntm:ShareIssuanceOnExtinguishmentOfVendorObligationsMember 2024-12-27 2024-12-27 0001895249 cntm:ShareIssuanceOnExtinguishmentOfVendorObligationsMember 2024-11-13 2024-11-13 0001895249 cntm:ShareIssuanceOnExtinguishmentOfVendorObligationsMember 2024-09-24 2024-09-24 0001895249 us-gaap:SubsequentEventMember 2025-05-01 2025-05-31 0001895249 us-gaap:SubsequentEventMember 2025-04-01 2025-04-30 0001895249 cntm:PreExchangeSharesMember 2022-12-31 0001895249 cntm:PostExchangeSharesMember 2022-12-31 0001895249 cntm:MeteoraSpecialOpportunityFundMember us-gaap:DerivativeFinancialInstrumentsAssetsMember 2022-12-31 0001895249 cntm:YaIiPnLtdYorkvilleMember cntm:ConvertiblePromissoryNotesMember cntm:StandbyEquityPurchaseAgreementMember 2024-01-01 2024-12-31 0001895249 cntm:ConnectmBeforeBusinessCombinationMember 2024-01-01 2024-12-31 0001895249 cntm:ConnectmBeforeBusinessCombinationMember 2023-01-01 2023-12-31 0001895249 cntm:MontereyCapitalAcquisitionCorporationMember cntm:SponsorMember cntm:PrivatePlacementWarrantsMember us-gaap:IPOMember 2022-05-10 2022-05-10 0001895249 cntm:PublicWarrantsMember 2022-05-10 2022-05-10 0001895249 2022-01-01 2022-12-31 0001895249 2022-12-31 0001895249 cntm:MontereyCapitalAcquisitionCorporationMember cntm:PublicWarrantsMember us-gaap:IPOMember 2024-07-12 2024-07-12 0001895249 cntm:MontereyCapitalAcquisitionCorporationMember cntm:PrivatePlacementWarrantsMember us-gaap:IPOMember 2024-07-12 2024-07-12 0001895249 cntm:MontereyCapitalAcquisitionCorporationMember cntm:SponsorMember cntm:July2024WarrantsMember 2024-07-10 2024-07-10 0001895249 cntm:SecuredPromissoryNoteMember 2022-02-01 2022-02-28 0001895249 cntm:MontereyCapitalAcquisitionCorporationMember cntm:PublicWarrantsMember us-gaap:IPOMember 2022-05-10 0001895249 2023-01-01 2023-12-31 0001895249 cntm:DeliverycircleLlcMember 2024-12-31 0001895249 cntm:GreenEnergyGainsMember 2024-10-09 0001895249 cntm:DeliveryCircleLlcMember 2024-08-05 0001895249 cntm:MontereyCapitalAcquisitionCorporationMember cntm:ConnectmTechnologySolutionsIncMember 2024-07-12 0001895249 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2024-12-31 0001895249 us-gaap:FairValueMeasurementsRecurringMember 2024-12-31 0001895249 cntm:AirTempServiceCoInc.AndSolarEnergySystemsOfBrevardIncMember us-gaap:SubsequentEventMember 2025-04-30 0001895249 cntm:DeliverycircleLlcMember 2024-01-01 2024-12-31 0001895249 cntm:DeliverycircleLlcMember 2024-08-05 2024-08-05 0001895249 cntm:BusinessCombinationLegacyConnectmMember 2024-07-12 0001895249 cntm:DeliverycircleLlcMember us-gaap:CapitalUnitClassAMember 2024-08-05 2024-08-05 0001895249 cntm:DeliverycircleLlcMember cntm:CapitalUnitSeriesMember 2024-08-05 2024-08-05 0001895249 cntm:DeliverycircleLlcMember cntm:CapitalUnitClassPMember 2024-08-05 2024-08-05 0001895249 cntm:BusinessCombinationLegacyConnectmMember 2024-07-31 0001895249 cntm:GregKendallMember cntm:GreenEnergyGainsMember 2024-10-09 2024-10-09 0001895249 cntm:GreenEnergyGainsMember 2024-10-09 2024-10-09 0001895249 cntm:YaIiPnLimitedMember srt:MaximumMember cntm:DebtConversionOptionUnavailableMember cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember 2024-12-31 0001895249 cntm:SellerNotesMember 2024-09-01 2024-09-30 0001895249 cntm:SecuredPromissoryNoteMember 2024-09-01 2024-09-30 0001895249 2024-09-01 2024-09-30 0001895249 cntm:SecondJanuary2024SaleOfFutureReceiptsAgreementMember 2024-01-30 2024-01-30 0001895249 srt:ChiefExecutiveOfficerMember 2024-01-01 2024-12-31 0001895249 cntm:SecuredPromissoryNoteMember 2024-01-01 2024-12-31 0001895249 2024-10-02 0001895249 2024-06-01 2024-06-30 0001895249 2024-06-30 0001895249 2024-07-12 2024-07-12 0001895249 us-gaap:ParentMember 2024-01-01 2024-12-31 0001895249 us-gaap:NoncontrollingInterestMember 2024-01-01 2024-12-31 0001895249 us-gaap:AdditionalPaidInCapitalMember 2024-01-01 2024-12-31 0001895249 2024-01-01 2024-12-31 0001895249 cntm:MeteoraSpecialOpportunityFundMember us-gaap:DerivativeFinancialInstrumentsAssetsMember 2024-12-01 2024-12-31 0001895249 cntm:MeteoraSpecialOpportunityFundMember us-gaap:DerivativeFinancialInstrumentsAssetsMember 2024-12-31 0001895249 cntm:MeteoraSpecialOpportunityFundMember us-gaap:DerivativeFinancialInstrumentsAssetsMember 2024-08-31 0001895249 cntm:MeteoraSpecialOpportunityFundMember us-gaap:DerivativeFinancialInstrumentsAssetsMember 2022-01-01 2022-12-31 0001895249 cntm:ConvertibleNotePayableTwoMember srt:ChiefExecutiveOfficerMember 2024-12-31 0001895249 cntm:ConvertibleNotePayableOneMember srt:ChiefExecutiveOfficerMember 2024-12-31 0001895249 2024-12-31 0001895249 2023-12-31 cntm:Lender cntm:tranche cntm:installment cntm:customer cntm:Options cntm:Right cntm:Vote iso4217:INR cntm:Y cntm:segment iso4217:USD cntm:item cntm:D xbrli:shares xbrli:pure iso4217:USD xbrli:shares cntm:individual cntm:loan cntm:agreement +​ +​ +​ +​ +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +(Mark One) +☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31, 2024 +or +☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from to +Commission file number 001-41389 +ConnectM Technology Solutions, Inc. +​ +(Exact name of registrant as specified in its charter) +​ +​ +Delaware +87-2898342 +State or other jurisdiction of +incorporation or organization +​ +(I.R.S. Employer +Identification No.) +​ +​ +​ +2 Mount Royal Avenue, Suite 550 +Marlborough , Massachusetts +​ +01752 +(Address of principal executive offices) +​ +(Zip Code) +​ +Registrant’s telephone number, including area code 617 - 395-1333 +Securities registered pursuant to Section 12(b) of the Act: None +​ +Securities registered pursuant to section 12(g) of the Act: Common stock, par value $0.0001 per share and Warrants, exercisable for one share of Common Stock, $0.0001 par value per share . +​ +(Title of class) +​ +(Title of class) +​ +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. +☐ Yes ☒ No +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. +☐ Yes ☒ No +Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections. +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. +☒ Yes ☐ No +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). +☒ Yes ☐ No +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +​ +Large accelerated filer ☐ +Accelerated filer ☐ +Non-accelerated filer ☒ +Smaller reporting company ☒ +​ +Emerging growth company ☒ +​ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the e ff ectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No +State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. +At December 31, 2024, the last business day of the registrant’s most recently completed fiscal year, the aggregate market value of the common stock of the registrant held by non-affiliates of the registrant was $ 27,028,869 . +Note.— If a determination as to whether a particular person or entity is an affiliate cannot be made without involving unreasonable effort and expense, the aggregate market value of the common stock held by non-affiliates may be calculated on the basis of assumptions reasonable under the circumstances, provided that the assumptions are set forth in this Form. +APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: +Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court ☐ Yes ☐ No +(APPLICABLE ONLY TO CORPORATE REGISTRANTS) +Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. +As of July 31, 2025, there were 71,306,078 shares of common stock of the Company issued and outstanding. +DOCUMENTS INCORPORATED BY REFERENCE +None. +​ +​ +​ +​ +CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS +This Annual Report on Form 10-K (the “ Report ”) contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and releases issued by the SEC and within the meaning of Section 27A of the Securities Act of 1933, as amended (the “ Securities Act ”), and Section 21E of the Exchange Act. Forward-looking statements include, among others, information concerning our strategy, future operations, future financial position, future revenue, projected expenses, business prospects, and plans and objectives of management. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict, “project,” “seek,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms. These statements relate to future events or to our future operating or financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. +Forward-looking statements contained in this prospectus include, but are not limited to, statements about the following: +● the Company operates in the early-stage market of modern energy economy (“ MEE ”) adoption (which includes AI-powered electrification and distributed energy) has a history of losses and expects to incur significant ongoing expenses; +● the Company’s management has limited experience in operating a public company; +● the Company has identified material weaknesses in its internal control over financial reporting and if it is unable to remediate these material weaknesses, or if the Company identifies additional material weaknesses in the future or otherwise fails to maintain an effective internal control over financial reporting, this may result in material misstatements of the Company’s consolidated financial statements or cause the Company to fail to meet its periodic reporting obligations; +● the Company’s growth strategy depends on the widespread adoption of MEE Services; +● if the Company cannot compete successfully against other MEE Service Providers, it may not be successful in developing its operations and its business may suffer; +● with respect to providing electricity on a price-competitive basis, solar systems face competition from traditional regulated electric utilities, from less-regulated third party energy service providers and from new renewable energy companies; +● the Company’s market is characterized by rapid technological change, which requires it to continue to develop new products and product innovations. Any delays in such development could adversely affect market adoption of its products and its financial results; +● developments in alternative technologies may materially adversely affect demand for the Company’s offerings; and +● the possibility that we may be adversely affected by other economic, business or competitive factors and may not be able to manage other risks and uncertainties set forth in the section titled “ Risk Factors ,” which is incorporated herein by reference. +We caution you that the foregoing list does not contain all of the risks or uncertainties that could affect the Company. +Forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “ Risk Factors ” and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Report. You should read this Report and the documents that we have filed as exhibits hereto, completely and with the understanding that our actual future results may be materially different from what we expect. +Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. +​ +2 +Item 1. Business. +Overview +ConnectM is a constellation of companies connecting and powering next generation equipment, mobility and distributed energy—thus enabling a faster, smarter transition to a modern energy economy. The Company delivers an advanced, proprietary Energy Intelligence Network (“ EIN ”) platform designed to empower residential and commercial service providers and original equipment manufacturers, to optimize energy efficiency, enhance operational performance, and support sustainable innovation. Leveraging technology, data, artificial intelligence, and behavioral economics, ConnectM aims to lower energy costs and reduce carbon emissions globally. Our Service Provider-facing technology platform encompasses marketing to life cycle management, customer care to claims processing, finance to rebates/incentives. Our architecture combines artificial intelligence with human expertise, continuously learning from the data it generates. This enables us to refine and improve our technology solutions for B2B customers while maximizing customer lifetime value. In addition to digitizing electrification end-to-end, we also transform the underlying business model to minimize customer churn while maximizing trust and improving environmental impact. +Our OEM-facing technology platform provides essential hardware and software services for EV fleet management and battery diagnostics—helping to capture data, synthesize that data, and in turn monetizing that data on behalf of our enterprise customers. By empowering OEMs and mobility companies with connected operations, our portfolio companies directly contribute to their continued explosive growth. +We believe that our cocktail of enhanced user experience, aligned values, and competitive cost enjoys broad appeal. End user electrification consumption has grown over time to encompass higher value products such as heat pumps, highly efficient air conditioners, solar roof, battery storage, electric vehicles and weatherization. These progressions can generate increases in customer lifetime value. We anticipate sustained growth through predictable, recurring revenue streams and automation that reduces costs while meeting our B2B customer needs. Our data-driven architecture further enhances precision in pricing and implementing electrification solutions, creating additional value for our customers. +Our Products and Services +ConnectM provides products and services across four different business segments: Owned Service Network, Managed Solutions, Transportation, and Logistics. +Owned Service Network +This segment is comprised of our owned service providers that offers a single point solution provider for homeowners and light commercial building owners (“ End User ”) for their electrification and decarbonization needs. Our owned network of service providers employ home energy specialists who prepare a multi-year blueprint for equipment and system installations that is aligned with End User needs and ensures full leverage of federal, state, and utility rebates, tax credits, and incentives. Our owned service providers also include weatherization, HVAC, solar, battery, and EV charger installation teams who work in tandem with the home energy specialists to ensure optimal roll out of the multi-year blueprint. The ConnectM measurement and verification platform ensures that End Users experience the savings that were envisioned during the blueprint stage. +ConnectM has developed its Energy Intelligence Network to boost electrification and decarbonization for residential and light commercial buildings. We have built a proprietary full stack technology application for remote asset monitoring and control, along with a proprietary artificial intelligence (AI) assistant to provide maintenance, repair and installation guidance and optimization for service providers. The data collected from remote asset monitoring and control feeds into our EIN and improves the entire platform performance for all customers. In addition to its EIN and remote asset monitoring technology, ConnectM centralizes and streamlines certain back-office functions for its service provider businesses including: bookkeeping/payroll, bulk purchasing, marketing/advertising, and working capital support. These services boost service provider revenue, operating margins, and overall profitability. +● Our owned service providers share a mission to use ConnectM’s technology to ensure optimal performance of End User equipment and systems which increases customer satisfaction and the likelihood of obtaining additional electrification and decarbonization work—lowering customer acquisition cost. Our EIN platform enables our owned service providers to remotely monitor and control End User systems so that they are proactively alerted to any performance issues of those systems before their customers experience an equipment outage. +3 +Managed Solutions +In addition to our Owned Service Networks, ConnectM also enters into managed service agreements (“MSAs”) with third party residential and light commercial service providers. ConnectM provides its technology platform (comprising of the EIN and remote monitoring technology) and many of the same back-office services (bookkeeping/payroll, bulk purchasing, marketing/advertising, and working capital support) to these service providers under a negotiated MSA. In exchange for the use of our tech platform and back-office services, ConnectM generally recognizes 60-90% of service provider revenue. The transaction price is established in the customer contract as a percentage of the customer’s revenue for a week. Revenue is recognized over the life of the contract in the amounts invoiced to customers which directly corresponds with the value of the services provided to the End User. Working capital adjustments may be processed quarterly, if costs incurred by the customer exceed the percentage of the customer’s revenue and are recorded as a reduction of sales, general and administrative expenses as it represents’ the customer’s reimbursement of costs incurred by us. Additionally, certain MSAs contain a “Right of First Refusal” that gives ConnectM the option to acquire a service provider customer at a pre-negotiated EBITDA multiple (which would bring them into the Company’s Owned Service Network segment) . +For both our Owned Service Network and Managed Solutions customers, we have developed portals and applications to provide visibility into equipment performance resulting in: +● Implementing preventative maintenance procedures and subscription plans; +● 24-hour remote monitoring; +● Simplified warranty and claim management; and +● Equipment-as-a-Service subscriptions. +In addition, we provide our Owned Service Networks and Managed Solutions customers with a utility tracker that empowers their customers to utilize available rebates, incentives, and financing associated with our various MEE solutions. +Transportation +ConnectM strategically invests in portfolio companies at the forefront of the zero-emission mobility revolution. These companies provide essential hardware and software services for EV fleet management and battery diagnostics to Original Equipment Manufacturers (“ OEMs ”). This critical role within the electric vehicle ecosystem generates recurring revenue through integration with ConnectM’s Energy Intelligence Network. By empowering OEMs and EV transportation companies with connected operations, our portfolio companies directly contribute to their continued explosive growth. +ConnectM’s EIN extends beyond residential and commercial service providers to also function as a smart transportation platform that enables our enterprise customers to offer desired features to their end customers along with potentially valuable data collection. Using the EIN, (i) equipment manufacturers of electromechanical and electric vehicles can access actionable data gathered from IoT systems connected to their equipment, (ii) asset owners can intelligently protect their investments, and (iii) equipment service providers can boost their on-the-job efficiency. +Logistics +As an entry point into the $165B last mile delivery market, ConnectM acquired a controlling interest in DeliveryCircle, LLC, a Delaware limited liability company (“ DeliveryCircle ”) engaged in the business of providing dispatch and delivery services and related software. DeliveryCircle operates as a transportation/freight broker and also offers logistics services such as sortation and transloading. DeliveryCircle’s primary revenue stream comes from their transportation and underlying technology services. DeliveryCircle provides a complete suite of software applications to its customers, powered by Decios, a cloud-based, delivery management platform that ensures companies can succeed in every aspect of the delivery game. The Decios platform features real-time tracking, optimization, and integration with commonly used order systems. +Our Networks and Platforms +ConnectM’s Energy Intelligence Network aggregates over 30GB/day of real time operating and performance data from the 120,000+ electrified assets across our portfolio companies with the goal of providing superior value to enterprise, OEM and service provider customers. +4 +The sheer volume of data collected daily allows us to continually train and refine our AI models to create more value for customers. For example, data collected from residential users, service providers, and OEMs enables our customers to report on the tangible and measurable sustainable impact of devices operating on the EIN. This reporting helps our customers obtain government support, increase adoption, and boost overall public goodwill. OEMs, distributors, and third-party service provider customers also leverage the Company’s Connected Operations software applications to build a differentiated infrastructure for demand creation, implementation, and ongoing management of Modern Energy Economy solutions. +During the fiscal year 2024: +● We installed 173 heat pumps, 193 high efficiency air conditioners, and 113 fuel-efficient heating systems; +● We installed enough solar roofs to generate 1,249.84kW of electricity, decarbonizing 17.5 kT of CO2 during asset lifetime; +● Our network was responsible for 95.5 GWh of electrification, equivalent to powering 35,000 homes per day¹ +● We displaced 73,506 metric tons of CO2, equivalent to the amount of CO2 3.4 million trees can absorb in a year² +● We offset 6.7 million gallons of fossil fuel from being used, equivalent to driving around the world roughly 7,000 times³ +● We ended the year with a total of 25,931 EVs on the platform and managed a total 206 million green miles throughout the year. +¹U.S. Energy Information Administration (EIA) - Assuming the average home uses about 30 kilowatt-hours per day. +²U.S. Department of Agriculture +³Assumes 26 miles per gallon +Our Technology Applications +Connected Operations +Our mission is to reverse the adverse effects of climate change by owning, developing, and operating the world’s largest network of electro-mechanical assets. Our connected operations application provides advanced connectivity and real-time equipment monitoring to help promote a future powered primarily by clean, renewable energy. ConnectM’s innovative technology and MEE solutions are designed to empower our service provider and OEM customers to drive a reduction in their End User’s overall environmental impact and advance progression toward achieving zero-carbon emissions. Our advanced, full-stack system creates more energy-efficient homes, buildings, logistics, and transportation by providing insight and refined intelligence to electromechanical equipment, vehicles, and systems. +Our Connected Operations application includes key features that enhance our sales operations in our Owned Service Network and Managed Solutions segments: +● Single app-based interface for service providers and End Users; +● Efficient process for generating sales leads; +● All digital marketing and lead generation; +● Long-term and AI-driven End-User/customer engagement and management, including the use of data analytics to upsell services; and +● Shared services for service provider branding and brand equity enhancement, which includes: +● One service delivery platform for quality control, training, and tech support, and +● Consolidation of sales operations, vendors, insurance, fleet management, fuel expenses, payroll, benefits, recruitment, and human resources. +5 +Our Connected Operations application also includes key features that enhance our customer’s experience: +● Customer self-service enabled; +● Platform integration with OEMs, distributors, and sales channels for branding and promotions; and +● Single unified whole home electrification interface for frictionless cross-sales of different electrification and decarbonization solutions. +In our Transportation segment, our Connection Operations application also enables transportation OEMs to offer smart features to their end customers along with potentially valuable data collection within our EIN. The application, which is configuration-based, makes it simpler for OEMs to integrate our solutions within their vehicles. The application offers business applications for transportation OEMs, EV charging, shared mobility, and battery swapping operations management. +● Our Connected Operations application offers end users and stakeholders in the ecosystem (including equipment partners, utilities, and service providers the following services through our Smart Vehicle Control Unit. +● Integration of subsystems : Integrates with major subsystems of EV such as battery management system (BMS), motor control unit (MCU) and instrument cluster. +● Intelligence @ Edge : The VCU can execute analytical processes at the electric vehicle, where data is collected via smart devices and IoT sensors, and transfer processed data to the cloud instead of sending only raw data. VCU enables control of the vehicle based on safety aspects that can be pre-configured or enhanced over the air. For example, the mode of motor control can be changed based on an increase in battery temperature. The VCU can interface with additional sensors and actuators on a vehicle like GPS, temperature, tire-pressure, theft detection, ignition line and motor mode control, for taking actions at the edge or enabling the user to control using a connected application. +● Remote management : Allows remote management of BMS/MCU configuration, firmware operations over the air. Also, the VCU firmware can be remotely updated. This feature helps OEMs to enhance and quickly upgrade settings of the BMS/MCU remotely without visiting service stations. +Connected Consumer Application (End User-facing) +● End Users have access to a view of vehicle health, location, utilization, and receive live notifications. +● Provides a platform for End Users to buy insurance, warranty, accessories, or any other services offered by the OEM. +● Built-in security capabilities enable End Users to prevent theft or locate the vehicle if theft occurs. +● Special sensors on the VCU can detect if the vehicle experienced a crash situation and can notify family members in emergency situations. +Data Science and Analytics +● Our platform generates various insights that help detect battery deterioration, cell imbalance, and weaker cells that may damage an entire battery. +● Our platform enables transportation OEMs to proactively work with their customers to detect vehicle anomalies and facilitates submitting warranty claims when applicable. +● Our platform helps OEM service teams to analyze their customer complaints by reviewing past data and usage patterns. +● Location details provided by our platform enable OEMs to assess vehicle density, and this data can be leveraged to partner with charging station infrastructure providers to set up networks at locations with higher utilization and revenue potential. +6 +Our Value Proposition +We believe that our tech platforms provide the following advantages to the End Users of our service provider and OEM customers: +● Lower energy bills : Our streamlined process allows for various energy credits to be directly applied to an End User’s utility bill, which allows them to realize immediate savings. +● Connected Operations: Our technology allows for seamless and secure connectivity across various equipment and vehicle asset classes. This connectivity enables data collection, data analysis, and remote control, (together, “Connected Operations,”). Our Service Provider customers utilize Connected Operations to smooth End User demand across the year, and our OEM customers utilize Connected Operations to efficiently manage and extend the lifespan of EV assets. +● Supporting clean energy ecosystem: We anticipate that demand for more efficient sources of energy will continue to increase. We strive to support our customers in their continued transition to the modern energy ecosystem. We expect our continued growth and planned expansion of product offerings will allow us to support even more customers globally in this transition. +Growth Strategy +Most players in our space operate in a distinct segment of the market. There are pure-play solar companies, or pure play EV companies. These companies are much more susceptible to the typical boom and bust cycles that specific industries often face. ConnectM takes several pages out of the Berkshire Hathaway playbook: value investing, trust in strong management teams, and importantly a diversified approach. Our diversified approach across different segments like our Owned Service Network, Managed Solutions, Transportation, and Logistics means that we can allocate capital where there are strong growth rates. +​ +Due to our constellation model, ConnectM benefits from a diversity of customers and income streams. Our customers range from service providers that use our digital platform to provide electrified heating and cooling and distributed energy products to homeowners and commercial building owners to OEMs like Volvo that manufacture massive electric buses and trucks. Many of ConnectM’s portfolio companies have high margin recurring revenue products as a component of their offering and our growth strategy entails increasing the percentage of high margin software subscriptions in our future revenue mix. +​ +Our Managed Solutions segment allows us to stay asset lite as we grow since we do not foresee needing a large sales force or operating team for that segment of our business. To grow, we will seek to deploy capital into large addressable markets with low innovation, low penetration, and double-digit projected compound annual growth rates. We have typically avoided making singular, large pureplay bets and we will be cautious about excessive leverage on our balance sheet going forward. +​ +We seek to expand our OEM and service provider customer base through both organic (Owned Service Network, Transportation, and Logistics segments) and inorganic (Managed Solutions) growth initiatives. +​ +ConnectM intends to leverage our competitive strengths and market position to allow service providers and OEMs to present a “one-stop-shop” to their customers for the clean energy transition. Our growth strategy includes the following: +​ +● Service Offering Expansion: Using our existing customer and developer networks, we may explore building out our EV charging and energy storage offerings. +● Expansion of Existing Software Capabilities: Given the 30GB of data we collect daily, we plan to continue to grow our existing data science and software capabilities. Leveraging AI, we intend to develop and create additional software tools and data models that are capable of analyzing perspective customer properties to assist in identifying attractive opportunities for us and for our customers. +● Customer-Base Growth : We intend to grow our customer base via customer referrals and our customized, relationship-focused sales process. +7 +Market Opportunity +We view the energy economy in three distinct buckets: 1) Energy generation, 2) Energy transmission & distribution, and 3) Energy consumption. While we believe that all three buckets are in dire need of capital expenditures and innovation, ConnectM currently focuses on the energy consumption space. Energy consumption represents the largest market because it encompasses every asset that uses energy to operate: whether it is a consumer device, industrial equipment, machinery, or vehicle. Fundamentally, energy consumption comprises a multi trillion-dollar asset base that we believe will, in large part, be switching away from burning fossil to operate and will also be increasingly cloud connected. The stark reality is that for every unit of fossil fuel burned to power an asset, 2/3 of that unit is completely wasted as heat. So only 1/3 of that unit provides useful work or energy which is a very expensive baseline for comparison when a consumer or business is evaluating replacement options. ConnectM currently invests in and partners with companies that are electrifying assets to operate much more efficiently and effectively and provides cloud connectivity and intelligence for those assets (primarily service providers and OEMs). +Market Sizing – Owned Service Network and Managed Solutions +Total Addressable Market  +The total addressable market (“ TAM ”) for our integrated platform with multiple clean energy and decarbonization services is substantial. There are over 400 million homes and light commercial spaces in the U.S., Canada, and the European Union. Given an average annual purchase and operating expense of $3,850 per space, the annual total addressable market is $1.7 trillion per year. These services are considered essential infrastructure and continue to see sustained growth driven by aging equipment replacements, energy efficiency upgrades, and climate control demands throughout the world. +Serviceable Addressable Market   +The serviceable addressable market (“ SAM ”) includes New England, Mid-Atlantic, and South Atlantic regions in the United States over the course of the next five years. These regions have approximately 46.8 million homes and 1.68 million light commercial buildings, which correspond to a serviceable addressable market size of $40 billion.  These markets are being propelled by decarbonization efforts, rising energy costs, and policy support for sustainable home and commercial infrastructure upgrades. +Serviceable Obtainable Market   +The serviceable obtainable market (“ SOM ”) for HVAC and solar installation services in Massachusetts, Virginia, and Florida is $12 billion. These states have approximately 19 million homes and 483,000 Light Commercial Buildings in total. These markets are driven by strong state-level incentives for efficient equipment installation, aggressive climate targets, solar incentives, and an aging building stock. These markets will continue to be our focus area as we already have a footprint to leverage in these states. +Market Sizing – Transportation +Total Addressable Market   +The global total addressable market for our transportation business that focuses on EV fleet management and battery diagnostics is estimated at $14 billion in 2024, driven by accelerating fleet electrification, growing EV adoption, and the increasing need for real-time data and predictive insights. EV fleet management—valued at $10 billion—includes software and services for vehicle tracking, charging coordination, route optimization, and predictive maintenance. Meanwhile, the battery diagnostics and health monitoring segment—estimated at $4 billion—covers battery analytics, degradation tracking, resale assessments, and thermal risk management. As the global EV stock is projected to exceed 250 million vehicles by 2030, these data-heavy, software-driven markets are expected to grow rapidly, reaching a combined TAM of $45–75 billion by the end of the decade. +Serviceable Addressable Market   +The serviceable addressable markets for our transportation business are the U.S., India, and the Middle East. These specific markets account for $5.5 billion of the global market. In the U.S, the SAM is driven by strong demand from corporate, municipal, and delivery fleets, supported by government incentives and growing EV adoption. India is in the early stages of fleet electrification, with increasing demand for battery health management as the market matures. In the Middle East, electrification is accelerating due to government and luxury vehicle fleets, particularly in countries like the UAE and Saudi Arabia, where green energy initiatives are driving adoption. As fleet electrification grows across these regions, the demand for fleet management solutions and battery diagnostics will continue to expand. +8 +Serviceable Obtainable Market   +The serviceable obtainable market for our transportation business are EV and battery diagnostics OEMs in India. This market opportunity is $150 million. While fleet electrification in India is still in its early stages, the market is growing rapidly, particularly in sectors like e-commerce logistics, last-mile delivery, and electric two-wheelers. Demand for EV fleet management solutions, including route optimization and charging infrastructure management, is increasing as more fleets adopt electric vehicles. +Market Sizing – Logistics +Total Addressable Market  +The total addressable market for last mile delivery services is currently $300 billion. This is mainly driven by the rapid growth of e-commerce, consumer demand for faster delivery times, and the need for more efficient logistics solutions. As consumers increasingly expect same-day and next-day delivery, the market is projected to grow significantly, with estimates suggesting it could reach $700–800 billion by 2030. The rise of urbanization and the push for sustainable delivery options, such as electric delivery vehicles, further contribute to the market’s expansion. +Serviceable Addressable Market   +The serviceable addressable market for last mile delivery services in the U.S. and Canada is $165 billion. The United States makes up $150 billion of the SAM, and Canada represents the other $15 billion. Together, the U.S. and Canadian markets represent a significant portion of the global last mile delivery landscape, fueled by the expansion of e-commerce and the need for more efficient logistics solutions. +Serviceable Obtainable Market   +The serviceable obtainable market for last mile delivery of freight goods (such as palletized items) in the U.S. is estimated at $20 billion. This segment caters to industries such as wholesale, manufacturing, and retail, which require the delivery of larger freight to businesses, warehouses, and distribution centers. The market growth is fueled by the increasing demand for efficient, fast freight deliveries as part of e-commerce B2B operations, retail supply chains, and third-party logistics providers. The rise of these industries, combined with the need for specialized vehicles and infrastructure to handle bulk shipments, positions freight last mile delivery as a key market within the broader logistics and transportation sector. +Our Competitive Strengths +We believe we have a number of competitive advantages that contribute to our success. We aim to provide our service provider and OEM customers with a superior customer experience, lower costs, and a wide selection of products and services. We help our US-based owned service provider networks and MSA customers deliver wellness, health and comfort to dwellers of commercial buildings and homes through superior, real-time monitoring, management and prediction of environmental parameters (temperature, humidity, carbon dioxide and carbon monoxide levels) and digital climate control and zoning to ensure optimum HVAC delivery and comfort to the dwellers. We empower our OEM customers with a connected operations platform, directly contributing to their continued explosive growth across Asia and the Middle East. +● Superior Customer Experience. We believe that we maintain high customer satisfaction and compete with the pricing offered by our competitors. Our customers may access our customer service representatives digitally, or by phone, text or email, 24/7. +● Technology and Data. We have a technological and data advantage due to our consumer base, transaction volume, and fleet of products. This allows us to accumulate data to power and improve our technology. We have developed an integrated platform that optimizes energy efficiency, EV and fleet management. +● Deep Operational Experience. We develop and refine much of our core technology centrally. Our expertise allows us to tackle some of the most complex operational challenges. With deeply rooted local operational teams, we can quickly respond to changing external conditions. +9 +Risk Management & Compliance +We have built a strong culture around risk management and compliance. We believe our technology-driven processes help us to mitigate risks within our business. +We are focused on complying with all applicable laws and regulations while providing the best possible customer experience. Our legal and compliance teams work hand-in-hand with our business teams to ensure that we remain up to date on regulatory requirements, and that these requirements are met as new products and services are added. We prioritize strategic thinking about how best to protect the interests of the consumer, particularly since we are building a digitally native system in an industry that has traditionally been analog. +Our compliance program is kept current by our internal compliance team, whose members track regulatory updates, conduct thorough reviews of policies and procedures, and monitor the licensing and education requirements of our team members. +Security and Data Protection +We employ various in-house and third-party technologies and network administration policies that are designed to protect our computer network and the privacy of our customers’ and team members’ information from external threats and malicious attacks. +We believe that the technologies and network security plan we have adopted are appropriate to the size, complexity and scope of services we provide, as well as the nature of the information that we handle. Recently, we have experienced substantial growth, which presents additional challenges to our security and data protection infrastructure. We have a team of professionals dedicated to network and information security who monitor information systems, evaluate the effectiveness of technologies against known risks and adjust systems accordingly. In addition, we periodically have network security evaluated by outside firms specializing in network security to help us identify and remove any potential vulnerabilities. +We have undertaken measures intended to protect the safety and security of our information systems and the data therein, including physical and technological security measures, team member training, contractual precautions, business continuity plans, and implementation of policies and procedures designed to help mitigate the risk of system disruptions and failures and the occurrence of cyber incidents. We invest in security technology designed to protect our data and business processes against risk of a data security breach or cyberattack. Our data security management program includes identity, trust, vulnerability, and threat management business processes as well as the adoption of data protection policies. We measure our data security effectiveness through industry-accepted methods and remediate significant findings. The technology and other controls and processes designed to secure our team member, customer and loan applicant information and to prevent, detect and remedy any unauthorized access to or acquisition of that information were designed to obtain reasonable, but not absolute, assurance that such information is secure and that any unauthorized access is identified and addressed appropriately. +Cyclicality and Seasonality +Some MEE products and offerings are cyclical and those markets are dependent on general economic conditions and other factors, including consumer spending preferences and the attractiveness of incentives offered by OEMs, if any. In addition, our business can be affected by labor relations issues, regulatory requirements, trade agreements and other factors. Economic factors adversely affecting consumer spending could adversely impact our revenues and net income. +Our business is also somewhat seasonal. Our EIN platform and Connected Operations applications enable s us to remotely monitor and control and OEM’s vehicle fleet or an End User’s HVAC systems so that we know the problems with the performance of a vehicle or HVAC system s before an End User experiences a vehicle anomaly or an equipment outage. Ensuring optimal performance of the equipment and systems increases customer satisfaction and thereby increases the likelihood of getting additional electrification and decarbonization workstreams. +Peak summer, cold winters and rainy seasons have an impact on our Managed Services and Owned Service Network businesses. During certain periods of the summer and winter, demand for installations, replacements and repairs increases. Rainy and snow days negatively impact our rooftop solar installation business. The impact of seasonality varies depending on the market. For example, in Florida, our business slows down during hurricane season and there is high demand from March through September. +10 +Our Intellectual Property +Our intellectual property is an essential element of our business. We rely on a combination of patents, patent applications, internet domain names, and other forms of intellectual property, and on contractual agreements, to establish, maintain and protect our intellectual property rights and technology. We also license certain third-party technology for use in conjunction with our products. +As of December 31, 2024, we have 11 issued or pending patents and 11 domain names related to our technology. We intend to continue to file additional intellectual property applications related to our technology in the future. +We believe that our continued success depends on hiring and retaining highly capable and innovative team members, especially as it relates to our engineering base. It is our policy that all of our team members and independent contractors sign agreements acknowledging that all inventions, trade secrets, works of authorship, developments, processes and other forms of intellectual property generated by them on our behalf are our property and assigning to us any ownership that they may otherwise have in those works. Despite our precautions, it may be possible for third parties to obtain and use without consent intellectual property that we own or license. +Government Regulations +Although we are not regulated as a public utility in the United States under applicable national, state or other local regulatory regimes where we conduct business, we compete with regulated utilities. As a result, we have developed and are committed to maintaining a policy team to focus on the key regulatory and legislative issues impacting the entire industry. We believe these efforts will help us better navigate local markets through relationships with key stakeholders and facilitate a deep understanding of the national and regional policy environment. +To operate our systems, we obtain interconnection permission from the applicable local primary electric utility. Depending on the size of the solar energy system and local law requirements, interconnection permission is provided by the local utility directly to us and/or our customers. In almost all cases, interconnection permissions are issued on the basis of a standard process that has been pre-approved by the local public utility commission or other regulatory body with jurisdiction over net metering policies. As such, no additional regulatory approvals are required once interconnection permission is given. +Our operations are subject to stringent and complex federal, state and local laws, including regulations governing the occupational health and safety of our employees and wage regulations. For example, we are subject to the requirements of the federal Occupational Safety and Health Act, as amended (“ OSHA ”), and comparable state laws that protect and regulate employee health and safety. We endeavor to maintain compliance with applicable OSHA and other comparable government regulations. +We are subject to various other laws, including employment laws related to hiring practices, overtime, and termination of team members, health and safety laws, environmental laws and other federal, state and local laws in the jurisdictions in which we operate. +Government Incentives +The Inflation Reduction Act (“IRA”), signed into law on August 16, 2022, allocates nearly $400 billion in federal funding to advance clean energy initiatives, aiming to significantly reduce the nation’s carbon emissions by 2030. The funding comprises tax incentives, grants, and loan guarantees, with substantial emphasis on clean electricity infrastructure, energy transmission upgrades, and clean transportation, including incentives for electric vehicles. +Approximately $43 billion of the IRA is dedicated specifically to consumer incentives, designed to promote widespread adoption of sustainable technologies. These incentives lower consumer costs associated with purchasing EVs, energy-efficient home appliances, rooftop solar systems, geothermal heating solutions, and residential energy storage systems. Beginning in 2023, new electric vehicles qualify for federal tax credits of up to $7,500, while used electric vehicles qualify for up to $4,000. +In addition, the IRA extends through 2032 the tax credit available for residential energy-efficiency improvements, increasing the credit rate to 30% and replacing the previous lifetime limit with an annual limit of $1,200. It further introduces a separate annual credit of up to $2,000 specifically for installations of geothermal heat pumps and biomass stoves, while also enhancing incentives for energy-efficient windows and doors. Collectively, these policy measures create significant momentum for residential decarbonization, efficiency enhancements, and sustainable energy adoption across the United States through at least 2032. +11 +Corporate Information +ConnectM Technology Solutions, Inc. was formed under the laws of the State of Delaware on March 22, 2019. +The ConnectM design logo, “ConnectM” and our other common law trademarks, service marks or trade names appearing in this proxy statement/prospectus are the property of ConnectM. Other trademarks and trade names referred to in this proxy statement/prospectus are the property of their respective owners. +Human Capital Resources +As of December 31, 2024, in the U.S., we had eighty-five (85) full time employees: twelve (12) in sales, forty-nine (49) in technical, support and general management and twenty-four (24) in finance and administration. In India, we had seventy-three (73) full-time employees. Of these full-time employees, four (4) were engaged in sales and sales engineering, forty-two (42) in operations and customer support, fifteen (15) were engaged in research and development and twelve (12) in finance and administrative capacities. We consider our greatest asset to be our people because of the consultative nature of our business and employees are the crucial factor in our growth. None of our employees are represented by a labor union. We have not experienced any employment-related work stoppages, and we consider relations with our employees to be good. +In shaping our culture, we aim to combine a high standard of excellence, technological innovation and agility and operational and financial discipline. We believe that our flat and transparent structure and our collaborative and collegial approach enable our employees to grow, develop and maximize their impact on our organization. To attract and retain top talent in our highly competitive industry, we have designed our compensation and benefits programs to promote the retention and growth of our employees along with their health, well-being and financial security. Our short- and long-term incentive programs are aligned with key business objectives and are intended to motivate strong performance. Our employees are eligible for medical, dental and vision insurance, a savings/retirement plan, life and disability insurance, and various wellness programs and we review the competitiveness of our compensation and benefits periodically. +As an equal opportunity employer, all qualified applicants receive consideration without regard to race, national origin, gender, gender identity, sexual orientation, protected veteran status, disability, age or any other legally protected status. +We seek to create an inclusive, equitable, culturally competent, and supportive environment where our management and employees model behavior that enriches our workplace. +Our Facilities +Our corporate headquarters is located in Marlborough, Massachusetts where we lease approximately 2,396 square feet under a lease that expires on June 30, 2025. We also have offices in Gloucester, Massachusetts; New Bedford, Massachusetts; Stuart, Florida; Manassas, Virginia; Hyannis, Massachusetts; and Bangalore, India. We have one owned real property and 10 leased real properties. We believe that our existing facilities are adequate to meet the current needs of our essential workforce (including that, during the COVID-19 pandemic, we onboarded several fully remote employees) and that if we require additional space, we will be able to obtain additional facilities on commercially reasonable terms. +Legal Proceedings +On February 26, 2024, Robert Zrallack and RJZ Holdings LLC (the “ Plaintiffs ”) filed suit against Aurai LLC (“ Aurai ”), ConnectM Florida RE LLC (“ ConnectM Florida RE ”), and Florida Solar Products, Inc. (“ Florida Solar ”), each a wholly owned subsidiary of ConnectM, in the circuit court for the 19th judicial circuit (St. Lucie County, Florida). In this suit, the Plaintiffs allege various contract claims arising out of a transaction under which Aurai acquired Florida Solar from Mr. Zrallack in 2022 and ConnectM Florida RE acquired certain real estate from RJZ Holdings LLC in 2022 from which Florida Solar operates. +Specifically, the Plaintiffs allege breach of the stock purchase agreement and certain promissory notes in connection with the purchase of Florida Solar and the related real estate, as well as breach of a services agreement with Mr. Zrallack. +ConnectM believes the Plaintiffs’ claims have no merit and plans to assert counterclaims against the Plaintiffs in connection with the underlying transactions. ConnectM is defending itself in this matter. +12 +Regardless of the final outcome, defending lawsuits, claims, government investigations, and proceedings in which ConnectM is involved is costly and can impose a significant burden on management and employees, and there can be no assurances that favorable final outcomes will be obtained. +Corporate History and Background +We were originally incorporated in Delaware on September 23, 2021 under the name “Monterey Capital Acquisition Corporation” (“ MCAC ”) as a special purpose acquisition company, formed for the purpose of effecting an initial business combination with one or more target businesses. On May 13, 2022 (the “ IPO Closing Date ”), we consummated our initial public offering (the “ IPO ”). On July 15, 2024, we consummated the previously announced business combination (the “ Closing ”) pursuant to that certain Agreement and Plan of Merger (the “ Merger Agreement ”), dated as of December 31, 2022 (as amended on October 12, 2023 and April 12, 2024), by and among MCAC, Chronos Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of MCAC (“ Merger Sub ”), and ConnectM Technology Solutions, Inc., a Delaware corporation (“ Legacy ConnectM ”). +Pursuant to the Merger Agreement, Merger Sub merged with and into Legacy ConnectM (the “ Merger ”) with Legacy ConnectM surviving the Merger as a wholly owned subsidiary of MCAC. In addition, in connection with the consummation of the Merger, MCAC was renamed “ConnectM Technology Solutions, Inc.” +Our corporate offices are located at 2 Mount Royal Avenue, Suite 550, Marlborough, Massachusetts 01752 and our telephone number is 617-395-1333. Our website, which is located at http://www.connectm.com , describes our company and our management and provides information about our technology and products. Information contained on our website is not incorporated by reference into, and should not be considered a part of, the registration statement of which this prospectus forms a part. +Available Information +Our filings, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments submitted under Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are accessible at no cost on our company website promptly after submission to the SEC. Additionally, these documents are retrievable from the SEC’s website ( www.sec.gov ). +Corporate governance materials, such as our guidelines and committee charters, are also accessible on our investor relations webpage under “ Corporate Governance .” It is important to note that the content of our website is not intended for inclusion by reference in our filings with the SEC, and any website references serve as inactive textual mentions only. +Implications of Being a Smaller Reporting Company +We are a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates is less than $700 million as of our most recently completed second fiscal quarter and our annual revenue was less than $100 million during our most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million as of our most recently completed second fiscal quarter. As a smaller reporting company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not smaller reporting companies. +Implications of Being an Emerging Growth Company +We are an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “ Securities Act ”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “ JOBS Act ”). As an emerging growth company, we may benefit from specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include: +● presentation of only two years of audited financial statements and only two years of related management’s discussion and analysis of financial condition and results of operations in this prospectus; +● reduced disclosure about our executive compensation arrangements; +● no non-binding stockholder advisory votes on executive compensation or golden parachute arrangements; +13 +● exemption from any requirement of the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis); and +● exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting. +We may benefit from these exemptions until December 31, 2025 or such earlier time that we are no longer an emerging growth company. We will cease to be an emerging growth company upon the earliest of: (1) December 31, 2025; (2) the first fiscal year after our annual gross revenues are $1.235 billion or more; (3) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (4) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”). We may choose to benefit from some but not all of these reduced disclosure obligations in future filings. If we do, the information that we provide stockholders may be different than you might get from other public companies in which you hold stock. +Item 1A. Risk Factors. +Investing in our common stock, involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information contained in this Registration Statement, including our consolidated financial statements and their related notes included elsewhere in this annual report and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” before making an investment decision. If any of the following risks actually occurs, our business, prospects, operating results and financial condition could suffer materially, the trading price of our common stock could decline and you could lose all or part of your investment. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial also may materially and adversely affect our business, prospects, operating results and financial condition. +Unless the context otherwise requires, all references in this section to “we,” “us,” or “our” refers to the Company and its subsidiaries. +Risks Related to Our Securities +We need to raise additional capital to support our operations. +We have incurred substantial losses since our inception. Net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital. We expect to continue to incur significant losses for the foreseeable future. +The report of our independent registered public accounting firm on our financial statements for the years ended December 31, 2024 and 2023 contains explanatory language that substantial doubt exists about our ability to continue as a going concern. We may find it difficult to raise money on terms favorable to us or at all. The failure to obtain sufficient capital to support our operations would have a material adverse effect on our business, financial condition and results of operations. If sufficient financing is not received in a timely manner, we would then need to pursue a plan to license or sell assets, seek to be acquired by another entity, cease operations and/or seek bankruptcy protection. +If you purchase our securities you may experience future dilution as a result of future equity offerings or other equity issuances. +In order to raise additional capital, we will need to offer and issue additional shares of our common stock or other securities convertible into or exchangeable for our common stock in the future. We cannot assure you that we will be able to sell shares or other securities in any other offering at a price per share that is equal to or greater than the price per share paid by investors in this offering, and investors purchasing other securities in the future could have rights superior to existing stockholders. The price per share at which we sell additional shares of our common stock or other securities convertible into or exchangeable for our common stock in future transactions may be higher or lower than the price per share at which you purchase our securities. +In addition, we have a significant number of Warrants outstanding. Further, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. +14 +The market price of our common stock and the trading volume of our common stock has been and may continue to be, highly volatile, and such volatility could cause the market price of our common stock to decrease. +During the past year, the market price of our common stock fluctuated from a low of $0.67 per share to a high of $12.47 per share, and our stock price continues to fluctuate. The market price and trading volume of our common stock may continue to fluctuate significantly in response to numerous factors, some of which are beyond our control, such as: +● our ability to grow our revenue and customer base; +● the trading volume of our common stock; +● developments concerning regulatory oversight and approvals; +● variations in our and our competitors’ results of operations; +● changes in earnings estimates or recommendations by securities analysts, if our common stock is covered by analysts; +● successes or challenges in our collaborative arrangements or alternative funding sources; +● adverse effects on our business condition and results of operations from general economic and market conditions and overall fluctuations in the United States and international markets, including deteriorating market conditions due to investor concerns regarding inflation and Russia’s war on Ukraine; +● future issuances of common stock or other securities; +● the addition or departure of key personnel; +● announcements by us or our competitors of acquisitions, investments or strategic alliances; and +● general market conditions and other factors, including factors unrelated to our operating performance. +Further, the stock market in general has recently experienced extreme price and volume fluctuations. Continued market fluctuations could result in extreme volatility in the price of our common stock, which could cause a decline in the value of our common stock and the loss of some or all of your investment. +We have never paid dividends on our capital stock, and we do not anticipate paying dividends in the foreseeable future. +We have never paid dividends on any of our capital stock and currently intend to retain any future earnings to fund the growth of our business. We may also enter into credit agreements or other borrowing arrangements in the future that will restrict our ability to declare or pay cash dividends on our common stock. +A significant portion of our Common Stock is restricted from immediate resale, but may be sold into the market in the future pursuant to registration rights granted to the holders thereof. The exercise of such rights could cause the market price of our Common Stock to drop significantly, even if our business is doing well. +The market price of shares of our Common Stock could decline as a result of substantial sales of common stock, particularly by our significant stockholders, a large number of shares of common stock becoming available for sale or the perception in the market that holders of a large number of shares intend to sell their shares. +In connection with the Business Combination MCAC and certain stockholders of ConnectM entered into a registration rights agreement (the “ Business Combination Registration Rights Agreement ”) with ConnectM. An aggregate of 5,340,000 shares of Common Stock will be entitled to registration pursuant to the Business Combination Registration Rights Agreement, which consist of 2,300,000 Founder Shares and 3,040,000 Placement Warrant Shares issuable upon exercise of the Placement Warrants. At any time and from time to time after the Closing, either (i) the Demanding ConnectM Holder or (ii) the Demanding Sponsor Holders may make a written demand for registration under the Securities Act of all or part of their Registrable Securities. The Demanding Sponsor Holders and the Demanding ConnectM Holder may each demand not more than four (4) Underwritten Shelf Takedowns in any twelve (12) month period. If at any time following the Closing, ConnectM proposes to file a registration statement under the Securities Act, +15 +the holders of the Registrable Securities shall be offered an opportunity to register the sale of such number of Registrable Securities as such holders may request in writing. The demand registration rights and “piggy-back” registration rights under the Business Combination Registration Rights Agreement are subject to certain requirements and customary conditions. +As such, sales of a substantial number of shares of our Common Stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our Common Stock. +We may issue additional shares of our Common Stock or other equity securities without your approval, which would dilute your ownership interests and may depress the market price of your shares. +We may issue additional shares of our Common Stock or other equity securities of equal or senior rank in the future in connection with, among other things, future acquisitions and issuances under our Incentive Plan, without stockholder approval, in a number of circumstances. +Our issuance of additional shares of Common Stock or other equity securities of equal or senior rank could have the following effects: +● your proportionate ownership interest in ConnectM will decrease; +● the relative voting strength of each previously outstanding share of common stock may be diminished; or +● the market price of our shares of our stock may decline. +Because our common stock is quoted on the OTC, your ability to sell your shares in the secondary trading market may be limited. +As a result of the transfer of our common stock from Nasdaq to the OTC, we anticipate that our stockholders may face negative consequences related to our securities, including but not limited to: +● limited availability of market quotations for our securities. +● a determination that our common stock is a “penny stock” which will require brokers trading in our securities to adhere to more stringent rules. +● reduced level of trading activity in the secondary trading market for shares of our common stock. +● a limited amount of analyst coverage; and +● decreased ability to issue additional securities or obtain additional financing in the future. +Because our common stock is quoted on the OTC, your ability to sell your shares in the secondary trading market may be limited. The OTC is the only trading market for our common stock. We cannot assure our stockholders that our common stock will continue to trade on this market, whether broker-dealers will continue to provide public quotes of our common stock on this market, whether the trading volume of our common stock will be sufficient to provide for respective efficient trading markets or whether quotes for our common stock will continue on this market in the future, which could result in significantly lower trading volumes and reduced liquidity for investors seeking to buy or sell our common stock. As a result, prices for shares of our common stock may be lower than might otherwise prevail if our common stock was listed on a national securities exchange. +A market for our securities may not continue, which would adversely affect the liquidity and price of our securities. +The price of our securities may fluctuate significantly due to general market and economic conditions. An active trading market for our securities may not be sustained. In addition, the price of our securities can vary due to general economic conditions and forecasts, our general business condition and the release of our financial reports. +16 +There can be no assurance that the Public Warrants will be in the money during their exercise period, and they may expire worthless. +The exercise price for our Public Warrants is $11.50 per share. There can be no assurance that the Public Warrants will be in the money prior to their expiration and, as such, the warrants may expire worthless. The terms of Public Warrants may be amended in a manner that may be adverse to the holders. The warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us, provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of a majority of the then-outstanding Public Warrants to make any change that adversely affects the interests of the registered holders. Accordingly, we may amend the terms of the warrants in a manner adverse to a holder if holders of at least a majority of the then-outstanding Public Warrants approve of such amendment. Our ability to amend the terms of the Public Warrants with the consent of a majority of the then-outstanding Public Warrants is unlimited. Examples of such amendments could be amendments to, among other things, increase the exercise price of the Public Warrants, shorten the exercise period or decrease the number of shares of Common Stock purchasable upon exercise of a Public Warrant. +We may redeem unexpired warrants, in accordance with their terms, prior to their exercise at a time that is disadvantageous to holders of warrants. +We have the ability to redeem outstanding warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per Warrant, provided that the last sale price of our Common Stock equals or exceeds $18.00 per share (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like) for any twenty (20) trading days within a thirty (30) trading-day period ending on the third trading day prior to proper notice of such redemption and provided that certain other conditions are met. We will not redeem the warrants unless an effective registration statement under the Securities Act covering the Common Stock issuable upon exercise of the warrants is effective and a current prospectus relating to such Common Stock is available throughout the thirty (30) day redemption period, except if the warrants may be exercised on a cashless basis and such cashless exercise is exempt from registration under the Securities Act. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding warrants could force holders thereof to (i) exercise warrants and pay the exercise price therefor at a time when it may be disadvantageous for such holder to do so, (ii) sell warrants at the then-current market price when such holder might otherwise wish to hold warrants or (iii) accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market value of such warrants. +If securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our market, or if they change their recommendations regarding our Common Stock adversely, then the price and trading volume of Common Stock could decline. +The trading market for our Common Stock is influenced by the research and reports that industry or securities analysts may publish about us, our business and operations, our market, and our competitors. Securities and industry analysts do not currently, and may never, publish research on us. If no securities or industry analysts commence coverage of us, our stock price and trading volume would likely be negatively impacted. If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, the price of our Common Stock would likely decline. If any analyst who may cover us were to cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline. +Risks Related to the Forward Purchase Agreement +If the trading price of the Common Stock decreases, the amount of cash ConnectM receives through the Forward Purchase Agreement mechanisms will decrease. +From time to time, Meteora may sell the Recycled Shares and ConnectM will recoup the proceeds at 95% of the Reset Price (as defined therein) less the Prepayment Shortfall. While ConnectM may receive cash proceeds out of the escrow account from sales of Recycled Shares by Meteora, Meteora may not have any incentive to sell such Recycled Shares unless the trading price of the Common Stock is above the Reset Price. There is no guarantee that the trading price of the Common Stock will equal or exceed the Reset Price at any given time. In such a case, Meteora may not sell the Recycled Shares, in which case ConnectM may not receive cash settlement proceeds from the Forward Purchase Agreement and Meteora may retain ownership of all of the Recycled Shares it purchased pursuant to the Forward Purchase Agreement. If Meteora decides to sell the Recycled Shares into the market, it may cause the trading price of our Common Stock to decline significantly. +17 +ConnectM will have cash payment obligations that could, as a result, significantly reduce ConnectM’s cash reserves. +Pursuant to the Forward Purchase Agreement, at the Maturity Date, ConnectM is required to purchase from Meteora all of the unsold Recycled Shares for consideration equal to the Maturity Consideration, payable in cash or stock at ConnectM’s option. If ConnectM elected to pay the Maturity Consideration in cash, the amount of cash on hand to fund operations would be reduced accordingly, which could adversely affect ConnectM’s ability to make necessary investments, and, therefore, could adversely affect its results of operations. +Other events may result in Meteora having no payment obligations to ConnectM at settlement under the Forward Purchase Agreement. +In addition to the risk of a substantial decline in the market price of the shares of Common Stock, the occurrence of certain events will accelerate the maturity date and may result in Meteora having no payment obligation to ConnectM at settlement. Such events include (a) if the VWAP Price, for any 20 trading days during a 30 consecutive trading day-period beginning 30 days following the closing of the Merger, is below $5.00 per share, (b) if ConnectM’s shares of Class A Common Stock cease to be listed on a national securities exchange or upon the filing of a Form 25, or (c) if the Registration Statement is not declared effective by the Commission within the time periods set forth in the Forward Purchase Agreement, or if the Registration Statement after it is declared effective ceases to be continuously effective as required by the Forward Purchase Agreement, which will result in the unregistered shares being excluded from the calculation of the amounts due at settlement. +ConnectM may be required to make a future cash payment or issue additional shares of Common Stock to Meteora pursuant to the Forward Purchase Agreement at the Maturity Date, which would reduce the amount of cash available to ConnectM to fund its operations or dilute the percentage ownership held by the existing stockholders. +Pursuant to the Forward Purchase Agreement, at the Maturity Date, ConnectM is required to purchase from Meteora all of the unsold Recycled Shares for the Maturity Consideration equal to an amount, in cash or shares of Common Stock at the sole discretion of ConnectM, equal to (a) in the case of cash, the product of the unsold Recycled Shares and $2.00, or $2.50, solely in the event of a Registration Failure (as defined in the Forward Purchase Agreement), and (b) in the case of shares of Class A Common Stock, such number of shares (the “ Maturity Shares ”) with a value equal to the product of the unsold Recycled Shares and $2.00, or $2.50, solely in the event of a Registration Failure, divided by the VWAP Price of the Common Stock for the 30 trading days ending on the Maturity Date, subject to the payment of Penalty Shares if such shares are not freely tradable. Depending on the amount of the Maturity Consideration and the trading price of the Common Stock, the issuance of these shares in payment of such consideration could result in substantial dilution and decreases to ConnectM’s stock price. If ConnectM elected to pay the Maturity Consideration in cash, the amount of cash on hand to fund operations would be reduced accordingly, which could adversely affect our ability to make necessary investments, and, therefore, could affect our results of operations. +Risks Related to ConnectM’s Common Stock +The market price of ConnectM’s common stock is likely to be highly volatile, and you may lose some or all of your investment. +The market price of our common stock is likely to be highly volatile and may be subject to wide fluctuations in response to a variety of factors, including the following: +● the impact of COVID-19 pandemic on ConnectM’s business; +● the inability to recognize the anticipated benefits of the Business Combination, which may be affected by, among other things, competition, ConnectM’s ability to grow and manage growth profitably, and retain its key employees; +● changes in applicable laws or regulations; +● risks relating to the uncertainty of ConnectM’s projected financial information; and +● risks related to the organic and inorganic growth of ConnectM’s business and the timing of expected business milestones. +● In addition, the stock markets have experienced extreme price and volume fluctuations that affected and continue to affect the market prices of equity securities of many companies. These fluctuations have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors, as well as general economic, political, +18 +regulatory and market conditions, may negatively affect the market price of ConnectM’s common stock, regardless of ConnectM’s actual operating performance. +Volatility in ConnectM’s share price could subject ConnectM to securities class action litigation. +In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. If ConnectM faces such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm its business. +Sales of a substantial number of the shares of ConnectM’s common stock in the public market could cause the price of the shares of ConnectM’s common stock to fall. +Sales of a substantial number of shares of ConnectM’s common stock in the public market or the perception that these sales might occur could depress the market price of ConnectM’s common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of ConnectM’s common stock. In addition, the sale of substantial amounts of ConnectM’s common stock or the perception such sales may occur, could adversely impact its price. +The selling stockholders will determine the timing, pricing and rate at which they sell such shares into the public market. Certain selling stockholders will have an incentive to sell because they will still realize a profit from such sales because they purchased shares and/or warrants at prices below the price per share paid by public investors in the IPO and/or below the recent trading prices of the shares of Common Stock. Sales by such investors may prevent the trading price of the shares of ConnectM’s common stock from exceeding the price per share in the IPO of MCAC and may cause the trading prices of our securities to experience a further decline. +Because ConnectM does not anticipate paying any cash dividends in the foreseeable future, capital appreciation, if any, would be your sole source of gain. +ConnectM currently anticipates that it will retain future earnings for the development, operation and expansion of its business and do not anticipate declaring or paying any cash dividends for the foreseeable future. As a result, capital appreciation, if any, of ConnectM’s shares of common stock would be your sole source of gain on an investment in such shares for the foreseeable future. +Future sales of shares of ConnectM’s common stock may depress its stock price. +Pursuant to the Registration Rights Agreement and the Amended Bylaws, after the consummation of the Business Combination and subject to certain exceptions, the Sponsor, those receiving shares of ConnectM’s common stock pursuant to the Merger Agreement, directors, officers and employees of the Company receiving shares of ConnectM’s common stock upon the settlement or exercise of warrants, stock options or other equity awards, and warrantholders of the Company receiving shares of ConnectM’s common stock upon the settlement or exercise of such warrants (other than holders of warrants that are currently listed) will be contractually restricted from selling or transferring any of their shares of common stock. Such restrictions begin at Closing and end on the date that is the earlier of (1) 180 days after Closing and (2)(x) the date on which the closing price of ConnectM’s common stock equals or exceeds $16.50 per share for any 20 trading days within any 30-day period commencing at least 150 days after the Closing, or (y) a Change of Control (as defined in the Lock-Up Agreement). Immediately following the Closing, 8,155,880 shares of ConnectM common stock, representing approximately 38.4% of the outstanding shares of ConnectM common stock, were freely tradable. +However, following the expiration of the applicable lock-up period, such equityholders will not be restricted from selling shares of ConnectM’s common stock held by them, other than by applicable securities laws. Further, there is a likelihood that ConnectM will need to continue to raise capital through one or more equity financings in order to continue growing its business. As such, sales of a substantial number of shares of ConnectM’s common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of ConnectM’s common stock. As restrictions on resale end and registration statements (filed after the Closing to provide for the resale of such shares from time to time) are available for use, the sale or possibility of sale of these shares could have the effect of increasing the volatility in ConnectM’s share price or the market price of ConnectM’s common stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them. +19 +Provisions in our Charter and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of management. +The Charter and Amended Bylaws contain provisions that could significantly reduce the value of our shares to a potential acquiror or delay or prevent changes in control or changes in our management without the consent of our board of directors. The provisions in our charter documents will include the following: +● a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors; +● no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; +● the exclusive right of our board of directors, unless the board of directors grants such right to the stockholders, to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, retirement, disqualification, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; +● the required approval of at least 66 2 ∕ 3 % of the shares entitled to vote to remove a director for cause, and the prohibition on removal of directors without cause; +● the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror; +● the ability of our board of directors to alter our amended and restated bylaws without obtaining stockholder approval; +● the required approval of at least 662∕3% of the shares entitled to vote to adopt, amend or repeal our amended and restated bylaws or repeal the provisions of our amended and restated certificate of incorporation regarding the election and removal of directors; +● a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; +● an exclusive forum provision providing that the Court of Chancery of the State of Delaware will be the exclusive forum for certain actions and proceedings; +● the requirement that a special meeting of stockholders may be called only by the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and +● advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of us. +We will also be subject to the anti-takeover provisions contained in Section 203 of the DGCL. Under Section 203, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other exceptions, the board of directors has approved the transaction. +Our Charter provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders and that the federal district courts shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees or the underwriters or any offering giving rise to such claim. +The Charter provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws, or any action +20 +asserting a claim against us that is governed by the internal affairs doctrine. Furthermore, the Charter also provides that unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, including all causes of action asserted against any defendant named in such complaint. Notwithstanding the foregoing, this forum selection provision will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal district courts of the United States have exclusive jurisdiction. For the avoidance of doubt, this provision is intended to benefit and may be enforced by us, our officers and directors, the underwriters to any offering giving rise to such complaint, and any other professional entity whose profession gives authority to a statement made by that person or entity and who has prepared or certified any part of the documents underlying the offering. These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees and result in increased costs for investors to bring a claim. By agreeing to this provision, however, stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder. Furthermore, the enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. If a court were to find the choice of forum provisions in the Charter to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition. +ConnectM is an emerging growth company and smaller reporting company, and ConnectM cannot be certain if the reduced reporting requirements applicable to emerging growth companies and smaller reporting companies will make its shares less attractive to investors. +ConnectM is an emerging growth company, as defined in the Jumpstart Our Business Startups Act (the “ JOBS Act ”). For as long as ConnectM continues to be an emerging growth company, it may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including exemption from compliance with the auditor attestation requirements under Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. ConnectM will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the closing of the IPO (December 31, 2026), (b) in which ConnectM has total annual gross revenue of at least $1.235 billion or (c) in which ConnectM is deemed to be a large accelerated filer, which means the market value of shares of ConnectM’s common stock that are held by non-affiliates exceeds $700 million as of the prior June 30, and (2) the date on which ConnectM has issued more than $1.0 billion in non-convertible debt during the prior three-year period. +In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. ConnectM has elected to use this extended transition period for complying with new or revised accounting standards and, therefore, ConnectM will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. +ConnectM is also a smaller reporting company as defined in the Exchange Act. Even after ConnectM no longer qualifies as an emerging growth company, it may still qualify as a “smaller reporting company,” which would allow it to take advantage of many of the same exemptions from disclosure requirements including exemption from compliance with the auditor attestation requirements of Section 404 and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. ConnectM will be able to take advantage of these scaled disclosures for so long as its voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of its second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and its voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of its second fiscal quarter. +ConnectM cannot predict if investors will find its common stock less attractive because ConnectM may rely on these exemptions. If some investors find ConnectM’s common stock less attractive as a result, there may be a less active trading market for the common stock and its market price may be more volatile. +21 +Risks Related to ConnectM’s Business +Business and Operational Risks +Due to ConnectM operating as a going concern, and there is a possibility that ConnectM may never be profitable and you may lose all or part of your investment. During the twelve months ended December 31, 2024 and 2023, ConnectM incurred net losses of approximately $23 million and $9 million, respectively. Continued operations are dependent on ConnectM’s ability to complete equity or debt financings or generate profitable operations. Such financings may not be available or may not be available on reasonable terms. +During the twelve months ended December 31, 2024 and 2023, ConnectM has incurred net losses of approximately $22.5 million and $9.2 million, respectively. As of December 31, 2024, ConnectM had an accumulated deficit of $45.4 million. ConnectM expects to incur additional losses and higher operating expenses for the foreseeable future. These conditions raises substantial doubt about ConnectM’s ability to continue as a going concern within one year after the date that these combined consolidated financial statements are issued that has not been alleviated. Management’s plans to alleviate the substantial doubt identified include obtaining additional financing from related parties and third parties, and potentially extending existing debt agreements. Due to the Company operating as a going concern, and there is a possibility that we may never be profitable, there is the possibility that you may lose all or part of your investment. +Our growth strategy depends on the widespread adoption Modern Energy Economy (MEE) Systems, MEE Technology, and MEE Services. +The market for MEE Services, MEE Technology, and MEE Systems is emerging and rapidly evolving, and our future success is uncertain. If MEE Technology or Services prove unsuitable for widespread commercial deployment or if demand for MEE Systems fails to develop sufficiently, we would be unable to generate enough revenues to achieve and sustain profitability and positive cash flow. The factors influencing the widespread adoption of MEE solutions include but are not limited to: +● cost-effectiveness of MEE solutions as compared with conventional and fossil fuel based energy technologies; +● performance and reliability of MEE solutions as compared with conventional and fossil fuel based energy products; +● continued deregulation of the electric power industry and broader energy industry; +● fluctuations in economic and market conditions which impact the viability of conventional and non-solar alternative energy sources, such as increases or decreases in the prices of oil and other fossil fuels; and +● availability of governmental subsidies and incentives. +If we cannot compete successfully against other home electrification and energy companies, we may not be successful in developing our operations and our business may suffer. +The MEE industries are characterized by intense competition and rapid technological advances. We compete with other MEE Service Providers with business models that are similar to ours. In addition, we compete with solar companies in the downstream value chain of distributed energy. Further, some competitors are integrating vertically in order to ensure supply and to control costs. Many of our competitors also have significant brand name recognition and have extensive knowledge of our target markets. Intense competition in our industry could reduce our market share and our profit. We expect to face significant competition in the future as the market for home electrification develops. +If we are unable to compete in the market, there will be an adverse effect on our business, financial condition, and results of operations. +With respect to providing electricity on a price-competitive basis, solar systems face competition from traditional regulated electric utilities, from less-regulated third party energy service providers and from new renewable energy companies. +The solar energy and renewable energy industries are both highly competitive and continually evolving as participants strive to distinguish themselves within their markets and compete with large traditional utilities. Some of our competitors are the traditional utilities that supply electricity to our potential customers. Traditional utilities generally have substantially greater financial, technical, operational and other resources than we do. As a result, these competitors may be able to devote more resources to the research, +22 +development, promotion, and sale of their products or respond more quickly to evolving industry standards and changes in market conditions than we can. Traditional utilities could also offer other value-added products or services that could help them to compete with us even if the cost of electricity they offer is higher than that of ours. In addition, a majority of utilities’ sources of electricity are non-solar, which may allow utilities to sell electricity more cheaply than electricity generated and stored by our solar and battery systems. +We also compete with companies that are not regulated like traditional utilities, but that have access to the traditional utility electricity transmission and distribution infrastructure pursuant to state and local pro-competitive and consumer choice policies. These energy service companies may be able to offer customers electricity supply-only solutions that are competitive with our solar and battery systems options on both price and usage of renewable energy technology while avoiding the long-term agreements and physical installations that our current business model requires. This may limit our ability to attract new customers, particularly those who wish to avoid long-term contracts or have an aesthetic or other objection to putting solar panels on their roofs. +As the MEE industry grows and evolves, we will also face new competitors who are not currently in the market. Low technological barriers to entry characterize our industry and well-capitalized companies could choose to enter the market and compete with us. Our failure to adapt to changing market conditions and to compete successfully with existing or new competitors will limit our growth and will have a material adverse effect on our business and prospects. +Due to the limited number of suppliers in our industry, the acquisition of any of these suppliers by a competitor or any shortage, delay, quality issue, price change, or other limitations in our ability to obtain components or technologies we use could result in adverse effects. +While we purchase our products from several different suppliers, if one or more of the suppliers that we rely upon to meet anticipated demand ceases or reduces production due to its financial condition, acquisition by a competitor, or otherwise, is unable to increase production as industry demand increases or is otherwise unable to allocate sufficient production to us, it may be difficult to quickly identify alternate suppliers or to qualify alternative products on commercially reasonable terms, and our ability to satisfy this demand may be adversely affected. At times, suppliers may have issues with the quality of their products, which may not be realized until the product has been installed at a customer site. This may result in additional cost incurred. There are a limited number of suppliers of MEE system components and technologies. While we believe there are other sources of supply for these products available, transitioning to a new supplier may result in additional costs and delays in acquiring our MEE products and deploying our systems. These issues could harm our business or financial performance. In addition, the acquisition of a component supplier or technology provider by one of our competitors could limit our access to such components or technologies and require significant redesigns of our MEE systems or installation procedures and have a negative impact on our business. +There have also been periods of industry-wide shortages of key MEE components in times of industry disruption. The manufacturing infrastructure for some of these components has a long lead-time, requires significant capital investment and relies on the continued availability of key commodity materials, potentially resulting in an inability to meet demand for these components. We and our original equipment manufacturers (“ OEMs ”)/distributor partners depend on a limited number of suppliers of MEE system components to adequately meet anticipated demand for our MEE service offerings. Any shortage, bottlenecks, delay, detentions, or component price change from these suppliers, or the acquisition of any of these suppliers by a competitor, could result in sales and installation delays, cancellations, and loss of market share. +The MEE industry is frequently experiencing significant disruption and, as a result, shortages of MEE key components may be more likely to occur, which in turn may result in price increases for such components. Even if industry-wide shortages do not occur, suppliers may decide to allocate key components with high demand or insufficient production capacity to more profitable customers, customers with long-term supply agreements or customers other than us and our supply of such components may be reduced as a result. The supply of components from various locales is also uncertain due to COVID-19 that has resulted in travel restrictions and shutdowns of businesses in various regions. +Typically, we purchase the components for our MEE systems on an as-needed basis and do not operate under long-term supply agreements. The vast majority of our purchases are denominated in U.S. dollars. Since our revenue is also generated in U.S. dollars we are mostly insulated from currency fluctuations. However, since our suppliers often incur a significant amount of their costs by purchasing raw materials and generating operating expenses in foreign currencies, if the value of the U.S. dollar depreciates significantly or for a prolonged period of time against these other currencies, this may cause our suppliers to raise the prices they charge us, which could harm our financial results. +Our backlog is subject to unexpected adjustments and cancellations, which means that amounts included in our backlog may not result in actual revenue or translate into profits. Any supply shortages, delays, quality issues, price changes or other limitations in our +23 +ability to obtain components or technologies we use could limit our growth, cause cancellations or adversely affect our profitability, and result in loss of market share and damage to our brand. +Damage to our brand and reputation or failure to expand our brand would harm our business and results of operations. +We depend significantly on our brand and reputation for high-quality home electrification and solar service offerings, engineering and customer service to attract customers and grow our business. If we fail to continue to deliver our MEE service offerings within the planned timelines, if our MEE offerings do not perform as anticipated or if we damage any customers’ properties or cancel projects, our brand and reputation could be significantly impaired. We also depend greatly on referrals from customers for our growth. Therefore, our inability to meet or exceed customers’ expectations would harm our reputation and growth through referrals. We have at times focused particular attention on expeditiously growing our direct sales force and our MEE partners, leading us in some instances to hire personnel or partner with third parties who we may later determine do not fit our company culture and standards. Given the sheer volume of interactions our direct sales force and our MEE partners have with customers and potential customers, it is also unavoidable that some interactions will be perceived by customers and potential customers as less than satisfactory and result in complaints. If we cannot manage our hiring and training processes to limit potential issues and maintain appropriate customer service levels, our brand and reputation may be harmed and our ability to grow our business would suffer. In addition, if we were unable to achieve a similar level of brand recognition as our competitors, some of which may have a broader brand footprint, more resources and longer operational history, we could lose recognition in the marketplace among prospective customers, suppliers and partners, which could affect our growth and financial performance. Our growth strategy involves marketing and branding initiatives that will involve incurring significant expenses in advance of corresponding revenue. We cannot assure you that such marketing and branding expenses will result in the successful expansion of our brand recognition or increase our revenue. We are also subject to marketing and advertising regulations in various jurisdictions, and overly restrictive conditions on our marketing and advertising activities may inhibit the sales of the affected products. +Developments in alternative technologies may materially adversely affect demand for our offerings. +Significant developments in alternative technologies, such as advances in other forms of home electrification or distributed solar power generation, storage solutions such as batteries, the widespread use or adoption of fuel cells for residential or commercial properties or improvements in other forms of centralized power production may materially and adversely affect our business and prospects in ways we do not currently anticipate. Any failure by us to adopt new or enhanced technologies or processes, or to react to changes in existing technologies, could materially delay deployment of our solar energy systems, which could result in product obsolescence, the loss of competitiveness of our systems, decreased revenue and a loss of market share to competitors. +While we maintain an inventory of, or otherwise make arrangements to obtain, spare parts to replace critical equipment and maintain insurance for property damage to protect against certain operating risks, these protections may not be adequate to cover lost revenues or increased expenses and penalties that could result if we were unable to operate our generation facilities at a level necessary to comply with sales contracts. +Obtaining a sales contract with a potential customer does not guarantee that the potential customer will not decide to cancel or that we will not need to cancel due to a failed inspection, which could cause us to generate no revenue despite incurring costs and adversely affect our results of operations. +Even after we secure a sales contract with a potential customer, we (either directly or through our MEE partners) must perform an inspection to ensure that the home, including the rooftop, meets our standards and specifications. If the inspection finds that repairs to the rooftop are required in order to satisfy our standards and specifications to install the solar energy system, and a potential customer does not want to make such required repairs, we would lose that anticipated sale. In addition, per the terms of our customer agreements, a customer maintains the ability to cancel before commencement of installation, subject to certain conditions. Any delay or cancellation of an anticipated sale could materially and adversely affect our financial results, as we may have incurred sales-related, design-related, and other expenses and generated no revenue. +Our inability to properly utilize our workforce could have a negative impact on our profitability. +The extent to which we utilize our workforce affects our profitability. Underutilizing our workforce could result in lower gross margins and, consequently, a decrease in our short-term profitability. On the other hand, overutilization of our workforce could negatively impact safety, employee satisfaction, attrition, and project execution, leading to a potential decline in future project awards. The utilization of our workforce is impacted by numerous factors, including: +● our estimates of headcount requirements and our ability to manage attrition; +24 +● efficiency in scheduling projects and our ability to minimize downtime between project assignments; +● productivity; +● labor disputes; and +● availability of skilled labor at any given time. +Expanding operations internationally will subject us to a variety of risks and uncertainties that could adversely affect our business and operating results. +ConnectM may choose to expand internationally and may require additional resources and controls. Any expansion internationally could subject our business to risks associated with international operations, including: +● difficulties in establishing legal entities in foreign jurisdictions; +● challenges in arranging, and availability of, financing for our customers; +● availability and cost of raw materials and components, labor and equipment for manufacturing our systems; +● difficulties in staffing and managing foreign operations due to differences in culture, laws and customer expectations, and the increased travel, infrastructure, and legal and compliance costs associated with international operations; +● installation challenges which we have not encountered before which may require the development of adaptions of our products for a given jurisdiction; +● compliance with multiple, potentially conflicting and changing governmental laws, regulations, and permitting processes including environmental, banking, employment, tax, privacy, safety, security and data protection laws and regulations; +● compliance with U.S. and foreign anti-bribery laws including the Foreign Corrupt Practices Act and the U.K. Anti-Bribery Act; +● greater difficulties in securing or enforcing our intellectual property rights in certain jurisdictions, or in potential infringement of third-party intellectual property rights in new jurisdictions; +● difficulties in collecting payments in foreign currencies and associated foreign currency exposure; +● increases or decreases in our expenses caused by fluctuation in foreign currency exchange rates; +● restrictions on repatriation of foreign earnings; +● compliance with potentially conflicting and changing laws of taxing jurisdictions where we conduct business and compliance with applicable U.S. tax laws as they relate to international operations, including product transfer pricing, the complexity and adverse consequences of such tax laws, and potentially adverse tax consequences due to changes in such tax laws; +● changes in import and export controls and tariffs imposed by the United States or foreign governments; +● changes in regulations regarding recycling and the end of life of our products; +● changes in regulations that would prevent us from doing business in specified countries; +● failure of the supply chain in local countries to provide us with materials of a sufficient quality and quantity delivered on timelines we expect; and +● regional economic and political conditions. +25 +As a result of these risks, any potential future international expansion efforts that we may undertake may not be successful. +We may not be able to effectively manage our growth. +Our future growth, if any, may cause a significant strain on our management and our operational, financial, and other resources. Our ability to manage our growth effectively will require us to implement and improve our operational, financial, and management systems and to expand, train, manage, and motivate our employees. These demands will require the hiring of additional management personnel and the development of additional expertise by management. Any increase in resources used without a corresponding increase in our operational, financial, and management systems could have a negative impact on our business, financial condition, and results of operations. +We are a decentralized company and place significant decision-making powers with our subsidiaries’ management, which presents certain risks. +We believe that our practice of placing significant decision-making powers with local management is important to our successful growth and allows us to be responsive to opportunities and to our customers’ needs. However, this practice presents certain risks, including the risk that we may be slower or less effective in our attempts to identify or react to problems affecting an important business than we would under a more centralized structure or that we would be slower to identify a misalignment between a subsidiary’s and ConnectM’s overall business strategy. Further, if a subsidiary location fails to follow ConnectM’s compliance policies, we could be made party to a contract, arrangement or situation that requires the assumption of large liabilities or has less advantageous terms than is typically found in the market. +We may not realize the anticipated benefits of past or future investments, strategic transactions, or acquisitions, and integration of these acquisitions may disrupt our business and management. +We have in the past, and in the future we expect to, acquire companies, project pipelines, products or technologies or enter into joint ventures or other strategic initiatives. We may not realize the anticipated benefits of these acquisitions, and any acquisition has numerous risks. These risks include the following: +● difficulty in assimilating the operations and personnel of the acquired company; +● difficulty in effectively integrating the acquired technologies or products with our current technologies; +● difficulty in maintaining controls, procedures and policies during the transition and integration; +● disruption of our ongoing business and distraction of our management and employees from other opportunities and challenges due to integration issues; +● difficulty integrating the acquired company’s accounting, management information, and other administrative systems; +● inability to retain key technical and managerial personnel of the acquired business; +● inability to retain key customers, vendors, and other business partners of the acquired business; +● inability to achieve the financial and strategic goals for the acquired and combined businesses; +● incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact our operating results; +● potential failure of the due diligence processes to identify significant issues with product quality, intellectual property infringement, and other legal and financial liabilities, among other things; +● potential inability to assert that internal controls over financial reporting are effective; and +● potential inability to obtain, or obtain in a timely manner, approvals from governmental authorities, which could delay or prevent such acquisitions. +26 +Acquisitions of companies, businesses and assets are inherently risky and, if we do not complete the integration of these acquisitions successfully and in a timely manner, we may not realize the anticipated benefits of the acquisitions to the extent anticipated, which could adversely affect our business, financial condition, or results of operations. +If we are unsuccessful in developing and maintaining our proprietary technology, including our Connected Operations applications, our ability to attract and retain OEMs could be impaired, our competitive position could be harmed and our revenue could be reduced. +Our future growth depends on our ability to continue to develop and maintain our proprietary technology that supports our service offerings, including our Connected Operations applications. In addition, we rely, and expect to continue to rely, on licensing agreements with certain third parties for aerial images that allow us to efficiently and effectively analyze a customer’s MEE system specifications. In the event that our current or future products require features that we have not developed or licensed, or we lose the benefit of an existing license, we will be required to develop or obtain such technology through purchase, license or other arrangements. If the required technology is not available on commercially reasonable terms, or at all, we may incur additional expenses in an effort to internally develop the required technology. If we are unable to maintain our existing proprietary technology, our ability to attract and retain OEM partners could be impaired, our competitive position could be harmed and our revenue could be reduced. +Our business is concentrated in certain markets, putting us at risk of region-specific disruptions. +As of December 31, 2024, a majority of our total installations were in Massachusetts, Florida and Virginia. We expect our near-term future growth to occur in the east coast and Midwest of the U.S., and to further expand our customer base and operational infrastructure. Accordingly, our business and results of operations are particularly susceptible to adverse economic, regulatory, political, weather and other conditions in such markets and in other markets that may become similarly concentrated. +Changes to the applicable laws and regulations governing direct-to-home sales and marketing may limit our ability to effectively compete. +The majority of our service business is conducted using the direct-to-home sales channel and marketing that could impose additional limitations on unsolicited residential sales calls and may impose additional restrictions such as adjustments to our marketing materials and direct-selling processes, and new training for personnel. If additional laws and regulations affecting direct sales and marketing are passed in the markets in which we operate, it would take time to train our sales professionals to comply with such laws, and we may be exposed to fines or other penalties for violations of such laws. If we fail to compete effectively through our direct-selling efforts, our financial condition, results of operations and growth prospects could be adversely affected. +Our growth depends in part on the success of our relationships with third parties. +A key component of our growth strategy is to develop or expand our relationships with third parties. For example, we are investing resources in establishing strategic relationships with market players across a variety of industries to generate new customers. These programs may not roll out as quickly as planned or produce the results we anticipated. A significant portion of our business depends on attracting and retaining new and existing MEE partners. Negotiating relationships with our MEE partners, investing in due diligence efforts with potential MEE partners, training such third parties and contractors, and monitoring them for compliance with our standards require significant time and resources and may present greater risks and challenges than expanding a direct sales or installation team. If we are unsuccessful in establishing or maintaining our relationships with these third parties, our ability to grow our business and address our market opportunity could be impaired. Even if we are able to establish and maintain these relationships, we may not be able to execute on our goal of leveraging these relationships to meaningfully expand our business, brand recognition and customer base. This would limit our growth potential and our opportunities to generate significant additional revenue or cash flows. +ConnectM operates in the early-stage market of MEE adoption, has a history of losses and expects to incur significant ongoing expenses +We have incurred operating losses before income taxes in the past. We intend to increase our spending to finance the expansion of our operations, expand our installation, engineering, administrative, sales and marketing staffs, increase spending on our brand awareness and other sales and marketing initiatives, make significant investments to drive future growth in our business and implement internal systems and infrastructure to support our growth. We do not know whether our revenue will grow rapidly enough +27 +to absorb these costs and our limited operating history makes it difficult to assess the extent of these expenses or their impact on our results of operations. Our ability to sustain profitability depends on a number of factors, including but not limited to: +● mitigating the impact of the COVID-19 pandemic on our business; +● growing our customer base; +● maintaining or lowering our cost of capital; +● reducing the cost of components for our solar service offerings; +● growing and maintaining our channel partner network; +● maintaining high levels of product quality, performance, and customer satisfaction; +● successfully integrating acquired businesses; +● growing our direct-to-consumer business to scale; +● reducing our operating costs by lowering our customer acquisition costs and optimizing our design and installation processes; and +● supply chain logistics, such as accepting late deliveries. +We may be unable to achieve positive cash flows from operations in the future. +Failure to hire and retain a sufficient number of employees and service providers in key functions would constrain our growth and our ability to timely complete customers’ projects and successfully manage customer accounts. +To support our growth, we need to hire, train, deploy, manage and retain a substantial number of skilled employees, engineers, installers, electricians, sales and project finance specialists. Competition for qualified personnel in our industry is increasing, particularly for skilled personnel involved in the installation of MEE systems. We have in the past been, and may in the future be, unable to attract or retain qualified and skilled installation personnel or installation companies to be our MEE service partners (under Managed Solutions), which would have an adverse effect on our business. We and our MEE partners also compete with the homebuilding and construction industries for skilled labor. As these industries grow and seek to hire additional workers, our cost of labor may increase. The unionization of the industry’s labor force could also increase our labor costs. Shortages of skilled labor could significantly delay a project or otherwise increase our costs. Because our profit on a particular installation is based in part on assumptions as to the cost of such project, cost overruns, delays or other execution issues may cause us to not achieve our expected margins or cover our costs for that project. We need to continue to expand upon the training of our customer service team to provide high-end account management and service to customers before, during and following the point of installation of our MEE systems. Identifying and recruiting qualified personnel and training them requires significant time, expense and attention. It can take several months before a new customer service team member is fully trained and productive at the standards that we have established. If we are unable to hire, develop and retain talented technical and customer service personnel, we may not be able to realize the expected benefits of this investment or grow our business. +In addition, to support the growth and success of our direct-to-consumer channel, we need to recruit, retain and motivate a large number of sales personnel on a continuing basis. We compete with many other companies for qualified sales personnel, and it could take many months before a new salesperson is fully trained on our MEE service offerings. If we are unable to hire, develop and retain qualified sales personnel or if they are unable to achieve desired productivity levels, we may not be able to compete effectively. +If we or our MEE partners cannot meet our hiring, retention and efficiency goals, we may be unable to complete customers’ projects on time or manage customer accounts in an acceptable manner or at all. Any significant failures in this regard would materially impair our growth, reputation, business and financial results. If we are required to pay higher compensation than we anticipate, these greater expenses may also adversely impact our financial results and the growth of our business. +28 +Failure by our vendors or our component suppliers to use ethical business practices and comply with applicable laws and regulations may adversely affect our business. +We do not control our vendors or suppliers or their business practices. Accordingly, we cannot guarantee that they follow ethical business practices, such as fair wage practices and compliance with environmental, safety and other local laws. A lack of demonstrated compliance could lead us to seek alternative manufacturers or suppliers, which could increase our costs and result in delayed delivery of our products, product shortages or other disruptions of our operations. Violation of labor or other laws by our manufacturers or suppliers or the divergence of a supplier’s labor or other practices from those generally accepted as ethical in the U.S. or other markets in which we do business could also attract negative publicity for us and harm our business. +If we are unable to retain and recruit qualified technicians and advisors, or if our board of directors, key executives, key employees or consultants discontinue their employment or consulting relationship with us, it may delay our development efforts or otherwise harm our business. +We may not be able to attract or retain qualified management or technical personnel in the future due to the intense competition for qualified personnel among MEE services businesses. Our industry has experienced a high rate of turnover of management personnel in recent years. If we are not able to attract, retain, and motivate necessary personnel to accomplish our business objectives, we may experience constraints that will significantly impede the successful development of any product candidates, our ability to raise additional capital, and our ability to implement our overall business strategy. +We are highly dependent on members of our management and technical staff. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level, and senior managers as well as junior, mid-level, and senior technical personnel. The loss of any of our executive officers, key employees, or consultants and our inability to find suitable replacements could potentially harm our business, financial condition, and prospects. We may be unable to attract and retain personnel on acceptable terms given the competition among MEE Service providers. Certain of our current officers, directors, and/or consultants hereafter appointed may from time to time serve as officers, directors, scientific advisors, and/or consultants of other MEE service providers. We do not maintain “key man” insurance policies on any of our officers or employees. Other than certain members of our senior management team, all of our employees are employed “at will” and, therefore, each employee may leave our employment and join a competitor at any time. +We plan to grant stock options, restricted stock grants, restricted stock unit grants, and/or other forms of equity awards in the future as a method of attracting and retaining employees, motivating performance, and aligning the interests of employees with those of our shareholders. If we are unable to implement and maintain equity compensation arrangements that provide sufficient incentives, we may be unable to retain our existing employees and attract additional qualified candidates. If we are unable to retain our existing employees and attract additional qualified candidates, our business and results of operations could be adversely affected. Currently the exercise prices of all outstanding stock options are greater than the current stock price. +As of December 31, 2024, we had 85 full-time employees in the U.S., 73 full-time employees in India and 6 part-time employees and contractors. We may be unable to implement and maintain an attractive incentive compensation structure in order to attract and retain the right talent. These actions could lead to disruptions in our business, reduced employee morale and productivity, increased attrition, and problems with retaining existing and recruiting future employees. +ConnectM’s management has limited experience in operating a public company. +ConnectM’s executive officers have limited experience in the management of a publicly traded company. ConnectM’s management team may not successfully or effectively manage the transition to a public company that will be subject to significant regulatory oversight and reporting obligations under federal securities laws. ConnectM’s limited experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage in that it is likely that an increasing amount of their time may be devoted to these activities, which will result in less time being devoted to the management and growth of the company. ConnectM may not have adequate personnel with the appropriate level of knowledge, experience and training in the accounting policies, practices or internal control over financial reporting required of public companies. The development and implementation of the standards and controls and the hiring of experienced personnel necessary to achieve the level of accounting standards required of a public company, as well as the cost of outside legal and accounting advisors, may require costs greater than expected. +29 +The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members and officers. +We will be subject to the reporting requirements of the Exchange Act, and other applicable securities rules and regulations. Compliance with these rules and regulations has increased our legal and financial compliance costs, made some activities more difficult, time-consuming or costly and increased demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and results of operations and maintain effective disclosure controls, procedures, and internal controls over financial reporting. Maintaining our disclosure controls and procedures and internal controls over financial reporting in accordance with this standard requires significant resources and management oversight. As a result, management’s attention may be diverted from other business concerns, which could harm our business and results of operations. We will need to hire more employees in the future to manage these reporting and compliance obligations, which will increase our costs and expenses. +We may be materially adversely affected by negative publicity. +Our business involves transactions with customers. We and our MEE partners must comply with numerous federal, state and local laws and regulations that govern matters relating to our interactions with customers, including those pertaining to privacy and data security and warranties. These laws and regulations are dynamic and subject to potentially differing interpretations, and various federal, state and local legislative and regulatory bodies may expand current laws or regulations, or enact new laws and regulations, regarding these matters. Changes in these laws or regulations or their interpretation could dramatically affect how we do business, acquire customers, and manage and use information we collect from and about current and prospective customers and the costs associated therewith. We strive to comply with all applicable laws and regulations relating to our interactions with residential customers. It is possible, however, that these requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Noncompliance with any such laws or regulations, or the perception that we or our MEE partners have violated such laws or regulations or engaged in deceptive practices that could result in a violation, could also expose us to claims, proceedings, litigation and investigations by private parties and regulatory authorities, as well as substantial fines and negative publicity, each of which may materially and adversely affect our business. We have incurred, and will continue to incur, significant expenses to comply with such laws and regulations, and increased regulation of matters relating to our business could require us to modify our operations and incur significant additional expenses, which could have an adverse effect on our business, financial condition, and results of operations. +Any investigations, actions, adoption or amendment of regulations relating to the marketing of our products to residential consumers of our community MEE programs could divert management’s attention from our business, require us to modify our operations and incur significant additional expenses, which could have an adverse effect on our business, financial condition, and results of operations or could reduce the number of our potential customers. +We cannot ensure that our sales professionals and other personnel will always comply with our standard practices and policies, as well as applicable laws and regulations. In any of the numerous interactions between our sales professionals or other personnel and our customers or potential customers, our sales professionals or other personnel may, without our knowledge and despite our efforts to effectively train them and enforce compliance, engage in conduct that is or may be prohibited under our standard practices and policies and applicable laws and regulations. We have been exposed to claims in the past, and any such non-compliance, or the perception of non-compliance, could expose us to additional claims, proceedings, litigation, investigations, or enforcement actions by private parties or regulatory authorities, as well as substantial fines and negative publicity, each of which may materially and adversely affect our business and reputation. We have incurred, and will continue to incur, significant expenses to comply with the laws, regulations and industry standards that apply to us. +Our business, financial condition, results of operations and prospects can be materially adversely affected by weather conditions, including, but not limited to, the impact of severe weather. +Weather conditions directly influence the demand for electricity and natural gas and other fuels and affect the price of energy and energy-related commodities. In addition, severe weather and natural disasters, such as hurricanes, floods, tornadoes, icing events and earthquakes, can be destructive and cause power outages and property damage, affect the availability of fuel and water, reduce our revenue and require us to incur additional costs, for example, to restore service and repair damaged facilities, to obtain replacement power and to access available financing sources. Furthermore, our physical plants could be placed at greater risk of damage should continued changes in the global climate produce additional unusual variations in temperature and weather patterns, resulting in more intense, frequent and extreme weather events, and abnormal levels of precipitation. A disruption or failure of electric generation, or storage systems in the event of a hurricane, tornado or other severe weather event, or otherwise, could prevent us from operating our business in the normal course and could result in any of the adverse consequences described above. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects. +30 +Where cost recovery is available, recovery of costs to restore service and repair damaged facilities is or may be subject to regulatory approval, and any determination by the regulator not to permit timely and full recovery of the costs incurred could have a material adverse effect on our business, financial condition, results of operations and prospects. Changes in weather can also affect the production of electricity at power generation facilities. +Our results of operations may fluctuate from quarter to quarter, which could make our future performance difficult to predict and could cause our results of operations for a particular period to fall below expectations, resulting in a decline in the price of our common stock. +Our quarterly results of operations are difficult to predict and may fluctuate significantly in the future. We have experienced seasonal and quarterly fluctuations in the past and expect these fluctuations to continue. However, given that we are operating in a rapidly changing industry, those fluctuations may be masked by our recent growth rates and thus may not be readily apparent from our historical results of operations. As such, our past quarterly results of operations may not be good indicators of likely future performance. +In addition to the other risks described in this “ Risk Factors ” section, as well as the factors discussed in the “ Management’s Discussion and Analysis of Financial Condition and Results of Operations of ConnectM ” section, the following factors, among others, could cause our results of operations and key performance indicators to fluctuate: +● the expiration, reduction or initiation of any governmental tax rebates, tax exemptions, or incentive; +● significant fluctuations in customer demand for our MEE service offerings or fluctuations in the geographic concentration of installations of MEE systems; +● changes in financial markets, which could restrict our ability to access available and cost-effective financing sources; +● seasonal, environmental or weather conditions that impact sales, energy production, and system installation; +● the amount and timing of operating expenses related to the maintenance and expansion of our business, operations and infrastructure; +● announcements by us or our competitors of new products or services, significant acquisitions, strategic partnerships, or joint ventures; +● necessary capital-raising activities or commitments; +● changes in our pricing policies or terms or those of our competitors, including utilities; +● changes in regulatory policy related to solar energy generation; +● the loss of one or more key partners or the failure of key partners to perform as anticipated; +● our failure to successfully integrate acquired solar facilities; +● actual or anticipated developments in our competitors’ businesses or the competitive landscape; +● actual or anticipated changes in our growth rate; +● general economic, industry and market conditions, including as a result of the COVID-19 pandemic and/or future pandemics; and +● changes to our cancellation rate. +Our actual revenue or key operating metrics in one or more future quarters may fall short of the expectations of investors and financial analysts. If that occurs, the market price of our common stock could decline and stockholders could lose part or all of their investment. +31 +Our results of operations have been and may continue to be adversely impacted by the COVID-19 pandemic, and the duration and extent to which it will impact our results of operations remains uncertain. +A significant outbreak of epidemic, pandemic, or contagious diseases in the human population, such as the current COVID-19 pandemic, could result in a widespread health crisis that could adversely affect the broader economies, financial and capital markets, commodity and energy prices, and overall demand environment for our products. A global health crisis could affect, and has affected, our workforce, customers and vendors, as well as economies and financial markets globally, potentially leading to an economic downturn, which could decrease spending, adversely affecting the demand for our products. +In response to the COVID-19 pandemic, federal, state, local, and foreign governments put in place, and in the future may again put in place, travel restrictions, quarantines, “stay at home” orders and guidelines, and similar government orders and restrictions, in an attempt to control the spread of the disease. Such restrictions or orders resulted in, and in the future may result in, business closures, work stoppages, slowdowns and delays, among other effects that negatively impacted, and in the future may negatively impact, our operations, as well as the operations of our customers and business partners. Such results have had and will continue to have a material adverse effect on our business, operations, financial condition, results of operations, and cash flows. +Although we have continued to operate consistent with federal guidelines and state and local orders, the extent to which the COVID-19 pandemic impacts our business, operations, financial results and financial condition will depend on numerous evolving factors which are uncertain and cannot be predicted, including: +● the duration and scope of the pandemic and associated disruptions; +● a general slowdown in our industry; +● governmental, business and individuals’ actions taken in response to the pandemic; +● the effect on our customers and our customers’ demand for our products and installations; +● the effect on our suppliers and disruptions to the global supply chain; +● our ability to sell and provide our products and provide installations, including disruptions as a result of travel restrictions and people working from home; +● the ability of our customers to pay for our products; +● delays in our projects due to closures of jobsites or cancellation of jobs; and +● any closures of our and our suppliers’ and customers’ facilities. +These effects of the COVID-19 pandemic and related economic repercussions have materially affected how we and our customers, vendors, subcontractors, developers, and general contractors are operating our businesses, and the duration and extent to which this will negatively impact our future results of operations and overall financial performance remains uncertain. ConnectM faces risks related to health pandemics, including the aftereffects of the COVID-19 pandemic or potential future pandemics, which could have a material and adverse effect on our business, operations, financial condition, results of operations, and cash flows. +In addition, while we believe we have taken appropriate steps to maintain a safe workplace to protect our employees from contracting and spreading the coronavirus, including following the guidance set out from both the Occupational Safety and Health Administration and Centers for Disease Control and Prevention, we may not be able to completely prevent the spread of the virus among our employees. We may face litigation or other proceedings making claims related to unsafe working conditions, inadequate protection of our employees or other claims. Any of these claims, even if without merit, could result in costly litigation or divert management’s attention and resources. +Furthermore, we may face a sustained disruption to our operations due to one or more of the factors described above. Although the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of any economic instability that has occurred or may occur in the future. Any of these events could amplify the other risks and uncertainties described in this Report and could materially adversely affect our business, operations, financial condition, results of operations, cash flows or the market price of our common stock. +32 +Adverse economic conditions may have negative consequences on our business, results of operations and financial condition. +Unpredictable and unstable changes in economic conditions, including recession, inflation, increased government intervention, or other changes, may adversely affect our general business strategy. Additionally, economic downturns in the markets in which we operate may materially and adversely affect our business because our business is dependent on levels of construction and home remodeling activity. We rely upon our ability to generate additional sources of liquidity and we may need to raise additional funds through public or private debt or equity financings in order to fund existing operations or to take advantage of opportunities, including acquisitions of complementary businesses or technologies. Any adverse change in economic conditions would have a negative impact on our business, results of operations and financial condition and on our ability to generate or raise additional capital on favorable terms, or at all. +ConnectM is highly reliant on its networked and cloud-based business model and information technology systems and data, and those of its service providers which may be subject to cyber-attacks, service disruptions or other security incidents, which could result in data breaches, loss or interruption of services, intellectual property theft, claims, litigation, regulatory investigations, significant liability, reputational damage and other adverse consequences. +ConnectM continues to expand its information technology systems in the form of its networked and cloud-based business model, and as its operations grow its internal information technology systems, such as product data management, procurement, inventory management, production planning and execution, sales, service and logistics, financial, tax and regulatory compliance systems. This includes the implementation of new internally developed systems and the deployment of such systems in the United States. While ConnectM maintains information technology measures designed to protect it against intellectual property theft, data breaches, sabotage and other external or internal cyber-attacks or misappropriation, its systems and those of its service providers are potentially vulnerable to malware, ransomware, viruses, denial-of-service attacks, phishing attacks, social engineering, computer hacking, unauthorized access, exploitation of bugs, defects and vulnerabilities, breakdowns, damage, interruptions, system malfunctions, power outages, terrorism, acts of vandalism, security breaches, security incidents, inadvertent or intentional actions by employees or other third parties, and other cyber-attacks. To the extent any security incident results in unauthorized access or damage to or acquisition, use, corruption, loss, destruction, alteration or dissemination of ConnectM data, including intellectual property and personal information, or ConnectM’s products, or for it to be believed or reported that any of these occurred, it could disrupt ConnectM’s business, harm its reputation, compel it to comply with applicable data breach notification laws, subject it to time consuming, distracting and expensive litigation, regulatory investigation and oversight, mandatory corrective action, require it to verify the correctness of database contents, or otherwise subject it to liability under laws, regulations and contractual obligations, including those that protect the privacy and security of personal information. This could result in increased costs to ConnectM and result in significant legal and financial exposure and/or reputational harm. +Because ConnectM also relies on third-party service providers, it cannot guarantee that its service providers’ and component suppliers’ systems have not been breached or that they do not contain exploitable defects, bugs, or vulnerabilities that could result in a security incident, or other disruption to, ConnectM’s or ConnectM’s service providers’ or component suppliers’ systems. ConnectM’s ability to monitor its service providers’ and component suppliers’ security measures is limited, and, in any event, malicious third parties may be able to circumvent those security measures. Further, the implementation, maintenance, segregation and improvement of these systems require significant management time, support and cost, and there are inherent risks associated with developing, improving and expanding ConnectM’s core systems as well as implementing new systems and updating current systems, including disruptions to the related areas of business operation. These risks may affect ConnectM’s ability to manage its data and inventory, procure parts or supplies or manufacture, sell, deliver and service products, adequately protect its intellectual property or achieve and maintain compliance with, or realize available benefits under, tax laws and other applicable regulations. +If ConnectM does not successfully implement, maintain or expand its information technology systems as planned, its operations may be disrupted, its ability to accurately and/or timely report its financial results could be impaired and deficiencies may arise in its internal control over financial reporting, which may impact its ability to certify its financial results (see also “ Risks Related to Finance, Tax and Accounting - ConnectM has identified material weaknesses in its internal control over financial reporting. If ConnectM is unable to remediate these material weaknesses, or if ConnectM identifies additional material weaknesses in the future or otherwise fails to maintain an effective internal control over financial reporting, this may result in material misstatements of ConnectM’s consolidated financial statements or cause ConnectM to fail to meet its periodic reporting obligations ” for more detail). Moreover, ConnectM’s proprietary information, including intellectual property and personal information, could be compromised or misappropriated and its reputation may be adversely affected if these systems or their functionality do not operate as expected and ConnectM may be required to expend significant resources to make corrections or find alternative sources for performing these functions. +33 +Our ability to obtain insurance and the terms of any available insurance coverage could be materially adversely affected by international, national, state or local events or company-specific events, as well as the financial condition of insurers. +Insurance coverage may not continue to be available or may not be available at rates or on terms similar to those presently available to us. Our ability to obtain insurance and the terms of any available insurance coverage could be materially adversely affected by international, national, state or local events or company-specific events, as well as the financial condition of insurers. If insurance coverage is not available or obtainable on acceptable terms, we may be required to pay costs associated with adverse future events. +Our insurance policies against many potential liabilities require high deductibles, and our risk management policies and procedures may leave us exposed to unidentified or unanticipated risks. Additionally, difficulties in the insurance markets may adversely affect our ability to obtain necessary insurance. +We insure various general liability, workers’ compensation, property and auto risks as well as other risks through a variety of direct insurance policies and a captive insurance company that are reinsured for risks above certain deductibles and retentions. All of our insurance policies and programs are subject to high deductibles and retentions; as such, we are, in effect, self-insured for substantially all of our typical claims. We hire an actuary to determine any liabilities for unpaid claims and associated expenses for the three major lines of coverage (workers’ compensation, general liability and auto liability). The determination of these claims and expenses and the appropriateness of the estimated liability are reviewed and updated quarterly. However, insurance liabilities are difficult to assess and estimate due to the many relevant factors, the effects of which are often unknown, including the severity of an injury, the determination of our liability in proportion to other parties, the number of incidents that have occurred but are not reported and the effectiveness of our safety program. Our accruals are based on known facts, historical trends (both internal trends and industry averages) and our reasonable estimate of our future expenses. We believe our accruals are adequate. However, our risk management strategies and techniques may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk. If any of the variety of instruments, processes or strategies we use to manage our exposure to various types of risk are not effective, we may incur losses that are not covered by our insurance policies or that exceed our accruals or coverage limits. +Additionally, we typically are contractually required to provide proof of insurance for projects on which we work. Historically, insurance market conditions become more difficult for insurance consumers during periods when insurance companies suffer significant investment losses as well as casualty losses. Consequently, it is possible that insurance markets will become more expensive and restrictive. Also, our prior casualty loss history might adversely affect our ability to procure insurance within commercially reasonable ranges. As such, we may not be able to maintain commercially reasonable levels of insurance coverage in the future, which could preclude our ability to work on many projects and increase our overall risk exposure. Our insurance providers are under no commitment to renew our existing insurance policies in the future; therefore, our ability to obtain necessary levels or kinds of insurance coverage is subject to market forces outside our control. If we were unable to obtain necessary levels of insurance, it is likely we would be unable to compete for or work on most projects. +Increases and uncertainty in our health insurance costs could adversely impact our results of operations and cash flows. +The costs of employee health insurance have been increasing in recent years due to rising health care costs, legislative changes, and general economic conditions. Additionally, we may incur additional costs as a result of the Patient Protection and Affordable Care Act (the “ Affordable Care Act ”) that was signed into law in March 2010. Future legislation could also have an impact on our business. The status of the Affordable Care Act, any amendment, repeal or replacement thereof, is currently uncertain. For example, in December 2019, the United States Court of Appeals for the Fifth Circuit struck down a central provision of the Affordable Care Act, ruling that the requirement that people have health insurance was unconstitutional, sending the case back to a federal district judge in Texas to determine which of the law’s many parts could survive without the mandate. On March 2, 2020, the United States Supreme Court granted certiorari to review this case, and on June 17, 2021, the U.S. Supreme Court dismissed a challenge on procedural grounds that argued Affordable Care Act is unconstitutional in its entirety because the “individual mandate” was repealed by Congress. The Affordable Care Act will remain in effect in its current form; however, we continue to evaluate the effect that the Affordable Care Act has on our business. +Failure to remain in compliance with covenants under our credit and loan agreements, service our indebtedness, or fund our other liquidity needs could adversely impact our business. +Our failure to comply with covenants under the credit or loan agreements, or to pay principal, interest or other amounts when due thereunder, would constitute an event of default under the credit and loan agreements. Default under our credit and loan agreements could result in (1) us no longer being entitled to borrow under the agreements; (2) termination of the agreements; (3) acceleration of the maturity of outstanding indebtedness under the agreements; and/or (4) foreclosure on any collateral securing the obligations under the agreements. If we are unable to service our debt obligations or fund our other liquidity needs, we could be forced to curtail our +34 +operations, reorganize our capital structure (including through bankruptcy proceedings) or liquidate some or all of our assets in a manner that could cause holders of our securities to experience a partial or total loss of their investment in us. +If we fail to develop and maintain an effective system of internal control over financial reporting and other business practices, and of board-level oversight, we may not be able to report our financial results accurately or prevent and detect fraud and other improprieties. Consequently, investors could lose confidence in our financial reporting, and this may decrease the trading price of our stock. +We must maintain effective internal controls to provide reliable financial reports and to prevent and detect fraud and other improprieties. We are responsible for reviewing and assessing our internal controls and implementing additional controls when improvement is needed. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. If we are unable to establish or maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations on a timely basis, result in material misstatements in our consolidated financial statements and harm our results of operations. +The Sarbanes-Oxley Act requirements regarding internal control over financial reporting, and other internal controls over business practices, are costly to implement and maintain, and such costs are relatively more burdensome for smaller companies such as us than for larger companies. We have limited internal personnel to implement procedures and rely on outside professionals including accountants and attorneys to support our control procedures. We are working to improve all of our controls but, if our controls are not effective, we may not be able to report our financial results accurately or prevent and detect fraud and other improprieties, which could lead to a decrease in the market price of our stock. Failure to implement any required changes to our internal controls or other changes we identify as necessary to maintain an effective system of internal controls could harm our operating results and cause investors to lose confidence in our reported financial information. Any such loss of confidence would have a negative effect on the market price of our common stock. +Our historical financial results may not be indicative of what our actual financial position or results of operations would have been if we had always been a public company. +Our business has achieved rapid growth since we launched. However, our results of operations, financial condition and cash flows reflected in our consolidated financial statements may not be indicative of the results we would have achieved if we had been a public company or results that may be achieved in future periods. Consequently, there can be no assurance that we will be able to generate sufficient income to pay our operating expenses and make satisfactory distributions to our shareholders, or any distributions at all. +Our reported financial results may be affected, and comparability of our financial results with other companies in our industry may be impacted, by changes in the accounting principles generally accepted in the U.S. +Generally accepted accounting principles in the U.S. are subject to change and interpretation by the Financial Accounting Standards Board (“ FASB ”), the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results and on the financial results of other companies in our industry and may even affect the reporting of transactions completed before the announcement or effectiveness of a change. For example, in June 2016 the FASB issued Accounting Standards Update No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU No. 2016-13”), which replaces the current incurred loss impairment methodology with a current expected credit losses model. Other companies in our industry may be affected differently by the adoption of ASU No. 2016-13 or other new accounting standards, including timing of the adoption of new accounting standards, adversely affecting the comparability of financial statements. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which primarily changes the lessee’s accounting for operating leases by requiring recognition of lease right-of-use assets and lease liabilities. This standard is effective for annual reporting periods beginning after December 15, 2021. ConnectM adopted this standard, effective January 1, 2022, under the alternative transition method as permissible under ASU 2018-11 and will apply this standard to all leases. As a result, comparative financial information of ConnectM has not been restated and continues to be reported under the accounting standards in effect for those periods. +35 +The Company has material weaknesses in its internal control over financial reporting. If ConnectM is unable to remediate these material weaknesses, or if ConnectM identifies additional material weaknesses in the future or otherwise fails to maintain an effective system of internal controls, ConnectM may not be able to accurately or timely report its financial condition or results of operations, which may adversely affect its business and the market price of ConnectM’s common stock. +In preparation of its consolidated financial statements to meet the requirements applicable to its current status as a publicly traded company, ConnectM and its independent registered public accounting firm identified material weaknesses in its internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. +The first material weakness identified related to a deficiency in ConnectM’s controls over complex accounting topics centered around the appropriate treatment of specific incremental costs that were directly attributable to the transaction with MCAC and the forward purchase agreement. Specifically, ConnectM’s accounting and internal control infrastructure did not allow for adequate review processes over this complex accounting topic due to lack of sufficient resources. Due to this material weakness, material errors were identified and corrected in ConnectM’s audited financial statements for the year ended December 31, 2024. +The second material weakness identified related to a deficiency in ConnectM’s controls over revenue recognition centered around the appropriate timing of the recognition of its solar system services for which ConnectM recognized revenue when it had not fully satisfied its performance obligation. Specifically, ConnectM’s accounting and internal control infrastructure did not allow for the proper assessment of the timing of revenue recognition for its solar system services due to lack of sufficient resources. Due to this material weakness, material errors were identified and corrected in ConnectM’s audited financial statements for the year ended December 31, 2024. +There are other material weaknesses identified relating to complex accounting relating to debt and derivatives, contingent consideration, deferred offering costs, management not identifying impaired intangible assets, and to the Company not being able to timely issue their financial statements. These material weaknesses are due to inadequate staffing at the Company. +An additional material weakness was identified due to the failure to get proper approval from the Board for related party transactions. +ConnectM has implemented measures designed to improve internal controls over financial reporting to remediate the control deficiencies outlined above that led to the material weaknesses, including strengthening reviews by its finance team and expanding its accounting and finance team to add additional qualified accounting and finance resources, which may include expanding the use of third party consultants that possess the required expertise to assist management with its review. +ConnectM cannot assure you that the measures it has taken to date, and actions it may take in the future, will be sufficient to remediate the control deficiencies that led to the material weaknesses in its internal controls over financial reporting or that they will prevent or avoid potential future material weaknesses. In addition, neither its management nor an independent registered public accounting firm has performed an evaluation of its internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act because no such evaluation has been required. If ConnectM is unable to successfully remediate its existing or any future material weaknesses in its internal control over financial reporting, identifies any additional material weaknesses in the future or otherwise fails to maintain an effective system of internal controls, the accuracy and timing of ConnectM financial reporting may be adversely affected, ConnectM may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in the consolidated company’s financial reporting, and the market price of ConnectM’s common stock may decline as a result. +Risks Related to Data Privacy +Any security breach or unauthorized access or disclosure or theft of data, including personal information we gather, store and use, or other hacking and phishing attacks on our systems, could harm our reputation, subject us to claims or litigation, financial harm and have an adverse impact on our business. +We receive, store and use personal information of customers, including names, addresses, e-mail addresses, credit information and other housing and energy use information, as well as the personal information of our employees. Unauthorized disclosure of such personal information, whether through breach of our systems by an unauthorized party, employee theft or misuse, or otherwise, could harm our business. In addition, computer malware, viruses, social engineering (predominantly spear phishing attacks), and general hacking have become more prevalent, have occurred on our systems in the past, and could occur on our systems in the future. Inadvertent disclosure of such personal information, or if a third party were to gain unauthorized access to the personal information in +36 +our possession, has resulted in, and could result in future claims or litigation arising from damages suffered by such individuals. In addition, we could incur significant costs in complying with the multitude of federal, state and local laws regarding the unauthorized disclosure of personal information. Our efforts to protect such personal information may be unsuccessful due to software bugs or other technical malfunctions; employees, contractor, or vendor error or malfeasance; or other threats that evolve. In addition, third parties may attempt to fraudulently induce employees or users to disclose sensitive information. Although we have developed systems and processes that are designed to protect the personal information we receive, store and use and to prevent or detect security breaches, we cannot assure you that such measures will provide absolute security. Any perceived or actual unauthorized disclosure of such information could harm our reputation, substantially impair our ability to attract and retain customers and have an adverse impact on our business. +While we currently maintain cybersecurity insurance, such insurance may not be sufficient to cover us against claims, and we cannot be certain that cyber insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. +Our business is subject to complex and evolving laws and regulations regarding privacy and data protection. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, increased cost of operations or otherwise harm our business. +The regulatory environment surrounding data privacy and protection is constantly evolving and can be subject to significant change. New data protection laws, including recent California legislation and regulation which affords California consumers an array of new rights, including the right to be informed about what kinds of personal data companies have collected and why it was collected, pose increasingly complex compliance challenges and potentially elevate our costs. Complying with varying jurisdictional requirements could increase the costs and complexity of compliance, and violations of applicable data protection laws could result in significant penalties. Any failure, or perceived failure, by us to comply with applicable data protection laws could result in proceedings or actions brought against us by governmental entities or others, subject us to significant fines, penalties, judgments and negative publicity, require us to change our business practices, increase the costs and complexity of compliance, and adversely affect our business. +Risks Related to Electrification and Decarbonization Business +ConnectM’s future growth and success is highly correlated with and thus dependent upon the continuing rapid electrification of homes and adoption of EVs and electrification for passenger and fleet applications. +ConnectM’s future growth is highly dependent upon the increased electrification of home heating using heat pumps and the adoption of EVs by businesses and consumers. +The U.S. federal government, and some state and local governments provide incentives to homeowners in the form of rebates, tax credits and other financial incentives, such as payments for regulatory credits to replace fossil fuels for home heating and also for cooking applications, The High Efficiency Electric Home Rebate Act (HEEHRA) is the official name of the Inflation Reduction Act’s (IRA) heat pump incentive program. Although demand for heat pumps has grown in recent years, there is no guarantee of continuing future demand. If the market for heat pumps develops more slowly than expected, or if demand for heat pumps decreases, ConnectM’s business, prospects, financial condition and operating results would be harmed. The market for heat pumps could be affected by numerous factors, such as: +● perceptions about heat pump quality, safety, performance and cost; +● volatility in the cost of heating oil and natural gas, including as a result of trade restrictions; +● concerns regarding the reliability and stability of the electrical grid; +● availability of maintenance and repair services for heat pumps; +● consumers’ perception about the convenience and cost of using heat pumps; +● government regulations and economic incentives, including adverse changes in, or expiration of, favorable tax incentives related to heat pumps or decarbonization generally; +● relaxation of government mandates regarding the sale of heat pumps; and +37 +● concerns about the future viability of heat pump manufacturers. +One of the many things the Inflation Reduction Act of August 2022 accomplishes is the expansion of the Federal Tax Credit for Solar Photovoltaics, also known as the Investment Tax Credit (ITC). This credit can be claimed on federal income taxes for a percentage of the cost of a solar photovoltaic (PV) system. The ITC increased in amount and its timeline has been extended. Those who install a PV system between 2022 and 2032 will receive a 30% tax credit, which will decrease to 26% for systems installed in 2033 and to 22% for systems installed in 2034. Homeowners who installed a system in 2022 have an increased tax credit from 22% to 30% if the tax credit has not been already claimed. The solar plus storage equipment expenses included in the ITC have expanded. Now, energy storage devices that have a capacity rating of 3 kilowatt hours or greater are included and includes stand-alone storage. The ITC will cut the cost of installing rooftop solar for a home by 30%, or more than $7,500 for an average system. By helping Americans get solar on their roofs, these tax credits will help millions more families unlock an additional average savings of $9,000 on their electricity bills over the life of the system. The market for solar solutions could be affected by numerous factors, such as: +● perceptions about solar solutions quality, safety, performance and cost; +● concerns regarding the reliability and stability of the electrical grid; +● availability of maintenance and repair services for solar solutions; +● consumers’ perception about the convenience and cost of using solar solutions; +● government regulations and economic incentives, including adverse changes in, or expiration of, favorable tax incentives related to solar; +● relaxation of government mandates regarding the sale of solar solutions; and concerns about the future viability of solar solutions manufacturers. +Electrification rebates provide point-of-sale consumer discounts to enable low- and moderate-income households across the U.S. to electrify their homes. Notably, households will experience HEEHRA’s point-of-sale rebates as immediate, off-the-top discounts when making qualifying electrification purchases. The electrification rebates cover the following home energy assessment and weatherization projects: insulation, air sealing, and ventilation. For low-income households (under 80 percent of consumers’ area median income), the electrification rebates cover 100 percent of weatherization costs up to $1,600. For moderate-income households (between 80 percent and 150 percent of consumers’ area median income), the electrification rebates cover 50 percent of weatherization costs up to $1,600. The rebates may be implemented differently in each state, so there are no guarantees regarding final amounts, eligibility, or timeline. Without additional appropriations from Congress, the rebate programs will end once the initial IRA funding is exhausted. Total electrification rebates across all qualified electrification projects are capped at $14,000. Electric and gas utilities provide no cost home energy assessment services to residential homeowners. The market for home energy assessment and weatherization solutions could be affected by numerous factors, such as: +● perceptions about home energy assessment and weatherization solutions quality, safety, performance and cost; +● volatility in the cost of heating oil and natural gas, including as a result of trade restrictions; +● concerns regarding the reliability and stability of the electrical grid; +● availability of maintenance and repair services for home energy assessment and weatherization solutions; +● consumers’ perception about the convenience and cost of using home energy assessment and weatherization solutions; +● government regulations and economic incentives, including adverse changes in, or expiration of, favorable tax incentives related to weatherization and decarbonization generally; +● relaxation of government mandates regarding the sale of home energy assessment and weatherization solutions; and +● concerns about the future viability of home energy assessment and weatherization solutions manufacturers. +38 +The market for EVs is still rapidly evolving, characterized by rapidly changing technologies, competitive pricing and competitive factors, evolving government regulation and industry standards and changing consumer demands and behaviors, changing levels of concern related to environmental issues and governmental initiatives related to energy independence, climate change and the environment generally. Although demand for EVs has grown in recent years, there is no guarantee of continuing future demand. If the market for EVs develops more slowly than expected, or if demand for EVs decreases, ConnectM’s business, prospects, financial condition and operating results would be harmed. The market for EVs could be affected by numerous factors, such as: +● perceptions about EV features, quality, safety, performance and cost; +● perceptions about the limited range over which EVs may be driven on a single battery charge; +● competition, including from other types of alternative fuel vehicles, plug-in hybrid electric vehicles and high fuel-economy internal combustion engine vehicles; +● volatility in the cost of oil and gasoline, including as a result of trade restrictions; +● concerns regarding the reliability and stability of the electrical grid; +● the change in an EV battery’s ability to hold a charge over time; +● the availability and reliability of a national electric vehicle charging network or infrastructure; +● availability of maintenance and repair services for EVs; +● consumers’ perception about the convenience and cost of charging EVs; +● increases in fuel efficiency of non-electric vehicles; +● government regulations and economic incentives, including adverse changes in, or expiration of, +● favorable tax incentives related to EVs, EV electrification or decarbonization generally; +● relaxation of government mandates or quotas regarding the sale of EVs; and +● concerns about the future viability of EV manufacturers. +In addition, sales of vehicles in the automotive industry can be cyclical, which may affect growth in acceptance of EVs. It is uncertain how macroeconomic factors will impact demand for EVs, particularly since EVs can be more expensive than traditional gasoline-powered vehicles, when the automotive industry globally has been experiencing a recent decline in sales. Furthermore, because fleet operators often make large purchases of EVs, this cyclicality and volatility in the automotive industry may be more pronounced with commercial purchasers, and any significant decline in demand from these customers could reduce demand for ConnectM’s products and services in particular. +Demand for EVs may also be affected by factors directly impacting automobile prices or the cost of purchasing and operating automobiles, such as sales and financing incentives, prices of raw materials and parts and components, cost of fuel and governmental regulations, including tariffs, import regulation and other taxes. Further, the automotive industry in general and EV manufacturing have experienced recent substantial supply chain interruptions due to COVID-19 and a worldwide semiconductor shortage adversely impacting the automotive industry in 2020 and 2021, resulting in reduced EV production schedules and sales. Volatility in demand or delays in EV production due to global supply chain constraints may lead to lower vehicle unit sales, which may result in reduced demand for EV charging solutions and therefore adversely affect ConnectM’s business, financial condition and operating results. +The electrification market is characterized by rapid technological changes often due to technical improvements, regulatory requirements and customer requirements, which requires ConnectM to continue to develop new products and product innovations. Any delays in such development could adversely affect market adoption of its products and ConnectM’s financial results. +Continuing technological changes in battery and other electrification technologies could adversely affect adoption of current electrification technology and/or ConnectM’s products. ConnectM’s future success will depend upon its ability to develop and +39 +introduce a variety of new capabilities and innovations to its existing product offerings, as well as introduce a variety of new product offerings, to address the changing needs of the electrification market. As new products are introduced, gross margins tend to decline in the near term and improve as the product becomes more mature with a more efficient manufacturing process. +As electrification technologies change or governmental regulations impose new requirements on electrification technology, ConnectM may need to upgrade or adapt its electrification technology and introduce new products and services in order to serve vehicles that have the latest technology, in particular battery cell technology, or comply with new governmental regulations, which could involve substantial costs. Even if ConnectM is able to keep pace with changes in technology and develop new products and services, its research and development expenses could increase, its gross margins could be adversely affected in some periods and its prior products could become obsolete or non-compliant with governmental regulations more quickly than expected. ConnectM may also incur additional costs and expenses related to new product transitions such as adverse impacts due to supply chain failures to procure sufficient new product components, purchase price variances, or inventory obsolescence costs related to new product transitions, including as the result of any failure on the part of ConnectM to meet its own estimates and projections. ConnectM cannot guarantee that any new products will be released in a timely manner, or at all, or achieve market acceptance. Delays in delivering new products that meet customer requirements could damage ConnectM’s relationships with customers and lead them to seek alternative providers. Delays in introducing products and innovations or the failure to offer innovative products or services at competitive prices may cause existing and potential customers to purchase ConnectM’s competitors’ products or services. Finally, new or changing state or federal regulations may result in delays related to the development of new products or modifications to existing products in order to come into compliance and any such delays may result in customer’s selecting alternative providers or result in delays related to ConnectM’s ability to install, sell or distribute its electrification technology. +If ConnectM is unable to devote adequate resources to develop products or cannot otherwise successfully develop products or services that meet customer and regulatory requirements on a timely basis or that remain competitive with technological alternatives, its products and services could lose market share, its revenue may decline, it may experience higher operating losses and its business and prospects may be adversely affected. +Certain statements ConnectM makes about estimates of market opportunity and forecasts of market growth may prove to be inaccurate. +From time to time, ConnectM makes statements with estimates of the addressable market for ConnectM MEE solutions. Market opportunity estimates and growth forecasts, whether obtained from third-party sources or developed internally, are subject to significant uncertainty and are based on assumptions and estimates that may prove to be inaccurate. This is especially so at the present time due to the uncertainties associated with the ongoing COVID-19 pandemic, worldwide supply chain disruptions, macroeconomic effects of inflation and market and geopolitical volatility. The estimates and forecasts relating to the size and expected growth of the target MEE market, market demand and adoption, capacity to address this demand and pricing may also prove to be inaccurate. In particular, estimates regarding the current and projected MEE market opportunities are difficult to predict. The estimated addressable MEE market may not materialize for many years, if ever, and even if the markets meet the size estimates and growth forecasts, ConnectM’s business could fail to grow at similar rates. +The MEE industry is an emerging market which is constantly evolving and may not develop at the size or the rate we expect. +The MEE industry is an emerging and constantly evolving market opportunity. We believe the MEE industry is still developing and maturing, and we cannot be certain that the market will grow to the size or at the rate we expect. For example, we have experienced increases in cancellations of our customer agreements in certain geographic markets during various periods in our operating history. Any future growth of the MEE market and the success of our MEE service offerings depend on many factors beyond our control, including recognition and acceptance of the MEE service market by consumers, the pricing of alternative sources of energy, a favorable regulatory environment, the continuation of expected tax benefits and other incentives, and our ability to provide our MEE service offerings cost effectively. If the markets for MEE do not develop to the size or at the rate we expect, our business may be adversely affected. +MEE services have yet to achieve broad market acceptance and depends in part on continued support in the form of rebates, tax credits, and other incentives from federal, state and local governments. If this support diminishes materially, our ability to obtain external financing on acceptable terms, or at all, could be materially adversely affected. These types of funding limitations could lead to inadequate financing support for the anticipated growth in our business. Furthermore, growth in residential MEE services depends in part on macroeconomic conditions, retail prices of electricity and customer preferences, each of which can change quickly. Declining macroeconomic conditions, including in the job markets and residential real estate markets, could contribute to instability and uncertainty among customers and impact their financial wherewithal, credit scores or interest in entering into long-term contracts with third party finance companies, even if such contracts would generate immediate and long-term savings. +40 +Furthermore, market prices of retail electricity generated by utilities or other energy sources could decline for a variety of reasons, as discussed further below. Any such declines in macroeconomic conditions, changes in retail prices of electricity or changes in customer preferences would adversely impact our business. +We have historically benefited from declining costs in the solar industry, and our business and financial results may be harmed not only as a result of any increases in costs associated with our electrification service offerings but also any failure of these costs to continue to decline as we currently expect. If we do not reduce our cost structure in the future, our ability to continue to be profitable may be impaired. +Declining costs related to raw materials, manufacturing and the sale and installation of our solar service offerings have been a key driver in the pricing of our solar service offerings and, more broadly, customer adoption of solar energy. While historically the prices of solar panels and raw materials have declined, the cost of solar panels and raw materials have increased and may increase in the future, and such products’ availability could decrease, due to a variety of factors, including restrictions stemming from the COVID-19 pandemic, supply chain disruptions, tariffs and trade barriers, export regulations, regulatory or contractual limitations, industry market requirements, and changes in technology and industry standards. +We cannot predict what actions may ultimately be taken with respect to tariffs or trade relations between the United States and other countries, what products may be subject to such actions, or what actions may be taken by the other countries in retaliation. The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs, trade agreements or related policies have the potential to adversely impact our supply chain and access to equipment, our costs and ability to economically serve certain markets. Any such cost increases or decreases in availability could slow our growth and cause our financial results and operational metrics to suffer. +We face competition from traditional energy companies as well as solar and other renewable energy companies. +The MEE services industry is highly competitive and continually evolving as participants strive to distinguish themselves within their markets and compete with large utilities. We believe that our primary competitors are the established utilities that supply energy to homeowners by traditional means. We compete with these utilities primarily based on price, predictability of price, and the ease by which homeowners can switch to electricity generated by our MEE Systems. If we cannot offer compelling value to customers based on these factors, then our business and revenue will not grow. Utilities generally have substantially greater financial, technical, operational and other resources than we do. As a result of their greater size, utilities may be able to devote more resources to the research, development, promotion and sale of their products or respond more quickly to evolving industry standards and changes in market conditions than we can. Furthermore, these competitors are able to devote substantially more resources and funding to regulatory and lobbying efforts. +Utilities could also offer other value-added products or services that could help them compete with us even if the cost of electricity they offer is higher than ours. In addition, a majority of utilities’ sources of electricity are non-solar, which may allow utilities to sell electricity more cheaply than we can. Moreover, regulated utilities are increasingly seeking approval to “rate-base” their own residential solar and battery businesses. Rate-basing means that utilities would receive guaranteed rates of return for their solar and battery businesses. This is already commonplace for utility-scale solar projects and commercial solar projects. While few utilities to date have received regulatory permission to rate-base residential solar or storage, our competitiveness would be significantly harmed should more utilities receive such permission because we do not receive guaranteed profits for our solar service offerings. +We face competition from other MEE service providers, and we also may face competition from new entrants into the market as a result of the passage of the Inflation Reduction Act of 2022 (the “ IRA ”) and its anticipated impacts and benefits to the MEE industry. Some of these competitors may have a higher degree of brand name recognition, differing business and pricing strategies, lower barriers to entry into the MEE market, and greater capital resources than we have, as well as extensive knowledge of our target markets. If we are unable to establish or maintain a consumer brand that resonates with customers, maintain high customer satisfaction, or compete with the pricing offered by our competitors, our sales and market share position may be adversely affected, as our growth is dependent on originating new customers. We also face competitive pressure from companies that may offer lower-priced consumer offerings than we do. +In addition, we compete with companies that are not regulated like traditional utilities but that have access to the traditional utility electricity transmission and distribution infrastructure. These energy service companies are able to offer customers electricity supply-only solutions that are competitive with our solar service offerings in terms of both price and usage of solar energy technology. This may limit our ability to attract customers, particularly those who have an aesthetic or other objection to putting solar panels on their roofs. +41 +Furthermore, we face competition from purely finance-driven nonintegrated competitors that subcontract out the installation of MEE systems, from installation businesses that seek financing from external parties, from large construction companies and from electrical and roofing companies. In addition, local installers that might otherwise be viewed as potential MEE partners may gain market share by being able to be the first providers in new local markets. Some of these competitors may provide MEE services at lower costs than we do. +As the MEE industry grows and evolves, we will continue to face existing competitors as well as new competitors who are not currently in the market (including those resulting from the consolidation of existing competitors) that achieve significant developments in alternative technologies or new products such as storage solutions, electrification products, loan products, or other programs related to third-party ownership. Our failure to adapt to changing market conditions, to compete successfully with existing or new competitors and to adopt new or enhanced technologies could limit our growth and have a material adverse effect on our business and prospects. +A material reduction in the retail price of traditional utility-generated electricity or electricity from other sources could harm our business, financial condition, results of operations and prospects. +We believe that a significant number of our customers decide to buy MEE services because they want to pay less for electricity than what is offered by the traditional utilities. However, distributed commercial and industrial solar energy has yet to achieve broad market adoption as evidenced by the fact that distributed solar has penetrated less than 5% of its total addressable market in the U.S. commercial and industrial sector. +The customer’s decision to choose MEE services may also be affected by the cost of other renewable energy sources. Decreases in the retail prices of electricity from the traditional utilities or from other renewable energy sources would harm our ability to offer competitive pricing and could harm our business. +The price of electricity from traditional utilities could decrease as a result of: +● construction of a significant number of new power generation plants, including plants utilizing natural gas, nuclear, coal, renewable energy or other generation technologies; +● relief of transmission constraints that enable local centers to generate less expensively; +● reductions in the price of natural gas; +● utility rate adjustment and customer cost reallocation; +● energy conservation technologies and public initiatives to reduce electricity consumption; +● development of new or lower-cost energy storage technologies that have the ability to reduce a customer’s average cost of electricity by shifting load to off-peak times; +● development of new energy generation technologies that provide less expensive energy; or +● low time of use rate for charging electric vehicles at night when grid loads are low. +A reduction in utility electricity prices would make the purchase or the lease of our MEE systems less economically attractive. If the retail price of energy available from traditional utilities were to decrease due to any of these reasons, or other reasons, we would be at a competitive disadvantage, we may be unable to attract new customers and our growth would be limited. +The production and installation of electrification and decarbonization systems depends heavily on suitable meteorological and environmental conditions. If meteorological or environmental conditions are unexpectedly unfavorable, the electricity production and overall savings from our MEE services may be below consumer expectations, and our ability to timely deploy new MEE Systems may be adversely impacted. +The energy produced and savings generated by MEE Systems depend on suitable solar and weather conditions, both of which are beyond our control. Furthermore, components of our MEE Systems, such as panels and inverters, could be damaged by severe weather or natural catastrophes, such as hailstorms, tornadoes, fires, or earthquakes. Sustained unfavorable weather or environmental +42 +conditions also could unexpectedly delay the installation of our MEE Systems, leading to increased expenses and decreased revenue in the relevant periods. Extreme weather conditions, as well as the natural catastrophes that could result from such conditions, can severely impact our operations by delaying the installation of our MEE Systems, lowering sales, and causing a decrease in the savings from our MEE Systems due to smoke or haze. Weather patterns could change, making it harder to predict the average annual amount of sunlight striking each location where our solar energy systems are installed. This could make our MEE Service offerings less economical overall or make individual systems less economical. Any of these events or conditions could harm our business, financial condition, and results of operations. +Climate change may have long-term impacts on our business, our industry, and the global economy. +Climate change poses a systemic threat to the global economy and will continue to do so until our society transitions to renewable energy and decarbonizes. While our core business model seeks to accelerate this transition to renewable energy, there are inherent climate-related risks to our business operations. Warming temperatures throughout the United States have contributed to extreme weather, intense drought, and increased wildfire risks. These events have the potential to disrupt our business, our third-party suppliers, and our customers, and may cause us to incur additional operational costs. For instance, natural disasters and extreme weather events associated with climate change can impact our operations by delaying the installation of our systems, leading to increased expenses and decreased revenue and cash flows in the period. They can also cause a decrease in the output from our systems due to smoke or haze. Additionally, if weather patterns significantly shift due to climate change, it may be harder to predict the average annual amount of sunlight striking each location where our solar energy systems are installed. This could make our solar service offerings less economical overall or make individual systems less economical. +We seek to mitigate these climate-related risks not only through our core business model and sustainability initiatives, but also by working with organizations who are also focused on mitigating their own climate-related risks. +Risks related to ConnectM’s Technology, Intellectual Property and Infrastructure +ConnectM expects to incur research and development costs and devote significant resources to developing new products, which could significantly reduce its profitability and may never result in revenue to ConnectM. +ConnectM’s future growth depends on penetrating new markets, adapting existing products to new applications and customer requirements, and introducing new products that achieve market acceptance. ConnectM plans to incur research and development costs in the future as part of its efforts to design, develop, manufacture and introduce new products and enhance existing products. ConnectM continued to incur research and development expenses during the fiscal years ended December 31, 2024 and 2023, which are likely to grow in the future. Further, ConnectM’s research and development program may not produce successful results, and its new products may not achieve market acceptance, create additional revenue or become profitable. +ConnectM may need to defend against intellectual property infringement or misappropriation claims, which may be time-consuming and expensive. +From time to time, the holders of intellectual property rights may assert their rights and urge ConnectM to enter into licenses, and/or may bring suits alleging infringement, misappropriation or other violation of such rights. There can be no assurance that ConnectM will be able to mitigate the risk of potential suits or other legal demands by competitors or other third-parties. Accordingly, ConnectM may consider entering into licensing agreements with respect to such rights, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur, and such licenses and associated litigation could significantly increase ConnectM’s operating expenses. In addition, if ConnectM is determined to have or believes there is a high likelihood that it has infringed upon, misappropriated or otherwise violated a third-party’s intellectual property rights, it may be required to cease making, selling or incorporating certain key components or intellectual property into the products and services it offers, to pay substantial damages and/or royalties, to redesign its products and services, and/or to establish and maintain alternative branding. In addition, to the extent that ConnectM’s customers and business partners become the subject of any allegation or claim regarding the infringement, misappropriation or other violation of intellectual property rights related to ConnectM’s products and services, ConnectM may be required to indemnify such customers and business partners. If ConnectM were required to take one or more such actions, its business, prospects, operating results and financial condition could be materially and adversely affected. In addition, any litigation or claims, whether or not valid, could result in substantial costs, negative publicity and diversion of resources and management attention. +43 +ConnectM’s business may be adversely affected if it is unable to protect its technology and intellectual property from unauthorized use by third parties. +ConnectM’s success depends, at least in part, on ConnectM’s ability to obtain, maintain, enforce and protect its core technology and intellectual property. To accomplish this, ConnectM relies on, and plans to continue relying on, a combination of patents, trade secrets (including know-how), employee and third-party nondisclosure agreements, copyright, trademarks, intellectual property licenses and other contractual rights to retain ownership of, and protect, its technology. Despite ConnectM’s efforts to obtain, maintain, enforce and protect intellectual property rights, there can be no assurance that these steps will be available in all cases or will be adequate to prevent ConnectM’s competitors or other third-parties from copying, reverse engineering, or otherwise obtaining and using its technology or products or seeking court declarations that they do not infringe, misappropriate or otherwise violate its intellectual property. Failure to adequately protect its technology and intellectual property could result in competitors offering similar products, potentially resulting in the loss of some of ConnectM’s competitive advantage and a decrease in revenue which would adversely affect its business, prospects, financial condition and operating results. +The measures ConnectM takes to protect its technology intellectual property from unauthorized use by others may not be effective for various reasons, including the following: +● any patent applications ConnectM submits may not result in the issuance of patents; +● the scope of issued patents may not be broad enough to protect its inventions and proprietary rights; +● any issued patents may be challenged by competitors and/or invalidated by courts or governmental authorities; +● ConnectM may not be the first inventor of the subject matter to which it has filed a particular patent application, and it may not be the first party to file such a patent application; +● Patents have a finite term, and competitors and other third-parties may offer identical or similar products after the expiration of ConnectM’s patents that cover such products; +● the costs associated with enforcing patents, confidentiality and invention agreements or other intellectual property rights may make aggressive enforcement impracticable; +● current and future competitors may circumvent patents or independently develop similar trade secrets or works of authorship, such as software; +● know-how and other proprietary information ConnectM purports to hold as a trade secret may not qualify as a trade secret under applicable laws; +● ConnectM’s employees, contractors or business partners may breach their confidentiality, non-disclosure, and non-use obligations; and +● proprietary designs and technology embodied in ConnectM’s products may be discoverable by third-parties through means that do not constitute violations of applicable laws. +Patent, trademark, and trade secret laws vary significantly throughout the world. Some foreign countries do not protect intellectual property rights to the same extent as do the laws of the United States. Further, policing the unauthorized use of ConnectM’s intellectual property in foreign jurisdictions may be difficult or impossible. Therefore, ConnectM’s intellectual property rights may not be as strong or as easily enforced outside of the United States. +It is ConnectM’s policy to enter into confidentiality and invention assignment agreements with its employees and contractors that have developed material intellectual property for ConnectM, but these agreements may not be self-executing and may not otherwise adequately protect ConnectM’s intellectual property, particularly with respect to conflicts of ownership relating to work product generated by employees and contractors. Furthermore, ConnectM cannot be certain that these agreements will not be breached, and that third-parties will not gain access to its trade secrets, know-how and other proprietary technology. Third-parties may also independently develop the same or substantially similar proprietary technology. Monitoring unauthorized use of ConnectM’s intellectual property is difficult and costly, as are the steps ConnectM has taken or will take to prevent misappropriation. +44 +To prevent unauthorized use of ConnectM’s intellectual property, it may be necessary to prosecute actions for infringement, misappropriation or other violation of ConnectM’s intellectual property against third-parties. Any such action could result in significant costs and diversion of ConnectM’s resources and management’s attention, and there can be no assurance that ConnectM will be successful in any such action. Furthermore, many of ConnectM’s current and potential competitors have the ability to dedicate substantially greater resources to enforce their intellectual property rights than ConnectM does. Accordingly, despite its efforts, ConnectM may not be able to prevent third-parties from infringing, misappropriating or otherwise violating its intellectual property. Any of the foregoing may adversely affect ConnectM’s revenues or results of operations. +ConnectM’s technology could have undetected defects, errors or bugs in hardware or software which could reduce market adoption, damage its reputation with current or prospective customers, and/or expose it to product liability and other claims that could materially and adversely affect its business. +ConnectM may be subject to claims that MEE products have malfunctioned and persons were injured or purported to be injured. Any insurance that ConnectM carries may not be sufficient or it may not apply to all situations. Similarly, to the extent that such malfunctions are related to components obtained from third-party vendors, such vendors may not assume responsibility for such malfunctions. In addition, ConnectM’s customers could be subjected to claims as a result of such incidents and may bring legal claims against ConnectM to attempt to hold it liable. Any of these events could adversely affect ConnectM’s brand, relationships with customers, operating results or financial condition. +Across ConnectM’s product line, ConnectM develops equipment solutions based on preferred second source or common off-the-shelf vendors. However, due to its designs, ConnectM does rely on some single source vendors, the unavailability or failure of which can pose risks to supply chain or product shipping situations. +Furthermore, ConnectM’s software platform is complex, developed for over a decade by many developers, and includes a number of licensed third-party commercial and open-source software libraries. ConnectM’s software has contained defects and errors and may in the future contain undetected defects or errors. ConnectM is continuing to evolve the features and functionality of its platform through updates and enhancements, and as it does, it may introduce additional defects or errors that may not be detected until after deployment to customers. In addition, if ConnectM’s products and services, including any updates or patches, are not implemented or used correctly or as intended, inadequate performance and disruptions in service may result. +Any defects or errors in product or services offerings, or the perception of such defects or errors, or other performance problems could result in any of the following, each of which could adversely affect ConnectM’s business and results of its operations: +● expenditure of significant financial and product development resources, including recalls, in efforts to analyze, correct, eliminate or work around errors or defects; +● loss of existing or potential customers or partners; +● interruptions or delays in sales; +● delayed or lost revenue; +● delay or failure to attain market acceptance; +● delay in the development or release of new functionality or improvements; +● negative publicity and reputational harm; +● sales credits or refunds; +● exposure of confidential or proprietary information; +● diversion of development and customer service resources; +● breach of warranty claims; +● legal claims under applicable laws, rules and regulations; and +45 +● an increase in collection cycles for accounts receivable or the expense and risk of litigation. +Although ConnectM has contractual protections, such as warranty disclaimers and limitation of liability provisions, in many of its agreements with customers, resellers and other business partners, such protections may not be uniformly implemented in all contracts and, where implemented, may not fully or effectively protect it from claims by customers, resellers, business partners or other third-parties. Any insurance coverage or indemnification obligations of suppliers may not adequately cover all such claims or cover only a portion of such claims. A successful product liability, warranty, or other similar claim could have an adverse effect on ConnectM’s business, operating results and financial condition. In addition, even claims that ultimately are unsuccessful could result in expenditure of funds in litigation, divert management’s time and other resources and cause reputational harm. +Some of ConnectM’s products contain open-source software, which may pose particular risks to its proprietary software, products and services in a manner that could harm its business. +ConnectM uses open-source software in its products and anticipates using open-source software in the future. Some open-source software licenses require those who distribute open-source software as part of their own software product to publicly disclose all or part of the source code to such software product or to make available any derivative works of the open-source code on unfavorable terms or at no cost, and ConnectM may be subject to such terms. The terms of many open-source licenses have not been interpreted by U.S. or foreign courts, and there is a risk that open source software licenses could be construed in a manner that imposes unanticipated conditions or restrictions on ConnectM’s ability to provide or distribute ConnectM’s products or services. +In addition, ConnectM relies on some open-source software and libraries issued under the General Public License (or similar “copyleft” licenses) for development of its products and may continue to rely on similar copyleft licenses. Third-parties may assert a copyright claim against ConnectM regarding its use of such software or libraries, which could lead to a limitation of ConnectM’s use of such software or libraries. Use of such software or libraries may also force ConnectM to provide third-parties, at no cost, the source code to its proprietary software, which may decrease revenue and lessen any competitive advantage ConnectM has due to the secrecy of its source code. +ConnectM could face claims from third-parties claiming ownership of, or demanding release of, the open-source software or derivative works that ConnectM developed using such software, which could include ConnectM’s proprietary source code, or otherwise seeking to enforce the terms of the applicable open-source license. These claims could result in litigation and could require ConnectM to make its software source code freely available, purchase a costly license or cease offering the implicated products or services unless and until ConnectM can re-engineer them to avoid infringement, which may be a costly and time-consuming process, and ConnectM be able to complete the re-engineering process successfully. +Additionally, the use of certain open-source software can lead to greater risks than use of third-party commercial software, as open-source licensors generally do not provide warranties or controls on the origin of software. There is typically no support available for open-source software, and ConnectM cannot ensure that the authors of such open-source software will implement or push updates to address security risks or will not abandon further development and maintenance. Many of the risks associated with the use of open-source software, such as the lack of warranties or assurances of title or performance, cannot be eliminated, and could, if not properly addressed, have an adverse effect on ConnectM’s business and results. +We may also face claims alleging noncompliance with open source license terms or infringement or misappropriation of proprietary software. These claims could result in litigation, require us to purchase a costly license or require us to devote additional research and development resources to change our software, any of which would have a negative effect on our business and results of operations. In addition, if the license terms for open source software that we use change, we may be forced to re-engineer our solutions, incur additional costs or discontinue the use of these solutions if re-engineering cannot be accomplished on a timely basis. Although we monitor our use of open source software to avoid subjecting our offerings to unintended conditions, few courts have interpreted open source licenses, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to use our proprietary software. We cannot guarantee that we have incorporated or will incorporate open source software in our software in a manner that will not subject us to liability or in a manner that is consistent with our current policies and procedures. +Interruptions, delays in service or inability to increase capacity, including internationally, at third-party data center facilities could impair the use or functionality of ConnectM’s subscription services, harm its business and subject it to liability. +ConnectM currently serves customers from third-party data center facilities operated by Amazon Web Services (“ AWS ”) located in the United States. Any outage or failure of such data centers could negatively affect ConnectM’s product connectivity and performance. Furthermore, ConnectM depends on connectivity from its edge to its data centers through cellular service providers, such as AT&T. Any incident affecting a data center facility’s or a cellular service provider’s infrastructure or operations, whether +46 +caused by fire, flood, severe storm, earthquake, or other natural disasters, power loss, telecommunications failures, breach of security protocols, computer viruses and disabling devices, failure of access control mechanisms, war, criminal act, military actions, terrorist attacks and other similar events could negatively affect the use, functionality or availability of ConnectM’s services. +Any damage to, or failure of, ConnectM’s systems, or those of its third-party providers, could interrupt or hinder the use or functionality of its services. Impairment of or interruptions in ConnectM’s services may reduce revenue, subject it to claims and litigation, cause customers to terminate their subscriptions, and adversely affect renewal rates and its ability to attract new customers. ConnectM’s business will also be harmed if customers and potential customers believe its products and services are unreliable. +Risks Related to Customers +ConnectM may be unable to leverage customer data in all geographic locations, and this limitation may impact research and development operations. +ConnectM relies on data collected through charging stations or its mobile application, including usage data and geolocation data. ConnectM uses this data in connection with the research, development and analysis of its technologies. ConnectM’s inability to obtain necessary rights to use this data or freely transfer this data out could result in delays or otherwise negatively impact ConnectM’s research and development efforts. +ConnectM’s ability to maintain customer satisfaction depends in part on the quality of ConnectM’s customer support. Failure to maintain high-quality customer support could adversely affect ConnectM’s reputation, business, results of operation, and financial condition. +ConnectM provides direct customer support and also relies on channel partners in order to provide frontline support to some of its customers, including with respect to commissioning, maintenance, component part replacements and repairs of charging stations. If ConnectM’s channel partners do not provide support to the satisfaction of ConnectM’s customers, ConnectM may be required to hire additional personnel and to invest in additional resources in order to provide an adequate level of support, generally at a higher cost than that associated with its channel partners, which may increase ConnectM’s costs and expenses and adversely affect ConnectM’s gross margins. There can be no assurance that ConnectM will be able to hire sufficient support personnel as and when needed. To the extent that ConnectM is unsuccessful in hiring, training, and retaining adequate support personnel, its ability to provide high-quality and timely support to its customers will be negatively impacted and its customers’ satisfaction with its Cloud Services and MEE Systems could be adversely affected. Any failure to maintain high-quality customer support, or a market perception that ConnectM does not maintain high-quality customer support, could adversely affect ConnectM’s reputation, business, results of operations, and financial condition, particularly with respect to its fleet customers. +ConnectM’s business will depend on customers renewing their services subscriptions. If customers do not continue to use its subscription offerings or if they fail to add more MEE Services, its business and operating results will be adversely affected. +In addition to selling solar and battery energy systems, ConnectM also depends on customers continuing to subscribe to its heat pump, controlled cooling and extended warranty coverages. Therefore, it is important that customers renew their subscriptions when the contract term expires and add additional decarbonization and energy efficiency services to their subscriptions. Customers may decide not to renew their subscriptions with a similar contract period, at the same prices or terms or with the same or a greater number of users, stations or level of functionality. Customer retention may decline or fluctuate as a result of a number of factors, including satisfaction with software and features, functionality of the charging stations, prices, features and pricing of competing products, reductions in spending levels, mergers and acquisitions involving customers and deteriorating general economic conditions. +If customers do not renew their subscriptions, if they renew on less favorable terms or if they fail to add products or services, ConnectM’s business and operating results will be adversely affected. +Changes in subscriptions or pricing models may not be reflected in near-term operating results. +ConnectM generally recognizes subscription revenue from customers ratably over the terms of their contracts. As a result, most of the subscription revenue reported in each quarter is derived from the recognition of deferred revenue relating to subscriptions entered into during previous quarters. Consequently, a decline in new or renewed subscriptions in any single quarter will likely have only a small impact on revenue for that quarter. However, such a decline will negatively affect revenue in future quarters. In addition, the severity and duration of events may not be predictable, and their effects could extend beyond a single quarter. Accordingly, the effect of significant downturns in sales and market acceptance of subscription services, and potential changes in pricing policies or rate of renewals, may not be fully apparent until future periods. +47 +Risks Related to Finance, Tax and Accounting +Changes to applicable U.S. tax laws and regulations or exposure to additional income tax liabilities could affect ConnectM’s business and future profitability. +ConnectM is a U.S. corporation and thus subject to U.S. corporate income tax. Moreover, the majority of ConnectM’s operations and customers are located in the United States, and as a result, ConnectM is subject to various U.S. federal, state and local taxes. New U.S. laws and policy relating to taxes may have an adverse effect on ConnectM’s business and future profitability. Further, existing U.S. tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to ConnectM. +For example, on December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“ Tax Act ”), was signed into law making significant changes to the Code, and certain provisions of the Tax Act may adversely affect ConnectM. In particular, sweeping changes were made to the U.S. taxation of foreign operations. Changes include, but are not limited to, a permanent reduction to the corporate income tax rate, limiting interest deductions, a reduction to the maximum deduction allowed for net operating losses generated in tax years after December 31, 2017, the elimination of carrybacks of net operating losses, adopting elements of a territorial tax system, assessing a repatriation tax or “toll-charge” on undistributed earnings and profits of U.S.-owned foreign corporations, and introducing certain anti-base erosion provisions, including a new minimum tax on global intangible low-taxed income and base erosion and anti-abuse tax. The Tax Act could be subject to potential amendments and technical corrections and is subject to interpretations and implementing regulations by the U.S. Treasury and Internal Revenue Service (“ IRS ”), any of which could mitigate or increase certain adverse effects of the legislation. In addition, the Tax Act may impact taxation in other jurisdictions, including with respect to state income taxes as state legislatures respond to the Tax Act. Additionally, other foreign governing bodies have and may enact changes to their tax laws in reaction to the Tax Act that could result in changes to ConnectM’s global tax position and materially adversely affect its business and future profitability. +As a result of ConnectM’s plans to expand operations, including to jurisdictions in which the tax laws may not be favorable, ConnectM’s tax rate may fluctuate, ConnectM’s tax obligations may become significantly more complex and subject to greater risk of examination by taxing authorities or ConnectM may be subject to future changes in tax law, the impacts of which could adversely affect ConnectM’s after-tax profitability and financial results. +Because ConnectM does not have a long history of operating at its present scale and it has significant expansion plans, ConnectM’s effective tax rate may fluctuate in the future. Future effective tax rates could be affected by operating losses in jurisdictions where no tax benefit can be recorded under U.S. generally accepted accounting principles (“ GAAP ”), changes in the composition of earnings in countries with differing tax rates, changes in deferred tax assets and liabilities, or changes in tax laws. Factors that could materially affect ConnectM’s future effective tax rates include but are not limited to: (a) changes in tax laws or the regulatory environment, (b) changes in accounting and tax standards or practices, (c) changes in the composition of operating income by tax jurisdiction and (d) ConnectM’s operating results before taxes. +Additionally, ConnectM’s operations are subject to significant income, withholding and other tax obligations in the United States and may become subject to taxes in numerous additional state, local and non-U.S. jurisdictions with respect to its income, operations and subsidiaries related to those jurisdictions. ConnectM’s after-tax profitability and financial results could be subject to volatility or be affected by numerous factors, including (a) the availability of tax deductions, credits, exemptions, refunds (including refunds of value added taxes) and other benefits to reduce ConnectM’s tax liabilities, (b) changes in the valuation of ConnectM’s deferred tax assets and liabilities, (c) expected timing and amount of the release of any tax valuation allowances, (d) tax treatment of stock-based compensation, (e) changes in the relative amount of ConnectM’s earnings subject to tax in the various jurisdictions in which ConnectM operates or has subsidiaries, (f) the potential expansion of ConnectM’s business into or otherwise becoming subject to tax in additional jurisdictions, (g) changes to ConnectM’s existing intercompany structure (and any costs related thereto) and business operations, (h) the extent of ConnectM’s intercompany transactions and the extent to which taxing authorities in the relevant jurisdictions respect those intercompany transactions and (i) ConnectM’s ability to structure ConnectM’s operations in an efficient and competitive manner. Due to the complexity of multinational tax obligations and filings, ConnectM may have a heightened risk related to audits or examinations by U.S. federal, state, local and non-U.S. taxing authorities. Outcomes from these audits or examinations could have an adverse effect on ConnectM’s after-tax profitability and financial condition. Additionally, the IRS and several foreign tax authorities have increasingly focused attention on intercompany transfer pricing with respect to sales of products and services and the use of intangibles. Tax authorities could disagree with ConnectM’s intercompany charges, cross-jurisdictional transfer pricing or other matters and assess additional taxes. If ConnectM does not prevail in any such disagreements, its profitability may be affected. +ConnectM’s after-tax profitability and financial results may also be adversely impacted by changes in the relevant tax laws and tax rates, treaties, regulations, administrative practices and principles, judicial decisions and interpretations thereof, in each case, possibly with retroactive effect. For example, the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting recently entered into force among the jurisdictions that have ratified it, although the United States has not +48 +yet entered into this convention. These recent changes could negatively impact ConnectM’s taxation, especially as ConnectM expands its relationships and operations internationally. +The ability of ConnectM to utilize net operating loss and tax credit carryforwards is conditioned upon ConnectM attaining profitability and generating taxable income. ConnectM has incurred significant net losses since inception and it is anticipated that ConnectM will continue to incur significant losses. Additionally, ConnectM’s ability to utilize net operating loss and tax credit carryforwards to offset future taxable income may be limited. +ConnectM had approximately $35 million of U.S. federal net operating loss carryforwards available to reduce future taxable income as of December 31, 2024. U.S. Federal net operating losses occurring after December 31, 2017, of approximately $31 million may be carried forward indefinitely. The U.S. Federal net operating loss carryforwards begin to expire in 2026. +In addition, net operating loss carryforwards and certain tax credits may be subject to significant limitations under Section 382 and Section 383 of the Code, respectively, and similar provisions of state law. Under those sections of the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change attributes, such as research tax credits, to offset its post-change income or tax may be limited. In general, an “ownership change” will occur if there is a cumulative change in ownership by “5% stockholders” that exceeds 50 percentage points over a rolling three-year period. Future changes in ConnectM’s stock ownership, which are outside of ConnectM’s control, may trigger ownership changes. Similar provisions of state tax law may also apply to limit ConnectM’s use of accumulated state tax attributes. As a result, even if ConnectM earns net taxable income in the future, its ability to use its pre-change net operating loss carryforwards and other tax attributes to offset such taxable income or tax liability may be subject to limitations, which could potentially result in increased future income tax liability to ConnectM. +ConnectM’s reported financial results may be negatively impacted by changes in GAAP. +GAAP is subject to interpretation by the Financial Accounting Standards Board’s Accounting Standards Codification, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on reported financial results, and may even affect the reporting of transactions completed before the announcement or effectiveness of a change. +Our business currently depends on the availability of utility rebates, tax credits and other benefits, tax exemptions and exclusions, and other financial incentives. We may be adversely affected by changes in U.S. tax laws, and the expiration, elimination or reduction of these benefits could adversely impact our business. +Our business depends on government policies that promote and support solar energy and enhance the economic viability of owning solar energy systems. U.S. federal, state and local governmental bodies provide incentives to owners, distributors, installers and manufacturers of solar energy systems to promote solar energy. The Inflation Reduction Act (IRA) directs nearly $400 billion in federal funding to clean energy, with the goal of substantially lowering the U.S.’ carbon emissions by the end of this decade. The funds will be delivered through a mix of tax incentives, grants, and loan guarantees. Clean electricity and transmission command the biggest slice, followed by clean transportation, including EV incentives. Approximately $43 billion in IRA tax credits as consumer incentives, aim to lower emissions by making EVs, energy-efficient appliances, rooftop solar panels, geothermal heating, and home batteries more affordable. Starting in 2023, qualifying EVs will be eligible for a tax credit of up to $7,500 and $4,000 for new and used vehicles, respectively. The IRA extended the energy-efficient home improvement credit through 2032. There is also a tax credit for nonbusiness (residential) energy property expenditures which increases the rate of the credit to 30% and allows an annual $1,200 limitation of the credit amount in lieu of a lifetime limitation. The act also allows an annual $2,000 credit for geothermal heat pumps and biomass stoves and increases the credit for windows and doors. These policies are effective through 2032 and provide strong tail winds for decarbonization and electrification of residential homes in the U.S. +We may be required to record an impairment expense on our goodwill or intangible assets. +We are required under generally accepted accounting principles to test goodwill for impairment at least annually or when events or changes in circumstances indicate that the carrying amount may be impaired, and to review our intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Factors that can lead to impairment of goodwill and intangible assets include significant adverse changes in the business climate and actual or projected operating results, declines in the financial condition of our business and sustained decrease in our stock price. During the year ended December 31, 2024, the Company recognized goodwill impairment of $1,568,309 and an impairment of our intangible assets of $835,319. Furthermore, during the year ended December 31, 2023, the Company recognized goodwill impairment of $157,103 and an impairment of our intangible assets of $24,750. +49 +Risks Related to Legal Matters, Regulations, and Policy +Privacy concerns and laws, or other domestic or foreign regulations, may adversely affect ConnectM’s business. +ConnectM relies on data collected through charging stations or its mobile application, including usage data and geolocation data. ConnectM uses this data in connection with the research, development and analysis of its technologies. Accordingly, ConnectM may be subject to or affected by a number of federal, state, local and international laws and regulations, as well as contractual obligations and industry standards, that impose certain obligations and restrictions with respect to data privacy and security and govern its collection, storage, retention, protection, use, processing, transmission, sharing and disclosure of personal information including that of ConnectM’s employees, customers and other third-parties with whom ConnectM conducts business. National and local governments and agencies in the countries in which ConnectM operates and in which its customers operate have adopted, are considering adopting, or may adopt laws and regulations regarding the collection, use, storage, processing and disclosure of information regarding consumers and other individuals, which could impact its ability to offer services in certain jurisdictions. Laws and regulations relating to the collection, use, storage, disclosure, security and other processing of individuals’ information can vary significantly from jurisdiction to jurisdiction. The costs of compliance with, and other burdens imposed by, laws, regulations, standards and other obligations relating to privacy, data protection and information security are significant. In addition, some companies, particularly larger enterprises, often will not contract with vendors that do not meet these rigorous standards. Accordingly, the failure, or perceived inability, to comply with these laws, regulations, standards and other obligations may limit the use and adoption of ConnectM’s solutions, reduce overall demand, lead to regulatory investigations, litigation and significant fines, penalties or liabilities for actual or alleged noncompliance, or slow the pace at which it closes sales transactions, any of which could harm its business. Moreover, if ConnectM or any of its employees or contractors fail or are believed to fail to adhere to appropriate practices regarding customers’ data, it may damage its reputation and brand. +Additionally, existing laws, regulations, standards and other obligations may be interpreted in new and differing manners in the future, and may be inconsistent among jurisdictions. Future laws, regulations, standards and other obligations, and changes in the interpretation of existing laws, regulations, standards and other obligations could result in increased regulation, increased costs of compliance and penalties for non-compliance, and limitations on data collection, use, disclosure and transfer for ConnectM and its customers. +The costs of compliance with, and other burdens imposed by, laws and regulations relating to privacy, data protection and information security that are applicable to the businesses of customers may adversely affect ability and willingness to process, handle, store, use and transmit certain types of information, such as demographic and other personal information. If ConnectM or its customers are unable to transfer data between and among countries and regions in which it operates, it could decrease demand for its products and services or require it to modify or restrict some of its products or services. +In addition to government activity, privacy advocacy groups, the technology industry and other industries have established or may establish various new, additional or different self-regulatory standards that may place additional burdens on technology companies. Customers may expect that ConnectM will meet voluntary certifications or adhere to other standards established by them or third-parties. If ConnectM is unable to maintain these certifications or meet these standards, it could reduce demand for its solutions and adversely affect its business. +Failure to comply with anticorruption and anti-money laundering laws and similar laws associated with activities outside of the United States, could subject ConnectM to penalties and other adverse consequences. +ConnectM is subject to various employment-related laws in the jurisdictions in which its employees are based. It faces risks if it fails to comply with applicable U.S. federal or state wage laws, or wage laws applicable to its employees outside of the United States. Any violation of applicable wage laws or other labor-or employment-related laws could result in complaints by current or former employees, adverse media coverage, investigations and damages or penalties which could have a materially adverse effect on ConnectM’s reputation, business, operating results and prospects. In addition, responding to any such proceeding may result in a significant diversion of management’s attention and resources, significant defense costs and other professional fees. +Failure to comply with laws relating to employment could subject ConnectM to penalties and other adverse consequences. +ConnectM is subject to various employment-related laws in the jurisdictions in which its employees are based. It faces risks if it fails to comply with applicable U.S. federal or state wage laws, or wage laws applicable to its employees outside of the United States. Any violation of applicable wage laws or other labor-or employment-related laws could result in complaints by current or former employees, adverse media coverage, investigations and damages or penalties which could have a materially adverse effect on ConnectM’s reputation, business, operating results and prospects. In addition, responding to any such proceeding may result in a significant diversion of management’s attention and resources, significant defense costs and other professional fees. +50 +Existing and future environmental health and safety laws and regulations could result in increased compliance costs or additional operating costs or construction costs and restrictions. Failure to comply with such laws and regulations may result in substantial fines or other limitations that may adversely impact ConnectM’s financial results or results of operations. +ConnectM and its operations, as well as those of ConnectM’s contractors, suppliers and customers, are subject to certain environmental laws and regulations, including laws related to the use, handling, storage, transportation and disposal of hazardous substances and wastes as well as electronic wastes and hardware, whether hazardous or not. These laws may require ConnectM or others in ConnectM’s value chain to obtain permits and comply with procedures that impose various restrictions and obligations that may have material effects on ConnectM’s operations. If key permits and approvals cannot be obtained on acceptable terms, or if other operational requirements cannot be met in a manner satisfactory for ConnectM’s operations or on a timeline that meets ConnectM’s commercial obligations, it may adversely impact ConnectM’s business. +Environmental and health and safety laws and regulations can be complex and may be subject to change, such as through new requirements enacted at the supranational, national, sub-national and/or local level or new or modified regulations that may be implemented under existing law. The nature and extent of any changes in these laws, rules, regulations and permits may be unpredictable and may have material effects on ConnectM’s business. Future legislation and regulations or changes in existing legislation and regulations, or interpretations thereof, including those relating to hardware manufacturing, electronic waste or batteries, could cause additional expenditures, restrictions and delays in connection with ConnectM’s operations as well as other future projects, the extent of which cannot be predicted. +Further, ConnectM currently relies on third-parties to ensure compliance with certain environmental laws, including those related to the disposal of hazardous and non-hazardous wastes. Any failure to properly handle or dispose of such wastes, regardless of whether such failure is ConnectM’s or its contractors, may result in liability under environmental laws, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act, under which liability may be imposed without regard to fault or degree of contribution for the investigation and clean-up of contaminated sites, as well as impacts to human health and damages to natural resources. Additionally, ConnectM may not be able to secure contracts with third-parties to continue their key supply chain and disposal services for ConnectM’s business, which may result in increased costs for compliance with environmental laws and regulations. +Actual and potential claims, lawsuits and proceedings could ultimately reduce our profitability and liquidity and weaken our financial condition. +We could be named as a defendant in legal proceedings that claim damages in connection with the operation of our business. Most of the actions against us arise out of the normal course of our performing services or manufacturing equipment. From time to time, we may be a plaintiff in legal proceedings against customers in which we seek to recover payment of contractual amounts due to us, as well as claims for increased costs incurred by us. When appropriate, we establish estimated provisions against certain legal exposures, and we adjust such provisions from time to time according to ongoing developments related to each exposure, as well as any potential recovery from our insurance, if applicable. If, in the future, our assumptions and estimates related to such exposures prove to be inadequate or wrong, or our insurance coverage is insufficient, our business and results of operations could be adversely affected. In addition, claims, lawsuits and proceedings may harm our reputation or divert management resources away from operating our business. Losses arising from such events may or may not be fully covered by our various insurance policies or may be subject to deductibles or exceed coverage limits. +Misconduct by our employees, subcontractors or partners or our overall failure to comply with laws or regulations could harm our reputation, damage our relationships with customers, reduce our revenue and profits, and subject us to criminal and civil enforcement actions. +Misconduct, fraud, non-compliance with applicable laws and regulations, or other improper activities by one or more of our employees, directors, executive officers, subcontractors or partners could have a significant negative impact on our business and reputation. Examples of such misconduct include employee or subcontractor theft, personal misconduct and failure to comply with safety standards, including regulatory, company or site-specific COVID-19 safety protocols, laws and regulations, customer requirements, environmental laws and any other applicable laws or regulations. While we take precautions to prevent and detect these activities, such precautions may not be effective and are subject to inherent limitations, including human error and fraud. Our failure to comply with applicable laws or regulations or acts of misconduct could subject us to fines and penalties, harm our reputation, lead to loss of the services of employees or members of management, damage our relationships with customers, reduce our revenue and profits and subject us to criminal and civil enforcement actions. +51 +We have subsidiary operations in three states and are exposed to multiple state and local regulations, as well as federal laws and requirements applicable to government contractors. Changes in law, regulations or requirements, or a material failure of any of our subsidiaries or us to comply with any of them, could increase our costs and have other negative impacts on our business. +Our eight locations are located in three states, which exposes us to a variety of different state and local laws and regulations, particularly those pertaining to contractor licensing requirements. These laws and regulations govern many aspects of our business, and there are often different standards and requirements in different locations. In addition, our subsidiaries that perform work for federal government entities are subject to additional federal laws and regulatory and contractual requirements. Changes in any of these laws, or any of our subsidiaries’ material failure to comply with them, can adversely impact our operations by, among other things, increasing costs, distracting management’s time and attention from other items, and harming our reputation. +Past and future environmental, safety and health regulations could impose significant additional costs on us that could reduce our profits. +MEE systems are subject to various environmental statutes and regulations, including the Clean Air Act and those regulating the production, servicing and disposal of certain ozone-depleting refrigerants used in MEE systems. There can be no assurance that the regulatory environment in which we operate will not change significantly in the future. Various local, state and federal laws and regulations impose licensing standards on technicians who install and service MEE systems. Additional laws, regulations and standards apply to contractors who perform work that is being funded by public money, particularly federal public funding. Our failure to comply with these laws and regulations could subject us to substantial fines, the loss of our licenses or potentially debarment from future publicly funded work. It is impossible to predict the full nature and effect of judicial, legislative or regulatory developments relating to health and safety regulations and environmental protection regulations applicable to our operations. Additionally, industries in which our customers or potential customers operate may be affected by new or changing environmental, safety, health or other regulatory requirements, leading to decreased demand for our services and potentially impacting our business, financial condition, results of operations, cash flows and ability to grow. +Unsatisfactory safety performance may subject us to penalties, affect customer relationships, result in higher operating costs, negatively impact employee morale and result in higher employee turnover. +Our projects are conducted at a variety of sites including construction sites and industrial facilities. Each location is subject to numerous safety risks, including electrocutions, fires, explosions, mechanical failures, weather-related incidents, transportation accidents, damage to equipment and, with respect to indoor sites, an increased risk of COVID-19 outbreaks. These hazards can cause personal injury and loss of life, severe damage to or destruction of property and equipment and other consequential damages and could lead to suspension of operations, large damage claims and, in extreme cases, criminal liability. While we have taken what we believe are appropriate precautions to minimize safety risks, we have experienced serious accidents, including fatalities, in the past and may experience additional accidents in the future. Serious accidents may subject us to penalties, civil litigation or criminal prosecution. Claims for damages to property or persons, including claims for bodily injury or loss of life, could result in significant costs and liabilities, which could adversely affect our financial condition and results of operations. Poor safety performance could also jeopardize our relationships with our customers, negatively impact employee morale and harm our reputation. +Changes in United States trade policy, including the imposition of tariffs and the resulting consequences, may have a material adverse impact on our business and results of operations. +As a result of policy changes or shifting proposals by the U.S. government, there may be greater restrictions and economic disincentives on international trade. For example, the U.S. government has pursued a new approach to trade policy, including renegotiating or terminating certain existing bilateral or multi-lateral trade agreements. It has also imposed tariffs on certain foreign goods and has raised the possibility of imposing significant, additional tariff increases or expanding the tariffs to capture other types of goods. These tariffs and other changes in U.S. trade policy have in the past and could continue to trigger retaliatory actions by affected countries, and certain foreign governments have instituted or are considering imposing retaliatory measures on certain U.S. goods. We, our suppliers and our customers import certain raw materials, components and other products from foreign suppliers. As such, the adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the United States economy, which in turn could have an adverse effect on our business, financial condition and results of operations. +Tax matters, including changes in corporate tax laws and disagreements with taxing authorities, could impact our results of operations and financial condition. +We conduct business across the United States and file income taxes in various tax jurisdictions. Our effective tax rates could be affected by many factors, some of which are outside of our control, including changes in tax laws and regulations in the various tax +52 +jurisdictions in which we file income taxes. For instance, the Tax Cuts and Jobs Act was enacted into law in December 2017. While certain portions of the Tax Cuts and Jobs Act seem to have had a positive impact on the ConnectM’s results of operations, the overall impact of the Tax Cuts and Jobs Act is uncertain and our business and financial condition could be adversely affected. Furthermore, to the extent that certain of our customers are negatively affected by the Tax Cuts and Jobs Act and/or any uncertainty around its implementation or enforcement, they may reduce spending and defer, delay or cancel projects or contracts. Reduced government revenue resulting from changes to tax law may also lead to reduced government spending, which may negatively impact our government contracting business. It is also unknown if and to what extent various states will conform to the changes enacted by the Tax Cuts and Jobs Act. +Issues relating to tax audits or examinations and any related interest or penalties and uncertainty in obtaining deductions or credits claimed in various jurisdictions could also impact our effective tax rates. Our results of operations are reported based on our determination of the amount of taxes we owe in various tax jurisdictions. Significant judgment is required in determining our provision for income taxes and our determination of tax liability is always subject to review or examination by tax authorities in applicable tax jurisdictions. An adverse outcome of such a review of examination could adversely affect our operating results and financial condition. Further, the results of tax examinations and audits could have a negative impact on our financial results and cash flows where the results differ from the liabilities recorded in our financial statements. +Some of our customers may choose to size their systems to take advantage of net metering offered in their states, and changes to those policies may significantly reduce demand for our solar service offerings. +Per the Solar Energy Industries Association (SEIA), net metering, in its simplest terms, “is a billing mechanism that credits solar energy system owners for the electricity they add to the grid.” As of December 31, 2024, a substantial majority of states have adopted net metering policies. Electricity that is generated by a solar energy system and consumed on-site avoids a retail energy purchase from the applicable utility, and excess electricity that is exported back to the electric grid generates a retail credit within a homeowner’s monthly billing period. At the end of the monthly billing period, if the homeowner has generated excess electricity within that month, the homeowner typically carries forward a credit for any excess electricity to be offset against future utility energy purchases. At the end of an annual billing period or calendar year, utilities either continue to carry forward a credit, or reconcile the homeowner’s final annual or calendar year bill using different rates (including zero credit) for the exported electricity. +In Massachusetts, customers of a regulated electric company (Eversource, National Grid, or Unitil), may net meter. On August 11, 2022, Massachusetts Governor Charlie Baker signed H5060, An Act Driving Clean Energy and Offshore Wind, into law. This wide-sweeping climate legislation relaxes the net-metering cap for residential solar projects up to 25 kilowatts. Under this law, residential solar projects up to 25 kilowatts are eligible for the state’s net metering program, which is double the size of the previous limit. +With a net metering capability, our customers can sell their excess solar output to the grid on a mutually agreed plan. Because of the mismatch in the peak of solar production and peak load on the grid, the value of net metering will depend on the utility. Changes in state regulations for net metering could reduce the demand for our solar service offerings. +Electric utility statutes and regulations and changes to such statutes or regulations may present technical, regulatory and economic barriers to the purchase and use of our solar service offerings that may significantly reduce demand for such offerings. +Federal, state and local government statutes and regulations concerning electricity heavily influence the market for our solar service offerings and are constantly evolving. These statutes, regulations, and administrative rulings relate to electricity pricing, net metering, consumer protection, incentives, taxation, competition with utilities and the interconnection of homeowner-owned and third party-owned solar energy systems to the electrical grid. These statutes and regulations are constantly evolving. Governments, often acting through state utility or public service commissions, change and adopt different rates for residential customers on a regular basis and these changes can have a negative impact on our ability to deliver savings, or energy bill management, to customers. +In addition, many utilities, their trade associations, and fossil fuel interests in the country, which have significantly greater economic, technical, operational, and political resources than the residential solar industry, are currently challenging solar-related policies to reduce the competitiveness of residential solar energy. Any adverse changes in solar-related policies could have a negative impact on our business and prospects. +We are not currently regulated as a utility under applicable laws, but we may be subject to regulation as a utility in the future or become subject to new federal and state regulations for any additional MEE offerings we may introduce in the future. +Most federal, state, and municipal laws do not currently regulate us as a utility. As a result, we are not subject to the various regulatory requirements applicable to U.S. utilities. However, any federal, state, local or other applicable regulations could place +53 +significant restrictions on our ability to operate our business and execute our business plan by prohibiting or otherwise restricting our sale of electricity. These regulatory requirements could include restricting our sale of electricity, as well as regulating the price of our electrification and decarbonization solution offerings. For example, the New York Public Service Commission and the Illinois Power Agency have issued orders regulating distributed energy providers in certain ways as if they were energy service companies, which increases the regulatory compliance burden for us in such states. If we become subject to the same regulatory authorities as utilities in other states or if new regulatory bodies are established to oversee our business, our operating costs could materially increase. +Interconnection limits or circuit-level caps imposed by regulators may significantly reduce MEE customers’ ability to sell electricity from our solar service offerings in certain markets or slow interconnections, harming our growth rate and customer satisfaction scores. +Interconnection rules establish the circumstances in which rooftop solar will be connected to the electricity grid. Interconnection limits or circuit-level caps imposed by regulators may curb our growth in key markets. Utilities throughout the country have different rules and regulations regarding interconnection and some utilities cap or limit the amount of solar energy that can be interconnected to the grid. +Interconnection regulations are based on claims from utilities regarding the amount of solar energy that can be connected to the grid without causing grid reliability issues or requiring significant grid upgrades. Interconnection limits could slow our future installations in various markets, harming our growth rate. These regulations may hamper our ability to sell our MEE Solutions in certain markets and increase our costs, adversely affecting our business, operating results, financial condition, and prospects. +Risks Relating to Projections +We may not successfully implement our business model. +Our business model is predicated on our ability to provide MEE technology, systems, and services at a profit, and through organic growth, geographic expansion, and strategic acquisitions. We intend to continue to operate as we have previously with sourcing and marketing methods that we have used successfully in the past. However, we cannot assure that our methods will continue to attract new customers in the very competitive home electrification and solar systems marketplaces. In the event our customers resist paying the prices projected in our business plan to purchase home electrification capabilities and solar installations, our business, financial condition, and results of operations will be materially and adversely affected. +ConnectM’s projections are subject to significant risks, assumptions, estimates and uncertainties, including assumptions regarding future legislation and changes in regulations, both inside and outside of the U.S. As a result, ConnectM’s projected revenues, market share, expenses and profitability may differ materially from our expectations. +ConnectM operates in a rapidly evolving and highly competitive industry and our projections are subject to the risks and assumptions made by management with respect to this industry. Operating results are difficult to forecast because they generally depend on our assessment of factors that are inherently beyond our control and impossible to predict with certainty, such as the timing of adoption of future legislation and regulations by different states. Furthermore, if we invest in the development of new products or distribution channels that do not achieve commercial success, whether because of competition or otherwise, we may not recover the often material “up front” costs of developing and marketing those products and distribution channels or recover the opportunity cost of diverting management and financial resources away from other products or distribution channels. +Additionally, our business may be affected by reductions in consumer spending as a result of numerous factors, which may be difficult to predict. This may result in decreased revenue levels, and we may be unable to adopt timely measures to compensate for any shortcomings in revenue and/or operating profitability. This inability could cause our operating results in a given period to be higher or lower than budgeted. +Concentration of ownership among existing executive officers, directors and their affiliates may prevent new investors from influencing significant corporate decisions. +As of the date of this report, our directors, executive officers and their affiliates as a group will beneficially own approximately 24.5% of the outstanding common stock (without giving effect to exercise of the warrants). As a result, these stockholders are able to exercise a significant level of control over all matters requiring stockholder approval, including the election of directors, any amendment of the certificate of incorporation and approval of significant corporate transactions. This control could have the effect of delaying or preventing a change of control or changes in management and will make the approval of certain transactions difficult or impossible without the support of these stockholders. +54 +Risks Related to Ownership of our common stock. +ConnectM’s financial forecasts may not prove accurate. +In connection with the Business Combination, certain forecasted financial information for ConnectM was provided to the Board, which was internally prepared and provided by ConnectM, and adjusted by ConnectM and MCAC management and their representatives to take into consideration the consummation of the transactions contemplated by the Merger Agreement, as well as certain adjustments that were appropriate in their judgment and experience. The forecasts were based on numerous variables and assumptions known to ConnectM and MCAC at the time of preparation. Such variables and assumptions are inherently uncertain and many are beyond the control of ConnectM or MCAC. Important factors that may affect actual results and cause the forecasts to not be achieved include, but are not limited to, risks and uncertainties relating to the businesses of ConnectM (including its ability to achieve strategic goals, objectives and targets over applicable periods), industry performance, the competitive environment, changes in technology and general business and economic conditions. Various assumptions underlying the forecasts may prove to not have been, or may no longer be, accurate. The forecasts may not be realized, and actual results may be significantly higher or lower than projected in the forecasts. The forecasts also reflect assumptions as to certain business strategies or plans that are subject to change. As a result, the inclusion of such forecasts in this report should not be relied on as “guidance” or otherwise predictive of actual future events, and actual results may differ materially from the forecasts. +Our ability to be successful will be dependent upon the efforts of certain key personnel. The loss of key personnel could negatively impact the operations and profitability of our post-combination business and its financial condition could suffer as a result. +Our ability to be successful is dependent upon the efforts of our key personnel. Although some key personnel may remain with the post- combination business in senior management or advisory positions following the business combination, it is possible that we will lose some key personnel, the loss of which could negatively impact the operations and profitability of our post-combination business. +ConnectM’s success depends to a significant degree upon the continued contributions of senior management, certain of whom would be difficult to replace. Departure by certain of ConnectM’s officers could have a material adverse effect on ConnectM’s business, financial condition, or operating results. +There is no guarantee that an active and liquid public market for shares of our common stock will develop. +A liquid trading market for our common stock may never develop or, if developed, may not be maintained. +In the absence of a liquid public trading market: +● you may not be able to liquidate your investment in shares of the ConnectM common stock; +● you may not be able to resell your shares of ConnectM common stock at or above the price attributed to them in the business combination; +● the market price of shares of the ConnectM common stock may experience significant price volatility; and +● there may be less efficiency in carrying out your purchase and sale orders. +Risks Related to Having Become a Public Company +ConnectM incurs significant increased expenses and administrative burdens as a public company, which could have an adverse effect on its business, financial condition and results of operations. +ConnectM’s faces increased legal, accounting, administrative and other costs and expenses as a public company that it did not incur as a private company. Sarbanes-Oxley, including the requirements of Section 404, as well as rules and regulations subsequently implemented by the SEC, the Dodd-Frank Act and the rules and regulations promulgated and to be promulgated thereunder, the Public Company Accounting Oversight Board and the securities exchanges, impose additional reporting and other obligations on public companies. Compliance with public company requirements increases costs and make certain activities more time-consuming. A number of those requirements require it to carry out activities ConnectM has not done previously and additional expenses associated with SEC reporting requirements will continue to be incurred. Furthermore, if any issues in complying with those requirements are identified, ConnectM may be subject to additional costs and expenses to come into compliance (see also “ Financial, Tax and +55 +Accounting-Related Risks - Risks Related to Finance, Tax and Accounting - ConnectM has identified material weaknesses in its internal control over financial reporting. If ConnectM identifies a material weakness in the future or otherwise fails to maintain an effective internal control over financial reporting, this may result in material misstatements of ConnectM’s consolidated financial statements or cause ConnectM to fail to meet its periodic reporting obligations ,” for more detail). ConnectM could incur additional costs to rectify these new issues, and the existence of these issues could adversely affect its reputation or investor perceptions. In addition, as a public company, ConnectM maintains director and officer liability insurance, for which it must pay substantial premiums. The additional reporting and other obligations imposed by these rules and regulations increase legal and financial compliance costs and the costs of related legal, accounting and administrative activities. Advocacy efforts by stockholders and third-parties may also prompt additional changes in governance and reporting requirements, which could further increase costs. +Volatility in and disruption to the global economic environment, including the impact of an economic recession, trade protectionism and tariffs, and changes in the regulatory and business environments in which we operate may have a material adverse effect on our business, results of operations and financial condition. +Geopolitical risks, supply chain, labor and energy constraints and inflation have caused and may continue to cause volatility in and disruption to the global economic environment. Future changes in the regulatory and business environments in which we operate, including increased geopolitical risks, trade protectionism and tariffs, may adversely affect our ability to sell our products or source materials needed to manufacture our products. +Furthermore, financial instability or bankruptcy at any of our suppliers or customers could disrupt our ability to manufacture our products and impair our ability to collect receivables, any or all of which may have a material adverse effect on our business, results of operations and financial condition. In addition, some of our customers and suppliers may experience serious cash flow problems and, thus, may find it difficult to obtain financing, if financing is available at all. As a result, our customers’ need for and ability to purchase our products or services may decrease, and our suppliers may increase their prices, reduce their output or change their terms of sale. Any inability of customers to pay us for our products and services, or any demands by suppliers for different payment terms, may materially and adversely affect our results of operations and financial condition. Furthermore, our suppliers may not be successful in generating sufficient sales or securing alternate financing arrangements, and therefore may no longer be able to supply goods and services to us. In that event, we would need to find alternate sources for these goods and services, and there is no assurance we would be able to find such alternate sources on favorable terms, if at all. Any such disruption in our supply chain could adversely affect our ability to manufacture and deliver our products on a timely basis, and thereby affect our results of operations. +We are subject to cybersecurity risks to operational systems, security systems, or infrastructure owned by us or third-party vendors or suppliers. +We are at risk for interruptions, outages, and compromises to the confidentiality, integrity or availability of: (i) operational systems, including information technology, business, financial, accounting, product development, data processing, or manufacturing processes, owned by us or our third-party vendors or suppliers; (ii) facility security systems, owned by us or our third-party vendors, customers or suppliers; and/or (iii) vehicle propulsion control modules or other in-product technology, owned by us, our customers or our third-party vendors or suppliers. Such cyber incidents could materially disrupt operational systems (for example, through the deployment of ransomware); result in loss of intellectual property, trade secrets or other proprietary or competitively sensitive information; compromise personally identifiable information of employees, customers, suppliers, or others; jeopardize the security of our facilities; and/or affect the performance of vehicle propulsion control modules or other in-product technology. A cyber incident could be caused by malicious insiders or by third parties using sophisticated, targeted methods to circumvent firewalls, encryption, and other security defenses, including hacking, fraud, trickery, or other forms of deception, such as social engineering and phishing, or due to human or technological error, such as misconfigurations, “bugs,” or vulnerabilities in software or hardware used by us or others. +The techniques used by threat actors change frequently and may be difficult to detect for long periods of time. Cyberattacks are expected to accelerate on a global basis in frequency and magnitude as threat actors are increasingly using tools – including artificial intelligence – to evade detection and even remove forensic evidence. As a result, we may be unable to detect, investigate, remediate or recover from future cyberattacks or other incidents, or to avoid a materially adverse impact to our systems, information or business. In addition, remote or hybrid working arrangements at our Company, our customers and many third-party providers increase cybersecurity risks due to the challenges associated with managing remote computing assets and the nature of security vulnerabilities that are present in many non-corporate and home networks. +A significant cyber incident could impact our production capability, harm our reputation and business relationships, impact our competitive position (including compromising our intellectual property assets), and subject us to regulatory actions or litigation and fines and/or penalties, including pursuant to evolving global privacy and security regulations and laws, as well as significant investigative, restoration or remediation costs and/or increased compliance costs. Any of the foregoing could materially affect our +56 +business, results of operations and financial condition. There is no guarantee that our measures to prevent, detect and mitigate these threats, including employee and key third-party partner education, monitoring of networks and systems, and maintenance of backup and protective systems, will be successful in preventing or mitigating a cyber-incident. +In addition, in many jurisdictions, we are subject to privacy and data protection laws and regulations. These laws and regulations are changing rapidly and becoming increasingly complex. The interpretation and application of data protection laws in the U.S., Europe, and elsewhere are uncertain, evolving and may be inconsistent across jurisdictions. Our failure to comply with these laws and regulations could result in legal liability, significant regulator penalties and fines, or impair our reputation in the marketplace. +We operate in an intensely competitive business environment. We may not be as successful as our competitors incorporating artificial intelligence (“AI”) into our business or adapting to a rapidly changing marketplace. +Our competitors may be larger, more diversified, better funded, and have access to more advanced technology, including AI. These competitive advantages may enable our competition to innovate better and more quickly, to compete more effectively on quality and price, causing us to lose business and profitability. Burgeoning interest in AI may increase our competition and disrupt our business model. AI may lower barriers to entry in our industry and we may be unable to effectively compete with the products or services offered by new competitors. AI-related changes to the products and services on offer may affect our customers’ expectations, requirements, or tastes in ways we cannot adequately anticipate or adapt to, causing our business to lose sales, market share, or the ability to operate profitably and sustainably. +Item 1B. Unresolved Sta ff Comments. +None. +Item 1C. Cybersecurity. +Risk Management and Strategy +The Company relies heavily on its information systems, and the availability and integrity of these systems is essential to conducting its business and operations. As a developer of modern energy economy technology systems and services, the Company faces various security threats, including cybersecurity threats, to gain unauthorized access to its sensitive information or to render its information or systems unusable, and threats to the security of its facilities and infrastructure or third-party facilities and infrastructure, such as gathering and processing and other facilities, and pipelines. This risk may be heightened as a result of an increased remote working environment, similar to the one created by the COVID-19 outbreak in 2020. The potential for such security threats subjects its operations to increased risks that could have a material adverse effect on its business, financial condition, results of operations and cash flows. +As the Company implements various procedures and controls to monitor and mitigate such security threats and to increase security for its information, systems, facilities and infrastructure it may result in increased costs. Moreover, there can be no assurance that such procedures and controls will be sufficient to prevent security breaches from occurring. If any of these security breaches were to occur, they could lead to losses of, or damage to, sensitive information or facilities, infrastructure and systems essential to its business and operations, as well as data corruption, communication interruptions or other disruptions to its operations, which, in turn, could have a material adverse effect on its business, financial position, results of operations and cash flows. +Item 2. Properties. +Our corporate headquarters is located in Marlborough, Massachusetts where we lease approximately 2,396 square feet under a lease that expires in June 30, 2025. We also have offices in Gloucester, Massachusetts; New Bedford, Massachusetts; Stuart, Florida; Manassas, Virginia; Hyannis, Massachusetts; and Bangalore, India. We have one owned real property and 10 leased real properties. We believe that our existing facilities are adequate to meet the current needs of our essential workforce (including that, during the COVID-19 pandemic, we onboarded a number of fully remote employees) and that if we require additional space, we will be able to obtain additional facilities on commercially reasonable terms.. +Item 3. Legal Proceedings. +From time to time, we may be party to or otherwise involved in legal proceedings arising in the ordinary course of business. We recognize provisions for legal proceedings in our financial statements, in accordance with accounting rules, when we are advised by independent outside counsel that (i) it is probable that an outflow of resources will be required to settle the obligation and (ii) a +57 +reliable estimate can be made of the amount of the obligation. The assessment of the likelihood of loss includes analysis by outside counsel of available evidence, the hierarchy of laws, available case law, recent court rulings and their relevance in the legal system. Our provisions for probable losses arising from these matters are estimated and periodically adjusted by management. In making these adjustments our management relies on the opinions of our external legal advisors. Management does not believe that there is any pending or threatened proceeding against us, which, if determined adversely, would have a material adverse effect on our business, results of operations or financial condition, except as described below. +On February 26, 2024, Robert Zrallack and RJZ Holdings LLC (the “Plaintiffs”) filed suit against Aurai LLC (“Aurai”), ConnectM Florida RE LLC (“ConnectM Florida RE”), and Florida Solar Products, Inc. (“Florida Solar”), each a wholly owned subsidiary of ConnectM, in the circuit court for the 19th judicial circuit (St. Lucie County, Florida). In this suit, the Plaintiffs allege various contract claims arising out of a transaction under which Aurai acquired Florida Solar from Mr. Zrallack in 2022 and ConnectM Florida RE acquired certain real estate from RJZ Holdings LLC in 2022 from which Florida Solar operates. +Specifically, the Plaintiffs allege breach of the stock purchase agreement and certain promissory notes in connection with the purchase of Florida Solar and the related real estate, as well as breach of a services agreement with Mr. Zrallack. +ConnectM believes the Plaintiffs’ claims have no merit and plans to assert counterclaims against the Plaintiffs in connection with the underlying transactions. ConnectM is defending itself in this matter. +Regardless of the final outcome, defending lawsuits, claims, government investigations, and proceedings in which ConnectM is involved is costly and can impose a significant burden on management and employees, and there can be no assurances that favorable final outcomes will be obtained. +Item 4. Mine Safety Disclosures. +Not applicable. +PART II +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. +Market Information +Our Common Stock is currently listed on OTC Market under the symbol “CNTM.” The Company intends to list the warrants to purchase shares of Common Stock with an exercise price of $11.50 per share (the “ Public Warrants ”) on the OTC Market. +Holders of Record +As of August 1, 2025, there were 2,302 holders of record of our Common Stock and 10 holders of record of our Public Warrants. The actual number of stockholders of our Common Stock and the actual number of holders of our Public Warrants is greater than the number of record holders and includes holders of our Common Stock or Public Warrants whose shares of Common Stock or Public Warrants are held in street name by brokers and other nominees. +Dividend Policy +We have never declared or paid a cash dividend on our common stock. We do not expect to pay cash dividends on our common stock in the foreseeable future. We currently intend to retain our earnings, if any, for use in our business. Any dividends declared in the future will be at the discretion of our Board and subject to any restrictions that may be imposed by our lenders. +58 +Securities Authorized for Issuance under Equity Compensation Plans +The following table provides information as of December 31, 2024 with respect to securities that may be issued under our equity compensation plans: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Number of +​ +​ +​ +​ +​ +​ +​ +Securities +​ +​ +​ +​ +​ +​ +​ +Remaining +​ +​ +​ +​ +​ +​ +​ +Available for +​ +​ +Number of +​ +Weighted +​ +Future Issuance +​ +​ +Securities to be +​ +Average +​ +Under Equity +​ +​ +Issued upon +​ +Exercise +​ +Compensation +​ +​ +Exercise of +​ +Price of +​ +Plans +​ +​ +Outstanding +​ +Outstanding +​ +(Excluding +​ +​ +Options, +​ +Options, +​ +Securities +​ +​ +Warrants and +​ +Warrants and +​ +Reflected in the +Plan Category +​ +Rights +Rights +First Column) +Equity incentive plans approved by security holders +— +​ +$ +— +— +Equity incentive plans not approved by security holders +— +​ +— +— +Total +— +​ +$ +— +— +​ +Issuer Purchases of Equity Securities +None. +Recent Sales of Unregistered Securities +Between January 1, 2025 and the date of this filing, the Company issued an aggregate of 42,537,784 shares of its common stock in transactions not registered under the Securities Act of 1933, as amended (the “Securities Act”). These issuances included: (i) shares issued to certain directors, officers, advisors, and employees of the Company as equity compensation for services rendered; (ii) shares issued to debtholders in connection with debt-to-equity exchanges, whereby outstanding obligations were converted into common stock; (iii) shares issued as consideration for an acquisition completed during the period; and (iv) shares issued pursuant to common stock subscription agreements. +The unregistered shares details 2,207,222 unregistered shares were issued to BOD/Employees/Advisors/Vendors, 3,658,333 unregistered shares were issued for common stock subscriptions, 15,290,930 unregistered shares were issued towards debt-to-equity and convertible-note-exchange conversions, 2,737,168 unregistered shares related to share reset issuances, and 4.9 million unregistered shares issued for ATS/SES Acquisition. There were 13,744,131 shares issued that were exempt from registration under Section 3(a)(10) of the Securities Act. +The issuances to directors, officers, advisors, and employees were made pursuant to the exemption from registration under Section 4(a)(2) of the Securities Act and/or Rule 701 promulgated thereunder, as transactions not involving a public offering and/or under compensatory benefit plans and contracts relating to compensation. +The issuances to debtholders were made pursuant to the exemption from registration under Section 4(a)(2) as transaction not involving a public offering, Section 3(a)(9) and/or Section 3(a)(10) of the Securities Act, as exchanges with existing security holders or transactions approved by a court or authorized governmental entity, without payment of any commission or other remuneration. +The shares issued in connection with the acquisition were made pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506(b) of Regulation D, as private placements to accredited investors. +The shares issued pursuant to common stock subscription agreements were issued in reliance on Section 4(a)(2) of the Securities Act and/or Rule 506(b) of Regulation D, as private placements without general solicitation or advertising, to accredited investors. +Item 6. +Reserved. +​ +59 +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. +The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Form 10-K. Dollar amounts in this discussion are expressed in whole-dollars, except as otherwise noted. The following discussion contains forward-looking statements that reflect future plans, estimates, beliefs and expected performance. The forward looking statements are dependent upon events, risks and uncertainties that may be outside of our control. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed elsewhere in this Form 10-K, particularly in Part I, Item 1A, Risk Factors. We do not undertake, and expressly disclaim, any obligation to publicly update any forward-looking statements, whether as a result of new information, new developments or otherwise, except to the extent that such disclosure is required by applicable law. +Executive Overview +ConnectM is a Delaware corporation headquartered in Marlborough, Massachusetts. On July 12, 2024 (the “Closing Date”), Monterey Capital Acquisition Corporation (“ MCAC ”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with ConnectM Technology Solutions, Inc. (“ Legacy ConnectM ”) in which MCAC acquired all of the issued and outstanding shares of common stock from Legacy ConnectM shareholders (the “Business Combination”) in exchange for 14,500,000 shares of MCAC’s common stock. On the Closing Date, MCAC changed its name to ConnectM Technology Solutions, Inc (“ConnectM”) and we became a publicly listed company. +ConnectM is a constellation of companies connecting and powering next generation equipment, mobility and distributed energy—thus enabling a faster, smarter transition to a modern energy economy. We deliver an advanced, proprietary Energy Intelligence Network (EIN) platform designed to empower residential and commercial service providers and original equipment manufacturers, to optimize energy efficiency, enhance operational performance, and support sustainable innovation. Leveraging technology, data, artificial intelligence, and behavioral economics, ConnectM aims to lower energy costs and reduce carbon emissions globally. Our Service Provider-facing technology platform encompasses marketing to life cycle management, customer care to claims processing, finance to rebates/incentives. Our architecture combines artificial intelligence with human expertise, continuously learning from the data it generates. This enables us to refine and improve our technology solutions for B2B customers while maximizing customer lifetime value. In addition to digitizing electrification end-to-end, we also transform the underlying business model to minimize customer churn while maximizing trust and improving environmental impact. +Our OEM-facing technology platform provides essential hardware and software services for EV fleet management and battery diagnostics—helping to capture data, synthesize that data, and in turn monetizing that data on behalf of our enterprise customers. By empowering OEMs and mobility companies with connected operations, our portfolio companies directly contribute to their continued explosive growth. +We believe that our cocktail of enhanced user experience, aligned values, and competitive cost enjoys broad appeal. End user electrification consumption has grown over time to encompass higher value products such as heat pumps, highly efficient air conditioners, solar roof, battery storage, electric vehicles and weatherization. These progressions can generate increases in customer lifetime value. We anticipate sustained growth through predictable, recurring revenue streams and automation that reduces costs while meeting our B2B customer needs. Our data-driven architecture further enhances precision in pricing and implementing electrification solutions, creating additional value for our customers. +We derive revenue through the sale of hardware, software, and services across four different business segments: our Owned Service Network, Managed Solutions, Transportation, and Logistics. The key elements of our products and services are discussed in Part I, Item 1. “Business – Our Products and Services.” Our expenses consist primarily of payroll and benefit costs, facility costs, leasehold improvement amortization, utility costs, repair and maintenance, advertising, insurance, equipment depreciation and professional fees. +Recent Developments +On January 28, 2025, the Company entered into a settlement and stipulation agreement (the “Settlement Agreement”) with Last Horizon, LLC (“Last Horizon”), pursuant to which the Company agreed to issue shares of the Company’s common stock to Last Horizon in exchange for the settlement of an aggregate $8,908,000 (the “Claim”) to resolve outstanding overdue liabilities with one of our lenders and certain of our vendors. The Company has issued 13,744,131 shares of the Company’s common stock to Last Horizon as Settlement Shares between January 28, 2025 and the date Form 10-K was issued. The issuance of common stock to Last Horizon pursuant to the terms of the Settlement Agreement is exempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) thereof, as an issuance of securities in exchange for bona fide outstanding claims. +60 +On March 26, 2025, we were awarded our first Home and Building Electrification (HBE) project in India through a strategic partnership with Zenith Energy Services Pvt. Ltd. +During the quarter ended March 31, 2025, 2,737,168 shares of our common stock were issued in connection with the share reset derivative liabilities. +During the three months ended March 31, 2025, the Company entered into twelve convertible note agreements in exchange for aggregate gross proceeds of $2,530,000 to eleven lenders (the “Q1 2025 Convertible Notes”). The Q1 2025 Convertible Notes bear interest at a rate of 20.0% per annum. The Q1 2025 Convertible Notes have maturity dates that range from 40-days to one year from the convertible note issuance date, optional conversion period that ranges from thirty to ninety days, and a conversion price that ranges from $1.00 to $1.15. The Company entered into convertible note agreements with two related-party investors holding beneficial ownership interests exceeding 5.0% of the Company's common stock. The aggregate principal amount of these convertible notes was $500,000. +On April 2, 2025, the forward purchase agreement with Meteora was terminated. There were 1,618,948 shares of our common stock held by Meteora which were deemed free and clear of obligations and $500,000 termination payment owed to us from Meteora. +On April 11, 2025, the Company held a special meeting of shareholders. The shareholders voted to approve a reverse stock split and issuance of up to 25,000,000 shares via a standby equity purchase agreement. The terms of the reverse stock split are not yet finalized as of the date of this filing. +In April 2025, we acquired all of the issued and outstanding equity securities of Air Temp Service Co, Inc. ("Air Temp") and Solar Energy Systems of Brevard, Inc ("SES") in exchange for the issuance of 4,900,000 shares of our common stock with a fair value of $3,200,000, as determined using the closing share price on the date of issuance in May 2025. Air Temp Services is considered a related party due to its ownership by SriSid LLC and Arumilli LLC, which are related parties to the Company. The Company had a Managed Services Agreement in place with Air Temp during the reporting period. +On May 5, 2025, the Company's board of directors designated 100,000 shares of preferred stock as Series A Convertible Preferred Stock, par value $0.0001 per share (the "Series A Stock") and 100,000 shares of preferred stock as Series B Convertible Preferred Stock, par value $0.0001 per share (the "Series B Stock"). The Series A Stock and the Series B Stock have an initial stated value of $100.00 per share, subject to adjustment in the event of a stock split, combination or other similar recapitalization. Further terms are detailed in the Subsequent Events section. +On May 6, 2025, the Company received a determination letter (the "Delisting Notification") from the Nasdaq Hearings Advisor stating that the Panel has determined to delist the Company's common stock, par value $0.0001 per share from the Nasdaq Capital Market, and Nasdaq suspended the trading of the Company's Common Stock on May 7, 2025 because the Company has not demonstrated compliance with the MVLS Rule, nor does it meet any of the alternative requirements under Nasdaq Listing Rule 5550 (b) and has failed to demonstrate that additional time to regain compliance is appropriate. +On May 15, 2025, the Company completed its acquisition of Cambridge Energy Resources Ltd. ("CER"), a privately held India - based Energy - Management - as - a - Service provider, following receipt of all necessary regulatory approvals. Under the terms of the transaction, ConnectM paid INR 120 million (approximately $1.4 million). CER brings an established operating presence in India's rooftop solar and telecommunication energy - management sectors, complementing the Company's Owned Service Network segment and Energy Intelligence Network. Management expects the integration of CER to accelerate strategic growth across distributed energy and telecom infrastructure markets in India. With the acquisition, the Company projects India - based operations to expand from approximately 5% to 15% of global revenue (approximately $10 million annualized) over the next twelve months. +During April 2025 and May 2025, the Company entered into twenty five note exchange agreements with twelve of its lenders under which sixteen secured promissory notes totaling $4,435,000, nine convertible notes totaling $1,840,000, and accrued interest and fees totaling $1,189,939 were exchanged for 15,290,930 shares of the Company's common stock with a fair value of $8,224,386, as determined on the issuance date using the reported closing share price. Certain of these note exchanges involved related parties, including Arumilli LLC, SriSid LLC, Win - Light Global Co. Ltd., and W4 Partners LLC. +The Company entered into six promissory note agreements in exchange for aggregate gross proceeds of $735,000 during April 2025 and May 2025. Each of the notes bears interest at a rate of 20.0% per annum and matures 180 days from its respective issuance date. Five of the promissory notes were held by W4 Partners LLC, a related party due to its equity ownership in the Company. +61 +During May 2025, we amended three of our business loan and security agreements, extending the maturity dates through November 2026 and December 2026 and reducing monthly payments from approximately $23,000 to $8,000. +During May 2025 and June 2025, we issued 485,000 shares of our common stock to certain advisers with a fair value of approximately $108,000, as determined on the issuance date using the reported closing share price. +During May 2025 and June 2025, we issued 1,622,222 shares of our common stock to its directors and employees as consideration for past services performed with a fair value of approximately $372,000, as determined on the issuance date using the reported closing share price. +During May 2025 and June 2025, we sold 3,658,333 shares of our common stock for gross proceeds of approximately $805,000 with a fair value of approximately $948,000, as determined on the issuance date using the reported closing share price. +The Company entered into six convertible note agreements in exchange for aggregate gross proceeds of $1,026,000 to six lenders during April 2025, May 2025, and June 2025 (the "Q2 2025 Convertible Notes"). The Q2 2025 Convertible Notes bear interest at a rate of 20.0% per annum. Five of the Q2 2025 Convertible Notes have maturity dates that range from 40 - days to one year, optional conversion periods that range from thirty to 180 days, and conversion prices that either range from $0.60 to $1.15 or is convertible at a conversion price equal to the quotient obtained by dividing (x) the sum of the principal and accrued by unpaid interest by (y) 90.0% of the VWAP on the primary trading market of the Company's common stock the three trading day period immediately preceding the measurement date. One of the Q2 Convertible Notes bears interest at a rate of 20.0% per annum, matures 210 days from the agreement date, and is convertible any time before the maturity date at the option of the holder into shares of the Company's common stock at a conversion price equal to the lower of (i) $0.25 or (ii) the quotient obtained by dividing (x) the sum of the principal and accrued by unpaid interest by (y) 90.0% of the VWAP on the primary trading market of the Company's common stock the three trading day period immediately preceding the measurement date. +During July 2025, the Company entered into a convertible note agreement in exchange for aggregate gross proceeds of $500,000 to a lender (the "Q3 2025 Convertible Note"). The Q3 2025 Convertible Note bears interest at a rate of 20.0% per annum and matures 210 days from the agreement date. The Q3 2025 Convertible Note is convertible any time before the maturity date at the option of the holder into shares of the Company's common stock at a conversion price equal to the lower of (i) $0.25 or (ii) the quotient obtained by dividing (x) the sum of the principal and accrued by unpaid interest by (y) 90.0% of the VWAP on the primary trading market of the Company's common stock the three trading day period immediately preceding the measurement date.. The number of shares issuable upon conversion is determined by dividing the sum of the outstanding principal and accrued interest by the conversion price. +As of the date of this filing, the Company has not made certain scheduled payments under the SEPA Convertible Note or made timely SEC filings and is therefore in default under the agreement. However, Yorkville has not issued a formal notice of default, and the Company remains in ongoing discussions with Yorkville regarding a potential resolution and restructuring of the outstanding obligations. The Company is required to maintain a minimum cash balance equal to the lesser of (a) $2,000,000 and (b) the sum of the next three Installment Payments, as defined in the promissory note, coming due. As of December 31, 2024, the minimum cash balance required was approximately $833,000. +Comparability of Financial Information +Our historical operations and consolidated balance sheets may not be comparable to our operations and balance sheets as a result of the Business Combination and becoming a public company. +Business Combination and Public Company Costs +On July 12, 2024, we consummated the merger contemplated by the Merger Agreement with Legacy ConnectM surviving the merger as a wholly owned subsidiary of MCAC. +Immediately prior to the closing of the Business Combination, +● each outstanding share of Legacy ConnectM preferred stock was converted into Legacy ConnectM common stock based on a one-to-one ratio. The Business Combination is accounted for with a retrospective application of the Business Combination that results in 2,427,791 shares of preferred stock converting into the same number of shares of Legacy ConnectM common stock +62 +● convertible note payable totaling $2,250,000 were converted into shares of Legacy ConnectM common stock at $7.00 per share, resulting in the issuance of 321,428 shares of Legacy ConnectM common stock. +Upon consummation of the Business Combination, each share of Legacy ConnectM stock issued and outstanding was cancelled and converted into the right to receive 3.3214 shares of the Company’s common stock. +Upon the closing of the Business Combination, MCAC’s certificate of incorporation was amended and restated to, among other things, set the total number of authorized shares of capital to 110,000,000 shares, of which 100,000,000 were designated as common stock, $0.0001 par value per share, and of which 10,000,000 shares were designated as preferred stock, $0.0001 par value per share. +Legacy ConnectM was deemed the accounting acquirer in the Business Combination based on an analysis of the criteria outlined in Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”). The determination was primarily based on Legacy ConnectM’s shareholders prior to the Business Combination having a majority of the voting interests in the combined company, Legacy ConnectM’s ability to exert control over the majority of the board of directors of the combined company, Legacy ConnectM’s ability to maintain control of the board of directors on a go-forward basis, Legacy ConnectM’s senior management comprising the senior management of the combined company; and Legacy ConnectM’s operations prior to the Business Combination comprise the ongoing operations of the combined company. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Legacy ConnectM issuing stock for the net assets of MCAC, accompanied by a recapitalization. The net assets of MCAC were stated at fair value, with no goodwill or other intangible assets recorded. +As a result of the Business Combination, we became a publicly traded company, which will require us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit, compliance and legal fees. +Key Factors Affecting Operating Results +We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including but not limited to those discussed in Item 1A “Risk Factors”. +We expect to derive future revenue from (i) our existing high margin recurring revenue products, (ii) our expanded service offerings leveraging our existing customer and developer networks, (iii) expanding our existing software capabilities through development of additional software tools that are capable of analyzing prospective customer properties to assist in identifying attractive opportunities for us and our customers, and (iv) an expanded customer base through client referrals and our customized, relationship-focused sales process. +Reportable Segments +Our reportable operating segments include: +● Owned Service Network focuses on the decarbonization of homes and businesses by providing installation and maintenance services to residential and light commercial customers for heat and cooling solutions and advanced solar solutions. The installed equipment is connected to the Company’s AI-driven energy intelligence platform to ensure peak performance and efficiency of the equipment as well as allow the Company to remotely monitor maintenance needs. +● Managed Solutions provides a selection of servicing offerings that customers can select that include human resources management, procurement services, omnichannel marketing and lead generation as well as access to short-term working capital loans. +● Logistics focuses on the facilitation of business-to-business transportation of heavy goods using the Company’s last mile delivery software. +● Transportation focuses on the management of connected operations using the Company’s IIoT platform to remotely monitor the performance of equipment for original equipment manufacturers (“OEMs”). +63 +Key Components of Our Results of Operations +Revenue +Our revenue is derived from customer contracts and consists of equipment and product sales, installation of equipment, service agreements associated with equipment sold to customers, provision of managed services, and delivery services. We fulfill obligations and recognize revenue under a contract with a customer by transferring products and services in exchange for consideration from the customer. Payments received or consideration billed in advance are recorded as deferred revenue. For projects expected to be completed within one-year, we have elected to recognize revenue in the amount billable to the end-consumer. +Under our contracts in the managed solutions segment, working capital adjustments may be processed quarterly, if year-to-date costs incurred by the customer exceed the percentage of the customer’s revenue and are recorded as a reduction of selling, general and administrative expenses as it represents the customer’s reimbursement of costs incurred by us. +We exclude from revenue the taxes collected from customers and remitted to government authorities related to sales of our inventory. Shipping and handling costs that are billed to customers are included in net sales. +Cost of Revenue +Cost of Revenue consists of personnel-related expenses, including salaries, benefits and stock-based compensation, and facility costs for our operations and manufacturing teams. Cost of Revenue also includes expenses for costs of equipment and professional services related to the maintenance or installation of equipment. ConnectM expects its operations costs to increase in the foreseeable future as it continues to invest in the expansion of its operations. +Selling, General and Administrative +Selling, general and administrative expenses consist of personnel-related expenses, including salaries, benefits and stock-based compensation, depreciation and amortization, and allocated facility costs for our business development, marketing, corporate, executive, finance, legal, human resources, IT, and other administrative functions. General and administrative expenses also include expenses for outside professional services, including legal, auditing and accounting services, recruitment expenses, travel expenses and certain non-income taxes, insurance, and other administrative expenses. +We expect our selling, general and administrative expenses to increase for the foreseeable future as it scales headcount with the growth of its business, and because of operating as a public company, including compliance with the rules and regulations of the SEC, legal, audit, increased insurance expenses, investor relations activities, and other administrative and professional services. +Other Expense, net +Other income (expense), net consists primarily of interest expense incurred on our debt obligations, remeasurement gains or losses associated with the change in the fair value on our convertible notes payable and forward purchase agreement derivative liabilities, gains and losses on the extinguishment of liabilities, a gain on the modification of our forward purchase agreement and other miscellaneous income or expenses incurred throughout the period. +Results of Operations +The following table summarizes our financial results for the period indicated: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Years Ended December 31, +​ +Change +​ +​ +​ +2024 +​ +2023 +​ +​ +$ +​ +​ +% +​ +Revenues +$ +22,652,885 +$ +19,972,239 +$ +2,680,646 +​ +13.4 +% +Costs and expenses: +​ +​ +​ +​ +​ +​ +​ +​ +Cost of revenues +​ +16,706,177 +​ +14,934,962 +​ +1,771,215 +​ +11.9 +% +Selling, general and administrative expenses +​ +15,145,429 +​ +12,320,295 +​ +2,825,134 +​ +22.9 +% +Loss on impairment +​ +2,403,628 +​ +181,853 +​ +2,221,775 +​ +1,221.7 +% +Total Cost and Expenses +​ +​ +34,255,234 +​ +​ +27,437,110 +​ +​ +6,818,124 +​ +​ +24.9 +% +Loss from operations +​ +(11,602,349) +​ +(7,464,871) +​ +(4,137,478) +​ +55.4 +% +Total other expense, net +​ +(10,905,859) +​ +(1,733,983) +​ +(9,171,876) +​ +528.9 +% +Net loss +​ +$ +(22,508,208) +​ +$ +(9,198,854) +​ +$ +(13,309,354) +​ +​ +144.7 +% +​ +64 +Revenues +Revenue increased $2,680,646, or 13.4%, to $22,652,885 for the year ended December 31, 2024 from approximately $19,972,000 for the year ended December 31, 2023. This increase was primarily driven primarily by the Company’s new managed solutions offering, which yielded an increase in revenues of $ 3,812,088 for the year ended December 31, 2024, and increases in the Company’s transportation segment with an increase to revenue of $4,307,602 for the year ended December 31, 2024. This increase was primarily offset by declines in the Company’s owned service network segment of $6,207,326. These decreases in the electrification and decarbonization segments were mostly driven by inclement weather during the year ended December 31, 2024, which caused a decline in solar installations during this period. +Costs and Expenses +Cost of Revenues increased approximately $1,771,000, or 11.9%, to $16,706,177 for the year ended December 31, 2024 from approximately $14,935,000. This increase was primarily driven by an increase in our managed solutions offering segments $4,002,916, which increased along with the revenues for this segment, as described above, and higher material costs for the year ended December 31, 2024. This increase was primarily offset by the Company’s owned service network segments and transportation segments, which yielded a decrease in cost of revenues for the year ended December 31, 2024 of $5,520,576 and $158,565, respectively. +Selling, general and administrative expenses increased approximately $2,825,134, or 22.9% to $15,145,429 for the year ended December 31, 2024 from approximately $12,320,000 for the year ended December 31, 2023. The increase was primarily due to the Company incurring approximately $2,859,000 of onetime costs associated with its initial public offering for the year ended December 31, 2024. +Loss on impairment increased approximately $2,222,000, or 1,221.7%, to $2,403,628 for the year ended December 31, 2024 from approximately $182,000 for the year ended December 31, 2023. The increase was due to the Company recording impairment losses during the year ended December 31, 2024 attributed to recurring losses for two consecutive years at two subsidiaries and significantly declining sales at one of those subsidiaries. +Other Income (Expense) +Interest expense increased $1,282,694 to $2,714,048 for year ended December 31, 2024 from $1,431,354 for the year ended December 31, 2023. This increase was primarily driven by the issuance of the Company’s secured promissory notes and convertible notes throughout the years ended December 31, 2024 and 2023. +During the year ended December 31, 2024, we amended certain of our debt agreements and concluded that the amended terms of the agreements were substantially different from the terms of the initial agreements. As a result of this determination, we accounted for this amendment as extinguishments of the previous debt facility and recognized a loss of extinguishment of debt of $1,645,443. We also recognized expenses attributable to the changes in fair value of our forward purchase agreement of $8, 254,390 and a change in the fair value of convertible notes of $1,707,747. +During the year ended December 31, 2024, we recognized a gain on extinguishment of certain of our debt agreements of $2,257,638 and a gain on our forward purchase agreement modification of $1,572,236 related to the conversion of the convertible notes in connection with the transaction with MCAC and further the new convertible notes. +Liquidity and Capital Resources +Our consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. As of December 31, 2024, the Company had cash of approximately $2,408,000. The Company had a working capital deficit of approximately $26,247,000 at December 31, 2024 and incurred a net loss and generated negative cash flow from operating activities of approximately $22,508,000 and $5,959,000, respectively, for the year ended December 31, 2024. These are indicators of substantial doubt as to our ability to continue as a going concern for at least one year from issuance of our consolidated financial statements. Our ability to continue as a going concern is dependent upon the management of expenses and ability to obtain necessary financing to meet our obligations and pay our liabilities arising from normal business operations when they come due, and upon profitable operations. +If additional equity or debt financing is required from outside sources, we may not be able to raise it on terms acceptable to it or at all. If we are unable to raise additional capital on acceptable terms when needed, its results of operations and financial condition would be materially and adversely affected. Any such financing likely would be dilutive to our existing stockholders and could result in significant financial operating covenants that would negatively impact our business. +65 +Based on the foregoing, our management has concluded there is substantial doubt as to our ability to continue as a going concern within one year after the date the consolidated financial statements are issued. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities should we be unable to continue as a going concern. +Cash Flows +The following table summarizes ConnectM’s cash flows for the period indicated: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Year Ended December 31, +​ +Change +​ +2024 +​ +2023 +​ +$ +% +Net cash used in operating activities +​ +$ +(5,959,133) +$ +(4,621,692) +​ +$ +(1,337,441) +​ +28.9 +% +Net cash used in investing activities +​ +$ +(107,665) +$ +(465,711) +​ +$ +358,046 +​ +(76.9) +% +Net cash provided by financing activities +​ +$ +7,286,542 +$ +4,227,160 +​ +$ +3,059,382 +​ +72.4 +% +​ +Net used in operating activities +Net cash used in operating activities for the year ended December 31, 2024 was $5,959,133. Net cash used in operating activities consisted primarily of net loss of approximately $22,508,000 offset by approximately $13,261,000 of noncash items, primarily related to the loss on extinguishment of debt of $1,645,443, loss on fair value measurement of debt of $1,707,747, change in fair value of forward purchase agreement put option liability resulting in a loss of $8,254,390 depreciation and amortization of long-lived assets and intangible assets of $745,741 offset by a gain on modification of forward purchase agreement of $1,572,236, impairment loss on goodwill and intangible assets of $2,403,628 and the gain on extinguishment of debt of $2,257,638. In addition, for the year ended December 31, 2024, net changes in operating assets and liabilities resulted in cash provided by operating activities of $3,287,725. +Net cash used in operating activities for the year ended December 31, 2023 was $ 4,621,692. Net cash used in operating activities consisted primarily of net loss of $9,198,854, offset by $2,174,197 of noncash items, primarily related to the depreciation and amortization of long-lived assets and intangible assets of $776,397, amortization of the Company’s debt discount recorded on its different debt facilities of $346,557, a write down of inventory due to obsolescence of $187,098, a loss on impairment of $181,853, and a loss on the extinguishment of debt of $370,320. In addition, for the year ended December 31, 2023, net changes in operating assets and liabilities resulted in cash provided by operating activities of $2,402,965. +Net cash used in investing activities +Net cash used in investing activities for year ended December 31, 2024 was $107,665. Investing activities primarily included the purchase of capitalized software development costs of $186,103 and purchases of property and equipment of $27,044, cash paid for a noncontrolling interest of $60,000 offset by proceeds received from acquisitions of businesses of $152,482. +Net cash used in investing activities for the year ended December 31, 2023 was $465,711. Investing activities primarily included the issuance of convertible notes to MCAC for $445,000, with other immaterial investing activities primarily relating to the purchase of property and equipment and capitalized software. +Net cash provided by financing activities +Net cash provided by financing activities for the year ended December 31, 2024 was $7,286,542. Financing activities consisted primarily of proceeds from the business acquisition of $35,770,959, proceeds advance from lenders of $1,057,275, the issuance of debt of $6,614,400 and the issuance of convertible debt of $4,940,000, and Reimbursement for Recycled Shares related to Forward Purchase Agreement of $1,000,000. These financing activities were offset by cash transferred in connection with forward purchase agreement of $36,727,814 and payments on the Company’s debt facilities of $2,262,401, repayment of convertible debt of $50,000, cash paid for debt issuance costs of $1,015,114, advance to related party Monterey Capital Acquisition Corporation of $1,933,695 and payment on finance leases of $107,068. +Net cash provided by financing activities for the year ended December 31, 2023 was $4,227,160. Financing activities consisted primarily of the issuance of different debt facilities of $9,047,344 offset by the payment of extension fees into MCAC’s trust account of $2,491,431, payments on the Company’s debt facilities of $2,153,487, payments of deferred offering costs of $984,857, and payments on finance leases of $90,409. +66 +Off-Balance Sheet Arrangements +We did not have any off-balance sheet arrangements during the periods presented, and we do not currently have any off-balance sheet arrangements, as defined in the SEC rules and regulations. +Commitments and Contractual Obligations +We are required to maintain a minimum cash balance equal to the lesser of (a) $2,000,000 and (b) the sum of the next three Installment Payments, as defined in the promissory note, coming due by our standby equity purchase agreement with YA II PN, LTD as described in Note 12 to our audited consolidated financial statements. As of December 31, 2024, our minimum cash balance requirement was approximately $833,000. +Critical Accounting Policies and Significant Management Estimates +This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of income and expenses during the reporting periods. We base our estimates and judgments on historical experience and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates under varying assumptions or conditions. +While our significant accounting policies are described in Note 3 to our audited consolidated financial statements, we believe that the following accounting estimates require a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations. +Derivative Financial Instruments +We evaluate our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC 815, Derivatives and Hedging (“ASC 815”). Embedded derivatives must be separately measured from the host contract if all the requirements for bifurcation are met and depend on the nature of the host contract. Derivative financial instruments are recognized at fair value on the grant date with changes in the fair value reported recognized in the consolidated statements of operations and comprehensive loss and each reporting date and are included in this Report under “Item 8. Financial Statements”. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. +Bifurcated embedded derivatives are classified with the related host contract on the Company’s consolidated balance sheets. Derivative assets and liabilities are classified in the consolidated balance sheets as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date. +Any change in one of the significant assumptions detailed below or the terms of the underlying agreements of our derivative financial instruments would likely have an impact on the concluded fair value of the derivative financial instruments. See Note 14 - Derivatives and Note 15 - Fair Value Measurements to our audited consolidated financial statements for additional detail of the valuation methodologies and related assumptions utilized in determining the fair value or our derivative financial instruments +Forward Purchase Agreement (“FPA”) +Our FPA was initially recorded as a part of our Business Combination and was recorded at MCAC’s fair value on the Closing Date. The FPA was amended in August 2024 (the “FPA Amendment”) and December 2024 (the “Second FPA Amendment”). We re-measured the FPA to fair value at assumption and immediately prior to the FPA Amendment using a Black-Scholes pricing model which included certain subjective assumptions based on the term of the host contract including expected term, the estimated volatility of our stock price over the term. +The FPA Amendment and the Second FPA Amendment provided two separate settlement options. We re-measured the FPA to fair value immediately prior to the December 2024 amendment, subsequent to the December 2024 amendment, and at December 31, 2024 using a Monte Carlo simulation model that applies a probability of occurrence to the present value of each settlement scenario. +67 +Debt Conversion Adjustments and SEPA Derivative Liability +Our bifurcated embedded derivatives include the debt conversion adjustment provisions included in nine conversion agreements and the SEPA derivative liability. The fair value of these derivatives was determined utilizing a Monte Carlo simulation model in order to incorporate subjective assumptions based on the terms of the specific host contracts and represent our best estimate at the valuation date. The inputs to the model for each instrument include significant assumptions such as the drift term, volume-weighted average price (“VWAP”) based on a specified period of time as defined in the host contract and the estimated volatility of our stock price over the term which was determined by examining the historical volatilities of a group of industry peers, as the Company did not have significant trading history for our ConnectM common stock. +Convertible Debt +We evaluate convertible debt in accordance with ASC 470, “Debt with Conversion and Other Options” (“ASC 470”) to determine if embedded conversion features present in the convertible instrument shall be recognized separately at issuance by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. Debt issuance costs are allocated proportionately to the debt host and conversion feature. Convertible notes payable are reflected at fair value as the Company elected to measure these financial instruments with the fair value option. Each period, the fair value of the convertible notes payable are calculated and the resulting gains and losses from the change in fair value of the convertible notes associated with non-credit components are recognized in income, while the change in fair value associated with credit components are recognized in accumulated other comprehensive income (“AOCI”), and subsequently released from AOCI upon maturity. +Significant assumptions used in the calculation of fair value for the Amended 2022 Convertible Notes, 2023 Convertible Notes and 2024 convertible notes include the probabilities of the various conversion scenarios based on the terms of the host contract which include the estimated probability of conversion at maturity, voluntary conversion and automatic conversion. +The Assumed 2024 Note is re-measured to fair value each reporting period with the most significant unobservable input used in the calculation of the is the expected average volume weighted average price for a share of our common stock for the five-business day period preceding the maturity date of the Company at the maturity date. +The fair value of the SEPA Convertible Note was determined using a Monte Carlo simulation model which incorporates subjective assumptions based on the terms of the specific host contract and represent our best estimate at the valuation date. We included the estimated volatility of our stock price over the term of the note as of the measurement date, the remaining term of the host contract at the measurement date, the risk-free interest rate based upon United States Treasury interest rates appropriate for the expected term, and the estimated drift term. Any change in one of the significant assumptions detailed above would likely have an impact on the concluded fair value of the SEPA Convertible Note. +See Notes 10 – Convertible Debt and Note 15 - Fair Value Measurements to our audited consolidated financial statements for additional detail. +Contingent Consideration Obligation +The fair value of the Contingent Consideration Obligation was determined using a Monte Carlo simulation model which incorporates subjective assumptions based on the terms of the specific host contract and represent our best estimate at the valuation date. We included the estimated revenue and EBITDA volatility over the term, the term to payment of the host contract at the measurement date, the earnout and long-term risk-free interest rates based upon United States Treasury interest rates appropriate for the expected term. Any change in one of the significant assumptions detailed above would likely have an impact on the concluded fair value of the Contingent Consideration Obligation. +Business Combinations +We account for business combinations using the acquisition method of accounting. Identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquiree are recognized and measured as of the acquisition date at fair value. Goodwill is recognized to the extent by which the aggregate of the acquisition-date fair value of the consideration transferred and any noncontrolling interest in the acquiree exceeds the recognized basis of the identifiable assets acquired, net of assumed liabilities. Determining the fair value of assets acquired, liabilities assumed, and noncontrolling interest requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash flows, discount rates and asset lives among other items. +68 +Reverse Recapitalization +Legacy ConnectM was deemed the accounting acquirer in the Business Combination based on an analysis of the criteria outlined in Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”). The determination was primarily based on Legacy ConnectM’s shareholders prior to the Business Combination having a majority of the voting interests in the combined company, Legacy ConnectM’s ability to exert control over the majority of the board of directors of the combined company, Legacy ConnectM’s ability to maintain control of the board of directors on a go-forward basis, Legacy ConnectM’s senior management comprising the senior management of the combined company; and Legacy ConnectM’s operations prior to the Business Combination comprise the ongoing operations of the combined company. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Legacy ConnectM issuing stock for the net assets of MCAC, accompanied by a recapitalization. The net assets of MCAC were stated at fair value with no goodwill or other intangible assets recorded. See Note 5 – Reverse recapitalization to our audited consolidated financial statements for additional detail. +Long lived assets +We determined that long-lived assets, which include our goodwill and intangible assets, represent critical accounting estimates, as they involve significant judgment, estimates, and assumptions and to the extent that our estimates and assumptions materially change or if actual circumstances differ from those in the assumptions, our financial statements could be materially impacted. +Acquired intangible assets are initially valued at fair value using generally accepted valuation methods appropriate for the type of intangible asset. Intangible assets with definite lives are amortized over their estimated useful lives and are reviewed for impairment if indicators of impairment arise. Intangible assets assessed as having indefinite lives are not amortized, but are assessed for indicators that the useful life is no longer indefinite or for indicators of impairment each period. Indicators we review, as applicable, include whether there has been a significant adverse change in the extent or manner in which our assets are being used, a significant adverse change in legal factors affecting our assets, customer attrition, and/or a cash flow loss. Each reporting period, we evaluate the estimated remaining useful life of our intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization. +During the year ended December 31, 2024, we identified impairment indicators to our long lived assets attributed to recurring losses for two consecutive years at two subsidiaries and significantly declining sales at one of those subsidiaries. During the year ended December 31, 2023, we identified impairment indicators attributed to our decision to wind down the operations of two subsidiaries and based upon the contractual terms of a noncompete agreement in connection with an acquisition. We recognized an impairment loss of $1,567,812 and $157,103 on our goodwill for the years ended December 31, 2024 and 2023, respectively. We recognized an impairment loss on our intangible assets of $835,816 and $24,750 for the years ended December 31, 2024 and 2023, respectively. +Share-based Compensation +We account for share-based payments that involve the issuance of shares of our common stock to employees and nonemployees and meet the criteria for share-based awards as stock-based compensation expense based on the grant-date fair value of the award. We have elected to recognize the adjustment to stock-based compensation expense in the period in which forfeitures occur. We recognize compensation expense for awards with only service conditions on a straight-line basis over the requisite service period for the entire award. +If factors change, and we utilize different assumptions including the probability of achieving performance conditions, share-based compensation cost on future award grants may differ significantly from share-based compensation cost recognized on past award grants. If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate any remaining unearned share-based compensation cost or incur incremental cost. Share-based compensation cost affects our compensation and benefits expenses. In addition to the below, see Note 13 – Stock Based Compensation to our audited consolidated financial statements for additional detail. +For periods prior to the Business Combination, we issued stock option awards to employees and nonemployees under the Legacy ConnectM 2019 Equity Incentive Plan (the “2019 Plan”). Legacy Options converted into an option to purchase a number of shares of Company common stock equal to the product of the number of shares of Legacy ConnectM common stock and the Exchange Ratio at an exercise price per share equal to the exercise price of the Legacy Option divided by the Exchange Ratio. Each exchanged option is governed by the same terms and conditions applicable to the Legacy Option prior to the Business Combination. No further grants can be made under the 2019 Plan. The fair value of each option is estimated on the date of the grant using the Black-Scholes option-pricing model in order to measure the compensation cost associated with the award. This model incorporates the following assumptions for inputs: the expected volatility in the market value of the underlying common stock, the expected term of the contractual option, the risk- +69 +free interest rate based upon quoted market yields for United State Treasury instruments with terms that were consistent with the expected term of the stock options and the expected dividend yield of the underlying common stock. +For periods subsequent to the Business Combination share-based awards will be issued under the 2023 Equity Incentive Plan (the “2023 Plan”) which was approved on July 10, 2024 in connection with the Business Combination and will be administered by our Board. As of December 31, 2024, no awards were issued under to date under the 2023 Plan. +Warrants +We account for warrants as either equity- classified or liability classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing liabilities from equity (“ASC 480”), and ASC 815. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to our own common shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of our control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance, modification, and as of each subsequent quarterly period end date while the warrants are outstanding. +For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the liability-classified warrants are recognized as a non-cash gain or loss on the accompanying consolidated statements of operations and comprehensive loss. We assess the classification of our warrants at each reporting date to determine whether a change in classification between equity and liability is required. +Income taxes +We determined that income taxes involve critical accounting estimates because management makes significant estimates, assumptions, and judgments to determine our provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against deferred tax assets, and to the extent that our estimates and assumptions materially change, or if actual circumstances differ materially from those in the assumptions, our financial statements could be materially impacted. +We utilize the asset and liability method for computing our income tax provision. Deferred tax assets and liabilities reflect the expected future consequences of temporary differences between the financial reporting and tax bases of assets and liabilities as well as operating loss, capital loss, and tax credit carryforwards, using enacted tax rates. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we establish a valuation allowance. Assessing the need for a valuation allowance requires a great deal of judgement and we consider all available evidence, both positive and negative, to determine whether it is more likely than not that our deferred tax assets are recoverable. We evaluate all available evidence including, but not limited to, history of earnings and losses, forecasts of future taxable income, and the weight of evidence that can be objectively verified. See Note 17 - Income taxes of the notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for details of changes in our valuation allowance for the years ended December 31, 2024 and 2023. +We recognize the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. Interest and penalties related to unrecognized tax benefits are recognized within provision for income taxes. +For U.S. federal tax purposes, digital asset transactions are treated on the same tax principles as property transactions. We recognize a gain or loss when digital assets are exchanged for other property, in the amount of the difference between the fair market value of the property received and the tax basis of the exchanged digital assets. Receipts of digital assets in exchange for goods or services are included in taxable income at the fair market value on the date of receipt. +Reportable Segments +Our operations are organized into four reporting segments: owned service network, transportation, logistics, and managed solutions. The structure is designed to allow us to evaluate the performance of our different solutions offerings, provide improved service and drive future growth in a cost efficient manner. See Note 20 to the Consolidated Financial Statements for certain segment information about our business required by GAAP. +70 +Recently Issued and Adopted Accounting Standards +See Note 3 for a discussion of any recent accounting pronouncements relevant to our Consolidated Financial Statements. +Item 7A. Quantitative and Qualitative Disclosures about Market Risk. +As a smaller reporting company, we are not required to make disclosures under this Item. +Item 8. Financial Statements and Supplementary Data. +Our financial statements and the notes thereto begin on page F-1 of this Annual Report. +Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. +​ +Not applicable. +​ +Item 9A. Controls and Procedures. +Evaluation of Disclosure Controls and Procedures +Under the supervision and with the participation of our management, including our Chief Executive Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the fiscal year ended December 31, 2024. Based on this evaluation, our Chief Executive Officer has concluded that, as of December 31, 2024, our disclosure controls and procedures were not effective due to the material weaknesses in our internal control over financial reporting described below. +Management’s Report on Internal Control Over Financial Reporting +As required by SEC rules and regulations implementing Section 404 of the Sarbanes-Oxley Act, our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external reporting purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that: +● Pertain to the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company, +● Provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors, and +● Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements. +​ +A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. +Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2024. In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on this assessment, management concluded that our internal control over financial reporting was not effective as of December 31, 2024, due to the material weaknesses described below. +This Annual Report on Form 10-K does not include an attestation report of internal controls from our independent registered public accounting firm due to our status as an emerging growth company under the JOBS Act. +​ +Material Weaknesses in Internal Control Over Financial Reporting +In preparation of its consolidated financial statements to meet the requirements applicable to its current status as a publicly traded company, ConnectM and its independent registered public accounting firm identified material weaknesses in its internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. +71 +On April 8, 2025, the Company concluded there were errors that were material to the Company’s previously issued interim consolidated financial statements for the quarterly period ended September 30, 2024 as included in the Company’s Quarterly Report on Form 10-Q for such period (the “Prior Filing”) and the Prior Filing needed to be restated. The impact of restatement on the consolidated financial statements for the quarterly period ended September 30, 2024 is included in this 10-K for the year ended December 31, 2024, within note 2 to the consolidated financial statements. +The first material weakness identified related to a deficiency in ConnectM’s controls over complex accounting topics centered around the appropriate treatment of specific incremental costs that were directly attributable to the transaction with MCAC and the forward purchase agreement. Specifically, ConnectM’s accounting and internal control infrastructure did not allow for adequate review processes over this complex accounting topic due to lack of sufficient resources. Due to this material weakness, material errors were identified and corrected in ConnectM’s audited financial statements for the year ended December 31, 2024. +The second material weakness identified related to a deficiency in ConnectM’s controls over revenue recognition centered around the appropriate timing of the recognition of its solar system services for which ConnectM recognized revenue when it had not fully satisfied its performance obligation. Specifically, ConnectM’s accounting and internal control infrastructure did not allow for the proper assessment of the timing of revenue recognition for its solar system services due to lack of sufficient resources. Due to this material weakness, material errors were identified and corrected in ConnectM’s audited financial statements for the year ended December 31, 2024. +There are other material weaknesses identified relating to complex accounting relating to debt and derivatives, contingent consideration, deferred offering costs, management not identifying impaired intangible assets, and to the Company not being able to timely issue their financial statements. These material weaknesses are due to inadequate staffing at the Company. +An additional material weakness was identified due to the failure to get proper approval from the Board for related party transactions. +Remediation Plan +In light of these facts, our management, including our Chief Executive Officer, is in the process of implementing processes and controls and other post-closing procedures and has concluded that, notwithstanding the material weaknesses in our internal control over financial reporting described above, the consolidated financial statements for the period covered by and included in this Form 10-K fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with US GAAP. +​ +To address our material weakness, we are improving our processes of reviewing financial statements, increasing our communication with third-party service providers around transactions that the Company has entered, and implementing additional procedures to ensure that the review of the Company’s financial statements is supported by sufficient documentation to determine accuracy. We will not be able to fully remediate these material weaknesses until these steps have been completed and the controls have been operating effectively for a sufficient period of time. +​ +Inherent Limitations on Effectiveness of Controls +While management is working to remediate the material weaknesses, there is no assurance that these remediation efforts, when economically feasible and sustainable, will successfully remediate the identified material weaknesses. If we are unable to establish and maintain an effective system of internal control over financial reporting, the reliability of our financial reporting, investor confidence in us and the value of our common stock could be materially and adversely affected and the Company could be subject to sanctions or investigations by the SEC or other regulatory authorities. Effective process and controls over financial reporting is necessary for us to provide reliable and timely financial reports and are designed to reasonably detect and prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. For as long as we are a “smaller reporting company” under the U.S. securities laws, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404. An independent assessment of the effectiveness of internal control over financial reporting could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal control over financial reporting could lead to financial statement restatements and require us to incur the expense of remediation. +Moreover, we do not expect that process and controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must +72 +be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. The failure of our control systems to prevent error or fraud could materially adversely impact us. +​ +Changes in Internal Control over Financial Reporting +In light of the material weaknesses described above, we are taking the actions described above to remediate such material weaknesses. Except as described above, there was not any change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. +Item 9B. Other Information. +N o n e . +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. +Not applicable. +PART III +Item 10. Directors, Executive O ffi cers and Corporate Governance. +Insider Trading Policy +The Company has adopted an insider trading compliance policy and program applicable to directors, executive officers and employees. The Company believes this policy is reasonably designed to promote compliance with insider trading laws, rules and regulations, and the OTC Markets Group Inc. listing standards. A copy of the insider trading policy is filed as Exhibit [19.1] to this Form 10K. +Code of Ethics +All of our employees, including our Chief Executive Officer and Chief Financial Officer, are required to abide by our Code of Ethics to ensure that our business is conducted in a consistently legal and ethical manner. These policies form the foundation of a comprehensive process that includes compliance with corporate policies and procedures, an open relationship among colleagues that contributes to good business conduct, and a commitment to honesty, fair dealing and full compliance with all laws and regulations affecting the Company’s business. Our policies and procedures cover all major areas of professional conduct, including employment policies, conflicts of interest, intellectual property and the protection of confidential information, as well as strict adherence to laws and regulations applicable to the conduct of our business. +As required by the Sarbanes-Oxley Act of 2002, our Audit Committee has procedures to receive, retain and treat complaints received regarding accounting, internal accounting controls or auditing matters and to allow for the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters. +A copy of the Code of Ethics is filed as Exhibit 14.1 to this Annual Report on Form 10-K. +We will disclose any future amendments to, or waivers from, provisions of these ethics policies and standards on our website as promptly as practicable, as may be required under applicable SEC and Nasdaq rules and, to the extent required, by filing Current Reports on Form 8-K with the SEC disclosing such information. +73 +Directors, Executive Officers and Corporate Governance. +The following table sets forth certain information as of the date of this Report, with respect to our directors, executive officers and significant employees. +​ +​ +​ +​ +​ +Name +Age +Title +Bhaskar Panigrahi +55 +Chairman of the Board and Chief Executive Officer +Bala Padmakumar +63 +Vice-Chairman of the Board, Corporate Development +Girish Subramanya +48 +Chief Technology Officer +Mahesh Choudhury +54 +Vice President, US Operations +Kevin Stateham +54 +Vice President, Sales and Corporate Development +Kathy Cuocolo(1)(2)(3) +72 +Director +Stephen Markscheid(1)(2)(3) +70 +Director +Gautam Barua(1)(2)(3) +52 +Director +(1) Member of the Audit Committee +(2) Member of the Compensation Committee +(3) Member of the Nominating and Corporate Governance Committee +Information about our Executive Officers and Directors +Bhaskar Panigrahi is a nominee for the Combined Company’s board of directors and serves as the Chairman of ConnectM and has been Chief Executive Officer of ConnectM since November 2015. Mr. Panigrahi has a rich experience of more than 25 years as a serial entrepreneur and investor. Mr. Panigrahi has an extensive experience in setting up, building, formulating corporate strategy and direction for various successful organizations. Mr. Panigrahi is also an investor in, and board member of, CCI Energy/Fairhaven Wind, Sure Ventures, BluStream Corp, and Blue Cloud Ventures. Prior to ConnectM, Mr. Panigrahi was Chairman and co-founder of Cambridge Energy Holdings from 2008 to 2016, and led the launching and building of multiple clean energy ventures including Cambridge Energy Resources (ultra-thin silicon wafers), Cambridge Clean Energy (replacing diesel with Solar and Battery in telecom towers in emerging economy), CCI Energy (community wind and solar projects under long term PPAs), EMX Control (light-weight controllers for renewable installations), and others. Prior to Cambridge Energy Holdings, Mr. Panigrahi was co-founder and chairman of Cambridge Technology Enterprises from 2004 to 2010, a global business and technology Services company where Mr. Panigrahi led a successful initial public offering on both Bombay and National Stock Exchange in India. Under his leadership, Cambridge Technology grew at 100% compound annual growth rate. Prior to Cambridge Technology Enterprises, Mr. Panigrahi served as Chief Executive Officer of CellExchange from 2002 to 2005, which acts as an enterprise systems developer to government enterprises and was named a Washington Technology Fast 50 company. Mr. Panigrahi also served as the Chief Executive Officer of Unique Computing Solutions and e-Solutions Integrator from 2000 to 2002, an internet technology and services firm. Unique Computing Solutions was named twice on Inc. 500 List of fastest growing private companies, Deloitte Regional Fast 50 and National Fast 500 rosters. Mr. Panigrahi invested in and promoted many other technology companies, including 1Efficiency (Energy Monitor in Commercial Buildings), Mascot Networks (product and solutions provider in education space) and Trading Research Design (financial risk management solution provider). Mr. Panigrahi holds a BS in Computer Science from National Institute of Technology, Suratkal, India. We believe that Mr. Panigrahi has the qualifications to be a member of our board of directors because of his extensive experience being chairman and board of directors in multiple companies in the past and his leadership ability to set direction, vision, and leadership with guidance from other directors. +Bala Padmakumar is a nominee for the Combined Company’s board of directors and will serve as Vice Chairman of ConnectM following the Business Combination. In addition to his role as director, Mr. Padmakumar will focus on strategic financing, investor communications and strategic roadmap and product development. Mr. Padmakumar has been MCAC’s Chief Executive Officer and the Chairman of the MCAC board of directors since September 2021. Mr. Padmakumar is a broad based entrepreneur and technologist with a strong background in strategic partnerships, product and business development, technology and operations, private equity, and venture capital environments. Since August 2020, Mr. Padmakumar has been a partner at Advantary LLC, where he specializes in business development and advises on strategic matters. Since January 2021, he has been actively advising the Asia practice of FocalPoint Partners LLC, a boutique investment bank, on deal flow diligence in the clean transition space in Asia. Since June 2021, he has been an advisor to the Chief Executive Officer of NTherma Corporation on strategic relationships and capital raising activities. From July 2016 to December 2021, Mr. Padmakumar has also advised on deal flow and provided operational support to portfolio companies for a fund set up to support SK Telecom Co., Ltd.’s strategic interests. From 2007 through 2010, Mr. Padmakumar was a Venture Partner at X/Seed Capital Management, LLC, where he focused on transactions in the cleantech and materials sectors. Additionally, from 2011 to October 2020, Mr. Padmakumar was the Chief Executive Officer at Amperics, Inc., a developer and vendor of high energy density ultracap hybrid storage systems. Mr. Padmakumar also has extensive experience in the clean energy +74 +sectors, having been an advisor to Lionrock Batteries Ltd., which creates flexible batteries and high performance separator technology from 2019 to 2024, an advisor to the board of directors and CEO of Hyperscale Data Center Company, a company focused on energy usage efficiency in hyperscale data centers from 2018 to 2020, and an advisor to the chairman of Advanced Systems Automation Limited in Singapore, where he advised on issues surrounding urban transportation, High Energy Density Li Ion battery (NMC technology) and 3D printing technology from 2017 to 2019. Mr. Padmakumar also has broad experience advising on capital raising and corporate strategy, serving as a mentor to OneValley Inc., a global entrepreneurship platform for individuals, startups, and corporations seeking innovation and accelerated growth, and as an advisor to several early-stage companies from audio technologies to SaaS products. Mr. Padmakumar has a Bachelor’s Degree in Technology from the University of Madras in Chemical Engineering and a Master of Science Degree in Chemical Engineering from Stanford University. We believe that Mr. Padmakumar has the qualifications to be a member of our Board of Directors because of his broad experience advising on capital raising and corporate strategy, serving as a mentor to individuals, startups, and corporations seeking innovation and accelerated growth, and as an advisor to several early-stage companies from audio technologies to SaaS products. +Girish Subramanya serves as the Global Chief Technology officer and has served as the head of ConnectM’s India operations since June 2018. Mr. Subramanya has served in served positions at ConnectM since November 2007. Mr. Subramanya is a technology enthusiast and an entrepreneur who has led several product launches in his career, with many of them from concept to market ready solution for industries including finance, e-commerce and enterprise segments. For over a decade Mr. Subramanya held product management roles at i2 Technologies, a full-service supply chain management company providing consulting, technology, and managed services, Integral Systems, a currency technology partner of financial institutions, and Coreobjects, an end-to-end software development company. In 2007, Mr. Subramanya co-founded ConnectM to enable large enterprises and product original equipment manufacturers (OEMs) to manage their distributed assets & operations effectively and improve efficiencies using Internet of Things (IoT) technologies along with value creation over time for the businesses they run and for their end customers. Mr. Subramanya conceived and built a core platform & technology stack in the early stages of ConnectM’s growth that significantly contributed in differentiating ConnectM among its peers and positioned itself as a PaaS (Platform as a Service) company that fueled traction in the market and helped acquiring a marquee client base. During 2020, Mr. Subramanya pivoted the India business from a cross vertical IoT solutions to electric vehicle industry centric solutions which is being adapted by over 10+ OEMs and infra providers into their products. Mr. Subramanya holds a Master of Computer Applications from the Department of Electronics and Accreditation of Computer Courses (DOEACC), New Delhi, India. +Mahesh Choudhury heads ConnectM’s internal operations including supply chain, information technology (IT), and general administration and has done so since January 2017, including overseeing the finance and information technology functions. Mr. Choudhury has over 25 years of experience in various operational management rolls. He is very passionate about building and engaging the right technology for climate control and energy management in delivering value to both residential and commercial customers. Prior to ConnectM, Mr. Choudhury had 12 years of experience with the electrification and decarbonization industry. Mr. Choudhury is instrumental in defining the remote performance management platform for the heating, ventilation and air conditioning (HVAC) industry. Prior to ConnectM, he led finance and supply chain at Sustainable New Energy (SNE) from August 2010 to September 2014 and implemented large scale wind and solar energy projects. Mr. Choudhury was a co-founder of Cambridge Clean Energy (CCE) and assisted with developing remote power management technology for powering telecom towers and led the operations globally. Mr. Choudhury also has 17 years of experience with utility/energy management. Mr. Choudhury has an MS degree from Indian Institute of Technology (IIT), India. +Kevin Stateham heads ConnectM’s sales and corporate development operations and has done so since June 2018. Mr. Stateham is a successful business development, sales operations executive and management leader with over two decades of technology industry experience. In addition, as the head of client relations at ConnectM, Mr. Stateham plays a key role in driving customer goals, product utilization, business transformation, and revenue expansion by ensuring the engagement, success, retention, and growth of ConnectM customers. Mr. Stateham also manages ConnectM’s mergers and acquisitions, acquiring nine businesses since 2018. Mr. Stateham is a technology industry veteran, with over 25 years leading successful data communications and SaaS companies in key sales and business development roles. Before ConnectM, Mr. Stateham was a sales lead at Keen Home Inc, where he grew the company’s business to business sales by 50% year over year. Prior to Keen Home, Mr. Stateham was the director of sales at Network Access Solutions, Inc. where he was responsible for the largest frame relay network conversion to digital subscriber lines with virtual private network (VPN), encompassing over 22,000 United States post offices, and was involved in the company’s successful initial public offering. +Non-Employee Directors +Kathy Cuocolo is a nominee for the Combined Company’s board of directors and has served as a member of the MCAC Board since 2021. Ms. Cuocolo is a versatile executive and director with demonstrated success in developing and managing financial services operations on a global basis. Ms. Cuocolo is currently a director and Audit Chair of Greenbacker Renewable Energy Company LLC and a director at Syntax ETF Trust. Her prior directorships include President and Director of The China Fund, Inc., +75 +which invests primarily in private placements in mainland China, Chairperson of Select Sector ETF Trust, and a director of Guardian Life family of funds. From 2014 through March 2020, Ms. Cuocolo was the president of Syntax Advisors, LLC where she was responsible for all aspects of business operations and the development of its financial management products. Prior to that, from 2008 until 2013, Ms. Cuocolo was a Managing Director and Division Head for the Mutual Fund and global ETF Services for The Bank of New York Mellon Corporation, where she was responsible for the operations and strategic planning for these business lines. Prior to that, from 1982 until 2003, Ms. Cuocolo served in various roles at State Street Corporation, including as an Executive Vice President, Division Head of Investor Products and Services, where she was responsible for operations and strategic planning. Ms. Cuocolo was a member of the corporations’ Executive Operating Committee responsible for all aspects of business strategy. During her 22 years at State Street, Ms. Cuocolo led the firm to become the largest fund administrator in the U.S., with over $1.2 trillion in assets. Prior to State Street, Ms. Cuocolo was an auditor at PriceWaterhouseCoopers LLP. Ms. Cuocolo received her B.A. in Accounting, summa cum laude, from Boston College, and holds a Masters Professional Director Certificate from the American College of Corporate Governance. Ms. Cuocolo received her CPA license in the Commonwealth of Massachusetts in 1981. We believe that Ms. Cuocolo has the qualifications to be a member of our Board of Directors because of her extensive experience in cleantech, finance/audit, and as independent director in other public companies. +Stephen Markscheid is a nominee the Combined Company’s board of directors and has served as member of the MCAC Board since 2022. Mr. Markscheid is currently the Managing Partner of Aerion Capital and currently serves as a director of Fanhua, Inc. (Nasdaq: FANH), JinkoSolar Holding Co., Ltd. (NYSE: JKS), Zhongjin Technology Services Group Company Limited (HKEX: Stock Code 08295), UGE International Ltd. (TSXV: UGE.V), and Four Leaf Acquisition Corporation (Nasdaq: FORL). In addition, Mr. Markscheid serves as a Board Advisor to several companies, including NanoGraf Corporation, Intelligent Generation LLC, Nulyzer Inc. and Hago Energetics, Inc., Mr. Markscheid also serves as a trustee emeritus of Princeton-in-Asia and Chairman Emeritus of KX Power, a UK based energy storage project developer. From 1998 until 2006, Mr. Markscheid served as a Director of Business Development and Senior Vice President and led GE Capital’s business development activities in China and the Asia Pacific region, primarily focusing on acquisitions and direct investments. Prior to GE, Mr. Markscheid worked with the Boston Consulting Group throughout Asia. Mr. Markscheid was a banker for ten years in London, Chicago, New York, Hong Kong and Beijing with Chase Manhattan Bank and First National Bank of Chicago. Mr. Markscheid began his career with the US-China Business Council, in Washington D.C. and Beijing. Mr. Markscheid earned a B.A. in East Asian Studies from Princeton University in 1976, an M.A. in international affairs from Johns Hopkins University in 1980, and an MBA from Columbia University in 1991, where he was class valedictorian. We believe that Mr. Markscheid has the qualifications to be a member of our Board of Directors because of his extensive experience in cleantech and as independent director in other public companies. +Gautam Barua is a nominee for the Combined Company’s board of directors. Mr. Barua is the founder of Aclaria Partners, which he founded in December 2004 and is currently the President. Mr. Barua has distinctive expertise in originating and profitably investing in Environmental, Social and Governance (ESG) opportunities, with a consistently successful and pioneering career in climate and sustainability spanning more than two decades. Mr. Barua has led $80M of profitable clean water and energy deals, founded a market-leading clean energy firm, and advised major corporations on sustainability. Mr. Barua first engaged on ESG in the 1990s, contributing to Nobel Prize-winning work on climate change and carbon sequestration while also working for Yale University’s investments office. Mr. Barua has served in advisory, new business, and mergers and acquisitions roles at McKinsey and Morgan Stanley from 2013 to 2018; held an appointment as California Deputy State Controller from 2003 to 2004, helping spark creation of a $1.5B cleantech investment program at CalPERS, the largest pension fund in the United States; served on boards of sustainability and conservation non-governmental organizations; and been a Silicon Valley executive. In addition to a Bachelor of Arts cum laude in Economics and Mathematics from Yale University, Mr. Barua earned a Master of Business Administration with Distinction from Harvard University, where he also completed Executive Education in Entrepreneurship. We believe that Mr. Barua has the qualifications to be a member of our Board of Directors because of his experience in cleantech leadership positions and passion for electrification. +Family Relationships +There are no family relationships between the Combined Company’s board of directors and any of its executive officers. +Board of Directors +Director Independence +Nasdaq listing rules require that a majority of the board of directors of a company listed on Nasdaq be composed of “independent directors,” which is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship, which, in the opinion of the company’s board of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. The Combined Company’s board of directors has determined that, upon the consummation of the Merger, each of Kathy Cuocolo, Stephen Markscheid and Gautam Barua will be an +76 +independent director under the Nasdaq listing rules and Rule 10A-3 of the Exchange Act. In making these determinations, the Combined Company’s board of directors considered the current and prior relationships that each non-employee director has with ConnectM and will have with the Combined Company and all other facts and circumstances the Combined Company’s board of directors deemed relevant in determining independence, including the beneficial ownership of our common stock by each non-employee director, and the transactions involving them described in the section titled “ Certain Relationships and Related Transactions .” +Classified Board of Directors +The Combined Company’s board of directors will be divided into three classes with only one class of directors being elected in each year and each class (except for those directors appointed prior to our first annual meeting of stockholders) serving a three-year term. +Committees of the Board of Directors +The standing committees of Combined Company’s board of directors will consist of an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee. The expected composition of each committee following the Merger is set forth below. +Audit Committee +An Audit Committee of the Combined Company has been established in accordance with Section 3(a)(58)(A) of the Exchange Act and consists of Kathy Cuocolo, Stephen Markscheid and Gautam Barua, each of whom are independent directors and are “financially literate” as defined under the Nasdaq listing standards. Kathy Cuocolo serves as chairman of the Audit Committee. The Board has determined that Kathy Cuocolo qualifies as an “audit committee financial expert,” as defined under rules and regulations of the SEC. +The Audit Committee’s duties are specified in the Audit Committee Charter that was adopted at the Effective Time. +Compensation Committee +The Compensation Committee consists of Gautam Barua and Stephen Markscheid, each of whom is an independent director. Stephen Markscheid serves as chairman of the Compensation Committee. The functions of the Compensation Committee are set forth in a Compensation Committee Charter that was adopted at the Effective Time. +Nominating and Corporate Governance Committee +Our Nominating and Corporate Governance Committee (the “ Nominating Committee ”) consists of Kathy Cuocolo, Stephen Markscheid and Gautam Barua, each of whom is an independent director under Nasdaq’s listing standards. Gautam Barua serves as the chairman of the Nominating Committee. The Nominating Committee is responsible for overseeing the selection of persons to be nominated to serve on the board of directors. The Nominating Committee considers as potential members of the board of directors persons identified by its members, management, stockholders, investment bankers and others. +The guidelines for selecting nominees, are specified in the Nominating and Corporate Governance Committee Charter which was adopted at the Effective Time. +Code of Conduct and Ethics +ConnectM has a code of conduct and ethics (the “ Code of Ethics ”) for its directors, officers, employees and certain affiliates in accordance with applicable federal securities laws, a copy of which will be available on our website at https://www.connectm.com. +If amend or grant a waiver of one or more of the provisions of our Code of Ethics, we intend to satisfy the requirements under Item 5.05 of Form 8-K regarding the disclosure of amendments to or waivers from provisions of our Code of Ethics that apply to our principal executive officer, principal financial officer and principal accounting officer by posting the required information on our website at https://www.connectm.com. The information on this website is not part of this Report. +77 +Involvement in Certain Legal Proceedings +Except as disclosed below, to our knowledge, none of our current directors or executive officers has, during the past ten (10) years: +● been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); +● had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two (2) years prior to that time; +● been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his or her involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity; +● been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; +● been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or +● been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. +Item 11. Executive Compensation. +The following section provides compensation information pursuant to the scaled SEC disclosure rules applicable to “emerging growth companies.” +This section discusses the material components of the executive compensation program for our named executive officers who are named in the “ Summary Compensation Table ” below. In 2024, our “named executive officers” and their positions with ConnectM were as follows: +● Bhaskar Panigrahi, who served as Chairman and Chief Executive Officer; +● Girish Subramanya, who served as Chief Technology Officer; +● Mahesh Choudhury, who served as Vice President, U.S. Operations; and +● Kevin Stateham, who served as Vice President, Sales and Corporate Development. +This discussion may contain forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Actual compensation programs that we adopt may differ materially from the currently planned programs summarized in this discussion. As an “emerging growth company” as defined in the JOBS Act, we are not required to include a Compensation Discussion and Analysis section and have elected to comply with the scaled disclosure requirements applicable to emerging growth companies. +78 +The compensation committee of the Board will set ConnectM’s executive compensation philosophy and will oversee compensation and benefits programs for ConnectM. The compensation committee will oversee and determine the compensation of the Chief Executive Officers and other executive officers of ConnectM. With respect to base salaries, annual incentive compensation and long-term incentives, it is expected that the compensation committee will establish compensation mix, performance measures, goals, targets and business objectives based on ConnectM’s competitive marketplace. The compensation committee will determine benefits and severance arrangements, if any, that ConnectM will make available to executive officers. +In addition to base salary and annual bonuses, we expect ConnectM will grant stock-based awards under the Incentive Plan in future years to promote its interests by providing these executives with the opportunity to acquire equity interests as an incentive for their remaining in its service and aligning the executives’ interests with those of ConnectM’s equity holders. +2024 Summary Compensation Table +The following table provides summary information concerning compensation earned by our named executive officers for the years ended December 31, 2024, 2023 and 2022, for services rendered during the years ended December 31, 2024, 2023 and 2022, respectively. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Non-Qualified +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Non-Equity +​ +Deferred +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Stock +​ +Incentive +​ +Compensation +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +option +​ +Plan +​ +Plan +​ +All Other +​ +Total +​ +​ +​ +​ +Salary +​ +Bonus +​ +awards +​ +Compensation +​ +Earnings +​ +Compensation +​ +compensation +Name and Principal Position +​ +Year +​ +($) +​ +($) +​ +($) +​ +($) +​ +($) +​ +($) +​ +($) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Bhaskar Panigrahi, +​ +2024 +​ +190,000 +0 +0 +— +— +— +190,000 +Chairman and Chief Executive Officer +2023 +175,000 +0 +0 +— +— +— +175,000 +​ +2022 +125,000 +0 +0 +— +— +— +125,000 +Mahesh Choudhury, +​ +2024 +160,000 +0 +0 +— +— +— +160,000 +VP, U.S. Operations +2023 +145,000 +0 +0 +— +— +— +145,000 +​ +2022 +130,000 +0 +0 +— +— +— +130,000 +Girish Subramanya, +​ +2024 +​ +66,000 +* +0 +0 +— +— +— +66,000 +Chief Technology Officer +2023 +67,000 +** +0 +0 +— +— +— +67,000 +​ +2022 +75,250 +*** +0 +0 +— +— +— +75,250 +Kevin Stateham, +​ +2024 +143,000 +0 +0 +— +— +— +143,000 +VP, Sales and Corporate Development +2023 +130,000 +0 +0 +— +— +— +130,000 +​ +2022 +117,000 +0 +0 +— +— +— +117,000 +* Based on a conversion of the U.S. dollar to Indian rupee (“INR”) of $1.00 to 83.19 INRs as of January 1, 2024. +** Based on a conversion of the U.S. dollar to Indian rupee (“INR”) of $1.00 to 82.75 INRs as of January 1, 2023. +*** Based on a conversion of the U.S. dollar to Indian rupee (“INR”) of $1.00 to 74.51 INRs as of January 1, 2022. +Narrative to the Summary Compensation Table +2024 Annual Base Salary +We pay our executives a base salary to compensate them for services rendered to our company. The base salary payable to our executives is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role and responsibilities. +Equity Compensation +ConnectM’s equity-based incentive awards are designed to align ConnectM’s interests and the interests of its stockholders with those of its employees and consultants, including the named executive officers. The compensation committee of the board of directors is responsible for approving equity grants. +We currently maintain the ConnectM Technology Solutions, Inc. 2019 Equity Incentive Plan, or the 2019 Plan as well as the 2023 Equity Incentive Plan, or the 2023 Plan, that was approved in connection with the Business Combination. The terms of the 2019 Plan are described below under “— Incentive Award Plans ” and the terms of the 2023 Plan are described below under “ Description of the 2023 Plan ”. +79 +We have offered awards of stock options to purchase shares of our common stock to eligible service providers, including our named executive officers, pursuant to the 2019 Plan. As mentioned below, in connection with the completion of the Business Combination and the adoption of the 2023 Plan, no further awards will be granted under the 2019 Plan. All options are granted with an exercise price per share that is no less than the fair market value of our common stock on the date of grant of each award. Our stock option awards generally vest over a four-year period and may be subject to acceleration of vesting and exercisability under certain termination and change of control events. +Outstanding Equity Awards at Fiscal Year-End +The following table shows outstanding equity awards held by the Named Executive Officers as of December 31, 2024. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Stock Option Awards +Stock Awards +​ +Number of +Number of +​ +​ +​ +​ +​ +​ +securities +​ +securities +​ +​ +​ +​ +​ +Number of +​ +Market value +​ +​ +underlying +​ +underlying +​ +Stock +​ +​ +​ +shares or +​ +of shares of +​ +​ +unexercised +​ +unexercised +​ +option +​ +​ +​ +units of +​ +units of +​ +​ +stock options +​ +stock options +​ +exercise +​ +​ +​ +stock that +​ +stock that +​ +​ +exercisable +​ +unexercisable +​ +price +​ +Stock option +​ +have not +​ +have not +Name +(#) +(#) +($) +expiration date +vested (#) +vested ($) +Kevin Stateham +​ +24,910 +0 +​ +$ +0.50 +​ +November 15, 2030 +​ +0 +0 +Mahesh Choudhury +​ +52,710 +0 +​ +$ +0.50 +​ +April 1, 2028 +​ +0 +0 +Mahesh Choudhury +​ +24,910 +0 +​ +$ +0.50 +​ +November 15, 2030 +​ +0 +0 +​ +Option Exercises and Stock Vested +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Stock Option Awards +Stock Awards +​ +Number of +Value +Number of +Value +​ +​ +shares +​ +realized +​ +shares +​ +realized +​ +​ +acquired +​ +on exercise +​ +acquired +​ +on vesting +Name +​ +on exercise +​ +($)(1) +​ +on vesting (#) +​ +($)(2) +Kevin Stateham +​ +0 +​ +$ +0.00 +​ +0 +​ +$ +0 +Mahesh Choudhury +​ +0 +​ +$ +0.00 +​ +0 +​ +$ +0 +​ +No other equity-based incentive awards were granted to the named executive officers during 2024, 2023 and 2022. +Other Elements of Compensation +Retirement Savings and Health and Welfare Benefits +We maintain a 401(k) retirement savings plan for our employees, including those who satisfy certain eligibility requirements. We match 50% of the first 6% of a participant’s annual eligible compensation, up to the IRS limit. We believe that providing a vehicle for tax-deferred retirement savings though our 401(k) plan adds to the overall desirability of our executive compensation package and further incentivizes our employees, including our named executive officers, in accordance with our compensation policies. +All of our full-time employees are eligible to participate in our health and welfare plans. These health and welfare plans include medical, dental and vision benefits; short-term and long-term disability insurance; and supplemental life and Accidental Death and Dismemberment (AD&D) insurance. +Perquisites and Other Personal Benefits +We determine perquisites on a case-by-case basis and will provide a perquisite to a named executive officer when we believe it is necessary to attract or retain the named executive officer. +Executive Compensation Arrangements +Employment Agreements and Offer Letters +There are no employment agreements or offer letters for our named executive officers. +80 +Director Compensation +ConnectM has not historically maintained a formal non-employee director compensation program and none of ConnectM’s non-employee directors received any compensation from ConnectM during 2024. We intend to develop a board of directors’ compensation program that is designed to align compensation with ConnectM’s business objectives and the creation of stockholder value, while enabling ConnectM to attract, retain, incentivize and reward directors who contribute to the long-term success of ConnectM. +Post-Business Combination Executive and Director Compensation +Mr. Panigrahi serves on the ConnectM’s board of directors as Chairman of the Board does not earn any additional compensation for that role. His annual salary for serving as Chief Executive Officer is $190,000. Mr. Choudhury earns a salary of $160,000 as Vice President, US Operations of ConnectM, Mr. Subramanya earns a salary of $66,000 as Chief Technology Officer of ConnectM and Mr. Stateham earns a salary of $143,000 as Vice President, Sales and Corporate Development of ConnectM. +In the future, ConnectM may further revise its executive and director compensation program from time to time to better align compensation with ConnectM business objectives and the creation of stockholder value, while enabling ConnectM to attract, retain, incentivize and reward individuals who contribute to the long-term success of ConnectM. Decisions on the executive compensation program will be made by the ConnectM compensation committee. +Summary of the Incentive Plan +General +On December 30, 2022, the MCAC Board approved and adopted the ConnectM Technology Solutions, Inc. 2023 Equity Incentive Plan (the “ 2023 Plan ”), effective as of and contingent on the consummation of the Business Combination, and subject to approval of MCAC stockholders, which approval was granted on July 12, 2024 in connection with the consummation of the Business Combination. The material terms of the 2023 Plan are described below. +The purpose of the 2023 Plan is to provide an additional incentive to officers, employees, non-employee directors, independent contractors, and consultants of ConnectM or its affiliates whose contributions are essential to the growth and success of the business of ConnectM and its affiliates, in order to strengthen the commitment of such persons to ConnectM and its affiliates, motivate such persons to faithfully and diligently perform their responsibilities, and attract and retain competent and dedicated persons whose efforts will result in the long-term growth and profitability of ConnectM and its affiliates. We believe that grants of incentive equity and equity-based awards are essential to attracting and retaining highly qualified service providers. +ConnectM currently maintains the ConnectM Technology Solutions Inc. 2019 Equity Incentive Plan (the “ Prior Plan ”). In connection with the Business Combination, the combined company assumed the Prior Plan and all awards outstanding under the Prior Plan. Following the Business Combination, ConnectM will not grant any future awards under the Prior Plan, but all awards under the Prior Plan that are outstanding as of the July 12, 2024 effective date of the 2023 Plan will continue to be governed by the terms, conditions and procedures set forth in the Prior Plan and any applicable award agreement, as those terms may be equitably adjusted in connection with the Business Combination, as described elsewhere in this Report. +2023 Plan Highlights +Some of the key features of the 2023 Plan that reflect the ConnectM Board’s commitment to effective management of incentive compensation are as follows: +● No Liberal Share Recycling on Stock Options or SARs. The 2023 Plan provides that only shares covering awards that are canceled, forfeited or terminated without issuance of the full number of shares of common stock to which the award is related will again be available for issuance under the 2023 Plan. The following shares will not be added back to the aggregate plan limit: (i) shares tendered in payment of the exercise price for an option, (ii) shares ConnectM withholds to satisfy tax withholding obligations, and (iii) shares underlying stock appreciation rights (“ SARs ”) or other awards that are settled in stock. +● No Repricing or Cash Buyouts. Stock option and SAR repricing is prohibited without stockholder approval under the 2023 Plan. +81 +● No Dividends on Unvested Restricted Shares or Restricted Stock Units. Under the 2023 Plan, holders of unvested Restricted Stock or Restricted Stock Units will not have any rights to receive dividends with respect to such Awards. +● Minimum Vesting Period. Generally, all awards will have a minimum vesting period of at least one year, subject to an exception of 5% of the aggregate shares authorized for grant under the 2023 Plan and certain other limited exceptions as described below and in the 2023 Plan. +● No Automatic “Single Trigger” Vesting. The 2023 Plan does not contain an automatic single-trigger vesting provision that would accelerate awards solely upon a Change in Control (as such term is defined in the 2023 Plan, a “ Change in Control ”). +Description of the 2023 Plan +A description of the provisions of the 2023 Plan is set forth below. This summary is qualified in its entirety by the detailed provisions of the 2023 Plan, a copy of which is attached as Appendix D to the Rule 424(b)(3) prospectus filed with the Commission by MCAC on June 17, 2024. +Administration +The 2023 Plan will be administered by a committee, which shall consist of two (2) or more members of the ConnectM Board appointed by the ConnectM Board or such other committee of the ConnectM Board to which it has properly delegated power, or if no such committee or subcommittee exists, the ConnectM Board (the “ Committee ”). To the extent required by applicable law, rule, or regulation, it is intended that each member of the Committee shall qualify as (a) a “non-employee director” under Rule 16b-3, and (b) an “independent director” under the rules of any national securities exchange or national securities association, as applicable. +The Committee is authorized to, among other things: (a) interpret, administer, reconcile any inconsistency in, correct any defect in and/or supply any omission in the 2023 Plan and any instrument or agreement relating to, or any award granted under, the 2023 Plan (each, an “ Award ”); (b) promulgate, amend, and rescind any rules and regulations relating to the 2023 Plan; (c) adopt sub-plans; and (d) to make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the 2023 Plan. Except to the extent prohibited by applicable law regulations, the Committee may allocate all or any portion of its responsibilities and powers to any one (1) or more of its members and may delegate all or any part of its responsibilities and powers to any person or persons selected by it in accordance with the terms of the 2023 Plan. +Unless otherwise expressly provided in the 2023 Plan, all determinations, interpretations and other decisions under or with respect to the 2023 Plan or any award or any documents evidencing awards granted pursuant to the 2023 Plan are within the sole discretion of the Committee, may be made at any time and are final, conclusive, and binding upon all persons or entities, including, without limitation, ConnectM, any Participant (as defined below), any holder or beneficiary of any award, and any of ConnectM’s stockholders. The Committee may make grants of the following awards to Eligible Persons (defined below) pursuant to terms and conditions set forth in the applicable award agreement, including, subjecting such awards to performance goals listed in the 2023 Plan: +● Stock Options; +● Stock Appreciation Rights; +● Restricted Stock and Restricted Stock Unit Awards; +● Performance Share Awards; and +● Other Stock-Based Awards and Cash-Based Awards. +Eligible Shares +The maximum aggregate number of shares of common stock that may be issued or used for reference purposes or with respect to which awards may be granted under the 2023 Plan was initially to be equal to 10% of the number of shares of ConnectM common stock outstanding immediately following the Business Combination, less 473,929 shares of ConnectM common stock subject to awards under the Prior Plan. This “ Total Share Reserve ” will be increased automatically on January 1 of each year during the term of the 2023 Plan by a number equal to the lesser of (i) 4% of the shares of common stock outstanding on December 31 of the prior year, or (ii) a smaller number of shares as determined by the ConnectM Board. As of the date of this Report, the Total Share Reserve is +82 +1,653,831. The maximum number of shares of common stock with respect to which incentive stock options may be granted under the 2023 Plan is equal to 100,000,000 shares. If any Option, SAR, or Other Stock-Based Awards granted under the 2023 Plan expires, terminates, or is canceled for any reason without having been exercised in full, the number of shares of common stock underlying any unexercised award shall again be available for the purpose of awards under the 2023 Plan. If any shares of Restricted Stock, Performance Share Awards, or Other Stock-Based Awards denominated in shares of common stock awarded under the 2023 Plan to a Participant (as defined below) are forfeited for any reason, the number of forfeited shares of Restricted Stock, Performance Share Awards, or Other Stock-Based Awards denominated in shares of common stock shall again be available for purposes of awards under the 2023 Plan. Shares of common stock subject to an award shall not again be made available for issuance or delivery under the 2023 Plan if such shares are (a) tendered in payment of an Option, (b) delivered or withheld by ConnectM to satisfy any tax withholding obligation, or (c) covered by a stock-settled SAR or other Awards that were not issued upon the settlement of the award. Any award under the 2023 Plan that must be settled solely in cash shall not be counted against the foregoing maximum share limitations. In no event will the aggregate grant date fair value (as determined in accordance with ASC 718) of Awards to be granted and any other cash compensation paid to any non-employee director in any calendar year exceed $750,000, which limit will be increased to $1,000,000 for any non-employee director in the year in which such non-employee director initially joins the ConnectM Board. No shares have yet been issued nor awards granted under the 2023 Plan. +Eligible Participants +Any employee, consultant or director of ConnectM or any of its affiliates, or any individual who is reasonably expected by the Committee to become an employee, consultant, or director after the receipt of awards (each, an “ Eligible Person ”) shall be permitted to participate (a “ Participant ”) under the 2023 Plan. Only Eligible Persons who are also employees of ConnectM or its parent or subsidiaries are eligible to receive incentive stock options under the 2023 Plan. Eligibility for the grant of an incentive stock option and actual participation in the 2023 Plan shall be determined by the Committee in its sole discretion. +Options +The Committee may grant non-qualified stock options and incentive stock options (“ Options ”) to Eligible Persons under the 2023 Plan. The holder of an Option will be entitled to purchase a number of ConnectM’s shares of common stock at a specified exercise price during a specified time period, all as determined by the Committee. Options granted under the 2023 Plan are required to have a per share exercise price that is not less than the fair market value of ConnectM’s common stock underlying such Options on the date such Options are granted (other than in the case of Options that are substitute awards). The maximum term for Options granted under the 2023 Plan is 10 years from the date of grant. The purchase price for the shares as to which an Option is exercised may be paid, to the extent permitted by law, either (a) in cash or by certified or bank check at the time the Option is exercised or (b) in the discretion of the Committee, upon such terms as the Committee shall approve, including: (i) by delivery to ConnectM of other common stock, duly endorsed for transfer to ConnectM, with a fair market value on the date of delivery equal to the Option exercise price (or portion thereof) due for the number of shares being acquired, or by means of attestation whereby the Participant identifies for delivery specific shares of common stock that have an aggregate fair market value on the date of attestation equal to the Option exercise price (or portion thereof) and receives a number of shares of common stock equal to the difference between the number of shares thereby purchased and the number of identified attestation shares of common stock; (ii) a “cashless” exercise program established with a broker; (iii) by reduction in the number of shares of common stock otherwise deliverable upon exercise of such Option with a fair market value equal to the aggregate Option exercise price at the time of exercise; (iv) by any combination of the foregoing methods; or (v) in any other form of legal consideration that may be acceptable to the Committee. +Stock Appreciation Rights +The Committee may grant stock appreciation rights, or “ SARs ”, under the 2023 Plan, with terms and conditions determined by the Committee pursuant to the 2023 Plan. The Committee may award SARs in tandem with Options or independent of any Option. Generally, each SAR will entitle the Participant upon exercise to an amount (in cash, shares, or a combination of cash and shares, as determined by the Committee) equal to the product of (i) the excess of (A) the fair market value on the exercise date of one share of common stock, over (B) the exercise price per share, multiplied by (ii) the number of shares of common stock covered by the SAR. The exercise price per share of a SAR will be determined by the Committee at the time of grant, but in no event may such amount be less than the fair market value of a share of common stock on the date the SAR is granted. +Restricted Stock and Restricted Stock Units +The Committee may grant restricted shares of ConnectM’s common stock (“ Restricted Stock ”) or restricted stock units (“ Restricted Stock Units ”) representing the right to receive, upon vesting and the expiration of any applicable restricted period, one (1) share of common stock for each Restricted Stock Unit or, in the sole discretion of the Committee, the cash value thereof (or any combination thereof). If a cash payment is made in lieu of delivering shares of common stock, the amount of such payment shall be +83 +equal to the fair market value of the common stock as of the date on which the applicable restricted period lapsed. As to Restricted Stock, subject to the other provisions of the 2023 Plan, the holder will generally have the rights and privileges of a stockholder as to such Restricted Stock, including the right to vote such Restricted Stock, but the holder will not have the right to receive dividends on any unvested shares of Restricted Stock. Participants have no rights or privileges as a stockholder with respect to Restricted Stock Units. +Performance Share Awards +The Committee may grant Performance Share Awards to a Participant that are earned upon the attainment of specific performance goals. Each Performance Share Award shall be evidenced by an award agreement pursuant to the 2023 Plan with terms and conditions determined by the Committee , including the number of shares of common stock or stock-denominated units subject to the Performance Share Award and the conditions that must be met for the Participant to earn the award. +Other Equity-Based and Cash-Based Awards +The Committee may grant other equity-based or cash-based awards under the 2023 Plan, with terms and conditions determined by the Committee pursuant to the 2023 Plan. +Effect of Certain Corporate Transactions and Events +In the event of any stock or extraordinary cash dividend, stock split, reverse stock split, any extraordinary corporate transaction such as a recapitalization, reorganization, merger, consolidation, combination, exchange, or other change in capitalization, awards granted under the 2023 Plan and any award agreements, the exercise price of options and SARs, the performance goals to which Performance Share Award and cash-based awards are subject, and the maximum number of shares of common stock subject to all awards will be equitably adjusted or substituted, as to the number, price or kind of a share of common stock or other consideration subject to such awards to the extent necessary to preserve the economic intent of the award. +In connection with any Change in Control of ConnectM, the Committee may, in its sole discretion, cause any award (i) to be canceled in consideration of a payment in cash or other consideration in amount per share equal to the excess, if any, of the price or implied price per share of common stock in the Change in Control over the per share exercise, base or purchase price of such award, which may be paid immediately or over the vesting schedule of the award; (ii) to be assumed, or new rights substituted therefore, by the surviving corporation or a parent or subsidiary of such surviving corporation following the applicable Change in Control; (iii) to be accelerated as to the vesting, exercise, payment or distribution of the award so that any award to a Participant whose employment is terminated as a result of the Change in Control may be vested, exercised, paid or distributed in full on or before a date fixed by the Committee; (iv) to be purchased from a Participant whose employment is terminated as a result of the Change in Control, for an amount of cash equal to the amount that could have been obtained upon the exercise, payment or distribution of such rights had such award been currently exercisable or payable; or (v) to be terminated ;or to make any other adjustment to the awards then outstanding as the Committee deems necessary or appropriate to reflect such transaction or change. +Nontransferability of Awards +Awards under are not be transferable or assignable other than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance will be void and unenforceable against ConnectM or any of its subsidiaries. However, the Committee may determine, in its sole discretion, that a non-qualified stock option may be transferred to a Participant’s family member, or to certain trusts or foundations or other transferees as permitted by the Committee (“ Permitted Transferee ”). A non-qualified stock option that is transferred to a Permitted Transferee will remain subject to the terms of the 2023 Plan and the applicable award agreement. +Minimum Vesting Requirements +No award may be granted with a lapse of any vesting obligations earlier than at least one year following the date of grant. Notwithstanding the foregoing, the Committee may grant up to a maximum of five percent of the aggregate number of shares available for issuance under the 2023 Plan (subject to certain equitable adjustments), without regard to this minimum vesting requirement, and the minimum vesting requirement does not apply to (i) any substitute awards (as defined in the 2023 Plan), (ii) shares delivered in lieu of fully vested cash awards, (iii) awards to directors that vest on the earlier of the one-year anniversary of the date of grant or the next annual meeting of shareholders which is at least 50 weeks after the immediately preceding year’s annual meeting, and (iv) the Committee’s discretion to provide for accelerated exercisability or vesting of any award, including in cases of a Participant’s retirement, death or disability or a Change in Control, in the terms of the award or otherwise. +84 +Clawback +Awards under the 2023 Plan are subject to recovery or “clawback” by ConnectM pursuant to any clawback policy ConnectM may have in effect from time to time. +Amendment and Termination +The ConnectM Board may amend the 2023 Plan at any time, subject to shareholder approval to the extent required by applicable law or regulation or the listing standards of Nasdaq or any other market or stock exchange on which ConnectM’s common stock is at the time primarily traded. Additionally, shareholder approval will be specifically required to decrease the exercise price of any outstanding Option or SAR granted under the 2023 Plan. The ConnectM Board may terminate the 2023 Plan at any time. Unless sooner terminated by the ConnectM Board, the 2023 Plan will terminate on July 12, 2034, the 10-year anniversary of the effective date of the 2023 Plan. +Section 162(m) of the Internal Revenue Code +As a general rule, ConnectM will be entitled to a deduction in the same amount and at the same time as the compensation income is received by the Participant, except to the extent the deduction limits of Section 162(m) of the Code apply. Section 162(m) of the Code denies a deduction to any publicly held corporation for compensation paid to any “covered employee” in a taxable year to the extent that compensation to such covered employee exceeds $1,000,000. It is possible that compensation attributable to awards under the 2023 Plan may cause this limitation to be exceeded in any particular year. +Material U.S. Federal Income Tax Consequences of Awards under the 2023 Plan +The following is a general summary under current law of the principal United States federal income tax consequences related to awards under the 2023 Plan. This summary deals with the general federal income tax principles that apply and is provided only for general information. Some kinds of taxes, such as state, local and foreign income taxes and federal employment taxes, are not discussed. This summary is not intended as tax advice to Participants, who should consult their own tax advisors. +Non-Qualified Options. The grant of a non-qualified stock option is not a taxable event for the grantee or ConnectM. Upon exercising a non-qualified stock option, a grantee will recognize ordinary income in an amount equal to the excess of the fair market value of the common stock on the date of exercise over the exercise price. Upon a subsequent sale or exchange of shares acquired pursuant to the exercise of a non-qualified stock option, the grantee will recognize taxable capital gain or loss, measured by the excess of the amount realized on the disposition over the tax basis of the shares of common stock (generally, the amount paid for the shares plus the amount treated as ordinary income at the time the option was exercised). +If ConnectM complies with applicable reporting requirements and with the restrictions of Section 162(m), ConnectM will be entitled to a business expense deduction in the same amount and generally at the same time as the grantee recognizes ordinary income. +A grantee who has transferred a non-qualified stock option to a family member by gift will realize taxable income at the time the non-qualified stock option is exercised by the family member. The grantee will be subject to withholding of income and employment taxes at that time. The family member’s tax basis in the shares of common stock will be the fair market value of the shares of common stock on the date the option is exercised. The transfer of vested non-qualified stock options will be treated as a completed gift for gift and estate tax purposes. Once the gift is completed, neither the transferred options nor the shares acquired on exercise of the transferred options will be includable in the grantee’s estate for estate tax purposes. +Incentive Stock Options. The grant of an incentive stock option is not a taxable event for the grantee or for ConnectM. A grantee will not recognize taxable income upon exercise of an incentive stock option (except to the extent the alternative minimum tax applies), and any gain realized upon a disposition of ConnectM’s common stock received pursuant to the exercise of an incentive stock option will be taxed as long-term capital gain if the grantee holds the shares of common stock for at least two years after the date of grant and for one year after the date of exercise (the “ holding period requirement ”). ConnectM will not be entitled to any business expense deduction with respect to the exercise of an incentive stock option, except as discussed below. +For the exercise of an incentive stock option to qualify for the foregoing tax treatment, the grantee generally must be an employee of ConnectM or its subsidiary from the date the option is granted through a date within three months before the date of exercise of the option. +85 +If all of the foregoing requirements are met except the holding period requirement mentioned above, the grantee will recognize ordinary income upon the disposition of the common stock in an amount generally equal to the excess of the fair market value of the common stock at the time the incentive stock option was exercised over the option exercise price (but not in excess of the gain realized on the sale). The balance of the realized gain, if any, will be capital gain. ConnectM will be allowed a business expense deduction to the extent the grantee recognizes ordinary income, subject to ConnectM’s compliance with Section 162(m) and to certain reporting requirements. +Restricted Stock. A grantee who is awarded Restricted Stock will not recognize any taxable income for federal income tax purposes in the year of grant if the shares of common stock are nontransferable and subject to a substantial risk of forfeiture. However, the grantee may elect under Section 83(b) of the Code to recognize compensation income in the year of grant in an amount equal to the fair market value of the common stock on the date of grant (less the purchase price, if any), determined without regard to any restrictions (except any restrictions that will never lapse). If the grantee does not make such an election, the fair market value of the common stock on the date the restrictions lapse (less the purchase price, if any) will be treated as compensation income to the grantee and will be taxable in the year the restrictions lapse and be subject to withholding taxes. If ConnectM complies with applicable reporting requirements and with the restrictions of Section 162(m), ConnectM will be entitled to a business expense deduction in the same amount and generally at the same time as the grantee recognizes ordinary income. +Restricted Stock Units. There are no immediate tax consequences of receiving an award of Restricted Stock Units under the 2023 Plan. A grantee who is awarded Restricted Stock Units will recognize ordinary income in an amount equal to the fair market value of shares issued to such grantee at the end of the restriction period or, if later, the payment date. If ConnectM complies with applicable reporting requirements and with the restrictions of Section 162(m), ConnectM will be entitled to a business expense deduction in the same amount and generally at the same time as the grantee recognizes ordinary income. +Stock Appreciation Rights. There are no immediate tax consequences of receiving an award of SARs under the 2023 Plan. Upon exercising an SAR, a grantee will recognize ordinary income in an amount equal to the excess of the fair market value of the common stock on the date of exercise over the exercise price. If ConnectM complies with applicable reporting requirements and with the restrictions of Section 162(m), ConnectM will be entitled to a business expense deduction in the same amount and generally at the same time as the grantee recognizes ordinary income. +Performance Share Awards, Other Stock-Based Awards, and Cash-Based Awards. The tax treatment with respect to Performance Share Awards, other stock-based awards and cash-based awards will depend on the structure of such awards. +Section 409A. Awards under the 2023 Plan are intended to either be exempt from or comply with Section 409A of the Internal Revenue Code. Nevertheless, none of the Company, the Committee or the ConnectM Board have any obligation to take any action to prevent the assessment of any additional tax or penalty on any Participant under Section 409A. +New Plan Benefits +Grants under the 2023 Plan will be made at the discretion of the Committee and are not currently determinable. The value of awards granted under the 2023 Plan will depend on a number of factors, including the fair market value of ConnectM common stock on future dates, the exercise decisions made by Participants and the extent to which any applicable performance goals necessary for vesting or payment are achieved. +Director and Officer Indemnification Agreements +We have entered into employment agreements whereby we will agree to indemnify the Chief Executive Officer and Chief Financial Officer to the fullest extent permitted by law, for all amounts (including, without limitation, judgments, fines, settlement payments, expenses and reasonable out of pocket attorneys’ fees) incurred or paid by the Chief Executive Officer and Chief Financial Officer in connection with any action, suit, investigation or proceeding, or threatened action, suit, investigation or proceeding, arising out of or relating to the performance by the Chief Executive Officer and Chief Financial Officer of services for, or the acting by the Chief Executive Officer and Chief Financial Officer as a director, officer or executive of, the Company, or any subsidiary of the Company. Any fees or other necessary expenses incurred by the Chief Executive Officer and Chief Financial Officer in defending any such action, suit, investigation or proceeding shall be paid by the Company in advance, subject to the Company’s right to seek repayment from the Chief Executive Officer and Chief Financial Officer if a determination is made that the Chief Executive Officer and Chief Financial Officer were not entitled to indemnification. +Potential Payments Upon Termination or Change in Control +None. +86 +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. +The following table sets forth information regarding beneficial ownership of our capital stock as of December 31, 2024 by: +● each person, or group of affiliated persons, known by us to beneficially own more than 5% of our Common Stock; +● each of our directors; +● each of our named executive officers; and +● all of our current executive officers and directors as a group. +The following table is based upon information supplied by officers, directors and principal stockholders and Schedules 13D and 13G filed with the SEC. Unless otherwise indicated in a footnote to this table and subject to community property laws where applicable, the Company believes that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. +Applicable percentages are based on 29,093,289 shares of our Common Stock outstanding on December 31, 2024, adjusted as required by rules promulgated by the SEC. Unless otherwise indicated, the address for the following stockholders is care of: ConnectM Technology Solutions, Inc., 2 Mount Royal Avenue, Suite 550, Marlborough, Massachusetts 01752. +​ +​ +​ +​ +​ +​ +Name and Address of Beneficial Owner(1) +Number of Shares +% of Class +Directors and Executive Officers +​ +Bala Padmakumar(2) +1,968,248 +6.8 +% +Bhaskar Panigrahi(5) +4,206,043 +14.5 +% +Girish Subramanya +431,775 +1.5 +% +Kevin Stateham(3) +24,967 +* +​ +Mahesh Choudhury(4) +337,566 +* +​ +Gautam Barua +— +​ +Kathy Cuocolo +25,000 +* +​ +Stephen Markscheid +25,000 +* +​ +All directors and executive officers of ConnectM as a group (eight individuals) +7,118,599 +24.5 +% +Five Percent Holders of ConnectM: +​ +Bala Padmakumar(2) +1,968,248 +6.8 +% +Bhaskar Panigrahi(5) +4,206,043 +14.5 +% +SriSid, LLC +​ +2,507,767 +​ +8.6 +% +Arumilli, LLC +​ +1,400,342 +​ +4.8 +% +Win-Light Capital, Co. +​ +1,995,126 +​ +6.9 +% +* +Less than 1% +(1) Unless otherwise noted, the business address of each of the following individuals is c/o ConnectM Technology Solutions, Inc., 2 Mount Royal Ave., Suite 550, Marlborough, MA 01752. +(2) Monterrey Acquisition Sponsor, LLC, (“ MAS ”), is the record holder of the securities reported herein. Bala Padmakumar is the managing member of MAS. Mr. Padmakumar shares voting and dispositive power over the founder shares held by MAS and may be deemed to beneficially own such shares. Each such person disclaims any beneficial ownership of the reported shares other than to the extent of any pecuniary interest they may have therein, directly or indirectly. The post-business combination shares include 3,790 ,000 shares issuable pursuant to warrants that will be exercisable following the business combination. +(3) Consists of 24,910 shares issuable pursuant to stock options exercisable within 60 days of the date hereof. +(4) Includes 77,620 shares issuable pursuant to stock options exercisable within 60 days of the date hereof. +(5) Consists of (i) 3,593,921 shares held by Avanti Holdings LLC, (ii) 415,045 shares held by Mr. Panigrahi and (iii) 128,133 shares held by Southwood Partners LP. Mr. Panigrahi is a controlling equityholder of Avanti Holdings LLC and Southwood Partners LP. +87 +Therefore, Mr. Panigrahi may be deemed to have voting power and dispositive power over the shares held by Avanti Holdings LLC and Southwood Partners LP. +Changes in Control +Our management is not aware of any arrangements which may result in “changes in control” as that term is defined by the provisions of Item 403(c) of Regulation S-K. +Item 13. Certain Relationships and Related Transactions, and Director Independence. +In addition to the compensation arrangements with directors and executive officers described under “ Executive and Director Compensation ” and “ Management ,” the following is a description of each transaction since January 1, 2023 and each currently proposed transaction in which: +● we have been or are to be a participant; +● the amount involved exceeded or will exceed $120,000; and +● any of our directors, executive officers or beneficial holders of more than 5% of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals (other than tenants or employees), had or will have a direct or indirect material interest. +Lock-up Agreement +In connection with the Business Combination, we have entered into lock-up agreements with certain of our shareholders restricting the transfer of their shares received as Merger consideration or any securities convertible into or exercisable or exchangeable for shares of Common Stock owned by them nor make any demand for or exercise any right with respect to the registration of such lock-up securities from and after the closing of the Business Combination. The restrictions under the lock-up agreements began at the closing of the Business Combination and end six (6) months from the Closing Date. +Related Party Policy +Our Code of Ethics requires us to avoid, wherever possible, all related party transactions that could result in actual or potential conflicts of interests, except under guidelines approved by the Board (or the audit committee). Related-party transactions are defined as transactions in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) we or any of our subsidiaries is a participant, and (3) any (a) executive officer, director or nominee for election as a director, (b) greater than 5% beneficial owner of our common stock, or (c) immediate family member, of the persons referred to in clauses (a) and (b), has or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 10% beneficial owner of another entity). A conflict of interest situation can arise when a person takes actions or has interests that may make it difficult to perform his or her work objectively and effectively. Conflicts of interest may also arise if a person, or a member of his or her family, receives personal benefits as a result of his or her position. +Our audit committee, pursuant to its written charter, is responsible for reviewing and approving related-party transactions to the extent we enter into such transactions. All ongoing and future transactions between us and any of our officers and directors or their respective affiliates will be on terms believed by us to be no less favorable to us than are available from unaffiliated third parties. Such transactions will require prior approval by our audit committee and a majority of our disinterested independent directors, or the members of our Board who do not have an interest in the transaction, in either case who had access, at our expense, to our attorneys or independent legal counsel. We will not enter into any such transaction unless our audit committee and a majority of our disinterested independent directors determine that the terms of such transaction are no less favorable to us than those that would be available to us with respect to such a transaction from unaffiliated third parties. Additionally, we require each of our directors and executive officers to complete a directors’ and officers’ questionnaire that elicits information about related party transactions. +These procedures are intended to determine whether any such related party transaction impairs the independence of a director or presents a conflict of interest on the part of a director, employee or officer. +To further minimize conflicts of interest, we have agreed not to consummate our initial business combination with an entity that is affiliated with any of our officers, directors or initial stockholders, unless we have obtained (i) an opinion from an independent investment banking firm, or other firm that commonly provides valuation opinions, that the business combination is fair to our +88 +stockholders from a financial point of view and (ii) the approval of a majority of our disinterested and independent directors (if we have any at that time). Furthermore, in no event will any of our initial stockholders, officers, directors or their respective affiliates be paid any finder’s fee, consulting fee or other similar compensation prior to, or for any services they render in order to effectuate, the consummation of our initial business combination. +Limitation on Liability and Indemnification of Directors and Officers +Our bylaws provides that our directors and officers will be indemnified by us to the fullest extent authorized by Delaware law as it now exists or may in the future be amended. +Notwithstanding the foregoing, as set forth in our bylaws, such indemnification will not extend to any claims our insiders may make to us to cover any loss that they may sustain as a result of their agreement to pay debts and obligations to target businesses or vendors or other entities that are owed money by us for services rendered or contracted for or products sold to us as described in this Report. +Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act (and is, therefore, unenforceable.). +Certain Relationships and Related Person Transactions +The following is a description of certain relationships and transactions that exist or have existed or that ConnectM has entered into, in each case since January 1, 2023, with its directors, executive officers, or stockholders who are known to ConnectM to beneficially own more than five percent of its voting securities and their respective affiliates and immediate family members. +Sponsor of MCAC +In connection with the closing of the Business Combination, the Company assumed unsecured promissory notes totaling approximately $555,000 that are non-interest bearing and due on demand and advances totaling approximately $132,000 that are non-interest bearing and due on demand with the Sponsor of MCAC. During September 2024, the Company entered into a note conversion agreement with the Sponsor of MCAC in which the Company converted the outstanding principal on unsecured promissory notes and certain other liabilities owed to the note holders into shares of the Company’s common stock at a conversion price of $2.00 per share with a one-time share reset adjustment (see Note 14), subject to shareholder approval and a maximum aggregate ownership amount of 19.99% for each individual lender. In connection with these agreements, approximately $555,000 of unsecured promissory notes and approximately $132,000 of accounts payable and accrued expenses were extinguished in exchange for the issuance of 343,248 shares of the Company’s common stock (see Note 12). +In connection with the conversion agreement, the Sponsor of MCAC received a one-time share reset adjustment that were subsequently settled during the quarter ended March 31, 2025 through the issuance of 205,949 shares of the Company’s common stock (see Note 14). As of December 31, 2024, the fair value of the derivative liabilities associated with the reset adjustment was approximately $158,000 and was included as a component of derivative liabilities on the accompanying consolidated balance sheets. For the year ended December 31, 2024, the Company recorded a change in fair value on these derivative liabilities of $26,000, which was included as a component of change in fair value of derivative liabilities on the accompanying consolidated statements of operations and comprehensive loss. +Related Party Investors +Immediately following the note conversion agreements in September 2024 with secured promissory note holders in which the Company converted the outstanding principal on the secured promissory notes, including accrued and unpaid interest, and certain other liabilities owed to the note holders into shares of the Company’s common stock (see Note 11), the ownership percentage of the Company’s common stock of two individual lenders individually exceeded 5.0%, triggering a related party relationship. These two lenders are collectively referred to as the Related Party Investors. +In connection with the conversion agreements, each Related Party Investor received a one-time share reset adjustment that were subsequently settled during the quarter ended March 31, 2025 through the issuance of 1,460,130 and 795,675 shares of the Company’s common stock (see Note 14). As of December 31, 2024, the fair value of the derivative liabilities associated with the reset adjustment granted to each Related Party Investor was approximately $1,146,000 and $624,000 and were included as a component of derivative liabilities on the accompanying consolidated balance sheets. For the year ended December 31, 2024, the Company recorded a change +89 +in fair value on these derivative liabilities of $192,000 and $104,000, which were included as a component of change in fair value of derivative liabilities on the accompanying consolidated statements of operations and comprehensive loss. +The Related Party Investors collectively own 100% of an entity that has controlling interest in four customers within the managed solutions operating segment (the “Related Party Managed Solutions Customers”). The Company acquired one of these customers, GEG, in October 2024 from the entity owned by Related Party Investors (see Note 6). From the period between when the related party relationship was triggered in September 2024 through December 31, 2024, the Company earned revenue totaling approximately $644,000, incurred cost of revenues totaling approximately $188,000, and incurred selling, general and administrative expenses totaling approximately $517,000 from the remaining three Related Party Managed Solutions Customers. As of December 31, 2024, the Company was owed approximately $349,000 for managed services from the Related Party Managed Solutions Customers, which was included as a component of accounts receivable on the accompanying consolidated balance sheets and approximately $102,000 for working capital advances from the Related Party Managed Solutions Customers, which was included as a component of working capital advances on the accompanying consolidated balance sheets. As of December 31, 2024, the Company owed approximately $28,000 to the Related Party Managed Solutions Customers. +Prior to the date the related party relationship was triggered, each Related Party Investors had entered into secured promissory notes that remained outstanding as of December 31, 2024 totaling $1,750,000 and $1,400,000 and were included as a component of debt, net on the accompanying consolidated balance sheets. Accrued interest on the notes remaining outstanding as of December 31, 2024 totaled approximately $384,000 and $289,000 and are included as a component of accrued expenses on the accompanying consolidated balance sheets. +Avanti Notes +In September 2016, the Company entered into an unsecured promissory note with a company owned by the Company’s Chief Executive Officer (the “Related Party Lender”) for an original principal sum of INR 16,500,000 ($192,761 at December 31, 2024) (the “2016 Promissory Note”). The note bears annual interest of 14.0%. The note does not have a maturity date and the full note balance is to be paid over time in amounts determined by the Company. +In July 2024, the Company borrowed an additional INR 8,300,000 ($96,965 at December 31, 2024) from the Related Party Lender (the “2024 Promissory Note”). The loan bears interest at 14.0% and matures in July 2031. The principal and accrued interest is due in full at maturity. +Total interest expense recognized on the promissory notes with the Related Party Lender totaled INR 1,525,193 and INR 994,022 ($18,209 and $14,890, respectively) for the years ended December 31, 2024 and 2023, respectively. Total interest accrued was INR 8,414,431 and INR 6,240,004 ($98,301 and $67,462, respectively), as of December 31, 2024 and 2023, respectively, and was recorded as a component of accrued expenses on the accompanying consolidated balance sheets. +Related Party Lender +Following the closing of the Business Combination on July 12, 2024 which triggered the conversion of certain convertible notes, a noteholder’s ownership percentage of the Company’s common stock exceeded 5.0%, triggering a related party relationship. +On October 10, 2024, the Company issued this related party a convertible note with a principal amount of $800,000. The note has an interest rate of 20% and a maturity date of April 8, 2025. The note is convertible during the first 90 days after issuance at a conversion price of $1.10. The Company accounts for these convertible notes using the fair value option. As of December 31, 2024, the carrying amount of the note and accrued interest was $800,000 and $35,945, respectively. As of December 31, 2024, the fair value of this note was approximately $837,000. +On October 10, 2024, the Company issued this related party a convertible note with a principal amount of $400,000. The note has an interest rate of 20% and a maturity date of June 1, 2025. The note is convertible during the first 90 days after issuance at a conversion price of $1.10. The Company accounts for these convertible notes using the fair value option. As of December 31, 2024, the carrying amount of the note and accrued interest was $400,000 and $6,137, respectively. As of December 31, 2024, the fair value of this note was approximately $418,000. +ConnectM’s audit committee will approve only those transactions that it determines are fair to ConnectM and in ConnectM’s best interests. +We have determined that each of Ms. Cuocolo, Mr. Markscheid and Mr. Barua qualify as an independent director, as that term is defined in Rule 5605(a)(2) of the Nasdaq Listing Rules. +90 +Item 14. Principal Accountant Fees and Services. +The following table presents fees for professional services by Adeptus Partners, LLC for the audit of the Company’ financial statements and fees billed for audit-related services, tax services and all other services for the years ended December 31, 2024 and 2023. +​ +​ +​ +​ +​ +​ +​ +​ +2024 +2023 +Audit Fees* +​ +$ +279,000 +​ +$ +385,000 +Audit Related Fees** +​ +$ +— +​ +$ +— +Tax fees*** +​ +$ +— +​ +$ +— +* Audit Fees: Refers to fees billed for professional services rendered in connection with the audit of our financial statements as of and for the years ended December 31, 2024 and 2023, quarterly reviews, the reviews of registration statements and issuances of consents, and services that are normally provided in connection with statutory and regulatory filings or engagements. +** Audit-Related Fees: Refers to fees billed outside of the scope of the engagement letter for the audit which are reasonably related to the performance of the audit or review of our consolidated financial statements for the years ended December 31, 2024 and 2023. +*** +Tax Fees: Refers to fees for tax compliance services, including preparation of federal and state income tax returns, and tax payment and planning advice . +Pre-Approval Policy +All of the above services were approved by the Audit Committee. In accordance with the Sarbanes-Oxley Act of 2002, as amended, the Audit Committee’s policy is to pre-approve all audit and non-audit services provided by our independent registered public accounting firm. On an ongoing basis, management defines and communicates specific projects and categories of service for which the advance approval of the Audit Committee is requested. The Audit Committee reviews these requests and advises management if the Audit Committee approves the engagement of our independent registered public accounting firm for such services. +​ +91 +PART IV +Item 15. Exhibit and Financial Statement Schedules. +Documents filed as part of this Annual Report on Form 10-K: +A. Financial Statements +FINANCIAL STATEMENTS AND +SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS +Financial Statements of ConnectM Technology Solutions, Inc. +​ +Page +Consolidated Balance Sheets +F-2 +Consolidated Statements of Operations and Comprehensive Loss +​ +F-3 +Consolidated Statements of Changes in Stockholders’ Deficit +​ +F-4 +Consolidated Statements of Cash Flows +​ +F-5 +Notes to Consolidated Financial Statements +​ +F-6 +​ +B. The following Exhibits are filed as part of this Annual Report on Form 10-K: +​ +Exhibit +No +Description +2.1 +​ +Agreement and Plan of Merger dated as of December 31, 2022, by and among Monterey Capital Acquisition Corporation, Chronos Merger Sub, Inc. and ConnectM Technology Solutions, Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by the registrant on January 3, 2023) +2.2 +​ +First Amendment to the Agreement and Plan of Merger dated as of October 12, 2023, by and among Monterey Capital Acquisition Corporation, Chronos Merger Sub, Inc. and ConnectM Technology Solutions, Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by the registrant on October 16, 2023) +2.3 +​ +Second Amendment to the Agreement and Plan of Merger dated as of April 12, 2024, by and among Monterey Capital Acquisition Corporation, Chronos Merger Sub, Inc. and ConnectM Technology Solutions, Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by the registrant on April 12, 2024) +2.4 +​ +Purchase Agreement (incorporated by reference to Exhibit 2.1 to the Current report on Form 8-K filed by the registrant on August 6, 2024) +3.1 +​ +Second Amended and Restated Certificate of Incorporation of ConnectM Technology Solutions, Inc. (incorporated by reference to Exhibit 3.1 to the Current report on Form 8-K filed by the registrant on July 18, 2024). +3.2 +​ +Amended and Restated Bylaws of ConnectM Technology Solutions, Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with the Securities & Exchange Commission on July 18, 2024) +3.3 +​ +Certificate of Designations of Preferences and Rights of Series A Convertible Preferred Stock filed on May 5, 2025 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities & Exchange Commission on April 23, 2025) +3.4 +​ +Certificate of Designations of Preferences and Rights of Series B Convertible Preferred Stock filed on May 5, 2025 (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with the Securities & Exchange Commission on April 23, 2025) +4.1 +​ +Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the Securities & Exchange Commission on July 18, 2024) +4.2 +​ +Specimen Warrant Certificate (included in Exhibit 4.3) +4.3 +​ +Warrant Agreement, dated May 10, 2022, by and between the Company and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 16, 2022) +4.4* +​ +Description of Securities +10.1 +​ +Form of Indemnification Agreement of ConnectM Technology Solutions, Inc. (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.2 +​ +Amended and Restated Registration Rights Agreement, dated July 12, 2024 (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +92 +​ +Exhibit +No +Description +10.3 +​ +Legacy ConnectM 2019 Equity Incentive Plan (Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.4 +​ +ConnectM Technology Solutions, Inc. 2023 Equity Incentive Plan (Incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.5 +​ +Letter Agreement, dated May 10, 2022, by and among Monterey Capital Acquisition Corporation and certain security holders, officers and directors of Monterey Capital Acquisition Corporation (Incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.6 +​ +Private Placement Warrant Purchase Agreement, dated May 10, 2022, by and between Monterey Capital Acquisition Corporation and Monterrey Acquisition Sponsor, LLC (Incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.7 +​ +Standard Form Commercial Lease, dated as of October, 2022, by and between Sunrise Nominee Trust and Aurai LLC (f/k/a ConnectM Technologies, LLC) (dba Bourque Heating and Cooling Co. Inc.) (Incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.8 +​ +Standard Form Commercial Lease, dated as of February 25, 2018, by and between Maplewood Cutter, LLC and Cazeault Solar & Home LLC, as amended by that certain Letter, dated as of June 8, 2022, by and between Maplewood Cutter, LLC and Cazeault Solar & Home LLC (Incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.9 +​ +Lease, dated as of October 31, 2006, by and between Hovey Realty Corporation and Cazeault Solar & Home LLC (Incorporated by reference to Exhibit 10.9 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.10 +​ +Commercial Lease, dated as of May 1, 2019, by and between CB Equities Mt Royal LLC and Legacy ConnectM (Incorporated by reference to Exhibit 10.10 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.11 +​ +Leave and License Agreement, dated September 30, 2020, by and between Sree Ramulu Raju and ConnectM Technology Solutions Private Limited (Incorporated by reference to Exhibit 10.11 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.12 +​ +Rental Agreement, dated December 1, 2021, by and between Rajesh S. Gowda and ConnectM Technology Solutions Private Limited (Incorporated by reference to Exhibit 10.12 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.13 +​ +Lease Agreement dated April 3, 2023, by and between AirFlow Service Company, Inc. and Wellington Business Center LLC (Incorporated by reference to Exhibit 10.13 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.14 +​ +Warehouse & Fulfillment Services Agreement, dated December 27, 2016, by and between Vnetek Communications, LLC dba Northeast 3PL and Legacy ConnectM (Incorporated by reference to Exhibit 10.14 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.15 +​ +Promissory Note, dated February 22, 2022, issued by Legacy ConnectM, in favor of Arumilli LLC (Incorporated by reference to Exhibit 10.15 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.16 +​ +Promissory Note, dated February 22, 2022, issued by Legacy ConnectM, in favor of SriSid LLC (Incorporated by reference to Exhibit 10.16 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.17 +​ +Secured Subordinated Promissory Note, dated May 18, 2021, issued by ConnectM Babione LLC in favor of Douglas Pence (Incorporated by reference to Exhibit 10.17 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.18 +​ +Promissory Note, dated May 31, 2022, issued by Aurai LLC (f/k/a ConnectM Technology Solutions LLC) in favor of George A. Neighoff (Incorporated by reference to Exhibit 10.18 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.19 +​ +Secured Subordinated Promissory Note, dated February 28, 2022, issued by Aurai LLC (f/k/a ConnectM Technology Solutions LLC) in favor of Robert G. Bourque and Lise Bourque (Incorporated by reference to Exhibit 10.19 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.20 +​ +Secured Subordinated Promissory Note, dated January 24, 2022, issued by Aurai LLC (f/k/a ConnectM Technology Services, LLC) in favor of Timothy Sanborn (Incorporated by reference to Exhibit 10.20 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.21 +​ +Secured Subordinated Promissory Note, dated January 24, 2022, issued by Aurai LLC (f/k/a ConnectM Technology Services, LLC) in favor of Russell Cazeault (Incorporated by reference to Exhibit 10.21 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +93 +​ +Exhibit +No +Description +10.22 +​ +Loan Authorization and Agreement, Small Business Administration Loan #8512657807, Application #3302062637, Doc #L-01-2884676-01, dated July 30, 2021, amending that certain Loan Authorization and Agreement, Small Business Administration Loan #8512657807, Application #3302062637, Doc #L-01-2884676-01, dated June 5, 2020, by and between Legacy ConnectM and the Small Business Administration (Incorporated by reference to Exhibit 10.22 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024). +10.23 +​ +Management Services Agreement, dated January 24, 2022, by and between Cazeault Solar & Home, LLC and Timothy J. Sanborn (Incorporated by reference to Exhibit 10.23 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.24 +​ +Promissory Note, dated August 22, 2023, issued by Monterey Capital Acquisition Corporation in favor of Legacy ConnectM (Incorporated by reference to Exhibit 10.24 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.25 +​ +Promissory Note, dated October 23, 2023, issued by Monterey Capital Acquisition Corporation in favor of Legacy ConnectM (Incorporated by reference to Exhibit 10.25 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.26 +​ +Promissory Note, dated November 16, 2023, issued by Monterey Capital Acquisition Corporation in favor of Legacy ConnectM (Incorporated by reference to Exhibit 10.26 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.27 +​ +Promissory Note, dated January 24, 2023, issued by Legacy ConnectM in favor of Arumilli LLC (Incorporated by reference to Exhibit 10.27 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.28 +​ +Promissory Note, dated March 1, 2023, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.28 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.29 +​ +Promissory Note, dated April 10, 2023, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.29 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.30 +​ +Promissory Note, dated May 3, 2023, issued by Legacy ConnectM in favor of Sreenivasa Rao Nalla (Incorporated by reference to Exhibit 10.30 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.31 +​ +Promissory Note, dated May 5, 2023, issued by Legacy ConnectM in favor of Ashish Kulkarni (Incorporated by reference to Exhibit 10.31 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.32 +​ +Promissory Note, dated July 18, 2023, issued by Legacy ConnectM in favor of Arumilli LLC (Incorporated by reference to Exhibit 10.32 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.33 +​ +Promissory Note, dated July 26, 2023, issued by Legacy ConnectM in favor of Arumilli LLC (Incorporated by reference to Exhibit 10.33 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.34 +​ +Promissory Note, dated August 2, 2023, issued by Legacy ConnectM in favor of Arumilli LLC (Incorporated by reference to Exhibit 10.34 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.35 +​ +Promissory Note, dated August 2, 2023, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.45 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.36 +​ +Promissory Note, dated September 15, 2023, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.36 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.37 +​ +Promissory Note, dated September 25, 2023, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.37 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.38 +​ +Promissory Note, dated October 19, 2023, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.38 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.39 +​ +Promissory Note, dated October 27, 2023, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.39 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +94 +​ +Exhibit +No +Description +10.40 +​ +Promissory Note, dated November 9, 2023, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.40 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.41 +​ +Promissory Note, dated November 10, 2023, issued by Legacy ConnectM in favor of Arumilli LLC (Incorporated by reference to Exhibit 10.41 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.42 +​ +Promissory Note, dated November 13, 2023, issued by Legacy ConnectM in favor of Ashish Kulkarni (Incorporated by reference to Exhibit 10.42 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.43 +​ +Promissory Note, dated December 15, 2023, issued by Legacy ConnectM in favor of Arumilli LLC (Incorporated by reference to Exhibit 10.43 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.44 +​ +Promissory Note, dated December 15, 2023, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.44 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.45 +​ +Promissory Note, dated April 10, 2024, issued by Legacy ConnectM in favor of Arumilli LLC (Incorporated by reference to Exhibit 10.45 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.46 +​ +Promissory Note, dated April 23, 2024, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.46 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.47 +​ +Promissory Note, dated May 6, 2024, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.47 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.48 +​ +Promissory Note, dated May 8, 2024, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.48 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.49 +​ +Promissory Note, dated May 16, 2024, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.49 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.50 +​ +Promissory Note, dated May 20, 2024, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.50 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.51 +​ +Promissory Note, dated June 1, 2024, issued by Legacy ConnectM in favor of Dinesh Tanna (Incorporated by reference to Exhibit 10.51 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.52 +​ +Promissory Note, dated June 10, 2024, issued by Legacy ConnectM in favor of Ashish Kulkarni (Incorporated by reference to Exhibit 10.52 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.53 +​ +Promissory Note, dated June 17, 2024, issued by Legacy ConnectM in favor of Satish K Tadikonda Trust. (Incorporated by reference to Exhibit 10.53 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.54 +​ +Promissory Note, dated June 17, 2024, issued by Legacy ConnectM in favor of Kanu Patel (Incorporated by reference to Exhibit 10.54 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.55 +​ +Promissory Note, dated June 20, 2024, issued by Legacy ConnectM in favor of Vikas Desai (Incorporated by reference to Exhibit 10.55 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.56 +​ +Credit Agreement, dated February 18, 2022, by and among Legacy ConnectM, SriSid LLC, and Arumilli LLC (Incorporated by reference to Exhibit 10.56 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.57 +​ +Security and Intercreditor Agreement, dated February 22, 2022, by and among Legacy ConnectM, SriSid LLC, and Arumilli LLC (Incorporated by reference to Exhibit 10.57 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.58 +​ +Promissory Note, dated December 29, 2022, issued by ConnectM Florida RE LLC in favor of RJZ Holdings LLC (Incorporated by reference to Exhibit 10.58 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +95 +​ +Exhibit +No +Description +10.59 +​ +Secured Promissory Note, dated December 28, 2022, issued by Aurai LLC in favor of Robert J. Zrallack (Incorporated by reference to Exhibit 10.59 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.60 +​ +Promissory Note, dated November 28, 2022, issued by Legacy ConnectM, in favor of SriSid LLC (Incorporated by reference to Exhibit 10.60 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.61 +​ +Promissory Note, dated January 18, 2024, issued by Legacy ConnectM in favor of Arumilli LLC (Incorporated by reference to Exhibit 10.61 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.62 +​ +Promissory Note, dated February 2, 2024, issued by Legacy ConnectM in favor of IT Corpz, Inc (Incorporated by reference to Exhibit 10.62 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.63 +​ +Promissory Note, dated March 13, 2024, issued by Legacy ConnectM in favor of Arumilli LLC (Incorporated by reference to Exhibit 10.63 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.64 +​ +Amendment to Forward Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Current report on Form 8-K filed by the registrant on August 6, 2024) +10.65 +​ +Note Conversion Agreement by and between the Company and Arumilli LLC, dated as of September 12, 2024 (incorporated by reference to Exhibit 10.1 to the Current report on Form 8-K filed by the registrant on September 17, 2024) +10.66 +​ +Note Conversion Agreement by and between the Company and SriSid LLC, dated as of September 12, 2024 (incorporated by reference to Exhibit 10.2 to the Current report on Form 8-K filed by the registrant on September 17, 2024) +10.67 +​ +Standby Equity Purchase Agreement dated as of December 17, 2024 by and between the Company and YA II PN, LTD. (incorporated by reference to Exhibit 10.1 to the Current report on Form 8-K filed by the registrant on December 26, 2024) +10.68 +​ +Note Conversion Agreement by and between the Company and Sree Nalla, an individual, dated as of September 12, 2024 (incorporated by reference to Exhibit 10.1 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +10.69 +​ +Note and Payable Conversion Agreement by and between the Company and IT Corpz Inc., dated as of September 24, 2024 (incorporated by reference to Exhibit 10.2 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +10.70 +​ +Note Conversion Agreement by and between the Company and Monterrey Acquisition Sponsor LLC, dated as of September 24, 2024 (incorporated by reference to Exhibit 10.3 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +10.71 +​ +Debt Conversion Agreement by and between the Company and MZHCI, LLC, dated as of November 13, 2024 (incorporated by reference to Exhibit 10.4 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +10.72 +​ +Debt Conversion Agreement by and between the Company and George A. Neighoff, an individual, dated as of November 13, 2024 (incorporated by reference to Exhibit 10.5 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +10.73 +​ +Debt Conversion Agreement by and between the Company and KLR Holdings Inc., dated as of December 1, 2024 (incorporated by reference to Exhibit 10.6 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +10.74 +​ +Debt Conversion Agreement by and between the Company and Libertas Funding LLC, dated as of September 24, 2024 (incorporated by reference to Exhibit 10.7 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +10.75 +​ +Marketing Services Agreement by and between the Company and Outside Box Capital Inc., dated as of July 25, 2024 (incorporated by reference to Exhibit 10.8 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +10.76 +​ +Services Agreement by and between the Company and Jamal Khurshid, an individual, dated December 1, 2024(incorporated by reference to Exhibit 10.9 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +10.77 +​ +Services Agreement by and between the Company and LU2 Holdings, LLC, dated December 1, 2024(incorporated by reference to Exhibit 10.10 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +96 +​ +Exhibit +No +Description +10.78 +​ +Capital Markets Advisory Agreement by and between the Company and Roth Capital Partners LLC, dated July 16, 2024 (incorporated by reference to Exhibit 10.11 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +10.79 +​ +Transfer Agreement by and between the Company and Srimulli Renewable LLC, dated October 1, 2024 (incorporated by reference to Exhibit 10.12 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +10.80 +​ +Transfer Agreement by and between the Company and Gregory Kendall, an individual, dated October 1, 2024 (incorporated by reference to Exhibit 10.13 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +10.81 +​ +Settlement Agreement by and between the Company and Benjamin Securities, Inc., dated October 2, 2024 (incorporated by reference to Exhibit 10.14 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +10.82 +​ +Convertible Promissory Note, dated December 17, 2024, between ConnectM and YA II PN, LTD. (incorporated by reference to Exhibit 10.2 to the Current report on Form 8-K filed by the registrant on December 26, 2024) +10.83 +​ +Registration Rights Agreement, dated December 17, 2024, between ConnectM and YA II PN, LTD. (incorporated by reference to Exhibit 10.3 to the Current report on Form 8-K filed by the registrant on December 26, 2024) +10.84 +​ +Termination Agreement dated as of April 2, 2025, by and among (i) Meteora Special Opportunity Fund I, LP, (ii) Meteora Capital Partners, LP, (iii) Meteora Select Trading Opportunities Master, LP, and (iv) ConnectM (incorporated by reference to Exhibit 10.1 to the Current report on Form 8-K filed by the registrant on April 18, 2025) +14.1* +​ +Code of Ethics +19.1* +​ +Insider Trading Policy +21.1* +​ +List of Subsidiaries +31.1* +​ +Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +31.2* +​ +Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32.1* +​ +Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +32.2* +​ +Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2 002 +101 +​ +Includes the following financial and related information on Form 10-K as of and for the 12 months ended December 31, 2024, formatted in Inline Extensible Business Reporting Language (iXBRL): (1) the Consolidated Balance Sheets, (2) the Consolidated Statements of Income, (3) the Consolidated Statements of Comprehensive Income, (4) the Consolidated Statements of Changes in Stockholders’ Equity, (5) the Consolidated Statements of Cash Flows, and (6) Notes to Consolidated Financial Statements. +104 +​ +The cover page from this Quarterly Report on Form 10-X formatted in Inline XBRL. +* +Filed herewith +​ +Item 16. Form 10-K Summary. +Not included. +​ +97 +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +​ +(Registrant) +ConnectM Technology Solutions, Inc. +​ +By (Signature and Title) Bhaskar Panigrahi, Chief Executive Officer and Chairman +Date August 04, 2025 +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. +Signature +Capacity +Date +​ +​ +​ +​ +​ +/s/ Bhaskar Panigrahi +​ +Chief Executive Officer; Chairman +​ +August 04, 2025 +Bhaskar Panigrahi +​ +(Principal Executive Officer) +​ +​ +​ +​ +​ +​ +​ +/S/ Jeff Ervin +​ +Interim Chief Financial Officer +​ +August 04, 2025 +Jeff Ervin +​ +(Principal Financial Officer) +​ +​ +​ +​ +​ +​ +​ +/S/ Bala Padmakumar +​ +Vice Chairman +​ +August 04, 2025 +Bala Padmakumar +​ +​ +​ +​ +​ +​ +​ +​ +​ +/S/ Kathy Cuocolo +​ +Director +​ +August 04, 2025 +Kathy Cuocolo +​ +​ +​ +​ +​ +​ +​ +​ +​ +/S/ Stephen Markscheid +​ +Director +​ +August 04, 2025 +Stephen Markscheid +​ +​ +​ +​ +​ +​ +​ +​ +​ +/S/ Gautam Barua +​ +Director +​ +August 04, 2025 +Gautam Barua +​ +​ +​ +​ +​ +​ +​ +​ +​ +98 +​ +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To the Board of Directors and Stockholders of ConnectM Technology Solutions, Inc. +Opinion on the Consolidated Financial Statements +We have audited the accompanying consolidated balance sheets of ConnectM Technology Solutions, Inc. (the Company) as of December 31, 2024 and 2023, and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2024 and 2023, and the consolidated results of its operations and its cash flows for the years ended December 31, 2024 and 2023, in conformity with accounting principles generally accepted in the United States of America. +Substantial Doubt about the Company’s Ability to Continue as a Going Concern +The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 4 to the consolidated financial statements, the Company has a net loss from operations, negative cash flows from operations, and an accumulated deficit and that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 4. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. +Basis for Opinion +These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +We have served as the Company’s auditor since 2023. +/s/ Adeptus Partners, LLC +PCAOB ID: 3686 +Ocean, New Jersey +August 4, 2025 +​ +​ +F-1 +​ +​ +CONNECTM TECHNOLOGY SOLUTIONS, INC. +CONSOLIDATED BALANCE SHEETS +​ +​ +​ +​ +​ +​ +​ +​ +December 31, +​ +​ +2024 +​ +2023 +Assets +​ +​ +Current assets +​ +​ +Cash +​ +$ +2,407,843 +​ +$ +1,160,368 +Accounts receivable +​ +1,897,471 +​ +684,788 +Contract asset +​ +206,750 +​ +343,646 +Convertible note receivable, related party +​ +— +​ +445,000 +Inventories +​ +550,695 +​ +277,343 +Deferred offering costs +​ +— +​ +1,297,101 +Other receivable, related party +​ +— +​ +2,491,431 +Forward purchase agreement derivative asset +​ +​ +1,471,000 +​ +​ +— +Working capital advances +​ +​ +266,831 +​ +​ +— +Prepaid expenses and other current assets +​ +1,530,842 +​ +695,738 +Total current assets +​ +8,331,432 +​ +7,395,415 +Right-of-use asset – operating lease +​ +221,479 +​ +283,634 +Right-of-use asset – finance lease +​ +130,774 +​ +252,231 +Property, plant and equipment, net +​ +936,573 +​ +1,137,699 +Goodwill +​ +1,728,108 +​ +2,246,619 +Intangible assets, net +​ +1,408,176 +​ +1,840,875 +Total Assets +​ +$ +12,756,542 +​ +$ +13,156,473 +Liabilities and Stockholders’ Deficit +​ +​ +Current liabilities +​ +​ +Accounts payable +​ +$ +10,497,488 +​ +$ +3,859,737 +Accrued expenses and other current liabilities +​ +3,207,233 +​ +1,660,573 +Contingent consideration +​ +​ +259,243 +​ +​ +57,694 +Debt, net of debt discount +​ +7,019,499 +​ +12,021,017 +Convertible debt, at fair value +​ +8,542,323 +​ +2,178,685 +Derivative liabilities +​ +​ +4,229,478 +​ +​ +— +Operating lease liability +​ +117,120 +​ +114,690 +Finance lease liability +​ +103,392 +​ +99,105 +Contract liabilities +​ +602,469 +​ +1,120,817 +Total current liabilities +​ +34,578,245 +​ +21,112,318 +Debt, net of current portion +​ +1,303,665 +​ +1,150,481 +Operating lease liabilities, net of current portion +​ +135,239 +​ +173,157 +Finance lease liabilities, net of current portion +​ +91,726 +​ +203,081 +Contingent consideration +​ +​ +434,174 +​ +​ +— +Total liabilities +​ +36,543,049 +​ +22,639,037 +Commitments and Contingencies (Note 19) +​ +​ +Stockholders’ Deficit: +​ +​ +Preferred stock Series A, $ 0.001 par value, 10,000,000 shares authorized as of December 31, 2024 and 2023 no shares issued or outstanding as of December 31, 2024 and 2023 +​ +​ +— +​ +​ +— +Common stock, $ 0.0001 par value, 100,000,000 shares authorized as of December 31, 2024 and 2023, respectively, 29,093,289 and 13,338,437 issued and outstanding as of December 31, 2024 and 2023, respectively +​ +2,910 +​ +1,334 +Additional paid-in-capital +​ +20,152,919 +​ +13,288,174 +Accumulated deficit +​ +( 45,426,099 ) +​ +( 22,860,351 ) +Accumulated other comprehensive income +​ +166,007 +​ +114,624 +Total ConnectM Technology Solutions, Inc.'s stockholders’ deficit +​ +( 25,104,263 ) +​ +( 9,456,219 ) +Noncontrolling interest +​ +1,317,756 +​ +( 26,345 ) +Total stockholders’ deficit +​ +( 23,786,507 ) +​ +( 9,482,564 ) +Total liabilities and stockholders’ deficit +​ +$ +12,756,542 +​ +$ +13,156,473 +​ +The accompanying notes are an integral part of these consolidated financial statements. +​ +F-2 +​ +CONNECTM TECHNOLOGY SOLUTIONS, INC. +CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS +​ +​ +​ +​ +​ +​ +​ +​ +Years Ended December 31, +​ +2024 +2023 +Revenues +​ +$ +22,652,885 +​ +$ +19,972,239 +Costs and expenses: +​ +​ +​ +Cost of revenues +​ +16,706,177 +​ +14,934,962 +Selling, general and administrative expenses +​ +15,145,429 +​ +12,320,295 +Loss on impairment +​ +​ +2,403,628 +​ +​ +181,853 +Total costs and expenses +​ +​ +34,255,234 +​ +​ +27,437,110 +Loss from operations +​ +( 11,602,349 ) +​ +( 7,464,871 ) +Other income (expense): +​ +​ +Interest expense +​ +( 2,714,048 ) +​ +( 1,431,354 ) +Loss on extinguishment of debt +​ +( 1,645,443 ) +​ +( 370,320 ) +Gain on extinguishment of debt +​ +​ +2,257,638 +​ +​ +— +Change in fair value of convertible debt +​ +​ +( 1,707,747 ) +​ +​ +25,446 +Change in fair value of contingent consideration +​ +​ +( 59,723 ) +​ +​ +— +Change in fair value of derivative liabilities +​ +​ +( 187,428 ) +​ +​ +— +Change in fair value of forward purchase agreement +​ +​ +( 8,254,390 ) +​ +​ +— +Day one gain on issuance of SEPA +​ +​ +134,886 +​ +​ +— +Gain on forward purchase agreement modification +​ +​ +1,453,891 +​ +​ +— +Loss on forward purchase agreement modification +​ +​ +( 266,655 ) +​ +​ +​ +Other expense +​ +​ +( 34,413 ) +​ +​ +— +Other income +​ +117,573 +​ +42,245 +Total other expense, net +​ +( 10,905,859 ) +​ +( 1,733,983 ) +Net loss +​ +( 22,508,208 ) +​ +( 9,198,854 ) +Less: net income (loss) attributable to noncontrolling interests +​ +57,540 +​ +( 49,188 ) +Net loss attributable to ConnectM Technology Solutions, Inc. +​ +$ +( 22,565,748 ) +​ +$ +( 9,149,666 ) +Other comprehensive income (loss): +​ +​ +Foreign currency translation adjustment +​ +51,383 +​ +97,613 +Comprehensive loss before noncontrolling interests +​ +( 22,514,365 ) +​ +( 9,052,053 ) +Less: comprehensive loss (income) attributable to noncontrolling interests +​ +57,540 +​ +( 49,188 ) +Comprehensive loss attributable to ConnectM Technology Solutions, Inc. +​ +$ +( 22,571,905 ) +​ +$ +( 9,002,865 ) +​ +​ +​ +​ +​ +​ +​ +Weighted average shares outstanding of Common Stock +​ +19,071,591 +​ +13,338,437 +Basic and diluted net loss per share of Common Stock +​ +$ +( 1.18 ) +​ +$ +( 0.69 ) +​ +The accompanying notes are an integral part of these consolidated financial statements. +​ +​ +​ +F-3 +​ +CONNECTM TECHNOLOGY SOLUTIONS, INC. +CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT +FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Accumulated +​ +ConnectM +​ +​ +​ +​ +​ +​ +​ +Preferred Shares subject to Possible Redemption +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Other +​ +Technology +​ +​ +​ +​ +​ +​ +​ +Series Seed +​ +Series Seed ‑ 1 +​ +Series A ‑ 1 +​ +Series B ‑ 1 +​ +Series B ‑ 2 +​ +​ +​ +​ +​ +​ +​ +Additional +​ +​ +​ +​ +Comprehensive +​ +Solutions, Inc.'s +​ +​ +​ +​ +Total +​ +Preferred +​ +Preferred +​ +Preferred +​ +Preferred +​ +Preferred +​ +​ +Common Stock +​ +Paid-In +​ +Accumulated +​ +Income +​ +Stockholders’ +​ +Noncontrolling +​ +Stockholders’ +​ +Shares +Amount +Shares +Amount +Shares +Amount +Shares +Amount +Shares +Amount +​ +Shares +Amount +Capital +Deficit +(Loss) +Deficit +interest +Deficit +Balance, as of December 31, 2022 +644,030 +​ +$ +2,200,000 +​ +91,120 +​ +$ +292,625 +​ +743,068 +​ +$ +3,195,192 +​ +649,843 +​ +$ +3,983,538 +​ +142,730 +​ +$ +2,310,929 +1,588,141 +​ +$ +159 +​ +$ +1,306,658 +​ +$ +( 13,710,685 ) +​ +$ +17,011 +​ +$ +( 12,386,857 ) +​ +$ +22,843 +​ +$ +( 12,364,014 ) +Retroactive application of recapitalization +( 644,030 ) +​ +​ +( 2,200,000 ) +​ +( 91,120 ) +​ +​ +( 292,625 ) +​ +( 743,068 ) +​ +​ +( 3,195,192 ) +​ +( 649,843 ) +​ +​ +( 3,983,538 ) +​ +( 142,730 ) +​ +​ +( 2,310,929 ) +11,750,296 +​ +​ +1,175 +​ +​ +11,981,109 +​ +​ +— +​ +​ +— +​ +​ +11,982,284 +​ +​ +— +​ +​ +11,982,284 +Adjusted balance, as of December 31, 2022 +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +​ +13,338,437 +​ +​ +1,334 +​ +​ +13,287,767 +​ +​ +( 13,710,685 ) +​ +​ +17,011 +​ +​ +( 404,573 ) +​ +​ +22,843 +​ +​ +( 381,730 ) +Stock-based compensation expense +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +​ +407 +​ +​ +— +​ +​ +— +​ +​ +407 +​ +​ +— +​ +​ +407 +Other comprehensive income +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +97,613 +​ +​ +97,613 +​ +​ +— +​ +​ +97,613 +Net loss +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +​ +— +​ +​ +( 9,149,666 ) +​ +​ +— +​ +​ +( 9,149,666 ) +​ +​ +( 49,188 ) +​ +​ +( 9,198,854 ) +Balances, as of December 31, 2023 +— +​ +​ +— +— +​ +​ +— +— +​ +​ +— +— +​ +​ +— +— +​ +​ +— +​ +13,338,437 +​ +​ +1,334 +​ +​ +13,288,174 +​ +​ +( 22,860,351 ) +​ +​ +114,624 +​ +​ +( 9,456,219 ) +​ +​ +( 26,345 ) +​ +​ +( 9,482,564 ) +Stock-based compensation expense +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +​ +— +​ +— +​ +525 +​ +— +​ +— +​ +525 +​ +​ +— +​ +525 +Stock-based compensation to employees +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +​ +16,607 +​ +1 +​ +34,999 +​ +— +​ +— +​ +35,000 +​ +— +​ +35,000 +Shares issued for services +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +​ +885,000 +​ +89 +​ +1,729,261 +​ +— +​ +— +​ +1,729,350 +​ +— +​ +1,729,350 +Shares issues for settlement +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +​ +125,000 +​ +​ +13 +​ +​ +133,737 +​ +​ +— +​ +​ +— +​ +​ +133,750 +​ +​ +— +​ +​ +133,750 +Shares issued for acquisition of Green Energy Gains +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +​ +160,000 +​ +16 +​ +161,424 +​ +— +​ +— +​ +161,440 +​ +— +​ +161,440 +Non-controlling unit ownership change +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +50,931 +​ +​ +— +​ +​ +— +​ +​ +50,931 +​ +​ +( 759 ) +​ +​ +50,172 +Business combination recapitalization net of transaction costs +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +​ +6,701,421 +​ +​ +670 +​ +​ +( 6,673,642 ) +​ +​ +— +​ +​ +— +​ +​ +( 6,672,972 ) +​ +​ +— +​ +​ +( 6,672,972 ) +Conversion of convertible debt and accrued interest +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +​ +1,067,592 +​ +​ +107 +​ +​ +3,779,116 +​ +​ +— +​ +​ +— +​ +​ +3,779,223 +​ +​ +— +​ +​ +3,779,223 +Shares issued in connection with debt settlements +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +​ +6,534,776 +​ +​ +654 +​ +​ +7,460,920 +​ +​ +— +​ +​ +— +​ +​ +7,461,574 +​ +​ +— +​ +​ +7,461,574 +Issuance of common stock for Standby Equity Purchase Agreement +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +​ +264,456 +​ +​ +26 +​ +​ +187,474 +​ +​ +— +​ +​ +— +​ +​ +187,500 +​ +​ +— +​ +​ +187,500 +Minority Interest Resulting from DC Acquisition +— +​ +— +— +​ +— +— +​ +— +— +​ +— +— +​ +— +​ +— +​ +— +​ +— +​ +— +​ +— +​ +— +​ +1,287,320 +​ +1,287,320 +Foreign currency translation adjustments +— +​ +— +— +​ +— +— +​ +— +— +​ +— +— +​ +— +​ +— +​ +— +​ +— +​ +— +​ +51,383 +​ +51,383 +​ +— +​ +51,383 +Net loss +— +​ +— +— +​ +— +— +​ +— +— +​ +— +— +​ +— +​ +— +​ +— +​ +— +​ +( 22,565,748 ) +​ +— +​ +( 22,565,748 ) +​ +57,540 +​ +( 22,508,208 ) +Balances, as of December 31, 2024 +— +​ +​ +— +— +​ +​ +— +— +​ +​ +— +— +​ +​ +— +— +​ +​ +— +​ +29,093,289 +​ +​ +2,910 +​ +​ +20,152,919 +​ +​ +( 45,426,099 ) +​ +​ +166,007 +​ +​ +( 25,104,263 ) +​ +​ +1,317,756 +​ +​ +( 23,786,507 ) +​ +The accompanying notes are an integral part of these consolidated financial statements. +​ +​ +F-4 +​ +CONNECTM TECHNOLOGY SOLUTIONS, INC. +CONSOLIDATED STATEMENTS OF CASH FLOWS +​ +​ +​ +​ +​ +​ +​ +​ +​ +Years Ended December 31, +​ +​ +2024 +​ +2023 +CASH FLOWS FROM OPERATING ACTIVITIES: +​ +​ +Net Loss +​ +$ +( 22,508,208 ) +​ +$ +( 9,198,854 ) +Adjustments to reconcile net loss to net cash used in operating activities: +​ +​ +​ +Depreciation and amortization expense +​ +745,741 +​ +​ +776,397 +Amortization of debt discount +​ +137,615 +​ +346,557 +Stock-based compensation expense +​ +525 +​ +407 +Shares issued for service +​ +837,473 +​ +​ +— +Share issued for SEPA +​ +187,500 +​ +​ +— +Share issues for settlement of expenses +​ +133,750 +​ +— +Stock-based compensation to employees +​ +35,000 +​ +— +ROU amortization on finance leases +​ +121,457 +​ +118,851 +ROU amortization on operating leases +​ +172,974 +​ +168,995 +Provision for inventory shrinkage +​ +23,926 +​ +187,098 +Bad debt expense +​ +​ +187,633 +​ +​ +71,173 +Impairment loss +​ +2,403,628 +​ +181,853 +Loss (gain) on disposal of property, plant and equipment +​ +​ +( 843 ) +​ +​ +( 22,008 ) +Loss on extinguishment of debt +​ +​ +1,645,443 +​ +​ +370,320 +Gain on extinguishment of debt +​ +​ +( 2,257,638 ) +​ +​ +— +Change in fair value of convertible debt +​ +​ +1,707,747 +​ +​ +( 25,446 ) +Change in fair value of forward purchase agreement +​ +​ +8,254,390 +​ +​ +— +Gain on modification of forward purchase agreement +​ +​ +( 1,572,236 ) +​ +​ +— +Day one gain on issuance of SEPA and convertible note +​ +( 134,886 ) +​ +​ +— +Change in fair value of contingent consideration +​ +59,723 +​ +— +Change in fair value of derivative liabilities +​ +187,428 +​ +— +Loss on modification of forward purchase agreement +​ +385,000 +​ +— +Changes in operating assets and liabilities: +​ +​ +​ +​ +Accounts receivable +​ +( 767,292 ) +​ +406,911 +Contract asset +​ +136,896 +​ +( 343,646 ) +Inventory +​ +( 293,434 ) +​ +191,623 +Prepaid expenses and other current assets +​ +139,452 +​ +( 250,405 ) +Accounts payable +​ +3,381,318 +​ +1,006,007 +Accrued expenses +​ +1,622,271 +​ +1,080,972 +Operating lease liabilities +​ +( 146,307 ) +​ +( 166,060 ) +Working Capital Advance +​ +( 266,831 ) +​ +— +Contract liabilities +​ +( 518,348 ) +​ +477,563 +Net cash used in operating activities +​ +$ +( 5,959,133 ) +​ +$ +( 4,621,692 ) +CASH FLOWS FROM INVESTING ACTIVITIES: +​ +​ +​ +​ +​ +​ +Purchase of property and equipment +​ +​ +( 27,044 ) +​ +​ +( 41,771 ) +Proceeds from sale of property and equipment +​ +​ +13,000 +​ +​ +56,648 +Issuance of convertible note receivable +​ +— +​ +( 445,000 ) +Purchase of additional noncontrolling shares +​ +( 60,000 ) +​ +— +Cash acquired from acquisition of businesses, net of purchase price paid +​ +​ +152,482 +​ +​ +— +Cash paid for capitalized software development costs +​ +​ +( 186,103 ) +​ +​ +( 35,588 ) +Net cash used in investing activities +​ +$ +( 107,665 ) +​ +$ +( 465,711 ) +CASH FLOWS FROM FINANCING ACTIVITIES: +​ +​ +​ +​ +Proceeds from the Business Combination +​ +​ +35,770,959 +​ +​ +— +Payment for reimbursement of consideration shares related to the Forward Purchase Agreement payment +​ +​ +( 36,727,814 ) +​ +​ +— +Reimbursement for Recycled Shares related to Forward Purchase Agreement +​ +​ +1,000,000 +​ +​ +— +Proceeds from the issuance of debt +​ +6,614,400 +​ +9,047,344 +Proceeds from the issuance of convertible notes +​ +4,940,000 +​ +— +Cash paid for debt issuance costs +​ +( 1,015,114 ) +​ +— +Payments of deferred offering costs +​ +— +​ +( 984,857 ) +Repayments of debt +​ +( 2,262,401 ) +​ +( 2,153,487 ) +Repayments of convertible debt +​ +( 50,000 ) +​ +— +Advance to Monterey Capital Acquisition Corporation +​ +( 1,933,695 ) +​ +( 2,491,431 ) +Proceeds from issuance of convertible notes +​ +— +​ +900,000 +Advance from Lender +​ +​ +1,057,275 +​ +​ +— +Payment on finance leases +​ +​ +( 107,068 ) +​ +​ +( 90,409 ) +Net cash provided by financing activities +​ +$ +7,286,542 +​ +$ +4,227,160 +Effect of exchange rate changes on cash and cash equivalents +​ +​ +27,731 +​ +​ +97,280 +Increase (decrease) in cash and cash equivalents +​ +​ +1,247,475 +​ +​ +( 762,964 ) +Cash, beginning of year +​ +​ +1,160,368 +​ +​ +1,923,332 +Cash, end of year +​ +$ +2,407,843 +​ +$ +1,160,368 +Supplemental disclosures of cash flow information: +​ +​ +​ +​ +​ +​ +Cash paid for interest +​ +​ +1,057,138 +​ +​ +375,304 +Cash paid for taxes +​ +​ +— +​ +​ +— +Supplemental disclosures of noncash financing information: +​ +​ +​ +​ +​ +​ +Right-of-use asset, operating acquired +​ +​ +110,819 +​ +​ +199,848 +Right-of-use asset, finance acquired +​ +​ +— +​ +​ +55,057 +Derivative liabilities issued in connection with extinguishment of obligations to lenders and vendors through issuance of common stock +​ +​ +4,042,050 +​ +​ +— +Conversion of convertible debt to common stock +​ +​ +3,779,223 +​ +​ +— +Carrying value of debt exchanged in connection with acquisition of noncontrolling shares +​ +​ +110,172 +​ +​ +— +Common stock issued as consideration to acquire a business +​ +​ +161,440 +​ +​ +— +Vehicles acquired through issuance of debt +​ +​ +36,823 +​ +​ +317,020 +Debt extinguished through repossession of vehicle +​ +​ +22,839 +​ +​ +— +Vendor obligation exchanged for debt instrument +​ +​ +119,000 +​ +​ +— +Deferred offering costs included in accounts payable +​ +​ +— +​ +​ +774,485 +Common stock issued for prepaid expenses +​ +​ +891,827 +​ +​ +— +Unpaid purchase price of acquisition +​ +​ +170,000 +​ +​ +— +Shares issues in connection with debt conversion agreements +​ +​ +7,461,573 +​ +​ +— +Recapitalization of non-controlling interest +​ +​ +110,172 +​ +​ +— +​ +The accompanying notes are an integral part of these consolidated financial statements. +​ +​ +​ +F-5 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +NOTE 1: ORGANIZATION AND OPERATIONS +ConnectM Technology Solutions, Inc. (the “Company”), a Delaware corporation, who conducts its operations through its subsidiaries, is a constellation of companies offering solutions to its customers for the (i) decarbonization of homes and businesses using its AI-driven energy intelligence platform, (ii) facilitation of business-to-business transportation for products using contracted drivers through its online and mobile last mile local delivery platform, and (iii) management of connected operations using its industrial internet of things (“IIoT”) platform. The Company also provides a managed solutions service offering that includes human resources management, procurement services, omnichannel marketing and lead generation services and access to working capital loans to improve operating efficiencies and enhance profitability. The platforms and software that are used to deliver the solutions harvest data that is transformed into insights that its customers are able to access and use for analysis and action. The Company earns revenue outside the United States from its Transportation segments. +The Company also offers physical products as part of its solutions offerings, including an AI-driven intelligent heat pump system for use in the decarbonization of homes and businesses solution and display clusters, digital control units and vehicle control units used in the management of connected operations solution. +On July 12, 2024 (the “Closing Date”), Monterey Capital Acquisition Corporation (“MCAC”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with ConnectM Technology Solutions, Inc. (“Legacy ConnectM”). Pursuant to the Merger Agreement, MCAC acquired all of the issued and outstanding shares of common stock from the Legacy ConnectM shareholders (the “Business Combination”) in exchange for 14,500,000 shares of ConnectM’s common stock (the “Share Consideration”) (see Note 5). On the Closing Date, and in connection with the closing of the Merger Agreement, MCAC changed its name to ConnectM Technology Solutions, Inc (“ConnectM”) and the Company’s common stock began trading on the NASDAQ under the ticker symbol CNTM. +In connection with the closing of the Business Combination, the then-outstanding shares of common stock of Legacy ConnectM, were converted into shares of the common stock of the Company at an exchange ratio of approximately 3.3214 shares of Company common stock for each share of Legacy ConnectM common stock (the “Exchange Ratio”) +Legacy ConnectM was deemed the accounting acquirer in the Business Combination based on an analysis of the criteria outlined in Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”). The determination was primarily based on Legacy ConnectM’s shareholders prior to the Business Combination having a majority of the voting interests in the combined company, Legacy ConnectM’s ability to exert control over the majority of the board of directors of the combined company, Legacy ConnectM’s ability to maintain control of the board of directors on a go-forward basis, Legacy ConnectM’s senior management comprising the senior management of the combined company; and Legacy ConnectM’s operations prior to the Business Combination comprise the ongoing operations of the combined company. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Legacy ConnectM issuing stock for the net assets of MCAC, accompanied by a recapitalization. The net assets of MCAC were stated at fair value, with no goodwill or other intangible assets recorded. +While MCAC was the legal acquirer in the Business Combination, because Legacy ConnectM was deemed the accounting acquirer, the historical financial statements of Legacy ConnectM became the historical financial statements of the combined company, upon consummation of the Business Combination. As a result, the financial statements included in this report reflect (i) the historical operating results of Legacy ConnectM prior to the Business Combination; (ii) the combined results of MCAC and Legacy ConnectM following the closing of the Business Combination; (iii) the assets and liabilities of Legacy ConnectM at their historical cost; and (iv) the Company’s equity structure for all periods presented. +Basis of presentation and principles of consolidation: The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) and include the assets, liabilities, revenues, and expenses of all wholly owned subsidiaries over which the Company exercises control. All significant intercompany accounts, transactions and profits and losses were eliminated in consolidation. The Company also consolidated variable interest entities where it has been determined that the Company is the primary beneficiary of those entities’ operations. Any reference in these footnotes to the applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the ASC and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). +F-6 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Noncontrolling Interest: The portion of equity not owned by the Company in entities controlled and consolidated by the Company are presented as noncontrolling interest and classified as a component of consolidated stockholders’ deficit, separate from total stockholders’ deficit on the Company’s consolidated balance sheets. The amount recorded is based on the noncontrolling interest holders’ initial investment, adjusted to reflect the noncontrolling interest holder’s share of earnings or losses from the Company controlled entity, and any distributions received or additional contributions made by the noncontrolling interest holder. The earnings or losses from the entity attributable to noncontrolling interests are reflected in net income attributable to noncontrolling interests on the accompanying consolidated statements of operations and comprehensive loss. All significant intercompany accounts, transactions, and profits and losses were eliminated in consolidation. +NOTE 2. CORRECTION OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS +Management of the Company determined on April 8, 2025, during the preparation of consolidated financial statements for the year ended December 31, 2024, that there were errors that were material to the Company’s previously issued interim consolidated financial statements for the quarterly period ended September 30, 2024 (the “Restated Period”), as included in the Company’s Quarterly Report on Form 10-Q for such period (the “Prior Filing”) and the Prior Filing needs to be restated. The Company’s Prior Filing, as well as any reports, related to earnings releases, investor presentations or similar communications of the Company’s Prior Filing should no longer be relied upon. Identified errors consisted of the following: +● Note conversion agreements were entered into during September 2024 that were determined to be debt restructurings requiring recognition as extinguishments and share issuances at the time the conversion agreements were entered into were not accounted for as such. As such, the shares of Company common stock to be issued upon conversion were considered issued and outstanding for accounting purposes irrespective of the timing of when the shares were issued, though not considered issued or outstanding for legal purposes. Accordingly, the shares underlying those agreements were not properly accounted for or disclosed as share issuances and the associated obligations were not properly accounted for or disclosed as extinguishments in the Prior Filing. Additionally, there were embedded derivatives contained within each conversion agreement that were not properly identified, recorded at fair value at issuance, re-measured to fair value at the end of the reporting period, or disclosed in the Prior Filing. This has led to the overstatement of net loss, understatement of common stock, understatement of additional paid-in capital, overstatement of debt, and understatement of derivative liabilities in the Prior Filing. +● True-up adjustments in the Company’s master service agreements were improperly classified as revenue instead of as a reduction to operating expenses in the Prior Filing. This has led to an overstatement of the Company’s revenue and selling, general and administrative expenses in the Prior Filing. +● Fees paid on the Forward Purchase Agreement were improperly classified as change in fair value of forward purchase agreement, a component of other income (expense), instead of additional paid-in capital in the Prior Filing. The has led to an overstatement of additional paid-in capital and an overstatement of gain on forward purchase agreement modification in the Prior Filing. +● Fees that were direct and incremental to the Business Combination were not accrued for as of the Closing Date. This has led to an understatement of accrued expenses and an overstatement of additional paid-in capital in the Prior Filing. +F-7 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The impact of the restatements on the line items within the previously reported unaudited condensed consolidated financial statement as of and for the nine months ended September 30, 2024 included in the Company’s Form 10-Q filed with the SEC on December 16, 2024 are as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Consolidated Balance Sheet as of September 30, 2024 (unaudited) (in thousands) +​ +As Previously Reported +​ +Adjustment +​ +As Restated +Accrued Expenses +​ +$ +4,631 +​ +$ +( 1,707 ) +​ +$ +2,924 +Due to Related Party +​ +$ +686 +​ +$ +( 686 ) +​ +$ +- +Debt +​ +$ +15,966 +​ +$ +( 8,892 ) +​ +$ +7,074 +Due to Libertas +​ +$ +1,057 +​ +$ +( 1,057 ) +​ +$ +- +Derivative liabilities +​ +$ +- +​ +$ +3,925 +​ +$ +3,925 +Total current liabilities +​ +$ +38,649 +​ +$ +( 8,417 ) +​ +$ +30,232 +Total liabilities +​ +$ +40,775 +​ +$ +( 8,417 ) +​ +$ +32,358 +Common Stock +​ +$ +2 +​ +$ +1 +​ +$ +3 +Additional paid-in capital +​ +$ +11,425 +​ +$ +6,103 +​ +$ +17,528 +Accumulated deficit +​ +$ +( 39,910 ) +​ +$ +2,314 +​ +$ +( 37,596 ) +Stockholders’ deficit +​ +$ +( 28,340 ) +​ +$ +8,418 +​ +$ +( 19,922 ) +Total stockholders’ deficit +​ +$ +( 27,029 ) +​ +$ +8,418 +​ +$ +( 18,611 ) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Unaudited Consolidated Statement of Operations and Comprehensive Loss for the three months ended September 30, 2024 (in thousands) +​ +As Previously Reported +​ +Adjustment +​ +As Restated +Revenues +​ +$ +6,074 +​ +$ +( 77 ) +​ +$ +5,997 +Selling, general and administrative expenses +​ +$ +4,900 +​ +$ +( 570 ) +​ +$ +4,330 +Loss from operations +​ +$ +( 3,026 ) +​ +$ +493 +​ +$ +( 2,533 ) +Interest expense +​ +$ +( 667 ) +​ +$ +( 10 ) +​ +$ +( 677 ) +Loss on extinguishment of debt +​ +$ +- +​ +$ +( 952 ) +​ +$ +( 952 ) +Gain on extinguishment of debt +​ +$ +- +​ +$ +2,258 +​ +$ +2,258 +Change in fair value of forward purchase agreement +​ +$ +( 8,575 ) +​ +$ +452 +​ +$ +( 8,123 ) +Gain on forward purchase agreement modification +​ +$ +1,443 +​ +$ +104 +​ +$ +1,547 +Change in fair value on derivative liabilities +​ +$ +- +​ +$ +( 31 ) +​ +$ +( 31 ) +Total other income (expense) +​ +$ +( 9,152 ) +​ +$ +1,821 +​ +$ +( 7,331 ) +Loss before income taxes +​ +$ +( 12,178 ) +​ +$ +2,314 +​ +$ +( 9,864 ) +Net loss +​ +$ +( 12,178 ) +​ +$ +2,314 +​ +$ +( 9,864 ) +Net loss attributable to shareholders +​ +$ +( 12,238 ) +​ +$ +2,314 +​ +$ +( 9,924 ) +Comprehensive loss +​ +$ +( 12,159 ) +​ +$ +2,314 +​ +$ +( 9,845 ) +Comprehensive loss attributable to shareholders +​ +$ +( 12,219 ) +​ +$ +2,314 +​ +$ +( 9,905 ) +Basic and diluted net loss per share, common stock +​ +$ +( 0.61 ) +​ +$ +0.14 +​ +$ +( 0.47 ) +Weighted average shares outstanding of common stock +​ +​ +20,171,922 +​ +​ +​ +​ +​ +21,152,671 +​ +​ +F-8 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Unaudited Consolidated Statement of Operations and Comprehensive Loss for the nine months ended September 30, 2024 (in thousands) +​ +As Previously Reported +​ +Adjustment +​ +As Restated +Revenues +​ +$ +17,299 +​ +$ +( 918 ) +​ +$ +16,381 +Selling, general and administrative expenses +​ +$ +11,773 +​ +$ +( 1,411 ) +​ +$ +10,362 +Loss from operations +​ +$ +( 5,890 ) +​ +$ +493 +​ +$ +( 5,397 ) +Interest expense +​ +$ +( 1,820 ) +​ +$ +( 10 ) +​ +$ +( 1,830 ) +Loss on extinguishment of debt +​ +$ +( 592 ) +​ +$ +( 952 ) +​ +$ +( 1,544 ) +Gain on extinguishment of debt +​ +$ +- +​ +$ +2,258 +​ +$ +2,258 +Change in fair value of forward purchase agreement +​ +$ +( 8,575 ) +​ +$ +452 +​ +$ +( 8,123 ) +Gain on forward purchase agreement modification +​ +$ +1,443 +​ +$ +104 +​ +$ +1,547 +Change in fair value on derivative liabilities +​ +$ +- +​ +$ +( 31 ) +​ +$ +( 31 ) +Total other income (expense) +​ +$ +( 11,108 ) +​ +$ +1,821 +​ +$ +( 9,287 ) +Loss before income taxes +​ +$ +( 16,998 ) +​ +$ +2,314 +​ +$ +( 14,684 ) +Net loss +​ +$ +( 16,998 ) +​ +$ +2,314 +​ +$ +( 14,684 ) +Net loss attributable to shareholders +​ +$ +( 17,050 ) +​ +$ +2,314 +​ +$ +( 14,736 ) +Comprehensive loss +​ +$ +( 16,969 ) +​ +$ +2,314 +​ +$ +( 14,655 ) +Comprehensive loss attributable to shareholders +​ +​ +( 17,021 ) +​ +​ +2,314 +​ +​ +( 14,707 ) +Basic and diluted net loss per share, common stock +​ +$ +( 1.09 ) +​ +$ +0.17 +​ +$ +( 0.92 ) +Weighted average shares outstanding of common stock +​ +​ +15,643,799 +​ +​ +​ +​ +​ +15,973,225 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Unaudited Consolidated Statement of Stockholders’ Deficit for the three months ended September 30, 2024 (in thousands) +​ +As Previously Reported +​ +Adjustment +​ +As Restated +Common Stock +​ +$ +2 +​ +$ +1 +​ +$ +3 +Additional paid-in capital +​ +$ +11,425 +​ +$ +6,103 +​ +$ +17,528 +Accumulated deficit +​ +$ +( 39,910 ) +​ +$ +2,314 +​ +$ +( 37,596 ) +Stockholders’ deficit +​ +$ +( 28,340 ) +​ +$ +8,418 +​ +$ +( 19,922 ) +Total stockholders’ deficit +​ +$ +( 27,029 ) +​ +$ +8,418 +​ +$ +( 18,611 ) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Unaudited Consolidated Statement of Stockholders’ Deficit for the nine months ended September 30, 2024 (in thousands) +​ +As Previously Reported +​ +Adjustment +​ +As Restated +Common Stock +​ +$ +2 +​ +$ +1 +​ +$ +3 +Additional paid-in capital +​ +$ +11,425 +​ +$ +6,103 +​ +$ +17,528 +Accumulated deficit +​ +$ +( 39,910 ) +​ +$ +2,314 +​ +$ +( 37,596 ) +Stockholders’ deficit +​ +$ +( 28,340 ) +​ +$ +8,418 +​ +$ +( 19,922 ) +Total stockholders’ deficit +​ +$ +( 27,029 ) +​ +$ +8,418 +​ +$ +( 18,611 ) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Unaudited Consolidated Statement of Cash Flows for the nine months ended September 30, 2024 (in thousands) +​ +As Previously Reported +​ +Adjustment +​ +As Restated +Net loss +​ +$ +( 16,998 ) +​ +$ +2,314 +​ +$ +( 14,684 ) +Loss on extinguishment of debt +​ +$ +592 +​ +$ +952 +​ +$ +1,544 +Gain on extinguishment of debt +​ +$ +- +​ +$ +( 2,258 ) +​ +$ +( 2,258 ) +Change in fair value of forward purchase agreement +​ +$ +8,575 +​ +$ +( 452 ) +​ +$ +8,123 +Gain on modification of forward purchase agreement +​ +$ +( 1,443 ) +​ +$ +( 104 ) +​ +$ +( 1,547 ) +Change in fair value on derivative liabilities +​ +$ +- +​ +$ +31 +​ +$ +31 +Net cash used in operating activities +​ +$ +( 3,251 ) +​ +$ +483 +​ +$ +( 2,768 ) +​ +​ +F-9 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Reclassifications: Certain prior period amounts have been reclassified to conform to the current year presentation. +Emerging growth company: The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups (“JOBS”) Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as to those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. +Use of estimates: The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts financial assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period . Making estimates requires management to exercise significant judgment. Such estimates may be subject to change as more current information becomes available and accordingly the actual results could differ significantly from those estimates. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates. The Company’s most significant estimates and judgments involve the identification of intangible assets in business combination, valuation of acquired assets and assumed liabilities in a business combinations, classification of financial instruments as equity or liability, valuation of equity-classified and liability-classified financial instruments, the useful lives of long-lived assets, assumptions used in assessing impairment of long-lived assets , valuation of contingent consideration obligations, and the valuation of convertible debt reported at fair value. +Segment reporting : ASC 280, Segment Reporting (“ASC 280”), defines operating segments as components of an enterprise where discrete financial information is available that is evaluated regularly by the chief operating decision-maker (“CODM”) in deciding how to allocate resources and in assessing performance. The Company’s CODM is the chief executive officer, who has ultimate responsibility for the operating performance of the Company and the allocation of resources. The CODM focuses on operating (loss) income from operations as the primary measure to manage the business. Segment operating (loss) income from operations is (loss) income before interest expense, other expense, other income, unallocated corporate costs, and income taxes. There are four operating and reportable segments based on the level at which the CODM reviews operating results, assesses performance and makes decisions regarding resource allocation as follows: +(1) Owned service network segment consists of our owned service providers who serve as a single point solution provider for homeowners and light commercial building owners for their electrification and decarbonization needs, including system design, installation, monitoring, maintenance and repair. The owned service providers use the Company’s technology platform, which provides maintenance, repair, and installation guidance and optimization (the “Technology Platform”), in servicing the homeowners and light commercial building owners. +(2) Managed solutions segment provides third party residential and light commercial service providers with access to the Technology Platform as well as a selection of servicing offerings that the managed solutions customer can select from, including human resources management, procurement services, omnichannel marketing and lead generation as well as access to short-term working capital loans. +(3) Logistics segment focuses on the facilitation of business-to-business transportation of heavy goods using the Company’s last mile delivery software. +(4) Transportation segment focuses on the sale of hardware to original equipment manufacturers (“OEMs”). OEMs have the option to buy access to the Technology Platform to remotely monitor the performance of the hardware. +F-10 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Cash and cash equivalents: The Company considers all highly liquid instruments with a maturity date of three months or less at the time of purchase and money market accounts to be cash equivalents. The Company had no cash equivalents at December 31, 2024 and December 31, 2023. As of December 31, 2024, the Company had $1,319,078 that exceeded FDIC insurance limits of $ 250,000 . +Fair value measurements: ASC 820, Fair Value Measurements (“ASC 820”), clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based upon assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: +● Level 1 – Inputs based on unadjusted quoted market prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. +● Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar instruments in markets that are not active or for which all significant inputs are observable or can be corroborated by observable market data. +● Level 3 – Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are both unobservable for the asset and liability in the market and significant to the overall fair value measurement. +An asset’s or a liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. +Assets and liabilities measured at fair value are based on one or more of the following techniques noted in ASC 820: +● Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. +● Cost approach: Amount that would be required to replace the service capacity of an asset (replacement cost). +● Income approach: Techniques to convert future amounts to a single present value amount based upon market expectations (including present value techniques, option pricing, and excess earnings models). +ASC 825-10 “ Financial Instruments ” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (the “Fair Value Option”). The Fair Value Option may be elected on an instrument-by-instrument basis and is irrevocable unless a new election date occurs. The Company measures the fair value of certain convertible note payables on a recurring basis under the Fair Value Option (see Note 10 and Note 14). Accordingly, changes in fair value related to changes in the Company’s credit risk were recognized as a component of accumulated other comprehensive income while all other changes in fair value were recognized in the consolidated statements of operations and comprehensive loss. +The Company’s financial instruments with a carrying value that approximates fair value consist of cash, accounts receivable, contract asset, convertible note receivable-related party, inventory, deferred offering costs, other receivable-related party, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities, accrued expenses-related party and contract liabilities due to their liquid or short-term nature or expected settlement dates of these instruments. If these financial instruments were recorded at fair value, they would be based on Level 1 inputs, except for short-term borrowings and notes receivable, related parties, net which would be based on Level 2 and Level 3 inputs, respectively. +The Company’s non-financial assets, such as intangible assets, and financial assets are adjusted to fair value when an impairment charge is recognized. The impairment charges recognized on non-financial assets that consist of investment, goodwill and acquired intangible assets are based on Level 3 inputs, including a comparison of the Company’s results with expectations and expectation for future profits. +F-11 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The Company’s financial instruments that are measured at fair value on a recurring basis consist of forward purchase agreement derivative asset, forward purchase agreement put option, contingent consideration obligation, convertible debt and derivative liabilities (see Note 15). +Related parties: The Company considers parties to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions or owns more than 5.0% of the Company’s common stock. Parties are also considered to be related if they are subject to common control or significant influence of the same party, such as a family member or relative, shareholder, or a related corporation. The Company reviews the relationships of its vendors, customers, shareholders, and board members to determine whether there are any parties that meet the criteria to be considered related. Any party that is deemed to be related to the Company is referred to as an “affiliate” or “related party” in these consolidated financial statements. +Accounts receivable and allowance for credit losses : Accounts receivable are carried at original invoice amount, less any estimate made for credit losses. The allowance for credit losses is based on the expected credit losses on receivables in an amount equal to the estimated probable losses net of recoveries. The Company currently monitors financial conditions of the companies it has receivables from on a continuing basis. After considering current economic conditions and specific and financial stability of its receivables, an allowance for credit losses is maintained in the consolidated balance sheets at a level which management believes is sufficient to cover all probable future credit losses as of the consolidated balance sheet date based on specific reserves and an expectation of future economic conditions that might impact collectability. Changes in circumstances relating to these factors may result in the need to increase or decrease our allowance for credit losses in the future. There was no allowance for credit losses recorded as of December 31, 2024 and 2023. There were two customers who individually accounted for more than 10.0% of accounts receivable as of December 31, 2024. The customers Air Temp Services and Tire Rack accounted for 18 % and 36 % of the receivable respectively. Air Temp Services is considered a related party due to its ownership by SriSid LLC and Arumilli LLC, which are related parties to the Company. The Company had a Managed Services Agreement in place with Air Temp during the reporting period. +Inventories: Inventories are stated at the lower of cost (determined by average cost method) or net realizable value. The valuation of inventories requires the Company to estimate obsolete or excess inventory as well as inventory that is not of saleable quality. The Company employs a variety of methodologies to determine the net realizable value of its inventory. While a portion of the calculation to record inventory at its net realizable value is based on the age of the inventory and lower of cost or net realizable value calculations, a key factor in estimating obsolete or excess inventory requires the Company to estimate the future demand for its products. If actual demand is less than the Company’s estimates, impairment charges, which are recorded to cost of sales, may need to be recorded in future periods. Inventory in excess of saleable amounts is not valued, and the remaining inventory is valued at the lower of cost or net realizable value. As of December 31, 2024 and 2023, an allowance for obsolete or slow-moving inventory was not required. The Company recognized a provision for inventory shrinkage of $ 23,926 and $ 187,098 for the years ended December 31, 2024 and 2023. +Inventories consist of parts and finished goods. Parts primarily consist of manufacturing hardware, wiring, and piping. Inventories consisted of the following: +​ +​ +​ +​ +​ +​ +​ +​ +​ +December 31, +​ +​ +2024 +​ +2023 +Parts +​ +$ +164,131 +​ +$ +250,700 +Finished Goods +​ +386,564 +​ +26,643 +Total +​ +$ +550,695 +​ +$ +277,343 +​ +Convertible notes receivable, related party: The Company recorded convertible notes receivable for advances made to MCAC during the year ended December 31, 2023 for working capital purposes. The convertible notes receivable were non-interest bearing and were to be repaid upon consummation of a Business Combination. At the Company’s option, the convertible notes receivable could be converted into stock purchase warrants of MCAC at $ 1.00 per warrant. The Company accounts for these convertible notes receivable in accordance with ASC 310, Receivables . At the close of the Business Combination (see Note 1 and Note 5), the convertible notes receivable was neither repaid nor converted into stock purchase warrants of MCAC and were instead eliminated in consolidation. +Prepaid expenses and other current assets : Prepaid expenses and other current assets include prepaid insurance, prepaid rent, and advances to service providers, which are expected to be recognized, received or realized within the next 12 months. +F-12 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Working capital advances to managed solutions segment customers : These are funds advanced by the Company to customers of its Managed Solutions segment to support their short-term working capital needs, such as purchasing inventory, financing operational expenses, or bridging cash flow gaps. The advances are generally provided under agreements that allow the Company to recoup the funds through future payments, service fees, or revenue-sharing arrangements tied to the customer’s use of the Managed Solutions platform . +Property and Equipment: Property and equipment are stated at cost, net of accumulated depreciation, or if acquired in a business combination, at fair value as of the date of acquisition. Depreciation is computed using the straight-line method, based upon the following estimated useful lives: +​ +​ +​ +​ +​ +​ +Estimated +Classification +​ +Useful Life +Furniture and fixtures +​ +3 - 5 years +Machinery and equipment +​ +3 - 5 years +Vehicles +3 - 6 years +Property improvements +5 years +Buildings +40 years +​ +Major renewals and improvements are capitalized, while replacements, maintenance and repairs, which do not improve or extend the lives of the respective assets, are expensed as incurred. When property and equipment is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss on the disposition is recorded in the consolidated statements of operations and comprehensive loss as a component of other (expense) income. +Intangible assets: Intangible assets include internally developed software and acquired intangible assets. Acquired identifiable intangible assets include tradenames, customer relationships, intellectual property, internally developed software, acquired technology, and noncompetition agreements that are amortized over their estimated useful lives using the pattern in which the economic benefits of the asset are consumed or otherwise used. +​ +​ +​ +​ +​ +​ +Estimated +Classification +​ +Useful Life +Customer Relationships +​ +8 - 15 years +Trade Names +​ +3 - 10 years +Noncompetition Agreements +5 years +Acquired Technology +​ +5 years +Intellectual Property +5 - 15 years +Internally Developed Software +5 years +​ +As it relates to customer relationships, that pattern is generally based upon the forecasted undiscounted cash flows established at the time of acquisition. For all other intangible assets, that pattern is generally on a straight line basis. +Software development costs: Costs are incurred related to internally developed software that powers the Company’s platforms that are accessed by customers. The Company capitalizes certain internal use software development costs associated with creating and enhancing internally developed software related to its platforms. Software development activities generally consist of three stages (i) the research and planning stage, (ii) the application and development stage, and (iii) the post-implementation stage. Costs incurred in the planning and post-implementation stages of software development, or other maintenance and development expenses that do not meet the qualification for capitalization are expensed as incurred. Costs incurred in the application and infrastructure development stage, including significant enhancements and upgrades, are capitalized. Capitalized costs include personnel and related employee benefits expenses for employees or consultants who are directly associated with and who devote time to software projects, and external direct costs of materials obtained in developing the software. Software development costs, when placed in service, are amortized on a straight-line basis over their estimated useful life upon initial release of the software or additional features. During the years ended December 31, 2024 and 2023, the Company capitalized costs totaling $ 186,103 and $ 35,588 , respectively. +F-13 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Business combination: The Company accounts for business combinations using the acquisition method of accounting. Identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquiree are recognized and measured as of the acquisition date at fair value. Goodwill is recognized to the extent by which the aggregate of the acquisition-date fair value of the consideration transferred and any noncontrolling interest in the acquiree exceeds the recognized basis of the identifiable assets acquired, net of assumed liabilities. Determining the fair value of assets acquired, liabilities assumed, and noncontrolling interest requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash flows, discount rates and asset lives among other items. The results of operations for an acquired business are included in the Company’s consolidated financial statements from the date of acquisition. +Deferred offering costs: Commissions, legal fees and other costs that are direct and incremental costs directly related to the Business Combination transaction were capitalized as deferred offering costs until the consummation of the transaction. Offering costs totaling approximately $ 3,960,397 were reclassified to additional paid-in capital upon the closing of the Business Combination (see Note 5). +Impairment of long-lived assets: In accordance with ASC 360, Impairment or Disposal of Long-Lived Assets (“ASC 360”), the Company reviews the carrying values of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. Based on the existence of one or more indicators of impairment, the Company measures any impairment of long-lived assets using the projected discounted cash flow method at the asset group level. The estimation of future cash flows requires significant management judgment based on the Company’s historical results and anticipated results and is subject to many factors. The discount rate that is commensurate with the risk inherent in the Company’s business model is determined by its management. An impairment loss would be recorded if the Company determined that the carrying value of long-lived assets may not be recoverable. The impairment to be recognized is measured by the amount by which the carrying values of the assets exceed the fair value of the assets. +The Company assessed its long-lived assets for any impairment and concluded that there were indicators of impairment on the long-lived assets during the years ended December 31, 2024 and 2023. Impairment indicators identified at December 31, 2024 were recurring losses for two consecutive years at two subsidiaries and significantly declining sales at one of those subsidiaries. Impairment indicators at December 31, 2023 were the decisions to wind down the operations of two subsidiaries during the year ended December 31, 2023. +An impairment loss of approximately $ 1,568,000 and $ 157,103 was recognized on goodwill for the years ended December 31, 2024 and 2023, respectively. An impairment loss of approximately $ 836,000 and approximately $ 25,000 was recognized on intangibles for the years ended December 31, 2024 and 2023, respectively due to covenants not met for a non-compete agreement. +The assumptions used in the impairment analyses represent Level 3 inputs. +Derivative financial instruments: The Company accounts for derivative instruments in accordance with ASC 815, Derivatives and Hedging (“ASC 815”). The Company’s objectives and strategies for using derivative instruments, and how the derivative instruments and related hedged items are accounted for affect the consolidated financial statements. The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risk. +The Company evaluates all of its financial instruments, including notes payable and warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The Company applies significant judgment to identify and evaluate complex terms and conditions in its contracts and agreements to determine whether embedded derivatives exist. Embedded derivatives must be separately measured from the host contract if all the requirements for bifurcation are met. The assessment of the conditions surrounding the bifurcation of embedded derivatives depends on the nature of the host contract. Bifurcated embedded derivatives are recognized at fair value, with changes in fair value recognized in the consolidated statements of operations and comprehensive loss each period. Bifurcated embedded derivatives are classified with the related host contract on the Company’s consolidated balance sheets. +An evaluation of specifically identified conditions is made to determine whether the fair value of the derivative issued is required to be classified as equity or as a derivative liability. Changes in the estimated fair value of the liability-classified derivative financial instruments are recognized as a non-cash gain or loss on the accompanying consolidated statements of operations and comprehensive loss. +Derivative assets and liabilities are classified in the consolidated balance sheets as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the consolidated balance sheet date. +F-14 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Notes payable and notes payable – related party: The Company has entered into notes payable with third-party and related party lenders. Notes payable and notes payable – related parties are recorded net of any debt issuance costs incurred. Debt issuance costs, including original issuance discounts, are amortized to interest expense using the effective interest method over the contractual term of the obligation. +Convertible notes payable: The Company evaluates convertible notes payable in accordance with ASC 470, “ Debt with Conversion and Other Options ” (“ASC 470”) to determine if embedded conversion features present in the convertible instrument shall be recognized separately at issuance by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. Debt issuance costs are allocated proportionately to the debt host and conversion feature +Convertible notes payable are reflected at fair value as the Company elected to measure these financial instruments with the fair value option. Each period, the fair value of the convertible notes payable is calculated and the resulting gains and losses from the change in fair value of the convertible notes associated with non-credit components were recognized in income, while the change in fair value associated with credit components were recognized in accumulated other comprehensive income (“AOCI”), and subsequently released from AOCI upon maturity (see Note 10 and Note 14). +The change in fair value (inclusive of any Day 1 Gains or Losses) of $1,572,861 and $ 25,446 was recorded as a component of other income (expense) in the accompanying consolidated statements of operations and comprehensive loss as the change in fair value of the convertible debt was not attributable to instrument specific credit risk during the years ended December 31, 2024 and 2023. +Gains and losses on extinguishment of liabilities: The Company recognizes gains and losses on extinguishment of liabilities, including accounts payable and debt obligations, with unrelated parties as the difference between the reacquisition price and the net carrying amount of the associated obligation, as a component of other expense (income), net in the consolidated statements of operations. +The Company classifies the gains and losses on extinguishment of liabilities with related parties as a reduction of capital in the accompanying statements of changes in stockholders’ deficit or as a component of other expense (income), net in the accompanying consolidated statements of operations and comprehensive loss based on the facts and circumstances of each extinguishment transaction. +Revenue Recognition: The Company follows the guidance of ASC 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, revenues are recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for transferring those goods or services. The Company’s revenue is generated from customers located in the U.S, India, the United Kingdom and the United Arab Emirates. +Revenue is recognized based on a five step model that includes (1) Identification of the contract with a customer, (2) Identification of the performance obligations in the contract, (3) Determination of the transaction price, (4) Allocation of the transaction price to the performance obligations in the contract, (5) Recognition of revenue when, or as, the Company satisfies a performance obligation. +Installation and Maintenance Services +Installation and maintenance services consists of equipment sales, installation of equipment and service agreements associated with equipment sold to customers (i.e., maintenance visits, remote technical support, etc.). These services represent multiple performance obligations that are combined into a single unit of accounting. Each transaction is a distinct performance obligation, priced on a standalone basis. The transaction price is determined at service or contract inception and reflects the amount of consideration to which we expect to be entitled in exchange for the services provided to the customer and is reported net of discounts that may be offered. Discounts, if any, are generally explicitly stated in a contract as a fixed percentage of the transaction price related to the performance obligations within the contract. +As projects are expected to be completed within one year, the practical expedient to recognize revenue in the amount billable to the end consumer was elected. Performance obligations related to our managed solutions contracts are generally satisfied over time. For services transferred over time, revenue is recognized based on amounts invoiced to the end consumer as the Company has concluded that the invoice amount directly corresponds with the value of services provided to the end consumer. Management considers this a faithful depiction of the transfer of control as services are substantially the same and have the same pattern of transfer over the life of the contract. As such, revenue related to unsatisfied performance obligations that will be billed in future periods has not been disclosed. +F-15 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Logistics Services +Logistic services revenue consists of delivery fees paid by customers for completed deliveries. The Company generates revenues at the point in time when the products requested by the Company’s customer are delivered to the end destination. Revenue is generally billed weekly and collected within a week of when a product delivery is completed. +Product sales +Product sales are made to original equipment manufacturers (“OEMs”). Revenue is recognized upon transfer of control of goods to the customer, which occurs when title to goods is passed and risk of loss is transferred to the customer, which is generally upon shipment of goods to the customer. The amount of revenue recognized is net of discounts that the Company may offer to a customer. Based on historical experience, estimated returns are determined not material as of December 31, 2024 and 2023 and as such no reserve for future estimated returns has been recorded for the years then ended. +The Company excludes from revenue taxes collected from customers and remitted to government authorities related to sales of the Company’s inventory. Shipping and handling costs that are billed to customers are included in net sales. +Software Subscriptions +We derive subscription revenue from software access fees, which comprise subscription fees from customers accessing our IIoT platform. Our contract terms are generally for a twelve-month term and access fees are billed annually in advance and generally recognized over the term of the service period. Subscription revenue gives the customer the right to access our platform. In accordance with ASC 606, a ‘right to access’ license is recognized over the license period. +We derive usage fees based on actual customer users accessing the IIoT platform during a given month. Usage fees are billed monthly in arrears and recognized in the month the user access offered. +Managed Solutions +Managed solutions revenue represents support services provided to a customer, including human resources management, procurement services, omnichannel marketing and lead generation. These services represent multiple performance obligations that are combined into a single unit of accounting. The Company is primarily responsible for fulfilling the promise to provide the specified good or service to the customer. Through its provision of human resources management services, the Company was determined to have the control over direction the actions of the customer’s employees and as such was also determined to be primarily responsible for fulfilling the promise to provide the customer’s specified good or service to the customer’s end consumer. Accordingly, the Company is a principal in transactions and presents revenue on a gross basis. +Judgment is required in determining whether the Company is the principal or the agent in the provision of managed solutions services. The Company evaluates the presentation of revenue on a gross or net basis based on whether it is responsible for fulfilling the promise (gross) or whether the customer is responsible for fulling the promise to the customer’s end consumer (net). The Company is contractually obligated to provide the service offerings selected by a customer, which as of December 31, 2024 include human resources management, procurement services, omnichannel marketing and lead generation for all customers. In performing the human resources management services, the Company has complete authority over the customer’s employees as the customer’s employees become employees of the Company, at which point the responsibility of directing the customer’s employees’ actions becomes solely that of the Company. The Company has the authority to make changes to the pricing guidelines and therefore sets the price of the customer’s products and services to the end consumer. Additionally, the credit risk associated with collectability of the customer’s end consumer is solely that of the Company based on the terms of the agreements between the Company and the customer. As a result, the Company acts as the principal by providing the ongoing service support that enables its customers to conduct business without interruption. +The Company’s performance obligation mirrors that of the customer’s performance obligation to the customer’s end consumer. Accordingly, the Company recognizes revenue based on when the Company’s customer considers its performance obligation is satisfied. As projects are expected to be completed within one year, the practical expedient to recognize revenue in the amount billable to the end consumer was elected. Performance obligations related to our managed solutions contracts are generally satisfied over time. For services transferred over time, revenue is recognized based on amounts invoiced to the end consumer as the Company +F-16 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +has concluded that the invoice amount directly corresponds with the value of services provided to the end consumer. Management considers this a faithful depiction of the transfer of control as services are substantially the same and have the same pattern of transfer over the life of the contract. As such, revenue related to unsatisfied performance obligations that will be billed in future periods has not been disclosed. +Pricing for our services is established in the customer contract and is set as a percentage of the customer’s revenue for a week. Quarterly, a working capital true up adjustment may be processed if costs incurred by the customer exceed the percentage of the customer’s revenue. If a working capital true up adjustment is determined necessary, it is recorded as a reduction of sales, general and administrative expenses as it represents the customer’s reimbursement of costs incurred by the Company. +Contract Assets and Liabilities +Contract liabilities include deferred revenues related to advanced payments for services and the amount contract billings exceed recognized revenue on a contract. As of December 31, 2024 and 2023, contract liabilities consisted solely of advanced payments received from customers. +Contract assets include certain costs that were incurred on contracts in advance of the satisfaction of the performance obligation and the amount recognized revenue exceeds contract billings on a contract. Contract assets consisted of commissions, labor, and material costs that were incurred for projects where the performance obligation was not complete as of December 31, 2024 and 2023. These costs will be reclassified to cost of revenues and recognized in the same manner as the corresponding performance obligation. Any costs to fulfill where the period of benefit is less than one year are expensed as incurred. +The portion of contract assets and liabilities that will be recognized within one-year of the reporting periods are reflected within current assets and current liabilities, respectively, on the accompanying consolidated balance sheets. The remaining portion to be recognized beyond one-year of the reporting period will be recognized as a non-current asset and a non-current liability. +The following table summarizes the contract asset activity for the years ended December 31, 2024 and 2023: +​ +​ +​ +​ +​ +Balance as of January 1, 2023 +$ +— +Deferral of costs on contracts where performance obligations were not complete +​ +​ +343,646 +Balance as of December 31, 2023 +​ +​ +343,646 +Recognition of costs on contracts where performance obligations completed during the period +​ +​ +( 343,646 ) +Deferral of costs on contracts where performance obligations were not complete +​ +​ +206,750 +Balance as of December 31, 2024 +​ +$ +206,750 +​ +The following table summarizes the contract liability activity for the years ended December 31, 2024 and 2023: +​ +​ +​ +​ +​ +Balance as of January 1, 2023 +$ +643,254 +Recognition of revenue recorded as a contract liability as of January 1, 2023 +​ +( 643,254 ) +Customer advance payments +​ +1,120,817 +Balance as of December 31, 2023 +​ +$ +1,120,817 +Recognition of revenue recorded as a contract liability as of December 31, 2023 +​ +( 1,075,911 ) +Customer advance payments +​ +557,563 +Balance as of December 31, 2024 +​ +$ +602,469 +​ +Limited Warranty +The Company provides limited warranties that include a one-year warranty on any labor provided on installation services and a ten-year warranty on structural damage for certain installation services. Warranties are not considered separate performance obligations as they were determined to be assurance type warranties. Based on historical experience, warranties are determined to not be material as of December 31, 2024 and 2023 and as such no reserve for future warranty claims has been recorded for the years then ended. +Costs to Obtain a Contract +The Company incurs costs to obtain contracts in the form of commissions paid to its sales personnel, a third party service provided and a third party financing company made available to our customers, which are eligible to be capitalized as an asset and +F-17 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +amortized over the life of the contract. As all projects are completed within a year, the practical expedient to expense costs to obtain contracts as they are incurred was elected. The commission and financing fee expenses for the years ended December 31, 2024 and 2023 were $ 608,433 and $ 264,270 , respectively, and are recorded as a component of selling, general and administrative expenses on the accompanying consolidated statements of operations and comprehensive loss. +Leases: The Company determines if an arrangement is a lease at inception of the contract. Operating leases are included in operating lease right-of-use (“ROU”) assets, current portion of operating lease liabilities, and operating lease liabilities, net of current portion in the accompanying consolidated balance sheets. Finance leases are accounted for as long-term assets, with the current and long-term portions of debt disclosed in the accompanying consolidated balance sheets. The Company accounts for leases with an original maturity of one year or less using the short-term lease practical expedient. These short-term leases are not recognized on the consolidated balance sheets and are accounted for using the straight-line method over the lease term. +ROU assets represent the Company’s right to use underlying assets for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The discount rate used to calculate the present value for lease payments is the Company’s incremental borrowing rate, which is determined based on information available at lease commencement and is equal to the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment. The Company uses the implicit rate when readily determinable. The Company has entered into operating leases for corporate offices having remaining lease terms of one to three years . The Company has entered into finance leases primarily for vehicles and equipment, having initial terms of three years . +The Company’s real estate leases may include one or more options to renew , with the renewal extending the lease term for an additional one to five years . The exercise of lease renewal option is at the Company’s sole discretion. In general, the Company does not consider renewal option to be reasonably likely to be exercised, therefore renewal option are generally not recognized as part of the ROU assets and lease liabilities. Lease costs for lease payments are recognized on a straight-line basis over the lease term, unless there is a transfer of title or purchase option reasonably certain to be exercised. The Company does not record operating leases with an initial term of twelve months or less (“short-term leases”) in the consolidated balance sheets. +The Company’s vehicle leases may include transfer rights or options to purchase at the end of the lease that the Company is reasonably certain to exercise. Interest expense is recognized using the effective interest rate method, and the ROU asset is amortized over the useful life of the underlying asset. +Certain of the Company’s lease agreements contain both lease and non-lease components, which are generally accounted for as a single lease component. +Cost of revenues: Cost of revenues includes payroll and benefit costs of employees and direct costs associated with the delivery charges from independent contractors who perform a performance obligation directly as well as inventory utilized in the satisfaction of the performance obligation. It also includes any shipping and handling services for the Company’s inventory. +Selling, general and administrative expenses: Selling, general and administrative expenses include payroll and benefit costs of employees who are not directly involved with the satisfaction of a performance obligation, facility costs, leasehold improvement amortization, utility costs, repair and maintenance, advertising, insurance, equipment depreciation and professional fees. +Advertising expenses: Advertising expenses include the costs incurred to promote the products, services, or brand to the public. These expenses are intended for generating awareness to customers and driving sales through various forms of advertising. Common types of advertising expenses include costs for media placements, production of advertisements, and marketing campaigns across platforms like television, digital, print, and outdoor channels. Advertising expenses were approximately $ 955,000 and approximately $ 691,000 for the years ended December 31, 2024 and 2023 respectively. +Stock-based compensation: The Company accounts for stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation , under which shared based payments that involve the issuance of common stock to employees and nonemployees and meet the criteria for equity-classified awards are recognized in the consolidated financial statements as stock-based compensation expense based on the fair value on the date of grant. The fair value of the share based payment is calculated and then recognized as compensation expense over the requisite service period. The Company issues stock option awards to employees and nonemployees. +F-18 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The Company utilizes the Black-Scholes model to determine the fair value of the stock option awards, which requires the input of subjective assumptions. These assumptions include estimating (a) the length of time grantees will retain their vested stock options before exercising them for employees and the contractual term of the option for nonemployees (“expected term”), (b) the volatility of the Company’s common stock price over the expected term, (c) expected dividends, and (d) the fair value of a share of common stock prior to the Business Combination. After the closing of the Business Combination, the Company’s board of directors determined the fair value of each share of common stock underlying stock-based awards based on the closing price of the Company’s common stock as reported by the NASDAQ on the date of grant. The Company has elected to recognize the adjustment to share-based compensation expense in the period in which forfeitures occur. +The assumptions used in the Black-Scholes model are management’s best estimates, but the estimates involve inherent uncertainties and the application of management judgment (see Note 13). As a result, if other assumptions had been used, the recorded share-based compensation expense could have been materially different from that depicted in the consolidated financial statements +Warrants: The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing liabilities from equity (“ASC 480”), and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance, modification, and as of each subsequent quarterly period end date while the warrants are outstanding. For the years ended December 31, 2024 and 2023, all of the Company's warrants were accounted for as equity classified instruments. +For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the liability-classified warrants are recognized as a non-cash gain or loss on the accompanying consolidated statements of operations and comprehensive loss. The Company assesses the classification of its warrants at each reporting date to determine whether a change in classification between equity and liability is required. +Comprehensive loss: Comprehensive loss is comprised of net loss and all changes to the consolidated statements of equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive loss for the years ended December 31, 2024 and 2023 consisted of net loss and unrealized loss from foreign currency translation adjustment. +N et loss per share: Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period, excluding the effects of any potential dilutive securities. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common share equivalents had been issued and if the additional common shares were dilutive. Loss per share excludes all potential dilutive shares of common shares if their effect is anti-dilutive. +For the years ended December 31, 2024 and 2023, potentially dilutive common shares consist of the common shares issuable upon the exercise of common stock options and warrants (using the treasury stock method) and the conversion of convertible notes payable. Conversion features of notes payable may have a variable conversion feature, amending the number of conversion shares based on the market price of the stock. In a period in which the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact. +Diluted net loss per share includes the potential dilutive effect of common stock equivalents as if such securities were converted or exercised during the period, when the effect is dilutive. Given the Company is in a net loss position for the years ended December 31, 2024 and 2023, there is no difference between basic and diluted net loss per share. +F-19 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The following table summarizes the potentially dilutive securities excluded from the computation of diluted shares outstanding because the effect of including these potential shares was anti-dilutive: +​ +​ +​ +​ +Options +473,929 +Warrants +​ +13,067,494 +Convertible notes payable that convert into common stock +​ +1,759,945 +​ +15,301,368 +​ +Foreign Currency: The Company’s consolidated financial statements are presented in the reporting currency of the U.S. dollar. The function currency for all consolidated entities is the U.S. dollar, with the exception of one subsidiary which is located in India, whose function currency is the Indian Rupee (INR). Assets and liabilities of the Company are translated into the reporting currency using the exchange rate in effect at the consolidated balance sheet dates. Equity transactions are translated using the historical exchange rate in effect on the date of the transaction, except for the change in accumulated deficit during the year, which is the results of the operations translation process. Results of operations and cash flows are translated using the weighted average exchange rates in effect during the period. As a result, amounts relating to the assets and liabilities reported on the consolidated statements of cash flows may not necessarily agree with the changes in the corresponding balances on the accompanying consolidated balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into the reporting currency are recorded as a component of comprehensive income (loss). For the years ended December 31, 2024 and 2023, the realized foreign currency exchange gain (loss) was $ 36,579 and $ 0 , respectively and is included as a component of other (expense) income on the accompanying consolidated statements of operations and comprehensive loss. For the years ended December 31, 2024 and 2023, the unrealized foreign currency exchange gain was de minimis and is included as a component of other (expense) income on the accompanying consolidated statements of operations and comprehensive loss. +Income Taxes: Income taxes are accounted for under the asset and liability method whereby deferred tax assets and liabilities are determined based on temporary difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. A valuation allowance is established when management estimates that it is more likely than not that deferred tax assets will not be realized. Realization of deferred tax assets is dependent upon future pre-tax earnings, the reversal of temporary differences between book and tax income, and the expected rates in future periods. +The Company is required to evaluate the tax positions taken in the course of preparing its tax returns to determine whether tax positions are more likely than not of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the “more-likely-than-not” threshold would be recorded as a tax expense in the current year. The amount recognized is subject to estimate and management judgment with respect to the likely outcome of each uncertain tax position. The amount that is ultimately sustained for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differ from the amount that is initially recognized. The Company recognizes interest and penalties related to income tax matters in general and administrative expense The Company has not identified any uncertain income tax positions as of December 31, 2024 and 2023. The Company operates within multiple taxing jurisdictions and in the normal course of business its tax returns are examined in various jurisdictions. The reversal of the accruals for uncertain tax positions is recorded when examinations are effectively settled, statutes of limitation are closed, or tax laws are changed. We are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2020. +Recently issued accounting pronouncements, adopted +In August 2020, ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”), to simplify accounting for certain financial instruments. ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock and amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce from-over-substance-based accounting conclusions. The Company adopted ASU 2020-06 effective January 1, 2024, and the adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements. +In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting — Improvements to Reportable Segment Disclosures . ASU 2023-07 requires entities to disclose significant segment expense categories and amounts for each reportable segment and is effective for fiscal years beginning after December 15, 2023. The Company adopted ASU 2023-07 effective January 1, 2024, and the adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements. +F-20 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Recently issued accounting pronouncements, not yet adopted +ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative (“ASU 2023-06”) incorporates several disclosure and presentation requirements currently residing in SEC Regulation S-X and S-K into the ASC. The amendments are applied prospectively and are effective when the SEC removes the related requirements from Regulation S-X and S-K. Any amendments the SEC does not remove by June 30, 2027 will not be effective. Early adoption is prohibited. The Company is currently evaluating the potential impact of this guidance on its disclosures.  +ASU 2023-09, Income Taxes (“ASU 2023-09”), requires disclosure of specific categories and disaggregation of information in the rate reconciliation table and expands disclosures related to income taxes paid. The new standard is effective for fiscal years beginning after December 15, 2024 and is to be applied prospectively. The Company is currently evaluating the impact, if any, adoption will have on its consolidated financial statements and disclosures. +ASU 2024-02, Codification Improvements-Amendments to Remove References to the Concepts Statements (“ASU 2024-02”) updates accounting standards for revenue recognition (ASC 606), lease accounting (ASC 842), and impairment of long-lived assets (ASC 360). ASU 2024-02 provides enhanced guidance for estimating variable consideration, accounting for contract modifications, determining lease terms, and simplifying impairment testing for long-lived assets. It also introduces increased disclosure requirements for financial instruments and derivatives. ASU 2024-02 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact, if any, adoption will have on its consolidated financial statements and disclosures. +ASU 2024-03, Disaggregation of Income Statement Expenses (“ASU 2024-03”), requires public companies to disaggregate key expense categories, such as inventory purchases, employee compensation and depreciation in their financial statements. This aims to improve investor insight into company performance. ASU 2024-03 is effective for fiscal years beginning after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2025, with early adoption permitted. The Company is currently evaluating the impact, if any, adoption will have on its consolidated financial statements and disclosures. +The Company does not believe that any other recently issued accounting pronouncements not yet adopted will have a material effect on its consolidated financial statements. +NOTE 4: GOING CONCERN +The Company’s consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. As of December 31, 2024, the Company had cash of approximately $ 2,408,000 . The Company had a working capital deficit of approximately $ 26,247,000 at December 31, 2024. The Company incurred a net loss and generated negative cash flow from operating activities of approximately $ 22,508,000 and $ 5,959,000 , respectively, for the year ended December 31, 2024. These are indicators of substantial doubt as to the Company’s ability to continue as a going concern for at least one year from issuance of these consolidated financial statements. The Company’s ability to continue as a going concern is dependent upon the management of expenses and ability to obtain necessary financing to meet its obligations and pay its liabilities arising from normal business operations when they come due, and upon profitable operations. +On May 6, 2025, the Company received a determination letter (the “Delisting Notification”) from the Nasdaq Hearings Advisor stating that the Panel has determined to delist the Company’s common stock, par value $ 0.0001 per share from the Nasdaq Capital Market, and Nasdaq suspended the trading of the Company’s Common Stock on May 7, 2025 because the Company has not demonstrated compliance with the MVLS Rule, nor does it meet any of the alternative requirements under Nasdaq Listing Rule 5550(b) and has failed to demonstrate that additional time to regain compliance is appropriate. +As of the date of this filing, the Company has not made certain scheduled payments under the SEPA Convertible Note and is therefore in technical default under the agreement. However, Yorkville has not issued a formal notice of default, and the Company remains in ongoing discussions with Yorkville regarding a potential resolution and restructuring of the outstanding obligations. The Company is required to maintain a minimum cash balance equal to the lesser of (a) $ 2,000,000 and (b) the sum of the next three Installment Payments, as defined in the promissory note, coming due. As of December 31, 2024, the minimum cash balance required was approximately $ 833,000 . +F-21 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +If additional equity or debt financing is required from outside sources, the Company may not be able to raise it on terms acceptable to it or at all. If the Company is unable to raise additional capital on acceptable terms when needed, its results of operations and financial condition would be materially and adversely affected. Any such financing likely would be dilutive to existing stockholders and could result in significant financial operating covenants that would negatively impact the Company’s business. +Based on the foregoing, management has concluded there is substantial doubt as to the Company’s ability to continue as a going concern within one year after the date the consolidated financial statements are issued. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities should the Company be unable to continue as a going concern. +NOTE 5: REVERSE RECAPITALIZATION +On July 12, 2024, Legacy ConnectM and MCAC consummated the merger contemplated by the Merger Agreement with Legacy ConnectM surviving the merger as a wholly-owned subsidiary of MCAC. +Upon the closing of the Business Combination, MCAC’s certificate of incorporation was amended and restated to, among other things, set the total number of authorized shares of capital to 110,000,000 shares, of which 100,000,000 were designated as common stock, $ 0.0001 par value per share, and of which 10,000,000 shares were designated as preferred stock, $ 0.0001 par value per share. +Immediately prior to the closing of the Business Combination, +● each outstanding share of Legacy ConnectM preferred stock was converted into Legacy ConnectM common stock based on a one-to-one ratio. The Business Combination is accounted for with a retrospective application of the Business Combination that resulted in 2,427,791 shares of preferred stock converting into the same number of shares of Legacy ConnectM common stock +● convertible note payable totaling $ 2,250,000 were converted into shares of Legacy ConnectM common stock at $ 7.00 per share, resulting in the issuance of 321,428 shares of Legacy ConnectM common stock. +Upon consummation of the Business Combination, each share of Legacy ConnectM stock issued and outstanding was cancelled and converted into the right to receive 3.3214 shares of the Company’s common stock. +Outstanding stock options, whether vested or unvested, to purchase shares of Legacy ConnectM common stock granted under the 2019 Equity Incentive Plan (the “2019 Plan”) (“Legacy Options”) converted into stock options for shares of the Company’s common stock upon the same terms and conditions that were in effect with respect to the Legacy Options immediately prior to the Business Combination, after giving effect to the Exchange Ratio (see Note 13). Legacy Options are granted under the Company’s 2023 Equity Incentive Plan (the “2023 Plan”) (see Note 13), and as such are excluded from the Share Consideration. +Outstanding warrants to purchase shares of Legacy ConnectM common stock (“Legacy Warrants”) converted into warrants for shares of the Company’s common stock upon the same terms and conditions that were in effect with respect to the Legacy Warrants immediately prior to the Business Combination after giving effect to the Exchange Ratio (see Note 12). +Outstanding warrants to purchase shares of MCAC Class A common stock will remain outstanding at the Closing Date. The warrants will become exercisable 30 days after the completion of the Business Combination and will expire five years after the completion of the Business Combination or earlier upon redemption or liquidation (see Note 12). +In connection with the Business Combination, +● certain MCAC shareholders exercised their right to redeem certain of their outstanding shares for cash, resulting in the redemption of 3,665,639 shares of MCAC Class A common stock for gross redemption payments of $ 41,652,720 . +● certain MCAC shareholders who held rights issued at MCAC’s IPO automatically received 920,000 shares of MCAC Class A common stock, which was one-tenth of one share of MCAC common stock. +F-22 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +● an investor purchased 3,248,466 shares of MCAC Class A common stock on the Closing Date in the open market from certain MCAC shareholders from those who elected to redeem shares of MCAC pursuant to the terms of a forward purchase agreement entered into effective December 31, 2022 (see Note 14). +The Business Combination was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, MCAC was treated as the acquired company for financial reporting purposes (see Note 1). Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of the Company issuing shares for the net assets of MCAC, accompanied by a recapitalization. The net assets of MCAC were stated at fair value with no goodwill or other intangible assets recorded. +Prior to the Business Combination Legacy ConnectM and MCAC filed separate standalone federal, state and local income tax returns. As a result of the Business Combination Legacy ConnectM will file a consolidated income tax return. Although, for legal purposes, MCAC acquired Legacy ConnectM, and the transaction represents a reverse acquisition for federal income tax purposes. MCAC will be the parent of the consolidated group with Legacy ConnectM a subsidiary, but in the year of the closing of the Business Combination, Legacy ConnectM will file a full year tax return with MCAC joining in the return the day after the Closing Date. +As a result of the Business Combination, there was a negative equity recapitalization into additional paid in capital of $ 2,704,909 . In addition, the Company incurred offering costs of $ 3,968,063 , which were also treated as a reduction of additional paid in capital. +The following table reconciles the elements of the Business Combination to the consolidated statements of cash flows and the consolidated statements of changes in stockholders’ deficit for the year ended December 31, 2024: +​ +​ +​ +​ +​ +​ +​ +​ +​ +Cash - MCAC's trust and cash (net of redemption) +​ +​ +​ +​ +$ +38,441,920 +​ +Less: transaction costs and advisory fees paid +​ +​ +​ +​ +​ +( 2,670,961 ) +​ +Net Business Combination financing +​ +​ +​ +​ +$ +35,770,959 +​ +​ +F-23 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The number of shares of the Company’s common stock issued immediately following the consummation of the Business Combination were: +​ +​ +​ +​ +​ +​ +​ +​ +​ +Common stock, outstanding prior to Business Combination +​ +​ +​ +​ +​ +3,898,781 +​ +Less: redemption of MCAC shares +​ +​ +​ +​ +​ +( 3,665,639 ) +​ +Common stock of MCAC +​ +​ +​ +​ +​ +233,142 +​ +MCAC founder shares +​ +​ +​ +​ +​ +2,300,000 +​ +Rights issued to MCAC shareholders +​ +​ +​ +​ +​ +920,000 +​ +Shares outstanding in connection with forward purchase agreement +​ +​ +​ +​ +​ +3,248,466 +​ +Business Combination and forward purchase agreement financing shares +​ +​ +​ +​ +​ +6,701,608 +​ +Legacy ConnectM shares +​ +​ +​ +​ +​ +14,422,449 +​ +Total shares of common stock immediately after Business Combination +​ +​ +​ +​ +​ +21,124,057 +​ +Issuance of shares of common stock after Business Combination +​ +​ +​ +​ +​ +7,969,232 +​ +Total shares of common stock at December 31, 2024 +​ +​ +​ +​ +​ +29,093,289 +​ +​ +The number of Legacy ConnectM shares was determined as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Legacy ConnectM shares +​ +​ +Legacy ConnectM shares, effected for Exchange Ratio +Recapitalization applied to common stock outstanding at December 31, 2022 +​ +​ +1,588,141 +​ +​ +5,274,587 +Issuance of Old ConnectM shares prior to closing of Business Combination +​ +​ +5,000 +​ +​ +16,607 +Conversion of convertible notes payable to common stock prior to Business Combination +​ +​ +321,428 +​ +​ +1,067,592 +Recapitalization applied to Series Seed preferred stock outstanding at December 31, 2022 +​ +​ +644,030 +​ +​ +2,139,081 +Recapitalization applied to Series Seed-1 preferred stock outstanding at December 31, 2022 +​ +​ +91,120 +​ +​ +302,645 +Recapitalization applied to Series A-1 preferred stock outstanding at December 31, 2022 +​ +​ +743,068 +​ +​ +2,468,026 +Recapitalization applied to Series B-1 preferred stock outstanding at December 31, 2022 +​ +​ +649,843 +​ +​ +2,158,388 +Recapitalization applied to Series B-2 preferred stock outstanding at December 31, 2022 +​ +​ +299,730 +​ +​ +995,523 +​ +​ +​ +​ +​ +​ +14,422,449 +​ +Shares of common stock reserved for issuance for the exercise of the Legacy Options and Legacy Warrants totaled 473,929 and 77,494 , respectively, after giving effect for the Exchange Ratio. +​ +NOTE 6: BUSINESS COMBINATIONS +Delivery Circle +On August 5, 2024, the Company entered into a Membership Purchase Agreement (the “Purchase Agreement”) with an individual (“Seller”), for the purposes of acquiring from the Seller certain of the issued and outstanding equity securities of DeliveryCircle, LLC, (“DC”). DC is engaged in the business of providing dispatch and delivery services and related software. +Pursuant to the Purchase Agreement, ConnectM purchased from the Seller certain membership interests in DC, comprised of 842,157 Class A Units, 207,843 Class P Units and 3,063 Series A Units (the “Acquired Interests”), which account for forty-six percent ( 46.0 %) of the equity interests and fifty-seven percent ( 57.0 %) of the voting interests of DC. In addition, in connection with ConnectM’s acquisition of the Acquired Interests, ConnectM will have the right to appoint four out of the seven voting members to DC’s board of directors. +ConnectM purchased the Acquired Interests in exchange for $ 520,000 cash consideration plus contingent consideration. The contingent consideration is the lesser of a base amount, 20 % of revenue growth from the previous year, or 37% of EBITDA for the current year, is paid annually in February of the subsequent calendar year for the prior fiscal year and is applicable to the years ended December 31, 2024 through 2031. The Company used a Monte Carlo simulation model to calculate the contingent consideration’s fair value of approximately $ 576,000 (see Note 15). +F-24 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The fair value of the purchase consideration in the acquisition is as follows: +​ +​ +​ +​ +​ +​ +Cash +​ +$ +520,000 +​ +Contingent consideration at fair value +​ +​ +575,690 +​ +Noncontrolling interest at fair value +​ +​ +1,287,320 +​ +​ +​ +$ +2,383,010 +​ +​ +The following table summarizes the fair values of the assets acquired and liabilities assumed and noncontrolling interest at the date of acquisition: +​ +​ +​ +​ +​ +​ +Cash +$ +699,292 +Accounts receivable +​ +​ +620,189 +Prepaid expenses and other assets +​ +41,284 +​ +Intangible assets +​ +586,000 +​ +Accounts payable +​ +( 218,417 ) +​ +Accrued expenses and other current liabilities +​ +( 135,789 ) +​ +Total identifiable net assets +​ +1,592,559 +​ +Goodwill +​ +$ +790,451 +​ +​ +After allocating the purchase price to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, the Company recorded goodwill of approximately $ 791,000 . Goodwill largely consists of expected synergies to be realized from new ownership and is expected to not be deductible for income tax purposes. The identified intangible assets of DC’s consist of the following: +​ +​ +​ +​ +​ +​ +​ +​ +Identified intangible asset +Fair Value +​ +Useful life +Customer relationships +$ +106,000 +​ +8 years +​ +Developed technologies +​ +400,000 +​ +5 years +​ +Trade name +​ +​ +80,000 +​ +5 years +Fair value of identifiable intangible assets +​ +$ +586,000 +​ +​ +​ +​ +The identifiable intangible assets were valued using the income approach with the assistance of third-party appraisers. The income approach requires several judgements and assumptions, including growth rates, discount rates, customer attrition rates, expected levels of cash flows, and tax rate. +The Company recorded a payable for the cash consideration the date of closing and subsequently paid $ 350,000 in December 2024. As of December 31, 2024, the unpaid cash consideration payable totaled $ 170,000 and is included as a component of accounts payable on the accompanying consolidated balance sheets. +In January 2025, the Company entered into a promissory note (the “January 2025 Note”) with the individual from whom the Company acquired a business from in August 2024 which converts the unpaid cash consideration of $ 170,000 and accrued interest of approximately $ 6,000 from accounts payable to a sellers note that matures on June 30, 2025. The unpaid balance of the principal amount bears interest at a rate of 14.0 % per annum, except in the event of a default when interest increases to 19.0 % per annum. An event of default is to have occurred if the unpaid principal and accrued interest thereon is not paid in full prior to the maturity date, if the Company makes an assignment for the benefit of creditors, or if the Company files for bankruptcy or another similar proceeding. As of June 30, 2025, the original principal of approximately $ 176,000 and accrued and unpaid interest of approximately $ 14,000 remained outstanding. +In July 2025, the Company entered into the first amendment to the January 2025 Note (the “Amended January 2025 Note”), under which the Company is required to pay the lender approximately $ 26,000 towards the principal, approximately $ 14,000 of accrued interest, and the lender’s legal fees of approximately $ 3,000 . The Amended January 2025 Note extended the maturity date from June 30, 2025 to August 8, 2025 and increased the interest rate to 18.0 % effective July 1, 2025. +Green Energy Gains +On October 9, 2024, ConnectM entered into a purchase agreement with the owners of Green Energy Gains (“GEG”), whereby the Company has acquired all of the issued and outstanding capital stock of GEG in exchange for the issuance of 160,000 shares of the +F-25 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Company common stock with a fair value of $ 161,440 as determined using the closing share price on the date of issuance. As of acquisition date, one of the indirect owners of GEG was also the related party investor of the Company (see Note 18). GEG provides home energy assessments and modeling services that identify weatherization opportunities to reduce a home’s utility costs. The acquisition of GEG is expected to expand the Company’s customer base for its other products and services after no cost GEG home energy assessments are completed. +Prior to the acquisition, GEG was a customer in the Company’s managed services reporting segment. In connection with the acquisition, the pre-existing obligations owed to the Company from GEG were settled and total consideration was increased accordingly. The fair value of the purchase consideration in the acquisition is as follows: +​ +​ +​ +​ +​ +Fair value of shares of the Company's common stock issued +​ +$ +161,440 +Settlement of note receivable from GEG +​ +​ +99,636 +Settlement of accounts receivable from GEG +​ +​ +115,854 +​ +​ +$ +376,930 +​ +The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition: +​ +​ +​ +​ +​ +Cash +$ +18,680 +Accounts receivable +​ +​ +17,367 +Property and equipment +​ +35,651 +Intangible assets +​ +97,790 +Accounts payable +​ +( 29,168 ) +Accrued expenses and other current liabilities +​ +( 22,736 ) +Total identifiable net assets +​ +​ +117,583 +Goodwill +$ +259,347 +​ +After allocating the purchase price to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, the Company recorded goodwill of approximately $ 259,000 . Goodwill largely consists of expected synergies to be realized from new ownership and is expected to not be deductible for income tax purposes. The identified intangible assets of GEG’s consist of the following: +​ +​ +​ +​ +​ +​ +​ +Identified intangible asset +Fair Value +​ +Useful life +Customer relationships +$ +35,180 +​ +15 years +Acquired technologies +​ +40,530 +​ +5 years +Trade name +​ +​ +22,080 +​ +4 years +Total fair value of identifiable intangible assets +​ +$ +97,790 +​ +​ +​ +The identifiable intangible assets were valued using the income approach with the assistance of third-party appraisers. The income approach requires several judgements and assumptions, including growth rates, discount rates, customer attrition rates, expected levels of cash flows, and tax rate (see Note 15). +ConnectM acquired 60 % of Green Energy Gains by issuing 88,000 common shares at fair market value of $ 1 per share from Srimulli Renewables LLC and 40 % by issuing 72,000 common shares at fair market value of $ 1 per share from Greg Kendall. The two members of Srimulli Renewables LLC are also ConnectM shareholders, each holding more than 4.9 % of total shares outstanding. +F-26 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +​ +NOTE 7: GOODWILL AND INTANGIBLE ASSETS, NET +Goodwill +The changes in the carrying amount of goodwill for the years ended December 31, 2024 and 2023 were as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Owned +​ +​ +​ +​ +​ +​ +Service Network +​ +Transportation +Amount +Balance as of January 1, 2023 +​ +$ +2,403,722 +​ +$ +— +​ +$ +2,403,722 +Impairment +​ +​ +( 157,103 ) +​ +​ +— +​ +( 157,103 ) +Balance as at December 31, 2023 +​ +​ +2,246,619 +​ +​ +— +​ +​ +2,246,619 +Acquisitions +​ +​ +259,347 +​ +​ +790,451 +​ +​ +1,049,798 +Impairment +​ +​ +( 1,568,309 ) +​ +​ +— +​ +​ +( 1,568,309 ) +Balance as at December 31, 2024 +​ +$ +938,154 +​ +$ +790,451 +​ +$ +1,728,108 +​ +Intangible assets, net +Identifiable intangible assets consist of the following at December 31, 2024: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Weighted Average Remaining Amortization Period (years) +Gross Amount +Accumulated Amortization +Net Amount +Customer relationships +​ +​ +11.5 +​ +$ +777,180 +​ +$ +( 373,653 ) +​ +$ +403,527 +Tradename +​ +​ +6.1 +​ +386,080 +​ +( 102,722 ) +​ +283,358 +Noncompetition agreements +​ +​ +2.1 +​ +34,000 +​ +( 19,570 ) +​ +14,430 +Intellectual property +​ +​ +9.5 +​ +35,186 +​ +( 22,947 ) +​ +12,239 +Acquired technology +​ +​ +4.6 +​ +​ +440,530 +​ +​ +( 35,360 ) +​ +​ +405,170 +Internally developed software +​ +​ +3.3 +​ +609,385 +​ +( 319,933 ) +​ +289,452 +Total intangible assets, net +​ +​ +​ +​ +$ +2,282,361 +​ +$ +( 874,185 ) +​ +$ +1,408,176 +​ +Identifiable intangible assets consist of the following at December 31, 2023: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Gross Amount +Accumulated Amortization +Net Amount +Customer relationships +​ +​ +​ +​ +$ +1,445,000 +​ +$ +( 582,256 ) +​ +$ +862,744 +Tradename +​ +​ +​ +​ +923,000 +​ +( 216,501 ) +​ +706,499 +Noncompetition agreements +​ +​ +​ +​ +126,000 +​ +( 82,037 ) +​ +43,963 +Intellectual property +​ +​ +​ +​ +35,186 +​ +( 20,073 ) +​ +15,113 +Internally developed software +​ +​ +​ +​ +439,617 +​ +( 227,061 ) +​ +212,556 +Total intangible assets, net +​ +​ +​ +​ +$ +2,968,803 +​ +$ +( 1,127,928 ) +​ +$ +1,840,875 +​ +F-27 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Intangible assets are amortized over their estimated useful lives of 3 to 15 years using the straight-line method. Amortization expense was $ 480,012 and $ 517,175 for the years ended December 31, 2024 and 2023, respectively. Amortization expense over the next five years and thereafter is as follows: +​ +​ +​ +​ +​ +Year ending December 31, +Amount +2025 +​ +$ +281,829 +2026 +​ +254,653 +2027 +​ +207,443 +2028 +​ +194,778 +2029 +​ +139,001 +Thereafter +​ +162,075 +Total +​ +$ +1,239,779 +​ +The above does not include $ 168,397 of capitalized costs for internally developed software that are still in the development stage and not subject to amortization. As of December 31, 2024, the weighted average remaining amortization period of intangible assets is approximately 7.3 years. +The Company recorded a goodwill and intangible impairment of $ 2,403,628 and $ 181,853 during the twelve months ending December 31, 2024, and December 31, 2023 +​ +​ +NOTE 8: PROPERTY AND EQUIPMENT, NET +Property and equipment consist of the following at fair value as of December 31: +​ +​ +​ +​ +​ +​ +​ +​ +​ +2024 +2023 +Furniture and fixtures +​ +$ +102,415 +​ +$ +90,661 +Machinery and equipment +​ +97,071 +​ +61,731 +Vehicles +​ +850,642 +​ +814,531 +Property improvements +​ +16,824 +​ +49,255 +Building +​ +570,000 +​ +570,000 +Property and Equipment +​ +1,636,952 +​ +1,586,178 +Less: Accumulated Depreciation +​ +( 700,379 ) +​ +( 448,479 ) +Total +​ +$ +936,573 +​ +$ +1,137,699 +​ +During the year ended December 31, 2024, the Company recorded a loss on disposal of approximately $ 8,000 for a vehicle that was repossessed by the lender. The Company reduced the carrying value of the associated vehicle loan by the estimated fair value of the vehicle of approximately $ 23,000 as of the date of the repossession. +During the year ended December 31, 2023, the Company abandoned vehicles with a net book value of $ 29,242 which is included in selling, general and administrative expenses on the accompanying consolidated statements of operations. +Depreciation expense was $ 265,652 and $ 259,222 for the years ended December 31, 2024 and 2023, respectively. +​ +NOTE 9: ACCUMULATED OTHER COMPREHENSIVE INCOME +Shareholders’ equity includes certain items classified as accumulated other comprehensive income in the Consolidated Balance Sheets, including: +● Cumulative translation adjustment (CTA) relates to our non-U.S. subsidiary companies that have designated a functional currency other than the U.S. dollar. We are required to translate the subsidiary functional currency financial statements to dollars using a combination of historical, period-end, and average foreign exchange rates. This combination of rates creates the foreign currency translation adjustment component of other comprehensive income. +The Company recorded $ 166,007 and $ 114,624 of accumulated other comprehensive income as of December 31, 2024 and December 31, 2023. +​ +F-28 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +NOTE 10: CONVERTIBLE DEBT +Convertible debt consisted of the following as of December 31: +​ +​ +​ +​ +​ +​ +​ +​ +Description +2024 +2023 +Amended 2022 Convertible Notes +​ +$ +— +​ +$ +1,369,734 +2023 Convertible Notes +​ +​ +— +​ +​ +808,951 +2024 Convertible Notes +​ +​ +2,547,209 +​ +​ +— +Assumed 2024 Note +​ +​ +3,630,000 +​ +​ +— +SEPA Convertible Note +​ +​ +2,365,114 +​ +​ +— +Convertible notes payable +​ +$ +8,542,323 +​ +$ +2,178,685 +​ +2022 and 2023 Convertible Notes +In September of 2022, the Company issued convertible notes for gross proceeds of $ 1,350,000 , as amended on February 22, 2023 to clarify the mechanics of the conversion feature (the “Amended 2022 Convertible Notes”). The Amended 2022 Convertible Notes include an automatic conversion upon the occurrence of a Qualified Financing (as defined in the agreement), whereby the Amended 2022 Convertible Notes convert at a quotient, the numerator of which is the entire principal of the convertible notes and any interest accrued and the denominator is the lesser of 80 % of the price per share to be sold in a financing event, or $ 7.00 per share, adjusted for stock dividend, stock split, combination, or other similar recapitalization with respect to such class or series. The amendment was accounted for as a modification. +The Amended 2022 Convertible Notes mature on the earlier of two years from the date of issuance (September 2024), or upon the consummation of a Qualified Financing. Interest is charged at an annual simple rate of 5.0 %, which increases to 8.0 % upon the occurrence of an event of default as defined in the agreement. The Company is not required to make principal payments on these notes. +During the year ended December 31, 2023, the Company issued an additional $ 900,000 of convertible notes with the same terms as described above (the “2023 Convertible Notes”). +The Company elected the Fair Value Option for the Amended 2022 Convertible Notes and the 2023 Convertible Notes, and therefore measured the Amended 202 Convertible Notes and the 2023 Convertible Notes at issuance and each subsequent reporting period, with changes in fair value recognized in earnings (see Note 14). +The Amended 2022 Convertible Notes and the 2023 Convertible Notes, including accrued interest, converted into 1,067,592 shares of the Company’s stock at the close of the Business Combination at a fair value of $ 3,779,116 (see Note 5). +F-29 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +2024 Convertible Notes +The Company issued eleven individual convertible notes in exchange for gross proceeds of $ 2,440,000 to various lenders in 2024 (the “2024 Convertible Notes”). The 2024 Convertible Notes bear interest rate at a rate of 20.0 % per annum. A summary of the individual convertible notes was: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Issuance Date +​ +Gross Proceeds +​ +Conversion Price +​ +Conversion Option Period of Exercisability +(from issuance date) +​ +Maturity Date +(from issuance date) +​ +9/12/2024 +​ +$ +25,000 +​ +$ +1.00 +​ +90-days +​ +180-days +​ +9/12/2024 +​ +​ +100,000 +​ +$ +1.00 +​ +90-days +​ +180-days +​ +9/18/2024 +​ +​ +200,000 +​ +$ +1.00 +​ +90-days +​ +180-days +​ +9/18/2024 +​ +​ +100,000 +​ +$ +1.00 +​ +90-days +​ +180-days +​ +9/20/2024 +​ +​ +275,000 +​ +$ +1.00 +​ +90-days +​ +180-days +​ +9/24/2024 +​ +​ +40,000 +​ +$ +1.00 +​ +90-days +​ +180-days +​ +10/7/2024 +​ +​ +200,000 +​ +$ +1.00 +​ +90-days +​ +180-days +​ +10/10/2024* +​ +​ +800,000 +​ +$ +1.10 +​ +90-days +​ +180-days +​ +10/24/2024 +​ +​ +100,000 +​ +$ +1.00 +​ +90-days +​ +180-days +​ +11/26/2024 +​ +​ +200,000 +​ +$ +1.00 +​ +30-days +​ +40-days +​ +12/3/2024* +​ +​ +400,000 +​ +$ +1.10 +​ +30-days +​ +40-days +​ +​ +​ +$ +2,440,000 +​ +​ +​ +​ +​ +​ +​ +​ +* These notes are with an investor who owns more than 5 % of the Company’s stock +​ +The 2024 Convertible Notes are convertible at the option of the holder into shares of the Company’s common stock at a conversion price. The number of shares issuable upon conversion is determined by dividing the sum of the outstanding principal and accrued interest by the conversion price. During 2024, the Company extended the period the conversion option was exercisable. The extensions to the conversion periods were accounted for as modifications. The 2024 Convertible Notes may be prepaid in full or in part by the Company at any time without penalty. +The Company elected the fair value option for the 2024 Convertible Notes and therefore measured the 2024 Convertible Notes at fair value at issuance and each subsequent reporting period, with changes in fair value recognized in earnings. Nine of these convertible notes totaling $ 1,840,000 were extinguished in exchange for the issuance of shares of the Company’s common stock in May 2025 pursuant to note exchange agreements (see Note 21). +The 2024 Convertible Notes were convertible into 1,759,945 shares of the Company’s common stock at December 31, 2024. +Assumed 2024 Note +On the Closing Date, the Company assumed MCAC’s promissory note totaling $ 3,680,000 (the “Assumed 2024 Note”) that matures in July 2025. The Company is obligated to pay 10.0 % of the aggregate gross proceeds from any sale of equity or equity derivative instruments of the Company while the Assumed 2024 Note is outstanding. Five days prior to the maturity date (and only five days prior to the maturity date), the Company may elect to convert the Assumed 2024 Note into shares of the Company’s common stock based at the average volume weighted average price value for the five -business day period preceding the maturity date (subject to compliance with applicable rules of the Nasdaq). +The Assumed 2024 Note becomes due and payable following specified events of default if (i) the holder of the Assumed 2024 Note provides written notice if Company defaults on any payments due under the terms of the Assumed 2024 Note or (ii) automatically if the Company commences a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under bankruptcy or other similar laws. The Company has not received written notice from the holder of the Amended 2024 Note in regards to the missed initial mandatory payment as of December 31, 2024. +The Assumed 2024 Convertible Note is non-interest bearing, except in the case of an Event of Default (as defined in the agreement), at which point the interest rate increases to a rate of 10.0 % per annum until such event of default is cured. The Company paid $ 50,000 of the initial mandatory payment of $ 500,000 within thirty calendar days of the effective date of the Assumed 2024 Note, and as such, +F-30 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +triggered an event of default. During February 2025, the Note was extinguished as part of a settlement agreement that the Company entered into with a third party to settle its liabilities that were past due and/or in default (see Note 21). +The Company elected the fair value option for the Note and therefore measured the Note at fair value at assumption and each subsequent reporting period, with changes in fair value recognized in earnings (see Note 15). +The shares of the Company’s common stock to be issued to settle the above liabilities is dependent on the share price at a future date, and as such, it is not an amount that can be estimated as of December 31, 2024. There is no limit to the number of shares that can be issued to settle the agreements in the respective arrangements. +SEPA Convertible Note +In December 2024, in connection with and pursuant to the terms of its Standby Equity Purchase Agreement (the “SEPA”) entered into with YA II PN, LTD., an exempt limited partnership from the Cayman Islands (“Yorkville”) (see Note 12), Yorkville agreed to advance to the Company, in exchange for convertible promissory notes, an aggregate principal amount of up to $ 4,500,000 , $ 2,500,000 of which was funded during December 2024 in exchange for the issuance by the Company of a Convertible Promissory Note (the “SEPA Convertible Note”). The Company received net proceeds of $ 2,300,000 after a non-cash original issue discount of 8.0 %, or $ 200,000 . +The SEPA Convertible Note has a maturity date in December 2025 and accrues interest at 7.0 % per annum, subject to increase to 18.0 % per annum upon the occurrence of an event of default as defined in the agreement (the “Additional Interest”). +The Company was also required to pay commitment fees of $ 375,000 . Of this amount, $ 187,500 was due up front in the form of shares, for which the Company issued 264,456 shares. The remaining amount is due in cash on the six-month anniversary date of the agreement. +Yorkville has the right to convert any portion of the outstanding principal into shares of the Company’s common stock at (a) $ 2.00 per share at any time (the “Fixed Price”) or (b) 93.0 % of the lowest daily variable weighted average price (the “VWAP”) during the ten consecutive trading days immediately preceding the conversion date, but not lower than the floor price of $ 0.1418 (the “Variable Price”). As long as the Company is current in its payment obligations, Yorkville is only entitled to convert at the Fixed Price. The number of shares issuable upon conversion is equal to the amount of principal to be converted (as specified by the holder) divided by either the Fixed Price or the Variable Price as defined in the agreement. Yorkville will not have the right to convert any portion of the principal to the extent that after giving effect to such conversion, Yorkville would beneficially own in excess of 4.99 % of the total number of shares of the Company’s common stock outstanding after giving effect to such conversion. +Additionally, the Company, at its option, shall have the right, but not the obligation, to redeem early a portion or all amounts outstanding under the Promissory Notes at a redemption amount equal to the outstanding principal balance being repaid or redeemed, plus a 7.0 % prepayment premium, plus all accrued and unpaid interest; provided that (i) the Company provides Yorkville with no less than ten trading days’ prior written notice thereof and (ii) on the date such notice is issued, the VWAP of the Company’s common stock is less than the Fixed Price. +As of the date of this filing, the Company has not made certain scheduled payments under the SEPA Convertible Note and is therefore in technical default under the agreement. However, Yorkville has not issued a formal notice of default, and the Company remains in ongoing discussions with Yorkville regarding a potential resolution and restructuring of the outstanding obligations. +Commencing in March 2025, the Company is required to make monthly principal and interest payments totaling $ 277,778 (increasing to $ 500,000 after the second tranche of advances are received) in cash or an Advance Notice (as defined in the SEPA, see Note 12). +The Company elected the Fair Value Option for the SEPA Convertible Note and therefore measured the SEPA Convertible Note at fair value at issuance and each subsequent reporting period, with changes in fair value recognized in earnings (see Note 15). +The shares of the Company’s common stock to be issued to settle the above liabilities is dependent on the share price at a future date, and as such, it is not an amount that can be estimated as of December 31, 2024. There is no limit to the number of shares that can be issued to settle the agreements in the respective arrangements. +​ +F-31 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +NOTE 11: DEBT +Debt consists of the following as of December 31: +​ +​ +​ +​ +​ +​ +​ +​ +Description +2024 +2023 +Secured Promissory Notes +​ +$ +4,250,000 +​ +$ +7,410,000 +Small Business Administration Loans +​ +762,322 +​ +768,956 +Paycheck Protection Program Loans +​ +17,543 +​ +59,350 +Promissory Note +​ +​ +79,000 +​ +​ +— +Vehicle Notes +​ +425,790 +​ +497,957 +Seller Notes +​ +1,434,959 +​ +2,073,765 +Avanti Notes +​ +​ +179,910 +​ +​ +85,437 +Real Estate Promissory Note +​ +370,000 +​ +370,000 +Business Loan and Security Agreement +​ +​ +160,262 +​ +​ +— +Sale of Future Receipts +​ +856,150 +​ +1,938,257 +Total +​ +$ +8,535,936 +​ +$ +13,118,285 +Less: debt issuances costs +​ +( 212,772 ) +​ +( 32,224 ) +Less: notes payable, current portion +​ +​ +( 7,019,499 ) +​ +​ +( 11,935,580 ) +Notes payable, net of debt issuance costs and current portion +​ +$ +1,303,665 +​ +$ +1,150,481 +​ +The Company recorded the interest expense of $ 2,714,048 and $ 1,431,354 for the twelve months ending December 31, 2024, and December 31, 2023 respectively. The accrued interest as of December 31, 2024, and December 31, 2023 were $ 985,025 and $ 879,876 respectively. +Secured Promissory Notes +The Company's promissory notes have original maturity dates ranging between 9 and 36 months . The notes bear interest at rates ranging between 9.25 % and 24 %. During the year ended December 31, 2024, $ 6,834,020 of principal was extinguished via debt conversion agreements (see Note 14). +​ +In connection with the issuance of the secured promissory notes issued in February 2022 (the “2022 Notes”), the Company issued Legacy Warrants to each lender that may be converted into shares of common stock of the Company. There were 23,332 Legacy Warrants that were issued in connection with the issuance of the February 2022 Notes that have an exercise price of $ 12.00 per share (see Note 12). The fair value of the Legacy Warrants was $ 82,861 and was recorded as a debt discount. Amortization expense related to the debt discount amounted to $ 27,620 and $ 27,620 for the years ended December 31, 2024 and 2023, respectively, and is recorded as interest expense on the accompanying consolidated statements of operations and comprehensive loss. +​ +For all secured promissory notes, the interest is charged at an annual simple rate. For the 2022 Notes, interest increases to 12 % upon the occurrence of an event of default as defined in the secured promissory note agreements. +During the year ended December 31, 2023, the Company modified individual notes with original maturity dates prior to December 31, 2023 to extend the maturity date to the earlier of May 31, 2024 or the Closing Date. +During September 2024, the Company entered into four note conversion agreements with four of the secured promissory note holders in which the Company converted the outstanding principal and interest on the secured promissory notes, into shares of the Company’s common stock at a conversion price of $ 2.00 per share with a one-time share reset adjustment (see Note 14), subject to shareholder approval and a maximum aggregate ownership amount of 19.99 % for each individual lender. In connection with these agreements, $ 6,834,020 of secured promissory notes and $ 1,064,080 of accounts payable and accrued expenses were extinguished in exchange for the issuance of 3,949,050 shares of the Company’s common stock (see Note 12). Two of the lenders total ownership of the Company’s common stock exceeded 5.0 % as a result of the share issuances in connection with the note conversion agreements. These lenders continue to hold certain Secured Promissory Notes as of December 31, 2024 (see Note 18). +As of December 31, 2024, the Company has not made certain scheduled payments and is therefore in technical default under two of the secured promissory notes entered into in June 2024. The total outstanding principal and accrued interest under these notes was approximately $ 250,000 as of December 31, 2024. However, neither noteholder has issued a formal notice of default, and both have +F-32 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +continued to work cooperatively with the Company. Management is engaged in discussions with the noteholders regarding repayment arrangements and believes a mutually satisfactory resolution will be reached. +Small Business Administration (“SBA”) Loans +In 2020, the Company received loan proceeds of $ 150,000 under a SBA loan agreement that matures in June 2050. In 2021, this loan was amended to increase the total borrowing to $ 475,000 . In 2022 the Company assumed two additional SBA loans for $ 150,000 each in connection with two acquisitions that mature in June 2050. Interest on all SBA loan agreements accrues on the anniversary date of the initial borrowing at 3.75 % on the outstanding balance. All SBA loan agreements are collateralized by the Company’s tangible and intangible personal property. +Paycheck Protection Program Loan +On May 4, 2020, the Company received loan proceeds of $ 151,000 under the Paycheck Protection Program (the “PPP”). The PPP was established as part of the Coronavirus Aid, Relief, and Economic Security Act and provides for loans to qualifying businesses for amounts up to 2.5 times the average monthly payroll expenses of the business, subject to certain limitations. The PPP loan matures in May 2025. Payments were not required under the loan for a period from six months from the date of the initial borrowing, upon which payments are required to be made monthly. Interest accrues at 1.0 % annually on the outstanding balance. The PPP loan is collateralized by all tangible and intangible personal property of the Company. +Promissory Note +In October 2024, the Company entered into a promissory note to extinguish an obligation to a vendor in which the Company promised to pay the vendor a principal amount of $ 119,000 , interest through October 15, 2024 totaling approximately $ 17,000 , attorney’s fees of $ 4,000 and additional interest from October 16, 2024 through the date of repayment of 18.0 % per annum. Principal payments of $ 20,000 are due on the 25 th of each month commencing on October 25, 2024. If five payments are made timely, the vendor agrees to waive the remaining balance due on the promissory note. The promissory note may be prepaid without penalty. +Business Loan and Security Agreements +The Company entered into three business loan and security agreements with one lender as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Maturity Date +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +(from issuance +​ +​ +Loan +Loan Date +Gross Proceeds +December 31, 2024 +date) +Interest rate +May 2024 BLS Agreement +​ +5/14/2024 +​ +$ +100,000 +​ +$ +56,896 +18-months +25.0 +% +July 2024 BLS Agreement +​ +7/31/2024 +​ +50,000 +​ +37,917 +18-months +25.0 +% +August 2024 BLS Agreement +​ +8/06/2024 +​ +100,000 +​ +65,449 +12-months +25.0 +% +Total +​ +​ +​ +​ +$ +250,000 +​ +$ +160,262 +​ +​ +The Company receives a 5.0 % prepayment discount on the May 2024 BLS Agreement and the July 2024 BLS Agreement. The August 2024 BLS Agreement provides the following terms for prepayments: +● For prepayment made prior to three months after the Loan Date, $ 122,000 minus repayments to date, +● For prepayment made between three and six months after the Loan Date, $ 127,000 minus repayments to date, +● For prepayment made more than six months after the Loan Date, a 5 % discount may be applied to the remaining payment. +The Company triggers an event of default under these agreements if repayments are not made in accordance with the repayment schedule, if the Company defaults on a loan with a bank or financial institution, and other matters as defined in the agreements. In the event of a default, the lender may declare remaining outstanding amounts due and payable less a 5.0 % discount on the remaining unpaid balance and the stated interest rate is adjusted to be the lower of 18.0 % per annum or the maximum rate allowed by law. +Each loan is collateralized by the assets of the subsidiary the debt was taken out for and each is guaranteed by an officer of the Company. +F-33 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +In May 2025, the Company amended each of the business loan and security agreements, changing the required periodic payments and extending the maturity date on the respective agreement as follows: +May 2024 BLS Agreement : The monthly payment was reduced from approximately $ 7,000 to a monthly payment of approximately $ 3,000 and the maturity date was extended from December 2025 to December 2026. +July 2024 BLS Agreement : The monthly payment was reduced from approximately $ 3,000 to a monthly payment of approximately $ 2,000 and the maturity date was extended from February 2026 to November 2026. +August 2024 BLS Agreement : The monthly payment was reduced from approximately $ 13,000 to a monthly payment of approximately $ 3,000 and the maturity date was extended from May 2025 to December 2026. +Vehicle Notes +The Company has thirteen vehicles that were acquired through the issuance of vehicle loans that were outstanding as of December 31, 2024. The maturities of these vehicle notes outstanding range from 2026 through 2029. Interest rates range from 4.99 % to 17.37 %. The Company defaulted on two of the vehicle notes during the year ended December 31, 2024 and the lender repossessed one of the vehicles. The Company reduced the carrying value of the note by the fair value of the vehicles of approximately $ 23,000 at the time of the repossession. The Company owes the lenders approximately $ 13,000 as of December 31, 2024. The second vehicle was repossessed during the subsequent year. +Seller Notes +The Company entered into several seller notes as part of agreements to acquire certain of its wholly owned subsidiaries as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Annual +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Date of Note +​ +Interest Rate +Maturity Date +​ +Secured by +​ +Principal +​ +December 31, 2024 +​ +December 31, 2023 +12/01/2020 +​ +6.0 % +​ +November 2025 +​ +Mortgage of certain real property which has a book value of $ 200,000 as of December 31, 2024 +​ +$ +200,000 +​ +$ +41,283 +​ +$ +83,810 +06/18/2021 +​ +6.0 % +​ +May 2026 +​ +Equity securities of acquired company owned by ConnectM +​ +$ +225,000 +​ +​ +— +​ +​ +124,627 +01/01/2022 +​ +5.0 % +​ +December 2026 +​ +Equity securities of acquired company owned by ConnectM +​ +$ +200,000 +​ +​ +66,820 +​ +​ +117,367 +01/01/2022 +​ +5.0 % +​ +December 2026 +​ +Equity securities of acquired company owned by ConnectM +​ +$ +200,000 +​ +​ +66,820 +​ +​ +117,367 +02/15/2022 +​ +4.4 % +​ +February 2025 +​ +Equity securities of acquired company owned by ConnectM +​ +$ +600,000 +​ +​ +200,000 +​ +​ +400,000 +05/31/2022 +​ +6.0 % +​ +July 2026 +​ +Equity securities of acquired company owned by ConnectM +​ +$ +649,000 +​ +​ +291,973 +​ +​ +462,531 +12/28/2022 +​ +6.0 % +​ +February 2028 +​ +Equity securities of acquired company owned by ConnectM +​ +$ +900,000 +​ +​ +768,063 +​ +​ +768,063 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +$ +1,434,959 +​ +$ +2,073,765 +​ +The December 2022 Seller Note is in default and under legal proceedings (see Note 19). +During September 2024, the Company entered into a note conversion agreement with the holders of the holder of the May 2022 seller note in which the Company converted outstanding principal of $ 91,000 , into 72,800 shares of the Company’s common stock at a +F-34 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +conversion price of $ 1.25 per share with a one-time consideration adjustment (see Notes 12 and 14), subject to shareholder approval and a maximum aggregate ownership amount of 19.99 % for the holder of the seller note. This was accounted for as debt extinguishment. +Real Estate Promissory Note +On December 29, 2022, the Company entered into a Real Estate Promissory Note for land in Florida for a principal sum of $ 370,000 , which is collateralized by real estate with a maturity date of July 29, 2023. The Real Estate Promissory Note is secured by a mortgage on the property. The carrying value of the note, including accrued interest as of the filing date, is $ 442,000 . This note is in default and under legal proceedings (see Note 19). +Business Line of Credit +In January 2023, the Company opened a business line of credit with American Express and borrowed $ 74,400 . The maximum amount the Company can take out on the line of credit is $ 74,400 . The line of credit has an interest rate of 13.0 %. This business line of credit matured in September of 2023 and was repaid by the Company. There was no current availability under this business line of credit as of December 31, 2024. +Sale of Future Receipts +On April 25, 2023, the Company entered into a sale of future receipts agreement (the “April 2023 SFR Agreement”) whereby the Company sold and assigned $ 1,597,144 of future receipts in exchange for net cash proceeds of $ 1,176,000 , including a fee of $ 24,000 . As a result, the Company recorded a discount of $ 421,144 . The Company was required to remit a minimum of $ 30,174 of weekly sales receipts until the future receipts assigned under the April 2023 SFR Agreement were repaid in full. Accordingly, the term was determined to be approximately one year . +On November 2, 2023, the Company refinanced the April 2023 SFR Agreement to reduce the minimum weekly sales remittance to $ 17,700 and extend the repayment period to November 2024 (the “November 2023 SFR Refinancing Agreement”). Additionally, the Company was forgiven for $ 162,080 of the debt outstanding, which was recorded as a component of “loss on extinguishment of debt” in the accompanying consolidated statements of operations and comprehensive loss for the year ended December 31, 2023, and incurred an incremental fee of $ 100,000 . The Company applied extinguishment accounting to the November 2023 SFR Refinancing Agreement. +On August 7, 2023, the Company entered into a sale of future receipts agreement (the “August 2023 SFR Agreement”) whereby the Company sold and assigned $ 1,290,000 of future receipts in exchange for net proceeds of $ 980,000 , including a fee of $ 20,000 . As a result the Company recorded a discount of $ 310,000 . The Company was required to remit a minimum of $ 25,595 of weekly sales receipts until the future receipts assigned under the August 2023 SFR Agreement were repaid in full. Accordingly, the term was determined to be approximately one year . +On November 9, 2023, the Company refinanced the August 2023 SFR Agreement to borrow an incremental $ 370,543 (the “Second November 2023 SFR Refinancing Agreement”). Additionally, the Company was forgiven for $ 130,000 of the debt outstanding, which was recorded as a component of “loss on extinguishment of debt” in the accompanying consolidated statements of operations and comprehensive loss for the year ended December 31, 2023, and incurred an incremental fee of $ 221,000 . The Company applied extinguishment accounting to the Second November 2023 SFR Refinancing Agreement. +As a result of the amendments entered into during 2023, the Company wrote off all remaining debt discounts totaling approximately $ 662,000 , which is recorded within loss on extinguishment of debt on the accompanying consolidated statements of operations and comprehensive loss for the year ended December 31, 2023. +On January 4, 2024, the Company entered into a sale of future receipts agreement (“the January 2024 SFR Agreement”) whereby the Company sold and assigned $ 452,000 of future receipts in exchange for net cash proceeds of $ 343,000 , including a fee of $ 7,000 . As a result, the Company recorded a discount of $ 101,500 . The Company was required to remit a minimum of approximately $ 9,000 of weekly sales receipts until the future receipts assigned under the January 2024 SFR Agreement were repaid in full. Accordingly, the term was determined to be approximately one year . +On January 30, 2024, the Company entered into a second sale of future receipts agreement, amending the January 2024 SFR Agreement, (the “Amended January 2024 SFR Agreement”) whereby the Company increased the amount of future receipts sold and assigned to the lender to $ 2,600,000 in exchange for net cash proceeds of approximately $ 2,077,000 , including a fee of approximately $ 3,000 . As a result, the Company recorded a discount of approximately $ 523,000 . The Company was required to remit a minimum of +F-35 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +approximately $ 52,000 of weekly sales receipts until the future receipts assigned under the Amended January 2024 SFR Agreement were repaid in full. Accordingly, the term was determined to be approximately one year . +In connection with the Second January 30, 2024 SFR Agreement, the Company received an additional $ 1,054,286 (the “Additional Advance”). Such amounts received were provided to the Company in error and are due and payable in full to the lender. During September 2024, the Company entered into a note conversion agreements with one of the sale of future receipts agreement holders in which the Company converted the outstanding principal on the Amended January 2024 SFR Agreement, including accrued and unpaid interest, and the Additional Advance into shares of the Company’s common stock at a conversion price of $ 2.00 per share with a two share reset adjustments and a make-whole payment (see Note 14), subject to shareholder approval and a maximum aggregate ownership amount of 19.99 % for each individual lender. In connection with these agreements, $ 3,115,592 of secured promissory notes were extinguished in exchange for the issuance of 1,557,796 shares of the Company’s common stock (see Note 12). +On May 23, 2024, the Company entered into a sale of future receipts agreement (the “May 2024 SFR Agreement”) whereby the Company sold and assigned approximately $ 149,000 of future receipts in exchange for net cash proceeds of approximately $ 118,000 , including a fee of approximately $ 3,000 . As a result, the Company recorded a discount of approximately $ 31,000 . The Company is required to remit a minimum of approximately $ 12,000 of monthly sales receipts until the future receipts assigned under the May 2024 SFR Agreement were repaid in full. Accordingly, the term of this agreement is approximately one year . In May 2025, the Company was issued a stipulation of settlement from the Supreme Court of the State of New Work, Count of Erie, under which it was required to pay $ 240,000 to settle the balance owed of approximately $ 302,000 on the May 2024 SFR Agreement. The Company is to repay the settlement balance through a conditional release of funds of approximately $ 17,000 held by a third party and monthly payments totaling approximately $ 14,000 until the settlement balance is paid in full. +​ +F-36 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +In October 2024, the Company entered into a sale of future receipts agreement (the “October 2024 SFR Agreement”) with the same lender of the May 2024 SFR Agreement whereby the Company sold and assigned approximately $ 310,000 of future receipts in exchange for net cash proceeds of approximately $ 170,000 , including a fee of approximately $ 3,000 and repayment of approximately $ 78,000 outstanding under the May 2024 SFR Agreement. As a result, the Company recorded a discount of approximately $ 63,000 . The Company is required to remit a minimum of approximately 8.0 % of monthly sales receipts until the future receipts assigned under the October 2024 SFR Agreement were repaid in full. Accordingly, the term of this agreement is approximately one year . The October 2024 SFR Agreement was accounted for as an extinguishment of the May 2024 SFR Agreement and approximately $ 9,000 loss on extinguishment was recorded on the accompanying consolidated statements of operations and comprehensive loss for the year ended December 31, 2024. +On May 28, 2024, the Company entered into a second sale of future receipts agreement (the “Second May 2024 SFR Agreement”) whereby the Company sold and assigned $ 125,000 of future receipts in exchange for net cash proceeds of approximately $ 98,000 , including a fee of approximately $ 2,000 . As a result, the Company recorded a discount of approximately $ 27,000 . The Company is required to remit a minimum of approximately $ 6,000 of bi-weekly sales receipts until the future receipts assigned under the Second May 2024 SFR Agreement were repaid in full. Accordingly, the term of this agreement is approximately one year . In May 2025, the Company was issued a stipulation of settlement from the Supreme Court of the State of New Work, Count of Erie, under which it was required to pay $ 140,000 to settle the balance owed of approximately $ 184,000 on the Second May 2024 SFR Agreement. The Company is to repay the settlement balance through a conditional release of funds of approximately $ 42,000 held by a third party and monthly payments totaling approximately $ 8,000 until the settlement balance is paid in full. +In November 2024, the Company entered into a sale of future receipts agreement (the “November 2024 SFR Agreement”) with the same lender of the Second May 2024 SFR Agreement whereby the Company sold and assigned approximately $ 201,000 of future receipts in exchange for net cash proceeds of approximately $ 97,000 , including a repayment of $ 60,000 outstanding under the Second May 2024 SFR Agreement. As a result, the Company recorded a discount of approximately $ 41,000 . The Company is required to remit a minimum of approximately $ 8,000 of bi-weekly sales receipts until the future receipts assigned under the November 2024 SFR Agreement were repaid in full. Accordingly, the term of this agreement is approximately one year . The November 2024 SFR Agreement was accounted for as an extinguishment of the Second May 2024 SFR Agreement and approximately $ 7,000 loss on extinguishment was recorded on the accompanying consolidated statements of operations and comprehensive loss for the year ended December 31, 2024. +On July 24, 2024, the Company entered into a sale of future receipts agreement (the “July 2024 SFR Agreement”) whereby the Company sold and assigned approximately $ 209,000 of future receipts in exchange for net cash proceeds of approximately $ 144,000 , including a fee of $ 6,000 . As a result, the Company recorded a discount of approximately $ 65,000 . The Company is required to remit 10.0 % of daily receipts until the until the future receipts assigned under the July 2024 SFR Agreement were repaid in full. The estimated term of this agreement is approximately one year , based on expected daily collections. The July 2024 SFR Agreement includes an option for early payoff with discounts on the remaining balances. In November 2024, the Company entered into a sale of future receipts agreement (the “Second November 2024 SFR Agreement”) with the same lender of the July 2024 SFR Agreement whereby the Company sold and assigned approximately $ 313,000 of future receipts in exchange for net cash proceeds of approximately $ 96,000 , including a fee of approximately $ 9,000 and repayment of approximately $ 120,000 outstanding under the July 2024 SFR Agreement. As a result, the Company recorded a discount of approximately $ 88,000 and interest expense of approximately $ 9,000 . The Company is required to remit a minimum of approximately $ 7,000 of weekly sales receipts until the future receipts assigned under the Second November 2024 SFR Agreement were repaid in full. Accordingly, the term of this agreement is approximately one year . The Second November 2024 SFR Agreement was accounted for as an extinguishment of the July 2024 SFR Agreement and approximately $ 34,000 loss on extinguishment was recorded on the accompanying consolidated statements of operations and comprehensive loss for the year ended December 31, 2024. +On September 19, 2024, the Company into a sale of future receipts agreement (the “September 2024 SFR Agreement”) whereby the Company sold and assigned approximately $ 107,000 of future receipts in exchange for net cash proceeds of $ 74,000 , including a fee of $ 2,000 . As a result, the Company recorded a discount of $ 33,000 . The Company is required to remit 6.32 % of weekly sales receipts until the until the future receipts assigned under the September 2024 SFR Agreement were repaid in full. The estimated term of this agreement is approximately one year , based on expected daily collections. +F-37 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +On November 8, 2024, the Company entered into a sale of future receipts agreement (the “November 2024 SFR Agreement”) whereby the Company sold and assigned approximately $ 112,000 of future receipts in exchange for net cash proceeds of approximately $ 76,000 , including a fee of approximately $ 4,000 . As a result, the Company recorded a discount of approximately $ 36,000 . The Company is required to remit a minimum of approximately $ 5,000 of weekly sales receipts until the future receipts assigned under the May 2024 SFR Agreement were repaid in full. Accordingly, the term of this agreement is approximately one year . +Since the Company has significant continuing involvement in the generation of future cash flows due under these agreements among other indicators, pursuant to ASC 470-10-25-2, Debt- Sales of Future Revenues or Other Various Measures of Income , the Company has reflected any future commitments associated with these agreements as debt. +The discounts on the various sale of future receipts agreements are recorded as an adjustment to the related liability within the debt, net on the accompanying consolidated balance sheets as of December 31, 2024 and 2023. These discounts are amortized over the life of the respective loans via the effective interest method. This amortization is recorded as a component of interest expense on the accompanying consolidated statement of operations. +Future maturities for notes payable as of December 31, 2024 is as follows: +​ +​ +​ +​ +​ +Year +Amount +2025 +​ +$ +7,232,271 +2026 +​ +278,654 +2027 +​ +113,326 +2028 +​ +80,385 +2029 +​ +56,883 +Thereafter +​ +774,417 +Total +​ +$ +8,535,936 +​ +​ +NOTE 12: STOCKHOLDERS’ DEFICIT +As discussed in Note 1 and Note 5, on July 12, 2024, the Company consummated the Business Combination, which has been accounted for as a reverse recapitalization. Pursuant to the Certificate of Incorporation as amended on July 12, 2024 and as a result of the reverse recapitalization, the Company has retrospectively adjusted the Legacy ConnectM preferred shares and Legacy ConnectM common shares issued and outstanding prior to July 12, 2024 to give effect to the Exchange Ratio used to determine the number of shares of common stock of the combined entity into which they were converted. +​ +F-38 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The Company is authorized to issue 100,000,000 shares of common stock at $ 0.0001 par and 10,000,000 shares of preferred stock at $ 0.0001 par. As of December 31, 2024 and 2023 there was 29,093,289 and 13,338,437 , respectively, of common stock issued and outstanding and no shares of preferred stock issued and outstanding. The following shares of common stock are reserved for future issuance: +​ +​ +​ +​ +Legacy Warrants +​ +77,494 +Public Warrants +​ +9,200,000 +Private Placement Warrants +​ +3,040,000 +July 2024 Warrants +​ +750,000 +Legacy Options +​ +473,929 +2023 Equity Incentive Plan +​ +2,113,405 +Total +​ +15,654,828 +​ +The rights, preferences and privilege of common stock are as follows: +Voting rights – the common stock possesses all voting power of the Company. Each share of common stock is entitled to one vote. +Dividend rights – the holders of common stock are entitled to receive dividends and other distributions, as and if declared by the Board out of assets or funds of the Company legally available and shall share equally on a per share basis. +Liquidation – in the event of any liquidation, dissolution or winding up of the Company, after payment or provision of payment of the debts and other liabilities of the Company, the holders of common stock are entitled to receive the remaining assets of the Company available for distribution ratably in proportion to the number of shares of common stock held by them +Common stock issuances: +In January, 2024, the Legacy ConnectM issued 5,000 shares of Legacy ConnectM common stock with a fair value of approximately $ 35,000 . These shares of Legacy ConnectM common stock were exchanged for 16,607 shares of the Company’s common stock on the Closing Date (see Note 5). +In July 2024, immediately prior to the closing of the Business Combination, Legacy ConnectM issued 321,429 shares of Legacy ConnectM common stock in connection with the conversion of certain convertible debt instruments (see Note 10). These shares of Legacy ConnectM common stock were exchanged for 1,067,592 shares of the Company’s common stock on the Closing Date (see Note 5). These shares had a fair value of $ 3,779,223 . +In July 2024, the Company consummated the Business Combination, in which 6,701,421 shares of the Company’s common stock were issued (see Note 5). +In October 2024, the Company issued 160,000 shares of the Company’s common stock as consideration in acquisition of a business with a fair value of approximately $ 161,000 , as determined by the closing share price on the date of issuance (see Note 6). +In October 2024, the Company reached a legal settlement with a vendor relating to past due amounts owed. In accordance with the settlement, as additional consideration, the Company was required to issue 125,000 shares to the vendor. The fair value of these shares was $ 133,750 . This expense is included in general and administrative expenses in the consolidated statements of operations and comprehensive loss. +​ +F-39 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +During the year ended December 31, 2024, the Company issued shares of the Company’s common stock to extinguish obligations to certain vendors and lenders (see Note 11 and Note 19) as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Issuance Date +​ +​ +​ +​ +​ +Shares Issued +​ +Fair Value +9/12/2024* +​ +​ +​ +​ +​ +2,433,550 +​ +$ +2,652,570 +9/12/2024* +​ +​ +​ +​ +​ +1,326,125 +​ +​ +1,445,476 +9/12/2024 +​ +​ +​ +​ +​ +189,375 +​ +​ +206,419 +9/24/2024 +​ +​ +​ +​ +​ +1,557,796 +​ +​ +1,962,823 +9/24/2024 +​ +​ +​ +​ +​ +269,648 +​ +​ +339,756 +11/13/2024 +​ +​ +​ +​ +​ +72,800 +​ +​ +60,861 +11/13/2024 +​ +​ +​ +​ +​ +136,000 +​ +​ +113,696 +12/27/2024 +​ +​ +​ +​ +​ +206,234 +​ +​ +247,481 +​ +​ +​ +​ +​ +​ +6,534,776 +​ +$ +7,461,574 +* Related party transaction. See Note 18 – Related Party Transactions for additional information. +The Company determined the fair value of its common stock for each issuance using the closing share price on the date of issuance. +During the year ended December 31, 2024, the Company issued shares of the Company’s common stock to vendors as consideration for services to be performed (see Note 13) as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Issuance Date +​ +​ +​ +​ +​ +Shares Issued +​ +Fair Value +​ +7/25/2024 +​ +​ +​ +​ +​ +150,000 +​ +$ +178,500 +​ +12/1/2024 +​ +​ +​ +​ +​ +100,000 +​ +​ +91,000 +​ +12/1/2024 +​ +​ +​ +​ +​ +35,000 +​ +​ +31,850 +​ +12/27/2024 +​ +​ +​ +​ +​ +600,000 +​ +​ +1,428,000 +​ +​ +​ +​ +​ +​ +​ +885,000 +​ +$ +1,729,350 +​ +​ +The Company determined the fair value of its common stock for each issuance using the closing share price on the date of issuance. +Standby Equity Purchase Agreement +In December 2024, the Company entered into a SEPA with YA II PN, LTD., an exempt limited partnership from the Cayman Islands (“Yorkville”). Pursuant to the SEPA, the Company shall have the right, but not the obligation, to sell to Yorkville up to $ 25,000,000 of shares of the Company’s common stock at the Company’s request any time during the commitment period commencing on December 17, 2024 (the Effective Date”) and continuing for a term of three years (“Purchased Put Option”). Yorkville agrees to advance to the Company $ 4,500,000 (the “Pre-Paid Advance”), less a discount of 8.0 %. of the principal amount, as evidenced by convertible promissory notes in two tranches. The first tranche of $ 2,500,000 was advanced to the Company on the Effective Date of the SEPA (see Note 10) and the second tranche of $ 2,000,000 to be advanced on the later of (i) the initial registration statement becoming effective and (ii) the Company’s receipt of shareholder approval to issue shares of the Company’s common stock in excess of the exchange cap, as defined in the SEPA. The SEPA will automatically terminate on the earlier to occur of (i) January 1, 2028, provided that if any Pre-Paid Advance is then outstanding, termination shall be delayed until such date that all Pre-Paid Advances are repaid, and (ii) the date on which Yorkville shall have made payment of advances pursuant to the SEPA for Common Stock equal to the commitment amount of $ 25,000,000 . +Each advance that the Company issues in writing to Yorkville under the SEPA (each, an “Advance,” and notice of such request, an “Advance Notice”) may be in an amount of Common Stock up to the aggregate daily trading volume of Common Stock for the five trading days prior to the Company requesting an Advance. The purchase price for the shares of Common Stock set forth in the Advance is determined by multiplying the market price of the Company’s common stock by 97 % of the lowest daily VWAP during the applicable three consecutive trading day pricing period for any Advance Notice delivered by the Company Additionally, the Company may establish a minimum acceptable price in each Advance Notice below which the Company will not be obligated to make any sales to Yorkville. Once the Company draws on the SEPA, the related number of shares issuable constitutes a forward contract to issue common stock (“Forward Contract”). +F-40 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Pursuant to the terms of the SEPA, at any time that there is a balance outstanding under the SEPA Convertible Note, Yorkville has the right to receive shares to pay down the principal balance, and may select the timing and delivery of such shares (via an “Investor Notice”), in an amount up to the outstanding principal balance on the SEPA Convertible Note at a purchase price equal $ 2.00 per share of the Company’s common stock (the “Fixed Price”). If the Company is not current on its payment obligations, the Yorkville is entitled to a purchase price equal to (i) 93 % of the lowest daily Volume Weighted Average Price (“VWAP”) of the Company’s common stock on Nasdaq during the 10 consecutive Trading Days immediately preceding the Conversion Date or other date of determination (the “Variable Price”). The Variable Price shall not be lower than $ 0.1418 per share (the “Floor Price”), (ii) the Variable Price at any time on or after the determination of the Valuation Date of the forward purchase agreement (see Note 14), or (iii) the Variable Price on the earlier of March 17, 2025 or the effective date of the initial registration statement. +Any purchase under an Advance would be subject to certain limitations, including that Yorkville shall not purchase or acquire any shares that would result in it and its affiliates beneficially owning more than 4.99 % of the then outstanding voting power or number of shares of the Company’s common stock or any shares that, aggregated with shares issued under all other earlier Advances, would exceed 19.99 % of all shares of the Company’s common stock of the Company outstanding on the date of the SEPA, unless Company shareholder approval was obtained allowing for issuances in excess of such amount. +As consideration, the Company agreed (i) and paid a structuring fee in the amount of $ 25,000 and (ii) to pay a commitment fee of $ 375,000 , of which (a) one -half of the commitment fee was paid through the issuance of 264,456 shares of the Company’s common stock with a fair value of $ 187,500 , as determined using the closing price on the date of issuance and (b) one -half of the commitment fee is due on June 17, 2025 in cash (or by way of an Advance). The structuring fee and commitment fee were expensed in full immediately following the consummation of the SEPA, according to ASC 815, and recorded within the general and administrative expense line item in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2024. +Pursuant to the terms of the SEPA, the proceeds of the SEPA are restricted from being used +● to repay any advances or loans to executives, directors, or employees +● to make payments on related party obligations +● to repay advances or loans to Related Lenders, as defined in the SEPA, without the prior written consent of Yorkville or until the balance under the Pre-Paid Advances is less than $ 1,000,000 +● to fund or facilitated, directly or indirectly, any activities or business with a person, entity, territory, or country subject to Sanctions, as defined in the SEPA, or is a Sanctioned Country, as defined in the SEPA +● in any manner that will result in a violation of Sanctions or applicable laws +● to loan, invest or transfer any cash proceeds, or property acquired with cash proceeds from the Pre-Paid Advance to a subsidiary without approval from Yorkville +While amounts are outstanding under the Pre-Paid Advance, the Company +● may not effect a reverse stock split or share consolidation. +● shall prepay amounts owed under the Pre-Paid Advance in an amount equal to 20.0 % of the net proceeds of a new financing transaction to Yorkville, unless waived by Yorkville +● shall pay 100.0 % of proceeds received from any disbursements of the FPA to Yorkville, unless waived by Yorkville +Yorkville retains the right of participation for twelve months from the Effective Date of the SEPA to participate in an amount up to 25.0 % of a financing transaction, as defined in the SEPA. The Company is required to maintain a minimum cash balance equal to the lesser of (a) $ 2,000,000 and (b) the sum of the next three Installment Payments, as defined in the promissory note, coming due. As of December 31, 2024, the minimum cash balance required was approximately $ 833,000 . +F-41 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +As of the date of this filing, the Company has not made certain scheduled payments under the SEPA Convertible Note or made timely SEC filings and is therefore in default under the agreement. However, Yorkville has not issued a formal notice of default, and the Company remains in ongoing discussions with Yorkville regarding a potential resolution and restructuring of the outstanding obligations. +Warrants +Public Warrants: On May 10, 2022, MCAC completed an initial public offering that included warrants for shares of common stock (the “Public Warrants”). Each Public Warrant entitles the holder to the right to purchase one share of common stock at an exercise price of $ 11.50 per share. No fractional shares will be issued upon exercise of the Public Warrants. The Company may elect to redeem the Public Warrants, in whole and not in part at a price of $ 0.01 per Public Warrant if (i) 30 days ’ prior written notice of redemption is provided to the holders, and (ii) the last reported sale price of the Company’s common stock equals or exceeds $ 18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 -trading day period ending on the third business day prior to the date on which the Company sends the notice of redemption to the warrant holders. Upon issuance of a redemption notice by the Company, the warrant holders have a period of 30 days to exercise for cash, or on a cashless basis. On the Closing Date, there were 9,200,000 Public Warrants issued and outstanding . +Private Placement Warrants: Simultaneous with MCAC’s initial public offering in May 2022, MCAC’s sponsor purchased warrants at a purchase price of $ 1.00 per warrant in a private placement (the “Private Placement Warrants”). The Private Placement Warrants may not be redeemed by the Company so long as the Private Placement Warrants are held by the initial purchasers, or such purchasers’ permitted transferees. The Private Placement Warrants have terms and provisions identical to those of the Public Warrants, including as to exercise price, exercisability and exercise period, except if the Private Placement Warrants are held by someone other than the initial purchasers’ permitted transferees, then the Private Placement Warrants are redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants. On the Closing Date, there were 3,040,000 Private Placement Warrants issued and outstanding . +July 2024 Warrants: On July 10, 2024, MCAC issued 750,000 warrants (the “July 2024 Warrants”) in respect to the cancellation and conversion of $ 750,000 of principal underlying certain convertible promissory notes by and between MCAC and its Sponsor, with each whole warrant entitling the holder to purchase one share of MCAC’s Class A Common Stock at a price of $ 11.50 per share. +Legacy Warrants : In connection with the issuance of the 2022 Notes, Legacy Warrants with an exercise price of $ 12.00 per warrant were issued. Such warrants are exercisable into one share of the Company’s common stock at any point for a period of ten years from the date of issuance on February 22, 2032. The warrants are exercisable. The warrants are not transferable, nor do they carry any voting rights or other rights of a shareholder. The holders of the warrants cannot net settle, and all exercises of such warrants must be completed in cash. +A summary of warrants activity is as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Weighted-average +​ +​ +​ +​ +Weighted-average +​ +Remaining +​ +Warrants +Exercise Price +Contractual Life +Outstanding at January 1, 2023 +​ +77,494 +​ +$ +3.61 +​ +9.2 +Issued +— +​ +— +​ +Assumed +— +​ +— +​ +Expired +— +​ +— +​ +Outstanding at December 31, 2023 +​ +77,494 +​ +$ +3.61 +​ +8.2 +Issued +— +​ +— +​ +Assumed +12,990,000 +​ +11.50 +​ +Expired +— +​ +— +​ +Outstanding at December 31, 2024 +13,067,494 +​ +$ +11.45 +4.6 +Exercisable at December 31, 2024 +13,067,494 +​ +$ +11.45 +4.6 +​ +As of December 31, 2024 the outstanding and exercisable warrants have an intrinsic value of $ 0 and $ 0 , respectively. +F-42 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Purchase of subsidiary’s stock +In May 2024, the Company paid $ 60,000 and settled a Sellers Note of approximately $ 109,000 to acquire shares of a subsidiary from a noncontrolling interest holder (see Note 11). The Company’s ownership of the subsidiary increased from 90.0 % as of December 31, 2023 to 95.0 % as of May 31, 2024. +​ +NOTE 13: STOCK BASED COMPENSATION +2019 Equity Incentive Plan +For periods prior to the reverse recapitalization (See Note 5), the 2019 Plan as approved by the board of directors (the “Board”), permitted the granting of stock options (including both nonqualified stock options and incentive stock options) to directors, executive officers, employees, consultants, advisors, independent contractors and other service providers of the Company, who, in the opinion of the Board, are in a position to make a significant contribution to the success of the Company. As of December 31, 2024, there were 473,922 shares of the Company’s common stock authorized for issuance under the 2019 Plan. +Legacy Options converted into an option to purchase a number of shares of Company common stock equal to the product of the number of shares of Legacy ConnectM common stock and the Exchange Ratio at an exercise price per share equal to the exercise price of the Legacy Option divided by the Exchange Ratio. Each exchanged option is governed by the same terms and conditions applicable to the Legacy Option prior to the Business Combination. No further grants can be made under the 2019 Plan. +The option exercise price for all grantees equals the stock’s estimated fair value on the date of the grant, after giving effect to the Exchange Ratio. The Board determined the fair value of common stock at the time of grant by considering a number of objective and subjective factors, including independent third-party valuations of the Company’s common stock, operating and financial performance, the lack of liquidity of capital stock, and general and industry-specific economic outlook, amongst other factors. The Company believes the fair value of the stock options granted to nonemployees is more readily determinable than the fair value of the services received. +The fair value of each option is estimated on the date of the grant using the Black-Scholes option-pricing model in order to measure the compensation cost associated with the award. This model incorporates the following assumptions for inputs: +● Expected volatility in the market value of the underlying common stock: The expected volatility was determined by examining the historical volatilities of a group of industry peers, as the Company did not have any trading history for the Company’s common stock. +● Expected term: For employees, the expected term is determined using the “simplified” method as prescribed by the SEC’s Staff Accounting Bulletin No 107, Share-Based Payment, to estimate on a formula basis the expected term of the Company’s employee stock options which are considered to have “plain vanilla” characteristics. For nonemployees, the expected term represents the contractual term of the option. +● Risk-free interest rate: The risk-free interest rate was based upon quoted market yields for the United States Treasury instruments with terms that were consistent with the expected term of the Company’s stock options. +● Expected dividend yield of the underlying common stock: The expected dividend yield was based on the Company’s history and management’s current expectation regarding future dividends. +F-43 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +A summary of the activity under the 2019 Plan at December 31, 2024 and 2023, and changes during the same periods is presented below: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Weighted-average +​ +​ +​ +​ +Weighted-average +​ +Remaining +​ +​ +Options +​ +Exercise Price +​ +Contractual Life +Outstanding at January 1, 2023 +​ +473,929 +​ +$ +0.70 +​ +6.2 +Granted +​ +— +​ +— +​ +Exercised +​ +— +​ +— +​ +Forfeited +​ +— +​ +— +​ +Outstanding at December 31, 2023 +​ +473,929 +​ +​ +0.70 +​ +5.2 +Granted +— +​ +— +​ +Exercised +— +​ +— +​ +Forfeited +— +​ +— +​ +Outstanding at December 31, 2024 +473,929 +​ +$ +0.70 +4.2 +Vested and exercisable at December 31, 2023 +473,092 +​ +$ +0.70 +4.2 +Vested and exercisable at December 31, 2024 +473,929 +​ +$ +0.70 +4.2 +​ +As of December 31, 2024, the options outstanding and exercisable have an intrinsic value of approximately $ 288,000 and $ 288,000 , respectively. Share-based compensation expense during the years ended December 31, 2024 and 2023 was less than $ 1,000 . As of December 31, 2024, there was no unrecognized compensation cost related to share-based payments. +2023 Equity Incentive Plan +The Company’s shareholders approved the 2023 Plan on July 10, 2024 in connection with the Business Combination. The 2023 Plan is administered by the Board. The selection of participants, allotment of shares, determination of price and other conditions are approved by the Board at its sole discretion in order to attract and retain personnel instrumental to the success of the Company. Under the 2023 Plan, shares of the Company’s common stock may be granted in the form of incentive stock options, non-qualified stock options, stock appreciation rights, restricted awards, performance share awards, cash awards, and other equity-based awards. +The maximum aggregate number of shares of the Company’s common stock that may be issued under the 2023 Plan is equal to 10 % of the outstanding shares of the Company’s common stock on the Closing Date less the number of shares of the Company’s common stock subject to the Legacy Options (the “Total Share Reserve”. The Total Share Reserve will be increased automatically on January 1 of each year during the term of the 2023 Plan by the lesser of (i) 4.0 % of the shares of common stock outstanding on December 31 of the prior year, or (ii) a smaller number of shares as determined by the Board. The maximum number of shares of Company’s common stock with respect to which incentive stock options may be granted under the 2023 Plan is 100,000,000 shares. As of December 31, 2024, the Total Share Reserve was 2,113,405 shares of the Company’s common stock. No grants have been authorized to date by the Company’s Board and the compensation committee under the 2023 Plan. +During July 2024, the Company entered into a twelve-month capital markets advisory agreement (the “CMA Agreement”) under which the Company would compensate the vendor $ 1,500,000 , payable in either cash consideration or stock consideration at the Company’s election. The CMA Agreement provided the vendor with a share reset adjustment such that the vendor would receive additional shares if the five -day VWAP of the Company’s common stock was less than $ 10.00 per share, subject to a floor of $ 2.50 per share. At issuance, the Company determined that the obligation would be predominantly settled in a fixed number of shares equal to the floor price of $ 2.50 per share. Accordingly, the Company determined 600,000 shares of its common stock would be issued to settle its obligation under the CMA Agreement and determined the fair value of the CMA Agreement was $ 1,428,000 using the closing share price on the date of issuance. +For the year ended December 31, 2024, $ 659,077 was recognized as selling, general and administrative expense on the accompanying consolidated statements of operations and comprehensive loss for these restricted stock grants. As of December 31, 2024, $ 768,923 of unrecognized expense is included as a component of prepaid expenses on the accompanying consolidated balance sheets and is expected to be recognized over a weighted average service period of 0.5 years +F-44 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Restricted stock grants +During July 2024, the Company entered into a six-month term marketing services agreement under which the company issued 150,000 restricted shares of the Company’s common stock with a fair value of $ 178,500 , as determined on the issuance date using the reported closing share price, as consideration for services to be performed. The restriction is lifted at the time the shares are included on a registration statement that is declared effective. +During December 2024, the Company entered into service agreements with two service providers under which the company issued 100,000 and 35,000 restricted shares of the Company’s common stock with a fair value of $ 91,000 and $ 31,850 , respectively, as determined on the issuance date using the reported closing share price, as consideration for services to be performed over a four-month and six-month service period, respectively. The restriction on the shares is lifted at the time the shares are included on a registration statement that is declared effective +As of December 31, 2024, there were 285,000 restricted shares of the Company’s common stock that were issued and outstanding were unvested. For the year ended December 31, 2024, $ 178,396 was recognized as selling, general and administrative expense on the accompanying consolidated statements of operations and comprehensive loss for these restricted stock grants. As of December 31, 2024, $ 122,954 of unrecognized expense is included as a component of prepaid expenses on the accompanying consolidated balance sheets and is expected to be recognized over a weighted average service period of 0.2 years. There were no restricted stock grants prior to July 2024. +NOTE 14: DERIVATIVE FINANCIAL INSTRUMENTS +Forward Purchase Agreement: +On December 31, 2022, MCAC, Meteora Special Opportunity Fund (“Meteora”), and Legacy ConnectM entered into a forward purchase agreement (the “FPA”) providing for an over-the counter prepaid equity forward transaction relating to MCAC’s Class A common stock. Pursuant to the terms of the FPA, at the closing of the Business Combination, Meteora purchased directly from the stockholders of MCAC 3,248,466 shares of Class A common stock (the “Recycled Shares”) at a price of $ 11.36301754 per share (the “Initial Price”), which is the price equal to the redemption price at which holders of Class A common stock were permitted to redeem their shares in connection with the Business Combination. The FPA liability was recorded as part of the Business Combination, and as such was recorded at MCAC’s historical cost on the Closing Date. The FPA was accounted for as a derivative financial instrument that was re-measured to fair value in each reporting period, with changes in fair value recognized in the consolidated statements of operations and comprehensive loss (see Note 14). +In accordance with the terms of the FPA, immediately subsequent to the closing of the Business Combination, the Company paid to Meteora an aggregate cash amount of approximately $ 36,543,000 (the “Prepayment Amount”), which was equal to (i) the product of (a) the Recycled Shares and (b) the Initial Price, (ii) less 1.0 % of the product of (a) the Recycled Shares and (b) the Initial Price (the “Prepayment Shortfall”). In addition to the Prepayment amount, the Company paid one -half of 1.0 % of the Prepayment Shortfall, approximately $ 185,000 , to Meteora that is due back to the Company on the earlier of (a) the effective date of the registration statement or (b) the OET Date (as defined in the FPA). The Company also paid to Meteora a cash amount equal to (a) the product of 40,000 and the Initial Price (the “Additional Consideration”), approximately $ 455,000 , to reimburse Meteora for additional shares Meteora acquired from third parties prior to the Closing Date, (b) the product of the Prepayment Amount and 0.75 %, approximately $ 277,000 , and (c) brokerage expenses of approximately $ 164,000 . +In August 2024, the Company and Meteora amended the FPA (the FPA as amended, the “2024 FPA” and the amendment to the FPA, the “FPA Amendment”), primarily changing the +● settlement method provision from physical settlement to cash settlement. +● maturity date to be the earliest to occur of (a) the third anniversary of the Closing Date, (b) the date specified by Meteora in a written notice delivered to the Company after the occurrence of (i) a Trigger Event (as defined in the 2024 FPA) or (ii) a Delisting Event (as defined in the 2024 FPA), (c) the date specified by Meteora in a written notice at Meteora’s sole discretion. +● Prepayment Shortfall to 0.5 % of the product of the number of Recycled Shares and the Initial Price and permitting the Company to request shortfall payments in intervals of $ 300,000 after Meteora has recovered 120.0 % of the Prepayment Shortfall. Accordingly, the Company wrote off the other receivable totaling $ 185,000 owed from Meteora for one -half of +F-45 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +the 1.0 % of the Prepayment Shortfall that was included as a component of other current assets on the accompanying consolidated balance sheets. +● Reset Price to the lower of (a) the then current Reset Price, (b) the Initial Price, (c) the volume-weighted average price (the “VWAP”) of the Shares of the prior week, but not lower than $ 2.00 , provided the Reset Price may be further reduced pursuant to a Dilutive Offering Reset (as defined in the FPA) +In addition the FPA Amendment added terms around the Settlement Amount and the Settlement Amount Adjustment, both defined in the 2024 FPA. There were no shares sold pursuant to the FPA between the Closing Date and the date the FPA Amendment was executed. +The FPA Amendment was deemed to be a modification and the Company recognized a gain of $ 1,547,236 on the modification of the FPA, which is net of the amount due from Meteora for one -half of the 1.0 % of the Prepayment Shortfall, and is included as a component of other income (expense) in the consolidated statements of operations and comprehensive loss. +In December 2024, the Company and Meteora amended the 2024 FPA (the 2024 FPA as amended, the “Amended 2024 FPA” and the amendment to the 2024 FPA, the “Second FPA Amendment”), whereby Meteora waived the requirement to adjust the Reset Price for a dilutive offering and the VWAP Trigger Event through December 31, 2025 that may occur in connection with the Company entering into the SEPA (see Note 12). In exchange for the entering into the Second FPA Amendment, the Company released 500,000 shares of the Company’s common stock held by Meteora from their designation as Recycled Shares. The Second FPA Amendment’s most significant changes deleted the definitions of Reset Price and Prepayment Shortfall from the FPA Amendment and replaced these as follows: +● Reset Price to the lower of (a) the then current Reset Price, (b) the Initial Price, (c) the VWAP of the Shares of the prior week, but not lower than $ 2.00 , and (d) the price per share of the issuance of any shares upon conversion of amounts due to Yorkville pursuant to the SEPA (other than the issuance of shares to pay the SEPA commitment fee), but not lower than $ 1.00 ; provided the Reset Price may be further reduced pursuant to a Dilutive Offering Reset (as defined in the FPA) +● Prepayment shortfall to 0.5 % of the product of the number of Recycled Shares and the Initial Price and permitting the Company to request shortfall payments in intervals of $ 300,000 (at any time up to forty-five calendar days prior to the Valuation Date) after (i) Meteora has recovered 130.0 % of the Prepayment Shortfall and (ii) the VWAP Price over the ten trading days prior to an Additional Shortfall Request multiplied by the then current number of shares (excluding unregistered shares) held by Meteora less Shortfall Sale Shares be at least seven times greater than the Additional Shortfall Request and (iii) the average daily value traded over the prior ten trading days be at least seven times greater than the Additional Shortfall Request (with (i), (ii), and (iii) collectively the “Equity Conditions”). Meteora has the right, but not the obligation to waive the Equity Conditions for each Additional Shortfall Request. +During the year ended December 31, 2024, Meteora sold 1,044,576 shares pursuant to the 2024 FPA and the Company received cash proceeds of $ 1,000,000 . +On April 2, 2025, the Company entered into a mutual termination agreement with Meteora to terminate the Amended 2024 FPA (the “FPA Termination Agreement”) in exchange for termination consideration of $ 500,000 . Pursuant to the FPA Termination Agreement, the 1,618,948 shares of the Company’s common stock that Meteora held as of the termination date of April 2, 2025 were deemed free and clear of all obligations, the number of Recycled Shares was equal to zero , and the Prepayment Shortfall was deemed to be zero . The Company received the termination consideration from Meteora in April 2025. +Debt conversion adjustment obligations +Share Reset Derivative Liabilities: In connection with five conversion agreements entered into during September 2024 (see Note 11, Note 18 and Note 19), the Company provided vendors and lenders with a one-time share reset adjustment (the “Share Reset”) such that the vendors and lenders would receive additional shares equal to the difference between the number of shares of the Company’s common stock that would be issued at the reset price on the reset date less the number of Conversion Shares. Three of these conversion agreements were with related parties (see Note 18). +The reset price was set to be the greater of the VWAP of the Company’s common stock for the five trading days preceding the reset date or $ 1.25 . The reset day was defined as the earlier of (i) six months from the date of the conversion agreement and (ii) the date that +F-46 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +a registration statement registering the conversion shares is declared effective. If the reset price is less than $ 2.00 per share, additional shares shall be issued to the vendors and lenders equal to the quotient obtained by dividing the (i) product of (A) the conversion price of $ 2.00 less the reset price and (b) the number of Conversion Shares by (ii) the reset price. +The Share Reset feature was analyzed in accordance with ASC 815 and determined to be a financial instrument that was required to be bifurcated and accounted for as a derivative liability that was recorded at fair value at inception and re-measured to fair value each reporting period (see Note 15). +In March 31, 2025, 2,737,168 shares were issued in accordance with the terms of the Share Reset on five of the related conversion agreements extinguishing the Company’s obligations under those agreements. +November 2024 Consideration Adjustment Derivative Liabilities: In connection with two conversion agreements entered into during November 2024 (see Note 11 and Note 19), the Company provided a vendor and a lender with a one-time consideration adjustment (the “November 2024 Consideration Adjustment”) such that the vendor and lender would receive a payment equal to the product of (i) the conversion price of $ 1.25 less the reset price and (ii) the number of the Conversion Shares held by the vendor and lender on the reset date in cash, or other immediately available funds, if the reset price is less than $ 1.25 per share. The reset price was set to be the greater of the VWAP of the Company’s common stock for the five trading days preceding the reset date or $ 1.25 . The reset date was defined as the later of (i) ninety days from the date of the conversion agreement and (ii) the date that a registration statement registering the conversion shares is declared effective. +The November 2024 Consideration Adjustment feature was analyzed in accordance with ASC 815 and determined to be a financial instrument that was required to be bifurcated and accounted for as a derivative liability that was recorded at fair value at inception and re-measured to fair value each reporting period (see Note 15). +December 2024 Consideration Adjustment Derivative Liability: In connection with one conversion agreement entered into during December 2024 (see Note 19), the Company provided a vendor with a one-time consideration adjustment (the “December 2024 Consideration Adjustment”) after the reset date such that the vendor is required to sell the Conversion Shares after the reset date over a twenty day period (with no more than 5.0 % of shares sold per trading day) (collectively, the “Sale Dates”). The vendor is entitled to receive a payment in cash, or other immediately available funds, equal to the amount the proceeds from the Sale Dates is less than the difference of the carrying value of the associated converted outstanding obligations. The reset date was defined as the later of (i) ninety days from the date of the conversion agreement and (ii) the date that a registration statement registering the conversion shares is declared effective. +The December 2024 Consideration Adjustment feature was analyzed in accordance with ASC 815 and determined to be a financial instrument that was required to be bifurcated and accounted for as a derivative liability that was recorded at fair value at inception and re-measured to fair value each reporting period (see Note 15). +First Reset Shares, Second Reset Shares and Make-Whole Payment Derivative Liabilities: In connection with one conversion agreement entered into September 2024 in connection with the Amended January 2024 SFR Agreement (see Note 18), the Company provided a lender with two share reset adjustments and a make-whole payment provision such that the lender would receive additional shares as follows: +● On the first reset date, which is eighteen weeks from the date a registration statement filed with the SEC registering the conversion shares is declared effective, if the first reset price, calculated as the greater of the VWAP of the Company’s common stock for the five trading days preceding the first reset date or $ 1.25 , is less than $ 2.00 , then the Company shall, at the lender’s election, either +o issue to the lender an additional number of shares of the Company’s common stock equal to the quotient obtained by dividing the product of (a) the conversion price of $ 2.00 less the first reset price and (b) the number of Conversion Shares held by the lender on the first reset date by (c) the first reset price (the “First Reset Shares”) or +o pay to the lender an amount equal to the product of (a) the conversion price of $ 2.00 less the first reset price and (b) the number of Conversion Shares held by the lender on the first reset date. +F-47 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +● On the second reset date, which is thirty-six weeks from the date a registration statement filed with the SEC registering the conversion shares is declared effective, if the second reset price, calculated as the greater of the VWAP of the Company’s common stock for the five trading days preceding the second reset date (the “Second Reset Date Market Price”) or $ 1.25 , is less than $ 2.00 , then the Company shall, at the lender’s election, either +o issue to the lender an additional number of shares of the Company’s common stock equal to the quotient obtained by dividing the product of (a) the first reset price less the second reset price and (b) the number of Conversion Shares held by the lender on the second reset date by (c) the second reset price (the “Second Reset Shares”) or +o pay to the lender an amount equal to the product of (a) the first reset price less the second reset price and (b) the number of Conversion Shares held by the lender on the second reset date. +● On the second reset date, if the Second Reset Date Market Price is less than $ 1.25 , then the Company owes the lender an amount equal to the product of (a) $ 1.25 less the Second Reset Date Market Price and (b) the number of Conversion Shares, including the second reset shares held by the lender on the second reset date (the “Make-Whole Payment”). +The First Reset Shares, the Second Reset Shares, and the Make-Whole Payment were analyzed in accordance with ASC 815 and determined to be financial instruments that was required to be bifurcated and accounted for as a single derivative liability that was recorded at fair value at inception and re-measured to fair value each reporting period (see Note 15). +SEPA Derivative Liability +The SEPA (see Note 12) was determined to be a freestanding financial instrument which did not meet the criteria to be accounted for as a derivative instrument or to be recognized within equity. Pursuant to ASC 815, the Company will therefore recognize the SEPA Option as an asset or liability, measured at fair value at the date of issuance and in subsequent reporting periods, with changes in fair value recognized in earnings. The SEPA Option was determined to have a fair value of $ 65,114 on the date of issuance and at December 31, 2024 (see Note 15). +Shares to be issued at settlement of derivative liabilities +The shares of the Company’s common stock to be issued to settle the above derivative liabilities is dependent on the share price at a future date, and as such, it is not an amount that can be estimated as of December 31, 2024. There is no limit to the number of shares that can be issued to settle the agreements in the respective arrangements. +​ +NOTE 15: FAIR VALUE MEASUREMENTS +The following table sets forth by level, within the fair value hierarchy, the Company’s assets and liabilities, including financial liabilities for which the Company has elected the fair value option, measured and recorded at fair value on a recurring basis as of December 31, 2024: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Level I +​ +Level II +​ +Level III +​ +Total +​ +Assets +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Forward purchase agreement +​ +$ +— +​ +$ +— +​ +$ +1,471,000 +​ +$ +1,471,000 +​ +Total assets +​ +$ +— +​ +$ +— +​ +$ +1,471,000 +​ +$ +1,471,000 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Liabilities +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Derivative liabilities +​ +$ +— +​ +$ +— +​ +$ +4,229,478 +​ +$ +4,229,478 +​ +Contingent consideration +​ +​ +— +​ +​ +— +​ +​ +434,174 +​ +​ +434,174 +​ +Convertible debt +​ +​ +— +​ +​ +— +​ +​ +8,542,323 +​ +​ +8,542,323 +​ +Total liabilities +​ +$ +— +​ +$ +— +​ +$ +13,205,975 +​ +$ +13,205,975 +​ +​ +F-48 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The following table sets forth by level, within the fair value hierarchy, the Company’s liabilities, including financial liabilities for which the Company has elected the fair value option, measured and recorded at fair value on a recurring basis as of December 31, 2023: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Level I +​ +Level II +​ +Level III +​ +Total +​ +Liabilities +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Convertible notes payable +​ +$ +— +​ +$ +— +​ +$ +2,178,685 +​ +$ +2,178,685 +​ +Total liabilities +​ +$ +— +​ +$ +— +​ +$ +2,178,685 +​ +$ +2,178,685 +​ +​ +The Company did no t have any assets measured and recorded at fair value on a recurring basis as of December 31, 2023. The Company did no t make any transfers into or out of Level 3 of the fair value hierarchy during the years ended December 31, 2024 and 2023. +​ +F-49 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The following table provides a reconciliation of our assets and liabilities measured at fair value using Level 3 inputs: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Forward purchase agreement +​ +Derivative liabilities +​ +Contingent consideration +​ +Convertible debt +Balance, December 31, 2023 +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +( 2,178,685 ) +Conversion to shares of Legacy ConnectM's common stock +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +3,779,223 +Assumed from Business Combination +​ +​ +( 27,189,660 ) +​ +​ +— +​ +​ +— +​ +​ +( 3,680,000 ) +Additions +​ +​ +— +​ +​ +( 4,042,050 ) +​ +​ +( 575,690 ) +​ +​ +( 4,940,000 ) +Change in fair value +​ +​ +( 8,254,390 ) +​ +​ +( 187,428 ) +​ +​ +( 59,723 ) +​ +​ +( 1,707,747 ) +Reclass out of Level 3 +​ +​ +​ +​ +​ +​ +​ +​ +201,239 +​ +​ +​ +Gain from modification +​ +​ +1,572,236 +​ +​ +— +​ +​ +— +​ +​ +— +Releases of Recycled Shares as consideration for Forward Purchase Agreement modification +​ +​ +( 385,000 ) +​ +​ +— +​ +​ +— +​ +​ +— +Day one gain on issuance +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +134,886 +Cash payments +​ +​ +36,727,814 +​ +​ +— +​ +​ +— +​ +​ +50,000 +Less: cash received +​ +​ +( 1,000,000 ) +​ +​ +— +​ +​ +— +​ +​ +— +Ending balance, December 31, 2024 +​ +$ +1,471,000 +​ +$ +( 4,229,478 ) +​ +$ +( 434,174 ) +​ +$ +( 8,542,323 ) +​ +Convertible Notes Payable (fair value option) +The Company’s carrying value and fair value for the convertible notes payable for which the Company elected the fair value option is as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +December 31, 2024 +​ +December 31, 2023 +​ +​ +Carrying Value +​ +Fair Value +​ +Carrying Value +​ +Fair Value +Amended 2022 Convertible Notes +​ +$ +— +​ +$ +— +​ +$ +1,350,000 +​ +$ +1,369,734 +2023 Convertible Notes +​ +​ +— +​ +​ +— +​ +​ +900,000 +​ +​ +808,951 +2024 Convertible Notes +​ +​ +2,440,000 +​ +​ +2,547,209 +​ +​ +— +​ +​ +— +Assumed 2024 Note +​ +​ +3,630,000 +​ +​ +3,630,000 +​ +​ +— +​ +​ +— +SEPA Convertible Note +​ +​ +2,500,000 +​ +​ +2,365,114 +​ +​ +— +​ +​ +— +​ +​ +$ +8,570,000 +​ +$ +8,542,323 +​ +$ +2,250,000 +​ +$ +2,178,685 +​ +The change in fair value on convertible debt resulted in a loss of approximately $ 1,708,000 and a gain of approximately $ 25,000 for the years ended December 31, 2024 and 2023, which was recorded as a component of other income on the accompanying consolidated statements of operations and comprehensive loss. +Amended 2022 Convertible Notes, 2023 Convertible Notes, and 2024 Convertible Notes: The Amended 2022 Convertible Notes, 2023 Convertible Notes, and 2024 Convertible Notes are re-measured to fair value at each reporting period using the following relevant assumptions: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +December 31, 2024 +​ +December 31, 2023 +​ +Discount rate +​ +​ +​ +​ +​ +​ +​ +​ +20.0 +% +​ +15.0 +% +Probability of conversion at maturity scenario +​ +​ +​ +​ +​ +​ +​ +​ +70.0 - 100.0 +% +​ +15.0 +% +Probability of voluntary conversion scenario +​ +​ +​ +​ +​ +​ +​ +​ +0.0 - 30.0 +% +​ +N/A +​ +Probability of automatic conversion scenario +​ +​ +​ +​ +​ +​ +​ +​ +N/A +​ +​ +85.0 +% +Remaining term for conversion at maturity scenario +​ +​ +​ +​ +​ +​ +​ +​ +0.01 - 0.28 years +​ +​ +0.88 - 1.38 years +​ +Remaining term for voluntary conversion scenario +​ +​ +​ +​ +​ +​ +​ +​ +0.01 - 0.03 years +​ +​ +N/A +​ +Remaining term for automatic conversion scenario +​ +​ +​ +​ +​ +​ +​ +​ +N/A +​ +​ +0.50 years +​ +​ +Assumed 2024 Note: The fair value of the Assumed 2024 Note is re-measured to fair value at each reporting period using unobservable inputs, the most significant of which was the expected average volume weighted average price for a share of the Company’s common stock for the five -business day period preceding the maturity date of the Company at the maturity date. +F-50 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +SEPA Convertible Note: The fair value of the SEPA Convertible Note was determined utilizing a Monte Carlo simulation considering the following relevant assumptions: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +December 31, 2024 +​ +December 17, 2024 +(issuance) +​ +Remaining term +​ +​ +​ +​ +​ +​ +​ +​ +0.97 years +​ +​ +1.00 years +​ +Volatility +​ +​ +​ +​ +​ +​ +​ +​ +88.0 +% +​ +88.0 +% +Risk-free rate +​ +​ +​ +​ +​ +​ +​ +​ +4.3 +% +​ +4.3 +% +Drift term +​ +​ +​ +​ +​ +​ +​ +​ +4.2 +% +​ +4.2 +% +Conversion price for payments to be made through issuance of Company's common stock +​ +​ +​ +​ +​ +​ +​ +$ +0.41 +​ +$ +0.41 +​ +Payments to be made through issuance of shares of Company's common stock +​ +​ +​ +​ +​ +​ +​ +​ +11.1 +% +​ +11.1 +% +Payments to be made in cash +​ +​ +​ +​ +​ +​ +​ +​ +88.9 +% +​ +88.9 +% +​ +Forward Purchase Agreement +The change in fair value on the forward purchase agreement resulted in a net loss of approximately $ 8,254,390 and a gain on modification of the forward purchase agreement was approximately $ 1,572,236 for the year ended December 31, 2024, which was recorded as a component of other income on the accompanying consolidated statements of operations and comprehensive loss. +The fair value of the FPA was re-measured to fair value at assumption and immediately prior to the modification utilizing a Black-Scholes option pricing model that utilizes the following relevant assumptions: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +August 2, 2024 (modification) +​ +July 12, 2024 (assumption) +​ +Expected term +​ +​ +​ +​ +​ +​ +​ +​ +2.94 years +​ +​ +3.0 years +​ +Price per share of Company's common stock +​ +​ +​ +​ +​ +​ +​ +$ +0.78 +​ +$ +3.54 +​ +Exercise price +​ +​ +​ +​ +​ +​ +​ +$ +13.36 +​ +$ +13.36 +​ +Volatility +​ +​ +​ +​ +​ +​ +​ +​ +80.0 +% +​ +46.0 +% +Risk-free interest rate +​ +​ +​ +​ +​ +​ +​ +​ +3.7 +% +​ +4.2 +% +Dividend rate +​ +​ +​ +​ +​ +​ +​ +​ +0.0 +% +​ +0.0 +% +Probability of completing the Business Combination +​ +​ +​ +​ +​ +​ +​ +​ +N/A +​ +​ +100.0 +% +​ +The FPA Amendment provide two settlement options whereby the 2024 FPA can be settled either at maturity if shares of the Company’s common stock are trading above $ 2.00 per share (the “Maturity Settlement Scenario”) or at the Company’s request for a prepayment short-fall whereby the Company requests Meteora to sell shares (the “Prepayment Shortfall Scenario”). The Second FPA Amendment also provides a Maturity Settlement Scenario and a Prepayment Shortfall Scenario, with a revised definition for the Prepayment Shortfall Scenario (see Note 14). +F-51 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The fair value of the 2024 FPA was re-measured to fair value at each subsequent reporting period and immediately prior to its modification in December 2024 and the fair value of the Amended 2024 FPA was measured at fair value immediately subsequent to the modification in December 2024 and each subsequent reporting period utilizing a Monte Carlo simulation model that applies a probability of occurrence to the present value of each settlement scenario. as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Amended 2024 FPA +​ +2024 FPA +​ +​ +​ +​ +​ +​ +December 31, 2024 +​ +December 16, 2024 +(modification) +​ +December 16, 2024 +(modification) +​ +Probability of maturity settlement scenario +​ +​ +​ +​ +​ +15.0 +% +​ +15.0 +% +​ +15.0 +% +Probability of prepayment shortfall settlement scenario +​ +​ +​ +​ +​ +85.0 +% +​ +85.0 +% +​ +85.0 +% +Recycled Shares held by Meteora +​ +​ +​ +​ +​ +1,703,890 +​ +​ +1,703,890 +​ +​ +2,203,890 +​ +Price per share of Company's common stock +​ +​ +​ +​ +$ +1.21 +​ +$ +0.77 +​ +$ +0.77 +​ +Remaining term +​ +​ +​ +​ +​ +2.53 years +​ +​ +2.57 years +​ +​ +2.57 years +​ +Risk-free interest rate +​ +​ +​ +​ +​ +4.3 +% +​ +4.2 +% +​ +4.2 +% +Drift term +​ +​ +​ +​ +​ +4.2 +% +​ +4.1 +% +​ +4.1 +% +Volatility +​ +​ +​ +​ +​ +85.0 +% +​ +81.0 +% +​ +81.0 +% +Forecasted price per share of Company's common stock at maturity +​ +​ +​ +​ +​ +2.30 +​ +​ +0.37 +​ +$ +0.37 +​ +Expected margin from Meteora's sale of Recycled Shares +​ +​ +​ +​ +​ +76.9 +% +​ +76.9 +% +​ +83.3 +% +​ +Contingent consideration obligation +The change in fair value of the contingent consideration obligation resulted in a loss of approximately $ 60,000 for the year ended December 31, 2024, which was recorded as a component of other income on the accompanying consolidated statements of operations and comprehensive loss. +The fair value of the contingent consideration obligation was measured to fair value at inception and re-measured at each reporting period utilizing a Monte Carlo simulation considering the following relevant assumptions: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +December 31, 2024 +​ +August 5, 2024 +(acquisition) +​ +Operating leverage +​ +​ +​ +​ +​ +​ +​ +​ +150.0 +% +​ +150.0 +% +Revenue volatility +​ +​ +​ +​ +​ +​ +​ +​ +20.1 +% +​ +20.0 +% +EBITDA volatility +​ +​ +​ +​ +​ +​ +​ +​ +50.2 +% +​ +50.0 +% +Earnout risk free rate +​ +​ +​ +​ +​ +​ +​ +​ +4.5 +% +​ +3.7 +% +Long-term risk-free rate +​ +​ +​ +​ +​ +​ +​ +​ +4.9 +% +​ +4.2 +% +Weighted average cost of capital +​ +​ +​ +​ +​ +​ +​ +​ +18.0 +% +​ +13.9 +% +Correlation between revenue and EBITDA +​ +​ +​ +​ +​ +​ +​ +​ +0.65 +​ +​ +0.73 +​ +Discount rate +​ +​ +​ +​ +​ +​ +​ +​ +6.0 +% +​ +9.2 +% +Term to payment +​ +​ +​ +​ +​ +​ +​ +​ +0.1 - 7.1 years +​ +​ +0.5 - 7.5 years +​ +​ +Derivative Liabilities +The change in fair value of the derivative liabilities resulted in a loss of approximately $ 187,000 and a day one gain on the issuance of the SEPA was approximately $ 135,000 for the year ended December 31, 2024, which were recorded as a component of other income on the accompanying consolidated statements of operations and comprehensive loss. +F-52 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Debt conversion share adjustment obligations: The fair value of the derivative liabilities issued in connection with the September 2024 debt conversion agreements were determined using Monte Carlo simulations considering the following relevant assumptions at the date of issuance and each subsequent reporting period: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +December 31, 2024 +​ +September 24, 2024 +(issuances) +​ +September 12, 2024 +(issuances) +​ +Price per share of Company's common stock +​ +​ +​ +​ +$ +1.21 +​ +$ +1.26 +​ +$ +1.09 +​ +Equity volatility +​ +​ +​ +​ +​ +89.0 - 93.0 +% +​ +85.0 - 91.0 +% +​ +85.0 +% +Reset price floor +​ +​ +​ +​ +$ +1.25 +​ +$ +1.25 +​ +$ +1.25 +​ +Reset price ceiling +​ +​ +​ +​ +$ +2.00 +​ +$ +2.00 +​ +$ +2.00 +​ +Remaining term - First Reset Date +​ +​ +​ +​ +​ +0.19 - 0.62 years +​ +​ +0.50 - 0.89 years +​ +​ +0.50 years +​ +Forecasted per share of Company's common stock - Reset Date +​ +​ +​ +​ +$ +1.12 +​ +​ +1.08 +​ +$ +0.93 +​ +Risk-fee rate - Reset Date +​ +​ +​ +​ +​ +4.4 +% +​ +4.4 +% +​ +4.7 +% +Drift term - Reset Date +​ +​ +​ +​ +​ +4.3 +% +​ +4.3 +% +​ +4.6 +% +Forecasted five day VWAP per share of Company's common stock - First Reset Date +​ +​ +​ +​ +$ +0.96 +​ +$ +0.91 +​ +$ +0.94 +​ +Risk-fee rate - First Reset Date +​ +​ +​ +​ +​ +4.2 +% +​ +4.0 +% +​ +N/A +​ +Drift term - First Reset Date +​ +​ +​ +​ +​ +4.1 +% +​ +3.9 +% +​ +N/A +​ +Remaining term - Second Reset Date +​ +​ +​ +​ +​ +1.04 years +​ +​ +1.31 years +​ +​ +N/A +​ +Forecasted five day VWAP per share of Company's common stock - Second Reset Date +​ +​ +​ +​ +$ +0.81 +​ +$ +0.77 +​ +$ +N/A +​ +Risk-fee rate - Second Reset Date +​ +​ +​ +​ +​ +4.2 +% +​ +3.8 +% +​ +N/A +​ +Drift term - Second Reset Date +​ +​ +​ +​ +​ +4.1 +% +​ +3.7 +% +​ +N/A +​ +​ +November 2024 Consideration Adjustment Derivative Liabilities: The fair value of the November 2024 Consideration Adjustment Derivative Liabilities was determined using a Monte Carlo simulation considering the following relevant assumptions at the date of issuance and each subsequent reporting period: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +December 31, 2024 +​ +November 13, 2024 +(issuance) +​ +Remaining term +​ +​ +​ +​ +​ +​ +​ +​ +0.29 years +​ +​ +0.25 years +​ +Price per share of Company's common stock +​ +​ +​ +​ +​ +​ +​ +$ +1.21 +​ +$ +0.84 +​ +Volatility +​ +​ +​ +​ +​ +​ +​ +​ +88.0 +% +​ +77.0 +% +Risk-free rate +​ +​ +​ +​ +​ +​ +​ +​ +4.4 +% +​ +4.6 +% +Drift term +​ +​ +​ +​ +​ +​ +​ +​ +4.3 +% +​ +4.5 +% +Forecasted per share of Company's common stock - Reset Date +​ +​ +​ +​ +​ +​ +​ +$ +1.10 +​ +$ +0.79 +​ +​ +December 2024 Consideration Adjustment Derivative Liability: The fair value of the December 2024 Consideration Adjustment Derivative Liability was determined using a Monte Carlo simulation considering the following relevant assumptions at the date of issuance and each subsequent reporting period: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +December 31, 2024 +​ +December 27, 2024 +(issuance) +​ +Remaining term +​ +​ +​ +​ +​ +​ +​ +​ +0.25 years +​ +​ +0.25 years +​ +Price per share of Company's common stock +​ +​ +​ +​ +​ +​ +​ +$ +1.21 +​ +$ +1.20 +​ +Volatility +​ +​ +​ +​ +​ +​ +​ +​ +88.0 +% +​ +86.0 +% +Risk-free rate +​ +​ +​ +​ +​ +​ +​ +​ +4.4 +% +​ +4.3 +% +Drift term +​ +​ +​ +​ +​ +​ +​ +​ +4.3 +% +​ +3.2 +% +Forecasted per share of Company's common stock - Sale Dates +​ +​ +​ +​ +​ +​ +​ +$ +1.08 - 1.10 +​ +$ +1.08 - 1.10 +​ +​ +F-53 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +SEPA Derivative Liability: The fair value of the SEPA Derivative Liability was determined using a Monte Carlo simulation considering the following relevant assumptions at the date of issuance and each subsequent reporting period: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +December 31, 2024 +​ +December 17, 2024 +(issuance) +​ +Remaining term +​ +​ +​ +​ +​ +​ +​ +​ +0.97 years +​ +​ +1.00 years +​ +Volatility +​ +​ +​ +​ +​ +​ +​ +​ +88.0 +% +​ +88.0 +% +Risk-free rate +​ +​ +​ +​ +​ +​ +​ +​ +4.3 +% +​ +4.3 +% +Drift term +​ +​ +​ +​ +​ +​ +​ +​ +4.2 +% +​ +4.2 +% +Conversion price for payments to be made through issuance of Company's common stock +​ +​ +​ +​ +​ +​ +​ +$ +0.41 +​ +$ +0.41 +​ +Payments to be made through issuance of shares of Company's common stock +​ +​ +​ +​ +​ +​ +​ +​ +11.1 +% +​ +11.1 +% +Payments to be made in cash +​ +​ +​ +​ +​ +​ +​ +​ +88.9 +% +​ +88.9 +% +Prepayment premium +​ +​ +​ +​ +​ +​ +​ +​ +107.0 +% +​ +107.0 +% +​ +​ +NOTE 16: LEASES +The Company has operating and finance leases for its corporate offices, call centers and vehicles. The following table provides a summary of the components of lease costs, which are included within cost of revenue and selling, general and administrative on the accompanying consolidated statements of operations and comprehensive loss, for the years ended December 31: +​ +​ +​ +​ +​ +​ +​ +​ +​ +2024 +2023 +Operating lease costs +​ +$ +172,974 +​ +$ +168,995 +Short-term lease costs +​ +​ +181,718 +​ +​ +209,102 +Finance lease costs +​ +​ +Amortization of ROU assets +​ +121,457 +​ +118,851 +Interest on lease liabilities +​ +19,000 +​ +18,956 +Total lease costs +​ +$ +495,149 +​ +$ +515,904 +​ +The following table provides the weighted-average lease terms and discount rates for the Company’s operating and finance leases at December 31: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +2024 +2023 +Weighted-average remaining lease term (in years) +​ +​ +​ +​ +​ +​ +Operating leases +​ +2.5 years +​ +​ +2.52 years +Finance leases +​ +1.7 years +​ +​ +2.55 years +Weighted-average discount rate +​ +​ +​ +​ +​ +Operating leases +​ +14.2 % +​ +​ +8.0 % +Finance leases +​ +8.0 % +​ +​ +8.0 % +​ +The following tables provides a summary of lease liability maturities as of December 31, 2024: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Finance +​ +​ +​ +​ +​ +Leases +Operating Leases +Total +2025 +​ +$ +113,506 +​ +$ +143,412 +​ +$ +256,918 +2026 +​ +62,634 +​ +86,291 +​ +148,925 +2027 +​ +33,814 +​ +64,744 +​ +98,558 +Total undiscounted lease payments +​ +209,954 +​ +294,447 +​ +504,401 +Less: imputed interest +​ +( 14,836 ) +​ +( 42,088 ) +​ +( 56,924 ) +Total lease liabilities +​ +$ +195,118 +​ +$ +252,359 +​ +$ +447,477 +​ +​ +​ +​ +F-54 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +NOTE 17: INCOME TAXES +The components of the income tax provision (benefit) are as follows: +​ +​ +​ +​ +​ +​ +​ +​ +Years ended December 31, +​ +2024 +2023 +Current +​ +Federal +— +​ +$ +— +State +— +​ +— +Foreign +— +​ +— +Total Current +— +​ +— +Deferred +​ +Federal +— +​ +$ +— +State +— +​ +— +Foreign +— +​ +— +Total Deferred +— +​ +— +Total income taxes +— +​ +$ +— +​ +The Company is subject to a federal income tax rate of 21.0 %. Additionally, the Company is subject to a blended state income tax rate of 6.3 % net of federal benefits. Lastly, the Company is subject to a foreign income tax rate as it relates to its India-based subsidiary of 0.0 %. The Company has an effective tax rate of 0.0 % for the years ended December 31, 2024 and 2023, due to the fact that the Company is in a full valuation allowance position. +The principal components of deferred income tax assets, net, were as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +Years ended December 31, +​ +2024 +2023 +Deferred tax assets +​ +​ +Other +$ +10,566 +​ +$ +4,266 +Amortization and impairment +​ +​ +492,385 +​ +​ +— +ROU asset +​ +78,087 +​ +157,555 +Net operating losses +​ +8,450,019 +​ +5,408,937 +Deferred tax assets +​ +9,031,057 +​ +5,570,758 +Less: Valuation allowance +​ +( 8,888,489 ) +​ +( 5,207,943 ) +Total deferred tax assets +​ +$ +142,568 +​ +$ +362,815 +Deferred tax liabilities +​ +​ +Depreciation, amortization, and impairment +​ +( 28,220 ) +​ +( 219,512 ) +Lease assets +​ +( 114,348 ) +​ +( 143,303 ) +Deferred tax liabilities +​ +​ +( 142,568 ) +​ +​ +( 362,815 ) +Net deferred tax assets +​ +$ +— +​ +$ +— +​ +As of December 31, 2024 and 2023, the Company had Federal and state net operating loss carryforwards of approximately $ 34,598,000 and $ 31,092,000 which are available to offset future taxable income. They are due to expire starting in 2026. Federal net operating losses occurring after December 31, 2017, of approximately $ 31,182,000 may be carried forward indefinitely. A valuation allowance has been established for the full amount of net deferred income tax assets as management has concluded that it is more likely than not that the benefits from such assets will not be realized. +​ +NOTE 18: RELATED PARTY TRANSACTIONS +Sponsor of MCAC +In connection with the closing of the Business Combination, the Company assumed unsecured promissory notes totaling approximately $ 555,000 that are non-interest bearing and due on demand and advances totaling approximately $ 132,000 that are non-interest bearing and due on demand with the Sponsor of MCAC. During September 2024, the Company entered into a note conversion agreement with the Sponsor of MCAC in which the Company converted the outstanding principal on unsecured promissory notes and +F-55 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +certain other liabilities owed to the note holders into shares of the Company’s common stock at a conversion price of $ 2.00 per share with a one-time share reset adjustment (see Note 14), subject to shareholder approval and a maximum aggregate ownership amount of 19.99 % for each individual lender. In connection with these agreements, approximately $ 555,000 of unsecured promissory notes and approximately $ 132,000 of accounts payable and accrued expenses were extinguished in exchange for the issuance of 343,248 shares of the Company’s common stock (see Note 12). +In connection with the conversion agreement, the Sponsor of MCAC received a one-time share reset adjustment that were subsequently settled during the quarter ended March 31, 2025 through the issuance of 205,949 shares of the Company’s common stock (see Note 14). As of December 31, 2024, the fair value of the derivative liabilities associated with the reset adjustment was approximately $ 158,000 and was included as a component of derivative liabilities on the accompanying consolidated balance sheets. For the year ended December 31, 2024, the Company recorded a change in fair value on these derivative liabilities of $ 26,000 , which was included as a component of change in fair value of derivative liabilities on the accompanying consolidated statements of operations and comprehensive loss. +Related Party Investors +Immediately following the note conversion agreements in September 2024 with secured promissory note holders in which the Company converted the outstanding principal on the secured promissory notes, including accrued and unpaid interest, and certain other liabilities owed to the note holders into shares of the Company’s common stock (see Note 11), the ownership percentage of the Company’s common stock of two individual lenders individually exceeded 5.0 %, triggering a related party relationship. These two lenders are collectively referred to as the Related Party Investors. +In connection with the conversion agreements, each Related Party Investor received a one-time share reset adjustment that were subsequently settled during the quarter ended March 31, 2025 through the issuance of 1,460,130 and 795,675 shares of the Company’s common stock (see Note 14). As of December 31, 2024, the fair value of the derivative liabilities associated with the reset adjustment granted to each Related Party Investor was approximately $ 1,146,000 and $ 624,000 and were included as a component of derivative liabilities on the accompanying consolidated balance sheets. For the year ended December 31, 2024, the Company recorded a change in fair value on these derivative liabilities of $ 192,000 and $ 104,000 , which were included as a component of change in fair value of derivative liabilities on the accompanying consolidated statements of operations and comprehensive loss. +The Related Party Investors collectively own 100 % of an entity that has controlling interest in four customers within the managed solutions operating segment (the “Related Party Managed Solutions Customers”). The Company acquired one of these customers, GEG, in October 2024 from the entity owned by Related Party Investors (see Note 6). From the period between when the related party relationship was triggered in September 2024 through December 31, 2024, the Company earned revenue totaling approximately $ 644,000 , incurred cost of revenues totaling approximately $ 188,000 , and incurred selling, general and administrative expenses totaling approximately $ 517,000 from the remaining three Related Party Managed Solutions Customers. As of December 31, 2024, the Company was owed approximately $ 349,000 for managed services from the Related Party Managed Solutions Customers, which was included as a component of accounts receivable on the accompanying consolidated balance sheets and approximately $ 102,000 for working capital advances from the Related Party Managed Solutions Customers, which was included as a component of working capital advances on the accompanying consolidated balance sheets. As of December 31, 2024, the Company owed approximately $ 28,000 to the Related Party Managed Solutions Customers. +Prior to the date the related party relationship was triggered, each Related Party Investors had entered into secured promissory notes that remained outstanding as of December 31, 2024 totaling $ 1,750,000 and $ 1,400,000 and were included as a component of debt, net on the accompanying consolidated balance sheets. Accrued interest on the notes remaining outstanding as of December 31, 2024 totaled approximately $ 384,000 and $ 289,000 and are included as a component of accrued expenses on the accompanying consolidated balance sheets. +Related Party Lender +The Company has two unsecured promissory notes with a company owned by the Company’s chief executive officer (see Note 11). +Following the closing of the Business Combination on July 12, 2024 which triggered the conversion of certain convertible notes, a noteholder’s ownership percentage of the Company’s common stock exceeded 5.0 %, triggering a related party relationship. +F-56 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +On October 10, 2024, the Company issued this related party a convertible note with a principal amount of $ 800,000 . The note has an interest rate of 20 % and a maturity date of April 8, 2025. The note is convertible during the first 90 days after issuance at a conversion price of $ 1.10 . The Company accounts for these convertible notes using the fair value option. As of December 31, 2024, the carrying amount of the note and accrued interest was $ 800,000 and $ 35,945 , respectively. As of December 31, 2024, the fair value of this note was approximately $ 837,000 . +On October 10, 2024, the Company issued this related party a convertible note with a principal amount of $ 400,000 . The note has an interest rate of 20 % and a maturity date of June 1, 2025. The note is convertible during the first 90 days after issuance at a conversion price of $ 1.10 . The Company accounts for these convertible notes using the fair value option. As of December 31, 2024, the carrying amount of the note and accrued interest was $ 400,000 and $ 6,137 , respectively. As of December 31, 2024, the fair value of this note was approximately $ 418,000 . +​ +NOTE 19: COMMITMENTS AND CONTINGENCIES +Legal and regulatory proceedings: +The Company is subject to various routine litigation, legal proceedings, and regulatory matters, that arise in the ordinary course of its business. T he Company reviews its lawsuits, regulatory matters, and other legal proceedings on an ongoing basis and provides disclosure and records loss contingencies in accordance with the loss contingencies accounting guidance. In accordance with such guidance, the Company establishes accruals for such matters when potential losses become probable and can be reasonably estimated. If the Company determines that a loss is reasonably possible and the loss or range of loss can be estimated, the Company discloses the possible loss in the consolidated financial statements +The Company accrues for potential liability arising from legal proceedings and regulatory matters when it is probable that such liability has been incurred and the amount of the loss can be reasonably estimated. This determination is based upon currently available information for those proceedings in which the Company is involved, taking into account its best estimate of such losses for those cases for which such estimates can be made. The Company’s estimate involve significant judgement, given the varying stages of proceedings (including issues regarding class certification and the scope of many of the claims), and the related uncertainty of the potential outcomes of these proceedings. +In making determinations of the likely outcome of pending litigation, the Company considers many factors, including, but not limited to, the nature of the claims, the Company’s experience with similar types of claims, the jurisdiction in which the matter is filed, input from outside legal counsel, the likelihood of resolving the matter through alternative mechanisms, the matter’s current status and the damages sought or demands made. Accordingly, the Company’s estimate will change from time to time, and actual losses could be more or less than the current estimate. As of December 31, 2024 and 2023, there are no matters for which a reserve is required to be established. +On February 26, 2024, a suit was filed against the Company alleging various contract claims arising out of a business the Company acquired in 2022 and certain real estate from which the Company operates, including breach of the stock purchase agreement and certain promissory notes in connection with the business acquisition as well as breach of a services agreement with the seller of the business. The Company believes the claims have no merit and plans to assert counterclaims. As of December 31, 2024, the case was in arbitration. +In January 2025, the Company entered into a settlement agreement related to a dispute on an employment agreement under which the Company is required to issue 26,087 shares of the Company’s common stock to an individual promptly within seven-days of the execution of the agreement unless the individual has revoked the agreement as permitted. As per the terms of the existing settlement agreement, the individual is provided a one-time adjustment payable in case on the reset date if the reset price is less than $ 1.15 , then the Company owes the individual an amount equal to the product of (a) $ 1.15 less than VWAP of the Company’s common stock for the five trading days preceding the reset date and (b) the 26,087 shares of the Company’s common stock. The reset date is the later of (a) ninety days from the date of the agreement or (b) the date that the registration statement is declared effective. As of the date these consolidated financial statements were issued, the shares of the Company’s common stock have not yet been issued as the individual’s legal counsel’s opinion is pending. +F-57 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Settlement of vendor obligations through issuance of shares of the Company’s common stock with make - whole provision: +Extinguishment of Vendor Obligations: +On September 24, 2024, the Company entered into a conversion agreement with a vendor in which the Company converted the outstanding obligations owed to the vendor into shares of the Company’s common stock at a conversion price of $ 2.00 per share with a one-time share reset adjustment (see Note 14), subject to shareholder approval and a maximum aggregate ownership amount of 19.99 % for the vendor. In connection with this agreement, approximately $ 539,000 of accounts payable and accrued expenses were extinguished in exchange for the issuance of 269,648 shares of the Company’s common stock (see Note 12). +On November 13, 2024, the Company entered into a debt conversion agreement with a vendor in which the Company converted the outstanding obligations owed to the vendor into shares of the Company’s common stock at a conversion price of $ 1.25 per share with a one-time consideration adjustment (see Note 14). In connection with this agreement, approximately $ 170,000 of accounts payable and accrued expenses were extinguished in exchange for the issuance of 136,000 shares of the Company’s common stock (see Note 12). +On December 27, 2024, the Company entered into a debt conversion agreement with a vendor in which the Company converted the outstanding obligations owed to the vendor into shares of the Company’s common stock at a conversion price of $ 1.25 per share with a one-time consideration adjustment (see Note 14). In connection with this agreement, approximately $ 258,000 of accounts payable and accrued expenses were extinguished in exchange for the issuance of 206,234 shares of the Company’s common stock (see Note 12). +Settlement Agreement: The Company entered into a capital markets advisory agreement in June 2024 and subsequent amendment in July 2024 whereby the Company would pay the capital market advisor $ 600,000 as consideration for services provided in connection with the Business Combination. The Company made cash payments totaling $ 75,000 during June 2024. On October 2, 2024, the Company entered into a settlement agreement with a capital market advisor, pursuant to which the Company was required to make cash payments for the unpaid balance totaling $ 525,000 and issue 125,000 shares of the Company’s common stock as additional consideration. The initial consideration of $ 600,000 were for services directly attributable to the Business Combination and reflected as offering costs that were recorded as a reduction to additional paid-in capital at closing of the Business Combination. On October 2, 2024, the Company issued 125,000 shares of the Company’s common stock with a fair value of $ 133,750 , as determined on the issuance date using the reported closing share price and recorded the additional consideration as a component of selling, general and administrative expenses on the accompanying consolidated statements of operations and comprehensive loss. As of December 31, 2024, there were no amounts outstanding under this settlement agreement to the capital market advisor. +Retirement plan: +The Company maintains a defined contribution plan under Section 401(k) of the Internal Revenue Code and a defined contribution plan for employee’s individual retirement arrangements (IRA’s). Employees may contribute between 1 % and 100 % of their wages, subject to the IRS limitations. The Company has elected to make matching contributions of 100 % of the first 3 % of an employee’s compensation for both defined contribution plans. For the years ended December 31, 2024 and 2023, the Company contributed approximately $ 76,000 and $ 77,000 , respectively. +NOTE 20: REPORTABLE SEGMENTS +The Company’s operations are organized into four reporting segments: Owned Service Network, Managed Solutions, Transportation, and Logistics. The structure is designed to allow the Company to evaluate the performance of its different solutions offerings, provide improved service and drive future growth in a cost-efficient manner. During the current year, the Company changed its reportable segments to better align with the way management evaluates performance and allocates resources. Accordingly, the prior year segment information has been recast to conform to the current year presentation. +F-58 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Selected information by reportable segment is presented in the following tables: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Year ended December 31, 2024 +​ +​ +Owned Service Network +​ +Managed +Solutions +​ +Logistics +​ +Transportation +​ +Corporate +​ +Total +Revenues +$ +12,201,600 +$ +4,429,995 +$ +4,307,602 +$ +1,713,688 +$ +— +$ +22,652,885 +Cost of revenue +​ +7,633,214 +​ +4,412,938 +​ +3,447,440 +​ +1,212,585 +​ +— +​ +16,706,177 +Selling, general and administrative expenses +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Facility costs +​ +​ +178,416 +​ +​ +300,686 +​ +​ +— +​ +​ +38,512 +​ +​ +4,483 +​ +​ +522,097 +Insurance expenses +​ +​ +262,063 +​ +​ +223,046 +​ +​ +31,508 +​ +​ +884 +​ +​ +354,800 +​ +​ +872,301 +Marketing and investor relations expenses +​ +​ +691,980 +​ +​ +251,520 +​ +​ +— +​ +​ +11,506 +​ +​ +2,312,405 +​ +​ +3,267,411 +Operational expenses +​ +​ +653,618 +​ +​ +420,063 +​ +​ +541,489 +​ +​ +540,901 +​ +​ +2,859,007 +​ +​ +5,015,078 +Compensation and related benefits +​ +​ +2,554,216 +​ +​ +2,147,486 +​ +​ +— +​ +​ +756,406 +​ +​ +1,884,231 +​ +​ +7,342,339 +Travel & entertainment +​ +​ +61,700 +​ +​ +21,318 +​ +​ +4,973 +​ +​ +18,473 +​ +​ +35,068 +​ +​ +141,532 +Vehicle expenses +​ +​ +206,234 +​ +​ +167,600 +​ +​ +— +​ +​ +— +​ +​ +202,744 +​ +​ +576,578 +MSA Working Capital Adjustment* +​ +​ +— +​ +​ +( 3,377,288 ) +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +( 3,377,288 ) +Depreciation +​ +​ +216,776 +​ +​ +— +​ +​ +— +​ +​ +6,997 +​ +​ +41,879 +​ +​ +265,652 +Amortization +​ +​ +330,750 +​ +​ +— +​ +​ +99,553 +​ +​ +68,118 +​ +​ +21,308 +​ +​ +519,729 +Total selling, general and administrative expenses +​ +​ +5,155,753 +​ +​ +154,431 +​ +​ +677,523 +​ +​ +1,441,797 +​ +​ +7,715,925 +​ +​ +15,145,429 +Loss on impairment +​ +​ +2,403,628 +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +2,403,628 +Income/(Loss) from operations +​ +​ +( 3,012,874 ) +​ +​ +( 137,374 ) +​ +​ +182,639 +​ +​ +( 940,694 ) +​ +​ +( 7,715,925 ) +​ +​ +( 11,602,349 ) +Other expense, net +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +( 10,905,859 ) +​ +​ +( 10,905,859 ) +Net loss +​ +$ +( 2,990,995 ) +​ +$ +( 137,374 ) +​ +$ +182,639 +​ +$ +( 940,694 ) +​ +$ +( 18,621,784 ) +​ +$ +( 22,508,208 ) +Total assets +​ +$ +3,379,649 +​ +$ +705,522 +​ +$ +3,085,843 +​ +$ +1,259,687 +​ +$ +4,325,841 +​ +$ +12,756,542 +Capital expenditures +​ +$ +27,044 +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +27,044 +​ +* The MSA Working Capital Adjustment reflects a timing - related adjustment to Managed Solutions revenue and expenses. In accordance with the Company's revenue recognition policy and ASC 606, the Company did not recognize solar installation revenue associated with certain Managed Services Agreements (MSAs) due to the absence of final certificates of completion as of the reporting date. The adjustment also includes total segment costs and expenses incurred in excess of recognized revenue during the reporting period. +F-59 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Year ended December 31, 2023 +​ +​ +Owned Service Network +​ +Managed +Solutions +​ +Logistics +​ +Transportation +​ +Corporate +​ +Total +Revenues +$ +18,408,926 +$ +617,907 +$ +— +$ +945,406 +$ +— +$ +19,972,239 +Cost of revenue +​ +13,153,790 +​ +410,022 +​ +— +​ +1,371,150 +​ +— +​ +14,934,962 +Selling, general and administrative expenses +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Facility costs +​ +​ +278,991 +​ +​ +29,869 +​ +​ +— +​ +​ +22,377 +​ +​ +51,643 +​ +​ +382,880 +Insurance expenses +​ +​ +382,833 +​ +​ +21,781 +​ +​ +— +​ +​ +832 +​ +​ +63,399 +​ +​ +468,845 +Marketing and investor relations expenses +​ +​ +619,629 +​ +​ +1,543 +​ +​ +— +​ +​ +— +​ +​ +109,510 +​ +​ +730,682 +Operational expenses +​ +​ +1,371,766 +​ +​ +31,874 +​ +​ +— +​ +​ +377,699 +​ +​ +80,996 +​ +​ +1,862,335 +Compensation and related benefits +​ +​ +3,826,062 +​ +​ +179,784 +​ +​ +— +​ +​ +181,565 +​ +​ +2,371,584 +​ +​ +6,558,995 +Travel & entertainment +​ +​ +45,264 +​ +​ +112 +​ +​ +— +​ +​ +7,520 +​ +​ +144,991 +​ +​ +197,887 +Vehicle expenses +​ +​ +359,049 +​ +​ +15,240 +​ +​ +— +​ +​ +— +​ +​ +89,639 +​ +​ +463,928 +Depreciation +​ +​ +187,180 +​ +​ +— +​ +​ +— +​ +​ +29,163 +​ +​ +42,879 +​ +​ +259,222 +Amortization +​ +​ +434,888 +​ +​ +3,755 +​ +​ +— +​ +​ +78,532 +​ +​ +— +​ +​ +517,175 +Other +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +878,346 +​ +​ +878,346 +Total selling, general and administrative expenses +​ +​ +7,505,662 +​ +​ +283,958 +​ +​ +— +​ +​ +697,688 +​ +​ +3,832,987 +​ +​ +12,320,295 +Loss on impairment +​ +181,853 +​ +— +​ +— +​ +— +​ +— +​ +181,853 +Income/(Loss) from operations +​ +​ +( 2,432,379 ) +​ +​ +( 76,073 ) +​ +​ +— +​ +​ +( 1,123,432 ) +​ +​ +( 3,832,987 ) +​ +​ +( 7,464,871 ) +Other expense, net +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +( 1,733,983 ) +​ +​ +( 1,733,983 ) +Net loss +​ +$ +( 2,432,379 ) +​ +$ +( 76,073 ) +​ +$ +— +​ +$ +( 1,123,432 ) +​ +$ +( 5,566,970 ) +​ +$ +( 9,198,854 ) +Total assets +​ +$ +6,611,407 +​ +$ +215,315 +​ +$ +— +​ +$ +836,954 +​ +$ +5,492,797 +​ +$ +13,156,473 +Capital expenditures +​ +$ +41,771 +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +41,771 +​ +The Company’s total assets located outside the United States is approximately $ 1,260,000 . +The following table summarizes disaggregated revenue information by geographic area based upon the customer’s country of domicile: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Year Ended December 31, 2024 +​ +Owned +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Service +​ +Managed +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Network +​ +Solutions +​ +Logistics +​ +Transportation +​ +Corporate +​ +Total +United States +​ +$ +12,201,600 +​ +$ +4,429,995 +​ +$ +4,307,602 +​ +$ +— +​ +$ +— +​ +$ +20,939,197 +Other +​ +— +​ +— +​ +— +​ +1,713,688 +​ +— +​ +1,713,688 +Total +​ +$ +12,201,600 +​ +$ +4,429,995 +​ +$ +4,307,602 +​ +$ +1,713,688 +​ +$ +— +​ +$ +22,652,885 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Year Ended December 31, 2023 +​ +Owned +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Service +​ +Managed +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Network +​ +Solutions +​ +Logistics +​ +Transportation +​ +Corporate +​ +Total +United States +​ +$ +18,408,926 +​ +$ +617,907 +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +19,026,833 +Other +​ +— +​ +— +​ +— +​ +945,406 +​ +— +​ +945,406 +Total +​ +$ +18,408,926 +​ +$ +617,907 +​ +$ +— +​ +$ +945,406 +​ +— +​ +$ +19,972,239 +​ +​ +​ +NOTE 21: SUBSEQUENT EVENTS +The Company evaluated subsequent events and transactions that occurred after the consolidated balance sheet date up to the date that the consolidated financial statements were issued. Based upon this review, other than as described below or within these consolidated financial statements, the Company did not identify any other subsequent events that would have required adjustment or disclosure in the consolidated financial statements. +F-60 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Issuances of shares of Company’s common stock +Consideration paid to vendors: During May 2025, the Company entered into a services agreement with a vendor under which the Company issued 100,000 restricted shares of the Company’s common stock with a fair value of approximately $ 25,000 , as determined on the issuance date using the reported closing share price, as consideration for services to be performed over a three-month service period. +Nonemployee grants: During May 2025 and June 2025, the Company issued 485,000 shares of the Company’s common stock to certain advisers with a fair value of approximately $ 108,000 , as determined on the issuance date using the reported closing share price. +Director and employee grants: During May 2025 and June 2025, the Company issued 1,622,222 shares of the Company’s common stock to its directors and employees as consideration for past services performed with a fair value of approximately $ 372,000 , as determined on the issuance date using the reported closing share price. +Sale of Company’s common stock: Pursuant to six securities purchase agreements entered into during May 2025 and June 2025, the Company sold 3,658,333 shares of the Company’s common stock for gross proceeds of approximately $ 805,000 at a per share issuance price that ranged between $ 0.18 and $ 0.25 per share. +Note exchange agreements: During April 2025 and May 2025, the Company entered into twenty five note exchange agreements with twelve of its lenders under which sixteen secured promissory notes totaling $ 4,435,000 , nine convertible notes totaling $ 1,840,000 , and accrued interest and fees totaling $ 1,189,939 were exchanged for 15,290,930 shares of the Company’s common stock with a fair value of $ 8,224,386 , as determined on the issuance date using the reported closing share price. Certain of these note exchanges involved related parties, including Arumilli LLC, SriSid LLC, Win-Light Global Co. Ltd., and W4 Partners LLC. +The conversion price of the convertible notes was modified from the stated rate in the respective convertible notes agreements to the five -day VWAP preceding the conversion date. Shares of the Company’s common stock under these note exchange agreements were issued pursuant to the exemption from registration provided by Section 3(a)(9) of the Securities Act that such issuance did not constitute a public offering. +Business combination: In April 2025, the Company entered into a stock purchase agreement with an entity (the “Seller”), for the purposes of acquiring from the Seller all of the issued and outstanding equity securities of Air Temp Service Co, Inc. (“Air Temp”) and Solar Energy Systems of Brevard, Inc (“SES”) in exchange for the issuance of 2,200,000 shares of the Company’s common stock. Per the terms of the stock purchase agreement, if the Company is delisted from the NASDAQ within 90 -days of closing, the Company is required to issue an additional 2,700,000 shares of the Company’s common stock. As a result of the Company’s delisting (see Note 3), the Company issued an additional 2,700,000 shares of the Company’s common stock. The total fair value of the 4,900,000 shares of the Company’s common stock issued as consideration to the Seller was approximately $ 3,200,000 , as determined using the closing share price on the date of issuances, in May 2025. Air Temp Services is considered a related party due to its ownership by SriSid LLC and Arumilli LLC, which are related parties to the Company. The Company had a Managed Services Agreement in place with Air Temp during the reporting period. +Air Temp is engaged in the business of the maintenance, repair, installation and sale of residential and commercial heating and cooling systems and other products and related services and SES is engaged in the business of the maintenance, repair, installation and sale of solar heating systems and related services. Prior to the closing of this acquisition, both Air Temp and SES were customers in the Company’s managed solutions reporting segment. +Share reset issuances +In connection with five conversion agreements entered into during September 2024 (see Note 11, Note 14, Note 18 and Note 19), the Company provided vendors and lenders with a one-time share reset adjustment (the “Share Reset”) such that the vendors and lenders would receive additional shares equal to the difference between the number of shares of the Company’s common stock that would be issued at the reset price on the reset date less the number of Conversion Shares. Three of these conversion agreements were with related parties (see Note 18). On March 31, 2025, 2,737,168 shares were issued in accordance with the terms of the Share Reset on five of the related conversion agreements extinguishing the Company’s obligations under those agreements. +F-61 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Settlement Agreement pursuant to Section 3(a)(10) +On January 28, 2025, the Company entered into a settlement and stipulation agreement (the “Settlement Agreement”) with Last Horizon, LLC (“Last Horizon”), pursuant to which the Company agreed to issue shares of the Company’s common stock to Last Horizon in exchange for the settlement of an aggregate $ 8,908,000 (the “Claim”) to resolve outstanding overdue liabilities with a lender and certain of its vendors. On January 29, 2025, a Federal court in Florida entered an order (the “Order”) approving, among other thing, the fairness of the terms and conditions of an exchange pursuant to Section 3(a)(10) of the Securities Act in accordance with a stipulation of settlement, pursuant to the Agreement between the Company and Last Horizon. +Last Horizon commenced action against the Company to recover the Claim, which Last Horizon had purchased from certain vendors of the Company pursuant to the terms of separate purchase agreements between Last Horizon and the lender and each of such vendors. The Order provides for the full and final settlement of the Claim and the related action. The Settlement Agreement became effective and binding upon execution of the Order by the Court on January 29, 2025. Pursuant to the terms of the Settlement Agreement approved by the Order, the Company agreed to issue to Last Horizon shares (the “Settlement Shares”) of the Company’s common stock. The Settlement Agreement provides that the Settlement Shares will be issued in one or more tranches, as necessary, sufficient to satisfy the Claim through the issuance of securities issued pursuant to Section 3(a)(10) of the Securities Act. Pursuant to the Agreement, Last Horizon may deliver requests to the Company for additional shares of common stock to be issued to Last Horizon until the Claim is paid in full, provided that any excess shares issued to Last Horizon will be cancelled +The issuance of Common Stock to Last Horizon pursuant to the terms of the Agreement approved by the Order is exempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) thereof, as an issuance of securities in exchange for bona fide outstanding claims, where the terms and conditions of such issuance are approved by a court after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear. The Agreement provides that in no event will the number of shares of Common Stock issued to Last Horizon or its designee in connection with the Agreement, when aggregated with all other shares of Common Stock then beneficially owned by Last Horizon and its affiliates (as calculated pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations thereunder), result in the beneficial ownership by Last Horizon and its affiliates (as calculated pursuant to Section 13(d) of the Exchange Act and the rules and regulations thereunder) at any time of more than 4.9 % of the Common Stock. +The Company issued 13,744,131 shares of the Company’s common stock with a fair value of approximately $ 8,709,000 , as determined by the closing price on the date the shares were issued, to partially settle the obligation to Last Horizon between January 29, 2025 and the date these consolidated financial statements were issued. +Convertible note agreement issuances +The Company entered into twelve convertible note agreements in exchange for aggregate gross proceeds of $ 2,530,000 to eleven lenders during the three months ended March 31, 2025 (the “Q1 2025 Convertible Notes”). The Q1 2025 Convertible Notes bear interest at a rate of 20.0 % per annum. The Q1 2025 Convertible Notes have maturity dates that range from 40 -days to one year from the convertible note issuance date, optional conversion period that ranges from thirty to ninety days , and a conversion price that ranges from $ 1.00 to $ 1.15 . The Company entered into convertible note agreements with two related-party investors holding beneficial ownership interests exceeding 5.0% of the Company's common stock. The aggregate principal amount of these convertible notes was $ 500,000 . +The Company entered into six convertible note agreements in exchange for aggregate gross proceeds of $ 1,026,000 to six lenders during April 2025, May 2025, and June 2025 (the “Q2 2025 Convertible Notes”). The Q2 2025 Convertible Notes bear interest at a rate of 20.0 % per annum. Five of the Q2 2025 Convertible Notes have maturity dates that range from 40-days to one year, optional conversion periods that range from thirty to 180 days , and conversion prices that either range from $ 0.60 to $ 1.15 or is convertible at a conversion price equal to the quotient obtained by dividing (x) the sum of the principal and accrued by unpaid interest by (y) 90.0 % of the VWAP on the primary trading market of the Company’s common stock the three trading day period immediately preceding the measurement date. One of the Q2 Convertible Notes bears interest at a rate of 20.0 % per annum, matures 210 days from the agreement date, and is convertible any time before the maturity date at the option of the holder into shares of the Company’s common stock at a conversion price equal to the lower of (i) $ 0.25 or (ii) the quotient obtained by dividing (x) the sum of the principal and accrued by unpaid interest by (y) 90.0 % of the VWAP on the primary trading market of the Company’s common stock the three trading day period immediately preceding the measurement date. +F-62 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +During July 2025, the Company entered into a convertible note agreement in exchange for aggregate gross proceeds of $ 500,000 to a lender (the “Q3 2025 Convertible Note”). The Q3 2025 Convertible Note bears interest at a rate of 20.0 % per annum and matures 210 days from the agreement date. The Q3 2025 Convertible Note is convertible any time before the maturity date at the option of the holder into shares of the Company’s common stock at a conversion price equal to the lower of (i) $ 0.25 or (ii) the quotient obtained by dividing (x) the sum of the principal and accrued by unpaid interest by (y) 90.0 % of the VWAP on the primary trading market of the Company’s common stock the three trading day period immediately preceding the measurement date.. The number of shares issuable upon conversion is determined by dividing the sum of the outstanding principal and accrued interest by the conversion price. +Promissory note agreement issuances +The Company entered into six promissory note agreements in exchange for aggregate gross proceeds of $ 735,000 during April 2025 and May 2025. Each of the notes bears interest at a rate of 20.0 % per annum and matures 180 days from its respective issuance date. Five of the promissory notes were held by W4 Partners LLC, a related party due to its equity ownership in the Company. +Designation of Convertible Preferred Stock Classes +On May 5, 2025, the Company’s board of directors designated 100,000 shares of preferred stock as Series A Convertible Preferred Stock, par value $ 0.0001 per share (the “Series A Stock”) and 100,000 shares of preferred stock as Series B Convertible Preferred Stock, par value $ 0.0001 per share (the “Series B Stock”). The Series A Stock and the Series B Stock have an initial stated value of $ 100.00 per share, subject to adjustment in the event of a stock split, combination or other similar recapitalization. +Voting: The Series A Stock and the Series B Stock do not have voting rights. +Dividends: The Series A Stock and the Series B Stock will accrue dividends at the rate of 12.0 % and 18.0 %, respectively, per annum of the stated value on a quarterly basis per calendar quarter and will be due and payable within five business days of the end of each such calendar quarter, with payment subject to the board of directors approval. The Series A Stock and the Series B Stock are not entitled to receive any dividends or distributions paid on the common stock or any other class of preferred stock. +Conversion: The Series A Stock and the Series B Stock is convertible into shares of common stock, par value $ 0.0001 per share at the option of the holder at a number of conversion shares equal to (a) the stated value plus then accrued but unpaid dividends (the “Liquidation Amount”) divided by (b) 90.0 % and 95.0 %, respectively, of the VWAP as of the date of the notice of conversion. +The Company will reserve from its authorized and unissued common stock a number of shares of common stock equal to at least 150.0 % of the number of conversion shares then issuable on conversion of all shares of the Series A Stock and Series B Stock, assuming a VWAP determined on the first business day of each calendar month. +In no event shall any holder of Series A Stock or Series B Stock be entitled to elect to complete any conversion to the extent that the number of conversion shares, to be issued to such holder exceed the sum of (1) the number of shares of common stock beneficially owned by such holder and its affiliates, except as permitted by the terms of the preferred stock, and (2) the number of shares of common stock issuable upon the conversion of the portion of the Series A Stock or Series B Stock with respect to which the determination of this provision is being made, would result in beneficial ownership by such holder and its affiliates of more than 9.99 % of the outstanding shares of common stock, unless the holder elects to increase or waive the limitation. +Liquidation: The Series A Stock and the Series B Stock are entitled to receive distributions prior to payment to holders of common stock an amount per share equal to the Preferred Liquidation Amount, which ranks pari passu with and payable to the same extent of any other class of Preferred Stock currently designated or that may be designated in the future. +Redemption: The Company may elect at any time, at the sole discretion of the board of directors to redeem all, but not less than all of the Series A Stock or the Series B Stock by paying an amount in cash equal to 115.0 % of the Liquidation Amount. +Forward Purchase Agreement termination +On April 2, 2025, the Company entered into a mutual termination agreement with Meteora to terminate the Amended 2024 FPA (the "FPA Termination Agreement") in exchange for termination consideration of $ 500,000 . Pursuant to the FPA Termination Agreement, the 1,618,948 shares of the Company's common stock that Meteora held as of the termination date of April 2, 2025 were +F-63 +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +deemed free and clear of all obligations, the number of Recycled Shares was equal to zero , and the Prepayment Shortfall was deemed to be zero . The Company received the termination consideration from Meteora in April 2025. +Reverse stock split +On April 11, 2025, the Company held a special meeting of shareholders. The shareholders voted to approve a reverse stock split and issuance of up to 25,000,000 shares via a standby equity purchase agreement. The terms of the reverse stock split are not yet finalized as of the date the consolidated financial statements were issued. +Nasdaq delisting +On May 6, 2025, the Company received a determination letter (the “Delisting Notification”) from the Nasdaq Hearings Advisor stating that the Panel has determined to delist the Company's common stock, par value $ 0.0001 per share from the Nasdaq Capital Market, and Nasdaq suspended the trading of the Company’s Common Stock on May 7, 2025 because the Company has not demonstrated compliance with the MVLS Rule, nor does it meet any of the alternative requirements under Nasdaq Listing Rule 5550 (b) and has failed to demonstrate that additional time to regain compliance is appropriate. +SEPA Convertible Note technical default +As of the date of this filing, the Company has not made certain scheduled payments under the SEPA Convertible Note or made timely SEC filings and is therefore in default under the agreement. However, Yorkville has not issued a formal notice of default, and the Company remains in ongoing discussions with Yorkville regarding a potential resolution and restructuring of the outstanding obligations. The Company is required to maintain a minimum cash balance equal to the lesser of (a) $ 2,000,000 and (b) the sum of the next three Installment Payments, as defined in the promissory note, coming due. As of December 31, 2024, the minimum cash balance required was approximately $ 833,000 . +Acquisition of Cambridge Energy Resources +On May 15, 2025, the Company completed its acquisition of Cambridge Energy Resources Ltd. (“CER”), a privately held India-based Energy-Management-as-a-Service provider, following receipt of all necessary regulatory approvals. Under the terms of the transaction, ConnectM paid INR  120 million (approximately $ 1.4 million). CER brings an established operating presence in India’s rooftop solar and telecommunication energy-management sectors, complementing the Company’s Owned Service Network segment and Energy Intelligence Network. Management expects the integration of CER to accelerate strategic growth across distributed energy and telecom infrastructure markets in India. With the acquisition, the Company projects India-based operations to expand from approximately 5 % to 15 % of global revenue (approximately $ 10 million annualized) over the next twelve months. +This acquisition further strengthens ConnectM’s international expansion strategy and aligns with government initiatives in India to reach 500  GW of non-fossil fuel energy capacity by 2030, bolstered by significant investment in renewable energy and 5G deployment. +​ +​ +F-64 \ No newline at end of file diff --git a/raw/filings/0001895249/2024/0001558370-25-010044/filing_metadata.csv b/raw/filings/0001895249/2024/0001558370-25-010044/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..8e8fe2d65ffb145a335f0dd14d0b1f557c888390 --- /dev/null +++ b/raw/filings/0001895249/2024/0001558370-25-010044/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001895249,CNTM,"ConnectM Technology Solutions, Inc.",2024,10-K,2025-08-04,2024-12-31,2025-08-04T15:05:34.000Z,0001558370-25-010044,cntm-20241231x10k.htm,10-K,26178155,1,1,https://www.sec.gov/Archives/edgar/data/1895249/000155837025010044/cntm-20241231x10k.htm,https://www.sec.gov/Archives/edgar/data/1895249/000155837025010044/ diff --git a/raw/filings/0001895249/2024/0001558370-25-010044/item1.txt b/raw/filings/0001895249/2024/0001558370-25-010044/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..a660ebb3d4490ad060ee59f5cab28a1a28b1e0e8 --- /dev/null +++ b/raw/filings/0001895249/2024/0001558370-25-010044/item1.txt @@ -0,0 +1,182 @@ +Item 1. Business. +Overview +ConnectM is a constellation of companies connecting and powering next generation equipment, mobility and distributed energy—thus enabling a faster, smarter transition to a modern energy economy. The Company delivers an advanced, proprietary Energy Intelligence Network (“ EIN ”) platform designed to empower residential and commercial service providers and original equipment manufacturers, to optimize energy efficiency, enhance operational performance, and support sustainable innovation. Leveraging technology, data, artificial intelligence, and behavioral economics, ConnectM aims to lower energy costs and reduce carbon emissions globally. Our Service Provider-facing technology platform encompasses marketing to life cycle management, customer care to claims processing, finance to rebates/incentives. Our architecture combines artificial intelligence with human expertise, continuously learning from the data it generates. This enables us to refine and improve our technology solutions for B2B customers while maximizing customer lifetime value. In addition to digitizing electrification end-to-end, we also transform the underlying business model to minimize customer churn while maximizing trust and improving environmental impact. +Our OEM-facing technology platform provides essential hardware and software services for EV fleet management and battery diagnostics—helping to capture data, synthesize that data, and in turn monetizing that data on behalf of our enterprise customers. By empowering OEMs and mobility companies with connected operations, our portfolio companies directly contribute to their continued explosive growth. +We believe that our cocktail of enhanced user experience, aligned values, and competitive cost enjoys broad appeal. End user electrification consumption has grown over time to encompass higher value products such as heat pumps, highly efficient air conditioners, solar roof, battery storage, electric vehicles and weatherization. These progressions can generate increases in customer lifetime value. We anticipate sustained growth through predictable, recurring revenue streams and automation that reduces costs while meeting our B2B customer needs. Our data-driven architecture further enhances precision in pricing and implementing electrification solutions, creating additional value for our customers. +Our Products and Services +ConnectM provides products and services across four different business segments: Owned Service Network, Managed Solutions, Transportation, and Logistics. +Owned Service Network +This segment is comprised of our owned service providers that offers a single point solution provider for homeowners and light commercial building owners (“ End User ”) for their electrification and decarbonization needs. Our owned network of service providers employ home energy specialists who prepare a multi-year blueprint for equipment and system installations that is aligned with End User needs and ensures full leverage of federal, state, and utility rebates, tax credits, and incentives. Our owned service providers also include weatherization, HVAC, solar, battery, and EV charger installation teams who work in tandem with the home energy specialists to ensure optimal roll out of the multi-year blueprint. The ConnectM measurement and verification platform ensures that End Users experience the savings that were envisioned during the blueprint stage. +ConnectM has developed its Energy Intelligence Network to boost electrification and decarbonization for residential and light commercial buildings. We have built a proprietary full stack technology application for remote asset monitoring and control, along with a proprietary artificial intelligence (AI) assistant to provide maintenance, repair and installation guidance and optimization for service providers. The data collected from remote asset monitoring and control feeds into our EIN and improves the entire platform performance for all customers. In addition to its EIN and remote asset monitoring technology, ConnectM centralizes and streamlines certain back-office functions for its service provider businesses including: bookkeeping/payroll, bulk purchasing, marketing/advertising, and working capital support. These services boost service provider revenue, operating margins, and overall profitability. +● Our owned service providers share a mission to use ConnectM’s technology to ensure optimal performance of End User equipment and systems which increases customer satisfaction and the likelihood of obtaining additional electrification and decarbonization work—lowering customer acquisition cost. Our EIN platform enables our owned service providers to remotely monitor and control End User systems so that they are proactively alerted to any performance issues of those systems before their customers experience an equipment outage. +3 +Managed Solutions +In addition to our Owned Service Networks, ConnectM also enters into managed service agreements (“MSAs”) with third party residential and light commercial service providers. ConnectM provides its technology platform (comprising of the EIN and remote monitoring technology) and many of the same back-office services (bookkeeping/payroll, bulk purchasing, marketing/advertising, and working capital support) to these service providers under a negotiated MSA. In exchange for the use of our tech platform and back-office services, ConnectM generally recognizes 60-90% of service provider revenue. The transaction price is established in the customer contract as a percentage of the customer’s revenue for a week. Revenue is recognized over the life of the contract in the amounts invoiced to customers which directly corresponds with the value of the services provided to the End User. Working capital adjustments may be processed quarterly, if costs incurred by the customer exceed the percentage of the customer’s revenue and are recorded as a reduction of sales, general and administrative expenses as it represents’ the customer’s reimbursement of costs incurred by us. Additionally, certain MSAs contain a “Right of First Refusal” that gives ConnectM the option to acquire a service provider customer at a pre-negotiated EBITDA multiple (which would bring them into the Company’s Owned Service Network segment) . +For both our Owned Service Network and Managed Solutions customers, we have developed portals and applications to provide visibility into equipment performance resulting in: +● Implementing preventative maintenance procedures and subscription plans; +● 24-hour remote monitoring; +● Simplified warranty and claim management; and +● Equipment-as-a-Service subscriptions. +In addition, we provide our Owned Service Networks and Managed Solutions customers with a utility tracker that empowers their customers to utilize available rebates, incentives, and financing associated with our various MEE solutions. +Transportation +ConnectM strategically invests in portfolio companies at the forefront of the zero-emission mobility revolution. These companies provide essential hardware and software services for EV fleet management and battery diagnostics to Original Equipment Manufacturers (“ OEMs ”). This critical role within the electric vehicle ecosystem generates recurring revenue through integration with ConnectM’s Energy Intelligence Network. By empowering OEMs and EV transportation companies with connected operations, our portfolio companies directly contribute to their continued explosive growth. +ConnectM’s EIN extends beyond residential and commercial service providers to also function as a smart transportation platform that enables our enterprise customers to offer desired features to their end customers along with potentially valuable data collection. Using the EIN, (i) equipment manufacturers of electromechanical and electric vehicles can access actionable data gathered from IoT systems connected to their equipment, (ii) asset owners can intelligently protect their investments, and (iii) equipment service providers can boost their on-the-job efficiency. +Logistics +As an entry point into the $165B last mile delivery market, ConnectM acquired a controlling interest in DeliveryCircle, LLC, a Delaware limited liability company (“ DeliveryCircle ”) engaged in the business of providing dispatch and delivery services and related software. DeliveryCircle operates as a transportation/freight broker and also offers logistics services such as sortation and transloading. DeliveryCircle’s primary revenue stream comes from their transportation and underlying technology services. DeliveryCircle provides a complete suite of software applications to its customers, powered by Decios, a cloud-based, delivery management platform that ensures companies can succeed in every aspect of the delivery game. The Decios platform features real-time tracking, optimization, and integration with commonly used order systems. +Our Networks and Platforms +ConnectM’s Energy Intelligence Network aggregates over 30GB/day of real time operating and performance data from the 120,000+ electrified assets across our portfolio companies with the goal of providing superior value to enterprise, OEM and service provider customers. +4 +The sheer volume of data collected daily allows us to continually train and refine our AI models to create more value for customers. For example, data collected from residential users, service providers, and OEMs enables our customers to report on the tangible and measurable sustainable impact of devices operating on the EIN. This reporting helps our customers obtain government support, increase adoption, and boost overall public goodwill. OEMs, distributors, and third-party service provider customers also leverage the Company’s Connected Operations software applications to build a differentiated infrastructure for demand creation, implementation, and ongoing management of Modern Energy Economy solutions. +During the fiscal year 2024: +● We installed 173 heat pumps, 193 high efficiency air conditioners, and 113 fuel-efficient heating systems; +● We installed enough solar roofs to generate 1,249.84kW of electricity, decarbonizing 17.5 kT of CO2 during asset lifetime; +● Our network was responsible for 95.5 GWh of electrification, equivalent to powering 35,000 homes per day¹ +● We displaced 73,506 metric tons of CO2, equivalent to the amount of CO2 3.4 million trees can absorb in a year² +● We offset 6.7 million gallons of fossil fuel from being used, equivalent to driving around the world roughly 7,000 times³ +● We ended the year with a total of 25,931 EVs on the platform and managed a total 206 million green miles throughout the year. +¹U.S. Energy Information Administration (EIA) - Assuming the average home uses about 30 kilowatt-hours per day. +²U.S. Department of Agriculture +³Assumes 26 miles per gallon +Our Technology Applications +Connected Operations +Our mission is to reverse the adverse effects of climate change by owning, developing, and operating the world’s largest network of electro-mechanical assets. Our connected operations application provides advanced connectivity and real-time equipment monitoring to help promote a future powered primarily by clean, renewable energy. ConnectM’s innovative technology and MEE solutions are designed to empower our service provider and OEM customers to drive a reduction in their End User’s overall environmental impact and advance progression toward achieving zero-carbon emissions. Our advanced, full-stack system creates more energy-efficient homes, buildings, logistics, and transportation by providing insight and refined intelligence to electromechanical equipment, vehicles, and systems. +Our Connected Operations application includes key features that enhance our sales operations in our Owned Service Network and Managed Solutions segments: +● Single app-based interface for service providers and End Users; +● Efficient process for generating sales leads; +● All digital marketing and lead generation; +● Long-term and AI-driven End-User/customer engagement and management, including the use of data analytics to upsell services; and +● Shared services for service provider branding and brand equity enhancement, which includes: +● One service delivery platform for quality control, training, and tech support, and +● Consolidation of sales operations, vendors, insurance, fleet management, fuel expenses, payroll, benefits, recruitment, and human resources. +5 +Our Connected Operations application also includes key features that enhance our customer’s experience: +● Customer self-service enabled; +● Platform integration with OEMs, distributors, and sales channels for branding and promotions; and +● Single unified whole home electrification interface for frictionless cross-sales of different electrification and decarbonization solutions. +In our Transportation segment, our Connection Operations application also enables transportation OEMs to offer smart features to their end customers along with potentially valuable data collection within our EIN. The application, which is configuration-based, makes it simpler for OEMs to integrate our solutions within their vehicles. The application offers business applications for transportation OEMs, EV charging, shared mobility, and battery swapping operations management. +● Our Connected Operations application offers end users and stakeholders in the ecosystem (including equipment partners, utilities, and service providers the following services through our Smart Vehicle Control Unit. +● Integration of subsystems : Integrates with major subsystems of EV such as battery management system (BMS), motor control unit (MCU) and instrument cluster. +● Intelligence @ Edge : The VCU can execute analytical processes at the electric vehicle, where data is collected via smart devices and IoT sensors, and transfer processed data to the cloud instead of sending only raw data. VCU enables control of the vehicle based on safety aspects that can be pre-configured or enhanced over the air. For example, the mode of motor control can be changed based on an increase in battery temperature. The VCU can interface with additional sensors and actuators on a vehicle like GPS, temperature, tire-pressure, theft detection, ignition line and motor mode control, for taking actions at the edge or enabling the user to control using a connected application. +● Remote management : Allows remote management of BMS/MCU configuration, firmware operations over the air. Also, the VCU firmware can be remotely updated. This feature helps OEMs to enhance and quickly upgrade settings of the BMS/MCU remotely without visiting service stations. +Connected Consumer Application (End User-facing) +● End Users have access to a view of vehicle health, location, utilization, and receive live notifications. +● Provides a platform for End Users to buy insurance, warranty, accessories, or any other services offered by the OEM. +● Built-in security capabilities enable End Users to prevent theft or locate the vehicle if theft occurs. +● Special sensors on the VCU can detect if the vehicle experienced a crash situation and can notify family members in emergency situations. +Data Science and Analytics +● Our platform generates various insights that help detect battery deterioration, cell imbalance, and weaker cells that may damage an entire battery. +● Our platform enables transportation OEMs to proactively work with their customers to detect vehicle anomalies and facilitates submitting warranty claims when applicable. +● Our platform helps OEM service teams to analyze their customer complaints by reviewing past data and usage patterns. +● Location details provided by our platform enable OEMs to assess vehicle density, and this data can be leveraged to partner with charging station infrastructure providers to set up networks at locations with higher utilization and revenue potential. +6 +Our Value Proposition +We believe that our tech platforms provide the following advantages to the End Users of our service provider and OEM customers: +● Lower energy bills : Our streamlined process allows for various energy credits to be directly applied to an End User’s utility bill, which allows them to realize immediate savings. +● Connected Operations: Our technology allows for seamless and secure connectivity across various equipment and vehicle asset classes. This connectivity enables data collection, data analysis, and remote control, (together, “Connected Operations,”). Our Service Provider customers utilize Connected Operations to smooth End User demand across the year, and our OEM customers utilize Connected Operations to efficiently manage and extend the lifespan of EV assets. +● Supporting clean energy ecosystem: We anticipate that demand for more efficient sources of energy will continue to increase. We strive to support our customers in their continued transition to the modern energy ecosystem. We expect our continued growth and planned expansion of product offerings will allow us to support even more customers globally in this transition. +Growth Strategy +Most players in our space operate in a distinct segment of the market. There are pure-play solar companies, or pure play EV companies. These companies are much more susceptible to the typical boom and bust cycles that specific industries often face. ConnectM takes several pages out of the Berkshire Hathaway playbook: value investing, trust in strong management teams, and importantly a diversified approach. Our diversified approach across different segments like our Owned Service Network, Managed Solutions, Transportation, and Logistics means that we can allocate capital where there are strong growth rates. +​ +Due to our constellation model, ConnectM benefits from a diversity of customers and income streams. Our customers range from service providers that use our digital platform to provide electrified heating and cooling and distributed energy products to homeowners and commercial building owners to OEMs like Volvo that manufacture massive electric buses and trucks. Many of ConnectM’s portfolio companies have high margin recurring revenue products as a component of their offering and our growth strategy entails increasing the percentage of high margin software subscriptions in our future revenue mix. +​ +Our Managed Solutions segment allows us to stay asset lite as we grow since we do not foresee needing a large sales force or operating team for that segment of our business. To grow, we will seek to deploy capital into large addressable markets with low innovation, low penetration, and double-digit projected compound annual growth rates. We have typically avoided making singular, large pureplay bets and we will be cautious about excessive leverage on our balance sheet going forward. +​ +We seek to expand our OEM and service provider customer base through both organic (Owned Service Network, Transportation, and Logistics segments) and inorganic (Managed Solutions) growth initiatives. +​ +ConnectM intends to leverage our competitive strengths and market position to allow service providers and OEMs to present a “one-stop-shop” to their customers for the clean energy transition. Our growth strategy includes the following: +​ +● Service Offering Expansion: Using our existing customer and developer networks, we may explore building out our EV charging and energy storage offerings. +● Expansion of Existing Software Capabilities: Given the 30GB of data we collect daily, we plan to continue to grow our existing data science and software capabilities. Leveraging AI, we intend to develop and create additional software tools and data models that are capable of analyzing perspective customer properties to assist in identifying attractive opportunities for us and for our customers. +● Customer-Base Growth : We intend to grow our customer base via customer referrals and our customized, relationship-focused sales process. +7 +Market Opportunity +We view the energy economy in three distinct buckets: 1) Energy generation, 2) Energy transmission & distribution, and 3) Energy consumption. While we believe that all three buckets are in dire need of capital expenditures and innovation, ConnectM currently focuses on the energy consumption space. Energy consumption represents the largest market because it encompasses every asset that uses energy to operate: whether it is a consumer device, industrial equipment, machinery, or vehicle. Fundamentally, energy consumption comprises a multi trillion-dollar asset base that we believe will, in large part, be switching away from burning fossil to operate and will also be increasingly cloud connected. The stark reality is that for every unit of fossil fuel burned to power an asset, 2/3 of that unit is completely wasted as heat. So only 1/3 of that unit provides useful work or energy which is a very expensive baseline for comparison when a consumer or business is evaluating replacement options. ConnectM currently invests in and partners with companies that are electrifying assets to operate much more efficiently and effectively and provides cloud connectivity and intelligence for those assets (primarily service providers and OEMs). +Market Sizing – Owned Service Network and Managed Solutions +Total Addressable Market  +The total addressable market (“ TAM ”) for our integrated platform with multiple clean energy and decarbonization services is substantial. There are over 400 million homes and light commercial spaces in the U.S., Canada, and the European Union. Given an average annual purchase and operating expense of $3,850 per space, the annual total addressable market is $1.7 trillion per year. These services are considered essential infrastructure and continue to see sustained growth driven by aging equipment replacements, energy efficiency upgrades, and climate control demands throughout the world. +Serviceable Addressable Market   +The serviceable addressable market (“ SAM ”) includes New England, Mid-Atlantic, and South Atlantic regions in the United States over the course of the next five years. These regions have approximately 46.8 million homes and 1.68 million light commercial buildings, which correspond to a serviceable addressable market size of $40 billion.  These markets are being propelled by decarbonization efforts, rising energy costs, and policy support for sustainable home and commercial infrastructure upgrades. +Serviceable Obtainable Market   +The serviceable obtainable market (“ SOM ”) for HVAC and solar installation services in Massachusetts, Virginia, and Florida is $12 billion. These states have approximately 19 million homes and 483,000 Light Commercial Buildings in total. These markets are driven by strong state-level incentives for efficient equipment installation, aggressive climate targets, solar incentives, and an aging building stock. These markets will continue to be our focus area as we already have a footprint to leverage in these states. +Market Sizing – Transportation +Total Addressable Market   +The global total addressable market for our transportation business that focuses on EV fleet management and battery diagnostics is estimated at $14 billion in 2024, driven by accelerating fleet electrification, growing EV adoption, and the increasing need for real-time data and predictive insights. EV fleet management—valued at $10 billion—includes software and services for vehicle tracking, charging coordination, route optimization, and predictive maintenance. Meanwhile, the battery diagnostics and health monitoring segment—estimated at $4 billion—covers battery analytics, degradation tracking, resale assessments, and thermal risk management. As the global EV stock is projected to exceed 250 million vehicles by 2030, these data-heavy, software-driven markets are expected to grow rapidly, reaching a combined TAM of $45–75 billion by the end of the decade. +Serviceable Addressable Market   +The serviceable addressable markets for our transportation business are the U.S., India, and the Middle East. These specific markets account for $5.5 billion of the global market. In the U.S, the SAM is driven by strong demand from corporate, municipal, and delivery fleets, supported by government incentives and growing EV adoption. India is in the early stages of fleet electrification, with increasing demand for battery health management as the market matures. In the Middle East, electrification is accelerating due to government and luxury vehicle fleets, particularly in countries like the UAE and Saudi Arabia, where green energy initiatives are driving adoption. As fleet electrification grows across these regions, the demand for fleet management solutions and battery diagnostics will continue to expand. +8 +Serviceable Obtainable Market   +The serviceable obtainable market for our transportation business are EV and battery diagnostics OEMs in India. This market opportunity is $150 million. While fleet electrification in India is still in its early stages, the market is growing rapidly, particularly in sectors like e-commerce logistics, last-mile delivery, and electric two-wheelers. Demand for EV fleet management solutions, including route optimization and charging infrastructure management, is increasing as more fleets adopt electric vehicles. +Market Sizing – Logistics +Total Addressable Market  +The total addressable market for last mile delivery services is currently $300 billion. This is mainly driven by the rapid growth of e-commerce, consumer demand for faster delivery times, and the need for more efficient logistics solutions. As consumers increasingly expect same-day and next-day delivery, the market is projected to grow significantly, with estimates suggesting it could reach $700–800 billion by 2030. The rise of urbanization and the push for sustainable delivery options, such as electric delivery vehicles, further contribute to the market’s expansion. +Serviceable Addressable Market   +The serviceable addressable market for last mile delivery services in the U.S. and Canada is $165 billion. The United States makes up $150 billion of the SAM, and Canada represents the other $15 billion. Together, the U.S. and Canadian markets represent a significant portion of the global last mile delivery landscape, fueled by the expansion of e-commerce and the need for more efficient logistics solutions. +Serviceable Obtainable Market   +The serviceable obtainable market for last mile delivery of freight goods (such as palletized items) in the U.S. is estimated at $20 billion. This segment caters to industries such as wholesale, manufacturing, and retail, which require the delivery of larger freight to businesses, warehouses, and distribution centers. The market growth is fueled by the increasing demand for efficient, fast freight deliveries as part of e-commerce B2B operations, retail supply chains, and third-party logistics providers. The rise of these industries, combined with the need for specialized vehicles and infrastructure to handle bulk shipments, positions freight last mile delivery as a key market within the broader logistics and transportation sector. +Our Competitive Strengths +We believe we have a number of competitive advantages that contribute to our success. We aim to provide our service provider and OEM customers with a superior customer experience, lower costs, and a wide selection of products and services. We help our US-based owned service provider networks and MSA customers deliver wellness, health and comfort to dwellers of commercial buildings and homes through superior, real-time monitoring, management and prediction of environmental parameters (temperature, humidity, carbon dioxide and carbon monoxide levels) and digital climate control and zoning to ensure optimum HVAC delivery and comfort to the dwellers. We empower our OEM customers with a connected operations platform, directly contributing to their continued explosive growth across Asia and the Middle East. +● Superior Customer Experience. We believe that we maintain high customer satisfaction and compete with the pricing offered by our competitors. Our customers may access our customer service representatives digitally, or by phone, text or email, 24/7. +● Technology and Data. We have a technological and data advantage due to our consumer base, transaction volume, and fleet of products. This allows us to accumulate data to power and improve our technology. We have developed an integrated platform that optimizes energy efficiency, EV and fleet management. +● Deep Operational Experience. We develop and refine much of our core technology centrally. Our expertise allows us to tackle some of the most complex operational challenges. With deeply rooted local operational teams, we can quickly respond to changing external conditions. +9 +Risk Management & Compliance +We have built a strong culture around risk management and compliance. We believe our technology-driven processes help us to mitigate risks within our business. +We are focused on complying with all applicable laws and regulations while providing the best possible customer experience. Our legal and compliance teams work hand-in-hand with our business teams to ensure that we remain up to date on regulatory requirements, and that these requirements are met as new products and services are added. We prioritize strategic thinking about how best to protect the interests of the consumer, particularly since we are building a digitally native system in an industry that has traditionally been analog. +Our compliance program is kept current by our internal compliance team, whose members track regulatory updates, conduct thorough reviews of policies and procedures, and monitor the licensing and education requirements of our team members. +Security and Data Protection +We employ various in-house and third-party technologies and network administration policies that are designed to protect our computer network and the privacy of our customers’ and team members’ information from external threats and malicious attacks. +We believe that the technologies and network security plan we have adopted are appropriate to the size, complexity and scope of services we provide, as well as the nature of the information that we handle. Recently, we have experienced substantial growth, which presents additional challenges to our security and data protection infrastructure. We have a team of professionals dedicated to network and information security who monitor information systems, evaluate the effectiveness of technologies against known risks and adjust systems accordingly. In addition, we periodically have network security evaluated by outside firms specializing in network security to help us identify and remove any potential vulnerabilities. +We have undertaken measures intended to protect the safety and security of our information systems and the data therein, including physical and technological security measures, team member training, contractual precautions, business continuity plans, and implementation of policies and procedures designed to help mitigate the risk of system disruptions and failures and the occurrence of cyber incidents. We invest in security technology designed to protect our data and business processes against risk of a data security breach or cyberattack. Our data security management program includes identity, trust, vulnerability, and threat management business processes as well as the adoption of data protection policies. We measure our data security effectiveness through industry-accepted methods and remediate significant findings. The technology and other controls and processes designed to secure our team member, customer and loan applicant information and to prevent, detect and remedy any unauthorized access to or acquisition of that information were designed to obtain reasonable, but not absolute, assurance that such information is secure and that any unauthorized access is identified and addressed appropriately. +Cyclicality and Seasonality +Some MEE products and offerings are cyclical and those markets are dependent on general economic conditions and other factors, including consumer spending preferences and the attractiveness of incentives offered by OEMs, if any. In addition, our business can be affected by labor relations issues, regulatory requirements, trade agreements and other factors. Economic factors adversely affecting consumer spending could adversely impact our revenues and net income. +Our business is also somewhat seasonal. Our EIN platform and Connected Operations applications enable s us to remotely monitor and control and OEM’s vehicle fleet or an End User’s HVAC systems so that we know the problems with the performance of a vehicle or HVAC system s before an End User experiences a vehicle anomaly or an equipment outage. Ensuring optimal performance of the equipment and systems increases customer satisfaction and thereby increases the likelihood of getting additional electrification and decarbonization workstreams. +Peak summer, cold winters and rainy seasons have an impact on our Managed Services and Owned Service Network businesses. During certain periods of the summer and winter, demand for installations, replacements and repairs increases. Rainy and snow days negatively impact our rooftop solar installation business. The impact of seasonality varies depending on the market. For example, in Florida, our business slows down during hurricane season and there is high demand from March through September. +10 +Our Intellectual Property +Our intellectual property is an essential element of our business. We rely on a combination of patents, patent applications, internet domain names, and other forms of intellectual property, and on contractual agreements, to establish, maintain and protect our intellectual property rights and technology. We also license certain third-party technology for use in conjunction with our products. +As of December 31, 2024, we have 11 issued or pending patents and 11 domain names related to our technology. We intend to continue to file additional intellectual property applications related to our technology in the future. +We believe that our continued success depends on hiring and retaining highly capable and innovative team members, especially as it relates to our engineering base. It is our policy that all of our team members and independent contractors sign agreements acknowledging that all inventions, trade secrets, works of authorship, developments, processes and other forms of intellectual property generated by them on our behalf are our property and assigning to us any ownership that they may otherwise have in those works. Despite our precautions, it may be possible for third parties to obtain and use without consent intellectual property that we own or license. +Government Regulations +Although we are not regulated as a public utility in the United States under applicable national, state or other local regulatory regimes where we conduct business, we compete with regulated utilities. As a result, we have developed and are committed to maintaining a policy team to focus on the key regulatory and legislative issues impacting the entire industry. We believe these efforts will help us better navigate local markets through relationships with key stakeholders and facilitate a deep understanding of the national and regional policy environment. +To operate our systems, we obtain interconnection permission from the applicable local primary electric utility. Depending on the size of the solar energy system and local law requirements, interconnection permission is provided by the local utility directly to us and/or our customers. In almost all cases, interconnection permissions are issued on the basis of a standard process that has been pre-approved by the local public utility commission or other regulatory body with jurisdiction over net metering policies. As such, no additional regulatory approvals are required once interconnection permission is given. +Our operations are subject to stringent and complex federal, state and local laws, including regulations governing the occupational health and safety of our employees and wage regulations. For example, we are subject to the requirements of the federal Occupational Safety and Health Act, as amended (“ OSHA ”), and comparable state laws that protect and regulate employee health and safety. We endeavor to maintain compliance with applicable OSHA and other comparable government regulations. +We are subject to various other laws, including employment laws related to hiring practices, overtime, and termination of team members, health and safety laws, environmental laws and other federal, state and local laws in the jurisdictions in which we operate. +Government Incentives +The Inflation Reduction Act (“IRA”), signed into law on August 16, 2022, allocates nearly $400 billion in federal funding to advance clean energy initiatives, aiming to significantly reduce the nation’s carbon emissions by 2030. The funding comprises tax incentives, grants, and loan guarantees, with substantial emphasis on clean electricity infrastructure, energy transmission upgrades, and clean transportation, including incentives for electric vehicles. +Approximately $43 billion of the IRA is dedicated specifically to consumer incentives, designed to promote widespread adoption of sustainable technologies. These incentives lower consumer costs associated with purchasing EVs, energy-efficient home appliances, rooftop solar systems, geothermal heating solutions, and residential energy storage systems. Beginning in 2023, new electric vehicles qualify for federal tax credits of up to $7,500, while used electric vehicles qualify for up to $4,000. +In addition, the IRA extends through 2032 the tax credit available for residential energy-efficiency improvements, increasing the credit rate to 30% and replacing the previous lifetime limit with an annual limit of $1,200. It further introduces a separate annual credit of up to $2,000 specifically for installations of geothermal heat pumps and biomass stoves, while also enhancing incentives for energy-efficient windows and doors. Collectively, these policy measures create significant momentum for residential decarbonization, efficiency enhancements, and sustainable energy adoption across the United States through at least 2032. +11 +Corporate Information +ConnectM Technology Solutions, Inc. was formed under the laws of the State of Delaware on March 22, 2019. +The ConnectM design logo, “ConnectM” and our other common law trademarks, service marks or trade names appearing in this proxy statement/prospectus are the property of ConnectM. Other trademarks and trade names referred to in this proxy statement/prospectus are the property of their respective owners. +Human Capital Resources +As of December 31, 2024, in the U.S., we had eighty-five (85) full time employees: twelve (12) in sales, forty-nine (49) in technical, support and general management and twenty-four (24) in finance and administration. In India, we had seventy-three (73) full-time employees. Of these full-time employees, four (4) were engaged in sales and sales engineering, forty-two (42) in operations and customer support, fifteen (15) were engaged in research and development and twelve (12) in finance and administrative capacities. We consider our greatest asset to be our people because of the consultative nature of our business and employees are the crucial factor in our growth. None of our employees are represented by a labor union. We have not experienced any employment-related work stoppages, and we consider relations with our employees to be good. +In shaping our culture, we aim to combine a high standard of excellence, technological innovation and agility and operational and financial discipline. We believe that our flat and transparent structure and our collaborative and collegial approach enable our employees to grow, develop and maximize their impact on our organization. To attract and retain top talent in our highly competitive industry, we have designed our compensation and benefits programs to promote the retention and growth of our employees along with their health, well-being and financial security. Our short- and long-term incentive programs are aligned with key business objectives and are intended to motivate strong performance. Our employees are eligible for medical, dental and vision insurance, a savings/retirement plan, life and disability insurance, and various wellness programs and we review the competitiveness of our compensation and benefits periodically. +As an equal opportunity employer, all qualified applicants receive consideration without regard to race, national origin, gender, gender identity, sexual orientation, protected veteran status, disability, age or any other legally protected status. +We seek to create an inclusive, equitable, culturally competent, and supportive environment where our management and employees model behavior that enriches our workplace. +Our Facilities +Our corporate headquarters is located in Marlborough, Massachusetts where we lease approximately 2,396 square feet under a lease that expires on June 30, 2025. We also have offices in Gloucester, Massachusetts; New Bedford, Massachusetts; Stuart, Florida; Manassas, Virginia; Hyannis, Massachusetts; and Bangalore, India. We have one owned real property and 10 leased real properties. We believe that our existing facilities are adequate to meet the current needs of our essential workforce (including that, during the COVID-19 pandemic, we onboarded several fully remote employees) and that if we require additional space, we will be able to obtain additional facilities on commercially reasonable terms. +Legal Proceedings +On February 26, 2024, Robert Zrallack and RJZ Holdings LLC (the “ Plaintiffs ”) filed suit against Aurai LLC (“ Aurai ”), ConnectM Florida RE LLC (“ ConnectM Florida RE ”), and Florida Solar Products, Inc. (“ Florida Solar ”), each a wholly owned subsidiary of ConnectM, in the circuit court for the 19th judicial circuit (St. Lucie County, Florida). In this suit, the Plaintiffs allege various contract claims arising out of a transaction under which Aurai acquired Florida Solar from Mr. Zrallack in 2022 and ConnectM Florida RE acquired certain real estate from RJZ Holdings LLC in 2022 from which Florida Solar operates. +Specifically, the Plaintiffs allege breach of the stock purchase agreement and certain promissory notes in connection with the purchase of Florida Solar and the related real estate, as well as breach of a services agreement with Mr. Zrallack. +ConnectM believes the Plaintiffs’ claims have no merit and plans to assert counterclaims against the Plaintiffs in connection with the underlying transactions. ConnectM is defending itself in this matter. +12 +Regardless of the final outcome, defending lawsuits, claims, government investigations, and proceedings in which ConnectM is involved is costly and can impose a significant burden on management and employees, and there can be no assurances that favorable final outcomes will be obtained. +Corporate History and Background +We were originally incorporated in Delaware on September 23, 2021 under the name “Monterey Capital Acquisition Corporation” (“ MCAC ”) as a special purpose acquisition company, formed for the purpose of effecting an initial business combination with one or more target businesses. On May 13, 2022 (the “ IPO Closing Date ”), we consummated our initial public offering (the “ IPO ”). On July 15, 2024, we consummated the previously announced business combination (the “ Closing ”) pursuant to that certain Agreement and Plan of Merger (the “ Merger Agreement ”), dated as of December 31, 2022 (as amended on October 12, 2023 and April 12, 2024), by and among MCAC, Chronos Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of MCAC (“ Merger Sub ”), and ConnectM Technology Solutions, Inc., a Delaware corporation (“ Legacy ConnectM ”). +Pursuant to the Merger Agreement, Merger Sub merged with and into Legacy ConnectM (the “ Merger ”) with Legacy ConnectM surviving the Merger as a wholly owned subsidiary of MCAC. In addition, in connection with the consummation of the Merger, MCAC was renamed “ConnectM Technology Solutions, Inc.” +Our corporate offices are located at 2 Mount Royal Avenue, Suite 550, Marlborough, Massachusetts 01752 and our telephone number is 617-395-1333. Our website, which is located at http://www.connectm.com , describes our company and our management and provides information about our technology and products. Information contained on our website is not incorporated by reference into, and should not be considered a part of, the registration statement of which this prospectus forms a part. +Available Information +Our filings, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments submitted under Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are accessible at no cost on our company website promptly after submission to the SEC. Additionally, these documents are retrievable from the SEC’s website ( www.sec.gov ). +Corporate governance materials, such as our guidelines and committee charters, are also accessible on our investor relations webpage under “ Corporate Governance .” It is important to note that the content of our website is not intended for inclusion by reference in our filings with the SEC, and any website references serve as inactive textual mentions only. +Implications of Being a Smaller Reporting Company +We are a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates is less than $700 million as of our most recently completed second fiscal quarter and our annual revenue was less than $100 million during our most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million as of our most recently completed second fiscal quarter. As a smaller reporting company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not smaller reporting companies. +Implications of Being an Emerging Growth Company +We are an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “ Securities Act ”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “ JOBS Act ”). As an emerging growth company, we may benefit from specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include: +● presentation of only two years of audited financial statements and only two years of related management’s discussion and analysis of financial condition and results of operations in this prospectus; +● reduced disclosure about our executive compensation arrangements; +● no non-binding stockholder advisory votes on executive compensation or golden parachute arrangements; +13 +● exemption from any requirement of the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis); and +● exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting. +We may benefit from these exemptions until December 31, 2025 or such earlier time that we are no longer an emerging growth company. We will cease to be an emerging growth company upon the earliest of: (1) December 31, 2025; (2) the first fiscal year after our annual gross revenues are $1.235 billion or more; (3) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (4) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”). We may choose to benefit from some but not all of these reduced disclosure obligations in future filings. If we do, the information that we provide stockholders may be different than you might get from other public companies in which you hold stock. \ No newline at end of file diff --git a/raw/filings/0001895249/2024/0001558370-25-010044/item13.txt b/raw/filings/0001895249/2024/0001558370-25-010044/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..c7cb6e400f97d2cc799591f404c1015279d1579b --- /dev/null +++ b/raw/filings/0001895249/2024/0001558370-25-010044/item13.txt @@ -0,0 +1,41 @@ +Item 13. Certain Relationships and Related Transactions, and Director Independence. +In addition to the compensation arrangements with directors and executive officers described under “ Executive and Director Compensation ” and “ Management ,” the following is a description of each transaction since January 1, 2023 and each currently proposed transaction in which: +● we have been or are to be a participant; +● the amount involved exceeded or will exceed $120,000; and +● any of our directors, executive officers or beneficial holders of more than 5% of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals (other than tenants or employees), had or will have a direct or indirect material interest. +Lock-up Agreement +In connection with the Business Combination, we have entered into lock-up agreements with certain of our shareholders restricting the transfer of their shares received as Merger consideration or any securities convertible into or exercisable or exchangeable for shares of Common Stock owned by them nor make any demand for or exercise any right with respect to the registration of such lock-up securities from and after the closing of the Business Combination. The restrictions under the lock-up agreements began at the closing of the Business Combination and end six (6) months from the Closing Date. +Related Party Policy +Our Code of Ethics requires us to avoid, wherever possible, all related party transactions that could result in actual or potential conflicts of interests, except under guidelines approved by the Board (or the audit committee). Related-party transactions are defined as transactions in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) we or any of our subsidiaries is a participant, and (3) any (a) executive officer, director or nominee for election as a director, (b) greater than 5% beneficial owner of our common stock, or (c) immediate family member, of the persons referred to in clauses (a) and (b), has or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 10% beneficial owner of another entity). A conflict of interest situation can arise when a person takes actions or has interests that may make it difficult to perform his or her work objectively and effectively. Conflicts of interest may also arise if a person, or a member of his or her family, receives personal benefits as a result of his or her position. +Our audit committee, pursuant to its written charter, is responsible for reviewing and approving related-party transactions to the extent we enter into such transactions. All ongoing and future transactions between us and any of our officers and directors or their respective affiliates will be on terms believed by us to be no less favorable to us than are available from unaffiliated third parties. Such transactions will require prior approval by our audit committee and a majority of our disinterested independent directors, or the members of our Board who do not have an interest in the transaction, in either case who had access, at our expense, to our attorneys or independent legal counsel. We will not enter into any such transaction unless our audit committee and a majority of our disinterested independent directors determine that the terms of such transaction are no less favorable to us than those that would be available to us with respect to such a transaction from unaffiliated third parties. Additionally, we require each of our directors and executive officers to complete a directors’ and officers’ questionnaire that elicits information about related party transactions. +These procedures are intended to determine whether any such related party transaction impairs the independence of a director or presents a conflict of interest on the part of a director, employee or officer. +To further minimize conflicts of interest, we have agreed not to consummate our initial business combination with an entity that is affiliated with any of our officers, directors or initial stockholders, unless we have obtained (i) an opinion from an independent investment banking firm, or other firm that commonly provides valuation opinions, that the business combination is fair to our +88 +stockholders from a financial point of view and (ii) the approval of a majority of our disinterested and independent directors (if we have any at that time). Furthermore, in no event will any of our initial stockholders, officers, directors or their respective affiliates be paid any finder’s fee, consulting fee or other similar compensation prior to, or for any services they render in order to effectuate, the consummation of our initial business combination. +Limitation on Liability and Indemnification of Directors and Officers +Our bylaws provides that our directors and officers will be indemnified by us to the fullest extent authorized by Delaware law as it now exists or may in the future be amended. +Notwithstanding the foregoing, as set forth in our bylaws, such indemnification will not extend to any claims our insiders may make to us to cover any loss that they may sustain as a result of their agreement to pay debts and obligations to target businesses or vendors or other entities that are owed money by us for services rendered or contracted for or products sold to us as described in this Report. +Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act (and is, therefore, unenforceable.). +Certain Relationships and Related Person Transactions +The following is a description of certain relationships and transactions that exist or have existed or that ConnectM has entered into, in each case since January 1, 2023, with its directors, executive officers, or stockholders who are known to ConnectM to beneficially own more than five percent of its voting securities and their respective affiliates and immediate family members. +Sponsor of MCAC +In connection with the closing of the Business Combination, the Company assumed unsecured promissory notes totaling approximately $555,000 that are non-interest bearing and due on demand and advances totaling approximately $132,000 that are non-interest bearing and due on demand with the Sponsor of MCAC. During September 2024, the Company entered into a note conversion agreement with the Sponsor of MCAC in which the Company converted the outstanding principal on unsecured promissory notes and certain other liabilities owed to the note holders into shares of the Company’s common stock at a conversion price of $2.00 per share with a one-time share reset adjustment (see Note 14), subject to shareholder approval and a maximum aggregate ownership amount of 19.99% for each individual lender. In connection with these agreements, approximately $555,000 of unsecured promissory notes and approximately $132,000 of accounts payable and accrued expenses were extinguished in exchange for the issuance of 343,248 shares of the Company’s common stock (see Note 12). +In connection with the conversion agreement, the Sponsor of MCAC received a one-time share reset adjustment that were subsequently settled during the quarter ended March 31, 2025 through the issuance of 205,949 shares of the Company’s common stock (see Note 14). As of December 31, 2024, the fair value of the derivative liabilities associated with the reset adjustment was approximately $158,000 and was included as a component of derivative liabilities on the accompanying consolidated balance sheets. For the year ended December 31, 2024, the Company recorded a change in fair value on these derivative liabilities of $26,000, which was included as a component of change in fair value of derivative liabilities on the accompanying consolidated statements of operations and comprehensive loss. +Related Party Investors +Immediately following the note conversion agreements in September 2024 with secured promissory note holders in which the Company converted the outstanding principal on the secured promissory notes, including accrued and unpaid interest, and certain other liabilities owed to the note holders into shares of the Company’s common stock (see Note 11), the ownership percentage of the Company’s common stock of two individual lenders individually exceeded 5.0%, triggering a related party relationship. These two lenders are collectively referred to as the Related Party Investors. +In connection with the conversion agreements, each Related Party Investor received a one-time share reset adjustment that were subsequently settled during the quarter ended March 31, 2025 through the issuance of 1,460,130 and 795,675 shares of the Company’s common stock (see Note 14). As of December 31, 2024, the fair value of the derivative liabilities associated with the reset adjustment granted to each Related Party Investor was approximately $1,146,000 and $624,000 and were included as a component of derivative liabilities on the accompanying consolidated balance sheets. For the year ended December 31, 2024, the Company recorded a change +89 +in fair value on these derivative liabilities of $192,000 and $104,000, which were included as a component of change in fair value of derivative liabilities on the accompanying consolidated statements of operations and comprehensive loss. +The Related Party Investors collectively own 100% of an entity that has controlling interest in four customers within the managed solutions operating segment (the “Related Party Managed Solutions Customers”). The Company acquired one of these customers, GEG, in October 2024 from the entity owned by Related Party Investors (see Note 6). From the period between when the related party relationship was triggered in September 2024 through December 31, 2024, the Company earned revenue totaling approximately $644,000, incurred cost of revenues totaling approximately $188,000, and incurred selling, general and administrative expenses totaling approximately $517,000 from the remaining three Related Party Managed Solutions Customers. As of December 31, 2024, the Company was owed approximately $349,000 for managed services from the Related Party Managed Solutions Customers, which was included as a component of accounts receivable on the accompanying consolidated balance sheets and approximately $102,000 for working capital advances from the Related Party Managed Solutions Customers, which was included as a component of working capital advances on the accompanying consolidated balance sheets. As of December 31, 2024, the Company owed approximately $28,000 to the Related Party Managed Solutions Customers. +Prior to the date the related party relationship was triggered, each Related Party Investors had entered into secured promissory notes that remained outstanding as of December 31, 2024 totaling $1,750,000 and $1,400,000 and were included as a component of debt, net on the accompanying consolidated balance sheets. Accrued interest on the notes remaining outstanding as of December 31, 2024 totaled approximately $384,000 and $289,000 and are included as a component of accrued expenses on the accompanying consolidated balance sheets. +Avanti Notes +In September 2016, the Company entered into an unsecured promissory note with a company owned by the Company’s Chief Executive Officer (the “Related Party Lender”) for an original principal sum of INR 16,500,000 ($192,761 at December 31, 2024) (the “2016 Promissory Note”). The note bears annual interest of 14.0%. The note does not have a maturity date and the full note balance is to be paid over time in amounts determined by the Company. +In July 2024, the Company borrowed an additional INR 8,300,000 ($96,965 at December 31, 2024) from the Related Party Lender (the “2024 Promissory Note”). The loan bears interest at 14.0% and matures in July 2031. The principal and accrued interest is due in full at maturity. +Total interest expense recognized on the promissory notes with the Related Party Lender totaled INR 1,525,193 and INR 994,022 ($18,209 and $14,890, respectively) for the years ended December 31, 2024 and 2023, respectively. Total interest accrued was INR 8,414,431 and INR 6,240,004 ($98,301 and $67,462, respectively), as of December 31, 2024 and 2023, respectively, and was recorded as a component of accrued expenses on the accompanying consolidated balance sheets. +Related Party Lender +Following the closing of the Business Combination on July 12, 2024 which triggered the conversion of certain convertible notes, a noteholder’s ownership percentage of the Company’s common stock exceeded 5.0%, triggering a related party relationship. +On October 10, 2024, the Company issued this related party a convertible note with a principal amount of $800,000. The note has an interest rate of 20% and a maturity date of April 8, 2025. The note is convertible during the first 90 days after issuance at a conversion price of $1.10. The Company accounts for these convertible notes using the fair value option. As of December 31, 2024, the carrying amount of the note and accrued interest was $800,000 and $35,945, respectively. As of December 31, 2024, the fair value of this note was approximately $837,000. +On October 10, 2024, the Company issued this related party a convertible note with a principal amount of $400,000. The note has an interest rate of 20% and a maturity date of June 1, 2025. The note is convertible during the first 90 days after issuance at a conversion price of $1.10. The Company accounts for these convertible notes using the fair value option. As of December 31, 2024, the carrying amount of the note and accrued interest was $400,000 and $6,137, respectively. As of December 31, 2024, the fair value of this note was approximately $418,000. +ConnectM’s audit committee will approve only those transactions that it determines are fair to ConnectM and in ConnectM’s best interests. +We have determined that each of Ms. Cuocolo, Mr. Markscheid and Mr. Barua qualify as an independent director, as that term is defined in Rule 5605(a)(2) of the Nasdaq Listing Rules. +90 \ No newline at end of file diff --git a/raw/filings/0001895249/2025/0001104659-26-044467/filing.txt b/raw/filings/0001895249/2025/0001104659-26-044467/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..50faeaa2b5f5b2448dc80845b047add740052011 --- /dev/null +++ b/raw/filings/0001895249/2025/0001104659-26-044467/filing.txt @@ -0,0 +1,11588 @@ +ConnectM Technology Solutions, Inc._December 31, 2025 +0001895249 --12-31 FY false http://fasb.org/us-gaap/2025#GoodwillAndIntangibleAssetImpairment http://fasb.org/us-gaap/2025#GoodwillAndIntangibleAssetImpairment 6 P3Y P3Y P3Y P8Y P3Y P5Y P1Y P1Y 2904430 1 0.1 http://fasb.org/us-gaap/2025#GoodwillAndIntangibleAssetImpairment 0 P0Y 2182558 P30D 3212250 P180D P10D P5D P10D P10D P14D P24M 1303292 P2M 150000 P30D P12M P4M P6M P5D 0.005 0.005 0.005 P45D 1703890 0.769 P5D 533333 533333 533333 533333 533333 111355 59723 0.005 http://xbrl.sec.gov/country/2025#US 0.2 0.02 0.031 0.031 0001895249 cntm:SponsorMember 2025-01-01 2025-12-31 0001895249 us-gaap:DerivativeFinancialInstrumentsLiabilitiesMember 2024-01-01 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember 2024-01-01 2024-12-31 0001895249 us-gaap:ConvertibleDebtMember us-gaap:ParentMember 2025-01-01 2025-12-31 0001895249 us-gaap:ConvertibleDebtMember us-gaap:AdditionalPaidInCapitalMember 2025-01-01 2025-12-31 0001895249 cntm:ConvertiblePromissoryNotesMember us-gaap:ParentMember 2025-01-01 2025-12-31 0001895249 cntm:ConvertiblePromissoryNotesMember us-gaap:AdditionalPaidInCapitalMember 2025-01-01 2025-12-31 0001895249 us-gaap:ConvertibleDebtMember 2025-01-01 2025-12-31 0001895249 cntm:ConvertiblePromissoryNotesMember 2025-01-01 2025-12-31 0001895249 cntm:GlobalImpexLlcMember us-gaap:ParentMember 2025-01-01 2025-12-31 0001895249 cntm:GlobalImpexLlcMember us-gaap:NoncontrollingInterestMember 2025-01-01 2025-12-31 0001895249 cntm:GlobalImpexLlcMember us-gaap:AdditionalPaidInCapitalMember 2025-01-01 2025-12-31 0001895249 cntm:AmpericsHoldingsLlcMember us-gaap:ParentMember 2025-01-01 2025-12-31 0001895249 cntm:AmpericsHoldingsLlcMember us-gaap:AdditionalPaidInCapitalMember 2025-01-01 2025-12-31 0001895249 cntm:AmpericsHoldingsLlcMember 2025-01-01 2025-12-31 0001895249 cntm:SponsorMember 2025-01-01 2025-03-31 0001895249 cntm:MarketingServicesAgreementMember 2024-07-01 2024-07-31 0001895249 us-gaap:ConvertibleDebtMember us-gaap:CommonStockMember 2025-01-01 2025-12-31 0001895249 cntm:ConvertiblePromissoryNotesMember us-gaap:CommonStockMember 2025-01-01 2025-12-31 0001895249 cntm:GlobalImpexLlcMember us-gaap:CommonStockMember 2025-01-01 2025-12-31 0001895249 cntm:AmpericsHoldingsLlcMember us-gaap:CommonStockMember 2025-01-01 2025-12-31 0001895249 us-gaap:SubsequentEventMember 2026-03-26 2026-03-26 0001895249 srt:MinimumMember us-gaap:SubsequentEventMember 2026-01-15 2026-01-15 0001895249 srt:MaximumMember us-gaap:SubsequentEventMember 2026-01-15 2026-01-15 0001895249 us-gaap:RetainedEarningsMember 2025-12-31 0001895249 us-gaap:ParentMember 2025-12-31 0001895249 us-gaap:NoncontrollingInterestMember 2025-12-31 0001895249 us-gaap:AdditionalPaidInCapitalMember 2025-12-31 0001895249 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2025-12-31 0001895249 us-gaap:RetainedEarningsMember 2024-12-31 0001895249 us-gaap:ParentMember 2024-12-31 0001895249 us-gaap:NoncontrollingInterestMember 2024-12-31 0001895249 us-gaap:AdditionalPaidInCapitalMember 2024-12-31 0001895249 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-12-31 0001895249 us-gaap:RetainedEarningsMember 2023-12-31 0001895249 us-gaap:ParentMember 2023-12-31 0001895249 us-gaap:NoncontrollingInterestMember 2023-12-31 0001895249 us-gaap:AdditionalPaidInCapitalMember 2023-12-31 0001895249 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-12-31 0001895249 us-gaap:CommonStockMember 2025-12-31 0001895249 us-gaap:CommonStockMember 2024-12-31 0001895249 us-gaap:CommonStockMember 2023-12-31 0001895249 cntm:UmeshGoradiaMember cntm:SaleOfFutureReceiptsLibertasMember 2025-11-17 0001895249 2023-01-01 2023-12-31 0001895249 cntm:EquityIncentivePlan2019Member 2025-12-31 0001895249 cntm:EquityIncentivePlan2023Member 2024-07-10 0001895249 cntm:CapitalMarketsAdvisoryAgreementMember 2024-07-01 2024-07-31 0001895249 us-gaap:RestrictedStockMember 2025-12-31 0001895249 us-gaap:RestrictedStockMember 2024-12-31 0001895249 cntm:M2ServicesAgreementWithServiceProviderTwoMember 2024-12-01 2024-12-31 0001895249 cntm:M1ServicesAgreementWithServiceProviderOneMember 2024-12-01 2024-12-31 0001895249 us-gaap:NonrelatedPartyMember 2025-01-01 2025-12-31 0001895249 us-gaap:NonUsMember cntm:TransportationSegmentMember 2025-01-01 2025-12-31 0001895249 us-gaap:NonUsMember cntm:DistributedEnergyAndRenewablesMember 2025-01-01 2025-12-31 0001895249 country:US cntm:OwnedServiceNetworkSegmentMember 2025-01-01 2025-12-31 0001895249 country:US cntm:ManagedSolutionsSegmentMember 2025-01-01 2025-12-31 0001895249 country:US cntm:LogisticsSegmentMember 2025-01-01 2025-12-31 0001895249 us-gaap:TransferredOverTimeMember 2025-01-01 2025-12-31 0001895249 us-gaap:TransferredAtPointInTimeMember 2025-01-01 2025-12-31 0001895249 us-gaap:NonUsMember 2025-01-01 2025-12-31 0001895249 country:US 2025-01-01 2025-12-31 0001895249 country:IN 2025-01-01 2025-12-31 0001895249 us-gaap:NonUsMember cntm:TransportationSegmentMember 2024-01-01 2024-12-31 0001895249 country:US cntm:OwnedServiceNetworkSegmentMember 2024-01-01 2024-12-31 0001895249 country:US cntm:ManagedSolutionsSegmentMember 2024-01-01 2024-12-31 0001895249 country:US cntm:LogisticsSegmentMember 2024-01-01 2024-12-31 0001895249 us-gaap:TransferredOverTimeMember 2024-01-01 2024-12-31 0001895249 us-gaap:NonUsMember 2024-01-01 2024-12-31 0001895249 country:US 2024-01-01 2024-12-31 0001895249 country:IN 2024-01-01 2024-12-31 0001895249 cntm:OwnedServiceNetworkSegmentMember 2025-12-31 0001895249 cntm:PaycheckProtectionProgramMember 2025-01-01 2025-12-31 0001895249 srt:MinimumMember us-gaap:VehiclesMember 2025-12-31 0001895249 srt:MinimumMember us-gaap:MachineryAndEquipmentMember 2025-12-31 0001895249 srt:MinimumMember us-gaap:FurnitureAndFixturesMember 2025-12-31 0001895249 srt:MaximumMember us-gaap:VehiclesMember 2025-12-31 0001895249 srt:MaximumMember us-gaap:MachineryAndEquipmentMember 2025-12-31 0001895249 srt:MaximumMember us-gaap:FurnitureAndFixturesMember 2025-12-31 0001895249 us-gaap:VehiclesMember 2025-12-31 0001895249 us-gaap:MachineryAndEquipmentMember 2025-12-31 0001895249 us-gaap:LandMember 2025-12-31 0001895249 us-gaap:FurnitureAndFixturesMember 2025-12-31 0001895249 us-gaap:BuildingMember 2025-12-31 0001895249 us-gaap:BuildingImprovementsMember 2025-12-31 0001895249 us-gaap:VehiclesMember 2024-12-31 0001895249 us-gaap:MachineryAndEquipmentMember 2024-12-31 0001895249 us-gaap:FurnitureAndFixturesMember 2024-12-31 0001895249 us-gaap:BuildingMember 2024-12-31 0001895249 us-gaap:BuildingImprovementsMember 2024-12-31 0001895249 us-gaap:NotesPayableOtherPayablesMember 2025-05-01 2025-05-31 0001895249 cntm:SecuredPromissoryNoteMember 2025-05-01 2025-05-31 0001895249 cntm:AirTempServicesCoIncMember cntm:SaleOfFutureReceiptsMember 2025-04-28 2025-04-28 0001895249 us-gaap:NotesPayableOtherPayablesMember 2025-04-01 2025-04-30 0001895249 cntm:SecuredPromissoryNoteMember 2025-04-01 2025-04-30 0001895249 cntm:AirTempServicesCoIncMember cntm:SaleOfFutureReceiptsMember 2025-01-01 2025-12-31 0001895249 cntm:SaleOfFutureReceiptsMember 2025-01-01 2025-12-31 0001895249 cntm:PaycheckProtectionProgramMember 2020-05-04 2020-05-04 0001895249 cntm:SmalBusinessAdministrationLoansMember 2020-01-01 2020-12-31 0001895249 cntm:PromissoryNotesAndTermLoanMember us-gaap:SubsequentEventMember 2026-01-01 2026-01-01 0001895249 cntm:SaleOfFutureReceiptsMember 2025-11-13 2025-11-13 0001895249 cntm:SaleOfFutureReceiptsMember 2025-11-07 2025-11-07 0001895249 cntm:SaleOfFutureReceivableAgreementMember 2025-11-01 2025-11-01 0001895249 cntm:UmeshGoradiaMember cntm:SaleOfFutureReceiptsLibertasMember 2025-11-17 2025-11-17 0001895249 cntm:MeteoraSpecialOpportunityFundMember us-gaap:DerivativeFinancialInstrumentsAssetsMember 2024-01-01 2024-12-31 0001895249 cntm:UnsecuredConvertiblePromissoryNotesIssuedToInvestorsMember us-gaap:SubsequentEventMember 2026-04-02 2026-04-02 0001895249 cntm:UnsecuredConvertiblePromissoryNotesIssuedToInvestorsMember us-gaap:SubsequentEventMember 2026-04-01 2026-04-30 0001895249 cntm:UnsecuredConvertiblePromissoryNotesIssuedToInvestorsMember us-gaap:SubsequentEventMember 2026-03-30 2026-03-30 0001895249 us-gaap:SubsequentEventMember 2026-03-30 2026-03-30 0001895249 cntm:UnsecuredConvertiblePromissoryNotesIssuedToInvestorsMember us-gaap:SubsequentEventMember 2026-03-01 2026-03-31 0001895249 cntm:UnsecuredConvertiblePromissoryNotesIssuedToInvestorsMember us-gaap:SubsequentEventMember 2026-01-01 2026-01-01 0001895249 us-gaap:SeriesAPreferredStockMember 2025-12-31 0001895249 us-gaap:SeriesAPreferredStockMember 2024-12-31 0001895249 cntm:DeliverycircleLlcMember 2024-12-01 2024-12-31 0001895249 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2025-01-01 2025-12-31 0001895249 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-01-01 2024-12-31 0001895249 cntm:SaleOfFutureReceivableAgreementMember 2025-12-31 0001895249 us-gaap:NotesPayableOtherPayablesMember us-gaap:NonrelatedPartyMember 2025-12-31 0001895249 cntm:VehicleNotesMember us-gaap:NonrelatedPartyMember 2025-12-31 0001895249 cntm:SmalBusinessAdministrationLoansMember us-gaap:NonrelatedPartyMember 2025-12-31 0001895249 cntm:SellerNotesMember us-gaap:NonrelatedPartyMember 2025-12-31 0001895249 cntm:SecuredPromissoryNoteMember us-gaap:NonrelatedPartyMember 2025-12-31 0001895249 cntm:SaleOfFutureReceiptsMember us-gaap:NonrelatedPartyMember 2025-12-31 0001895249 cntm:SaleOfFutureReceiptsLibertasMember us-gaap:NonrelatedPartyMember 2025-12-31 0001895249 cntm:RealEstatePromissoryNoteMember us-gaap:NonrelatedPartyMember 2025-12-31 0001895249 cntm:BusinessLoanAndSecurityAgreementMember us-gaap:NonrelatedPartyMember 2025-12-31 0001895249 cntm:AvantiNotesMember us-gaap:NonrelatedPartyMember 2025-12-31 0001895249 cntm:SellerNotesMember 2025-12-31 0001895249 cntm:PaycheckProtectionProgramMember 2025-12-31 0001895249 us-gaap:NotesPayableOtherPayablesMember us-gaap:NonrelatedPartyMember 2024-12-31 0001895249 cntm:VehicleNotesMember us-gaap:NonrelatedPartyMember 2024-12-31 0001895249 cntm:SmalBusinessAdministrationLoansMember us-gaap:NonrelatedPartyMember 2024-12-31 0001895249 cntm:SellerNotesMember us-gaap:NonrelatedPartyMember 2024-12-31 0001895249 cntm:SecuredPromissoryNoteMember us-gaap:NonrelatedPartyMember 2024-12-31 0001895249 cntm:SaleOfFutureReceiptsMember us-gaap:NonrelatedPartyMember 2024-12-31 0001895249 cntm:RealEstatePromissoryNoteMember us-gaap:NonrelatedPartyMember 2024-12-31 0001895249 cntm:PaycheckProtectionProgramMember us-gaap:NonrelatedPartyMember 2024-12-31 0001895249 cntm:BusinessLoanAndSecurityAgreementMember us-gaap:NonrelatedPartyMember 2024-12-31 0001895249 cntm:AvantiNotesMember us-gaap:NonrelatedPartyMember 2024-12-31 0001895249 cntm:SellerNotesMember 2024-12-31 0001895249 cntm:PaycheckProtectionProgramMember 2024-12-31 0001895249 cntm:CambridgeEnergyResourcesLtdMember us-gaap:NoncontrollingInterestMember 2025-01-01 2025-12-31 0001895249 cntm:SolarEnergySystemsOfBrevardIncMember cntm:SaleOfFutureReceiptsMember 2025-04-28 2025-04-28 0001895249 cntm:AirTempServicesCoIncMember us-gaap:NotesPayableOtherPayablesMember 2025-04-28 2025-04-28 0001895249 cntm:SolarEnergySystemsOfBrevardIncMember us-gaap:NotesPayableOtherPayablesMember 2025-01-01 2025-12-31 0001895249 us-gaap:RetainedEarningsMember 2025-01-01 2025-12-31 0001895249 us-gaap:NoncontrollingInterestMember 2025-01-01 2025-12-31 0001895249 us-gaap:RetainedEarningsMember 2024-01-01 2024-12-31 0001895249 cntm:GlobalImpexLlcMember 2025-11-03 0001895249 cntm:SecondMay2024SaleOfFutureReceiptsAgreementMember 2025-05-31 0001895249 cntm:May2024SaleOfFutureReceiptsAgreementMember 2025-05-31 0001895249 cntm:RealEstatePromissoryNoteMember 2025-12-31 0001895249 2026-01-07 0001895249 cntm:BusinessLoanAndSecurityAgreementMember 2025-10-27 0001895249 cntm:UnsecuredPromissoryNoteMember srt:ChiefExecutiveOfficerMember 2025-01-01 2025-12-31 0001895249 us-gaap:NotesPayableOtherPayablesMember 2024-10-15 2024-10-31 0001895249 cntm:UnsecuredPromissoryNoteMember srt:ChiefExecutiveOfficerMember 2024-01-01 2024-12-31 0001895249 cntm:AirTempServiceCoInc.AndSolarEnergySystemsOfBrevardIncMember us-gaap:TradeNamesMember 2025-01-01 2025-12-31 0001895249 cntm:AirTempServiceCoInc.AndSolarEnergySystemsOfBrevardIncMember us-gaap:CustomerRelationshipsMember 2025-01-01 2025-12-31 0001895249 us-gaap:ComputerSoftwareIntangibleAssetMember 2025-01-01 2025-12-31 0001895249 us-gaap:ComputerSoftwareIntangibleAssetMember 2024-01-01 2024-12-31 0001895249 cntm:OwnedServiceNetworkSegmentMember 2023-12-31 0001895249 cntm:SaleOfFutureReceiptsLibertasMember 2025-01-01 2025-12-31 0001895249 cntm:October2024SaleOfFutureReceiptsAgreementMember 2024-07-01 2024-12-31 0001895249 cntm:SecondNovember2024SaleOfFutureReceiptsAgreementMember 2024-01-01 2024-12-31 0001895249 cntm:November2024SaleOfFutureReceiptsAgreementMember 2024-01-01 2024-12-31 0001895249 srt:MinimumMember us-gaap:TradeNamesMember 2025-12-31 0001895249 srt:MinimumMember us-gaap:TechnologyBasedIntangibleAssetsMember 2025-12-31 0001895249 srt:MinimumMember us-gaap:IntellectualPropertyMember 2025-12-31 0001895249 srt:MinimumMember us-gaap:CustomerRelationshipsMember 2025-12-31 0001895249 srt:MinimumMember us-gaap:ComputerSoftwareIntangibleAssetMember 2025-12-31 0001895249 srt:MaximumMember us-gaap:TradeNamesMember 2025-12-31 0001895249 srt:MaximumMember us-gaap:TechnologyBasedIntangibleAssetsMember 2025-12-31 0001895249 srt:MaximumMember us-gaap:IntellectualPropertyMember 2025-12-31 0001895249 srt:MaximumMember us-gaap:CustomerRelationshipsMember 2025-12-31 0001895249 srt:MaximumMember us-gaap:ComputerSoftwareIntangibleAssetMember 2025-12-31 0001895249 srt:MinimumMember 2025-12-31 0001895249 srt:MaximumMember 2025-12-31 0001895249 cntm:FirmwareEmbeddedInHardwareDevicesMember 2025-12-31 0001895249 cntm:DevelopedTechnologyMember 2025-12-31 0001895249 us-gaap:TradeNamesMember 2025-12-31 0001895249 us-gaap:PatentsMember 2025-12-31 0001895249 us-gaap:NoncompeteAgreementsMember 2025-12-31 0001895249 us-gaap:IntellectualPropertyMember 2025-12-31 0001895249 us-gaap:DevelopedTechnologyRightsMember 2025-12-31 0001895249 us-gaap:CustomerRelationshipsMember 2025-12-31 0001895249 us-gaap:ComputerSoftwareIntangibleAssetMember 2025-12-31 0001895249 cntm:ProprietaryTechnologyMember 2025-12-31 0001895249 us-gaap:TradeNamesMember 2024-12-31 0001895249 us-gaap:TechnologyBasedIntangibleAssetsMember 2024-12-31 0001895249 us-gaap:NoncompeteAgreementsMember 2024-12-31 0001895249 us-gaap:IntellectualPropertyMember 2024-12-31 0001895249 us-gaap:CustomerRelationshipsMember 2024-12-31 0001895249 us-gaap:ComputerSoftwareIntangibleAssetMember 2024-12-31 0001895249 cntm:GreenEnergyGainsMember 2025-01-01 2025-12-31 0001895249 us-gaap:DerivativeFinancialInstrumentsLiabilitiesMember 2025-12-31 0001895249 us-gaap:ConvertibleDebtMember 2025-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember 2025-12-31 0001895249 us-gaap:DerivativeFinancialInstrumentsLiabilitiesMember 2024-12-31 0001895249 us-gaap:ConvertibleDebtMember 2024-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember 2024-12-31 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember cntm:Amended2024ConvertibleNotesMember 2025-01-01 2025-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember 2025-01-01 2025-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember 2025-01-01 2025-12-31 0001895249 cntm:SettlementAndTerminationAgreementMember 2025-01-01 2025-12-31 0001895249 cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember 2025-01-01 2025-12-31 0001895249 cntm:ConvertibleNotes2024And2025Member 2025-01-01 2025-12-31 0001895249 cntm:SaleOfFutureReceiptsLibertasMember 2025-09-24 2025-09-24 0001895249 cntm:September2024SaleOfFutureReceiptsAgreementMember 2025-03-01 2025-03-31 0001895249 cntm:November2024SaleOfFutureReceiptsAgreementMember 2025-03-01 2025-03-31 0001895249 cntm:VehicleNotesMember 2025-01-01 2025-12-31 0001895249 cntm:SellerNotesMember 2025-01-01 2025-12-31 0001895249 cntm:UnsecuredPromissoryNoteMember cntm:SponsorMember 2024-09-01 2024-09-30 0001895249 cntm:ServiceAgreementMember 2025-12-31 0001895249 cntm:ServiceAgreementMember 2024-12-31 0001895249 cntm:HvacBusinessAssetsAndOperationsMember 2025-12-31 0001895249 cntm:YaIiPnLtdYorkvilleMember us-gaap:StockOptionMember cntm:StandbyEquityPurchaseAgreementMember 2024-12-01 2024-12-31 0001895249 srt:MinimumMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember us-gaap:MeasurementInputPriceVolatilityMember 2024-12-31 0001895249 srt:MaximumMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember us-gaap:MeasurementInputPriceVolatilityMember 2024-12-31 0001895249 cntm:SecondResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputRemainingTermMember 2024-12-31 0001895249 cntm:SecondResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputForecastedFiveDayVwapPerShareOfCommonStockMember 2024-12-31 0001895249 cntm:ResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember us-gaap:MeasurementInputSharePriceMember 2024-12-31 0001895249 cntm:ResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-12-31 0001895249 cntm:ResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputDriftTermMember 2024-12-31 0001895249 cntm:FirstResetDateMember cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember cntm:MeasurementInputForecastedFiveDayVwapPerShareOfCommonStockMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember us-gaap:MeasurementInputPriceVolatilityMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember us-gaap:MeasurementInputPrepaymentRateMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember cntm:MeasurementInputRemainingTermMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember cntm:MeasurementInputDriftTermMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember cntm:MeasurementInputConversionPriceForPaymentsToBeMadeThroughIssuanceOfCommonStockMember 2024-12-31 0001895249 cntm:DebtConversionShareAdjustmentDerivativeLiabilityMember us-gaap:MeasurementInputSharePriceMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember 2025-12-31 0001895249 cntm:ShareResetDerivativeLiabilityMember 2025-03-31 0001895249 cntm:StandbyEquityPurchaseAgreementDerivativeLiabilityMember 2024-12-31 0001895249 cntm:SponsorMember 2024-12-31 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember us-gaap:MeasurementInputSharePriceMember 2024-12-31 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-12-31 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember us-gaap:MeasurementInputPriceVolatilityMember 2024-12-31 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputRemainingTermMember 2024-12-31 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputRecycledSharesHeldByMeteoraMember 2024-12-31 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputProbabilityOfPrepaymentShortfallSettlementScenarioMember 2024-12-31 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputProbabilityOfMaturitySettlementScenarioMember 2024-12-31 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputForecastedPricePerShareOfCommonStockAtMaturityMember 2024-12-31 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputExpectedMarginFromMeteoraSSaleOfRecycledSharesMember 2024-12-31 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputDriftTermMember 2024-12-31 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember us-gaap:MeasurementInputSharePriceMember 2024-12-16 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-12-16 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember us-gaap:MeasurementInputPriceVolatilityMember 2024-12-16 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputRemainingTermMember 2024-12-16 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputRecycledSharesHeldByMeteoraMember 2024-12-16 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputProbabilityOfPrepaymentShortfallSettlementScenarioMember 2024-12-16 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputProbabilityOfMaturitySettlementScenarioMember 2024-12-16 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputForecastedPricePerShareOfCommonStockAtMaturityMember 2024-12-16 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputExpectedMarginFromMeteoraSSaleOfRecycledSharesMember 2024-12-16 0001895249 cntm:Amended2024ForwardPurchaseAgreementMember cntm:MeasurementInputDriftTermMember 2024-12-16 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember us-gaap:MeasurementInputExpectedTermMember 2024-08-02 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember us-gaap:MeasurementInputSharePriceMember 2024-08-02 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-08-02 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember us-gaap:MeasurementInputPriceVolatilityMember 2024-08-02 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember us-gaap:MeasurementInputExpectedDividendRateMember 2024-08-02 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember us-gaap:MeasurementInputExercisePriceMember 2024-08-02 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember us-gaap:MeasurementInputExpectedTermMember 2024-07-12 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember us-gaap:MeasurementInputSharePriceMember 2024-07-12 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-07-12 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember us-gaap:MeasurementInputPriceVolatilityMember 2024-07-12 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember us-gaap:MeasurementInputExpectedDividendRateMember 2024-07-12 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember us-gaap:MeasurementInputExercisePriceMember 2024-07-12 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember cntm:MeasurementInputProbabilityOfCompletingBusinessCombinationMember 2024-07-12 0001895249 srt:MinimumMember 2025-01-01 2025-12-31 0001895249 cntm:SettlementAndTerminationAgreementMember 2024-12-31 0001895249 cntm:SecondNovember2024SaleOfFutureReceiptsAgreementMember 2024-11-30 0001895249 cntm:November2024SaleOfFutureReceiptsAgreementMember 2024-11-30 0001895249 cntm:November82024SaleOfFutureReceiptsAgreementMember 2024-11-08 0001895249 cntm:October2024SaleOfFutureReceiptsAgreementMember 2024-10-31 0001895249 cntm:September2024SaleOfFutureReceiptsAgreementMember 2024-09-19 0001895249 cntm:July2024SaleOfFutureReceiptsAgreementMember 2024-07-24 0001895249 cntm:SecondMay2024SaleOfFutureReceiptsAgreementMember 2024-05-28 0001895249 cntm:May2024SaleOfFutureReceiptsAgreementMember 2024-05-23 0001895249 cntm:AmendedJanuary2024SaleOfFutureReceiptsAgreementMember 2024-01-30 0001895249 2024-01-30 0001895249 cntm:January2024SaleOfFutureReceiptsAgreementMember 2024-01-04 0001895249 srt:MinimumMember cntm:SecuredPromissoryNoteMember 2025-01-01 2025-12-31 0001895249 srt:MaximumMember cntm:SecuredPromissoryNoteMember 2025-01-01 2025-12-31 0001895249 cntm:ConvertibleNotes2025IssuanceFourMember 2025-01-01 2025-12-31 0001895249 2024-09-19 2024-09-19 0001895249 us-gaap:NotesPayableOtherPayablesMember 2024-10-01 2024-10-31 0001895249 cntm:DeliverycircleLlcMember cntm:January2025NoteMember 2025-10-21 2025-10-21 0001895249 cntm:DeliverycircleLlcMember cntm:SellerNotesMember 2025-07-01 2025-07-31 0001895249 cntm:DeliverycircleLlcMember cntm:January2025NoteMember 2025-07-01 2025-07-31 0001895249 cntm:YaIiPnLimitedMember cntm:AfterSecondTrancheOfReceiptOfAdvancesMember cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember 2025-03-01 2025-03-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember cntm:SettlementAndTerminationAgreementMember 2025-01-01 2025-12-31 0001895249 cntm:YaIiPnLimitedMember cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember 2024-01-01 2024-12-31 0001895249 srt:MinimumMember cntm:ConvertibleNotes2024And2025Member us-gaap:MeasurementInputDiscountRateMember 2025-12-31 0001895249 srt:MinimumMember cntm:ConvertibleNotes2024And2025Member cntm:MeasurementInputRemainingTermForVoluntaryConversionScenarioMember 2025-12-31 0001895249 srt:MinimumMember cntm:ConvertibleNotes2024And2025Member cntm:MeasurementInputRemainingTermForConversionAtMaturityScenarioMember 2025-12-31 0001895249 srt:MinimumMember cntm:ConvertibleNotes2024And2025Member cntm:MeasurementInputProbabilityOfVoluntaryConversionScenarioMember 2025-12-31 0001895249 srt:MinimumMember cntm:ConvertibleNotes2024And2025Member cntm:MeasurementInputProbabilityOfConversionAtMaturityScenarioMember 2025-12-31 0001895249 srt:MaximumMember cntm:ConvertibleNotes2024And2025Member us-gaap:MeasurementInputDiscountRateMember 2025-12-31 0001895249 srt:MaximumMember cntm:ConvertibleNotes2024And2025Member cntm:MeasurementInputRemainingTermForVoluntaryConversionScenarioMember 2025-12-31 0001895249 srt:MaximumMember cntm:ConvertibleNotes2024And2025Member cntm:MeasurementInputRemainingTermForConversionAtMaturityScenarioMember 2025-12-31 0001895249 srt:MaximumMember cntm:ConvertibleNotes2024And2025Member cntm:MeasurementInputProbabilityOfVoluntaryConversionScenarioMember 2025-12-31 0001895249 srt:MaximumMember cntm:ConvertibleNotes2024And2025Member cntm:MeasurementInputProbabilityOfConversionAtMaturityScenarioMember 2025-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember cntm:SettlementAndTerminationAgreementMember us-gaap:MeasurementInputDiscountRateMember 2025-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember cntm:SettlementAndTerminationAgreementMember cntm:MeasurementInputDiscountRateSAndPUsHighYieldCorporateBondCccIndexMember 2025-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember cntm:SettlementAndTerminationAgreementMember cntm:MeasurementInputDiscountRatePepperdinePrivateCapitalMarketsMezzanineRateOfReturnMember 2025-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember cntm:SettlementAndTerminationAgreementMember cntm:MeasurementInputDiscountRateIceBofaCccAndLowerUsHighYieldIndexMember 2025-12-31 0001895249 srt:MinimumMember cntm:ConvertibleNotes2024And2025Member cntm:MeasurementInputRemainingTermForVoluntaryConversionScenarioMember 2024-12-31 0001895249 srt:MinimumMember cntm:ConvertibleNotes2024And2025Member cntm:MeasurementInputRemainingTermForConversionAtMaturityScenarioMember 2024-12-31 0001895249 srt:MinimumMember cntm:ConvertibleNotes2024And2025Member cntm:MeasurementInputProbabilityOfVoluntaryConversionScenarioMember 2024-12-31 0001895249 srt:MinimumMember cntm:ConvertibleNotes2024And2025Member cntm:MeasurementInputProbabilityOfConversionAtMaturityScenarioMember 2024-12-31 0001895249 srt:MaximumMember cntm:ConvertibleNotes2024And2025Member cntm:MeasurementInputRemainingTermForVoluntaryConversionScenarioMember 2024-12-31 0001895249 srt:MaximumMember cntm:ConvertibleNotes2024And2025Member cntm:MeasurementInputRemainingTermForConversionAtMaturityScenarioMember 2024-12-31 0001895249 srt:MaximumMember cntm:ConvertibleNotes2024And2025Member cntm:MeasurementInputProbabilityOfVoluntaryConversionScenarioMember 2024-12-31 0001895249 srt:MaximumMember cntm:ConvertibleNotes2024And2025Member cntm:MeasurementInputProbabilityOfConversionAtMaturityScenarioMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember us-gaap:MeasurementInputPriceVolatilityMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember cntm:MeasurementInputRemainingTermMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember cntm:MeasurementInputPaymentsToBeMadeThroughIssuanceOfSharesOfCommonStockMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember cntm:MeasurementInputPaymentsToBeMadeInCashMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember cntm:MeasurementInputDriftTermMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember cntm:MeasurementInputConversionPriceForPaymentsToBeMadeThroughIssuanceOfCommonStockMember 2024-12-31 0001895249 cntm:ConvertibleNotes2024And2025Member us-gaap:MeasurementInputDiscountRateMember 2024-12-31 0001895249 srt:MinimumMember cntm:VehicleNotesMember 2025-12-31 0001895249 srt:MinimumMember cntm:SecuredPromissoryNoteMember 2025-12-31 0001895249 srt:MaximumMember cntm:VehicleNotesMember 2025-12-31 0001895249 srt:MaximumMember cntm:SecuredPromissoryNoteMember 2025-12-31 0001895249 cntm:VanquishAndLabrysMember cntm:ConvertibleNotes2025Member 2025-12-31 0001895249 cntm:PromissoryNote2024Member srt:ChiefExecutiveOfficerMember 2025-12-31 0001895249 cntm:OtherPartiesMember cntm:ConvertibleNotes2025Member 2025-12-31 0001895249 cntm:SmalBusinessAdministrationLoansMember 2025-12-31 0001895249 cntm:DeliverycircleLlcMember cntm:SellerNotesMember 2025-07-01 0001895249 cntm:DeliverycircleLlcMember cntm:January2025NoteMember 2025-07-01 0001895249 us-gaap:NotesPayableOtherPayablesMember 2024-10-16 0001895249 cntm:PaycheckProtectionProgramMember 2020-05-04 0001895249 us-gaap:VehiclesMember 2025-01-01 2025-12-31 0001895249 us-gaap:VehiclesMember 2024-01-01 2024-12-31 0001895249 cntm:MerchantCashAdvancesMember us-gaap:SubsequentEventMember 2026-03-24 0001895249 cntm:MerchantCashAdvancesMember us-gaap:SubsequentEventMember 2026-03-16 0001895249 cntm:TermLoanTwoMember us-gaap:SubsequentEventMember 2026-02-28 0001895249 cntm:TermLoanOneMember us-gaap:SubsequentEventMember 2026-02-28 0001895249 cntm:PromissoryNoteThreeMember us-gaap:SubsequentEventMember 2026-02-28 0001895249 cntm:PromissoryNoteFourMember us-gaap:SubsequentEventMember 2026-02-28 0001895249 cntm:ConvertiblePromissoryNotesAggregatePrincipalOf228000Member us-gaap:SubsequentEventMember 2026-02-28 0001895249 cntm:ConvertiblePromissoryNotesWithAggregatePrincipalOf850000Member us-gaap:SubsequentEventMember 2026-01-31 0001895249 cntm:PromissoryNote2016Member srt:ChiefExecutiveOfficerMember 2025-12-31 0001895249 cntm:BusinessLoanAndSecurityAgreementMember 2025-10-31 0001895249 cntm:BusinessLoanAndSecurityAgreementMember 2025-10-23 0001895249 cntm:BusinessLoanAndSecurityAgreementMember 2025-10-07 0001895249 cntm:BusinessLoanAndSecurityAgreementMember 2025-10-01 0001895249 cntm:YaIiPnLtdYorkvilleMember cntm:ConvertiblePromissoryNotesTrancheTwoMember cntm:StandbyEquityPurchaseAgreementMember 2024-12-31 0001895249 cntm:YaIiPnLtdYorkvilleMember cntm:ConvertiblePromissoryNotesTrancheOneMember cntm:StandbyEquityPurchaseAgreementMember 2024-12-31 0001895249 cntm:YaIiPnLimitedMember srt:MaximumMember cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember 2024-12-31 0001895249 cntm:PromissoryNote2016Member srt:ChiefExecutiveOfficerMember 2024-12-31 0001895249 us-gaap:NotesPayableOtherPayablesMember 2024-10-31 0001895249 cntm:PromissoryNote2024Member srt:ChiefExecutiveOfficerMember 2024-07-31 0001895249 cntm:SmalBusinessAdministrationLoansMember 2022-12-31 0001895249 cntm:RealEstatePromissoryNoteMember 2022-12-29 0001895249 cntm:SmalBusinessAdministrationLoansMember 2021-12-31 0001895249 cntm:PromissoryNote2016Member srt:ChiefExecutiveOfficerMember 2016-09-30 0001895249 cntm:YaIiPnLtdYorkvilleMember cntm:ScenarioLatePaymentInObligationsMember cntm:ConvertiblePromissoryNotesMember cntm:StandbyEquityPurchaseAgreementMember 2024-01-01 2024-12-31 0001895249 srt:MinimumMember cntm:ConvertibleNotes2025Member 2025-12-31 0001895249 srt:MaximumMember cntm:ConvertibleNotes2025Member 2025-12-31 0001895249 cntm:ConversionOptionPeriod180DaysFollowingIssuanceOfConvertibleNoteMember cntm:ConvertibleNotes2025IssuanceFourMember 2025-12-31 0001895249 cntm:ConvertibleNotes2025IssuanceTwoMember 2025-12-31 0001895249 cntm:ConvertibleNotes2025IssuanceTenMember 2025-12-31 0001895249 cntm:ConvertibleNotes2025IssuanceSixMember 2025-12-31 0001895249 cntm:ConvertibleNotes2025IssuanceSevenMember 2025-12-31 0001895249 cntm:ConvertibleNotes2025IssuanceOneMember 2025-12-31 0001895249 cntm:ConvertibleNotes2025IssuanceNineMember 2025-12-31 0001895249 cntm:ConvertibleNotes2025IssuanceFourMember 2025-12-31 0001895249 cntm:ConvertibleNotes2025IssuanceFiveMember 2025-12-31 0001895249 cntm:ConvertibleNotes2025IssuanceElevenMember 2025-12-31 0001895249 cntm:ConvertibleNotes2025IssuanceEightMember 2025-12-31 0001895249 cntm:YaIiPnLimitedMember cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember 2024-12-31 0001895249 cntm:UnsecuredPromissoryNoteMember cntm:SponsorMember 2024-09-30 0001895249 cntm:SecuredPromissoryNoteMember 2024-09-30 0001895249 cntm:SecondJanuary2024SaleOfFutureReceiptsAgreementMember 2024-01-30 0001895249 cntm:InsurancePremiumFinancingMember 2025-12-31 0001895249 us-gaap:NotesPayableOtherPayablesMember 2025-04-01 2025-05-31 0001895249 cntm:ShareIssuanceOnExtinguishmentOfVendorObligationsMember 2024-10-02 2024-10-02 0001895249 cntm:ConvertibleNotes2024Member 2024-12-31 0001895249 cntm:Assumed2024NotesMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember us-gaap:EstimateOfFairValueFairValueDisclosureMember 2025-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember us-gaap:CarryingReportedAmountFairValueDisclosureMember 2025-12-31 0001895249 cntm:ConvertibleNotes2025Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2025-12-31 0001895249 cntm:ConvertibleNotes2025Member us-gaap:CarryingReportedAmountFairValueDisclosureMember 2025-12-31 0001895249 cntm:ConvertibleNotes2025Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2025-12-31 0001895249 cntm:ConvertibleNotes2025Member us-gaap:CarryingReportedAmountFairValueDisclosureMember 2025-12-31 0001895249 us-gaap:EstimateOfFairValueFairValueDisclosureMember 2025-12-31 0001895249 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2025-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember 2025-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember us-gaap:EstimateOfFairValueFairValueDisclosureMember 2024-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember us-gaap:CarryingReportedAmountFairValueDisclosureMember 2024-12-31 0001895249 cntm:ConvertibleNotes2024Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2024-12-31 0001895249 cntm:ConvertibleNotes2024Member us-gaap:CarryingReportedAmountFairValueDisclosureMember 2024-12-31 0001895249 cntm:Assumed2024NotesMember us-gaap:EstimateOfFairValueFairValueDisclosureMember 2024-12-31 0001895249 cntm:Assumed2024NotesMember us-gaap:CarryingReportedAmountFairValueDisclosureMember 2024-12-31 0001895249 us-gaap:EstimateOfFairValueFairValueDisclosureMember 2024-12-31 0001895249 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2024-12-31 0001895249 2024-07-11 0001895249 cntm:EquityIncentivePlan2023Member 2025-12-31 0001895249 cntm:LegacyOptionsMember 2022-12-31 0001895249 2023-12-31 0001895249 cntm:SolarEnergySystemsOfBrevardIncMember us-gaap:TrademarksMember 2025-04-28 0001895249 cntm:SolarEnergySystemsOfBrevardIncMember us-gaap:CustomerRelationshipsMember 2025-04-28 0001895249 cntm:AirTempServicesCoIncMember us-gaap:TrademarksMember 2025-04-28 0001895249 cntm:AirTempServicesCoIncMember us-gaap:CustomerRelationshipsMember 2025-04-28 0001895249 cntm:AirTempServiceCoInc.AndSolarEnergySystemsOfBrevardIncMember us-gaap:TrademarksMember 2025-04-28 0001895249 cntm:AirTempServiceCoInc.AndSolarEnergySystemsOfBrevardIncMember us-gaap:CustomerRelationshipsMember 2025-04-28 0001895249 cntm:GreenEnergyGainsMember us-gaap:TradeNamesMember 2024-10-09 0001895249 cntm:GreenEnergyGainsMember us-gaap:TechnologyBasedIntangibleAssetsMember 2024-10-09 0001895249 cntm:GreenEnergyGainsMember us-gaap:CustomerRelationshipsMember 2024-10-09 0001895249 cntm:DeliverycircleLlcMember us-gaap:TradeNamesMember 2024-08-05 0001895249 cntm:DeliverycircleLlcMember us-gaap:DevelopedTechnologyRightsMember 2024-08-05 0001895249 cntm:DeliverycircleLlcMember us-gaap:CustomerRelationshipsMember 2024-08-05 0001895249 cntm:DeliverycircleLlcMember 2024-08-05 0001895249 cntm:GlobalImpexLlcMember 2025-11-30 0001895249 cntm:MontereyCapitalAcquisitionCorporationMember cntm:Assumed2024NotesMember 2024-07-12 0001895249 cntm:MontereyCapitalAcquisitionCorporationMember cntm:SponsorMember 2024-07-12 0001895249 cntm:GreenEnergyGainsMember cntm:OwnedServiceNetworkSegmentMember 2025-01-01 2025-12-31 0001895249 cntm:DeliverycircleLlcMember cntm:OwnedServiceNetworkSegmentMember 2025-01-01 2025-12-31 0001895249 cntm:AirTempServicesCoIncMember cntm:OwnedServiceNetworkSegmentMember 2025-01-01 2025-12-31 0001895249 cntm:SolarEnergySystemsOfBrevardIncMember 2025-01-01 2025-12-31 0001895249 cntm:CambridgeEnergyResourcesLtdMember 2025-01-01 2025-12-31 0001895249 cntm:AirTempServicesCoIncMember 2025-01-01 2025-12-31 0001895249 srt:MinimumMember cntm:MeasurementInputTermToPaymentMember 2025-12-31 0001895249 srt:MaximumMember cntm:MeasurementInputTermToPaymentMember 2025-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember us-gaap:MeasurementInputDiscountRateMember 2025-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputWeightedAverageCostOfCapitalMember 2025-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputRevenueVolatilityMember 2025-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputOperatingLeverageMember 2025-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputLongTermRiskFreeRateMember 2025-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputEbitdaVolatilityMember 2025-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputEarnoutRiskFreeRateMember 2025-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputCorrelationBetweenRevenueAndEbitdaMember 2025-12-31 0001895249 srt:MinimumMember cntm:MeasurementInputTermToPaymentMember 2024-12-31 0001895249 srt:MaximumMember cntm:MeasurementInputTermToPaymentMember 2024-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember us-gaap:MeasurementInputDiscountRateMember 2024-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputWeightedAverageCostOfCapitalMember 2024-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputRevenueVolatilityMember 2024-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputOperatingLeverageMember 2024-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputLongTermRiskFreeRateMember 2024-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputEbitdaVolatilityMember 2024-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputEarnoutRiskFreeRateMember 2024-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember cntm:MeasurementInputCorrelationBetweenRevenueAndEbitdaMember 2024-12-31 0001895249 cntm:GregKendallMember cntm:GreenEnergyGainsMember 2024-10-09 0001895249 cntm:GlobalImpexLlcMember 2025-11-03 0001895249 cntm:CerRooftopPrivateLimitedMember 2025-04-25 0001895249 cntm:CerRenewtechPrivateLimitedMember 2025-04-25 0001895249 cntm:CerMicrogridsPrivateLimitedMember 2025-04-25 0001895249 cntm:HarryKahnAssociatesIncMember us-gaap:SubsequentEventMember 2026-03-10 2026-03-10 0001895249 cntm:AmpericsHoldingsLlcMember 2025-11-03 0001895249 us-gaap:NonUsMember 2025-12-31 0001895249 us-gaap:CorporateMember 2025-12-31 0001895249 cntm:TransportationSegmentMember 2025-12-31 0001895249 cntm:OwnedServiceNetworkSegmentMember 2025-12-31 0001895249 cntm:ManagedSolutionsSegmentMember 2025-12-31 0001895249 cntm:LogisticsSegmentMember 2025-12-31 0001895249 cntm:DistributedEnergyAndRenewablesMember 2025-12-31 0001895249 us-gaap:NonUsMember 2024-12-31 0001895249 us-gaap:CorporateMember 2024-12-31 0001895249 cntm:TransportationSegmentMember 2024-12-31 0001895249 cntm:OwnedServiceNetworkSegmentMember 2024-12-31 0001895249 cntm:ManagedSolutionsSegmentMember 2024-12-31 0001895249 cntm:LogisticsSegmentMember 2024-12-31 0001895249 country:IN us-gaap:CorporateMember 2025-12-31 0001895249 us-gaap:ConvertibleDebtSecuritiesMember 2025-01-01 2025-12-31 0001895249 cntm:LegacyWarrantsMember 2025-01-01 2025-12-31 0001895249 cntm:LegacyOptionsMember 2025-01-01 2025-12-31 0001895249 srt:MaximumMember 2025-01-01 2025-12-31 0001895249 cntm:ServiceAgreementMember 2025-01-01 2025-12-31 0001895249 srt:MaximumMember 2024-01-01 2024-12-31 0001895249 cntm:ServiceAgreementMember 2024-01-01 2024-12-31 0001895249 2024-10-02 2024-10-02 0001895249 cntm:GreenEnergyGainsMember us-gaap:TradeNamesMember 2024-10-09 2024-10-09 0001895249 cntm:GreenEnergyGainsMember us-gaap:TechnologyBasedIntangibleAssetsMember 2024-10-09 2024-10-09 0001895249 cntm:GreenEnergyGainsMember us-gaap:CustomerRelationshipsMember 2024-10-09 2024-10-09 0001895249 cntm:DeliverycircleLlcMember us-gaap:TradeNamesMember 2024-08-05 2024-08-05 0001895249 cntm:DeliverycircleLlcMember us-gaap:DevelopedTechnologyRightsMember 2024-08-05 2024-08-05 0001895249 cntm:DeliverycircleLlcMember us-gaap:CustomerRelationshipsMember 2024-08-05 2024-08-05 0001895249 cntm:InsurancePremiumFinancingMember 2025-07-15 0001895249 2025-10-01 2025-12-31 0001895249 cntm:WarrantsExercisableForOneShareOfCommonStock0.0001ParValuePerShareMember 2025-01-01 2025-12-31 0001895249 cntm:CommonStockParValue0.0001PerShareMember 2025-01-01 2025-12-31 0001895249 2026-04-16 0001895249 cntm:MeteoraSpecialOpportunityFundMember cntm:FpaTerminationAgreementMember 2025-01-01 2025-12-31 0001895249 cntm:SecondMay2024SaleOfFutureReceiptsAgreementMember 2025-12-31 0001895249 cntm:May2024SaleOfFutureReceiptsAgreementMember 2025-12-31 0001895249 cntm:July2024SaleOfFutureReceiptsAgreementMember 2025-12-31 0001895249 cntm:LegacyWarrantsMember 2022-01-01 2022-12-31 0001895249 cntm:AirTempServiceCoInc.AndSolarEnergySystemsOfBrevardIncMember us-gaap:ParentMember 2025-01-01 2025-12-31 0001895249 cntm:AirTempServiceCoInc.AndSolarEnergySystemsOfBrevardIncMember us-gaap:AdditionalPaidInCapitalMember 2025-01-01 2025-12-31 0001895249 us-gaap:ParentMember 2025-01-01 2025-12-31 0001895249 us-gaap:AdditionalPaidInCapitalMember 2025-01-01 2025-12-31 0001895249 cntm:AirTempServiceCoInc.AndSolarEnergySystemsOfBrevardIncMember us-gaap:CommonStockMember 2025-01-01 2025-12-31 0001895249 cntm:PreExchangeSharesMember 2022-01-01 2022-12-31 0001895249 cntm:PostExchangeSharesMember 2022-01-01 2022-12-31 0001895249 us-gaap:CommonStockMember 2025-01-01 2025-12-31 0001895249 cntm:MeteoraSpecialOpportunityFundMember 2025-04-02 2025-04-02 0001895249 2024-07-12 0001895249 us-gaap:CommonStockMember 2024-01-01 2024-12-31 0001895249 us-gaap:RestrictedStockMember 2025-01-01 2025-12-31 0001895249 cntm:EquityIncentivePlan2023Member 2025-01-01 2025-12-31 0001895249 us-gaap:RestrictedStockMember 2024-06-30 2024-06-30 0001895249 cntm:EquityIncentivePlan2023Member 2024-07-10 2024-07-10 0001895249 us-gaap:RestrictedStockMember us-gaap:ShareBasedPaymentArrangementNonemployeeMember 2025-01-01 2025-12-31 0001895249 us-gaap:RestrictedStockMember us-gaap:ShareBasedPaymentArrangementEmployeeMember 2025-01-01 2025-12-31 0001895249 cntm:CapitalMarketsAdvisoryAgreementMember 2024-07-31 0001895249 cntm:StockPriceDropsBelow1.09Member cntm:SettlementAgreementMember 2025-01-28 0001895249 cntm:IfDefaultEventOccursMember cntm:SettlementAgreementMember 2025-01-28 0001895249 cntm:SettlementAgreementMember us-gaap:MeasurementInputSharePriceMember 2025-12-31 0001895249 cntm:SettlementAgreementMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2025-12-31 0001895249 cntm:SettlementAgreementMember us-gaap:MeasurementInputExpectedTermMember 2025-12-31 0001895249 cntm:SettlementAgreementMember cntm:MeasurementInputEquityVolatilityMember 2025-12-31 0001895249 cntm:SettlementAgreementMember cntm:MeasurementInputDriftTermMember 2025-12-31 0001895249 cntm:DefaultScenarioMember cntm:SettlementAgreementMember us-gaap:MeasurementInputSharePriceMember 2025-01-28 0001895249 cntm:BaseCaseScenarioMember cntm:SettlementAgreementMember us-gaap:MeasurementInputSharePriceMember 2025-01-28 0001895249 cntm:SettlementAgreementMember us-gaap:MeasurementInputSharePriceMember 2025-01-28 0001895249 cntm:SettlementAgreementMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2025-01-28 0001895249 cntm:SettlementAgreementMember cntm:MeasurementInputEquityVolatilityMember 2025-01-28 0001895249 cntm:SettlementAgreementMember cntm:MeasurementInputDriftTermMember 2025-01-28 0001895249 cntm:SettlementAgreementMember cntm:MeasurementInputRemainingTermMember 2024-12-31 0001895249 2025-01-28 0001895249 cntm:SettlementAgreementMember 2024-01-01 2024-12-31 0001895249 us-gaap:SubsequentEventMember 2026-03-20 0001895249 cntm:HarryKahnAssociatesIncMember us-gaap:SubsequentEventMember 2026-03-10 0001895249 us-gaap:SubsequentEventMember 2026-03-20 2026-03-20 0001895249 cntm:MontereyCapitalAcquisitionCorporationMember 2024-07-12 2024-07-12 0001895249 cntm:DeliverycircleLlcMember cntm:SellerNotesMember 2025-10-21 2025-10-21 0001895249 cntm:YaIiPnLtdYorkvilleMember cntm:ConvertiblePromissoryNotesMember cntm:StandbyEquityPurchaseAgreementMember 2024-12-31 0001895249 cntm:MeteoraSpecialOpportunityFundMember cntm:FpaTerminationAgreementMember 2025-04-02 2025-04-02 0001895249 cntm:MeteoraSpecialOpportunityFundMember cntm:FpaTerminationAgreementMember 2025-04-01 2025-04-30 0001895249 cntm:PreExchangeSharesMember cntm:SeriesSeedConvertiblePreferredStockMember 2022-12-31 0001895249 cntm:PreExchangeSharesMember cntm:SeriesSeed1ConvertiblePreferredStockMember 2022-12-31 0001895249 cntm:PreExchangeSharesMember cntm:Seriesb2ConvertiblePreferredStockMember 2022-12-31 0001895249 cntm:PreExchangeSharesMember cntm:Seriesb1ConvertiblePreferredStockMember 2022-12-31 0001895249 cntm:PreExchangeSharesMember cntm:Seriesa1ConvertiblePreferredStockMember 2022-12-31 0001895249 cntm:PostExchangeSharesMember cntm:SeriesSeedConvertiblePreferredStockMember 2022-12-31 0001895249 cntm:PostExchangeSharesMember cntm:SeriesSeed1ConvertiblePreferredStockMember 2022-12-31 0001895249 cntm:PostExchangeSharesMember cntm:Seriesb2ConvertiblePreferredStockMember 2022-12-31 0001895249 cntm:PostExchangeSharesMember cntm:Seriesb1ConvertiblePreferredStockMember 2022-12-31 0001895249 cntm:PostExchangeSharesMember cntm:Seriesa1ConvertiblePreferredStockMember 2022-12-31 0001895249 cntm:DefaultScenarioMember cntm:SettlementAgreementMember us-gaap:MeasurementInputSharePriceMember 2025-01-28 2025-01-28 0001895249 cntm:StockPriceDropsBelow1.09Member cntm:SettlementAgreementMember 2025-01-28 2025-01-28 0001895249 cntm:IfDefaultEventOccursMember cntm:SettlementAgreementMember 2025-01-28 2025-01-28 0001895249 cntm:BaseCaseScenarioMember cntm:SettlementAgreementMember 2025-01-28 2025-01-28 0001895249 cntm:DefaultScenarioMember cntm:SettlementAgreementMember 2025-01-01 2025-12-31 0001895249 cntm:BaseCaseScenarioMember cntm:SettlementAgreementMember 2025-01-01 2025-12-31 0001895249 cntm:SunSolarLlcMember us-gaap:RelatedPartyMember us-gaap:SubsequentEventMember 2026-01-06 2026-01-06 0001895249 cntm:Assumed2024NotesMember 2024-07-12 2024-07-12 0001895249 cntm:LogisticsSegmentMember 2025-01-01 2025-12-31 0001895249 cntm:LogisticsSegmentMember 2024-01-01 2024-12-31 0001895249 us-gaap:StateAndLocalJurisdictionMember 2025-01-01 2025-12-31 0001895249 us-gaap:ForeignCountryMember 2025-01-01 2025-12-31 0001895249 country:US 2025-01-01 2025-12-31 0001895249 us-gaap:StateAndLocalJurisdictionMember 2025-12-31 0001895249 us-gaap:ForeignCountryMember 2025-12-31 0001895249 country:US 2025-12-31 0001895249 cntm:VehicleNotesMember 2025-12-31 0001895249 cntm:SettlementAgreementMember 2025-12-31 0001895249 cntm:SettlementAgreementMember 2025-01-28 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember 2024-01-01 2024-12-31 0001895249 2024-12-01 2024-12-31 0001895249 cntm:MeteoraSpecialOpportunityFundMember us-gaap:DerivativeFinancialInstrumentsAssetsMember 2025-04-02 0001895249 us-gaap:NotesPayableOtherPayablesMember 2025-04-28 2025-04-28 0001895249 cntm:SecuredPromissoryNoteMember 2025-12-31 0001895249 us-gaap:SubsequentEventMember 2026-02-01 2026-02-28 0001895249 cntm:ConvertiblePromissoryNotesAggregatePrincipalOf228000Member us-gaap:SubsequentEventMember 2026-02-01 2026-02-28 0001895249 cntm:ConvertiblePromissoryNotesWithAggregatePrincipalOf850000Member us-gaap:SubsequentEventMember 2026-01-01 2026-01-31 0001895249 2024-07-01 2024-07-31 0001895249 us-gaap:RevenueFromContractWithCustomerMember us-gaap:CustomerConcentrationRiskMember 2025-01-01 2025-12-31 0001895249 cntm:BaseCaseScenarioMember 2025-01-01 2025-12-31 0001895249 us-gaap:NonrelatedPartyMember 2025-12-31 0001895249 us-gaap:NonrelatedPartyMember 2024-12-31 0001895249 cntm:MeteoraSpecialOpportunityFundMember us-gaap:DerivativeFinancialInstrumentsAssetsMember cntm:StandbyEquityPurchaseAgreementMember 2024-12-01 2024-12-31 0001895249 cntm:MeteoraSpecialOpportunityFundMember us-gaap:DerivativeFinancialInstrumentsAssetsMember 2024-08-01 2024-08-31 0001895249 2025-12-25 0001895249 cntm:SecondMay2024SaleOfFutureReceiptsAgreementMember 2025-05-01 2025-05-31 0001895249 cntm:May2024SaleOfFutureReceiptsAgreementMember 2025-05-01 2025-05-31 0001895249 cntm:ConvertibleNotes2024Member 2025-01-01 2025-12-31 0001895249 cntm:November2024SaleOfFutureReceiptsAgreementMember 2024-11-01 2024-11-30 0001895249 cntm:MontereyCapitalAcquisitionCorporationMember 2024-07-12 0001895249 cntm:CountyComfortServicesLlcMember cntm:FactoringArrangementPurchaseOrderAndAccountsReceivableFinancingMember 2025-09-18 2025-09-18 0001895249 cntm:CountyComfortServicesLlcMember cntm:FactoringArrangementPurchaseOrderAndAccountsReceivableFinancingMember 2025-01-01 2025-12-31 0001895249 cntm:CountyComfortServicesLlcMember cntm:FactoringArrangementPurchaseOrderAndAccountsReceivableFinancingMember 2025-09-18 0001895249 cntm:CountyComfortServicesLlcMember cntm:FactoringArrangementPurchaseOrderFinancingMember 2025-09-18 2025-09-18 0001895249 cntm:CountyComfortServicesLlcMember cntm:FactoringArrangementPurchaseOrderFinancingMember 2025-09-18 0001895249 cntm:CountyComfortServicesLlcMember cntm:FactoringArrangementAccountsReceivableFinancingMember 2025-09-18 0001895249 cntm:CountyComfortServicesLlcMember cntm:FactoringArrangementAccountsReceivableFinancingMember 2025-09-18 2025-09-18 0001895249 cntm:CountyComfortServicesLlcMember cntm:ChargeInvoicesOutstandingForMoreThan60DaysMember cntm:FactoringArrangementAccountsReceivableFinancingMember 2025-09-18 2025-09-18 0001895249 cntm:CountyComfortServicesLlcMember cntm:ChargeAfter30DaysMember cntm:FactoringArrangementAccountsReceivableFinancingMember 2025-09-18 2025-09-18 0001895249 cntm:November82024SaleOfFutureReceiptsAgreementMember 2024-11-08 2024-11-08 0001895249 cntm:SecondNovember2024SaleOfFutureReceiptsAgreementMember 2024-11-01 2024-11-30 0001895249 cntm:SecondMay2024SaleOfFutureReceiptsAgreementMember 2024-05-28 2024-05-28 0001895249 cntm:May2024SaleOfFutureReceiptsAgreementMember 2024-05-23 2024-05-23 0001895249 cntm:AmendedJanuary2024SaleOfFutureReceiptsAgreementMember 2024-01-30 2024-01-30 0001895249 cntm:January2024SaleOfFutureReceiptsAgreementMember 2024-01-04 2024-01-04 0001895249 cntm:OwnedServiceNetworkSegmentMember 2025-01-01 2025-12-31 0001895249 us-gaap:DerivativeFinancialInstrumentsLiabilitiesMember 2025-01-01 2025-12-31 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember 2025-01-01 2025-12-31 0001895249 us-gaap:ConvertibleDebtMember 2025-01-01 2025-12-31 0001895249 cntm:SettlementAgreementMember 2025-01-01 2025-12-31 0001895249 cntm:BusinessCombinationContingentConsiderationLiabilityMember 2025-01-01 2025-12-31 0001895249 us-gaap:ConvertibleDebtMember 2025-01-01 2025-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember 2025-01-01 2025-12-31 0001895249 us-gaap:ConvertibleDebtMember 2024-01-01 2024-12-31 0001895249 cntm:ManagedSolutionsSegmentMember 2025-01-01 2025-12-31 0001895249 cntm:ManagedSolutionsSegmentMember 2024-01-01 2024-12-31 0001895249 2024-12-27 2024-12-27 0001895249 2024-11-13 2024-11-13 0001895249 2024-09-24 2024-09-24 0001895249 cntm:SponsorMember 2024-09-01 2024-09-30 0001895249 cntm:DefaultScenarioMember 2025-12-31 0001895249 cntm:SunSolarLlcMember us-gaap:SubsequentEventMember 2026-01-05 2026-01-05 0001895249 cntm:SunSolarLlcMember us-gaap:SubsequentEventMember 2026-01-05 0001895249 cntm:YaIiPnLtdYorkvilleMember cntm:ConvertiblePromissoryNotesMember us-gaap:StockOptionMember cntm:StandbyEquityPurchaseAgreementMember 2024-12-31 0001895249 country:IN 2025-01-01 2025-12-31 0001895249 us-gaap:SubsequentEventMember 2026-01-31 0001895249 cntm:GreentechRenewablesHeatPumpDistributionDealMember 2025-11-10 0001895249 us-gaap:SubsequentEventMember 2026-02-28 0001895249 us-gaap:DisposalGroupNotDiscontinuedOperationsMember cntm:HvacBusinessAssetsAndOperationsMember us-gaap:SubsequentEventMember 2026-01-01 2026-01-01 0001895249 us-gaap:DisposalGroupNotDiscontinuedOperationsMember cntm:HvacBusinessAssetsAndOperationsMember us-gaap:SubsequentEventMember 2026-01-01 0001895249 cntm:ShareResetDerivativeLiabilityMember 2025-03-01 2025-03-31 0001895249 cntm:ShareResetDerivativeLiabilityMember 2024-09-01 2024-09-30 0001895249 us-gaap:DerivativeFinancialInstrumentsAssetsMember 2024-12-31 0001895249 us-gaap:CorporateMember 2025-01-01 2025-12-31 0001895249 cntm:TransportationSegmentMember 2025-01-01 2025-12-31 0001895249 cntm:OwnedServiceNetworkSegmentMember 2025-01-01 2025-12-31 0001895249 cntm:DistributedEnergyAndRenewablesMember 2025-01-01 2025-12-31 0001895249 us-gaap:CorporateMember 2024-01-01 2024-12-31 0001895249 cntm:TransportationSegmentMember 2024-01-01 2024-12-31 0001895249 cntm:OwnedServiceNetworkSegmentMember 2024-01-01 2024-12-31 0001895249 cntm:DefaultScenarioMember cntm:SettlementAgreementMember 2025-12-31 0001895249 cntm:DefaultScenarioMember cntm:SettlementAgreementMember 2025-01-28 0001895249 cntm:MeteoraSpecialOpportunityFundMember cntm:FpaTerminationAgreementMember 2025-04-02 0001895249 srt:MaximumMember cntm:SaleOfFutureReceiptsLibertasMember 2025-11-17 2025-11-17 0001895249 cntm:InEventOfConsummationOfIpoMember 2025-01-01 2025-12-31 0001895249 cntm:SettlementAndTerminationAgreementMember 2025-12-29 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember 2024-12-01 2024-12-31 0001895249 cntm:VanquishMember srt:MinimumMember cntm:ConvertibleNotes2025Member 2025-01-01 2025-12-31 0001895249 cntm:VanquishMember srt:MaximumMember cntm:ConvertibleNotes2025Member 2025-01-01 2025-12-31 0001895249 cntm:MerchantCashAdvancesMember us-gaap:SubsequentEventMember 2026-02-06 2026-02-06 0001895249 cntm:BusinessLoanAndSecurityAgreementMember 2025-10-27 2025-10-27 0001895249 cntm:InsurancePremiumFinancingMember 2025-07-15 2025-07-15 0001895249 cntm:October2024SaleOfFutureReceiptsAgreementMember 2024-10-01 2024-10-31 0001895249 cntm:September2024SaleOfFutureReceiptsAgreementMember 2024-09-19 2024-09-19 0001895249 cntm:July2024SaleOfFutureReceiptsAgreementMember 2024-07-24 2024-07-24 0001895249 cntm:MerchantCashAdvancesMember us-gaap:SubsequentEventMember 2026-03-24 2026-03-24 0001895249 cntm:MerchantCashAdvancesMember us-gaap:SubsequentEventMember 2026-03-16 2026-03-16 0001895249 cntm:BusinessLoanAndSecurityAgreementMember 2025-10-07 2025-10-07 0001895249 cntm:BusinessLoanAndSecurityAgreementMember 2025-10-01 2025-10-01 0001895249 cntm:BusinessLoanAndSecurityAgreementMember 2025-10-01 2025-10-31 0001895249 cntm:SettlementAndTerminationAgreementMember 2025-12-29 2025-12-29 0001895249 cntm:YaIiPnLimitedMember cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember 2024-12-01 2024-12-31 0001895249 cntm:Assumed2024NotesMember 2024-01-01 2024-12-31 0001895249 cntm:DeliverycircleLlcMember cntm:SellerNotesMember 2025-08-01 2025-08-31 0001895249 cntm:DeliverycircleLlcMember cntm:January2025NoteMember 2025-08-01 2025-08-31 0001895249 cntm:SettlementAndTerminationAgreementMember us-gaap:SubsequentEventMember 2026-03-23 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember 2024-12-31 0001895249 cntm:SecuredPromissoryNoteMember 2024-12-31 0001895249 cntm:DeliverycircleLlcMember cntm:SellerNotesMember 2025-01-31 0001895249 cntm:DeliverycircleLlcMember cntm:January2025NoteMember 2025-01-31 0001895249 cntm:ConversionOptionPeriod180DaysFollowingIssuanceOfConvertibleNoteMember cntm:ConvertibleNotes2025IssuanceFourMember 2025-01-01 2025-12-31 0001895249 cntm:ConvertibleNotes2025IssuanceTenMember 2025-01-01 2025-12-31 0001895249 cntm:ConvertibleNotes2025IssuanceSixMember 2025-01-01 2025-12-31 0001895249 cntm:ConvertibleNotes2025IssuanceSevenMember 2025-01-01 2025-12-31 0001895249 cntm:ConvertibleNotes2025IssuanceOneMember 2025-01-01 2025-12-31 0001895249 cntm:ConvertibleNotes2025IssuanceNineMember 2025-01-01 2025-12-31 0001895249 cntm:ConvertibleNotes2025IssuanceElevenMember 2025-01-01 2025-12-31 0001895249 cntm:ConvertibleNotes2025IssuanceEightMember 2025-01-01 2025-12-31 0001895249 srt:MinimumMember cntm:ConvertibleNotes2025Member 2025-01-01 2025-12-31 0001895249 srt:MaximumMember cntm:ConvertibleNotes2025Member 2025-01-01 2025-12-31 0001895249 cntm:BaseCaseScenarioMember 2025-12-31 0001895249 cntm:SaleOfFutureReceiptsLibertasMember 2025-09-24 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember 2024-01-01 2024-12-31 0001895249 cntm:ConversionOptionPeriodFirst210DaysFollowingIssuanceOfConvertibleNoteMember cntm:ConvertibleNotes2025IssuanceFourMember 2025-01-01 2025-12-31 0001895249 cntm:SmalBusinessAdministrationLoansMember 2022-01-01 2022-12-31 0001895249 cntm:Assumed2024NotesMember 2024-07-12 0001895249 cntm:ShareIssuanceOnExtinguishmentOfVendorObligationsMember 2024-12-27 2024-12-27 0001895249 cntm:ShareIssuanceOnExtinguishmentOfVendorObligationsMember 2024-11-13 2024-11-13 0001895249 cntm:ShareIssuanceOnExtinguishmentOfVendorObligationsMember 2024-09-24 2024-09-24 0001895249 cntm:SaleOfFutureReceiptsLibertasMember 2025-11-17 2025-11-17 0001895249 cntm:ConvertibleNotes2025IssuanceFiveMember 2025-01-01 2025-12-31 0001895249 cntm:ConversionOptionPeriodFirst210DaysFollowingIssuanceOfConvertibleNoteMember cntm:ConvertibleNotes2025IssuanceFourMember 2025-12-31 0001895249 cntm:ConvertibleNotes2025Member 2025-12-31 0001895249 cntm:ConvertibleNotes2025IssuanceThreeMember 2025-12-31 0001895249 cntm:ConvertibleNotes2025Member 2025-01-01 2025-12-31 0001895249 cntm:ConvertibleNotes2025IssuanceThreeMember 2025-01-01 2025-12-31 0001895249 cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember cntm:SettlementAndTerminationAgreementMember 2025-12-31 0001895249 cntm:ConvertibleNotes2025IssuanceTwoMember 2025-01-01 2025-12-31 0001895249 cntm:PreExchangeSharesMember 2022-12-31 0001895249 cntm:PostExchangeSharesMember 2022-12-31 0001895249 cntm:MeteoraSpecialOpportunityFundMember us-gaap:DerivativeFinancialInstrumentsAssetsMember 2022-12-31 0001895249 cntm:YaIiPnLtdYorkvilleMember cntm:ConvertiblePromissoryNotesMember cntm:StandbyEquityPurchaseAgreementMember 2024-01-01 2024-12-31 0001895249 cntm:ConnectmBeforeBusinessCombinationMember 2025-01-01 2025-12-31 0001895249 cntm:ConnectmBeforeBusinessCombinationMember 2024-01-01 2024-12-31 0001895249 cntm:FirmwareEmbeddedInHardwareDevicesMember 2025-01-01 2025-12-31 0001895249 cntm:DevelopedTechnologyMember 2025-01-01 2025-12-31 0001895249 cntm:FirmwareEmbeddedInHardwareDevicesMember 2024-01-01 2024-12-31 0001895249 cntm:DevelopedTechnologyMember 2024-01-01 2024-12-31 0001895249 cntm:GlobalImpexLlcMember 2025-01-01 2025-12-31 0001895249 cntm:AirTempServiceCoInc.AndSolarEnergySystemsOfBrevardIncMember 2025-01-01 2025-12-31 0001895249 cntm:DeliverycircleLlcMember 2025-12-31 0001895249 cntm:CambridgeEnergyResourcesLtdMember us-gaap:CustomerRelationshipsMember 2025-04-25 0001895249 cntm:GreenEnergyGainsMember 2024-10-09 0001895249 cntm:DeliveryCircleLlcMember 2024-08-05 0001895249 cntm:SolarEnergySystemsOfBrevardIncMember 2025-04-28 0001895249 cntm:AirTempServicesCoIncMember 2025-04-28 0001895249 cntm:AirTempServiceCoInc.AndSolarEnergySystemsOfBrevardIncMember 2025-04-28 0001895249 cntm:CambridgeEnergyResourcesLtdMember 2025-04-25 0001895249 cntm:AirTempServiceCoInc.AndSolarEnergySystemsOfBrevardIncMember 2025-05-07 2025-05-07 0001895249 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2025-12-31 0001895249 us-gaap:FairValueMeasurementsRecurringMember 2025-12-31 0001895249 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2024-12-31 0001895249 us-gaap:FairValueMeasurementsRecurringMember 2024-12-31 0001895249 cntm:GlobalImpexLlcMember 2025-11-03 2025-11-03 0001895249 cntm:SolarEnergySystemsOfBrevardIncMember 2025-04-28 2025-04-28 0001895249 cntm:AirTempServicesCoIncMember 2025-04-28 2025-04-28 0001895249 cntm:AirTempServiceCoInc.AndSolarEnergySystemsOfBrevardIncMember 2025-04-28 2025-04-28 0001895249 cntm:CerMicrogridsPrivateLimitedMember 2025-04-25 2025-04-25 0001895249 cntm:DeliverycircleLlcMember 2025-01-01 2025-12-31 0001895249 cntm:DeliverycircleLlcMember 2024-08-05 2024-08-05 0001895249 cntm:CambridgeEnergyResourcesLtdMember 2025-04-25 2025-04-25 0001895249 cntm:DeliverycircleLlcMember us-gaap:CapitalUnitClassAMember 2024-08-05 2024-08-05 0001895249 cntm:DeliverycircleLlcMember cntm:CapitalUnitSeriesMember 2024-08-05 2024-08-05 0001895249 cntm:DeliverycircleLlcMember cntm:CapitalUnitClassPMember 2024-08-05 2024-08-05 0001895249 cntm:GregKendallMember cntm:GreenEnergyGainsMember 2024-10-09 2024-10-09 0001895249 cntm:GreenEnergyGainsMember 2024-10-09 2024-10-09 0001895249 cntm:CambridgeEnergyResourcesLtdMember 2025-12-31 0001895249 srt:MaximumMember cntm:DebtConversionOptionUnavailableMember cntm:StandbyEquityPurchaseAgreementConvertibleNoteMember 2024-12-31 0001895249 cntm:SettlementAgreementMember 2025-01-28 2025-01-28 0001895249 cntm:BaseCaseScenarioMember cntm:SettlementAgreementMember 2025-12-31 0001895249 cntm:BaseCaseScenarioMember cntm:SettlementAgreementMember 2025-01-28 0001895249 cntm:AmpericsHoldingsLlcMember 2025-11-03 2025-11-03 0001895249 2025-12-25 2025-12-25 0001895249 us-gaap:SubsequentEventMember 2026-08-03 0001895249 us-gaap:SubsequentEventMember 2026-07-16 0001895249 us-gaap:SubsequentEventMember 2026-07-01 0001895249 us-gaap:SubsequentEventMember 2026-06-16 0001895249 us-gaap:SubsequentEventMember 2026-06-01 0001895249 us-gaap:SubsequentEventMember 2026-08-18 0001895249 cntm:SecuredPromissoryNoteMember 2025-01-01 2025-12-31 0001895249 cntm:SecuredPromissoryNoteMember 2024-09-01 2024-09-30 0001895249 2024-09-01 2024-09-30 0001895249 cntm:SecondJanuary2024SaleOfFutureReceiptsAgreementMember 2024-01-30 2024-01-30 0001895249 2024-10-02 0001895249 2024-06-01 2024-06-30 0001895249 2024-06-30 0001895249 2024-07-12 2024-07-12 0001895249 us-gaap:ParentMember 2024-01-01 2024-12-31 0001895249 us-gaap:NoncontrollingInterestMember 2024-01-01 2024-12-31 0001895249 us-gaap:AdditionalPaidInCapitalMember 2024-01-01 2024-12-31 0001895249 2024-01-01 2024-12-31 0001895249 cntm:MeteoraSpecialOpportunityFundMember us-gaap:DerivativeFinancialInstrumentsAssetsMember 2024-12-01 2024-12-31 0001895249 cntm:MeteoraSpecialOpportunityFundMember us-gaap:DerivativeFinancialInstrumentsAssetsMember 2024-12-31 0001895249 cntm:MeteoraSpecialOpportunityFundMember us-gaap:DerivativeFinancialInstrumentsAssetsMember 2024-08-31 0001895249 cntm:MeteoraSpecialOpportunityFundMember us-gaap:DerivativeFinancialInstrumentsAssetsMember 2022-01-01 2022-12-31 0001895249 2025-01-01 2025-12-31 0001895249 2025-12-31 0001895249 2024-12-31 cntm:tranche cntm:M cntm:installment cntm:customer cntm:Lender cntm:Options cntm:Right cntm:Y cntm:Vote utr:acre iso4217:USD cntm:segment cntm:D xbrli:shares xbrli:pure cntm:item cntm:subsidiary iso4217:USD xbrli:shares cntm:individual cntm:agreement +Table of Contents +​ +​ +​ +​ +​ +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +(Mark One) +☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31, 2025 +or +☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from to +Commission file number 001-41389 +ConnectM Technology Solutions, Inc. +​ +(Exact name of registrant as specified in its charter) +​ +​ +Delaware +​ ​ ​ +87-2898342 +State or other jurisdiction of +incorporation or organization +​ +(I.R.S. Employer +Identification No.) +​ +​ +​ +2 Mount Royal Avenue, Suite 550 +Marlborough , Massachusetts +​ +01752 +(Address of principal executive offices) +​ +(Zip Code) +​ +Registrant’s telephone number, including area code 617 - 395-1333 +Securities registered pursuant to Section 12(b) of the Act: None +​ +Securities registered pursuant to section 12(g) of the Act: Common stock, par value $0.0001 per share and Warrants, exercisable for one share of Common Stock, $0.0001 par value per share . +​ +(Title of class) +​ +(Title of class) +​ +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. +☐ Yes ☒ No +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. +☐ Yes ☒ No +Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections. +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. +☒ Yes ☐ No +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). +☒ Yes ☐ No +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +​ +Large accelerated filer ☐ +Accelerated filer ☐ +Non-accelerated filer ☒ +Smaller reporting company ☒ +​ +Emerging growth company ☒ +​ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the e ff ectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No +State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. +At December 31, 2025, the last business day of the registrant’s most recently completed fiscal year, the aggregate market value of the common stock of the registrant held by non-affiliates of the registrant was $ 69,535,393 . +Note.— If a determination as to whether a particular person or entity is an affiliate cannot be made without involving unreasonable effort and expense, the aggregate market value of the common stock held by non-affiliates may be calculated on the basis of assumptions reasonable under the circumstances, provided that the assumptions are set forth in this Form. +APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: +Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court ☐ Yes ☐ No +(APPLICABLE ONLY TO CORPORATE REGISTRANTS) +Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. +As of April 16, 2026, there were 170,368,082 shares of common stock of the Company issued and outstanding. +DOCUMENTS INCORPORATED BY REFERENCE +None. +​ +​ +​ +​ +Table of Contents +TABLE OF CONTENTS +​ +PART I +​ +Item 1. Business +4 +Item 1A. Risk Factors +18 +Item 1B. Unresolved Staff Comments +66 +Item 1C. Cybersecurity +66 +Item 2. Properties +68 +Item 3. Legal Proceedings +68 +Item 4. Mine Safety Disclosures +69 +PART II +​ +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +70 +Item 6. [RESERVED] +71 +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +71 +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +91 +Item 8. Financial Statements and Supplementary Data +91 +Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures +91 +Item 9A. Controls and Procedures +92 +Item 9B. Other information +95 +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +95 +PART III +​ +Item 10. Directors, Executive Officers and Corporate Governance +96 +Item 11. Executive Compensation +101 +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +110 +Item 13. Certain Relationships and Related Transactions, and Director Independence +111 +Item 14. Principal Accounting Fees and Services +114 +PART IV +​ +Item 15. Exhibits and Financial Statement Schedules +115 +Item 16. Form 10-K Summary +120 +Signatures +121 +Report of Independent Registered Public Accounting Firm (Adeptus Partners, LLC; Ocean, NJ; PCAOB ID No. 3686) +F-1 +Report of Independent Registered Public Accounting Firm (KNAV CPA LLP; Atlanta, GA; PCAOB ID No. 2983) +F-2 +​ +​ +​ +2 +Table of Contents +CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS +This Annual Report on Form 10-K (the “Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and releases issued by the SEC and within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Exchange Act. Forward-looking statements include, among others, information concerning our strategy, future operations, future financial position, future revenue, projected expenses, business prospects, and plans and objectives of management. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms. These statements relate to future events or to our future operating or financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. +Forward-looking statements contained in this Report include, but are not limited to, statements about the following: +● the Company operates in the early-stage market of modern energy economy (“MEE”) adoption (which includes AI-powered electrification and distributed energy) and has a history of losses and expects to incur significant ongoing expenses; +● the Company’s management has limited experience in operating a public company; +● the Company has identified material weaknesses in its internal control over financial reporting and if it is unable to remediate these material weaknesses, or if the Company identifies additional material weaknesses in the future or otherwise fails to maintain an effective internal control over financial reporting, this may result in material misstatements of the Company’s consolidated financial statements or cause the Company to fail to meet its periodic reporting obligations; +● the Company’s growth strategy depends on the widespread adoption of MEE Services; +● if the Company cannot compete successfully against other MEE Service Providers, it may not be successful in developing its operations and its business may suffer; +● with respect to providing electricity on a price-competitive basis, solar systems face competition from traditional regulated electric utilities, from less-regulated third party energy service providers and from new renewable energy companies; +● the Company’s market is characterized by rapid technological change, which requires it to continue to develop new products and product innovations. Any delays in such development could adversely affect market adoption of its products and its financial results; +● developments in alternative technologies may materially adversely affect demand for the Company’s offerings; and +● the possibility that we may be adversely affected by other economic, business or competitive factors and may not be able to manage other risks and uncertainties set forth in the section titled “ Risk Factors ,” which is incorporated herein by reference. +We caution you that the foregoing list does not contain all of the risks or uncertainties that could affect the Company. +Forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “ Risk Factors ” and elsewhere in this Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Report. You should read this Report and the documents that we have filed as exhibits hereto, completely and with the understanding that our actual future results may be materially different from what we expect. +Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. +3 +Table of Contents +Item 1. Business. +Overview +ConnectM Technology Solutions, Inc. (“ConnectM” or the “Company”) is a constellation of technology-driven businesses powering the modern energy economy. ConnectM believes everyone deserves affordable access to clean, reliable energy. The Company’s mission is to reshape how energy is used in homes, businesses, transportation, infrastructure, and logistics to create a higher quality of life, lower costs, and help reverse climate change for a more sustainable future. +Through its six reportable segments—Owned Service Network, Managed Solutions, Distributed Energy & Renewables, Transportation, Logistics, and Corporate & Strategic Assets—ConnectM delivers artificial intelligence (“AI”)-enabled electrification, distributed energy, mobility, and Industrial Internet of Things (“IIoT”) solutions to customers worldwide. +In October 2025, ConnectM launched Keen Labs Operations, Inc. (“Keen Labs”), a wholly owned technology subsidiary that consolidates the Company’s AI, software, and IIoT connectivity platforms into a unified innovation engine. Keen Labs serves as ConnectM’s dedicated product development and data-science hub, focused on building AI-powered solutions that enable virtual power plants (“VPPs”), intelligent building systems, and connected mobility and logistics networks. The creation of Keen Labs allows the Company to segment its technology assets from its service operations, enhancing focus, scalability, and capital efficiency while enabling future strategic partnerships and mergers and acquisitions (“M&A”) activity. +ConnectM operates a proprietary, AI-driven data and intelligence platform that monitors, analyzes and manages connected assets across their full lifecycle. The platform continuously aggregates anonymized performance and utilization data from service providers, OEMs, infrastructure providers and enterprise customers, which is used to train large language and predictive AI models to enhance operating efficiency, reduce downtime and extend asset life. +The platform functions as a self-reinforcing data network, integrating inputs from buildings, vehicles and infrastructure to create a proprietary intelligence loop that improves reliability, optimizes asset deployment and informs future product design. ConnectM currently processes more than 30 gigabytes of operational data and over two million EV miles daily across more than 120,000 connected assets, providing a large-scale, continuously expanding AI training dataset within the modern energy sector. +The Company’s data architecture positions it to participate in emerging fields such as actuarial risk modeling, built-environment digital security, and AI-enabled infrastructure management—areas where the convergence of artificial intelligence, connected systems, and energy operations is reshaping industrial efficiency. +Our Products and Services +ConnectM’s product and service portfolio is organized into six operating segments that together form a unified platform for managing energy, equipment, and mobility assets: +1. Owned Service Network. ConnectM partners with and operates residential and commercial service providers that deliver end-to-end electrification services, including HVAC, solar, battery storage, weatherization and EV charger installations. These providers utilize ConnectM’s platform and shared infrastructure to execute installations and ongoing service delivery across customer sites. +2. Managed Solutions (Service Provider Platforms) . ConnectM provides a technology-enabled platform that allows service providers to remotely monitor and maintain customer systems, leveraging AI-based tools for diagnostics, performance optimization and preventive maintenance. The Company also delivers centralized business services, including marketing, finance, procurement and rebate management, designed to enhance provider efficiency and profitability. +3. Distributed Energy & Renewables (“DER”) – Solar and distributed energy solutions for commercial, residential, consumer, and industrial customers in India, including project development, EPC services and ongoing energy management; +4 +Table of Contents +4. Transportation. ConnectM develops connected hardware and software for OEMs and fleet operators focused on EV management, battery diagnostics, and predictive analytics. The Transportation segment’s operations are primarily based in India, where ConnectM provides fleet intelligence and battery management solutions to automotive and industrial customers like Volvo, Ashok Leyland, and Motovolt across multiple sectors. This geographic focus enables the Company to serve one of the fastest-growing EV markets globally, supported by strong regulatory and industrial tailwinds. The segment’s technology captures and processes real-time telematics data to optimize vehicle utilization, route efficiency, and charging coordination. +5. Logistics . Through its subsidiary DeliveryCircle LLC, ConnectM operates in the rapidly growing last-mile delivery market, providing dispatch, brokerage, and delivery-management software. DeliveryCircle’s proprietary Decios platform offers intelligent routing, predictive fulfillment, and integration with leading e-commerce and order-management systems. +6. Corporate & Strategic Assets. ConnectM’s investment in GeoImpex, a strategic real estate asset with the potential for development into a multimodal logistics park. GeoImpex is not currently generating revenue; however, the asset represents a significant long-term development opportunity aligned with the Company’s logistics and infrastructure strategy. +Across these segments, ConnectM’s AI-enabled platform aggregates large volumes of data to deliver actionable insights for enterprise, OEM, infrastructure, and service provider customers. The Company also provides AI-enabled hardware components—including intelligent heat-pump controllers, batteries, digital control units, and vehicle modules—that expand the reach of its data ecosystem. +Together, these technologies create a unified intelligence layer that improves asset performance, optimizes energy consumption, and supports recurring SaaS and platform-based revenue models. +Our Networks and Platforms +ConnectM’s platform aggregates over 30GB/day of real time operating and performance data from the 120,000+ electrified assets across our portfolio companies with the goal of providing superior value to enterprise, OEM and service provider customers. +The sheer volume of data collected daily allows the Company to continually train and refine its data models to create more value for customers. For example, data collected from users, and OEMs enables the Company’s customers to report on the tangible and measurable sustainable impact of their vehicles or other equipment. This reporting helps the Company’s OEM customers like Volvo, Motovolt, and Ashok Leyland obtain Indian government support, increase adoption, and boost overall public goodwill for EVs. +During the fiscal year ended December 31, 2025: +● We installed 173 heat pumps, 193 high efficiency air conditioners, and 113 fuel-efficient heating systems; +● We installed enough solar roofs to generate 1,249.84kW of electricity, decarbonizing 17.5 kT of CO2 during asset lifetime; +● Our network was responsible for 95.5 GWh of electrification, equivalent to powering 35,000 homes per day¹ +● We displaced 73,506 metric tons of CO2, equivalent to the amount of CO2 3.4 million trees can absorb in a year² +● We offset 6.7 million gallons of fossil fuel from being used, equivalent to driving around the world roughly 7,000 times³, and +● We ended the year with a total of 25,931 EVs on the platform and managed a total of 206 million green miles throughout the year. +1 +U.S. Energy Information Administration (EIA) - Assuming the average home uses approximately 30 kilowatt-hours per day. +2 +U.S. Department of Agriculture +3 +Assumes 26 miles per gallon +​ +5 +Table of Contents +Our Technology Applications +Connected Operations Application +The Company’s Connected Operations application provides advanced connectivity and real-time equipment monitoring to help promote a future powered primarily by clean, renewable energy. ConnectM’s innovative technology and modern energy solutions are designed to empower our service provider, enterprise, infrastructure, and OEM customers to drive a reduction in their customer’s (the “End User”) operating costs and overall environmental impact. This application, built upon ConnectM’s tech platform, creates more energy-efficient homes, buildings, infrastructure (e.g. cell towers), logistics, and transportation by providing insight and refined intelligence to electromechanical equipment, vehicles, and systems. +ConnectM’s Connected Operations application includes key features that enhance the Company’s sales operations in its Owned Service Network and Managed Solutions segments: +● Single app-based interface for service providers and End Users; +● Efficient process for generating sales leads; +● All digital marketing and lead generation; +● Long-term and AI-driven End-User/customer engagement and management, including the use of data analytics to upsell services; and +● Shared services for service provider branding and brand equity enhancement, which includes: +● One service delivery platform for quality control, training, and tech support, and +● Consolidation of sales operations, vendors, insurance, fleet management, fuel expenses, payroll, benefits, recruitment, and human resources. +ConnectM’s Connected Operations application also includes key features that enhance the Company’s customer’s experience: +● Customer self-service enabled; +● Platform integration with OEMs, distributors, and sales channels for branding and promotions; and +● Single unified whole home electrification interface for frictionless cross-sales of different electrification and decarbonization solutions. +In ConnectM’s Transportation segment, its Connection Operations application also enables transportation OEMs to offer smart features to their end customers along with potentially valuable data collection within our platform. The application, which is configuration-based, makes it simpler for OEMs to integrate the Company’s solutions within their vehicles. The application offers business applications for transportation OEMs, EV charging, shared mobility, and battery swapping operations management. +ConnectM’s Connected Operations application offers End Users and stakeholders in the ecosystem (including equipment partners, utilities, and service providers the following services through our Smart Vehicle Control Unit. +Integration of subsystems: Integrates with major subsystems of EV such as battery management system (“BMS”), motor control unit (“MCU”) and instrument cluster. +6 +Table of Contents +Intelligence at the Edge: The VCU can execute analytical processes at the electric vehicle, where data is collected via smart devices and IoT sensors, and transfer processed data to the cloud instead of sending only raw data. VCU enables control of the vehicle based on safety aspects that can be pre-configured or enhanced over the air. For example, the mode of motor control can be changed based on an increase in battery temperature. The VCU can interface with additional sensors and actuators on a vehicle like GPS, temperature, tire-pressure, theft detection, ignition line and motor mode control, for taking actions at the edge or enabling the End User to control using a connected application. +Remote management: Allows remote management of BMS/MCU configuration, firmware operations over the air. Also, the VCU firmware can be remotely updated. This feature helps OEMs to enhance and quickly upgrade settings of the BMS/MCU remotely without visiting service stations. +Connected Consumer Application (End User-facing) +● End Users have access to a view of vehicle health, location, utilization, and receive live notifications. +● Provides a platform for End Users to buy insurance, warranty, accessories, or any other services offered by the OEM. +● Built-in security capabilities enable End Users to prevent theft or locate the vehicle if theft occurs. +● Special sensors on the VCU can detect if the vehicle experienced a crash situation and can notify family members in emergency situations. +Data Science and Analytics +ConnectM’s platform generates various insights that help detect battery deterioration, cell imbalance, and weaker cells that may damage an entire battery. +ConnectM’s platform enables transportation OEMs to proactively work with their customers to detect vehicle anomalies and facilitates submitting warranty claims when applicable. +ConnectM’s platform helps OEM service teams to analyze their customer complaints by reviewing past data and usage patterns. +Location details provided by ConnectM’s platform enable OEMs to assess vehicle density, and this data can be leveraged to partner with charging station infrastructure providers to set up networks at locations with higher utilization and revenue potential. +Our Value Proposition +ConnectM’s platform and underlying technology applications provide meaningful advantages to End Users served through the Company’s service provider, enterprise, infrastructure provider, and OEM customers. +Lower Energy Costs. ConnectM’s platform streamlines access to available energy credits, incentives, and rebates, enabling direct application of these benefits to End Users’ utility bills. This process delivers immediate and measurable savings while increasing adoption of energy-efficient systems. +Connected Operations. ConnectM’s technology enables seamless and secure connectivity across diverse classes of equipment and vehicle assets. This connectivity supports continuous data collection, analytics, and remote control (collectively, “ Connected Operations ”). Service-provider customers use Connected Operations to balance end-user demand throughout the year, while OEM customers use these capabilities to monitor, manage, and extend the useful life of electric-vehicle and distributed-energy assets. +Enabling the Modern Energy Ecosystem. ConnectM anticipates sustained global demand for more efficient and connected sources of energy. The Company’s mission is to enable its customers to transition toward a modern energy economy by integrating AI-driven efficiency, reliability, and intelligence across built environments, transportation, and distributed-energy systems. As ConnectM expands its product and service offerings, it expects to support a growing base of customers worldwide in accelerating this transition. +7 +Table of Contents +Growth Strategy +Many participants in ConnectM’s industry operate within a single vertical, such as solar or electric vehicles. These pure-play companies tend to be more exposed to cyclical fluctuations that affect individual market segments. In contrast, ConnectM employs a diversified strategy inspired by long-term value-investment principles—focusing on disciplined capital allocation, operational excellence, and strong management execution across multiple high-growth segments. +Through its constellation model, ConnectM benefits from a broad base of customers and recurring income streams across its Owned Service Network, Managed Solutions, Transportation, and Logistics segments. This structure enables the Company to deploy capital dynamically toward areas with the highest growth potential while mitigating exposure to sector-specific downturns. +ConnectM’s customer base ranges from residential and commercial service providers using the Company’s digital platform to deliver electrified heating, cooling, and distributed-energy products, to OEMs such as Volvo, Ashok Leyland, and Motovolt, which produce electric buses, trucks, and consumer EVs. Many of the Company’s portfolio businesses include high-margin, recurring-revenue software products as part of their offerings, and ConnectM’s growth strategy emphasizes increasing the proportion of such software and data-driven subscriptions within its future revenue mix. The Managed Solutions segment allows ConnectM to maintain an asset-light operating model as it scales, since this business line does not require a large direct sales force or extensive operating team. To drive growth, the Company intends to deploy capital selectively into large addressable markets characterized by low innovation, limited penetration, and double-digit projected compound annual growth rates. ConnectM has historically avoided singular, concentrated investments in pure-play businesses and plans to remain cautious with respect to balance-sheet leverage. +ConnectM aims to expand its OEM and service-provider customer base through both organic growth initiatives—within the Owned Service Network, Transportation, and Logistics segments—and inorganic expansion through mergers and acquisitions executed under the Managed Solutions segment. +ConnectM intends to leverage its competitive strengths and market position to enable service providers and OEMs to offer a “one-stop-shop” solution for the clean energy transition. The Company’s growth strategy includes the following initiatives: +​ +Service Offering Expansion : Leveraging existing customer and developer networks, ConnectM may expand its offerings in EV charging and energy storage. +Expansion of Existing Software Capabilities : Given the approximately 30 GB of data collected daily, the Company plans to enhance its existing data science and software capabilities. By applying artificial intelligence, ConnectM aims to develop additional software tools and data models capable of analyzing prospective customer properties to identify attractive opportunities for both the Company and its customers. +Customer-Base Growth : ConnectM intends to expand its customer base through referrals and a customized, relationship-focused sales approach. +Market Opportunity +ConnectM believes the global asset base of equipment, vehicles, machinery, and devices that consume energy is measured in the multi-trillion-dollar range. This view is supported by third-party research indicating that the energy ecosystem represents one of the largest categories of physical and financial assets in the global economy. For example, McKinsey & Company estimates that annual investments in the energy sector total approximately $1.5 trillion today and are expected to rise to between $2.0 trillion and $3.2 trillion by 2040. 4 In addition, the International Renewable Energy Agency (IRENA) estimates that cumulative investments in end-use sectors, including electrification, efficiency, heating, and transport, will reach $73 trillion by 2050. 5 These figures underscore the scale of global assets that rely on energy to operate and highlight the magnitude of the market opportunity for technology-enabled energy optimization and electrification solutions. +​ +4 +McKinsey & Company, Global Energy Perspective 2023: Energy Value Pools Outlook (2023). +5 +International Renewable Energy Agency (IRENA), World Energy Transitions Outlook 2023 (2023). +8 +Table of Contents +The stark reality is that for every unit of fossil fuel burned to power an asset, approximately two-thirds of that energy is lost as waste heat, with only about one-third providing useful work or delivered energy. 6,7 This represents an inefficient and costly baseline when consumers or businesses evaluate replacement options. ConnectM owns, operates, and partners with companies that electrify assets to operate more efficiently and effectively, while providing cloud connectivity and intelligence for those assets. +​ +Market Sizing – Owned Service Network and Managed Solutions +​ +Total Addressable Market  +​ +The total addressable market for ConnectM’s integrated platform, which offers multiple clean-energy and decarbonization services, is substantial. Across the United States, Canada, and the European Union, there are an estimated 430 million homes and light commercial buildings. 8 With an average annual expenditure of approximately $3,850 per space for equipment purchase, maintenance, and energy operation, the total annual addressable market is estimated at approximately $1.7 trillion. 9 These services are considered essential infrastructure and are experiencing sustained global demand, driven by aging equipment replacement cycles, growing interest in energy efficiency, and increasing climate control requirements. +​ +Serviceable Addressable Market   +​ +The serviceable addressable market for ConnectM’s service-provider network includes the New England, Mid-Atlantic, and South Atlantic regions of the United States over the next five years. These regions collectively contain approximately 46.8 million homes and 1.68 million light commercial buildings, representing a combined market opportunity of roughly $40 billion. 10 Growth in these regions is being accelerated by decarbonization policies, rising utility costs, and expanded incentive programs supporting sustainable building upgrades and distributed-energy adoption. +​ +Serviceable Obtainable Market   +​ +The serviceable obtainable market for HVAC and solar installation services in Massachusetts, Virginia, and Florida is estimated at $12 billion. 11 These states encompass approximately 19 million homes and 483,000 light commercial buildings. Favorable state-level incentive programs, strong consumer demand for efficient equipment, solar tax credits, and aging building stock continue to drive market expansion. ConnectM maintains an operational footprint in these regions and intends to leverage this presence to capture additional market share. +​ +​ +​ +6 +Lawrence Livermore National Laboratory, U.S. Energy Flow Chart (2023), https://flowcharts.llnl.gov +7 +Rocky Mountain Institute, The Incredible Inefficiency of the Fossil Energy System (2023). +8 +U.S. Census Bureau, American Housing Survey 2023; Eurostat, European Housing Stock Database 2023. +9 +U.S. Energy Information Administration (EIA), Annual Energy Outlook 2024; Statista (2024) — “Average annual home energy expenditure per household.” +10 +CBRE Research (2024), U.S. Commercial Building Inventory; U.S. Department of Energy, Building Energy Data Book. +11 +Wood Mackenzie (2024), U.S. Residential and Commercial Solar Market Outlook; MarketsandMarkets (2024), HVAC Systems Market by Region. +​ +9 +Table of Contents +Market Sizing – Transportation +​ +Total Addressable Market (“TAM”) +​ +The global total addressable market for ConnectM’s transportation business that focuses on EV fleet management and battery diagnostics is estimated at approximately $14 billion in 2024, 12 driven by accelerating fleet electrification, growing EV adoption, and the increasing need for real-time data and predictive insights. The EV fleet-management market—valued at roughly $10 billion—includes software and services for vehicle tracking, charging coordination, route optimization, and predictive maintenance. 13 The battery diagnostics and health-monitoring segment—estimated at about $4 billion—covers battery analytics, degradation tracking, resale assessments, and thermal-risk management. 14 As the global EV stock is projected to exceed 250 million vehicles by 2030, 15 these data-heavy, software-driven markets are expected to grow rapidly, reaching a combined total addressable market of approximately $45 billion to $75 billion by the end of the decade. +Serviceable Addressable Market (“SAM”) +The serviceable addressable markets for ConnectM’s transportation business are the U.S., India, and the Middle East. The Company estimates these markets represented an aggregate SAM of approximately $5.5 billion in 2025, based on its allocation of regional shares from third-party market studies covering EV fleet management/telematics and battery health/diagnostics, combined with regional fleet and EV adoption indicators. 16,17,18,19 In the U.S., the SAM is driven by strong demand from corporate, municipal, and delivery fleets, supported by incentives and growing EV adoption. India is in the early stages of fleet electrification, with increasing demand for battery health management as the market matures. In the Middle East, electrification is accelerating due to government and luxury vehicle fleets, particularly in the UAE and Saudi Arabia, where green-energy initiatives are driving adoption. As fleet electrification grows across these regions, demand for fleet-management solutions and battery diagnostics is expected to expand. +Serviceable Obtainable Market (“SOM”) +The serviceable obtainable market for ConnectM’s transportation business consists of EV and battery diagnostics OEMs in India. The Company estimates this market opportunity to be approximately $150 million in 2025 and beyond, based on market data for EV fleet management and battery management systems in India. 20,21 While fleet electrification in India is still in its early stages, the market is growing rapidly, particularly in sectors such as e-commerce logistics, last-mile delivery, and electric two-wheelers. Demand for EV fleet management solutions, including route optimization and charging infrastructure management, is increasing as more fleets adopt electric vehicles. +12 Fortune Business Insights, Fleet Management Market Size, Share & COVID ‑ 19 Impact Analysis, By Type (Operational, Vehicle Tracking, and Others), and Regional Forecast, 2024–2032 (published 2024). +13 MarketsandMarkets, EV Fleet Management Market by Offering, Service, Deployment Type, and Region – Global Forecast to 2030 (published 2024). +14 BIS Research, Global Battery Management System and Battery Diagnostics Market, Forecast 2023–2033 (published 2023). +15 International Energy Agency (IEA), Global EV Outlook 2024 (published April 2024), projecting global electric-vehicle stock to exceed 250 million by 2030. +16 Fortune Business Insights, Electric Vehicle Telematics Market Size & Share (2024) — global EV telematics market $12.42B in 2024, projected to $63.0B by 2032. +17 The Business Research Company, Electric Vehicle Fleet Management Global Market Report (2025) — EV fleet management market $23.52B (2024) to $24.92B (2025). +18 IMARC Group, India Fleet Management Market (2024) — India fleet management market $1.2B in 2024 (context for regional allocation). +19 Mordor Intelligence, Middle East & Africa Electric Vehicle Market (2025) — MEA EV market size and growth outlook (context for regional allocation). +20 Mordor Intelligence, India Fleet Management Software Market (2024), estimating the market at approximately USD 1.69 billion in 2025 and projected to reach USD 3.15 billion by 2030. +21 IMARC Group, India Battery Management System Market Size & Growth, 2025–2033 (2024), estimating the market at approximately USD 278 million in 2024 and projected to exceed USD 1.2 billion by 2033. +​ +10 +Table of Contents +Market Sizing – Logistics +​ +Total Addressable Market  +​ +The TAM for last-mile delivery services is currently estimated at approximately $150 billion, driven by rapid e-commerce growth, consumer demand for faster delivery times, and the need for more efficient logistics solutions. As consumers increasingly expect same-day and next-day delivery, the market is projected to grow significantly, with estimates suggesting it could reach approximately $260 billion by 2030. 22,23 The rise of urbanization and the push for sustainable delivery options, including electric delivery vehicles, further contribute to the market’s expansion. +Serviceable Addressable Market +The SAM for last-mile delivery services in the United States and Canada is estimated at approximately $43.8 billion in 2023, consisting of $37.7 billion in the United States and $6.1 billion in Canada, based on third-party industry research. 24,25 As a cross-check, one researcher estimates the North America last-mile delivery market at $66.4 billion in 2024. 26 Together, the U.S. and Canadian markets represent a significant portion of the global last-mile delivery landscape, supported by the expansion of e-commerce and the need for more efficient logistics solutions. +Serviceable Obtainable Market +The SOM for last-mile delivery of freight goods (such as palletized items) in the United States is estimated at approximately $20 billion, based on management’s allocation of the overall U.S. last-mile and freight-logistics markets for the segment of business-to-business deliveries to warehouses, distribution centers, and end customers. 27,28 This segment serves industries such as wholesale, manufacturing, and retail, which require the delivery of larger freight to businesses, warehouses, and distribution centers. The market’s growth is driven by the increasing demand for efficient, fast freight deliveries as part of e-commerce B2B operations, retail supply chains, and third-party logistics providers. The rise of these industries, combined with the need for specialized vehicles and infrastructure to handle bulk shipments, positions freight last-mile delivery as a key market within the broader logistics and transportation sector. +22 Vertex Market Research, Last Mile Delivery Market Size & Share — Global Forecast 2025 ‑ 2032 (2025), estimating the global last-mile delivery market at approximately USD $155 billion in 2024 and projected to reach USD $300 billion by 2032. +23 Grand View Research, Last Mile Delivery Market Size & Outlook 2023 ‑ 2030 (2024), estimating the global last-mile delivery market generated USD $143.10 billion in 2023 and projected to reach USD $258.68 billion by 2030. +24 Grand View Research, United States — Last-Mile Delivery Market Size & Outlook, 2023–2030 (2024), estimating U.S. market revenue of USD 37,743.3 million in 2023 and USD 62,419.8 million by 2030. +25 Grand View Research, Canada — Last-Mile Delivery Market Size & Outlook, 2023–2030 (2024), estimating Canada market revenue of USD 6,091.7 million in 2023 and USD 8,868.2 million by 2030. +26 Cognitive Market Research, North America Last-Mile Delivery Market Report (2024), estimating North America at USD 66,381.68 million in 2024. +27 Grand View Research , United States — Last-Mile Delivery Market Size & Outlook, 2023–2030 (2024), estimating the U.S. last-mile delivery market at USD $37.7 billion in 2023 and USD $62.4 billion by 2030. +28 Mordor Intelligence, United States Freight and Logistics Market (2025), estimating the total U.S. freight and logistics market at USD $1,381.1 billion in 2025, of which freight transport represents roughly 63 percent. +11 +Table of Contents +Our Competitive Strengths +ConnectM possesses a number of competitive advantages that the Company believes contribute to its growth and differentiation. Through its technology platform, ConnectM provides service-provider and OEM customers with enhanced operational visibility, lower lifecycle costs, and an expanded suite of integrated products and services. +ConnectM’s owned and managed service-provider networks in the United States deliver health, comfort, and efficiency to commercial and residential End Users through real-time monitoring, intelligent HVAC management, and predictive control of environmental parameters such as temperature, humidity, and carbon dioxide levels. In international markets, ConnectM enables OEM customers across Asia and the Middle East to scale more effectively by integrating vehicle and equipment data into its connected-operations platform. +Superior Customer Experience . ConnectM emphasizes high customer satisfaction and competitive pricing across all business segments. Customers can access support through multiple digital channels—including in-platform messaging, phone, text, and email—on a 24/7 basis. The Company’s platform architecture also integrates customer feedback and operational data to continuously enhance the user experience for service providers, infrastructure providers, and enterprise clients. +Technology and Data Advantage . ConnectM leverages a robust technology stack and proprietary data infrastructure built from its broad consumer base, transaction volume, and connected-asset fleet. This scale enables continuous learning and optimization within its platform, which supports applications in energy efficiency, HVAC optimization, EV and fleet management, and predictive maintenance. The Company’s data architecture generates compounding insights that improve asset performance across all customer categories. +Centralized Innovation, Localized Execution . ConnectM develops and maintains much of its core technology centrally while deploying region-specific operational teams that adapt solutions to local market needs. This combination of centralized innovation and localized execution allows the Company to address complex operational challenges efficiently, respond quickly to regulatory or market changes, and maintain consistent service quality across geographies. +Collectively, these strengths—customer integration, connected-operations technology, AI-driven analytics, and centralized innovation—position ConnectM to sustain growth and expand recurring-revenue opportunities across its Owned Service Network, Managed Solutions, Transportation, and Logistics segments. +Risk Management & Compliance +We have built a strong culture around risk management and compliance. We believe our technology-driven processes help us to mitigate risks within our business. +We are focused on complying with all applicable laws and regulations while providing the best possible customer experience. Our legal and compliance teams work hand-in-hand with our business teams to ensure that we remain up to date on regulatory requirements, and that these requirements are met as new products and services are added. We prioritize strategic thinking about how best to protect the interests of the consumer, particularly since we are building a digitally native system in an industry that has traditionally been analog. +Our compliance program is kept current by our internal compliance team, whose members track regulatory updates, conduct thorough reviews of policies and procedures, and monitor the licensing and education requirements of our team members. +Security and Data Protection +We employ various in-house and third-party technologies and network administration policies that are designed to protect our computer network and the privacy of our customers’ and team members’ information from external threats and malicious attacks. +We believe that the technologies and network security plan we have adopted are appropriate to the size, complexity and scope of services we provide, as well as the nature of the information that we handle. Recently, we have experienced substantial growth, which presents additional challenges to our security and data protection infrastructure. We have a team of professionals dedicated to network and information security who monitor information systems, evaluate the effectiveness of technologies against known risks and adjust systems accordingly. In addition, we periodically have network security evaluated by outside firms specializing in network security to help us identify and remove any potential vulnerabilities. +12 +Table of Contents +We have undertaken measures intended to protect the safety and security of our information systems and the data therein, including physical and technological security measures, team member training, contractual precautions, business continuity plans, and implementation of policies and procedures designed to help mitigate the risk of system disruptions and failures and the occurrence of cyber incidents. We invest in security technology designed to protect our data and business processes against risk of a data security breach or cyberattack. Our data security management program includes identity, trust, vulnerability, and threat management business processes as well as the adoption of data protection policies. We measure our data security effectiveness through industry-accepted methods and remediate significant findings. The technology and other controls and processes designed to secure our team member, customer and loan applicant information and to prevent, detect and remedy any unauthorized access to or acquisition of that information were designed to obtain reasonable, but not absolute, assurance that such information is secure and that any unauthorized access is identified and addressed appropriately. +Cyclicality and Seasonality +Some MEE products and offerings are cyclical and those markets are dependent on general economic conditions and other factors, including consumer spending preferences and the attractiveness of incentives offered by OEMs, if any. In addition, our business can be affected by labor relations issues, regulatory requirements, trade agreements and other factors. Economic factors adversely affecting consumer spending could adversely impact our revenues and net income. +Our business is also somewhat seasonal. Our platform and Connected Operations applications enables us to remotely monitor and control and OEM’s vehicle fleet or an End User’s HVAC systems so that we know the problems with the performance of a vehicle or HVAC systems before an End User experiences a vehicle anomaly or an equipment outage. Ensuring optimal performance of the equipment and systems increases customer satisfaction and thereby increases the likelihood of getting additional electrification and decarbonization workstreams. +Peak summer, cold winters and rainy seasons have an impact on our Managed Services and Owned Service Network businesses. During certain periods of the summer and winter, demand for installations, replacements and repairs increases. Rainy and snow days negatively impact our rooftop solar installation business. The impact of seasonality varies depending on the market. For example, in Florida, our business slows down during hurricane season and there is high demand from March through September . +Our Intellectual Property +ConnectM’s intellectual property is a core component of its competitive position and technology leadership. The Company relies on a combination of patents, patent applications, copyrights, trademarks, internet domain names, trade secrets, and contractual protections to establish, maintain, and enforce its intellectual property rights. ConnectM also licenses certain third-party technologies for use in conjunction with its software and hardware platforms. +As of December 31, 2025, ConnectM held or had pending 12 patents and maintained 15 domain names related to its proprietary technologies. The Company’s patents primarily cover innovations in energy-intelligent asset monitoring, connected field-service management, and distributed energy optimization. In addition to its patent portfolio, ConnectM has developed significant proprietary know-how through its Amperics-related software, power electronics integration and control-layer architecture, which underpin the Company’s ability to manage and optimize distributed energy resources at scale. +Specifically, the intellectual-property portfolio includes patent families directed to: +● Device and system connectivity for HVAC, EV charging, solar, and battery assets, enabling real-time monitoring, control and diagnostics; +● Predictive analytics and fault detection for connected equipment through cloud-based machine-learning models and embedded intelligence; +● Dynamic dispatch and workflow optimization for field-service technicians and logistics networks; +● Integration frameworks and control systems for managing multi-vendor distributed-energy resources (“DERs”) across residential and commercial environments; and +13 +Table of Contents +● Power electronics, energy management algorithms and system-level integration capabilities derived from Amperics-related intellectual property, enabling efficient energy conversion, load balancing, storage optimization and grid-interactive functionality. +ConnectM intends to continue pursuing additional patent filings and related protections in these and adjacent areas as its technology platform evolves. +The Company’s success also depends on attracting and retaining highly skilled engineering and development personnel. All employees, consultants, and contractors are required to sign confidentiality and invention-assignment agreements acknowledging that all inventions, trade secrets, works of authorship, developments, and other forms of intellectual property created in the course of their work for ConnectM are the property of the Company. +Despite these protections, it may still be possible for third parties to obtain or use ConnectM’s intellectual property without authorization. The Company actively monitors for potential infringement and takes appropriate steps to safeguard its proprietary rights. +ConnectM believes that its current portfolio of patents, trade secrets, and technical know-how, including its Amperics-related capabilities provides meaningful barriers to entry within its target markets and establishes a strong foundation for continued innovation, product differentiation, and long-term value creation. +Government Regulations +Although we are not regulated as a public utility in the United States under applicable national, state or other local regulatory regimes where we conduct business, we compete with regulated utilities. As a result, we have developed and are committed to maintaining a policy team to focus on the key regulatory and legislative issues impacting the entire industry. We believe these efforts will help us better navigate local markets through relationships with key stakeholders and facilitate a deep understanding of the national and regional policy environment. +To operate our systems, we obtain interconnection permission from the applicable local primary electric utility. Depending on the size of the solar energy system and local law requirements, interconnection permission is provided by the local utility directly to us and/or our customers. In almost all cases, interconnection permissions are issued on the basis of a standard process that has been pre-approved by the local public utility or other regulatory body with jurisdiction over net metering policies. As such, no additional regulatory approvals are required once interconnection permission is given. +Our operations are subject to stringent and complex federal, state and local laws, including regulations governing the occupational health and safety of our employees and wage regulations. For example, we are subject to the requirements of the federal Occupational Safety and Health Act, as amended (“ OSHA ”), and comparable state laws that protect and regulate employee health and safety. We endeavor to maintain compliance with applicable OSHA and other comparable government regulations. +We are subject to various other laws, including employment laws related to hiring practices, overtime, and termination of team members, health and safety laws, environmental laws and other federal, state and local laws in the jurisdictions in which we operate. +Government Incentives +The Inflation Reduction Act (“IRA”), signed into law on August 16, 2022, allocates nearly $400 billion in federal funding to advance clean energy initiatives, aiming to significantly reduce the nation’s carbon emissions by 2030. The funding comprises tax incentives, grants, and loan guarantees, with substantial emphasis on clean electricity infrastructure, energy transmission upgrades, and clean transportation, including incentives for electric vehicles. +Approximately $43 billion of the IRA was dedicated specifically to consumer incentives, designed to promote widespread adoption of sustainable technologies. These incentives lowered consumer costs associated with purchasing EVs, energy-efficient home appliances, rooftop solar systems, geothermal heating solutions, and residential energy storage systems. Beginning in 2023, new electric vehicles qualified for federal tax credits of up to $7,500, while used electric vehicles qualified for up to $4,000 (for vehicles acquired before October 1, 2025). +14 +Table of Contents +In addition, the IRA extended the tax credit available for residential energy-efficiency improvements, increasing the credit rate to 30% with an annual limit of $1,200 (replacing the previous lifetime limit). It further introduces a separate annual credit of up to $2,000 specifically for installations of geothermal heat pumps and biomass stoves, while also enhancing incentives for energy-efficient windows and doors. +Subsequent legislation, the One Big Beautiful Bill Act (Public Law 119-21), signed into law on July 4, 2025, accelerated the phase-out of these key consumer-focused provisions. The new and used clean vehicle tax credits (Sections 30D and 25E) are no longer available for vehicles acquired after September 30, 2025. The Energy Efficient Home Improvement Credit (Section 25C) and the Residential Clean Energy Credit (Section 25D) are no longer available for property placed in service or expenditures made after December 31, 2025. +The Alternative Fuel Vehicle Refueling Property Credit (Section 30C) for EV charging infrastructure (including home chargers and associated energy storage) remains available for property placed in service by June 30, 2026, generally at 30% of cost (up to $1,000 for residential chargers). +Collectively, while the IRA initially created significant momentum for residential decarbonization, efficiency enhancements, and sustainable energy adoption across the United States, the 2025 legislative changes have shortened the duration of many of these incentives. Ongoing federal, state, and local programs may continue to influence market dynamics for electrification and energy management solutions. +Corporate Information +ConnectM Technology Solutions, Inc. was formed under the laws of the State of Delaware on March 22, 2019. Our corporate office is in Marlborough, Massachusetts and our website is www.connectm.com +Human Capital Resources +As of December 31, 2025, ConnectM had a total of one hundred three (103) full-time employees in the United States: twelve (12) in sales, forty-one (41) in technical, support, and general management, and fifty (50) in finance and administration. In India, the Company had seventy-three (73) full-time employees, including four (4) in sales and sales engineering, forty-two (42) in operations and customer support, fifteen (15) in research and development, and twelve (12) in finance and administrative roles. +As an equal opportunity employer, ConnectM provides employment consideration to all qualified applicants without regard to race, national origin, gender, gender identity, sexual orientation, protected veteran status, disability, age, or any other status protected under applicable law. The Company seeks to maintain an inclusive, equitable, and supportive work environment in which management and employees model behaviors that enrich the workplace culture. +Our Facilities +ConnectM’s corporate headquarters is located in Marlborough, Massachusetts, where the Company leases approximately 2,396 square feet under a month-to-month lease. The Company also maintains offices in Hyannis, Massachusetts and Bangalore, India. ConnectM owns two properties and leases additional properties. The Company believes that its existing facilities are adequate to meet the current needs of its essential workforce, including employees working remotely, and that, if additional space becomes necessary, suitable facilities can be obtained on commercially reasonable terms. +15 +Table of Contents +Legal Proceedings +From time to time, we may be party to or otherwise involved in legal proceedings arising in the ordinary course of business. We recognize provisions for legal proceedings in our financial statements, in accordance with accounting rules, when we are advised by independent outside counsel that (i) it is probable that an outflow of resources will be required to settle the obligation and (ii) a reliable estimate can be made of the amount of the obligation. The assessment of the likelihood of loss includes analysis by outside counsel of available evidence, the hierarchy of laws, available case law, recent court rulings and their relevance in the legal system. Our provisions for probable losses arising from these matters are estimated and periodically adjusted by management. In making these adjustments our management relies on the opinions of our external legal advisors. Management does not believe that there is any pending or threatened proceeding against us, which, if determined adversely, would have a material adverse effect on our business, results of operations or financial condition, except as described below. +Florida Solar acquisition litigation (Zrallack and RJZ Holdings LLC v. Aurai LLC, ConnectM Florida RE LLC, and Florida Solar Products, Inc.; Florida 19th Judicial Circuit—St. Lucie County) +On February 26, 2024, Robert J. Zrallack and RJZ Holdings LLC (the “Plaintiffs”) filed suit against Aurai LLC (“Aurai”), ConnectM Florida RE LLC (“ConnectM Florida RE”), and Florida Solar Products, Inc. (“Florida Solar”) (collectively, the “Subsidiaries”), each wholly owned subsidiaries of ConnectM Technology Solutions, Inc. (“ConnectM”), in connection with the Company’s 2022 acquisition of Florida Solar and related real estate transactions. +The matter was compelled to arbitration pursuant to the Stock Purchase Agreement. Following evidentiary hearings conducted in June and July 2025, the arbitrator issued an Interim Arbitration Award on September 11, 2025. Subsequent orders were entered addressing modification and attorneys’ fees and costs. On December 25, 2025, the arbitrator issued a Final Award incorporating prior rulings. +The Final Award includes: +● Approximately $446,945 awarded in connection with claims relating to a mortgage and promissory note (plus continuing per diem interest); +● Approximately $1,342,480 in damages relating to additional claims under the Stock Purchase Agreement (plus continuing per diem interest); +● Attorneys’ fees and costs totaling approximately $418,138 as of September 11, 2025, with interest accruing thereafter; +● Arbitrators’ fees and costs totaling approximately $74,013; and +Certain equitable and payment-related relief, including obligations relating to specified debt instruments and credit card balances. In aggregate, Plaintiffs’ motion to confirm seeks entry of judgment totaling approximately $2,500,000 plus continuing interest. +On December 30, 2025, Plaintiffs filed a motion to confirm the arbitration award in the Circuit Court for the 19th Judicial Circuit (St. Lucie County, Florida), later amended on January 7, 2026. A hearing on the motion to confirm was noticed for February 12, 2026. +The Company has filed a motion to vacate the arbitration award, which is scheduled to be heard on April 30, 2026. The Company believes confirmation of the award is not appropriate while post-award relief remains pending and continues to evaluate all available legal remedies. +On January 7, 2026, Plaintiffs also served post-award discovery requests styled as “discovery in aid of execution.” The Subsidiaries filed a motion to strike such discovery and for a protective order on the basis that no final judgment has been entered and discovery in aid of execution is premature. +As of the date of this filing: +● The arbitration award has not yet been confirmed by the court; +● No final enforceable judgment has been entered; +16 +Table of Contents +● Post-award motion practice remains pending; and +● The Subsidiaries are pursuing available legal remedies, including seeking vacatur and opposing confirmation. +The Company has recorded a litigation reserve of $1,024,002 in connection with this matter based on management’s assessment of probable loss under ASC 450. The amount reserved reflects management’s current estimate of probable exposure; however, the total amount sought by Plaintiffs significantly exceeds the recorded reserve. The ultimate outcome of the confirmation proceedings, any motion to vacate, and related enforcement proceedings cannot be predicted with certainty. The final resolution of this matter could result in adjustments to the amount reserved, which could be material to the Company’s consolidated financial statements in the period such adjustment is determined. +Corporate History and Background +We were originally incorporated in Delaware on September 23, 2021 under the name “Monterey Capital Acquisition Corporation” (“ MCAC ”) as a special purpose acquisition company, formed for the purpose of effecting an initial business combination with one or more target businesses. On May 13, 2022 (the “ IPO Closing Date ”), we consummated our initial public offering (the “ IPO ”). On July 12, 2024, we consummated the previously announced business combination (the “ Closing ”) pursuant to that certain Agreement and Plan of Merger (the “ Merger Agreement ”), dated as of December 31, 2022 (as amended on October 12, 2023 and April 12, 2024), by and among MCAC, Chronos Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of MCAC (“ Merger Sub ”), and ConnectM Technology Solutions, Inc., a Delaware corporation (“ Legacy ConnectM ”). +Pursuant to the Merger Agreement, Merger Sub merged with and into Legacy ConnectM (the “Merger”) with Legacy ConnectM surviving the Merger as a wholly owned subsidiary of MCAC. In addition, in connection with the consummation of the Merger, MCAC was renamed “ConnectM Technology Solutions, Inc.” +Our corporate offices are located at 2 Mount Royal Avenue, Suite 550, Marlborough, Massachusetts 01752 and our telephone number is 617-395-1333. Our website, which is located at http://www.connectm.com , describes our company and our management and provides information about our technology and products. Information contained on our website is not incorporated by reference into, and should not be considered a part of, the registration statement of which this Annual Report on Form 10-K forms a part. +Available Information +Our filings, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments submitted under Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are accessible on our company website promptly after submission to the SEC. Additionally, these documents are retrievable from the SEC’s website ( www.sec.gov ). +Corporate governance materials, such as our guidelines and committee charters, are also accessible on our investor relations webpage under “ Corporate Governance .” It is important to note that the content of our website is not intended for incorporation by reference to our filings with the SEC, and any website references serve as inactive textual mentions only. +Implications of Being a Smaller Reporting Company +We are a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates is less than $700 million as of our most recently completed second fiscal quarter and our annual revenue was less than $100 million during our most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million as of our most recently completed second fiscal quarter. As a smaller reporting company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not smaller reporting companies. +17 +Table of Contents +Implications of Being an Emerging Growth Company +We are an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we may benefit from specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include: +● presentation of only two years of audited financial statements and only two years of related management’s discussion and analysis of financial condition and results of operations in this Annual Report on Form 10-K; +● reduced disclosure about our executive compensation arrangements; +● no non-binding stockholder advisory votes on executive compensation or golden parachute arrangements; +● exemption from any requirement of the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis); and +● exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting. +We may benefit from these exemptions until such time that we are no longer an “emerging growth company.” We will cease to be an emerging growth company upon the earliest of: (1) December 31, 2027, which is the last day of the fiscal year following the fifth anniversary of the initial public offering of Monterey Capital Acquisition Corporation, the special purpose acquisition company with which we merged; (2) the first fiscal year after our annual gross revenues are $1.235 billion or more; (3) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (4) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). +We may choose to take advantage of some, but not all, of these reduced disclosure obligations in future filings. If we do, the information that we provide to stockholders may be different than what you might receive from other public companies in which you hold stock. +Item 1A. Risk Factors. +Investing in our common stock, involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information contained in this Registration Statement, including our consolidated financial statements and their related notes included elsewhere in this annual report and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” before making an investment decision. If any of the following risks actually occurs, our business, prospects, operating results and financial condition could suffer materially, the trading price of our common stock could decline and you could lose all or part of your investment. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial also may materially and adversely affect our business, prospects, operating results and financial condition. +Unless the context otherwise requires, all references in this section to “we,” “us,” or “our” refers to the Company and its subsidiaries. +Summary of Risk Factors +The following list provides a summary of our risk factors, which are further discussed below: +Risks Related to ConnectM’s Common Stock +● The market price of ConnectM’s Common Stock is likely to be highly volatile, and you may lose some or all of your investment. +● Volatility in ConnectM’s share price could subject ConnectM to securities class action litigation. +18 +Table of Contents +● Sales of a substantial number of the shares of ConnectM’s Common Stock in the public market could cause the price of the shares of ConnectM’s Common Stock to fall. +● Because ConnectM does not anticipate paying any cash dividends in the foreseeable future, capital appreciation, if any, would be your sole source of gain. +● Future sales of shares of ConnectM’s Common Stock may depress its stock price. +● Provisions in our Charter and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of management. +● Our Charter provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders and that the federal district courts shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees or the underwriters or any offering giving rise to such claim. +● ConnectM is an emerging growth company and smaller reporting company, and ConnectM cannot be certain if the reduced reporting requirements applicable to emerging growth companies and smaller reporting companies will make its shares less attractive to investors. +● Risks Related to ConnectM’s Business +Business and Operational Risks +● Due to ConnectM operating as a going concern, there is a possibility that ConnectM may never be profitable and you may lose all or part of your investment. During the twelve months ended December 31, 2025 and 2024, ConnectM incurred net losses of approximately $16,000,000 and $23,000,000, respectively. Continued operations are dependent on ConnectM’s ability to complete equity or debt financings or generate profitable operations. Such financings may not be available or may not be available on reasonable terms. +● Our growth strategy depends on the widespread adoption Modern Energy Economy (MEE) Systems, MEE Technology, and MEE Services. +● If we cannot compete successfully against other home electrification and energy companies, we may not be successful in developing our operations and our business may suffer. +● With respect to providing electricity on a price-competitive basis, solar systems face competition from traditional regulated electric utilities, from less-regulated third party energy service providers and from new renewable energy companies. +● Due to the limited number of suppliers in our industry, the acquisition of any of these suppliers by a competitor or any shortage, delay, quality issue, price change, or other limitations in our ability to obtain components or technologies we use could result in adverse effects. +● Damage to our brand and reputation or failure to expand our brand would harm our business and results of operations. +● Developments in alternative technologies may materially adversely affect demand for our offerings. +● Obtaining a sales contract with a potential customer does not guarantee that the potential customer will not decide to cancel or that we will not need to cancel due to a failed inspection, which could cause us to generate no revenue despite incurring costs and adversely affect our results of operations. +● Our inability to properly utilize our workforce could have a negative impact on our profitability. +19 +Table of Contents +● Expanding operations internationally will subject us to a variety of risks and uncertainties that could adversely affect our business and operating results. +● We may not be able to effectively manage our growth. +● We are a decentralized company and place significant decision-making powers with our subsidiaries’ management, which presents certain risks. +● We may not realize the anticipated benefits of past or future investments, strategic transactions, or acquisitions, and integration of these acquisitions may disrupt our business and management. +● If we are unsuccessful in developing and maintaining our proprietary technology, including our Connected Operations applications, our ability to attract and retain OEMs could be impaired, our competitive position could be harmed and our revenue could be reduced. +● Our business is concentrated in certain markets, putting us at risk of region-specific disruptions. +● Changes to the applicable laws and regulations governing direct-to-home sales and marketing may limit our ability to effectively compete. +● Our growth depends in part on the success of our relationships with third parties. +● ConnectM operates in the early-stage market of MEE adoption, has a history of losses and expects to incur significant ongoing expenses +● Failure to hire and retain a sufficient number of employees and service providers in key functions would constrain our growth and our ability to timely complete customers’ projects and successfully manage customer accounts. +● Failure by our vendors or our component suppliers to use ethical business practices and comply with applicable laws and regulations may adversely affect our business. +● If we are unable to retain and recruit qualified technicians and advisors, or if our board of directors, key executives, key employees or consultants discontinue their employment or consulting relationship with us, it may delay our development efforts or otherwise harm our business. +● ConnectM’s management has limited experience in operating a public company. +● The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members and officers. +● We may be materially adversely affected by negative publicity. +● Our business, financial condition, results of operations and prospects can be materially adversely affected by weather conditions, including, but not limited to, the impact of severe weather. +● Our results of operations may fluctuate from quarter to quarter, which could make our future performance difficult to predict and could cause our results of operations for a particular period to fall below expectations, resulting in a decline in the price of our Common Stock. +● Adverse economic conditions may have negative consequences on our business, results of operations and financial condition. +● ConnectM is highly reliant on its networked and cloud-based business model and information technology systems and data, and those of its service providers which may be subject to cyber-attacks, service disruptions or other security incidents, which could result in data breaches, loss or interruption of services, intellectual property theft, claims, litigation, regulatory investigations, significant liability, reputational damage and other adverse consequences. +20 +Table of Contents +● Our ability to obtain insurance and the terms of any available insurance coverage could be materially adversely affected by international, national, state or local events or company-specific events, as well as the financial condition of insurers. +● Our insurance policies against many potential liabilities require high deductibles, and our risk management policies and procedures may leave us exposed to unidentified or unanticipated risks. Additionally, difficulties in the insurance markets may adversely affect our ability to obtain necessary insurance. +● Increases and uncertainty in our health insurance costs could adversely impact our results of operations and cash flows. +● Failure to remain in compliance with covenants under our credit and loan agreements, service our indebtedness, or fund our other liquidity needs could adversely impact our business. +● If we fail to develop and maintain an effective system of internal control over financial reporting and other business practices, and of board-level oversight, we may not be able to report our financial results accurately or prevent and detect fraud and other improprieties. Consequently, investors could lose confidence in our financial reporting, and this may decrease the trading price of our stock. +● Our historical financial results may not be indicative of what our actual financial position or results of operations would have been if we had always been a public company. +● Our reported financial results may be affected, and comparability of our financial results with other companies in our industry may be impacted, by changes in the accounting principles generally accepted in the U.S. +● The Company has material weaknesses in its internal control over financial reporting. If ConnectM is unable to remediate these material weaknesses, or if ConnectM identifies additional material weaknesses in the future or otherwise fails to maintain an effective system of internal controls, ConnectM may not be able to accurately or timely report its financial condition or results of operations, which may adversely affect its business and the market price of ConnectM’s Common Stock. +Risks Related to Data Privacy +● Any security breach or unauthorized access or disclosure or theft of data, including personal information we gather, store and use, or other hacking and phishing attacks on our systems, could harm our reputation, subject us to claims or litigation, financial harm and have an adverse impact on our business. +● Our business is subject to complex and evolving laws and regulations regarding privacy and data protection. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, increased cost of operations or otherwise harm our business. +Risks Related to Electrification and Decarbonization Business +● ConnectM’s future growth and success are highly dependent on the continued acceleration of electrification across homes, commercial buildings, and transportation fleets. This includes the adoption of electric-heating technologies such as heat pumps, the integration of distributed energy resources like solar and storage systems, and the transition from internal-combustion vehicles to EVs for both passenger and fleet applications. +● The electrification market is characterized by rapid technological changes often due to technical improvements, regulatory requirements and customer requirements, which requires ConnectM to continue to develop new products and product innovations. Any delays in such development could adversely affect market adoption of its products and ConnectM’s financial results. +● Certain statements ConnectM makes about estimates of market opportunity and forecasts of market growth may prove to be inaccurate. +● The MEE industry is an emerging market which is constantly evolving and may not develop at the size or the rate we expect. +21 +Table of Contents +● We have historically benefited from declining costs in the solar industry, and our business and financial results may be harmed not only as a result of any increases in costs associated with our electrification service offerings but also any failure of these costs to continue to decline as we currently expect. If we do not reduce our cost structure in the future, our ability to continue to be profitable may be impaired. +● We face competition from traditional energy companies as well as solar and other renewable energy companies. +● A material reduction in the retail price of traditional utility-generated electricity or electricity from other sources could harm our business, financial condition, results of operations and prospects. +● The production and installation of electrification and decarbonization systems depends heavily on suitable meteorological and environmental conditions. If meteorological or environmental conditions are unexpectedly unfavorable, the electricity production and overall savings from our MEE services may be below consumer expectations, and our ability to timely deploy new MEE Systems may be adversely impacted. +● Climate change may have long-term impacts on our business, our industry, and the global economy. +● Changes in U.S. energy policy, including the enactment of the “Big Beautiful Bill,” could materially and adversely affect our business, financial condition, and results of operations. +Risks related to ConnectM’s Technology, Intellectual Property and Infrastructure +● ConnectM expects to incur research and development costs and devote significant resources to developing new products, which could significantly reduce its profitability and may never result in revenue to ConnectM. +● ConnectM may need to defend against intellectual property infringement or misappropriation claims, which may be time-consuming and expensive. +● ConnectM’s business may be adversely affected if it is unable to protect its technology and intellectual property from unauthorized use by third parties. +● ConnectM’s technology could have undetected defects, errors or bugs in hardware or software which could reduce market adoption, damage its reputation with current or prospective customers, and/or expose it to product liability and other claims that could materially and adversely affect its business. +● Some of ConnectM’s products contain open-source software, which may pose particular risks to its proprietary software, products and services in a manner that could harm its business. +● Interruptions, delays in service or inability to increase capacity, including internationally, at third-party data center facilities could impair the use or functionality of ConnectM’s subscription services, harm its business and subject it to liability. +Risks Related to Customers +● ConnectM may be unable to leverage customer data in all geographic locations, and this limitation may impact research and development operations. +● ConnectM’s ability to maintain customer satisfaction depends in part on the quality of ConnectM’s customer support. Failure to maintain high-quality customer support could adversely affect ConnectM’s reputation, business, results of operation, and financial condition. +● ConnectM’s business will depend on customers renewing their services subscriptions. If customers do not continue to use its subscription offerings or if they fail to add more MEE Services, its business and operating results will be adversely affected. +● Changes in subscriptions or pricing models may not be reflected in near-term operating results. +22 +Table of Contents +Risks Related to Finance, Tax and Accounting +● Changes to applicable U.S. tax laws and regulations or exposure to additional income tax liabilities could affect ConnectM’s business and future profitability. +● As a result of ConnectM’s plans to expand operations, including in international jurisdictions such as India, ConnectM’s tax rate may fluctuate, its tax obligations may become more complex and subject to greater scrutiny by U.S. and foreign taxing authorities, and changes in tax laws or interpretations could adversely affect ConnectM’s after-tax profitability and financial results. +● The ability of ConnectM to utilize net operating loss and tax credit carryforwards is conditioned upon ConnectM attaining profitability and generating taxable income. ConnectM has incurred significant net losses since inception and it is anticipated that ConnectM will continue to incur significant losses. Additionally, ConnectM’s ability to utilize net operating loss and tax credit carryforwards to offset future taxable income may be limited. +● ConnectM’s reported financial results may be negatively impacted by changes in GAAP. +● Our business currently depends on government incentives and policies supporting clean energy adoption, and any reduction, delay, or repeal of such programs could adversely affect our results of operations. +● We may be required to record an impairment expense on our goodwill or intangible assets. +● ConnectM incurs increased general and administrative expenses as a public company, including higher costs related to accounting, audit, legal and consulting services, which could adversely affect its results of operations +Risks Related to Legal Matters, Regulations, and Policy +● Privacy concerns and laws, or other domestic or foreign regulations, may adversely affect ConnectM’s business. +● Failure to comply with anticorruption and anti-money laundering laws and similar laws associated with activities outside of the United States, could subject ConnectM to penalties and other adverse consequences. +● Failure to comply with laws relating to employment could subject ConnectM to penalties and other adverse consequences. +● Existing and future environmental health and safety laws and regulations could result in increased compliance costs or additional operating costs or construction costs and restrictions. Failure to comply with such laws and regulations may result in substantial fines or other limitations that may adversely impact ConnectM’s financial results or results of operations. +● Actual and potential claims, lawsuits and proceedings could ultimately reduce our profitability and liquidity and weaken our financial condition. +● Misconduct by our employees, subcontractors or partners or our overall failure to comply with laws or regulations could harm our reputation, damage our relationships with customers, reduce our revenue and profits, and subject us to criminal and civil enforcement actions. +● We have subsidiary operations in three states and are exposed to multiple state and local regulations, as well as federal laws and requirements applicable to government contractors. Changes in law, regulations or requirements, or a material failure of any of our subsidiaries or us to comply with any of them, could increase our costs and have other negative impacts on our business. +● Past and future environmental, safety and health regulations could impose significant additional costs on us that could reduce our profits. +● Unsatisfactory safety performance may subject us to penalties, affect customer relationships, result in higher operating costs, negatively impact employee morale and result in higher employee turnover. +23 +Table of Contents +● Changes in United States trade policy, including the imposition of tariffs and the resulting consequences, may have a material adverse impact on our business and results of operations. +● Tax matters, including changes in corporate tax laws and disagreements with taxing authorities, could impact our results of operations and financial condition. +● Some of our customers may choose to size their systems to take advantage of net metering offered in their states, and changes to those policies may significantly reduce demand for our solar service offerings. +● Electric utility statutes and regulations and changes to such statutes or regulations may present technical, regulatory and economic barriers to the purchase and use of our solar service offerings that may significantly reduce demand for such offerings. +● We are not currently regulated as a utility under applicable laws, but we may be subject to regulation as a utility in the future or become subject to new federal and state regulations for any additional MEE offerings we may introduce in the future. +● Interconnection limits or circuit-level caps imposed by regulators may significantly reduce MEE customers’ ability to sell electricity from our solar service offerings in certain markets or slow interconnections, harming our growth rate and customer satisfaction scores. +Risks Relating to Projections +● We may not successfully implement our business model. +● ConnectM’s projections are subject to significant risks, assumptions, estimates and uncertainties, including assumptions regarding future legislation and changes in regulations, both inside and outside of the U.S. As a result, ConnectM’s projected revenues, market share, expenses and profitability may differ materially from our expectations. +Risks Related to Ownership of our Common Stock +● Our ability to be successful will be dependent upon the efforts of certain key personnel. The loss of key personnel could negatively impact the operations and profitability of our business and its financial condition could suffer as a result. +● There is no guarantee that an active and liquid public market for shares of our Common Stock will develop. +● Risks Related to Having Become a Public Company +● Volatility in and disruption to the global economic environment, including the impact of an economic recession, trade protectionism and tariffs, and changes in the regulatory and business environments in which we operate may have a material adverse effect on our business, results of operations and financial condition. +● We are subject to cybersecurity risks to operational systems, security systems, or infrastructure owned by us or third-party vendors or suppliers. +● We operate in an intensely competitive business environment. We may not be as successful as our competitors incorporating artificial intelligence (“AI”) into our business or adapting to a rapidly changing marketplace. +Risks Related to Our Securities +● If you purchase our securities you may experience future dilution as a result of future equity offerings or other equity issuances. +● The market price of our Common Stock and the trading volume of our Common Stock has been and may continue to be, highly volatile, and such volatility could cause the market price of our Common Stock to decrease. +24 +Table of Contents +● We have never paid dividends on our capital stock, and we do not anticipate paying dividends in the foreseeable future. +● A significant portion of our Common Stock is restricted from immediate resale, but may be sold into the market in the future pursuant to registration rights granted to the holders thereof. The exercise of such rights could cause the market price of our Common Stock to drop significantly, even if our business is doing well. +● We may issue additional shares of our Common Stock or other equity securities without your approval, which would dilute your ownership interests and may depress the market price of your shares. +Risks Related to the Reverse Stock Split +● The Reverse Stock Split may decrease the liquidity of the shares of our Common Stock. +● Following the Reverse Stock Split, the resulting market price of our Common Stock may not attract new investors, including institutional investors, and may not satisfy the investing requirements of those investors. Consequently, the trading liquidity of our Common Stock may not improve. +Risks Related to ConnectM’s Common Stock +The market price of ConnectM’s Common Stock is likely to be highly volatile, and you may lose some or all of your investment. +The market price of our Common Stock is likely to be highly volatile and may be subject to wide fluctuations in response to a variety of factors, including the following: +● the inability to recognize the anticipated benefits of the Business Combination, which may be affected by, among other things, competition, ConnectM’s ability to grow and manage growth profitably, and retain its key employees; +● changes in applicable laws or regulations; +● risks relating to the uncertainty of ConnectM’s projected financial information; and +● risks related to the organic and inorganic growth of ConnectM’s business and the timing of expected business milestones. +● In addition, the stock markets have experienced extreme price and volume fluctuations that affected and continue to affect the market prices of equity securities of many companies. These fluctuations have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors, as well as general economic, political, regulatory and market conditions, may negatively affect the market price of ConnectM’s Common Stock, regardless of ConnectM’s actual operating performance. +Volatility in ConnectM’s share price could subject ConnectM to securities class action litigation. +In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. If ConnectM faces such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm its business. +Sales of a substantial number of the shares of ConnectM’s Common Stock in the public market could cause the price of the shares of ConnectM’s Common Stock to fall. +Sales of a substantial number of shares of our Common Stock, or the perception that such sales may occur, could depress the market price of our Common Stock and impair our ability to raise capital. +We have a significant number of shares issued and outstanding, as well as additional shares issuable upon the exercise, conversion or settlement of warrants, options, convertible notes and other equity-linked securities. The issuance or potential issuance of these securities, including at prices below the current market price, could result in substantial dilution and place downward pressure on our stock price. +25 +Table of Contents +In addition, holders of our securities may sell shares into the public market at their discretion, including shares acquired at prices below the current market price, which could increase volatility and further depress the trading price of our Common Stock. +Because ConnectM does not anticipate paying any cash dividends in the foreseeable future, capital appreciation, if any, would be your sole source of gain. +ConnectM currently anticipates that it will retain future earnings for the development, operation and expansion of its business and do not anticipate declaring or paying any cash dividends for the foreseeable future. As a result, capital appreciation, if any, of ConnectM’s shares of Common Stock would be your sole source of gain on an investment in such shares for the foreseeable future. +Future sales of shares of ConnectM’s Common Stock may depress its stock price. +There is a likelihood that ConnectM will need to continue to raise capital through one or more equity financings in order to continue growing its business. As such, sales of a substantial number of shares of ConnectM’s Common Stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of ConnectM’s Common Stock. As restrictions on resale end and registration statements (filed after the Closing to provide for the resale of such shares from time to time) are available for use, the sale or possibility of sale of these shares could have the effect of increasing the volatility in ConnectM’s share price or the market price of ConnectM’s Common Stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them. +Provisions in our Charter and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of management. +The Charter and Amended Bylaws contain provisions that could significantly reduce the value of our shares to a potential acquiror or delay or prevent changes in control or changes in our management without the consent of our board of directors. The provisions in our charter documents include the following: +● a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors; +● no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; +● the exclusive right of our board of directors, unless the board of directors grants such right to the stockholders, to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, retirement, disqualification, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; +● the required approval of at least 66 2∕3% of the shares entitled to vote to remove a director for cause, and the prohibition on removal of directors without cause; +● the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror; +● the ability of our board of directors to alter our amended and restated bylaws without obtaining stockholder approval; +● the required approval of at least 66 2∕3% of the shares entitled to vote to adopt, amend or repeal our amended and restated bylaws or repeal the provisions of our amended and restated certificate of incorporation regarding the election and removal of directors; +● a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; +● an exclusive forum provision providing that the Court of Chancery of the State of Delaware will be the exclusive forum for certain actions and proceedings; +26 +Table of Contents +● the requirement that a special meeting of stockholders may be called only by the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and +● advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of us. +We are also subject to the anti-takeover provisions contained in Section 203 of the General Corporation Law of the State of Delaware (the “ DGCL ”). Under Section 203, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other exceptions, the board of directors has approved the transaction. +Our Charter provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders and that the federal district courts shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees or the underwriters or any offering giving rise to such claim. +The Charter provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine. Furthermore, the Charter also provides that unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, including all causes of action asserted against any defendant named in such complaint. Notwithstanding the foregoing, this forum selection provision will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal district courts of the United States have exclusive jurisdiction. For the avoidance of doubt, this provision is intended to benefit and may be enforced by us, our officers and directors, the underwriters to any offering giving rise to such complaint, and any other professional entity whose profession gives authority to a statement made by that person or entity and who has prepared or certified any part of the documents underlying the offering. These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees and result in increased costs for investors to bring a claim. By agreeing to this provision, however, stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder. Furthermore, the enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. If a court were to find the choice of forum provisions in the Charter to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition. +ConnectM is an emerging growth company and smaller reporting company, and ConnectM cannot be certain if the reduced reporting requirements applicable to emerging growth companies and smaller reporting companies will make its shares less attractive to investors. +ConnectM is an emerging growth company, as defined in the Jumpstart Our Business Startups Act (the “ JOBS Act ”). For as long as ConnectM continues to be an emerging growth company, it may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including exemption from compliance with the auditor attestation requirements under Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. ConnectM will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the closing of the IPO of Monterey Capital Acquisition Corporation, the special purpose acquisition company with which we merged; (December 31, 2027), (b) in which ConnectM has total annual gross revenue of at least $1.235 billion or (c) in which ConnectM is deemed to be a large accelerated filer, which means the market value of shares of ConnectM’s Common Stock that are held by non-affiliates exceeds $700 million as of the last business day of its most recently completed second fiscal quarter, and (2) the date on which ConnectM has issued more than $1.0 billion in non-convertible debt during the prior three-year period. +27 +Table of Contents +In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. ConnectM has elected to use this extended transition period for complying with new or revised accounting standards and, therefore, ConnectM will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. +ConnectM is also a smaller reporting company as defined in the Exchange Act. Even after ConnectM no longer qualifies as an emerging growth company, it may still qualify as a “smaller reporting company,” which would allow it to take advantage of many of the same exemptions from disclosure requirements including exemption from compliance with the auditor attestation requirements of Section 404 and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. ConnectM will be able to take advantage of these scaled disclosures for so long as its voting and non-voting Common Stock held by non-affiliates is less than $250.0 million measured on the last business day of its second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and its voting and non-voting Common Stock held by non-affiliates is less than $700.0 million measured on the last business day of its second fiscal quarter. +ConnectM cannot predict if investors will find its Common Stock less attractive because ConnectM may rely on these exemptions. If some investors find ConnectM’s Common Stock less attractive as a result, there may be a less active trading market for the Common Stock and its market price may be more volatile. +Risks Related to ConnectM’s Business +Business and Operational Risks +We need to raise additional capital to support our operations. We believe our cash and cash equivalents on hand and cash we expect to obtain from this offering, together with cash we expect to generate from future operations, will be sufficient to meet our working capital and capital expenditure requirements in the near future. However, in the future we may still require additional capital to respond to customer demands, technological advancements, competitive dynamics or technologies, business opportunities, challenges, acquisitions or unforeseen circumstances and we may determine to engage in equity or debt financings or enter into credit facilities for other reasons. We may not be able to timely secure additional debt or equity financing on favorable terms, or at all. If we raise additional funds through the issuance of equity or convertible debt or other equity-linked securities, our existing stockholders could experience significant dilution and any new securities we issue could have rights, preferences, and privileges superior to those of holders of our Common Stock. +If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited. +Due to ConnectM operating as a going concern, there is a possibility that ConnectM may never be profitable and you may lose all or part of your investment. During the twelve months ended December 31, 2025 and 2024, ConnectM incurred net losses of $16,058,000 and $22,508,000, respectively. Continued operations are dependent on ConnectM’s ability to complete equity or debt financings or generate profitable operations. Such financings may not be available or may not be available on reasonable terms. +During the twelve months ended December 31, 2025 and 2024, ConnectM has incurred net losses of approximately $16,058,000 and $22,508,000, respectively. As of December 31, 2025 and 2024, ConnectM had an accumulated deficit of approximately $61,671,000 and $45,426,000. ConnectM expects to incur additional losses and higher operating expenses for the foreseeable future. These conditions raises substantial doubt about ConnectM’s ability to continue as a going concern within one year after the date that these combined consolidated financial statements are issued that has not been alleviated. Management’s plans to alleviate the substantial doubt identified include obtaining additional financing from related parties and third parties, and potentially extending existing debt agreements. Due to the Company operating as a going concern, and there is a possibility that we may never be profitable, there is the possibility that you may lose all or part of your investment. +28 +Table of Contents +Our growth strategy depends on the widespread adoption Modern Energy Economy (MEE) Systems, MEE Technology, and MEE Services. +The market for MEE Services, MEE Technology, and MEE Systems is emerging and rapidly evolving, and our future success is uncertain. If MEE Technology or Services prove unsuitable for widespread commercial deployment or if demand for MEE Systems fails to develop sufficiently, we would be unable to generate enough revenues to achieve and sustain profitability and positive cash flow. The factors influencing the widespread adoption of MEE solutions include but are not limited to: +● cost-effectiveness of MEE solutions as compared with conventional and fossil fuel based energy technologies; +● performance and reliability of MEE solutions as compared with conventional and fossil fuel based energy products; +● continued deregulation of the electric power industry and broader energy industry; +● fluctuations in economic and market conditions which impact the viability of conventional and non-solar alternative energy sources, such as increases or decreases in the prices of oil and other fossil fuels; and +● availability of governmental subsidies and incentives. +If we cannot compete successfully against other home electrification and energy companies, we may not be successful in developing our operations and our business may suffer. +The MEE industries are characterized by intense competition and rapid technological advances. We compete with other MEE Service Providers with business models that are similar to ours. In addition, we compete with solar companies in the downstream value chain of distributed energy. Further, some competitors are integrating vertically in order to ensure supply and to control costs. Many of our competitors also have significant brand name recognition and have extensive knowledge of our target markets. Intense competition in our industry could reduce our market share and our profit. We expect to face significant competition in the future as the market for home electrification develops. +If we are unable to compete in the market, there will be an adverse effect on our business, financial condition, and results of operations. +With respect to providing electricity on a price-competitive basis, solar systems face competition from traditional regulated electric utilities, from less-regulated third party energy service providers and from new renewable energy companies. +The solar energy and renewable energy industries are both highly competitive and continually evolving as participants strive to distinguish themselves within their markets and compete with large traditional utilities. Some of our competitors are the traditional utilities that supply electricity to our potential customers. Traditional utilities generally have substantially greater financial, technical, operational and other resources than we do. As a result, these competitors may be able to devote more resources to the research, development, promotion, and sale of their products or respond more quickly to evolving industry standards and changes in market conditions than we can. Traditional utilities could also offer other value-added products or services that could help them to compete with us even if the cost of electricity they offer is higher than that of ours. In addition, a majority of utilities’ sources of electricity are non-solar, which may allow utilities to sell electricity more cheaply than electricity generated and stored by our solar and battery systems. +We also compete with companies that are not regulated like traditional utilities, but that have access to the traditional utility electricity transmission and distribution infrastructure pursuant to state and local pro-competitive and consumer choice policies. These energy service companies may be able to offer customers electricity supply-only solutions that are competitive with our solar and battery systems options on both price and usage of renewable energy technology while avoiding the long-term agreements and physical installations that our current business model requires. This may limit our ability to attract new customers, particularly those who wish to avoid long-term contracts or have an aesthetic or other objection to putting solar panels on their roofs. +As the MEE industry grows and evolves, we will also face new competitors who are not currently in the market. Low technological barriers to entry characterize our industry and well-capitalized companies could choose to enter the market and compete with us. Our failure to adapt to changing market conditions and to compete successfully with existing or new competitors will limit our growth and will have a material adverse effect on our business and prospects. +29 +Table of Contents +Due to the limited number of suppliers in our industry, the acquisition of any of these suppliers by a competitor or any shortage, delay, quality issue, price change, or other limitations in our ability to obtain components or technologies we use could result in adverse effects. +While we purchase our products from several different suppliers, if one or more of the suppliers that we rely upon to meet anticipated demand ceases or reduces production due to its financial condition, acquisition by a competitor, or otherwise, is unable to increase production as industry demand increases or is otherwise unable to allocate sufficient production to us, it may be difficult to quickly identify alternate suppliers or to qualify alternative products on commercially reasonable terms, and our ability to satisfy this demand may be adversely affected. At times, suppliers may have issues with the quality of their products, which may not be realized until the product has been installed at a customer site. This may result in additional cost incurred. There are a limited number of suppliers of MEE system components and technologies. While we believe there are other sources of supply for these products available, transitioning to a new supplier may result in additional costs and delays in acquiring our MEE products and deploying our systems. These issues could harm our business or financial performance. In addition, the acquisition of a component supplier or technology provider by one of our competitors could limit our access to such components or technologies and require significant redesigns of our MEE systems or installation procedures and have a negative impact on our business. +There have also been periods of industry-wide shortages of key MEE components in times of industry disruption. The manufacturing infrastructure for some of these components has a long lead-time, requires significant capital investment and relies on the continued availability of key commodity materials, potentially resulting in an inability to meet demand for these components. We and our original equipment manufacturers (“ OEMs ”)/distributor partners depend on a limited number of suppliers of MEE system components to adequately meet anticipated demand for our MEE service offerings. Any shortage, bottlenecks, delay, detentions, or component price change from these suppliers, or the acquisition of any of these suppliers by a competitor, could result in sales and installation delays, cancellations, and loss of market share. +The MEE industry is frequently experiencing significant disruption and, as a result, shortages of MEE key components may be more likely to occur, which in turn may result in price increases for such components. Even if industry-wide shortages do not occur, suppliers may decide to allocate key components with high demand or insufficient production capacity to more profitable customers, customers with long-term supply agreements or customers other than us and our supply of such components may be reduced as a result. +Typically, we purchase the components for our MEE systems on an as-needed basis and do not operate under long-term supply agreements. The vast majority of our purchases are denominated in U.S. dollars. Since our revenue is also generated in U.S. dollars we are mostly insulated from currency fluctuations. However, since our suppliers often incur a significant amount of their costs by purchasing raw materials and generating operating expenses in foreign currencies, if the value of the U.S. dollar depreciates significantly or for a prolonged period of time against these other currencies, this may cause our suppliers to raise the prices they charge us, which could harm our financial results. +Our backlog is subject to unexpected adjustments and cancellations, which means that amounts included in our backlog may not result in actual revenue or translate into profits. Any supply shortages, delays, quality issues, price changes or other limitations in our ability to obtain components or technologies we use could limit our growth, cause cancellations or adversely affect our profitability, and result in loss of market share and damage to our brand. +30 +Table of Contents +Damage to our brand and reputation or failure to expand our brand would harm our business and results of operations. +We depend significantly on our brand and reputation for high-quality home electrification and solar service offerings, engineering and customer service to attract customers and grow our business. If we fail to continue to deliver our MEE service offerings within the planned timelines, if our MEE offerings do not perform as anticipated or if we damage any customers’ properties or cancel projects, our brand and reputation could be significantly impaired. We also depend greatly on referrals from customers for our growth. Therefore, our inability to meet or exceed customers’ expectations would harm our reputation and growth through referrals. We have at times focused particular attention on expeditiously growing our direct sales force and our MEE partners, leading us in some instances to hire personnel or partner with third parties who we may later determine do not fit our company culture and standards. Given the sheer volume of interactions our direct sales force and our MEE partners have with customers and potential customers, it is also unavoidable that some interactions will be perceived by customers and potential customers as less than satisfactory and result in complaints. If we cannot manage our hiring and training processes to limit potential issues and maintain appropriate customer service levels, our brand and reputation may be harmed and our ability to grow our business would suffer. In addition, if we were unable to achieve a similar level of brand recognition as our competitors, some of which may have a broader brand footprint, more resources and longer operational history, we could lose recognition in the marketplace among prospective customers, suppliers and partners, which could affect our growth and financial performance. Our growth strategy involves marketing and branding initiatives that will involve incurring significant expenses in advance of corresponding revenue. We cannot assure you that such marketing and branding expenses will result in the successful expansion of our brand recognition or increase our revenue. We are also subject to marketing and advertising regulations in various jurisdictions, and overly restrictive conditions on our marketing and advertising activities may inhibit the sales of the affected products. +Developments in alternative technologies may materially adversely affect demand for our offerings. +Significant developments in alternative technologies, such as advances in other forms of home electrification or distributed solar power generation, storage solutions such as batteries, the widespread use or adoption of fuel cells for residential or commercial properties or improvements in other forms of centralized power production may materially and adversely affect our business and prospects in ways we do not currently anticipate. Any failure by us to adopt new or enhanced technologies or processes, or to react to changes in existing technologies, could materially delay deployment of our solar energy systems, which could result in product obsolescence, the loss of competitiveness of our systems, decreased revenue and a loss of market share to competitors. +While we maintain an inventory of, or otherwise make arrangements to obtain, spare parts to replace critical equipment and maintain insurance for property damage to protect against certain operating risks, these protections may not be adequate to cover lost revenues or increased expenses and penalties that could result if we were unable to operate our generation facilities at a level necessary to comply with sales contracts. +Obtaining a sales contract with a potential customer does not guarantee that the potential customer will not decide to cancel or that we will not need to cancel due to a failed inspection, which could cause us to generate no revenue despite incurring costs and adversely affect our results of operations. +Even after we secure a sales contract with a potential customer, we (either directly or through our MEE partners) must perform an inspection to ensure that the home, including the rooftop, meets our standards and specifications. If the inspection finds that repairs to the rooftop are required in order to satisfy our standards and specifications to install the solar energy system, and a potential customer does not want to make such required repairs, we would lose that anticipated sale. In addition, per the terms of our customer agreements, a customer maintains the ability to cancel before commencement of installation, subject to certain conditions. Any delay or cancellation of an anticipated sale could materially and adversely affect our financial results, as we may have incurred sales-related, design-related, and other expenses and generated no revenue. +Our inability to properly utilize our workforce could have a negative impact on our profitability. +The extent to which we utilize our workforce affects our profitability. Underutilizing our workforce could result in lower gross margins and, consequently, a decrease in our short-term profitability. On the other hand, overutilization of our workforce could negatively impact safety, employee satisfaction, attrition, and project execution, leading to a potential decline in future project awards. The utilization of our workforce is impacted by numerous factors, including: +● our estimates of headcount requirements and our ability to manage attrition; +31 +Table of Contents +● efficiency in scheduling projects and our ability to minimize downtime between project assignments; +● productivity; +● labor disputes; and +● availability of skilled labor at any given time. +Expanding operations internationally will subject us to a variety of risks and uncertainties that could adversely affect our business and operating results. +ConnectM may choose to expand internationally and may require additional resources and controls. Any expansion internationally could subject our business to risks associated with international operations, including: +● difficulties in establishing legal entities in foreign jurisdictions; +● challenges in arranging, and availability of, financing for our customers; +● availability and cost of raw materials and components, labor and equipment for manufacturing our systems; +● difficulties in staffing and managing foreign operations due to differences in culture, laws and customer expectations, and the increased travel, infrastructure, and legal and compliance costs associated with international operations; +● installation challenges which we have not encountered before which may require the development of adaptions of our products for a given jurisdiction; +● compliance with multiple, potentially conflicting and changing governmental laws, regulations, and permitting processes including environmental, banking, employment, tax, privacy, safety, security and data protection laws and regulations; +● compliance with U.S. and foreign anti-bribery laws including the Foreign Corrupt Practices Act and the U.K. Anti-Bribery Act; +● greater difficulties in securing or enforcing our intellectual property rights in certain jurisdictions, or in potential infringement of third-party intellectual property rights in new jurisdictions; +● difficulties in collecting payments in foreign currencies and associated foreign currency exposure; +● increases or decreases in our expenses caused by fluctuation in foreign currency exchange rates; +● restrictions on repatriation of foreign earnings; +● compliance with potentially conflicting and changing laws of taxing jurisdictions where we conduct business and compliance with applicable U.S. tax laws as they relate to international operations, including product transfer pricing, the complexity and adverse consequences of such tax laws, and potentially adverse tax consequences due to changes in such tax laws; +● changes in import and export controls and tariffs imposed by the United States or foreign governments; +● changes in regulations regarding recycling and the end of life of our products; +● changes in regulations that would prevent us from doing business in specified countries; +● failure of the supply chain in local countries to provide us with materials of a sufficient quality and quantity delivered on timelines we expect; and +32 +Table of Contents +● regional economic and political conditions. +As a result of these risks, any potential future international expansion efforts that we may undertake may not be successful. +We may not be able to effectively manage our growth . +Our future growth, if any, may cause a significant strain on our management and our operational, financial, and other resources. Our ability to manage our growth effectively will require us to implement and improve our operational, financial, and management systems and to expand, train, manage, and motivate our employees. These demands will require the hiring of additional management personnel and the development of additional expertise by management. Any increase in resources used without a corresponding increase in our operational, financial, and management systems could have a negative impact on our business, financial condition, and results of operations. +We are a decentralized company and place significant decision-making powers with our subsidiaries’ management, which presents certain risks. +We believe that our practice of placing significant decision-making powers with local management is important to our successful growth and allows us to be responsive to opportunities and to our customers’ needs. However, this practice presents certain risks, including the risk that we may be slower or less effective in our attempts to identify or react to problems affecting an important business than we would under a more centralized structure or that we would be slower to identify a misalignment between a subsidiary’s and ConnectM’s overall business strategy. Further, if a subsidiary location fails to follow ConnectM’s compliance policies, we could be made party to a contract, arrangement or situation that requires the assumption of large liabilities or has less advantageous terms than is typically found in the market. +We may not realize the anticipated benefits of past or future investments, strategic transactions, or acquisitions, and integration of these acquisitions may disrupt our business and management. +We have in the past, and in the future we expect to, acquire companies, project pipelines, products or technologies or enter into joint ventures or other strategic initiatives. We may not realize the anticipated benefits of these acquisitions, and any acquisition has numerous risks. These risks include the following: +● difficulty in assimilating the operations and personnel of the acquired company; +● difficulty in effectively integrating the acquired technologies or products with our current technologies; +● difficulty in maintaining controls, procedures and policies during the transition and integration; +● disruption of our ongoing business and distraction of our management and employees from other opportunities and challenges due to integration issues; +● difficulty integrating the acquired company’s accounting, management information, and other administrative systems; +● inability to retain key technical and managerial personnel of the acquired business; +● inability to retain key customers, vendors, and other business partners of the acquired business; +● inability to achieve the financial and strategic goals for the acquired and combined businesses; +● incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact our operating results; +● potential failure of the due diligence processes to identify significant issues with product quality, intellectual property infringement, and other legal and financial liabilities, among other things; +● potential inability to assert that internal controls over financial reporting are effective; and +33 +Table of Contents +● potential inability to obtain, or obtain in a timely manner, approvals from governmental authorities, which could delay or prevent such acquisitions. +Acquisitions of companies, businesses and assets are inherently risky and, if we do not complete the integration of these acquisitions successfully and in a timely manner, we may not realize the anticipated benefits of the acquisitions to the extent anticipated, which could adversely affect our business, financial condition, or results of operations. +If we are unsuccessful in developing and maintaining our proprietary technology, including our Connected Operations applications, our ability to attract and retain OEMs could be impaired, our competitive position could be harmed and our revenue could be reduced. +Our future growth depends on our ability to continue to develop and maintain our proprietary technology that supports our service offerings, including our Connected Operations applications. In addition, we rely, and expect to continue to rely, on licensing agreements with certain third parties for aerial images that allow us to efficiently and effectively analyze a customer’s MEE system specifications. In the event that our current or future products require features that we have not developed or licensed, or we lose the benefit of an existing license, we will be required to develop or obtain such technology through purchase, license or other arrangements. If the required technology is not available on commercially reasonable terms, or at all, we may incur additional expenses in an effort to internally develop the required technology. If we are unable to maintain our existing proprietary technology, our ability to attract and retain OEM partners could be impaired, our competitive position could be harmed and our revenue could be reduced. +Our business is concentrated in certain markets, putting us at risk of region-specific disruptions. +As of December 31, 2025, a majority of our total installations were in Massachusetts, Florida and Virginia. We expect our near-term future growth to occur in the east coast and Midwest of the U.S., and to further expand our customer base and operational infrastructure. Accordingly, our business and results of operations are particularly susceptible to adverse economic, regulatory, political, weather and other conditions in such markets and in other markets that may become similarly concentrated. +Changes to the applicable laws and regulations governing direct-to-home sales and marketing may limit our ability to effectively compete. +The majority of our service business is conducted using the direct-to-home sales channel and marketing that could impose additional limitations on unsolicited residential sales calls and may impose additional restrictions such as adjustments to our marketing materials and direct-selling processes, and new training for personnel. If additional laws and regulations affecting direct sales and marketing are passed in the markets in which we operate, it would take time to train our sales professionals to comply with such laws, and we may be exposed to fines or other penalties for violations of such laws. If we fail to compete effectively through our direct-selling efforts, our financial condition, results of operations and growth prospects could be adversely affected. +Our growth depends in part on the success of our relationships with third parties . +A key component of our growth strategy is to develop or expand our relationships with third parties. For example, we are investing resources in establishing strategic relationships with market players across a variety of industries to generate new customers. These programs may not roll out as quickly as planned or produce the results we anticipated. A significant portion of our business depends on attracting and retaining new and existing MEE partners. Negotiating relationships with our MEE partners, investing in due diligence efforts with potential MEE partners, training such third parties and contractors, and monitoring them for compliance with our standards require significant time and resources and may present greater risks and challenges than expanding a direct sales or installation team. If we are unsuccessful in establishing or maintaining our relationships with these third parties, our ability to grow our business and address our market opportunity could be impaired. Even if we are able to establish and maintain these relationships, we may not be able to execute on our goal of leveraging these relationships to meaningfully expand our business, brand recognition and customer base. This would limit our growth potential and our opportunities to generate significant additional revenue or cash flows. +34 +Table of Contents +ConnectM operates in the early-stage market of MEE adoption, has a history of losses and expects to incur significant ongoing expenses +We have incurred operating losses before income taxes in the past. We intend to increase our spending to finance the expansion of our operations, expand our installation, engineering, administrative, sales and marketing staffs, increase spending on our brand awareness and other sales and marketing initiatives, make significant investments to drive future growth in our business and implement internal systems and infrastructure to support our growth. We do not know whether our revenue will grow rapidly enough to absorb these costs and our limited operating history makes it difficult to assess the extent of these expenses or their impact on our results of operations. Our ability to sustain profitability depends on a number of factors, including but not limited to: +● growing our customer base; +● maintaining or lowering our cost of capital; +● reducing the cost of components for our solar service offerings; +● growing and maintaining our channel partner network; +● maintaining high levels of product quality, performance, and customer satisfaction; +● successfully integrating acquired businesses; +● growing our direct-to-consumer business to scale; +● reducing our operating costs by lowering our customer acquisition costs and optimizing our design and installation processes; and +● supply chain logistics, such as accepting late deliveries. +We may be unable to achieve positive cash flows from operations in the future. +Failure to hire and retain a sufficient number of employees and service providers in key functions would constrain our growth and our ability to timely complete customers’ projects and successfully manage customer accounts. +To support our growth, we need to hire, train, deploy, manage and retain a substantial number of skilled employees, engineers, installers, electricians, sales and project finance specialists. Competition for qualified personnel in our industry is increasing, particularly for skilled personnel involved in the installation of MEE systems. We have in the past been, and may in the future be, unable to attract or retain qualified and skilled installation personnel or installation companies to be our MEE service partners (under Managed Solutions), which would have an adverse effect on our business. We and our MEE partners also compete with the homebuilding and construction industries for skilled labor. As these industries grow and seek to hire additional workers, our cost of labor may increase. The unionization of the industry’s labor force could also increase our labor costs. Shortages of skilled labor could significantly delay a project or otherwise increase our costs. Because our profit on a particular installation is based in part on assumptions as to the cost of such project, cost overruns, delays or other execution issues may cause us to not achieve our expected margins or cover our costs for that project. We need to continue to expand upon the training of our customer service team to provide high-end account management and service to customers before, during and following the point of installation of our MEE systems. Identifying and recruiting qualified personnel and training them requires significant time, expense and attention. It can take several months before a new customer service team member is fully trained and productive at the standards that we have established. If we are unable to hire, develop and retain talented technical and customer service personnel, we may not be able to realize the expected benefits of this investment or grow our business. +In addition, to support the growth and success of our direct-to-consumer channel, we need to recruit, retain and motivate a large number of sales personnel on a continuing basis. We compete with many other companies for qualified sales personnel, and it could take many months before a new salesperson is fully trained on our MEE service offerings. If we are unable to hire, develop and retain qualified sales personnel or if they are unable to achieve desired productivity levels, we may not be able to compete effectively. +35 +Table of Contents +If we or our MEE partners cannot meet our hiring, retention and efficiency goals, we may be unable to complete customers’ projects on time or manage customer accounts in an acceptable manner or at all. Any significant failures in this regard would materially impair our growth, reputation, business and financial results. If we are required to pay higher compensation than we anticipate, these greater expenses may also adversely impact our financial results and the growth of our business. +Failure by our vendors or our component suppliers to use ethical business practices and comply with applicable laws and regulations may adversely affect our business. +We do not control our vendors or suppliers or their business practices. Accordingly, we cannot guarantee that they follow ethical business practices, such as fair wage practices and compliance with environmental, safety and other local laws. A lack of demonstrated compliance could lead us to seek alternative manufacturers or suppliers, which could increase our costs and result in delayed delivery of our products, product shortages or other disruptions of our operations. Violation of labor or other laws by our manufacturers or suppliers or the divergence of a supplier’s labor or other practices from those generally accepted as ethical in the U.S. or other markets in which we do business could also attract negative publicity for us and harm our business. +If we are unable to retain and recruit qualified technicians and advisors, or if our board of directors, key executives, key employees or consultants discontinue their employment or consulting relationship with us, it may delay our development efforts or otherwise harm our business. +We may not be able to attract or retain qualified management or technical personnel in the future due to the intense competition for qualified personnel among MEE services businesses. Our industry has experienced a high rate of turnover of management personnel in recent years. If we are not able to attract, retain, and motivate necessary personnel to accomplish our business objectives, we may experience constraints that will significantly impede the successful development of any product candidates, our ability to raise additional capital, and our ability to implement our overall business strategy. +We are highly dependent on members of our management and technical staff. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level, and senior managers as well as junior, mid-level, and senior technical personnel. The loss of any of our executive officers, key employees, or consultants and our inability to find suitable replacements could potentially harm our business, financial condition, and prospects. We may be unable to attract and retain personnel on acceptable terms given the competition among MEE Service providers. Certain of our current officers, directors, and/or consultants hereafter appointed may from time to time serve as officers, directors, scientific advisors, and/or consultants of other MEE service providers. We do not maintain “key man” insurance policies on any of our officers or employees. Other than certain members of our senior management team, all of our employees are employed “at will” and, therefore, each employee may leave our employment and join a competitor at any time. +We plan to grant stock options, restricted stock grants, restricted stock unit grants, and/or other forms of equity awards in the future as a method of attracting and retaining employees, motivating performance, and aligning the interests of employees with those of our shareholders. If we are unable to implement and maintain equity compensation arrangements that provide sufficient incentives, we may be unable to retain our existing employees and attract additional qualified candidates. If we are unable to retain our existing employees and attract additional qualified candidates, our business and results of operations could be adversely affected. Currently the exercise prices of all outstanding stock options are greater than the current stock price. +As of December 31, 2025, we had 103 full-time employees in the U.S., 73 full-time employees in India and 6 part-time employees and contractors. We may be unable to implement and maintain an attractive incentive compensation structure in order to attract and retain the right talent. These actions could lead to disruptions in our business, reduced employee morale and productivity, increased attrition, and problems with retaining existing and recruiting future employees. +ConnectM’s management has limited experience in operating a public company. +ConnectM’s executive officers have limited experience in the management of a publicly traded company. ConnectM’s management team may not successfully or effectively manage the transition to a public company that will be subject to significant regulatory oversight and reporting obligations under federal securities laws. ConnectM’s limited experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage in that it is likely that an increasing amount of their time may be devoted to these activities, which will result in less time being devoted to the management and growth of the company. ConnectM may not have adequate personnel with the appropriate level of knowledge, experience and training in the accounting policies, practices or internal control over financial reporting required of public companies. The development and implementation of the standards and controls and the hiring of experienced personnel necessary to achieve the level of accounting standards required of a public company, as well as the cost of outside legal and accounting advisors, may require costs greater than expected. +36 +Table of Contents +The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members and officers. +We are subject to the reporting requirements of the Exchange Act, and other applicable securities rules and regulations. Compliance with these rules and regulations has increased our legal and financial compliance costs, made some activities more difficult, time-consuming or costly and increased demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and results of operations and maintain effective disclosure controls, procedures, and internal controls over financial reporting. Maintaining our disclosure controls and procedures and internal controls over financial reporting in accordance with this standard requires significant resources and management oversight. As a result, management’s attention may be diverted from other business concerns, which could harm our business and results of operations. We will need to hire more employees in the future to manage these reporting and compliance obligations, which will increase our costs and expenses. +We may be materially adversely affected by negative publicity. +Our business involves transactions with customers. We and our MEE partners must comply with numerous federal, state and local laws and regulations that govern matters relating to our interactions with customers, including those pertaining to privacy and data security and warranties. These laws and regulations are dynamic and subject to potentially differing interpretations, and various federal, state and local legislative and regulatory bodies may expand current laws or regulations, or enact new laws and regulations, regarding these matters. Changes in these laws or regulations or their interpretation could dramatically affect how we do business, acquire customers, and manage and use information we collect from and about current and prospective customers and the costs associated therewith. We strive to comply with all applicable laws and regulations relating to our interactions with residential customers. It is possible, however, that these requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Noncompliance with any such laws or regulations, or the perception that we or our MEE partners have violated such laws or regulations or engaged in deceptive practices that could result in a violation, could also expose us to claims, proceedings, litigation and investigations by private parties and regulatory authorities, as well as substantial fines and negative publicity, each of which may materially and adversely affect our business. We have incurred, and will continue to incur, significant expenses to comply with such laws and regulations, and increased regulation of matters relating to our business could require us to modify our operations and incur significant additional expenses, which could have an adverse effect on our business, financial condition, and results of operations. +Any investigations, actions, adoption or amendment of regulations relating to the marketing of our products to residential consumers of our community MEE programs could divert management’s attention from our business, require us to modify our operations and incur significant additional expenses, which could have an adverse effect on our business, financial condition, and results of operations or could reduce the number of our potential customers. +We cannot ensure that our sales professionals and other personnel will always comply with our standard practices and policies, as well as applicable laws and regulations. In any of the numerous interactions between our sales professionals or other personnel and our customers or potential customers, our sales professionals or other personnel may, without our knowledge and despite our efforts to effectively train them and enforce compliance, engage in conduct that is or may be prohibited under our standard practices and policies and applicable laws and regulations. We have been exposed to claims in the past, and any such non-compliance, or the perception of non-compliance, could expose us to additional claims, proceedings, litigation, investigations, or enforcement actions by private parties or regulatory authorities, as well as substantial fines and negative publicity, each of which may materially and adversely affect our business and reputation. We have incurred, and will continue to incur, significant expenses to comply with the laws, regulations and industry standards that apply to us. +Our business, financial condition, results of operations and prospects can be materially adversely affected by weather conditions, including, but not limited to, the impact of severe weather. +Weather conditions directly influence the demand for electricity and natural gas and other fuels and affect the price of energy and energy-related commodities. In addition, severe weather and natural disasters, such as hurricanes, floods, tornadoes, icing events and earthquakes, can be destructive and cause power outages and property damage, affect the availability of fuel and water, reduce our revenue and require us to incur additional costs, for example, to restore service and repair damaged facilities, to obtain replacement power and to access available financing sources. Furthermore, our physical plants could be placed at greater risk of damage should continued changes in the global climate produce additional unusual variations in temperature and weather patterns, resulting in more intense, frequent and extreme weather events, and abnormal levels of precipitation. A disruption or failure of electric generation, or +37 +Table of Contents +storage systems in the event of a hurricane, tornado or other severe weather event, or otherwise, could prevent us from operating our business in the normal course and could result in any of the adverse consequences described above. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects. +Where cost recovery is available, recovery of costs to restore service and repair damaged facilities is or may be subject to regulatory approval, and any determination by the regulator not to permit timely and full recovery of the costs incurred could have a material adverse effect on our business, financial condition, results of operations and prospects. Changes in weather can also affect the production of electricity at power generation facilities. +Our results of operations may fluctuate from quarter to quarter, which could make our future performance difficult to predict and could cause our results of operations for a particular period to fall below expectations, resulting in a decline in the price of our Common Stock. +Our quarterly results of operations are difficult to predict and may fluctuate significantly in the future. We have experienced seasonal and quarterly fluctuations in the past and expect these fluctuations to continue. However, given that we are operating in a rapidly changing industry, those fluctuations may be masked by our recent growth rates and thus may not be readily apparent from our historical results of operations. As such, our past quarterly results of operations may not be good indicators of likely future performance. +In addition to the other risks described in this “ Risk Factors ” section, as well as the factors discussed in the “ Management’s Discussion and Analysis of Financial Condition and Results of Operations of ConnectM ” section, the following factors, among others, could cause our results of operations and key performance indicators to fluctuate: +● the expiration, reduction or initiation of any governmental tax rebates, tax exemptions, or incentive; +● significant fluctuations in customer demand for our MEE service offerings or fluctuations in the geographic concentration of installations of MEE systems; +● changes in financial markets, which could restrict our ability to access available and cost-effective financing sources; +● seasonal, environmental or weather conditions that impact sales, energy production, and system installation; +● the amount and timing of operating expenses related to the maintenance and expansion of our business, operations and infrastructure; +● announcements by us or our competitors of new products or services, significant acquisitions, strategic partnerships, or joint ventures; +● necessary capital-raising activities or commitments; +● changes in our pricing policies or terms or those of our competitors, including utilities; +● changes in regulatory policy related to solar energy generation; +● the loss of one or more key partners or the failure of key partners to perform as anticipated; +● our failure to successfully integrate acquired solar facilities; +● actual or anticipated developments in our competitors’ businesses or the competitive landscape; +● actual or anticipated changes in our growth rate; +● general economic, industry and market conditions; and +● changes to our cancellation rate. +38 +Table of Contents +Our actual revenue or key operating metrics in one or more future quarters may fall short of the expectations of investors and financial analysts. If that occurs, the market price of our Common Stock could decline and stockholders could lose part or all of their investment. +Adverse economic conditions may have negative consequences on our business, results of operations and financial condition. +Unpredictable and unstable changes in economic conditions, including recession, inflation, increased government intervention, or other changes, may adversely affect our general business strategy. Additionally, economic downturns in the markets in which we operate may materially and adversely affect our business because our business is dependent on levels of construction and home remodeling activity. We rely upon our ability to generate additional sources of liquidity and we may need to raise additional funds through public or private debt or equity financings in order to fund existing operations or to take advantage of opportunities, including acquisitions of complementary businesses or technologies. Any adverse change in economic conditions would have a negative impact on our business, results of operations and financial condition and on our ability to generate or raise additional capital on favorable terms, or at all. +ConnectM is highly reliant on its networked and cloud-based business model and information technology systems and data, and those of its service providers which may be subject to cyber-attacks, service disruptions or other security incidents, which could result in data breaches, loss or interruption of services, intellectual property theft, claims, litigation, regulatory investigations, significant liability, reputational damage and other adverse consequences. +ConnectM continues to expand its information technology systems in the form of its networked and cloud-based business model, and as its operations grow its internal information technology systems, such as product data management, procurement, inventory management, production planning and execution, sales, service and logistics, financial, tax and regulatory compliance systems. This includes the implementation of new internally developed systems and the deployment of such systems in the United States. While ConnectM maintains information technology measures designed to protect it against intellectual property theft, data breaches, sabotage and other external or internal cyber-attacks or misappropriation, its systems and those of its service providers are potentially vulnerable to malware, ransomware, viruses, denial-of-service attacks, phishing attacks, social engineering, computer hacking, unauthorized access, exploitation of bugs, defects and vulnerabilities, breakdowns, damage, interruptions, system malfunctions, power outages, terrorism, acts of vandalism, security breaches, security incidents, inadvertent or intentional actions by employees or other third parties, and other cyber-attacks. To the extent any security incident results in unauthorized access or damage to or acquisition, use, corruption, loss, destruction, alteration or dissemination of ConnectM data, including intellectual property and personal information, or ConnectM’s products, or for it to be believed or reported that any of these occurred, it could disrupt ConnectM’s business, harm its reputation, compel it to comply with applicable data breach notification laws, subject it to time consuming, distracting and expensive litigation, regulatory investigation and oversight, mandatory corrective action, require it to verify the correctness of database contents, or otherwise subject it to liability under laws, regulations and contractual obligations, including those that protect the privacy and security of personal information. This could result in increased costs to ConnectM and result in significant legal and financial exposure and/or reputational harm. +In addition, ConnectM and certain of its subsidiaries may collect, process or store sensitive consumer financial information, including payment card data, in connection with its operations. The handling of such information subjects ConnectM to additional legal, regulatory and industry requirements, including the Payment Card Industry Data Security Standard (“PCI DSS”) and applicable data protection and privacy laws. Any failure to comply with these requirements, or any actual or perceived compromise of payment card or other financial information, could result in fines, penalties, increased transaction fees, loss of payment processing privileges, contractual liability, regulatory investigations and reputational harm. Furthermore, the collection and storage of payment information may increase ConnectM’s exposure to cyber-attacks and fraud, and any such incident could result in significant financial losses, remediation costs and litigation. +Because ConnectM also relies on third-party service providers, it cannot guarantee that its service providers’ and component suppliers’ systems have not been breached or that they do not contain exploitable defects, bugs, or vulnerabilities that could result in a security incident, or other disruption to, ConnectM’s or ConnectM’s service providers’ or component suppliers’ systems. ConnectM’s ability to monitor its service providers’ and component suppliers’ security measures is limited, and, in any event, malicious third parties may be able to circumvent those security measures. Further, the implementation, maintenance, segregation and improvement of these systems require significant management time, support and cost, and there are inherent risks associated with developing, improving and expanding ConnectM’s core systems as well as implementing new systems and updating current systems, including disruptions to the related areas of business operation. These risks may affect ConnectM’s ability to manage its data and inventory, +39 +Table of Contents +procure parts or supplies or manufacture, sell, deliver and service products, adequately protect its intellectual property or achieve and maintain compliance with, or realize available benefits under, tax laws and other applicable regulations. +If ConnectM does not successfully implement, maintain or expand its information technology systems as planned, its operations may be disrupted, its ability to accurately and/or timely report its financial results could be impaired and deficiencies may arise in its internal control over financial reporting, which may impact its ability to certify its financial results (see also “ Risks Related to Finance, Tax and Accounting - ConnectM has identified material weaknesses in its internal control over financial reporting. If ConnectM is unable to remediate these material weaknesses, or if ConnectM identifies additional material weaknesses in the future or otherwise fails to maintain an effective internal control over financial reporting, this may result in material misstatements of ConnectM’s consolidated financial statements or cause ConnectM to fail to meet its periodic reporting obligations ” for more detail). Moreover, ConnectM’s proprietary information, including intellectual property and personal information, could be compromised or misappropriated and its reputation may be adversely affected if these systems or their functionality do not operate as expected and ConnectM may be required to expend significant resources to make corrections or find alternative sources for performing these functions. +Our ability to obtain insurance and the terms of any available insurance coverage could be materially adversely affected by international, national, state or local events or company-specific events, as well as the financial condition of insurers. +Insurance coverage may not continue to be available or may not be available at rates or on terms similar to those presently available to us. Our ability to obtain insurance and the terms of any available insurance coverage could be materially adversely affected by international, national, state or local events or company-specific events, as well as the financial condition of insurers. If insurance coverage is not available or obtainable on acceptable terms, we may be required to pay costs associated with adverse future events. +Our insurance policies against many potential liabilities require high deductibles, and our risk management policies and procedures may leave us exposed to unidentified or unanticipated risks. Additionally, difficulties in the insurance markets may adversely affect our ability to obtain necessary insurance. +We insure various general liability, workers’ compensation, property and auto risks as well as other risks through a variety of direct insurance policies and a captive insurance company that are reinsured for risks above certain deductibles and retentions. All of our insurance policies and programs are subject to high deductibles and retentions; as such, we are, in effect, self-insured for substantially all of our typical claims. We hire an actuary to determine any liabilities for unpaid claims and associated expenses for the three major lines of coverage (workers’ compensation, general liability and auto liability). The determination of these claims and expenses and the appropriateness of the estimated liability are reviewed and updated quarterly. However, insurance liabilities are difficult to assess and estimate due to the many relevant factors, the effects of which are often unknown, including the severity of an injury, the determination of our liability in proportion to other parties, the number of incidents that have occurred but are not reported and the effectiveness of our safety program. Our accruals are based on known facts, historical trends (both internal trends and industry averages) and our reasonable estimate of our future expenses. We believe our accruals are adequate. However, our risk management strategies and techniques may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk. If any of the variety of instruments, processes or strategies we use to manage our exposure to various types of risk are not effective, we may incur losses that are not covered by our insurance policies or that exceed our accruals or coverage limits. +Additionally, we typically are contractually required to provide proof of insurance for projects on which we work. Historically, insurance market conditions become more difficult for insurance consumers during periods when insurance companies suffer significant investment losses as well as casualty losses. Consequently, it is possible that insurance markets will become more expensive and restrictive. Also, our prior casualty loss history might adversely affect our ability to procure insurance within commercially reasonable ranges. As such, we may not be able to maintain commercially reasonable levels of insurance coverage in the future, which could preclude our ability to work on many projects and increase our overall risk exposure. Our insurance providers are under no commitment to renew our existing insurance policies in the future; therefore, our ability to obtain necessary levels or kinds of insurance coverage is subject to market forces outside our control. If we were unable to obtain necessary levels of insurance, it is likely we would be unable to compete for or work on most projects. +40 +Table of Contents +Failure to remain in compliance with covenants under our credit and loan agreements, service our indebtedness, or fund our other liquidity needs could adversely impact our business. +Our failure to comply with covenants under the credit or loan agreements, or to pay principal, interest or other amounts when due thereunder, would constitute an event of default under the credit and loan agreements. Default under our credit and loan agreements could result in (1) us no longer being entitled to borrow under the agreements; (2) termination of the agreements; (3) acceleration of the maturity of outstanding indebtedness under the agreements; and/or (4) foreclosure on any collateral securing the obligations under the agreements. If we are unable to service our debt obligations or fund our other liquidity needs, we could be forced to curtail our operations, reorganize our capital structure (including through bankruptcy proceedings) or liquidate some or all of our assets in a manner that could cause holders of our securities to experience a partial or total loss of their investment in us. +If we fail to develop and maintain an effective system of internal control over financial reporting and other business practices, and of board-level oversight, we may not be able to report our financial results accurately or prevent and detect fraud and other improprieties. Consequently, investors could lose confidence in our financial reporting, and this may decrease the trading price of our stock. +We must maintain effective internal controls to provide reliable financial reports and to prevent and detect fraud and other improprieties. We are responsible for reviewing and assessing our internal controls and implementing additional controls when improvement is needed. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. If we are unable to establish or maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations on a timely basis, result in material misstatements in our consolidated financial statements and harm our results of operations. +The Sarbanes-Oxley Act requirements regarding internal control over financial reporting, and other internal controls over business practices, are costly to implement and maintain, and such costs are relatively more burdensome for smaller companies such as us than for larger companies. We have limited internal personnel to implement procedures and rely on outside professionals including accountants and attorneys to support our control procedures. We are working to improve all of our controls but, if our controls are not effective, we may not be able to report our financial results accurately or prevent and detect fraud and other improprieties, which could lead to a decrease in the market price of our stock. Failure to implement any required changes to our internal controls or other changes we identify as necessary to maintain an effective system of internal controls could harm our operating results and cause investors to lose confidence in our reported financial information. Any such loss of confidence would have a negative effect on the market price of our Common Stock. +Our historical financial results may not be indicative of what our actual financial position or results of operations would have been if we had always been a public company. +Our business has achieved rapid growth since we launched. However, our results of operations, financial condition and cash flows reflected in our consolidated financial statements may not be indicative of the results we would have achieved if we had been a public company or results that may be achieved in future periods. Consequently, there can be no assurance that we will be able to generate sufficient income to pay our operating expenses and make satisfactory distributions to our shareholders, or any distributions at all. +Our reported financial results may be affected, and comparability of our financial results with other companies in our industry may be impacted, by changes in the accounting principles generally accepted in the U.S. +Generally accepted accounting principles in the U.S. are subject to change and interpretation by the Financial Accounting Standards Board (“ FASB ”), the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results and on the financial results of other companies in our industry and may even affect the reporting of transactions completed before the announcement or effectiveness of a change. The Company has adopted all recently effective accounting standards, including ASU No. 2016-13, Financial Instruments — Credit Losses (ASC 326), and ASU No. 2016-02, Leases (ASC 842). Future accounting standard updates issued by the FASB may require changes to our recognition, measurement, or disclosure practices and could affect comparability of our financial statements with those of other companies in our industry that may adopt such standards at different times or apply them differently. +41 +Table of Contents +The Company has material weaknesses in its internal control over financial reporting. If ConnectM is unable to remediate these material weaknesses, or if ConnectM identifies additional material weaknesses in the future or otherwise fails to maintain an effective system of internal controls, ConnectM may not be able to accurately or timely report its financial condition or results of operations, which may adversely affect its business and the market price of ConnectM’s Common Stock. +In connection with the preparation and audit of our consolidated financial statements, management and our independent registered public accounting firm identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. +The material weaknesses relate primarily to (i) insufficient technical accounting expertise and controls over complex accounting matters, including revenue recognition and accounting for debt, derivatives and other complex transactions, (ii) ineffective controls over the financial statement close and review process, including the identification of errors and the timely preparation of financial statements, and (iii) deficiencies in governance and approval controls, including with respect to related party transactions. These material weaknesses were driven in part by limited accounting personnel and insufficient U.S. GAAP expertise. +We have implemented, and continue to implement, remediation measures designed to address these control deficiencies, including enhancing our review procedures, strengthening our finance and accounting organization, and engaging third-party specialists to assist with complex accounting matters. However, remediation of material weaknesses can be time-consuming and costly, and we cannot assure you that these efforts will be successful or that additional material weaknesses will not be identified in the future. +If we are unable to remediate our existing material weaknesses, or if additional material weaknesses are identified, we may be unable to maintain effective internal control over financial reporting, which could result in material misstatements in our financial statements, delays in our financial reporting, or our failure to meet our reporting obligations. Any such outcome could adversely affect investor confidence in our financial reporting and the market price of our Common Stock. +Risks Related to Data Privacy +Any security breach or unauthorized access or disclosure or theft of data, including personal information we gather, store and use, or other hacking and phishing attacks on our systems, could harm our reputation, subject us to claims or litigation, financial harm and have an adverse impact on our business. +We receive, store and use personal information of customers, including names, addresses, e-mail addresses, credit card information and other housing and energy use information, as well as the personal information of our employees. Unauthorized disclosure of such personal information, whether through breach of our systems by an unauthorized party, employee theft or misuse, or otherwise, could harm our business. In addition, computer malware, viruses, social engineering (predominantly spear phishing attacks), and general hacking have become more prevalent, have occurred on our systems in the past, and could occur on our systems in the future. Inadvertent disclosure of such personal information, or if a third party were to gain unauthorized access to the personal information in our possession, has resulted in, and could result in future claims or litigation arising from damages suffered by such individuals. In addition, we could incur significant costs in complying with the multitude of federal, state and local laws regarding the unauthorized disclosure of personal information. Our efforts to protect such personal information may be unsuccessful due to software bugs or other technical malfunctions; employees, contractor, or vendor error or malfeasance; or other threats that evolve. In addition, third parties may attempt to fraudulently induce employees or users to disclose sensitive information. Although we have developed systems and processes that are designed to protect the personal information we receive, store and use and to prevent or detect security breaches, we cannot assure you that such measures will provide absolute security. Any perceived or actual unauthorized disclosure of such information could harm our reputation, substantially impair our ability to attract and retain customers and have an adverse impact on our business. +While we currently maintain cybersecurity insurance, such insurance may not be sufficient to cover us against claims, and we cannot be certain that cyber insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. +42 +Table of Contents +Our business is subject to complex and evolving laws and regulations regarding privacy and data protection. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, increased cost of operations or otherwise harm our business. +The regulatory environment surrounding data privacy and protection is constantly evolving and can be subject to significant change. New data protection laws, including recent California legislation and regulation which affords California consumers an array of new rights, including the right to be informed about what kinds of personal data companies have collected and why it was collected, pose increasingly complex compliance challenges and potentially elevate our costs. Complying with varying jurisdictional requirements could increase the costs and complexity of compliance, and violations of applicable data protection laws could result in significant penalties. Any failure, or perceived failure, by us to comply with applicable data protection laws could result in proceedings or actions brought against us by governmental entities or others, subject us to significant fines, penalties, judgments and negative publicity, require us to change our business practices, increase the costs and complexity of compliance, and adversely affect our business. +Risks Related to Electrification and Decarbonization Business +ConnectM’s future growth and success are highly dependent on the continued acceleration of electrification across homes, commercial buildings, and transportation fleets. This includes the adoption of electric-heating technologies such as heat pumps, the integration of distributed energy resources like solar and storage systems, and the transition from internal-combustion vehicles to EVs for both passenger and fleet applications. +Federal, state, and local governments in the United States currently provide a range of incentives—such as rebates, tax credits, and other financial benefits—to encourage the replacement of fossil-fuel systems in residential and transportation sectors. These programs include the High-Efficiency Electric Home Rebate Act (“HEEHRA”) and the Home Owner Managing Energy Savings (“HOMES”) Rebate Program, both authorized under the Inflation Reduction Act (“IRA”), as well as the Investment Tax Credit (“ITC”) and the Clean Vehicle Credit under Internal Revenue Code §30D. However , these programs depend on future appropriations, administrative implementation, and ongoing political and fiscal support, and there is no assurance that they will continue at current levels or on expected timelines. +If market adoption of electrification technologies—such as heat pumps, solar systems, battery storage, or EVs—develops more slowly than anticipated, or if demand declines due to changes in incentives, regulation, or consumer preferences, ConnectM’s business, growth prospects, financial condition, and operating results could be materially and adversely affected. +The markets for electrification technologies may be influenced by a range of factors, including: +● perceptions about the quality, safety, performance, or cost of heat pumps, solar systems, battery storage, and EVs; +● volatility in the prices of heating oil, natural gas, or gasoline, including as a result of global trade restrictions; +● concerns about the reliability, capacity, and resilience of the electrical grid; +● availability of skilled labor, maintenance, and repair services for electrification equipment; +● consumer perceptions regarding convenience, payback periods, and affordability; +● changes in government policies, regulations, or tax incentives, including the reduction, delay, or expiration of favorable programs such as the IRA, ITC, or EV credits; +● relaxation of government mandates or building-code requirements related to electrification; +● uncertainty regarding the timing, structure, and funding availability of federal or state rebate programs administered by state energy offices; and +● concerns about the future viability of manufacturers of heat pumps, solar panels, batteries, and EV components. +43 +Table of Contents +Because many of ConnectM’s customers rely on incentive programs or government-backed financing mechanisms to make electrification projects economically viable, any funding delays, reductions, or changes in eligibility criteria could decrease demand for ConnectM’s products and services. In addition, the EV market is highly dynamic and subject to technological disruption, supply-chain constraints, and cyclical demand fluctuations. Global shortages of semiconductors or critical minerals could reduce vehicle production and delay EV deployments, which may, in turn, reduce demand for ConnectM’s connected-fleet and electrification solutions. +The electrification market is characterized by rapid technological changes often due to technical improvements, regulatory requirements and customer requirements, which requires ConnectM to continue to develop new products and product innovations. Any delays in such development could adversely affect market adoption of its products and ConnectM’s financial results. +Continuing technological changes in battery and other electrification technologies could adversely affect adoption of current electrification technology and/or ConnectM’s products. ConnectM’s future success will depend upon its ability to develop and introduce a variety of new capabilities and innovations to its existing product offerings, as well as introduce a variety of new product offerings, to address the changing needs of the electrification market. As new products are introduced, gross margins tend to decline in the near term and improve as the product becomes more mature with a more efficient manufacturing process. +As electrification technologies change or governmental regulations impose new requirements on electrification technology, ConnectM may need to upgrade or adapt its electrification technology and introduce new products and services in order to serve vehicles that have the latest technology, in particular battery cell technology, or comply with new governmental regulations, which could involve substantial costs. Even if ConnectM is able to keep pace with changes in technology and develop new products and services, its research and development expenses could increase, its gross margins could be adversely affected in some periods and its prior products could become obsolete or non-compliant with governmental regulations more quickly than expected. ConnectM may also incur additional costs and expenses related to new product transitions such as adverse impacts due to supply chain failures to procure sufficient new product components, purchase price variances, or inventory obsolescence costs related to new product transitions, including as the result of any failure on the part of ConnectM to meet its own estimates and projections. ConnectM cannot guarantee that any new products will be released in a timely manner, or at all, or achieve market acceptance. Delays in delivering new products that meet customer requirements could damage ConnectM’s relationships with customers and lead them to seek alternative providers. Delays in introducing products and innovations or the failure to offer innovative products or services at competitive prices may cause existing and potential customers to purchase ConnectM’s competitors’ products or services. Finally, new or changing state or federal regulations may result in delays related to the development of new products or modifications to existing products in order to come into compliance and any such delays may result in customer’s selecting alternative providers or result in delays related to ConnectM’s ability to install, sell or distribute its electrification technology. +If ConnectM is unable to devote adequate resources to develop products or cannot otherwise successfully develop products or services that meet customer and regulatory requirements on a timely basis or that remain competitive with technological alternatives, its products and services could lose market share, its revenue may decline, it may experience higher operating losses and its business and prospects may be adversely affected. +Certain statements ConnectM makes about estimates of market opportunity and forecasts of market growth may prove to be inaccurate. +From time to time, ConnectM makes statements with estimates of the addressable market for ConnectM MEE solutions. Market opportunity estimates and growth forecasts, whether obtained from third-party sources or developed internally, are subject to significant uncertainty and are based on assumptions and estimates that may prove to be inaccurate. This is especially so at the present time due to the uncertainties associated with the ongoing macroeconomic effects of inflation and market and geopolitical volatility. The estimates and forecasts relating to the size and expected growth of the target MEE market, market demand and adoption, capacity to address this demand and pricing may also prove to be inaccurate. In particular, estimates regarding the current and projected MEE market opportunities are difficult to predict. The estimated addressable MEE market may not materialize for many years, if ever, and even if the markets meet the size estimates and growth forecasts, ConnectM’s business could fail to grow at similar rates. +44 +Table of Contents +The MEE industry is an emerging market which is constantly evolving and may not develop at the size or the rate we expect. +The MEE industry is an emerging and constantly evolving market opportunity. We believe the MEE industry is still developing and maturing, and we cannot be certain that the market will grow to the size or at the rate we expect. For example, we have experienced increases in cancellations of our customer agreements in certain geographic markets during various periods in our operating history. Any future growth of the MEE market and the success of our MEE service offerings depend on many factors beyond our control, including recognition and acceptance of the MEE service market by consumers, the pricing of alternative sources of energy, a favorable regulatory environment, the continuation of expected tax benefits and other incentives, and our ability to provide our MEE service offerings cost effectively. If the markets for MEE do not develop to the size or at the rate we expect, our business may be adversely affected. +MEE services have yet to achieve broad market acceptance and depends in part on continued support in the form of rebates, tax credits, and other incentives from federal, state and local governments. If this support diminishes materially, our ability to obtain external financing on acceptable terms, or at all, could be materially adversely affected. These types of funding limitations could lead to inadequate financing support for the anticipated growth in our business. Furthermore, growth in residential MEE services depends in part on macroeconomic conditions, retail prices of electricity and customer preferences, each of which can change quickly. Declining macroeconomic conditions, including in the job markets and residential real estate markets, could contribute to instability and uncertainty among customers and impact their financial wherewithal, credit scores or interest in entering into long-term contracts with third party finance companies, even if such contracts would generate immediate and long-term savings. +Furthermore, market prices of retail electricity generated by utilities or other energy sources could decline for a variety of reasons, as discussed further below. Any such declines in macroeconomic conditions, changes in retail prices of electricity or changes in customer preferences would adversely impact our business. +We have historically benefited from declining costs in the solar industry, and our business and financial results may be harmed not only as a result of any increases in costs associated with our electrification service offerings but also any failure of these costs to continue to decline as we currently expect. If we do not reduce our cost structure in the future, our ability to continue to be profitable may be impaired. +Declining costs related to raw materials, manufacturing and the sale and installation of our solar service offerings have been a key driver in the pricing of our solar service offerings and, more broadly, customer adoption of solar energy. While historically the prices of solar panels and raw materials have declined, the cost of solar panels and raw materials have increased and may increase in the future, and such products’ availability could decrease, due to a variety of factors, including restrictions stemming from supply chain disruptions, tariffs and trade barriers, export regulations, regulatory or contractual limitations, industry market requirements, and changes in technology and industry standards. +We cannot predict what actions may ultimately be taken with respect to tariffs or trade relations between the United States and other countries, what products may be subject to such actions, or what actions may be taken by the other countries in retaliation. The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs, trade agreements or related policies have the potential to adversely impact our supply chain and access to equipment, our costs and ability to economically serve certain markets. Any such cost increases or decreases in availability could slow our growth and cause our financial results and operational metrics to suffer. +We face competition from traditional energy companies as well as solar and other renewable energy companies. +The MEE services industry is highly competitive and continually evolving as participants strive to distinguish themselves within their markets and compete with large utilities. We believe that our primary competitors are the established utilities that supply energy to homeowners by traditional means. We compete with these utilities primarily based on price, predictability of price, and the ease by which homeowners can switch to electricity generated by our MEE Systems. If we cannot offer compelling value to customers based on these factors, then our business and revenue will not grow. Utilities generally have substantially greater financial, technical, operational and other resources than we do. As a result of their greater size, utilities may be able to devote more resources to the research, development, promotion and sale of their products or respond more quickly to evolving industry standards and changes in market conditions than we can. Furthermore, these competitors are able to devote substantially more resources and funding to regulatory and lobbying efforts. +45 +Table of Contents +Utilities could also offer other value-added products or services that could help them compete with us even if the cost of electricity they offer is higher than ours. In addition, a majority of utilities’ sources of electricity are non-solar, which may allow utilities to sell electricity more cheaply than we can. Moreover, regulated utilities are increasingly seeking approval to “rate-base” their own residential solar and battery businesses. Rate-basing means that utilities would receive guaranteed rates of return for their solar and battery businesses. This is already commonplace for utility-scale solar projects and commercial solar projects. While few utilities to date have received regulatory permission to rate-base residential solar or storage, our competitiveness would be significantly harmed should more utilities receive such permission because we do not receive guaranteed profits for our solar service offerings. +We face competition from other MEE service providers, and we also may face competition from new entrants into the market as a result of the passage of the Inflation Reduction Act of 2022 (the “ IRA ”) and its anticipated impacts and benefits to the MEE industry. Some of these competitors may have a higher degree of brand name recognition, differing business and pricing strategies, lower barriers to entry into the MEE market, and greater capital resources than we have, as well as extensive knowledge of our target markets. If we are unable to establish or maintain a consumer brand that resonates with customers, maintain high customer satisfaction, or compete with the pricing offered by our competitors, our sales and market share position may be adversely affected, as our growth is dependent on originating new customers. We also face competitive pressure from companies that may offer lower-priced consumer offerings than we do. +In addition, we compete with companies that are not regulated like traditional utilities but that have access to the traditional utility electricity transmission and distribution infrastructure. These energy service companies are able to offer customers electricity supply-only solutions that are competitive with our solar service offerings in terms of both price and usage of solar energy technology. This may limit our ability to attract customers, particularly those who have an aesthetic or other objection to putting solar panels on their roofs. +Furthermore, we face competition from purely finance-driven nonintegrated competitors that subcontract out the installation of MEE systems, from installation businesses that seek financing from external parties, from large construction companies and from electrical and roofing companies. In addition, local installers that might otherwise be viewed as potential MEE partners may gain market share by being able to be the first providers in new local markets. Some of these competitors may provide MEE services at lower costs than we do. +As the MEE industry grows and evolves, we will continue to face existing competitors as well as new competitors who are not currently in the market (including those resulting from the consolidation of existing competitors) that achieve significant developments in alternative technologies or new products such as storage solutions, electrification products, loan products, or other programs related to third-party ownership. Our failure to adapt to changing market conditions, to compete successfully with existing or new competitors and to adopt new or enhanced technologies could limit our growth and have a material adverse effect on our business and prospects. +A material reduction in the retail price of traditional utility-generated electricity or electricity from other sources could harm our business, financial condition, results of operations and prospects. +We believe that a significant number of our customers decide to buy MEE services because they want to pay less for electricity than what is offered by the traditional utilities. However, distributed commercial and industrial solar energy has yet to achieve broad market adoption as evidenced by the fact that distributed solar has penetrated less than 5% of its total addressable market in the U.S. commercial and industrial sector. +The customer’s decision to choose MEE services may also be affected by the cost of other renewable energy sources. Decreases in the retail prices of electricity from the traditional utilities or from other renewable energy sources would harm our ability to offer competitive pricing and could harm our business. +The price of electricity from traditional utilities could decrease as a result of: +● construction of a significant number of new power generation plants, including plants utilizing natural gas, nuclear, coal, renewable energy or other generation technologies; +● relief of transmission constraints that enable local centers to generate less expensively; +46 +Table of Contents +● reductions in the price of natural gas; +● utility rate adjustment and customer cost reallocation; +● energy conservation technologies and public initiatives to reduce electricity consumption; +● development of new or lower-cost energy storage technologies that have the ability to reduce a customer’s average cost of electricity by shifting load to off-peak times; +● development of new energy generation technologies that provide less expensive energy; or +● low time of use rate for charging electric vehicles at night when grid loads are low. +A reduction in utility electricity prices would make the purchase or the lease of our MEE systems less economically attractive. If the retail price of energy available from traditional utilities were to decrease due to any of these reasons, or other reasons, we would be at a competitive disadvantage, we may be unable to attract new customers, and our growth would be limited. +The production and installation of electrification and decarbonization systems depends heavily on suitable meteorological and environmental conditions. If meteorological or environmental conditions are unexpectedly unfavorable, the electricity production and overall savings from our MEE services may be below consumer expectations, and our ability to timely deploy new MEE Systems may be adversely impacted. +The energy produced and savings generated by MEE Systems depend on suitable solar and weather conditions, both of which are beyond our control. Furthermore, components of our MEE Systems, such as panels and inverters, could be damaged by severe weather or natural catastrophes, such as hailstorms, tornadoes, fires, or earthquakes. Sustained unfavorable weather or environmental conditions also could unexpectedly delay the installation of our MEE Systems, leading to increased expenses and decreased revenue in the relevant periods. Extreme weather conditions, as well as the natural catastrophes that could result from such conditions, can severely impact our operations by delaying the installation of our MEE Systems, lowering sales, and causing a decrease in the savings from our MEE Systems due to smoke or haze. Weather patterns could change, making it harder to predict the average annual amount of sunlight striking each location where our solar energy systems are installed. This could make our MEE Service offerings less economical overall or make individual systems less economical. Any of these events or conditions could harm our business, financial condition, and results of operations. +Climate change may have long-term impacts on our business, our industry, and the global economy. +Climate change poses a systemic threat to the global economy and will continue to do so until our society transitions to renewable energy and decarbonizes. While our core business model seeks to accelerate this transition to renewable energy, there are inherent climate-related risks to our business operations. Warming temperatures throughout the United States have contributed to extreme weather, intense drought, and increased wildfire risks. These events have the potential to disrupt our business, our third-party suppliers, and our customers, and may cause us to incur additional operational costs. For instance, natural disasters and extreme weather events associated with climate change can impact our operations by delaying the installation of our systems, leading to increased expenses and decreased revenue and cash flows in the period. They can also cause a decrease in the output from our systems due to smoke or haze. Additionally, if weather patterns significantly shift due to climate change, it may be harder to predict the average annual amount of sunlight striking each location where our solar energy systems are installed. This could make our solar service offerings less economical overall or make individual systems less economical. +We seek to mitigate these climate-related risks not only through our core business model and sustainability initiatives, but also by working with organizations who are also focused on mitigating their own climate-related risks. +47 +Table of Contents +Changes in U.S. energy policy, including the enactment of the “Big Beautiful Bill,” could materially and adversely affect our business, financial condition, and results of operations. +Our business strategy currently depends in part on the continued growth of distributed energy resources, including solar, battery storage, and other clean-energy technologies. Federal and state tax credits, rebates, and similar incentives have historically played a significant role in driving adoption of these technologies. The “Big Beautiful Bill,” now enacted into law, phases out or significantly reduces certain incentives for distributed solar and wind energy projects, while expanding or preserving incentives for other technologies such as utility-scale battery storage, geothermal, hydropower, and nuclear energy. +If the law’s provisions are fully implemented as enacted, demand for distributed solar and related solutions could decline, project financing costs could increase, and revenue growth in impacted product categories could suffer. The shift in incentive structure may also alter the competitive landscape among energy technologies — accelerating growth in certain segments while constraining others. The uncertainty associated with this transition may lead developers, financiers, and customers to delay projects or defer purchasing decisions. +Because our business model depends on the ability of our Owned Service Network and various software to cross-sell solar, storage, and other distributed-energy solutions, the reduction or elimination of incentives for distributed solar and wind could negatively impact customer adoption and project economics. While the law’s preserved or expanded incentives for storage or other technologies may create new opportunities, there is no assurance that we will be able to capture these benefits at a scale sufficient to offset any decline in our core product categories. +Accordingly, changes in U.S. energy policy, including the implementation of the “Big Beautiful Bill” in its current form, could materially and adversely affect our business, financial condition, and results of operations. +ConnectM’s operations in India, including through its subsidiaries such as ConnectM India and Cambridge Energy Resources, subject the Company to additional business, regulatory and operational risks that could adversely affect its results of operations. +ConnectM conducts a portion of its operations in India, including EV fleet management, energy solutions and commercial and industrial solar deployments. Operating in India exposes ConnectM to a variety of risks that differ from those in the United States, including evolving regulatory frameworks, complex permitting and approval processes, and potential changes in government policies related to energy, electrification and foreign investment. +The Indian regulatory environment may be subject to significant uncertainty, including changes in tax laws, import duties, local content requirements, and incentives for renewable energy and EV adoption. In addition, enforcement of laws and regulations may be inconsistent, and ConnectM may face delays in obtaining or maintaining necessary licenses, approvals or certifications required to operate its business. +ConnectM’s operations in India may also be affected by currency exchange rate fluctuations, restrictions on the repatriation of capital, inflation, and broader macroeconomic conditions. Furthermore, the Company may be exposed to risks related to local labor markets, supply chain constraints, infrastructure limitations and reliance on local partners, contractors and vendors. +In addition, geopolitical developments, trade restrictions or changes in international relations could adversely impact ConnectM’s ability to operate in India or expand its business in the region. Any of these factors could result in increased costs, project delays, reduced demand for ConnectM’s services or other adverse impacts on its business, financial condition and results of operations. +Risks related to ConnectM’s Technology, Intellectual Property and Infrastructure +ConnectM expects to incur research and development costs and devote significant resources to developing new products, which could significantly reduce its profitability and may never result in revenue to ConnectM. +ConnectM’s future growth depends on penetrating new markets, adapting existing products to new applications and customer requirements, and introducing new products that achieve market acceptance. ConnectM plans to incur research and development costs in the future as part of its efforts to design, develop, manufacture and introduce new products and enhance existing products. ConnectM continued to incur research and development expenses during the fiscal years ended December 31, 2025 and 2024, which are likely to grow in the future. Further, ConnectM’s research and development program may not produce successful results, and its new products may not achieve market acceptance, create additional revenue or become profitable. +48 +Table of Contents +ConnectM may need to defend against intellectual property infringement or misappropriation claims, which may be time-consuming and expensive. +From time to time, the holders of intellectual property rights may assert their rights and urge ConnectM to enter into licenses, and/or may bring suits alleging infringement, misappropriation or other violation of such rights. There can be no assurance that ConnectM will be able to mitigate the risk of potential suits or other legal demands by competitors or other third-parties. Accordingly, ConnectM may consider entering into licensing agreements with respect to such rights, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur, and such licenses and associated litigation could significantly increase ConnectM’s operating expenses. In addition, if ConnectM is determined to have or believes there is a high likelihood that it has infringed upon, misappropriated or otherwise violated a third-party’s intellectual property rights, it may be required to cease making, selling or incorporating certain key components or intellectual property into the products and services it offers, to pay substantial damages and/or royalties, to redesign its products and services, and/or to establish and maintain alternative branding. In addition, to the extent that ConnectM’s customers and business partners become the subject of any allegation or claim regarding the infringement, misappropriation or other violation of intellectual property rights related to ConnectM’s products and services, ConnectM may be required to indemnify such customers and business partners. If ConnectM were required to take one or more such actions, its business, prospects, operating results and financial condition could be materially and adversely affected. In addition, any litigation or claims, whether or not valid, could result in substantial costs, negative publicity and diversion of resources and management attention. +ConnectM’s business may be adversely affected if it is unable to protect its technology and intellectual property from unauthorized use by third parties. +ConnectM’s success depends, at least in part, on ConnectM’s ability to obtain, maintain, enforce and protect its core technology and intellectual property. To accomplish this, ConnectM relies on, and plans to continue relying on, a combination of patents, trade secrets (including know-how), employee and third-party nondisclosure agreements, copyright, trademarks, intellectual property licenses and other contractual rights to retain ownership of, and protect, its technology. Despite ConnectM’s efforts to obtain, maintain, enforce and protect intellectual property rights, there can be no assurance that these steps will be available in all cases or will be adequate to prevent ConnectM’s competitors or other third-parties from copying, reverse engineering, or otherwise obtaining and using its technology or products or seeking court declarations that they do not infringe, misappropriate or otherwise violate its intellectual property. Failure to adequately protect its technology and intellectual property could result in competitors offering similar products, potentially resulting in the loss of some of ConnectM’s competitive advantage and a decrease in revenue which would adversely affect its business, prospects, financial condition and operating results. +The measures ConnectM takes to protect its technology intellectual property from unauthorized use by others may not be effective for various reasons, including the following: +● any patent applications ConnectM submits may not result in the issuance of patents; +● the scope of issued patents may not be broad enough to protect its inventions and proprietary rights; +● any issued patents may be challenged by competitors and/or invalidated by courts or governmental authorities; +● ConnectM may not be the first inventor of the subject matter to which it has filed a particular patent application, and it may not be the first party to file such a patent application; +● Patents have a finite term, and competitors and other third-parties may offer identical or similar products after the expiration of ConnectM’s patents that cover such products; +● the costs associated with enforcing patents, confidentiality and invention agreements or other intellectual property rights may make aggressive enforcement impracticable; +● current and future competitors may circumvent patents or independently develop similar trade secrets or works of authorship, such as software; +● know-how and other proprietary information ConnectM purports to hold as a trade secret may not qualify as a trade secret under applicable laws; +49 +Table of Contents +● ConnectM’s employees, contractors or business partners may breach their confidentiality, non-disclosure, and non-use obligations; and +● proprietary designs and technology embodied in ConnectM’s products may be discoverable by third-parties through means that do not constitute violations of applicable laws. +Patent, trademark, and trade secret laws vary significantly throughout the world. Some foreign countries do not protect intellectual property rights to the same extent as do the laws of the United States. Further, policing the unauthorized use of ConnectM’s intellectual property in foreign jurisdictions may be difficult or impossible. Therefore, ConnectM’s intellectual property rights may not be as strong or as easily enforced outside of the United States. +It is ConnectM’s policy to enter into confidentiality and invention assignment agreements with its employees and contractors that have developed material intellectual property for ConnectM, but these agreements may not be self-executing and may not otherwise adequately protect ConnectM’s intellectual property, particularly with respect to conflicts of ownership relating to work product generated by employees and contractors. Furthermore, ConnectM cannot be certain that these agreements will not be breached, and that third-parties will not gain access to its trade secrets, know-how and other proprietary technology. Third-parties may also independently develop the same or substantially similar proprietary technology. Monitoring unauthorized use of ConnectM’s intellectual property is difficult and costly, as are the steps ConnectM has taken or will take to prevent misappropriation. +To prevent unauthorized use of ConnectM’s intellectual property, it may be necessary to prosecute actions for infringement, misappropriation or other violation of ConnectM’s intellectual property against third-parties. Any such action could result in significant costs and diversion of ConnectM’s resources and management’s attention, and there can be no assurance that ConnectM will be successful in any such action. Furthermore, many of ConnectM’s current and potential competitors have the ability to dedicate substantially greater resources to enforce their intellectual property rights than ConnectM does. Accordingly, despite its efforts, ConnectM may not be able to prevent third-parties from infringing, misappropriating or otherwise violating its intellectual property. Any of the foregoing may adversely affect ConnectM’s revenues or results of operations. +ConnectM’s technology could have undetected defects, errors or bugs in hardware or software which could reduce market adoption, damage its reputation with current or prospective customers, and/or expose it to product liability and other claims that could materially and adversely affect its business. +ConnectM may be subject to claims that MEE products have malfunctioned and persons were injured or purported to be injured. Any insurance that ConnectM carries may not be sufficient or it may not apply to all situations. Similarly, to the extent that such malfunctions are related to components obtained from third-party vendors, such vendors may not assume responsibility for such malfunctions. In addition, ConnectM’s customers could be subjected to claims as a result of such incidents and may bring legal claims against ConnectM to attempt to hold it liable. Any of these events could adversely affect ConnectM’s brand, relationships with customers, operating results or financial condition. +Across ConnectM’s product line, ConnectM develops equipment solutions based on preferred second source or common off-the-shelf vendors. However, due to its designs, ConnectM does rely on some single source vendors, the unavailability or failure of which can pose risks to supply chain or product shipping situations. +Furthermore, ConnectM’s software platform is complex, developed for over a decade by many developers, and includes a number of licensed third-party commercial and open-source software libraries. ConnectM’s software has contained defects and errors and may in the future contain undetected defects or errors. ConnectM is continuing to evolve the features and functionality of its platform through updates and enhancements, and as it does, it may introduce additional defects or errors that may not be detected until after deployment to customers. In addition, if ConnectM’s products and services, including any updates or patches, are not implemented or used correctly or as intended, inadequate performance and disruptions in service may result. +Any defects or errors in product or services offerings, or the perception of such defects or errors, or other performance problems could result in any of the following, each of which could adversely affect ConnectM’s business and results of its operations: +● expenditure of significant financial and product development resources, including recalls, in efforts to analyze, correct, eliminate or work around errors or defects; +● loss of existing or potential customers or partners; +50 +Table of Contents +● interruptions or delays in sales; +● delayed or lost revenue; +● delay or failure to attain market acceptance; +● delay in the development or release of new functionality or improvements; +● negative publicity and reputational harm; +● sales credits or refunds; +● exposure of confidential or proprietary information; +● diversion of development and customer service resources; +● breach of warranty claims; +● legal claims under applicable laws, rules and regulations; and +● an increase in collection cycles for accounts receivable or the expense and risk of litigation. +Although ConnectM has contractual protections, such as warranty disclaimers and limitation of liability provisions, in many of its agreements with customers, resellers and other business partners, such protections may not be uniformly implemented in all contracts and, where implemented, may not fully or effectively protect it from claims by customers, resellers, business partners or other third-parties. Any insurance coverage or indemnification obligations of suppliers may not adequately cover all such claims or cover only a portion of such claims. A successful product liability, warranty, or other similar claim could have an adverse effect on ConnectM’s business, operating results and financial condition. In addition, even claims that ultimately are unsuccessful could result in expenditure of funds in litigation, divert management’s time and other resources and cause reputational harm. +Some of ConnectM’s products contain open-source software, which may pose particular risks to its proprietary software, products and services in a manner that could harm its business. +ConnectM uses open-source software in its products and anticipates using open-source software in the future. Some open-source software licenses require those who distribute open-source software as part of their own software product to publicly disclose all or part of the source code to such software product or to make available any derivative works of the open-source code on unfavorable terms or at no cost, and ConnectM may be subject to such terms. The terms of many open-source licenses have not been interpreted by U.S. or foreign courts, and there is a risk that open source software licenses could be construed in a manner that imposes unanticipated conditions or restrictions on ConnectM’s ability to provide or distribute ConnectM’s products or services. +In addition, ConnectM relies on some open-source software and libraries issued under the General Public License (or similar “copyleft” licenses) for development of its products and may continue to rely on similar copyleft licenses. Third-parties may assert a copyright claim against ConnectM regarding its use of such software or libraries, which could lead to a limitation of ConnectM’s use of such software or libraries. Use of such software or libraries may also force ConnectM to provide third-parties, at no cost, the source code to its proprietary software, which may decrease revenue and lessen any competitive advantage ConnectM has due to the secrecy of its source code. +ConnectM could face claims from third-parties claiming ownership of, or demanding release of, the open-source software or derivative works that ConnectM developed using such software, which could include ConnectM’s proprietary source code, or otherwise seeking to enforce the terms of the applicable open-source license. These claims could result in litigation and could require ConnectM to make its software source code freely available, purchase a costly license or cease offering the implicated products or services unless and until ConnectM can re-engineer them to avoid infringement, which may be a costly and time-consuming process, and ConnectM be able to complete the re-engineering process successfully. +51 +Table of Contents +Additionally, the use of certain open-source software can lead to greater risks than use of third-party commercial software, as open-source licensors generally do not provide warranties or controls on the origin of software. There is typically no support available for open-source software, and ConnectM cannot ensure that the authors of such open-source software will implement or push updates to address security risks or will not abandon further development and maintenance. Many of the risks associated with the use of open-source software, such as the lack of warranties or assurances of title or performance, cannot be eliminated, and could, if not properly addressed, have an adverse effect on ConnectM’s business and results. +We may also face claims alleging noncompliance with open source license terms or infringement or misappropriation of proprietary software. These claims could result in litigation, require us to purchase a costly license or require us to devote additional research and development resources to change our software, any of which would have a negative effect on our business and results of operations. In addition, if the license terms for open source software that we use change, we may be forced to re-engineer our solutions, incur additional costs or discontinue the use of these solutions if re-engineering cannot be accomplished on a timely basis. Although we monitor our use of open source software to avoid subjecting our offerings to unintended conditions, few courts have interpreted open source licenses, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to use our proprietary software. We cannot guarantee that we have incorporated or will incorporate open source software in our software in a manner that will not subject us to liability or in a manner that is consistent with our current policies and procedures. +Interruptions, delays in service or inability to increase capacity, including internationally, at third-party data center facilities could impair the use or functionality of ConnectM’s subscription services, harm its business and subject it to liability. +ConnectM currently serves customers from third-party data center facilities operated by Amazon Web Services (“ AWS ”) and Google Cloud Services, primarily located in the United States. Any outage or failure of such data centers could negatively affect ConnectM’s product connectivity and performance. Furthermore, ConnectM depends on connectivity from its edge to its data centers through cellular service providers, such as AT&T. Any incident affecting a data center facility’s or a cellular service provider’s infrastructure or operations, whether caused by fire, flood, severe storm, earthquake, or other natural disasters, power loss, telecommunications failures, breach of security protocols, computer viruses and disabling devices, failure of access control mechanisms, war, criminal act, military actions, terrorist attacks and other similar events could negatively affect the use, functionality or availability of ConnectM’s services. +Any damage to, or failure of, ConnectM’s systems, or those of its third-party providers, could interrupt or hinder the use or functionality of its services. Impairment of or interruptions in ConnectM’s services may reduce revenue, subject it to claims and litigation, cause customers to terminate their subscriptions, and adversely affect renewal rates and its ability to attract new customers. ConnectM’s business will also be harmed if customers and potential customers believe its products and services are unreliable. +Risks Related to Customers +ConnectM may be unable to leverage customer data in all geographic locations, and this limitation may impact research and development operations. +ConnectM relies on data collected through charging stations or its mobile application, including usage data and geolocation data. ConnectM uses this data in connection with the research, development and analysis of its technologies. ConnectM’s inability to obtain necessary rights to use this data or freely transfer this data out could result in delays or otherwise negatively impact ConnectM’s research and development efforts. +ConnectM’s ability to maintain customer satisfaction depends in part on the quality of ConnectM’s customer support. Failure to maintain high-quality customer support could adversely affect ConnectM’s reputation, business, results of operation, and financial condition. +ConnectM provides direct customer support and also relies on channel partners in order to provide frontline support to some of its customers, including with respect to commissioning, maintenance, component part replacements and repairs of charging stations. If ConnectM’s channel partners do not provide support to the satisfaction of ConnectM’s customers, ConnectM may be required to hire additional personnel and to invest in additional resources in order to provide an adequate level of support, generally at a higher cost than that associated with its channel partners, which may increase ConnectM’s costs and expenses and adversely affect ConnectM’s gross margins. There can be no assurance that ConnectM will be able to hire sufficient support personnel as and when needed. To the extent that ConnectM is unsuccessful in hiring, training, and retaining adequate support personnel, its ability to provide high-quality +52 +Table of Contents +and timely support to its customers will be negatively impacted and its customers’ satisfaction with its Cloud Services and MEE Systems could be adversely affected. Any failure to maintain high-quality customer support, or a market perception that ConnectM does not maintain high-quality customer support, could adversely affect ConnectM’s reputation, business, results of operations, and financial condition, particularly with respect to its fleet customers. +ConnectM’s business will depend on customers renewing their services subscriptions. If customers do not continue to use its subscription offerings or if they fail to add more MEE Services, its business and operating results will be adversely affected. +In addition to selling solar and battery energy systems, ConnectM also depends on customers continuing to subscribe to its heat pump, controlled cooling and extended warranty coverages. Therefore, it is important that customers renew their subscriptions when the contract term expires and add additional decarbonization and energy efficiency services to their subscriptions. Customers may decide not to renew their subscriptions with a similar contract period, at the same prices or terms or with the same or a greater number of users, stations or level of functionality. Customer retention may decline or fluctuate as a result of a number of factors, including satisfaction with software and features, functionality of the charging stations, prices, features and pricing of competing products, reductions in spending levels, mergers and acquisitions involving customers and deteriorating general economic conditions. +If customers do not renew their subscriptions, if they renew on less favorable terms or if they fail to add products or services, ConnectM’s business and operating results will be adversely affected. +Changes in subscriptions or pricing models may not be reflected in near-term operating results. +ConnectM generally recognizes subscription revenue from customers ratably over the terms of their contracts. As a result, most of the subscription revenue reported in each quarter is derived from the recognition of deferred revenue relating to subscriptions entered into during previous quarters. Consequently, a decline in new or renewed subscriptions in any single quarter will likely have only a small impact on revenue for that quarter. However, such a decline will negatively affect revenue in future quarters. In addition, the severity and duration of events may not be predictable, and their effects could extend beyond a single quarter. Accordingly, the effect of significant downturns in sales and market acceptance of subscription services, and potential changes in pricing policies or rate of renewals, may not be fully apparent until future periods. +Risks Related to Finance, Tax and Accounting +Changes to applicable U.S. and foreign tax laws and regulations or exposure to additional income tax liabilities could affect ConnectM’s business and future profitability. +ConnectM is a U.S. corporation and thus subject to U.S. corporate income tax. Moreover, the majority of ConnectM’s operations and customers are located in the United States, and as a result, ConnectM is subject to various U.S. federal, state and local taxes. New U.S. laws and policy relating to taxes may have an adverse effect on ConnectM’s business and future profitability. Further, existing U.S. tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to ConnectM. +In addition, ConnectM has operations in India and other international jurisdictions, including through its subsidiaries, which subjects the Company to foreign tax regimes that are complex and evolving. These jurisdictions may impose taxes on income, withholding taxes, indirect taxes (such as goods and services tax), transfer pricing requirements and other compliance obligations. Changes in Indian tax laws, regulations or administrative practices, or adverse interpretations thereof, could result in increased tax liabilities, penalties or disputes with taxing authorities. Furthermore, cross-border transactions between ConnectM’s U.S. and foreign subsidiaries may be subject to scrutiny under transfer pricing rules, and any adjustments could increase the Company’s effective tax rate and adversely affect its financial condition and results of operations. +For example, on December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“ Tax Act ”), was signed into law making significant changes to the Code, and certain provisions of the Tax Act may adversely affect ConnectM. In particular, sweeping changes were made to the U.S. taxation of foreign operations. Changes include, but are not limited to, a permanent reduction to the corporate income tax rate, limiting interest deductions, a reduction to the maximum deduction allowed for net operating losses generated in tax years after December 31, 2017, the elimination of carrybacks of net operating losses, adopting elements of a territorial tax system, assessing a repatriation tax or “toll-charge” on undistributed earnings and profits of U.S.-owned foreign corporations, and introducing certain anti-base erosion provisions, including a new minimum tax on global intangible low-taxed income and base erosion and anti-abuse tax. The Tax Act could be subject to potential amendments and technical corrections and is subject to interpretations and implementing regulations by the U.S. Treasury and Internal Revenue Service (“IRS”), any of which could mitigate or increase certain +53 +Table of Contents +adverse effects of the legislation. In addition, the Tax Act may impact taxation in other jurisdictions, including with respect to state income taxes as state legislatures respond to the Tax Act. Additionally, other foreign governing bodies have and may enact changes to their tax laws in reaction to the Tax Act that could result in changes to ConnectM’s global tax position and materially adversely affect its business and future profitability. +As a result of ConnectM’s plans to expand operations, including to jurisdictions in which the tax laws may not be favorable, ConnectM’s tax rate may fluctuate, ConnectM’s tax obligations may become significantly more complex and subject to greater risk of examination by taxing authorities or ConnectM may be subject to future changes in tax law, the impacts of which could adversely affect ConnectM’s after-tax profitability and financial results. +Because ConnectM does not have a long history of operating at its present scale and it has significant expansion plans, ConnectM’s effective tax rate may fluctuate in the future. Future effective tax rates could be affected by operating losses in jurisdictions where no tax benefit can be recorded under U.S. generally accepted accounting principles (“GAAP”), changes in the composition of earnings in countries with differing tax rates, changes in deferred tax assets and liabilities, or changes in tax laws. Factors that could materially affect ConnectM’s future effective tax rates include but are not limited to: (a) changes in tax laws or the regulatory environment, (b) changes in accounting and tax standards or practices, (c) changes in the composition of operating income by tax jurisdiction and (d) ConnectM’s operating results before taxes. +Additionally, ConnectM’s operations are subject to significant income, withholding and other tax obligations in the United States and may become subject to taxes in numerous additional state, local and non-U.S. jurisdictions with respect to its income, operations and subsidiaries related to those jurisdictions. ConnectM’s after-tax profitability and financial results could be subject to volatility or be affected by numerous factors, including (a) the availability of tax deductions, credits, exemptions, refunds (including refunds of value added taxes) and other benefits to reduce ConnectM’s tax liabilities, (b) changes in the valuation of ConnectM’s deferred tax assets and liabilities, (c) expected timing and amount of the release of any tax valuation allowances, (d) tax treatment of stock-based compensation, (e) changes in the relative amount of ConnectM’s earnings subject to tax in the various jurisdictions in which ConnectM operates or has subsidiaries, (f) the potential expansion of ConnectM’s business into or otherwise becoming subject to tax in additional jurisdictions, (g) changes to ConnectM’s existing intercompany structure (and any costs related thereto) and business operations, (h) the extent of ConnectM’s intercompany transactions and the extent to which taxing authorities in the relevant jurisdictions respect those intercompany transactions and (i) ConnectM’s ability to structure ConnectM’s operations in an efficient and competitive manner. Due to the complexity of multinational tax obligations and filings, ConnectM may have a heightened risk related to audits or examinations by U.S. federal, state, local and non-U.S. taxing authorities. Outcomes from these audits or examinations could have an adverse effect on ConnectM’s after-tax profitability and financial condition. Additionally, the IRS and several foreign tax authorities have increasingly focused attention on intercompany transfer pricing with respect to sales of products and services and the use of intangibles. Tax authorities could disagree with ConnectM’s intercompany charges, cross-jurisdictional transfer pricing or other matters and assess additional taxes. If ConnectM does not prevail in any such disagreements, its profitability may be affected. +ConnectM’s after-tax profitability and financial results may also be adversely impacted by changes in the relevant tax laws and tax rates, treaties, regulations, administrative practices and principles, judicial decisions and interpretations thereof, in each case, possibly with retroactive effect. For example, the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting recently entered into force among the jurisdictions that have ratified it, although the United States has not yet entered into this convention. These recent changes could negatively impact ConnectM’s taxation, especially as ConnectM expands its relationships and operations internationally. +The ability of ConnectM to utilize net operating loss and tax credit carryforwards is conditioned upon ConnectM attaining profitability and generating taxable income. ConnectM has incurred significant net losses since inception and it is anticipated that ConnectM will continue to incur significant losses. Additionally, ConnectM’s ability to utilize net operating loss and tax credit carryforwards to offset future taxable income may be limited. +ConnectM has accumulated significant U.S. federal net operating loss carryforwards available to reduce future taxable income. A substantial portion of these net operating losses, arising after December 31, 2017, may be carried forward indefinitely, while the remaining carryforwards are subject to expiration beginning in 2026. +In addition, net operating loss carryforwards and certain tax credits may be subject to significant limitations under Section 382 and Section 383 of the Code, respectively, and similar provisions of state law. Under those sections of the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change attributes, such as research tax credits, to offset its post-change income or tax may be limited. In general, an “ownership +54 +Table of Contents +change” will occur if there is a cumulative change in ownership by “5% stockholders” that exceeds 50 percentage points over a rolling three-year period. Future changes in ConnectM’s stock ownership, which are outside of ConnectM’s control, may trigger ownership changes. Similar provisions of state tax law may also apply to limit ConnectM’s use of accumulated state tax attributes. As a result, even if ConnectM earns net taxable income in the future, its ability to use its pre-change net operating loss carryforwards and other tax attributes to offset such taxable income or tax liability may be subject to limitations, which could potentially result in increased future income tax liability to ConnectM. +ConnectM’s reported financial results may be negatively impacted by changes in GAAP. +GAAP is subject to interpretation by the Financial Accounting Standards Board’s Accounting Standards Codification, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on reported financial results, and may even affect the reporting of transactions completed before the announcement or effectiveness of a change. +Our business currently depends on government incentives and policies supporting clean energy adoption, and any reduction, delay, or repeal of such programs could adversely affect our results of operations. +Our business model depends, in part, on the continued availability of federal, state, and local incentives that promote the adoption of clean energy technologies, including rebates, tax credits, grants, and favorable regulatory frameworks. These programs reduce the cost of solar, HVAC electrification, and energy efficiency solutions for customers and enhance the economic attractiveness of our products and services. +While the Inflation Reduction Act of 2022 (“IRA”) extended and expanded many clean energy incentives through 2032—providing production and investment tax credits, residential energy efficiency incentives, and electric vehicle credits—future changes in U.S. federal or state tax laws, budget priorities, or administrative policies could materially impact the timing, scope, or availability of these benefits. The continued political debate around fiscal spending, as well as potential amendments or rollbacks of portions of the IRA or related state programs, create uncertainty. Any expiration, reduction, or adverse modification of these incentives could increase the cost of our offerings to customers, reduce demand for our solutions, and adversely affect our revenue growth and profitability. +We may be required to record an impairment expense on our goodwill or intangible assets. +We are required under generally accepted accounting principles to test goodwill for impairment at least annually or when events or changes in circumstances indicate that the carrying amount may be impaired, and to review our intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Factors that can lead to impairment of goodwill and intangible assets include significant adverse changes in the business climate and actual or projected operating results, declines in the financial condition of our business and sustained decrease in our stock price. +Risks Related to Legal Matters, Regulations, and Policy +Privacy concerns and laws, or other domestic or foreign regulations, may adversely affect ConnectM’s business. +ConnectM relies on data collected through charging stations or its mobile application, including usage data and geolocation data. ConnectM uses this data in connection with the research, development and analysis of its technologies. Accordingly, ConnectM may be subject to or affected by a number of federal, state, local and international laws and regulations, as well as contractual obligations and industry standards, that impose certain obligations and restrictions with respect to data privacy and security and govern its collection, storage, retention, protection, use, processing, transmission, sharing and disclosure of personal information including that of ConnectM’s employees, customers and other third-parties with whom ConnectM conducts business. National and local governments and agencies in the countries in which ConnectM operates and in which its customers operate have adopted, are considering adopting, or may adopt laws and regulations regarding the collection, use, storage, processing and disclosure of information regarding consumers and other individuals, which could impact its ability to offer services in certain jurisdictions. Laws and regulations relating to the collection, use, storage, disclosure, security and other processing of individuals’ information can vary significantly from jurisdiction to jurisdiction. The costs of compliance with, and other burdens imposed by, laws, regulations, standards and other obligations relating to privacy, data protection and information security are significant. In addition, some companies, particularly larger enterprises, often will not contract with vendors that do not meet these rigorous standards. Accordingly, the failure, or perceived inability, to comply with these laws, regulations, standards and other obligations may limit the use and +55 +Table of Contents +adoption of ConnectM’s solutions, reduce overall demand, lead to regulatory investigations, litigation and significant fines, penalties or liabilities for actual or alleged noncompliance, or slow the pace at which it closes sales transactions, any of which could harm its business. Moreover, if ConnectM or any of its employees or contractors fail or are believed to fail to adhere to appropriate practices regarding customers’ data, it may damage its reputation and brand. +Additionally, existing laws, regulations, standards and other obligations may be interpreted in new and differing manners in the future, and may be inconsistent among jurisdictions. Future laws, regulations, standards and other obligations, and changes in the interpretation of existing laws, regulations, standards and other obligations could result in increased regulation, increased costs of compliance and penalties for non-compliance, and limitations on data collection, use, disclosure and transfer for ConnectM and its customers. +The costs of compliance with, and other burdens imposed by, laws and regulations relating to privacy, data protection and information security that are applicable to the businesses of customers may adversely affect ability and willingness to process, handle, store, use and transmit certain types of information, such as demographic and other personal information. If ConnectM or its customers are unable to transfer data between and among countries and regions in which it operates, it could decrease demand for its products and services or require it to modify or restrict some of its products or services. +In addition to government activity, privacy advocacy groups, the technology industry and other industries have established or may establish various new, additional or different self-regulatory standards that may place additional burdens on technology companies. Customers may expect that ConnectM will meet voluntary certifications or adhere to other standards established by them or third-parties. If ConnectM is unable to maintain these certifications or meet these standards, it could reduce demand for its solutions and adversely affect its business. +Failure to comply with anticorruption and anti-money laundering laws and similar laws associated with activities outside of the United States, could subject ConnectM to penalties and other adverse consequences. +ConnectM is subject to various employment-related laws in the jurisdictions in which its employees are based. It faces risks if it fails to comply with applicable U.S. federal or state wage laws, or wage laws applicable to its employees outside of the United States. Any violation of applicable wage laws or other labor-or employment-related laws could result in complaints by current or former employees, adverse media coverage, investigations and damages or penalties which could have a materially adverse effect on ConnectM’s reputation, business, operating results and prospects. In addition, responding to any such proceeding may result in a significant diversion of management’s attention and resources, significant defense costs and other professional fees. +Failure to comply with laws relating to employment could subject ConnectM to penalties and other adverse consequences. +ConnectM is subject to various employment-related laws in the jurisdictions in which its employees are based. It faces risks if it fails to comply with applicable U.S. federal or state wage laws, or wage laws applicable to its employees outside of the United States. Any violation of applicable wage laws or other labor-or employment-related laws could result in complaints by current or former employees, adverse media coverage, investigations and damages or penalties which could have a materially adverse effect on ConnectM’s reputation, business, operating results and prospects. In addition, responding to any such proceeding may result in a significant diversion of management’s attention and resources, significant defense costs and other professional fees. +Existing and future environmental health and safety laws and regulations could result in increased compliance costs or additional operating costs or construction costs and restrictions. Failure to comply with such laws and regulations may result in substantial fines or other limitations that may adversely impact ConnectM’s financial results or results of operations. +ConnectM and its operations, as well as those of ConnectM’s contractors, suppliers and customers, are subject to certain environmental laws and regulations, including laws related to the use, handling, storage, transportation and disposal of hazardous substances and wastes as well as electronic wastes and hardware, whether hazardous or not. These laws may require ConnectM or others in ConnectM’s value chain to obtain permits and comply with procedures that impose various restrictions and obligations that may have material effects on ConnectM’s operations. If key permits and approvals cannot be obtained on acceptable terms, or if other operational requirements cannot be met in a manner satisfactory for ConnectM’s operations or on a timeline that meets ConnectM’s commercial obligations, it may adversely impact ConnectM’s business. +56 +Table of Contents +Environmental and health and safety laws and regulations can be complex and may be subject to change, such as through new requirements enacted at the supranational, national, sub-national and/or local level or new or modified regulations that may be implemented under existing law. The nature and extent of any changes in these laws, rules, regulations and permits may be unpredictable and may have material effects on ConnectM’s business. Future legislation and regulations or changes in existing legislation and regulations, or interpretations thereof, including those relating to hardware manufacturing, electronic waste or batteries, could cause additional expenditures, restrictions and delays in connection with ConnectM’s operations as well as other future projects, the extent of which cannot be predicted. +Further, ConnectM currently relies on third-parties to ensure compliance with certain environmental laws, including those related to the disposal of hazardous and non-hazardous wastes. Any failure to properly handle or dispose of such wastes, regardless of whether such failure is ConnectM’s or its contractors, may result in liability under environmental laws, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act, under which liability may be imposed without regard to fault or degree of contribution for the investigation and clean-up of contaminated sites, as well as impacts to human health and damages to natural resources. Additionally, ConnectM may not be able to secure contracts with third-parties to continue their key supply chain and disposal services for ConnectM’s business, which may result in increased costs for compliance with environmental laws and regulations. +Actual and potential claims, lawsuits and proceedings could ultimately reduce our profitability and liquidity and weaken our financial condition. +We could be named as a defendant in legal proceedings that claim damages in connection with the operation of our business. Most of the actions against us arise out of the normal course of our performing services or manufacturing equipment. From time to time, we may be a plaintiff in legal proceedings against customers in which we seek to recover payment of contractual amounts due to us, as well as claims for increased costs incurred by us. When appropriate, we establish estimated provisions against certain legal exposures, and we adjust such provisions from time to time according to ongoing developments related to each exposure, as well as any potential recovery from our insurance, if applicable. If, in the future, our assumptions and estimates related to such exposures prove to be inadequate or wrong, or our insurance coverage is insufficient, our business and results of operations could be adversely affected. In addition, claims, lawsuits and proceedings may harm our reputation or divert management resources away from operating our business. Losses arising from such events may or may not be fully covered by our various insurance policies or may be subject to deductibles or exceed coverage limits. +Misconduct by our employees, subcontractors or partners or our overall failure to comply with laws or regulations could harm our reputation, damage our relationships with customers, reduce our revenue and profits, and subject us to criminal and civil enforcement actions. +Misconduct, fraud, non-compliance with applicable laws and regulations, or other improper activities by one or more of our employees, directors, executive officers, subcontractors or partners could have a significant negative impact on our business and reputation. Examples of such misconduct include employee or subcontractor theft, personal misconduct and failure to comply with safety standards, including regulatory, company or site-specific safety protocols, laws and regulations, customer requirements, environmental laws and any other applicable laws or regulations. While we take precautions to prevent and detect these activities, such precautions may not be effective and are subject to inherent limitations, including human error and fraud. Our failure to comply with applicable laws or regulations or acts of misconduct could subject us to fines and penalties, harm our reputation, lead to loss of the services of employees or members of management, damage our relationships with customers, reduce our revenue and profits and subject us to criminal and civil enforcement actions. +We have subsidiary operations in three states and are exposed to multiple state and local regulations, as well as federal laws and requirements applicable to government contractors. Changes in law, regulations or requirements, or a material failure of any of our subsidiaries or us to comply with any of them, could increase our costs and have other negative impacts on our business. +Our eight locations are located in three states, which exposes us to a variety of different state and local laws and regulations, particularly those pertaining to contractor licensing requirements. These laws and regulations govern many aspects of our business, and there are often different standards and requirements in different locations. In addition, our subsidiaries that perform work for federal government entities are subject to additional federal laws and regulatory and contractual requirements. Changes in any of these laws, or any of our subsidiaries’ material failure to comply with them, can adversely impact our operations by, among other things, increasing costs, distracting management’s time and attention from other items, and harming our reputation. +57 +Table of Contents +Past and future environmental, safety and health regulations could impose significant additional costs on us that could reduce our profits. +MEE systems are subject to various environmental statutes and regulations, including the Clean Air Act and those regulating the production, servicing and disposal of certain ozone-depleting refrigerants used in MEE systems. There can be no assurance that the regulatory environment in which we operate will not change significantly in the future. Various local, state and federal laws and regulations impose licensing standards on technicians who install and service MEE systems. Additional laws, regulations and standards apply to contractors who perform work that is being funded by public money, particularly federal public funding. Our failure to comply with these laws and regulations could subject us to substantial fines, the loss of our licenses or potentially debarment from future publicly funded work. It is impossible to predict the full nature and effect of judicial, legislative or regulatory developments relating to health and safety regulations and environmental protection regulations applicable to our operations. Additionally, industries in which our customers or potential customers operate may be affected by new or changing environmental, safety, health or other regulatory requirements, leading to decreased demand for our services and potentially impacting our business, financial condition, results of operations, cash flows and ability to grow. +Unsatisfactory safety performance may subject us to penalties, affect customer relationships, result in higher operating costs, negatively impact employee morale and result in higher employee turnover. +Our projects are conducted at a variety of sites including construction sites and industrial facilities. Each location is subject to numerous safety risks, including electrocutions, fires, explosions, mechanical failures, weather-related incidents, transportation accidents and damage to equipment.. These hazards can cause personal injury and loss of life, severe damage to or destruction of property and equipment and other consequential damages and could lead to suspension of operations, large damage claims and, in extreme cases, criminal liability. While we have taken what we believe are appropriate precautions to minimize safety risks, we have experienced serious accidents, including fatalities, in the past and may experience additional accidents in the future. Serious accidents may subject us to penalties, civil litigation or criminal prosecution. Claims for damages to property or persons, including claims for bodily injury or loss of life, could result in significant costs and liabilities, which could adversely affect our financial condition and results of operations. Poor safety performance could also jeopardize our relationships with our customers, negatively impact employee morale and harm our reputation. +Changes in United States trade policy, including the imposition of tariffs and the resulting consequences, may have a material adverse impact on our business and results of operations. +As a result of policy changes or shifting proposals by the U.S. government, there may be greater restrictions and economic disincentives on international trade. For example, the U.S. government has pursued a new approach to trade policy, including renegotiating or terminating certain existing bilateral or multi-lateral trade agreements. It has also imposed tariffs on certain foreign goods and has raised the possibility of imposing significant, additional tariff increases or expanding the tariffs to capture other types of goods. These tariffs and other changes in U.S. trade policy have in the past and could continue to trigger retaliatory actions by affected countries, and certain foreign governments have instituted or are considering imposing retaliatory measures on certain U.S. goods. We, our suppliers and our customers import certain raw materials, components and other products from foreign suppliers. As such, the adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the United States economy, which in turn could have an adverse effect on our business, financial condition and results of operations. +Tax matters, including changes in corporate tax laws and disagreements with taxing authorities, could impact our results of operations and financial condition. +We conduct business across the United States and file income taxes in various tax jurisdictions. Our effective tax rates could be affected by many factors, some of which are outside of our control, including changes in tax laws and regulations in the various tax jurisdictions in which we file income taxes. For instance, the Tax Cuts and Jobs Act was enacted into law in December 2017. While certain portions of the Tax Cuts and Jobs Act seem to have had a positive impact on the ConnectM’s results of operations, the overall impact of the Tax Cuts and Jobs Act is uncertain and our business and financial condition could be adversely affected. Furthermore, to the extent that certain of our customers are negatively affected by the Tax Cuts and Jobs Act and/or any uncertainty around its implementation or enforcement, they may reduce spending and defer, delay or cancel projects or contracts. Reduced government revenue resulting from changes to tax law may also lead to reduced government spending, which may negatively impact our government contracting business. It is also unknown if and to what extent various states will conform to the changes enacted by the Tax Cuts and Jobs Act. +58 +Table of Contents +Issues relating to tax audits or examinations and any related interest or penalties and uncertainty in obtaining deductions or credits claimed in various jurisdictions could also impact our effective tax rates. Our results of operations are reported based on our determination of the amount of taxes we owe in various tax jurisdictions. Significant judgment is required in determining our provision for income taxes and our determination of tax liability is always subject to review or examination by tax authorities in applicable tax jurisdictions. An adverse outcome of such a review of examination could adversely affect our operating results and financial condition. Further, the results of tax examinations and audits could have a negative impact on our financial results and cash flows where the results differ from the liabilities recorded in our financial statements. +Some of our customers may choose to size their systems to take advantage of net metering offered in their states, and changes to those policies may significantly reduce demand for our solar service offerings. +Per the Solar Energy Industries Association (SEIA), net metering, in its simplest terms, “is a billing mechanism that credits solar energy system owners for the electricity they add to the grid.” As of December 31, 2025, a substantial majority of states have adopted net metering policies. Electricity that is generated by a solar energy system and consumed on-site avoids a retail energy purchase from the applicable utility, and excess electricity that is exported back to the electric grid generates a retail credit within a homeowner’s monthly billing period. At the end of the monthly billing period, if the homeowner has generated excess electricity within that month, the homeowner typically carries forward a credit for any excess electricity to be offset against future utility energy purchases. At the end of an annual billing period or calendar year, utilities either continue to carry forward a credit, or reconcile the homeowner’s final annual or calendar year bill using different rates (including zero credit) for the exported electricity. +In Massachusetts, customers of a regulated electric company (Eversource, National Grid, or Unitil), may net meter. On August 11, 2022, Massachusetts Governor Charlie Baker signed H5060, An Act Driving Clean Energy and Offshore Wind, into law. This wide-sweeping climate legislation relaxes the net-metering cap for residential solar projects up to 25 kilowatts. Under this law, residential solar projects up to 25 kilowatts are eligible for the state’s net metering program, which is double the size of the previous limit. +With a net metering capability, our customers can sell their excess solar output to the grid on a mutually agreed plan. Because of the mismatch in the peak of solar production and peak load on the grid, the value of net metering will depend on the utility. Changes in state regulations for net metering could reduce the demand for our solar service offerings. +Electric utility statutes and regulations and changes to such statutes or regulations may present technical, regulatory and economic barriers to the purchase and use of our solar service offerings that may significantly reduce demand for such offerings. +Federal, state and local government statutes and regulations concerning electricity heavily influence the market for our solar service offerings and are constantly evolving. These statutes, regulations, and administrative rulings relate to electricity pricing, net metering, consumer protection, incentives, taxation, competition with utilities and the interconnection of homeowner-owned and third party-owned solar energy systems to the electrical grid. These statutes and regulations are constantly evolving. Governments, often acting through state utility or public service commissions, change and adopt different rates for residential customers on a regular basis and these changes can have a negative impact on our ability to deliver savings, or energy bill management, to customers. +In addition, many utilities, their trade associations, and fossil fuel interests in the country, which have significantly greater economic, technical, operational, and political resources than the residential solar industry, are currently challenging solar-related policies to reduce the competitiveness of residential solar energy. Any adverse changes in solar-related policies could have a negative impact on our business and prospects. +We are not currently regulated as a utility under applicable laws, but we may be subject to regulation as a utility in the future or become subject to new federal and state regulations for any additional MEE offerings we may introduce in the future. +Most federal, state, and municipal laws do not currently regulate us as a utility. As a result, we are not subject to the various regulatory requirements applicable to U.S. utilities. However, any federal, state, local or other applicable regulations could place significant restrictions on our ability to operate our business and execute our business plan by prohibiting or otherwise restricting our sale of electricity. These regulatory requirements could include restricting our sale of electricity, as well as regulating the price of our electrification and decarbonization solution offerings. For example, the New York Public Service Commission and the Illinois Power Agency have issued orders regulating distributed energy providers in certain ways as if they were energy service companies, which increases the regulatory compliance burden for us in such states. If we become subject to the same regulatory authorities as utilities in other states or if new regulatory bodies are established to oversee our business, our operating costs could materially increase. +59 +Table of Contents +Interconnection limits or circuit-level caps imposed by regulators may significantly reduce MEE customers’ ability to sell electricity from our solar service offerings in certain markets or slow interconnections, harming our growth rate and customer satisfaction scores. +Interconnection rules establish the circumstances in which rooftop solar will be connected to the electricity grid. Interconnection limits or circuit-level caps imposed by regulators may curb our growth in key markets. Utilities throughout the country have different rules and regulations regarding interconnection and some utilities cap or limit the amount of solar energy that can be interconnected to the grid. +Interconnection regulations are based on claims from utilities regarding the amount of solar energy that can be connected to the grid without causing grid reliability issues or requiring significant grid upgrades. Interconnection limits could slow our future installations in various markets, harming our growth rate. These regulations may hamper our ability to sell our MEE Solutions in certain markets and increase our costs, adversely affecting our business, operating results, financial condition, and prospects. +Risks Relating to Projections +We may not successfully implement our business model. +Our business model is predicated on our ability to provide MEE technology, systems, and services at a profit, and through organic growth, geographic expansion, and strategic acquisitions. We intend to continue to operate as we have previously with sourcing and marketing methods that we have used successfully in the past. However, we cannot assure that our methods will continue to attract new customers in the very competitive home electrification and solar systems marketplaces. In the event our customers resist paying the prices projected in our business plan to purchase home electrification capabilities and solar installations, our business, financial condition, and results of operations will be materially and adversely affected. +ConnectM’s projections are subject to significant risks, assumptions, estimates and uncertainties, including assumptions regarding future legislation and changes in regulations, both inside and outside of the U.S. As a result, ConnectM’s projected revenues, market share, expenses and profitability may differ materially from our expectations. +ConnectM operates in a rapidly evolving and highly competitive industry and our projections are subject to the risks and assumptions made by management with respect to this industry. Operating results are difficult to forecast because they generally depend on our assessment of factors that are inherently beyond our control and impossible to predict with certainty, such as the timing of adoption of future legislation and regulations by different states. Furthermore, if we invest in the development of new products or distribution channels that do not achieve commercial success, whether because of competition or otherwise, we may not recover the often material “up front” costs of developing and marketing those products and distribution channels or recover the opportunity cost of diverting management and financial resources away from other products or distribution channels. +Additionally, our business may be affected by reductions in consumer spending as a result of numerous factors, which may be difficult to predict. This may result in decreased revenue levels, and we may be unable to adopt timely measures to compensate for any shortcomings in revenue and/or operating profitability. This inability could cause our operating results in a given period to be higher or lower than budgeted. +Risks Related to Ownership of our Common Stock. +Our ability to be successful will be dependent upon the efforts of certain key personnel. The loss of key personnel could negatively impact the operations and profitability of our business and its financial condition could suffer as a result. +Our ability to be successful is dependent upon the efforts of our key personnel. Although some key personnel may remain with the post- combination business in senior management or advisory positions following the business combination, it is possible that we will lose some key personnel, the loss of which could negatively impact the operations and profitability of our business. +ConnectM’s success depends to a significant degree upon the continued contributions of senior management, certain of whom would be difficult to replace. Departure by certain of ConnectM’s officers could have a material adverse effect on ConnectM’s business, financial condition, or operating results. +60 +Table of Contents +There is no guarantee that an active and liquid public market for shares of our Common Stock will develop. +A liquid trading market for our Common Stock may never develop or, if developed, may not be maintained. +In the absence of a liquid public trading market: +● you may not be able to liquidate your investment in shares of the ConnectM Common Stock; +● you may not be able to resell your shares of ConnectM Common Stock at or above the price attributed to them in the business combination; +● the market price of shares of the ConnectM Common Stock may experience significant price volatility; and +● there may be less efficiency in carrying out your purchase and sale orders. +Risks Related to Having Become a Public Company +ConnectM incurs significant increased expenses and administrative burdens as a public company, which could have an adverse effect on its business, financial condition and results of operations. +ConnectM’s faces increased legal, accounting, administrative and other costs and expenses as a public company that it did not incur as a private company. Sarbanes-Oxley, including the requirements of Section 404, as well as rules and regulations subsequently implemented by the SEC, the Dodd-Frank Act and the rules and regulations promulgated and to be promulgated thereunder, the Public Company Accounting Oversight Board and the securities exchanges, impose additional reporting and other obligations on public companies. Compliance with public company requirements increases costs and make certain activities more time-consuming. A number of those requirements require it to carry out activities ConnectM has not done previously and additional expenses associated with SEC reporting requirements will continue to be incurred. Furthermore, if any issues in complying with those requirements are identified, ConnectM may be subject to additional costs and expenses to come into compliance (see also “ Financial, Tax and Accounting-Related Risks - Risks Related to Finance, Tax and Accounting - ConnectM has identified material weaknesses in its internal control over financial reporting. If ConnectM identifies a material weakness in the future or otherwise fails to maintain an effective internal control over financial reporting, this may result in material misstatements of ConnectM’s consolidated financial statements or cause ConnectM to fail to meet its periodic reporting obligations ,” for more detail). ConnectM could incur additional costs to rectify these new issues, and the existence of these issues could adversely affect its reputation or investor perceptions. In addition, as a public company, ConnectM maintains director and officer liability insurance, for which it must pay substantial premiums. The additional reporting and other obligations imposed by these rules and regulations increase legal and financial compliance costs and the costs of related legal, accounting and administrative activities. Advocacy efforts by stockholders and third-parties may also prompt additional changes in governance and reporting requirements, which could further increase costs. +Volatility in and disruption to the global economic environment, including the impact of an economic recession, trade protectionism and tariffs, and changes in the regulatory and business environments in which we operate may have a material adverse effect on our business, results of operations and financial condition. +Geopolitical risks, supply chain, labor and energy constraints and inflation have caused and may continue to cause volatility in and disruption to the global economic environment. Future changes in the regulatory and business environments in which we operate, including increased geopolitical risks, trade protectionism and tariffs, may adversely affect our ability to sell our products or source materials needed to manufacture our products. +Furthermore, financial instability or bankruptcy at any of our suppliers or customers could disrupt our ability to manufacture our products and impair our ability to collect receivables, any or all of which may have a material adverse effect on our business, results of operations and financial condition. In addition, some of our customers and suppliers may experience serious cash flow problems and, thus, may find it difficult to obtain financing, if financing is available at all. As a result, our customers’ need for and ability to purchase our products or services may decrease, and our suppliers may increase their prices, reduce their output or change their terms of sale. Any inability of customers to pay us for our products and services, or any demands by suppliers for different payment terms, may materially and adversely affect our results of operations and financial condition. Furthermore, our suppliers may not be successful in generating sufficient sales or securing alternate financing arrangements, and therefore may no longer be able to supply goods and services to us. In that event, we would need to find alternate sources for these goods and services, and there is no assurance we would +61 +Table of Contents +be able to find such alternate sources on favorable terms, if at all. Any such disruption in our supply chain could adversely affect our ability to manufacture and deliver our products on a timely basis, and thereby affect our results of operations. +We are subject to cybersecurity risks to operational systems, security systems, or infrastructure owned by us or third-party vendors or suppliers. +We are at risk for interruptions, outages, and compromises to the confidentiality, integrity or availability of: (i) operational systems, including information technology, business, financial, accounting, product development, data processing, or manufacturing processes, owned by us or our third-party vendors or suppliers; (ii) facility security systems, owned by us or our third-party vendors, customers or suppliers; and/or (iii) vehicle propulsion control modules or other in-product technology, owned by us, our customers or our third-party vendors or suppliers. Such cyber incidents could materially disrupt operational systems (for example, through the deployment of ransomware); result in loss of intellectual property, trade secrets or other proprietary or competitively sensitive information; compromise personally identifiable information of employees, customers, suppliers, or others; jeopardize the security of our facilities; and/or affect the performance of vehicle propulsion control modules or other in-product technology. A cyber incident could be caused by malicious insiders or by third parties using sophisticated, targeted methods to circumvent firewalls, encryption, and other security defenses, including hacking, fraud, trickery, or other forms of deception, such as social engineering and phishing, or due to human or technological error, such as misconfigurations, “bugs,” or vulnerabilities in software or hardware used by us or others. +The techniques used by threat actors change frequently and may be difficult to detect for long periods of time. Cyberattacks are expected to accelerate on a global basis in frequency and magnitude as threat actors are increasingly using tools – including artificial intelligence – to evade detection and even remove forensic evidence. As a result, we may be unable to detect, investigate, remediate or recover from future cyberattacks or other incidents, or to avoid a materially adverse impact to our systems, information or business. In addition, remote or hybrid working arrangements at our Company, our customers and many third-party providers increase cybersecurity risks due to the challenges associated with managing remote computing assets and the nature of security vulnerabilities that are present in many non-corporate and home networks. +A significant cyber incident could impact our production capability, harm our reputation and business relationships, impact our competitive position (including compromising our intellectual property assets), and subject us to regulatory actions or litigation and fines and/or penalties, including pursuant to evolving global privacy and security regulations and laws, as well as significant investigative, restoration or remediation costs and/or increased compliance costs. Any of the foregoing could materially affect our business, results of operations and financial condition. There is no guarantee that our measures to prevent, detect and mitigate these threats, including employee and key third-party partner education, monitoring of networks and systems, and maintenance of backup and protective systems, will be successful in preventing or mitigating a cyber-incident. +In addition, in many jurisdictions, we are subject to privacy and data protection laws and regulations. These laws and regulations are changing rapidly and becoming increasingly complex. The interpretation and application of data protection laws in the U.S., Europe, and elsewhere are uncertain, evolving and may be inconsistent across jurisdictions. Our failure to comply with these laws and regulations could result in legal liability, significant regulator penalties and fines, or impair our reputation in the marketplace. +We operate in an intensely competitive business environment. We may not be as successful as our competitors incorporating artificial intelligence (“AI”) into our business or adapting to a rapidly changing marketplace. +Our competitors may be larger, more diversified, better funded, and have access to more advanced technology, including AI. These competitive advantages may enable our competition to innovate better and more quickly, to compete more effectively on quality and price, causing us to lose business and profitability. Burgeoning interest in AI may increase our competition and disrupt our business model. AI may lower barriers to entry in our industry and we may be unable to effectively compete with the products or services offered by new competitors. AI-related changes to the products and services on offer may affect our customers’ expectations, requirements, or tastes in ways we cannot adequately anticipate or adapt to, causing our business to lose sales, market share, or the ability to operate profitably and sustainably. +62 +Table of Contents +Risks Related to Our Securities +If you purchase our securities you may experience future dilution as a result of future equity offerings or other equity issuances. +In order to raise additional capital, we will need to offer and issue additional shares of our Common Stock or other securities convertible into or exchangeable for our Common Stock in the future. The price per share at which we sell additional shares of our Common Stock or other securities convertible into or exchangeable for our Common Stock in future transactions may be higher or lower than the price per share at which you purchase our securities. +In addition, we have a significant number of Warrants outstanding. Further, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. +The market price of our Common Stock and the trading volume of our Common Stock has been and may continue to be, highly volatile, and such volatility could cause the market price of our Common Stock to decrease. +Our Common Stock is currently quoted on the OTCQX Best Market under the symbol “CNTM,” where trading volumes can be limited and price movements can be more pronounced than on national exchanges. Over the past twelve months, the market price of our Common Stock has experienced significant fluctuations, and there can be no assurance that such volatility will decrease in the future. The market price and trading volume of our Common Stock may continue to fluctuate significantly in response to numerous factors, some of which are beyond our control, including: +● our ability to grow our revenue and customer base and achieve sustainable profitability; +● the limited trading volume and liquidity of our Common Stock on the OTC market; +● developments concerning regulatory oversight, reporting compliance, or listing status; +● variations in our results of operations or those of our competitors; +● changes in earnings estimates or recommendations by securities analysts (if our Common Stock becomes covered by analysts); +● successes or challenges in completing or integrating acquisitions and strategic partnerships; +● adverse effects on our business from macroeconomic conditions, including rising interest rates, credit tightening, or reduced investor risk appetite; +● future issuances or conversions of Common Stock or other equity-linked securities; +● the addition or departure of key personnel; +● announcements by us or our competitors of acquisitions, financings, or strategic alliances; and +● general market conditions and other factors, including those unrelated to our operating performance. +Further, the OTC market and broader equity markets have, from time to time, experienced extreme price and volume fluctuations that have affected the market prices of securities of many companies, often unrelated to the operating performance of those companies. Such market fluctuations could result in extreme volatility in the price of our Common Stock and could cause investors to lose part or all of their investment. +63 +Table of Contents +We have never paid dividends on our capital stock, and we do not anticipate paying dividends in the foreseeable future. +We have never paid dividends on any of our capital stock and currently intend to retain any future earnings to fund the growth of our business. We may also enter into credit agreements or other borrowing arrangements in the future that will restrict our ability to declare or pay cash dividends on our Common Stock. +A significant portion of our Common Stock is restricted from immediate resale, but may be sold into the market in the future pursuant to registration rights granted to the holders thereof. The exercise of such rights could cause the market price of our Common Stock to drop significantly, even if our business is doing well. +The market price of shares of our Common Stock could decline as a result of substantial sales of Common Stock, particularly by our significant stockholders, a large number of shares of Common Stock becoming available for sale, or the perception in the market that holders of a large number of shares intend to sell their shares. +In connection with the Business Combination, MCAC and certain stockholders of ConnectM entered into a registration rights agreement (the “ Business Combination Registration Rights Agreement ”) with ConnectM. An aggregate of 5,340,000 shares of Common Stock are entitled to registration pursuant to the Business Combination Registration Rights Agreement, which consist of 2,300,000 shares of Common Stock initially purchased by MCAC’s sponsor in a private placement prior to the IPO and 3,040,000 shares of Common Stock issuable upon exercise of certain warrants. Holders of such shares may make a written demand for registration under the Securities Act of all or part of their shares If at any time, ConnectM proposes to file a registration statement under the Securities Act, these holders shall be offered an opportunity to register the sale of such number of shares as such holders may request in writing. The demand registration rights and “piggy-back” registration rights under the Business Combination Registration Rights Agreement are subject to certain requirements and customary conditions. +As such, sales of a substantial number of shares of our Common Stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our Common Stock. +We may issue additional shares of our Common Stock or other equity securities without your approval, which would dilute your ownership interests and may depress the market price of your shares. +We may issue additional shares of our Common Stock or other equity securities of equal or senior rank in the future in connection with, among other things, future acquisitions and issuances under our Incentive Plan, without stockholder approval, in a number of circumstances. +Our issuance of additional shares of Common Stock or other equity securities of equal or senior rank could have the following effects: +● your proportionate ownership interest in ConnectM will decrease; +● he relative voting strength of each previously outstanding share of Common Stock may be diminished; or +● the market price of our shares of our stock may decline. +Because our Common Stock is quoted on the OTC, your ability to sell your shares in the secondary trading market may be limited. +As a result of the transfer of our Common Stock from Nasdaq to the OTC, we anticipate that our stockholders may face negative consequences related to our securities, including but not limited to: +● limited availability of market quotations for our securities. +● a determination that our Common Stock is a “penny stock” which will require brokers trading in our securities to adhere to more stringent rules. +● reduced level of trading activity in the secondary trading market for shares of our Common Stock. +64 +Table of Contents +● a limited amount of analyst coverage; and +● decreased ability to issue additional securities or obtain additional financing in the future. +Because our Common Stock is quoted on the OTC, your ability to sell your shares in the secondary trading market may be limited. The OTC is the only trading market for our Common Stock. We cannot assure our stockholders that our Common Stock will continue to trade on this market, whether broker-dealers will continue to provide public quotes of our Common Stock on this market, whether the trading volume of our Common Stock will be sufficient to provide for respective efficient trading markets or whether quotes for our Common Stock will continue on this market in the future, which could result in significantly lower trading volumes and reduced liquidity for investors seeking to buy or sell our Common Stock. As a result, prices for shares of our Common Stock may be lower than might otherwise prevail if our Common Stock was listed on a national securities exchange. +The price of our securities may fluctuate significantly due to general market and economic conditions. An active trading market for our securities may not be sustained. In addition, the price of our securities can vary due to general economic conditions and forecasts, our general business condition and the release of our financial reports. +There can be no assurance that the Public Warrants will be in the money during their exercise period, and they may expire worthless. +A total of 9,200,000 public warrants (the “Public Warrants”) were issued in the IPO, with each whole warrant entitling the holder to purchase one share of Common Stock at a price of $11.50 per share. Each warrant became exercisable 30 days after the Closing and will expire five years after the Closing, or earlier upon redemption or liquidation. There can be no assurance that the Public Warrants will be in the money prior to their expiration and, as such, the warrants may expire worthless. The terms of Public Warrants may be amended in a manner that may be adverse to the holders. The warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us, provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of a majority of the then-outstanding Public Warrants to make any change that adversely affects the interests of the registered holders. Accordingly, we may amend the terms of the warrants in a manner adverse to a holder if holders of at least a majority of the then-outstanding Public Warrants approve of such amendment. Our ability to amend the terms of the Public Warrants with the consent of a majority of the then-outstanding Public Warrants is unlimited. Examples of such amendments could be amendments to, among other things, increase the exercise price of the Public Warrants, shorten the exercise period or decrease the number of shares of Common Stock purchasable upon exercise of a Public Warrant. +We may redeem unexpired warrants, in accordance with their terms, prior to their exercise at a time that is disadvantageous to holders of warrants. +We have the ability to redeem outstanding warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per Warrant, provided that the last sale price of our Common Stock equals or exceeds $18.00 per share (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like) for any twenty (20) trading days within a thirty (30) trading-day period ending on the third trading day prior to proper notice of such redemption and provided that certain other conditions are met. We will not redeem the warrants unless an effective registration statement under the Securities Act covering the Common Stock issuable upon exercise of the warrants is effective and a current prospectus relating to such Common Stock is available throughout the thirty (30) day redemption period, except if the warrants may be exercised on a cashless basis and such cashless exercise is exempt from registration under the Securities Act. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding warrants could force holders thereof to (i) exercise warrants and pay the exercise price therefor at a time when it may be disadvantageous for such holder to do so, (ii) sell warrants at the then-current market price when such holder might otherwise wish to hold warrants or (iii) accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market value of such warrants. +If securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our market, or if they change their recommendations regarding our Common Stock adversely, then the price and trading volume of Common Stock could decline. +The trading market for our Common Stock is influenced by the research and reports that industry or securities analysts may publish about us, our business and operations, our market, and our competitors. Securities and industry analysts do not currently, and +65 +Table of Contents +may never, publish research on us. If no securities or industry analysts commence coverage of us, our stock price and trading volume would likely be negatively impacted. If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, the price of our Common Stock would likely decline. If any analyst who may cover us were to cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline. +Risks Related to the Reverse Stock Split +The Reverse Stock Split may decrease the liquidity of the shares of our Common Stock. +At a special meeting of stockholders held on January 15, 2026, the stockholders approved a reverse stock split of the Company’s Common Stock at a ratio between 1-for-5 and 1-for-50, with the final ratio to be determined by the Company’s Board of Directors. +On March 26, 2026, the Board of Directors approved a 1-for-32 reverse stock split and authorized the Company to effect the reverse stock split at 4:01 p.m. (Eastern Time) on April 17, 2026, with trading on a split-adjusted basis expected to commence on April 20, 2026, subject to regulatory approval and completion of applicable procedures. The reverse stock split will result in one share of Common Stock being issued for each 32 shares outstanding, with fractional shares rounded up to the nearest whole share. +The Company has filed, or is in the process of filing, the necessary documentation with applicable regulatory authorities, including FINRA, and is coordinating with its transfer agent and other parties to effect the reverse stock split. +Once the Reverse Split is effected, the liquidity of the shares of our Common Stock may be affected adversely by the Reverse Stock Split given the reduced number of shares that are outstanding as a result of the Reverse Stock Split, especially if the market price of our Common Stock does not increase proportionally as a result of the Reverse Stock Split. In addition, the Reverse Stock Split may have increased the number of stockholders who own odd lots (less than 100 shares) of our Common Stock and such stockholders may experience an increase in the cost of selling their shares of Common Stock and greater difficulty effecting such sales. +Following the Reverse Stock Split, the resulting market price of our Common Stock may not attract new investors, including institutional investors, and may not satisfy the investing requirements of those investors. Consequently, the trading liquidity of our Common Stock may not improve. +Although we believe that a higher market price of our Common Stock may help generate greater or broader investor interest, there can be no assurance that the Reverse Stock Split will result in a share price that will attract new investors, including institutional investors. In addition, there can be no assurance that the market price of our Common Stock will satisfy the investing requirements of those investors. As a result, the trading liquidity of our Common Stock may not necessarily improve. +Item 1B. Unresolved Sta ff Comments. +None. +Item 1C. Cybersecurity. +Risk Management and Strategy +As a smaller reporting company in the earlier stages of its cybersecurity maturity, the Company is actively developing and implementing a cybersecurity risk management program intended to protect the confidentiality, integrity, and availability of its Confidential Information and Critical Systems. The Company’s cybersecurity risk management program is being integrated into the overall enterprise risk management program and includes a cybersecurity incident response plan. +The Company’s cybersecurity risk management program includes, or is in the process of establishing, the following elements: +● Risk assessments designed to help identify material cybersecurity risks to the Company’s Confidential Information, Critical Systems, and the broader enterprise IT environment. +● A security team principally responsible for managing: +66 +Table of Contents +● The Company’s cybersecurity risk assessment processes; +● Security controls over Confidential Information and Critical Systems; and +● The Company’s response to cybersecurity incidents. +● Cybersecurity awareness training for employees and senior management, including spear-phishing resistance training. +● A cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents, including the process for informing senior management and the Board of Directors. +● A vendor management policy for third-party service providers, suppliers, and vendors that access, process, or store the Company’s Confidential Information or Critical Systems. +● The engagement of external cybersecurity experts, where appropriate, to advise on best practices, conduct vulnerability assessments, and assist with aspects of security controls. +The Company’s approach to cybersecurity is continuing to mature, and the Company is in the process of evaluating its cybersecurity needs and developing measures to enhance its cybersecurity posture. This includes conducting vulnerability assessments, developing incident response procedures, and considering engagement of external cybersecurity consultants for additional assessments and advisory services. The Company’s goal is to establish a cybersecurity framework that is commensurate with its size, complexity, and the nature of its operations, thereby reducing its exposure to cybersecurity risks. +As of the date of this Annual Report on Form 10-K, the Company has not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected or are reasonably likely to materially affect the Company, including its operations, business strategy, results of operations, or financial condition. However, the Company recognizes that the absence of a fully formalized cybersecurity framework may leave it vulnerable to cyberattacks, data breaches, and other cybersecurity incidents. Such events could potentially lead to unauthorized access to, or disclosure of, sensitive information, disrupt business operations, result in regulatory fines or litigation costs, and negatively impact the Company’s reputation among customers and partners. +The Company faces risks from cybersecurity threats that, if realized, could have a material adverse effect on the Company, including an adverse effect on its business, financial condition, and results of operations. Despite the Company’s efforts to improve its cybersecurity measures, there can be no assurance that its initiatives will fully mitigate the risks posed by cyber threats. The landscape of cybersecurity risks is constantly evolving, and the Company will continue to assess and update its cybersecurity measures in response to emerging threats. For further discussion of cybersecurity risk factors, see Item 1A. Risk Factors. +Governance +The Board of Directors of ConnectM Technology Solutions, Inc. considers cybersecurity risk as part of its overall risk oversight function. The Board has delegated oversight of cybersecurity and other information technology risks to the Audit Committee. The Audit Committee oversees the establishment and effectiveness of the Company’s cybersecurity risk management program and related internal controls. +The Audit Committee is informed of material risks, when applicable, from cybersecurity threats by the Company’s management. Updates on cybersecurity matters, including material risks and threats, are provided to the Audit Committee on a periodic basis, and the Audit Committee in turn reports to the full Board of Directors regarding its activities, including those related to cybersecurity, at regular board meetings. +In addition, the Board of Directors will oversee any cybersecurity risk management framework and, through the Audit Committee, will review and approve cybersecurity policies, strategies, and risk management practices as they are developed and implemented. +67 +Table of Contents +Management +The Company’s executive management team, along with any managed information technology service providers, is responsible for assessing and managing risks from cybersecurity threats to the Company, including risks to its Confidential Information and Critical Systems. Management has primary responsibility for the Company’s overall cybersecurity risk management program. +Under the oversight of the Audit Committee, the Company’s Chief Executive Officer is primarily responsible for the assessment and management of material cybersecurity risks and for establishing and maintaining adequate and effective internal controls covering cybersecurity matters. The Chief Executive Officer has been designated as the lead in implementing the Company’s cybersecurity incident response plan. +● Management meets with the Company’s information technology service providers periodically to discuss current cybersecurity issues, which may include efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various means, including: +● Threat intelligence and other information obtained from governmental, public, or private sources, and from external service providers engaged by the Company; +● Alerts and reports produced by security tools deployed in the Company’s information technology environment, including spear-phishing reports; and +● Briefings from internal security personnel and external cybersecurity consultants. +The Audit Committee, with the assistance of the Chief Executive Officer, is responsible for overseeing the establishment and effectiveness of controls and other procedures, including controls and procedures related to the public disclosure of material cybersecurity matters. +The Company’s cybersecurity incident response plan governs its assessment and response upon the occurrence of a material cybersecurity incident, including the process for informing senior management and the Board of Directors . +As of the date of this report, other than the foregoing, the Company is not aware of any cybersecurity incidents that have materially affected or are reasonably likely to materially affect the Company, including its business strategy, results of operations, or financial condition, and that are required to be reported herein. +Item 2. Properties. +ConnectM’s corporate headquarters is located in Marlborough, Massachusetts, where the Company leases approximately 2,396 square feet under a month-to-month lease. The Company also maintains offices in Hyannis, Massachusetts and Bangalore, India. ConnectM owns two properties and leases additional properties and holds a regulatory -approved site in India through its Geo Impex subsidiary for the planned development of an AI-driven data center and multimodal logistics park. The Company believes that its existing facilities are adequate to meet the current needs of its essential workforce, including employees working remotely, and that, if additional space becomes necessary, suitable facilities can be obtained on commercially reasonable terms. +Item 3. Legal Proceedings. +From time to time, we may be party to or otherwise involved in legal proceedings arising in the ordinary course of business. We recognize provisions for legal proceedings in our financial statements, in accordance with accounting rules, when we are advised by independent outside counsel that (i) it is probable that an outflow of resources will be required to settle the obligation and (ii) a reliable estimate can be made of the amount of the obligation. The assessment of the likelihood of loss includes analysis by outside counsel of available evidence, the hierarchy of laws, available case law, recent court rulings and their relevance in the legal system. Our provisions for probable losses arising from these matters are estimated and periodically adjusted by management. In making these adjustments our management relies on the opinions of our external legal advisors. Management does not believe that there is any pending or threatened proceeding against us, which, if determined adversely, would have a material adverse effect on our business, results of operations or financial condition, except as described below. +Florida Solar acquisition litigation (Zrallack and RJZ Holdings LLC v. Aurai LLC, ConnectM Florida RE LLC, and Florida Solar Products, Inc.; Florida 19th Judicial Circuit—St. Lucie County) +68 +Table of Contents +On February 26, 2024, Robert J. Zrallack and RJZ Holdings LLC (the “Plaintiffs”) filed suit against Aurai LLC (“Aurai”), ConnectM Florida RE LLC (“ConnectM Florida RE”), and Florida Solar Products, Inc. (“Florida Solar”) (collectively, the “Subsidiaries”), each wholly owned subsidiaries of ConnectM Technology Solutions, Inc. (“ConnectM”), in connection with the Company’s 2022 acquisition of Florida Solar and related real estate transactions. +The matter was compelled to arbitration pursuant to the Stock Purchase Agreement. Following evidentiary hearings conducted in June and July 2025, the arbitrator issued an Interim Arbitration Award on September 11, 2025. Subsequent orders were entered addressing modification and attorneys’ fees and costs. On December 25, 2025, the arbitrator issued a Final Award incorporating prior rulings. +The Final Award includes: +● Approximately $446,945 awarded in connection with claims relating to a mortgage and promissory note (plus continuing per diem interest); +● Approximately $1,342,480 in damages relating to additional claims under the Stock Purchase Agreement (plus continuing per diem interest); +● Attorneys’ fees and costs totaling approximately $418,138 as of September 11, 2025, with interest accruing thereafter; Arbitrators’ fees and costs totaling approximately $74,013; and +● Certain equitable and payment-related relief, including obligations relating to specified debt instruments and credit card balances. +● In aggregate, Plaintiffs’ motion to confirm seeks entry of judgment totaling approximately $2,500,000 plus continuing interest. +On December 30, 2025, Plaintiffs filed a motion to confirm the arbitration award in the Circuit Court for the 19th Judicial Circuit (St. Lucie County, Florida), later amended on January 7, 2026. A hearing on the motion to confirm was noticed for February 12, 2026. +The Company has filed a motion to vacate the arbitration award, which is scheduled to be heard on April 30, 2026. The Company believes confirmation of the award is not appropriate while post-award relief remains pending and continues to evaluate all available legal remedies. +On January 7, 2026, Plaintiffs also served post-award discovery requests styled as “discovery in aid of execution.” The Subsidiaries filed a motion to strike such discovery and for a protective order on the basis that no final judgment has been entered and discovery in aid of execution is premature. +As of the date of this filing: +● The arbitration award has not yet been confirmed by the court; +● No final enforceable judgment has been entered; +● Post-award motion practice remains pending; and +● The Subsidiaries are pursuing available legal remedies, including seeking vacatur and opposing confirmation. +The Company has recorded a litigation reserve of $1,024,002 in connection with this matter based on management’s assessment of probable loss under ASC 450. The amount reserved reflects management’s current estimate of probable exposure; however, the total amount sought by Plaintiffs significantly exceeds the recorded reserve. The ultimate outcome of the confirmation proceedings, any motion to vacate, and related enforcement proceedings cannot be predicted with certainty. The final resolution of this matter could result in adjustments to the amount reserved, which could be material to the Company’s consolidated financial statements in the period such adjustment is determined. +Item 4. Mine Safety Disclosures. +Not applicable. +​ +69 +Table of Contents +PART II +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. +Market Information +Our Common Stock is currently listed on OTC Market under the symbol “CNTM.” The Company intends to list the warrants to purchase shares of Common Stock with an exercise price of $11.50 per share (the “Public Warrants”) on the OTC Market. +Holders of Record +As of date of filing, there were 2,302 holders of record of our Common Stock and 10 holders of record of our Public Warrants. The actual number of stockholders of our Common Stock and the actual number of holders of our Public Warrants is greater than the number of record holders and includes holders of our Common Stock or Public Warrants whose shares of Common Stock or Public Warrants are held in street name by brokers and other nominees. +Dividend Policy +We have never declared any dividends on our Common Stock and we do not anticipate paying any dividends on our common stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. Any future determination to declare dividends will be subject to the discretion of our Board of Directors and will depend on various factors, including applicable Delaware law, future earnings, capital requirements, results of operations and any other relevant factors. In general, as a Delaware corporation, we may pay dividends out of surplus capital or, if there is no surplus capital, out of net profits for the fiscal year in which a dividend is declared and/or the preceding fiscal year +Securities Authorized for Issuance under Equity Compensation Plans +The following table provides information as of December 31, 2025 with respect to securities that may be issued under our equity compensation plans: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Number of +​ +​ +​ +​ +​ +​ +​ +Securities +​ +​ +​ +​ +​ +​ +​ +Remaining +​ +​ +​ +​ +​ +​ +​ +Available for +​ +​ +Number of +​ +Weighted +​ +Future Issuance +​ +​ +Securities to be +​ +Average +​ +Under Equity +​ +​ +Issued upon +​ +Exercise +​ +Compensation +​ +​ +Exercise of +​ +Price of +​ +Plans +​ +​ +Outstanding +​ +Outstanding +​ +(Excluding +​ +​ +Options, +​ +Options, +​ +Securities +​ +​ +Warrants and +​ +Warrants and +​ +Reflected in the +Plan Category +​ ​ ​ +Rights +​ ​ ​ +Rights +​ ​ ​ +First Column) +Equity incentive plans approved by security holders +— +​ +$ +— +— +Equity incentive plans not approved by security holders +— +​ +— +— +Total +— +​ +$ +— +— +​ +Issuer Purchases of Equity Securities +None. +Recent Sales of Unregistered Securities +Between January 1, 2026 and the date of this filing, the Company issued an aggregate of 17,112,737 shares of its common stock in, transactions not registered under the Securities Act of 1933, as amended (the “Securities Act”). These issuances included: (i) 1,068,175 shares, issued to certain directors, officers, advisors, and employees of the Company as equity compensation for services rendered, (ii) 15,400,000 shares issued as consideration for acquisitions completed during the period, (iii) 275,000 shares issues as commitment shares for additional convertible notes, and (iv) 369,562 shares issued to convertible debt holder for extinguishing $63,491 of liabilities including accrued interest +The issuances to directors, officers, advisors, and employees were made pursuant to the exemption from registration under Section 4(a)(2) of the Securities Act and/or Rule 701 promulgated thereunder, as transactions not involving a public offering and/or under compensatory benefit plans and contracts relating to compensation. +70 +Table of Contents +The issuances to debtholders were made pursuant to the exemption from registration under Section 4(a)(2) as transaction not involving a public offering, Section 3(a)(9) and/or Section 3(a)(10) of the Securities Act, as exchanges with existing security holders or transactions approved by a court or authorized governmental entity, without payment of any commission or other remuneration. +The shares issued in connection with the acquisition were made pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506(b) of Regulation D, as private placements to accredited investors. +The shares issued pursuant to common stock subscription agreements were issued in reliance on Section 4(a)(2) of the Securities Act and/or Rule 506(b) of Regulation D, as private placements without general solicitation or advertising, to accredited investors. +Item 6. +Reserved. +​ +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. +The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Form 10-K. Dollar amounts in this discussion are expressed in whole-dollars, except as otherwise noted. The following discussion contains forward-looking statements that reflect future plans, estimates, beliefs and expected performance. The forward looking statements are dependent upon events, risks and uncertainties that may be outside of our control. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed elsewhere in this Form 10-K, particularly in Part I, Item 1A, Risk Factors. We do not undertake, and expressly disclaim, any obligation to publicly update any forward-looking statements, whether as a result of new information, new developments or otherwise, except to the extent that such disclosure is required by applicable law. +Executive Overview +ConnectM (the “Company”) is a Delaware corporation headquartered in Marlborough, Massachusetts. On July 12, 2024 (the “Merger Closing Date” or the “Merger Closing”), Monterey Capital Acquisition Corporation (“MCAC”) consummated an Agreement and Plan of Merger (the “Merger Agreement”) with ConnectM Technology Solutions, Inc. (“Legacy ConnectM”) in which MCAC acquired all of the issued and outstanding shares of Common Stock from Legacy ConnectM shareholders (the “Business Combination”) in exchange for 14,500,000 shares of MCAC’s Common Stock. On the Merger Closing Date, MCAC changed its name to ConnectM Technology Solutions, Inc. (“ConnectM”) and it became a publicly listed company. +ConnectM conducts its operations through its subsidiaries and operates a unified, AI-enabled technology platform powering the modern energy economy. Through this platform, the Company connects OEMs, service providers and end customers to enable electrification, decarbonization and grid-aware energy management across residential, commercial and infrastructure applications. +The Company delivers solutions to its customers for (i) the decarbonization of homes, critical infrastructure and businesses through energy management-as-a-service offerings, including weatherization, HVAC, solar, battery and EV charging solutions, (ii) the facilitation of business-to-business transportation through its online and mobile last-mile delivery platform utilizing contracted drivers, and (iii) the management of connected operations through its industrial internet of things (“IIoT”) platform. These offerings are integrated and optimized through the Company’s proprietary platform, developed and continuously enhanced by Keen Labs, its AI and technology subsidiary. +The Company also offers physical products as part of its solutions offerings, including AI-enabled heat pump systems for use in the decarbonization of homes and businesses, as well as display clusters, digital control units and vehicle control units used in the management of connected operations. +The Company also provides managed solutions offerings, including human resources management, procurement services, omnichannel marketing and lead generation services, and access to working capital solutions designed to improve operating efficiency and enhance profitability for service providers. +The Company’s platform and associated software continuously collect and analyze operational data, generating actionable insights that customers use for monitoring, optimization and decision-making, and enabling applications such as predictive maintenance and virtual power plant integration. +71 +Table of Contents +The Company earns revenue across six operating segments: +● Owned Service Network – Electrification and HVAC service providers delivering energy-efficient installations and long-term performance monitoring to end-users; +● Managed Solutions – Third-party service providers using ConnectM’s AI and back-office platform under managed service agreements; +● Distributed Energy & Renewables (“DER”) – Solar and distributed energy solutions for commercial, residential, consumer, and industrial customers in India, including project development, EPC services and ongoing energy management; +● Transportation – Primarily India-based EV fleet management and battery diagnostics operations serving OEMs and mobility companies; and +● Logistics – DeliveryCircle, LLC, a U.S.-based subsidiary offering AI-enabled dispatch, route optimization, and sortation services within the last-mile delivery sector. +● Corporate & Strategic Assets – Corporate-level operations and the Geo Impex India landholding, an approximately 76-acre site near Chatrapur, Odisha, India approved for development into a multimodal logistics park and AI-enabled data center campus; this segment did not generate revenue during the periods presented. +Collectively, these businesses are interconnected through ConnectM’s data infrastructure, which enables predictive maintenance, energy optimization, and operational efficiency across the energy and logistics ecosystems. +Industry Context and Market Drivers +ConnectM operates at the intersection of three global macro-trends: +1. Electrification and Decarbonization – Global efforts to replace fossil-fuel-based systems with electrified alternatives, supported by more than $400 billion in funding from the U.S. Inflation Reduction Act (IRA) and similar programs abroad. 29 +2. Artificial Intelligence and Data Infrastructure – Rapid adoption of AI-driven monitoring, diagnostics, and control systems across the built environment, projected to exceed $130 billion in global market value by 2030. 31 +3. Mobility and Logistics Transformation – Electrification of transportation and the digitalization of last-mile logistics, projected to reach over $700 billion globally by 2030. 32 +These structural shifts create sustained tailwinds for ConnectM’s technology and services across residential, commercial, and industrial asset classes. +Revenue Model and Cost Structure +· +ConnectM generates revenue from hardware, software, and services across its six operating segments: Owned Service Network, Managed Solutions, Distributed Energy & Renewables, Transportation, Logistics, and Corporate & Strategic Assets: +· +Hardware revenue includes sales of intelligent devices such as display clusters, digital control units, EV fleet management modules and distributed energy system components, including solar and battery equipment. +· +Software and platform revenue includes recurring SaaS subscriptions, predictive analytics and asset-management licenses. +· +Service revenue includes installation, maintenance and repair operations under both owned and managed service models, as well as project development, EPC services and ongoing energy management within the Distributed Energy & Renewables segment. +· +Logistics revenue includes fees generated from last-mile delivery services, including dispatch, route optimization, sortation and related logistics services provided through the Company’s platform. +29 +U.S. Department of Energy, “Inflation Reduction Act Summary and Implementation Guidance,” 2024. +30 +McKinsey & Company, “The State of AI in Energy and Infrastructure 2024.” +31 +Technavio Research, “Global Last-Mile Delivery Market 2023–2027 Outlook,” 2024. +72 +Table of Contents +Primary operating expenses include personnel costs, facility leases, depreciation and amortization, technology development, marketing, insurance, and professional services. ConnectM also incurs additional compliance and reporting costs associated with its public-company status. +Post-Business Combination Outlook +Following the Business Combination, ConnectM continues to integrate its acquired subsidiaries and expand its technology platform capabilities. Through a series of strategic transactions completed during and subsequent to the fiscal year, the Company has significantly broadened its operational footprint across distributed energy, defense sustainment, and AI-driven infrastructure. +In November 2025, the Company acquired certain assets of Amperics Holdings LLC pursuant to an Asset Purchase Agreement, consisting solely of proprietary technology related to nanotechnology-based energy storage. The acquired technology, which combines the rapid-response characteristics of supercapacitors with lithium-ion energy density to enable long-cycle-life storage systems suited for grid stabilization, data-center energy buffering, and electric-fleet charging applications, has been integrated into the Company’s Keen Labs subsidiary as a new product line. Keen Labs subsequently introduced its Hi-C™ and Hi-E™ energy storage product lines, targeting high-power and long-duration distributed energy storage markets, respectively. +In January 2026, the Company acquired a 40% equity interest in Sun Solar LLC, a leading U.S. residential and small-commercial solar developer and installer. The transaction increased stockholders’ equity by approximately $6.5 million. Under a related VPP kit supply agreement, Keen Labs will supply solar panels, batteries, and balance-of-system components to Sun Solar as the Company scales its AI-driven Energy Intelligence Network across Sun Solar’s install base. ConnectM is consolidating its solar operations under the “Sun Solar Northeast” banner and deploying additional capital to expand solar-plus-storage installations across the Northeast corridor. +In March 2026, the Company acquired Harry Kahn Associates, Inc. (“HKA”), an 80-year-old defense contractor specializing in mission-critical technical data systems and lifecycle support for U.S. military platforms, in exchange for 400,000 shares of ConnectM common stock. HKA’s structured operational datasets, when combined with Keen Labs’ AI platform, are expected to support advanced analytics, predictive maintenance, and digital lifecycle optimization across defense and government infrastructure. +The Company’s strategic priorities for the next twelve months include: +● Expanding Keen Labs’ virtual power plant (“VPP”) and energy-as-a-service capabilities by deploying hybrid battery storage and solar-plus-storage systems through the Sun Solar and Amperics platforms, with the goal of converting one-time equipment sales into recurring grid-services revenue; +● Advancing AI-driven asset health, predictive maintenance, and energy-efficiency analytics across residential, commercial, fleet, and defense applications; +● Scaling defense and government market penetration through HKA’s established customer relationships and Keen Labs’ AI-powered lifecycle management tools; and +● Evaluating additional strategic acquisitions within electrification, distributed-energy infrastructure, and defense sustainment to strengthen recurring-revenue streams and expand the Company’s addressable market. +Management believes that the combination of recurring energy-as-a-service and VPP revenue, diversified technology and service offerings spanning electrification, defense sustainment, and distributed energy, and the expanding Keen Labs AI platform positions ConnectM for continued growth and margin improvement through 2026 and beyond. +Recent Developments +In January 2025, the Company entered into a promissory note (the “January 2025 Note”) with the individual from whom the Company acquired a business from in August 2024 which converts the unpaid cash consideration of $170,000 and accrued interest of approximately $6,000 from accounts payable to a sellers note that matures on June 30, 2025. The unpaid balance of the principal amount bears interest at a rate of 14.0% per annum, except in the event of a default when interest increases to 19.0% per annum. An event of default is to have occurred if the unpaid principal and accrued interest thereon is not paid in full prior to the maturity date, if the Company makes an assignment for the benefit of creditors, or if the Company files for bankruptcy or another similar proceeding. +73 +Table of Contents +On January 28, 2025, the Company entered into a settlement and stipulation agreement (the “Settlement Agreement”) with Last Horizon, LLC (“Last Horizon”), pursuant to which the Company agreed to issue shares of the Company’s common stock to Last Horizon in exchange for the settlement of an aggregate $8,908,000 (the “Claim”) to resolve outstanding overdue liabilities with one of our lenders and certain of our vendors. The Company has issued 13,744,131 shares of the Company’s common stock to Last Horizon as Settlement Shares between January 28, 2025 and the date this Form 10-K was issued. The issuance of common stock to Last Horizon pursuant to the terms of the Settlement Agreement is exempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) thereof, as an issuance of securities in exchange for bona fide outstanding claims. +On March 26, 2025, the Company was awarded its first Home and Building Electrification (HBE) project in India through a strategic partnership with a local energy services provider. +During the three months ended March 31, 2025, the Company entered into twelve convertible note agreements in exchange for aggregate gross proceeds of $2,530,000 to eleven lenders (the “Q1 2025 Convertible Notes”). The Q1 2025 Convertible Notes bear interest at a rate of 20.0% per annum. The Q1 2025 Convertible Notes have maturity dates that range from 40-days to one year from the convertible note issuance date, optional conversion period that ranges from thirty to ninety days, and a conversion price that ranges from $1.00 to $1.15. +On April 2, 2025, the forward purchase agreement with Meteora was terminated. There were 1,618,948 shares of our common stock held by Meteora which were deemed free and clear of obligations and $500,000 termination payment owed to us from Meteora. +On April 11, 2025, the Company held a special meeting of shareholders. The shareholders voted to approve a reverse stock split and issuance of up to 25,000,000 shares via a standby equity purchase agreement however no shares were issued under the agreement. As of the date of this filing, the reverse stock split authorized at the April 11, 2025 special meeting had not been effected. +On April 25, 2025, the Company completed its acquisition of Cambridge Energy Resources Pvt. Ltd. (“CER”), a privately held India- based Energy-Management-as-a-Service provider, following receipt of all necessary regulatory approvals. Under the terms of the transaction, the purchase price was approximately $1,108,640 out of which, the Company has paid approximately $719,897 (as discussed in Note 5). CER brings an established operating presence in India’s rooftop solar and telecommunication energy - management sectors, complementing the Company’s Owned Service Network segment and Energy Intelligence Network. Management expects the integration of CER to accelerate strategic growth across distributed energy and telecom infrastructure markets in India and to contribute to an increased share of the Company’s India-based operations as a percentage of global revenue over the next twelve months. +On April 28, 2025, the Company entered into a stock purchase agreement with W4 Partners LLC (the “Seller”), for the purposes of acquiring from the Seller all of the issued and outstanding equity securities of Air Temp Service Co, Inc. (“ATS”) and Solar Energy Systems of Brevard, Inc (“SESB”) in exchange for the issuance of 2,200,000 shares of the Company’s common stock. Per the terms of the stock purchase agreement, if the Company was delisted from the Nasdaq exchange within 90 days of closing, the Company was required to issue an additional 2,700,000 shares of the Company’s common stock. The total fair value of the 4,900,000 shares of the Company’s common stock issued as consideration to the Seller was approximately $3,199,480, as determined using the closing share price on the date of agreement on April 28, 2025. +On May 5, 2025, the Company’s board of directors designated 100,000 shares of preferred stock as Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Stock”) and 100,000 shares of preferred stock as Series B Convertible Preferred Stock, par value $0.0001 per share (the “Series B Stock”). The Series A Stock and the Series B Stock have an initial stated value of $100.00 per share, subject to adjustment in the event of a stock split, combination or other similar recapitalization. +On May 6, 2025, the Company received a determination letter (the “Delisting Notification”) from the Nasdaq Hearings Advisor stating that the Panel had determined to delist the Company’s common stock, par value $0.0001 per share from the Nasdaq Capital Market, and Nasdaq suspended the trading of the Company’s Common Stock on May 7, 2025 because the Company had not demonstrated compliance with the MVLS Rule, nor did it meet any of the alternative requirements under Nasdaq Listing Rule 5550 (b) and had failed to demonstrate that additional time to regain compliance was appropriate. +During April 2025 and May 2025, the Company entered into twenty-five note exchange agreements with twelve of its lenders under which sixteen secured promissory notes totaling $4,435,000, nine convertible notes totaling $1,840,000, and accrued interest and fees totaling $1,189,939 were exchanged for 15,290,930 shares of the Company’s common stock with a fair value of $8,224,386, as determined on the issuance date using the reported closing share price. +74 +Table of Contents +The Company entered into six promissory note agreements in exchange for aggregate gross proceeds of $735,000 during April 2025 and May 2025. Each of the notes bears interest at a rate of 20.0% per annum and matures 180 days from its respective issuance date. +During May 2025, we amended three of our business loan and security agreements, extending the maturity dates through November 2026 and December 2026 and reducing monthly payments from approximately $23,000 to $8,000. +During May 2025 and June 2025, we issued 585,000 shares of our common stock to certain advisers with a fair value of approximately $133,000, as determined on the issuance date using the reported closing share price. +During 2025, we issued 2,758,309 shares of our common stock to its directors and employees as consideration for past services performed with a fair value of approximately $512,000, as determined on the issuance date using the reported closing share price. During May 2025 and June 2025, we sold 3,658,333 shares of our common stock for gross proceeds of approximately $805,000 with a fair value of approximately $948,000, as determined on the issuance date using the reported closing share price. +The Company entered into six convertible note agreements in exchange for aggregate gross proceeds of $1,026,000 to six lenders during April 2025, May 2025, and June 2025 (the “Q2 2025 Convertible Notes”). The Q2 2025 Convertible Notes bear interest at a rate of 20.0% per annum. Five of the Q2 2025 Convertible Notes have maturity dates that range from 40 - days to one year, optional conversion periods that range from thirty to 180 days, and conversion prices that either range from $0.60 to $1.15 or is convertible at a conversion price equal to the quotient obtained by dividing (x) the sum of the principal and accrued by unpaid interest by (y) 90.0% of the VWAP on the primary trading market of the Company’s common stock the three trading day period immediately preceding the measurement date. One of the Q2 Convertible Notes bears interest at a rate of 20.0% per annum, matures 210 days from the agreement date, and is convertible any time before the maturity date at the option of the holder into shares of the Company’s common stock at a conversion price equal to the lower of (i) $0.25 or (ii) the quotient obtained by dividing (x) the sum of the principal and accrued by unpaid interest by (y) 90.0% of the VWAP on the primary trading market of the Company’s common stock the three trading day period immediately preceding the measurement date. +On July 10, 2025, the Company entered into the first amendment to the January 2025 Note (the “Amended January 2025 Note”), under which the Company is required to pay the lender approximately $26,000 towards the principal, approximately $14,000 of accrued interest, and the lender’s legal fees of approximately $3,000. The Amended January 2025 Note extended the maturity date from June 30, 2025 to August 8, 2025 and increased the interest rate to 18.0% effective July 1, 2025. +On August 14 2025, the Company entered into a Second Amendment to the January 2025 Note (the “Second Amended January 2025 Note”), which extended the maturity date from August 8, 2025 to September 30, 2025 and required payment of an approximately $10,000 forbearance fee to the lender. This debt was subsequently paid off as on October 21, 2025. +From July 1, 2025 through September 30, 2025, the Company entered into five convertible note agreements in exchange for aggregate gross proceeds of $1,900,000 with four lenders (the “Q3 2025 Convertible Notes”). The Q3 2025 Convertible Notes bear interest at a rate of 20.0% per annum and mature 210 days from the agreement date. The Q3 2025 Convertible Notes are convertible any time before the maturity date at the option of the holder into shares of the Company’s common stock at a conversion price equal to the lower of (i) $0.25 or (ii) the quotient obtained by dividing (x) the sum of the principal and accrued by unpaid interest by (y) 90.0% of the VWAP on the primary trading market of the Company’s common stock the three trading day period immediately preceding the measurement date. The number of shares issuable upon conversion is determined by dividing the sum of the outstanding principal and accrued interest by the conversion price. +On September 24, 2025, ConnectM entered into a Settlement and Termination Agreement with Libertas Funding, LLC, resolving all outstanding obligations related to a prior Agreement of Sale of Future Receivables and Debt Conversion Agreement. Under the terms of the settlement, Libertas agreed to terminate its senior secured lien and release all related financing statements and security interests in the Company’s assets. In consideration, ConnectM acknowledged a remaining debt balance of approximately $3,100,000 and agreed to a structured repayment plan providing for initial weekly payments followed by bi-monthly installments beginning in October 2025, with stepped increases tied to the Company’s planned uplisting to a senior market tier. The agreement also provides ConnectM with the right to redeem 1,557,796 shares of its common stock held by Libertas for nominal consideration following full repayment of the debt. The settlement eliminated all prior claims between the parties and restored full ownership control of the related equity securities to the Company’s shareholders +75 +Table of Contents +From October 6, 2025 through December 31, 2025, the Company entered into seven convertible note agreements in exchange for aggregate gross proceeds of $2,550,000 with five lenders (the “Q4 2025 Convertible Notes”). The Q4 2025 Convertible Notes bear interest at a rate of 20.0% per annum and mature 210 days from the agreement dates. The Q4 2025 Convertible Notes are convertible any time before the maturity date at the option of the holder into shares of the Company’s Common Stock at a conversion price equal to the lower of (i) $0.25 or (ii) the quotient obtained by dividing (x) the sum of the principal and accrued by unpaid interest by (y) 90.0% of the VWAP on the primary trading market of the Company’s Common Stock the three trading day period immediately preceding the measurement date. The number of shares issuable upon conversion is determined by dividing the sum of the outstanding principal and accrued interest by the conversion price. +On October 23, 2025, the Company entered into a funding agreement with an institutional investment fund pursuant to which it issued a promissory note in the principal amount of $275,000. The note was issued with a 10% original issue discount, resulting in net proceeds to the Company of $250,000, and carries a one-time interest charge of 10%. The note matures 12 months from issuance and requires monthly amortization payments beginning 180 days after the issue date. The Company may prepay the note at any time without penalty in accordance with the terms of the agreement. +The note includes a contingent conversion feature that becomes exercisable only upon the occurrence of an event of default, at which time the holder may elect to convert all or a portion of the outstanding balance into shares of the Company’s Common Stock at a conversion price equal to 75% of the lowest closing bid price during the 15 trading days immediately preceding the conversion date. In connection with the note, the Company instructed its transfer agent to reserve a sufficient number of shares of Common Stock (initially 5,723,214 shares, subject to adjustment) to satisfy any potential conversions in the event of default. The proceeds from this financing are being used for working capital and general corporate purposes. +On October 27, 2025, the Company announced the formation of Keen Labs Operations LLC, a wholly owned subsidiary established to consolidate and expand our AI and technology operations. In December 2025, upon advice of counsel, the Company implemented an updated entity structure and organized Keen Labs, which now serves as the Company’s wholly owned subsidiary for these purposes. Keen Labs serves as our dedicated technology and innovation arm, housing all of our AI, industrial IoT, battery systems, and distributed energy platforms and products. The subsidiary provides a focused structure to accelerate product development, improve capital efficiency, and pursue both organic and acquisition-driven growth across the energy transition, logistics, and mobility sectors. Keen Labs builds on the strong foundation of our existing technology operations, which have demonstrated substantial revenue and margin growth over the past several years. The subsidiary is expected to serve as the central platform for future technology development and strategic partnerships, enabling us to strengthen our leadership position in AI-powered electrification and the modern energy economy. +On November 3, 2025, we entered into an Asset Purchase Agreement with Amperics Holdings LLC and its parent, Amperics Inc. (together, “Amperics”), pursuant to which we acquired certain assets related to Amperics’ nanotechnology-based energy-storage business (the “Acquisition”). We obtained control upon execution and closing of the Asset Purchase Agreement and the related Bill of Sale and Assignment and Assumption Agreement. +Consideration and ownership acquired: The consideration consisted of 2,700,000 shares of our Common Stock issued to the seller, valued at approximately $864,000 based on the closing price of $0.32 per share on the acquisition date. No cash consideration was paid. Because the transaction was structured as an asset purchase, we did not acquire voting equity interests of an acquiree entity, and therefore a percentage ownership disclosure is not applicable. +Contingent consideration: The Asset Purchase Agreement does not provide for earn-outs or other contingent consideration. The only potential adjustment is a mechanical equitable adjustment for stock splits occurring between signing and closing. +Assets acquired and liabilities assumed: Although the Asset Purchase Agreement contemplated the acquisition of contracts, intellectual property (including patents), and other assets, at the acquisition date Amperics had no contracts in place that would give rise to identifiable future economic benefits, the acquired patents had expired and offered no legal protection or separate future economic benefits, and no tangible assets existed. Accordingly, the sole identifiable asset acquired was proprietary technology related to pseudocapacitors, conductive ink formulations, production techniques, and product specifications. No liabilities existed or were assumed as of the acquisition date. +Purchase price allocation: The Company completed its purchase price allocation with the assistance of a third-party valuation specialist. The entire purchase consideration of approximately $864,000 was allocated to the acquired proprietary technology, which is being amortized on a straight-line basis over an estimated useful life of 10 years. No goodwill was recognized. +76 +Table of Contents +The sole asset acquired was proprietary technology related to Amperics’ nanotechnology-based energy-storage business, which will be integrated into Keen Labs, the Company’s AI and technology subsidiary. +On November 3, 2025, we acquired control of Geo Impex through an Exchange and Acquisition Agreement. Under the agreement, (i) We acquired approximately 86.22% of the voting equity interests of Geo Impex India in exchange for newly issued shares of our common stock and promissory notes indirectly through our wholly owned subsidiary in India. The remaining 13.78% is held by third-party shareholders and is reported as non-controlling interest of $984,025. +As part of the consideration, we issued 33,300,000 shares of our common stock valued at approximately $10,656,000 based on the closing price on the acquisition date and a promissory note with a principal amount of $788,900 for a total purchase price of $11,444,900. +The agreement contains no earn-outs or other contingent consideration. The number of shares issued is subject only to an equitable adjustment for stock splits between signing and closing. The promissory note has a fixed principal and no variable features.The transaction was evaluated under ASC 805, Business Combinations. +Accounting treatment: The Company concluded that the transaction did not meet the definition of a business combination and was accounted for as an asset acquisition under U.S. GAAP. The allocation of purchase consideration to identifiable assets (including land and related rights) and liabilities have been determined based on their relative fair values at the acquisition date. No goodwill was recognized. +On November 10, 2025, the Company announced it had entered into a distribution agreement with Greentech Renewables, a U.S. distributor of solar and electrical products, for the sale and distribution of the Company’s Keen-branded high-efficiency heat pumps and related smart controls. The agreement is intended to expand the Company’s distribution reach across Greentech’s national contractor network and support broader adoption of the Company’s heat-pump technology developed by its subsidiary, Keen Labs. +On December 29, 2025, ConnectM entered into a Settlement and Termination Agreement (the “Yorkville Agreement”) with Yorkville related to the Company’s December 17, 2024 SEPA. The Yorkville Agreement provides for continued $250,000 cash payments on alternate Mondays, applied to reduce the outstanding pre-paid advance obligation (including principal, interest and applicable premiums), and confirms the December 15, 2025 payment was applied first to satisfy the $187,500 deferred fee, with the balance applied to the pre-paid advance obligation. +The Yorkville Agreement further provides that, if an underwritten public offering in connection with an uplisting to a national securities exchange is consummated, the SEPA will be terminated immediately prior to the closing, and Yorkville will receive a termination fee in Common Stock valued at $175,000 equal to the price per share of Common Stock in this offering, as well as a 24-month ROFR on any future equity line of credit. +On January 5, 2026, the Company entered into an acquisition agreement to acquire a 40% equity interest in Sun Solar LLC (“Sun Solar”), a U.S.-based residential and small-commercial solar developer and installer, in exchange for 15,000,000 shares of the Company’s common stock. The investment is accounted for under the equity method of accounting in accordance with ASC 323, as the Company has the ability to exercise significant influence over Sun Solar’s operating and financial policies but does not hold a controlling financial interest. Concurrently, the Company, through its subsidiary Keen Labs Operations, Inc., entered into a managed services agreement with Sun Solar pursuant to which Keen Labs will provide procurement, marketing and lead generation, and working capital support services in exchange for fees equal to 40% of Sun Solar’s gross revenues, with revenue recognized in accordance with ASC 606 as services are performed. Sun Solar is also expected to serve as a strategic installation and distribution channel for the Company’s home energy and electrification solutions, including a VPP kit supply agreement with Keen Labs covering solar panels, batteries and balance-of-system components. The Company intends to align its solar operations with Sun Solar under the “Sun Solar Northeast” banner and deploy additional capital to support the expansion of cutting-edge energy storage and VPP installations. +On January 15, 2026, at a special meeting of stockholders, the Company’s stockholders approved a reverse stock split of the Company’s Common Stock at a ratio between 1-for-5 and 1-for-50, with the final ratio to be determined by the Board of Directors. On March 26, 2026, the Board approved a 1-for-32 reverse stock split ratio and authorized the Company to effect the reverse stock split at 4:01 p.m. (Eastern Time) on April 17, 2026, with trading on a split-adjusted basis expected to commence on April 20, 2026, subject to regulatory approval and completion of applicable procedures. Each thirty-two (32) shares of Common Stock outstanding immediately prior to the effective time will be combined into one share, with fractional shares rounded up to the nearest whole share. The Company +77 +Table of Contents +has filed, or is in the process of filing, the necessary documentation with applicable regulatory authorities, including FINRA, and is coordinating with its transfer agent to effect the split. +On January 1, 2026, the Company transferred all HVAC business assets and operations conducted under the Air Temp Service Co. trade name to A.T.S. Heating & Cooling LLC (“ATS LLC”), a New Jersey limited liability company, pursuant to a Non-Cash Business Asset Transfer Agreement. The transaction involved no cash consideration, and ATS LLC did not assume any pre-existing liabilities of the Company, with all obligations arising prior to the effective date retained by the Company. The Company retained a 1% non-voting, non-distributing equity interest in ATS LLC solely for participation in a shared health benefits arrangement and is entitled to 2% of net proceeds in the event ATS LLC is sold within 24 months of the effective date. The Company is also subject to a five-year non-compete covenant within ATS LLC’s service territories. Management does not expect the transaction to have a material adverse effect on ongoing operations. +Subsequent to December 31, 2025, Greentech Renewables placed additional purchase orders under the previously announced distribution agreement. In January 2026, Greentech placed a follow-on order of approximately $865,000, and in February 2026, an additional order of approximately $1,000,000, increasing cumulative purchase commitments under the arrangement to approximately $1,865,000. +On March 10, 2026, the Company completed the acquisition of Harry Kahn Associates, Inc. (“HKA”), a defense-focused technical data development company, in exchange for 400,000 shares of the Company’s common stock. No cash consideration was paid and no debt was assumed. HKA provides logistics support analysis databases, technical manuals, and training materials for U.S. government agencies and defense contractors. The acquisition expands the Company’s technology platform into the defense and government infrastructure sector and is expected to enable the application of Keen Labs’ AI and data analytics capabilities to predictive maintenance, lifecycle sustainment, and logistics intelligence use cases. The Company will account for the transaction as a business combination under ASC 805, and the purchase price allocation is preliminary. +Subsequent to December 31, 2025, the Company issued several unsecured convertible promissory notes to certain investors for aggregate gross proceeds of approximately $2,125,150. During January 2026, the Company issued four convertible promissory notes with aggregate principal of $1,077,150, and in February 2026, the Company issued two convertible promissory notes with principal of $478,000. +In addition, in March and April 2026, the Company issued additional convertible promissory notes with aggregate principal of $570,000, including (i) $224,000 issued on March 30, 2026, (ii) $150,000 issued on March 30, 2026, and (iii) an aggregate of $200,000 issued on April 2, 2026. +The notes bear interest and are convertible into shares of the Company’s common stock at the option of the holders in accordance with their respective terms. In certain instances, the Company issued shares of common stock as additional consideration in connection with these financings, and the notes may be issued at a discount to face value. The notes were issued in private placements exempt from registration under the Securities Act of 1933 pursuant to Section 4(a)(2) and/or Regulation D, and the proceeds were used for working capital and general corporate purposes. +Subsequent to December 31, 2025, the Company also entered into multiple promissory note and term loan agreements with third-party lenders, providing aggregate gross proceeds of approximately $1,310,000. During January and February 2026, the Company issued multiple promissory notes, including notes with principal amounts of $500,000, and $230,000. In addition, the Company entered into term loan agreements with principal amounts of $500,000 and $80,000 with third-party lenders. The promissory notes generally bear interest and mature in accordance with their contractual terms, and the term loans are repayable pursuant to scheduled principal and interest payments. In February 2026, the Company amended one of its existing promissory note agreements to modify certain terms. Proceeds from these financings were used for working capital and general corporate purposes. +On March 9, 2026, the Company expanded its financing arrangements through an addendum to its existing factoring and security agreement with a lender. The arrangement provides working capital through the sale of receivables and purchase order financing, including supplier payments made directly by the lender. +Pursuant to the addendum, Keen Labs Operations, Inc. was added as an additional obligor and is jointly and severally liable with affiliated entities. The facility is secured by substantially all assets of the applicable entities and includes cross-collateralization and cross-default provisions. +78 +Table of Contents +The arrangement includes enforcement mechanisms customary for facilities of this type, including the ability to accelerate obligations and pursue collection remedies upon an event of default. +On March 16, 2026, the Company refinanced and replaced the foregoing facility by entering into a new business loan and security agreement with a lender for $650,000. After deducting an origination fee of approximately $32,800, the payoff of the remaining balance on the prior facility and other applicable fees, net proceeds of approximately $428,400 were disbursed to the Company. The new facility requires 36 weekly payments of approximately $25,639 for a total repayment amount of $923,000 and matures in November 2026. The facility is secured by substantially all assets of the Company and certain of its subsidiaries, includes a personal guarantee from an officer of the Company, and contains customary covenants, including restrictions on additional indebtedness. Early repayment is permitted without penalty. +On March 20, 2026, the Company entered into an Asset Purchase Agreement to sell certain assets of its Green Energy Gains (“GEG”) business to Forge Team, Inc. The transaction is part of the Company’s continued focus on optimizing its operating structure and reallocating resources toward higher-margin and technology-enabled solutions. +The transaction includes the transfer of customer relationships, backlog, and certain operating assets, while the Company retains historical liabilities associated with pre-closing operations. The Company will provide limited transition support to facilitate continuity of operations following closing. +On March 24, 2026, the Company entered into an additional business loan and security agreement with a lender for $350,000. After deducting applicable fees, net proceeds were disbursed to the Company. The facility requires periodic payments of future receivables consistent with prior agreements with this lender and is secured by substantially all assets of the Company and certain of its subsidiaries, and includes a personal guarantee from an officer of the Company. +The proceeds from the foregoing financings were used for working capital and general corporate purposes and to support the Company’s near-term liquidity needs. +Convertible Notes +As of December 31, 2025, the Company has a series of outstanding short-term convertible promissory notes (collectively, the “Convertible Notes”), issued between May 2025 to December 2025, as summarized in the table below. The notes vary by issuance date, principal amount, stated interest rate, and maturity, and may be converted into shares of the Company’s Common Stock at the election of the holders. +The table below sets forth, for each outstanding note, the issuance and maturity dates, original conversion price, stated interest rate, principal amount, and whether the note has been converted as of the reporting date: +79 +Table of Contents +Summary of Convertible Notes Outstanding as of December 31, 2025 +(Amounts in U.S. dollars) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Conversion Option +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Period +​ +​ +​ +​ +​ +​ +Conversion +​ +of Exercisability +​ +Maturity Date +Issuance Date +​ ​ ​ +Net Proceeds +​ ​ ​ +Price +​ +(from issuance date) +​ ​ ​ +(from issuance date) +5/26/2025 (1) +$ +156,000 +$ +0.25 +​ +180-days +​ +210-days +10/1/2025 (2) +​ +188,000 +$ +0.05 +​ +Upon Default +​ +302-days +10/7/2025 (2) +​ +130,000 +$ +0.05 +​ +Upon Default +​ +312-days +10/23/2025 (3) +​ +246,250 +$ +0.0375 +​ +Upon Default +​ +365-days +11/25/2025 (5) +​ +192,000 +$ +0.0325 +​ +Upon Default +​ +310-days +11/25/2025 (4) +​ +500,000 +$ +0.25 +​ +210-days +​ +210-days +12/2/2025 (4) +​ +250,000 +$ +0.25 +​ +210-days +​ +210-days +12/8/2025 (4) +​ +​ +1,000,000 +​ +$ +0.25 +​ +210-days +​ +210-days +12/8/2025 (4) +​ +​ +250,000 +​ +$ +0.25 +​ +210-days +​ +210-days +12/8/2025 (4) +​ +​ +50,000 +​ +$ +0.25 +​ +210-days +​ +210-days +12/16/2025 (4) +​ +​ +250,000 +​ +$ +0.25 +​ +210-days +​ +210-days +12/17/2024 (6) +​ +2,300,000 +$ +2.00 +​ +Upon Default +​ +82-days +​ +​ +$ +5,512,250 +​ +​ +​ +​ +​ +​ +(1) +From issuance until day 180, the Note’s outstanding principal and accrued interest are convertible, at the holder’s option, into common shares at a price equal to 90% of the lowest daily VWAP of the Company’s common stock during the three trading days immediately preceding the conversion date. +(2) +These convertible notes are convertible at a price equal to the greater of (i) $0.05 or (ii) 65% multiplied by the lowest trading price for the common stock during the ten trading days immediately preceding the conversion date. The conversion price is variable with $0.1418 as floor conversion price. +(3) +This convertible note is convertible at a price equal to 75% multiplied by the lowest closing bid price for the common stock during the fifteen trading days immediately preceding the conversion date. +(4) +For the first 210 days following issuance, the outstanding principal and accrued interest on each Note are convertible, at the holder’s option, into Common Stock at a price equal to the lower of (1) quotient (rounded down to the nearest whole share) obtained by dividing (x) the sum of the Principal Amount and any interest accrued thereon by (y) 90% of the lowest daily volume weighted average price (the “VWAP”) of the Common Stock on the primary trading market of the Common Stock during the 3 trading day period immediately prior to the applicable measurement date or (2) a fixed conversion price of $0.25. After the 180- day period, the Notes may convert at their fixed stated conversion price of $0.25. The Notes are expected to be converted into shares of our Common Stock. +(5) +These convertible notes are convertible at a price equal to 65% multiplied by the lowest trading price for the common stock during the ten trading days immediately preceding the conversion date. +(6) +The conversion price is variable with $0.1418 as floor conversion price. +The Convertible Notes are convertible at the option of the holder into shares of the Company’s Common Stock at a conversion price determined in accordance with the note agreements. The number of shares issuable upon conversion is determined by dividing the sum of the outstanding principal and any accrued but unpaid interest by the applicable conversion price. +Several earlier-issued notes have been fully converted as of the balance sheet date. Subsequent issuances between May 2025 and the date of this Annual Report on Form 10-K (above table) remain outstanding and, if converted, would result in the issuance of up to approximately 10,124,724 shares of Common Stock based on the applicable conversion prices. +These instruments form part of the Company’s capital-structure transition plan aimed at deleveraging the balance sheet and simplifying outstanding debt prior to uplisting. Management believes conversion or repayment of these notes will reduce interest expense and improve liquidity flexibility. +80 +Table of Contents +Further, during the year ended December 31, 2025, the Company also converted $6,155,891 of convertible note principal and accrued interest into 35,011,418 shares of common stock, including certain exchanges following the expiration of original conversion windows. These negotiated debt-for-equity exchanges under Section 3(a)(9) were determined to be substantial modifications and were accounted for as debt extinguishments. Accordingly, the Company recognized a gain on extinguishment of $2,261,222, representing the difference between the fair value of shares issued and the carrying amount of the related debt, including any unamortized discounts or premiums. +Known Trends and Uncertainties +The Company operates in markets undergoing significant structural change driven by electrification, distributed energy adoption, artificial intelligence, and digitalization of infrastructure and logistics. Management believes the following trends, developments, and uncertainties are reasonably likely to have a material impact on the Company’s future operating results, financial condition, and growth trajectory. +Electrification of Buildings and HVAC Systems +The transition from fossil-fuel-based heating systems to electric alternatives—particularly high-efficiency heat pumps continues to accelerate across residential and light commercial markets. This trend is supported by aging building stock, rising energy costs, and government incentive programs. +As ConnectM’s service network is heavily exposed to HVAC electrification, including installation, monitoring, and optimization services, continued adoption of electric heating technologies represents a significant growth driver. However, the pace and durability of this trend remain subject to several uncertainties, including: +● the continuation, funding, and implementation timing of federal and state incentive programs; +● consumer adoption rates and perceived return on investment for electrification upgrades; +● availability of skilled labor and installation capacity; and +● competing technologies or fuel-price dynamics that may impact adoption decisions. +A slowdown in electrification adoption or a reduction in incentive support could materially impact demand for the Company’s services. +Expansion of Distributed Energy and Energy Storage +The increasing deployment of distributed energy resources, including solar generation and battery storage systems, is transforming how energy is produced, stored, and consumed at the edge of the grid. Battery storage in particular is expected to play a critical role in load shifting, resilience, and participation in virtual power plant (“VPP”) networks. +ConnectM’s strategy—through its service network and Keen Labs platform—is designed to capture value across the DER lifecycle, including installation, monitoring, optimization, and aggregation into AI-enabled energy networks. The Company expects continued growth in demand for solar-plus-storage solutions, particularly as grid constraints and peak pricing dynamics intensify. +Key uncertainties include: +● evolving economics of battery storage, including input costs (e.g., lithium, components) and system pricing; +● regulatory frameworks governing VPP participation and grid interconnection; +● utility policies related to net metering and distributed generation compensation; and +● the Company’s ability to scale its technology platform to manage increasing volumes of distributed assets. +81 +Table of Contents +Artificial Intelligence and Data Infrastructure in Energy Systems +The integration of artificial intelligence into energy, building, and infrastructure systems is accelerating, enabling predictive maintenance, real-time optimization, and autonomous control of connected assets. ConnectM’s platform and Keen Labs platform are designed to leverage these trends by aggregating operational data and deploying AI models across its installed base. +As adoption of AI-enabled infrastructure increases, the Company expects: +● improved operating efficiencies and service margins through automation and predictive analytics; +● new revenue opportunities tied to data services, optimization, and asset performance management; and +● enhanced competitive positioning through proprietary data accumulation and model training. +However, uncertainties include: +● the pace of enterprise and customer adoption of AI-driven solutions; +● competition from larger technology platforms and OEM-integrated software offerings; +● evolving data governance, privacy, and cybersecurity requirements; and +● the capital and operating costs required to scale AI infrastructure. +Digitalization and Optimization of Logistics and Mobility +The logistics and transportation sectors are undergoing rapid digital transformation, driven by e-commerce growth, demand for faster delivery times, and increasing cost pressures. At the same time, fleet electrification and sustainability requirements are reshaping operational models. +Through its logistics and transportation segments, ConnectM provides AI-enabled routing, dispatch, and fleet analytics solutions. Management believes that continued digitalization of last-mile logistics and fleet operations will drive demand for these solutions, particularly as customers seek to improve efficiency and reduce costs. +Uncertainties impacting this trend include: +● variability in e-commerce growth and shipping volumes; +● competitive pressures from large logistics platforms and in-house enterprise solutions; +● adoption rates of EV fleets and related infrastructure; and +● macroeconomic conditions affecting shipping demand and customer spending. +Government Spending and Policy Support for Energy Transition and AI +Government policy remains a critical driver of demand across the Company’s core markets. Programs supporting electrification, renewable energy deployment, energy efficiency, and grid modernization—such as those authorized under the Inflation Reduction Act—have created substantial market tailwinds. +In addition, increasing government investment in artificial intelligence, infrastructure resilience, and digital systems may create new opportunities for ConnectM, particularly where its technology intersects with energy systems, smart infrastructure, and public-sector deployments. +However, these opportunities are subject to significant uncertainties, including: +82 +Table of Contents +● changes in political priorities, budget allocations, or regulatory frameworks; +● delays in program implementation or disbursement of funds; +● evolving compliance and reporting requirements; and +● the Company’s ability to access and compete for government-related contracts. +A reduction or delay in government support could adversely affect market demand across multiple segments. +Macroeconomic and Supply Chain Considerations +The Company’s operations are influenced by broader macroeconomic conditions, including interest rates, inflation, and supply chain dynamics. Higher interest rates may impact consumer financing for electrification projects, while inflationary pressures may affect equipment costs and labor availability. +In addition, global supply chains for key components—such as semiconductors, batteries, and HVAC equipment—remain subject to disruption, which could impact project timelines, margins, and customer demand. +Technology Evolution and Competitive Dynamics +The markets in which the Company operates are characterized by rapid technological innovation and evolving competitive landscapes. Advances in HVAC systems, battery technologies, AI platforms, and logistics software could accelerate market growth but may also introduce competitive risks. +The Company’s future performance will depend on its ability to: +● continue innovating through Keen Labs and its tech platform; +● integrate acquisitions and expand its service network efficiently; and +● differentiate its offerings through data, software, and end-to-end service capabilities. +Failure to adapt to technological change or competitive pressures could materially impact the Company’s results. +Comparability of Financial Information +Since becoming a public company, ConnectM has expanded its corporate, accounting, legal, and compliance infrastructure to meet ongoing reporting and governance requirements applicable to public companies. This transition has resulted, and is expected to continue to result, in higher general and administrative expenses, including those related to directors’ and officers’ liability insurance, director compensation, investor relations, and increased internal and external accounting, legal, audit, compliance, and administrative costs. +Reverse Recapitalization +On July 12, 2024, ConnectM consummated the Business Combination contemplated by the Merger Agreement with Legacy ConnectM surviving the merger as a wholly owned subsidiary of MCAC. +Immediately prior to the closing of the Business Combination: +● Each outstanding share of Legacy ConnectM preferred stock was converted into Legacy ConnectM Common Stock based on a one-to-one ratio. +● The Business Combination is accounted for with a retrospective application of the Business Combination that results in 2,427,791 shares of preferred stock converting into the same number of shares of Legacy ConnectM Common Stock convertible note payable totaling $2,250,000 were converted into shares of Legacy ConnectM Common Stock at $7.00 per share, resulting in the issuance of 321,428 shares of Legacy ConnectM Common Stock. +83 +Table of Contents +Upon consummation of the Business Combination: +● Each share of Legacy ConnectM stock issued and outstanding was cancelled and converted into the right to receive 3.3214 shares of the Company’s Common Stock. +Upon the closing of the Business Combination: +● MCAC’s certificate of incorporation was amended and restated to, among other things, set the total number of authorized shares of capital to 110,000,000 shares, of which 100,000,000 were designated as Common Stock, $0.0001 par value per share, and of which 10,000,000 shares were designated as preferred stock, $0.0001 par value per share. +● On September 25, 2025, the Company filed a Certificate of Amendment (the “ Amendment ”) to the Company’s Second Amended and Restated Certificate of Incorporation with the Delaware Secretary of State. The Amendment had the effect of increasing the total number of authorized shares of the Company’s Common Stock, $0.0001 par value per share, from 100,000,000 to 250,000,000. The Amendment had no effect on the number of authorized shares of preferred stock. +● Accordingly, following the filing of the Amendment, effective September 25, 2025, the Company’s authorized capital stock consisted of 260,000,000 shares, representing (i) 250,000,000 shares of Common Stock, and (ii) 10,000,000 shares of preferred stock. The Amendment was approved by the Company’s Board of Directors on August 13, 2025, and by the Company’s stockholders on September 24, 2025. +Legacy ConnectM was deemed the accounting acquirer in the Business Combination based on an analysis of the criteria outlined in Accounting Standards Codification (“ ASC ”) 805, Business Combinations (“ ASC 805 ”). The determination was primarily based on Legacy ConnectM’s shareholders prior to the Business Combination having a majority of the voting interests in the combined company, Legacy ConnectM’s ability to exert control over the majority of the board of directors of the combined company, Legacy ConnectM’s ability to maintain control of the board of directors on a go-forward basis, Legacy ConnectM’s senior management comprising the senior management of the combined company; and Legacy ConnectM’s operations prior to the Business Combination comprise the ongoing operations of the combined company. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Legacy ConnectM issuing stock for the net assets of MCAC, accompanied by a recapitalization. The net assets of MCAC were stated at fair value, with no goodwill or other intangible assets recorded. +As a result of the Business Combination, ConnectM became a publicly traded company, which required it hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. The Company incurred additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit, compliance and legal fees. +Key Factors Affecting Operating Results +The Company believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including but not limited to those discussed in Item 1A “Risk Factors”. +We expect to derive future revenue from (i) our existing high margin recurring revenue products, (ii) our expanded service offerings leveraging our existing customer and developer networks, (iii) expanding our existing software and AI capabilities through development of additional software tools aimed at solving pain points and increasing profitability for service providers, OEMs and other enterprise customers, (iv) an expanded customer base through client referrals and our customized, relationship-focused sales process, and (v) a continued focus on internation expansion for sales and distribution of our products and services. +84 +Table of Contents +Reportable Segments +ConnectM’s reportable operating segments include: +● Owned Service Network focuses on the deployment of modern energy economy solutions into enterprises, infrastructure providers, and homes and businesses by providing installation and maintenance services for electrified heating and cooling solutions and distributed energy solutions (including solar and battery). The installed equipment is connected to the Company’s tech platform to ensure peak performance and efficiency of the equipment as well as allowing the Company to remotely monitor maintenance needs. +● Managed Solutions provides a selection of servicing offerings that customers can select that include human resources management, procurement services, omnichannel marketing and lead generation as well as access to short-term working capital loans. +● Distributed Energy & Renewables (“DER”) focuses on the delivery of solar and distributed energy solutions for commercial, residential, consumer, and industrial customers in India through the Company’s Cambridge Energy Resources subsidiary, including project development, EPC services and ongoing energy management. +● Logistics focuses on the facilitation of business-to-business transportation of commercial and other heavy goods using the Company’s last mile delivery platform and software. +● Transportation focuses on the management of connected operations using the Company’s IIoT platform to remotely monitor and control the performance of equipment for original equipment manufacturers and other enterprise customers. +● Corporate & Strategic Assets holds the Company’s Geo Impex landholding near Chatrapur, Odisha, India, a strategic real estate asset approved for development into a multimodal logistics park and AI-enabled data center. This segment did not generate revenue during the periods presented and primarily reflects corporate-level activities and the carrying value of the land asset. +Key Components of Our Results of Operations +Key Components of Our Results of Operations +Revenue +ConnectM’s revenue is derived from contracts with customers and is recognized in accordance with ASC 606, comprising (i) installation and maintenance services for solar energy systems and HVAC solutions across customers, (ii) logistics and delivery services, (iii) product sales of hardware with embedded software to OEMs and wholesale distribution of heat pump equipment and smart controls through national distribution partners, (iv) software subscription services providing access to the Company’s IIoT platform, (v) managed solutions including HR, procurement, marketing and lead generation services, and (vi) distributed energy and renewables services, including EPC activities and sale of electricity under power purchase agreements. We fulfill obligations and recognize revenue under a contract with a customer by transferring products and services in exchange for consideration from the customer. Payments received or consideration billed in advance are recorded as deferred revenue. +For projects expected to be completed within one year, we have elected to recognize revenue in the amount billable to the end-consumer. +Under our contracts in the managed solutions segment, working capital adjustments may be processed quarterly, if year-to-date costs incurred by the customer exceed the percentage of the customer’s revenue and are recorded as a reduction of selling, general and administrative expenses as it represents the customer’s reimbursement of costs incurred by us. +The Company excludes from revenue the taxes collected from customers and remitted to government authorities related to sales of our inventory. Shipping and handling costs that are billed to customers are included in net sales. +85 +Table of Contents +Cost of Revenue +Cost of Revenue consists of personnel-related expenses, including salaries, benefits and stock-based compensation, and facility costs for the Company’s operations and manufacturing teams. Cost of Revenue also includes expenses for costs of equipment and professional services related to the maintenance or installation of equipment. The Company expects its operations costs to increase in the foreseeable future as it continues to invest in the expansion of its operations. +Selling, General and Administrative +Selling, general and administrative expenses consist of personnel-related expenses, including salaries, benefits and stock-based compensation, depreciation and amortization, and allocated facility costs for our business development, marketing, corporate, executive, finance, legal, human resources, IT, and other administrative functions. General and administrative expenses also include expenses for outside professional services, including legal, auditing and accounting services, recruitment expenses, travel expenses and certain non-income taxes, insurance, and other administrative expenses. +The Company expects its selling, general and administrative expenses to increase for the foreseeable future as it scales headcount with the growth of its business, and because of operating as a public company, including compliance with the rules and regulations of the SEC, legal, audit, increased insurance expenses, investor relations activities, and other administrative and professional services. +Loss on impairment of intangible assets and goodwill +Loss on impairment of intangible assets and goodwill consist of non-cash charges recognized when the carrying value of certain intangible assets exceeds their recoverable amount. This includes impairment losses related to customer relationships and trademarks associated with ATS and SESB, which were assessed for recoverability based on changes in circumstances and business conditions impacting the expected future economic benefits attributable to these assets. The Company performs impairment assessments whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable. The recognition of such losses reflects management’s ongoing evaluation of the continued utility and value of acquired intangibles in the context of the Company’s evolving operations and strategic priorities. +Other income (expense), net +Other income (expense), net consists primarily of interest expense incurred on our debt obligations, remeasurement gains or losses associated with the change in the fair value on our convertible notes payable and forward purchase agreement derivative liabilities, gains and losses on the extinguishment of liabilities, a gain on the modification of our forward purchase agreement, the bargain purchase gain from our CER acquisition, and other miscellaneous income or expenses incurred throughout the year. +Results of Operations +The following table summarizes our financial results for the period indicated: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Year Ended December 31, +​ +Change +​ +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +​ ​ ​ +$ +​ ​ ​ +% +​ +Revenues +​ +$ +35,836,809 +​ +$ +22,652,885 +​ +$ +13,183,924 +​ +58 +% +Costs and expenses: +​ +​ +​ +​ +​ +​ +​ +​ +​ +Cost of revenues +​ +24,371,255 +​ +16,706,177 +​ +7,665,078 +​ +46 +% +Gross profit +​ +​ +11,465,554 +​ +​ +5,946,708 +​ +​ +5,518,846 +​ +93 +% +Selling, general and administrative expenses +​ +23,502,849 +​ +15,145,429 +​ +8,357,420 +​ +55 +% +Loss on impairment of intangible assets and goodwill +​ +548,492 +​ +2,403,628 +​ +(1,855,136) +​ +— +% +Loss from operations +​ +(12,585,787) +​ +(11,602,349) +​ +(983,438) +​ +9 +% +Total other expense, net +​ +(3,487,971) +​ +(10,905,859) +​ +7,417,888 +​ +(68) +% +Net loss +​ +$ +(16,073,758) +​ +$ +(22,508,208) +​ +$ +6,434,450 +​ +(29) +% +​ +Revenues +Revenue increased approximately $13,184,000, or 58%, to $35,837,000 for the year ended December 31, 2025 from $22,653,000 for the year ended December 31, 2024. This increase was primarily driven by the Company’s new Logistics segment, established in +86 +Table of Contents +connection with the Delivery Circle acquisition completed in August 2024, and expanding Owned Service Network through the acquisitions of additional service providers and geographic market expansion. +Costs and Expenses +Cost of Revenues increased by approximately $7,665,000, or 46%, to $24,371,000 for the year ended December 31, 2025 from approximately $16,706,000 for the year ended December 31, 2024. This increase was primarily driven by the introduction of our new Logistics segment established in connection with the Delivery Circle acquisition completed in August 2024, which added approximately $5,780,000 in cost of revenue, which was driven by the increase in revenues for this segment, as described above, for the year ended December 31, 2025. +Selling, General and Administrative expenses +Selling, general and administrative expenses increased by approximately 8,357,000 or 55% to $23,503,000 for the year ended December 31, 2025 from $15,145,000 for the year ended December 31, 2024. The increase was primarily driven by approximately $3,020,000 of increased operating costs associated with becoming a public company in July 2024 and our expanding Owned Service Network through the acquisitions of additional service providers and geographic market expansion. Approximately $1,429,000 of selling, general and administrative expenses from our new Logistics segment, and increased marketing costs in our Owned Service Network segment of approximately $1,620,000 for the year ended December 31, 2025. +Loss on impairment of intangible assets and goodwill +Loss on impairment of intangible assets and goodwill decreased approximately $1,855,000, or 77%, to $548,000 for the year ended December 31, 2025 from approximately $2,404,000 for the year ended December 31, 2024. The decrease was primarily due to the Company having recorded significantly higher impairment losses in the prior year attributed goodwill and intangible assets of approximately $1,568,000 and 835,000, respectively. The impairment charge of $548,000 for the year ended December 31, 2025 reflects a reduced level of such losses on the customer relationships and trademarks associated with ATS and SESB, as the extent of the triggering conditions that existed in the prior year did not recur at the same magnitude during the current year. +Other Income (Expense) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Year Ended December 31, +​ +Change +​ +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +​ ​ ​ +$ +​ ​ ​ +% +​ +Interest expense +​ +$ +(1,303,292) +​ +$ +(2,714,048) +​ +$ +1,410,756 +​ +(52) +% +Loss on issuance of financial instruments +​ +​ +(45,250) +​ +​ +— +​ +​ +(45,250) +​ +— +​ +Loss on extinguishment of debt and vendor payable +​ +​ +(3,010,366) +​ +​ +(1,645,443) +​ +​ +(1,364,923) +​ +83 +​ +Gain on Extinguishment of debt +​ +​ +2,568,839 +​ +​ +2,257,638 +​ +​ +311,201 +​ +14 +​ +Change in fair value of forward purchase agreement +​ +​ +(971,000) +​ +​ +(8,254,390) +​ +​ +7,283,390 +​ +(88) +​ +Change in fair value of convertible debt +​ +​ +(2,146,284) +​ +​ +(1,707,747) +​ +​ +(438,537) +​ +26 +​ +Loss on forward purchase agreement +​ +​ +— +​ +​ +(266,655) +​ +​ +266,655 +​ +(100) +​ +Gain on forward purchase agreement +​ +​ +— +​ +​ +1,453,891 +​ +​ +(1,453,891) +​ +(100) +​ +Change in fair value of derivative liabilities +​ +​ +(365,158) +​ +​ +(187,428) +​ +​ +(177,730) +​ +95 +​ +Change in fair value of contingent consideration +​ +​ +(111,355) +​ +​ +(59,723) +​ +​ +(51,632) +​ +87 +​ +Day one gain on issuance of SEPA +​ +​ +— +​ +​ +134,886 +​ +​ +(134,886) +​ +(100) +​ +Gain on modification of liabilities +​ +​ +194,523 +​ +​ +— +​ +​ +194,523 +​ +— +​ +Bargain purchase gain +​ +​ +2,121,079 +​ +​ +— +​ +​ +2,121,079 +​ +— +​ +Change in fair value on 3(a)(10) Settlement Agreement (Note 12) +​ +​ +(721,829) +​ +​ +— +​ +​ +(721,829) +​ +— +​ +Other income (expense), net +​ +​ +302,122 +​ +​ +83,160 +​ +​ +218,962 +​ +263 +​ +Total other income (expense), net +​ +$ +(3,487,971) +​ +$ +(10,905,859) +​ +$ +7,417,888 +​ +(68) +% +​ +87 +Table of Contents +Total other expense, net decreased to approximately $(3,488,000) for the year ended December 31, 2025 from approximately $10,906,000 for the year ended December 31, 2024, an improvement of approximately $7,418,000 or 68%. The major components of the year-over-year change are discussed below. +Interest expense. Interest expense decreased to approximately $1,303,000 for the year ended December 31, 2025 from approximately $2,714,000 for the year ended December 31, 2024, a decrease of approximately $1,411,000 or 52%. This decrease was primarily driven by a reduction in outstanding debt of approximately $7,261,000 resulting from the conversion of certain promissory notes into common stock during 2025. +Debt extinguishment, issuance, and modification activity. During the year ended December 31, 2025, the Company recognized a net loss on extinguishment of debt and vendor payables of approximately $(442,000) and a loss on issuance of financial instruments of approximately $45,000, partially offset by a gain on modification of liabilities of approximately $195,000, for a net charge of approximately $292,000. The loss on extinguishment resulted from amendments to certain debt and vendor agreements where the revised terms were determined to be substantially different from the original terms, requiring extinguishment accounting. During the year ended December 31, 2024, the Company recognized a net gain on extinguishment of debt of approximately $2,258,000, partially offset by a loss on extinguishment of approximately $1,645,000, for a net gain of approximately $613,000. The year-over-year unfavorable change of approximately $905,000 reflects the absence of the prior-year gain on extinguishment and higher extinguishment losses in the current year. +Fair value changes on financial instruments. The Company recognized the following fair value changes during the years ended December 31, 2025 and 2024: +The change in fair value of the forward purchase agreement resulted in a loss of approximately $971,000 for the year ended December 31, 2025 compared to a loss of approximately $8,254,000 for the year ended December 31, 2024, an improvement of approximately $7,283,000. The significant reduction in the prior-year period loss reflects the decline in the fair value of the forward purchase agreement as the instrument approached its settlement terms and the underlying share price volatility stabilized. +The change in fair value of convertible debt resulted in a loss of approximately $2,146,000 for the year ended December 31, 2025 compared to a loss of approximately $1,708,000 for the year ended December 31, 2024, an increase of approximately $439,000. This increase was primarily attributable to the reduction in outstanding convertible debt balances carried at fair value during 2025 as a result of debt conversions and settlements. +The change in fair value of derivative liabilities resulted in a loss of approximately $365,000 for the year ended December 31, 2025 compared to a loss of approximately $187,000 for the year ended December 31, 2024, an increase of approximately $178,000, driven by additional derivative instruments recognized in connection with convertible notes issued during 2025. +The change in fair value of the 3(a)(10) Settlement Agreement resulted in a loss of approximately $722,000 for the year ended December 31, 2025, with no comparable amount in the prior year as the agreement was entered into in January 2025. +The change in fair value of contingent consideration resulted in a loss of approximately $111,000 for the year ended December 31, 2025 compared to a loss of approximately $60,000 for the year ended December 31, 2024. +In the aggregate, fair value changes on financial instruments resulted in a net loss of approximately $3,594,000 for the year ended December 31, 2025 compared to a net loss of approximately $10,209,000 for the year ended December 31, 2024, an improvement of approximately $6,615,000. +Bargain purchase gain. During the year ended December 31, 2025, the Company recognized a bargain purchase gain of approximately $2,121,000 in connection with the acquisition of Cambridge Energy Resources Pvt. Ltd. (“CER”), where the fair value of net assets acquired exceeded the purchase consideration. No comparable gain was recognized in the prior year. +Day one gain on issuance of SEPA. During the year ended December 31, 2024, the Company recognized a day-one gain of approximately $135,000 on the issuance of the SEPA derivative liability, with no comparable amount in the current year. +Other income (expense), net. Other income, net increased to approximately $304,000 for the year ended December 31, 2025 from approximately $83,000 for the year ended December 31, 2024, an increase of approximately $221,000, primarily attributable to miscellaneous income items recognized during the current year. +88 +Table of Contents +Liquidity and Capital Resources +Our consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. As of December 31, 2025, the Company had cash of approximately $2,904,000. The Company had a working capital deficit of approximately $24,739,000 at December 31, 2025 and incurred a net loss and generated negative cash flow from operating activities of approximately $16,058,000 and $7,888,000, respectively, for the year ended December 31, 2025. As of December 31, 2024, the Company had cash of approximately $2,408,000. The Company had a working capital deficit of approximately $26,247,000 at December 31, 2024 and incurred a net loss and generated negative cash flow from operating activities of approximately $22,508,000 and $5,959,000, respectively, for the year ended December 31, 2024. These are indicators of substantial doubt as to our ability to continue as a going concern for at least one year from issuance of our consolidated financial statements. Our ability to continue as a going concern is dependent upon the management of expenses and ability to obtain necessary financing to meet our obligations and pay our liabilities arising from normal business operations when they come due, and upon profitable operations. +If additional equity or debt financing is required from outside sources, we may not be able to raise it on terms acceptable to it or at all. If we are unable to raise additional capital on acceptable terms when needed, its results of operations and financial condition would be materially and adversely affected. Any such financing likely would be dilutive to our existing stockholders and could result in significant financial operating covenants that would negatively impact our business. +Based on the foregoing, our management has concluded there is substantial doubt as to our ability to continue as a going concern within one year after the date the consolidated financial statements are issued. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities should we be unable to continue as a going concern. +Cash Flows +The following table summarizes ConnectM’s cash flows for the period indicated: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Year Ended December 31, +​ ​ ​ +Change +​ ​ ​ +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +​ ​ ​ +$ +​ ​ ​ +% +​ ​ ​ +Net cash used in operating activities +​ +$ +(9,792,223) +$ +(5,959,133) +​ +$ +(3,833,090) +​ +64 +% +Net cash received from (used in) investing activities +​ +$ +429,253 +$ +(107,665) +​ +$ +536,918 +​ +(499) +% +Net cash provided by financing activities +​ +$ +9,827,729 +$ +7,286,542 +​ +$ +2,541,187 +​ +35 +% +​ +Net cash used in operating activities +Net cash used in operating activities for the year ended December 31, 2025 was approximately $9,792,000. Net cash used in operating activities consisted primarily of net loss of approximately $16,058,000 offset by approximately $7,413,000 of non-cash items, primarily related to the loss on extinguishment of debt and vendor payable of approximately $3,010,000, depreciation and amortization of long-lived assets and intangible assets of approximately $815,000 offset by a bargain purchase gain of approximately $2,121,000. In addition, for the year ended December 31, 2025, net changes in operating assets and liabilities resulted in cash provided by operating activities of approximately $1,147,000. +Net cash used in operating activities for the year ended December 31, 2024 was approximately $5,959,000. Net cash used in operating activities consisted primarily of net loss of approximately $22,508,000 offset by approximately $13,261,000 of noncash items, primarily related to the loss on extinguishment of debt of approximately $1,645,000, loss on fair value measurement of debt of approximately $17,078,000, change in fair value of forward purchase agreement put option liability resulting in a loss of approximately $8,254,000 depreciation and amortization of long-lived assets and intangible assets of approximately $746,000 offset by a gain on modification of forward purchase agreement of approximately $1,572,000, impairment loss on goodwill and intangible assets of approximately $2,403,000 and the gain on extinguishment of debt of approximately $2,258,000. In addition, for the year ended December 31, 2024, net changes in operating assets and liabilities resulted in cash provided by operating activities of approximately $3,288,000. +Net cash received from investing activities +Net cash received from investing activities for year ended December 31, 2025 was approximately $429,000. Investing activities primarily included the purchase of capitalized software development costs of approximately $162,000 which was offset by proceeds received from acquisitions of businesses of approximately $559,000. +89 +Table of Contents +Net cash received from investing activities for year ended December 31, 2024 was approximately $108,000 and primarily included the purchase of capitalized software development costs of approximately $186,000 and purchases of property and equipment of approximately $27,000, cash paid for a noncontrolling interest of $60,000 offset by proceeds received from acquisitions of businesses of approximately $152,000. +Net cash provided by financing activities +Net cash provided by financing activities for the year ended December 31, 2025 was approximately $9,828,000. Financing activities consisted primarily of proceeds advance from lenders of $250,000, the issuance of debt of approximately $3,435,000 and the issuance of convertible debt of approximately $8,762,000, proceeds from factoring receivable arrangements of $736,000, proceeds from stock subscription agreement of $805,000, proceeds from premium financing obligations of approximately $326,000 and proceeds from Forward Purchase Agreement of $500,000. These financing activities were offset by payments on the Company’s debt facilities of approximately $2,518,000, repayment of convertible debt of approximately $638,000, repayment of deferred consideration of approximately $676,000, repayment of premium financing obligations of approximately $326,000, repayments on factoring receivable arrangements of approximately 736,000 and payment on finance leases of approximately $93,000. +Net cash provided by financing activities for the year ended December 31, 2024 was approximately $7,287,000. Financing activities consisted primarily of proceeds from the business acquisition of approximately $35,771,000, proceeds advance from lenders of approximately $1,057,000, the issuance of debt of approximately $6,614,000 and the issuance of convertible debt of $4,940,000, and Reimbursement for Recycled Shares related to Forward Purchase Agreement of $1,000,000. These financing activities were offset by cash transferred in connection with forward purchase agreement of approximately $36,728,000 and payments on the Company’s debt facilities of approximately $2,262,000, repayment of convertible debt of $50,000, cash paid for debt issuance costs of approximately $1,015,000, advance to related party Monterey Capital Acquisition Corporation of approximately $1,934,000 and payment on finance leases of approximately $107,000. +Off-Balance Sheet Arrangements +We did not have any off-balance sheet arrangements during the periods presented, and we do not currently have any off-balance sheet arrangements, as defined in the SEC rules and regulations. +Commitments and Contractual Obligations +On December 29, 2025, ConnectM entered into a Settlement and Termination Agreement (the “Yorkville Agreement”) with Yorkville related to the Company’s December 17, 2024 SEPA. The Yorkville Agreement provides for continued $250,000 cash payments on alternate Mondays, applied to reduce the outstanding pre-paid advance obligation (including principal, interest and applicable premiums), and confirms the December 15, 2025 payment was applied first to satisfy the $187,500 deferred fee, with the balance applied to the pre-paid advance obligation. +The Yorkville Agreement further provides that, if an underwritten public offering in connection with an uplisting to a national securities exchange is consummated, the SEPA will be terminated immediately prior to the closing, and Yorkville will receive a termination fee in Common Stock valued at $175,000 equal to the price per share of Common Stock in this offering, as well as a 24-month ROFR on any future equity line of credit. +As of the date of this filing, the Company has approximately $1,900,000 in unfulfilled purchase orders from Greentech Renewables for Keen-branded heat pump equipment and smart controls, pursuant to orders placed in January 2026 and February 2026. The Company expects to fulfill these orders in the ordinary course of business during fiscal year 2026. +We incur contractual obligations and financial commitments in the normal course of our operations and financing activities. Contractual obligations include future cash payments required under existing contracts, such as debt and lease agreements. These obligations may result from both general financing activities and from commercial arrangements that are directly supported by related operating activities. +Critical Accounting Policies and Significant Management Estimates +This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these consolidated financial statements requires management to make estimates and assumptions that +90 +Table of Contents +affect the reported amounts of assets and liabilities and the reported amounts of income and expenses during the reporting periods. We base our estimates and judgments on historical experience and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates under varying assumptions or conditions. +Please refer to Note 2 “Summary of Significant Accounting Policies” in the notes to these consolidated financial statements included in this annual report for a description of significant accounting policies. +Reportable Segments +Our operations are organized into six reporting segments: Owned Service Network, Transportation, Logistics, Distributed Energy & Renewables, Managed Solutions, and Corporate & Strategic Assets. The structure is designed to allow us to evaluate the performance of our different solutions offerings, provide improved service and drive future growth in a cost-efficient manner. See Note 19 to the Consolidated Financial Statements for certain segment information about our business required by U.S. GAAP. +Recently Issued and Adopted Accounting Standards +See Note 2 for a discussion of any recent accounting pronouncements relevant to our Consolidated Financial Statements. +Item 7A. Quantitative and Qualitative Disclosures about Market Risk. +As a smaller reporting company, we are not required to make disclosures under this Item. +Item 8. Financial Statements and Supplementary Data. +Our financial statements and the notes thereto begin on page F-1 of this Annual Report. +Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. +​ +On August 7, 2025, Adeptus Partners, LLC (“Adeptus”) resigned as the independent registered public accounting firm to ConnectM Technology Solutions, Inc. The audit reports of Adeptus for the fiscal years ended December 31, 2024 and 2023 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles, except that the reports included an explanatory paragraph relating to substantial doubt about the Company’s ability to continue as a going concern. +During the Company’s fiscal years ended December 31, 2024 and 2023, and the subsequent interim period through August 7, 2025, there were no disagreements (within the meaning of Item 304(a)(1)(iv) of Regulation S-K and related instructions) between the Company and Adeptus on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Adeptus, would have caused Adeptus to make reference to the subject matter of the disagreements in connection with Adeptus’s reports on the Company’s financial statements for such periods. +During the Company’s fiscal years ended December 31, 2024 and 2023, and the subsequent interim period through August 7, 2025, the only “reportable events” (as defined in Item 304(a)(1)(v) of Regulation S-K) were Adeptus’s communications to the Company of the material weakness in disclosure controls and procedures disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Form 10-K”) and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”), and the material weaknesses in internal control over financial reporting disclosed in the 2024 Form 10-K and the 2023 Form 10-K. Descriptions of the foregoing material weaknesses in Part II, Item 9A. “Controls and Procedures” in the 2024 Form 10-K and the 2023 Form 10-K are incorporated herein by reference. +The Audit Committee approved the engagement of KNAV CPA LLP (“KNAV”), effective as of August 8, 2025, as the Company’s new independent registered public accounting firm to audit the Company’s consolidated financial statements for the year ending December 31, 2025.   +During the Company’s two most recent fiscal years and the subsequent interim period through August 8, 2025, neither the Company, nor anyone acting on its behalf, consulted KNAV regarding (A) the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report nor oral advice was provided to the Company by KNAV that KNAV concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing, or financial reporting issue, or (B) any matter that +91 +Table of Contents +was either (i) the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K under the Exchange Act), or (ii) a reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K). +Item 9A. Controls and Procedures. +Evaluation of Disclosure Controls and Procedures +Under the supervision and with the participation of our management, including our Chief Executive Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the fiscal year ended December 31, 2025. Based on this evaluation, our Chief Executive Officer has concluded that, as of December 31, 2025, our disclosure controls and procedures were not effective due to the material weaknesses in our internal control over financial reporting described below. +Management’s Report on Internal Control Over Financial Reporting +As required by SEC rules and regulations implementing Section 404 of the Sarbanes-Oxley Act, our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external reporting purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that: +● Pertain to the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company, +● Provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors, and +● Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements. +A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. +Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2025. In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on this assessment, management concluded that our internal control over financial reporting was not effective as of December 31, 2025, due to the material weaknesses described below. +This Annual Report on Form 10-K does not include an attestation report of internal controls from our independent registered public accounting firm due to our status as an emerging growth company under the JOBS Act. +Remediation of Material Weakness in Internal Controls +In connection with the preparation and audit of our consolidated financial statements as of and for the years ended December 31, 2025 and 2024, material weaknesses were identified in our internal control over financial reporting. +A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected on a timely basis. The following material weaknesses were identified: +● Revenue Recognition and Financial Close Processes – Deficiencies in the application of revenue recognition policies, including the Right to Invoice Practical Expedient under ASC 606-10-55-18 for Managed Service Agreement contracts and the timing of revenue recognition for solar installations prior to completion of the applicable performance obligation; inability to timely close books, contributing to an elevated volume of audit adjustments across subsidiary trial balances. +92 +Table of Contents +● Complex Financial Instruments and Valuations – Deficiencies in the identification and accounting for derivative instruments embedded in debt conversion agreements with multiple counterparties (one cause of the restatement of the third quarter 2024 financial statements); deficiencies in the accounting for the forward purchase agreement, the valuation of convertible notes under the fair value option, the classification of current versus non-current debt, and the measurement of contingent consideration related to the Delivery Circle acquisition. +● Acquisitions, Business Combinations, and Related Transactions – Deficiencies in the accounting for the de-SPAC transaction completed in July 2024 (accounted for as a reverse recapitalization) and the acquisitions of Delivery Circle and Green Energy Gains; failure to identify the Green Energy Gains acquisition as a related party transaction prior to Board approval; deficiencies in the accounting for deferred offering costs associated with the business combination. +● Impairment Testing and Balance Sheet Presentation – Deficiencies in the timely identification of triggering events and determination of impairment for intangible assets and goodwill at Solar Energy Systems (Florida Solar) and Cazeault Solar and Home, for which full impairment was recorded; recurring deficiencies in the classification of current versus non-current liabilities on the balance sheet. +● Control Environment and Internal Control Framework – +o The Company has not fully implemented a comprehensive internal control framework in accordance with the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework (COSO 2013), resulting in pervasive deficiencies across the control environment, risk assessment, control activities, information and communication, and monitoring components. The absence of a formally adopted and operationalized control framework has limited the Company’s ability to systematically identify, assess, and respond to financial reporting risks on a timely basis. +o Additionally, the Company lacks a formal, documented process for the independent review of significant accounting estimates by qualified personnel at each interim and annual reporting date, increasing the risk that estimates are not subjected to sufficient scrutiny prior to inclusion in the financial statements. +● IT General Controls, Systems Infrastructure, and Inventory Management – +o The Company’s financial reporting processes are significantly dependent on QuickBooks, a platform that lacks the robust reporting capabilities, segregation of duties controls, and user access management features required for a public company reporting environment. The manual and error-prone nature of the financial close process, compounded by inadequate IT general controls, has contributed to delays and an elevated risk of undetected errors in the financial statements. +o Furthermore, the Company currently maintains inventory records in Excel spreadsheets rather than within an integrated accounting or inventory management system, raising the risk of errors, data inconsistencies, and the absence of a sufficient audit trail, and creating challenges in ensuring completeness, accuracy, and timely reconciliation of inventory balances. +● Contract Management and Document Integrity – +o The Company lacks a centralized contract repository or standardized checklist for capturing key contract terms and their accounting implications, creating risk of unrecorded or incorrectly recorded transactions. +o In addition, the Company identified certain unsigned key documents, including conversion notices, agreements, and certificates of completion, which impacts the enforceability of such agreements and raises concerns over the completeness and accuracy of the related accounting records. +Management expects to address these deficiencies by implementing remediation measures, including those already taken to date, which include the following: +● Engaged an expert technical accounting advisor to prepare formal accounting memoranda supporting the Company’s revenue recognition policies and other complex accounting treatments in accordance with the FASB Accounting Standards Codification, including documentation of significant estimates, judgments, and transaction-specific accounting conclusions; +93 +Table of Contents +● Engaged an external valuation specialist for all derivative instruments, notes conversion valuations, forward purchase agreement valuations, and contingent consideration remeasurements; +● Designed and implemented internal controls over Treasury Management requiring systematic evaluation of all new debt instruments for embedded derivative features at inception; +● Designed and implemented internal controls within the Record-to-Report cycle for triggering event identification and impairment testing, supported by enhanced monthly flux analysis and segment-level profitability reporting; +● Overhauled the books closure process, including implementation of a fourth-business-day close target, prior-period trial balance lock-out, a responsibility assignment matrix for close task ownership, daily standup calls with controllers and the consolidation team, and a quarterly books clean-up cycle; +● Establishing an M&A Steering Committee with a formalized due diligence framework incorporating explicit related-party identification procedures, a post-transaction integration playbook, and a requirement for independent auditor sign-off on all purchase price allocations and contingent consideration remeasurements before recording to the general ledger; and +● Significantly expanded the Company’s financial reporting capacity by engaging a Consultant Financial Reporting Manager with public company accounting and SEC reporting experience, hiring SEC reporting specialists, onboarding a tax consultant, and establishing a dedicated Auditor Coordinator role. +● The Company will establish a centralized contract repository and implement standardized checklists to identify key contract terms and ensure appropriate accounting treatment. +● The Company will enhance its IT control environment by upgrading systems and strengthening user access controls, and will formalize and streamline the financial close process to reduce manual intervention and risk of error. +● The Company will implement a formal process requiring independent review of significant accounting estimates by qualified personnel at each reporting date. +● The Company will transition inventory records to an integrated accounting or inventory management system and implement controls to ensure completeness, accuracy, and timely reconciliation of inventory balances. +● The Company will enforce formal documentation and approval procedures to ensure all key agreements and supporting documents are properly executed, maintained, and accessible. +We believe that the actions described above, when fully implemented and sustained over sufficient consecutive reporting periods, will remediate the material weaknesses described above. However, certain of these remediation measures are ongoing, and we cannot provide assurance that all measures will prove to be sufficient or that additional measures will not be required. +Inherent Limitations on Effectiveness of Controls +While management is working to remediate the material weaknesses described above, there is no assurance that these remediation efforts, when economically feasible and sustainable, will successfully remediate the identified material weaknesses. If we are unable to establish and maintain an effective system of internal control over financial reporting, the reliability of our financial reporting, investor confidence in us and the value of our common stock could be materially and adversely affected and the Company could be subject to sanctions or investigations by the SEC or other regulatory authorities. Effective internal control over financial reporting is necessary for us to provide reliable and timely financial reports and is designed to reasonably detect and prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. +94 +Table of Contents +For as long as we are a “smaller reporting company” under the U.S. securities laws, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. An independent assessment of the effectiveness of internal control over financial reporting could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal control over financial reporting could lead to financial statement restatements and require us to incur the expense of remediation. +Moreover, we do not expect that internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. The failure of our control systems to prevent error or fraud could materially adversely impact us. +Changes in Internal Control over Financial Reporting +Other than the changes associated with the material weaknesses and remediation actions noted above, there have been no changes to our internal control over financial reporting that occurred during the year ended December 31, 2025. +Item 9B. Other Information. +Securities trading plans of Directors and Executive Officers. During the fiscal fourth quarter of 2025, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) informed us of the  adoption  or  termination  of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” each as defined in Item 408 of Regulation S-K. +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. +Not applicable. +​ +95 +Table of Contents +PART III +Item 10. Directors, Executive O ffi cers and Corporate Governance. +Insider Trading Policy +The Company has adopted an insider trading compliance policy and program applicable to directors, executive officers and employees. The Company believes this policy is reasonably designed to promote compliance with insider trading laws, rules and regulations, and the OTC Markets Group Inc. listing standards. A copy of the insider trading policy is filed as Exhibit 19.1 to this Report on Form 10-K. +Code of Ethics +All of our employees, including our Chief Executive Officer and Chief Financial Officer, are required to abide by our Code of Ethics to ensure that our business is conducted in a consistently legal and ethical manner. These policies form the foundation of a comprehensive process that includes compliance with corporate policies and procedures, an open relationship among colleagues that contributes to good business conduct, and a commitment to honesty, fair dealing and full compliance with all laws and regulations affecting the Company’s business. Our policies and procedures cover all major areas of professional conduct, including employment policies, conflicts of interest, intellectual property and the protection of confidential information, as well as strict adherence to laws and regulations applicable to the conduct of our business. +As required by the Sarbanes-Oxley Act of 2002, our Audit Committee has procedures to receive, retain and treat complaints received regarding accounting, internal accounting controls or auditing matters and to allow for the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters. +A copy of the Code of Ethics is filed as Exhibit 14.1 to this Annual Report on Form 10-K. +We will disclose any future amendments to, or waivers from, provisions of these ethics policies and standards on our website as promptly as practicable, as may be required under applicable SEC and Nasdaq rules and, to the extent required, by filing Current Reports on Form 8-K with the SEC disclosing such information. +Directors, Executive Officers and Corporate Governance. +The following table sets forth certain information as of the date of this Report, with respect to our directors, executive officers and significant employees. +​ +​ +​ +​ +​ +Name +​ ​ ​ +Age +​ ​ ​ +Title +Bhaskar Panigrahi +56 +Chairman of the Board and Chief Executive Officer +Bala Padmakumar +64 +Vice-Chairman of the Board, Corporate Development +Girish Subramanya +49 +Chief Technology Officer +Mahesh Choudhury +55 +Principal Financial Officer & Vice President, U.S. Operations +Kevin Stateham +55 +Vice President, Sales and Corporate Development +Kathy Cuocolo(1)(2)(3) +73 +Director +Stephen Markscheid(1)(2)(3) +71 +Director +Gautam Barua(1)(2)(3) +53 +Director +(1) Member of the Audit Committee +(2) Member of the Compensation Committee +(3) Member of the Nominating and Corporate Governance Committee +96 +Table of Contents +Information about our Executive Officers and Directors +Bhaskar Panigrahi is a member of our board of directors and serves as the Chairman of ConnectM and has been Chief Executive Officer of ConnectM since November 2015. Mr. Panigrahi has a rich experience of more than 25 years as a serial entrepreneur and investor. Mr. Panigrahi has an extensive experience in setting up, building, formulating corporate strategy and direction for various successful organizations. Mr. Panigrahi is also an investor in, and board member of, CCI Energy/Fairhaven Wind, Sure Ventures, BluStream Corp, and Blue Cloud Ventures. Prior to ConnectM, Mr. Panigrahi was Chairman and co-founder of Cambridge Energy Holdings from 2008 to 2016, and led the launching and building of multiple clean energy ventures including Cambridge Energy Resources (ultra-thin silicon wafers), Cambridge Clean Energy (replacing diesel with Solar and Battery in telecom towers in emerging economy), CCI Energy (community wind and solar projects under long term PPAs), EMX Control (light-weight controllers for renewable installations), and others. Prior to Cambridge Energy Holdings, Mr. Panigrahi was co-founder and chairman of Cambridge Technology Enterprises from 2004 to 2010, a global business and technology Services company where Mr. Panigrahi led a successful initial public offering on both Bombay and National Stock Exchange in India. Under his leadership, Cambridge Technology grew at 100% compound annual growth rate. Prior to Cambridge Technology Enterprises, Mr. Panigrahi served as Chief Executive Officer of CellExchange from 2002 to 2005, which acts as an enterprise systems developer to government enterprises and was named a Washington Technology Fast 50 company. Mr. Panigrahi also served as the Chief Executive Officer of Unique Computing Solutions and e-Solutions Integrator from 2000 to 2002, an internet technology and services firm. Mr. Panigrahi holds a BS in Computer Science from National Institute of Technology, Suratkal, India. We believe that Mr. Panigrahi has the qualifications to be a member of our board of directors because of his extensive experience being chairman and board of directors in multiple companies in the past and his leadership ability to set direction, vision, and leadership with guidance from other directors. +Bala Padmakumar is a member of our board of directors and serves as Vice Chairman of ConnectM. In addition to his role as director, Mr. Padmakumar focuses on strategic financing, investor communications and strategic roadmap and product development. Mr. Padmakumar had been MCAC’s Chief Executive Officer and the Chairman of the MCAC board of directors since September 2021. Mr. Padmakumar is a broad based entrepreneur and technologist with a strong background in strategic partnerships, product and business development, technology and operations, private equity, and venture capital environments. Since August 2020, Mr. Padmakumar has been a partner at Advantary LLC, where he specializes in business development and advises on strategic matters. Since January 2021, he has been actively advising the Asia practice of FocalPoint Partners LLC, a boutique investment bank, on deal flow diligence in the clean transition space in Asia. Since June 2021, he has been an advisor to the Chief Executive Officer of NTherma Corporation on strategic relationships and capital raising activities. From July 2016 to December 2021, Mr. Padmakumar has also advised on deal flow and provided operational support to portfolio companies for a fund set up to support SK Telecom Co., Ltd.’s strategic interests. From 2007 through 2010, Mr. Padmakumar was a Venture Partner at X/Seed Capital Management, LLC, where he focused on transactions in the cleantech and materials sectors. Additionally, from 2011 to October 2020, Mr. Padmakumar was the Chief Executive Officer at Amperics, Inc., a developer and vendor of high energy density ultracap hybrid storage systems. Mr. Padmakumar also has extensive experience in the clean energy sectors, having been an advisor to Lionrock Batteries Ltd., which creates flexible batteries and high performance separator technology from 2019 to 2024, an advisor to the board of directors and CEO of Hyperscale Data Center Company, a company focused on energy usage efficiency in hyperscale data centers from 2018 to 2020, and an advisor to the chairman of Advanced Systems Automation Limited in Singapore, where he advised on issues surrounding urban transportation, High Energy Density Li Ion battery (NMC technology) and 3D printing technology from 2017 to 2019. Mr. Padmakumar has a Bachelor’s Degree in Technology from the University of Madras in Chemical Engineering and a Master of Science Degree in Chemical Engineering from Stanford University. We believe that Mr. Padmakumar has the qualifications to be a member of our Board of Directors because of his broad experience advising on capital raising and corporate strategy, serving as a mentor to individuals, startups, and corporations seeking innovation and accelerated growth, and as an advisor to several early-stage companies from audio technologies to SaaS products. +Girish Subramanya serves as the Global Chief Technology officer and has served as the head of ConnectM’s India operations since June 2018. Mr. Subramanya has served in positions at ConnectM since November 2007. Mr. Subramanya is a technology enthusiast and an entrepreneur who has led several product launches in his career, with many of them from concept to market ready solution for industries including finance, e-commerce and enterprise segments. From 1995 to 2007 Mr. Subramanya held product management roles at i2 Technologies, a full-service supply chain management company providing consulting, technology, and managed services, Integral Systems, a currency technology partner of financial institutions, and Coreobjects, an end-to-end software development company. In 2007, Mr. Subramanya co-founded ConnectM to enable large enterprises and product original equipment manufacturers (OEMs) to manage their distributed assets & operations effectively and improve efficiencies using Internet of Things (IoT) technologies along with value creation over time for the businesses they run and for their end customers. During 2020, Mr. Subramanya pivoted the India business from a cross vertical IoT solutions to electric vehicle industry centric solutions which is being adapted by over 10+ OEMs and infra providers into their products. Mr. Subramanya holds a Master of Computer Applications from the Department of Electronics and Accreditation of Computer Courses (DOEACC), New Delhi, India. +97 +Table of Contents +Mahesh Choudhury has served as our Principal Financial Officer & Vice President, U.S. Operations since August 2025 and heads ConnectM’s internal operations including supply chain, information technology (IT), and general administration and has done so since January 2017, including overseeing the finance and information technology functions. Mr. Choudhury has over 25 years of experience in various operational management rolls. He is very passionate about building and engaging the right technology for climate control and energy management in delivering value to both residential and commercial customers. Prior to ConnectM, Mr. Choudhury had 12 years of experience with the electrification and decarbonization industry. Mr. Choudhury is instrumental in defining the remote performance management platform for the heating, ventilation and air conditioning (HVAC) industry. Prior to ConnectM, he led finance and supply chain at Sustainable New Energy (SNE) from August 2010 to September 2014 and implemented large scale wind and solar energy projects. Mr. Choudhury was a co-founder of Cambridge Clean Energy (CCE) and assisted with developing remote power management technology for powering telecom towers and led the operations globally. Mr. Choudhury also has 17 years of experience with utility/energy management. Mr. Choudhury has an MS degree from Indian Institute of Technology (IIT), India. +Kevin Stateham heads ConnectM’s sales and corporate development operations and has done so since June 2018. Mr. Stateham is a successful business development, sales operations executive and management leader with over two decades of technology industry experience. In addition, as the head of client relations at ConnectM, Mr. Stateham plays a key role in driving customer goals, product utilization, business transformation, and revenue expansion by ensuring the engagement, success, retention, and growth of ConnectM customers. Mr. Stateham also manages ConnectM’s mergers and acquisitions, acquiring nine businesses since 2018. Mr. Stateham is a technology industry veteran, with over 25 years leading successful data communications and SaaS companies in key sales and business development roles. Before ConnectM, Mr. Stateham was a sales lead at Keen Home Inc, where he grew the company’s business to business sales by 50% year over year. Prior to Keen Home, Mr. Stateham was the director of sales at Network Access Solutions, Inc. where he was responsible for the largest frame relay network conversion to digital subscriber lines with virtual private network (VPN), encompassing over 22,000 United States post offices, and was involved in the company’s successful initial public offering. +Non-Employee Directors +Kathy Cuocolo is member of our board of directors and previously served as a member of the MCAC Board since 2021. Ms. Cuocolo is a versatile executive and director with demonstrated success in developing and managing financial services operations on a global basis. Ms. Cuocolo is currently a director and Audit Chair of Greenbacker Renewable Energy Company LLC and a director at Syntax ETF Trust. Her prior directorships include President and Director of The China Fund, Inc., which invests primarily in private placements in mainland China, Chairperson of Select Sector ETF Trust, and a director of Guardian Life family of funds. From 2014 through March 2020, Ms. Cuocolo was the president of Syntax Advisors, LLC where she was responsible for all aspects of business operations and the development of its financial management products. Prior to that, from 2008 until 2013, Ms. Cuocolo was a Managing Director and Division Head for the Mutual Fund and global ETF Services for The Bank of New York Mellon Corporation, where she was responsible for the operations and strategic planning for these business lines. Prior to that, from 1982 until 2003, Ms. Cuocolo served in various roles at State Street Corporation, including as an Executive Vice President, Division Head of Investor Products and Services, where she was responsible for operations and strategic planning. Ms. Cuocolo was a member of the corporations’ Executive Operating Committee responsible for all aspects of business strategy. Prior to State Street, Ms. Cuocolo was an auditor at PriceWaterhouseCoopers LLP. Ms. Cuocolo received her B.A. in Accounting, summa cum laude, from Boston College, and holds a Masters Professional Director Certificate from the American College of Corporate Governance. Ms. Cuocolo received her CPA license in the Commonwealth of Massachusetts in 1981. We believe that Ms. Cuocolo has the qualifications to be a member of our Board of Directors because of her extensive experience in cleantech, finance/audit, and as independent director in other public companies. +Stephen Markscheid is a member of our board of directors and previously served as member of the MCAC Board since 2022. Mr. Markscheid is currently the Managing Partner of Aerion Capital and currently serves as a director of Fanhua, Inc., JinkoSolar Holding Co., Ltd., Zhongjin Technology Services Group Company Limited, UGE International Ltd., and Four Leaf Acquisition Corporation. In addition, Mr. Markscheid serves as a Board Advisor to several companies, including NanoGraf Corporation, Intelligent Generation LLC, Nulyzer Inc. and Hago Energetics, Inc., Mr. Markscheid also serves as a trustee emeritus of Princeton-in-Asia and Chairman Emeritus of KX Power, a UK based energy storage project developer. From 1998 until 2006, Mr. Markscheid served as a Director of Business Development and Senior Vice President and led GE Capital’s business development activities in China and the Asia Pacific region, primarily focusing on acquisitions and direct investments. Prior to GE, Mr. Markscheid worked with the Boston Consulting Group throughout Asia. Mr. Markscheid was a banker for ten years in London, Chicago, New York, Hong Kong and Beijing with Chase Manhattan Bank and First National Bank of Chicago. Mr. Markscheid began his career with the US-China Business Council, in Washington D.C. and Beijing. Mr. Markscheid earned a B.A. in East Asian Studies from Princeton +98 +Table of Contents +University in 1976, an M.A. in international affairs from Johns Hopkins University in 1980, and an MBA from Columbia University in 1991, where he was class valedictorian. We believe that Mr. Markscheid has the qualifications to be a member of our Board of Directors because of his extensive experience in cleantech and as independent director in other public companies. +Gautam Barua is a member of our board of directors. Mr. Barua is the founder of Aclaria Partners, which he founded in December 2004 and is currently the President. Mr. Barua has served in advisory, new business, and mergers and acquisitions roles at McKinsey and Morgan Stanley from 2013 to 2018; held an appointment as California Deputy State Controller from 2003 to 2004. In addition to a Bachelor of Arts cum laude in Economics and Mathematics from Yale University, Mr. Barua earned a Master of Business Administration with Distinction from Harvard University, where he also completed Executive Education in Entrepreneurship. We believe that Mr. Barua has the qualifications to be a member of our Board of Directors because of his experience in cleantech leadership positions and passion for electrification. +Family Relationships +There are no family relationships between ConnectM’s board of directors and any of its executive officers. +Board of Directors +Director Independence +ConnectM’s Common Stock is currently quoted on the OTCQX Best Market, which does not require a majority of the board of directors to be composed of “independent directors” under its listing standards. Nevertheless, ConnectM follows corporate governance practices consistent with those required for companies listed on a national securities exchange, such as Nasdaq or the NYSE American, to promote transparency and strong board oversight. +For purposes of disclosure, the ConnectM board of directors has evaluated the independence of its members under the independence standards set forth in the Nasdaq listing rules and Rule 10A - 3 under the Exchange Act. Based on this review, the board of directors has determined that each of Kathy Cuocolo, Stephen Markscheid, and Gautam Barua qualifies as an independent director under these standards. +In making these determinations, the board considered each non-employee director’s current and prior relationships with ConnectM and its subsidiaries, beneficial ownership of ConnectM Common Stock, and any transactions involving them described in the section titled “ Certain Relationships and Related Transactions .” +Classified Board of Directors +ConnectM’s Board of Directors is divided into three classes, with only one class of directors being elected each year and each class (except for those directors appointed prior to the Company’s first annual meeting of stockholders) serving a three-year term. All independent directors currently serve as Class I directors. Mr. Bala Padmakumar serves as a Class II director, and Mr. Bhaskar Panigrahi serves as a Class III director. +Committees of the Board of Directors +The standing committees of Combined Company’s board of directors will consist of an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee. The expected composition of each committee following the Merger is set forth below. +Audit Committee +An Audit Committee of ConnectM has been established in accordance with Section 3(a)(58)(A) of the Exchange Act and consists of Kathy Cuocolo, Stephen Markscheid and Gautam Barua, each of whom are independent directors and are “financially literate” as defined under the Nasdaq listing standards. Kathy Cuocolo serves as chairman of the Audit Committee. The Board has determined that Kathy Cuocolo qualifies as an “audit committee financial expert,” as defined under rules and regulations of the SEC. +The Audit Committee’s duties are specified in the Audit Committee Charter that was adopted at the Effective Time. +99 +Table of Contents +The Audit Committee oversees the integrity of the Company’s financial statements, the qualifications, independence, and performance of the Company’s independent registered public accounting firm, and the Company’s compliance with legal and regulatory requirements. The Audit Committee is responsible for the appointment, compensation, retention, and oversight of the work of the Company’s independent auditors and reviews the Company’s internal control over financial reporting and risk management practices. The Audit Committee also pre-approves audit and non-audit services provided by the independent auditors. The Board has determined that each member of the Audit Committee is “independent” as defined under applicable SEC and Nasdaq rules, and that at least one member qualifies as an “audit committee financial expert” under SEC regulations. +Compensation Committee +The Compensation Committee consists of Gautam Barua and Stephen Markscheid, each of whom is an independent director. Stephen Markscheid serves as chairman of the Compensation Committee. The functions of the Compensation Committee are set forth in a Compensation Committee Charter that was adopted at the Effective Time. +The Compensation Committee is responsible for reviewing and approving the compensation of the Company’s executive officers, including base salary, annual incentive opportunities, long-term incentive awards, and other benefits. The committee also oversees the administration of the Company’s equity incentive plans and other compensation-related policies and programs. The Compensation Committee evaluates executive performance and makes recommendations to the Board regarding the CEO’s compensation. Each member of the Compensation Committee is “independent” as defined under applicable SEC rules. +Nominating and Corporate Governance Committee +Our Nominating and Corporate Governance Committee (the “Nominating Committee”) consists of Kathy Cuocolo, Stephen Markscheid and Gautam Barua, each of whom is an independent director under Nasdaq’s listing standards. Gautam Barua serves as the chairman of the Nominating Committee. The Nominating Committee is responsible for overseeing the selection of persons to be nominated to serve on the board of directors. The Nominating Committee considers as potential members of the board of directors persons identified by its members, management, stockholders, investment bankers and others. +The guidelines for selecting nominees, are specified in the Nominating and Corporate Governance Committee Charter which was adopted on October 31, 2025. +The Nominating and Corporate Governance Committee identifies, evaluates, and recommends individuals qualified to serve as directors, oversees the evaluation of the Board and its committees, and develops and recommends corporate governance principles and practices applicable to the Company. The committee also reviews the structure and composition of the Board and its committees and considers succession planning for the Board and senior management. Each member of the Nominating and Corporate Governance Committee is “independent” as defined under applicable SEC rules. +Code of Conduct and Ethics +ConnectM has a code of conduct and ethics (the “Code of Ethics”) for its directors, officers, employees and certain affiliates in accordance with applicable federal securities laws, a copy of which will be available on our website at https://www.connectm.com. +If amend or grant a waiver of one or more of the provisions of our Code of Ethics, we intend to satisfy the requirements under Item 5.05 of Form 8-K regarding the disclosure of amendments to or waivers from provisions of our Code of Ethics that apply to our principal executive officer, principal financial officer and principal accounting officer by posting the required information on our website at https://www.connectm.com. The information on this website is not part of this Report. +Involvement in Certain Legal Proceedings +Except as disclosed below, to our knowledge, none of our current directors or executive officers has, during the past ten (10) years: +● been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); +100 +Table of Contents +● had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two (2) years prior to that time; +● been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his or her involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity; +● been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; +● been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or +● been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. +Item 11. Executive Compensation. +The following section provides compensation information pursuant to the scaled SEC disclosure rules applicable to “emerging growth companies.” +This section discusses the material components of the executive compensation program for our named executive officers who are named in the “ Summary Compensation Table ” below. In 2025, our “named executive officers” and their positions with ConnectM were as follows: +● Bhaskar Panigrahi, who served as Chairman and Chief Executive Officer; +● Girish Subramanya, who served as Chief Technology Officer; +● Mahesh Choudhury, who served as Principal Financial Officer & Vice President, U.S. Operations; and +● Kevin Stateham, who served as Vice President, Sales and Corporate Development. +This discussion may contain forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Actual compensation programs that we adopt may differ materially from the currently planned programs summarized in this discussion. As an “emerging growth company” as defined in the JOBS Act, we are not required to include a Compensation Discussion and Analysis section and have elected to comply with the scaled disclosure requirements applicable to emerging growth companies. +The compensation committee of the Board will set ConnectM’s executive compensation philosophy and will oversee compensation and benefits programs for ConnectM. The compensation committee will oversee and determine the compensation of the Chief Executive Officers and other executive officers of ConnectM. With respect to base salaries, annual incentive compensation and long-term incentives, it is expected that the compensation committee will establish compensation mix, performance measures, goals, targets and business objectives based on ConnectM’s competitive marketplace. The compensation committee will determine benefits and severance arrangements, if any, that ConnectM will make available to executive officers. +101 +Table of Contents +In addition to base salary and annual bonuses, we expect ConnectM will grant stock-based awards under the Incentive Plan in future years to promote its interests by providing these executives with the opportunity to acquire equity interests as an incentive for their remaining in its service and aligning the executives’ interests with those of ConnectM’s equity holders. +2025 Summary Compensation Table +The following table provides summary information concerning compensation earned by our named executive officers for the years ended December 31, 2025, 2024 and 2023, for services rendered during the years ended December 31, 2025, 2024 and 2023, respectively. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +​ +​ ​ ​ +​ +​ ​ ​ +​ +​ ​ ​ +​ +​ ​ ​ +​ +​ ​ ​ +Non-Qualified +​ ​ ​ +​ +​ ​ ​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Non-Equity +​ +Deferred +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Stock +​ +Incentive +​ +Compensation +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +option +​ +Plan +​ +Plan +​ +All Other +​ +Total +​ +​ +​ +​ +Salary +​ +Bonus +​ +awards +​ +Compensation +​ +Earnings +​ +Compensation +​ +compensation +Name and Principal Position +​ +Year +​ +($) +​ +($) +​ +($) +​ +($) +​ +($) +​ +($) +​ +($) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Bhaskar Panigrahi, +​ +2025 +​ +190,000 +0 +0 +— +— +— +190,000 +Chairman and Chief Executive Officer +2024 +190,000 +0 +0 +— +— +— +190,000 +​ +2023 +175,000 +0 +0 +— +— +— +175,000 +Mahesh Choudhury, +​ +2025 +160,000 +0 +0 +— +— +— +160,000 +Principal Financial Officer & VP, U.S. Operations +2024 +160,000 +0 +0 +— +— +— +160,000 +​ +2023 +145,000 +0 +0 +— +— +— +145,000 +Girish Subramanya, +​ +2025 +​ +66,000 +* +0 +0 +— +— +— +66,000 +Chief Technology Officer +2024 +66,000 +** +0 +0 +— +— +— +66,000 +​ +2023 +67,000 +*** +0 +0 +— +— +— +67,000 +Kevin Stateham, +​ +2025 +143,000 +0 +0 +— +— +— +143,000 +VP, Sales and Corporate Development +2024 +143,000 +0 +0 +— +— +— +143,000 +​ +2023 +130,000 +0 +0 +— +— +— +130,000 +* Based on a conversion of the U.S. dollar to Indian rupee (“INR”) of $1.00 to 87.16 INRs as of January 1, 2025. +** Based on a conversion of the U.S. dollar to Indian rupee (“INR”) of $1.00 to 83.19 INRs as of January 1, 2024. +*** Based on a conversion of the U.S. dollar to Indian rupee (“INR”) of $1.00 to 82.75 INRs as of January 1, 2023. +Certain employee equity issuances are not reflected in the table above because the shares were issued as unregistered, restricted securities rather than registered shares. On June 23, 2025, the Company issued 400,000 unregistered, restricted shares of common stock to Mahesh Choudhury and 250,000 unregistered, restricted shares of common stock to Kevin Stateham, with grant-date fair values of approximately $92,000 and $57,500, respectively, based on a per-share fair value of $0.23. On September 8, 2025, the Company issued 175,000 unregistered, restricted shares of common stock to Girish Subramanya, with a grant-date fair value of approximately $3,500, based on a per-share fair value of $0.02. The aggregate fair value of these issuances was approximately $153,000. These issuances were approved by the Board of Directors. +Narrative to the Summary Compensation Table +2025 Annual Base Salary +We pay our executives a base salary to compensate them for services rendered to our company. The base salary payable to our executives is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role and responsibilities. +Equity Compensation +ConnectM’s equity-based incentive awards are designed to align ConnectM’s interests and the interests of its stockholders with those of its employees and consultants, including the named executive officers. The compensation committee of the board of directors is responsible for approving equity grants. +102 +Table of Contents +We currently maintain the ConnectM Technology Solutions, Inc. 2019 Equity Incentive Plan, or the 2019 Plan as well as the 2023 Equity Incentive Plan, or the 2023 Plan, that was approved in connection with the Business Combination. The terms of the 2019 Plan are described below under “— Incentive Award Plans ” and the terms of the 2023 Plan are described below under “ Description of the 2023 Plan ”. +We have offered awards of stock options to purchase shares of our common stock to eligible service providers, including our named executive officers, pursuant to the 2019 Plan. As mentioned below, in connection with the completion of the Business Combination and the adoption of the 2023 Plan, no further awards will be granted under the 2019 Plan. All options are granted with an exercise price per share that is no less than the fair market value of our common stock on the date of grant of each award. Our stock option awards generally vest over a four-year period and may be subject to acceleration of vesting and exercisability under certain termination and change of control events. +Outstanding Equity Awards at Fiscal Year-End +The following table shows outstanding equity awards held by the Named Executive Officers as of December 31, 2025. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Stock Option Awards +​ ​ ​ +Stock Awards +​ +​ ​ ​ +Number of +​ ​ ​ +Number of +​ ​ ​ +​ +​ ​ ​ +​ +​ ​ ​ +​ +​ ​ ​ +​ +​ +​ +securities +​ +securities +​ +​ +​ +​ +​ +Number of +​ +Market value +​ +​ +underlying +​ +underlying +​ +Stock +​ +​ +​ +shares or +​ +of shares of +​ +​ +unexercised +​ +unexercised +​ +option +​ +​ +​ +units of +​ +units of +​ +​ +stock options +​ +stock options +​ +exercise +​ +​ +​ +stock that +​ +stock that +​ +​ +exercisable +​ +unexercisable +​ +price +​ +Stock option +​ +have not +​ +have not +Name +​ ​ ​ +(#) +​ ​ ​ +(#) +​ ​ ​ +($) +​ ​ ​ +expiration date +​ ​ ​ +vested (#) +​ ​ ​ +vested ($) +Kevin Stateham +​ +24,910 +0 +​ +$ +0.50 +​ +November 15, 2030 +​ +0 +0 +Mahesh Choudhury +​ +52,710 +0 +​ +$ +0.50 +​ +April 1, 2028 +​ +0 +0 +Mahesh Choudhury +​ +24,910 +0 +​ +$ +0.50 +​ +November 15, 2030 +​ +0 +0 +​ +Option Exercises and Stock Vested +No other equity-based incentive awards were granted to the named executive officers during 2025, 2024 and 2023. +Other Elements of Compensation +Retirement Savings and Health and Welfare Benefits +We maintain a 401(k) retirement savings plan for our employees, including those who satisfy certain eligibility requirements. We match 50% of the first 6% of a participant’s annual eligible compensation, up to the IRS limit. We believe that providing a vehicle for tax-deferred retirement savings though our 401(k) plan adds to the overall desirability of our executive compensation package and further incentivizes our employees, including our named executive officers, in accordance with our compensation policies. +All of our full-time employees are eligible to participate in our health and welfare plans. These health and welfare plans include medical, dental and vision benefits; short-term and long-term disability insurance; and supplemental life and Accidental Death and Dismemberment (AD&D) insurance. +Perquisites and Other Personal Benefits +We determine perquisites on a case-by-case basis and will provide a perquisite to a named executive officer when we believe it is necessary to attract or retain the named executive officer. +Executive Compensation Arrangements +Employment Agreements and Offer Letters +There are no employment agreements or offer letters for our named executive officers. +103 +Table of Contents +Director Compensation +ConnectM has not historically maintained a formal non-employee director compensation program and none of ConnectM’s non-employee directors received any compensation from ConnectM during 2025. We intend to develop a board of directors’ compensation program that is designed to align compensation with ConnectM’s business objectives and the creation of stockholder value, while enabling ConnectM to attract, retain, incentivize and reward directors who contribute to the long-term success of ConnectM. +Post-Business Combination Executive and Director Compensation +Mr. Panigrahi serves on the ConnectM’s board of directors as Chairman of the Board does not earn any additional compensation for that role. His annual salary for serving as Chief Executive Officer is $190,000. Mr. Choudhury earns a salary of $160,000 as Vice President, US Operations of ConnectM, Mr. Subramanya earns a salary of $66,000 as Chief Technology Officer of ConnectM and Mr. Stateham earns a salary of $143,000 as Vice President, Sales and Corporate Development of ConnectM. +In the future, ConnectM may further revise its executive and director compensation program from time to time to better align compensation with ConnectM business objectives and the creation of stockholder value, while enabling ConnectM to attract, retain, incentivize and reward individuals who contribute to the long-term success of ConnectM. Decisions on the executive compensation program will be made by the ConnectM compensation committee. +Summary of the Incentive Plan +General +On December 30, 2022, the MCAC Board approved and adopted the ConnectM Technology Solutions, Inc. 2023 Equity Incentive Plan (the “2023 Plan”), effective as of and contingent on the consummation of the Business Combination, and subject to approval of MCAC stockholders, which approval was granted on July 12, 2024 in connection with the consummation of the Business Combination. The material terms of the 2023 Plan are described below. +The purpose of the 2023 Plan is to provide an additional incentive to officers, employees, non-employee directors, independent contractors, and consultants of ConnectM or its affiliates whose contributions are essential to the growth and success of the business of ConnectM and its affiliates, in order to strengthen the commitment of such persons to ConnectM and its affiliates, motivate such persons to faithfully and diligently perform their responsibilities, and attract and retain competent and dedicated persons whose efforts will result in the long-term growth and profitability of ConnectM and its affiliates. We believe that grants of incentive equity and equity-based awards are essential to attracting and retaining highly qualified service providers. +ConnectM currently maintains the ConnectM Technology Solutions Inc. 2019 Equity Incentive Plan (the “Prior Plan”). In connection with the Business Combination, the combined company assumed the Prior Plan and all awards outstanding under the Prior Plan. Following the Business Combination, ConnectM will not grant any future awards under the Prior Plan, but all awards under the Prior Plan that are outstanding as of the July 12, 2024 effective date of the 2023 Plan will continue to be governed by the terms, conditions and procedures set forth in the Prior Plan and any applicable award agreement, as those terms may be equitably adjusted in connection with the Business Combination, as described elsewhere in this Report. +2023 Plan Highlights +Some of the key features of the 2023 Plan that reflect the ConnectM Board’s commitment to effective management of incentive compensation are as follows: +● No Liberal Share Recycling on Stock Options or SARs. The 2023 Plan provides that only shares covering awards that are canceled, forfeited or terminated without issuance of the full number of shares of common stock to which the award is related will again be available for issuance under the 2023 Plan. The following shares will not be added back to the aggregate plan limit: (i) shares tendered in payment of the exercise price for an option, (ii) shares ConnectM withholds to satisfy tax withholding obligations, and (iii) shares underlying stock appreciation rights (“SARs”) or other awards that are settled in stock. +● No Repricing or Cash Buyouts. Stock option and SAR repricing is prohibited without stockholder approval under the 2023 Plan. +104 +Table of Contents +● No Dividends on Unvested Restricted Shares or Restricted Stock Units. Under the 2023 Plan, holders of unvested Restricted Stock or Restricted Stock Units will not have any rights to receive dividends with respect to such Awards. +● Minimum Vesting Period. Generally, all awards will have a minimum vesting period of at least one year, subject to an exception of 5% of the aggregate shares authorized for grant under the 2023 Plan and certain other limited exceptions as described below and in the 2023 Plan. +● No Automatic “Single Trigger” Vesting. The 2023 Plan does not contain an automatic single-trigger vesting provision that would accelerate awards solely upon a Change in Control (as such term is defined in the 2023 Plan, a “Change in Control”). +Description of the 2023 Plan +A description of the provisions of the 2023 Plan is set forth below. This summary is qualified in its entirety by the detailed provisions of the 2023 Plan, a copy of which is attached as Appendix D to the Rule 424(b)(3) prospectus filed with the Commission by MCAC on June 17, 2024. +Administration +The 2023 Plan will be administered by a committee, which shall consist of two (2) or more members of the ConnectM Board appointed by the ConnectM Board or such other committee of the ConnectM Board to which it has properly delegated power, or if no such committee or subcommittee exists, the ConnectM Board (the “Committee”). To the extent required by applicable law, rule, or regulation, it is intended that each member of the Committee shall qualify as (a) a “non-employee director” under Rule 16b-3, and (b) an “independent director” under the rules of any national securities exchange or national securities association, as applicable. +The Committee is authorized to, among other things: (a) interpret, administer, reconcile any inconsistency in, correct any defect in and/or supply any omission in the 2023 Plan and any instrument or agreement relating to, or any award granted under, the 2023 Plan (each, an “Award”); (b) promulgate, amend, and rescind any rules and regulations relating to the 2023 Plan; (c) adopt sub-plans; and (d) to make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the 2023 Plan. Except to the extent prohibited by applicable law regulations, the Committee may allocate all or any portion of its responsibilities and powers to any one (1) or more of its members and may delegate all or any part of its responsibilities and powers to any person or persons selected by it in accordance with the terms of the 2023 Plan. +Unless otherwise expressly provided in the 2023 Plan, all determinations, interpretations and other decisions under or with respect to the 2023 Plan or any award or any documents evidencing awards granted pursuant to the 2023 Plan are within the sole discretion of the Committee, may be made at any time and are final, conclusive, and binding upon all persons or entities, including, without limitation, ConnectM, any Participant (as defined below), any holder or beneficiary of any award, and any of ConnectM’s stockholders. The Committee may make grants of the following awards to Eligible Persons (defined below) pursuant to terms and conditions set forth in the applicable award agreement, including, subjecting such awards to performance goals listed in the 2023 Plan: +● Stock Options; +● Stock Appreciation Rights; +● Restricted Stock and Restricted Stock Unit Awards; +● Performance Share Awards; and +● Other Stock-Based Awards and Cash-Based Awards. +Eligible Shares +The maximum aggregate number of shares of common stock that may be issued or used for reference purposes or with respect to which awards may be granted under the 2023 Plan was initially to be equal to 10% of the number of shares of ConnectM common stock outstanding immediately following the Business Combination, less 473,929 shares of ConnectM common stock subject to awards under the Prior Plan. This “Total Share Reserve” will be increased automatically on January 1 of each year during the term of the 2023 Plan by a number equal to the lesser of (i) 4% of the shares of common stock outstanding on December 31 of the prior year, +105 +Table of Contents +or (ii) a smaller number of shares as determined by the ConnectM Board. As of the date of this Report, the Total Share Reserve is 1,653,831. The maximum number of shares of common stock with respect to which incentive stock options may be granted under the 2023 Plan is equal to 100,000,000 shares. If any Option, SAR, or Other Stock-Based Awards granted under the 2023 Plan expires, terminates, or is canceled for any reason without having been exercised in full, the number of shares of common stock underlying any unexercised award shall again be available for the purpose of awards under the 2023 Plan. If any shares of Restricted Stock, Performance Share Awards, or Other Stock-Based Awards denominated in shares of common stock awarded under the 2023 Plan to a Participant (as defined below) are forfeited for any reason, the number of forfeited shares of Restricted Stock, Performance Share Awards, or Other Stock-Based Awards denominated in shares of common stock shall again be available for purposes of awards under the 2023 Plan. Shares of common stock subject to an award shall not again be made available for issuance or delivery under the 2023 Plan if such shares are (a) tendered in payment of an Option, (b) delivered or withheld by ConnectM to satisfy any tax withholding obligation, or (c) covered by a stock-settled SAR or other Awards that were not issued upon the settlement of the award. Any award under the 2023 Plan that must be settled solely in cash shall not be counted against the foregoing maximum share limitations. In no event will the aggregate grant date fair value (as determined in accordance with ASC 718) of Awards to be granted and any other cash compensation paid to any non-employee director in any calendar year exceed $750,000, which limit will be increased to $1,000,000 for any non-employee director in the year in which such non-employee director initially joins the ConnectM Board. No shares have yet been issued nor awards granted under the 2023 Plan. +Eligible Participants +Any employee, consultant or director of ConnectM or any of its affiliates, or any individual who is reasonably expected by the Committee to become an employee, consultant, or director after the receipt of awards (each, an “Eligible Person”) shall be permitted to participate (a “Participant”) under the 2023 Plan. Only Eligible Persons who are also employees of ConnectM or its parent or subsidiaries are eligible to receive incentive stock options under the 2023 Plan. Eligibility for the grant of an incentive stock option and actual participation in the 2023 Plan shall be determined by the Committee in its sole discretion. +Options +The Committee may grant non-qualified stock options and incentive stock options (“Options”) to Eligible Persons under the 2023 Plan. The holder of an Option will be entitled to purchase a number of ConnectM’s shares of common stock at a specified exercise price during a specified time period, all as determined by the Committee. Options granted under the 2023 Plan are required to have a per share exercise price that is not less than the fair market value of ConnectM’s common stock underlying such Options on the date such Options are granted (other than in the case of Options that are substitute awards). The maximum term for Options granted under the 2023 Plan is 10 years from the date of grant. The purchase price for the shares as to which an Option is exercised may be paid, to the extent permitted by law, either (a) in cash or by certified or bank check at the time the Option is exercised or (b) in the discretion of the Committee, upon such terms as the Committee shall approve, including: (i) by delivery to ConnectM of other common stock, duly endorsed for transfer to ConnectM, with a fair market value on the date of delivery equal to the Option exercise price (or portion thereof) due for the number of shares being acquired, or by means of attestation whereby the Participant identifies for delivery specific shares of common stock that have an aggregate fair market value on the date of attestation equal to the Option exercise price (or portion thereof) and receives a number of shares of common stock equal to the difference between the number of shares thereby purchased and the number of identified attestation shares of common stock; (ii) a “cashless” exercise program established with a broker; (iii) by reduction in the number of shares of common stock otherwise deliverable upon exercise of such Option with a fair market value equal to the aggregate Option exercise price at the time of exercise; (iv) by any combination of the foregoing methods; or (v) in any other form of legal consideration that may be acceptable to the Committee. +Stock Appreciation Rights +The Committee may grant stock appreciation rights, or “SARs”, under the 2023 Plan, with terms and conditions determined by the Committee pursuant to the 2023 Plan. The Committee may award SARs in tandem with Options or independent of any Option. Generally, each SAR will entitle the Participant upon exercise to an amount (in cash, shares, or a combination of cash and shares, as determined by the Committee) equal to the product of (i) the excess of (A) the fair market value on the exercise date of one share of common stock, over (B) the exercise price per share, multiplied by (ii) the number of shares of common stock covered by the SAR. The exercise price per share of a SAR will be determined by the Committee at the time of grant, but in no event may such amount be less than the fair market value of a share of common stock on the date the SAR is granted. +Restricted Stock and Restricted Stock Units +The Committee may grant restricted shares of ConnectM’s common stock (“Restricted Stock”) or restricted stock units (“Restricted Stock Units”) representing the right to receive, upon vesting and the expiration of any applicable restricted period, one +106 +Table of Contents +(1) share of common stock for each Restricted Stock Unit or, in the sole discretion of the Committee, the cash value thereof (or any combination thereof). If a cash payment is made in lieu of delivering shares of common stock, the amount of such payment shall be equal to the fair market value of the common stock as of the date on which the applicable restricted period lapsed. As to Restricted Stock, subject to the other provisions of the 2023 Plan, the holder will generally have the rights and privileges of a stockholder as to such Restricted Stock, including the right to vote such Restricted Stock, but the holder will not have the right to receive dividends on any unvested shares of Restricted Stock. Participants have no rights or privileges as a stockholder with respect to Restricted Stock Units. +Performance Share Awards +The Committee may grant Performance Share Awards to a Participant that are earned upon the attainment of specific performance goals. Each Performance Share Award shall be evidenced by an award agreement pursuant to the 2023 Plan with terms and conditions determined by the Committee, including the number of shares of common stock or stock-denominated units subject to the Performance Share Award and the conditions that must be met for the Participant to earn the award. +Other Equity-Based and Cash-Based Awards +The Committee may grant other equity-based or cash-based awards under the 2023 Plan, with terms and conditions determined by the Committee pursuant to the 2023 Plan. +Effect of Certain Corporate Transactions and Events +In the event of any stock or extraordinary cash dividend, stock split, reverse stock split, any extraordinary corporate transaction such as a recapitalization, reorganization, merger, consolidation, combination, exchange, or other change in capitalization, awards granted under the 2023 Plan and any award agreements, the exercise price of options and SARs, the performance goals to which Performance Share Award and cash-based awards are subject, and the maximum number of shares of common stock subject to all awards will be equitably adjusted or substituted, as to the number, price or kind of a share of common stock or other consideration subject to such awards to the extent necessary to preserve the economic intent of the award. +In connection with any Change in Control of ConnectM, the Committee may, in its sole discretion, cause any award (i) to be canceled in consideration of a payment in cash or other consideration in amount per share equal to the excess, if any, of the price or implied price per share of common stock in the Change in Control over the per share exercise, base or purchase price of such award, which may be paid immediately or over the vesting schedule of the award; (ii) to be assumed, or new rights substituted therefore, by the surviving corporation or a parent or subsidiary of such surviving corporation following the applicable Change in Control; (iii) to be accelerated as to the vesting, exercise, payment or distribution of the award so that any award to a Participant whose employment is terminated as a result of the Change in Control may be vested, exercised, paid or distributed in full on or before a date fixed by the Committee; (iv) to be purchased from a Participant whose employment is terminated as a result of the Change in Control, for an amount of cash equal to the amount that could have been obtained upon the exercise, payment or distribution of such rights had such award been currently exercisable or payable; or (v) to be terminated; or to make any other adjustment to the awards then outstanding as the Committee deems necessary or appropriate to reflect such transaction or change. +Nontransferability of Awards +Awards under are not be transferable or assignable other than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance will be void and unenforceable against ConnectM or any of its subsidiaries. However, the Committee may determine, in its sole discretion, that a non-qualified stock option may be transferred to a Participant’s family member, or to certain trusts or foundations or other transferees as permitted by the Committee (“ Permitted Transferee ”). A non-qualified stock option that is transferred to a Permitted Transferee will remain subject to the terms of the 2023 Plan and the applicable award agreement. +Minimum Vesting Requirements +No award may be granted with a lapse of any vesting obligations earlier than at least one year following the date of grant. Notwithstanding the foregoing, the Committee may grant up to a maximum of five percent of the aggregate number of shares available for issuance under the 2023 Plan (subject to certain equitable adjustments), without regard to this minimum vesting requirement, and the minimum vesting requirement does not apply to (i) any substitute awards (as defined in the 2023 Plan), +107 +Table of Contents +(ii) shares delivered in lieu of fully vested cash awards, (iii) awards to directors that vest on the earlier of the one-year anniversary of the date of grant or the next annual meeting of shareholders which is at least 50 weeks after the immediately preceding year’s annual meeting, and (iv) the Committee’s discretion to provide for accelerated exercisability or vesting of any award, including in cases of a Participant’s retirement, death or disability or a Change in Control, in the terms of the award or otherwise. +Clawback +Awards under the 2023 Plan are subject to recovery or “clawback” by ConnectM pursuant to any clawback policy ConnectM may have in effect from time to time. +Amendment and Termination +The ConnectM Board may amend the 2023 Plan at any time, subject to shareholder approval to the extent required by applicable law or regulation or the listing standards of Nasdaq or any other market or stock exchange on which ConnectM’s common stock is at the time primarily traded. Additionally, shareholder approval will be specifically required to decrease the exercise price of any outstanding Option or SAR granted under the 2023 Plan. The ConnectM Board may terminate the 2023 Plan at any time. Unless sooner terminated by the ConnectM Board, the 2023 Plan will terminate on July 12, 2034, the 10-year anniversary of the effective date of the 2023 Plan. +Section 162(m) of the Internal Revenue Code +As a general rule, ConnectM will be entitled to a deduction in the same amount and at the same time as the compensation income is received by the Participant, except to the extent the deduction limits of Section 162(m) of the Code apply. Section 162(m) of the Code denies a deduction to any publicly held corporation for compensation paid to any “covered employee” in a taxable year to the extent that compensation to such covered employee exceeds $1,000,000. It is possible that compensation attributable to awards under the 2023 Plan may cause this limitation to be exceeded in any particular year. +Material U.S. Federal Income Tax Consequences of Awards under the 2023 Plan +The following is a general summary under current law of the principal United States federal income tax consequences related to awards under the 2023 Plan. This summary deals with the general federal income tax principles that apply and is provided only for general information. Some kinds of taxes, such as state, local and foreign income taxes and federal employment taxes, are not discussed. This summary is not intended as tax advice to Participants, who should consult their own tax advisors. +Non-Qualified Options. The grant of a non-qualified stock option is not a taxable event for the grantee or ConnectM. Upon exercising a non-qualified stock option, a grantee will recognize ordinary income in an amount equal to the excess of the fair market value of the common stock on the date of exercise over the exercise price. Upon a subsequent sale or exchange of shares acquired pursuant to the exercise of a non-qualified stock option, the grantee will recognize taxable capital gain or loss, measured by the excess of the amount realized on the disposition over the tax basis of the shares of common stock (generally, the amount paid for the shares plus the amount treated as ordinary income at the time the option was exercised). +If ConnectM complies with applicable reporting requirements and with the restrictions of Section 162(m), ConnectM will be entitled to a business expense deduction in the same amount and generally at the same time as the grantee recognizes ordinary income. +A grantee who has transferred a non-qualified stock option to a family member by gift will realize taxable income at the time the non-qualified stock option is exercised by the family member. The grantee will be subject to withholding of income and employment taxes at that time. The family member’s tax basis in the shares of common stock will be the fair market value of the shares of common stock on the date the option is exercised. The transfer of vested non-qualified stock options will be treated as a completed gift for gift and estate tax purposes. Once the gift is completed, neither the transferred options nor the shares acquired on exercise of the transferred options will be includable in the grantee’s estate for estate tax purposes. +Incentive Stock Options. The grant of an incentive stock option is not a taxable event for the grantee or for ConnectM. A grantee will not recognize taxable income upon exercise of an incentive stock option (except to the extent the alternative minimum tax applies), and any gain realized upon a disposition of ConnectM’s common stock received pursuant to the exercise of an incentive stock option will be taxed as long-term capital gain if the grantee holds the shares of common stock for at least two years after the date +108 +Table of Contents +of grant and for one year after the date of exercise (the “holding period requirement”). ConnectM will not be entitled to any business expense deduction with respect to the exercise of an incentive stock option, except as discussed below. +For the exercise of an incentive stock option to qualify for the foregoing tax treatment, the grantee generally must be an employee of ConnectM or its subsidiary from the date the option is granted through a date within three months before the date of exercise of the option. +If all of the foregoing requirements are met except the holding period requirement mentioned above, the grantee will recognize ordinary income upon the disposition of the common stock in an amount generally equal to the excess of the fair market value of the common stock at the time the incentive stock option was exercised over the option exercise price (but not in excess of the gain realized on the sale). The balance of the realized gain, if any, will be capital gain. ConnectM will be allowed a business expense deduction to the extent the grantee recognizes ordinary income, subject to ConnectM’s compliance with Section 162(m) and to certain reporting requirements. +Restricted Stock. A grantee who is awarded Restricted Stock will not recognize any taxable income for federal income tax purposes in the year of grant if the shares of common stock are nontransferable and subject to a substantial risk of forfeiture. However, the grantee may elect under Section 83(b) of the Code to recognize compensation income in the year of grant in an amount equal to the fair market value of the common stock on the date of grant (less the purchase price, if any), determined without regard to any restrictions (except any restrictions that will never lapse). If the grantee does not make such an election, the fair market value of the common stock on the date the restrictions lapse (less the purchase price, if any) will be treated as compensation income to the grantee and will be taxable in the year the restrictions lapse and be subject to withholding taxes. If ConnectM complies with applicable reporting requirements and with the restrictions of Section 162(m), ConnectM will be entitled to a business expense deduction in the same amount and generally at the same time as the grantee recognizes ordinary income. +Restricted Stock Units. There are no immediate tax consequences of receiving an award of Restricted Stock Units under the 2023 Plan. A grantee who is awarded Restricted Stock Units will recognize ordinary income in an amount equal to the fair market value of shares issued to such grantee at the end of the restriction period or, if later, the payment date. If ConnectM complies with applicable reporting requirements and with the restrictions of Section 162(m), ConnectM will be entitled to a business expense deduction in the same amount and generally at the same time as the grantee recognizes ordinary income. +Stock Appreciation Rights. There are no immediate tax consequences of receiving an award of SARs under the 2023 Plan. Upon exercising an SAR, a grantee will recognize ordinary income in an amount equal to the excess of the fair market value of the common stock on the date of exercise over the exercise price. If ConnectM complies with applicable reporting requirements and with the restrictions of Section 162(m), ConnectM will be entitled to a business expense deduction in the same amount and generally at the same time as the grantee recognizes ordinary income. +Performance Share Awards, Other Stock-Based Awards, and Cash-Based Awards. The tax treatment with respect to Performance Share Awards, other stock-based awards and cash-based awards will depend on the structure of such awards. +Section 409A. Awards under the 2023 Plan are intended to either be exempt from or comply with Section 409A of the Internal Revenue Code. Nevertheless, none of the Company, the Committee or the ConnectM Board have any obligation to take any action to prevent the assessment of any additional tax or penalty on any Participant under Section 409A. +New Plan Benefits +Grants under the 2023 Plan will be made at the discretion of the Committee and are not currently determinable. The value of awards granted under the 2023 Plan will depend on a number of factors, including the fair market value of ConnectM common stock on future dates, the exercise decisions made by Participants and the extent to which any applicable performance goals necessary for vesting or payment are achieved. +Director and Officer Indemnification Agreements +We have entered into employment agreements whereby we will agree to indemnify the Chief Executive Officer and Chief Financial Officer to the fullest extent permitted by law, for all amounts (including, without limitation, judgments, fines, settlement payments, expenses and reasonable out of pocket attorneys’ fees) incurred or paid by the Chief Executive Officer and Chief Financial Officer in connection with any action, suit, investigation or proceeding, or threatened action, suit, investigation or proceeding, arising +109 +Table of Contents +out of or relating to the performance by the Chief Executive Officer and Chief Financial Officer of services for, or the acting by the Chief Executive Officer and Chief Financial Officer as a director, officer or executive of, the Company, or any subsidiary of the Company. Any fees or other necessary expenses incurred by the Chief Executive Officer and Chief Financial Officer in defending any such action, suit, investigation or proceeding shall be paid by the Company in advance, subject to the Company’s right to seek repayment from the Chief Executive Officer and Chief Financial Officer if a determination is made that the Chief Executive Officer and Chief Financial Officer were not entitled to indemnification. +Potential Payments Upon Termination or Change in Control +None. +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. +The following table sets forth information regarding beneficial ownership of our capital stock as of the date of this filing by: +● each person, or group of affiliated persons, known by us to beneficially own more than 5% of our Common Stock; +● each of our directors; +● each of our named executive officers; and +● all of our current executive officers and directors as a group. +The following table is based upon information supplied by officers, directors and principal stockholders and Schedules 13D and 13G filed with the SEC. Unless otherwise indicated in a footnote to this table and subject to community property laws where applicable, the Company believes that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. +Applicable percentages are based on 170,368,082 shares of our Common Stock outstanding as of the date of filing. Unless otherwise indicated, the address for the following stockholders is care of: ConnectM Technology Solutions, Inc., 2 Mount Royal Avenue, Suite 550, Marlborough, Massachusetts 01752. +​ +​ +​ +​ +​ +​ +Name and Address of Beneficial Owner (1) +​ ​ ​ +Number of Shares +​ ​ ​ +% of Class +Directors and Executive Officers +​ +​ +​ +Bala Padmakumar (2) +2,324,197 +1.36 +% +Bhaskar Panigrahi (3) +4,718,953 +2.77 +% +Girish Subramanya +606,775 +* +​ +Kevin Stateham +250.000 +* +​ +Mahesh Choudhury +774,769 +* +​ +Gautam Barua +200,000 +* +​ +Kathy Cuocolo +252,500 +* +​ +Stephen Markscheid +225,000 +* +​ +All directors and executive officers of ConnectM as a group (eight individuals) +9,352,194 +5.49 +% +Five Percent Holders of ConnectM: +​ +​ +​ +Geo Impex LLC (4) +​ +33,300,000 +​ +19.55 +% +Laramie Plains Holdings LLC (4) (5) +​ +14,000,000 +​ +8.22 +% +* +Less than 1% +(1) Unless otherwise noted, the business address of each of the following individuals is c/o ConnectM Technology Solutions, Inc., 2 Mount Royal Ave., Suite 550, Marlborough, MA 01752. +(2) Monterrey Acquisition Sponsor, LLC, (“MAS”), is the record holder of the securities reported herein. Bala Padmakumar is the managing member of MAS. Mr. Padmakumar shares voting and dispositive power over the founder shares held by MAS and may be deemed to beneficially own such shares. Each such person disclaims any beneficial ownership of the reported shares other than to the extent of any pecuniary interest they may have therein, directly or indirectly. The post-business combination shares include 3,790,000 shares issuable pursuant to warrants that will be exercisable following the business combination. +110 +Table of Contents +(3) Consists of (i) 3,585,660 shares held by Avanti Holdings LLC, (ii) 254,647 shares held by Mr. Panigrahi and (iii) 127,838 shares held by Southwood Partners LP. Mr. Panigrahi is a controlling equity holder of Avanti Holdings LLC and Southwood Partners LP. Therefore, Mr. Panigrahi may be deemed to have voting power and dispositive power over the shares held by Avanti Holdings LLC and Southwood Partners LP. +(4) Based on information provided by the Company’s transfer agent and reflected in its official shareholder records. +(5) 14,000,000 of the shares issued in connection with the acquisition of Sun Solar LLC, is held by Laramie Plains Holding LLC, an entity owned and controlled by Caleb Arthur, the Chief Executive Officer and founder of Sun Solar LLC. Mr. Arthur has sole voting and dispositive power over the shares held by Laramie Plains Holding LLC. +Changes in Control +Our management is not aware of any arrangements which may result in “changes in control” as that term is defined by the provisions of Item 403(c) of Regulation S-K. +Item 13. Certain Relationships and Related Transactions, and Director Independence. +In addition to the compensation arrangements with directors and executive officers described under “ Executive and Director Compensation ” and “ Management ,” the following is a description of each transaction since January 1, 2023 and each currently proposed transaction in which: +● we have been or are to be a participant; +● the amount involved exceeded or will exceed $120,000; and +● any of our directors, executive officers or beneficial holders of more than 5% of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals (other than tenants or employees), had or will have a direct or indirect material interest. +Lock-up Agreement +In connection with the Business Combination, we have entered into lock-up agreements with certain of our shareholders restricting the transfer of their shares received as Merger consideration or any securities convertible into or exercisable or exchangeable for shares of Common Stock owned by them nor make any demand for or exercise any right with respect to the registration of such lock-up securities from and after the closing of the Business Combination. The restrictions under the lock-up agreements began at the closing of the Business Combination and end six (6) months from the Closing Date. +Related Party Policy +Our Code of Ethics requires us to avoid, wherever possible, all related party transactions that could result in actual or potential conflicts of interests, except under guidelines approved by the Board (or the audit committee). Related-party transactions are defined as transactions in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) we or any of our subsidiaries is a participant, and (3) any (a) executive officer, director or nominee for election as a director, (b) greater than 5% beneficial owner of our common stock, or (c) immediate family member, of the persons referred to in clauses (a) and (b), has or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 10% beneficial owner of another entity). A conflict of interest situation can arise when a person takes actions or has interests that may make it difficult to perform his or her work objectively and effectively. Conflicts of interest may also arise if a person, or a member of his or her family, receives personal benefits as a result of his or her position. +Our audit committee, pursuant to its written charter, is responsible for reviewing and approving related-party transactions to the extent we enter into such transactions. All ongoing and future transactions between us and any of our officers and directors or their respective affiliates will be on terms believed by us to be no less favorable to us than are available from unaffiliated third parties. Such transactions will require prior approval by our audit committee and a majority of our disinterested independent directors, or the members of our Board who do not have an interest in the transaction, in either case who had access, at our expense, to our attorneys or +111 +Table of Contents +independent legal counsel. We will not enter into any such transaction unless our audit committee and a majority of our disinterested independent directors determine that the terms of such transaction are no less favorable to us than those that would be available to us with respect to such a transaction from unaffiliated third parties. Additionally, we require each of our directors and executive officers to complete a directors’ and officers’ questionnaire that elicits information about related party transactions. +These procedures are intended to determine whether any such related party transaction impairs the independence of a director or presents a conflict of interest on the part of a director, employee or officer. +To further minimize conflicts of interest, we have agreed not to consummate our initial business combination with an entity that is affiliated with any of our officers, directors or initial stockholders, unless we have obtained (i) an opinion from an independent investment banking firm, or other firm that commonly provides valuation opinions, that the business combination is fair to our stockholders from a financial point of view and (ii) the approval of a majority of our disinterested and independent directors (if we have any at that time). Furthermore, in no event will any of our initial stockholders, officers, directors or their respective affiliates be paid any finder’s fee, consulting fee or other similar compensation prior to, or for any services they render in order to effectuate, the consummation of our initial business combination. +Limitation on Liability and Indemnification of Directors and Officers +Our bylaws provides that our directors and officers will be indemnified by us to the fullest extent authorized by Delaware law as it now exists or may in the future be amended. +Notwithstanding the foregoing, as set forth in our bylaws, such indemnification will not extend to any claims our insiders may make to us to cover any loss that they may sustain as a result of their agreement to pay debts and obligations to target businesses or vendors or other entities that are owed money by us for services rendered or contracted for or products sold to us as described in this Report. +Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act (and is, therefore, unenforceable.). +Certain Relationships and Related Person Transactions +The following is a description of certain relationships and transactions that exist or have existed or that ConnectM has entered into, in each case since January 1, 2024, with its directors, executive officers, or stockholders who are known to ConnectM to beneficially own more than five percent of its voting securities and their respective affiliates and immediate family members. +Sponsor of MCAC +In connection with the closing of the Business Combination, the Company assumed unsecured promissory notes totaling approximately $555,000 that are non-interest bearing and due on demand and advances totaling approximately $132,000 that are non-interest bearing and due on demand with the Sponsor of MCAC. During September 2024, the Company entered into a note conversion agreement with the Sponsor of MCAC in which the Company converted the outstanding principal on unsecured promissory notes and certain other liabilities owed to the note holders into shares of the Company’s common stock at a conversion price of $2.00 per share with a one-time share reset adjustment, subject to shareholder approval and a maximum aggregate ownership amount of 19.99% for each individual lender. In connection with these agreements, approximately $555,000 of unsecured promissory notes and approximately $132,000 of accounts payable and accrued expenses were extinguished in exchange for the issuance of 343,248 shares of the Company’s common stock. +In connection with the conversion agreement, the Sponsor of MCAC received a one-time share reset adjustment that was settled during the quarter ended March 31, 2025 through the issuance of 205,949 shares of the Company’s common stock (see Note 4). As of December 31, 2024, the fair value of the derivative liabilities associated with the reset adjustment was approximately $158,000 and was included as a component of derivative liabilities on the accompanying consolidated balance sheets. As of June 30, 2025, the derivative liabilities associated with the reset adjustment were settled in full. For the year ended December 31, 2025, the Company recorded a change in fair value on these derivative liabilities of $30,000 which was included as a component of change in fair value of derivative liabilities on the accompanying consolidated statements of operations and comprehensive loss. +112 +Table of Contents +Avanti Notes +In September 2016, the Company entered into an unsecured promissory note with a company owned by the Company’s Chief Executive Officer (the “Related Party Lender”) for an original principal sum of about $248,000 at September 30, 2016 (the “2016 Promissory Note”). The principal balance of the note as of December 31, 2025 and December 31, 2024 are $0 and approximately $179,910 respectively. The note bears annual interest of 14.0%. The note does not have a maturity date, and the full note balance is to be paid over time in amounts determined by the Company. +In July 2024, the Company borrowed an additional amount of about $93,000 from the Related Party Lender (the “2024 Promissory Note”). The loan bears interest at 14.0% and matures in July 2031. The principal and accrued interest is due in full at maturity. +In November 2025, in connection with the acquisition of controlling interest in Geo Impex & Logistics Pvt. Ltd., the Company assumed a note payable of approximately $279,000 due to Avanti, maturing on October 31, 2026. +Total interest expense recognized on the promissory notes with the Related Party Lender was approximately $23,107 for the year ended December 31, 2025, respectively, compared to approximately $18,209 for the year ended December 31, 2024. +Amperics Asset Acquisition +On November 3, 2025, the Company completed the acquisition of substantially all assets of Amperics Holdings LLC and Amperics Inc. (collectively, “Amperics”) pursuant to an Asset Purchase Agreement (the “Amperics Asset Acquisition”). Mr. Bala Padmakumar, a member of the Company’s Board of Directors, previously served as Chief Executive Officer of Amperics until 2020 and holds a significant minority ownership interest in Amperics and, as such, is considered a related party to the transaction. The acquired assets consist primarily of proprietary nanotechnology-based energy storage intellectual property, including patents, know-how, software and technical documentation, which have been integrated into the Company’s Keen Labs platform to support its virtual power plant (“VPP”) and AI-enabled energy management initiatives. +The aggregate consideration for the transaction consisted of the issuance of 2,700,000 shares of the Company’s common stock to the seller. Based on the closing market price of $0.32 per share on the acquisition date, the implied value of the equity consideration was approximately $864,000. No cash consideration was paid, and the agreement does not include any earn-outs or other contingent consideration. +The Company determined that the transaction qualified as an asset acquisition under applicable accounting guidance, as substantially all of the fair value of the acquired gross assets was concentrated in a single identifiable asset (intellectual property). Accordingly, the transaction was accounted for under ASC 805-50, and no goodwill was recognized. +Given the involvement of a related party, the terms of the transaction, including the consideration paid, were reviewed and approved by disinterested members of the Company’s Board of Directors in accordance with the Company’s related party transaction policies. The Company believes that the terms of the transaction are no less favorable than those that could have been obtained from unaffiliated third parties. +​ +113 +Table of Contents +Item 14. Principal Accountant Fees and Services. +The following table presents fees for professional services by KNAV CPA LLP and Adeptus Partners, LLC for the audit of the Company’ financial statements and fees billed for audit-related services, tax services and all other services for the years ended December 31, 2025 and 2024, respectively. +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +Audit Fees* +​ +$ +212,190 +​ +$ +279,000 +Audit Related Fees** +​ +$ +— +​ +$ +— +Tax fees*** +​ +$ +— +​ +$ +— +* Audit Fees: Refers to fees billed for professional services rendered in connection with the audit of our financial statements as of and for the years ended December 31, 2025 and 2024, quarterly reviews, the reviews of registration statements and issuances of consents, and services that are normally provided in connection with statutory and regulatory filings or engagements. +** Audit-Related Fees: Refers to fees billed outside of the scope of the engagement letter for the audit which are reasonably related to the performance of the audit or review of our consolidated financial statements for the years ended December 31, 2025 and 2024. +*** +Tax Fees: Refers to fees for tax compliance services, including preparation of federal and state income tax returns, and tax payment and planning advice . +Pre-Approval Policy +All of the above services were approved by the Audit Committee. In accordance with the Sarbanes-Oxley Act of 2002, as amended, the Audit Committee’s policy is to pre-approve all audit and non-audit services provided by our independent registered public accounting firm. On an ongoing basis, management defines and communicates specific projects and categories of service for which the advance approval of the Audit Committee is requested. The Audit Committee reviews these requests and advises management if the Audit Committee approves the engagement of our independent registered public accounting firm for such services. +​ +114 +Table of Contents +PART IV +Item 15. Exhibit and Financial Statement Schedules. +Documents filed as part of this Annual Report on Form 10-K: +A. Financial Statements +FINANCIAL STATEMENTS AND +SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS +Financial Statements of ConnectM Technology Solutions, Inc. +​ ​ ​ +Page +Report of Independent Registered Public Accounting Firm (Adeptus Partners, LLC; Ocean, New Jersey; PCAOB ID No. 3686) +​ +F-1 +Report of Independent Registered Public Accounting Firm (KNAV CPA LLP; Atlanta, GA; PCAOB ID No. 2983). +​ +F-2 +Consolidated Balance Sheets +F-3 +Consolidated Statements of Operations and Comprehensive Loss +​ +F-4 +Consolidated Statements of Changes in Stockholders’ Deficit +​ +F-5 +Consolidated Statements of Cash Flows +​ +F-6 +Notes to Consolidated Financial Statements +​ +F-7 +​ +B. The following Exhibits are filed as part of this Annual Report on Form 10-K: +​ +Exhibit +No +​ ​ ​ +Description +2.1 +​ +Agreement and Plan of Merger dated as of December 31, 2022, by and among Monterey Capital Acquisition Corporation, Chronos Merger Sub, Inc. and ConnectM Technology Solutions, Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by the registrant on January 3, 2023) +2.2 +​ +First Amendment to the Agreement and Plan of Merger dated as of October 12, 2023, by and among Monterey Capital Acquisition Corporation, Chronos Merger Sub, Inc. and ConnectM Technology Solutions, Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by the registrant on October 16, 2023) +2.3 +​ +Second Amendment to the Agreement and Plan of Merger dated as of April 12, 2024, by and among Monterey Capital Acquisition Corporation, Chronos Merger Sub, Inc. and ConnectM Technology Solutions, Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by the registrant on April 12, 2024) +2.4 +​ +Purchase Agreement (incorporated by reference to Exhibit 2.1 to the Current report on Form 8-K filed by the registrant on August 6, 2024) +3.1 +​ +Second Amended and Restated Certificate of Incorporation of ConnectM Technology Solutions, Inc. (incorporated by reference to Exhibit 3.1 to the Current report on Form 8-K filed by the registrant on July 18, 2024). +3.2 +​ +Amended and Restated Bylaws of ConnectM Technology Solutions, Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with the Securities & Exchange Commission on July 18, 2024) +3.3 +​ +Certificate of Designations of Preferences and Rights of Series A Convertible Preferred Stock filed on May 5, 2025 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities & Exchange Commission on May 15, 2025) +3.4 +​ +Certificate of Designations of Preferences and Rights of Series B Convertible Preferred Stock filed on May 5, 2025 (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with the Securities & Exchange Commission on May 15, 2025) +4.1 +​ +Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the Securities & Exchange Commission on July 18, 2024) +4.2 +​ +Specimen Warrant Certificate (included in Exhibit 4.3) +4.3 +​ +Warrant Agreement, dated May 10, 2022, by and between the Company and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 16, 2022) +4.4 +​ +Description of Securities (incorporated by reference to Exhibit 4.4 to the Form 10-K filed with the Securities and Exchange Commission on August 4, 2025) +115 +Table of Contents +​ +Exhibit +No +​ ​ ​ +Description +10.1 +​ +Form of Indemnification Agreement of ConnectM Technology Solutions, Inc. (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.2 +​ +Amended and Restated Registration Rights Agreement, dated July 12, 2024 (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.3 +​ +Legacy ConnectM 2019 Equity Incentive Plan (Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.4 +​ +ConnectM Technology Solutions, Inc. 2023 Equity Incentive Plan (Incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.5 +​ +Letter Agreement, dated May 10, 2022, by and among Monterey Capital Acquisition Corporation and certain security holders, officers and directors of Monterey Capital Acquisition Corporation (Incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.6 +​ +Private Placement Warrant Purchase Agreement, dated May 10, 2022, by and between Monterey Capital Acquisition Corporation and Monterrey Acquisition Sponsor, LLC (Incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.7 +​ +Standard Form Commercial Lease, dated as of October, 2022, by and between Sunrise Nominee Trust and Aurai LLC (f/k/a ConnectM Technologies, LLC) (dba Bourque Heating and Cooling Co. Inc.) (Incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.8 +​ +Standard Form Commercial Lease, dated as of February 25, 2018, by and between Maplewood Cutter, LLC and Cazeault Solar & Home LLC, as amended by that certain Letter, dated as of June 8, 2022, by and between Maplewood Cutter, LLC and Cazeault Solar & Home LLC (Incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.9 +​ +Lease, dated as of October 31, 2006, by and between Hovey Realty Corporation and Cazeault Solar & Home LLC (Incorporated by reference to Exhibit 10.9 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.10 +​ +Commercial Lease, dated as of May 1, 2019, by and between CB Equities Mt Royal LLC and Legacy ConnectM (Incorporated by reference to Exhibit 10.10 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.11 +​ +Leave and License Agreement, dated September 30, 2020, by and between Sree Ramulu Raju and ConnectM Technology Solutions Private Limited (Incorporated by reference to Exhibit 10.11 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.12 +​ +Rental Agreement, dated December 1, 2021, by and between Rajesh S. Gowda and ConnectM Technology Solutions Private Limited (Incorporated by reference to Exhibit 10.12 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.13 +​ +Lease Agreement dated April 3, 2023, by and between AirFlow Service Company, Inc. and Wellington Business Center LLC (Incorporated by reference to Exhibit 10.13 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.14 +​ +Warehouse & Fulfillment Services Agreement, dated December 27, 2016, by and between Vnetek Communications, LLC dba Northeast 3PL and Legacy ConnectM (Incorporated by reference to Exhibit 10.14 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.15 +​ +Promissory Note, dated February 22, 2022, issued by Legacy ConnectM, in favor of Arumilli LLC (Incorporated by reference to Exhibit 10.15 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.16 +​ +Promissory Note, dated February 22, 2022, issued by Legacy ConnectM, in favor of SriSid LLC (Incorporated by reference to Exhibit 10.16 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.17 +​ +Secured Subordinated Promissory Note, dated May 18, 2021, issued by ConnectM Babione LLC in favor of Douglas Pence (Incorporated by reference to Exhibit 10.17 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.18 +​ +Promissory Note, dated May 31, 2022, issued by Aurai LLC (f/k/a ConnectM Technology Solutions LLC) in favor of George A. Neighoff (Incorporated by reference to Exhibit 10.18 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.19 +​ +Secured Subordinated Promissory Note, dated February 28, 2022, issued by Aurai LLC (f/k/a ConnectM Technology Solutions LLC) in favor of Robert G. Bourque and Lise Bourque (Incorporated by reference to Exhibit 10.19 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +116 +Table of Contents +​ +Exhibit +No +​ ​ ​ +Description +10.20 +​ +Secured Subordinated Promissory Note, dated January 24, 2022, issued by Aurai LLC (f/k/a ConnectM Technology Services, LLC) in favor of Timothy Sanborn (Incorporated by reference to Exhibit 10.20 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.21 +​ +Secured Subordinated Promissory Note, dated January 24, 2022, issued by Aurai LLC (f/k/a ConnectM Technology Services, LLC) in favor of Russell Cazeault (Incorporated by reference to Exhibit 10.21 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.22 +​ +Loan Authorization and Agreement, Small Business Administration Loan #8512657807, Application #3302062637, Doc #L-01-2884676-01, dated July 30, 2021, amending that certain Loan Authorization and Agreement, Small Business Administration Loan #8512657807, Application #3302062637, Doc #L-01-2884676-01, dated June 5, 2020, by and between Legacy ConnectM and the Small Business Administration (Incorporated by reference to Exhibit 10.22 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024). +10.23 +​ +Management Services Agreement, dated January 24, 2022, by and between Cazeault Solar & Home, LLC and Timothy J. Sanborn (Incorporated by reference to Exhibit 10.23 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.24 +​ +Promissory Note, dated August 22, 2023, issued by Monterey Capital Acquisition Corporation in favor of Legacy ConnectM (Incorporated by reference to Exhibit 10.24 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.25 +​ +Promissory Note, dated October 23, 2023, issued by Monterey Capital Acquisition Corporation in favor of Legacy ConnectM (Incorporated by reference to Exhibit 10.25 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.26 +​ +Promissory Note, dated November 16, 2023, issued by Monterey Capital Acquisition Corporation in favor of Legacy ConnectM (Incorporated by reference to Exhibit 10.26 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.27 +​ +Promissory Note, dated January 24, 2023, issued by Legacy ConnectM in favor of Arumilli LLC (Incorporated by reference to Exhibit 10.27 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.28 +​ +Promissory Note, dated March 1, 2023, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.28 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.29 +​ +Promissory Note, dated April 10, 2023, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.29 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.30 +​ +Promissory Note, dated May 3, 2023, issued by Legacy ConnectM in favor of Sreenivasa Rao Nalla (Incorporated by reference to Exhibit 10.30 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.31 +​ +Promissory Note, dated May 5, 2023, issued by Legacy ConnectM in favor of Ashish Kulkarni (Incorporated by reference to Exhibit 10.31 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.32 +​ +Promissory Note, dated July 18, 2023, issued by Legacy ConnectM in favor of Arumilli LLC (Incorporated by reference to Exhibit 10.32 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.33 +​ +Promissory Note, dated July 26, 2023, issued by Legacy ConnectM in favor of Arumilli LLC (Incorporated by reference to Exhibit 10.33 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.34 +​ +Promissory Note, dated August 2, 2023, issued by Legacy ConnectM in favor of Arumilli LLC (Incorporated by reference to Exhibit 10.34 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.35 +​ +Promissory Note, dated August 2, 2023, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.35 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.36 +​ +Promissory Note, dated September 15, 2023, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.36 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +117 +Table of Contents +​ +Exhibit +No +​ ​ ​ +Description +10.37 +​ +Promissory Note, dated September 25, 2023, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.37 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.38 +​ +Promissory Note, dated October 19, 2023, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.38 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.39 +​ +Promissory Note, dated October 27, 2023, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.39 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.40 +​ +Promissory Note, dated November 9, 2023, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.40 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.41 +​ +Promissory Note, dated November 10, 2023, issued by Legacy ConnectM in favor of Arumilli LLC (Incorporated by reference to Exhibit 10.41 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.42 +​ +Promissory Note, dated November 13, 2023, issued by Legacy ConnectM in favor of Ashish Kulkarni (Incorporated by reference to Exhibit 10.42 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.43 +​ +Promissory Note, dated December 15, 2023, issued by Legacy ConnectM in favor of Arumilli LLC (Incorporated by reference to Exhibit 10.43 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.44 +​ +Promissory Note, dated December 15, 2023, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.44 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.45 +​ +Promissory Note, dated April 10, 2024, issued by Legacy ConnectM in favor of Arumilli LLC (Incorporated by reference to Exhibit 10.45 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.46 +​ +Promissory Note, dated April 23, 2024, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.46 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.47 +​ +Promissory Note, dated May 6, 2024, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.47 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.48 +​ +Promissory Note, dated May 8, 2024, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.48 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.49 +​ +Promissory Note, dated May 16, 2024, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.49 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.50 +​ +Promissory Note, dated May 20, 2024, issued by Legacy ConnectM in favor of SriSid LLC (Incorporated by reference to Exhibit 10.50 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.51 +​ +Promissory Note, dated June 1, 2024, issued by Legacy ConnectM in favor of Dinesh Tanna (Incorporated by reference to Exhibit 10.51 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.52 +​ +Promissory Note, dated June 10, 2024, issued by Legacy ConnectM in favor of Ashish Kulkarni (Incorporated by reference to Exhibit 10.52 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.53 +​ +Promissory Note, dated June 17, 2024, issued by Legacy ConnectM in favor of Satish K Tadikonda Trust. (Incorporated by reference to Exhibit 10.53 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.54 +​ +Promissory Note, dated June 17, 2024, issued by Legacy ConnectM in favor of Kanu Patel (Incorporated by reference to Exhibit 10.54 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.55 +​ +Promissory Note, dated June 20, 2024, issued by Legacy ConnectM in favor of Vikas Desai (Incorporated by reference to Exhibit 10.55 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +118 +Table of Contents +​ +Exhibit +No +​ ​ ​ +Description +10.56 +​ +Credit Agreement, dated February 18, 2022, by and among Legacy ConnectM, SriSid LLC, and Arumilli LLC (Incorporated by reference to Exhibit 10.56 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.57 +​ +Security and Intercreditor Agreement, dated February 22, 2022, by and among Legacy ConnectM, SriSid LLC, and Arumilli LLC (Incorporated by reference to Exhibit 10.57 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.58 +​ +Promissory Note, dated December 29, 2022, issued by ConnectM Florida RE LLC in favor of RJZ Holdings LLC (Incorporated by reference to Exhibit 10.58 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.59 +​ +Secured Promissory Note, dated December 28, 2022, issued by Aurai LLC in favor of Robert J. Zrallack (Incorporated by reference to Exhibit 10.59 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.60 +​ +Promissory Note, dated November 28, 2022, issued by Legacy ConnectM, in favor of SriSid LLC (Incorporated by reference to Exhibit 10.60 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.61 +​ +Promissory Note, dated January 18, 2024, issued by Legacy ConnectM in favor of Arumilli LLC (Incorporated by reference to Exhibit 10.61 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.62 +​ +Promissory Note, dated February 2, 2024, issued by Legacy ConnectM in favor of IT Corpz, Inc (Incorporated by reference to Exhibit 10.62 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.63 +​ +Promissory Note, dated March 13, 2024, issued by Legacy ConnectM in favor of Arumilli LLC (Incorporated by reference to Exhibit 10.63 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2024) +10.64 +​ +Amendment to Forward Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Current report on Form 8-K filed by the registrant on August 6, 2024) +10.65 +​ +Note Conversion Agreement by and between the Company and Arumilli LLC, dated as of September 12, 2024 (incorporated by reference to Exhibit 10.1 to the Current report on Form 8-K filed by the registrant on September 17, 2024) +10.66 +​ +Note Conversion Agreement by and between the Company and SriSid LLC, dated as of September 12, 2024 (incorporated by reference to Exhibit 10.2 to the Current report on Form 8-K filed by the registrant on September 17, 2024) +10.67 +​ +Standby Equity Purchase Agreement dated as of December 17, 2024 by and between the Company and YA II PN, LTD. (incorporated by reference to Exhibit 10.1 to the Current report on Form 8-K filed by the registrant on December 26, 2024) +10.68 +​ +Note Conversion Agreement by and between the Company and Sree Nalla, an individual, dated as of September 12, 2024 (incorporated by reference to Exhibit 10.1 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +10.69 +​ +Note and Payable Conversion Agreement by and between the Company and IT Corpz Inc., dated as of September 24, 2024 (incorporated by reference to Exhibit 10.2 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +10.70 +​ +Note Conversion Agreement by and between the Company and Monterrey Acquisition Sponsor LLC, dated as of September 24, 2024 (incorporated by reference to Exhibit 10.3 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +10.71 +​ +Debt Conversion Agreement by and between the Company and MZHCI, LLC, dated as of November 13, 2024 (incorporated by reference to Exhibit 10.4 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +10.72 +​ +Debt Conversion Agreement by and between the Company and George A. Neighoff, an individual, dated as of November 13, 2024 (incorporated by reference to Exhibit 10.5 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +10.73 +​ +Debt Conversion Agreement by and between the Company and KLR Holdings Inc., dated as of December 1, 2024 (incorporated by reference to Exhibit 10.6 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +119 +Table of Contents +​ +Exhibit +No +​ ​ ​ +Description +10.74 +​ +Debt Conversion Agreement by and between the Company and Libertas Funding LLC, dated as of September 24, 2024 (incorporated by reference to Exhibit 10.7 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +10.75 +​ +Marketing Services Agreement by and between the Company and Outside Box Capital Inc., dated as of July 25, 2024 (incorporated by reference to Exhibit 10.8 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +10.76 +​ +Services Agreement by and between the Company and Jamal Khurshid, an individual, dated December 1, 2024(incorporated by reference to Exhibit 10.9 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +10.77 +​ +Services Agreement by and between the Company and LU2 Holdings, LLC, dated December 1, 2024(incorporated by reference to Exhibit 10.10 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +10.78 +​ +Capital Markets Advisory Agreement by and between the Company and Roth Capital Partners LLC, dated July 16, 2024 (incorporated by reference to Exhibit 10.11 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +10.79 +​ +Transfer Agreement by and between the Company and Srimulli Renewable LLC, dated October 1, 2024 (incorporated by reference to Exhibit 10.12 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +10.80 +​ +Transfer Agreement by and between the Company and Gregory Kendall, an individual, dated October 1, 2024 (incorporated by reference to Exhibit 10.13 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +10.81 +​ +Settlement Agreement by and between the Company and Benjamin Securities, Inc., dated October 2, 2024 (incorporated by reference to Exhibit 10.14 to the Current report on Form 8-K filed by the registrant on February 10, 2025) +10.82 +​ +Convertible Promissory Note, dated December 17, 2024, between ConnectM and YA II PN, LTD. (incorporated by reference to Exhibit 10.2 to the Current report on Form 8-K filed by the registrant on December 26, 2024) +10.83 +​ +Registration Rights Agreement, dated December 17, 2024, between ConnectM and YA II PN, LTD. (incorporated by reference to Exhibit 10.3 to the Current report on Form 8-K filed by the registrant on December 26, 2024) +10.84 +​ +Termination Agreement dated as of April 2, 2025, by and among (i) Meteora Special Opportunity Fund I, LP, (ii) Meteora Capital Partners, LP, (iii) Meteora Select Trading Opportunities Master, LP, and (iv) ConnectM (incorporated by reference to Exhibit 10.1 to the Current report on Form 8-K filed by the registrant on April 18, 2025) +14.1 +​ +Code of Ethics (incorporated by reference to Exhibit 14.1 to the Form 10-K filed with the Securities and Exchange Commission on August 4, 2025) +19.1 +​ +Insider Trading Policy (incorporated by reference to Exhibit 19.1 to the Form 10-K filed with the Securities and Exchange Commission on August 4, 2025) +21.1* +​ +Subsidiaries of the Registrant +23.1* +​ +Consent of independent registered public accounting firm – Adeptus Partners, LLC +23.2* +​ +Consent of independent registered public accounting firm – KNAV CPA LLP +31.1* +​ +Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +31.2* +​ +Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32.1* +​ +Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +32.2* +​ +Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +101 +​ +Includes the following financial and related information on Form 10-K as of and for the 12 months ended December 31, 2025, formatted in Inline Extensible Business Reporting Language (iXBRL): (1) the Consolidated Balance Sheets, (2) the Consolidated Statements of Income, (3) the Consolidated Statements of Comprehensive Income, (4) the Consolidated Statements of Changes in Stockholders’ Equity, (5) the Consolidated Statements of Cash Flows, and (6) Notes to Consolidated Financial Statements. +104 +​ +The cover page from this Annual Report on Form 10-K formatted in Inline XBRL. +* +Filed herewith +​ +Item 16. Form 10-K Summary. +Not included. +​ +120 +Table of Contents +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +​ +(Registrant) +ConnectM Technology Solutions, Inc. +​ +By (Signature and Title) Bhaskar Panigrahi, Chief Executive Officer and Chairman +Date April 16, 2026 +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. +Signature +​ ​ ​ +Capacity +​ ​ ​ +Date +​ +​ +​ +​ +​ +/s/ Bhaskar Panigrahi +​ +Chief Executive Officer; Chairman +​ +April 16, 2026 +Bhaskar Panigrahi +​ +(Principal Executive Officer) +​ +​ +​ +​ +​ +​ +​ +/S/ Mahesh Choudhury +​ +Principal Financial Officer & Vice President, U.S. Operations +​ +April 16, 2026 +Mahesh Choudhury +​ +​ +​ +​ +​ +​ +​ +​ +/S/ Bala Padmakumar +​ +Vice Chairman +​ +April 16, 2026 +Bala Padmakumar +​ +​ +​ +​ +​ +​ +​ +​ +​ +/S/ Kathy Cuocolo +​ +Director +​ +April 16, 2026 +Kathy Cuocolo +​ +​ +​ +​ +​ +​ +​ +​ +​ +/S/ Stephen Markscheid +​ +Director +​ +April 16, 2026 +Stephen Markscheid +​ +​ +​ +​ +​ +​ +​ +​ +​ +/S/ Gautam Barua +​ +Director +​ +April 16, 2026 +Gautam Barua +​ +​ +​ +​ +​ +​ +​ +​ +121 +Table of Contents +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To the Board of Directors and Stockholders of ConnectM Technology Solutions, Inc. +Opinion on the Consolidated Financial Statements +We have audited the accompanying consolidated balance sheets of ConnectM Technology Solutions, Inc. (the Company) as of December 31, 2024 and 2023, and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2024 and 2023, and the consolidated results of its operations and its cash flows for the years ended December 31, 2024 and 2023, in conformity with accounting principles generally accepted in the United States of America. +Substantial Doubt about the Company’s Ability to Continue as a Going Concern +The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 4 to the consolidated financial statements, the Company has a net loss from operations, negative cash flows from operations, and an accumulated deficit and that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 4. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. +Basis for Opinion +These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +We began serving as the Company’s auditor in 2023. In 2025, we became the predecessor auditor. +/s/ Adeptus Partners, LLC +PCAOB ID: 3686 +Ocean, New Jersey +August 4, 2025 +​ +F-1 +Table of Contents +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To the Board of Directors and Stockholders of ConnectM Technology Solutions, Inc. and its subsidiaries +Opinion on the consolidated financial statements +We have audited the accompanying consolidated balance sheet of ConnectM Technology Solutions, Inc. and its subsidiaries (the Company) as of December 31, 2025, and the related consolidated statements of operations and comprehensive loss, stockholders’ deficit and cash flows for the year ended December 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and the results of its operations and its cash flows for the year ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. +Substantial doubt about the Company’s ability to continue as a going concern +The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered recurring net losses, has an accumulated deficit and stockholders’ deficit and working capital deficit. The ability of the Company to continue as a going concern is dependent upon management’s plan to raise additional capital from issuance of equity or receive additional borrowings to fund the Company’s operating and investing activities and meet financial obligations over the next year from the date these consolidated financial statements were issued. There can be no assurance that such plans will be successfully implemented or will generate sufficient liquidity to meet the Company’s obligations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. +Basis for opinion +These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. +/s/ KNAV CPA LLP +We have served as the Company’s auditor since 2025. +Atlanta, Georgia +April 16, 2026 +​ +PCAOB ID - 2983 +​ +​ +F-2 +Table of Contents +CONNECTM TECHNOLOGY SOLUTIONS, INC. +CONSOLIDATED BALANCE SHEETS +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +December 31, +​ ​ ​ +December 31, +​ +​ +2025 +​ +2024 +Assets +​ +​ +​ +​ +Current assets +​ +​ +​ +​ +Cash +​ +$ +2,904,430 +​ +$ +2,407,843 +Accounts receivable – net of allowance for credit loss +​ +3,066,626 +​ +1,897,471 +Contract asset +​ +303,910 +​ +206,750 +Inventories, net +​ +633,798 +​ +​ +550,695 +Forward purchase agreement derivative asset +​ +​ +— +​ +​ +1,471,000 +Working capital advances +​ +​ +— +​ +​ +266,831 +Prepaid expenses and other current assets +​ +1,261,794 +​ +1,530,842 +Total current assets +​ +8,170,558 +​ +8,331,432 +Right-of-use asset – operating lease +​ +215,385 +​ +221,479 +Right-of-use asset – finance lease +​ +54,147 +​ +130,774 +Property and equipment, net +​ +20,330,688 +​ +936,573 +Goodwill +​ +5,216,788 +​ +1,728,108 +Intangible assets, net +​ +2,182,558 +​ +1,408,176 +Total Assets +​ +$ +36,170,124 +​ +$ +12,756,542 +Liabilities and Stockholders’ Deficit +​ +​ +​ +​ +Current liabilities +​ +​ +​ +​ +Accounts payable +​ +$ +7,219,261 +​ +$ +10,497,488 +Accrued expenses and other current liabilities +​ +2,350,393 +​ +3,207,233 +Contingent consideration liability +​ +​ +1,441,164 +​ +​ +259,243 +Debt, net of debt discount +​ +7,098,279 +​ +7,019,499 +Convertible debt, at fair value +​ +5,321,303 +​ +8,542,323 +Derivative liabilities +​ +​ +234,389 +​ +​ +4,229,478 +Deferred consideration +​ +​ +396,850 +​ +​ +— +Operating lease liability +​ +94,340 +​ +117,120 +Finance lease liability +​ +58,398 +​ +103,392 +Contract liabilities +​ +772,013 +​ +602,469 +3(a)(10) Settlement Agreement, at fair value +​ +​ +3,634,000 +​ +​ +— +Other payable +​ +​ +250,000 +​ +​ +— +Deferred tax liabilities +​ +​ +4,039,514 +​ +​ +— +Total current liabilities +​ +32,909,904 +​ +34,578,245 +Debt, net of current portion +​ +1,180,273 +​ +1,303,665 +Operating lease liabilities, net of current portion +​ +130,509 +​ +135,239 +Finance lease liabilities, net of current portion +​ +43,749 +​ +91,726 +Contingent consideration liability, net of current portion +​ +​ +330,226 +​ +​ +434,174 +Total liabilities +​ +34,594,661 +​ +36,543,049 +Commitments and Contingencies +​ +​ +​ +​ +Stockholders’ Deficit: +​ +​ +​ +​ +Preferred stock Series A, $ 0.0001 par value, 10,000,000 shares authorized as of December 31, 2025 and December 31, 2024 no shares issued or outstanding as of December 31, 2025 and December 31, 2024 +​ +​ +— +​ +​ +— +Common stock, $ 0.0001 par value, 250,000,000 shares and 100,000,000 shares authorized as of December 31, 2025 and December 31, 2024 respectively, 153,255,345 and 29,093,289 issued and outstanding as of December 31, 2025 and December 31, 2024 respectively +​ +15,325 +​ +2,910 +Additional paid-in-capital +​ +60,149,175 +​ +20,152,919 +Accumulated deficit +​ +( 61,671,149 ) +​ +( 45,426,099 ) +Accumulated other comprehensive income +​ +( 20,333 ) +​ +166,007 +Total ConnectM Technology Solutions, Inc.’s stockholders’ deficit +​ +( 1,526,982 ) +​ +( 25,104,263 ) +Non-controlling interest +​ +3,102,445 +​ +1,317,756 +Total stockholders’ deficit +​ +1,575,463 +​ +( 23,786,507 ) +Total liabilities and stockholders’ deficit +​ +$ +36,170,124 +​ +$ +12,756,542 +​ +The accompanying notes are an integral part of these consolidated financial statements. +​ +F-3 +Table of Contents +CONNECTM TECHNOLOGY SOLUTIONS, INC. +CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Year Ended December 31, +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +Revenues +​ +$ +35,836,809 +​ +$ +22,652,885 +Cost of revenues +​ +24,371,255 +​ +16,706,177 +Gross profit +​ +​ +11,465,554 +​ +​ +5,946,708 +Selling, general and administrative expenses +​ +23,502,849 +​ +15,145,429 +Loss on impairment of intangible assets and goodwill +​ +​ +548,492 +​ +​ +2,403,628 +Loss from operations +​ +( 12,585,787 ) +​ +( 11,602,349 ) +Other income (expense): +​ +​ +​ +​ +Interest expense +​ +( 1,303,292 ) +​ +( 2,714,048 ) +Loss on issuance of financial instruments +​ +​ +( 45,250 ) +​ +​ +— +Loss on extinguishment of debt and vendor payable +​ +​ +( 3,010,366 ) +​ +​ +( 1,645,443 ) +Gain on extinguishment of debt +​ +​ +2,568,839 +​ +​ +2,257,638 +Change in fair value of convertible debt +​ +​ +( 2,146,284 ) +​ +​ +( 1,707,747 ) +Change in fair value of forward purchase agreement +​ +​ +( 971,000 ) +​ +​ +( 8,254,390 ) +Change in fair value of contingent consideration +​ +​ +( 111,355 ) +​ +​ +( 59,723 ) +Day one gain on issuance of SEPA +​ +​ +— +​ +​ +134,886 +Change in fair value of derivative liabilities +​ +​ +( 365,158 ) +​ +​ +( 187,428 ) +Loss on forward purchase agreement +​ +​ +— +​ +​ +( 266,655 ) +Gain on forward purchase agreement +​ +​ +— +​ +​ +1,453,891 +Gain on modification of liabilities +​ +​ +194,523 +​ +​ +— +Bargain purchase gain +​ +​ +2,121,079 +​ +​ +— +Change in fair value on Section 3(a)(10) Settlement Agreement (Note 12) +​ +​ +( 721,829 ) +​ +​ +— +Other income (expense), net +​ +302,122 +​ +83,160 +Total other income (expense), net +​ +( 3,487,971 ) +​ +( 10,905,859 ) +Net loss from operations before income taxes +​ +​ +( 16,073,758 ) +​ +​ +( 22,508,208 ) +Income tax benefit +​ +​ +16,086 +​ +​ +— +Net loss +​ +$ +( 16,057,672 ) +​ +$ +( 22,508,208 ) +Less: net income (loss) attributable to noncontrolling interests +​ +187,378 +​ +57,540 +Net loss attributable to ConnectM Technology Solutions, Inc. +​ +$ +( 16,245,050 ) +​ +$ +( 22,565,748 ) +Other comprehensive income (loss): +​ +​ +​ +​ +Foreign currency translation adjustments +​ +( 186,340 ) +​ +51,383 +Comprehensive income/(loss) before noncontrolling interests +​ +( 16,431,390 ) +​ +( 22,514,365 ) +Less: comprehensive loss/(income) attributable to non-controlling interests +​ +187,378 +​ +57,540 +Comprehensive Income/(loss) attributable to ConnectM Technology Solutions, Inc. +​ +$ +( 16,618,768 ) +​ +$ +( 22,571,905 ) +​ +​ +​ +​ +​ +​ +​ +Weighted average shares outstanding of common stock +​ +72,318,607 +​ +19,071,591 +Basic and diluted net loss per share, common stock +​ +$ +( 0.22 ) +​ +$ +( 1.18 ) +​ +The accompanying notes are an integral part of these consolidated financial statements. +​ +​ +​ +F-4 +Table of Contents +CONNECTM TECHNOLOGY SOLUTIONS, INC. +CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Accumulated +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Additional +​ +​ +​ +​ +Other +​ +​ +​ +​ +​ +​ +Total +​ +​ +Common Stock +​ +Paid-In +​ +Accumulated +​ +Comprehensive +​ +Stockholders’ +​ +Noncontrolling +​ +Stockholders’ +​ +​ ​ ​ +Shares +​ ​ ​ +Amount +​ ​ ​ +Capital +​ ​ ​ +Deficit +​ ​ ​ +Income (Loss) +​ ​ ​ +Deficit +​ ​ ​ +interests +​ ​ ​ +Deficit +Balances, as of January 1, 2024 +​ +13,338,437 +​ +$ +1,334 +​ +​ +13,288,174 +​ +$ +( 22,860,351 ) +​ +$ +114,624 +​ +$ +( 9,456,219 ) +​ +$ +( 26,345 ) +​ +$ +( 9,482,564 ) +Other comprehensive income +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +51,383 +​ +​ +51,383 +​ +​ +— +​ +​ +51,383 +Issuance of common stock in connection with conversion of convertible notes payable +​ +1,067,592 +​ +​ +107 +​ +​ +3,779,116 +​ +​ +— +​ +​ +— +​ +​ +3,779,223 +​ +​ +— +​ +​ +3,779,223 +Issuance of common stock +​ +16,607 +​ +​ +2 +​ +​ +35,000 +​ +​ +— +​ +​ +— +​ +​ +35,002 +​ +​ +— +​ +​ +35,002 +Issuance of common stock in connection with business combination with MCAC, net of transaction costs (see Note 4) +​ +6,701,421 +​ +​ +671 +​ +​ +( 6,673,643 ) +​ +​ +— +​ +​ +— +​ +​ +( 6,672,972 ) +​ +​ +— +​ +​ +( 6,672,972 ) +Acquisition of noncontrolling interest in connection with acquisition of a business (see Note 5) +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +1,287,320 +​ +​ +1,287,320 +Issuance of common stock as consideration in acquisition of a business +​ +160,000 +​ +​ +16 +​ +​ +161,424 +​ +​ +— +​ +​ +— +​ +​ +161,440 +​ +​ +— +​ +​ +161,440 +Acquisition of additional noncontrolling shares +​ +— +​ +— +​ +50,931 +​ +— +​ +— +​ +50,931 +​ +​ +( 759 ) +​ +50,172 +Issuance of common stock to extinguish obligations to vendors and lenders +​ +6,534,776 +​ +653 +​ +7,460,920 +​ +— +​ +— +​ +7,461,573 +​ +— +​ +7,461,573 +Issuance of common stock to vendors as consideration +​ +885,000 +​ +89 +​ +1,729,261 +​ +— +​ +— +​ +1,729,350 +​ +— +​ +1,729,350 +Issuance of common stock to extinguish note payable, related party (see Note 16) +​ +125,000 +​ +​ +13 +​ +​ +133,737 +​ +​ +— +​ +​ +— +​ +​ +133,750 +​ +​ +— +​ +​ +133,750 +Issuance of common stock in relation to SEPA (see Note 8) +​ +264,456 +​ +26 +​ +187,474 +​ +— +​ +— +​ +187,500 +​ +— +​ +187,500 +Share based compensation expense (see Note 10) +​ +— +​ +​ +— +​ +​ +525 +​ +​ +— +​ +​ +— +​ +​ +525 +​ +​ +— +​ +​ +525 +Net loss 2024 +​ +— +​ +​ +— +​ +​ +— +​ +​ +( 22,565,748 ) +​ +​ +— +​ +​ +( 22,565,748 ) +​ +​ +57,540 +​ +​ +( 22,508,208 ) +Balances, as of December 31, 2024 +​ +29,093,289 +​ +$ +2,910 +​ +​ +20,152,919 +​ +$ +( 45,426,099 ) +​ +$ +166,007 +​ +$ +( 25,104,263 ) +​ +$ +1,317,756 +​ +$ +( 23,786,507 ) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Balance, as of January 1, 2025 +​ +29,093,289 +​ +$ +2,910 +​ +​ +20,152,919 +​ +$ +( 45,426,099 ) +​ +$ +166,007 +​ +$ +( 25,104,263 ) +​ +$ +1,317,756 +​ +$ +( 23,786,507 ) +Other comprehensive income +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +( 186,340 ) +​ +​ +( 186,340 ) +​ +​ +— +​ +​ +( 186,340 ) +Issuance of common stock to settle claim under Section 3(a)10 Settlement Agreement (see Note 12) +​ +13,744,131 +​ +​ +1,373 +​ +​ +8,710,402 +​ +​ +— +​ +​ +— +​ +​ +8,711,775 +​ +​ +— +​ +​ +8,711,775 +Issuance of common stock to settle share reset derivative liabilities (see Note 11) +​ +2,737,168 +​ +​ +274 +​ +​ +1,711,731 +​ +​ +— +​ +​ +— +​ +​ +1,712,005 +​ +​ +— +​ +​ +1,712,005 +Issuance of common stock to BOD and employees +​ +2,758,309 +​ +​ +276 +​ +​ +511,692 +​ +​ +— +​ +​ +— +​ +​ +511,968 +​ +​ +— +​ +​ +511,968 +Issuance of common stock in connection with services +​ +618,023 +​ +62 +​ +175,714 +​ +​ +​ +​ +​ +175,776 +​ +— +​ +175,776 +Issuance of common stock in connection with stock subscription +​ +3,658,333 +​ +366 +​ +804,634 +​ +— +​ +— +​ +805,000 +​ +— +​ +805,000 +Issuance of common stock in connection with the conversion of convertible debt and accrued interest pursuant to Section 3(a)(9) +​ +43,272,341 +​ +4,327 +​ +6,549,275 +​ +— +​ +— +​ +6,553,602 +​ +— +​ +6,553,602 +Issuance of common stock in connection with the conversion of promissory note and accrued interest 3(a)(9) +​ +11,521,685 +​ +​ +1,152 +​ +​ +5,706,385 +​ +​ +— +​ +​ +— +​ +​ +5,707,537 +​ +​ +— +​ +​ +5,707,537 +Issuance of common stock in connection with share exchange agreement to settled accounts payable vendors +​ +1,134,251 +​ +​ +113 +​ +​ +12,363 +​ +​ +— +​ +​ +— +​ +​ +12,474 +​ +​ +— +​ +​ +12,474 +Issuance of common stock in connection with the ATS and SESB acquisition (see Note 5) +​ +4,900,000 +​ +​ +490 +​ +​ +3,198,988 +​ +​ +— +​ +​ +— +​ +​ +3,199,480 +​ +​ +— +​ +​ +3,199,480 +Issuance of common stock in connection with the conversion of SEPA convertible debt (see Note 8) +​ +3,817,815 +​ +​ +382 +​ +​ +1,098,672 +​ +​ +— +​ +​ +— +​ +​ +1,099,054 +​ +​ +— +​ +​ +1,099,054 +Recognition of non-controlling interest in connection with the acquisition of CER (see Note 5) +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +613,286 +​ +​ +613,286 +Issuance of common stock in connection with acquisition of Geo Impex LLC/India (see Note 5) +​ +33,300,000 +​ +​ +3,330 +​ +​ +10,652,670 +​ +​ +— +​ +​ +— +​ +​ +10,656,000 +​ +​ +984,025 +​ +​ +11,640,025 +Issuance of common stock in connection with acquisition of Amperics Holdings LLC (see Note 5) +​ +2,700,000 +​ +​ +270 +​ +​ +863,730 +​ +​ +— +​ +​ +— +​ +​ +864,000 +​ +​ +— +​ +​ +864,000 +Net loss +​ +— +​ +​ +— +​ +​ +— +​ +​ +( 16,245,050 ) +​ +​ +— +​ +​ +( 16,245,051 ) +​ +​ +187,378 +​ +​ +( 16,057,673 ) +Balances, as of December 31, 2025 +​ +153,255,345 +​ +$ +15,325 +​ +​ +60,149,175 +​ +$ +( 61,671,149 ) +​ +$ +( 20,333 ) +​ +$ +( 1,526,982 ) +​ +$ +3,102,445 +​ +$ +1,575,463 +​ +The accompanying notes are an integral part of these consolidated financial statements. +​ +​ +F-5 +Table of Contents +​ +CONNECTM TECHNOLOGY SOLUTIONS, INC. +CONSOLIDATED STATEMENTS OF CASH FLOWS +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Year Ended December 31, +​ +​ +2025 +​ ​ ​ +2024 +CASH FLOWS FROM OPERATING ACTIVITIES: +​ +​ +​ +​ +Net loss +​ +$ +( 16,057,672 ) +​ +$ +( 22,508,208 ) +Adjustments to reconcile net loss to net cash used in operating activities: +​ +​ +​ +​ +Depreciation and amortization expense +​ +815,049 +​ +​ +745,741 +Amortization of debt discount +​ +444,292 +​ +137,615 +Stock-based compensation expense +​ +1,460,290 +​ +525 +Shares issue for service +​ +— +​ +​ +837,473 +Share issued for SEPA +​ +— +​ +​ +187,500 +Share issues for settlement of expense +​ +— +​ +133,750 +Stock-based compensation to employees +​ +— +​ +35,000 +ROU amortization on finance leases +​ +76,626 +​ +121,457 +ROU amortization on operating leases +​ +81,259 +​ +172,974 +Provision for inventory shrinkage +​ +— +​ +23,926 +Provision for credit losses +​ +​ +1,340,462 +​ +​ +187,633 +Loss on impairment of intangible assets and goodwill +​ +​ +548,492 +​ +​ +2,403,628 +Investment write off +​ +​ +45,000 +​ +​ +— +Gain on disposal of property and equipment +​ +​ +72,231 +​ +​ +( 843 ) +Loss on issuance of financial instruments +​ +​ +45,250 +​ +​ +— +Loss on extinguishment of debt and vendor payable +​ +​ +3,010,366 +​ +​ +1,645,443 +Gain on extinguishment of debt and vendor payable +​ +​ +( 2,763,363 ) +​ +​ +( 2,257,638 ) +Change in fair value of convertible debt +​ +​ +2,146,284 +​ +​ +1,707,747 +Change in fair value of forward purchase agreement +​ +​ +971,000 +​ +​ +8,254,390 +Loss on repossessed vehicle +​ +​ +28,470 +​ +​ +— +Bargain purchase gain +​ +​ +( 2,121,079 ) +​ +​ +— +Loss on termination of lease +​ +​ +37,196 +​ +​ +— +Income from sale of property and equipment +​ +​ +( 23,500 ) +​ +​ +— +Day one gain on issuance of SEPA and convertible note +​ +— +​ +​ +( 134,886 ) +Gain on modification of forward purchase agreement +​ +​ +— +​ +​ +( 1,572,236 ) +Change in fair value of derivative liabilities +​ +365,158 +​ +187,428 +Loss on modification of forward purchase agreement +​ +— +​ +385,000 +Change in fair value of contingent consideration +​ +111,355 +​ +59,723 +Change in fair value of Section 3(a)(10) Settlement Agreement (Note 12) +​ +​ +721,829 +​ +​ +— +Changes in operating assets and liabilities: +​ +​ +​ +​ +Accounts receivable +​ +( 2,527,305 ) +​ +( 767,292 ) +Contract asset +​ +( 97,160 ) +​ +136,896 +Inventory +​ +( 101,766 ) +​ +( 293,434 ) +Prepaid expenses and other current assets +​ +( 188,130 ) +​ +139,452 +Accounts payable +​ +1,982,893 +​ +3,381,318 +Accrued expenses +​ +( 1,257,359 ) +​ +1,622,271 +Operating lease liabilities +​ +( 78,954 ) +​ +( 146,307 ) +Working capital advances +​ +— +​ +( 266,831 ) +Contingent liability +​ +​ +966,618 +​ +​ +— +Contract liabilities +​ +​ +153,945 +​ +​ +( 518,348 ) +Net cash used in operating activities +​ +​ +( 9,792,223 ) +​ +​ +( 5,959,133 ) +CASH FLOWS FROM INVESTING ACTIVITIES: +​ +​ +​ +​ +​ +​ +Purchase of property and equipment +​ +​ +— +​ +​ +( 27,044 ) +Proceeds from the sale of property and equipment +​ +​ +30,546 +​ +​ +13,000 +Purchase of additional non-controlling shares +​ +— +​ +( 60,000 ) +Cash acquired in Geo Impex Acquisition +​ +​ +1,796 +​ +​ +— +Cash acquired in CER Acquisition +​ +​ +559,115 +​ +​ +— +Cash paid for capitalized software development costs +​ +​ +( 162,204 ) +​ +​ +( 186,103 ) +Cash acquired from acquisition of business, net of purchase price paid +​ +​ +— +​ +​ +152,482 +Net cash received from investing activities +​ +​ +429,253 +​ +​ +( 107,665 ) +CASH FLOWS FROM FINANCING ACTIVITIES: +​ +​ +​ +​ +Proceeds from the business combination +​ +​ +— +​ +​ +35,770,959 +Payment for reimbursement of consideration shares related to Forward Purchase Agreement payment +​ +​ +— +​ +​ +( 36,727,814 ) +Reimbursement for Recycled Shares related to Forward Purchase Agreement +​ +— +​ +1,000,000 +Proceeds from the issuance of debt +​ +3,435,150 +​ +6,614,400 +Proceeds from the issuance of convertible notes +​ +​ +8,762,250 +​ +​ +4,940,000 +Proceeds from Stock Subscription agreement +​ +​ +805,000 +​ +​ +— +Cash paid for debt issuance costs +​ +— +​ +( 1,015,114 ) +Repayments of debt +​ +( 2,518,306 ) +​ +( 2,262,401 ) +Repayments on convertible notes +​ +( 637,500 ) +​ +( 50,000 ) +Proceeds from factoring receivable arrangements +​ +​ +735,647 +​ +​ +— +Repayments on factoring receivable arrangements +​ +​ +( 735,647 ) +​ +​ +— +Payments of deferred consideration +​ +( 675,729 ) +​ +— +Proceeds from premium financing obligations +​ +325,875 +​ +— +Repayment of premium financing obligations +​ +​ +( 326,040 ) +​ +​ +— +Advance from lender +​ +​ +250,000 +​ +​ +1,057,275 +Advance to Monterey Capital Acquisition Corporation +​ +​ +— +​ +​ +( 1,933,695 ) +Proceeds from Forward Purchase agreement +​ +​ +500,000 +​ +​ +— +Payment on finance leases +​ +​ +( 92,971 ) +​ +​ +( 107,068 ) +Net cash provided by financing activities +​ +​ +9,827,729 +​ +​ +7,286,542 +Effect of exchange rate changes on cash and cash equivalents +​ +​ +31,828 +​ +​ +27,731 +Net decrease in cash and cash equivalents +​ +​ +496,587 +​ +​ +1,247,475 +Cash, beginning of the period +​ +​ +2,407,843 +​ +​ +1,160,368 +Cash, end of the period +​ +$ +2,904,430 +​ +$ +2,407,843 +Supplemental disclosures of cash flow information: +​ +​ +​ +​ +​ +​ +Cash paid for interest +​ +$ +198,700 +​ +$ +1,057,138 +Cash paid for taxes +​ +$ +— +​ +$ +— +Supplemental disclosures of noncash financing information: +​ +​ +​ +​ +​ +​ +Right-of-asset, operating acquired +​ +$ +— +​ +$ +110,819 +Derivative liabilities issued in connection with extinguishment of obligations to lenders and vendors through issuance of common stock +​ +$ +— +​ +$ +4,042,050 +Conversion of convertible debt to common stock +​ +$ +— +​ +$ +3,779,223 +Carrying value of debt exchanged in connection with acquisition of noncontrolling shares +​ +$ +— +​ +$ +110,172 +common stock issued as consideration to acquire a business +​ +$ +— +​ +$ +161,440 +Vehicles acquired through issuance of debt +​ +$ +— +​ +$ +36,823 +Debt extinguished through repossession of vehicle +​ +$ +— +​ +$ +22,839 +Vendor obligation exchanged for debt instrument +​ +$ +— +​ +$ +119,000 +Common stock issued for prepaid expenses +​ +$ +— +​ +$ +891,827 +Unpaid purchase price of acquisition +​ +$ +— +​ +$ +170,000 +Shares issues in connection with debt conversion agreement +​ +$ +— +​ +$ +7,461,573 +Recapitalization of noncontrolling interests +​ +$ +— +​ +$ +110,172 +Accounts payable and debt extinguishment through the Section 3(a)(10) Settlement Agreement +​ +$ +8,908,077 +​ +$ +— +Extinguishment of accounts payable through issuance of debt +​ +$ +250,021 +​ +$ +— +Repossessed vehicle +​ +$ +84,992 +​ +$ +— +Extinguishment of derivative liability +​ +$ +2,648,508 +​ +$ +— +Removal of ROU asset and lease liability at lease termination +​ +$ +30,084 +​ +$ +— +Reclassification of remaining obligation under terminated lease +​ +$ +59,037 +​ +$ +— +Fair value of shares issued to settle Claim under Section 3(a)(10) Settlement Agreement +​ +$ +8,711,775 +​ +$ +— +Fair value of shares issued to settle the share reset derivative liabilities +​ +$ +1,712,005 +​ +$ +— +Fair value of shares issued to settle Claim under Section 3(a)(9) Settlement Agreement +​ +$ +12,261,138 +​ +$ +— +Fair value of shares in connection with the conversion of SEPA convertible debt +​ +$ +1,099,054 +​ +$ +— +Settlement of accounts payable through issuance of shares +​ +$ +207,000 +​ +$ +— +Shares issued to vendor for prepaid expenses and accounts payable +​ +$ +82,975 +​ +$ +— +Acquisition of proprietary technology +​ +$ +864,000 +​ +$ +— +Shares issued to acquire ATS and SESB +​ +$ +3,199,478 +​ +$ +— +Shares issued to acquire Geo Impex +​ +$ +10,656,000 +​ +$ +— +Promissory note in connection with Geo Impex acquisition +​ +$ +788,901 +​ +$ +— +Deferred consideration for CER acquisition +​ +$ +874,268 +​ +$ +— +Extinguishment of derivative liability through the recognition of a reinstated debt obligation amounting +​ +$ +2,648,508 +​ +$ +— +​ +The accompanying notes are an integral part of these consolidated financial statements. +​ +​ +F-6 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +NOTE 1: ORGANIZATION AND OPERATIONS +ConnectM Technology Solutions, Inc. (the “Company,” “we” and/or “our”), a Delaware corporation, conducts its operations through its subsidiaries and operates a unified, AI-enabled technology platform powering the modern energy economy. Through this platform, the Company connects OEMs, service providers and end customers to enable electrification, decarbonization and grid-aware energy management across residential, commercial and infrastructure applications. +The Company delivers solutions to its customers for (i) the decarbonization of homes, critical infrastructure and businesses through energy management-as-a-service offerings, including weatherization, HVAC, solar, battery and EV charging solutions, (ii) the facilitation of business-to-business transportation through its online and mobile last-mile delivery platform utilizing contracted drivers, and (iii) the management of connected operations through its industrial internet of things (“IIoT”) platform. These offerings are integrated and optimized through the Company’s proprietary platform, developed and continuously enhanced by Keen Labs, its AI and technology subsidiary. +The Company also offers physical products as part of its solutions offerings, including AI-enabled heat pump systems for use in the decarbonization of homes and businesses, as well as display clusters, digital control units and vehicle control units used in the management of connected operations. +The Company also provides managed solutions offerings, including human resources management, procurement services, omnichannel marketing and lead generation services, and access to working capital solutions designed to improve operating efficiency and enhance profitability for service providers. +The Company’s platform and associated software continuously collect and analyze operational data, generating actionable insights that customers use for monitoring, optimization and decision-making, and enabling applications such as predictive maintenance and virtual power plant integration. +The Company earns revenue outside the United States from its Owned Service Network, Distributed Energy & Renewables and Transportation segments. +On July 12, 2024, the Company consummated the Business Combination which was accounted for as a reverse recapitalization with Legacy ConnectM being deemed the accounting acquirer in the Business Combination based on an analysis of the criteria outlined in Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”). Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Legacy ConnectM issuing stock for the net assets of MCAC, accompanied by a recapitalization. The net assets of MCAC were stated at fair value, with no goodwill or other intangible assets recorded. While MCAC was the legal acquirer in the Business Combination, because Legacy ConnectM was deemed the accounting acquirer, the historical financial statements of Legacy ConnectM became the historical financial statements of the combined company, upon consummation of the Business Combination. As a result, the financial statements included in this report reflect (i) the historical operating results of Legacy ConnectM prior to the Business Combination; (ii) the combined results of MCAC and Legacy ConnectM following the closing of the Business Combination; (iii) the assets and liabilities of Legacy ConnectM at their historical cost; and (iv) the Company’s equity structure for all periods presented. For more details on the reverse recapitalization, see Note 4 “Reverse Capitalization” to the Company’s Consolidated Financial Statements. As a result of the reverse recapitalization, all references to numbers of common shares and per common share data for 2024 in these consolidated financial statements and related notes have been retroactively adjusted to account for the effect of the reverse recapitalization. +Basis of presentation and principles of consolidation: The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) and include the assets, liabilities, revenues, and expenses of all wholly owned subsidiaries over which the Company exercises control. All significant intercompany accounts, transactions and profits and losses were eliminated in consolidation. The Company has evaluated its relationships with other entities and has determined that it does not have any variable interest entities for which it is the primary beneficiary. Any reference in these footnotes to the applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the ASC and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). +F-7 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +These consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and its controlled subsidiaries over which the Company exercises majority board control; investment in joint ventures, in which the Company shares equal control with its partner, are accounted for under the equity method. Intercompany accounts, transactions, profits and losses have been eliminated in consolidation. Investments in entities where the Company holds at least a 20% ownership interest and has the ability to exercise significant influence, but not control, over the investee are accounted for using the equity method of accounting. +These consolidated financial statements are presented in United States Dollars (“USD” or $), which is the functional currency of the Company. +Non-controlling Interest: The portion of equity not owned by the Company in entities controlled and consolidated by the Company are presented as non-controlling interest and classified as a component of consolidated stockholders’ deficit, separate from total stockholders’ deficit on the Company’s consolidated balance sheets. The amount recorded is based on the non-controlling interest holders’ initial investment, adjusted to reflect the non-controlling interest holder’s share of earnings or losses from the Company controlled entity, and any distributions received or additional contributions made by the non-controlling interest holder. Changes to the Company’s ownership that do not result in a loss of control are accounted for as equity transactions. The earnings or losses from the entity attributable to non-controlling interests are reflected in net income attributable to non-controlling interests on the accompanying consolidated statements of operations and comprehensive loss. All significant intercompany accounts, transactions, and profits and losses were eliminated in consolidation. These consolidated financial statements are presented in United States Dollars (“USD” or $), which is the functional currency of the Company. +​ +​ +NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Reclassifications: Certain prior period amounts have been reclassified to conform to the current year presentation. +Emerging growth company: The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups (“JOBS”) Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as to those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. +Use of estimates: The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of financial assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Making estimates requires management to exercise significant judgment. Such estimates may be subject to change as more current information becomes available and accordingly the actual results could differ significantly from those estimates. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates. The Company’s most significant estimates and judgments involve the identification of intangible assets in business combination, and determination of their useful life, valuation of acquired assets and assumed liabilities in a business combination, assessment of financial instruments as equity or liability, valuation of equity-classified and liability-classified financial instruments, the useful lives of long-lived assets, goodwill, identified intangible assets, assumptions used in assessing impairment of long-lived assets and goodwill, valuation of contingent consideration obligations, and the valuation of PPA for assets acquisition, convertible debt reported at fair value. +F-8 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Segment reporting : ASC 280, Segment Reporting (“ASC 280”), defines operating segments as components of an enterprise where discrete financial information is available that is evaluated regularly by the chief operating decision-maker (“CODM”) in deciding how to allocate resources and in assessing performance. The Company’s CODM is the chief executive officer, who has ultimate responsibility for the operating performance of the Company and the allocation of resources. There are six operating and reportable segments based on the level at which the CODM reviews operating results, assesses performance and makes decisions regarding resource allocation as follows: +(1) Owned service network segment consists of our owned service providers who serve as a single point solution provider for enterprises, infrastructure providers, homeowners, and light commercial building owners for their electrification and decarbonization needs, including system design, installation, monitoring, maintenance and repair of solar energy systems and HVAC solutions. The owned service providers use the Company’s technology platform, which provides maintenance, repair, and installation guidance and optimization (the “Technology Platform”), in servicing the homeowners and light commercial building owners. +(2) Managed solutions segment provides third party residential and light commercial service providers with access to the Technology Platform as well as a selection of servicing offerings that the managed solutions customer can select from, including human resources management, procurement services, omnichannel marketing and lead generation as well as access to short-term working capital loans. +(3) Distributed Energy & Renewables (“DER”) focuses on the delivery of solar energy and distributed energy solutions for commercial, residential, consumer and industrial customers in India, including project development, EPC services and ongoing energy management. +(4) Logistics segment focuses on the facilitation of business-to-business transportation of heavy goods using the Company’s last mile delivery software. +(5) Transportation segment focuses on the sale of hardware, software and technical services for electric vehicles to original equipment manufacturers (“OEMs”). OEMs have the option to buy access to the Technology Platform to remotely monitor the performance of the hardware. +(6) Corporate & Strategic Assets segment encompasses corporate-level operations and the Company’s investment in Geo Impex India Private Limited, which holds approximately 76 acres of land near Chatrapur, Odisha, India, together with related entitlements and approvals for the development of a multimodal logistics park and AI-enabled data center campus. This segment did not generate revenue or incur material segment-level operating expenses during the periods presented. The segment’s principal asset is the underlying landholding and associated development rights. +Cash and cash equivalents: The Company considers all highly liquid instruments with a maturity date of three months or less at the time of purchase to be cash equivalents. The Company had no cash equivalents at December 31, 2025 and December 31, 2024. As of December 31, 2025 and December 31, 2024, the Company had approximately $ 1,887,000 and $ 1,319,000 respectively, that exceeded FDIC insurance limits of $250,000. +Fair value measurements: ASC 820, Fair Value Measurements (“ASC 820”), clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based upon assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: +● Level 1 – Inputs based on unadjusted quoted market prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. +● Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar instruments in markets that are not active or for which all significant inputs are observable or can be corroborated by observable market data. +F-9 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +● Level 3 – Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are both unobservable for the asset and liability in the market and significant to the overall fair value measurement. +An asset’s or a liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. +Assets and liabilities measured at fair value are based on one or more of the following techniques noted in ASC 820: +● Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. +● Cost approach: Amount that would be required to replace the service capacity of an asset (replacement cost). +● Income approach: Techniques to convert future amounts to a single present value amount based upon market expectations (including present value techniques, option pricing, and excess earnings models). +ASC 825-10 “ Financial Instruments ” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (the “Fair Value Option”). The Fair Value Option may be elected on an instrument-by-instrument basis and is irrevocable unless a new election date occurs. The Company measures the fair value of certain convertible note payables on a recurring basis under the Fair Value Option (see Note 8 and Note 12). Accordingly, changes in fair value related to changes in the Company’s credit risk were recognized as a component of accumulated other comprehensive income while all other changes in fair value were recognized in the consolidated statements of operations and comprehensive loss. +The Company’s financial instruments with a carrying value that approximates fair value consist of cash, accounts receivable, working capital advances, contract asset, convertible note receivable-related party, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities, and contract liabilities due to their liquid or short-term nature or expected settlement dates of these instruments. If these financial instruments were recorded at fair value, they would be based on Level 1 inputs, except for short-term borrowings and notes receivable, related parties, net which would be based on Level 2 and Level 3 inputs, respectively. +The Company’s non-financial assets, such as intangible assets, and financial assets are adjusted to fair value when an impairment charge is recognized. The impairment charges recognized on non-financial assets that consist of investment, goodwill and acquired intangible assets are based on Level 3 inputs, including a comparison of the Company’s results with expectations and expectation for future profits. +The Company’s financial instruments that are measured at fair value on a recurring basis consist of forward purchase agreement derivative asset, 3(a)(10) settlement agreement, forward purchase agreement put option, contingent consideration obligation, convertible debt and derivative liabilities (see Note 12). +Related parties: The Company considers parties to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions or owns more than 10.0 % of the Company’s common stock. Parties are also considered to be related if they are subject to common control or significant influence of the same party, such as a family member or relative, shareholder, or a related corporation. The Company reviews the relationships of its vendors, customers, shareholders, and board members to determine whether there are any parties that meet the criteria to be considered related. Any party that is deemed to be related to the Company is referred to as an “affiliate” or “related party” in these consolidated financial statements. +F-10 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Accounts receivable and allowance for credit losses : Trade accounts receivable are recorded at the invoiced amount, net of allowances for expected credit losses. The Company estimates expected credit losses on trade receivables using a current expected credit loss model in accordance with ASC 326. The allowance is measured by applying an aging-based provision matrix over the contractual life of the receivable, considering historical loss experience, current economic conditions, and reasonable and supportable forecasts of future economic conditions. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Year Ended December 31, +​ +​ +2025 +​ ​ ​ +2024 +Accounts receivable, current +​ +$ +4,279,791 +​ +$ +1,897,471 +Accounts receivable +​ +​ +— +​ +​ +— +Total accounts receivable +​ +$ +4,279,791 +​ +$ +1,897,471 +​ +​ +​ +​ +​ +​ +​ +Less: allowance for credit losses +​ +$ +( 1,213,165 ) +​ +$ +— +Total accounts receivable, net +​ +​ +3,066,626 +​ +​ +1,897,471 +​ +In determining the allowance, the Company groups receivables that share similar risk characteristics on a collective basis. The Company maintains separate receivable pools for its U.S. and India operations, as these portfolios differ with respect to customer composition, contractual terms, economic environment, and historical loss patterns. Expected credit losses are estimated separately for each pool and aggregated to determine the consolidated allowance. Receivables with an indication of increased credit risk are individually assessed. +Receivables are written off when the Company determines that amounts are uncollectible after all collection efforts have been exhausted. +Changes in the allowance for current expected credit losses: +​ +​ +​ +​ +​ +Allowance for expected credit losses +​ ​ ​ +​ +​ +Balance as of January 1, 2024 +​ +$ +— +Period change for current expected credit losses +​ +— +Balance as of December 31, 2024 +​ +— +Period change for current expected credit losses +​ +1,340,462 +Utilization of Expected credit loss +​ +​ +( 127,297 ) +Balance as of December 31, 2025 +​ +$ +1,213,165 +​ +During the year ended December 31, 2025, one customer individually accounted for more than 10% of the Company’s gross revenue, while the amount due from this customer was not material. In addition, another customer accounted for less than 10% of gross revenue but represented more than 10% of the Company’s total accounts receivable balance as of December 31, 2025. +During the year ended December 31, 2024, no single customer accounted for more than 10% of the Company’s gross revenue. As of December 31, 2024, two customers individually accounted for more than 10% of the Company’s total accounts receivable. One of these customers is considered a related party due to ownership. +Inventories: Inventories are stated at the lower of cost (determined by average cost method) or net realizable value. The valuation of inventories requires the Company to estimate obsolete or excess inventory as well as inventory that is not of saleable quality. The Company employs a variety of methodologies to determine the net realizable value of its inventory. While a portion of the calculation to record inventory at its net realizable value is based on the age of the inventory and lower of cost or net realizable value calculations, a key factor in estimating obsolete or excess inventory requires the Company to estimate the future demand for its products. If actual demand is less than the Company’s estimates, impairment charges, which are recorded to cost of sales, may need to be recorded in future periods. Inventory in excess of saleable amounts is not valued, and the remaining inventory is valued at the lower of cost or net realizable value. As of December 31, 2025 and 2024, an allowance for obsolete or slow-moving inventory was not required. The Company recognized a provision for inventory shrinkage of $ 0 and $ 23,926 for the years ended December 31, 2025 and 2024. +F-11 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Inventories consist of parts and finished goods that include material, labor and manufacturing overhead costs. Parts primarily consist of manufacturing materials, hardware, wiring, and piping. Inventories consisted of the following: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +December 31, +​ +December 31, +​ +​ +2025 +​ ​ ​ +2024 +Parts +​ +$ +472,079 +​ +$ +164,131 +Finished Goods +​ +161,719 +​ +386,564 +Total +​ +$ +633,798 +​ +$ +550,695 +​ +Convertible notes receivable, related party: The Company recorded convertible notes receivable for advances made to MCAC during the year ended December 31, 2023 for working capital purposes. The convertible notes receivable were non-interest bearing and were to be repaid upon consummation of a Business Combination. At the Company’s option, the convertible notes receivable could be converted into stock purchase warrants of MCAC at $ 1.00 per warrant. The Company accounts for these convertible notes receivable in accordance with ASC 310, Receivables . At the close of the Business Combination (see Note 8 and Note 9), the convertible notes receivable was neither repaid nor converted into stock purchase warrants of MCAC and were instead eliminated in consolidation. +Prepaid expenses and other current assets : Prepaid expenses and other current assets include prepaid insurance, prepaid rent, and advances to service providers, which are expected to be recognized, received or realized within the next 12 months. +Working capital advances to managed solutions segment customers : These are funds advanced by the Company to customers of its Managed Solutions segment to support their short-term working capital needs, such as purchasing inventory, financing operational expenses, or bridging cash flow gaps. The advances are generally provided under agreements that allow the Company to recoup the funds through future payments, service fees, or revenue-sharing arrangements tied to the customer’s use of the Managed Solutions platform . +Property and Equipment: Property and equipment are stated at cost, net of accumulated depreciation, or if acquired in a business combination, at fair value as of the date of acquisition. Depreciation is computed using the straight-line method, based upon the following estimated useful lives: +​ +​ +​ +​ +​ +​ +Estimated +Classification +​ ​ ​ +Useful Life +Furniture and fixtures +​ +3 - 5 years +Machinery and equipment +​ +3 - 10 years +Vehicles +3 - 6 years +Property improvements +5 years +Buildings +15 years +​ +Land is acquired in connection with the Geo Impex acquisition and is recorded at relative fair value in accordance with ASC 805 and is not depreciated, as it is deemed to have an indefinite useful life. +F-12 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Major renewals and improvements are capitalized, while replacements, maintenance and repairs, which do not improve or extend the lives of the respective assets, are expensed as incurred. When property and equipment is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss on the disposition is recorded in the consolidated statements of operations and comprehensive loss as a component of other (expense) income. +Intangible assets: Intangible assets include internally developed software and acquired intangible assets. Acquired identifiable intangible assets include tradenames, customer relationships, intellectual property, internally developed software, acquired technology, and noncompetition agreements that are amortized over their estimated useful lives using the pattern in which the economic benefits of the asset are consumed or otherwise used. +​ +​ +​ +​ +​ +​ +Estimated +Classification +​ ​ ​ +Useful Life +Customer Relationships +​ +8 - 25 years +Trade Names +​ +3 - 10 years +Noncompetition Agreements +5 years +Acquired Technology +​ +5 - 10 years +Intellectual Property +5 - 15 years +Internally Developed Software +3 - 5 years +​ +The Company amortizes its finite-lived intangible assets on a straight-line basis over their estimated useful lives. +Software development costs: Costs are incurred related to internally developed software that powers the Company’s platforms that are accessed by customers. The Company follows an agile development methodology, whereby software is developed and enhanced through iterative, feature-by-feature releases for both software capitalized under ASC 350 & ASC 985. The Company capitalizes certain internal use software development costs associated with creating and enhancing internally developed software related to its platforms as per ASC 350, 350-40, Intangibles — Goodwill and Other — Internal-Use Software. The Company analyses the nature of the development and implementation activities - i.e. whether Subtopic 350-40 characterizes them as capitalizable application development stage activities - when deciding whether the costs of those activities should be capitalized or expensed as incurred. Capitalized costs include personnel and related employee benefits expenses for employees or consultants who are directly associated with and who devote time to software projects, and external direct costs of materials obtained in developing the software. Software development costs, when placed in service, are amortized on a straight-line basis over the estimated useful life of the software, which is  three years , upon initial release of the software or additional features. During the years ended December 31, 2025 and 2024, the Company capitalized costs amounting to $ 91,217 and $ 91,292 , respectively. +For the costs incurred in developing the firmware embedded in the hardware devices that the Company sells and leases to its customers, the Company applies the principles of FASB Accounting Standards Codification (“ASC”) 985-20, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed (“ASC 985-20”). ASC 985-20 requires that software development costs incurred in conjunction with product development be charged to research and development expense until technological feasibility is established. Thereafter, until the product is released for sale, software development costs must be capitalized and reported at the lower of unamortized cost or net realizable value of the related product. The Company estimates the useful life of the software to be three ( 3 ) years. During the years ended December 31, 2025 and 2024, the Company capitalized software development costs totaling $ 0 and $ 94,811 , respectively. +Business combination and asset acquisition: The Company evaluates acquisitions of assets and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen is met, the transaction is accounted for as an asset acquisition. If the screen is not met, further determination is required as to whether or not the Company has acquired inputs and processes that have the ability to create outputs, which would meet the requirements of a business. If determined to be a business combination, the Company accounts for the transaction under the acquisition method of accounting in accordance with ASC Topic 805 Business Combinations (“ASC 805”), which requires the acquiring entity in a business combination to recognize the fair value of all assets acquired, liabilities assumed, and any non-controlling interest in the acquiree and establishes the acquisition date as the fair value measurement point. Accordingly, the Company recognizes assets acquired and liabilities assumed in business combinations, including contingent assets and liabilities, and non-controlling interest in the acquiree based on the fair value estimates as of the date of acquisition. The Company recognizes and measures goodwill as of the acquisition date, as the excess of the fair value of the consideration paid over the fair value of the identified net assets acquired. +F-13 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The consideration for the Company’s business acquisitions may include future payments that are contingent upon the occurrence of a particular event or events. The obligations for such contingent consideration payments are recorded at fair value on the acquisition date. The contingent consideration obligations are then evaluated each reporting period. Changes in the fair value of contingent consideration, other than changes due to payments, are recognized as a gain or loss and recorded within change in the fair value of contingent consideration liabilities in the consolidated statements of operations and comprehensive loss. +If determined to be an asset acquisition, the Company accounts for the transaction under ASC 805-50, which requires the acquiring entity in an asset acquisition to recognize assets acquired and liabilities assumed based on the cost to the acquiring entity on a relative fair value basis, which includes transaction costs in addition to consideration given. No gain or loss is recognized as of the date of acquisition unless the fair value of non-cash assets given as consideration differs from the assets’ carrying amounts on the acquiring entity’s books. Consideration transferred that is non-cash will be measured based on either the cost (which shall be measured based on the fair value of the consideration given) or the fair value of the assets acquired and liabilities assumed, whichever is more reliably measurable. Goodwill is not recognized in an asset acquisition and any excess consideration transferred over the fair value of the net assets acquired is allocated to the identifiable assets based on relative fair values. +Acquisition-related expenses are recognized separately from the business combinations and are expensed as incurred. +Investments in Joint Ventures: The Company accounts for investments in joint ventures under the equity method of accounting in accordance with ASC 323, Investments—Equity Method and Joint Ventures, when it has the ability to exercise significant influence over the operating and financial policies of the investee but does not control it. Under the equity method, the Company’s share of the joint venture’s earnings or losses is recognized in the consolidated statements of operations within other income (expense). The carrying value of equity method investments is reported within other noncurrent assets on the consolidated balance sheets. The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying value of the investment may not be recoverable. Transactions and balances related to joint ventures were insignificant for the year ended December 31, 2025 and were not applicable for the year ended December 31, 2024. +Deferred offering costs: Commissions, legal fees and other costs that are direct and incremental costs directly related to the Business Combination transaction were capitalized as deferred offering costs until the consummation of the transaction. Offering costs totaling approximately $ 3,960,397 were reclassified to additional paid-in capital upon the closing of the Business Combination (see Note 5). +Impairment of long-lived assets and finite- lived Intangible asset: In accordance with ASC 360, Impairment or Disposal of Long-Lived Assets (“ASC 360”), the Company reviews the carrying values of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. +In performing this assessment, the Company evaluates various indicators of impairment, including (i) significant adverse changes in general economic or market conditions, (ii) adverse changes in the industry or competitive environment, (iii) increases in market-based discount rates, (iv) declines in the Company’s market capitalization relative to its net assets, (v) actual or projected operating results that are below prior expectations, and (vi) entity-specific factors such as changes in business strategy or the manner in which the assets are utilized. +Based on the existence of one or more indicators of impairment, the Company measures any impairment of long-lived assets using the projected discounted cash flow method at the asset group level. The estimation of future cash flows requires significant management judgment based on the Company’s historical results and anticipated results and is subject to many factors. The discount rate that is commensurate with the risk inherent in the Company’s business model is determined by its management. An impairment loss would be recorded if the Company determined that the carrying value of long-lived assets may not be recoverable. The impairment to be recognized is measured by the amount by which the carrying values of the assets exceed the fair value of the assets. +The Company assessed its long-lived assets for impairment indicators as of December 31, 2025 and 2024. The Company concluded that indicators of impairment existed as of December 31, 2025 and December 31, 2024; refer to Note 6: Goodwill and Intangible Assets, net. +The assumptions used in the impairment analyses represent Level 3 inputs. +Impairment of Goodwill : Goodwill represents an excess of the cost over the fair market value of net assets acquired in business combinations. In accordance with Intangibles - Goodwill and Other (Topic 350), goodwill is not amortized but is tested for impairment at least annually, or more frequently if indicators of potential impairment exist. Goodwill is tested for impairment at the reporting unit +F-14 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +level. The Company’s reporting units have discrete financial information available, and management regularly reviews the operating results. For purposes of impairment testing, goodwill is allocated to the applicable reporting units based on the Company’s reporting structure. Our reporting units are the same as our reportable segments and consistent with the reporting units tested for impairment in prior years. Assets, liabilities and goodwill have been assigned to reporting units based on assets acquired and liabilities assumed as of the date of acquisition. +The Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Qualitative factors assessed for each of the applicable reporting units include, but are not limited to, changes in macroeconomic conditions, industry and market considerations, cost factors, discount rates, competitive environments, and financial performance of the reporting units. If the qualitative assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, a quantitative test is required. +Alternatively, the Company may proceed directly to the quantitative test. Under the quantitative test, the estimated fair value of each reporting unit is compared to it carrying value, including goodwill. If the carrying value of the reporting unit, including goodwill, exceeds its fair value, an impairment charge equal to excess is recognized, up to the maximum amount of goodwill allocated to that reporting unit. Refer note 6- Goodwill and Intangible assets, net. +Derivative financial instruments: The Company accounts for derivative instruments in accordance with ASC 815, Derivatives and Hedging (“ASC 815”). The Company’s objectives and strategies for using derivative instruments, and how the derivative instruments and related hedged items are accounted for affect the consolidated financial statements. The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risk. +The Company evaluates all of its financial instruments, including notes payable and warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The Company applies significant judgment to identify and evaluate complex terms and conditions in its contracts and agreements to determine whether embedded derivatives exist. Embedded derivatives must be separately measured from the host contract if all the requirements for bifurcation are met. The assessment of the conditions surrounding the bifurcation of embedded derivatives depends on the nature of the host contract. Bifurcated embedded derivatives are recognized at fair value, with changes in fair value recognized in the consolidated statements of operations and comprehensive loss each period. Bifurcated embedded derivatives are classified with the related host contract on the Company’s consolidated balance sheets. +An evaluation of specifically identified conditions is made to determine whether the fair value of the derivative issued is required to be classified as equity or as a derivative liability. Changes in the estimated fair value of the liability-classified derivative financial instruments are recognized as a non-cash gain or loss on the accompanying consolidated statements of operations and comprehensive loss. +Derivative assets and liabilities are classified in the consolidated balance sheets as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the consolidated balance sheet date. +Notes payable and notes payable – related party: The Company has entered into notes payable with third-party and related party lenders. Notes payable and notes payable – related parties are recorded net of any debt issuance costs incurred. Debt issuance costs, including original issuance discounts, are amortized to interest expense using the effective interest method over the contractual term of the obligation. +Convertible notes payable: The Company has elected the fair value option under ASC 825-10 to measure its convertible notes payable at fair value at each reporting date, with changes in fair value recognized in the consolidated statements of operations. As a result of this election, the Company is not required to separately evaluate or bifurcate embedded conversion features under ASC 470, as the entire hybrid instrument is carried at fair value. Debt issuance costs associated with convertible notes for which the fair value option has been elected are expensed as incurred rather than deferred and amortized. +The change in fair value (inclusive of any Day 1 Gains or Losses) of approximately $ 2,146,000 and $ 1,708,000 was recorded as a component of other income (expense) in the accompanying consolidated statements of operations and comprehensive loss as the change in fair value of the convertible debt was not attributable to instrument specific credit risk during the years ended December 31, 2025 and 2024. +When convertible notes are converted into equity in accordance with their original contractual terms, the Company reclassifies the carrying amount of the liability to equity, and no gain or loss on extinguishment is recognized. +F-15 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Gains and losses on extinguishment of liabilities: The Company recognizes gains and losses on extinguishment of liabilities, including accounts payable and debt obligations, with unrelated parties as the difference between the reacquisition price and the net carrying amount of the associated obligation, as a component of other expense (income), net in the consolidated statements of operations and comprehensive loss. When a modification or exchange of a debt instrument introduces a substantive conversion option that did not previously exist, the Company accounts for the transaction as an extinguishment of the original debt, with the difference between the net carrying amount and the fair value of consideration issued recognized as a gain or loss on extinguishment. +The Company classifies the gains and losses on extinguishment of liabilities with related parties as a reduction of capital in the accompanying statements of changes in stockholders’ deficit or as a component of other expense (income), net in the accompanying consolidated statements of operations and comprehensive loss based on the facts and circumstances of each extinguishment transaction. +Revenue Recognition: The Company follows the guidance of ASC 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, revenues are recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for transferring those goods or services. The Company’s revenue is generated from customers located in the U.S. and India. +Revenue is recognized based on a five step model that includes (1) Identification of the contract with a customer, (2) Identification of the performance obligations in the contract, (3) Determination of the transaction price, (4) Allocation of the transaction price to the performance obligations in the contract, (5) Recognition of revenue when, or as, the Company satisfies a performance obligation. +Installation and Maintenance Services +Our installation services encompass both solar energy systems and HVAC solutions, including system design, procurement and delivery of key components, and full installation. Solar energy system components typically include photovoltaic modules, inverters, battery storage systems, and related equipment, while HVAC installations include heating, ventilation, and air conditioning units, ductwork, and control systems. These services also include activities required to integrate the systems with existing infrastructure and, where applicable, facilitate connection to the electrical grid. These services represent multiple performance obligations that are combined into a single unit of accounting. Each transaction is a distinct performance obligation, priced on a standalone basis. The transaction price is determined at service or contract inception and reflects the amount of consideration to which we expect to be entitled in exchange for the services provided to the customer and is reported net of discounts that may be offered. Discounts, if any, are generally explicitly stated in a contract as a fixed percentage of the transaction price related to the performance obligations within the contract. +Our operations are organized into two primary categories: Solar and HVAC installation and maintenance services to customers. +For all installation and maintenance contracts as mentioned above, we recognize revenue over time. Our over-time revenue recognition begins when the solar power systems and HVAC solutions are fully installed (as it is at this point that control of the assets begins to be transferred to the customer and the customer retains the significant risks and rewards of ownership). +For certain Installation and maintenance services which have significant installation period, we recognize revenue using the input method based on direct costs to install the systems and defer the costs of installation until such time that control of the assets transfers to the customer (installation). +In applying cost-based input methods of revenue recognition, the Company uses the actual costs incurred for installation and obtaining the permission to operate, each relative to the total estimated cost to determine the Company’s progress towards contract completion and to calculate the corresponding amount of revenue and gross profit to recognize. Cost based input methods of revenue recognition are considered a faithful depiction of the Company’s efforts to satisfy these certain specific Installation and maintenance contracts and therefore reflect the transfer of goods to a customer under such contracts. Costs incurred towards contract completion may include costs associated with modules, direct materials, labor, subcontractors, and other indirect costs related to contract performance +Certain specific installation and maintenance contracts with very short installation period are typically completed within one to two weeks, and invoicing generally occurs upon completion of performance. Given the short-term nature of these contracts, the Company has elected to apply the “as-invoiced” practical expedient under ASC 606-10-55-18, as the invoiced amount corresponds directly with the value of the services transferred to the customer at each billing. The output method is considered the most faithful depiction of the Company’s performance for these contracts because, unlike the input method used for longer-duration installation and maintenance contracts, the short contract duration and direct correspondence between invoiced amounts and value delivered to the customer make cost-based progress measurement unnecessary. Accordingly, revenue is recognized in the amount invoiced. +F-16 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The Company also sells a range of ConnectM-branded heat pump products directly to customers, including under specific distribution agreements such as with Greentech Renewables. Revenue from heat pump product sales is recognized at a point in time when control transfers to the customer, which generally occurs upon delivery. The Company sells solar energy and battery storage systems and heat pump products to residential and commercial customers and recognizes revenue net of sales taxes collected from customers and remitted to government authorities. +During the year ended December 31, 2025, the Company changed its method of measuring progress for revenue recognized over time in its certain Installation and maintenance services with significant installation period from the “as-invoiced” practical expedient to an cost based input method. Under the revised approach, revenue is recognized based on the Company’s measure of progress toward complete satisfaction of the performance obligation, reflecting the transfer of delivery services to customers as such services are performed. +The change is considered preferable because the cost based input-based method more accurately reflects the pattern of transfer of control and the underlying performance of delivery services and provides greater consistency with the principles of ASC 606 and industry practices for similar service arrangements. +The impact of this change in accounting principle was not material to the Company’s financial statements for the current period. Accordingly, prior period financial statements have not been retrospectively adjusted. +Logistics Services +Logistics Services +Logistics services revenue consists of delivery fees paid by customers for completed deliveries through DeliveryCircle’s proprietary Decios platform. DeliveryCircle acts as a principal in its delivery arrangements, as it controls the delivery service before it is transferred to the customer, directs the carriers who perform the deliveries, bears primary responsibility for fulfillment, has discretion in establishing pricing, and assumes inventory and credit risk. Accordingly, delivery service revenue is presented gross. +Each customer order submitted into the Platform constitutes a single performance obligation representing a delivery service from a single point of origin to a limited number of destinations. The Company has determined that delivery services qualify for over-time revenue recognition under ASC 606-10-25-27(a), as the customer simultaneously receives and consumes the benefits of DeliveryCircle’s performance as each delivery is performed — the service results in transportation of the customer’s parcels to end locations, and if DeliveryCircle were to cease performing at any point, another provider would not need to reperform the work already completed to date. +The Company measures progress toward satisfaction of the performance obligation using the output method based on deliveries completed, applying the right-to-invoice practical expedient under ASC 606-10-55-18. Since the duration of each delivery service is short and the invoice amount is contractually determined at the time the order is submitted, the invoiced amount corresponds directly with the value of the Company’s performance completed to date and faithfully depicts the transfer of services. The output method is considered the most faithful depiction of the transfer of services because each completed delivery represents a discrete, directly observable unit of value transferred to the customer, and the very short performance period makes cost-based input measures unnecessary for faithfully depicting transfer of control. +The transaction price for each delivery order is substantially fixed at the time the order is submitted into the Platform, as the number of items, destination zones, and applicable per-unit rates are established at that point. Delivery service fees and per-order minimum purchase requirements represent fixed consideration determined on a per-order basis. Fuel surcharges, while adjusted monthly based on a national average fuel rate, are fixed at the time each order is entered and do not represent variable consideration. Waiting fees, which are incurred when a carrier waits beyond a specified time at pick-up or drop-off locations, represent variable consideration as the amounts are not determinable until delivery is completed. The Company includes variable consideration in the transaction price only to the extent that it is probable that a significant reversal in cumulative revenue recognized will not occur when the uncertainty is subsequently resolved. Given the short-term nature of each delivery, the limited magnitude of waiting fees relative to total delivery fees, and the Company’s historical experience, the constraint on variable consideration has not had a material impact on revenue recognized during the periods presented. +Revenue is generally billed on a weekly basis with payment terms of net 14 days. The Company excludes from revenue the taxes collected from customers and remitted to government authorities. +F-17 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Change in Accounting Policy. During the year ended December 31, 2025, the Company changed its method of revenue recognition for its Logistics segment from recognizing revenue at a point in time upon delivery completion to recognizing revenue over time as delivery services are performed, consistent with the as-invoiced practical expedient. The change is considered preferable because the over-time method more faithfully reflects the continuous transfer of delivery services to customers and provides greater consistency with the underlying principles of ASC 606. Notwithstanding the change in policy classification, because each delivery performance obligation is completed within a short period (generally within two days or less and often within several hours), the timing of revenue recognition under either method does not result in a materially different pattern or amount of revenue recognized in any reporting period. Accordingly, the impact of this change was not material to the Company’s financial statements, and prior-period financial statements have not been retrospectively adjusted. +Product sales (Hardware Supply with the embedded software) +Product sales are made to original equipment manufacturers (“OEMs”). Some of the Company’s 4G telematics units include both hardware and embedded software components that function together to deliver the products’ essential functionality. In these instances, the hardware generally cannot be used apart from the embedded software and is considered one distinct performance obligation. Revenue is recognized at a point in time upon transfer of control of goods to the customer in accordance with the International Commercial Terms (Incoterms) described in the respective contracts. Annual maintenance and support services provided to customers for installed hardware/software solutions, including periodic inspection, servicing, and technical support to ensure continued functioning of the systems is recognized over time as maintenance and support services are provided over the contract period, as the customer simultaneously receives and consumes the benefits. +The amount of revenue recognized is net of discounts that the Company may offer to a customer. Based on historical experience, estimated returns are determined to be not material as of December 31, 2025 and 2024, and as such no reserve for future estimated returns has been recorded for the years then ended. +The Company excludes from revenue taxes collected from customers and remitted to government authorities related to sales of the Company’s inventory. Shipping and handling costs that are billed to customers are included in net sales. +Software Services +The Company provides software manpower consultancy services and software subscriptions through its Transportation segment. +Manpower Consultancy Services . Software manpower consultancy services include system and software development, implementation, and customization delivered through deployment of technical resources for customer projects. Contracts may be short-term, project-based arrangements or long-term, annual resource deployment contracts. The customer simultaneously receives and consumes the benefits of the Company’s performance as the services are rendered. Revenue from manpower consultancy services is recognized over time using the right-to-invoice practical expedient under ASC 606, as the amounts invoiced correspond directly to the value of services transferred to the customer during each billing period. +Software Subscription Services . The Company derives subscription revenue from software access fees comprising subscription fees from customers accessing the Company’s IIoT platform. Subscription revenue gives the customer the right to access the Company’s platform over the contract term, which is generally twelve months . The customer simultaneously receives and consumes the benefits of the platform access as the service is provided. +Subscription fees are billed periodically monthly, quarterly and annually. For billing arrangements where invoicing corresponds directly with the value of services provided during each period (e.g., monthly billing), revenue is recognized based on invoiced amounts using the right-to-invoice practical expedient under ASC 606. For contracts with quarterly or annual billing where payments are received in advance, revenue is recognized on a straight-line basis over the applicable service period, as the customer simultaneously receives and consumes the benefits of the service. +Managed Solutions +Managed solutions revenue represents support services provided to a customer, including human resources and payroll administration, procurement and vendor management, marketing and lead generation, working capital and financing facilitation, and business implementation services including technology platform onboarding. While each of these services is individually capable of being distinct — as the customer could benefit from each service on its own or together with other readily available resources under +F-18 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +ASC 606-10-25-19(a) — the Company has determined that the services are not separately identifiable within the context of the contract under ASC 606-10-25-19(b) and are therefore combined into a single performance obligation. Specifically, the Company provides a significant service of integrating the individual services into a single, unified managed services model, and is responsible for coordinating, managing, and overseeing all service elements. The services are highly interdependent and interrelated, are designed to be delivered together, and no individual service provides meaningful standalone benefit within the context of the contract; removing or modifying any individual service would significantly affect the overall arrangement and the customer’s ability to obtain the intended benefit under the MSA. +Performance obligations related to managed solutions contracts are satisfied over time, as the customer simultaneously receives and consumes the benefits of the services as they are performed, and each period of service is substantially the same with the same pattern of transfer over the life of the contract. Revenue is recognized based on amounts invoiced to the customer using the right-to-invoice practical expedient under ASC 606, as the amounts invoiced correspond directly to the value transferred to the customer. +Pricing for the Company’s managed solutions services is established in the customer contract and is set as a percentage of the customer’s revenue for a month. Quarterly, a working capital true-up adjustment may be processed if costs incurred by the customer exceed the percentage of the customer’s revenue. If a working capital true-up adjustment is determined necessary, it is recorded as a reduction of selling, general and administrative expenses as it represents the customer’s reimbursement of costs incurred by the Company. +Distributed Energy & Renewables (“DER”) +The Company’s Distributed Energy & Renewables (“DER”) segment focuses on the delivery of solar and distributed energy solutions for commercial, residential, consumer, and industrial customers in India through the Company’s Cambridge Energy Resources subsidiary, including project development, engineering, procurement, and construction (“EPC”) services, as well as ongoing energy management. +EPC Services . The Company provides turnkey EPC services for solar energy and distributed energy installations, including system design, procurement of photovoltaic modules and related equipment, installation, testing, and commissioning. The equipment and installation services are not distinct within the context of the contract because the Company provides a significant integration service and the customer’s objective is to receive a completed, functional energy system. Accordingly, equipment supply and installation services are combined into a single performance obligation. Revenue from EPC contracts is recognized over time using the cost-based input method, as it provides a faithful depiction of the Company’s efforts to satisfy the performance obligation. Our over-time revenue recognition begins when the solar power systems are fully installed (as it is at this point that control of the assets begins to be transferred to the customer, and the customer retains the significant risks and rewards of ownership). +Power Sales — PPAs and BTS Energy Service Agreements . A portion of the segment’s revenue is earned through the sale of electricity, measured in kilowatt-hours, pursuant to the terms of Power Purchase Agreements (“PPAs”) and Base Transceiver Station (“BTS”) energy service agreements. The Company has evaluated its PPA and BTS arrangements and determined that none qualify as leases under ASC 842, Leases , or as derivatives under ASC 815, Derivatives and Hedging . Accordingly, all such arrangements are accounted for under ASC 606, Revenue from Contracts with Customers . +The Company considers the delivery of energy under PPAs and BTS agreements to represent a series of distinct goods that are substantially the same and have the same pattern of transfer, and revenue is recognized over time using the output method based on energy units delivered. The Company applies the right-to-invoice practical expedient, as the amount invoiced corresponds directly to the volume of energy delivered multiplied by the applicable contract rate. +Certain of the Company’s PPAs contain fixed rates, while others contain floating or escalating rate provisions that adjust periodically based on contractual terms. To the extent that contract rates are subject to adjustment based on indices or other variable factors, the resulting variability in consideration is assessed under the variable consideration guidance in ASC 606-10-32-5 through 32-13. For fixed-rate PPAs and BTS agreements, the transaction price is determinable at contract inception and does not give rise to variable consideration. For floating-rate arrangements, the Company applies the allocation exception under ASC 606-10-32-40, allocating the variable consideration to the distinct period of energy delivery to which it relates, as the terms of the variable payment relate specifically to the Company’s efforts to satisfy the performance obligation in that period. Given the nature of the arrangements — where consideration is based on actual energy delivered at contractually specified rates and uncertainty is resolved at the time of each delivery — the constraint on variable consideration under ASC 606-10-32-11 has not had a material impact on revenue recognized during the periods presented. +F-19 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +PPAs and BTS contracts are generally invoiced on a monthly basis. +Contract Assets and Liabilities +Contract liabilities represent obligations to transfer goods or services to a customer for which the Company has received consideration in advance of performance. Contract liabilities include advance payments received from customers and amounts billed to customers in excess of revenue recognized to date on the related contract. As of December 31, 2025 and 2024, contract liabilities consisted solely of advance payments received from customers. +Contract assets represent the Company’s right to consideration in exchange for goods or services that have been transferred to a customer but for which the right to payment is not yet unconditional. Contract assets arise when (i) revenue recognized to date on a contract exceeds the amount billed to the customer (i.e., unbilled receivables), or (ii) the Company has incurred costs to fulfill a contract in advance of satisfying the related performance obligation. As of December 31, 2025 and 2024, contract assets consisted of commissions, labor, and material costs incurred for projects where the performance obligation was not yet complete. These costs will be recognized in cost of revenues in the same period and manner as the corresponding performance obligation is satisfied. +The portion of contract assets and liabilities expected to be recognized within one year of the reporting date is reflected within current assets and current liabilities, respectively, on the accompanying consolidated balance sheets. The remaining portion expected to be recognized beyond one year is classified as a non-current asset or non-current liability, as applicable. +The following table summarizes the contract asset activity for the years ended December 31, 2025 and 2024: +​ +​ +​ +​ +Balance as of January 1, 2024 +​ ​ ​ +$ +343,646 +Deferral of costs on contracts where performance obligations were not complete +​ +​ +( 343,646 ) +Balance as of December 31, 2024 +​ +​ +206,750 +Recognition of costs on contracts where performance obligations completed during the period +​ +​ +( 206,750 ) +Deferral of costs on contracts where performance obligations were not complete +​ +​ +303,910 +Balance as of December 31, 2025 +​ +$ +303,910 +​ +The following table summarizes the contract liability activity for the years ended December 31, 2025 and 2024: +​ +​ +​ +​ +Balance as of January 1, 2024 +​ ​ ​ +$ +1,120,817 +Recognition of revenue recorded as a contract liability as of January 1, 2024 +​ +( 1,075,911 ) +Customer advance payments +​ +557,563 +Balance as of December 31, 2024 +​ +​ +602,469 +Recognition of revenue recorded as a contract liability as of December 31, 2024 +​ +( 389,375 ) +Adjustments for the cancelled contract +​ +​ +( 175,312 ) +Customer advance payments +​ +734,231 +Balance as of December 31, 2025 +​ +$ +772,013 +​ +Limited Warranty +The Company provides limited warranties that include a one-year warranty on any labor provided on installation services and a ten-year warranty on structural damage for certain installation services. Warranties are not considered separate performance obligations as they were determined to be assurance type warranties. Based on historical experience, warranties are determined to not be material as of December 31, 2025 and 2024 and as such no reserve for future warranty claims has been recorded for the years then ended. +Costs to Obtain a Contract +The Company incurs costs to obtain contracts in the form of commissions paid to its sales personnel, a third party service provided and a third party financing company made available to our customers +As all projects are completed within a year, the practical expedient to expense costs to obtain contracts as they are incurred was elected. The commission and financing fee expenses for the years ended December 31, 2025 and 2024 were $ 1,853,300 and $ 608,433 , +F-20 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +respectively, and are recorded as a component of selling, general and administrative expenses on the accompanying consolidated statements of operations and comprehensive loss. +Costs to fulfill contracts +Costs to fulfill a contract are capitalized when they relate directly to an existing contract or a specific anticipated contract, generate or enhance resources that will be used to fulfill performance obligations, and are recoverable. Such costs generally represent contract setup and fulfillment costs, which include any direct costs incurred at the inception of a contract to enable the delivery of HVAC solutions, solar panels, or related services, including materials, labor, and subcontractor costs directly associated with satisfying the performance obligation. These costs are expensed as the related revenue is recognized in accordance with the Company’s revenue recognition policy. +Leases: The Company determines if an arrangement is a lease at inception of the contract. Operating leases are included in operating lease right-of-use (“ROU”) assets, current portion of operating lease liabilities, and operating lease liabilities, net of current portion in the accompanying consolidated balance sheets. Finance leases are accounted for as long-term assets, with the current and long-term portions of debt disclosed in the accompanying consolidated balance sheets. The Company accounts for leases with an original maturity of one year or less using the short-term lease practical expedient. These short-term leases are not recognized on the consolidated balance sheets and are accounted for using the straight-line method over the lease term. +ROU assets represent the Company’s right to use underlying assets for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The discount rate used to calculate the present value for lease payments is the Company’s incremental borrowing rate, which is determined based on information available at lease commencement and is equal to the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment. The Company uses the implicit rate when readily determinable. The Company has entered into operating leases for corporate offices having remaining lease terms of one to three years . The Company has entered into finance leases primarily for vehicles and equipment, having initial terms of three years . +The Company’s real estate leases may include one or more options to renew , with the renewal extending the lease term for an additional one to five years . The exercise of lease renewal option is at the Company’s sole discretion. In general, the Company does not consider renewal option to be reasonably likely to be exercised, therefore renewal option are generally not recognized as part of the ROU assets and lease liabilities. Lease costs for lease payments are recognized on a straight-line basis over the lease term, unless there is a transfer of title or purchase option reasonably certain to be exercised. The Company does not record operating leases with an initial term of twelve months or less (“short-term leases”) in the consolidated balance sheets. +The Company’s vehicle leases may include transfer rights or options to purchase at the end of the lease that the Company is reasonably certain to exercise. Interest expense is recognized using the effective interest rate method, and the ROU asset is amortized over the useful life of the underlying asset. +Certain of the Company’s lease agreements contain both lease and non-lease components, which are generally accounted for as a single lease component. +Cost of revenues: Cost of revenues includes payroll and benefit costs of employees and direct costs associated with the delivery charges from independent contractors who perform a performance obligation directly as well as inventory utilized in the satisfaction of the performance obligation. It also includes any shipping and handling services for the Company’s inventory. +Selling, general and administrative expenses: Selling, general and administrative expenses include payroll and benefit costs of employees who are not directly involved with the satisfaction of a performance obligation, facility costs, leasehold improvement amortization, utility costs, repair and maintenance, advertising, insurance, equipment depreciation and professional fees. +F-21 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Advertising expenses: Advertising costs are expensed as incurred. Advertising expenses include the costs incurred to promote the products, services, or brand to the public. These expenses are intended for generating awareness to customers and driving sales through various forms of advertising. Common types of advertising expenses include costs for media placements, production of advertisements, and marketing campaigns across platforms like television, digital, print, and outdoor channels. Advertising expenses were approximately $ 86,000 and approximately $ 955,000 for the years ended December 31, 2025 and 2024 respectively. +Stock-based compensation: The Company accounts for stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation , under which shared based payments that involve the issuance of common stock to employees and nonemployees and meet the criteria for equity-classified awards are recognized in the consolidated financial statements as stock-based compensation expense based on the fair value on the date of grant. The fair value of the share based payment is calculated and then recognized as compensation expense over the requisite service period. The Company issues stock option awards to employees and nonemployees. +The Company utilizes the Black-Scholes model to determine the fair value of the stock option awards, which requires the input of subjective assumptions. These assumptions include estimating (a) the length of time grantees will retain their vested stock options before exercising them for employees and the contractual term of the option for nonemployees (“expected term”), (b) the volatility of the Company’s common stock price over the expected term, (c) expected dividends, and (d) the fair value of a share of common stock prior to the Business Combination. After the closing of the Business Combination, the Company’s board of directors determined the fair value of each share of common stock underlying stock-based awards based on the closing price of the Company’s common stock as reported by the NASDAQ on the date of grant. The Company has elected to recognize the adjustment to share-based compensation expense in the period in which forfeitures occur. +The assumptions used in the Black-Scholes model are management’s best estimates, but the estimates involve inherent uncertainties and the application of management judgment (see Note 12). As a result, if other assumptions had been used, the recorded share-based compensation expense could have been materially different from that depicted in the consolidated financial statements +Warrants: The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing liabilities from equity (“ASC 480”), and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance, modification, and as of each subsequent quarterly period end date while the warrants are outstanding. For the years ended December 31, 2025 and 2024, all of the Company’s warrants were accounted for as equity classified instruments. +For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the liability-classified warrants are recognized as a non-cash gain or loss on the accompanying consolidated statements of operations and comprehensive loss. The Company assesses the classification of its warrants at each reporting date to determine whether a change in classification between equity and liability is required. +Comprehensive loss: Comprehensive loss is comprised of net loss and all changes to the consolidated statements of equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive gain (loss) for the years ended December 31, 2025 and 2024 consisted of net gain (loss) and unrealized gain (loss) from foreign currency translation adjustment. +N et loss per share: Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period, excluding the effects of any potential dilutive securities. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common share equivalents had been issued and if the additional common shares were dilutive. Loss per share excludes all potential dilutive shares of common shares if their effect is anti-dilutive. +For the years ended December 31, 2025 and 2024, potentially dilutive common shares consist of the common shares issuable upon the exercise of common stock options and warrants (using the treasury stock method) and the conversion of convertible notes payable. Conversion features of notes payable may have a variable conversion feature, amending the number of conversion shares based on the +F-22 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +market price of the stock. In a period in which the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact. +Diluted net loss per share includes the potential dilutive effect of common stock equivalents as if such securities were converted or exercised during the period, when the effect is dilutive. Given the Company is in a net loss position for the years ended December 31, 2025 and 2024, there is no difference between basic and diluted net loss per share. +The following table summarizes the potentially dilutive securities excluded from the computation of diluted shares outstanding because the effect of including these potential shares was anti-dilutive: +​ +​ +​ +​ +Options +$ +473,929 +Warrants +​ +13,067,494 +Convertible notes payable that convert into common stock +​ +10,124,724 +Total +23,666,147 +​ +Foreign Currency: The Company’s consolidated financial statements are presented in the reporting currency of the U.S. dollar. The function currency for all consolidated entities is the U.S. dollar, with the exception of subsidiaries which is located in India, whose function currency is the Indian Rupee (INR). Assets and liabilities of the Company are translated into the reporting currency using the exchange rate in effect at the consolidated balance sheet dates. Equity transactions are translated using the historical exchange rate in effect on the date of the transaction, except for the change in accumulated deficit during the year, which is the results of the operations translation process. Results of operations and cash flows are translated using the weighted average exchange rates in effect during the period. As a result, amounts relating to the assets and liabilities reported on the consolidated statements of cash flows may not necessarily agree with the changes in the corresponding balances on the accompanying consolidated balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into the reporting currency are recorded as a component of comprehensive income (loss). For the years ended December 31, 2025 and 2024, the realized foreign currency exchange gain (loss) was $ 110,360 and $ 36,579 , respectively and is included as a component of other (expense) income on the accompanying consolidated statements of operations and comprehensive loss. For the years ended December 31, 2025 and 2024, the unrealized foreign currency exchange gain was de minimis and is included as a component of other (expense) income on the accompanying consolidated statements of operations and comprehensive loss. +Income Taxes: Income taxes are accounted for under the asset and liability method whereby deferred tax assets and liabilities are determined based on temporary difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. A valuation allowance is established when management estimates that it is more likely than not that deferred tax assets will not be realized. Realization of deferred tax assets is dependent upon future pre-tax earnings, the reversal of temporary differences between book and tax income, and the expected rates in future periods. +The Company is required to evaluate the tax positions taken in the course of preparing its tax returns to determine whether tax positions are more likely than not of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the “more-likely-than-not” threshold would be recorded as a tax expense in the current year. The amount recognized is subject to estimate and management judgment with respect to the likely outcome of each uncertain tax position. The amount that is ultimately sustained for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differ from the amount that is initially recognized. At December 31, 2025 and 2024, the Company did not have any reserves for uncertain tax positions recognized. The Company’s policy is to recognize interest and penalties related income tax matters in income tax expense. The Company operates within multiple taxing jurisdictions and in the normal course of business its tax returns are examined in various jurisdictions The Company currently has no federal, state or international tax examinations in progress. The Company is subject to U.S. Federal and state income tax examination for tax years 2022 and forward. Tax returns for years prior to 2022 may remain open with respect to the net operating loss carryforwards that are utilized in a later years, as tax attributes from prior years can be adjusted during an audit of a later year. +We determined that income taxes involve critical accounting estimates because management makes significant estimates, assumptions, and judgments to determine our provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against deferred tax assets, and to the extent that our estimates and assumptions materially change, or if actual circumstances differ materially from those in the assumptions, our financial statements could be materially impacted. +F-23 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +We utilize the asset and liability method for computing our income tax provision. Deferred tax assets and liabilities reflect the expected future consequences of temporary differences between the financial reporting and tax bases of assets and liabilities as well as operating loss, capital loss, and tax credit carryforwards, using enacted tax rates. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we establish a valuation allowance. Assessing the need for a valuation allowance requires a great deal of judgement and we consider all available evidence, both positive and negative, to determine whether it is more likely than not that our deferred tax assets are recoverable. We evaluate all available evidence including, but not limited to, history of earnings and losses, forecasts of future taxable income, and the weight of evidence that can be objectively verified. See Note 17 - Income taxes of the notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for details of changes in our valuation allowance for the years ended December 31, 2025 and 2024. +We recognize the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. Interest and penalties related to unrecognized tax benefits are recognized within provision for income taxes. +The TCJA also includes provisions for a tax on global intangible low-taxed income (GILTI). GILTI is described as the excess of a U.S. shareholder’s total net foreign income over a deemed return on tangible assets, as provided by the TCJA. In January 2018, the FASB issued guidance that allows companies to elect as an accounting policy whether to record the tax effects of GILTI in the period the tax liability is generated (i.e., “period cost”) or provide for deferred tax assets and liabilities related to basis differences that exist and are expected to affect the amount of GILTI inclusion in future years upon reversal (i.e., “deferred method”). The accounting policy of the Company is to record any taxes on GILTI in the provision for income taxes in the year it is incurred. However, the Company has not GILTI inclusion for year ended December 31, 2025. +Recently issued accounting pronouncements, adopted +In August 2020, ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”), to simplify accounting for certain financial instruments. ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock and amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce from-over-substance-based accounting conclusions. The Company adopted ASU 2020-06 effective January 1, 2024, and the adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements. +In November 2023, the FASB issued ASU No. 202307, Segment Reporting — Improvements to Reportable Segment Disclosures. ASU 2023-07 requires entities to disclose significant segment expense categories and amounts for each reportable segment and is effective for fiscal years beginning after December 15, 2023. The Company adopted ASU 2023-07 effective January 1, 2024, and the adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements. +ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures- In December 2023, the FASB issued this ASU to update income tax disclosure requirements, primarily related to the income tax rate reconciliation and income taxes paid information. The Company adopted ASU 2023-09 prospectively from January 1, 2025, and the adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements. +Recently issued accounting pronouncements, not yet adopted +The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board. Management periodically reviews newly issued accounting standards to determine their potential impact on the Company’s consolidated financial statements and related disclosures. +ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative (“ASU 2023-06”) incorporates several disclosure and presentation requirements currently residing in SEC Regulation S-X and S-K into the ASC. The amendments are applied prospectively and are effective when the SEC removes the related requirements from Regulation S-X and S-K. Any amendments the SEC does not remove by June 30, 2027 will not be effective. Early adoption is prohibited. The Company is currently evaluating the potential impact of this guidance on its disclosures.  +​ +F-24 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +In March 2024, the SEC issued its final climate disclosure rules (Rule 1), which require the disclosure of climate-related information in annual reports and registration statements, beginning with annual reports for the year ending December 31, 2025. The rules require disclosure in the audited financial statements of certain effects of severe weather events and other natural conditions above certain financial thresholds, as well as amounts related to carbon offsets and renewable energy credits or certificates, if material. We are currently evaluating the impact of the new rules and continue to monitor the status of the related legal challenges. +ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures. In November 2024, the FASB issued this ASU that requires more detailed disclosure about certain costs and expenses presented in the income statement, including inventory purchases, employee compensation, selling expense and depreciation expense. The new guidance is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The guidance does not affect recognition or measurement in our consolidated financial statements. +ASU 2024-04 Debt - Debt with Conversion and Other Options - Induced Conversions of Convertible Debt Instruments. In November 2024, the FASB issued this ASU which clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as induced conversions or extinguishments.  The amendments in this update are effective for all entities for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted for all entities that have adopted the amendments in Update 2020-06. We are currently evaluating the impact this guidance will have on our consolidated financial statements. +In May 2025, the FASB issued Accounting Standards Update No. 2025-03, Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity (“ASU 2025-03”). ASU 2025-03 changes how companies determine the accounting acquirer in certain business combinations involving variable interest entities. The new guidance requires considering the factors used for other acquisition transactions to assess which party is the accounting acquirer. ASU 2025-03 is effective for the Company’s annual reporting periods beginning on January 1, 2027. Early adoption is permitted. The Company is currently evaluating the impact of adopting this new accounting guidance on its financial statements and related disclosures. +In May 2025, the FASB issued Accounting Standards Update No. 2025-04, Compensation – Stock Compensation (Topic 718) and Revenue from Contracts With Customers (Topic 606): Clarifications to Share-Based Consideration Payable to a Customer (“ASU 2025-04”). ASU 2025-04 revises the definition of a performance condition, eliminates the forfeiture policy election for service conditions, and clarifies that the variable consideration constraint in Topic 606 does not apply to share-based consideration payable to customers. The new guidance requires entities to consistently account for share-based awards granted to customers by clarifying the treatment of vesting conditions and ensuring alignment with Topic 606 and Topic 718. ASU 2025-04 is effective for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of adopting this new accounting guidance on its financial statements and related disclosures. +In September 2025, the FASB issued ASU 2025-06- Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software (ASU 2025-06), which is intended to simplify the capitalization guidance for internal-use software by removing references to project stages and clarifying when the capitalizing of eligible costs is required. ASU 2025-06 is effective for annual periods beginning after December 15, 2027, and interim periods within those fiscal years. Early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance on its disclosures. +In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements, which clarifies the guidance in Topic 270 to improve the consistency of interim financial reporting. The ASU provides a comprehensive list of required interim disclosures and introduces a disclosure principle requiring entities to disclose events since the end of the last annual reporting period that have had a material impact on the entity. ASU 2025-11 is effective for fiscal years beginning after December 15, 2027, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2025-11. +The Company does not believe any other new accounting pronouncements issued by the FASB that have not become effective will have a material impact on its consolidated financial statements. +F-25 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +NOTE 3: GOING CONCERN +The Company’s consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. +Conditions and Events Raising Substantial Doubt +As of December 31, 2025, the Company had cash of approximately $2,904,000 and a working capital deficit of approximately $ 24,739,000 . The Company incurred a net loss of approximately $ 16,058,000 and net cash used in operating activities of approximately $ 9,792,223 for the year ended December 31, 2025. In addition, the Company’s common stock was delisted from the Nasdaq Capital Market in May 2025, which may limit access to capital markets and adversely impact the Company’s ability to raise additional financing. +These conditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these consolidated financial statements are issued. +Management’s Evaluation +Management has evaluated the significance of these conditions in relation to the Company’s ability to meet its obligations as they become due within one year after the issuance date of these consolidated financial statements. The Company’s recurring losses from operations, negative operating cash flows, working capital deficit and limited liquidity are expected to continue to require additional funding to support ongoing operations and satisfy existing obligations. The delisting of the Company’s common stock further constrains access to capital and may increase the cost of financing. As a result, management has concluded that, absent the successful execution of its plans, the Company may be unable to meet its obligations as they become due. +Management’s Plans to Alleviate Substantial Doubt +Management is actively pursuing multiple initiatives intended to improve liquidity and support the Company’s ability to continue as a going concern, including: +● raising additional capital through equity and/or debt financing arrangements; +● continuing to expand revenue-generating activities across its Owned Service Network, Managed Solutions, Distributed Energy & Renewables and Transportation segments; +● improving operating margins through cost management initiatives, including reductions in discretionary spending and optimization of operating expenses; and +● pursuing strategic partnerships, customer contracts and other business arrangements to enhance cash flows. +While management believes these plans are reasonable and within its control, there can be no assurance that such plans will be successfully implemented or will generate sufficient liquidity to meet the Company’s obligations. Accordingly, substantial doubt about the Company’s ability to continue as a going concern remains. +The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty. +NOTE 4: REVERSE RECAPITALIZATION +On July 12, 2024, Legacy ConnectM and MCAC consummated the merger contemplated by the Merger Agreement with Legacy ConnectM surviving the merger as a wholly-owned subsidiary of MCAC. +Upon the closing of the Business Combination, MCAC’s certificate of incorporation was amended and restated to, among other things, set the total number of authorized shares of capital to 110,000,000 shares, of which 100,000,000 were designated as common stock, $ 0.0001 par value per share, and of which 10,000,000 shares were designated as preferred stock, $ 0.0001 par value per share. +F-26 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Immediately prior to the closing of the Business Combination, +● each outstanding share of Legacy ConnectM preferred stock was converted into Legacy ConnectM common stock based on a one-to-one ratio. The Business Combination is accounted for with a retrospective application of the Business Combination that resulted in 2,427,791 shares of preferred stock converting into the same number of shares of Legacy ConnectM common stock +● convertible note payable totaling $ 2,250,000 were converted into shares of Legacy ConnectM common stock at $ 7.00 per share, resulting in the issuance of 321,428 shares of Legacy ConnectM common stock. +Upon consummation of the Business Combination, each share of Legacy ConnectM stock issued and outstanding was cancelled and converted into the right to receive 3.3214 shares of the Company’s common stock. +Outstanding stock options, whether vested or unvested, to purchase shares of Legacy ConnectM common stock granted under the 2019 Equity Incentive Plan (the “2019 Plan”) (“Legacy Options”) converted into stock options for shares of the Company’s common stock upon the same terms and conditions that were in effect with respect to the Legacy Options immediately prior to the Business Combination, after giving effect to the Exchange Ratio (see Note 10). Legacy Options are granted under the Company’s 2023 Equity Incentive Plan (the “2023 Plan”) (see Note 10), and as such are excluded from the Share Consideration. +Outstanding warrants to purchase shares of Legacy ConnectM common stock (“Legacy Warrants”) converted into warrants for shares of the Company’s common stock upon the same terms and conditions that were in effect with respect to the Legacy Warrants immediately prior to the Business Combination after giving effect to the Exchange Ratio. +Outstanding warrants to purchase shares of MCAC Class A common stock will remain outstanding at the Closing Date. The warrants will become exercisable 30 days after the completion of the Business Combination and will expire five years after the completion of the Business Combination or earlier upon redemption or liquidation. +In connection with the Business Combination, +● certain MCAC shareholders exercised their right to redeem certain of their outstanding shares for cash, resulting in the redemption of 3,665,639 shares of MCAC Class A common stock for gross redemption payments of $ 41,652,720 . +● certain MCAC shareholders who held rights issued at MCAC’s IPO automatically received 920,000 shares of MCAC Class A common stock, which was one-tenth of one share of MCAC common stock. +● an investor purchased 3,248,466 shares of MCAC Class A common stock on the Closing Date in the open market from certain MCAC shareholders from those who elected to redeem shares of MCAC pursuant to the terms of a forward purchase agreement entered into effective December 31, 2022. +The Business Combination was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, MCAC was treated as the acquired company for financial reporting purposes (see Note 1). Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of the Company issuing shares for the net assets of MCAC, accompanied by a recapitalization. The net assets of MCAC were stated at fair value with no goodwill or other intangible assets recorded. +Prior to the Business Combination Legacy ConnectM and MCAC filed separate standalone federal, state and local income tax returns. As a result of the Business Combination Legacy ConnectM will file a consolidated income tax return. Although, for legal purposes, MCAC acquired Legacy ConnectM, and the transaction represents a reverse acquisition for federal income tax purposes. MCAC will be the parent of the consolidated group with Legacy ConnectM a subsidiary, but in the year of the closing of the Business Combination, Legacy ConnectM will file a full year tax return with MCAC joining in the return the day after the Closing Date. +As a result of the Business Combination, there was a negative equity recapitalization into additional paid in capital of $ 2,704,909 . In addition, the Company incurred offering costs of $ 3,968,063 , which were also treated as a reduction of additional paid in capital. +F-27 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The following table reconciles the elements of the Business Combination to the consolidated statements of cash flows and the consolidated statements of changes in stockholders’ deficit for the year ended December 31, 2024: +​ +​ +​ +​ +Cash – MCAC’s trust and cash (net of redemption) +​ ​ ​ +$ +38,441,920 +Less: transaction costs and advisory fees paid +​ +​ +( 2,670,961 ) +Net Business Combination financing +​ +$ +35,770,959 +​ +The number of shares of the Company’s common stock issued immediately following the consummation of the Business Combination were: +​ +​ +​ +​ +Common stock, outstanding prior to Business Combination +​ ​ ​ +​ +3,898,781 +Less: redemption of MCAC shares +​ +​ +( 3,665,639 ) +Common stock of MCAC +​ +​ +233,142 +MCAC founder shares +​ +​ +2,300,000 +Rights issued to MCAC shareholders +​ +​ +920,000 +Shares outstanding in connection with forward purchase agreement +​ +​ +3,248,466 +Business Combination and forward purchase agreement financing shares +​ +​ +6,701,608 +Legacy ConnectM shares +​ +​ +14,422,449 +Total shares of common stock immediately after Business Combination +​ +​ +21,124,057 +Issuance of shares of common stock after Business Combination +​ +​ +7,969,232 +Total shares of common stock at December 31, 2024 +​ +​ +29,093,289 +​ +The number of Legacy ConnectM shares was determined as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +​ +​ +​ ​ ​ +​ +Legacy +​ +​ +​ +​ +​ +​ +ConnectM +​ +​ +​ +​ +​ +​ +shares, +​ +​ +​ +Legacy +​ +​ +effected for +​ +​ +​ +ConnectM +​ +​ +Exchange +​ +​ +​ +shares +​ +​ +Ratio +Recapitalization applied to common stock outstanding at December 31, 2022 +​ +​ +1,588,141 +​ +​ +5,274,587 +Issuance of Old ConnectM shares prior to closing of Business Combination +​ +​ +5,000 +​ +​ +16,607 +Conversion of convertible notes payable to common stock prior to Business Combination +​ +​ +321,428 +​ +​ +1,067,592 +Recapitalization applied to Series Seed preferred stock outstanding at December 31, 2022 +​ +​ +644,030 +​ +​ +2,139,081 +Recapitalization applied to Series Seed-1 preferred stock outstanding at December 31, 2022 +​ +​ +91,120 +​ +​ +302,645 +Recapitalization applied to Series A-1 preferred stock outstanding at December 31, 2022 +​ +​ +743,068 +​ +​ +2,468,026 +Recapitalization applied to Series B-1 preferred stock outstanding at December 31, 2022 +​ +​ +649,843 +​ +​ +2,158,388 +Recapitalization applied to Series B-2 preferred stock outstanding at December 31, 2022 +​ +​ +299,730 +​ +​ +995,523 +​ +​ +​ +​ +​ +​ +14,422,449 +​ +Shares of common stock reserved for issuance for the exercise of the Legacy Options and Legacy Warrants totaled 473,929 and 77,494 , respectively, after giving effect for the Exchange Ratio. +​ +NOTE 5: ACQUISITIONS +Amperics Acquisition +On November 3, 2025, the Company completed the acquisition of certain assets of Amperics Holdings LLC and Amperics Inc. (collectively, “Amperics”) pursuant to an Asset Purchase Agreement. The sole asset acquired was proprietary technology related to Amperics’ nanotechnology-based energy-storage business, which will be integrated into Keen Labs, the Company’s AI and technology subsidiary. +F-28 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The Company issued 2,700,000 shares of common stock to the seller in exchange for the acquired proprietary technology of Amperics, valued at the closing market price of $ 0.32 per share on the acquisition date, for a total purchase consideration of approximately $ 864,000 . No cash was paid. The agreement contains no earn-outs or other contingent consideration. +​ +​ +​ +​ +​ +​ +​ ​ ​ +Amount +Proprietary know-how and technical documents +​ +$ +864,000 +Total assets acquired +​ +$ +864,000 +​ +The only asset acquired in the Transaction was the proprietary technology (including proprietary know-how and technical documentation) with a useful life of 10 years . We assumed only post-closing obligations under the assumed contracts and assigned intellectual property. All pre-closing liabilities, taxes, indebtedness, and other obligations remained with the sellers. +The transaction was evaluated under ASC 805 and was accounted for as an asset acquisition. +Further, in accordance with ASC 280, Segment Reporting, the Company has concluded that Amperics is included within “Others” as it does not meet the quantitative thresholds to qualify as a reportable segment. +Geo Impex Acquisition +On November 3, 2025, we acquired control of Geo Impex through an Exchange and Acquisition Agreement. Under the agreement, (i) We acquired approximately 86.22 % of the voting equity interests of Geo Impex India in exchange for newly issued shares of our common stock and promissory notes indirectly through our wholly owned subsidiary in India. The remaining 13.78 % is held by third-party shareholders and is reported as non-controlling interest of $ 984,025 . +As part of the consideration, we issued 33,300,000 shares of our common stock valued at approximately $ 10,656,000 based on the closing price on the acquisition date and a promissory note with a principal amount of $ 788,900 for a total purchase price of $ 11,444,900 . +The agreement contains no earn-outs or other contingent consideration. The number of shares issued is subject only to an equitable adjustment for stock splits between signing and closing. The promissory note has a fixed principal and no variable features. +The transaction was evaluated under ASC 805, Business Combinations. The Company concluded that the transaction did not meet the definition of a business combination and was accounted for as an asset acquisition under U.S. GAAP. The allocation of purchase consideration to identifiable assets (including land and related rights) and liabilities have been determined based on their relative fair values at the acquisition date. No goodwill was recognized. +Total fair value of the consideration transferred was approximately $ 12,428,924 allocated as follows: +​ +​ +​ +​ +​ +​ +​ ​ ​ +Geo Impex +Date of Acquisition(s) +​ +November 03, 2025 +Cash +​ +$ +1,796 +Prepaid expenses and other current assets +​ +35,425 +Property and equipment, net +​ +16,687,788 +Total assets acquired +​ +16,725,009 +Accounts payable +​ +8,462 +Debt, net of current portion +​ +282,446 +Deferred tax liabilities +​ +​ +4,005,177 +Total liabilities assumed +​ +4,296,085 +Net assets acquired +​ +$ +12,428,924 +Goodwill +​ +$ +— +Non-controlling interest +​ +$ +984,025 +​ +The total cost of the acquisition comprising the fair value of the consideration transferred and the non-controlling interest — was allocated to the qualified and other identifiable assets and liabilities assumed on the basis of fair values / book value as applicable. +Further, in accordance with ASC 280, Segment Reporting, the Company has concluded that Geo Impex is included within “Corporate & Strategic Assets” as it meets the quantitative thresholds to qualify as a reportable segment. +F-29 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +ATS and SESB acquisitions +On April 28, 2025, the Company entered into a stock purchase agreement with W4 Partners LLC (the “Seller”), for the purposes of acquiring from the Seller all of the issued and outstanding equity securities of Air Temp Service Co, Inc. (“ATS”) and Solar Energy Systems of Brevard, Inc (“SESB”). ATS is engaged in the business of the maintenance, repair, installation and sale of residential and commercial heating and cooling systems and other products and related services and SESB is engaged in the business of the maintenance, repair, installation and sale of solar heating systems and related services. Prior to the closing of this acquisition, both ATS and SESB were customers in the Company’s Managed Solutions reporting segment. +In connection with the transaction, the Company: +● Issued 2,200,000 shares of its common stock at closing, and +● Issued an additional 2,700,000 shares upon the Company’s delisting from Nasdaq on May 7, 2025 (within 90 days of closing), as required under the Stock Purchase Agreement. +The transaction was evaluated under ASC 805, Business Combinations. The Company concluded that substantially all of the fair value of the gross assets acquired was not concentrated in a single identifiable asset or group of similar identifiable assets. In addition, the acquired set includes inputs, a substantive process (an organized workforce capable of producing outputs), and outputs. Accordingly, each of ATS and SESB meets the definition of a business, and the acquisitions were accounted for using the acquisition method under ASC 805. +Contingent Consideration: The contingent share issuance ( 2,700,000 shares triggered by Nasdaq delisting within 90 days ) was evaluated under ASC 480 and ASC 815-40 and classified as equity. The arrangement is indexed to the Company’s own stock (fixed number of shares, not a fixed monetary value) and meets the equity classification criteria under ASC 815-40-25 (settlement in shares only, no cash settlement provision, sufficient authorized shares). Equity-classified contingent consideration is not remeasured subsequent to the acquisition date. The additional shares were recognized at fair value on the date of the delisting event, with the change from the acquisition-date fair value recorded as a measurement-period adjustment to goodwill. +The total fair value of consideration transferred was approximately $ 3,646,839 and consisted of the fair value of 4,900,000 shares of the Company’s common stock issued to the Seller, adjusted for the settlement of a preexisting relationship, as detailed below: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +ATS +​ ​ ​ +SESB +​ ​ ​ +Total +Fair value of common stock issued ( 2,200,000 shares at $ 0.6534 ) +​ +$ +980,100 +​ +$ +457,380 +​ +$ +1,437,480 +Fair value of common stock issued ( 2,700,000 shares at $ 0.6534 ) +​ +1,201,000 +​ +561,000 +​ +1,762,000 +Total fair value of shares issues +​ +$ +2,181,100 +​ +$ +1,018,380 +​ +$ +3,199,480 +Settlement of preexisting relationship (accounts receivable / payable) +​ +​ +474,873 +​ +​ +( 27,514 ) +​ +​ +447,359 +Total Consideration +​ +$ +2,655,973 +​ +$ +990,866 +​ +$ +3,646,839 +​ +F-30 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The fair value of the shares was determined based on the Company’s closing stock price on the respective dates of obligation. The following table summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +ATS +​ ​ ​ +SESB +​ ​ ​ +​ +Date of Acquisition(s) +​ +April 28, 2025 +​ +April 28, 2025 +​ +Total +Accounts receivable +​ +143,886 +6,171 +150,057 +Prepaid expenses and other current assets +​ +143,858 +— +143,858 +Property and equipment, net +​ +86,670 +— +86,670 +Right-of-use asset – operating lease +​ +113,231 +— +113,231 +Customer relationships +​ +200,000 +140,000 +340,000 +Trademark +​ +160,000 +82,000 +242,000 +Total assets acquired +​ +847,645 +228,171 +1,075,816 +Accounts payable +​ +240,014 +— +240,014 +Accrued expenses and other current liabilities +​ +138,508 +8,118 +146,626 +Debt, net of debt discount +​ +164,772 +47,892 +212,664 +Contract liabilities +​ +18,400 +— +18,400 +Operating lease liabilities +​ +116,798 +— +116,798 +Debt, net of current portion +​ +183,155 +— +183,155 +Total liabilities assumed +​ +861,647 +56,010 +917,657 +Net assets acquired +​ +$ +( 14,002 ) +$ +172,161 +$ +158,159 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Goodwill +​ +$ +2,669,975 +$ +818,705 +$ +3,488,680 +​ +The fair value of acquired customer relationships was estimated using a discounted cash flow approach based on projected earnings attributable to these relationships, with estimated useful lives of 15 years and 11 years for ATS and SESB, respectively. The fair value of acquired trade names was estimated using a relief-from-royalty method under the income approach, with estimated useful lives of 10 years for both ATS and SESB. Working capital items and property and equipment were recorded at carrying value, which approximated fair value due to their short-term nature. Deferred revenue (contract liabilities) was recognized at carrying value in accordance with ASU 2021-08. +Goodwill recognized in connection with the acquisitions primarily reflects the Company’s ability to generate synergies through the integration of these businesses, expand and deepen customer relationships, establish beachheads in strategic geographies, and realize operational efficiencies that are not separately recognized as identifiable intangible assets. +In accordance with ASC 280, Segment Reporting, the company has assessed ATS and SESB acquisitions to be part of the Owned Service Network. +CER acquisition +On April 25, 2025, ConnectM Technology Solutions Pvt. Ltd. (“ConnectM India” or “CMI”), a wholly owned subsidiary of the Company, acquired 100 % of the equity shares of Cambridge Energy Resources Pvt. Ltd. (“CER”) and controlling interests in its two subsidiaries and one joint venture with equal control: (i) CER Microgrids Private Limited (“CER Microgrids”) ( 100 %), (ii) CER Rooftop Private Limited (“CER Rooftop”) ( 55.64 %), and (iii) CER Renewtech Private Limited (“CER Renewtech”) ( 50 %). +This acquisition was executed under a court-supervised insolvency resolution plan approved by India’s National Company Law Tribunal (“NCLT”) under the Insolvency and Bankruptcy Code, resulted into a bargain purchase gain of approximately $ 2,121,079 which was reported in the accompanying Consolidated Statement of Operations and other comprehensive loss. Prior to acquisition, CER was under financial distress and undergoing insolvency proceedings. Under the NCLT-approved resolution plan: +1. +All outstanding equity shares of CER were cancelled, and ConnectM India became the sole legal and beneficial owner of CER as of the acquisition date. +2. +Certain liabilities were restructured and settled in accordance with the approved resolution plan. +3. +Control of operations, assets, and liabilities was transferred to ConnectM India at values established in the approved resolution plan. +F-31 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +ConnectM India committed to provide approximately $ 1,137,818 as a capital infusion in exchange for all of CER’s equity, of which approximately $ 719,897 had been funded as of December 31, 2025, with the remaining payments due for payment along with late payment surcharge levied at 9 % p.a. Pursuant to the court-approved resolution plan, these funds were used to settle approved creditor claims and to recapitalize CER. +CER expands the Company’s operating presence in India’s rooftop solar distributed energy (solar and battery) and telecommunications enterprise energy-management sectors. Based on review of existing segments in accordance with ASC 280 – Segment Reporting, the operations of CER are included within the ‘Distributed Energy & Renewables’ segment. +CER provides enterprise infrastructure solutions, including the setup, operation, and maintenance of rooftop and ground-based mobile network towers, primarily serving the telecommunications sector. Through its subsidiaries, CER also delivers distributed energy solutions for telecommunications towers, including energy storage, backup power, and hybrid microgrid systems to ensure uninterrupted tower operations. CER Rooftop focuses on the installation and maintenance of rooftop towers for telecommunications providers, while CER Microgrids develops and operates battery storage and hybrid microgrid systems that complement the Company’s broader solar and battery offerings. +The Company determined that the fair value of the consideration transferred as of the acquisition date was $ 1,108,640 .: +​ +​ +​ +​ +​ +Settlement of liabilities with NCLT plan +​ +$ +1,137,818 +Deferred consideration +​ +​ +( 903,446 ) +Present value of deferred consideration +​ +874,268 +Total +​ +$ +1,108,640 +​ +The Company estimated the fair value of acquired assets and liabilities as of the effective time of the business combination based on information currently available and continues to adjust those estimates upon refinement of market participant assumptions for integrating businesses. As the Company finalizes the fair value of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period, but no later than one year from the date of the Business Combination. The Company will reflect measurement period adjustments, if any, in the period in which the adjustments are recognized. Final determination of the fair values may result in further adjustments to the values presented in the following table. +Presented below is the purchase price allocation for the acquisitions noted above. +​ +​ +​ +​ +​ +​ +​ ​ ​ +CER +Date of Acquisition(s) +​ +April 25, 2025 +Cash +​ +$ +324,743 +Accounts receivable +​ +76,450 +Prepaid expenses and other current assets +​ +428,775 +Property and equipment, net +​ +3,470,466 +Customer relationships +​ +117,487 +Total assets acquired +​ +4,417,921 +Accounts payable +​ +158,178 +Accrued expenses and other current liabilities +​ +358,145 +Deferred tax liability +​ +58,593 +Total liabilities assumed +​ +574,916 +Net assets acquired +​ +$ +3,843,005 +​ +​ +​ +​ +Bargain purchase gain +​ +$ +2,121,079 +Non-controlling interest +​ +$ +613,286 +​ +The fair value of the customer relationship intangible asset at CER Rooftop was estimated using the multi-period excess earnings method (“MPEEM”), which isolates the cash flows attributable specifically to the customer relationship after deducting contributory asset charges, and has been assigned an estimated useful life of 25 years . The valuation considered projected revenues from existing customers under long-term power purchase arrangements, expected operating margins, contributory asset charges, and a discount rate +F-32 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +of approximately 20 %. The customer relationship intangible has been recognized separately from goodwill in accordance with ASC 805-20-25-10. +The acquired accounts receivable were recorded at fair value, representing amounts that have subsequently been collected or are expected to be collected from customers. Property and equipment acquired primarily represent installation and service equipment located at CER and its subsidiaries. +Further, in accordance with ASC 280, Segment Reporting, the company has assessed CER acquisitions to be part of the Distributed Energy & Renewables segment. +Delivery Circle +On August 5, 2024, the Company entered into a Membership Purchase Agreement (the “Purchase Agreement”) with an individual (“Seller”), for the purposes of acquiring from the Seller certain of the issued and outstanding equity securities of DeliveryCircle, LLC, (“DC”). DC is engaged in the business of providing dispatch and delivery services and related software. +Pursuant to the Purchase Agreement, ConnectM purchased from the Seller certain membership interests in DC, comprised of 842,157 Class A Units, 207,843 Class P Units and 3,063 Series A Units (the “Acquired Interests”), which account for approximately forty-six percent ( 46.0 %) of the equity interests. In addition, in connection with ConnectM’s acquisition of the Acquired Interests, ConnectM will have the right to appoint four out of the seven voting members to DC’s board of directors, who will be having power to take all the decisions of operations of the entity. +ConnectM purchased the Acquired Interests in exchange for $ 520,000 cash consideration plus contingent consideration. The contingent consideration is the lesser of a base amount, 20 % of revenue growth from the previous year, or 37 % of EBITDA for the current year, is paid annually in February of the subsequent calendar year for the prior fiscal year and is applicable to the years ended December 31, 2024 through 2031. The Company used a Monte Carlo simulation model to calculate the contingent consideration’s fair value of approximately $ 575,690 (see Note 14). +The fair value of the purchase consideration in the acquisition is as follows: +​ +​ +​ +​ +​ +​ +Cash +​ ​ ​ +$ +520,000 +​ +Contingent consideration at fair value +​ +​ +575,690 +​ +Noncontrolling interest at fair value +​ +​ +1,287,320 +​ +​ +​ +$ +2,383,010 +​ +​ +The following table summarizes the fair values of the assets acquired and liabilities assumed and noncontrolling interest at the date of acquisition: +​ +​ +​ +​ +​ +​ +Cash +​ ​ ​ +$ +699,292 +Accounts receivable +​ +​ +620,189 +Prepaid expenses and other assets +​ +41,284 +​ +Intangible assets +​ +586,000 +​ +Accounts payable +​ +( 218,417 ) +​ +Accrued expenses and other current liabilities +​ +( 135,789 ) +​ +Total identifiable net assets +​ +1,592,559 +​ +Goodwill +​ +$ +790,451 +​ +​ +F-33 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +After allocating the purchase price to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, the Company recorded goodwill of approximately $ 791,000 . Goodwill largely consists of expected synergies to be realized from new ownership and is expected to not be deductible for income tax purposes. The identified intangible assets of DC’s consist of the following: +​ +​ +​ +​ +​ +​ +​ +Identified intangible asset +​ ​ ​ +Fair Value +​ +Useful life +Customer relationships +​ ​ ​ +$ +106,000 +​ +8 years +Developed technologies +​ ​ ​ +​ +400,000 +​ +5 years +Tradename +​ +​ +80,000 +​ +5 years +Fair value of identifiable intangible assets +​ +$ +586,000 +​ +​ +​ +The identifiable intangible assets were valued using the income approach with the assistance of third-party appraisers. The income approach requires several judgements and assumptions, including growth rates, discount rates, customer attrition rates, expected levels of cash flows, and tax rate. +The Company recorded a payable for the cash consideration the date of closing and subsequently paid $ 350,000 in December 2024. As of December 31, 2025, there was no unpaid cash consideration outstanding, as the full amount had been paid. +In January 2025, the Company entered into a promissory note (the “January 2025 Note”) with the individual from whom the Company acquired a business from in August 2024 which converts the unpaid cash consideration of $ 170,000 and accrued interest of approximately $ 6,000 from accounts payable to a sellers note that matures on June 30, 2025. The unpaid balance of the principal amount bears interest at a rate of 14.0 % per annum, except in the event of a default when interest increases to 19.0 % per annum. An event of default is to have occurred if the unpaid principal and accrued interest thereon is not paid in full prior to the maturity date, if the Company makes an assignment for the benefit of creditors, or if the Company files for bankruptcy or another similar proceeding. +In July 2025, the Company entered into the first amendment to the January 2025 Note (the “Amended January 2025 Note”), under which the Company is required to pay the lender approximately $ 26,000 towards the principal, approximately $ 14,000 of accrued interest, and the lender’s legal fees of approximately $ 3,000 . The Amended January 2025 Note extended the maturity date from June 30, 2025 to August 8, 2025 and increased the interest rate to 18.0 % effective July 1, 2025. +In August 2025, the Company entered into a Second Amendment to the January 2025 Note (the “Second Amended January 2025 Note”), which extended the maturity date from August 8, 2025 to September 30, 2025 and required payment of an approximately $ 10,000 forbearance fee to the lender. These seller notes extensions were accounted for as debt modifications under ASC 470. +On October 21st, 2025, the Company fully repaid the note with a payment of $ 153,126 , consisting of $ 149,790 in principal and $ 3,336 in accrued interest. Following this payment, the note was retired in full and all related obligations were satisfied. +In accordance with ASC 280, Segment Reporting, the company has assessed Delivery Circle to be part of the Logistics segment. +Green Energy Gains +On October 9, 2024, ConnectM entered into a purchase agreement with the owners of Green Energy Gains (“GEG”), whereby the Company has acquired all of the issued and outstanding capital stock of GEG in exchange for the issuance of 160,000 shares of the Company common stock with a fair value of $ 161,440 as determined using the closing share price on the date of issuance. As of acquisition date, one of the indirect owners of GEG was also the related party investor of the Company (see Note 15). GEG provides home energy assessments and modeling services that identify weatherization opportunities to reduce a home’s utility costs. The acquisition of GEG is expected to expand the Company’s customer base for its other products and services after no cost GEG home energy assessments are completed. +Prior to the acquisition, GEG was a customer in the Company’s managed services reporting segment. In connection with the acquisition, the pre-existing obligations owed to the Company from GEG were settled and total consideration was increased accordingly. In accordance with ASC 280, the company has assessed Green Energy Gains to be part of the Owned Network Service. +F-34 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The fair value of the purchase consideration in the acquisition is as follows: +​ +​ +​ +​ +​ +Fair value of shares of the Company‘s common stock issued +​ +$ +161,440 +Settlement of note receivable from GEG +​ +​ +99,636 +Settlement of accounts receivable from GEG +​ +​ +115,854 +​ +​ +$ +376,930 +​ +The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition: +​ +​ +​ +​ +​ +Cash +​ ​ ​ +$ +18,680 +Accounts receivable +​ +​ +17,367 +Property and equipment +​ +35,651 +Intangible assets +​ +97,790 +Accounts payable +​ +( 29,168 ) +Accrued expenses and other current liabilities +​ +( 22,736 ) +Total identifiable net assets +​ +​ +117,583 +Goodwill +$ +259,347 +​ +After allocating the purchase price to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, the Company recorded goodwill of approximately $ 259,000 . Goodwill largely consists of expected synergies to be realized from new ownership and is expected to not be deductible for income tax purposes. The identified intangible assets of GEG’s consist of the following: +​ +​ +​ +​ +​ +​ +​ +Identified intangible asset +​ ​ ​ +Fair Value +​ +Useful life +Customer relationships +​ ​ ​ +$ +35,180 +​ +15 years +Acquired technologies +​ ​ ​ +​ +40,530 +​ +5 years +Tradename +​ +​ +22,080 +​ +4 years +Total fair value of identifiable intangible assets +​ +$ +97,790 +​ +​ +​ +The identifiable intangible assets were valued using the income approach with the assistance of third-party appraisers. The income approach requires several judgements and assumptions, including growth rates, discount rates, customer attrition rates, expected levels of cash flows, and tax rate (see Note 14). +ConnectM acquired 60 % of Green Energy Gains by issuing 88,000 common shares at fair market value of $ 1.009 per share from Srimulli Renewables LLC and 40 % by issuing 72,000 common shares at fair market value of $ 1.009 per share from Greg Kendall. The two members of Srimulli Renewables LLC are also ConnectM shareholders, each holding more than 4.9 % of total shares outstanding. +The results of these acquired entities are presented within the Company’s operating segments as follows: +● ATS – reported within the Owned Service Network segment. ATS contributed approximately $ 1,288,000 and $ 483,000 of revenue and net loss respectively from the acquisition date through December 31, 2025. +● SESB – reported within the Owned Service Network segment. SESB had $ 0 and $ 225,000 revenue and net loss respectively from the acquisition date through December 31, 2025. +● CER – reported within the Distributed Energy & Renewables segment. CER contributed approximately $ 128,000 and $ 369,000 of revenue and net loss respectively from the acquisition date through December 31, 2025. +F-35 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +​ +NOTE 6: GOODWILL AND INTANGIBLE ASSETS, NET +Goodwill +The changes in the carrying amount of goodwill for the years ended December 31, 2025 and 2024 were as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Owned +​ +​ +​ +​ +​ +​ +Service Network +​ +Logistics +​ ​ ​ +Total +Balance as at January 1, 2024 +​ +$ +2,246,619 +​ +$ +— +​ +$ +2,246,619 +Acquisitions +​ +​ +259,347 +​ +​ +790,451 +​ +​ +1,049,798 +Impairment +​ +​ +( 1,568,309 ) +​ +​ +— +​ +​ +( 1,568,309 ) +Balance as at December 31, 2024 +​ +​ +937,657 +​ +​ +790,451 +​ +​ +1,728,108 +Acquisitions +​ +​ +3,488,680 +​ +​ +— +​ +​ +3,488,680 +Impairment +​ +​ +— +​ +​ +— +​ +​ +— +Balance as at December 31, 2025 +​ +$ +4,426,337 +​ +$ +790,451 +​ +$ +5,216,788 +​ +Goodwill is not amortized but is tested for impairment at least annually, or more frequently if events occur or circumstances change that indicate the carrying amount of the related reporting unit may not be recoverable. +For the year ended December 31, 2025, goodwill was recognized in connection with the Company’s acquisition of Air Temp Service Co., Inc. (“ATS”) and Solar Energy Systems of Brevard, Inc. (“SESB”). +ASC 350, Intangibles - Goodwill provides an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the one-step quantitative impairment test, otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the one-step quantitative impairment test. The ultimate outcome of the goodwill impairment review for a reporting unit should be the same whether an entity chooses to perform the qualitative assessment or proceeds directly to the one-step quantitative impairment test. +As permitted under ASC 350, Intangibles—Goodwill and Other , the Company elected to first perform a qualitative assessment of goodwill impairment for each of its reporting units for the year ended December 31, 2025 to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. For Owned Service network (‘OSN’) reporting unit, the qualitative assessment indicated that it was more likely than not that the fair value could be less than the carrying amount, and accordingly, a quantitative impairment test was performed. For Logistics reporting unit, the qualitative assessment did not indicate potential impairment, and therefore no quantitative test was necessary. +Under the quantitative approach, the Company estimated fair value of the reporting unit using discounted cash flow model under income approach. The resulting fair value measurements are classified within Level 3 of the fair value hierarchy because they rely on significant unobservable inputs and reflect management’s own assumptions about the views of market participants. Under the income approach, the fair value of each reporting unit is based on the present value of estimated future cash flows. The income approach is dependent on a number of significant management assumptions including the discount rate, revenue growth rates, and projected EBITDA margins. We estimate future cash flows for each of our reporting units based on our projections for the respective reporting unit. These projected cash flows are discounted to the present value using a weighted average cost of capital (discount rate). The discount rate is commensurate with the risk inherent in the projected cash flow and reflects the rate of return required by an investor in the current economic conditions. For our annual impairment test, we used a discount rate of 20 % for OSN reporting unit. An increase or decrease of 5 % in the discount rate would have impacted the estimated fair value of each reporting unit by approximately $ 2,300,000 . The projections are based on both past performance and the expectations of future performance and assumptions used in our current operating plan. We use specific revenue growth and EBIDTA margins for reporting unit based on history and economic conditions. +Under the market approach, the fair value of each reporting unit is determined based upon comparisons to public companies engaged in similar businesses and is dependent on the significant management assumption for the selection of multiples. +The Company recorded a goodwill impairment of $ 0 and $ 1,568,309 during the twelve months ending December 31, 2025, and December 31, 2024 respectively. +F-36 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Intangible assets, net +As of December 31, 2025, the Company performed an evaluation of its long-lived intangible assets to determine whether events or changes in circumstances indicated that their carrying amounts may not be recoverable in accordance with ASC 360. In conducting this assessment, the Company considered multiple impairment indicators, including (i) significant adverse changes in general economic or market conditions, (ii) adverse changes in the industry or competitive environment, (iii) increases in market-based discount rates, (iv) declines in the Company’s market capitalization relative to its net assets, (v) actual or projected operating results that are below prior expectations, and (vi) entity-specific factors such as changes in business strategy or the manner in which assets are utilized. +For ATS, the primary trigger, consistent with ASC 360-10-35-21(f), was the subsequent strategic transfer of the HVAC business assets and operations and associated intangibles at no consideration, resulting in expected early disposal. +For the SESB asset group, impairment indicators were identified in accordance with ASC 360-10-35-21(a)–(e) due to lower-than-projected 2025 revenue, reduced utilization resulting from the strategic decision to scale down solar operations in Florida, and adverse changes in the regulatory and industry environment affecting expected cash flows. +Based on this evaluation, the Company concluded that impairment indicators were present, primarily associated with the ATS and SESB asset groups. Accordingly, a recoverability test was performed. The results indicated that the carrying amounts of these asset groups were not recoverable, as the estimated undiscounted future cash flows were less than their respective carrying values. As a result, the Company recognized a full impairment charge of approximately $ 548,000 for the year ended December 31, 2025, reducing the carrying value of the trade name and customer relationship intangible assets related to ATS and SESB to zero . This non-cash impairment charge was recorded within the intangible asset impairment expense in the consolidated statements of operations and comprehensive loss. +The assumptions used in estimating the undiscounted future cash flows are based on currently available data and management’s best estimates of future income statement and working capital elements. A change in market conditions or other factors could have a material effect on the estimated values. Fair value was determined based on discounted cash flows requiring judgement. These factors include, among others, the assumptions related to discount rates, forecasted operating results, long-term growth rates, the determination of comparable companies and market multiples. The measurements used in the impairment review of finite-lived intangible assets are Level 3 measurements. There are inherent uncertainties related to the assumptions used and to management’s application of these assumptions. +Identifiable intangible assets consist of the following at December 31, 2025: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Weighted Average Remaining +​ ​ ​ +​ +​ ​ ​ +​ +​ ​ ​ +​ +​ +​ +Amortization +Period (years) +​ +Gross Amount +​ +Accumulated +Amortization +​ +Net Amount +Customer relationships +​ +12.7 +​ +$ +1,445,244 +​ +​ +( 1,020,532 ) +​ +$ +424,711 +Trade name +​ +5.0 +​ +868,355 +​ +( 634,917 ) +​ +233,438 +Noncompetition agreement +​ +1.1 +​ +91,167 +​ +( 83,537 ) +​ +7,630 +Intellectual property +​ +0.0 +​ +15,862 +​ +( 15,862 ) +​ +— +Intangible assets: Proprietary technology +​ +6.8 +​ +​ +864,000 +​ +​ +( 20,571 ) +​ +​ +843,429 +Internally developed software +​ +3.0 +​ +​ +676,895 +​ +​ +( 331,559 ) +​ +​ +345,336 +Intangible assets: Patent +​ +8.5 +​ +​ +19,324 +​ +​ +( 8,374 ) +​ +​ +10,950 +Developed technology +​ +3.6 +​ +440,530 +​ +( 123,466 ) +​ +317,064 +Total intangible assets, net +​ +​ +​ +$ +4,421,377 +​ +$ +( 2,238,818 ) +​ +$ +2,182,558 +​ +F-37 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Identifiable intangible assets consist of the following at December 31, 2024*: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Weighted Average +Remaining Amortization +Period (years) +​ ​ ​ +Gross Amount +​ ​ ​ +Accumulated +Amortization +​ ​ ​ +Net Amount +Customer relationships +​ +11.5 +​ +$ +777,180 +​ +$ +( 373,653 ) +​ +$ +403,527 +Tradename +​ +6.1 +​ +386,080 +​ +( 102,722 ) +​ +283,358 +Noncompetition agreements +​ +2.1 +​ +34,000 +​ +( 19,570 ) +​ +14,430 +Intellectual property +​ +9.5 +​ +35,186 +​ +( 22,947 ) +​ +12,239 +Acquired technology +​ +4.6 +​ +​ +440,530 +​ +​ +( 35,360 ) +​ +​ +405,170 +Internally developed software +​ +3.3 +​ +609,385 +​ +( 319,933 ) +​ +289,452 +Total intangible assets, net +​ +​ +​ +$ +2,282,361 +​ +$ +( 874,185 ) +​ +$ +1,408,176 +* Prior period amounts are presented on a net basis and reflect the impact of an $ 835,319 impairment charge on intangible assets recorded during the year ended December 31, 2024. This presentation has no impact on the consolidated financial statements as the net carrying value of the reported assets remains unchanged. +​ +Intangible assets are amortized over their estimated useful lives of 3 to 25 years using the straight-line method. Amortization expense was approximately $ 424,000 and $ 480,000 for the years ended December 31, 2025 and 2024, respectively. Amortization expense over the next five years and thereafter is as follows: +​ +​ +​ +​ +​ +Years ending December 31, +​ ​ ​ +Amount +2026 +​ +$ +473,905 +2027 +​ +427,176 +2028 +​ +409,113 +2029 +​ +270,286 +2030 +​ +189,695 +Thereafter +​ +412,383 +Total +​ +$ +2,182,558 +​ +The above amounts do not include $ 160,400 of capitalized costs for internally developed software that are still in the development stage and not yet subject to amortization. +As of December 31, 2025 and 2024, unamortized software development costs for software capitalized under ASC 985-20 amounted to $ 57,002 and $ 92,361 respectively. Total amortization charged for software capitalized under ASC 985-20 was $ 35,359 and $ 35,359 for the year ended December 31, 2025 and 2024, respectively. +For the years ended December 31, 2025 and 2024, the Company recognized an impairment charge of $ 548,492 and $ 836,000 respectively related to intangible assets. +​ +​ +NOTE 7: PROPERTY AND EQUIPMENT, NET +Property and equipment consist of the following as of December 31: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +Land +​ +$ +16,480,260 +​ +$ +— +Furniture and fixtures +​ +​ +812,962 +​ +​ +102,415 +Machinery and equipment +​ +2,610,290 +​ +97,071 +Vehicles +​ +713,338 +​ +850,642 +Property improvements +​ +23,283 +​ +16,824 +Building +​ +574,758 +​ +570,000 +Property and Equipment +​ +21,214,891 +​ +1,636,952 +Less: Accumulated Depreciation +​ +( 884,203 ) +​ +( 700,379 ) +Total +​ +$ +20,330,688 +​ +$ +936,573 +​ +F-38 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +During the year ended December 31, 2025, the Company recorded a loss on disposal of approximately $ 28,000 for a vehicle that was repossessed by the lender. The Company reduced the carrying value of the associated vehicle loan by the estimated fair value of the vehicle of approximately $ 56,500 as of the date of the repossession. +During the year ended December 31, 2024, the Company recorded a loss on disposal of approximately $ 8,000 for a vehicle that was repossessed by the lender. The Company reduced the carrying value of the associated vehicle loan by the estimated fair value of the vehicle of approximately $ 23,000 as of the date of the repossession. +Depreciation expense was approximately $ 420,000 and $ 266,000 for the years ended December 31, 2025 and 2024, respectively. +​ +NOTE 8: CONVERTIBLE DEBT +The fair value of convertible debt as on December 31: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +2025 convertible notes +​ +$ +3,778,303 +​ +$ +— +2024 convertible notes +​ +— +​ +2,547,209 +Assumed 2024 notes +​ +— +​ +3,630,000 +SEPA Convertible note +​ +1,543,000 +​ +2,365,114 +​ +​ +5,321,303 +​ +8,542,323 +* The amount as on December 31, 2024, includes the SEPA option derivative liability of $ 65,114 . +​ +2024 Convertible Notes +During the year ended December 31, 2025, the Company extended the maturity dates and the period the conversion option was exercisable for certain convertible notes because of the volatility the Company’s common stock price was experiencing. The Company evaluated these modifications and concluded that the amended terms were not substantially different from the original terms; accordingly, the modifications were accounted for as modifications under ASC 470-50, and no extinguishment gain or loss was recognized in connection with the extensions. The Company subsequently converted all the 2024 Convertible Notes into the Company’s common stock. +During the year ended December 31, 2025, the Company converted $ 2,725,214 of convertible note principal (inclusive of accrued interest) through the issuance of 8,260,923 shares of common stock. The convertible notes contained original conversion windows that expired without exercise. Subsequently, the Company entered into debt-for-equity exchanges with the holders under Section 3(a)(9) of the Securities Act at conversion prices based on a discount to the volume-weighted average price of the Company’s common stock. Under ASC 470-50-40-10, a modification or an exchange that adds or eliminates a substantive conversion option as of the conversion date is always considered substantial and requires extinguishment accounting. Accordingly, the Company accounted for these exchanges as debt extinguishments under ASC 470-50, recognizing a gain on extinguishment of $ 89,731 equal to the difference between the fair value of the common stock issued and the carrying amount of the converted debt, including any unamortized discount or premiums. +Ass umed 2024 Note +On the Closing Date, the Company assumed MCAC’s promissory note totaling $ 3,680,000 (the “Assumed 2024 Note”) that matures in July 2025. The Company is obligated to pay 10.0 % of the aggregate gross proceeds from any sale of equity or equity derivative instruments of the Company while the Assumed 2024 Note is outstanding. Five days prior to the maturity date (and only five days prior to the maturity date), the Company may elect to convert the Assumed 2024 Note into shares of the Company’s common stock based at the average volume weighted average price value for the five -business day period preceding the maturity date (subject to compliance with applicable rules of the Nasdaq). +The Assumed 2024 Note becomes due and payable following specified events of default if (i) the holder of the Assumed 2024 Note provides written notice if Company defaults on any payments due under the terms of the Assumed 2024 Note or (ii) automatically if the Company commences a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under bankruptcy or other similar laws. The Company has not received written notice from the holder of the Amended 2024 Note in regards to the missed initial mandatory payment as of December 31, 2024. +F-39 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The Assumed 2024 Convertible Note is non-interest bearing, except in the case of an Event of Default (as defined in the agreement), at which point the interest rate increases to a rate of 10.0 % per annum until such event of default is cured. The Company paid $ 50,000 of the initial mandatory payment of $ 500,000 within thirty calendar days of the effective date of the Assumed 2024 Note, and such triggered an event of default. +During the year ended December 31, 2025, the Assumed 2024 Note was extinguished in full through debt-for-equity exchanges pursuant to the Company’s 3(a)(10) program with Last Horizon, as described below. +2025 Convertible Notes +The Company entered into thirty-four convertible note agreements in exchange for aggregate gross proceeds of $8,762,250 during the year ended December 31, 2025 (the “2025 Convertible Notes”). The 2025 Convertible Notes bear interest at rates ranging from 10.0 % to 20.0 % per annum, with certain notes bearing a one-time interest charge of 10.0 % and the remaining notes bearing interest at 20.0 % per annum. The 2025 Convertible Notes have maturity dates that range from 30 days to one year from the convertible note issuance date, optional conversion periods that range from 30 to 210 days , and conversion prices that range from $ 0.0325 to $ 1.15 for fixed-price notes. Certain notes contain variable conversion price provisions as described below. +The summary of the individual convertible notes outstanding as of December 31, 2025, is as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Conversion Option +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Period +​ +Maturity Date +​ +​ +​ +​ +​ +Conversion +​ +of Exercisability +​ +(from issuance +Issuance Date +​ ​ ​ +Gross Proceeds +​ ​ ​ +Price +​ ​ ​ +(from issuance date) +​ ​ ​ +date) +5/26/2025 (1) +​ +$ +156,000 +​ +$ +0.25 +​ +180-days +​ +210-days +10/1/2025 (2) +​ +​ +188,000 +​ +​ +0.05 +​ +Upon Default +​ +302-days +10/7/2025 (2) +​ +​ +130,000 +​ +​ +0.05 +​ +Upon Default +​ +312-days +10/23/2025 (3) +​ +​ +246,250 +​ +​ +0.0375 +​ +Upon Default +​ +365-days +11/25/2025 (5) +​ +​ +192,000 +​ +​ +0.0325 +​ +Upon Default +​ +310-days +11/25/2025 (4) +​ +​ +500,000 +​ +$ +0.25 +​ +210-days +​ +210-days +12/2/2025 (4) +​ +​ +250,000 +​ +$ +0.25 +​ +210-days +​ +210-days +12/8/2025 (4) +​ +​ +1,000,000 +​ +$ +0.25 +​ +210-days +​ +210-days +12/8/2025 (4) +​ +​ +250,000 +​ +$ +0.25 +​ +210-days +​ +210-days +12/8/2025 (4) +​ +​ +50,000 +​ +$ +0.25 +​ +210-days +​ +210-days +12/16/2025 (4) +​ +​ +250,000 +​ +$ +0.25 +​ +210-days +​ +210-days +​ +​ +$ +3,212,250 +​ +​ +​ +​ +​ +​ +​ +(1) From issuance until day 180, the Note’s outstanding principal and accrued interest are convertible, at the holder’s option, into common shares at a price equal to 90 % of the lowest daily VWAP of the Company’s common stock during the three trading days immediately preceding the conversion date. +(2) These convertible notes are convertible at a price equal to the greater of (i) $ 0.05 or (ii) 65 % multiplied by the lowest trading price for the common stock during the ten trading days immediately preceding the conversion date. +(3) This convertible note is convertible at a price equal to 75 % multiplied by the lowest closing bid price for the common stock during the fifteen trading days immediately preceding the conversion date. +(4) For the first 210 days following issuance, the outstanding principal and accrued interest on each Note are convertible, at the holder’s option, into Common Stock at a price equal to the lower of (1) quotient (rounded down to the nearest whole share) obtained by dividing (x) the sum of the Principal Amount and any interest accrued thereon by (y) 90 % of the lowest daily volume weighted average price (the “VWAP”) of the Common Stock on the primary trading market of the Common Stock during the 3 trading day period immediately prior to the applicable measurement date or (2) a fixed conversion price of $ 0.25 . After the 180 - day period, the Notes may convert at their fixed stated conversion price of $ 0.25 . The Notes are expected to be converted into shares of our Common Stock. +(5) These convertible notes are convertible at a price equal to 65 % multiplied by the lowest trading price for the common stock during the ten trading days immediately preceding the conversion date. +F-40 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The 2025 Convertible Notes are generally convertible at the option of the holder into shares of the Company’s common stock at the applicable conversion price, with the number of shares issuable upon conversion determined by dividing the sum of outstanding principal and accrued interest by the conversion price. Certain notes are convertible only upon the occurrence of an event of default. The 2025 Convertible Notes may generally be prepaid in full or in part by the Company at any time without penalty; however, certain notes provide for a prepayment discount ranging from 2 % to 5 % of the outstanding balance on a sliding scale based on early repayment between 60 and 180 days prior to maturity. +During the year ended December 31, 2025, the Company converted $ 6,155,891 of convertible note principal (inclusive of accrued interest) through the issuance of 35,011,418 shares of common stock. For convertible notes that are settled in accordance with their original contractual terms, changes in fair value up to the date of conversion are recognized in earnings. With respect to other convertible notes containing original conversion windows that expired without exercise, the Company entered into debt-for-equity exchanges with the holders under Section 3(a)(9) of the Securities Act at conversion prices based on a discount to the volume-weighted average price of the Company’s common stock. Under ASC 470-50-40-10, a modification or an exchange that adds or eliminates a substantive conversion option as of the conversion date is always considered substantial and requires extinguishment accounting. Accordingly, the Company accounted for these exchanges as debt extinguishments under ASC 470-50, recognizing gain on extinguishment of $ 2,261,222 equal to the difference between the fair value of the common stock issued and the carrying amount of the converted debt, including any unamortized discount or premiums. +The Company elected the fair value option for the 2025 Convertible Notes and therefore measured the 2025 Convertible Notes at fair value at issuance and each subsequent reporting period, with changes in fair value recognized in earnings. As of issuance and at December 31, 2025, the fair value of the remaining 2025 Convertible Notes was determined to be $ 3,212,250 and $ 3,778,303 respectively (see Note 12). +The remaining 2025 Convertible Notes were convertible into 10,124,724 shares of the Company’s common stock on December 31, 2025. +SEPA Convertible Note +In December 2024, in connection with and pursuant to the terms of its Standby Equity Purchase Agreement (the “SEPA”) entered into with YA II PN, LTD., an exempt limited partnership from the Cayman Islands (“Yorkville”) (See Note 12 - SEPA Derivative Liability), Yorkville agreed to advance to the Company, in exchange for convertible promissory notes, an aggregate principal amount of up to $ 4,500,000 , $ 2,500,000 of which was funded during December 2024 in exchange for the issuance by the Company of a Convertible Promissory Note (the “SEPA Convertible Note”). The Company received net proceeds of $ 2,300,000 after a non-cash original issue discount of 8.0 %, or $ 200,000 . +As of December 31, 2025 and 2024, the outstanding principal balance of the SEPA Convertible Note was approximately $ 1,386,975 and $ 2,500,000 , respectively. The fair value of the SEPA Convertible Note was approximately $ 1,543,000 and $ 2,300,000 as of December 31, 2025 and 2024, respectively, and is included within “Convertible debt, at fair value” under current liabilities on the consolidated balance sheets. The change in fair value recognized in earnings was $ 979,553 for the year ended December 31, 2025 and $ 0 for the year ended December 31, 2024, and is included in “Other income (expense), net” in the consolidated statements of operations and comprehensive loss (refer to Note 12). +The Company elected the Fair Value Option for the SEPA Convertible Note and therefore measured the SEPA Convertible Note at fair value at issuance and each subsequent reporting period, with changes in fair value recognized in earnings. +The SEPA Convertible Note had a maturity date in December 2025 and accrues interest at 7.0 % per annum, subject to increase to 18.0 % per annum upon the occurrence of an event of default as defined in the agreement (the “Additional Interest”). +The Company was also required to pay commitment fees of $ 375,000 . Of this amount, $ 187,500 was due up front in the form of shares, for which the Company issued 264,456 shares. The remaining amount was due in cash on the six-month anniversary date of the agreement. Commencing in March 2025, the Company was required to make monthly principal and interest payments totaling $ 277,778 (increasing to $ 500,000 after the second tranche of advances are received) in cash or an Advance Notice (as defined in the SEPA). +Yorkville had the right to convert any portion of the outstanding principal into shares of the Company’s common stock at (a) $ 2.00 per share at any time (the “Fixed Price”) or (b) 93.0 % of the lowest daily variable weighted average price (the “VWAP”) during the ten consecutive trading days immediately preceding the conversion date, but not lower than the floor price of $ 0.1418 (the “Variable Price”). +F-41 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +As long as the Company is current in its payment obligations, Yorkville is only entitled to convert at the Fixed Price. The number of shares issuable upon conversion is equal to the amount of principal to be converted (as specified by the holder) divided by either the Fixed Price or the Variable Price as defined in the agreement. Yorkville will not have the right to convert any portion of the principal to the extent that after giving effect to such conversion, Yorkville would beneficially own in excess of 4.99 % of the total number of shares of the Company’s common stock outstanding after giving effect to such conversion. +At the floor price of $ 0.1418 , the maximum number of shares into which the SEPA Convertible Note is potentially convertible is 9,781,209 shares, which represents the maximum number of shares issuable under the agreement. +Additionally, the Company, at its option, shall have the right, but not the obligation, to redeem early a portion or all amounts outstanding under the Promissory Notes at a redemption amount equal to the outstanding principal balance being repaid or redeemed, plus a 7.0 % prepayment premium, plus all accrued and unpaid interest; provided that (i) the Company provides Yorkville with no less than ten trading days’ prior written notice thereof and (ii) on the date such notice is issued, the VWAP of the Company’s common stock is less than the Fixed Price. +The SEPA Convertible Note provides that an event of default occurs upon, among other things: (i) failure to pay principal, interest, or other amounts when due, subject to a five trading day cure period; (ii) commencement of bankruptcy, insolvency, reorganization, or liquidation proceedings by or against the Company or any subsidiary that remain undismissed for 61 days ; (iii) default under any other indebtedness exceeding $ 500,000 that results in such indebtedness becoming due and payable; (iv) entry of final judgments against the Company exceeding $ 500,000 in the aggregate that remain unsatisfied for 30 days ; (v) cessation of trading of the common stock on any principal market for ten consecutive trading days; (vi) the Company being party to a change of control transaction unless the note is retired; (vii) failure to timely deliver shares upon conversion; (viii) failure to timely file periodic reports with the SEC; (ix) any material misrepresentation under the transaction documents; or (x) breach of any other material covenant not otherwise covered, subject to a ten business day cure period. Upon the occurrence of an event of default (other than bankruptcy-related events), the full unpaid principal, together with accrued and unpaid interest and other amounts, becomes immediately due and payable at the election of the holder. In the case of bankruptcy-related events, such amounts become automatically due and payable without notice or demand. In addition, upon an event of default or after the maturity date, the holder has the right to convert the note at the lower of the Fixed Price or the Variable Price. +The Fixed Price and the Floor Price are subject to proportional adjustment upon the occurrence of certain events, including (i) stock dividends or distributions payable in common stock, (ii) subdivision of outstanding common stock into a larger number of shares, (iii) combination of outstanding common stock into a smaller number of shares (including by reverse stock split), or (iv) reclassification of common stock into other capital stock. In each case, the Fixed Price and Floor Price are multiplied by a fraction, the numerator of which is the number of shares outstanding before such event and the denominator of which is the number of shares outstanding after such event. The note also contains anti-dilution provisions under which the Fixed Price is reduced to the per-share price of any new issuance of common stock or convertible securities (other than excluded securities) if such price is below the then-effective Fixed Price. In the event of a merger, consolidation, or sale of substantially all assets, the holder has the right to convert the note into the securities, cash, or property receivable by holders of common stock, or to require the surviving entity to issue a replacement convertible note on substantially identical terms. +The SEPA Convertible Note is transferable by the holder upon surrender to the Company, whereupon the Company will issue a new note registered in the name of the transferee representing the principal amount being transferred, and, if less than the entire outstanding principal is transferred, a new note to the original holder for the remaining balance. The note also provides for issuance of replacement notes in the event of loss, theft, destruction, or mutilation, subject to customary indemnification undertakings, and is exchangeable at the holder’s election for multiple notes representing the same aggregate outstanding principal. +During the year ended December 31, 2025, the Company converted $ 684,894 of convertible note principal and accrued interest into 3,817,815 shares of common stock. The fair value of the shares issued was $ 1,099,054 . +The Company defaulted on certain scheduled payments under the SEPA Convertible Note and was therefore in technical default under the agreement. +On December 29, 2025, ConnectM entered into a Settlement and Termination Agreement (the “Yorkville Agreement”) with Yorkville in connection with the Company’s December 17, 2024 SEPA. This agreement relates to an outstanding debt obligation that was not converted into equity and was subsequently resolved through the settlement arrangement. As the loan had already been recognized at fair value, the effects of the Yorkville Agreement have been reflected through fair value adjustments during the period. +F-42 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Under the Yorkville Agreement, the Company will continue to make cash payments of $ 250,000 on alternate Mondays (each, an “Alternate Monday Payment”), which are applied toward reducing the outstanding prepaid advance obligation, including principal, interest, and any applicable premiums. The agreement also confirms that the payment made on December 15, 2025 was first applied to satisfy the $ 187,500 deferred fee, with the remaining amount applied toward the prepaid advance obligation. +Each timely Alternate Monday Payment triggers a 14 -day “No-Conversion Period” commencing on the date Yorkville receives such payment, during which Yorkville may not issue Investor Notices under the SEPA. If the Company fails to make an Alternate Monday Payment on the applicable payment date, no No-Conversion Period shall commence (or, if already commenced, shall terminate immediately), and Yorkville shall have the right to deliver Investor Notices and exercise related conversion rights under the SEPA. +The Yorkville Agreement further provides that Yorkville will have preference to receive repayment of the outstanding prepaid advance obligation (including principal, accrued interest, and any applicable redemption or prepayment premiums) from the proceeds of the Company’s planned underwritten public offering in connection with an uplisting to a national securities exchange (the “IPO”), if and when the IPO occurs. In the event the IPO is consummated, the SEPA will be terminated effective immediately prior to the closing, and the Company shall pay Yorkville a termination fee in shares of common stock with an aggregate value equal to $ 175,000 , valued at the public offering price per share in the IPO. Yorkville will also receive a 24 -month right of first refusal on any future equity line of credit. +Based on the remaining repayment schedule of $ 250,000 payments on alternate Mondays, the final payment of approximately $ 136,975 is expected to occur on March 23, 2026. +​ +NOTE 9: DEBT +Debt consists of the following as of December 31: +​ +​ +​ +​ +​ +​ +​ +​ +Description +​ ​ ​ +2025 +​ ​ ​ +2024 +Secured Promissory Notes +​ +$ +1,344,610 +​ +$ +4,250,000 +Small Business Administration Loans +​ +904,911 +​ +762,322 +Paycheck Protection Program Loans +​ +— +​ +17,543 +Promissory Note +​ +​ +144,985 +​ +​ +79,000 +Vehicle Notes +​ +298,439 +​ +425,790 +Seller Notes +​ +1,097,869 +​ +1,434,959 +Avanti Notes (Related Party) +​ +​ +279,076 +​ +​ +179,910 +Real Estate Promissory Note +​ +370,000 +​ +370,000 +Business Loan and Security Agreement +​ +​ +1,056,305 +​ +​ +160,262 +Sale of Future Receipts +​ +518,388 +​ +856,150 +Notes Payable +​ +​ +2,921,033 +​ +​ +— +Total +​ +$ +8,935,616 +​ +$ +8,535,936 +Less: debt discount and issuance costs +​ +( 657,064 ) +​ +( 212,772 ) +Less: notes payable, current portion +​ +​ +( 7,098,279 ) +​ +​ +( 7,019,499 ) +Notes payable, net of debt issuance costs and current portion +​ +$ +1,180,273 +​ +$ +1,303,665 +​ +The Company recorded the interest expense of $1,194,000 and $ 2,714,048 for the twelve months ending December 31, 2025, and December 31, 2024 respectively. The accrued interest as of December 31, 2025, and December 31, 2024 were $ 392,253 and $ 985,025 respectively. +Secured Promissory Notes +The Company’s promissory notes have original maturity dates ranging between 2 and 36 months . The notes bear interest at rates ranging between 20 % and 24 %. For all secured promissory notes, the interest is charged at an annual simple rate. +During September 2024, the Company entered into four note conversion agreements with four of the secured promissory note holders in which the Company converted the outstanding principal and interest on the secured promissory notes, into shares of the Company’s common stock at a conversion price of $ 2.00 per share with a one-time share reset adjustment (see Note 12), subject to shareholder approval and a maximum aggregate ownership amount of 19.99 % for each individual lender. In connection with these agreements, $ 6,834,020 of secured promissory notes and $ 1,064,080 of accounts payable and accrued expenses were extinguished in +F-43 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +exchange for the issuance of 3,949,050 shares of the Company’s common stock (see Note 12). Two of the lenders total ownership of the Company’s common stock exceeded 5.0 % as a result of the share issuances in connection with the note conversion agreements. These lenders continue to hold certain Secured Promissory Notes as of December 31, 2024 (see Note 8). +As of December 31, 2025 and 2024, the Company has not made certain scheduled payments and is therefore in technical default under four of the secured promissory notes entered into in June 2024. The total outstanding principal and accrued interest under these notes was approximately $ 550,000 and $ 250,000 as of December 31, 2025 and 2024 respectively. +The Company entered into six promissory note agreements in exchange for aggregate gross proceeds of $ 735,000 during April 2025 and May 2025. During the year ended December 31, 2025, the Company extinguished $ 3,700,000 of principal via debt conversion agreements. The principal balance of Secured Promissory Notes as of December 31, 2025, and December 31, 2024, were $ 550,000 and $ 4,250,000 respectively. +Small Business Administration Loans +In 2020, the Company received loan proceeds of $ 150,000 under a SBA loan agreement that matures in June 2050. In 2021, this loan was amended to increase the total borrowing to $ 475,000 . In 2022 the Company assumed two additional SBA loans for $ 150,000 each in connection with two acquisitions that mature in June 2050. Interest on all SBA loan agreements accrues on the anniversary date of the initial borrowing at 3.75 % on the outstanding balance. All SBA loan agreements are collateralized by the Company’s tangible and intangible personal property. +Paycheck Protection Program Loans +On May 4, 2020, the Company received loan proceeds of $ 151,000 under the Paycheck Protection Program (the “PPP”). The PPP was established as part of the Coronavirus Aid, Relief, and Economic Security Act and provides for loans to qualifying businesses for amounts up to 2.5 times the average monthly payroll expenses of the business, subject to certain limitations. The PPP loan was paid off during 2025. Interest accrues at 1.0 % annually on the outstanding balance. The PPP loan was collateralized by all tangible and intangible personal property of the Company. +During the year ended December 31, 2025, the Company repaid the remaining principal of $ 17,543 from December 31, 2024. The principal balance of Paycheck Protection Program Loans as of December 31, 2025, and December 31, 2024, were $ 0 and $ 17,543 , respectively. +Promissory Notes +In October 2024, the Company entered into a promissory note to extinguish an obligation to a vendor in which the Company promised to pay the vendor a principal amount of $ 119,000 , interest through October 15, 2024 totaling approximately $ 17,000 , attorney’s fees of $ 4,000 and additional interest from October 16, 2024 through the date of repayment of 18.0 % per annum. Principal payments of $ 20,000 are due on the 25 th of each month commencing on October 25, 2024. If five payments are made timely, the vendor agrees to waive the remaining balance due on the promissory note. The promissory note may be prepaid without penalty. +On April 28, 2025, in connection with the acquisition of ATS, the Company assumed a commercial term loan with an outstanding balance of approximately $ 147,000 . The obligation was recognized at fair value as an assumed liability in the purchase price allocation. As of December 31, 2025, the outstanding balance was approximately $ 111,000 , all of which is classified as current, reflecting expected repayment within the next 12 months. The Company entered into six promissory note agreements in exchange for aggregate gross proceeds of $ 735,000 during April 2025 and May 2025. These notes were extinguished in exchange for the issuance of 3,724,864 shares of the Company’s common stock. Accordingly, the Company accounted for these exchanges as debt extinguishments under ASC 470-50, recognizing loss on extinguishment of $ 15,318 equal to the difference between the fair value of the common stock issued and the carrying amount of the converted debt, including any unamortized discount or premiums. +Vehicle Notes +The Company has thirteen vehicles that were acquired through the issuance of vehicle loans that were outstanding as of December 31, 2025. The maturities of these vehicle notes outstanding range from 2026 through 2029. Interest rates range from 4.99 % to 17.37 %. The Company defaulted on two of the vehicle notes during the year ended December 31, 2025 and the lender repossessed two of the vehicles. +F-44 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +During the year ended December 31, 2025, the Company extinguished $ 127,352 principal balance. +Seller Note +In January 2025, the Company entered into a promissory note (the “January 2025 Note”) with the individual from whom the Company acquired a business from in August 2024 which converts the unpaid cash consideration of $ 170,000 and accrued interest of approximately $ 6,000 from accounts payable to a seller note that matures on June 30, 2025. The unpaid balance of the principal amount bears interest at a rate of 14.0 % per annum, except in the event of a default when interest increases to 19.0 % per annum. An event of default is to have occurred if the unpaid principal and accrued interest thereon is not paid in full prior to the maturity date, if the Company makes an assignment for the benefit of creditors, or if the Company files for bankruptcy or another similar proceeding. +In July 2025, the Company entered into the first amendment to the January 2025 Note (the “Amended January 2025 Note”), under which the Company is required to pay the lender approximately $ 26,000 towards the principal, approximately $ 14,000 of accrued interest, and the lender’s legal fees of approximately $ 3,000 . The Amended January 2025 Note extended the maturity date from June 30, 2025 to August 8, 2025 and increased the interest rate to 18.0 % effective July 1, 2025. +In August 2025, the Company entered into a Second Amendment to the January 2025 Note (the “Second Amended January 2025 Note”), which extended the maturity date from August 8, 2025 to September 30, 2025 and required payment of an approximately $ 10,000 forbearance fee to the lender. These seller notes extensions were accounted for as debt modifications under ASC 470. +On October 21, 2025, the Company fully repaid the note with a payment of $ 153,126 , consisting of $ 149,790 in principal and $ 3,336 in accrued interest. Following this payment, the note was retired in full and all related obligations were satisfied. +On November 1, 2025, the Company entered into a Sale of Future Receivable Agreement, under which the Company received total funding of $ 60,000 . The agreement provides for repayment through weekly remittances based on a fixed percentage of the Company’s receivables until the total specified payback amount is satisfied. The funding is unsecured and does not carry traditional interest; instead, repayment is structured as a sale of a portion of future receivables at a discount. The proceeds from this financing were used for working capital and general corporate purposes. As of December 31, 2025, the outstanding balance was approximately $ 40,500 , all of which is classified as current, reflecting expected remittances within the next 12 months. +During the year ending December 31, 2025, the Company extinguished $ 534,146 principal from all Seller Notes. The principal balance as of December 31, 2025, and December 31, 2024, were $ 1,070,813 and $ 1,434,959 respectively. +Real Estate Promissory Notes +On December 29, 2022, the Company entered into a Real Estate Promissory Note for land in Florida for a principal sum of $ 370,000 , which is collateralized by real estate with a maturity date of July 29, 2023. The Real Estate Promissory Note is secured by a mortgage on the property. The carrying value of the note, including accrued interest as of the filing date, is $ 442,000 . This note is in default and under legal proceedings (see Note 16). +Sale of future receipts +On January 4, 2024, the Company entered into a sale of future receipts agreement (“the January 2024 SFR Agreement”) whereby the Company sold and assigned $ 452,000 of future receipts in exchange for net cash proceeds of $ 343,000 , including a fee of $ 7,000 . As a result, the Company recorded a discount of $ 101,500 . The Company was required to remit a minimum of approximately $ 9,000 of weekly sales receipts until the future receipts assigned under the January 2024 SFR Agreement were repaid in full. Accordingly, the term was determined to be approximately one year . +On January 30, 2024, the Company entered into a second sale of future receipts agreement, amending the January 2024 SFR Agreement, (the “Amended January 2024 SFR Agreement”) whereby the Company increased the amount of future receipts sold and assigned to the lender to $ 2,600,000 in exchange for net cash proceeds of approximately $ 2,077,000 , including a fee of approximately $ 3,000 . As a result, the Company recorded a discount of approximately $ 523,000 . The Company was required to remit a minimum of approximately $ 52,000 of weekly sales receipts until the future receipts assigned under the Amended January 2024 SFR Agreement were repaid in full. Accordingly, the term was determined to be approximately one year . +F-45 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +In connection with the Second January 30, 2024 SFR Agreement, the Company received an additional $ 1,054,286 (the “Additional Advance”). During September 2024, the Company entered into a note conversion agreements with one of the sale of future receipts agreement holders in which the Company converted the outstanding principal on the Amended January 2024 SFR Agreement, including accrued and unpaid interest, and the Additional Advance into shares of the Company’s common stock at a conversion price of $ 2.00 per share with a two share reset adjustments and a make-whole payment (see Note 14), subject to shareholder approval and a maximum aggregate ownership amount of 19.99 % for each individual lender. In connection with these agreements, $ 3,115,592 of secured promissory notes were extinguished in exchange for the issuance of 1,557,796 shares of the Company’s common stock (see Note 12). +On May 23, 2024, the Company entered into a sale of future receipts agreement (the “May 2024 SFR Agreement”) whereby the Company sold and assigned approximately $ 149,000 of future receipts in exchange for net cash proceeds of approximately $ 118,000 , including a fee of approximately $ 3,000 . As a result, the Company recorded a discount of approximately $ 31,000 . The Company is required to remit a minimum of approximately $ 12,000 of monthly sales receipts until the future receipts assigned under the May 2024 SFR Agreement were repaid in full. Accordingly, the term of this agreement is approximately one year . In May 2025, the Company was issued a stipulation of settlement from the Supreme Court of the State of New Work, Count of Erie, under which it was required to pay $ 240,000 to settle the balance owed of approximately $ 302,000 on the May 2024 SFR Agreement. The Company is to repay the settlement balance through a conditional release of funds of approximately $ 17,000 held by a third party and monthly payments totaling approximately $ 14,000 until the settlement balance is paid in full. As of December 31, 2025, the outstanding balance was $ 88,228 , all of which is classified as current, reflecting expected remittances within the next 12 months. +In October 2024, the Company entered into a sale of future receipts agreement (the “October 2024 SFR Agreement”) with the same lender of the May 2024 SFR Agreement whereby the Company sold and assigned approximately $ 310,000 of future receipts in exchange for net cash proceeds of approximately $ 170,000 , including a fee of approximately $ 3,000 and repayment of approximately $ 78,000 outstanding under the May 2024 SFR Agreement. As a result, the Company recorded a discount of approximately $ 63,000 . The Company is required to remit a minimum of approximately 8.0 % of monthly sales receipts until the future receipts assigned under the October 2024 SFR Agreement were repaid in full. Accordingly, the term of this agreement is approximately one year . The October 2024 SFR Agreement was accounted for as an extinguishment of the May 2024 SFR Agreement and approximately $ 9,000 loss on extinguishment was recorded on the accompanying consolidated statements of operations and comprehensive loss for the year ended December 31, 2024. +On May 28, 2024, the Company entered into a second sale of future receipts agreement (the “Second May 2024 SFR Agreement”) whereby the Company sold and assigned $ 125,000 of future receipts in exchange for net cash proceeds of approximately $ 98,000 , including a fee of approximately $ 2,000 . As a result, the Company recorded a discount of approximately $ 27,000 . The Company is required to remit a minimum of approximately $ 6,000 of bi-weekly sales receipts until the future receipts assigned under the Second May 2024 SFR Agreement were repaid in full. Accordingly, the term of this agreement is approximately one year . In May 2025, the Company was issued a stipulation of settlement from the Supreme Court of the State of New Work, Count of Erie, under which it was required to pay $ 140,000 to settle the balance owed of approximately $ 184,000 on the Second May 2024 SFR Agreement. The Company is to repay the settlement balance through a conditional release of funds of approximately $ 42,000 held by a third party and monthly payments totaling approximately $ 8,000 until the settlement balance is paid in full. As of December 31, 2025, the outstanding balance was $ 25,586 , all of which is classified as current, reflecting expected remittances within the next 12 months. +In November 2024, the Company entered into a sale of future receipts agreement (the “November 2024 SFR Agreement”) with the same lender of the Second May 2024 SFR Agreement whereby the Company sold and assigned approximately $ 201,000 of future receipts in exchange for net cash proceeds of approximately $ 97,000 , including a repayment of $ 60,000 outstanding under the Second May 2024 SFR Agreement. As a result, the Company recorded a discount of approximately $ 41,000 . The Company is required to remit a minimum of approximately $ 8,000 of bi-weekly sales receipts until the future receipts assigned under the November 2024 SFR Agreement were repaid in full. Accordingly, the term of this agreement is approximately one year . The November 2024 SFR Agreement was accounted for as an extinguishment of the Second May 2024 SFR Agreement and approximately $ 7,000 loss on extinguishment was recorded on the accompanying consolidated statements of operations and comprehensive loss for the year ended December 31, 2024. +On July 24, 2024, the Company entered into a sale of future receipts agreement (the “July 2024 SFR Agreement”) whereby the Company sold and assigned approximately $ 209,000 of future receipts in exchange for net cash proceeds of approximately $ 144,000 , including a fee of $ 6,000 . As a result, the Company recorded a discount of approximately $ 65,000 . The Company is required to remit 10.0 % of daily receipts until the future receipts assigned under the July 2024 SFR Agreement were repaid in full. The estimated term of this agreement is approximately one year , based on expected daily collections. The July 2024 SFR Agreement includes an option for +F-46 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +early payoff with discounts on the remaining balances. As of December 31, 2025, the outstanding balance was $ 91,905 , all of which is classified as current, reflecting expected remittances within the next 12 months. +In November 2024, the Company entered into a sale of future receipts agreement (the “Second November 2024 SFR Agreement”) with the same lender of the July 2024 SFR Agreement whereby the Company sold and assigned approximately $ 313,000 of future receipts in exchange for net cash proceeds of approximately $ 96,000 , including a fee of approximately $ 9,000 and repayment of approximately $ 120,000 outstanding under the July 2024 SFR Agreement. As a result, the Company recorded a discount of approximately $ 88,000 and interest expense of approximately $ 9,000 . The Company is required to remit a minimum of approximately $ 7,000 of weekly sales receipts until the future receipts assigned under the Second November 2024 SFR Agreement were repaid in full. Accordingly, the term of this agreement is approximately one year . The Second November 2024 SFR Agreement was accounted for as an extinguishment of the July 2024 SFR Agreement and approximately $ 34,000 loss on extinguishment was recorded on the accompanying consolidated statements of operations and comprehensive loss for the year ended December 31, 2024. +On September 19, 2024, the Company entered into a sale of future receipts agreement (the “September 2024 SFR Agreement”) whereby the Company sold and assigned approximately $ 107,000 of future receipts in exchange for net cash proceeds of $ 74,000 , including a fee of $ 2,000 . As a result, the Company recorded a discount of $ 33,000 . The Company is required to remit 6.32 % of weekly sales receipts until the future receipts assigned under the September 2024 SFR Agreement were repaid in full. The estimated term of this agreement is approximately one year , based on expected daily collections. +On November 8, 2024, the Company entered into a sale of future receipts agreement (the “November 2024 SFR Agreement”) whereby the Company sold and assigned approximately $ 112,000 of future receipts in exchange for net cash proceeds of approximately $ 76,000 , including a fee of approximately $ 4,000 . As a result, the Company recorded a discount of approximately $ 36,000 . The Company is required to remit a minimum of approximately $ 5,000 of weekly sales receipts until the future receipts assigned under the May 2024 SFR Agreement were repaid in full. Accordingly, the term of this agreement is approximately one year . +In March 2025, the Company entered into a payment agreement to extinguish the balance owed on the September 2024 Sale of Future Receipts (“SFR”) Agreement of approximately $ 69,000 for a cash payment of $ 25,000 . The Company paid the amount in full during March 2025 and accounted for the payment agreement as an extinguishment of the June 2024 SFR Agreement and recorded approximately $ 12,000 as a gain on extinguishment on the accompanying consolidated statement of operations and comprehensive loss. +In March 2025, the Company was issued a stipulation of settlement from the Supreme Court of the State of New York, County of Sullivan, under which it was required to pay $ 30,000 to settle the balance owed on the November 2024 SFR Agreement of approximately $ 53,000 , including principal and accrued interest. The Company paid the amount in full during May 2025 and accounted for the payment agreement as an extinguishment of the November 2024 SFR Agreement and recorded approximately $ 2,000 as a gain on extinguishment on the accompanying consolidated statement of operations and comprehensive loss. +On April 28, 2025, in connection with the acquisition of SESB, the Company assumed a sales-of-future-receipts (merchant cash advance) obligation with an outstanding balance of approximately $ 48,000 . The obligation was recognized at fair value as an assumed liability in the purchase price allocation. As of December 31, 2025, the outstanding balance was approximately $ 22,000 , all of which is classified as current, reflecting expected remittances within the next 12 months. +On November 7, 2025, the Company entered into a Revenue Purchase and Sale of Future Receivable Agreements with two lenders, under which the Company received total funding of $ 210,000 . The agreements provide for repayment through weekly remittances based on a fixed percentage of our receivables until the total specified payback amount is satisfied. The funding is unsecured and does not carry traditional interest; instead, repayment is structured as a sale of a portion of future receivables at a discount. The proceeds from these financings are being used for working capital and general corporate purposes, including operating cash flow management and near-term growth initiatives. As of December 31, 2025, the aggregate outstanding balance was approximately $ 154,000 , all of which is classified as current, reflecting expected remittances within the next 12 months. +On November 12, 2025, the Company entered into a Sale of Future Receivable Agreement with a lender, under which the Company received total funding of $ 150,000 . The agreement provides for repayment through periodic remittances based on a specified percentage of the Company’s average sale revenue until the total specified payback amount is satisfied. The funding is unsecured and does not carry traditional interest; instead, repayment is structured as a sale of a portion of future receivables at a discount. The proceeds from this financing are being used for working capital and general corporate purposes, including operating cash flow management and near-term growth initiatives. As of December 31, 2025, the aggregate outstanding balance was approximately $ 114,000 , all of which is classified as current, reflecting expected remittances within the next 12 months. +F-47 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Since the Company has significant continuing involvement in the generation of future cash flows due under these agreements among other indicators, pursuant to ASC 470-10-25-2, Debt- Sales of Future Revenues or Other Various Measures of Income, the Company has reflected any future commitments associated with these agreements as debt. +Business Loan and Security Agreement: +In October 2025, the Company entered into a new funding relationship with a lender, pursuant to which the Company received two separate unsecured loans totaling approximately $ 390,000 . On October 1, 2025, the Company issued a promissory note in the principal amount of $ 230,160 with an original issue discount of $ 24,660 and a one-time interest charge of 12 %, maturing on July 30, 2026. On October 7, 2025, we issued a second promissory note in the principal amount of $ 160,160 with an original issue discount of $ 17,160 , also carrying a 12 % one-time interest charge and maturing on August 15, 2026. Both loans are unsecured and permit early repayment without penalty. The funding provides the Company with additional working capital flexibility to support growth initiatives, including technology integration and acquisition-related activities. +On October 23, 2025, the Company entered into a Business Loan and Security Agreement with a lender, under which the Company received total funding of $ 250,000 . The agreement provides for repayment through weekly remittances based on a fixed percentage of our receivables until the total specified payback amount is satisfied. The funding is unsecured and does not carry traditional interest; instead, repayment is structured as a sale of a portion of future receivables at a discount. The proceeds from this financing are being used for working capital and general corporate purposes, including operating cash flow management and near-term growth initiatives. +On October 27, 2025, the Company entered into a Business Line of Credit Agreement with a lender, providing the Company with borrowing capacity of up to $ 43,100 . As of the filing date, the Company had drawn $ 42,000 under the line of credit. In accordance with the agreement, the outstanding balance will be repaid in twelve equal monthly installments. +Purchase Order Financing Facility +On September 18, 2025, County Comfort Services, LLC (“CCS”), a wholly owned subsidiary, entered into a Factoring & Security Agreement to provide purchase-order and accounts-receivable financing of up to $ 4,000,000 . Under the facility, the lender may advance up to 85 % of eligible receivables (generally up to 60 days from invoice date) or, for approved purchase orders, up to the cost of product plus shipping prior to invoicing. The facility is secured by a first-priority lien on substantially all of CCS’s accounts receivable and a blanket security interest in other assets and is guaranteed by the Company. +Interest/fees and repayment terms - For accounts receivable financing, charges accrue at 1.55 % for the first 30 days after advance, plus 0.55 % for each additional 10-day period thereafter; invoices outstanding more than 60 days incur an additional 1.00 % per 10-day period (minimum $ 25 per invoice). For purchase order (“PO”) financing, charges accrue at 1.625 % per 15-day period from the date funds are advanced to the vendor until the related invoice is verified and funded. The agreement includes a 12-month term, minimum annual volume equal to 100 % of the facility amount, and standard reporting covenants. As of December 31, 2025, the Company received approximately $ 735,000 advanced under the facility for operations and repaid entire advance along with an interest of approximately $ 78,000 . +D&O Insurance Premium Financing +On July 15, 2025, the Company entered into a premium finance agreement with a lender, to finance its directors’ and officers’ liability insurance policies for the July 15, 2025 to July 15, 2026 policy term. The total annual premiums, taxes and fees were $ 434,500 , against which the Company made a down payment of $ 108,625 and financed the remaining $ 325,875 . The financed amount bears interest at an annual percentage rate of 8.39 % and is payable in nine monthly installments of $ 37,486 beginning August 15, 2025. The agreement grants the lender a first-priority security interest in the financed policies and related unearned premiums and gives the lender the right to cancel the policies and apply any return premium to the outstanding balance in the event of default. As of December 31, 2025, the outstanding balance under the premium finance agreement was approximately $ 147,000 . Finance charges related to this agreement is recognized in the Consolidated Statements of Operations and Comprehensive Loss within interest expense. +Notes Payable: Libertas Settlement and Termination Agreement +On January 30, 2024, the Company entered into a second sale of future receipts agreement, amending the January 2024 SFR Agreement, (the “Amended January 2024 SFR Agreement”) whereby the Company increased the amount of future receipts sold and assigned to the lender to $ 2,600,000 in exchange for net cash proceeds of approximately $ 2,077,000 , including a fee of approximately $ 3,000 . As a result, the Company recorded a discount of approximately $ 523,000 . The Company was required to remit a minimum of +F-48 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +approximately $ 52,000 of weekly sales receipts until the future receipts assigned under the Amended January 2024 SFR Agreement were repaid in full. Accordingly, the term was determined to be approximately one year . +In connection with the Second January 30, 2024 SFR Agreement, the Company received an additional $ 1,054,286 (the “Additional Advance”). Such amounts received were provided to the Company in error and are due and payable in full to the lender. During September 2024, the Company entered into a note conversion agreements with one of the sale of future receipts agreement holders in which the Company converted the outstanding principal on the Amended January 2024 SFR Agreement, including accrued and unpaid interest, and the Additional Advance into shares of the Company’s common stock at a conversion price of $ 2.00 per share with a two share reset adjustments and a make-whole payment (see Note 12), subject to shareholder approval and a maximum aggregate ownership amount of 19.99 % for each individual lender. In connection with these agreements, $ 3,115,592 of secured promissory notes were extinguished in exchange for the issuance of 1,557,796 shares of the Company’s common stock (see Note 12). +On September 24, 2025, we entered into a Settlement and Termination Agreement with Libertas Funding, LLC (“Libertas”), resolving all outstanding obligations under the prior Agreement of Sale of Future Receivables and Debt Conversion Agreement. Libertas terminated its senior secured lien and released all related financing statements and security interests. We acknowledged a remaining principal balance of approximately $ 3,100,000 and agreed to a structured repayment plan providing for initial weekly payments followed by bi-monthly installments beginning in October 2025, with stepped increases tied to our planned uplisting. The agreement also provides us the right to redeem 1,557,796 shares of our common stock held by Libertas for nominal consideration following full repayment. The settlement eliminated the derivative features, and the obligation is presented as debt measured at amortized cost from the settlement date. (See Note 11 for derivative derecognition.) +The Settlement and Termination Agreement was accounted for as an extinguishment of the derivative liability and recognition of a new debt obligation. The related derivative liability was derecognized, and a new debt obligation was recorded at fair value, resulting in a discount to the face amount of $ 3,115,592 . The difference between the carrying amount of the derivative liability extinguished and the fair value of the new debt resulted in a gain on extinguishment of approximately $ 293,598 , which was recognized in other (expense) income, net in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2025. The discount is being amortized to interest expense over the repayment period using the effective interest method. +On November 17, 2025, Libertas Funding, LLC entered into three separate stock purchase agreements with third-party investors pursuant to which it sold an aggregate of 1,557,996 shares of the Company’s common stock for total cash consideration of $ 280,403.28 , or approximately $ 0.18 per share. The proceeds from these transactions were contractually applied as a dollar-for-dollar offset against the Company’s outstanding payment obligations to Libertas under the existing Settlement and Termination Agreement, thereby reducing the debt balance by approximately $ 280,000 . In connection with these transactions, the Company waived the applicable lock-up restrictions and relinquished its right to redeem the shares for nominal consideration of $1.00. The Company evaluated the modification under ASC 470-50, including the 10% cash flow test in ASC 470-50-40-10, and concluded that the present value difference between the original and revised cash flows was less than 10 %. Accordingly, the November 17, 2025 changes were accounted for as a debt modification rather than an extinguishment, no gain or loss was recognized in the consolidated statements of operations, and a new effective interest rate was computed prospectively based on the revised carrying amount and modified future cash flows, with the resulting discount amortized to interest expense over the remaining repayment period using the effective interest method. See Note 11. +Assumed 2024 Note +On the Closing Date, the Company assumed MCAC’s promissory note totaling $ 3,680,000 (the “Assumed 2024 Note”) that matures in July 2025. The Company is obligated to pay 10.0 % of the aggregate gross proceeds from any sale of equity or equity derivative instruments of the Company while the Assumed 2024 Note is outstanding. Five days prior to the maturity date (and only five days prior to the maturity date), the Company may elect to convert the Assumed 2024 Note into shares of the Company’s common stock based at the average volume weighted average price value for the five -business day period preceding the maturity date (subject to compliance with applicable rules of the Nasdaq). +The Assumed 2024 Note becomes due and payable following specified events of default if (i) the holder of the Assumed 2024 Note provides written notice if Company defaults on any payments due under the terms of the Assumed 2024 Note or (ii) automatically if the Company commences a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under bankruptcy or other similar laws. The Company has not received written notice from the holder of the Amended 2024 Note in regards to the missed initial mandatory payment as of December 31, 2024. +F-49 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The Assumed 2024 Convertible Note is non-interest bearing, except in the case of an Event of Default (as defined in the agreement), at which point the interest rate increases to a rate of 10.0 % per annum until such event of default is cured. The Company paid $ 50,000 of the initial mandatory payment of $ 500,000 within thirty calendar days of the effective date of the Assumed 2024 Note, and such triggered an event of default. +​ +NOTE 10: STOCK BASED COMPENSATION +2019 Equity Incentive Plan +For periods prior to the reverse recapitalization (See Note 4), the 2019 Plan as approved by the board of directors (the “Board”), permitted the granting of stock options (including both nonqualified stock options and incentive stock options) to directors, executive officers, employees, consultants, advisors, independent contractors and other service providers of the Company, who, in the opinion of the Board, are in a position to make a significant contribution to the success of the Company. As of December 31, 2025, there were 473,922 shares of the Company’s common stock authorized for issuance under the 2019 Plan. +Legacy Options converted into an option to purchase a number of shares of Company common stock equal to the product of the number of shares of Legacy ConnectM common stock and the Exchange Ratio at an exercise price per share equal to the exercise price of the Legacy Option divided by the Exchange Ratio. Each exchanged option is governed by the same terms and conditions applicable to the Legacy Option prior to the Business Combination. No further grants can be made under the 2019 Plan. +The option exercise price for all grantees equals the stock’s estimated fair value on the date of the grant, after giving effect to the Exchange Ratio. The Board determined the fair value of common stock at the time of grant by considering a number of objective and subjective factors, including independent third-party valuations of the Company’s common stock, operating and financial performance, the lack of liquidity of capital stock, and general and industry-specific economic outlook, amongst other factors. The Company believes the fair value of the stock options granted to nonemployees is more readily determinable than the fair value of the services received. +The fair value of each option is estimated on the date of the grant using the Black-Scholes option-pricing model in order to measure the compensation cost associated with the award. This model incorporates the following assumptions for inputs: +● Expected volatility in the market value of the underlying common stock: The expected volatility was determined by examining the historical volatilities of a group of industry peers, as the Company did not have any trading history for the Company’s common stock. +● Expected term: For employees, the expected term is determined using the “simplified” method as prescribed by the SEC’s Staff Accounting Bulletin No 107, Share-Based Payment, to estimate on a formula basis the expected term of the Company’s employee stock options which are considered to have “plain vanilla” characteristics. For nonemployees, the expected term represents the contractual term of the option. +● Risk-free interest rate: The risk-free interest rate was based upon quoted market yields for the United States Treasury instruments with terms that were consistent with the expected term of the Company’s stock options. +● Expected dividend yield of the underlying common stock: The expected dividend yield was based on the Company’s history and management’s current expectation regarding future dividends. +F-50 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +A summary of the activity under the 2019 Plan at December 31, 2025 and 2024, and changes during the same periods is presented below: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +​ +​ ​ ​ +​ +​ ​ ​ +Weighted-average +​ +​ +​ +​ +Weighted-average +​ +Remaining +​ +​ +Options +​ +Exercise Price +​ +Contractual Life +Outstanding at January 1, 2024 +​ +473,929 +​ +$ +0.70 +​ +5.2 +Granted +​ +— +​ +— +​ +Exercised +​ +— +​ +— +​ +Forfeited +​ +— +​ +— +​ +Outstanding at December 31, 2024 +​ +473,929 +​ +​ +0.70 +​ +4.2 +Granted +— +​ +— +​ +Exercised +— +​ +— +​ +Forfeited +— +​ +— +​ +Outstanding at December 31, 2025 +473,929 +​ +$ +0.70 +3.2 +Vested and exercisable at December 31, 2024 +473,929 +​ +$ +0.70 +4.2 +Vested and exercisable at December 31, 2025 +473,929 +​ +$ +0.70 +3.2 +​ +As of December 31, 2025, the options outstanding and exercisable have an intrinsic value of approximately $ 194,310 and $ 288,000 , respectively. Share-based compensation expense during the years ended December 31, 2025 and 2024 was less than $ 1,000 . As of December 31, 2025, there was no unrecognized compensation cost related to share-based payments. +2023 Equity Incentive Plan +The Company’s shareholders approved the 2023 Plan on July 10, 2024 in connection with the Business Combination. The 2023 Plan is administered by the Board. The selection of participants, allotment of shares, determination of price and other conditions are approved by the Board at its sole discretion in order to attract and retain personnel instrumental to the success of the Company. Under the 2023 Plan, shares of the Company’s common stock may be granted in the form of incentive stock options, non-qualified stock options, stock appreciation rights, restricted awards, performance share awards, cash awards, and other equity-based awards. +The maximum aggregate number of shares of the Company’s common stock that may be issued under the 2023 Plan is equal to 10 % of the outstanding shares of the Company’s common stock on the Closing Date less the number of shares of the Company’s common stock subject to the Legacy Options (the “Total Share Reserve”. The Total Share Reserve will be increased automatically on January 1 of each year during the term of the 2023 Plan by the lesser of (i) 4.0 % of the shares of common stock outstanding on December 31 of the prior year, or (ii) a smaller number of shares as determined by the Board. The maximum number of shares of Company’s common stock with respect to which incentive stock options may be granted under the 2023 Plan is 100,000,000 shares. As of December 31, 2025, the Total Share Reserve was 2,113,405 shares of the Company’s common stock. No grants have been authorized to date by the Company’s Board and the compensation committee under the 2023 Plan. +During July 2024, the Company entered into a twelve-month capital markets advisory agreement (the “CMA Agreement”) under which the Company would compensate the vendor $ 1,500,000 , payable in either cash consideration or stock consideration at the Company’s election. The CMA Agreement provided the vendor with a share reset adjustment such that the vendor would receive additional shares if the five -day VWAP of the Company’s common stock was less than $ 10.00 per share, subject to a floor of $ 2.50 per share. At issuance, the Company determined that the obligation would be predominantly settled in a fixed number of shares equal to the floor price of $ 2.50 per share. Accordingly, the Company determined 600,000 shares of its common stock would be issued to settle its obligation under the CMA Agreement and determined the fair value of the CMA Agreement was $ 1,428,000 using the closing share price on the date of issuance. These shares were issued during the year ended December 31, 2024 +For the year ended December 31, 2024, $ 659,077 was recognized as selling, general and administrative expense on the accompanying consolidated statements of operations and comprehensive loss for these restricted stock grants. As of December 31, 2024, $ 768,923 of unrecognized expense is included as a component of prepaid expenses on the accompanying consolidated balance sheets and is expected to be recognized over a weighted average service period of 0.5 years. During the year ended December 31, 2025, the remaining $ 768,923 of previously unrecognized expense was fully recognized as selling, general and administrative expense, and no unrecognized expense related to these restricted stock grants remained as of December 31, 2025. +F-51 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Restricted stock grants and stock issuances +During July 2024, the Company entered into a six-month term marketing services agreement under which the company issued 150,000 restricted shares of the Company’s common stock with a fair value of $ 178,500 , as determined on the issuance date using the reported closing share price, as consideration for services to be performed. The restriction is lifted at the time the shares are included on a registration statement that is declared effective. +During December 2024, the Company entered into service agreements with two service providers under which the company issued 100,000 and 35,000 restricted shares of the Company’s common stock with a fair value of $ 91,000 and $ 31,850 , respectively, as determined on the issuance date using the reported closing share price, as consideration for services to be performed over a four-month and six-month service period, respectively. The restriction on the shares is lifted at the time the shares are included on a registration statement that is declared effective +As of December 31, 2025 and 2024, there were 3,376,332 and 285,000 shares of the Company’s common stock that were issued and outstanding. For the year ended December 31, 2025 and 2024, $ 1,460,258 and $ 178,396 was recognized as selling, general and administrative expense on the accompanying consolidated statements of operations and comprehensive loss for these restricted stock grants based on the fair value of stock on the date of issuance. During 2025, 1,013,023 shares was granted to Non-employees and 2,363,309 shares was granted to Director and employee, out of which 550,000 shares are granted to related parties. During 2024, the entire number of shares was granted to non-employees. As of December 31, 2025 and 2024, $ 82,975 and $ 122,954 of unrecognized expense is included as a component of prepaid expenses on the accompanying consolidated balance sheets and is expected to be recognized over a weighted average service period of 0.2 years. There were no restricted stock grants prior to July 2024. +NOTE 11: DERIVATIVE FINANCIAL INSTRUMENTS +Debt conversion share adjustment obligations +Share Reset Derivative Liabilities : In connection with five conversion agreements entered into during September 2024, the Company provided vendors and lenders with a one-time share reset adjustment (the “Share Reset”) such that the vendors and lenders would receive additional shares equal to the difference between the number of shares of the Company’s common stock that would be issued at the reset price on the reset date less the number of Conversion Shares. Three of these conversion agreements were with related parties. +The reset price was set to be the greater of the VWAP of the Company’s common stock for the five trading days preceding the reset date or $ 1.25 . The reset day was defined as the earlier of (i) six months from the date of the conversion agreement and (ii) the date that a registration statement registering the conversion shares is declared effective. If the reset price is less than $ 2.00 per share, additional shares shall be issued to the vendors and lenders equal to the quotient obtained by dividing the (i) product of (A) the conversion price of $ 2.00 less the reset price and (B) the number of Conversion Shares by (ii) the reset price. +The Share Reset feature was analyzed in accordance with ASC 815 and determined to be a financial instrument that was required to be bifurcated and accounted for as a derivative liability, which was recorded at fair value at inception and re-measured to fair value each reporting period. +On March 31, 2025, 2,737,168 shares were issued in accordance with the terms of the Share Reset provisions on five conversion agreements at a fair value of $ 1,712,005 , as determined by the closing price on the date of issuance, extinguishing the Company’s share adjustment obligations pursuant to the respective conversion agreements. +Forward Purchase Agreement : On December 31, 2022, MCAC, Meteora Special Opportunity Fund (“Meteora”), and Legacy ConnectM entered into a forward purchase agreement (the “FPA”) providing for an over-the counter prepaid equity forward transaction relating to MCAC’s Class A common stock. Pursuant to the terms of the FPA, at the closing of the Business Combination, Meteora purchased directly from the stockholders of MCAC 3,248,466 shares of Class A common stock (the “Recycled Shares”) at a price of $ 11.36301754 per share (the “Initial Price”), which is the price equal to the redemption price at which holders of Class A common stock were permitted to redeem their shares in connection with the Business Combination. The FPA liability was recorded as part of the Business Combination, and as such was recorded at MCAC’s historical cost on the Closing Date. The FPA was accounted for as a derivative financial instrument that was re-measured to fair value in each reporting period, with changes in fair value recognized in the consolidated statements of operations and comprehensive loss. +F-52 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +In accordance with the terms of the FPA, immediately subsequent to the closing of the Business Combination, the Company paid to Meteora an aggregate cash amount of approximately $ 36,543,000 (the “Prepayment Amount”), which was equal to (i) the product of (a) the Recycled Shares and (b) the Initial Price, (ii) less 1.0 % of the product of (a) the Recycled Shares and (b) the Initial Price (the “Prepayment Shortfall”). In addition to the Prepayment amount, the Company paid one -half of 1.0 % of the Prepayment Shortfall, approximately $ 185,000 , to Meteora that is due back to the Company on the earlier of (a) the effective date of the registration statement or (b) the OET Date (as defined in the FPA). The Company also paid to Meteora a cash amount equal to (a) the product of 40,000 and the Initial Price (the “Additional Consideration”), approximately $ 455,000 , to reimburse Meteora for additional shares Meteora acquired from third parties prior to the Closing Date, (b) the product of the Prepayment Amount and 0.75 % , approximately $ 277,000 , and (c) brokerage expenses of approximately $ 164,000 . +In August 2024, the Company and Meteora amended the FPA (the FPA as amended, the “2024 FPA” and the amendment to the FPA, the “FPA Amendment”), primarily changing the +● settlement method provision from physical settlement to cash settlement. +● maturity date to be the earliest to occur of (a) the third anniversary of the Closing Date, (b) the date specified by Meteora in a written notice delivered to the Company after the occurrence of (i) a Trigger Event (as defined in the 2024 FPA) or (ii) a Delisting Event (as defined in the 2024 FPA), (c) the date specified by Meteora in a written notice at Meteora’s sole discretion. +● Prepayment Shortfall to 0.5 % of the product of the number of Recycled Shares and the Initial Price and permitting the Company to request shortfall payments in intervals of $ 300,000 after Meteora has recovered 120.0 % of the Prepayment Shortfall. Accordingly, the Company wrote off the other receivable totaling $ 185,000 owed from Meteora for one -half of the 1.0 % of the Prepayment Shortfall that was included as a component of other current assets on the accompanying consolidated balance sheets. +● Reset Price to the lower of (a) the then current Reset Price, (b) the Initial Price, (c) the volume-weighted average price (the “VWAP”) of the Shares of the prior week, but not lower than $ 2.00 , provided the Reset Price may be further reduced pursuant to a Dilutive Offering Reset (as defined in the FPA). +In addition, the FPA Amendment added terms around the Settlement Amount and the Settlement Amount Adjustment, both defined in the 2024 FPA. There were no shares sold pursuant to the FPA between the Closing Date and the date the FPA Amendment was executed. +The FPA Amendment was deemed to be a modification and the Company recognized a gain of $ 1,547,236 on the modification of the FPA, which is net of the amount due from Meteora for one -half of the 1.0 % of the Prepayment Shortfall, and is included as a component of other income (expense) in the consolidated statements of operations and comprehensive loss. +In December 2024, the Company and Meteora amended the 2024 FPA (the 2024 FPA as amended, the “Amended 2024 FPA” and the amendment to the 2024 FPA, the “Second FPA Amendment”), whereby Meteora waived the requirement to adjust the Reset Price for a dilutive offering and the VWAP Trigger Event through December 31, 2025 that may occur in connection with the Company entering into the SEPA. In exchange for the entering into the Second FPA Amendment, the Company released 500,000 shares of the Company’s common stock held by Meteora from their designation as Recycled Shares. +The Second FPA Amendment’s most significant changes deleted the definitions of Reset Price and Prepayment Shortfall from the FPA Amendment and replaced these as follows: +● Reset Price to the lower of (a) the then current Reset Price, (b) the Initial Price, (c) the VWAP of the Shares of the prior week, but not lower than $ 2.00 , and (d) the price per share of the issuance of any shares upon conversion of amounts due to Yorkville pursuant to the SEPA (other than the issuance of shares to pay the SEPA commitment fee), but not lower than $ 1.00 ; provided the Reset Price may be further reduced pursuant to a Dilutive Offering Reset (as defined in the FPA) +● Prepayment shortfall to 0.5 % of the product of the number of Recycled Shares and the Initial Price and permitting the Company to request shortfall payments in intervals of $ 300,000 (at any time up to forty-five calendar days prior to the Valuation Date) after (i) Meteora has recovered 130.0 % of the Prepayment Shortfall and (ii) the VWAP Price over the ten trading days prior to an Additional Shortfall Request multiplied by the then current number of shares (excluding unregistered shares) held by Meteora less Shortfall Sale Shares be at least seven times greater than the Additional Shortfall Request and (iii) the average daily value traded over the prior ten +F-53 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +trading days be at least seven times greater than the Additional Shortfall Request (with (i), (ii), and (iii) collectively the “Equity Conditions”). Meteora has the right, but not the obligation to waive the Equity Conditions for each Additional Shortfall Request. +During the year ended December 31, 2024, Meteora sold 1,044,576 shares pursuant to the 2024 FPA and the Company received cash proceeds of $ 1,000,000 . +On April 2, 2025, the Company entered into a mutual termination agreement with Meteora Capital Partners, LP (“Meteora”) to terminate the Amended 2024 FPA (the “FPA Termination Agreement”) in exchange for termination consideration of $ 500,000 . Pursuant to the FPA Termination Agreement, the 1,618,948 shares of the Company’s common stock that Meteora held as of the termination date of April 2, 2025 were deemed free and clear of all obligations, the number of Recycled Shares was equal to zero , and the Prepayment Shortfall was deemed to be zero . The Company received termination consideration of $ 500,000 from Meteora in April 2025. Pursuant to the FPA Termination Agreement, the Company recorded a change in fair value of $ 971,000 during the year ended December 31, 2025. +Libertas Settlement and Termination Agreement : On September 24, 2025, the Company executed a Settlement and Termination Agreement with Libertas that terminated the derivative features under the prior Agreement of Sale of Future Receivables and Debt Conversion Agreement. +​ +NOTE 12: FAIR VALUE MEASUREMENTS +The following table sets forth by level, within the fair value hierarchy, the Company’s assets and liabilities, including financial liabilities for which the Company has elected the fair value option, measured and recorded at fair value on a recurring basis as of December 31, 2025: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Level I +​ ​ ​ +Level II +​ ​ ​ +Level III +​ ​ ​ +Total +Assets +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Forward purchase agreement +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +Total assets +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +Liabilities +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Derivative liabilities +​ +$ +— +​ +$ +— +​ +$ +234,389 +​ +$ +234,389 +3(a)(10) Settlement Agreement +​ +​ +— +​ +​ +— +​ +​ +3,634,000 +​ +​ +3,634,000 +Contingent consideration +​ +​ +— +​ +​ +— +​ +​ +1,771,390 +​ +​ +1,771,390 +Convertible debt +​ +​ +— +​ +​ +— +​ +​ +5,321,303 +​ +​ +5,321,303 +Total liabilities +​ +$ +— +​ +$ +— +​ +$ +10,961,082 +​ +$ +10,961,082 +​ +The following table sets forth by level, within the fair value hierarchy, the Company’s liabilities, including financial liabilities for which the Company has elected the fair value option, measured and recorded at fair value on a recurring basis as of December 31, 2024: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Level I +​ ​ ​ +Level II +​ ​ ​ +Level III +​ ​ ​ +Total +Assets +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Forward purchase agreement +​ +$ +— +​ +$ +— +​ +$ +1,471,000 +​ +$ +1,471,000 +Total assets +​ +$ +— +​ +$ +— +​ +$ +1,471,000 +​ +$ +1,471,000 +Liabilities +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Derivative liabilities +​ +$ +— +​ +$ +— +​ +$ +4,229,478 +​ +$ +4,229,478 +Contingent consideration +​ +​ +— +​ +​ +— +​ +​ +434,174 +​ +​ +434,174 +Convertible debt +​ +​ +— +​ +​ +— +​ +​ +8,542,323 +​ +​ +8,542,323 +Total liabilities +​ +$ +— +​ +$ +— +​ +$ +13,205,975 +​ +$ +13,205,975 +​ +F-54 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The Company did not make any transfers into or out of Level 3 of the fair value hierarchy during the years ended December 31, 2025 and 2024. +The following table provides a reconciliation of our assets and liabilities measured at fair value using Level 3 inputs: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Forward +​ +​ +​ +3(a)(10) +​ +​ +​ +​ +​ +​ +Purchase +​ +Derivative +​ +Settlement +​ +Contingent +​ +Convertible +​ +​ ​ ​ +Agreement +​ ​ ​ +liabilities +​ ​ ​ +Agreement +​ ​ ​ +consideration +​ ​ ​ +debt +Balance, December 31, 2024 +​ +$ +1,471,000 +​ +$ +( 4,229,478 ) +​ +$ +— +​ +$ +( 434,174 ) +​ +$ +( 8,542,323 ) +Cash payment/(receipt) +​ +​ +( 500,000 ) +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +637,500 +Issuances +​ +​ +— +​ +​ +— +​ +​ +( 11,624,000 ) +​ +​ +— +​ +​ +( 8,762,250 ) +Settlement through issuance of Company's common stock and other adjustment ** +​ +​ +— +​ +​ +4,360,247 +​ +​ +8,711,829 +​ +​ +— +​ +​ +11,276,082 +Gain on extinguishment of debt and vendor payable +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +2,261,222 +Loss on issuance of financial instruments +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +( 45,250 ) +Additional RJZ settlement amount* +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Reclass from level 3 +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +215,612 +​ +​ +— +Change in fair value +​ +​ +( 971,000 ) +​ +​ +( 365,158 ) +​ +​ +( 721,829 ) +​ +​ +( 111,664 ) +​ +​ +( 2,146,284 ) +Ending balance, December 31, 2025 +​ +$ +— +​ +$ +( 234,389 ) +​ +$ +( 3,634,000 ) +​ +$ +( 330,226 ) +​ +$ +( 5,321,303 ) +* +Contingent Consideration also includes current portion of crystallized contingent consideration amounting to $ 417,163 and RJZ settlement amounting to $ 1,024,001 which are not included in the table above as these are not fair valued. +** +Other adjustment consist of $ 3,630,000 related to convertible debt liabilities transferred to 3(a)(10) and settlement of derivative liabilities of Libertas amounting to $ 2,648,508 by way of extinguishment (refer Note 11). +Fair Value of Level 3 Financial Instruments +Certain financial instruments, including SEPA convertible notes, instruments related to 3(a)10 Settlement Agreement and Derivative Liabilities contain embedded features that require bifurcation and measurement at fair value under ASC 815. These instruments are classified within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs. +In prior periods, the Company utilized a Monte Carlo simulation model to estimate fair value where valuation depended on future stock price variability and path-dependent assumptions. As of December 31, 2025, for certain convertible notes, the reset provisions were based on the Company’s closing stock price at year-end and were not dependent on future contingent events, and accordingly fair value was determined using the intrinsic value of the reset feature at the measurement date. For other convertible notes where the settlement outcome remained uncertain, the Company applied a probability-weighted pay-off approach, assigning probabilities to each potential settlement scenario (e.g., cash repayment, conversion, or default) to estimate the fair value of the embedded derivative at the reporting date. +Convertible Notes Payable +The Company’s carrying value and fair value for the convertible notes payable for which the Company elected the fair value option is as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +December 31, 2025 +​ +December 31, 2024 +​ +​ ​ +Carrying Value +​ ​ +Fair Value +​ ​ +Carrying Value +​ ​ +Fair Value +2024 Convertible Notes +​ +$ +— +​ +$ +— +​ +$ +2,440,000 +​ +$ +2,547,209 +2025 Convertible Notes +​ +​ +3,212,250 +​ +​ +3,778,303 +​ +​ +— +​ +​ +— +Assumed 2024 Note +​ +​ +— +​ +​ +— +​ +​ +3,630,000 +​ +​ +3,630,000 +SEPA Convertible Note* +​ +​ +1,386,975 +​ +​ +1,543,000 +​ +​ +2,500,000 +​ +​ +2,365,114 +​ +​ +$ +4,599,225 +​ +$ +5,321,303 +​ +$ +8,570,000 +​ +$ +8,542,323 +* SEPA convertible note includes the SEPA option derivative liability of $ 65,114 as on December 31, 2024. +​ +The change in fair value on convertible debt resulted in a loss of approximately $ 2,146,000 and a loss of approximately $ 1,708,000 for the years ended December 31, 2025 and 2024, which was recorded as a component of other income (expense) on the accompanying consolidated statements of operations and comprehensive loss. +F-55 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +2024 Convertible Notes, and 2025 Convertible Notes: The 2025 Convertible Notes, and 2024 Convertible Notes are re-measured to fair value at each reporting period using the following relevant assumptions: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ +December 31, 2025 +​ ​ +December 31, 2024 +​ +Discount rate +​ +​ +20.0 - 65.0 +% +​ +20.0 +% +Probability of conversion at maturity scenario +​ +​ +30.0 - 100.0 +% +​ +70.0 - 100.0 +% +Probability of voluntary conversion scenario/event of default scenarios +​ +​ +0.0 - 70.0 +% +​ +0.0 - 30.0 +% +Remaining term for conversion at maturity scenario/event of default scenarios +​ +​ +0.01 - 0.52 years +​ +​ +0.01 - 0.28 years +​ +Remaining term for voluntary conversion scenario +​ +​ +0.01 - 0.52 years +​ +​ +0.01 - 0.03 years +​ +​ +SEPA Convertible Note: +The fair value measurement of the SEPA Convertible Note is classified within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs (refer to Note 8). +As of December 31, 2025, following entry into the Settlement and Termination Agreement with Yorkville dated December 29, 2025, the Company’s obligation under the SEPA Convertible Note was restructured into fixed bi-weekly installment payments of $ 250,000 on the outstanding balance of $ 1,386,975 , with final settlement expected upon consummation of the Company’s planned uplisting on or about March 31, 2026. Accordingly, the fair value of the SEPA Convertible Note as of December 31, 2025 was $ 1,543,000 , as determined by an independent third-party valuation firm using a discounted cash flow methodology applied to the scheduled installment payments. The key assumptions used in the valuation were as follows: +​ +​ +​ +​ +​ +​ +Assumptions +​ ​ ​ +December 31, 2025 +Valuation technique +​ +Discounted cash flow of scheduled installment payments +​ +Outstanding balance +​ +$ +1,386,975 +​ +Bi-weekly payment amount +​ +​ +250,000 +​ +Expected IPO / settlement date +​ +​ +March 31, 2026 +​ +Discount rate +​ +15.0 +% +Fair value of outstanding balance +​ +$ +1,368,000 +​ +Termination fee (payable in Common Stock at IPO price) +​ +$ +175,000 +​ +Fair value of SEPA (post-termination) +​ +$ +— +​ +Total fair value of Pre-Paid Advance Obligation +​ +$ +1,543,000 +​ +​ +The discount rate of 15.0 % was selected based on an analysis of market-based rates of return, including the ICE BofA CCC & Lower US High Yield Index ( 12.5 %), the S&P U.S. High Yield Corporate Bond CCC index ( 15.7 %), and the Pepperdine Private Capital Markets mezzanine required rate of return ( 19.0 %). The fair value measurement is subject to estimation uncertainty, as it is sensitive to changes in the discount rate and the timing of the expected IPO. Pursuant to the Settlement and Termination Agreement, the SEPA was terminated, and its value was determined to be zero ; accordingly, the remaining obligation consists solely of the scheduled installment payments and the termination fee. +F-56 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +As on December 31, 2024 the fair value of the SEPA Convertible Note was determined utilizing a Monte Carlo simulation considering the following relevant assumptions: +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +December 31, 2024 +​ ​ +Remaining term +​ +​ +0.97 years +​ +Volatility +​ +​ +88.0 +% +Risk-free rate +​ +​ +4.3 +% +Drift term +​ +​ +4.2 +% +Conversion price for payments to be made through issuance of Company’s common stock +​ +$ +0.41 +​ +Payments to be made through issuance of shares of Company’s common stock +​ +​ +11.1 +% +Payments to be made in cash +​ +​ +88.9 +% +​ +Forward Purchase Agreement +The change in fair value on the forward purchase agreement resulted in a net loss of approximately $ 8,254,390 and a gain on modification of the forward purchase agreement was approximately $ 1,572,236 for the year ended December 31, 2024, which was recorded as a component of other income on the accompanying consolidated statements of operations and comprehensive loss. +The fair value of the Amended 2024 FPA was measured at fair value at December 31, 2024 utilizing a Monte Carlo simulation model that applies a probability of occurrence to the present value of each settlement scenario. as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Amended 2024 FPA +​ +2024 FPA +​ +​ +​ +​ +December 31, 2024 +​ ​ ​ +​ +December 16, 2024 +(modification) +​ +December 16, 2024 +(modification) +Probability of maturity settlement scenario +​ +​ +15.0 +% +​ +15.0 +% +​ +15.0 +% +Probability of prepayment shortfall settlement scenario +​ +​ +85.0 +% +​ +85.0 +% +​ +85.0 +% +Recycled Shares held by Meteora +​ +​ +1,703,890 +​ +​ +1,703,890 +​ +​ +2,203,890 +​ +Price per share of Company’s common stock +​ +$ +1.21 +​ +$ +0.77 +​ +$ +0.77 +​ +Remaining term +​ +​ +2.53 years +​ +​ +2.57 years +​ +​ +2.57 years +​ +Risk-free interest rate +​ +​ +4.3 +% +​ +4.2 +% +​ +4.2 +% +Drift term +​ +​ +4.2 +% +​ +4.1 +% +​ +4.1 +% +Volatility +​ +​ +85.0 +% +​ +81.0 +% +​ +81.0 +% +Forecasted price per share of Company’s common stock at maturity +​ +​ +2.30 +​ +​ +0.37 +​ +$ +0.37 +​ +Expected margin from Meteora’s sale of Recycled Shares +​ +​ +76.9 +% +​ +76.9 +% +​ +83.3 +% +​ +The fair value of the FPA was re-measured to fair value at assumption and immediately prior to the modification utilizing a Black-Scholes option pricing model that utilizes the following relevant assumptions: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +August 2, 2024 +​ ​ ​ +July 12, 2024 +​ +​ +(modification) +​ +(assumption) +Expected term +​ +2.94 years +​ +​ +3.0 years +​ +Price per share of Company’s common stock +​ +$ +0.78 +​ +$ +3.54 +​ +Exercise price +​ +$ +13.36 +​ +$ +13.36 +​ +Volatility +​ +80.0 +% +46.0 +% +Risk-free interest rate +​ +3.7 +% +4.2 +% +Dividend rate +​ +0.0 +% +0.0 +% +Probability of completing the Business Combination +​ +N/A +​ +100.0 +% +​ +The FPA Amendment provide two settlement options whereby the 2024 FPA can be settled either at maturity if shares of the Company’s common stock are trading above $ 2.00 per share (the “Maturity Settlement Scenario”) or at the Company’s request for a prepayment short-fall whereby the Company requests Meteora to sell shares (the “Prepayment Shortfall Scenario”). The Second FPA Amendment also provides a Maturity Settlement Scenario and a Prepayment Shortfall Scenario, with a revised definition for the Prepayment Shortfall Scenario (see Note 11). +​ +On April 2, 2025, the Company entered into a mutual termination agreement with Meteora to terminate the Amended 2024 FPA (the “FPA Termination Agreement”) in exchange for termination consideration of $ 500,000 . Pursuant to the FPA Termination +F-57 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Agreement, the 1,618,948 shares of the Company’s common stock that Meteora held as of the termination date of April 2, 2025 were deemed free and clear of all obligations, the number of Recycled Shares was equal to zero , and the Prepayment Shortfall was deemed to be zero . The Company received termination consideration of $ 500,000 from Meteora in April 2025. +​ +3(a)(10) Settlement Agreement +On January 28, 2025, the Company entered into a Settlement Agreement and Stipulation (the “Settlement Agreement”) with Last Horizon, LLC (“Last Horizon”), pursuant to which the Company agreed to issue shares of its common stock to Last Horizon in exchange for the settlement of bona fide outstanding liabilities totaling approximately $ 8,908,077 (the “Claim”) that Last Horizon had acquired from various Company creditors. The Settlement Agreement was approved by the Circuit Court of the 12th Judicial Circuit of the State of Florida, and the issuance of common stock to Last Horizon is exempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) thereof. +Under the terms of the Settlement Agreement, the Company is obligated to issue shares of common stock to Last Horizon in tranches to satisfy the Claim. Last Horizon may deliver a share request to the Company stating the dollar amount of common stock to be issued in one or more tranches. The number of shares issuable in each tranche is determined by dividing the claim amount for such tranche by the purchase price (the “Conversion Price”). The Conversion Price equals $ 1.09 per share (the closing price on January 28, 2025, the settlement date). However, if at any time the Company’s common stock trades below $ 1.09 , the Conversion Price adjusts to the lower of (i) $ 1.09 or (ii) 85.0 % of the market price, defined as the lowest volume-weighted average price during the five trading days immediately preceding the share request date, subject to a floor price of $ 0.02 per share. Additionally, pursuant to Section 9 of the Agreement, upon the occurrence of certain default events — including (i) the Company’s bankruptcy or insolvency, (ii) suspension of trading or delisting of the Company’s common stock from its principal market, or (iii) the Company’s failure to timely deliver Settlement Shares — the Conversion Price adjusts to the lower of $ 1.09 or 75.0 % of the market price, subject to the same $ 0.02 floor price. Last Horizon is also subject to a 4.99 % beneficial ownership cap on the Company’s outstanding common stock. The Agreement does not provide for cash settlement; the Company’s sole obligation is to issue shares of common stock until the Claim is satisfied in full. +The Company elected the fair value option under ASC 825 for the 3(a)(10) Settlement Agreement obligation. The obligation represents a freestanding financial instrument indexed to the Company’s common stock and is classified as a liability in accordance with ASC 480, as it embodies an obligation that may be settled with a variable number of shares. The liability is remeasured at fair value at each reporting date, with changes in fair value recognized in other (expense) income, net in the consolidated statements of operations and comprehensive loss. +The fair value on the date of issuance of the 3(a)(10) Settlement Agreement was $ 11,624,000 resulting in a loss on extinguishment of debt and accounts payable amounting to $ 2,715,923 . +The change in fair value of the 3(a)(10) Settlement Agreement obligation resulted in a loss of approximately $ 722,000 for the year ended December 31, 2025. No gain or loss was recognized for the year ended December 31, 2024, as the agreement was entered into in January 2025. +During the year ended December 31, 2025, the Company issued 13,744,131 shares of its common stock with an aggregate fair value of $ 8,711,829 pursuant to the Settlement Agreement to partially settle the outstanding obligation. As of December 31, 2025, the remaining claim amount was $ 2,955,750 . These settlements and related impacts are reflected in the Level 3 rollforward table above. +F-58 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The fair value measurement is classified within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs. As of December 31, 2025, the fair value of the 3(a)(10) Settlement Agreement obligation was $ 3,634,000 , as determined by an independent third-party valuation firm using a Monte Carlo simulation with 50,000 trials under a scenario-based framework. The valuation considered two scenarios: (i) a base case scenario ( 95.0 % probability), under which the Conversion Price equals the lower of $ 1.09 or 85.0 % of the market price, and (ii) a default scenario ( 5.0 % probability), under which the Conversion Price equals the lower of $ 1.09 or 75.0 % of the market price. The Company’s stock price was simulated using Geometric Brownian Motion through the expected last share issuance date of August 18, 2026. Key assumptions as of December 31, 2025 were as follows: +​ +​ +​ +​ +​ +​ +Input +​ ​ ​ +Value +Stock price as of valuation date +​ +$ +0.41 +​ +Equity volatility +​ +80.0 +% +Risk-free rate +​ +3.6 +% +Expected term +​ +0.63 year +​ +Drift term +​ +3.5 +% +​ +The fair value of the 3(a)(10) Settlement Agreement exceeds the remaining claim amount of $ 2,955,750 due to the variable conversion pricing mechanism: when the Company’s stock trades below $ 1.09 , the discounted conversion price results in a greater number of shares being issued, increasing the fair value of the obligation to Last Horizon. +As of December 31, 2025, if the remaining obligation of $ 2,955,750 were settled at that date under the base case conversion terms, the Company would be required to issue approximately 8,481,349 shares with an aggregate fair value of approximately $ 3,477,353 . Under an event of default scenario, the Company would be required to issue approximately 9,612,195 shares with an aggregate fair value of approximately $ 3,941,000 . Because the settlement amount is fixed in dollars and settled in a variable number of shares, the number of shares required to be issued is inversely related to the Company’s stock price. At the December 31, 2025 base case conversion price of approximately $ 0.3485 per share ( 85 % of market price), for each $ 0.01 decrease in the Company’s share price, the conversion price would decrease by $ 0.0085 , and the Company would be obligated to issue approximately 210,000 additional shares to satisfy the remaining claim amount. At the floor price of $ 0.02 per share, the maximum number of shares issuable under the agreement is 147,787,500 . Based on the expected settlement schedule as of the valuation date, the remaining tranches are expected to be issued on approximately June 1 , June 16 , July 1 , July 16 , August 3 , and August 18, 2026, in equal installments of $ 533,333 each, with a final tranche of $ 289,083 . +As of January 28, 2025 , the fair value of the 3(a)(10) Settlement Agreement obligation was $ 11,624,000 , as determined by an independent third-party valuation firm using a Monte Carlo simulation with 50,000 trials under a scenario-based framework. The valuation considered two scenarios: (i) a base case scenario ( 95.0 % probability), under which the Conversion Price equals the lower of $ 1.09 or 85.0 % of the market price, and (ii) a default scenario ( 5.0 % probability), under which the Conversion Price equals the lower of $ 1.09 or 75.0 % of the market price. The Company’s stock price was simulated using Geometric Brownian Motion through the expected last share issuance date of September 15, 2025. Key assumptions as of January 28, 2025 were as follows: +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +January 28, 2025 +Price per share of Company’s common stock +​ +$ +1.09 +​ +Equity volatility +​ +88.0 +% +Remaining term +​ +0.63 year +​ +Risk-fee rate +​ +4.2 +% +Drift term +​ +4.10 +% +​ +The fair value of the 3(a)(10) Settlement Agreement obligation exceeds the claim amount of $ 8,908,077 due to the variable conversion pricing mechanism: when the Company’s stock trades below $ 1.09 , the discounted conversion price results in a greater number of shares being issued, increasing the fair value of the obligation to Last Horizon. +Contingent consideration obligation +The change in fair value of the contingent consideration obligation resulted in a loss of approximately $0 and $60,000 for the year ended December 31, 2025 and 2024, respectively, which was recorded as a component of other income on the accompanying consolidated statements of operations and comprehensive loss. +F-59 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The fair value of the contingent consideration obligation was measured to fair value at inception and re-measured at each reporting period utilizing a Monte Carlo simulation considering the following relevant assumptions: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ +December 31, 2025 +​ +December 31, 2024 +​ +Operating leverage +​ +​ +150.0 +% +​ +150.0 +% +Revenue volatility +​ +​ +20.3 +% +​ +20.1 +% +EBITDA volatility +​ +​ +50.8 +% +​ +50.2 +% +Earnout risk free rate +​ +​ +3.8 +% +​ +4.5 +% +Long-term risk-free rate +​ +​ +4.8 +% +​ +4.9 +% +Weighted average cost of capital +​ +​ +17.0 +% +​ +18.0 +% +Correlation between revenue and EBITDA +​ +​ +0.61 +​ +​ +0.65 +​ +Discount rate +​ +​ +15.0 +% +​ +6.0 +% +Term to payment +​ +​ +0.1 - 6.1 years +​ +​ +0.1 - 7.1 years +​ +​ +Derivative Liabilities +The change in fair value of derivative liabilities resulted in a loss of approximately $ 366,000 and $ 187,000 for the year ended December 31, 2025 and 2024, respectively, which were recorded as a component of other income on the accompanying consolidated statements of operations and comprehensive loss. +Debt conversion share adjustment obligations : As on December 31, 2024, the fair value of the derivative liabilities issued in connection with the September 2024 debt conversion agreements were determined using Monte Carlo simulations considering the following relevant assumptions at the date of issuance and each subsequent reporting period: +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +December 31, 2024 +​ +Price per share of Company’s common stock +​ +$ +1.21 +​ +Equity volatility +​ +​ +92.0 - 93.0 +% +Forecasted per share of Company’s common stock - Reset Date +​ +$ +1.12 +​ +Risk-fee rate - Reset Date +​ +​ +4.4 +% +Drift term - Reset Date +​ +​ +4.3 +% +Forecasted five day VWAP per share of Company’s common stock - First Reset Date +​ +$ +0.96 +​ +Remaining term - Second Reset Date +​ +​ +1.04 year +​ +Forecasted five day VWAP per share of Company’s common stock - Second Reset Date +​ +$ +0.81 +​ +​ +SEPA Derivative Liability : In December 2024, the Company entered into a SEPA with YA II PN, LTD (“Yorkville”). Pursuant to the SEPA, the Company shall have the right, but not the obligation, to sell to Yorkville up to $ 25,000,000 of shares of the Company’s common stock at the Company’s request any time during the commitment period commencing on December 17, 2024 (the Effective Date”) and continuing for a term of three years (“Purchased Put Option”). Yorkville agrees to advance to the Company $ 4,500,000 (the “Pre-Paid Advance”), less a discount of 8.0 % of the principal amount, as evidenced by convertible promissory notes in two tranches. The first tranche of $ 2,500,000 (See Note 8 – SEPA Convertible Note) was advanced to the Company on the Effective Date of the SEPA and the second tranche of $ 2,000,000 to be advanced on the later of (i) the initial registration statement becoming effective and (ii) the Company’s receipt of shareholder approval to issue shares of the Company’s common stock in excess of the exchange cap, as defined in the SEPA. The SEPA will automatically terminate on the earlier to occur of (i) January 1, 2028, provided that if any Pre-Paid Advance is then outstanding, termination shall be delayed until such date that all Pre-Paid Advances are repaid, and (ii) the date on which Yorkville shall have made payment of advances pursuant to the SEPA for Common Stock equal to the commitment amount of $ 25,000,000 . +Each advance that the Company issues in writing to Yorkville under the SEPA (each, an “Advance,” and notice of such request, an “Advance Notice”) may be in an amount of Common Stock up to the aggregate daily trading volume of Common Stock for the five trading days prior to the Company requesting an Advance. The purchase price for the shares of Common Stock set forth in the Advance is determined by multiplying the market price of the Company’s common stock by 97 % of the lowest daily VWAP during the applicable three consecutive trading day pricing period for any Advance Notice delivered by the Company Additionally, the Company may establish a minimum acceptable price in each Advance Notice below which the Company will not be obligated to make any sales to Yorkville. Once the Company draws on the SEPA, the related number of shares issuable constitutes a forward contract to issue common stock (“Forward Contract”). +F-60 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Pursuant to the terms of the SEPA, at any time that there is a balance outstanding under the SEPA Convertible Note, Yorkville has the right to receive shares to pay down the principal balance, and may select the timing and delivery of such shares (via an “Investor Notice”), in an amount up to the outstanding principal balance on the SEPA Convertible Note at a purchase price equal $ 2.00 per share of the Company’s common stock (the “Fixed Price”). If the Company is not current on its payment obligations, the Yorkville is entitled to a purchase price equal to (i) 93 % of the lowest daily Volume Weighted Average Price (“VWAP”) of the Company’s common stock on Nasdaq during the 10 consecutive Trading Days immediately preceding the Conversion Date or other date of determination (the “Variable Price”). The Variable Price shall not be lower than $ 0.1418 per share (the “Floor Price”). +Any purchase under an Advance would be subject to certain limitations, including that Yorkville shall not purchase or acquire any shares that would result in it and its affiliates beneficially owning more than 4.99 % of the then outstanding voting power or number of shares of the Company’s common stock or any shares that, aggregated with shares issued under all other earlier Advances, would exceed 19.99 % of all shares of the Company’s common stock of the Company outstanding on the date of the SEPA, unless Company shareholder approval was obtained allowing for issuances in excess of such amount. +As consideration, the Company agreed (i) and paid a structuring fee in the amount of $ 25,000 and (ii) to pay a commitment fee of $ 375,000 , of which (a) one -half of the commitment fee was paid through the issuance of 264,456 shares of the Company’s common stock with a fair value of $ 187,500 , as determined using the closing price on the date of issuance and (b) one -half of the commitment fee is due on June 17, 2025 in cash (or by way of an Advance). The structuring fee and commitment fee were expensed in full immediately following the consummation of the SEPA, according to ASC 815, and recorded within the general and administrative expense line item in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2024. +Under the Yorkville Agreement, the payment made on December 15, 2025 was first applied to satisfy the $ 187,500 deferred fee, with the remaining amount applied toward the prepaid advance obligation (See Note 8 – SEPA Convertible Note). +Pursuant to the terms of the SEPA, the proceeds of the SEPA are restricted from being used: +● to repay any advances or loans to executives, directors, or employees +● to make payments on related party obligations +● to repay advances or loans to Related Lenders, as defined in the SEPA, without the prior written consent of Yorkville or until the balance under the Pre-Paid Advances is less than $ 1,000,000 +● to fund or facilitated, directly or indirectly, any activities or business with a person, entity, territory, or country subject to Sanctions, as defined in the SEPA, or is a Sanctioned Country, as defined in the SEPA +● in any manner that will result in a violation of Sanctions or applicable laws +● to loan, invest or transfer any cash proceeds, or property acquired with cash proceeds from the Pre-Paid Advance to a subsidiary without approval from Yorkville +While amounts are outstanding under the Pre-Paid Advance, the Company: +● may not effect a reverse stock split or share consolidation. +● shall prepay amounts owed under the Pre-Paid Advance in an amount equal to 20.0 % of the net proceeds of a new financing transaction to Yorkville, unless waived by Yorkville +● shall pay 100.0 % of proceeds received from any disbursements of the FPA to Yorkville, unless waived by Yorkville +The SEPA was determined to be a freestanding financial instrument which did not meet the criteria to be accounted for as a derivative instrument or to be recognized within equity. Pursuant to ASC 815, the Company therefore recognizes the SEPA Option as a liability, measured at fair value at the date of issuance and in subsequent reporting periods, with changes in fair value recognized in other (expense) income, net in the consolidated statements of operations and comprehensive loss. +​ +F-61 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The SEPA was determined to have a fair value of $ 65,114 on the date of issuance and at December 31, 2024. As of December 31, 2025, the Company does not expect to settle subsequent payments through equity, and accordingly the fair value of the SEPA derivative liability was determined to be $ 0 . The resulting fair value gain of $ 65,114 was recognized during the year ended December 31, 2025 within other (expense) income, net. No corresponding gain or loss was recognized during the year ended December 31, 2024, as there was no change in fair value from the issuance date through December 31, 2024. +​ +Under the Yorkville Agreement, in the event the IPO is consummated, the SEPA will be terminated effective immediately prior to the closing, and the Company shall pay Yorkville a termination fee in shares of common stock with an aggregate value equal to $ 175,000 , valued at the public offering price per share in the IPO. +​ +As on December 31, 2024, the fair value of the SEPA Derivative Liability was determined using Monte Carlo simulation considering the following relevant assumptions at the date of issuance and each subsequent reporting period: +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +December 31, 2024 +​ +Remaining term +​ +​ +0.97 years +​ +Volatility +​ +​ +88.0 +% +Risk-free rate +​ +​ +4.3 +% +Drift term +​ +​ +4.2 +% +Conversion price for payments to be made through issuance of Company’s common stock +​ +$ +0.41 +​ +Prepayment premium +​ +​ +107.0 +% +​ +Shares to be issued at settlement of derivative liabilities +The shares of the Company’s common stock to be issued in settlement of the above derivative liabilities are dependent on the share price at a future date and, as such, cannot be exactly determined as of December 31, 2025. Accordingly, an estimate has been made using the option pricing model to determine the liability value. +​ +NOTE 13: LEASES +The Company has operating and finance leases for its corporate offices, call centers and vehicles. The following table provides a summary of the components of lease costs, which are included within cost of revenue and selling, general and administrative on the accompanying consolidated statements of operations and comprehensive loss, for the years ended December 31: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +Operating lease costs +​ +$ +98,355 +​ +$ +172,974 +Short-term lease costs +​ +​ +46,984 +​ +​ +181,718 +Finance lease costs +​ +— +​ +— +Amortization of ROU assets +​ +76,626 +​ +121,457 +Interest on lease liabilities +​ +7,856 +​ +19,000 +Total lease costs +​ +$ +229,821 +​ +$ +495,149 +​ +The following table provides the weighted-average lease terms and discount rates for the Company’s operating and finance leases at December 31: +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +​ +Weighted-average remaining lease term (in years) +​ +​ +​ +​ +​ +Operating leases +2.34 +​ +2.5 +​ +Finance leases +0.98 +​ +1.7 +​ +Weighted-average discount rate +​ +​ +​ +​ +Operating leases +10.4 +% +14.2 +% +Finance leases +8.0 +% +8.0 +% +​ +F-62 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The following tables provides a summary of lease liability maturities as of December 31, 2025: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Finance +​ ​ ​ +​ +​ +​ ​ ​ +​ +​ +​ +​ ​ ​ +Leases +​ ​ ​ +Operating Leases +​ ​ ​ +Total +2026 +​ +$ +73,056 +​ +$ +110,773 +​ +$ +183,829 +2027 +​ +33,814 +​ +97,545 +​ +131,359 +2028 +​ +— +​ +39,362 +​ +39,362 +2029 +​ +​ +— +​ +​ +— +​ +​ +— +Total undiscounted lease payments +​ +106,870 +​ +247,680 +​ +354,550 +Less: imputed interest +​ +( 4,723 ) +​ +( 22,831 ) +​ +( 27,554 ) +Total lease liabilities +​ +$ +102,147 +​ +$ +224,849 +​ +$ +326,996 +​ +​ +NOTE 14: INCOME TAXES +Our income before provision for (benefit from) income taxes for the year ended December 31, 2025 and 2024 was as follows (in thousands): +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Years ended December 31, +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +United States +​ +$ +( 17,253,473 ) +​ +$ +( 22,162,510 ) +Foreign +​ +1,179,715 +​ +( 345,698 ) +Loss before income tax expense +​ +$ +( 16,073,758 ) +​ +$ +( 22,508,208 ) +​ +A provision for (benefit from) income taxes of $( 16,086 ), and $ 0 has been recognized for the years ended December 31, 2025 and 2024, respectively. +The components of the provision for income taxes for the years ended December 31, 2025 and 2024 consisted of the following (in thousands): +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Years ended December 31, +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +Current +​ +​ +​ +​ +Federal +$ +— +​ +$ +— +State +— +​ +— +Foreign +— +​ +— +Total Current +— +​ +— +Deferred +​ +​ +​ +Federal +​ +— +​ +​ +— +State +— +​ +— +Foreign +( 16,086 ) +​ +— +Total Deferred +( 16,086 ) +​ +— +Total income taxes +$ +( 16,086 ) +​ +$ +— +​ +F-63 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This guidance is intended to enhance the transparency and decision-usefulness of income tax disclosures by requiring more granular disaggregation in the effective tax rate (“ETR”) reconciliation and providing expanded information regarding income taxes paid, categorized by jurisdiction. The Company adopted the provisions of ASU 2023-09 on a prospective basis effective January 1, 2025. +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +For the Years ended December 31, 2025 +​ +​ ​ ​ +Amount ($) +​ ​ ​ +Percentage +Income Tax Expense (Benefit) at statutory federal rate +​ +( 3,375,489 ) +21.0 +% +Foreign Tax Effects: +​ +​ +​ +​ +India: +​ +​ +​ +​ +Non-taxable bargain purchase gain +​ +( 445,427 ) +2.7 +% +Others +​ +170,938 +( 1.0 ) +% +Changes in Valuation Allowance +​ +2,887,012 +( 17.5 ) +% +Nontaxable or nondeductible items: +​ +​ +​ +​ +Loss on extinguishment of debts +​ +641,679 +( 4.0 ) +% +Others +​ +105,201 +( 1.0 ) +% +​ +​ +​ +​ +​ +​ +Effective tax income +​ +( 16,086 ) +0.1 +% +​ +The company did no t have any cash paid amount for income taxes, net of refunds for the year ended December 31, 2025. +A reconciliation of the federal statutory income tax rate to the effective income tax rate prepared under the disclosure requirements prior to the adoption of ASU 2023-09 is as follows for the year ended December 31: +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +For the Years ended December 31, 2025 +​ +​ ​ ​ +Amount ($) +​ ​ ​ +Percentage +Income Tax Expense (Benefit) at statutory federal rate +​ +( 4,726,724 ) +​ +21.0 +% +Non-deductible items +​ +1,899,065 +​ +( 8.4 ) +% +Change in Valuation Allowance +​ +2,902,582 +​ +( 12.9 ) +% +Other +​ +( 74,923 ) +​ +0.3 +% +​ +​ +— +​ +0.0 +% +​ +F-64 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Deferred tax assets (liabilities) as of December 31, 2025 and 2024 consisted of the following (in thousands): +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Years ended December 31, +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +Deferred Tax Assets: +​ +​ +​ +​ +Amortization and impairment +​ +$ +— +​ +$ +492,385 +Deferred Revenue +​ +​ +50,703 +​ +​ +— +Accruals and reserve +​ +​ +484,783 +​ +​ +— +Stock based compensation +​ +​ +394,466 +​ +​ +— +Operating lease liability +​ +​ +55,480 +​ +​ +78,087 +Net operating losses +​ +​ +9,878,937 +​ +​ +8,450,019 +Excess interest expenses (163j) +​ +1,131,857 +​ +​ +— +Other +​ +​ +263,409 +​ +​ +10,566 +Deferred tax assets +​ +12,259,635 +​ +9,031,057 +Valuation Allowance +​ +( 11,843,977 ) +​ +( 8,888,489 ) +Total deferred tax assets +$ +415,658 +​ +$ +142,568 +Deferred Tax Liabilities: +​ +​ +​ +​ +Intangible assets +​ +​ +( 85,509 ) +​ +​ +— +Fixed asset +​ +( 4,238,328 ) +​ +( 28,220 ) +ROU +​ +( 40,961 ) +​ +( 114,348 ) +Other +​ +( 90,374 ) +​ +— +Total deferred tax liabilities +​ +​ +( 4,455,172 ) +​ +​ +( 142,568 ) +​ +​ +​ +​ +​ +​ +​ +Net deferred tax asset/(liability) +​ +$ +( 4,039,514 ) +​ +$ +— +​ +As of December 31, 2025, the Company had U.S. federal net operating loss (“NOL”) carryforwards of approximately $ 34,944,785 . Of this amount, $ 962,509 will begin to expire in 2036 , and the remaining $ 33,982,276 can be carried forward indefinitely. Under the Tax Cuts and Jobs Act of 2017, the utilization of federal NOLs arising in tax years beginning after December 31, 2017, is limited to 80% of the Company’s taxable income in the year of utilization. Additionally, as of December 31, 2025, the Company had state NOL carryforwards of approximately $ 15,780,473 , which will begin to expire in 2044 , and foreign NOL carryforwards of approximately $ 6,332,138 . The foreign NOL carryforwards consist of $ 1,269,615 of business losses, which will begin to expire in 2027 , and $ 5,062,523 of unabsorbed depreciation, which can be carried forward indefinitely. +Management regularly assesses the ability to realize deferred tax assets recorded based upon the weight of all available evidence, including such factors as recent earnings history and expected future taxable income on a jurisdiction-by-jurisdiction basis. In the event that the Company changes its determination as to the amount of realizable deferred tax assets, the Company will adjust its valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made. The Company’s management believes that, based on a number of factors, it is more likely than not, that all or some portion of the deferred tax assets will not be realized; and accordingly, for the year ended December 31, 2025, the Company has provided a valuation allowance for certain deferred tax assets that are expected to be unrealized against the Company’s U.S. net deferred tax assets. The net change in the valuation allowance for the years ended December 31, 2025 and 2024 was an increase of $ 2,955,488 and $ 3,680,546 , respectively. The increase in the valuation allowance year-over-year was mainly driven by the increase in net operating losses in the United States and India and interest expense carryforward. +Pursuant to Sections 382 and 383 of the Internal Revenue Code, or IRC, annual use of the Company’s net operating losses and tax credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. The amount of annual limitation is determined based on the value of the Company immediately prior to the ownership changes. The Company is in process of performing an assessment of whether a change in ownership has occurred or whether there have been multiple changes in ownership, within the meaning of Section 382. Due to the Company’s position of full valuation allowance of domestic net deferred tax assets, the Company does not believe this has any material impact on the Company’s income tax provision. +The Company had no unrecognized tax benefits for the years ended December 31, 2025 and 2024. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. No such interest and penalties were recognized during the years ended December 31, 2025 and 2024. +F-65 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The Company expects to file income tax returns in the U.S. federal, various state jurisdictions, and India for 2025. The Company is not currently under examination by income tax authorities in federal, state, or India. All tax returns remain open for examination by the federal and state authorities for three and four years, respectively, from the date of utilization of any net operating loss or credits. India’s statute of limitations generally expires three years from the end of the relevant assessment year. Therefore, the assessment years 2022–23 through 2025–26 remain open to examination. +In recent years the United States has enacted new tax legislation (the American Rescue Act, CHIPS and Science Act, and the Inflation Reduction Act). On July 4, 2025, the 2025 Tax Act was enacted in the United States. This legislation includes multiple changes, such as restoration of immediate expensing of domestic research and development expenditures under §174, reduction of GILTI and FDII deductions under §250, increase of foreign tax credit limitation from 80% to 90%, reinstatement of 100% bonus depreciation for qualified property acquired after January 19, 2025, to name a few. Due to the Company’s net operating losses for both accounting and tax purposes, the new tax legislation does not have a material impact on the Company’s provision for income taxes. +NOTE 15: RELATED PARTY TRANSACTIONS +Certain Relationships and Related Person Transactions +The following is a description of certain relationships and transactions that exist or have existed or that the Company has entered into, in each case since January 1, 2024, with its directors, executive officers, or stockholders who are known to the Company to beneficially own more than ten percent of its voting securities and their respective affiliates and immediate family members. +Sponsor of MCAC +In connection with the closing of the Business Combination, the Company assumed unsecured promissory notes totaling approximately $ 555,000 that are non-interest bearing and due on demand and advances totaling approximately $ 132,000 that are non-interest bearing and due on demand with the Sponsor of MCAC. During September 2024, the Company entered into a note conversion agreement with the Sponsor of MCAC in which the Company converted the outstanding principal on unsecured promissory notes and certain other liabilities owed to the note holders into shares of the Company’s common stock at a conversion price of $ 2.00 per share with a one-time share reset adjustment, subject to shareholder approval and a maximum aggregate ownership amount of 19.99 % for each individual lender. In connection with these agreements, approximately $ 555,000 of unsecured promissory notes and approximately $ 132,000 of accounts payable and accrued expenses were extinguished in exchange for the issuance of 343,248 shares of the Company’s common stock. +​ +In connection with the conversion agreement, the Sponsor of MCAC received a one-time share reset adjustment that was settled during the quarter ended March 31, 2025 through the issuance of 205,949 shares of the Company’s common stock (see Note 4). As of December 31, 2024, the fair value of the derivative liabilities associated with the reset adjustment was approximately $ 158,000 and was included as a component of derivative liabilities on the accompanying consolidated balance sheets. As of June 30, 2025, the derivative liabilities associated with the reset adjustment were settled in full. For the year ended December 31, 2025, the Company recorded a change in fair value on these derivative liabilities of $ 30,000 which was included as a component of change in fair value of derivative liabilities on the accompanying consolidated statements of operations and comprehensive loss. +Avanti Notes +In September 2016, the Company entered into an unsecured promissory note with a company owned by the Company’s Chief Executive Officer (the “Related Party Lender”) for an original principal sum of about $ 248,000 at September 30, 2016 (the “2016 Promissory Note”). The principal balance of the note as of December 31, 2025 and December 31, 2024 are $ 0 and approximately $ 179,910 respectively. The note bears annual interest of 14.0 %. The note does not have a maturity date, and the full note balance is to be paid over time in amounts determined by the Company. During the year ended December 31, 2025, the Company repaid the note and accrued interest thereon. +In July 2024, the Company borrowed an additional amount of about $ 93,000 from the Related Party Lender (the “2024 Promissory Note”). The loan bears interest at 14.0 % and matures in July 2031. The principal and accrued interest is due in full at maturity. During the year ended December 31, 2025, the Company repaid the note and accrued interest thereon. +In November 2025, in connection with the acquisition of controlling interest in Geo Impex & Logistics Pvt. Ltd., the Company assumed a note payable of approximately $ 279,000 due to Avanti, maturing on October 31, 2026. +F-66 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Total interest expense recognized on the promissory notes with the Related Party Lender was approximately $ 23,107 for the year ended December 31, 2025, respectively, compared to approximately $ 18,209 for the year ended December 31, 2024. +Amperics Asset Acquisition +On November 3, 2025, the Company completed the acquisition of substantially all assets of Amperics Holdings LLC and Amperics Inc. (collectively, “Amperics”) pursuant to an Asset Purchase Agreement (the “Amperics Asset Acquisition”). Mr. Bala Padmakumar, a member of the Company’s Board of Directors, previously served as Chief Executive Officer of Amperics until 2020 and holds a significant minority ownership interest in Amperics and, as such, is considered a related party to the transaction. The acquired assets consist primarily of proprietary nanotechnology-based energy storage intellectual property, including patents, know-how, software and technical documentation, which have been integrated into the Company’s Keen Labs platform to support its virtual power plant (“VPP”) and AI-enabled energy management initiatives. +The aggregate consideration for the transaction consisted of the issuance of 2,700,000 shares of the Company’s common stock to the seller. Based on the closing market price of $ 0.32 per share on the acquisition date, the implied value of the equity consideration was approximately $ 864,000 . No cash consideration was paid, and the agreement does not include any earn-outs or other contingent consideration. +The Company determined that the transaction qualified as an asset acquisition under applicable accounting guidance, as substantially all of the fair value of the acquired gross assets was concentrated in a single identifiable asset (intellectual property). Accordingly, the transaction was accounted for under ASC 805-50, and no goodwill was recognized. +Given the involvement of a related party, the terms of the transaction, including the consideration paid, were reviewed and approved by disinterested members of the Company’s Board of Directors in accordance with the Company’s related party transaction policies. The Company believes that the terms of the transaction are no less favorable than those that could have been obtained from unaffiliated third parties. +​ +NOTE 16: COMMITMENTS AND CONTINGENCIES +Legal and regulatory proceedings +The Company is subject to various routine litigation, legal proceedings, and regulatory matters, that arise in the ordinary course of its business. T he Company reviews its lawsuits, regulatory matters, and other legal proceedings on an ongoing basis and provides disclosure and records loss contingencies in accordance with the loss contingencies accounting guidance. In accordance with such guidance, the Company establishes accruals for such matters when potential losses become probable and can be reasonably estimated. If the Company determines that a loss is reasonably possible and the loss or range of loss can be estimated, the Company discloses the possible loss in these consolidated financial statements +The Company accrues for potential liability arising from legal proceedings and regulatory matters when it is probable that such liability has been incurred and the amount of the loss can be reasonably estimated. This determination is based upon currently available information for those proceedings in which the Company is involved, taking into account its best estimate of such losses for those cases for which such estimates can be made. The Company’s estimate involve significant judgement, given the varying stages of proceedings (including issues regarding class certification and the scope of many of the claims), and the related uncertainty of the potential outcomes of these proceedings. +In making determinations of the likely outcome of pending litigation, the Company considers many factors, including, but not limited to, the nature of the claims, the Company’s experience with similar types of claims, the jurisdiction in which the matter is filed, input from outside legal counsel, the likelihood of resolving the matter through alternative mechanisms, the matter’s current status and the damages sought or demands made. Accordingly, the Company’s estimate will change from time to time, and actual losses could be more or less than the current estimate. As of December 31, 2025 and 2024, other than the reserve recorded in connection with the Florida Solar acquisition litigation described below, there were no matters for which a reserve was required to be established. +Florida Solar acquisition litigation (Zrallack and RJZ Holdings LLC v. Aurai LLC, ConnectM Florida RE LLC, and Florida Solar Products, Inc.; Florida 19th Judicial Circuit—St. Lucie County) +F-67 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +On February 26, 2024, Robert J. Zrallack and RJZ Holdings LLC (the “Plaintiffs”) filed suit against Aurai LLC (“Aurai”), ConnectM Florida RE LLC (“ConnectM Florida RE”), and Florida Solar Products, Inc. (“Florida Solar”) (collectively, the “Subsidiaries”), each wholly owned subsidiaries of ConnectM Technology Solutions, Inc. (“ConnectM” or the “Company”), in connection with the Company’s 2022 acquisition of Florida Solar and related real estate transactions. +The matter was compelled to arbitration pursuant to the Stock Purchase Agreement. Following evidentiary hearings conducted in June and July 2025, the arbitrator issued an Interim Arbitration Award on September 11, 2025. Subsequent orders were entered addressing modification and attorneys’ fees and costs. On December 25, 2025, the arbitrator issued a Final Award incorporating prior rulings. +The Final Award includes: +● Approximately $ 446,945 awarded in connection with claims relating to a mortgage and promissory note (plus continuing per diem interest); +● Approximately $ 1,342,480 in damages relating to additional claims under the Stock Purchase Agreement (plus continuing per diem interest); +● Attorneys’ fees and costs totaling approximately $ 418,138 as of September 11, 2025, with interest accruing thereafter; +● Arbitrators’ fees and costs totaling approximately $ 74,013 ; and +● Certain equitable and payment-related relief, including obligations relating to specified debt instruments and credit card balances. +In aggregate, Plaintiffs’ motion to confirm seeks entry of judgment totaling approximately $ 2,500,000 plus continuing interest. +On December 30, 2025, Plaintiffs filed a motion to confirm the arbitration award in the Circuit Court for the 19th Judicial Circuit (St. Lucie County, Florida), later amended on January 7, 2026. A hearing on the motion to confirm was noticed for February 12, 2026. +The Company has filed a motion to vacate the arbitration award, which is scheduled to be heard on April 30, 2026. The Company believes confirmation of the award is not appropriate while post-award relief remains pending and continues to evaluate all available legal remedies. +On January 7, 2026, Plaintiffs also served post-award discovery requests styled as “discovery in aid of execution.” The Subsidiaries filed a motion to strike such discovery and for a protective order on the basis that no final judgment has been entered and discovery in aid of execution is premature. +As of the date of this filing: +● The arbitration award has not yet been confirmed by the court; +● No final enforceable judgment has been entered; +● Post-award motion practice remains pending; and +● The Subsidiaries are pursuing available legal remedies, including seeking vacatur and opposing confirmation. +The Company has recorded a litigation reserve of $ 1,024,002 in connection with this matter based on management’s assessment of probable loss under ASC 450. The amount reserved reflects management’s current estimate of probable exposure; however, the total amount sought by Plaintiffs significantly exceeds the recorded reserve. The ultimate outcome of the confirmation proceedings, any motion to vacate, and related enforcement proceedings cannot be predicted with certainty. The final resolution of this matter could result in adjustments to the amount reserved, which could be material to the Company’s consolidated financial statements in the period such adjustment is determined. +F-68 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Settlement of vendor obligations through issuance of shares of the Company’s common stock with make - whole provision: +Extinguishment of Vendor Obligations: +On September 24, 2024, the Company entered into a conversion agreement with a vendor in which the Company converted the outstanding obligations owed to the vendor into shares of the Company’s common stock at a conversion price of $ 2.00 per share with a one-time share reset adjustment (see Note 9), subject to shareholder approval and a maximum aggregate ownership amount of 19.99 % for the vendor. In connection with this agreement, approximately $ 539,000 of accounts payable and accrued expenses were extinguished in exchange for the issuance of 269,648 shares of the Company’s common stock (see Note 9). +On November 13, 2024, the Company entered into a debt conversion agreement with a vendor in which the Company converted the outstanding obligations owed to the vendor into shares of the Company’s common stock at a conversion price of $ 1.25 per share with a one-time consideration adjustment (see Note 9). In connection with this agreement, approximately $ 170,000 of accounts payable and accrued expenses were extinguished in exchange for the issuance of 136,000 shares of the Company’s common stock (see Note 9). +On December 27, 2024, the Company entered into a debt conversion agreement with a vendor in which the Company converted the outstanding obligations owed to the vendor into shares of the Company’s common stock at a conversion price of $ 1.25 per share with a one-time consideration adjustment (see Note 9). In connection with this agreement, approximately $ 258,000 of accounts payable and accrued expenses were extinguished in exchange for the issuance of 206,234 shares of the Company’s common stock (see Note 9). +Settlement Agreement: The Company entered into a capital markets advisory agreement in June 2024 and subsequent amendment in July 2024 whereby the Company would pay the capital market advisor $ 600,000 as consideration for services provided in connection with the Business Combination. The Company made cash payments totaling $ 75,000 during June 2024. On October 2, 2024, the Company entered into a settlement agreement with a capital market advisor, pursuant to which the Company was required to make cash payments for the unpaid balance totaling $ 525,000 and issue 125,000 shares of the Company’s common stock as additional consideration. The initial consideration of $ 600,000 were for services directly attributable to the Business Combination and reflected as offering costs that were recorded as a reduction to additional paid-in capital at closing of the Business Combination. On October 2, 2024, the Company issued 125,000 shares of the Company’s common stock with a fair value of $ 133,750 , as determined on the issuance date using the reported closing share price and recorded the additional consideration as a component of selling, general and administrative expenses on the accompanying consolidated statements of operations and comprehensive loss. As of December 31, 2025, there were no amounts outstanding under this settlement agreement to the capital market advisor. +Retirement plan: +The Company maintains a defined contribution plan under Section 401(k) of the Internal Revenue Code and a defined contribution plan for employee’s individual retirement arrangements (IRA’s). Employees may contribute between 1 % and 100 % of their wages, subject to the IRS limitations. The Company has elected to make matching contributions of 100 % of the first 3 % of an employee’s compensation for both defined contribution plans. For the years ended December 31, 2025 and 2024, the Company contributed approximately $ 57,700 and $ 76,000 , respectively. +NOTE 17: EMPLOYEE RETENTION CREDIT (ERC) +During the year ended December 31, 2025, the Company received approval from the Internal Revenue Service for ERC claims of approximately $ 645,000 . The Company recognized $ 580,000 net of service fees, within other income (expense), net for the year ended December 31, 2025, respectively. No ERC credits were received or recognized in the comparable year ended December 31, 2024. +​ +F-69 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +NOTE 18: REVENUE +The following table summarizes disaggregated revenue information by geographic area based upon the customer’s country of domicile: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Year Ended December 31, +​ +​ +2025 +​ ​ ​ +2024 +United States +​ +$ +33,067,961 +​ +$ +20,939,197 +India +​ +$ +2,768,848 +​ +​ +1,713,688 +​ +​ +​ +35,836,809 +​ +22,652,885 +​ +The following table summarizes disaggregated revenue information by nature of revenue and timing of revenue recognition: +​ +​ +​ +​ +​ +​ +​ +​ +​ +Year Ended December 31, +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +Product revenue +​ +​ +​ +​ +​ +​ +Revenue recognized at a point in time (1) +​ +$ +2,982,373 +​ +$ +— +Total product revenue +​ +​ +2,982,373 +​ +​ +— +Service revenue +​ +​ +​ +​ +Revenue recognized over a period of time (2) +​ +​ +32,854,436 +​ +​ +22,652,885 +Total service revenue +​ +​ +32,854,436 +​ +​ +22,652,885 +Total revenue +​ +$ +35,836,809 +​ +$ +22,652,885 +(1) Product revenue consists of (i) sales of ConnectM-branded heat pump products to customers, including under specific distribution agreements such as with Greentech Renewables, for which revenue is recognized at a point in time when control transfers to the customer, generally upon delivery, and (ii) sales of 4G telematics hardware units with embedded software to original equipment manufacturers (“OEMs”), for which revenue is recognized at a point in time upon transfer of control in accordance with the applicable International Commercial Terms (Incoterms) described in the respective contracts. +(2) Service revenue consists of (i) installation and maintenance services for solar energy systems and HVAC solutions across customers, (ii) logistics and delivery services provided through DeliveryCircle’s proprietary Decios platform, (iii) software manpower consultancy services and software subscription services providing access to the Company’s IIoT platform, (iv) managed solutions services including human resources and payroll administration, procurement and vendor management, marketing and lead generation, and business implementation services, and (v) distributed energy and renewables services, including engineering, procurement and construction (“EPC”) activities and sale of electricity under power purchase agreements (“PPAs”) and BTS energy service agreements. Service revenue is generally recognized over time as the customer simultaneously receives and consumes the benefits of the Company’s performance. +As a practical expedient, the Company has elected not to disclose the aggregate amount of the transaction price allocated to unsatisfied performance obligations, as our contracts have an original expected duration of less than one year. +For disaggregated revenue information by reportable segment, refer to Note 19 to the accompanying consolidated financial statements. +Accounts receivable, contract assets and contract liabilities are discussed and disclosed in Note 2 to the accompanying consolidated financial statements. +​ +​ +F-70 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +NOTE 19: REPORTABLE SEGMENTS +The Company’s operations are organized into six reporting segments: Owned Service Network, Managed Solutions, Distributed Energy & Renewables, Transportation, Logistics, and Corporate & Strategic Assets. The structure is designed to allow the Company to evaluate the performance of its different solutions offerings, provide improved service and drive future growth in a cost-efficient manner. +Selected information by reportable segment is presented in the following tables: +* The Corporate & Strategic Assets segment encompasses corporate-level operations and the Company’s investment in Geo Impex India Private Limited, which holds an approximately 76 -acre land parcel near Chatrapur, Odisha, India approved for development into a multimodal logistics park and AI-enabled data center campus. This segment did not generate revenue during the periods presented. Segment assets consist primarily of the carrying value of the Geo Impex landholding and related development rights, together with corporate cash and other assets not attributable to the Company’s other operating segments. +​ +** Distributed Energy & Renewables includes revenue of $ 575,292 and cost of revenue of $ 537,723 allocated from ConnectM India (Transportation segment) related to installation and commissioning projects. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Year Ended December 31, 2025 +​ +​ ​ ​ +Owned Service Network +​ ​ ​ +Managed +Solutions +​ ​ ​ +Logistics +​ ​ ​ +Transportation +​ ​ ​ +Distributed Energy +& Renewables +​ ​ ​ +Corporate and Strategic Assets* +​ ​ ​ +Total +Revenues +​ +$ +17,907,967 +​ +​ +3,126,238 +​ +​ +12,033,756 +​ +​ +2,065,680 +​ +​ +703,168 +​ +​ +— +​ +$ +35,836,809 +Cost of revenue +​ +10,639,101 +​ +2,277,248 +​ +9,227,775 +​ +1,689,408 +​ +537,723 +​ +— +​ +24,371,255 +Selling, general and administrative expenses +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +— +Facility costs +​ +​ +201,198 +​ +​ +143,730 +​ +​ +— +​ +​ +61,346 +​ +​ +44,884 +​ +​ +11,723 +​ +​ +462,880 +Insurance expenses +​ +​ +210,865 +​ +​ +51,730 +​ +​ +57,827 +​ +​ +764 +​ +​ +2,529 +​ +​ +448,219 +​ +​ +771,934 +Marketing expenses +​ +​ +2,311,006 +​ +​ +168,036 +​ +​ +— +​ +​ +3,775 +​ +​ +— +​ +​ +883,531 +​ +​ +3,366,348 +Operational expenses +​ +​ +3,696,282 +​ +​ +( 43,663 ) +​ +​ +748,231 +​ +​ +291,605 +​ +​ +84,693 +​ +​ +3,907,696 +​ +​ +8,684,844 +Compensation and related benefits +​ +​ +4,024,294 +​ +​ +994,087 +​ +​ +1,303,117 +​ +​ +444,223 +​ +​ +40,216 +​ +​ +1,673,018 +​ +​ +8,478,955 +Travel & entertainment +​ +​ +79,682 +​ +​ +4,778 +​ +​ +43,342 +​ +​ +52,261 +​ +​ +216 +​ +​ +134,896 +​ +​ +315,175 +Vehicle expenses +​ +​ +462,668 +​ +​ +128,830 +​ +​ +— +​ +​ +80 +​ +​ +— +​ +​ +16,766 +​ +​ +608,345 +Depreciation +​ +​ +209,186 +​ +​ +— +​ +​ +— +​ +​ +17,097 +​ +​ +167,748 +​ +​ +25,670 +​ +​ +419,701 +Amortization +​ +​ +181,058 +​ +​ +3,071 +​ +​ +148,192 +​ +​ +36,428 +​ +​ +4,059 +​ +​ +21,860 +​ +​ +394,668 +Total selling, general and administrative expenses +​ +​ +11,376,239 +​ +​ +1,450,599 +​ +​ +2,300,709 +​ +​ +907,579 +​ +​ +344,345 +​ +​ +7,123,379 +​ +​ +23,502,849 +Loss on impairment +​ +​ +548,492 +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +548,492 +(Loss) income from operations +​ +​ +( 4,655,865 ) +​ +​ +( 601,609 ) +​ +​ +505,272 +​ +​ +( 531,306 ) +​ +​ +( 178,901 ) +​ +​ +( 7,123,379 ) +​ +​ +( 12,585,787 ) +Other (expense) income, net +​ +​ +200,091 +​ +​ +— +​ +​ +( 87,082 ) +​ +​ +1,849,158 +​ +​ +( 11,008 ) +​ +​ +( 5,439,130 ) +​ +​ +( 3,487,971 ) +Net (loss) income from operations before income taxes +​ +$ +( 4,455,774 ) +​ +$ +( 601,609 ) +​ +$ +418,190 +​ +$ +1,350,842 +​ +$ +( 222,899 ) +​ +$ +( 12,562,509 ) +​ +$ +( 16,073,758 ) +Total assets +​ +$ +7,573,010 +​ +$ +751,591 +​ +$ +3,833,283 +​ +$ +2,747,593 +​ +$ +4,233,362 +​ +$ +17,031,285 +​ +$ +36,170,124 +Capital expenditures +​ +$ +49,670 +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +49,670 +​ +F-71 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Year Ended December 31, 2024 +​ +​ ​ ​ +Owned Service Network +​ ​ ​ +Managed +Solutions +​ ​ ​ +Logistics +​ ​ ​ +Transportation +​ ​ ​ +Distributed Energy +& Renewables +​ ​ ​ +Corporate and Strategic Assets +​ ​ ​ +Total +Revenues +​ +$ +12,201,600 +​ ​ ​ +​ +4,429,995 +​ ​ ​ +​ +4,307,602 +​ ​ ​ +​ +1,713,688 +​ ​ ​ +​ +— +​ ​ ​ +​ +— +​ +$ +22,652,885 +Cost of revenue +​ +7,633,214 +​ +4,412,938 +​ +3,447,440 +​ +1,212,585 +​ +— +​ +— +​ +16,706,177 +Selling, general and administrative expenses +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Facility costs +​ +​ +178,416 +​ +​ +300,686 +​ +​ +— +​ +​ +38,512 +​ +​ +— +​ +​ +4,483 +​ +​ +522,097 +Insurance expenses +​ +​ +262,063 +​ +​ +223,046 +​ +​ +31,508 +​ +​ +884 +​ +​ +— +​ +​ +354,800 +​ +​ +872,301 +Marketing expenses +​ +​ +691,980 +​ +​ +251,520 +​ +​ +— +​ +​ +11,506 +​ +​ +— +​ +​ +2,312,406 +​ +​ +3,267,412 +Operational expenses +​ +​ +653,618 +​ +​ +420,063 +​ +​ +541,489 +​ +​ +540,901 +​ +​ +— +​ +​ +2,859,007 +​ +​ +5,015,077 +Compensation and related benefits +​ +​ +2,554,216 +​ +​ +2,147,486 +​ +​ +— +​ +​ +756,406 +​ +​ +— +​ +​ +1,884,231 +​ +​ +7,342,339 +Travel & entertainment +​ +​ +61,700 +​ +​ +21,318 +​ +​ +4,973 +​ +​ +18,473 +​ +​ +— +​ +​ +35,068 +​ +​ +141,532 +Vehicle expenses +​ +​ +206,234 +​ +​ +167,600 +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +202,744 +​ +​ +576,578 +Depreciation +​ +​ +216,776 +​ +​ +​ +​ +​ +— +​ +​ +6,997 +​ +​ +— +​ +​ +41,879 +​ +​ +265,652 +Amortization +​ +​ +330,750 +​ +​ +​ +​ +​ +99,553 +​ +​ +68,118 +​ +​ +— +​ +​ +21,308 +​ +​ +519,729 +MSA working capital adjustment +​ +​ +— +​ +​ +( 3,377,288 ) +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +( 3,377,288 ) +Total selling, general and administrative expenses +​ +​ +5,155,753 +​ +​ +154,431 +​ +​ +677,523 +​ +​ +1,441,797 +​ +​ +— +​ +​ +7,715,925 +​ +​ +15,145,429 +Loss on impairment +​ +2,403,628 +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +2,403,628 +Loss from operations +​ +​ +( 2,990,995 ) +​ +​ +( 137,374 ) +​ +​ +182,639 +​ +​ +( 940,694 ) +​ +​ +— +​ +​ +( 7,715,925 ) +​ +​ +( 11,602,349 ) +Other (expense) income, net +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +( 10,905,859 ) +​ +​ +( 10,905,859 ) +Net (loss) income from operations before income taxes +​ +$ +( 2,990,995 ) +​ +$ +( 137,374 ) +​ +$ +182,639 +​ +$ +( 940,694 ) +​ +$ +— +​ +$ +( 18,621,784 ) +​ +$ +( 22,508,208 ) +Total assets +​ +$ +3,379,649 +​ +$ +705,522 +​ +$ +3,085,843 +​ +$ +1,259,687 +​ +$ +— +​ +$ +4,325,841 +​ +$ +12,756,542 +Capital expenditures +​ +$ +27,044 +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +27,044 +​ +As of December 31, 2025 and 2024, the Company’s total assets located outside the United States were approximately $ 20,000,000 and $ 1,260,000 , respectively. +​ +F-72 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The following table summarizes disaggregated revenue information by geographic area based upon the customer’s country of domicile: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Year Ended December 31, 2025 +​ +​ ​ ​ +Owned +​ ​ ​ +​ +​ +​ ​ ​ +​ +​ +​ ​ ​ +​ +​ +​ ​ ​ +​ +​ +​ ​ ​ +​ +​ +​ ​ ​ +​ +​ +​ +​ +Service +​ +Managed +​ +​ +​ +​ +​ +​ +​ +Distributed Energy & +​ +Corporate and +​ +​ +​ +​ +​ +Network +​ +Solutions +​ +Logistics +​ +Transportation +​ +Renewables +​ +Strategic Assets +​ +Total +United States +​ +$ +17,907,967 +​ +$ +3,126,238 +​ +$ +12,033,756 +​ +$ +— +​ +​ +— +​ +$ +— +​ +$ +33,067,961 +Other +​ +$ +— +​ +— +​ +— +​ +2,065,680 +​ +703,168 +​ +— +​ +2,768,848 +Total +​ +$ +17,907,967 +​ +$ +3,126,238 +​ +$ +12,033,756 +​ +$ +2,065,680 +​ +$ +703,168 +​ +$ +— +​ +$ +35,836,809 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Year Ended December 31, 2024 +​ +​ ​ ​ +Owned +​ ​ ​ +​ +​ +​ ​ ​ +​ +​ +​ ​ ​ +​ +​ +​ ​ ​ +​ +​ +​ ​ ​ +​ +​ +​ ​ ​ +​ +​ +​ +​ +Service +​ +Managed +​ +​ +​ +​ +​ +​ +​ +Distributed Energy & +​ +Corporate and +​ +​ +​ +​ +​ +Network +​ +Solutions +​ +Logistics +​ +Transportation +​ +Renewables +​ +Strategic Assets +​ +Total +United States +​ +$ +12,201,600 +​ +$ +4,429,995 +​ +$ +4,307,602 +​ +$ +— +​ +​ +— +​ +$ +— +​ +$ +20,939,197 +Other +​ +— +​ +— +​ +— +​ +1,713,688 +​ +​ +— +​ +— +​ +1,713,688 +Total +​ +$ +12,201,600 +​ +$ +4,429,995 +​ +$ +4,307,602 +​ +$ +1,713,688 +​ +​ +— +​ +​ +— +​ +$ +22,652,885 +​ +​ +NOTE 20: SUBSEQUENT EVENTS +The Company evaluated subsequent events and transactions that occurred after the consolidated balance sheet date up to the date that the consolidated financial statements were issued. Based upon this review, other than as described below or within these consolidated financial statements, the Company did not identify any other subsequent events that would have required adjustment or disclosure in these consolidated financial statements. +Non-Cash Asset Agreement +On January 1, 2026, the Company transferred all HVAC business assets and operations conducted under the Air Temp Service Co. trade name to A.T.S. Heating & Cooling LLC (“ATS LLC”), a New Jersey limited liability company, pursuant to a Non-Cash Business Asset Transfer Agreement. The transaction involved no cash consideration. ATS LLC did not assume any pre-existing liabilities of the Company, and all obligations arising prior to the Effective Date remain solely with the Company. +The Company retained a 1 % non-voting, non-distributing equity interest in ATS LLC solely for participation in a shared health benefits arrangement, and is entitled to 2 % of net proceeds should ATS LLC be sold within 24 months of the Effective Date. The Company is subject to a five-year non-compete covenant within ATS LLC’s service territories. +Management does not expect this transaction to have a material adverse effect on the Company’s ongoing operations. +Minority investment in Sun Solar +On January 5, 2026, the Company entered into an acquisition agreement to acquire a 40 % equity interest in Sun Solar LLC (“Sun Solar”), a U.S.-based residential and small-commercial solar developer and installer. +Pursuant to the acquisition agreement, the Company acquired 400,000 membership interests, representing 40 % of the issued and outstanding membership interests of Sun Solar, from the sole member of Sun Solar. As consideration for the acquired interests, the Company agreed to issue 15,000,000 shares of its common stock to the seller (the “Exchange Shares”). +The investment is intended to establish Sun Solar as a strategic installation and distribution channel for ConnectM’s home energy and electrification solutions, including solar panels, battery storage systems and related energy technologies developed by the Company’s subsidiary, Keen Labs. In connection with the investment, the Company expects to support Sun Solar’s growth through product supply, technology integration and operational support, including the deployment of solar-plus-storage systems designed to participate in virtual power plant (“VPP”) programs. +The Company is also evaluating consolidating certain of its solar installation activities within the Sun Solar platform and may deploy additional capital to expand installation capacity and geographic reach. +F-73 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The Company is evaluating the accounting treatment of the investment and currently expects the investment to be accounted for under the equity method as a minority investment, based on the Company’s ownership interest and level of influence over Sun Solar. +Sun Solar Managed Services Agreement +On January 6, 2026, the Company, through its subsidiary Keen Labs Operations, Inc. (“Keen Labs”), entered into a managed services agreement with Sun Solar LLC (“Sun Solar”). Pursuant to the agreement, Keen Labs will provide certain procurement, marketing and lead generation, and working capital loan-related services to Sun Solar. +Under the agreement, Keen Labs is entitled to fees equal to 40 % of the gross revenues received by Sun Solar from its customers, calculated on a weekly basis and payable in accordance with the terms of the agreement. The agreement will remain in effect until terminated by either party in accordance with its terms. +The Company expects the agreement to support activity within its Home and Building Electrification business. Revenue, if any, will be recognized in accordance with ASC 606, Revenue from Contracts with Customers, as the underlying services are performed. +Greentech Renewables Heat Pump Distribution Deal +On November 10, 2025, the Company announced it had entered into a distribution agreement with Greentech Renewables (“Greentech”), a U.S. distributor of solar and electrical products, for the sale and distribution of the Company’s Keen-branded high-efficiency heat pumps and related smart controls. The agreement is intended to expand the Company’s distribution reach across Greentech’s national contractor network and support broader adoption of the Company’s heat-pump technology developed by its subsidiary, Keen Labs. +Initial order – In connection with the agreement, Greentech placed an initial purchase order totaling approximately $ 1,700,000 , covering indoor/outdoor hyper-heat units, multizone outdoor units, thermostats, and electric heat kits. This order was fulfilled as of December 31, 2025. +Subsequent orders – Subsequent to December 31, 2025, Greentech placed additional purchase orders for Keen heat pumps and related products. Greentech placed a follow-on order totaling approximately $ 865,000 in January 2026, and approximately $ 1,000,000 in February 2026, thereby increasing the cumulative purchase commitments to approximately $ 1,865,000 subsequent to December 31, 2025. +Acquisition of Harry Kahn Associates, Inc. +On March 10, 2026, the Company completed the acquisition of Harry Kahn Associates, Inc. (“HKA”). Consideration consisted of 400,000 shares of the Company’s common stock. In connection with the transaction, HKA issued a $ 203,072 promissory note to the Company. No cash was paid to the sellers and no third-party indebtedness was assumed. +HKA is a leading provider of logistics support analysis databases, technical manuals, and training materials for the U.S. Department of Defense, the U.S. Coast Guard, and major defense OEMs including Boeing, Northrop Grumman, and Lockheed Martin. HKA has maintained an uninterrupted contracting relationship with the Naval Air Systems Command since 1976, holds ISO 9001:2015 certification for technical data development, and has supported programs across all branches of the U.S. military. +The acquisition expands the Company’s technology platform into the defense and government infrastructure market, positioning Keen Labs’ AI and data analytics capabilities to address predictive maintenance, lifecycle sustainment, and logistics intelligence applications across mission-critical military systems. Management believes HKA’s long-standing government relationships and structured operational datasets, combined with the Company’s technology platform, create meaningful growth opportunity in the multi-tens-of-billions-of-dollars global defense sustainment market. +The Company is accounting for the transaction as a business combination under ASC 805 and is in the process of evaluating the related accounting, including the preliminary purchase price allocation. The acquisition is a nonrecognized subsequent event under ASC 855 and therefore is disclosed, but not reflected, in the consolidated financial statements as of December 31, 2025. +F-74 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +Sale of Green Energy Gains +On March 20, 2026, the Company entered into an Asset Purchase Agreement with Forge Team, Inc. pursuant to which the Company agreed to sell certain assets of its Green Energy Gains (“GEG”) business, an energy audit and weatherization operation based in Massachusetts. +The assets sold include the GEG trade name and brand, customer relationships and data, backlog and scheduled appointments, and certain equipment and other tangible assets. The transaction excludes cash, accounts receivable, and liabilities, all of which were retained by the Company. +Total consideration for the transaction is $ 100,000 , consisting of $ 50,000 payable at closing and $ 50,000 subject to holdback provisions tied to the delivery of certain disclosures and the successful transition of operations. +The Company has agreed to provide transition support services for a period of up to 60 days following closing. In addition, the Company remains responsible for liabilities associated with services performed prior to closing. +Reverse stock split +At a special meeting of stockholders held on January 15, 2026, the stockholders approved a reverse stock split of the Company’s Common Stock at a ratio between 1 -for-5 and 1 -for-50, with the final ratio to be determined by the Company’s Board of Directors. +On March 26, 2026, the Board of Directors approved a 1 -for-32 reverse stock split and authorized the Company to effect the reverse stock split at 4:01 p.m. (Eastern Time) on April 17, 2026, with trading on a split-adjusted basis expected to commence on April 20, 2026, subject to regulatory approval and completion of applicable procedures. The reverse stock split will result in one share of Common Stock being issued for each 32 shares outstanding, with fractional shares rounded up to the nearest whole share. +The Company has filed, or is in the process of filing, the necessary documentation with applicable regulatory authorities, including FINRA, and is coordinating with its transfer agent and other parties to effect the reverse stock split. +Convertible note agreement issuances +Subsequent to December 31, 2025, the Company issued several unsecured convertible promissory notes to certain investors for aggregate gross proceeds of approximately $ 2,125,150 . During January 2026, the Company issued four convertible promissory notes with aggregate principal of $ 1,077,150 , and in February 2026, the Company issued two convertible promissory notes with principal of $ 478,000 . +In addition, in March and April 2026, the Company issued additional convertible promissory notes with aggregate principal of $ 570,000 , including (i) $ 224,000 issued on March 30, 2026, (ii) $ 150,000 issued on March 30, 2026, and (iii) an aggregate of $ 200,000 issued on April 2, 2026. +The notes bear interest and are convertible into shares of the Company’s common stock at the option of the holders in accordance with their respective terms. In certain instances, the Company issued shares of common stock as additional consideration in connection with these financings, and the notes may be issued at a discount to face value. +The notes were issued in private placements exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) and/or Regulation D. Proceeds were used for general corporate purposes and working capital. +Promissory note agreement and term loan issuances +Subsequent to December 31, 2025, the Company entered into several promissory note and term loan agreements with certain lenders, providing aggregate gross proceeds of approximately $ 1,310,000 . +During January and February 2026, the Company issued multiple promissory notes, including notes with principal amounts of $ 500,000 , and $ 230,000 . In addition, the Company entered into term loan agreements with principal amounts of $ 500,000 and $ 80,000 with third-party lenders. +F-75 +Table of Contents +NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS +The promissory notes generally bear interest and mature within their respective contractual terms, and the term loans are repayable pursuant to scheduled principal and interest payments over their contractual terms. +In February 2026, the Company also entered into a first amendment to one of the previously issued promissory note agreements, which modified certain terms of the related financing. +The proceeds from these financings were used for working capital and general corporate purposes. +Merchant cash advance +On February 6, 2026, the Company entered into a business loan and security agreement with a lender pursuant to which it received $ 200,000 in funding (the “Initial MCA”). Under the terms of the agreement, the Company was required to make 24 weekly payments of approximately $ 11,833 for a total repayment amount of $ 284,000 . The proceeds were used for working capital and general corporate purposes. +On March 16, 2026, the Company entered into a new business loan and security agreement with a lender for $ 650,000 (the “Refinanced MCA”), which refinanced and replaced the Initial MCA. After deducting an origination fee of approximately $ 32,800 , the payoff of the remaining balance on the Initial MCA, and other applicable fees, net proceeds of approximately $ 428,400 were disbursed to the Company. The Refinanced MCA requires 36 weekly payments of approximately $ 25,639 for a total repayment amount of $ 923,000 and matures in November 2026. The agreement is secured by substantially all assets of the Company and certain of its subsidiaries, and is personally guaranteed by an officer of the Company. The proceeds were used for working capital and general corporate purposes. The agreement contains customary covenants, including restrictions on additional indebtedness and a prohibition on stacking (entering into additional merchant cash advances or similar financing arrangements without the lender’s consent). Early repayment is permitted without penalty, subject to a potential discount on interest as specified in the agreement. +On March 24, 2026, the Company entered into an additional business loan and security agreement with a lender pursuant to which it received $ 350,000 in funding. After deducting an origination fee of approximately $ 14,263 , the Company received net proceeds of approximately $ 335,738 , subject to potential reductions for repayment of prior obligations or other fees. The agreement requires 36 weekly payments of approximately $ 13,806 for a total repayment amount of $ 497,000 and matures on December 1, 2026. +The agreements are secured by substantially all assets of the Company and certain of its subsidiaries and include customary covenants, including restrictions on additional indebtedness and limitations on entering into additional merchant cash advance or similar financing arrangements without lender consent. Early repayment is permitted without penalty, subject to potential reductions in interest or fees as specified in the agreements. The proceeds from these financings were used for working capital and general corporate purposes. +Factoring and purchase order financing arrangement +On March 9, 2026, the Company, through its subsidiary Keen Labs Operations, Inc., entered into an addendum to its existing factoring and security agreement with a lender. The arrangement provides working capital through the purchase of receivables and approved purchase order financing, including supplier payments made directly by the lender. +Pursuant to the addendum, Keen Labs Operations, Inc. was added as an additional obligor and is jointly and severally liable with affiliated entities. The obligations are secured by substantially all assets of the applicable entities and include cross-collateralization and cross-default provisions. +The facility also includes customary enforcement mechanisms typical for arrangements of this type, including the ability to accelerate obligations and pursue collection remedies upon an event of default. +​ +​ +F-76 \ No newline at end of file diff --git a/raw/filings/0001895249/2025/0001104659-26-044467/filing_metadata.csv b/raw/filings/0001895249/2025/0001104659-26-044467/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..f62630342ff7f81d1a2ee0e6ad10a1ead27ddeb1 --- /dev/null +++ b/raw/filings/0001895249/2025/0001104659-26-044467/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001895249,CNTM,"ConnectM Technology Solutions, Inc.",2025,10-K,2026-04-16,2025-12-31,2026-04-16T21:30:27.000Z,0001104659-26-044467,cntm-20251231x10k.htm,10-K,26228079,1,1,https://www.sec.gov/Archives/edgar/data/1895249/000110465926044467/cntm-20251231x10k.htm,https://www.sec.gov/Archives/edgar/data/1895249/000110465926044467/ diff --git a/raw/filings/0001895249/2025/0001104659-26-044467/item1.txt b/raw/filings/0001895249/2025/0001104659-26-044467/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..69d02d7e313a76b472242274e12eb20ac66620f5 --- /dev/null +++ b/raw/filings/0001895249/2025/0001104659-26-044467/item1.txt @@ -0,0 +1,271 @@ +Item 1. Business. +Overview +ConnectM Technology Solutions, Inc. (“ConnectM” or the “Company”) is a constellation of technology-driven businesses powering the modern energy economy. ConnectM believes everyone deserves affordable access to clean, reliable energy. The Company’s mission is to reshape how energy is used in homes, businesses, transportation, infrastructure, and logistics to create a higher quality of life, lower costs, and help reverse climate change for a more sustainable future. +Through its six reportable segments—Owned Service Network, Managed Solutions, Distributed Energy & Renewables, Transportation, Logistics, and Corporate & Strategic Assets—ConnectM delivers artificial intelligence (“AI”)-enabled electrification, distributed energy, mobility, and Industrial Internet of Things (“IIoT”) solutions to customers worldwide. +In October 2025, ConnectM launched Keen Labs Operations, Inc. (“Keen Labs”), a wholly owned technology subsidiary that consolidates the Company’s AI, software, and IIoT connectivity platforms into a unified innovation engine. Keen Labs serves as ConnectM’s dedicated product development and data-science hub, focused on building AI-powered solutions that enable virtual power plants (“VPPs”), intelligent building systems, and connected mobility and logistics networks. The creation of Keen Labs allows the Company to segment its technology assets from its service operations, enhancing focus, scalability, and capital efficiency while enabling future strategic partnerships and mergers and acquisitions (“M&A”) activity. +ConnectM operates a proprietary, AI-driven data and intelligence platform that monitors, analyzes and manages connected assets across their full lifecycle. The platform continuously aggregates anonymized performance and utilization data from service providers, OEMs, infrastructure providers and enterprise customers, which is used to train large language and predictive AI models to enhance operating efficiency, reduce downtime and extend asset life. +The platform functions as a self-reinforcing data network, integrating inputs from buildings, vehicles and infrastructure to create a proprietary intelligence loop that improves reliability, optimizes asset deployment and informs future product design. ConnectM currently processes more than 30 gigabytes of operational data and over two million EV miles daily across more than 120,000 connected assets, providing a large-scale, continuously expanding AI training dataset within the modern energy sector. +The Company’s data architecture positions it to participate in emerging fields such as actuarial risk modeling, built-environment digital security, and AI-enabled infrastructure management—areas where the convergence of artificial intelligence, connected systems, and energy operations is reshaping industrial efficiency. +Our Products and Services +ConnectM’s product and service portfolio is organized into six operating segments that together form a unified platform for managing energy, equipment, and mobility assets: +1. Owned Service Network. ConnectM partners with and operates residential and commercial service providers that deliver end-to-end electrification services, including HVAC, solar, battery storage, weatherization and EV charger installations. These providers utilize ConnectM’s platform and shared infrastructure to execute installations and ongoing service delivery across customer sites. +2. Managed Solutions (Service Provider Platforms) . ConnectM provides a technology-enabled platform that allows service providers to remotely monitor and maintain customer systems, leveraging AI-based tools for diagnostics, performance optimization and preventive maintenance. The Company also delivers centralized business services, including marketing, finance, procurement and rebate management, designed to enhance provider efficiency and profitability. +3. Distributed Energy & Renewables (“DER”) – Solar and distributed energy solutions for commercial, residential, consumer, and industrial customers in India, including project development, EPC services and ongoing energy management; +4 +Table of Contents +4. Transportation. ConnectM develops connected hardware and software for OEMs and fleet operators focused on EV management, battery diagnostics, and predictive analytics. The Transportation segment’s operations are primarily based in India, where ConnectM provides fleet intelligence and battery management solutions to automotive and industrial customers like Volvo, Ashok Leyland, and Motovolt across multiple sectors. This geographic focus enables the Company to serve one of the fastest-growing EV markets globally, supported by strong regulatory and industrial tailwinds. The segment’s technology captures and processes real-time telematics data to optimize vehicle utilization, route efficiency, and charging coordination. +5. Logistics . Through its subsidiary DeliveryCircle LLC, ConnectM operates in the rapidly growing last-mile delivery market, providing dispatch, brokerage, and delivery-management software. DeliveryCircle’s proprietary Decios platform offers intelligent routing, predictive fulfillment, and integration with leading e-commerce and order-management systems. +6. Corporate & Strategic Assets. ConnectM’s investment in GeoImpex, a strategic real estate asset with the potential for development into a multimodal logistics park. GeoImpex is not currently generating revenue; however, the asset represents a significant long-term development opportunity aligned with the Company’s logistics and infrastructure strategy. +Across these segments, ConnectM’s AI-enabled platform aggregates large volumes of data to deliver actionable insights for enterprise, OEM, infrastructure, and service provider customers. The Company also provides AI-enabled hardware components—including intelligent heat-pump controllers, batteries, digital control units, and vehicle modules—that expand the reach of its data ecosystem. +Together, these technologies create a unified intelligence layer that improves asset performance, optimizes energy consumption, and supports recurring SaaS and platform-based revenue models. +Our Networks and Platforms +ConnectM’s platform aggregates over 30GB/day of real time operating and performance data from the 120,000+ electrified assets across our portfolio companies with the goal of providing superior value to enterprise, OEM and service provider customers. +The sheer volume of data collected daily allows the Company to continually train and refine its data models to create more value for customers. For example, data collected from users, and OEMs enables the Company’s customers to report on the tangible and measurable sustainable impact of their vehicles or other equipment. This reporting helps the Company’s OEM customers like Volvo, Motovolt, and Ashok Leyland obtain Indian government support, increase adoption, and boost overall public goodwill for EVs. +During the fiscal year ended December 31, 2025: +● We installed 173 heat pumps, 193 high efficiency air conditioners, and 113 fuel-efficient heating systems; +● We installed enough solar roofs to generate 1,249.84kW of electricity, decarbonizing 17.5 kT of CO2 during asset lifetime; +● Our network was responsible for 95.5 GWh of electrification, equivalent to powering 35,000 homes per day¹ +● We displaced 73,506 metric tons of CO2, equivalent to the amount of CO2 3.4 million trees can absorb in a year² +● We offset 6.7 million gallons of fossil fuel from being used, equivalent to driving around the world roughly 7,000 times³, and +● We ended the year with a total of 25,931 EVs on the platform and managed a total of 206 million green miles throughout the year. +1 +U.S. Energy Information Administration (EIA) - Assuming the average home uses approximately 30 kilowatt-hours per day. +2 +U.S. Department of Agriculture +3 +Assumes 26 miles per gallon +​ +5 +Table of Contents +Our Technology Applications +Connected Operations Application +The Company’s Connected Operations application provides advanced connectivity and real-time equipment monitoring to help promote a future powered primarily by clean, renewable energy. ConnectM’s innovative technology and modern energy solutions are designed to empower our service provider, enterprise, infrastructure, and OEM customers to drive a reduction in their customer’s (the “End User”) operating costs and overall environmental impact. This application, built upon ConnectM’s tech platform, creates more energy-efficient homes, buildings, infrastructure (e.g. cell towers), logistics, and transportation by providing insight and refined intelligence to electromechanical equipment, vehicles, and systems. +ConnectM’s Connected Operations application includes key features that enhance the Company’s sales operations in its Owned Service Network and Managed Solutions segments: +● Single app-based interface for service providers and End Users; +● Efficient process for generating sales leads; +● All digital marketing and lead generation; +● Long-term and AI-driven End-User/customer engagement and management, including the use of data analytics to upsell services; and +● Shared services for service provider branding and brand equity enhancement, which includes: +● One service delivery platform for quality control, training, and tech support, and +● Consolidation of sales operations, vendors, insurance, fleet management, fuel expenses, payroll, benefits, recruitment, and human resources. +ConnectM’s Connected Operations application also includes key features that enhance the Company’s customer’s experience: +● Customer self-service enabled; +● Platform integration with OEMs, distributors, and sales channels for branding and promotions; and +● Single unified whole home electrification interface for frictionless cross-sales of different electrification and decarbonization solutions. +In ConnectM’s Transportation segment, its Connection Operations application also enables transportation OEMs to offer smart features to their end customers along with potentially valuable data collection within our platform. The application, which is configuration-based, makes it simpler for OEMs to integrate the Company’s solutions within their vehicles. The application offers business applications for transportation OEMs, EV charging, shared mobility, and battery swapping operations management. +ConnectM’s Connected Operations application offers End Users and stakeholders in the ecosystem (including equipment partners, utilities, and service providers the following services through our Smart Vehicle Control Unit. +Integration of subsystems: Integrates with major subsystems of EV such as battery management system (“BMS”), motor control unit (“MCU”) and instrument cluster. +6 +Table of Contents +Intelligence at the Edge: The VCU can execute analytical processes at the electric vehicle, where data is collected via smart devices and IoT sensors, and transfer processed data to the cloud instead of sending only raw data. VCU enables control of the vehicle based on safety aspects that can be pre-configured or enhanced over the air. For example, the mode of motor control can be changed based on an increase in battery temperature. The VCU can interface with additional sensors and actuators on a vehicle like GPS, temperature, tire-pressure, theft detection, ignition line and motor mode control, for taking actions at the edge or enabling the End User to control using a connected application. +Remote management: Allows remote management of BMS/MCU configuration, firmware operations over the air. Also, the VCU firmware can be remotely updated. This feature helps OEMs to enhance and quickly upgrade settings of the BMS/MCU remotely without visiting service stations. +Connected Consumer Application (End User-facing) +● End Users have access to a view of vehicle health, location, utilization, and receive live notifications. +● Provides a platform for End Users to buy insurance, warranty, accessories, or any other services offered by the OEM. +● Built-in security capabilities enable End Users to prevent theft or locate the vehicle if theft occurs. +● Special sensors on the VCU can detect if the vehicle experienced a crash situation and can notify family members in emergency situations. +Data Science and Analytics +ConnectM’s platform generates various insights that help detect battery deterioration, cell imbalance, and weaker cells that may damage an entire battery. +ConnectM’s platform enables transportation OEMs to proactively work with their customers to detect vehicle anomalies and facilitates submitting warranty claims when applicable. +ConnectM’s platform helps OEM service teams to analyze their customer complaints by reviewing past data and usage patterns. +Location details provided by ConnectM’s platform enable OEMs to assess vehicle density, and this data can be leveraged to partner with charging station infrastructure providers to set up networks at locations with higher utilization and revenue potential. +Our Value Proposition +ConnectM’s platform and underlying technology applications provide meaningful advantages to End Users served through the Company’s service provider, enterprise, infrastructure provider, and OEM customers. +Lower Energy Costs. ConnectM’s platform streamlines access to available energy credits, incentives, and rebates, enabling direct application of these benefits to End Users’ utility bills. This process delivers immediate and measurable savings while increasing adoption of energy-efficient systems. +Connected Operations. ConnectM’s technology enables seamless and secure connectivity across diverse classes of equipment and vehicle assets. This connectivity supports continuous data collection, analytics, and remote control (collectively, “ Connected Operations ”). Service-provider customers use Connected Operations to balance end-user demand throughout the year, while OEM customers use these capabilities to monitor, manage, and extend the useful life of electric-vehicle and distributed-energy assets. +Enabling the Modern Energy Ecosystem. ConnectM anticipates sustained global demand for more efficient and connected sources of energy. The Company’s mission is to enable its customers to transition toward a modern energy economy by integrating AI-driven efficiency, reliability, and intelligence across built environments, transportation, and distributed-energy systems. As ConnectM expands its product and service offerings, it expects to support a growing base of customers worldwide in accelerating this transition. +7 +Table of Contents +Growth Strategy +Many participants in ConnectM’s industry operate within a single vertical, such as solar or electric vehicles. These pure-play companies tend to be more exposed to cyclical fluctuations that affect individual market segments. In contrast, ConnectM employs a diversified strategy inspired by long-term value-investment principles—focusing on disciplined capital allocation, operational excellence, and strong management execution across multiple high-growth segments. +Through its constellation model, ConnectM benefits from a broad base of customers and recurring income streams across its Owned Service Network, Managed Solutions, Transportation, and Logistics segments. This structure enables the Company to deploy capital dynamically toward areas with the highest growth potential while mitigating exposure to sector-specific downturns. +ConnectM’s customer base ranges from residential and commercial service providers using the Company’s digital platform to deliver electrified heating, cooling, and distributed-energy products, to OEMs such as Volvo, Ashok Leyland, and Motovolt, which produce electric buses, trucks, and consumer EVs. Many of the Company’s portfolio businesses include high-margin, recurring-revenue software products as part of their offerings, and ConnectM’s growth strategy emphasizes increasing the proportion of such software and data-driven subscriptions within its future revenue mix. The Managed Solutions segment allows ConnectM to maintain an asset-light operating model as it scales, since this business line does not require a large direct sales force or extensive operating team. To drive growth, the Company intends to deploy capital selectively into large addressable markets characterized by low innovation, limited penetration, and double-digit projected compound annual growth rates. ConnectM has historically avoided singular, concentrated investments in pure-play businesses and plans to remain cautious with respect to balance-sheet leverage. +ConnectM aims to expand its OEM and service-provider customer base through both organic growth initiatives—within the Owned Service Network, Transportation, and Logistics segments—and inorganic expansion through mergers and acquisitions executed under the Managed Solutions segment. +ConnectM intends to leverage its competitive strengths and market position to enable service providers and OEMs to offer a “one-stop-shop” solution for the clean energy transition. The Company’s growth strategy includes the following initiatives: +​ +Service Offering Expansion : Leveraging existing customer and developer networks, ConnectM may expand its offerings in EV charging and energy storage. +Expansion of Existing Software Capabilities : Given the approximately 30 GB of data collected daily, the Company plans to enhance its existing data science and software capabilities. By applying artificial intelligence, ConnectM aims to develop additional software tools and data models capable of analyzing prospective customer properties to identify attractive opportunities for both the Company and its customers. +Customer-Base Growth : ConnectM intends to expand its customer base through referrals and a customized, relationship-focused sales approach. +Market Opportunity +ConnectM believes the global asset base of equipment, vehicles, machinery, and devices that consume energy is measured in the multi-trillion-dollar range. This view is supported by third-party research indicating that the energy ecosystem represents one of the largest categories of physical and financial assets in the global economy. For example, McKinsey & Company estimates that annual investments in the energy sector total approximately $1.5 trillion today and are expected to rise to between $2.0 trillion and $3.2 trillion by 2040. 4 In addition, the International Renewable Energy Agency (IRENA) estimates that cumulative investments in end-use sectors, including electrification, efficiency, heating, and transport, will reach $73 trillion by 2050. 5 These figures underscore the scale of global assets that rely on energy to operate and highlight the magnitude of the market opportunity for technology-enabled energy optimization and electrification solutions. +​ +4 +McKinsey & Company, Global Energy Perspective 2023: Energy Value Pools Outlook (2023). +5 +International Renewable Energy Agency (IRENA), World Energy Transitions Outlook 2023 (2023). +8 +Table of Contents +The stark reality is that for every unit of fossil fuel burned to power an asset, approximately two-thirds of that energy is lost as waste heat, with only about one-third providing useful work or delivered energy. 6,7 This represents an inefficient and costly baseline when consumers or businesses evaluate replacement options. ConnectM owns, operates, and partners with companies that electrify assets to operate more efficiently and effectively, while providing cloud connectivity and intelligence for those assets. +​ +Market Sizing – Owned Service Network and Managed Solutions +​ +Total Addressable Market  +​ +The total addressable market for ConnectM’s integrated platform, which offers multiple clean-energy and decarbonization services, is substantial. Across the United States, Canada, and the European Union, there are an estimated 430 million homes and light commercial buildings. 8 With an average annual expenditure of approximately $3,850 per space for equipment purchase, maintenance, and energy operation, the total annual addressable market is estimated at approximately $1.7 trillion. 9 These services are considered essential infrastructure and are experiencing sustained global demand, driven by aging equipment replacement cycles, growing interest in energy efficiency, and increasing climate control requirements. +​ +Serviceable Addressable Market   +​ +The serviceable addressable market for ConnectM’s service-provider network includes the New England, Mid-Atlantic, and South Atlantic regions of the United States over the next five years. These regions collectively contain approximately 46.8 million homes and 1.68 million light commercial buildings, representing a combined market opportunity of roughly $40 billion. 10 Growth in these regions is being accelerated by decarbonization policies, rising utility costs, and expanded incentive programs supporting sustainable building upgrades and distributed-energy adoption. +​ +Serviceable Obtainable Market   +​ +The serviceable obtainable market for HVAC and solar installation services in Massachusetts, Virginia, and Florida is estimated at $12 billion. 11 These states encompass approximately 19 million homes and 483,000 light commercial buildings. Favorable state-level incentive programs, strong consumer demand for efficient equipment, solar tax credits, and aging building stock continue to drive market expansion. ConnectM maintains an operational footprint in these regions and intends to leverage this presence to capture additional market share. +​ +​ +​ +6 +Lawrence Livermore National Laboratory, U.S. Energy Flow Chart (2023), https://flowcharts.llnl.gov +7 +Rocky Mountain Institute, The Incredible Inefficiency of the Fossil Energy System (2023). +8 +U.S. Census Bureau, American Housing Survey 2023; Eurostat, European Housing Stock Database 2023. +9 +U.S. Energy Information Administration (EIA), Annual Energy Outlook 2024; Statista (2024) — “Average annual home energy expenditure per household.” +10 +CBRE Research (2024), U.S. Commercial Building Inventory; U.S. Department of Energy, Building Energy Data Book. +11 +Wood Mackenzie (2024), U.S. Residential and Commercial Solar Market Outlook; MarketsandMarkets (2024), HVAC Systems Market by Region. +​ +9 +Table of Contents +Market Sizing – Transportation +​ +Total Addressable Market (“TAM”) +​ +The global total addressable market for ConnectM’s transportation business that focuses on EV fleet management and battery diagnostics is estimated at approximately $14 billion in 2024, 12 driven by accelerating fleet electrification, growing EV adoption, and the increasing need for real-time data and predictive insights. The EV fleet-management market—valued at roughly $10 billion—includes software and services for vehicle tracking, charging coordination, route optimization, and predictive maintenance. 13 The battery diagnostics and health-monitoring segment—estimated at about $4 billion—covers battery analytics, degradation tracking, resale assessments, and thermal-risk management. 14 As the global EV stock is projected to exceed 250 million vehicles by 2030, 15 these data-heavy, software-driven markets are expected to grow rapidly, reaching a combined total addressable market of approximately $45 billion to $75 billion by the end of the decade. +Serviceable Addressable Market (“SAM”) +The serviceable addressable markets for ConnectM’s transportation business are the U.S., India, and the Middle East. The Company estimates these markets represented an aggregate SAM of approximately $5.5 billion in 2025, based on its allocation of regional shares from third-party market studies covering EV fleet management/telematics and battery health/diagnostics, combined with regional fleet and EV adoption indicators. 16,17,18,19 In the U.S., the SAM is driven by strong demand from corporate, municipal, and delivery fleets, supported by incentives and growing EV adoption. India is in the early stages of fleet electrification, with increasing demand for battery health management as the market matures. In the Middle East, electrification is accelerating due to government and luxury vehicle fleets, particularly in the UAE and Saudi Arabia, where green-energy initiatives are driving adoption. As fleet electrification grows across these regions, demand for fleet-management solutions and battery diagnostics is expected to expand. +Serviceable Obtainable Market (“SOM”) +The serviceable obtainable market for ConnectM’s transportation business consists of EV and battery diagnostics OEMs in India. The Company estimates this market opportunity to be approximately $150 million in 2025 and beyond, based on market data for EV fleet management and battery management systems in India. 20,21 While fleet electrification in India is still in its early stages, the market is growing rapidly, particularly in sectors such as e-commerce logistics, last-mile delivery, and electric two-wheelers. Demand for EV fleet management solutions, including route optimization and charging infrastructure management, is increasing as more fleets adopt electric vehicles. +12 Fortune Business Insights, Fleet Management Market Size, Share & COVID ‑ 19 Impact Analysis, By Type (Operational, Vehicle Tracking, and Others), and Regional Forecast, 2024–2032 (published 2024). +13 MarketsandMarkets, EV Fleet Management Market by Offering, Service, Deployment Type, and Region – Global Forecast to 2030 (published 2024). +14 BIS Research, Global Battery Management System and Battery Diagnostics Market, Forecast 2023–2033 (published 2023). +15 International Energy Agency (IEA), Global EV Outlook 2024 (published April 2024), projecting global electric-vehicle stock to exceed 250 million by 2030. +16 Fortune Business Insights, Electric Vehicle Telematics Market Size & Share (2024) — global EV telematics market $12.42B in 2024, projected to $63.0B by 2032. +17 The Business Research Company, Electric Vehicle Fleet Management Global Market Report (2025) — EV fleet management market $23.52B (2024) to $24.92B (2025). +18 IMARC Group, India Fleet Management Market (2024) — India fleet management market $1.2B in 2024 (context for regional allocation). +19 Mordor Intelligence, Middle East & Africa Electric Vehicle Market (2025) — MEA EV market size and growth outlook (context for regional allocation). +20 Mordor Intelligence, India Fleet Management Software Market (2024), estimating the market at approximately USD 1.69 billion in 2025 and projected to reach USD 3.15 billion by 2030. +21 IMARC Group, India Battery Management System Market Size & Growth, 2025–2033 (2024), estimating the market at approximately USD 278 million in 2024 and projected to exceed USD 1.2 billion by 2033. +​ +10 +Table of Contents +Market Sizing – Logistics +​ +Total Addressable Market  +​ +The TAM for last-mile delivery services is currently estimated at approximately $150 billion, driven by rapid e-commerce growth, consumer demand for faster delivery times, and the need for more efficient logistics solutions. As consumers increasingly expect same-day and next-day delivery, the market is projected to grow significantly, with estimates suggesting it could reach approximately $260 billion by 2030. 22,23 The rise of urbanization and the push for sustainable delivery options, including electric delivery vehicles, further contribute to the market’s expansion. +Serviceable Addressable Market +The SAM for last-mile delivery services in the United States and Canada is estimated at approximately $43.8 billion in 2023, consisting of $37.7 billion in the United States and $6.1 billion in Canada, based on third-party industry research. 24,25 As a cross-check, one researcher estimates the North America last-mile delivery market at $66.4 billion in 2024. 26 Together, the U.S. and Canadian markets represent a significant portion of the global last-mile delivery landscape, supported by the expansion of e-commerce and the need for more efficient logistics solutions. +Serviceable Obtainable Market +The SOM for last-mile delivery of freight goods (such as palletized items) in the United States is estimated at approximately $20 billion, based on management’s allocation of the overall U.S. last-mile and freight-logistics markets for the segment of business-to-business deliveries to warehouses, distribution centers, and end customers. 27,28 This segment serves industries such as wholesale, manufacturing, and retail, which require the delivery of larger freight to businesses, warehouses, and distribution centers. The market’s growth is driven by the increasing demand for efficient, fast freight deliveries as part of e-commerce B2B operations, retail supply chains, and third-party logistics providers. The rise of these industries, combined with the need for specialized vehicles and infrastructure to handle bulk shipments, positions freight last-mile delivery as a key market within the broader logistics and transportation sector. +22 Vertex Market Research, Last Mile Delivery Market Size & Share — Global Forecast 2025 ‑ 2032 (2025), estimating the global last-mile delivery market at approximately USD $155 billion in 2024 and projected to reach USD $300 billion by 2032. +23 Grand View Research, Last Mile Delivery Market Size & Outlook 2023 ‑ 2030 (2024), estimating the global last-mile delivery market generated USD $143.10 billion in 2023 and projected to reach USD $258.68 billion by 2030. +24 Grand View Research, United States — Last-Mile Delivery Market Size & Outlook, 2023–2030 (2024), estimating U.S. market revenue of USD 37,743.3 million in 2023 and USD 62,419.8 million by 2030. +25 Grand View Research, Canada — Last-Mile Delivery Market Size & Outlook, 2023–2030 (2024), estimating Canada market revenue of USD 6,091.7 million in 2023 and USD 8,868.2 million by 2030. +26 Cognitive Market Research, North America Last-Mile Delivery Market Report (2024), estimating North America at USD 66,381.68 million in 2024. +27 Grand View Research , United States — Last-Mile Delivery Market Size & Outlook, 2023–2030 (2024), estimating the U.S. last-mile delivery market at USD $37.7 billion in 2023 and USD $62.4 billion by 2030. +28 Mordor Intelligence, United States Freight and Logistics Market (2025), estimating the total U.S. freight and logistics market at USD $1,381.1 billion in 2025, of which freight transport represents roughly 63 percent. +11 +Table of Contents +Our Competitive Strengths +ConnectM possesses a number of competitive advantages that the Company believes contribute to its growth and differentiation. Through its technology platform, ConnectM provides service-provider and OEM customers with enhanced operational visibility, lower lifecycle costs, and an expanded suite of integrated products and services. +ConnectM’s owned and managed service-provider networks in the United States deliver health, comfort, and efficiency to commercial and residential End Users through real-time monitoring, intelligent HVAC management, and predictive control of environmental parameters such as temperature, humidity, and carbon dioxide levels. In international markets, ConnectM enables OEM customers across Asia and the Middle East to scale more effectively by integrating vehicle and equipment data into its connected-operations platform. +Superior Customer Experience . ConnectM emphasizes high customer satisfaction and competitive pricing across all business segments. Customers can access support through multiple digital channels—including in-platform messaging, phone, text, and email—on a 24/7 basis. The Company’s platform architecture also integrates customer feedback and operational data to continuously enhance the user experience for service providers, infrastructure providers, and enterprise clients. +Technology and Data Advantage . ConnectM leverages a robust technology stack and proprietary data infrastructure built from its broad consumer base, transaction volume, and connected-asset fleet. This scale enables continuous learning and optimization within its platform, which supports applications in energy efficiency, HVAC optimization, EV and fleet management, and predictive maintenance. The Company’s data architecture generates compounding insights that improve asset performance across all customer categories. +Centralized Innovation, Localized Execution . ConnectM develops and maintains much of its core technology centrally while deploying region-specific operational teams that adapt solutions to local market needs. This combination of centralized innovation and localized execution allows the Company to address complex operational challenges efficiently, respond quickly to regulatory or market changes, and maintain consistent service quality across geographies. +Collectively, these strengths—customer integration, connected-operations technology, AI-driven analytics, and centralized innovation—position ConnectM to sustain growth and expand recurring-revenue opportunities across its Owned Service Network, Managed Solutions, Transportation, and Logistics segments. +Risk Management & Compliance +We have built a strong culture around risk management and compliance. We believe our technology-driven processes help us to mitigate risks within our business. +We are focused on complying with all applicable laws and regulations while providing the best possible customer experience. Our legal and compliance teams work hand-in-hand with our business teams to ensure that we remain up to date on regulatory requirements, and that these requirements are met as new products and services are added. We prioritize strategic thinking about how best to protect the interests of the consumer, particularly since we are building a digitally native system in an industry that has traditionally been analog. +Our compliance program is kept current by our internal compliance team, whose members track regulatory updates, conduct thorough reviews of policies and procedures, and monitor the licensing and education requirements of our team members. +Security and Data Protection +We employ various in-house and third-party technologies and network administration policies that are designed to protect our computer network and the privacy of our customers’ and team members’ information from external threats and malicious attacks. +We believe that the technologies and network security plan we have adopted are appropriate to the size, complexity and scope of services we provide, as well as the nature of the information that we handle. Recently, we have experienced substantial growth, which presents additional challenges to our security and data protection infrastructure. We have a team of professionals dedicated to network and information security who monitor information systems, evaluate the effectiveness of technologies against known risks and adjust systems accordingly. In addition, we periodically have network security evaluated by outside firms specializing in network security to help us identify and remove any potential vulnerabilities. +12 +Table of Contents +We have undertaken measures intended to protect the safety and security of our information systems and the data therein, including physical and technological security measures, team member training, contractual precautions, business continuity plans, and implementation of policies and procedures designed to help mitigate the risk of system disruptions and failures and the occurrence of cyber incidents. We invest in security technology designed to protect our data and business processes against risk of a data security breach or cyberattack. Our data security management program includes identity, trust, vulnerability, and threat management business processes as well as the adoption of data protection policies. We measure our data security effectiveness through industry-accepted methods and remediate significant findings. The technology and other controls and processes designed to secure our team member, customer and loan applicant information and to prevent, detect and remedy any unauthorized access to or acquisition of that information were designed to obtain reasonable, but not absolute, assurance that such information is secure and that any unauthorized access is identified and addressed appropriately. +Cyclicality and Seasonality +Some MEE products and offerings are cyclical and those markets are dependent on general economic conditions and other factors, including consumer spending preferences and the attractiveness of incentives offered by OEMs, if any. In addition, our business can be affected by labor relations issues, regulatory requirements, trade agreements and other factors. Economic factors adversely affecting consumer spending could adversely impact our revenues and net income. +Our business is also somewhat seasonal. Our platform and Connected Operations applications enables us to remotely monitor and control and OEM’s vehicle fleet or an End User’s HVAC systems so that we know the problems with the performance of a vehicle or HVAC systems before an End User experiences a vehicle anomaly or an equipment outage. Ensuring optimal performance of the equipment and systems increases customer satisfaction and thereby increases the likelihood of getting additional electrification and decarbonization workstreams. +Peak summer, cold winters and rainy seasons have an impact on our Managed Services and Owned Service Network businesses. During certain periods of the summer and winter, demand for installations, replacements and repairs increases. Rainy and snow days negatively impact our rooftop solar installation business. The impact of seasonality varies depending on the market. For example, in Florida, our business slows down during hurricane season and there is high demand from March through September . +Our Intellectual Property +ConnectM’s intellectual property is a core component of its competitive position and technology leadership. The Company relies on a combination of patents, patent applications, copyrights, trademarks, internet domain names, trade secrets, and contractual protections to establish, maintain, and enforce its intellectual property rights. ConnectM also licenses certain third-party technologies for use in conjunction with its software and hardware platforms. +As of December 31, 2025, ConnectM held or had pending 12 patents and maintained 15 domain names related to its proprietary technologies. The Company’s patents primarily cover innovations in energy-intelligent asset monitoring, connected field-service management, and distributed energy optimization. In addition to its patent portfolio, ConnectM has developed significant proprietary know-how through its Amperics-related software, power electronics integration and control-layer architecture, which underpin the Company’s ability to manage and optimize distributed energy resources at scale. +Specifically, the intellectual-property portfolio includes patent families directed to: +● Device and system connectivity for HVAC, EV charging, solar, and battery assets, enabling real-time monitoring, control and diagnostics; +● Predictive analytics and fault detection for connected equipment through cloud-based machine-learning models and embedded intelligence; +● Dynamic dispatch and workflow optimization for field-service technicians and logistics networks; +● Integration frameworks and control systems for managing multi-vendor distributed-energy resources (“DERs”) across residential and commercial environments; and +13 +Table of Contents +● Power electronics, energy management algorithms and system-level integration capabilities derived from Amperics-related intellectual property, enabling efficient energy conversion, load balancing, storage optimization and grid-interactive functionality. +ConnectM intends to continue pursuing additional patent filings and related protections in these and adjacent areas as its technology platform evolves. +The Company’s success also depends on attracting and retaining highly skilled engineering and development personnel. All employees, consultants, and contractors are required to sign confidentiality and invention-assignment agreements acknowledging that all inventions, trade secrets, works of authorship, developments, and other forms of intellectual property created in the course of their work for ConnectM are the property of the Company. +Despite these protections, it may still be possible for third parties to obtain or use ConnectM’s intellectual property without authorization. The Company actively monitors for potential infringement and takes appropriate steps to safeguard its proprietary rights. +ConnectM believes that its current portfolio of patents, trade secrets, and technical know-how, including its Amperics-related capabilities provides meaningful barriers to entry within its target markets and establishes a strong foundation for continued innovation, product differentiation, and long-term value creation. +Government Regulations +Although we are not regulated as a public utility in the United States under applicable national, state or other local regulatory regimes where we conduct business, we compete with regulated utilities. As a result, we have developed and are committed to maintaining a policy team to focus on the key regulatory and legislative issues impacting the entire industry. We believe these efforts will help us better navigate local markets through relationships with key stakeholders and facilitate a deep understanding of the national and regional policy environment. +To operate our systems, we obtain interconnection permission from the applicable local primary electric utility. Depending on the size of the solar energy system and local law requirements, interconnection permission is provided by the local utility directly to us and/or our customers. In almost all cases, interconnection permissions are issued on the basis of a standard process that has been pre-approved by the local public utility or other regulatory body with jurisdiction over net metering policies. As such, no additional regulatory approvals are required once interconnection permission is given. +Our operations are subject to stringent and complex federal, state and local laws, including regulations governing the occupational health and safety of our employees and wage regulations. For example, we are subject to the requirements of the federal Occupational Safety and Health Act, as amended (“ OSHA ”), and comparable state laws that protect and regulate employee health and safety. We endeavor to maintain compliance with applicable OSHA and other comparable government regulations. +We are subject to various other laws, including employment laws related to hiring practices, overtime, and termination of team members, health and safety laws, environmental laws and other federal, state and local laws in the jurisdictions in which we operate. +Government Incentives +The Inflation Reduction Act (“IRA”), signed into law on August 16, 2022, allocates nearly $400 billion in federal funding to advance clean energy initiatives, aiming to significantly reduce the nation’s carbon emissions by 2030. The funding comprises tax incentives, grants, and loan guarantees, with substantial emphasis on clean electricity infrastructure, energy transmission upgrades, and clean transportation, including incentives for electric vehicles. +Approximately $43 billion of the IRA was dedicated specifically to consumer incentives, designed to promote widespread adoption of sustainable technologies. These incentives lowered consumer costs associated with purchasing EVs, energy-efficient home appliances, rooftop solar systems, geothermal heating solutions, and residential energy storage systems. Beginning in 2023, new electric vehicles qualified for federal tax credits of up to $7,500, while used electric vehicles qualified for up to $4,000 (for vehicles acquired before October 1, 2025). +14 +Table of Contents +In addition, the IRA extended the tax credit available for residential energy-efficiency improvements, increasing the credit rate to 30% with an annual limit of $1,200 (replacing the previous lifetime limit). It further introduces a separate annual credit of up to $2,000 specifically for installations of geothermal heat pumps and biomass stoves, while also enhancing incentives for energy-efficient windows and doors. +Subsequent legislation, the One Big Beautiful Bill Act (Public Law 119-21), signed into law on July 4, 2025, accelerated the phase-out of these key consumer-focused provisions. The new and used clean vehicle tax credits (Sections 30D and 25E) are no longer available for vehicles acquired after September 30, 2025. The Energy Efficient Home Improvement Credit (Section 25C) and the Residential Clean Energy Credit (Section 25D) are no longer available for property placed in service or expenditures made after December 31, 2025. +The Alternative Fuel Vehicle Refueling Property Credit (Section 30C) for EV charging infrastructure (including home chargers and associated energy storage) remains available for property placed in service by June 30, 2026, generally at 30% of cost (up to $1,000 for residential chargers). +Collectively, while the IRA initially created significant momentum for residential decarbonization, efficiency enhancements, and sustainable energy adoption across the United States, the 2025 legislative changes have shortened the duration of many of these incentives. Ongoing federal, state, and local programs may continue to influence market dynamics for electrification and energy management solutions. +Corporate Information +ConnectM Technology Solutions, Inc. was formed under the laws of the State of Delaware on March 22, 2019. Our corporate office is in Marlborough, Massachusetts and our website is www.connectm.com +Human Capital Resources +As of December 31, 2025, ConnectM had a total of one hundred three (103) full-time employees in the United States: twelve (12) in sales, forty-one (41) in technical, support, and general management, and fifty (50) in finance and administration. In India, the Company had seventy-three (73) full-time employees, including four (4) in sales and sales engineering, forty-two (42) in operations and customer support, fifteen (15) in research and development, and twelve (12) in finance and administrative roles. +As an equal opportunity employer, ConnectM provides employment consideration to all qualified applicants without regard to race, national origin, gender, gender identity, sexual orientation, protected veteran status, disability, age, or any other status protected under applicable law. The Company seeks to maintain an inclusive, equitable, and supportive work environment in which management and employees model behaviors that enrich the workplace culture. +Our Facilities +ConnectM’s corporate headquarters is located in Marlborough, Massachusetts, where the Company leases approximately 2,396 square feet under a month-to-month lease. The Company also maintains offices in Hyannis, Massachusetts and Bangalore, India. ConnectM owns two properties and leases additional properties. The Company believes that its existing facilities are adequate to meet the current needs of its essential workforce, including employees working remotely, and that, if additional space becomes necessary, suitable facilities can be obtained on commercially reasonable terms. +15 +Table of Contents +Legal Proceedings +From time to time, we may be party to or otherwise involved in legal proceedings arising in the ordinary course of business. We recognize provisions for legal proceedings in our financial statements, in accordance with accounting rules, when we are advised by independent outside counsel that (i) it is probable that an outflow of resources will be required to settle the obligation and (ii) a reliable estimate can be made of the amount of the obligation. The assessment of the likelihood of loss includes analysis by outside counsel of available evidence, the hierarchy of laws, available case law, recent court rulings and their relevance in the legal system. Our provisions for probable losses arising from these matters are estimated and periodically adjusted by management. In making these adjustments our management relies on the opinions of our external legal advisors. Management does not believe that there is any pending or threatened proceeding against us, which, if determined adversely, would have a material adverse effect on our business, results of operations or financial condition, except as described below. +Florida Solar acquisition litigation (Zrallack and RJZ Holdings LLC v. Aurai LLC, ConnectM Florida RE LLC, and Florida Solar Products, Inc.; Florida 19th Judicial Circuit—St. Lucie County) +On February 26, 2024, Robert J. Zrallack and RJZ Holdings LLC (the “Plaintiffs”) filed suit against Aurai LLC (“Aurai”), ConnectM Florida RE LLC (“ConnectM Florida RE”), and Florida Solar Products, Inc. (“Florida Solar”) (collectively, the “Subsidiaries”), each wholly owned subsidiaries of ConnectM Technology Solutions, Inc. (“ConnectM”), in connection with the Company’s 2022 acquisition of Florida Solar and related real estate transactions. +The matter was compelled to arbitration pursuant to the Stock Purchase Agreement. Following evidentiary hearings conducted in June and July 2025, the arbitrator issued an Interim Arbitration Award on September 11, 2025. Subsequent orders were entered addressing modification and attorneys’ fees and costs. On December 25, 2025, the arbitrator issued a Final Award incorporating prior rulings. +The Final Award includes: +● Approximately $446,945 awarded in connection with claims relating to a mortgage and promissory note (plus continuing per diem interest); +● Approximately $1,342,480 in damages relating to additional claims under the Stock Purchase Agreement (plus continuing per diem interest); +● Attorneys’ fees and costs totaling approximately $418,138 as of September 11, 2025, with interest accruing thereafter; +● Arbitrators’ fees and costs totaling approximately $74,013; and +Certain equitable and payment-related relief, including obligations relating to specified debt instruments and credit card balances. In aggregate, Plaintiffs’ motion to confirm seeks entry of judgment totaling approximately $2,500,000 plus continuing interest. +On December 30, 2025, Plaintiffs filed a motion to confirm the arbitration award in the Circuit Court for the 19th Judicial Circuit (St. Lucie County, Florida), later amended on January 7, 2026. A hearing on the motion to confirm was noticed for February 12, 2026. +The Company has filed a motion to vacate the arbitration award, which is scheduled to be heard on April 30, 2026. The Company believes confirmation of the award is not appropriate while post-award relief remains pending and continues to evaluate all available legal remedies. +On January 7, 2026, Plaintiffs also served post-award discovery requests styled as “discovery in aid of execution.” The Subsidiaries filed a motion to strike such discovery and for a protective order on the basis that no final judgment has been entered and discovery in aid of execution is premature. +As of the date of this filing: +● The arbitration award has not yet been confirmed by the court; +● No final enforceable judgment has been entered; +16 +Table of Contents +● Post-award motion practice remains pending; and +● The Subsidiaries are pursuing available legal remedies, including seeking vacatur and opposing confirmation. +The Company has recorded a litigation reserve of $1,024,002 in connection with this matter based on management’s assessment of probable loss under ASC 450. The amount reserved reflects management’s current estimate of probable exposure; however, the total amount sought by Plaintiffs significantly exceeds the recorded reserve. The ultimate outcome of the confirmation proceedings, any motion to vacate, and related enforcement proceedings cannot be predicted with certainty. The final resolution of this matter could result in adjustments to the amount reserved, which could be material to the Company’s consolidated financial statements in the period such adjustment is determined. +Corporate History and Background +We were originally incorporated in Delaware on September 23, 2021 under the name “Monterey Capital Acquisition Corporation” (“ MCAC ”) as a special purpose acquisition company, formed for the purpose of effecting an initial business combination with one or more target businesses. On May 13, 2022 (the “ IPO Closing Date ”), we consummated our initial public offering (the “ IPO ”). On July 12, 2024, we consummated the previously announced business combination (the “ Closing ”) pursuant to that certain Agreement and Plan of Merger (the “ Merger Agreement ”), dated as of December 31, 2022 (as amended on October 12, 2023 and April 12, 2024), by and among MCAC, Chronos Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of MCAC (“ Merger Sub ”), and ConnectM Technology Solutions, Inc., a Delaware corporation (“ Legacy ConnectM ”). +Pursuant to the Merger Agreement, Merger Sub merged with and into Legacy ConnectM (the “Merger”) with Legacy ConnectM surviving the Merger as a wholly owned subsidiary of MCAC. In addition, in connection with the consummation of the Merger, MCAC was renamed “ConnectM Technology Solutions, Inc.” +Our corporate offices are located at 2 Mount Royal Avenue, Suite 550, Marlborough, Massachusetts 01752 and our telephone number is 617-395-1333. Our website, which is located at http://www.connectm.com , describes our company and our management and provides information about our technology and products. Information contained on our website is not incorporated by reference into, and should not be considered a part of, the registration statement of which this Annual Report on Form 10-K forms a part. +Available Information +Our filings, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments submitted under Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are accessible on our company website promptly after submission to the SEC. Additionally, these documents are retrievable from the SEC’s website ( www.sec.gov ). +Corporate governance materials, such as our guidelines and committee charters, are also accessible on our investor relations webpage under “ Corporate Governance .” It is important to note that the content of our website is not intended for incorporation by reference to our filings with the SEC, and any website references serve as inactive textual mentions only. +Implications of Being a Smaller Reporting Company +We are a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates is less than $700 million as of our most recently completed second fiscal quarter and our annual revenue was less than $100 million during our most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million as of our most recently completed second fiscal quarter. As a smaller reporting company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not smaller reporting companies. +17 +Table of Contents +Implications of Being an Emerging Growth Company +We are an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we may benefit from specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include: +● presentation of only two years of audited financial statements and only two years of related management’s discussion and analysis of financial condition and results of operations in this Annual Report on Form 10-K; +● reduced disclosure about our executive compensation arrangements; +● no non-binding stockholder advisory votes on executive compensation or golden parachute arrangements; +● exemption from any requirement of the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis); and +● exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting. +We may benefit from these exemptions until such time that we are no longer an “emerging growth company.” We will cease to be an emerging growth company upon the earliest of: (1) December 31, 2027, which is the last day of the fiscal year following the fifth anniversary of the initial public offering of Monterey Capital Acquisition Corporation, the special purpose acquisition company with which we merged; (2) the first fiscal year after our annual gross revenues are $1.235 billion or more; (3) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (4) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). +We may choose to take advantage of some, but not all, of these reduced disclosure obligations in future filings. If we do, the information that we provide to stockholders may be different than what you might receive from other public companies in which you hold stock. \ No newline at end of file diff --git a/raw/filings/0001895249/2025/0001104659-26-044467/item13.txt b/raw/filings/0001895249/2025/0001104659-26-044467/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..7546ac87dc00e2e9d802b85907ef9fd9f8af5b90 --- /dev/null +++ b/raw/filings/0001895249/2025/0001104659-26-044467/item13.txt @@ -0,0 +1,2 @@ +Item 13. Certain Relationships and Related Transactions, and Director Independence +111 \ No newline at end of file diff --git a/raw/filings/0001895262/2024/0001628280-25-006184/filing.txt b/raw/filings/0001895262/2024/0001628280-25-006184/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..afff1f88ecdc69e888da9ca96f8733ca1f019a2e --- /dev/null +++ b/raw/filings/0001895262/2024/0001628280-25-006184/filing.txt @@ -0,0 +1,2376 @@ +ne-20241231 +0001895262 2024 FY false P3Y P2Y P3Y P2M 1 0.5 P5Y 1 1 1 1 1 1 1 1 1 1 1 1 http://fasb.org/us-gaap/2024#OtherAssetsNoncurrent http://fasb.org/us-gaap/2024#OtherAssetsNoncurrent http://fasb.org/us-gaap/2024#OtherLiabilitiesCurrent http://fasb.org/us-gaap/2024#OtherLiabilitiesCurrent http://fasb.org/us-gaap/2024#OtherLiabilitiesNoncurrent http://fasb.org/us-gaap/2024#OtherLiabilitiesNoncurrent http://fasb.org/us-gaap/2024#OtherAssetsNoncurrent http://fasb.org/us-gaap/2024#OtherAssetsNoncurrent http://fasb.org/us-gaap/2024#OtherLiabilitiesCurrent http://fasb.org/us-gaap/2024#OtherLiabilitiesCurrent http://fasb.org/us-gaap/2024#OtherLiabilitiesNoncurrent http://fasb.org/us-gaap/2024#OtherLiabilitiesNoncurrent P5Y 1 iso4217:USD xbrli:shares iso4217:USD xbrli:shares ne:rig ne:floater ne:jackup xbrli:pure ne:segment ne:executive 0001895262 2024-01-01 2024-12-31 0001895262 us-gaap:CommonStockMember 2024-01-01 2024-12-31 0001895262 ne:Tranche1WarrantsMember 2024-01-01 2024-12-31 0001895262 ne:Tranche2WarrantsMember 2024-01-01 2024-12-31 0001895262 2024-06-28 0001895262 2025-02-14 0001895262 srt:SubsidiariesMember 2024-12-31 0001895262 srt:SubsidiariesMember 2024-01-01 2024-12-31 0001895262 2024-12-31 0001895262 2023-12-31 0001895262 us-gaap:OilAndGasServiceMember 2024-01-01 2024-12-31 0001895262 us-gaap:OilAndGasServiceMember 2023-01-01 2023-12-31 0001895262 us-gaap:OilAndGasServiceMember 2022-01-01 2022-12-31 0001895262 us-gaap:ServiceOtherMember 2024-01-01 2024-12-31 0001895262 us-gaap:ServiceOtherMember 2023-01-01 2023-12-31 0001895262 us-gaap:ServiceOtherMember 2022-01-01 2022-12-31 0001895262 2023-01-01 2023-12-31 0001895262 2022-01-01 2022-12-31 0001895262 2022-12-31 0001895262 2021-12-31 0001895262 us-gaap:CommonStockMember 2021-12-31 0001895262 us-gaap:AdditionalPaidInCapitalMember 2021-12-31 0001895262 us-gaap:RetainedEarningsMember 2021-12-31 0001895262 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-12-31 0001895262 us-gaap:AdditionalPaidInCapitalMember 2022-01-01 2022-12-31 0001895262 us-gaap:CommonStockMember 2022-01-01 2022-12-31 0001895262 us-gaap:RetainedEarningsMember 2022-01-01 2022-12-31 0001895262 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-01-01 2022-12-31 0001895262 us-gaap:CommonStockMember 2022-12-31 0001895262 us-gaap:AdditionalPaidInCapitalMember 2022-12-31 0001895262 us-gaap:RetainedEarningsMember 2022-12-31 0001895262 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-12-31 0001895262 us-gaap:AdditionalPaidInCapitalMember 2023-01-01 2023-12-31 0001895262 us-gaap:CommonStockMember 2023-01-01 2023-12-31 0001895262 us-gaap:RetainedEarningsMember 2023-01-01 2023-12-31 0001895262 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-01-01 2023-12-31 0001895262 us-gaap:CommonStockMember 2023-12-31 0001895262 us-gaap:AdditionalPaidInCapitalMember 2023-12-31 0001895262 us-gaap:RetainedEarningsMember 2023-12-31 0001895262 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-12-31 0001895262 us-gaap:AdditionalPaidInCapitalMember 2024-01-01 2024-12-31 0001895262 us-gaap:CommonStockMember 2024-01-01 2024-12-31 0001895262 us-gaap:RetainedEarningsMember 2024-01-01 2024-12-31 0001895262 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-01-01 2024-12-31 0001895262 us-gaap:CommonStockMember 2024-12-31 0001895262 us-gaap:AdditionalPaidInCapitalMember 2024-12-31 0001895262 us-gaap:RetainedEarningsMember 2024-12-31 0001895262 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-12-31 0001895262 ne:MaerskDrillingMergerMember 2022-10-03 0001895262 ne:MaerskDrillingMember 2022-10-03 0001895262 2022-10-03 0001895262 srt:MinimumMember ne:DrillingEquipmentMember 2024-12-31 0001895262 srt:MaximumMember ne:DrillingEquipmentMember 2024-12-31 0001895262 srt:MinimumMember us-gaap:OtherCapitalizedPropertyPlantAndEquipmentMember 2024-12-31 0001895262 srt:MaximumMember us-gaap:OtherCapitalizedPropertyPlantAndEquipmentMember 2024-12-31 0001895262 srt:MinimumMember 2024-01-01 2024-12-31 0001895262 srt:MaximumMember 2024-01-01 2024-12-31 0001895262 us-gaap:OtherCurrentLiabilitiesMember 2024-12-31 0001895262 us-gaap:OtherNoncurrentLiabilitiesMember 2024-12-31 0001895262 us-gaap:OtherCurrentLiabilitiesMember 2023-12-31 0001895262 us-gaap:OtherNoncurrentLiabilitiesMember 2023-12-31 0001895262 ne:DiamondOffshoreDrillingInc.Member 2024-09-04 2024-09-04 0001895262 ne:DiamondOffshoreDrillingInc.Member ne:DiamondPrincipalDebtMember 2024-09-04 0001895262 ne:DiamondOffshoreDrillingInc.Member us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2024-09-04 0001895262 ne:DiamondOffshoreDrillingInc.Member 2024-01-01 2024-12-31 0001895262 ne:DiamondOffshoreDrillingInc.Member 2024-09-04 0001895262 ne:RigOceanValiantMember 2024-07-01 2024-09-30 0001895262 ne:DiamondOffshoreDrillingInc.Member 2024-09-04 2024-12-31 0001895262 ne:DiamondOffshoreDrillingInc.Member 2023-01-01 2023-12-31 0001895262 ne:MaerskDrillingMergerMember 2022-10-03 2022-10-03 0001895262 ne:MaerskDrillingMergerMember us-gaap:AdditionalPaidInCapitalMember 2022-11-15 2022-11-15 0001895262 ne:MaerskDrillingMergerMember 2022-11-15 0001895262 ne:MaerskDrillingMergerMember 2024-01-01 2024-12-31 0001895262 ne:MaerskDrillingMergerMember 2023-01-01 2023-12-31 0001895262 ne:MaerskDrillingMergerMember 2022-01-01 2022-12-31 0001895262 ne:MaerskDrillingMergerMember 2023-01-01 2023-09-30 0001895262 ne:MaerskDrillingMergerMember 2022-10-03 2022-12-31 0001895262 us-gaap:DisposalGroupHeldforsaleNotDiscontinuedOperationsMember ne:October2022DivestmentBusinessMember 2022-06-23 0001895262 us-gaap:DisposalGroupHeldforsaleNotDiscontinuedOperationsMember ne:October2022DivestmentBusinessMember 2022-10-05 0001895262 2022-10-05 2022-10-05 0001895262 us-gaap:DisposalGroupHeldforsaleNotDiscontinuedOperationsMember ne:October2022DivestmentBusinessMember 2022-10-05 2022-10-05 0001895262 ne:MaerskDrillingMember 2024-01-01 2024-12-31 0001895262 ne:MaerskDrillingMember 2023-01-01 2023-12-31 0001895262 ne:MaerskDrillingMember 2022-01-01 2022-12-31 0001895262 us-gaap:WarrantMember 2024-01-01 2024-12-31 0001895262 us-gaap:WarrantMember 2023-01-01 2023-12-31 0001895262 us-gaap:WarrantMember 2022-01-01 2022-12-31 0001895262 ne:DrillingEquipmentAndFacilitiesMember 2024-12-31 0001895262 ne:DrillingEquipmentAndFacilitiesMember 2023-12-31 0001895262 us-gaap:ConstructionInProgressMember 2024-12-31 0001895262 us-gaap:ConstructionInProgressMember 2023-12-31 0001895262 us-gaap:OtherCapitalizedPropertyPlantAndEquipmentMember 2024-12-31 0001895262 us-gaap:OtherCapitalizedPropertyPlantAndEquipmentMember 2023-12-31 0001895262 ne:RigNobleExplorerMember 2024-01-01 2024-12-31 0001895262 ne:RigNobleExplorerMember 2023-10-01 2023-12-31 0001895262 ne:RigOceanValiantMember 2024-01-01 2024-12-31 0001895262 ne:RigOceanOnyxMember 2024-01-01 2024-12-31 0001895262 ne:A2023RevolvingCreditAgreementMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2023-04-30 0001895262 ne:A2023RevolvingCreditAgreementMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2024-12-31 0001895262 ne:A2023RevolvingCreditAgreementMember us-gaap:RevolvingCreditFacilityMember 2024-12-31 0001895262 ne:A2023RevolvingCreditAgreementMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember us-gaap:SecuredOvernightFinancingRateSofrMember ne:VariableRateComponentOneMember 2023-04-01 2023-04-30 0001895262 ne:A2023RevolvingCreditAgreementMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember ne:VariableRateComponentOneMember 2023-04-01 2023-04-30 0001895262 ne:A2023RevolvingCreditAgreementMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember us-gaap:SecuredOvernightFinancingRateSofrMember ne:VariableRateComponentTwoMember 2023-04-01 2023-04-30 0001895262 ne:A2023RevolvingCreditAgreementMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember ne:VariableRateComponentTwoMember 2023-04-01 2023-04-30 0001895262 ne:A2023RevolvingCreditAgreementMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember us-gaap:SecuredOvernightFinancingRateSofrMember 2023-04-01 2023-04-30 0001895262 ne:A2023RevolvingCreditAgreementMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember us-gaap:BaseRateMember 2023-04-01 2023-04-30 0001895262 ne:A2023RevolvingCreditAgreementMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember us-gaap:SecuredOvernightFinancingRateSofrMember srt:MaximumMember 2023-04-01 2023-04-30 0001895262 ne:A2023RevolvingCreditAgreementMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember us-gaap:BaseRateMember srt:MaximumMember 2023-04-01 2023-04-30 0001895262 ne:A2023RevolvingCreditAgreementMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember ne:DebtCommitmentFeePeriodOneMember 2023-04-01 2023-04-30 0001895262 ne:A2023RevolvingCreditAgreementMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember ne:DebtCommitmentFeePeriodTwoMember 2023-04-01 2023-04-30 0001895262 ne:A2023RevolvingCreditAgreementMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember ne:DebtCommitmentFeePeriodThreeMember 2023-04-01 2023-04-30 0001895262 ne:A2023RevolvingCreditAgreementMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2023-04-01 2023-04-30 0001895262 ne:SeniorNotes8000Due2030Member us-gaap:SeniorNotesMember 2023-04-18 0001895262 ne:SeniorNotes8000Due2030Member us-gaap:SeniorNotesMember 2024-08-22 0001895262 ne:SeniorNotes8000Due2030Member us-gaap:SeniorNotesMember us-gaap:DebtInstrumentRedemptionPeriodOneMember 2023-04-18 2023-04-18 0001895262 ne:SeniorNotes8000Due2030Member us-gaap:SeniorNotesMember us-gaap:DebtInstrumentRedemptionPeriodTwoMember 2023-04-18 2023-04-18 0001895262 ne:SeniorNotes8000Due2030Member us-gaap:SeniorNotesMember us-gaap:DebtInstrumentRedemptionPeriodThreeMember 2023-04-18 2023-04-18 0001895262 ne:SeniorNotes8000Due2030Member us-gaap:SeniorNotesMember us-gaap:DebtInstrumentRedemptionPeriodFourMember 2023-04-18 2023-04-18 0001895262 ne:DiamondSecondLienNotesDue2030Member us-gaap:SeniorNotesMember 2023-09-21 0001895262 ne:SecondLienNotesIndentureMember us-gaap:SecuredDebtMember 2023-04-18 0001895262 ne:SecondLienNotesIndentureMember us-gaap:SecuredDebtMember 2023-04-18 2023-04-18 0001895262 ne:NewDNBCreditFacilityMember us-gaap:LineOfCreditMember 2023-04-18 2023-04-18 0001895262 ne:SecondLienNotesIndentureMember us-gaap:SecuredDebtMember 2022-12-31 0001895262 ne:SecondLienNotesIndentureMember us-gaap:SecuredDebtMember 2022-07-01 2022-12-31 0001895262 ne:SeniorNotes8000Due2030Member us-gaap:SecuredDebtMember 2024-12-31 0001895262 ne:SeniorNotes8000Due2030Member us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:SecuredDebtMember 2024-12-31 0001895262 ne:SeniorNotes8000Due2030Member us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:SecuredDebtMember 2024-12-31 0001895262 ne:SeniorNotes8000Due2030Member us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:SecuredDebtMember 2023-12-31 0001895262 ne:SeniorNotes8000Due2030Member us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:SecuredDebtMember 2023-12-31 0001895262 ne:SeniorSecuredSecondLienNotes8.500Due2030Member us-gaap:SecuredDebtMember 2024-12-31 0001895262 ne:SeniorSecuredSecondLienNotes8.500Due2030Member us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:SecuredDebtMember 2024-12-31 0001895262 ne:SeniorSecuredSecondLienNotes8.500Due2030Member us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:SecuredDebtMember 2024-12-31 0001895262 ne:SeniorSecuredSecondLienNotes8.500Due2030Member us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:SecuredDebtMember 2023-12-31 0001895262 ne:SeniorSecuredSecondLienNotes8.500Due2030Member us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:SecuredDebtMember 2023-12-31 0001895262 us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2024-12-31 0001895262 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2024-12-31 0001895262 us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2023-12-31 0001895262 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2023-12-31 0001895262 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2024-12-31 0001895262 us-gaap:EstimateOfFairValueFairValueDisclosureMember 2024-12-31 0001895262 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2023-12-31 0001895262 us-gaap:EstimateOfFairValueFairValueDisclosureMember 2023-12-31 0001895262 ne:A2023RevolvingCreditAgreementMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember ne:NYFRBRateMember ne:VariableRateComponentTwoMember 2023-04-18 2023-04-18 0001895262 2022-09-30 0001895262 ne:NobleCorporationMember 2022-09-30 0001895262 ne:MaerskDrillingMember 2022-10-03 2022-10-03 0001895262 ne:Tranche1WarrantsMember 2024-12-31 0001895262 ne:Tranche2WarrantsMember 2024-12-31 0001895262 ne:Tranche3WarrantsMember 2024-12-31 0001895262 ne:NobleIncentivePlan2022Member 2024-12-31 0001895262 2024-12-19 2024-12-19 0001895262 ne:Tranche1WarrantsMember 2022-09-30 0001895262 ne:Tranche2WarrantsMember 2022-09-30 0001895262 ne:Tranche3WarrantsMember 2022-09-30 0001895262 ne:NobleIncentivePlan2022Member 2022-09-30 0001895262 ne:NobleIncentivePlan2022Member 2024-05-21 0001895262 ne:NobleIncentivePlan2022Member 2024-09-04 0001895262 ne:TimeVestedRestrictedStockUnitsMember ne:NobleIncentivePlan2021Member 2024-01-01 2024-12-31 0001895262 ne:PerformanceVestedRestrictedStockUnitsMember ne:NobleIncentivePlan2021Member 2024-01-01 2024-12-31 0001895262 ne:TimeVestedRestrictedStockUnitsMember ne:NobleIncentivePlan2021Member 2022-01-01 2022-12-31 0001895262 ne:TimeVestedRestrictedStockUnitsMember ne:NobleIncentivePlan2021Member 2023-01-01 2023-12-31 0001895262 ne:PerformanceVestedRestrictedStockUnitsMember ne:January262024Member 2024-01-01 2024-12-31 0001895262 ne:PerformanceVestedRestrictedStockUnitsMember ne:February32023Member 2023-01-01 2023-12-31 0001895262 ne:PerformanceVestedRestrictedStockUnitsMember ne:February32022Member 2022-01-01 2022-12-31 0001895262 ne:EquityClassifiedTimeVestedRestrictedStockUnitsMember 2024-01-01 2024-12-31 0001895262 ne:EquityClassifiedTimeVestedRestrictedStockUnitsMember 2023-01-01 2023-12-31 0001895262 ne:EquityClassifiedTimeVestedRestrictedStockUnitsMember 2022-01-01 2022-12-31 0001895262 ne:LiabilityClassifiedTimeVestedRestrictedStockUnitsMember 2024-01-01 2024-12-31 0001895262 ne:LiabilityClassifiedTimeVestedRestrictedStockUnitsMember 2023-01-01 2023-12-31 0001895262 ne:LiabilityClassifiedTimeVestedRestrictedStockUnitsMember 2022-01-01 2022-12-31 0001895262 ne:PerformanceVestedRestrictedStockUnitsMember 2024-01-01 2024-12-31 0001895262 ne:PerformanceVestedRestrictedStockUnitsMember 2023-01-01 2023-12-31 0001895262 ne:PerformanceVestedRestrictedStockUnitsMember 2022-01-01 2022-12-31 0001895262 ne:EquityClassifiedTimeVestedRestrictedStockUnitsMember srt:DirectorMember 2024-01-01 2024-12-31 0001895262 ne:EquityClassifiedTimeVestedRestrictedStockUnitsMember srt:DirectorMember 2023-01-01 2023-12-31 0001895262 ne:EquityClassifiedTimeVestedRestrictedStockUnitsMember srt:DirectorMember 2022-01-01 2022-12-31 0001895262 ne:LiabilityClassifiedTimeVestedRestrictedStockUnitsMember srt:DirectorMember 2024-01-01 2024-12-31 0001895262 ne:LiabilityClassifiedTimeVestedRestrictedStockUnitsMember srt:DirectorMember 2023-01-01 2023-12-31 0001895262 ne:LiabilityClassifiedTimeVestedRestrictedStockUnitsMember srt:DirectorMember 2022-01-01 2022-12-31 0001895262 ne:EquityClassifiedTimeVestedRestrictedStockUnitsMember 2022-12-31 0001895262 ne:PerformanceVestedRestrictedStockUnitsMember 2022-12-31 0001895262 ne:EquityClassifiedTimeVestedRestrictedStockUnitsMember 2023-12-31 0001895262 ne:PerformanceVestedRestrictedStockUnitsMember 2023-12-31 0001895262 ne:EquityClassifiedTimeVestedRestrictedStockUnitsMember 2024-12-31 0001895262 ne:PerformanceVestedRestrictedStockUnitsMember 2024-12-31 0001895262 ne:LiabilityClassifiedTimeVestedRestrictedStockUnitsMember 2024-12-31 0001895262 ne:LiabilityClassifiedTimeVestedRestrictedStockUnitsMember 2023-12-31 0001895262 us-gaap:RestrictedStockMember 2024-01-01 2024-12-31 0001895262 us-gaap:RestrictedStockMember 2023-01-01 2023-12-31 0001895262 ne:FloatersMember 2024-01-01 2024-12-31 0001895262 ne:FloatersMember 2023-01-01 2023-12-31 0001895262 ne:FloatersMember 2022-01-01 2022-12-31 0001895262 ne:JackupsMember 2024-01-01 2024-12-31 0001895262 ne:JackupsMember 2023-01-01 2023-12-31 0001895262 ne:JackupsMember 2022-01-01 2022-12-31 0001895262 2025-01-01 ne:FloatersMember 2024-12-31 0001895262 2026-01-01 ne:FloatersMember 2024-12-31 0001895262 2027-01-01 ne:FloatersMember 2024-12-31 0001895262 2028-01-01 ne:FloatersMember 2024-12-31 0001895262 ne:FloatersMember 2024-12-31 0001895262 2025-01-01 ne:JackupsMember 2024-12-31 0001895262 2026-01-01 ne:JackupsMember 2024-12-31 0001895262 2027-01-01 ne:JackupsMember 2024-12-31 0001895262 2028-01-01 ne:JackupsMember 2024-12-31 0001895262 ne:JackupsMember 2024-12-31 0001895262 2025-01-01 2024-12-31 0001895262 2026-01-01 2024-12-31 0001895262 2027-01-01 2024-12-31 0001895262 2028-01-01 2024-12-31 0001895262 ne:Chapter11BankruptcyMember 2022-10-03 2022-10-03 0001895262 ne:DiamondOffshoreDrillingInc.Member 2022-10-03 2022-10-03 0001895262 ne:MaerskDrillingMember 2021-12-31 0001895262 ne:MaerskDrillingMember ne:FavorableCustomerContractsMember 2021-12-31 0001895262 ne:MaerskDrillingMember ne:FavorableCustomerContractsMember 2022-01-01 2022-12-31 0001895262 ne:MaerskDrillingMember 2022-12-31 0001895262 ne:MaerskDrillingMember ne:FavorableCustomerContractsMember 2022-12-31 0001895262 ne:MaerskDrillingMember ne:FavorableCustomerContractsMember 2023-01-01 2023-12-31 0001895262 ne:MaerskDrillingMember 2023-12-31 0001895262 ne:MaerskDrillingMember ne:FavorableCustomerContractsMember 2023-12-31 0001895262 ne:MaerskDrillingMember ne:FavorableCustomerContractsMember 2024-01-01 2024-12-31 0001895262 ne:MaerskDrillingMember 2024-12-31 0001895262 ne:MaerskDrillingMember ne:FavorableCustomerContractsMember 2024-12-31 0001895262 us-gaap:DomesticCountryMember 2024-12-31 0001895262 us-gaap:DomesticCountryMember 2023-12-31 0001895262 us-gaap:ForeignCountryMember 2024-12-31 0001895262 us-gaap:ForeignCountryMember 2023-12-31 0001895262 us-gaap:ForeignCountryMember country:LU 2024-01-01 2024-12-31 0001895262 us-gaap:ForeignCountryMember country:GH 2024-01-01 2024-12-31 0001895262 us-gaap:ForeignCountryMember ne:GuyanaNigeriaUnitedStatesSwitzerlandAndLuxembourgMember 2024-01-01 2024-12-31 0001895262 us-gaap:ForeignCountryMember ne:GuyanaNorwaySwitzerlandAndLuxembourgMember 2023-01-01 2023-12-31 0001895262 us-gaap:ForeignCountryMember country:GH 2023-01-01 2023-12-31 0001895262 us-gaap:ForeignCountryMember country:MX 2023-01-01 2023-12-31 0001895262 us-gaap:ForeignCountryMember ne:GuyanaSwitzerlandAndLuxembourgMember 2023-01-01 2023-12-31 0001895262 2022-10-01 2024-12-31 0001895262 2022-10-01 2022-10-01 0001895262 ne:InterestIncomeAndOtherNetMember 2024-01-01 2024-12-31 0001895262 ne:IncomeTaxBenefitProvisionMember 2023-01-01 2023-12-31 0001895262 us-gaap:ForeignCountryMember 2024-01-01 2024-12-31 0001895262 us-gaap:ForeignCountryMember 2023-01-01 2023-12-31 0001895262 us-gaap:ForeignCountryMember 2022-01-01 2022-12-31 0001895262 us-gaap:ForeignPlanMember 2023-12-31 0001895262 country:US 2023-12-31 0001895262 us-gaap:ForeignPlanMember 2022-12-31 0001895262 country:US 2022-12-31 0001895262 us-gaap:ForeignPlanMember 2024-01-01 2024-12-31 0001895262 country:US 2024-01-01 2024-12-31 0001895262 us-gaap:ForeignPlanMember 2023-01-01 2023-12-31 0001895262 country:US 2023-01-01 2023-12-31 0001895262 us-gaap:ForeignPlanMember 2024-12-31 0001895262 country:US 2024-12-31 0001895262 us-gaap:ForeignPlanMember 2022-01-01 2022-12-31 0001895262 country:US 2022-01-01 2022-12-31 0001895262 country:US us-gaap:UnfundedPlanMember 2024-12-31 0001895262 country:US us-gaap:UnfundedPlanMember 2023-12-31 0001895262 country:US srt:MinimumMember 2024-12-31 0001895262 country:US srt:MaximumMember 2024-12-31 0001895262 country:US srt:MinimumMember 2023-12-31 0001895262 country:US srt:MaximumMember 2023-12-31 0001895262 country:US srt:MinimumMember 2024-01-01 2024-12-31 0001895262 country:US srt:MaximumMember 2024-01-01 2024-12-31 0001895262 country:US srt:MinimumMember 2023-01-01 2023-12-31 0001895262 country:US srt:MaximumMember 2023-01-01 2023-12-31 0001895262 country:US srt:MinimumMember 2022-01-01 2022-12-31 0001895262 country:US srt:MaximumMember 2022-01-01 2022-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:DefinedBenefitPlanEquitySecuritiesMember 2024-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:DefinedBenefitPlanDebtSecurityMember 2024-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2024-12-31 0001895262 us-gaap:FairValueInputsLevel1Member us-gaap:ForeignPlanMember us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2024-12-31 0001895262 us-gaap:FairValueInputsLevel2Member us-gaap:ForeignPlanMember us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2024-12-31 0001895262 us-gaap:FairValueInputsLevel3Member us-gaap:ForeignPlanMember us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2024-12-31 0001895262 us-gaap:FairValueInputsLevel1Member us-gaap:ForeignPlanMember us-gaap:DefinedBenefitPlanEquitySecuritiesMember 2024-12-31 0001895262 us-gaap:FairValueInputsLevel2Member us-gaap:ForeignPlanMember us-gaap:DefinedBenefitPlanEquitySecuritiesMember 2024-12-31 0001895262 us-gaap:FairValueInputsLevel3Member us-gaap:ForeignPlanMember us-gaap:DefinedBenefitPlanEquitySecuritiesMember 2024-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:CorporateDebtSecuritiesMember 2024-12-31 0001895262 us-gaap:FairValueInputsLevel1Member us-gaap:ForeignPlanMember us-gaap:CorporateDebtSecuritiesMember 2024-12-31 0001895262 us-gaap:FairValueInputsLevel2Member us-gaap:ForeignPlanMember us-gaap:CorporateDebtSecuritiesMember 2024-12-31 0001895262 us-gaap:FairValueInputsLevel3Member us-gaap:ForeignPlanMember us-gaap:CorporateDebtSecuritiesMember 2024-12-31 0001895262 us-gaap:FairValueInputsLevel1Member us-gaap:ForeignPlanMember 2024-12-31 0001895262 us-gaap:FairValueInputsLevel2Member us-gaap:ForeignPlanMember 2024-12-31 0001895262 us-gaap:FairValueInputsLevel3Member us-gaap:ForeignPlanMember 2024-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2023-12-31 0001895262 us-gaap:FairValueInputsLevel1Member us-gaap:ForeignPlanMember us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2023-12-31 0001895262 us-gaap:FairValueInputsLevel2Member us-gaap:ForeignPlanMember us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2023-12-31 0001895262 us-gaap:FairValueInputsLevel3Member us-gaap:ForeignPlanMember us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2023-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:DefinedBenefitPlanEquitySecuritiesMember 2023-12-31 0001895262 us-gaap:FairValueInputsLevel1Member us-gaap:ForeignPlanMember us-gaap:DefinedBenefitPlanEquitySecuritiesMember 2023-12-31 0001895262 us-gaap:FairValueInputsLevel2Member us-gaap:ForeignPlanMember us-gaap:DefinedBenefitPlanEquitySecuritiesMember 2023-12-31 0001895262 us-gaap:FairValueInputsLevel3Member us-gaap:ForeignPlanMember us-gaap:DefinedBenefitPlanEquitySecuritiesMember 2023-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:CorporateDebtSecuritiesMember 2023-12-31 0001895262 us-gaap:FairValueInputsLevel1Member us-gaap:ForeignPlanMember us-gaap:CorporateDebtSecuritiesMember 2023-12-31 0001895262 us-gaap:FairValueInputsLevel2Member us-gaap:ForeignPlanMember us-gaap:CorporateDebtSecuritiesMember 2023-12-31 0001895262 us-gaap:FairValueInputsLevel3Member us-gaap:ForeignPlanMember us-gaap:CorporateDebtSecuritiesMember 2023-12-31 0001895262 us-gaap:FairValueInputsLevel1Member us-gaap:ForeignPlanMember 2023-12-31 0001895262 us-gaap:FairValueInputsLevel2Member us-gaap:ForeignPlanMember 2023-12-31 0001895262 us-gaap:FairValueInputsLevel3Member us-gaap:ForeignPlanMember 2023-12-31 0001895262 us-gaap:DefinedBenefitPlanEquitySecuritiesMember 2024-12-31 0001895262 us-gaap:DefinedBenefitPlanDebtSecurityMember 2024-12-31 0001895262 us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2024-12-31 0001895262 country:US us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2024-12-31 0001895262 us-gaap:FairValueInputsLevel1Member country:US us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2024-12-31 0001895262 us-gaap:FairValueInputsLevel2Member country:US us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2024-12-31 0001895262 us-gaap:FairValueInputsLevel3Member country:US us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2024-12-31 0001895262 country:US us-gaap:DefinedBenefitPlanEquitySecuritiesUsMember 2024-12-31 0001895262 us-gaap:FairValueInputsLevel1Member country:US us-gaap:DefinedBenefitPlanEquitySecuritiesUsMember 2024-12-31 0001895262 us-gaap:FairValueInputsLevel2Member country:US us-gaap:DefinedBenefitPlanEquitySecuritiesUsMember 2024-12-31 0001895262 us-gaap:FairValueInputsLevel3Member country:US us-gaap:DefinedBenefitPlanEquitySecuritiesUsMember 2024-12-31 0001895262 country:US us-gaap:CorporateDebtSecuritiesMember 2024-12-31 0001895262 us-gaap:FairValueInputsLevel1Member country:US us-gaap:CorporateDebtSecuritiesMember 2024-12-31 0001895262 us-gaap:FairValueInputsLevel2Member country:US us-gaap:CorporateDebtSecuritiesMember 2024-12-31 0001895262 us-gaap:FairValueInputsLevel3Member country:US us-gaap:CorporateDebtSecuritiesMember 2024-12-31 0001895262 country:US us-gaap:USTreasurySecuritiesMember 2024-12-31 0001895262 us-gaap:FairValueInputsLevel1Member country:US us-gaap:USTreasurySecuritiesMember 2024-12-31 0001895262 us-gaap:FairValueInputsLevel2Member country:US us-gaap:USTreasurySecuritiesMember 2024-12-31 0001895262 us-gaap:FairValueInputsLevel3Member country:US us-gaap:USTreasurySecuritiesMember 2024-12-31 0001895262 us-gaap:FairValueInputsLevel1Member country:US 2024-12-31 0001895262 us-gaap:FairValueInputsLevel2Member country:US 2024-12-31 0001895262 us-gaap:FairValueInputsLevel3Member country:US 2024-12-31 0001895262 country:US us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2023-12-31 0001895262 us-gaap:FairValueInputsLevel1Member country:US us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2023-12-31 0001895262 us-gaap:FairValueInputsLevel2Member country:US us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2023-12-31 0001895262 us-gaap:FairValueInputsLevel3Member country:US us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2023-12-31 0001895262 country:US us-gaap:DefinedBenefitPlanEquitySecuritiesUsMember 2023-12-31 0001895262 us-gaap:FairValueInputsLevel1Member country:US us-gaap:DefinedBenefitPlanEquitySecuritiesUsMember 2023-12-31 0001895262 us-gaap:FairValueInputsLevel2Member country:US us-gaap:DefinedBenefitPlanEquitySecuritiesUsMember 2023-12-31 0001895262 us-gaap:FairValueInputsLevel3Member country:US us-gaap:DefinedBenefitPlanEquitySecuritiesUsMember 2023-12-31 0001895262 country:US us-gaap:CorporateDebtSecuritiesMember 2023-12-31 0001895262 us-gaap:FairValueInputsLevel1Member country:US us-gaap:CorporateDebtSecuritiesMember 2023-12-31 0001895262 us-gaap:FairValueInputsLevel2Member country:US us-gaap:CorporateDebtSecuritiesMember 2023-12-31 0001895262 us-gaap:FairValueInputsLevel3Member country:US us-gaap:CorporateDebtSecuritiesMember 2023-12-31 0001895262 country:US us-gaap:USTreasurySecuritiesMember 2023-12-31 0001895262 us-gaap:FairValueInputsLevel1Member country:US us-gaap:USTreasurySecuritiesMember 2023-12-31 0001895262 us-gaap:FairValueInputsLevel2Member country:US us-gaap:USTreasurySecuritiesMember 2023-12-31 0001895262 us-gaap:FairValueInputsLevel3Member country:US us-gaap:USTreasurySecuritiesMember 2023-12-31 0001895262 us-gaap:FairValueInputsLevel1Member country:US 2023-12-31 0001895262 us-gaap:FairValueInputsLevel2Member country:US 2023-12-31 0001895262 us-gaap:FairValueInputsLevel3Member country:US 2023-12-31 0001895262 ne:RestorationPlanMember 2021-12-31 0001895262 ne:RestorationPlanMember 2022-12-31 0001895262 ne:NobleDrillingCorporationProfitSharingPlanMember 2024-01-01 2024-12-31 0001895262 ne:NobleDrillingCorporationProfitSharingPlanMember 2023-01-01 2023-12-31 0001895262 ne:NobleDrillingCorporationProfitSharingPlanMember 2022-01-01 2022-12-31 0001895262 ne:CustomsAndOtherBusinessTaxesMember us-gaap:ForeignCountryMember 2024-01-01 2024-12-31 0001895262 ne:HurricaneIdaPersonalInjuryClaimsMember 2024-01-01 2024-12-31 0001895262 us-gaap:ServiceAgreementsMember 2016-02-01 2016-02-29 0001895262 us-gaap:ServiceAgreementsMember 2024-12-31 0001895262 us-gaap:PublicUtilitiesInventoryReplacementPartsMember 2024-12-31 0001895262 us-gaap:RevolvingCreditFacilityMember us-gaap:UnsecuredDebtMember 2024-12-31 0001895262 country:AU ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:AU ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:AU ne:ReportableSegmentMember 2022-01-01 2022-12-31 0001895262 country:AU ne:ReportableSegmentMember 2024-12-31 0001895262 country:AU ne:ReportableSegmentMember 2023-12-31 0001895262 country:BR ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:BR ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:BR ne:ReportableSegmentMember 2022-01-01 2022-12-31 0001895262 country:BR ne:ReportableSegmentMember 2024-12-31 0001895262 country:BR ne:ReportableSegmentMember 2023-12-31 0001895262 country:CO ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:CO ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:CO ne:ReportableSegmentMember 2022-01-01 2022-12-31 0001895262 country:CO ne:ReportableSegmentMember 2024-12-31 0001895262 country:CO ne:ReportableSegmentMember 2023-12-31 0001895262 country:DK ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:DK ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:DK ne:ReportableSegmentMember 2022-01-01 2022-12-31 0001895262 country:DK ne:ReportableSegmentMember 2024-12-31 0001895262 country:DK ne:ReportableSegmentMember 2023-12-31 0001895262 country:GH ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:GH ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:GH ne:ReportableSegmentMember 2022-01-01 2022-12-31 0001895262 country:GH ne:ReportableSegmentMember 2024-12-31 0001895262 country:GH ne:ReportableSegmentMember 2023-12-31 0001895262 country:GW ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:GW ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:GW ne:ReportableSegmentMember 2022-01-01 2022-12-31 0001895262 country:GW ne:ReportableSegmentMember 2024-12-31 0001895262 country:GW ne:ReportableSegmentMember 2023-12-31 0001895262 country:GY ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:GY ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:GY ne:ReportableSegmentMember 2022-01-01 2022-12-31 0001895262 country:GY ne:ReportableSegmentMember 2024-12-31 0001895262 country:GY ne:ReportableSegmentMember 2023-12-31 0001895262 country:MY ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:MY ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:MY ne:ReportableSegmentMember 2022-01-01 2022-12-31 0001895262 country:MY ne:ReportableSegmentMember 2024-12-31 0001895262 country:MY ne:ReportableSegmentMember 2023-12-31 0001895262 country:MX ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:MX ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:MX ne:ReportableSegmentMember 2022-01-01 2022-12-31 0001895262 country:MX ne:ReportableSegmentMember 2024-12-31 0001895262 country:MX ne:ReportableSegmentMember 2023-12-31 0001895262 country:NA ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:NA ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:NA ne:ReportableSegmentMember 2022-01-01 2022-12-31 0001895262 country:NA ne:ReportableSegmentMember 2024-12-31 0001895262 country:NA ne:ReportableSegmentMember 2023-12-31 0001895262 country:NL ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:NL ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:NL ne:ReportableSegmentMember 2022-01-01 2022-12-31 0001895262 country:NL ne:ReportableSegmentMember 2024-12-31 0001895262 country:NL ne:ReportableSegmentMember 2023-12-31 0001895262 country:NG ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:NG ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:NG ne:ReportableSegmentMember 2022-01-01 2022-12-31 0001895262 country:NG ne:ReportableSegmentMember 2024-12-31 0001895262 country:NG ne:ReportableSegmentMember 2023-12-31 0001895262 country:NO ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:NO ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:NO ne:ReportableSegmentMember 2022-01-01 2022-12-31 0001895262 country:NO ne:ReportableSegmentMember 2024-12-31 0001895262 country:NO ne:ReportableSegmentMember 2023-12-31 0001895262 country:SR ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:SR ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:SR ne:ReportableSegmentMember 2022-01-01 2022-12-31 0001895262 country:SR ne:ReportableSegmentMember 2024-12-31 0001895262 country:SR ne:ReportableSegmentMember 2023-12-31 0001895262 country:TT ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:TT ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:TT ne:ReportableSegmentMember 2022-01-01 2022-12-31 0001895262 country:TT ne:ReportableSegmentMember 2024-12-31 0001895262 country:TT ne:ReportableSegmentMember 2023-12-31 0001895262 country:GB ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:GB ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:GB ne:ReportableSegmentMember 2022-01-01 2022-12-31 0001895262 country:GB ne:ReportableSegmentMember 2024-12-31 0001895262 country:GB ne:ReportableSegmentMember 2023-12-31 0001895262 country:US ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:US ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:US ne:ReportableSegmentMember 2022-01-01 2022-12-31 0001895262 country:US ne:ReportableSegmentMember 2024-12-31 0001895262 country:US ne:ReportableSegmentMember 2023-12-31 0001895262 ne:OtherCountriesMember ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 ne:OtherCountriesMember ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 ne:OtherCountriesMember ne:ReportableSegmentMember 2022-01-01 2022-12-31 0001895262 ne:OtherCountriesMember ne:ReportableSegmentMember 2024-12-31 0001895262 ne:OtherCountriesMember ne:ReportableSegmentMember 2023-12-31 0001895262 ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 ne:ReportableSegmentMember 2022-01-01 2022-12-31 0001895262 ne:ReportableSegmentMember 2024-12-31 0001895262 ne:ReportableSegmentMember 2023-12-31 0001895262 ne:ExxonMobilCorporationExxonMobilMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 ne:ExxonMobilCorporationExxonMobilMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 ne:ExxonMobilCorporationExxonMobilMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember ne:ReportableSegmentMember 2022-01-01 2022-12-31 0001895262 ne:ShellPlcMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 ne:ShellPlcMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 ne:ShellPlcMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember ne:ReportableSegmentMember 2022-01-01 2022-12-31 0001895262 ne:TotalEnergiesMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 ne:TotalEnergiesMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 ne:TotalEnergiesMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember ne:ReportableSegmentMember 2022-01-01 2022-12-31 0001895262 country:GY 2024-01-01 2024-12-31 0001895262 country:GY 2023-01-01 2023-12-31 0001895262 country:GY 2022-01-01 2022-12-31 0001895262 2024-10-01 2024-12-31 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +_________________________________________________________________________________________________ +FORM 10-K +☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended: December 31 , 2024 +OR +☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from to +_____________________________________________________________________________________________________ +Commission file number: 001-41520 +Noble Corporation plc +(Exact name of registrant as specified in its charter) +England and Wales 98-1644664 +(State or other jurisdiction of incorporation or organization) (I.R.S. employer identification number) +2101 City West Boulevard, Suite 600 , Houston , Texas , 77042 +(Address of principal executive offices) (Zip Code) +Registrant’s Telephone Number, Including Area Code: (281) 276-6100 +_____________________________________________________________________________________________________ +Securities registered pursuant to Section 12(b) of the Act: +Title of each class Trading Symbol(s) Name of each exchange on which registered +A Ordinary Shares, par value $0.00001 per share NE New York Stock Exchange +Tranche 1 Warrants of Noble Corporation plc NE WS New York Stock Exchange +Tranche 2 Warrants of Noble Corporation plc NE WSA New York Stock Exchange +Securities registered pursuant to Section 12(g) of the Act: None +_____________________________________________________________________________________________________ +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑ +Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐ +Indicate by check mark whether each registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐ +Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer ☑ Accelerated filer ☐ +Non-accelerated filer ☐ Smaller reporting company ☐ +Emerging growth company ☐ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to 240.D-1(b). ☐ +Indicate by check mark whether each registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑ +As of June 28, 2024, the aggregate market value of the registered shares of Noble Corporation plc held by non-affiliates was $ 5.1 billion based on the closing price of such shares on such date as reported on the New York Stock Exchange. +Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☑ No ☐ +Number of shares outstanding at February 14, 2025: Noble Corporation plc — 159,191,313 +DOCUMENTS INCORPORATED BY REFERENCE +Items 10, 11, 12, 13, and 14 of Part III of this Annual Report on Form 10-K will be incorporated by reference from the proxy statement for the 2025 Annual Meeting of Stockholders of Noble Corporation plc to be filed with the Securities and Exchange Commission. +1 +TABLE OF CONTENTS +Page +PART I +Item 1. +Business +6 +Item 1A. +Risk Factors +14 +Item 1B. +Unresolved Staff Comments +36 +Item 1C. +Cyber S ecurity +36 +Item 2. +Properties +37 +Item 3. +Legal Proceedings +37 +Item 4. +Mine Safety Disclosures +37 +PART II +Item 5. +Market for Registrant's Common Equity, Related Stockholder Matters , and Issuer Purchases of Equity Securities +38 +Item 6. +[Reserved] +40 +Item 7. +Management's Discussion and Analysis of Financial Condition and Results of Operations +40 +Item 7A. +Quantitative and Qualitative Disclosures a bout Market Risk +51 +Item 8. +Financial Statements and Supplementary Data +53 +Item 9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +102 +Item 9A. +Controls and Procedures +102 +Item 9B. +Other Information +103 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +103 +PART III +Item 10. +Directors, Executive Officers , and Corporate Governance +104 +Item 11. +Executive Compensation +104 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +104 +Item 13. +Certain Relationships, Related Transactions , and Director s ’ Independence +104 +Item 14. +Principal Account ant Fees and Services +104 +PART IV +Item 15. +Exhibits and Financial Statement Schedules +105 +Item 16. +Form 10-K Summary +105 +SIGNATURES +111 +2 +Forward-Looking Statements +This Annual Report on Form 10-K (“Annual Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“the Exchange Act”). All statements other than statements of historical facts included in this report or in the documents incorporated by reference, are forward looking statements, including those regarding expected financial performance, revenues, expected utilization, and fleet status, stacking of rigs, effects of new rigs on the market revenues, the impact of the Diamond Transaction, operating expenses, cash flows, contract status, tenders, terms and duration, dayrates, termination and extensions, contract backlog, the availability, delivery, mobilization, stacking or reactivation, contract commencement, relocation or other movement of rigs and the timing thereof, contract claims, capital expenditures, insurance maintenance and renewals, access to financing, rig demand, peak oil, the offshore drilling market, oil prices, production levels among members of the Organization of Petroleum Exporting Countries (“OPEC”) and other oil and gas producing nations (together with OPEC, “OPEC+”), and any expectations we may have with respect thereto, our future financial position, business strategy, impairments, repayment of debt, credit ratings, liquidity, borrowings under any credit facilities or other instruments, sources of funds, cost inflation, planned acquisitions or divestitures of assets, governmental regulations and permitting, taxes and tax rates, indebtedness covenant compliance, dividends and distributable reserves, share repurchases, progress, plans and goals related to environmental, social, and governance matters; the outcome of tax disputes, assessments and settlements, and expense management, the outcome of any dispute, litigation, audit or investigation, plans, foreign currency requirements, results of joint ventures, general economic, market, including inflation and recessions, trends and outlook, general political conditions, including political tensions, conflicts and war, timing, benefits or results of acquisitions or dispositions, and timing for compliance with any new regulations. When used in this report or in the documents incorporated by reference, the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “on track,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would,” “shall,” “target,” “will,” and similar expressions are intended to be among the terms that identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot assure you that such expectations will prove to be correct. These forward-looking statements speak only as of the date of this Annual Report on Form 10-K and we undertake no obligation to revise or update any forward-looking statement for any reason, except as required by law. Actual results may differ materially from any future results expressed or implied by such forward-looking statements and the expectations expressed in forward-looking statements are subject to a number of risks, uncertainties and assumptions, which include, but are not limited to: a decline in the price of oil or gas, reduced demand for oil and gas products and increased regulation of drilling and production, price competition and cyclicality in the offshore drilling industry, offshore rig supply, dayrates and demand for rigs, contract duration, renewal, terminations and repricing, national oil companies and governmental clients, contract backlog, customer and geographic concentration, operational hazards and risks, labor force unionization, labor interruptions and labor regulations, major natural disasters, catastrophic event, acts of war, terrorism or social unrest, pandemic, or other similar event, joint ventures as well as investments in associates, international operations and related mobilization and demobilization of rigs, operational interruptions, delays, upgrades, refurbishment and repair of rigs and any related delays and cost overruns or reduced payment of dayrates, impacts of inflation, renewal of insurance, protection of sensitive information, operational technology systems and critical data, the ability to attract and retain skilled personnel or the increased cost in doing so, supplier capacity constraints or shortages in parts or equipment, supplier production disruptions, supplier quality and sourcing issues or price increases, future mergers, acquisitions or dispositions of businesses or assets or other strategic transactions, hurricanes and windstorm damage, responding to long-term changes in the energy mix, nonperformance of suppliers or third-party subcontractors, risks related to the Diamond Transaction and related integration, compliance with governmental laws and regulations, increasing attention to environmental, social and governance matters, including climate change and accountability for public statements about ESG efforts, compliance with anti-bribery or anti-corruption, international trade laws and regulations, litigation, our ability to maintain effective disclosure controls and procedures and internal control over financial reporting, impairments on property and equipment, including rigs and related capital spares, operating and financial restrictions, and maintenance of covenants in our debt documents, tax disputes, or tax challenges as well as the “Risk Factors” referenced or described in Part I, Item 1A. “Risk Factors” of this Annual Report and in our other filings with the Securities and Exchange Commission (“SEC”). We cannot control such risk factors and other uncertainties, and in many cases, we cannot predict the risks and uncertainties that could cause our actual results to differ materially from those indicated by the forward-looking statements. You should consider these risks and uncertainties when you are evaluating us. Future quarterly dividends and other shareholder returns will be subject to, amongst other things, approval by the Board of Directors and may be modified as market conditions dictate. +3 +Risk Factors Summary +The following is a summary of the principal risks that could adversely affect our business, operating results, and financial condition. +Risks Related to Our Business and Operations +▪ our business depends on the level of activity in the oil and gas industry; +▪ the offshore contract drilling industry is a highly competitive and cyclical business; +▪ an oversupply of offshore rigs; +▪ our ability to renew or replace existing contracts; +▪ contracting with national oil companies; +▪ our current backlog of contract drilling revenue may not be ultimately realized; +▪ our substantial dependence on several customers and geographic locations; +▪ operating hazards inherent to the offshore drilling business; +▪ risks associated with unionization efforts, labor interruptions, and labor regulations; +▪ a major natural disaster, catastrophic event, acts of war, terrorism or social unrest, pandemic, or other similar event; +▪ risks associated with participation in joint ventures and investments in associates; +▪ risks relating to operations in international locations; +▪ upgrades, refurbishment, operating, and maintenance costs of our rigs as well as related operational interruptions and delays in operations; +▪ inflation may adversely affect our operating results; +▪ obtaining and maintaining insurance; +▪ our and our service providers’ failure to adequately protect sensitive information and operational technology systems and critical data; +▪ our failure to attract and retain skilled personnel; +▪ supplier capacity constraints or shortages in parts or equipment or price increases; +▪ risks associated with future mergers, acquisitions, or dispositions of businesses or assets; +▪ our failure to achieve the intended benefits of the Diamond Transaction; +▪ seasonal weather events, including in the United States Gulf of America, also known as the United States Gulf of Mexico (the “US Gulf”), and related windstorm damage or liabilities; +▪ our failure to effectively and timely respond to the impact of long-term changes in the energy mix; +▪ the potential for substandard performance or nonperformance by third-party suppliers and subcontractors upon which we rely; +▪ risks associated with creating and executing new business models; +Regulatory and Legal Risks +▪ the impact of governmental laws and regulations on our costs and drilling activity; +▪ increasing attention to environmental, social, and governance matters (“ESG”), including climate change; +▪ changes in, compliance with, or our failure to comply with certain laws and regulations; +▪ compliance with laws and regulations relating to environmental, social, and governance matters; +▪ violations of anti-bribery or anti-corruption laws; +▪ compliance with complex laws and regulations governing international trade; +▪ we are, or in the future, could be subject to litigation; +Financial, Tax, and Governance Risks +• we may record impairment charges on property and equipment; +4 +• the 2023 Revolving Credit Agreement, the indentures for the 2030 Notes and the Diamond Second Lien Notes (each as defined herein), and future facilities may contain various restrictive covenants limiting the discretion of our management in operating our business; +• the impact of a loss of a major tax dispute or a successful tax challenge to our operating structure, intercompany pricing policies, or the taxable presence of our subsidiaries in certain countries on our tax rate on our worldwide earnings; +• variance in our effective income tax rate; +• fluctuations in exchange rates; +• the interest of certain majority shareholders; +• the uncertainty of future dividends or future share repurchases; +• our structure as a holding company that is dependent upon cash flows from subsidiaries, joint ventures, and associates; and +• dilutive effects on shareholders from future equity sales and warrant exercises. +For a more complete discussion of the material risks facing our business, see Part I, Item 1A, “Risk Factors” below. +5 +PART I +Item 1. Business. +Overview +Noble Corporation plc, a public limited company incorporated under the laws of England and Wales, is a leading offshore drilling contractor for the oil and gas industry. We provide contract drilling services to the international oil and gas industry with our global fleet of mobile offshore drilling units. We focus on a high-specification fleet of floating and jackup rigs and the deployment of our drilling rigs in oil and gas basins around the world. Noble and its predecessors have been engaged in the contract drilling of oil and gas wells since 1921. As of December 31, 2024, our fleet of 40 drilling rigs consisted of 27 floaters and 13 jackups. +On September 30, 2022 (the “Merger Effective Date”), pursuant to a business combination agreement, dated November 10, 2021 (as amended, the “Business Combination Agreement”), by and among Noble (as defined below), Noble Corporation, an exempted company incorporated in the Cayman Islands with limited liability (“Noble Cayman”), Noble Newco Sub Limited, a Cayman Islands exempted company and a direct, wholly owned subsidiary of Noble (“Merger Sub”), and The Drilling Company of 1972 A/S, a Danish public limited liability company (“Maersk Drilling”), Noble Cayman merged with and into Merger Sub (the “Merger”), with Merger Sub surviving the Merger as a wholly owned subsidiary of Noble. As a result of the Merger, Noble became the ultimate parent of Noble Cayman and its respective subsidiaries. +On October 3, 2022 (the “Closing Date”), pursuant to the Business Combination Agreement, Noble completed a voluntary tender exchange offer to Maersk Drilling’s shareholders (the “Offer” and, together with the Merger and the other transactions contemplated by the Business Combination Agreement, the “Business Combination”) and because Noble acquired more than 90% of the issued and outstanding shares of Maersk Drilling, nominal value Danish krone (“DKK”) 10 per share (“Maersk Drilling Shares”), Noble redeemed all remaining Maersk Drilling Shares not exchanged in the Offer for, at the election of the holder, either A ordinary shares, par value $0.00001 per share, of Noble (“Ordinary Shares”) or cash (or, for those holders that did not make an election, only cash), under Danish law by way of a compulsory purchase (the “Compulsory Purchase”) which was completed in early November 2022. Upon completion of the Compulsory Purchase, Maersk Drilling became a wholly owned subsidiary of Noble. +On June 9, 2024, Noble entered into an agreement and plan of merger (the “Diamond Merger Agreement”) with Diamond Offshore Drilling, Inc. (“Diamond”), Dolphin Merger Sub 1, Inc., and Dolphin Merger Sub 2, Inc., under which Noble would acquire Diamond in a stock plus cash transaction (the “Diamond Transaction”). On September 4, 2024 (the “Diamond Closing Date”), Noble completed its acquisition of Diamond. +For additional information, see “Note 2 — Acquisitions and Divestitures” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +As a result of the Merger, Noble became the successor issuer to Noble Cayman for purposes of and pursuant to the Exchange Act. References in this Annual Report on Form 10-K to “Noble,” the “Company,” “we,” “us,” and “our” refer collectively to (i) Noble Cayman and its consolidated subsidiaries prior to the Merger Effective Date, (ii) Noble and its consolidated subsidiaries (including Noble Cayman) on and after the Merger Effective Date, and (iii) Noble and its consolidated subsidiaries on and after the Diamond Closing Date, as applicable. +Contract Drilling Services +We report our contract drilling operations as a single reportable segment, Contract Drilling Services, which reflects how we manage our business. The mobile offshore drilling units comprising our offshore rig fleet operate in a global market for contract drilling services and are often redeployed to different regions due to changing demands of our customers, which consist primarily of large, integrated, independent, and government-owned or controlled oil and gas companies throughout the world. +We typically provide contract drilling services under an individual contract on a dayrate basis. Each contract’s final terms and conditions are the result of negotiations with our customers, and many contracts are awarded through a competitive bidding process. The following terms generally describe the key aspects of our contracts: +• contract duration extending over a specific period of time or a period necessary to drill a defined number of wells; +6 +• payment of compensation to us (generally in US dollars although some customers, typically national oil companies, require a part of the compensation to be paid in local currency) on a “daywork” basis, so that we receive a fixed amount for each day (“dayrate”) that the drilling unit is operating under contract (a lower rate or no compensation is payable during periods of equipment breakdown and repair or adverse weather or in the event operations are interrupted by other conditions, some of which may be beyond our control); +• provisions permitting early termination of the contract by the customer (i) if the unit is lost or destroyed, (ii) if operations are suspended for a specified period of time due to breakdown of equipment or breach of contract, or (iii) for convenience with the payment of contractually specified termination amounts; +• provisions allowing the impacted party to terminate the contract if specified “force majeure” events beyond the contracting parties’ control occur for a defined period of time; +• payment by us of the operating expenses of the drilling unit, including labor costs and the cost of incidental supplies; +• provisions that allow us to recover our mobilization and demobilization costs associated with moving a drilling unit from one regional location to another which, under certain market conditions, may not allow us to receive full reimbursement of such costs; +• provisions that allow us to recover certain cost increases from our customers in certain long-term contracts; +• provisions that require us to lower dayrates for documented cost decreases in certain long-term contracts; and +• provisions that allocate responsibility and liability through indemnification provisions for risks related to personal injury, property damage or loss, environmental damages, damage to the reservoir, and other matters. +Under our drilling contracts, liability with respect to personnel and property is typically assigned on a “knock-for-knock” basis, which means that we and our customers assume liability for our respective personnel and property, generally irrespective of the fault or negligence of the party indemnified. In addition, our customers may indemnify us in certain instances for damage to our down-hole equipment and, in some cases, our subsea equipment. Also, we generally obtain a mutual waiver of consequential losses in our drilling contracts. +Our customers typically assume responsibility for and indemnify us from loss or liability resulting from pollution or contamination, including third-party damages and clean-up and removal, arising from operations under the contract and originating below the surface of the water. We are generally responsible for pollution originating above the surface of the water and emanating from our drilling units. Additionally, our customers typically indemnify us for liabilities incurred as a result of a blow-out or cratering of the well and underground reservoir loss or damage. In the current market, we are under increasing pressure to accept exceptions to the above-described allocations of risk and, as a result, take on more risk. In such cases where we agree, we generally limit the exposure with a monetary cap and other restrictions. +During periods of depressed market conditions, our customers may attempt to renegotiate or repudiate their contracts with us although we seek to enforce our rights under our contracts. The renegotiation may include changes to key contract terms, such as pricing, termination, and risk allocation. +For a discussion of our backlog of commitments for contract drilling services, please read Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Contract Drilling Services Backlog.” +Drilling Fleet +Noble is a leading offshore drilling contractor for the oil and gas industry. Noble owns and operates one of the most modern, versatile, and technically advanced fleets of mobile offshore drilling units in the offshore drilling industry. Noble provides, through its subsidiaries, contract drilling services with a fleet of 40 offshore drilling units, consisting of 27 floaters and 13 jackups at the date of this report, focused largely on ultra-deepwater and harsh environment drilling opportunities in both established and emerging regions worldwide. Each type of drilling rig is described further below. Several factors determine the type of unit most suitable for a particular job, the most significant of which include the water depth and the environment of the intended drilling location, whether the drilling is being done over a platform or other structure, and the intended well depth. At December 31, 2024, our fleet was operating in Africa, Far East Asia, the Middle East, the North Sea, Oceania, South America, and the US Gulf. Our fleet consists of the following types of mobile offshore drilling units: +Floaters . A drillship is a type of floating drilling unit that is based on the ship-based hull of the vessel and equipped with modern drilling equipment that gives it the capability of easily transitioning from various worldwide locations and carrying high capacities of equipment while being able to drill ultra-deepwater oil and gas wells in up to 12,000 feet of water. Drillships can stay directly over the drilling location without anchors in open seas using a dynamic positioning system +7 +(“DPS”), which coordinates position references from satellite signals and acoustic seabed transponders with the drillship's six to eight thrusters to keep the ship directly over the well that is being drilled. Drillships are selected to drill oil and gas wells for programs that require a high level of simultaneous operations, where drilling loads are expected to be high, or where there are occurrences of high ocean currents, where the drillship's hull shape is the most efficient. Noble's fleet consists of 19 drillships capable of water depths from 10,000 feet to 12,000 feet. +Semisubmersible drilling units are designed as a floating drilling platform incorporating one or several pontoon hulls, which are submerged in the water to lower the center of gravity and make this type of drilling unit exceptionally stable in the open sea. Semisubmersible drilling units are generally categorized in terms of the water depth in which they are capable of operating, from the mid-water range of 300 feet to 4,000 feet, the deepwater range of 4,000 feet to 7,500 feet, to the ultra-deepwater range of 7,500 feet to 12,000 feet as well as by their generation, or date of construction. This type of drilling unit typically exhibits excellent stability characteristics, providing a stable platform for drilling in even rough seas. Semisubmersible drilling units hold their position over the drilling location using either an anchored mooring system or a DPS and may be self-propelled. Noble’s fleet consists of 8 moored ultra-deepwater semisubmersible drilling units. +Jackups . Jackup drilling units are designed to provide drilling solutions in depths ranging from less than 100 feet to as deep as 500 feet of water with drilling hook loads up to 2,500,000 pounds. Jackup rigs can be used in open water exploration locations, as well as over fixed, bottom-supported platforms. A jackup drilling unit is a towed mobile vessel consisting of a floating hull equipped with three or four legs, which are lowered to the seabed at the drilling location. The hull is then elevated out of the water by the jacking system using the legs to support the weight of the hull and drilling equipment against the seabed. Once the hull is elevated to the desired level, or jacked up, the drilling package can be extended out over an existing production platform or the open water location and drilling can commence. Noble’s fleet of 13 jackups consists of high-specification units capable of drilling in up to 500 feet of water. +The following table presents certain information concerning our offshore fleet at February 18, 2025. We own and operate all of the units included in the table. +8 +Name Make +Year Built (1) +Water Depth Rating (feet) (2) +Drilling Depth Capacity (feet) Location +Status (3) +Floaters—27 +Drillships—19 +Noble Bob Douglas GustoMSC P10000 2013 12,000 40,000 Guyana Active +Noble Don Taylor GustoMSC P10000 2013 12,000 40,000 Guyana Active +Noble Faye Kozack Samsung 96000 2013 12,000 40,000 Brazil Active +Noble Gerry de Souza Samsung 120000 Double Hull 2011 12,000 40,000 Nigeria Active +Noble Globetrotter I Globetrotter Class 2011 10,000 30,000 US Gulf Active +Noble Globetrotter II Globetrotter Class 2013 10,000 30,000 US Gulf Available +Noble Sam Croft GustoMSC P10000 2014 12,000 40,000 Guyana Active +Noble Stanley Lafosse Samsung 96000 2014 12,000 40,000 US Gulf Active +Noble Tom Madden GustoMSC P10000 2014 12,000 40,000 Guyana Active +Pacific Meltem (4) +Samsung 96000 2014 12,000 40,000 Las Palmas Stacked +Pacific Scirocco (4) +Samsung 120000 Double Hull 2011 12,000 40,000 Las Palmas Stacked +Noble Valiant Samsung 96000 2014 12,000 40,000 US Gulf Active +Noble Venturer Samsung 96000 2014 12,000 40,000 Namibia Active +Noble Viking Samsung 96000 2014 12,000 40,000 Malaysia Active +Noble Voyager Samsung 96000 2015 12,000 40,000 Curacao Available +Noble BlackRhino Gusto P10000 2014 12,000 40,000 US Gulf Active +Ocean BlackHawk Gusto P10000 2014 12,000 40,000 US Gulf Active +Ocean BlackHornet Gusto P10000 2014 12,000 40,000 US Gulf Active +Ocean BlackLion Gusto P10000 2015 12,000 40,000 US Gulf Active +Semisubmersibles—8 +Noble Deliverer DSS21-DPS2 2010 10,000 40,000 Malaysia Available +Noble Developer DSS21-DPS2 2009 10,000 40,000 Trinidad & Tobago Active +Noble Discoverer DSS21-DPS2 2009 10,000 40,000 Colombia Active +Noble Patriot Bingo 3000 1983 1,500 20,000 UK Active +Ocean Apex Enhanced Victory 1976/2014 6,000 30,000 Australia Active +Ocean Courage F&G ExD Millennium 2009 10,000 40,000 Brazil Active +Ocean Endeavor Enhanced Victory 1975/2006 10,000 35,000 UK Active +Ocean GreatWhite Moss CS-60E 2016 10,000 35,000 UK Active +Independent Leg Cantilevered Jackups—13 +Harsh environment—8 +Noble Highlander F&G JU-2000E 2016 400 30,000 Denmark Stacked +Noble Mick O’Brien F&G JU-3000N 2013 400 35,000 Qatar Active +Noble Regina Allen F&G JU-3000N 2013 400 30,000 Argentina Active +Noble Resilient MCS CJ50-X100 MC 2008 350 30,000 UK Active +Noble Resolute MCS CJ50-X100 MC 2008 350 30,000 Netherlands Active +Noble Resolve MCS CJ50-X100 MC 2009 350 30,000 Poland Active +Noble Tom Prosser F&G JU-3000N 2014 400 30,000 Malaysia Active +Noble Reacher MCS CJ50-X100 MC 2009 350 30,000 Denmark Active +9 +Ultra-harsh environment—5 +Noble Innovator MCS CJ70-150MC 2003 492 30,000 UK Active +Noble Integrator MCS CJ70-X150 MD 2015 492 40,000 Norway Active +Noble Interceptor MCS CJ70-X150 MD 2014 492 40,000 Denmark Available +Noble Intrepid MCS CJ70-X150 MD 2014 492 40,000 UK Active +Noble Invincible MCS CJ70-X150 MD 2016 492 40,000 Norway Active +(1) All of our current rigs were delivered to the Company new from the shipyard. +(2) Rated water depth for drillships and semisubmersibles reflects the maximum water depth for which a floating rig has been designed for drilling operations. +(3) Rigs listed as “active” are operating, preparing to operate, or under contract; rigs listed as “available” are actively seeking contracts and may include those that are idle or warm stacked; rigs listed as “stacked” are idle without a contract, have reduced or no crew, or are not actively marketed in present market conditions. +(4) In February 2025, we committed to a plan to sell the Pacific Meltem and Pacific Scirocco . +Market +The offshore contract drilling industry is a highly competitive and cyclical business. Demand for offshore drilling services is driven by the offshore exploration and development programs of oil and gas operators, which in turn are influenced by many factors. Those factors include, but are not limited to, the price and price stability of oil and gas, the relative cost and carbon footprint of offshore resources within each operator’s broader energy portfolio, global macroeconomic conditions, world energy demand, the operator’s strategy toward renewable energy sources, environmental considerations, and governmental policies. +In the provision of offshore contract drilling services, success in securing contracts is primarily governed by price, a rig’s availability, drilling capabilities and technical specifications, and the drilling contractor’s safety performance record. Other factors include experience of the workforce, process efficiency, condition of equipment, operating integrity, reputation, industry standing, and client relations. +We maintain a global operational presence and compete in many of the major offshore oil and gas basins worldwide with a primary focus on the deepwater and ultra-deepwater market and the harsh and ultra-harsh environment jackup and floater markets. All our drilling rigs are mobile, and we may reposition our drilling rigs among regions for a variety of reasons, including in response to customer requirements. We compete in both the jackup and floating rig markets, each of which may have different supply and demand dynamics at a given period in time or in different regions. +We have one of the youngest and highest specification fleets of global scale in the industry, with diversification across asset classes, geographic regions, and customers. The Company has a track record of industry-leading utilization, coupled with a commitment to best-in-class safety performance and customer satisfaction. We strive to be a leader in industry innovation and first-mover in sustainability. +The offshore drilling industry has historically experienced significant volatility and change. In recent years, however, oil prices have generally remained at levels that are supportive of offshore exploration and development activity. While ongoing geopolitical and macroeconomic factors continue to create some uncertainty relating to future global energy demand, global offshore rig demand has generally remained robust since 2021. During 2023 and 2024, the total level of global floater and jackup demand exceeded 2020 early pre-pandemic highs, albeit with some moderation over the past 12 months as upstream capital discipline has resulted in a slight reduction in contracted offshore rig demand compared to early 2024 peak levels. As a result, utilization and leading edge dayrates for certain rig classes have recently plateaued or decreased. A further softening of utilization in 2025 could result in corresponding dayrate pressure in certain situations due to a more competitive bidding environment. +The global rig supply has come down from historic highs as Noble and other offshore drilling contractors have retired less capable and idle assets. Concurrently, the incoming supply of newbuild offshore drilling rigs has diminished materially, with several newbuild rigs stranded in shipyards. However, we expect many of these stranded newbuild rigs may continue to make their way into the global market over the next few years. +Although the market outlook in our business varies by geographical region and water depth, we remain encouraged by the long-term outlook in the ultra-deepwater floater market, with overall demand having increased from 2020 lows. Our customers continue to focus on our highest specification floaters, which represents the majority of our floater fleet. While +10 +we remain encouraged about overall rig demand, to the extent global macroeconomic concerns become more prevalent, we could experience downward pressure on oil and gas prices as well as overall rig demand for both floaters and jackups. +As of the date of this report, the majority of our jackup fleet is positioned in the North Sea. While we have seen generally stable demand in the UK and southern North Sea in recent years, overall activity levels in the region remain subdued compared to historical levels. Similarly, the ultra-harsh environment jackup market in Norway also remains below historical levels despite the market being attractive to operators given it is characterized by low-cost and low-emission barrels. +Returning to the broader offshore drilling market, while there are a number of multi-year contracts out for tender, the overall market remains characterized by generally shorter-term contracts. This leads to an increased number of rig contract start-ups, both with different customers and among different regions, which may require incremental resources and costs. Additionally, this has resulted in, and is likely to continue to result in, lower overall effective utilization for our fleet driven by more idle time between contracts. +The energy transition from hydrocarbons to renewables poses a challenge to the oil and gas sector and our market. Energy rebalancing trends have accelerated in recent years as evidenced by promulgated or proposed government policies and commitments by many of our customers to further invest in sustainable energy sources. Our industry could be further challenged as resource holders and policy makers continue to evaluate and calibrate strategies and capital flows to address global energy needs. Ultimately, however, there continues to be a global dependence on products made from hydrocarbons and on the combustion of hydrocarbons to provide reliable and affordable energy. Low-cost and low-emission barrels are expected to be the most attractive conventional source to meet energy needs both currently and in the future. Global energy demand is predicted to increase over the coming decades, and we expect that offshore oil and gas will continue to play an important and lasting role in meeting this demand. +While inflationary pressures in our industry have eased since 2023, our cost profile remains sensitive to global labor market conditions, capital intensive repair and maintenance scopes on our rigs, global trade and sanctions regimes, and geopolitical crises and their respective regional and global ramifications. Each of these factors has the potential to adversely impact our ability to conduct our day-to-day operations and manage costs. +Significant Customers +During the three years ended December 31, 2024, we principally conducted our contract drilling operations in Africa, Far East Asia, the Middle East, the North Sea, Oceania, South America, and the US Gulf. The following table sets forth revenues from our customers as a percentage of our consolidated operating revenues: +Year Ended Year Ended Year Ended +December 31, 2024 December 31, 2023 December 31, 2022 +Exxon Mobil Corporation (“ExxonMobil”) 22.1 % 24.5 % 32.3 % +Shell plc 12.3 % 13.6 % 12.0 % +TotalEnergies 6.3 % 10.5 % 9.7 % +No other customer accounted for more than 10 percent of our consolidated operating revenues in 2024, 2023, or 2022. +Human Capital +At December 31, 2024, we had approximately 5,000 employees, excluding approximately 1,400 persons we engaged through labor contractors or agencies. Approximately 80% percent of our workforce is located offshore. Certain of our employees and contractors in international markets, such as Norway and Denmark, are represented by labor unions and work under collective bargaining or similar agreements, which are subject to periodic renegotiation, and we consider our employee relations to be satisfactory. +For additional information, please read Part I, Item 1A, “Risk Factors—Risk Related to Our Business and Operations—Unionization efforts, labor interruptions and labor regulations could have a material adverse effect on our operations.” +Our compliance program is focused on promoting adherence with high ethical standards and applicable laws and setting the tone for an ethical business practices and work environment throughout the Company. The Noble Code, Noble’s code of business conduct and ethics (the “Code of Conduct”), encompasses our commitments to our Core Values of safety, environmental stewardship, honesty and integrity, respect, and performance. The Code of Conduct also includes our responsibility and commitment to follow all applicable laws as well as our own internal policies, and extends requirements to any supplier or third party who works with Noble to comply with similar fundamental principles. +11 +Operating our business in a socially responsible way is integral to our identity. Internally, our employee-focused programs, such as training and continuing education, our promotion and advancement program, focus on inclusion and culture, recruitment initiatives, and retirement and benefits, are key to our commitment to the personal and professional growth of our workforce. Externally, our dedication is evidenced by our affiliations and how we contribute to and invest in the communities where we operate. +Talent Management. Noble is committed to a number of initiatives that directly support our employee talent management. As part of these initiatives, Noble is committed to the promotion of equal opportunity and non-discrimination and aspires to not only promote an environment and culture of inclusion, but also provide healthy working conditions that enable our employees to reach their full potential. +In order to enable regular feedback loops and a continuous focus on employee engagement, we implement semi-annual Employee Engagement Surveys, results of which are shared with the organization and leaders engage their teams in a conversation regarding the results and subsequent actions. Noble also focuses on enabling performance through continuous conversations between the leader and the employee. The conversations are intended to take place at least twice a year and follow a structured framework pertaining to contributions, engagement, and development, and incorporate two-way feedback. +We also identify high-performing and high-potential individuals within Noble and aspire to ensure succession planning regarding all critical positions. We focus on engagement and retention of such individuals by aspiring to offer experiences and opportunities that demonstrate our commitment to their ongoing growth. +Safety and Environmental Stewardship. Noble is committed to operating with excellent health, safety, and environmental (“HSE”) performance as part of our business strategy in order to add further value for employees, customers, and shareholders. All personnel, regardless of job or position onboard our vessels or at any Noble facility, has the authorization and obligation to immediately stop any unsafe act, practice, or job that poses an unaddressed or unreasonable risk or danger to people or the environment. Noble’s pursuit of exceptional HSE performance begins with our strong corporate culture and by starting SAFE every day: one tour, one task and one person at a time. SAFE is an acronym for the phrase: follow Standards, be Accountable, stay Focused, achieve Excellence. Daily, the crew onboard each rig works together to achieve specific safety and environmental objectives and if all objectives are met, then the day is counted as a SAFE Day. Under our SAFE Day program, in 2024, our rigs achieved the SAFE objectives 98.6% of available days, which has remained flat compared to 2023 performance. As of December 31, 2024, this metric is only available for vessels owned by Noble prior to the Diamond Transaction. As integration activities are completed throughout 2025, all current Noble vessels will utilize this program. +Training and Continuing Education. We place considerable value on the training and development of our employees. Accordingly, we conduct formal and informal meetings with employees, regular executive-led podcasts, issue periodic publications of Company activities, and other matters of interest to the Company’s OneNoble app and offer a variety of training, including in-house through NobleAdvances, our state-of-the-art training facility in Texas. Noble has learned that technical skills are not enough to keep pace in our fast-changing offshore environments. NobleAdvances allows us to deliver scenario-based drilling and marine training with a strong focus on communication, biases, and emergency decision making. This approach is designed to enable Noble employees to execute our procedures effectively and solve complex technical problems in challenging offshore conditions. +Environmental Responsibility +Climate change is an environmental, social, and economic challenge facing everyone today. We are committed to continuous improvement and a sustainable energy future supported by our efforts to protect the environment throughout our operations and safely provide reliable and efficient services to allow access to resources essential for human and economic prosperity. There is ongoing attention concerning the global climate and the effect of greenhouse gas (“GHG”) emissions. Various regulators have proposed or adopted rules requiring the monitoring and reporting of GHG emissions from specified sources in the United States, including, among other things, certain offshore activities relating to oil and gas production. As such, we regularly assess the environmental impact of operations, focusing on the reduction of GHG emissions, operational discharges, water use, and waste. Furthermore, we actively look to collaborate with our customers to evaluate economic alternatives for reducing the carbon footprint of our drilling rigs. +Available Information +Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge at our website as soon as reasonably practicable after such material is electronically filed with or furnished with the SEC. The SEC +12 +maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. +Our website address is http://www.noblecorp.com. Investors should also note that we announce material financial information in SEC filings, press releases, and public conference calls. Based on guidance from the SEC, we may use the investor relations section of our website to communicate with our investors. It is possible that the financial and other information (including fleet status reports) posted there could be deemed to be material information. Noble may also use social media channels including, but not limited to, Noble's accounts on LinkedIn, Facebook, Instagram, and Twitter, to communicate with investors and the public about its business, services, and other matters, and those communications could be deemed to be material information. Documents and information on our website or our social media channels are not incorporated by reference herein. +13 +Item 1A. Risk Factors. +You should carefully consider the following risk factors in addition to the other information included in this Annual Report on Form 10-K. Each of these risk factors could affect our business, operating results, and financial condition as well as affect an investment in our shares. +Risks Related to Our Business and Operations +Our business depends on the level of activity in the oil and gas industry. Adverse developments affecting the industry, including a decline in the price of oil or gas, reduced demand for oil and gas products, and increased regulation of drilling and production, have in the past had, and may in the future, have a material adverse effect on our business, financial condition, and results of operations. +Demand for drilling services depends on a variety of economic and political factors and the level of activity in offshore oil and gas exploration and development and production markets around the world. The price of oil and gas and market anticipation of potential changes in the price, significantly affect this level of activity, as well as dayrates that we can charge customers for our services. Crude oil prices remain volatile; for example, Brent crude reached a low of $9.12 in 2020 and a 5-year high of $133.18 in 2022. +Higher prices do not necessarily translate into increased drilling activity because our customers typically take into account a number of considerations when they decide to invest in offshore oil and gas resources, including expectations regarding future commodity prices and demand for hydrocarbons. While the price of oil and gas remains volatile, the level of activity in offshore oil and gas exploration and development can be extremely volatile and can be affected by numerous factors beyond our control, including: +▪ worldwide production, current demand, and our customer’s views of future demand for oil and gas; +▪ changes in the rate of economic growth in the global economy; +▪ the cost of exploring for, developing, producing, and delivering oil and gas; +▪ the ability of OPEC and OPEC+ to set and maintain production levels and pricing; +▪ expectations regarding future energy prices; +▪ increased supply of oil and gas resulting from onshore hydraulic fracturing activity and shale development; +▪ the relative cost of offshore oil and gas exploration versus onshore oil and gas production; +▪ potential acceleration in the investment, development, and the price and availability of alternative fuels or energy sources; +▪ allocation of capital to exploration and production operations within customers’ broader portfolios; +▪ the level of production in non-OPEC+ countries; +▪ inventory levels and the cost and availability of storage and transportation of oil, gas, and their related products; +▪ worldwide financial instability or recessions; +▪ regulatory restrictions or any moratorium on offshore drilling or the availability of offshore lease or concession areas; +▪ the discovery rate of new oil and gas reserves either onshore or offshore; +▪ the rate of decline of existing and new oil and gas reserves; +▪ available pipeline and other oil and gas transportation capacity; +▪ oil refining capacity; +▪ the ability of oil and gas companies to raise capital; +▪ limitations on liquidity and available credit; +▪ advances in exploration, development, and production technology either onshore or offshore; +▪ technical advances affecting energy consumption, including the displacement of hydrocarbons; +▪ merger, acquisition, and divestiture activity among oil and gas industry participants; +▪ the availability of, and access to, suitable locations from which hydrocarbons can be produced; +▪ adverse weather and sea conditions, including hurricanes, typhoons, cyclones, winter storms, and rough seas; +14 +▪ the occurrence or threat of a major natural disaster, catastrophic event, epidemic, or pandemic diseases, as well as any governmental response to such occurrence or threat; +▪ changes in and compliance with tax laws, regulations, and policies; +▪ changes in and compliance with environmental laws, regulations, and other initiatives, including those involving alternative energy sources, the phase-out of fossil fuel consuming vehicles, and the risks of global climate change; +▪ the political environment of oil-producing countries or regions, including uncertainty or instability resulting from civil disorder, geopolitical instability, border disputes, or an outbreak or escalation of armed hostilities or acts of war or terrorism, such as the conflict between Russia and Ukraine, Middle East conflicts, and the Guyana-Venezuela dispute, and their respective regional and global ramifications; and +▪ the laws, regulations, and policies of governments regarding exploration and development of their oil and gas reserves or speculation regarding future laws or regulations. +Adverse developments affecting the industry as a result of factors such as those listed above, including a decline in the price of oil and gas from their current levels or the failure of the price of oil and gas to consistently remain at or above a level that encourages our customers to expand their capital spending, the inability of our customers to access capital on economically advantageous terms, including as a result of the increasing focus on climate change by investors, a global recession, reduced demand for oil and gas products, or a perception that the demand for hydrocarbons will significantly decrease, increased supply due to the development of new onshore drilling and production technologies, and increased regulation of drilling and production, particularly if several developments were to occur in a short period of time, would have a material adverse effect on our business, financial condition, and results of operations. However, increases in near-term commodity prices do not necessarily translate into increased offshore drilling activity because customers’ expectations of longer-term future commodity prices and expectations regarding future demand for hydrocarbons typically have a greater impact on demand for our rigs. The level of oil and gas prices has had, and may in the future have, a material effect on demand for our services, and future declines in prices would likely have a material adverse effect on our business, results of operations, and financial condition. +The offshore contract drilling industry is a highly competitive and cyclical business with intense price competition. If we are unable to compete successfully, our profitability may be materially reduced. +The offshore contract drilling industry is a highly competitive and cyclical business characterized by high capital and operating costs and evolving capability of newer rigs. Drilling contracts are traditionally awarded on a competitive bid basis. Price competition, rig availability, location, suitability, and technical specifications are the primary factors in determining which rig is qualified for a job, and additional factors such as experience of the workforce, operating efficiency, safety performance record, condition of equipment, operating integrity, reputation, industry standing, and customer relations are also often considered. Our future success and profitability will partly depend upon our ability to keep pace with our customers’ demands with respect to these factors. In the past several years, the pace of consolidation in our industry has increased, and may continue to increase, leading to the creation of a number of larger and financially stronger competitors. If we are unable, or our customers believe that we are unable, to compete with the scale and financial strength of certain of our competitors, it could harm our ability to maintain existing drilling contracts and secure new ones. +Further, if current competitors implement new or differentiated technical capabilities, services or specifications, which may be more attractive to our customers or price their product offerings more competitively, it could have a material adverse effect on our business, financial condition, and results of operations. We may face competitive pressure to develop, implement, or acquire certain new technologies at a substantial cost. We cannot be certain that we will be able to continue to develop and implement new technologies or services offered. +Our industry is cyclical. Periods of low demand or excess rig supply intensify the competition in the industry and have resulted in, and may continue to result in, many of our rigs earning substantially lower dayrates or being idle for long periods of time. Although, since the 2014 peak, the industry has experienced a rationalization and correction of the global offshore rig supply, we continue to experience competition from newbuild rigs, including rigs that have been stranded in shipyards, that have either already entered the market or are available to enter the market. The entry of these rigs into the market has resulted in, and may in the future result in, lower dayrates for both newbuilds and existing rigs rolling off their current contracts. In addition, our competitors may relocate rigs to geographic markets in which we operate, which could exacerbate any excess rig supply, or depress the current rationalization and correction of offshore rig supply, and result in lower dayrates and utilization in those regions. +15 +In addition, our customers continue to seek more favorable terms with respect to allocation of risk under offshore drilling contracts. Our drilling contracts provide for varying levels of risk allocation and indemnification from our customers. Our customers have historically assumed most of the responsibility for and indemnified us from loss, damage, or other liability resulting from pollution or environmental damage, including clean-up and removal and third-party damages arising from operations under the contract when the source of the pollution originates from the well or reservoir, including those resulting from blow-outs or loss of well control. However, we regularly are required to assume certain amounts of liability for pollution and environmental damage caused by our negligence, which liability generally has higher caps, or may even have unlimited liability, where the damage is caused by our gross negligence or willful misconduct. We still face resistance with some customers when attempting to allocate less risk to us and lower caps for damage caused by our gross negligence or willful misconduct or reduce our exposure with respect pollution or environmental damage. Our contracts may also be subject to judicial review and application of public policy principles whereby relevant authorities could decide that certain contractual indemnities in current or future contracts are not enforceable. Going forward, we could decide or be required to retain more risk in the future, resulting in higher risk of losses, which could be material. Moreover, we may not be able to maintain adequate insurance in the future at rates that we consider reasonable or be able to obtain insurance against current or future risks. +We have not been, and may continue not to be, able to renew or replace certain expiring contracts, and our customers have sought, and may seek in the future, to terminate, renegotiate, or repudiate our drilling contracts and have had, and may have in the future, financial difficulties that prevent them from meeting their obligations under our drilling contracts. +Our ability to renew contracts that expire or obtain new contracts and the terms of any such contracts will depend on market conditions and our customers' expectations and assumptions of future oil prices and other factors. +Depending on market conditions, we have also experienced customers seeking price reductions for our services, payment deferrals, and termination of our contracts; customers seeking to not perform under our contracts pursuant to a force majeure claim; and customers that are unable or unwilling to timely pay outstanding receivables owed to us, all of which present liquidity challenges for us. Our customers may generally terminate our drilling contracts if a drilling rig is destroyed or lost or if we have to suspend drilling operations for a specified period of time as a result of a breakdown of equipment or, in some cases, due to other events beyond the control of either party. In the case of nonperformance and under certain other conditions, our drilling contracts generally allow our customers to terminate without any payment to us. The terms of some of our drilling contracts permit the customer to terminate the contract after a specified notice period by tendering contractually specified termination amounts or, in some cases, without any payment. These termination payments, if any, may not fully compensate us for the loss of a contract. The early termination of a contract may result in a rig being idle for an extended period of time and a reduction in our contract backlog and associated revenue, which could have a material adverse effect on our business, financial condition, and results of operations. Moreover, if any of our long-term contracts were to be terminated early, such termination could affect our future earnings flow and could have a material adverse effect on our future financial condition and results of operations even if we were to receive the contractually specified termination amount. +During periods of depressed market conditions, we are subject to an increased risk of our customers seeking to renegotiate or repudiate their contracts. The ability of our customers to perform their obligations under drilling contracts with us may also be adversely affected by the financial condition of the customer, restricted credit markets, economic downturns, and industry downturns. We may elect to renegotiate the rates we receive under our drilling contracts downward if we determine that to be a reasonable business solution. If our customers cancel or are unable to perform their obligations under their drilling contracts, including their payment obligations, and we are unable to secure new contracts on a timely basis on substantially similar terms or if we elect to renegotiate our drilling contracts and accept terms that are less favorable to us, it could have a material adverse effect on our business, financial condition, and results of operations. +Drilling contracts with national oil companies may expose us to greater risks than we normally assume in drilling contracts with non-governmental customers. +Contracts with national oil companies are often non-negotiable and may expose us to greater commercial, political, and operational risks than we assume in other contracts, such as exposure to materially greater environmental liability and other claims for damages (including consequential damages) and personal injury related to our operations, or the risk that the contract may be terminated by our customer without cause on short-term notice, contractually or by governmental action, under certain conditions that may not provide us an early termination payment, collection risks, and political risks. In +16 +addition, our ability to resolve disputes or enforce contractual provisions may be negatively impacted under these contracts. We can provide no assurance that the increased risk exposure will not have an adverse impact on our future operations or that we will not increase the number of rigs contracted to national oil companies with additional contractual risks. +Our current backlog of contract drilling revenue may not be ultimately realized. +Generally, contract backlog only includes future revenues under signed drilling contracts. We may not be able to perform under these contracts as a result of operational or other breaches or due to events beyond our control, and we may not ultimately execute a definitive agreement in cases where one does not currently exist. Moreover, we can provide no assurance that our customers will be able to or willing to fulfill their contractual commitments to us or that they will not seek to renegotiate or repudiate their contracts or, for certain customers, reallocate term among contracted rigs, especially during an industry downturn. The terms of some of our drilling contracts permit the customer to terminate the contract after specified notice periods by tendering contractually specified termination amounts or, in certain cases, without any payment. In estimating backlog, we make certain assumptions about applicable dayrates under our longer-term contracts which have dayrate adjustment mechanisms (like certain of our contracts with ExxonMobil, AkerBP, Tullow, and Petrobras). In addition, from time to time, we may report anticipated commitments under letters of intent or awards for which definitive agreements have not yet been, but are expected to be, signed. We cannot assure you that actual results will mirror these assumptions. Our inability to perform under our contractual obligations, execute definitive agreements, our customers’ inability or unwillingness to fulfill their contractual commitments to us, including as a result of contract repudiations or our decision to accept less favorable terms on our drilling contracts, or the failure of actual results to reflect the assumptions we use to estimate backlog for certain contracts, could have a material adverse effect on our business, financial condition, and results of operations. +A substantial portion of our business is dependent on several of our customers as well as dependent on several geographic areas and the disruption of business with any of these customers or disruption of business within these geographic areas could have a material adverse effect on our financial condition and results of operations. +Any concentration of customers increases the risks associated with any possible termination or nonperformance of drilling contracts, failure to renew contracts or award new contracts, or reduction of their drilling programs. In addition, the concentration of operations within a geographic area increases the impact of terrorism, piracy, or political or social unrest, changes in local laws and regulations, as well as severe weather events, should they occur within an area of concentration. As of December 31, 2024, ExxonMobil, BP, and Petrobras represented approximately 37.2%, 13.1%, and 12.6% of our contract backlog, respectively, and operations within Guyana, the US Gulf, and the North Sea accounted for approximately 37.2%, 21.9%, and 18.5% of o ur contract backlog, respectively. ExxonMobil and Shell plc accounted for approximately 22.1% and 12.3%, respectively, of our consolidated operating revenues for the year ended December 31, 2024, and operations in the US Gulf, Guyana, and the North Sea accounted for approximately 22.4%, 22.1%, and 17.8%, respectively, of our consolidated operating revenues for the year ended December 31, 2024. This concentration of customers increases the risks associated with any possible termination or nonperformance of contracts in addition to our exposure to credit risk. If any of these customers were to terminate or fail to perform their obligations under their contracts and we were not able to find other customers for the affected drilling units promptly, our financial condition and results of operations could be materially adversely affected. Additionally, the concentration of operations in specific geographies increases the risks associated with terrorism, piracy, political or social unrest, changes in local laws and regulations, as well as severe weather events within those regions, should they occur. If we were forced to cease drilling operations in any of these regions for any reason and we were not able to redeploy to other regions promptly, our financial condition and results of operations could be materially adversely affected. +Our business may be impacted by numerous operating hazards. +Our operations are subject to many hazards inherent in the drilling business, including: +• loss of well control or blowout; +• fire; +• navigation hazards, such as collisions or groundings of offshore equipment; +• helicopter accidents; +• seabed punch-throughs of a jackup rig; +17 +• mechanical or technological equipment failures; +• failure to comply with environmental, health, and safety requirements; +• loss of well integrity (such as pipe or cement failures and casing collapses); +• adverse weather or sea conditions (caused by events including hurricanes, typhoons, tsunamis, cyclones, and winter storms, which may increase in frequency and severity as a result of climate change); +• loop currents or eddies; +• toxic gas emanating from the well; and +• improper handling, release, or disposal of hazardous materials. +These hazards could cause personal injury, including claims of post-traumatic stress or loss of life, suspend drilling operations, result in regulatory investigation or penalties, seriously damage or destroy property and equipment, result in claims by employees, customers, or third parties, cause environmental damage, and cause substantial damage to oil and gas producing formations or facilities. Operations also may be suspended because of machinery breakdowns, abnormal drilling conditions, and failure of subcontractors to perform or supply goods or services or personnel shortages. The occurrence of any of the hazards we face could have a material adverse effect on our business, financial condition, and results of operations. +Unionization efforts, labor interruptions, and labor regulations could have a material adverse effect on our operations. +Certain of our employees and contractors in international markets, such as Australia, certain African countries, Brazil, Norway, Denmark, and the United Kingdom, are represented by labor unions and work under collective bargaining or similar agreements, which are subject to periodic renegotiation, and efforts may be made from time to time to unionize other portions of our workforce. Although we have not experienced any labor disruptions, strikes, or other forms of labor unrest in connection with our personnel, there can be no assurance that labor disruptions by employees and contractors will not occur in the future. Further, unionized employees of third parties on whom we rely may be involved in labor disruptions, strikes, or other forms of labor unrest, causing operational disruptions. Such actions could result in the occurrence of additional costs, as well as limitations on our ability to operate or provide services to our customers, which may materially adversely affect our business, financial condition, and results of operations. In addition strikes may occur in connection with annual salary negotiations with respect to unionized employees or contractors. If future labor strikes force us to shut down any of our operations, such interruption in operations could materially adversely affect our business, financial condition, and results of operations. Additionally, legislation has been introduced in the US Congress that could encourage additional unionization efforts in the United States, as well as increase the chances that such efforts succeed. Additional unionization efforts, if successful, could materially increase our labor costs and operating restrictions. +A major natural disaster, catastrophic event, acts of war, terrorism, social unrest, pandemic, or other similar event could have a materially adverse effect on our business, financial condition, and results of operations, or have other adverse consequences. +Our business, financial condition, results of operations, access to capital markets, and borrowing costs may be adversely affected by a major natural disaster or catastrophic event, including civil unrest, geopolitical instability, war, terrorist attacks, pandemics, or other (actual or threatened) public health emergencies such as the COVID-19 outbreak, or other events beyond our control, and measures taken in response thereto. +Acts of terrorism and social unrest, brought about by world political events or otherwise, such as the conflict between Russia and Ukraine, Middle East conflicts, and the Guyana-Venezuela dispute, and their respective regional and global ramifications, have caused instability in the world’s financial and insurance markets in the past and may occur in the future. Such acts could be directed against companies such as ours. In addition, acts of terrorism, piracy, and social unrest could lead to increased volatility in prices for crude oil and natural gas and could affect the markets for drilling services. Insurance premiums could increase and coverage may be unavailable in the future. Government regulations may effectively preclude us from engaging in business activities in certain countries. These regulations could be amended to cover countries where we currently operate or where we may wish to operate in the future. +Our drilling contracts do not generally provide indemnification against loss of capital assets or loss of revenues resulting from acts of terrorism, piracy, or political or social unrest. We have limited insurance for our assets providing coverage for physical damage losses resulting from risks, such as terrorist acts, piracy, vandalism, sabotage, civil unrest, expropriation, and acts of war, and we do not carry insurance for loss of revenues resulting from such risks. +18 +Public health emergencies have created and may in the future create, significant volatility and uncertainty and economic and financial market disruption. Governmental authorities implemented, and may implement in the future, numerous measures attempting to contain and mitigate the effects of pandemics and outbreaks, including travel bans and restrictions, quarantines, shelter in place orders, and shutdowns. Due to travel restrictions and mandatory quarantine measures, we experienced, and may in the future experience again, increased difficulties, delays, and expenses in moving our personnel to and from our operating locations. We may be unable to pass these increased expenses to our customers. Further, we have previously, and may in the future have to, temporarily shut down operations of one or more of our rigs if there is a pandemic, outbreak, or other public health emergency or vacancies of essential positions due to related infections, which could have a material negative impact on our business, financial condition, and results of operations. Additionally, disruptions to the ability of our suppliers, manufacturers, and service providers to supply labor, parts, equipment, or services in the jurisdictions in which we operate, whether as a result of government actions, labor shortages, travel restrictions, the inability to source labor, parts or equipment from affected locations, or other effects related to pandemics, outbreaks or other public health emergencies, have increased our operating costs and the risk of rig downtime and negatively impacted our ability to meet commitments to customers and may do so in the future. +We face risks associated with our participation in certain joint ventures as well as investments in associates. +We have made investments in certain joint ventures and as well as investments in associates. Such investments are often entered into to satisfy local requirements, including local content requirements, in certain jurisdictions and the terms of the investment agreements vary depending on the counterparty and jurisdiction involved. For example, we currently have joint ventures with local owners or partners that were entered into in the ordinary course of business to satisfy local content requirements in certain African countries, countries in the Middle East, Mexico, and other applicable jurisdictions in which we operate. Investments in joint ventures or associates over which we have partial or joint control are subject to the risk that the other owners or partners in such joint venture or associate, who may have different business or investment strategies compared to ours or with whom we may have a disagreement or dispute, may have the ability to block business, financial, or management decisions (such as the decision to distribute dividends or appoint members of management) which may be crucial to the success of our investment in the joint venture or associate, or could otherwise implement initiatives which may be contrary to our interests. In addition, such joint venture owners or partners may be unable, or unwilling, to fulfill their obligations under the relevant agreements (for example, by not contributing working capital or other resources), or may experience financial, operational, or other difficulties that may adversely impact our investment in a particular joint venture or associate. In addition, such joint venture owners or associates may lack sufficient controls and procedures which could expose us to risk. If any of the foregoing were to occur, such occurrence could materially adversely affect our business, financial condition, and results of operations. +We are exposed to risks relating to operations in international locations, including the mobilization and demobilization of our rigs to and from such locations. +We operate in various regions throughout the world that may expose us to political or governmental risks and other uncertainties, including risks of: +• seizure, nationalization, or expropriation of property or equipment; +▪ monetary policies, capital controls, government credit rating downgrades and potential defaults, and any potential shutdown of the United States government; +▪ foreign currency fluctuations and devaluations; +▪ limitations on the ability to repatriate income or capital; +▪ complications associated with repairing and replacing equipment in remote locations; +▪ repudiation, nullification, modification, or renegotiation of contracts; +▪ limitations on insurance coverage, such as war risk coverage, in certain areas; +▪ import-export quotas, wage and price controls, and imposition of sanctions, tariffs, or other trade restrictions; +▪ operating delays as a result of excess governmental scrutiny or oversight; +▪ compliance with and changes in taxation rules or policies; +▪ compliance with and changes in regulatory or financial requirements, including local ownership, presence, local immigration, and visa requirements for personnel or labor requirements; +▪ complexity involving conflicts of law between jurisdictions in which we operate; +19 +▪ other forms of government regulation and economic conditions that are beyond our control and that create operational uncertainty; +▪ corruption, payment of bribes to government officials, money laundering, or kleptocracy (i.e., political corruption in which the government seeks personal gain and status at the expense of the governed); and +▪ terrorism, piracy, civil, or international disturbances or conflict, such as the conflict bet ween Russia and Ukraine, Middle East conflicts, and the Guyana-Venezuela dispute, and their respective regional and global ramifications. +Further, we operate or have operated in certain less-developed countries with legal and regulatory systems that are not as mature as those in more developed countries, which can lead to greater uncertainty in legal matters and proceedings. Examples of challenges of operating in these countries include: +• ongoing changes in Brazilian laws related to the importation of rigs and equipment that may impose bonding, insurance, or duty-payment requirements; +• ongoing audits, including customs audits; +• procedural requirements for temporary import permits, which may be difficult to obtain; and +• the effect of certain temporary import permit regimes, where the duration of the permit does not coincide with the general term of the drilling contract. +Our ability to do business in a number of jurisdictions is subject to maintaining required licenses and permits and complying with applicable laws and regulations. For example, all of our drilling units are subject to regulatory requirements of the flag state, the country where a drilling unit is registered. The applicable flag state requirements are consistent with international maritime standards. In addition, each of our drilling units must assessed by a classification society, which conducts surveys and reviews for physical and operational compliance with the rules of the classification society and the requirements of the flag state, signifying that such drilling rig has been constructed, maintained, crewed, and operated in accordance with the rules of the classification society and complies with applicable rules and regulations of the flag state (also referred to as being “in-class”). If any drilling unit is deemed or otherwise found to be “out of class”, it will no longer be permitted to operate, certain contractual obligations will be voided, canceled, or withdrawn (e.g., drilling contracts, insurance contracts, etc.), and the unit will be prohibited from entering the waters of most countries. +Jurisdictions where we operate may attempt to increase or impose requirements for our drilling units to operate in such jurisdiction, such as certain local ownership or content requirements or registration under the flag of that jurisdiction, or similar measures, resulting in our inability or being prevented from operating in a country imposing such requirements or measures. +Any such inability to carry on operations in jurisdictions where we operate or desire to operate, or our failure to comply with any other laws and regulations of the countries where we operate, could have a material adverse effect on our results of operations. Some governments favor or effectively require the awarding of drilling contracts to local contractors, require use of a local agent, require partial local ownership, or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. In addition, some governments frequently intervene in their economy and occasionally make significant changes in policy and regulations. An example is the Brazilian government's actions to control inflation and other policies and regulations which have often involved, among other measures, changes in interest rates, changes in tax policies, changes in legislation, wage controls, price controls, currency devaluations, capital controls, and limits on imports of goods and services. These practices have and may adversely affect our ability to compete and our results of operations. +In addition, the offshore drilling industry is a global market requiring flexibility for rigs, depending on their technical capability, to relocate and operate in various environments and jurisdictions, moving from one area to another. The mobilization of rigs is expensive and time-consuming and can be impacted by several factors including, but not limited to, governmental regulation and customs practices, availability of tugs and tow vessels, weather, currents, political instability, civil unrest, and military actions, such as the conflict between Russia and Ukraine, Middle East conflicts, and the Guyana-Venezuela dispute, and their respective regional and global ramifications, and rigs may as a result become stranded. Some jurisdictions enforce strict technical requirements on the rigs requiring substantial physical modification to the rigs before they can be utilized. Such modifications may require significant capital expenditures and, as a result, may limit the use of the rigs in those jurisdictions in the future. In addition, mobilization carries the risk of damage to the rig. Failure to mobilize a rig in accordance with the deadlines set by a specific customer contract could result in a loss of compensation, liquidated damages, or the cancellation or termination of the contract. In some cases, we may not be paid for the time that a rig is out +20 +of service during mobilization. In addition, in the hope of securing future contracts, we may choose to mobilize a rig to another geographic market without a customer contract in place. If no customer contracts are obtained, we would be required to absorb these costs. Mobilization and relocating activities could, therefore, have a material adverse effect on our business, financial condition, and results of operations. +Operating and maintenance costs of our rigs may be significant and may not correspond to revenue earned. +Our operating expenses and maintenance costs depend on a variety of factors, including crew costs, costs of provisions, equipment, insurance, maintenance and repairs, shipyard costs, supply chain disruptions, and inflation, many of which are beyond our control. Our total operating costs are generally related to the number of drilling rigs in operation and the cost level in each country or region where such drilling rigs are located. Equipment maintenance costs fluctuate depending upon the type of activity that the drilling rig is performing, the age and condition of the equipment, and the timing of the drilling rig special periodic surveys (SPS). While operating revenues may fluctuate as a function of changes in dayrate, costs for operating a rig may not be proportional to the dayrate received and may vary based on a variety of factors, including the scope and length of required rig preparations and the duration of the contractual period over which such expenditures are amortized. Any investments in our rigs may not result in an increased dayrate for or income from such rigs. A disproportionate change in the amount of operating and maintenance costs in comparison to dayrates could have a material adverse effect on our business, financial condition, and results of operations. +Inflation may adversely affect our operating results. +Inflationary factors such as increases in labor costs, material costs, changes in tariff and sanctions regimes, and overhead costs may adversely affect our operating results and cash flows. We have experienced increases in the cost of labor and materials during 2023 and 2024, and inflationary pressures may continue into 2025. Inflation, including a continuation of inflation at the current rate, may have an adverse effect on our ability to maintain current levels of gross margin and general and administrative expenses as a percentage of total revenue, if our dayrates do not increase sufficiently to cover these increased costs, as well as result in increases in our capital expenditures. Most of our contracts have dayrates that are fixed over the contract term. While some of our long-term contracts contain rate adjustment provisions, they can be based on market fluctuations rather than cost increases. To the extent a drilling contract provides for escalations attributable to inflation in our costs, those adjustments will lag the impact of inflationary pressures and may not reflect the full impact to us of any cost inflation. As drilling contracts with such provisions expire or are terminated, there can be no assurance that future drilling contracts will contain similar provisions, which may reduce our margins in inflationary environments. In addition, inflation is often, and has recently been, accompanied by higher interest rates. Such higher interest rates may affect our ability to enter into future traditional debt financing, as high inflation may result in an increase in the cost to borrow. Future increases in interest rates may negatively impact our cost of capital and ability to access capital markets. +Operational interruptions, maintenance, or repair work may delay commencement of operations or cause our customers to suspend or reduce payment of dayrates until operation of the respective drilling rig is resumed, which may lead to loss of revenue, payment of liquidated damages, termination, or renegotiation of the drilling contract. +I f our drilling rigs are idle for reasons that are not related to the ability of the rig to operate, our customers may be entitled to pay a waiting, or standby, rate that is lower than the full operational rate. In addition, if our drilling rigs are taken out of service for maintenance and repair for a period of time that exceeds the scheduled maintenance periods set forth in our drilling contracts, we may not be entitled to payment of full dayrates until the rig is able to work. Several factors could cause operational interruptions, including: +• breakdowns of equipment and other unforeseen engineering problems; +• work stoppages, including labor strikes; +• shortages of material and skilled labor; +• shipyard availability, failures, and difficulties; +• delays in repairs by suppliers; +• surveys by government and maritime authorities; +• periodic classification surveys; +• delays imposed by or resulting from compliance with permits, laws, regulations, or litigation; +• severe weather, strong ocean currents, or harsh operating conditions; +21 +• force majeure events; and +• the occurrence or threat of epidemic or pandemic diseases, or any government response to such occurrence or threat. +Several of these factors have been exacerbated by global supply chain disruptions, including disruptions due to COVID-19, the conflict between Russia and Ukraine, Middle East conflicts, and the Guyana-Venezuela dispute, labor strikes at critical points in a supply chain, and their respective regional and global ramifications. If a delay of commencement of operations, or interruption of operations, exceeds a determined period, our customers may have the right to pay a rate that is significantly lower than the waiting rate for a period of time, may be entitled to liquidated damages, and may have a right to terminate the drilling contracts related to the subject rig. Suspension of drilling contract payments, payment of liquidated damages, prolonged payment of reduced rates, or termination of any drilling contract as a result of an interruption of operations as described herein could materially adversely affect our business, financial condition, and results of operations. +We may have difficulty obtaining or maintaining insurance in the future and our insurance coverage and contractual indemnity rights may not protect us against all the risks and hazards we face. +We do not procure insurance coverage for all of the potential risks and hazards we may face. Furthermore, no assurance can be given that we will be able to obtain insurance against all of the risks and hazards we face or that we will be able to obtain or maintain adequate insurance at rates and with deductibles or retention amounts that we consider commercially reasonable. Some insurance carriers may decide not to offer insurance to companies operating in the oil and gas industry, potentially resulting in less available insurance capacity and/or higher rates. In addition, our insurance carriers may interpret our insurance policies such that they do not cover losses for which we make claims. +Although we maintain insurance in the geographic areas in which we operate, pollution, reservoir damage, and environmental risks generally are not fully insurable. Our insurance policies may not adequately cover our losses or may have exclusions of coverage for some losses. We do not have insurance coverage for all risk exposures. For example, we carry no loss of hire insurance for any rigs in our fleet. In addition, our insurance may not cover losses associated with pandemics. Furthermore, the damage sustained to offshore oil and gas assets in the United States as a result of hurricanes has negatively impacted certain aspects of the energy insurance market, resulting in more restrictive and expensive coverage for US named windstorm perils due to the price or lack of availability of coverage. Accordingly, we have primarily self-insured the rigs in the US Gulf for property damage resulting from named windstorm perils, and only have windstorm third-party liability coverage for all rigs, subject to certain limits. We will continue to monitor the insurance market conditions in the future and may decide not to, or be unable to, purchase named windstorm coverage for some or all of the rigs operating in the US Gulf. +Under our drilling contracts, liability with respect to personnel and property is customarily assigned on a “knock-for-knock” basis, which means that we and our customers assume liability for our respective personnel and property, irrespective of the fault or negligence of the party indemnified. Although our drilling contracts generally provide for indemnification from our customers for certain liabilities, including liabilities resulting from pollution or environmental damage originating below the surface of the water, enforcement of these contractual rights to indemnity may be limited by public policy and other considerations and, in any event, may not adequately cover our losses from such incidents. There can also be no assurance that those parties with contractual obligations to indemnify us will necessarily be in a financial position to do so. During depressed market periods, such as the one in which we recently operated, the contractual indemnity provisions we are able to negotiate in our drilling contracts may require us to assume more risk than we would during normal market periods. +If a significant accident or other loss occurs and is not fully covered by insurance or contractual indemnity, it could adversely affect our business, financial condition, and results of operations. +Our failure to adequately protect our sensitive information and operational technology systems and critical data and our service providers’ failure to protect their systems and data could have a material adverse effect on our business, results of operations, and financial condition. +Our day-to-day operations increasingly depend on information and operational technology systems that we manage, and other systems that our third parties, such as our service providers, vendors, and equipment providers, manage, including critical systems on our drilling units. These systems are subject to risks associated with growing and evolving cyber incidents or attacks or other disruptions. These risks include, but may not be limited to, human error, power outages, computer and telecommunication failures, natural disasters, fraud or malice, social engineering or phishing attacks, viruses or malware, and other cyberattacks, such as denial-of-service or ransomware attacks. Entities or groups, including +22 +cybercriminals, competitors, and nation state actors, have mounted cyber-attacks on businesses and other organizations solely to disable or disrupt computer systems, disrupt operations, and, in some cases, steal data. In addition, the United States government has issued public warnings that indicate energy assets and companies engaging in significant transactions, such as acquisitions, might be specific targets of cyber security threats. Geopolitical tensions or conflicts, such as the conflict between Russia and Ukraine, and the increased adoption of artificial intelligence technologies, may further heighten the risk of cyber security threats. +Also, many of our non-operational employees work remotely a significant amount of their time, which has created certain operational risks, such as an increased risk of security breaches or other cyber incidents or attacks, loss of data, fraud, and other disruptions as more fully outlined, above. Working remotely has significantly increased the use of technological and online telecommunication services and remote networking, which enable employees to work outside of our corporate infrastructure and, in some cases, use their own personal equipment. This remote work model has resulted in an increased demand for technological resources and may expose us to additional risks of cyber-incidents or attacks, security breaches, loss of data, fraud, and other disruptions as a consequence of more employees accessing sensitive and critical information remotely. Due to the nature of cyber-attacks, breaches to our systems or our service or equipment providers’ systems could go undetected for a prolonged period of time. A breach could also compromise or originate from our customers’, vendors’, or other third-party systems or networks outside of our control. A security breach may result in legal claims or proceedings against us by our shareholders, employees, customers, vendors, and governmental authorities, both in the United States and internationally. +The Company maintains a cyber security program, which includes administrative, technical, and organizational safeguards. A significant cyberattack or incident, either with our systems or a critical third-party systems, could disrupt our operations and result in downtime, loss of revenue, harm to the Company's reputation, or the loss, theft, corruption, or unauthorized release of our critical data or those with whom we do business, as well as result in higher costs to correct and remedy the effects of such incidents, including potential extortion, unforeseen payments associated with ransomware, or ransom demands. If our, or our service or equipment providers’, safeguards maintained for protecting against cyber incidents or attacks prove to be insufficient, and an incident were to occur, it could have a material adverse effect on our business, financial condition, reputation, and results of operations. Additionally, it may be difficult to determine the best way to investigate, mitigate, contain, and remediate the harm caused by a cyber incident. Such efforts may not be successful, and we may make errors or fail to take necessary actions. It may take considerable time for us to investigate and evaluate the full impact of incidents, particularly for sophisticated attacks. These factors may inhibit our ability to provide prompt, full, and reliable information about the incident to our customers, partners, regulators, and the public. Even though we carry cyber insurance that may provide insurance coverage under certain circumstances, we might suffer losses as a result of a security breach or cyber incident that exceeds the coverage available under our policy or for which we do not have coverage, and we cannot be certain that cyber insurance will continue to be available to us on commercially reasonable terms, or at all. +In addition, Noble is subject to a variety of continuously evolving and developing laws and regulations in the United States and abroad governing, or proposed to govern, cyber security, data privacy and protection, and the unauthorized disclosure of confidential or protected information, including the UK Data Protection Act, the EU General Data Protection Regulation, the Data Protection Law, as revised, of the Cayman Islands, the California Consumer Privacy Act, as amended by the California Privacy Rights Act, the Cyber Incident Reporting for Critical Infrastructure Act, and other similar legislation in domestic and international jurisdictions, which pose increasingly complex compliance challenges and potentially elevate costs. Any failure to comply with these laws and regulations could result in significant penalties and legal liability. These laws and regulations are continuously evolving and developing, creating significant uncertainty as privacy and data protection laws may be interpreted and applied differently from country to country and may create inconsistent or conflicting requirements. Any failure, or perceived failure, by Noble or third-party service providers to comply with Noble’s privacy or security policies or privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personal data, may result in loss of revenue, reputational harm, and could be subject to legal or regulatory claims or proceedings, including enforcement actions under data privacy or disclosure regulations, which may result in significant expenditures, fines, or liabilities and could have an adverse effect on our operating results and financial condition. +23 +Upgrades, refurbishment, and repair of rigs are subject to risks, including delays and cost overruns, that could have an adverse impact on our available cash resources and results of operations. +We will continue to make upgrades, refurbishment, and repair expenditures to our fleet from time to time, some of which may be unplanned. In addition, we may reactivate rigs that have been cold or warm stacked and make selective acquisitions of rigs. Our customers may also require certain upgrade projects for our rigs. These projects typically become more time consuming and expensive the older the fleet becomes and are subject to risks of cost overruns or delays inherent in any large construction project as a result of numerous factors, including the following: +▪ shortages of equipment, materials, or skilled labor; +▪ work stoppages and labor disputes; +▪ unscheduled delays in the delivery of ordered materials and equipment; +▪ local customs strikes or related work slowdowns that could delay importation of equipment or materials; +▪ weather interferences; +▪ difficulties in obtaining necessary permits or approvals or in meeting permit or approval conditions; +▪ design and engineering problems; +▪ inadequate regulatory support infrastructure in the local jurisdiction; +▪ latent damages or deterioration to hull, equipment, and machinery in excess of engineering estimates and assumptions; +▪ unforeseen increases in the cost of equipment, labor, and raw materials, particularly steel due to inflation or other factors; +▪ unanticipated actual or purported change orders; +▪ customer acceptance delays; +▪ disputes with shipyards and suppliers; +▪ delays in, or inability to obtain, access to funding; +▪ shipyard availability, failures, and difficulties, including as a result of financial problems of shipyards or their subcontractors; and +▪ failure or delay of third-party equipment vendors or service providers. +The failure to complete a rig upgrade, refurbishment, or repair on time, or at all, may result in related loss of revenues, liquidated damages, penalties, or delay, renegotiation, or cancellation of a drilling contract or the recognition of an asset impairment. Additionally, capital expenditures could materially exceed our planned capital expenditures. Moreover, when our rigs are undergoing upgrade, refurbishment, and repair, they may not earn a dayrate during the period they are out of service. If we experience substantial delays and cost overruns in our shipyard projects, it could have a material adverse effect on our business, financial condition, and results of operations. +Failure to attract and retain skilled personnel or an increase in personnel costs could adversely affect our operations. +Our employees are vital to our success. We require skilled personnel to operate and provide technical services and support for our drilling units. In the past, during periods of high demand for drilling services and increasing worldwide industry fleet size, shortages of qualified personnel have occurred and competition for personnel has intensified. During periods of reduced demand, there have been, and in the future may be, layoffs of qualified personnel (including offshore personnel), who often find work with competitors or leave the industry. As a result, if market conditions improve following a period of reduced demand and we seek to reactivate warm or cold stacked rigs, move rigs to a new locale, upgrade our working rigs, or purchase additional rigs, we may face shortages of qualified personnel, which would impair our ability to attract qualified personnel for our new or existing drilling units, impair the timeliness and quality of our work, and create upward pressure on personnel costs, any of which could adversely affect our operations. +In addition, our ability to retain our key business leaders is critical. The market for highly skilled workers and leaders in our industry is extremely competitive and we may need to invest significant amounts of cash and equity to attract and retain new employees. We may never realize returns on these investments. In order to help attract, retain, and motivate qualified employees, we use equity-based awards and performance-based cash incentive awards. Sustained declines in our stock price, or lower stock price performance relative to competitors, can reduce the retention value of our equity-based awards, +24 +which can impact the competitiveness of our compensation. The unexpected loss of members of management, qualified personnel, or a significant number of employees due to disease, disability, or death, could have a material adverse effect on our business. +Supplier capacity constraints or shortages in parts or equipment, supplier production disruptions, supplier quality, and sourcing issues or price increases could increase our operating costs, decrease our revenues, and adversely impact our operations. +Our reliance on third-party suppliers, manufacturers, and service providers to secure equipment used in our drilling operations exposes us to volatility in the quality, price, and availability of such items. Certain specialized parts and equipment we use in our operations may be available only from a single or small number of suppliers. During periods of reduced demand, many of these third-party suppliers reduced their inventories of parts and equipment and, in some cases, reduced their production capacity, and may do so in the future. Moreover, the global supply chain has experienced challenges and disruptions in recent years, resulting in shortages of, shipping delays, and increased pricing pressures on, among other things, certain raw materials and labor. If the market for our services improves and we seek to reactivate warm or cold stacked rigs, upgrade our working rigs, or purchase additional rigs, these reductions and global supply chain constraints could make it more difficult for us to find equipment and parts for our rigs. A disruption or delay in the deliveries from such third-party suppliers, capacity constraints, production disruptions, price increases (including those related to inflation, the imposition of tariffs and supply chain disruptions), defects or quality-control issues, recalls, or other decreased availability or servicing of parts and equipment could adversely affect our ability to reactivate rigs, upgrade working rigs, purchase additional rigs, or meet our commitments to customers on a timely basis, adversely impact our operations and revenues by resulting in uncompensated downtime, reduced dayrates, the incurrence of liquidated damages, or other penalties or the cancellation or termination of contracts, or increase our operating costs. +We may experience risks associated with future mergers, acquisitions, dispositions of businesses or assets, or other strategic transactions. +As part of our business strategy, and as evidenced by the Pacific Drilling Merger (as defined herein). the Business Combination with Maersk Drilling and the acquisition of Diamond Offshore Drilling, Inc., we have pursued and completed, and may continue to pursue, mergers, acquisitions, dispositions of businesses or assets, or other strategic transactions that we believe will enable us to strengthen or broaden our business. We may be unable to implement this element of our strategy if we cannot identify suitable companies, businesses or assets, reach agreement on potential strategic transactions on acceptable terms, manage the impacts of such transactions on our busin ess, or for other reasons. Moreover, mergers, acquisitions, dispositions, and other strategic transactions involve various risks, including, among other things, (i) difficulties relating to integrating or disposing of a business, including changes to our employee workforce and unanticipated changes in customer, vendor, and other third-party relationships, (ii) failure to integrate operations and internal controls, including those related to financial reporting, disclosure, and cyber security and data protection, (iii) diversion of management’s attention from day-to-day operations, (iv) failure to realize the anticipated benefits of such transactions, such as cost savings and revenue enhancements, (v) potentially substantial transaction costs associated with such transactions, (vi) failure to identify significant issues at the target during the due diligence process, which could result in financial or legal exposure, and (vii) potential impairment resulting from the overpayment for an acquisition. +Future mergers or acquisitions may require us to obtain additional equity or debt financing, which may not be available on attractive terms. Moreover, to the extent a transaction financed by non-equity consideration results in goodwill, it will reduce our tangible net worth, which might have an adverse effect on credit availability. +We may not achieve the intended benefits of the Diamond Transaction, and the Diamond Transaction may disrupt its current plans or operations. +We closed the Diamond Transaction in September 2024. There can be no assurance that we will be able to successfully integrate Diamond assets or otherwise realize the expected benefits of the Diamond Transaction. Difficulties in integrating Diamond into Noble may result in Noble performing differently than expected, in operational challenges or in the failure to realize anticipated synergies and efficiencies in the expected time frame or at all. The anticipated benefits and cost savings of the merger may not be realized fully or at all, may take longer to realize than expected, or could have other adverse effects that Noble does not currently foresee. These anticipated benefits include an assumption, as of the closing date, that Noble is able to realize annual pre-tax cost synergies of approximately $100 million, in which case the Diamond Transaction may not be accretive to earnings per share, may not improve Noble’s balance sheet position, may not enhance Noble’s ability to deliver, and may not generate additional free cash flow. +25 +Following completion of the Diamond Transaction, the combined Company’s success will depend, in part, on Noble’s ability to manage the expansion resulting from the Diamond Transaction, which poses numerous risks and uncertainties. The integration of the two companies may result in material challenges, including the diversion of management’s attention from ongoing business concerns; attracting, motivating, and retaining key management and other employees; retaining or attracting business, customer, and operational relationships; the possibility of faulty assumptions underlying expectations regarding the integration process and associated expenses; consolidating corporate and administrative infrastructures, including integrating enterprise resource planning systems, and eliminating duplicative operations; coordinating geographically separate organizations; unanticipated issues in integrating information technology, communications, and other systems; as well as potential unknown liabilities, unforeseen expenses relating to integration, or delays associated with the acquisition. Additionally, if relationships with customers, distributors, suppliers, vendors, landlords, and other business partners are adversely affected by the Diamond Transaction, or if Noble, following completion of the Diamond Transaction, loses the benefits of certain contracts of Diamond, Noble’s business, prospects, liquidity, and financial performance could suffer. Further, the market price of Ordinary Shares may decline as a result of completing the Diamond Transaction if, among other things, it is unable to achieve the expected benefits and synergies of the Diamond Transaction. +At certain locations where we operate, there is an increased potential for seasonal weather events that could lead to limits or restrictions on our ability to operate, damage to our assets and equipment, liabilities or claims, operational delays for recovery and repair, liability claims, impacts on customer and vendor contracts, regulatory fines and penalties, and uninsured losses, which could adversely affect our business. +Certain areas of the world where we operate, such as the US Gulf, South Atlantic, the North Sea, Southwest Pacific, South China Sea, and Southeast Indian Ocean, experience significant weather events, typically on a seasonal basis, manifesting as an unnamed wind event or of a magnitude that places it in a category of tropical cyclone, hurricane, typhoon, or extratropical cyclone. While such weather events are tracked, forecasted, and reported by recognized meteorological institutions, information upon which we rely when contracting and operating our drilling rigs, are merely projections and the actual course, speed, and/or severity of any one event could ultimately be unexpected and lead to an unanticipated encounter and or impact, exposing our assets and personnel to extreme wind and sea conditions that could result in limits or restrictions on our ability to operate, injuries or loss of life, damage to or a loss of our assets and equipment, liabilities or claims, operational delays for recovery and repair, impacts on customer and vendor contracts, regulatory fines and penalties, and/or uninsured losses, which could adversely affect our business and financial performance. Moreover, a potential result of climate change is more frequent or more severe weather events. To the extent such weather events become more frequent or more severe, the risks associated with severe weather events could intensify. +Failure to effectively and timely respond to the impact of long-term changes in the energy mix could adversely affect our business, results of operations, and cash flows. +Our long-term success depends on our ability to effectively respond to the impact of long-term changes in the energy mix, which could require adapting our fleet and business to potentially changing government requirements, customer preferences, and customer base, as well as engaging with existing and potential customers and suppliers to develop or implement solutions designed to reduce or to decarbonize oil and gas operations or to advance renewable and other alternative energy sources. If the energy mix landscape changes faster than anticipated or in a manner that we do not anticipate, demand for our services could be adversely affected. Furthermore, if we fail to, or are perceived not to, effectively implement a strategy regarding long-term changes in the energy mix, or if investors or financial institutions shift funding away from companies in fossil fuel-related industries, our access to capital or the market for our securities could be negatively impacted. Additionally, if we fail to, or are perceived not to, effectively respond to long-term changes in the energy mix, we may experience diminished reputation or sentiment, an inability to attract and retain talent and/or a loss of customers or vendors. +We rely on third-party suppliers and subcontractors to provide or complete parts, crew, and equipment, as applicable, for our projects and our operations may be adversely affected by the substandard performance or nonperformance of those suppliers or third-party subcontractors due to production disruptions, quality and sourcing issues, price increases, or consolidation of suppliers and sub-contractors as well as equipment breakdowns. +Our reliance on third-parties such as suppliers, manufacturers, subcontractors, and other service providers for equipment, services, and labor used in our drilling operations exposes us to volatility in the quality, price, and availability of such resources. Certain specialized parts, crew, and equipment used in our operations may be available only from a single or a small number of suppliers. A disruption in the deliveries from such third-party suppliers, capacity constraints, production +26 +disruptions, price increases, defects or quality-control issues, recalls, or other decrease in the availability or servicing of parts and equipment could adversely affect our ability to meet our commitments towards our customers, adversely impact operations and revenues by resulting in uncompensated downtime, reduced day rates under the relevant drilling contracts, cancellation or termination of contracts, or increased operating costs. In addition, consolidation of suppliers may limit our ability to obtain supplies and services when needed at an acceptable cost or at all. +Equipment deficiencies or breakdowns, whether due to faulty parts, quality control issues, or inadequate installation, may result in increased maintenance costs and could adversely affect our operations and revenues by resulting in financial downtime. For example, we have a multi-year maintenance project to overhaul jacking gears on certain jackup rigs involving significant costs. If mitigation measures put in place are not effective, it could lead to significant financial downtime, adversely affect our ability to meet our commitments with our customers, potential cancellation or termination of drilling contracts, suspension or termination of operations, regulatory penalties or sanctions, or property, environmental, and other damage claims by customers or other third parties, which may in turn have a material adverse effect on the our business, financial condition, results of operations, and reputation. Subcontractors are used to perform certain services and to provide certain input in areas where we do not have requisite expertise and are engaged on some parts of our projects, but may be used for a majority of the services in respect of new business models. The subcontracting of work exposes us to risks associated with planning interface nonperformance, delayed performance, or substandard performance by our subcontractors. Any inability to hire qualified subcontractors could hinder successful completion of a project. Further, our employees may not have the requisite skills to be able to monitor or control the performance of these subcontractors. We may suffer losses on contracts if the amounts we are required to pay for subcontractor services exceed original estimates. Remedial or mitigating actions, such as requiring contractual obligations from subcontractors that are similar to those we have with our customers, and requesting parent guarantees from subcontractors to cover nonperformance, may not be available or sufficient to mitigate these risks. For example, we have experienced issues with the performance of some of our key suppliers in the past, in particular in relation to delays in the delivery and maintenance of subsea well-control equipment. Such issues could have a negative effect on our business, financial condition, and results of operations. +We face risks associated with creating and executing new business models, particularly when such business models involve a risk profile, remuneration, or financial scheme that is different from a conventional drilling contract. +We are exploring, and have in the past, implemented various degrees of innovative business models with customers and partners in order to expand our share of the value chain, while simultaneously creating better outcomes for our customers and long-term resilience of our business through increased customer collaboration, differentiation, and utilization. Although such business model innovation is intended to offer further earnings opportunities, there are risks associated with creating and executing new business models, particularly when such business models involve a risk profile, remuneration, or financial scheme that is different from our conventional drilling contracts. +Two broad categories of business models include: +(i) offering integrated services or integrating new services into offerings to customers as an integrated service provider with the objective of improving efficiencies; and +(ii) exploring alternative financial models focused on risk and reward sharing through, among other things, bonus-malice schemes, deferred payments, fixed pricing, or co-investments, enabling operators to develop fields that would otherwise be economically challenged. +However, forecasting the success of any new business model is inherently uncertain and depends on a number of factors both within and outside our control. Our actual revenue and profit generated from such business models may be significantly greater or less than forecasts. In addition, the efficiencies anticipated from new business models may fail to be realized, the costs may be higher, and the counterparty risk greater than expected. In addition, as we create and execute more new business models and expand into other parts of the value chain, our risk profile may continue to shift. Entering into new business models could have an adverse impact on our business, financial condition, and results of operations. +27 +Regulatory and Legal Risks +Changes in, compliance with, or our failure to comply with certain laws and regulations could have a material adverse effect on our results of operations by adding to our costs, or negatively impact our operations by causing delays or limiting activity . +Our business is affected by public policy and laws and regulations relating to the energy industry in the geographic areas where we do or seek to operate or otherwise have a presence, including laws and regulations relating to the environment (including climate change and greenhouse gas (“GHG”) emissions and regulations that for economic, environmental, social, or other reasons curtail or encumber our ability to operate competitively or negatively impact exploration, development, and production of oil and gas. We may be required to make significant capital expenditures to comply with governmental laws and regulations. Governments in some countries are increasingly active in regulating and controlling the ownership of concessions, the exploration for oil and gas, and other aspects of the oil and gas industries. +There is increasing worldwide attention concerning the issue of climate change and the effect of GHGs, sustainability, and long-term changes in the energy mix. This increased attention has led to and may result in additional environmental laws or regulations that may unfavorably impact our business, or that of our suppliers and our customers. In addition, increasing attention to the risks of climate change has resulted in an increased possibility of litigation or investigations brought by public and private entities against oil and gas companies in connection with their GHG emissions. However, it is not possible at this time to predict the timing and effect of climate related laws and regulations, the adoption of additional GHG legislation, regulations or other measures at the international, federal, state, or local levels. +The modification of existing laws or regulations or the adoption of new laws or regulations that curtail or encumber our ability to operate competitively or negatively impact exploration, development, and production of oil and gas could materially and adversely affect our business by limiting drilling opportunities, increasing our cost of doing business, discouraging our customers from drilling for hydrocarbons, disrupting revenue through permitting or similar delays, or subjecting us to liability. In the United States, the issuance of federal leases or other similar initiatives have been the subject of efforts to reform federal leasing practices and may result in the development of additional restrictions on offshore drilling, limitations on the availability of offshore leases, or restrictions on the ability to obtain required permits, which could have a material adverse impact on our operations by reducing drilling opportunities and the demand for our services. +There have been various legal developments in the UK in 2024, some of which are still evolving (including an increase in and extension of an energy profits levy and changes to environmental impact assessment standards), which have reduced oil and gas exploration and development activities in the North Sea. These developments could reduce the demand for our services. +In addition, efforts have been made and continue to be made in the international community toward the adoption or enhancement of international treaties or protocols related to protecting the environment, reducing climate change, reducing the use of hydrocarbon-based fuel reductions, and encouraging the implementation of GHG emission pledges. Fuel conservation measures, alternative fuel requirements and increasing consumer demand for alternatives to oil and gas could reduce demand for oil and gas. These measures may result in a reduced global reliance on and future demand for oil and gas, which could have a material impact on our business. +Many countries have or appear to be progressing toward enacting varying requirements for GHG monitoring, reporting, and emissions control or reduction, such as the United States which, in November 2024, announced final rules to implement the “Waste Emissions Charge” required under 2022’s Inflation Reduction Act. The Waste Emissions Charge imposes a fee on GHG and waste emissions from certain oil and gas facilities that exceed specified intensity levels and is part of the United States’ Methane Emissions Reduction Plan. While we are subject to certain federal GHG monitoring and reporting requirements, our operations have not been materially impacted by existing international, federal, state, and local climate change initiatives. However, new legislation and regulatory programs to reduce GHG emissions, or increased reporting obligations, could increase our cost of doing business, discourage our customers from drilling for hydrocarbons, or otherwise have an adverse effect on our business, financial condition, and results of operations. Our operations are subject to various laws and regulations in countries in which we operate, including laws and regulations relating to: +▪ the environment and the health and safety of personnel; +▪ the importing, exporting, equipping, and operation of drilling rigs; +▪ finance and currency exchange controls; +28 +▪ oil and gas exploration and development; +▪ taxation of local and offshore earnings and earnings of expatriate personnel; and +▪ use and compensation of local employees, contractors, and suppliers, and involvement of foreign contractors. +Public and governmental scrutiny of the energy industry has resulted in increased regulations being proposed and often implemented. In addition, existing regulations might be revised or reinterpreted, new laws, regulations, and permitting requirements might be adopted or become applicable to us, our rigs, our customers, our vendors, or our service providers, and future changes in laws and regulations could significantly increase our costs and could have a material adverse effect on our business, financial condition, and results of operations. In addition, we may be required to post additional surety bonds to secure performance, tax, customs, and other obligations relating to our rigs in jurisdictions where bonding requirements are already in effect and in other jurisdictions where we may operate in the future. These requirements would increase the cost of operati ng in these countries, which could materially adversely affect our business, financial condition, and results of operations. +From time to time, new rules, regulations, and requirements regarding oil and gas development have been proposed and implemented by BOEM, BSEE, or the United States Congress, as well as other jurisdictions outside the United States, that could materially limit or prohibit, and increase the cost of, offshore drilling. For example, following a years’ long rule making process, both BSEE and BOEM updated and expanded their respective offshore decommissioning financial assurance and bonding requirements. The updated requirements, which were finalized by BSEE in 2023 and BOEM in 2024, are stricter than previous requirements and may increase the costs of operating on the Outer Continental Shelf. BOEM and BSEE could issue new rules relating to well control equipment and operational requirements that fall under their authority in the future. Future actions taken by the United States to limit the availability of new oil and gas leases on the Outer Continental Shelf, or delays imposed by or resulting from compliance with permits, laws, regulations, or litigation would adversely impact the offshore oil and gas industry and impact demand for our services. +We are also subject to increasing regulatory requirements and scrutiny in certain jurisdictions and other countries, including the North Sea. New rules, regulations, and requirements, including the adoption of new safety requirements and policies relating to the approval of drilling permits, restrictions on oil and gas development and production activities in the US Gulf and elsewhere, implementation of safety and environmental management systems, mandatory third-party compliance audits, and the promulgation of numerous Notices to Lessees or similar new regulatory requirements outside of the United States, may impact our operations by causing increased costs, delays, and operational restrictions. If new regulations, policies, operating procedures, and the possibility of increased legal liability resulting from the adoption or amendment of rules and regulations applicable to our operations in the United States or other jurisdictions are viewed by our current or future customers as a significant impairment to expected profitability on projects, then they could discontinue or curtail their offshore operations in the impacted region, thereby, adversely affecting our operations by limiting drilling opportunities or resulting in materially increased costs. +Finally, many scientists have concluded that increasing concentrations of GHGs in the Earth’s atmosphere and climate change may produce significant physical effects on weather conditions, such as increased frequency and severity of droughts, storms, floods, and other climatic events. If any such effects were to occur, they could adversely affect or delay demand for the oil or natural gas produced or cause us to incur significant costs in preparing for or responding to the effects of climatic events themselves. Potential adverse effects could include disruption of our and our customers’ operations, including, for example, damages to our facilities from winds or floods, increases in our costs of operation, or reductions in the efficiency of our operations, impacts on our personnel, supply chain, or distribution chain, as well as potentially increased costs for insurance coverages in the aftermath of such effects. Any of these events could have an adverse effect on our assets and operations. +Increasing attention and expanding requirements relating to environmental, social, and governance matters compounded by the varied and expansive scope of ESG standards, ESG rating criteria, our sustainability and ESG disclosures, and the perception and expectations of the public, may negatively impact our business and financial results. +In recent years, regulators, investors, and the general public have been giving increasing attention to corporate activities that relate to environmental, social, and governance matters. As part of this, ESG has been advanced by advocacy groups in many jurisdictions where they continue to campaign for governmental and private action in connection with ESG criteria and initiatives, including through the investment and voting practices of individual and institutional investors and investment advisers, public company rating agencies, and others in or connected to the investing community. The attention +29 +of advocacy groups and expansion of regulatory requirements regarding ESG performance, commitments, and disclosures, including those relating to climate change and reduction of carbon emissions, is evidenced by initiatives such as the United Nations 2030 Agenda for Sustainable Development, as well as by the new strategy adopted by the International Maritime Organization in July 2023 to advance the prevention and control of marine pollution through the reduction of GHG emissions from ships. +Stakeholders and members of the investment community continue to screen and assess companies such as ours for sustainability and ESG performance information measured against the expanded list of ESG metrics advanced by the various ESG standards and ESG ratings sources. Within the ESG context, there continues to be a public and governmental concentration on environmental matters as compared to social and governance matters, with a focus on environment related company practices, performance, and compliance, particularly with respect to data on waste stream management, including discharges, emissions, and reduction commitments regarding carbon dioxide, hydrocarbons, and fluorinated materials in various states of matter. In addition, developments in the law could result in ESG commitments and disclosures being subjected to increased scrutiny. If we are unable to positively manage our ESG performance, effectively administer our ESG tracking and reporting, clearly communicate our ESG strategy and commitments and meet publicly disclosed targets such as our goal to reduce carbon intensity by 20% by 2030 (as defined in our disclosures), we could experience additional costs and financial penalties, increased scrutiny from the investment community, special interest groups, and enforcement authorities, miss or be excluded from business opportunities, have delayed or cancelled projects, experience a reduction in our equity share price, or encounter limitations to our access to financing or capital, any of which could have a material adverse effect on our operations, earnings, cash flows, and financial condition. +Any violation of anti-bribery, anti-corruption, or anti-fraud laws, including the Foreign Corrupt Practices Act, the United Kingdom Bribery Act, or other applicable laws and regulations could result in significant expenses, divert management attention, and otherwise have a negative impact on the Company. +In the conduct and operation of our business, particularly in countries with a reputation of illegal activities that include government corruption, bribery, money laundering, and human rights issues, we are subject to the risk that we, our affiliated entities, agents, or service providers, or their respective officers, directors, employees, and agents may take action determined to be in violation of such local laws or laws applicable to us and those acting on our behalf, including the US Foreign Corrupt Practices Act of 1977 (the “FCPA”), the United Kingdom Bribery Act 2010 (the “UK Bribery Act”), the United Kingdom Modern Slavery Act 2015 (the “UK Modern Slavery Act”), and similar laws. Any violation of the FCPA, UK Bribery Act, UK Slavery Act, or local or other applicable laws could result in substantial fines, sanctions, civil, and/or criminal penalties against the Company and implicate members of our senior management or Board, and curtailment of operations in certain jurisdictions and might adversely affect our business, financial condition, and results of ope rations. In addition, actual or alleged violations could damage our reputation and ability or qualification to do business with specific customers or in certain other jurisdictions. Further, detecting, investigating, and resolving actual or alleged violations is expensive and would consume significant time and attention of our senior management. +Any failure to comply with the complex laws and regulations governing international trade could adversely affect our operations. +The shipment of goods, services, and technology across international borders subjects our business to extensive trade laws and regulations. Import activities are governed by unique customs laws and regulations in each of the countries of operation. Moreover, many countries and governing bodies, including the United States, European Union and the United Kingdom, control the export and re-export of certain goods, services, and technology and impose related export recordkeeping and reporting obligations. Governments and governing bodies may also impose economic sanctions against certain countries, persons and other entities that may restrict or prohibit transactions involving such countries, persons, and entities. US, EU and UK sanctions, in particular, are targeted against certain countries that are heavily involved in the petroleum and petrochemical industries, which includes drilling activities. +The laws and regulations concerning import activity, export recordkeeping and reporting, export control, and economic sanctions are complex and constantly changing. These laws and regulations may be enacted, amended, enforced, or interpreted in a manner materially impacting our operations. Shipments can be delayed and denied export or entry for a variety of reasons, some of which are outside our control and some of which may result from failure to comply with existing legal and regulatory regimes. Shipping delays or denials could cause unscheduled operational downtime. Any failure to comply with applicable legal and regulatory trading obligations could also result in criminal and civil penalties and +30 +sanctions, such as fines, imprisonment, debarment from government contracts, seizure of shipments, and loss of import and export privileges. +Currently, we do not, nor do we intend to, operate in countries that are subject to significant sanctions and embargoes imposed by certain countries or governing bodies such as the US, UK or EU or in countries identified by such bodies as state sponsors of terrorism, such as the Crimean region of the Ukraine, Cuba, Iran, North Korea, and Syria. These sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time. There can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in fines or other penalties and could result in some investors deciding, or being required, to divest their interest, or not to invest, in us. In addition, certain institutional investors may have investment policies or restrictions that prevent them from holding securities of companies that have contracts with countries identified by certain governing bodies, including the US, UK and EU, as state sponsors of terrorism or with countries that are otherwise subject to sanctions and embargo laws. In addition, our reputation and the market for our securities may be adversely affected if we engage in certain other activities, such as entering into drilling contracts with individuals or entities in countries subject to significant sanctions and embargo laws. +We are, or in the future could be, subject to investigations, litigation and claims that could have an adverse effect on us. +We are, from time to time, involved in various claims, investigations and litigation. These matters may include, among other things, contract disputes, personal injury claims, asbestos, and other toxic tort claims, environmental claims or proceedings, employment matters, issues related to employee or representative conduct, governmental claims for taxes, duties, customs or other regulatory findings and litigation that arises in the ordinary course of our business. Although we intend to defend or pursue such matters vigorously, we cannot predict with certainty the outcome or effect of any claim, investigation or other litigation matter, and there can be no assurance as to the ultimate outcome of any claim, investigation or litigation. Investigations, claims and litigation may have an adverse effect on us because of potential negative outcomes, legal fees, the allocation of management’s time and attention, and other factors. +We could also face increased climate-related litigation with respect to our operations both in the US and around the world. Governmental and other entities in various US states, such as California and New York, have filed lawsuits against energy companies. These suits allege damages as a result of climate change, and the plaintiffs are seeking unspecified damages and abatement under various tort theories. Similar lawsuits may be filed in other jurisdictions both in the US and globally. Though we are not currently a party to any such lawsuit, these suits present uncertainty regarding the extent to which companies who are not producing oil or gas, but who are engaged in such production, such as offshore drillers, face an increased risk of liability stemming from climate change, which risk would also adversely impact the oil and gas industry and impact demand for our services. +Financial, Tax, and Governance Risks +We may record impairment charges on property and equipment, including rigs and related capital spares. +We evaluate the impairment of property and equipment, which include rigs and related capital spares, whenever events or changes in circumstances, including a decision to cold stack, retire, or sell rigs, indicate that the carrying amount of an asset may not be recoverable. An impairment loss on our property and equipment may exist when the estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Any impairment loss recognized represents the excess of the asset’s carrying value over the estimated fair value. As part of this analysis, we make assumptions and estimates regarding future market conditions. To the extent actual results do not meet our estimated assumptions, for a given rig or piece of equipment, we may take an impairment loss in the future. In addition, we may also take an impairment loss on capital spares and other capital equipment when we deem the value of those items has declined due to factors like obsolescence, deterioration or damage. Based upon our impairment analyses for the years ended December 31, 2024 and 2023, we did not record any impairment charges. There can be no assurance that we will not have to take additional impairment charges in the future if depressed market conditions return, or that we will be able to return cold stacked rigs to service in the time frame and at the reactivation costs or at the dayrates that we projected. It is reasonably possible that the estimate of undiscounted cash flows may change in the near term, resulting in the need to write down the affected assets to their corresponding estimated fair values. +31 +The 2023 R evolving Credit Agreement, the indenture for the 2030 Notes, and the indenture for the Diamond Second Lien Notes each contain various restrictive covenants limiting the discretion of our management in operating our business. +The 2023 Revolving Credit Agreement contains various restrictive covenants that may limit our management’s discretion in certain respects. In particular, the 2023 Revolving Credit Agreement limits the ability of Noble Finance II LLC (“Noble Finance II”) and the ability of its restricted subsidiaries to, among other things and subject to certain limitations and exceptions, (i) incur, assume or guarantee additional indebtedness, (ii) pay dividends or distributions on capital stock or redeem or repurchase capital stoc k, (iii) make investments, (iv) repay, redeem, or amend certain indebtedness, (v) sell stock of its subsidiaries, (vi) transfer or sell assets, (vii) create, incur, or assume liens, (viii) enter into transactions with certain affiliates, (ix) merge or consolidate with or into any other person or undergo certain other fundamental changes, and (x) enter into certain burdensome agreements. In addition, the 2023 Revolving Credit Agreement obligates Noble Finance II LLC and its restricted subsidiaries to comply with certain financial maintenance covenants and, under certain conditions, to make mandatory prepayments and reduce the amount of credit available under the 2023 Revolving Credit Facility, all as described in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Amended and Restated Senior Secured Revolving Credit Agreement.” Such mandatory prepayments and commitment reductions may affect cash available for use in the Company’s business. Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in all obligations under the 2023 Revolving Credit Facility to be declared due and payable immediately and all commitments thereunder to be terminated. +The 8.000% Senior Notes due 2030 (the “2030 Notes”) are fully and unconditionally guaranteed, jointly and severally, by the direct and indirect subsidiaries of Noble Finance II that are Credit Parties (as defined herein) under the 2023 Revolving Credit Facility. The ability of Noble Finance II to comply with the covenants and restrictions contained in the indenture for the 2030 Notes may be affected by events beyond its control. If market or other economic conditions deteriorate, our ability to comply with these covenants and restrictions may be impaired. A failure to comply with the covenants, ratios, or tests in the indenture, if not cured or waived, could have a material adverse effect on our business, financial condition, and results of operations. Our existing and future indebtedness may have cross-default and cross-acceleration provisions. Upon the triggering of any such provision, the relevant creditor may: +▪ not be required to lend any additional amo unts to Noble Finance II; +▪ elect to declare all borrowings outstanding due to them, together with accrued and unpaid interest and fees, to be due and payable; +▪ have the ability to require Noble Finance II to apply all of its available cash to repay such borrowings; and/or +▪ prevent Noble Finance II from making debt service payments under its other agreements, any of which could result in an event of default under the 2030 Notes. +If any of our existing indebtedness were to be accelerated, there can be no assurance that we would have, or be able to obtain, sufficient funds to repay such indebtedness in full. Even if new financing were available, it may be on terms that are less attractive than the 2023 Revolving Credit Facility or the 2030 Notes or it may not be on terms that are acceptable to us. +In addition, the Diamond 8.500% Senior Secured Second Lien Notes due October 2030 (the “Diamond Second Lien Notes”) are issued by Diamond Foreign Asset Company and Diamond Finance, LLC (collectively, the “Issuers”) and are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by Noble Offshore Drilling, Inc. (formerly known as Dolphin Merger Sub 2, Inc. and as successor by merger with Diamond Offshore Drilling, Inc.) (“NODI”), and each of its existing restricted subsidiaries (other than the Issuers) and by certain of NODI’s future restricted subsidiaries. +The indenture governing the Diamond Second Lien Notes contains covenants that, among other things, restrict NODI’s ability and the ability of certain of its subsidiaries to: (i) incur additional debt and issue certain preferred stock; (ii) incur or create liens; (iii) make certain dividends, distributions, investments, and other restricted payments; (iv) sell or otherwise dispose of certain assets; (v) engage in certain transactions with affiliates; and (vi) merge, consolidate, amalgamate, or sell, transfer, lease, or otherwise dispose of all or substantially all of the assets of NODI and such subsidiaries. A failure to comply with the covenants, ratios, or tests in the indenture, if not cured or waived, could result in the outstanding principal amount, together with accrued and unpaid interest and fees, becoming immediately due and payable and could have a material adverse effect on our business, financial condition, and results of operations. +32 +A loss of a major tax dispute or a successful tax challenge to our operating structure, intercompany pricing policies, or the taxable presence of our subsidiaries in certain countries could result in a material adverse effect on our financial condition and results of operations. +Tax returns that we file and/or tax payments that we make will be subject to review and examination. If any tax authority successfully challenges our operational structure, intercompany pricing policies, the taxable presence of our subsidiaries in certain countries, or other material tax positions, if the terms of certain tax treaties are interpreted in a manner that is adverse to our structure, or if we lose a material tax dispute in any country, our effective tax rate on our worldwide earnings, income tax expense, and/or operating expense could increase substantially and result in a material adverse effect on our financial condition. In addition, Noble may have exposures with respect to the tax audits and tax disputes of certain third parties which were under a joint taxation contribution arrangement with certain subsidiaries that Noble acquired in the Business Combination. +Our consolidated effective income tax rate may vary substantially from one reporting period to another. +We cannot provide any assurances as to what our consolidated effective income tax rate will be because of, among other matters, uncertainty regarding the nature and extent of our business activities in any particular jurisdiction in the future and the tax laws of such jurisdictions, as well as potential changes in tax laws, regulations, or treaties or the interpretation or enforcement thereof, changes in the administrative practices and precedents of tax authorities or any reclassification or other matter, such as changes in applicable accounting rules, that increases the amounts we have provided for income taxes or deferred tax assets and liabilities in our consolidated financial statements. For example, certain countries within which we operate or own substantial assets have enacted changes to their tax laws in response to the Organization for Economic Cooperation and Development’s (“OECD”) ongoing Base Erosion and Profit Shifting initiatives and these and other countries may enact changes to their tax laws or practices in the future (prospectively or retroactively), which may have a material adverse effect on our financial position, operating results and/or cash flows. +In addition, as a result of frequent changes in the taxing jurisdictions in which our drilling rigs are operated and/or owned, changes in the overall level of our income and changes in tax laws, our consolidated effective income tax rate may vary substantially from one reporting period to another. Income tax rates imposed in the tax jurisdictions in which our subsidiaries conduct operations vary, as does the tax base to which the rates are applied. In some cases, tax rates may be applicable to gross revenues, statutory or negotiated deemed profits, or other bases utilized under local tax laws, rather than to net income. Our drilling rigs frequently move from one taxing jurisdiction to another to perform contract drilling services. In some instances, the movement of drilling rigs among taxing jurisdictions will involve the transfer of ownership of the drilling rigs among our subsidiaries. If we are unable to mitigate the negative consequences of any change in law, audit, business activity, or other matter, this could cause our consolidated effective income tax rate to increase and cause a material adverse effect on our financial position, operating results, and/or cash flows. +Fluctuations in exchange rates and nonconvertibility of currencies could result in losses to us. +We may experience currency exchange losses when revenues are received or expenses are paid in nonconvertible currencies, when we do not hedge an exposure to a foreign currency, when the result of a hedge is a loss or if any counterparty to our hedge were to experience financial difficulties. We may also incur losses as a result of an inability to collect revenues due to a shortage of convertible currency available to the country of operation, controls over currency exchange or controls over the repatriation of income or capital. +Certain shareholders own a significant portion of our outstanding equity securities, and their interests may not always coincide with the interests of other holders of the Ordinary Shares. +A large percentage of the Ordinary Shares are held by a relatively small number of investors. As a result, these investors could have significant influence over all matters presented to our shareholders for approval, including election and removal of our directors, change in control transactions, and the outcome of all actions requiring a majority shareholder approval. +The interests of these investors may not always coincide with the interests of the other holders of the Ordinary Shares, and the concentration of control in these investors may limit other shareholders’ ability to influence corporate matters. The concentration of ownership and voting power of these investors may also delay, defer, or even prevent an acquisition by a third party or other change of control of our Company, and may make some transactions more difficult or impossible without their support, even if such events are in the best interests of our other shareholders. In addition, the concentration of voting power may adversely affect the trading price of the Ordinary Shares. A large percentage of the Ordinary Shares are held by a relatively small number of investors. +33 +Holders of the Ordinary Shares may not receive dividends on their Ordinary Shares, and we may decrease or suspend our dividend on, or our repurchases of, our Ordinary Shares. +Holders of the Ordinary Shares are entitled to receive only such dividends as our Board of Directors may declare and pay out of funds legally available for such payments. Such may be paid only out of Noble’s “distributable reserves” as determined by reference to relevant statutory accounts in accordance with English law, and additionally as permitted under our credit facilities and other financing arrangements. Therefore, Noble is not permitted to pay dividends out of share capital, which includes share premium. We are not required to pay a dividend or effect share repurchases, and any determination to pay dividends and other distributions in cash, stock, or property, or to effect share repurchases by us in the future, including determinations as to the amount of any such dividend, distribution, or repurchase, will be at the discretion of our Board of Directors. Our payment of dividends and share repurchases may vary from historical practices or our stated expectations. The timing and amount, if any, of dividends and share repurchases is discretionary and will be dependent on many factors, including our expectations regarding our ability to generate sufficient cash flows, and our results of operations, financial condition, cash requirements, future business prospects, capital requirements, contractual and indenture restrictions, and other factors deemed relevant by our Board of Directors. +We are a holding company, and we are dependent upon cash flow from subsidiaries, joint ventures, and associates to meet our obligations. +We currently conduct our operations through our subsidiaries, including joint ventures and associates, and our operating income and cash flow are generated by such entities. As a result, cash we obtain from our subsidiaries, joint ventures, and associates is the principal source of funds necessary to meet our debt service obligations. Unless they are guarantors of our indebtedness, such entities do not have any obligation to pay amounts due on our indebtedness or to make funds available for that purpose. Contractual provisions or laws, as well as such entities’ financial condition, debt covenants, and operating requirements, may also limit our ability to obtain the cash that we require to pay our debt service obligations. Applicable tax laws may also subject such payments to us by such entities to further taxation. +Future sales or the availability for sale of substantial amounts of the Ordinary Shares or the exercise of warrants issued pursuant to the Plan would have a dilutive effect to shareholders of the Company and the perception that these sales may occur, could adversely affect the trading price of the Ordinary Shares, and could impair our ability to raise capital through future sales of equity securities. +As of February 14, 2025, there were 159,191,313 Ordinary Shares outstanding. In addition, as of February 14, 2025, 886,427 Tranche 1 Warrants, 942,606 Tranche 2 Warrants, and 2,773,456 Tranche 3 Warrants were outstanding and exercisable. We also have 5,255,631 Ordinary Shares authorized and reserved for issuance pursuant to equity awards under the Noble Corporation plc 2022 Long-Term Incentive Plan. +A large percentage of the Ordinary Shares (or warrants exercisable for Ordinary Shares) are held by a relatively small number of investors. +Sales of a substantial number of the Ordinary Shares in the public markets, exercise of a substantial number of warrants, or even the perception that these sales or exercises might occur, could impair our ability to raise capital for our operations through a future sale of, or pay for acquisitions using, our equity securities. +As of February 14, 2025, the Mandatory Exercise Condition (as defined in the applicable warrant agreement) for the Tranche 1 Warrants and the Tranche 2 Warrants had been satisfied. Between January 1, 2024, and December 31, 2024, an aggregate of 245,210 Ordinary Shares were issued pursuant to exercise of Tranche 1 Warrants, Tranche 2 Warrants, and Tranche 3 Warrants. These exercises, and continued exercises of these warrants into Ordinary Shares pursuant to the terms of the outstanding warrants, will have a dilutive effect to the holdings of our existing shareholders. +We used Ordinary Shares for part of the consideration in the Diamond Transaction and may issue Ordinary Shares or other securities from time to time as consideration for future acquisitions and investments. If any such acquisition or investment is significant, the number of Ordinary Shares, or the number or aggregate principal amount, as the case may be, of other securities that we may issue may in turn be substantial. We may also grant registration rights covering those Ordinary Shares or other securities in connection with any such acquisitions and investments. For example, in connection with the Business Combination with Maersk Drilling, we issued a significant number of Ordinary Shares as consideration and granted registration rights to a recipient thereof, pursuant to which we have filed a registration statement with the SEC to facilitate potential future sales of such Ordinary Shares by them. +34 +We cannot predict the effect that future sales of Ordinary Shares will have on the price at which the Ordinary Shares trade or the size of future issuances of Ordinary Shares or the effect, if any, that future issuances will have on the market price of the Ordinary Shares. Sales of substantial amounts of the Ordinary Shares, or the perception that such sales could occur, may adversely affect the trading price of the Ordinary Shares. +35 +Item 1B. Unresolved Staff Comments. +None. +Item 1C. Cyber Security. +Risk Management and Strategy +Cyber security risk management at Noble, along with all enterprise risks, is part of the Company’s Enterprise Risk Management Program and risks from cyber security threats are assessed, identified, and managed by our Information Security Team. The Information Security Team reports to the Chief Information Officer (“CIO”). The Information Security Team is composed of the Director of Information Security, managers, and security analysts. +The Information Security Team is responsible for all of Noble’s cyber security-related activities such as advising on governance requirements, setting cyber security policies, standards, and procedures, reporting, determining current risk appetite, setting security posture, evaluating security maturity, and ensuring compliance to cyber security frameworks. The team monitors both internal and external threats, potential compromising internet-based attacks, phishing activities, and aims to adapt with protective measures. +The Director of Information Security and information security managers carry broad manager level cyber security certifications, and the technical teams carry relevant specific technical certifications related to both Information Technology and Operational Technology security. +Noble’s cyber security program encompasses mandatory cyber training, awareness, phishing exercises, and cyber security incident response plan testing to assist with our cyber security risk management process and ensure various applicable implemented cyber controls are working as intended. +Noble works with various third-party partners to help execute and advise on cyber security and evaluate maturity assessments as needed. +Noble has a process of monitoring all third parties with direct access into the Noble network via various implemented security tools that act as both detective and preventive controls. All third parties with such direct access are also monitored via procurement processes and are subject to specific legal terms and conditions. Noble also engages with various third-party partners in order to share intelligence regarding external threats. For any cyber incidents, Noble may engage applicable third-party partners for forensic purposes. +Noble also engages with various cyber security service providers, such as Crowdstrike, Fortinet, NTT, and Microsoft, which share applicable reports with Noble. +In the last fiscal year, Noble has not identified any known cyber security threats, incidents, or exposures that have materially affected Noble’s business strategy, results of operations, or financial condition, but Noble faces certain ongoing cyber security risks that, if realized, could materially and adversely affect Noble. This does not guarantee that future incidents or threats will not have a material impact or that we are not currently the subject of an undetected incident or threat that may have such an impact. Potential cyber security risks to Noble are shared in Part I, Item 1A, “Risk Factors,” which should be read in conjunction with the foregoing information. +Governance +The Audit Committee of the Board provides oversight of the Company’s cyber security program. The Information Security Team keeps management informed about initiatives, threats, incidents, training, and best practices on an on-going basis via circulated memos or meetings. +In addition to reporting through the Audit Committee and Enterprise Risk Management Program, the Board may periodically include cyber security as an independent agenda item and engages with the CIO and Information Security Team as well as external experts on cyber security matters. +The Information Security Team advises the CIO via cyber reports on prevention, detection, mitigation, and remediation of cyber security incidents. The CIO is responsible for the Information Security Team risk strategy, assessment, exceptions, risk acceptance, and management of the Company’s material risks from cyber security risk appetites. Ongoing assessments cover applicable information technology and operations technology systems, applications, and software used to support Noble’s corporate and rig operations. The outcome of these various assessments influences the IT risk appetite and risk identification, and acceptance is discussed and shared with the CIO, executive management, the Audit Committee, and the Board of Directors. +36 +The CIO has extensive cyber security knowledge and skills gained from over ten years of relevant work experience at Noble including two years as Deputy CIO as well as Director, IT prior to the merger with Maersk Drilling with responsibility for cyber security. The CIO has multiple years of experience managing OT data and secure remote access for data management on and offshore. Prior to serving as Director, IT the CIO was the Manager, Business Systems responsible for application management and Enterprise Architecture. The Information Security Team advises the CIO on prevention, detection, mitigation, and remediation of cyber security incidents. +Item 2. Properties. +The description of our rig fleet included under “Part I, Item 1, Business” is incorporated by reference herein. We lease office space in Houston, Texas, where our corporate headquarters are located. In addition, we own and lease operational, administrative, and marketing offices, as well as other sites used primarily for operations, storage, and maintenance and repairs for drilling rigs and equipment in various locations worldwide. +Item 3. Legal Proceedings. +As of December 31, 2024, we were involved in a number of lawsuits, regulatory matters, disputes, and claims, asserted and unasserted, all of which have arisen in the ordinary course of our business and for which we do not expect the liability, if any, to have a material adverse effect on our consolidated financial position, results of operations, or cash flows. We cannot predict with certainty the outcome or effect of any of the matters referred to above or of any such other pending or threatened litigation or legal proceedings. We can provide no assurance that our beliefs or expectations as to the outcome or effect of any lawsuit or claim or dispute will prove correct and the eventual outcome of these matters could materially differ from management’s current estimates. +Additional information regarding legal proceedings is presented in “Note 12 — Commitments and Contingencies” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +Item 4. Mine Safety Disclosures. +Not applicable. +37 +PART II +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities. +Market for Shares and Related Shareholder Information +Our shares are listed on the New York Stock Exchange under the ticker symbol “NE”. +On February 14, 2025, there were 159,191,313 Ordinary Shares outstanding held by 8 shareholder accounts of record. This figure does not include an estimate of the indeterminate number of beneficial holders whose shares may be held of record by brokerage firms and clearing agencies. +Exercises of Warrants +During the three months ended December 31, 2024: +• 19,787 Ordinary Shares were issued to holders of our Tranche 1 Warrants pursuant to exercises of 36,920 Tranche 1 Warrants; and +• 12,660 Ordinary Shares were issued to holders of our Tranche 2 Warrants pursuant to exercises of 23,449 Tranche 2 Warrants; and +• 24 Ordinary Shares were issued to holders of our Tranche 2 Warrants pursuant to exercises of 38 Tranche 2 Warrants; and +• 4,189 Ordinary Shares were issued to holders of Diamond Warrants pursuant to exercises of 18,162 Diamond Warrants. +Such Ordinary Shares, as the case may be, were issued pursuant to the exemptions from the registration requirements of the Securities Act under Section 4(a)(2) under the Securities Act or Section 1145 of the Bankruptcy Code, as the case may be. For more information on the terms of exercise and other features of the warrants, see “Note 7 — Equity” to our consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K. +Share Repurchases +The following table presents information about our purchases of equity securities for the three months ended December 31, 2024: +Period +Total Number of Shares Purchased (1) +Average Price Paid per Share +Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program (1) +Approximate Dollar Value of Shares that may yet be Purchased Under a Plan or Program (1) +October 1 - 31, 2024 — $ — — $ 440,174,211 +November 1 - 30, 2024 1,081,487 $ 33.85 1,081,487 $ 403,539,117 +December 1- 31, 2024 423,398 $ 31.52 423,398 $ 390,184,935 +Total 1,504,885 1,504,885 $ 390,184,935 +(1) Subject to restrictions under applicable law discussed in “Note 7 — Equity” to our consolidated financial statements, we announced a share repurchase plan on November 2, 2022, to purchase up to $400 million of outstanding Ordinary Shares or Warrants. On October 22, 2024, Noble’s Board of Directors authorized an increased share repurchase authorization of up to an additional $400 million. The authorization does not have a fixed expiration and may be modified, suspended, or discontinued at any time. The program does not obligate us to acquire any particular amount of shares. All repurchased shares were subsequently cancelled. +Dividends +The declaration and payment of dividends require the authorization of the Board of Directors. Such may be paid only out of Noble’s “distributable reserves” as determined by reference to relevant statutory accounts in accordance with English law. Therefore, Noble is not permitted to pay dividends out of share capital, which includes share premium. The payment of future dividends will depend on our results of operations, financial condition, cash requirements, future business prospects, contractual and indenture restrictions, and other factors deemed relevant by our Board of Directors. +38 +Stock Performance Graph +The chart below presents a comparison of the cumulative total returns, assuming $100 was invested at the beginning of the period for Noble, the Standard & Poor's 500 Index (“S&P 500”), the PHLX Oil Service Sector Index (“OSX”), and the Dow Jones US Oil Equipment and Services. Total return assumes the reinvestment of dividends, if any, in the security on the ex-dividend date. This graph depicts the past performance for the period from June 9, 2021, the day our Noble Cayman Shares began trading on the NYSE, through December 31, 2024, and in no way should be used to predict future share performance. In connection with the Business Combination with Maersk Drilling, prior to the opening of trading on September 30, 2022, the Noble Cayman Shares were suspended from trading on the NYSE. The Ordinary Shares began regular-way trading on the NYSE using Noble Cayman’s trading history under the ticker symbol “NE” immediately following the suspension of trading of the Noble Cayman Shares. +Indexed Returns +Company / Index June 9, +2021 December 31, +2021 December 31, +2022 December 31, +2023 December 31, +2024 +Noble Corporation plc $ 100.00 $ 100.24 $ 152.36 $ 197.37 $ 128.69 +S&P 500 Index 100.00 112.95 90.99 113.04 139.39 +Dow Jones US Oil Equipment & Services Index 100.00 77.84 127.98 132.25 119.55 +OSX Index 100.00 78.50 124.90 125.00 108.16 +The above graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate it by reference into such filing. +39 +Item 6. [Reserved]. +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. +The following discussion is intended to assist you in understanding our financial position at December 31, 2024 and 2023, and our results of operations for the years ended December 31, 2024, 2023, and 2022. +The following discussion should be read in conjunction with the consolidated financial statements and related notes contained in this Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed by Noble. +Executive Overview +Noble is a leading offshore drilling contractor for the oil and gas industry. We provide contract drilling services to the international oil and gas industry with our global fleet of mobile offshore drilling units. Our business strategy is centered around providing efficient, reliable, and safe offshore drilling services to our customers. We have one of the youngest and highest specification fleets of global scale in the industry, with diversification across asset classes, geographic regions, and customers. The Company has a track record of industry-leading utilization coupled with a commitment to best-in-class safety performance and customer satisfaction. We strive to be the leader in industry innovation and a first-mover in sustainability. +Our fleet consists predominately of technologically advanced units, equipped with sophisticated systems and components prepared to execute our customers’ complicated offshore drilling programs safely and with greater efficiency. We are primarily focused on the ultra-deepwater market and the harsh and ultra-harsh environment jackup markets, which typically are more technically challenging markets to operate in. +We emphasize safe operations, environmental stewardship, and superior performance through a structured management system, the employment of qualified and well-trained crews and onshore support staff, the care of our surroundings and the neighboring communities where we operate, and other activities advancing our environmental sustainability, social responsibility, and good governance. We also manage rig operating costs through the implementation and continuous improvement of innovative systems and processes, which includes the use of data analytics and predictive maintenance technology. +As of the filing date of this Annual Report on Form 10-K, our fleet of 40 drilling rigs consists of 27 floaters and 13 jackups strategically deployed worldwide. We typically employ each drilling unit under an individual contract, and many contracts are awarded based upon a competitive bidding process. +We report our contract drilling operations as a single reportable segment, Contract Drilling Services, which reflects how we manage our business. The mobile offshore drilling units comprising our offshore rig fleet operate in a global market for contract drilling services and are often redeployed to different regions due to changing demands of our customers, which consist primarily of large, integrated, independent, and government-owned or controlled oil and gas companies throughout the world. +For the year ended December 31, 2024, our financial and operating results include: +• operating revenues totaling $3.1 billion; +• net income of $448.4 million or $2.96 per diluted share; +• net cash provided by operating activities totaling $655.5 million; +• no funds drawn down on the 2023 Revolving Credit Facility as of December 31, 2024, and +• a year end cash balance of $247.3 million. +Demand for our services is driven by the offshore exploration and development programs of oil and gas operators, which in turn are influenced by many factors. Those factors include, but are not limited to, the price and price stability of oil and gas, the relative cost and carbon footprint of offshore resources within each operator’s broader energy portfolio, global macroeconomic conditions, world energy demand, the operator’s strategy toward renewable energy sources, environmental considerations, and governmental policies. +40 +Outlook +In recent years, oil prices have generally remained at levels that are supportive of offshore exploration and development activity and global rig demand recovered to eclipse pre-pandemic levels, albeit with some moderation over the past 12 months. Current demand and utilization levels are supported by the combination of resilient commodity prices, heightened focus on energy security, the capital intensity of depletion replacement, and relative attractiveness of offshore plays with respect to both cost and carbon emissions. The increase in global rig demand since 2021 has had a positive impact on dayrates for most rig classes although dayrates have generally plateaued more recently. +The global rig supply has come down from historic highs as Noble and other offshore drilling contractors have retired less capable and idle assets. Concurrently, the incoming supply of newbuild offshore drilling rigs has diminished materially, with several newbuild rigs stranded in shipyards. However, we expect many of these stranded newbuild rigs may continue to make their way into the global market over the next few years. +Although the market outlook in our business varies by geographical region and water depth, we remain encouraged by the long-term outlook in the ultra-deepwater floater market. However, within this ultra-deepwater market, our customers continue to focus on our highest specification floaters, which represents the majority of our floater fleet. Assuming current market fundamentals, continued customer prioritization towards these highest specification floaters is likely to result in lower utilization for our lower specification drillships and our semi-submersibles. Demand for midwater semisubmersibles is primarily driven by brownfield activity in mature basins, especially in Northwest Europe, South America, and the Asia Pacific regions, where a generally stable level of baseload demand is supported by infield drilling and plug and abandonment requirements. Despite some recent contract suspensions in select jackup markets, we have also observed an overall demand increase in the global jackup market since 2020. While we remain encouraged about overall long-term rig demand, to the extent global macroeconomic concerns become more prevalent and produce downward pressure on oil and gas prices, we could experience downward pressure on overall rig demand for both floaters and jackups. +Returning to the broader offshore drilling market, while there are a number of multi-year contracts out for tender, the overall market remains characterized by generally shorter-term contracts. This leads to an increased number of rig contract start-ups, both with different customers and among different regions, which may require incremental resources and costs. Additionally, this has resulted in, and is likely to continue to result in, lower overall effective utilization for our fleet driven by more idle time between contracts. +The energy transition from hydrocarbons to renewables poses a challenge to the oil and gas sector and our market. Energy rebalancing trends have accelerated in recent years as evidenced by promulgated or proposed government policies and commitments by many of our customers to further invest in sustainable energy sources. Our industry could be further challenged as resource holders and policy makers continue to evaluate and calibrate strategies and capital flows to address global energy needs. Ultimately, however, there continues to be a global dependence on products made from hydrocarbons and on the combustion of hydrocarbons to provide reliable and affordable energy. Low-cost and low-emission barrels are expected to be the most attractive conventional source to meet energy needs both currently and in the future. Global energy demand is predicted to increase over the coming decades, and we expect that offshore oil and gas will continue to play an important and lasting role in meeting this demand. +We expect inflationary pressures to persist, which has led, and may continue to lead, to increased costs of services. Additionally, we expect supply chain disruptions to continue, and potentially accelerate, as geopolitical crises, such as the Russia-Ukraine conflict, Middle East conflicts, the Guyana-Venezuela dispute, and their respective regional and global ramifications, may negatively impact our ability to conduct our day-to-day operations. Additionally, the impact of new or increased tariffs or trade wars could have an inflationary impact on the costs of certain products and services as well as potentially contribute to further supply chain disruptions. +Contract Drilling Services Backlog +We maintain a backlog of commitments for contract drilling services. Our contract drilling services backlog reflects estimated future revenues attributable to signed drilling contracts. While backlog did not include any letters of intent as of December 31, 2024, in the past we have included in backlog certain letters of intent that we expect to result in binding drilling contracts. As of December 31, 2024, contract drilling services backlog totaled approximately $6.1 billion. +We calculate backlog for any given unit and period by multiplying the full contractual operating dayrate for such unit by the number of days remaining in the period, and include certain assumptions based on the terms of certain contractual arrangements, discussed in the notes to the table below. The reported contract drilling services backlog does not include amounts representing revenues for mobilization, demobilization, and contract preparation, which are not expected to be +41 +significant to our contract drilling services revenues, amounts constituting reimbursables from customers, or amounts attributable to uncommitted option periods under drilling contracts or letters of intent. +The table below presents the amount of our contract drilling services backlog and the percent of available operating days committed for the periods indicated: +Year Ended December 31, (1) +Total 2025 2026 2027 2028 2029 +(In thousands) +Contract Drilling Services Backlog +Floaters (2) +$ 5,243,084 $ 2,412,325 $ 1,547,270 $ 818,441 $ 463,718 $ 1,330 +Jackups (3) +849,914 398,001 267,233 184,680 — — +Total $ 6,092,998 $ 2,810,326 $ 1,814,503 $ 1,003,121 $ 463,718 $ 1,330 +Percent of Available Days Committed (4) +Floaters +60 % 38 % 23 % 13 % — % +Jackups 51 % 24 % 14 % — % — % +Total 57 % 34 % 20 % 9 % — % +(1) Represents a twelve-month period beginning January 1. Some of our drilling contracts provide customers with certain early termination rights and, in limited cases, those termination rights require minimal or no notice and minimal financial penalties. +(2) Noble entered into a multi-year Commercial Enabling Agreement (the “CEA”) with ExxonMobil in February 2020. Under the CEA, dayrates for the rigs are repriced on March 1 and September 1 each year to the projected market rate at the time the new rate goes into effect, subject to a scale-based discount and a performance bonus that appropriately aligns the interests of Noble and ExxonMobil. Under the CEA, the table above includes awarded and remaining current contract term to August 18, 2028, related to each of the four following rigs: the Noble Tom Madden, Noble Bob Douglas, Noble Don Taylor , and Noble Sam Croft . Under the CEA, ExxonMobil may reassign remaining contract term among rigs, subject to maintaining certain minimum contract term on the rig from which term is removed. +(3) In 2022, Noble renewed its five-year Framework Agreement with Aker BP for the provision of ultra-harsh environment jackup rigs, the Noble Integrator and Noble Invincible , for activities offshore Norway. Under the Framework Agreement, different rate structures apply reflecting different operating modes, agreed incentive schemes, and adjustments for operating expenses. Rate structures are adjusted annually to reflect market conditions. +(4) Percent of available days committed is calculated by dividing the total number of days our rigs are operating under contract for such period by the product of the number of our rigs, including cold-stacked rigs, and the number of calendar days in such period. +The amount of actual revenues earned and the actual periods during which revenues are earned may be materially different than the backlog amounts and backlog periods presented in the table above due to various factors, including, but not limited to, shipyard and maintenance projects, unplanned downtime, the operation of market benchmarks for dayrate resets, achievement of bonuses, weather conditions, reduced standby or mobilization rates, and other factors that result in applicable dayrates lower than the full contractual operating dayrate. In addition, amounts included in the backlog may change because drilling contracts may be varied or modified by mutual consent or customers may exercise early termination rights contained in some of our drilling contracts or decline to enter into a drilling contract after executing a letter of intent. As a result, our backlog as of any particular date may not be indicative of our actual operating results for the periods for which the backlog is calculated. See Part I, Item 1A, “Risk Factors—Risks Related to Our Business and Operations — Our current backlog of contract drilling revenue may not be ultimately realized.” +As of December 31, 2024, ExxonMobil, BP, and Petrobras represented approximately 37.2%, 13.1%, and 12.6% of our backlog, respectively. +42 +Results of Operations +Results for the years ended December 31, 2024 and 2023 +Net income for the year ended December 31, 2024, was $448.4 million, or $2.96 per diluted share, on operating revenues of $3.1 billion compared to net income for the year ended December 31, 2023, of $481.9 million, or $3.32 per diluted share, on operating revenues of $2.6 billion. +Key Operating Metrics +Operating results for our contract drilling services segment are dependent on three primary metrics: operating days, dayrates, and operating costs. We also track rig utilization, which is a function of operating days and the number of rigs in our fleet. For more information on operating costs, see “Contract Drilling Services” below. +The following table presents the average rig utilization, operating days, and average dayrates for our rig fleet for the periods indicated. +Average Rig Utilization (1) +Operating Days (2) +Average Dayrates (2) +Year Ended December 31, Year Ended December 31, Year Ended December 31, +2024 2023 2024 2023 2024 2023 +Floaters 69 % 73 % 5,372 5,067 $ 427,192 $ 382,041 +Jackups 77 % 64 % 3,678 3,272 153,321 128,161 +Total 72 % 69 % 9,050 8,339 $ 315,883 $ 282,392 +(1) We define utilization for a specific period as the total number of days our rigs are operating under contract, divided by the product of the total number of our rigs, including cold stacked rigs, and the number of calendar days in such period. Information reflects our policy of reporting on the basis of the number of available rigs in our fleet. +(2) An operating day is defined as a calendar day during which a rig operated under a drilling contract. We define average dayrates as revenue from contract drilling services earned per operating day. Average dayrates have not been adjusted for the non-cash amortization related to favorable and unfavorable customer contract intangibles. +Contract Drilling Services +The following table presents the operating results for our contract drilling services segment for the period indicated (dollars in thousands): +Years Ended December 31, Change +2024 2023 $ % +Operating revenues: +Contract drilling services $ 2,918,767 $ 2,461,715 $ 457,052 19 % +Reimbursables and other (1) +139,051 127,303 11,748 9 % +$ 3,057,818 $ 2,589,018 $ 468,800 18 % +Operating costs and expenses: +Contract drilling services $ 1,687,164 $ 1,452,281 $ 234,883 16 % +Reimbursables (1) +105,479 91,642 13,837 15 % +Depreciation and amortization 428,626 301,345 127,281 42 % +General and administrative 140,499 128,413 12,086 9 % +Merger and integration costs 109,424 60,335 49,089 81 % +Gain on sale of operating assets, net (17,357) — (17,357) — % +Hurricane losses and (recoveries), net — (19,703) 19,703 (100) % +2,453,835 2,014,313 439,522 22 % +Operating income (loss) $ 603,983 $ 574,705 $ 29,278 5 % +(1) We record reimbursements from customers for out-of-pocket expenses as operating revenues and the related direct costs as operating expenses. Changes in the amount of these reimbursables generally do not have a material effect on our financial position, results of operations, or cash flows. +43 +Contract Drilling Services Revenues +The following table provides information about contract drilling services revenues and costs by rig types (dollars in millions except average dayrates): +Years Ended December 31, +2024 2023 +Floaters Jackups Floaters Jackups +Contract drilling services revenues $ 2,350 $ 569 $ 2,010 $ 452 +Contract drilling services costs $ 1,306 $ 381 $ 1,112 $ 340 +Average rig utilization +69 % 77 % 73 % 64 % +Operating days +5,372 3,678 5,067 3,272 +Average dayrates +$ 427,192 $ 153,321 $ 382,041 $ 128,161 +Total rigs — Beginning 19 13 19 13 +— Acquired 11 — — — +— Disposed +(3) — — — +— Ending +27 13 19 13 +Floaters. During the year ended December 31, 2024, floaters generated revenue of $2.3 billion, as compared to $2.0 billion in year ended December 31, 2023. The increase in revenue was mainly attributable to $297.0 million provided by the additional floaters acquired in connection with the Diamond Transaction. The increase also included $285.6 million from an increase in average dayrates during the current year, excluding rigs acquired in the Diamond Transaction, and $42.0 million received from a contract termination fee. These increases were partly offset by $265.6 million from rigs with net changes in operating days during the current year, excluding rigs acquired in the Diamond Transaction. Additionally, floater revenue from net non-cash amortization related to off-market customer contract assets and liabilities decreased $19.5 million during the current year. For additional information, see “Note 2 — Acquisitions and Divestitures” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +Jackups. During the year ended December 31, 2024, jackups generated revenue of $569.1 million, as compared to $451.6 million in year ended December 31, 2023. The increase in revenue was mainly attributable to $60.5 million from an increase in average dayrates during the current year and $91.5 million from rigs with net changes in operating days during the current year. Additionally, jackup revenue from net non-cash amortization related to off-market customer contract assets and liabilities decreased $27.1 million during the current year. +Operating Costs and Expenses +Floaters. During the year ended December 31, 2024, total contract drilling services cost related to floaters was $1.3 billion, as compared to $1.1 billion in year ended December 31, 2023. The primary drivers of this increase were $180.1 million related to the additional floaters acquired in connection with the Diamond Transaction and $32.0 million predominately driven by labor and transportation costs across the fleet. These increases were partially offset by insurance proceeds received for a certain rig totaling $18.1 million. For additional information, see “Note 2 — Acquisitions and Divestitures” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +Jackups. During the year ended December 31, 2024, total contract drilling services cost related to jackups was $381.2 million, as compared to $340.0 million in year ended December 31, 2023. The primary drivers of the aggregate increase of $99.0 million related to labor costs, repairs and maintenance, operations support, and other costs across the fleet due to increased activity. These increases were partially offset by a decrease of $58.0 million after the completion of disposal activities regarding certain rigs. +Depreciation and amortization. Depreciation and amortization totaled $428.6 million and $301.3 million during the years ended December 31, 2024 and 2023, respectively. Depreciation and amortization increased by $127.3 million in the current year primarily due to the timing of capital additions that were placed in service as compared to retirements among the periods as well as an incremental amount added in connection with the Diamond Transaction. +General and administrative. General and administrative expenses totaled $140.5 million and $128.4 million during the years ended December 31, 2024 and 2023, respectively. The increase was primarily a result of the Diamond Transaction and other individually insignificant items within certain corporate charges such as professional fees, corporate leases, and employee related costs. +44 +Merger and integration costs. Noble incurred $109.4 million and $60.3 million of merger and integration costs during the years ended December 31, 2024 and 2023, respectively, primarily as a result of the Diamond Transaction and the Business Combination with Maersk Drilling. During the current period, $84.5 million and $25.0 million of costs related directly to the Diamond Transaction and the Business Combination with Maersk Drilling, respectively. Costs incurred prior to 2024 related to the Business Combination with Maersk Drilling in October 2022. A majority of the costs attributable to the Diamond Transaction related to the closing of the transaction and included charges for professional fees, severance, and share-based compensation. For additional information, see “Note 2 — Acquisitions and Divestitures” and “Note 3 — Merger and Integration Costs” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +Gain on sale of operating assets, net. During the year ended December 31, 2024, we sold the Noble Explorer for total proceeds of $25.0 million, $21.5 million of which was received in the fourth quarter of 2023, resulting in a pre-tax gain of $17.4 million. +Hurricane losses and recoveries, net. During the year ended December 31, 2024, costs in connection with the Hurricane Ida incident were offset by accrued recoveries. During the year ended December 31, 2023, Noble recognized $31.8 million of costs, which was offset by the recognition of insurance recoveries of $51.5 million. For additional information, see “Note 12 — Commitments and Contingencies” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +Other Income and Expenses +Interest expense, net of amounts capitalized. Interest expense totaled $94.2 million and $59.1 million for the years ended December 31, 2024 and 2023, respectively. Interest expense primarily relates to our 2030 Notes which, in part, refinanced prior debt assumed in the Business Combination with Maersk Drilling in October 2022, as well as the Diamond Second Lien Notes. For additional information, see “Note 6 — Debt“ to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +Gain (loss) on extinguishment of debt, net. Noble recognized loss on extinguishment of debt of $26.4 million for the year ended December 31, 2023, related to the redemption of the remaining balance on notes and refinancing of other debt. For additional information, see “Note 6 — Debt” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +Interest income and other, net. Noble recognized other expenses of $17.4 million and other income of $18.1 million for the years ended December 31, 2024 and 2023, respectively. For the year ended December 31, 2024, Noble made a tax contribution repayment of $4.0 million related to a joint taxation scheme with A.P. Møller Holding A/S. For the year ended December 31, 2023, other income primarily related to the recognition of approximately $19.1 million of compensation under the same arrangement. For additional information, see “Note 10 — Income Taxes” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +Gain on bargain purchase. Noble recognized a $5.0 million gain on the bargain purchase of Maersk Drilling for the year ended December 31, 2023. For additional information, see “Note 2 — Acquisitions and Divestitures” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +Income tax benefit (provision). Noble recorded an income tax provision of $44.0 million and $30.3 million during the years ended December 31, 2024 and 2023, respectively. +During the year ended December 31, 2024, our tax provision included tax benefits of $123.6 million related to releases of valuation allowances primarily in Luxembourg, and a net tax benefit of $20.2 million related to changes in uncertain tax positions. Such tax benefits were offset by various recurring quarterly accruals of $187.8 million primarily in Guyana, Nigeria, the United States, Switzerland, and Luxembourg. +During the year ended December 31, 2023, our tax provision included tax benefits of $187.2 million related to releases of valuation allowances in Luxembourg, Guyana, Switzerland, and Norway, and a tax benefit of $6.8 million related to uncertain tax position releases. Such tax benefits were offset by tax expenses related to uncertain tax positions of $20.9 million in various countries, contract fair value amortization of $23.7 million, and various recurring quarterly accruals of $179.6 million primarily in Guyana, Switzerland, and Luxembourg. +2023 Compared to 2022 +Information related to a comparison of our results of operations for the year ended December 31, 2023, compared to the year ended December 31, 2022, is included in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition +45 +and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 23, 2024. +Liquidity and Capital Resources +Sources and Uses of Cash +Our principal sources of capital in 2024 were cash generated from operating activities as well as net proceeds from the issuance of additional 2030 Notes (as defined below). Cash on hand during the current period was primarily used for the following: +• cash consideration and fees related to the Diamond Transaction; +• normal recurring operating expenses; +• capital expenditures; +• fees and expenses related to merger and integration costs; +• share repurchases and dividend payments; and +• certain contractual cash obligations and commitments. +Our anticipated cash flow needs, both in the short term and long term, may also include repurchases, redemptions, or repayments of debt and interest. +We currently expect to fund our cash flow needs with cash generated by our operations, cash on hand, proceeds from sales of assets, or borrowings under the 2023 Revolving Credit Facility, and we believe this will provide us with sufficient liquidity to fund our cash flow needs over the next 12 months. Subject to market conditions and other factors, we may also issue equity or long-term debt securities to fund our cash flow needs and for other purposes. We have been incurring expenses and capital costs related to incidents regarding one floater and one jackup. These incurred costs related to each rig each exceeded the applicable deductible. We received partial insurance recoveries in 2024 for each of these claims and we continue to seek insurance recoveries for the remainder of the incurred and anticipated costs. +Net cash provided by operating activities was $655.5 million and $574.3 million for the years ended December 31, 2024 and 2023, respectively. Net cash provided by operating activities increased mainly due to improvements in cash flows from operating assets and liabilities, with key drivers being an increase in payments from customers offset by a reduction in payments to vendors, as well as the Diamond Transaction. We had working capital balances of $448.5 million and $420.1 million at December 31, 2024 and 2023, respectively. +Net cash used in investing activities was $959.0 million for the year ended December 31, 2024, and consisted of capital expenditures on routine projects associated with overhauls and upgrades on various rigs and net cash paid related to the closing of the Diamond Transaction. Net cash used in investing activities was $366.5 million for the year ended December 31, 2023, and consisted of capital expenditures on routine projects associated with overhauls and upgrades on various rigs in the newly combined fleet. +Net cash provided by financing activities was $188.1 million and net cash used in financing activities was $325.8 million for the years ended December 31, 2024 and 2023, respectively. The year ended December 31, 2024, included the issuance of an additional $824.0 million of 2030 Notes. We also repurchased 8.4 million of our Ordinary Shares for total of $300.0 million, made dividend payments to our shareholders of $277.8 million, and paid $66.1 million in taxes withheld on vested employee share-based compensation awards. The year ended December 31, 2023, included the repayment of the DSF Credit Facility in full, the redemption of notes, the repayment of the New DNB Credit Facility, totaling $673.4 million, and the $600.0 million issuance of the initial 2030 Notes. We also repurchased 2.3 million of our Ordinary Shares for a total of $94.8 million and made dividend payments to our shareholders of $98.8 million. +At December 31, 2024, we had a total contract drilling services backlog of approximately $6.1 billion, which includes a commitment of 57% of available days for 2025. For additional information regarding our backlog, see “Contract Drilling Services Backlog.” +Capital Additions +Capital additions totaled $520.3 million and $454.3 million for the years ended December 31, 2024 and 2023, respectively. Capital additions for the year ended December 31, 2024, consisted of the following: +• $312.5 million for sustaining capital; +• $169.8 million in major projects, including subsea and other related projects; +46 +• $34.3 million for rebillable capital and contract modifications; and +• $3.7 million for capitalized interest. +Our total capital additions estimate for 2025, net of reimbursements, is expected to range between $375.0 million and $425.0 million. We expect to fund these capital additions with cash generated by our operations and cash on hand. +From time to time we consider possible projects and may have certain events that would require expenditures that are not included in our capital budget, and such unbudgeted expenditures could be significant. In addition, while liquidity and preservation of capital remains our top priority, we will continue to evaluate acquisitions of drilling units from time to time. +Amended and Restated Senior Secured Revolving Credit Agreement +In April 2023, certain subsidiaries of Noble amended and restated the senior secured revolving credit agreement, dated February 5, 2021, by entering into an Amended and Restated Senior Secured Revolving Credit Agreement, dated as of April 18, 2023 (as amended and otherwise modified from time to time, the “2023 Revolving Credit Agreement”), by and among Noble Finance II, Noble International Finance Company (“NIFCO”), Noble Drilling A/S, and each other designated borrower from time to time party thereto, as borrowers (the “Borrowers”), the lenders and issuing banks party thereto from time to time and JPMorgan Chase Bank, N.A., as administrative agent, collateral agent, and security trustee. The revolving credit facility under the 2023 Revolving Credit Agreement (the “2023 Revolving Credit Facility”) provides for commitments of $550.0 million with maturity in April 2028. The guarantors under the 2023 Revolving Credit Facility are the same subsidiaries of Noble Finance II that are or will be guarantors of the 2030 Notes. +As of December 31, 2024, we had no borrowings outstanding and $24.8 million of letters of credit issued under our 2023 Revolving Credit Facility and an additional $126.8 million in letters of credit and surety bonds issued under bilateral arrangements. For additional information about the 2023 Revolving Credit Facility, see “Note 6 — Debt” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +8.000% Senior Notes due 2030 +In April 2023, Noble Finance II, a wholly owned subsidiary of Noble, issued $600.0 million in aggregate principal amount of its 8.000% Senior Notes due 2030 (“Initial 2030 Notes”). The Initial 2030 Notes were issued pursuant to an indenture, dated April 18, 2023 (as supplemented or otherwise modified from time to time, the “Noble Indenture”), among Noble Finance II, the subsidiaries of Noble Finance II party thereto, as guarantors (the “Guarantors”), and U.S. Bank Trust Company, National Association, as trustee. In August 2024, Noble Finance II issued an additional $800.0 million in aggregate principal amount of its 8.000% Senior Notes due 2030 (the “Additional 2030 Notes” and, together with the Initial 2030 Notes, the “2030 Notes”) at a premium of 103% bringing the total outstanding principal amount to $1.4 billion. The Additional 2030 Notes were issued pursuant to the Noble Indenture and the net proceeds from the offering of the Additional 2030 Notes were primarily used to fund the cash consideration in the Diamond Transaction and to pay any premiums, fees, and expenses related to the issuance of the Additional 2030 Notes. As of December 31, 2024, we had outstanding $1.4 billion aggregate principal amount of our 2030 Notes. For additional information about the 2030 Notes, see “Note 6 — Debt” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +Diamond Second Lien Notes due 2030 +In connection with the Diamond Transaction, the Company assumed $550.0 million aggregate principal amount of 8.500% Senior Secured Second Lien Notes due October 2030 (the “Diamond Second Lien Notes”) issued pursuant to an indenture, dated as of September 21, 2023 (as supplemented and otherwise modified from time to time, the “Diamond Second Lien Indenture”), among Diamond Foreign Asset Company and Diamond Finance, LLC, as issuers, Diamond Offshore Drilling, Inc., the other guarantors party thereto and HSBC Bank USA, National Association, as trustee and as collateral agent. As of December 31, 2024, we had outstanding $550.0 million aggregate principal amount of our Diamond Second Lien Notes. For additional information about the Diamond Second Lien Notes, see “Note 6 — Debt” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +Diamond Credit Agreement +In connection with the Diamond Transaction, the Company terminated Diamond’s $300.0 million senior secured revolving credit facility (the “Diamond Revolving Credit Facility”) under a credit agreement, dated as of April 23, 2021 (as amended and otherwise modified, the “Diamond Credit Agreement”), among Diamond Offshore Drilling, Inc., Diamond Foreign Asset Company, as borrower, the lenders party thereto from time to time and Wells Fargo Bank, National Association, as administrative agent, collateral agent, and issuing lender. The revolving commitments under the Diamond Credit Agreement were scheduled to mature in April 2026. At the time of the Diamond Transaction and the termination of the commitments under the Diamond Credit Agreement, Diamond had no outstanding borrowings under the Diamond Credit Agreement. For additional information about the Diamond Credit Agreement, see “Note 6 — Debt” to our consolidated +47 +financial statements included in Part II, Item 8 of this Annual Report on Form 10-K to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +Dividends +Our most recent quarterly dividend, totaling approximately $79.7 million (or $0.50 per share), was declared on November 5, 2024, and paid on December 19, 2024, to shareholders of record at close of business on December 5, 2024. During the year ended December 31, 2024, we declared dividends of approximately $278.3 million, including accrued dividends, (or $1.80 per share), and made cash dividend payments of approximately $277.8 million. +On February 17, 2025, our Board of Directors approved a declaration of a quarterly cash interim dividend on our Ordinary Shares of $0.50 per share. This dividend is to be payable on March 20, 2025, to shareholders of record at close of business on March 5, 2025. +The declaration and payment of dividends require authorization of the Board of Directors, provided that such dividends on issued share capital may be paid only out of the Company’s “distributable reserves” as determined by reference to relevant statutory accounts in accordance with English law. The Company is not permitted to pay dividends out of share capital, which includes share premiums. The payment of future dividends will depend on our results of operations, financial condition, cash requirements, future business prospects, the availability of sufficient distributable reserves, contractual and indenture restrictions, and other factors deemed relevant by our Board of Directors. +Share Repurchases +Under English law, the Company is only permitted to purchase its own Ordinary Shares by way of an “off-market purchase” pursuant to a contract approved by shareholders (except where the purchase is for the purposes of, or pursuant to, any employees’ share scheme). Such purchases may be paid for either (i) out of Noble’s “distributable reserves” as determined by reference to relevant statutory accounts in accordance with English law or (ii) from the proceeds of a fresh issue of shares made for the purpose of financing the purchase. As of the date of this report, we have shareholder authority to repurchase up to 15% per annum of the issued share capital of the Company as of the beginning of each fiscal year for a five-year period commencing on September 28, 2022 (subject to an overall aggregate maximum of 20.6 million Ordinary Shares). During the year ended December 31, 2024, we repurchased 8.4 million of our Ordinary Shares pursuant to such authority. All repurchased shares were subsequently cancelled. +Summary of Contractual Cash Obligations and Commitments +We have $196.0 million of net long-term tax reserves for uncertain tax positions, including interest and penalties, which are included in “Other liabilities” due to the difficulty in making reasonably reliable estimates of the timing of cash settlements to taxing authorities. See “Note 10 — Income Taxes” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +At December 31, 2024, no long-term debt is due in the next twelve months and $2.0 billion will be due subsequent to 2025. See “Note 6 — Debt” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. We may seek to refinance all or a portion of our long-term debt obligations, including the 2023 Revolving Credit Facility, though any such refinancing transactions are subject to market and other conditions and there are no assurances that we will complete any such transactions, in whole or in part, or as to the amount or timing of any such transactions. +At December 31, 2024, $13.0 million of pension obligations will be due in the next twelve months and the remainder of $127.3 million will be due subsequent to 2025. See “Note 11 — Employee Benefit Plans” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. In addition, $9.5 million is due on a long-term basis under the Danish Holiday Act of 2020. +For a description of our operating and finance lease obligations, refer to “Note 9 — Leases” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +At December 31, 2024, we had other commitments that we are contractually obligated to fulfill with cash if the obligations are called. These obligations include letters of credit that guarantee our performance as it relates to our drilling contracts, tax, and other obligations in various jurisdictions. We expect to comply with the underlying performance requirements and we expect obligations under these letters of credit and surety bonds will not be called. At December 31, 2024, $30.6 million letters of credit and commercial commitments will expire in the next twelve months and the remainder of $121.0 million will expire subsequent to 2025. +We expect to fund these obligations and commitments with cash generated by our operations and cash on hand. +48 +Unaudited Condensed Consolidating Financial Information +The Noble Indenture contains a covenant that requires Noble Finance II to furnish to holders of the 2030 Notes certain financial information relating to Noble Finance II and its restricted subsidiaries. The Diamond Second Lien Indenture contains a covenant that requires NODI to furnish to holders of the Diamond Second Lien Notes certain financial information relating to NODI and its subsidiaries. +The summarized financial information below reflects combined accounts of Noble Finance II, NODI, and all other subsidiaries of Noble. The financial information is presented on a combined basis and intercompany balances and transactions between entities have been eliminated. +Noble Corporation plc and Subsidiaries +Unaudited Condensed Consolidating Selected Financials +December 31, 2024 +Consolidated Noble Finance II LLC +Consolidated Noble Offshore Drilling, Inc. (1) +Other +Non-guarantor Subsidiaries +of Noble Consolidating Adjustments Total +Balance Sheets +Cash and cash equivalents $ 131,703 $ 114,999 $ 601 $ — $ 247,303 +Total current assets 1,683,839 524,251 124,851 (944,077) 1,388,864 +Total current liabilities 694,321 324,049 1,508,473 (1,586,481) 940,362 +Total debt 1,401,214 1,244,357 — (665,385) 1,980,186 +Total shareholders' equity 4,535,081 861,791 4,017,807 (4,763,293) 4,651,386 +Noble Corporation plc and Subsidiaries +Unaudited Condensed Consolidating Selected Financials +Twelve Months Ended December 31, 2024 +Consolidated Noble Finance II LLC +Consolidated Noble Offshore Drilling, Inc. (1) +Other +Non-guarantor Subsidiaries +of Noble Consolidating Adjustments Total +Statements of Operations +Operating revenues $ 2,721,156 $ 336,542 $ 120 $ — $ 3,057,818 +Operating costs and expenses 2,010,731 334,722 108,382 — 2,453,835 +Depreciation and amortization 379,551 49,075 — — 428,626 +Statements of Cash Flows +Net cash provided by (used in) operating activities $ 792,859 $ (39,696) $ (97,688) $ — $ 655,475 +Capital expenditures ( 536,658 ) (38,477) (180) — (575,315) +Proceeds from disposal of assets, net ( 690 ) 10,730 13,257 — 23,297 +Dividend payments — — (277,831) — (277,831) +(1) Consolidated Noble Offshore Drilling, Inc. from merger effective date on September 4, 2024. +Critical Accounting Estimates +We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States (“US GAAP”), which require us to make estimates that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which +49 +form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results may differ from our estimates and assumptions and any such differences could be material to our consolidated financial statements. The following accounting policies involve critical accounting estimates because they are particularly dependent on estimates and assumptions made by Noble about matters that are inherently uncertain. +Recoverability of Assets +We evaluate our property and equipment and intangible assets for impairment whenever there are changes in facts that suggest that the value of the asset is not recoverable. An impairment loss is recognized when and to the extent that an asset's carrying value exceeds its estimated fair value. To the extent actual results do not meet our estimated assumptions for a given rig, piece of equipment or intangible customer contract, we may take an impairment loss in the future. In determining the fair value of the assets, we make significant assumptions and estimates regarding future market conditions using significant unobservable inputs representative of a Level 3 fair value measurement. Critical assumptions used in our estimate include projected dayrates, utilization, and discount rate. These projections involve uncertainties that rely on assumptions about current and future market conditions, timing of future contract awards, and marketability of a unit. It can be difficult to determine the fair value based on the cyclical nature of our business, demand for offshore drilling rigs in different markets, and changes in economic conditions. +During the years ended December 31, 2024 and 2023, no impairment charges were recognized. +Impairment assessment inherently involves management judgments as to assumptions about expected future cash flows and the impact of market conditions on those assumptions. Due to the many variables inherent in this estimation, differences in assumptions may have a material effect on the results of our impairment analysis. +Income Taxes +We estimate income taxes and file tax returns in each of the taxing jurisdictions in which we operate and are required to file a tax return. At the end of each year, an estimate for income taxes is recorded in the financial statements. Tax returns are generally filed in the subsequent year. A reconciliation of the estimate to the final tax return is done at that time, which will result in changes to the original estimate. We believe that our tax return positions are appropriately supported, but tax authorities can challenge certain of our tax positions. +We currently operate, and have in the past operated, in a number of countries throughout the world and our tax returns filed in those jurisdictions are subject to review and examination by tax authorities within those jurisdictions. We recognize uncertain tax positions that we believe have a greater than 50% likelihood of being sustained upon challenge by a tax authority. We cannot predict or provide assurance as to the ultimate outcome of any existing or future assessments. A change in judgment related to the expected ultimate resolution of uncertain tax positions will be recognized in earnings in the quarter of such change. We believe that our reserve for uncertain tax positions, including related interest and penalties, is adequate. As of December 31, 2024 and 2023, the Company had $196.0 million and $202.3 million of net long-term tax reserves for unrecognized tax benefits, including interest and penalties, which are included in “Other liabilities.” The amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in our income tax expense and, therefore, could have a material impact on our tax provision, net income and cash flows. +Our gross deferred tax asset balance at year end reflects the application of our income tax accounting policies and is based on management’s estimates, judgments, and assumptions regarding realizability. If it is more likely than not that a portion of the deferred tax assets will not be realized in a future period, the deferred tax assets will be reduced by a valuation allowance based on management’s estimates. In evaluating our ability to recover our deferred tax assets, in full or in part, we consider all available positive and negative evidence, including our past operating results and our forecast of future earnings, future taxable income, and prudent and feasible tax planning strategies. The assumptions utilized in determining future taxable income require significant judgment. Although we believe our assumptions, judgments, and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of any tax audits could have a material impact our consolidated financial statements. +Claims Reserves +We maintain various levels of self-insured retention for certain losses including property damage, loss of hire, employment practices liability, employers’ liability, and general liability, among others. We accrue for property damage and loss of hire charges on a per event basis. +Employment practices liability claims are accrued based on actual claims during the year. Maritime employer’s liability claims are generally estimated using actuarial determinations. General liability claims are estimated by our internal claims department by evaluating the facts and circumstances of each claim (including incurred but not reported claims) and +50 +making estimates based upon historical experience with similar claims. The amount of our loss reserves for personal injury and protection claims is based on an analysis performed by a third-party actuary which uses our historical loss patterns and trends as well as industry data to estimate the unpaid loss and allocated loss adjustment expense. Claim severity experienced in each year, ranging from minor incidents to permanent disability or injuries requiring extensive medical care, is a key driver of the variability around our reserve estimates. These estimates are further subject to uncertainty because the ultimate disposition of claims incurred is subject to the outcome of events which have not yet transpired. Accordingly, we may be required to increase or decrease our reserve levels. At December 31, 2024, loss reserves for personal injury and protection claims totaled $164.1 million, of which $149.2 million was included in “Other current liabilities” and $14.9 million in “Other long-term liabilities” in the accompanying Consolidated Balance Sheets. At December 31, 2023, loss reserves for personal injury and protection claims totaled $63.9 million of which $21.9 million was included in “Other current liabilities” and $42.0 million in “Other long-term liabilities” in the accompanying Consolidated Balance Sheets. +Business Combinations +We follow the acquisition method of accounting for business combinations. Assets acquired and liabilities assumed are recognized at the date of acquisition at their respective estimated fair value. Any excess of the purchase price over the fair value amounts assigned to assets and liabilities is recorded as goodwill. To the extent the estimated fair value of the net assets acquired exceeded the purchase price, we recognize a bargain purchase gain. Changes in these judgments or estimates can have a material impact on the valuation of the respective assets and liabilities acquired and our results of operations in periods after acquisition. The allocation of the purchase price may be modified up to one year after the acquisition date as more information is obtained about the fair value of assets acquired and liabilities assumed. +Our estimates of fair value of the acquired property and equipment and contract intangibles require us to use significant unobservable inputs, representative of a Level 3 fair value measurement. Critical assumptions used in our estimate include projected dayrates, utilization, and discount rate. These projections involve uncertainties that rely on assumptions about current and future market conditions, timing of future contract awards, demand for our services, and marketability of a unit. It can be difficult to determine the fair value based on the cyclical nature of our business, demand for offshore drilling rigs in different markets, and changes in economic conditions. +Item 7A. Quantitative and Qualitative Disclosures about Market Risk. +Market risk is the potential for loss due to a change in the value of a financial instrument as a result of fluctuations interest rates, currency exchange rates, or equity prices, as further described below. +Interest Rate Risk +We are subject to market risk exposure related to changes in interest rates on borrowings under the 2023 Revolving Credit Facility and may be subject to similar exposure on future borrowing arrangements. Borrowings under the 2023 Revolving Credit Facility, if any, bear interest at the term secured overnight financing rate (“SOFR”) plus 0.10% (subject to a 0.00% floor) plus an applicable margin, which is currently 3.00%, or a base rate stated in the 2023 Revolving Credit Agreement plus an applicable margin, which is currently 2.00%. +As of December 31, 2024, we had no borrowings outstanding under the 2023 Revolving Credit Facility and $24.8 million of performance letters of credit outstanding thereunder. +Because they bear interest at a fixed rate, the fair value of the 2030 Notes and the Diamond Second Lien Notes will fluctuate based on changes in market expectations for interest rates and perceptions of our credit risk. The fair value of our total debt was $2.0 billion as of December 31, 2024. +Foreign Currency Risk +Although we are a UK company, we define foreign currency as any non-US dollar denominated currency. Our functional currency is the US dollar. However, outside the United States, a portion of our expenses are incurred in local currencies. Therefore, when the US dollar weakens (strengthens) in relation to the currencies of the countries in which we operate, our expenses reported in US dollars will increase (decrease). +We are exposed to risks on future cash flows to the extent that foreign currency expenses exceed revenues denominated in the same foreign currency. In order to help manage this potential risk, we periodically enter into derivative instruments to manage our net exposure to fluctuations in currency exchange rates. We have documented policies and procedures to monitor and control the use of derivative instruments. We do not engage in derivative transactions for speculative or trading purposes, nor are we a party to leveraged derivatives. +51 +Several of our regional shorebases have a significant amount of their cash operating expenses payable in foreign currencies. In order to limit the potential risk of currency fluctuations, we periodically enter into forward contracts, which have historically settled monthly in the operations’ respective local currencies. All of these contracts had a maturity of less than 12 months. Based on current projections, a 10% increase in the average exchange rates of all foreign currencies would hypothetically increase our future estimated operating expenses by approximately $20.6 million. +Market Risk +We have a US noncontributory defined benefit pension plan that covers certain salaried employees and a US noncontributory defined benefit pension plan that covers certain hourly employees, whose initial date of employment is prior to August 1, 2004 (collectively referred to as our “qualified US plans”). These plans are governed by the Noble Drilling Employees’ Retirement Trust. The benefits from these plans are based primarily on years of service and, for the salaried plan, employees’ compensation near retirement. These plans are designed to qualify under the Employee Retirement Income Security Act of 1974 (“ERISA”), and our funding policy is consistent with funding requirements of ERISA and other applicable laws and regulations. We make cash contributions, or utilize credits available to us, for the qualified US plans when required. The benefit amount that can be covered by the qualified US plans is limited under ERISA and the Internal Revenue Code of 1986. Therefore, we maintain an unfunded, nonqualified excess benefit plan designed to maintain benefits for specified employees at the formula level in the qualified salary US plan. We refer to the qualified US plans and the excess benefit plan collectively as the “US plans.” +In addition to the US plans, Noble Drilling (Land Support) Limited, an indirect, wholly-owned subsidiary of Noble, maintains a pension plan that covers all of its salaried, non-union employees, whose most recent date of employment is prior to April 1, 2014 (referred to as our “non-US plan”). Benefits are based on credited service and employees’ compensation, as defined by the non-US plan. +The Company’s pension plan assets are exposed to the market prices of debt and equity securities. Changes to the pension plan asset values can impact the Company’s pension expense, funded status, and future minimum funding requirements. The Company aims to reduce risk through asset diversification and by investing in long duration fixed-income securities that have a duration similar to that of its pension liabilities. At December 31, 2024, the value of the investments in the pension funds was $202.1 million, and a hypothetical 10.0% decrease in the value of the investments in the fund would have reduced the value of the fund by approximately $20.2 million. A significant decline in the value of pension assets could require Noble to increase funding of its pension plans in future periods, which could adversely affect cash flows in those periods. In addition, a decline in the fair value of these plan assets, in the absence of additional cash contributions to the plans by Noble, could increase the amount of pension cost required to be recorded in future periods by Noble. +52 +Item 8. Financial Statements and Supplementary Data. +The following financial statements are filed in this Item 8: +Page +Report of Independent Registered Public Accounting Firm (Noble ) (PCAOB ID 238 ) +54 +Noble Corporation plc and Subsidiaries Consolidated Balance Sheets as of December 31, 2024 and 2023 +56 +Noble Corporation plc and Subsidiaries Consolidated Statements of Operations for the Years Ended December 31, 2024, 2023 , and 2022 +57 +Noble Corporation plc and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2024, 2023 , and 2022 +58 +Noble Corporation plc and Subsidiaries Consolidated Statements of Cash Flows for the Years Ended December 31, 20234, 2023 , and 2022 +59 +Noble Corporation plc and Subsidiaries Consolidated Statements of Equity for the Years Ended December 31, 2024, 2023 , and 2022 +60 +Notes to Consolidated Financial Statements +61 +53 +Report of Independent Registered Public Accounting Firm +To the Board of Directors and Shareholders of Noble Corporation plc +Opinions on the Financial Statements and Internal Control over Financial Reporting +We have audited the accompanying consolidated balance sheets of Noble Corporation plc and its subsidiaries (the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of operations, of comprehensive income (loss), of equity and of cash flows for each of the three years in the period ended December 31, 2024, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). +In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. +Basis for Opinions +The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. +Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. +As described in Management’s Annual Report on Internal Control Over Financial Reporting, management has excluded Diamond Offshore Drilling, Inc. (“Diamond”) from its assessment of internal control over financial reporting as of December 31, 2024 because it was acquired by the Company in a purchase business combination during 2024. We have also excluded Diamond from our audit of internal control over financial reporting. Diamond is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent approximately 29% and 11%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2024. +Definition and Limitations of Internal Control over Financial Reporting +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are +54 +recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. +Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +Critical Audit Matters +The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. +Acquisition of Diamond - Fair Value of Mobile Offshore Drilling Units +As described in Notes 1 and 2 to the consolidated financial statements, on September 4, 2024, the Company completed its acquisition of Diamond. The acquisition resulted in $1.8 billion of property and equipment, net being recorded, of which a significant portion related to mobile offshore drilling units. Management determined the fair value of the mobile offshore drilling units using the discounted cash flows expected to be generated from the drilling assets over their remaining useful lives. Assumptions used in management’s assessment included, but were not limited to, timing of future contract awards and expected operating dayrates, operating costs, rig utilization rates, tax rates, discount rate, capital expenditures, synergies, market values, and estimated economic useful lives of the rigs. +The principal considerations for our determination that performing procedures relating to the fair value of mobile offshore drilling units acquired in the acquisition of Diamond is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the mobile offshore drilling units acquired; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the expected operating dayrates, operating costs, rig utilization rates, tax rates, discount rate, synergies, and estimated economic useful lives of the rigs; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. +Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of the mobile offshore drilling units acquired. These procedures also included, among others (i) reading the purchase agreement; (ii) testing management’s process for developing the fair value estimate of the mobile offshore drilling units acquired; (iii) evaluating the appropriateness of the discounted cash flow models; (iv) testing the completeness and accuracy of underlying data used in the discounted cash flow models; and (v) evaluating the reasonableness of the significant assumptions used by management related to the expected operating dayrates, operating costs, rig utilization rates, tax rates, discount rate, synergies, and estimated economic useful lives of the rigs. Evaluating management’s assumptions related to the expected operating dayrates, operating costs, rig utilization rates, tax rates, synergies, and estimated economic useful lives of the rigs involved considering (i) the current and past performance of the mobile offshore drilling units; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the discounted cash flow models and the reasonableness of the discount rate assumption. +/s/ PricewaterhouseCoopers LLP +Houston, Texas +February 18, 2025 +We have served as the Company’s auditor since 1994. +55 +NOBLE CORPORATION plc AND SUBSIDIARIES +CONSOLIDATED BALANCE SHEETS +(In thousands, except share amounts) +December 31, 2024 December 31, 2023 +ASSETS +Current assets +Cash and cash equivalents $ 247,303 $ 360,794 +Accounts receivable, net 796,961 548,844 +Taxes receivable 56,389 39,845 +Prepaid expenses and other current assets 288,211 112,265 +Total current assets 1,388,864 1,061,748 +Intangible assets 214 10,128 +Property and equipment, at cost 6,904,731 4,591,936 +Accumulated depreciation ( 868,914 ) ( 467,600 ) +Property and equipment, net 6,035,817 4,124,336 +Other assets 539,873 311,225 +Total assets $ 7,964,768 $ 5,507,437 +LIABILITIES AND EQUITY +Current liabilities +Accounts payable $ 397,622 $ 395,165 +Accrued payroll and related costs 116,877 97,313 +Taxes payable 78,900 56,420 +Interest payable 36,075 10,707 +Other current liabilities 310,888 82,075 +Total current liabilities 940,362 641,680 +Long-term debt 1,980,186 586,203 +Deferred income taxes 9,202 11,416 +Noncurrent contract liabilities 8,580 50,863 +Other liabilities 375,052 296,035 +Total liabilities 3,313,382 1,586,197 +Commitments and contingencies (Note 12) +Shareholders' equity +Common stock, $ 0.00001 par value; 158,946,711 and 140,773,750 ordinary shares outstanding as of December 31, 2024 and 2023, respectively +1 1 +Additional paid-in capital 4,236,172 3,377,048 +Retained earnings 411,244 541,159 +Accumulated other comprehensive income (loss) 3,969 3,032 +Total shareholders' equity 4,651,386 3,921,240 +Total liabilities and equity $ 7,964,768 $ 5,507,437 +See accompanying notes to the consolidated financial statements. +56 +NOBLE CORPORATION plc AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF OPERATIONS +(In thousands, except per share amounts) +Year Ended Year Ended Year Ended +December 31, 2024 December 31, 2023 December 31, 2022 +Operating revenues +Contract drilling services $ 2,918,767 $ 2,461,715 $ 1,332,841 +Reimbursables and other 139,051 127,303 81,006 +3,057,818 2,589,018 1,413,847 +Operating costs and expenses +Contract drilling services 1,687,164 1,452,281 897,096 +Reimbursables 105,479 91,642 64,427 +Depreciation and amortization 428,626 301,345 146,879 +General and administrative 140,499 128,413 82,177 +Merger and integration costs 109,424 60,335 84,668 +(Gain) loss on sale of operating assets, net ( 17,357 ) — ( 90,230 ) +Hurricane losses and (recoveries), net — ( 19,703 ) 60 +2,453,835 2,014,313 1,185,077 +Operating income (loss) 603,983 574,705 228,770 +Other income (expense) +Interest expense, net of amounts capitalized ( 94,211 ) ( 59,139 ) ( 42,722 ) +Gain (loss) on extinguishment of debt, net — ( 26,397 ) ( 8,912 ) +Interest income and other, net ( 17,438 ) 18,069 14,365 +Gain on bargain purchase — 5,005 — +Income (loss) before income taxes 492,334 512,243 191,501 +Income tax benefit (provision) ( 43,981 ) ( 30,341 ) ( 22,553 ) +Net income (loss) $ 448,353 $ 481,902 $ 168,948 +Basic earnings (loss) per share $ 3.01 $ 3.48 $ 1.99 +Diluted earnings (loss) per share $ 2.96 $ 3.32 $ 1.73 +Weighted Average Shares Outstanding +Basic 148,733 138,380 85,055 +Diluted 151,639 145,197 97,607 +See accompanying notes to the consolidated financial statements. +57 +NOBLE CORPORATION plc AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) +(In thousands) +Year Ended Year Ended Year Ended +December 31, 2024 December 31, 2023 December 31, 2022 +Net income (loss) $ 448,353 $ 481,902 $ 168,948 +Other comprehensive income (loss) +Net changes in pension and other postretirement plan assets and benefit obligations recognized in other comprehensive income (loss), net of tax provision (benefit) of $( 457 ), $( 940 ), and $( 928 ) for the years ended December 31, 2024, 2023, and 2022, respectively +937 ( 615 ) ( 1,742 ) +Other comprehensive income (loss), net 937 ( 615 ) ( 1,742 ) +Comprehensive income (loss) $ 449,290 $ 481,287 $ 167,206 +See accompanying notes to the consolidated financial statements. +58 +NOBLE CORPORATION plc AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF CASH FLOWS +(In thousands) +Year Ended Year Ended Year Ended +December 31, 2024 December 31, 2023 December 31, 2022 +Cash flows from operating activities +Net income (loss) $ 448,353 $ 481,902 $ 168,948 +Adjustments to reconcile net loss to net cash flow from operating activities: +Depreciation and amortization 428,626 301,345 146,879 +Amortization of intangible assets and contract liabilities, net ( 60,032 ) ( 106,776 ) ( 5,352 ) +Gain on bargain purchase — ( 5,005 ) — +(Gain) loss on extinguishment of debt, net — 26,397 8,912 +(Gain) loss on sale of operating assets, net ( 17,357 ) — ( 90,230 ) +Deferred income taxes ( 42,647 ) ( 98,093 ) ( 25,628 ) +Amortization of share-based compensation 43,797 37,680 35,251 +Other costs, net ( 13,964 ) ( 8,036 ) ( 323 ) +Changes in components of working capital and other operating activities: +Change in taxes receivable ( 15,263 ) ( 7,374 ) 23,344 +Net changes in other operating assets and liabilities ( 116,038 ) ( 47,703 ) 19,184 +Net cash provided by (used in) operating activities 655,475 574,337 280,985 +Cash flows from investing activities +Capital expenditures ( 575,315 ) ( 409,581 ) ( 174,319 ) +Proceeds from insurance claims 23,297 18,809 — +Cash acquired (used) in business combinations, net ( 417,041 ) — 166,607 +Proceeds from disposal of assets, net 10,040 24,264 381,026 +Other investing activities — — 2,458 +Net cash provided by (used in) investing activities ( 959,019 ) ( 366,508 ) 375,772 +Cash flows from financing activities +Issuance of debt 824,000 600,000 350,000 +Repayments of debt — ( 673,411 ) ( 627,323 ) +Borrowing on credit facilities 35,000 — 220,000 +Repayments of credit facilities ( 35,000 ) — ( 220,000 ) +Debt issuance costs ( 10,002 ) ( 24,914 ) ( 641 ) +Debt extinguishment costs — ( 25,697 ) — +Compulsory purchase payment — — ( 69,924 ) +Warrant exercises 1,443 485 1,004 +Share repurchases ( 299,989 ) ( 94,826 ) ( 15,000 ) +Dividend payments ( 277,831 ) ( 98,804 ) — +Taxes withheld employee stock transactions ( 66,057 ) ( 8,624 ) ( 5,888 ) +Finance lease payments ( 6,064 ) — — +Other 22,578 — — +Net cash provided by (used in) financing activities 188,078 ( 325,791 ) ( 367,772 ) +Net increase (decrease) in cash, cash equivalents, and restricted cash ( 115,466 ) ( 117,962 ) 288,985 +Cash, cash equivalents, and restricted cash, beginning of period 367,745 485,707 196,722 +Cash, cash equivalents, and restricted cash, end of period $ 252,279 $ 367,745 $ 485,707 +See accompanying notes to the consolidated financial statements. +59 +NOBLE CORPORATION plc AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF EQUITY +(In thousands) +Shares Additional +Paid-in +Capital Retained +Earnings (Accumulated Deficit) Accumulated +Other +Comprehensive +Income (Loss) Total +Equity +Balance Par Value +Balance at December 31, 2021 60,172 $ 1 $ 1,393,255 $ 101,982 $ 5,389 $ 1,500,627 +Employee related equity activity: +Amortization of share-based compensation — — 35,252 — — 35,252 +Issuance of share-based compensation shares 834 — — — — — +Shares withheld for taxes on equity transactions — — ( 5,888 ) — — ( 5,888 ) +Warrants exercised 9,827 — 1,004 — — 1,004 +Share repurchases ( 407 ) — — ( 15,000 ) — ( 15,000 ) +Issuance of common stock for Maersk Drilling merger 60,107 — 1,800,130 — — 1,800,130 +Settlement of Compulsory Purchase Interest 4,148 — 123,754 — — 123,754 +Net income (loss) — — — 168,948 — 168,948 +Other comprehensive income (loss), net — — — — ( 1,742 ) ( 1,742 ) +Balance at December 31, 2022 134,681 $ 1 $ 3,347,507 $ 255,930 $ 3,647 $ 3,607,085 +Employee related equity activity: +Amortization of share-based compensation — — 37,680 — — 37,680 +Issuance of share-based compensation shares 501 — — — — — +Shares withheld for taxes on equity transactions — — ( 8,624 ) — — ( 8,624 ) +Warrants exercised 7,939 — 485 — — 485 +Share repurchases ( 2,347 ) — — ( 94,826 ) — ( 94,826 ) +Dividends — — — ( 101,847 ) — ( 101,847 ) +Net income (loss) — — — 481,902 — 481,902 +Other comprehensive income (loss), net — — — — ( 615 ) ( 615 ) +Balance at December 31, 2023 140,774 $ 1 $ 3,377,048 $ 541,159 $ 3,032 $ 3,921,240 +Employee related equity activity: +Amortization of share-based compensation — — 43,797 — — 43,797 +Issuance of share-based compensation shares 2,131 — — — — — +Shares withheld for taxes on equity transactions — — ( 66,057 ) — — ( 66,057 ) +Warrants exercised 245 — 1,443 — — 1,443 +Share repurchases ( 8,443 ) — — ( 299,989 ) — ( 299,989 ) +Issuance of common stock for Diamond Offshore Drilling merger 24,240 — 879,941 — — 879,941 +Dividends — — — ( 278,279 ) — ( 278,279 ) +Net income (loss) — — — 448,353 — 448,353 +Other comprehensive income (loss), net — — — — 937 937 +Balance at December 31, 2024 158,947 $ 1 $ 4,236,172 $ 411,244 $ 3,969 $ 4,651,386 +See accompanying notes to the consolidated financial statements. +60 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Note 1 — Organization and Significant Accounting Policies +Noble Corporation plc, a public limited company incorporated under the laws of England and Wales (“Noble”), is a leading offshore drilling contractor for the oil and gas industry. We provide contract drilling services to the international oil and gas industry with our global fleet of mobile offshore drilling units. Noble and its predecessors have been engaged in the contract drilling of oil and gas wells since 1921. As of December 31, 2024, our fleet of 40 drilling rigs consisted of 27 floaters and 13 jackups. +We report our contract drilling operations as a single reportable segment, Contract Drilling Services, which reflects how we manage our business. The mobile offshore drilling units comprising our offshore rig fleet operate in a global market for contract drilling services and are often redeployed to different regions due to changing demands of our customers, which consist primarily of large, integrated, independent, and government-owned or controlled oil and gas companies throughout the world. +On September 30, 2022 (the “Merger Effective Date”), pursuant to a business combination agreement, dated November 10, 2021 (as amended, the “Business Combination Agreement”), by and among Noble, Noble Corporation, an exempted company incorporated in the Cayman Islands with limited liability (“Noble Cayman”), Noble Newco Sub Limited, a Cayman Islands exempted company and a direct, wholly owned subsidiary of Noble (“Merger Sub”), and The Drilling Company of 1972 A/S, a Danish public limited liability company (“Maersk Drilling”), Noble Cayman merged with and into Merger Sub (the “Merger”), with Merger Sub surviving the Merger as a wholly owned subsidiary of Noble. As a result of the Merger, Noble became the ultimate parent of Noble Cayman and its respective subsidiaries. +On October 3, 2022 (the “Closing Date”), pursuant to the Business Combination Agreement, Noble completed a voluntary tender exchange offer to Maersk Drilling’s shareholders (the “Offer” and, together with the Merger and the other transactions contemplated by the Business Combination Agreement, the “Business Combination”) and because Noble acquired more than 90 % of the issued and outstanding shares of Maersk Drilling, nominal value Danish krone (“DKK”) 10 per share (“Maersk Drilling Shares”), Noble redeemed all remaining Maersk Drilling Shares not exchanged in the Offer for, at the election of the holder, either A ordinary shares, par value $ 0.00001 per share, of Noble (“Ordinary Shares”) or cash (or, for those holders that did not make an election, only cash), under Danish law by way of a compulsory purchase (the “Compulsory Purchase”), which was completed in early November 2022. Upon completion of the Compulsory Purchase Maersk Drilling became a wholly owned subsidiary of Noble. The Merger is accounted for as a business combination in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”), where Noble is the accounting acquirer. +On June 9, 2024, Noble entered into an agreement and plan of merger (the “Diamond Merger Agreement”) with Diamond Offshore Drilling, Inc. (“Diamond”), Dolphin Merger Sub 1, Inc., and Dolphin Merger Sub 2, Inc., under which Noble would acquire Diamond in a stock plus cash transaction (the “Diamond Transaction”). On September 4, 2024 (the “Diamond Closing Date”), Noble completed its acquisition of Diamond. The merger is accounted for as a business combination in accordance with FASB ASC Topic 805, where Noble is the accounting acquirer. +See “Note 2 — Acquisitions and Divestitures” for additional information. +As a result of the Merger, Noble became the successor issuer to Noble Cayman for purposes of and pursuant to the Securities Exchange Act of 1934, as amended (“the Exchange Act”). References in this Annual Report on Form 10-K to “Noble,” the “Company,” “we,” “us,” and “our” refer collectively to (i) Noble Cayman and its consolidated subsidiaries prior to the Merger Effective Date, (ii) Noble and its consolidated subsidiaries (including Noble Cayman) on and after the Merger Effective Date, and (iii) Noble and its consolidated subsidiaries on and after the Diamond Closing Date, as applicable. +Principles of Consolidation +The consolidated financial statements include our accounts and those of our wholly-owned subsidiaries and entities in which we hold a controlling financial interest. +Use of Estimates +The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount +61 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +of revenues and expenses during the reporting period. Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. We evaluate our estimates and assumptions on a regular basis. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions used in preparation of our consolidated financial statements. +Cash and Cash Equivalents +Cash and cash equivalents include cash on hand, demand deposits with banks, and all highly liquid investments with original maturities of three months or less. Our cash, cash equivalents, and short-term investments are subject to potential credit risk, and certain of our cash accounts carry balances greater than the federally insured limits. Cash and cash equivalents are primarily held by major banks or investment firms. Our cash management and investment policies restrict investments to lower risk, highly liquid securities and we perform periodic evaluations of the relative credit standing of the financial institutions with which we conduct business. +Restricted Cash +We classify restricted cash balances in current assets if the restriction is expected to expire or otherwise be resolved within one year and in other assets if the restriction is expected to expire or otherwise be resolved in more than one year. As of December 31, 2024 and 2023, our restricted cash balance consisted of $ 5.0 million and $ 7.0 million, respectively. All restricted cash is recorded in “Prepaid expenses and other current assets.” As of December 31, 2024, our restricted cash balance was related to cash collateral for Company rig performance guarantees and other performance obligations. +Accounts Receivable +We record accounts receivable at the amount we invoice our clients, net of allowance for credit losses. We provide an allowance for uncollectible accounts, as necessary. Our allowance for doubtful accounts was zero as of both December 31, 2024 and 2023. +Property and Equipment +Property and equipment is stated at cost, reduced by provisions to recognize economic impairment. Major replacements and improvements are capitalized. When assets are sold, retired, or otherwise disposed of, the cost and related accumulated depreciation are eliminated from the accounts and the gain or loss is recognized. Drilling equipment and facilities are depreciated using the straight-line method over their estimated useful lives as of the date placed in service or date of major refurbishment. Estimated useful lives of our drilling equipment range from three to 30 years. Other property and equipment is depreciated using the straight-line method over useful lives ranging from two to 40 years. +Interest is capitalized on long-term construction projects using the weighted average cost of debt outstanding during the period of construction. +Scheduled maintenance of equipment is performed based on the number of hours operated in accordance with our preventative maintenance program. Routine repair and maintenance costs are charged to expense as incurred; however, the costs of the overhauls and asset replacement projects that benefit future periods and which typically occur every three to five years are capitalized when incurred and depreciated over an equivalent period. These overhauls and asset replacement projects are included in “Drilling equipment and facilities” in “Note 5 — Property and Equipment.” +We evaluate our property and equipment for impairment whenever there are changes in facts that suggest that the value of the asset is not recoverable. As part of this analysis, we make assumptions and estimates regarding future market conditions. When circumstances indicate that the carrying value of the assets may not be recoverable, management compares the carrying value to the expected undiscounted pre-tax future cash flows for the associated rig for which identifiable cash flows are independent of cash flows of other assets. If the expected undiscounted pre-tax future cash flows are lower than the carrying value, the net capitalized costs are reduced to fair value. An impairment loss is recognized to the extent that an asset's carrying value exceeds its estimated fair value. Fair value is generally estimated using a discounted cash flow model. The expected future cash flows used for impairment assessment and related fair value measurements are typically based on judgmental assessments of, but are not limited to, timing of future contract awards and expected operating dayrates, operating costs, utilization rates, discount rates, capital expenditures, reactivation costs, estimated economic useful lives and, in certain cases, our belief that a drilling unit is no longer marketable and is unlikely to +62 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +return to service in the near to medium term, and considering all available information at the date of assessment. During the years ended December 31, 2024 and 2023, we did not identify any impairment triggers for our property and equipment. +Fair Value Measurements +We measure certain of our assets and liabilities based on a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three-level hierarchy, from highest to lowest level of observable inputs, are as follows: +Level 1 — Valuations based on quoted prices in active markets for identical assets; +Level 2 — Valuations based on observable inputs that do not meet the criteria for Level 1, including quoted prices in inactive markets and quoted prices in active markets for similar but not identical instruments; and +Level 3 — Valuations based on unobservable inputs. +Our cash and cash equivalents, restricted cash, accounts receivable, marketable securities, and accounts payable are by their nature short term. As a result, the carrying values included in our Consolidated Balance Sheets approximate fair value. +Business Combinations +In connection with our acquisitions, we apply the acquisition method of accounting. Accordingly, we record the acquired assets and assumed liabilities at fair value and recognize goodwill to the extent the consideration transferred exceeded the fair value of the net assets acquired. To the extent the fair value of the net assets acquired exceeded the consideration transferred, we recognize a bargain purchase gain. Changes in these judgments or estimates can have a material impact on the valuation of the respective assets and liabilities acquired and our results of operations in periods after acquisition. The allocation of the purchase price may be modified up to one year after the acquisition date as more information is obtained about the fair value of assets acquired and liabilities assumed. We estimate the fair values of the acquired assets and assumed liabilities as of the date of the acquisition. See “Note 2 — Acquisitions and Divestitures” for further information. +Revenue Recognition +The activities that primarily drive the revenue earned in our drilling contracts include (i) providing a drilling rig and the crew and supplies necessary to operate the rig, (ii) mobilizing and demobilizing the rig to and from the drill site, and (iii) performing rig preparation activities and/or modifications required for the contract. Consideration received for performing these activities may consist of dayrate drilling revenue, mobilization and demobilization revenue, contract preparation revenue, and reimbursement revenue. We account for these integrated services provided within our drilling contracts as a single performance obligation satisfied over time and comprised of a series of distinct time increments in which we provide drilling services. +Our standard drilling contracts require that we operate the rig at the direction of the customer throughout the contract term (which is the period we estimate to benefit from the corresponding activities and generally ranges from two to 60 months). The activities performed and the level of service provided can vary hour to hour. Our obligation under a standard contract is to provide whatever level of service is required by the operator, or customer, over the term of the contract. We are, therefore, under a stand-ready obligation throughout the entire contract duration. Consideration for our stand-ready obligation corresponds to distinct time increments, though the rate may be variable depending on various factors, and is recognized in the period in which the services are performed. The total transaction price is determined for each individual contract by estimating both fixed and variable consideration expected to be earned over the term of the contract. We have elected to exclude from the transaction price measurement all taxes assessed by a governmental authority. See further discussion regarding the allocation of the transaction price to the remaining performance obligations below. +The amount estimated for variable consideration may be subject to interrupted or restricted rates and is only included in the transaction price to the extent that it is probable that a significant reversal of previously recognized revenue will not occur throughout the term of the contract (“constrained revenue”). When determining if variable consideration should be constrained, management considers whether there are factors outside the Company’s control that could result in a significant reversal of revenue as well as the likelihood and magnitude of a potential reversal of revenue. These estimates are reassessed each reporting period as required. +Dayrate Drilling Revenue. Our drilling contracts generally provide for payment on a dayrate basis, with higher rates for periods when the drilling unit is operating and lower rates or zero rates for periods when drilling operations are interrupted or restricted. The dayrate invoices billed to the customer are typically determined based on the varying rates applicable to the specific activities performed on an hourly basis. Such dayrate consideration is allocated to the distinct hourly increment +63 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +it relates to within the contract term and, therefore, recognized in line with the contractual rate billed for the services provided for any given hour. +Mobilization/Demobilization Revenue. We may receive fees (on either a fixed lump-sum or variable dayrate basis) for the mobilization and demobilization of our rigs. These activities are not considered to be distinct within the context of the contract and, therefore, the associated revenue is allocated to the overall performance obligation and the associated pre-operating costs are deferred. We record a contract liability for mobilization fees received and a deferred asset for costs. Both revenue and pre-operating costs are recognized ratably over the initial term of the related drilling contract. +In most contracts, there is uncertainty as to the amount of expected demobilization revenue due to contractual provisions that stipulate that certain conditions must be present at contract completion for such revenue to be received and as to the amount thereof, if any. For example, contractual provisions may require that a rig demobilize a certain distance before the demobilization revenue is payable or the amount may vary dependent upon whether or not the rig has additional contracted work within a certain distance from the wellsite. Therefore, the estimate for such revenue may be constrained, as described earlier, depending on the facts and circumstances pertaining to the specific contract. We assess the likelihood of receiving such revenue based on past experience and knowledge of the market conditions. In cases where demobilization revenue is expected to be received upon contract completion, it is estimated as part of the overall transaction price at contract inception and recognized in earnings ratably over the initial term of the contract with an offset to an accretive contract asset. +Contract Preparation Revenue. Some of our drilling contracts require downtime before the start of the contract to prepare the rig to meet customer requirements. At times, we may be compensated by the customer for such work (on either a fixed lump-sum or variable dayrate basis). These activities are not considered to be distinct within the context of the contract and, therefore, the related revenue is allocated to the overall performance obligation and recognized ratably over the initial term of the related drilling contract. We record a contract liability for contract preparation fees received, which is amortized ratably to contract drilling revenue over the initial term of the related drilling contract. +Bonuses, Penalties, and Other Variable Consideration. We may receive bonus increases to revenue or penalty decreases to revenue. Based on historical data and ongoing communication with the operator/customer, we are able to reasonably estimate this variable consideration. We will record such estimated variable consideration and remeasure our estimates at each reporting date. +Capital Modification Revenue. From time to time, we may receive fees from our customers for capital improvements to our rigs to meet contractual requirements (on either a fixed lump-sum or variable dayrate basis). Such revenue is allocated to the overall performance obligation and recognized ratably over the initial term of the related drilling contract as these activities are integral to our drilling activities and are not considered to be a stand-alone service provided to the customer within the context of our contracts. We record a contract liability for such fees and recognize them ratably as contract drilling revenue over the term of the related drilling contract commencing when the asset is ready for its intended use. +Revenues Related to Reimbursable Expenses. We generally receive reimbursements from our customers for the purchase of supplies, equipment, personnel services, and other services provided at their request in accordance with a drilling contract or other agreement. Such reimbursable revenue is variable and subject to uncertainty, as the amounts received and timing thereof is highly dependent on factors outside of our influence. Accordingly, reimbursable revenue is constrained revenue and not included in the total transaction price until the uncertainty is resolved, which typically occurs when the related costs are incurred on behalf of a customer. We are generally considered a principal in such transactions and record the associated revenue at the gross amount billed to the customer as “Reimbursables and other” in our Consolidated Statements of Operations. Such amounts are recognized ratably over the period within the contract term during which the corresponding goods and services are to be consumed. +Deferred revenues from drilling contracts totaled $ 101.9 million and $ 43.1 million at December 31, 2024 and 2023, respectively. Such amounts are included in either “Other current liabilities” or “Other liabilities” in the accompanying Consolidated Balance Sheets, based upon our expected time of recognition. Related expenses deferred under drilling contracts totaled $ 37.1 million and $ 4.4 million at December 31, 2024 and 2023, respectively, and are included in either “Prepaid expenses and other current assets” or “Other assets” in the accompanying Consolidated Balance Sheets, based upon our expected time of recognition. +We record reimbursements from customers for “out-of-pocket” expenses as revenues and the related direct cost as operating expenses. +64 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Income Taxes +Income taxes are based on the laws and rates in effect in the countries in which operations are conducted or in which we or our subsidiaries are considered resident for income tax purposes. In certain circumstances, we expect that, due to changing demands of the offshore drilling markets and the ability to redeploy our offshore drilling units, certain of such units will not reside in a location long enough to give rise to future tax consequences. As a result, no deferred tax asset or liability has been recognized in these circumstances. Should our expectations change regarding the length of time an offshore drilling unit will be used in a given location, we will adjust deferred taxes accordingly. +Deferred tax assets and liabilities are recognized for the anticipated future tax effects of temporary differences between the financial statement basis and the tax basis of our assets and liabilities using the applicable jurisdictional tax rates at year end. A valuation allowance for deferred tax assets is recorded when it is more likely than not that the deferred tax asset will not be realized in a future period. +We operate through various subsidiaries in numerous countries throughout the world, including the United States. Consequently, we are subject to changes in tax laws, treaties, and regulations or the interpretation or enforcement thereof in the United States, UK, and any other jurisdictions in which we or any of our subsidiaries operate or are resident. Our income tax expense is based upon our interpretation of the tax laws in effect in various countries at the time that the expense was incurred. If the IRS or other taxing authorities do not agree with our assessment of the effects of such laws, treaties, and regulations, this could have a material adverse effect on us including the imposition of a higher effective tax rate on our worldwide earnings or a reclassification of the tax impact of our significant corporate restructuring transactions. The Company has adopted an accounting policy to look through the outside basis of partnerships and all other flow-through entities and exclude these from the computation of deferred taxes. +Insurance Recoveries +The Company maintains insurance coverage for personal injuries, property damage, and certain other losses sustained during operations. Recoveries from insurance are recorded when a loss has been recognized and realization is probable, and are measured at the lower of the loss recognized or the probable recovery. Timing differences may occur between the loss recognized, damage costs, capital expenditures made to repair or restore properties, and recognition and receipt of insurance proceeds reflected in the Company’s financial statements. Costs, as well as insurance recoveries, related to the Hurricane Ida event in 2021 are presented in “Hurricane losses and (recoveries), net” on the Consolidated Statements of Operations. See “Note 12 — Commitments and Contingencies” for additional information. +Claims Reserves +We maintain various levels of self-insured retention for certain losses including property damage, loss of hire, employment practices liability, employers’ liability, and general liability, among others. We accrue for property damage and loss of hire charges on a per event basis. +Employment practices liability claims are accrued based on actual claims during the year. Maritime employer’s liability claims are generally estimated using actuarial determinations. General liability claims are estimated by our internal claims department by evaluating the facts and circumstances of each claim (including incurred but not reported claims) and making estimates based upon historical experience with similar claims. At December 31, 2024, loss reserves for personal injury and protection claims totaled $ 164.1 million, of which $ 149.2 million was included in “Other current liabilities” and $ 14.9 million in “Other long-term liabilities” in the accompanying Consolidated Balance Sheets. At December 31, 2023, loss reserves for personal injury and protection claims totaled $ 63.9 million of which $ 21.9 million was included in “Other current liabilities” and $ 42.0 million in “Other long-term liabilities” in the accompanying Consolidated Balance Sheets. +Earnings per Share +Our unvested share-based payment awards, which contain non-forfeitable rights to dividends, are participating securities and are included in the computation of earnings per share pursuant to the two-class method. The two-class method allocates undistributed earnings between common shares and participating securities. The diluted earnings per share calculation under the two-class method also includes the dilutive effect of potential shares issued in connection with stock warrants and options. The dilutive effect of stock warrants and options is determined using the Treasury Stock Method. The diluted earnings per share calculation is adjusted for mandatory exercise, under the Treasury Stock Method, if the condition is met at the balance sheet date. At December 31, 2024 and 2023, the Mandatory Exercise Condition (as defined in the applicable warrant agreement) set forth in the warrant agreements for the Tranche 1 Warrants and the Tranche 2 Warrants was satisfied. See “Note 4 — Income (Loss) Per Share” for additional information. +65 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Share-Based Compensation Plans +We record the grant date fair value of share-based compensation arrangements as compensation cost using a straight-line method over the service period. Share-based compensation is expensed or capitalized based on the nature of the employee’s activities. The Company classified certain awards that will be settled in cash as liability awards. The fair value of a liability-classified award is determined on a quarterly basis beginning at the grant date until final vesting. Changes in the fair value of liability-classified awards are expensed or capitalized based on the nature of the employee’s activities over the vesting period of the award. +Litigation Contingencies +We are involved in legal proceedings, claims, and regulatory, tax, or government inquiries and investigations that arise in the ordinary course of business. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages. We record a liability when we believe that it is both probable that a loss has been incurred and the amount can be reasonably estimated. If we determine that a loss is reasonably possible and the loss or range of loss can be estimated, we disclose the possible loss in the notes to the consolidated financial statements. +We review the developments in our contingencies that could affect the amount of the provisions that has been previously recorded, and the matters and related possible losses disclosed. We make adjustments to our provisions and changes to our disclosures accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information. Significant judgment is required to determine both the probability and the estimated amount. +Foreign Currency +Although we are a UK company, our functional currency is the US dollar, and we define any non-US dollar denominated currency as “foreign currencies.” In non-US locations where the US dollar has been designated as the functional currency (based on an evaluation of factors including the markets in which the subsidiary operates, inflation, generation of cash flow, financing activities, and intercompany arrangements), local currency transaction gains and losses are included in net income or loss. +Derivative Financial Instruments +We have used foreign currency forward contracts and interest rate swaps in order to manage our exposure to fluctuations in currency exchange and interest rates, respectively. The contracts are not entered into for trading purposes. The Company has not designated these derivative instruments as hedges. We recognize the derivatives at fair value on the Consolidated Balance Sheets and, where applicable, such contracts covered by master netting agreements are reported net. Gross positive fair values are netted with gross negative fair values by counterparty. Realized gains and losses as well as changes in the fair values of derivative financial instruments are recognized in the income statement in “Interest income and other, net.” +Accounting Pronouncements +Accounting Standards Adopted. +In November 2023, the FASB issued ASU No. 2023-07 ("ASU 2023-07"), Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires, among other things, the following: (i) enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker and included in a segment's reported measure of profit or loss, (ii) disclosure of the amount and description of the composition of other segment items, as defined in ASU 2023-07, by reportable segment, and (iii) reporting the disclosures about each reportable segment's profit or loss and assets on an annual and interim basis. +Recently Issued Accounting Standards . +In November 2024, the FASB issued ASU No. 2024-04 ("ASU 2024-04"), Debt—Debt with Conversion and Other Options (Subtopic 470-20). The Board is issuing this Update to improve the relevance and consistency in application of the induced conversion guidance in Subtopic 470-20, Debt— Debt with Conversion and Other Options. When the terms of a convertible debt instrument are changed to induce conversion of the instrument, current generally accepted accounting principles (GAAP) provide guidance for determining whether the transaction should be accounted for as an induced conversion (as opposed to a debt extinguishment). The induced conversion guidance was written in the context of share-settled convertible debt before cash convertible instruments became prevalent in the marketplace. The Company continues to assess the potential impact of this pronouncement. +In November 2024, the FASB issued ASU No. 2024-03 ("ASU 2024-03"), Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The +66 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +amendments in this Update require disclosure, in the notes to financial statements, of specified information about certain costs and expenses. An entity is not precluded from providing additional voluntary disclosures that may provide investors with additional decision-useful information. The amendments in this Update are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company continues to assess the potential impact of this pronouncement. +In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-09 ("ASU 2023-09"), Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires, among other things, the following for public business entities: (i) enhanced disclosures of specific categories of reconciling items included in the rate reconciliation, as well as additional information for any of these items meeting certain qualitative and quantitative thresholds, (ii) disclosure of the nature, effect, and underlying causes of each individual reconciling item disclosed in the rate reconciliation and the judgment used in categorizing them if not otherwise evident, and (iii) enhanced disclosures for income taxes paid, which includes federal, state, and foreign taxes, as well as for individual jurisdictions over a certain quantitative threshold. The amendments in ASU 2023-09 eliminate the requirement to disclose the nature and estimate of the range of the reasonably possible change in unrecognized tax benefits for the 12 months after the balance sheet date. The provisions of ASU 2023-09 are effective for annual periods beginning after December 15, 2024; early adoption is permitted. The Company continues to evaluate the potential impact of this pronouncement. +Note 2 — Acquisitions and Divestitures +Business Combination with Diamond Offshore Drilling +On the Diamond Closing Date, Noble completed its acquisition of Diamond. Pursuant to the terms and conditions set forth in the Diamond Merger Agreement, Diamond shareholders received 0.2316 shares of Noble, plus cash consideration of $ 5.65 per share for each share of Diamond. +Purchase Price Allocation +The Diamond Transaction has been accounted for using the acquisition method of accounting under ASC Topic 805, Business Combinations, with Noble being treated as the accounting acquirer. Under the acquisition method of accounting, the assets acquired and liabilities assumed of Diamond and its subsidiaries were recorded at their respective fair values on the Diamond Closing Date. Total consideration for the acquisition was $ 1.5 billion, which included $ 610.3 million in cash paid and $ 879.9 million in non-cash consideration, primarily related to Ordinary shares issued to legacy Diamond shareholders and the replacement of legacy Diamond RSUs (as defined below). +Determining the fair values of the assets and liabilities of Diamond and the consideration paid required judgment and certain assumptions to be made. The most significant fair value estimates related to the valuation of Diamond’s mobile offshore drilling units and other related tangible assets, the fair value of drilling contracts, and debt. +Offshore drilling units. The valuation of Diamond’s mobile offshore drilling units was determined using the discounted cash flows expected to be generated from the drilling assets over their remaining useful lives. Assumptions used in our assessment included, but were not limited to, future marketability of each unit in light of the current market conditions and its current technical specifications, timing of future contract awards and expected operating dayrates, operating costs, rig utilization rates, tax rates, discount rate, capital expenditures, synergies, market values, estimated economic useful lives of the rigs and, in certain cases, our belief that a drilling unit is no longer marketable and is unlikely to return to service in the near to medium term. +Diamond off-market contracts . The Company recorded, with the assistance of external valuation specialists, liabilities from drilling contracts that had unfavorable terms compared to the current market which were recorded on the Diamond Closing Date. The Company recognized the fair value adjustments as off-market contract liabilities recorded in “Noncurrent contract liabilities.” +Diamond debt. In connection with the Diamond Transaction, the Company assumed the Diamond Second Lien Notes (as defined herein) in an outstanding principal debt amount of $ 550.0 million and terminated the Diamond Revolving Credit Facility in the principal amount of $ 300.0 million, which was scheduled to mature in April 2026. The valuation of the Diamond Second Lien Notes was based on relevant market data as of the Diamond Closing Date and the term of the Diamond Second Lien Notes. Considering that the interest rate and implied yield for the Diamond Second Lien Notes were within a range of comparable market yields (with considerations for term and seniority), a fair value adjustment was recorded relating to the Diamond Second Lien Notes. For additional information, see “Note 6 — Debt.” +67 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +The following table represents the allocation of the total purchase price of Diamond to the identifiable assets acquired and the liabilities assumed based on the fair values as of the Diamond Closing Date. In connection with this acquisition, the Company incurred $ 84.5 million of acquisition related costs during the year ended December 31, 2024. The results of Diamond operations were included in the Company’s results of operations effective on the Diamond Closing Date. Upon completion of our assessment as of December 31, 2024, the Company concluded that no goodwill nor gain on bargain purchase should be recorded as appropriate under US GAAP. +Purchase price consideration: +Fair value of Ordinary Shares transferred to legacy Diamond shareholders +$ 857,678 +Fair value of replacement Diamond RSU Awards attributable to the purchase price 22,263 +Cash paid to legacy Diamond shareholders 583,152 +Cash paid to terminate the Diamond Revolving Credit Facility +308 +Cash paid to settle contingent success fees 17,316 +Cash paid for retention bonuses 4,422 +Cash paid for short-term incentive plans 5,086 +Total purchase price consideration $ 1,490,225 +Assets acquired: +Cash and cash equivalents $ 193,243 +Accounts receivable, net 193,194 +Taxes receivable 6,971 +Prepaid expenses and other current assets 69,781 +Total current assets 463,189 +Property and equipment, net +1,817,986 +Assets held for sale (1) +5,300 +Other assets 193,289 +Total assets acquired 2,479,764 +Liabilities assumed: +Accounts payable 82,805 +Accrued payroll and related costs 36,791 +Taxes payable 3,699 +Interest payable 19,750 +Other current liabilities 137,788 +Total current liabilities 280,833 +Long-term debt 580,250 +Deferred income taxes 184 +Noncurrent contract liabilities 27,663 +Other liabilities 100,609 +Total liabilities assumed 989,539 +Net assets acquired $ 1,490,225 +(1) During the third quarter of 2024, we sold the Ocean Valiant for total proceeds of $ 5.6 million. See “Note 5 — Property and Equipment.” +68 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Diamond Revenue and Net Income +The following table represents Diamond’s revenue and earnings included in Noble’s Consolidated Statements of Operations subsequent to the Diamond Closing Date of the Diamond Transaction. +Period from +September 4, 2024 +through +December 31, 2024 +Revenue $ 336,542 +Net income (loss) $ 24,431 +Pro Forma Financial Information +The following unaudited pro forma summary presents the results of operations as if the Diamond Transaction had occurred on January 1, 2023. The pro forma summary uses estimates and assumptions based on information available at the time. Management believes the estimates and assumptions to be reasonable; however, actual results may have differed significantly from this pro forma financial information. The pro forma information does not reflect any synergy savings that might have been achieved from combining the operations and is not intended to reflect the actual results that would have occurred had the companies actually been combined during the periods presented. +Twelve Months Ended December 31, 2024 Twelve Months Ended December 31, 2023 +Revenue $ 3,081,879 $ 3,672,860 +Net income (loss) $ 375,402 $ 358,549 +Net income (loss) per share: +Basic $ 2.26 $ 2.21 +Diluted $ 2.19 $ 2.09 +The pro forma results include, among others, (i) an increase to Diamond’s historically reported depreciation expense related to adjustments of property and equipment values, (ii) adjustments to reflect certain acquisition related costs incurred directly in connection with the Diamond Transaction as if it had occurred on January 1, 2023, and (iii) net adjustments to increase contract drilling services revenue related to off-market customer contract liabilities recognized in connection with the Diamond Transaction on a pro forma basis. +Business Combination with Maersk Drilling +On the Merger Effective Date, pursuant to the Business Combination Agreement, Noble Cayman merged with and into Merger Sub, with Merger Sub surviving the Merger as a wholly owned subsidiary of Noble, and (i) each Noble Cayman Share issued and outstanding prior to the effective time of the Merger (the “Merger Effective Time”) was converted into one newly and validly issued, fully paid, and non-assessable Ordinary Share of Noble and (ii) each Noble Cayman Warrant (as defined herein) issued and outstanding immediately prior to the Merger Effective Time was converted automatically into a warrant to acquire a number of Ordinary Shares equal to the number of Noble Cayman Shares underlying such warrant, with the same terms as were in effect immediately prior to the Merger Effective Time under the terms of the applicable Noble Cayman Warrant Agreement (as defined herein) (collectively, the “Warrants”). In addition, each award of restricted share units representing the right to receive Noble Cayman Shares, or value based on the value of Noble Cayman Shares (each, a “Noble Cayman RSU Award”), outstanding immediately prior to the Merger Effective Time ceased to represent a right to acquire Noble Cayman Shares (or value equivalent to Noble Cayman Shares) and was converted into the right to acquire, on the same terms and conditions as were applicable under the Noble Cayman RSU Award (including any vesting conditions), that number of Ordinary Shares equal to the number of Noble Cayman Shares subject to such Noble Cayman RSU Award immediately prior to the Merger Effective Time. As a result of the Merger, Noble became the ultimate parent of Noble Cayman and its respective subsidiaries effective as of the Merger Effective Time. +On the Closing Date, pursuant to the Business Combination Agreement, Noble completed the Offer and because Noble acquired more than 90 % of the issued and outstanding Maersk Drilling Shares, Noble redeemed all remaining Maersk Drilling Shares not exchanged in the Offer for, at the election of the holder, either Ordinary Shares or cash (or, for those holders that do not make an election, only cash), under Danish law by way of the Compulsory Purchase. The Compulsory Purchase was completed in early November 2022, at which time Maersk Drilling became a wholly owned subsidiary of +69 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Noble. After the close of the Business Combination, Maersk Drilling was contributed by Noble to Noble Finance Company, an exempted company incorporated in the Cayman Islands with limited liability (“Finco”), in a common control transaction. +In connection with the Offer and the Compulsory Purchase, each Maersk Drilling Share was exchanged for either (i) 1.6137 newly and validly issued, fully paid and non-assessable Ordinary Shares (the “Exchange Ratio”) or (ii) cash consideration (payable in DKK). The Offer was subject to a cash consideration cap per Maersk Drilling shareholder of $ 1,000 and an aggregate cap on cash consideration payable to all Maersk Drilling shareholders of $ 50 million. Consequently, in relation to the Offer, Maersk Drilling shareholders who elected to receive cash consideration in the Offer received, as applicable, (i) $ 1,000 for the applicable portion of their Maersk Drilling Shares and the balance of Maersk Drilling Shares in Ordinary Shares in accordance with the Exchange Ratio or (ii) the amount corresponding to the total holding of their Maersk Drilling Shares if such holding of Maersk Drilling Shares represented a value equal to or less than $ 1,000 in the aggregate. The Compulsory Purchase was not subject to a cash consideration cap per holder or an aggregate cap for cash consideration. +In addition, each Maersk Drilling restricted stock unit award (a “Maersk Drilling RSU Award”) that was outstanding immediately prior to the acceptance time of the Offer (the “Acceptance Time”) was exchanged, at the Acceptance Time, with the right to receive, on the same terms and conditions as were applicable under the Maersk Drilling RSU Long-Term Incentive Programme for Executive Management 2019 and the Maersk Drilling RSU Long-Term Incentive Programme 2019 (including any vesting conditions), that number of Ordinary Shares equal to the product of (i) the number of Maersk Drilling Shares subject to such Maersk Drilling RSU Award immediately prior to the Acceptance Time and (ii) the Exchange Ratio, with any fractional Maersk Drilling Shares rounded to the nearest whole share. Upon such exchange, Maersk Drilling RSU Awards ceased to represent a right to receive Maersk Drilling Shares (or value equivalent to Maersk Drilling Shares). +In September 2021, eligible Maersk Drilling employees signed an addendum to their existing service agreements that provides for enhanced severance terms in the event of termination as well as a retention bonus (“Deal Completion Bonus”) to be paid irrespective of termination if a transaction with Noble were to close (the “Retention Addendum”). The Retention Addendum was entered into on September 20, 2021. The Deal Completion Bonus was paid on October 3, 2022, for five Maersk executives terminated immediately upon close and on October 31, 2022, for all other eligible individuals. +Purchase Price Allocation +The Business Combination has been accounted for using the acquisition method of accounting under ASC Topic 805, Business Combination, with Noble being treated as the accounting acquirer. Under the acquisition method of accounting, the assets and liabilities of Maersk Drilling and its subsidiaries were recorded at their respective fair values on the Closing Date. Total consideration for the acquisition was $ 2.0 billion, which included $ 5.6 million in net cash paid and $ 2.0 billion in non-cash consideration, primarily related to Ordinary Shares issued to legacy Maersk shareholders and the replacement of legacy Maersk Drilling RSU Awards. +Determining the fair values of the assets and liabilities of Maersk Drilling and the consideration paid required judgment and certain assumptions to be made. The most significant fair value estimates related to the valuation of Maersk Drilling’s mobile offshore drilling units and other related tangible assets and the fair value of drilling contracts and other intangibles. +Offshore Drilling Units. The valuation of Maersk Drilling’s mobile offshore drilling units was determined using either (i) the discounted cash flows expected to be generated from the drilling assets over their remaining useful lives or (ii) the cost to replace the drilling assets as adjusted by the current market for similar offshore drilling assets. Assumptions used in our assessment included, but were not limited to, future marketability of each unit in light of the current market conditions and its current technical specifications, timing of future contract awards and expected operating dayrates, operating costs, rig utilization rates, tax rates, discount rate, capital expenditures, synergies, market values, estimated economic useful lives of the rigs and, in certain cases, our belief that a drilling unit is no longer marketable and is unlikely to return to service in the near to medium term. +Compulsory Purchase. Noble redeemed all of the remaining 4.1 million shares of Maersk Drilling Shares not exchanged in the Offer for, at the election of the holder, either Ordinary Shares or cash (or, for those holders that did not make an election, only cash), as required under Danish law by way of the Compulsory Purchase. The Company recognized the Compulsory Purchase as a redeemable interest at fair value upon the closing of the Business Combination. The Company determined that the fair value of the Compulsory Purchase was $ 193.7 million utilizing inputs which included Noble share price and cash redemption amount as of the Closing Date. The Compulsory Purchase interest was derecognized in mid-November 2022, with a portion being offset to common stock when 4.1 million Ordinary Shares were issued, additional paid in capital of $ 123.8 million and the remainder being the amount paid in cash of $ 69.9 million. +70 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Maersk Drilling Debt. On December 22, 2022, Maersk Drilling, as borrower, Noble Corporation plc, as parent guarantor, certain subsidiaries of Maersk Drilling party thereto, as guarantors, entered into a term loan (the “DNB Credit Facility”) under a term facility agreement, dated as of December 22, 2022 (as amended or otherwise modified from time to time), with DNB Bank ASA, New York Branch, as agent and security agent, and the other lenders party thereto. In connection with the Business Combination, the Company guaranteed the DNB Credit Facility and the DSF Credit Facility. The DSF Credit Facility had a floating interest rate that fluctuated based on market rates, thus fair value approximated the carrying amount. On February 23, 2023, the remaining amount under the DSF Credit Facility was paid in full using cash on hand. On April 18, 2023, we repaid all outstanding borrowings under the DNB Credit Facility. For additional information on the credit facilities see “Note 6 — Debt.” +Maersk Drilling Off-market Contracts . The Company recorded, with the assistance of external valuation specialists, intangible assets and liabilities from drilling contracts that had favorable and unfavorable terms compared to the current market which were recorded on the Closing Date. The Company recognized the fair value adjustments as off-market contract assets and liabilities recorded in “Intangible assets” and “Noncurrent contract liabilities,” respectively. +The following table represents the allocation of the total purchase price of Maersk Drilling to the identifiable assets acquired and the liabilities assumed based on the fair values as of the Closing Date. In connection with this acquisition, the Company incurred $ 24.9 million, $ 34.1 million, and $ 33.1 million of acquisition related costs during the years ended December 31, 2024, 2023, and 2022, respectively. The results of Maersk Drilling operations were included in the Company’s results of operations effective on the Closing Date. The Business Combination resulted in a gain on bargain purchase due to the estimated fair value of the identifiable net assets acquired exceeding the purchase consideration transferred by $ 5.0 million and is shown as a gain on bargain purchase on Noble’s Consolidated Statement of Operations. Management reviewed the Maersk Drilling assets acquired and liabilities assumed as well as the assumptions utilized in estimating their fair values. Upon completion of our assessment as of September 30, 2023, the Company concluded that recording a gain on bargain purchase was appropriate and required under US GAAP. +71 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Purchase price consideration: +Fair value of Ordinary Shares transferred to legacy Maersk shareholders +$ 1,793,351 +Cash paid to legacy Maersk shareholders 887 +Fair value of replacement Maersk Drilling RSU Awards attributable to the purchase price 6,780 +Deal Completion Bonus 6,177 +Fair Value of Compulsory Purchase 193,678 +Total purchase price consideration $ 2,000,873 +Assets acquired: +Cash and cash equivalents $ 172,205 +Accounts receivable, net 250,251 +Taxes receivable (1) +18,987 +Prepaid expenses and other current assets (1) +43,168 +Total current assets 484,611 +Intangible assets 22,991 +Property, plant, and equipment, net 2,756,096 +Other assets (1) +94,882 +Total assets acquired 3,358,580 +Liabilities assumed: +Current maturities of long-term debt 129,130 +Accounts payable 130,273 +Accrued payroll and related costs (1) +23,884 +Taxes payable (1) +29,219 +Interest payable 800 +Other current liabilities (1) +44,253 +Total current liabilities 357,559 +Long-term debt 596,692 +Deferred income taxes 4,071 +Noncurrent contract liabilities 237,703 +Other liabilities (1) +156,677 +Total liabilities assumed 1,352,702 +Net assets acquired 2,005,878 +Gain on bargain purchase (1) +( 5,005 ) +Purchase price consideration $ 2,000,873 +(1) During the nine months ended September 30, 2023, the Company recorded tax adjustments, which resulted in a net decrease in current taxes receivable and current taxes payable of $ 1.6 million and $ 9.0 million, respectively, a net increase in deferred tax assets of $ 25.2 million, a net increase in other current liabilities of $ 3.0 million, a net increase in reserves for uncertain tax positions of $ 13.1 million, and a net decrease in other tax liabilities of $ 14.6 million. Other adjustments were made to remeasure certain payroll tax related balances. As a result of the aforementioned adjustments, initial goodwill recognized on the purchase was revised to a gain on bargain purchase. +72 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Maersk Drilling Revenue and Net Income +The following table represents Maersk Drilling’s revenue and earnings included in Noble’s Consolidated Statements of Operations subsequent to the Closing Date of the Business Combination. +Period from October 3, 2022, through December 31, 2022 +Revenue $ 341,490 +Net loss $ 21,690 +Pro Forma Financial Information +The following unaudited pro forma summary presents the results of operations as if the Business Combination had occurred on February 6, 2021. The pro forma summary uses estimates and assumptions based on information available at the time. Management believes the estimates and assumptions to be reasonable; however, actual results may have differed significantly from this pro forma financial information. The pro forma information does not reflect any synergy savings that might have been achieved from combining the operations and is not intended to reflect the actual results that would have occurred had the companies actually been combined during the periods presented. +Twelve Months Ended December 31, 2022 +Revenue $ 2,218,117 +Net income (loss) +$ ( 19,246 ) +Net income (loss) per share +Basic $ ( 0.14 ) +Diluted $ ( 0.14 ) +The pro forma results include, among others, (i) a reduction to Maersk Drilling’s historically reported depreciation expense related to adjustments of property and equipment values, (ii) adjustments to reflect certain acquisition related costs incurred directly in connection with the Business Combination as if it had occurred on February 6, 2021, (iii) an adjustment to reflect the gain on sale as if the Rig Transaction (discussed below) had occurred on February 6, 2021, and (iv) net adjustments to increase contract drilling services revenue related to off-market customer contract assets and liabilities recognized in connection with the Business Combination with Maersk Drilling on a pro forma basis. +Rig Transaction +On June 23, 2022, Noble and Shelf Drilling (North Sea), Ltd. and Shelf Drilling, Ltd. (together “Shelf Drilling”) entered into the sale by Noble and the purchase by Shelf Drilling of five jackup rigs known as the Noble Hans Deul , Noble Houston Colbert , Noble Lloyd Noble , Noble Sam Hartley , and Noble Sam Turner and all related support and infrastructure (collectively, and together with the related offshore and onshore personnel and related operations, the “Divestment Business”). On October 5, 2022, Noble and Shelf Drilling completed the sale (the “Rig Transaction”) as part of the Business Combination. The Rig Transaction addressed the potential concerns identified by the UK Competition and Markets Authority of the Business Combination and was approved by them in September 2022. +In connection with the Rig Transaction, the Divestment Business was transferred by Noble to Shelf Drilling for a purchase price of $ 375 million in cash which resulted in a gain of $ 85.1 million. As of the date of the Rig Transaction, Shelf Drilling gained control of the Noble Lloyd Noble . For a transition period following the completion of the Rig Transaction, Noble agreed to continue to operate the Noble Lloyd Noble under operating agreements with Shelf Drilling (the “NLN Charter Agreement”) and to provide certain other transition services to Shelf Drilling. Under the operating agreements, we agreed to remit the collections from our customers under the associated drilling contracts to Shelf Drilling, and Shelf Drilling agreed to reimburse us for our direct costs and expenses incurred while operating the Noble Lloyd Noble on behalf of Shelf Drilling (with certain exceptions). As of December 31, 2023, the NLN Charter Agreement is closed and the Noble Lloyd Noble is no longer operated by Noble. +73 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Note 3 — Merger and Integration Costs +During the years ended December 31, 2024, 2023, and 2022, the Company incurred $ 109.4 million, $ 60.3 million, and $ 84.7 million, respectively, of merger and integration costs directly attributable to its merger and integration activities associated with the business combinations with Diamond Offshore and Maersk Drilling. Merger and integration costs consisted primarily of transaction-related acquisition costs, costs related to integration activities, severance costs, retention costs, professional fees, and other costs such as share-based compensation charges that are directly attributable to these activities. All merger and integration costs were expensed as incurred and recorded under “Merger and integration costs.” +Most merger and integration costs do not qualify for special accounting treatment as exit or disposal activities; however, during the year ended December 31, 2024, the Company incurred $ 4.1 million related to certain employee compensation that qualifies as exit or disposal activities. During the year ended December 31, 2022, the Company incurred $ 0.8 million related to certain employee compensation that qualifies as exit or disposal activities. +In connection with these activities, Noble has incurred various costs associated with contractual termination benefits, including severance, accelerated vesting of share-based compensation and other expenses. These termination benefits have been accounted for under ASC 712, “Compensation - Nonretirement Post-Employment Benefits” and ASC 718, “Compensation - Stock Compensation.” +Note 4 — Income (Loss) Per Share +The following table presents the computation of basic and diluted earnings per share: +Year Ended Year Ended Year Ended +December 31, 2024 December 31, 2023 December 31, 2022 +Numerator: +Net income (loss) $ 448,353 $ 481,902 $ 168,948 +Denominator: +Weighted average shares outstanding — basic 148,733 138,380 85,055 +Dilutive effect of share-based awards 1,512 3,158 3,334 +Dilutive effect of warrants 1,394 3,659 8,489 +Dilutive effect of compulsory purchase (1) +— — 729 +Weighted average shares outstanding — diluted 151,639 145,197 97,607 +Per share data: +Basic +Net income (loss) $ 3.01 $ 3.48 $ 1.99 +Diluted +Net income (loss) $ 2.96 $ 3.32 $ 1.73 +(1) Represents the dilutive effect on outstanding shares between when the Compulsory Purchase interest was recorded on the Closing Date and when it was derecognized in mid-November 2022. +74 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Only those items having a dilutive impact on our basic income per share are included in diluted income per share. The following table displays the share-based instruments that have been excluded from diluted income per share since the effect would have been anti-dilutive: +Year Ended Year Ended Year Ended +December 31, 2024 December 31, 2023 December 31, 2022 +Warrants (1) +2,774 2,774 2,774 +(1) Represents the total number of warrants outstanding which did not have a dilutive effect. In periods where the warrants are determined to be dilutive, the number of shares which will be included in the computation of diluted shares is determined using the Treasury Stock Method, adjusted for mandatory exercise provisions under the warrant agreements if applicable. +Note 5 — Property and Equipment +Property and equipment, at cost, for Noble consisted of the following: +December 31, +2024 2023 +Drilling equipment and facilities $ 6,650,034 $ 4,338,229 +Construction in progress 197,789 210,759 +Other 56,908 42,948 +Property and equipment, at cost $ 6,904,731 $ 4,591,936 +Capital additions, including capitalized interest, during the years ended December 31, 2024, 2023, and 2022 totaled $ 520.3 million, $ 454.3 million, and $ 193.6 million, respectively. +During 2024, we sold the Noble Explorer for total proceeds of $ 25.0 million, $ 21.5 million of which was received in the fourth quarter of 2023, resulting in a pre-tax gain of $ 17.4 million. Also, during 2024, we sold the Ocean Valiant and the Ocean Onyx for total proceeds of $ 5.6 million and $ 5.2 million, respectively. +During 2022, we sold the Divestment Business as part of the Rig Transaction for total net proceeds of $ 366.8 million, resulting in a gain of $ 85.1 million, and the Noble Clyde Boudreaux for total net proceeds of $ 14.2 million, resulting in a gain of $ 6.8 million. +Note 6 — Debt +Amended and Restated Senior Secured Revolving Credit Agreement +In April 2023, Noble entered into the Amended and Restated Senior Secured Revolving Credit Agreement, dated as of April 18, 2023, and as amended on June 24, 2024 (the “2023 Revolving Credit Agreement”), by and among Noble Finance II LLC (“Noble Finance II”), Noble International Finance Company, Noble Drilling A/S, and certain additional subsidiaries of Noble Finance II as from time to time designated by Noble Finance II, as borrowers, the lenders and issuing banks party thereto from time to time, and JPMorgan Chase Bank, N.A., as administrative agent, collateral agent, and security trustee. The revolving credit facility under the Revolving Credit Agreement (the “2023 Revolving Credit Facility”) provides for commitments of $ 550.0 million with maturity in 2028. The guarantors (the “Guarantors”) under the 2023 Revolving Credit Facility are the same subsidiaries of Noble Finance II that are or will be guarantors of the 2030 Notes (as defined below). As of December 31, 2024, we had no borrowings outstanding and $ 24.8 million of letters of credit issued under the 2023 Revolving Credit Agreement. +All obligations of the Borrowers under the 2023 Revolving Credit Agreement, certain cash management obligations, certain letter of credit obligations and certain swap obligations are unconditionally guaranteed, on a joint and several basis, by Noble Finance II and certain of its direct and indirect subsidiaries (together with the Borrowers, the “Credit Parties”), including a guarantee by each Borrower of the obligations of each other Borrower under the 2023 Revolving Credit Agreement. All such obligations, including the guarantees of the 2023 Revolving Credit Facility, are secured by senior priority liens on substantially all assets of, and the equity interests in, each Credit Party, including substantially all rigs owned by subsidiaries of Noble as of the date of the 2023 Revolving Credit Agreement, along with certain other rigs in the future such +75 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +that collateral rigs shall generate at least 80 % of the total revenue of all rigs owned by Noble Finance II and its restricted subsidiaries and the ratio of the aggregate rig value of the collateral rigs to the commitments under the 2023 Revolving Credit Facility is at least 5.00 to 1.00, in each case, subject to certain exceptions and limitations described in the 2023 Revolving Credit Agreement. +The loans outstanding under the 2023 Revolving Credit Facility bear interest at a rate per annum equal to the applicable margin plus, at Noble Finance II’s option, either: (i) the Term SOFR Rate (as defined in the 2023 Revolving Credit Agreement) plus 0.10 % (subject to a 0.00 % floor); or (ii) a base rate, determined as the greatest of (x) the prime loan rate as published in the Wall Street Journal, (y) the NYFRB Rate (as defined in the 2023 Revolving Credit Agreement) plus 1/2 of 1%, and (z) the one-month Term SOFR Rate plus 0.10 % (subject to a 0.00 % floor) plus 1 %. The applicable margin is initially 2.75 % per annum for Term SOFR Rate loans and 1.75 % per annum for base rate loans and will range based on the Consolidated Total Net Leverage Ratio (as defined in the 2023 Revolving Credit Agreement, which allows for certain cash netting depending on the amount of loans and letters of credit outstanding under the 2023 Revolving Credit Facility at the time of calculation), from 2.75 % per annum to 3.75 % per annum for Term SOFR Rate loans and 1.75 % per annum to 2.75 % per annum for base rate loans. The Borrowers are required to pay interest on (i) overdue principal at the rate equal to 2.00 % per annum in excess of the applicable interest rate under the 2023 Revolving Credit Facility, to the extent lawful, and (ii) overdue installments of interest, if any, without regard to any applicable grace period, at 2 % in excess of the interest rate applicable to base rate loans, to the extent lawful. +The Borrowers are required to pay a quarterly commitment fee to each lender under the 2023 Revolving Credit Facility, which accrues at a rate per annum equal to (i) during the period from and including the effective date of the 2023 Revolving Credit Agreement to and including the third anniversary of the effective date of the 2023 Revolving Credit Agreement, 0.50 % on the average daily unused portion of each lender’s commitments under the 2023 Revolving Credit Facility, (ii) during the period from the third anniversary of the effective date of the 2023 Revolving Credit Agreement to and including the fourth anniversary of the effective date of the 2023 Revolving Credit Agreement, 0.75 % on the average daily unused portion of each lender’s commitments under the 2023 Revolving Credit Facility, and (iii) thereafter, 1.00 % on the average daily unused portion of each lender’s commitments under the 2023 Revolving Credit Facility. The Borrowers are also required to pay customary letter of credit and fronting fees. +Borrowings under the 2023 Revolving Credit Agreement may be used for working capital and other general corporate purposes. Availability of borrowings under the 2023 Revolving Credit Facility is subject to the satisfaction of certain conditions, including that, after giving effect to any such borrowings and the application of the proceeds thereof, the aggregate amount of Available Cash (as defined in the 2023 Revolving Credit Agreement) would not exceed $ 250.0 million. +Mandatory prepayments and, under certain circumstances, commitment reductions are required under the 2023 Revolving Credit Facility in connection with certain asset sales (subject to reinvestment rights if no event of default exists). Available cash in excess of $ 250.0 million at the end of any month is also required to be applied to prepay loans (without a commitment reduction). The loans under the 2023 Revolving Credit Facility may be voluntarily prepaid, and the commitments thereunder voluntarily terminated or reduced, by the Borrowers at any time without premium or penalty, other than customary breakage costs. +The 2023 Revolving Credit Agreement obligates Noble Finance II to comply with the following financial covenants: +• as of the last day of each fiscal quarter, the Interest Coverage Ratio (as defined in the 2023 Revolving Credit Agreement) is not permitted to be less than 2.50 to 1.00; and +• as of the last day of each fiscal quarter, the Consolidated Total Net Leverage Ratio is not permitted to be greater than 3.00 to 1.00. +The 2023 Revolving Credit Agreement contains other affirmative and negative covenants, representations and warranties and events of default that Noble views as customary for a financing of this type. The occurrence of any event of default under the 2023 Revolving Credit Agreement would permit all obligations under the 2023 Revolving Credit Facility to be declared due and payable immediately and all commitments thereunder to be terminated. +8.000 % Senior Notes due 2030 +On April 18, 2023, Noble Finance II, a wholly owned subsidiary of Noble, issued the $ 600.0 million in aggregate principal amount of its 8.000 % Senior Notes due 2030 (the “Initial 2030 Notes”). On August 22, 2024, Noble Finance II issued an additional $ 800.0 million in aggregate principal amount of its 8.000 % Senior Notes due 2030 (the “Additional 2030 Notes” +76 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +and, together with the Initial 2030 Notes, the “2030 Notes”) at a premium of 103 % bringing the total outstanding principal amount to $ 1.4 billion. The 2030 Notes were issued pursuant to an indenture, dated as of April 18, 2023 (as supplemented or otherwise modified from time to time, the “Noble Indenture”), among Noble Finance II, the subsidiaries of Noble Finance II party thereto, as guarantors, and U.S. Bank Trust Company, National Association, as trustee, paying agent, and registrar. +The 2030 Notes are unconditionally guaranteed on a senior unsecured basis by the Guarantors and will be unconditionally guaranteed on the same basis by certain of Noble Finance II’s future subsidiaries that guarantee certain indebtedness of Noble Finance II and the Guarantors, including the 2023 Revolving Credit Facility. +The 2030 Notes will mature on April 15, 2030, and interest on the 2030 Notes is payable semi-annually in arrears on each April 15 and October 15, commencing October 15, 2023, to holders of record on the April 1 and October 1 immediately preceding the related interest payment date, at a rate of 8.000 % per annum. +At any time prior to April 15, 2026, Noble Finance II may, from time to time, redeem up to 40 % of the aggregate principal amount of 2030 Notes at a redemption price of 108 % of the principal amount of the 2030 Notes redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the redemption date), in an amount not greater than the net cash proceeds of one or more equity offerings by Noble Finance II, subject to certain requirements. In addition, prior to April 15, 2026, Noble Finance II may redeem the 2030 Notes at a redemption price equal to 100 % of the principal amount of the 2030 Notes redeemed, plus an applicable make-whole premium and accrued and unpaid interest, if any, to, but excluding, the redemption date. At any time on or after April 15, 2026, Noble Finance II may redeem all or part of the 2030 Notes at fixed redemption prices (expressed as percentages of the principal amount) beginning at 104.00 % and decreasing thereafter, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. +If a Change of Control Triggering Event (as defined in the Noble Indenture) occurs, each holder of 2030 Notes may require Noble Finance II to repurchase all or any part of that holder’s 2030 Notes for cash at a price equal to 101 % of the aggregate principal amount of the 2030 Notes repurchased, plus any accrued and unpaid interest thereon, if any, to, but excluding, the date on which the 2030 Notes are repurchased (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date). +The Noble Indenture contains customary covenants and events of default. +Diamond Second Lien Notes due 2030 +On September 21, 2023, Diamond Foreign Asset Company and Diamond Finance, LLC (collectively referred to as the “Issuers”) issued $ 550.0 million aggregate principal amount of 8.500 % Senior Secured Second Lien Notes due October 2030 (the “Diamond Second Lien Notes”) with interest payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 1, 2024. The Diamond Second Lien Notes are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by Noble Offshore Drilling, Inc. (formerly known as Dolphin Merger Sub 2, Inc. and as successor by merger with Diamond Offshore Drilling, Inc.) (“NODI”) and each of its existing restricted subsidiaries (other than the Issuers) and by certain of NODI’s future restricted subsidiaries. +The Diamond Second Lien Notes obligate NODI and its subsidiaries to comply with an indenture dated as of September 21, 2023 (as supplemented and otherwise modified from time to time, the “Diamond Second Lien Indenture”), among the Issuers, NODI, certain of its subsidiaries party thereto, as guarantors, and HSBC Bank USA, National Association, as trustee and collateral agent. The Diamond Second Lien Indenture contains covenants that, among other things, restrict NODI’s ability and the ability of certain of its subsidiaries to: (i) incur additional debt and issue certain preferred stock; (ii) incur or create liens; (iii) make certain dividends, distributions, investments, and other restricted payments; (iv) sell or otherwise dispose of certain assets; (v) engage in certain transactions with affiliates; and (vi) merge, consolidate, amalgamate, or sell, transfer, lease, or otherwise dispose of all, or substantially all, of the assets of NODI and such subsidiaries taken as a whole. These covenants are subject to important exceptions and qualifications. +Noble Second Lien Notes +On April 18, 2023, we redeemed the remaining balance of approximately $ 173.7 million aggregate principal amount of outstanding notes using a portion of the proceeds from the offering of the Initial 2030 Notes, and recognized a loss of approximately $ 25.7 million. +77 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Diamond Credit Agreement +On September 4, 2024, in connection with the closing of the Diamond Transaction, Noble terminated Diamond’s $ 300.0 million senior secured revolving credit facility under the Diamond Credit Agreement. The revolving commitments under the Diamond Credit Agreement were scheduled to mature on April 22, 2026. At the time of the Diamond Transaction and the termination of the commitments under the Diamond Credit Agreement, Diamond had no outstanding borrowings under the Diamond Credit Agreement. +DNB Credit Facility and New DNB Credit Facility +Upon the Closing Date, Noble guaranteed the DNB Credit Facility and on December 22, 2022, it was terminated and replaced with the New DNB Credit Facility (“New DNB Credit Facility”). On April 18, 2023, we repaid the $ 347.5 million of outstanding borrowings under the New DNB Credit Facility using a portion of the proceeds from the offering of the 2030 Notes, and recognized a loss of approximately $ 0.7 million. +DSF Credit Facility +The Company guaranteed a term loan (the “DSF Credit Facility”) under a term loan facility agreement, dated as of December 10, 2018 (as amended or otherwise modified from time to time), among Maersk Drilling Holding A/S, Maersk Drilling A/S, the subsidiaries of Maersk Drilling Holding A/S, and Danmarks Skibskredit A/S, as original lender, agent, and security agent, in connection with the Business Combination with Maersk Drilling that closed on October 3, 2022. The DSF Credit Facility was repaid in full and terminated on February 23, 2023, using cash on hand. +Debt Open Market Repurchases +In the third and fourth quarter of 2022, we purchased $ 42.3 million aggregate principal amount of our Second Lien Notes for approximately $ 48.1 million, plus accrued interest, as open market repurchases and recognized a loss of approximately $ 4.6 million. +Guarantees of Indebtedness +On the Closing Date of the Business Combination with Maersk Drilling, Noble guaranteed all of the obligations of Maersk Drilling and certain of its subsidiaries under the DNB Credit Facility, the DSF Credit Facility, and related financing documents. On February 23, 2023, the DSF Credit Facility was repaid in full and the related Noble guarantee was terminated. On April 18, 2023, the DNB Credit Facility was repaid in full and the related Noble guarantee was terminated. +Fair Value of Debt +Fair value represents the amount at which an instrument could be exchanged in a current transaction between willing parties. The estimated fair value of our debt instruments was based on the quoted market prices for similar issues or on the current rates offered to us for debt of similar remaining maturities (Level 2 measurement). The fair value of the 2023 Revolving Credit Facility approximates its respective carrying amount as its interest rate is variable and reflective of market rates. +The following table presents the carrying value, net of unamortized debt issuance costs and discounts or premiums, and the estimated fair value of our total debt, not including the effect of unamortized debt issuance costs, respectively: +December 31, +2024 2023 +Carrying +Value Estimated Fair Value Carrying +Value Estimated Fair Value +Senior secured notes +8.000 % Senior Notes due April 2030 +$ 1,401,214 $ 1,414,266 $ 586,203 $ 626,472 +8.500 % Senior Secured Second Lien Notes due October 2030 +578,972 571,428 — — +Credit facility +Amended and Restated Senior Secured Revolving Credit Facility matures April 2028 — — — — +Total debt 1,980,186 1,985,694 586,203 626,472 +Less: Current maturities of long-term debt — — — — +Long-term debt $ 1,980,186 $ 1,985,694 $ 586,203 $ 626,472 +78 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Note 7 — Equity +Share Capital +Noble Share Capital. As of December 31, 2024 and 2023, there were approximately 158.9 million and 140.8 million Ordinary Shares outstanding, respectively. +With respect to the Business Combination, at the Merger Effective Time, Noble issued 70.4 million Ordinary Shares to the former holders of Noble Cayman Shares. Further, at the Merger Effective Time, Noble issued 14.5 million Warrants exercisable for Ordinary Shares to former holders of Noble Cayman Warrants (defined wherein). In connection with the completion of the Exchange Offer, Noble issued 60.1 million Ordinary Shares to the former holders of Maersk Drilling shares. +On September 4, 2024, Noble issued 24.2 million Ordinary Shares to the former shareholders of Diamond, in connection with the closing of the Diamond acquisition. Further, Noble assumed all outstanding and unexercised warrants of Diamond, which were exercisable for 90 days from the effective time of the Diamond acquisition. As of December 4, 2024, the warrants assumed from Diamond are no longer exercisable and have expired in accordance with their terms. +Additional changes to share capital occurred as a result of, among other actions, the vesting of restricted stock units and performance based restricted stock units to our employees and directors, the cancellation of Ordinary Shares denoted as excess shares in the voluntary share exchange as a result of the Exchange Offer, the issuance of Ordinary Shares pursuant to the exercise of warrants, and share repurchases under the Company’s authorized share repurchase plan. +In addition, as of December 31, 2024, 0.9 million Tranche 1 Warrants, 0.9 million Tranche 2 Warrants and 2.8 million Tranche 3 Warrants were outstanding and exercisable. We also have 6.8 million Ordinary Shares authorized and reserved for issuance pursuant to equity awards under the Noble Corporation plc 2022 Long-Term Incentive Plan. +Our most recent quarterly dividend, totaling approximately $ 79.7 million (or $ 0.50 per share), was declared on November 5, 2024, and paid on December 19, 2024, to shareholders of record at close of business on December 5, 2024. During the years ended December 31, 2024, and 2023, we declared dividends of approximately $ 278.3 million and $ 101.8 million (or $ 1.80 and $ 0.70 per share cumulatively), respectively, and made cash dividend payments of approximately $ 277.8 million and $ 98.8 million, respectively. Approximately $ 3.5 million and $ 3.0 million was accrued related to dividend equivalent rights as of December 31, 2024 and 2023, respectively. +The declaration and payment of dividends require the authorization of the Board of Directors. Such may be paid only out of Noble’s “distributable reserves” as determined by reference to relevant statutory accounts in accordance with English law. Therefore, Noble is not permitted to pay dividends out of share capital, which includes share premium. The payment of future dividends will depend on our results of operations, financial condition, cash requirements, future business prospects, contractual and indenture restrictions, and other factors deemed relevant by our Board of Directors. +Share Repurchases +Under English law, the Company is only permitted to purchase its own Ordinary Shares by way of an “off-market purchase” pursuant to a contract approved by shareholders (except where the purchase is for the purposes of, or pursuant to, any employees’ share scheme). Such purchases may be paid for either (i) out of Noble’s “distributable reserves” as determined by reference to relevant statutory accounts in accordance with English law or (ii) from the proceeds of a fresh issue of shares made for the purpose of financing the purchase. As of the date of this report, we have shareholder authority to repurchase up to 15 % per annum of the issued share capital of the Company as of the beginning of each fiscal year for a five -year period commencing on September 28, 2022 (subject to an overall aggregate maximum of 20.6 million Ordinary Shares). During the years ended December 31, 2024 and 2023, we repurchased 8.4 million and 2.3 million of our Ordinary Shares pursuant to such authority. All repurchased shares were subsequently cancelled. +Warrants +On the Merger Effective Date, immediately prior to the Merger Effective Time, we had outstanding 6.2 million Noble Cayman Tranche 1 Warrants, 5.6 million Noble Cayman Tranche 2 Warrants and 2.8 million Noble Cayman Tranche 3 Warrants (together with the Noble Cayman Tranche 1 Warrants and the Noble Cayman Tranche 2 Warrants, the “Noble Cayman Warrants”). At the Merger Effective Time, each Noble Cayman Warrant outstanding immediately prior to the Merger Effective Time was converted automatically into a Warrant to acquire a number of Ordinary Shares equal to the number of +79 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Noble Cayman Shares underlying such Noble Cayman Warrant, with the same terms as were in effect immediately prior to the Merger Effective Time under the terms of the applicable Noble Cayman Warrant Agreement. +The Tranche 1 Warrants of Noble (the “Tranche 1 Warrants”) are exercisable for one Ordinary Share per warrant at an exercise price of $ 19.27 per warrant, the Tranche 2 Warrants of Noble (the “Tranche 2 Warrants”) are exercisable for one Ordinary Share per warrant at an exercise price of $ 23.13 per warrant, and the Tranche 3 Warrants of Noble (the “Tranche 3 Warrants”) are exercisable for one Ordinary Share per warrant at an exercise price of $ 124.40 per warrant (in each case as may be adjusted from time to time pursuant to the applicable Warrant Agreement). The Tranche 1 Warrants and the Tranche 2 Warrants are exercisable until 5:00 p.m., Eastern time, on February 4, 2028, and the Tranche 3 Warrants are exercisable until 5:00 p.m., Eastern time, on February 4, 2026. The Tranche 1 Warrants and the Tranche 2 Warrants have Black-Scholes protections, including in the event of a Fundamental Transaction (as defined in the applicable warrant agreement). The Tranche 1 Warrants and the Tranche 2 Warrants also provide that while the Mandatory Exercise Condition (as defined in the applicable Warrant Agreement) set forth in the applicable Warrant Agreement has occurred and is continuing, Noble or the Required Mandatory Exercise Warrantholders (as defined in the applicable Warrant Agreement) have the right and option (but not the obligation) to cause all or a portion of the Warrants to be exercised on a cashless basis. In the case of Noble, under the Mandatory Exercise Condition, all of the Tranche 1 Warrants or the Tranche 2 Warrants (as applicable) would be exercised. In the case of electing Required Mandatory Exercise Warrantholders, under the Mandatory Exercise Condition, all of their respective Tranche 1 Warrants or Tranche 2 Warrants (as applicable) would be exercised. Mandatory exercises entitle the holder of each Warrant subject thereto to (i) the number of Ordinary Shares issuable upon exercise of such Warrant on a cashless basis and (ii) an amount payable in cash, Ordinary Shares or a combination thereof (in Noble’s sole discretion) equal to the Black-Scholes Value (as defined in the applicable Warrant Agreement) with respect to the number of Ordinary Shares withheld upon exercise of such Warrant on a cashless basis. At December 31, 2024, the Mandatory Exercise Condition set forth in the Warrant Agreements for the Tranche 1 Warrants and the Tranche 2 Warrants was satisfied. +In connection with the automatic conversion of the Noble Cayman Warrants into Warrants at the Merger Effective Time, (i) the Tranche 1 Warrant Agreement, dated as of February 5, 2021, by and among Noble Cayman, Computershare Inc. and Computershare Trust Company, N.A. (together, “Computershare”), (ii) the Tranche 2 Warrant Agreement, dated as of February 5, 2021, by and among Noble Cayman and Computershare, and (iii) the Tranche 3 Warrant Agreement, dated as of February 5, 2021, by and among Noble Cayman and Computershare (collectively, the “Noble Cayman Warrant Agreements”) were terminated, and Noble entered into (a) a new Tranche 1 Warrant Agreement, dated as of the Merger Effective Date, by and among Noble and Computershare, (b) a new Tranche 2 Warrant Agreement, dated as of the Merger Effective Date, by and among Noble and Computershare, and (c) a new Tranche 3 Warrant Agreement, dated as of the Merger Effective Date, by and among Noble and Computershare (collectively, the “Warrant Agreements”). The Warrant Agreements have substantially similar terms as were in effect immediately prior to the Merger Effective Time pursuant to the Noble Cayman Warrant Agreements. +Share-Based Compensation Plans +Stock Plans. In connection with the Merger, on the Merger Effective Date, the Company adopted the Noble Corporation plc 2022 Long-Term Incentive Plan (the “2022 LTIP”), which permits grants of options, stock appreciation rights, stock or stock unit awards, or cash awards, any of which may be structured as a performance award, from time to time to employees and non-employee directors who are to be granted awards under the 2022 LTIP, and authorized and reserved approximately 5.9 million Ordinary Shares for equity incentive awards to be granted under such plan. The Company assumed, under the 2022 LTIP, all outstanding awards as well as any rights and obligations of Noble Cayman thereunder. On the Merger Effective Date, each Noble Cayman RSU Award outstanding immediately prior to the Merger Effective Time ceased to represent a right to acquire Noble Cayman Shares (or value equivalent to Noble Cayman Shares) and was converted into the right to acquire, on the same terms and conditions as were applicable under the Noble Cayman RSU Award (including any vesting conditions), that number of Ordinary Shares equal to the number of Noble Cayman Shares subject to such Noble Cayman RSU Award immediately prior to the Merger Effective Time. +The Company also approved the adoption, effective as of October 3, 2022, of (i) the Noble Corporation plc RSU Long-Term Incentive Program for Executive Management 2022 and (ii) the Noble Corporation plc RSU Long-Term Incentive Program 2022, under which the Company assumed all outstanding awards of Maersk Drilling granted under the Maersk Drilling RSU Long-Term Incentive Program for Executive Management 2019 and the Maersk Drilling RSU Long-Term Incentive Program 2019, respectively. Each Maersk Drilling RSU Award that was outstanding immediately prior to the Acceptance Time was exchanged, at the Acceptance Time, with the right to receive, on the same terms and conditions as were applicable under +80 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +the Maersk Drilling RSU Long-Term Incentive Program for Executive Management 2019 and the Maersk Drilling RSU Long-Term Incentive Program 2019 (including any vesting conditions), that number of Ordinary Shares equal to the product of (i) the number of Maersk Drilling Shares subject to such Maersk Drilling RSU Award immediately prior to the Acceptance Time and (ii) the Exchange Ratio, with any fractional Maersk Drilling Shares rounded to the nearest whole share. Upon such exchange, Maersk Drilling RSU Awards ceased to represent a right to receive Maersk Drilling Shares (or value equivalent to Maersk Drilling Shares). +In addition to assuming any outstanding awards granted under the plans listed in the two preceding paragraphs (including the shares underlying such awards) and the award agreements evidencing the grants of such awards, the Company assumed the remaining shares available for issuance under each applicable plan, including any awards granted to the Company’s directors or executive officers, in each case subject to adjustments to such awards in the manner set forth in the Business Combination Agreement. +Effective May 21, 2024, shareholders of the Company approved an amendment to the 2022 LTIP which increased the maximum number of shares that may be issued under the 2022 LTIP to 10,688,623 Ordinary Shares. +On September 4, 2024, in connection with the closing of the acquisition of Diamond, the Company assumed the Diamond Offshore Drilling, Inc. 2021 Long-Term Stock Incentive Plan (the “Diamond LTIP”) and each Diamond RSU (as defined below) outstanding thereunder. Effective November 6, 2024, the Company also assumed the remaining shares available for issuance under the Diamond LTIP which, after adjustments under the Diamond Merger Agreement, totaled 1,556,404 Ordinary Shares. +Restricted Stock Units (“RSUs”). We awarded both Time Vested RSUs (“TVRSUs”) and Performance Vested RSUs (“PVRSUs”) under the 2022 LTIP. +On the Merger Effective Date, each Noble Cayman RSU Award outstanding immediately prior to the Merger Effective Time ceased to represent a right to acquire Noble Cayman Shares (or value equivalent to Noble Cayman Shares) and was converted into the right to acquire, on the same terms and conditions as were applicable under the Noble Cayman RSU Award (including any vesting conditions), that number of Ordinary Shares equal to the number of Noble Cayman Shares subject to such Noble Cayman RSU Award immediately prior to the Merger Effective Time. +On September 4, 2024, in connection with the closing of the acquisition of Diamond, each performance-vesting and time-vesting restricted stock unit covering shares of Diamond (together "Diamond RSUs") held by key employees were assumed by Noble and represented the right to receive shares in Noble. The Diamond RSUs were assumed by Noble on substantially the same terms and conditions (including vesting conditions) as applicable to the original Diamond RSUs prior to the closing of the acquisition. +Notwithstanding the foregoing, to the extent that a Diamond RSU vested as of the acquisition (including any awards that vested as a result of a termination of employment at or immediately after the acquisition), such awards were instead settled in cash or shares of Diamond, as applicable, immediately prior to the acquisition and any such shares of Diamond were treated the same as other Diamond shares. +The TVRSUs generally vest over a three-year period. The number of PVRSUs which vest will depend on the degree of achievement of specified corporate performance criteria generally over a three-year performance period. These criteria consist of market and performance-based criteria. Dividend equivalent rights are accrued and accumulated as dividends are declared, and payable upon vesting of the TVRSUs and PVRSUs. +The TVRSUs are valued on the date of award at our underlying share price. The total compensation expense for units that ultimately vest is recognized on a straight-line basis over the service period. The shares and related nominal value are recorded when the RSU vests and additional paid-in capital is adjusted as the share-based compensation cost is recognized for financial reporting purposes. +In 2024, 2023, and 2022, 40 % of the TVRSUs granted to non-employee directors will be settled in cash and accounted for as liability awards, which were valued on the date of grant based on the estimated fair value of the Company’s share price. Under the fair value method for liability-classified awards, compensation expense is remeasured each reporting period at fair value based upon the closing price of the Company’s Ordinary Shares. +Each PVRSU represents the right to receive Ordinary Shares at a future date based on our performance against specified targets. The ultimate number of shares issued and the related compensation cost recognized is based on a comparison of +81 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +the final performance metrics to the specified targets. For performance-based awards, compensation expense is recognized based on the number of Ordinary Shares expected to be issued and the market price per Ordinary Share on the date of grant. Over the performance period, the number of shares expected to be issued is adjusted upward or downward based upon the probability of achievement of the performance targets. The market-based awards are valued on the date of grant based on the estimated fair value. Estimated fair value is determined based on numerous assumptions, including an estimate of the likelihood that our stock price performance will achieve the targeted thresholds and the expected forfeiture rate. The fair value is calculated using a Monte Carlo Simulation Model. The assumptions used to value the market-based awards include historical volatility and risk-free interest rates over a time period commensurate with the remaining term prior to vesting, as follows, for the respective grant dates: +Year Ended Year Ended Year Ended +December 31, 2024 December 31, 2023 December 31, 2022 +January 26, 2024 February 3, 2023 February 3, 2022 +Valuation assumptions: +Expected volatility rate (1) +44.1 % 83.0 % 74.8 % +Risk-free interest rate 4.16 % 3.96 % 1.42 % +(1) Expected dividend yield is included in the model via its impact on the historical volatility rate, which is based on daily returns inclusive of dividends. +Additionally, similar assumptions were made for each of the companies included in the defined index and the peer group of companies in order to simulate the future outcome using the Monte Carlo Simulation Model. For market-based awards, compensation expense is recognized on a straight-line basis over the vesting terms. +A summary of the RSUs awarded during the periods indicated is as follows: +Year Ended Year Ended Year Ended +December 31, 2024 December 31, 2023 December 31, 2022 +Equity-classified TVRSUs +Units awarded 839,773 384,995 988,750 +Weighted-average award date fair value $ 40.54 $ 39.54 $ 27.85 +Weighted-average vesting period (years) 2.37 2.90 2.94 +Liability-classified TVRSUs +Units awarded 14,123 12,918 20,120 +Weighted-average award date fair value $ 44.34 $ 39.58 $ 31.25 +Weighted-average vesting period (years) 1.00 1.00 1.00 +PVRSUs +Units awarded 257,574 223,635 295,372 +Weighted-average award date fair value $ 50.06 $ 45.88 $ 28.97 +Three-year performance period end date December 31 2026 2025 2024 +During the years ended December 31, 2024, 2023, and 2022, we awarded 21,171 , 19,376 , and 30,180 shares equity-classified TVRSUs and 14,123 , 12,918 , and 20,120 shares liability-classified TVRSUs, respectively, to our non-employee directors. +82 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +A summary of the status of non-vested RSUs at December 31, 2024 and 2023, and changes for the years then ended is presented below: +Equity-Classified TVRSUs +Outstanding Weighted +Average +Award Date +Fair Value +PVRSUs Outstanding (1) (2) +Weighted +Average +Award Date +Fair Value +Non-vested RSUs at December 31, 2022 1,539,550 $ 20.51 1,753,214 $ 19.58 +Awarded 384,995 39.54 223,635 45.88 +Vested +( 719,871 ) 20.26 ( 1,461,236 ) 18.16 +Forfeited ( 19,281 ) 30.93 — — +Non-vested RSUs at December 31, 2023 1,185,393 $ 26.64 515,613 $ 36.19 +Awarded 839,773 40.54 257,574 50.06 +Vested +( 943,847 ) 25.12 ( 293,537 ) 28.97 +Forfeited ( 47,305 ) 39.98 ( 1,835 ) 28.97 +Non-vested RSUs at December 31, 2024 1,034,014 $ 39.05 477,815 $ 48.13 +(1) For awards granted, the number of PVRSUs shown equals the shares that would vest if the “target” level of performance is achieved. The minimum number of convertible shares is zero and the “maximum” level of performance is 200 % of the amounts shown. +(2) For awards granted during 2022, the minimum number of convertible shares is 36,929 and the “maximum” level of performance is 179 % of the amounts shown. +We granted 14,123 and 12,918 liability-classified TVRSUs at a weighted average grant date fair value of $ 44.34 and $ 39.58 , during the years ended December 31, 2024 and 2023, respectively. During the years ended December 31, 2024 and 2023, 12,918 and 2,672 units vested, respectively, and no units were forfeited during either period. At December 31, 2024 and 2023, we had 14,123 and 12,918 liability-classified TVRSUs outstanding with an associated total liability of $ 0.4 million and $ 0.6 million, respectively. +At December 31, 2024 and 2023, there wa s $ 22.7 million and $ 14.5 million of total unrecognized compensation cost related to the equity-classified TVRSUs, to be recognized over a remaining weighted average period of 1.53 and 0.99 years, respectively. In addition, at December 31, 2024 and 2023, the immaterial amounts of unrecognized compensation cost related to the liability-classified TVRSUs are to be recognized over a remaining weighted average period of 0.11 and 0.09 years, respectively. +At December 31, 2024 and 2023, there was $ 11.3 million and $ 12.6 million of total unrecognized compensation cost related to the PVRSUs, to be recognized over a remaining weighted average period of 1.54 and 1.43 years, respectively. The total potential compensation for PVRSUs is recognized over the service period regardless of whether the performance thresholds are ultimately achieved. +Share-based amortization recognized during the years ended December 31, 2024 and 2023, related to all restricted stock, excluding amounts included in merger and integration costs, totaled $ 27.9 million ($ 25.4 million net of income tax) and $ 37.4 million ($ 35.2 million net of income tax), respectively. +83 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Note 8 — Revenue and Customers +Disaggregation of Revenue +The following table provides information about contract drilling revenue by rig types: +Year Ended Year Ended Year Ended +December 31, 2024 December 31, 2023 December 31, 2022 +Floaters $ 2,349,644 $ 2,010,113 $ 997,819 +Jackups 569,123 451,602 335,022 +Total $ 2,918,767 $ 2,461,715 $ 1,332,841 +Contract Balances +Accounts receivable are recognized when the right to consideration becomes unconditional based upon contractual billing schedules. Payment terms on invoiced amounts are typically 30 to 60 days. Customer contract assets and liabilities generally consist of deferred revenue and contract costs resulting from past transactions related to the provision of services under contracts with customers. Current contract asset and liability balances are included in “Prepaid expenses and other current assets” and “Other current liabilities”, respectively, and noncurrent contract assets and liabilities are included in “Other assets” and “Other liabilities”, respectively, on our Consolidated Balance Sheets. Off-market customer contract assets and liabilities have been recognized in connection with our emergence from Chapter 11 and the Business Combination with Maersk Drilling and are included in “Intangible assets” and “Noncurrent contract liabilities”, respectively. +The following table provides information about contract assets and contract liabilities from contracts with customers: +December 31, 2024 December 31, 2023 +Current customer contract assets $ 26,049 $ 4,208 +Noncurrent customer contract assets 11,042 208 +Total customer contract assets 37,091 4,416 +Current deferred revenue ( 61,506 ) ( 19,679 ) +Noncurrent deferred revenue ( 40,439 ) ( 23,393 ) +Total deferred revenue $ ( 101,945 ) $ ( 43,072 ) +84 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Significant changes in the remaining performance obligation contract assets and the contract liabilities balances for the year ended December 31, 2024 and 2023, are as follows: +Contract Assets Contract Liabilities +Net balance at December 31, 2021 $ 5,744 $ ( 27,755 ) +Additions to deferred costs 34,187 — +Additions to deferred revenue — ( 108,971 ) +Amortization of deferred costs ( 19,875 ) — +Amortization of deferred revenue — 55,521 +Reclassification to held for sale and subsequent derecognition ( 8,519 ) 21,408 +Total 5,793 ( 32,042 ) +Net balance at December 31, 2022 $ 11,537 $ ( 59,797 ) +Additions to deferred costs 19,575 — +Additions to deferred revenue — ( 60,430 ) +Amortization of deferred costs ( 26,696 ) — +Amortization of deferred revenue — 77,155 +Total ( 7,121 ) 16,725 +Net balance at December 31, 2023 $ 4,416 $ ( 43,072 ) +Additions to deferred costs 55,323 — +Additions to deferred revenue — ( 134,359 ) +Amortization of deferred costs ( 22,648 ) — +Amortization of deferred revenue — 75,486 +Total 32,675 ( 58,873 ) +Net balance at December 31, 2024 $ 37,091 $ ( 101,945 ) +Contract Costs +Certain direct and incremental costs incurred for upfront preparation, initial rig mobilization and modifications are costs of fulfilling a contract and are recoverable. These recoverable costs are deferred and amortized ratably to contract drilling expense as services are rendered over the initial term of the related drilling contract. Certain of our contracts include capital rig enhancements used to satisfy our performance obligations. +Future Amortization of Deferred Revenue +The following table reflects revenue expected to be recognized in the future related to deferred revenue, by rig type, at the end of the reporting period: +Year Ended December 31, +2025 2026 2027 2028 Total +Floaters $ 54,747 $ 15,170 $ 11,522 $ 5,532 $ 86,971 +Jackups 6,759 4,708 3,499 8 14,974 +Total $ 61,506 $ 19,878 $ 15,021 $ 5,540 $ 101,945 +85 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +The revenue included above consists of expected mobilization, demobilization, and upgrade revenue for unsatisfied performance obligations. The amounts are derived from the specific terms within drilling contracts that contain such provisions, and the expected timing for recognition of such revenue is based on the estimated start date and duration of each respective contract based on information known at December 31, 2024. The actual timing of recognition of such amounts may vary due to factors outside of our control. We have taken the optional exemption, permitted by accounting standards, to exclude disclosure of the estimated transaction price related to the variable portion of unsatisfied performance obligations at the end of the reporting period, as our transaction price is based on a single performance obligation consisting of a series of distinct hourly, or more frequent, periods, the variability of which will be resolved at the time of the future services. +Off-market Customer Contract Assets and Liabilities +Upon emergence from Chapter 11 bankruptcy, the Company recognized fair value adjustments of $ 113.4 million related to intangible assets for certain favorable customer contracts, which were fully amortized as of August 2023. In addition, in connection with the Business Combination with Maersk Drilling, the Company recognized additional fair value adjustments of $ 23.0 million, related to intangible assets for certain favorable customer contracts. These intangible assets will be amortized as a reduction of contract drilling services revenue from the Closing Date through the remainder of the contracts. +In connection with the Business Combination with Maersk Drilling and the Diamond Transaction, the Company recognized a fair value adjustments of $ 237.7 million and $ 27.7 million, respectively, related to certain unfavorable customer contracts acquired. These liabilities will be amortized as an increase to contract drilling services revenue from the Closing Date and the Diamond Closing Date through the remainder of the contracts. +Unfavorable contacts Favorable +contracts +Balance at December 31, 2021 $ — $ 61,849 +Additions ( 237,703 ) 22,991 +Amortization 55,820 ( 50,468 ) +Balance at December 31, 2022 $ ( 181,883 ) $ 34,372 +Additions — — +Amortization 131,020 ( 24,244 ) +Balance at December 31, 2023 $ ( 50,863 ) $ 10,128 +Additions ( 27,663 ) — +Amortization 69,946 ( 9,914 ) +Balance at December 31, 2024 $ ( 8,580 ) $ 214 +Estimated future amortization over the expected remaining contract periods: +Year Ended December 31, +2025 Total +Unfavorable contracts $ 8,580 $ 8,580 +Favorable contracts ( 214 ) ( 214 ) +Total $ 8,366 $ 8,366 +Note 9 — Leases +Leases +We determine if an arrangement is a lease at inception. Our lease agreements are primarily for real estate, equipment, storage, dock space, and automobiles and are included within “Other assets”, “Other current liabilities”, and “Other liabilities” on our Consolidated Balance Sheets. In connection with the Diamond Transaction, the Company assumed several leases entered into by Diamond consisting of operating leases for corporate and shorebases offices, office and information technology equipment, employee housing, onshore storage yards, and certain rig equipment and tools as well as finance +86 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +leases for well control equipment used on the drillships. The finance leases commenced in 2016 and also include an option to purchase the leased equipment at the end of the respective lease term. +As most of our leases do not provide an explicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Certain of our lease agreements include options to extend or terminate the lease, which we do not include in our minimum lease terms unless management is reasonably certain to exercise. +Supplemental balance sheet information related to leases was as follows: +December 31, 2024 December 31, 2023 +Operating leases +Right-of-use assets $ 78,993 $ 24,528 +Current lease liabilities +$ 14,844 $ 10,581 +Long-term lease liabilities $ 65,981 $ 15,082 +Weighted average remaining lease term (years) 7.49 4.34 +Weighted average discount rate 6.6 % 7.6 % +Finance leases (1) +Right-of-use assets $ 34,346 $ — +Current lease liabilities +$ 22,722 $ — +Long-term lease liabilities $ 11,270 $ — +Weighted average remaining lease term (years) 1.47 — +Weighted average discount rate 5.8 % — % +(1) Includes finance leases acquired in the Diamond Transaction. +The components of lease cost were as follows: +Year Ended Year Ended Year Ended +December 31, 2024 December 31, 2023 December 31, 2022 +Operating lease cost $ 31,162 $ 12,615 $ 6,095 +Finance lease cost: +Amortization of right-of-use assets 7,766 — — +Interest on lease liabilities 734 — — +Short-term lease cost 3,819 6,185 5,741 +Variable lease cost 675 928 948 +Total lease cost $ 44,156 $ 19,728 $ 12,784 +87 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Supplemental cash flow information related to leases was as follows: +Year Ended Year Ended Year Ended +December 31, 2024 December 31, 2023 December 31, 2022 +Operating leases +Operating cash flows used $ 20,857 $ 13,369 $ 6,676 +Right-of-use assets obtained in exchange for a lease liability (1) +45,313 9,614 19,841 +Finance leases +Operating cash flows used $ 560 $ — $ — +Financing cash flows used 6,064 — — +Right-of-use assets obtained in exchange for a lease liability (1) +42,113 — — +(1) Includes right-of-use assets acquired in business combinations. +Maturities of lease liabilities as of December 31, 2024, were as follows: +Operating Leases Finance Leases +2025 $ 17,850 $ 24,049 +2026 16,720 11,430 +2027 14,629 — +2028 10,905 — +2029 7,403 — +Thereafter 43,025 — +Total lease payments 110,532 35,479 +Less: Interest ( 29,707 ) ( 1,487 ) +Present value of lease liability $ 80,825 $ 33,992 +Note 10 — Income Taxes +Noble is a tax resident in the UK and, as such, is subject to UK corporation tax on its taxable profits and gains. Noble Cayman was incorporated in the Cayman Islands and, therefore, not subject to tax in any jurisdiction. With respect to Noble, a UK tax exemption is available in respect of qualifying dividends income and capital gains related to the sale of qualifying participations. We operate in various countries throughout the world, including the United States. The income or loss of the non-UK subsidiaries of Noble is not subject to UK corporation tax. +Consequently, we have taken account of the above exemption and provided for income taxes based on the laws and rates in effect in the countries in which operations are conducted, or in which we, or our subsidiaries, have a taxable presence for income tax purposes. +88 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +The components of the net deferred taxes are as follows: +December 31, 2024 December 31, 2023 +Deferred tax assets +United States: +Net operating loss carry forwards $ 65,686 $ 2,338 +Excess of net tax basis over remaining book basis 14,418 18,527 +Disallowed interest deduction carryforwards 66,632 — +Tax credits carryover 2,606 — +Deferred pension plan amounts 1,065 356 +Accrued expenses not currently deductible 21,208 6,613 +Unfavorable contract value 936 — +Other 3,066 — +Non-United States: +Net operating loss carry forwards 1,683,210 1,407,964 +Excess of net tax basis over remaining book basis 456,302 305,840 +Tax credits carryover 341 15,274 +Transition attribute 959,985 956,187 +Disallowed interest deduction carryforwards 30,427 30,982 +Unfavorable contract value 1,858 3,081 +Accrued expenses not currently deductible 8,701 — +Other 1,952 1,669 +Deferred tax assets 3,318,393 2,748,831 +Less: valuation allowance ( 2,964,740 ) ( 2,512,571 ) +Net deferred tax assets $ 353,653 $ 236,260 +Deferred tax liabilities +United States: +Excess of net book basis over remaining tax basis $ — $ — +Favorable contract value — — +Deferred revenue ( 7,218 ) ( 11,423 ) +Other ( 3,019 ) ( 1,809 ) +Non-United States: +Excess of net book basis over remaining tax basis — ( 10,137 ) +Favorable contract value — ( 1,573 ) +Other ( 4,255 ) ( 4,495 ) +Deferred tax liabilities ( 14,492 ) ( 29,437 ) +Net deferred tax assets (liabilities) $ 339,161 $ 206,823 +Income (loss) before income taxes consists of the following: +Year Ended Year Ended Year Ended +December 31, 2024 December 31, 2023 December 31, 2022 +United States $ 51,948 $ 17,619 $ ( 43,381 ) +Non-United States 440,386 494,624 234,882 +Total $ 492,334 $ 512,243 $ 191,501 +89 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Income tax provision (benefit) consists of the following: +Year Ended Year Ended Year Ended +December 31, 2024 December 31, 2023 December 31, 2022 +Current- United States $ 9,061 $ 2,940 $ 1,058 +Current- Non-United States 77,567 125,494 47,123 +Deferred- United States 2,559 3,703 ( 2,886 ) +Deferred- Non-United States ( 45,206 ) ( 101,796 ) ( 22,742 ) +Total $ 43,981 $ 30,341 $ 22,553 +The following is a reconciliation of our reserve for uncertain tax positions, excluding interest and penalties: +Year Ended Year Ended Year Ended +December 31, 2024 December 31, 2023 December 31, 2022 +Gross balance at beginning of period $ 134,934 $ 132,979 $ 63,443 +Additions based on tax positions related to current year 1,439 25,363 1,296 +Additions for tax positions of prior years 41,961 10,087 69,163 +Reductions for tax positions of prior years ( 20,960 ) ( 29,113 ) ( 687 ) +Expiration of statutes ( 310 ) — ( 236 ) +Tax settlements ( 42,296 ) ( 4,382 ) — +Gross balance at end of period 114,768 134,934 132,979 +Related tax benefits ( 3,705 ) ( 78 ) ( 384 ) +Net reserve at end of period $ 111,063 $ 134,856 $ 132,595 +The liabilities related to our reserve for uncertain tax positions, included in “Other liabilities” on our Consolidated Balance Sheets, are comprised of the following: +December 31, 2024 December 31, 2023 +Reserve for uncertain tax positions, excluding interest and penalties $ 111,063 $ 134,856 +Interest and penalties +86,804 67,455 +Reserve for uncertain tax positions, including interest and penalties $ 197,867 $ 202,311 +At December 31, 2024 and 2023, the reserves for uncertain tax positions totaled $ 197.9 million (net of related tax benefits of $ 3.7 million) and $ 202.3 million (net of related tax benefits of $ 0.1 million), respectively. If a portion or all of the December 31, 2024 and 2023, reserves listed above are not realized, the provision for income taxes could be reduced by up to $ 196.0 million and $ 188.0 million, respectively. +It is reasonably possible that our existing liabilities related to our reserve for uncertain tax positions may fluctuate in the next 12 months primarily due to the completion of open audits or the expiration of statutes of limitation. +We include, as a component of our “Income tax benefit (provision)”, potential interest and penalties related to recognized tax contingencies within our global operations. Interest and penalties resulted in an income tax expense of $ 5.9 million, $ 24.1 million, and $ 2.7 million for the years ended December 31, 2024, 2023, and 2022, respectively. +During the year ended December 31, 2024, our tax provision included a net tax benefit of $ 123.6 million related to releases of valuation allowances primarily in Luxembourg, and a net tax benefit of $ 20.2 million related to changes in uncertain tax positions. Such tax benefits were offset by various recurring quarterly accruals of $ 187.8 million primarily in Guyana, Nigeria, the United States, Switzerland, and Luxembourg. +During the year ended December 31, 2023, our tax provision included tax benefits of $ 187.2 million related to releases of valuation allowances in Luxembourg, Guyana, Switzerland, and Norway, and a tax benefit of $ 6.8 million related to uncertain tax position releases. Such tax benefits were offset by tax expenses related to uncertain tax positions of +90 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +$ 20.9 million in various countries, contract fair value amortization of $ 23.7 million, and various recurring quarterly accruals of $ 179.6 million primarily in Guyana, Switzerland, and Luxembourg. +During the year ended December 31, 2022, our tax provision included tax benefits of $ 42.1 million related to releases of valuation allowances in Guyana and Luxembourg, $ 1.3 million related primarily to other deferred tax adjustments, and $ 6.6 million related to a reduction in legacy Maersk tax contingencies primarily due to favorable foreign exchange movements. Such tax benefits were offset by tax expenses of $ 2.3 million related to the sale of the Remedy Rigs, $ 10.8 million related to contract fair value amortization, and various recurring items comprised of Guyana excess withholding tax on gross revenue of $ 34.7 million and annual current and deferred tax expense accruals of $ 24.9 million primarily in Luxembourg, Switzerland, US, Norway, and Ghana. +Our gross deferred tax asset balance at year-end reflects the application of our income tax accounting policies and is based on management’s estimates, judgments, and assumptions regarding realizability. If it is more likely than not that a portion of the deferred tax assets will not be realized in a future period, the deferred tax assets will be reduced by a valuation allowance based on management’s estimates. +In deriving the $ 123.6 million change in valuation allowance, where applicable we relied on sources of income attributable to the reversal of taxable temporary differences in the same periods as the relevant tax attributes and projected taxable income for the period covered by our relevant existing drilling contracts based on the assumption that the relevant rigs will be owned by the current rig owners during the relevant existing drilling contract periods. Given the mobile nature of our assets, we are not able to reasonably forecast the jurisdiction of our taxable income from future drilling contracts. We also have limited objective positive evidence in historical periods. Accordingly, in determining the amount of deferred tax benefits to recognize, we did not consider projected book income beyond the conclusion of existing drilling contracts with the exception of interest income projected to be generated over a finite period beyond the conclusion of the relevant existing drilling contracts. As new drilling contracts are executed, we will reassess the amount of deferred tax assets that are realizable. Finally, once we have established sufficient objective positive evidence for historical periods, we may consider reliance on forecasted taxable income from future drilling contracts. +Our tax benefits related to transition attributes in Switzerland are scheduled to expire by 2036. Our net operating losses in Switzerland are scheduled to expire between 2027 and 2031. Our net operating losses in Luxembourg are scheduled to expire between 2033 and 2038; however, a portion of the tax losses has no expiration date. +We conduct business globally and, as a result, we file numerous income tax returns in the US and in non-US jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world, including, but not limited to, jurisdictions such as Egypt, Ghana, Guyana, Mexico, and the United Kingdom. We are no longer subject to US Federal income tax examinations for years before 2021 and non-US income tax examinations for years before 2000. +In Denmark, prior to the Merger, Maersk Drilling was subject to a mandatory joint taxation scheme with all other Danish entities under the common control of A.P. Møller Holding A/S. To the extent Maersk Drilling incurred tax losses in Denmark until the Merger, such losses may be utilized by other jointly taxed entities. Noble may be compensated through a joint taxation contribution when such losses are utilized. In the event that A.P. Møller Holding A/S or any jointly taxed entity is subject to audits for years and periods prior to and until the Merger and such audits result in adjustments to relevant tax returns, adjustments to the prior year joint tax contributions may be required. This could result in additional compensation to Noble or refunds payable by Noble to A.P. Møller Holding A/S or to any previous joint taxation group administration company of previously received joint taxation contributions. Since the Merger and through December 31, 2024, Noble has recognized a benefit for tax contribution payments of approximately $ 21.1 million from A.P. Møller Holding A/S and an expense for a tax contribution repayment of $ 4.0 million to A.P. Møller Holding A/S under this arrangement. For the years ended December 31, 2024 and 2023, an expense of $ 4.0 million and net benefits of approximately $ 19.1 million, respectively, are included in “Interest income and other, net” on our Consolidated Statements of Operations. Additionally, for the year ended December 31, 2023, approximately $ 2.0 million is recorded and included as a benefit in “Income tax benefit (provision)” on our Consolidated Statement of Operations. +UK earnings are taxable in the United Kingdom at the UK statutory rate of 19%. Noble Cayman was incorporated in the Cayman Islands and, therefore, not subject to tax in any jurisdiction. Following the Business Combination with Maersk Drilling, Noble is a public limited company incorporated under the laws of England and Wales. The income or loss of our non-UK subsidiaries is not subject to UK income tax. UK earnings are taxable in the United Kingdom at the UK statutory rate +91 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +of 19% and 25% through March 31, 2023, and beginning on April 1, 2023, respectively. A reconciliation of tax rates outside of the United Kingdom to our Noble effective rate for 2024 is shown below: +Year Ended Year Ended Year Ended +December 31, 2024 December 31, 2023 December 31, 2022 +Effect of: +Tax rates which are different than UK or Cayman rates 37.3 % 37.6 % 34.9 % +Tax impact of valuation allowance ( 25.0 ) % ( 36.1 ) % ( 22.0 ) % +Resolution of (reserve for) tax authority audits ( 3.4 ) % 4.4 % ( 1.1 ) % +Total 8.9 % 5.9 % 11.8 % +At December 31, 2024 and 2023, the Company asserts that its unremitted earnings and/or book/tax outside basis differences in certain of its subsidiaries are either permanently reinvested or are not expected to result in a material taxable event in the foreseeable future. Therefore, no material deferred taxes have been recorded related to such earnings and/or investments. +Note 11 — Employee Benefit Plans +Defined Benefit Plans +Noble Drilling (Land Support) Limited (“NDLS”), an indirect, wholly-owned subsidiary of Noble, maintains a pension plan that covers all of its salaried, non-union employees, whose most recent date of employment is prior to April 1, 2014 (referred to as our ‘non-US plan’). Since May 2022, the NDLS pension trustees and covenant advisors have been communicating with Noble to understand the impact of the Rig Transaction and merger with Maersk Drilling and to negotiate appropriate mitigation including buyout of the Scheme to cover the pension obligations. The Pension Regulators advised on December 15, 2022 that it did not intend to investigate the transaction unless Noble and the pension trustees were unable to agree on mitigation or there was a material change to circumstances. Noble has provided a company guarantee from Noble Corporation plc to cover the full section 75 debts of NDLS and Noble Resources Limited (“NRL”), the two sponsoring entities of the pension scheme, and believes this is an appropriate mitigation to support the pension liabilities. +In addition to the non-US plan discussed above, we have a US noncontributory defined benefit pension plan that covers certain salaried employees and a US noncontributory defined benefit pension plan that covers certain hourly employees, whose initial date of employment is prior to August 1, 2004 (collectively referred to as our “qualified US plans”). These plans are governed by the Noble Drilling Employees’ Retirement Trust (the “Trust”). The benefits from these plans are based primarily on years of service and, for the salaried plan, employees' compensation near retirement. These plans are designed to qualify under the Employee Retirement Income Security Act of 1974 (“ERISA”), and our funding policy is consistent with funding requirements of ERISA and other applicable laws and regulations. We make cash contributions, or utilize credits available to us, for the qualified US plans when required. The benefit amount that can be covered by the qualified US plans is limited under ERISA and the Internal Revenue Code of 1986. Therefore, we maintain an unfunded, non-qualified excess benefit plan designed to maintain benefits for specified employees at the formula level in the qualified salaried US plan. We refer to the qualified US plans and the excess benefit plan collectively as the “US plans.” +During the fourth quarter of 2016, we approved amendments, effective as of December 31, 2016, to our non-US and US defined benefit plans. With these amendments, employees and alternate payees will accrue no future benefits under the plans after December 31, 2016. However, these amendments will not affect any benefits earned through that date. +92 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +A reconciliation of the changes in projected benefit obligations (“PBO”) for our non-US and US plans is as follows: +December 31, 2024 December 31, 2023 +Non-US US Non-US US +Benefit obligation at beginning of period $ 36,329 $ 179,346 $ 36,975 $ 176,438 +Interest cost 2,062 8,751 2,356 8,992 +Actuarial loss (gain) ( 2,738 ) ( 9,872 ) ( 2,571 ) 6,642 +Benefits paid ( 2,257 ) ( 11,388 ) ( 2,481 ) ( 10,619 ) +Settlements and curtailments — — — ( 2,107 ) +Foreign exchange rate changes ( 279 ) — 2,050 — +Benefit obligation at end of period $ 33,117 $ 166,837 $ 36,329 $ 179,346 +A reconciliation of the changes in fair value of plan assets is as follows: +December 31, 2024 December 31, 2023 +Non-US US Non-US US +Fair value of plan assets at beginning of period $ 43,245 $ 172,793 $ 40,642 $ 173,738 +Actual return on plan assets ( 2,403 ) 2,389 2,749 11,594 +Employer contributions — 50 — 187 +Benefits paid ( 2,257 ) ( 11,388 ) ( 2,481 ) ( 10,619 ) +Plan participants’ contributions — — — ( 2,107 ) +Foreign exchange rate changes ( 313 ) — 2,335 — +Fair value of plan assets at end of period $ 38,272 $ 163,844 $ 43,245 $ 172,793 +The funded status of the plans is as follows: +December 31, 2024 December 31, 2023 +Non-US US Non-US US +Funded status $ 5,155 $ ( 2,993 ) $ 6,916 $ ( 6,553 ) +Amounts recognized in the Consolidated Balance Sheets consist of: +December 31, 2024 December 31, 2023 +Non-US US Non-US US +Other assets (noncurrent) $ 5,155 $ — $ 6,916 $ — +Other liabilities (current) — ( 59 ) — ( 66 ) +Other liabilities (noncurrent) — ( 2,934 ) — ( 6,487 ) +Net amount recognized $ 5,155 $ ( 2,993 ) $ 6,916 $ ( 6,553 ) +Amounts recognized in AOCI consist of: +December 31, 2024 December 31, 2023 +Non-US US Non-US US +Net actuarial (gain) loss $ 7,761 $ ( 12,390 ) $ 5,857 $ ( 9,371 ) +Deferred income tax (asset) liability ( 1,942 ) 2,602 ( 1,486 ) 1,968 +Accumulated other comprehensive (income) loss $ 5,819 $ ( 9,788 ) $ 4,371 $ ( 7,403 ) +93 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Pension costs include the following components: +Year Ended Year Ended Year Ended +December 31, 2024 December 31, 2023 December 31, 2022 +Non-US US Non-US US Non-US US +Interest cost $ 2,062 $ 8,751 $ 2,356 $ 8,992 $ 1,368 $ 6,753 +Return on plan assets ( 2,291 ) ( 9,243 ) ( 1,871 ) ( 9,579 ) ( 1,431 ) ( 12,581 ) +Amortization of prior service cost — — 238 — — — +Recognized net actuarial loss 99 — — ( 231 ) — ( 22 ) +Settlement and curtailment (gain) loss — — — 70 — ( 121 ) +Net pension benefit cost (gain) loss $ ( 130 ) $ ( 492 ) $ 723 $ ( 748 ) $ ( 63 ) $ ( 5,971 ) +There are zero estimated net actuarial losses and prior service costs for the non-US plan and the US plans that will be amortized from AOCI into net periodic pension cost in 2025. +During the years ended December 31, 2024, 2023, and 2022, we adopted the Retirement Plan mortality tables with the Mortality Projection scale as issued by the Society of Actuaries for each of the respective years. The Retirement Plan 2024, 2023, and 2022 mortality tables represent the new standard for defined benefit mortality assumptions due to adjusted life expectancies. There were no increases in our pension liability on our US plans resulting from the adoption of these tables for the years ended December 31, 2024, 2023, and 2022, respectively. +Defined Benefit Plans—Disaggregated Plan Information +Disaggregated information regarding our non-US and US plans is summarized below: +December 31, 2024 December 31, 2023 +Non-US US Non-US US +Projected benefit obligation $ 33,117 $ 166,837 $ 36,329 $ 179,346 +Accumulated benefit obligation 33,117 166,837 36,329 179,346 +Fair value of plan assets 38,272 163,844 43,245 172,793 +The following table provides information related to those plans in which the PBO exceeded the fair value of the plan assets at December 31, 2024 and 2023. The PBO is the actuarially computed present value of earned benefits based on service to date and includes the estimated effect of any future salary increases. Employees and alternate payees have no longer accrued future benefits under the plans since December 31, 2016. +December 31, 2024 December 31, 2023 +Non-US US Non-US US +Projected benefit obligation $ — $ 166,837 $ — $ 179,346 +Fair value of plan assets — 163,844 — 172,793 +The PBO for the unfunded excess benefit plan was $ 0.7 million at December 31, 2024, as compared to $ 0.8 million at December 31, 2023, and is included under “US” in the above tables. +The following table provides information related to those plans in which the accumulated benefit obligation (“ABO”) exceeded the fair value of plan assets at December 31, 2024 and 2023. The ABO is the actuarially computed present value of earned benefits based on service to date, but differs from the PBO in that it is based on current salary levels. Employees and alternate payees have no longer accrued future benefits under the plans since December 31, 2016. +December 31, 2024 December 31, 2023 +Non-US US Non-US US +Accumulated benefit obligation $ — $ 166,837 $ — $ 179,346 +Fair value of plan assets — 163,844 — 172,793 +94 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +The ABO for the unfunded excess benefit plan was $ 0.7 million at December 31, 2024, as compared to $ 0.8 million at December 31, 2023, and is included under “US” in the above tables. +Defined Benefit Plans—Key Assumptions +The key assumptions for the plans are summarized below: +December 31, 2024 December 31, 2023 +Non-US US Non-US US +Weighted-average assumptions used to determine benefit obligations: +Discount Rate 5.50 % +5.50 % - 5.63 % +4.80 % +4.95 % - 5.04 % +Rate of compensation increase N/A N/A N/A N/A +Year Ended Year Ended Year Ended +December 31, 2024 December 31, 2023 December 31, 2022 +Non-US Non-US Non-US +Weighted-average assumptions used to determine periodic benefit cost: +Discount Rate 5.50 % 5.00 % 1.80 % +Expected long-term return on assets 4.80 % 4.60 % 1.20 % +Rate of compensation increase N/A N/A N/A +Year Ended Year Ended Year Ended +December 31, 2024 December 31, 2023 December 31, 2022 +US US US +Weighted-average assumptions used to determine periodic benefit cost: +Discount Rate +4.95 % - 5.04 % +5.17 % - 5.27 % +2.63 % - 2.89 % +Expected long-term return on assets +5.00 % - 5.60 % +5.00 % - 5.80 % +5.00 % - 5.80 % +Rate of compensation increase N/A N/A N/A +The discount rates used to calculate the net present value of future benefit obligations for our US plans is based on the average of current rates earned on long-term bonds that receive a Moody’s rating of “Aa” or better. We have determined that the timing and amount of expected cash outflows on our plans reasonably match this index. For our non-US plan, the discount rate used to calculate the net present value of future benefit obligations is determined by using a yield curve of high quality bond portfolios with an average maturity approximating that of the liabilities. +In developing the expected long-term rate of return on assets, we considered the current level of expected returns on risk free investments (primarily government bonds), the historical level of risk premium associated with the other asset classes in which the portfolio is invested and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long-term rate of return on assets for the portfolio. To assist us with this analysis, we employ third-party consultants for our US and non-US plans that use a portfolio return model. +Defined Benefit Plans—Plan Assets +Non-US Plan. As of December 31, 2024, the NDLS pension Scheme targets an asset allocation of 13.5 % return-seeking securities (growth) and 86.5 % in debt securities (matching) and adopts a de-risking strategy whereby the level of investment risk reduces as the Scheme’s funding level improves. The overall investment objective of the Scheme, as adopted by the Scheme’s Trustees, is to reach a fully funded position on the agreed de-risking basis of gilts - 0.0 % per annum. The objectives within the Scheme’s overall investment strategy is to outperform the cash + 4 % per annum long term objective for growth assets and to sufficiently hedge interest rate and inflation risk within the matching portfolio in relation to the Scheme’s liabilities. By achieving these objectives, the Trustees believe the Scheme will be able to avoid significant volatility in the contribution rate and provide sufficient assets to cover the Scheme’s benefit obligations. To achieve this the Trustees have +95 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +given Mercer, the appointed investment manager, full discretion in the day-to-day management of the Scheme’s assets and implementation of the de-risking strategy, who in turn invests in multiple underlying investment managers where appropriate. The Trustees meet with Mercer periodically to review and discuss their investment performance. +The actual fair values of the non-US plan are as follows: +December 31, 2024 +Estimated Fair Value Measurements +Carrying +Amount Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) +Cash and cash equivalents $ 340 $ 340 $ — $ — +Equity securities: +International companies 2,820 2,820 — — +Fixed income securities: +Corporate bonds 35,112 35,112 — — +Total $ 38,272 $ 38,272 $ — $ — +December 31, 2023 +Estimated Fair Value Measurements +Carrying +Amount Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) +Cash and cash equivalents $ 247 $ 247 $ — $ — +Equity securities: +International companies 5,560 5,560 — — +Fixed income securities: +Corporate bonds 37,438 37,438 — — +Total $ 43,245 $ 43,245 $ — $ — +US Plans. The fundamental objective of the US plan is to provide the capital assets necessary to meet the financial obligations made to plan participants. In order to meet this objective, the Investment Policy Statement depicts how the investment assets of the plan are to be managed in accordance with the overall target asset allocation of approximately 75.0 % equity securities, 6.0 % fixed income securities, and 19.0 % in strategic opportunities. The target asset allocation is intended to generate sufficient capital to meet plan obligations and provide a portfolio rate of return equal to or greater than the return realized using appropriate blended, market benchmark over a full market cycle (usually a five to seven year time period). Actual allocations may deviate from the target range, however any deviation from the target range of asset allocations must be approved by the Trust’s governing committee. +For investments in mutual funds, the assets of the Trust are subject to the guidelines and limits imposed by such mutual fund’s prospectus and the other governing documentation at the fund level. +No Ordinary Shares of Noble were included in equity securities at either December 31, 2024 or 2023. +96 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +The actual fair values of US plan assets are as follows: +December 31, 2024 +Estimated Fair Value Measurements +Carrying +Amount Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) +Cash and cash equivalents $ 4,164 $ 4,164 $ — $ — +Equity securities: +United States 38,317 1,726 36,591 — +Fixed income securities: +Corporate bonds 91,129 86,991 4,138 +Treasury bonds 30,234 30,234 — — +Total $ 163,844 $ 123,115 $ 40,729 $ — +December 31, 2023 +Estimated Fair Value Measurements +Carrying +Amount Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) +Cash and cash equivalents $ 4,388 $ 4,388 $ — $ — +Equity securities: +United States 36,857 — 36,857 — +Fixed income securities: +Corporate bonds 100,377 96,373 4,004 +Treasury bonds 31,171 31,171 — — +Total $ 172,793 $ 131,932 $ 40,861 $ — +Defined Benefit Plans—Cash Flows +In 2024, 2023, and 2022, we made no contributions to our non-US plan and contributions of $ 0.1 million, $ 0.2 million, and $ 0.4 million to our US plans, respectively. We expect our aggregate minimum contributions to our non-US and US plans in 2025, subject to applicable law, to be zero and $ 0.1 million, respectively. We continue to monitor and evaluate funding options based upon market conditions and may increase contributions at our discretion. +The following table summarizes our estimated benefit payments at December 31, 2024: +Payments by Period +Total 2025 2026 2027 2028 2029 Thereafter +Estimated benefit payments +Non-US plans $ 25,709 $ 2,282 $ 2,331 $ 2,423 $ 2,499 $ 2,578 $ 13,596 +US plans 114,653 10,733 10,989 11,215 11,378 11,548 58,790 +Total estimated benefit payments $ 140,362 $ 13,015 $ 13,320 $ 13,638 $ 13,877 $ 14,126 $ 72,386 +Other Benefit Plans. We sponsored a 401(k) Restoration Plan, which is a nonqualified, unfunded employee benefit plan under which specified employees may elect to defer compensation in excess of amounts deferrable under our 401(k) savings plan. At December 31, 2021, our liability for the 401(k) Restoration Plan was $ 2.8 million, and is included in “Accrued payroll and related costs.” In early 2022, the Noble Services Company LLC Board of Directors approved the termination of the 401(k) Restoration Plan, following which Noble distributed all benefits of the plan during the second quarter of 2022. No liabilities remained in the plan as of December 31, 2022. We do not provide post-retirement benefits (other than pensions) or any post-employment benefits to our employees. +97 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +In 2005, we enacted a profit sharing plan, the Noble Services Company LLC Profit Sharing Plan, which covers eligible employees, as defined in the plan. Participants in the plan become fully vested in the plan after one year of service. On January 1, 2019, the 401(k) savings plan and the profit sharing plan were merged into the Noble Drilling Services LLC 401(k) and Profit Sharing Plan. Effective January 1, 2025, the profit-sharing plan was removed and there will be no future profit-sharing contributions made into the plan. We sponsor other retirement, health, and welfare plans, a 401(k) savings plan, and international savings plans for the benefit of our employees. The contributions to these plans aggregated approximately $ 32.0 million, $ 34.0 million, and $ 34.2 million for the years ended December 31, 2024, 2023, and 2022, respectively. +Profit sharing contributions were discretionary, required Board of Directors approval, and were made in the form of cash. No contributions were made for the years ended December 31, 2024, 2023, and 2022, respectively. +Note 12 — Commitments and Contingencies +Tax Matters +Audit claims of approximately $ 359.3 million at December 31, 2024, attributable to income and other business taxes remain outstanding and are under continued objection by Noble. Such audit claims are mostly attributable to Brazil, Egypt, Ghana, and Guyana. This remains under continued monitoring and evaluation on a quarterly basis as facts change and as audits and/or litigation continue to progress. We intend to vigorously defend our reported positions and currently believe the ultimate resolution of the audit claims will not have a material adverse effect on our consolidated financial statements. +We operate in numerous countries throughout the world and our tax returns filed in those jurisdictions are subject to review and examination by tax authorities within those jurisdictions. We recognize uncertain tax positions that we believe have a greater than 50 % likelihood of being sustained upon challenge by a tax authority. We cannot predict or provide assurance as to the ultimate outcome of any existing or future assessments. +Hurricane Ida Personal Injury Claims +In preparation for Hurricane Ida in the United States Gulf of America, also known as the United States Gulf of Mexico ( the “US Gulf”), in August 2021, the Noble Globetrotter II successfully secured the well it was drilling and detached from the blowout preventer without incident. However, during transit, the lower marine riser package and a number of riser joints separated from the rig, and certain other damage occurred. Due to the environmental conditions, a number of crew members were treated for injuries and released from medical care. We have had multiple parties, some of which are subject to a third-party contractual indemnity to our benefit, who have filed answers to the Limitation of Liability Action in the United States District Court Western District of Louisiana seeking damages related to physical and emotional harm allegedly suffered as a result of the Hurricane Ida incident. We are defending ourselves vigorously against these claims, although there is inherent risk in litigation, and we cannot predict or provide assurance as to the ultimate outcome of this lawsuit. As claims progress, the Company’s estimated loss could change from time to time, and any such change individually or in the aggregate could be material. We have insurance for such claims with a deductible of $ 5.0 million, in addition to contractual indemnity owed to us for a portion of the third-party claims; however, these protections may not adequately cover our losses and related claims, which could adversely affect our business. Timing differences are likely to exist between any losses incurred and the recognition and receipt of insurance proceeds reflected in the Company’s financial statements. Costs, as well as insurance recoveries, are presented in “Hurricane losses and (recoveries), net” on the Consolidated Statement of Operations. +Services Agreement +In February 2016, Diamond entered into a ten-year agreement with a subsidiary of Baker Hughes Company (formerly named Baker Hughes, a GE company) to provide services with respect to certain blowout preventer and related well control equipment on our drillships. Such services include management of maintenance, certification, and reliability with respect to such equipment. Future commitments under the contractual services agreements are estimated to be approximately $ 24.7 million annually. Total future commitments are projected to be $ 67.6 million in the aggregate over the remaining term of the agreement, including a $ 37.0 million commitment for the purchase of consumables and capital spare parts owned and controlled by the vendor at the end of the service arrangement. +Letters of Credit and Surety Bonds +As of December 31, 2024, we had $ 24.8 million of letters of credit issued under the 2023 Revolving Credit Facility and an additional $ 126.8 million in letters of credit and surety bonds issued under bilateral arrangements which guarantee our +98 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +performance as it relates to our drilling contracts, contract bidding, tax appeals, customs duties, and other obligations in various jurisdictions. We expect to comply with the underlying performance requirements and we expect obligations under these letters of credit and surety bonds will not be called. +Other Contingencies +We are a defendant in certain other claims and litigation arising out of operations in the ordinary course of business, including personal injury claims, the resolution of which, in the opinion of management, will not be material to our financial position, results of operations, or cash flows. There is inherent risk in any litigation or dispute and no assurance can be given as to the outcome of these claims. +Subsequent Event +Total current liabilities and total current assets as of December 31, 2024, include an accrual for an expected settlement of certain litigation and a related insurance recovery, which balances had previously been reflected as lesser, and non-current, amounts. +Note 13 — Segment and Related Information +We report our contract drilling operations as a single reportable segment, Contract Drilling Services, which reflects how we manage our business. The mobile offshore drilling units comprising our offshore rig fleet operate in a global market for contract drilling services and are often redeployed to different regions due to changing demands of our customers, which consist primarily of large, integrated, independent, and government-owned or controlled oil and gas companies throughout the world. Our reportable segment comprises the structure used by our Chief Executive Officer, who has been determined to be our chief operating decision maker (“CODM”), for assessing performance and allocating resources. We regularly provide management reports to the CODM that include a segment revenue amount and segment contract drilling services costs. Our CODM evaluates the segment’s operating performance based on operating revenues and operating income (loss). Refer to the Company’s Consolidated Statements of Operations for additional information. +As of December 31, 2024, our contract drilling services segment conducted drilling operations in Africa, Far East Asia, the Middle East, the North Sea, Oceania, South America, and the US Gulf. Included in our long-lived assets balance below is our property and equipment and right-of-use assets. We used the geographic location as of December 31, 2024 and 2023, of each drilling rig, operating lease, and finance lease for our property and equipment and right-of-use assets, respectively, for our long-lived assets geographic disclosure shown below. +99 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +The following table presents revenues and long-lived assets by country based on the location of the service provided during the period: +Revenues Long-Lived Assets as of +Year Ended Year Ended Year Ended +December 31, 2024 December 31, 2023 December 31, 2022 December 31, 2024 December 31, 2023 +Australia $ 242,721 $ 154,860 $ 78,899 $ 59,202 $ 83,162 +Brazil 107,014 92,022 33,208 315,084 114 +Colombia 94,560 53,646 — 163,719 98,979 +Denmark 75,971 88,914 40,806 333,618 508,715 +Ghana 138,176 150,677 35,018 — 241,132 +Guinea Bissau +13,947 — — 300,962 — +Guyana 676,234 703,473 469,267 762,746 733,803 +Malaysia 203,495 87,105 32,227 292,878 234,469 +Mexico — 139,595 30,788 — — +Namibia 7,537 27 19 253,652 — +Netherlands 42,107 36,510 13,378 75,421 134,887 +Nigeria 135,331 143,641 — 73,296 67,495 +Norway 236,834 249,308 154,406 487,183 498,845 +Suriname 82,082 108,532 133,680 — — +Trinidad and Tobago — 2,135 35,101 78,396 382,369 +United Kingdom 190,804 65,710 55,632 755,712 353,656 +United States 685,835 437,346 266,176 1,666,748 575,960 +Other 125,170 75,517 35,242 530,539 235,881 +Total $ 3,057,818 $ 2,589,018 $ 1,413,847 $ 6,149,156 $ 4,149,467 +Significant Customers +The following table sets forth revenues from our customers as a percentage of our consolidated operating revenues: +Year Ended Year Ended Year Ended +December 31, 2024 December 31, 2023 December 31, 2022 +Exxon Mobil Corporation (“ExxonMobil”) 22.1 % 24.5 % 32.3 % +Shell plc 12.3 % 13.6 % 12.0 % +TotalEnergies 6.3 % 10.5 % 9.7 % +No other customer accounted for more than 10% of our consolidated operating revenues in 2024, 2023, or 2022. +100 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Note 14 — Supplemental Financial Information +Consolidated Statements of Cash Flows Information +Operating cash activities. The net effect of changes in other assets and liabilities on cash flows from operating activities is as follows: +Year Ended Year Ended Year Ended +December 31, 2024 December 31, 2023 December 31, 2022 +Accounts receivable $ ( 54,923 ) $ ( 80,042 ) $ ( 18,133 ) +Other current assets ( 108,044 ) ( 42,532 ) 21,271 +Other assets 40,146 ( 27,177 ) 16,861 +Accounts payable ( 32,437 ) 59,757 20,430 +Other current liabilities 103,326 9,679 ( 36,713 ) +Other liabilities ( 64,106 ) 32,612 15,468 +Total net change in other assets and liabilities $ ( 116,038 ) $ ( 47,703 ) $ 19,184 +Non-cash investing and financing activities. Additions to property and equipment, at cost for which we had accrued a corresponding liability in accounts payable as of December 31, 2024, 2023 and 2022 were $ 66.0 million, $ 114.7 million, and $ 70.0 million, respectively. +On October 3, 2022, Noble completed the Business Combination with Maersk Drilling, issuing 60.1 million Ordinary Shares valued at $ 1.8 billion, in exchange for $ 2.0 billion net assets acquired. Also in connection with the Business Combination, in mid-November 2022, the Compulsory Purchase interest was settled when 4.1 million Ordinary Shares were issued, resulting an increase in additional paid in capital of $ 123.8 million, and the remainder paid in cash of $ 69.9 million. See “Note 2 — Acquisitions and Divestitures” for additional information. +On September 4, 2024, Noble completed its acquisition of Diamond issuing 24.2 million Ordinary Shares valued at $ 879.9 million, in exchange for $ 1.5 billion net assets acquired. See “Note 2 — Acquisitions and Divestitures” for additional information. +Additional cash flow information is as follows: +Year Ended Year Ended Year Ended +December 31, 2024 December 31, 2023 December 31, 2022 +Cash paid during the period for: +Interest, net of amounts capitalized $ 106,845 $ 52,361 $ 35,543 +Income taxes paid (refunded), net (1) +108,664 105,446 58,386 +(1) The net income taxes paid for the years ended December 31, 2024, 2023, and 2022, includes withholding tax in Guyana of $ 48.9 million, $ 52.3 million, and $ 34.7 million on gross revenue, respectively. Excluding such withholding tax, the total tax payments would be $ 59.7 million, $ 53.1 million, and $ 23.7 million, respectively. +Note 15 — Information about Noble Finance II +8.000 % Senior Notes due 2030 +Noble Finance II, a wholly-owned, indirect subsidiary of Noble, is the issuer of the 2030 Notes and, one or more 100% wholly-owned, direct and indirect subsidiaries of Noble Finance II are the unconditional guarantors, or are otherwise obligated as of December 31, 2024, with respect to the 2030 Notes. See “Note 6 — Debt” for additional information. +The Noble Indenture contains a covenant that requires Noble Finance II to furnish to holders of the 2030 Notes certain financial information relating to Noble Finance II and its restricted subsidiaries. The obligation to furnish such information may be satisfied by providing financial information of Noble along with a description of the differences between such information and the financial information of Noble Finance II and its restricted subsidiaries on a standalone basis. +101 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +The summarized financial information below reflects the consolidated accounts of Noble Finance II: +December 31, 2024 +Balance Sheet +Cash and cash equivalents $ 131,703 +Total current assets 1,683,839 +Total current liabilities 694,321 +Total debt 1,401,214 +Total shareholders' equity 4,535,081 +Twelve Months Ended December 31, 2024 +Statement of Operations +Operating revenues $ 2,721,156 +Operating costs and expenses 2,010,731 +Depreciation and amortization 379,551 +Statement of Cash Flows +Net cash provided by (used in) operating activities $ 792,859 +Capital expenditures ( 536,658 ) +Proceeds from disposal of assets, net ( 690 ) +Dividend payments — +Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +None. +Item 9A. Evaluation of Disclosure Controls and Procedures +Conclusions Regarding Disclosure Controls and Procedures +Robert W. Eifler, President and Chief Executive Officer (Principal Executive Officer) of Noble, and Richard B. Barker, Executive Vice President and Chief Financial Officer (Principal Financial Officer) of Noble, have evaluated the disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)) of Noble as of the end of the period covered by this report. On the basis of this evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that Noble’s disclosure controls and procedures were effective as of December 31, 2024. Noble’s disclosure controls and procedures are designed to ensure that information required to be disclosed by Noble in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. +In accordance with interpretive guidance issued by SEC staff, companies may exclude an acquired business from the assessment of internal control over financial reporting during the first year following the date on which the acquisition is completed and from the assessment of disclosure controls and procedures to the extent subsumed in such internal control over financial reporting. In accordance with this guidance, as the Company acquired Diamond on September 4, 2024, Management’s, including our Principal Executive Officer and Principal Financial Officer, evaluation and conclusion as to the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2024, excluded the portion of disclosure controls and procedures that are subsumed by internal control over financial reporting of Diamond. The total assets and total revenues of this acquired entity represented approximately 29% and 11% of our consolidated total assets and total revenues as of and for the year ended December 31, 2024, respectively. +102 +Management’s Annual Report on Internal Control Over Financial Reporting +The management of Noble is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) promulgated under the Exchange Act. Under the supervision of and with the participation of our management, including our Principal Executive Officer and our Principal Financial Officer, we conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on this assessment, our management concluded that Noble maintained effective internal control over financial reporting as of December 31, 2024. +In accordance with interpretive guidance issued by SEC staff, management has excluded Diamond from the assessment of the effectiveness of internal control over financial reporting as of December 31, 2024, as the Company acquired Diamond during the year ended December 31, 2024. The total assets and total revenues of this acquired entity represented approximately 29% and 11% of our consolidated total assets and total revenues as of and for the year ended December 31, 2024, respectively. +PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited our financial statements included in this Annual Report on Form 10-K, has audited the effectiveness of internal control over financial reporting as of December 31, 2024, as stated in their report, which is provided in Part II, Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. +Changes in Internal Control Over Financial Reporting +There were no changes in Noble’s internal control over financial reporting that occurred during the quarter ended December 31, 2024, that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting of Noble. +Limitations on the Effectiveness of Controls +Internal control over financial reporting includes the controls themselves, monitoring (including internal auditing practices), and actions taken to correct deficiencies as identified. There are inherent limitations to the effectiveness of internal control over financial reporting, however well designed, including the possibility of human error and the possible circumvention or overriding of controls. The design of an internal control system is also based in part upon assumptions and judgments made by management about the likelihood of future events, and there can be no assurance that an internal control will be effective under all potential future conditions. As a result, even an effective system of internal controls can provide no more than reasonable assurance with respect to the fair presentation of financial statements and the processes under which they were prepared. +Item 9B. Other Information. +Our directors and executive officers may from time to time enter into plans or other arrangements for the purchase or sale of our Ordinary Shares that are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or may represent a non-Rule 10b5-1 trading arrangement under the Exchange Act. During the three months ended December 31, 2024, no such plans or other arrangements were adopted , terminated , or modified. +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. +Not applicable. +103 +PART III +Item 10. Directors, Executive Officers, and Corporate Governance. +Information in response to this item is incorporated by reference to our Proxy Statement relating to our 2025 Annual Meeting of Shareholders. The Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal year covered by this Form 10-K pursuant to Regulation 14A under the Exchange Act. +Item 11. Executive Compensation. +Information in response to this item is incorporated by reference to our Proxy Statement relating to our 2025 Annual Meeting of Shareholders. The Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal year covered by this Form 10-K pursuant to Regulation 14A under the Exchange Act. +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. +Information in response to this item is incorporated by reference to our Proxy Statement relating to our 2025 Annual Meeting of Shareholders. The Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal year covered by this Form 10-K pursuant to Regulation 14A under the Exchange Act. +Item 13. Certain Relationships, Related Transactions, and Directors’ Independence. +Information in response to this item is incorporated by reference to our Proxy Statement relating to our 2025 Annual Meeting of Shareholders. The Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal year covered by this Form 10-K pursuant to Regulation 14A under the Exchange Act. +Item 14. Principal Accountant Fees and Services. +Information in response to this item is incorporated by reference to our Proxy Statement relating to our 2025 Annual Meeting of Shareholders. The Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal year covered by this Form 10-K pursuant to Regulation 14A under the Exchange Act. +104 +PART IV +Item 15. Exhibits and Financial Statement Schedules. +(a) The following documents are filed as part of this report: +(1) A list of the financial statements filed as a part of this report is set forth in Part II, Item 8, “ Financial Statem ents and Supplementary Data ” on page 53 of this Annual Report on Form 10-K and is incorporated herein by reference. +(2) Financial Statement Schedules: +All schedules are omitted because they are either not applicable or required information is shown in the financial statements or notes thereto. +(3) Exhibits: +The information required by this Item 15(a)(3) is set forth in the Index to Exhibits accompanying this Annual Report on Form 10-K and is incorporated herein by reference. +Item 16. Form 10-K Summary. +None. +105 +Index to Exhibits +Exhibit +Number Exhibit +2.1 +Modified Second Amended Joint Plan of Reorganization of Noble Corporation plc (n/k/a Noble Holding Corporation plc), a company incorporated under the laws of England and Wales (“Legacy Noble”), and its Debtor Affiliates (filed as Exhibit 2.1 to Legacy Noble’s Current Report on Form 8-K filed on November 23, 2020 and incorporated herein by reference). +2.2 † +Business Combination Agreement, dated as of November 10, 2021, by and among Noble Corporation, Noble Finco Limited (n/k/a Noble Corporation plc), Noble Newco Sub Limited and The Drilling Company of 1972 A/S (filed as Exhibit 2.1 to Noble Cayman’s Current Report on Form 8-K filed on November 10, 2021 and incorporated herein by reference). +2.3 +Amendment No. 1 to Business Combination Agreement, dated as of August 5, 2022, by and among Noble Corporation plc, Noble Corporation, Noble Newco Sub Limited and The Drilling Company of 1972 A/S. (filed as Exhibit 2.1 to Noble Cayman’s Current Report on Form 8-K filed on August 5, 2022 and incorporated herein by reference). +2.4 +Agreement and Plan of Merger, dated as of June 9, 2024, by and among Noble Corporation plc, Diamond Offshore Drilling, Inc., Dolphin Merger Sub 1, Inc. and Dolphin Merger Sub 2, Inc. (filed as Exhibit 2.1 to Noble’s Current Report on Form 8-K filed on June 10, 2024 and incorporated herein by reference). +3.1 +Amended and Restated Articles of Association of Noble Corporation plc (“Noble”) (filed as Exhibit 3.1 to Noble’s Current Report on Form 8-K filed on September 30, 2022 and incorporated herein by reference). +4.1 +Indenture, dated as of April 18, 2023, by and among Noble Finance II LLC, the subsidiaries of Noble Finance II LLC named therein, as guarantors, and U.S. Bank Trust Company, National Association, as trustee paying agent and registrar (including the form of 8.000% Senior Note due 2030 included therein) (filed as Exhibit 4.1 to Noble’s Current Report on Form 8-K filed on April 18, 2023 and incorporated herein by reference). +4.2 +Second Supplemental Indenture, dated as of August 22, 2024, among Noble Finance II LLC, as issuer, the guarantors listed on the signature pages thereto and U.S. Bank Trust Company, National Association, as trustee, paying agent and registrar (filed as Exhibit 4.3 to Noble’s Current Report on Form 8-K filed on August 22, 2024 and incorporated herein by reference). +4.3 +Indenture, dated as of September 21, 2023, among Diamond Foreign Asset Company and Diamond Finance, LLC, as issuers, Diamond Offshore Drilling, Inc., as a guarantor, the other subsidiaries of Diamond Offshore Drilling, Inc. party thereto from time to time, as guarantors, and HSBC Bank USA, National Association, as trustee and collateral agent (filed as Exhibit 4.1 to Diamond Offshore Drilling, Inc.’s Current Report on Form 8-K filed on September 22, 2023 and incorporated herein by reference). +4.4 +Supplemental Indenture, dated as of September 4, 2024, among Diamond Foreign Asset Company and Diamond Finance, LLC, as issuers, Diamond Offshore Drilling, Inc., as existing company, Dolphin Merger Sub 2, Inc., (now known as Noble Offshore Drilling Inc.) as new company, and HSBC Bank USA, National Association, as trustee and collateral agent (filed as Exhibit 4.1 to the Noble ' ’ s c urrent Report on Form 8-K filed on September 4, 2024 and incorporated herein by reference). +4.5** +Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934, as Amended. +106 +Exhibit +Number Exhibit +10.1* +Noble Corporation plc 2022 Long-Term Incentive Plan (filed as Exhibit 4.1 to Noble’s Registration Statement on Form S-8 filed on September 30, 2022 and incorporated herein by reference). +10.2* +First Amendment to the Noble Corporation plc 2022 Long-Term Incentive Plan, effective as of April 1, 2024 (filed as Exhibit 99.2 to Noble’s Registration Statement on Form S-8 filed on May 21, 2024 and incorporated herein by reference). +10.3* +Form of Time-Vested Restricted Stock Unit Award (Officers) under the Noble Corporation 2022 Long-Term Incentive Plan (2023 Annual Grant, filed as Exhibit 10.16 to Noble Cayman’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 and incorporated herein by reference). +10.4* +Form of Time-Vested Restricted Stock Unit Award (Non-Officers) under the Noble Corporation 2022 Long-Term Incentive Plan (2023 Annual Grant, filed as Exhibit 10.17 to Noble Cayman’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 and incorporated herein by reference). +10.5* +Form of Performance-Vested Restricted Stock Unit Award (CEO) under the Noble Corporation 2022 Long-Term Incentive Plan (2023 Annual Grant, filed as Exhibit 10.18 to Noble Cayman’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 and incorporated herein by reference). +10.6* +Form of Performance-Vested Restricted Stock Unit Award (Non-CEO) under the Noble Corporation 2022 Long-Term Incentive Plan (2023 Annual Grant, filed as Exhibit 10.19 to Noble Cayman’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 and incorporated herein by reference). +10.7* +Form of Director Restricted Stock Unit Award, effective as of January 25, 2024, under the Noble Corporation 2022 Long-Term Incentive Plan ( 2024 & 202 5 Annual Grant s , filed as Exhibit 10.8 to Noble’s Annual Report on Form 10-K for the year ended December 31, 2023 and incorporated by reference herein ). +10.8* +Form of Time-Vested Restricted Stock Unit Award for Executive Officers, effective as of August 2, 2023, under the Noble Corporation plc 2022 Long-Term Incentive Plan (2024 & 2025 Annual Grant, filed as Exhibit 10.3 to Noble’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 and incorporated herein by reference). +10.9* +Form of Performance-Vested Restricted Stock Unit Award, effective as of August 2, 2023, under the Noble Corporation plc 2022 Long-Term Incentive Plan (2024 & 2025 Annual Grant, filed as Exhibit 10.4 to Noble’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 and incorporated herein by reference). +10.10* +Global Amendment to Employee Time and Performance Restricted Stock Awards Plan (filed as Exhibit 10.2 to Noble’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 and incorporated herein by reference). +10.11* ^ +Noble Corporation plc Executive Change in Control Severance Plan (filed as Exhibit 10.1 to Noble’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 and incorporated herein by reference). +10.12* ^ +Noble Corporation plc Executive Severance Plan (filed as Exhibit 10.2 to Noble’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 and incorporated herein by reference). +107 +Exhibit +Number Exhibit +10.13 +Irrevocable Undertaking, dated as of November 10, 2021, by and among APMH Invest A/S, Noble Corporation, Noble Finco Limited and The Drilling Company of 1972 A/S (filed as Exhibit 10.1 to Noble Cayman’s Current Report on Form 8-K filed on November 10, 2021 and incorporated herein by reference). +10.14 +Form of Indemnification Agreement (filed as Exhibit 10.1 to Noble’s Current Report on Form 8-K filed on September 30, 2022 and incorporated herein by reference). +10.15 +Tranche 1 Warrant Agreement, dated as of September 30, 2022, by and among Noble Corporation plc, Computershare Inc. and Computershare Trust Company, N.A. (filed as Exhibit 10.2 to Noble’s Current Report on Form 8-K filed on September 30, 2022 and incorporated herein by reference). +10.16 +Tranche 2 Warrant Agreement, dated as of September 30, 2022, by and among Noble Corporation plc, Computershare Inc. and Computershare Trust Company, N.A. (filed as Exhibit 10.3 to Noble’s Current Report on Form 8-K filed on September 30, 2022 and incorporated herein by reference). +10.17 +Tranche 3 Warrant Agreement, dated as of September 30, 2022, by and among Noble Corporation plc, Computershare Inc. and Computershare Trust Company, N.A. (filed as Exhibit 10.4 to Noble’s Current Report on Form 8-K filed on September 30, 2022 and incorporated herein by reference). +10.18 +Assumption Agreement, dated as of September 30, 2022, by and between Noble Corporation plc and Noble Corporation (filed as Exhibit 10.5 to Noble’s Current Report on Form 8-K filed on September 30, 2022 and incorporated herein by reference). +10.19 +Registration Rights Agreement, dated as of October 3, 2022, by and between Noble Corporation plc and APMH Invest A/S (filed as Exhibit 10.2 to Noble’s Current Report on Form 8-K filed on October 3, 2022 and incorporated herein by reference). +10.20 +Relationship Agreement, dated as of October 3, 2022, by and among Noble Corporation plc, Noble Corporation and APMH Invest A/S (filed as Exhibit 10.3 to Noble’s Current Report on Form 8-K filed on October 3, 2022 and incorporated herein by reference). +10.21* +Transition and Retirement Agreement dated as of February 3, 2023, by and among Noble Services Company LLC, Noble Corporation plc and William E. Turcotte (filed as Exhibit 10.1 to Noble’s Current Report on Form 8-K filed on February 3, 2023 and incorporated herein by reference). +10.22** +Noble Corporation plc 202 5 Short-Term Incentive Plan . +10.23 +Amended and Restated Senior Secured Revolving Credit Agreement, dated as of April 18, 2023, by and among Noble Finance II LLC, Noble International Finance Company , Noble Drilling A/S, and any additional subsidiaries of Noble Finance II LLC as from time to time designated by Noble Finance II LLC as a designated borrower, as borrowers, the lenders and issuing banks party thereto from time to time and JPMorgan Chase Bank, N.A., as administrative agent, collateral agent and security trustee (filed as Exhibit 10.1 to Noble’s Current Report on Form 8-K filed on April 18, 2023 and incorporated herein by reference). +108 +Exhibit +Number Exhibit +10.24 +First Amendment to the Amended and Restated Senior Secured Revolving Credit Agreement, dated as of June 24, 2024 by and among Noble Finance II LLC, Noble International Finance Company, as a de signated borrower , Noble Drilling A/S, as a designated borrower, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 10.1 to Noble’s Current Report on Form 8-K filed on June 27, 2024 and incorporated herein by reference). +10.25 +Amended and Restated Collateral Agreement and Intercreditor Agreement, dated as of Septem ber 21, 2023, among Noble Offshore Drilling, Inc. (formerly known as Dolphin Merger Sub 2, Inc. and as successor by merger with Diamond Offshore Drilling, Inc.), as a grantor, Diamond Foreign Asset Company, as a grantor, the other grantors from time to time party thereto, HSBC Bank USA, National Association, as credit agreement administrative agent, notes trustee, and collateral agent and security trustee (incorporated by reference to Exhibit 10.1 to Diamond Offshore Drill i ng, Inc.’s Current Report on Form 8-K filed on September 22, 2023 and incorporated herein by reference). +10.26* +Employment Letter, dated December 20, 2022, by and between Noble Services Company LLC and Caroline Alting (filed as Exhibit 10.1 to Noble’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 and incorporated herein by reference). +10.27* +Diamond Offshore Drilling, Inc. 2021 Long-Term Stock Incentive Plan (filed as Exhibit 10.1 to Noble’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 and incorporated herein by reference). +10.28* +First Amendment to the Diamond Offshore Drilling, Inc. 2021 Long-Term Stock Incentive Plan (filed as Exhibit 10.2 to Noble’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 and incorporated herein by reference). +19.1** +Noble Corporation plc Policy on Trading in Company S ec urities. +21.1 +List of Subsidiaries of Noble Corporation plc . +23.1 +Consent of PricewaterhouseCoopers LLP. +31.1 +Certification of Robert W. Eifler, Noble, pursuant to the U.S. Securities Exchange Act of 1934, as amended, Rule 13a-14(a) or Rule 15d-14(a). +31.2 +Certification of Richard B. Barker, Noble, pursuant to the US Securities Exchange Act of 1934, as amended, Rule 13a-14(a) or Rule 15d-14(a). +32.1+ +Certification of Robert W. Eifler, Noble, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +32.2+ +Certification of Richard B. Barker, Noble, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97.1 +Noble Corporation plc Clawback Policy (filed as Exhibit 97.1 to Noble’s Annual Report on Form 10-K for the year ended December 31, 2023 and incorporated by reference herein). +109 +Exhibit +Number Exhibit +101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. +101.SCH Inline XBRL Taxonomy Extension Schema Document. +101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. +101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. +101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. +101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. +104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). +______________________________________________________________________________________________________________________________________________________________________________________________________________________ +* Management contract or compensatory plan or arrangement. +** Filed herewith. +† Certain portions of the exhibit have been omitted. The Company agrees to furnish a supplemental copy with any omitted information to the SEC upon request. +^ Certain personally identifiable information contained in this exhibit has been redacted pursuant to Item 601(a)(6) of Regulation S-K. ++ Furnished in accordance with Item 601(b)(32)(ii) of Regulation S-K. +110 +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +Noble Corporation plc, a public limited company incorporated under the laws of England and Wales +February 18, 2025 By: /s/ Robert W. Eifler +Robert W. Eifler +President and Chief Executive Officer +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +/s/ Robert W. Eifler February 18, 2025 +Robert W. Eifler +President and Chief Executive Officer, and Director +(Principal Executive Officer) Date +/s/ Richard B. Barker February 18, 2025 +Richard B. Barker +Executive Vice President and Chief Financial Officer +(Principal Financial Officer) Date +/s/ Jennifer Yeung February 18, 2025 +Jennifer Yeung +Vice President, Chief Accounting Officer and Controller +(Principal Accounting Officer) Date +/s/ Charles M. Sledge February 18, 2025 +Charles M. Sledge +Director and Chairman Date +/s/ Patrice Douglas February 18, 2025 +Patrice Douglas +Director Date +/s/ Claus V. Hemmingsen February 18, 2025 +Claus V. Hemmingsen +Director Date +/s/ Alan J. Hirshberg February 18, 2025 +Alan J. Hirshberg +Director Date +/s/ Kristin H. Holth February 18, 2025 +Kristin H. Holth +Director Date +/s/ H. Keith Jennings February 18, 2025 +H. Keith Jennings +Director Date +/s/ Alastair J. Maxwell +February 18, 2025 +Alastair J. Maxwell +Director +Date +111 +/s/ Ann D. Pickard February 18, 2025 +Ann D. Pickard +Director Date +112 \ No newline at end of file diff --git a/raw/filings/0001895262/2024/0001628280-25-006184/filing_metadata.csv b/raw/filings/0001895262/2024/0001628280-25-006184/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..d0550143932a3cd189398716c8a7ae73e29f01ea --- /dev/null +++ b/raw/filings/0001895262/2024/0001628280-25-006184/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001895262,NE-WTA,Noble Corp plc,2024,10-K,2025-02-19,2024-12-31,2025-02-19T00:10:05.000Z,0001628280-25-006184,ne-20241231.htm,10-K,15916352,1,1,https://www.sec.gov/Archives/edgar/data/1895262/000162828025006184/ne-20241231.htm,https://www.sec.gov/Archives/edgar/data/1895262/000162828025006184/ diff --git a/raw/filings/0001895262/2024/0001628280-25-006184/item1.txt b/raw/filings/0001895262/2024/0001628280-25-006184/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..aa51292bd600436e51f584fd0faf3592db499c7d --- /dev/null +++ b/raw/filings/0001895262/2024/0001628280-25-006184/item1.txt @@ -0,0 +1,133 @@ +Item 1. Business. +Overview +Noble Corporation plc, a public limited company incorporated under the laws of England and Wales, is a leading offshore drilling contractor for the oil and gas industry. We provide contract drilling services to the international oil and gas industry with our global fleet of mobile offshore drilling units. We focus on a high-specification fleet of floating and jackup rigs and the deployment of our drilling rigs in oil and gas basins around the world. Noble and its predecessors have been engaged in the contract drilling of oil and gas wells since 1921. As of December 31, 2024, our fleet of 40 drilling rigs consisted of 27 floaters and 13 jackups. +On September 30, 2022 (the “Merger Effective Date”), pursuant to a business combination agreement, dated November 10, 2021 (as amended, the “Business Combination Agreement”), by and among Noble (as defined below), Noble Corporation, an exempted company incorporated in the Cayman Islands with limited liability (“Noble Cayman”), Noble Newco Sub Limited, a Cayman Islands exempted company and a direct, wholly owned subsidiary of Noble (“Merger Sub”), and The Drilling Company of 1972 A/S, a Danish public limited liability company (“Maersk Drilling”), Noble Cayman merged with and into Merger Sub (the “Merger”), with Merger Sub surviving the Merger as a wholly owned subsidiary of Noble. As a result of the Merger, Noble became the ultimate parent of Noble Cayman and its respective subsidiaries. +On October 3, 2022 (the “Closing Date”), pursuant to the Business Combination Agreement, Noble completed a voluntary tender exchange offer to Maersk Drilling’s shareholders (the “Offer” and, together with the Merger and the other transactions contemplated by the Business Combination Agreement, the “Business Combination”) and because Noble acquired more than 90% of the issued and outstanding shares of Maersk Drilling, nominal value Danish krone (“DKK”) 10 per share (“Maersk Drilling Shares”), Noble redeemed all remaining Maersk Drilling Shares not exchanged in the Offer for, at the election of the holder, either A ordinary shares, par value $0.00001 per share, of Noble (“Ordinary Shares”) or cash (or, for those holders that did not make an election, only cash), under Danish law by way of a compulsory purchase (the “Compulsory Purchase”) which was completed in early November 2022. Upon completion of the Compulsory Purchase, Maersk Drilling became a wholly owned subsidiary of Noble. +On June 9, 2024, Noble entered into an agreement and plan of merger (the “Diamond Merger Agreement”) with Diamond Offshore Drilling, Inc. (“Diamond”), Dolphin Merger Sub 1, Inc., and Dolphin Merger Sub 2, Inc., under which Noble would acquire Diamond in a stock plus cash transaction (the “Diamond Transaction”). On September 4, 2024 (the “Diamond Closing Date”), Noble completed its acquisition of Diamond. +For additional information, see “Note 2 — Acquisitions and Divestitures” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +As a result of the Merger, Noble became the successor issuer to Noble Cayman for purposes of and pursuant to the Exchange Act. References in this Annual Report on Form 10-K to “Noble,” the “Company,” “we,” “us,” and “our” refer collectively to (i) Noble Cayman and its consolidated subsidiaries prior to the Merger Effective Date, (ii) Noble and its consolidated subsidiaries (including Noble Cayman) on and after the Merger Effective Date, and (iii) Noble and its consolidated subsidiaries on and after the Diamond Closing Date, as applicable. +Contract Drilling Services +We report our contract drilling operations as a single reportable segment, Contract Drilling Services, which reflects how we manage our business. The mobile offshore drilling units comprising our offshore rig fleet operate in a global market for contract drilling services and are often redeployed to different regions due to changing demands of our customers, which consist primarily of large, integrated, independent, and government-owned or controlled oil and gas companies throughout the world. +We typically provide contract drilling services under an individual contract on a dayrate basis. Each contract’s final terms and conditions are the result of negotiations with our customers, and many contracts are awarded through a competitive bidding process. The following terms generally describe the key aspects of our contracts: +• contract duration extending over a specific period of time or a period necessary to drill a defined number of wells; +6 +• payment of compensation to us (generally in US dollars although some customers, typically national oil companies, require a part of the compensation to be paid in local currency) on a “daywork” basis, so that we receive a fixed amount for each day (“dayrate”) that the drilling unit is operating under contract (a lower rate or no compensation is payable during periods of equipment breakdown and repair or adverse weather or in the event operations are interrupted by other conditions, some of which may be beyond our control); +• provisions permitting early termination of the contract by the customer (i) if the unit is lost or destroyed, (ii) if operations are suspended for a specified period of time due to breakdown of equipment or breach of contract, or (iii) for convenience with the payment of contractually specified termination amounts; +• provisions allowing the impacted party to terminate the contract if specified “force majeure” events beyond the contracting parties’ control occur for a defined period of time; +• payment by us of the operating expenses of the drilling unit, including labor costs and the cost of incidental supplies; +• provisions that allow us to recover our mobilization and demobilization costs associated with moving a drilling unit from one regional location to another which, under certain market conditions, may not allow us to receive full reimbursement of such costs; +• provisions that allow us to recover certain cost increases from our customers in certain long-term contracts; +• provisions that require us to lower dayrates for documented cost decreases in certain long-term contracts; and +• provisions that allocate responsibility and liability through indemnification provisions for risks related to personal injury, property damage or loss, environmental damages, damage to the reservoir, and other matters. +Under our drilling contracts, liability with respect to personnel and property is typically assigned on a “knock-for-knock” basis, which means that we and our customers assume liability for our respective personnel and property, generally irrespective of the fault or negligence of the party indemnified. In addition, our customers may indemnify us in certain instances for damage to our down-hole equipment and, in some cases, our subsea equipment. Also, we generally obtain a mutual waiver of consequential losses in our drilling contracts. +Our customers typically assume responsibility for and indemnify us from loss or liability resulting from pollution or contamination, including third-party damages and clean-up and removal, arising from operations under the contract and originating below the surface of the water. We are generally responsible for pollution originating above the surface of the water and emanating from our drilling units. Additionally, our customers typically indemnify us for liabilities incurred as a result of a blow-out or cratering of the well and underground reservoir loss or damage. In the current market, we are under increasing pressure to accept exceptions to the above-described allocations of risk and, as a result, take on more risk. In such cases where we agree, we generally limit the exposure with a monetary cap and other restrictions. +During periods of depressed market conditions, our customers may attempt to renegotiate or repudiate their contracts with us although we seek to enforce our rights under our contracts. The renegotiation may include changes to key contract terms, such as pricing, termination, and risk allocation. +For a discussion of our backlog of commitments for contract drilling services, please read Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Contract Drilling Services Backlog.” +Drilling Fleet +Noble is a leading offshore drilling contractor for the oil and gas industry. Noble owns and operates one of the most modern, versatile, and technically advanced fleets of mobile offshore drilling units in the offshore drilling industry. Noble provides, through its subsidiaries, contract drilling services with a fleet of 40 offshore drilling units, consisting of 27 floaters and 13 jackups at the date of this report, focused largely on ultra-deepwater and harsh environment drilling opportunities in both established and emerging regions worldwide. Each type of drilling rig is described further below. Several factors determine the type of unit most suitable for a particular job, the most significant of which include the water depth and the environment of the intended drilling location, whether the drilling is being done over a platform or other structure, and the intended well depth. At December 31, 2024, our fleet was operating in Africa, Far East Asia, the Middle East, the North Sea, Oceania, South America, and the US Gulf. Our fleet consists of the following types of mobile offshore drilling units: +Floaters . A drillship is a type of floating drilling unit that is based on the ship-based hull of the vessel and equipped with modern drilling equipment that gives it the capability of easily transitioning from various worldwide locations and carrying high capacities of equipment while being able to drill ultra-deepwater oil and gas wells in up to 12,000 feet of water. Drillships can stay directly over the drilling location without anchors in open seas using a dynamic positioning system +7 +(“DPS”), which coordinates position references from satellite signals and acoustic seabed transponders with the drillship's six to eight thrusters to keep the ship directly over the well that is being drilled. Drillships are selected to drill oil and gas wells for programs that require a high level of simultaneous operations, where drilling loads are expected to be high, or where there are occurrences of high ocean currents, where the drillship's hull shape is the most efficient. Noble's fleet consists of 19 drillships capable of water depths from 10,000 feet to 12,000 feet. +Semisubmersible drilling units are designed as a floating drilling platform incorporating one or several pontoon hulls, which are submerged in the water to lower the center of gravity and make this type of drilling unit exceptionally stable in the open sea. Semisubmersible drilling units are generally categorized in terms of the water depth in which they are capable of operating, from the mid-water range of 300 feet to 4,000 feet, the deepwater range of 4,000 feet to 7,500 feet, to the ultra-deepwater range of 7,500 feet to 12,000 feet as well as by their generation, or date of construction. This type of drilling unit typically exhibits excellent stability characteristics, providing a stable platform for drilling in even rough seas. Semisubmersible drilling units hold their position over the drilling location using either an anchored mooring system or a DPS and may be self-propelled. Noble’s fleet consists of 8 moored ultra-deepwater semisubmersible drilling units. +Jackups . Jackup drilling units are designed to provide drilling solutions in depths ranging from less than 100 feet to as deep as 500 feet of water with drilling hook loads up to 2,500,000 pounds. Jackup rigs can be used in open water exploration locations, as well as over fixed, bottom-supported platforms. A jackup drilling unit is a towed mobile vessel consisting of a floating hull equipped with three or four legs, which are lowered to the seabed at the drilling location. The hull is then elevated out of the water by the jacking system using the legs to support the weight of the hull and drilling equipment against the seabed. Once the hull is elevated to the desired level, or jacked up, the drilling package can be extended out over an existing production platform or the open water location and drilling can commence. Noble’s fleet of 13 jackups consists of high-specification units capable of drilling in up to 500 feet of water. +The following table presents certain information concerning our offshore fleet at February 18, 2025. We own and operate all of the units included in the table. +8 +Name Make +Year Built (1) +Water Depth Rating (feet) (2) +Drilling Depth Capacity (feet) Location +Status (3) +Floaters—27 +Drillships—19 +Noble Bob Douglas GustoMSC P10000 2013 12,000 40,000 Guyana Active +Noble Don Taylor GustoMSC P10000 2013 12,000 40,000 Guyana Active +Noble Faye Kozack Samsung 96000 2013 12,000 40,000 Brazil Active +Noble Gerry de Souza Samsung 120000 Double Hull 2011 12,000 40,000 Nigeria Active +Noble Globetrotter I Globetrotter Class 2011 10,000 30,000 US Gulf Active +Noble Globetrotter II Globetrotter Class 2013 10,000 30,000 US Gulf Available +Noble Sam Croft GustoMSC P10000 2014 12,000 40,000 Guyana Active +Noble Stanley Lafosse Samsung 96000 2014 12,000 40,000 US Gulf Active +Noble Tom Madden GustoMSC P10000 2014 12,000 40,000 Guyana Active +Pacific Meltem (4) +Samsung 96000 2014 12,000 40,000 Las Palmas Stacked +Pacific Scirocco (4) +Samsung 120000 Double Hull 2011 12,000 40,000 Las Palmas Stacked +Noble Valiant Samsung 96000 2014 12,000 40,000 US Gulf Active +Noble Venturer Samsung 96000 2014 12,000 40,000 Namibia Active +Noble Viking Samsung 96000 2014 12,000 40,000 Malaysia Active +Noble Voyager Samsung 96000 2015 12,000 40,000 Curacao Available +Noble BlackRhino Gusto P10000 2014 12,000 40,000 US Gulf Active +Ocean BlackHawk Gusto P10000 2014 12,000 40,000 US Gulf Active +Ocean BlackHornet Gusto P10000 2014 12,000 40,000 US Gulf Active +Ocean BlackLion Gusto P10000 2015 12,000 40,000 US Gulf Active +Semisubmersibles—8 +Noble Deliverer DSS21-DPS2 2010 10,000 40,000 Malaysia Available +Noble Developer DSS21-DPS2 2009 10,000 40,000 Trinidad & Tobago Active +Noble Discoverer DSS21-DPS2 2009 10,000 40,000 Colombia Active +Noble Patriot Bingo 3000 1983 1,500 20,000 UK Active +Ocean Apex Enhanced Victory 1976/2014 6,000 30,000 Australia Active +Ocean Courage F&G ExD Millennium 2009 10,000 40,000 Brazil Active +Ocean Endeavor Enhanced Victory 1975/2006 10,000 35,000 UK Active +Ocean GreatWhite Moss CS-60E 2016 10,000 35,000 UK Active +Independent Leg Cantilevered Jackups—13 +Harsh environment—8 +Noble Highlander F&G JU-2000E 2016 400 30,000 Denmark Stacked +Noble Mick O’Brien F&G JU-3000N 2013 400 35,000 Qatar Active +Noble Regina Allen F&G JU-3000N 2013 400 30,000 Argentina Active +Noble Resilient MCS CJ50-X100 MC 2008 350 30,000 UK Active +Noble Resolute MCS CJ50-X100 MC 2008 350 30,000 Netherlands Active +Noble Resolve MCS CJ50-X100 MC 2009 350 30,000 Poland Active +Noble Tom Prosser F&G JU-3000N 2014 400 30,000 Malaysia Active +Noble Reacher MCS CJ50-X100 MC 2009 350 30,000 Denmark Active +9 +Ultra-harsh environment—5 +Noble Innovator MCS CJ70-150MC 2003 492 30,000 UK Active +Noble Integrator MCS CJ70-X150 MD 2015 492 40,000 Norway Active +Noble Interceptor MCS CJ70-X150 MD 2014 492 40,000 Denmark Available +Noble Intrepid MCS CJ70-X150 MD 2014 492 40,000 UK Active +Noble Invincible MCS CJ70-X150 MD 2016 492 40,000 Norway Active +(1) All of our current rigs were delivered to the Company new from the shipyard. +(2) Rated water depth for drillships and semisubmersibles reflects the maximum water depth for which a floating rig has been designed for drilling operations. +(3) Rigs listed as “active” are operating, preparing to operate, or under contract; rigs listed as “available” are actively seeking contracts and may include those that are idle or warm stacked; rigs listed as “stacked” are idle without a contract, have reduced or no crew, or are not actively marketed in present market conditions. +(4) In February 2025, we committed to a plan to sell the Pacific Meltem and Pacific Scirocco . +Market +The offshore contract drilling industry is a highly competitive and cyclical business. Demand for offshore drilling services is driven by the offshore exploration and development programs of oil and gas operators, which in turn are influenced by many factors. Those factors include, but are not limited to, the price and price stability of oil and gas, the relative cost and carbon footprint of offshore resources within each operator’s broader energy portfolio, global macroeconomic conditions, world energy demand, the operator’s strategy toward renewable energy sources, environmental considerations, and governmental policies. +In the provision of offshore contract drilling services, success in securing contracts is primarily governed by price, a rig’s availability, drilling capabilities and technical specifications, and the drilling contractor’s safety performance record. Other factors include experience of the workforce, process efficiency, condition of equipment, operating integrity, reputation, industry standing, and client relations. +We maintain a global operational presence and compete in many of the major offshore oil and gas basins worldwide with a primary focus on the deepwater and ultra-deepwater market and the harsh and ultra-harsh environment jackup and floater markets. All our drilling rigs are mobile, and we may reposition our drilling rigs among regions for a variety of reasons, including in response to customer requirements. We compete in both the jackup and floating rig markets, each of which may have different supply and demand dynamics at a given period in time or in different regions. +We have one of the youngest and highest specification fleets of global scale in the industry, with diversification across asset classes, geographic regions, and customers. The Company has a track record of industry-leading utilization, coupled with a commitment to best-in-class safety performance and customer satisfaction. We strive to be a leader in industry innovation and first-mover in sustainability. +The offshore drilling industry has historically experienced significant volatility and change. In recent years, however, oil prices have generally remained at levels that are supportive of offshore exploration and development activity. While ongoing geopolitical and macroeconomic factors continue to create some uncertainty relating to future global energy demand, global offshore rig demand has generally remained robust since 2021. During 2023 and 2024, the total level of global floater and jackup demand exceeded 2020 early pre-pandemic highs, albeit with some moderation over the past 12 months as upstream capital discipline has resulted in a slight reduction in contracted offshore rig demand compared to early 2024 peak levels. As a result, utilization and leading edge dayrates for certain rig classes have recently plateaued or decreased. A further softening of utilization in 2025 could result in corresponding dayrate pressure in certain situations due to a more competitive bidding environment. +The global rig supply has come down from historic highs as Noble and other offshore drilling contractors have retired less capable and idle assets. Concurrently, the incoming supply of newbuild offshore drilling rigs has diminished materially, with several newbuild rigs stranded in shipyards. However, we expect many of these stranded newbuild rigs may continue to make their way into the global market over the next few years. +Although the market outlook in our business varies by geographical region and water depth, we remain encouraged by the long-term outlook in the ultra-deepwater floater market, with overall demand having increased from 2020 lows. Our customers continue to focus on our highest specification floaters, which represents the majority of our floater fleet. While +10 +we remain encouraged about overall rig demand, to the extent global macroeconomic concerns become more prevalent, we could experience downward pressure on oil and gas prices as well as overall rig demand for both floaters and jackups. +As of the date of this report, the majority of our jackup fleet is positioned in the North Sea. While we have seen generally stable demand in the UK and southern North Sea in recent years, overall activity levels in the region remain subdued compared to historical levels. Similarly, the ultra-harsh environment jackup market in Norway also remains below historical levels despite the market being attractive to operators given it is characterized by low-cost and low-emission barrels. +Returning to the broader offshore drilling market, while there are a number of multi-year contracts out for tender, the overall market remains characterized by generally shorter-term contracts. This leads to an increased number of rig contract start-ups, both with different customers and among different regions, which may require incremental resources and costs. Additionally, this has resulted in, and is likely to continue to result in, lower overall effective utilization for our fleet driven by more idle time between contracts. +The energy transition from hydrocarbons to renewables poses a challenge to the oil and gas sector and our market. Energy rebalancing trends have accelerated in recent years as evidenced by promulgated or proposed government policies and commitments by many of our customers to further invest in sustainable energy sources. Our industry could be further challenged as resource holders and policy makers continue to evaluate and calibrate strategies and capital flows to address global energy needs. Ultimately, however, there continues to be a global dependence on products made from hydrocarbons and on the combustion of hydrocarbons to provide reliable and affordable energy. Low-cost and low-emission barrels are expected to be the most attractive conventional source to meet energy needs both currently and in the future. Global energy demand is predicted to increase over the coming decades, and we expect that offshore oil and gas will continue to play an important and lasting role in meeting this demand. +While inflationary pressures in our industry have eased since 2023, our cost profile remains sensitive to global labor market conditions, capital intensive repair and maintenance scopes on our rigs, global trade and sanctions regimes, and geopolitical crises and their respective regional and global ramifications. Each of these factors has the potential to adversely impact our ability to conduct our day-to-day operations and manage costs. +Significant Customers +During the three years ended December 31, 2024, we principally conducted our contract drilling operations in Africa, Far East Asia, the Middle East, the North Sea, Oceania, South America, and the US Gulf. The following table sets forth revenues from our customers as a percentage of our consolidated operating revenues: +Year Ended Year Ended Year Ended +December 31, 2024 December 31, 2023 December 31, 2022 +Exxon Mobil Corporation (“ExxonMobil”) 22.1 % 24.5 % 32.3 % +Shell plc 12.3 % 13.6 % 12.0 % +TotalEnergies 6.3 % 10.5 % 9.7 % +No other customer accounted for more than 10 percent of our consolidated operating revenues in 2024, 2023, or 2022. +Human Capital +At December 31, 2024, we had approximately 5,000 employees, excluding approximately 1,400 persons we engaged through labor contractors or agencies. Approximately 80% percent of our workforce is located offshore. Certain of our employees and contractors in international markets, such as Norway and Denmark, are represented by labor unions and work under collective bargaining or similar agreements, which are subject to periodic renegotiation, and we consider our employee relations to be satisfactory. +For additional information, please read Part I, Item 1A, “Risk Factors—Risk Related to Our Business and Operations—Unionization efforts, labor interruptions and labor regulations could have a material adverse effect on our operations.” +Our compliance program is focused on promoting adherence with high ethical standards and applicable laws and setting the tone for an ethical business practices and work environment throughout the Company. The Noble Code, Noble’s code of business conduct and ethics (the “Code of Conduct”), encompasses our commitments to our Core Values of safety, environmental stewardship, honesty and integrity, respect, and performance. The Code of Conduct also includes our responsibility and commitment to follow all applicable laws as well as our own internal policies, and extends requirements to any supplier or third party who works with Noble to comply with similar fundamental principles. +11 +Operating our business in a socially responsible way is integral to our identity. Internally, our employee-focused programs, such as training and continuing education, our promotion and advancement program, focus on inclusion and culture, recruitment initiatives, and retirement and benefits, are key to our commitment to the personal and professional growth of our workforce. Externally, our dedication is evidenced by our affiliations and how we contribute to and invest in the communities where we operate. +Talent Management. Noble is committed to a number of initiatives that directly support our employee talent management. As part of these initiatives, Noble is committed to the promotion of equal opportunity and non-discrimination and aspires to not only promote an environment and culture of inclusion, but also provide healthy working conditions that enable our employees to reach their full potential. +In order to enable regular feedback loops and a continuous focus on employee engagement, we implement semi-annual Employee Engagement Surveys, results of which are shared with the organization and leaders engage their teams in a conversation regarding the results and subsequent actions. Noble also focuses on enabling performance through continuous conversations between the leader and the employee. The conversations are intended to take place at least twice a year and follow a structured framework pertaining to contributions, engagement, and development, and incorporate two-way feedback. +We also identify high-performing and high-potential individuals within Noble and aspire to ensure succession planning regarding all critical positions. We focus on engagement and retention of such individuals by aspiring to offer experiences and opportunities that demonstrate our commitment to their ongoing growth. +Safety and Environmental Stewardship. Noble is committed to operating with excellent health, safety, and environmental (“HSE”) performance as part of our business strategy in order to add further value for employees, customers, and shareholders. All personnel, regardless of job or position onboard our vessels or at any Noble facility, has the authorization and obligation to immediately stop any unsafe act, practice, or job that poses an unaddressed or unreasonable risk or danger to people or the environment. Noble’s pursuit of exceptional HSE performance begins with our strong corporate culture and by starting SAFE every day: one tour, one task and one person at a time. SAFE is an acronym for the phrase: follow Standards, be Accountable, stay Focused, achieve Excellence. Daily, the crew onboard each rig works together to achieve specific safety and environmental objectives and if all objectives are met, then the day is counted as a SAFE Day. Under our SAFE Day program, in 2024, our rigs achieved the SAFE objectives 98.6% of available days, which has remained flat compared to 2023 performance. As of December 31, 2024, this metric is only available for vessels owned by Noble prior to the Diamond Transaction. As integration activities are completed throughout 2025, all current Noble vessels will utilize this program. +Training and Continuing Education. We place considerable value on the training and development of our employees. Accordingly, we conduct formal and informal meetings with employees, regular executive-led podcasts, issue periodic publications of Company activities, and other matters of interest to the Company’s OneNoble app and offer a variety of training, including in-house through NobleAdvances, our state-of-the-art training facility in Texas. Noble has learned that technical skills are not enough to keep pace in our fast-changing offshore environments. NobleAdvances allows us to deliver scenario-based drilling and marine training with a strong focus on communication, biases, and emergency decision making. This approach is designed to enable Noble employees to execute our procedures effectively and solve complex technical problems in challenging offshore conditions. +Environmental Responsibility +Climate change is an environmental, social, and economic challenge facing everyone today. We are committed to continuous improvement and a sustainable energy future supported by our efforts to protect the environment throughout our operations and safely provide reliable and efficient services to allow access to resources essential for human and economic prosperity. There is ongoing attention concerning the global climate and the effect of greenhouse gas (“GHG”) emissions. Various regulators have proposed or adopted rules requiring the monitoring and reporting of GHG emissions from specified sources in the United States, including, among other things, certain offshore activities relating to oil and gas production. As such, we regularly assess the environmental impact of operations, focusing on the reduction of GHG emissions, operational discharges, water use, and waste. Furthermore, we actively look to collaborate with our customers to evaluate economic alternatives for reducing the carbon footprint of our drilling rigs. +Available Information +Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge at our website as soon as reasonably practicable after such material is electronically filed with or furnished with the SEC. The SEC +12 +maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. +Our website address is http://www.noblecorp.com. Investors should also note that we announce material financial information in SEC filings, press releases, and public conference calls. Based on guidance from the SEC, we may use the investor relations section of our website to communicate with our investors. It is possible that the financial and other information (including fleet status reports) posted there could be deemed to be material information. Noble may also use social media channels including, but not limited to, Noble's accounts on LinkedIn, Facebook, Instagram, and Twitter, to communicate with investors and the public about its business, services, and other matters, and those communications could be deemed to be material information. Documents and information on our website or our social media channels are not incorporated by reference herein. +13 \ No newline at end of file diff --git a/raw/filings/0001895262/2024/0001628280-25-006184/item13.txt b/raw/filings/0001895262/2024/0001628280-25-006184/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..c691ea7be84850a01d9ae07282a012c6ae34d593 --- /dev/null +++ b/raw/filings/0001895262/2024/0001628280-25-006184/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships, Related Transactions , and Director s ’ Independence +104 \ No newline at end of file diff --git a/raw/filings/0001895262/2025/0001895262-26-000076/filing.txt b/raw/filings/0001895262/2025/0001895262-26-000076/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..f0fdb8506ab9b67f703b370bfbf89e08bb5a4c7e --- /dev/null +++ b/raw/filings/0001895262/2025/0001895262-26-000076/filing.txt @@ -0,0 +1,2234 @@ +ne-20251231 +0001895262 2025 FY false P3Y P2Y P3Y P2M 1 http://www.noblecorp.com/20251231#GainLossOnSaleOfOperatingAssetsNetOfTransactionCosts http://www.noblecorp.com/20251231#GainLossOnSaleOfOperatingAssetsNetOfTransactionCosts 0.5 1 1 1 1 1 1 1 1 1 http://fasb.org/us-gaap/2025#OtherAssetsNoncurrent http://fasb.org/us-gaap/2025#OtherAssetsNoncurrent http://fasb.org/us-gaap/2025#OtherLiabilitiesCurrent http://fasb.org/us-gaap/2025#OtherLiabilitiesCurrent http://fasb.org/us-gaap/2025#OtherLiabilitiesNoncurrent http://fasb.org/us-gaap/2025#OtherLiabilitiesNoncurrent http://fasb.org/us-gaap/2025#OtherAssetsNoncurrent http://fasb.org/us-gaap/2025#OtherAssetsNoncurrent http://fasb.org/us-gaap/2025#OtherLiabilitiesCurrent http://fasb.org/us-gaap/2025#OtherLiabilitiesCurrent http://fasb.org/us-gaap/2025#OtherLiabilitiesNoncurrent http://fasb.org/us-gaap/2025#OtherLiabilitiesNoncurrent P5Y 1 268 268 iso4217:USD xbrli:shares iso4217:USD xbrli:shares ne:rig ne:floater ne:jackup ne:segment xbrli:pure 0001895262 2025-01-01 2025-12-31 0001895262 us-gaap:CommonStockMember 2025-01-01 2025-12-31 0001895262 ne:Tranche1WarrantsMember 2025-01-01 2025-12-31 0001895262 ne:Tranche2WarrantsMember 2025-01-01 2025-12-31 0001895262 2025-06-30 0001895262 2026-02-06 0001895262 2025-12-31 0001895262 2024-12-31 0001895262 us-gaap:OilAndGasServiceMember 2025-01-01 2025-12-31 0001895262 us-gaap:OilAndGasServiceMember 2024-01-01 2024-12-31 0001895262 us-gaap:OilAndGasServiceMember 2023-01-01 2023-12-31 0001895262 us-gaap:ServiceOtherMember 2025-01-01 2025-12-31 0001895262 us-gaap:ServiceOtherMember 2024-01-01 2024-12-31 0001895262 us-gaap:ServiceOtherMember 2023-01-01 2023-12-31 0001895262 2024-01-01 2024-12-31 0001895262 2023-01-01 2023-12-31 0001895262 2023-12-31 0001895262 2022-12-31 0001895262 us-gaap:CommonStockMember 2022-12-31 0001895262 us-gaap:AdditionalPaidInCapitalMember 2022-12-31 0001895262 us-gaap:RetainedEarningsMember 2022-12-31 0001895262 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-12-31 0001895262 us-gaap:AdditionalPaidInCapitalMember 2023-01-01 2023-12-31 0001895262 us-gaap:CommonStockMember 2023-01-01 2023-12-31 0001895262 us-gaap:RetainedEarningsMember 2023-01-01 2023-12-31 0001895262 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-01-01 2023-12-31 0001895262 us-gaap:CommonStockMember 2023-12-31 0001895262 us-gaap:AdditionalPaidInCapitalMember 2023-12-31 0001895262 us-gaap:RetainedEarningsMember 2023-12-31 0001895262 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-12-31 0001895262 us-gaap:AdditionalPaidInCapitalMember 2024-01-01 2024-12-31 0001895262 us-gaap:CommonStockMember 2024-01-01 2024-12-31 0001895262 us-gaap:RetainedEarningsMember 2024-01-01 2024-12-31 0001895262 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-01-01 2024-12-31 0001895262 us-gaap:CommonStockMember 2024-12-31 0001895262 us-gaap:AdditionalPaidInCapitalMember 2024-12-31 0001895262 us-gaap:RetainedEarningsMember 2024-12-31 0001895262 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-12-31 0001895262 us-gaap:AdditionalPaidInCapitalMember 2025-01-01 2025-12-31 0001895262 us-gaap:CommonStockMember 2025-01-01 2025-12-31 0001895262 us-gaap:RetainedEarningsMember 2025-01-01 2025-12-31 0001895262 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2025-01-01 2025-12-31 0001895262 us-gaap:CommonStockMember 2025-12-31 0001895262 us-gaap:AdditionalPaidInCapitalMember 2025-12-31 0001895262 us-gaap:RetainedEarningsMember 2025-12-31 0001895262 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2025-12-31 0001895262 srt:MinimumMember ne:DrillingEquipmentMember 2025-12-31 0001895262 srt:MaximumMember ne:DrillingEquipmentMember 2025-12-31 0001895262 srt:MinimumMember us-gaap:OtherCapitalizedPropertyPlantAndEquipmentMember 2025-12-31 0001895262 srt:MaximumMember us-gaap:OtherCapitalizedPropertyPlantAndEquipmentMember 2025-12-31 0001895262 srt:MinimumMember 2025-01-01 2025-12-31 0001895262 srt:MaximumMember 2025-01-01 2025-12-31 0001895262 us-gaap:OtherCurrentLiabilitiesMember 2024-12-31 0001895262 us-gaap:OtherNoncurrentLiabilitiesMember 2024-12-31 0001895262 ne:DiamondOffshoreDrillingInc.Member 2024-09-04 2024-09-04 0001895262 ne:DiamondPrincipalDebtMember ne:DiamondOffshoreDrillingInc.Member 2024-09-04 0001895262 us-gaap:RevolvingCreditFacilityMember ne:DiamondOffshoreDrillingInc.Member us-gaap:LineOfCreditMember 2024-09-04 0001895262 ne:DiamondOffshoreDrillingInc.Member 2025-01-01 2025-12-31 0001895262 ne:DiamondOffshoreDrillingInc.Member 2024-01-01 2024-12-31 0001895262 ne:DiamondOffshoreDrillingInc.Member 2024-09-04 0001895262 ne:DiamondOffshoreDrillingInc.Member 2024-09-04 2024-12-31 0001895262 ne:DiamondOffshoreDrillingInc.Member 2023-01-01 2023-12-31 0001895262 ne:MaerskDrillingMember 2025-01-01 2025-12-31 0001895262 ne:MaerskDrillingMember 2024-01-01 2024-12-31 0001895262 ne:MaerskDrillingMember 2023-01-01 2023-12-31 0001895262 us-gaap:WarrantMember 2025-01-01 2025-12-31 0001895262 us-gaap:WarrantMember 2024-01-01 2024-12-31 0001895262 us-gaap:WarrantMember 2023-01-01 2023-12-31 0001895262 ne:DrillingEquipmentAndFacilitiesMember 2025-12-31 0001895262 ne:DrillingEquipmentAndFacilitiesMember 2024-12-31 0001895262 us-gaap:ConstructionInProgressMember 2025-12-31 0001895262 us-gaap:ConstructionInProgressMember 2024-12-31 0001895262 us-gaap:OtherCapitalizedPropertyPlantAndEquipmentMember 2025-12-31 0001895262 us-gaap:OtherCapitalizedPropertyPlantAndEquipmentMember 2024-12-31 0001895262 us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember ne:NobleHighlanderNobleReacherPacificMeltemAndPacificSciroccoMember 2025-01-01 2025-12-31 0001895262 us-gaap:DisposalGroupHeldForSaleOrDisposedOfBySaleNotDiscontinuedOperationsMember ne:NobleHighlanderNobleReacherPacificMeltemPacificSciroccoAndNobleResolveMember 2025-01-01 2025-12-31 0001895262 us-gaap:DisposalGroupHeldforsaleNotDiscontinuedOperationsMember ne:NobleGlobetrotterIIAndSixJackupRigsMember 2025-12-31 0001895262 us-gaap:DisposalGroupHeldforsaleNotDiscontinuedOperationsMember ne:NobleGlobetrotterIIAndSixJackupRigsMember 2025-01-01 2025-12-31 0001895262 us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember ne:NobleExplorerMember 2024-01-01 2024-12-31 0001895262 us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember ne:NobleExplorerMember 2023-10-01 2023-12-31 0001895262 us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember ne:OceanValiantAndOceanOnyxMember 2024-01-01 2024-12-31 0001895262 us-gaap:RevolvingCreditFacilityMember ne:A2023RevolvingCreditAgreementMember us-gaap:LineOfCreditMember 2023-04-30 0001895262 us-gaap:RevolvingCreditFacilityMember ne:A2023RevolvingCreditAgreementMember us-gaap:LineOfCreditMember 2025-12-31 0001895262 us-gaap:RevolvingCreditFacilityMember ne:A2023RevolvingCreditAgreementMember 2025-12-31 0001895262 us-gaap:RevolvingCreditFacilityMember us-gaap:SecuredOvernightFinancingRateSofrMember ne:A2023RevolvingCreditAgreementMember ne:VariableRateComponentOneMember us-gaap:LineOfCreditMember 2023-04-01 2023-04-30 0001895262 us-gaap:RevolvingCreditFacilityMember ne:VariableRateComponentOneMember ne:A2023RevolvingCreditAgreementMember us-gaap:LineOfCreditMember 2023-04-01 2023-04-30 0001895262 us-gaap:RevolvingCreditFacilityMember us-gaap:SecuredOvernightFinancingRateSofrMember ne:A2023RevolvingCreditAgreementMember ne:VariableRateComponentTwoMember us-gaap:LineOfCreditMember 2023-04-01 2023-04-30 0001895262 us-gaap:RevolvingCreditFacilityMember ne:VariableRateComponentTwoMember ne:A2023RevolvingCreditAgreementMember us-gaap:LineOfCreditMember 2023-04-01 2023-04-30 0001895262 us-gaap:RevolvingCreditFacilityMember us-gaap:SecuredOvernightFinancingRateSofrMember ne:A2023RevolvingCreditAgreementMember us-gaap:LineOfCreditMember 2023-04-01 2023-04-30 0001895262 us-gaap:RevolvingCreditFacilityMember us-gaap:BaseRateMember ne:A2023RevolvingCreditAgreementMember us-gaap:LineOfCreditMember 2023-04-01 2023-04-30 0001895262 us-gaap:RevolvingCreditFacilityMember us-gaap:SecuredOvernightFinancingRateSofrMember ne:A2023RevolvingCreditAgreementMember srt:MaximumMember us-gaap:LineOfCreditMember 2023-04-01 2023-04-30 0001895262 us-gaap:RevolvingCreditFacilityMember us-gaap:BaseRateMember ne:A2023RevolvingCreditAgreementMember srt:MaximumMember us-gaap:LineOfCreditMember 2023-04-01 2023-04-30 0001895262 ne:DebtCommitmentFeePeriodOneMember us-gaap:RevolvingCreditFacilityMember ne:A2023RevolvingCreditAgreementMember us-gaap:LineOfCreditMember 2023-04-01 2023-04-30 0001895262 ne:DebtCommitmentFeePeriodTwoMember us-gaap:RevolvingCreditFacilityMember ne:A2023RevolvingCreditAgreementMember us-gaap:LineOfCreditMember 2023-04-01 2023-04-30 0001895262 ne:DebtCommitmentFeePeriodThreeMember us-gaap:RevolvingCreditFacilityMember ne:A2023RevolvingCreditAgreementMember us-gaap:LineOfCreditMember 2023-04-01 2023-04-30 0001895262 us-gaap:RevolvingCreditFacilityMember ne:A2023RevolvingCreditAgreementMember us-gaap:LineOfCreditMember 2023-04-01 2023-04-30 0001895262 ne:SeniorNotes8000Due2030Member us-gaap:SeniorNotesMember 2023-04-18 0001895262 ne:SeniorNotes8000Due2030Member us-gaap:SeniorNotesMember 2024-08-22 0001895262 ne:SeniorNotes8000Due2030Member us-gaap:DebtInstrumentRedemptionPeriodOneMember us-gaap:SeniorNotesMember 2023-04-18 2023-04-18 0001895262 ne:SeniorNotes8000Due2030Member us-gaap:DebtInstrumentRedemptionPeriodTwoMember us-gaap:SeniorNotesMember 2023-04-18 2023-04-18 0001895262 ne:SeniorNotes8000Due2030Member us-gaap:DebtInstrumentRedemptionPeriodThreeMember us-gaap:SeniorNotesMember 2023-04-18 2023-04-18 0001895262 ne:SeniorNotes8000Due2030Member us-gaap:DebtInstrumentRedemptionPeriodFourMember us-gaap:SeniorNotesMember 2023-04-18 2023-04-18 0001895262 ne:SeniorSecuredSecondLienNotes8.500Due2030Member us-gaap:SeniorNotesMember 2023-09-21 0001895262 ne:SecondLienNotesIndentureMember us-gaap:SecuredDebtMember 2023-04-18 0001895262 ne:SecondLienNotesIndentureMember us-gaap:SecuredDebtMember 2023-04-18 2023-04-18 0001895262 ne:NewDNBCreditFacilityMember us-gaap:LineOfCreditMember 2023-04-18 2023-04-18 0001895262 ne:SeniorNotes8000Due2030Member us-gaap:SecuredDebtMember 2025-12-31 0001895262 us-gaap:CarryingReportedAmountFairValueDisclosureMember ne:SeniorNotes8000Due2030Member us-gaap:SecuredDebtMember 2025-12-31 0001895262 us-gaap:EstimateOfFairValueFairValueDisclosureMember ne:SeniorNotes8000Due2030Member us-gaap:SecuredDebtMember 2025-12-31 0001895262 us-gaap:CarryingReportedAmountFairValueDisclosureMember ne:SeniorNotes8000Due2030Member us-gaap:SecuredDebtMember 2024-12-31 0001895262 us-gaap:EstimateOfFairValueFairValueDisclosureMember ne:SeniorNotes8000Due2030Member us-gaap:SecuredDebtMember 2024-12-31 0001895262 ne:SeniorSecuredSecondLienNotes8.500Due2030Member us-gaap:SecuredDebtMember 2025-12-31 0001895262 us-gaap:CarryingReportedAmountFairValueDisclosureMember ne:SeniorSecuredSecondLienNotes8.500Due2030Member us-gaap:SecuredDebtMember 2025-12-31 0001895262 us-gaap:EstimateOfFairValueFairValueDisclosureMember ne:SeniorSecuredSecondLienNotes8.500Due2030Member us-gaap:SecuredDebtMember 2025-12-31 0001895262 us-gaap:CarryingReportedAmountFairValueDisclosureMember ne:SeniorSecuredSecondLienNotes8.500Due2030Member us-gaap:SecuredDebtMember 2024-12-31 0001895262 us-gaap:EstimateOfFairValueFairValueDisclosureMember ne:SeniorSecuredSecondLienNotes8.500Due2030Member us-gaap:SecuredDebtMember 2024-12-31 0001895262 us-gaap:RevolvingCreditFacilityMember us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:LineOfCreditMember 2025-12-31 0001895262 us-gaap:RevolvingCreditFacilityMember us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:LineOfCreditMember 2025-12-31 0001895262 us-gaap:RevolvingCreditFacilityMember us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:LineOfCreditMember 2024-12-31 0001895262 us-gaap:RevolvingCreditFacilityMember us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:LineOfCreditMember 2024-12-31 0001895262 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2025-12-31 0001895262 us-gaap:EstimateOfFairValueFairValueDisclosureMember 2025-12-31 0001895262 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2024-12-31 0001895262 us-gaap:EstimateOfFairValueFairValueDisclosureMember 2024-12-31 0001895262 us-gaap:RevolvingCreditFacilityMember ne:NYFRBRateMember ne:A2023RevolvingCreditAgreementMember ne:VariableRateComponentTwoMember us-gaap:LineOfCreditMember 2023-04-18 2023-04-18 0001895262 ne:Tranche1WarrantsMember 2025-12-31 0001895262 ne:Tranche2WarrantsMember 2025-12-31 0001895262 ne:Tranche3WarrantsMember 2025-12-31 0001895262 ne:NobleIncentivePlan2022Member 2025-12-31 0001895262 2024-10-22 0001895262 ne:Tranche1WarrantsMember 2022-09-30 0001895262 ne:Tranche2WarrantsMember 2022-09-30 0001895262 ne:Tranche3WarrantsMember 2022-09-30 0001895262 ne:NobleIncentivePlan2022Member 2024-05-21 0001895262 ne:NobleIncentivePlan2022Member 2024-09-04 0001895262 ne:NobleIncentivePlan2021Member ne:TimeVestedRSUsTVRSUsMember 2025-01-01 2025-12-31 0001895262 ne:NobleIncentivePlan2021Member ne:PerformanceVestedRSUsPVRSUsMember 2025-01-01 2025-12-31 0001895262 ne:NobleIncentivePlan2021Member ne:TimeVestedRSUsTVRSUsMember 2024-01-01 2024-12-31 0001895262 ne:NobleIncentivePlan2021Member ne:TimeVestedRSUsTVRSUsMember 2023-01-01 2023-12-31 0001895262 ne:PerformanceVestedRSUsPVRSUsMember ne:February32025Member 2025-01-01 2025-12-31 0001895262 ne:PerformanceVestedRSUsPVRSUsMember ne:January262024Member 2024-01-01 2024-12-31 0001895262 ne:PerformanceVestedRSUsPVRSUsMember ne:February32023Member 2023-01-01 2023-12-31 0001895262 ne:TimeVestedRSUsTVRSUsEquityClassifiedMember 2024-12-31 0001895262 ne:PerformanceVestedRSUsPVRSUsMember 2024-12-31 0001895262 ne:TimeVestedRSUsTVRSUsEquityClassifiedMember 2025-01-01 2025-12-31 0001895262 ne:PerformanceVestedRSUsPVRSUsMember 2025-01-01 2025-12-31 0001895262 ne:TimeVestedRSUsTVRSUsEquityClassifiedMember 2025-12-31 0001895262 ne:PerformanceVestedRSUsPVRSUsMember 2025-12-31 0001895262 ne:TimeVestedRSUsTVRSUsLiabilityClassifiedMember 2025-01-01 2025-12-31 0001895262 ne:TimeVestedRSUsTVRSUsLiabilityClassifiedMember 2024-01-01 2024-12-31 0001895262 ne:TimeVestedRSUsTVRSUsLiabilityClassifiedMember 2025-12-31 0001895262 ne:TimeVestedRSUsTVRSUsLiabilityClassifiedMember 2024-12-31 0001895262 ne:TimeVestedRSUsTVRSUsEquityClassifiedMember 2024-01-01 2024-12-31 0001895262 ne:TimeVestedRSUsTVRSUsEquityClassifiedMember 2023-01-01 2023-12-31 0001895262 ne:TimeVestedRSUsTVRSUsLiabilityClassifiedMember 2023-01-01 2023-12-31 0001895262 ne:PerformanceVestedRSUsPVRSUsMember 2024-01-01 2024-12-31 0001895262 ne:PerformanceVestedRSUsPVRSUsMember 2023-01-01 2023-12-31 0001895262 srt:DirectorMember ne:TimeVestedRSUsTVRSUsEquityClassifiedMember 2025-01-01 2025-12-31 0001895262 srt:DirectorMember ne:TimeVestedRSUsTVRSUsEquityClassifiedMember 2024-01-01 2024-12-31 0001895262 srt:DirectorMember ne:TimeVestedRSUsTVRSUsEquityClassifiedMember 2023-01-01 2023-12-31 0001895262 us-gaap:RestrictedStockUnitsRSUMember 2025-01-01 2025-12-31 0001895262 us-gaap:RestrictedStockUnitsRSUMember 2024-01-01 2024-12-31 0001895262 ne:FloatersMember 2025-01-01 2025-12-31 0001895262 ne:FloatersMember 2024-01-01 2024-12-31 0001895262 ne:FloatersMember 2023-01-01 2023-12-31 0001895262 ne:JackupsMember 2025-01-01 2025-12-31 0001895262 ne:JackupsMember 2024-01-01 2024-12-31 0001895262 ne:JackupsMember 2023-01-01 2023-12-31 0001895262 ne:FloatersMember 2026-01-01 2025-12-31 0001895262 ne:FloatersMember 2027-01-01 2025-12-31 0001895262 ne:FloatersMember 2028-01-01 2025-12-31 0001895262 ne:FloatersMember 2025-12-31 0001895262 ne:JackupsMember 2026-01-01 2025-12-31 0001895262 ne:JackupsMember 2027-01-01 2025-12-31 0001895262 ne:JackupsMember 2028-01-01 2025-12-31 0001895262 ne:JackupsMember 2025-12-31 0001895262 2026-01-01 2025-12-31 0001895262 2027-01-01 2025-12-31 0001895262 2028-01-01 2025-12-31 0001895262 ne:Chapter11BankruptcyMember 2022-10-03 2022-10-03 0001895262 ne:MaerskDrillingMember 2022-10-03 2022-10-03 0001895262 ne:DiamondOffshoreDrillingInc.Member 2022-10-03 2022-10-03 0001895262 ne:UnfavorableCustomerContactsMember 2022-12-31 0001895262 ne:FavorableCustomerContractsMember 2022-12-31 0001895262 ne:UnfavorableCustomerContactsMember 2023-01-01 2023-12-31 0001895262 ne:FavorableCustomerContractsMember 2023-01-01 2023-12-31 0001895262 ne:UnfavorableCustomerContactsMember 2023-12-31 0001895262 ne:FavorableCustomerContractsMember 2023-12-31 0001895262 ne:UnfavorableCustomerContactsMember 2024-01-01 2024-12-31 0001895262 ne:FavorableCustomerContractsMember 2024-01-01 2024-12-31 0001895262 ne:UnfavorableCustomerContactsMember 2024-12-31 0001895262 ne:FavorableCustomerContractsMember 2024-12-31 0001895262 ne:UnfavorableCustomerContactsMember 2025-01-01 2025-12-31 0001895262 ne:FavorableCustomerContractsMember 2025-01-01 2025-12-31 0001895262 ne:UnfavorableCustomerContactsMember 2025-12-31 0001895262 ne:FavorableCustomerContractsMember 2025-12-31 0001895262 us-gaap:ForeignCountryMember ne:LuxembourgAndSwitzerlandMember 2025-01-01 2025-12-31 0001895262 us-gaap:ForeignCountryMember ne:GuyanaUnitedStatesSwitzerlandAndLuxembourgMember 2025-01-01 2025-12-31 0001895262 us-gaap:ForeignCountryMember country:LU 2024-01-01 2024-12-31 0001895262 us-gaap:ForeignCountryMember ne:GuyanaNigeriaUnitedStatesSwitzerlandAndLuxembourgMember 2024-01-01 2024-12-31 0001895262 us-gaap:ForeignCountryMember ne:LuxembourgGuyanaSwitzerlandAndNorwayMember 2023-01-01 2023-12-31 0001895262 us-gaap:ForeignCountryMember ne:VariousCountriesMember 2023-01-01 2023-12-31 0001895262 us-gaap:ForeignCountryMember ne:GuyanaSwitzerlandAndLuxembourgMember 2023-01-01 2023-12-31 0001895262 2022-10-01 2025-12-31 0001895262 ne:InterestIncomeAndOtherNetMember 2024-01-01 2024-12-31 0001895262 ne:InterestIncomeAndOtherNetMember 2025-01-01 2025-12-31 0001895262 ne:InterestIncomeAndOtherNetMember 2023-01-01 2023-12-31 0001895262 ne:IncomeTaxBenefitProvisionMember 2023-01-01 2023-12-31 0001895262 country:GB 2025-01-01 2025-12-31 0001895262 country:VG 2025-01-01 2025-12-31 0001895262 country:KY 2025-01-01 2025-12-31 0001895262 country:CO 2025-01-01 2025-12-31 0001895262 country:GY 2025-01-01 2025-12-31 0001895262 country:LU 2025-01-01 2025-12-31 0001895262 country:NG 2025-01-01 2025-12-31 0001895262 country:PH 2025-01-01 2025-12-31 0001895262 country:SA 2025-01-01 2025-12-31 0001895262 country:CH 2025-01-01 2025-12-31 0001895262 country:US 2025-01-01 2025-12-31 0001895262 us-gaap:ForeignTaxJurisdictionOtherMember 2025-01-01 2025-12-31 0001895262 us-gaap:ForeignCountryMember 2024-01-01 2024-12-31 0001895262 us-gaap:ForeignCountryMember 2023-01-01 2023-12-31 0001895262 country:MY 2025-01-01 2025-12-31 0001895262 us-gaap:ForeignPlanMember 2024-12-31 0001895262 country:US 2024-12-31 0001895262 us-gaap:ForeignPlanMember 2023-12-31 0001895262 country:US 2023-12-31 0001895262 us-gaap:ForeignPlanMember 2025-01-01 2025-12-31 0001895262 country:US 2025-01-01 2025-12-31 0001895262 us-gaap:ForeignPlanMember 2024-01-01 2024-12-31 0001895262 country:US 2024-01-01 2024-12-31 0001895262 us-gaap:ForeignPlanMember 2025-12-31 0001895262 country:US 2025-12-31 0001895262 us-gaap:ForeignPlanMember 2023-01-01 2023-12-31 0001895262 country:US 2023-01-01 2023-12-31 0001895262 country:US us-gaap:UnfundedPlanMember 2025-12-31 0001895262 country:US us-gaap:UnfundedPlanMember 2024-12-31 0001895262 srt:MinimumMember country:US 2025-12-31 0001895262 srt:MaximumMember country:US 2025-12-31 0001895262 srt:MinimumMember country:US 2024-12-31 0001895262 srt:MaximumMember country:US 2024-12-31 0001895262 srt:MinimumMember country:US 2025-01-01 2025-12-31 0001895262 srt:MaximumMember country:US 2025-01-01 2025-12-31 0001895262 srt:MinimumMember country:US 2024-01-01 2024-12-31 0001895262 srt:MaximumMember country:US 2024-01-01 2024-12-31 0001895262 srt:MinimumMember country:US 2023-01-01 2023-12-31 0001895262 srt:MaximumMember country:US 2023-01-01 2023-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:DefinedBenefitPlanEquitySecuritiesMember 2025-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:DefinedBenefitPlanDebtSecurityMember 2025-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2025-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:FairValueInputsLevel1Member us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2025-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:FairValueInputsLevel2Member us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2025-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:FairValueInputsLevel3Member us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2025-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:FairValueInputsLevel1Member us-gaap:DefinedBenefitPlanEquitySecuritiesMember 2025-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:FairValueInputsLevel2Member us-gaap:DefinedBenefitPlanEquitySecuritiesMember 2025-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:FairValueInputsLevel3Member us-gaap:DefinedBenefitPlanEquitySecuritiesMember 2025-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:CorporateDebtSecuritiesMember 2025-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:FairValueInputsLevel1Member us-gaap:CorporateDebtSecuritiesMember 2025-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:FairValueInputsLevel2Member us-gaap:CorporateDebtSecuritiesMember 2025-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:FairValueInputsLevel3Member us-gaap:CorporateDebtSecuritiesMember 2025-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:FairValueInputsLevel1Member 2025-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:FairValueInputsLevel2Member 2025-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:FairValueInputsLevel3Member 2025-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2024-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:FairValueInputsLevel1Member us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2024-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:FairValueInputsLevel2Member us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2024-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:FairValueInputsLevel3Member us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2024-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:DefinedBenefitPlanEquitySecuritiesMember 2024-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:FairValueInputsLevel1Member us-gaap:DefinedBenefitPlanEquitySecuritiesMember 2024-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:FairValueInputsLevel2Member us-gaap:DefinedBenefitPlanEquitySecuritiesMember 2024-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:FairValueInputsLevel3Member us-gaap:DefinedBenefitPlanEquitySecuritiesMember 2024-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:CorporateDebtSecuritiesMember 2024-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:FairValueInputsLevel1Member us-gaap:CorporateDebtSecuritiesMember 2024-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:FairValueInputsLevel2Member us-gaap:CorporateDebtSecuritiesMember 2024-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:FairValueInputsLevel3Member us-gaap:CorporateDebtSecuritiesMember 2024-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:FairValueInputsLevel1Member 2024-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:FairValueInputsLevel2Member 2024-12-31 0001895262 us-gaap:ForeignPlanMember us-gaap:FairValueInputsLevel3Member 2024-12-31 0001895262 us-gaap:DefinedBenefitPlanEquitySecuritiesMember 2025-12-31 0001895262 us-gaap:DefinedBenefitPlanDebtSecurityMember 2025-12-31 0001895262 us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2025-12-31 0001895262 country:US us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2025-12-31 0001895262 country:US us-gaap:FairValueInputsLevel1Member us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2025-12-31 0001895262 country:US us-gaap:FairValueInputsLevel2Member us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2025-12-31 0001895262 country:US us-gaap:FairValueInputsLevel3Member us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2025-12-31 0001895262 country:US us-gaap:DefinedBenefitPlanEquitySecuritiesUsMember 2025-12-31 0001895262 country:US us-gaap:FairValueInputsLevel1Member us-gaap:DefinedBenefitPlanEquitySecuritiesUsMember 2025-12-31 0001895262 country:US us-gaap:FairValueInputsLevel2Member us-gaap:DefinedBenefitPlanEquitySecuritiesUsMember 2025-12-31 0001895262 country:US us-gaap:FairValueInputsLevel3Member us-gaap:DefinedBenefitPlanEquitySecuritiesUsMember 2025-12-31 0001895262 country:US us-gaap:CorporateDebtSecuritiesMember 2025-12-31 0001895262 country:US us-gaap:FairValueInputsLevel1Member us-gaap:CorporateDebtSecuritiesMember 2025-12-31 0001895262 country:US us-gaap:FairValueInputsLevel2Member us-gaap:CorporateDebtSecuritiesMember 2025-12-31 0001895262 country:US us-gaap:FairValueInputsLevel3Member us-gaap:CorporateDebtSecuritiesMember 2025-12-31 0001895262 country:US us-gaap:USTreasurySecuritiesMember 2025-12-31 0001895262 country:US us-gaap:FairValueInputsLevel1Member us-gaap:USTreasurySecuritiesMember 2025-12-31 0001895262 country:US us-gaap:FairValueInputsLevel2Member us-gaap:USTreasurySecuritiesMember 2025-12-31 0001895262 country:US us-gaap:FairValueInputsLevel3Member us-gaap:USTreasurySecuritiesMember 2025-12-31 0001895262 country:US us-gaap:FairValueInputsLevel1Member 2025-12-31 0001895262 country:US us-gaap:FairValueInputsLevel2Member 2025-12-31 0001895262 country:US us-gaap:FairValueInputsLevel3Member 2025-12-31 0001895262 country:US us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2024-12-31 0001895262 country:US us-gaap:FairValueInputsLevel1Member us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2024-12-31 0001895262 country:US us-gaap:FairValueInputsLevel2Member us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2024-12-31 0001895262 country:US us-gaap:FairValueInputsLevel3Member us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember 2024-12-31 0001895262 country:US us-gaap:DefinedBenefitPlanEquitySecuritiesUsMember 2024-12-31 0001895262 country:US us-gaap:FairValueInputsLevel1Member us-gaap:DefinedBenefitPlanEquitySecuritiesUsMember 2024-12-31 0001895262 country:US us-gaap:FairValueInputsLevel2Member us-gaap:DefinedBenefitPlanEquitySecuritiesUsMember 2024-12-31 0001895262 country:US us-gaap:FairValueInputsLevel3Member us-gaap:DefinedBenefitPlanEquitySecuritiesUsMember 2024-12-31 0001895262 country:US us-gaap:CorporateDebtSecuritiesMember 2024-12-31 0001895262 country:US us-gaap:FairValueInputsLevel1Member us-gaap:CorporateDebtSecuritiesMember 2024-12-31 0001895262 country:US us-gaap:FairValueInputsLevel2Member us-gaap:CorporateDebtSecuritiesMember 2024-12-31 0001895262 country:US us-gaap:FairValueInputsLevel3Member us-gaap:CorporateDebtSecuritiesMember 2024-12-31 0001895262 country:US us-gaap:USTreasurySecuritiesMember 2024-12-31 0001895262 country:US us-gaap:FairValueInputsLevel1Member us-gaap:USTreasurySecuritiesMember 2024-12-31 0001895262 country:US us-gaap:FairValueInputsLevel2Member us-gaap:USTreasurySecuritiesMember 2024-12-31 0001895262 country:US us-gaap:FairValueInputsLevel3Member us-gaap:USTreasurySecuritiesMember 2024-12-31 0001895262 country:US us-gaap:FairValueInputsLevel1Member 2024-12-31 0001895262 country:US us-gaap:FairValueInputsLevel2Member 2024-12-31 0001895262 country:US us-gaap:FairValueInputsLevel3Member 2024-12-31 0001895262 ne:NobleDrillingCorporationProfitSharingPlanMember 2024-01-01 2024-12-31 0001895262 ne:NobleDrillingCorporationProfitSharingPlanMember 2023-01-01 2023-12-31 0001895262 us-gaap:ForeignCountryMember ne:CustomsAndOtherBusinessTaxesMember 2025-01-01 2025-12-31 0001895262 us-gaap:ServiceAgreementsMember 2016-02-01 2016-02-29 0001895262 2025-10-01 2025-12-31 0001895262 us-gaap:RevolvingCreditFacilityMember us-gaap:UnsecuredDebtMember 2025-12-31 0001895262 country:AU ne:ReportableSegmentMember 2025-01-01 2025-12-31 0001895262 country:AU ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:AU ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:AU ne:ReportableSegmentMember 2025-12-31 0001895262 country:AU ne:ReportableSegmentMember 2024-12-31 0001895262 country:BR ne:ReportableSegmentMember 2025-01-01 2025-12-31 0001895262 country:BR ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:BR ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:BR ne:ReportableSegmentMember 2025-12-31 0001895262 country:BR ne:ReportableSegmentMember 2024-12-31 0001895262 country:CO ne:ReportableSegmentMember 2025-01-01 2025-12-31 0001895262 country:CO ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:CO ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:CO ne:ReportableSegmentMember 2025-12-31 0001895262 country:CO ne:ReportableSegmentMember 2024-12-31 0001895262 country:DK ne:ReportableSegmentMember 2025-01-01 2025-12-31 0001895262 country:DK ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:DK ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:DK ne:ReportableSegmentMember 2025-12-31 0001895262 country:DK ne:ReportableSegmentMember 2024-12-31 0001895262 country:GH ne:ReportableSegmentMember 2025-01-01 2025-12-31 0001895262 country:GH ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:GH ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:GH ne:ReportableSegmentMember 2025-12-31 0001895262 country:GH ne:ReportableSegmentMember 2024-12-31 0001895262 country:GW ne:ReportableSegmentMember 2025-01-01 2025-12-31 0001895262 country:GW ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:GW ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:GW ne:ReportableSegmentMember 2025-12-31 0001895262 country:GW ne:ReportableSegmentMember 2024-12-31 0001895262 country:GY ne:ReportableSegmentMember 2025-01-01 2025-12-31 0001895262 country:GY ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:GY ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:GY ne:ReportableSegmentMember 2025-12-31 0001895262 country:GY ne:ReportableSegmentMember 2024-12-31 0001895262 country:MY ne:ReportableSegmentMember 2025-01-01 2025-12-31 0001895262 country:MY ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:MY ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:MY ne:ReportableSegmentMember 2025-12-31 0001895262 country:MY ne:ReportableSegmentMember 2024-12-31 0001895262 country:NA ne:ReportableSegmentMember 2025-01-01 2025-12-31 0001895262 country:NA ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:NA ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:NA ne:ReportableSegmentMember 2025-12-31 0001895262 country:NA ne:ReportableSegmentMember 2024-12-31 0001895262 country:NG ne:ReportableSegmentMember 2025-01-01 2025-12-31 0001895262 country:NG ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:NG ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:NG ne:ReportableSegmentMember 2025-12-31 0001895262 country:NG ne:ReportableSegmentMember 2024-12-31 0001895262 country:NO ne:ReportableSegmentMember 2025-01-01 2025-12-31 0001895262 country:NO ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:NO ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:NO ne:ReportableSegmentMember 2025-12-31 0001895262 country:NO ne:ReportableSegmentMember 2024-12-31 0001895262 country:SR ne:ReportableSegmentMember 2025-01-01 2025-12-31 0001895262 country:SR ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:SR ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:SR ne:ReportableSegmentMember 2025-12-31 0001895262 country:SR ne:ReportableSegmentMember 2024-12-31 0001895262 country:GB ne:ReportableSegmentMember 2025-01-01 2025-12-31 0001895262 country:GB ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:GB ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:GB ne:ReportableSegmentMember 2025-12-31 0001895262 country:GB ne:ReportableSegmentMember 2024-12-31 0001895262 country:US ne:ReportableSegmentMember 2025-01-01 2025-12-31 0001895262 country:US ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 country:US ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 country:US ne:ReportableSegmentMember 2025-12-31 0001895262 country:US ne:ReportableSegmentMember 2024-12-31 0001895262 ne:OtherCountriesMember ne:ReportableSegmentMember 2025-01-01 2025-12-31 0001895262 ne:OtherCountriesMember ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 ne:OtherCountriesMember ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 ne:OtherCountriesMember ne:ReportableSegmentMember 2025-12-31 0001895262 ne:OtherCountriesMember ne:ReportableSegmentMember 2024-12-31 0001895262 ne:ReportableSegmentMember 2025-01-01 2025-12-31 0001895262 ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 ne:ReportableSegmentMember 2025-12-31 0001895262 ne:ReportableSegmentMember 2024-12-31 0001895262 ne:ExxonMobilCorporationExxonMobilMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember ne:ReportableSegmentMember 2025-01-01 2025-12-31 0001895262 ne:ExxonMobilCorporationExxonMobilMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 ne:ExxonMobilCorporationExxonMobilMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 ne:BPMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember ne:ReportableSegmentMember 2025-01-01 2025-12-31 0001895262 ne:PetrobrasMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember ne:ReportableSegmentMember 2025-01-01 2025-12-31 0001895262 ne:TotalEnergiesMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 ne:ShellPlcMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember ne:ReportableSegmentMember 2024-01-01 2024-12-31 0001895262 ne:ShellPlcMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember ne:ReportableSegmentMember 2023-01-01 2023-12-31 0001895262 srt:SubsidiariesMember 2025-12-31 0001895262 srt:SubsidiariesMember 2025-01-01 2025-12-31 0001895262 us-gaap:DisposalGroupHeldforsaleNotDiscontinuedOperationsMember ne:BorrDrillingLimitedBorrMember ne:FiveRigsMember us-gaap:SubsequentEventMember 2026-01-07 0001895262 us-gaap:DisposalGroupHeldforsaleNotDiscontinuedOperationsMember ne:OceanOilfieldDrillingMember ne:OneRigMember us-gaap:SubsequentEventMember 2026-01-28 2026-01-28 0001895262 us-gaap:DisposalGroupHeldforsaleNotDiscontinuedOperationsMember ne:BorrDrillingLimitedBorrMember ne:FiveRigsMember us-gaap:SubsequentEventMember 2026-01-07 2026-01-07 0001895262 ne:RobertEiflerMember 2025-10-01 2025-12-31 0001895262 ne:RichardBarkerMember 2025-10-01 2025-12-31 0001895262 ne:RobertEiflerMember 2025-12-31 0001895262 ne:RichardBarkerMember 2025-12-31 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +_________________________________________________________________________________________________ +FORM 10-K +☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended: December 31 , 2025 +OR +☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from to +_____________________________________________________________________________________________________ +Commission file number: 001-41520 +Noble Corporation plc +(Exact name of registrant as specified in its charter) +England and Wales 98-1644664 +(State or other jurisdiction of incorporation or organization) (I.R.S. employer identification number) +2101 City West Boulevard, Suite 600 , Houston , Texas , 77042 +(Address of principal executive offices) (Zip Code) +Registrant’s Telephone Number, Including Area Code: ( 281 ) 276-6100 +_____________________________________________________________________________________________________ +Securities registered pursuant to Section 12(b) of the Act: +Title of each class Trading Symbol(s) Name of each exchange on which registered +A Ordinary Shares, par value $0.00001 per share NE New York Stock Exchange +Tranche 1 Warrants of Noble Corporation plc NE WS New York Stock Exchange +Tranche 2 Warrants of Noble Corporation plc NE WSA New York Stock Exchange +Securities registered pursuant to Section 12(g) of the Act: None +_____________________________________________________________________________________________________ +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑ +Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐ +Indicate by check mark whether each registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐ +Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer ☑ Accelerated filer ☐ +Non-accelerated filer ☐ Smaller reporting company ☐ +Emerging growth company ☐ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to 240.D-1(b). ☐ +Indicate by check mark whether each registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑ +As of June 30, 2025, the aggregate market value of the registered shares of Noble Corporation plc held by non-affiliates was $ 3.4 billion based on the closing price of such shares on such date as reported on the New York Stock Exchange. +Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☑ No ☐ +Number of shares outstanding at February 6, 2026: Noble Corporation plc — 159,197,398 +DOCUMENTS INCORPORATED BY REFERENCE +Items 10, 11, 12, 13, and 14 of Part III of this Annual Report on Form 10-K will be incorporated by reference from the proxy statement for the 2026 Annual Meeting of Stockholders of Noble Corporation plc to be filed with the Securities and Exchange Commission. +1 +TABLE OF CONTENTS +Page +PART I +Item 1. +Business +6 +Item 1A. +Risk Factors +14 +Item 1B. +Unresolved Staff Comments +35 +Item 1C. +Cyber Security +35 +Item 2. +Properties +36 +Item 3. +Legal Proceedings +36 +Item 4. +Mine Safety Disclosures +36 +PART II +Item 5. +Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities +37 +Item 6. +[Reserved] +39 +Item 7. +Management's Discussion and Analysis of Financial Condition and Results of Operations +39 +Item 7A. +Quantitative and Qualitative Disclosures about Market Risk +51 +Item 8. +Financial Statements and Supplementary Data +53 +Item 9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +96 +Item 9A. +Controls and Procedures +96 +Item 9B. +Other Information +97 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +97 +PART III +Item 10. +Directors, Executive Officers, and Corporate Governance +98 +Item 11. +Executive Compensation +98 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +98 +Item 13. +Certain Relationships, Related Transactions, and Directors’ Independence +98 +Item 14. +Principal Accountant Fees and Services +98 +PART IV +Item 15. +Exhibits and Financial Statement Schedules +99 +Item 16. +Form 10-K Summary +99 +SIGNATURES +104 +2 +Forward-Looking Statements +This Annual Report on Form 10-K (“Annual Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“the Exchange Act”). All statements other than statements of historical facts included in this report or in the documents incorporated by reference are forward looking statements, including those regarding expected financial performance, revenues, expected utilization, fleet status, stacking of rigs, effects of new rigs on the market revenues, the impact of acquisitions or divestments, operating expenses, cash flows, contract status, tenders, terms and duration, dayrates, termination and extensions, contract backlog, the availability, delivery, mobilization, stacking or reactivation, contract commencement, relocation or other movement of rigs and the timing thereof, contract claims, capital expenditures, insurance maintenance and renewals, access to financing, rig demand, peak oil, the offshore drilling market, oil prices, production levels among members of the Organization of Petroleum Exporting Countries (“OPEC”) and other oil and gas producing nations (together with OPEC, “OPEC+”), and any expectations we may have with respect thereto, our future financial position, business strategy, impairments, repayment of debt, credit ratings, liquidity, borrowings under any credit facilities or other instruments, sources of funds, cost inflation, planned acquisitions or divestitures of assets, governmental regulations and permitting, taxes and tax rates, indebtedness covenant compliance, dividends and distributable reserves, share repurchases, the impacts of sustainability matters; the outcome of tax disputes, assessments and settlements, and expense management, the outcome of any dispute, litigation, audit or investigation, plans, foreign currency requirements, results of joint ventures, general economic, market, including inflation and recessions, trends and outlook, general political conditions, including political tensions, conflicts and war, timing, benefits or results of acquisitions or dispositions, and timing for compliance with any new regulations. When used in this report or in the documents incorporated by reference, the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “on track,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would,” “shall,” “target,” “will,” and similar expressions are intended to be among the terms that identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot assure you that such expectations will prove to be correct. These forward-looking statements speak only as of the date of this Annual Report on Form 10-K and we undertake no obligation to revise or update any forward-looking statement for any reason, except as required by law. Actual results may differ materially from any future results expressed or implied by such forward-looking statements and the expectations expressed in forward-looking statements are subject to a number of risks, uncertainties and assumptions, which include, but are not limited to: a decline in the price of oil or gas, reduced demand for oil and gas products and increased regulation of drilling and production, price competition and cyclicality in the offshore drilling industry, offshore rig supply, dayrates and demand for rigs, contract duration, renewal, terminations and repricing, national oil companies and governmental clients, contract backlog, customer and geographic concentration, operational hazards and risks, labor force unionization, labor interruptions and labor regulations, major natural disasters, catastrophic events, acts of war, terrorism or social unrest, pandemic, or other similar events, joint ventures as well as investments in associates, international operations and related mobilization and demobilization of rigs, operational interruptions, delays, upgrades, refurbishment and repair of rigs and any related delays and cost overruns or reduced payment of dayrates, impacts of inflation and changes in global trade policy, including tariffs and other trade restrictions, renewal of insurance, protection of sensitive information, operational technology systems and critical data, the ability to attract and retain skilled personnel or the increased cost in doing so, supplier capacity constraints or shortages in parts or equipment, supplier production disruptions, supplier quality and sourcing issues or price increases, future mergers, acquisitions or dispositions of businesses or assets or other strategic transactions, hurricanes and windstorm damage, responding to long-term changes in the energy mix, nonperformance of suppliers or third-party subcontractors, compliance with governmental laws and regulations, heightened attention to sustainability matters, including climate change and accountability for public statements about sustainability efforts, compliance with anti-bribery or anti-corruption, international trade laws and regulations, litigation, our ability to maintain effective disclosure controls and procedures and internal control over financial reporting, impairments on property and equipment, including rigs and related capital spares, operating and financial restrictions, and maintenance of covenants in our debt documents, tax disputes, or tax challenges as well as the “Risk Factors” referenced or described in Part I, Item 1A. “Risk Factors” of this Annual Report and in our other filings with the Securities and Exchange Commission (“SEC”). We cannot control such risk factors and other uncertainties, and in many cases, we cannot predict the risks and uncertainties that could cause our actual results to differ materially from those indicated by the forward-looking statements. You should consider these risks and uncertainties when you are evaluating us. Future quarterly dividends and other shareholder returns will be subject to, amongst other things, approval by the Board of Directors and may be modified as market conditions dictate. +3 +Risk Factors Summary +The following is a summary of the principal risks that could adversely affect our business, operating results, and financial condition. +Risks Related to Our Business and Operations +▪ our business depends on the level of activity in the oil and gas industry; +▪ the offshore contract drilling industry is a highly competitive and cyclical business; +▪ an oversupply of offshore rigs; +▪ our ability to renew or replace existing contracts; +▪ contracting with national oil companies; +▪ our current backlog of contract drilling revenue may not be ultimately realized; +▪ our substantial dependence on several customers and geographic locations; +▪ operating hazards inherent to the offshore drilling business; +▪ risks associated with unionization efforts, labor interruptions, and labor regulations; +▪ a major natural disaster, catastrophic event, acts of war, terrorism or social unrest, pandemic, or other similar event; +▪ risks associated with participation in joint ventures and investments in associates; +▪ risks relating to operations in international locations; +▪ upgrades, refurbishment, operating, and maintenance costs of our rigs (including any associated tariffs) as well as related operational interruptions and delays in operations or access to funding; +▪ inflation may adversely affect our operating results; +▪ obtaining and maintaining insurance; +▪ our and our service providers or other third parties’ failure to adequately protect sensitive information and operational technology systems and critical data; +▪ our failure to attract and retain skilled personnel; +▪ supplier capacity constraints or shortages in parts or equipment or price increases; +▪ risks associated with future mergers, acquisitions, or dispositions of businesses or assets; +▪ seasonal weather events and related windstorm damage or liabilities; +▪ our failure to effectively and timely respond to the impact of long-term changes in the energy mix; +▪ the potential for substandard performance or nonperformance by third-party suppliers and subcontractors upon which we rely; +▪ risks associated with creating and executing new business models; +Regulatory and Legal Risks +▪ the impact of governmental laws and regulations on our costs and drilling activity; +▪ heightened attention to sustainability matters; +▪ changes in, compliance with, or our failure to comply with certain laws and regulations; +▪ violations of anti-bribery or anti-corruption laws; +▪ compliance with complex laws and regulations governing international trade; +▪ we are, or in the future could be, subject to litigation; +Financial, Tax, and Governance Risks +• we may record impairment charges on property and equipment; +• the 2023 Revolving Credit Agreement, the indentures for the 2030 Notes and the Diamond Second Lien Notes (each as defined herein), and future facilities may contain various restrictive covenants limiting the discretion of our management in accessing liquidity or operating our business; +4 +• the impact of a loss of a major tax dispute or a successful tax challenge to our operating structure, intercompany pricing policies, or the taxable presence of our subsidiaries in certain countries on our tax rate on our worldwide earnings; +• variance in our effective income tax rate; +• fluctuations in exchange rates; +• the interest of certain majority shareholders; +• the uncertainty of future dividends or future share repurchases; +• our structure as a holding company that is dependent upon cash flows from subsidiaries, joint ventures, and associates; and +• dilutive effects on shareholders, or impairment to our ability to raise capital for operations, from future equity sales and warrant exercises. +For a more complete discussion of the material risks facing our business, see Part I, Item 1A, “Risk Factors” below. +5 +PART I +Item 1. Business. +Overview +Noble Corporation plc, a public limited company incorporated under the laws of England and Wales (“Noble”), is a leading offshore drilling contractor for the oil and gas industry. We provide contract drilling services to the international oil and gas industry with our global fleet of mobile offshore drilling units. We deliver our services through a high-specification fleet of floating and jackup rigs and the deployment of our drilling rigs in oil and gas basins around the world. Noble and its predecessors have been engaged in the contract drilling of oil and gas wells since 1921. As of December 31, 2025, our fleet of 36 drilling rigs consisted of 25 floaters and 11 jackups. +On June 9, 2024, Noble entered into an agreement and plan of merger (the “Diamond Merger Agreement”) with Diamond Offshore Drilling, Inc. (“Diamond”), Dolphin Merger Sub 1, Inc., and Dolphin Merger Sub 2, Inc., under which Noble would acquire Diamond in a stock plus cash transaction (the “Diamond Transaction”). On September 4, 2024 (the “Diamond Closing Date”), Noble completed its acquisition of Diamond. +For additional information, see “Note 2 — Acquisitions and Divestitures” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +References in this Annual Report on Form 10-K to “Noble,” the “Company,” “we,” “us,” and “our” refer collectively to Noble and its consolidated subsidiaries on and after the Diamond Closing Date, as applicable. +Contract Drilling Services +We report our contract drilling operations as a single reportable segment, Contract Drilling Services, which reflects how we manage our business. The mobile offshore drilling units comprising our offshore rig fleet operate in a global market for contract drilling services and are often redeployed to different regions due to changing demands of our customers, which consist primarily of large, integrated, independent, and government-owned or controlled oil and gas companies throughout the world. +We typically provide contract drilling services under an individual contract on a dayrate basis. Each contract’s final terms and conditions are the result of negotiations with our customers or other counterparties, and many contracts are awarded through a competitive bidding process. The following terms generally describe the key aspects of our contracts: +• contract duration extending over a specific period of time or a period necessary to drill a defined number of wells; +• payment of compensation to us (generally in US dollars, although some customers or other counterparties, typically national oil companies, require a part of the compensation to be paid in local currency) on a “daywork” basis, so that we receive a fixed amount (unless the contract contains a performance-based component) for each day (“dayrate”) that the drilling unit is operating under contract (a lower rate or no compensation is payable during periods of equipment breakdown and repair, adverse weather, or in the event operations are interrupted by other conditions, some of which may be beyond our control); +• provisions permitting early termination of the contract by the customer or other counterparties (i) if the unit is lost or destroyed, (ii) if operations are suspended for a specified period of time due to breakdown of equipment or breach of contract, or (iii) for convenience with the payment of contractually specified termination amounts; +• provisions allowing the impacted party to terminate the contract if specified “force majeure” events beyond the contracting parties’ control occur for a defined period of time; +• payment by us of the operating expenses of the drilling unit, including labor costs and the cost of incidental supplies; +• provisions that allow us to recover our mobilization and demobilization costs associated with moving a drilling unit from one regional location to another which, under certain market conditions, may not allow us to receive full reimbursement of such costs; +• provisions that allow us to recover certain cost increases from our customers in certain long-term contracts; +• provisions that require us to lower dayrates for documented cost decreases in certain long-term contracts; and +6 +• provisions that allocate responsibility and liability through indemnification provisions for risks related to personal injury, property damage or loss, environmental damages, damage to the reservoir, and other matters. +Under our drilling contracts, liability with respect to personnel and property is typically assigned on a “knock-for-knock” basis, which means that we and our customers or other counterparties assume liability for our respective personnel and property, generally irrespective of the fault or negligence of the party indemnified. In addition, our customers or other counterparties may indemnify us in certain instances for damage to our down-hole equipment and, in some cases, our subsea equipment. Also, we generally obtain a mutual waiver of consequential losses in our drilling contracts. +Our customers typically assume responsibility for and indemnify us from loss or liability resulting from pollution or contamination, including third-party damages and clean-up and removal, arising from operations under the contract and originating below the surface of the water. We are generally responsible for pollution originating above the surface of the water and emanating from our drilling units. Additionally, our customers typically indemnify us for liabilities incurred as a result of a blow-out or cratering of the well and underground reservoir loss or damage. In the current market, we are under increasing pressure to accept exceptions to the above-described allocations of risk and, as a result, take on more risk. In such cases where we agree, we generally limit the exposure with a monetary cap and other restrictions. +During periods of depressed market conditions, our customers or other counterparties may attempt to renegotiate or repudiate their contracts with us, although we seek to enforce our rights under our contracts. The renegotiation may include changes to key contract terms, such as pricing, termination, and risk allocation. +For a discussion of our backlog of commitments for contract drilling services, please read Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Contract Drilling Services Backlog.” +Drilling Fleet +Noble is a leading offshore drilling contractor for the oil and gas industry. Noble owns and operates one of the most modern, versatile, and technically advanced fleets of mobile offshore drilling units in the offshore drilling industry. Noble provides, through its subsidiaries, contract drilling services with a fleet of 31 offshore drilling units, consisting of 25 floaters and 6 jackups at the date of this report, focused largely on ultra-deepwater and ultra-harsh environment drilling opportunities in both established and emerging regions worldwide. Each type of drilling rig is described further below. Several factors determine the type of unit most suitable for a particular job, the most significant of which include the water depth and the environment of the intended drilling location, whether the drilling is being done over a platform or other structure, and the intended well depth. At December 31, 2025, our fleet was operating in Africa, Far East Asia, the North Sea, Oceania, South America, and the United States Gulf of America (the “US Gulf”). Our fleet consists of the following types of mobile offshore drilling units: +Floaters . A drillship is a type of floating drilling unit that is based on the ship-based hull of the vessel and equipped with modern drilling equipment that gives it the capability of easily transitioning from various worldwide locations and carrying high capacities of equipment while being able to drill ultra-deepwater oil and gas wells in up to 12,000 feet of water. Drillships can stay directly over the drilling location without anchors in open seas using a dynamic positioning system (“DPS”), which coordinates position references from satellite signals and acoustic seabed transponders with the drillship's six to eight thrusters to keep the ship directly over the well that is being drilled. Drillships are selected to drill oil and gas wells for programs that require a high level of simultaneous operations, where drilling loads are expected to be high, or where there are occurrences of high ocean currents, where the drillship's hull shape is the most efficient. Noble's fleet consists of 17 drillships capable of water depths from 10,000 feet to 12,000 feet. +Semisubmersible drilling units are designed as a floating drilling platform incorporating one or several pontoon hulls, which are submerged in the water to lower the center of gravity and make this type of drilling unit exceptionally stable in the open sea. Semisubmersible drilling units are generally categorized in terms of the water depth in which they are capable of operating, from the mid-water range of 300 feet to 4,000 feet, the deepwater range of 4,000 feet to 7,500 feet, to the ultra-deepwater range of 7,500 feet to 12,000 feet as well as by their generation, or date of construction. This type of drilling unit typically exhibits excellent stability characteristics, providing a stable platform for drilling even in rough seas. Semisubmersible drilling units hold their position over the drilling location using either an anchored mooring system or a DPS and may be self-propelled. Noble’s fleet consists of 8 moored ultra-deepwater semisubmersible drilling units. +Jackups . Jackup drilling units are designed to provide drilling solutions in depths ranging from less than 100 feet to as deep as 500 feet of water with drilling hook loads up to 2,500,000 pounds. Jackup rigs can be used in open water exploration locations, as well as over fixed, bottom-supported platforms. A jackup drilling unit is a towed mobile vessel consisting of a floating hull equipped with three or four legs, which are lowered to the seabed at the drilling location. The hull is then +7 +elevated out of the water by the jacking system using the legs to support the weight of the hull and drilling equipment against the seabed. Once the hull is elevated to the desired level, or “jacked up”, the drilling package can be extended out over an existing production platform or the open water location and drilling can commence. Noble’s fleet of 6 jackups consists of high-specification units capable of drilling in up to 500 feet of water. +The following table presents certain information concerning our offshore fleet at February 12, 2026. We own and operate all of the units included in the table. The table excludes certain rigs currently operating under a bareboat charter agreement. +8 +Name Make +Year +Built +Water Depth Rating +(feet) (1) +Drilling Depth Capacity (feet) Location +Status (2) +Floaters—25 +Drillships—17 +Noble Bob Douglas GustoMSC P10000 2013 12,000 40,000 Guyana Active +Noble Don Taylor GustoMSC P10000 2013 12,000 40,000 Guyana Active +Noble Faye Kozack Samsung 96000 2013 12,000 40,000 Brazil Active +Noble Gerry de Souza Samsung 120000 Double Hull 2011 12,000 40,000 Nigeria Active +Noble Globetrotter I Globetrotter Class 2011 10,000 30,000 Bulgaria Active +Noble Globetrotter II Globetrotter Class 2013 10,000 30,000 US Gulf Held for sale +Noble Sam Croft GustoMSC P10000 2014 12,000 40,000 Guyana Active +Noble Stanley Lafosse Samsung 96000 2014 12,000 40,000 US Gulf Active +Noble Tom Madden GustoMSC P10000 2014 12,000 40,000 Guyana Active +Noble Valiant Samsung 96000 2014 12,000 40,000 Suriname Active +Noble Venturer Samsung 96000 2014 12,000 40,000 Ghana Active +Noble Viking Samsung 96000 2014 12,000 40,000 Philippines Active +Noble Voyager Samsung 96000 2015 12,000 40,000 US Gulf Active +Noble BlackRhino Gusto P10000 2014 12,000 40,000 US Gulf Active +Noble BlackHawk Gusto P10000 2014 12,000 40,000 US Gulf Active +Noble BlackHornet Gusto P10000 2014 12,000 40,000 US Gulf Active +Noble BlackLion Gusto P10000 2015 12,000 40,000 US Gulf Active +Semisubmersibles—8 +Noble Deliverer DSS21-DPS2 2010 10,000 40,000 Malaysia Available +Noble Developer DSS21-DPS2 2009 10,000 40,000 Suriname Active +Noble Discoverer DSS21-DPS2 2009 10,000 40,000 Colombia Active +Noble Patriot Bingo 3000 1983 1,500 20,000 UK Active +Ocean Apex Enhanced Victory 1976/2014 6,000 30,000 Australia Available +Noble Courage F&G ExD Millennium 2009 10,000 40,000 Brazil Active +Noble Endeavor Enhanced Victory 1975/2006 10,000 35,000 South America Active +Ocean GreatWhite Moss CS-60E 2016 10,000 35,000 Norway Active +Independent Leg Cantilevered Jackups—6 +Harsh environment—1 +Noble Resolve MCS CJ50-X100 MC 2009 350 30,000 Spain Held for sale +Ultra-harsh environment—5 +Noble Innovator MCS CJ70-150MC 2003 492 30,000 UK Active +Noble Integrator MCS CJ70-X150 MD 2015 492 40,000 Norway Active +Noble Interceptor MCS CJ70-X150 MD 2014 492 40,000 Norway Active +Noble Intrepid MCS CJ70-X150 MD 2014 492 40,000 UK Active +Noble Invincible MCS CJ70-X150 MD 2016 492 40,000 Norway Active +9 +(1) Rated water depth for drillships and semisubmersibles reflects the maximum water depth for which a floating rig has been designed for drilling operations. +(2) Rigs listed as “active” are operating, preparing to operate, or under contract; rigs listed as “available” are actively seeking contracts and may include those that are idle or warm stacked. +Market +The offshore contract drilling industry is a highly competitive and cyclical business. Demand for offshore drilling services is driven by the offshore exploration and development programs of oil and gas operators, which in turn are influenced by many factors. Those factors include, but are not limited to, the price and price stability of oil and gas, the relative cost and carbon footprint of offshore resources within each operator’s broader energy portfolio, global macroeconomic conditions, world energy demand, the operator’s strategy toward renewable energy sources, environmental considerations, and governmental policies. +In the provision of offshore contract drilling services, success in securing contracts is primarily governed by price, a rig’s availability, drilling capabilities and technical specifications, and the drilling contractor’s safety performance record. Other factors include experience of the workforce, process efficiency, condition of equipment, operating integrity, reputation, industry standing, and client relations. +We maintain a global operational presence and compete in many of the major offshore oil and gas basins worldwide with a primary focus on the deepwater and ultra-deepwater floater market and ultra-harsh environment jackup market. All our drilling rigs are mobile, and we may reposition our drilling rigs among regions for a variety of reasons, including in response to customer requirements. We compete in both the floating and ultra-harsh jackup rig markets, each of which may have different supply and demand dynamics at a given period in time or in different regions. +We have one of the youngest and highest specification fleets of global scale in the industry, with diversification across geographic regions and customers. The Company has a track record of industry-leading utilization, coupled with a commitment to best-in-class safety performance and customer satisfaction. We strive to be a leader in industry innovation and first-mover in sustainability. +The offshore drilling industry has historically experienced significant volatility and change. In recent years, however, oil prices have generally remained at levels that are supportive of offshore exploration and development activity and global rig demand recovered to eclipse pre-pandemic levels, albeit with a steady downtrend since 2022 post-pandemic highs. Spot prices for Brent crude have recently settled in the mid to high $60s per barrel during early 2026 compared to an average price of $68 per barrel during 2025. Current demand and utilization levels are supported by the combination of the outlook for longer-term commodity prices, heightened focus on energy security, the capital intensity of depletion replacement, and relative attractiveness of offshore plays with respect to both cost and carbon emissions. The increase in global rig demand since 2021 has had a positive impact on dayrates for most rig classes, although dayrates have decreased moderately since recent highs during 2023 and 2024. +The global rig supply has come down from historic highs as Noble and other offshore drilling contractors have retired less capable and idle assets. Concurrently, the incoming supply of newbuild offshore drilling rigs has diminished materially, with very few newbuild rigs now remaining stranded in shipyards. +Although the market outlook in our business varies by geographical region and water depth and, despite recent downward pressure on the price of oil, we remain encouraged by the long-term outlook in the ultra-deepwater floater market. Our customers continue to focus on our highest specification floaters, which represents the majority of our floater fleet. Assuming current market fundamentals, continued customer prioritization towards these highest specification floaters could result in lower utilization for our lower specification drillships and our semi-submersibles. Demand for midwater semisubmersibles is primarily driven by brownfield activity in mature basins, especially in Northwest Europe, South America, and the Asia Pacific regions, where a generally stable level of baseload demand is supported by infield drilling and plug and abandonment requirements. Our ultra-harsh environment jackups operating in Norway and the UK experienced less cyclical improvement than the floater fleet during 2022-2024, but have recently begun to realize improving utilization. +While we remain encouraged about overall long-term rig demand, as evidenced by recent multi-year, multi-rig contracts that we have booked into backlog, the near-term outlook for both floaters and jackups over the next several quarters continues to present lingering utilization headwinds compared to 2023-2024 levels. Furthermore, economic uncertainty and lower commodity prices arising from recent trade policy and tariffs, compounded with OPEC’s stated intent to increase oil production, collectively present a potential for additional demand risk for offshore rigs in the near term. +10 +Across the broader offshore drilling market, recent contract awards and open tenders show an increasing proportion of multi-year contracts, although a significant number of shorter-term commitments continue to be fixed as well. Longer-term contracts can generally provide economic efficiencies by reducing the number of rig contract start-ups, both with different customers and among different regions, which is expected to reduce incremental resources and costs. On the other hand, certain multi-year contracts that are scheduled to commence a year or more into the future can present near-term utilization inefficiency due to challenges with filling interim availability on the assets. +The energy transition from hydrocarbons to renewables poses a challenge to the oil and gas sector and our market. Energy rebalancing trends sharply accelerated over the past decade as evidenced by promulgated or proposed government policies and commitments by many of our customers to further invest in sustainable energy sources, although this trend has moderated or even reversed in certain jurisdictions in more recent years with shifting political priorities. Our industry could be further challenged as resource holders and policy makers continue to evaluate and calibrate strategies and capital flows to address global energy needs. Ultimately, however, there continues to be a global dependence on products made from hydrocarbons and on the combustion of hydrocarbons to provide reliable and affordable energy. Low-cost and low-emission barrels are expected to be the most attractive conventional source to meet energy needs both currently and in the future. Global energy demand is predicted to increase over the coming decades, and we expect that offshore oil and gas will continue to play an important and lasting role in meeting this demand. +Significant Customers +During the three years ended December 31, 2025, we principally conducted our contract drilling operations in Africa, Far East Asia, the North Sea, Oceania, South America, and the US Gulf. The following table sets forth revenues from our customers as a percentage of our consolidated operating revenues: +Year Ended Year Ended Year Ended +December 31, 2025 December 31, 2024 December 31, 2023 +Exxon Mobil Corporation (“ExxonMobil”) 19.7 % 22.1 % 24.5 % +BP 13.2 % (1) (1) +Petrobras 12.5 % (1) (1) +TotalEnergies (1) (1) 10.5 % +Shell plc (1) 12.3 % 13.6 % +(1) Amount was less than 10% for the year presented. +No other customer accounted for more than 10% of our consolidated operating revenues in 2025, 2024, or 2023. +Human Capital +At December 31, 2025, we had approximately 4,500 employees, excluding approximately 1,400 persons we engaged through labor contractors or agencies. Approximately 77% percent of our workforce is located offshore. Certain of our employees and contractors in international markets, such as Norway and Denmark, are represented by labor unions and work under collective bargaining or similar agreements, which are subject to periodic renegotiation, and we consider our employee relations to be satisfactory. +For additional information, please read Part I, Item 1A, “Risk Factors—Risks Related to Our Business and Operations— Unionization efforts, labor interruptions, and labor regulations could have a material adverse effect on our operations. ” +Safety and Environmental Stewardship. Noble is committed to operating with excellent health, safety, and environmental (“HSE”) performance as an integral part of our business strategy, adding value for employees, customers, and shareholders. All personnel, regardless of job or position onboard our vessels or at any Noble facility, has the authorization and obligation to immediately stop any unsafe act, practice, or job that poses an unaddressed or unreasonable risk to people or the environment. +Our pursuit of exceptional HSE performance begins with our strong corporate culture that prioritizes proactive risk management, compliance with standards, and continuous improvement. This commitment is reinforced through Noble Peak, our safety philosophy focused on building capacity for safe work, learning from everyday operations, and fostering resilience. Noble Peak emphasizes mindset, skillset, and toolset—empowering teams to adapt, communicate, and learn continually—because safety is not just the absence of incidents, but the presence of defenses and capabilities. +To strengthen how we think about risk, Noble is moving beyond traditional lagging indicators such as IADC TRIR and LTIR. These legacy metrics often focus on frequency rather than severity, which can obscure the true risk profile of our +11 +operations. Our Potential Consequence Severity Index (“PCSI”) addresses this gap by weighting events based on both actual and potential consequences. This approach helps ensure that serious hazards and high-risk exposures receive the attention they deserve—even when no injury occurs. PCSI is intended to drive proactive learning and prioritization, helping us focus on eliminating life-altering risks and building resilience rather than simply counting incidents. +Training and Continuing Education. We place considerable value on the training and development of our employees. Accordingly, we conduct formal and informal meetings with employees, regular executive-led podcasts, issue periodic publications of Company activities and other matters of interest to the Company’s OneNoble app, and offer a variety of training, including in-house through NobleAdvances, our state-of-the-art training facility in Texas. Noble has learned that technical skills are not enough to keep pace in our fast-changing offshore environments. NobleAdvances allows us to deliver scenario-based drilling and marine training with a strong focus on communication, biases, and emergency decision making. This approach is designed to enable Noble employees to execute our procedures effectively and solve complex technical problems in challenging offshore conditions. +Government Regulation +Our operations are subject to federal, state, and local laws and regulations in the U.S. and other jurisdictions where we operate, including those relating to drilling services, exploration, development, and production, and other activities in the oil and gas industry, international maritime standards, worker health and safety, taxation, import and export, corruption, sanctions, trade, labor and employment, data privacy and security, and environmental protection. Compliance with these laws has in the past and may continue to require significant expenditures and operating costs. +In particular, environmental laws and regulations regarding emissions (including greenhouse gases and methane), water discharges, wastewater and stormwater management, chemical handling and storage, hazardous and non-hazardous waste generation and disposal, endangered species and habitat protection, noise and dust, site remediation, and spill prevention and response require ongoing attention and resources to support compliance. Changes in standards or enforcement priorities can increase our cost of doing business and affect utilization and margins. Similarly, environmental non‑compliance incidents could expose us to investigations, administrative orders, civil or criminal penalties, natural resource damages, remediation and restoration obligations, and third‑party claims for property damage, personal injury, or business interruption, as well as strict, joint, and several liability, which can result in liability without regard to fault. +In addition, obtaining and maintaining environmental permits can be time‑consuming and costly, and permitting or regulatory challenges can delay, restrict, or halt our operations or those of our customers. More stringent regulations or heightened enforcement may require us to curtail activities in certain locations, suspend or relocate equipment, or incur incremental operating and capital costs, and may also adversely affect the demand for our services if our customers reduce or defer drilling activity to address their own compliance burdens. +There is also ongoing attention concerning the global climate. Various regulators have proposed or adopted rules requiring the monitoring and reporting of GHG emissions from specified sources in the United States and abroad, including, among other things, certain offshore activities relating to oil and gas production. Emerging climate-related policies and market expectations, including greenhouse gas reporting and reduction programs, carbon pricing mechanisms, restrictions on flaring and venting, electrification requirements, and supply chain emissions goals set by our customers, could increase our costs, require additional disclosures and internal controls, or necessitate investments in lower‑emissions technologies and alternative power solutions for our rigs and facilities. Collectively, these factors could adversely affect our revenues, profitability, and returns on invested capital. More information on these and related risks can be found in our discussion in Part I, Item 1A, “Risk Factors” below. +Available Information +Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge at our website as soon as reasonably practicable after such material is electronically filed with or furnished with the SEC. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. +Our website address is http://www.noblecorp.com. Investors should also note that we announce material financial information in SEC filings, press releases, and public conference calls. Based on guidance from the SEC, we may use the investor relations section of our website to communicate with our investors. It is possible that the financial and other information (including fleet status reports) posted there could be deemed to be material information. Noble may also use social media channels including, but not limited to, Noble's accounts on LinkedIn, Facebook, Instagram, and X, to communicate with investors and the public about its business, services, and other matters, and those communications +12 +could be deemed to be material information. Documents and information on our website or our social media channels are not incorporated by reference herein. +13 +Item 1A. Risk Factors. +You should carefully consider the following risk factors in addition to the other information included in this Annual Report on Form 10-K. Each of these risk factors could affect our business, operating results, and financial condition as well as affect an investment in our shares. The disclosures in this section reflect our beliefs and opinions as to factors that could materially and adversely affect us in the future. References to past events are provided by way of example only and are not intended to be a complete listing or a representation as to whether or not such factors have occurred in the past. +Risks Related to Our Business and Operations +Our business depends on the level of activity in the oil and gas industry. Adverse developments affecting the industry, including a decline in the price of oil or gas, reduced demand for oil and gas products, and increased regulation of drilling and production, have in the past had, and may in the future have, a material adverse effect on our business, financial condition, and results of operations. +Demand for drilling services depends on a variety of economic and political factors and the level of activity in offshore oil and gas exploration, development, and production markets around the world. The price of oil and gas and market anticipation of potential changes in the price significantly affect this level of activity as well as dayrates that we can charge customers for our services. Crude oil prices remain volatile; for example, Brent crude reached a low of $9.12 in 2020 and a 5-year high of $133.18 in 2022. +Higher prices do not necessarily translate into increased drilling activity because our customers typically take into account a number of considerations when they decide to invest in offshore oil and gas resources, including expectations regarding future commodity prices and demand for hydrocarbons. While the price of oil and gas remains volatile, the level of activity in offshore oil and gas exploration and development can be extremely volatile and can be affected by numerous factors beyond our control, including: +▪ worldwide production, current demand, and our customer’s views of future demand for oil and gas; +▪ changes in the rate of economic growth in the global economy; +▪ the cost of exploring for, developing, producing, and delivering oil and gas; +▪ the ability of OPEC and OPEC+ to set and maintain production levels and pricing; +▪ expectations regarding future energy prices; +▪ increased supply of oil and gas resulting from onshore hydraulic fracturing activity and shale development; +▪ the relative cost of offshore oil and gas exploration versus onshore oil and gas production; +▪ potential acceleration in the investment, development, price, and availability of alternative fuels or energy sources; +▪ allocation of capital to exploration and production operations within customers’ broader portfolios; +▪ the level of production in non-OPEC+ countries; +▪ inventory levels and the cost and availability of storage and transportation of oil, gas, and their related products; +▪ worldwide financial instability or recessions; +▪ regulatory restrictions or any moratorium on offshore drilling or the availability of offshore lease or concession areas; +▪ the discovery rate of new oil and gas reserves either onshore or offshore; +▪ the rate of decline of existing and new oil and gas reserves; +▪ available pipeline and other oil and gas transportation capacity; +▪ oil refining capacity; +▪ the ability of oil and gas companies to raise capital; +▪ limitations on liquidity and available credit; +▪ advances in exploration, development, and production technology either onshore or offshore; +▪ technical advances affecting energy consumption, including the displacement of hydrocarbons; +▪ merger, acquisition, and divestiture activity among oil and gas industry participants; +▪ the availability of, and access to, suitable locations from which hydrocarbons can be produced; +14 +▪ adverse weather and sea conditions, including hurricanes, typhoons, cyclones, winter storms, and rough seas; +▪ the occurrence or threat of a major natural disaster, catastrophic event, epidemic, or pandemic diseases, as well as any governmental response to such occurrence or threat; +▪ changes in and compliance with tax laws, regulations, and policies; +▪ changes in and compliance with environmental laws, regulations, and other initiatives, including those involving alternative energy sources, the phase-out of fossil fuel consuming vehicles, and the risks of global climate change; +▪ the political environment of oil-producing countries or regions, including uncertainty or instability resulting from civil disorder, geopolitical instability, border disputes, or an outbreak or escalation of armed hostilities or acts of war or terrorism, such as the conflict between Russia and Ukraine, Middle East conflicts, and Venezuela related conflicts, and their respective regional and global ramifications; and +▪ the laws, regulations, and policies of governments regarding exploration and development of their oil and gas reserves or speculation regarding future laws or regulations. +Adverse developments affecting the industry as a result of factors such as those listed above, including a decline in the price of oil and gas from their current levels or the failure of the price of oil and gas to consistently remain at or above a level that encourages our customers to expand their capital spending, the inability of our customers to access capital on economically advantageous terms, including as a result of the heightened focus on climate change by investors and regulators, a global recession, reduced demand for oil and gas products, or a perception that the demand for hydrocarbons will significantly decrease, increased supply due to the development of new onshore drilling and production technologies, and increased regulation of drilling and production, particularly if several developments were to occur in a short period of time, would have a material adverse effect on our business, financial condition, and results of operations. However, increases in near-term commodity prices do not necessarily translate into increased offshore drilling activity because customers’ expectations of longer-term future commodity prices and expectations regarding future demand for hydrocarbons typically have a greater impact on demand for our rigs. The level of oil and gas prices has had, and may in the future have, a material effect on demand for our services, and future declines in prices would likely have a material adverse effect on our business, results of operations, and financial condition. +The offshore contract drilling industry is a highly competitive and cyclical business with intense price competition. If we are unable to compete successfully, our profitability may be materially reduced. +The offshore contract drilling industry is a highly competitive and cyclical business characterized by high capital and operating costs and evolving capability of newer rigs. Drilling contracts are traditionally awarded on a competitive bid basis. Price competition, rig availability, location, suitability, and technical specifications are the primary factors in determining which rig is qualified for a job, and additional factors such as experience of the workforce, operating efficiency, safety performance record, condition of equipment, operating integrity, reputation, industry standing, and customer relations are also often considered. Our future success and profitability will partly depend upon our ability to keep pace with our customers’ demands with respect to these factors. +Further, if current competitors implement new or differentiated technical capabilities, services or specifications, which may be more attractive to our customers or price their product offerings more competitively, it could have a material adverse effect on our business, financial condition, and results of operations. We may face competitive pressure to develop, implement, or acquire certain new technologies at a substantial cost. We cannot be certain that we will be able to continue to develop and implement new technologies or services offered. +Our industry is cyclical. Periods of low demand or excess rig supply intensify the competition in the industry and have resulted in, and may continue to result in, many of our rigs earning substantially lower dayrates or being idle for long periods of time. Although, since the 2014 peak, the industry has experienced a rationalization and correction of the global offshore rig supply, we continue to experience competition from newbuild rigs, including rigs that have been stranded in shipyards, that have either already entered the market or are available to enter the market. The entry of these rigs into the market has resulted in, and may in the future result in, lower dayrates for both newbuilds and existing rigs rolling off their current contracts. In addition, our competitors may relocate rigs to geographic markets in which we operate, which could exacerbate any excess rig supply, or depress the current rationalization and correction of offshore rig supply, and result in lower dayrates and utilization in those regions. +In addition, our customers continue to seek more favorable terms with respect to allocation of risk under offshore drilling contracts. Our drilling contracts provide for varying levels of risk allocation and indemnification from our customers. Our +15 +customers have historically assumed most of the responsibility for and indemnified us from loss, damage, or other liability resulting from pollution or environmental damage, including clean-up and removal and third-party damages arising from operations under the contract when the source of the pollution originates from the well or reservoir, including those resulting from blow-outs or loss of well control. However, we regularly are required to assume certain amounts of liability for pollution and environmental damage caused by our negligence, which liability generally has higher caps, or may even have unlimited liability, where the damage is caused by our gross negligence or willful misconduct. We still face resistance with some customers when attempting to allocate less risk to us and lower caps for damage caused by our gross negligence or willful misconduct or reduce our exposure with respect pollution or environmental damage. Our contracts may also be subject to judicial review and application of public policy principles whereby relevant authorities could decide that certain contractual indemnities in current or future contracts are not enforceable. Going forward, we could decide or be required to retain more risk in the future, resulting in higher risk of losses, which could be material. Moreover, we may not be able to maintain adequate insurance in the future at rates that we consider reasonable or be able to obtain insurance against current or future risks. +We have not been, and may continue not to be, able to renew or replace certain expiring contracts, and our customers have sought, and may seek in the future, to terminate, renegotiate, or repudiate our drilling contracts and have had, and may have in the future, financial difficulties that prevent them from meeting their obligations under our drilling contracts. +Our ability to renew contracts that expire or obtain new contracts and the terms of any such contracts will depend on market conditions and our customers' expectations and assumptions of future oil prices and other factors. +Depending on market conditions, we have also experienced customers seeking price reductions for our services, payment deferrals, and termination of our contracts; customers seeking to not perform under our contracts pursuant to a force majeure claim; and customers that are unable or unwilling to timely pay outstanding receivables owed to us, all of which present liquidity challenges for us. Our customers may generally terminate our drilling contracts if a drilling rig is destroyed or lost or if we have to suspend drilling operations for a specified period of time as a result of a breakdown of equipment or, in some cases, due to other events beyond the control of either party. In the case of nonperformance and under certain other conditions, our drilling contracts generally allow our customers to terminate without any payment to us. The terms of some of our drilling contracts permit the customer to terminate the contract after a specified notice period by tendering contractually specified termination amounts or, in some cases, without any payment. These termination payments, if any, may not fully compensate us for the loss of a contract. The early termination of a contract may result in a rig being idle for an extended period of time and a reduction in our contract backlog and associated revenue, which could have a material adverse effect on our business, financial condition, and results of operations. Moreover, if any of our long-term contracts were to be terminated early, such termination could affect our future earnings flow and could have a material adverse effect on our future financial condition and results of operations even if we were to receive the contractually specified termination amount. +During periods of depressed market conditions, we are subject to an increased risk of our customers seeking to renegotiate or repudiate their contracts. The ability of our customers to perform their obligations under drilling contracts with us may also be adversely affected by the financial condition of the customer, restricted credit markets, economic downturns, and industry downturns. We may elect to renegotiate the rates we receive under our drilling contracts downward if we determine that to be a reasonable business solution. If our customers cancel or are unable to perform their obligations under their drilling contracts, including their payment obligations, and we are unable to secure new contracts on a timely basis on substantially similar terms or if we elect to renegotiate our drilling contracts and accept terms that are less favorable to us, it could have a material adverse effect on our business, financial condition, and results of operations. +Drilling contracts with national oil companies may expose us to greater risks than we normally assume in drilling contracts with non-governmental customers. +Contracts with national oil companies are often non-negotiable and may expose us to greater commercial, political, and operational risks than we assume in other contracts, such as exposure to materially greater environmental liability and other claims for damages (including consequential damages) and personal injury related to our operations, or the risk that the contract may be terminated by our customer without cause on short-term notice, contractually or by governmental action, under certain conditions that may not provide us an early termination payment, or may otherwise provide collection risks, and political risks. In addition, our ability to resolve disputes or enforce contractual provisions may be negatively impacted under these contracts. We can provide no assurance that the increased risk exposure will not have an adverse +16 +impact on our future operations or that we will not increase the number of rigs contracted to national oil companies with additional contractual risks. +Our current backlog of contract drilling revenue may not be ultimately realized. +Generally, contract backlog only includes future revenues under signed drilling contracts. We may not be able to perform under these contracts as a result of operational or other breaches or due to events beyond our control, and we may not ultimately execute a definitive agreement in cases where one does not currently exist. Moreover, we can provide no assurance that our customers will be able or willing to fulfill their contractual commitments to us or that they will not seek to renegotiate or repudiate their contracts or, for certain customers, reallocate term among contracted rigs, especially during an industry downturn. The terms of some of our drilling contracts permit the customer to terminate the contract after specified notice periods by tendering contractually specified termination amounts or, in certain cases, without any payment. In estimating backlog, we make certain assumptions about applicable dayrates under our longer-term contracts which have dayrate adjustment mechanisms (like certain of our contracts with ExxonMobil, AkerBP, and Petrobras) or performance-based components (like certain of our contracts with Shell plc and TotalEnergies). In addition, from time to time, we may report anticipated commitments under letters of intent or awards for which definitive agreements have not yet been, but are expected to be, signed. We cannot assure you that actual results will mirror these assumptions. Our inability to perform under our contractual obligations or execute definitive agreements, our customers’ inability or unwillingness to fulfill their contractual commitments to us, including as a result of contract repudiations or our decision to accept less favorable terms on our drilling contracts, or the failure of actual results to reflect the assumptions we use to estimate backlog for certain contracts, could have a material adverse effect on our business, financial condition, and results of operations. +A substantial portion of our business is dependent on several of our customers as well as dependent on several geographic areas and the disruption of business with any of these customers or disruption of business within these geographic areas could have a material adverse effect on our financial condition and results of operations. +Any concentration of customers increases the risks associated with any possible termination or nonperformance of drilling contracts, failure to renew contracts or award new contracts, or reduction of their drilling programs. In addition, the concentration of operations within a geographic area increases the impact of terrorism, piracy, or political or social unrest, changes in local laws and regulations, as well as severe weather events, should they occur within an area of concentration. As of December 31, 2025, ExxonMobil , Shell plc , BP, and TotalEnergies represented approximately 23.7%, 19.5%, 16.2%, and 12.6% of our contract backlog, respectively, and operations within the US Gulf, Guyana, Suriname, and the North Sea accounted for approximately 35.3% , 23.7% , 12.9%, and 11.4% of our contract backlog, respectively. ExxonMobil, BP, and Petrobras accounted for approximately 19.7% , 13.2%, and 12.5% respectively, of our consolidated operating revenues for the year ended December 31, 2025, and operations in the US Gulf, Guyana, and the North Sea accounted for approximately 27.1%, 19.7%, and 16.9%, respectively, of our consolidated operating revenues for the year ended December 31, 2025. This concentration of customers increases the risks associated with any possible termination or nonperformance of contracts in addition to our exposure to credit risk. If any of these customers were to terminate or fail to perform their obligations under their contracts and we were not able to find other customers for the affected drilling units promptly, our financial condition and results of operations could be materially adversely affected. If we were forced to cease drilling operations in any of these regions for any reason and we were not able to redeploy to other regions promptly, our financial condition and results of operations could be materially adversely affected. +Our business may be impacted by numerous operating hazards. +Our operations are subject to many hazards inherent in the drilling business, including: +• loss of well control or blowout; +• fire; +• navigation hazards, such as collisions or groundings of offshore equipment; +• helicopter accidents; +• seabed punch-throughs of a jackup rig; +• mechanical or technological equipment failures; +• failure to comply with environmental, health, and safety requirements; +• loss of well integrity (such as pipe or cement failures and casing collapses); +17 +• adverse weather or sea conditions (caused by events including hurricanes, typhoons, tsunamis, cyclones, and winter storms, which may increase in frequency and severity as a result of climate change); +• loop currents or eddies; +• toxic gas emanating from the well; and +• improper handling, release, or disposal of hazardous materials. +These hazards could cause personal injury, including claims of post-traumatic stress or loss of life, suspend drilling operations, result in regulatory investigation or penalties, seriously damage or destroy property and equipment, result in claims by employees, customers, or third parties, cause environmental damage, and cause substantial damage to oil and gas producing formations or facilities. Operations also may be suspended because of machinery breakdowns, abnormal drilling conditions, and failure of subcontractors to perform or supply goods or services or personnel shortages. The occurrence of any of the hazards we face could have a material adverse effect on our business, financial condition, and results of operations. +Unionization efforts, labor interruptions, and labor regulations could have a material adverse effect on our operations. +Certain of our employees and contractors in international markets, such as Australia, certain African countries, Brazil, Norway, Denmark, and the United Kingdom, are represented by labor unions and work under collective bargaining or similar agreements, which are subject to periodic renegotiation, and efforts may be made from time to time to unionize other portions of our workforce. Although we have not experienced any labor disruptions, strikes, or other forms of labor unrest in connection with our personnel, there can be no assurance that labor disruptions by employees and contractors will not occur in the future. Further, unionized employees of third parties on whom we rely may be involved in labor disruptions, strikes, or other forms of labor unrest, causing operational disruptions. Such actions could result in the occurrence of additional costs, as well as limitations on our ability to operate or provide services to our customers, which may materially adversely affect our business, financial condition, and results of operations. In addition strikes may occur in connection with annual salary negotiations with respect to unionized employees or contractors. If future labor strikes force us to shut down any of our operations, such interruption in operations could materially adversely affect our business, financial condition, and results of operations. Additionally, from time to time, legislation remains pending in the US Congress that could encourage additional unionization efforts in the United States, as well as increase the chances that such efforts succeed. Changes in the majority control of Congress may make passage on such legislation more likely. Additional unionization efforts, if successful, could materially increase our labor costs and operating restrictions. +A major natural disaster, catastrophic event, acts of war, terrorism, social unrest, pandemic, or other similar event could have a materially adverse effect on our business, financial condition, and results of operations, or have other adverse consequences. +Our business, financial condition, results of operations, access to capital markets, and borrowing costs may be adversely affected by a major natural disaster or catastrophic event, including civil unrest, geopolitical instability, war, terrorist attacks, pandemics, significantly altered weather conditions, or other (actual or threatened) public health emergencies such as the COVID-19 outbreak, or other events beyond our control, and measures taken in response thereto. +Acts of terrorism and social unrest, brought about by world political events or otherwise, such as the conflict between Russia and Ukraine, Middle East conflicts, and the Venezuela conflicts, and their respective regional and global ramifications, have caused instability in the world’s financial and insurance markets in the past and may occur in the future. Such acts could be directed against companies such as ours. In addition, acts of terrorism, piracy, and social unrest could lead to increased volatility in prices for crude oil and natural gas and could affect the markets for drilling services. Insurance premiums could increase and coverage may be unavailable in the future. +Our drilling contracts do not generally provide indemnification against loss of capital assets or loss of revenues resulting from acts of terrorism, piracy, or political or social unrest. We have limited insurance for our assets providing coverage for physical damage losses resulting from risks, such as terrorist acts, piracy, vandalism, sabotage, civil unrest, expropriation, and acts of war, and we do not carry insurance for loss of revenues resulting from such risks. +Public health emergencies have created and may in the future create, significant volatility and uncertainty and economic and financial market disruption. Governmental authorities implemented, and may implement in the future, numerous measures attempting to contain and mitigate the effects of pandemics and outbreaks, including travel bans and restrictions, quarantines, shelter in place orders, and shutdowns. Due to travel restrictions and mandatory quarantine +18 +measures, we experienced, and may in the future experience again, increased difficulties, delays, and expenses in moving our personnel to and from our operating locations. We may be unable to pass these increased expenses to our customers. Further, we have previously, and may in the future have to, temporarily shut down operations of one or more of our rigs if there is a pandemic, outbreak, or other public health emergency or vacancies of essential positions due to related infections, which could have a material negative impact on our business, financial condition, and results of operations. Additionally, disruptions to the ability of our suppliers, manufacturers, and service providers to supply labor, parts, equipment, or services in the jurisdictions in which we operate, whether as a result of government actions, labor shortages, travel restrictions, the inability to source labor, parts, or equipment from affected locations, or other effects related to pandemics, outbreaks, or other public health emergencies, have increased our operating costs and the risk of rig downtime, and negatively impacted our ability to meet commitments to customers and may do so in the future. +Additionally, many scientists have concluded that increasing concentrations of GHGs in the Earth’s atmosphere and climate change may produce significant physical effects on weather conditions, such as increased frequency and severity of droughts, storms, floods, and other climatic events. If any such effects were to occur, they could adversely affect or delay demand for the oil or natural gas produced or cause us to incur significant costs in preparing for or responding to the effects of climatic events themselves. Potential adverse effects could include disruption of our and our customers’ operations, including, for example, damages to our facilities from winds or floods, increases in our costs of operation, or reductions in the efficiency of our operations, impacts on our personnel, supply chain, or distribution chain, as well as potentially increased costs for insurance coverages in the aftermath of such effects. Any of these events could have an adverse effect on our assets and operations. +We face risks associated with our participation in certain joint ventures as well as investments in associates. +We have made investments in certain joint ventures as well as investments in associates. Such investments are often entered into to satisfy local requirements, including local content requirements, in certain jurisdictions and the terms of the investment agreements vary depending on the counterparty and jurisdiction involved. For example, we currently have joint ventures with local owners or partners that were entered into in the ordinary course of business to satisfy local content requirements in certain African countries, countries in the Middle East, Mexico, and other applicable jurisdictions in which we operate. Investments in joint ventures or associates over which we have partial or joint control are subject to the risk that the other owners or partners in such joint venture or associate, who may have different business or investment strategies compared to ours or with whom we may have a disagreement or dispute, may have the ability to block business, financial, or management decisions (such as the decision to distribute dividends or appoint members of management) which may be crucial to the success of our investment in the joint venture or associate, or could otherwise implement initiatives which may be contrary to our interests. In addition, such joint venture owners or partners may be unable, or unwilling, to fulfill their obligations under the relevant agreements (for example, by not contributing working capital or other resources), or may experience financial, operational, or other difficulties that may adversely impact our investment in a particular joint venture or associate. In addition, such joint venture owners or associates may lack sufficient controls and procedures which could expose us to risk. If any of the foregoing were to occur, such occurrence could materially adversely affect our business, financial condition, and results of operations. +We are exposed to risks relating to operations in international locations, including the mobilization and demobilization of our rigs to and from such locations. +We operate in various regions throughout the world that may expose us to political or governmental risks and other uncertainties, including risks of: +• seizure, nationalization, or expropriation of property or equipment; +▪ monetary policies, capital controls, government credit rating downgrades and potential defaults, and any potential shutdown of the United States government; +▪ foreign currency fluctuations and devaluations; +▪ limitations on the ability to repatriate income or capital; +▪ complications associated with repairing and replacing equipment in remote locations; +▪ repudiation, nullification, modification, or renegotiation of contracts; +▪ limitations on insurance coverage, such as war risk coverage, in certain areas; +▪ import-export quotas, wage and price controls, and imposition of sanctions, tariffs, or other trade restrictions; +19 +▪ operating delays as a result of excess governmental scrutiny or oversight; +▪ compliance with and changes in taxation rules or policies; +▪ compliance with and changes in regulatory or financial requirements, including local ownership, presence, local immigration, and visa requirements for personnel or labor requirements; +▪ complexity involving conflicts of law between jurisdictions in which we operate; +▪ other forms of government regulation and economic conditions that may effectively preclude us from engaging in business activities in certain countries (including newly amended regulations covering countries where we currently operate or where we may wish to operate in the future) are beyond our control and create operational uncertainty; +▪ corruption, payment of bribes to government officials, money laundering, or kleptocracy (i.e., political corruption in which the government seeks personal gain and status at the expense of the governed); and +▪ terrorism, piracy, civil, or international disturbances or conflict, such as the conflict bet ween Russia and Ukraine, Middle East conflicts, and the Venezuela conflicts, and their respective regional and global ramifications. +Further, we operate or have operated in certain less-developed countries with legal and regulatory systems that are not as mature as those in more developed countries, which can lead to greater uncertainty in legal matters and proceedings. Examples of challenges of operating in these countries include: +• ongoing changes in Brazilian laws related to the importation of rigs and equipment that may impose bonding, insurance, or duty-payment requirements; +• ongoing audits, including customs audits; +• procedural requirements for temporary import permits, which may be difficult to obtain; and +• the effect of certain temporary import permit regimes, where the duration of the permit does not coincide with the general term of the drilling contract. +Our ability to do business in a number of jurisdictions is subject to maintaining required licenses and permits and complying with applicable laws and regulations. For example, all of our drilling units are subject to regulatory requirements of the flag state, the country where a drilling unit is registered. The applicable flag state requirements are consistent with international maritime standards. In addition, each of our drilling units must be assessed by a classification society, which conducts surveys and reviews for physical and operational compliance with the rules of the classification society and the requirements of the flag state, signifying that such drilling rig has been constructed, maintained, crewed, and operated in accordance with the rules of the classification society and complies with applicable rules and regulations of the flag state (also referred to as being “in-class”). If any drilling unit is deemed or otherwise found to be “out of class”, it will no longer be permitted to operate, certain contractual obligations will be voided, canceled, or withdrawn (e.g., drilling contracts, insurance contracts, etc.), and the unit will be prohibited from entering the waters of most countries. +Jurisdictions where we operate may attempt to increase or impose requirements for our drilling units to operate in such jurisdiction, such as certain local ownership or content requirements or registration under the flag of that jurisdiction, or similar measures, resulting in our inability or loss of capacity to operate in a country imposing such requirements or measures. +Any such inability to carry on operations in jurisdictions where we operate or desire to operate, or our failure to comply with any other laws and regulations of the countries where we operate, could have a material adverse effect on our results of operations. Some governments favor or effectively require the awarding of drilling contracts to local contractors, require use of a local agent, require partial local ownership, or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. In addition, some governments frequently intervene in their economy and occasionally make significant changes in policy and regulations. An example is the Brazilian government's actions to control inflation and other policies and regulations which have often involved, among other measures, changes in interest rates, changes in tax policies, changes in legislation, wage controls, price controls, currency devaluations, capital controls, and limits on imports of goods and services. These practices have, and may adversely affect, our ability to compete and our results of operations. +In addition, the offshore drilling industry is a global market requiring flexibility for rigs, depending on their technical capability, to relocate and operate in various environments and jurisdictions, moving from one area to another. The mobilization of rigs is expensive and time-consuming, and can be impacted by several factors including, but not limited to, governmental regulation and customs practices, availability of tugs and tow vessels, weather, currents, political instability, +20 +civil unrest, and military actions, such as the conflict between Russia and Ukraine, Middle East conflicts, and the Venezuela conflicts, and their respective regional and global ramifications, and rigs may as a result become stranded. Some jurisdictions enforce strict technical requirements on the rigs requiring substantial physical modification to the rigs before they can be utilized. Such modifications may require significant capital expenditures and, as a result, may limit the use of the rigs in those jurisdictions in the future. In addition, mobilization carries the risk of damage to the rig. Failure to mobilize a rig in accordance with the deadlines set by a specific customer contract could result in a loss of compensation, liquidated damages, or the cancellation or termination of the contract. In some cases, we may not be paid for the time that a rig is out of service during mobilization. In addition, in the hope of securing future contracts, we may choose to mobilize a rig to another geographic market without a customer contract in place. If no customer contracts are obtained, we would be required to absorb these costs. Mobilization and relocating activities could, therefore, have a material adverse effect on our business, financial condition, and results of operations. +Operating and maintenance costs of our rigs may be significant and may not correspond to revenue earned. +Our operating expenses and maintenance costs depend on a variety of factors, including crew costs, costs of provisions, equipment, insurance, maintenance and repairs, shipyard costs, supply chain disruptions, tariffs, and inflation, many of which are beyond our control. Our total operating costs are generally related to the number of drilling rigs in operation and the cost level in each country or region where such drilling rigs are located. Equipment maintenance costs fluctuate depending upon the type of activity that the drilling rig is performing, the age and condition of the equipment, and the timing of the drilling rig special periodic surveys. While operating revenues may fluctuate as a function of changes in dayrate, costs for operating a rig may not be proportional to the dayrate received and may vary based on a variety of factors, including the scope and length of required or customer-requested rig preparations and the duration of the contractual period over which such expenditures are amortized. Any investments in our rigs may not result in an increased dayrate for, or income from, such rigs. A disproportionate change in the amount of operating and maintenance costs in comparison to dayrates could have a material adverse effect on our business, financial condition, and results of operations. +Inflation may adversely affect our operating results. +Inflationary factors such as increases in labor costs, material costs, changes in tariff and sanctions regimes, and overhead costs may adversely affect our operating results and cash flows. We have continued to experience increases in the cost of labor and materials, and inflationary pressures may continue into 2026 . These factors may have an adverse effect on our ability to maintain current levels of gross margin and general and administrative expenses as a percentage of total revenue if our dayrates do not sufficiently increase to cover these increased costs, as well as result in increases in our capital expenditures. For instance, tariffs have been recently proposed and/or instituted on imports to the United States, together with other regulations affecting trade between the United States and countries in which we conduct business and source components. A number of other nations have, in response, imposed, or threatened to impose, reciprocal tariffs on imports from the United States as well as certain other trade restrictions. In the event that the above measures and any related retaliatory tariffs were to be imposed for prolonged periods of time, this could increase the cost of components and raw materials in our supply chain and, consequently, our costs. Most of our contracts have dayrates that are fixed over the contract term. While some of our long-term contracts contain rate adjustment provisions, they can be based on market fluctuations rather than cost increases. To the extent a drilling contract provides for escalations attributable to inflation in our costs, those adjustments will lag the impact of inflationary pressures and may not reflect the full impact to us of any cost inflation. As drilling contracts with such provisions expire or are terminated, there can be no assurance that future drilling contracts will contain similar provisions, which may reduce our margins in inflationary environments. In addition, inflation is often, and has recently been, accompanied by higher interest rates. Such higher interest rates may affect our ability to enter into future traditional debt financing, as high inflation may result in an increase in the cost to borrow. Future increases in interest rates may negatively impact our cost of capital and ability to access capital markets. +Operational interruptions, maintenance, or repair work may delay commencement of operations or cause our customers to suspend or reduce payment of dayrates until operation of the respective drilling rig is resumed, which may lead to loss of revenue, payment of liquidated damages, termination, or renegotiation of the drilling contract. +I f our drilling rigs are idle for reasons that are not related to the ability of the rig to operate, our customers may be entitled to pay a waiting, or standby, rate that is lower than the full operational rate. In addition, if our drilling rigs are taken out of service for maintenance and repair for a period of time that exceeds the scheduled maintenance periods set forth in our drilling contracts, we may not be entitled to payment of full dayrates until the rig is able to work. Several factors could cause operational interruptions, including: +21 +• breakdowns of equipment and other unforeseen engineering problems; +• work stoppages, including labor strikes; +• shortages of material and skilled labor; +• shipyard availability, failures, and difficulties; +• delays in repairs by suppliers; +• surveys by government and maritime authorities; +• periodic classification surveys; +• delays imposed by or resulting from compliance with permits, laws, regulations, or litigation; +• severe weather, strong ocean currents, or harsh operating conditions; +• force majeure events; and +• the occurrence or threat of epidemic or pandemic diseases, or any government response to such occurrence or threat. +Several of these factors have been exacerbated by global supply chain disruptions, the conflict between Russia and Ukraine, Middle East conflicts, and the Venezuela conflicts, labor strikes at critical points in a supply chain, and their respective regional and global ramifications. If a delay of commencement of operations, or interruption of operations, exceeds a determined period, our customers may have the right to pay a rate that is significantly lower than the waiting rate for a period of time, may be entitled to liquidated damages, and may have a right to terminate the drilling contracts related to the subject rig. Suspension of drilling contract payments, payment of liquidated damages, prolonged payment of reduced rates, or termination of any drilling contract as a result of an interruption of operations could materially adversely affect our business, financial condition, and results of operations. +We may have difficulty obtaining or maintaining insurance in the future and our insurance coverage and contractual indemnity rights may not protect us against all the risks and hazards we face. +We do not procure insurance coverage for all of the potential risks and hazards we may face. Furthermore, no assurance can be given that we will be able to obtain insurance against all of the risks and hazards we face or that we will be able to obtain or maintain adequate insurance at rates and with deductibles or retention amounts that we consider commercially reasonable. Some insurance carriers may decide not to offer insurance to companies operating in the oil and gas industry, potentially resulting in less available insurance capacity and/or higher rates. In addition, our insurance carriers may interpret our insurance policies such that they do not cover losses for which we make claims. +Although we maintain insurance in the geographic areas in which we operate, pollution, reservoir damage, and environmental risks generally are not fully insurable. Our insurance policies may not adequately cover our losses or may have exclusions of coverage for some losses. We do not have insurance coverage for all risk exposures. For example, we carry no loss of hire insurance for any rigs in our fleet. In addition, our insurance may not cover losses associated with pandemics. Furthermore, the damage sustained to offshore oil and gas assets in the United States as a result of hurricanes has negatively impacted certain aspects of the energy insurance market, resulting in more restrictive and expensive coverage for US named windstorm perils due to the price or lack of availability of coverage. Accordingly, we have primarily self-insured the rigs in the US Gulf for property damage resulting from named windstorm perils, and only have windstorm third-party liability coverage for all rigs, subject to certain limits. We may, in the future, be unable to purchase named windstorm coverage for some or all of the rigs operating in the US Gulf. +Under our drilling contracts, liability with respect to personnel and property is customarily assigned on a “knock-for-knock” basis, which means that we and our customers assume liability for our respective personnel and property, irrespective of the fault or negligence of the party indemnified. Although our drilling contracts generally provide for indemnification from our customers for certain liabilities, including liabilities resulting from pollution or environmental damage originating below the surface of the water, enforcement of these contractual rights to indemnity may be limited by public policy and other considerations and, in any event, may not adequately cover our losses from such incidents. There can also be no assurance that those parties with contractual obligations to indemnify us will necessarily be in a financial position to do so. During depressed market periods, such as the one in which we recently operated, the contractual indemnity provisions we are able to negotiate in our drilling contracts may require us to assume more risk than we would during normal market periods. +If a significant accident or other loss occurs and is not fully covered by insurance or contractual indemnity, it could adversely affect our business, financial condition, and results of operations. +22 +Our failure, or the failure of our service providers or other third parties, to adequately protect our sensitive information, operational technology systems, and critical data could have a material adverse effect on our business, results of operations, and financial condition. +Our day-to-day operations increasingly depend on information and operational technology systems that we manage, and other systems that third parties, such as our service providers, vendors, and equipment providers, manage, including critical systems on our drilling units. Many of these systems are interconnected, and certain third parties may have direct or indirect access to our systems or data in connection with providing services to us. These systems are subject to risks associated with growing and evolving cyber incidents or attacks or other disruptions. These risks include, but may not be limited to, human error, power outages, computer and telecommunication failures, natural disasters, fraud or malice, social engineering or phishing attacks, viruses or malware, and other cyber incidents or attacks, such as denial-of-service or ransomware attacks, including attacks that leverage artificial intelligence. Entities or groups, including cybercriminals, competitors, and nation state actors, have mounted cyber-attacks on businesses and other organizations to disable or disrupt computer systems, impair operational capabilities, cause downtime, and, in some cases, steal data. In addition, the United States government has issued public warnings that indicate energy assets and companies engaging in significant transactions, such as acquisitions, might be specific targets of cyber security threats. Geopolitical tensions or conflicts and broader societal or technological developments may increase the frequency, sophistication, or severity of cyber security threats, and the evolving use of advanced technologies by threat actors, including the increased adoption of artificial intelligence technologies, may further heighten these threats. As threat actors adopt and deploy AI tools, the speed and sophistication of cyber threats and privacy risks may increase across our environment and those of our vendors and suppliers. As we and/or our service providers plan or work to integrate AI-enabled tools, those tools may be targeted or misused in ways that compromise data or enable harmful outputs. +Also, many of our employees may have a hybrid work schedule. This opens additional avenues of cyber threats such as social engineering, remote access abuse, and home network exposure. We mitigate these risks with enterprise access controls, device hardening standards, and ongoing employee security awareness training. Due to the nature of cyber incidents and attacks, such events affecting our systems or the services or equipment used by our service or equipment providers could go undetected for a prolonged period of time, and the full nature and scope of any potential harm may not be immediately apparent. A cyber incident or attack may result in legal claims or proceedings against us by our shareholders, employees, customers, vendors, or other persons, regulatory inquiries by governmental authorities in the United States and internationally, and could have a material adverse effect on our business, results of operations, or financial condition. +A significant cyber incident or attack, whether affecting our systems or the critical systems or equipment of third parties on whom we rely, could disrupt our operations and result in downtime, loss of revenue, harm to the Company's reputation, or the loss, theft, corruption, or unauthorized disclosure of our sensitive information and critical data, or information and data of those with whom we do business, as well as result in higher costs to correct and remedy the effects of such incidents, including potential extortion, unforeseen payments associated with ransomware, or ransom demands. Such incidents could also result in regulatory investigations or enforcement actions, litigation (including class action litigation), contractual liabilities, fines, or penalties. If our, or our service or equipment providers’, safeguards maintained for protecting against cyber incidents and attacks prove to be insufficient, and an incident were to occur, it could have a material adverse effect on our business, financial condition, reputation, and results of operations. Additionally, it may be difficult to determine the best way to investigate, mitigate, contain, and remediate the harm caused by a cyber incident or attack. Such efforts may not be successful, and we may make errors or fail to take necessary actions. It may take considerable time for us to investigate and evaluate the full impact of incidents, particularly for complex or sophisticated incidents. These factors may inhibit our ability to provide prompt, full, and reliable information about the incident to our customers, partners, regulators, and the public. Even though we carry cyber insurance that may provide insurance coverage under certain circumstances, we might suffer losses as a result of a cyber incident or attack that exceeds the coverage available under our policy or is not covered, and we cannot be certain that cyber insurance will continue to be available to us on commercially reasonable terms, or at all. +In addition, Noble is subject to a variety of continuously evolving and developing laws and regulations in the United States and abroad governing, or proposed to govern, cyber security, data privacy and protection, the development and use of AI, and the unauthorized disclosure of confidential or protected information, including the UK Data Protection Act, the EU General Data Protection Regulation, the Data Protection Law, as revised, of the Cayman Islands, the California Consumer Privacy Act, as amended by the California Privacy Rights Act, the Cyber Incident Reporting for Critical Infrastructure Act, and other similar legislation in domestic and international jurisdictions, which pose increasingly complex compliance challenges +23 +and potentially elevate costs. Any failure to comply with these laws and regulations could result in significant penalties and legal liability. These laws and regulations are continuously evolving and developing, creating significant uncertainty, as data privacy and security requirements may be interpreted and applied differently across jurisdictions and may impose inconsistent or conflicting requirements. Any failure, or perceived failure, by Noble or third-party service or equipment providers to comply with Noble’s privacy or security policies or privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personal data, or other sensitive information or critical data, may result in loss of revenue, reputational harm, and could be subject to legal or regulatory claims or proceedings, including enforcement actions under data privacy or disclosure regulations, which may result in significant expenditures, fines or liabilities, and could have an adverse effect on our operating results and financial condition. Additionally, AI outputs may be inaccurate, biased, or unreliable, which could result in legal, regulatory, or reputational harm, and their misuse could create compliance or reputational risks and lead to legal exposure. +Upgrades, refurbishment, and repair of rigs are subject to risks, including delays and cost overruns, that could have an adverse impact on our available cash resources and results of operations. +We will continue to make upgrades, refurbishment, and repair expenditures to our fleet from time to time, some of which may be unplanned. In addition, we may reactivate rigs that have been cold or warm stacked and make selective acquisitions of rigs. Our customers may also require certain upgrade projects for our rigs. For example, in 2025 , we signed long-term contracts that will necessitate substantial capital expenditures to upgrade specific rigs according to requirements by some of our customers. These projects typically become more time consuming and expensive the older the fleet becomes and are subject to risks of cost overruns or delays inherent in any large construction project as a result of numerous factors, including the following: +▪ shortages of equipment, materials, or skilled labor; +▪ work stoppages and labor disputes; +▪ unscheduled delays in the delivery of ordered materials and equipment; +▪ local customs strikes or related work slowdowns that could delay importation of equipment or materials; +▪ weather interferences; +▪ difficulties in obtaining necessary permits or approvals or in meeting permit or approval conditions; +▪ design, engineering, and obsolescence problems; +▪ inadequate regulatory support infrastructure in the local jurisdiction; +▪ latent damages or deterioration to hull, equipment, and machinery in excess of engineering estimates and assumptions; +▪ unforeseen increases in the cost of equipment, labor, and raw materials, particularly steel, due to inflation or other factors; +▪ unanticipated actual or purported change orders; +▪ customer acceptance delays; +▪ disputes with shipyards and suppliers; +▪ delays in, or inability to obtain, access to funding; +▪ shipyard availability, failures, and difficulties, including as a result of financial problems of shipyards or their subcontractors; and +▪ failure or delay of third-party equipment vendors or service providers. +The failure to complete a rig upgrade, refurbishment, or repair on time, or at all, may result in related loss of revenues, liquidated damages, penalties, or delay, renegotiation, or cancellation of a drilling contract, or the recognition of an asset impairment. Additionally, capital expenditures could materially exceed our planned capital expenditures. Moreover, when our rigs are undergoing upgrade, refurbishment, and repair, they may not earn a dayrate during the period they are out of service. If we experience substantial delays and cost overruns in our shipyard projects, it could have a material adverse effect on our business, financial condition, and results of operations. +24 +Failure to attract and retain skilled personnel or an increase in personnel costs could adversely affect our operations. +Our employees are vital to our success. We require skilled personnel to operate and provide technical services and support for our drilling units. In the past, during periods of high demand for drilling services and increasing worldwide industry fleet size, shortages of qualified personnel have occurred and competition for personnel has intensified. During periods of reduced demand, there have been, and in the future may be, layoffs of qualified personnel (including offshore personnel), who often find work with competitors or leave the industry. As a result, if market conditions improve following a period of reduced demand and we seek to reactivate warm or cold stacked rigs, move rigs to a new locale, upgrade our working rigs, or purchase additional rigs, we may face shortages of qualified personnel, which would impair our ability to attract qualified personnel for our new or existing drilling units, impair the timeliness and quality of our work, and create upward pressure on personnel costs, any of which could adversely affect our operations. +In addition, our ability to retain our key business leaders is critical. The market for highly skilled workers and leaders in our industry is extremely competitive and we may need to invest significant amounts of cash and equity to attract and retain new employees. We may never realize returns on these investments. In order to help attract, retain, and motivate qualified employees, we use equity-based awards and performance-based cash incentive awards. Sustained declines in our stock price, or lower stock price performance relative to competitors, can reduce the retention value of our equity-based awards, which can impact the competitiveness of our compensation. The unexpected loss of members of management, qualified personnel, or a significant number of employees due to disease, disability, or death, could have a material adverse effect on our business. +Supplier capacity constraints or shortages in parts or equipment, supplier production disruptions, supplier quality, and sourcing issues or price increases could increase our operating costs, decrease our revenues, and adversely impact our operations. +Our reliance on third-party suppliers, manufacturers, and service providers to secure equipment used in our drilling operations exposes us to volatility in the quality, price, and availability of such items. Certain specialized parts and equipment we use in our operations may be available only from a single or small number of suppliers. During periods of reduced demand, many of these third-party suppliers reduced their inventories of parts and equipment and, in some cases, reduced their production capacity, and may do so in the future. Moreover, the global supply chain has experienced challenges and disruptions in recent years, resulting in shortages and/or shipping delays and increased pricing pressures on, among other things, certain raw materials and labor. If the market for our services improves and we seek to reactivate warm or cold stacked rigs, upgrade our working rigs, or purchase additional rigs, these reductions and global supply chain constraints could make it more difficult for us to find equipment and parts for our rigs. A disruption or delay in the deliveries from such third-party suppliers, capacity constraints, production disruptions, price increases (including those related to inflation, the imposition of tariffs and supply chain disruptions), defects or quality-control issues, recalls, or other decreased availability or servicing of parts and equipment could adversely affect our ability to reactivate rigs, upgrade working rigs, purchase additional rigs, or meet our commitments to customers on a timely basis, adversely impact our operations and revenues by resulting in uncompensated downtime, reduced dayrates, the incurrence of liquidated damages or other penalties, or the cancellation or termination of contracts, or increase our operating costs. +We may experience risks associated with future mergers, acquisitions, dispositions of businesses or assets, or other strategic transactions. +As part of our business strategy we have pursued and completed, and may continue to pursue, mergers, acquisitions, dispositions of businesses or assets, or other strategic transactions that we believe will enable us to strengthen or broaden our business. M ergers, acquisitions, dispositions, and other strategic transactions involve various risks, including, among other things, (i) difficulties relating to integrating or disposing of a business, including changes to our employee workforce and unanticipated changes in customer, vendor, and other third-party relationships, (ii) failure to integrate operations and internal controls, including those related to financial reporting, disclosure, and cyber security and data protection, (iii) diversion of management’s attention from day-to-day operations, (iv) failure to realize the anticipated benefits of such transactions, such as cost savings and revenue enhancements, (v) potentially substantial transaction costs, (vi) failure to identify significant issues at the target during the due diligence process, which could result in financial or legal exposure, and (vii) potential impairment resulting from the overpayment for an acquisition. +Future mergers or acquisitions may require us to obtain additional equity or debt financing, which may not be available on attractive terms. Moreover, to the extent a transaction financed by non-equity consideration results in goodwill, it will reduce our tangible net worth, which might have an adverse effect on credit availability. +25 +At certain locations where we operate, there is an increased potential for seasonal weather events that could lead to limits or restrictions on our ability to operate, damage to our assets and equipment, liabilities or claims, operational delays for recovery and repair, liability claims, impacts on customer and vendor contracts, regulatory fines and penalties, and uninsured losses, which could adversely affect our business. +Certain areas of the world where we operate, such as the US Gulf, South Atlantic, the North Sea, Southwest Pacific, South China Sea, and Southeast Indian Ocean, experience significant weather events, typically on a seasonal basis, manifesting as an unnamed wind event or of a magnitude that places it in a category of tropical cyclone, hurricane, typhoon, or extratropical cyclone. Information upon which we rely when contracting and operating our drilling rigs is merely projections and the actual course, speed, and/or severity of any one event could ultimately be unexpected and lead to an unanticipated encounter and or impact, exposing our assets and personnel to extreme wind and sea conditions that could result in limits or restrictions on our ability to operate, injuries or loss of life, damage to or a loss of our assets and equipment, liabilities or claims, operational delays for recovery and repair, impacts on customer and vendor contracts, regulatory fines and penalties, and/or uninsured losses, which could adversely affect our business and financial performance. Moreover, a potential result of climate change is more frequent or more severe weather events. To the extent such weather events become more frequent or more severe, the risks associated with severe weather events could intensify. +Failure to effectively and timely respond to the impact of long-term changes in the energy mix could adversely affect our business, results of operations, and cash flows. +Our long-term success depends on our ability to effectively respond to the impact of long-term changes in the energy mix, which could require adapting our fleet and business to potentially changing government requirements, customer preferences, and customer base, as well as engaging with existing and potential customers and suppliers to develop or implement solutions designed to reduce or to decarbonize oil and gas operations or to advance renewable and other alternative energy sources. If the energy mix landscape changes faster than anticipated or in a manner that we do not anticipate, demand for our services could be adversely affected. Furthermore, if we fail to, or are perceived not to, effectively implement a strategy regarding long-term changes in the energy mix, or if investors or financial institutions shift funding away from companies in fossil fuel-related industries, our access to capital or the market for our securities could be negatively impacted. Additionally, if we fail to, or are perceived not to, effectively respond to long-term changes in the energy mix, we may experience diminished reputation or sentiment, an inability to attract and retain talent and/or a loss of customers or vendors. +We rely on third-party suppliers and subcontractors to provide or complete parts, crew, and equipment, as applicable, for our projects and our operations may be adversely affected by the substandard performance or nonperformance of those suppliers or third-party subcontractors due to production disruptions, quality and sourcing issues, price increases, or consolidation of suppliers and sub-contractors as well as equipment breakdowns. +Our reliance on third-parties such as suppliers, manufacturers, subcontractors, and other service providers for equipment, services, and labor used in our drilling operations, including with respect to our bareboat charter agreements, exposes us to volatility in the quality, price, and availability of such resources. Certain specialized parts, crew, and equipment used in our operations may be available only from a single or a small number of suppliers. A disruption in the deliveries from such third-party suppliers, capacity constraints, production disruptions, price increases, defects or quality-control issues, recalls, or other decrease in the availability or servicing of parts and equipment could adversely affect our ability to meet our commitments towards our customers, adversely impact operations and revenues by resulting in uncompensated downtime, reduced dayrates under the relevant drilling contracts, cancellation or termination of contracts, or increased operating costs. In addition, consolidation of suppliers may limit our ability to obtain supplies and services, when needed, at an acceptable cost or at all. +Equipment deficiencies or breakdowns, whether due to faulty parts, quality control issues, or inadequate installation, may result in increased maintenance costs and could adversely affect our operations and revenues by resulting in financial downtime. If mitigation measures put in place are not effective, it could lead to significant financial downtime, adversely affect our ability to meet our commitments with our customers, potential cancellation or termination of drilling contracts, suspension or termination of operations, regulatory penalties or sanctions, or property, environmental, and other damage claims by customers or other third parties, which may in turn have a material adverse effect on our business, financial condition, results of operations, and reputation. Subcontractors are used to perform certain services and to provide certain input in areas where we do not have requisite expertise and are engaged on some parts of our projects, but may be used for a majority of the services in respect of new business models. The subcontracting of work, including with respect to our +26 +bareboat charter agreements, exposes us to risks associated with planning interface nonperformance, delayed performance, or substandard performance by our subcontractors. Any inability to hire qualified subcontractors could hinder successful completion of a project. Further, our employees may not have the requisite skills to be able to monitor or control the performance of these subcontractors. We may suffer losses on contracts if the amounts we are required to pay for subcontractor services exceed original estimates. Remedial or mitigating actions, such as requiring contractual obligations from subcontractors that are similar to those we have with our customers, and requesting parent guarantees from subcontractors to cover nonperformance, may not be available or sufficient to mitigate these risks. For example, we have experienced issues with the performance of some of our key suppliers in the past, in particular in relation to delays in the delivery and maintenance of subsea well-control equipment. Such issues could have a negative effect on our business, financial condition, and results of operations. +We face risks associated with creating and executing new business models, particularly when such business models involve a risk profile, remuneration, or financial scheme that is different from a conventional drilling contract. +We are exploring, and have in the past implemented, various degrees of innovative business models with customers and partners in order to expand our share of the value chain, while simultaneously creating better outcomes for our customers and long-term resilience of our business through increased customer collaboration, differentiation, and utilization. Although such business model innovation is intended to offer further earnings opportunities, there are risks associated with creating and executing new business models, particularly when such business models involve a risk profile, remuneration, or financial scheme that is different from our conventional drilling contracts. +Two broad categories of business models include: +(i) offering integrated services or integrating new services into offerings to customers as an integrated service provider with the objective of improving efficiencies; and +(ii) exploring alternative financial models focused on risk and reward sharing through, among other things, bonus-malice schemes, performance-based schemes, deferred payments, fixed pricing, or co-investments, enabling operators to develop fields that would otherwise be economically challenged. +However, forecasting the success of any new business model is inherently uncertain and depends on a number of factors both within and outside our control. Our actual revenue and profit generated from such business models may be significantly greater or less than forecasts. In addition, the efficiencies anticipated from new business models may fail to be realized, the costs may be higher, and the counterparty risk greater than expected. In addition, as we create and execute more new business models and expand into other parts of the value chain, our risk profile may continue to shift. Entering into new business models could have an adverse impact on our business, financial condition, and results of operations. +Regulatory and Legal Risks +Changes in, compliance with, or our failure to comply with certain laws and regulations could have a material adverse effect on our results of operations by adding to our costs, or negatively impact our operations by causing delays or limiting activity . +Our business is affected by public policy and laws and regulations relating to the energy industry in the geographic areas where we do or seek to operate or otherwise have a presence, including laws and regulations relating to the environment (including climate change and GHG emissions and regulations that for economic, sustainability, or other reasons curtail or encumber our ability to operate competitively or negatively impact exploration, development, and production of oil and gas). We may be required to make significant capital expenditures to comply with governmental laws and regulations. Governments in some countries are increasingly active in regulating and controlling the ownership of concessions, the exploration for oil and gas, and other aspects of the oil and gas industries. +Heightened attention to the issue of climate change and the effect of GHGs, sustainability, and long-term changes in the energy mix in the jurisdictions where we operate has led to, and may result in, additional environmental laws or regulations that may unfavorably impact our business, or that of our suppliers and our customers. In addition, it has resulted in an increased possibility of litigation or investigations brought by public and private entities against oil and gas companies in connection with their GHG emissions. However, it is not possible at this time to predict the timing and effect of climate related laws and regulations, the adoption of additional GHG legislation, regulations or other measures at the international, federal, state, or local levels. +27 +The modification of existing laws or regulations or the adoption of new laws or regulations that curtail or encumber our ability to operate competitively or negatively impact exploration, development, and production of oil and gas could materially and adversely affect our business by limiting drilling opportunities, increasing our cost of doing business, discouraging our customers from drilling for hydrocarbons, disrupting revenue through permitting or similar delays, or subjecting us to liability. In the United States, the issuance of federal leases or other similar initiatives have periodically been the subject of efforts to reform federal leasing practices and may result in the development of additional restrictions on offshore drilling, limitations on the availability of offshore leases, or restrictions on the ability to obtain required permits, which could have a material adverse impact on our operations by reducing drilling opportunities and the demand for our services. +There have been various recent legal developments in the UK offshore sector, including the extension of the energy profits levy on our customer base, increased environmental scrutiny of development plans and the prohibition of new exploration licenses. These developments have reduced oil and gas exploration and development activities in the UK North Sea, which, in turn, could reduce the demand for our services. +In addition, efforts have been made and continue to be made in the international community toward the adoption or enhancement of international treaties or protocols related to protecting the environment, reducing climate change, reducing the use of hydrocarbon-based fuel, and encouraging the implementation of GHG emission pledges. Fuel conservation measures, alternative fuel requirements and increasing consumer demand for alternatives to oil and gas could reduce demand for oil and gas. These measures may result in a reduced global reliance on and future demand for oil and gas, which could have a material impact on our business. +New or amended legislation and regulatory programs to reduce GHG emissions, changes in their interpretation or application, or increased reporting obligations, could increase our cost of doing business, discourage our customers from drilling for hydrocarbons, or otherwise have an adverse effect on our business, financial condition, and results of operations. Our operations are subject to various laws and regulations in countries in which we operate, including laws and regulations relating to: +▪ the environment and the health and safety of personnel; +▪ the importing, exporting, equipping, and operation of drilling rigs; +▪ finance and currency exchange controls; +▪ oil and gas exploration and development; +▪ taxation of local and offshore earnings and earnings of expatriate personnel; and +▪ use and compensation of local employees, contractors, and suppliers, and involvement of foreign contractors. +Public and governmental scrutiny of the energy industry has resulted in increased regulations being proposed and often implemented. In addition, existing regulations might be revised or reinterpreted, new laws, regulations, and permitting requirements might be adopted or become applicable to us, our rigs, our customers, our vendors, or our service providers, and future changes in laws and regulations could significantly increase our costs and could have a material adverse effect on our business, financial condition, and results of operations. In addition, we may be required to post additional surety bonds to secure performance, tax, customs, and other obligations relating to our rigs in jurisdictions where bonding requirements are already in effect and in other jurisdictions where we may operate in the future. These requirements would increase the cost of operati ng in these countries, which could materially adversely affect our business, financial condition, and results of operations. +From time to time, new rules, regulations, and requirements regarding oil and gas development have been proposed and implemented by BOEM, BSEE, or the United States Congress, as well as other jurisdictions outside the United States, that could materially limit or prohibit, and increase the cost of, offshore drilling. For example, following a years’ long rule making process, both BSEE and BOEM updated and expanded their respective offshore decommissioning financial assurance and bonding requirements. The updated requirements, which were finalized by BSEE in 2023 and BOEM in 2024, are stricter than previous requirements and may increase the costs of operating on the Outer Continental Shelf. BOEM and BSEE could issue new rules relating to well control equipment and operational requirements that fall under their authority in the future. Future actions taken by the United States to limit the availability of new oil and gas leases on the Outer Continental Shelf, or delays imposed by or resulting from compliance with permits, laws, regulations, or litigation would adversely impact the offshore oil and gas industry and impact demand for our services. +28 +We are also subject to increasing regulatory requirements and scrutiny in certain jurisdictions and other countries, including the North Sea. New rules, regulations, and requirements, including the adoption of new safety requirements and policies relating to the approval of drilling permits, restrictions on oil and gas development and production activities in the US Gulf and elsewhere, implementation of safety and environmental management systems, mandatory third-party compliance audits, and the promulgation of numerous Notices to Lessees or similar new regulatory requirements outside of the United States, may impact our operations by causing increased costs, delays, and operational restrictions. If new regulations, policies, operating procedures, and the possibility of increased legal liability resulting from the adoption or amendment of rules and regulations applicable to our operations in the United States or other jurisdictions are viewed by our current or future customers as a significant impairment to expected profitability on projects, then they could discontinue or curtail their offshore operations in the impacted region, thereby, adversely affecting our operations by limiting drilling opportunities or resulting in materially increased costs. +Heightened attention to sustainability matters may negatively impact our business and financial results. +In recent years, regulators, investors, and the general public have focused on activities in the energy industry that relate to sustainability matters. For example, in many jurisdictions where we operate, there are campaigns for governmental and private action in connection with sustainability criteria and initiatives, including through the investment and voting practices of individual and institutional investors and investment advisers, public company rating agencies, and others in or connected to the investing community (for instance, initiatives such as the new strategy adopted by the International Maritime Organization in July 2023 to advance the prevention and control of marine pollution through the reduction of GHG emissions from ships). Stakeholders and members of the investment community continue to screen and assess companies such as ours for sustainability and ESG performance information measured against the expanded list of sustainability and ESG metrics advanced by the various sustainability standards and ESG ratings sources, and in some cases, such criteria may limit or restrict financing or other investments in the energy industry. As discussed above, there continues to be a public and governmental concentration on environmental matters as compared to other sustainability matters, with a focus on environment related company practices, performance, and compliance, that could result in sustainability commitments and disclosures being subjected to increased scrutiny. Our stakeholders hold varied and sometimes conflicting views, and our initiatives in this area may be unable to satisfy all stakeholders. If we are unable to positively manage our sustainability performance, effectively administer our sustainability tracking and reporting, clearly communicate our sustainability strategy and commitments and meet publicly disclosed targets such as our aspiration to reduce carbon intensity by 20% by 2030 (as defined in our disclosures), we could experience reputational harm, additional costs and financial penalties, increased scrutiny from the investment community, special interest groups, and enforcement authorities, miss or be excluded from business opportunities, have delayed or cancelled projects, experience a reduction in our equity share price, or encounter limitations to our access to financing or capital, any of which could have a material adverse effect on our operations, earnings, cash flows, and financial condition. +Likewise, others in the investment community (and some regulators) have expressed opposition to certain sustainability initiatives. This divergence in stakeholder expectations across jurisdictions may increase legal and compliance costs, expose us to political or reputational risks, and potentially disrupt relationships with certain stakeholders. +Any violation of anti-bribery, anti-corruption, or anti-fraud laws, including the Foreign Corrupt Practices Act, the United Kingdom Bribery Act, the United Kingdom Modern Slavery Act, or other applicable laws and regulations could result in significant expenses, divert management attention, and otherwise have a negative impact on the Company. +In the conduct and operation of our business, particularly in countries with a reputation of illegal activities that include government corruption, bribery, money laundering, and human rights issues, we are subject to the risk that we, our affiliated entities, agents, or service providers, or their respective officers, directors, employees, and agents may take action determined to be in violation of such local laws or laws applicable to us and those acting on our behalf, including the US Foreign Corrupt Practices Act of 1977 (the “FCPA”), the United Kingdom Bribery Act 2010 (the “UK Bribery Act”), the United Kingdom Modern Slavery Act 2015 (the “UK Modern Slavery Act”), and similar laws. Any violation of the FCPA, UK Bribery Act, UK Modern Slavery Act, or local or other applicable laws could result in substantial fines, sanctions, civil, and/or criminal penalties against the Company and implicate members of our senior management or Board, and curtailment of operations in certain jurisdictions and might adversely affect our business, financial condition, and results of operations. In addition, actual or alleged violations could damage our reputation and ability or qualification to do business with specific customers or in certain other jurisdictions. Further, detecting, investigating, and resolving actual or alleged violations is expensive and would consume significant time and attention of our senior management. +29 +Any failure to comply with the complex laws and regulations governing international trade could adversely affect our operations. +The shipment of goods, services, and technology across international borders subjects our business to extensive trade laws and regulations. Import activities are governed by unique customs laws and regulations in each of the countries of operation. Moreover, many countries and governing bodies, including the United States, European Union and the United Kingdom, control the export and re-export of certain goods, services, and technology and impose related export recordkeeping and reporting obligations. Governments and governing bodies may also impose economic sanctions against certain countries, persons and other entities that may restrict or prohibit transactions involving such countries, persons, and entities. US, EU and UK sanctions, in particular, are targeted against certain countries that are heavily involved in the petroleum and petrochemical industries, which includes drilling activities. +The laws and regulations concerning import activity, export recordkeeping and reporting, export control, and economic sanctions are complex and constantly changing. These laws and regulations may be enacted, amended, enforced, or interpreted in a manner materially impacting our operations. Shipments can be delayed and denied export or entry for a variety of reasons, some of which are outside our control and some of which may result from failure to comply with existing legal and regulatory regimes. Shipping delays or denials could cause unscheduled operational downtime. Any failure to comply with applicable legal and regulatory trading obligations could also result in criminal and civil penalties and sanctions, such as fines, imprisonment, debarment from government contracts, seizure of shipments, and loss of import and export privileges. +Additionally, operating in countries, or dealing with individuals who are specially designated nationals, subject to sanctions and embargoes imposed by certain countries or governing bodies such as the US, UK or EU exposes us to additional and varying regulatory regimes, and can give rise to business and compliance risks. These sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time. There can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in fines or other penalties and could result in some investors deciding, or being required, to divest their interest, or not to invest, in us. In addition, certain institutional investors may have investment policies or restrictions that prevent them from holding securities of companies that have contracts with countries identified by certain governing bodies, including the US, UK and EU, as state sponsors of terrorism or with countries that are otherwise subject to sanctions and embargo laws. In addition, our reputation and the market for our securities may be adversely affected if we engage in certain other activities, such as entering into drilling contracts with individuals or entities in countries subject to significant sanctions and embargo laws. +We are, or in the future could be, subject to investigations, litigation, and claims that could have an adverse effect on us. +We are, from time to time, involved in various claims, investigations and litigation. These matters may include, among other things, contract disputes, personal injury claims, asbestos and other toxic tort claims, environmental claims or proceedings, employment matters, issues related to employee or representative conduct, governmental claims for taxes, duties, customs or other regulatory findings, and litigation that arises in the ordinary course of our business. Although we intend to defend or pursue such matters vigorously, we cannot predict with certainty the outcome or effect of any claim, investigation or other litigation matter, and there can be no assurance as to the ultimate outcome of any claim, investigation or litigation. Investigations, claims and litigation may have an adverse effect on us because of potential negative outcomes, legal fees, the allocation of management’s time and attention, and other factors. +We could also face increased climate-related litigation with respect to our operations both in the US and around the world. Governmental and other entities in various US states, such as California and New York, have filed lawsuits against energy companies. These suits allege damages as a result of climate change, and the plaintiffs are seeking unspecified damages and abatement under various tort theories. Similar lawsuits may be filed in other jurisdictions both in the US and globally. Though we are not currently a party to any such lawsuit, these suits present uncertainty regarding the extent to which companies that are not producing oil or gas, but which are engaged in such production, such as offshore drillers, face an increased risk of liability stemming from climate change, which risk would also adversely impact the oil and gas industry and impact demand for our services. +30 +Financial, Tax, and Governance Risks +We may record impairment charges on property and equipment, including rigs and related capital spares. +We evaluate the impairment of property and equipment, which include rigs and related capital spares, whenever events or changes in circumstances, including a decision to cold stack, retire, or sell rigs, indicate that the carrying amount of an asset may not be recoverable. An impairment loss on our property and equipment may exist when the estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Any impairment loss recognized represents the excess of the asset’s carrying value over the estimated fair value. As part of this analysis, we make assumptions and estimates regarding future market conditions. To the extent actual results do not meet our estimated assumptions, for a given rig or piece of equipment, we may take an impairment loss in the future. In addition, we may also take an impairment loss on capital spares and other capital equipment when we deem the value of those items has declined due to factors like obsolescence, deterioration or damage. Based upon our impairment analyses for the year ended December 31, 2025, we recorded impairment charges of $82.7 million . We did not record any impairment charges for the year ended December 31, 2024 . There can be no assurance that we will not have to take additional impairment charges in the future if depressed market conditions return, or that we will be able to return cold stacked rigs to service in the time frame and at the reactivation costs or at the dayrates that we projected. It is reasonably possible that the estimate of undiscounted cash flows may change in the near term, resulting in the need to write down the affected assets to their corresponding estimated fair values. +The 2023 R evolving Credit Agreement, the indenture for the 2030 Notes, and the indenture for the Diamond Second Lien Notes each contain various restrictive covenants limiting the discretion of our management in operating our business. +The 2023 Revolving Credit Agreement (as defined below) contains various restrictive covenants that may limit our management’s discretion in certain respects. In particular, the 2023 Revolving Credit Agreement limits the ability of Noble Finance II LLC (“Noble Finance II”) and the ability of its restricted subsidiaries to, among other things and subject to certain limitations and exceptions, (i) incur, assume or guarantee additional indebtedness, (ii) pay dividends or distributions on capital stock or redeem or repurchase capital stoc k, (iii) make investments, (iv) repay, redeem, or amend certain indebtedness, (v) sell stock of its subsidiaries, (vi) transfer or sell assets, (vii) create, incur, or assume liens, (viii) enter into transactions with certain affiliates, (ix) merge or consolidate with or into any other person or undergo certain other fundamental changes, and (x) enter into certain burdensome agreements. In addition, the 2023 Revolving Credit Agreement obligates Noble Finance II and its restricted subsidiaries to comply with certain financial maintenance covenants and, under certain conditions, to make mandatory prepayments and reduce the amount of credit available under the 2023 Revolving Credit Facility, all as described in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Amended and Restated Senior Secured Revolving Credit Agreement.” Such mandatory prepayments and commitment reductions may affect cash available for use in the Company’s business. Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in all obligations under the 2023 Revolving Credit Facility to be declared due and payable immediately and all commitments thereunder to be terminated. +The 8.000% Senior Notes due 2030 (the “2030 Notes”) are fully and unconditionally guaranteed, jointly and severally, by the direct and indirect subsidiaries of Noble Finance II that are guarantors under the 2023 Revolving Credit Facility. The ability of Noble Finance II to comply with the covenants and restrictions contained in the indenture for the 2030 Notes may be affected by events beyond its control. If market or other economic conditions deteriorate, our ability to comply with these covenants and restrictions may be impaired. A failure to comply with the covenants, ratios, or tests in the indenture, if not cured or waived, could have a material adverse effect on our business, financial condition, and results of operations. Our existing and future indebtedness may have cross-default and cross-acceleration provisions. Upon the triggering of any such provision, the relevant creditor may: +▪ not be required to lend any additional amo unts to Noble Finance II; +▪ elect to declare all borrowings outstanding due to them, together with accrued and unpaid interest and fees, to be due and payable; +▪ have the ability to require Noble Finance II to apply all of its available cash to repay such borrowings; and/or +▪ prevent Noble Finance II from making debt service payments under its other agreements, any of which could result in an event of default under the 2030 Notes. +31 +If any of our existing indebtedness were to be accelerated, there can be no assurance that we would have, or be able to obtain, sufficient funds to repay such indebtedness in full. Even if new financing were available, it may be on terms that are less attractive than the 2023 Revolving Credit Facility or the 2030 Notes or it may not be on terms that are acceptable to us. +In addition, the Diamond 8.500% Senior Secured Second Lien Notes due October 2030 (the “Diamond Second Lien Notes”) are issued by Diamond Foreign Asset Company and Diamond Finance, LLC (collectively, the “Issuers”) and are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by Noble Offshore Drilling, Inc. (formerly known as Dolphin Merger Sub 2, Inc. and as successor by merger with Diamond) (“NODI”), and each of its existing restricted subsidiaries (other than the Issuers) and by certain of NODI’s future restricted subsidiaries. +The indenture governing the Diamond Second Lien Notes contains covenants that, among other things, restrict NODI’s ability and the ability of certain of its subsidiaries to: (i) incur additional debt and issue certain preferred stock; (ii) incur or create liens; (iii) make certain dividends, distributions, investments, and other restricted payments; (iv) sell or otherwise dispose of certain assets; (v) engage in certain transactions with affiliates; and (vi) merge, consolidate, amalgamate, or sell, transfer, lease, or otherwise dispose of all or substantially all of the assets of NODI and such subsidiaries. A failure to comply with the covenants, ratios, or tests in the indenture, if not cured or waived, could result in the outstanding principal amount, together with accrued and unpaid interest and fees, becoming immediately due and payable and could have a material adverse effect on our business, financial condition, and results of operations. +A loss of a major tax dispute or a successful tax challenge to our operating structure, intercompany pricing policies, or the taxable presence of our subsidiaries in certain countries could result in a material adverse effect on our financial condition and results of operations. +Tax returns that we file and/or tax payments that we make will be subject to review and examination. If any tax authority successfully challenges our operational structure, intercompany pricing policies, the taxable presence of our subsidiaries in certain countries, or other material tax positions, if the terms of certain tax treaties are interpreted in a manner that is adverse to our structure, or if we lose a material tax dispute in any country, our effective tax rate on our worldwide earnings, income tax expense, and/or operating expense could increase substantially and result in a material adverse effect on our financial condition. In addition, Noble may have exposures with respect to the tax audits and tax disputes of certain third parties which were under a joint taxation contribution arrangement with certain subsidiaries that Noble acquired in the business combination (the “Business Combination”) with Maersk Drilling (as defined below). +Our consolidated effective income tax rate may vary substantially from one reporting period to another. +We cannot provide any assurances as to what our consolidated effective income tax rate will be because of, among other matters, uncertainty regarding the nature and extent of our business activities in any particular jurisdiction in the future and the tax laws of such jurisdictions, as well as potential changes in tax laws, regulations or treaties, or the interpretation or enforcement thereof, changes in the administrative practices and precedents of tax authorities or any reclassification or other matter, such as changes in applicable accounting rules, that increases the amounts we have provided for income taxes or deferred tax assets and liabilities in our consolidated financial statements. For example, certain countries within which we operate or own substantial assets have enacted changes to their tax laws in response to the Organization for Economic Cooperation and Development’s ongoing Base Erosion and Profit Shifting initiatives and these and other countries may enact changes to their tax laws or practices in the future (prospectively or retroactively), which may have a material adverse effect on our financial position, operating results and/or cash flows. +In addition, as a result of frequent changes in the taxing jurisdictions in which our drilling rigs are operated and/or owned, changes in the overall level of our income and changes in tax laws, our consolidated effective income tax rate may vary substantially from one reporting period to another. Income tax rates imposed in the tax jurisdictions in which our subsidiaries conduct operations vary, as does the tax base to which the rates are applied. In some cases, tax rates may be applicable to gross revenues, statutory or negotiated deemed profits, or other bases utilized under local tax laws, rather than to net income. Our drilling rigs frequently move from one taxing jurisdiction to another to perform contract drilling services. In some instances, the movement of drilling rigs among taxing jurisdictions will involve the transfer of ownership of the drilling rigs among our subsidiaries. If we are unable to mitigate the negative consequences of any change in law, audit, business activity, or other matter, this could cause our consolidated effective income tax rate to increase and cause a material adverse effect on our financial position, operating results, and/or cash flows. +32 +Fluctuations in exchange rates and nonconvertibility of currencies could result in losses to us. +We may experience currency exchange losses when revenues are received or expenses are paid in nonconvertible currencies, when we do not hedge an exposure to a foreign currency, when the result of a hedge is a loss or if any counterparty to our hedge were to experience financial difficulties. We may also incur losses as a result of an inability to collect revenues due to a shortage of convertible currency available to the country of operation, controls over currency exchange or controls over the repatriation of income or capital. +Certain shareholders own a significant portion of our outstanding equity securities, and their interests may not always coincide with the interests of other holders of the Ordinary Shares. +A large percentage of the A ordinary shares, par value $0.00001 per share, of Noble (“Ordinary Shares”) are held by a relatively small number of investors. As a result, these investors could have significant influence over all matters presented to our shareholders for approval, including election and removal of our directors, change in control transactions, and the outcome of all actions requiring a majority shareholder approval. +The interests of these investors may not always coincide with the interests of the other holders of the Ordinary Shares, and the concentration of control in these investors may limit other shareholders’ ability to influence corporate matters. The concentration of ownership and voting power of these investors may also delay, defer, or even prevent an acquisition by a third party or other change of control of our Company, and may make some transactions more difficult or impossible without their support, even if such events are in the best interests of our other shareholders. In addition, the concentration of voting power may adversely affect the trading price of the Ordinary Shares. +Holders of the Ordinary Shares may not receive dividends on their Ordinary Shares, and we may decrease or suspend our dividend on, or our repurchases of, our Ordinary Shares. +Holders of the Ordinary Shares are entitled to receive only such dividends as our Board of Directors may declare and pay out of funds legally available for such payments. Such may be paid only out of Noble’s “distributable reserves” as determined by reference to relevant statutory accounts in accordance with English law, and additionally as permitted under our credit facilities and other financing arrangements. Therefore, Noble is not permitted to pay dividends out of share capital, which includes share premium. We are not required to pay a dividend or effect share repurchases, and any determination to pay dividends and other distributions in cash, stock, or property, or to effect share repurchases by us in the future, including determinations as to the amount of any such dividend, distribution, or repurchase, will be at the discretion of our Board of Directors. Our payment of dividends and share repurchases may vary from historical practices or our stated expectations. The timing and amount, if any, of dividends and share repurchases is discretionary and will be dependent on many factors, including our expectations regarding our ability to generate sufficient cash flows, and our results of operations, financial condition, cash requirements, future business prospects, capital requirements, contractual and indenture restrictions, and other factors deemed relevant by our Board of Directors. +We are a holding company, and we are dependent upon cash flow from subsidiaries, joint ventures, and associates to meet our obligations. +We currently conduct our operations through our subsidiaries, including joint ventures and associates, and our operating income and cash flow are generated by such entities. As a result, cash we obtain from our subsidiaries, joint ventures, and associates is the principal source of funds necessary to meet our debt service obligations. Unless they are guarantors of our indebtedness, such entities do not have any obligation to pay amounts due on our indebtedness or to make funds available for that purpose. Contractual provisions or laws, as well as such entities’ financial condition, debt covenants, and operating requirements, may also limit our ability to obtain the cash that we require to pay our debt service obligations. Applicable tax laws may also subject such payments to us by such entities to further taxation. +Future sales, or the availability for sale, of substantial amounts of the Ordinary Shares or the exercise of warrants would have a dilutive effect to shareholders of the Company, and the perception that these sales may occur could adversely affect the trading price of the Ordinary Shares, and could impair our ability to raise capital through future sales of equity securities. +As of February 6, 2026, there were 159,197,398 Ordinary Shares outstanding. In addition, as of February 6, 2026, 885,902 Tranche 1 Warrants (as defined below) and 941,557 Tranche 2 Warrants (as defined below) were outstanding and exercisable. In addition, new equity awards may be granted under the Noble Corporation plc 2022 Long-Term Incentive Plan, pursuant to which, up to 3,881,176 new Ordinary Shares may be issued. +33 +A large percentage of the Ordinary Shares (or warrants exercisable for Ordinary Shares) are held by a relatively small number of investors. +Sales of a substantial number of the Ordinary Shares in the public markets, exercise of a substantial number of warrants, or even the perception that these sales or exercises might occur, could impair our ability to raise capital for our operations through a future sale of, or pay for acquisitions using, our equity securities. +As of February 6, 2026, the Mandatory Exercise Condition (as defined in the applicable warrant agreement) for the Tranche 1 Warrants and the Tranche 2 Warrants had been satisfied. Between January 1, 2025, and December 31, 2025, an aggregate of 875 Ordinary Shares were issued pursuant to exercise of Tranche 1 Warrants, Tranche 2 Warrants, and Tranche 3 Warrants (as defined below). These exercises, and continued exercises of these warrants into Ordinary Shares pursuant to the terms of the outstanding warrants, will have a dilutive effect to the holdings of our existing shareholders. +We used Ordinary Shares for part of the consideration in the Diamond Transaction and may issue Ordinary Shares or other securities from time to time as consideration for future acquisitions and investments. If any such acquisition or investment is significant, the number of Ordinary Shares, or the number or aggregate principal amount, as the case may be, of other securities that we may issue may in turn be substantial. We may also grant registration rights covering those Ordinary Shares or other securities in connection with any such acquisitions and investments. +We cannot predict the effect that future sales of Ordinary Shares will have on the price at which the Ordinary Shares trade or the size of future issuances of Ordinary Shares or the effect, if any, that future issuances will have on the market price of the Ordinary Shares. Sales of substantial amounts of the Ordinary Shares, or the perception that such sales could occur, may adversely affect the trading price of the Ordinary Shares. +34 +Item 1B. Unresolved Staff Comments. +None. +Item 1C. Cyber Security. +Risk Management and Strategy +Cyber security risk management at Noble, along with other enterprise risks, is part of the Company’s Enterprise Risk Management Program. Risks arising from cyber security threats are assessed, identified, and managed by our Information Security Team , which reports to the Chief Information Officer (“CIO”). The Information Security Team is composed of the Director of Information Security, managers, and security analysts. +The Information Security Team is responsible for all of Noble’s cyber security-related activities such as advising on governance requirements, establishing cyber security policies, standards, and procedures, reporting on cyber security matters, determining risk appetite, setting security posture, evaluating security maturity, and supporting compliance with applicable cyber security frameworks. The team monitors both internal and external cyber security threats, including potential compromising internet-based attacks and phishing activities, and aims to implement and adapt protective measures as appropriate. +The Director of Information Security and information security managers carry broad manager level cyber security certifications, and the technical teams carry relevant specific technical certifications related to both information technology and operational technology security. +Noble’s cyber security program includes mandatory cyber security training and awareness activities, phishing exercises, and incident response plan testing, which are designed to support our cyber security risk management efforts and to assess whether various applicable implemented cyber security controls are operating as intended. +Noble works with various third-party service providers to help execute and advise on cyber security and conduct maturity assessments as needed. +Noble maintains processes to monitor all third parties with direct access into the Noble network through various implemented security tools that provide both detective and preventive controls. Such third parties are also subject to procurement processes and specific legal terms and conditions. Noble also engages with various third-party service providers in order to share intelligence regarding external threats. For any cyber security incidents, Noble may engage applicable third-party service providers to support with forensic investigations and incident response activities. +In the last fiscal year, Noble has not identified any known cyber security threats, incidents, or exposures that have materially affected Noble’s business strategy, results of operations, or financial condition, but Noble faces certain ongoing cyber security risks that, if realized, could materially and adversely affect Noble. This does not guarantee that future cyber security incidents or threats will not have a material impact or that we are not currently subject to an undetected cyber security incident or threat that may have such an impact. Potential cyber security risks to Noble are described in Part I, Item 1A, “Risk Factors,” which should be read in conjunction with the foregoing information. +Governance +The Audit Committee of the Board provides oversight of the Company’s cyber security program. The Information Security Team keeps management informed about cyber security initiatives, threats, incidents, training, and best practices on an on-going basis via circulated memos or meetings. +In addition to reporting through the Audit Committee and Enterprise Risk Management Program, the Board may periodically include cyber security as a standalone agenda item and may engage with the CIO and Information Security Team as well as external experts on cyber security threats. +The Information Security Team advises the CIO via reports on prevention, detection, mitigation, and remediation of cyber security threats. The CIO is responsible for the Information Security Team’s risk strategy, assessment, exceptions, risk acceptance, and management of the Company’s material cyber security risks. Ongoing assessments cover applicable information technology and operations technology systems, applications, and software used to support Noble’s corporate and rig operations. The outcomes of these various assessments inform the IT risk appetite and risk identification, and are discussed and shared with the CIO, executive management, the Audit Committee, and the Board of Directors. +The CIO has extensive cyber security knowledge and skills gained from over ten years of relevant work experience at Noble including two years as Deputy CIO as well as Director, IT prior to the merger with The Drilling Company of 1972 A/S, a +35 +Danish public limited liability company (“Maersk Drilling”) with responsibility for cyber security. The CIO has multiple years of experience managing OT data and secure remote access for data management on and offshore. Prior to serving as Director, IT the CIO was the Manager, Business Systems responsible for application management and Enterprise Architecture. The Information Security Team advises the CIO on prevention, detection, mitigation, and remediation of cyber security incidents. +Item 2. Properties. +The description of our rig fleet included under “Part I, Item 1, Business” is incorporated by reference herein. We lease office space in Houston, Texas, where our corporate headquarters are located. In addition, we own and lease operational, administrative, and marketing offices, as well as other sites used primarily for operations, storage, and maintenance and repairs for drilling rigs and equipment in various locations worldwide. +Item 3. Legal Proceedings. +As of December 31, 2025, we were involved in a number of lawsuits, regulatory matters, disputes, and claims, asserted and unasserted, all of which have arisen in the ordinary course of our business and for which we do not expect the liability, if any, to have a material adverse effect on our consolidated financial position, results of operations, or cash flows. We cannot predict with certainty the outcome or effect of any of the matters referred to above or of any such other pending or threatened litigation or legal proceedings. We can provide no assurance that our beliefs or expectations as to the outcome or effect of any lawsuit or claim or dispute will prove correct and the eventual outcome of these matters could materially differ from management’s current estimates. +Additional information regarding legal proceedings is presented in “Note 12 — Commitments and Contingencies” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +Item 4. Mine Safety Disclosures. +Not applicable. +36 +PART II +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities. +Market for Shares and Related Shareholder Information +Our shares are listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “NE”. +On February 6, 2026, there were 159,197,398 Ordinary Shares outstanding held by 8 shareholder accounts of record. This figure does not include an estimate of the indeterminate number of beneficial holders whose shares may be held of record by brokerage firms and clearing agencies. +Exercises of Warrants +During the three months ended December 31, 2025: +• 63 Ordinary Shares were issued to holders of our Tranche 1 Warrants (as defined below) pursuant to exercises of 63 Tranche 1 Warrants; and +• 73 Ordinary Shares were issued to holders of our Tranche 2 Warrants (as defined below) pursuant to exercises of 73 Tranche 2 Warrants; and +• 23 Ordinary Shares were issued to holders of our Tranche 3 Warrants (as defined below) pursuant to exercises of 1 Tranche 3 Warrant. +Such Ordinary Shares, as the case may be, were issued pursuant to the exemptions from the registration requirements of the Securities Act under Section 4(a)(2) under the Securities Act or Section 1145 of the Bankruptcy Code, as the case may be. For more information on the terms of exercise and other features of the warrants, see “Note 7 — Equity” to our consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K. +Share Repurchases +The following table presents information about our purchases of equity securities for the three months ended December 31, 2025: +Period +Total Number of Shares Purchased (1) +Average Price Paid per Share +Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program (1) +Approximate Dollar Value of Shares that may yet be Purchased Under a Plan or Program (1) +October 1 - 31, 2025 — $ — — $ 370,184,940 +November 1 - 30, 2025 — $ — — $ 370,184,940 +December 1- 31, 2025 — $ — — $ 370,184,940 +Total — — $ 370,184,940 +(1) Subject to restrictions under applicable law discussed in “Note 7 — Equity” to our consolidated financial statements, we announced a share repurchase plan on November 2, 2022, to purchase up to $400.0 million of outstanding Ordinary Shares or Warrants (as defined below). On October 22, 2024, Noble’s Board of Directors authorized an increased share repurchase authorization of up to an additional $400.0 million and, at the 2025 annual general meeting of shareholders, shareholders approved the repurchase of up to 23,800,068 Ordinary Shares. The authorization by the Board of Directors has approximately $370.0 million remaining, does not have a fixed expiration, and may be modified, suspended, or discontinued at any time. None of the shareholder authorization to purchase up to 23,800,068 Ordinary Shares has yet been utilized, and the authorization by shareholders expires on May 8, 2030 (subject to certain exceptions). The program does not obligate us to acquire any particular amount of Ordinary Shares. +Dividends +The declaration and payment of dividends require the authorization of the Board of Directors. Such may be paid only out of Noble’s “distributable reserves” as determined by reference to relevant statutory accounts in accordance with English law. Therefore, Noble is not permitted to pay dividends out of share capital, which includes share premium. The payment of +37 +future dividends will depend on our results of operations, financial condition, cash requirements, future business prospects, contractual and indenture restrictions, and other factors deemed relevant by our Board of Directors. +Stock Performance Graph +The chart below presents a comparison of the cumulative total returns, assuming $100 was invested at the beginning of the period for Noble, the Standard & Poor's 500 Index (“S&P 500”), the PHLX Oil Service Sector Index (“OSX”), and the Dow Jones US Oil Equipment and Services. Total return assumes the reinvestment of dividends, if any, in the security on the ex-dividend date. This graph depicts the past performance for the period from June 9, 2021, the day our shares were relisted on the NYSE, through December 31, 2025, and in no way should be used to predict future share performance. +Indexed Returns +Company / Index June 9, +2021 December 31, +2021 December 31, +2022 December 31, +2023 December 31, +2024 December 31, +2025 +Noble Corporation plc $ 100.00 $ 100.24 $ 152.36 $ 197.37 $ 128.69 $ 130.72 +S&P 500 Index 100.00 112.95 90.99 113.04 139.39 162.23 +Dow Jones US Oil Equipment & Services Index 100.00 77.84 127.98 132.25 119.55 125.97 +OSX Index 100.00 78.50 124.90 125.00 108.16 109.24 +The above graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate it by reference into such filing. +38 +Item 6. [Reserved]. +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. +The following discussion is intended to assist you in understanding our financial position at December 31, 2025 and 2024, and our results of operations for the years ended December 31, 2025, 2024, and 2023. +The following discussion should be read in conjunction with the consolidated financial statements and related notes contained in this Annual Report on Form 10-K for the fiscal year ended December 31, 2025, filed by Noble. +Executive Overview +Noble is a leading offshore drilling contractor for the oil and gas industry. We provide contract drilling services to the international oil and gas industry with our global fleet of mobile offshore drilling units. Our business strategy is centered around providing efficient, reliable, and safe offshore drilling services to our customers. We have one of the youngest and highest specification fleets of global scale in the industry, with diversification across geographic regions and customers. The Company has a track record of industry-leading utilization coupled with a commitment to best-in-class safety performance and customer satisfaction. We strive to be the leader in industry innovation and a first-mover in sustainability. +Our fleet consists predominately of technologically advanced units, equipped with sophisticated systems and components prepared to execute our customers’ complicated offshore drilling programs safely and with greater efficiency. We are primarily focused on the ultra-deepwater market and the ultra-harsh environment jackup market, which typically are more technically challenging markets to operate in. +We emphasize safe operations, environmental stewardship, and superior performance through a structured management system, the employment of qualified and well-trained crews and onshore support staff, the care of our surroundings and the neighboring communities where we operate, and other activities advancing our sustainability strategy, and good governance. We also manage rig operating costs through the implementation and continuous improvement of innovative systems and processes, which includes the use of data analytics and predictive maintenance technology. +As of the filing date of this Annual Report on Form 10-K, our fleet of 31 drilling rigs consists of 25 floaters and 6 jackups strategically deployed worldwide. We typically employ each drilling unit under an individual contract, and many contracts are awarded based upon a competitive bidding process. +We report our contract drilling operations as a single reportable segment, Contract Drilling Services, which reflects how we manage our business. The mobile offshore drilling units comprising our offshore rig fleet operate in a global market for contract drilling services and are often redeployed to different regions due to changing demands of our customers, which consist primarily of large, integrated, independent, and government-owned or controlled oil and gas companies throughout the world. +For the year ended December 31, 2025, our financial and operating results include: +• operating revenues totaling $3.3 billion; +• net income of $216.7 million or $1.35 per diluted share; +• net cash provided by operating activities totaling $951.7 million; +• no funds drawn down on the 2023 Revolving Credit Facility (as defined below) as of December 31, 2025, and +• a year end cash balance of $471.4 million. +Demand for our services is driven by the offshore exploration and development programs of oil and gas operators, which in turn are influenced by many factors. Those factors include, but are not limited to, the price and price stability of oil and gas, the relative cost and carbon footprint of offshore resources within each operator’s broader energy portfolio, global macroeconomic conditions, world energy demand, the operator’s strategy toward renewable energy sources, environmental considerations, and governmental policies. +Outlook +In recent years, oil prices have generally remained at levels that are supportive of offshore exploration and development activity and global rig demand recovered to eclipse pre-pandemic levels, albeit with some moderation since early 2024. +39 +Current demand and utilization levels are supported by the combination of the outlook for longer-term commodity prices, heightened focus on energy security, the capital intensity of depletion replacement, and relative attractiveness of offshore plays with respect to both cost and carbon emissions. The increase in global rig demand since 2021 has had a positive impact on dayrates for most rig classes, although dayrates have decreased moderately since recent highs in 2023 and 2024. +The global rig supply has come down from historic highs as Noble and other offshore drilling contractors have retired less capable and idle assets. Concurrently, the incoming supply of newbuild offshore drilling rigs has diminished materially, with very few newbuild rigs now remaining stranded in shipyards. +Although the market outlook in our business varies by geographical region and water depth and, despite recent downward pressure on the price of oil, we remain encouraged by the long-term outlook in the ultra-deepwater floater market. Our customers continue to focus on our highest specification floaters, which represents the majority of our floater fleet. Assuming current market fundamentals, continued customer prioritization towards these highest specification floaters could result in lower utilization for our lower specification drillships and our semi-submersibles. Demand for midwater semisubmersibles is primarily driven by brownfield activity in mature basins, especially in Northwest Europe, South America, and the Asia Pacific regions, where a generally stable level of baseload demand is supported by infield drilling and plug and abandonment requirements. Despite some recent contract suspensions in select jackup markets, we have also observed an overall demand increase in the global jackup market since 2020. While we remain encouraged about overall long-term rig demand, as evidenced by recent multi-year, multi-rig contracts that we have booked into backlog, the near-term outlook for both floaters and jackups over the next several quarters continues to present lingering utilization headwinds compared to 2023-2024 levels. Furthermore, economic uncertainty and lower commodity prices arising from recent trade policy and tariffs, compounded with OPEC’s stated intent to increase oil production, collectively present a potential for additional demand risk for offshore rigs in the near term. +Returning to the broader offshore drilling market, recent contract awards and open tenders show an increasing proportion of multi-year contracts, although a significant number of shorter-term commitments continue to be fixed as well. Longer-term contracts can generally provide economic efficiencies by reducing the number of rig contract start-ups, both with different customers and among different regions, which is expected to reduce incremental resources and costs. On the other hand, certain multi-year contracts that are scheduled to commence a year or longer into the future can present near-term utilization inefficiency due to challenges with filling interim availability on the assets. +The energy transition from hydrocarbons to renewables poses a challenge to the oil and gas sector and our market. Energy rebalancing trends sharply accelerated over the past decade as evidenced by promulgated or proposed government policies and commitments by many of our customers to further invest in sustainable energy sources, although this trend has moderated or even reversed in certain jurisdictions in more recent years with shifting political priorities. Our industry could be further challenged as resource holders and policy makers continue to evaluate and calibrate strategies and capital flows to address global energy needs. Ultimately, however, there continues to be a global dependence on products made from hydrocarbons and on the combustion of hydrocarbons to provide reliable and affordable energy. Low-cost and low-emission barrels are expected to be the most attractive conventional source to meet energy needs both currently and in the future. Global energy demand is predicted to increase over the coming decades, and we expect that offshore oil and gas will continue to play an important and lasting role in meeting this demand. +Our cost profile remains sensitive to global labor market conditions, capital intensive repair and maintenance scopes on our rigs, global trade and sanctions regimes, including the impacts of new or increased tariffs or trade wars, and geopolitical crises and their respective regional and global ramifications. Each of these factors has the potential to adversely impact our ability to conduct our day-to-day operations and manage costs with uncertainty related to trade policy and tariffs also having the ability to negatively impact rig demand. +We expect inflationary pressures to persist, which has led, and may continue to lead, to increased costs of services. Additionally, we expect supply chain disruptions to continue as geopolitical challenges, including those throughout Russia-Ukraine, the Middle East, and Venezuela, and their respective regional and global ramifications, may negatively impact our ability to conduct our day-to-day operations. Additionally, the impact of new or increased tariffs or trade wars could have an inflationary impact on the costs of certain products and services as well as potentially contribute to further supply chain disruptions. +40 +Contract Drilling Services Backlog +We maintain a backlog of commitments for contract drilling services. Our contract drilling services backlog reflects estimated future revenues attributable to signed drilling contracts. As of December 31, 2025, contract drilling services backlog totaled approximately $7.0 billion. +We calculate backlog for any given unit and period by multiplying the full contractual operating dayrate for such unit by the number of days remaining in the period, and include certain assumptions based on the terms of certain contractual arrangements, discussed in the notes to the table below. The reported contract drilling services backlog does not include amounts representing revenues for mobilization, demobilization, and contract preparation, which are not expected to be significant to our contract drilling services revenues, amounts constituting reimbursables from customers, or amounts attributable to uncommitted option periods under drilling contracts or letters of intent. +The table below presents the amount of our contract drilling services backlog and the percent of available operating days committed for the periods indicated: +Year Ended December 31, (1) +Total 2026 2027 2028 2029 2030 2031 +(In thousands) +Contract Drilling Services Backlog +Floaters (2) (3) +$ 6,402,852 $ 2,102,353 $ 1,825,939 $ 1,480,958 $ 633,713 $ 240,073 $ 119,816 +Jackups (4) (6) +616,275 394,695 221,580 — — — — +Total $ 7,019,127 $ 2,497,048 $ 2,047,519 $ 1,480,958 $ 633,713 $ 240,073 $ 119,816 +Percent of Available Days Committed (5) +Floaters +58 % 54 % 41 % 17 % 6 % 3 % +Jackups +54 % 22 % — % — % — % — % +Total 57 % 44 % 29 % 11 % 4 % 2 % +(1) Represents a twelve-month period beginning January 1. Some of our drilling contracts provide customers with certain early termination rights and, in limited cases, those termination rights require minimal or no notice and minimal financial penalties. +(2) Noble entered into a multi-year Commercial Enabling Agreement (the “CEA”) with ExxonMobil in February 2020. Under the CEA, dayrates for the rigs are repriced on January 1 and July 1 each year to the projected market rate at the time the new rate goes into effect, subject to a scale-based discount and a performance bonus that appropriately aligns the interests of Noble and ExxonMobil. Under the CEA, the above table includes awarded and remaining current contract term to February 18, 2029, related to each of the four following rigs: the Noble Tom Madden , Noble Bob Douglas , Noble Don Taylor , and Noble Sam Croft . Under the CEA, ExxonMobil may reassign remaining contract term among rigs, subject to maintaining certain minimum contract term on the rig from which term is removed. +(3) Assuming approximately 40% of available performance revenue realized on a combined basis under certain long-term contracts with Shell plc (US Gulf) and TotalEnergies (Suriname). +(4) In 2022, Noble renewed its five-year Framework Agreement with Aker BP for the provision of ultra-harsh environment jackup rigs, the Noble Integrator and Noble Invincible , for activities in offshore Norway. Under this Framework Agreement, different rate structures apply reflecting different operating modes, agreed incentive schemes, and adjustments for operating expenses. Rate structures are adjusted annually to reflect market conditions. +(5) Percent of available days committed is calculated by dividing the total number of days our rigs are operating under contract for such period by the product of the number of our rigs, including cold stacked rigs, and the number of calendar days in such period. +(6) The above table includes approximately $84.0 million of backlog associated with the six rigs classified as held for sale as of December 31, 2025, pertaining to the agreements with Borr Drilling Limited and Ocean Oilfield Drilling. For additional information, see “Note 5 — Property and Equipment” and “Note 16 — Subsequent Events” to our consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K. +41 +Our backlog as of any particular date may not be indicative of our actual operating results for the periods for which the backlog is calculated. See Part I, Item 1A, “Risk Factors—Risks Related to Our Business and Operations—Our current backlog of contract drilling revenue may not be ultimately realized.” +As of December 31, 2025, ExxonMobil , Shell plc , BP, and TotalEnergies represented approximately 23.7%, 19.5%, 16.2%, and 12.6% of our backlog, respectively. +Results of Operations +Results for the years ended December 31, 2025 and 2024 +Net income for the year ended December 31, 2025, was $216.7 million, or $1.35 per diluted share, on operating revenues of $3.3 billion compared to net income for the year ended December 31, 2024, of $448.4 million, or $2.96 per diluted share, on operating revenues of $3.1 billion. +Key Operating Metrics +Operating results for our contract drilling services segment are dependent on three primary metrics: operating days, dayrates, and operating costs. We also track rig utilization, which is a function of operating days and the number of rigs in our fleet. For more information on operating costs, see “Contract Drilling Services” below. +The following table presents the average rig utilization, operating days, and average dayrates for our rig fleet for the periods indicated. +Average Rig Utilization (1) +Operating Days (2) +Average Dayrates (2) +Year Ended December 31, Year Ended December 31, Year Ended December 31, +2025 2024 2025 2024 2025 2024 +Floaters 67 % 69 % 6,356 5,372 $ 402,703 $ 427,192 +Jackups 64 % 77 % 2,911 3,678 185,337 153,321 +Total 66 % 72 % 9,267 9,050 $ 334,426 $ 315,883 +(1) We define utilization for a specific period as the total number of days our rigs are operating under contract, divided by the product of the total number of our rigs, including cold stacked rigs (i.e., idle without a contract, have reduced or no crew, or are not actively marketed in present market conditions), and the number of calendar days in such period. Information reflects our policy of reporting on the basis of the number of available rigs in our fleet. +(2) An operating day is defined as a calendar day during which a rig operated under a drilling contract. We define average dayrates as revenue from contract drilling services earned per operating day. Average dayrates have not been adjusted for the non-cash amortization related to favorable and unfavorable customer contract intangibles. +42 +Contract Drilling Services +The following table presents the operating results for our contract drilling services segment for the period indicated (dollars in thousands): +Years Ended December 31, Change +2025 2024 $ % +Operating revenues: +Contract drilling services $ 3,107,207 $ 2,918,767 $ 188,440 6 % +Reimbursables and other (1) +178,361 139,051 39,310 28 % +$ 3,285,568 $ 3,057,818 $ 227,750 7 % +Operating costs and expenses: +Contract drilling services $ 1,915,551 $ 1,687,164 $ 228,387 14 % +Reimbursables (1) +136,389 105,479 30,910 29 % +Depreciation and amortization 585,469 428,626 156,843 37 % +General and administrative 133,147 140,499 (7,352) (5) % +Merger and integration costs 26,382 109,424 (83,042) (76) % +Gain on sale of operating assets, net (9,586) (17,357) 7,771 (45) % +Loss on impairment 82,664 — 82,664 — % +2,870,016 2,453,835 416,181 17 % +Operating income (loss) $ 415,552 $ 603,983 $ (188,431) (31) % +(1) We record reimbursements from customers for out-of-pocket expenses as operating revenues and the related direct costs as operating expenses. Changes in the amount of these reimbursables generally do not have a material effect on our financial position, results of operations, or cash flows. +Contract Drilling Services Revenues +The following table provides information about contract drilling services revenues and costs by rig types (dollars in millions except average dayrates): +Years Ended December 31, +2025 2024 +Floaters Jackups Floaters Jackups +Contract drilling services revenues $ 2,568 $ 540 $ 2,350 $ 569 +Contract drilling services costs 1,539 377 1,306 381 +Average rig utilization +67 % 64 % 69 % 77 % +Operating days +6,356 2,911 5,372 3,678 +Average dayrates +$ 402,703 $ 185,337 $ 427,192 $ 153,321 +Total rigs — Beginning 27 13 19 13 +— Acquired — — 11 — +— Disposed +(2) (2) (3) — +— Ending +25 11 27 13 +Floaters. During the year ended December 31, 2025, floaters generated revenue of $2.6 billion, as compared to $2.3 billion in the year ended December 31, 2024. The increase in revenue was mainly attributable to $626.2 million provided by the additional floaters acquired in connection with the Diamond Transaction. For additional information, see “Note 2 — Acquisitions and Divestitures” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. These increases were partly offset by $347.9 million from rigs with net changes in operating days during the current year as well as $13.7 million from a decrease in average dayrates during the current year. Additionally, floater revenue from net non-cash amortization related to off-market customer contract assets and liabilities decreased $46.6 million during the current year. +43 +Jackups. During the year ended December 31, 2025, jackups generated revenue of $539.5 million, as compared to $569.1 million in the year ended December 31, 2024. The decrease in revenue was mainly attributable to a decrease of $93.3 million from rigs with net changes in operating days during the current year. This decrease was partly offset by $81.5 million from an increase in average dayrates in the current year. Additionally, jackup revenue from net non-cash amortization related to off-market customer contract assets and liabilities decreased $5.1 million during the current year. +Operating Costs and Expenses +Floaters. During the year ended December 31, 2025, total contract drilling services cost related to floaters was $1.5 billion, as compared to $1.3 billion in the year ended December 31, 2024. The primary drivers of this increase were $270.2 million related to the additional floaters acquired in connection with the Diamond Transaction (for additional information, see “Note 2 — Acquisitions and Divestitures” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K), $38.6 million in mobilization costs, $16.5 million in insurance costs, $10.1 million in fuel, and $6.1 million in rental equipment. These increases were partially offset by decreases of $40.7 million in repairs and maintenance, $13.1 million in transportation and storage, $12.5 million in labor, as well as insurance proceeds received for a certain rig totaling $15.6 million. Further, there was a decrease of $27.1 million related to certain rigs sold or no longer operated by Noble. +Jackups. During the year ended December 31, 2025, total contract drilling services cost related to jackups was $377.0 million, as compared to $381.2 million in the year ended December 31, 2024. The primary drivers of this decrease were $10.4 million related to repairs and maintenance as well as insurance proceeds received for a certain rig totaling $20.0 million. These decreases were partially offset by increases of $10.2 in mobilization costs, $4.8 million in fuel, $3.5 million in labor, and $20.4 million in non-labor and operations support costs, and other costs across the fleet. Further, there was a decrease of $12.7 million related to certain rigs sold or no longer operated by Noble. +Depreciation and amortization. Depreciation and amortization totaled $585.5 million and $428.6 million during the years ended December 31, 2025 and 2024, respectively. Depreciation and amortization increased in the current year primarily due to the Diamond Transaction as well as the timing of capital additions that were placed in service as compared to retirements among the periods. +General and administrative. General and administrative expenses totaled $133.1 million and $140.5 million during the years ended December 31, 2025 and 2024, respectively. The small decrease was due to individually insignificant items within certain corporate charges such as professional fees, corporate leases, and employee-related costs. +Merger and integration costs. Noble incurred $26.4 million and $109.4 million of merger and integration costs during the years ended December 31, 2025 and 2024, respectively, primarily as a result of the Diamond Transaction. During the current year, $25.4 million and $0.9 million of costs related directly to the Diamond Transaction and the Business Combination with Maersk Drilling, respectively. Costs incurred prior to 2025 related primarily to the Diamond Transaction, of which, a majority of the costs were attributable to the closing of the transaction and included charges for professional fees, severance, and share-based compensation. For additional information, see “Note 2 — Acquisitions and Divestitures” and “Note 3 — Merger and Integration Costs” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +Gain on sale of operating assets, net. During the year ended December 31, 2025, we sold the Noble Highlander , Noble Reacher , Pacific Meltem , and Pacific Scirocco , resulting in a pre-tax gain of $9.7 million. During the year ended December 31, 2024, we sold the Noble Explorer , resulting in a pre-tax gain of $17.4 million. +Loss on impairment. During the year ended December 31, 2025, we recorded a loss on impairment of $82.7 million to reduce the carrying values of the Noble Globetrotter II , Noble Reacher , and Noble Resolve to their estimated fair value less costs to sell. There were no impairments recorded during the year ended December 31, 2024. For additional information, see “Note 5 — Property and Equipment” to our unaudited condensed consolidated financial statements. +Other Income and Expenses +Interest expense, net of amounts capitalized. Interest expense totaled $162.4 million and $94.2 million for the years ended December 31, 2025 and 2024, respectively. Interest expense increased as a result of the Diamond Transaction and primarily relates to our 2030 Notes as well as the Diamond Second Lien Notes (as defined below). For additional information, see “Note 6 — Debt“ to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +Interest income and other, net. Noble recognized interest and other income of $20.0 million and interest income and other losses of $17.4 million for the years ended December 31, 2025 and 2024, respectively. For the year ended +44 +December 31, 2025, Noble received a $3.5 million tax contribution payment from A.P. Møller Holding A/S (“APMH”), recognized a $5.9 million excise tax receivable, and made a $1.0 million annual fee payment related to the 2023 Revolving Credit Facility (as defined below). For the year ended December 31, 2024, Noble made a tax contribution repayment of $4.0 million related to a joint taxation scheme with APMH. For additional information, see “Note 10 — Income Taxes” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +Income tax benefit (provision). Noble recorded an income tax provision of $56.4 million and $44.0 million during the years ended December 31, 2025 and 2024, respectively. +During the year ended December 31, 2025, our tax provision included tax benefits of $134.0 million related to non-recurring releases of valuation allowances primarily in Luxembourg and Switzerland, and a net tax benefit of $60.2 million related to changes in uncertain tax positions. Such tax benefits were offset by various recurring annual accruals of $250.6 million primarily in Guyana, the United States, Switzerland, and Luxembourg. +During the year ended December 31, 2024, our tax provision included tax benefits of $123.6 million related to non-recurring releases of valuation allowances primarily in Luxembourg, and a net tax benefit of $20.2 million related to changes in uncertain tax positions. Such tax benefits were offset by various recurring quarterly accruals of $187.8 million primarily in Guyana, Nigeria, the United States, Switzerland, and Luxembourg. +2024 Compared to 2023 +Information related to a comparison of our results of operations for the year ended December 31, 2024, compared to the year ended December 31, 2023, is included in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on February 18, 2025. +Liquidity and Capital Resources +Sources and Uses of Cash +Our principal source of capital in 2025 was cash generated from operating activities. Cash on hand during the current year was primarily used for the following: +• normal recurring operating expenses; +• capital expenditures; +• fees and expenses related to merger and integration costs; +• share repurchases and dividend payments; and +• certain contractual cash obligations and commitments. +Our anticipated cash flow needs, both in the short term and long term, may also include repurchases, redemptions, or repayments of debt and interest. +We currently expect to fund our cash flow needs with cash generated by our operations, cash on hand, proceeds from sales of assets, or borrowings under the 2023 Revolving Credit Facility, and we believe this will provide us with sufficient liquidity to fund our cash flow needs over the next 12 months. Subject to market conditions and other factors, we may also issue equity or long-term debt securities to fund our cash flow needs and for other purposes. We have been incurring expenses and capital costs related to an incident regarding one floater. These incurred costs exceeded the applicable deductible. We have received partial insurance recoveries for these claims and we continue to seek insurance recoveries for the remainder of the incurred and anticipated costs. +In December 2025, Noble entered into agreements to sell six jackup rigs for an aggregate of $424.0 million, comprising $274.0 million in cash and $150.0 million in seller notes that have a six-year maturity. The sale of five rigs closed during the first quarter of 2026 while closing for the final rig is expected in the third quarter of 2026. For additional information, see “Note 16 — Subsequent Events” to our unaudited condensed consolidated financial statements. +Net cash provided by operating activities was $951.7 million and $655.5 million for the years ended December 31, 2025 and 2024, respectively. Net cash provided by operating activities increased mainly due to improvements in cash flows from operating assets driven by an increase in payments from customers, insurance proceeds received, and the Diamond Transaction. We had working capital balances of $512.6 million and $448.5 million at December 31, 2025 and 2024, respectively. +45 +Net cash used in investing activities was $350.1 million and $959.0 million for the years ended December 31, 2025 and 2024, respectively. The decrease in net cash used in investing activities for the year ended December 31, 2025, was primarily attributable to the net cash paid related to the closing of the Diamond Transaction occurring during the year ended December 31, 2024, and proceeds received from rig disposals during the current year. Otherwise, net cash used in investing activities consisted of capital expenditures on routine projects associated with overhauls and upgrades on various rigs. +Net cash used in financing activities was $373.9 million and net cash provided by financing activities was $188.1 million for the years ended December 31, 2025 and 2024, respectively. During the year ended December 31, 2025, we repurchased 0.7 million of our Ordinary Shares for a total of $20.0 million, made dividend payments to our shareholders of $320.4 million, made finance lease payments of $23.9 million, and paid $9.7 million in taxes withheld on vested employee share-based compensation awards. The year ended December 31, 2024, included the issuance of an additional $824.0 million of 2030 Notes. We also repurchased 8.4 million of our Ordinary Shares for a total of $300.0 million, made dividend payments to our shareholders of $277.8 million, and paid $66.1 million in taxes withheld on vested employee share-based compensation awards. +At December 31, 2025, we had a total contract drilling services backlog of approximately $7.0 billion, which includes a commitment of 57% of available days for 2026. For additional information regarding our backlog, see “Contract Drilling Services Backlog.” +Capital Additions +Capital additions totaled $500.1 million and $520.3 million for the years ended December 31, 2025 and 2024, respectively. Capital additions for the year ended December 31, 2025, consisted of the following: +• $296.0 million for sustaining capital; +• $179.2 million in major projects, including subsea and other related projects, and capital spares; and +• $24.9 million for rebillable capital and contract modifications. +Our total capital expenditures estimate for 2026 is expected to range between $590.0 million and $640.0 million. We expect to fund these capital expenditures with cash generated by our operations and cash on hand. +From time to time we consider possible projects and certain events may occur that would require expenditures that are not included in our capital budget, and such unbudgeted expenditures could be significant. This includes additional capital expenditures to upgrade rigs for specific customer requirements or contracts. The total amount of capital that we ultimately spend is partly dependent on broader market conditions, the actual level of current and expected contracting activity, as well as costs related to satisfying regulatory requirements. Given many of our capital related projects can take considerable time to complete, the actual costs and timing of expenditures may vary materially from estimates based on various factors, many of which are out of our control. In addition, while liquidity and preservation of capital remains our top priority, we will continue to evaluate acquisitions of drilling units from time to time. +Amended and Restated Senior Secured Revolving Credit Agreement +In April 2023, certain subsidiaries of Noble amended and restated the senior secured revolving credit agreement, dated February 5, 2021, by entering into an Amended and Restated Senior Secured Revolving Credit Agreement, dated as of April 18, 2023 (as amended and otherwise modified from time to time, the “2023 Revolving Credit Agreement”), by and among Noble Finance II, Noble International Finance Company, Noble Drilling A/S, and each other designated borrower from time to time party thereto, as borrowers (the “Borrowers”), the lenders and issuing banks party thereto from time to time and JPMorgan Chase Bank, N.A., as administrative agent, collateral agent, and security trustee. The revolving credit facility under the 2023 Revolving Credit Agreement (the “2023 Revolving Credit Facility”) provides for commitments of $550.0 million with maturity in April 2028. The guarantors under the 2023 Revolving Credit Facility are the same subsidiaries of Noble Finance II that are or will be guarantors of the 2030 Notes. +As of December 31, 2025, we had no borrowings outstanding and $6.7 million of letters of credit issued under our 2023 Revolving Credit Facility and an additional $41.5 million in letters of credit and surety bonds issued under bilateral arrangements. For additional information about the 2023 Revolving Credit Facility, see “Note 6 — Debt” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +8.000% Senior Notes due 2030 +In April 2023, Noble Finance II, a wholly owned subsidiary of Noble, issued $600.0 million in aggregate principal amount of its 8.000% Senior Notes due 2030 (“Initial 2030 Notes”). The Initial 2030 Notes were issued pursuant to an indenture, dated +46 +April 18, 2023 (as supplemented or otherwise modified from time to time, the “Noble Indenture”), among Noble Finance II, the subsidiaries of Noble Finance II party thereto, as guarantors (the “Guarantors”), and U.S. Bank Trust Company, National Association, as trustee. In August 2024, Noble Finance II issued an additional $800.0 million in aggregate principal amount of its 8.000% Senior Notes due 2030 (the “Additional 2030 Notes” and, together with the Initial 2030 Notes, the “2030 Notes”) at a premium of 103% bringing the total outstanding principal amount to $1.4 billion. The Additional 2030 Notes were issued pursuant to the Noble Indenture and the net proceeds from the offering of the Additional 2030 Notes were primarily used to fund the cash consideration in the Diamond Transaction and to pay any premiums, fees, and expenses related to the issuance of the Additional 2030 Notes. As of December 31, 2025, we had outstanding $1.4 billion aggregate principal amount of our 2030 Notes. For additional information about the 2030 Notes, see “Note 6 — Debt” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +8.500% Senior Secured Second Lien Notes due 2030 +In connection with the Diamond Transaction, the Company assumed $550.0 million aggregate principal amount of 8.500% Senior Secured Second Lien Notes due October 2030 (the “Diamond Second Lien Notes”) issued pursuant to an indenture, dated as of September 21, 2023 (as supplemented and otherwise modified from time to time, the “Diamond Second Lien Indenture”), among Diamond Foreign Asset Company and Diamond Finance, LLC, as issuers, Diamond, the other guarantors party thereto and HSBC Bank USA, National Association, as trustee and as collateral agent. As of December 31, 2025, we had outstanding $550.0 million aggregate principal amount of our Diamond Second Lien Notes. For additional information about the Diamond Second Lien Notes, see “Note 6 — Debt” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +Diamond Credit Agreement +In connection with the Diamond Transaction, the Company terminated Diamond’s $300.0 million senior secured revolving credit facility (the “Diamond Revolving Credit Facility”) under a credit agreement, dated as of April 23, 2021 (as amended and otherwise modified, the “Diamond Credit Agreement”), among Diamond, Diamond Foreign Asset Company, as borrower, the lenders party thereto from time to time and HSBC Bank USA, National Association, as administrative agent, collateral agent, and issuing lender. The revolving commitments under the Diamond Credit Agreement were scheduled to mature in April 2026. At the time of the Diamond Transaction and the termination of the commitments under the Diamond Credit Agreement, Diamond had no outstanding borrowings under the Diamond Credit Agreement. For additional information about the Diamond Credit Agreement, see “Note 6 — Debt” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +Dividends +Our most recent quarterly dividend, totaling $79.4 million (or $0.50 per share), was declared on October 27, 2025, and paid on December 18, 2025, to shareholders of record at close of business on December 4, 2025. During the year ended December 31, 2025, we declared dividends of $321.3 million, including accrued dividends, (or $2.00 per share), and made cash dividend payments of approximately $317.6 million. +On February 11, 2026, Noble’s Board of Directors declared an interim quarterly cash dividend on our Ordinary Shares of $0.50 per share. This dividend will be paid on March 19, 2026, to shareholders of record at close of business on March 4, 2026. +The declaration and payment of dividends require authorization of the Board of Directors, provided that such dividends on issued share capital may be paid only out of the Company’s “distributable reserves” as determined by reference to relevant statutory accounts in accordance with English law. The Company is not permitted to pay dividends out of share capital, which includes share premiums. The payment of future dividends will depend on our results of operations, financial condition, cash requirements, future business prospects, the availability of sufficient distributable reserves, contractual and indenture restrictions, and other factors deemed relevant by our Board of Directors. +Share Repurchases +Under English law, the Company is only permitted to purchase its own Ordinary Shares by way of an “off-market purchase” pursuant to a contract approved by shareholders (except where the purchase is for the purposes of, or pursuant to, any employees’ share scheme). Such purchases may be paid for either (i) out of Noble’s “distributable reserves” as determined by reference to relevant statutory accounts in accordance with English law or (ii) from the proceeds of a fresh issue of shares made for the purpose of financing the purchase. On October 22, 2024, Noble’s Board of Directors authorized an increased share repurchase authorization of up to an additional $400.0 million and, at the 2025 annual general meeting of shareholders, shareholders approved the repurchase of up to 23,800,068 Ordinary Shares. The authorization by the Board +47 +of Directors has approximately $370.0 million remaining, does not have a fixed expiration, and may be modified, suspended, or discontinued at any time. None of the shareholder authorization to purchase up to 23,800,068 Ordinary Shares has yet been utilized, and the authorization by shareholders expires on May 8, 2030 (subject to certain exceptions). The program does not obligate us to acquire any particular amount of Ordinary Shares. During the year ended December 31, 2025, we repurchased 0.7 million of our Ordinary Shares. All repurchased shares were subsequently cancelled. +Summary of Contractual Cash Obligations and Commitments +We have $127.8 million of net long-term income tax and non-income tax reserves, including interest and penalties, which are included in “Other liabilities” due to the difficulty in making reasonably reliable estimates of the timing of cash settlements to taxing authorities. See “Note 10 — Income Taxes” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +At December 31, 2025, no long-term debt is due in the next twelve months and $2.0 billion will be due subsequent to 2026. See “Note 6 — Debt” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. We may seek to refinance all or a portion of our long-term debt obligations, including the 2023 Revolving Credit Facility, though any such refinancing transactions are subject to market and other conditions and there are no assurances that we will complete any such transactions, in whole or in part, or as to the amount or timing of any such transactions. +At December 31, 2025, $13.6 million of pension obligations will be due in the next twelve months and the remainder of $129.1 million will be due subsequent to 2026. See “Note 11 — Employee Benefit Plans” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. In addition, $11.0 million is due on a long-term basis under the Danish Holiday Act of 2020. +For a description of our operating and finance lease obligations, refer to “Note 9 — Leases” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +At December 31, 2025, we had other commitments that we are contractually obligated to fulfill with cash if the obligations are called. These obligations include letters of credit that guarantee our performance as it relates to our drilling contracts, tax, and other obligations in various jurisdictions. We expect to comply with the underlying performance requirements and we expect obligations under these letters of credit and surety bonds will not be called. At December 31, 2025, $17.2 million of letters of credit and commercial commitments will expire in the next twelve months and the remainder of $31.0 million will expire subsequent to 2026. +We expect to fund these obligations and commitments with cash generated by our operations and cash on hand. +Unaudited Condensed Consolidating Financial Information +The Noble Indenture contains a covenant that requires Noble Finance II to furnish to holders of the 2030 Notes certain financial information relating to Noble Finance II and its restricted subsidiaries. The Diamond Second Lien Indenture contains a covenant that requires NODI to furnish to holders of the Diamond Second Lien Notes certain financial information relating to NODI and its subsidiaries. +The summarized financial information below reflects combined accounts of Noble Finance II, NODI, and all other subsidiaries of Noble. The financial information is presented on a combined basis and intercompany balances and transactions between entities have been eliminated. +48 +Noble Corporation plc and Subsidiaries +Unaudited Condensed Consolidating Selected Financials +December 31, 2025 +Consolidated Noble Finance II LLC Consolidated Noble Offshore Drilling, Inc. +Other +Non-guarantor Subsidiaries +of Noble +Consolidating Adjustments Total +Balance Sheets +Cash and cash equivalents $ 259,233 $ 204,771 $ 7,395 $ — $ 471,399 +Total current assets 2,098,558 680,584 79,100 (1,585,960) 1,272,282 +Total current liabilities 671,158 502,380 1,881,542 (2,295,351) 759,729 +Total debt 1,400,982 1,170,694 — (595,885) 1,975,791 +Total shareholders' equity 4,738,725 907,095 3,628,863 (4,725,833) 4,548,850 +Noble Corporation plc and Subsidiaries +Unaudited Condensed Consolidating Selected Financials +Twelve Months Ended December 31, 2025 +Consolidated Noble Finance II LLC Consolidated Noble Offshore Drilling, Inc. +Other +Non-guarantor Subsidiaries +of Noble +Consolidating Adjustments Total +Statements of Operations +Operating revenues $ 2,354,594 $ 935,091 $ — $ (4,117) $ 3,285,568 +Operating costs and expenses 2,092,947 738,513 42,673 (4,117) 2,870,016 +Depreciation and amortization 430,522 154,947 — — 585,469 +Statements of Cash Flows +Net cash provided by (used in) operating activities $ 751,855 $ 186,144 $ 13,679 $ — $ 951,678 +Capital expenditures (425,701) (93,822) — — (519,523) +Proceeds from disposal of assets, net 147,201 — — — 147,201 +Dividend payments — — (320,368) — (320,368) +Critical Accounting Estimates +We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States (“US GAAP”), which require us to make estimates that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results may differ from our estimates and assumptions and any such differences could be material to our consolidated financial statements. The following accounting policies involve critical accounting estimates because they are particularly dependent on estimates and assumptions made by Noble about matters that are inherently uncertain. +Recoverability of Assets +We evaluate our property and equipment and intangible assets for impairment whenever there are changes in facts that suggest that the value of the asset is not recoverable. An impairment loss is recognized when and to the extent that an asset's carrying value exceeds its estimated fair value. To the extent actual results do not meet our estimated assumptions for a given rig, piece of equipment, or intangible customer contract, we may take an impairment loss in the future. In determining the fair value of the assets, we make significant assumptions and estimates regarding future market conditions using significant unobservable inputs representative of a Level 3 fair value measurement. Critical assumptions used in our +49 +estimate include projected dayrates, utilization, and discount rate. These projections involve uncertainties that rely on assumptions about current and future market conditions, timing of future contract awards, and marketability of a unit. It can be difficult to determine the fair value based on the cyclical nature of our business, demand for offshore drilling rigs in different markets, and changes in economic conditions. +During the year ended December 31, 2025, we recognized aggregate impairment charges of $82.7 million. See “Note 5 — Property and Equipment” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information. No impairment charges were recognized during the year ended December 31, 2024. +Impairment assessment inherently involves management judgments as to assumptions about expected future cash flows and the impact of market conditions on those assumptions. Due to the many variables inherent in this estimation, differences in assumptions may have a material effect on the results of our impairment analysis. +Income Taxes +We estimate income taxes and file tax returns in each of the taxing jurisdictions in which we operate and are required to file a tax return. At the end of each year, an estimate for income taxes is recorded in the financial statements. Tax returns are generally filed in the subsequent year. A reconciliation of the estimate to the final tax return is done at that time, which will result in changes to the original estimate. We believe that our tax return positions are appropriately supported, but tax authorities can challenge certain of our tax positions. +We currently operate, and have in the past operated, in a number of countries throughout the world and our tax returns filed in those jurisdictions are subject to review and examination by tax authorities within those jurisdictions. We recognize uncertain tax positions that we believe have a greater than 50% likelihood of being sustained upon challenge by a tax authority. We cannot predict nor provide assurance as to the ultimate outcome of any existing or future assessments. A change in judgment related to the expected ultimate resolution of uncertain tax positions will be recognized in earnings in the quarter of such change. We believe that our reserve for uncertain tax positions, including related interest and penalties, is adequate. As of December 31, 2025 and 2024, the Company had $117.6 million and $196.0 million of net long-term tax reserves for unrecognized tax benefits, including interest and penalties, which are included in “Other liabilities.” The amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in our income tax expense and, therefore, could have a material impact on our tax provision, net income and cash flows. +Our gross deferred tax asset balance at year end reflects the application of our income tax accounting policies and is based on management’s estimates, judgments, and assumptions regarding realizability. If it is more likely than not that a portion of the deferred tax assets will not be realized in a future period, the deferred tax assets will be reduced by a valuation allowance based on management’s estimates. In evaluating our ability to recover our deferred tax assets, in full or in part, we consider all available positive and negative evidence, including our past operating results and our forecast of future earnings, future taxable income, and prudent and feasible tax planning strategies. The assumptions utilized in determining future taxable income require significant judgment. Although we believe our assumptions, judgments, and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of any tax audits could have a material impact our consolidated financial statements. +Claims Reserves +We maintain various levels of self-insured retention for certain losses including property damage, loss of hire, employment practices liability, employers’ liability, and general liability, among others. We accrue for property damage and loss of hire charges on a per event basis. +Employment practices liability claims are accrued based on actual claims during the year. Maritime employer’s liability claims are generally estimated using actuarial determinations. General liability claims are estimated by our internal claims department by evaluating the facts and circumstances of each claim (including incurred but not reported claims) and making estimates based upon historical experience with similar claims. The amount of our loss reserves for personal injury and protection claims is based on an analysis performed by a third-party actuary which uses our historical loss patterns and trends as well as industry data to estimate the unpaid loss and allocated loss adjustment expense. Claim severity experienced in each year, ranging from minor incidents to permanent disability or injuries requiring extensive medical care, is a key driver of the variability around our reserve estimates. These estimates are further subject to uncertainty because the ultimate disposition of claims incurred is subject to the outcome of events which have not yet transpired. Accordingly, we may be required to increase or decrease our reserve levels. At December 31, 2025, loss reserves for personal injury and protection claims totaled $29.5 million and was included in “Other current liabilities” in the accompanying Consolidated Balance Sheets. At December 31, 2024, loss reserves for personal injury and protection claims totaled $175.3 million, of +50 +which $160.4 million was included in “Other current liabilities” and $14.9 million in “Other long-term liabilities” in the accompanying Consolidated Balance Sheets. +Business Combinations +We follow the acquisition method of accounting for business combinations. Assets acquired and liabilities assumed are recognized at the date of acquisition at their respective estimated fair value. Any excess of the purchase price over the fair value amounts assigned to assets and liabilities is recorded as goodwill. To the extent the estimated fair value of the net assets acquired exceeded the purchase price, we recognize a bargain purchase gain. Changes in these judgments or estimates can have a material impact on the valuation of the respective assets and liabilities acquired and our results of operations in periods after acquisition. The allocation of the purchase price may be modified up to one year after the acquisition date as more information is obtained about the fair value of assets acquired and liabilities assumed. +Our estimates of fair value of the acquired property and equipment and contract intangibles require us to use significant unobservable inputs, representative of a Level 3 fair value measurement. Critical assumptions used in our estimate include projected dayrates, utilization, and discount rate. These projections involve uncertainties that rely on assumptions about current and future market conditions, timing of future contract awards, demand for our services, and marketability of a unit. It can be difficult to determine the fair value based on the cyclical nature of our business, demand for offshore drilling rigs in different markets, and changes in economic conditions. +Item 7A. Quantitative and Qualitative Disclosures about Market Risk. +Market risk is the potential for loss due to a change in the value of a financial instrument as a result of fluctuations interest rates, currency exchange rates, or equity prices, as further described below. +Interest Rate Risk +We are subject to market risk exposure related to changes in interest rates on borrowings under the 2023 Revolving Credit Facility and may be subject to similar exposure on future borrowing arrangements. Borrowings under the 2023 Revolving Credit Facility, if any, bear interest at the term secured overnight financing rate (“SOFR”) plus 0.10% (subject to a 0.00% floor) plus an applicable margin, which is currently 3.00%, or a base rate stated in the 2023 Revolving Credit Agreement plus an applicable margin, which is currently 2.00%. +As of December 31, 2025, we had no borrowings outstanding under the 2023 Revolving Credit Facility and $6.7 million of performance letters of credit outstanding thereunder. +Because they bear interest at a fixed rate, the fair value of the 2030 Notes and the Diamond Second Lien Notes will fluctuate based on changes in market expectations for interest rates and perceptions of our credit risk. The fair value of our total debt was $2.0 billion as of December 31, 2025. +Foreign Currency Risk +Although we are a UK company, we define foreign currency as any non-US dollar denominated currency. Our functional currency is the US dollar. However, outside the United States, a portion of our expenses are incurred in local currencies. Therefore, when the US dollar weakens (strengthens) in relation to the currencies of the countries in which we operate, our expenses reported in US dollars will increase (decrease). +We are exposed to risks on future cash flows to the extent that foreign currency expenses exceed revenues denominated in the same foreign currency. In order to help manage this potential risk, we periodically enter into derivative instruments to manage our net exposure to fluctuations in currency exchange rates. We have documented policies and procedures to monitor and control the use of derivative instruments. We do not engage in derivative transactions for speculative or trading purposes, nor are we a party to leveraged derivatives. +Several of our regional shorebases have a significant amount of their cash operating expenses payable in foreign currencies. In order to limit the potential risk of currency fluctuations, we periodically enter into forward contracts, which have historically settled monthly in the operations’ respective local currencies. All of these contracts had a maturity of less than 12 months. Based on current projections, a 10% increase in the average exchange rates of all foreign currencies would hypothetically increase our future estimated operating expenses by approximately $18.5 million. +Market Risk +We have a US noncontributory defined benefit pension plan that covers certain salaried employees and a US noncontributory defined benefit pension plan that covers certain hourly employees, whose initial date of employment is prior to August 1, 2004 (collectively referred to as our “qualified US plans”). These plans are governed by the Noble Drilling +51 +Employees’ Retirement Trust. The benefits from these plans are based primarily on years of service and, for the salaried plan, employees’ compensation near retirement. These plans are designed to qualify under the Employee Retirement Income Security Act of 1974 (“ERISA”), and our funding policy is consistent with funding requirements of ERISA and other applicable laws and regulations. We make cash contributions, or utilize credits available to us, for the qualified US plans when required. The benefit amount that can be covered by the qualified US plans is limited under ERISA and the Internal Revenue Code of 1986. Therefore, we maintain an unfunded, nonqualified excess benefit plan designed to maintain benefits for specified employees at the formula level in the qualified salary US plan. We refer to the qualified US plans and the excess benefit plan collectively as the “US plans.” +In addition to the US plans, Noble Drilling (Land Support) Limited, an indirect, wholly-owned subsidiary of Noble, maintains a pension plan that covers all of its salaried, non-union employees, whose most recent date of employment is prior to April 1, 2014 (referred to as our “non-US plan”). Benefits are based on credited service and employees’ compensation, as defined by the non-US plan. +The Company’s pension plan assets are exposed to the market prices of debt and equity securities. Changes to the pension plan asset values can impact the Company’s pension expense, funded status, and future minimum funding requirements. The Company aims to reduce risk through asset diversification and by investing in long duration fixed-income securities that have a duration similar to that of its pension liabilities. At December 31, 2025, the value of the investments in the pension funds was $207.6 million, and a hypothetical 10.0% decrease in the value of the investments in the fund would have reduced the value of the fund by approximately $20.8 million. A significant decline in the value of pension assets could require Noble to increase funding of its pension plans in future periods, which could adversely affect cash flows in those periods. In addition, a decline in the fair value of these plan assets, in the absence of additional cash contributions to the plans by Noble, could increase the amount of pension cost required to be recorded in future periods by Noble. +52 +Item 8. Financial Statements and Supplementary Data. +The following financial statements are filed in this Item 8: +Page +Report of Independent Registered Public Accounting Firm (Noble) (PCAOB ID 238 ) +54 +Noble Corporation plc and Subsidiaries Consolidated Balance Sheets as of December 31, 2025 and 2024 +56 +Noble Corporation plc and Subsidiaries Consolidated Statements of Operations for the Years Ended December 31, 202 5 , 202 4 , and 20 23 +57 +Noble Corporation plc and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 202 5 , 202 4 , and 20 23 +58 +Noble Corporation plc and Subsidiaries Consolidated Statements of Cash Flows for the Years Ended December 31, 202 5 , 202 4 , and 20 23 +59 +Noble Corporation plc and Subsidiaries Consolidated Statements of Equity for the Years Ended December 31, 202 5 , 202 4 , and 202 3 +60 +Notes to Consolidated Financial Statements +61 +53 +Report of Independent Registered Public Accounting Firm +To the Board of Directors and Shareholders of Noble Corporation plc +Opinions on the Financial Statements and Internal Control over Financial Reporting +We have audited the accompanying consolidated balance sheets of Noble Corporation plc and its subsidiaries (the "Company") as of December 31, 2025 and 2024, and the related consolidated statements of operations, of comprehensive income (loss), of equity and of cash flows for each of the three years in the period ended December 31, 2025, including the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). +In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. +Basis for Opinions +The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. +Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. +Definition and Limitations of Internal Control over Financial Reporting +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. +54 +Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +Critical Audit Matters +The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. +Accounting for Income Taxes +As described in Notes 1, 10, and 12 to the consolidated financial statements, the Company recorded an income tax provision of $56.4 million for the year ended December 31, 2025, and has net deferred tax assets of $292.6 million, including a valuation allowance of $2,890.9 million, and a reserve for uncertain tax positions, including interest and penalties, of $119.2 million as of December 31, 2025. The Company’s income taxes are based on the laws and rates in effect in the countries in which operations are conducted or in which the Company or its subsidiaries are considered resident for income tax purposes. The Company’s gross deferred tax asset balance at year-end reflects the application of the Company’s income tax accounting policies and is based on management’s estimates, judgments, and assumptions regarding realizability. If it is more likely than not that a portion of the deferred tax assets will not be realized in a future period, the deferred tax assets will be reduced by a valuation allowance based on management’s estimates. The Company operates in numerous countries throughout the world and its tax returns filed in those jurisdictions are subject to review and examination by tax authorities within those jurisdictions. Management recognizes uncertain tax positions that it believes have a greater than 50% likelihood of being sustained upon challenge by a tax authority. +The principal considerations for our determination that performing procedures relating to accounting for income taxes is a critical audit matter are (i) the significant judgment by management when determining the income tax provision, net deferred tax assets, including a valuation allowance, and the reserve for uncertain tax positions; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to these account balances and tax positions; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. +Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to income taxes. These procedures also included, among others (i) testing the income tax provision, including the effective tax rate reconciliation and certain permanent and temporary differences; (ii) testing the completeness and accuracy of underlying data used in measuring and recognizing deferred tax assets and liabilities; (iii) evaluating management’s assessment of the realizability of certain deferred tax assets on a jurisdictional basis; (iv) evaluating the completeness of management’s assessment of the identification of uncertain tax positions, possible outcomes of certain uncertain tax positions based on the application of relevant tax laws, and the amount of the potential benefit to be realized on certain uncertain tax positions, including estimated interest and penalties; and (v) evaluating the status and results of income tax audits with the relevant tax authorities. Professionals with specialized skill and knowledge were used to assist in evaluating management’s assessment of the tax impact of (i) foreign transactions under US tax laws; (ii) cross-border restructurings; and (iii) transfer pricing. +/s/ PricewaterhouseCoopers LLP +Houston, Texas +February 12, 2026 +We have served as the Company’s auditor since 1994. +55 +NOBLE CORPORATION plc AND SUBSIDIARIES +CONSOLIDATED BALANCE SHEETS +(In thousands, except share amounts) +December 31, 2025 December 31, 2024 +ASSETS +Current assets +Cash and cash equivalents $ 471,399 $ 247,303 +Accounts receivable, net 589,597 796,961 +Taxes receivable 78,827 56,389 +Prepaid expenses and other current assets 132,459 288,211 +Total current assets 1,272,282 1,388,864 +Property and equipment, at cost 6,639,045 6,904,731 +Accumulated depreciation ( 1,236,222 ) ( 868,914 ) +Property and equipment, net 5,402,823 6,035,817 +Other assets 854,662 540,087 +Total assets $ 7,529,767 $ 7,964,768 +LIABILITIES AND EQUITY +Current liabilities +Accounts payable $ 298,751 $ 397,622 +Accrued payroll and related costs 81,754 116,877 +Taxes payable 83,256 78,900 +Interest payable 35,827 36,075 +Other current liabilities 260,141 310,888 +Total current liabilities 759,729 940,362 +Long-term debt 1,975,791 1,980,186 +Deferred income taxes 5,402 9,202 +Noncurrent contract liabilities — 8,580 +Other liabilities 239,995 375,052 +Total liabilities 2,980,917 3,313,382 +Commitments and contingencies (Note 12) +Shareholders' equity +Common stock, $ 0.00001 par value; 158,853,799 and 158,946,711 ordinary shares outstanding as of December 31, 2025 and 2024, respectively +1 1 +Additional paid-in capital 4,257,059 4,236,172 +Retained earnings 286,630 411,244 +Accumulated other comprehensive income (loss) 5,160 3,969 +Total shareholders' equity 4,548,850 4,651,386 +Total liabilities and equity $ 7,529,767 $ 7,964,768 +See accompanying notes to the consolidated financial statements. +56 +NOBLE CORPORATION plc AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF OPERATIONS +(In thousands, except per share amounts) +Year Ended Year Ended Year Ended +December 31, 2025 December 31, 2024 December 31, 2023 +Operating revenues +Contract drilling services $ 3,107,207 $ 2,918,767 $ 2,461,715 +Reimbursables and other 178,361 139,051 127,303 +3,285,568 3,057,818 2,589,018 +Operating costs and expenses +Contract drilling services 1,915,551 1,687,164 1,452,281 +Reimbursables 136,389 105,479 91,642 +Depreciation and amortization 585,469 428,626 301,345 +General and administrative 133,147 140,499 128,413 +Merger and integration costs 26,382 109,424 60,335 +(Gain) loss on sale of operating assets, net ( 9,586 ) ( 17,357 ) — +Loss on impairment 82,664 — — +Hurricane losses and (recoveries), net — — ( 19,703 ) +2,870,016 2,453,835 2,014,313 +Operating income (loss) 415,552 603,983 574,705 +Other income (expense) +Interest expense, net of amounts capitalized ( 162,403 ) ( 94,211 ) ( 59,139 ) +Gain (loss) on extinguishment of debt, net — — ( 26,397 ) +Interest income and other, net 19,953 ( 17,438 ) 18,069 +Gain on bargain purchase — — 5,005 +Income (loss) before income taxes 273,102 492,334 512,243 +Income tax benefit (provision) ( 56,385 ) ( 43,981 ) ( 30,341 ) +Net income (loss) $ 216,717 $ 448,353 $ 481,902 +Basic earnings (loss) per share $ 1.36 $ 3.01 $ 3.48 +Diluted earnings (loss) per share $ 1.35 $ 2.96 $ 3.32 +Weighted Average Shares Outstanding +Basic 158,872 148,733 138,380 +Diluted 160,202 151,639 145,197 +See accompanying notes to the consolidated financial statements. +57 +NOBLE CORPORATION plc AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) +(In thousands) +Year Ended Year Ended Year Ended +December 31, 2025 December 31, 2024 December 31, 2023 +Net income (loss) $ 216,717 $ 448,353 $ 481,902 +Other comprehensive income (loss) +Net changes in pension and other postretirement plan assets and benefit obligations recognized in other comprehensive income (loss), net of tax provision (benefit) of $( 2,058 ), $ 457 , and $( 940 ) for the years ended December 31, 2025, 2024, and 2023, respectively +1,191 937 ( 615 ) +Other comprehensive income (loss), net 1,191 937 ( 615 ) +Comprehensive income (loss) $ 217,908 $ 449,290 $ 481,287 +See accompanying notes to the consolidated financial statements. +58 +NOBLE CORPORATION plc AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF CASH FLOWS +(In thousands) +Year Ended Year Ended Year Ended +December 31, 2025 December 31, 2024 December 31, 2023 +Cash flows from operating activities +Net income (loss) $ 216,717 $ 448,353 $ 481,902 +Adjustments to reconcile net income (loss) to net cash flow from operating activities: +Depreciation and amortization 585,469 428,626 301,345 +Amortization of intangible assets and contract liabilities, net ( 8,365 ) ( 60,032 ) ( 106,776 ) +Gain on bargain purchase — — ( 5,005 ) +(Gain) loss on extinguishment of debt, net — — 26,397 +(Gain) loss on sale of operating assets, net ( 9,586 ) ( 17,357 ) — +Loss on impairment 82,664 — — +Deferred income taxes 44,401 ( 42,647 ) ( 98,093 ) +Amortization of share-based compensation 30,512 43,797 37,680 +Other costs, net ( 1,897 ) ( 13,964 ) ( 8,036 ) +Net changes in operating assets and liabilities 11,763 ( 131,301 ) ( 55,077 ) +Net cash provided by (used in) operating activities 951,678 655,475 574,337 +Cash flows from investing activities +Capital expenditures ( 519,523 ) ( 575,315 ) ( 409,581 ) +Proceeds from insurance claims 22,254 23,297 18,809 +Cash acquired (used) in business combinations, net — ( 417,041 ) — +Proceeds from disposal of assets, net 147,201 10,040 24,264 +Net cash provided by (used in) investing activities ( 350,068 ) ( 959,019 ) ( 366,508 ) +Cash flows from financing activities +Issuance of debt — 824,000 600,000 +Repayments of debt — — ( 673,411 ) +Borrowing on credit facilities — 35,000 — +Repayments of credit facilities — ( 35,000 ) — +Debt issuance costs — ( 10,002 ) ( 24,914 ) +Debt extinguishment costs — — ( 25,697 ) +Warrants exercised +44 1,443 485 +Share repurchases ( 20,000 ) ( 299,989 ) ( 94,826 ) +Dividend payments ( 320,368 ) ( 277,831 ) ( 98,804 ) +Withholding tax related to employee stock transactions ( 9,669 ) ( 66,057 ) ( 8,624 ) +Finance lease payments ( 23,936 ) ( 6,064 ) — +Other — 22,578 — +Net cash provided by (used in) financing activities ( 373,929 ) 188,078 ( 325,791 ) +Net increase (decrease) in cash, cash equivalents, and restricted cash 227,681 ( 115,466 ) ( 117,962 ) +Cash, cash equivalents, and restricted cash, beginning of period 252,279 367,745 485,707 +Cash, cash equivalents, and restricted cash, end of period $ 479,960 $ 252,279 $ 367,745 +See accompanying notes to the consolidated financial statements. +59 +NOBLE CORPORATION plc AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF EQUITY +(In thousands) +Shares +Additional +Paid-in +Capital +Retained +Earnings (Accumulated Deficit) +Accumulated +Other +Comprehensive +Income (Loss) +Total +Equity +Balance Par Value +Balance at December 31, 2022 134,681 $ 1 $ 3,347,507 $ 255,930 $ 3,647 $ 3,607,085 +Employee-related equity activity: +Amortization of share-based compensation — — 37,680 — — 37,680 +Issuance of share-based compensation shares 501 — — — — — +Shares withheld for taxes on equity transactions — — ( 8,624 ) — — ( 8,624 ) +Warrants exercised 7,939 — 485 — — 485 +Share repurchases ( 2,347 ) — — ( 94,826 ) — ( 94,826 ) +Dividends — — — ( 101,847 ) — ( 101,847 ) +Net income (loss) — — — 481,902 — 481,902 +Other comprehensive income (loss), net — — — — ( 615 ) ( 615 ) +Balance at December 31, 2023 140,774 $ 1 $ 3,377,048 $ 541,159 $ 3,032 $ 3,921,240 +Employee-related equity activity: +Amortization of share-based compensation — — 43,797 — — 43,797 +Issuance of share-based compensation shares 2,131 — — — — — +Shares withheld for taxes on equity transactions — — ( 66,057 ) — — ( 66,057 ) +Warrants exercised 245 — 1,443 — — 1,443 +Share repurchases ( 8,443 ) — — ( 299,989 ) — ( 299,989 ) +Issuance of common stock for Diamond Offshore Drilling merger 24,240 — 879,941 — — 879,941 +Dividends — — — ( 278,279 ) — ( 278,279 ) +Net income (loss) — — — 448,353 — 448,353 +Other comprehensive income (loss), net — — — — 937 937 +Balance at December 31, 2024 158,947 $ 1 $ 4,236,172 $ 411,244 $ 3,969 $ 4,651,386 +Employee-related equity activity: +Amortization of share-based compensation — — 30,512 — — 30,512 +Issuance of share-based compensation shares 643 — — — — — +Shares withheld for taxes on equity transactions — — ( 9,669 ) — — ( 9,669 ) +Warrants exercised 1 — 44 — — 44 +Share repurchases ( 737 ) — — ( 20,000 ) — ( 20,000 ) +Dividends — — — ( 321,331 ) — ( 321,331 ) +Net income (loss) — — — 216,717 — 216,717 +Other comprehensive income (loss), net — — — — 1,191 1,191 +Balance at December 31, 2025 158,854 $ 1 $ 4,257,059 $ 286,630 $ 5,160 $ 4,548,850 +See accompanying notes to the consolidated financial statements. +60 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Note 1 — Organization and Significant Accounting Policies +Noble Corporation plc, a public limited company incorporated under the laws of England and Wales (“Noble”), is a leading offshore drilling contractor for the oil and gas industry. We provide contract drilling services to the international oil and gas industry with our global fleet of mobile offshore drilling units. Noble and its predecessors have been engaged in the contract drilling of oil and gas wells since 1921. As of December 31, 2025, our fleet of 36 drilling rigs consisted of 25 floaters and 11 jackups. +We report our contract drilling operations as a single reportable segment, Contract Drilling Services, which reflects how we manage our business. The mobile offshore drilling units comprising our offshore rig fleet operate in a global market for contract drilling services and are often redeployed to different regions due to changing demands of our customers, which consist primarily of large, integrated, independent, and government-owned or controlled oil and gas companies throughout the world. +On June 9, 2024, Noble entered into an agreement and plan of merger (the “Diamond Merger Agreement”) with Diamond Offshore Drilling, Inc. (“Diamond”), Dolphin Merger Sub 1, Inc., and Dolphin Merger Sub 2, Inc., under which Noble would acquire Diamond in a stock plus cash transaction (the “Diamond Transaction”). On September 4, 2024 (the “Diamond Closing Date”), Noble completed its acquisition of Diamond. The merger is accounted for as a business combination in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”), where Noble is the accounting acquirer. +See “Note 2 — Acquisitions and Divestitures” for additional information. +References in this Annual Report on Form 10-K to “Noble,” the “Company,” “we,” “us,” and “our” refer collectively to Noble and its consolidated subsidiaries on and after the Diamond Closing Date, as applicable. +Principles of Consolidation +The consolidated financial statements include our accounts and those of our wholly-owned subsidiaries and entities in which we hold a controlling financial interest. +Use of Estimates +The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. We evaluate our estimates and assumptions on a regular basis. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions used in preparation of our consolidated financial statements. +Cash and Cash Equivalents +Cash and cash equivalents include cash on hand, demand deposits with banks, and all highly liquid investments with original maturities of three months or less. Our cash, cash equivalents, and short-term investments are subject to potential credit risk, and certain of our cash accounts carry balances greater than the federally insured limits. Cash and cash equivalents are primarily held by major banks or investment firms. Our cash management and investment policies restrict investments to lower risk, highly liquid securities, and we perform periodic evaluations of the relative credit standing of the financial institutions with which we conduct business. +Restricted Cash +We classify restricted cash balances in current assets if the restriction is expected to expire or otherwise be resolved within one year and in other assets if the restriction is expected to expire or otherwise be resolved in more than one year. As of December 31, 2025 and 2024, our restricted cash balance consisted of $ 8.6 million and $ 5.0 million, respectively. All restricted cash is recorded in “Prepaid expenses and other current assets.” As of December 31, 2025, our restricted cash balance was related to cash collateral for Company rig performance guarantees and other performance obligations. +61 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Accounts Receivable +We record accounts receivable at the amount we invoice our clients, net of allowance for credit losses. We provide an allowance for uncollectible accounts, as necessary. Our allowance for doubtful accounts was zero as of both December 31, 2025 and 2024. +Property and Equipment +Property and equipment is stated at cost, reduced by provisions to recognize economic impairment. Major replacements and improvements are capitalized. When assets are sold, retired, or otherwise disposed of, the cost and related accumulated depreciation are eliminated from the accounts and the gain or loss is recognized. Drilling equipment and facilities are depreciated using the straight-line method over their estimated useful lives as of the date placed in service or date of major refurbishment. Estimated useful lives of our drilling equipment range from three to 30 years. Other property and equipment is depreciated using the straight-line method over useful lives ranging from two to 40 years. +Interest is capitalized on long-term construction projects using the weighted average cost of debt outstanding during the period of construction. +Scheduled maintenance of equipment is performed based on the number of hours operated in accordance with our preventative maintenance program. Routine repair and maintenance costs are charged to expense as incurred; however, the costs of the overhauls and asset replacement projects that benefit future periods, and which typically occur every three to five years , are capitalized when incurred and depreciated over an equivalent period. These overhauls and asset replacement projects are included in “Drilling equipment and facilities” in “Note 5 — Property and Equipment.” +We evaluate our property and equipment for impairment whenever there are changes in facts that suggest that the value of the asset is not recoverable. As part of this analysis, we make assumptions and estimates regarding future market conditions. When circumstances indicate that the carrying value of the assets may not be recoverable, management compares the carrying value to the expected undiscounted pre-tax future cash flows for the associated rig for which identifiable cash flows are independent of cash flows of other assets. If the expected undiscounted pre-tax future cash flows are lower than the carrying value, the net capitalized costs are reduced to fair value. An impairment loss is recognized to the extent that an asset's carrying value exceeds its estimated fair value. Fair value is generally estimated using a discounted cash flow model. The expected future cash flows used for impairment assessment and related fair value measurements are typically based on judgmental assessments of, but are not limited to, timing of future contract awards and expected operating dayrates, operating costs, utilization rates, discount rates, capital expenditures, reactivation costs, estimated economic useful lives and, in certain cases, our belief that a drilling unit is no longer marketable and is unlikely to return to service in the near to medium term, and considering all available information at the date of assessment. During the years ended December 31, 2025 and 2024, we did not identify any impairment triggers based on market conditions for our property and equipment. +Fair Value Measurements +We measure certain of our assets and liabilities based on a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three-level hierarchy, from highest to lowest level of observable inputs, are as follows: +Level 1 — Valuations based on quoted prices in active markets for identical assets; +Level 2 — Valuations based on observable inputs that do not meet the criteria for Level 1, including quoted prices in inactive markets and quoted prices in active markets for similar but not identical instruments; and +Level 3 — Valuations based on unobservable inputs. +Our cash and cash equivalents, restricted cash, accounts receivable, marketable securities, and accounts payable are by their nature short term. As a result, the carrying values included in our Consolidated Balance Sheets approximate fair value. +Business Combinations +In connection with our acquisitions, we apply the acquisition method of accounting. Accordingly, we record the acquired assets and assumed liabilities at fair value and recognize goodwill to the extent the consideration transferred exceeded the fair value of the net assets acquired. To the extent the fair value of the net assets acquired exceeded the consideration transferred, we recognize a bargain purchase gain. Changes in these judgments or estimates can have a material impact on the valuation of the respective assets and liabilities acquired and our results of operations in periods after acquisition. The allocation of the purchase price may be modified up to one year after the acquisition date as more information is obtained +62 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +about the fair value of assets acquired and liabilities assumed. We estimate the fair values of the acquired assets and assumed liabilities as of the date of the acquisition. See “Note 2 — Acquisitions and Divestitures” for additional information. +Revenue Recognition +The activities that primarily drive the revenue earned in our drilling contracts include (i) providing a drilling rig and the crew and supplies necessary to operate the rig, (ii) mobilizing and demobilizing the rig to and from the drill site, and (iii) performing rig preparation activities and/or modifications required for the contract. Consideration received for performing these activities may consist of dayrate drilling revenue, mobilization and demobilization revenue, contract preparation revenue, and reimbursement revenue. We account for these integrated services provided within our drilling contracts as a single performance obligation satisfied over time and comprised of a series of distinct time increments in which we provide drilling services. +Our standard drilling contracts require that we operate the rig at the direction of the customer throughout the contract term (which is the period we estimate to benefit from the corresponding activities and generally ranges from two to 60 months). The activities performed and the level of service provided can vary hour to hour. Our obligation under a standard contract is to provide whatever level of service is required by the operator, or customer, over the term of the contract. We are, therefore, under a stand-ready obligation throughout the entire contract duration. Consideration for our stand-ready obligation corresponds to distinct time increments, though the rate may be variable depending on various factors, and is recognized in the period in which the services are performed. The total transaction price is determined for each individual contract by estimating both fixed and variable consideration expected to be earned over the term of the contract. We have elected to exclude from the transaction price measurement all taxes assessed by a governmental authority. See further discussion regarding the allocation of the transaction price to the remaining performance obligations below. +The amount estimated for variable consideration may be subject to interrupted or restricted rates and is only included in the transaction price to the extent that it is probable that a significant reversal of previously recognized revenue will not occur throughout the term of the contract (“constrained revenue”). When determining if variable consideration should be constrained, management considers whether there are factors outside the Company’s control that could result in a significant reversal of revenue as well as the likelihood and magnitude of a potential reversal of revenue. These estimates are reassessed each reporting period as required. +Dayrate Drilling Revenue. Our drilling contracts generally provide for payment on a dayrate basis, with higher rates for periods when the drilling unit is operating and lower rates or zero rates for periods when drilling operations are interrupted or restricted. The dayrate invoices billed to the customer are typically determined based on the varying rates applicable to the specific activities performed on an hourly basis. Such dayrate consideration is allocated to the distinct hourly increment it relates to within the contract term and, therefore, recognized in line with the contractual rate billed for the services provided for any given hour. +Mobilization/Demobilization Revenue. We may receive fees (on either a fixed lump-sum or variable dayrate basis) for the mobilization and demobilization of our rigs. These activities are not considered to be distinct within the context of the contract and, therefore, the associated revenue is allocated to the overall performance obligation and the associated pre-operating costs are deferred. We record a contract liability for mobilization fees received and a deferred asset for costs. Both revenue and pre-operating costs are recognized ratably over the initial term of the related drilling contract. +In most contracts, there is uncertainty as to the amount of expected demobilization revenue due to contractual provisions that stipulate that certain conditions must be present at contract completion for such revenue to be received and as to the amount thereof, if any. For example, contractual provisions may require that a rig demobilize a certain distance before the demobilization revenue is payable or the amount may vary dependent upon whether or not the rig has additional contracted work within a certain distance from the wellsite. Therefore, the estimate for such revenue may be constrained, as described earlier, depending on the facts and circumstances pertaining to the specific contract. We assess the likelihood of receiving such revenue based on past experience and knowledge of the market conditions. In cases where demobilization revenue is expected to be received upon contract completion, it is estimated as part of the overall transaction price at contract inception and recognized in earnings ratably over the initial term of the contract with an offset to an accretive contract asset. +Contract Preparation Revenue. Some of our drilling contracts require downtime before the start of the contract to prepare the rig to meet customer requirements. At times, we may be compensated by the customer for such work (on either a fixed lump-sum or variable dayrate basis). These activities are not considered to be distinct within the context of +63 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +the contract and, therefore, the related revenue is allocated to the overall performance obligation and recognized ratably over the initial term of the related drilling contract. We record a contract liability for contract preparation fees received, which is amortized ratably to contract drilling revenue over the initial term of the related drilling contract. +Bonuses, Penalties, and Other Variable Consideration. We may receive bonus increases to revenue or penalty decreases to revenue. Based on historical data and ongoing communication with the operator/customer, we are able to reasonably estimate this variable consideration. We will record such estimated variable consideration and remeasure our estimates at each reporting date. +Capital Modification Revenue. From time to time, we may receive fees from our customers for capital improvements to our rigs to meet contractual requirements (on either a fixed lump-sum or variable dayrate basis). Such revenue is allocated to the overall performance obligation and recognized ratably over the initial term of the related drilling contract as these activities are integral to our drilling activities and are not considered to be a stand-alone service provided to the customer within the context of our contracts. We record a contract liability for such fees and recognize them ratably as contract drilling revenue over the term of the related drilling contract commencing when the asset is ready for its intended use. +Revenues Related to Reimbursable Expenses. We generally receive reimbursements from our customers for the purchase of supplies, equipment, personnel services, and other services provided at their request in accordance with a drilling contract or other agreement. Such reimbursable revenue is variable and subject to uncertainty, as the amounts received and timing thereof is highly dependent on factors outside of our influence. Accordingly, reimbursable revenue is constrained revenue and not included in the total transaction price until the uncertainty is resolved, which typically occurs when the related costs are incurred on behalf of a customer. We are generally considered a principal in such transactions and record the associated revenue at the gross amount billed to the customer as “Reimbursables and other” in our Consolidated Statements of Operations. Such amounts are recognized ratably over the period within the contract term during which the corresponding goods and services are to be consumed. +Deferred revenues from drilling contracts totaled $ 97.1 million and $ 101.9 million at December 31, 2025 and 2024, respectively. Such amounts are included in either “Other current liabilities” or “Other liabilities” in the accompanying Consolidated Balance Sheets, based upon our expected time of recognition. Related expenses deferred under drilling contracts totaled $ 30.6 million and $ 37.1 million at December 31, 2025 and 2024, respectively, and are included in either “Prepaid expenses and other current assets” or “Other assets” in the accompanying Consolidated Balance Sheets, based upon our expected time of recognition. +We record reimbursements from customers for “out-of-pocket” expenses as revenues and the related direct cost as operating expenses. +Income Taxes +Income taxes are based on the laws and rates in effect in the countries in which operations are conducted or in which we, or our subsidiaries, are considered resident for income tax purposes. In certain circumstances, we expect that, due to changing demands of the offshore drilling markets and the ability to redeploy our offshore drilling units, certain of such units will not reside in a location long enough to give rise to future tax consequences. As a result, no deferred tax asset or liability has been recognized in these circumstances. Should our expectations change regarding the length of time an offshore drilling unit will be used in a given location, we will adjust deferred taxes accordingly. +Deferred tax assets and liabilities are recognized for the anticipated future tax effects of temporary differences between the financial statement basis and the tax basis of our assets and liabilities using the applicable jurisdictional tax rates at year end. A valuation allowance for deferred tax assets is recorded when it is more likely than not that the deferred tax asset will not be realized in a future period. +We operate through various subsidiaries in numerous countries throughout the world, including the United States. Consequently, we are subject to changes in tax laws, treaties, and regulations or the interpretation or enforcement thereof in the United States, UK, and any other jurisdictions in which we, or any of our subsidiaries, operate or are resident. Our income tax expense is based upon our interpretation of the tax laws in effect in various countries at the time that the expense was incurred. If the IRS or other taxing authorities do not agree with our assessment of the effects of such laws, treaties, and regulations, this could have a material adverse effect on us including the imposition of a higher effective tax rate on our worldwide earnings or a reclassification of the tax impact of our significant corporate restructuring transactions. The Company has adopted an accounting policy to look through the outside basis of partnerships and all other flow-through entities and exclude these from the computation of deferred taxes. +64 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Insurance Recoveries +The Company maintains insurance coverage for personal injuries, property damage, and certain other losses sustained during operations. Recoveries from insurance are recorded when a loss has been recognized and realization is probable, and are measured at the lower of the loss recognized or the probable recovery. Timing differences may occur between the loss recognized, damage costs, capital expenditures made to repair or restore properties, and recognition and receipt of insurance proceeds reflected in the Company’s financial statements. +Claims Reserves +We maintain various levels of self-insured retention for certain losses including property damage, loss of hire, employment practices liability, employers’ liability, and general liability, among others. We accrue for property damage and loss of hire charges on a per event basis. +Employment practices liability claims are accrued based on actual claims during the year. Maritime employer’s liability claims are generally estimated using actuarial determinations. General liability claims are estimated by our internal claims department by evaluating the facts and circumstances of each claim (including incurred but not reported claims) and making estimates based upon historical experience with similar claims. At December 31, 2025, loss reserves for personal injury and protection claims totaled $ 29.5 million and was included in “Other current liabilities” in the accompanying Consolidated Balance Sheets. At December 31, 2024, loss reserves for personal injury and protection claims totaled $ 175.3 million of which $ 160.4 million was included in “Other current liabilities” and $ 14.9 million in “Other long-term liabilities” in the accompanying Consolidated Balance Sheets. +Earnings per Share +Our unvested share-based payment awards contain forfeitable rights to dividends and are, therefore, included in earnings per share pursuant to the Treasury Stock Method. The dilutive effect of stock warrants is also determined using the Treasury Stock Method. The diluted earnings per share calculation is adjusted for mandatory exercise, under the Treasury Stock Method, if the condition is met at the balance sheet date. At December 31, 2025 and 2024, the Mandatory Exercise Condition (as defined in the applicable warrant agreement) set forth in the warrant agreements for the Tranche 1 Warrants and the Tranche 2 Warrants (each as defined below) was satisfied. See “Note 4 — Earnings (Loss) Per Share” for additional information. +Share-Based Compensation Plans +We record the grant date fair value of share-based compensation arrangements as compensation cost using a straight-line method over the service period. Share-based compensation is expensed or capitalized based on the nature of the employee’s activities. The Company classified certain awards that will be settled in cash as liability awards. The fair value of a liability-classified award is determined on a quarterly basis beginning at the grant date until final vesting. Changes in the fair value of liability-classified awards are expensed or capitalized based on the nature of the employee’s activities over the vesting period of the award. +Litigation Contingencies +We are involved in legal proceedings, claims, and regulatory, tax, or government inquiries and investigations that arise in the ordinary course of business. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages. We record a liability when we believe that it is both probable that a loss has been incurred and the amount can be reasonably estimated. If we determine that a loss is reasonably possible and the loss or range of loss can be estimated, we disclose the possible loss in the notes to the consolidated financial statements. +We review the developments in our contingencies that could affect the amount of the provisions that has been previously recorded, and the matters and related possible losses disclosed. We make adjustments to our provisions and changes to our disclosures accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information. Significant judgment is required to determine both the probability and the estimated amount. +Foreign Currency +Although we are a UK company, our functional currency is the US dollar, and we define any non-US dollar denominated currency as “foreign currencies.” In non-US locations where the US dollar has been designated as the functional currency (based on an evaluation of factors including the markets in which the subsidiary operates, inflation, generation of cash flow, financing activities, and intercompany arrangements), local currency transaction gains and losses are included in net income or loss. +65 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Accounting Pronouncements +Accounting Standards Adopted. +In December 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , which requires, among other things, the following for public business entities: (i) enhanced disclosures of specific categories of reconciling items included in the rate reconciliation, as well as additional information for any of these items meeting certain qualitative and quantitative thresholds, (ii) disclosure of the nature, effect, and underlying causes of each individual reconciling item disclosed in the rate reconciliation and the judgment used in categorizing them if not otherwise evident, and (iii) enhanced disclosures for income taxes paid, which includes federal, state, and foreign taxes, as well as for individual jurisdictions over a certain quantitative threshold. The amendments in ASU 2023-09 eliminate the requirement to disclose the nature and estimate of the range of the reasonably possible change in unrecognized tax benefits for the 12 months after the balance sheet date. The Company has adopted the ASU on a prospective basis. +Recently Issued Accounting Standards . +In July 2025, the FASB issued ASU No. 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. This update aims to address challenges encountered when applying the guidance in Topic 326, Financial Instruments—Credit Losses, to current accounts receivable and current contract assets arising from transactions accounted for under Topic 606, Revenue from Contracts with Customers by introducing a practical expedient for all entities and an accounting policy election for entities other than public business entities related to applying Subtopic 326-20 to current accounts receivable and current contract assets arising from transactions accounted for under Topic 606. The amendments will be effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. The Company does not expect this pronouncement to have any impact on our consolidated financial statements. +In May 2025, the FASB issued ASU No. 2025-03, Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable interest. This update aims to improve the requirements for identifying the accounting acquirer in Topic 805, Business Combinations. The amendments in this update are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. The Company does not expect this pronouncement to have any impact on our consolidated financial statements. +In November 2024, the FASB issued ASU No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The amendments in the update require disclosure, in the notes to financial statements, of specified information about certain costs and expenses. An entity is not precluded from providing additional voluntary disclosures that may provide investors with additional decision-useful information. The amendments in this update are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company continues to evaluate the potential impact of this pronouncement. +Note 2 — Acquisitions and Divestitures +Business Combination with Diamond Offshore Drilling +On the Diamond Closing Date, Noble completed its acquisition of Diamond. Pursuant to the terms and conditions set forth in the Diamond Merger Agreement, Diamond shareholders received 0.2316 shares of Noble, plus cash consideration of $ 5.65 per share for each share of Diamond. +Purchase Price Allocation +The Diamond Transaction has been accounted for using the acquisition method of accounting under ASC 805, Business Combinations, with Noble being treated as the accounting acquirer. Under the acquisition method of accounting, the assets acquired and liabilities assumed of Diamond and its subsidiaries were recorded at their respective fair values on the Diamond Closing Date. Total consideration for the acquisition was $ 1.5 billion, which included $ 610.3 million in cash paid and $ 879.9 million in non-cash consideration, primarily related to Ordinary Shares issued to legacy Diamond shareholders and the replacement of legacy Diamond RSUs (as defined below). +Determining the fair values of the assets and liabilities of Diamond and the consideration paid required judgment and certain assumptions to be made. The most significant fair value estimates related to the valuation of Diamond’s mobile offshore drilling units and other related tangible assets, the fair value of drilling contracts, and debt. +66 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Offshore Drilling Units. The valuation of Diamond’s mobile offshore drilling units was determined using the discounted cash flows expected to be generated from the drilling assets over their remaining useful lives. Assumptions used in our assessment included, but were not limited to, future marketability of each unit in light of the current market conditions and its current technical specifications, timing of future contract awards and expected operating dayrates, operating costs, rig utilization rates, tax rates, discount rate, capital expenditures, synergies, market values, estimated economic useful lives of the rigs and, in certain cases, our belief that a drilling unit is no longer marketable and is unlikely to return to service in the near to medium term. +Diamond Off-market Contracts . The Company recorded liabilities from drilling contracts that had unfavorable terms compared to the current market which were recorded on the Diamond Closing Date. The Company recognized the fair value adjustments as off-market contract liabilities recorded in “Noncurrent contract liabilities.” +Diamond Debt. In connection with the Diamond Transaction, the Company assumed the Diamond Second Lien Notes (as defined herein) in an outstanding principal debt amount of $ 550.0 million and terminated Diamond’s senior secured revolving credit facility (the “Diamond Revolving Credit Facility”) with a total commitment amount of $ 300.0 million, which was scheduled to mature in April 2026. The valuation of the Diamond Second Lien Notes was based on relevant market data as of the Diamond Closing Date and the term of the Diamond Second Lien Notes. Considering that the interest rate and implied yield for the Diamond Second Lien Notes were within a range of comparable market yields (with considerations for term and seniority), a fair value adjustment was recorded relating to the Diamond Second Lien Notes. For additional information, see “Note 6 — Debt.” +The following table represents the allocation of the total purchase price of Diamond to the identifiable assets acquired and the liabilities assumed based on the fair values as of the Diamond Closing Date. In connection with this acquisition, the Company incurred $ 25.4 million and $ 84.5 million of acquisition related costs during the years ended December 31, 2025 and 2024, respectively. The results of Diamond operations were included in the Company’s results of operations effective on the Diamond Closing Date. Upon completion of our assessment as of December 31, 2024, the Company concluded that no goodwill nor gain on bargain purchase should be recorded as appropriate under US GAAP. +67 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Purchase price consideration: +Fair value of Ordinary Shares transferred to legacy Diamond shareholders +$ 857,678 +Fair value of replacement Diamond RSU Awards attributable to the purchase price 22,263 +Cash paid to legacy Diamond shareholders 583,152 +Cash paid to terminate the Diamond Revolving Credit Facility +308 +Cash paid to settle contingent success fees 17,316 +Cash paid for retention bonuses 4,422 +Cash paid for short-term incentive plans 5,086 +Total purchase price consideration $ 1,490,225 +Assets acquired: +Cash and cash equivalents $ 193,243 +Accounts receivable, net 193,194 +Taxes receivable 6,971 +Prepaid expenses and other current assets 69,781 +Total current assets 463,189 +Property and equipment, net +1,817,986 +Assets held for sale 5,300 +Other assets 193,289 +Total assets acquired 2,479,764 +Liabilities assumed: +Accounts payable 82,805 +Accrued payroll and related costs 36,791 +Taxes payable 3,699 +Interest payable 19,750 +Other current liabilities 137,788 +Total current liabilities 280,833 +Long-term debt 580,250 +Deferred income taxes 184 +Noncurrent contract liabilities 27,663 +Other liabilities 100,609 +Total liabilities assumed 989,539 +Net assets acquired $ 1,490,225 +Diamond Revenue and Net Income +The following table represents Diamond’s revenue and earnings included in Noble’s Consolidated Statements of Operations subsequent to the Diamond Closing Date of the Diamond Transaction. +Period from +September 4, 2024 +through +December 31, 2024 +Revenue $ 336,542 +Net income (loss) $ 24,431 +68 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Pro Forma Financial Information +The following unaudited pro forma summary presents the results of operations as if the Diamond Transaction had occurred on January 1, 2023. The pro forma summary uses estimates and assumptions based on information available at the time. Management believes the estimates and assumptions to be reasonable; however, actual results may have differed significantly from this pro forma financial information. The pro forma information does not reflect any synergy savings that might have been achieved from combining the operations and is not intended to reflect the actual results that would have occurred had the companies actually been combined during the periods presented. +Twelve Months Ended December 31, 2024 Twelve Months Ended December 31, 2023 +Revenue $ 3,081,879 $ 3,672,860 +Net income (loss) $ 375,402 $ 358,549 +Net income (loss) per share: +Basic $ 2.26 $ 2.21 +Diluted $ 2.19 $ 2.09 +The pro forma results include, among others, (i) an increase to Diamond’s historically reported depreciation expense related to adjustments of property and equipment values, (ii) adjustments to reflect certain acquisition related costs incurred directly in connection with the Diamond Transaction as if it had occurred on January 1, 2023, and (iii) net adjustments to increase contract drilling services revenue related to off-market customer contract liabilities recognized in connection with the Diamond Transaction on a pro forma basis. +Note 3 — Merger and Integration Costs +During the years ended December 31, 2025, 2024, and 2023, the Company incurred $ 26.4 million, $ 109.4 million, and $ 60.3 million, respectively, of merger and integration costs directly attributable to its merger and integration activities associated with the business combinations with Diamond and Maersk Drilling. Merger and integration costs consisted primarily of transaction-related acquisition costs, costs related to integration activities, severance costs, retention costs, professional fees, and other costs such as share-based compensation charges that are directly attributable to these activities. All merger and integration costs were expensed as incurred and recorded under “Merger and integration costs.” +Most merger and integration costs do not qualify for special accounting treatment as exit or disposal activities; however, during the year ended December 31, 2024, the Company incurred $ 4.1 million related to certain employee compensation that qualifies as exit or disposal activities. +In connection with these activities, Noble has incurred various costs associated with contractual termination benefits, including severance, accelerated vesting of share-based compensation and other expenses. These termination benefits have been accounted for under ASC 712, “Compensation - Nonretirement Post-Employment Benefits” and ASC 718, “Compensation - Stock Compensation.” +69 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Note 4 — Earnings (Loss) Per Share +The following table presents the computation of basic and diluted earnings (loss) per share: +Year Ended Year Ended Year Ended +December 31, 2025 December 31, 2024 December 31, 2023 +Numerator: +Net income (loss) $ 216,717 $ 448,353 $ 481,902 +Denominator: +Weighted average shares outstanding — basic 158,872 148,733 138,380 +Dilutive effect of share-based awards 535 1,512 3,158 +Dilutive effect of warrants 795 1,394 3,659 +Weighted average shares outstanding — diluted 160,202 151,639 145,197 +Earnings (loss) per share data: +Basic +$ 1.36 $ 3.01 $ 3.48 +Diluted +$ 1.35 $ 2.96 $ 3.32 +Only those items having a dilutive impact on our basic earnings (loss) per share are included in diluted earnings (loss) per share. The following table displays the share-based instruments that have been excluded from diluted earnings (loss) per share since the effect would have been anti-dilutive: +Year Ended Year Ended Year Ended +December 31, 2025 December 31, 2024 December 31, 2023 +Warrants (1) +2,773 2,774 2,774 +(1) Represents the total number of warrants outstanding which did not have a dilutive effect. In periods where the warrants are determined to be dilutive, the number of shares which will be included in the computation of diluted shares is determined using the Treasury Stock Method, adjusted for mandatory exercise provisions under the warrant agreements, if applicable. +Note 5 — Property and Equipment +Property and equipment, at cost, for Noble consisted of the following: +December 31, +2025 2024 +Drilling equipment and facilities $ 6,332,098 $ 6,650,034 +Construction in progress 215,637 197,789 +Other 91,310 56,908 +Property and equipment, at cost $ 6,639,045 $ 6,904,731 +Capital additions, including capitalized interest, during the years ended December 31, 2025, 2024, and 2023 totaled $ 500.1 million, $ 520.3 million, and $ 454.3 million, respectively. +During 2025, we sold the Noble Highlander , Noble Reacher , Pacific Meltem , and Pacific Scirocco , resulting in a pre-tax gain of $ 9.7 million. In addition, we received an advanced deposit from the buyer regarding the impending sale of the Noble Resolve (as outlined below), which is expected to close in the second quarter of 2026. As a result, net proceeds received related to the aforementioned rig sales totaled $ 146.6 million in 2025. +In August 2025, we announced our intent to dispose of the Noble Globetrotter II . In December 2025, we announced that the Company signed definitive agreements to sell six jackup rigs, which includes the sale of five rigs to Borr Drilling Limited ( Noble Tom Prosser , Noble Mick O'Brien , Noble Regina Allen , Noble Resilient , and Noble Resolute) and a separate transaction for the sale of one rig to Ocean Oilfield Drilling ( Noble Resolve ). See “Note 16 — Subsequent Events” for additional information. +70 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +As of December 31, 2025, the Noble Globetrotter II and the six jackup rigs qualified as held for sale and were included in “Other assets” on our Consolidated Balance Sheet at their combined carrying value of $ 349.1 million. +Upon classification of the above mentioned rigs as held for sale, we recognized aggregate impairment charges of $ 81.9 million in 2025 related to the completed or planned rig disposals and related assets. We measured the impairment of the rigs and related assets as the amount by which the carrying amount exceeded the estimated fair value less costs to sell. We estimated the fair value of the assets using significant other observable inputs, representative of Level 2 fair value measurements, including binding contracts or indicative market values for the sale of rigs and related assets for use outside of the drilling industry. +During 2024, we sold the Noble Explorer for proceeds of $ 25.0 million, $ 21.5 million of which was received in the fourth quarter of 2023, resulting in a pre-tax gain of $ 17.4 million. Also, during 2024, we sold the Ocean Valiant and the Ocean Onyx for net proceeds of $ 10.0 million. +Note 6 — Debt +Amended and Restated Senior Secured Revolving Credit Agreement +In April 2023, Noble entered into the Amended and Restated Senior Secured Revolving Credit Agreement, dated as of April 18, 2023, and as amended on June 24, 2024, and on December 16, 2025 (the “2023 Revolving Credit Agreement”), by and among Noble Finance II LLC (“Noble Finance II”), Noble International Finance Company, Noble Drilling A/S, and certain additional subsidiaries of Noble Finance II as from time to time designated by Noble Finance II, as borrowers, the lenders and issuing banks party thereto from time to time, and JPMorgan Chase Bank, N.A., as administrative agent, collateral agent, and security trustee. The revolving credit facility under the 2023 Revolving Credit Agreement (the “2023 Revolving Credit Facility”) provides for commitments of $ 550.0 million with maturity in 2028. The guarantors under the 2023 Revolving Credit Facility are the same subsidiaries of Noble Finance II that are or will be guarantors of the 2030 Notes (as defined below). As of December 31, 2025, we had no borrowings outstanding and $ 6.7 million of letters of credit issued under the 2023 Revolving Credit Agreement. +All obligations of the Borrowers (as defined herein) under the 2023 Revolving Credit Agreement, certain cash management obligations, certain letter of credit obligations and certain swap obligations are unconditionally guaranteed, on a joint and several basis, by Noble Finance II and certain of its direct and indirect subsidiaries, including a guarantee by each Borrower of the obligations of each other Borrower under the 2023 Revolving Credit Agreement. All such obligations, including the guarantees of the 2023 Revolving Credit Facility, are secured by senior priority liens on substantially all assets of, and the equity interests in, Noble Finance II and each other credit party, including substantially all rigs owned by subsidiaries of Noble Finance II as of the date of the 2023 Revolving Credit Agreement, along with certain other rigs in the future such that collateral rigs shall generate at least 80 % of the total revenue of all rigs owned by Noble Finance II and its restricted subsidiaries and the ratio of the aggregate rig value of the collateral rigs to the commitments under the 2023 Revolving Credit Facility is at least 5.00 to 1.00, in each case, subject to certain exceptions and limitations described in the 2023 Revolving Credit Agreement. +The loans outstanding under the 2023 Revolving Credit Facility bear interest at a rate per annum equal to the applicable margin plus, at Noble Finance II’s option, either: (i) the Term SOFR Rate (as defined in the 2023 Revolving Credit Agreement) plus 0.10 % (subject to a 0.00 % floor); or (ii) a base rate, determined as the greatest of (x) the prime loan rate as published in the Wall Street Journal, (y) the NYFRB Rate (as defined in the 2023 Revolving Credit Agreement) plus 1/2 of 1%, and (z) the one-month Term SOFR Rate plus 0.10 % (subject to a 0.00 % floor) plus 1 %. The applicable margin is initially 2.75 % per annum for Term SOFR Rate loans and 1.75 % per annum for base rate loans and will range based on the Consolidated Total Net Leverage Ratio (as defined in the 2023 Revolving Credit Agreement, which allows for certain cash netting depending on the amount of loans and letters of credit outstanding under the 2023 Revolving Credit Facility at the time of calculation), from 2.75 % per annum to 3.75 % per annum for Term SOFR Rate loans and 1.75 % per annum to 2.75 % per annum for base rate loans. The Borrowers are required to pay interest on (i) overdue principal at the rate equal to 2.00 % per annum in excess of the applicable interest rate under the 2023 Revolving Credit Facility, to the extent lawful, and (ii) overdue installments of interest, if any, without regard to any applicable grace period, at 2 % in excess of the interest rate applicable to base rate loans, to the extent lawful. +The Borrowers are required to pay a quarterly commitment fee to each lender under the 2023 Revolving Credit Facility, which accrues at a rate per annum equal to (i) during the period from and including the effective date of the 2023 Revolving Credit Agreement to and including the third anniversary of the effective date of the 2023 Revolving Credit Agreement, 0.50 % +71 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +on the average daily unused portion of each lender’s commitments under the 2023 Revolving Credit Facility, (ii) during the period from the third anniversary of the effective date of the 2023 Revolving Credit Agreement to and including the fourth anniversary of the effective date of the 2023 Revolving Credit Agreement, 0.75 % on the average daily unused portion of each lender’s commitments under the 2023 Revolving Credit Facility, and (iii) thereafter, 1.00 % on the average daily unused portion of each lender’s commitments under the 2023 Revolving Credit Facility. The Borrowers are also required to pay customary letter of credit and fronting fees. +Borrowings under the 2023 Revolving Credit Agreement may be used for working capital and other general corporate purposes. Availability of borrowings under the 2023 Revolving Credit Facility is subject to the satisfaction of certain conditions, including that, after giving effect to any such borrowings and the application of the proceeds thereof, the aggregate amount of Available Cash (as defined in the 2023 Revolving Credit Agreement) would not exceed $ 250.0 million. +Mandatory prepayments and, under certain circumstances, commitment reductions are required under the 2023 Revolving Credit Facility in connection with certain asset sales (subject to reinvestment rights if no event of default exists). Available cash in excess of $ 250.0 million at the end of any month is also required to be applied to prepay loans (without a commitment reduction). The loans under the 2023 Revolving Credit Facility may be voluntarily prepaid, and the commitments thereunder voluntarily terminated or reduced, by the Borrowers at any time without premium or penalty, other than customary breakage costs. +The 2023 Revolving Credit Agreement obligates Noble Finance II to comply with the following financial covenants: +• as of the last day of each fiscal quarter, the Interest Coverage Ratio (as defined in the 2023 Revolving Credit Agreement) is not permitted to be less than 2.50 to 1.00; and +• as of the last day of each fiscal quarter, the Consolidated Total Net Leverage Ratio (as defined in the 2023 Revolving Credit Agreement) is not permitted to be greater than 3.00 to 1.00. +The 2023 Revolving Credit Agreement contains other affirmative and negative covenants, representations and warranties and events of default that Noble views as customary for a financing of this type. The occurrence of any event of default under the 2023 Revolving Credit Agreement would permit all obligations under the 2023 Revolving Credit Facility to be declared due and payable immediately and all commitments thereunder to be terminated. +8.000 % Senior Notes due 2030 +On April 18, 2023, Noble Finance II, a wholly owned subsidiary of Noble, issued $ 600.0 million in aggregate principal amount of its 8.000 % Senior Notes due 2030 (the “Initial 2030 Notes”). On August 22, 2024, Noble Finance II issued an additional $ 800.0 million in aggregate principal amount of its 8.000 % Senior Notes due 2030 (the “Additional 2030 Notes” and, together with the Initial 2030 Notes, the “2030 Notes”) at a premium of 103 % bringing the total outstanding principal amount to $ 1.4 billion. The 2030 Notes were issued pursuant to an indenture, dated as of April 18, 2023 (as supplemented or otherwise modified from time to time, the “Noble Indenture”), among Noble Finance II, the subsidiaries of Noble Finance II party thereto, as guarantors, and U.S. Bank Trust Company, National Association, as trustee, paying agent, and registrar. +The 2030 Notes are unconditionally guaranteed on a senior unsecured basis by the Guarantors and will be unconditionally guaranteed on the same basis by certain of Noble Finance II’s future subsidiaries that guarantee certain indebtedness of Noble Finance II and the Guarantors, including the 2023 Revolving Credit Facility. +The 2030 Notes will mature on April 15, 2030, and interest on the 2030 Notes is payable semi-annually in arrears on each April 15 and October 15, commencing October 15, 2023, to holders of record on the April 1 and October 1 immediately preceding the related interest payment date, at a rate of 8.000 % per annum. +At any time prior to April 15, 2026, Noble Finance II may, from time to time, redeem up to 40 % of the aggregate principal amount of 2030 Notes at a redemption price of 108 % of the principal amount of the 2030 Notes redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the redemption date), in an amount not greater than the net cash proceeds of one or more equity offerings by Noble Finance II, subject to certain requirements. In addition, prior to April 15, 2026, Noble Finance II may redeem the 2030 Notes at a redemption price equal to 100 % of the principal amount of the 2030 Notes redeemed, plus an applicable make-whole premium and accrued and unpaid interest, if any, to, but excluding, the redemption date. At any time on or after April 15, 2026, Noble Finance II may redeem all or part of the 2030 Notes at fixed redemption prices (expressed as percentages of the principal amount) beginning at 104.00 % and decreasing thereafter, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. +72 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +If a Change of Control Triggering Event (as defined in the Noble Indenture) occurs, each holder of 2030 Notes may require Noble Finance II to repurchase all or any part of that holder’s 2030 Notes for cash at a price equal to 101 % of the aggregate principal amount of the 2030 Notes repurchased, plus any accrued and unpaid interest thereon, if any, to, but excluding, the date on which the 2030 Notes are repurchased (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date). +The Noble Indenture contains customary covenants and events of default. +8.500 % Senior Secured Second Lien Notes due 2030 +On September 21, 2023, Diamond Foreign Asset Company and Diamond Finance, LLC (collectively referred to as the “Issuers”) issued $ 550.0 million aggregate principal amount of 8.500 % Senior Secured Second Lien Notes due October 2030 (the “Diamond Second Lien Notes”) with interest payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 1, 2024. The Diamond Second Lien Notes are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by Noble Offshore Drilling, Inc. (formerly known as Dolphin Merger Sub 2, Inc. and as successor by merger with Diamond) (“NODI”) and each of its existing restricted subsidiaries (other than the Issuers) and by certain of NODI’s future restricted subsidiaries. +The Diamond Second Lien Notes obligate NODI and its subsidiaries to comply with an indenture dated as of September 21, 2023 (as supplemented and otherwise modified from time to time, the “Diamond Second Lien Indenture”), among the Issuers, NODI, certain of its subsidiaries party thereto, as guarantors, and HSBC Bank USA, National Association, as trustee and collateral agent. The Diamond Second Lien Indenture contains covenants that, among other things, restrict NODI’s ability and the ability of certain of its subsidiaries to: (i) incur additional debt and issue certain preferred stock; (ii) incur or create liens; (iii) make certain dividends, distributions, investments, and other restricted payments; (iv) sell or otherwise dispose of certain assets; (v) engage in certain transactions with affiliates; and (vi) merge, consolidate, amalgamate, or sell, transfer, lease, or otherwise dispose of all, or substantially all, of the assets of NODI and such subsidiaries taken as a whole. These covenants are subject to important exceptions and qualifications. +Noble Second Lien Notes +On April 18, 2023, we redeemed the remaining balance of approximately $ 173.7 million aggregate principal amount of outstanding notes using a portion of the proceeds from the offering of the Initial 2030 Notes, and recognized a loss of approximately $ 25.7 million. +Diamond Credit Agreement +On September 4, 2024, in connection with the closing of the Diamond Transaction, Noble terminated Diamond’s $ 300.0 million senior secured revolving credit facility under the Diamond Credit Agreement. The revolving commitments under the Diamond Credit Agreement were scheduled to mature on April 22, 2026. At the time of the Diamond Transaction and the termination of the commitments under the Diamond Credit Agreement, Diamond had no outstanding borrowings under the Diamond Credit Agreement. +DNB Credit Facility and New DNB Credit Facility +On December 22, 2022, Maersk Drilling, as borrower, Noble Corporation plc, as parent guarantor, certain subsidiaries of Maersk Drilling party thereto, as guarantors, entered into a term loan (the “DNB Credit Facility”) under a term facility agreement, dated as of December 22, 2022 (as amended or otherwise modified from time to time), with DNB Bank ASA, New York Branch, as agent and security agent, and the other lenders party thereto. On October 3, 2022, Noble guaranteed the DNB Credit Facility and on December 22, 2022, it was terminated and replaced with the New DNB Credit Facility (“New DNB Credit Facility”). On April 18, 2023, we repaid the $ 347.5 million of outstanding borrowings under the New DNB Credit Facility using a portion of the proceeds from the offering of the Initial 2030 Notes, and recognized a loss of approximately $ 0.7 million. +DSF Credit Facility +The Company guaranteed a term loan (the “DSF Credit Facility”) under a term loan facility agreement, dated as of December 10, 2018 (as amended or otherwise modified from time to time), among Maersk Drilling Holding A/S, Maersk Drilling A/S, the subsidiaries of Maersk Drilling Holding A/S, and Danmarks Skibskredit A/S, as original lender, agent, and security agent, in connection with the Business Combination with Maersk Drilling that closed on October 3, 2022. The DSF Credit Facility was repaid in full and terminated on February 23, 2023, using cash on hand. +73 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Guarantees of Indebtedness +On October 3, 2022, Noble guaranteed all of the obligations of Maersk Drilling and certain of its subsidiaries under the DNB Credit Facility, the DSF Credit Facility, and related financing documents. On February 23, 2023, the DSF Credit Facility was repaid in full and the related Noble guarantee was terminated. On April 18, 2023, the DNB Credit Facility was repaid in full and the related Noble guarantee was terminated. +Fair Value of Debt +Fair value represents the amount at which an instrument could be exchanged in a current transaction between willing parties. The estimated fair value of our debt instruments was based on the quoted market prices for similar issues or on the current rates offered to us for debt of similar remaining maturities (Level 2 measurement). The fair value of the 2023 Revolving Credit Facility approximates its respective carrying amount as its interest rate is variable and reflective of market rates. +The following table presents the carrying value, net of unamortized debt issuance costs and discounts or premiums, and the estimated fair value of our total debt, respectively: +December 31, +2025 2024 +Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value +Senior secured notes +8.000 % Senior Notes due April 2030 +$ 1,400,983 $ 1,454,656 $ 1,401,214 $ 1,414,266 +8.500 % Senior Secured Second Lien Notes due October 2030 +574,808 583,775 578,972 571,428 +Credit facility +Amended and Restated Senior Secured Revolving Credit Facility matures April 2028 — — — — +Total debt 1,975,791 2,038,431 1,980,186 1,985,694 +Less: Current maturities of long-term debt — — — — +Long-term debt $ 1,975,791 $ 2,038,431 $ 1,980,186 $ 1,985,694 +Note 7 — Equity +Share Capital +Noble Share Capital. As of December 31, 2025 and 2024, there were approximately 158.9 million and 158.9 million Ordinary Shares outstanding, respectively. +On September 4, 2024, Noble issued 24.2 million Ordinary Shares to the former shareholders of Diamond, in connection with the closing of the Diamond acquisition. Further, Noble assumed all outstanding and unexercised warrants of Diamond, which were exercisable for 90 days from the effective time of the Diamond acquisition. As of December 4, 2024, the warrants assumed from Diamond are no longer exercisable and have expired in accordance with their terms. +Additional changes to share capital occurred as a result of, among other actions, the vesting of restricted stock units and performance-based restricted stock units to our employees and directors, the issuance of Ordinary Shares pursuant to the exercise of warrants, and share repurchases under the Company’s authorized share repurchase plan. +In addition, as of December 31, 2025, 0.9 million Tranche 1 Warrants, 0.9 million Tranche 2 Warrants and 2.8 million Tranche 3 Warrants (each as defined below) were outstanding and exercisable. Furthermore, new equity awards may be granted under the Noble Corporation plc 2022 Long-Term Incentive Plan, pursuant to which, up to 5.4 million new Ordinary Shares may be issued. +During the years ended December 31, 2025, and 2024, we declared dividends of approximately $ 321.3 million and $ 278.3 million (or $ 2.00 and $ 1.80 per share cumulatively), respectively, and made cash dividend payments of approximately $ 317.6 million and $ 277.8 million, respectively. Approximately $ 5.1 million and $ 3.5 million was accrued related to dividend equivalent rights as of December 31, 2025 and 2024, respectively. +74 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +The declaration and payment of dividends require the authorization of the Board of Directors. Such may be paid only out of Noble’s “distributable reserves” as determined by reference to relevant statutory accounts in accordance with English law. Therefore, Noble is not permitted to pay dividends out of share capital, which includes share premium. The payment of future dividends will depend on our results of operations, financial condition, cash requirements, future business prospects, contractual and indenture restrictions, and other factors deemed relevant by our Board of Directors. +Share Repurchases +Under English law, the Company is only permitted to purchase its own Ordinary Shares by way of an “off-market purchase” pursuant to a contract approved by shareholders (except where the purchase is for the purposes of, or pursuant to, any employees’ share scheme). Such purchases may be paid for either (i) out of Noble’s “distributable reserves” as determined by reference to relevant statutory accounts in accordance with English law or (ii) from the proceeds of a fresh issue of shares made for the purpose of financing the purchase. On October 22, 2024, Noble’s Board of Directors authorized an increased share repurchase authorization of up to an additional $ 400 million and, at the 2025 annual general meeting of shareholders, shareholders approved the repurchase of up to 23,800,068 Ordinary Shares. The authorization by the Board of Directors has approximately $ 370 million remaining, does not have a fixed expiration, and may be modified, suspended, or discontinued at any time. None of the shareholder authorization to purchase up to 23,800,068 Ordinary Shares has yet been utilized, and the authorization by shareholders expires on May 8, 2030 (subject to certain exceptions). The program does not obligate us to acquire any particular amount of Ordinary Shares. During the years ended December 31, 2025 and 2024, we repurchased 0.7 million and 8.4 million of our Ordinary Shares. All repurchased shares were subsequently cancelled. +Warrants +The Tranche 1 Warrants of Noble (the “Tranche 1 Warrants”) are exercisable for one Ordinary Share per warrant at an exercise price of $ 19.27 per warrant, the Tranche 2 Warrants of Noble (the “Tranche 2 Warrants”) are exercisable for one Ordinary Share per warrant at an exercise price of $ 23.13 per warrant, and the Tranche 3 Warrants of Noble (the “Tranche 3 Warrants”) were exercisable for one Ordinary Share per warrant at an exercise price of $ 124.40 per warrant (in each case as may be adjusted from time to time pursuant to the applicable Warrant Agreement (as defined below)). The Tranche 1 Warrants and the Tranche 2 Warrants are exercisable until February 4, 2028, and the Tranche 3 Warrants were exercisable until February 4, 2026. The Tranche 1 Warrants and the Tranche 2 Warrants have Black-Scholes protections, including in the event of a Fundamental Transaction (as defined in the applicable Warrant Agreement). The Tranche 1 Warrants and the Tranche 2 Warrants also provide that while the Mandatory Exercise Condition (as defined in the applicable Warrant Agreement) set forth in the applicable Warrant Agreement has occurred and is continuing, Noble or the Required Mandatory Exercise Warrantholders (as defined in the applicable Warrant Agreement) have the right and option (but not the obligation) to cause all or a portion of the Noble Cayman (as defined below) warrants (the “Noble Cayman Warrants”) that were outstanding immediately prior to the Merger Effective Time (as defined below) and were converted into warrants to acquire Ordinary Shares in connection with the Business Combination with Maersk Drilling (the “Warrants”) to be exercised on a cashless basis. In the case of Noble, under the Mandatory Exercise Condition, all of the Tranche 1 Warrants or the Tranche 2 Warrants (as applicable) would be exercised. In the case of electing Tranche 1 Required Mandatory Exercise Warrantholders and Tranche 2 Required Mandatory Exercise Warrantholders (as defined in the applicable Warrant Agreement), under the Mandatory Exercise Condition, all of their respective Tranche 1 Warrants or Tranche 2 Warrants (as applicable) would be exercised. Mandatory exercises entitle the holder of each Warrant subject thereto to (i) the number of Ordinary Shares issuable upon exercise of such Warrant on a cashless basis and (ii) an amount payable in cash, Ordinary Shares or a combination thereof (in Noble’s sole discretion) equal to the Black-Scholes Value (as defined in the applicable Warrant Agreement) with respect to the number of Ordinary Shares withheld upon exercise of such Warrant on a cashless basis. At December 31, 2025, the Mandatory Exercise Condition set forth in the Warrant Agreements for the Tranche 1 Warrants and the Tranche 2 Warrants was satisfied. +In connection with the automatic conversion of the Noble Cayman Warrants into Warrants at the effective time of the Merger (the “Merger Effective Time”), (i) the Tranche 1 Warrant Agreement, dated as of February 5, 2021, by and among Noble Corporation, an exempted company incorporated in the Cayman Islands with limited liability (“Noble Cayman”), Computershare Inc. and Computershare Trust Company, N.A. (together, “Computershare”), (ii) the Tranche 2 Warrant Agreement, dated as of February 5, 2021, by and among Noble Cayman and Computershare, and (iii) the Tranche 3 Warrant Agreement, dated as of February 5, 2021, by and among Noble Cayman and Computershare (collectively, the “Noble Cayman Warrant Agreements”) were terminated, and Noble entered into (a) a new Tranche 1 Warrant Agreement, dated as of September 30, 2022, by and among Noble and Computershare, (b) a new Tranche 2 Warrant Agreement, dated as of +75 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +September 30, 2022, by and among Noble and Computershare, and (c) a new Tranche 3 Warrant Agreement, dated as of September 30, 2022, by and among Noble and Computershare (collectively, the “Warrant Agreements”). The Warrant Agreements have substantially similar terms as were in effect immediately prior to the Merger Effective Time pursuant to the Noble Cayman Warrant Agreements. +Share-Based Compensation Plans +Stock Plans. The Company maintains the Noble Corporation plc 2022 Long-Term Incentive Plan (the “2022 LTIP”), which permits grants of options, stock appreciation rights, stock or stock unit awards, or cash awards, any of which may be structured as a performance award, from time to time to employees and non-employee directors who are to be granted awards under the 2022 LTIP. +Effective May 21, 2024, shareholders of the Company approved an amendment to the 2022 LTIP, which increased the maximum number of shares that may be issued under the 2022 LTIP to 10,688,623 Ordinary Shares. +On September 4, 2024, in connection with the closing of the acquisition of Diamond, the Company assumed the Diamond Offshore Drilling, Inc. 2021 Long-Term Stock Incentive Plan (the “Diamond LTIP”) and each Diamond RSU (as defined below) outstanding thereunder. Effective November 6, 2024, the Company also assumed the remaining shares available for issuance under the Diamond LTIP which, after adjustments under the Diamond Merger Agreement, totaled 1,556,404 Ordinary Shares. +Restricted Stock Units (“RSUs”). We awarded both Time Vested RSUs (“TVRSUs”) and Performance Vested RSUs (“PVRSUs”) under the 2022 LTIP. +On September 4, 2024, in connection with the closing of the acquisition of Diamond, each performance-vesting and time-vesting restricted stock unit covering shares of Diamond (together "Diamond RSUs") held by key employees were assumed by Noble and represented the right to receive shares in Noble. The Diamond RSUs were assumed by Noble on substantially the same terms and conditions (including vesting conditions) as applicable to the original Diamond RSUs prior to the closing of the acquisition. +Notwithstanding the foregoing, to the extent that a Diamond RSU vested as of the acquisition (including any awards that vested as a result of a termination of employment at or immediately after the acquisition), such awards were instead settled in cash or shares of Diamond, as applicable, immediately prior to the acquisition and any such shares of Diamond were treated the same as other Diamond shares. +The TVRSUs generally vest over a three-year period. The number of PVRSUs that vest will depend on the degree of achievement of specified corporate performance criteria generally over a three-year performance period. These criteria consist of market and performance-based criteria. Dividend equivalent rights are accrued and accumulated as dividends are declared, and payable upon vesting of the TVRSUs and PVRSUs. +The TVRSUs are valued on the date of award at our underlying share price. The total compensation expense for units that ultimately vest is recognized on a straight-line basis over the service period. The shares and related nominal value are recorded when the RSU vests and additional paid-in capital is adjusted as the share-based compensation cost is recognized for financial reporting purposes. +In 2025, 2024, and 2023, 40 % of the TVRSUs granted to non-employee directors will be settled in cash and accounted for as liability awards, which were valued on the date of grant based on the estimated fair value of the Company’s share price. Under the fair value method for liability-classified awards, compensation expense is remeasured each reporting period at fair value based upon the closing price of the Company’s Ordinary Shares. +Each PVRSU represents the right to receive Ordinary Shares at a future date based on our performance against specified targets. The ultimate number of shares issued and the related compensation cost recognized is based on a comparison of the final performance metrics to the specified targets. For performance-based awards, compensation expense is recognized based on the number of Ordinary Shares expected to be issued and the market price per Ordinary Share on the date of grant. Over the performance period, the number of shares expected to be issued is adjusted upward or downward based upon the probability of achievement of the performance targets. The market-based awards are valued on the date of grant based on the estimated fair value. Estimated fair value is determined based on numerous assumptions, including an estimate of the likelihood that our stock price performance will achieve the targeted thresholds and the expected forfeiture rate. The fair value is calculated using a Monte Carlo Simulation Model. The assumptions used to value the market-based +76 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +awards include historical volatility and risk-free interest rates over a time period commensurate with the remaining term prior to vesting, as follows, for the respective grant dates: +Year Ended Year Ended Year Ended +December 31, 2025 December 31, 2024 December 31, 2023 +February 3, 2025 January 26, 2024 February 3, 2023 +Valuation assumptions: +Expected volatility rate (1) +41.3 % 44.1 % 83.0 % +Risk-free interest rate 4.28 % 4.16 % 3.96 % +(1) Expected dividend yield is included in the model via its impact on the historical volatility rate, which is based on daily returns inclusive of dividends. +Additionally, similar assumptions were made for each of the companies included in the defined index and the peer group of companies in order to simulate the future outcome using the Monte Carlo Simulation Model. For market-based awards, compensation expense is recognized on a straight-line basis over the vesting terms. +A summary of the status of non-vested RSUs at December 31, 2025, and changes for the year then ended is presented below: +Equity-Classified TVRSUs Outstanding Weighted Average Award Date Fair Value +PVRSUs Outstanding (1) +Weighted Average Award Date Fair Value +Non-vested RSUs at January 1, 2025 1,034,014 $ 39.05 477,815 $ 46.87 +Awarded 692,718 31.44 408,147 34.55 +Vested +( 554,940 ) 36.76 ( 220,241 ) 45.48 +Forfeited ( 73,214 ) 35.51 ( 8,227 ) 39.01 +Non-vested RSUs at December 31, 2025 1,098,578 $ 35.64 657,494 $ 39.78 +(1) For awards granted, the number of PVRSUs shown equals the shares that would vest if the “target” level of performance is achieved. The minimum number of convertible shares is zero and the “maximum” level of performance is 200 % of the amounts shown. +During the year ended December 31, 2025, 19,023 liability-classified TVRSUs vested and no units were forfeited. At December 31, 2025 and 2024, we had 15,496 and 14,123 liability-classified TVRSUs outstanding with an associated total liability of $ 0.4 million and $ 0.4 million, respectively. +77 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Additional disclosures for RSUs are presented below: +Year Ended Year Ended Year Ended +December 31, 2025 December 31, 2024 December 31, 2023 +Equity-classified TVRSUs +Units awarded (1) +692,718 839,773 384,995 +Weighted average award date fair value of awards granted $ 31.44 $ 40.54 $ 39.54 +Fair value of awards vested during the year (2) +$ 15,339 $ 38,781 $ 31,744 +Liability-classified TVRSUs +Units awarded (3) +20,396 14,123 12,918 +Weighted average award date fair value of awards granted $ 31.47 $ 44.34 $ 39.58 +Fair value of awards vested during the year (2) +$ 526 $ 531 $ 118 +PVRSUs +Units awarded 408,147 257,574 223,635 +Weighted average award date fair value of awards granted $ 34.55 $ 48.05 $ 45.88 +Three-year performance period end date December 31 2027 2026 2025 +Fair value of awards vested during the year (4) +$ 6,220 $ 9,217 $ 70,373 +(1) During the years ended December 31, 2025, 2024, and 2023, we awarded 30,578 , 21,171 , and 19,376 equity-classified TVRSUs, respectively, to our non-employee directors. +(2) Fair value determined using the Company’s average closing share price for 2025. +(3) Awarded to our non-employee directors. +(4) Fair value determined using the Company’s closing share price on the final trading day of 2025. +At December 31, 2025 and 2024, there wa s $ 21.5 million and $ 22.7 million of total unrecognized compensation cost related to the equity-classified TVRSUs, to be recognized over a remaining weighted average period of 1.58 and 1.53 years, respectively. +At December 31, 2025 and 2024, there was $ 12.2 million and $ 11.3 million of total unrecognized compensation cost related to the PVRSUs, to be recognized over a remaining weighted average period of 1.61 and 1.54 years, respectively. The total potential compensation for PVRSUs is recognized over the service period regardless of whether the performance thresholds are ultimately achieved. +Share-based amortization recognized during the years ended December 31, 2025 and 2024, related to all restricted stock, excluding amounts included in merger and integration costs, totaled $ 30.0 million ($ 23.8 million net of income tax) and $ 27.9 million ($ 25.4 million net of income tax), respectively. +Note 8 — Revenue and Customers +Disaggregation of Revenue +The following table provides information about contract drilling revenue by rig types: +Year Ended Year Ended Year Ended +December 31, 2025 December 31, 2024 December 31, 2023 +Floaters $ 2,567,698 $ 2,349,644 $ 2,010,113 +Jackups 539,509 569,123 451,602 +Total $ 3,107,207 $ 2,918,767 $ 2,461,715 +Contract Balances +Accounts receivable are recognized when the right to consideration becomes unconditional based upon contractual billing schedules. Payment terms on invoiced amounts are typically 30 to 60 days. Customer contract assets and liabilities +78 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +generally consist of contract costs and deferred revenue resulting from past transactions related to the provision of services under contracts with customers. Current contract asset and liability balances are included in “Prepaid expenses and other current assets” and “Other current liabilities,” respectively, and noncurrent contract assets and liabilities are included in “Other assets” and “Other liabilities,” respectively, on our Condensed Consolidated Balance Sheets. +Certain direct and incremental costs incurred for upfront preparation, initial rig mobilization, and modifications are costs of fulfilling a contract and are recoverable. These recoverable costs are deferred and amortized ratably to contract drilling expense as services are rendered over the initial term of the related drilling contract. Costs incurred for the demobilization of rigs at contract completion are recognized as incurred during the demobilization process. +Certain of our contracts also include capital rig enhancements used to satisfy our performance obligations. Payments for these modifications are initially recognized as a contract liability and amortized ratably as contract drilling revenue over the initial term of the related drilling contract. The costs are capitalized in accordance with our existing property and equipment accounting policy and depreciated over the estimated useful life of the improvement. +The following table provides information about contract assets and contract liabilities from contracts with customers: +December 31, 2025 December 31, 2024 +Current customer contract assets $ 29,525 $ 26,049 +Noncurrent customer contract assets 1,112 11,042 +Total customer contract assets 30,637 37,091 +Current deferred revenue ( 64,400 ) ( 61,506 ) +Noncurrent deferred revenue ( 32,718 ) ( 40,439 ) +Total deferred revenue $ ( 97,118 ) $ ( 101,945 ) +79 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Significant changes in the remaining performance obligation contract assets and the contract liabilities balances for the year ended December 31, 2025 and 2024, are as follows: +Contract Assets Contract Liabilities +Net balance at December 31, 2022 $ 11,537 $ ( 59,797 ) +Additions to deferred costs 19,575 — +Additions to deferred revenue — ( 60,430 ) +Amortization of deferred costs ( 26,696 ) — +Amortization of deferred revenue — 77,155 +Total ( 7,121 ) 16,725 +Net balance at December 31, 2023 $ 4,416 $ ( 43,072 ) +Additions to deferred costs 55,323 — +Additions to deferred revenue — ( 134,359 ) +Amortization of deferred costs ( 22,648 ) — +Amortization of deferred revenue — 75,486 +Total 32,675 ( 58,873 ) +Net balance at December 31, 2024 $ 37,091 $ ( 101,945 ) +Additions to deferred costs 46,245 — +Additions to deferred revenue — ( 143,633 ) +Amortization of deferred costs ( 52,699 ) — +Amortization of deferred revenue — 148,460 +Total ( 6,454 ) 4,827 +Net balance at December 31, 2025 $ 30,637 $ ( 97,118 ) +Future Amortization of Deferred Revenue +The following table reflects revenue expected to be recognized in the future related to deferred revenue, by rig type, at the end of the reporting period: +Year Ended December 31, +2026 2027 2028 Total +Floaters $ 37,398 $ 17,321 $ 7,585 $ 62,304 +Jackups 27,069 7,745 — 34,814 +Total $ 64,467 $ 25,066 $ 7,585 $ 97,118 +The revenue included above consists of expected mobilization, demobilization, and upgrade revenue for unsatisfied performance obligations. The amounts are derived from the specific terms within drilling contracts that contain such provisions, and the expected timing for recognition of such revenue is based on the estimated start date and duration of each respective contract based on information known at December 31, 2025. The actual timing of recognition of such amounts may vary due to factors outside of our control. We have taken the optional exemption, permitted by accounting standards, to exclude disclosure of the estimated transaction price related to the variable portion of unsatisfied performance obligations at the end of the reporting period, as our transaction price is based on a single performance +80 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +obligation consisting of a series of distinct hourly, or more frequent, periods, the variability of which will be resolved at the time of the future services. +Off-market Customer Contract Assets and Liabilities +Upon emergence from Chapter 11 bankruptcy, the Company recognized fair value adjustments of $ 113.4 million related to intangible assets for certain favorable customer contracts, which were fully amortized as of August 2023. In addition, in connection with the Business Combination with Maersk Drilling, the Company recognized additional fair value adjustments of $ 23.0 million, related to intangible assets for certain favorable customer contracts. As of March 2025, these intangible assets were fully amortized as a reduction of contract drilling services revenue from October 3, 2022, through the remainder of the contracts. +In connection with the Business Combination with Maersk Drilling and the Diamond Transaction, the Company recognized fair value adjustments of $ 237.7 million and $ 27.7 million, respectively, related to certain unfavorable customer contracts acquired. As of June 2025, these liabilities were fully amortized as an increase to contract drilling services revenue from October 3, 2022, and the Diamond Closing Date, respectively, through the remainder of the contracts. +Unfavorable +contacts +Favorable +contracts +Balance at December 31, 2022 $ ( 181,883 ) $ 34,372 +Additions — — +Amortization 131,020 ( 24,244 ) +Balance at December 31, 2023 $ ( 50,863 ) $ 10,128 +Additions ( 27,663 ) — +Amortization 69,946 ( 9,914 ) +Balance at December 31, 2024 $ ( 8,580 ) $ 214 +Additions — — +Amortization 8,580 ( 214 ) +Balance at December 31, 2025 $ — $ — +Note 9 — Leases +Leases +We determine if an arrangement is a lease at inception. Our lease agreements are primarily for real estate, equipment, storage, dock space, and automobiles and are included within “Other assets”, “Other current liabilities”, and “Other liabilities” on our Consolidated Balance Sheets. In connection with the Diamond Transaction, the Company assumed several leases entered into by Diamond consisting of operating leases for corporate and shorebases offices, office and information technology equipment, employee housing, onshore storage yards, and certain rig equipment and tools as well as finance leases for well control equipment used on the drillships. The finance leases commenced in 2016 and also include an option to purchase the leased equipment at the end of the respective lease term. During the third quarter of 2025, the right-of-use assets and finance lease liabilities related to certain of our finance leases were remeasured to include the potential purchase price. +As most of our leases do not provide an explicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Certain of our lease agreements include options to extend or terminate the lease, which we do not include in our minimum lease terms unless management is reasonably certain to exercise. +81 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Supplemental balance sheet information related to leases was as follows: +December 31, 2025 December 31, 2024 +Operating leases +Right-of-use assets $ 59,964 $ 78,993 +Current lease liabilities +$ 13,905 $ 14,844 +Long-term lease liabilities $ 51,954 $ 65,981 +Weighted average remaining lease term (years) 8.53 7.49 +Weighted average discount rate 6.7 % 6.6 % +Finance leases +Right-of-use assets $ 99,767 $ 34,346 +Current lease liabilities +$ 93,382 $ 22,722 +Long-term lease liabilities $ — $ 11,270 +Weighted average remaining lease term (years) 0.45 1.47 +Weighted average discount rate 5.1 % 5.8 % +The components of lease cost were as follows: +Year Ended Year Ended Year Ended +December 31, 2025 December 31, 2024 December 31, 2023 +Operating lease cost $ 54,869 $ 31,162 $ 12,615 +Finance lease cost: +Amortization of right-of-use assets 19,188 7,766 — +Interest on lease liabilities 2,344 734 — +Short-term lease cost 1,640 3,819 6,185 +Variable lease cost 442 675 928 +Total lease cost $ 78,483 $ 44,156 $ 19,728 +Supplemental cash flow information related to leases was as follows: +Year Ended Year Ended Year Ended +December 31, 2025 December 31, 2024 December 31, 2023 +Operating leases +Operating cash flows used $ 18,235 $ 20,857 $ 13,369 +Right-of-use assets obtained in exchange for a lease liability (1) +12,377 45,313 9,614 +Finance leases +Operating cash flows used $ 2,344 $ 560 $ — +Financing cash flows used 23,936 6,064 — +Right-of-use assets obtained in exchange for a lease liability (1) +98,911 42,113 — +(1) Includes right-of-use assets acquired in business combinations. +82 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Maturities of lease liabilities as of December 31, 2025, were as follows: +Operating Leases Finance Leases +2026 $ 16,846 $ 95,037 +2027 14,610 — +2028 10,276 — +2029 6,268 — +2030 3,770 — +Thereafter 38,555 — +Total lease payments 90,325 95,037 +Less: Interest ( 24,466 ) ( 1,655 ) +Present value of lease liability $ 65,859 $ 93,382 +Note 10 — Income Taxes +Noble is a tax resident in the UK and, as such, is subject to UK corporation tax on its taxable profits and gains. Noble Cayman was incorporated in the Cayman Islands and, therefore, not subject to tax in any jurisdiction. With respect to Noble, a UK tax exemption is available in respect of qualifying dividends income and capital gains related to the sale of qualifying participations. We operate in various countries throughout the world, including the United States. The income or loss of the non-UK subsidiaries of Noble is not subject to UK corporation tax. +Consequently, we have taken account of the above exemption and provided for income taxes based on the laws and rates in effect in the countries in which operations are conducted, or in which we, or our subsidiaries, have a taxable presence for income tax purposes. +The components of the net deferred taxes are as follows: +December 31, 2025 December 31, 2024 +Deferred tax assets +Net operating loss carry forwards $ 1,864,511 $ 1,748,897 +Excess of net tax basis over remaining book basis 144,867 470,719 +Transition attribute 1,036,319 959,985 +Other 151,835 138,792 +Deferred tax assets 3,197,532 3,318,393 +Less: valuation allowance ( 2,890,949 ) ( 2,964,740 ) +Net deferred tax assets $ 306,583 $ 353,653 +Deferred tax liabilities +Other $ ( 14,025 ) $ ( 14,492 ) +Deferred tax liabilities ( 14,025 ) ( 14,492 ) +Net deferred tax assets (liabilities) $ 292,558 $ 339,161 +Income (loss) before income taxes consists of the following: +Year Ended Year Ended Year Ended +December 31, 2025 December 31, 2024 December 31, 2023 +United States $ 100,404 $ 51,948 $ 17,619 +Non-United States 172,698 440,386 494,624 +Total $ 273,102 $ 492,334 $ 512,243 +83 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Income tax provision (benefit) consists of the following: +Year Ended Year Ended Year Ended +December 31, 2025 December 31, 2024 December 31, 2023 +Current- United States $ 22,096 $ 9,061 $ 2,940 +Current- Non-United States ( 10,112 ) 77,567 125,494 +Deferred- United States 28,209 2,559 3,703 +Deferred- Non-United States 16,192 ( 45,206 ) ( 101,796 ) +Total $ 56,385 $ 43,981 $ 30,341 +The following is a reconciliation of our reserve for uncertain tax positions, excluding interest and penalties: +Year Ended Year Ended Year Ended +December 31, 2025 December 31, 2024 December 31, 2023 +Gross balance at beginning of period $ 114,768 $ 134,934 $ 132,979 +Additions based on tax positions related to current year — 1,439 25,363 +Additions for tax positions of prior years 14,241 41,961 10,087 +Reductions for tax positions of prior years ( 46,208 ) ( 20,960 ) ( 29,113 ) +Expiration of statutes — ( 310 ) — +Tax settlements ( 12,067 ) ( 42,296 ) ( 4,382 ) +Gross balance at end of period 70,734 114,768 134,934 +Related tax benefits ( 850 ) ( 3,705 ) ( 78 ) +Net reserve at end of period $ 69,884 $ 111,063 $ 134,856 +The liabilities related to our reserve for uncertain tax positions, included in “Other liabilities” on our Consolidated Balance Sheets, are comprised of the following: +December 31, 2025 December 31, 2024 +Reserve for uncertain tax positions, excluding interest and penalties $ 69,884 $ 111,063 +Interest and penalties +49,330 86,804 +Reserve for uncertain tax positions, including interest and penalties $ 119,214 $ 197,867 +At December 31, 2025 and 2024, the reserves for uncertain tax positions totaled $ 119.2 million (net of related tax benefits of $ 0.9 million) and $ 197.9 million (net of related tax benefits of $ 3.7 million), respectively. If a portion or all of the December 31, 2025 and 2024, reserves listed above are not realized, the provision for income taxes could be reduced by up to $ 117.6 million and $ 196.0 million, respectively. +We include, as a component of our “Income tax benefit (provision)”, potential interest and penalties related to recognized tax contingencies within our global operations. Interest and penalties resulted in an income tax benefit of $ 26.4 million, tax expense of $ 5.9 million, and tax expense of $ 24.1 million for the years ended December 31, 2025, 2024, and 2023, respectively. +During the year ended December 31, 2025, our tax provision included a net tax benefit of $ 134.0 million related to non-recurring releases of valuation allowances primarily in Luxembourg and Switzerland, and a net tax benefit of $ 60.2 million related to changes in uncertain tax positions. Such tax benefits were offset by various recurring annual accruals of $ 250.6 million primarily in Guyana, the United States, Switzerland, and Luxembourg. +During the year ended December 31, 2024, our tax provision included a net tax benefit of $ 123.6 million related to non-recurring releases of valuation allowances primarily in Luxembourg, and a net tax benefit of $ 20.2 million related to changes in uncertain tax positions. Such tax benefits were offset by various recurring quarterly accruals of $ 187.8 million primarily in Guyana, Nigeria, the United States, Switzerland, and Luxembourg. +84 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +During the year ended December 31, 2023, our tax provision included tax benefits of $ 187.2 million related to non-recurring releases of valuation allowances in Luxembourg, Guyana, Switzerland, and Norway, and a tax benefit of $ 6.8 million related to uncertain tax position releases. Such tax benefits were offset by tax expenses related to uncertain tax positions of $ 20.9 million in various countries, contract fair value amortization of $ 23.7 million, and various recurring quarterly accruals of $ 179.6 million primarily in Guyana, Switzerland, and Luxembourg. +Our gross deferred tax asset balance at year-end reflects the application of our income tax accounting policies and is based on management’s estimates, judgments, and assumptions regarding realizability. If it is more likely than not that a portion of the deferred tax assets will not be realized in a future period, the deferred tax assets will be reduced by a valuation allowance based on management’s estimates. +In deriving the $ 49.7 million recurring and non-recurring change in valuation allowance, where applicable we relied on sources of income attributable to the reversal of taxable temporary differences in the same periods as the relevant tax attributes and projected taxable income for the period covered by our relevant existing drilling contracts based on the assumption that the relevant rigs will be owned by the current rig owners during the relevant existing drilling contract periods. Given the mobile nature of our assets, we are not able to reasonably forecast the jurisdiction of our taxable income from future drilling contracts. We also have limited objective positive evidence in historical periods. Accordingly, in determining the amount of deferred tax benefits to recognize, we did not consider projected book income beyond the conclusion of existing drilling contracts with the exception of interest income projected to be generated over a finite period beyond the conclusion of the relevant existing drilling contracts. As new drilling contracts are executed, we will reassess the amount of deferred tax assets that are realizable. Finally, once we have established sufficient objective positive evidence for historical periods, we may consider reliance on forecasted taxable income from future drilling contracts. +Our tax benefits related to transition attributes in Switzerland are scheduled to expire by 2036. Our net operating losses in Switzerland are scheduled to expire between 2027 and 2032. Our net operating losses in Luxembourg are scheduled to expire between 2033 and 2038; however, a portion of the tax losses has no expiration date. +We conduct business globally and, as a result, we file numerous income tax returns in the US and in non-US jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world, including, but not limited to, jurisdictions such as Guyana, Mexico, and the United Kingdom. We are no longer subject to US Federal income tax examinations for years before 2022 and non-US income tax examinations for years before 2000. +In Denmark, prior to becoming a wholly-owned subsidiary of Noble (the “Merger”), Maersk Drilling was subject to a mandatory joint taxation scheme with all other Danish entities under the common control of A.P. Møller Holding A/S (“APMH”). To the extent Maersk Drilling incurred tax losses in Denmark until the Merger, such losses may be utilized by other jointly taxed entities. Noble may be compensated through a joint taxation contribution when such losses are utilized. In the event that APMH or any jointly taxed entity is subject to audits for years and periods prior to and until the Merger and such audits result in adjustments to relevant tax returns, adjustments to the prior year joint tax contributions may be required. This could result in additional compensation to Noble or refunds payable by Noble to APMH or to any previous joint taxation group administration company of previously received joint taxation contributions. Since the Merger and through December 31, 2025, Noble has recognized a benefit for tax contribution payments of approximately $ 24.6 million from APMH and an expense for a tax contribution repayment of $ 4.0 million to APMH under this arrangement. For the years ended December 31, 2025, 2024, and 2023, net benefits of approximately $ 3.5 million, an expense of $ 4.0 million, and net benefits of approximately $ 19.1 million, respectively, are included in “Interest income and other, net” on our Consolidated Statements of Operations. Additionally, for the year ended December 31, 2023, approximately $ 2.0 million is recorded and included as a benefit in “Income tax benefit (provision)” on our Consolidated Statement of Operations. +UK earnings are taxable in the United Kingdom at the UK statutory rate of 25%. Noble Cayman was incorporated in the Cayman Islands and, therefore, not subject to tax in any jurisdiction. Following the Business Combination with Maersk Drilling, Noble is a public limited company incorporated under the laws of England and Wales. The income or loss of our non-UK subsidiaries is not subject to UK income tax. UK earnings are taxable in the United Kingdom at the UK statutory rate of 19% and 25% through March 31, 2023, and beginning on April 1, 2023, respectively. +85 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +A reconciliation of tax rates outside of the United Kingdom to our Noble effective rate for 2025 is shown below: +Year Ended +December 31, 2025 +UK statutory income tax rate $ 68,275 25.0 % +Permanent differences 8,438 3.1 % +Change in valuation allowance 3,933 1.4 % +Foreign tax effects: +British Virgin Islands: +Rate differential 7,230 2.7 % +Cayman Islands: +Rate differential 11,490 4.2 % +Colombia: +Cross-Border taxes 4,723 1.7 % +Guyana: +Change in valuation allowance 4,901 1.8 % +Permanent differences 4,404 1.6 % +Luxembourg: +Change in valuation allowance ( 42,929 ) ( 15.7 ) % +Nigeria: +Permanent differences ( 3,736 ) ( 1.4 ) % +Philippines: +Cross-Border taxes 9,468 3.5 % +Saudi Arabia ( 4,312 ) ( 1.6 ) % +Switzerland: +Rate differential 6,144 2.3 % +Change in valuation allowance ( 5,478 ) ( 2.0 ) % +United States: +Cross border taxes and other 19,486 7.1 % +Nondeductible expenses 12,605 4.6 % +Change in valuation allowance ( 6,774 ) ( 2.5 ) % +Other foreign jurisdictions 17,487 6.4 % +Worldwide changes in unrecognized tax benefits ( 58,970 ) ( 21.6 ) % +Total $ 56,385 20.6 % +A reconciliation of tax rates outside of the United Kingdom to our Noble effective rate for 2024 and 2023 is shown below: +Year Ended Year Ended +December 31, 2024 December 31, 2023 +Effect of: +Tax rates which are different than UK or Cayman rates 37.3 % 37.6 % +Tax impact of valuation allowance ( 25.0 ) % ( 36.1 ) % +Resolution of (reserve for) tax authority audits ( 3.4 ) % 4.4 % +Total 8.9 % 5.9 % +86 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Information about income taxes paid is as follows: +Year Ended +December 31, 2025 +Colombia 21,137 +Malaysia 11,179 +Nigeria 8,705 +Philippines 6,590 +United States 30,156 +Other 43,362 +Total $ 121,129 +At December 31, 2025 and 2024, the Company asserts that its unremitted earnings and/or book/tax outside basis differences in certain of its subsidiaries are either permanently reinvested or are not expected to result in a material taxable event in the foreseeable future. Therefore, no material deferred taxes have been recorded related to such earnings and/or investments. +On July 4, 2025, the “One Big Beautiful Bill Act” (the “OBBBA”) was signed into law. The legislation includes significant changes to the US tax code affecting both current and deferred income taxes. Key provisions include the reinstatement of 100% bonus depreciation, modifications to the Section 163(j) interest deduction limitation, and other changes to US taxation of profits derived from foreign operations. The OBBBA does not have a material impact on Noble’s consolidated financial statements. +Note 11 — Employee Benefit Plans +Defined Benefit Plans +Noble Drilling (Land Support) Limited (“NDLS”), an indirect, wholly-owned subsidiary of Noble, maintains a pension plan that covers all of its salaried, non-union employees, whose most recent date of employment is prior to April 1, 2014 (referred to as our “non-US plan”). Since May 2022, the NDLS pension trustees and covenant advisors have been communicating with Noble to understand the impact of the rig transaction and merger with Maersk Drilling and to negotiate appropriate mitigation including buyout of the scheme to cover the pension obligations. The Pension Regulators advised on December 15, 2022, that it did not intend to investigate the transaction unless Noble and the pension trustees were unable to agree on mitigation or there was a material change to circumstances. Noble has provided a company guarantee from Noble Corporation plc itself to cover the full section 75 debts of NDLS and Noble Resources Limited, the two sponsoring entities of the pension scheme, and believes this is an appropriate mitigation to support the pension liabilities. +In addition to the non-US plan discussed above, we have a US noncontributory defined benefit pension plan that covers certain salaried employees and a US noncontributory defined benefit pension plan that covers certain hourly employees, whose initial date of employment is prior to August 1, 2004 (collectively referred to as our “qualified US plans”). These plans are governed by the Noble Drilling Employees’ Retirement Trust (the “Trust”). The benefits from these plans are based primarily on years of service and, for the salaried plan, employees' compensation near retirement. These plans are designed to qualify under the Employee Retirement Income Security Act of 1974 (“ERISA”), and our funding policy is consistent with funding requirements of ERISA and other applicable laws and regulations. We make cash contributions, or utilize credits available to us, for the qualified US plans when required. The benefit amount that can be covered by the qualified US plans is limited under ERISA and the Internal Revenue Code of 1986. Therefore, we maintain an unfunded, non-qualified excess benefit plan designed to maintain benefits for specified employees at the formula level in the qualified salaried US plan. We refer to the qualified US plans and the excess benefit plan collectively as the “US plans.” +During the fourth quarter of 2016, we approved amendments, effective as of December 31, 2016, to our non-US and US defined benefit plans. With these amendments, employees and alternate payees will accrue no future benefits under the plans after December 31, 2016. However, these amendments will not affect any benefits earned through that date. +87 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +A reconciliation of the changes in projected benefit obligations (“PBO”) for our non-US and US plans is as follows: +December 31, 2025 December 31, 2024 +Non-US US Non-US US +Benefit obligation at beginning of period $ 33,117 $ 166,837 $ 36,329 $ 179,346 +Interest cost 2,142 9,039 2,062 8,751 +Actuarial loss (gain) ( 581 ) 3,920 ( 2,738 ) ( 9,872 ) +Benefits paid ( 2,261 ) ( 11,420 ) ( 2,257 ) ( 11,388 ) +Settlements and curtailments — — — — +Foreign exchange rate changes 1,589 — ( 279 ) — +Benefit obligation at end of period $ 34,006 $ 168,376 $ 33,117 $ 166,837 +A reconciliation of the changes in fair value of plan assets is as follows: +December 31, 2025 December 31, 2024 +Non-US US Non-US US +Fair value of plan assets at beginning of period $ 38,272 $ 163,844 $ 43,245 $ 172,793 +Actual return on plan assets 1,811 12,907 ( 2,403 ) 2,389 +Employer contributions 2,559 37 — 50 +Benefits paid ( 2,261 ) ( 11,420 ) ( 2,257 ) ( 11,388 ) +Plan participants’ contributions — — — — +Foreign exchange rate changes 1,854 — ( 313 ) — +Fair value of plan assets at end of period $ 42,235 $ 165,368 $ 38,272 $ 163,844 +The funded status of the plans is as follows: +December 31, 2025 December 31, 2024 +Non-US US Non-US US +Funded status $ 8,229 $ ( 3,008 ) $ 5,155 $ ( 2,993 ) +Amounts recognized in the Consolidated Balance Sheets consist of: +December 31, 2025 December 31, 2024 +Non-US US Non-US US +Other assets (noncurrent) $ 8,229 $ — $ 5,155 $ — +Other liabilities (current) — ( 65 ) — ( 59 ) +Other liabilities (noncurrent) — ( 2,943 ) — ( 2,934 ) +Net amount recognized $ 8,229 $ ( 3,008 ) $ 5,155 $ ( 2,993 ) +Amounts recognized in AOCI consist of: +December 31, 2025 December 31, 2024 +Non-US US Non-US US +Net actuarial (gain) loss $ 6,707 $ ( 14,358 ) $ 7,761 $ ( 12,390 ) +Deferred income tax (asset) liability ( 186 ) 2,677 ( 1,942 ) 2,602 +Accumulated other comprehensive (income) loss $ 6,521 $ ( 11,681 ) $ 5,819 $ ( 9,788 ) +88 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Pension costs include the following components: +Year Ended Year Ended Year Ended +December 31, 2025 December 31, 2024 December 31, 2023 +Non-US US Non-US US Non-US US +Interest cost $ 2,142 $ 9,039 $ 2,062 $ 8,751 $ 2,356 $ 8,992 +Return on plan assets ( 1,920 ) ( 8,586 ) ( 2,291 ) ( 9,243 ) ( 1,871 ) ( 9,579 ) +Amortization of prior service cost — — — — 238 — +Recognized net actuarial loss 214 ( 44 ) 99 — — ( 231 ) +Settlement and curtailment (gain) loss — — — — — 70 +Net pension benefit cost (gain) loss $ 436 $ 409 $ ( 130 ) $ ( 492 ) $ 723 $ ( 748 ) +There are zero estimated net actuarial losses and prior service costs for the non-US plan and the US plans that will be amortized from AOCI into net periodic pension cost in 2026. +During the years ended December 31, 2025, 2024, and 2023, we adopted the Retirement Plan mortality tables with the Mortality Projection scale as issued by the Society of Actuaries for each of the respective years. The Retirement Plan 2025, 2024, and 2023 mortality tables represent the new standard for defined benefit mortality assumptions due to adjusted life expectancies. There were no increases in our pension liability on our US plans resulting from the adoption of these tables for the years ended December 31, 2025, 2024, and 2023, respectively. +Defined Benefit Plans—Disaggregated Plan Information +Disaggregated information regarding our non-US and US plans is summarized below: +December 31, 2025 December 31, 2024 +Non-US US Non-US US +Projected benefit obligation $ 34,006 $ 168,376 $ 33,117 $ 166,837 +Accumulated benefit obligation 34,006 168,376 33,117 166,837 +Fair value of plan assets 42,235 165,368 38,272 163,844 +The following table provides information related to those plans in which the PBO exceeded the fair value of the plan assets at December 31, 2025 and 2024. The PBO is the actuarially computed present value of earned benefits based on service to date and includes the estimated effect of any future salary increases. Employees and alternate payees have no longer accrued future benefits under the plans since December 31, 2016. +December 31, 2025 December 31, 2024 +Non-US US Non-US US +Projected benefit obligation $ — $ 168,377 $ — $ 166,837 +Fair value of plan assets — 165,370 — 163,844 +The PBO for the unfunded excess benefit plan was $ 0.7 million at December 31, 2025, as compared to $ 0.7 million at December 31, 2024, and is included under “US” in the above tables. +The following table provides information related to those plans in which the accumulated benefit obligation (“ABO”) exceeded the fair value of plan assets at December 31, 2025 and 2024. The ABO is the actuarially computed present value of earned benefits based on service to date, but differs from the PBO in that it is based on current salary levels. Employees and alternate payees have no longer accrued future benefits under the plans since December 31, 2016. +December 31, 2025 December 31, 2024 +Non-US US Non-US US +Accumulated benefit obligation $ — $ 168,377 $ — $ 166,837 +Fair value of plan assets — 165,368 — 163,844 +89 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +The ABO for the unfunded excess benefit plan was $ 0.7 million at December 31, 2025, as compared to $ 0.7 million at December 31, 2024, and is included under “US” in the above tables. +Defined Benefit Plans—Key Assumptions +The key assumptions for the plans are summarized below: +December 31, 2025 December 31, 2024 +Non-US US Non-US US +Weighted-average assumptions used to determine benefit obligations: +Discount Rate 5.60 % +5.19 % - 5.53 % +5.50 % +5.50 % - 5.63 % +Rate of compensation increase N/A N/A N/A N/A +Year Ended Year Ended Year Ended +December 31, 2025 December 31, 2024 December 31, 2023 +Non-US Non-US Non-US +Weighted-average assumptions used to determine periodic benefit cost: +Discount Rate 5.50 % 5.50 % 5.00 % +Expected long-term return on assets 4.80 % 4.80 % 4.60 % +Rate of compensation increase N/A N/A N/A +Year Ended Year Ended Year Ended +December 31, 2025 December 31, 2024 December 31, 2023 +US US US +Weighted-average assumptions used to determine periodic benefit cost: +Discount Rate +5.50 % - 5.63 % +4.95 % - 5.04 % +5.17 % - 5.27 % +Expected long-term return on assets +4.90 % - 5.50 % +5.00 % - 5.60 % +5.00 % - 5.80 % +Rate of compensation increase N/A N/A N/A +The discount rates used to calculate the net present value of future benefit obligations for our US plans is based on the average of current rates earned on long-term bonds that receive a Moody’s rating of “Aa” or better. We have determined that the timing and amount of expected cash outflows on our plans reasonably match this index. For our non-US plan, the discount rate used to calculate the net present value of future benefit obligations is determined by using a yield curve of high quality bond portfolios with an average maturity approximating that of the liabilities. +In developing the expected long-term rate of return on assets, we considered the current level of expected returns on risk free investments (primarily government bonds), the historical level of risk premium associated with the other asset classes in which the portfolio is invested and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long-term rate of return on assets for the portfolio. To assist us with this analysis, we employ third-party consultants for our US and non-US plans that use a portfolio return model. +Defined Benefit Plans—Plan Assets +Non-US Plan. As of December 31, 2025, the NDLS pension Scheme (the “Scheme”) targets an asset allocation of 20.0 % return-seeking securities (growth) and 80.0 % in debt securities (matching) and adopts a de-risking strategy whereby the level of investment risk reduces as the Scheme’s funding level improves. The total portfolio is expected to return gilts + 0.8 % per annum (net of investment fees), and the matching portfolio has been constructed to fully hedge the interest rate and inflation risk inherent in the technical provisions liabilities. The Scheme’s overall investment strategy is to outperform the cash + 4 % per annum long-term objective for growth assets and to sufficiently hedge interest rate and inflation risk within the matching portfolio in relation to the Scheme’s liabilities. By achieving these objectives, the Trustees believe the Scheme will be able to avoid significant volatility in the contribution rate and provide sufficient assets to cover the Scheme’s benefit +90 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +obligations. To achieve this, the Trustees have given SEI, the appointed investment manager, full discretion in the day-to-day management of the Scheme’s assets and implementation of the de-risking strategy, who in turn invests in multiple underlying investment managers where appropriate. The Trustees meet with Mercer periodically to review and discuss their investment performance. +The actual fair values of the non-US plan are as follows: +December 31, 2025 +Estimated Fair Value Measurements +Carrying +Amount Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) +Cash and cash equivalents $ 12,795 $ 12,795 $ — $ — +Equity securities: +International companies 3,381 3,381 — — +Fixed income securities: +Corporate bonds 26,059 26,059 — — +Total $ 42,235 $ 42,235 $ — $ — +December 31, 2024 +Estimated Fair Value Measurements +Carrying +Amount Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) +Cash and cash equivalents $ 340 $ 340 $ — $ — +Equity securities: +International companies 2,820 2,820 — — +Fixed income securities: +Corporate bonds 35,112 35,112 — — +Total $ 38,272 $ 38,272 $ — $ — +US Plans. The fundamental objective of the US plan is to provide the capital assets necessary to meet the financial obligations made to plan participants. In order to meet this objective, the Investment Policy Statement depicts how the investment assets of the plan are to be managed in accordance with the overall target asset allocation of approximately 75.0 % equity securities, 6.0 % fixed income securities, and 19.0 % in strategic opportunities. The target asset allocation is intended to generate sufficient capital to meet plan obligations and provide a portfolio rate of return equal to or greater than the return realized using appropriate blended, market benchmark over a full market cycle (usually a five to seven year time period). Actual allocations may deviate from the target range, however any deviation from the target range of asset allocations must be approved by the Trust’s governing committee. +For investments in mutual funds, the assets of the Trust are subject to the guidelines and limits imposed by such mutual fund’s prospectus and the other governing documentation at the fund level. +No Ordinary Shares of Noble were included in equity securities at either December 31, 2025 or 2024. +91 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +The actual fair values of US plan assets are as follows: +December 31, 2025 +Estimated Fair Value Measurements +Carrying +Amount Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) +Cash and cash equivalents $ 4,262 $ 2,581 $ 1,681 $ — +Equity securities: +United States 37,220 37,220 — — +Fixed income securities: +Corporate bonds 114,090 — 114,090 +Treasury bonds 9,796 9,796 — — +Total $ 165,368 $ 49,597 $ 115,771 $ — +December 31, 2024 +Estimated Fair Value Measurements +Carrying +Amount Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) +Cash and cash equivalents $ 4,164 $ 4,164 $ — $ — +Equity securities: +United States 38,317 1,726 36,591 — +Fixed income securities: +Corporate bonds 91,129 86,991 4,138 +Treasury bonds 30,234 30,234 — — +Total $ 163,844 $ 123,115 $ 40,729 $ — +Defined Benefit Plans—Cash Flows +In 2025, we made contributions of $ 2.6 million to our non-US plan. In 2024 and 2023, we made no contributions to our non-US plan. In 2025, 2024, and 2023 we made contributions of $ 0.0 million, $ 0.1 million, and $ 0.2 million to our US plans, respectively. We expect our aggregate minimum contributions to our non-US and US plans in 2026, subject to applicable law, to be zero and $ 0.1 million, respectively. We continue to monitor and evaluate funding options based upon market conditions and may increase contributions at our discretion. +The following table summarizes our estimated benefit payments at December 31, 2025: +Payments by Period +Total 2026 2027 2028 2029 2030 Thereafter +Estimated benefit payments +Non-US plans $ 26,631 $ 2,369 $ 2,462 $ 2,538 $ 2,619 $ 2,657 $ 13,986 +US plans 116,071 11,202 11,383 11,469 11,557 11,579 58,881 +Total estimated benefit payments $ 142,702 $ 13,571 $ 13,845 $ 14,007 $ 14,176 $ 14,236 $ 72,867 +Other Plans. In 2005, we enacted a profit sharing plan, the Noble Services Company LLC Profit Sharing Plan, which covered eligible employees, as defined in the plan. On January 1, 2019, the profit sharing plan and the sponsored 401(k) savings plan were merged into the Noble Drilling Services LLC 401(k) and Profit Sharing Plan (the “Plan”). Effective January 1, 2025, the Plan was amended to remove the profit-sharing portion and became the Noble Services Company LLC 401(k) Plan. As a result, no future profit-sharing contributions will be made into the Plan. No profit-sharing contributions were made for the years ended December 31, 2024 and 2023. +92 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +We also sponsor other retirement, health, and welfare plans, and international savings plans for the benefit of our employees. Diamond sponsored health and welfare plans through December 31, 2025, when benefits were aligned to Noble’s. Diamond also sponsored separate 401(k) and international savings plans, which were merged into Noble’s 401(k) and international savings plans on December 31, 2025. +The contributions to these plans aggregated approximately $ 50.0 million, $ 40.8 million, and $ 34.0 million for the years ended December 31, 2025, 2024, and 2023, respectively. +Note 12 — Commitments and Contingencies +Tax Matters +Audit claims of approximately $ 351.4 million at December 31, 2025, attributable to income and other business taxes remain outstanding and are under continued objection by Noble. Such audit claims are mostly attributable to Brazil and remain under continued monitoring and evaluation on a quarterly basis as facts change and as audits and/or litigation continue to progress. We intend to vigorously defend our reported positions and currently believe the ultimate resolution of the audit claims will not have a material adverse effect on our consolidated financial statements. +We operate in numerous countries throughout the world and our tax returns filed in those jurisdictions are subject to review and examination by tax authorities within those jurisdictions. We recognize uncertain tax positions that we believe have a greater than 50 % likelihood of being sustained upon challenge by a tax authority. We cannot predict nor provide assurance as to the ultimate outcome of any existing or future assessments. +Services Agreement +In February 2016, Diamond entered into a ten-year agreement with a subsidiary of Baker Hughes Company (formerly named Baker Hughes, a GE company) to provide services with respect to certain blowout preventer and related well control equipment on our drillships. Such services include management of maintenance, certification, and reliability with respect to such equipment. On July 2, 2025, the services agreement was terminated for convenience. During the fourth quarter of 2025, Noble paid the services company $ 31.3 million for the capital and consumable spares, including other tooling equipment. +Letters of Credit and Surety Bonds +As of December 31, 2025, we had $ 6.7 million of letters of credit issued under the 2023 Revolving Credit Facility and an additional $ 41.5 million in letters of credit and surety bonds issued under bilateral arrangements which guarantee our performance as it relates to our drilling contracts, contract bidding, tax appeals, customs duties, and other obligations in various jurisdictions. We expect to comply with the underlying performance requirements and we expect obligations under these letters of credit and surety bonds will not be called. +Other Contingencies +We are a defendant in certain other claims and litigation arising out of operations in the ordinary course of business, including personal injury claims, the resolution of which, in the opinion of management, will not be material to our financial position, results of operations, or cash flows. There is inherent risk in any litigation or dispute and no assurance can be given as to the outcome of these claims. +Note 13 — Segment and Related Information +We report our contract drilling operations as a single reportable segment, Contract Drilling Services, which reflects how we manage our business. The mobile offshore drilling units comprising our offshore rig fleet operate in a global market for contract drilling services and are often redeployed to different regions due to changing demands of our customers, which consist primarily of large, integrated, independent, and government-owned or controlled oil and gas companies throughout the world. Our reportable segment comprises the structure used by our Chief Executive Officer, who has been determined to be our chief operating decision maker (“CODM”), for assessing performance and allocating resources. We regularly provide management reports to the CODM that include a segment revenue amount and segment contract drilling services costs. Our CODM evaluates the segment’s operating performance based on operating revenues and operating income or loss. Refer to the Company’s Consolidated Statements of Operations for additional information. +93 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +The following table presents revenues and long-lived assets by country based on the location of the service provided during the period: +Revenues Long-Lived Assets as of +Year Ended Year Ended Year Ended +December 31, 2025 December 31, 2024 December 31, 2023 December 31, 2025 December 31, 2024 +Australia $ 85,783 $ 242,721 $ 154,860 $ 80,459 $ 59,202 +Brazil 266,405 107,014 92,022 300,962 315,084 +Colombia 143,920 94,560 53,646 162,534 163,719 +Denmark 10,532 75,971 88,914 186,529 333,618 +Ghana 60,495 138,176 150,677 270,337 — +Guinea Bissau +— 13,947 — — 300,962 +Guyana 647,658 676,234 703,473 769,339 762,746 +Malaysia 112,455 203,495 87,105 49,866 292,878 +Namibia 58,892 7,537 27 — 253,652 +Nigeria 96,668 135,331 143,641 70,298 73,296 +Norway 310,863 236,834 249,308 959,466 487,183 +Suriname 115,441 82,082 108,532 87,398 — +United Kingdom 206,412 190,804 65,710 143,465 755,712 +United States 889,710 685,835 437,346 1,964,862 1,666,748 +Other 280,334 167,277 253,757 517,039 684,356 +Total $ 3,285,568 $ 3,057,818 $ 2,589,018 $ 5,562,554 $ 6,149,156 +Included in our long-lived assets balance above is our property and equipment and right-of-use assets. We used the geographic location as of December 31, 2025 and 2024, of each drilling rig, operating lease, and finance lease for our property and equipment and right-of-use assets, respectively, for our long-lived assets geographic disclosure shown above. +Significant Customers +The following table sets forth revenues from our customers as a percentage of our consolidated operating revenues: +Year Ended Year Ended Year Ended +December 31, 2025 December 31, 2024 December 31, 2023 +Exxon Mobil Corporation (“ExxonMobil”) 19.7 % 22.1 % 24.5 % +BP 13.2 % (1) (1) +Petrobras 12.5 % (1) (1) +TotalEnergies (1) (1) 10.5 % +Shell plc (1) 12.3 % 13.6 % +(1) Amount was less than 10% for the year presented. +No other customer accounted for more than 10% of our consolidated operating revenues in 2025, 2024, or 2023. +94 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +Note 14 — Supplemental Financial Information +Consolidated Statements of Cash Flows Information +Operating Cash Activities. The net effect of changes in assets and liabilities on cash flows from operating activities is as follows: +Year Ended Year Ended Year Ended +December 31, 2025 December 31, 2024 December 31, 2023 +Accounts receivable $ 207,364 $ ( 54,923 ) $ ( 80,042 ) +Taxes receivable ( 22,699 ) ( 15,263 ) ( 7,374 ) +Other current assets 159,337 ( 108,044 ) ( 42,532 ) +Other assets 48,759 40,146 ( 27,177 ) +Accounts payable ( 80,494 ) ( 32,437 ) 59,757 +Other current liabilities ( 200,849 ) 103,326 9,679 +Other liabilities ( 99,655 ) ( 64,106 ) 32,612 +Total net change in operating assets and liabilities $ 11,763 $ ( 131,301 ) $ ( 55,077 ) +Non-cash Investing and Financing Activities. Additions to property and equipment, at cost for which we had accrued a corresponding liability in accounts payable as of December 31, 2025, 2024, and 2023 were $ 47.6 million, $ 66.0 million, and $ 114.7 million, respectively. +On September 4, 2024, Noble completed its acquisition of Diamond issuing 24.2 million Ordinary Shares valued at $ 879.9 million, in exchange for $ 1.5 billion net assets acquired. See “Note 2 — Acquisitions and Divestitures” for additional information. +Additional cash flow information is as follows: +Year Ended Year Ended Year Ended +December 31, 2025 December 31, 2024 December 31, 2023 +Cash paid during the period for: +Interest, net of amounts capitalized $ 162,241 $ 106,845 $ 52,361 +Income taxes paid (refunded), net 121,129 108,664 105,446 +Note 15 — Information about Noble Finance II +8.000 % Senior Notes due 2030 +Noble Finance II, a wholly-owned, indirect subsidiary of Noble, is the issuer of the 2030 Notes and one or more 100% wholly-owned, direct and indirect subsidiaries of Noble Finance II are the unconditional guarantors, or are otherwise obligated as of December 31, 2025, with respect to the 2030 Notes. See “Note 6 — Debt” for additional information. +The Noble Indenture contains a covenant that requires Noble Finance II to furnish to holders of the 2030 Notes certain financial information relating to Noble Finance II and its restricted subsidiaries. The obligation to furnish such information may be satisfied by providing financial information of Noble along with a description of the differences between such information and the financial information of Noble Finance II and its restricted subsidiaries on a standalone basis. +95 +NOBLE CORPORATION plc AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Unless otherwise indicated, dollar and share amounts in tables are in thousands) +The summarized financial information below reflects the consolidated accounts of Noble Finance II: +December 31, 2025 +Balance Sheet +Cash and cash equivalents $ 259,233 +Total current assets 2,098,558 +Total current liabilities 671,158 +Total debt 1,400,982 +Total shareholders' equity 4,738,725 +Twelve Months Ended December 31, 2025 +Statement of Operations +Operating revenues $ 2,354,594 +Operating costs and expenses 2,092,947 +Depreciation and amortization 430,522 +Statement of Cash Flows +Net cash provided by (used in) operating activities $ 751,855 +Capital expenditures ( 425,701 ) +Proceeds from disposal of assets, net 147,201 +Dividend payments — +Note 16 — Subsequent Events +Planned Divestment of Six Jackup Rigs +On December 8, 2025, Noble announced that the Company signed definitive agreements to sell six jackup rigs, which includes the sale of five rigs to Borr Drilling Limited (“Borr”) for $ 360.0 million and a separate transaction for the sale of one rig to Ocean Oilfield Drilling for $ 64.0 million in cash. +The agreement with Borr, comprising $ 210.0 million in cash and $ 150.0 million in seller notes, includes the sale of the Noble Tom Prosser , Noble Mick O'Brien , Noble Regina Allen , Noble Resilient , and Noble Resolute . The Noble Regina Allen sale closed on January 7, 2026. The sale of the remaining rigs closed on January 28, 2026. The $ 150.0 million in seller notes to Borr have a six-year maturity and are secured by a first lien on three jackups ( Noble Tom Prosser , Noble Regina Allen , and Noble Resilient ). The notes can be prepaid at any time without penalty, with certain provisions mandating early prepayment. Additionally, Noble will continue to operate two rigs, the Noble Mick O'Brien and Noble Resolute , under a bareboat charter agreement with Borr for one year from signing of the definitive agreement, and another rig, the Noble Resilient , under a similar bareboat charter agreement into the second quarter of 2026. +The agreement with Ocean Oilfield Drilling anticipates the sale of the Noble Resolve . Closing is expected in the third quarter of 2026, upon conclusion of the Noble Resolve's current contract. +Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +None. +Item 9A. Evaluation of Disclosure Controls and Procedures +Conclusions Regarding Disclosure Controls and Procedures +Robert W. Eifler, President and Chief Executive Officer (Principal Executive Officer) of Noble, and Richard B. Barker, Executive Vice President and Chief Financial Officer (Principal Financial Officer) of Noble, have evaluated the disclosure +96 +controls and procedures (as defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)) of Noble as of the end of the period covered by this report. On the basis of this evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that Noble’s disclosure controls and procedures were effective as of December 31, 2025. Noble’s disclosure controls and procedures are designed to ensure that information required to be disclosed by Noble in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (“the Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. +Management’s Annual Report on Internal Control Over Financial Reporting +The management of Noble is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) promulgated under the Exchange Act. Under the supervision of and with the participation of our management, including our Principal Executive Officer and our Principal Financial Officer, we conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on this assessment, our management concluded that Noble maintained effective internal control over financial reporting as of December 31, 2025. +PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited our financial statements included in this Annual Report on Form 10-K, has audited the effectiveness of internal control over financial reporting as of December 31, 2025, as stated in their report, which is provided in Part II, Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. +Changes in Internal Control Over Financial Reporting +There were no changes in Noble’s internal control over financial reporting that occurred during the quarter ended December 31, 2025, that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting of Noble. +Limitations on the Effectiveness of Controls +Internal control over financial reporting includes the controls themselves, monitoring (including internal auditing practices), and actions taken to correct deficiencies as identified. There are inherent limitations to the effectiveness of internal control over financial reporting, however well designed, including the possibility of human error and the possible circumvention or overriding of controls. The design of an internal control system is also based in part upon assumptions and judgments made by management about the likelihood of future events, and there can be no assurance that an internal control will be effective under all potential future conditions. As a result, even an effective system of internal controls can provide no more than reasonable assurance with respect to the fair presentation of financial statements and the processes under which they were prepared. +Item 9B. Other Information. +Our directors and executive officers may from time to time enter into plans or other arrangements for the purchase or sale of our Ordinary Shares that are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or may represent a non-Rule 10b5-1 trading arrangement under the Exchange Act. On December 12, 2025 , Robert Eifler , our President and Chief Executive Officer , and Richard Barker , our Executive Vice President and Chief Financial Officer , each adopted a written plan for the sale of 150,000 Ordinary Shares. Each plan is scheduled to commence on March 18, 2026, and is scheduled to expire on December 11, 2026 , or on any earlier date on which all of the shares have been sold. The plans are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act. +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. +Not applicable. +97 +PART III +Item 10. Directors, Executive Officers, and Corporate Governance. +Information in response to this item is incorporated by reference to our Proxy Statement relating to our 2026 Annual Meeting of Shareholders. The Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal year covered by this Form 10-K pursuant to Regulation 14A under the Exchange Act. +Item 11. Executive Compensation. +Information in response to this item is incorporated by reference to our Proxy Statement relating to our 2026 Annual Meeting of Shareholders. The Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal year covered by this Form 10-K pursuant to Regulation 14A under the Exchange Act. +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. +Information in response to this item is incorporated by reference to our Proxy Statement relating to our 2026 Annual Meeting of Shareholders. The Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal year covered by this Form 10-K pursuant to Regulation 14A under the Exchange Act. +Item 13. Certain Relationships, Related Transactions, and Directors’ Independence. +Information in response to this item is incorporated by reference to our Proxy Statement relating to our 2026 Annual Meeting of Shareholders. The Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal year covered by this Form 10-K pursuant to Regulation 14A under the Exchange Act. +Item 14. Principal Accountant Fees and Services. +Information in response to this item is incorporated by reference to our Proxy Statement relating to our 2026 Annual Meeting of Shareholders. The Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal year covered by this Form 10-K pursuant to Regulation 14A under the Exchange Act. +98 +PART IV +Item 15. Exhibits and Financial Statement Schedules. +(a) The following documents are filed as part of this report: +(1) A list of the financial statements filed as a part of this report is set forth in Part II, Item 8, “ Financial Statements and Supplementary Data ” on page 53 of this Annual Report on Form 10-K and is incorporated herein by reference. +(2) Financial Statement Schedules: +All schedules are omitted because they are either not applicable or required information is shown in the financial statements or notes thereto. +(3) Exhibits: +The information required by this Item 15(a)(3) is set forth in the Index to Exhibits accompanying this Annual Report on Form 10-K and is incorporated herein by reference. +Item 16. Form 10-K Summary. +None. +99 +Index to Exhibits +Exhibit +Number +Exhibit +2.1 +Agreement and Plan of Merger, dated as of June 9, 2024, by and among Noble Corporation plc, Diamond Offshore Drilling, Inc., Dolphin Merger Sub 1, Inc. and Dolphin Merger Sub 2, Inc. (filed as Exhibit 2.1 to Noble’s Current Report on Form 8-K filed on June 10, 2024 , and incorporated h e r e i n by reference ). +3.1 +Amended and Restated Articles of Association of Noble Corporation plc (“Noble”) (filed as Exhibit 3.1 to Noble’s Current Report on Form 8-K filed on September 30, 2022 , and incorporated h e r e i n by reference ). +4.1 +Indenture, dated as of April 18, 2023, by and among Noble Finance II LLC, the subsidiaries of Noble Finance II LLC named therein, as guarantors, and U.S. Bank Trust Company, National Association, as trustee paying agent and registrar (including the form of 8.000% Senior Note due 2030 included therein) (filed as Exhibit 4.1 to Noble’s Current Report on Form 8-K filed on April 18, 2023 , and incorporated herein by reference ). +4.2 +Second Supplemental Indenture, dated as of August 22, 2024, among Noble Finance II LLC, as issuer, the guarantors listed on the signature pages thereto and U.S. Bank Trust Company, National Association, as trustee, paying agent and registrar (filed as Exhibit 4.3 to Noble’s Current Report on Form 8-K filed on August 22, 2024 , and incorporated h e r e i n by reference ). +4.3 +Indenture, dated as of September 21, 2023, among Diamond Foreign Asset Company and Diamond Finance, LLC, as issuers, Diamond Offshore Drilling, Inc., as a guarantor, the other subsidiaries of Diamond Offshore Drilling, Inc. party thereto from time to time, as guarantors, and HSBC Bank USA, National Association, as trustee and collateral agent (filed as Exhibit 4.1 to Diamond Offshore Drilling, Inc.’s Current Report on Form 8-K filed on September 22, 2023 , and incorporated h e r e i n by reference ). +4.4 +Supplemental Indenture, dated as of September 4, 2024, among Diamond Foreign Asset Company and Diamond Finance, LLC, as issuers, Diamond Offshore Drilling, Inc., as existing company, Dolphin Merger Sub 2, Inc., (now known as Noble Offshore Drilling Inc.) as new company, and HSBC Bank USA, National Association, as trustee and collateral agent (filed as Exhibit 4.1 to the Noble ’ s current Report on Form 8-K filed on September 4, 2024 , and incorporated h e r e i n by reference ). +4.5** +Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934, as a mend ed. +10.1* +Noble Corporation plc 2022 Long-Term Incentive Plan (filed as Exhibit 4.1 to Noble’s Registration Statement on Form S-8 filed on September 30, 2022 , and incorporated h e r e i n by reference ). +10.2* +First Amendment to the Noble Corporation plc 2022 Long-Term Incentive Plan, effective as of April 1, 2024 (filed as Exhibit 99.2 to Noble’s Registration Statement on Form S-8 filed on May 21, 2024 , and incorporated h e r e i n by reference ). +10.3* +Form of Director Restricted Stock Unit Award, effective as of January 25, 2024, under the Noble Corporation 2022 Long-Term Incentive Plan (2026 Annual Grants, filed as Exhibit 10.8 to Noble’s Annual Report on Form 10-K for the year ended December 31, 2023 , and incorporated by reference herein). +10.4* +Form of Time-Vested Restricted Stock Unit Award for Executive Officers, effective as of August 2, 2023, under the Noble Corporation plc 2022 Long-Term Incentive Plan (2024, 2025, & 2026 Annual Grant, filed as Exhibit 10.3 to Noble’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 , and incorporated herein by reference ). +100 +Exhibit +Number +Exhibit +10.5* +Form of Performance-Vested Restricted Stock Unit Award, effective as of August 2, 2023, under the Noble Corporation plc 2022 Long-Term Incentive Plan (2024, 2025, & 2026 Annual Grant, filed as Exhibit 10.4 to Noble’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 , and incorporated h e r e i n by reference ). +10.6* +Global Amendment to Employee Time and Performance Restricted Stock Awards Plan (filed as Exhibit 10.2 to Noble’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 , and incorporated h e r e i n by reference ). +10.7* ^ +Noble Corporation plc Executive Change in Control Severance Plan (filed as Exhibit 10.1 to Noble’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 , and incorporated h e r e i n by reference ). +10.8* ^ +Noble Corporation plc Executive Severance Plan (filed as Exhibit 10.2 to Noble’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 , and incorporated h e r e i n by reference ). +10.9 +Irrevocable Undertaking, dated as of November 10, 2021, by and among APMH Invest A/S, Noble Corporation, Noble Finco Limited and The Drilling Company of 1972 A/S (filed as Exhibit 10.1 to Noble Cayman’s Current Report on Form 8-K filed on November 10, 2021 , and incorporated h e r e i n by reference ). +10.10* +Form of Indemnification Agreement (filed as Exhibit 10.1 to Noble’s Current Report on Form 8-K filed on September 30, 2022 , and incorporated h e r e i n by reference ). +10.11 +Tranche 1 Warrant Agreement, dated as of September 30, 2022, by and among Noble Corporation plc, Computershare Inc. and Computershare Trust Company, N.A. (filed as Exhibit 10.2 to Noble’s Current Report on Form 8-K filed on September 30, 2022 , and incorporated h e r e i n by reference ). +10.12 +Tranche 2 Warrant Agreement, dated as of September 30, 2022, by and among Noble Corporation plc, Computershare Inc. and Computershare Trust Company, N.A. (filed as Exhibit 10.3 to Noble’s Current Report on Form 8-K filed on September 30, 2022 , and incorporated h e r e i n by reference ). +10.13 +Tranche 3 Warrant Agreement, dated as of September 30, 2022, by and among Noble Corporation plc, Computershare Inc. and Computershare Trust Company, N.A. (filed as Exhibit 10.4 to Noble’s Current Report on Form 8-K filed on September 30, 2022 , and incorporated h e r e i n by reference ). +10.14 +Assumption Agreement, dated as of September 30, 2022, by and between Noble Corporation plc and Noble Corporation (filed as Exhibit 10.5 to Noble’s Current Report on Form 8-K filed on September 30, 2022 , and incorporated h e r e i n by reference ). +10.15 +Registration Rights Agreement, dated as of October 3, 2022, by and between Noble Corporation plc and APMH Invest A/S (filed as Exhibit 10.2 to Noble’s Current Report on Form 8-K filed on October 3, 2022 , and incorporated herein by reference). +10.16 +Relationship Agreement, dated as of October 3, 2022, by and among Noble Corporation plc, Noble Corporation and APMH Invest A/S (filed as Exhibit 10.3 to Noble’s Current Report on Form 8-K filed on October 3, 2022 , and incorporated herein by reference). +101 +Exhibit +Number +Exhibit +10.17* +Noble Corporation plc 2025 Short-Term Incentive Plan (filed as Exhibit 10.22 to Noble’s Annual Report on Form 10-K for the year ended December 31, 2024, and incorporated herein by reference). +10.18** * +Noble Corporation plc 2026 Short-Term Incentive Plan. +10.19 +Amended and Restated Senior Secured Revolving Credit Agreement, dated as of April 18, 2023, by and among Noble Finance II LLC, Noble International Finance Company, Noble Drilling A/S, and any additional subsidiaries of Noble Finance II LLC as from time to time designated by Noble Finance II LLC as a designated borrower, as borrowers, the lenders and issuing banks party thereto from time to time and JPMorgan Chase Bank, N.A., as administrative agent, collateral agent and security trustee (filed as Exhibit 10.1 to Noble’s Current Report on Form 8-K filed on April 18, 2023 , and incorporated herein by reference). +10.20 +First Amendment to the Amended and Restated Senior Secured Revolving Credit Agreement, dated as of June 24, 2024 , by and among Noble Finance II LLC, Noble International Finance Company, as a designated borrower, Noble Drilling A/S, as a designated borrower, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 10.1 to Noble’s Current Report on Form 8-K filed on June 27, 2024 , and incorporated herein by reference). +10.21 +Amended and Restated Collateral Agreement and Intercreditor Agreement, dated as of September 21, 2023, among Noble Offshore Drilling, Inc. (formerly known as Dolphin Merger Sub 2, Inc. and as successor by merger with Diamond Offshore Drilling, Inc.), as a grantor, Diamond Foreign Asset Company, as a grantor, the other grantors from time to time party thereto, HSBC Bank USA, National Association, as credit agreement administrative agent, notes trustee, and collateral agent and security trustee (incorporated by reference to Exhibit 10.1 to Diamond Offshore Drilling, Inc.’s Current Report on Form 8-K filed on September 22, 2023 , and incorporated herein by reference). +10.22** +Second Amendment to the Amended and Restated Senior Secured Revolving Credit Agreement, dated as of December 16, 2025, by and among Noble Finance II LLC, Noble International Finance Company, as a designated borrower, Noble Drilling A/S, as a designated borrower, each of the lenders party hereto and JPMorgan Chase Bank, N.A., as administrative agent. +19.1 +Noble Corporation plc Policy on Trading in Company Securities (filed as Exhibit 19.1 to Noble’s Annual Report on Form 10-K for the year ended December 31, 2024, and incorporated herein by reference). +21.1** +List of Subsidiaries of Noble Corporation plc . +23.1** +Consent of PricewaterhouseCoopers LLP +31.1** +Certification of Robert W. Eifler, Noble, pursuant to the U.S. Securities Exchange Act of 1934, as amended, Rule 13a-14(a) or Rule 15d-14(a). +31.2** +Certification of Richard B. Barker, Noble, pursuant to the US Securities Exchange Act of 1934, as amended, Rule 13a-14(a) or Rule 15d-14(a). +32.1+ +Certification of Robert W. Eifler, Noble, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +102 +Exhibit +Number +Exhibit +32.2+ +Certification of Richard B. Barker, Noble, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97.1 +Noble Corporation plc Clawback Policy (filed as Exhibit 97.1 to Noble’s Annual Report on Form 10-K for the year ended December 31, 2023 , and incorporated herein by reference ). +101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. +101.SCH Inline XBRL Taxonomy Extension Schema Document. +101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. +101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. +101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. +101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. +104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). +______________________________________________________________________________________________________________________________________________________________________________________________________________________ +* Management contract or compensatory plan or arrangement. +** Filed herewith. +† Certain portions of the exhibit have been omitted. The Company agrees to furnish a supplemental copy with any omitted information to the SEC upon request. +^ Certain personally identifiable information contained in this exhibit has been redacted pursuant to Item 601(a)(6) of Regulation S-K. ++ Furnished in accordance with Item 601(b)(32)(ii) of Regulation S-K. +103 +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +Noble Corporation plc, a public limited company incorporated under the laws of England and Wales +February 12, 2026 By: /s/ Robert W. Eifler +Robert W. Eifler +President and Chief Executive Officer +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +/s/ Robert W. Eifler February 12, 2026 +Robert W. Eifler +President and Chief Executive Officer, and Director +(Principal Executive Officer) +Date +/s/ Richard B. Barker February 12, 2026 +Richard B. Barker +Executive Vice President and Chief Financial Officer +(Principal Financial Officer) +Date +/s/ Jeffrey K. Hunt February 12, 2026 +Jeffrey K. Hunt +Vice President and Chief Accounting Officer +(Principal Accounting Officer) +Date +/s/ Charles M. Sledge February 12, 2026 +Charles M. Sledge +Director and Chairman +Date +/s/ Patrice R. Douglas +February 12, 2026 +Patrice R. Douglas +Director +Date +/s/ Claus V. Hemmingsen February 12, 2026 +Claus V. Hemmingsen +Director +Date +/s/ Alan J. Hirshberg February 12, 2026 +Alan J. Hirshberg +Director +Date +/s/ Kristin H. Holth February 12, 2026 +Kristin H. Holth +Director +Date +/s/ H. Keith Jennings February 12, 2026 +H. Keith Jennings +Director +Date +104 \ No newline at end of file diff --git a/raw/filings/0001895262/2025/0001895262-26-000076/filing_metadata.csv b/raw/filings/0001895262/2025/0001895262-26-000076/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..8027037de0f2462bdb7902100cedbd0e9865b496 --- /dev/null +++ b/raw/filings/0001895262/2025/0001895262-26-000076/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001895262,NE-WTA,Noble Corp plc,2025,10-K,2026-02-12,2025-12-31,2026-02-12T18:43:55.000Z,0001895262-26-000076,ne-20251231.htm,10-K,14757036,1,1,https://www.sec.gov/Archives/edgar/data/1895262/000189526226000076/ne-20251231.htm,https://www.sec.gov/Archives/edgar/data/1895262/000189526226000076/ diff --git a/raw/filings/0001895262/2025/0001895262-26-000076/item1.txt b/raw/filings/0001895262/2025/0001895262-26-000076/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..c1f4b676cc3251c6eb189cc06858eafc2f02b08e --- /dev/null +++ b/raw/filings/0001895262/2025/0001895262-26-000076/item1.txt @@ -0,0 +1,122 @@ +Item 1. Business. +Overview +Noble Corporation plc, a public limited company incorporated under the laws of England and Wales (“Noble”), is a leading offshore drilling contractor for the oil and gas industry. We provide contract drilling services to the international oil and gas industry with our global fleet of mobile offshore drilling units. We deliver our services through a high-specification fleet of floating and jackup rigs and the deployment of our drilling rigs in oil and gas basins around the world. Noble and its predecessors have been engaged in the contract drilling of oil and gas wells since 1921. As of December 31, 2025, our fleet of 36 drilling rigs consisted of 25 floaters and 11 jackups. +On June 9, 2024, Noble entered into an agreement and plan of merger (the “Diamond Merger Agreement”) with Diamond Offshore Drilling, Inc. (“Diamond”), Dolphin Merger Sub 1, Inc., and Dolphin Merger Sub 2, Inc., under which Noble would acquire Diamond in a stock plus cash transaction (the “Diamond Transaction”). On September 4, 2024 (the “Diamond Closing Date”), Noble completed its acquisition of Diamond. +For additional information, see “Note 2 — Acquisitions and Divestitures” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. +References in this Annual Report on Form 10-K to “Noble,” the “Company,” “we,” “us,” and “our” refer collectively to Noble and its consolidated subsidiaries on and after the Diamond Closing Date, as applicable. +Contract Drilling Services +We report our contract drilling operations as a single reportable segment, Contract Drilling Services, which reflects how we manage our business. The mobile offshore drilling units comprising our offshore rig fleet operate in a global market for contract drilling services and are often redeployed to different regions due to changing demands of our customers, which consist primarily of large, integrated, independent, and government-owned or controlled oil and gas companies throughout the world. +We typically provide contract drilling services under an individual contract on a dayrate basis. Each contract’s final terms and conditions are the result of negotiations with our customers or other counterparties, and many contracts are awarded through a competitive bidding process. The following terms generally describe the key aspects of our contracts: +• contract duration extending over a specific period of time or a period necessary to drill a defined number of wells; +• payment of compensation to us (generally in US dollars, although some customers or other counterparties, typically national oil companies, require a part of the compensation to be paid in local currency) on a “daywork” basis, so that we receive a fixed amount (unless the contract contains a performance-based component) for each day (“dayrate”) that the drilling unit is operating under contract (a lower rate or no compensation is payable during periods of equipment breakdown and repair, adverse weather, or in the event operations are interrupted by other conditions, some of which may be beyond our control); +• provisions permitting early termination of the contract by the customer or other counterparties (i) if the unit is lost or destroyed, (ii) if operations are suspended for a specified period of time due to breakdown of equipment or breach of contract, or (iii) for convenience with the payment of contractually specified termination amounts; +• provisions allowing the impacted party to terminate the contract if specified “force majeure” events beyond the contracting parties’ control occur for a defined period of time; +• payment by us of the operating expenses of the drilling unit, including labor costs and the cost of incidental supplies; +• provisions that allow us to recover our mobilization and demobilization costs associated with moving a drilling unit from one regional location to another which, under certain market conditions, may not allow us to receive full reimbursement of such costs; +• provisions that allow us to recover certain cost increases from our customers in certain long-term contracts; +• provisions that require us to lower dayrates for documented cost decreases in certain long-term contracts; and +6 +• provisions that allocate responsibility and liability through indemnification provisions for risks related to personal injury, property damage or loss, environmental damages, damage to the reservoir, and other matters. +Under our drilling contracts, liability with respect to personnel and property is typically assigned on a “knock-for-knock” basis, which means that we and our customers or other counterparties assume liability for our respective personnel and property, generally irrespective of the fault or negligence of the party indemnified. In addition, our customers or other counterparties may indemnify us in certain instances for damage to our down-hole equipment and, in some cases, our subsea equipment. Also, we generally obtain a mutual waiver of consequential losses in our drilling contracts. +Our customers typically assume responsibility for and indemnify us from loss or liability resulting from pollution or contamination, including third-party damages and clean-up and removal, arising from operations under the contract and originating below the surface of the water. We are generally responsible for pollution originating above the surface of the water and emanating from our drilling units. Additionally, our customers typically indemnify us for liabilities incurred as a result of a blow-out or cratering of the well and underground reservoir loss or damage. In the current market, we are under increasing pressure to accept exceptions to the above-described allocations of risk and, as a result, take on more risk. In such cases where we agree, we generally limit the exposure with a monetary cap and other restrictions. +During periods of depressed market conditions, our customers or other counterparties may attempt to renegotiate or repudiate their contracts with us, although we seek to enforce our rights under our contracts. The renegotiation may include changes to key contract terms, such as pricing, termination, and risk allocation. +For a discussion of our backlog of commitments for contract drilling services, please read Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Contract Drilling Services Backlog.” +Drilling Fleet +Noble is a leading offshore drilling contractor for the oil and gas industry. Noble owns and operates one of the most modern, versatile, and technically advanced fleets of mobile offshore drilling units in the offshore drilling industry. Noble provides, through its subsidiaries, contract drilling services with a fleet of 31 offshore drilling units, consisting of 25 floaters and 6 jackups at the date of this report, focused largely on ultra-deepwater and ultra-harsh environment drilling opportunities in both established and emerging regions worldwide. Each type of drilling rig is described further below. Several factors determine the type of unit most suitable for a particular job, the most significant of which include the water depth and the environment of the intended drilling location, whether the drilling is being done over a platform or other structure, and the intended well depth. At December 31, 2025, our fleet was operating in Africa, Far East Asia, the North Sea, Oceania, South America, and the United States Gulf of America (the “US Gulf”). Our fleet consists of the following types of mobile offshore drilling units: +Floaters . A drillship is a type of floating drilling unit that is based on the ship-based hull of the vessel and equipped with modern drilling equipment that gives it the capability of easily transitioning from various worldwide locations and carrying high capacities of equipment while being able to drill ultra-deepwater oil and gas wells in up to 12,000 feet of water. Drillships can stay directly over the drilling location without anchors in open seas using a dynamic positioning system (“DPS”), which coordinates position references from satellite signals and acoustic seabed transponders with the drillship's six to eight thrusters to keep the ship directly over the well that is being drilled. Drillships are selected to drill oil and gas wells for programs that require a high level of simultaneous operations, where drilling loads are expected to be high, or where there are occurrences of high ocean currents, where the drillship's hull shape is the most efficient. Noble's fleet consists of 17 drillships capable of water depths from 10,000 feet to 12,000 feet. +Semisubmersible drilling units are designed as a floating drilling platform incorporating one or several pontoon hulls, which are submerged in the water to lower the center of gravity and make this type of drilling unit exceptionally stable in the open sea. Semisubmersible drilling units are generally categorized in terms of the water depth in which they are capable of operating, from the mid-water range of 300 feet to 4,000 feet, the deepwater range of 4,000 feet to 7,500 feet, to the ultra-deepwater range of 7,500 feet to 12,000 feet as well as by their generation, or date of construction. This type of drilling unit typically exhibits excellent stability characteristics, providing a stable platform for drilling even in rough seas. Semisubmersible drilling units hold their position over the drilling location using either an anchored mooring system or a DPS and may be self-propelled. Noble’s fleet consists of 8 moored ultra-deepwater semisubmersible drilling units. +Jackups . Jackup drilling units are designed to provide drilling solutions in depths ranging from less than 100 feet to as deep as 500 feet of water with drilling hook loads up to 2,500,000 pounds. Jackup rigs can be used in open water exploration locations, as well as over fixed, bottom-supported platforms. A jackup drilling unit is a towed mobile vessel consisting of a floating hull equipped with three or four legs, which are lowered to the seabed at the drilling location. The hull is then +7 +elevated out of the water by the jacking system using the legs to support the weight of the hull and drilling equipment against the seabed. Once the hull is elevated to the desired level, or “jacked up”, the drilling package can be extended out over an existing production platform or the open water location and drilling can commence. Noble’s fleet of 6 jackups consists of high-specification units capable of drilling in up to 500 feet of water. +The following table presents certain information concerning our offshore fleet at February 12, 2026. We own and operate all of the units included in the table. The table excludes certain rigs currently operating under a bareboat charter agreement. +8 +Name Make +Year +Built +Water Depth Rating +(feet) (1) +Drilling Depth Capacity (feet) Location +Status (2) +Floaters—25 +Drillships—17 +Noble Bob Douglas GustoMSC P10000 2013 12,000 40,000 Guyana Active +Noble Don Taylor GustoMSC P10000 2013 12,000 40,000 Guyana Active +Noble Faye Kozack Samsung 96000 2013 12,000 40,000 Brazil Active +Noble Gerry de Souza Samsung 120000 Double Hull 2011 12,000 40,000 Nigeria Active +Noble Globetrotter I Globetrotter Class 2011 10,000 30,000 Bulgaria Active +Noble Globetrotter II Globetrotter Class 2013 10,000 30,000 US Gulf Held for sale +Noble Sam Croft GustoMSC P10000 2014 12,000 40,000 Guyana Active +Noble Stanley Lafosse Samsung 96000 2014 12,000 40,000 US Gulf Active +Noble Tom Madden GustoMSC P10000 2014 12,000 40,000 Guyana Active +Noble Valiant Samsung 96000 2014 12,000 40,000 Suriname Active +Noble Venturer Samsung 96000 2014 12,000 40,000 Ghana Active +Noble Viking Samsung 96000 2014 12,000 40,000 Philippines Active +Noble Voyager Samsung 96000 2015 12,000 40,000 US Gulf Active +Noble BlackRhino Gusto P10000 2014 12,000 40,000 US Gulf Active +Noble BlackHawk Gusto P10000 2014 12,000 40,000 US Gulf Active +Noble BlackHornet Gusto P10000 2014 12,000 40,000 US Gulf Active +Noble BlackLion Gusto P10000 2015 12,000 40,000 US Gulf Active +Semisubmersibles—8 +Noble Deliverer DSS21-DPS2 2010 10,000 40,000 Malaysia Available +Noble Developer DSS21-DPS2 2009 10,000 40,000 Suriname Active +Noble Discoverer DSS21-DPS2 2009 10,000 40,000 Colombia Active +Noble Patriot Bingo 3000 1983 1,500 20,000 UK Active +Ocean Apex Enhanced Victory 1976/2014 6,000 30,000 Australia Available +Noble Courage F&G ExD Millennium 2009 10,000 40,000 Brazil Active +Noble Endeavor Enhanced Victory 1975/2006 10,000 35,000 South America Active +Ocean GreatWhite Moss CS-60E 2016 10,000 35,000 Norway Active +Independent Leg Cantilevered Jackups—6 +Harsh environment—1 +Noble Resolve MCS CJ50-X100 MC 2009 350 30,000 Spain Held for sale +Ultra-harsh environment—5 +Noble Innovator MCS CJ70-150MC 2003 492 30,000 UK Active +Noble Integrator MCS CJ70-X150 MD 2015 492 40,000 Norway Active +Noble Interceptor MCS CJ70-X150 MD 2014 492 40,000 Norway Active +Noble Intrepid MCS CJ70-X150 MD 2014 492 40,000 UK Active +Noble Invincible MCS CJ70-X150 MD 2016 492 40,000 Norway Active +9 +(1) Rated water depth for drillships and semisubmersibles reflects the maximum water depth for which a floating rig has been designed for drilling operations. +(2) Rigs listed as “active” are operating, preparing to operate, or under contract; rigs listed as “available” are actively seeking contracts and may include those that are idle or warm stacked. +Market +The offshore contract drilling industry is a highly competitive and cyclical business. Demand for offshore drilling services is driven by the offshore exploration and development programs of oil and gas operators, which in turn are influenced by many factors. Those factors include, but are not limited to, the price and price stability of oil and gas, the relative cost and carbon footprint of offshore resources within each operator’s broader energy portfolio, global macroeconomic conditions, world energy demand, the operator’s strategy toward renewable energy sources, environmental considerations, and governmental policies. +In the provision of offshore contract drilling services, success in securing contracts is primarily governed by price, a rig’s availability, drilling capabilities and technical specifications, and the drilling contractor’s safety performance record. Other factors include experience of the workforce, process efficiency, condition of equipment, operating integrity, reputation, industry standing, and client relations. +We maintain a global operational presence and compete in many of the major offshore oil and gas basins worldwide with a primary focus on the deepwater and ultra-deepwater floater market and ultra-harsh environment jackup market. All our drilling rigs are mobile, and we may reposition our drilling rigs among regions for a variety of reasons, including in response to customer requirements. We compete in both the floating and ultra-harsh jackup rig markets, each of which may have different supply and demand dynamics at a given period in time or in different regions. +We have one of the youngest and highest specification fleets of global scale in the industry, with diversification across geographic regions and customers. The Company has a track record of industry-leading utilization, coupled with a commitment to best-in-class safety performance and customer satisfaction. We strive to be a leader in industry innovation and first-mover in sustainability. +The offshore drilling industry has historically experienced significant volatility and change. In recent years, however, oil prices have generally remained at levels that are supportive of offshore exploration and development activity and global rig demand recovered to eclipse pre-pandemic levels, albeit with a steady downtrend since 2022 post-pandemic highs. Spot prices for Brent crude have recently settled in the mid to high $60s per barrel during early 2026 compared to an average price of $68 per barrel during 2025. Current demand and utilization levels are supported by the combination of the outlook for longer-term commodity prices, heightened focus on energy security, the capital intensity of depletion replacement, and relative attractiveness of offshore plays with respect to both cost and carbon emissions. The increase in global rig demand since 2021 has had a positive impact on dayrates for most rig classes, although dayrates have decreased moderately since recent highs during 2023 and 2024. +The global rig supply has come down from historic highs as Noble and other offshore drilling contractors have retired less capable and idle assets. Concurrently, the incoming supply of newbuild offshore drilling rigs has diminished materially, with very few newbuild rigs now remaining stranded in shipyards. +Although the market outlook in our business varies by geographical region and water depth and, despite recent downward pressure on the price of oil, we remain encouraged by the long-term outlook in the ultra-deepwater floater market. Our customers continue to focus on our highest specification floaters, which represents the majority of our floater fleet. Assuming current market fundamentals, continued customer prioritization towards these highest specification floaters could result in lower utilization for our lower specification drillships and our semi-submersibles. Demand for midwater semisubmersibles is primarily driven by brownfield activity in mature basins, especially in Northwest Europe, South America, and the Asia Pacific regions, where a generally stable level of baseload demand is supported by infield drilling and plug and abandonment requirements. Our ultra-harsh environment jackups operating in Norway and the UK experienced less cyclical improvement than the floater fleet during 2022-2024, but have recently begun to realize improving utilization. +While we remain encouraged about overall long-term rig demand, as evidenced by recent multi-year, multi-rig contracts that we have booked into backlog, the near-term outlook for both floaters and jackups over the next several quarters continues to present lingering utilization headwinds compared to 2023-2024 levels. Furthermore, economic uncertainty and lower commodity prices arising from recent trade policy and tariffs, compounded with OPEC’s stated intent to increase oil production, collectively present a potential for additional demand risk for offshore rigs in the near term. +10 +Across the broader offshore drilling market, recent contract awards and open tenders show an increasing proportion of multi-year contracts, although a significant number of shorter-term commitments continue to be fixed as well. Longer-term contracts can generally provide economic efficiencies by reducing the number of rig contract start-ups, both with different customers and among different regions, which is expected to reduce incremental resources and costs. On the other hand, certain multi-year contracts that are scheduled to commence a year or more into the future can present near-term utilization inefficiency due to challenges with filling interim availability on the assets. +The energy transition from hydrocarbons to renewables poses a challenge to the oil and gas sector and our market. Energy rebalancing trends sharply accelerated over the past decade as evidenced by promulgated or proposed government policies and commitments by many of our customers to further invest in sustainable energy sources, although this trend has moderated or even reversed in certain jurisdictions in more recent years with shifting political priorities. Our industry could be further challenged as resource holders and policy makers continue to evaluate and calibrate strategies and capital flows to address global energy needs. Ultimately, however, there continues to be a global dependence on products made from hydrocarbons and on the combustion of hydrocarbons to provide reliable and affordable energy. Low-cost and low-emission barrels are expected to be the most attractive conventional source to meet energy needs both currently and in the future. Global energy demand is predicted to increase over the coming decades, and we expect that offshore oil and gas will continue to play an important and lasting role in meeting this demand. +Significant Customers +During the three years ended December 31, 2025, we principally conducted our contract drilling operations in Africa, Far East Asia, the North Sea, Oceania, South America, and the US Gulf. The following table sets forth revenues from our customers as a percentage of our consolidated operating revenues: +Year Ended Year Ended Year Ended +December 31, 2025 December 31, 2024 December 31, 2023 +Exxon Mobil Corporation (“ExxonMobil”) 19.7 % 22.1 % 24.5 % +BP 13.2 % (1) (1) +Petrobras 12.5 % (1) (1) +TotalEnergies (1) (1) 10.5 % +Shell plc (1) 12.3 % 13.6 % +(1) Amount was less than 10% for the year presented. +No other customer accounted for more than 10% of our consolidated operating revenues in 2025, 2024, or 2023. +Human Capital +At December 31, 2025, we had approximately 4,500 employees, excluding approximately 1,400 persons we engaged through labor contractors or agencies. Approximately 77% percent of our workforce is located offshore. Certain of our employees and contractors in international markets, such as Norway and Denmark, are represented by labor unions and work under collective bargaining or similar agreements, which are subject to periodic renegotiation, and we consider our employee relations to be satisfactory. +For additional information, please read Part I, Item 1A, “Risk Factors—Risks Related to Our Business and Operations— Unionization efforts, labor interruptions, and labor regulations could have a material adverse effect on our operations. ” +Safety and Environmental Stewardship. Noble is committed to operating with excellent health, safety, and environmental (“HSE”) performance as an integral part of our business strategy, adding value for employees, customers, and shareholders. All personnel, regardless of job or position onboard our vessels or at any Noble facility, has the authorization and obligation to immediately stop any unsafe act, practice, or job that poses an unaddressed or unreasonable risk to people or the environment. +Our pursuit of exceptional HSE performance begins with our strong corporate culture that prioritizes proactive risk management, compliance with standards, and continuous improvement. This commitment is reinforced through Noble Peak, our safety philosophy focused on building capacity for safe work, learning from everyday operations, and fostering resilience. Noble Peak emphasizes mindset, skillset, and toolset—empowering teams to adapt, communicate, and learn continually—because safety is not just the absence of incidents, but the presence of defenses and capabilities. +To strengthen how we think about risk, Noble is moving beyond traditional lagging indicators such as IADC TRIR and LTIR. These legacy metrics often focus on frequency rather than severity, which can obscure the true risk profile of our +11 +operations. Our Potential Consequence Severity Index (“PCSI”) addresses this gap by weighting events based on both actual and potential consequences. This approach helps ensure that serious hazards and high-risk exposures receive the attention they deserve—even when no injury occurs. PCSI is intended to drive proactive learning and prioritization, helping us focus on eliminating life-altering risks and building resilience rather than simply counting incidents. +Training and Continuing Education. We place considerable value on the training and development of our employees. Accordingly, we conduct formal and informal meetings with employees, regular executive-led podcasts, issue periodic publications of Company activities and other matters of interest to the Company’s OneNoble app, and offer a variety of training, including in-house through NobleAdvances, our state-of-the-art training facility in Texas. Noble has learned that technical skills are not enough to keep pace in our fast-changing offshore environments. NobleAdvances allows us to deliver scenario-based drilling and marine training with a strong focus on communication, biases, and emergency decision making. This approach is designed to enable Noble employees to execute our procedures effectively and solve complex technical problems in challenging offshore conditions. +Government Regulation +Our operations are subject to federal, state, and local laws and regulations in the U.S. and other jurisdictions where we operate, including those relating to drilling services, exploration, development, and production, and other activities in the oil and gas industry, international maritime standards, worker health and safety, taxation, import and export, corruption, sanctions, trade, labor and employment, data privacy and security, and environmental protection. Compliance with these laws has in the past and may continue to require significant expenditures and operating costs. +In particular, environmental laws and regulations regarding emissions (including greenhouse gases and methane), water discharges, wastewater and stormwater management, chemical handling and storage, hazardous and non-hazardous waste generation and disposal, endangered species and habitat protection, noise and dust, site remediation, and spill prevention and response require ongoing attention and resources to support compliance. Changes in standards or enforcement priorities can increase our cost of doing business and affect utilization and margins. Similarly, environmental non‑compliance incidents could expose us to investigations, administrative orders, civil or criminal penalties, natural resource damages, remediation and restoration obligations, and third‑party claims for property damage, personal injury, or business interruption, as well as strict, joint, and several liability, which can result in liability without regard to fault. +In addition, obtaining and maintaining environmental permits can be time‑consuming and costly, and permitting or regulatory challenges can delay, restrict, or halt our operations or those of our customers. More stringent regulations or heightened enforcement may require us to curtail activities in certain locations, suspend or relocate equipment, or incur incremental operating and capital costs, and may also adversely affect the demand for our services if our customers reduce or defer drilling activity to address their own compliance burdens. +There is also ongoing attention concerning the global climate. Various regulators have proposed or adopted rules requiring the monitoring and reporting of GHG emissions from specified sources in the United States and abroad, including, among other things, certain offshore activities relating to oil and gas production. Emerging climate-related policies and market expectations, including greenhouse gas reporting and reduction programs, carbon pricing mechanisms, restrictions on flaring and venting, electrification requirements, and supply chain emissions goals set by our customers, could increase our costs, require additional disclosures and internal controls, or necessitate investments in lower‑emissions technologies and alternative power solutions for our rigs and facilities. Collectively, these factors could adversely affect our revenues, profitability, and returns on invested capital. More information on these and related risks can be found in our discussion in Part I, Item 1A, “Risk Factors” below. +Available Information +Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge at our website as soon as reasonably practicable after such material is electronically filed with or furnished with the SEC. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. +Our website address is http://www.noblecorp.com. Investors should also note that we announce material financial information in SEC filings, press releases, and public conference calls. Based on guidance from the SEC, we may use the investor relations section of our website to communicate with our investors. It is possible that the financial and other information (including fleet status reports) posted there could be deemed to be material information. Noble may also use social media channels including, but not limited to, Noble's accounts on LinkedIn, Facebook, Instagram, and X, to communicate with investors and the public about its business, services, and other matters, and those communications +12 +could be deemed to be material information. Documents and information on our website or our social media channels are not incorporated by reference herein. +13 \ No newline at end of file diff --git a/raw/filings/0001895262/2025/0001895262-26-000076/item13.txt b/raw/filings/0001895262/2025/0001895262-26-000076/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..6ef25ff78e4f5a7a2839c959c22a569bedc9bc85 --- /dev/null +++ b/raw/filings/0001895262/2025/0001895262-26-000076/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships, Related Transactions, and Directors’ Independence +98 \ No newline at end of file diff --git a/raw/filings/0001895618/2024/0001013762-25-004271/filing.txt b/raw/filings/0001895618/2024/0001013762-25-004271/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..538c65654e7fa7b51871bfee7a9256a5300c8420 --- /dev/null +++ b/raw/filings/0001895618/2024/0001013762-25-004271/filing.txt @@ -0,0 +1,6030 @@ +UNITED +STATES +SECURITIES +AND EXCHANGE COMMISSION +Washington, +D.C. 20549 +FORM +10-K +☒ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the fiscal year ended December 31 , 2024 +☐ +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the transition period from ______ to ______ +Commission +file number 001-41620 +GAXOS.AI +INC. +(Exact +name of Registrant as specified in its charter) +Nevada 87-3288897 +(State or other jurisdiction +of incorporation or organization) (I. R. S. Employer +Identification No.) +101 Eisenhower Pkwy Suite 300 , +Roseland , New Jersey +07068 +(Address of principal executive offices) (Zip Code) +(973) 275-7428 +(Registrant’s telephone number, including area code) +Securities +registered pursuant to Section 12(b) of the Exchange Act: +Title of each class Trading Symbol Name of exchange on which registered +Common Stock, par value $0.0001 GXAI The Nasdaq Stock Market LLC +Securities +registered pursuant to Section 12(b) of the Act: None +Indicate +by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate +by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ +Indicate +by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange +Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) +has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate +by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule +405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant +was required to submit such files). Yes ☒ No ☐ +Indicate +by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting +company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller +reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer ☐ Accelerated filer ☐ +Non-accelerated filer ☒ Smaller reporting company ☒ +Emerging growth company ☒ +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying +with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate +by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness +of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered +public accounting firm that prepared or issued its audit report. ☐ +If +securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant +included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate +by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation +received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate +by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act) Yes ☐ No ☒ +The +aggregate market value of the voting and non-voting common equity held by non-affiliates, based upon the closing price of $2.78 per share +of common stock as of June 30, 2024 (the last business day of the registrant’s most recently completed second fiscal quarter), +was $ 2,700,697,72 . +As of March 25, 2025, 7,123,453 shares of the registrant’s +common stock, $0.0001 par value per share, were issued and outstanding. +Documents +Incorporated by Reference: None . +GAXOS.AI +INC. +Form +10-K +For +the Fiscal Year Ended December 31, 2024 +TABLE +OF CONTENTS +Page +Part +I +Item +1. +Business +1 +Item +1A. +Risk +Factors +5 +Item +1B. +Unresolved +Staff Comments +30 +Item +1C. +Cybersecurity +30 +Item +2. +Properties +30 +Item +3. +Legal +Proceedings +30 +Item +4. +Mine +Safety Disclosures +30 +Part +II +Item +5. +Market +For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +31 +Item +6. +[Reserved] +31 +Item +7. +Management’s +Discussion and Analysis of Financial Condition and Results of Operations +32 +Item +7A. +Quantitative +and Qualitative Disclosures About Market Risk +38 +Item +8. +Financial +Statements and Supplementary Data +38 +Item +9. +Changes +in and Disagreements With Accountants on Accounting and Financial Disclosure +38 +Item +9A. +Controls +and Procedures +38 +Item +9B. +Other +Information +38 +Item +9C. +Disclosure +Regarding Foreign Jurisdictions that Prevent Inspections +38 +Part +III +Item +10. +Directors, +Executive Officers and Corporate Governance +39 +Item +11. +Executive +Compensation +43 +Item +12. +Security +Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +49 +Item +13. +Certain +Relationships and Related Transactions, and Director Independence +50 +Item +14. +Principal +Accountant Fees and Services +51 +Part +IV +52 +Item +15. +Exhibit +and Financial Statement Schedules +52 +Item +16. +Form +10-K Summary +54 +Signatures +55 +i +CAUTIONARY +NOTE REGARDING FORWARD-LOOKING STATEMENTS +This +Annual Report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, +as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange +Act”). Any statements in this Annual Report on Form 10-K about our expectations, beliefs, plans, objectives, assumptions or future +events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through +the use of words or phrases such as “believe,” “will,” “expect,” “anticipate,” “estimate,” +“intend,” “plan” and “would.” For example, statements concerning financial condition, possible or +assumed future results of operations, growth opportunities, industry ranking, plans and objectives of management, markets for our common +stock and future management and organizational structure are all forward-looking statements. Forward-looking statements are not guarantees +of performance. They involve known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, +performance or achievements to differ materially from any results, levels of activity, performance or achievements expressed or implied +by any forward-looking statement. +Any +forward-looking statements are qualified in their entirety by reference to the risk factors discussed throughout this Annual Report on +Form 10-K. Some of the risks, uncertainties and assumptions that could cause actual results to differ materially from estimates or projections +contained in the forward-looking statements include, but are not limited to: +● +our +ability to obtain additional funds for our operations; +● +our +financial performance, including our revenues, cost of revenues, operating expenses, and our ability to attain and sustain profitability; +● +our +ability to attract and retain users; +● +our +ability to attract and retain advertisers; +● +our +ability to compete effectively with existing competitors and new market entrants; +● +our +ability to successfully expand in our existing markets and penetrate new markets; +● +our +expectations regarding the time during which we will be an emerging growth company under the Jumpstart Our Business Startups +Act, or JOBS Act; +● +our +ability to effectively manage our growth, and future expenses; +● +our +ability to maintain, protect, and enhance our intellectual property; +● +our +ability to comply with modified or new laws and regulations applying to our business, competitors and industry; +● +our +ability to attract and retain qualified key management and technical personnel; and +● +other +risks and uncertainties, including those listed under the caption “Risk Factors.” +The +foregoing list sets forth some, but not all, of the factors that could affect our ability to achieve results described in any forward-looking +statements. You should read this Annual Report on Form 10-K and the documents that we reference herein and have filed as exhibits to +the Annual Report on Form 10-K, completely and with the understanding that our actual future results may be materially different from +what we expect. You should assume that the information appearing in this Annual Report on Form 10-K is accurate as of the date hereof. +Because the risk factors referred to on page 5 of Annual Report on Form 10-K could cause actual results or outcomes to differ materially +from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking +statements. Further, any forward-looking statement speaks only as of the date on which it is made, and except as required by law, we +undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement +is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to +predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any +factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. +We qualify all of the information presented in this Annual Report on Form 10-K, and particularly our forward-looking statements, by these +cautionary statements. +ii +SUMMARY +OF RISK FACTORS +Our +business is subject to significant risks and uncertainties that make an investment in us speculative and risky. Below we summarize what +we believe are the principal risk factors but these risks are not the only ones we face, and you should carefully review and consider +the full discussion of our risk factors in the section titled “Risk Factors,” together with the other information in this +Annual Report on Form 10-K. If any of the following risks actually occurs (or if any of those listed elsewhere in this Annual Report +on Form 10-K occur), our business, reputation, financial condition, results of operations, revenue, and future prospects could be seriously +harmed. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important +factors that adversely affect our business. +Risks +Related to Our Business and Industry +● +We +have a limited operating history and have not yet generated any revenues; +● +We +have not developed a strong customer base, and we have not generated sustainable revenue since inception. We cannot assure you that +we ever will. We will incur significant losses in launching products and we may not realize sufficient subscriptions or profits in +order to sustain our business; +● +We +are dependent on the services of certain key management personnel, employees, and advisors. If we are unable to retain or motivate +such individuals or hire qualified personnel, we may not be able to grow effectively; +● +Certain +products that we offer are based on new and unproven technologies and is subject to the risks of failure inherent in the development +of new products and services; +● +A +slowdown or reduction in our sales in due to a reduction in end user demand, unanticipated competition, regulatory issues, or other +unexpected circumstances +● +If +we fail to add new users, or if our users engage less with our products, our business would be seriously harmed; and +● +Uncertainty +regarding our ability to achieve profitability and positive cash flow through the commercialization of the products we offer or intend +to offer in the future. +Risks +Related to Data Security +● +We +rely on information systems to obtain, process, analyze, and manage data and to the extent IT systems are not successfully implemented +or fail, our business and results of operations may be adversely affected. +● +In +addition to the risks generally relating to the collection, use, retention, security and transfer of personal information, we are +also subject to specific obligations relating to information considered sensitive under applicable laws, such as health data and +biometric data. +● +Unauthorized +access, use or disclosure of certain sensitive information in our possession or our failure to satisfy legal requirements, including +requirements relating to safeguarding protected health information under the Health Insurance Portability and Accountability Act +(“HIPAA”) or state data privacy laws could result in civil and criminal liability and regulatory action, which could +result in potential fines and penalties, as well as costs relating to investigation of an incident or breach, corrective actions, +required notifications to regulatory agencies and customers, credit monitoring services and other necessary expenses. +iii +Risks +Related to Information Technology Systems, Intellectual Property and Privacy Laws +● +We +may not be able to adequately protect our proprietary technology, and our competitors may be able to offer similar products and services +which would harm our competitive position; +● +Unauthorized +breaches or failures in cybersecurity measures adopted by us and/or included in our products and services could have a material adverse +effect on our business; and +● +We +may be subject to stringent and changing laws, regulations, standards, and contractual obligations related to privacy, data protection, +and data security. Our actual or perceived failure to comply with such obligations could adversely affect our business. +Risks +Related to Digital Assets +● +The +exchanges on which crypto assets trade are relatively new and largely unregulated, and thus may be exposed to loss, fraud and failure; +● +General +regulatory uncertainty with respect to whether certain NFTs could be considered securities and if NFTs we sold were +deemed to be securities, we could be in violation of securities laws which could lead to an enforcement action by the SEC and result +in fines and other penalties, and have a negative impact on our business; and +● +We +rely on third-party providers for computing infrastructure, secure network connectivity, and other technology-related services +needed to deliver our products. Any disruption in the services provided by such third-party providers could adversely affect +our business. +Risks +Related to Regulatory Changes +● +We +may be subject to stringent and changing laws, regulations, standards, and contractual obligations related to privacy, data protection, +and data security. Our actual or perceived failure to comply with such obligations could adversely affect our business; +● +Current +and future laws and regulations. +Risks +Related to the Offering and Our Common Stock +● +We +do not expect to pay dividends in the foreseeable future; +● +If +our stock price fluctuates, you could lose a significant part of your investment; +● +The delisting of our securities by The Nasdaq Capital Market (“Nasdaq”); +and +● +Exclusive +forum provisions in our certificate of incorporation and bylaws. +iv +ITEM +1. BUSINESS +Overview +We +are a technology-based company that is developing applications aimed at redefining the way we utilize artificial intelligence (“AI”) +to optimize the user experience. We are committed to addressing the need for AI solutions in both health and entertainment. +Gaxos +Labs +Gaxos Labs, launched in September +2024, is a transformative generative AI service that empowers game developers and publishers. Key features of the product include: +● +AI-Powered +Creativity: Reduces creative asset development time from hours to minutes, transforming artistic visions into reality with ease. +Rapid prototyping abilities allows for experimentation with different designs quickly and easily. +● +Monetization: +Publishers have the ability to offer users AI-generated assets for player customization. +● +Seamless +Integration: With plug-and-play functionality for Unity and Godot, integration is effortless into existing workflows. +● +API: +Connect to any game development engine and build for any platform including mobile and PC. +● +Dynamic +Content Generation: User-Generated-Ai-Content (“UGAiC”) feature offers new experiences with each playthrough by letting +gamers use AI in real time, fostering a dynamic gaming environment. +● +Customized +Solutions: From personalized AI models including images and sound capabilities to expert consulting services, our offering includes +customizable solutions to meet the unique needs of any developer. +Gaxos +Gaming +Gaxos +Gaming (the “Platform” or “Gaxos Gaming”) was created with a vision to develop, design, acquire, and manage conventional +games and to combine these games with unconventional game mechanisms, such as the ability for gamers and developers to utilize AI to +create and design in-game features, as well as to mint unique in-game features, such as skins, characters, weapons, gear, levels, and +virtual lands, in the form of non-fungible tokens, or “NFTs,” that will allow users to have unique experiences and more control +over in-game assets. +In +2023, we launched our own proprietary games that are simple and fun to play, and that offer gamers the ability to utilize AI to personalize +their gaming experience as well as to mint their own affordable NFTs, with unique and exclusive features, that can be utilized across +our network of games. As of December 2024, we have launched four games, Space Striker AI, Brawl Bots, BattleFleet AI, and Jigsaw Puzzle +AI. Space Striker AI allows players to engage in a captivating storyline and exciting retro shooting space action in the players +AI-generated spaceship. Players can fuse crystals to upgrade their ship parts to craft, clash and conquer the galaxy all within a dynamic +free-to-play economy. Brawl Bots immerses users in high-octane battles in real time against other players, in solo play or teams. Each +player gets to control their own exclusive Bot character, ensuring a personalized gaming experience. BattleFleet AI is a take on the +classic Battleship game with AI elements that allow gamers to design their ships. Jigsaw Puzzle AI lets gamers solve preloaded jigsaw +puzzles as well as design and solve new jigsaw puzzles using AI. +Gaxos +Health +In +July 2024, we launched Gaxos Health, which is dedicated to revolutionizing personal health and wellness by developing a suite of innovative +AI-powered health optimization solutions. Gaxos Health will integrate AI-driven insights with individual biometric data and health goals +to create web and application based personalized wellness strategies for users. This cutting-edge approach was designed to redefine +preventative medicine, offering unparalleled personalization in health and wellness. Gaxos Health solutions will analyze a wide range +of health data to provide tailored wellness plans and address the growing demand for personalized health solutions. We believe that this +technology is not just a step but a leap forward in empowering individuals to take control of their health and longevity with AI’s +precision and intelligence. Currently, Gaxos Health offers customized health plans and coaching based on collected DNA, blood biomarkers, +and individual goals and traits. +RNK +Health +On September 23, 2024, the Company formed a wholly-owned subsidiary, +RNK Health LLC (“RNK Health”), to form a partnership and potential relationship with Nekwellness, LLC (“Nekwellness”) +to engage in the proposed business of marketing certain health-related products. On October 10, 2024, the Company, RNK Health and Nekwellness +entered into an operating agreement with respect to the regulation and management of the affairs of RNK Health and, as of such date, the +Company owns a 70% membership interest in RNK Health and Nekwellness owns a 30% membership interest in RNK Health. RNK Health is currently providing access to GLP-1 medications such as injectable and oral Semaglutide and Terzepatide, +and intends to add other products such as testosterone replacement therapy (TRT) +1 +Intellectual +Property +Our +business is dependent upon the creation, acquisition, use and protection of intellectual property. Some of this intellectual property +is expected to be in the form of software code, patented technology, copyright, and trade secrets that we will use to develop our games +and the Platform. While we will develop our own intellectual property, we may also acquire and/or license other intellectual property +which is owned by third parties. +We +protect our intellectual property rights by relying on federal, state and common law protections, as well as contractual restrictions. +We actively seek protection covering any intellectual property we believe may be useful or relevant to our business. +Our +goal is to obtain, maintain and enforce protection for our intellectual property, and to operate without infringing on the rights of +other parties. Our policy is to actively seek the broadest intellectual property protection possible for our intellectual property through +a combination of contractual arrangements, registration of our domain names, copyrights, trademarks, service marks and/or patents. We +have established business procedures designed to maintain the confidentiality of our proprietary information, including the use of confidentiality +agreements with employees, independent contractors, consultants, and entities with which we conduct business. +The +Platform will allow third-party game developers to mint NFTs using their own intellectual property and our tools to list those NFTs +for sale (primary sales) on the Platform. The Platform only allows NFTs that were originally minted using the Company’s NFT infrastructure +to be listed for sale. All third-party game developers who create NFTs on the Platform will be required to agree to our Terms of Service +and Privacy Policy prior to engaging with the Platform. Our Terms of Service and Privacy Policy will require creators to attest they +own the intellectual property used to create their NFTs and to monitor for obvious copyright violations. It is not yet certain to what +extent the Digital Millennium Copyright Act (DMCA) applies to NFT platforms. However, it seems likely that NFT platform owners will be +subject to at least some responsibility for responding to copyright infringement on their sites, therefore, we plan to take proactive +approach by registering with the DMCA to retain a designated agent for DMCA notices as well as instructions for submitting copyright +infringement claims. +Government +Regulation +Data +Privacy Laws and Regulations +We +are subject to various federal, state, and international laws and regulations that affect companies conducting business on the Internet +and mobile platforms, including those relating to privacy, use and protection of player and employee personal information and data (including +the collection of data from minors), the Internet, behavioral tracking, mobile applications, content, advertising and marketing activities +and anti-corruption. Additional laws in all of these areas are likely to be passed in the future, which could result in significant limitations +on or changes to the ways in which we can collect, use, host, store or transmit the personal information and data of our customers or +employees, communicate with our players and deliver products and services, which may significantly increase our compliance costs. +We +recognize that users of Gaxos Gaming and Gaxos Health care deeply about how their personal information is collected, used and shared. +Users +of Gaxos Gaming and Gaxos Health may be required to provide us with certain personal information such as their name, email address and +phone number. We take commercially reasonable and appropriate measures to protect this personal information from accidental loss, misuse, +and unauthorized access, disclosure, alteration, or destruction, taking into account the risks involved in processing and the nature +of such data, and comply with applicable laws and regulations. We do not currently transfer any personal information to third-parties +that do not act on our behalf, and we will not do so without users’ opt-in consent. Similarly, we do not currently collect sensitive +personal information from users without opt-in consent. We may disclose personal information to certain types of third-party companies, +but only to the extent needed to enable them to provide such services. The types of companies that may receive personal information and +their functions are: marketing assistance, analytics and reporting, customer support, email and SMS delivery, cloud infrastructure, and +systems monitoring. All such third parties function as our agents, performing services at our instruction and on our behalf pursuant +to contracts which require them to provide at least the same level of privacy protection as is required by our Privacy Policy. In addition, +we may be required to disclose personal information in response to lawful requests by public authorities, including for the purpose of +meeting national security or law enforcement requirements. We may also disclose personal information to other third parties when compelled +to do so by government authorities or required by law or regulation including, but not limited to, in response to court orders and subpoenas. +2 +With +respect to retention of personal information, we may only retain such users’ personal information in a form that identifies them +only for as long as it serves the purpose(s) for which it was initially collected as stated in our Privacy Policy, as may be subsequently +authorized. We may continue processing users’ personal information for longer periods, but only for the time and to the extent +such processing reasonably serves the purposes of statistical analysis, and subject to the protection of our Privacy Policy. After such +time periods have expired, we may either delete the personal information or retain it in a form such that it does not identify the user +personally. +Healthcare +Laws and Regulations +We +will be subject to healthcare regulation and enforcement by the federal government and the states and foreign governments in which we +might conduct our business, including the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended +by the Health Information Technology for Economic and Clinical Health Act of 2009 and their implementing regulations, impose obligations +on certain types of individuals and entities regarding the electronic exchange of information in common healthcare transactions, as well +as standards relating to the privacy and security of individually identifiable health information. +Competition +We +operate in industries that are highly competitive and evolving. Specifically, our business faces intense competition in gaming and +other various digital products. In addition, our Platform may face competition from other AI services that cater to game users and +game developers. Further, our competition may become more intense if gaming industry leaders such as Sony, Nintendo, and Microsoft, +all of whom have significant financial, technical and other resources, greater brand recognition and longer +operating histories, decide to focus their efforts on blockchain gaming. +Gaxos +Health will also operate in a competitive health and wellness landscape. Specifically, Gaxos Health may face intense competition +from other companies catering to individuals that are seeking for ways to improve their longevity and health span. Certain +competitors may expand their offering to include artificial intelligence and other proprietary methodologies that can further +increase competition. +RNK Health operates in a competitive landscape +and faces competition from similar companies that provide access to similar products such as compounded Semaglutide and Tirzepatide. +Our +ability to compete depends in large part on our continuous commitment to research and development, our ability to rapidly introduce new +features and functionality, and to acquire users. We intend to work closely with our customers to continuously enhance the performance, +functionality, usability, reliability and flexibility of the Platform. +Employees +As +of March 15, 2025, we have a total of 3 full-time employees, We have established a network of external professionals and consultants +to which we outsource various research and development and operational tasks in an effort to minimize administrative overhead. We are +not a party to any collective bargaining agreements. We believe that we maintain good relations with our employees. +3 +Corporate History +We +were originally incorporated in the State of Wyoming on October 27, 2021 (“NFT Wyoming”). +On +March 29, 2022, the Board of Directors of the Company approved, subject to shareholder approval, a Plan of Conversion, pursuant +to which the Company converted from a corporation incorporated under the laws of the State of Wyoming to a corporation incorporated under +the laws of the State of Delaware (the “Delaware Reincorporation”), and such approval included the adoption of the Certificate +of Incorporation (the “Delaware Certificate”) and the Bylaws (the “Delaware Bylaws”) for the Company under the +laws of the State of Delaware, under the name, “The NFT Gaming Company, Inc.,” to become effective with the effectiveness +of the Reincorporation. On March 29, 2022, we received majority shareholder approval. +On +March 30, 2022, we completed the Delaware Reincorporation by filing the Delaware Certificate with the Delaware Secretary of State. +On +January 5, 2024, we filed an amendment to our Certificate of Incorporation with the Delaware Secretary of State to change our name to +“Gaxos.ai Inc.” +On March +7, 2024, we filed a Certificate of Amendment with the Delaware Secretary of State to effectuate a 1-for-12 reverse stock split of our +issued and outstanding and authorized shares of common stock. The reverse stock split became effective on March 7, 2024. All share +data, per share data and related information contained in this Annual Report on Form 10-K has been retrospectively adjusted to reflect +the effect of the reverse stock split. +On +September 16, 2024, the Board of Directors of the Company approved, subject to shareholder approval, a Plan of Conversion, pursuant to +which the Company converted from a corporation incorporated under the laws of the State of Delaware to a corporation incorporated under +the laws of the State of Nevada (the “Reincorporation”), and such approval included the adoption of the Articles of Incorporation +(the “Nevada Articles”) and the Bylaws (the “Nevada Bylaws”) for the Company under the laws of the State of Nevada, +under the name, “Gaxos.ai Inc.,” to become effective with the effectiveness of the Reincorporation. On December 27, 2024, +we received majority shareholder approval for the Reincorporation. +On +March 3, 2025, we changed our state of incorporation from Delaware to Nevada. +Our +Corporate Information +We were incorporated as in the State of Wyoming on October 27, 2021. +On March 30, 2022, we changed our state of incorporation from Wyoming to Delaware. On March 3, 2025, we changed our state of incorporation +from Delaware to Nevada. Our principal executive offices are located at 101 Eisenhower Pkwy, Suite 3000, Roseland, NJ 07068 and our telephone +number is (973) 275-7428. +Available +Information +Our +website address is https://gaxos.ai. The contents of, or information accessible through, our website are not part of this Annual +Report on Form 10-K, and our website address is included in this document as an inactive textual reference only. We make our filings +with the U.S. Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K, Quarterly Reports on +Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, available free of charge on our website as soon as reasonably +practicable after we file such reports with, or furnish such reports to, the SEC. The public may read and copy the materials we file +with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on +the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an internet site that +contains reports, proxy and information statements and other information. The address of the SEC’s website is www.sec.gov. The +information contained in the SEC’s website is not intended to be a part of this filing. +4 +ITEM +1A. RISK FACTORS +An +investment in our securities involves a high degree of risk. An investor should carefully consider the risks described below as well +as other information contained in this Annual Report on Form 10-K and our other reports filed with the U.S. Securities and Exchange Commission +(“SEC”). The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not +presently known to us or that we currently believe are immaterial may also impair our business operations. If any of the following risks +actually occur, our business, financial condition or results of operations could be materially adversely affected, the value of our securities +could decline, and investors in our company may lose all or part of their investment. +Risks +Related to Our Business and Industry +We +have a limited operating history and, therefore, cannot accurately project our revenues and operating expenses. +Because +we have a limited history, it is difficult to evaluate our proposed business and future prospects, including our ability to plan for +and model future growth. For example, we intend to launch our Platform. There is no guarantee that the Platform will be launched or that +expenditures will result in profit or growth of our business. Our limited operating experience, combined with the rapidly evolving nature +of the NFT market in which we intend to operate, substantial uncertainty concerning how this market may develop, and other economic factors +beyond our control reduce our ability to accurately forecast quarterly or annual revenue. Failure to manage our current and future growth +effectively could have an adverse effect on our business, operating results, and financial condition. Our business should be considered +in light of the risks, expenses, and difficulties that we have encountered to date and will continue to encounter. +We +have not developed a strong customer base, and we have not generated sustainable revenue since inception. We cannot assure you that we +ever will. We will incur significant losses in launching products and we may not realize sufficient subscriptions or profits in order +to sustain our business. +We +have not yet developed a strong customer base and we have not generated sustainable revenue since inception. We are subject to the substantial +risk of failure facing businesses seeking to develop and commercialize new products and technologies. Maintaining and improving our Platform +will require significant capital. We will also incur substantial accounting, legal, and other overhead costs as a public company. If +our offerings to customers are unsuccessful, result in insufficient revenue, or result in us not being able to sustain revenue, we will +be forced to reduce expenses, which may result in an inability to gain new customers. +We +may encounter numerous difficulties frequently encountered by companies in the early stage of operations. +We +have a limited operating history upon which any investor may evaluate our current business and future prospects. Any potential investor +must consider the risks and difficulties frequently encountered by early-stage companies. Historically, there has been a high failure +rate among early-stage companies. Our future performance will depend upon a number of factors, including our ability to: +● implement +our growth strategy; +● aggressively +counter and respond to actions by our competitors; +● pursue +new users and maintain relationship with current users; +● maintain +adequate control of our expenses; +● attract, +retain and motivate qualified personnel; +● react +to user preferences and demands; +● our +ability to successfully implement, launch, and achieve market acceptance of our NFT products +and to anticipate and manage the risks associated therewith; and +● regulatory +compliance. +We +cannot assure investors that we will successfully address any of these factors, and our failure to do so could have a material adverse +effect on our business, financial condition, results of operations, and future prospects. +We +may be unable to manage our growth or implement our expansion strategy. +We +may not be able to develop our product or implement the other features of our business strategy at the rate or to the extent presently +planned. Our projected growth will place a significant strain on our administrative, operational, and financial resources. If we are +unable to successfully manage our future growth, establish and continue to upgrade our operating and financial control systems, recruit +and hire necessary personnel, or effectively manage unexpected expansion difficulties, our financial condition and results of operations +could be materially and adversely affected. +5 +We +will need additional debt or equity financing in the future. +While +we expect to be able to generate operating revenues from the sale of our video digital products, our operating revenues will not be sufficient +to finance our operations including our marketing efforts. Accordingly, we will need to obtain additional financing to operate and fully +implement our business plan and aggressive growth strategy. There can be no assurance that any additional financing will be available +to us or, if available, that such financing will be on terms acceptable to us. If we obtain additional financing through the issuance +of equity or convertible debt securities, it may be significantly dilutive to our shareholders and such additional equity or convertible +debt securities may have rights, preferences, or privileges senior to those of our Common Stock. In addition, our ability to issue debt +securities or to service any debt may also be limited by our inability to generate consistent cash flow. If additional financing is not +available on acceptable terms, we may not be able to fund our on-going operations or any future expansion of our business, develop +or enhance our products or services, or respond effectively to competitive pressures. The inability to raise additional capital in the +future may force us to curtail future business opportunities or cease operations entirely. +If +we are unable to obtain additional funding when needed, our business operations will be harmed, and if we do obtain additional financing, +our then-existing shareholders may suffer substantial dilution. +As +we take steps in the commercialization and marketing of our technologies, or respond to potential opportunities and/or adverse events, +our working capital needs may change. We anticipate that if our cash and cash equivalents are insufficient to satisfy our liquidity requirements, +we will require additional funding to sustain our ongoing operations and to continue our research and development activities. We do not +have any contracts or commitments for additional funding, and there can be no assurance that financing will be available in amounts or +on terms acceptable to us, if at all, if needed. The inability to obtain additional capital will restrict our ability to grow and may +reduce our ability to conduct business operations. If we are unable to obtain additional financing to finance a revised growth plan, +we will likely be required to curtail such plans or cease our business operations. Any additional equity financing may involve substantial +dilution to our then existing shareholders. +We +are dependent on the services of certain key management personnel, employees, and advisors. If we are unable to retain or motivate such +individuals or hire qualified personnel, we may not be able to grow effectively. +We +depend on the services of a number of key management personnel, employees, and advisors and our future performance will largely depend +on the talents and efforts of such individuals. We do not currently maintain “key person” life insurance on any of our employees. +The loss of one or more of such key individuals, or failure to find a suitable successor, could hamper our efforts to successfully operate +our business and achieve our business objectives. Our future success will also depend on our ability to identify, hire, develop, motivate, +and retain highly skilled personnel. Competition in our industry for qualified employees is intense, and our compensation arrangements +may not always be successful in attracting new employees and/or retaining and motivating our existing employees. Future acquisitions +by us may also cause uncertainty among our current employees and employees of the acquired entity, which could lead to the departure +of key individuals. Such departures could have an adverse impact on the anticipated benefits of an acquisition. +We +may continue to incur substantial losses and negative operating cash flows and may not achieve or maintain positive cash flow or profitability +in the future. +We +have incurred significant losses and negative operating cash flow from inception and may continue to incur significant losses and negative +operating cash flow into the future. In order to reach our business growth objectives, we expect to incur significant sales, marketing, +software development and other operating costs, including costs associated with the expansion of our personnel. As a result, we will +need to generate and grow our revenues significantly to achieve positive cash flow and profitability. There can be no assurance that +we will be successful in generating and increasing our revenues or that we can achieve or maintain positive cash flow or profitability. +The uncertainties regarding the commencement of adequate commercial revenues raise substantial doubt about our ability to continue as +a going concern. +Our +Platform is currently under development and no assurance can be given that our Platform will be accepted by others or generate sufficient +interest . +Our +proposed Platform is currently under development. It is our intent that the Platform will (i) support our owned-and-operated games; +(ii) provide third-party game creators and publishers with the ability to integrate our NFT infrastructure; and (iii) create +a unified environment where all the games and users on the Platform can participate in promotions, opportunities, and various experiences. +Failure to develop a robust gaming platform will adversely affect our business objectives. +Our +business will be intensely competitive. We may not deliver successful and engaging games, or players and consumers may prefer our competitors’ +products over our own. +We +operate in a competitive environment that is characterized by price fluctuation and technological change. We will compete with major +international and domestic companies. Some of our current and future potential competitors may have greater market recognition and customer +bases, longer operating histories, and substantially greater financial, technical, marketing, distribution, purchasing, manufacturing, +personnel, and other resources than we do. In addition, competitors may be developing similar technologies with a cost similar to, or +lower than, our projected costs. As a result, they may be able to respond more quickly to changing customer demands or to devote greater +resources to the development, promotion and sales of blockchain-based games and NFT products than we can. +6 +The +Platform is based on new and unproven technologies and is subject to the risks of failure inherent in the development of new products +and services. +Because +the Platform is based on certain new technologies, it is subject to risks of failure that are particular to new technologies, including +the possibility that: +● the +Platform may not gain market acceptance; +● proprietary +rights of third parties may preclude us from marketing a new product or service; +● the +Platform may not receive the exposure required to obtain new users; or +● third +parties may market superior products or services. +Digital +ecosystems, including offerings of digital assets, is evolving, and uncertain, and new regulations or policies may materially adversely +affect our development. +The +technologies supporting these digital assets like blockchain and NFTs are new and rapidly evolving. To the extent these technologies +become more widely utilized in the industry, our revenues could be negatively impacted. If we fail to explore these new technologies +and apply them innovatively to keep our products and services competitive, we may not experience significant growth of our business. +Regulation of digital assets like cryptocurrencies, blockchain technologies, NFTs, and cryptocurrency exchanges is currently underdeveloped +and likely to rapidly evolve as government agencies take greater interest in them. Regulation also varies significantly among international, +federal, state and local jurisdictions and is subject to significant uncertainty. Various legislative and executive bodies in the United States +and in other countries may in the future adopt laws, regulations, or guidance, or take other actions, which may severely impact the permissibility +of tokens generally and the technology behind them or the means of transacting in or transferring them. The regulatory regime governing +blockchain technologies, NFTs, cryptocurrencies, digital assets, utility tokens, security tokens and offerings of digital assets is uncertain, +and new regulations or policies may materially adversely affect our development and our value if we materially embrace digital assets +and cryptocurrencies in the future. +Marketplace +demand of the NFTs is unpredictable. +The +appetite in the marketplace is unpredictable as it is related to NFTs and may change over time. The trading of NFTs in the open market +and use in gameplay are based purely on marketplace demand. +We +may not be able to adequately evaluate the risks associated with our planned NFT platform. +The +Platform may not be successful and may expose us to legal, regulatory, and other risks. Given the nascent and evolving nature of cryptocurrencies, +NFTs, and blockchain technology, we may be unable to accurately anticipate or adequately address such risks or the potential impact of +such risks. The occurrence of any such risks could materially and adversely affect our business, financial condition, results of operations, +reputation, and prospects. +As +the market for NFTs is relatively nascent, it is difficult to predict how the legal and regulatory framework around NFTs will develop +and how such developments will impact our business and the Platform. Further, market acceptance of NFTs is uncertain as buyers may be +unfamiliar or uncomfortable with digital assets generally, how to transact in digital assets, or how to assess the value of NFTs. The +launch of the Platform also subjects us to risks similar to those associated with any new platform offering, including, but not limited +to, our ability to accurately anticipate market demand and acceptance, our ability to successfully launch our new offering, creator and +buyer acceptance, technical issues with the operation of the Platform, and legal and regulatory risks as discussed above. We believe +these risks may be heightened with respect to the Platform, as NFTs are still considered a relatively novel concept. If we fail to accurately +anticipate or manage the risks associated with the Platform or with our facilitation of crypto asset transactions, or if we directly +or indirectly become subject to disputes, liability, or other legal or regulatory issues in connection with the Platform or crypto asset +transactions, the Platform may not be successful and our business, financial condition, results of operations, reputation, and prospects +could be materially harmed. +Our +industry is subject to rapid technological change, and if we do not adapt to, and appropriately allocate our resources among, emerging +technologies and business models, our business may be negatively impacted. +Technology +changes rapidly in the interactive entertainment industry. We must continually anticipate and adapt to emerging technologies, such as +cloud-based game streaming, and business models, such as free-to-play and subscription-based access to a portfolio of +interactive content, to stay competitive. Forecasting the financial impact of these changing technologies and business models is inherently +uncertain and volatile. Supporting a new technology or business model may require partnering with a new platform, business, or technology +partner, which may be on terms that are less favorable to us than those for traditional technologies or business models. If we invest +in the development of interactive entertainment products for distribution channels that incorporate a new technology or business model +that does not achieve significant commercial success, whether because of competition or otherwise, we may not recover the often-substantial up-front costs +of developing and marketing those products, or recover the opportunity cost of diverting management and financial resources away from +other products or opportunities. Further, our competitors may adapt to an emerging technology or business model more quickly or effectively +than we do, creating products that are technologically superior to ours, more appealing to consumers, or both. +7 +If, +on the other hand, we elect not to pursue the development of products incorporating a new technology, or otherwise elect not to pursue +new business models that achieve significant commercial success, it may have adverse consequences. It may take significant time and expenditures +to shift product development resources to that technology or business model, and it may be more difficult to compete against existing +products incorporating that technology or using that business model. +Negative +perceptions about our business, products, and services and the communities within our products and services may damage our business, +and we may incur costs to address concerns. +Expectations +regarding the quality, performance and integrity of our products and services are high. Negative responses about our products and services +may not be foreseeable. We also may not effectively manage these responses because of reasons within or outside of our control. For example, +we have included in certain games the ability for players to purchase digital items, including in some instances virtual “packs”, +“boxes” or “crates” that contain variable digital items. The inclusion of variable digital items in certain games +has the possibility of creating a negative perception of gameplay fairness or other negative perceptions, our reputation and brand could +be harmed and revenue could be negatively impacted. +In +addition, we aim to offer our players safe, inclusive and fulfilling online communities. We may not be able to maintain healthy, long-term online +communities within our games and services as a result of the use of those communities as forums for harassment or bullying, our inability +to successfully discourage overuse of our games and services or overspending within our games and services, or the successful implementation +of cheating programs. Although we expend resources, and expect to continue to expend resources, to maintain healthy online communities, +our efforts may not be successful due to scale, limitations of existing technologies or other factors. +In +the event that there is negative sentiment about gameplay fairness, our online communities, our business practices, business models or +game content, it can lead to investigations or increased scrutiny from governmental bodies and consumer groups, as well as litigation, +which, regardless of their outcome, may be costly, damaging to our reputation and harm our business. +We +may become involved in legal proceedings that may result in adverse outcomes. +We +may become subject to claims, suits, government investigations, and other proceedings involving competition and antitrust, intellectual +property, privacy, tax, labor and employment, commercial disputes, content generated by our users, goods and services offered by advertisers +or publishers using our platforms, and other matters. Such claims, suits, government investigations, and proceedings are inherently uncertain +and their results cannot be predicted with certainty. Regardless of the outcome, such legal proceedings can have an adverse impact on +us because of legal costs, diversion of management resources, and other factors. Determining reserves for our pending litigation is a +complex, fact-intensive process that requires significant judgment. It is possible that a resolution of one or more such proceedings +could result in substantial fines and penalties that could adversely affect our business, financial position, results of operations, +or cash flows in a particular period. These proceedings could also result in criminal sanctions, consent decrees, or orders preventing +us from offering certain features, functionalities, products, or services, requiring a change in our business practices, or requiring +development of non-infringing products or technologies, which could also adversely affect our business and results of operations. +Our +business is subject to economic, market and geopolitical conditions. +Our +business is subject to economic, market, public health, and geopolitical conditions which are beyond our control. The United States +and other international economies have experienced cyclical downturns from time to time. Worsening economic conditions that negatively +impact discretionary consumer spending and consumer demand, including inflation, slower growth, recession, and other macroeconomic conditions, +including those resulting from public health outbreaks such as the COVID-19 pandemic and geopolitical issues could have a material +adverse impact on our business and operating results. +We +are particularly susceptible to market conditions and risks associated with the entertainment industry, which, in addition to general +macroeconomic downturns, also include the popularity, price and timing of our games, changes in consumer demographics, the availability +and popularity of other forms of entertainment, and critical reviews and public tastes and preferences, which may change rapidly and +cannot necessarily be predicted. +Catastrophic +events may disrupt our business. +Natural +disasters, cyber-incidents, weather events, wildfires, power disruptions, telecommunications failures, public health outbreaks, failed +upgrades of existing systems or migrations to new systems, acts of terrorism or other events could cause outages, disruptions and/or +degradations of our infrastructure, including our or our partners’ information technology and network systems, a failure in our +ability to conduct normal business operations, or the closure of public spaces in which players engage with our games and services. The +health and safety of our employees, players, third-party organizations with whom we partner or regulatory agencies on which we rely +could be also affected, which may prevent us from executing against our business strategies or cause a decrease in consumer demand for +our products and services. System redundancy may be ineffective and our disaster recovery and business continuity planning may not be +sufficient for all eventualities. Such failures, disruptions, closures, or inability to conduct normal business operations could also +prevent access to our products, services or online stores selling our products and services, cause delay or interruption in our product +or live services offerings, allow breaches of data security or result in the loss of critical data. An event that results in the disruption +or degradation of any of our critical business functions or information technology systems, harms our ability to conduct normal business +operations or causes a decreased in consumer demand for our products and services could materially impact our reputation and brand, financial +condition and operating results. +8 +We +may not meet our product and live service development schedules and live service release schedule may be delayed, cancelled, or poorly +received. +Our +ability to meet product development schedules is affected by a number of factors both within and outside our control, including feedback +from our players, the creative processes involved, the coordination of large and sometimes geographically dispersed development teams, +the complexity of our products and the platforms for which they are developed, the need to fine-tune our products prior to their +release and, in certain cases, approvals from third parties. Any failure to meet anticipated production or release schedules likely would +result in a delay of revenue and/or possibly a significant shortfall in our revenue, increase our development and/or marketing expenses, +harm our profitability, and cause our operating results to be materially different than anticipated. If we miss key selling periods for +products or services, particularly the fiscal quarter ending in December, for any reason, including product delays or product cancellations +our sales likely will suffer significantly. +Increasing +gas fees on Polygon could materially affect our revenues. +Users +must pay gas fees on NFT platforms when minting NFTs. Gas fees are transaction fees specific to the Ethereum (“ETH”) blockchain +network. The fee is determined by the number of transactions on the protocol and type of computations required to verify transactions; +the greater the popularity, the greater the fee. Increased traffic can also lead to scalability problems which may also push gas fees +higher. To mitigate this risk we have chosen to build our NFTs on the Polygon network and to strategically price our NFTs. Gas fees on +Polygon are significantly cheaper than that of the most widely used blockchain network, Ethereum. We do not currently anticipate any +material changes in gas prices on the Polygon network that would affect our business model. However, if gas prices on the Polygon network +become too high, then demand for our NFTs could decrease and we could potentially lose existing and potential customers to competitors +with cheaper fees. This would materially and adversely affect our revenues and thereby the success of our business. +Risks +Related to Information Technology Systems, Intellectual Property and Privacy Laws +Security +breaches and attacks against our systems and network, and any potentially resulting breach or failure to otherwise protect confidential +and proprietary information, could damage our reputation and negatively impact our business, as well as materially and adversely affect +our financial condition and results of operations. +Although +we have employed significant resources to develop our security measures against breaches, our cybersecurity measures may not detect or +prevent all attempts to compromise our systems, including distributed denial-of-service attacks, viruses, malicious software, break-ins, +phishing attacks, social engineering, security breaches or other attacks and similar disruptions that may jeopardize the security of +information stored in and transmitted by our systems or that we otherwise maintain. Breaches of our cybersecurity measures could result +in unauthorized access to our systems, misappropriation of information or data, deletion or modification of client information, or a +denial-of-service or other interruption to our business operations. As techniques used to obtain unauthorized access to or sabotage +systems change frequently and may not be known until launched against us or our third-party service providers, we may be unable +to anticipate, or implement adequate measures to protect against, these attacks. +If +we are unable to avert these attacks and security breaches, we could be subject to significant legal and financial liability, our reputation +would be harmed and we could sustain substantial revenue loss from lost sales and customer dissatisfaction. We may not have the resources +or technical sophistication to anticipate or prevent rapidly evolving types of cyber-attacks. Cyber-attacks may target us, our Traders +or other participants, the communication infrastructure, or the e-platform on which we depend. Actual or anticipated attacks and +risks may cause us to incur significantly higher costs, including costs to deploy additional personnel and network protection technologies, +train employees, and engage third-party experts and consultants. Cybersecurity breaches would not only harm our reputation and business, +but also could materially decrease our revenue and net income. +We +face the risk of fraud. +Online +transactions may be subject to sophisticated schemes or collusion to defraud, launder money or other illegal activities, and there is +a risk that our products may be used for those purposes either by our customers or our employees or contractors. This may be especially +true when dealing with cryptocurrencies, which by design, may be difficult or impossible to trace. While we believe that our systems, +both computer and procedural, afford an adequate degree of protection against fraudulent activities, if such protection is not effective +in all cases, is circumvented or if we fail to implement updated controls and procedures or to counter new fraud techniques, we could +lose the confidence of our customers and our reputation could be damaged. Moreover, any failure to protect ourselves and our customers +from fraudulent activity could result in reputational damage and could materially adversely affect our operations, financial performance +and prospects. Failure to adequately monitor and prevent money laundering and other fraudulent activity could also result in civil or +criminal liability. +9 +We +use open-source software in connection with certain of our games and services which may pose particular risks to our proprietary +software, products, and services in a manner that could have a negative impact on our business. +We +use open-source software in connection with some of the games and services we offer. Some open-source software licenses require +users who distribute open-source software as part of their software to publicly disclose all or part of the source code to such software +or make available any derivative works of the open source code on unfavorable terms or at no cost. The terms of various open-source licenses +have not been interpreted by courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated +conditions or restrictions on our use of the open-source software. Were it determined that our use was not in compliance with a +particular license, we may be required to release our proprietary source code, pay damages for breach of contract, re-engineer our +games or products, discontinue distribution in the event re-engineering cannot be accomplished on a timely basis, or take other +remedial action that may divert resources away from our game development efforts, any of which could negatively impact our business. +We +rely on third-party providers for computing infrastructure, secure network connectivity, and other technology-related services +needed to deliver our products. Any disruption in the services provided by such third-party provider could adversely affect +our business. +Our +products are hosted from and use computing infrastructure, secure network connectivity, and other technology-related services provided +by third-party providers. We do not control the operations of these third-party provider or own the equipment used to provide +such services. Because we cannot easily switch between cloud providers, any disruption of or interference, for example, due to natural +disasters, cyber-attacks, terrorist attacks, power losses, telecommunications failures, or similar events, would impact our operations +and may adversely affect our business, financial condition, operating results and cash flows. In addition, these providers have no obligation +to renew their agreements with us on commercially reasonable terms or at all. If we are unable to renew our agreements on commercially +reasonable terms or develop our blockchain capabilities, we may be required to transition to a new provider, and we may incur significant +costs and possible service interruption in connection with doing so. +In +addition, these providers may take actions beyond our control that could seriously harm our business, including: +● discontinuing +or limiting our access to its cloud platform +● increasing +pricing terms; +● terminating +or seeking to terminate our contractual relationship altogether; +● establishing +more favorable relationships or pricing terms with one or more of our competitors; and +● modifying +or interpreting its terms of service or other policies in a manner that impacts our ability +to run our business and operations. +Cloud +hosting providers have broad discretion to change and interpret their terms of service and other policies with respect to us, and those +actions may be unfavorable to us. They may also alter how we are able to process data on their respective cloud platforms. If changes +or interpretations are made that are unfavorable to us, our business could be seriously harmed. +We +may not be able to secure all rights to our intellectual property or our rights may be subject to claims of infringement by others and +other issues affecting production. +We +will rely on a combination of trade secret, trademark, and copyright laws, as well as employee and third-party non-disclosure agreements +and other protective measures, to protect intellectual property rights pertaining to our products and technologies both in the U.S. and +abroad. There can be no assurance, however, that these measures will provide meaningful protection of our technology, trade secrets, +know-how or other intellectual property in the event of any unauthorized use, misappropriation, or disclosure. There can also be +no assurance that others will not independently develop similar technologies or duplicate any technology that we develop or have developed +without violating our intellectual property rights. In addition, there can be no assurance that our intellectual property rights will +be held to be valid, will not be successfully challenged or will otherwise be of value. In the event that we are subject to a claim of +intellectual property infringement, whether it be patent, copyright or trademark, the cost of defending such a claim, even if partly +covered by insurance, will be significant and will have a material adverse effect on our financial results. +10 +If +third parties claim that we infringe their intellectual property, it may result in costly litigation. +We +cannot assure you that third parties will not claim our current or future products or services infringe their intellectual property rights. +Any such claims, with or without merit, could cause costly litigation that could consume significant management time. Such claims also +might require us to enter into royalty or license agreements. If required, we may not be able to obtain such royalty or license agreements +or obtain them on terms acceptable to us. +We +may not be able to adequately protect our proprietary technology, and our competitors may be able to offer similar products and services +which would harm our competitive position. +Our +success, in part, depends upon our proprietary technology. We have various forms of intellectual property including patent, copyright, +trademark and trade secret laws, confidentiality procedures and contractual provisions to establish and protect our proprietary rights. +Despite these precautions, third parties could copy or otherwise obtain and use our technology without authorization or develop similar +technology independently. We also pursue the registration of our domain names, trademarks, and service marks in the United States. +However, we cannot provide any assurance that patent applications that we file will ultimately result in an issued patent or, if issued, +that they will provide sufficient protections for our technology against competitors. We cannot assure you that the protection of our +proprietary rights will be adequate or that our competitors will not independently develop similar technology, duplicate our products +and services or design around any intellectual property rights we hold. +The +Platform may raise issues regarding third party intellectual property rights. +NFTs +raise various intellectual property law considerations, including adequacy and scope of assignment, licensing, transfer, copyright, and +other right of use issues. The creator of an NFT will often have all rights to the content of the NFT and can determine what rights to +assign to a buyer, such as the right to display, modify, or copy the content. To the extent we are directly or indirectly involved in +a dispute between creators and buyers on the Platform, it could materially and adversely affect the success of the Platform and harm +our business and reputation. +The +Platform may face cybersecurity risks. +NFTs +in general, and the Platform specifically, may also be an attractive target for cybersecurity attacks. For example, a perpetrator could +seek to obtain the private key associated with a digital wallet holding an NFT to access and sell the NFT without valid authorization, +and the owner of the NFT may have limited recourse due to the nature of blockchain transactions and of cybercrimes generally. NFT marketplaces, +including the Platform, may also be vulnerable to attacks where an unauthorized party acquires the necessary credentials to access user +accounts. The safeguards we have implemented or may implement in the future to protect against cybersecurity threats may be insufficient. +If the Platform were to experience any cyberattacks, it could negatively impact our reputation and market acceptance of our platform. +The +laws and regulations concerning data privacy are continually evolving. Failure to comply with these laws and regulations could harm our +business. +We +will collect and store information about our consumers, including consumers who play our games. In addition, we collect and store information +about our employees. We will be subject to laws from a variety of jurisdictions regarding privacy and the protection of this information, +including the E.U.’s General Data Protection Regulation (the “GDPR”), the U.S. Children’s Online Privacy +Protection Act (“COPPA”), which regulates the collection, use, and disclosure of personal information from children under +13 years of age, and the California Consumer Privacy Act (the “CCPA”). Failure to comply with any of these laws or regulations +may increase our costs, subject us to expensive and distracting government investigations, and result in substantial fines. +11 +Data +privacy protection laws are rapidly changing and likely will continue to do so for the foreseeable future and may be inconsistent from +jurisdiction to jurisdiction. For example, the E.U. has traditionally taken a broader view than the United States and certain other +jurisdictions as to what is considered personal information and has imposed greater obligations under data privacy and protection regulations, +including those imposed under the GDPR. The U.S. government, including the Federal Trade Commission and the Department of Commerce, +as well as various U.S. state governments, are continuing to review the need for greater regulation over the collection of personal +information and information about consumer behavior on the Internet and on mobile devices. Complying with emerging and changing laws +could require us to incur substantial costs or impact our approach to operating and marketing our games. Due to the rapidly changing +nature of these data privacy protection laws, there is not always clear guidance from the respective governments and regulators regarding +the interpretation of the law, which may create the risk of an inadvertent violation. For example, the California legislature recently +passed the CCPA and the E.U. has proposed further reforms to its existing data protection legal framework, in addition to the GDPR, which +may further change our compliance obligations. Various government and consumer agencies worldwide have also called for new regulation +and changes in industry practices. In addition, in some cases, we are dependent upon our platform providers and external data processors +to assist us in ensuring compliance with these various types of regulations, and a violation by one of these third parties may also subject +us to government investigations and result in substantial fines. +Player +interaction with our games will be subject to our privacy policies, end user license agreements (“EULAs”), and terms of service. +If we fail to comply with our posted privacy policies, EULAs, or terms of service, or if we fail to comply with existing privacy-related or +data protection laws and regulations, it could result in proceedings or litigation against us by governmental authorities or others, +which could result in fines or judgments against us, damage our reputation, impact our financial condition, and harm our business. If +regulators, the media, consumers, or employees raise any concerns about our privacy and data protection or consumer protection practices, +even if unfounded, this could also result in fines or judgments against us, damage our reputation, negatively impact our financial condition, +or damage our business. +Gaxos +Health will rely on information systems to obtain, process, analyze, and manage data. To the extent IT systems are not successfully implemented +or fail, our business and results of operations may be adversely affected. Further, our business will rely to a significant degree upon +the secure transmission, use and storage of sensitive information, including protected health information and other personally identifiable +information, financial information and other confidential information and data within these systems. +To +protect this information, we will need to implement commercially reasonable security measures and maintain information security policies +and procedures informed by requirements under applicable law and recommended practices, in each case, as applicable to the data collected, +hosted and processed. Despite our efforts, our business will be vulnerable to unauthorized access to data and/or breaches of confidential +information due to criminal conduct, physical break-ins, hackers, employee or insider malfeasance and/or improper employee or contractor +access, computer viruses, programming errors, denial-of-service attacks, ransomware events, phishing schemes, fraud, terrorist attacks, +human error or other breaches by insiders or third parties or similar disruptive problems. It is not possible to prevent all security +threats to our data. Techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently +and may be difficult to detect for long periods of time. Further, defects in the design or manufacture of applications we develop or +procure from third parties could compromise our data. These events, including unauthorized access, misappropriation, disclosure or loss +of sensitive information (including financial or personal health information) or a significant disruption of our network, expose us to +risks including risks to our ability to provide our solutions, management distraction and the obligation to devote significant financial +and other resources to mitigate such problems and increases to our future information security costs. Moreover, unauthorized access, +use or disclosure of certain sensitive information in our possession or our failure to satisfy legal requirements, including requirements +relating to safeguarding protected health information under the Health Insurance Portability and Accountability Act (“HIPAA”) +or state data privacy laws could result in civil and criminal liability and regulatory action, which could result in potential fines +and penalties, as well as costs relating to investigation of an incident or breach, corrective actions, required notifications to regulatory +agencies and customers, credit monitoring services and other necessary expenses. In addition, actual or perceived breaches of our security +management efforts can cause existing customers to terminate their relationship with us and deter existing or prospective customers from +using or purchasing our solutions in the future. These events can have a material adverse impact on our business, results of operations, +financial condition and reputation. +We +collect, store, process, and use personal data, which subjects us to legal obligations and laws and regulations related to security and +privacy, and any actual or perceived failure to meet those obligations could harm our business. +We +collect, process, store, and use a wide variety of data from our customers, including personal information. We are subject to federal, +state and international laws relating to the collection, use, retention, security and transfer of various types of personal information. +U.S. federal, state, and international laws and regulations governing privacy and data protection impose restrictions on what we can +do with our customers’ personal data and provide for related obligations. These obligations include heightened transparency about +data collection, use and sharing practices, new data privacy rights, and rules in respect to cross-border data transfers, which carry +significant enforcement penalties for non-compliance. These laws and regulations also require us to safeguard our customers’ personal +data. Although we have established security procedures to protect customer information, our or our third-party service providers’ +security and testing measures may not prevent security breaches. Any compromise of our security or breach of our customers’ privacy +could harm our reputation or financial condition and, therefore, our business. +12 +In +addition to the risks generally relating to the collection, use, retention, security and transfer of personal information, we are also +subject to specific obligations relating to information considered sensitive under applicable laws, such as health data and biometric +data. Health data is subject to additional privacy, security and breach notification requirements, and we are subject to audit by governmental +authorities regarding our compliance with these obligations. The collection, handling, and other processing of biometric data also are +subject to particular scrutiny and obligations under applicable laws and regulations, including consumer protection legislation (such +as the Federal Trade Commission Act and similar state legislation), general privacy legislation (such as the California Consumer Privacy +Act, or CCPA), and state statutes addressing biometric information specifically (including Illinois’ Biometric Information Privacy +Act, or BIPA), and by consumer protection regulators. If we fail to adequately comply with applicable rules and requirements, or if health +data is handled in a manner not permitted by law or under our agreements with healthcare institutions, we can be subject to litigation +or government investigations or other proceedings, and can be liable for associated investigatory expenses, and can also incur significant +fees or fines. Some of those laws, including BIPA, provide consumers with a private right of action for certain violations and large +potential statutory damages awards. Recent litigation around these laws has encouraged plaintiffs’ attorneys to bring additional +actions against other targets. Further, the FTC issued a policy statement regarding biometric information on May 18, 2023, that identifies +numerous risks the FTC considers key, outlines relevant practices the FTC plans to scrutinize, and affirms the FTC’s commitment +to addressing deceptive and unfair practices involving the collection and use of biometric information, as well as deceptive marketing +of biometric information technologies. These developments underscore the legal and regulatory risks applicable to our collection, use, +disclosure, and other processing of health and biometric information. +In +addition, a party who circumvents our security measures or exploits inadequacies in our security measures, could, among other effects, +misappropriate customer data or other proprietary information or cause interruptions in our operations. Actual or perceived vulnerabilities +may lead to claims against us. To the extent that the measures we or our third-party business partners have taken are, or are perceived +to be, insufficient or inadequate, we may become subject to litigation, breach notification obligations, or regulatory or administrative +sanctions, which could result in significant fines, penalties, or damages and harm to our reputation. Depending on the nature of the +information compromised, in the event of a data breach or other unauthorized processing of our customer data, we may also have obligations +to notify customers about the incident and we may need to provide some form of remedy for the individuals affected by the incident. A +growing number of legislative and regulatory bodies have adopted consumer notification requirements in the event of unauthorized access +to or acquisition of certain types of personal data. Such breach notification laws continue to evolve and may be inconsistent from one +jurisdiction to another. Complying with these obligations could cause us to incur substantial costs and could increase negative publicity +surrounding any incident that compromises customer data. +Violations +of applicable laws relating to privacy, data protection, or cybersecurity, or cybersecurity breaches or incidents, as well as the perception +that any of the foregoing have occurred, could impact our business in a number of ways, such as a temporary suspension of some or all +of our operating and/or information systems, damage to our reputation and brand and our relationships with customers, suppliers, vendors, +and service providers and could result in lost, unavailable, or corrupted data, lost sales, increased insurance premiums, substantial +breach-notification and other remediation costs and claims, demands, and litigation, as well as adversely affect results of operations. +In addition, we may also face regulatory investigations and other proceedings with corresponding fines, penalties, and other liabilities, +civil claims including representative actions, and other class action type litigation (where individuals have suffered harm), potentially +amounting to significant compensation or damages liabilities, as well as associated costs, diversion of internal resources, and reputational +harm. We may also incur additional costs in the future related to the implementation of additional security measures to protect against +new or enhanced data security and privacy threats, to comply with state, federal, and international laws that may be enacted to address +personal data processing risks and data security threats, or to investigate or address potential or actual data security breaches or +incidents or violations of our actual or alleged obligations relating to privacy, data protection, or cybersecurity. +United +States federal and state privacy laws, and equivalent laws of other nations, may increase our costs of operation and expose us to civil +and criminal sanctions. +Regulation +of data processing is evolving, as federal, state, and foreign governments continue to adopt new, or modify existing, laws and regulations +addressing data privacy and security, and the collection, processing, storage, transfer, and use of data. These new or proposed laws +and regulations are subject to differing interpretations and may be inconsistent among jurisdictions, and guidance on implementation +and compliance practices are often updated or otherwise revised, which adds to the complexity of processing personal data. These and +other requirements could require us or our collaborators to incur additional costs to achieve compliance, limit our competitiveness, +necessitate the acceptance of more onerous obligations in our contracts, restrict our ability to use, store, transfer, and process data, +impact our or our collaborators’ ability to process or use data in order to support the provision of our products, affect our or +our collaborators’ ability to offer our products in certain locations, or cause regulators to reject, limit or disrupt our clinical +trial activities. +13 +We +and our collaborators may be subject to federal, state, and foreign data protection laws and regulations (i.e., laws and regulations +that address privacy and data security). In the United States, numerous federal and state laws and regulations, including federal health +information privacy laws, state personal information laws, state data breach notification laws, state health information privacy laws +and federal and state consumer protection laws and regulations that govern the collection, use, disclosure and protection of health-related +and other personal information could apply to our operations or the operations of our collaborators. In addition, we may obtain health +information from third parties (including research institutions from which we obtain clinical trial data) that are subject to privacy +and security requirements under the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended +by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH. Depending on the facts and circumstances, +we could be subject to civil or criminal penalties if we knowingly use or disclose individually identifiable health information maintained +by a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA. +Our +business will be subject to complex and prescriptive regulations regarding consumer protection and data privacy practices, and could +be adversely affected if our consumer protection, data privacy and security practices are not adequate, or perceived as being inadequate. +We +will be subject to global data privacy, data protection, localization, security and consumer-protection laws and regulations worldwide. +These laws and regulations are emerging and evolving and the interpretation and application of these laws and regulations often are uncertain, +contradictory, and changing. The failure to maintain data practices that are compliant with applicable laws and regulations, or evolving +interpretations of applicable laws and regulations, could result in inquiries from enforcement agencies or direct consumer complaints, +resulting in civil or criminal penalties, and could adversely impact our reputation and brand. In addition, the operational costs of +compliance with these regulations are high and will likely continue to increase. +Even +if we remain in strict compliance with applicable laws and regulations, consumer sensitivity to the collection and processing of their +personal information continues to increase. Any real or perceived failures in maintaining acceptable data privacy practices, including +allowing improper or unauthorized access, acquisition or misuse and/or uninformed disclosure of consumer, employee and other information, +or a perception that we do not adequately secure this information or provide consumers with adequate notice about the information that +they authorize us to collect and disclose could result in brand, reputational, or other harms to the business, result in costly remedial +measures, deter current and potential customers from using our products and services and cause our financial results to be materially +affected. +Third +party vendors and business partners receive access to certain information that we collect. These vendors and business partners may not +prevent data security breaches with respect to the information we provide them or fully enforce our policies, contractual obligations +and disclosures regarding the collection, use, storage, transfer and retention of personal data. A data security breach of one of our +vendors or business partners could cause reputational and financial harm to them and us, negatively impact our ability to offer our products +and services, and could result in legal liability, costly remedial measures, governmental and regulatory investigations, harm our profitability, +reputation and brand, and cause our financial results to be materially affected. +Digital +ecosystems, including offerings of digital assets, are evolving, and uncertain, and new regulations or policies may materially adversely +affect our development. +The +technologies supporting these digital assets like blockchain and NFT are new and rapidly evolving. To the extent these technologies become +more widely utilized in the industry, our revenues could be negatively impacted. If we fail to explore these new technologies and apply +them innovatively to keep our products and services competitive, we may not experience significant growth of our business. Regulation +of digital assets like, cryptocurrencies, blockchain technologies, NFTs and cryptocurrency exchanges, is currently underdeveloped and +likely to rapidly evolve as government agencies take greater interest in them. Regulation also varies significantly among international, +federal, state and local jurisdictions and is subject to significant uncertainty. Various legislative and executive bodies in the United States +and in other countries may in the future adopt laws, regulations, or guidance, or take other actions, which may severely impact the permissibility +of tokens generally and the technology behind them or the means of transacting in or transferring them. The regulatory regime governing +blockchain technologies, NFTs, cryptocurrencies, digital assets, utility tokens, security tokens and offerings of digital assets is uncertain, +and new regulations or policies may materially adversely affect our development and our value if we materially embrace digital assets +and cryptocurrencies in the future. +14 +Risks +Related to Digital Assets +The +sale of NFTs on the Platform could be determined to be the unregistered sale of securities. +There +is regulatory uncertainty with respect to whether certain NFTs could be considered securities. If NFTs sold on the Platform were deemed +to be securities, we may be found to be in violation of securities laws for engaging in transactions regarding unregistered securities. +Such a determination could lead to an enforcement action by the SEC and result in fines and other penalties, which will have a negative +impact on our business. +Risks +relating to our decision to accept cryptocurrency as a form of payment may subject us to exchange risk and additional tax and regulatory +requirements. +We +currently plan to accept Bitcoin and Ethereum, as a form of payment for purchases on the Platform, in which case we would be subject +to additional regulatory requirements. We do not currently plan to accept any other cryptocurrencies as a form of payment. +Cryptocurrencies +are not currently considered legal tender or backed by any government. The prices of digital assets have been in the past and may continue +to be highly volatile, including as a result of various associated risks and uncertainties. For example, the prevalence of such assets +is a relatively recent trend, and their long-term adoption by investors, consumers and businesses is unpredictable. Moreover, their +lack of a physical form, their reliance on technology for their creation, existence and transactional validation and their decentralization +may subject their integrity to the threat of malicious attacks and technological obsolescence. As intangible assets without centralized +issuers or governing bodies, digital assets have been, and may in the future be, subject to security breaches, cyberattacks or other +malicious activities, as well as human errors or computer malfunctions that may result in the loss or destruction of private keys needed +to access such assets. +We +will not accept such cryptocurrency payments directly, but plan to use a third-party vendor to accept and process any such cryptocurrency +payments on our behalf. Such third-party vendor may then immediately convert the cryptocurrency into U.S. dollars so that we +would receive payment in U.S. dollars. However, the regulatory environment covering the acceptance of cryptocurrencies is still +evolving and the extent to which we would be responsible for any decrease in the value of such cryptocurrencies after the customer has +tendered the funds but prior to its delivery to us in U.S. dollars has not been established. +We +may also hold cryptocurrencies directly, and we have exchange rate risk in the amounts we hold as well as the risks that regulatory or +other developments may adversely affect the value of the cryptocurrencies we hold. There is substantial uncertainty regarding legal and +regulatory requirements relating to cryptocurrencies or transactions utilizing cryptocurrencies. These uncertainties, as well as potential +accounting and tax issues, or other requirements relating to cryptocurrencies could have a material adverse effect on our business. +Furthermore, +it is unclear the extent to which accepting Bitcoin and Ethereum would subject us to additional money laundering regulations, “Know +Your Customer” (“KYC”) procedures or other laws or to additional taxation. If we fail to comply with prohibitions applicable +to us, we could face regulatory or other enforcement actions and potential fines and other consequences. +We +rely on third parties for certain aspects of our business, which creates additional risk. +We +rely on third parties for certain aspects of our business, including payment service providers and digital wallets to process transactions. +We may not manage to comply with our agreement with third parties or these third parties may refuse to process transactions adequately, +may breach their agreements with us, may refuse to renew agreements on commercially reasonable terms, take actions that degrade the functionality +of our services, impose additional costs, new licenses or other requirements on us, or give preferential treatment to competitive services +or suffer outages in their systems, any of which could disrupt our operations and materially and adversely affect our business, financial +condition and results of operations. Some third parties that provide services to us may have or gain market power and could increase +their prices to us without competitive constraint. In addition, there can be no assurance that third parties that provide services directly +to us will continue to do so on acceptable terms, or at all, or will not suffer from outages to their systems. If any third parties were +to stop providing services to us on acceptable terms, we may be unable to find alternative providers in a timely and efficient manner +and on acceptable terms, or at all, which could materially adversely affect our business, financial condition, and results of operations. +15 +Our +crypto assets may be subject to loss, damage, theft or restriction on access. Further, digital asset exchanges on which crypto assets +trade are relatively new and largely unregulated, and thus may be exposed to fraud and failure. Incorrect or fraudulent cryptocurrency +transactions may be irreversible. +We +plan to use a third party payment service provider to process any transactions involving payment for our NFTs with digital currencies. +In addition, we intend to purchase and hold MATIC, in increments as needed, solely for the purpose of paying the fees associated with +minting our NFTs on the Polygon network. Our intention is to immediately convert all cryptocurrency received as payment to cash. In addition, +we intend to hold only the minimal amount of MATIC required to interact with the blockchain as part of our core business of minting NFTs, +and we do not intend to accept MATIC as a form of payment or to hold MATIC as a long term asset. We are currently in the process of selecting +the right custodian for our crypto assets and do not have any custody arrangements. There is a risk that part or a portion or all of +our crypto assets could be lost, stolen or destroyed. Crypto assets are stored in crypto asset sites commonly referred to as “wallets” +which may be accessed to exchange a holder’s crypto assets. Access to our crypto assets could also be restricted by cybercrime +(such as a denial of service attack) against a service at which we maintain a hosted wallet. We believe that our crypto assets will be +an appealing target to hackers or malware distributors seeking to destroy, damage or steal our crypto assets. Hackers or malicious actors +may attempt to steal our crypto assets, such as by attacking such network source code, exchange miners, third-party platforms, storage +locations or software, our general computer systems or networks, or by other means. Access to our crypto assets could also be restricted +by natural events (such as an earthquake or flood) or human actions (such as a terrorist attack). Any of these events may adversely affect +our operations and, consequently, our investments and profitability and we cannot guarantee that we will prevent loss, damage or theft, +whether caused intentionally, accidentally or by act of God. The loss or destruction of a private key required to access our digital +wallets may be irreversible and we may be denied access for all time to our crypto asset holdings. Our loss of access to our private +keys or our experience of a data loss relating to our digital wallets could adversely affect our investments and assets. +It +is possible that, through computer or human error, theft or criminal action, our crypto assets could be transferred in incorrect amounts +or to unauthorized third parties or accounts. In general, Bitcoin transactions are irrevocable, and stolen or incorrectly transferred +cryptocurrencies may be irretrievable, and we may have extremely limited or no effective means of recovering such Bitcoins. +Digital +asset payment service providers and exchanges on which cryptocurrencies trade are relatively new and, in most cases, largely unregulated. +Many digital asset payment service providers and/or exchanges do not provide the public with significant information regarding their +ownership structure, management teams, corporate practices or regulatory compliance. As a result, the marketplace may lose confidence +in, or may experience problems relating to, cryptocurrency payment service providers and/or exchanges, including prominent exchanges +handling a significant portion of the volume of digital asset trading. During 2022, a number of companies in the crypto industry have +declared bankruptcy, including ore Scientific Inc., Celsius Network LLC (“Celsius”), Voyager Digital Ltd., Three Arrows Capital, +BlockFi Lending LLC, and FTX Trading Ltd. (“FTX”). In June 2022, Celsius began pausing all withdrawals and transfers between +accounts on its platform, and in July 2022, it filed for Chapter 11 bankruptcy protection. Further, in November 2022, FTX, one of the +major cryptocurrency exchanges, also filed for Chapter 11 bankruptcy. Such bankruptcies have contributed, at least in part, to further +price decreases in most crypto assets, a loss of confidence in the participants of the digital asset ecosystem and negative publicity +surrounding digital assets more broadly, and other participants and entities in the digital asset industry have been, and may continue +to be, negatively affected. These events have also negatively impacted the liquidity of the digital assets markets as certain entities +affiliated with FTX engaged in significant trading activity. +We +have not been directly impacted by any of the recent bankruptcies in the crypto asset space, as we have no contractual privity or relationship +to the relevant parties. However, we are dependent on the overall crypto assets industry with respect to any transactions involving payment +for our NFTs with digital currencies and for the digital currencies needed by us to pay the fees associated with minting our NFTs, and +such recent events may contribute, at least in part, to decreases and volatility to our stock price as well as the price of most crypto +assets. If the liquidity of the digital assets markets continues to be negatively impacted, digital asset prices (including the price +of bitcoin) may continue to experience significant volatility and confidence in the digital asset markets may be further undermined. +A perceived lack of stability in the digital asset market and the closure or temporary shutdown of digital asset payment service providers +and/or exchanges due to business failure, hackers or malware, government-mandated regulation, or fraud, may reduce confidence in +digital asset networks and result in greater volatility in cryptocurrency values. These potential consequences of a digital asset payment +service provider’s and/or exchange’s failure could adversely affect an investment in us. +16 +We +intend to safeguard and keep private custodian our digital assets by utilizing storage solutions provided by a custodian, which will +likely require multi-factor authentication. While we are confident in the security of our digital assets that will be held by our +custodian, given the broader market conditions, there can be no assurance that other crypto asset market participants, including our +custodian, will not ultimately be impacted by recent market events. If our custodian were to limit or halt services, we would need to +find another custodian. While we have not been directly impacted by any of the recent bankruptcies in the crypto asset space as we had +no contractual privity or relationship to the relevant parties, we are dependent on the overall industry perception tied to these recent +bankruptcy events, and this may be reflected in our stock price as well as the price of Bitcoin and other crypto assets. We continue +to monitor the digital assets industry as a whole, although these events are continuing to develop and it is not possible at this time +to predict all of the risks stemming from these events that may result to us, our service providers, including digital asset payment +service providers, custodians and wallets, our counterparties, and the broader industry as a whole. +Any +of these events may adversely affect our operations and results of operations and, consequently, an investment in us. +If +our current, or any of our future, custodians file for bankruptcy, crypto assets held in their custody could be determined to be property +of a bankruptcy estate and we could be considered a general unsecured creditor thereof. +The +treatment of bitcoins and other crypto assets held by custodians that file for bankruptcy protection is uncharted territory in U.S. Bankruptcy +law. We cannot say with certainty whether bitcoins and other crypto assets held in custody by a bankrupt custodian would be treated as +property of a bankruptcy estate and, accordingly, whether the owner of that bitcoin would be treated as a general unsecured creditor. +Malicious +actors could manipulate distributed ledger networks and smart contract technology upon which digital assets rely and increase the vulnerability +of the distributed ledger networks. +If +a malicious actor, including a state-sponsored actor, is able to hack or otherwise exert unilateral control over a particular distributed +ledger network, or the digital assets on such a network, that actor could attempt to divert assets from that distributed ledger or otherwise +prevent the confirmation of transactions recorded on that distributed ledger. +Such +an event could materially and adversely affect our business. Digital assets have been the subject of attempted manipulation by hackers +to use them for malicious purposes. For example, misuses could occur if a malicious actor obtains a majority of the processing power +controlling the digital asset validating activities and altering the distributed ledger on which digital asset transactions rely. Moreover, +if the award for solving transaction blocks for a particular digital asset declines, and transaction fees are not sufficiently high, +the incentive to continue validating distributed ledger transactions would decrease and could lead to a stoppage of validation activities. +The collective processing power of that distributed ledger would be reduced, which would adversely affect the confirmation process for +transactions by decreasing the speed of the adaptation and adjustment in the difficulty for transaction block solutions. Such slower +adjustments would make the distributed ledger network more vulnerable to malicious actors’ obtaining control of the processing +power over distributed ledger network processing. +The +network contributors for certain Digital Assets could propose amendments to the network protocols and software for Digital Assets that, +if accepted and authorized by the network for the Digital Assets, could adversely affect the Platform. +The +networks for certain digital assets are based on a protocol governing the peer-to-peer interactions between computers connected +to each other within that network. The development team for a network (if any) might propose and implement amendments to a network’s +source code through software upgrades altering the original protocol, including fundamental ideas such as the irreversibility of transactions +and limitations on the validation of blockchain software distributed ledgers. Such changes to original protocols and software could materially +and adversely affect our business. +We +currently support, and expect to continue to support, certain smart contract-based crypto assets. If the underlying smart contracts for +these crypto assets do not operate as expected, they could lose value and our business could be adversely affected. +We +currently support, and expect to continue to support, various crypto assets that represent units of value on smart contracts deployed +on a third party blockchain. Smart contracts are programs that store and transfer value and execute automatically when certain conditions +are met. Since smart contracts typically cannot be stopped or reversed, vulnerabilities in their programming and design can have damaging +effects. For instance, in April 2018, a batch overflow bug was found in many Ethereum-based ERC20-compatible smart contract +tokens that allows hackers to create a large number of smart contract tokens, causing multiple crypto asset platforms worldwide to shut +down ERC20-compatible token trading. If any such vulnerabilities or flaws come to fruition, smart contract-based crypto assets, +including those held by our customers on our platforms, may suffer negative publicity, be exposed to security vulnerabilities, decline +significantly in value, and lose liquidity over a short period of time. +17 +In +some cases, smart contracts can be controlled by one or more “admin keys” or users with special privileges, or “super +users”. These users have the ability to unilaterally make changes to the smart contract, enable or disable features on the smart +contract, change how the smart contract receives external inputs and data, and make other changes to the smart contract. For smart contracts +that hold a pool of reserves, these users may also be able to extract funds from the pool, liquidate assets held in the pool, or take +other actions that decrease the value of the assets held by the smart contract in reserves. Even for crypto assets that have adopted +a decentralized governance mechanism, such as smart contracts that are governed by the holders of a governance token, such governance +tokens can be concentrated in the hands of a small group of core community members, who would be able to make similar changes unilaterally +to the smart contract. If any such super user or group of core members unilaterally make adverse changes to a smart contract, the design, +functionality, features and value of the smart contract, its related crypto assets may be harmed. In addition, assets held by the smart +contract in reserves may be stolen, misused, burnt, locked up or otherwise become unusable and irrecoverable. These super users can also +become targets of hackers and malicious attackers. If an attacker is able to access or obtain the super user privileges of a smart contract, +or if a smart contract’s super-users or core community members take actions that adversely affects the smart contract, our +customers who hold and transact in the affected crypto assets may experience decreased functionality and value of the applicable crypto +assets, up to and including a total loss of the value of such crypto assets. Although we do not control these smart contracts, any such +events could cause customers to seek damages against us for their losses, result in reputational damage to us, or in other ways adversely +impact our business. +Acceptance +and/or widespread use of digital assets is uncertain. +Currently, +there is a relatively small use of digital assets in the retail and commercial marketplace for goods or services. In comparison, there +is relatively large use by speculators contributing to price volatility. +The +relative lack of acceptance of digital assets in the retail and commercial marketplace limits the ability of end-users to use them +to pay for goods and services. Such lack of acceptance or decline in acceptances would have a material adverse effect on our ability +to continue as a going concern or to pursue this segment at all, which would have a material adverse effect on our business, prospects +or operations and potentially the value of any digital assets we hold or expect to acquire for our own account. +Incorrect +or fraudulent cryptocurrency transactions may be irreversible. +Cryptocurrency +transactions are irrevocable and stolen or incorrectly transferred cryptocurrencies may be irretrievable. As a result, any incorrectly +executed or fraudulent cryptocurrency transactions, such as a result of a cybersecurity breach against our cryptocurrency holdings, could +adversely affect our investments and assets. This is because cryptocurrency transactions are not, from an administrative perspective, +reversible without the consent and active participation of the recipient of the cryptocurrencies from the transaction. Once a transaction +has been verified and recorded in a block that is added to a blockchain, an incorrect transfer of a cryptocurrency or a theft thereof +generally will not be reversible, and we may not have sufficient recourse to recover our losses from any such transfer or theft. Further, +it is possible that, through computer or human error, or through theft or criminal action, our cryptocurrency rewards could be transferred +in incorrect amounts or to unauthorized third parties, or to uncontrolled accounts. If an errant or fraudulent transaction in our cryptocurrency +holdings were to occur, we would have very limited means of seeking to reverse the transaction or seek recourse. To the extent that we +are unable to recover our losses from such action, error or theft, such events could have a material adverse effect on our business. +Because +there has been limited precedent set for financial accounting for digital assets, the determinations that we have made for how to account +for digital assets transactions may be subject to change. +Because +there has been limited precedent set for the financial accounting for digital assets and related revenue recognition and no official +guidance has yet been provided by the Financial Accounting Standards Board or the SEC, it is unclear how companies may in the future +be required to account for cryptocurrency transactions and assets and related revenue recognition. A change in regulatory or financial +accounting standards could result in the necessity to change the accounting methods we currently intend to employ in respect of our anticipated +revenues and assets and restate any financial statements produced based on those methods. Such a restatement could adversely affect our +business, prospects, financial condition, and results of operation. +Banks +and financial institutions may not provide banking services, or may cut off services, to businesses that provide cryptocurrency-related services +or that accept cryptocurrencies as payment. +A +number of companies that provide cryptocurrency-related services have been unable to find banks or financial institutions that are +willing to provide them with bank accounts and other services. Similarly, a number of companies and individuals or businesses associated +with cryptocurrencies may have had and may continue to have their existing bank accounts closed or services discontinued with financial +institutions. We also may be unable to maintain these services for our business. +The +difficulty that many businesses that provide cryptocurrency-related services have and may continue to have in finding banks and +financial institutions willing to provide them services may decrease the usefulness of cryptocurrencies as a payment system and harm +public perception of cryptocurrencies. Similarly, the usefulness of cryptocurrencies as a payment system and the public perception of +cryptocurrencies could be damaged if banks or financial institutions were to close the accounts of businesses providing cryptocurrency-related services. +This could occur as a result of compliance risk, cost, government regulation or public pressure. The risk applies to securities firms, +clearance and settlement firms, national stock and commodities exchanges, the over the counter market and the Depository Trust Company. +Such factors would have a material adverse effect on our business, prospects, financial condition, and operating results. +18 +Regulatory +changes or actions may restrict the use of digital assets in a manner that adversely affects an investment in us. +As +digital assets have grown in popularity and in market size, the Federal Reserve Board, U.S. Congress and certain U.S. agencies +(e.g., the CFTC, the Commission, FinCEN and the Federal Bureau of Investigation) have begun to examine digital assets. On March 9, +2022, President Biden signed an executive order on cryptocurrencies. While the executive order did not mandate any specific regulations, +it instructs various federal agencies to consider potential regulatory measures, including the evaluation of the creation of a U.S. Central +Bank digital currency. Future changes to existing regulations or entirely new regulations may affect our business in ways it is not presently +possible for us to predict with any reasonable degree of reliability. Digital assets currently face an uncertain regulatory landscape +in not only the United States but also in such foreign jurisdictions as the European Union and China. While certain governments +such as Germany, have issued guidance as to how to treat cryptocurrencies, most regulatory bodies have not issued specific policy determinations. +Future changes to existing regulations or entirely new regulations may affect our business in ways it is not presently possible for us +to predict with any reasonable degree of reliability, but such change could be substantial and adverse to us and could adversely affect +an investment in us. +Political +or economic crises may motivate large-scale sales of crypto assets, which could result in a reduction in values of crypto assets +and adversely affect an investment in us. +Geopolitical +crises such as Russia’s recent invasion of Ukraine may motivate large-scale sales of crypto assets, which could rapidly decrease +the price of crypto assets. Alternatively, as an emerging asset class with limited acceptance as a payment system or commodity, global +crises and general economic downturn may discourage investment in crypto assets as investors focus their investment on less volatile +asset classes as a means of hedging their investment risk. +Crypto +assets, which are relatively new, are subject to supply and demand forces based upon the desirability of an alternative, decentralized +means of buying and selling goods and services, and it is unclear how such supply and demand will be impacted by geopolitical events, +including the war in Ukraine or other crises which may arise in the future. Nevertheless, political or economic crises may motivate large-scale acquisitions +or sales of crypto assets either globally or locally. Large-scale sales of crypto assets would result in a reduction in cryptocurrency +values and could adversely affect an investment in us. +We +may lose our private key to our digital wallet, causing a loss of all of our digital assets. +Digital +assets, such as cryptocurrencies and NFTs, are stored in a so-called “digital wallet”, which may be accessed to exchange +a holder’s digital assets and is controllable by the processor of both the public key and the private key relating to this digital +wallet in which the digital assets are held, both of which are unique. We will publish the public key relating to digital wallets in +use when we verify the receipt of transfers and disseminate such information into the network, but we will need to safeguard the private +keys relating to such digital wallets, which are stored in the possession of certain of our officers. If the private key is lost, destroyed, +or otherwise compromised, we may be unable to access our cryptocurrencies held in the related digital wallet which will essentially be +lost. If the private key is acquired by a third party, then this third party may be able to gain access to our cryptocurrencies. Any +loss of private keys relating to digital wallets used to store our cryptocurrencies could have a material adverse effect on our ability +to continue as a going concern or could have a material adverse effect on our business, prospects, financial condition, and operating +results. +Whether +a particular NFT or other digital or “crypto” asset is a “security” is subject to a high degree of uncertainty, +and if we are unable to properly characterize an NFT or other digital asset, we may be subject to regulatory scrutiny, inquiries, investigations, +fines, and other penalties, which may adversely affect our business, operating results, and financial condition. +The +SEC and its staff have taken the position that certain digital or “crypto” assets (which includes NFTs) fall within the definition +of a “security” under the U.S. federal securities laws. +The +classification of a digital asset as a security under applicable law has wide-ranging implications for the regulatory obligations +that flow from the offer and sale of such assets. For example, a digital asset that is a security in the United States may generally +only be offered or sold in the United States pursuant to a registration statement filed with the SEC or in an offering that qualifies +for an exemption from registration. Persons that effect transactions in digital assets that are securities in the United States may be +subject to registration with the SEC as a “broker” or “dealer.” +Platforms +that bring together purchasers and sellers to trade digital assets that are securities in the United States are generally subject to +registration as national securities exchanges, or must qualify for an exemption, such as by being operated by a registered broker-dealer as +an alternative trading system (“ATS”) in compliance with rules for ATSs. +19 +We +will have policies and processes to analyze whether each NFT that we sell on the Platform could be deemed to be a “security” +under applicable laws. Our policies and processes do not constitute a legal standard but rather represent our company-developed model, +which permits us to make a risk-based assessment regarding the likelihood that a particular NFT could be deemed a “security” +under applicable laws. Regardless of our conclusions, they are not binding on regulators or courts and we could be subject to legal or +regulatory action in the event the SEC, a state or foreign regulatory authority, or a court were to determine that an NFT posted and +sold on the Platform is a “security” under applicable laws. Because the Platform is not registered or licensed with the SEC +or foreign authorities as a broker-dealer, national securities exchange, or ATS (or foreign equivalents), and we do not seek to register +or rely on an exemption from such registration or license to facilitate the offer and sale of NFTs on the Platform, we only permit posting +on the Platform of our own NFTs for which we determine there are reasonably strong arguments to conclude that the NFT is not a security. +We believe that our process reflects a comprehensive and thoughtful analysis and is reasonably designed to facilitate consistent application +of available legal guidance to digital assets to facilitate informed risk-based business judgment. However, we recognize that the +application of securities laws to the specific facts and circumstances of digital assets may be complex and subject to change, and that +a posting determination does not guarantee any conclusion under the U.S. federal securities laws. We expect our risk assessment policies +and to continuously evolve to take into account case law, facts, and developments in technology. +There +can be no assurances that we will properly characterize any given NFT as a security or non-security for purposes of determining +whether the Platform will allow the posting of such NFT, or that the SEC, foreign regulatory authority, or a court, if the question was +presented to it, would agree with our assessment. If the SEC, state or foreign regulatory authority, or a court were to determine that +NFTs offered or sold on the Platform are securities, we would not be able to offer such NFTs until we are able to do so in a compliant +manner. A determination by the SEC, a state or foreign regulatory authority, or a court that an NFT sold on our Platform was a security +may also result in us determining that it is advisable to remove NFTs from the Platform that have similar characteristics to the NFT +that was determined to be a security. In addition, we could be subject to judicial or administrative sanctions for failing to offer or +sell the NFT in compliance with the registration requirements, or for acting as a broker, dealer, or national securities exchange without +appropriate registration. Such an action could result in injunctions, cease and desist orders, as well as civil monetary penalties, fines, +and disgorgement, criminal liability, and reputational harm. Customers that purchased such NFTs on the Platform and suffered losses could +also seek to rescind a transaction that we facilitated as the basis that it was conducted in violation of applicable law, which could +subject us to significant liability. +Risks +Related to Regulatory Changes +Changes +in our tax rates or exposure to additional tax liabilities, and changes to tax laws and interpretations of tax laws could adversely +affect our earnings and financial condition. +We +are subject to taxes in the United States and in various foreign jurisdictions. Significant judgment will be required to determine +our worldwide income tax provision, tax assets, and accruals for other taxes, and there are many transactions and calculations where +the ultimate tax determination is uncertain. Our effective income tax rate is based in part on our corporate operating structure and +the manner in which we operate our business and develop, value and use our intellectual property. Taxing authorities in jurisdictions +in which we operate may challenge and audit our methodologies for calculating our income taxes, which could increase our effective income +tax rate and have an adverse impact on our results of operations and cash flows. In addition, our provision for income taxes is materially +affected by our profit levels, changes in our business, changes in the mix of earnings in countries with differing statutory tax rates, +changes in the elections we make, changes in the valuation of our deferred tax assets and liabilities, or changes in applicable tax laws +or interpretations of existing income and withholding tax laws, as well as other factors. For example, the outcome of future guidance +related to the U.S. Tax Act could cause us to change our analysis and materially impact our previous estimates and financial statements. +20 +In +addition, changes to U.S. federal, state or international tax laws or their applicability to corporate multinationals in the countries +in which we do business may affect our effective tax rates and cash taxes, cause us to change the way in which we structure our business +and resulted in other costs. Our effective tax rate also could be adversely affected by changes in our valuation allowances for deferred +tax assets. Actual financial results also may differ materially from our current estimates and could have a material impact on our assessment +of the valuation allowance. +The +Platform may be subject to regulation by financial regulators. +NFTs, +in general, and the Platform may also be subject to regulations of the Financial Crimes Enforcement Network (“FinCEN”) of +the U.S. Department of Treasury and the Bank Secrecy Act. Further, the Office of Foreign Assets Controls (“OFAC”) has +signaled sanctions could apply to digital transactions and has pursued enforcement actions involving cryptocurrencies and digital asset +accounts. The nature of many NFT transactions also involve circumstances which present higher risks for potential violations, such as +anonymity, subjective valuation, use of intermediaries, lack of transparency, and decentralization associated with blockchain technology. +In addition, the Commodity Futures Trading Commission has stated that cryptocurrencies, with which NFTs have some similarities, fall +within the definition of “commodities.” If NFTs were deemed to be a commodity, NFT transactions could be subject to prohibitions +on deceptive and manipulative trading or restrictions on manner of trading (e.g., on a registered derivatives exchange), depending on +how the transaction is conducted. Moreover, if NFTs were deemed to be a “security”, it could raise federal and state securities +law implications, including exemption or registration requirements for marketplaces for NFT transactions, sellers of NFTs, and the NFT +transactions themselves, as well as liability issues, such as insider trading or material omissions or misstatements, among others. NFT +transactions may also be subject to laws governing virtual currency or money transmission. For example, New York has legislation +regarding the operation of virtual currency businesses. NFT transactions also raise issues regarding compliance with laws of foreign +jurisdictions, many of which present complex compliance issues and may conflict with one another. Our launch and operation of the Platform +(including our facilitation of transactions in Ether, a cryptocurrency, in connection therewith) expose us to the foregoing risks, among +others, any of which could materially and adversely affect the success of the Platform and harm our business, financial condition, results +of operations, reputation, and prospects. +Our +facilitation of transactions in cryptocurrencies such as Ether on the Platform exposes us to risks under U.S. and foreign tax laws. +Although +under U.S. federal tax laws, cryptocurrencies are currently considered property versus currency, we are obligated to report transactions +involving cryptocurrencies in U.S. dollars and must determine their fair market value on each transaction date. The U.S. federal +taxing authorities have issued limited guidance on cryptocurrency transactions. The current guidance treats the use of cryptocurrency +to purchase a NFT as a taxable disposition of the cryptocurrency, which subjects the holder to taxable gain that such holder must report +for federal and state tax purposes. Similarly, a seller of a NFT is subject to tax on the sale of the NFT. Congress is currently +proposing legislation that could require us to report such transactions to the IRS. Our failure to accurately record or report the +cryptocurrency and NFT sales transacted through the Platform, or held by us, would expose us to adverse tax consequences, penalties, +and interest. Moreover, the IRS, in connection with audits of cryptocurrency exchanges, has successfully sued to obtain account holder +transaction and tax information. The applicability of tax laws in the United States and foreign jurisdictions with respect to cryptocurrency +and NFTs will continue to evolve. This uncertainty increases the risk of non-compliance with tax laws, which in turn could result +in adverse tax consequences, penalties, investigations or audits, litigation, account holder lawsuits, or the need to revise or restate +our financial statements and associated consequences therewith, among other things. Any of the foregoing could materially and adversely +affect our business, financial condition, results of operations, reputation, and prospects. +Government +regulations applicable to us may negatively impact our business. +We +are a global company subject to various and complex laws and regulations domestically and internationally, including laws and regulations +related to consumer protection, protection of minors, content, advertising, localization, information security, intellectual property, +competition and taxation, among others. Many of these laws and regulations are continuously evolving and developing, and the application +to, and impact on, us is uncertain. For example, the World Health Organization recently included “gaming disorder” in the +11 th Revision of the International Classification of Diseases, prompting discussion and consideration of legislation +and policies aimed at mitigating the risk of overuse of, and overspending within, video games. These laws could harm our business by +limiting the products and services we can offer consumers or the manner in which we offer them. The costs of compliance with these laws +may increase in the future as a result of changes in applicable laws or changes to interpretation. Any failure on our part to comply +with these laws or the application of these laws in an unanticipated manner may harm our business and result in penalties or significant +legal liability. +Certain +of our business models will be subject to new laws or regulations or evolving interpretations and application of existing laws and regulations, +including those related to gambling. The growth and development of electronic commerce, virtual items and virtual currency has prompted +calls for new laws and regulations and resulted in the application of existing laws or regulations that have limited or restricted the +sale of our products and services in certain territories. New laws — each of which could vary significantly across jurisdictions — could +subject us to additional regulation and oversight, cause us to further limit or restrict the sale of our products and services or otherwise +impact our products and services, lessen the engagement with, and growth of, profitable business models, and expose us to increased compliance +costs, significant liability, fines, penalties and harm to our reputation and brand. +21 +We +may be subject to laws in certain foreign countries, and adhere to industry standards in the United States, that mandate rating +requirements or set other restrictions on the advertisement or distribution of interactive entertainment software based on content. In +addition, certain foreign countries allow government censorship of interactive entertainment software products. Adoption of ratings systems, +censorship or restrictions on distribution of interactive entertainment software based on content could harm our business by limiting +the products we are able to offer to our consumers. In addition, compliance with new and possibly inconsistent regulations for different +territories could be costly, delay or prevent the release of our products in those territories. +Our +Platform may not be successful and may expose us to legal, regulatory, and other risks. Given the nascent and evolving nature of cryptocurrencies, +NFTs, and our Platform, we may be unable to accurately anticipate or adequately address such risks or the potential impact of such risks. +The occurrence of any such risks could materially and adversely affect our business, financial condition, results of operations, reputation, +and prospects. +As +the market for NFTs and cryptocurrencies is relatively nascent, it is difficult to predict how the legal and regulatory framework around +NFTs and cryptocurrencies will develop and how such developments will impact our business and our Platform. The future legal status of +NFTs and cryptocurrencies under state and federal laws (including without limitation, securities, banking, and commodities laws) is highly +uncertain and unresolved. As a result of the uncertain legal status of crypto assets, we may have legal exposure for our failure to adequately +comply with legal regimes. In addition governmental agencies may seek to apply laws to our business that we believe are inapplicable, +and may seek sanctions relating to our alleged failure to comply with those laws. There is regulatory uncertainty with respect to whether +certain NFTs and cryptocurrencies could be considered securities. If NFTs sold on our Platform or any cryptocurrencies exchanged for +purposes of payment or minting of NFTs on our Platform were deemed to be a “security”, we may be in violation of securities +laws for engaging in transactions regarding the sale of unregistered securities. Such a determination could lead to an enforcement action +by the SEC and result in fines and other penalties and have a negative impact on our business. +Additionally, +if either the NFTs we sell or the Bitcoin, Ethereum, or MATIC tokens we may acquire or hold at any time are deemed to be a “security” +we may also be subject to regulations of FinCEN of the U.S. Department of Treasury and the Bank Secrecy Act. Further, OFAC has signaled +that sanctions could apply to digital transactions and has pursued enforcement actions involving cryptocurrencies and digital asset accounts. +This could expose us to future allegations of violations of the Bank Secrecy Act, including any applicable KYC and Anti-Money Laundering +laws and regulations (“AML”), or sanctions compliance obligations among others. In addition governmental agencies may seek +to apply laws to our business that we believe are inapplicable, and may seek sanctions relating to our alleged failure to comply with +those laws which would negatively impact our business. +Our +launch and operation of the Platform potentially exposes us to the foregoing risks, among others, any of which could materially and adversely +affect the success of our Platform and harm our business, financial condition, results of operations, reputation, and prospects. If we +fail to accurately anticipate or manage the risks associated with our NFTs or with our facilitation of crypto asset transactions, or +if we directly or indirectly become subject to disputes, liability, or other legal or regulatory issues in connection with the operation +of our business and Platform, we may not be successful and our business, financial condition, results of operations, reputation, and +prospects could be expected to be materially adversely affected. +We +may face significant competition, which may harm our business, results of operations or financial condition. +We +may face substantial competition in the healthcare services markets. Our key competitors will include, among others, healthcare consulting +service providers, healthcare payment accuracy companies and providers of other data products and data analytics solutions, including +healthcare risk adjustment, quality, economic statistics and other data. The increasing standardization of certain healthcare services +has made it easier for companies to enter these markets with competitive products and services. We cannot fully anticipate whether or +when companies in adjacent or other product or service areas may launch competitive products and/or services, and any such entry may +lead to obsolescence of our products and/or services or loss of market share or erosion of the prices for our solutions, or both. The +extent of this competition may vary by the size of companies, geographical coverage and scope and breadth of products and services offered. +Furthermore, some of our competitors may be significantly larger and have greater financial or other resources than we do. The vigorous +competition we face requires us to provide high quality, innovative products at a competitive price. We cannot guarantee that we will +be able to upgrade our existing solutions, or introduce new solutions at the same rate as our competitors, or at all, nor can we guarantee +that such upgrades or new solutions will achieve market acceptance over or among competitive offerings, or at all. Therefore, these competitive +pressures could have a material adverse impact on our business, results of operations or financial condition. +22 +Gaxos +Health would be adversely affected if we cannot obtain, process or distribute data we require to provide our solutions. +The +success of Gaxos Health will depend on our ability to obtain, process, monetize and distribute data in the healthcare industry in a manner +that complies with applicable law, regulation and contractual and restrictions. Our failure to obtain and distribute such data in a compliant +manner could have a harmful effect on our ability to use and disclose such data which in turn could impair our ability to share such +data with our customers or incorporate it into our services and offerings. In addition to complying with requirements in obtaining the +data, the use, processing and distribution of such data may require us to obtain consent from third parties or follow additional laws, +regulations or contractual restrictions that apply to the healthcare industry. Moreover, we may be subject to claims or liability for +use or disclosure of information. Any such claims or liabilities and other failures to comply with applicable requirements could subject +us to unexpected costs and adversely affect our operating results. +Risks +Related to Our Common Stock +The +market prices and trading volume of our shares of common stock may experience rapid and substantial price volatility which could cause +purchasers of our common stock to incur substantial losses. +Recently, +the market prices and trading volume of shares of common stock of other small publicly traded with a limited number of shares available +to purchasers, have experienced rapid and substantial price volatility unrelated to the financial performance of those companies. Similarly, +shares of our common stock may experience similar rapid and substantial price volatility unrelated to our financial performance, which +could cause purchasers of our common stock to incur substantial losses, which may be unpredictable and not bear any relationship to our +business and financial performance. Extreme fluctuations in the market price of our common stock may occur in response to strong and +atypical retail investor interest, including on social media and online forums, the direct access by retail investors to broadly available +trading platforms, the amount and status of short interest in our securities, access to margin debt, trading in options and other derivatives +on our common stock and any related hedging and other trading factors. +If +there is extreme market volatility and trading patterns in our common stock, it may create several risks for investors, including the +following: +● the +market price of our common stock may experience rapid and substantial increases or decreases +unrelated to our operating performance or prospects, or macro or industry fundamentals; +● if +our future market capitalization reflects trading dynamics unrelated to our financial performance +or prospects, purchasers of our common stock could incur substantial losses as prices decline +once the level of market volatility has abated; +● if +the future market price of our common stock declines, purchasers may be unable to resell +your shares at or above the price at which you acquired them. We cannot assure you that the +market of our common stock will not fluctuate or decline significantly in the future, in +which case you could incur substantial losses. +Further, +we may incur rapid and substantial increases or decreases in our stock price in the foreseeable future that may not coincide in timing +with the disclosure of news or developments by or affecting us. Accordingly, the market price of our shares of common stock may fluctuate +dramatically, and may decline rapidly, regardless of any developments in our business. Overall, there are various factors, many of which +are beyond our control, that could negatively affect the market price of our common stock or result in fluctuations in the price or trading +volume of our common stock, including: +● +actual +or anticipated variations in our annual or quarterly results of operations, including our earnings estimates and whether we meet +market expectations with regard to our earnings; +● +our +current inability to pay dividends or other distributions; +● +publication +of research reports by analysts or others about us or cryptocurrency including the NFT industry which may be unfavorable, inaccurate, +inconsistent or not disseminated on a regular basis; +● +changes +in market valuations of similar companies; +● +market +reaction to any additional equity, debt or other securities that we may issue in the future, and which may or may not dilute the +holdings of our existing stockholders; +● +additions +or departures of key personnel; +● +actions +by institutional or significant stockholders; +23 +● +short +interest in our stock and the market response to such short interest; +● +the +dramatic increase in the number of individual holders of our stock and their participation in social media platforms targeted at +speculative investing; +● +speculation +in the press or investment community about our company or industry; +● +strategic +actions by us or our competitors, such as acquisitions or other investments; +● +legislative, +administrative, regulatory or other actions affecting our business, our industry, including positions taken by the Internal Revenue +Service (“IRS”); +● +investigations, +proceedings, or litigation that involve or affect us; +● +the +occurrence of any of the other risk factors included in this Registration Statement on Form S-1; and +● +general +market and economic conditions. +The +price of our securities may fluctuate substantially. +You +should consider an investment in our securities to be risky, and you should invest in our securities only if you can withstand a significant +loss and wide fluctuations in the market value of your investment. Some factors that may cause the market price of our Common Stock to +fluctuate, in addition to the other risks mentioned in this “ Risk Factors ” section and elsewhere in this Annual Report +on Form 10-K, are: +● +sale +of our Common Stock by our shareholders, executives, and directors; +● +volatility +and limitations in trading volumes of our shares of Common Stock; +● +our +ability to obtain financing; +● +the +timing and success of introductions of new products by us or our competitors or any other change in the competitive dynamics +of our industry, including consolidation among competitors; +● +our +ability to attract new customers; +● +changes +in our capital structure or dividend policy, future issuances of securities, sales of large blocks of Common Stock by our shareholders; +● +our +cash position; +● +announcements +and events surrounding financing efforts, including debt and equity securities; +● +our +inability to enter into new markets or develop new products; +● +reputational +issues; +● +announcements +of acquisitions, partnerships, collaborations, joint ventures, new products, capital commitments, or other events by us or our +competitors; +● +changes +in general economic, political and market conditions in or any of the regions in which we conduct our business; +● +changes +in industry conditions or perceptions; +● +analyst +research reports, recommendation and changes in recommendations, price targets, and withdrawals of coverage; +● +departures +and additions of key personnel; +● +disputes +and litigations related to intellectual properties, proprietary rights, and contractual obligations; +● +changes +in applicable laws, rules, regulations, or accounting practices and other dynamics; and +● +other +events or factors, many of which may be out of our control. +In +addition, if the market for stocks in our industry or industries related to our industry, or the stock market in general, experiences +a loss of investor confidence, the trading price of our Common Stock could decline for reasons unrelated to our business, financial condition +and results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, +even if unsuccessful, could be costly to defend and a distraction to management. +24 +Our +ability to have our securities traded on the NASDAQ is subject to us meeting applicable listing criteria. +Our +common stock is publicly traded and listed on the Nasdaq Capital Market under the trading symbol “GXAI.” To maintain our +listing, we must comply with the continued listing requirements of the Nasdaq Capital Market, which include a minimum bid price requirement +of $1.00 per share. The NASDAQ requires companies desiring to list their common stock to meet certain listing criteria including total +number of shareholders, minimum stock price, total value of public float, and in some cases total shareholders’ equity and market +capitalization. Our failure to meet such applicable listing criteria could prevent us from maintaining the listing of our Common Stock +on the NASDAQ. In the event we are unable to have our shares traded on NASDAQ, our Common Stock could potentially trade on the OTCQX +or the OTCQB, each of which is generally considered less liquid and more volatile than the NASDAQ. Our failure to maintain a listing +on the NASDAQ could make it more difficult for you to trade our shares, could prevent our Common Stock trading on a frequent and liquid +basis and could result in the value of our Common Stock being less than it would be if we were able to list our shares on the NASDAQ. +No +assurance can be given that we will continue to meet NASDAQ’s continued listing standards. If we fail to comply with Nasdaq’s +continued listing standards, we may be delisted and our common stock will trade, if at all, only on the over-the-counter market, such +as the OTC Bulletin Board, or OTCQX market, and then only if one or more registered broker-dealer market makers comply with quotation +requirements. In addition, delisting of our common stock could depress our stock price, substantially limit liquidity of our common stock +and materially adversely affect our ability to raise capital on terms acceptable to us, or at all. Finally, delisting of our common stock +could result in our common stock becoming a “penny stock” under the Exchange Act. +We +may acquire other companies or technologies, which could divert our management’s attention, result in dilution to our stockholders +and otherwise disrupt our operations and adversely affect our operating results. +We +may in the future seek to acquire or invest in businesses, applications and services or technologies that we believe could complement +or expand our services, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions +may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, +whether or not they are consummated. +In +addition, we do not have any experience in acquiring other businesses. If we acquire additional businesses, we may not be able to integrate +the acquired personnel, operations and technologies successfully, or effectively manage the combined business following the acquisition. +We also may not achieve the anticipated benefits from the acquired business due to a number of factors, including: +● +inability +to integrate or benefit from acquired technologies or services in a profitable manner; +● +unanticipated +costs or liabilities associated with the acquisition; +● +difficulty +integrating the accounting systems, operations, and personnel of the acquired business; +● +difficulties +and additional expenses associated with supporting legacy products and hosting infrastructure of the acquired business; +● +difficulty +converting the customers of the acquired business onto the Platform and contract terms, including disparities in the revenue, +licensing, support, or professional services model of the acquired company; +● +diversion +of management’s attention from other business concerns; +● +adverse +effects to our existing business relationships with business partners and customers as a result of the acquisition; +● +the +potential loss of key employees; +● +use +of resources that are needed in other parts of our business; and +● +use +of substantial portions of our available cash to consummate the acquisition. +In +addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill and other intangible +assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we +may be required to take charges to our operating results based on this impairment assessment process, which could adversely affect our +results of operations. +Acquisitions +could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results. +In addition, if an acquired business fails to meet our expectations, our operating results, business and financial position may suffer. +If +research analysts do not publish research about our business or if they issue unfavorable commentary or downgrade our Common Stock, our +securities’ price and trading volume could decline. +The +trading market for our securities may depend in part on the research and reports that research analysts publish about us and our business. +If we do not maintain adequate research coverage, or if any of the analysts who cover us downgrade our stock or publish inaccurate or +unfavorable research about our business, the price of our Common Stock could decline. If one or more of our research analysts ceases +to cover our business or fails to publish reports on us regularly, demand for our securities could decrease, which could cause the price +of our Common Stock or trading volume to decline. +25 +Market +and economic conditions may negatively impact our business, financial condition and share price. +Concerns +over inflation, energy costs, geopolitical issues, the U.S. mortgage market and a declining real estate market, unstable global +credit markets and financial conditions, and volatile oil prices have led to periods of significant economic instability, diminished +liquidity and credit availability, declines in consumer confidence and discretionary spending, diminished expectations for the global +economy and expectations of slower global economic growth going forward, increased unemployment rates, and increased credit defaults +in recent years. Our general business strategy may be adversely affected by any such economic downturns, volatile business environments +and continued unstable or unpredictable economic and market conditions. If these conditions continue to deteriorate or do not improve, +it may make any necessary debt or equity financing more difficult to complete, more costly, and more dilutive. Failure to secure any +necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial +performance, and share price and could require us to delay or abandon development or commercialization plans. +The +ability of a stockholder to recover all or any portion of such stockholder’s investment in the event of a dissolution or termination +may be limited. +In +the event of a dissolution or termination of the Company, the proceeds realized from the liquidation of the assets of the Company, or +such subsidiaries will be distributed among the stockholders, but only after the satisfaction of the claims of third-party creditors +of the Company. The ability of a stockholder to recover all or any portion of such stockholder’s investment under such circumstances +will, accordingly, depend on the amount of net proceeds realized from such liquidation and the amount of claims to be satisfied therefrom. +There can be no assurance that the Company will recognize gains on such liquidation, nor is there any assurance that Common Stockholders +will receive a distribution in such a case. +We +do not intend to pay cash dividends on our shares of Common Stock so any returns will be limited to the value of our shares. +We +currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate +declaring or paying any cash dividends for the foreseeable future. Any return to shareholders will therefore be limited to the increase, +if any, of our share price. +Our +Articles of Incorporation provide that, unless we consent in writing to the selection of an alternative forum, the Eighth Judicial District +Court of Clark County, Nevada will be the sole and exclusive forum for substantially all disputes between us and our stockholders, +which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, +or employees. +Our +Articles of Incorporation provide that, unless we consent in writing to the selection of an alternative forum, the Eighth Judicial District +Court of Clark County, Nevada will be the exclusive forum for any derivative action or proceeding brought on our behalf; any +action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Nevada Revised Statutes, +our Articles of Incorporation or our bylaws. This choice of forum provision does not preclude or contract the scope of exclusive federal +or concurrent jurisdiction for any actions brought under the Securities Act or the Exchange Act. Accordingly, our exclusive +forum provision will not relieve us of our duties to comply with the federal securities laws and the rules and regulations thereunder, +and our stockholders will not be deemed to have waived our compliance with these laws, rules and regulations. +Any +person or entity purchasing or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented +to these provisions. These exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial +forum of its choosing for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and +our directors, officers and other employees. +If +a court were to find the choice of forum provision contained in our Articles of Incorporation to be inapplicable or unenforceable in +an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, +results of operations, and financial condition. Even if we are successful in defending against these claims, litigation could result +in substantial costs and be a distraction to management and other employees. +We +are an “emerging growth company” and are able to avail ourselves of reduced disclosure requirements applicable to emerging +growth companies, which could make our Common Stock less attractive to investors. +We +are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS +Act”), and we have elected to take advantage of certain exemptions from various reporting requirements that are applicable to other +public companies that are not “emerging growth companies” including not being required to comply with the auditor attestation +requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation +in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive +compensation and shareholder approval of any golden parachute payments not previously approved. In addition, pursuant to Section 107 +of the JOBS Act, as an “emerging growth company” we have elected to take advantage of the extended transition period provided +in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. In other words, an “emerging +growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. +As such, our financial statements may not be comparable to companies that comply with public company effective dates. +26 +We +cannot predict if investors will find our Common Stock less attractive because we may rely on these exemptions. If some investors find +our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may +be more volatile. We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” +We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which +we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth +anniversary of the date of the completion of our initial public offering; (iii) the date on which we have issued more than $1 billion +in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer +under the rules of the SEC. +Financial +reporting obligations of being a public company in the United States are expensive and time-consuming, and our management will +be required to devote substantial time to compliance matters. +As +a publicly traded company, we will incur significant additional legal, accounting and other expenses that we did not incur as a private +company. The obligations of being a public company in the United States require significant expenditures and will place significant +demands on our management and other personnel, including costs resulting from public company reporting obligations under the Exchange Act +and the rules and regulations regarding corporate governance practices, including those under the Sarbanes-Oxley Act of 2002 +(“Sarbanes-Oxley”), the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the listing requirements of the +stock exchange on which our securities are listed. These rules require the establishment and maintenance of effective disclosure and +financial controls and procedures, internal control over financial reporting and changes in corporate governance practices, among many +other complex rules that are often difficult to implement, monitor and maintain compliance with. Moreover, despite recent reforms made +possible by the JOBS Act, the reporting requirements, rules, and regulations will make some activities more time-consuming and costly, +particularly after we are no longer an “emerging growth company.” In addition, we expect these rules and regulations to make +it more difficult and more expensive for us to obtain director and officer liability insurance. Our management and other personnel will +need to devote a substantial amount of time to ensure that we comply with all of these requirements and to keep pace with new regulations, +otherwise we may fall out of compliance and risk becoming subject to litigation or being delisted, among other potential problems. +If +we fail to comply with the rules under Sarbanes-Oxley related to accounting controls and procedures in the future, or, if we +discover material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline +significantly and raising capital could be more difficult. +Section 404 +of Sarbanes-Oxley requires annual management assessments of the effectiveness of our internal control over financial reporting. +If we fail to comply with the rules under Sarbanes-Oxley related to disclosure controls and procedures in the future, or, if we +discover material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline +significantly and raising capital could be more difficult. If material weaknesses or significant deficiencies are discovered or if we +otherwise fail to achieve and maintain the adequacy of our internal control, we may not be able to ensure that we can conclude on an +ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of Sarbanes-Oxley. +Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to helping prevent +financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, +investors could lose confidence in our reported financial information, and the trading price of our Common Stock could drop significantly. +Changes +in our tax rates or exposure to additional tax liabilities, and changes to tax laws and interpretations of tax laws could adversely affect +our earnings and financial condition. +We +are subject to taxes in the United States and in various foreign jurisdictions. Significant judgment will be required to determine +our worldwide income tax provision, tax assets, and accruals for other taxes, and there are many transactions and calculations where +the ultimate tax determination is uncertain. Our effective income tax rate is based in part on our corporate operating structure and +the manner in which we operate our business and develop, value and use our intellectual property. Taxing authorities in jurisdictions +in which we operate may challenge and audit our methodologies for calculating our income taxes, which could increase our effective income +tax rate and have an adverse impact on our results of operations and cash flows. In addition, our provision for income taxes is materially +affected by our profit levels, changes in our business, changes in the mix of earnings in countries with differing statutory tax rates, +changes in the elections we make, changes in the valuation of our deferred tax assets and liabilities, or changes in applicable tax laws +or interpretations of existing income and withholding tax laws, as well as other factors. For example, the outcome of future guidance +related to the U.S. Tax Act could cause us to change our analysis and materially impact our previous estimates and financial statements. +In +addition, changes to U.S. federal, state, or international tax laws or their applicability to corporate multinationals in the countries +in which we do business may affect our effective tax rates and cash taxes, cause us to change the way in which we structure our business +and resulted in other costs. Our effective tax rate also could be adversely affected by changes in our valuation allowances for deferred +tax assets. Actual financial results also may differ materially from our current estimates and could have a material impact on our assessment +of the valuation allowance. +27 +Provisions +in our articles of incorporation, bylaws and of Nevada law have anti-takeover effects that could prevent a change in control +that could be beneficial to our stockholders, which could depress the market price of shares of our common stock. +Our +articles of incorporation, bylaws and Nevada corporate law contain provisions that could delay, defer or prevent a change in control +of us or our management that could be beneficial to our stockholders. These provisions could also discourage proxy contests and make +it more difficult for our stockholders to elect directors and take other corporate actions. These provisions might also discourage a +potential acquisition proposal or tender offer, even if the acquisition proposal or tender offer is at a price above the then-current +market price for shares of our common stock. These provisions: +● +provide +that directors may only be removed upon a vote of at least eighty percent of the shares outstanding; +● +establish +advance notice requirements for nominating directors and proposing matters to be voted on by stockholders at stockholder meetings; +● +limit +the right of our stockholders to call a special meeting of stockholders; +● +authorize +our board of directors to issue preferred stock and to determine the rights and preferences of those shares, which would be senior +to our common stock, without prior stockholder approval; +● +require +amendments to our articles of incorporation to be approved by the holders of at least eighty percent of our outstanding shares of +common stock; +● +a +classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership +of a majority of our board of directors; and +● +provide +a prohibition on stockholder action by written consent, thereby only permitting stockholder action to be taken at an annual or special +meeting of our stockholders. +We +are also subject to certain anti-takeover provisions under Nevada law. Under Nevada law, a corporation may not, in general, +engage in a business combination with any “interested stockholder” for two (2) years after the date the person first became +an interested stockholder, unless the combination meets all of the requirements of our articles of incorporation and (i) the purchase +of shares by the interested stockholder is approved by our board of directors before that date or (ii) the combination is approved by +our board of directors and, at or after that time, the combination is approved at an annual or special meeting of our stockholders, and +not by written consent, by the affirmative vote of the holders of stock representing at least sixty percent (60%) of our outstanding +voting power not beneficially owned by the interested stockholder or the affiliates or associates of the interested stockholder. +If +our shares become subject to the penny stock rules, it would become more difficult to trade our shares. +The +SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally +equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized +for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions +in such securities is provided by the exchange or system. If we do not obtain or retain a listing on the Nasdaq Capital Market or if +the price of our Common Stock falls below $5.00, our Common Stock will be deemed a penny stock. The penny stock rules require a broker-dealer, +before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing +specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise +exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment +for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a +written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. +These disclosure requirements would likely have the effect of reducing the trading activity in the secondary market for our Common Stock, +and therefore stockholders may have difficulty selling their shares. +28 +FINRA +sales practice requirements may limit a stockholder’s ability to buy and sell our stock. +In +addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority, Inc. (“FINRA”), +has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for +believing that the investment is suitable for that customer. Prior to recommending speculative, low-priced securities to their non-institutional customers, +broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment +objectives and other information. The FINRA requirements may make it more difficult for broker-dealers to recommend that their customers +buy our Common Stock, which may have the effect of reducing the level of trading activity in our Common Stock. As a result, fewer broker-dealers may +be willing to make a market in our Common Stock, reducing a stockholder’s ability to resell shares, as well as overall liquidity, +of our Common Stock. +We +may be considered a smaller reporting company and will be exempt from certain disclosure requirements, which could make our Common Stock +less attractive to potential investors. +Rule 12b-2 of +the Exchange Act, defines a “smaller reporting company” as an issuer that is not an investment company, an asset-backed issuer, +or a majority-owned subsidiary of a parent that is not a smaller reporting company and that: +● had +a public float of less than $250 million as of the last business day of its most +recently completed second fiscal quarter, computed by multiplying the aggregate worldwide +number of shares of its voting and non-voting common equity held by non-affiliates by +the price at which the common equity was last sold, or the average of the bid and asked prices +of common equity, in the principal market for the common equity; or +● in +the case of an initial registration statement under the Securities Act of 1933, +as amended (“Securities Act”), or the Exchange Act for shares of its common +equity, had a public float of less than $250 million as of a date within 30 days +of the date of the filing of the registration statement, computed by multiplying the aggregate +worldwide number of such shares held by non-affiliates before the registration plus, +in the case of a Securities Act registration statement, the number of such shares included +in the registration statement by the estimated public offering price of the shares; or +● in +the case of an issuer whose public float was zero, had annual revenues of less than $100.0 million +during the most recently completed fiscal year for which audited financial statements are +available. +As +a smaller reporting company, we would not be required and may not include a Compensation Discussion and Analysis section in our proxy +statements; we would provide only two years of financial statements; and we would not need to provide the table of selected financial +data. We also would have other “scaled” disclosure requirements that are less comprehensive than issuers that are not smaller +reporting companies which could make our Common Stock less attractive to potential investors, and also could make it more difficult for +our stockholders to sell their shares. +29 +ITEM +1B. UNRESOLVED STAFF COMMENTS +None. +ITEM +1C. CYBERSECURITY +Cybersecurity +is critical to advancing our overall objectives and enabling our digital efforts. As a company operating in the technology and software +sectors, we face a wide variety of cybersecurity threats that range from common attacks such as ransomware and denial-of-service, to +more advanced attacks. Our customers, suppliers and other partners face similar cybersecurity threats, and a cybersecurity incident impacting +these entities could materially adversely affect our operations, performance and results. These cybersecurity threats and related risks +make it imperative that we maintain focus on cybersecurity and systematic risks. Below is a discussion of our risk management and approach +to governance as it relates to cybersecurity. For additional information on the impact of cyber risks, refer to Part I, Item 1A. “ Risk +Factors ”, of this Form 10-K. +Risk +Management and Strategy +Cybersecurity +risk management is a core tenet of our information technology security program. We have implemented various cybersecurity technologies, +controls, and processes to ensure the integrity and availability of our infrastructure, data, and operations. We periodically review +and modify these technologies and processes to align with the latest in industry best practices and an ever-changing threat landscape. +As +part of our cybersecurity risk management program, we perform the following: +● Cybersecurity +risk assessment is performed on all new products and product updates; +● Employ +internal staff with security certifications, and we work with third parties to perform security +vulnerability testing; +● Changes +to data protection laws are closely monitored and necessary changes are implemented; +● Provide +routine security training to employees and communicate any emerging threats; +● Review the security posture of all third parties that we engage; +● Maintain +a comprehensive incident response plan; +● Carry +cybersecurity insurance to help mitigate any potential losses arising from cybersecurity +incidents. +While +we face a number of ongoing cybersecurity risks in connection with our business, such risks have not materially affected us to date, +including our business strategy, results of operations, or financial condition. +Governance +Our +team responsible for monitoring and assessing cybersecurity threats, who reports directly to the Chief Executive Officer , manages and +monitors our cybersecurity. Our board of directors, as a whole, has oversight for the most significant risks facing us and for our processes +to identify, prioritize, assess, manage and mitigate those risks, including cybersecurity risks. The board of directors receives regular +updates on cybersecurity and information technology matters and related risk exposures from our executive team. +ITEM +2. PROPERTIES +Our +principal executive offices are located at 101 Eisenhower Parkway, Suite 300, Roseland, New Jersey 07068. We pay $58 per month to rent +such space on a month-to-month lease basis. We believe that our current office space will be adequate for the foreseeable future. +ITEM +3. LEGAL PROCEEDINGS +From +time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation +is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. +We are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse +effect on our business, financial condition or operating results. +ITEM +4. MINE SAFETY DISCLOSURES +Not +applicable. +30 +PART +II +ITEM +5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES +Market +Information +Our +common stock is listed on the Nasdaq Capital Market under the symbol “GXAI.” Prior to the change of our symbol to GXAI on +January 19, 2024, our common stock was listed on the Nasdaq Capital Market under the symbol “NFTG.” +Shareholders +As +of March 15, 2025, we had 10 shareholders of record of our common stock. The actual number of holders of our common stock is greater +than this number of record holders, and includes shareholders who are beneficial owners, but whose shares are held in street name by +brokers or held by other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust +by other entities. +Use +of Proceeds from Registered Offering +On +February 17, 2023, we completed the initial public offering, or IPO, of our common stock pursuant to which we issued and sold 1,686,747 +shares of our common stock at a price to the public of $4.15 per share. All of the shares of common stock issued and sold in our IPO +were registered under the Securities Act pursuant to a registration statement on Form S-1 (Registration No. 333-267879), which +was declared effective by the SEC on February 14, 2023. We received net proceeds of approximately $5.9 million, after deducting +underwriting discounts and commissions and offering expenses borne by us. None of the expenses incurred by us were direct or indirect +payments to any of (i) our directors or officers or their associates, (ii) persons owning 10% or more of our common stock, +or (iii) our affiliates. There has been no material change in the planned use of proceeds from our IPO as described in our final +prospectus filed with the SEC on February 14, 2023 pursuant to Rule 424(b)(4). Laidlaw & Co. (UK) Ltd. (“Laidlaw”) +acted as sole book-running manager for the offering. The offering commenced on February 14, 2023 and did not terminate before all securities +registered in the registration statement were sold. +Purchases +of Equity Securities by the Issuer and Affiliated Purchasers +None. +Dividend +Policy +We +have never paid or declared any cash dividends on our common stock, and we do not anticipate paying any cash dividends on our common +stock in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion +of our business. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon a +number of factors, including our results of operations, financial condition, future prospects, contractual restrictions, restrictions +imposed by applicable law and other factors our board of directors deems relevant. +Unregistered +Sales of Equity Securities +On +February 21, 2025, we issued 200,000 restricted shares of our common stock, par value $0.0001 per share to Abraco LLC pursuant to a Software +Purchase Agreement by and between the Company and Abraco LLC whereby we acquired certain software comprising the entirety of the code +for the design, appearance, content, features and functionality of the application, together with all related documentation, and all +derivative works, updates, improvements, modifications and enhancements made by or on behalf of Abraco LLC. +ITEM +6. [RESERVED] +31 +ITEM +7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS. +You +should read the following discussion and analysis of our financial condition and plan of operations together with “Summary Financial +Data” and our financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K. In addition to +historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties +and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such +differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” +included elsewhere in this Annual Report on Form 10-K. All amounts in this report are in U.S. dollars, unless otherwise noted. +Overview +We +are a technology-based company that is developing applications aimed at redefining the way we utilize artificial intelligence (“AI”) +to optimize the user experience. We are committed to addressing the need for AI solutions in both health and entertainment. +Gaxos Labs +Gaxos Labs, launched in September 2024, is a transformative +generative AI service that empowers game developers and publishers. Key features of the product include: +● +AI-Powered Creativity: Reduces creative asset development time from hours to minutes, transforming artistic visions into reality with ease. Rapid prototyping abilities allows for experimentation with different designs quickly and easily. +● +Monetization: Publishers have the ability to offer users AI-generated assets for player customization. +● +Seamless Integration: With plug-and-play functionality for Unity and Godot, integration is effortless into existing workflows. +● +API: Connect to any game development engine and build for any platform including mobile and PC. +● +Dynamic Content Generation: User-Generated-Ai-Content (“UGAiC”) feature offers new experiences with each playthrough by letting gamers use AI in real time, fostering a dynamic gaming environment. +● +Customized Solutions: From personalized AI models including images and sound capabilities to expert consulting services, our offering includes customizable solutions to meet the unique needs of any developer. +Gaxos +Gaming +Gaxos Gaming (the “Platform”), created +with a vision to develop, design, acquire, and manage conventional games and to combine these games with unconventional game mechanisms, +such as the ability for gamers and developers to utilize artificial intelligence to create and design in-game features, as well as to +mint unique in-game features, such as skins, characters, weapons, gear, levels, and virtual lands, in the form of non-fungible tokens, +or “NFTs,” that will allow users to have unique experiences and more control over in-game assets. +In +2023, we launched our own proprietary games that are simple and fun to play, and that offer gamers the ability to utilize AI to personalize +their gaming experience as well as to mint their own affordable NFTs, with unique and exclusive features, that can be utilized across +the network of games and platform that we intend to build. As of December 31, 2023, we have launched four games, Space Striker AI, Brawl +Bots, BattleFleet AI, and Jigsaw Puzzle AI. Space Striker AI allows players to engage in a captivating storyline and exciting retro shooting +space action in the players AI-generated spaceship. Players can fuse crystals to upgrade their ship parts to craft, clash and conquer +the galaxy all within a dynamic free-to-play economy. Brawl Bots immerses users in high-octane battles in real time against other players, +in solo play or teams. Each player gets to control their own exclusive Bot character, ensuring a personalized gaming experience. BattleFleet +AI is a take on the classic Battleship game with AI elements that allow gamers to design their ships. Jigsaw Puzzle AI lets gamers solve +preloaded jigsaw puzzles as well as design and solve new jigsaw puzzles using AI. +Gaxos +Health +Recently, +we began to develop a new initiative, Gaxos Health, which is dedicated to revolutionizing personal health and wellness by developing +a suite of innovative AI-powered health optimization solutions. Gaxos Health will integrate AI-driven insights with individual biometric +data and health goals to create web and application based personalized wellness strategies for users. We believe that this cutting-edge +approach will redefine preventative medicine, offering unparalleled personalization in health and wellness. Gaxos Health solutions will +analyze a wide range of health data to provide tailored wellness plans and address the growing demand for personalized health solutions. +We believe that this technology is not just a step but a leap forward in empowering individuals to take control of their health and longevity +with AI’s precision and intelligence. +We +launched the AI-powered health optimization product in the third quarter of 2024. +32 +RNK +Health +On September 23, 2024, the Company formed a wholly-owned +subsidiary, RNK Health LLC (“RNK Health”), to form a partnership and potential relationship with Nekwellness, LLC (“Nekwellness”) +to engage in the proposed business of marketing certain health-related products. On October 10, 2024, the Company, RNK Health and Nekwellness +entered into an operating agreement with respect to the regulation and management of the affairs of RNK Health and, as of such date, the +Company owns a 70% membership interest in RNK Health and Nekwellness owns a 30% membership interest in RNK Health. RNK Health is currently +providing access to GLP-1 medications such as injectable and oral Semaglutide and Terzepatide, and intends to add other products such +as testosterone replacement therapy (TRT) +Critical +Accounting Estimates +Critical +accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant +level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results +of operations. We consider the following to be critical accounting estimates. +Intangible +assets +Intangible +assets, consisting of software licenses and technology licenses, are carried at cost less accumulated amortization, computed using the +straight-line method over the estimated useful life of 5 years, less any impairment charges. We test intangible assets for impairment +whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. Recoverability +of assets is determined by comparing the estimated undiscounted future cash flows of the asset or asset group to their carrying amount. +If the carrying value of the assets exceeds their estimated undiscounted future cash flows, an impairment loss would be determined as +the difference between the fair value of the assets and its carrying value. Typically, the fair value of the assets would be determined +using a discounted cash flow model which would be sensitive to judgments of what constitutes an asset group and certain assumptions such +as estimated future financial performance, discount rates, and other assumptions that marketplace participants would use in their estimates +of fair value. There have been no material changes in the underlying assumptions and estimates used in these calculations in the relevant +period. The accounting estimate related to asset impairments is highly susceptible to change from period to period because it requires +management to make assumptions about the existence of impairment indicators and cash flows over future years. These assumptions impact +the amount of an impairment, which could materially adversely impact the consolidated statements of operations. +Stock-based +compensation +Stock-based +compensation is accounted for based on the requirements of ASC 718 – “Compensation–Stock Compensation ”, +which requires recognition in the financial statements of the cost of employee, non-employee and director services received in exchange +for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award +(presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange +for an award based on the grant-date fair value of the award. The Company has elected to account for forfeitures as they occur. +We recognize compensation costs resulting from the issuance of stock-based awards to employees, non-employees, and directors as an expense +in the statements of operations over the requisite service period based on a measurement of fair value for each stock-based award. The +fair value of each option granted is estimated as of the date of grant using the Black-Scholes-Merton option-pricing model, net of actual +forfeitures. The fair value is amortized as compensation cost on a straight-line basis over the requisite service period of the awards, +which is generally the vesting period. The Black-Scholes-Merton option-pricing model includes various assumptions, including the fair +market value of our common stock, expected life of stock options, the expected volatility, and the expected risk-free interest rate, +among others. These assumptions reflect our best estimates, but they involve inherent uncertainties based on market conditions generally +outside of our control. As a result, if other assumptions had been used, stock-based compensation expense, as determined in accordance +with authoritative guidance, could have been materially impacted. Furthermore, if we use different assumptions on future grants, stock-based +compensation expense could be materially affected in future periods. +Capital +Expenditures +We +do not have any contractual obligations for ongoing capital expenditures at this time. We do, however, purchase equipment and software +necessary to conduct our operations on an as needed basis. +33 +Results +of Operations +Comparison +of Our Results of Operations for the Year Ended December 31, 2024 and 2023 . +Revenues +During +the year ended December 31, 2024, we generated revenues of $4,027 primarily from the sale of health coaching packages to its customers. +Health coaching packages consist of a series of lab tests and personal health coaching sessions. During the year ended December 31, 2023, +we generated revenue of $256. Once we achieve a critical mass of users, we plan to offer new features and to charge fees in order to +generate revenues from these added features. +Operating +Expenses +During +the years ended December 31, 2024 and 2023, we incurred operating expenses of $3,707,632 and $4,015,541, respectively, a decrease of +$307,909, or 7.7%. Operating consisted of the following: +Research +and development fees +We +enter into agreements with third-party developers that require us to make payments for game and software development services upon +reaching the application development stage. In exchange for our payments, we receive the exclusive publishing and distribution rights +to the finished game title and software. During the preliminary project stage and prior to the application development stage of the product, +we record any costs incurred by third-party developers as research and development expenses. +We +capitalize all development and production service payments to third-party developers as internal-use software development costs +and licenses once we reach the application development stage. During the years ended December 31, 2024 and 2023, we reported research +and development fees of $996,487 and $915,818, respectively, an increase of $80,669, or 8.8%. The increase is primarily due to an increase +in outside development costs incurred in connection with the development of Gaxos Health platforms offset by a decrease in outside development +costs incurred in connection with the development of Gaxos Games. We expect research and development expenses to increase in the future +as development of Gaxos Games, Gaxos Health and RNK Health accelerates. +General +and administrative expenses +For +the years ended December 31, 2024 and 2023, general and administrative expenses consisted of the following: +For the +Year Ended +December 31, +2024 +For the +Year Ended +December 31, +2023 +Compensation and related benefit +$ 872,899 +$ 1,432,427 +Professional fees +946,200 +1,066,969 +Other general and administrative expenses +892,046 +547,964 +Total general and administrative expenses +$ 2,711,145 +$ 3,047,360 +34 +Compensation +and related benefits +During +the years ended December 31, 2024 and 2023, compensation and related benefits amounted to $872,899 and $1,432,427, respectively, a decrease +of $559,528, or 39.1%. The decrease during the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily +attributable to the decrease in accretion of stock-based compensation related to issuance of stock options to executive officers, directors +and employees of $640,560, offset by an increase in executive officer and employee compensation and related benefits of $81,032. +Professional +fees +During +the years ended December 31, 2024 and 2023, we incurred professional fees of $946,200 and $1,066,969, respectively, a decrease of $120,769, +or 11.3%, primarily attributable to a decrease in stock-based consulting fees attributable to the accretion of stock-based consulting +fees related to issuance of stock options to consultants of $176,351, a decrease in investor relations fees of $323,620 and a decrease +in other professional fees of $16,152, offset by an increase in legal fees of $33,213, an increase in accounting fees of $47,755, an +increase in advisory fees of $281,761, and an increase in director fees of $32,625. +Other +general and administrative expenses +Other +general and administrative expenses consist of advertising and marketing expenses, office expenses, insurance, listing fees, computer +and interest expenses, travel expenses, amortization expense, and other general business expenses. During the years ended December 31, +2024 and 2023, we incurred other general and administrative expenses of $892,046 and $547,964, respectively, an increase of $344,082, +or 62.8%. This increase was primarily attributable to an increase in advertising and marketing fees of $156,254 and an increase in other +general and administrative expenses of $187,828. +Impairment +loss +On +August 9, 2023 and effective August 1, 2023, the Company and Columbia University agreed to the termination of the Software and Patent +License Agreement between the Company and The Trustees of Columbia University in the City of New York, dated August 29, 2022. Accordingly, +as of December 31, 2023, we wrote off the remaining unamortized book value of the intangible asset of $52,363, and during the year ended +December 31, 2023, we recorded an impairment loss of $52,363, which is included in operating expenses on the accompanying statement of +operations and comprehensive loss. We did not record any impairment loss during the year ended December 31, 2024. +Loss +from operations +During +the years ended December 31, 2024 and 2023, we reported a loss from operations of $3,703,605 and $4,015,285, respectively, a decrease +of $311,680, or 7.8%. The decrease in loss from operations was due to a decrease in general and administrative expenses and a decrease +in impairment loss, offset by an increase in research and development as discussed above. +Other +income +During +the years ended December 31, 2024 and 2023, we reported other income of $279,322 and $67,188, respectively, which consisted of interest +income and a realized gain on short-term investments in both years. +Net +loss +During +the years ended December 31, 2024 and 2023, our net loss amounted to $3,424,283 and $3,948,097, respectively, a decrease of $523,814, +or 13.3%. During the years ended December 31, 2024 and 2023, our comprehensive loss amounted to $3,508,375, or a net loss per common +share of $1.93 (basic and diluted) and $3,852,312, or a net loss per common share of $4.00 (basic and diluted), respectively, a decrease +of $343,937, or 8.9%. +Liquidity, +Capital Resources and Plan of Operations +Liquidity +is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate +on an ongoing basis. On December 31, 2024, we had a cash balance of $14,398,099, had short-term investments of $2,167,419, and had working +capital of $16,427,618. During the year ended December 31, 2024, we used net cash in operations of $3,280,397. +35 +On +December 18, 2024, we entered into a securities purchase agreement (the “December 18, 2024 Purchase Agreement”) with certain +institutional investors, pursuant to which we sold to such investors 1,449,277 common shares of the Company at a purchase price of $3.45 +per share for net proceeds from $4,449,055, after deducting Placement Agent fees and offering expenses of $550,950 paid by the Company. +Additionally, on December 26, 2024, we entered into a securities purchase agreement (the “December 26, 2024 Purchase Agreement”) +with certain institutional and accredited investors, pursuant to which we sold to such investors 1,346,669 shares of the Company’s +common stock at a purchase price of $3.00 per share (the “2 nd Registered Direct Offering”). The net proceeds from +the December 26, 2024 Purchase Agreement amounted to $3,600,656, after deducting Placement Agent fees and offering expenses of $439,351 +paid by the Company pursuant to the September 2024 Engagement Letter with the Placement Agent. +Until +such time that the Company implements its growth strategy, we expect to continue to generate operating losses in the foreseeable future, +mostly due to corporate overhead, research and development, and costs of being a public company. We believe that our existing working +capital and cash on hand will provide sufficient cash to enable the Company to meet its operating needs and debt requirements for the +next twelve months from the issuance date of this report. +Cash +Flows from Operating Activities +For +the year ended December 31, 2024, net cash used in operations was $3,280,397, which primarily resulted from our net loss of $3,424,283, +adjusted for the add back of amortization expense of $52,442, stock-based compensation to employees and consultants of $119,443, and +a realized gain on short-term investments of $(121,765), and changes in operating asset and liabilities such as an increase in prepaid +expenses and other current assets of $38,477, an increase in accounts payable of $122,909, an increase in accrued expenses of $7,436 +and an increase in deferred revenues of $1,126. +For +the year ended December 31, 2023, net cash used in operations was $2,980,592, which primarily resulted from our net loss of $3,948,097, +adjusted for the add back of amortization expense of $10,649, stock-based compensation to employees and consultants of $936,354, a realized +gain on short-term investments of $(20,662), and impairment loss of $52,363, and changes in operating asset and liabilities such as an +increase in prepaid expenses and other current assets of $24,732, a decrease in accounts payable of $29,930, and an increase in accrued +expenses of $43,471. +Cash +Flows from Investing Activities +For +the year ended December 31, 2024, net cash provided by investing activities was $67,735, which resulted from proceeds received from the +sale of short-term investments of $4,010,205, offset by the purchase of short-term investments of $3,547,262, the purchase of marketable +equity securities of $199,998, the purchase of intangible assets of $150,000, and an increase in capitalized internal-use software development +costs of $45,210. +For +the year ended December 31, 2023, net cash used in investing activities was $2,533,213, which resulted from the purchase of short-term +investments of $3,491,242 and an increase in capitalized internal-use software development costs of $56,971, offset by proceeds received +from the sale of short-term investments of $1,015,000. +Cash +Flows from Financing Activities +For +the year ended December 31, 2024, net cash provided by financing activities was $16,586,051, which primarily resulted from proceeds from +the sale of common stock units of $8,208,771, proceeds from exercise of pre-funded warrants of $2,897,924, proceeds from exercise of +warrants of $2,663,594 and proceeds from induced exercise of warrants of $2,834,843. Additionally, during the year ended December 31, +2024, we purchased and cancelled 6,846 treasury shares for $19,602, or at an average price of $2.86 per share. +For +the year ended December 31, 2023, net cash provided by financing activities was $5,858,734. On February 17, 2023, we closed an IPO pursuant +to which we issued 1,686,755 of our common stock for gross proceeds of approximately $7 million and net proceeds of $5,958,470, after +deducting underwriting discounts and commissions, and offering expenses. Additionally, during the year ended December 31, 2023, we purchased +and cancelled 20,349 treasury shares for $99,736, or at an average price of $4.90 per share. +36 +Our +ultimate success is dependent on our ability to obtain additional financing and generate sufficient cash flow to meet our obligations +on a timely basis. We will require significant amounts of capital to sustain operations, and we will need to make the investments we +need to execute our longer-term business plan to support new technologies and help advance innovation. Absent generation of sufficient +revenue from the execution of our long-term business plan, we will need to obtain debt or equity financing, especially if we experience +downturns in our business that are more severe or longer than anticipated, or if we experience significant increases in expense levels +resulting from being a publicly-traded company or from operations. Such additional debt or equity financing may not be available to us +on favorable terms, if at all. We plan to pursue our plans with respect to the research and development of our products which will require +resources beyond those that we currently have, ultimately requiring additional capital from third party sources. However, we believe +the net proceeds received in the IPO that closed in February 2023 and the capital raised during 2024 will be sufficient to meet our financial +obligations for at least the next 12 months. +Off-Balance Sheet +Arrangements +For +the years ended December 31, 2024 and 2023, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) +of Regulation S-K and did not have any commitments or contractual obligations. +Recently +Issued Accounting Standards Not Yet Effective or Adopted +Management +does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact +on the accompanying consolidated financial statements. +JOBS +Act +On +April 5, 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take +advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting +standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those +standards would otherwise apply to private companies. +We +have chosen to take advantage of the extended transition periods available to emerging growth companies under the JOBS Act for complying +with new or revised accounting standards until those standards would otherwise apply to private companies provided under the JOBS Act. +As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates for +complying with new or revised accounting standards. +Subject +to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions, +including, without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial +reporting pursuant to Section 404(b) of Sarbanes-Oxley and (ii) complying with any requirement that may be adopted by the Public Company +Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional +information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an “emerging +growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 +billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of our initial public offering; (iii) +the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which +we are deemed to be a large accelerated filer under the rules of the SEC. +37 +ITEM +7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. +As +a smaller reporting company, we are not required to provide the information required by this item. +ITEM +8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. +Our +financial statements are contained in pages F-1 through F-23, which appear at the end of this Annual Report on Form 10-K. +ITEM +9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE. +None. +ITEM +9A. CONTROLS AND PROCEDURES. +Evaluation +of Disclosure Controls +Our +principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures as +of December 31, 2024. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the +Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed +to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, +processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. +Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance +of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible +controls and procedures. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that +information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated +to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely +decisions regarding required disclosure. Based on that evaluation, our principal executive officer and principal financial officer concluded +that our disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K. +Management’s +Report on Internal Control Over Financial Reporting +Our +management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined +in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed under the supervision and with the participation +of our management, including our principal executive officer and principal financial officer, to provide reasonable assurance regarding +the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. All +internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective +can provide only reasonable assurance with respect to financial statement preparation and presentation. +As +of December 31, 2024, under the supervision and with the participation of our management, including our principal executive officer and +principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on +the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework - 2013. Based on this assessment, +our management concluded that, as of December 31, 2024, our internal control over financial reporting was effective based on such criteria. +This +Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control +over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public +accounting firm pursuant to the exemption provided to issuers that are not “large accelerated filers” nor “accelerated +filers” under the Dodd-Frank Wall Street Reform and Consumer Protection Act. +Changes +in Internal Control Over Financial Reporting +There +have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially +affected, or are reasonably likely to materially affect, our internal control over financial reporting. +ITEM +9B. OTHER INFORMATION. +During +our last fiscal quarter ended December 31, 2024, none of our directors or executive officers adopted , modified or terminated a “Rule +10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” as such terms are defined under Item 408 of +Regulation S K. +ITEM +9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. +Not +applicable. +38 +PART +III +ITEM +10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. +Executive +Officers and Directors +The +following table sets forth the names, positions and ages of our directors and executive officers as of the date of this annual report +on Form 10-K. +Name +Age +Position(s) +Vadim +Mats +40 +Chief +Executive Officer and Chairman +Steven +A. Shorr +56 +Chief +Financial Officer +Adam +Holzer +57 +Director +Scott +Grayson +66 +Director +Roman +Feldman +38 +Director +The +business background and certain other information about our directors and executive officers is set forth below. +Vadim +Mats — Chief Executive Officer and Chairman +Vadim +Mats has served as Chief Executive Officer and Chairman since October 2021. Mr. Mats was previously Chief Financial Officer of DatChat, +Inc. (NASDAQ: DATS) from July 2021 to January 2022 and supported the company’s successful IPO on the NASDAQ. From March 2018 to +June 2021, Mr. Mats served as the Chief Financial Officer of Grand Private Equity, a fintech-focused family office. Mr. Mats is also +the Founder and Partner of BespokeCFO, a finance and accounting advisory practice. From June 2010 to December 2016, Mr. Mats was Chief +Financial Officer of a hedge fund based in New Jersey. Mr. Mats also served as the Assistant Controller at Eton Park Capital Management, +LP, a multi-strategy fund, from July 2007 to December 2009. From June 2006 to July 2007, Mr. Mats was a Senior Fund Accountant at The +Bank of New York Mellon. Mr. Mats holds a Master of Science degree in accounting and finance and a Bachelor’s Degree in Business +Administration specializing in finance and investments from the Zicklin School of Business at Bernard Baruch College. Further, Mr. Mats +is a CAIA © Charterholder and a Certified Public Accountant in the State of New York. We believe that Mr. Mats is qualified to serve +as a member of our board of directors due the perspective and experience he brings as our founder and Chief Executive Officer, his extensive +experience in technology and finance companies and in the management of public companies. +Steven +A. Shorr — Chief Financial Officer +Steven +A. Shorr has served as our Chief Financial Officer since March 2022. Mr. Shorr is an accomplished accounting professional with over 30 +years of experience. Since 2006, he has been Partner of Jubran, Shorr & Company, a tax, accounting, and advisory firm. In 2001, Mr. +Shorr founded Steven Shorr CPA, an accounting and tax practice, operating until 2006. Prior to 2001, he served as the Controller of CounterPoint +Capital Management, a New York-based hedge fund. Mr. Shorr has also previously worked for public accounting firms, Kenneth Leventhal +& Company and Cavalcante & Company. Mr. Shorr earned his Bachelor of Arts degree in Accounting from Queens College and is a Certified +Public Accountant in the State of New York. +Adam +Holzer — Director +Adam +Holzer has served as a director since March 2022. Mr. Holzer is an accomplished sales and marketing executive with leadership experience +at large media and marketing organizations. Since 2019, he has served as Chief Executive Order of AJH Media & Sponsorship Consulting, +an advisory media and sponsorship company for entertainment and sports companies. From 2017 to 2019, Mr. Holzer was Vice President +of National Sales at Learfield, a collegiate sports marketing company. Prior to December 2017, he served as Senior Vice President +of Media in the Americas at Lagardere Sports & Entertainment and as Sales Executive at FOX Sports Media Group. Mr. Holzer +earned his Bachelor of Science in Marketing from the University of Maryland. +We +believe that Mr. Holzer is qualified to serve as a member of our board of directors because of his extensive professional experience +in senior leadership positions and marketing. +39 +Scott +A. Grayson — Director +Scott +Grayson has served as a director since February 2023. Mr. Grayson is an accomplished senior sales executive with over 25 years +of experience in establishing the vision and strategies necessary to be successful in the Financial Services software industry. Since +November 2019, he has worked for Luxoft USA, Inc., a digital transformation services and software engineering firm providing bespoke +IT solutions, as the Head of Alliances for North America then moved to the Head of Revenue for the banking, capital markets & +insurance divisions at Luxoft USA, Inc in 2020. In 2019, Mr. Grayson was Head of Sales at AlphaPoint, a software company powering +crypto exchanges worldwide. Prior to 2019, he served as Chief Sales Officer for R3, a leading provider of enterprise technology and services. +Mr. Grayson has significant expertise in both on-premise and SaaS delivery models and is specially skilled at building sales +organizations in both direct sales and partnership models while maintaining an entrepreneurial environment to creatively close business. +Mr. Grayson earned his Bachelor of Science degree in Accounting from Lehigh University. +We +believe that Mr. Grayson is qualified to serve as a member of our board of directors because of his extensive professional experience +in technology and financial services. +Roman +Feldman – Director +Roman +Feldman has served as a director since March 2025. Mr. Feldman has extensive experience in business development, particularly within +the financial services and software industries. Since October 2023, he has been serving as a Business Development professional at Visual +Computer Solutions Prior to this role, Mr. Feldman served as a Vice President of Enterprise Business Development at Bank of America from +September 2019 to October 2023. His roles have primarily focused on leveraging technology to drive business growth and innovation. Mr. +Feldman earned his Bachelor of Science degree in International Business Management from Kean University. +We +believe Mr. Feldman is qualified to serve as a member of our board of directors because his dual-industry perspective resulting from +his extensive experience in financial services and software industries. +Family +Relationships +There +are no family relationships among any of our executive officers and directors. +Arrangements +between Officers and Directors +Except +as set forth herein, to our knowledge, there is no arrangement or understanding between any of our officers or directors and any other +person pursuant to which the officer or director was selected to serve as an officer or director. +Involvement +in Certain Legal Proceedings +We +are not aware of any of our directors or officers being involved in any legal proceedings in the past ten years relating to any matters +in bankruptcy, insolvency, criminal proceedings (other than traffic and other minor offenses), or being subject to any of the items set +forth under Item 401(f) of Regulation S-K. +Committees +of Our Board of Directors +Our +board of directors directs the management of our business and affairs, as provided by Nevada law, and conducts its business through meetings +of the board of directors and its standing committees. We have a standing audit committee, compensation committee and nominating and +corporate governance committee. In addition, from time to time, special committees may be established under the direction of the board +of directors when necessary to address specific issues. +40 +Our +board of directors has determined that all of the members of the audit committee, the compensation committee and the nominating and corporate +governance committee are independent as defined under the applicable rules of Nasdaq, including, in the case of all of the members of +our audit committee, the independence requirements contemplated by Rule 10A-3 under the Exchange Act. In making such determination, the +board of directors considered the relationships that each director has with our Company and all other facts and circumstances that the +board of directors deemed relevant in determining director independence, including the beneficial ownership of our capital stock by each +director. +Audit +Committee. +The +audit committee is appointed by the Board to assist the Board in its duty to oversee the Company’s accounting, financial reporting, +and internal control functions and the audit of the Company’s financial statements. The role of the audit committee is to oversee +management in the performance of its responsibility for the integrity of the Company’s accounting and financial reporting and its +systems of internal controls, the performance and qualifications of the Company’s independent auditor, including the independent +auditor’s independence, the performance of the Company’s internal audit function; and the Company’s compliance with +legal and regulatory requirements. +Our +audit committee consists of Scott A. Grayson, Roman Feldman, and Adam Holzer, with Mr. Grayson serving as chair. Each member +of our audit committee meets the financial literacy requirements of Nasdaq rules. In addition, our board of directors has determined +that Scott A. Grayson will qualify as an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of +Regulation S-K. Our board of directors have adopted a written charter for the audit committee, which is available on our principal +corporate website at https://gaxos.ai . +Compensation +Committee . +The +compensation committee is responsible for reviewing and recommending, among other things: the adequacy and form of compensation of the +board; the compensation of our Chief Executive Officer, including base salary, incentive bonus, stock option and other grant, award and +benefits upon hiring and on an annual basis; the compensation of other senior management upon hiring and on an annual basis; and our +incentive compensation and other equity-based plans and recommending changes to such plans to our board of directors, when necessary. +Our +compensation committee consists of Adam Holzer, Scott A. Grayson, and Roman Feldman, with Mr. Holzer serving as chair. Our +board of directors have adopted a written charter for the compensation committee, which is available on our principal corporate website +at https://gaxos.ai . +Nominating +and Corporate Governance Committee. +The +nominating and corporate governance committee is responsible for, among other things: developing criteria for membership on the board +of directors and committees; identifying individuals qualified to become members of the board of directors; recommending persons to be +nominated for election as directors and to each committee of the board of directors; annually reviewing our corporate governance guidelines; +and monitoring and evaluating the performance of the board of directors and leading the board in an annual self-assessment of its practices +and effectiveness. +Our +nominating and corporate governance committee consists of Roman Feldman, Adam Holzer, and Scott A. Grayson, with Mr. Feldman +serving as chair. Our board of directors will adopt a written charter for the nominating and corporate governance committee, which is +available on our principal corporate website at https://gaxos.ai . +Scientific +Advisory Board +In +February 2024, our Board of Directors formed a Medical Advisory Board. As of the March 15, 2025, the members of such board are (i) Jeff +R. Pavell, M.D.; (ii) Eric J. Margolis, M.D. and (iii) Nathaniel E. Lebowitz, M.D. +41 +Jeff +R. Pavell, M.D. +Dr. +Jeff R. Pavell has served as a member of our Medical Advisory Board since March 2024. Since December 2022, Dr. Pavell has served as a +director of Hoth Therapeutics, Inc. (NASDAQ: HOTH), a clinical stage biopharmaceutical company. Since September 2022, Dr. Pavell has +served as a director of Silo Pharma, Inc. (NASDAQ: SILO), developmental stage biopharmaceutical company. Since January 2017, Dr. Pavell +has served as Chief of Rehabilitation Medicine at Englewood Health, and since November 2005, he has been on the teaching staff at New +York-Presbyterian Columbia University Irving Medical Center. In addition, since December 2020 he has been on the teaching staff at Hackensack +Meridian School of Medicine at Seton Hall. Furthermore, since 2010, Dr. Pavell has served as a partner at Patient Care Associates, an +outpatient surgical center, and since 2002, he has served as a Partner at the Physical Medicine and Rehabilitation Center, a private +medical practice serving patients with spine, sports and occupational injuries. Dr. Pavell is a Board Certified physician specializing +in the field of physical medicine and rehabilitation. Dr. Pavell is also certified in pain medicine and specializes in the most advanced +non-operative treatments for spine, sports and interventional pain medicines. Dr. Pavell received his bachelor of arts from Johns Hopkins +University and his D.O. degree with honors from the New York College of Osteopathic Medicine. Dr. Pavell holds a Doctor of Medicine degree +from the New York College of Osteopathic Medicine and a Bachelor of Art degree in Political Science from John Hopkins University. +Eric +J. Margolis, M.D. +Dr. +Eric J. Margolis has served as a member of our Medical Advisory Board since March 2024. Dr. Margolis, is a Board-Certified Urologic surgeon +with over 25 years of experience in private practice in Northern New Jersey. Dr. Margolis recently served as Chief of the Department +of Urology at Englewood Hospital and Medical Center and currently is a director of clinical research for Summit/New Jersey Urology. Dr. +Margolis has published numerous peer reviewed journal articles and abstracts and has served as principal investigator on over thirty +clinical trials with an emphasis on early detection of prostate cancer using molecular and genomic testing. Dr. Margolis is an expert +in the field of men’s health focusing on innovative regenerative therapies for sexual dysfunction. Currently, he is pioneering +the use of platelet rich plasma (“PRP”) and low intensity shockwave therapy for the treatment of erectile dysfunction. Additionally, +Dr. Margolis has treated thousands of men with low testosterone using hormone replacement therapy. He has been recognized by numerous +top doctors lists including Castle Connoly, New York Magazine and New Jersey Monthly. Dr. Margolis received his undergraduate degree +from Cornell University, his Medical Degree from Upstate Medical school in Syracuse, N.Y. and completed his urology residency at The +Mount Sinai Hospital in New York City. +Nathaniel +E. Lebowitz, M.D. +Dr. +Nathaniel E. Lebowitz has served as a member of our Medical Advisory Board since March 2024. Dr. Lebowitz is a leading cardiologist at +Hackensack University Medical Center in New Jersey. Dr. Lebowitz is an attending cardiologist at Hackensack University Medical Center’s +Heart and Vascular Hospital where he is director of lipids and preventive cardiology. He is also an attending cardiologist at Englewood +Hospital and Medical Center. Dr. Lebowitz received his Medical Degree from Cornell University Medical College (now Weill-Cornell Medical +College) in New York. He completed his residency in internal medicine at Yale – New Haven Hospital in New Haven, Connecticut, and +a fellowship in cardiology at the New York Hospital – Cornell Medical Center in New York, New York. He is board certified in cardiology. +Code of Business and Ethics Conduct +We +have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal +executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. +A copy of the code posted on our website, https://gaxos.ai . In addition, we intend to post on our website all disclosures that +are required by law or rules concerning any amendments to, or waivers from, any provision of the code. +Insider Trading Policy +We have adopted an insider trading policy governing +the purchase, sale and/or any other disposition of the Company’s securities and material non-public information that is reasonable +designed to promote compliance with insider trading laws, rules, regulations and applicable Nasdaq standards. Our insider trading policy +applies to the Company’s directors, officers, employees of the Company and any other persons, such as consultants, contractors, +temporary staff, family members, and controlled entities who have access to material nonpublic information or are designated by the Company +as subject to such policy. A copy of the Company’s insider trading policy is filed as Exhibit 19.1 to this Annual Report on Form +10-K. +Changes +in Nominating Procedures +None. +42 +ITEM +11. EXECUTIVE COMPENSATION +Summary +Compensation Table +The +following table sets forth for the year ended December 31, 2024 and 2023, the compensation awarded to, paid to, or earned by, our Chief +Executive Officer and Chief Financial Officer (collectively, the “named executive officers”): +● Vadim +Mats, Chief Executive Officer; and +● Steven +Shorr, Chief Financial Officer. +Name and Principal Position +Year +Salary +($) +Bonus +($) +Stock +Awards +($) +Option +Awards +($) (1) +Non-Equity +Incentive Plan +Compensation +($) +Nonqualified +Deferred +Compensation +Earnings +($) +All Other +Compensation +($) +Total +($) +Vadim Mats, +2024 +$ 400,000 +$ 150,000 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 550,000 +Chief Executive Officer +2023 +$ 357,692 +$ 0 +$ 0 +$ 504,177 +$ 0 +$ 0 +$ 0 +$ 861,869 +Steven Shorr, +2024 +$ 60,000 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 60,000 +Chief Financial Officer +2023 +$ 55,385 +$ 0 +$ 0 +$ 63,022 +$ 0 +$ 0 +$ 0 +$ 118,407 +(1) As +required by SEC rules, the amounts in this column reflect the grant date or modification date fair value as required by FASB ASC Topic +718. A discussion of the assumptions and methodologies used to calculate these amounts is contained in the notes to our financial statements +under “Shareholders’ Equity”. In February 2023, Mr. Mats received 16,667 stock options to purchase 16,667 shares of +restricted stock at $49.80 per share. In February 2023, Mr. Shorr received 2,083 stock options to purchase 2,083 shares of restricted +stock at $49.80 per share. +43 +Outstanding +Equity Awards at 2024 Fiscal Year-End +The +following table sets forth information as options outstanding on December 31, 2024. +OPTION +AWARDS +Name +Number +of +Securities +Underlying +Unexercised +options (#) +Exercisable +Number +of +Securities +Underlying +Unexercised +Unearned +Options (#) +Unexercisable +Equity +Incentive Plan +Awards: +Number of +Securities +Underlying +Unexercised +Unearned +Options (#) +Option +Exercise +Price +($) +Option +Expiration +Date +Number of +Shares +or Units +of Stock +that have +not +Vested +(#) +Market +Value of +Shares or +Units of +Stock +that +Have not +Vested +($) +Equity +Incentive Plan +Awards: +Number of +Unearned +Shares, +Units or +Other Rights +that have +not +Vested +(#) +Equity +Incentive +Plan +Awards: +Market or +Payout +Value of +Unearned +Shares, +Units or +other Rights +that have not +Vested +($) +Vadim Mats +16,667 +— +— +49.80 +2/14/2033 +— +— +— +— +Steven Shorr +2,083 +— +— +49.80 +2/14/2033 +— +— +— +— +Director +Compensation +The +following table sets forth compensation paid, earned or awarded during 2024 to each of our directors, other than Vadim Mats, whose compensation +is described above in the “2024 Summary Compensation Table”. +2024 +Director Compensation +Name +Fees Earned +or Paid in +Cash ($) +Option +Awards +($) (1) +All Other +Compensation +($) +Total +($) +Adam Holzer +24,000 +11,293 +- +35,293 +Alex Kisin (2) +24,000 +11,293 +- +35,293 +Scott Grayson +24,000 +11,293 +- +35,293 +(1) As +required by SEC rules, the amounts in this column reflect the grant date or modification date fair value as required by FASB ASC Topic +718. A discussion of the assumptions and methodologies used to calculate these amounts is contained in the notes to our financial statements +under “Shareholders’ Deficit”. On March 5, 2024, the Company granted stock options to purchase an aggregate of 6,249 +(2,083 stock options to each director) shares of the Company’s common stock at an exercise price of $6.00 per share to the Company’s +board of directors pursuant to the 2022 Equity Incentive Plan. The grant date of the stock options was March 5, 2024 and the options +expire on March 5, 2029. The options vest on the one-year anniversary of the stock option grant on March 5, 2025. The stock options +were valued on the grant date at an aggregate fair value of $33,880 ($11,293 each) using a Black-Scholes option pricing model which will +be recognized as stock-based compensation expense over the vesting period. +(2) Mr. +Kisin resigned as director of the Company effective as of March 3, 2025. +Equity Award Grant Timing +We do not have a written policy in place regarding +the timing of the grant and issuance of stock options in relation to the release of material non-public information. Historically, we +have granted stock option awards on an annual basis and as may otherwise be deemed appropriate by our Board or compensation committee +from time to time based on the facts and circumstances, as applicable. We have not intentionally timed the grant of stock options in +anticipation of the release of material nonpublic information, nor have we intentionally timed the release of material nonpublic information +based on stock option grant dates. During fiscal year 2024, we did not grant stock options (or similar awards) to any of our named executive +officers during the period beginning four business days before and ending one business day after the filing of any Company periodic report +on Form 10-Q or Form 10-K, or the filing or furnishing of any Company Form 8-K that disclosed any material non-public information. +Employment +Agreements +Other +than as set forth below, we do not currently have employment agreements with any of our officers or employees. +Vadim +Mats Employment Agreement +On +February 17, 2023, upon the consummation of the IPO, we entered into an employment agreement with Vadim Mats (the “Mats Employment +Agreement”), pursuant to which he shall receive a base salary at the annual rate of $400,000 payable in equal installments in accordance +with the Company’s standard payroll policies. Mr. Mats shall also receive stock options to purchase up to 16,667 shares +of Common Stock under our 2022 Equity Incentive Plan. Mr. Mats shall also be eligible to receive an annual cash bonus in an amount +up to 2x his then-current base salary. On February 17, 2023, and in connection with the consummation of the IPO, the Company issued +16,667 stock options to Mr. Mats. +44 +Steven +Shorr Employment Agreement +On +March 23, 2022, we entered into an employment agreement with Steven Shorr, (the “Shorr Employment Agreement”), pursuant +to which he shall receive a base salary at the annual rate of $60,000 payable in equal installments in accordance with the Company’s +standard payroll policies. Mr. Shorr is also entitled to receive stock options to purchase up to 2,083 shares of Common Stock +under our 2022 Equity Incentive Plan. On February 17, 2023, and in connection with the consummation of the IPO, the Company issued 2,083 +stock options to Mr. Shorr. +2022 +Equity Incentive Plan +The +following is a summary of the material features of our 2022 Equity Incentive Plan (the “2022 Plan”). This summary is qualified +in its entirety by the full text of the 2022 Plan, a copy of which has been filed as an exhibit to the Company’s registration statement +on Form S-1 filed on February 8, 2023. +Authorized +Shares +On +March 30, 2022, the Company’s Board of Directors authorized and adopted the 2022 Equity Incentive Plan (the “2022 Plan”) +and reserved an initial 208,333 shares of common stock for issuance thereunder. The 2022 Plan was approved by shareholders on March 30, +2022. The 2022 Plan’s purpose is to encourage ownership in the Company by employees, officers, directors and consultants whose +long-term service the Company considers essential to its continued progress and, thereby, encourage recipients to act in the stockholders’ +interest and share in the Company’s success. The 2022 Plan provides for the issuance of incentive stock options, non-statutory +stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), and other +stock-based awards. Pursuant to the 2022 Plan, there shall be annual increase in the number shares reserved under the 2022 Plan on the +first day of each calendar year beginning with the first January 1 following the effective date of the 2022 Plan and ending with the +last January 1 during the initial ten-year term of the 2022 Plan, equal to the lesser of (A) five percent (5%) of the Shares +outstanding (on an as-converted basis, which shall include Shares issuable upon the exercise or conversion of all outstanding securities +or rights convertible into or exercisable for Shares, including without limitation, preferred stock, warrants and employee options to +purchase any Shares) on the final day of the immediately preceding calendar year and (B) such lesser number of Shares as determined by +the Board; provided, that, shares of Common Stock issued under the 2022 Plan with respect to an Exempt Award shall not count against +such share limit. Accordingly, in June 2024, the number of shares reserved under the 2022 Plan was increased by 95,304 to 303,637 reserved +shares. +Types +of Awards +The +2022 Plan provides for the issuance of incentive stock options, non-statutory stock options, stock appreciation rights (“SARs”), +restricted stock, restricted stock units (“RSUs”), and other stock-based awards. Items described above in the Section +called “Shares Available” are incorporated herein by reference. +Administration +The +2022 Plan will be administered by our board of directors, or if our board of directors does not administer the 2022 Plan, a committee +or subcommittee of our board of directors that complies with the applicable requirements of Section 16 of the Exchange Act +and any other applicable legal or stock exchange listing requirements (each of our board of directors or such committee or subcommittee, +the “plan administrator”). The plan administrator may interpret the 2022 Plan and may prescribe, amend and rescind rules +and make all other determinations necessary or desirable for the administration of the 2022 Plan, provided that, subject to the equitable +adjustment provisions described below, the plan administrator will not have the authority to reprice or cancel and re-grant any +award at a lower exercise, base or purchase price or cancel any award with an exercise, base or purchase price in exchange for cash, +property or other awards without first obtaining the approval of our stockholders. +The +2022 Plan permits the plan administrator to select the eligible recipients who will receive awards, to determine the terms and conditions +of those awards, including but not limited to the exercise price or other purchase price of an award, the number of shares of Common +Stock or cash or other property subject to an award, the term of an award and the vesting schedule applicable to an award, and to amend +the terms and conditions of outstanding awards. +45 +Restricted +Stock and Restricted Stock Units +Restricted +stock and RSUs may be granted under the 2022 Plan. The plan administrator will determine the purchase price, vesting schedule and performance +goals, if any, and any other conditions that apply to a grant of restricted stock and RSUs. If the restrictions, performance goals or +other conditions determined by the plan administrator are not satisfied, the restricted stock and RSUs will be forfeited. Subject to +the provisions of the 2022 Plan and the applicable award agreement, the plan administrator has the sole discretion to provide for the +lapse of restrictions in instalments. +Unless +the applicable award agreement provides otherwise, participants with restricted stock will generally have all of the rights of a stockholder; +provided that dividends will only be paid if and when the underlying restricted stock vests. RSUs will not be entitled to dividends prior +to vesting but may be entitled to receive dividend equivalents if the award agreement provides for them. The rights of participants granted +restricted stock or RSUs upon the termination of employment or service to us will be set forth in the award agreement. +Options +Incentive +stock options and non-statutory stock options may be granted under the 2022 Plan. An “incentive stock option” means +an option intended to qualify for tax treatment applicable to incentive stock options under Section 422 of the Internal Revenue +Code. A “non-statutory stock option” is an option that is not subject to statutory requirements and limitations required +for certain tax advantages that are allowed under specific provisions of the Internal Revenue Code. A non-statutory stock option +under the 2022 Plan is referred to for federal income tax purposes as a “non-qualified” stock option. Each option granted +under the Plan will be designated as a non-qualified stock option or an incentive stock option. At the discretion of the administrator, +incentive stock options may be granted only to our employees, employees of our “parent corporation” (as such term is defined +in Section 424(e) of the Code) or employees of our subsidiaries. +The +exercise period of an option may not exceed ten years from the date of grant and the exercise price may not be less than 100% of +the fair market value of a share of Common Stock on the date the option is granted (110% of fair market value in the case of incentive +stock options granted to ten percent stockholders). The exercise price for shares of Common Stock subject to an option may be paid in +cash, or as determined by the administrator in its sole discretion, (i) through any cashless exercise procedure approved by the +administrator (including the withholding of shares of Common Stock otherwise issuable upon exercise), (ii) by tendering unrestricted +shares of Common Stock owned by the participant, (iii) with any other form of consideration approved by the administrator and permitted +by applicable law or (iv) by any combination of these methods. The option holder will have no rights to dividends or distributions +or other rights of a stockholder with respect to the shares of Common Stock subject to an option until the option holder has given written +notice of exercise and paid the exercise price and applicable withholding taxes. +In +the event of a participant’s termination of employment or service, the participant may exercise his or her option (to the extent +vested as of such date of termination) for such period of time as specified in his or her option agreement. +46 +Stock +Appreciation Rights +SARs +may be granted either alone (a “free-standing SAR”) or in conjunction with all or part of any option granted under the +2022 Plan (a “tandem SAR”). A free-standing SAR will entitle its holder to receive, at the time of exercise, an amount +per share up to the excess of the fair market value (at the date of exercise) of a share of Common Stock over the base price of the free-standing SAR +(which shall be no less than 100% of the fair market value of the related shares of Common Stock on the date of grant) multiplied by +the number of shares in respect of which the SAR is being exercised. A tandem SAR will entitle its holder to receive, at the time of +exercise of the SAR and surrender of the applicable portion of the related option, an amount per share up to the excess of the fair market +value (at the date of exercise) of a share of Common Stock over the exercise price of the related option multiplied by the number of +shares in respect of which the SAR is being exercised. The exercise period of a free-standing SAR may not exceed ten years +from the date of grant. The exercise period of a tandem SAR will also expire upon the expiration of its related option. +The +holder of a SAR will have no rights to dividends or any other rights of a stockholder with respect to the shares of Common Stock subject +to the SAR until the holder has given written notice of exercise and paid the exercise price and applicable withholding taxes. +In +the event of an participant’s termination of employment or service, the holder of a SAR may exercise his or her SAR (to the extent +vested as of such date of termination) for such period of time as specified in his or her SAR agreement. +Other Stock-Based Awards +The +administrator may grant other stock-based awards under the 2022 Plan, valued in whole or in part by reference to, or otherwise based +on, shares of Common Stock. The administrator will determine the terms and conditions of these awards, including the number of shares +of Common Stock to be granted pursuant to each award, the manner in which the award will be settled, and the conditions to the vesting +and payment of the award (including the achievement of performance goals). The rights of participants granted other stock-based awards +upon the termination of employment or service to us will be set forth in the applicable award agreement. In the event that a bonus is +granted in the form of shares of Common Stock, the shares of Common Stock constituting such bonus shall, as determined by the administrator, +be evidenced in uncertificated form or by a book entry record or a certificate issued in the name of the participant to whom such grant +was made and delivered to such participant as soon as practicable after the date on which such bonus is payable. Any dividend or dividend +equivalent award issued hereunder shall be subject to the same restrictions, conditions and risks of forfeiture as apply to the underlying +award. +Equitable +Adjustment and Treatment of Outstanding Awards Upon a Change in Control +Equitable +Adjustments. In the event of a merger, consolidation, reclassification, recapitalization, spin-off, spin-out, repurchase, reorganization, +special or extraordinary dividend or other extraordinary distribution (whether in the form of common shares, cash or other property), +combination, exchange of shares, or other change in corporate structure affecting our Common Stock, an equitable substitution or proportionate +adjustment shall be made in (i) the aggregate number and kind of securities reserved for issuance under the 2022 Plan, (ii) the +kind and number of securities subject to, and the exercise price of, any outstanding options and SARs granted under the 2022 Plan, (iii) the +kind, number and purchase price of shares of Common Stock, or the amount of cash or amount or type of property, subject to outstanding +restricted stock, RSUs and other stock-based awards granted under the 2022 Plan and (iv) the terms and conditions of any outstanding +awards (including any applicable performance targets). Equitable substitutions or adjustments other than those listed above may also +be made as determined by the plan administrator. In addition, the plan administrator may terminate all outstanding awards for the payment +of cash or in-kind consideration having an aggregate fair market value equal to the excess of the fair market value of the shares +of Common Stock, cash or other property covered by such awards over the aggregate exercise price, if any, of such awards, but if the +exercise price of any outstanding award is equal to or greater than the fair market value of the shares of Common Stock, cash or other +property covered by such award, the plan administrator may cancel the award without the payment of any consideration to the participant. +With respect to awards subject to foreign laws, adjustments will be made in compliance with applicable requirements. Except to the extent +determined by the plan administrator, adjustments to incentive stock options will be made only to the extent not constituting a “modification” +within the meaning of Section 424(h)(3) of the Code. +47 +Change +in Control. The 2022 Plan provides that, unless otherwise determined by the plan administrator and evidenced in an award agreement, +if a “change in control” (as defined below) occurs and a participant is employed by us or any of our affiliates immediately +prior to the consummation of the change in control, then the plan administrator, in its sole and absolute discretion, may (i) provide +that any unvested or unexercisable portion of an award carrying a right to exercise will become fully vested and exercisable; and (ii) cause +the restrictions, deferral limitations, payment conditions and forfeiture conditions applicable to any award granted under the 2022 Plan +to lapse, and the awards will be deemed fully vested and any performance conditions imposed with respect to such awards will be deemed +to be fully achieved at target performance levels. The administrator shall have discretion in connection with such change in control +to provide that all outstanding and unexercised options and SARs shall expire upon the consummation of such change in control. +For +purposes of the 2022 Plan, a “change in control” means, in summary, the first to occur of the following events: (i) a +person or entity becomes the beneficial owner of more than 50% of our voting power; (ii) an unapproved change in the majority membership +of our board of directors; (iii) a merger or consolidation of us or any of our subsidiaries, other than (A) a merger or consolidation +that results in our voting securities continuing to represent 50% or more of the combined voting power of the surviving entity or its +parent and our board of directors immediately prior to the merger or consolidation continuing to represent at least a majority of the +board of directors of the surviving entity or its parent or (B) a merger or consolidation effected to implement a recapitalization +in which no person is or becomes the beneficial owner of our voting securities representing more than 50% of our combined voting power; +or (iv) stockholder approval of a plan of our complete liquidation or dissolution or the consummation of an agreement for the sale +or disposition of substantially all of our assets, other than (A) a sale or disposition to an entity, more than 50% of the combined +voting power of which is owned by our stockholders in substantially the same proportions as their ownership of us immediately prior to +such sale or (B) a sale or disposition to an entity controlled by our board of directors. However, a change in control will not +be deemed to have occurred as a result of any transaction or series of integrated transactions following which our stockholders, immediately +prior thereto, hold immediately afterward the same proportionate equity interests in the entity that owns all or substantially all of +our assets. +Tax +Withholding +Each +participant will be required to make arrangements satisfactory to the plan administrator regarding payment of up to the maximum statutory +tax rates in the participant’s applicable jurisdiction with respect to any award granted under the 2022 Plan, as determined by +us. We have the right, to the extent permitted by applicable law, to deduct any such taxes from any payment of any kind otherwise due +to the participant. With the approval of the plan administrator, the participant may satisfy the foregoing requirement by either electing +to have us withhold from delivery of shares of Common Stock, cash or other property, as applicable, or by delivering already owned unrestricted +shares of Common Stock, in each case, having a value not exceeding the applicable taxes to be withheld and applied to the tax obligations. +We may also use any other method of obtaining the necessary payment or proceeds, as permitted by applicable law, to satisfy our withholding +obligation with respect to any award. +48 +ITEM +12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS +The +following table sets forth certain information regarding beneficial ownership of shares of our common stock as of March 15, 2025 by (i) +each person known to beneficially own more than 5% of our outstanding common stock, (ii) each of our directors, (iii) each of our named +executive officers and (iv) all of our directors and named executive officers as a group. Except as otherwise indicated, the persons +named in the table below have sole voting and investment power with respect to all shares beneficially owned, subject to community property +laws, where applicable. +Beneficial Owner (1) +Shares of +common +stock +beneficially +owned (2) +Percentage of +shares +beneficially +owned +Directors and Named Executive Officers +Vadim Mats (3) +239,099 +3.35 % +Steven A. Shorr (4) +2,083 +* +Adam Holzer (5) +3,750 +* +Scott Grayson (5) +3,750 +* +Roman Feldman +- +* +All Directors and Officers as a group (5 persons) +248,682 +3.48 % +* +Represents +beneficial ownership of less than 1%. +(1) +The +address of each holder listed above, except as otherwise indicated, is 101 Eisenhower Parkway, Suite 300, Roseland, NJ, 07068. +(2) +Percent +of beneficial ownership is based on 7,123,453 shares of common stock outstanding as of March 15, 2025. Beneficial ownership information +has been determined in accordance with Rule 13d-3 under the Exchange Act. The information is not necessarily indicative of beneficial +ownership for any other purpose. Under Rule 13d-3, certain shares may be deemed to be beneficially owned by more than one person +(if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially +owned by a person if the person has the right to acquire shares (for example, upon exercise of an option or warrant or upon vesting +of RSUs or restricted stock or upon conversion of a convertible security) within 60 days of the date as of which the information +is provided. In computing the percentage beneficial ownership of any person, the amount of shares is deemed to include the amount +of shares beneficially owned by such person by reason of such acquisition rights. As a result, the percentage of outstanding shares +of any person as shown in the table does not necessarily reflect the person’s actual voting power as of the date the information +is provided, or any particular date. +(3) +Includes +16,667 shares of common stock subject to stock options that are exercisable within 60 days of March 15, 2025 +(4) +Includes +2,083 shares of common stock subject to stock options that are exercisable within 60 days of March 15, 2025. +(5) +Includes +3,750 shares of common stock subject to stock options that are exercisable within 60 days of March 15, 2025. +Securities +Authorized for Issuance Under Equity Compensation Plans +The +following table summarizes information about our equity compensation plans as of December 31, 2024 +Plan Category +Number of securities to +be issued upon exercise of outstanding options, +warrants and rights +(a) +Weighted average +exercise price of +outstanding options, +warrants and rights +Number of securities remaining +available for future issuance under +equity compensation plans +(excluding securities reflected in +column (a)) +Equity compensation plans approved by security holder +64,084 +$ 31.35 +239,553 +Equity compensation plans not approved by security holder +- +- +Total +64,084 +$ 31.35 +239,553 +49 +ITEM +13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE +Transactions +with Related Persons +Except +as described below and except for employment arrangements which are described under “Executive Compensation,” during the +fiscal years ended December 31, 2024 and 2023, there have not been, nor are there currently proposed, any transaction in which we are +or were a participant, the amount involved exceeds the lesser of $120,000 or 1% of the average of the total assets at December 31, +2024, and any of our directors, executive officers, holders of more than 5% of our Common Stock, or any immediate family member of any +of the foregoing had or will have a direct or indirect material interest. +Related +Person Transaction Policy +We +have adopted a related person transaction policy that sets forth our procedures for the identification, review, consideration and approval +or ratification of related person transactions. For purposes of our policy only, a related person transaction is a transaction, arrangement +or relationship, or any series of similar transactions, arrangements or relationships, in which we and any related person are, were or +will be participants in which the amount involved exceeds the lesser of $120,000 or 1% of our total assets at year-end for our last +two completed fiscal years. Transactions involving compensation for services provided to us as an employee or director are not covered +by this policy. A related person is any executive officer, director or beneficial owner of more than 5% of any class of our voting securities, +including any of their immediate family members and any entity owned or controlled by such persons. +Under +the policy, if a transaction has been identified as a related person transaction, including any transaction that was not a related person +transaction when originally consummated or any transaction that was not initially identified as a related person transaction prior to +consummation, our management must present information regarding the related person transaction to our audit committee, or, if audit committee +approval would be inappropriate, to another independent body of our board of directors, for review, consideration and approval or ratification. +The presentation must include a description of, among other things, the material facts, the interests, direct and indirect, of the related +persons, the benefits to us of the transaction and whether the transaction is on terms that are comparable to the terms available to +or from, as the case may be, an unrelated third party or to or from employees generally. Under the policy, we will collect information +that we deem reasonably necessary from each director, executive officer and, to the extent feasible, significant shareholder to enable +us to identify any existing or potential related-person transactions and to effectuate the terms of the policy. In addition, under +our code of business conduct and ethics, our employees and directors will have an affirmative responsibility to disclose any transaction +or relationship that reasonably could be expected to give rise to a conflict of interest. In considering related person transactions, +our audit committee, or other independent body of our board of directors, will take into account the relevant available facts and circumstances +including, but not limited to: +● +the +risks, costs and benefits to us; +● +the +impact on a director’s independence in the event that the related person is a director, immediate family member of a director +or an entity with which a director is affiliated; +● +the +availability of other sources for comparable services or products; and +● +the +terms available to or from, as the case may be, unrelated third parties or to or from employees generally. +The +policy requires that, in determining whether to approve, ratify or reject a related person transaction, our audit committee, or other +independent body of our board of directors, must consider, in light of known circumstances, whether the transaction is in, or is not +inconsistent with, our best interests and those of our shareholders, as our audit committee, or other independent body of our board of +directors, determines in the good faith exercise of its discretion. +50 +Independence +of the Board of Directors +Our +board of directors undertook a review of the independence of our directors and considered whether any director has a relationship with +us that could compromise that director’s ability to exercise independent judgment in carrying out that director’s responsibilities. +Our board of directors has affirmatively determined that Adam Holzer, Alex Kisin and Scott Grayson are each an “independent director,” +as defined under Nasdaq rules. +ITEM +14. PRINCIPAL ACCOUNTANT FEES AND SERVICES +The +following table sets forth the aggregate fees billed by Salberg & Company, P.A. and aggregate fees billed by D. Brooks and Associates +CPAs, P.A. as described below: +Salberg & Company, P.A. +D. Brooks and Associates CPAs, P.A. +2024 +2023 +2023 +Audit Fees (1) +$ 67,000 +$ 50,800 +$ 5,000 +Audit Related Fees (2) +$ 11,000 +$ - +$ 6,400 +Tax Fees +$ - +$ - +$ - +All Other Fees +$ - +$ - +$ - +Total +$ 78,000 +$ 50,800 +$ 11,400 +(1) Audit +Fees are paid for professional services rendered for the audit of the Company’s annual financial statements and reviews of the +Company’s unaudited condensed financial statements. +(2) Audit-related +fees may consist of fees billed by our independent registered public accounting firm for audit-related consulting services related to +registration statements. +Pre-Approval +Policies and Procedures +In +accordance with Sarbanes-Oxley, our audit committee charter requires the audit committee to pre-approve all audit and permitted non-audit +services provided by our independent registered public accounting firm, including the review and approval in advance of our independent +registered public accounting firm’s annual engagement letter and the proposed fees contained therein. The audit committee has the +ability to delegate the authority to pre-approve non-audit services to one or more designated members of the audit committee. If such +authority is delegated, such delegated members of the audit committee must report to the full audit committee at the next audit committee +meeting all items pre-approved by such delegated members. In the fiscal years ended December 31, 2024 and 2023 all of the services performed +by our independent registered public accounting firm were pre-approved by the audit committee. +51 +PART +IV +ITEM +15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES +(a) +The +following documents are filed as part of this report: +(1) Financial +Statements: +Page +Report of Independent Registered Public Accounting Firm (PCAOB Firm ID: 106) +F-2 +Financial +Statements: +Balance Sheets as of December 31, 2024 and 2023 +F-3 +Statements of Operations and Comprehensive Loss – For the Years Ended December 31, 2024 and 2023 +F-4 +Statements of Changes in Stockholders’ Equity – For the Years Ended December 31, 2024 and 2023 +F-5 +Statements of Cash Flows – For the Years Ended December 31, 2024 and 2023 +F-6 +Notes to Financial Statements +F-7 +- F-23 +The +financial statements required by this Item are included beginning at page F-1. +(1) Financial +Statement Schedules: +All +financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in +the financial statements or the notes thereto. +52 +(b) +Exhibits +The +following documents are included as exhibits to this report. +Exhibit +Number +Title +of Document +2.1 +Plan of Conversion dated February 24, 2024 (Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on March 4, 2025.) +3.1 +Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the Company’s Form S-1/A Filed on February 8, 2023). +3.2 +Certificate of Conversion (Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on March 4, 2025.) +3.3 +Certificate of Incorporation (Incorporated by reference to Exhibit 3.2 to the Company’s Form S-1/A Filed on February 8, 2023). +3.4 +Certificate of Amendment to Articles of Incorporation dated March 6, 2024 (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on March 11, 2024.) +3.5 +Bylaws (Incorporated by reference to Exhibit 3.3 to the Company’s Form S-1/A filed on February 8, 2023). +3.6 +Second Amendment to the Certificate of Incorporation of Gaxos.ai Inc. (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on January 10, 2024.) +3.7 +Amendment to the Bylaws of Gaxos.ai Inc. (Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on January 10, 2024.) +3.8 +Third Amendment to the Certificate of Incorporation of Gaxos.ai Inc. (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on March 11, 2024.) +3.9 +Articles of Conversion filed with the Nevada Secretary of State on February 28, 2025 (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on March 4, 2025.) +3.10 +Certificate of Conversion filed with the Delaware Secretary of State on February 28, 2025 (Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on March 4, 2025.) +3.11 +Articles of Incorporation of Gaxos.ai Inc., a Nevada corporation (Incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K filed on March 4, 2025) +3.12 +Bylaws of Gaxos.ai Inc., a Nevada corporation (Incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K filed on Mach 4, 2025.) +4.1* +Description of the Registrant’s Securities. +4.2 +Form of Underwriting Agreement (Incorporated by reference to Exhibit 1.1 to the Company’s S-1/A filed on February 8, 2023). +4.3 +Form of Representatives Warrant (Incorporated by reference to Exhibit 4.4 to the Company’s Form S-1/A filed on February 8, 2023). +4.4 +Form of Stock Certificate (Incorporated by reference to Exhibit 4.2 to the Company’s Form S-1/A filed on February 8, 2023.) +53 +4.5 +Form of Subscription Agreement (Incorporated by reference to Exhibit 4.3 to the Company’s Form S-1/A filed on February 8, 2023.) +4.6 +Form of Warrant (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 19, 2024.) +4.7 +Form of Placement Agent Warrant (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on December 19, 2024.) +4.8 +Form of Warrant (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 30, 2024.) +4.9 +Form of Placement Agent Warrant (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on December 30, 2024.) +4.10 +Form of New Series B Warrant (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on September 23, 2024.) +4.11 +Form of Placement Agent Warrant (Incorporated by reference to Exhibit4.3 to the Company’s Current Report on Form 8-K filed on September 23, 2024.) +4.12 +Form of Warrant (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 20, 2024.) +4.13 +Form of Placement Agent Warrant (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed December 20, 2024.) +4.14 +Form of Warrant (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed December 30, 2024.) +4.15 +Form of Placement Agent Warrant (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed December 30, 2024.) +10.1+ +Executive Employment Agreement dated February 17, 2023, by and between the Company and Vadim Mats (Incorporated by reference to Exhibit 10.1 to the Company Current Report on Form 8-K filed on February 17, 2023.) +10.2+ +Employment Agreement dated March 23, 2022, by and between the Company and Steven Shorr (Incorporated by reference to Exhibit 10.2 to the Company’s Form S-1/A filed on February 8, 2023.) +10.3+ +2022 Omnibus Equity Incentive Plan (Incorporated by reference to Exhibit 10.3 to the Company’s S-1/A filed on February 8, 2023.) +10.4# +Software and License Agreement dated August 29, 2022, by and between the Company and Columbia University (Incorporated by reference to Exhibit 10.4 to the Company’s S-1/A filed on February 8, 2023.) +10.5 +Form of Securities Purchase Agreement (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 15, 2024.) +10.6 +Form of Registration Rights Agreement (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 15, 2024.) +10.7 +Letter of Termination, dated August 1, 2023, between the Company and The Trustees of Columbia University in the City of New York (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 14, 2023.) +10.8 +Form of Inducement Letter (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 23, 2024.) +10.9 +Form of Securities Purchase Agreement (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 19, 2024.) +10.10 +Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 30, 2024.) +16.1 +Letter from D. Brooks and Associates CPAs, P.A. dated June 20, 2023 (Incorporated by reference to Exhibit 16.1 to the Company’s Current Report on Form 8-K filed on June 22, 2023.) +19.1* +Gaxos.ai Insider Trading Policy +21.1* +Subsidiaries of the Registrant +23.1* +Consent of Independent Registered Public Accounting Firm – Salberg & Company PA +31.1* +Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +31.2* +Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +32.1* +Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +97.1 +Gaxos.ai Inc. Clawback Policy (Incorporated by reference to Exhibit 97.1 on the Company’s Annual Report on Form 10-K filed on March 27, 2024.) +101.INS* +Inline +XBRL Instance Document +101.SCH* +Inline +XBRL Taxonomy Extension Schema Document +101.CAL* +Inline +XBRL Taxonomy Extension Calculation Linkbase Document +101.LAB* +Inline +XBRL Taxonomy Extension Label Linkbase Document +101.PRE* +Inline +XBRL Taxonomy Extension Presentation Linkbase Document +101.DEF* +Inline +XBRL Taxonomy Extension Definition Linkbase Document +104* +Cover +Page Interactive Data File - the cover page of the Registrant’s Annual Report on Form 10-K for the year ended December 31, +2024 is formatted in Inline XBRL +* +Filed +herewith. ++ +Indicates +a management contract or any compensatory plan, contract or arrangement. +# +Pursuant +to Item 601(b)(10) of Regulation S-K, certain confidential portions of this exhibit were omitted by means of marking such portions +with an asterisk because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly +disclosed. +ITEM +16. FORM 10-K SUMMARY +Not +applicable. +54 +SIGNATURES +Pursuant +to the requirements of the Securities Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on +behalf of the registrant and in the capacities and on the dates indicated. +Signature +Title +Date +/s/ +Vadim Mats +Chief +Executive Officer and Director +March 28, 2025 +Vadim +Mats +(Principal +Executive Officer) +/s/ +Steven Shorr +Chief +Financial Officer +March 28, 2025 +Steven +Shorr +(Principal +Financial and Accounting Officer) +/s/ +Adam Holzer +Director +March 28, 2025 +Adam +Holzer +/s/ +Scott Grayson +Director +March 28, 2025 +Scott +Grayson +/s/ +Roman Feldman +Director +March 28, 2025 +Roman +Feldman +55 +GAXOS.AI INC. AND SUBSIDIARY +CONSOLIDATED FINANCIAL STATEMENTS +DECEMBER 31, 2024 and 2023 +GAXOS.AI INC. AND SUBSIDIARY +INDEX TO CONSOLIDATED FINANCIAL STATEMENTS +DECEMBER 31, 2024 and 2023 +Page +Report of Independent Registered Public Accounting Firm (PCAOB Firm ID No. 106 ) F-2 +Consolidated Financial Statements: +Consolidated Balance Sheets as of December 31, 2024 and 2023 F-3 +Consolidated Statements of Operations and Comprehensive Loss – For the Years Ended December 31, 2024 and 2023 F-4 +Consolidated Statements of Changes in Stockholders’ Equity – For the Years Ended December 31, 2024 and 2023 F-5 +Consolidated Statements of Cash Flows – For the Years Ended December 31, 2024 and 2023 F-6 +Notes to Consolidated Financial Statements F-7 - F-23 +F- 1 +Report of Independent Registered Public Accounting +Firm +To the Stockholders and the Board of Directors +of: +Gaxos.AI Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated +balance sheets of Gaxos.AI Inc. (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations, +changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2024, and the related +notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements +present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2024 and 2023, and the +consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity +with accounting principles generally accepted in the United States of America. +Basis for Opinion +These consolidated financial statements are the +responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial +statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United +States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities +laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the +standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated +financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we +engaged to perform, an audit of internal control over financial reporting. As part of our audits, we are required to obtain an understanding +of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s +internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess +the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures +that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the +consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by +management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide +a reasonable basis for our opinion. +Critical Audit Matters +The critical audit matters are matters arising +from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit +committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved +our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. +/s/ Salberg & +Company, P.A. +SALBERG & COMPANY, +P.A. +We have served as the +Company’s auditor since 2023 . +Boca Raton, Florida +March +28, 2025 +2295 NW Corporate Blvd., Suite 240 • Boca +Raton, FL 33431-7326 +Phone: (561) 995-8270 • Toll Free: (866) CPA-8500 +• Fax: (561) 995-1920 +www.salbergco.com • info@salbergco.com +Member National Association of Certified Valuation +Analysts • Registered with the PCAOB +Member CPAConnect with Affiliated Offices Worldwide +• Member AICPA Center for Audit Quality +F- 2 +GAXOS.AI INC. AND SUBSIDIARY +CONSOLIDATED BALANCE SHEETS +December 31, +December 31, +2024 +2023 +ASSETS +CURRENT +ASSETS: +Cash +$ 14,398,099 +$ 1,024,710 +Short-term +investments, at fair value +2,167,419 +2,592,689 +Investment +in equity securities, at fair value +199,998 +- +Accounts +receivable +- +8 +Prepaid +expenses and other current assets +63,609 +25,132 +Total +Current Assets +16,829,125 +3,642,539 +LONG-TERM +ASSETS: +Property +and equipment, net +70,374 +52,606 +Intangible +assets, net +125,000 +- +Digital +currencies +37 +801 +Total +Long-Term Assets +195,411 +53,407 +TOTAL +ASSETS +$ 17,024,536 +$ 3,695,946 +LIABILITIES +AND STOCKHOLDERS’ EQUITY +CURRENT +LIABILITIES: +Accounts +payable +$ 338,791 +$ 215,882 +Accrued +expenses +61,590 +54,154 +Deferred +revenue +1,126 +- +Total +Current Liabilities +401,507 +270,036 +Total +Liabilities +401,507 +270,036 +Commitments +and Contingencies (See Note 7) +STOCKHOLDERS’ +EQUITY: +Preferred stock; par value $ 0.0001 ; 5,000,000 shares authorized; No shares issued and outstanding on December 31, 2024 and 2023 +- +- +Common stock; par value $ 0.0001 : 50,000,000 shares authorized; 6,923,453 and 988,368 share issued and outstanding on December 31, 2024 and 2023, respectively +692 +99 +Additional +paid-in capital +25,416,451 +8,711,550 +Accumulated +other comprehensive income +11,693 +95,785 +Accumulated +deficit +( 8,799,721 ) +( 5,381,524 ) +Total +Gaxos.AI Stockholders’ Equity +16,629,115 +3,425,910 +Noncontrolling +interest +( 6,086 ) +- +Total +Stockholders’ Equity +16,623,029 +3,425,910 +Total +Liabilities and Stockholders’ Equity +$ 17,024,536 +$ 3,695,946 +See accompanying notes to consolidated financial statements. +F- 3 +GAXOS.AI INC. AND SUBSIDIARY +CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS +For the Year Ended +December 31, +2024 +2023 +REVENUES +$ 4,027 +$ 256 +OPERATING EXPENSES: +Research and development +996,487 +915,818 +General and administrative +2,711,145 +3,047,360 +Impairment loss +- +52,363 +Total Operating Expenses +3,707,632 +4,015,541 +LOSS FROM OPERATIONS +( 3,703,605 ) +( 4,015,285 ) +OTHER INCOME: +Interest income +157,557 +46,526 +Realized gain on short-term investments +121,765 +20,662 +Total other income +279,322 +67,188 +NET LOSS +( 3,424,283 ) +( 3,948,097 ) +Net loss of subsidiary attributable to noncontrolling interest +6,086 +- +NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS +$ ( 3,418,197 ) +$ ( 3,948,097 ) +COMPREHENSIVE LOSS: +Net loss +$ ( 3,424,283 ) +$ ( 3,948,097 ) +Other comprehensive income: +Unrealized (loss) income on short-term investments +( 84,092 ) +95,785 +Comprehensive loss +$ ( 3,508,375 ) +$ ( 3,852,312 ) +NET LOSS PER COMMON SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS: +Basic and diluted +$ ( 1.92 ) +$ ( 3.90 ) +WEIGHTED AVERAGE COMMON SHARE OUTSTANDING: +Basic and diluted +1,777,451 +987,938 +See accompanying notes to consolidated financial statements. +F- 4 +GAXOS.AI INC. AND SUBSIDIARY +CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY +FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 +Preferred +Stock +Common +Stock +Additional +Accumulated Other +Total +# +of +Shares +Amount +# +of +Shares +Amount +Paid-in +Capital +Comprehensive +Income +Accumulated +Deficit +Noncontrolling +Interest +Stockholders’ +Equity +Balance, +December 31, 2022 +- +$ - +868,154 +$ 87 +$ 2,119,073 +$ - +$ ( 1,433,427 ) +$ - +$ 685,733 +Common +shares issued for cash +- +- +140,563 +14 +5,755,857 +- +- +- +5,755,871 +Purchase +and cancellation of treasury stock +- +- +( 20,349 ) +( 2 ) +( 99,734 ) +- +- +- +( 99,736 ) +Accretion +of stock option expense +- +- +- +- +936,354 +- +- +- +936,354 +Accumulated +other comprehensive gain - short-term investments +- +- +- +- +- +95,785 +- +- +95,785 +Net +loss +- +- +- +- +- +- +( 3,948,097 ) +- +( 3,948,097 ) +Balance, +December 31, 2023 +- +- +988,368 +99 +8,711,550 +95,785 +( 5,381,524 ) +- +3,425,910 +Common +shares and warrants issued for cash, net +- +- +2,903,946 +290 +8,208,481 +- +- +- +8,208,771 +Sale +of pre-funded warrants for cash +- +- +- +- +2,897,924 +- +- +- +2,897,924 +Common +shares issued for warrant exercise for cash +- +- +1,256,734 +126 +2,663,468 +- +- +- +2,663,594 +Common +shares issued for exercise of March 2024 Common Warrants for cash under warrants inducement offer, net +1,256,734 +125 +2,834,718 +- +- +- +2,834,843 +Common +shares issued for Pre-funded warrant exercises +- +- +520,367 +53 +468 +- +- +- +521 +Purchase +and cancellation of treasury stock +- +- +( 6,846 ) +( 1 ) +( 19,601 ) +- +- +- +( 19,602 ) +Accretion +of stock option expense +- +- +- +- +119,443 +- +- +- +119,443 +Rounding +shares from reverse split +- +- +4,150 +- +- +- +- +- +- +Accumulated +other comprehensive loss - short-term investments +- +- +- +- +- +( 84,092 ) +- +- +( 84,092 ) +Net +loss +- +- +- +- +- +- +( 3,418,197 ) +( 6,086 ) +( 3,424,283 ) +Balance, +December 31, 2024 +- +$ - +6,923,453 +$ 692 +$ 25,416,451 +$ 11,693 +$ ( 8,799,721 ) +$ ( 6,086 ) +$ 16,623,029 +See accompanying notes to consolidated financial statements. +F- 5 +GAXOS.AI INC. AND SUBSIDIARY +CONSOLIDATED STATEMENTS OF CASH FLOWS +For the Year Ended +December 31, +2024 +2023 +CASH FLOWS FROM OPERATING ACTIVITIES: +Net loss +$ ( 3,424,283 ) +$ ( 3,948,097 ) +Adjustments to reconcile net loss to net cash used in operating activities: +Amortization expense +52,442 +10,649 +Stock-based compensation +119,443 +936,354 +Impairment loss +- +52,363 +Realized gain on short-term investments +( 121,765 ) +( 20,662 ) +Non-cash transaction fees +764 +- +Change in operating assets and liabilities: +Accounts receivable +8 +( 8 ) +Prepaid expenses and other current assets +( 38,477 ) +( 24,732 ) +Accounts payable +122,909 +( 29,930 ) +Accrued expenses +7,436 +43,471 +Deferred revenue +1,126 +- +NET CASH USED IN OPERATING ACTIVITIES +( 3,280,397 ) +( 2,980,592 ) +CASH FLOWS FROM INVESTING ACTIVITIES: +Purchase of short-term investments +( 3,547,262 ) +( 3,491,242 ) +Purchase of marketable equity securities +( 199,998 ) +- +Proceeds from sale of short-term investments +4,010,205 +1,015,000 +Increase in capitalized internal-use software development costs +( 45,210 ) +( 56,971 ) +Purchase of intangible asset +( 150,000 ) +- +NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES +67,735 +( 2,533,213 ) +CASH FLOWS FROM FINANCING ACTIVITIES: +Proceeds from the sale of common stock units +8,208,771 +5,958,470 +Proceeds from exercise of pre-funded warrants +521 +- +Proceeds from sale of pre-funded warrants +2,897,924 +- +Proceeds from exercise of warrants +2,663,594 +- +Proceeds from induced exercise of warrants +2,834,843 +- +Purchase and cancellation of treasury shares +( 19,602 ) +( 99,736 ) +NET CASH PROVIDED BY FINANCING ACTIVITIES +16,586,051 +5,858,734 +NET INCREASE IN CASH +13,373,389 +344,929 +CASH, beginning of year +1,024,710 +679,781 +CASH, end of year +$ 14,398,099 +$ 1,024,710 +SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION +Cash paid for: +Interest +$ +- +$ +- +Income taxes +$ +- +$ +- +SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: +Reclassification of deferred offering costs to equity +$ +- +$ 202,599 +Unrealized (loss) income on short-term investments +$ ( 84,092 ) +$ 95,785 +Increase in digital currency and accounts payable +$ +- +$ 801 +See accompanying notes to consolidated financial statements. +F- 6 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2024 and 2023 +NOTE 1 – NATURE OF OPERATIONS +Gaxos.ai Inc. (the “Company”) was +incorporated in the state of Wyoming on October 27, 2021 (“Inception”). On March 30, 2022, the Company reincorporated +to the State of Delaware pursuant to a Plan of Conversion approved by the Board of Directors and a majority of the shareholders. On January +5, 2024, the Company changed its name from The NFT Gaming Company, Inc. to Gaxos.ai Inc. The Company is a technology-based company that +is developing applications aimed at redefining the way we utilize artificial intelligence (“AI”) to optimize the user experience. +The Company’s flagship product is its gaming platform called “Gaxos” (the “Platform” or “Gaxos Gaming”), +created with a vision to develop, design, acquire, and manage conventional games and to combine these games with unconventional game mechanisms, +such as the ability for gamers and developers to utilize artificial intelligence to create and design in-game features, as well as to +mint unique in-game features, such as skins, characters, weapons, gear, levels, and virtual lands, in the form of non-fungible tokens, +or “NFTs,” that will allow users to have unique experiences and more control over in-game assets. Recently, we began to develop +a new initiative, Gaxos Health, which is dedicated to revolutionizing personal health and wellness by developing a suite of innovative +AI-powered health optimization solutions. In September 2024, the Company launched Basix Labs, a transformative +generative AI service that empowers game developers and publishers. Key features of the product include the reduction of creative asset +development time from hours to minutes, transforming artistic visions into reality with ease. +On September 23, 2024, the Company formed a wholly-owned +subsidiary, RNK Health, a company incorporated under the laws of the State of Delaware as a limited liability company. RNK Health was +formed in order to form a partnership and potential relationship with Nekwellness to engage in the proposed business of marketing certain +products. On October 10, 2024, the Company, RNK Health, and Nekwellness entered into a one-year RNK Health operating agreement (the “Operating +Agreement”), which automatically renews annually, for the regulation and management of the affairs of RNK Health. On October 10, +2024, the Company, the sole member of RNK Health, admitted Nekwellness as a member of RNK Health and accordingly, Nekwellness was granted +a 30 % membership interest in RNK Health, as full consideration for their services under the Operating Agreement, with the Company reduced +to a 70 % membership interest. RNK Health is currently providing access to GLP-1 medications such as injectiable and oral Semaglutide and Terzepatide, +and intends to add other products such as testosterone replacement therapy (TRT). +At the Company annual meeting on December 27, +2024, the stockholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation for the reincorporation +of the Company from The State of Delaware to the State of Nevada, which occurred on March 3, 2025. +NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING +POLICIES +Basis of Presentation +On February 28, 2024, a majority of the Company +shareholders granted discretionary authority to the Company’s Board of Directors to amend the Company’s Certificate of Incorporation +to effect one or more consolidations of the Company’s issued and outstanding shares of common stock, pursuant to which the shares +of common stock would be combined and reclassified into on the basis of one share of common stock for each 12 shares of the Company’s +common stock then issued and outstanding (the “Reverse Stock Split”). On March 7, 2024, the Company filed a Certificate of +Amendment to the Amended and Restated Articles of Incorporation (the “Certificate of Amendment”) with the Secretary of State +of the State of Delaware to effect a 1-for-12 reverse stock split with respect to the outstanding shares of the Company’s common +stock. The Certificate of Amendment and the reverse stock split became effective on March 7, 2024. All share and per share data in the +accompanying consolidated financial statements have been retroactively adjusted to reflect the effect of the Reverse Stock Split. +This summary of significant account policies of +the Company is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial +statements and the notes are the representation of the Company’s management, who are responsible for their integrity and objectivity. +These accounting policies conform to U.S. generally accepted accounting principles (“US GAAP”) and have been consistently +applied in the preparation of the consolidated financial statements. +The accompanying consolidated financial statements +have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments +in the ordinary course of business. +The Company’s consolidated financial statements +include the accounts of the parent entity, Gaxos. AI, Inc. and RNK Health, which is a majority-owned subsidiary. All intercompany accounts +and transactions have been eliminated in consolidation. +The Company accounts for its noncontrolling interest +in RNK Health in accordance with ASC Topic 810-10-45, which requires the Company to present noncontrolling interests as a separate component +of total shareholders’ equity on the consolidated balance sheets and the consolidated net loss attributable to its noncontrolling +interest be clearly identified and presented on the face of the consolidated statements of operations. +F- 7 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2024 and 2023 +Liquidity +Liquidity is the ability of a company to generate +funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. On December 31, +2024, the Company had a cash balance of $ 14,398,099 , had short-term investments of $ 2,167,419 , and had working capital of $ 16,427,618 . +During the year ended December 31, 2024, the Company used net cash in operations of $ 3,280,397 . Until such time that the Company implements +its growth strategy, it expects to continue to generate operating losses in the foreseeable future, mostly due to corporate overhead, +research and development, and costs of being a public company. The Company believes that its existing working capital and cash on hand +will provide sufficient cash to enable the Company to meet its operating needs and debt requirements for the next twelve months from the +issuance date of this report. +Use of Estimates +The preparation of financial statements in conformity +with US GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure +of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses +during the reporting period. Actual results could differ from those estimates. Significant estimates in the accompanying unaudited financial +statements include the valuation of investments, valuation of intangible assets and other long-lived assets, estimates of deferred tax +valuation allowances and the fair value of stock options issued for services. +Fair Value Measurements and Fair Value of +Financial Instruments +The Company analyzes all financial instruments +with features of both liabilities and equity under the Financial Accounting Standard Board’s (the “FASB”) accounting +standard for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on the lowest +level of input that is significant to the fair value measurement. The Company identified the following assets or liabilities that are +required to be presented on the balance sheet at fair value in accordance with Accounting Standards Codification (“ASC”) Topic 820. +The three levels of the fair value hierarchy are +as follows: +● +Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. +● +Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. +● +Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information. +The carrying amounts reported in the balance sheets +for cash, accounts receivable, prepaid expenses and other current assets, accounts payable, and accrued expenses approximate their fair +market value based on the short-term maturity of these instruments. +The following table represents the Company’s +fair value hierarchy of its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2024 and 2023. +December 31, 2024 +December 31, 2023 +Description +Level 1 +Level 2 +Level 3 +Level 1 +Level 2 +Level 3 +Short-term investments +$ 2,167,419 +$ +- +$ +- +$ 2,592,689 +$ +- +$ +- +Equity securities +$ +- +$ +- +$ 199,998 +$ +- +$ +- +$ +- +The Company’s short-term investments are +level 1 measurements and are based on the quoted fair value at each date. +Investment in Equity Securities, at Fair Value +The following table summarizes activity in the +Company’s investment in equity securities, at fair value for the periods presented: +Year Ended +December 31, +Year Ended +December 31, +2024 +2023 +Balance, beginning of year +$ +- +$ +- +Additions +199,998 +- +Balance, end of year +$ 199,998 +$ +- +F- 8 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2024 and 2023 +On December 31, 2024, equity securities, at fair +value consisted of 666,660 shares of common equity securities of one entity, RPM Interactive, Inc., a security without a readily determinable +fair value. On May 16, 2024, the Company purchased 666,660 common shares of RPM Interactive, Inc. for $ 199,998 . +Cash and Cash Equivalents +For purposes of the consolidated statements of +cash flows, the Company considers all highly liquid instruments with a maturity of three months or less at the purchase date and +money market accounts to be cash equivalents. The Company has no cash equivalents as of December 31, 2024 and 2023. +The Company’s cash is held at major commercial +banks, which may at times exceed the Federal Deposit Insurance Corporation (“FDIC”) limit. To date, the Company has not experienced +any losses on its invested cash. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company’s +financial condition, results of operations, and cash flows. +On December 31, 2024, the Company had approximately +$ 14,117,000 of cash in excess of FDIC limits of $ 250,000 . +Accounts receivable +The Company adopted ASC 326, “Financial +Instruments - Credit Losses” on January 1, 2023 and recognizes an allowance for losses on accounts receivable in an amount equal +to the estimated probable losses net of recoveries under the current expected credit loss method. The allowance is based on an analysis +of historical bad debt experience, current receivables aging, and expected future write-offs, as well as an assessment of specific identifiable +customer accounts considered at risk or uncollectible. The bad debt expense associated with the allowance for doubtful accounts related +to accounts receivable is recognized in general and administrative expenses. As of December 31, 2024 and 2023, accounts receivable amounted +to $0 and $ 8 , respectively, and for the years ended December 31, 2024 and 2023, the Company did not recognize any bad debt expense. +Short-Term Investments +The Company’s portfolio of short-term investments +consists of marketable debt securities which are comprised solely of rated U.S. government securities with maturities of more than three +months, but less than one year. The Company classifies these as available-for-sale at purchase date and will reevaluate such designation +at each period end date. The Company may sell these marketable debt securities prior to their stated maturities depending upon changing +liquidity requirements. These debt securities are classified as current assets in the balance sheets and recorded at fair value, with +unrealized gains or losses included in accumulated other comprehensive income (loss) on the consolidated balance sheets and as a component +of the consolidated statements of comprehensive loss. Gains and losses are recognized when realized. Gains and losses are determined using +the specific identification method and are reported in other income (expense), net in the consolidated statements of operations and comprehensive +loss. +An impairment loss may be recognized when the +decline in fair value of the debt securities is determined to be other-than-temporary. The Company evaluates its investments for other-than-temporary +declines in fair value below the cost-basis each quarter, or whenever events or changes in circumstances indicate that the cost basis +of the short-term investments may not be recoverable. The evaluation is based on a number of factors, including the length of time and +the extent to which the fair value has been below the cost basis, as well as adverse conditions related specifically to the security, +such as any changes to the credit rating of the security and the intent to sell or whether the Company will more likely than not be required +to sell the security before recovery of its amortized cost basis. +The Company recorded $( 84,092 ) and $ 95,785 of +unrealized (loss) gain on short-term investments as a component of other comprehensive loss for the years ended December 31, 2024 and +2023, respectively. During the years ended December 31, 2024 and 2023, the Company recognized a gain on sale of short-term investments +of $ 121,765 and $ 20,662 , respectively. +Investment in Equity Securities, at Fair +Value +Equity investments are carried at fair value with +unrealized gains or losses which are recorded as net unrealized gain (loss) on equity investments in the accompanying consolidated statement +of operations and comprehensive loss. Realized gains and losses are determined on a specific identification basis which is recorded +in earnings or loss as a net realized gain (loss) on equity investments in the consolidated statement of operations and comprehensive +loss. The Company reviews investments in equity securities, at fair value, for impairment whenever circumstances and situations change +such that there is an indication that the carrying amounts may not be recovered. +F- 9 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2024 and 2023 +Accounting for Digital Currencies and Other +Digital Assets +The Company accounts for digital currencies and +other digital assets as indefinite-lived intangible assets and accounts for them at historical cost in accordance with ASC 350, Intangibles - Goodwill +and Other Indefinite-lived intangible assets are not subject to amortization but rather evaluated for impairment annually and more frequently, +if events or circumstances change that indicate that it is more likely than not that the asset is impaired (i.e., if an impairment indicator +exists). As a result, the Company only recognizes decreases in the value of its digital currencies and other digital assets, and any increase +in value will be recognized only upon disposition. The Company plans to dispose of cryptocurrency received as a form of payment into fiat +currency and anticipates ownership of cryptocurrency to be minimal. As of December 31, 2024, the Company’s digital currencies consisted +of 52.78 units of Polygon (MATIC), an Ethereum token valued at $ 37 . As of December 31, 2023, the Company’s digital currencies consisted +of 1,553.37 units of Polygon (MATIC), an Ethereum token valued at $ 801 . +Property and Equipment +Property and equipment are stated at cost and +are depreciated using the straight-line method over their estimated useful lives. Maintenance and repairs are charged to expense as incurred. +When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or +losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of these assets +when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. +Property and equipment includes capitalized internal-use +software development costs. Costs incurred to develop internal-use software, including game development, are expensed as incurred during +the preliminary project stage. Internal-use software development costs are capitalized during the application development stage, which +is after: (i) the preliminary project stage is completed; and (ii) management authorizes and commits to funding the project +and it is probable the project will be completed and used to perform the intended function. Capitalization ceases at the point where the +software project is substantially complete and ready for its intended use, and after all substantial testing is completed. Upgrades and +enhancements are capitalized if it is probable that those expenditures will result in additional functionality. Amortization is provided +for on a straight-line basis over the expected useful life of the internal-use software development costs and related upgrades and enhancements, +which currently is three years. When existing software is replaced with new software, the unamortized costs of the old software are expensed +when the new software is ready for its intended use. +Intangible Assets +Intangible assets, consisting of software licenses +and technology licenses, are carried at cost less accumulated amortization, computed using the straight-line method over the estimated +useful life of 5 years, less any impairment charges. During the years ended December 31, 2024 and 2023, the Company recorded an impairment +loss of $0 and $ 52,363 , respectively (see Note 5). +Stock-based Compensation +Stock-based compensation is accounted for based +on the requirements of ASC 718 – “Compensation–Stock Compensation ”, which requires recognition in the financial +statements of the cost of employee, non-employee and director services received in exchange for an award of equity instruments over the +period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The +ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date +fair value of the award. The Company has elected to account for forfeitures as they occur. +Income Taxes +Deferred income taxes are provided using the liability +method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards, +and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported +amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of +management, it is more likely than not that some portion or all the deferred tax assets will not be realized. Deferred tax assets and +liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment. +When tax returns are filed, it is highly certain +that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about +the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized +in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not +that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions +taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured +as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing +authority. The portion of the benefits associated with tax positions taken that exceed the amount measured as described above is reflected +as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that +would be payable to the taxing authorities upon examination. Applicable interest and penalties associated with unrecognized tax benefits +are classified as additional income taxes in the consolidated statements of operations. +F- 10 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2024 and 2023 +Revenue Recognition +The Company follows Accounting Standards Codification +(“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). This standard establishes a single +comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASC 606 requires an entity +to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to +which the entity expects to be entitled in exchange for those goods or services and requires certain additional disclosures. +In accordance with ASU Topic 606 - Revenue +from Contracts with Customers , the Company recognizes revenue in accordance with that core principle by applying the following steps: +Step 1: Identify the contract(s) with a customer. +Step 2: Identify the performance obligations in +the contract. +Step 3: Determine the transaction price. +Step 4: Allocate the transaction price to the +performance obligations in the contract. +Step 5: Recognize revenue when (or as) the entity +satisfies a performance obligation. +The Company plans to generate revenue from the +following sources: +● The Company generates revenue from the sale of our in-game items to our customers. Revenue generated from such sales, primarily through the app stores, such as Google Play Store or Apple App Store, is recognized upon delivery of the in-game items to the customer, which is when the Company completes its sole performance obligation. Fees incurred by the Company, such as commissions to the app stores, are recognized in operating expenses. For the years ended December 31, 2024 and 2023, revenues from the sale of our in-game items amounted to $ 33 and $ 256 , respectively. +● The Company generates revenue from the sale of health coaching packages to its customers. Health coaching packages consist of a series of lab tests and personal health coaching sessions. Revenues generated from such sales are recognized upon the completion of lab testing and the utilization of health coaching sessions, which is when the Company completes its performance obligation. Any fees paid in advance by the customer are reflected as a contract liabilities until such time as the performance obligation is completed. Fees incurred by the Company, such as the lab testing charges, are recognized in operating expenses. For the years ended December 31, 2024 and 2023, revenue from the sale of health coaching packages amounted to $ 3,952 and $ 0 , respectively. +● Gaxos Labs sells subscriptions to its customers for the use +of its software under a software as a service subscription model (“SaaS”), which will allow game developers and publishers +to create content using AI which reduce creative asset development time. The Company’s SaaS offerings shall be sold under a prepaid +or postpaid, usage-based pricing system pursuant to a tiers model, allowing customers to choose the subscription level to be charged +based upon their intended usage. The subscription tiers will utilize declining prices as the volume grows. Under prepaid pay-as-you-go +plans, revenues related to contracts that do not include a specified contract period are recognized upon usage by the customer and satisfaction +of the Company’s performance obligation. These usage-based revenues are constrained to the amount the Company expects to be entitled +to and receive in exchange for providing access to its platform. If professional services are deemed to be distinct, revenue is recognized +as services are performed. The Company does not view the signing of the contract or the provision of initial setup services as discrete +earnings events that are distinct. For the years ended December 31, 2024 and 2023, revenue from the sale of subscriptions amounted to +$ 42 and $ 0 , respectively. +● In connection with RNK Health, +the Company plans on generating revenues from the receipt of an affiliate fee for providing access to our portal for the sale +of GLP-1 medications by third parties. Revenues from these fees will be recognized upon satisfaction of the performance obligation. +● +The Company plans to generate revenue from advertising fees paid by game advertisers, developers, hardware companies, or other strategic partners to the Company for promotion on our platform. Revenues from these fees will be recognized ratably over the agreed-upon advertising service period and upon delivery of agreed-upon advertising services, which constitutes satisfaction of the performance obligation. +● +The Company plans to generate royalty revenues when a third party sells one of our NFTs on a third-party platform. We will recognize royalty revenue when it is probable that we will collect the royalty fee owed which is typically when we receive notification from the third-party platform that an NFT has been sold, which constitutes satisfaction of the performance obligation. In the instance where the Company will receive royalty payments when a customer disposes of an in-game NFT in the secondary market on a third-party platform or any other payment that is not in fiat currency, the Company will recognize the revenue in accordance with ASC 606-10-32-21, “ Noncash Consideration” . The fair value of the non-cash consideration received shall be determined by using the quoted price for such non-cash consideration on the date of the transaction. +F- 11 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2024 and 2023 +Research and Development +Research and development costs incurred in the +development of the Company’s products are expensed as incurred and include costs such as labor and outside development costs, software +license fees, materials, and other allocated costs incurred. +Net Loss per Share +The Company computes net loss per share in accordance +with ASC 260-10, “Earnings Per Share.” The basic net loss per common share is computed by dividing the net loss +by the weighted average number of common shares outstanding. Diluted net loss per share gives effect to all dilutive potential common +shares outstanding during the period using the “as if converted” basis. +Pursuant to ASC 260-10-45, basic loss per +common share is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock +outstanding for the period presented. Diluted loss per share is computed by dividing net loss attributable to common stockholders by the +weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the +period. +The following were excluded from the computation +of diluted shares outstanding as they would have had an anti-dilutive impact on the Company’s net loss. +December 31, +2024 +2023 +Common stock equivalents: +Warrants +4,509,259 +11,245 +Stock options +64,084 +38,333 +Total +4,573,343 +49,578 +Noncontrolling Interests +The Company follows ASC Topic 810, “Consolidation,” +governing the accounting for and reporting of noncontrolling interests (“NCI”) in its partially owned consolidated subsidiary. +Certain provisions of this standard indicate, among other things, that NCI be treated as a separate component of equity, not as a liability, +that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather +than as step acquisitions or dilution gains or losses, and that losses of a partially-owned consolidated subsidiary be allocated +to noncontrolling interests even when such allocation might result in a deficit balance. The net loss attributed to NCI was separately +designated in the accompanying consolidated statements of operations and comprehensive loss. Losses attributable to NCI in a subsidiary +may exceed a NCI’s interests in the subsidiary’s equity. The excess attributable to NCI is attributed to those interests. +NCI shall continue to be attributed to their share of losses even if that attribution results in a deficit NCI balance. +Segment Reporting +The Company operates as a single operating +segment technology-based company that is developing applications aimed at redefining the way we utilize artificial intelligence +(“AI”) to optimize the user experience. In accordance with ASC 280 – “ Segment Reporting ”, the +Company’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews operating results to +make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a +management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report +annually entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material +assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to their +similarities in economic characteristics such as nature of services; and procurement processes. Since the Company operates in one +segment, all financial information required by “Segment Reporting” can be found in the accompanying consolidated balance +sheets and statements of operations and notes to consolidated financial statements. +Recent Accounting Pronouncements +The Company has implemented all new accounting +pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting +pronouncements that have been issued that might have a material impact on its financial position or results of operations. +F- 12 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2024 and 2023 +NOTE 3 – SHORT-TERM INVESTMENTS AND +INVESTMENT IN EQUITY SECURITIES +Short-Term Investments +On December 31, 2024, the Company’s short-term +investments consisted of the following: +Cost +Cumulative +Unrealized +Gain +Fair Value +US Treasury bills +$ 2,155,726 +$ 11,693 +$ 2,167,419 +Total short-term investments +$ 2,155,726 +$ 11,693 +$ 2,167,419 +On December 31, 2023, the Company’s short-term +investments consisted of the following: +Cost +Cumulative +Unrealized +Gain +Fair Value +US Treasury bills +$ 2,496,904 +$ 95,785 +$ 2,592,689 +Total short-term investments +$ 2,496,904 +$ 95,785 +$ 2,592,689 +Investment in Equity Securities, at Fair Value +The following table summarizes activity in the +Company’s investment in equity securities, at fair value for the periods presented: +Year Ended +December 31, +Year Ended +December 31, +2024 +2023 +Balance, beginning of year +$ +- +$ +- +Additions +199,998 +- +Balance, end of year +$ 199,998 +$ +- +On December 31, 2024, investment in equity securities, +at fair value consisted of 666,660 shares of common equity securities of one entity, RPM Interactive, Inc. On May 16, 2024, the Company +purchased 666,660 common shares of RPM Interactive, Inc. for $ 199,998 . +NOTE 4 – PROPERTY AND EQUIPMENT +On December 31, 2024 and 2023, property and +equipment consists of the following: +Useful life December 31, +2024 December 31, +2023 +Capitalized internal-use software development costs 3 years $ 102,181 $ 56,971 +Less: accumulated amortization ( 31,807 ) ( 4,365 ) +$ 70,374 $ 52,606 +For the year ended December 31, 2024 and 2023, +amortization of capitalized internal-use software development costs amounted to $ 27,442 and $ 4,365 , respectively. +F- 13 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2024 and 2023 +NOTE 5 – INTANGIBLE ASSET +On December 31, 2024 and 2023, intangible +asset consisted of the following: +Useful life December 31, +2024 December 31, +2023 +License 5 years $ 150,000 $ +- +Less: accumulated amortization ( 25,000 ) +- +$ 125,000 $ +- +On August 29, 2022, the Company entered into +a Software and Patent License Agreement (the “License Agreement”) with Columbia University (“Columbia”), whereby +the Company obtained a license from Columbia with respect to software and intellectual property rights and patents. In connection with +the License Agreement, Columbia granted to the Company a royalty-bearing, exclusive, worldwide, non-transferable license under the License +Agreement, to discover, develop, manufacture, have made, use, sell, offer to sell, have sold, import, export, distribute, rent or lease +licensed products and copy, use, modify, and create derivative works from licensed software and technical information during the term +of the License Agreement. On August 9, 2023 and effective August 1, 2023, the Company and Columbia University agreed to the termination +of the License Agreement. Based on management’s analysis, the Company determined the Licenses were not commercially viable in the +current competitive landscape. The termination of the Agreement will not have any impact on the Company’s future revenues. Accordingly, +as of June 30, 2023, the Company wrote off the remaining unamortized book value of the intangible asset of $ 52,363 , and during the year +ended December 31, 2023, the Company recorded an impairment loss of $ 52,363 , which was included in operating expenses. +On March 4, 2024, the Company entered into a Purchase +Agreement with a third party to acquire certain technology and computer code. The Purchase Agreement grants the Company a perpetual, worldwide, +non-exclusive, non-transferable, royalty free, fully paid license to (a) modify and create derivative works from certain technology and +related codebase including, but not limited to, “Habit-tracking Module,” “Administrative Panel,” and related computer +code. The aggregate purchase price was $ 150,000 and is included in intangible assets on the accompanying consolidated balance sheet. The +purchase price of $ 150,000 was payable in four monthly installments of $ 37,500 , beginning on March 15, 2024. +For the years ended December 31, 2024 and 2023, +amortization of intangible assets amounted to $ 25,000 and $ 6,284 , respectively, which is based on an estimated useful life of 5 years +and includes amortization expense related to the License Agreement prior to the impairment loss as discussed above. +Amortization of the intangible asset attributable +to future periods is as follows: +Year ending December 31: +Amount +2025 +$ 30,000 +2026 +30,000 +2027 +30,000 +2028 +30,000 +2029 +5,000 +$ 125,000 +F- 14 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2024 and 2023 +NOTE 6 – STOCKHOLDERS’ EQUITY +Preferred Stock +The Company is authorized to issue 5,000,000 shares +of its $ 0.0001 par value preferred stock. The Company’s board of directors will have the authority to fix and determine the relative +rights and preferences of preferred shares, as well as the authority to issue such shares, without further stockholder approval. As of +December 31, 2024 and 2023, no preferred shares have been designated and no preferred shares were issued and outstanding. +Common Stock +Initial Public Offering +On February 17, 2023, the Company completed the +IPO and sold 140,563 shares of its common stock at a price to the public of $ 49.80 per share for gross proceeds of $ 7,000,000 . The Company +received net proceeds of $ 5,958,470 which is net of offering expenses of $ 1,041,530 . Additionally, the Company reclassified deferred offering +costs of $ 202,599 which were paid and deferred as of December 31, 2022 as a charge to additional paid in capital as equity issuance costs. +In connection with the IPO, the Company issued 11,245 warrants to the placement agent. The warrants are exercisable at $ 54.78 per share +and expire on February 14, 2028 . The fair value of these warrant of $ 3,657,258 was estimated on the date of grant using the Black-Scholes +option-pricing model with the following weighted-average assumptions: dividend yield of 0 %; expected volatility of 69.8 %; risk-free interest +rate of 4.03 %; and an estimated holding period of 5 years. These warrants had no financial statement impact as they were considered to +be equity issuance costs. +Capital Raises +March 2024 +On March 13, 2024, the Company entered into a +securities purchase agreement (the “March 2024 Purchase Agreement”) with an institutional investor (“the “Purchaser”) +for the issuance and sale in a private placement (the “March 2024 Private Placement”) of aggregate Units consisting of (i) +108,000 shares of the Company’s common stock, (ii) series A warrants to purchase up to 628,367 shares of the Company’s common +stock (the “Series A Warrants”), and (iii) series B warrants to purchase up to 628,367 shares of the Company’s common +stock (the “Series B Warrants” and together with the Series A Warrants, the “March 2024 Common Warrants”). The +purchase price of each Unit consisted of one share of the Company’s common stock and associated March 2024 Common Warrants, was +$ 5.57 per Unit for aggregate gross proceeds of $ 601,560 . Additionally, the Company sold pre-funded warrants to purchase up to 520,367 +shares of the Company’s common stock (the “Pre-Funded Warrants”). Pre-funded Warrants are a type of warrant that allows +the warrant holder to purchase a specified number of a company’s securities at a nominal exercise price. The purchase price of each +Pre-Funded Warrant was $ 5.569 for aggregate gross proceeds of $ 2,897,924 . In connection with this March 2024 Private Placement, the Company +raised aggregate gross proceeds of $ 3,499,484 consisting of $ 601,560 from the sales of common stock units and $ 2,897,924 from the sale +of pre-funded warrants, and the Company received net proceeds of $ 3,056,984 , net of offering costs paid to the placement agent (see below) +of $ 382,500 and legal fees of $ 60,000 , which were netted against the $ 601,560 of gross proceeds from the sale of common stock units for +net proceeds allocated to the sale of common stock units of $ 159,060 . The Company is using the net proceeds received from the March 2024 +Private Placement for general corporate purposes and working capital. +The March 2024 Common Warrants were exercisable +immediately upon issuance at an exercise price of $ 5.50 per share. The Series A Warrants had an expiration of five and one-half years +from the date of issuance and the Series B Warrants had an expiration of twenty-four months from the date of issuance. The Pre-Funded +Warrants were exercisable immediately upon issuance at a nominal exercise price of $ 0.001 were exercisable at any time until the Pre-Funded +Warrants were exercised in full. A holder of Pre-Funded Warrants or March 2024 Common Warrants (together with its affiliates) may not +exercise any portion of a warrant to the extent that the holder would own more than 4.99 % (or, at the election of the holder 9.99 %) of +the Company’s outstanding Common Stock immediately after exercise. +F- 15 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2024 and 2023 +In connection with the March 2024 Private Placement, +the Company entered into a registration rights agreement (the “Registration Rights Agreement”), dated as of March 13, 2024, +with the Purchaser, pursuant to which the Company agreed to prepare and file a registration statement with the Securities and Exchange +Commission (the “ SEC ”) registering the resale of the securities issued in the March 2024 Private Placement no later +than 30 days after the date of the Registration Rights Agreement, and to use its best efforts to have the registration statement declared +effective as promptly as practical thereafter, and in any event no later than 60 days following the date of the Registration Rights Agreement +(or 90 days following the date of the Registration Rights Agreement in the event of a “full review” by the SEC). The Company +filed a registration statement with the SEC on April 4, 2024 which declared effective on April 16, 2024. +H.C. Wainwright & Co., LLC (the “Placement +Agent”) acted as the Company’s exclusive placement agent in connection with the March 2024 Private Placement, pursuant to +an engagement letter, dated as of March 7, 2024 and as amended on March 13, 2024, between the Company and Wainwright (the “Engagement +Letter”). Pursuant to the Engagement Letter, the Company paid the Placement Agent (i) a total cash fee equal to 7.5 % of the aggregate +gross proceeds of the March 2024 Private Placement and (ii) a management fee of 1.0 % of the aggregate gross proceeds of the March 2024 +Private Placement. In addition, the Company agreed to pay the Placement Agent certain expenses and issued to the Placement Agent or its +designees warrants (the “March 2024 Placement Agent Warrants”) to purchase up to an aggregate of 47,128 shares of the Company’s +common stock at an exercise price equal to $ 6.9625 per share. The March 2024 Placement Agent Warrants are exercisable immediately upon +issuance and have a term of exercise equal to five and a half years from the date of issuance. The fair value of the March 2024 Placement +Agent Warrants of $ 318,900 was calculated using the Binomial Lattice valuation model, which is considered an offering cost and is netted +against the net proceeds received. In addition, pursuant to the Engagement Letter, the Company agreed that upon any exercise for cash +of any privately placed warrants issued to investors in an offering covered by the Engagement Letter, the Company shall (i) pay the Placement +Agent a cash fee of 7.5 % and a management fee of 1.0 % of the aggregate gross exercise paid in cash with respect thereto, and (ii) issue +warrants to purchase that number of shares of common stock equal to 7.5 % of the aggregate number of shares of common stock underlying +the warrants that were exercised. +The March 2024 Placement Agent Warrants were valued +on the date of issuance using Binomial Lattice valuation model with the following assumptions: +March 15, +2024 +Dividend rate +— +% +Term (in years) 5.5 years +Volatility 186.5 % +Risk—free interest rate 4.33 % +The risk-free interest rate is based on the U.S. +Treasury rates at the date of issuance with a maturity date approximately equal to the expected life at issuance date. Volatility is based +on historical and expected future volatility of the Company’s common stock. The Company has not historically issued any dividends +and does not expect to in the future. +September 2024 +On September 20, 2024, the Company entered into +an inducement offer agreement with the Holder of the March 2024 Common Warrants to immediately exercise for cash an aggregate 1,256,734 +of the March 2024 Common Warrants to purchase shares of the Company’s common stock at a reduced exercise price of $ 2.58 per share +for gross proceeds to the Company of $ 3,242,374 and the Company received net proceeds of $ 2,834,843 after deducting placement agent +fees of $ 376,552 and other offering expenses paid by the Company of $ 30,979 . The exercised March 2024 Common Warrants were issued pursuant +to a March 2024 Purchase Agreement dated March 13, 2024 (see March 2024 above). In connection with such exercise, on September 20, 2024, +the Company issued 1,256,734 common shares upon the exercise of the March 2024 Common Warrants. +As an inducement to such exercise, the Company +also issued new unregistered warrants to purchase new Series A common stock purchase warrants (the “New Series A Warrants”) +and new Series B common stock purchase warrants (the “New Series B Warrants”, and together with the Series A Warrants, the +“New Warrants”), as described below, to purchase an aggregate of up to 2,513,468 shares of the Company’s common stock +at an exercise price of $ 2.33 per share. The New Series A Warrants to purchase up to 1,256,734 shares of common stock have a term of five +and one-half years from the issuance date, and the New Series B Warrants to purchase up to 1,256,734 shares of common stock had a term +of twenty-four months from the issuance date. +F- 16 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2024 and 2023 +On September 20, 2024, t he Company engaged +the Placement Agent to act as its exclusive placement agent (the September 2024 Engagement Letter”) in connection with the transactions +summarized above and agreed to pay the Placement Agent a cash fee equal to 7.5 % of the gross proceeds received from the Holder’s +exercise of its Existing Warrants of $ 243,178 , as well as a management fee equal to 1.0 % of the gross proceeds from the exercise of the +Existing Warrants of $ 32,424 . Additionally, the Company paid the Placement Agent $ 85,000 for non-accountable expenses and clearing +fees in the amount of $ 15,950 . The Company has also issued to the Placement Agent, or its designees, warrants (the “September 2024 +Placement Agent Warrants”) to purchase up to 7.5 % of the aggregate number of shares of common stock underlying the Existing Warrants +(or Placement Agent Warrants to purchase an aggregate of up to 94,255 shares of common stock), which Placement Agent Warrants have the +same terms as the New Series A Warrants except for an exercise price per share equal to 125 % of the exercise price of the New Warrants +(or $ 3.225 per share). +The amendment to the March 2024 Common Warrants +on September 20, 2024 to lower the exercise price thereof and issue new warrants, was considered a modification of the March 2024 Common +Warrants under the guidance of ASU 2021-04. The modification is consistent with the “Equity Issuance” classification under +that guidance as the reason for the modification was to induce the holders to cash exercise their warrants, resulting in the exercise +of the March 2024 Common Warrants on September 20, 2024. +On September 20, 2024, the Company calculated +the total fair value of the consideration for the modification of the March 2024 Common Warrants, which includes the incremental fair +value of the March 2024 Common Warrants (determined by comparing the fair values immediately prior to and immediately after the modification). +The fair values were calculated using the Binomial Lattice valuation model, and the Company determined that the total fair value of the +consideration related to the modification of the March 2024 Common Warrants amounted to approximately $ 297,500 , which are considered offering +costs and were netted against the net proceeds received by the warrant exercise under the guidance of ASU 2021-04, resulting in both a +credit and a charge to additional paid-in capital and therefore no net accounting effect. +On September 20, 2024, in connection with the +inducement offer agreement issuance of the New Warrants and the September 2024 Placement Agent Warrants, the Company calculated the fair +value of such warrants using the Binomial option-pricing model, and the Company determined that the aggregate total fair value of the +New Warrants and the September 2024 Placement Agent Warrants amounted to approximately $ 5,460,000 , which are considered offering costs +and were netted against the net proceeds received by the warrant exercise under the guidance of ASU 2021-04, resulting in both a credit +and a charge to additional paid-in capital and therefore no net accounting effect. +The fair value of the March 2024 Common Warrants +on the modification date, the fair value of the New Warrants, and the fair value of the September 2024 Placement Agent Warrants were estimated +using the Binomial option-pricing model with the following assumptions: +September 20, +2024 +Exercise price +$ 2.33 to $ 3.225 +Term (years) +1.75 to 5.5 +Expected stock price volatility +162.4 % +Risk-free rate of interest +3.48 % to 3.55 % +December 2024 +On December 18, 2024, the Company entered into +a securities purchase agreement (the “December 18, 2024 Purchase Agreement”) with certain institutional investors, pursuant +to which the Company sold to such investors 1,449,277 common shares of the Company at a purchase price of $ 3.45 per share (the “Registered +Direct Offering”) for a total of $ 5,000,005 . The shares of Common Stock were offered by the Company pursuant to its shelf registration +statement on Form S-3 (File No. 333-283758), which was declared effective by the Securities and Exchange Commission on December 18, 2024. +F- 17 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2024 and 2023 +Concurrently with the sale of the Company’s +common stock pursuant to the December 18, 2024 Purchase Agreement, in a private placement, for each share of Common Stock purchased by +the investors, such investors received from the Company an unregistered warrant (the “December 18, 2024 Warrant”) to purchase +one share of the Company’s common stock (the “Private Placement” and together with the Registered Direct Offering, the +“Offering”) for an aggregate of 1,449,277 Warrants (the “December 18, 2024 Warrants”). The December 18, 2024 Warrants +have an exercise price of $ 3.32 per share and are exercisable immediately upon issuance for a three-year period. These warrants had no +financial statement impact as they were considered to be equity issuance costs. +The net proceeds from the Offerings amounted to +$ 4,449,055 , after deducting Placement Agent fees and offering expenses of $ 550,950 paid by the Company, which includes $ 500,950 discussed +below plus $ 50,000 in legal fees. The Company intends to use the net proceeds from the Offering for general corporate purposes, which +may include working capital and capital expenditures. +Pursuant to the September 2024 Engagement Letter +with the Placement Agent, in connection with the December 18, 2024 Purchase Agreement, the Company paid the Placement Agent an aggregate +cash fee of $ 375,000 , which is equal to 7.5 % of the gross proceeds raised in the Offerings, a management fee equal to $ 50,000 , which is +1.0 % of the gross proceeds raised in the Offerings, $ 60,000 for non-accountable expenses and $ 15,950 for clearing fees, which totals $ 500,950 . +The Company also issued the Placement Agent (or its designees) a warrant (the “December 18, 2024 Placement Agent Warrant”) to +purchase up to 108,696 shares of the company’s Common Stock, which is equal to 7.5 % of the aggregate number of shares of Common +Stock sold in the Registered Direct Offering, at an exercise price equal to 125.0 % of the offering price per share of Common Stock, or +$ 4.3125 per share. The December 18, 2024 Placement Agent Warrant is exercisable immediately upon issuance for a period of three years +from the date of issuance. These warrants had no financial statement impact as they were considered to be equity issuance costs. +In addition, the Company has agreed to pay the +Placement Agent, if and when exercised, a cash fee equal to 7.5 % of the aggregate gross exercise price paid in cash with respect to the +exercise of the Warrants, a management fee equal to 1.0 % of the aggregate gross exercise price paid in cash with respect to the exercise +of the Warrants and issue to the Placement Agent (or its designees) warrants to purchase common stock representing 7.5 % of the shares +of common stock underlying the Warrants that have been exercised. +On December 26, 2024, the Company entered into +a securities purchase agreement (the “December 26, 2024 Purchase Agreement”) with certain institutional and accredited investors, +pursuant to which the Company sold to such investors 1,346,669 shares of the Company’s common stock at a purchase price +of $ 3.00 per share (the “2 nd Registered Direct Offering”) for a total of $ 4,040,007 . The shares of Common Stock +were offered by the Company pursuant to its shelf registration statement on Form S-3 (File No. 333-283758), which was declared effective +by the Securities and Exchange Commission on December 18, 2024. +Concurrently with the sale of Common Stock pursuant +to the December 26, 2024 Purchase Agreement, in a private placement, for each share of Common Stock purchased by the investors, such investors +received from the Company 1,346,669 unregistered warrants (the “December 26, 2024 Warrant”) to purchase 1,346,669 shares of +Common Stock. The December 26, 2024 Warrants have an exercise price of $ 3.00 per share and are exercisable immediately upon issuance for +a three-year period. These warrants had no financial statement impact as they were considered to be equity issuance costs. +The net proceeds from the December 26, 2024 Purchase +Agreement amounted to $ 3,600,656 , after deducting Placement Agent fees and offering expenses of $ 439,351 paid by the Company, which includes +placement agent fees of $ 409,351 paid pursuant to the September 2024 Engagement Letter with the Placement Agent plus $ 30,000 in legal +fees. +F- 18 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2024 and 2023 +The Company also issued the Placement Agent (or +its designees) a warrant (the “December 26, 2024 Placement Agent Warrant”) to purchase up to 101,000 shares of Common +Stock, which is equal to 7.5 % of the aggregate number of shares of Common Stock sold in the 2 nd Registered Direct Offering, +at an exercise price equal to 125.0 % of the offering price per share of Common Stock, or $ 3.75 per share. The December 26, 2024 Placement +Agent Warrant is exercisable immediately upon issuance for a period of three years from the date of issuance. These warrants had no financial +statement impact as they were considered to be equity issuance costs. +The Company intends to use the net proceeds from +the Offerings for general corporate purposes, which may include working capital and capital expenditures. +Common Stock Issued for Pre-Funded Warrant +Exercises +In June and July 2024, the Company issued an aggregate +of 520,367 common shares in connection with the exercise of 520,367 pre-funded warrants for net proceeds of $ 521 . +Common Stock Issued for Warrant Exercises +On September 20, 2024, the Company entered into +an inducement offer agreement with the Holder of the March 2024 Common Warrants to immediately exercise for cash an aggregate 1,256,734 +of the March 2024 Common Warrants to purchase shares of the Company’s common stock at a reduced exercise price of $ 2.58 per share. +In connection with this warrant exercise, the Company issued 1,256,734 common shares upon the exercise of 1,256,734 March 2024 Common +Warrants for net proceeds of $ 2,834,843 . +In December 2024, the Company issued 1,256,734 +common shares for the exercise of 1,256,734 New Series B Warrants for net proceeds of $ 2,663,594 . +2023 Stock Repurchase Plan +On March 20, 2023, the Board of Directors of the +Company approved a stock repurchase program authorizing the purchase of up to $ 500,000 of the Company’s common stock until December +31, 2023 (the “2023 Stock Repurchase Program”). On January 1, 2024, the Board of Directors of the Company approved an extension +of the 2023 Stock Repurchase Program until March 31, 2024. In connection with the 2023 Stock Repurchase Program, from January 1, 2024 +to March 31, 2024, the Company purchased and cancelled 6,846 shares of its common stock for $ 19,602 , or at an average price of $ 2.86 per +share, and during the year ended December 31, 2023, the Company purchased and cancelled 20,349 shares of its common stock for $ 99,736 , +or at an average price of $ 4.90 per share. +Stock Warrants +In connection with the IPO, in February 2023, +the Company issued 11,245 fully vested warrants to the placement agent. The warrants are exercisable at $ 54.78 per share and expire on +February 14, 2028 . The warrants were considered equity issuance costs; therefore, there was no financial statement impact for the grant +during the year ended December 31, 2023 or 2024. +On March 13, 2024, in connection with the March +2024 Private Placement, the Company issued an aggregate of 1,256,734 Common Warrants consisting of (i) the Series A Warrants to purchase +up to 628,367 shares of the Company’s common stock, and (iii) the Series B Warrants to purchase up to 628,367 shares of the Company’s +common stock. Additionally, the Company sold the Pre-Funded Warrants to purchase up to 520,367 shares of the Company’s common stock +(See above). Additionally, in connection with the March 2024 Private Placement, the Company issued 47,128 March 2024 placement agent warrants. +On September 20, 2024, the Company entered into an inducement offer agreement with the Holder of the March 2024 Common Warrants to immediately +exercise for cash an aggregate 1,256,734 of the March 2024 Common Warrants to purchase shares of the Company’s common stock at a +reduced exercise price of $ 2.58 per share. In connection with the inducement offer, the Company issued Warrants to the Investor to purchase +up to 94,255 common shares of the Company at an exercise price of $ 3.225 . +F- 19 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2024 and 2023 +On September 20, 2024, in connection with the +inducement offer agreement discussed above, the Company issued an aggregate of 2,513,468 New Warrants consisting of (i) the Series A Warrants +to purchase up to 1,256,734 shares of the Company’s common stock, and (ii) the Series B Warrants to purchase up to 1,256,734 shares +of the Company’s common stock. Additionally, the Company issued 94,255 September 2024 placement agent warrants. +On December 18, 2024, in connection with the December +18, 2024 Purchase Agreement discussed above, the Company issued the December 18, 2024 Warrants to purchase up to 1,449,277 shares of the +Company’s common stock, and (ii) the December 18, 2024 Placement Agent Warrants to purchase up to 108,696 shares of the Company’s +common stock. +On December 26, 2024, in connection with the December +26, 2024 Purchase Agreement discussed above, the Company issued the December 26, 2024 Warrants to purchase up to 1,346,669 shares of the +Company’s common stock, and (ii) the December 26, 2024 Placement Agent Warrants to purchase up to 101,000 shares of the Company’s +common stock. +Warrant activity for the years ended December +31, 2024 and 2023 is summarized as follows: +Number of +Warrants Weighted +Average +Exercise +Price Weighted +Average +Remaining +Contractual +Term +(Years) Aggregate +Intrinsic +Value +Balance Outstanding, December 31, 2022 +- +$ +- +- +$ +- +Granted 11,245 54.78 +- +- +Balance Outstanding, December 31, 2023 11,245 54.78 4.13 +- +Granted 7,531,849 3.11 +- +- +Exercised ( 3,033,835 ) 2.58 +- +- +Balance Outstanding, December 31, 2024 4,509,259 $ 3.11 3.57 $ 301,616 +Exercisable, December 31, 2024 4,509,259 $ 3.11 3.57 $ 301,616 +2022 Equity Incentive Plan +On March 30, 2022, the Company’s Board +of Directors authorized and adopted the 2022 Equity Incentive Plan (the “2022 Plan”) and reserved an initial 208,333 shares +of common stock for issuance thereunder. The 2022 Plan was approved by shareholders on March 30, 2022. The 2022 Plan’s purpose +is to encourage ownership in the Company by employees, officers, directors and consultants whose long-term service the Company considers +essential to its continued progress and, thereby, encourage recipients to act in the stockholders’ interest and share in the Company’s +success. The 2022 Plan provides for the issuance of incentive stock options, non-statutory stock options, stock appreciation rights (“SARs”), +restricted stock, restricted stock units (“RSUs”), and other stock-based awards. Pursuant to the 2022 Plan, there shall be +annual increase in the number shares reserved under the 2022 Plan on the first day of each calendar year beginning with the first January +1 following the effective date of the 2022 Plan and ending with the last January 1 during the initial ten-year term of the 2022 Plan, +equal to the lesser of (A) five percent ( 5 %) of the Shares outstanding (on an as-converted basis, which shall include Shares +issuable upon the exercise or conversion of all outstanding securities or rights convertible into or exercisable for Shares, including +without limitation, preferred stock, warrants and employee options to purchase any Shares) on the final day of the immediately preceding +calendar year and (B) such lesser number of Shares as determined by the Board; provided, that, shares of Common Stock issued under the +2022 Plan with respect to an Exempt Award shall not count against such share limit. Accordingly, in June 2024, the number of shares reserved +under the 2022 Plan increased by 95,304 to 303,637 reserved shares. +F- 20 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2024 and 2023 +Stock Options +On February 14, 2023, the Company granted aggregate +stock options to purchase 33,333 of the Company’s common stock at an exercise price of $ 49.80 per share to the Company’s chief +executive officer, an executive officer, and employee and consultants pursuant to the 2022 Equity Incentive Plan. The grant date of the +stock options was February 14, 2023 and the options expire on February 14, 2033 . The options vest as to (i) 28,333 of such options on +February 14, 2023; and (ii) the remaining 5,000 options vest quarterly (417 each quarter) beginning on May 14, 2023 and each quarter thereafter +through February 14, 2026. The stock options were valued at $ 1,023,290 on the grant date using a Black-Scholes option pricing model which +will be recognized as stock-based compensation expense over the vesting period. +On March 6, 2023, the Company granted stock options +to purchase 5,000 of the Company’s common stock at an exercise price of $ 49.80 per share to the Company’s board of directors +pursuant to the 2022 Equity Incentive Plan. The grant date of the stock options was March 6, 2023 and the options expire on March 6, 2028. +The options vest on the one-year anniversary of the stock option grant on March 6, 2024. The stock options were valued at the grant +date using a Black-Scholes option pricing model which will be recognized as stock-based compensation expense over the vesting period. +The stock options were valued at $ 33,972 on the grant date using a Black-Scholes option pricing model which will be recognized as stock-based +compensation expense over the vesting period. +On March 5, 2024, the Company granted stock options +to purchase an aggregate of 6,249 ( 2,083 stock options to each director) shares of the Company’s common stock at an exercise price +of $ 6.00 per share to the Company’s board of directors pursuant to the 2022 Equity Incentive Plan. The grant date of the stock options +was March 5, 2024 and the options expire on March 5, 2029. The options vest on the one-year anniversary of the stock option grant on March +5, 2025. The stock options were valued on the grant date at an aggregate fair value of $ 33,880 using a Black-Scholes option pricing +model which will be recognized as stock-based compensation expense over the vesting period. +On March 7, 2024, the Company entered into Advisory +Board Agreements (the Advisory Agreements”) with three members of the Company’s Medical Advisory Board. In connection with +the Advisory Agreements, each medical Board member shall be paid an annual cash fee of $ 40,000 paid quarterly, and the Company shall grant +each Medical Advisory Board member stock options to purchase 4,167 shares of the Company’s common stock. On May 28, 2024, the Company +granted these options for an aggregate of 12,501 stock options at an exercise price of $ 3.82 per share to the Company’s Advisory +board pursuant to the 2022 Equity Incentive Plan. The grant date of the stock options was May 28, 2024 and the options expire on May 28, +2029. The options vest 25 % immediately and the remainder vest quarterly. The stock options were valued on the grant date at an aggregate +fair value of $ 46,124 using a Black-Scholes option pricing model which will be recognized as stock-based professional fees over the vesting +period. +On July 17, 2024, the Company granted stock options +to purchase 7,000 shares of the Company’s common stock at an exercise price of $ 2.15 per share to a member of the Medical Advisory +Board pursuant to the 2022 Equity Incentive Plan. The grant date of the stock options was July 17, 2024 and the options expire on July +17, 2034. The options vest quarterly (875 each quarter) beginning on October 17, 2024 and each quarter thereafter through October 17, +2026. The stock options were valued at $ 14,536 on the grant date using a Black-Scholes option pricing model which will be recognized as +stock-based compensation expense over the vesting period. +F- 21 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2024 and 2023 +The stock options were valued at the grant date +using a Black-Scholes option pricing model with the following assumptions: +Year Ended +December 31, +2024 +Year Ended +December 31, +2023 +Dividend rate +— +% +— +% +Term (in years) +3.0 to 6.0 years +3.0 to 6.0 years +Volatility +168.9 to 184.6 % +68.8 % to 71.6 % +Risk—free interest rate +4.07 % +to 4.56 % +3.95 % to 4.00 % +The expected terms of the options are based on +evaluations of historical and expected future employee exercise behavior using the simplified method. The risk-free interest rate is based +on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at grant date. Volatility +is based on historical and expected future volatility of the Company’s common stock. The Company has not historically issued any +dividends and does not expect to in the future. +During the years ended December 31, 2024 and 2023, +the Company recognized total stock-based expenses related to stock options of $ 119,443 and $ 936,354 , respectively, which have been reflected +in general and administrative expenses on the statements of operations and comprehensive loss. As of December 31, 2024, a balance of $ 96,005 +remains to be expensed over future vesting periods related to unvested stock options issued for services to be expensed over a weighted +average period of 1.0 year. +Stock option activity for the years ended December +31, 2024 and 2023 are summarized as follows: +Number of +Options Weighted +Average +Exercise +Price Weighted +Average +Remaining +Contractual +Term +(Years) Aggregate +Intrinsic +Value +Balance Outstanding, December 31, 2022 +- +$ +- +- +$ +- +Granted 38,334 49.80 +- +- +Balance Outstanding, December 31, 2023 38,334 49.80 8.49 +- +Granted 25,750 3.90 +- +- +Balance Outstanding, December 31, 2024 64,084 $ 31.35 7.60 $ 3,080 +Exercisable, December 31, 2024 43,377 $ 42.21 7.77 $ +- +NOTE 7 – COMMITMENTS AND CONTINGENCIES +Employment Agreement +On February 17, 2023, the Company entered into +an executive employment agreement with Vadim Mats, the Company’s Chief Executive Officer (CEO) in connection with the Company’s +initial public offering (the “ IPO ”). The term of the agreement will continue for one (1) year from the date +of execution and automatically renews for successive one (1) year periods at the end of each term until either party delivers written +notice of their intent not to review at least 90 days prior to the expiration of the then effective term. Pursuant to the agreement, Mr. +Mats shall receive a base salary at the annual rate of $ 400,000 payable in equal installments in accordance with the Company’s standard +payroll policies. Additionally, on February 14, 2023, the board of directors approved the issuance of stock options, with immediate vesting, +to Mr. Mats to purchase up to 16,667 shares of common stock under the Company’s 2022 Equity Incentive Plan (see Note 6). Mr. Mats +shall also be eligible to receive an annual cash bonus in an amount up to two times his then-current base salary if the Company meets +or exceeds criteria to be adopted by the compensation committee annually. +F- 22 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2024 and 2023 +NOTE 8 – INCOME TAXES +The Company accounts for income tax using the +liability method prescribed by ASC 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are determined +based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in +effect in the year in which the differences are expected to reverse. The deferred tax assets on December 31, 2024 and 2023 consist of +net operating loss carryforwards and the mandatory capitalization of research and development cost for tax purposes pursuant to Section +174, as revised by the Tax Cuts and Jobs Act (“TCJA”). The TCJA amended Section 174 relating to the federal tax treatment +of research or experimental expenditures paid or incurred during the taxable year. The new Section 174 rules require taxpayers to capitalize +and amortize specified research and experimental expenditures, including software development, over a period of five years (attributable +to domestic research) or 15 years (attributable to foreign research). The net deferred tax asset has been fully offset by a valuation +allowance because of the uncertainty of the attainment of future taxable income. +As of December 31, 2024 and 2023, components of +deferred tax assets and liabilities are as follows: +December 31, +2024 +December 31, +2023 +Net operating loss carryforward +$ 1,407,458 +$ 795,489 +Research and development +618,007 +366,256 +Total deferred tax assets +2,025,465 +1,161,745 +Valuation allowance +( 2,025,465 ) +( 1,161,745 ) +Net Deferred Tax Assets +$ +- +$ +- +A reconciliation of the effective tax rate with +the statutory Federal income tax rate was as follows for the years ended December 31, 2024 and 2023: +For the +Year ended +December 31, +2024 +For the +Year ended +December 31, +2023 +Federal tax benefit at statutory rate +( 21.0 )% +( 21.0 )% +State tax benefit, net of Federal tax benefit +( 5.1 )% +( 5.1 )% +Non-deductible expenses +0.9 % +6.2 % +Change in estimated effective tax rate +0.0 % +( 1.4 )% +Change in valuation allowance +25.2 % +21.3 % +Effective tax rate +0 % +0 % +As of December 31, 2024, the Company had approximately +$ 5,385,337 in net operating loss carry forwards for federal income tax purposes of which $ 5,385,337 may be carried forward indefinitely +subject to annual usage limitations of 80 % of taxable income. Generally, these can be carried forward and applied against future +taxable income at the tax rate applicable at that time. The Company is currently using a 26.135 % effective tax rate for its projected +available net operating loss carry-forward. +In accordance with FASB ASC 740 “Income +Taxes”, valuation allowances are provided against deferred tax assets, if based on the weight of available evidence, some or all +of the deferred tax assets may or will not be realized. The Company has evaluated its ability to realize some or all of the deferred tax +assets on its balance sheet for the coming year and has established a valuation allowance in the amount of $ 2,025,465 as of December 31, +2024 due to the uncertainty of generating taxable income. The valuation allowance increased in 2024 by $ 863,720 . +The Company does not have any uncertain tax positions +or events leading to uncertainty in a tax position. The Company’s 2024, 2023 and 2022 Corporate Income Tax Returns are subject +to Internal Revenue Service examination. +NOTE 9 – SUBSEQUENT EVENTS +On February 21, 2025, the Company entered into +a Software Purchase Agreement with a third party, whereby the Company purchased software and related technologies for $ 500,000 in cash +and 200,000 shares of the Company’s common stock. These shares were valued at $ 282,000 , or a per share price of $ 1.41 , based on +the quoted closing price of the Company’s common stock on the measurement date. In connection with these shares, the Company shall +record an intangible asset of $ 782,000 . +F- 23 +270069772 +0001895618 +false +FY +0001895618 +2024-01-01 +2024-12-31 +0001895618 +2024-06-30 +0001895618 +2025-03-25 +0001895618 +2024-12-31 +0001895618 +2023-12-31 +0001895618 +2023-01-01 +2023-12-31 +0001895618 +us-gaap:PreferredStockMember +2022-12-31 +0001895618 +us-gaap:CommonStockMember +2022-12-31 +0001895618 +us-gaap:AdditionalPaidInCapitalMember +2022-12-31 +0001895618 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2022-12-31 +0001895618 +us-gaap:RetainedEarningsMember +2022-12-31 +0001895618 +us-gaap:NoncontrollingInterestMember +2022-12-31 +0001895618 +2022-12-31 +0001895618 +us-gaap:PreferredStockMember +2023-01-01 +2023-12-31 +0001895618 +us-gaap:CommonStockMember +2023-01-01 +2023-12-31 +0001895618 +us-gaap:AdditionalPaidInCapitalMember +2023-01-01 +2023-12-31 +0001895618 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2023-01-01 +2023-12-31 +0001895618 +us-gaap:RetainedEarningsMember +2023-01-01 +2023-12-31 +0001895618 +us-gaap:NoncontrollingInterestMember +2023-01-01 +2023-12-31 +0001895618 +us-gaap:PreferredStockMember +2023-12-31 +0001895618 +us-gaap:CommonStockMember +2023-12-31 +0001895618 +us-gaap:AdditionalPaidInCapitalMember +2023-12-31 +0001895618 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2023-12-31 +0001895618 +us-gaap:RetainedEarningsMember +2023-12-31 +0001895618 +us-gaap:NoncontrollingInterestMember +2023-12-31 +0001895618 +us-gaap:PreferredStockMember +2024-01-01 +2024-12-31 +0001895618 +us-gaap:CommonStockMember +2024-01-01 +2024-12-31 +0001895618 +us-gaap:AdditionalPaidInCapitalMember +2024-01-01 +2024-12-31 +0001895618 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2024-01-01 +2024-12-31 +0001895618 +us-gaap:RetainedEarningsMember +2024-01-01 +2024-12-31 +0001895618 +us-gaap:NoncontrollingInterestMember +2024-01-01 +2024-12-31 +0001895618 +us-gaap:PreferredStockMember +2024-12-31 +0001895618 +us-gaap:CommonStockMember +2024-12-31 +0001895618 +us-gaap:AdditionalPaidInCapitalMember +2024-12-31 +0001895618 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2024-12-31 +0001895618 +us-gaap:RetainedEarningsMember +2024-12-31 +0001895618 +us-gaap:NoncontrollingInterestMember +2024-12-31 +0001895618 +2024-10-01 +2024-12-31 +0001895618 +gxai:NekwellnessMember +2024-10-10 +0001895618 +gxai:RNKHealthMember +2024-10-10 +0001895618 +gxai:DragonInteractiveCorporationMember +2024-12-31 +0001895618 +2024-05-16 +0001895618 +gxai:DragonInteractiveCorporationMember +2024-05-16 +0001895618 +us-gaap:CashAndCashEquivalentsMember +2024-12-31 +0001895618 +us-gaap:OtherIntangibleAssetsMember +2024-12-31 +0001895618 +gxai:SaleOfOurIngameItemsMember +2024-01-01 +2024-12-31 +0001895618 +gxai:SaleOfOurIngameItemsMember +2023-01-01 +2023-12-31 +0001895618 +gxai:HealthCoachingPackagesMember +2024-01-01 +2024-12-31 +0001895618 +gxai:HealthCoachingPackagesMember +2023-01-01 +2023-12-31 +0001895618 +gxai:SaleOfSubscriptionsMember +2024-01-01 +2024-12-31 +0001895618 +gxai:SaleOfSubscriptionsMember +2023-01-01 +2023-12-31 +0001895618 +us-gaap:FairValueInputsLevel1Member +2024-12-31 +0001895618 +us-gaap:FairValueInputsLevel2Member +2024-12-31 +0001895618 +us-gaap:FairValueInputsLevel3Member +2024-12-31 +0001895618 +us-gaap:FairValueInputsLevel1Member +2023-12-31 +0001895618 +us-gaap:FairValueInputsLevel2Member +2023-12-31 +0001895618 +us-gaap:FairValueInputsLevel3Member +2023-12-31 +0001895618 +us-gaap:WarrantMember +2024-01-01 +2024-12-31 +0001895618 +us-gaap:WarrantMember +2023-01-01 +2023-12-31 +0001895618 +us-gaap:EmployeeStockOptionMember +2024-01-01 +2024-12-31 +0001895618 +us-gaap:EmployeeStockOptionMember +2023-01-01 +2023-12-31 +0001895618 +us-gaap:ShortTermInvestmentsMember +2024-12-31 +0001895618 +us-gaap:ShortTermInvestmentsMember +2024-05-16 +0001895618 +gxai:RPMInteractiveIncMember +2024-05-16 +0001895618 +gxai:USTreasuryBillsMember +2024-12-31 +0001895618 +gxai:USTreasuryBillsMember +2023-12-31 +0001895618 +us-gaap:ShortTermInvestmentsMember +2024-01-01 +2024-12-31 +0001895618 +us-gaap:SoftwareAndSoftwareDevelopmentCostsMember +2024-01-01 +2024-12-31 +0001895618 +us-gaap:SoftwareAndSoftwareDevelopmentCostsMember +2023-01-01 +2023-12-31 +0001895618 +2023-06-30 +2023-06-30 +0001895618 +2024-03-04 +2024-03-04 +0001895618 +us-gaap:OtherIntangibleAssetsMember +2023-12-31 +0001895618 +us-gaap:IPOMember +2023-02-17 +2023-02-17 +0001895618 +us-gaap:IPOMember +2023-02-17 +0001895618 +us-gaap:PrivatePlacementMember +2024-03-13 +2024-03-13 +0001895618 +gxai:SeriesAWarrantsMember +us-gaap:PrivatePlacementMember +2024-03-13 +0001895618 +gxai:SeriesBWarrantsMember +us-gaap:PrivatePlacementMember +2024-03-13 +0001895618 +gxai:CommonWarrantsMember +us-gaap:PrivatePlacementMember +2024-03-13 +0001895618 +gxai:CommonWarrantsMember +us-gaap:PrivatePlacementMember +2024-03-13 +2024-03-13 +0001895618 +gxai:PreFundedWarrantsMember +us-gaap:PrivatePlacementMember +2024-03-13 +0001895618 +gxai:PreFundedWarrantsMember +us-gaap:PrivatePlacementMember +2024-03-13 +2024-03-13 +0001895618 +2024-03-13 +2024-03-13 +0001895618 +gxai:PreFundedWarrantsMember +2024-03-13 +2024-03-13 +0001895618 +us-gaap:CommonStockMember +2024-03-13 +2024-03-13 +0001895618 +us-gaap:WarrantMember +2024-03-31 +0001895618 +gxai:SeriesAWarrantsMember +2024-01-01 +2024-12-31 +0001895618 +gxai:SeriesBWarrantsMember +2024-01-01 +2024-12-31 +0001895618 +gxai:PreFundedWarrantsMember +2024-12-31 +0001895618 +srt:MinimumMember +2024-01-01 +2024-12-31 +0001895618 +srt:MaximumMember +2024-01-01 +2024-12-31 +0001895618 +us-gaap:PrivatePlacementMember +2024-01-01 +2024-12-31 +0001895618 +gxai:PlacementAgentWarrantsMember +2024-12-31 +0001895618 +us-gaap:PrivatePlacementMember +2024-12-31 +0001895618 +gxai:StockWarrantsMember +2024-09-20 +0001895618 +2024-09-20 +0001895618 +2024-09-20 +2024-09-20 +0001895618 +gxai:NewWarrantMember +2024-12-31 +0001895618 +gxai:SeriesAWarrantsMember +2024-12-31 +0001895618 +gxai:SeriesBWarrantsMember +2024-12-31 +0001895618 +us-gaap:WarrantMember +2024-09-20 +0001895618 +us-gaap:WarrantMember +2024-09-20 +2024-09-20 +0001895618 +gxai:PreFundedWarrantsMember +2024-09-20 +0001895618 +gxai:HCWainwrightAndCoLLCMember +2024-09-20 +2024-09-20 +0001895618 +gxai:SeriesAWarrantsMember +2024-09-20 +0001895618 +gxai:StockWarrantsMember +2024-09-20 +0001895618 +us-gaap:CommonStockMember +2024-12-18 +0001895618 +2024-12-18 +0001895618 +2024-12-18 +2024-12-18 +0001895618 +us-gaap:WarrantMember +2024-12-18 +0001895618 +us-gaap:IPOMember +2024-01-01 +2024-12-31 +0001895618 +us-gaap:IPOMember +2024-12-18 +2024-12-18 +0001895618 +gxai:PlacementAgentWarrantsMember +2024-12-18 +0001895618 +gxai:CashFeeMember +2024-12-18 +2024-12-18 +0001895618 +gxai:ManagementFeeMember +2024-12-18 +2024-12-18 +0001895618 +us-gaap:CommonStockMember +2024-12-18 +2024-12-18 +0001895618 +2024-12-26 +0001895618 +2024-12-26 +2024-12-26 +0001895618 +us-gaap:WarrantMember +2024-12-26 +0001895618 +us-gaap:CommonStockMember +2024-12-26 +0001895618 +gxai:PlacementAgentWarrantMember +2024-12-31 +0001895618 +2024-07-31 +0001895618 +us-gaap:CommonStockMember +2024-06-30 +0001895618 +gxai:PreFundedWarrantsMember +2024-06-30 +2024-06-30 +0001895618 +gxai:PreFundedWarrantsMember +2024-07-31 +2024-07-31 +0001895618 +us-gaap:CommonStockMember +2024-10-01 +2024-12-31 +0001895618 +gxai:PreFundedWarrantsMember +2024-10-01 +2024-12-31 +0001895618 +gxai:NewSeriesBWarrantsMember +2024-12-31 +2024-12-31 +0001895618 +gxai:SeriesBWarrantsMember +2024-12-31 +2024-12-31 +0001895618 +gxai:TwoZeroTwoThreeStockRepurchasePlanMember +2023-03-20 +2023-03-20 +0001895618 +gxai:TwoZeroTwoThreeStockRepurchasePlanMember +2024-01-01 +2024-03-31 +0001895618 +gxai:StockWarrantsMember +2023-02-28 +0001895618 +gxai:StockWarrantsMember +2024-12-31 +0001895618 +gxai:StockWarrantsMember +2024-03-13 +0001895618 +gxai:SeriesAWarrantsMember +gxai:StockWarrantsMember +2024-03-13 +0001895618 +gxai:SeriesBWarrantsMember +gxai:StockWarrantsMember +2024-03-13 +0001895618 +gxai:PreFundedWarrantsMember +gxai:StockWarrantsMember +2024-03-13 +0001895618 +gxai:PlacementAgentWarrantsMember +2024-03-13 +0001895618 +2024-03-13 +0001895618 +gxai:NewWarrantMember +2024-03-13 +0001895618 +us-gaap:CommonStockMember +2024-03-13 +0001895618 +gxai:SeriesBWarrantsMember +2024-03-13 +0001895618 +gxai:SeriesAWarrantsMember +us-gaap:CommonStockMember +2024-03-13 +0001895618 +gxai:StockWarrantsMember +2024-12-18 +0001895618 +gxai:StockWarrantsMember +2024-12-26 +0001895618 +2022-03-30 +0001895618 +2022-03-30 +2022-03-30 +0001895618 +srt:MinimumMember +2022-03-30 +0001895618 +srt:MaximumMember +2022-03-30 +0001895618 +2023-02-14 +2023-02-14 +0001895618 +us-gaap:CommonStockMember +2023-02-14 +2023-02-14 +0001895618 +2023-03-06 +2023-03-06 +0001895618 +us-gaap:CommonStockMember +2023-03-06 +2023-03-06 +0001895618 +2024-03-05 +2024-03-05 +0001895618 +us-gaap:StockOptionMember +2024-03-05 +2024-03-05 +0001895618 +2024-03-05 +0001895618 +2024-03-07 +2024-03-07 +0001895618 +gxai:MedicalAdvisoryBoardMember +2024-03-07 +2024-03-07 +0001895618 +2024-05-28 +2024-05-28 +0001895618 +2024-05-28 +0001895618 +2024-07-17 +2024-07-17 +0001895618 +gxai:TwoZeroTwoTwoEquityIncentivePlanMember +2024-07-17 +0001895618 +us-gaap:WarrantMember +us-gaap:MeasurementInputExpectedDividendRateMember +2024-03-15 +0001895618 +us-gaap:WarrantMember +us-gaap:MeasurementInputExpectedTermMember +2024-03-15 +0001895618 +us-gaap:WarrantMember +us-gaap:MeasurementInputOptionVolatilityMember +2024-03-15 +0001895618 +us-gaap:WarrantMember +us-gaap:MeasurementInputRiskFreeInterestRateMember +2024-03-15 +0001895618 +srt:MinimumMember +us-gaap:MeasurementInputSharePriceMember +2024-09-20 +0001895618 +srt:MaximumMember +us-gaap:MeasurementInputSharePriceMember +2024-09-20 +0001895618 +srt:MinimumMember +us-gaap:MeasurementInputExpectedTermMember +2024-09-20 +0001895618 +srt:MaximumMember +us-gaap:MeasurementInputExpectedTermMember +2024-09-20 +0001895618 +us-gaap:MeasurementInputOptionVolatilityMember +2024-09-20 +0001895618 +srt:MinimumMember +us-gaap:MeasurementInputRiskFreeInterestRateMember +2024-09-20 +0001895618 +srt:MaximumMember +us-gaap:MeasurementInputRiskFreeInterestRateMember +2024-09-20 +0001895618 +us-gaap:WarrantMember +2022-12-31 +0001895618 +us-gaap:WarrantMember +2022-12-31 +2022-12-31 +0001895618 +us-gaap:WarrantMember +2023-01-01 +2023-12-31 +0001895618 +us-gaap:WarrantMember +2023-12-31 +0001895618 +us-gaap:WarrantMember +2024-01-01 +2024-12-31 +0001895618 +us-gaap:WarrantMember +2024-12-31 +0001895618 +us-gaap:MeasurementInputExpectedDividendRateMember +2024-01-01 +2024-12-31 +0001895618 +us-gaap:MeasurementInputExpectedDividendRateMember +2023-01-01 +2023-12-31 +0001895618 +srt:MinimumMember +us-gaap:MeasurementInputExpectedTermMember +2024-01-01 +2024-12-31 +0001895618 +srt:MaximumMember +us-gaap:MeasurementInputExpectedTermMember +2024-01-01 +2024-12-31 +0001895618 +srt:MinimumMember +us-gaap:MeasurementInputExpectedTermMember +2023-01-01 +2023-12-31 +0001895618 +srt:MaximumMember +us-gaap:MeasurementInputExpectedTermMember +2023-01-01 +2023-12-31 +0001895618 +srt:MinimumMember +us-gaap:MeasurementInputOptionVolatilityMember +2024-01-01 +2024-12-31 +0001895618 +srt:MaximumMember +us-gaap:MeasurementInputOptionVolatilityMember +2024-01-01 +2024-12-31 +0001895618 +srt:MinimumMember +us-gaap:MeasurementInputOptionVolatilityMember +2023-01-01 +2023-12-31 +0001895618 +srt:MaximumMember +us-gaap:MeasurementInputOptionVolatilityMember +2023-01-01 +2023-12-31 +0001895618 +srt:MinimumMember +us-gaap:MeasurementInputRiskFreeInterestRateMember +2024-01-01 +2024-12-31 +0001895618 +srt:MaximumMember +us-gaap:MeasurementInputRiskFreeInterestRateMember +2024-01-01 +2024-12-31 +0001895618 +srt:MinimumMember +us-gaap:MeasurementInputRiskFreeInterestRateMember +2023-01-01 +2023-12-31 +0001895618 +srt:MaximumMember +us-gaap:MeasurementInputRiskFreeInterestRateMember +2023-01-01 +2023-12-31 +0001895618 +us-gaap:StockOptionMember +2022-12-31 +0001895618 +us-gaap:StockOptionMember +2022-12-31 +2022-12-31 +0001895618 +us-gaap:StockOptionMember +2023-01-01 +2023-12-31 +0001895618 +us-gaap:StockOptionMember +2023-12-31 +0001895618 +us-gaap:StockOptionMember +2024-01-01 +2024-12-31 +0001895618 +us-gaap:StockOptionMember +2024-12-31 +0001895618 +gxai:MrMatsMember +2023-02-17 +2023-02-17 +0001895618 +gxai:TwoThousandTwentyTwoEquityIncentivePlanMember +gxai:MrMatsMember +2023-02-17 +2023-02-17 +0001895618 +gxai:DomesticResearchMember +2024-01-01 +2024-12-31 +0001895618 +gxai:ForeignResearchMember +2024-01-01 +2024-12-31 +0001895618 +gxai:SoftwareAndRelatedTechnologiesMember +us-gaap:SubsequentEventMember +2025-02-21 +0001895618 +us-gaap:SubsequentEventMember +2025-02-21 +2025-02-21 +0001895618 +us-gaap:SubsequentEventMember +2025-02-21 +iso4217:USD +xbrli:shares +iso4217:USD +xbrli:shares +xbrli:pure \ No newline at end of file diff --git a/raw/filings/0001895618/2024/0001013762-25-004271/filing_metadata.csv b/raw/filings/0001895618/2024/0001013762-25-004271/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..2af2bc13f6cf0defd5c59158e7aeefbf95179beb --- /dev/null +++ b/raw/filings/0001895618/2024/0001013762-25-004271/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001895618,GXAI,GAXOS.AI INC.,2024,10-K,2025-03-28,2024-12-31,2025-03-28T21:27:35.000Z,0001013762-25-004271,ea0234668-10k_gaxosai.htm,ANNUAL REPORT,6946307,1,1,https://www.sec.gov/Archives/edgar/data/1895618/000101376225004271/ea0234668-10k_gaxosai.htm,https://www.sec.gov/Archives/edgar/data/1895618/000101376225004271/ diff --git a/raw/filings/0001895618/2024/0001013762-25-004271/item1.txt b/raw/filings/0001895618/2024/0001013762-25-004271/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..28bbccee6876c7bed6ca140d0771c7175404e24e --- /dev/null +++ b/raw/filings/0001895618/2024/0001013762-25-004271/item1.txt @@ -0,0 +1,210 @@ +ITEM +1. BUSINESS +Overview +We +are a technology-based company that is developing applications aimed at redefining the way we utilize artificial intelligence (“AI”) +to optimize the user experience. We are committed to addressing the need for AI solutions in both health and entertainment. +Gaxos +Labs +Gaxos Labs, launched in September +2024, is a transformative generative AI service that empowers game developers and publishers. Key features of the product include: +● +AI-Powered +Creativity: Reduces creative asset development time from hours to minutes, transforming artistic visions into reality with ease. +Rapid prototyping abilities allows for experimentation with different designs quickly and easily. +● +Monetization: +Publishers have the ability to offer users AI-generated assets for player customization. +● +Seamless +Integration: With plug-and-play functionality for Unity and Godot, integration is effortless into existing workflows. +● +API: +Connect to any game development engine and build for any platform including mobile and PC. +● +Dynamic +Content Generation: User-Generated-Ai-Content (“UGAiC”) feature offers new experiences with each playthrough by letting +gamers use AI in real time, fostering a dynamic gaming environment. +● +Customized +Solutions: From personalized AI models including images and sound capabilities to expert consulting services, our offering includes +customizable solutions to meet the unique needs of any developer. +Gaxos +Gaming +Gaxos +Gaming (the “Platform” or “Gaxos Gaming”) was created with a vision to develop, design, acquire, and manage conventional +games and to combine these games with unconventional game mechanisms, such as the ability for gamers and developers to utilize AI to +create and design in-game features, as well as to mint unique in-game features, such as skins, characters, weapons, gear, levels, and +virtual lands, in the form of non-fungible tokens, or “NFTs,” that will allow users to have unique experiences and more control +over in-game assets. +In +2023, we launched our own proprietary games that are simple and fun to play, and that offer gamers the ability to utilize AI to personalize +their gaming experience as well as to mint their own affordable NFTs, with unique and exclusive features, that can be utilized across +our network of games. As of December 2024, we have launched four games, Space Striker AI, Brawl Bots, BattleFleet AI, and Jigsaw Puzzle +AI. Space Striker AI allows players to engage in a captivating storyline and exciting retro shooting space action in the players +AI-generated spaceship. Players can fuse crystals to upgrade their ship parts to craft, clash and conquer the galaxy all within a dynamic +free-to-play economy. Brawl Bots immerses users in high-octane battles in real time against other players, in solo play or teams. Each +player gets to control their own exclusive Bot character, ensuring a personalized gaming experience. BattleFleet AI is a take on the +classic Battleship game with AI elements that allow gamers to design their ships. Jigsaw Puzzle AI lets gamers solve preloaded jigsaw +puzzles as well as design and solve new jigsaw puzzles using AI. +Gaxos +Health +In +July 2024, we launched Gaxos Health, which is dedicated to revolutionizing personal health and wellness by developing a suite of innovative +AI-powered health optimization solutions. Gaxos Health will integrate AI-driven insights with individual biometric data and health goals +to create web and application based personalized wellness strategies for users. This cutting-edge approach was designed to redefine +preventative medicine, offering unparalleled personalization in health and wellness. Gaxos Health solutions will analyze a wide range +of health data to provide tailored wellness plans and address the growing demand for personalized health solutions. We believe that this +technology is not just a step but a leap forward in empowering individuals to take control of their health and longevity with AI’s +precision and intelligence. Currently, Gaxos Health offers customized health plans and coaching based on collected DNA, blood biomarkers, +and individual goals and traits. +RNK +Health +On September 23, 2024, the Company formed a wholly-owned subsidiary, +RNK Health LLC (“RNK Health”), to form a partnership and potential relationship with Nekwellness, LLC (“Nekwellness”) +to engage in the proposed business of marketing certain health-related products. On October 10, 2024, the Company, RNK Health and Nekwellness +entered into an operating agreement with respect to the regulation and management of the affairs of RNK Health and, as of such date, the +Company owns a 70% membership interest in RNK Health and Nekwellness owns a 30% membership interest in RNK Health. RNK Health is currently providing access to GLP-1 medications such as injectable and oral Semaglutide and Terzepatide, +and intends to add other products such as testosterone replacement therapy (TRT) +1 +Intellectual +Property +Our +business is dependent upon the creation, acquisition, use and protection of intellectual property. Some of this intellectual property +is expected to be in the form of software code, patented technology, copyright, and trade secrets that we will use to develop our games +and the Platform. While we will develop our own intellectual property, we may also acquire and/or license other intellectual property +which is owned by third parties. +We +protect our intellectual property rights by relying on federal, state and common law protections, as well as contractual restrictions. +We actively seek protection covering any intellectual property we believe may be useful or relevant to our business. +Our +goal is to obtain, maintain and enforce protection for our intellectual property, and to operate without infringing on the rights of +other parties. Our policy is to actively seek the broadest intellectual property protection possible for our intellectual property through +a combination of contractual arrangements, registration of our domain names, copyrights, trademarks, service marks and/or patents. We +have established business procedures designed to maintain the confidentiality of our proprietary information, including the use of confidentiality +agreements with employees, independent contractors, consultants, and entities with which we conduct business. +The +Platform will allow third-party game developers to mint NFTs using their own intellectual property and our tools to list those NFTs +for sale (primary sales) on the Platform. The Platform only allows NFTs that were originally minted using the Company’s NFT infrastructure +to be listed for sale. All third-party game developers who create NFTs on the Platform will be required to agree to our Terms of Service +and Privacy Policy prior to engaging with the Platform. Our Terms of Service and Privacy Policy will require creators to attest they +own the intellectual property used to create their NFTs and to monitor for obvious copyright violations. It is not yet certain to what +extent the Digital Millennium Copyright Act (DMCA) applies to NFT platforms. However, it seems likely that NFT platform owners will be +subject to at least some responsibility for responding to copyright infringement on their sites, therefore, we plan to take proactive +approach by registering with the DMCA to retain a designated agent for DMCA notices as well as instructions for submitting copyright +infringement claims. +Government +Regulation +Data +Privacy Laws and Regulations +We +are subject to various federal, state, and international laws and regulations that affect companies conducting business on the Internet +and mobile platforms, including those relating to privacy, use and protection of player and employee personal information and data (including +the collection of data from minors), the Internet, behavioral tracking, mobile applications, content, advertising and marketing activities +and anti-corruption. Additional laws in all of these areas are likely to be passed in the future, which could result in significant limitations +on or changes to the ways in which we can collect, use, host, store or transmit the personal information and data of our customers or +employees, communicate with our players and deliver products and services, which may significantly increase our compliance costs. +We +recognize that users of Gaxos Gaming and Gaxos Health care deeply about how their personal information is collected, used and shared. +Users +of Gaxos Gaming and Gaxos Health may be required to provide us with certain personal information such as their name, email address and +phone number. We take commercially reasonable and appropriate measures to protect this personal information from accidental loss, misuse, +and unauthorized access, disclosure, alteration, or destruction, taking into account the risks involved in processing and the nature +of such data, and comply with applicable laws and regulations. We do not currently transfer any personal information to third-parties +that do not act on our behalf, and we will not do so without users’ opt-in consent. Similarly, we do not currently collect sensitive +personal information from users without opt-in consent. We may disclose personal information to certain types of third-party companies, +but only to the extent needed to enable them to provide such services. The types of companies that may receive personal information and +their functions are: marketing assistance, analytics and reporting, customer support, email and SMS delivery, cloud infrastructure, and +systems monitoring. All such third parties function as our agents, performing services at our instruction and on our behalf pursuant +to contracts which require them to provide at least the same level of privacy protection as is required by our Privacy Policy. In addition, +we may be required to disclose personal information in response to lawful requests by public authorities, including for the purpose of +meeting national security or law enforcement requirements. We may also disclose personal information to other third parties when compelled +to do so by government authorities or required by law or regulation including, but not limited to, in response to court orders and subpoenas. +2 +With +respect to retention of personal information, we may only retain such users’ personal information in a form that identifies them +only for as long as it serves the purpose(s) for which it was initially collected as stated in our Privacy Policy, as may be subsequently +authorized. We may continue processing users’ personal information for longer periods, but only for the time and to the extent +such processing reasonably serves the purposes of statistical analysis, and subject to the protection of our Privacy Policy. After such +time periods have expired, we may either delete the personal information or retain it in a form such that it does not identify the user +personally. +Healthcare +Laws and Regulations +We +will be subject to healthcare regulation and enforcement by the federal government and the states and foreign governments in which we +might conduct our business, including the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended +by the Health Information Technology for Economic and Clinical Health Act of 2009 and their implementing regulations, impose obligations +on certain types of individuals and entities regarding the electronic exchange of information in common healthcare transactions, as well +as standards relating to the privacy and security of individually identifiable health information. +Competition +We +operate in industries that are highly competitive and evolving. Specifically, our business faces intense competition in gaming and +other various digital products. In addition, our Platform may face competition from other AI services that cater to game users and +game developers. Further, our competition may become more intense if gaming industry leaders such as Sony, Nintendo, and Microsoft, +all of whom have significant financial, technical and other resources, greater brand recognition and longer +operating histories, decide to focus their efforts on blockchain gaming. +Gaxos +Health will also operate in a competitive health and wellness landscape. Specifically, Gaxos Health may face intense competition +from other companies catering to individuals that are seeking for ways to improve their longevity and health span. Certain +competitors may expand their offering to include artificial intelligence and other proprietary methodologies that can further +increase competition. +RNK Health operates in a competitive landscape +and faces competition from similar companies that provide access to similar products such as compounded Semaglutide and Tirzepatide. +Our +ability to compete depends in large part on our continuous commitment to research and development, our ability to rapidly introduce new +features and functionality, and to acquire users. We intend to work closely with our customers to continuously enhance the performance, +functionality, usability, reliability and flexibility of the Platform. +Employees +As +of March 15, 2025, we have a total of 3 full-time employees, We have established a network of external professionals and consultants +to which we outsource various research and development and operational tasks in an effort to minimize administrative overhead. We are +not a party to any collective bargaining agreements. We believe that we maintain good relations with our employees. +3 +Corporate History +We +were originally incorporated in the State of Wyoming on October 27, 2021 (“NFT Wyoming”). +On +March 29, 2022, the Board of Directors of the Company approved, subject to shareholder approval, a Plan of Conversion, pursuant +to which the Company converted from a corporation incorporated under the laws of the State of Wyoming to a corporation incorporated under +the laws of the State of Delaware (the “Delaware Reincorporation”), and such approval included the adoption of the Certificate +of Incorporation (the “Delaware Certificate”) and the Bylaws (the “Delaware Bylaws”) for the Company under the +laws of the State of Delaware, under the name, “The NFT Gaming Company, Inc.,” to become effective with the effectiveness +of the Reincorporation. On March 29, 2022, we received majority shareholder approval. +On +March 30, 2022, we completed the Delaware Reincorporation by filing the Delaware Certificate with the Delaware Secretary of State. +On +January 5, 2024, we filed an amendment to our Certificate of Incorporation with the Delaware Secretary of State to change our name to +“Gaxos.ai Inc.” +On March +7, 2024, we filed a Certificate of Amendment with the Delaware Secretary of State to effectuate a 1-for-12 reverse stock split of our +issued and outstanding and authorized shares of common stock. The reverse stock split became effective on March 7, 2024. All share +data, per share data and related information contained in this Annual Report on Form 10-K has been retrospectively adjusted to reflect +the effect of the reverse stock split. +On +September 16, 2024, the Board of Directors of the Company approved, subject to shareholder approval, a Plan of Conversion, pursuant to +which the Company converted from a corporation incorporated under the laws of the State of Delaware to a corporation incorporated under +the laws of the State of Nevada (the “Reincorporation”), and such approval included the adoption of the Articles of Incorporation +(the “Nevada Articles”) and the Bylaws (the “Nevada Bylaws”) for the Company under the laws of the State of Nevada, +under the name, “Gaxos.ai Inc.,” to become effective with the effectiveness of the Reincorporation. On December 27, 2024, +we received majority shareholder approval for the Reincorporation. +On +March 3, 2025, we changed our state of incorporation from Delaware to Nevada. +Our +Corporate Information +We were incorporated as in the State of Wyoming on October 27, 2021. +On March 30, 2022, we changed our state of incorporation from Wyoming to Delaware. On March 3, 2025, we changed our state of incorporation +from Delaware to Nevada. Our principal executive offices are located at 101 Eisenhower Pkwy, Suite 3000, Roseland, NJ 07068 and our telephone +number is (973) 275-7428. +Available +Information +Our +website address is https://gaxos.ai. The contents of, or information accessible through, our website are not part of this Annual +Report on Form 10-K, and our website address is included in this document as an inactive textual reference only. We make our filings +with the U.S. Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K, Quarterly Reports on +Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, available free of charge on our website as soon as reasonably +practicable after we file such reports with, or furnish such reports to, the SEC. The public may read and copy the materials we file +with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on +the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an internet site that +contains reports, proxy and information statements and other information. The address of the SEC’s website is www.sec.gov. The +information contained in the SEC’s website is not intended to be a part of this filing. +4 \ No newline at end of file diff --git a/raw/filings/0001895618/2024/0001013762-25-004271/item13.txt b/raw/filings/0001895618/2024/0001013762-25-004271/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..72221e32a3abe42840ff2669b5f5a08695d33084 --- /dev/null +++ b/raw/filings/0001895618/2024/0001013762-25-004271/item13.txt @@ -0,0 +1,5 @@ +Item +13. +Certain +Relationships and Related Transactions, and Director Independence +50 \ No newline at end of file diff --git a/raw/filings/0001895618/2025/0001213900-26-029223/filing.txt b/raw/filings/0001895618/2025/0001213900-26-029223/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..b195a4cdf122af2d3bc0227b4be9c0cff4f6354b --- /dev/null +++ b/raw/filings/0001895618/2025/0001213900-26-029223/filing.txt @@ -0,0 +1,5749 @@ +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +☒ ANNUAL REPORT PURSUANT TO SECTION 13 +OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , 2025 +☐ TRANSITION REPORT PURSUANT TO SECTION +13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from ______ to ______ +Commission file number 001-41620 +GAXOS.AI INC. +(Exact name of Registrant as specified in its +charter) +Nevada 87-3288897 +(State or other jurisdiction of +incorporation or organization) (I. R. S. Employer +Identification No.) +101 Eisenhower Pkwy Suite 300 , +Roseland , New Jersey +07068 +(Address of principal executive offices) (Zip Code) +(973) 275-7428 +(Registrant’s telephone number, including +area code) +Securities registered pursuant to Section +12(b) of the Exchange Act: +Title of each class Trading Symbol Name of exchange on which registered +Common Stock, par value $0.0001 GXAI The Nasdaq Stock Market LLC +Securities registered pursuant to Section 12(b) +of the Act: None +Indicate by check mark if the registrant is a +well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate by check mark if the registrant is not +required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ +Indicate by check mark whether the registrant +(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 +months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements +for the past 90 days. Yes ☒ No ☐ +Indicate by check mark whether the registrant +has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 +of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes +☒ No ☐ +Indicate by check mark whether the registrant +is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. +See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and +“emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer ☐ Accelerated filer ☐ +Non-accelerated filer ☒ Smaller reporting company ☒ +Emerging growth company ☒ +If an emerging growth company, indicate by check +mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting +standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant +has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial +reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or +issued its audit report. ☐ +If securities are registered pursuant to Section +12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction +of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error +corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s +executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant +is a shell company (as defined by Rule 12b-2 of the Exchange Act) Yes ☐ No ☒ +The aggregate market value of the voting and +non-voting common equity held by non-affiliates, based upon the closing price of $1.41 per share of common stock as of June 30, 2025 +(the last business day of the registrant’s most recently completed second fiscal quarter), was $ 9,729,823 . +As of March 25, 2026, 10,219,934 shares +of the registrant’s common stock, $0.0001 par value per share, were issued and outstanding. +Documents Incorporated by Reference: None . +GAXOS.AI INC. +Form 10-K +For the Fiscal Year Ended December 31, 2025 +TABLE OF CONTENTS +Page +Part +I +Item +1. +Business +1 +Item +1A. +Risk +Factors +4 +Item +1B. +Unresolved +Staff Comments +20 +Item +1C. +Cybersecurity +20 +Item +2. +Properties +21 +Item +3. +Legal +Proceedings +21 +Item +4. +Mine +Safety Disclosures +21 +Part +II +Item +5. +Market +For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +22 +Item +6. +[Reserved] +22 +Item +7. +Management’s +Discussion and Analysis of Financial Condition and Results of Operations +22 +Item +7A. +Quantitative +and Qualitative Disclosures About Market Risk +31 +Item +8. +Financial +Statements and Supplementary Data +31 +Item +9. +Changes +in and Disagreements With Accountants on Accounting and Financial Disclosure +31 +Item +9A. +Controls +and Procedures +31 +Item +9B. +Other +Information +31 +Item +9C. +Disclosure +Regarding Foreign Jurisdictions that Prevent Inspections +31 +Part +III +Item +10. +Directors, +Executive Officers and Corporate Governance +32 +Item +11. +Executive +Compensation +35 +Item +12. +Security +Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +40 +Item +13. +Certain +Relationships and Related Transactions, and Director Independence +41 +Item +14. +Principal +Accountant Fees and Services +42 +Part +IV +Item +15. +Exhibit +and Financial Statement Schedules +43 +Item +16. +Form +10-K Summary +44 +Signatures +45 +i +CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS +This Annual Report on Form 10-K contains certain +forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), +and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any statements in this Annual Report +on Form 10-K about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts +and are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as “believe,” +“will,” “expect,” “anticipate,” “estimate,” “intend,” “plan” +and “would.” For example, statements concerning financial condition, possible or assumed future results of operations, growth +opportunities, industry ranking, plans and objectives of management, markets for our common stock and future management and organizational +structure are all forward-looking statements. Forward-looking statements are not guarantees of performance. They involve known and unknown +risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to differ materially +from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statement. +Any forward-looking statements are qualified +in their entirety by reference to the risk factors discussed throughout this Annual Report on Form 10-K. Some of the risks, uncertainties +and assumptions that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements +include, but are not limited to: +● +our ability to obtain additional +funds for our operations; +● +our financial performance, +including our revenues, cost of revenues, operating expenses, and our ability to attain and sustain profitability; +● +our ability to attract +and retain users; +● +our ability to attract +and retain advertisers; +● +our ability to compete +effectively with existing competitors and new market entrants; +● +our ability to successfully +expand in our existing markets and penetrate new markets; +● +our expectations regarding +the time during which we will be an emerging growth company under the Jumpstart Our Business Startups Act, or JOBS Act; +● +our ability to effectively +manage our growth, and future expenses; +● +our ability to maintain, +protect, and enhance our intellectual property; +● +our ability to comply with +modified or new laws and regulations applying to our business, competitors and industry; +● +our ability to attract +and retain qualified key management and technical personnel; and +● +other risks and uncertainties, +including those listed under the caption “Risk Factors.” +The foregoing list sets forth some, but not all, +of the factors that could affect our ability to achieve results described in any forward-looking statements. You should read this Annual +Report on Form 10-K and the documents that we reference herein and have filed as exhibits to the Annual Report on Form 10-K, completely +and with the understanding that our actual future results may be materially different from what we expect. You should assume that the +information appearing in this Annual Report on Form 10-K is accurate as of the date hereof. Because the risk factors referred to on page +4 of Annual Report on Form 10-K could cause actual results or outcomes to differ materially from those expressed in any forward-looking +statements made by us or on our behalf, you should not place undue reliance on any forward-looking statements. Further, any forward-looking +statement speaks only as of the date on which it is made, and except as required by law, we undertake no obligation to update any forward-looking +statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated +events. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot +assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results +to differ materially from those contained in any forward-looking statements. We qualify all of the information presented in this Annual +Report on Form 10-K, and particularly our forward-looking statements, by these cautionary statements. +ii +SUMMARY OF RISK FACTORS +Our business is subject to significant risks +and uncertainties that make an investment in us speculative and risky. Below we summarize what we believe are the principal risk factors +but these risks are not the only ones we face, and you should carefully review and consider the full discussion of our risk factors in +the section titled “Risk Factors,” together with the other information in this Annual Report on Form 10-K. If any of the +following risks actually occurs (or if any of those listed elsewhere in this Annual Report on Form 10-K occur), our business, reputation, +financial condition, results of operations, revenue, and future prospects could be seriously harmed. Additional risks and uncertainties +that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. +Risks Related to Our Business and Industry +● +We have a limited operating +history and have only recently generated revenues; +● +We have not developed a +strong customer base, and we have not generated sustainable revenue since inception. We cannot assure you that we ever will. We will +incur significant losses in launching products and we may not realize sufficient subscriptions or profits in order to sustain our +business; +● +We are dependent on the +services of certain key management personnel, employees, and advisors. If we are unable to retain or motivate such individuals or +hire qualified personnel, we may not be able to grow effectively; +● +Certain products that we +offer are based on new and unproven technologies and is subject to the risks of failure inherent in the development of new products +and services; +● +A slowdown or reduction +in our sales in due to a reduction in end user demand, unanticipated competition, regulatory issues, or other unexpected circumstances +● +If we fail to add new users, +or if our users engage less with our products, our business would be seriously harmed; and +● +Uncertainty regarding our +ability to achieve profitability and positive cash flow through the commercialization of the products we offer or intend to offer +in the future. +Risks Related to Data Security +● +We rely on information +systems to obtain, process, analyze, and manage data and to the extent IT systems are not successfully implemented or fail, our business +and results of operations may be adversely affected. +● +In addition to the risks +generally relating to the collection, use, retention, security and transfer of personal information, we are also subject to specific +obligations relating to information considered sensitive under applicable laws, such as health data and biometric data. +● +Unauthorized access, use +or disclosure of certain sensitive information in our possession or our failure to satisfy legal requirements, including requirements +relating to safeguarding protected health information under the Health Insurance Portability and Accountability Act (“HIPAA”) +or state data privacy laws could result in civil and criminal liability and regulatory action, which could result in potential fines +and penalties, as well as costs relating to investigation of an incident or breach, corrective actions, required notifications to +regulatory agencies and customers, credit monitoring services and other necessary expenses. +iii +Risks Related to Information Technology +Systems, Intellectual Property and Privacy Laws +● +We may not be able to adequately +protect our proprietary technology, and our competitors may be able to offer similar products and services which would harm our competitive +position; +● +Unauthorized breaches or +failures in cybersecurity measures adopted by us and/or included in our products and services could have a material adverse effect +on our business; and +● +We may be subject to stringent +and changing laws, regulations, standards, and contractual obligations related to privacy, data protection, and data security. Our +actual or perceived failure to comply with such obligations could adversely affect our business. +Risks Related to Regulatory Changes +● +We may be subject to stringent +and changing laws, regulations, standards, and contractual obligations related to privacy, data protection, and data security. Our +actual or perceived failure to comply with such obligations could adversely affect our business; +● +Current and future laws +and regulations. +Risks Related to the Offering and Our Common +Stock +● +We do not expect to pay +dividends in the foreseeable future; +● +If our stock price fluctuates, +you could lose a significant part of your investment; +● +The delisting of our securities +by The Nasdaq Capital Market (“Nasdaq”); and +● +Exclusive forum provisions +in our certificate of incorporation and bylaws. +iv +ITEM 1. BUSINESS +Gaxos.AI is a technology company focused on reshaping +the way people interact with artificial intelligence across everyday life and high-impact industries. More than a developer of applications, +Gaxos.AI is building a portfolio of AI-powered solutions designed to make advanced technology more practical, accessible, and transformative. +The company’s growing portfolio spans defense, health and wellness, entertainment, and productivity—bringing intelligent +tools to markets where innovation can drive meaningful real-world outcomes. +Gaxos Labs +Gaxos Labs, launched in September 2024, is the +Gaxos.AI product studio developing and launching AI applications across fast-moving sectors. +In September 2024, we launched a transformative +generative AI service that empowers game developers and publishers. Key features of the product include AI-powered creativity that reduces +creative asset development time from hours to minutes, enabling rapid prototyping and fast experimentation with different designs; monetization +tools that allow publishers to offer AI-generated assets for player customization; seamless plug-and-play integration with Unity and +Godot for effortless adoption into existing workflows; a flexible API that connects to any game development engine and supports builds +for any platform, including mobile and PC; dynamic content generation through our User-Generated-AI-Content (UGAiC) feature, which lets +gamers use AI in real time to create fresh experiences with every playthrough; and customized solutions ranging from personalized AI +models for image and sound generation to expert consulting services tailored to the unique needs of each developer. +In May 2025, we launched UnGPT.ai, a new tool +designed to enhance text generated by artificial intelligence, making it sound more natural and human-like. UnGPT features a real-time +rewriting engine that transforms machine-generated content while preserving meaning and context. The tool employs a proprietary multi-pass +transformation model that surpasses existing AI detection tools, addressing the growing demand for high-quality, undetectable output, +especially in sensitive industries. +In August 2025, we launched Art-Gen.AI, an AI +image and video creation platform that makes pro-grade content effortless for anyone, anywhere. Art-Gen combines state-of-the-art AI +models from industry leaders including Google, Stability AI, and PixVerse with Gaxos’ proprietary enhancements to deliver unmatched +creative speed, detail, and flexibility. With just a simple text prompt or reference image, users can instantly produce cinematic visuals, +hyper-realistic imagery, or animated video content at a fraction of traditional production time and cost., +In December 2025, we launched Bible Pray AI, +a personalized, AI-powered spiritual growth platform designed to help users deepen faith, strengthen daily devotion, and apply scripture +for greater peace, clarity, and purpose. Bible Pray AI represents our strategic expansion into the rapidly growing digital faith, mental +wellness, and personal development economy, a sector supported by hundreds of millions of engaged global users seeking guided spiritual +content, daily motivation, and community-based worship experiences. +Gaxos Health +Recently, we began to develop a new initiative, +Gaxos Health, which is dedicated to revolutionizing personal health and wellness by developing a suite of innovative AI-powered health +optimization solutions. Gaxos Health will integrate AI-driven insights with individual biometric data and health goals to create web +and application based personalized wellness strategies for users. We believe that this cutting-edge approach will redefine preventative +medicine, offering unparalleled personalization in health and wellness. Gaxos Health solutions will analyze a wide range of health data +to provide tailored wellness plans and address the growing demand for personalized health solutions. We believe that this technology +is not just a step but a leap forward in empowering individuals to take control of their health and longevity with AI’s precision +and intelligence. +We launched the AI-powered health optimization +product in the third quarter of 2024. +RNK Health +On September 23, 2024, we formed a wholly-owned +subsidiary, RNK Health LLC (“RNK Health”), to form a partnership and relationship with Nekwellness, LLC (“Nekwellness”) +to engage in the business of marketing certain health-related products. On October 10, 2024, the Company, RNK Health and Nekwellness +entered into an operating agreement with respect to the regulation and management of the affairs of RNK Health and, as of such date, +the Company owns a 70% membership interest in RNK Health and Nekwellness owns a 30% membership interest in RNK Health. RNK Health is +currently providing access to certain medications, supplements and other wellness products and services. +Gaxos Gaming +Gaxos Gaming (the “Platform”), created +with a vision to develop, design, acquire, and manage conventional games and to combine these games with unconventional game mechanisms, +such as the ability for gamers and developers to utilize artificial intelligence to create and design in-game features, as well as to +mint unique in-game features, such as skins, characters, weapons, gear, levels, and virtual lands, in the form of non-fungible tokens, +or “NFTs,” that will allow users to have unique experiences and more control over in-game assets. +1 +In 2023, we launched our own proprietary games +that are simple and fun to play, and that offer gamers the ability to utilize AI to personalize their gaming experience as well as to +mint their own affordable NFTs, with unique and exclusive features, that can be utilized across the network of games and platform that +we intend to build. As of December 31, 2025, we have launched five games, Space Striker AI, Brawl Bots, BattleFleet AI, Jigsaw Puzzle +AI and Gaxos AI Puzzle. Space Striker AI allows players to engage in a captivating storyline and exciting retro shooting space action +in the players AI-generated spaceship. Players can fuse crystals to upgrade their ship parts to craft, clash and conquer the galaxy all +within a dynamic free-to-play economy. Brawl Bots immerses users in high-octane battles in real time against other players, in solo play +or teams. Each player gets to control their own exclusive Bot character, ensuring a personalized gaming experience. BattleFleet AI is +a take on the classic Battleship game with AI elements that allow gamers to design their ships. Gaxos AI Puzzle and Jigsaw Puzzle AI +lets gamers solve preloaded jigsaw puzzles as well as design and solve new jigsaw puzzles using AI. +Recent Updates +On March 2, 2026, the Company entered into a Membership Interest Purchase Agreement with America First Defense.AI LLC, a New Mexico limited +liability company (“AFD”), pursuant to which the Company agreed to purchase, and AFD agreed to sell, 19.99% of AFD’s +outstanding membership interests (the “Membership Interests”) for an aggregate purchase price of $2,900,000. The closing of +the purchase occurred on March 5, 2026, subject to satisfaction of the conditions set forth in the Purchase Agreement. +Intellectual Property +Certain aspects of our business are dependent +upon the creation, acquisition, use and protection of intellectual property. Some of this intellectual property is expected to be in +the form of software code, patented technology, copyright, and trade secrets that we will use to develop our products. While we will +develop our own intellectual property, we may also acquire and/or license other intellectual property which is owned by third parties. +We protect our intellectual property rights by +relying on federal, state and common law protections, as well as contractual restrictions. We actively seek protection covering any intellectual +property we believe may be useful or relevant to our business. +Our goal is to obtain, maintain and enforce protection +for our intellectual property, and to operate without infringing on the rights of other parties. Our policy is to actively seek the broadest +intellectual property protection possible for our intellectual property through a combination of contractual arrangements, registration +of our domain names, copyrights, trademarks, service marks and/or patents. We have established business procedures designed to maintain +the confidentiality of our proprietary information, including the use of confidentiality agreements with employees, independent contractors, +consultants, and entities with which we conduct business. +Government Regulation +Data Privacy Laws and Regulations +We are subject to various federal, state, and +international laws and regulations that affect companies conducting business on the Internet and mobile platforms, including those relating +to privacy, use and protection of player and employee personal information and data (including the collection of data from minors), the +Internet, behavioral tracking, mobile applications, content, advertising and marketing activities and anti-corruption. Additional laws +in all of these areas are likely to be passed in the future, which could result in significant limitations on or changes to the ways +in which we can collect, use, host, store or transmit the personal information and data of our customers or employees, communicate with +our players and deliver products and services, which may significantly increase our compliance costs. +We recognize that users of Gaxos Gaming, Gaxos +Health, Gaxos Labs and RNK Health care deeply about how their personal information is collected, used and shared. +Users of Gaxos Gaming, Gaxos Health, Gaxos Labs, +and RNK Health may be required to provide us with certain personal information such as their name, email address and phone number. We +take commercially reasonable and appropriate measures to protect this personal information from accidental loss, misuse, and unauthorized +access, disclosure, alteration, or destruction, taking into account the risks involved in processing and the nature of such data, and +comply with applicable laws and regulations. We do not currently transfer any personal information to third-parties that do not act on +our behalf, and we will not do so without users’ opt-in consent. Similarly, we do not currently collect sensitive personal information +from users without opt-in consent. We may disclose personal information to certain types of third-party companies, but only to the extent +needed to enable them to provide such services. The types of companies that may receive personal information and their functions are: +marketing assistance, analytics and reporting, customer support, email and SMS delivery, cloud infrastructure, and systems monitoring. +All such third parties function as our agents, performing services at our instruction and on our behalf pursuant to contracts which require +them to provide at least the same level of privacy protection as is required by our Privacy Policy. In addition, we may be required to +disclose personal information in response to lawful requests by public authorities, including for the purpose of meeting national security +or law enforcement requirements. We may also disclose personal information to other third parties when compelled to do so by government +authorities or required by law or regulation including, but not limited to, in response to court orders and subpoenas. +With respect to retention of personal information, +we may only retain such users’ personal information in a form that identifies them only for as long as it serves the purpose(s) +for which it was initially collected as stated in our Privacy Policy, as may be subsequently authorized. We may continue processing users’ +personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of statistical +analysis, and subject to the protection of our Privacy Policy. After such time periods have expired, we may either delete the personal +information or retain it in a form such that it does not identify the user personally. +2 +Healthcare Laws and Regulations +We will be subject to healthcare regulation and +enforcement by the federal government and the states and foreign governments in which we might conduct our business, including the Health +Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology for Economic +and Clinical Health Act of 2009 and their implementing regulations, impose obligations on certain types of individuals and entities regarding +the electronic exchange of information in common healthcare transactions, as well as standards relating to the privacy and security of +individually identifiable health information. +Competition +We operate in industries that are highly competitive +and evolving. Specifically, our business faces intense competition in AI applications, gaming, supplements and peptide sales, gaming +and other various products. +Gaxos Health will also operate in a competitive +health and wellness landscape. Specifically, Gaxos Health faces intense competition from other companies catering to individuals that +are seeking for ways to improve their longevity and health span. Certain competitors may expand their offering to include artificial +intelligence and other proprietary methodologies that can further increase competition. +RNK Health operates in a competitive landscape +and faces competition from similar companies that provide access to similar products such as NAD+ or Sermorelin. +Gaxos Gaming may face competition from other +AI services that cater to game users and game developers. Further, our competition may become more intense if gaming industry leaders +such as Sony, Nintendo, and Microsoft, all of whom have significant financial, technical and other resources, +greater brand recognition and longer operating histories, decide to focus their efforts on AI-aspets of gaming. +Our ability to compete depends in large part +on our continuous commitment to research and development, our ability to rapidly introduce new features and functionality, and to acquire +users. We intend to work closely with our customers to continuously enhance the performance, functionality, usability, reliability and +flexibility of our products. +Employees +As of March 15, 2026, we have a total of 3 full-time employees, +We have established a network of external professionals and consultants to which we outsource various research and development and operational +tasks in an effort to minimize administrative overhead. We are not a party to any collective bargaining agreements. We believe that we +maintain good relations with our employees. +Corporate History +We were originally incorporated in the State +of Wyoming on October 27, 2021 (“NFT Wyoming”). +On March 29, 2022, the Board of Directors +of the Company approved, subject to shareholder approval, a Plan of Conversion, pursuant to which the Company converted from a corporation +incorporated under the laws of the State of Wyoming to a corporation incorporated under the laws of the State of Delaware (the “Delaware +Reincorporation”), and such approval included the adoption of the Certificate of Incorporation (the “Delaware Certificate”) +and the Bylaws (the “Delaware Bylaws”) for the Company under the laws of the State of Delaware, under the name, “The +NFT Gaming Company, Inc.,” to become effective with the effectiveness of the Reincorporation. On March 29, 2022, we received +majority shareholder approval. +On March 30, 2022, we completed the Delaware +Reincorporation by filing the Delaware Certificate with the Delaware Secretary of State. +On January 5, 2024, we filed an amendment to +our Certificate of Incorporation with the Delaware Secretary of State to change our name to “Gaxos.ai Inc.” +On March 7, 2024, we filed a Certificate +of Amendment with the Delaware Secretary of State to effectuate a 1-for-12 reverse stock split of our issued and outstanding and authorized +shares of common stock. The reverse stock split became effective on March 7, 2024. All share data, per share data and related information +contained in this Annual Report on Form 10-K has been retrospectively adjusted to reflect the effect of the reverse stock split. +On September 16, 2024, the Board of Directors +of the Company approved, subject to shareholder approval, a Plan of Conversion, pursuant to which the Company converted from a corporation +incorporated under the laws of the State of Delaware to a corporation incorporated under the laws of the State of Nevada (the “Reincorporation”), +and such approval included the adoption of the Articles of Incorporation (the “Nevada Articles”) and the Bylaws (the “Nevada +Bylaws”) for the Company under the laws of the State of Nevada, under the name, “Gaxos.ai Inc.,” to become effective +with the effectiveness of the Reincorporation. On December 27, 2024, we received majority shareholder approval for the Reincorporation. +On March 3, 2025, we changed our state of +incorporation from Delaware to Nevada. +Our Corporate Information +We were incorporated as in the State of Wyoming +on October 27, 2021. On March 30, 2022, we changed our state of incorporation from Wyoming to Delaware. On March 3, 2025, we changed +our state of incorporation from Delaware to Nevada. Our principal executive offices are located at 101 Eisenhower Pkwy, Suite 3000, Roseland, +NJ 07068 and our telephone number is (973) 275-7428. +3 +Available Information +Our website address is https://gaxos.ai. +The contents of, or information accessible through, our website are not part of this Annual Report on Form 10-K, and our website address +is included in this document as an inactive textual reference only. We make our filings with the U.S. Securities and Exchange Commission +(“SEC”), including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments +to those reports, available free of charge on our website as soon as reasonably practicable after we file such reports with, or furnish +such reports to, the SEC. The public may read and copy the materials we file with the SEC at the SEC’s Public Reference Room at +100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the +SEC at 1-800-SEC-0330. Additionally, the SEC maintains an internet site that contains reports, proxy and information statements and other +information. The address of the SEC’s website is www.sec.gov. The information contained in the SEC’s website is not intended +to be a part of this filing. +ITEM 1A. RISK FACTORS +An investment in our securities involves a +high degree of risk. An investor should carefully consider the risks described below as well as other information contained in this Annual +Report on Form 10-K and our other reports filed with the U.S. Securities and Exchange Commission (“SEC”). The risks and uncertainties +described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe +are immaterial may also impair our business operations. If any of the following risks actually occur, our business, financial condition +or results of operations could be materially adversely affected, the value of our securities could decline, and investors in our company +may lose all or part of their investment. +Risks Related to Our Business and Industry +We have a limited operating history and, +therefore, cannot accurately project our revenues and operating expenses. +Because we have a limited history, it is difficult +to evaluate our proposed business and future prospects, including our ability to plan for and model future growth. Our limited operating +experience, combined with the rapidly evolving nature of the AI markets in which we operate, substantial uncertainty concerning how this +market may develop, and other economic factors beyond our control reduce our ability to accurately forecast quarterly or annual revenue. +Failure to manage our current and future growth effectively could have an adverse effect on our business, operating results, and financial +condition. Our business should be considered in light of the risks, expenses, and difficulties that we have encountered to date and will +continue to encounter. +We have not developed a strong customer +base, and we have not generated sustainable revenue since inception. We cannot assure you that we ever will. We will incur significant +losses in launching products and we may not realize sufficient subscriptions or profits in order to sustain our business. +We have not yet developed a strong customer base +and we have not generated sustainable revenue since inception. We are subject to the substantial risk of failure facing businesses seeking +to develop and commercialize new products and technologies. Maintaining and improving our platforms will require significant capital. +We will also incur substantial accounting, legal, and other overhead costs as a public company. If our offerings to customers are unsuccessful, +result in insufficient revenue, or result in us not being able to sustain revenue, we will be forced to reduce expenses, which may result +in an inability to gain new customers. +We may encounter numerous difficulties +frequently encountered by companies in the early stage of operations. +We have a limited operating history upon which +any investor may evaluate our current business and future prospects. Any potential investor must consider the risks and difficulties +frequently encountered by early-stage companies. Historically, there has been a high failure rate among early-stage companies. +Our future performance will depend upon a number of factors, including our ability to: +● implement +our growth strategy; +● aggressively +counter and respond to actions by our competitors; +● pursue +new users and maintain relationship with current users; +● maintain +adequate control of our expenses; +● attract, +retain and motivate qualified personnel; +● react +to user preferences and demands; and +● regulatory +compliance. +We cannot assure investors that we will successfully +address any of these factors, and our failure to do so could have a material adverse effect on our business, financial condition, results +of operations, and future prospects. +4 +We may be unable to manage our growth or +implement our expansion strategy. +We may not be able to develop our product or +implement the other features of our business strategy at the rate or to the extent presently planned. Our projected growth will place +a significant strain on our administrative, operational, and financial resources. If we are unable to successfully manage our future +growth, establish and continue to upgrade our operating and financial control systems, recruit and hire necessary personnel, or effectively +manage unexpected expansion difficulties, our financial condition and results of operations could be materially and adversely affected. +We will need additional debt or equity +financing in the future. +While we generate operating revenues from the +sale of our digital products, our operating revenues are not be sufficient to finance our operations including our marketing efforts. +Accordingly, we will need to obtain additional financing to operate and fully implement our business plan and aggressive growth strategy. +There can be no assurance that any additional financing will be available to us or, if available, that such financing will be on terms +acceptable to us. If we obtain additional financing through the issuance of equity or convertible debt securities, it may be significantly +dilutive to our shareholders and such additional equity or convertible debt securities may have rights, preferences, or privileges senior +to those of our Common Stock. In addition, our ability to issue debt securities or to service any debt may also be limited by our inability +to generate consistent cash flow. If additional financing is not available on acceptable terms, we may not be able to fund our on-going operations +or any future expansion of our business, develop or enhance our products or services, or respond effectively to competitive pressures. +The inability to raise additional capital in the future may force us to curtail future business opportunities or cease operations entirely. +If we are unable to obtain additional funding +when needed, our business operations will be harmed, and if we do obtain additional financing, our then-existing shareholders +may suffer substantial dilution. +As we take steps in the commercialization and +marketing of our technologies, or respond to potential opportunities and/or adverse events, our working capital needs may change. We +anticipate that if our cash and cash equivalents are insufficient to satisfy our liquidity requirements, we will require additional funding +to sustain our ongoing operations and to continue our research and development activities. On January 26, 2026, we entered into the ATM +Agreement with H. C. Wainwright and Co., LLC (“Wainwright”) under which we can offer and sell shares of our common stock +having an aggregate sales price of up to $5,600,000 through Wainwright as the sales agent pursuant to the Company’s effective shelf +registration statement on Form S-3 (File No. 333-283758), including an accompanying base prospectus dated December 18, +2024 and prospectus supplements dated January 23, 2026 and February 4, 2026. Sales of shares of our common stock through Wainwright, +if any, will be made by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) +under the Securities Act of 1933, as amended. Wainwright will use commercially reasonable efforts to sell shares of the Company’s +common stock from time to time, based on instructions from the Company (including any price, time or size limits or other parameters +or conditions we may impose). We will pay Wainwright a commission equal to 3.0% of the aggregate gross proceeds from the sales of shares +of the Company’s common stock sold through Wainwright under the ATM Agreement and will also reimburse Wainwright for certain specified +expenses in connection with the ATM Agreement. There can be no assurance that financing will be available in amounts or on terms acceptable +to us, if at all, if needed. The inability to obtain additional capital will restrict our ability to grow and may reduce our ability +to conduct business operations. If we are unable to obtain additional financing to finance a revised growth plan, we will likely be required +to curtail such plans or cease our business operations. Any additional equity financing may involve substantial dilution to our then +existing shareholders. +We are dependent on the services of certain +key management personnel, employees, and advisors. If we are unable to retain or motivate such individuals or hire qualified personnel, +we may not be able to grow effectively. +We depend on the services of a number of key +management personnel, employees, and advisors and our future performance will largely depend on the talents and efforts of such individuals. +We do not currently maintain “key person” life insurance on any of our employees. The loss of one or more of such key individuals, +or failure to find a suitable successor, could hamper our efforts to successfully operate our business and achieve our business objectives. +Our future success will also depend on our ability to identify, hire, develop, motivate, and retain highly skilled personnel. Competition +in our industry for qualified employees is intense, and our compensation arrangements may not always be successful in attracting new +employees and/or retaining and motivating our existing employees. Future acquisitions by us may also cause uncertainty among our current +employees and employees of the acquired entity, which could lead to the departure of key individuals. Such departures could have an adverse +impact on the anticipated benefits of an acquisition. +We may continue to incur substantial losses +and negative operating cash flows and may not achieve or maintain positive cash flow or profitability in the future. +We have incurred significant losses and negative +operating cash flow from inception and may continue to incur significant losses and negative operating cash flow into the future. In +order to reach our business growth objectives, we expect to incur significant sales, marketing, software development and other operating +costs, including costs associated with the expansion of our personnel. As a result, we will need to generate and grow our revenues significantly +to achieve positive cash flow and profitability. There can be no assurance that we will be successful in generating and increasing our +revenues or that we can achieve or maintain positive cash flow or profitability. On December 31, 2025, we had a cash balance of $840,499, +had short-term investments of $11,345,187, and had working capital of $11,919,230. During the year ended December 31, 2025, we used net +cash in operations of $3,853,757. Until such time that we implement our growth strategy, we expect to continue to generate operating +losses in the foreseeable future, mostly due to corporate overhead, research and development, and costs of being a public company. We +believes that our existing working capital and cash on hand will provide sufficient cash to enable us to meet our operating needs and +debt requirements for the next twelve months from the issuance date of this report. +5 +We may utilize artificial intelligence, +which exposes us to liability and affects our business. +We use, or may in the future use, artificial +intelligence, generative artificial intelligence, machine learning and similar tools and technologies (collectively, “AI”) +in connection with our business. The use of AI is still a relatively new and emerging technology, and the introduction and incorporation +of AI may expose us to additional risks, such as damage to our reputation, competitive position, and business, legal and regulatory risks +and additional costs. For example, AI algorithms and machine learning methods may contain flaws, raising ethical and legal concerns, +such as unintentional bias in credit decisions. Additionally, the complexity and fast-paced evolution of AI present significant challenges, +especially as we compete with other companies in this space. We may not always succeed in identifying or resolving problems before they +emerge. AI-related challenges, including potential government regulations, flaws, or other deficiencies, could further complicate our +efforts and adversely affect our business. +The use of new and evolving technologies, +such as artificial intelligence, in our business may result in spending material resources and presents risks and challenges that can +impact our business including by posing security and other risks to our confidential and/or proprietary information, including personal +information, and as a result we may be exposed to reputational harm and liability. +We may use and integrate artificial intelligence +into our business processes, and this innovation presents risks and challenges that could affect its adoption, and therefore our business. +The use of AI presents risks and challenges that could adversely affect our business and reputation, including cybersecurity, data privacy, +IT, confidentiality, regulatory, legal, operational, competitive, reputational, intellectual property and other risks. Specifically, +risks related to accuracy, bias, AI hallucinations, discrimination, harmful content, misinformation, fraud, scams, targeted attacks (including +model poisoning or data poisoning), surveillance, data leakage, bias and inequality, environmental and other harms may flow from our +development or use of AI technologies. For example, use of certain AI tools may increase the risk of unauthorized disclosure of confidential +information, compromise of proprietary intellectual property, or inadvertent inclusion of third-party intellectual property or other +protected material, which could result in disputes or claims of infringement. +Additionally, government and supranational regulation +related to AI is evolving as new laws and regulations are implemented globally and could increase the operational cost of compliance, +including through requirements related to transparency, accountability, risk management, human oversight, and data governance. We expect +to see increasing regulation related to AI governance, use and ethics, which may also significantly increase the burden and cost of research, +development and compliance in this area. For example, the EU’s Artificial Intelligence Act (“AI Act”) - the world’s +first comprehensive AI law -entered into force on August 1, 2024, with most important provisions scheduled to become effective on August +1, 2026. As currently enacted, the AI Act imposes significant obligations on providers and deployers of high-risk AI systems and general +purpose AI models, and encourages providers and deployers of AI systems to account for EU ethical principles when developing and using +AI technology. The scope of requirements depends on legal and risk determinations that rely on novel legal provisions that have not yet +been fully interpreted by courts or regulators, and non-compliance can lead to significant fines. +In the U.S., the regulatory environment is complex +and uncertain. Over the past year, states have advanced, and in some cases passed, dozens of laws focusing on AI governance and regulation, +including deployment of AI in healthcare settings. At the Federal level, the current executive administration has endorsed a federal +moratorium on the enforcement of state AI laws, including through a December 11, 2025, executive order on “Ensuring a National +Policy Framework for Artificial Intelligence.” So far, these efforts have not been successful at curtailing state action on AI +regulation, contributing to a complicated legislative patchwork, which may be litigated in state and federal courts. In addition, there +is continued uncertainty regarding the application of existing federal and state legal frameworks to uses and development of AI, and +legal norms and market standards regarding AI continue to evolve. For example, various federal and state regulators have issued guidance +and focused enforcement efforts on the use of AI in regulated sectors. The FDA, for example, issued guidance on the use of artificial +intelligence in medical devices, requiring detailed risk management and review processes to obtain approvals. The FDA has further issued, +for example, draft guidance on the use of AI in regulatory decision-making for drug and biological products that centers on the context +of use while establishing a credibility assessment framework for establishing and evaluating AI model outputs intended to support regulatory +decision-making. If we develop or use AI systems that are governed by these laws or regulations, including as informed by regulatory +guidance, we will need to meet higher standards of data quality, transparency, and human oversight, and we would need to adhere to specific, +potentially burdensome and costly ethical, accountability, and administrative requirements. We may also be subject to significant enforcement +or litigation in the event of any perceived non-compliance. +The rapid evolution of AI will require the application +of significant resources to design, develop, test and maintain our products and services to help ensure that AI is implemented in accordance +with applicable law and regulation and in a socially responsible manner and to minimize any real or perceived unintended harmful impacts. +Our vendors may in turn incorporate AI tools into their offerings, and the providers of these AI tools may not meet existing or rapidly +evolving regulatory or industry standards, including with respect to privacy and data security. Further, bad actors around the world +use increasingly sophisticated methods, including the use of AI, to engage in illegal activities involving theft and misuse of personal +information, confidential information and intellectual property. In addition, the use of generative AI models in our internal or third-party +systems may create new attack surfaces or methods for adversaries, which could impact us and our vendors. Any of these effects could +damage our reputation, result in the loss of valuable property and information, cause us to breach applicable laws and regulations, and +adversely impact our business, financial condition and results of operation. +6 +Our business will be intensely competitive. +We may not deliver successful and engaging games, or players and consumers may prefer our competitors’ products over our own. +We operate in a competitive environment that +is characterized by price fluctuation and technological change. We will compete with major international and domestic companies. Some +of our current and future potential competitors may have greater market recognition and customer bases, longer operating histories, and +substantially greater financial, technical, marketing, distribution, purchasing, manufacturing, personnel, and other resources than we +do. In addition, competitors may be developing similar technologies with a cost similar to, or lower than, our projected costs. As a +result, they may be able to respond more quickly to changing customer demands or to devote greater resources to the development, promotion +and sales of blockchain-based games and NFT products than we can. +The impact on our industry of the development +and deployment of artificial intelligence in the workplace is unknown, and potential changes in work spaces and work patterns could impact +order volume and adversely affect our business and financial results. +As companies of all sizes evaluate and deploy +artificial intelligence technologies, our customers may begin to change or adapt their work patterns, workplace needs, and approach to +workspace design and furniture procurement. The impact of end users’ integration of AI on our industry is unknown, and there can +be no assurance that the use of AI will benefit our business or profitability. Further, we may face competition from other companies +that are developing AI technologies to improve specification and procurement process, potentially including accelerated quoting, improved +accuracy, targeted product selection, and vendor coordination. If we are unable to integrate AI to increase efficiency and reduce costs +for our trade partners and end users, our business may be adversely affected. +Our industry is subject to rapid technological +change, and if we do not adapt to, and appropriately allocate our resources among, emerging technologies and business models, our business +may be negatively impacted. +Technology changes rapidly in the interactive +entertainment industry. We must continually anticipate and adapt to emerging technologies, such as cloud-based game streaming, and +business models, such as free-to-play and subscription-based access to a portfolio of interactive content, to stay competitive. +Forecasting the financial impact of these changing technologies and business models is inherently uncertain and volatile. Supporting +a new technology or business model may require partnering with a new platform, business, or technology partner, which may be on terms +that are less favorable to us than those for traditional technologies or business models. If we invest in the development of interactive +entertainment products for distribution channels that incorporate a new technology or business model that does not achieve significant +commercial success, whether because of competition or otherwise, we may not recover the often-substantial up-front costs of +developing and marketing those products, or recover the opportunity cost of diverting management and financial resources away from other +products or opportunities. Further, our competitors may adapt to an emerging technology or business model more quickly or effectively +than we do, creating products that are technologically superior to ours, more appealing to consumers, or both. +If, on the other hand, we elect not to pursue +the development of products incorporating a new technology, or otherwise elect not to pursue new business models that achieve significant +commercial success, it may have adverse consequences. It may take significant time and expenditures to shift product development resources +to that technology or business model, and it may be more difficult to compete against existing products incorporating that technology +or using that business model. +Negative perceptions about our business, +products, and services and the communities within our products and services may damage our business, and we may incur costs to address +concerns. +Expectations regarding the quality, performance +and integrity of our products and services are high. Negative responses about our products and services may not be foreseeable. We also +may not effectively manage these responses because of reasons within or outside of our control. For example, we have included in certain +games the ability for players to purchase digital items, including in some instances virtual “packs”, “boxes” +or “crates” that contain variable digital items. The inclusion of variable digital items in certain games has the possibility +of creating a negative perception of gameplay fairness or other negative perceptions, our reputation and brand could be harmed and revenue +could be negatively impacted. +In addition, we aim to offer our players safe, +inclusive and fulfilling online communities. We may not be able to maintain healthy, long-term online communities within our games +and services as a result of the use of those communities as forums for harassment or bullying, our inability to successfully discourage +overuse of our games and services or overspending within our games and services, or the successful implementation of cheating programs. +Although we expend resources, and expect to continue to expend resources, to maintain healthy online communities, our efforts may not +be successful due to scale, limitations of existing technologies or other factors. +In the event that there is negative sentiment +about gameplay fairness, our online communities, our business practices, business models or game content, it can lead to investigations +or increased scrutiny from governmental bodies and consumer groups, as well as litigation, which, regardless of their outcome, may be +costly, damaging to our reputation and harm our business. +7 +We may become involved in legal proceedings +that may result in adverse outcomes. +We may become subject to claims, suits, government +investigations, and other proceedings involving competition and antitrust, intellectual property, privacy, tax, labor and employment, +commercial disputes, content generated by our users, goods and services offered by advertisers or publishers using our platforms, and +other matters. Such claims, suits, government investigations, and proceedings are inherently uncertain and their results cannot be predicted +with certainty. Regardless of the outcome, such legal proceedings can have an adverse impact on us because of legal costs, diversion +of management resources, and other factors. Determining reserves for our pending litigation is a complex, fact-intensive process +that requires significant judgment. It is possible that a resolution of one or more such proceedings could result in substantial fines +and penalties that could adversely affect our business, financial position, results of operations, or cash flows in a particular period. +These proceedings could also result in criminal sanctions, consent decrees, or orders preventing us from offering certain features, functionalities, +products, or services, requiring a change in our business practices, or requiring development of non-infringing products or technologies, +which could also adversely affect our business and results of operations. +Our business is subject to economic, market +and geopolitical conditions. +Our business is subject to economic, market, +public health, and geopolitical conditions which are beyond our control. The United States and other international economies have +experienced cyclical downturns from time to time. Worsening economic conditions that negatively impact discretionary consumer spending +and consumer demand, including inflation, slower growth, recession, and other macroeconomic conditions, including those resulting from +public health outbreaks such as t pandemic and geopolitical issues could have a material adverse impact on our business and operating +results. +We are particularly susceptible to market conditions +and risks associated with the entertainment industry, which, in addition to general macroeconomic downturns, also include the popularity, +price and timing of our games, changes in consumer demographics, the availability and popularity of other forms of entertainment, and +critical reviews and public tastes and preferences, which may change rapidly and cannot necessarily be predicted. +Catastrophic events may disrupt our business. +Natural disasters, cyber-incidents, weather events, +wildfires, power disruptions, telecommunications failures, public health outbreaks, failed upgrades of existing systems or migrations +to new systems, acts of terrorism or other events could cause outages, disruptions and/or degradations of our infrastructure, including +our or our partners’ information technology and network systems, a failure in our ability to conduct normal business operations, +or the closure of public spaces in which players engage with our games and services. The health and safety of our employees, players, +third-party organizations with whom we partner or regulatory agencies on which we rely could be also affected, which may prevent +us from executing against our business strategies or cause a decrease in consumer demand for our products and services. System redundancy +may be ineffective and our disaster recovery and business continuity planning may not be sufficient for all eventualities. Such failures, +disruptions, closures, or inability to conduct normal business operations could also prevent access to our products, services or online +stores selling our products and services, cause delay or interruption in our product or live services offerings, allow breaches of data +security or result in the loss of critical data. An event that results in the disruption or degradation of any of our critical business +functions or information technology systems, harms our ability to conduct normal business operations or causes a decreased in consumer +demand for our products and services could materially impact our reputation and brand, financial condition and operating results. +We may not meet our product and live service +development schedules and live service release schedule may be delayed, cancelled, or poorly received. +Our ability to meet product development schedules +is affected by a number of factors both within and outside our control, including feedback from our players, the creative processes involved, +the coordination of large and sometimes geographically dispersed development teams, the complexity of our products and the platforms +for which they are developed, the need to fine-tune our products prior to their release and, in certain cases, approvals from third +parties. Any failure to meet anticipated production or release schedules likely would result in a delay of revenue and/or possibly a +significant shortfall in our revenue, increase our development and/or marketing expenses, harm our profitability, and cause our operating +results to be materially different than anticipated. If we miss key selling periods for products or services, particularly the fiscal +quarter ending in December, for any reason, including product delays or product cancellations our sales likely will suffer significantly. +Risks Related to Information Technology Systems, +Intellectual Property and Privacy Laws +Security breaches and attacks against our +systems and network, and any potentially resulting breach or failure to otherwise protect confidential and proprietary information, could +damage our reputation and negatively impact our business, as well as materially and adversely affect our financial condition and results +of operations. +Although we have employed significant resources +to develop our security measures against breaches, our cybersecurity measures may not detect or prevent all attempts to compromise our +systems, including distributed denial-of-service attacks, viruses, malicious software, break-ins, phishing attacks, social engineering, +security breaches or other attacks and similar disruptions that may jeopardize the security of information stored in and transmitted +by our systems or that we otherwise maintain. Breaches of our cybersecurity measures could result in unauthorized access to our systems, +misappropriation of information or data, deletion or modification of client information, or a denial-of-service or other interruption +to our business operations. As techniques used to obtain unauthorized access to or sabotage systems change frequently and may not be +known until launched against us or our third-party service providers, we may be unable to anticipate, or implement adequate measures +to protect against, these attacks. +8 +If we are unable to avert these attacks and security +breaches, we could be subject to significant legal and financial liability, our reputation would be harmed and we could sustain substantial +revenue loss from lost sales and customer dissatisfaction. We may not have the resources or technical sophistication to anticipate or +prevent rapidly evolving types of cyber-attacks. Cyber-attacks may target us, our Traders or other participants, the communication +infrastructure, or the e-platform on which we depend. Actual or anticipated attacks and risks may cause us to incur significantly +higher costs, including costs to deploy additional personnel and network protection technologies, train employees, and engage third-party experts +and consultants. Cybersecurity breaches would not only harm our reputation and business, but also could materially decrease our revenue +and net income. +We face the risk of fraud. +Online transactions may be subject to sophisticated +schemes or collusion to defraud, launder money or other illegal activities, and there is a risk that our products may be used for those +purposes either by our customers or our employees or contractors. This may be especially true when dealing with cryptocurrencies, which +by design, may be difficult or impossible to trace. While we believe that our systems, both computer and procedural, afford an adequate +degree of protection against fraudulent activities, if such protection is not effective in all cases, is circumvented or if we fail to +implement updated controls and procedures or to counter new fraud techniques, we could lose the confidence of our customers and our reputation +could be damaged. Moreover, any failure to protect ourselves and our customers from fraudulent activity could result in reputational +damage and could materially adversely affect our operations, financial performance and prospects. Failure to adequately monitor and prevent +money laundering and other fraudulent activity could also result in civil or criminal liability. +We use open-source software in +connection with certain of our games and services which may pose particular risks to our proprietary software, products, and services +in a manner that could have a negative impact on our business. +We use open-source software in connection +with some of the games and services we offer. Some open-source software licenses require users who distribute open-source software +as part of their software to publicly disclose all or part of the source code to such software or make available any derivative works +of the open source code on unfavorable terms or at no cost. The terms of various open-source licenses have not been interpreted +by courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions +on our use of the open-source software. Were it determined that our use was not in compliance with a particular license, we may +be required to release our proprietary source code, pay damages for breach of contract, re-engineer our games or products, discontinue +distribution in the event re-engineering cannot be accomplished on a timely basis, or take other remedial action that may divert +resources away from our game development efforts, any of which could negatively impact our business. +We rely on third-party providers +for computing infrastructure, secure network connectivity, and other technology-related services needed to deliver our products. +Any disruption in the services provided by such third-party provider could adversely affect our business. +Our products are hosted from and use computing +infrastructure, secure network connectivity, and other technology-related services provided by third-party providers. +We do not control the operations of these third-party provider or own the equipment used to provide such services. Because we cannot +easily switch between cloud providers, any disruption of or interference, for example, due to natural disasters, cyber-attacks, terrorist +attacks, power losses, telecommunications failures, or similar events, would impact our operations and may adversely affect our business, +financial condition, operating results and cash flows. In addition, these providers have no obligation to renew their agreements with +us on commercially reasonable terms or at all. If we are unable to renew our agreements on commercially reasonable terms or develop our +blockchain capabilities, we may be required to transition to a new provider, and we may incur significant costs and possible service +interruption in connection with doing so. +In addition, these providers may take actions +beyond our control that could seriously harm our business, including: +● discontinuing +or limiting our access to its cloud platform +● increasing +pricing terms; +● terminating +or seeking to terminate our contractual relationship altogether; +● establishing +more favorable relationships or pricing terms with one or more of our competitors; and +● modifying +or interpreting its terms of service or other policies in a manner that impacts our ability +to run our business and operations. +Cloud hosting providers have broad discretion +to change and interpret their terms of service and other policies with respect to us, and those actions may be unfavorable to us. They +may also alter how we are able to process data on their respective cloud platforms. If changes or interpretations are made that are unfavorable +to us, our business could be seriously harmed. +9 +We may not be able to secure all rights +to our intellectual property or our rights may be subject to claims of infringement by others and other issues affecting production. +We will rely on a combination of trade secret, +trademark, and copyright laws, as well as employee and third-party non-disclosure agreements and other protective measures, +to protect intellectual property rights pertaining to our products and technologies both in the U.S. and abroad. There can be no +assurance, however, that these measures will provide meaningful protection of our technology, trade secrets, know-how or other intellectual +property in the event of any unauthorized use, misappropriation, or disclosure. There can also be no assurance that others will not independently +develop similar technologies or duplicate any technology that we develop or have developed without violating our intellectual property +rights. In addition, there can be no assurance that our intellectual property rights will be held to be valid, will not be successfully +challenged or will otherwise be of value. In the event that we are subject to a claim of intellectual property infringement, whether +it be patent, copyright or trademark, the cost of defending such a claim, even if partly covered by insurance, will be significant and +will have a material adverse effect on our financial results. +If third parties claim that we infringe +their intellectual property, it may result in costly litigation. +We cannot assure you that third parties will +not claim our current or future products or services infringe their intellectual property rights. Any such claims, with or without merit, +could cause costly litigation that could consume significant management time. Such claims also might require us to enter into royalty +or license agreements. If required, we may not be able to obtain such royalty or license agreements or obtain them on terms acceptable +to us. +We may not be able to adequately protect +our proprietary technology, and our competitors may be able to offer similar products and services which would harm our competitive position. +Our success, in part, depends upon our proprietary +technology. We have various forms of intellectual property including patent, copyright, trademark and trade secret laws, confidentiality +procedures and contractual provisions to establish and protect our proprietary rights. Despite these precautions, third parties could +copy or otherwise obtain and use our technology without authorization or develop similar technology independently. We also pursue the +registration of our domain names, trademarks, and service marks in the United States. However, we cannot provide any assurance that +patent applications that we file will ultimately result in an issued patent or, if issued, that they will provide sufficient protections +for our technology against competitors. We cannot assure you that the protection of our proprietary rights will be adequate or that our +competitors will not independently develop similar technology, duplicate our products and services or design around any intellectual +property rights we hold. +The laws and regulations concerning data +privacy are continually evolving. Failure to comply with these laws and regulations could harm our business. +We will collect and store information about our +consumers, including consumers who play our games. In addition, we collect and store information about our employees. We will be subject +to laws from a variety of jurisdictions regarding privacy and the protection of this information, including the E.U.’s General +Data Protection Regulation (the “GDPR”), the U.S. Children’s Online Privacy Protection Act (“COPPA”), +which regulates the collection, use, and disclosure of personal information from children under 13 years of age, and the California +Consumer Privacy Act (the “CCPA”). Failure to comply with any of these laws or regulations may increase our costs, subject +us to expensive and distracting government investigations, and result in substantial fines. +Data privacy protection laws are rapidly changing +and likely will continue to do so for the foreseeable future and may be inconsistent from jurisdiction to jurisdiction. For example, +the E.U. has traditionally taken a broader view than the United States and certain other jurisdictions as to what is considered +personal information and has imposed greater obligations under data privacy and protection regulations, including those imposed under +the GDPR. The U.S. government, including the Federal Trade Commission and the Department of Commerce, as well as various U.S. state +governments, are continuing to review the need for greater regulation over the collection of personal information and information about +consumer behavior on the Internet and on mobile devices. Complying with emerging and changing laws could require us to incur substantial +costs or impact our approach to operating and marketing our games. Due to the rapidly changing nature of these data privacy protection +laws, there is not always clear guidance from the respective governments and regulators regarding the interpretation of the law, which +may create the risk of an inadvertent violation. For example, the California legislature recently passed the CCPA and the E.U. has proposed +further reforms to its existing data protection legal framework, in addition to the GDPR, which may further change our compliance obligations. +Various government and consumer agencies worldwide have also called for new regulation and changes in industry practices. In addition, +in some cases, we are dependent upon our platform providers and external data processors to assist us in ensuring compliance with these +various types of regulations, and a violation by one of these third parties may also subject us to government investigations and result +in substantial fines. +Player interaction with our games will be subject +to our privacy policies, end user license agreements (“EULAs”), and terms of service. If we fail to comply with our posted +privacy policies, EULAs, or terms of service, or if we fail to comply with existing privacy-related or data protection laws and +regulations, it could result in proceedings or litigation against us by governmental authorities or others, which could result in fines +or judgments against us, damage our reputation, impact our financial condition, and harm our business. If regulators, the media, consumers, +or employees raise any concerns about our privacy and data protection or consumer protection practices, even if unfounded, this could +also result in fines or judgments against us, damage our reputation, negatively impact our financial condition, or damage our business. +Gaxos Health will rely on information systems +to obtain, process, analyze, and manage data. To the extent IT systems are not successfully implemented or fail, our business and results +of operations may be adversely affected. Further, our business will rely to a significant degree upon the secure transmission, use and +storage of sensitive information, including protected health information and other personally identifiable information, financial information +and other confidential information and data within these systems. +10 +To protect this information, we will need to +implement commercially reasonable security measures and maintain information security policies and procedures informed by requirements +under applicable law and recommended practices, in each case, as applicable to the data collected, hosted and processed. Despite our +efforts, our business will be vulnerable to unauthorized access to data and/or breaches of confidential information due to criminal conduct, +physical break-ins, hackers, employee or insider malfeasance and/or improper employee or contractor access, computer viruses, programming +errors, denial-of-service attacks, ransomware events, phishing schemes, fraud, terrorist attacks, human error or other breaches by insiders +or third parties or similar disruptive problems. It is not possible to prevent all security threats to our data. Techniques used to obtain +unauthorized access, disable or degrade service or sabotage systems change frequently and may be difficult to detect for long periods +of time. Further, defects in the design or manufacture of applications we develop or procure from third parties could compromise our +data. These events, including unauthorized access, misappropriation, disclosure or loss of sensitive information (including financial +or personal health information) or a significant disruption of our network, expose us to risks including risks to our ability to provide +our solutions, management distraction and the obligation to devote significant financial and other resources to mitigate such problems +and increases to our future information security costs. Moreover, unauthorized access, use or disclosure of certain sensitive information +in our possession or our failure to satisfy legal requirements, including requirements relating to safeguarding protected health information +under the Health Insurance Portability and Accountability Act (“HIPAA”) or state data privacy laws could result in civil +and criminal liability and regulatory action, which could result in potential fines and penalties, as well as costs relating to investigation +of an incident or breach, corrective actions, required notifications to regulatory agencies and customers, credit monitoring services +and other necessary expenses. In addition, actual or perceived breaches of our security management efforts can cause existing customers +to terminate their relationship with us and deter existing or prospective customers from using or purchasing our solutions in the future. +These events can have a material adverse impact on our business, results of operations, financial condition and reputation. +We collect, store, process, and use personal +data, which subjects us to legal obligations and laws and regulations related to security and privacy, and any actual or perceived failure +to meet those obligations could harm our business. +We collect, process, store, and use a wide variety +of data from our customers, including personal information. We are subject to federal, state and international laws relating to the collection, +use, retention, security and transfer of various types of personal information. U.S. federal, state, and international laws and regulations +governing privacy and data protection impose restrictions on what we can do with our customers’ personal data and provide for related +obligations. These obligations include heightened transparency about data collection, use and sharing practices, new data privacy rights, +and rules in respect to cross-border data transfers, which carry significant enforcement penalties for non-compliance. These laws and +regulations also require us to safeguard our customers’ personal data. Although we have established security procedures to protect +customer information, our or our third-party service providers’ security and testing measures may not prevent security breaches. +Any compromise of our security or breach of our customers’ privacy could harm our reputation or financial condition and, therefore, +our business. +In addition to the risks generally relating to +the collection, use, retention, security and transfer of personal information, we are also subject to specific obligations relating to +information considered sensitive under applicable laws, such as health data and biometric data. Health data is subject to additional +privacy, security and breach notification requirements, and we are subject to audit by governmental authorities regarding our compliance +with these obligations. The collection, handling, and other processing of biometric data also are subject to particular scrutiny and +obligations under applicable laws and regulations, including consumer protection legislation (such as the Federal Trade Commission Act +and similar state legislation), general privacy legislation (such as the California Consumer Privacy Act, or CCPA), and state statutes +addressing biometric information specifically (including Illinois’ Biometric Information Privacy Act, or BIPA), and by consumer +protection regulators. If we fail to adequately comply with applicable rules and requirements, or if health data is handled in a manner +not permitted by law or under our agreements with healthcare institutions, we can be subject to litigation or government investigations +or other proceedings, and can be liable for associated investigatory expenses, and can also incur significant fees or fines. Some of +those laws, including BIPA, provide consumers with a private right of action for certain violations and large potential statutory damages +awards. Recent litigation around these laws has encouraged plaintiffs’ attorneys to bring additional actions against other targets. +Further, the FTC issued a policy statement regarding biometric information on May 18, 2023, that identifies numerous risks the FTC considers +key, outlines relevant practices the FTC plans to scrutinize, and affirms the FTC’s commitment to addressing deceptive and unfair +practices involving the collection and use of biometric information, as well as deceptive marketing of biometric information technologies. +These developments underscore the legal and regulatory risks applicable to our collection, use, disclosure, and other processing of health +and biometric information. +In addition, a party who circumvents our security +measures or exploits inadequacies in our security measures, could, among other effects, misappropriate customer data or other proprietary +information or cause interruptions in our operations. Actual or perceived vulnerabilities may lead to claims against us. To the extent +that the measures we or our third-party business partners have taken are, or are perceived to be, insufficient or inadequate, we may +become subject to litigation, breach notification obligations, or regulatory or administrative sanctions, which could result in significant +fines, penalties, or damages and harm to our reputation. Depending on the nature of the information compromised, in the event of a data +breach or other unauthorized processing of our customer data, we may also have obligations to notify customers about the incident and +we may need to provide some form of remedy for the individuals affected by the incident. A growing number of legislative and regulatory +bodies have adopted consumer notification requirements in the event of unauthorized access to or acquisition of certain types of personal +data. Such breach notification laws continue to evolve and may be inconsistent from one jurisdiction to another. Complying with these +obligations could cause us to incur substantial costs and could increase negative publicity surrounding any incident that compromises +customer data. +11 +Violations of applicable laws relating to privacy, +data protection, or cybersecurity, or cybersecurity breaches or incidents, as well as the perception that any of the foregoing have occurred, +could impact our business in a number of ways, such as a temporary suspension of some or all of our operating and/or information systems, +damage to our reputation and brand and our relationships with customers, suppliers, vendors, and service providers and could result in +lost, unavailable, or corrupted data, lost sales, increased insurance premiums, substantial breach-notification and other remediation +costs and claims, demands, and litigation, as well as adversely affect results of operations. In addition, we may also face regulatory +investigations and other proceedings with corresponding fines, penalties, and other liabilities, civil claims including representative +actions, and other class action type litigation (where individuals have suffered harm), potentially amounting to significant compensation +or damages liabilities, as well as associated costs, diversion of internal resources, and reputational harm. We may also incur additional +costs in the future related to the implementation of additional security measures to protect against new or enhanced data security and +privacy threats, to comply with state, federal, and international laws that may be enacted to address personal data processing risks +and data security threats, or to investigate or address potential or actual data security breaches or incidents or violations of our +actual or alleged obligations relating to privacy, data protection, or cybersecurity. +United States federal and state privacy +laws, and equivalent laws of other nations, may increase our costs of operation and expose us to civil and criminal sanctions. +Regulation of data processing is evolving, as +federal, state, and foreign governments continue to adopt new, or modify existing, laws and regulations addressing data privacy and security, +and the collection, processing, storage, transfer, and use of data. These new or proposed laws and regulations are subject to differing +interpretations and may be inconsistent among jurisdictions, and guidance on implementation and compliance practices are often updated +or otherwise revised, which adds to the complexity of processing personal data. These and other requirements could require us or our +collaborators to incur additional costs to achieve compliance, limit our competitiveness, necessitate the acceptance of more onerous +obligations in our contracts, restrict our ability to use, store, transfer, and process data, impact our or our collaborators’ +ability to process or use data in order to support the provision of our products, affect our or our collaborators’ ability to offer +our products in certain locations, or cause regulators to reject, limit or disrupt our clinical trial activities. +We and our collaborators may be subject to federal, +state, and foreign data protection laws and regulations (i.e., laws and regulations that address privacy and data security). In the United +States, numerous federal and state laws and regulations, including federal health information privacy laws, state personal information +laws, state data breach notification laws, state health information privacy laws and federal and state consumer protection laws and regulations +that govern the collection, use, disclosure and protection of health-related and other personal information could apply to our operations +or the operations of our collaborators. In addition, we may obtain health information from third parties (including research institutions +from which we obtain clinical trial data) that are subject to privacy and security requirements under the federal Health Insurance Portability +and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical Health +Act of 2009, or HITECH. Depending on the facts and circumstances, we could be subject to civil or criminal penalties if we knowingly +use or disclose individually identifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized +or permitted by HIPAA. +Our business will be subject to complex +and prescriptive regulations regarding consumer protection and data privacy practices, and could be adversely affected if our consumer +protection, data privacy and security practices are not adequate, or perceived as being inadequate. +We will be subject to global data privacy, data +protection, localization, security and consumer-protection laws and regulations worldwide. These laws and regulations are emerging +and evolving and the interpretation and application of these laws and regulations often are uncertain, contradictory, and changing. The +failure to maintain data practices that are compliant with applicable laws and regulations, or evolving interpretations of applicable +laws and regulations, could result in inquiries from enforcement agencies or direct consumer complaints, resulting in civil or criminal +penalties, and could adversely impact our reputation and brand. In addition, the operational costs of compliance with these regulations +are high and will likely continue to increase. +Even if we remain in strict compliance with applicable +laws and regulations, consumer sensitivity to the collection and processing of their personal information continues to increase. Any +real or perceived failures in maintaining acceptable data privacy practices, including allowing improper or unauthorized access, acquisition +or misuse and/or uninformed disclosure of consumer, employee and other information, or a perception that we do not adequately secure +this information or provide consumers with adequate notice about the information that they authorize us to collect and disclose could +result in brand, reputational, or other harms to the business, result in costly remedial measures, deter current and potential customers +from using our products and services and cause our financial results to be materially affected. +Third party vendors and business partners receive +access to certain information that we collect. These vendors and business partners may not prevent data security breaches with respect +to the information we provide them or fully enforce our policies, contractual obligations and disclosures regarding the collection, use, +storage, transfer and retention of personal data. A data security breach of one of our vendors or business partners could cause reputational +and financial harm to them and us, negatively impact our ability to offer our products and services, and could result in legal liability, +costly remedial measures, governmental and regulatory investigations, harm our profitability, reputation and brand, and cause our financial +results to be materially affected. +12 +Risks Related to Regulatory Changes +Changes in our tax rates or exposure to +additional tax liabilities, and changes to tax laws and interpretations of tax laws could adversely affect our earnings and financial +condition. +We are subject to taxes in the United States +and in various foreign jurisdictions. Significant judgment will be required to determine our worldwide income tax provision, tax assets, +and accruals for other taxes, and there are many transactions and calculations where the ultimate tax determination is uncertain. Our +effective income tax rate is based in part on our corporate operating structure and the manner in which we operate our business and develop, +value and use our intellectual property. Taxing authorities in jurisdictions in which we operate may challenge and audit our methodologies +for calculating our income taxes, which could increase our effective income tax rate and have an adverse impact on our results of operations +and cash flows. In addition, our provision for income taxes is materially affected by our profit levels, changes in our business, changes +in the mix of earnings in countries with differing statutory tax rates, changes in the elections we make, changes in the valuation of +our deferred tax assets and liabilities, or changes in applicable tax laws or interpretations of existing income and withholding tax +laws, as well as other factors. For example, the outcome of future guidance related to the U.S. Tax Act could cause us to change +our analysis and materially impact our previous estimates and financial statements. +In addition, changes to U.S. federal, state +or international tax laws or their applicability to corporate multinationals in the countries in which we do business may affect our +effective tax rates and cash taxes, cause us to change the way in which we structure our business and resulted in other costs. Our effective +tax rate also could be adversely affected by changes in our valuation allowances for deferred tax assets. Actual financial results also +may differ materially from our current estimates and could have a material impact on our assessment of the valuation allowance. +Government regulations applicable to us +may negatively impact our business. +We are a global company subject to various and +complex laws and regulations domestically and internationally, including laws and regulations related to consumer protection, protection +of minors, content, advertising, localization, information security, intellectual property, competition and taxation, among others. Many +of these laws and regulations are continuously evolving and developing, and the application to, and impact on, us is uncertain. For example, +the World Health Organization recently included “gaming disorder” in the 11 th Revision of the International +Classification of Diseases, prompting discussion and consideration of legislation and policies aimed at mitigating the risk of overuse +of, and overspending within, video games. These laws could harm our business by limiting the products and services we can offer consumers +or the manner in which we offer them. The costs of compliance with these laws may increase in the future as a result of changes in applicable +laws or changes to interpretation. Any failure on our part to comply with these laws or the application of these laws in an unanticipated +manner may harm our business and result in penalties or significant legal liability. +Certain of our business models will be subject +to new laws or regulations or evolving interpretations and application of existing laws and regulations, including those related to gambling. +The growth and development of electronic commerce, virtual items and virtual currency has prompted calls for new laws and regulations +and resulted in the application of existing laws or regulations that have limited or restricted the sale of our products and services +in certain territories. New laws — each of which could vary significantly across jurisdictions — could +subject us to additional regulation and oversight, cause us to further limit or restrict the sale of our products and services or otherwise +impact our products and services, lessen the engagement with, and growth of, profitable business models, and expose us to increased compliance +costs, significant liability, fines, penalties and harm to our reputation and brand. +We may be subject to laws in certain foreign +countries, and adhere to industry standards in the United States, that mandate rating requirements or set other restrictions on +the advertisement or distribution of interactive entertainment software based on content. In addition, certain foreign countries allow +government censorship of interactive entertainment software products. Adoption of ratings systems, censorship or restrictions on distribution +of interactive entertainment software based on content could harm our business by limiting the products we are able to offer to our consumers. +In addition, compliance with new and possibly inconsistent regulations for different territories could be costly, delay or prevent the +release of our products in those territories. +We may face significant competition, which +may harm our business, results of operations or financial condition. +We may face substantial competition in the healthcare +services markets. Our key competitors will include, among others, healthcare consulting service providers, healthcare payment accuracy +companies and providers of other data products and data analytics solutions, including healthcare risk adjustment, quality, economic +statistics and other data. The increasing standardization of certain healthcare services has made it easier for companies to enter these +markets with competitive products and services. We cannot fully anticipate whether or when companies in adjacent or other product or +service areas may launch competitive products and/or services, and any such entry may lead to obsolescence of our products and/or services +or loss of market share or erosion of the prices for our solutions, or both. The extent of this competition may vary by the size of companies, +geographical coverage and scope and breadth of products and services offered. Furthermore, some of our competitors may be significantly +larger and have greater financial or other resources than we do. The vigorous competition we face requires us to provide high quality, +innovative products at a competitive price. We cannot guarantee that we will be able to upgrade our existing solutions, or introduce +new solutions at the same rate as our competitors, or at all, nor can we guarantee that such upgrades or new solutions will achieve market +acceptance over or among competitive offerings, or at all. Therefore, these competitive pressures could have a material adverse impact +on our business, results of operations or financial condition. +13 +Gaxos Health would be adversely affected +if we cannot obtain, process or distribute data we require to provide our solutions. +The success of Gaxos Health will depend on our +ability to obtain, process, monetize and distribute data in the healthcare industry in a manner that complies with applicable law, regulation +and contractual and restrictions. Our failure to obtain and distribute such data in a compliant manner could have a harmful effect on +our ability to use and disclose such data which in turn could impair our ability to share such data with our customers or incorporate +it into our services and offerings. In addition to complying with requirements in obtaining the data, the use, processing and distribution +of such data may require us to obtain consent from third parties or follow additional laws, regulations or contractual restrictions that +apply to the healthcare industry. Moreover, we may be subject to claims or liability for use or disclosure of information. Any such claims +or liabilities and other failures to comply with applicable requirements could subject us to unexpected costs and adversely affect our +operating results. +Risks Related to Our Common Stock +The market prices and trading volume of +our shares of Common Stock may experience rapid and substantial price volatility which could cause purchasers of our common stock to +incur substantial losses. +Recently, the market prices and trading volume +of shares of Common Stock of other small publicly traded with a limited number of shares available to purchasers, have experienced rapid +and substantial price volatility unrelated to the financial performance of those companies. Similarly, shares of our Common Stock may +experience similar rapid and substantial price volatility unrelated to our financial performance, which could cause purchasers of our +common stock to incur substantial losses, which may be unpredictable and not bear any relationship to our business and financial performance. +Extreme fluctuations in the market price of our common stock may occur in response to strong and atypical retail investor interest, including +on social media and online forums, the direct access by retail investors to broadly available trading platforms, the amount and status +of short interest in our securities, access to margin debt, trading in options and other derivatives on our common stock and any related +hedging and other trading factors. +If there is extreme market volatility and trading +patterns in our common stock, it may create several risks for investors, including the following: +● the +market price of our common stock may experience rapid and substantial increases or decreases +unrelated to our operating performance or prospects, or macro or industry fundamentals; +● if +our future market capitalization reflects trading dynamics unrelated to our financial performance +or prospects, purchasers of our common stock could incur substantial losses as prices decline +once the level of market volatility has abated; +● if +the future market price of our common stock declines, purchasers may be unable to resell +your shares at or above the price at which you acquired them. We cannot assure you that the +market of our common stock will not fluctuate or decline significantly in the future, in +which case you could incur substantial losses. +Further, we may incur rapid and substantial increases +or decreases in our stock price in the foreseeable future that may not coincide in timing with the disclosure of news or developments +by or affecting us. Accordingly, the market price of our shares of common stock may fluctuate dramatically, and may decline rapidly, +regardless of any developments in our business. Overall, there are various factors, many of which are beyond our control, that could +negatively affect the market price of our common stock or result in fluctuations in the price or trading volume of our common stock, +including: +● actual +or anticipated variations in our annual or quarterly results of operations, including our +earnings estimates and whether we meet market expectations with regard to our earnings; +● our +current inability to pay dividends or other distributions; +● publication +of research reports by analysts or others about us or cryptocurrency including the NFT industry +which may be unfavorable, inaccurate, inconsistent or not disseminated on a regular basis; +● changes +in market valuations of similar companies; +● market +reaction to any additional equity, debt or other securities that we may issue in the future, +and which may or may not dilute the holdings of our existing stockholders; +● additions +or departures of key personnel; +● actions +by institutional or significant stockholders; +● short +interest in our stock and the market response to such short interest; +● the +dramatic increase in the number of individual holders of our stock and their participation +in social media platforms targeted at speculative investing; +14 +● speculation +in the press or investment community about our company or industry; +● strategic +actions by us or our competitors, such as acquisitions or other investments; +● legislative, +administrative, regulatory or other actions affecting our business, our industry, including +positions taken by the Internal Revenue Service (“IRS”); +● investigations, +proceedings, or litigation that involve or affect us; +● the +occurrence of any of the other risk factors included in this Registration Statement on Form S-1; +and +● general +market and economic conditions. +The price of our securities may fluctuate +substantially. +You should consider an investment in our securities +to be risky, and you should invest in our securities only if you can withstand a significant loss and wide fluctuations in the market +value of your investment. Some factors that may cause the market price of our Common Stock to fluctuate, in addition to the other risks +mentioned in this “ Risk Factors ” section and elsewhere in this Annual Report on Form 10-K, are: +● sale +of our Common Stock by our shareholders, executives, and directors; +● volatility +and limitations in trading volumes of our shares of Common Stock; +● our +ability to obtain financing; +● the +timing and success of introductions of new products by us or our competitors or any other +change in the competitive dynamics of our industry, including consolidation among competitors; +● our +ability to attract new customers; +● changes +in our capital structure or dividend policy, future issuances of securities, sales of large +blocks of Common Stock by our shareholders; +● our +cash position; +● announcements +and events surrounding financing efforts, including debt and equity securities; +● our +inability to enter into new markets or develop new products; +● reputational +issues; +● announcements +of acquisitions, partnerships, collaborations, joint ventures, new products, capital commitments, +or other events by us or our competitors; +● changes +in general economic, political and market conditions in or any of the regions in which we +conduct our business; +● changes +in industry conditions or perceptions; +● analyst +research reports, recommendation and changes in recommendations, price targets, and withdrawals of +coverage; +● departures +and additions of key personnel; +● disputes +and litigations related to intellectual properties, proprietary rights, and contractual obligations; +● changes +in applicable laws, rules, regulations, or accounting practices and other dynamics; and +● other +events or factors, many of which may be out of our control. +In addition, if the market for stocks in our +industry or industries related to our industry, or the stock market in general, experiences a loss of investor confidence, the trading +price of our Common Stock could decline for reasons unrelated to our business, financial condition and results of operations. If any +of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if unsuccessful, could be costly +to defend and a distraction to management. +15 +Our ability to have our securities traded +on the Nasdaq Capital Market is subject to us meeting applicable listing criteria. +Our Common Stock is publicly traded and listed +on the Nasdaq Capital Market (“Nasdaq”) under the trading symbol “GXAI.” To maintain our listing, we must comply +with the continued listing requirements of the Nasdaq Capital Market, which include a minimum bid price requirement of $1.00 per share. +Nasdaq requires companies desiring to list their Common Stock to meet certain listing criteria including total number of shareholders, +minimum stock price, total value of public float, and in some cases total shareholders’ equity and market capitalization. Our failure +to meet such applicable listing criteria could prevent us from maintaining the listing of our Common Stock on Nasdaq. In the event +we are unable to have our shares traded on Nasdaq, our Common Stock could potentially trade on the OTCQX or the OTCQB, each of which +is generally considered less liquid and more volatile than Nasdaq. Our failure to maintain a listing on Nasdaq could make it more +difficult for you to trade our shares, could prevent our Common Stock trading on a frequent and liquid basis and could result in the +value of our Common Stock being less than it would be if we were able to list our shares on Nasdaq. +No assurance can be given that we will continue +to meet Nasdaq’s continued listing standards. If we fail to comply with Nasdaq’s continued listing standards, we may be delisted +and our Common Stock will trade, if at all, only on the over-the-counter market, such as the OTC Bulletin Board, or OTCQX market, and +then only if one or more registered broker-dealer market makers comply with quotation requirements. In addition, delisting of our Common +Stock could depress our stock price, substantially limit liquidity of our Common Stock and materially adversely affect our ability to +raise capital on terms acceptable to us, or at all. Finally, delisting of our Common Stock could result in our common stock becoming +a “penny stock” under the Exchange Act. +We may acquire other companies or technologies, +which could divert our management’s attention, result in dilution to our stockholders and otherwise disrupt our operations and +adversely affect our operating results. +We may in the future seek to acquire or invest +in businesses, applications and services or technologies that we believe could complement or expand our services, enhance our technical +capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and +cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated. +In addition, we do not have any experience in +acquiring other businesses. If we acquire additional businesses, we may not be able to integrate the acquired personnel, operations and +technologies successfully, or effectively manage the combined business following the acquisition. We also may not achieve the anticipated +benefits from the acquired business due to a number of factors, including: +● inability +to integrate or benefit from acquired technologies or services in a profitable manner; +● unanticipated +costs or liabilities associated with the acquisition; +● difficulty +integrating the accounting systems, operations, and personnel of the acquired business; +● difficulties +and additional expenses associated with supporting legacy products and hosting infrastructure +of the acquired business; +● difficulty +converting the customers of the acquired business onto the Platform and contract terms, including disparities +in the revenue, licensing, support, or professional services model of the acquired company; +● diversion +of management’s attention from other business concerns; +● adverse +effects to our existing business relationships with business partners and customers as a +result of the acquisition; +● the +potential loss of key employees; +● use +of resources that are needed in other parts of our business; and +● use +of substantial portions of our available cash to consummate the acquisition. +In addition, a significant portion of the purchase +price of companies we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment +at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating +results based on this impairment assessment process, which could adversely affect our results of operations. +Acquisitions could also result in dilutive issuances +of equity securities or the incurrence of debt, which could adversely affect our operating results. In addition, if an acquired business +fails to meet our expectations, our operating results, business and financial position may suffer. +16 +If research analysts do not publish research +about our business or if they issue unfavorable commentary or downgrade our Common Stock, our securities’ price and trading volume +could decline. +The trading market for our securities may depend +in part on the research and reports that research analysts publish about us and our business. If we do not maintain adequate research +coverage, or if any of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, +the price of our Common Stock could decline. If one or more of our research analysts ceases to cover our business or fails to publish +reports on us regularly, demand for our securities could decrease, which could cause the price of our Common Stock or trading volume +to decline. +Market and economic conditions may negatively +impact our business, financial condition and share price. +Concerns over inflation, energy costs, geopolitical +issues, the U.S. mortgage market and a declining real estate market, unstable global credit markets and financial conditions, and +volatile oil prices have led to periods of significant economic instability, diminished liquidity and credit availability, declines in +consumer confidence and discretionary spending, diminished expectations for the global economy and expectations of slower global economic +growth going forward, increased unemployment rates, and increased credit defaults in recent years. Our general business strategy +may be adversely affected by any such economic downturns, volatile business environments and continued unstable or unpredictable economic +and market conditions. If these conditions continue to deteriorate or do not improve, it may make any necessary debt or equity financing +more difficult to complete, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable +terms could have a material adverse effect on our growth strategy, financial performance, and share price and could require us to delay +or abandon development or commercialization plans. +The ability of a stockholder to recover +all or any portion of such stockholder’s investment in the event of a dissolution or termination may be limited. +In the event of a dissolution or termination +of the Company, the proceeds realized from the liquidation of the assets of the Company, or such subsidiaries will be distributed among +the stockholders, but only after the satisfaction of the claims of third-party creditors of the Company. The ability of a stockholder +to recover all or any portion of such stockholder’s investment under such circumstances will, accordingly, depend on the amount +of net proceeds realized from such liquidation and the amount of claims to be satisfied therefrom. There can be no assurance that the +Company will recognize gains on such liquidation, nor is there any assurance that Common Stockholders will receive a distribution in +such a case. +We do not intend to pay cash dividends +on our shares of Common Stock so any returns will be limited to the value of our shares. +We currently anticipate that we will retain future +earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for +the foreseeable future. Any return to shareholders will therefore be limited to the increase, if any, of our share price. +Our Articles of Incorporation provide that, +unless we consent in writing to the selection of an alternative forum, the Eighth Judicial District Court of Clark County, Nevada will +be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ +ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees. +Our Articles of Incorporation provide that, unless +we consent in writing to the selection of an alternative forum, the Eighth Judicial District Court of Clark County, Nevada will be the exclusive +forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action +asserting a claim against us arising pursuant to the Nevada Revised Statutes, our Articles of Incorporation or our bylaws. This choice +of forum provision does not preclude or contract the scope of exclusive federal or concurrent jurisdiction for any actions brought under +the Securities Act or the Exchange Act. Accordingly, our exclusive forum provision will not relieve us of our +duties to comply with the federal securities laws and the rules and regulations thereunder, and our stockholders will not be deemed to +have waived our compliance with these laws, rules and regulations. +Any person or entity purchasing or otherwise +acquiring any interest in any of our securities shall be deemed to have notice of and consented to these provisions. These exclusive-forum provisions +may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers +or other employees, which may discourage lawsuits against us and our directors, officers and other employees. +If a court were to find the choice of forum provision +contained in our Articles of Incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated +with resolving such action in other jurisdictions, which could harm our business, results of operations, and financial condition. Even +if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management +and other employees. +17 +We are an “emerging growth company” +and are able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our Common +Stock less attractive to investors. +We are an “emerging growth company,” +as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we have elected to take advantage +of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging +growth companies” including not being required to comply with the auditor attestation requirements of Section 404(b) of +the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, +and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any +golden parachute payments not previously approved. In addition, pursuant to Section 107 of the JOBS Act, as an “emerging growth +company” we have elected to take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities +Act, for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption +of certain accounting standards until those standards would otherwise apply to private companies. As such, our financial statements may +not be comparable to companies that comply with public company effective dates. +We cannot predict if investors will find our +Common Stock less attractive because we may rely on these exemptions. If some investors find our Common Stock less attractive as a result, +there may be a less active trading market for our Common Stock and our stock price may be more volatile. We may take advantage of these +reporting exemptions until we are no longer an “emerging growth company.” We will remain an “emerging growth company” +until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion +or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of our initial +public offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; +or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. +Financial reporting obligations of being +a public company in the United States are expensive and time-consuming, and our management will be required to devote substantial +time to compliance matters. +As a publicly traded company, we incur significant +additional legal, accounting and other expenses. The obligations of being a public company in the United States require significant +expenditures and will place significant demands on our management and other personnel, including costs resulting from public company +reporting obligations under the Exchange Act and the rules and regulations regarding corporate governance practices, including those +under the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), the Dodd-Frank Wall Street Reform and Consumer +Protection Act, and the listing requirements of the stock exchange on which our securities are listed. These rules require the establishment +and maintenance of effective disclosure and financial controls and procedures, internal control over financial reporting and changes +in corporate governance practices, among many other complex rules that are often difficult to implement, monitor and maintain compliance +with. Moreover, despite recent reforms made possible by the JOBS Act, the reporting requirements, rules, and regulations will make some +activities more time-consuming and costly, particularly after we are no longer an “emerging growth company.” In addition, +we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance. +Our management and other personnel will need to devote a substantial amount of time to ensure that we comply with all of these requirements +and to keep pace with new regulations, otherwise we may fall out of compliance and risk becoming subject to litigation or being delisted, +among other potential problems. +If we fail to comply with the rules under Sarbanes-Oxley related +to accounting controls and procedures in the future, or, if we discover material weaknesses and other deficiencies in our internal control +and accounting procedures, our stock price could decline significantly and raising capital could be more difficult. +Section 404 of Sarbanes-Oxley requires +annual management assessments of the effectiveness of our internal control over financial reporting. If we fail to comply with the rules +under Sarbanes-Oxley related to disclosure controls and procedures in the future, or, if we discover material weaknesses and other +deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising capital could +be more difficult. If material weaknesses or significant deficiencies are discovered or if we otherwise fail to achieve and maintain +the adequacy of our internal control, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal +controls over financial reporting in accordance with Section 404 of Sarbanes-Oxley. Moreover, effective internal controls are necessary +for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial +reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial +information, and the trading price of our Common Stock could drop significantly. +Changes in our tax rates or exposure to +additional tax liabilities, and changes to tax laws and interpretations of tax laws could adversely affect our earnings and financial +condition. +We are subject to taxes in the United States +and in various foreign jurisdictions. Significant judgment will be required to determine our worldwide income tax provision, tax assets, +and accruals for other taxes, and there are many transactions and calculations where the ultimate tax determination is uncertain. Our +effective income tax rate is based in part on our corporate operating structure and the manner in which we operate our business and develop, +value and use our intellectual property. Taxing authorities in jurisdictions in which we operate may challenge and audit our methodologies +for calculating our income taxes, which could increase our effective income tax rate and have an adverse impact on our results of operations +and cash flows. In addition, our provision for income taxes is materially affected by our profit levels, changes in our business, changes +in the mix of earnings in countries with differing statutory tax rates, changes in the elections we make, changes in the valuation of +our deferred tax assets and liabilities, or changes in applicable tax laws or interpretations of existing income and withholding tax +laws, as well as other factors. For example, the outcome of future guidance related to the U.S. Tax Act could cause us to change +our analysis and materially impact our previous estimates and financial statements. +18 +In addition, changes to U.S. federal, state, +or international tax laws or their applicability to corporate multinationals in the countries in which we do business may affect our +effective tax rates and cash taxes, cause us to change the way in which we structure our business and resulted in other costs. Our effective +tax rate also could be adversely affected by changes in our valuation allowances for deferred tax assets. Actual financial results also +may differ materially from our current estimates and could have a material impact on our assessment of the valuation allowance. +Provisions in our articles of incorporation, +bylaws and of Nevada law have anti-takeover effects that could prevent a change in control that could be beneficial to our +stockholders, which could depress the market price of shares of our common stock. +Our articles of incorporation, bylaws and Nevada +corporate law contain provisions that could delay, defer or prevent a change in control of us or our management that could be beneficial +to our stockholders. These provisions could also discourage proxy contests and make it more difficult for our stockholders to elect directors +and take other corporate actions. These provisions might also discourage a potential acquisition proposal or tender offer, even if the +acquisition proposal or tender offer is at a price above the then-current market price for shares of our common stock. These provisions: +● +provide that directors +may only be removed upon a vote of at least eighty percent of the shares outstanding; +● +establish advance notice +requirements for nominating directors and proposing matters to be voted on by stockholders at stockholder meetings; +● +limit the right of our +stockholders to call a special meeting of stockholders; +● +authorize our board of +directors to issue preferred stock and to determine the rights and preferences of those shares, which would be senior to our common +stock, without prior stockholder approval; +● +require amendments to our +articles of incorporation to be approved by the holders of at least eighty percent of our outstanding shares of common stock; +● +a classified board of directors +with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board +of directors; and +● +provide a prohibition on +stockholder action by written consent, thereby only permitting stockholder action to be taken at an annual or special meeting of +our stockholders. +We are also subject to certain anti-takeover provisions +under Nevada law. Under Nevada law, a corporation may not, in general, engage in a business combination with any “interested stockholder” +for two (2) years after the date the person first became an interested stockholder, unless the combination meets all of the requirements +of our articles of incorporation and (i) the purchase of shares by the interested stockholder is approved by our board of directors before +that date or (ii) the combination is approved by our board of directors and, at or after that time, the combination is approved at an +annual or special meeting of our stockholders, and not by written consent, by the affirmative vote of the holders of stock representing +at least sixty percent (60%) of our outstanding voting power not beneficially owned by the interested stockholder or the affiliates or +associates of the interested stockholder. +If our shares become subject to the penny +stock rules, it would become more difficult to trade our shares. +The SEC has adopted rules that regulate broker-dealer practices +in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other +than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, +provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. +If we do not obtain or retain a listing on the Nasdaq Capital Market or if the price of our Common Stock falls below $5.00, our Common +Stock will be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise +exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny +stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must +make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s +written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; +and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements would likely have the effect +of reducing the trading activity in the secondary market for our Common Stock, and therefore stockholders may have difficulty selling +their shares. +FINRA sales practice requirements may limit +a stockholder’s ability to buy and sell our stock. +In addition to the “penny stock” +rules described above, the Financial Industry Regulatory Authority, Inc. (“FINRA”), has adopted rules that require that in +recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable +for that customer. Prior to recommending speculative, low-priced securities to their non-institutional customers, broker-dealers must +make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other +information. The FINRA requirements may make it more difficult for broker-dealers to recommend that their customers buy our Common +Stock, which may have the effect of reducing the level of trading activity in our Common Stock. As a result, fewer broker-dealers may +be willing to make a market in our Common Stock, reducing a stockholder’s ability to resell shares, as well as overall liquidity, +of our Common Stock. +19 +We may be considered a smaller reporting +company and will be exempt from certain disclosure requirements, which could make our Common Stock less attractive to potential investors. +Rule 12b-2 of the Exchange Act, +defines a “smaller reporting company” as an issuer that is not an investment company, an asset-backed issuer, or a majority-owned subsidiary +of a parent that is not a smaller reporting company and that: +● had +a public float of less than $250 million as of the last business day of its most +recently completed second fiscal quarter, computed by multiplying the aggregate worldwide +number of shares of its voting and non-voting common equity held by non-affiliates by +the price at which the common equity was last sold, or the average of the bid and asked prices +of common equity, in the principal market for the common equity; or +● in +the case of an initial registration statement under the Securities Act of 1933, +as amended (“Securities Act”), or the Exchange Act for shares of its common +equity, had a public float of less than $250 million as of a date within 30 days +of the date of the filing of the registration statement, computed by multiplying the aggregate +worldwide number of such shares held by non-affiliates before the registration plus, +in the case of a Securities Act registration statement, the number of such shares included +in the registration statement by the estimated public offering price of the shares; or +● in +the case of an issuer whose public float was zero, had annual revenues of less than $100.0 million +during the most recently completed fiscal year for which audited financial statements are +available. +As a smaller reporting company, we would not +be required and may not include a Compensation Discussion and Analysis section in our proxy statements; we would provide only two years +of financial statements; and we would not need to provide the table of selected financial data. We also would have other “scaled” +disclosure requirements that are less comprehensive than issuers that are not smaller reporting companies which could make our Common +Stock less attractive to potential investors, and also could make it more difficult for our stockholders to sell their shares. +ITEM 1B. UNRESOLVED STAFF COMMENTS +None. +ITEM 1C. CYBERSECURITY +Cybersecurity is critical to advancing our overall +objectives and enabling our digital efforts. As a company operating in the technology and software sectors, we face a wide variety of +cybersecurity threats that range from common attacks such as ransomware and denial-of-service, to more advanced attacks. Our customers, +suppliers and other partners face similar cybersecurity threats, and a cybersecurity incident impacting these entities could materially +adversely affect our operations, performance and results. These cybersecurity threats and related risks make it imperative that we maintain +focus on cybersecurity and systematic risks. Below is a discussion of our risk management and approach to governance as it relates to +cybersecurity. For additional information on the impact of cyber risks, refer to Part I, Item 1A. “ Risk Factors ”, +of this Form 10-K. +Risk Management and Strategy +Cybersecurity risk management is a core tenet +of our information technology security program. We have implemented various cybersecurity technologies, controls, and processes to ensure +the integrity and availability of our infrastructure, data, and operations. We periodically review and modify these technologies and +processes to align with the latest in industry best practices and an ever-changing threat landscape. +As part of our cybersecurity risk management +program, we perform the following: +● Cybersecurity +risk assessment is performed on all new products and product updates; +● Employ +internal staff with security certifications, and we work with third parties to perform security +vulnerability testing; +● Changes +to data protection laws are closely monitored and necessary changes are implemented; +● Provide +routine security training to employees and communicate any emerging threats; +● Review the security posture of all third parties that we engage; +● Maintain +a comprehensive incident response plan; +● Carry +cybersecurity insurance to help mitigate any potential losses arising from cybersecurity +incidents. +While we face a number of ongoing cybersecurity +risks in connection with our business, such risks have not materially affected us to date, including our business strategy, results of +operations, or financial condition . +20 +Governance +Our team responsible for monitoring and assessing +cybersecurity threats, who reports directly to the Chief Executive Officer, manages and monitors our cybersecurity. Our board of directors, +as a whole, has oversight for the most significant risks facing us and for our processes to identify, prioritize, assess, manage and +mitigate those risks, including cybersecurity risks. The board of directors receives regular updates on cybersecurity and information +technology matters and related risk exposures from our executive team. +ITEM 2. PROPERTIES +Our principal executive offices are located at +101 Eisenhower Parkway, Suite 300, Roseland, New Jersey 07068. We pay $58 per month to rent such space on a month-to-month lease basis. +We believe that our current office space will be adequate for the foreseeable future. +ITEM 3. LEGAL PROCEEDINGS +From time to time, we may become involved in +various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, +and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of +any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial +condition or operating results. +ITEM 4. MINE SAFETY DISCLOSURES +Not applicable. +21 +PART II +ITEM 5. MARKET FOR REGISTRANT’S COMMON +EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES +Market Information +Our Common Stock is listed on the Nasdaq Capital +Market under the symbol “GXAI.” Prior to the change of our symbol to GXAI on January 19, 2024, our Common Stock was listed +on the Nasdaq Capital Market under the symbol “NFTG.” +Shareholders +As of March 15, 2026, we had 8 shareholders of +record of our common stock. The actual number of holders of our common stock is greater than this number of record holders, and includes +shareholders who are beneficial owners, but whose shares are held in street name by brokers or held by other nominees. This number of +holders of record also does not include stockholders whose shares may be held in trust by other entities. +Purchases of Equity Securities by the Issuer +and Affiliated Purchasers +None. +Dividend Policy +We have never paid or declared any cash dividends +on our Common Stock, and we do not anticipate paying any cash dividends on our Common Stock in the foreseeable future. We intend to retain +all available funds and any future earnings to fund the development and expansion of our business. Any future determination to pay dividends +will be at the discretion of our board of directors and will depend upon a number of factors, including our results of operations, financial +condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors +deems relevant. +Unregistered Sales of Equity Securities +On February 21, 2025, we issued 200,000 restricted +shares of our Common Stock, par value $0.0001 per share to Abraco LLC pursuant to a Software Purchase Agreement by and between the Company +and Abraco LLC whereby we acquired certain software comprising the entirety of the code for the design, appearance, content, features +and functionality of the application, together with all related documentation, and all derivative works, updates, improvements, modifications +and enhancements made by or on behalf of Abraco LLC. +ITEM 6. [RESERVED] +ITEM 7. MANAGEMENT’S DISCUSSION AND +ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS. +You should read the following discussion and +analysis of our financial condition and plan of operations together with “Summary Financial Data” and our financial statements +and the related notes appearing elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion +and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may +differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited +to, those identified below, and those discussed in the section titled “Risk Factors” included in our Annual Report on Form +10-K as filed with the SEC. All amounts in this report are in U.S. dollars, unless otherwise noted. +Overview +Gaxos.AI is a technology company focused on reshaping +the way people interact with artificial intelligence across everyday life and high-impact industries. More than a developer of applications, +Gaxos.AI is building a portfolio of AI-powered solutions designed to make advanced technology more practical, accessible, and transformative. +The company’s growing portfolio spans defense, health and wellness, entertainment, and productivity—bringing intelligent +tools to markets where innovation can drive meaningful real-world outcomes. +Gaxos Labs +Gaxos Labs, launched in September 2024, is the +Gaxos.AI product studio developing and launching AI applications across fast-moving sectors. +In September 2024, we launched a transformative +generative AI service that empowers game developers and publishers. Key features of the product include AI-powered creativity that reduces +creative asset development time from hours to minutes, enabling rapid prototyping and fast experimentation with different designs; monetization +tools that allow publishers to offer AI-generated assets for player customization; seamless plug-and-play integration with Unity and +Godot for effortless adoption into existing workflows; a flexible API that connects to any game development engine and supports builds +for any platform, including mobile and PC; dynamic content generation through our User-Generated-AI-Content (UGAiC) feature, which lets +gamers use AI in real time to create fresh experiences with every playthrough; and customized solutions ranging from personalized AI +models for image and sound generation to expert consulting services tailored to the unique needs of each developer. +22 +In May 2025, we launched UnGPT.ai, a new tool +designed to enhance text generated by artificial intelligence, making it sound more natural and human-like. UnGPT features a real-time +rewriting engine that transforms machine-generated content while preserving meaning and context. The tool employs a proprietary multi-pass +transformation model that surpasses existing AI detection tools, addressing the growing demand for high-quality, undetectable output, +especially in sensitive industries. +In August 2025, we launched Art-Gen.AI, an AI +image and video creation platform that makes pro-grade content effortless for anyone, anywhere. Art-Gen combines state-of-the-art AI +models from industry leaders including Google, Stability AI, and PixVerse with Gaxos’ proprietary enhancements to deliver unmatched +creative speed, detail, and flexibility. With just a simple text prompt or reference image, users can instantly produce cinematic visuals, +hyper-realistic imagery, or animated video content at a fraction of traditional production time and cost., +In December 2025, we launched Bible Pray AI, +a personalized, AI-powered spiritual growth platform designed to help users deepen faith, strengthen daily devotion, and apply scripture +for greater peace, clarity, and purpose. Bible Pray AI represents our strategic expansion into the rapidly growing digital faith, mental +wellness, and personal development economy, a sector supported by hundreds of millions of engaged global users seeking guided spiritual +content, daily motivation, and community-based worship experiences. +Gaxos Health +Recently, we began to develop a new initiative, +Gaxos Health, which is dedicated to revolutionizing personal health and wellness by developing a suite of innovative AI-powered health +optimization solutions. Gaxos Health will integrate AI-driven insights with individual biometric data and health goals to create web +and application based personalized wellness strategies for users. We believe that this cutting-edge approach will redefine preventative +medicine, offering unparalleled personalization in health and wellness. Gaxos Health solutions will analyze a wide range of health data +to provide tailored wellness plans and address the growing demand for personalized health solutions. We believe that this technology +is not just a step but a leap forward in empowering individuals to take control of their health and longevity with AI’s precision +and intelligence. +We launched the AI-powered health optimization +product in the third quarter of 2024. +RNK Health +On September 23, 2024, we formed a wholly-owned +subsidiary, RNK Health LLC (“RNK Health”), to form a partnership and relationship with Nekwellness, LLC (“Nekwellness”) +to engage in the business of marketing certain health-related products including peptides and supplements. On October 10, 2024, the Company, +RNK Health and Nekwellness entered into an operating agreement with respect to the regulation and management of the affairs of RNK Health +and, as of such date, the Company owns a 70% membership interest in RNK Health and Nekwellness owns a 30% membership interest in RNK +Health. RNK Health is currently providing access to certain medications, supplements and other wellness products and services. +Gaxos Gaming +Gaxos Gaming (the “Platform”), created +with a vision to develop, design, acquire, and manage conventional games and to combine these games with unconventional game mechanisms, +such as the ability for gamers and developers to utilize artificial intelligence to create and design in-game features, as well as to +mint unique in-game features, such as skins, characters, weapons, gear, levels, and virtual lands, in the form of non-fungible tokens, +or “NFTs,” that will allow users to have unique experiences and more control over in-game assets. +In 2023, we launched our own proprietary games +that are simple and fun to play, and that offer gamers the ability to utilize AI to personalize their gaming experience as well as to +mint their own affordable NFTs, with unique and exclusive features, that can be utilized across the network of games and platform that +we intend to build. As of December 31, 2025, we have launched five games, Space Striker AI, Brawl Bots, BattleFleet AI, Jigsaw Puzzle +AI and Gaxos AI Puzzle. Space Striker AI allows players to engage in a captivating storyline and exciting retro shooting space action +in the players AI-generated spaceship. Players can fuse crystals to upgrade their ship parts to craft, clash and conquer the galaxy all +within a dynamic free-to-play economy. Brawl Bots immerses users in high-octane battles in real time against other players, in solo play +or teams. Each player gets to control their own exclusive Bot character, ensuring a personalized gaming experience. BattleFleet AI is +a take on the classic Battleship game with AI elements that allow gamers to design their ships. Gaxos AI Puzzle and Jigsaw Puzzle AI +lets gamers solve preloaded jigsaw puzzles as well as design and solve new jigsaw puzzles using AI. +Critical Accounting Estimates +Critical accounting estimates are those estimates +made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have +had or are reasonably likely to have a material impact on our financial condition or results of operations. We consider the following +to be critical accounting estimates. +23 +Intangible assets +Intangible assets, consisting of software licenses, +technology licenses, and software, are carried at cost less accumulated amortization, computed using the straight-line method over the +estimated useful life of 5 years, less any impairment charges. We test intangible assets for impairment whenever events or changes in +circumstances indicate that the carrying value of an asset or asset group may not be recoverable. Recoverability of assets is determined +by comparing the estimated undiscounted future cash flows of the asset or asset group to their carrying amount. If the carrying value +of the assets exceeds their estimated undiscounted future cash flows, an impairment loss would be determined as the difference between +the fair value of the assets and its carrying value. Typically, the fair value of the assets would be determined using a discounted cash +flow model which would be sensitive to judgments of what constitutes an asset group and certain assumptions such as estimated future +financial performance, discount rates, and other assumptions that marketplace participants would use in their estimates of fair value. +There have been no material changes in the underlying assumptions and estimates used in these calculations in the relevant period. The +accounting estimate related to asset impairments is highly susceptible to change from period to period because it requires management +to make assumptions about the existence of impairment indicators and cash flows over future years. These assumptions impact the amount +of an impairment, which could materially adversely impact the consolidated statements of operations. +Revenue recognition +The Company follows Accounting Standards Codification +(“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). This standard establishes a single +comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASC 606 requires an entity +to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to +which the entity expects to be entitled in exchange for those goods or services and requires certain additional disclosures. +In accordance with ASU Topic 606 - Revenue +from Contracts with Customers , the Company recognizes revenue in accordance with that core principle by applying the following steps: +Step 1: Identify the contract(s) with a customer. +Step 2: Identify the performance obligations in the contract. +Step 3: Determine the transaction price. +Step 4: Allocate the transaction price to the performance obligations +in the contract. +Step 5: Recognize revenue when (or as) the entity satisfies a performance +obligation. +The Company generates revenues from the following +sources: +● +The Company generates revenue +from the sale of our in-game items to our customers. Revenue generated from such sales, primarily through the app stores, such as +Google Play Store or Apple App Store, is recognized at a point in time, which is upon delivery of the in-game items to the customer, +which is when the Company completes its sole performance obligation. Fees incurred by the Company, such as commissions to the app +stores, are recognized in operating expenses. +● +The Company generates revenue +from the sale of health coaching packages to its customers. Health coaching packages consist of a series of lab tests and personal +health coaching sessions. Revenues generated from such sales are recognized at a point in time, which is upon the completion of lab +testing and the utilization of health coaching sessions, which is when the Company completes its performance obligation. Any fees +paid in advance by the customer are reflected as contract liabilities until such time as the performance obligation is completed. +Fees incurred by the Company, such as the lab testing charges, are recognized in operating expenses. +24 +● Gaxos +Labs sells subscriptions to its customers for the use of its software under a software as +a service subscription model (“SaaS”), which allows game developers and publishers +to create content using AI which reduce creative asset development time. The Company’s +SaaS offerings are sold under a prepaid or postpaid, usage-based pricing system pursuant +to a tiers model, allowing customers to choose the subscription level to be charged based +upon their intended usage. The subscription tiers utilize declining prices as the volume +grows. Under prepaid pay-as-you-go plans, revenues related to contracts that do not include +a specified contract period are recognized over a period of time, which is upon usage by +the customer and satisfaction of the Company’s performance obligation. These usage-based +revenues are constrained to the amount the Company expects to be entitled to and receive +in exchange for providing access to its platform. If professional services are deemed to +be distinct, revenue is recognized over a period of time as services are performed. The Company +does not view the signing of the contract or the provision of initial setup services as discrete +earnings events that are distinct. Fees incurred by the Company, such as the merchant fees +are recognized in operating expenses. +● In +connection with RNK Health, the Company is generating revenues from providing non-clinical +administrative services to support patient health. RNK Health has partnered with a third-party +medical management company (the “Medical Partner”) that provides medication management +and patient support care services via telehealth to patients located in all 50 states. The +Medical Partner provides and makes available health care professionals to perform telehealth +services within their respective scope of practice, provides and maintains applicable professional +licensure, provides medication management services and provides RNK Health and patients access +to the Medical Partner’s telehealth optimized technology platform. RNK Health provides +services to patients to support the delivery of various medical services, including virtual +rooming of patients, patient pathway advisory services, patient scheduling and interface +connected to the Medical Partners central calendar, patient pathway monitoring and service, +nonclinical patient customer service, care navigation service, software-based care optimization +services, patient education services, patient intake system and data collection (the “Administrative +Services”). The Company evaluates the presentation of revenue on a gross vs. net basis +based on whether it acts as a principal by controlling the product or service sales to customers. +The Company records these revenues on a net basis as an agent since Medical Partner is primarily +responsible for fulfilling the contract with the customer, the Company does not have inventory +risk before or after the goods have been ordered by a customer, during shipping, or on return, +the Company’s consideration is in the form of a commission for its Administrative Services, +and the Company is not exposed to credit risk for the amount receivable from a customer in +exchange for the Medical Partner’s goods or services. The Medical Partner performs +all medical management and patient support care services and the Medical Partner pays the +Company its share of revenue. The Medical Partner has the right to refuse services to the +Patient. The Company is obligated to fulfill the non-clinical administrative services and +is reliant on the Medical Partner to accept the Patient, deliver all medication management +and patient support services, and the collect and remit the Company’s commission to +the Company. Revenues from non-clinical administrative services are recognized at a point +of time, upon satisfaction of the performance obligation, which occurs when the non-clinical +administrative services have been completed and collection of the fee is probable. RNK Health +pays a monthly fee to the Medical Partner for access to the Medical Partners telehealth optimized +technology platform, which is included in operating expenses on the accompanying consolidated +statements of operations and comprehensive loss. +Stock-based compensation +Stock-based compensation is accounted for based +on the requirements of ASC 718 – ”Compensation–Stock Compensation ”, which requires recognition in +the financial statements of the cost of employee, non-employee and director services received in exchange for an award of equity instruments +over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). +The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date +fair value of the award. The Company has elected to account for forfeitures as they occur. We recognize compensation costs resulting +from the issuance of stock-based awards to employees, non-employees, and directors as an expense in the statements of operations over +the requisite service period based on a measurement of fair value for each stock-based award. The fair value of each option granted is +estimated as of the date of grant using the Black-Scholes-Merton option-pricing model, net of actual forfeitures. The fair value is amortized +as compensation cost on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. +The Black-Scholes-Merton option-pricing model includes various assumptions, including the fair market value of our common stock, expected +life of stock options, the expected volatility, and the expected risk-free interest rate, among others. These assumptions reflect our +best estimates, but they involve inherent uncertainties based on market conditions generally outside of our control. As a result, if +other assumptions had been used, stock-based compensation expense, as determined in accordance with authoritative guidance, could have +been materially impacted. Furthermore, if we use different assumptions on future grants, stock-based compensation expense could be materially +affected in future periods. +25 +Capital Expenditures +We do not have any contractual obligations for +ongoing capital expenditures at this time. We do, however, purchase equipment and software necessary to conduct our operations on an +as needed basis. +Results of Operations +Comparison of Our Results of Operations +for the Year Ended December 31, 2025 and 2024 . +Revenues +During the year ended December 31, 2025, we generated +revenues of $1,933,030 primarily from revenues generated through RNK Health for providing non-clinical services to support patient care +of $1,509,886. Additionally, during the year ended December 31, 2025, we generated revenues of $1,124 from the sale of health coaching +packages to our customers, revenue of $421,995 from subscription services from our Art-Gen.ai, unGPT,ai and Bible.ai applications, and +revenue of $25 from in-app games items. Health coaching packages consist of a series of lab tests and personal health coaching sessions. +During the year ended December 31, 2024, we generated revenue of $4,027 consisting of $3,952 from the sale of health coaching packages +to our customers, revenue of $42 from subscription services, and revenue of $33 from in-app games items. Once we achieve a critical mass +of users, we plan to offer new features and to charge fees in order to generate revenues from added features. +During the years ended December 31, 2025 and +2024, revenues consisted of the following: +For the +Year Ended +December 31, +2025 +For the +Year Ended +December 31, +2024 +Revenue from administrative services +$ 1,509,886 +$ - +Revenue from the sale of health coaching packages +1,124 +3,952 +Revenue from the sale of subscriptions +421,995 +42 +Revenue from sale of in-game items +25 +33 +Total revenues +$ 1,933,030 +$ 4,027 +26 +Operating Expenses +During the year ended December 31, 2025 and 2024, +we incurred operating expenses of $6,849,556 and $3,707,632, respectively, an increase of $3,141,924, or 84.7%. Operating expenses consisted +of the following: +Research and development fees +We enter into agreements with third-party developers +that require us to make payments for game and software development services upon reaching the application development stage. In exchange +for our payments, we receive the exclusive publishing and distribution rights to the finished game titles and AI software. During the +preliminary project stage and prior to the application development stage of the product, we record any costs incurred by third-party developers +as research and development expenses. +We capitalize all development and production +service payments to third-party developers as internal-use software development costs and licenses once we reach the application +development stage. +During the year ended December 31, 2025 and 2024, +we reported research and development fees of $993,671 and $996,487, respectively, a decrease of $2,816, or 0.3%. +The decreases are primarily due to a decrease +in outside development costs incurred in connection with the development of Gaxos Games, offset by an increase in outside development +costs incurred in connection with the development of Gaxos Labs, Gaxos Health and RNK Health platforms. We expect research and development +expenses to increase in the future as development of Gaxos Labs, Gaxos Health and RNK Health accelerates. +General and administrative expenses +For the years ended December 31, 2025 and 2024, +general and administrative expenses consisted of the following: +For the +Year Ended +December 31, +2025 +For the +Year Ended +December 31, +2024 +Compensation and related benefit +$ 1,269,843 +$ 872,899 +Professional fees +722,136 +946,200 +Advertising and marketing +3,082,784 +367,351 +Other general and administrative +expenses +781,122 +524,695 +Total general and administrative expenses +$ 5,855,885 +$ 2,711,145 +Compensation and related benefits +During the year ended December 31, 2025 and 2024, +compensation and related benefits amounted to $1,269,843 and $872,899, respectively, an increase of $396,944, or 45.5%. The increase +during the year ended December 31, 2025 compared to the year ended December 31, 2024 was primarily attributable to the increase in executive +officer bonuses paid of $250,000, an increase in stock-based compensation of $30,070 from accretion of stock option expense, and an increase +in other employee compensation and related benefits of $116,874. +Professional fees +During the year ended December 31, 2025 and 2024, +we incurred professional fees of $722,136 and $946,200, respectively, a decrease of $224,064, or 23.7%, primarily attributable to a decrease +in advisory fees of $240,261, a decrease in legal fees of $39,999, and a decrease in stock-based consulting fees attributable to the +accretion of stock-based consulting fees related to issuance of stock options to consultants of $12,621, offset by an increase in accounting +fees of $23,546 and an increase in investor relations and recruiting fees of $45,271. +27 +Advertising and marketing +During the year ended December 31, 2025 and 2024, +advertising and marketing amounted to $3,082,784 and $367,351, respectively, an increase of $2,715,433, or 739.2%. +The increase during the year ended December 31, +2025 compared to the year ended December 31, 2024 was primarily attributable to an increase in advertising and marketing fees of $2,335,207 +in connection with the marketing of our RNK Health services and an increase in advertising and marketing fees of $380,226 in connection +with the marketing of our Gaxos Labs subscription services. +Other general and administrative expenses +Other general and administrative expenses consist +of office expenses, insurance, listing fees, computer and interest expenses, travel expenses, amortization expense, lab service fees, +and other general business expenses. +During the year ended December 31, 2025 and 2024, +we incurred other general and administrative expenses of $781,122 and $524,695, respectively, an increase of $256,427, or 48.9%. This +increase was primarily attributable to an increase in amortization expense of $152,256 and an increase in other general and administrative +expenses of $104,171. +Loss from operations +During the years ended December 31, 2025 and +2024, we reported a loss from operations of $4,916,526 and $3,703,605, respectively, an increase of $1,212,921, or 32.7%. The increase +in loss from operations was due to an increase in compensation and related benefits, an increase in advertising and marketing expense +and an increase in general and administrative expenses, offset by a decrease in professional fees and an increase in revenues, as discussed +above. +Other income +During the years ended December 31, 2025 and +2024, we reported other income, net of $634,279 and $279,322, respectively, which primarily consisted of interest income and realized +and unrealized gains on short-term investments in both years. +Net loss and net loss attributable to common +shareholders +During the years ended December 31, 2025 and +2024, our net loss amounted to $4,282,247 and $3,424,283, respectively, an increase of $857,964, or 25.1%. During the years ended December +31, 2025 and 2024, our net loss attributable to common shareholders amounted to $3,900,583, or a net loss per common share of $0.55 (basic +and diluted) and $3,418,197, or a net loss per common share of $1.92 (basic and diluted), respectively, an increase of $482,386, or 14.1%. +28 +Liquidity, Capital Resources and Plan of Operations +Liquidity is the ability of a company to generate +funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. On December 31, +2025, we had a cash balance of $840,799, had short-term investments of $11,345,187, and had working capital of $11,919,230. During the +year ended December 31, 2025, we used net cash in operations of $3,853,757. +On December 18, 2024, we entered into a securities +purchase agreement (the “December 18, 2024 Purchase Agreement”) with certain institutional investors, pursuant to which we +sold to such investors 1,449,277 common shares of the Company at a purchase price of $3.45 per share for net proceeds from $4,449,055, +after deducting Placement Agent fees and offering expenses of $550,950 paid by the Company. Additionally, on December 26, 2024, we entered +into a securities purchase agreement (the “December 26, 2024 Purchase Agreement”) with certain institutional and accredited +investors, pursuant to which we sold to such investors 1,346,669 shares of the Company’s common stock at a purchase price +of $3.00 per share (the “2 nd Registered Direct Offering”). The net proceeds from the December 26, 2024 Purchase +Agreement amounted to $3,600,656, after deducting Placement Agent fees and offering expenses of $439,351 paid by the Company pursuant +to the September 2024 Engagement Letter with the Placement Agent. +Until such time that the Company implements its +growth strategy, we expect to continue to generate operating losses in the foreseeable future, mostly due to corporate overhead, research +and development, and costs of being a public company. We believe that our existing working capital and cash on hand will provide sufficient +cash to enable the Company to meet its operating needs and debt requirements for the next twelve months from the issuance date of this +report. +On January 26, 2026, we entered into the ATM +Agreement with H. C. Wainwright and Co., LLV (“Wainwright”) under which the Company could offer and sell shares of its +common stock having an aggregate sales price of up to $5,600,000 through Wainwright as the sales agent pursuant to the Company’s +effective shelf registration statement on Form S-3 (File No. 333-283758), including an accompanying base prospectus dated +December 18, 2024 and prospectus supplements dated January 23, 2026 and February 4, 2026. Sales of shares of our common stock through +Wainwright, if any, will be made by any method permitted by law deemed to be an “at the market offering” as defined in Rule +415(a)(4) under the Securities Act of 1933, as amended. Wainwright will use commercially reasonable efforts to sell shares of the Company’s +common stock from time to time, based on instructions from us (including any price, time or size limits or other parameters or conditions +the Company may impose). We will pay Wainwright a commission equal to 3.0% of the aggregate gross proceeds from the sales of shares of +the Company’s common stock sold through Wainwright under the ATM Agreement and will also reimburse Wainwright for certain specified +expenses in connection with the ATM Agreement. +From January 26, 2026 to March 5, 2026, we issued +3,096,481 shares of our common stock for net proceeds of approximately $5.4 million pursuant to the ATM Agreement. +Cash Flows from Operating Activities +For the year ended December 31, 2025, net cash +used in operations was $3,853,757, which primarily resulted from our net loss of $4,282,247, adjusted for the add back of amortization +expense of $204,698, stock-based compensation to employees and consultants of $136,891, a realized and unrealized gain on short-term +investments of $51,992, and a realized loss on exchange of equity securities of $29,998, and changes in operating asset and liabilities +such as an increase in accounts receivable of $76,247, an increase in prepaid expenses and other current assets of $93,940, a decrease +in accounts payable of $68,686, an increase in accrued expenses of $218,840, and an increase in deferred revenues of $128,928. +For the year ended December 31, 2024, net cash +used in operations was $3,280,397, which primarily resulted from our net loss of $3,424,283, adjusted for the add back of amortization +expense of $52,442, stock-based compensation to employees and consultants of $119,443, and a realized gain on short-term investments +of $(121,765), and changes in operating asset and liabilities such as an increase in prepaid expenses and other current assets of $38,477, +an increase in accounts payable of $122,909, an increase in accrued expenses of $7,436 and an increase in deferred revenues of $1,126. +Cash Flows from Investing Activities +For the year ended December 31, 2025, net cash +used in investing activities was $9,703,543, which resulted from the purchase of short-term investments of $15,685,545 primarily consisting +of corporate bonds and other equity securities, the purchase of software intangible assets of $500,000, an increase in capitalized internal-use +software development costs of $83,050, and an increase in note receivable of $10,000, offset by proceeds received from the sale of short-term +investments of $6,575,052. +For the year ended December 31, 2024, net cash +provided by investing activities was $67,735, which resulted from proceeds received from the sale of short-term investments of $4,010,205, +offset by the purchase of short-term investments of $3,547,262, the purchase of marketable equity securities of $199,998, the purchase +of intangible assets of $150,000, and an increase in capitalized internal-use software development costs of $45,210. +29 +Cash Flows from Financing Activities +For the year ended December 31, 2025, we did +not have any cash flows from financing activities. +For the year ended December 31, 2024, net cash +provided by financing activities was $16,586,051, which primarily resulted from proceeds from the sale of common stock units of $8,208,771, +proceeds from exercise of pre-funded warrants of $2,897,924, proceeds from exercise of warrants of $2,663,594 and proceeds from induced +exercise of warrants of $2,834,843. Additionally, during the year ended December 31, 2024, we purchased and cancelled 6,846 treasury +shares for $19,602, or at an average price of $2.86 per share. +Our ultimate success is dependent on our ability +to obtain additional financing and generate sufficient cash flow to meet our obligations on a timely basis. We will require significant +amounts of capital to sustain operations, and we will need to make the investments we need to execute our longer-term business plan to +support new technologies and help advance innovation. Absent generation of sufficient revenue from the execution of our long-term business +plan, we will need to obtain debt or equity financing, especially if we experience downturns in our business that are more severe or +longer than anticipated, or if we experience significant increases in expense levels resulting from being a publicly-traded company or +from operations. Such additional debt or equity financing may not be available to us on favorable terms, if at all. We plan to pursue +our plans with respect to the research and development of our products which will require resources beyond those that we currently have, +ultimately requiring additional capital from third party sources. However, we believe the net proceeds received from the December 2024 +securities purchase agreements as discussed above will be sufficient to meet our financial obligations for at least the next 12 months. +Off-Balance Sheet Arrangements +For the years ended December 31, 2025 and 2024, +we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments +or contractual obligations. +Recently Issued Accounting Standards Not Yet +Effective or Adopted +In November 2024, the FASB issued ASU 2024-03, +Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which requires entities +to provide more detailed disaggregation of expenses in the income statement, focusing on the nature of the expenses rather than their +function. The new disclosures will require entities to separately present expenses for significant line items, including but not limited +to, depreciation, amortization, and employee compensation. Entities will also be required to provide a qualitative description of the +amounts remaining in relevant expense captions that are not separately disaggregated quantitatively, disclose the total amount of selling +expenses and, in annual reporting periods, provide a definition of what constitutes selling expenses. This pronouncement is effective +for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early +adoption permitted. We do not expect the adoption of this new guidance to have a material impact on our consolidated financial statements. +Management does not believe that any other recently +issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on its consolidated financial statements. +JOBS Act +On April 5, 2012, the JOBS Act was enacted. Section +107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided +in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. In other words, an “emerging +growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. +We have chosen to take advantage of the extended +transition periods available to emerging growth companies under the JOBS Act for complying with new or revised accounting standards until +those standards would otherwise apply to private companies provided under the JOBS Act. As a result, our financial statements may not +be comparable to those of companies that comply with public company effective dates for complying with new or revised accounting standards. +Subject to certain conditions set forth in the +JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions, including, without limitation, +(i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) +of Sarbanes-Oxley and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding +mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the +financial statements, known as the auditor discussion and analysis. We will remain an “emerging growth company” until the +earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last +day of our fiscal year following the fifth anniversary of the date of our initial public offering; (iii) the date on which we have issued +more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated +filer under the rules of the SEC. +30 +ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES +ABOUT MARKET RISK. +As a smaller reporting company, we are not required to provide the +information required by this item. +ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY +DATA. +Our financial statements are contained in pages +F-1 through F-25, which appear at the end of this Annual Report on Form 10-K. +ITEM 9. CHANGES IN AND DISAGREEMENTS WITH +ACCOUNTANTS AND FINANCIAL DISCLOSURE. +None. +ITEM 9A. CONTROLS AND PROCEDURES. +Evaluation of Disclosure Controls +Our principal executive officer and principal +financial officer evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2025. The term “disclosure +controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or +the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed +by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the +time periods specified in the Securities and Exchange Commission’s rules and forms. Management recognizes that any controls and +procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management +necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Disclosure controls +and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a +company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, +including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. +Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and +procedures were effective as of the end of the period covered by this Annual Report on Form 10-K. +Management’s Report on Internal Control +Over Financial Reporting +Our management is responsible for establishing +and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f). Internal control +over financial reporting is a process designed under the supervision and with the participation of our management, including our principal +executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and +the preparation of financial statements for external purposes in accordance with GAAP. All internal control systems, no matter how well +designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with +respect to financial statement preparation and presentation. +As of December 31, 2025, under the supervision +and with the participation of our management, including our principal executive officer and principal financial officer, we conducted +an evaluation of the effectiveness of our internal control over financial reporting based on the Committee of Sponsoring Organizations +of the Treadway Commission in Internal Control-Integrated Framework - 2013. Based on this assessment, our management concluded that, +as of December 31, 2025, our internal control over financial reporting was effective based on such criteria. +This Annual Report on Form 10-K does not include +an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s +report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to the exemption +provided to issuers that are not “large accelerated filers” nor “accelerated filers” under the Dodd-Frank Wall +Street Reform and Consumer Protection Act. +Changes in Internal Control Over Financial +Reporting +There have been no changes in our internal control +over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially +affect, our internal control over financial reporting. +ITEM 9B. OTHER INFORMATION. +During our last fiscal quarter ended December +31, 2025, none of our directors or executive officers adopted , modified or terminated a “Rule 10b5-1 trading arrangement” +or a “non-Rule 10b5-1 trading arrangement” as such terms are defined under Item 408 of Regulation S K. +ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS +THAT PREVENT INSPECTIONS. +Not applicable. +31 +PART III +ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND +CORPORATE GOVERNANCE. +Executive Officers and Directors +The following table sets forth the names, positions +and ages of our directors and executive officers as of the date of this annual report on Form 10-K. +Name +Age +Position(s) +Vadim Mats +41 +Chief Executive Officer +and Chairman +Steven A. Shorr +57 +Chief Financial Officer +Adam Holzer +58 +Director +Scott Grayson +67 +Director +Roman Feldman +39 +Director +The business background and certain other information about our directors +and executive officers is set forth below. +Vadim Mats — Chief Executive +Officer and Chairman +Vadim Mats has served as +Chief Executive Officer and Chairman since October 2021. Mr. Mats was previously Chief Financial Officer of DatChat, Inc. (NASDAQ: DATS) +from July 2021 to January 2022 and supported the company’s successful IPO on the NASDAQ. From March 2018 to June 2021, Mr. Mats +served as the Chief Financial Officer of Grand Private Equity, a fintech-focused family office. Mr. Mats is also the Founder and Partner +of BespokeCFO, a finance and accounting advisory practice. From June 2010 to December 2016, Mr. Mats was Chief Financial Officer of a +hedge fund based in New Jersey. Mr. Mats also served as the Assistant Controller at Eton Park Capital Management, LP, a multi-strategy +fund, from July 2007 to December 2009. From June 2006 to July 2007, Mr. Mats was a Senior Fund Accountant at The Bank of New York Mellon. +Mr. Mats holds a Master of Science degree in accounting and finance and a Bachelor’s Degree in Business Administration specializing +in finance and investments from the Zicklin School of Business at Bernard Baruch College. Further, Mr. Mats is a CAIA © Charterholder +and a Certified Public Accountant in the State of New York. We believe that Mr. Mats is qualified to serve as a member of our board of +directors due the perspective and experience he brings as our founder and Chief Executive Officer, his extensive experience in technology +and finance companies and in the management of public companies. +Steven +A. Shorr — Chief Financial Officer +Steven A. Shorr has served as our Chief Financial +Officer since March 2022. Mr. Shorr is an accomplished accounting professional with over 30 years of experience. Since 2006, he has been +Partner of Jubran, Shorr & Company, a tax, accounting, and advisory firm. In 2001, Mr. Shorr founded Steven Shorr CPA, an accounting +and tax practice, operating until 2006. Prior to 2001, he served as the Controller of CounterPoint Capital Management, a New York-based +hedge fund. Mr. Shorr has also previously worked for public accounting firms, Kenneth Leventhal & Company and Cavalcante & Company. +Mr. Shorr earned his Bachelor of Arts degree in Accounting from Queens College and is a Certified Public Accountant in the State of New +York. +Adam Holzer — Director +Adam Holzer has served as a director since March +2022. Mr. Holzer is an accomplished sales and marketing executive with leadership experience at large media and marketing organizations. +Since 2019, he has served as Chief Executive Order of AJH Media & Sponsorship Consulting, an advisory media and sponsorship +company for entertainment and sports companies. From 2017 to 2019, Mr. Holzer was Vice President of National Sales at Learfield, +a collegiate sports marketing company. Prior to December 2017, he served as Senior Vice President of Media in the Americas at Lagardere +Sports & Entertainment and as Sales Executive at FOX Sports Media Group. Mr. Holzer earned his Bachelor of Science in Marketing +from the University of Maryland. +We believe that Mr. Holzer is qualified +to serve as a member of our board of directors because of his extensive professional experience in senior leadership positions and marketing. +Scott A. Grayson — Director +Scott Grayson has served as a director since +February 2023. Mr. Grayson is an accomplished senior sales executive with over 25 years of experience in establishing the vision +and strategies necessary to be successful in the Financial Services software industry. Since November 2019, he has worked for Luxoft +USA, Inc., a digital transformation services and software engineering firm providing bespoke IT solutions, as the Head of Alliances for +North America then moved to the Head of Revenue for the banking, capital markets & insurance divisions at Luxoft USA, Inc +in 2020. In 2019, Mr. Grayson was Head of Sales at AlphaPoint, a software company powering crypto exchanges worldwide. Prior to +2019, he served as Chief Sales Officer for R3, a leading provider of enterprise technology and services. Mr. Grayson has significant +expertise in both on-premise and SaaS delivery models and is specially skilled at building sales organizations in both direct sales +and partnership models while maintaining an entrepreneurial environment to creatively close business. Mr. Grayson earned his Bachelor +of Science degree in Accounting from Lehigh University. +We believe that Mr. Grayson is qualified +to serve as a member of our board of directors because of his extensive professional experience in technology and financial services. +32 +Roman Feldman – Director +Roman Feldman has served as a director since +March 2025. Mr. Feldman has extensive experience in business development, particularly within the financial services and software industries. +Since October 2023, he has been serving as a Business Development professional at Visual Computer Solutions Prior to this role, Mr. Feldman +served as a Vice President of Enterprise Business Development at Bank of America from September 2019 to October 2023. His roles have +primarily focused on leveraging technology to drive business growth and innovation. Mr. Feldman earned his Bachelor of Science degree +in International Business Management from Kean University. +We believe Mr. Feldman is qualified to serve +as a member of our board of directors because his dual-industry perspective resulting from his extensive experience in financial services +and software industries. +Family Relationships +There are no family relationships among any of +our executive officers and directors. +Arrangements between Officers and Directors +Except as set forth herein, to our knowledge, +there is no arrangement or understanding between any of our officers or directors and any other person pursuant to which the officer +or director was selected to serve as an officer or director. +Involvement in Certain Legal Proceedings +We are not aware of any of our directors or officers +being involved in any legal proceedings in the past ten years relating to any matters in bankruptcy, insolvency, criminal proceedings +(other than traffic and other minor offenses), or being subject to any of the items set forth under Item 401(f) of Regulation S-K. +Committees of Our Board of Directors +Our board of directors directs the management +of our business and affairs, as provided by Nevada law, and conducts its business through meetings of the board of directors and its +standing committees. We have a standing audit committee, compensation committee and nominating and corporate governance committee. In +addition, from time to time, special committees may be established under the direction of the board of directors when necessary to address +specific issues. +Our board of directors has determined that all +of the members of the audit committee, the compensation committee and the nominating and corporate governance committee are independent +as defined under the applicable rules of Nasdaq, including, in the case of all of the members of our audit committee, the independence +requirements contemplated by Rule 10A-3 under the Exchange Act. In making such determination, the board of directors considered the relationships +that each director has with our Company and all other facts and circumstances that the board of directors deemed relevant in determining +director independence, including the beneficial ownership of our capital stock by each director. +Audit Committee. +The audit committee is appointed by the Board +to assist the Board in its duty to oversee the Company’s accounting, financial reporting, and internal control functions and the +audit of the Company’s financial statements. The role of the audit committee is to oversee management in the performance of its +responsibility for the integrity of the Company’s accounting and financial reporting and its systems of internal controls, the +performance and qualifications of the Company’s independent auditor, including the independent auditor’s independence, the +performance of the Company’s internal audit function; and the Company’s compliance with legal and regulatory requirements. +Our audit committee consists of Scott A. Grayson, +Roman Feldman, and Adam Holzer, with Mr. Grayson serving as chair. Each member of our audit committee meets the financial literacy +requirements of Nasdaq rules. In addition, our board of directors has determined that Scott A. Grayson will qualify as an “audit +committee financial expert,” as such term is defined in Item 407(d)(5) of Regulation S-K. Our board of directors +have adopted a written charter for the audit committee, which is available on our principal corporate website at https://gaxos.ai . +Compensation Committee . +The compensation committee is responsible for +reviewing and recommending, among other things: the adequacy and form of compensation of the board; the compensation of our Chief Executive +Officer, including base salary, incentive bonus, stock option and other grant, award and benefits upon hiring and on an annual basis; +the compensation of other senior management upon hiring and on an annual basis; and our incentive compensation and other equity-based plans +and recommending changes to such plans to our board of directors, when necessary. +Our compensation committee consists of Adam Holzer, +Scott A. Grayson, and Roman Feldman, with Mr. Holzer serving as chair. Our board of directors have adopted a written charter +for the compensation committee, which is available on our principal corporate website at https://gaxos.ai . +33 +Nominating and Corporate Governance Committee. +The nominating and corporate governance committee +is responsible for, among other things: developing criteria for membership on the board of directors and committees; identifying individuals +qualified to become members of the board of directors; recommending persons to be nominated for election as directors and to each committee +of the board of directors; annually reviewing our corporate governance guidelines; and monitoring and evaluating the performance of the +board of directors and leading the board in an annual self-assessment of its practices and effectiveness. +Our nominating and corporate governance committee +consists of Roman Feldman, Adam Holzer, and Scott A. Grayson, with Mr. Feldman serving as chair. Our board of directors will +adopt a written charter for the nominating and corporate governance committee, which is available on our principal corporate website +at https://gaxos.ai . +Scientific Advisory Board +In February 2024, our Board of Directors +formed a Medical Advisory Board. As of the March 15, 2025, the members of such board are (i) Jeff R. Pavell, M.D.; (ii) Eric +J. Margolis, M.D. and (iii) Nathaniel E. Lebowitz, M.D. +Jeff R. Pavell, M.D. +Dr. Jeff R. Pavell has served as a member of +our Medical Advisory Board since March 2024. Since December 2022, Dr. Pavell has served as a director of Hoth Therapeutics, Inc. (NASDAQ: +HOTH), a clinical stage biopharmaceutical company. Since September 2022, Dr. Pavell has served as a director of Silo Pharma, Inc. (NASDAQ: +SILO), developmental stage biopharmaceutical company. Since January 2017, Dr. Pavell has served as Chief of Rehabilitation Medicine at +Englewood Health, and since November 2005, he has been on the teaching staff at New York-Presbyterian Columbia University Irving Medical +Center. In addition, since December 2020 he has been on the teaching staff at Hackensack Meridian School of Medicine at Seton Hall. Furthermore, +since 2010, Dr. Pavell has served as a partner at Patient Care Associates, an outpatient surgical center, and since 2002, he has served +as a Partner at the Physical Medicine and Rehabilitation Center, a private medical practice serving patients with spine, sports and occupational +injuries. Dr. Pavell is a Board Certified physician specializing in the field of physical medicine and rehabilitation. Dr. Pavell is +also certified in pain medicine and specializes in the most advanced non-operative treatments for spine, sports and interventional pain +medicines. Dr. Pavell received his bachelor of arts from Johns Hopkins University and his D.O. degree with honors from the New York College +of Osteopathic Medicine. Dr. Pavell holds a Doctor of Medicine degree from the New York College of Osteopathic Medicine and a Bachelor +of Art degree in Political Science from John Hopkins University. +Eric J. Margolis, M.D. +Dr. Eric J. Margolis has served as a member of +our Medical Advisory Board since March 2024. Dr. Margolis, is a Board-Certified Urologic surgeon with over 25 years of experience in +private practice in Northern New Jersey. Dr. Margolis recently served as Chief of the Department of Urology at Englewood Hospital and +Medical Center and currently is a director of clinical research for Summit/New Jersey Urology. Dr. Margolis has published numerous peer +reviewed journal articles and abstracts and has served as principal investigator on over thirty clinical trials with an emphasis on early +detection of prostate cancer using molecular and genomic testing. Dr. Margolis is an expert in the field of men’s health focusing +on innovative regenerative therapies for sexual dysfunction. Currently, he is pioneering the use of platelet rich plasma (“PRP”) +and low intensity shockwave therapy for the treatment of erectile dysfunction. Additionally, Dr. Margolis has treated thousands of men +with low testosterone using hormone replacement therapy. He has been recognized by numerous top doctors lists including Castle Connoly, +New York Magazine and New Jersey Monthly. Dr. Margolis received his undergraduate degree from Cornell University, his Medical Degree +from Upstate Medical school in Syracuse, N.Y. and completed his urology residency at The Mount Sinai Hospital in New York City. +Nathaniel E. Lebowitz, M.D. +Dr. Nathaniel E. Lebowitz has served as a member +of our Medical Advisory Board since March 2024. Dr. Lebowitz is a leading cardiologist at Hackensack University Medical Center in New +Jersey. Dr. Lebowitz is an attending cardiologist at Hackensack University Medical Center’s Heart and Vascular Hospital where he +is director of lipids and preventive cardiology. He is also an attending cardiologist at Englewood Hospital and Medical Center. Dr. Lebowitz +received his Medical Degree from Cornell University Medical College (now Weill-Cornell Medical College) in New York. He completed his +residency in internal medicine at Yale – New Haven Hospital in New Haven, Connecticut, and a fellowship in cardiology at the New +York Hospital – Cornell Medical Center in New York, New York. He is board certified in cardiology. +Code of Business and Ethics Conduct +We have adopted a written code of business conduct +and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, +principal accounting officer or controller, or persons performing similar functions. A copy of the code posted on our website, https://gaxos.ai . +In addition, we intend to post on our website all disclosures that are required by law or rules concerning any amendments to, or waivers +from, any provision of the code. +Insider Trading Policy +We have adopted an insider trading policy governing +the purchase, sale and/or any other disposition of the Company’s securities and material non-public information that is reasonable +designed to promote compliance with insider trading laws, rules, regulations and applicable Nasdaq standards. Our insider trading policy +applies to the Company’s directors, officers, employees of the Company and any other persons, such as consultants, contractors, +temporary staff, family members, and controlled entities who have access to material nonpublic information or are designated by the Company +as subject to such policy. +34 +Changes in Nominating Procedures +None. +ITEM 11. EXECUTIVE COMPENSATION +Summary Compensation Table +The following table sets forth for the year ended +December 31, 2025 and 2024, the compensation awarded to, paid to, or earned by, our Chief Executive Officer and Chief Financial Officer +(collectively, the “named executive officers”): +● Vadim +Mats, Chief Executive Officer; and +● Steven +Shorr, Chief Financial Officer. +Name and Principal Position +Year +Salary +($) +Bonus +($) +Stock +Awards +($) +Option +Awards ($) (1) +Non-Equity +Incentive Plan +Compensation +($) +Nonqualified +Deferred +Compensation +Earnings +($) +All Other +Compensation +($) +Total +($) +Vadim Mats, +2025 +$ +415,385 +$ +400,000 +$ +0 +$ +0 +$ +0 +$ +0 +$ +0 +$ +815,385 +Chief Executive Officer +2024 +$ +400,000 +$ +150,000 +$ +0 +$ +0 +$ +0 +$ +0 +$ +0 +$ +550,000 +Steven Shorr, +2025 +$ +77,308 +$ +0 +$ +0 +$ +0 +$ +0 +$ +0 +$ +0 +$ +77,308 +Chief Financial Officer +2024 +$ +60,000 +$ +0 +$ +0 +$ +0 +$ +0 +$ +0 +$ +0 +$ +60,000 +(1) As +required by SEC rules, the amounts in this column reflect the grant date or modification +date fair value as required by FASB ASC Topic 718. A discussion of the assumptions and methodologies +used to calculate these amounts is contained in the notes to our financial statements under +“Shareholders’ Equity”. +Outstanding Equity Awards at 2025 Fiscal Year-End +The following table sets forth information as options outstanding +on December 31, 2025. +OPTION AWARDS +Name +Number of +Securities +Underlying +Unexercised +options (#) +Exercisable +Number of +Securities +Underlying +Unexercised +Unearned +Options (#) +Unexercisable +Equity +Incentive Plan +Awards: +Number of +Securities +Underlying +Unexercised +Unearned +Options (#) +Option +Exercise +Price +($) +Option +Expiration +Date +Number of +Shares +or +Units +of Stock +that have +not +Vested +(#) +Market +Value of +Shares or +Units of +Stock +that +Have not +Vested +($) +Equity +Incentive Plan +Awards: +Number of +Unearned +Shares, +Units or +Other Rights +that have +not +Vested +(#) +Equity +Incentive +Plan +Awards: +Market or +Payout +Value of +Unearned +Shares, +Units or +other Rights +that have not +Vested +($) +Vadim Mats +16,667 +— +— +49.80 +2/14/2033 +— +— +— +— +Steven Shorr +2,083 +— +— +49.80 +2/14/2033 +— +— +— +— +35 +Director Compensation +The following table sets forth compensation paid, +earned or awarded during 2025 to each of our directors, other than Vadim Mats, whose compensation is described above in the “2025 +Summary Compensation Table”. +2025 Director Compensation +Name +Fees Earned +or Paid in +Cash +($) +Option +Awards +($) (1) +All Other +Compensation +($) +Total +($) +Adam Holzer +24,000 +24,354 +- +48,354 +Alex Kisin (2) +4,000 +- +- +4,000 +Scott Grayson +24,000 +24,354 +- +48,354 +Roman Feldman +20,000 +24,354 +44,354 +(1) As +required by SEC rules, the amounts in this column reflect the grant date or modification +date fair value as required by FASB ASC Topic 718. A discussion of the assumptions and methodologies +used to calculate these amounts is contained in the notes to our financial statements under +“Shareholders’ Deficit”. On April 14, 2025, the Company granted stock options +to purchase an aggregate of 75,000 (25,000 stock options to each director) shares of the +Company’s common stock at an exercise price of $1.11 per share to the Company’s +board of directors pursuant to the 2022 Equity Incentive Plan. The grant date of the stock +options was April 14, 2025 and the options expire on April 14, 2030. The options vest on +the one-year anniversary of the stock option grant on April 14, 2026. The stock options +were valued on the grant date at an aggregate fair value of $73,062 ($24,354 each) using +a Black-Scholes option pricing model which will be recognized as stock-based compensation +expense over the vesting period. +(2) Mr. +Kisin resigned as director of the Company effective as of March 3, 2025. +Equity Award Grant Timing +We do not have a written policy in place regarding +the timing of the grant and issuance of stock options in relation to the release of material non-public information. Historically, we +have granted stock option awards on an annual basis and as may otherwise be deemed appropriate by our Board or compensation committee +from time to time based on the facts and circumstances, as applicable. We have not intentionally timed the grant of stock options in +anticipation of the release of material nonpublic information, nor have we intentionally timed the release of material nonpublic information +based on stock option grant dates. During fiscal year 2025, we did not grant stock options (or similar awards) to any of our named executive +officers during the period beginning four business days before and ending one business day after the filing of any Company periodic report +on Form 10-Q or Form 10-K, or the filing or furnishing of any Company Form 8-K that disclosed any material non-public information. +Employment Agreements +Other than as set forth below, we do not currently +have employment agreements with any of our officers or employees. +Vadim Mats Employment Agreement +On February 17, 2023, upon the consummation of +the IPO, we entered into an employment agreement with Vadim Mats (the “Mats Employment Agreement”), pursuant to which he +shall receive a base salary at the annual rate of $400,000 payable in equal installments in accordance with the Company’s standard +payroll policies. Mr. Mats shall also be eligible to receive an annual cash bonus in an amount up to 2x his then-current base +salary. +Steven Shorr Employment Agreement +On March 23, 2022, we entered into an employment +agreement with Steven Shorr, (the “Shorr Employment Agreement”), pursuant to which he shall receive a base salary at the +annual rate of $60,000 payable in equal installments in accordance with the Company’s standard payroll policies. Effective January +1, 2025, Mr. Shorr’s salary was increased to $75,000. +2022 Equity Incentive Plan +The following is a summary of the material features +of our 2022 Equity Incentive Plan (the “2022 Plan”). This summary is qualified in its entirety by the full text of the 2022 +Plan, a copy of which has been filed as an exhibit to the Company’s registration statement on Form S-1 filed on February 8, 2023. +36 +Authorized Shares +On March 30, 2022, the Company’s Board +of Directors authorized and adopted the 2022 Equity Incentive Plan (the “2022 Plan”) and reserved an initial 208,333 shares +of common stock for issuance thereunder. The 2022 Plan was approved by shareholders on March 30, 2022. The 2022 Plan’s purpose +is to encourage ownership in the Company by employees, officers, directors and consultants whose long-term service the Company considers +essential to its continued progress and, thereby, encourage recipients to act in the stockholders’ interest and share in the Company’s +success. The 2022 Plan provides for the issuance of incentive stock options, non-statutory stock options, stock appreciation rights (“SARs”), +restricted stock, restricted stock units (“RSUs”), and other stock-based awards. Pursuant to the 2022 Plan, there shall be +annual increase in the number shares reserved under the 2022 Plan on the first day of each calendar year beginning with the first January +1 following the effective date of the 2022 Plan and ending with the last January 1 during the initial ten-year term of the 2022 Plan, +equal to the lesser of (A) five percent (5%) of the Shares outstanding (on an as-converted basis, which shall include Shares +issuable upon the exercise or conversion of all outstanding securities or rights convertible into or exercisable for Shares, including +without limitation, preferred stock, warrants and employee options to purchase any Shares) on the final day of the immediately preceding +calendar year and (B) such lesser number of Shares as determined by the Board; provided, that, shares of Common Stock issued under the +2022 Plan with respect to an Exempt Award shall not count against such share limit. Accordingly, in June 2024, the number of shares reserved +under the 2022 Plan increased by 95,304 to 303,637 reserved shares. On January 13, 2025, based on the 2022 Plan’s annual increase +provisions, the number of shares reserved under the 2022 Plan increased by 250,000 to 553,637 reserved shares the Company On August 12, +2025, the shareholders of the Company approved an amendment to the 2022 Plan to increase the number of shares of common stock reserved +for issuance thereunder to 803,637 shares from 553,637 shares. As of December 31, 2025, 564,553 shares remain issuable under the 2022 +Plan. +Types of Awards +The 2022 Plan provides for the issuance of incentive +stock options, non-statutory stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units +(“RSUs”), and other stock-based awards. Items described above in the Section called “Shares Available” are +incorporated herein by reference. +Administration +The 2022 Plan will be administered by our board +of directors, or if our board of directors does not administer the 2022 Plan, a committee or subcommittee of our board of directors that +complies with the applicable requirements of Section 16 of the Exchange Act and any other applicable legal or stock exchange +listing requirements (each of our board of directors or such committee or subcommittee, the “plan administrator”). The plan +administrator may interpret the 2022 Plan and may prescribe, amend and rescind rules and make all other determinations necessary or desirable +for the administration of the 2022 Plan, provided that, subject to the equitable adjustment provisions described below, the plan administrator +will not have the authority to reprice or cancel and re-grant any award at a lower exercise, base or purchase price or cancel any +award with an exercise, base or purchase price in exchange for cash, property or other awards without first obtaining the approval of +our stockholders. +The 2022 Plan permits the plan administrator +to select the eligible recipients who will receive awards, to determine the terms and conditions of those awards, including but not limited +to the exercise price or other purchase price of an award, the number of shares of Common Stock or cash or other property subject to +an award, the term of an award and the vesting schedule applicable to an award, and to amend the terms and conditions of outstanding +awards. +Restricted Stock and Restricted Stock Units +Restricted stock and RSUs may be granted under +the 2022 Plan. The plan administrator will determine the purchase price, vesting schedule and performance goals, if any, and any other +conditions that apply to a grant of restricted stock and RSUs. If the restrictions, performance goals or other conditions determined +by the plan administrator are not satisfied, the restricted stock and RSUs will be forfeited. Subject to the provisions of the 2022 Plan +and the applicable award agreement, the plan administrator has the sole discretion to provide for the lapse of restrictions in instalments. +Unless the applicable award agreement provides +otherwise, participants with restricted stock will generally have all of the rights of a stockholder; provided that dividends will only +be paid if and when the underlying restricted stock vests. RSUs will not be entitled to dividends prior to vesting but may be entitled +to receive dividend equivalents if the award agreement provides for them. The rights of participants granted restricted stock or RSUs +upon the termination of employment or service to us will be set forth in the award agreement. +Options +Incentive stock options and non-statutory stock +options may be granted under the 2022 Plan. An “incentive stock option” means an option intended to qualify for tax treatment +applicable to incentive stock options under Section 422 of the Internal Revenue Code. A “non-statutory stock option” +is an option that is not subject to statutory requirements and limitations required for certain tax advantages that are allowed under +specific provisions of the Internal Revenue Code. A non-statutory stock option under the 2022 Plan is referred to for federal income +tax purposes as a “non-qualified” stock option. Each option granted under the Plan will be designated as a non-qualified stock +option or an incentive stock option. At the discretion of the administrator, incentive stock options may be granted only to our employees, +employees of our “parent corporation” (as such term is defined in Section 424(e) of the Code) or employees of our +subsidiaries. +37 +The exercise period of an option may not exceed +ten years from the date of grant and the exercise price may not be less than 100% of the fair market value of a share of Common +Stock on the date the option is granted (110% of fair market value in the case of incentive stock options granted to ten percent stockholders). +The exercise price for shares of Common Stock subject to an option may be paid in cash, or as determined by the administrator in its +sole discretion, (i) through any cashless exercise procedure approved by the administrator (including the withholding of shares +of Common Stock otherwise issuable upon exercise), (ii) by tendering unrestricted shares of Common Stock owned by the participant, +(iii) with any other form of consideration approved by the administrator and permitted by applicable law or (iv) by any combination +of these methods. The option holder will have no rights to dividends or distributions or other rights of a stockholder with respect to +the shares of Common Stock subject to an option until the option holder has given written notice of exercise and paid the exercise price +and applicable withholding taxes. +In the event of a participant’s termination +of employment or service, the participant may exercise his or her option (to the extent vested as of such date of termination) for such +period of time as specified in his or her option agreement. +Stock Appreciation Rights +SARs may be granted either alone (a “free-standing SAR”) +or in conjunction with all or part of any option granted under the 2022 Plan (a “tandem SAR”). A free-standing SAR will +entitle its holder to receive, at the time of exercise, an amount per share up to the excess of the fair market value (at the date of +exercise) of a share of Common Stock over the base price of the free-standing SAR (which shall be no less than 100% of the fair +market value of the related shares of Common Stock on the date of grant) multiplied by the number of shares in respect of which the SAR +is being exercised. A tandem SAR will entitle its holder to receive, at the time of exercise of the SAR and surrender of the applicable +portion of the related option, an amount per share up to the excess of the fair market value (at the date of exercise) of a share of +Common Stock over the exercise price of the related option multiplied by the number of shares in respect of which the SAR is being exercised. +The exercise period of a free-standing SAR may not exceed ten years from the date of grant. The exercise period of a tandem +SAR will also expire upon the expiration of its related option. +The holder of a SAR will have no rights to dividends +or any other rights of a stockholder with respect to the shares of Common Stock subject to the SAR until the holder has given written +notice of exercise and paid the exercise price and applicable withholding taxes. +In the event of an participant’s termination +of employment or service, the holder of a SAR may exercise his or her SAR (to the extent vested as of such date of termination) for such +period of time as specified in his or her SAR agreement. +Other Stock-Based Awards +The administrator may grant other stock-based awards +under the 2022 Plan, valued in whole or in part by reference to, or otherwise based on, shares of Common Stock. The administrator will +determine the terms and conditions of these awards, including the number of shares of Common Stock to be granted pursuant to each award, +the manner in which the award will be settled, and the conditions to the vesting and payment of the award (including the achievement +of performance goals). The rights of participants granted other stock-based awards upon the termination of employment or service +to us will be set forth in the applicable award agreement. In the event that a bonus is granted in the form of shares of Common Stock, +the shares of Common Stock constituting such bonus shall, as determined by the administrator, be evidenced in uncertificated form or +by a book entry record or a certificate issued in the name of the participant to whom such grant was made and delivered to such participant +as soon as practicable after the date on which such bonus is payable. Any dividend or dividend equivalent award issued hereunder shall +be subject to the same restrictions, conditions and risks of forfeiture as apply to the underlying award. +38 +Equitable Adjustment and Treatment of Outstanding +Awards Upon a Change in Control +Equitable Adjustments. In the event of +a merger, consolidation, reclassification, recapitalization, spin-off, spin-out, repurchase, reorganization, special or extraordinary +dividend or other extraordinary distribution (whether in the form of common shares, cash or other property), combination, exchange of +shares, or other change in corporate structure affecting our Common Stock, an equitable substitution or proportionate adjustment shall +be made in (i) the aggregate number and kind of securities reserved for issuance under the 2022 Plan, (ii) the kind and number +of securities subject to, and the exercise price of, any outstanding options and SARs granted under the 2022 Plan, (iii) the kind, +number and purchase price of shares of Common Stock, or the amount of cash or amount or type of property, subject to outstanding restricted +stock, RSUs and other stock-based awards granted under the 2022 Plan and (iv) the terms and conditions of any outstanding awards +(including any applicable performance targets). Equitable substitutions or adjustments other than those listed above may also be made +as determined by the plan administrator. In addition, the plan administrator may terminate all outstanding awards for the payment of +cash or in-kind consideration having an aggregate fair market value equal to the excess of the fair market value of the shares of +Common Stock, cash or other property covered by such awards over the aggregate exercise price, if any, of such awards, but if the exercise +price of any outstanding award is equal to or greater than the fair market value of the shares of Common Stock, cash or other property +covered by such award, the plan administrator may cancel the award without the payment of any consideration to the participant. With +respect to awards subject to foreign laws, adjustments will be made in compliance with applicable requirements. Except to the extent +determined by the plan administrator, adjustments to incentive stock options will be made only to the extent not constituting a “modification” +within the meaning of Section 424(h)(3) of the Code. +Change in Control. The 2022 Plan provides +that, unless otherwise determined by the plan administrator and evidenced in an award agreement, if a “change in control” +(as defined below) occurs and a participant is employed by us or any of our affiliates immediately prior to the consummation of the change +in control, then the plan administrator, in its sole and absolute discretion, may (i) provide that any unvested or unexercisable +portion of an award carrying a right to exercise will become fully vested and exercisable; and (ii) cause the restrictions, deferral +limitations, payment conditions and forfeiture conditions applicable to any award granted under the 2022 Plan to lapse, and the awards +will be deemed fully vested and any performance conditions imposed with respect to such awards will be deemed to be fully achieved at +target performance levels. The administrator shall have discretion in connection with such change in control to provide that all outstanding +and unexercised options and SARs shall expire upon the consummation of such change in control. +For purposes of the 2022 Plan, a “change +in control” means, in summary, the first to occur of the following events: (i) a person or entity becomes the beneficial owner +of more than 50% of our voting power; (ii) an unapproved change in the majority membership of our board of directors; (iii) a +merger or consolidation of us or any of our subsidiaries, other than (A) a merger or consolidation that results in our voting securities +continuing to represent 50% or more of the combined voting power of the surviving entity or its parent and our board of directors immediately +prior to the merger or consolidation continuing to represent at least a majority of the board of directors of the surviving entity or +its parent or (B) a merger or consolidation effected to implement a recapitalization in which no person is or becomes the beneficial +owner of our voting securities representing more than 50% of our combined voting power; or (iv) stockholder approval of a plan of +our complete liquidation or dissolution or the consummation of an agreement for the sale or disposition of substantially all of our assets, +other than (A) a sale or disposition to an entity, more than 50% of the combined voting power of which is owned by our stockholders +in substantially the same proportions as their ownership of us immediately prior to such sale or (B) a sale or disposition to an +entity controlled by our board of directors. However, a change in control will not be deemed to have occurred as a result of any transaction +or series of integrated transactions following which our stockholders, immediately prior thereto, hold immediately afterward the same +proportionate equity interests in the entity that owns all or substantially all of our assets. +Tax Withholding +Each participant will be required to make arrangements +satisfactory to the plan administrator regarding payment of up to the maximum statutory tax rates in the participant’s applicable +jurisdiction with respect to any award granted under the 2022 Plan, as determined by us. We have the right, to the extent permitted by +applicable law, to deduct any such taxes from any payment of any kind otherwise due to the participant. With the approval of the plan +administrator, the participant may satisfy the foregoing requirement by either electing to have us withhold from delivery of shares of +Common Stock, cash or other property, as applicable, or by delivering already owned unrestricted shares of Common Stock, in each case, +having a value not exceeding the applicable taxes to be withheld and applied to the tax obligations. We may also use any other method +of obtaining the necessary payment or proceeds, as permitted by applicable law, to satisfy our withholding obligation with respect to +any award. +39 +ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL +OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS +The following table sets forth certain information +regarding beneficial ownership of shares of our Common Stock as of March 15, 2026 by (i) each person known to beneficially own more than +5% of our outstanding common stock, (ii) each of our directors, (iii) each of our named executive officers and (iv) all of our directors +and named executive officers as a group. Except as otherwise indicated, the persons named in the table below have sole voting and investment +power with respect to all shares beneficially owned, subject to community property laws, where applicable. +Beneficial +Owner (1) +Shares of +Common +Stock +beneficially +owned (2) +Percentage of +shares +beneficially +owned +Directors and Named Executive Officers +Vadim +Mats (3) +239,536 +2.34 % +Steven +A. Shorr (4) +2,083 +* +Adam +Holzer (5) +28,750 +* +Scott +Grayson (5) +28,750 +* +Roman +Feldman (6) +25,000 +* +All Directors and Officers as a group +(5 persons) +324,119 +3.17 % +* +Represents beneficial ownership +of less than 1%. +(1) +The address of each holder +listed above, except as otherwise indicated, is 101 Eisenhower Parkway, Suite 300, Roseland, NJ, 07068. +(2) +Percent of beneficial ownership +is based on 10,219,934 shares of Common Stock outstanding as of March 25, 2026. Beneficial ownership information has been determined +in accordance with Rule 13d-3 under the Exchange Act. The information is not necessarily indicative of beneficial ownership for any +other purpose. Under Rule 13d-3, certain shares may be deemed to be beneficially owned by more than one person (if, for example, +persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by +a person if the person has the right to acquire shares (for example, upon exercise of an option or warrant or upon vesting of RSUs +or restricted stock or upon conversion of a convertible security) within 60 days of the date as of which the information is provided. +In computing the percentage beneficial ownership of any person, the amount of shares is deemed to include the amount of shares beneficially +owned by such person by reason of such acquisition rights. As a result, the percentage of outstanding shares of any person as shown +in the table does not necessarily reflect the person’s actual voting power as of the date the information is provided, or any +particular date. +(3) +Includes 16,667 shares +of Common Stock subject to stock options that are exercisable within 60 days of March 15, 2026 +(4) +Includes 2,083 shares of +Common Stock subject to stock options that are exercisable within 60 days of March 15, 2026. +(5) +Includes 28,750 shares +of Common Stock subject to stock options that are exercisable within 60 days of March 15, 2026. +(6) +Includes 25,000 shares +of Common Stock subject to stock options that are exercisable within 60 days of March 15, 2026. +Securities Authorized for Issuance Under Equity +Compensation Plans +The following table summarizes information about +our equity compensation plans as of December 31, 2025: +Plan Category +Number of securities to +be issued +upon exercise of outstanding options, +warrants and rights +(a) +Weighted average +exercise price +of +outstanding options, +warrants and rights +Number of securities remaining +available for future issuance under +equity compensation plans +(excluding securities reflected in +column (a)) +Equity compensation plans approved by security +holder +239,084 +$ 9.27 +564,553 +Equity compensation plans not approved +by security holder +- +- +Total +239,084 +$ 9.27 +564,553 +40 +ITEM 13. CERTAIN RELATIONSHIPS AND RELATED +TRANSACTIONS, AND DIRECTOR INDEPENDENCE +Transactions with Related Persons +Except as described below and except for employment +arrangements which are described under “Executive Compensation,” during the fiscal years ended December 31, 2025 and 2024, +there have not been, nor are there currently proposed, any transaction in which we are or were a participant, the amount involved exceeds +the lesser of $120,000 or 1% of the average of the total assets at December 31, 2025, and any of our directors, executive officers, +holders of more than 5% of our Common Stock, or any immediate family member of any of the foregoing had or will have a direct or indirect +material interest. +Related Person Transaction Policy +We have adopted a related person transaction +policy that sets forth our procedures for the identification, review, consideration and approval or ratification of related person transactions. +For purposes of our policy only, a related person transaction is a transaction, arrangement or relationship, or any series of similar +transactions, arrangements or relationships, in which we and any related person are, were or will be participants in which the amount +involved exceeds the lesser of $120,000 or 1% of our total assets at year-end for our last two completed fiscal years. Transactions +involving compensation for services provided to us as an employee or director are not covered by this policy. A related person is any +executive officer, director or beneficial owner of more than 5% of any class of our voting securities, including any of their immediate +family members and any entity owned or controlled by such persons. +Under the policy, if a transaction has been identified +as a related person transaction, including any transaction that was not a related person transaction when originally consummated or any +transaction that was not initially identified as a related person transaction prior to consummation, our management must present information +regarding the related person transaction to our audit committee, or, if audit committee approval would be inappropriate, to another independent +body of our board of directors, for review, consideration and approval or ratification. The presentation must include a description of, +among other things, the material facts, the interests, direct and indirect, of the related persons, the benefits to us of the transaction +and whether the transaction is on terms that are comparable to the terms available to or from, as the case may be, an unrelated third +party or to or from employees generally. Under the policy, we will collect information that we deem reasonably necessary from each director, +executive officer and, to the extent feasible, significant shareholder to enable us to identify any existing or potential related-person transactions +and to effectuate the terms of the policy. In addition, under our code of business conduct and ethics, our employees and directors will +have an affirmative responsibility to disclose any transaction or relationship that reasonably could be expected to give rise to a conflict +of interest. In considering related person transactions, our audit committee, or other independent body of our board of directors, will +take into account the relevant available facts and circumstances including, but not limited to: +● the +risks, costs and benefits to us; +● the +impact on a director’s independence in the event that the related person is a director, +immediate family member of a director or an entity with which a director is affiliated; +● the +availability of other sources for comparable services or products; and +● the +terms available to or from, as the case may be, unrelated third parties or to or from employees generally. +The policy requires that, in determining whether +to approve, ratify or reject a related person transaction, our audit committee, or other independent body of our board of directors, +must consider, in light of known circumstances, whether the transaction is in, or is not inconsistent with, our best interests and those +of our shareholders, as our audit committee, or other independent body of our board of directors, determines in the good faith exercise +of its discretion. +Independence of the Board of Directors +Our board of directors undertook a review of +the independence of our directors and considered whether any director has a relationship with us that could compromise that director’s +ability to exercise independent judgment in carrying out that director’s responsibilities. Our board of directors has affirmatively +determined that Adam Holzer, Scott Grayson, and Roman Feldman are each an “independent director,” as defined under Nasdaq +rules. +41 +ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES +The following table sets forth the aggregate +fees billed by Salberg & Company, P.A. as described below: +2025 +2024 +Audit Fees (1) +$ 77,000 +$ 67,000 +Audit Related Fees (2) +$ 7,200 +$ 11,000 +Tax Fees +$ - +$ - +All Other Fees +$ - +$ - +Total +$ 84,200 +$ 78,000 +(1) Audit +Fees are paid for professional services rendered for the audit of the Company’s annual financial statements and reviews of the +Company’s unaudited condensed financial statements. +(2) Audit-related +fees may consist of fees billed by our independent registered public accounting firm for audit-related consulting services related to +registration statements. +Pre-Approval Policies and Procedures +In accordance with Sarbanes-Oxley, our audit +committee charter requires the audit committee to pre-approve all audit and permitted non-audit services provided by our independent +registered public accounting firm, including the review and approval in advance of our independent registered public accounting firm’s +annual engagement letter and the proposed fees contained therein. The audit committee has the ability to delegate the authority to pre-approve +non-audit services to one or more designated members of the audit committee. If such authority is delegated, such delegated members of +the audit committee must report to the full audit committee at the next audit committee meeting all items pre-approved by such delegated +members. In the fiscal years ended December 31, 2025 and 2024 all of the services performed by our independent registered public accounting +firm were pre-approved by the audit committee. +42 +PART IV +ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES +(a) The +following documents are filed as part of this report: +(1) Financial +Statements: +Page +Report +of Independent Registered Public Accounting Firm (PCAOB Firm ID: 106) +F-2 +Financial +Statements: +Consolidated +Balance Sheets as of December 31, 2025 and 2024 +F-3 +Consolidated +Statements of Operations and Comprehensive Loss – For the Years Ended December 31, 2025 and 2024 +F-4 +Consolidated +Statements of Changes in Stockholders’ Equity – For the Years Ended December 31, 2025 and 2024 +F-5 +Consolidated +Statements of Cash Flows – For the Years Ended December 31, 2025 and 2024 +F-6 +Notes +to Consolidated Financial Statements +F-7 +- F-25 +The financial statements required by this Item are included beginning +at page F-1. +(1) Financial +Statement Schedules: +All financial statement schedules have been omitted +because they are not applicable, not required or the information required is shown in the financial statements or the notes thereto. +(b) Exhibits +EXHIBIT INDEX +Exhibit +Number +Title +of Document +2.1 +Plan of Conversion dated +February 24, 2024 (Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on March 4, 2025.) +3.1 +Articles of Incorporation +(Incorporated by reference to Exhibit 3.1 to the Company’s Form S-1/A Filed on February 8, 2023). +3.2 +Certificate of Conversion +(Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on March 4, 2025.) +3.3 +Certificate of Incorporation +(Incorporated by reference to Exhibit 3.2 to the Company’s Form S-1/A Filed on February 8, 2023). +3.4 +Certificate of Amendment +to Articles of Incorporation dated March 6, 2024 (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report +on Form 8-K filed on March 11, 2024.) +3.5 +Bylaws (Incorporated by +reference to Exhibit 3.3 to the Company’s Form S-1/A filed on February 8, 2023). +3.6 +Second Amendment to the +Certificate of Incorporation of Gaxos.ai Inc. (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on +Form 8-K filed on January 10, 2024.) +3.7 +Amendment to the Bylaws +of Gaxos.ai Inc. (Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on January 10, +2024.) +3.8 +Third Amendment to the +Certificate of Incorporation of Gaxos.ai Inc. (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on +Form 8-K filed on March 11, 2024.) +3.9 +Articles of Conversion +filed with the Nevada Secretary of State on February 28, 2025 (Incorporated by reference to Exhibit 3.1 to the Company’s Current +Report on Form 8-K filed on March 4, 2025.) +3.10 +Certificate of Conversion +filed with the Delaware Secretary of State on February 28, 2025 (Incorporated by reference to Exhibit 3.2 to the Company’s +Current Report on Form 8-K filed on March 4, 2025.) +3.11 +Articles of Incorporation +of Gaxos.ai Inc., a Nevada corporation (Incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K +filed on March 4, 2025) +3.12 +Bylaws of Gaxos.ai Inc., +a Nevada corporation (Incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K filed on Mach 4, +2025.) +4.1 +Description of the Registrant’s +Securities. (Incorporated by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-K filed on March 28, 2025.) +4.2 +Form of Underwriting Agreement +(Incorporated by reference to Exhibit 1.1 to the Company’s S-1/A filed on February 8, 2023). +4.3 +Form of Representatives +Warrant (Incorporated by reference to Exhibit 4.4 to the Company’s Form S-1/A filed on February 8, 2023). +4.4 +Form of Stock Certificate +(Incorporated by reference to Exhibit 4.2 to the Company’s Form S-1/A filed on February 8, 2023.) +4.5 +Form of Subscription Agreement +(Incorporated by reference to Exhibit 4.3 to the Company’s Form S-1/A filed on February 8, 2023.) +4.6 +Form of Warrant (Incorporated +by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 19, 2024.) +4.7 +Form of Placement Agent +Warrant (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on December 19, 2024.) +4.8 +Form of Warrant (Incorporated +by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 30, 2024.) +4.9 +Form of Placement Agent +Warrant (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on December 30, 2024.) +43 +4.10 +Form of New +Series B Warrant (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on September 23, +2024.) +4.11 +Form of Placement Agent +Warrant (Incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on September 23, +2024.) +4.12 +Form of Warrant (Incorporated +by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 20, 2024.) +4.13 +Form of Placement Agent +Warrant (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed December 20, 2024.) +4.14 +Form of Warrant (Incorporated +by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed December 30, 2024.) +4.15 +Form of Placement Agent +Warrant (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed December 30, 2024.) +10.1+ +Executive Employment Agreement +dated February 17, 2023, by and between the Company and Vadim Mats (Incorporated by reference to Exhibit 10.1 to the Company Current +Report on Form 8-K filed on February 17, 2023.) +10.2+ +Employment Agreement dated +March 23, 2022, by and between the Company and Steven Shorr (Incorporated by reference to Exhibit 10.2 to the Company’s Form +S-1/A filed on February 8, 2023.) +10.3+ +2022 Omnibus Equity Incentive +Plan (Incorporated by reference to Exhibit 10.3 to the Company’s S-1/A filed on February 8, 2023.) +10.4# +Software and License Agreement +dated August 29, 2022, by and between the Company and Columbia University (Incorporated by reference to Exhibit 10.4 to the Company’s +S-1/A filed on February 8, 2023.) +10.5 +Form of Securities Purchase +Agreement (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 15, 2024.) +10.6 +Form of Registration Rights +Agreement (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 15, 2024.) +10.7 +Letter of Termination, +dated August 1, 2023, between the Company and The Trustees of Columbia University in the City of New York (Incorporated by reference +to the Company’s Quarterly Report on Form 10-Q filed on November 14, 2023.) +10.8 +Form of Inducement Letter +(Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 23, 2024.) +10.9 +Form of Securities Purchase +Agreement (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 19, 2024.) +10.10 +Form of Securities Purchase +Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 30, 2024.) +10.11 +At the Market Offering +Agreement by and between the Company and H.C. Wainwright & Co., LLC dated January 23, 2026 (Incorporated by reference to Exhibit +1.1 to the Company’s Current Report on Form 8-K filed on January 26, 2026.) +10.12 +Membership Interest Purchase +Agreement by and between America First Defense.AI LLC and Gaxos.ai Inc. dated as of March 2, 2026 (Incorporated by reference to Exhibit +10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 3, 2026.) +16.1 +Letter from D. Brooks and +Associates CPAs, P.A. dated June 20, 2023 (Incorporated by reference to Exhibit 16.1 to the Company’s Current Report on Form +8-K filed on June 22, 2023.) +19.1 +Gaxos.ai Insider Trading +Policy (Incorporated by reference to Exhibit 19.1 to the Company’s Annual Report on Form 10-K filed on March 28, 2025.) +21.1 +Subsidiaries of the Registrant +(Incorporated by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-K filed on March 28, 2025.) +23.1* +Consent of Independent +Registered Public Accounting Firm – Salberg & Company PA +31.1* +Certification of the Chief +Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of +2002 +31.2* +Certification of the Chief +Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of +2002 +32.1** +Certification of the Chief +Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted +pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +97.1 +Gaxos.ai Inc. Clawback +Policy (Incorporated by reference to Exhibit 97.1 on the Company’s Annual Report on Form 10-K filed on March 27, 2024.) +101.INS* +Inline XBRL Instance Document +101.SCH* +Inline XBRL Taxonomy Extension +Schema Document +101.CAL* +Inline XBRL Taxonomy Extension +Calculation Linkbase Document +101.LAB* +Inline XBRL Taxonomy Extension +Label Linkbase Document +101.PRE* +Inline XBRL Taxonomy Extension +Presentation Linkbase Document +101.DEF* +Inline XBRL Taxonomy Extension +Definition Linkbase Document +104* +Cover Page Interactive +Data File - the cover page of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2025 is formatted +in Inline XBRL +* +Filed herewith. +** +Furnished herewith. ++ +Indicates a management contract or any compensatory +plan, contract or arrangement. +# +Pursuant to Item 601(b)(10) +of Regulation S-K, certain confidential portions of this exhibit were omitted by means of marking such portions with an asterisk +because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed. +ITEM 16. FORM 10-K SUMMARY +Not applicable. +44 +SIGNATURES +Pursuant +to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report +on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on this 17 th day of March 2026. +GAXOS AI INC. +/s/ Vadim +Mats +Vadim Mats +Chief Executive Officer and Director +(Principal Executive Officer) +/s/ Steven +Shorr +Steven Shorr +Chief Financial Officer +(Principal Financial and Accounting Officer) +POWER OF ATTORNEY +KNOW +ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Vadim Mats as his attorney-in-fact, +with full power of substitution and resubstitution, for him in any and all capacities, to sign any and all amendments to this Annual +Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and +Exchange Commission, granting unto said attorney-in-fact full power and authority to do and perform each and every act and thing requisite +and necessary to be done in connection therewith as fully to all intents and purposes as he might or could do in person, hereby ratifying +and confirming all that said attorney-in-fact, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. +Pursuant +to the requirements of the Securities Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on +behalf of the registrant and in the capacities and on the dates indicated. +Signature +Title +Date +/s/ +Vadim Mats +Chief Executive Officer +and Director +March +17, 2026 +Vadim +Mats +(Principal Executive Officer) +/s/ +Steven Shorr +Chief Financial Officer +March +17, 2026 +Steven Shorr +(Principal Financial and Accounting Officer) +/s/ +Adam Holzer +Director +March +17, 2026 +Adam Holzer +/s/ +Scott Grayson +Director +March +17, 2026 +Scott Grayson +/s/ +Roman Feldman +Director +March +17, 2026 +Roman Feldman +45 +GAXOS.AI INC. AND SUBSIDIARY +CONSOLIDATED FINANCIAL STATEMENTS +DECEMBER 31, 2025 and 2024 +GAXOS.AI INC. AND SUBSIDIARY +INDEX TO CONSOLIDATED FINANCIAL STATEMENTS +DECEMBER 31, 2025 and 2024 +Page +Report of Independent Registered Public Accounting Firm (PCAOB Firm ID No. 106 ) F-2 +Consolidated Financial Statements: +Consolidated Balance Sheets as of December 31, 2025 and 2024 F-3 +Consolidated Statements of Operations and Comprehensive Loss – For the Years Ended December 31, 2025 and 2024 F-4 +Consolidated Statements of Changes in Stockholders’ Equity – For the Years Ended December 31, 2025 and 2024 F-5 +Consolidated Statements of Cash Flows – For the Years Ended December 31, 2025 and 2024 F-6 +Notes to Consolidated Financial Statements F-7 - F-25 +F- 1 +Report of Independent Registered Public Accounting +Firm +To the Stockholders and the Board of Directors +of: +Gaxos.AI Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated balance +sheets of Gaxos.AI Inc. and Subsidiary (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements +of operations and comprehensive loss, changes in stockholders’ equity and cash flows for each of the two years in the period ended +December 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, +the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as +of December 31, 2025 and 2024, and the consolidated results of its operations and its cash flows for each of the two years in the period +ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. +Basis for Opinion +These consolidated financial statements are the responsibility +of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements +based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) +and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable +rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards +of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated +financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we +engaged to perform, an audit of internal control over financial reporting. As part of our audits, we are required to obtain an understanding +of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s +internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess +the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures +that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the +consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by +management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide +a reasonable basis for our opinion. +/s/ Salberg & +Company, P.A. +SALBERG & COMPANY, +P.A. +We have served as the +Company’s auditor since 2023 . +Boca Raton, Florida +March 17, 2026 +F- 2 +GAXOS.AI INC. AND SUBSIDIARY +CONSOLIDATED BALANCE SHEETS +December 31, +December 31, +2025 +2024 +ASSETS +CURRENT ASSETS: +Cash +$ 840,799 +$ 14,398,099 +Short-term investments, at fair value +11,345,187 +2,167,419 +Investment in equity securities, at fair value +180,000 +199,998 +Accounts receivable +76,247 +- +Prepaid expenses and other current assets +157,586 +63,609 +Total Current Assets +12,599,819 +16,829,125 +LONG-TERM ASSETS: +Property and equipment, net +103,393 +70,374 +Intangible assets, net +718,333 +125,000 +Digital currencies +- +37 +Total Long-Term Assets +821,726 +195,411 +TOTAL ASSETS +$ 13,421,545 +$ 17,024,536 +LIABILITIES AND STOCKHOLDERS’ EQUITY +CURRENT LIABILITIES: +Accounts payable +$ 270,105 +$ 338,791 +Accrued expenses +280,430 +61,590 +Deferred revenue +130,054 +1,126 +Total Current Liabilities +680,589 +401,507 +Total Liabilities +680,589 +401,507 +Commitments and Contingencies (See Note 8) +STOCKHOLDERS’ EQUITY: +Preferred stock; par value $ 0.0001 ; 5,000,000 shares authorized; No shares issued and outstanding on December 31, 2025 and 2024 +- +- +Common stock; par value $ 0.0001 : 50,000,000 shares authorized; 7,123,453 and 6,923,453 shares issued and outstanding on December 31, 2025 and 2024, respectively +712 +692 +Additional paid-in capital +25,801,322 +25,416,451 +Accumulated other comprehensive income +26,976 +11,693 +Accumulated deficit +( 12,700,304 ) +( 8,799,721 ) +Total Gaxos.AI Stockholders’ Equity +13,128,706 +16,629,115 +Noncontrolling interest +( 387,750 ) +( 6,086 ) +Total Stockholders’ Equity +12,740,956 +16,623,029 +Total Liabilities and Stockholders’ Equity +$ 13,421,545 +$ 17,024,536 +See accompanying notes to consolidated financial +statements. +F- 3 +GAXOS.AI INC. AND SUBSIDIARY +CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE +LOSS +For the Year Ended +December 31, +2025 +2024 +REVENUES +$ 1,933,030 +$ 4,027 +OPERATING EXPENSES: +Research and development +993,671 +996,487 +Selling, general and administrative +5,855,885 +2,711,145 +Total Operating Expenses +6,849,556 +3,707,632 +LOSS FROM OPERATIONS +( 4,916,526 ) +( 3,703,605 ) +OTHER INCOME (LOSS): +Interest income +612,285 +157,557 +Unrealized gain on short-term investments +21,945 +- +Realized gain on short-term investments +30,047 +121,765 +Realized loss on exchange of equity securities +( 29,998 ) +- +Total other income, net +634,279 +279,322 +NET LOSS +( 4,282,247 ) +( 3,424,283 ) +Net loss of subsidiary attributable to noncontrolling interest +381,664 +6,086 +NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS +$ ( 3,900,583 ) +$ ( 3,418,197 ) +COMPREHENSIVE LOSS: +Net loss +$ ( 4,282,247 ) +$ ( 3,424,283 ) +Other comprehensive income: +Unrealized gain (loss) on short-term debt investments +15,283 +( 84,092 ) +Comprehensive loss +$ ( 4,266,964 ) +$ ( 3,508,375 ) +NET LOSS PER COMMON SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS: +Basic and diluted +$ ( 0.55 ) +$ ( 1.92 ) +WEIGHTED AVERAGE COMMON SHARE OUTSTANDING: +Basic and diluted +7,093,316 +1,777,451 +See accompanying notes to consolidated financial +statements. +F- 4 +GAXOS.AI INC. AND SUBSIDIARY +CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ +EQUITY +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +Additional +Accumulated +Other +Total +Preferred Stock +Common Stock +Paid-in +Comprehensive +Accumulated +Noncontrolling +Stockholders’ +# of Shares +Amount +# of Shares +Amount +Capital +Income (Loss) +Deficit +Interest +Equity +Balance, December 31, 2023 +- +$ +- +988,368 +$ 99 +$ 8,711,550 +$ 95,785 +$ ( 5,381,524 ) +$ +- +$ 3,425,910 +Common shares and warrants issued for cash, net +- +- +2,903,946 +290 +8,208,481 +- +- +- +8,208,771 +Sale of pre-funded warrants for cash +- +- +- +- +2,897,924 +- +- +- +2,897,924 +Common shares issued for warrants exercise for cash +- +- +1,256,734 +126 +2,663,468 +- +- +- +2,663,594 +Common shares issued for exercise of March 2024 Common Warrants for cash under warrants inducement offer, net +- +- +1,256,734 +125 +2,834,718 +- +- +- +2,834,843 +Common shares issued for Pre-funded warrant exercises +- +- +520,367 +53 +468 +- +- +- +521 +Purchase and cancellation of treasury stock +- +- +( 6,846 ) +( 1 ) +( 19,601 ) +- +- +- +( 19,602 ) +Accretion of stock option expense +- +- +- +- +119,443 +- +- +- +119,443 +Rounding shares from reverse split +- +- +4,150 +- +- +- +- +- +- +Accumulated other comprehensive loss - short-term investments +- +- +- +- +- +( 84,092 ) +- +- +( 84,092 ) +Net loss +- +- +- +- +- +- +( 3,418,197 ) +( 6,086 ) +( 3,424,283 ) +Balance, December 31, 2024 +- +- +6,923,453 +692 +25,416,451 +11,693 +( 8,799,721 ) +( 6,086 ) +16,623,029 +Common shares issued for intangible asset +- +- +200,000 +20 +247,980 +- +- +- +248,000 +Accretion of stock option expense +- +- +- +- +136,891 +- +- +- +136,891 +Accumulated other comprehensive loss - short-term investments +- +- +- +- +- +15,283 +- +- +15,283 +Net loss +- +- +- +- +- +- +( 3,900,583 ) +( 381,664 ) +( 4,282,247 ) +Balance, December 31, 2025 +- +$ +- +7,123,453 +$ 712 +$ 25,801,322 +$ 26,976 +$ ( 12,700,304 ) +$ ( 387,750 ) +$ 12,740,956 +See accompanying notes to consolidated financial +statements. +F- 5 +GAXOS.AI INC. AND SUBSIDIARY +CONSOLIDATED STATEMENTS OF CASH FLOWS +For the Year Ended +December 31, +2025 +2024 +CASH FLOWS FROM OPERATING ACTIVITIES: +Net loss +$ ( 4,282,247 ) +$ ( 3,424,283 ) +Adjustments to reconcile net loss to net cash used in operating activities: +Amortization expense +204,698 +52,442 +Stock-based compensation +136,891 +119,443 +Realized gain on short-term investments +( 30,047 ) +( 121,765 ) +Unrealized gain on short-term investments +( 21,945 ) +- +Realized loss on exchange of equity securities +29,998 +- +Non-cash transaction fees +- +764 +Change in operating assets and liabilities: +Accounts receivable +( 76,247 ) +8 +Prepaid expenses and other current assets +( 93,940 ) +( 38,477 ) +Accounts payable +( 68,686 ) +122,909 +Accrued expenses +218,840 +7,436 +Deferred revenue +128,928 +1,126 +NET CASH USED IN OPERATING ACTIVITIES +( 3,853,757 ) +( 3,280,397 ) +CASH FLOWS FROM INVESTING ACTIVITIES: +Purchase of short-term investments +( 15,685,545 ) +( 3,547,262 ) +Purchase of equity securities +- +( 199,998 ) +Proceeds from sale of short-term investments +6,575,052 +4,010,205 +Increase in note receivable +( 10,000 ) +- +Increase in capitalized internal-use software development costs +( 83,050 ) +( 45,210 ) +Purchase of intangible asset +( 500,000 ) +( 150,000 ) +NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES +( 9,703,543 ) +67,735 +CASH FLOWS FROM FINANCING ACTIVITIES: +Proceeds from the sale of common stock units +- +8,208,771 +Proceeds from exercise of pre-funded warrants +- +521 +Proceeds from sale of pre-funded warrants +- +2,897,924 +Proceeds from exercise of warrants +- +2,663,594 +Proceeds from induced exercise of warrants +- +2,834,843 +Purchase and cancellation of treasury shares +- +( 19,602 ) +NET CASH PROVIDED BY FINANCING ACTIVITIES +- +16,586,051 +NET (DECREASE) INCREASE IN CASH +( 13,557,300 ) +13,373,389 +CASH, beginning of year +14,398,099 +1,024,710 +CASH, end of year +$ 840,799 +$ 14,398,099 +SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION +Cash paid for: +Interest +$ +- +$ +- +Income taxes +$ +- +$ +- +SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: +Unrealized gain (loss) on short-term investments +$ 63,761 +$ ( 84,092 ) +Common stock issued for intangible asset +$ 248,000 +$ +- +Exchange of note receivable into investment in equity securities +$ 10,000 +$ +- +Reclassification of digital currencies to prepaid expenses and other current assets +$ 37 +$ +- +See accompanying notes to consolidated financial +statements. +F- 6 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2025 and 2024 +NOTE 1 – NATURE OF OPERATIONS +Gaxos.ai Inc. (the “Company”) was +incorporated in the state of Wyoming on October 27, 2021 (“Inception”). On March 30, 2022, the Company reincorporated +to the State of Delaware pursuant to a Plan of Conversion approved by the Board of Directors and a majority of the shareholders. On January +5, 2024, the Company changed its name from The NFT Gaming Company, Inc. to Gaxos.ai Inc. The Company is a technology-based company that +is developing applications aimed at redefining the way we utilize artificial intelligence (“AI”) to optimize the user experience. +The Company’s flagship product is Gaxos Labs, which develops and launches AI applications across fast-moving sectors. Gaxos Labs’ +team works in rapid development cycles to prototype, refine with real-world users, and scale into impactful products. The Company also +operates a gaming platform called “Gaxos Gaming” (the “Platform” or “Gaxos Gaming”), created with +a vision to develop, design, acquire, and manage conventional games and to combine these games with unconventional game mechanisms, such +as the ability for gamers and developers to utilize artificial intelligence to create and design in-game features, as well as to mint +unique in-game features, such as skins, characters, weapons, gear, levels, and virtual lands, in the form of non-fungible tokens, or “NFTs,” +that will allow users to have unique experiences and more control over in-game assets. Recently, we began to develop a new initiative, +Gaxos Health, which is dedicated to revolutionizing personal health and wellness by developing a suite of innovative AI-powered health +optimization solutions. In September 2024, the Company launched Gaxos Gaming Labs, a transformative generative AI service that empowers +game developers and publishers. Key features of the product include the reduction of creative asset development time from hours to minutes, +transforming artistic visions into reality with ease. +On September 23, 2024, the Company formed a subsidiary, +RNK Health, LLC (“RNK Health”), a company incorporated under the laws of the State of Delaware as a limited liability company. +RNK Health was formed in order to form a partnership and potential relationship with Nekwellness to engage in the proposed business of +marketing certain products. On October 10, 2024, the Company, RNK Health, and Nekwellness entered into a one-year RNK Health operating +agreement (the “Operating Agreement”), which automatically renews annually, for the regulation and management of the affairs +of RNK Health. On October 10, 2024, the Company, the sole member of RNK Health, admitted Nekwellness as a member of RNK Health and accordingly, +Nekwellness was granted a 30 % membership interest in RNK Health, as full consideration for their services under the Operating Agreement, +with the Company reduced to a 70 % membership interest. RNK Health is currently providing access to certain medications, supplements and +other wellness products and services. +At the Company annual meeting on December 27, +2024, the stockholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation for the reincorporation +of the Company from The State of Delaware to the State of Nevada, which occurred on March 3, 2025. +NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING +POLICIES +Basis of Presentation +On February 28, 2024, a majority of the Company +shareholders granted discretionary authority to the Company’s Board of Directors to amend the Company’s Certificate of Incorporation +to effect one or more consolidations of the Company’s issued and outstanding shares of common stock, pursuant to which the shares +of common stock would be combined and reclassified into on the basis of one share of common stock for each 12 shares of the Company’s +common stock then issued and outstanding (the “Reverse Stock Split”). On March 7, 2024, the Company filed a Certificate of +Amendment to the Amended and Restated Articles of Incorporation (the “Certificate of Amendment”) with the Secretary of State +of the State of Delaware to effect a 1-for-12 reverse stock split with respect to the outstanding shares of the Company’s common +stock. The Certificate of Amendment and the reverse stock split became effective on March 7, 2024. All share and per share data in the +accompanying consolidated financial statements have been retroactively adjusted to reflect the effect of the Reverse Stock Split. +This summary of significant account policies of +the Company is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial +statements and the notes are the representation of the Company’s management, who are responsible for their integrity and objectivity. +These accounting policies conform to U.S. generally accepted accounting principles (“US GAAP”) and have been consistently +applied in the preparation of the consolidated financial statements. +F- 7 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2025 and 2024 +The accompanying consolidated financial statements +have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments +in the ordinary course of business. +The Company’s consolidated financial statements +include the accounts of the parent entity, Gaxos.AI, Inc. and RNK Health, which is a majority-owned subsidiary. All intercompany accounts +and transactions have been eliminated in consolidation. +The Company accounts for its noncontrolling interest +in RNK Health in accordance with ASC Topic 810-10-45, which requires the Company to present noncontrolling interests as a separate component +of total shareholders’ equity on the consolidated balance sheets and the consolidated net loss attributable to its noncontrolling +interest be clearly identified and presented on the face of the consolidated statements of operations and comprehensive loss. +Liquidity +Liquidity is the ability of a company to generate +funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. On December 31, +2025, the Company had a cash balance of $ 840,499 , had short-term investments of $ 11,345,187 , and had working capital of $ 11,919,230 . During +the year ended December 31, 2025, the Company used net cash in operations of $3,853,757. Until such time that the Company implements its +growth strategy, it expects to continue to generate operating losses in the foreseeable future, mostly due to corporate overhead, research +and development, and costs of being a public company. The Company believes that its existing working capital and cash on hand will provide +sufficient cash to enable the Company to meet its operating needs and debt requirements for the next twelve months from the issuance date +of this report. +Use of Estimates +The preparation of financial statements in conformity +with US GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure +of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses +during the reporting period. Actual results could differ from those estimates. Significant estimates in the accompanying consolidated +financial statements include the valuation of investments, valuation of note receivable, valuation of intangible assets and other long-lived +assets, the estimate of the sales returns reserve liability, the valuation of common shares issued to purchase intangible assets, estimates +of deferred tax valuation allowances and the fair value of stock options issued for services. +Fair Value Measurements and Fair Value of +Financial Instruments +The Company analyzes all financial instruments +with features of both liabilities and equity under the Financial Accounting Standard Board’s (the “FASB”) accounting +standard for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on the lowest +level of input that is significant to the fair value measurement. The Company identified the following assets or liabilities that are +required to be presented on the balance sheet at fair value in accordance with Accounting Standards Codification (“ASC”) Topic 820. +The three levels of the fair value hierarchy are +as follows: +● +Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. +● +Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. +● +Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information. +The carrying amounts reported in the balance sheets +for cash, accounts receivable, prepaid expenses and other current assets, accounts payable, and accrued expenses approximate their fair +market value based on the short-term maturity of these instruments. +F- 8 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2025 and 2024 +The following table represents the Company’s +fair value hierarchy of its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2025 and 2024. +December 31, 2025 +December 31, 2024 +Description +Level 1 +Level 2 +Level 3 +Level 1 +Level 2 +Level 3 +Short-term investments +$ 11,345,187 +$ +- +$ +- +$ 2,167,419 +$ +- +$ +- +Equity securities +$ +- +$ +- +$ 180,000 +$ +- +$ +- +$ 199,998 +The Company’s short-term investments are +level 1 measurements and are based on the quoted fair value on each date. +Investment in Equity Securities, at Fair Value +The following table summarizes activity in the +Company’s investment in equity securities, at fair value for the periods presented: +Year Ended +December 31, +Year Ended +December 31, +2025 +2024 +Balance, beginning of year +$ 199,998 +$ +- +Additions +190,000 +199,998 +Sale of RPM Interactive +( 180,000 ) +- +Realized loss on sale of RPM Interactive +( 29,998 ) +- +Balance, end of year +$ 180,000 +$ 199,998 +On December 31, 2024, equity securities, at fair +value, consisted of 666,660 shares of common equity securities of one entity, RPM Interactive, Inc., a security without a readily determinable +fair value. On May 16, 2024, the Company purchased 666,660 common shares of RPM Interactive, Inc. for $ 199,998 . On December 10, 2025, +the Company exchanged a $ 10,000 note receivable into an additional 100,000 shares of RPM Interactive valued at $ 10,000 . On December 12, +2025 (the “Exchange Date”), the Company exchanged its 766,660 shares of RPM Interactive for 402.45 shares of Avalon Globocare +Corp’s (“Avalon”) Series E preferred shares valued at $ 180,000 , valued on the Exchange Date and as of December 31, 2025 +using a dribble out model using assumptions such as Avalon’s trading volume, sale restrictions, marketability discount and capitalization +rate . +Cash and Cash Equivalents +For purposes of the consolidated statements of +cash flows, the Company considers all highly liquid instruments with a maturity of three months or less at the purchase date and +money market accounts to be cash equivalents. The Company has no cash equivalents as of December 31, 2025 and 2024. +The Company’s cash is held at major commercial +banks, which may at times exceed the Federal Deposit Insurance Corporation (“FDIC”) limit. To date, the Company has not experienced +any losses on its invested cash. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company’s +financial condition, results of operations, and cash flows. +On December 31, 2025, the Company had approximately +$ 439,000 of cash in excess of FDIC limits of $ 250,000 . +Accounts and note receivable +The Company follows ASC 326, “Financial +Instruments - Credit Losses” and recognizes an allowance for losses on accounts and notes receivable in an amount equal to the estimated +probable losses net of recoveries under the current expected credit loss method. The allowance is based on an analysis of historical credit +loss experience, current receivables aging, and expected future write-offs, as well as an assessment of specific identifiable customer +accounts considered at risk or uncollectible. The credit loss expense associated with the allowance for doubtful accounts related to accounts +and notes receivable is recognized in general and administrative expenses. As of December 31, 2025 and 2024, accounts receivable amounted +to $ 76,247 and $0 , respectively. As of December 31, 2025 and 2024, note receivable amounted to $0 and $ 0 , respectively. For the years +ended December 31, 2025 and 2024, the Company did not recognize any credit losses. +F- 9 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2025 and 2024 +Short-Term Investments +The Company’s portfolio of short-term investments consists of +marketable debt securities which are comprised of rated U.S. government securities, and corporate bonds with maturities of more than three +months, but less than one year. The Company classifies these as available-for-sale at purchase date and will reevaluate such designation +at each period end date. The Company may sell these marketable debt securities prior to their stated maturities depending upon changing +liquidity requirements. The debt securities are classified as current assets in the consolidated balance sheets and recorded at fair value, +with unrealized gains or losses included in accumulated other comprehensive income (loss) on the consolidated balance sheets and as a +component of the consolidated statements of comprehensive loss. The Company also invests in exchange-traded and closed end equity securities. +The equity securities are classified as current assets in the consolidated balance sheets and recorded at fair value, with unrealized +gains or losses included in other income (expense) on the consolidated statement of operation and comprehensive loss. Gains and losses +are recognized when realized. Gains and losses are determined using the specific identification method and are reported in other income +(expense), net in the consolidated statements of operations and comprehensive loss. +An impairment loss may be recognized when the +decline in fair value of the debt securities is determined to be other-than-temporary. The Company evaluates its investments for other-than-temporary +declines in fair value below the cost-basis each quarter, or whenever events or changes in circumstances indicate that the cost basis +of the short-term investments may not be recoverable. The evaluation is based on a number of factors, including the length of time and +the extent to which the fair value has been below the cost basis, as well as adverse conditions related specifically to the security, +such as any changes to the credit rating of the security and the intent to sell or whether the Company will more likely than not be required +to sell the security before recovery of its amortized cost basis. +The Company recorded $ 15,283 and $( 84,092 ) of +unrealized gain (loss) on short-term debt investments as a component of other comprehensive loss for the years ended December 31, 2025 +and 2024, respectively. During the years ended December 31, 2025 and 2024, the Company recognized a realized gain on sale of short-term +equity investments of $ 30,047 and $ 121,765 , respectively. During the years ended December 31, 2025 and 2024, the Company recognized an +unrealized gain on short-term equity investments of $ 21,945 and $0 , respectively. +Investment in Equity Securities, at Fair +Value +Equity investments are carried at fair value with +unrealized gains or losses which are recorded as net unrealized gain (loss) on equity investments in the accompanying consolidated statement +of operations and comprehensive loss. Realized gains and losses are determined on a specific identification basis which is recorded +in earnings or loss as a net realized gain (loss) on equity investments in the consolidated statement of operations and comprehensive +loss. The Company reviews investments in equity securities, at fair value, for impairment whenever circumstances and situations change +such that there is an indication that the carrying amounts may not be recovered. During the years ended December 31, 2025 and 2024, the +Company recognized a realized loss on investments in equity securities of $ 29,998 and $ 0 , respectively . +Accounting for Digital Currencies and Other +Digital Assets +The Company accounts for digital currencies and +other digital assets as indefinite-lived intangible assets and accounts for them at historical cost in accordance with ASC 350, Intangibles - Goodwill +and Other Indefinite-lived intangible assets are not subject to amortization but rather evaluated for impairment annually and more frequently, +if events or circumstances change that indicate that it is more likely than not that the asset is impaired (i.e., if an impairment indicator +exists). As a result, the Company only recognizes decreases in the value of its digital currencies and other digital assets, and any increase +in value will be recognized only upon disposition. The Company plans to dispose of cryptocurrency received as a form of payment into fiat +currency and anticipates ownership of cryptocurrency to be minimal. As of December 31, 2025, the Company’s digital currencies consisted +of 52.78 units of Polygon (MATIC), an Ethereum token valued at $ 19 , which is included in prepaid expenses and other current assets on +the accompanying consolidated balance sheet.. As of December 31, 2024, the Company’s digital currencies consisted of 52.78 +units of Polygon (MATIC), an Ethereum token valued at $ 37 . +Property and Equipment +Property and equipment are stated at cost and +are depreciated using the straight-line method over their estimated useful lives. Maintenance and repairs are charged to expense as incurred. +When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or +losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of these assets +when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. +F- 10 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2025 and 2024 +Property and equipment includes capitalized internal-use +software development costs. Costs incurred to develop internal-use software, including game development, are expensed as incurred during +the preliminary project stage. Internal-use software development costs are capitalized during the application development stage, which +is after: (i) the preliminary project stage is completed; and (ii) management authorizes and commits to funding the project +and it is probable the project will be completed and used to perform the intended function. Capitalization ceases at the point where the +software project is substantially complete and ready for its intended use, and after all substantial testing is completed. Upgrades and +enhancements are capitalized if it is probable that those expenditures will result in additional functionality. Amortization is provided +for on a straight-line basis over the expected useful life of the internal-use software development costs and related upgrades and enhancements, +which currently is three years. When existing software is replaced with new software, the unamortized costs of the old software are expensed +when the new software is ready for its intended use. +Intangible Assets +Intangible assets, consisting of acquired software +licenses, technology licenses and acquired software, are carried at cost less accumulated amortization, computed using the straight-line +method over the estimated useful life of 5 years, less any impairment charges. +Stock-based Compensation +Stock-based compensation is accounted for based +on the requirements of ASC 718 – “Compensation–Stock Compensation ”, which requires recognition in the financial +statements of the cost of employee, non-employee and director services received in exchange for an award of equity instruments over the +period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The +ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date +fair value of the award. The Company has elected to account for forfeitures as they occur. +Income Taxes +Deferred income taxes are provided using the liability +method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards, +and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported +amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of +management, it is more likely than not that some portion or all the deferred tax assets will not be realized. Deferred tax assets and +liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment. +When tax returns are filed, it is highly certain +that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about +the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized +in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not +that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions +taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured +as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing +authority. The portion of the benefits associated with tax positions taken that exceed the amount measured as described above is reflected +as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that +would be payable to the taxing authorities upon examination. Applicable interest and penalties associated with unrecognized tax benefits +are classified as additional income taxes in the consolidated statements of operations. +Revenue Recognition +The Company follows Accounting Standards Codification +(“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). This standard establishes a single +comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASC 606 requires an entity +to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to +which the entity expects to be entitled in exchange for those goods or services and requires certain additional disclosures. +F- 11 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2025 and 2024 +In accordance with ASU Topic 606 - Revenue +from Contracts with Customers , the Company recognizes revenue in accordance with that core principle by applying the following steps: +Step 1: Identify the contract(s) with a customer. +Step 2: Identify the performance obligations in the contract. +Step 3: Determine the transaction price. +Step 4: Allocate the transaction price to the performance obligations +in the contract. +Step 5: Recognize revenue when (or as) the entity satisfies a performance +obligation. +The Company generates or plans to generate revenue +from the following sources: +● +The Company generates revenue from the sale of our in-game items to our customers. Revenue generated from such sales, primarily through the app stores, such as Google Play Store or Apple App Store, is recognized at a point in time, which is upon delivery of the in-game items to the customer, which is when the Company completes its sole performance obligation. Fees incurred by the Company, such as commissions to the app stores, are recognized in operating expenses. +● +The Company generates revenue from the sale of health coaching packages to its customers. Health coaching packages consist of a series of lab tests and personal health coaching sessions. Revenues generated from such sales are recognized at a point in time, which is upon the completion of lab testing and the utilization of health coaching sessions, which is when the Company completes its performance obligation. Any fees paid in advance by the customer are reflected as contract liabilities until such time as the performance obligation is completed. Fees incurred by the Company, such as the lab testing charges, are recognized in operating expenses. +● +Gaxos Labs sells subscriptions to its customers for the use of its +software under a software as a service subscription model (“SaaS”), which allows game developers and publishers to create +content using AI which reduce creative asset development time. The Company’s SaaS offerings are sold under a prepaid or postpaid, +usage-based pricing system pursuant to a tiers model, allowing customers to choose the subscription level to be charged based upon their +intended usage. The subscription tiers utilize declining prices as the volume grows. Under prepaid pay-as-you-go plans, revenues related +to contracts that do not include a specified contract period are recognized over a period of time, which is upon usage by the customer +and satisfaction of the Company’s performance obligation. If professional services are deemed to be distinct, revenue is recognized +over a period of time as services are performed. The Company does not view the signing of the contract or the provision of initial setup +services as discrete earnings events that are distinct. Fees incurred by the Company, such as the merchant fees are recognized in operating +expenses. +● +In connection with RNK Health, the Company is generating revenues from providing non-clinical administrative services to support patient health. RNK Health has partnered with a third-party medical management company (the “Medical Partner”) that provides medication management and patient support care services via telehealth to patients located in all 50 states. The Medical Partner provides and makes available health care professionals to perform telehealth services within their respective scope of practice, provides and maintains applicable professional licensure, provides medication management services and provides RNK Health and patients access to the Medical Partner’s telehealth optimized technology platform. RNK Health provides services to patients to support the delivery of various medical services, including virtual rooming of patients, patient pathway advisory services, patient scheduling and interface connected to the Medical Partners central calendar, patient pathway monitoring and service, nonclinical patient customer service, care navigation service, software-based care optimization services, patient education services, patient intake system and data collection (the “Administrative Services”). The Company evaluates the presentation of revenue on a gross vs. net basis based on whether it acts as a principal by controlling the product or service sales to customers. The Company records these revenues on a net basis as an agent since Medical Partner is primarily responsible for fulfilling the contract with the customer, the Company does not have inventory risk before or after the goods have been ordered by a customer, during shipping, or on return, the Company’s consideration is in the form of a commission for its Administrative Services, and the Company is not exposed to credit risk for the amount receivable from a customer in exchange for the Medical Partner’s goods or services. The Medical Partner performs all medical management and patient support care services and the Medical Partner pays the Company its share of revenue. The Medical Partner has the right to refuse services to the Patient. The Company is obligated to fulfill the non-clinical administrative services and is reliant on the Medical Partner to accept the Patient, deliver all medication management and patient support services, and the collect and remit the Company’s commission to the Company. Revenues from non-clinical administrative services are recognized at a point in time, upon satisfaction of the performance obligation, which occurs when the non-clinical administrative services have been completed and collection of the fee is probable. RNK Health pays a monthly fee to the Medical Partner for access to the Medical Partners telehealth optimized technology platform, which is included in operating expenses on the accompanying consolidated statements of operations and comprehensive loss. +F- 12 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2025 and 2024 +● +The Company plans to generate revenue from advertising fees paid by game advertisers, developers, hardware companies, or other strategic partners to the Company for promotion on our platform. Revenues from these fees will be recognized ratably over the agreed-upon advertising service period and upon delivery of agreed-upon advertising services, which constitutes satisfaction of the performance obligation. During the years ended December 31, 2025 and 2024, the Company did not generate revenues from advertising fees. +● +The Company plans to generate royalty revenues when a third party sells one of our NFTs on a third-party platform. We will recognize royalty revenue when it is probable that we will collect the royalty fee owed which is typically when we receive notification from the third-party platform that an NFT has been sold, which constitutes satisfaction of the performance obligation. In the instance where the Company will receive royalty payments when a customer disposes of an in-game NFT in the secondary market on a third-party platform or any other payment that is not in fiat currency, the Company will recognize the revenue in accordance with ASC 606-10-32-21, “ Noncash Consideration” . The fair value of the non-cash consideration received shall be determined by using the quoted price for such non-cash consideration on the date of the transaction. During the years ended December 31, 2025 and 2024, the Company did not generate revenues from royalties. +During the years ended December 31, 2025 and 2024, +revenues consisted of the following: +For the Year +Ended +December 31, +2025 +For the Year +Ended +December 31, +2024 +Revenue from administrative services +$ 1,509,886 +$ - +Revenue from the sale of health coaching packages +1,124 +3,952 +Revenue from the sale of subscriptions +421,995 +42 +Revenue from sale of in-game items +25 +33 +Total revenues +$ 1,933,030 +$ 4,027 +For RNK Health, revenue refunds and credits are +recorded as a reduction to revenues, and a reserve liability is included in accrued expenses on the accompanying consolidated statement +of operations and comprehensive loss. As of December 31, 2025 and 2024, the reserve liability amounted to $ 15,667 and $ 0 , respectively. +For the years ended December 31, 2025 and 2024, +deferred revenue activity consisted of the following: +For the Year +Ended +December 31, +2025 +For the Year +Ended +December 31, +2024 +Balance – beginning of year +$ 1,126 +$ +- +Additions +130,054 +1,126 +Recognized as revenue +( 1,126 ) +- +Balance – end of year +$ 130,054 +$ 1,126 +During the year ended December 31, 2025, $ 1,126 +of the deferred revenue as of December 31, 2024 was recognized into revenues. Deferred revenue as of December 31, 2025 of $ 130,054 is +expected to be realized during 2026. +Research and Development +Research and development costs incurred in the +development of the Company’s products are expensed as incurred and include costs such as labor and outside development costs, software +license fees, materials, and other allocated costs incurred. +F- 13 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2025 and 2024 +Net Loss per Share +The Company computes net loss per share in accordance +with ASC 260-10, “Earnings Per Share.” The basic net loss per common share is computed by dividing the net loss +by the weighted average number of common shares outstanding. Diluted net loss per share gives effect to all dilutive potential common +shares outstanding during the period using the “as if converted” basis. +Pursuant to ASC 260-10-45, basic loss per +common share is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock +outstanding for the period presented. Diluted loss per share is computed by dividing net loss attributable to common stockholders by the +weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the +period. +During the years ended December 31, 2025 and 2024, +the following common stock equivalents were excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive +impact on the Company’s net loss. +December 31, +2025 +2024 +Common stock equivalents: +Warrants +4,509,259 +4,509,259 +Stock options +239,084 +64,084 +Total +4,748,343 +4,573,343 +Noncontrolling Interests +The Company follows ASC Topic 810, “Consolidation,” +governing the accounting for and reporting of noncontrolling interests (“NCI”) in its partially owned consolidated subsidiary. +Certain provisions of this standard indicate, among other things, that NCI be treated as a separate component of equity, not as a liability, +that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather +than as step acquisitions or dilution gains or losses, and that losses of a partially-owned consolidated subsidiary be allocated +to noncontrolling interests even when such allocation might result in a deficit balance. The net loss attributed to NCI was separately +designated in the accompanying consolidated statements of operations and comprehensive loss. Losses attributable to NCI in a subsidiary +may exceed a NCI’s interests in the subsidiary’s equity. The excess attributable to NCI is attributed to those interests. +NCI shall continue to be attributed to their share of losses even if that attribution results in a deficit NCI balance. +Segment Reporting +The Company operates as a single operating segment +technology-based company that is developing applications aimed at redefining the way we utilize artificial intelligence (“AI”) +to optimize the user experience. In accordance with ASC 280 – “ Segment Reporting ”, the Company’s chief +operating decision maker has been identified as the Chief Executive Officer , who reviews operating results to make decisions about allocating +resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, +establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products +and services, major customers, and the countries in which the entity holds material assets and reports revenue. All material operating +units qualify for aggregation under “Segment Reporting” due to their similarities in economic characteristics such as nature +of services; and procurement processes. Since the Company operates in one segment, all financial information required by “Segment +Reporting” can be found in the accompanying consolidated balance sheets and consolidated statements of operations and notes to consolidated +financial statements. +Recent Accounting Pronouncements +In November 2024, the FASB issued ASU 2024-03, +Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which requires entities +to provide more detailed disaggregation of expenses in the income statement, focusing on the nature of the expenses rather than their +function. The new disclosures will require entities to separately present expenses for significant line items, including but not limited +to, depreciation, amortization, and employee compensation. Entities will also be required to provide a qualitative description of the +amounts remaining in relevant expense captions that are not separately disaggregated quantitatively, disclose the total amount of selling +expenses and, in annual reporting periods, provide a definition of what constitutes selling expenses. This pronouncement is effective +for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early +adoption permitted. The Company does not expect the adoption of this new guidance to have a material impact on the consolidated financial +statements. +F- 14 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2025 and 2024 +Management does not believe that any other recently +issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on its consolidated financial statements. +NOTE 3 – SHORT-TERM INVESTMENTS AND +INVESTMENT IN EQUITY SECURITIES +Short-Term Investments +On December 31, 2025, the Company’s short-term +investments consisted of the following: +Cost +Unrealized +Gain +Fair Value +Corporate bonds +$ 10,903,573 +$ 26,976 +$ 10,930,549 +Exchange-traded and closed end equity funds +392,693 +21,945 +414,638 +Total short-term investments +$ 11,296,266 +$ 48,921 +$ 11,345,187 +On December 31, 2024, the Company’s short-term +investments consisted of the following: +Cost +Unrealized +Gain +Fair Value +US Treasury bills +$ 2,155,726 +$ 11,693 +$ 2,167,419 +Total short-term investments +$ 2,155,726 +$ 11,693 +$ 2,167,419 +During the year ended December 31, 2025 and 2024, +gain or loss on short-term investments consisted of the following: +For the Year +Ended December 31, +2025 +For the Year +Ended December 31, +2024 +Proceeds from the sale of short-term investments +$ 6,575,052 +$ 4,010,205 +Cost of short-term investments +( 6,545,005 ) +( 3,888,440 ) +Realized gain on short-term investments +$ 30,047 +$ 121,765 +Investment in Equity Securities, at Fair Value +The following table summarizes activity in the +Company’s investment in equity securities, at fair value for the periods presented: +Year +Ended +December 31, +Year +Ended +December 31, +2025 +2024 +Balance, beginning of year +$ 199,998 +$ +- +Additions +190,000 +199,998 +Sale of RPM Interactive +( 180,000 ) +Realized loss on sale of RPM Interactive +( 29,998 ) +Balance, end of year +$ 180,000 +$ 199,998 +F- 15 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2025 and 2024 +On December 31, 2024, equity securities, at fair +value, consisted of 666,660 shares of common equity securities of one entity, RPM Interactive, Inc., a security without a readily determinable +fair value. On May 16, 2024, the Company purchased 666,660 common shares of RPM Interactive, Inc. for $ 199,998 . On December 10, 2025, +the Company exchanged a $ 10,000 note receivable into an additional 100,000 shares of RPM Interactive valued at $ 10,000 . On December 12, +2025 (the “Exchange Date”), the Company exchanged its 766,660 shares of RPM Interactive for 402.45 shares of Avalon’s +Series E preferred shares valued at $ 180,000 , valued on the Exchange Date and as of December 31, 2025 using a dribble out model using +assumptions such as Avalon’s trading volume, sale restrictions, marketability discount and capitalization rate. +NOTE 4 – NOTE RECEIVABLE +On September 17, 2025, the Company made an investment +of $ 10,000 into RPM Interactive, Inc. (“RPM”). In exchange for the investment, RPM issued to the Company a promissory note +(the “RPM Note”) dated September 17, 2025 (the “Issuance Date”) in the original principal amount of $ 10,000 . The +RPM Note bears interest at the rate of 7.0 % per annum and matures on September 17, 2026 (the “Maturity Date”). Interest on +the outstanding principal sum of the RPM Note commences accruing on the Issuance Date and is computed on the basis of a 365-day year and +the actual number of days elapsed and shall be payable on the Maturity Date. RPM may prepay the RPM Note at any time without penalty. +On December 10, 2025, the Company exchanged the $ 10,000 note receivable into an additional 100,000 shares of RPM Interactive. As of December +31, 2025, note receivable amounted to $ 0 . +NOTE 5 – PROPERTY AND EQUIPMENT +On December 31, 2025 and 2024, property and equipment +consisted of the following: +Useful life December 31, +2025 December 31, +2024 +Capitalized internal-use software development costs 3 years $ 185,231 $ 102,181 +Less: accumulated amortization ( 81,838 ) ( 31,807 ) +$ 103,393 $ 70,374 +For the years ended December 31, 2025 and 2024, +amortization of capitalized internal-use software development costs amounted to $ 50,031 and $ 27,442 , respectively. +NOTE 6 – INTANGIBLE ASSETS +On December 31, 2025 and 2024, intangible assets +consisted of the following: +Useful life December 31, +2025 December 31, +2024 +License 5 years $ 150,000 $ 150,000 +Acquired internal-use software 5 years 748,000 +- +Subtotal 898,000 150,000 +Less: accumulated amortization ( 179,667 ) ( 25,000 ) +Intangible assets, net $ 718,333 $ 125,000 +On March 4, 2024, the Company entered into a Purchase +Agreement with a third party to acquire certain technology and computer code. The Purchase Agreement grants the Company a perpetual, worldwide, +non-exclusive, non-transferable, royalty free, fully paid license to (a) modify and create derivative works from certain technology and +related codebase including, but not limited to, “Habit-tracking Module,” “Administrative Panel,” and related computer +code. The aggregate purchase price was $ 150,000 and is included in intangible assets on the accompanying consolidated balance sheet. +On February 24, 2025, the Company consummated +a Software Purchase Agreement with a third party, whereby the Company purchased software and related technologies for $ 500,000 in cash +and 200,000 shares of the Company’s common stock. These shares were valued at $ 248,000 , or $ 1.24 per share, based on the quoted +closing price of the Company’s common stock on the measurement date. In connection with these shares and cash payment, the Company +recorded an intangible asset of $ 748,000 . +F- 16 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2025 and 2024 +For the years ended December 31, 2025 and 2024, +amortization of intangible assets amounted to $ 154,667 and $ 25,000 , respectively, which is based on an estimated useful life of 5 years +and includes amortization expense related to the License Agreement. +Amortization of the intangible asset attributable +to future periods is as follows: +Year ending December 31: +Amount +2026 +$ 179,600 +2027 +179,600 +2028 +179,600 +2029 +154,600 +2030 +24,933 +$ 718,333 +NOTE 7 – STOCKHOLDERS’ EQUITY +Preferred Stock +The Company is authorized to issue 5,000,000 shares +of its $ 0.0001 par value preferred stock. The Company’s board of directors will have the authority to fix and determine the relative +rights and preferences of preferred shares, as well as the authority to issue such shares, without further stockholder approval. As of +December 31, 2025 and 2024, no preferred shares have been designated and no preferred shares were issued and outstanding. +Common Stock +2023 Stock Repurchase Plan +On March 20, 2023, the Board of Directors of the +Company approved a stock repurchase program authorizing the purchase of up to $ 500,000 of the Company’s common stock until December +31, 2023 (the “2023 Stock Repurchase Program”). On January 1, 2024, the Board of Directors of the Company approved an extension +of the 2023 Stock Repurchase Program until March 31, 2024. In connection with the 2023 Stock Repurchase Program, from January 1, 2024 +to March 31, 2024, the Company purchased and cancelled 6,846 shares of its common stock for $ 19,602 , or at an average price of $ 2.86 per +share. +Common Stock Issued for Intangible Asset +On February 24, 2025, the Company consummated +a Software Purchase Agreement with a third party, whereby the Company purchased software and related technologies for $ 500,000 in cash +and 200,000 shares of the Company’s common stock. The 200,000 shares were valued at $ 248,000 , or $ 1.24 per share, based on the quoted +closing price of the Company’s common stock on the measurement date (see Note 6). +Capital Raises +March 2024 +On March 13, 2024, the Company entered into a +securities purchase agreement (the “March 2024 Purchase Agreement”) with an institutional investor (“the “Purchaser”) +for the issuance and sale in a private placement (the “March 2024 Private Placement”) of aggregate Units consisting of (i) +108,000 shares of the Company’s common stock, (ii) series A warrants to purchase up to 628,367 shares of the Company’s common +stock (the “Series A Warrants”), and (iii) series B warrants to purchase up to 628,367 shares of the Company’s common +stock (the “Series B Warrants” and together with the Series A Warrants, the “March 2024 Common Warrants”). The +purchase price of each Unit consisted of one share of the Company’s common stock and associated March 2024 Common Warrants, was +$ 5.57 per Unit for aggregate gross proceeds of $ 601,560 . Additionally, the Company sold pre-funded warrants to purchase up to 520,367 +shares of the Company’s common stock (the “Pre-Funded Warrants”). Pre-funded Warrants are a type of warrant that allows +the warrant holder to purchase a specified number of a company’s securities at a nominal exercise price. The purchase price of each +Pre-Funded Warrant was $ 5.569 for aggregate gross proceeds of $ 2,897,924 . In connection with this March 2024 Private Placement, the Company +raised aggregate gross proceeds of $ 3,499,484 consisting of $ 601,560 from the sales of common stock units and $ 2,897,924 from the sale +of pre-funded warrants, and the Company received net proceeds of $ 3,056,984 , net of offering costs paid to the placement agent (see below) +of $ 382,500 and legal fees of $ 60,000 , which were netted against the $ 601,560 of gross proceeds from the sale of common stock units for +net proceeds allocated to the sale of common stock units of $ 159,060 . The Company is using the net proceeds received from the March 2024 +Private Placement for general corporate purposes and working capital. +F- 17 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2025 and 2024 +The March 2024 Common Warrants are exercisable +immediately upon issuance at an exercise price of $ 5.50 per share. The Series A Warrants will expire five and one-half years from the +date of issuance and the Series B Warrants will expire twenty-four months from the date of issuance. The Pre-Funded Warrants are exercisable +immediately upon issuance at a nominal exercise price of $ 0.001 and may be exercised at any time until the Pre-Funded Warrants are exercised +in full. A holder of Pre-Funded Warrants or March 2024 Common Warrants (together with its affiliates) may not exercise any portion of +a warrant to the extent that the holder would own more than 4.99 % (or, at the election of the holder 9.99 %) of the Company’s outstanding +Common Stock immediately after exercise. +In connection with the March 2024 Private Placement, +the Company entered into a registration rights agreement (the “Registration Rights Agreement”), dated as of March 13, 2024, +with the Purchaser, pursuant to which the Company agreed to prepare and file a registration statement with the Securities and Exchange +Commission (the “ SEC ”) registering the resale of the securities issued in the March 2024 Private Placement no later +than 30 days after the date of the Registration Rights Agreement, and to use its best efforts to have the registration statement declared +effective as promptly as practical thereafter, and in any event no later than 60 days following the date of the Registration Rights Agreement +(or 90 days following the date of the Registration Rights Agreement in the event of a “full review” by the SEC). The Company +filed a registration statement with the SEC on April 4, 2024 which declared effective on April 16, 2024. +H.C. Wainwright & Co., LLC (the “Placement +Agent”) acted as the Company’s exclusive placement agent in connection with the March 2024 Private Placement, pursuant to +an engagement letter, dated as of March 7, 2024 and as amended on March 13, 2024, between the Company and Wainwright (the “Engagement +Letter”). Pursuant to the Engagement Letter, the Company paid the Placement Agent (i) a total cash fee equal to 7.5 % of the aggregate +gross proceeds of the March 2024 Private Placement and (ii) a management fee of 1.0 % of the aggregate gross proceeds of the March 2024 +Private Placement. In addition, the Company agreed to pay the Placement Agent certain expenses and issued to the Placement Agent or its +designees warrants (the “March 2024 Placement Agent Warrants”) to purchase up to an aggregate of 47,128 shares of the Company’s +common stock at an exercise price equal to $ 6.9625 per share. The March 2024 Placement Agent Warrants are exercisable immediately upon +issuance and have a term of exercise equal to five and a half years from the date of issuance. The fair value of the March 2024 Placement +Agent Warrants of $ 318,900 was calculated using the Binomial Lattice valuation model, which is considered an offering cost and is netted +against the net proceeds received. In addition, pursuant to the Engagement Letter, the Company agreed that upon any exercise for cash +of any privately placed warrants issued to investors in an offering covered by the Engagement Letter, the Company shall (i) pay the Placement +Agent a cash fee of 7.5 % and a management fee of 1.0 % of the aggregate gross exercise paid in cash with respect thereto, and (ii) issue +warrants to purchase that number of shares of common stock equal to 7.5 % of the aggregate number of shares of common stock underlying +the warrants that were exercised. +The March 2024 Placement Agent Warrants were valued +on the date of issuance using Binomial Lattice valuation model with the following assumptions: +March 15, +2024 +Dividend rate +— +% +Term (in years) +5.5 years +Volatility +186.5 % +Risk—free interest rate +4.33 % +The risk-free interest rate is based on the U.S. +Treasury rates at the date of issuance with a maturity date approximately equal to the expected life at issuance date. Volatility is based +on historical and expected future volatility of the Company’s common stock. The Company has not historically issued any dividends +and does not expect to in the future. +September 2024 +On September 20, 2024, the Company entered into +an inducement offer agreement with the Holder of the March 2024 Common Warrants to immediately exercise for cash an aggregate 1,256,734 +of the March 2024 Common Warrants to purchase shares of the Company’s common stock at a reduced exercise price of $ 2.58 per share +for gross proceeds to the Company of $ 3,242,374 and the Company received net proceeds of $ 2,834,843 after deducting placement agent +fees of $ 376,552 and other offering expenses paid by the Company of $ 30,979 . The exercised March 2024 Common Warrants were issued pursuant +to a March 2024 Purchase Agreement dated March 13, 2024 by and between the Company and the Holder. Each March 2024 Common Warrant was +initially exercisable at an original exercise price of $ 5.50 per share. +F- 18 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2025 and 2024 +As an inducement to such exercise, the Company +also agreed to issue new unregistered warrants to purchase new Series A common stock purchase warrants (the “New Series A Warrants”) +and new Series B common stock purchase warrants (the “New Series B Warrants”, and together with the Series A Warrants, the +“New Warrants”), as described below, to purchase an aggregate of up to 2,513,468 shares of the Company’s common stock +(the “New Warrant Shares”) at an exercise price of $ 2.33 per share. The New Series A Warrants to purchase up to 1,256,734 +shares of common stock have a term of five and one-half years from the issuance date, and the New Series B Warrants to purchase up to +1,256,734 shares of common stock have a term of twenty-four months from the issuance date. +The Company engaged H.C. Wainwright & Co., +LLC (the “Placement Agent”) to act as its exclusive placement agent in connection with the transactions summarized above and +has agreed to pay the Placement Agent a cash fee equal to 7.5 % of the gross proceeds received from the Holder’s exercise of its +Existing Warrants of $ 243,178 , as well as a management fee equal to 1.0 % of the gross proceeds from the exercise of the Existing Warrants +of $ 32,424 . Additionally, the Company paid the Placement Agent $ 85,000 for non-accountable expenses and clearing fees in the amount +of $ 15,950 . The Company has also issued to the Placement Agent, or its designees, warrants (the “September 2024 Placement Agent +Warrants”) to purchase up to 7.5 % of the aggregate number of shares of common stock underlying the Existing Warrants (or Placement +Agent Warrants to purchase an aggregate of up to 94,255 shares of common stock), which Placement Agent Warrants have the same terms as +the New Series A Warrants except for an exercise price per share equal to 125 % of the exercise price of the New Warrants (or $ 3.225 per +share). +The amendment to the March 2024 Common Warrants +on September 20, 2024 to lower the exercise price thereof and issue new warrants, was considered a modification of the March 2024 Common +Warrants under the guidance of ASU 2021-04. The modification is consistent with the “Equity Issuance” classification under +that guidance as the reason for the modification was to induce the holders to cash exercise their warrants, resulting in the exercise +of the March 2024 Common Warrants on September 20, 2024. +On September 20, 2024, in connection with the +inducement offer agreement, with the Holder of the March 2024 Common Warrants, the Holder exercised the March 2024 Common Warrants for +cash at a reduced exercise price of $ 2.58 per share resulting in net proceeds to the Company of approximately $ 2,834,843 as discussed +above. In 2024, in connection with such exercise, the Company issued 1,256,734 Common Shares upon the exercise of the March 2024 Common +Warrants. +On September 20, 2024, the Company calculated +the total fair value of the consideration for the modification of the March 2024 Common Warrants, which includes the incremental fair +value of the March 2024 Common Warrants (determined by comparing the fair values immediately prior to and immediately after the modification). +The fair values were calculated using the Binomial Lattice valuation model, and the Company determined that the total fair value of the +consideration related to the modification of the March 2024 Common Warrants amounted to approximately $ 297,500 , which are considered offering +costs and were netted against the net proceeds received by the warrant exercise under the guidance of ASU 2021-04, resulting in both a +credit and a charge to additional paid-in capital and therefore no net accounting effect. +On September 20, 2024, in connection with the +inducement offer agreement issuance of the New Warrants and the September 2024 Placement Agent Warrants, the Company calculated the fair +value of such warrants using the Binomial option-pricing model, and the Company determined that the aggregate total fair value of the +New Warrants and the September 2024 Placement Agent Warrants amounted to approximately $ 5,460,000 , which are considered offering costs +and were netted against the net proceeds received by the warrant exercise under the guidance of ASU 2021-04, resulting in both a credit +and a charge to additional paid-in capital and therefore no net accounting effect. +The fair value of the March 2024 Common Warrants +on the modification date, the fair value of the New Warrants, and the fair value of the September 2024 Placement Agent Warrants were estimated +using the Binomial option-pricing model with the following assumptions: +September 20, +2024 +Exercise price $ +2.33 to $ 3.225 +Term (years) +1.75 to 5.5 +Expected stock price volatility +162.4 % +Risk-free rate of interest +3.48 % to 3.55 % +F- 19 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2025 and 2024 +December 2024 +On December 18, 2024, the Company entered into +a securities purchase agreement (the “December 18, 2024 Purchase Agreement”) with certain institutional investors, pursuant +to which the Company sold to such investors 1,449,277 common shares of the Company at a purchase price of $ 3.45 per share (the “Registered +Direct Offering”) for a total of $ 5,000,005 . The shares of Common Stock were offered by the Company pursuant to its shelf registration +statement on Form S-3 (File No. 333-283758), which was declared effective by the Securities and Exchange Commission on December 18, 2024. +Concurrently with the sale of the Company’s +common stock pursuant to the December 18, 2024 Purchase Agreement, in a private placement, for each share of Common Stock purchased by +the investors, such investors received from the Company an unregistered warrant (the “December 18, 2024 Warrant”) to purchase +one share of the Company’s common stock (the “Private Placement” and together with the Registered Direct Offering, the +“Offering”) for an aggregate of 1,449,277 Warrants (the “December 18, 2024 Warrants”). The December 18, 2024 Warrants +have an exercise price of $ 3.32 per share and are exercisable immediately upon issuance for a three-year period. These warrants had no +financial statement impact as they were considered to be equity issuance costs. +The net proceeds from the Offerings amounted to +$ 4,449,055 , after deducting Placement Agent fees and offering expenses of $ 550,950 paid by the Company, which includes $ 500,950 discussed +below plus $ 50,000 in legal fees. The Company is using the net proceeds from the Offering for general corporate purposes, which may include +working capital and capital expenditures. +Pursuant to the September 2024 Engagement Letter +with the Placement Agent, in connection with the December 18, 2024 Purchase Agreement, the Company paid the Placement Agent an aggregate +cash fee of $ 375,000 , which is equal to 7.5 % of the gross proceeds raised in the Offerings, a management fee equal to $ 50,000 , which is +1.0 % of the gross proceeds raised in the Offerings, $ 60,000 for non-accountable expenses and $ 15,950 for clearing fees, which totals $ 500,950 . +The Company also issued the Placement Agent (or its designees) a warrant (the “December 18, 2024 Placement Agent Warrant”) to +purchase up to 108,696 shares of the company’s Common Stock, which is equal to 7.5 % of the aggregate number of shares of Common +Stock sold in the Registered Direct Offering, at an exercise price equal to 125.0 % of the offering price per share of Common Stock, or +$ 4.3125 per share. The December 18, 2024 Placement Agent Warrant is exercisable immediately upon issuance for a period of three years +from the date of issuance. These warrants had no financial statement impact as they were considered to be equity issuance costs. +In addition, the Company has agreed to pay the +Placement Agent, if and when exercised, a cash fee equal to 7.5 % of the aggregate gross exercise price paid in cash with respect to the +exercise of the Warrants, a management fee equal to 1.0 % of the aggregate gross exercise price paid in cash with respect to the exercise +of the Warrants and issue to the Placement Agent (or its designees) warrants to purchase common stock representing 7.5 % of the shares +of common stock underlying the Warrants that have been exercised. +On December 26, 2024, the Company entered into +a securities purchase agreement (the “December 26, 2024 Purchase Agreement”) with certain institutional and accredited investors, +pursuant to which the Company sold to such investors 1,346,669 shares of the Company’s common stock at a purchase price +of $ 3.00 per share (the “2 nd Registered Direct Offering”) for a total of $ 4,040,007 . The shares of Common Stock +were offered by the Company pursuant to its shelf registration statement on Form S-3 (File No. 333-283758), which was declared effective +by the Securities and Exchange Commission on December 18, 2024. +Concurrently with the sale of Common Stock pursuant +to the December 26, 2024 Purchase Agreement, in a private placement, for each share of Common Stock purchased by the investors, such investors +received from the Company 1,346,669 unregistered warrants (the “December 26, 2024 Warrant”) to purchase 1,346,669 shares of +Common Stock. The December 26, 2024 Warrants have an exercise price of $ 3.00 per share and are exercisable immediately upon issuance for +a three-year period. These warrants had no financial statement impact as they were considered to be equity issuance costs. +The net proceeds from the December 26, 2024 Purchase +Agreement amounted to $ 3,600,656 , after deducting Placement Agent fees and offering expenses of $ 439,351 paid by the Company, which includes +placement agent fees of $ 409,351 paid pursuant to the September 2024 Engagement Letter with the Placement Agent plus $ 30,000 in legal +fees. +F- 20 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2025 and 2024 +The Company also issued the Placement Agent (or +its designees) a warrant (the “December 26, 2024 Placement Agent Warrant”) to purchase up to 101,000 shares of Common +Stock, which is equal to 7.5 % of the aggregate number of shares of Common Stock sold in the 2 nd Registered Direct Offering, +at an exercise price equal to 125.0 % of the offering price per share of Common Stock, or $ 3.75 per share. The December 26, 2024 Placement +Agent Warrant is exercisable immediately upon issuance for a period of three years from the date of issuance. These warrants had no financial +statement impact as they were considered to be equity issuance costs. +The Company is using the net proceeds from the Offerings +for general corporate purposes, which may include working capital and capital expenditures. +Common Stock Issued for Pre-Funded Warrant +Exercises +In June and July 2024, the Company issued an aggregate +of 520,367 common shares in connection with the exercise of 520,367 pre-funded warrants for net proceeds of $ 521 . +Common Stock Issued for Warrant Exercise +In December 2024, the Company issued 1,256,734 +common shares for the exercise of 1,256,734 New Series B Warrants for net proceeds of $ 2,663,594 . +Stock Warrants +On March 13, 2024, in connection with the March +2024 Private Placement, the Company issued an aggregate of 1,256,734 Common Warrants consisting of (i) the Series A Warrants to purchase +up to 628,367 shares of the Company’s common stock, and (iii) the Series B Warrants to purchase up to 628,367 shares of the Company’s +common stock. Additionally, the Company sold the Pre-Funded Warrants to purchase up to 520,367 shares of the Company’s common stock +(See above). Additionally, in connection with the March 2024 Private Placement, the Company issued 47,128 March 2024 placement agent warrants. +On September 20, 2024, the Company entered into an inducement offer agreement with the Holder of the March 2024 Common Warrants to immediately +exercise for cash an aggregate 1,256,734 of the March 2024 Common Warrants to purchase shares of the Company’s common stock at a +reduced exercise price of $ 2.58 per share. In connection with the inducement offer, the Company issued Warrants to the Investor to purchase +up to 94,255 common shares of the Company at an exercise price of $ 3,225 . +On September 20, 2024, in connection with the +inducement offer agreement discussed above, the Company issued an aggregate of 2,513,468 New Warrants consisting of (i) the Series A Warrants +to purchase up to 1,256,734 shares of the Company’s common stock, and (ii) the Series B Warrants to purchase up to 1,256,734 shares +of the Company’s common stock. Additionally, the Company issued 94,255 September 2024 placement agent warrants. +On December 18, 2024, in connection with the December +18, 2024 Purchase Agreement discussed above, the Company issued the December 18, 2024 Warrants to purchase up to 1,449,277 shares of the +Company’s common stock, and (ii) the December 18, 2024 Placement Agent Warrants to purchase up to 108,696 shares of the Company’s +common stock. +On December 26, 2024, in connection with the December +26, 2024 Purchase Agreement discussed above, the Company issued the December 26, 2024 Warrants to purchase up to 1,346,669 shares of the +Company’s common stock, and (ii) the December 26, 2024 Placement Agent Warrants to purchase up to 101,000 shares of the Company’s +common stock. +Warrant activity for the years ended December +31, 2025 and 2024 is summarized as follows: +Number of +Warrants Weighted +Average +Exercise +Price Weighted +Average +Remaining +Contractual +Term +(Years) Aggregate +Intrinsic +Value +Balance Outstanding, December 31, 2023 11,245 $ 54.78 4.13 +- +Granted 7,531,849 3.11 - - +Exercised ( 3,033,835 ) 2.58 - - +Balance Outstanding, December 31, 2024 4,509,259 3.14 3.57 301,616 +Granted +- +- +- - +Balance Outstanding, December 31, 2025 4,509,259 3.14 2.57 +- +Exercisable, December 31, 2025 4,509,259 $ 3.14 2.57 $ +- +F- 21 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2025 and 2024 +2022 Equity Incentive Plan +On March 30, 2022, the Company’s Board +of Directors authorized and adopted the 2022 Equity Incentive Plan (the “2022 Plan”) and reserved an initial 208,333 shares +of common stock for issuance thereunder. The 2022 Plan was approved by shareholders on March 30, 2022. The 2022 Plan’s purpose is +to encourage ownership in the Company by employees, officers, directors and consultants whose long-term service the Company considers +essential to its continued progress and, thereby, encourage recipients to act in the stockholders’ interest and share in the Company’s +success. The 2022 Plan provides for the issuance of incentive stock options, non-statutory stock options, stock appreciation rights (“SARs”), +restricted stock, restricted stock units (“RSUs”), and other stock-based awards. Pursuant to the 2022 Plan, there shall be +annual increase in the number shares reserved under the 2022 Plan on the first day of each calendar year beginning with the first January +1 following the effective date of the 2022 Plan and ending with the last January 1 during the initial ten-year term of the 2022 Plan, +equal to the lesser of (A) five percent ( 5 %) of the Shares outstanding (on an as-converted basis, which shall include Shares +issuable upon the exercise or conversion of all outstanding securities or rights convertible into or exercisable for Shares, including +without limitation, preferred stock, warrants and employee options to purchase any Shares) on the final day of the immediately preceding +calendar year and (B) such lesser number of Shares as determined by the Board; provided, that, shares of Common Stock issued under the +2022 Plan with respect to an Exempt Award shall not count against such share limit. Accordingly, in June 2024, the number of shares reserved +under the 2022 Plan increased by 95,304 to 303,637 reserved shares. On January 13, 2025, based on the 2022 Plan’s annual increase +provisions, the number of shares reserved under the 2022 Plan increased by 250,000 to 553,637 reserved shares the Company On August 12, +2025, the shareholders of the Company approved an amendment to the 2022 Plan to increase the number of shares of common stock reserved +for issuance thereunder to 803,637 shares from 553,637 shares. As of December 31, 2025, 564,553 shares remain issuable under the 2022 +Plan. +Stock Options +On March 5, 2024, the Company granted stock options +to purchase an aggregate of 6,249 ( 2,083 stock options to each director) shares of the Company’s common stock at an exercise price +of $ 6.00 per share to the Company’s board of directors pursuant to the 2022 Equity Incentive Plan. The grant date of the stock options +was March 5, 2024 and the options expire on March 5, 2029. The options vest on the one-year anniversary of the stock option grant on March +5, 2025. The stock options were valued on the grant date at an aggregate fair value of $ 33,880 using a Black-Scholes option pricing +model which will be recognized as stock-based compensation expense over the vesting period. +On March 7, 2024, the Company entered into Advisory +Board Agreements (the Advisory Agreements”) with three members of the Company’s Medical Advisory Board. In connection with +the Advisory Agreements, each medical Board member shall be paid an annual cash fee of $ 40,000 paid quarterly, and the Company shall grant +each Medical Advisory Board member stock options to purchase 4,167 shares of the Company’s common stock. On May 28, 2024, the Company +granted these options for an aggregate of 12,501 stock options at an exercise price of $ 3.82 per share to the Company’s Advisory +board pursuant to the 2022 Equity Incentive Plan. The grant date of the stock options was May 28, 2024 and the options expire on May 28, +2029. The options vest 25 % immediately and the remainder vest quarterly. The stock options were valued on the grant date at an aggregate +fair value of $ 46,124 using a Black-Scholes option pricing model which will be recognized as stock-based professional fees over the vesting +period. +On July 17, 2024, the Company granted stock options +to purchase 7,000 shares of the Company’s common stock at an exercise price of $ 2.15 per share to ta member of the Medical Advisory +Board pursuant to the 2022 Equity Incentive Plan. The grant date of the stock options was July 17, 2024 and the options expire on July +17, 2034. The options vest quarterly (875 each quarter) beginning on October 17, 2024 and each quarter thereafter through October 17, +2026. The stock options were valued at $ 14,536 on the grant date using a Black-Scholes option pricing model which will be recognized as +stock-based compensation expense over the vesting period. +On April 14, 2025, the Company granted stock options +to purchase an aggregate of 75,000 ( 25,000 stock options to each director) shares of the Company’s common stock at an exercise price +of $ 1.11 per share to the Company’s board of directors pursuant to the 2022 Equity Incentive Plan. The grant date of the stock options +was April 14, 2025 and the options expire on April 14, 2030. The options vest on the one-year anniversary of the stock option grant on +April 14, 2026. The stock options were valued on the grant date at an aggregate fair value of $ 73,063 using a Black-Scholes option +pricing model which will be recognized as stock-based compensation expense over the vesting period. +On December 2, 2025, the Company granted stock +options to purchase an aggregate of 100,000 shares of the Company’s common stock at an exercise price of $ 1.24 per share to the +Company’s consultants pursuant to the 2022 Equity Incentive Plan. The grant date of the stock options was December 2, 2025 and the +options expire on December 2, 2030. The options vest quarterly over one year. The stock options were valued on the grant date at +an aggregate fair value of $ 104,068 using a Black-Scholes option pricing model which will be recognized as stock-based compensation expense +over the vesting period. +F- 22 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2025 and 2024 +The stock options were valued at the grant date +using a Black-Scholes option pricing model with the following assumptions: +Year +Ended +December 31, +2025 +Year +Ended +December 31, +2024 +Dividend rate +— +— % +Term (in years) +3.0 years +3.0 to 6.0 years % +Volatility +158.6 % +to 167.3 % +168.9 to 184.6 % +Risk—free interest rate +3.54 % to 3.87 % +4.07 % to 4.56 % +The expected terms of the options are based on +evaluations of historical and expected future employee exercise behavior using the simplified method. The risk-free interest rate is based +on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at grant date. Volatility +is based on historical and expected future volatility of the Company’s common stock. The Company has not historically issued any +dividends and does not expect to in the future. +During the years ended December 31, 2025 and 2024, +the Company recognized total stock-based expenses related to stock options of $ 136,891 and $ 119,443 , respectively, which have been reflected +in general and administrative expenses on the consolidated statements of operations and comprehensive loss. As of December 31, 2025, a +balance of $ 136,245 remains to be expensed over future vesting periods related to unvested stock options issued for services to be expensed +over a weighted average period of 0.87 year. +Stock option activity during the years ended December +31, 2025 and 2024 is summarized as follows: +Number of +Options Weighted +Average +Exercise +Price Weighted +Average +Remaining +Contractual +Term +(Years) Aggregate +Intrinsic +Value +Balance Outstanding, December 31, 2023 38,334 $ 49.80 8.49 $ +Granted 25,750 3.90 +Balance Outstanding, December 31, 2024 64,084 31.35 7.76 3,080 +Granted 175,000 1.18 - - +Balance Outstanding, December 31, 2025 239,084 $ 9.27 5.22 $ +- +Exercisable, December 31, 2025 61,042 $ 32.58 6.68 $ +- +NOTE 8 – COMMITMENTS AND CONTINGENCIES +Employment Agreement +On February 17, 2023, the Company entered into +an executive employment agreement with Vadim Mats, the Company’s Chief Executive Officer (CEO) in connection with the Company’s +initial public offering (the “ IPO ”). The term of the agreement will continue for one (1) year from the date +of execution and automatically renews for successive one (1) year periods at the end of each term until either party delivers written +notice of their intent not to review at least 90 days prior to the expiration of the then effective term. Pursuant to the agreement, Mr. +Mats shall receive a base salary at the annual rate of $ 400,000 payable in equal installments in accordance with the Company’s standard +payroll policies. Mr. Mats shall also be eligible to receive an annual cash bonus in an amount up to two times his then-current base +salary if the Company meets or exceeds criteria to be adopted by the compensation committee annually. +NOTE 9 – INCOME TAXES +The Company accounts for income tax using the +liability method prescribed by ASC 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are determined +based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in +effect in the year in which the differences are expected to reverse. The deferred tax asset on December 31, 2025 and 2024 consists of +net operating loss carryforwards and the deferred tax asset on December 31, 2024 includes mandatory capitalization of research and development +cost for tax purposes pursuant to Section 174, as revised by the Tax Cuts and Jobs Act (“TCJA”). The TCJA amended Section +174 relating to the federal tax treatment of research or experimental expenditures paid or incurred during the taxable year. The new Section +174 rules required taxpayers to capitalize and amortize specified research and experimental expenditures, including software development, +over a period of five years (attributable to domestic research) or 15 years (attributable to foreign research). +F- 23 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2025 and 2024 +On July 4, 2025, OBBBA was enacted, which included +among other provisions the restoration of immediate expensing of domestic research and experimental (“R&E”) expenditures +under Section 174. Pursuant to the OBBBA’s transition rules, the Company elected to expense all unamortized domestic R&E costs +previously capitalized between 2022 and 2024. As the Company maintains a valuation allowance against its net deferred tax assets, including +NOLs, this election resulted in no change to tax expense for the year ended December 31, 2025. +Net deferred tax assets has been fully offset +by a valuation allowance because of the uncertainty of the attainment of future taxable income. +As of December 31, 2025 and 2024, components of +deferred tax assets and liabilities are as follows: +December 31, +2025 +December 31, +2024 +Net operating loss carryforward +$ 2,607,616 +$ 1,407,458 +Research and development +506,973 +618,007 +Total deferred tax assets +3,114,589 +2,025,465 +Valuation allowance +( 3,114,589 ) +( 2,025,465 ) +Net Deferred Tax Assets +$ +- +$ +- +A reconciliation of the effective tax rate with +the statutory Federal income tax rate was as follows for the years ended December 31, 2025 and 2024: +For the +Year ended +December 31, +2025 +($) +For the +Year ended +December 31, +2025 +(%) +For the +Year ended +December 31, +2024 +($) +For the +Year ended +December 31, +2024 +(%) +Federal tax benefit at statutory rate +$ ( 988,490 ) +( 21.0 )% +$ ( 516,812 ) +( 21.0 )% +State tax benefit, net of Federal tax benefit +( 241,709 ) +( 5.1 )% +( 126,373 ) +( 5.1 )% +Non-deductible expenses +30,041 +0.7 % +31,216 +0.9 % +Change in valuation allowance +1,200,158 +25.4 % +611,969 +25.2 % +Effective tax rate +$ +- +0 % +$ +- +0 % +As of December 31, 2025, the Company had approximately +$ 9,977,488 in net operating loss carry forwards for federal income tax purposes of which $ 5,385,337 may be carried forward indefinitely +subject to annual usage limitations of 80 % of taxable income. Generally, these can be carried forward and applied against future +taxable income at the tax rate applicable at that time. The Company is currently using a 26.135 % effective tax rate for its projected +available net operating loss carry-forward. +In accordance with FASB ASC 740 “Income +Taxes”, valuation allowances are provided against deferred tax assets, if based on the weight of available evidence, some or all +of the deferred tax assets may or will not be realized. The Company has evaluated its ability to realize some or all of the deferred tax +assets on its balance sheet for the coming year and has established a valuation allowance in the amount of $ 3,114,589 as of December 31, +2025 due to the uncertainty of generating taxable income. The valuation allowance increased in 2025 by $ 1,089,124 . +The Company does not have any uncertain tax positions +or events leading to uncertainty in a tax position. The Company’s 2025, 2024 and 2023 Corporate Income Tax Returns are subject to +Internal Revenue Service examination. +F- 24 +GAXOS.AI INC. AND SUBSIDIARY +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +December 31, 2025 and 2024 +NOTE 10 – SUBSEQUENT EVENTS +On January 26, 2026, the Company entered into +the At The Market Offering Agreement (“ATM Agreement”) with H. C. Wainwright and Co., LLV (“Wainwright”) +under which the Company could offer and sell shares of its common stock having an aggregate sales price of up to $ 5,600,000 through Wainwright +as the sales agent pursuant to the Company’s effective shelf registration statement on Form S-3 (File No. 333-283758), +including an accompanying base prospectus dated December 18, 2024 and prospectus supplements dated January 23, 2026 and February 4, 2026. +Sales of shares of the Company’s common stock through Wainwright, if any, will be made by any method permitted by law deemed to +be an “at the market offering” as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. Wainwright will +use commercially reasonable efforts to sell shares of the Company’s common stock from time to time, based on instructions from the +Company (including any price, time or size limits or other parameters or conditions the Company may impose). The Company will pay Wainwright +a commission equal to 3.0 % of the aggregate gross proceeds from the sales of shares of the Company’s common stock sold through Wainwright +under the ATM Agreement and will also reimburse Wainwright for certain specified expenses in connection with the ATM Agreement. From January +26. 2026 to March 5, 2026, the Company issued 3,096,481 shares of its common stock for gross proceeds of approximately $ 5.6 million and +received net proceeds of approximately $ 5.4 million pursuant to the ATM Agreement. +On March 2, 2026, the +Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with America First Defense.AI LLC, +a New Mexico limited liability company (“AFD”), pursuant to which the Company agreed to purchase, and AFD agreed to sell, +19.99 % of AFD’s outstanding membership interests (the “Membership Interests”) for an aggregate purchase price of $ 2,900,000 . +The closing of the purchase (the “Closing”) occurred on March 4, 2026 and the Company paid the purchase price. Within five +calendar days following the Closing, AFD is required to deliver the Membership Interests to the Company. The Purchase Agreement contains +customary representations, warranties and covenants of the parties, including provisions regarding the private offering nature of the +transaction. The Membership Interests have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), +or under applicable state securities laws, and are being issued and sold in reliance on an exemption from registration under Section 4(a)(2) +of the Securities Act. The Purchase Agreement also includes restrictions on transfer of the Membership Interests, including that any transfer +must be made in accordance with applicable law and AFD’s operating agreement. +F- 25 +http://fasb.org/srt/2025#ChiefExecutiveOfficerMember +http://fasb.org/us-gaap/2025#IncomeTaxReconciliationIncomeTaxExpenseBenefitAtFederalStatutoryIncomeTaxRate +http://fasb.org/us-gaap/2025#IncomeTaxReconciliationIncomeTaxExpenseBenefitAtFederalStatutoryIncomeTaxRate +0001895618 +false +FY +0001895618 +2025-01-01 +2025-12-31 +0001895618 +2025-06-30 +0001895618 +2026-03-25 +0001895618 +2025-12-31 +0001895618 +2024-12-31 +0001895618 +2024-01-01 +2024-12-31 +0001895618 +us-gaap:PreferredStockMember +2023-12-31 +0001895618 +us-gaap:CommonStockMember +2023-12-31 +0001895618 +us-gaap:AdditionalPaidInCapitalMember +2023-12-31 +0001895618 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2023-12-31 +0001895618 +us-gaap:RetainedEarningsMember +2023-12-31 +0001895618 +us-gaap:NoncontrollingInterestMember +2023-12-31 +0001895618 +2023-12-31 +0001895618 +us-gaap:PreferredStockMember +2024-01-01 +2024-12-31 +0001895618 +us-gaap:CommonStockMember +2024-01-01 +2024-12-31 +0001895618 +us-gaap:AdditionalPaidInCapitalMember +2024-01-01 +2024-12-31 +0001895618 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2024-01-01 +2024-12-31 +0001895618 +us-gaap:RetainedEarningsMember +2024-01-01 +2024-12-31 +0001895618 +us-gaap:NoncontrollingInterestMember +2024-01-01 +2024-12-31 +0001895618 +us-gaap:PreferredStockMember +2024-12-31 +0001895618 +us-gaap:CommonStockMember +2024-12-31 +0001895618 +us-gaap:AdditionalPaidInCapitalMember +2024-12-31 +0001895618 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2024-12-31 +0001895618 +us-gaap:RetainedEarningsMember +2024-12-31 +0001895618 +us-gaap:NoncontrollingInterestMember +2024-12-31 +0001895618 +us-gaap:PreferredStockMember +2025-01-01 +2025-12-31 +0001895618 +us-gaap:CommonStockMember +2025-01-01 +2025-12-31 +0001895618 +us-gaap:AdditionalPaidInCapitalMember +2025-01-01 +2025-12-31 +0001895618 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2025-01-01 +2025-12-31 +0001895618 +us-gaap:RetainedEarningsMember +2025-01-01 +2025-12-31 +0001895618 +us-gaap:NoncontrollingInterestMember +2025-01-01 +2025-12-31 +0001895618 +us-gaap:PreferredStockMember +2025-12-31 +0001895618 +us-gaap:CommonStockMember +2025-12-31 +0001895618 +us-gaap:AdditionalPaidInCapitalMember +2025-12-31 +0001895618 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2025-12-31 +0001895618 +us-gaap:RetainedEarningsMember +2025-12-31 +0001895618 +us-gaap:NoncontrollingInterestMember +2025-12-31 +0001895618 +2025-10-01 +2025-12-31 +0001895618 +gxai:NekwellnessMember +2024-10-10 +0001895618 +gxai:RNKHealthMember +2024-10-10 +0001895618 +us-gaap:CommonStockMember +2024-02-28 +2024-02-28 +0001895618 +2024-03-07 +2024-03-07 +0001895618 +gxai:RPMInteractiveIncMember +2024-12-31 +0001895618 +gxai:RPMInteractiveIncMember +2024-05-16 +2024-05-16 +0001895618 +gxai:RPMInteractiveIncMember +2024-05-16 +0001895618 +gxai:RPMInteractiveIncMember +2025-12-10 +0001895618 +gxai:RPMInteractiveIncMember +2025-12-10 +2025-12-10 +0001895618 +gxai:RPMInteractiveIncMember +2025-12-12 +2025-12-12 +0001895618 +gxai:AvalonGlobocareCorpsMember +2025-12-12 +2025-12-12 +0001895618 +us-gaap:SeriesEPreferredStockMember +2025-12-12 +0001895618 +us-gaap:CashAndCashEquivalentsMember +2025-12-31 +0001895618 +us-gaap:OtherIntangibleAssetsMember +2025-12-31 +0001895618 +us-gaap:FairValueInputsLevel1Member +us-gaap:FairValueMeasurementsRecurringMember +2025-12-31 +0001895618 +us-gaap:FairValueInputsLevel2Member +us-gaap:FairValueMeasurementsRecurringMember +2025-12-31 +0001895618 +us-gaap:FairValueInputsLevel3Member +us-gaap:FairValueMeasurementsRecurringMember +2025-12-31 +0001895618 +us-gaap:FairValueInputsLevel1Member +us-gaap:FairValueMeasurementsRecurringMember +2024-12-31 +0001895618 +us-gaap:FairValueInputsLevel2Member +us-gaap:FairValueMeasurementsRecurringMember +2024-12-31 +0001895618 +us-gaap:FairValueInputsLevel3Member +us-gaap:FairValueMeasurementsRecurringMember +2024-12-31 +0001895618 +us-gaap:EquitySecuritiesMember +2025-01-01 +2025-12-31 +0001895618 +us-gaap:AdministrativeServiceMember +2025-01-01 +2025-12-31 +0001895618 +gxai:saleOfHealthCoachingPackagesMember +2025-01-01 +2025-12-31 +0001895618 +gxai:saleOfHealthCoachingPackagesMember +2024-01-01 +2024-12-31 +0001895618 +gxai:SaleOfSubscriptionsMember +2025-01-01 +2025-12-31 +0001895618 +gxai:SaleOfSubscriptionsMember +2024-01-01 +2024-12-31 +0001895618 +gxai:SaleOfOurIngameItemsMember +2025-01-01 +2025-12-31 +0001895618 +gxai:SaleOfOurIngameItemsMember +2024-01-01 +2024-12-31 +0001895618 +us-gaap:WarrantMember +2025-01-01 +2025-12-31 +0001895618 +us-gaap:WarrantMember +2024-01-01 +2024-12-31 +0001895618 +us-gaap:EmployeeStockOptionMember +2025-01-01 +2025-12-31 +0001895618 +us-gaap:EmployeeStockOptionMember +2024-01-01 +2024-12-31 +0001895618 +us-gaap:EquitySecuritiesMember +gxai:RPMInteractiveIncMember +2024-05-16 +0001895618 +2025-12-10 +2025-12-10 +0001895618 +gxai:CorporateBondsMember +2025-12-31 +0001895618 +gxai:ExchangetradedAndClosedEndFundsMember +2025-12-31 +0001895618 +gxai:USTreasuryBillsMember +2024-12-31 +0001895618 +us-gaap:ShortTermDebtMember +2025-01-01 +2025-12-31 +0001895618 +us-gaap:ShortTermInvestmentsMember +2024-12-31 +0001895618 +us-gaap:ShortTermInvestmentsMember +2023-12-31 +0001895618 +us-gaap:ShortTermInvestmentsMember +2025-01-01 +2025-12-31 +0001895618 +us-gaap:ShortTermInvestmentsMember +2024-01-01 +2024-12-31 +0001895618 +us-gaap:ShortTermInvestmentsMember +2025-12-31 +0001895618 +gxai:RPMInteractiveIncMember +2025-09-17 +0001895618 +2025-09-17 +0001895618 +2024-03-04 +2024-03-04 +0001895618 +gxai:SoftwareAndRelatedTechnologiesMember +2025-02-24 +2025-02-24 +0001895618 +gxai:SoftwareAndRelatedTechnologiesMember +2025-02-24 +0001895618 +2025-02-24 +0001895618 +gxai:LicenseAgreementMember +2024-12-31 +0001895618 +us-gaap:LicenseMember +2025-12-31 +0001895618 +us-gaap:LicenseMember +2024-12-31 +0001895618 +gxai:AcquiredInternalUseSoftwareMember +2025-12-31 +0001895618 +gxai:AcquiredInternalUseSoftwareMember +2024-12-31 +0001895618 +gxai:TwoZeroTwoThreeStockRepurchasePlanMember +2023-03-20 +0001895618 +gxai:TwoZeroTwoThreeStockRepurchasePlanMember +us-gaap:CommonStockMember +2024-01-01 +2024-03-31 +0001895618 +gxai:TwoZeroTwoThreeStockRepurchasePlanMember +us-gaap:CommonStockMember +2024-03-31 +0001895618 +us-gaap:CommonStockMember +gxai:SoftwarePurchaseAgreementMember +2025-02-24 +2025-02-24 +0001895618 +us-gaap:CommonStockMember +2025-02-24 +2025-02-24 +0001895618 +us-gaap:PrivatePlacementMember +2024-03-13 +2024-03-13 +0001895618 +gxai:SeriesAWarrantsMember +us-gaap:PrivatePlacementMember +2024-03-13 +0001895618 +gxai:SeriesBWarrantsMember +us-gaap:PrivatePlacementMember +2024-03-13 +0001895618 +gxai:CommonWarrantsMember +us-gaap:PrivatePlacementMember +2024-03-13 +0001895618 +gxai:CommonWarrantsMember +us-gaap:PrivatePlacementMember +2024-03-13 +2024-03-13 +0001895618 +gxai:PreFundedWarrantsMember +us-gaap:PrivatePlacementMember +2024-03-13 +0001895618 +gxai:PreFundedWarrantsMember +us-gaap:PrivatePlacementMember +2024-03-13 +2024-03-13 +0001895618 +gxai:PreFundedWarrantsMember +2024-03-13 +2024-03-13 +0001895618 +us-gaap:CommonStockMember +2024-03-13 +2024-03-13 +0001895618 +us-gaap:CommonStockMember +us-gaap:PrivatePlacementMember +2024-03-13 +2024-03-13 +0001895618 +us-gaap:WarrantMember +2024-03-13 +0001895618 +gxai:CommonWarrantsMember +2025-01-01 +2025-12-31 +0001895618 +gxai:SeriesBWarrantsMember +2025-01-01 +2025-12-31 +0001895618 +gxai:PreFundedWarrantsMember +2024-03-13 +0001895618 +srt:MinimumMember +us-gaap:WarrantMember +2024-03-13 +2024-03-13 +0001895618 +srt:MaximumMember +us-gaap:WarrantMember +2024-03-13 +2024-03-13 +0001895618 +gxai:PlacementAgentWarrantsMember +2024-03-13 +0001895618 +us-gaap:PrivatePlacementMember +2024-03-31 +0001895618 +2024-01-01 +2024-03-31 +0001895618 +gxai:CommonWarrantsMember +2024-09-20 +0001895618 +gxai:CommonWarrantsMember +2024-09-20 +2024-09-20 +0001895618 +2024-09-20 +0001895618 +gxai:MarchTwoThousandTwentyFourCommonWarrantsMember +2024-09-20 +0001895618 +gxai:NewWarrantSharesMember +2024-09-20 +0001895618 +gxai:SeriesAWarrantsMember +2024-09-20 +0001895618 +gxai:SeriesBWarrantsMember +2024-09-20 +0001895618 +2024-09-20 +2024-09-20 +0001895618 +gxai:ExistingWarrantsMember +gxai:HCWainwrightCoLLCMember +2024-09-20 +2024-09-20 +0001895618 +gxai:ExistingWarrantsMember +2024-09-20 +2024-09-20 +0001895618 +gxai:PlacementAgentWarrantsMember +2024-09-20 +0001895618 +gxai:MarchTwoThousandTwentyFourCommonWarrantsMember +2024-09-20 +2024-09-20 +0001895618 +gxai:PlacementAgentWarrantsMember +2024-09-20 +2024-09-20 +0001895618 +us-gaap:CommonStockMember +2024-12-18 +0001895618 +2024-12-18 +0001895618 +2024-12-18 +2024-12-18 +0001895618 +us-gaap:WarrantMember +2024-12-18 +0001895618 +us-gaap:IPOMember +2025-01-01 +2025-12-31 +0001895618 +us-gaap:IPOMember +2024-12-18 +2024-12-18 +0001895618 +gxai:PlacementAgentWarrantsMember +2024-12-18 +0001895618 +gxai:CashFeeMember +2024-12-18 +2024-12-18 +0001895618 +gxai:ManagementFeeMember +2024-12-18 +2024-12-18 +0001895618 +us-gaap:CommonStockMember +2024-12-18 +2024-12-18 +0001895618 +2024-12-26 +0001895618 +2024-12-26 +2024-12-26 +0001895618 +us-gaap:WarrantMember +2024-12-26 +0001895618 +us-gaap:CommonStockMember +2024-12-26 +0001895618 +gxai:WarrantSharesMember +2024-12-26 +0001895618 +gxai:PlacementAgentWarrantsMember +2024-12-26 +0001895618 +gxai:PreFundedWarrantsMember +2025-01-01 +2025-12-31 +0001895618 +gxai:SeriesBWarrantsMember +2024-12-01 +2024-12-31 +0001895618 +gxai:StockWarrantsMember +2024-03-13 +0001895618 +gxai:SeriesAWarrantsMember +gxai:StockWarrantsMember +2024-03-13 +0001895618 +gxai:SeriesBWarrantsMember +gxai:StockWarrantsMember +2024-03-13 +0001895618 +gxai:PreFundedWarrantsMember +gxai:StockWarrantsMember +2024-03-13 +0001895618 +us-gaap:InvestorMember +2024-09-20 +0001895618 +us-gaap:WarrantMember +2024-09-20 +0001895618 +gxai:StockWarrantsMember +2024-12-18 +0001895618 +gxai:StockWarrantsMember +2024-12-26 +0001895618 +2022-03-30 +0001895618 +gxai:TwoThousandTwentyTwoEquityIncentivePlanMember +2022-03-30 +2022-03-30 +0001895618 +srt:MinimumMember +gxai:TwoThousandTwentyTwoEquityIncentivePlanMember +2024-06-30 +0001895618 +srt:MaximumMember +gxai:TwoThousandTwentyTwoEquityIncentivePlanMember +2024-06-30 +0001895618 +srt:MinimumMember +gxai:TwoThousandTwentyTwoEquityIncentivePlanMember +2025-01-13 +0001895618 +srt:MaximumMember +gxai:TwoThousandTwentyTwoEquityIncentivePlanMember +2025-01-13 +0001895618 +srt:MinimumMember +2025-08-12 +0001895618 +srt:MaximumMember +2025-08-12 +0001895618 +gxai:TwoThousandTwentyTwoEquityIncentivePlanMember +2025-01-01 +2025-12-31 +0001895618 +us-gaap:StockOptionMember +2024-03-05 +2024-03-05 +0001895618 +srt:DirectorMember +us-gaap:StockOptionMember +2024-03-05 +2024-03-05 +0001895618 +2024-03-05 +2024-03-05 +0001895618 +gxai:MedicalAdvisoryBoardMember +2024-03-07 +2024-03-07 +0001895618 +2024-05-28 +2024-05-28 +0001895618 +us-gaap:StockOptionMember +2024-07-17 +2024-07-17 +0001895618 +2024-07-17 +2024-07-17 +0001895618 +2025-04-14 +2025-04-14 +0001895618 +us-gaap:StockOptionMember +2025-04-14 +2025-04-14 +0001895618 +2025-12-02 +2025-12-02 +0001895618 +gxai:March2024PlacementAgentWarrantsMember +us-gaap:MeasurementInputExpectedDividendRateMember +2024-03-15 +0001895618 +gxai:March2024PlacementAgentWarrantsMember +us-gaap:MeasurementInputExpectedTermMember +2024-03-15 +0001895618 +gxai:March2024PlacementAgentWarrantsMember +us-gaap:MeasurementInputOptionVolatilityMember +2024-03-15 +0001895618 +gxai:March2024PlacementAgentWarrantsMember +us-gaap:MeasurementInputRiskFreeInterestRateMember +2024-03-15 +0001895618 +srt:MinimumMember +gxai:March2024CommonWarrantsMember +us-gaap:MeasurementInputExercisePriceMember +2024-09-20 +0001895618 +srt:MaximumMember +gxai:March2024CommonWarrantsMember +us-gaap:MeasurementInputExercisePriceMember +2024-09-20 +0001895618 +srt:MinimumMember +gxai:March2024CommonWarrantsMember +us-gaap:MeasurementInputExpectedTermMember +2024-09-20 +0001895618 +srt:MaximumMember +gxai:March2024CommonWarrantsMember +us-gaap:MeasurementInputExpectedTermMember +2024-09-20 +0001895618 +gxai:March2024CommonWarrantsMember +us-gaap:MeasurementInputPriceVolatilityMember +2024-09-20 +0001895618 +srt:MinimumMember +gxai:March2024CommonWarrantsMember +us-gaap:MeasurementInputRiskFreeInterestRateMember +2024-09-20 +0001895618 +srt:MaximumMember +gxai:March2024CommonWarrantsMember +us-gaap:MeasurementInputRiskFreeInterestRateMember +2024-09-20 +0001895618 +us-gaap:WarrantMember +2023-12-30 +0001895618 +us-gaap:WarrantMember +2023-12-31 +2023-12-31 +0001895618 +us-gaap:WarrantMember +2024-01-01 +2024-12-31 +0001895618 +us-gaap:WarrantMember +2024-12-31 +0001895618 +us-gaap:WarrantMember +2025-01-01 +2025-12-31 +0001895618 +us-gaap:WarrantMember +2025-12-31 +0001895618 +srt:MinimumMember +2024-01-01 +2024-12-31 +0001895618 +srt:MaximumMember +2024-01-01 +2024-12-31 +0001895618 +srt:MinimumMember +2025-01-01 +2025-12-31 +0001895618 +srt:MaximumMember +2025-01-01 +2025-12-31 +0001895618 +us-gaap:StockOptionMember +2023-12-30 +0001895618 +us-gaap:StockOptionMember +2023-12-31 +2023-12-31 +0001895618 +us-gaap:StockOptionMember +2024-01-01 +2024-12-31 +0001895618 +us-gaap:StockOptionMember +2024-12-31 +0001895618 +us-gaap:StockOptionMember +2025-01-01 +2025-12-31 +0001895618 +us-gaap:StockOptionMember +2025-12-31 +0001895618 +gxai:MrMatsMember +2023-02-17 +2023-02-17 +0001895618 +gxai:DomesticResearchMember +2025-01-01 +2025-12-31 +0001895618 +gxai:ForeignResearchMember +2025-01-01 +2025-12-31 +0001895618 +us-gaap:SubsequentEventMember +gxai:AtTheMarketOfferingAgreementMember +2026-01-26 +2026-01-26 +0001895618 +us-gaap:SubsequentEventMember +2026-01-26 +2026-01-26 +0001895618 +us-gaap:SubsequentEventMember +2026-01-26 +0001895618 +us-gaap:SubsequentEventMember +gxai:PurchaseAgreementMember +2026-03-02 +2026-03-02 +0001895618 +us-gaap:SubsequentEventMember +gxai:PurchaseAgreementMember +2026-03-02 +iso4217:USD +xbrli:shares +iso4217:USD +xbrli:shares +xbrli:pure +gxai:Segment \ No newline at end of file diff --git a/raw/filings/0001895618/2025/0001213900-26-029223/filing_metadata.csv b/raw/filings/0001895618/2025/0001213900-26-029223/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..8124fc1633e42b9bea625efd8e85131a8fe2e8ea --- /dev/null +++ b/raw/filings/0001895618/2025/0001213900-26-029223/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001895618,GXAI,GAXOS.AI INC.,2025,10-K,2026-03-17,2025-12-31,2026-03-17T21:12:23.000Z,0001213900-26-029223,ea0281075-10k_gaxos.htm,ANNUAL REPORT,6786370,1,1,https://www.sec.gov/Archives/edgar/data/1895618/000121390026029223/ea0281075-10k_gaxos.htm,https://www.sec.gov/Archives/edgar/data/1895618/000121390026029223/ diff --git a/raw/filings/0001895618/2025/0001213900-26-029223/item1.txt b/raw/filings/0001895618/2025/0001213900-26-029223/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..6dd52617455b10fc39b81ac5feabd2e7093d3227 --- /dev/null +++ b/raw/filings/0001895618/2025/0001213900-26-029223/item1.txt @@ -0,0 +1,191 @@ +ITEM 1. BUSINESS +Gaxos.AI is a technology company focused on reshaping +the way people interact with artificial intelligence across everyday life and high-impact industries. More than a developer of applications, +Gaxos.AI is building a portfolio of AI-powered solutions designed to make advanced technology more practical, accessible, and transformative. +The company’s growing portfolio spans defense, health and wellness, entertainment, and productivity—bringing intelligent +tools to markets where innovation can drive meaningful real-world outcomes. +Gaxos Labs +Gaxos Labs, launched in September 2024, is the +Gaxos.AI product studio developing and launching AI applications across fast-moving sectors. +In September 2024, we launched a transformative +generative AI service that empowers game developers and publishers. Key features of the product include AI-powered creativity that reduces +creative asset development time from hours to minutes, enabling rapid prototyping and fast experimentation with different designs; monetization +tools that allow publishers to offer AI-generated assets for player customization; seamless plug-and-play integration with Unity and +Godot for effortless adoption into existing workflows; a flexible API that connects to any game development engine and supports builds +for any platform, including mobile and PC; dynamic content generation through our User-Generated-AI-Content (UGAiC) feature, which lets +gamers use AI in real time to create fresh experiences with every playthrough; and customized solutions ranging from personalized AI +models for image and sound generation to expert consulting services tailored to the unique needs of each developer. +In May 2025, we launched UnGPT.ai, a new tool +designed to enhance text generated by artificial intelligence, making it sound more natural and human-like. UnGPT features a real-time +rewriting engine that transforms machine-generated content while preserving meaning and context. The tool employs a proprietary multi-pass +transformation model that surpasses existing AI detection tools, addressing the growing demand for high-quality, undetectable output, +especially in sensitive industries. +In August 2025, we launched Art-Gen.AI, an AI +image and video creation platform that makes pro-grade content effortless for anyone, anywhere. Art-Gen combines state-of-the-art AI +models from industry leaders including Google, Stability AI, and PixVerse with Gaxos’ proprietary enhancements to deliver unmatched +creative speed, detail, and flexibility. With just a simple text prompt or reference image, users can instantly produce cinematic visuals, +hyper-realistic imagery, or animated video content at a fraction of traditional production time and cost., +In December 2025, we launched Bible Pray AI, +a personalized, AI-powered spiritual growth platform designed to help users deepen faith, strengthen daily devotion, and apply scripture +for greater peace, clarity, and purpose. Bible Pray AI represents our strategic expansion into the rapidly growing digital faith, mental +wellness, and personal development economy, a sector supported by hundreds of millions of engaged global users seeking guided spiritual +content, daily motivation, and community-based worship experiences. +Gaxos Health +Recently, we began to develop a new initiative, +Gaxos Health, which is dedicated to revolutionizing personal health and wellness by developing a suite of innovative AI-powered health +optimization solutions. Gaxos Health will integrate AI-driven insights with individual biometric data and health goals to create web +and application based personalized wellness strategies for users. We believe that this cutting-edge approach will redefine preventative +medicine, offering unparalleled personalization in health and wellness. Gaxos Health solutions will analyze a wide range of health data +to provide tailored wellness plans and address the growing demand for personalized health solutions. We believe that this technology +is not just a step but a leap forward in empowering individuals to take control of their health and longevity with AI’s precision +and intelligence. +We launched the AI-powered health optimization +product in the third quarter of 2024. +RNK Health +On September 23, 2024, we formed a wholly-owned +subsidiary, RNK Health LLC (“RNK Health”), to form a partnership and relationship with Nekwellness, LLC (“Nekwellness”) +to engage in the business of marketing certain health-related products. On October 10, 2024, the Company, RNK Health and Nekwellness +entered into an operating agreement with respect to the regulation and management of the affairs of RNK Health and, as of such date, +the Company owns a 70% membership interest in RNK Health and Nekwellness owns a 30% membership interest in RNK Health. RNK Health is +currently providing access to certain medications, supplements and other wellness products and services. +Gaxos Gaming +Gaxos Gaming (the “Platform”), created +with a vision to develop, design, acquire, and manage conventional games and to combine these games with unconventional game mechanisms, +such as the ability for gamers and developers to utilize artificial intelligence to create and design in-game features, as well as to +mint unique in-game features, such as skins, characters, weapons, gear, levels, and virtual lands, in the form of non-fungible tokens, +or “NFTs,” that will allow users to have unique experiences and more control over in-game assets. +1 +In 2023, we launched our own proprietary games +that are simple and fun to play, and that offer gamers the ability to utilize AI to personalize their gaming experience as well as to +mint their own affordable NFTs, with unique and exclusive features, that can be utilized across the network of games and platform that +we intend to build. As of December 31, 2025, we have launched five games, Space Striker AI, Brawl Bots, BattleFleet AI, Jigsaw Puzzle +AI and Gaxos AI Puzzle. Space Striker AI allows players to engage in a captivating storyline and exciting retro shooting space action +in the players AI-generated spaceship. Players can fuse crystals to upgrade their ship parts to craft, clash and conquer the galaxy all +within a dynamic free-to-play economy. Brawl Bots immerses users in high-octane battles in real time against other players, in solo play +or teams. Each player gets to control their own exclusive Bot character, ensuring a personalized gaming experience. BattleFleet AI is +a take on the classic Battleship game with AI elements that allow gamers to design their ships. Gaxos AI Puzzle and Jigsaw Puzzle AI +lets gamers solve preloaded jigsaw puzzles as well as design and solve new jigsaw puzzles using AI. +Recent Updates +On March 2, 2026, the Company entered into a Membership Interest Purchase Agreement with America First Defense.AI LLC, a New Mexico limited +liability company (“AFD”), pursuant to which the Company agreed to purchase, and AFD agreed to sell, 19.99% of AFD’s +outstanding membership interests (the “Membership Interests”) for an aggregate purchase price of $2,900,000. The closing of +the purchase occurred on March 5, 2026, subject to satisfaction of the conditions set forth in the Purchase Agreement. +Intellectual Property +Certain aspects of our business are dependent +upon the creation, acquisition, use and protection of intellectual property. Some of this intellectual property is expected to be in +the form of software code, patented technology, copyright, and trade secrets that we will use to develop our products. While we will +develop our own intellectual property, we may also acquire and/or license other intellectual property which is owned by third parties. +We protect our intellectual property rights by +relying on federal, state and common law protections, as well as contractual restrictions. We actively seek protection covering any intellectual +property we believe may be useful or relevant to our business. +Our goal is to obtain, maintain and enforce protection +for our intellectual property, and to operate without infringing on the rights of other parties. Our policy is to actively seek the broadest +intellectual property protection possible for our intellectual property through a combination of contractual arrangements, registration +of our domain names, copyrights, trademarks, service marks and/or patents. We have established business procedures designed to maintain +the confidentiality of our proprietary information, including the use of confidentiality agreements with employees, independent contractors, +consultants, and entities with which we conduct business. +Government Regulation +Data Privacy Laws and Regulations +We are subject to various federal, state, and +international laws and regulations that affect companies conducting business on the Internet and mobile platforms, including those relating +to privacy, use and protection of player and employee personal information and data (including the collection of data from minors), the +Internet, behavioral tracking, mobile applications, content, advertising and marketing activities and anti-corruption. Additional laws +in all of these areas are likely to be passed in the future, which could result in significant limitations on or changes to the ways +in which we can collect, use, host, store or transmit the personal information and data of our customers or employees, communicate with +our players and deliver products and services, which may significantly increase our compliance costs. +We recognize that users of Gaxos Gaming, Gaxos +Health, Gaxos Labs and RNK Health care deeply about how their personal information is collected, used and shared. +Users of Gaxos Gaming, Gaxos Health, Gaxos Labs, +and RNK Health may be required to provide us with certain personal information such as their name, email address and phone number. We +take commercially reasonable and appropriate measures to protect this personal information from accidental loss, misuse, and unauthorized +access, disclosure, alteration, or destruction, taking into account the risks involved in processing and the nature of such data, and +comply with applicable laws and regulations. We do not currently transfer any personal information to third-parties that do not act on +our behalf, and we will not do so without users’ opt-in consent. Similarly, we do not currently collect sensitive personal information +from users without opt-in consent. We may disclose personal information to certain types of third-party companies, but only to the extent +needed to enable them to provide such services. The types of companies that may receive personal information and their functions are: +marketing assistance, analytics and reporting, customer support, email and SMS delivery, cloud infrastructure, and systems monitoring. +All such third parties function as our agents, performing services at our instruction and on our behalf pursuant to contracts which require +them to provide at least the same level of privacy protection as is required by our Privacy Policy. In addition, we may be required to +disclose personal information in response to lawful requests by public authorities, including for the purpose of meeting national security +or law enforcement requirements. We may also disclose personal information to other third parties when compelled to do so by government +authorities or required by law or regulation including, but not limited to, in response to court orders and subpoenas. +With respect to retention of personal information, +we may only retain such users’ personal information in a form that identifies them only for as long as it serves the purpose(s) +for which it was initially collected as stated in our Privacy Policy, as may be subsequently authorized. We may continue processing users’ +personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of statistical +analysis, and subject to the protection of our Privacy Policy. After such time periods have expired, we may either delete the personal +information or retain it in a form such that it does not identify the user personally. +2 +Healthcare Laws and Regulations +We will be subject to healthcare regulation and +enforcement by the federal government and the states and foreign governments in which we might conduct our business, including the Health +Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology for Economic +and Clinical Health Act of 2009 and their implementing regulations, impose obligations on certain types of individuals and entities regarding +the electronic exchange of information in common healthcare transactions, as well as standards relating to the privacy and security of +individually identifiable health information. +Competition +We operate in industries that are highly competitive +and evolving. Specifically, our business faces intense competition in AI applications, gaming, supplements and peptide sales, gaming +and other various products. +Gaxos Health will also operate in a competitive +health and wellness landscape. Specifically, Gaxos Health faces intense competition from other companies catering to individuals that +are seeking for ways to improve their longevity and health span. Certain competitors may expand their offering to include artificial +intelligence and other proprietary methodologies that can further increase competition. +RNK Health operates in a competitive landscape +and faces competition from similar companies that provide access to similar products such as NAD+ or Sermorelin. +Gaxos Gaming may face competition from other +AI services that cater to game users and game developers. Further, our competition may become more intense if gaming industry leaders +such as Sony, Nintendo, and Microsoft, all of whom have significant financial, technical and other resources, +greater brand recognition and longer operating histories, decide to focus their efforts on AI-aspets of gaming. +Our ability to compete depends in large part +on our continuous commitment to research and development, our ability to rapidly introduce new features and functionality, and to acquire +users. We intend to work closely with our customers to continuously enhance the performance, functionality, usability, reliability and +flexibility of our products. +Employees +As of March 15, 2026, we have a total of 3 full-time employees, +We have established a network of external professionals and consultants to which we outsource various research and development and operational +tasks in an effort to minimize administrative overhead. We are not a party to any collective bargaining agreements. We believe that we +maintain good relations with our employees. +Corporate History +We were originally incorporated in the State +of Wyoming on October 27, 2021 (“NFT Wyoming”). +On March 29, 2022, the Board of Directors +of the Company approved, subject to shareholder approval, a Plan of Conversion, pursuant to which the Company converted from a corporation +incorporated under the laws of the State of Wyoming to a corporation incorporated under the laws of the State of Delaware (the “Delaware +Reincorporation”), and such approval included the adoption of the Certificate of Incorporation (the “Delaware Certificate”) +and the Bylaws (the “Delaware Bylaws”) for the Company under the laws of the State of Delaware, under the name, “The +NFT Gaming Company, Inc.,” to become effective with the effectiveness of the Reincorporation. On March 29, 2022, we received +majority shareholder approval. +On March 30, 2022, we completed the Delaware +Reincorporation by filing the Delaware Certificate with the Delaware Secretary of State. +On January 5, 2024, we filed an amendment to +our Certificate of Incorporation with the Delaware Secretary of State to change our name to “Gaxos.ai Inc.” +On March 7, 2024, we filed a Certificate +of Amendment with the Delaware Secretary of State to effectuate a 1-for-12 reverse stock split of our issued and outstanding and authorized +shares of common stock. The reverse stock split became effective on March 7, 2024. All share data, per share data and related information +contained in this Annual Report on Form 10-K has been retrospectively adjusted to reflect the effect of the reverse stock split. +On September 16, 2024, the Board of Directors +of the Company approved, subject to shareholder approval, a Plan of Conversion, pursuant to which the Company converted from a corporation +incorporated under the laws of the State of Delaware to a corporation incorporated under the laws of the State of Nevada (the “Reincorporation”), +and such approval included the adoption of the Articles of Incorporation (the “Nevada Articles”) and the Bylaws (the “Nevada +Bylaws”) for the Company under the laws of the State of Nevada, under the name, “Gaxos.ai Inc.,” to become effective +with the effectiveness of the Reincorporation. On December 27, 2024, we received majority shareholder approval for the Reincorporation. +On March 3, 2025, we changed our state of +incorporation from Delaware to Nevada. +Our Corporate Information +We were incorporated as in the State of Wyoming +on October 27, 2021. On March 30, 2022, we changed our state of incorporation from Wyoming to Delaware. On March 3, 2025, we changed +our state of incorporation from Delaware to Nevada. Our principal executive offices are located at 101 Eisenhower Pkwy, Suite 3000, Roseland, +NJ 07068 and our telephone number is (973) 275-7428. +3 +Available Information +Our website address is https://gaxos.ai. +The contents of, or information accessible through, our website are not part of this Annual Report on Form 10-K, and our website address +is included in this document as an inactive textual reference only. We make our filings with the U.S. Securities and Exchange Commission +(“SEC”), including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments +to those reports, available free of charge on our website as soon as reasonably practicable after we file such reports with, or furnish +such reports to, the SEC. The public may read and copy the materials we file with the SEC at the SEC’s Public Reference Room at +100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the +SEC at 1-800-SEC-0330. Additionally, the SEC maintains an internet site that contains reports, proxy and information statements and other +information. The address of the SEC’s website is www.sec.gov. The information contained in the SEC’s website is not intended +to be a part of this filing. \ No newline at end of file diff --git a/raw/filings/0001895618/2025/0001213900-26-029223/item13.txt b/raw/filings/0001895618/2025/0001213900-26-029223/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..d6a212cce8e6ca1c065a82f64f4a3c8da47df734 --- /dev/null +++ b/raw/filings/0001895618/2025/0001213900-26-029223/item13.txt @@ -0,0 +1,5 @@ +Item +13. +Certain +Relationships and Related Transactions, and Director Independence +41 \ No newline at end of file diff --git a/raw/filings/0001896212/2024/0001641172-25-001246/filing.txt b/raw/filings/0001896212/2024/0001641172-25-001246/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..66fef7a28275f955bf1735f6e2f75bb1d3b4aa46 --- /dev/null +++ b/raw/filings/0001896212/2024/0001641172-25-001246/filing.txt @@ -0,0 +1,10542 @@ +false +FY +0001896212 +0001896212 +2024-01-01 +2024-12-31 +0001896212 +CDT:CommonStockParValue0.0001PerShareMember +2024-01-01 +2024-12-31 +0001896212 +CDT:RedeemableWarrantsEachWholeWarrantExercisableForOneShareOfCommonStockAtExercisePriceOf11.50Member +2024-01-01 +2024-12-31 +0001896212 +2025-03-28 +0001896212 +2024-06-28 +0001896212 +2024-10-01 +2024-12-31 +0001896212 +2024-12-31 +0001896212 +2023-12-31 +0001896212 +us-gaap:NonrelatedPartyMember +2024-12-31 +0001896212 +us-gaap:NonrelatedPartyMember +2023-12-31 +0001896212 +us-gaap:RelatedPartyMember +2024-12-31 +0001896212 +us-gaap:RelatedPartyMember +2023-12-31 +0001896212 +2023-01-01 +2023-12-31 +0001896212 +srt:ScenarioPreviouslyReportedMember +us-gaap:CommonStockMember +2022-12-31 +0001896212 +srt:ScenarioPreviouslyReportedMember +us-gaap:AdditionalPaidInCapitalMember +2022-12-31 +0001896212 +srt:ScenarioPreviouslyReportedMember +us-gaap:RetainedEarningsMember +2022-12-31 +0001896212 +srt:ScenarioPreviouslyReportedMember +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2022-12-31 +0001896212 +srt:ScenarioPreviouslyReportedMember +2022-12-31 +0001896212 +srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember +us-gaap:CommonStockMember +2022-12-31 +0001896212 +srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember +us-gaap:AdditionalPaidInCapitalMember +2022-12-31 +0001896212 +srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember +us-gaap:RetainedEarningsMember +2022-12-31 +0001896212 +srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2022-12-31 +0001896212 +srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember +2022-12-31 +0001896212 +srt:RevisionOfPriorPeriodReclassificationAdjustmentMember +us-gaap:CommonStockMember +2022-12-31 +0001896212 +srt:RevisionOfPriorPeriodReclassificationAdjustmentMember +us-gaap:AdditionalPaidInCapitalMember +2022-12-31 +0001896212 +srt:RevisionOfPriorPeriodReclassificationAdjustmentMember +us-gaap:RetainedEarningsMember +2022-12-31 +0001896212 +srt:RevisionOfPriorPeriodReclassificationAdjustmentMember +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2022-12-31 +0001896212 +srt:RevisionOfPriorPeriodReclassificationAdjustmentMember +2022-12-31 +0001896212 +us-gaap:CommonStockMember +2022-12-31 +0001896212 +us-gaap:AdditionalPaidInCapitalMember +2022-12-31 +0001896212 +us-gaap:RetainedEarningsMember +2022-12-31 +0001896212 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2022-12-31 +0001896212 +2022-12-31 +0001896212 +srt:RevisionOfPriorPeriodReclassificationAdjustmentMember +us-gaap:CommonStockMember +2021-12-31 +0001896212 +srt:RevisionOfPriorPeriodReclassificationAdjustmentMember +us-gaap:AdditionalPaidInCapitalMember +2021-12-31 +0001896212 +srt:RevisionOfPriorPeriodReclassificationAdjustmentMember +us-gaap:RetainedEarningsMember +2021-12-31 +0001896212 +srt:RevisionOfPriorPeriodReclassificationAdjustmentMember +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2021-12-31 +0001896212 +srt:RevisionOfPriorPeriodReclassificationAdjustmentMember +2021-12-31 +0001896212 +us-gaap:CommonStockMember +2023-12-31 +0001896212 +us-gaap:AdditionalPaidInCapitalMember +2023-12-31 +0001896212 +us-gaap:RetainedEarningsMember +2023-12-31 +0001896212 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2023-12-31 +0001896212 +srt:RevisionOfPriorPeriodReclassificationAdjustmentMember +us-gaap:CommonStockMember +2022-01-01 +2022-12-31 +0001896212 +srt:RevisionOfPriorPeriodReclassificationAdjustmentMember +us-gaap:AdditionalPaidInCapitalMember +2022-01-01 +2022-12-31 +0001896212 +srt:RevisionOfPriorPeriodReclassificationAdjustmentMember +us-gaap:RetainedEarningsMember +2022-01-01 +2022-12-31 +0001896212 +srt:RevisionOfPriorPeriodReclassificationAdjustmentMember +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2022-01-01 +2022-12-31 +0001896212 +srt:RevisionOfPriorPeriodReclassificationAdjustmentMember +2022-01-01 +2022-12-31 +0001896212 +us-gaap:CommonStockMember +2023-01-01 +2023-12-31 +0001896212 +us-gaap:CommonStockMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:AdditionalPaidInCapitalMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:RetainedEarningsMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:CommonStockMember +2024-12-31 +0001896212 +us-gaap:AdditionalPaidInCapitalMember +2024-12-31 +0001896212 +us-gaap:RetainedEarningsMember +2024-12-31 +0001896212 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2024-12-31 +0001896212 +us-gaap:SubsequentEventMember +2025-01-24 +2025-01-24 +0001896212 +CDT:MurphyCanyonAcquisitionCorpMember +CDT:OldConduitPharmaceuticalsLimitedMember +2023-09-22 +0001896212 +CDT:MurphyCanyonAcquisitionCorpMember +us-gaap:CommonStockMember +2023-09-21 +2023-09-22 +0001896212 +CDT:MurphyCanyonAcquisitionCorpMember +CDT:ConduitConvertibleNoteHoldersMember +us-gaap:CommonStockMember +2023-09-21 +2023-09-22 +0001896212 +CDT:MurphyCanyonAcquisitionCorpMember +CDT:ConduitShareHoldersandConvertibleNoteHoldersMember +us-gaap:CommonStockMember +2023-09-21 +2023-09-22 +0001896212 +CDT:MurphyCanyonAcquisitionCorpMember +srt:DirectorMember +us-gaap:CommonClassAMember +2023-09-21 +2023-09-22 +0001896212 +CDT:MurphyCanyonAcquisitionCorpMember +us-gaap:CommonClassAMember +2023-09-21 +2023-09-22 +0001896212 +CDT:MurphyCanyonAcquisitionCorpMember +us-gaap:CommonStockMember +2023-09-22 +0001896212 +CDT:MurphyCanyonAcquisitionCorpMember +CDT:SponsorMember +us-gaap:CommonClassBMember +2023-09-21 +2023-09-22 +0001896212 +CDT:MurphyCanyonAcquisitionCorpMember +CDT:AllianceGlobalPartnersMember +2023-09-21 +2023-09-22 +0001896212 +CDT:MurphyCanyonAcquisitionCorpMember +CDT:AllianceGlobalPartnersMember +2023-09-22 +0001896212 +CDT:MurphyCanyonAcquisitionCorpMember +2023-09-22 +0001896212 +CDT:MurphyCanyonAcquisitionCorpMember +CDT:SubscriptionAgreementsMember +2023-09-21 +2023-09-22 +0001896212 +CDT:MurphyCanyonAcquisitionCorpMember +CDT:SubscriptionAgreementsMember +2023-09-22 +0001896212 +CDT:MurphyCanyonAcquisitionCorpMember +us-gaap:CommonStockMember +us-gaap:CommonStockSubjectToMandatoryRedemptionMember +2023-09-21 +2023-09-22 +0001896212 +CDT:MurphyCanyonAcquisitionCorpMember +srt:DirectorMember +us-gaap:CommonStockMember +2023-09-21 +2023-09-22 +0001896212 +CDT:MurphyCanyonAcquisitionCorpMember +CDT:SponsorMember +us-gaap:CommonStockMember +2023-09-21 +2023-09-22 +0001896212 +CDT:MurphyCanyonAcquisitionCorpMember +CDT:SubscriptionAgreementsMember +us-gaap:CommonStockMember +2023-09-21 +2023-09-22 +0001896212 +CDT:AGPConvertibleNoteMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +2024-01-01 +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel1Member +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:CashAndCashEquivalentsMember +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel2Member +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:CashAndCashEquivalentsMember +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:CashAndCashEquivalentsMember +2024-12-31 +0001896212 +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:CashAndCashEquivalentsMember +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel1Member +us-gaap:FairValueMeasurementsRecurringMember +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel2Member +us-gaap:FairValueMeasurementsRecurringMember +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:FairValueMeasurementsRecurringMember +2024-12-31 +0001896212 +us-gaap:FairValueMeasurementsRecurringMember +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel1Member +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:ConvertibleNotesPayableMember +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel2Member +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:ConvertibleNotesPayableMember +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:ConvertibleNotesPayableMember +2024-12-31 +0001896212 +us-gaap:ConvertibleNotesPayableMember +us-gaap:FairValueMeasurementsRecurringMember +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel1Member +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:WarrantMember +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel2Member +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:WarrantMember +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:WarrantMember +2024-12-31 +0001896212 +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:WarrantMember +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel1Member +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:WarrantMember +2023-12-31 +0001896212 +us-gaap:FairValueInputsLevel2Member +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:WarrantMember +2023-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:WarrantMember +2023-12-31 +0001896212 +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:WarrantMember +2023-12-31 +0001896212 +us-gaap:FairValueInputsLevel1Member +us-gaap:FairValueMeasurementsRecurringMember +2023-12-31 +0001896212 +us-gaap:FairValueInputsLevel2Member +us-gaap:FairValueMeasurementsRecurringMember +2023-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:FairValueMeasurementsRecurringMember +2023-12-31 +0001896212 +us-gaap:FairValueMeasurementsRecurringMember +2023-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:ConvertibleNotesPayableMember +2023-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:WarrantMember +2023-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:ConvertibleNotesPayableMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:WarrantMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:ConvertibleNotesPayableMember +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:WarrantMember +2024-12-31 +0001896212 +2024-11-30 +0001896212 +2024-12-11 +0001896212 +CDT:PIPEWarrantsMember +2024-12-11 +2024-12-11 +0001896212 +CDT:PIPEWarrantsMember +2024-12-31 +0001896212 +us-gaap:MeasurementInputSharePriceMember +2024-10-31 +0001896212 +us-gaap:MeasurementInputSharePriceMember +2024-11-22 +0001896212 +us-gaap:MeasurementInputSharePriceMember +2024-12-31 +0001896212 +us-gaap:MeasurementInputExpectedTermMember +2024-10-31 +2024-10-31 +0001896212 +us-gaap:MeasurementInputExpectedTermMember +2024-11-22 +2024-11-22 +0001896212 +us-gaap:MeasurementInputExpectedTermMember +2024-01-01 +2024-12-31 +0001896212 +CDT:CorporateBondYieldEstimatedTimingOfConversionMember +2024-10-31 +0001896212 +CDT:CorporateBondYieldEstimatedTimingOfConversionMember +2024-11-22 +0001896212 +CDT:CorporateBondYieldEstimatedTimingOfConversionMember +2024-12-31 +0001896212 +us-gaap:MeasurementInputCreditSpreadMember +2024-10-31 +0001896212 +us-gaap:MeasurementInputCreditSpreadMember +2024-11-22 +0001896212 +us-gaap:MeasurementInputCreditSpreadMember +2024-12-31 +0001896212 +CDT:MeasurementInputProbabilityOfDefaultMember +2024-10-31 +0001896212 +CDT:MeasurementInputProbabilityOfDefaultMember +2024-11-22 +0001896212 +CDT:MeasurementInputProbabilityOfDefaultMember +2024-12-31 +0001896212 +CDT:MeasurementInputRecoveryUponDefaultMember +2024-10-31 +0001896212 +CDT:MeasurementInputRecoveryUponDefaultMember +2024-11-22 +0001896212 +CDT:MeasurementInputRecoveryUponDefaultMember +2024-12-31 +0001896212 +us-gaap:MeasurementInputDiscountRateMember +2024-10-31 +0001896212 +us-gaap:MeasurementInputDiscountRateMember +2024-11-22 +0001896212 +us-gaap:MeasurementInputDiscountRateMember +2024-12-31 +0001896212 +us-gaap:MeasurementInputSharePriceMember +CDT:AGPConvertibleNoteMember +2024-11-25 +0001896212 +us-gaap:MeasurementInputSharePriceMember +CDT:AGPConvertibleNoteMember +2024-12-31 +0001896212 +us-gaap:MeasurementInputExpectedTermMember +CDT:AGPConvertibleNoteMember +2024-11-25 +2024-11-25 +0001896212 +us-gaap:MeasurementInputExpectedTermMember +CDT:AGPConvertibleNoteMember +2024-01-01 +2024-12-31 +0001896212 +CDT:CorporateBondYieldEstimatedTimingOfConversionMember +CDT:AGPConvertibleNoteMember +2024-11-25 +0001896212 +CDT:CorporateBondYieldEstimatedTimingOfConversionMember +CDT:AGPConvertibleNoteMember +2024-12-31 +0001896212 +us-gaap:MeasurementInputCreditSpreadMember +CDT:AGPConvertibleNoteMember +2024-11-25 +0001896212 +us-gaap:MeasurementInputCreditSpreadMember +CDT:AGPConvertibleNoteMember +2024-12-31 +0001896212 +CDT:MeasurementInputProbabilityOfDefaultMember +CDT:AGPConvertibleNoteMember +2024-11-25 +0001896212 +CDT:MeasurementInputProbabilityOfDefaultMember +CDT:AGPConvertibleNoteMember +2024-12-31 +0001896212 +CDT:MeasurementInputRecoveryUponDefaultMember +CDT:AGPConvertibleNoteMember +2024-11-25 +0001896212 +CDT:MeasurementInputRecoveryUponDefaultMember +CDT:AGPConvertibleNoteMember +2024-12-31 +0001896212 +us-gaap:MeasurementInputPriceVolatilityMember +2024-11-25 +0001896212 +us-gaap:MeasurementInputPriceVolatilityMember +2024-12-31 +0001896212 +us-gaap:MeasurementInputSharePriceMember +us-gaap:FairValueInputsLevel3Member +2024-10-29 +0001896212 +us-gaap:MeasurementInputSharePriceMember +us-gaap:FairValueInputsLevel3Member +2024-12-31 +0001896212 +us-gaap:MeasurementInputExercisePriceMember +us-gaap:FairValueInputsLevel3Member +2024-10-29 +0001896212 +us-gaap:MeasurementInputExercisePriceMember +us-gaap:FairValueInputsLevel3Member +2024-12-31 +0001896212 +us-gaap:MeasurementInputRiskFreeInterestRateMember +us-gaap:FairValueInputsLevel3Member +2024-10-29 +0001896212 +us-gaap:MeasurementInputRiskFreeInterestRateMember +us-gaap:FairValueInputsLevel3Member +2024-12-31 +0001896212 +us-gaap:MeasurementInputPriceVolatilityMember +us-gaap:FairValueInputsLevel3Member +2024-10-29 +0001896212 +us-gaap:MeasurementInputPriceVolatilityMember +us-gaap:FairValueInputsLevel3Member +2024-12-31 +0001896212 +us-gaap:MeasurementInputExpectedTermMember +us-gaap:FairValueInputsLevel3Member +2024-10-29 +2024-10-29 +0001896212 +us-gaap:MeasurementInputExpectedTermMember +us-gaap:FairValueInputsLevel3Member +2024-01-01 +2024-12-31 +0001896212 +2024-03-07 +0001896212 +CDT:VelaAgreementMember +2020-10-20 +2020-10-20 +0001896212 +CDT:VelaAgreementMember +2021-01-01 +2021-12-31 +0001896212 +CDT:VelaAgreementMember +CDT:VelaTechnologiesPLCMember +2020-01-01 +2020-12-31 +0001896212 +CDT:VelaOptionAgreementMember +2023-04-01 +2023-04-30 +0001896212 +CDT:VelaOptionAgreementMember +us-gaap:CommonStockMember +2023-04-30 +0001896212 +CDT:VelaOptionAgreementMember +srt:MinimumMember +2023-04-30 +0001896212 +CDT:VelaOptionAgreementMember +srt:MaximumMember +2023-04-30 +0001896212 +CDT:VelaOptionLiabilityMember +2023-11-30 +2023-11-30 +0001896212 +CDT:VelaOptionLiabilityMember +2023-11-30 +0001896212 +CDT:VelaOptionLiabilityMember +2023-01-01 +2023-12-31 +0001896212 +CDT:CizzlePlcAgreementMember +2022-02-11 +2022-02-11 +0001896212 +CDT:CizzlePlcAgreementMember +2022-02-11 +0001896212 +CDT:CizzlePlcAgreementMember +2022-12-31 +0001896212 +CDT:CizzlePlcAgreementMember +2022-12-15 +0001896212 +CDT:CizzlePlcAgreementMember +us-gaap:CommonStockMember +2023-09-26 +2023-09-26 +0001896212 +CDT:CizzlePlcAgreementMember +2023-12-31 +0001896212 +CDT:CizzlePlcAgreementMember +2023-01-01 +2023-12-31 +0001896212 +CDT:ConvertiblePromissoryNotesPayableMember +2023-03-31 +0001896212 +CDT:ConvertiblePromissoryNotesPayableMember +2023-03-01 +2023-03-31 +0001896212 +us-gaap:CommonStockMember +2024-10-09 +2024-10-09 +0001896212 +CDT:ConvertiblePromissoryNoteMember +us-gaap:CommonStockMember +2024-10-11 +2024-10-11 +0001896212 +CDT:ConvertiblePromissoryNotePayableMember +2024-10-09 +2024-10-09 +0001896212 +CDT:ConvertiblePromissoryNotePayableMember +us-gaap:CommonStockMember +2024-10-09 +0001896212 +CDT:ConvertiblePromissoryNotePayableMember +us-gaap:CommonStockMember +2024-10-09 +2024-10-09 +0001896212 +CDT:ConvertiblePromissoryNoteMember +us-gaap:CommonStockMember +CDT:ConsultingAgreementMember +2024-10-11 +2024-10-11 +0001896212 +CDT:ConvertiblePromissoryNoteMember +us-gaap:CommonStockMember +CDT:ConsultingAgreementMember +2024-10-10 +2024-10-10 +0001896212 +CDT:ConvertiblePromissoryNoteMember +us-gaap:CommonStockMember +CDT:ConsultingAgreementMember +2024-10-10 +0001896212 +CDT:ConvertiblePromissoryNotesPayableMember +2024-01-01 +2024-12-31 +0001896212 +CDT:ConvertiblePromissoryNotesPayableMember +2023-01-01 +2023-12-31 +0001896212 +CDT:TwentyTwentyThreeConvertibleNoteMember +us-gaap:SubsequentEventMember +2025-03-06 +2025-03-06 +0001896212 +CDT:TwentyTwentyThreeConvertibleNoteMember +us-gaap:SubsequentEventMember +2025-03-13 +2025-03-13 +0001896212 +CDT:SeniorSecuredPromissoryNoteMember +CDT:NirlandLimitedMember +2024-08-06 +0001896212 +CDT:SeniorSecuredPromissoryNoteMember +CDT:NirlandLimitedMember +2024-08-06 +2024-08-06 +0001896212 +CDT:SeniorSecuredPromissoryNoteMember +2024-08-06 +2024-08-06 +0001896212 +CDT:SeniorSecuredPromissoryNoteMember +2024-08-06 +0001896212 +CDT:SeniorSecuredPromissoryNoteMember +us-gaap:CommonStockMember +2024-08-06 +0001896212 +us-gaap:CommonStockMember +2024-08-06 +0001896212 +2024-08-06 +0001896212 +CDT:FirstAmendmentNirlandNoteMember +2024-10-31 +0001896212 +CDT:NirlandLimitedMember +CDT:FirstAmendmentMember +2024-10-31 +0001896212 +CDT:NirlandLimitedMember +CDT:FirstAmendmentMember +2024-10-31 +2024-10-31 +0001896212 +CDT:SecondAmendmentNirlandNoteMember +2024-11-22 +2024-11-22 +0001896212 +CDT:SecondAmendmentNirlandNoteMember +2024-11-22 +0001896212 +CDT:FirstAmendmentNirlandNoteMember +2024-11-22 +0001896212 +CDT:SecondAmendmentMember +2024-11-22 +0001896212 +CDT:FirstAmendmentMember +2024-11-22 +0001896212 +us-gaap:CommonStockMember +2024-12-09 +2024-12-09 +0001896212 +CDT:ConvertiblePromissoryNotesMember +2024-12-31 +0001896212 +CDT:ConvertiblePromissoryNotesPayableMember +CDT:NirlandLimitedMember +2024-01-01 +2024-12-31 +0001896212 +CDT:ConvertiblePromissoryNotesPayableMember +CDT:NirlandLimitedMember +CDT:FirstAmendmentMember +2024-01-01 +2024-12-31 +0001896212 +CDT:ConvertiblePromissoryNotesPayableMember +CDT:NirlandLimitedMember +CDT:SecondAmendmentMember +2024-01-01 +2024-12-31 +0001896212 +CDT:AllianceGobalPartnersConvertibleNoteMember +2024-11-25 +0001896212 +CDT:AllianceGobalPartnersConvertibleNoteMember +us-gaap:SubsequentEventMember +2025-01-25 +2025-01-25 +0001896212 +CDT:AllianceGobalPartnersConvertibleNoteMember +2024-11-25 +2024-11-25 +0001896212 +CDT:AllianceGobalPartnersConvertibleNoteMember +2024-01-01 +2024-12-31 +0001896212 +CDT:LoanAgreementsMember +2022-05-01 +0001896212 +CDT:LoanAgreementsMember +2022-05-01 +2022-05-01 +0001896212 +CDT:TrancheOneMember +2022-05-01 +0001896212 +CDT:TrancheTwoMember +2022-05-01 +0001896212 +CDT:TrancheThreeMember +2022-05-01 +0001896212 +2022-05-01 +0001896212 +2024-10-09 +2024-10-09 +0001896212 +CDT:LoanHoldersMember +2024-10-11 +2024-10-11 +0001896212 +2024-10-11 +2024-10-11 +0001896212 +2024-10-09 +0001896212 +CDT:LoansAmendmentMember +us-gaap:SubsequentEventMember +2025-02-01 +2025-02-28 +0001896212 +CDT:OctoberTwoThousandTwentyFourNirlandNoteMember +2024-10-28 +0001896212 +CDT:OctoberTwoThousandTwentyFourNirlandNoteMember +srt:MinimumMember +2024-10-28 +0001896212 +CDT:OctoberTwoThousandTwentyFourNirlandNoteMember +srt:MaximumMember +2024-10-28 +0001896212 +CDT:OctoberTwoThousandTwentyFourNirlandNoteMember +2024-10-28 +2024-10-28 +0001896212 +CDT:OctoberTwoThousandTwentyFourNirlandNoteMember +2024-01-01 +2024-12-31 +0001896212 +CDT:BridgeLoanAgreementMember +2024-10-29 +2024-10-29 +0001896212 +CDT:BridgeLoanAgreementMember +2024-10-29 +0001896212 +CDT:BridgeLoanAgreementMember +2024-08-06 +0001896212 +CDT:BridgeLoanAgreementMember +2024-01-01 +2024-12-31 +0001896212 +CDT:AllianceGlobalPartnersMember +2023-09-21 +2023-09-22 +0001896212 +CDT:AllianceGlobalPartnersMember +us-gaap:CommonStockMember +2023-09-21 +2023-09-22 +0001896212 +CDT:AllianceGlobalPartnersMember +2024-09-22 +0001896212 +CDT:AllianceGlobalPartnersMember +2023-09-22 +0001896212 +CDT:AllianceGlobalPartnersMember +2023-12-31 +0001896212 +CDT:AllianceGlobalPartnersMember +2024-11-25 +0001896212 +CDT:AstraZenecaMember +2024-01-01 +2024-12-31 +0001896212 +CDT:SARBORGServiceAgreementMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:CommonStockMember +CDT:SARBORGServiceAgreementMember +2024-01-01 +2024-12-31 +0001896212 +CDT:SARBORGServiceAgreementMember +2024-12-31 +0001896212 +us-gaap:ResearchAndDevelopmentExpenseMember +CDT:SARBORGServiceAgreementMember +2024-01-01 +2024-12-31 +0001896212 +CDT:TwentyTwentyThreeStockIncentivePlanMember +2023-09-22 +0001896212 +CDT:TwentyTwentyThreeStockIncentivePlanMember +2025-02-06 +0001896212 +CDT:TwentyTwentyThreeStockIncentivePlanMember +2025-01-01 +0001896212 +CDT:TwentyTwentyThreeStockIncentivePlanMember +2023-09-21 +2023-09-22 +0001896212 +CDT:TwentyTwentyThreeStockIncentivePlanMember +2024-12-31 +0001896212 +us-gaap:EmployeeStockOptionMember +2024-12-31 +0001896212 +us-gaap:EmployeeStockOptionMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:GeneralAndAdministrativeExpenseMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:GeneralAndAdministrativeExpenseMember +2023-01-01 +2023-12-31 +0001896212 +us-gaap:CommonStockMember +2024-06-24 +2024-06-24 +0001896212 +us-gaap:CommonStockMember +2024-06-24 +0001896212 +us-gaap:GeneralAndAdministrativeExpenseMember +2024-06-24 +2024-06-24 +0001896212 +CDT:NonEmployeeDirectorsMember +2024-11-18 +2024-11-18 +0001896212 +CDT:NonEmployeeDirectorsMember +2024-11-18 +0001896212 +srt:BoardOfDirectorsChairmanMember +us-gaap:CommonStockMember +2024-11-18 +2024-11-18 +0001896212 +us-gaap:CommonStockMember +srt:BoardOfDirectorsChairmanMember +2024-11-18 +0001896212 +CDT:MrHeilbronMember +CDT:ConsultingAgreementMember +2024-11-18 +2024-11-18 +0001896212 +CDT:ConsultingAgreementMember +CDT:MrHeilbronMember +2024-11-18 +0001896212 +us-gaap:RestrictedStockUnitsRSUMember +srt:ChiefFinancialOfficerMember +2023-12-01 +2023-12-01 +0001896212 +2023-12-01 +2023-12-01 +0001896212 +us-gaap:RestrictedStockUnitsRSUMember +srt:ChiefFinancialOfficerMember +2024-06-07 +2024-06-07 +0001896212 +us-gaap:RestrictedStockUnitsRSUMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:RestrictedStockUnitsRSUMember +2023-01-01 +2023-12-31 +0001896212 +srt:MinimumMember +2024-01-01 +2024-12-31 +0001896212 +srt:MaximumMember +2024-01-01 +2024-12-31 +0001896212 +srt:MinimumMember +2023-01-01 +2023-12-31 +0001896212 +srt:MaximumMember +2023-01-01 +2023-12-31 +0001896212 +CDT:TwoThousandTwentyThreePlanMember +2023-12-31 +0001896212 +CDT:TwoThousandTwentyThreePlanMember +2023-01-01 +2023-12-31 +0001896212 +CDT:TwoThousandTwentyThreePlanMember +2024-01-01 +2024-12-31 +0001896212 +CDT:TwoThousandTwentyThreePlanMember +2024-12-31 +0001896212 +us-gaap:DomesticCountryMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:ForeignCountryMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:DomesticCountryMember +2023-01-01 +2023-12-31 +0001896212 +us-gaap:ForeignCountryMember +2023-01-01 +2023-12-31 +0001896212 +us-gaap:DomesticCountryMember +2024-12-31 +0001896212 +us-gaap:ForeignCountryMember +2024-12-31 +0001896212 +us-gaap:DomesticCountryMember +2023-12-31 +0001896212 +us-gaap:ForeignCountryMember +2023-12-31 +0001896212 +us-gaap:StateAndLocalJurisdictionMember +2024-12-31 +0001896212 +us-gaap:StateAndLocalJurisdictionMember +2023-12-31 +0001896212 +2024-10-23 +2024-10-23 +0001896212 +us-gaap:CommonStockMember +CDT:SalesAgreementMember +2024-01-01 +2024-12-31 +0001896212 +CDT:PublicWarrantsMember +2024-01-01 +2024-12-31 +0001896212 +CDT:PublicWarrantsMember +2023-01-01 +2023-12-31 +0001896212 +CDT:PIPEMember +2024-01-01 +2024-12-31 +0001896212 +CDT:PIPEMember +2023-01-01 +2023-12-31 +0001896212 +CDT:AGPWarrantsMember +2024-01-01 +2024-12-31 +0001896212 +CDT:AGPWarrantsMember +2023-01-01 +2023-12-31 +0001896212 +CDT:ConvertiblePromissoryNotesPayableMember +2024-01-01 +2024-12-31 +0001896212 +CDT:ConvertiblePromissoryNotesPayableMember +2023-01-01 +2023-12-31 +0001896212 +us-gaap:StockOptionMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:StockOptionMember +2023-01-01 +2023-12-31 +0001896212 +us-gaap:RestrictedStockUnitsRSUMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:RestrictedStockUnitsRSUMember +2023-01-01 +2023-12-31 +0001896212 +CDT:AugustTwentyTwentyFourNirlandNoteMember +2024-01-01 +2024-12-31 +0001896212 +CDT:AugustTwentyTwentyFourNirlandNoteMember +2023-01-01 +2023-12-31 +0001896212 +CDT:AGPConvertibleNoteMember +2024-01-01 +2024-12-31 +0001896212 +CDT:AGPConvertibleNoteMember +2023-01-01 +2023-12-31 +0001896212 +CDT:MarchTwentyTwentyFourWarrantsMember +2024-01-01 +2024-12-31 +0001896212 +CDT:MarchTwentyTwentyFourWarrantsMember +2023-01-01 +2023-12-31 +0001896212 +CDT:AprilTwentyTwentyFourWarrantsMember +2024-01-01 +2024-12-31 +0001896212 +CDT:AprilTwentyTwentyFourWarrantsMember +2023-01-01 +2023-12-31 +0001896212 +CDT:AGPTwentyTwentyFourWarrantsMember +2024-01-01 +2024-12-31 +0001896212 +CDT:AGPTwentyTwentyFourWarrantsMember +2023-01-01 +2023-12-31 +0001896212 +2023-08-31 +2023-08-31 +0001896212 +us-gaap:CommonStockMember +2023-08-31 +2023-08-31 +0001896212 +CDT:CorvusCapitalLimitedMember +2023-09-22 +0001896212 +CDT:BoardOfDirectorsMember +2024-01-01 +2024-12-31 +0001896212 +CDT:BoardOfDirectorsMember +2023-01-01 +2023-12-31 +0001896212 +CDT:CorvusCapitalLimitedMember +2023-01-01 +2023-12-31 +0001896212 +CDT:TwentyTwentyTwoConvertibleLoanNoteInstrumentMember +srt:ChiefExecutiveOfficerMember +2023-02-28 +0001896212 +CDT:TwentyTwentyTwoConvertibleLoanNoteInstrumentMember +srt:ChiefExecutiveOfficerMember +2023-02-01 +2023-02-28 +0001896212 +CDT:CorvusCapitalLimitedMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:RelatedPartyMember +2023-09-22 +0001896212 +CDT:SARBORGLtdMember +CDT:SARBORGServicesAgreementMember +2024-01-01 +2024-12-31 +0001896212 +CDT:OfficersAndDirectorsMember +us-gaap:PrivatePlacementMember +us-gaap:CommonStockMember +2024-04-22 +2024-04-22 +0001896212 +CDT:OfficersAndDirectorsMember +us-gaap:PrivatePlacementMember +us-gaap:CommonStockMember +2024-04-22 +0001896212 +CDT:MarchLockUpAgreementMember +2024-03-20 +0001896212 +CDT:MarchLockUpAgreementMember +2024-01-01 +2024-12-31 +0001896212 +CDT:AprilLockUpAgreementMember +CDT:AprilTwentyTwentyFourWarrantsMember +2024-04-20 +0001896212 +us-gaap:WarrantMember +srt:DirectorMember +2024-04-20 +2024-04-20 +0001896212 +us-gaap:WarrantMember +srt:DirectorMember +2024-04-01 +2024-12-31 +0001896212 +srt:DirectorMember +2024-04-01 +2024-12-31 +0001896212 +CDT:AllianceGlobalPartnersMember +CDT:AGPTwentyTwentyFourWarrantsMember +2024-10-29 +0001896212 +us-gaap:IPOMember +CDT:PublicWarrantMember +2023-09-22 +0001896212 +us-gaap:IPOMember +CDT:PublicWarrantMember +2024-12-31 +0001896212 +us-gaap:IPOMember +CDT:PrivatePlacementWarrantMember +2023-09-22 +0001896212 +us-gaap:WarrantMember +2024-12-31 +0001896212 +2024-03-31 +0001896212 +CDT:MarchLockUpAgreementMember +2024-03-01 +2024-03-31 +0001896212 +us-gaap:WarrantMember +CDT:AprilLockUpAgreementMember +2024-04-30 +0001896212 +CDT:AprilLockUpAgreementMember +2024-04-01 +2024-04-30 +0001896212 +CDT:MurphyCanyonAcquisitionCorpMember +2023-09-21 +2023-09-22 +0001896212 +2023-09-22 +0001896212 +CDT:AGPTwentyTwentyFourWarrantsMember +2024-10-29 +2024-10-29 +0001896212 +CDT:PIPEWarrantsMember +2024-12-11 +0001896212 +2024-12-11 +2024-12-11 +0001896212 +2024-03-20 +0001896212 +2024-03-20 +2024-03-20 +0001896212 +2024-04-20 +0001896212 +2024-04-20 +2024-04-20 +0001896212 +us-gaap:OperatingSegmentsMember +CDT:NewLicensesMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:OperatingSegmentsMember +CDT:NewLicensesMember +2023-01-01 +2023-12-31 +0001896212 +us-gaap:OperatingSegmentsMember +CDT:ClinicalAssetDevelopmentMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:OperatingSegmentsMember +CDT:ClinicalAssetDevelopmentMember +2023-01-01 +2023-12-31 +0001896212 +us-gaap:OperatingSegmentsMember +CDT:LegalAndProfessionalFeesMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:OperatingSegmentsMember +CDT:LegalAndProfessionalFeesMember +2023-01-01 +2023-12-31 +0001896212 +us-gaap:OperatingSegmentsMember +CDT:AccountingAndAuditFeesMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:OperatingSegmentsMember +CDT:AccountingAndAuditFeesMember +2023-01-01 +2023-12-31 +0001896212 +us-gaap:OperatingSegmentsMember +CDT:SalariesPayrollAndStockBasedCompensationMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:OperatingSegmentsMember +CDT:SalariesPayrollAndStockBasedCompensationMember +2023-01-01 +2023-12-31 +0001896212 +us-gaap:OperatingSegmentsMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:OperatingSegmentsMember +2023-01-01 +2023-12-31 +0001896212 +2024-01-24 +2024-01-24 +0001896212 +us-gaap:SubsequentEventMember +CDT:OctoberTwentyTwentyFourNirlandNoteMember +2025-02-07 +0001896212 +us-gaap:SubsequentEventMember +CDT:AugustTwentyTwentyFourNirlandNoteMember +2025-02-07 +2025-02-07 +0001896212 +us-gaap:SubsequentEventMember +CDT:AugustTwentyTwentyFourNirlandNoteMember +2025-02-07 +0001896212 +CDT:AugustTwentyTwentyFourNirlandNoteMember +2024-12-12 +2024-12-12 +0001896212 +us-gaap:SubsequentEventMember +CDT:AugustTwentyTwentyFourNirlandNoteMember +2025-01-13 +2025-01-13 +0001896212 +us-gaap:SubsequentEventMember +CDT:AugustTwentyTwentyFourNirlandNoteMember +2025-02-10 +2025-02-10 +0001896212 +us-gaap:SubsequentEventMember +CDT:AugustTwentyTwentyFourNirlandNoteMember +2025-02-13 +0001896212 +CDT:TwentyTwentyThreeConvertibleNoteMember +2023-03-31 +0001896212 +CDT:TwentyTwentyThreeConvertibleNoteMember +us-gaap:SubsequentEventMember +2025-03-13 +0001896212 +us-gaap:SubsequentEventMember +CDT:SalesAgreementMember +2025-01-15 +2025-01-15 +0001896212 +us-gaap:SubsequentEventMember +CDT:SalesAgreementMember +2025-02-06 +2025-02-06 +0001896212 +us-gaap:SubsequentEventMember +CDT:SalesAgreementMember +2025-02-10 +2025-02-10 +0001896212 +us-gaap:SubsequentEventMember +CDT:SalesAgreementMember +2025-02-19 +2025-02-19 +0001896212 +us-gaap:SubsequentEventMember +CDT:SalesAgreementMember +2025-03-10 +2025-03-10 +0001896212 +us-gaap:SubsequentEventMember +2025-01-22 +2025-01-22 +0001896212 +us-gaap:SubsequentEventMember +2025-01-22 +0001896212 +CDT:SalesAgreementMember +2025-03-28 +2025-03-28 +iso4217:USD +xbrli:shares +iso4217:USD +xbrli:shares +xbrli:pure +utr:sqft +iso4217:GBP +xbrli:shares +iso4217:GBP +UNITED +STATES +SECURITIES +AND EXCHANGE COMMISSION +WASHINGTON, +DC 20549 +FORM +10-K +☒ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the fiscal year ended December 31 , 2024 +OR +☐ +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the transition period from to +Commission +File No. 001-41245 +CONDUIT +PHARMACEUTICALS INC. +(Exact +name of registrant as specified in its charter) +Delaware +87-3272543 +(State +or other jurisdiction +of +incorporation or organization) +(I.R.S. +Employer +Identification +Number) +4581 +Tamiami Trail North , Suite 200 +Naples , +Florida +34103 +(Address +of principal executive offices) +(Zip +Code) +Registrant’s +telephone number, including area code: +(646) - 491-9132 +Securities +registered pursuant to Section 12(b) of the Act: +Title +of each class +Trading +Symbol +Name +of each exchange on which registered +Common +Stock, par value $0.0001 per share +CDT +The +Nasdaq Stock Market LLC +Redeemable +Warrants, each whole warrant exercisable for one share of Common Stock at an exercise price of $1,150 +CDTTW +The +Nasdaq Stock Market LLC +Securities +registered pursuant to Section 12(g) of the Act: +None +Indicate +by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate +by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ +No ☒ +Indicate +by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange +Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) +has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate +by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule +405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant +was required to submit such files). Yes ☒ No ☐ +Indicate +by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting +company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” +“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large +accelerated filer ☐ +Accelerated +filer ☐ +Non-accelerated +filer ☒ +Smaller +reporting company ☒ +Emerging +growth company ☒ +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying +with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate +by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness +of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered +public accounting firm that prepared or issued its audit report. ☐ +If +securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant +included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate +by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation +received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate +by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ +As +of March 28, 2025, there were 6,662,755 shares of common stock, $ 0.0001 par value, of the Registrant issued and outstanding. The aggregate +market value of the common stock held by non-affiliates of the registrant as of June 28, 2024, the last business day of the registrant’s +most recently completed second fiscal quarter, was $ 41,401,162 based upon the closing price reported for such date on The Nasdaq Global +Market. +On +January 25, 2025, the Registrant effected a 1-for-100 reverse stock split of its authorized shares of common stock, accompanied by a +corresponding decrease in its issued and outstanding shares of common stock. All references to numbers of shares of common stock and +per-share information in this Annual Report on Form 10-K have been adjusted retroactively, as appropriate, to reflect the reverse stock +split. +TABLE +OF CONTENTS +PART I +Item +1. +Business +1 +Item +1A. +Risk Factors +29 +Item +1B. +Unresolved Staff Comments +57 +Item +IC. +Cybersecurity +57 +Item +2. +Properties +57 +Item +3. +Legal Proceedings +57 +Item +4. +Mine Safety Disclosures +57 +PART II +Item +5. +Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +58 +Item +6. +Reserved +58 +Item +7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +58 +Item +7A. +Quantitative and Qualitative Disclosures About Market Risk +70 +Item +8. +Financial Statements and Supplementary Data +70 +Item +9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +70 +Item +9A. +Controls and Procedures +70 +Item +9B. +Other Information +71 +Item +9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +71 +PART III +Item +10. +Directors, Executive Officers and Corporate Governance +72 +Item +11. +Executive Compensation +79 +Item +12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +83 +Item +13. +Certain Relationships and Related Transactions, and Director Independence +84 +Item +14. +Principal Accountant Fees and Services +89 +PART IV +Item +15. +Exhibits and Financial Statement Schedules +90 +Item +16. +Form 10-K Summary. +92 +Signatures. +93 +i +CAUTIONARY +NOTE REGARDING FORWARD-LOOKING STATEMENTS +This +Annual Report on Form 10-K (this “Annual Report”) and the information incorporated herein by reference contain forward-looking +statements. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only +on the Company’s current beliefs, expectations, and assumptions regarding the future of our business, future plans and strategies, +projections, anticipated events and trends, the economy, and other future conditions. This includes, without limitation, statements regarding +the financial position and the plans and objectives of management for our future operations. Such statements can be identified by the +fact that they do not relate strictly to historical or current facts. When used in this Annual Report, words such as “anticipate,” +“believe,” “continue,” “could,” “estimate,” “expect,” “intend,” +“may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” +“should,” “strive,” “would” and similar expressions may identify forward-looking statements, +but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this Annual Report +and in any document incorporated by reference in this Annual Report may include, for example, statements about: +● +the +ability to maintain the listing of our securities on The Nasdaq Global Market and The Nasdaq Capital Market of The Nasdaq Stock Market +LLC (“Nasdaq”), and the potential liquidity and trading of our securities; +● +the +risk of disruption to our current plans and operations; +● +the +ability to recognize the anticipated benefits of our business and the business combination completed in September 2023 (the “Business +Combination”), which may be affected by, among other things, competition and the ability to grow, manage growth profitably, +and retain key employees; +● +costs +related to our business; +● +changes +in applicable laws or regulations; +● +our +ability to meet future capital requirements to fund our operations, which may involve debt and/or equity financing, and to obtain +such debt and/or equity financing on favorable terms, and our sources and uses of cash; +● +our +ability to execute our plans to develop and commercialize our current clinical assets, as well as any future clinical assets that +we license, and the timing of any such commercialization; +● +our +ability to maintain existing license agreements; +● +our +estimates regarding expenses, future revenue, capital requirements, and needs for additional financing; +● +our +ability to use artificial intelligence to enhance our decision-making processes and maximize the value of our pharmaceutical asset +portfolio; +● +the +occurrence of any event, change or other circumstances, including the outcome of any legal proceedings that may be instituted against +us; and +● +other +factors disclosed under the section entitled “Risk Factors” in this Annual Report. +These +forward-looking statements are based on information available as of the date of this Annual Report and current expectations, forecasts, +and assumptions, and involve a number of judgments, risks, and uncertainties. Accordingly, forward-looking statements should not be relied +upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements +to reflect events or circumstances after the date they were made, whether as a result of new information, future events, or otherwise, +except as may be required under applicable securities laws. +ii +TRADEMARKS +This +document contains references to trademarks and service marks belonging to other entities. Solely for convenience, trademarks and trade +names referred to in this Annual Report may appear without the ® or ™ symbols, but such references are not intended to indicate, +in any way, that the applicable licensor will not assert, to the fullest extent under applicable law, its rights to these trademarks +and trade names. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship +with, or endorsement or sponsorship of it by, any other companies. +SUMMARY +OF RISK FACTORS +The +following is a summary of the principal risks that could adversely affect our business, financial condition, operating results, cash +flows and/or stock price. Discussion of the risks listed below, and other risks that we face, are discussed in the section titled “Risk +Factors” in Part I, Item 1A of this Annual Report. +Risks +Related to Our Business and Industry +● +Our +business is dependent on the successful development, regulatory approval, and commercialization of our clinical assets, in particular +a glucokinase activator which we believe is active in a range of autoimmune disorders, which we refer to as AZD1656, and a potent, +irreversible inhibitor of human Myeloperoxidase that has the potential to treat idiopathic male infertility, which we refer to as +AZD5904. +● +Preclinical +drug development for our clinical assets is expensive, time-consuming, and uncertain. Our preclinical trials may fail to adequately +demonstrate pharmacologic activity in therapeutic areas of interest; cause unintended short- or long-term effects in other bodily +systems; or produce unexpected toxicity that may alter or risk benefit assessment. +● +It +is difficult to accurately predict the time and cost of development and of subsequently obtaining regulatory approval for AZD1656 +as it employs newly developed technology. +● +We +may not be successful in our efforts to use and expand our research and development platform to build a pipeline of clinical assets. +● +Clinical +drug development for our clinical assets is very expensive, time-consuming, difficult to design and implement, and uncertain. Our +clinical trials may fail to adequately demonstrate the safety and efficacy of our clinical assets, which could prevent or delay regulatory +approval and commercialization. +● +We +may be unable to obtain regulatory approval for our early-stage clinical assets under applicable regulatory requirements. The U.S. Food and Drug Administration (the “FDA”) +and foreign regulatory bodies have substantial discretion in the approval process, including the ability to delay, limit, or deny +approval of clinical assets. The delay, limitation, or denial of any regulatory approval would adversely impact commercialization, +our potential to generate revenue, our business, and our operating results. +● +We +may face product liability exposure, and if successful claims are brought against us, we may incur substantial liability if our insurance +coverage for those claims is inadequate. +● +We +currently rely on, and expect to continue to rely on, third-party contract research organizations (“CROs”) and other third parties to conduct and oversee our clinical +trials and other aspects of product development. If these third parties do not meet our requirements or otherwise conduct the trials +as required, we may not be able to satisfy our contractual obligations or obtain regulatory approval for, or commercialize, our clinical +assets when expected or at all. +● +We +currently rely on agreements with a related party and third parties for the purpose of licensing our clinical assets. In the near-term, +we intend to rely on third parties for the licensing of clinical assets and those which may arise through future partnerships. +● +Manufacturing +and supply of the active pharmaceutical ingredients (“APIs”) and other substances and materials used in our clinical assets is a complex and technically challenging undertaking, +and there is potential for failure at many points in the manufacturing, testing, quality assurance, and distribution supply chain, +as well as the potential for latent defects after products have been manufactured and distributed. +Risks +Related to Intellectual Property +● +Failure +to adequately protect our intellectual property could adversely affect our business, financial condition, and operating results. +● +We +may not be able to protect our intellectual property rights throughout the world. +● +Our +intellectual property rights throughout the world may be challenged by third parties, on prospectively a correct or incorrect basis +Risks +Related to Securities Markets and Investment in Our Stock +● +Claims +for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against +us and may reduce the amount of money available to us. +Risks +Related to Finances and Capital Requirements +● +There +is substantial doubt regarding our ability to continue as a going concern. We will need to raise additional funding, which may not +be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or +terminate our commercial programs, product development efforts or other operations, all of which could have a material adverse effect +on the Company and its financial results. +● +We +may issue additional shares of common stock or preferred stock, including under an employee incentive plan, which would dilute the +interest of our stockholders. +iii +PART +I +Item +1. Business +Overview +On +September 22, 2023, a merger transaction (the “Business Combination”) between Conduit Pharmaceuticals Limited (“Old +Conduit”), Murphy Canyon Acquisition Corp (“MURF”) and Conduit Merger Sub, Inc., a Cayman Islands exempted company +and a wholly owned subsidiary of MURF (“Merger Sub”), was completed pursuant to the Agreement and Plan of Merger, dated November +8, 2022, as amended, (the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, at the closing, (i) Merger +Sub merged with and into Old Conduit, with Old Conduit surviving the Business Combination as a wholly-owned subsidiary of MURF, and (ii) +MURF changed its name from Murphy Canyon Acquisition Corp. to Conduit Pharmaceuticals Inc. (“Conduit” or the “Company”). +Conduit +has developed a unique business model that allows it to act as a conduit to bring clinical assets from pharmaceutical companies and +develop new treatments for patients. Our novel approach addresses unmet medical needs and lengthens the intellectual property for +our existing assets through cutting-edge solid-form technology and then commercializing these products with life science companies. +We continue to evaluate novel artificial intelligence (“AI”) and cybernetics approaches to drug re-purposing, +intellectual property and asset selection to give Conduit a competitive advantage. +We +are led by highly experienced pharmaceutical executives: Dr. Freda Lewis-Hall, former Chief Medical Officer of Pfizer Inc., the Chair +of our Board of Directors, and Dr. David Tapolczay, former Chief Executive Officer of the United Kingdom-based medical research charity +LifeArc, our Chief Executive Officer. Our management team includes active senior scientists who have an extensive understanding of the +pharmaceuticals market, which supports our strategy of developing clinical assets in a cost-efficient manner while focusing on therapeutic +efficacy and patient safety. +Simultaneously, +Conduit leverages the capabilities of our Cambridge laboratory facility and highly experienced team of solid-form experts to extend or +develop proprietary solid-form intellectual property for our existing and future clinical assets. Our own intellectual property portfolio +comprises pending patent applications in several international jurisdictions describing a solid-form compound, including the AZD1656 +Cocrystal (a HK-4 Glucokinase Activator), targeting a wide range of autoimmune disorders. Our pipeline research includes a number of +compounds that serve as promising alternatives to existing clinical assets currently marketed and sold by large pharmaceutical companies, +which we have identified as having an opportunity to develop further intellectual property positions through solid-form technology. +In +connection with the funding and development of clinical assets, we evaluate and select the specific molecules to be developed and collaborate +with external CROs and Key Opinion Leaders (“KOLs”) to run clinical trials +that are managed, funded, and overseen by us. We intend to leverage our comprehensive clinical and scientific expertise in order to facilitate +development of clinical assets through Phase II trials in an efficient manner by using CROs and third-party service providers. We will +also collaborate closely with disease specific KOLs to collectively assess and determine the most appropriate indications for all our +current and forthcoming assets. +We +believe that successful Phase II trials of the clinical assets in our pipeline will increase the value of our assets. There is no assurance +that any clinical trials on the assets owned or licensed by us will be successful, however, following a successful Phase II clinical +trial, we would look to licensing opportunities with large biotech or pharmaceutical companies, typically for up-front milestone payments +and royalty income streams for the life of the asset patent. We anticipate using any future royalty income stream to develop our asset +portfolio in combination with other potential sources of financing, including debt or equity financing. +Outside +of our proprietary owned patented clinical assets, AstraZeneca agreed to grant a license to the Company under certain intellectual property +rights controlled by AstraZeneca related to HK-4 Glucokinase activators AZD1656 and AZD5658 in all indications and myeloperoxidase inhibitor +AZD5904 for the treatment, prevention, and prophylaxis of idiopathic male infertility. The Company will be responsible for the development +and commercialization of the relevant products licensed under the related License Agreement (the “Licensed Products”). The +Company is required to use commercially reasonable efforts to develop and commercialize the Licensed Products. +AstraZeneca +has conducted initial pre-clinical and, in some instances, clinical trials on these assets, but has decided to license them for further +development. As the clinical assets have undergone initial pre-clinical and clinical testing conducted by AstraZeneca, we are able to +use the safety data generated in these clinical trials to assess which clinical assets to further develop and for which indications. +Through +this relationship, there are considerable APIs that were manufactured by AstraZeneca +(prior to conducting its clinical trials) available to Conduit. As a result, Conduit may not have to develop the APIs, which is often +a time consuming and expensive process, and the APIs already produced were subject to rigorous quality control measures. +In +collaboration with SARBORG Limited (“Sarborg”), Conduit intends to leverage an advanced +artificial intelligence (AI) and cybernetics platform to evaluate key deliverables across multiple areas of the Company’s +operations, including drug repurposing, drug discovery, solid-form identification, and clinical trial monitoring. +The +Sarborg Agreement (defined and described below) is designed to address longstanding challenges in the pharmaceutical sector, in +particular by reducing human error in critical decision-making processes in both clinical development and asset identification. By +integrating Sarborg’s algorithmic AI/cybernetics technology, Conduit aims to enhance efficiency, lower costs, and accelerate +timelines by minimizing human intervention, ultimately optimizing the drug development cycle and giving Conduit a competitive +advantage in the sector. +Through +this relationship, Conduit will gain access to cutting-edge predictive models and dashboards, enabling the Company to evaluate drug candidates, +streamline clinical trials, and optimize asset management with real-time data. These tools will drive faster, more accurate decisions, +improving efficiency and reducing costs. By leveraging these insights, Conduit to differentiate itself in a competitive sector and gain +unique data-driven insights that position the Company for success across both its current and future asset portfolio. +In +addition, Conduit will retain a perpetual, non-exclusive, royalty-free, and assignable right to use any platform or technology developed +by Sarborg in association with the deliverables. Ongoing support from Sarborg will ensure these systems evolve with Conduit’s needs, +driving long-term innovation in areas like IP creation, regulatory strategy, and clinical trial monitoring. This partnership reinforces +Conduit’s commitment to leveraging AI-driven solutions to accelerate growth, deliver value to stockholders, and maintain a competitive +edge in the pharmaceutical sector. +Sarborg is considered to +be a related party of conduit, as Dr. Andrew Regan, a stockholder of Conduit and member of Conduit’s board of directors, +also sits on the board of directors of Sarborg. Refer to Note 16 to our financial statements included elsewhere in this Annual Report +for additional details on the relationship between Conduit and Sarborg. +1 +This +strategic move reaffirms Conduit’s commitment to adopting forward-thinking solutions to stay at the forefront of innovation in +the pharmaceutical industry. By reducing reliance on traditional, labor-intensive methods and harnessing the power of AI-driven technology, +Conduit is well-positioned to lead in areas such as drug repurposing, clinical trial monitoring, and IP creation, ensuring the Company’s +long-term growth and market leadership. +Furthermore, +Conduit believes that it is well positioned to pursue, and intends to pursue, additional relationships and/or partnerships with +third parties for the licensing of further assets which are currently deprioritized. We plan to focus our efforts on developing +clinical assets to address disorders that impact a large population where there is no present treatment or the present treatment, +carries significant unwanted side effects. +Our +Initial Pipeline: HK-4 Glucokinase Activator Cocrystal, AZD1656, and its metabolite AZD5658 and AZD5904 +We +wholly own the intellectual property and the rights to further develop the solid-form Cocrystals of AZD1656 (AZD1656 Cocrystal– +pending international patent applications, which, if granted should expire no earlier than 2042) that we intend to target a wide range +of autoimmune disorders. +In +addition, we currently have the exclusive rights to develop clinical assets, AZD1656 and AZD5658 in all human indications and AZD5904 +in idiopathic male infertility which are licensed to us by AstraZeneca. +Outside +of our proprietary owned patented clinical assets, AstraZeneca granted a license to the Company of certain intellectual property rights +controlled by AstraZeneca related to HK-4 Glucokinase activators AZD1656 and AZD5658 in all indications and myeloperoxidase inhibitor +AZD5904 for the treatment, prevention, and prophylaxis of idiopathic male infertility. The Company will be responsible for the development +and commercialization of the Licensed Products. The Company is required to use commercially reasonable efforts to develop and commercialize +the Licensed Products. +Due +to our relationship with AstraZeneca, we intend to leverage the data generated from these historical trials in order to investigate the +efficacy and safety to AZD1656 to potentially treat Lupus and ANCA Vasculitis patients, and the efficacy and safety of AZD5904 to treat +IMI. AZD1656 has undergone testing in a total of 20 Phase I clinical trials and five Phase II clinical trials conducted by AstraZeneca +since 2008 and 19 of which were conducted in the U.S. Additional information about those clinical trials is available at the U.S. National +Library of Medicine’s website at www.clinicaltrials.gov (however, the information contained on or otherwise accessible through +such website is not part of this annual report). AZD5904 has undergone testing in five Phase I clinical trials conducted by AstraZeneca, +one of which was conducted in the U.S. While a significant amount of clinical trial data has already been generated for both AZD1656 +and AZD5904, some of this data was generated outside of the U.S. and accordingly may not be accepted by the FDA. In the event that such +data is not accepted by the FDA, additional clinical trials may be required to commercialize these assets in the United States, which +would result in additional costs and time to develop these clinical assets. +AZD1656 +underwent Phase I and Phase II clinical trials consisting of 23 studies in 526 subjects, 446 of whom were dosed with AZD1656. Other +than for the intended effect of lowering glucose, there were no difference identified between the AZD1656-treated and +placebo-treated subjects relating to adverse events. All of the cases where low glucose levels were identified were managed by the +patients and resolved. Based on these clinical trials, no safety signals were identified regarding vital signs, safety laboratory +values or electrocardiogram data. No deaths occurred in any studies with healthy volunteers or patients. AZD1656 was also subject to +Phase II clinical trials consisting of two studies where AZD1656 was given to patients with Type 2 Diabetes Mellitus for four months +or longer. In total, there were 754 randomized patients, 516 of whom were exposed to AZD1656 (316 men and 200 women). There were no +clinically important differences in the adverse effects profile between the AZD1656 treatment group and the AZD1656 placebo group +and there were no deaths in either of the Phase II studies. The efficacy of AZD1656 as a potential treatment for diabetes was also +assessed during the Phase II clinical trials, including whether the efficacy was statistically significant. Clinically relevant and +statistically significant reductions in HbA1c were seen after four months; however, the initial improvement in glucose control +deteriorated over time and the change in HbA1c levels after four months were not statistically different than the placebo. This +decreasing efficacy over time was seen in both Phase II studies. +AZD5658 +was subject to a randomized, single-blind, placebo-controlled, single-center, Phase I study to assess the safety, tolerability, pharmacokinetics, +pharmacodynamics and the effect of fasting after single ascending oral doses of AZD5658 in Type 2 Diabetes Mellitus patients. There were +six dose levels with eight patients in each cohort, six receiving AZD5658 and two receiving placebo. The effect of fasting on the pharmacokinetics +of AZD5658 was also studied for two dose levels. Each patient treated with metformin received a maximum of two single oral suspension +doses (one on a low dose of AZD5658/placebo and one on a high dose of AZD5658/placebo under fed conditions), except for patients participating +in the evaluation of the effect of fasting, who received a maximum of three single oral suspension doses. For each patient the study +included a pre-entry visit (Visit 1), two or three clinic-based treatment visits (Visit 2, 3, and 4) and a follow-up visit (Visit 5). +Hence, the total duration of the study for each patient was approximately two and one-half months, assuming three weeks between dose +levels. There were no deaths, serious adverse events, discontinuations due to adverse events, or adverse events of severe intensity during +the study. Overall, there were 13 (61.9%) AZD5658-treated patients with adverse events compared to 2 (28.6%) patients who received placebo. +There were no trends noted with increasing dose in the number of adverse events overall or within any preferred term. The most frequently +occurring adverse events were hypoglycemia and diarrhea, each occurring in three AZD5658-treated patients. One adverse event of ear +pain (30 mg AZD5658 fed) was assessed by the study investigator as moderate in intensity; all other adverse events were of mild intensity. +Five adverse events in AZD5658- treated patients were assessed by the investigator as causally related to investigational product, including +hypoglycemia in three patients (100 mg, 200 mg fasted, and 400 mg AZD5658), diarrhea in one patient (200 mg AZD5658 fasted), and headache +in one patient (30 mg AZD5658). No adverse events in placebo-treated patients were assessed as causally related to investigational product. +The three patients who experienced hypoglycemia adverse events were treated with intake of food or orange juice and the episodes resolved +in less than one hour. +2 +AZD5904 +was subject to five Phase I clinical studies, with a total of 1,181 subjects being exposed to AZD5904. Single doses of up to 1200 mg +and multiple doses of up to 325 mg for up to three times per day for 21 days have been administered as an oral solution in the completed +clinical studies. In addition, single doses of up to 1,400 mg and multiple doses of up to 600 mg for 10 days have been administered as +an “extended release” formulation. The data from these studies did not identify any expected adverse drug reactions for AZD5904 +and no adverse effects were reported as related to AZD5904. In addition, the data revealed no clinically significant changes in blood +pressure or pulse rate related to AZD5904 and electrocardiogram data was within the physiological range for the population studied. The +effect of AZD5904 on human myeloperoxidase, which we refer to as MPO, activity was evaluated by determination in an ex vivo assay of +MPO activity in plasma. The correlation between MPO activity and plasma concentrations was assessed for single and multiple doses of +AZD5904. A relationship between plasma concentrations of AZD5904 and MPO activity was demonstrated, which indicates that AZD5904 may +be an effective inhibitor of MPO activity in humans. However, Phase I trials do not assess statistical significance so additional Phase +II trials are necessary to determine if the inhibition of MPO activity as a result of AZD5904 is statistically significant. +Asset +Development +Our +initial development plan is to conduct a Phase II clinical trial on AZD1656 in Lupus (including Lupus Nephritis) and ANCA Vasculitis +(AAV). Should we choose to develop AZD1656, AZD5658, or AZD5904, that development would be subject to the terms of the License Agreement, +described in more detail below. We anticipate developing our Initial Pipeline (which has already undergone pre-clinical and clinical +trials) through the Phase II stage and then monetizing such clinical assets through a license, royalty, or other transaction at this +stage. At this time, we do not expect that we will commercialize any clinical assets or seek marketing approval from the FDA (or similar +organizations) as we intend to enter into agreements with third parties following Phase II clinical trials for each such clinical asset +that would provide that such third party would pursue the further development, commercialization, and marketing of such assets. +To +enable us to monetize our clinical assets, we, in partnership with CROs and KOLs, intend to conduct additional clinical trials on our +clinical assets in order to generate clinical data to support the further development of our clinical assets beyond the Phase II stage. +In the event successful clinical trial data is generated for a clinical asset with a particular indication, at that point, we will seek +to enter into a license, royalty, or other transaction with a third party whereby the third party would continue to pursue the development +of the clinical asset in Phase III clinical trials. There is no assurance that any clinical trials on the assets owned or licensed by +us will be successful. +We +intend to use the income received from licensing clinical assets in our pipeline to fund the development of additional clinical assets, +which will allow us to use the existing income stream from clinical assets that have been licensed to fund our on-going operations, including +the development and commercialization of additional clinical assets, without having to rely solely on debt and/or equity financing. +Our +Development Strategy +Our +strategy is to generate value through the development of new medicines, or clinical assets, for patients where our research +indicates that there are not effective pharmaceutical treatments available or such existing pharmaceutical treatments are not +adequate due to, among other things, cost of such pharmaceuticals and side effects. We are working to develop new medicines in +disorders where competitive treatments carry a high incidence of unacceptable side effects resulting in tolerability and compliance +issues. We aim to extend and develop solid-form intellectual property on assets which are licensed from pharmaceutical companies or +generated within our facility in Cambridge, United Kingdom (the“UK”). We believe that our Cambridge facility positions us at the nexus of scientific +advancement, providing an environment to drive cutting-edge research and development initiatives. +There +is evidence that promising solid-form candidates can supersede original pharmaceutical products. We are currently in the process of developing +new solid-form intellectual property on clinical assets which we believe will serve as promising alternatives for existing products on +the market. We believe that our expertise and utilization of solid-form technology can potentially enhance the efficacy, bioavailability, +solubility and delivery of existing products on the market. Once a candidate has been identified and patented, we will fund and conduct +clinical trials through CROs. +As +previously indicated, our strategy also involves establishing strategic collaborations with globally recognized KOLs. We will collaborate +closely with disease specific KOLs to collectively assess and determine the most appropriate indications for all our current and forthcoming +assets. This approach ensures that the selection of indications aligns with the KOLs’ insights, in addition to our internal expertise, +optimizing the development and success of Conduit’s diverse portfolio. +Our +unique relationships allow us to bypass certain traditional hurdles for the development of clinical assets. Through our relationship +with AstraZeneca, our Initial Pipeline has already undergone initial pre-clinical, and, in some instances, clinical testing conducted +by AstraZeneca, which enables us to use the safety data generated in the prior trials in order to assess which assets to continue to +develop. We regularly assess our asset portfolio to identify potential risks and take steps to mitigate those risks, such as the repurposing +of assets, which reduces development costs and timelines, as the clinical asset has already undergone safety and toxicity testing in +humans, as well as extending the remaining patent life by up to 20 years on all assets which are licensed. +3 +The +prior preclinical and clinical studies conducted by AstraZeneca allow us to reduce the costs, expenses, and time in the development of +these assets by allowing us to continue the Phase Ib or Phase II stage, rather than the preclinical or Phase I stage, even if we are +investigating the assets for a new indication. For example, if a clinical asset was subject to a Phase I trial, such clinical asset may +be advanced to a Phase II trial even if the clinical asset is being investigated for a different indication. In addition, we have access +to API manufactured by AstraZeneca and as a result, should we use their formulation, we do not have to develop a route of manufacture +for the API, which is time consuming and expensive. +Principal +Strategic Partnerships +License +Agreement – Conduit and AstraZeneca +On +August 7, 2024, the Company and AstraZeneca entered into the License Agreement. Pursuant to such License Agreement, AstraZeneca agreed +to grant a license to the Company under certain intellectual property rights controlled by AstraZeneca related to HK-4 Glucokinase activators +AZD1656 and AZD5658 in all indications and myeloperoxidase inhibitor AZD5904 for the treatment, prevention, and prophylaxis of idiopathic +male infertility. The Company will be responsible for the development and commercialization of the Licensed Products under the +related License Agreement. The Company is required to use commercially reasonable efforts to develop +and commercialize the Licensed Products. +As +consideration for the grant of the license, the Company (i) granted AstraZeneca common stock pursuant to the Issuance Agreement (as further +set out below), (ii) paid AstraZeneca an up-front payment of $1.5 million, and (iii) is obligated to pay AstraZeneca a percentage (on +a tiered basis) of any amounts it may receive in connection with a grant of a sublicense (subject to various customary exceptions). +AstraZeneca +has been granted a right of first negotiation to develop, manufacture, and commercialize a Licensed Product if the Company receives an +offer for, or solicits, a transaction where a third party would obtain the right to develop, manufacture, or commercialize a Licensed +Product. If AstraZeneca exercises such right, the parties would negotiate in good faith for an agreed period of time on an exclusive +basis. +Either +party may terminate the License Agreement for material breach (subject to a cure period) or insolvency of the other party. The Company +may terminate the License Agreement for convenience (in its entirety or on a Licensed Product-by-Licensed Product basis). In addition, +AstraZeneca may terminate the License Agreement in certain circumstances, including (but not limited to) the Company ceasing development +of all Licensed Products (subject to certain exceptions for normal pauses or gaps between clinical studies). +In +addition, in connection with the execution of the License Agreement, the Company and AstraZeneca entered into the Issuance Agreement, +whereby the Company issued AstraZeneca 95,044 shares of the Company’s Common Stock. The Issuance Agreement provides +AstraZeneca with resale registration rights for such shares. +Services +Agreement – Conduit and Sarborg Limited +On +December 12, 2024, the Company entered into a Services Agreement (the “Sarborg Agreement”) with Sarborg, a Cayman +Islands company and related party of the Company. Under the terms of the Sarborg Agreement, Sarborg will provide algorithmic and cybernetic technology services to +Conduit, including the development of decision-support tools and advanced cybernetic systems tailored to enhance Conduit’s +decision-making processes and maximize the value of its pharmaceutical asset portfolio. +Sarborg +will perform the services to Conduit comprised of three phases: the Initial Phase (0-24 weeks) focuses on establishing a foundation for +collaboration and aligning Sarborg’s services with Conduit’s strategic goals; the Development Phase (24-36 weeks) involves +building technological infrastructure, including dashboards and predictive models; and the Ongoing Services Phase (36-52 weeks) ensures +the sustained functionality and relevance of Sarborg’s deliverables while supporting Conduit’s growth through iterative improvements +and updates. Sarborg will create specific deliverables, including reports, computer programs, software applications, APIs, mobile applications, +source code, written technical specifications and designs, operating and maintenance manuals, and other recorded data and information +arising from or relating to the services. Sarborg will provide all necessary resources to perform the services and deliver the deliverables +in accordance with the Sarborg Agreement. +To +date, Conduit has successfully completed the Initial Phase of its collaboration with Sarborg, establishing a strong foundation for integrating +AI-driven solutions into our operations. This phase focused on identifying key inputs for the algorithmic approach and ensuring alignment +between Sarborg’s services and Conduit’s strategic goals. As part of this effort, Sarborg has successfully delivered three +key milestones. First, they conducted detailed teach-in sessions with Conduit’s management team to gain a deeper understanding +of our objectives, challenges, and operational workflows, resulting in documented meeting agendas, minutes, and action plans. Second, +they finalized and validated a set of proprietary inputs essential for their cybernetic models, tailored specifically to Conduit’s +portfolio and R&D pipeline. Finally, they completed an in-depth market analysis of potential cocrystal candidates, assessing the +patent landscape, competitive positioning, and market size. The insights from this Annual Report are now informing Conduit’s ongoing +strategic decision-making. With these key milestones delivered, we are now progressing to the next phase of development. +Sarborg +has now commenced Phase II: The Development Phase, which focuses on building the technological infrastructure necessary to integrate +AI into Conduit’s operations. As part of this, Sarborg has successfully completed the first milestone, Dashboard Creation and Refinement, +delivering personalized dashboards that provide Conduit’s key personnel with real-time access to critical data related to deliverables, +clinical trials, and drug discovery. These initial dashboards, along with user interface mock-ups and a dashboard user guide, will serve +as the foundation for further refinements. Moving forward, the platform will continue to be optimized to maximize efficiency and ensure +seamless integration into Conduit’s workflows. +4 +Master +Service Agreement – Conduit and Charles River Laboratories +On +February 7, 2025, Conduit and Charles River Laboratories (“Charles River”) entered into a Master Services Agreement (the +“Charles River MSA”). Under the Charles River MSA, Charles River agreed to provide preclinical testing and research +services to Conduit, including the evaluation of compounds in animal models and other related services. The services are defined in +individual Statements of Work (“SOWs”) or Protocols, which outline the specific scope, design, and timelines for each +study. To date, one SOW, dated February 11, 2025, has been entered into. Charles River will conduct the studies in compliance with +applicable laws and industry standards, and Conduit will provide necessary test articles and materials. The Charles River MSA +includes provisions for confidentiality, intellectual property ownership, indemnification, and dispute resolution. The Charles River +MSA has a term of five years and can be terminated by either party under specified conditions. +Market +Overview +Global +Biotechnology Industry +The +global biotechnology industry comprises a large range of companies engaged in diverse activities, such as biopharmaceutical development. +The industry companies also span across a wide spectrum of operational models. Some small, dedicated biotechnology companies are research +and development (“R&D”) intensive and operate primarily with venture capital, grants, initial public offerings and collaborative +agreements. Conversely, large, diversified companies hold significant in-house R&D resources and well-established production, commercialization, +and distribution processes. +Management +believes that the global biotechnology market was valued at $1.68 trillion in 2024 and is projected to grow at a compound annual growth +rate (“CAGR”) of 9.18% from 2024 to 2033. 1 The market is driven by strong government support through initiatives +aimed at the modernization of regulatory framework, improvements in approval processes and reimbursement policies, as well as standardization +of clinical studies. +Global +investor confidence has fallen during the period, which served to somewhat subdue revenue growth. However, global investment in R&D +has grown strongly and consistently in recent years, with much of this funding funneled into medical biotechnology development, aimed +at providing better care for the aging global population, thus bolstering industry revenue. +Global +Pharmaceutical Industry +Over +the previous five years, pharmaceutical companies have benefited from an aging population in developed economies and a growing middle +class in emerging economies. Many companies have also tapped into regional demand for pharmaceuticals that may differ from developed +markets and have expanded their global presence to tap into regional market needs. +Patent +cliffs have continued to hamper industry revenue during the current period. When drugs lose patent exclusivity, the market is inundated +with low-cost generic drugs. As manufacturers contend with more price-based competition from generics, many operators respond by lowering +their R&D expenditures, which limits the industry’s drug pipelines. Additionally, many governments and health insurance organizations +have reduced their drug reimbursements to control healthcare costs, such as implementing incentives for patients to use generic drugs. +Moving +forward, revenue is forecast to grow an annualized 3.2% to $1.3 trillion over the next five years amid an anticipated persistence of +global demand for industry products. 2 +Our +Initial Pipeline: AZD1656, AZD5658 and AZD5904 +We +wholly own the intellectual property and the rights to further develop the solid-form Cocrystals of AZD1656 (AZD1656 Cocrystal– +pending international patent applications if granted should expire no earlier than 2042) which we intend to target a wide range of autoimmune +disorders. +In +addition, we currently have the exclusive rights to develop clinical assets, AZD1656 and AZD5658 in all human indications and AZD5904 +in idiopathic male infertility which are licensed to us by AstraZeneca. +Outside +of our proprietary owned patented clinical assets, AstraZeneca granted a license to the Company of certain intellectual property rights +controlled by AstraZeneca related to HK-4 Glucokinase activators AZD1656 and AZD5658 in all indications and myeloperoxidase inhibitor +AZD5904 for the treatment, prevention, and prophylaxis of idiopathic male infertility. The Company will be responsible for the development +and commercialization of the Licensed Products. The Company is required to use commercially reasonable efforts to develop and commercialize +the Licensed Products. +Due +to our relationship with AstraZeneca, we intend to leverage the data generated from these historical trials in order to investigate the +efficacy and safety to AZD1656 to potentially treat Lupus and ANCA Vasculitis patients, and the efficacy and safety of AZD5904 to treat +IMI. AZD1656 has undergone testing in a total of 20 Phase I clinical trials and five Phase II clinical trials conducted by AstraZeneca +since 2008 and 19 of which were conducted in the U.S. Additional information about those clinical trials is available at the U.S. National +Library of Medicine’s website at www.clinicaltrials.gov (however, the information contained on or otherwise accessible through +such website is not part of this annual report). AZD5904 has undergone testing in five Phase I clinical trials conducted by AstraZeneca, +one of which was conducted in the U.S. While a significant amount of clinical trial data has already been generated for both AZD1656 +and AZD5904, some of this data was generated outside of the U.S. and accordingly may not be accepted by the FDA. In the event that such +data is not accepted by the FDA, additional clinical trials may be required, which would result in additional costs and time to develop +these clinical assets. +1 (2025, +January 8). Biotechnology Market Size to Worth Around USD 3.54 Trillion by 2033 . BioSpace.com. https://www.biospace.com/press-releases/biotechnology-market-size-to-worth-around-usd-3-54-trillion-by-2033 +2 +IBISWorld Industry Report L6724-GL – Global Biotechnology, May 2021 +5 +The +table below sets forth the pre-clinical or clinical trials that have been conducted by or at the direction of AstraZeneca to date on +the particular clinical asset. All of these pre-clinical or clinical trials were conducted by AstraZeneca prior to Conduit entering into +the License Agreement with AstraZeneca. None of the pre-clinical or clinical trials that have taken place to date were conducted by or +at the direction of the Company. +Asset +Therapeutic +Area +Stage +of Development +Location +of Trials +AZD1656 +Type +2 Diabetes +Preliminary, +Phase I and Phase II +United +Kingdom; United States +AZD1656 +Renal +Transplant Patients with Type II Diabetes +Preliminary, +Phase I and Phase II +United +Kingdom +AZD1656 +Covid-19 +Preliminary, +Phase I +United +Kingdom +AZD5904 +Idiopathic +Male Infertility +Preliminary, +Phase I +European +Union; United States +AZD5658 +Type +2 Diabetes +Preliminary, +Phase I +United +States +The +following table sets forth the current asset development stage for each of AZD1656 and AZD5904 for the indications noted below. +Asset +Therapeutic +Area +Assets +at Their Present Stage of Readiness (1) +Next +Stage of Development to be Conducted by Conduit +Anticipated +Exit Stage for Monetization (3) +Phase +I +Phase +II +Phase +III +AZD1656 +Lupus +& ANCA Vasculitis +☒ +Phase +II +Following +completion of Phase II +AZD5904 +Idiopathic +Male Infertility +☒ +Phase +II +Following +completion of Phase II +AZD5658 +Further +Autoimmune Disorders +☒ +Phase +II +Following +completion of Phase II +AZD1656 +Covid-19, +Long Covid +☒ +N/A (2) +N/A (2) +(1) +Indicates +that the asset is considered ready for this Phase. For example, if an asset is listed under Phase II, this means that the asset has +already completed Phase I trials and is therefore considered Phase II ready. +(2) +We +do not intend to provide additional funding to develop AZD1656 for Covid-19, which is principally owned by third parties. However, +we are entitled to a portion of the revenues in the event that AZD1656 is further developed by a third party and is monetized, whether +through a sale, license agreement, or otherwise. +(3) +Reflects +the stage at which we currently anticipate that we will seek to monetize such assets through a license, royalty, or other transaction +with a third party, who would then seek to continue the development of such clinical asset until its potential commercialization +after Phase III clinical trials were completed. There is no assurance that we will be able to monetize such assets by entering into +a license, royalty, or other transaction with a third party. In addition, there is no assurance that any of the clinical assets licensed +or owned by us will successfully complete Phase II or Phase III clinical trials or obtain regulatory approvals, or that such assets +will be monetized or commercialized. +6 +AZD1656 +was subject to Phase I and Phase II clinical trials consisting of 23 studies in 526 subjects, 446 of whom were dosed with AZD1656. +Other than for the intended effect of lowering glucose, there were no difference identified between the AZD1656-treated and +placebo-treated subjects relating to adverse events. All of the cases where low glucose levels were identified were managed by the +patients and resolved. Based on these clinical trials, no safety signals were identified regarding vital signs, safety laboratory +values or electrocardiogram data. No deaths occurred in any studies with healthy volunteers or patients. AZD1656 was also subject to +Phase II clinical trials consisting of two studies where AZD1656 was given to patients with Type 2 Diabetes Mellitus for four months +or longer. In total, there were 754 randomized patients, 516 of whom were exposed to AZD1656 (316 men and 200 women). There were no +clinically important differences in the adverse effects profile between the AZD1656 treatment group and the AZD1656 placebo group +and there were no deaths in either of the Phase II studies. The efficacy of AZD1656 as a potential treatment for diabetes was also +assessed during the Phase II clinical trials, including whether the efficacy was statistically significant. Clinically relevant and +statistically significant reductions in HbA1c were seen after four months; however, the initial improvement in glucose control +deteriorated over time and the change in HbA1c levels after four months were not statistically different than the placebo. This +decreasing efficacy over time was seen in both Phase II studies. +AZD5658 +was subject to a randomized, single-blind, placebo-controlled, single-center, Phase I study to assess the safety, tolerability, pharmacokinetics, +pharmacodynamics and the effect of fasting after single ascending oral doses of AZD5658 in Type 2 Diabetes Mellitus patients. There were +six dose levels with eight patients in each cohort, six receiving AZD5658 and two receiving placebo. The effect of fasting on the pharmacokinetics +of AZD5658 was also studied for two dose levels. Each patient treated with metformin received a maximum of two single oral suspension +doses (one on a low dose of AZD5658/placebo and one on a high dose of AZD5658/placebo under fed conditions), except for patients participating +in the evaluation of the effect of fasting, who received a maximum of three single oral suspension doses. For each patient the study +included a pre-entry visit (Visit 1), two or three clinic-based treatment visits (Visit 2, 3, and 4) and a follow-up visit (Visit 5). +Hence, the total duration of the study for each patient was approximately two and one-half months, assuming three weeks between dose +levels. There were no deaths, serious adverse events, discontinuations due to adverse events, or adverse events of severe intensity during +the study. Overall, there were 13 (61.9%) AZD5658-treated patients with adverse events compared to 2 (28.6%) patients who received placebo. +There were no trends noted with increasing dose in the number of adverse events overall or within any preferred term. The most frequently +occurring adverse events were hypoglycemia and diarrhea, each occurring in three AZD5658-treated patients. One adverse event of ear pain +(30 mg AZD5658 fed) was assessed by the study investigator as moderate in intensity; all other adverse events were of mild intensity. +Five adverse events in AZD5658- treated patients were assessed by the investigator as causally related to investigational product, including +hypoglycemia in three patients (100 mg, 200 mg fasted, and 400 mg AZD5658), diarrhea in one patient (200 mg AZD5658 fasted), and headache +in one patient (30 mg AZD5658). No adverse events in placebo-treated patients were assessed as causally related to investigational product. +The three patients who experienced hypoglycemia adverse events were treated with intake of food or orange juice and the episodes resolved +in less than one hour. +AZD5904 +was subject to five Phase I clinical studies, with a total of 1,181 subjects being exposed to AZD5904. Single doses of up to 1,200 mg and +multiple doses of up to 325 mg for up to three times per day for 21 days have been administered as an oral solution in the completed +clinical studies. In addition, single doses of up to 1,400 mg and multiple doses of up to 600 mg for 10 days have been administered as +an “extended release” formulation. The data from these studies did not identify any expected adverse drug reactions for AZD5904 +and no adverse effects were reported as related to AZD5904. In addition, the data revealed no clinically significant changes in blood +pressure or pulse rate related to AZD5904 and electrocardiogram data was within the physiological range for the population studied. The +effect of AZD5904 on human myeloperoxidase, which we refer to as MPO, activity was evaluated by determination in an ex vivo assay of +MPO activity in plasma. The correlation between MPO activity and plasma concentrations was assessed for single and multiple doses of +AZD5904. A relationship between plasma concentrations of AZD5904 and MPO activity was demonstrated, which indicates that AZD5904 may +be an effective inhibitor of MPO activity in humans. However, Phase I trials do not assess statistical significance so additional Phase +II trials are necessary to determine if the inhibition of MPO activity as a result of AZD5904 is statistically significant. +7 +AZ1656 +in Autoimmune Disorders +Autoimmune +disorders refers to a broad group of disorders and conditions that arise from an abnormal immune response to a functioning body part. +For example, autoimmune disorders may arise from an abnormal immune response of major organs (i.e., the heart, kidneys, bladder, liver, +lungs, and skin), glands (i.e., the adrenal gland, pancreas, thyroid, or reproductive organs), digestive system, and tissue (i.e., blood, +connective tissue, muscle, eyes, ears, or vascular system). Management believes that there are over 80 types of autoimmune disorders +that have been identified, including lupus, celiac disease, multiple sclerosis, rheumatoid arthritis, psoriasis, and inflammatory bowel +disease. Autoimmune disorders are often difficult to diagnose and often the cause of the disorders is not known. +It +is estimated by the American Autoimmune Related Diseases Association (“AARDA”) that as many as 50 million Americans are living +with an autoimmune disease – at a cost of $86 billion a year and there is presently no totally effective treatment known to management. +The currently available treatments for autoimmune disorders include non-steroidal anti-inflammatory drugs (“NSAIDS”) or immune +suppressants. These treatments often improve the symptoms but ultimately do not cure the disease and often involve side effects. +AZD1656 +is a highly specific glucokinase activator; originally developed by AstraZeneca for use in diabetes mellitus. It has now been tested +in over 1,000 patients with both type I and II diabetes and no significant safety concerns have been raised. It was most recently tested +in the ARCADIA Phase II trial in diabetic patients hospitalized with Covid-19 on the basis of new research into immunometabolic modulation. +We believe that AZD1656 may be used to activate a patient’s own immune system in order to limit harmful inflation. We have identified +several autoimmune disorders, which reflects good market potential, with a high level of need that may be treatable using AZD1656. We +believe that our clinical assets have the potential to treat numerous autoimmune disorders. We intend to initially focus on the indications +below in order to maximize the commercial potential of our clinical assets. +Lupus +Nephritis +Lupus +Nephritis (“LN”) is a severe progression of Systemic Lupus Erythematosus (“SLE”) where the immune system attacks +the kidneys, often resulting in renal failure. There is currently no cure or long-term remission treatment available. LN is clinically +evident in 50-60% of patients with SLE, and is histologically evident in most SLE patients, even those without clinical manifestations +of kidney disease. LN is the main cause of SLE related mortality. Current therapy is based on long-term corticosteroid or immunosuppressive +therapy, with clinical efficacy of biological drugs not yet proven in LN. Side effect issues of all current therapies demonstrate an +unmet need for a safer, patient compliant therapy in LN. +The +Company believes that LN presents a lucrative opportunity given the potential oversight of two conditions, as a Phase IIa trial can be +designed to allow readouts on the wider characteristics of SLE as well as the nephritis aspects, allowing assessment of the potential +of AZD1656 in the field of SLE as a whole. Additionally, LN is an orphan disease that the Company believes has around 80,000 to 100,000 +patients in the U.S., and one million patients worldwide, thereby offering additional incentives for investors. +The +Company believes the global LN market was valued at $3.3 billion in 2022 and is projected to grow from $3.6 billion in 2023 to $6.78 +billion by 2032, exhibiting a CAGR of 10.3% during the forecast period. +SLE +is characterized by dysregulation and a hyperactivity of immune response. In LN, Teff subtype (TH17) has shown significant hyperactivation +leading to skewed T cell differentiation resulting in continued proinflammatory environment, leading to prolonged inflammation and subsequent +tissue damage and organ function loss. TH17/Treg dysregulation has been characterized in lupus patients compared to healthy individuals. 1 +During +a study in mice, findings showed that the IL2/CD25 fusion protein that selectively targets IL-2 on Treg cells induced immune suppression +in a preclinical LN model demonstrating inhibition of LN based on levels of proteinuria, autoantibody titers and kidney histology scores. 2 +ANCA +Vasculitis +ANCA +Vasculitis (“AAV”) is an orphan status autoimmune disease affecting small blood vessels which can lead to multiple organ +injury, especially the kidneys, lungs and peripheral nerves. Undiagnosed AAV has a 90% mortality rate within two years. 3 +Current +maintenance therapies rely on combination of corticosteroid and rituximab, both known for long term use side effects. Recently approved +drugs target specific subpopulations of AAV and have tolerability and side effect issues which demonstrate an unmet need for safer long-term +therapies applicable to all AAV sufferers. +An +imbalance of Th17/activated Treg cells has been shown in AAV and this has been correlated with renal involvement (with a positive correlation +in creatinine and BUN levels). 4 +Low +dose IL2 therapy in AAV patients, the Company believes, resulted in rebalance of Th17/Treg ration. The levels of Erythrocyte Sedimentation +Rate (ESR) and C-Reactive Protein (CSR) were also significantly decreased, which the Company believes indicates an improvement in disease +activity. +The +Company believes the seven major AAV markets reached a value of $339.0 million in 2023 and is expected to reach $534.3 million by 2034, +exhibiting a CAGR of 4.22% during 2024 to 2034. +1 +Paquissi FC et al. Front Med (Lausanne). 2021 Sep; 8: 654912 ( https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8446428/ ) +2 +Wang et al. Mol Immunol. 2020; 118: 19-29 (https://pubmed.ncbi.nlm.nih.gov/34108258/) +3 +Hunter et al. BMJ. 2020;369 (https://www.bmj.com/content/369/bmj.m1070) +4 +Wang et al. Mol Immunol. 2020; 118: 19-29 (https://pubmed.ncbi.nlm.nih.gov/34108258/) +8 +AZD1656 +was previously subject to preclinical and clinical trials, including Phase I and Phase II trials, conducted by AstraZeneca relating to +its potential to treat type 2 diabetes. As of the date hereof, no preclinical or clinical trials have been conducted on the use of AZD1656 +to treat autoimmune disorders. +We +intend to conduct further trials on AZD1656 relating to autoimmune disorders. We plan to conduct further research on AZD1656 to investigate +if AZD1656 is a treatment option, including investigating any negative side effects in the use of AZD1656 as compared to the currently +available treatment options. +AZD5904 +in Idiopathic Male Infertility +Idiopathic +Male Infertility (“IMI”) is defined as failure of a couple to conceive after one year of regular sexual intercourse where +the physical examination and endocrine laboratory testing of the male are normal, but semen analysis reveals sperm abnormalities. Approximately +15% of couples globally, or 48.5 million couples globally, are infertile and that 30% of infertility cases can be attributed solely to +the female, 30% can be attributed solely to the male, 30% can be attributed to a combination of both partners, and 10% of cases have +an unknown cause. 5 According to the National Library of Medicine, male infertility accounts for 30% of infertility cases +and its prevalence in the general population approximately ranges between 9 to 15%. 6 Our management believes that male +sperm counts have declined in Western men and will continue to decline due, in part, to increasing rates of disorders such as obesity +and diabetes that can reduce fertility. +IMI +affects families worldwide and is inherent in problems of reproduction. Currently, there are no specific treatments for male infertility, +and we are not aware of any other company that is developing a treatment for male infertility. There are no approved pharmacotherapies +for idiopathic male infertility. Lifestyle medicine and unproven supplements are often used. Intracytoplasmic sperm injection, a form +of in vitro fertilization, is the only treatment currently available for male infertility. This process is not a treatment of male infertility +but rather is an alternative means of fertilizing the egg. In vitro fertilization places a significant burden on the woman as it requires +the induction of egg production and harvesting of eggs. In vitro fertilization is costly and time consuming and has modest success rates. +Management believes that the male infertility market size is expected to grow from $3.72 billion in 2023 to $4.42 billion by 2028, at +a CAGR of 3.54% during the period 2023-2028. +Damaged +sperm are unable to successfully fertilize eggs due to factors including impaired motility, impaired ability to penetrate and/or DNA +damaged sperm that is unable to form a viable fetus. Our development pipeline for AZD5904 includes a potent, irreversible inhibitor of +human myeloperoxidase, which we refer to as MPO, that has the potential to treat idiopathic male infertility. +AZD5904 +was investigated by AstraZeneca for the treatment of idiopathic male infertility in Phase I trials, which confirmed the suitability to +progress to Phase II trials. While AZD5904 is Phase II ready, our management intends to conduct a Phase Ib “proof of mechanism” +trial to verify AZD5904 has the intended biological effect in semen (as well as in blood) prior to commencing a Phase II trial for the +use of AZD5904 to treat idiopathic male infertility. Specifically, our management intends to conduct the Phase Ib study in order to see +if the trial will provide evidence that AZD5904 has its intended effect of inhibiting myeloperoxidase and reduce oxidative stress in +semen. We believe that AZD5904 has the potential to be used to create a tablet that could treat IMI and would be the first drug developed +to directly treat IMI. We, in connection with a CRO, have prepared clinical trial protocols relating to the use of AZD5904 to treat IMI +in a Phase Ib clinical trial: a Phase Ib, randomized, double-blind, placebo-controlled, dose escalation study to evaluate the safety, +tolerability and preliminary efficacy of AZD5904 in adult men with IMI with an anticipated enrollment of 60 patients, and a Phase II +clinical trial: a Phase II, randomized, double-blind, placebo-controlled clinical trial to evaluate the efficacy and safety of AZD5904 +in the treatment of IMI with an anticipated enrollment of 200 patients. There can be no assurances that the clinical trials that we intend +to conduct on AZD5904 to treat idiopathic male infertility will be successful. +Future +Clinical Assets +As +part of our strategic planning process, we intend to explore the efficacy of using AZD1656 and AZD5658 to treat other disorders. +Specifically, we intend to conduct research on whether AZD1656 and AZD5658 may be effective treating other autoimmune disorders, +include rheumatoid arthritis, multiple sclerosis, motor neuron disease, and amyotrophic lateral sclerosis. As part of our strategic +planning process, we intend to explore the efficacy of using AZD1656 to treat other disorders. We also plan to further develop the +co-crystals that we own from our prior development work on AZD1656, including to research the ability of the co-crystals developed +from AZD1656 to treat psoriasis, Crohn’s disease, lupus, sarcoidosis, diabetic wound healing, idiopathic pulmonary fibrosis, +and non-alcoholic steatohepatitis. In addition, we currently intend to explore the use of AZD5904 for the treatment of glioma. We +expect to seek to develop other clinical assets and determine based on pre-clinical and clinical data which clinical assets in order +to determine which assets in our pipeline to continue to develop. Accordingly, we believe that our management team will be able to +effectively allocate resources to the development of clinical assets that we believe show the most promise. However, there can be no +guarantee that the clinical trials conducted by us of our clinical assets will be successful. If we are unable to commercialize our +clinical assets or experience significant delays in doing so, our business will be materially harmed. +Manufacturing +We +do not currently own or operate any facilities to formulate, manufacture, test, store, package, or distribute any of the clinical assets +that we are developing or may seek to develop and do not currently have the capabilities to conduct such activities. We currently rely +on third parties to manufacture, store, and test the clinical assets that we seek to develop, including material manufactured originally +by AstraZeneca. We will depend on third-party suppliers and manufacturing organizations for all our required raw materials and drug substance +and to formulate, manufacture, test, store, package, and distribute clinical trial quantities of clinical assets that we may seek to +develop. We plan to continue to use third-party suppliers and manufacturing organizations and we anticipate expanding our network of +third-party suppliers and manufacturing organizations as our operations expand. +5 +“A unique view on male infertility around the globe,” by Ashok Agarwal, Aditi Mulgund, Alaa Hamada, and Michelle Renee +Chyatte (Link: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4424520/). +6 +https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10057583/#B1-jcm-12-02366 +9 +We +have internal personnel and utilize consultants with extensive technical, manufacturing, analytical, and quality experience to oversee +our contract manufacturing and testing activities. Manufacturing is subject to extensive regulations that impose procedural and documentation +requirements, including, but not limited to, record-keeping, manufacturing processes and controls, personnel, quality control, and quality +assurance. Our systems, procedures, and contractors are required to be in compliance with these regulations and are assessed through +regular monitoring and formal audits. +Research +and Development +Our +research and development activities have included developing co-crystals of AZD1656 to increase patent life. Most of this work is conducted +in our laboratories based in Cambridge, UK, but parts of this work is completed by third-party CROs but all intellectual property is +retained by us. The successful completion of clinical trials increases the value of clinical assets and may lead to the commercialization +and/or licensing of such assets to other pharmaceutical companies. There is no assurance that any clinical trials on the assets owned +or licensed by us will be successful or any assurance our co-crystal development will be successful. +We +do not intend to further fund the research and development of the use of AZD1656 in Covid; however, we retain an economic interest in +the AZD1656 in the indication of Covid and if AZD1656 is further developed in Covid through funding provided by other third parties, +then we may be entitled to receive compensation from those development activities conducted by third parties due to its economic interest +in AZD1656 in Covid. +Sales +and Marketing +We +do not currently have marketing, sales, or distribution capabilities. In order to commercialize any clinical asset that is approved for +commercial sale, we must either develop our own sales, marketing, and distribution infrastructure or collaborate with third parties that +have such commercial infrastructure and relevant marketing and sales experience. We anticipate relying on licensing, co-sale, co-promotion, +and distribution agreements with strategic partners for the commercialization of our products. We do not currently anticipate that we +would develop our own internal sales force organization. +Competition +We +operate in the highly competitive pharmaceutical and biotechnology industry. Our competitors may include public and private companies, +universities, governmental agencies, and other research organizations actively engaged in the research and development of clinical assets +and biopharmaceutical products. Our competitors may have greater financial, technical, and human resources than we currently have and/or +may be better equipped to develop, manufacture, and market their products. Our competitors may be developing clinical assets for products +for similar indications. However, we believe that we have an unprecedented advantage in novelty. As discussed above, AZD1656 is an activator +(not an inhibitor) of a metabolic process. We anticipate that the number of companies seeking to develop clinical assets, biopharmaceutical +products, and therapies will continue to increase. As a result, the competition we face may also increase. However, both in the treatment +of autoimmune disease and idiopathic male infertility the competition is currently expected to come in years, even if biopharmaceutical +products that we develop and/or commercialize were not to compete with products of our competitors based on the product efficacy, safety, +ease of use, price, demonstrated cost-effectiveness, marketing effectiveness, service, reputation, and access to technical information. +However, we believe that our ability to focus on clinical assets that have been deprioritized by larger pharmaceutical companies is a +competitive advantage. +Intellectual +Property +We +hold exclusive rights to develop AZD1656, AZD5658, and AZD5904 through our License Agreement with AstraZeneca and we also own the intellectual +property and the rights to further develop co-crystals resulting from our prior research and development work on AZD1656. +On December 18, 2024, Conduit UK Management Limited (“Conduit”) received a notification from the UK Intellectual +Property Office (“UK IPO”) notifying the company that St George Street Capital had initiated patent entitlement proceedings +with respect to patent application PCT/IB2022/00775 (“Patent Application”). Conduit refutes the claims made by St George Street +Capital and filed a counterstatement on February 26, 2025 with the UK IPO. In addition, each of the three inventors named in the Patent +Application filed simultaneous counterstatements fully supporting Conduit’s position, and assertions that the claims are without +merit. Further updates will be made following notification by the UK IPO. +10 +We +currently have eight pending patent applications in several international jurisdictions. Even though we have filed patent applications, +there is no guarantee that the validity of the patents will be upheld if challenged by a third party, that patents will be granted on +the applications filed in the respective jurisdictions, or that once granted, the patents will contain claims that encompass our commercial +products. There can be no assurance that any of our intellectual property rights will afford us any protection from competition. +The +following patent applications are relevant to the operation of our business: +Related +Clinical Asset +Mechanism +of Action +Patent +Information and Number +Patent +Ownership/Licensing +Status; +Patent Status +Jurisdictions +Protected +Expiration +AZD1656 +Glucokinase +Activator +Composition +of Matter Patent; 101901 (family number) +Licensed +to Conduit from AstraZeneca for use in all human indications. Granted and in force. +Brazil, +Canada, Switzerland, China, Germany, European Procedure, Spain, France, United Kingdom, Hong Kong, India, Japan, South Korea, Mexico, +Netherlands, Russian Federation, Sweden, Turkey, United States. Granted in Australia +Expires +July 3, 2026. +AZD1656 +Glucokinase +Activator +Polymorph +Patent; 103631 (family number) +Licensed +to Conduit from AstraZeneca for use in human applications. Granted and in force. +China +and United States +Expires +February 2030. +AZD1656 +Glucokinase +Activator +Co-crystal +PCT/IB2022/00075 +Owned +by Conduit Pharmaceuticals. +Filed +September 2, 2022. +Global +Filing +date September 2, 2022. If granted, will expire September 2, 2042. +AZD1656 +Glucokinase +Activator +Co-crystal +JP2022-176753 +Owned +by Conduit Pharmaceuticals. +Filed +November 2, 2022. +Granted: +Japan +Expires +November 2, 2042. +AZD5904 +MPO +Inhibitor +Idiopathic +Male Infertility; AZD5904 use patent; 200644 (family number) +[WO/2019/016074] +Licensed +to Conduit from AstraZeneca. +International +Description +Expires +July 12, 2038. +AZD5658 +Glucokinase +Activator +Composition +of Matter Patent; 101901 (family number) +Licensed +to Conduit from AstraZeneca for use in all human indications. Granted and in force. +Australia, +Brazil, Canada, Switzerland, China, Germany, European Procedure, Spain, France, United Kingdom, Hong Kong, India, Japan, South Korea, +Mexico, Netherlands, Russian Federation, Sweden, Turkey, United States +Expires +July 3, 2026 +We +have not filed any applications for trademark protection of any names or logos for products or technologies in development. We plan to +seek trademark protection inside and outside of the United States where and when appropriate and if available. We intend to use these +registered marks in connection with our pharmaceutical research and development, including proprietary technologies, as well as our clinical +assets. +We +expect to protect our products and technologies through a combination of patents, regulatory exclusivity, and potentially confidential +and proprietary know-how. We intend to actively seek to obtain, where appropriate, the broadest commercially reasonable intellectual +property protection possible for our clinical assets and technologies, including any future clinical assets and technologies under development, +our proprietary information, and our proprietary technology through a combination of contractual arrangements and patents, in the United +States and abroad. However, we cannot guarantee that patent protection will provide complete protection against competitors who seek +to circumvent our patents. +11 +Government +Regulation and Product Approval +Government +authorities in the United States, at the federal, state, and local level, and in other countries, extensively regulate, among other things, +the research, development, clinical trials, testing, manufacture, including any manufacturing changes, authorization, pharmacovigilance, +adverse event reporting, recalls, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, import +and export of pharmaceutical products and clinical assets, including clinical assets such as those we are developing. The processes for +obtaining regulatory approvals in the United States and in foreign countries, along with subsequent compliance with applicable statutes +and regulations have no guaranteed outcomes and require the expenditure of substantial time and financial resources. +Our +development plan for each of AZD1656, AZD5658 and AZD5904 is to conduct clinical trials and if those trials are successful, we will then +seek to enter into a transaction with a third party with respect to AZD1656, AZD5658 orAZD5904, as applicable, for the particular indication. +We do not intend to continue development of such clinical assets beyond Phase II clinical trials. Accordingly, we anticipate developing +clinical assets, which we own or license from third parties, that have undergone pre-clinical and clinical trials through the Phase II +stage and then monetizing such clinical assets through a license, royalty, or other transaction. We do not expect that we will commercialize +any clinical assets or seek marketing approval from the FDA (or similar organizations) as we intend to enter into agreements with third +parties following Phase II clinical trials for each such clinical asset that would provide that such third party would pursue the further +development, commercialization, and marketing of such assets. +The +following description of the process relating to obtaining regulatory approvals in the United States and in foreign countries is intended +for informational purposes only as we do not expect to continue the development of any of the clinical assets beyond the Phase II stage. +There is no assurance that any clinical trials on the assets owned or licensed by us will be successful. +United +States Government Regulation +In +the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic +Act (“FDCA”) and implementing regulations. Failure to comply with the applicable United States requirements at any time during +the product development process, approval process or after approval, may subject an applicant to a variety of administrative or judicial +sanctions, such as the FDA’s refusal to approve pending New Drug Applications (“NDAs”), withdrawal of an approval, +imposition of a clinical hold, issuance of warning letters, product recalls, product seizures, total or partial suspension of production +or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil and/or criminal penalties. +The +process required by the FDA before a drug may be marketed in the United States generally involves the following steps, each of which +requires the expenditure of substantial time and financial resources: +● +completion +of preclinical laboratory tests, animal studies and formulation studies in compliance with good laboratory practices (“GLPs”) +and other applicable regulations; +● +submission +to the FDA of an Investigational New Drug Application (“IND”), which must become effective before human clinical trials +may begin; +● +approval +by an independent institutional review board (“IRB”) at each clinical site before each trial may be initiated; +● +performance +of well-controlled human clinical trials in accordance with good clinical practices (“GCPs”), which may include placebo +controls, to establish the safety and efficacy of the proposed drug product for each indication; +● +submission +to the FDA of an NDA and payment of fees; +● +satisfactory +completion of an FDA advisory committee review, if applicable; +● +satisfactory +completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the product is produced to assess +compliance with current good manufacturing practices (“cGMPs”) and to assure that the facilities, methods and controls +are adequate to preserve the drug’s identity, strength, quality and purity; +● +satisfactory +completion of audits of clinical trial sites conducted by FDA to assure compliance with GCPs and the integrity of clinical data; +and +● +FDA +review and approval of the NDA. +12 +Preclinical +Studies +Preclinical +studies include laboratory evaluation of product chemistry, toxicity, and formulation, as well as animal studies to assess potential +safety and efficacy. Preclinical tests intended for submission to the FDA to support the safety of a clinical asset must be conducted +in compliance with GLP regulations and the U.S. Department of Agriculture’s Animal Welfare Act. A drug sponsor must submit the +results of the preclinical tests, together with manufacturing information, analytical data and any available ex-U.S. clinical data or +relevant literature, among other things, to the FDA as part of an IND. Some nonclinical testing may continue even after the IND is submitted. +An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions +related to one or more proposed clinical trials and places the clinical trial on a clinical hold. In such a case, the IND sponsor and +the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in +the FDA allowing clinical trials to commence. A clinical hold may occur at any time during the life of an IND and may affect one or more +specific studies or all studies conducted under the IND. +Furthermore, +the FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research +subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or +terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s +requirements or if the drug candidate has been associated with unexpected serious harm to patients. +Clinical +Trials +Clinical +trials involve the administration of the investigational new drug to human subjects under the supervision of qualified investigators +in accordance with GCP requirements, which include the requirement that all research subjects provide their informed consent in writing +for their participation in any clinical trial along with the requirement to ensure that the data and results reported from the clinical +trials are credible and accurate. Clinical trials are conducted under protocols detailing, among other things, the objectives of the +trial, the criteria for determining subject eligibility, the dosing plan, the parameters to be used in monitoring safety, the procedure +for timely reporting of adverse events, and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent +protocol amendments must be submitted to the FDA as part of the IND. In addition, an IRB at each institution participating in the clinical +trial must review and approve the plan for any clinical trial before it commences at that institution. +Information +about certain clinical trials and clinical trial results must be submitted within specific timeframes to the National Institutes of Health +for public dissemination on the Clinicaltrials.gov registry. Failure to timely register a covered clinical study or to submit study results +as provided for in the law can give rise to civil monetary penalties and prevent the non-compliant party from receiving future grant +funds from the federal government. The government has begun enforcing these registration and results reporting requirements +against non-compliant clinical trial sponsors. +Human +clinical trials are typically conducted in at least three sequential phases and occasionally four or more, which may require repetition, +or overlap or be combined: +Phase +I : The drug candidate is initially introduced into healthy human subjects or patients with the target disease or condition and +tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of +its effectiveness. During Phase I clinical trials, sufficient information about the investigational drug’s pharmacokinetics and +pharmacological effects may be obtained to permit the design of well-controlled and scientifically valid Phase II clinical trials. +13 +Phase +II : The drug candidate is administered to a larger, but still limited patient population to identify possible adverse effects +and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted indications and to determine dosage tolerance +and optimal dosage. Phase II clinical trials are typically well-controlled and closely monitored. +Phase +III : The drug candidate is administered to an expanded patient population, generally at geographically dispersed clinical trial +sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for +approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for the labeling of the product. +Phase III clinical trials usually involve a larger number of participants than a Phase II clinical trial. +There +is no guarantee that a clinical asset will successfully complete any such clinical trials. There is no assurance that any clinical trials +on the assets owned or licensed by Conduit will be successful. +Interactions +with FDA During the Clinical Development Program +Following +the clearance of an IND and the commencement of clinical trials, the sponsor of such trial will continue to have interactions with the +FDA. Progress reports detailing the results of clinical trials must be submitted at least annually to the FDA and more frequently if +serious adverse events occur. In addition, IND safety reports must be submitted to the FDA for any of the following: serious and unexpected +suspected adverse reactions; findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed +to the product; and any clinically important increase in the occurrence of a serious suspected adverse reaction over that listed in the +protocol or investigator brochure. +In +addition, sponsors are given opportunities to meet with the FDA at certain points in the clinical development program. Specifically, +sponsors may meet with the FDA prior to the submission of an IND (“pre-IND meeting”), at the end of Phase II clinical trial +(“EOP2” meeting) and before an NDA is submitted (“pre-NDA meeting”). Meetings at other times may also be requested. +These meetings provide an opportunity for the sponsor to share information about the data gathered to date with the FDA and for the FDA +to provide advice on the next phase of development. For example, at an EOP2, a sponsor may discuss its Phase II clinical results and +present its plans for the pivotal Phase III clinical trial(s) that it believes will support the approval of the new product. Such meetings +may be conducted in person, via teleconference/videoconference or written response only with minutes reflecting the questions that the +sponsor posed to the FDA and the agency’s responses. The FDA has indicated that its responses, as conveyed in meeting minutes and +advice letters, only constitute recommendations and/or advice made to a sponsor and, as such, sponsors are not bound by such recommendations +and/or advice. Nonetheless, from a practical perspective, a sponsor’s failure to follow the FDA’s recommendations for design +of a clinical program may put the program at significant risk of failure. +Acceptance +of NDAs +Assuming +successful completion of the required clinical testing, the results of the preclinical studies and clinical trials, along with information +relating to the product’s chemistry, manufacturing, controls, safety updates, patent information, abuse information and proposed +labeling, are submitted to the FDA as part of an application requesting approval to market the clinical asset for one or more indications. +Data may come from company-sponsored clinical trials intended to test the safety and efficacy of a product’s use or from a number +of alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient +in quality and quantity to establish the safety and efficacy of a drug product. The fee required for the submission and review of an +application under the Prescription Drug User Fee Act (“PDUFA”) is substantial, and the sponsor of an approved application +is also subject to an annual program fee assessed based on eligible prescription drug products. These fees are typically adjusted annually, +and exemptions and waivers may be available under certain circumstances, such as where a waiver is necessary to protect the public health, +where the fee would present a significant barrier to innovation, or where the applicant is a small business submitting its first human +therapeutic application for review. +14 +The +FDA conducts a preliminary review of all applications within 60 days of receipt and must inform the sponsor at that time or before whether +an application is sufficiently complete to permit substantive review. In pertinent part, the FDA’s regulations provide that the +agency may refuse to file an application if the application does not include all pertinent information and data necessary for review +by the FDA. In the event that the FDA determines that an application does not satisfy this standard, it will issue a Refuse to File (“RTF”) +determination to the applicant. Typically, an RTF will be based on administrative incompleteness, such as clear omission of information +or sections of required information; scientific incompleteness, such as omission of critical data, information or analyses needed to +evaluate safety and efficacy or provide adequate directions for use; or inadequate content, presentation, or organization of information +such that substantive and meaningful review is precluded. The FDA may request additional information rather than accept an application +for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject +to review before the FDA accepts it for filing. +Review +of NDAs +After +the submission is accepted for filing, the FDA begins an in-depth substantive review of the application. The FDA reviews the application +to determine, among other things, whether the proposed product is safe and effective for its intended use, whether it has an acceptable +purity profile and whether the product is being manufactured in accordance with cGMP. +Under +the goals and policies agreed to by the FDA under PDUFA, the FDA has 10 months from the filing date in which to complete its initial +review of a standard application that is a new molecular entity, and six months from the filing date for an application with “priority +review.” The review process may be extended by the FDA for three additional months to consider new information or in the case of +a clarification provided by the applicant to address an outstanding deficiency identified by the FDA following the original submission. +Despite these review goals, the NDA review process can be very lengthy, and it is not uncommon for FDA review of an application to extend +beyond the PDUFA target action date. Most innovative drug products (other than biological products) obtain FDA marketing approval pursuant +to an NDA submitted under Section 505(b)(1) of the FDCA, commonly referred to as a traditional or “full NDA.” In 1984, with +passage of the Drug Price Competition and Patent Term Restoration Act, informally known as the Hatch-Waxman Act, that established an +abbreviated regulatory scheme authorizing the FDA to approve generic drugs based on an innovator or “reference” product, +Congress also enacted Section 505(b)(2) of the FDCA, which provides a hybrid pathway combining features of a traditional NDA and a generic +drug application. Section 505(b)(2) enables the applicant to rely, in part, on the FDA’s prior findings of safety and efficacy +data for an existing product, or published literature, in support of its application. Section 505(b)(2) NDAs may provide an alternate +path to FDA approval for new or improved formulations or new uses of previously approved products that would require new clinical data +to demonstrate safety or effectiveness. Section 505(b)(2) permits the filing of an NDA in which the applicant relies, at least in part, +on information from studies made to show whether a drug is safe or effective that were not conducted by or for the applicant and for +which the applicant has not obtained a right of reference or use. A Section 505(b)(2) applicant may eliminate or reduce the need to conduct +certain preclinical or clinical studies, if it can establish that reliance on studies conducted for a previously approved product is +scientifically appropriate. The FDA may also require companies to perform additional studies or measurements, including nonclinical and +clinical studies, to support the change from the approved product. The FDA may then approve the new clinical asset for all or some of +the labeled indications for which the referenced product has been approved, as well as for any new indication for which the Section 505(b)(2) +NDA applicant has submitted data. +In +connection with its review of an application, the FDA will typically submit information requests to the applicant and set deadlines for +responses thereto. The FDA will also conduct a pre-approval inspection of the manufacturing facilities for the new product to determine +whether the manufacturing processes and facilities comply with cGMPs. The FDA will not approve the product unless it determines that +the manufacturing processes and facilities are in compliance with cGMP requirements and are adequate to assure consistent production +of the product within required specifications. +15 +The +FDA also may inspect the sponsor and one or more clinical trial sites to assure compliance with IND and GCP requirements and the integrity +of the clinical data submitted to the FDA. To ensure cGMP and GCP compliance by its employees and third-party contractors, an applicant +may incur significant expenditure of time, money and effort in the areas of training, record keeping, production and quality control. +The FDA generally accepts data from foreign clinical trials in support of an NDA if the trials were conducted under an IND. If a foreign +clinical trial is not conducted under an IND, the FDA nevertheless may accept the data in support of an NDA if the study was conducted +in accordance with GCPs and the FDA is able to validate the data through an on-site inspection, if deemed necessary. Although the FDA +generally requests that marketing applications be supported by some data from domestic clinical trials, the FDA may accept foreign data +as the sole basis for marketing approval if (1) the foreign data are applicable to the United States population and United States medical +practice, (2) the studies were performed by clinical investigators with recognized competence, and (3) the data may be considered valid +without the need for an on-site inspection or, if the FDA considers the inspection to be necessary, the FDA is able to validate the data +through an on-site inspection or other appropriate means. +The +FDA may also refer an application, including applications for novel clinical asset which present difficult questions of safety or efficacy, +to an advisory committee for review, evaluation and recommendation as to whether the application should be approved and under what conditions. +Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, +evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound +by the recommendation of an advisory committee, but it considers such recommendations when making final decisions on approval. +Data +from clinical trials are not always conclusive, and the FDA or its advisory committee may interpret data differently than the sponsor +interprets the same data. The FDA may also re-analyze the clinical trial data, which could result in extensive discussions between the +FDA and the applicant during the review process or delay, limit or prevent regulatory approval. The FDA may not grant approval on a timely +basis or at all. +The +FDA also may require submission of a risk evaluation and mitigation strategy (“REMS”) if it determines that a REMS is necessary +to ensure that the benefits of the drug product outweigh its risks and to assure the safe use of the product. The REMS could include +medication guides, physician communication plans, assessment plans and/or elements to assure safe use, such as restricted distribution +methods, patient registries or other risk minimization tools. The FDA determines the requirement for a REMS, as well as the specific +REMS provisions, on a case-by-case basis. If the FDA concludes a REMS is needed, the sponsor of the application must submit a proposed +REMS and the FDA will not approve the application without a REMS. +Decisions +on NDAs +The +FDA reviews an application to determine, among other things, whether the product is safe and whether it is effective for its intended +use(s), with the latter determination being made on the basis of substantial evidence. The term “substantial evidence” is +defined under the FDCA as “evidence consisting of adequate and well-controlled investigations, including clinical investigations, +by experts qualified by scientific training and experience to evaluate the effectiveness of the drug involved, on the basis of which +it could fairly and responsibly be concluded by such experts that the drug will have the effect it purports or is represented to have +under the conditions of use prescribed, recommended, or suggested in the labeling or proposed labeling thereof.” +The +FDA has interpreted this evidentiary standard to require at least two adequate and well-controlled clinical investigations to establish +effectiveness of a new product. Under certain circumstances, however, the FDA has indicated that a single trial with certain characteristics +and additional information may satisfy this standard. This approach was subsequently endorsed by Congress in 1998 with legislation providing, +in pertinent part, that “If [the FDA] determines, based on relevant science, that data from one adequate and well-controlled clinical +investigation and confirmatory evidence (obtained prior to or after such investigation) are sufficient to establish effectiveness, the +FDA may consider such data and evidence to constitute substantial evidence.” This modification to the law recognized the potential +for the FDA to find that one adequate and well controlled clinical investigation with confirmatory evidence, including supportive data +outside of a controlled trial, is sufficient to establish effectiveness. In December 2019, the FDA issued draft guidance further explaining +the studies that are needed to establish substantial evidence of effectiveness, and in September 2023 it issued a draft guidance that +complements the 2019 draft guidance. The FDA has not yet finalized either guidance. +16 +After +evaluating the application and all related information, including the advisory committee recommendations, if any, and inspection reports +of manufacturing facilities and clinical trial sites, the FDA will issue either a Complete Response Letter (“CRL”) or an +approval letter. To approve the application, the FDA must determine that the drug is effective and that its expected benefits outweigh +its potential risks to patients. This “benefit-risk” assessment is informed by the extensive body of evidence about the product’s +safety and efficacy in the NDA. This assessment is also informed by other factors, including: the severity of the underlying condition +and how well patients’ medical needs are addressed by currently available therapies; uncertainty about how the premarket clinical +trial evidence will extrapolate to real-world use of the product in the post-market setting; and whether risk management tools are necessary +to manage specific risks. In connection with this assessment, the FDA review team will assemble all individual reviews and other documents +into an “action package,” which becomes the record for FDA review. The review team then issues a recommendation, and a senior +FDA official makes a decision. +A +CRL indicates that the review cycle of the application is complete, and the application will not be approved in its present form. A CRL +generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the +FDA to reconsider the application. The CRL may require additional clinical or other data, additional pivotal Phase III clinical trial(s) +and/or other significant and time-consuming requirements related to clinical trials, preclinical studies or manufacturing. If a CRL is +issued, the applicant will have one year to respond to the deficiencies identified by the FDA, at which time the FDA can deem the application +withdrawn or, in its discretion, grant the applicant an additional six-month extension to respond. The FDA has committed to reviewing +resubmissions in response to an issued CRL in either two or six months depending on the type of information included. Even with the submission +of this additional information, however, the FDA ultimately may decide that the application does not satisfy the regulatory criteria +for approval. +An +approval letter, on the other hand, authorizes commercial marketing of the product with specific prescribing information for specific +indications. That is, the approval will be limited to the conditions of use ( e.g. , patient population, indication) described in +the FDA-approved labeling. Further, depending on the specific risk(s) to be addressed, the FDA may require that contraindications, warnings +or precautions be included in the product labeling, require that post-approval trials, including Phase 4 clinical trials, be conducted +to further assess a product’s safety after approval, require testing and surveillance programs to monitor the product after commercialization +or impose other conditions, including distribution and use restrictions or other risk management mechanisms under a REMS which can materially +affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the +results of post-marketing trials or surveillance programs. After approval, some types of changes to the approved product, such as adding +new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and +approval. +Special +FDA Expedited Review Programs +The +FDA is authorized to designate certain products for expedited development or review if they are intended to address an unmet medical +need in the treatment of a serious or life-threatening disease or condition. These programs include fast track designation, breakthrough +therapy designation, and priority review designation. The purpose of these programs is to provide important new drugs to patients earlier +than under standard FDA review procedures. +To +be eligible for a fast-track designation, the FDA must determine, based on the request of a sponsor, that a product is intended to treat +a serious or life-threatening disease or condition and demonstrates the potential to address an unmet medical need. The FDA will determine +that a product will fill an unmet medical need if it will provide a therapy where none exists or provide a therapy that may be potentially +superior to existing therapy based on efficacy or safety factors. Fast track designation provides additional opportunities for interaction +with the FDA’s review team and may allow for a rolling review of NDA components before the completed application is submitted, +if the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines +that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA. In addition, +fast track designation may be withdrawn by the sponsor or rescinded by the FDA if the designation is no longer supported by data emerging +in the clinical trial process. +17 +In +addition, with the enactment of the FDA Safety and Innovation Act (“FDASIA”) in 2012, Congress created a new regulatory program +for therapeutic candidates designated by FDA as “breakthrough therapies” upon a request made by the IND sponsors. A breakthrough +therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening +disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing +therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. +The FDA must take certain actions with respect to breakthrough therapies, such as holding timely meetings with and providing advice to +the product sponsor, intended to expedite the development and review of an application for approval of a breakthrough therapy. +Finally, +the FDA may designate a product for priority review if it is a drug that treats a serious condition and, if approved, would provide a +significant improvement in safety or effectiveness. The FDA determines at the time that the marketing application is submitted, on a +case-by-case basis, whether the proposed drug represents a significant improvement in treatment, prevention or diagnosis of disease when +compared with other available therapies. Significant improvement may be illustrated by evidence of increased effectiveness in the treatment +of a condition, elimination or substantial reduction of a treatment-limiting drug reaction, documented enhancement of patient compliance +that may lead to improvement in serious outcomes, or evidence of safety and effectiveness in a new subpopulation. A priority review designation +is intended to direct overall attention and resources to the evaluation of such applications, and to shorten the FDA’s goal for +taking action on a marketing application from ten months to six months for an NDA for a new molecular entity from the date of filing. +Even +if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for +qualification or decide that the time period for FDA review or approval will not be shortened. Furthermore, fast track designation, breakthrough +therapy designation and priority review do not change the standards for approval and may not ultimately expedite the development or approval +process. +Accelerated +Approval Pathway +In +addition, a product studied for its safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful +therapeutic benefit over existing treatments may receive accelerated approval, meaning that it may be approved on (i) the basis of adequate +and well-controlled clinical trials establishing that the drug product has an effect on a surrogate endpoint that is reasonably likely +to predict clinical benefit, or (ii) on an intermediate clinical endpoint that can be measured earlier than irreversible morbidity or +mortality (“IMM”) and that is reasonably likely to predict an effect on IMM or other clinical benefits, taking into account +the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, +the FDA may require a sponsor of a drug receiving accelerated approval to perform post-marketing studies to verify and describe the predicted +effect on IMM or other clinical endpoints, and the drug may be subject to expedited withdrawal procedures. Drugs granted accelerated +approval must meet the same statutory standards for safety and effectiveness as those granted traditional approval. +The +accelerated approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional +post-approval confirmatory studies to verify and describe the drug’s clinical benefit. As a result, a therapeutic candidate +approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or +post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or +to confirm the predicted clinical benefit of the product during post-marketing studies, would allow the FDA to withdraw approval of +the drug. All promotional materials for drug products being considered and approved under the accelerated approval program are +subject to prior review by the FDA. Lawmakers, FDA officials, and other stakeholders continually evaluate the accelerated approval +program which may lead to legislative and/or administrative changes in the future. +Post-Approval +Requirements +Drugs +manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among +other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion +and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications +or other labeling claims, are subject to prior FDA review and approval. Certain modifications to the product, including changes in indications +or manufacturing processes or facilities, may require the applicant to develop additional data or conduct additional preclinical studies +and clinical trials to support the submission to FDA. As previously noted, there also are continuing, annual user fee requirements for +any marketed products, as well as new application fees for supplemental applications with clinical data. +18 +The +FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require post-marketing +testing, including Phase 4 clinical trials, and surveillance to further assess and monitor the product’s safety and effectiveness +after commercialization. +In +addition, FDA regulations require that products be manufactured in specific approved facilities and in accordance with cGMPs. The cGMP +regulations include requirements relating to the organization of personnel, buildings and facilities, equipment, control of components +and drug product containers and closures, production and process controls, packaging and labeling controls, holding and distribution, +laboratory controls, records and reports and returned or salvaged products. Drug manufacturers and other entities involved in the manufacture +and distribution of approved drugs are required to register their establishments with the FDA and some state agencies and are subject +to periodic unannounced inspections by the FDA for compliance with cGMP requirements and other laws. Changes to the manufacturing process +are strictly regulated and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA +regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements +upon the sponsor and any third-party manufacturers. Accordingly, manufacturers must continue to expend time, money, and effort in production +and quality control to maintain compliance with cGMP and other aspects of quality control and quality assurance. +The +FDA strictly regulates the marketing, labeling, advertising and promotion of drug products that are placed on the market. A product cannot +be commercially promoted before it is approved, and approved drugs may generally be promoted only for their approved indications and +for use in patient populations described in the product’s approved labeling. Promotional claims must also be consistent with the +product’s FDA-approved label, including claims related to safety and effectiveness. The government closely scrutinizes the promotion +of prescription drugs in specific contexts such as direct-to-consumer advertising, industry-sponsored scientific and educational activities, +and promotional activities involving the Internet and social media. Although physicians may prescribe legally available products for +off-label uses, manufacturers may not market or promote such uses. +Later +discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing +processes, or failure to comply with regulatory requirements, may result in mandatory revisions to the approved labeling to add new safety +information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other +restrictions under a REMS program. Other potential consequences of regulatory non-compliance include, among other things: +● +restrictions +on, or suspensions of, the marketing or manufacturing of the product, complete withdrawal of the product from the market or product +recalls; +● +interruption +of production processes, including the shutdown of manufacturing facilities or production lines or the imposition of new manufacturing +requirements; +● +fines, +warning letters or other enforcement letters or clinical holds on post-approval clinical trials; +● +mandated +modification of promotional materials and labeling and the issuance of corrective information; +● +refusal +of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product approvals; +● +product +seizure or detention, or refusal to permit the import or export of products; +● +injunctions +or the imposition of civil or criminal penalties; or +● +consent +decrees, corporate integrity agreements, debarment, or exclusion from federal healthcare programs. +19 +In +addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act (“PDMA”) +which regulates the distribution of drugs and drug samples at the federal level and sets minimum standards for the registration and regulation +of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples +and impose requirements to ensure accountability in distribution. The Drug Supply Chain Security Act (the “DSCSA”), +was enacted with the aim of building an electronic system to identify and trace certain prescription drugs distributed in the United +States. The DSCSA mandated phased-in and resource-intensive obligations for pharmaceutical +manufacturers, wholesale distributors and dispensers by November 2023, but, so as not to disrupt supply chains, the FDA has granted certain +exemptions from enhanced drug distribution security requirements for eligible trading partners for particular periods of time. From time to time, new legislation and regulations +may be implemented that could significantly change the statutory provisions governing the approval, manufacturing and marketing of products +regulated by the FDA. For example, the FDA released proposed regulations in February 2022 to amend the national standards for licensing +of wholesale drug distributors by the states; establish new minimum standards for state licensing third-party logistics providers; and +create a federal system for licensure for use in the absence of a state program, each of which is mandated by the DSCSA. It is impossible +to predict whether further legislative or regulatory changes will be enacted, or FDA regulations, guidance or interpretations will be +changed or what the impact of such potential changes, if any, may be. +Regulatory +Exclusivity and Approval of Follow-on Products +Hatch-Waxman +Exclusivity +In +addition to enacting Section 505(b)(2) of the FDCA as part of the Hatch-Waxman Amendments to the FDCA, Congress also established an abbreviated +regulatory scheme authorizing the FDA to approve generic drugs that are shown to contain the same active ingredients as, and to be bioequivalent +to, drugs previously approved by the FDA pursuant to NDAs. To obtain approval of a generic drug, an applicant must submit an abbreviated +new drug application (“ANDA”) to the agency. An ANDA is a comprehensive submission that contains, among other things, data +and information pertaining to the active pharmaceutical ingredient, bioequivalence, drug product formulation, specifications and stability +of the generic drug, as well as analytical methods, manufacturing process validation data and quality control procedures. ANDAs are “abbreviated” +because they cannot include preclinical and clinical data to demonstrate safety and effectiveness. Instead, in support of such applications, +a generic manufacturer must rely on the preclinical and clinical testing previously conducted for a drug product previously approved +under an NDA, known as the reference listed drug (“RLD”). +In +order for an ANDA to be approved, the FDA must find that the generic version is identical to the RLD with respect to the active ingredients, +the route of administration, the dosage form, the strength of the drug and the conditions of use of the drug. At the same time, the FDA +must also determine that the generic drug is “bioequivalent” to the innovator drug. Under the statute, a generic drug is +bioequivalent to an RLD if “the rate and extent of absorption of the drug do not show a significant difference from the rate and +extent of absorption of the listed drug.” Unlike the 505(b)(2) NDA pathway that permits a follow-on applicant to conduct and submit +data from additional clinical trials or nonclinical studies in order to support the proposed change(s) to the reference product, the +ANDA regulatory pathway does not allow applicants to submit new clinical data other than bioavailability or bioequivalence data. +Upon +approval of an ANDA, the FDA indicates whether the generic product is “therapeutically equivalent” to the RLD in its publication +“Approved Drug Products with Therapeutic Equivalence Evaluations,” also referred to as the “Orange Book.” Physicians +and pharmacists consider a therapeutic equivalent generic drug to be fully substitutable for the RLD. In addition, by operation of certain +state laws and numerous health insurance programs, the FDA’s designation of therapeutic equivalence often results in substitution +of the generic drug without the knowledge or consent of either the prescribing physician or patient. +As +part of the NDA review and approval process, applicants are required to list with the FDA each patent that has claims that cover the +applicant’s product or method of therapeutic use. Upon approval of a new drug, each of the patents listed in the application for +the drug is then published in the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential follow-on competitors +in support of approval of an ANDA or 505(b)(2) NDA. +20 +When +an ANDA applicant submits its application to the FDA, it is required to certify to the FDA concerning any patents listed for the reference +product in the FDA’s Orange Book. Specifically, the applicant must certify that: (i) the required patent information has not been +filed; (ii) the listed patent has expired; (iii) the listed patent has not expired but will expire on a particular date and approval +is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. Moreover, to the +extent that the Section 505(b)(2) NDA applicant is relying on studies conducted for an already approved product, the applicant also is +required to certify to the FDA concerning any patents listed for the NDA-approved product in the Orange Book to the same extent that +an ANDA applicant would. +If +the follow-on applicant does not challenge the innovator’s listed patents, the FDA will not approve the ANDA or 505(b)(2) application +until all the listed patents claiming the referenced product have expired. A certification that the new product will not infringe the +already approved product’s listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the follow-on +applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification +to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent +infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within +45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA or 505(b)(2) NDA until +the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable +to the ANDA or 505(b)(2) applicant. +An +ANDA or 505(b)(2) application also will not be approved until any applicable non-patent exclusivities listed in the Orange Book for the +referenced product have expired. The Hatch-Waxman Amendments to the FDCA provided a five-year period of non-patent data exclusivity within +the United States to the first applicant to gain approval of an NDA for a new chemical entity (“NCE”). For the purposes of +this provision, an NCE is a drug that contains no active moiety that has previously been approved by the FDA in any other NDA. An active +moiety is the molecule or ion responsible for the physiological or pharmacological action of the drug substance. In cases where such +NCE exclusivity has been granted, an ANDA or 505(b)(2) NDA may not be filed with the FDA until the expiration of five years unless the +submission is accompanied by a Paragraph IV certification, in which case the applicant may submit its application four years following +the original product approval. +The +FDCA also provides for a period of three years of data exclusivity if an NDA or NDA supplement includes reports of one or more new clinical +investigations, other than bioavailability or bioequivalence studies, that were conducted or sponsored by the applicant are deemed by +the FDA to be essential to the approval of the application. This three-year exclusivity period often protects changes to a previously +approved drug product, such as new indications, dosage forms, route of administration or combination of ingredients. Three-year exclusivity +would be available for a drug product that contains a previously approved active moiety, provided the statutory requirement for a new +clinical investigation is satisfied. Unlike five-year NCE exclusivity, an award of three-year exclusivity does not block the FDA from +accepting ANDAs or 505(b)(2) NDAs seeking approval for generic versions of the drug as of the date of approval of the original drug product; +rather, this three-year exclusivity covers only the conditions of use associated with the new clinical investigations and, as a general +matter, does not prohibit the FDA from approving follow-on applications for drugs containing the original active ingredient. +Five-year +and three-year exclusivity also will not delay the submission or approval of a traditional NDA filed under Section 505(b)(1) of the FDCA; +however, an applicant submitting a traditional NDA would be required to conduct or obtain a right of reference to all of the preclinical +studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness. +Orphan +Drug Designation and Exclusivity +Under +the Orphan Drug Act, the FDA may grant orphan drug designation to a drug intended to treat a rare disease or condition, which is generally +a disease or condition that affects either (i) fewer than 200,000 individuals in the United States, or (ii) more than 200,000 individuals +in the United States and for which there is no reasonable expectation that the cost of developing and making available in the United +States a drug for this type of disease or condition will be recovered from sales in the United States for that drug. Legislative proposals +are currently being considered that would revise or revoke the second option available for a drug candidate to receive an orphan designation, +the so-called “cost recovery” pathway. Orphan drug designation must be requested before submitting an NDA. After the FDA +grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use will be disclosed publicly by the +FDA; the posting will also indicate whether a drug is no longer designated as an orphan drug. +21 +More +than one clinical asset may receive an orphan drug designation for the same indication, and the same clinical asset can be designated +for more than one qualified orphan indication. The benefits of orphan drug designation include research and development tax credits and +exemption from FDA prescription drug user fees. Orphan drug designation does not convey any advantage in or shorten the duration of the +regulatory review and approval process if or when an NDA for the drug candidate is filed. +If +a product that has orphan drug designation subsequently receives the first FDA approval for the indication for which it has such designation, +the product is entitled to orphan product exclusivity, which means that for seven years, the FDA may not approve any other marketing +applications for the same drug for the same indication, except under limited circumstances described further below. Orphan exclusivity +does not block the approval of a different drug for the same rare disease or condition, nor does it block the approval of the same drug +for different conditions. As a result, the FDA can still approve different drugs for use in treating the same indication or disease. +Additionally, if a drug designated as an orphan product receives marketing approval for an indication broader than what was designated, +it may not be entitled to orphan drug exclusivity. +Orphan +exclusivity will not bar approval of another product with the same drug for the same condition under certain circumstances, including +if a subsequent product with the same drug for the same condition is shown to be clinically superior to the approved product on the basis +of greater efficacy or safety or a major contribution to patient care, or if the company with orphan drug exclusivity cannot assure the +availability of sufficient quantities of the drug to meet the needs of persons with the disease or condition for which the drug was designated. +The FDA is now required to publish a summary of the clinical superiority findings when a drug is eligible for orphan product exclusivity +on the basis of a demonstration of clinical superiority. +Patent +Term Extension +A +patent claiming a prescription drug for which FDA approval is granted may be eligible for a limited patent term extension under the FDCA, +which permits a patent restoration of up to five years for patent term lost during product development and the FDA regulatory review +provided that certain statutory and regulatory requirements are met. The length of the patent term extension is related to the length +of time the drug is under regulatory review while the patent is in force. The restoration period granted on a patent covering a new FDA-regulated +medical product is typically one-half the time between the date a clinical investigation on human beings is begun and the submission +date of an application for premarket approval of the product, plus the time between the submission date of an application for approval +of the product and the ultimate approval date. Patent term restoration cannot be used to extend the remaining term of a patent past a +total of 14 years from the product’s approval date. Only one patent applicable to an approved drug product is eligible for the +extension, and the application for the extension must be submitted prior to the expiration of the patent in question. A patent that covers +multiple products for which approval is sought can only be extended in connection with one of the marketing approvals. The USPTO reviews +and approves the application for any patent term extension or restoration in consultation with the FDA. +Other +U.S. Healthcare Laws and Regulations +Manufacturing, +sales, promotion, and other activities following product approval may also be subject to regulation by other regulatory authorities in +the United States in addition to the FDA. Depending on the nature of the product, those authorities may include the Centers for Medicare +and Medicaid Services (“CMS”), other divisions of the Department of Health and Human Services (“HHS”), the Department +of Justice, the Drug Enforcement Administration, the Federal Trade Commission, the Occupational Safety and Health Administration, and +state and local governments. +22 +For +example, in the United States, sales and marketing for prescription biopharmaceutical products must comply with state and federal fraud +and abuse laws. These laws include the federal Anti-Kickback Statute, which makes it illegal for any person, including a prescription +drug manufacturer (or a party acting on its behalf), to knowingly and willfully solicit, receive, offer or pay any remuneration that +is intended to induce or reward referrals, including the purchase, recommendation, order or prescription of a particular drug, for which +payment may be made under a federal healthcare program, such as Medicare or Medicaid. Violations of this law are punishable by up to +ten years in prison, criminal fines, administrative civil money penalties and exclusion from participation in federal healthcare programs. +In addition, the Patient Protection and Affordable Care Act, or ACA, among other things, amended the intent requirement of the federal +Anti-Kickback Statute and two of the five criminal healthcare fraud statutes created by the Health Insurance Portability and Accountability +Act of 1996, or HIPAA. A person or entity no longer needs to have actual knowledge of these two provisions in the statute or specific +intent to violate them; specifically with respect to the prohibition on executing or attempting to execute a scheme or artifice to defraud +or to fraudulently obtain money or property of any healthcare benefit program and the prohibition on disposing of assets to enable a +person to become eligible for Medicaid. Moreover, the government may now assert that a claim including items or services resulting from +a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act. +Pricing +and rebate programs must comply with the Medicaid rebate requirements of the U.S. Omnibus Budget Reconciliation Act of 1990 and more +recent requirements in the ACA. If products are made available to authorized users of the Federal Supply Schedule of the General Services +Administration, additional laws and requirements apply. There also are federal transparency requirements under the Physician Payments +Sunshine Act that require manufacturers of FDA-approved drugs, devices, biologics and medical supplies covered by Medicare or Medicaid +to report, on an annual basis, to CMS information related to payments and other transfers of value to physicians, teaching hospitals, +and certain advanced non-physician healthcare practitioners and physician ownership and investment interests. Prescription drug products +also must meet applicable child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act. +Manufacturing, +sales, promotion, and other activities also are potentially subject to federal and state consumer protection and unfair competition laws. +Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines, +or the relevant compliance guidance promulgated by the federal government, in addition to requiring drug manufacturers to report information +related to payments to physicians and other healthcare providers or marketing expenditures to the extent that those laws impose requirements +that are more stringent than the Physician Payments Sunshine Act. State and foreign laws also govern the privacy and security of health +information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus +complicating compliance efforts. +The +failure to comply with any of these laws or regulatory requirements subjects firms to possible legal or regulatory action. Depending +on the circumstances, failure to meet applicable regulatory requirements can result in criminal prosecution, fines or other penalties, +injunctions, requests for recall, seizure of products, total or partial suspension of production, denial or withdrawal of product approvals +or refusal to allow a firm to enter into supply contracts, including government contracts. +Government +Regulation Outside the U.S. +In +addition to regulations in the United States, we will be subject to a variety of foreign regulations that govern, among other things, +clinical trials and any commercial sales and distribution of our products, if approved, either directly or through distribution partners. +Whether or not we obtain FDA approval for a product candidate, we must obtain the requisite approvals from regulatory authorities in +foreign countries or economic areas, such as the European Union and the United Kingdom, among other foreign countries, before we may +commence clinical trials or market products in those countries or areas. The foreign regulatory approval process includes all of the +risks associated with the FDA approval described above, and the time required to obtain approval in other countries and jurisdictions +might differ from and be longer than that required to obtain FDA approval. Some foreign jurisdictions have a drug product approval process +similar to that in the U.S., which requires the submission of a clinical trial application much like the IND prior to the commencement +of clinical studies. In Europe, for example, a clinical trial application, or CTA, must be submitted to each country’s national +health authority and an independent ethics committee, much like the FDA and IRB, respectively. Once the CTA is approved in accordance +with a country’s requirements, clinical trial development may proceed. To obtain regulatory approval of a medicinal product candidate +under European Union regulatory systems, we would be required to submit a Marketing Authorisation Application, or MAA, which is similar +to the NDA, except that, among other things, there are country-specific document requirements. For countries outside of the European +Union, such as countries in Eastern Europe, Latin America or Asia, and recently the United Kingdom, the requirements governing the conduct +of clinical trials, product approval, pricing and reimbursement vary from country to country. Regulatory approval in one country or jurisdiction +does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction +may negatively impact the regulatory process in others. Moreover, some nations may not accept clinical studies performed for U.S. approval +to support approval in their countries or require that additional studies be performed on natives of their countries. In addition, in +certain foreign markets, the pricing of drug products is subject to government control and reimbursement may in some cases be unavailable +or insufficient. If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, +suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions, and criminal prosecution. +23 +As +of January 31, 2020, the United Kingdom is no longer a member state of the European Union, and therefore a separate marketing authorization +application and approval will be required to market a medicinal product in the U.K. The Medicines and Healthcare products Regulatory +Agency, or the MHRA, is the U.K.’s standalone pharmaceutical regulator. +Clinical +Trials and Regulation of Medicinal Products in Europe +As +in the United States, medicinal products can be marketed in the European Union only if a marketing authorization from the competent regulatory +agencies has been obtained. Similar to the United States, the various phases of preclinical and clinical research in the European Union +are subject to significant regulatory controls. +Pursuant +to the European Clinical Trials Directive, a system for the approval of clinical trials in the European Union has been implemented through +national legislation of the member states. Under this system, an applicant must obtain approval from the competent national authority +of a European Union member state in which the clinical trial is to be conducted. Furthermore, the applicant may only start a clinical +trial after a competent ethics committee has issued a favorable opinion. Clinical trial applications must be accompanied by an investigational +medicinal product dossier with supporting information prescribed by the European Clinical Trials Directive and corresponding national +laws of the member states and further detailed in applicable guidance documents. In April 2014, the new Clinical Trials Regulation, (EU) +No 536/2014 (Clinical Trials Regulation) was adopted and became effective on January 31, 2022. The Clinical Trials Regulation is directly +applicable in all the European Union Member States, repealing the prior Clinical Trials Directive 2001/20/EC. The extent to which ongoing +clinical trials will be governed by the Clinical Trials Regulation will depend on the duration of the individual clinical trial; if a +clinical trial continues for more than three years from the day on which the Clinical Trials Regulation becomes applicable the Clinical +Trials Regulation will at that time begin to apply to the clinical trial. +The +new Clinical Trials Regulation aims to simplify and streamline the approval of clinical trials in the European Union. The main characteristics +of the regulation include: a streamlined application procedure via a single entry point; a single set of documents to be prepared and +submitted for the application as well as simplified reporting procedures for clinical trial sponsors; and a harmonized procedure for +the assessment of applications for clinical trials. +To +obtain marketing approval of a drug in the European Union, an applicant must submit a MAA either under a centralized or decentralized +procedure. The centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid +for all European Union member states, Iceland, Lichtenstein and Norway. The centralized procedure is compulsory for specific products, +including for medicines produced by certain biotechnological processes, products designated as orphan medicinal products, advanced therapy +products (such as gene-therapy, somatic cell-therapy or tissue-engineered medicines) and products with a new active substance indicated +for the treatment of certain disorders. For products with a new active substance indicated for the treatment of certain disorders and +products that are highly innovative or for which a centralized process is in the interest of patients, the centralized procedure may +be optional. Under the centralized procedure the maximum timeframe for the evaluation of an MAA by the European Medicines Agency (“EMA”) +is 210 days, excluding clock stops, when additional written or oral information is to be provided by the applicant in response to questions +asked by the Committee for Medicinal Products for Human Use (“CHMP”). Accelerated assessment might be granted by the CHMP +in exceptional cases, when a medicinal product is expected to be of a major public health interest, particularly from the point of view +of therapeutic innovation. The timeframe for the evaluation of an MAA under the accelerated assessment procedure is of 150 days, excluding +stop-clocks. +24 +The +decentralized procedure is available to applicants who wish to market a product in specific European Union member states where such product +has not received marketing approval in any European Union member states before. The decentralized procedure provides for an applicant +to apply to one-member state to assess the application (the reference member state) and specifically list other member states in which +it wishes to obtain approval (concerned member states). +In +the European Union, only products for which marketing authorizations have been granted may be promoted. A marketing authorization is +valid for five years in principle and the marketing authorization may be renewed after five years on the basis of a re-evaluation of +the risk-benefit balance by the EMA or by the competent authority of the authorizing member state. To this end, the marketing authorization +holder must provide the EMA or the competent authority with a consolidated version of the file in respect of quality, safety and efficacy, +including all variations introduced since the marketing authorization was granted, at least six months before the marketing authorization +ceases to be valid. Once renewed, the marketing authorization is valid for an unlimited period, unless the European Commission or the +competent authority decides, on justified grounds relating to pharmacovigilance, to proceed with one additional five-year renewal. Any +authorization which is not followed by the actual placing of the drug on the European Union market (in case of centralized procedure) +or on the market of the authorizing member state within three years after authorization ceases to be valid (the so-called sunset clause). +Moreover, +even if authorized to be marketed in the European Union, prescription medicines may only be promoted to healthcare professionals, not +the general public. All promotion should be in accordance with the particulars listed in the summary of product characteristics. Promotional +materials must also comply with various laws, and codes of conduct developed by pharmaceutical industry bodies in the European Union +which govern (among other things) the training of sales staff, promotional claims and their justification, comparative advertising, misleading +advertising, endorsements, and (where permitted) advertising to the general public. Failure to comply with these requirements could lead +to the imposition of penalties by the competent authorities of the European Union member states. The penalties could include warnings, +orders to discontinue the promotion of the drug product, seizure of promotional materials, fines and possible imprisonment. +Regulation +of New Drugs in the United Kingdom +The +United Kingdom left the European Union on January 31, 2020 (commonly referred to as “Brexit”), with a transitional period +that expired on December 31, 2020. The United Kingdom and the European Union entered into a trade agreement known as the Trade and Cooperation +Agreement, which went into effect on January 1, 2021. We are currently evaluating the potential +impacts on our business of the Trade and Cooperation Agreement and guidance issued to date by the United Kingdom’s MHRA regarding +the requirements for licensing and marketing medicinal products in the United Kingdom. +Since +the regulatory framework for pharmaceutical products in the United Kingdom covering the quality, safety and efficacy of pharmaceutical +products, clinical trials, marketing authorization, commercial sales and distribution of medicinal products has only recently changed, +it is difficult to draw comparisons about the impact of the new regulatory regime and impact on the approval of product candidates in +the United Kingdom. In addition, even if a drug is licensed in the UK by the MHRA, it must further be approved by the National Institute +for Health & Care Excellence to ensure use within the UK’s National Health Service (NHS). +25 +Pharmaceutical +Coverage, Pricing and Reimbursement, and Healthcare Reform +Sales +of our products, if approved for marketing, will depend, in part, on the availability and extent of coverage and reimbursement by third-party +payors, such as government health programs, including Medicare and Medicaid, commercial insurance and managed healthcare organizations. +These third-party payors are increasingly challenging the price and limiting the coverage and reimbursement amounts for medical products +and services. There may be significant delays in obtaining coverage and reimbursement for approved products, and coverage may be more +limited than the purposes for which the product is approved by the FDA or regulatory authorities in other countries. It is time-consuming +and expensive to seek reimbursement from third-party payors. Moreover, eligibility for reimbursement does not imply that any product +will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. +Interim payments for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Payment +rates may vary according to the use of the product and the clinical setting in which it is used, may be based on payments allowed for +lower-cost products that are already reimbursed and may be incorporated into existing payments for other services. Net prices for products +may be reduced by mandatory discounts or rebates required by third-party payors and by any future relaxation of laws that presently restrict +imports of products from countries where they may be sold at lower prices than in the United States. In the United States, third-party +payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies, but they also have +their own methods and approval process apart from Medicare coverage and reimbursement determinations. Accordingly, one third-party payor’s +determination to provide coverage for a product does not assure that other payors will also provide coverage for the product. +In +addition, the containment of healthcare costs has become a priority for federal and state governments, and the prices of drugs have been +a focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing +cost-containment programs, including price controls, restrictions on coverage and reimbursement, and requirements for substitution of +generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions +with existing controls and measures, could further limit our net revenue and results. Decreases in third-party reimbursement for our +clinical assets or a decision by a third-party payor to not cover our clinical assets could reduce physician usage of the clinical asset +and have a material adverse effect on our sales, results of operations and financial condition. Moreover, there has been heightened governmental +scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries +and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review +the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug +products. Individual states in the United States have also increasingly passed legislation and implemented regulations designed to control +pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access +and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and +bulk purchasing. In December 2020, the U.S. Supreme Court held unanimously that federal law does not preempt the states’ ability +to regulate pharmaceutical benefit managers (“PBMs”) and other members of the healthcare and pharmaceutical supply chain, +an important decision that has led to further and more aggressive efforts by states in this area. +On August 16, 2022, President +Biden signed into the law the Inflation Reduction Act of 2022, or the IRA. Among other things, the IRA has multiple provisions that can +impact the prices of drug products that are both sold into the Medicare program and throughout the United States. Beginning in 2023, a +manufacturer of drugs covered by Medicare Parts B or D must pay a rebate to the federal government if their drug product’s price +increases faster than the rate of inflation. This calculation is made on a drug product by drug product basis and the amount of the rebate +owed to the federal government is directly dependent on the volume of a drug product that is paid for by Medicare Parts B or D. Additionally, +starting for payment year 2026, CMS will negotiate drug prices annually for a select number of single source Part D drugs without generic +or biosimilar competition. CMS will also negotiate drug prices for a select number of Part B drugs starting for payment year 2028. If +a drug product is selected by CMS for negotiation, it is expected that the revenue generated from such drug will decrease. +In +addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements +governing drug pricing vary widely from country to country. For example, in the European Union, the sole legal instrument at the European +Union level governing the pricing and reimbursement of medicinal products is Council Directive 89/105/EEC (the “Price Transparency +Directive”). The aim of the Price Transparency Directive is to ensure that pricing and reimbursement mechanisms established in +the European Union Member States are transparent and objective, do not hinder the free movement of and trade in medicinal products in +the European Union, and do not hinder, prevent or distort competition on the market. The Price Transparency Directive does not provide +any guidance concerning the specific criteria on the basis of which pricing and reimbursement decisions are to be made in the individual +European Union Member States, nor does it have any direct consequence for pricing or reimbursement levels in the individual European +Union Member States. The European Union Member States are free to restrict the range of medicinal products for which their national health +insurance systems provide reimbursement, and to control the prices and/or reimbursement levels of medicinal products for human use. A +European Union Member State may approve a specific price or level of reimbursement for the medicinal product, or alternatively adopt +a system of direct or indirect controls on the profitability of the company responsible for placing the medicinal product on the market, +including volume-based arrangements, caps and reference pricing mechanisms. +26 +Health +Technology Assessment (“HTA”) of medicinal products is becoming an increasingly common part of the pricing and reimbursement +procedures in some European Union Member States, including France, Germany, Ireland, Italy and Sweden. The HTA process in the European +Union Member States is governed by the national laws of these countries. HTA is the procedure according to which the assessment of the +public health impact, therapeutic impact, and the economic and societal impact of the use of a given medicinal product in the national +healthcare systems of the individual country is conducted. HTA generally focuses on the clinical efficacy and effectiveness, safety, +cost, and cost-effectiveness of individual medicinal products as well as their potential implications for the healthcare system. Those +elements of medicinal products are compared with other treatment options available on the market. The outcome of HTA regarding specific +medicinal products will often influence the pricing and reimbursement status granted to these medicinal products by the competent authorities +of individual European Union Member States. The extent to which pricing and reimbursement decisions are influenced by the HTA of the +specific medicinal product vary between the European Union Member States. For example, European Union Member States that have not yet +developed HTA mechanisms could rely to some extent on the HTA performed in countries with a developed HTA framework when adopting decisions +concerning the pricing and reimbursement of a specific medicinal product. +Separately +from cost containment efforts, in the United States and some foreign jurisdictions, there also have been, and continue to be, several +legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval +of product candidates or restrict or regulate post-approval activities. The FDA’s and other regulatory authorities’ policies +may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our current +or future product candidates. +Data +Privacy and the Protection of Personal Information +We +are subject to laws and regulations governing data privacy and the protection of personal information including health information. The +legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing focus on privacy +and data protection issues which will continue to affect our business. In the United States, we may be subject to state security breach +notification laws, state laws protecting the privacy of health and personal information and federal and state consumer protections laws +that regulate the collection, use, disclosure and transmission of personal information. These laws overlap and often conflict and each +of these laws is subject to varying interpretations by courts and government agencies, creating complex compliance issues. If we fail +to comply with applicable laws and regulations we could be subject to penalties or sanctions, including criminal penalties. Our customers +and research partners must comply with laws governing the privacy and security of health information, including HIPAA and state health +information privacy laws. If we knowingly obtain health information that is protected under HIPAA, called “protected health information,” +our customers or research collaborators may be subject to enforcement, and we may have direct liability for the unlawful receipt of protected +health information or for aiding and abetting a HIPAA violation. +State +laws protecting health and personal information are becoming increasingly stringent. For example, California has implemented the California +Confidentiality of Medical Information Act that imposes restrictive requirements regulating the use and disclosure of health information +and other personally identifiable information, and California has recently adopted the California Consumer Privacy Act of 2018 (“CCPA”). +The CCPA mirrors a number of the key provisions of the EU General Data Protection Regulation (“GDPR”) described below. The +CCPA establishes a new privacy framework for covered businesses by creating an expanded definition of personal information, establishing +new data privacy rights for consumers in the State of California, imposing special rules on the collection of consumer data from minors, +and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement +reasonable security procedures and practices to prevent data breaches. Since passage of the CCPA, several other states (Connecticut, +Colorado, Virginia, and Utah) have also enacted comprehensive consumer privacy laws that include key differences from California’s +law, further complicating compliance by industry and other stakeholders. Other states in the U.S. are considering privacy laws similar +to the CCPA. +27 +In +Europe, the GDPR went into effect in May 2018, implementing a broad data protection framework that expanded the scope of European Union +data protection law, including to non- European Union entities that process, or control the processing of, personal data relating to +individuals located in the European Union, including clinical trial data. The GDPR sets out a number of requirements that must be complied +with when handling the personal data of European Union-based data subjects including: providing expanded disclosures about how their +personal data will be used; higher standards for organizations to demonstrate that they have obtained valid consent or have another legal +basis in place to justify their data processing activities; the obligation to appoint data protection officers in certain circumstances; +new rights for individuals to be “forgotten” and rights to data portability, as well as enhanced current rights (e.g. access +requests); the principal of accountability and demonstrating compliance through policies, procedures, training and audit; and a new mandatory +data breach regime. In particular, medical or health data, genetic data and biometric data where the latter is used to uniquely identify +an individual are all classified as “special category” data under the GDPR and afforded greater protection and require additional +compliance obligations. Further, European Union member states have a broad right to impose additional conditions – including restrictions +– on these data categories. This is because the GDPR allows European Union member states to derogate from the requirements of the +GDPR mainly in regard to specific processing situations (including special category data and processing for scientific or statistical +purposes). As the European Union states continue to reframe their national legislation to harmonize with the GDPR, we will need to monitor +compliance with all relevant European Union member states’ laws and regulations, including where permitted derogations from the +GDPR are introduced. We will also be subject to evolving European Union laws on data export, if we transfer data outside the European +Union to ourselves or third parties outside of the European Union. +The EU GDPR is an EU Regulation +and it no longer applies to the UK. If you operate inside the UK, you need to comply with the Data Protection Act 2018 (DPA 2018). The +provisions of the EU GDPR have been incorporated directly into UK law as the UK GDPR. On 28 June 2021, the EU approved adequacy decisions +for the EU GDPR and the Law Enforcement Directive (LED). This means data can continue to flow freely from the EU to the UK, in the majority +of cases. +The +Cayman Islands Government enacted the Data Protection Act on May 18, 2017 (as amended, the “DPA”). The DPA regulates the +processing of personal data in the Cayman Islands. Under the DPA, the Company is a “data controller” and the Company’s +affiliates and/or its delegates may be “data processors” (or, in some circumstances, data controllers in their own right), +in respect of such personal data. +U.S. +Foreign Corrupt Practices Act and Anti-bribery Regulations +In +general, the Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, prohibits offering to pay, paying, promising to pay, or +authorizing the payment of money or anything of value to a foreign official in order to influence any act or decision of the foreign +official in his or her official capacity or to secure any other improper advantage in order to obtain or retain business for or with, +or in order to direct business to, any person. The prohibitions apply not only to payments made to “any foreign official,” +but also to those made to “any foreign political party or official thereof,” to “any candidate for foreign political +office” or to any person, while knowing that all or a portion of the payment will be offered, given, or promised to anyone in any +of the foregoing categories. “Foreign officials” under the FCPA include officers or employees of a department, agency, or +instrumentality of a foreign government. The term “instrumentality” is broad and can include state-owned or state-controlled +entities. Importantly, United States authorities deem most healthcare professionals and other employees of foreign hospitals, clinics, +research facilities and medical schools in countries with public healthcare and/or public education systems to be “foreign officials” +under the FCPA. When we interact with foreign healthcare professionals and researchers in testing and marketing our products abroad, +should any of our product candidates receive foreign regulatory approval in the future, we must have policies and procedures in place +sufficient to prevent us and agents acting on our behalf from providing any bribe, gift or gratuity, including excessive or lavish meals, +travel or entertainment in connection with marketing our products and services or securing required permits and approvals. The FCPA also +obligates companies whose securities are listed in the United States to comply with accounting provisions requiring us to maintain books +and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise +and maintain an adequate system of internal accounting controls for international operations. +28 +We +are also subject to U.K. Bribery Act of 2010, which prohibits both domestic and international bribery, as well as bribery across both +private and public sectors. In addition, an organization that “fails to prevent bribery” committed by anyone associated with +the organization can be charged under the U.K. Bribery Act unless the organization can establish the defense of having implemented “adequate +procedures” to prevent bribery. As we expand our operations, we are likely to be subject to additional laws and restrictions relating +to anti-bribery. +Environmental, +Health, and Safety Regulation +We +are subject to numerous federal, state, and local environmental, health, and safety (“EHS”) laws and regulations relating +to, among other matters, safe working conditions, product stewardship, environmental protection, and handling or disposition of products, +including those governing the generation, storage, handling, use, transportation, release, and disposal of hazardous or potentially hazardous +materials, medical waste, and infectious materials that may be handled by our partner research laboratories. Some of these laws and regulations +also require us to obtain licenses or permits to conduct our operations. If we fail to comply with such laws or obtain and comply with +the applicable permits, we could face substantial fines or possible revocation of our permits or limitations on our ability to conduct +our operations. Certain of our development and manufacturing activities may involve, from time to time, use of hazardous materials, and +we believe we are in compliance with the applicable environmental laws, regulations, permits, and licenses. However, we cannot ensure +that EHS liabilities will not develop in the future. EHS laws and regulations are complex, change frequently and have tended to become +more stringent over time. Although the costs to comply with applicable laws and regulations, have not been material, we cannot predict +the impact on our business of new or amended laws or regulations or any changes in the way existing and future laws and regulations are +interpreted or enforced, nor can we ensure we will be able to obtain or maintain any required licenses or permits. +Employees +As +of December 31, 2024, we had a total of six full-time employees. +We +currently rely on several consultants who provide services to our Company. None of our employees are represented by a labor union or +covered by collective bargaining agreements. We consider our relationship with our employees to be good. We anticipate that the number +of employees will increase as we continue to develop the assets in our pipeline and other clinical assets that we seek to develop. Additionally, +we utilize and expect to continue to utilize clinical research organizations and third parties to perform our pre-clinical studies, clinical +studies, and manufacturing. +Corporate +Information +We +were incorporated under the name “Murphy Canyon Acquisition Corp.” in October 2021 under the laws of the State of Delaware +for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business +combination with one or more businesses. We changed our name to “Conduit Pharmaceuticals Inc.” in connection with the completion +of the Business Combination in September 2023. +Our +principal executive offices are located at 4581 Tamiami Trail North, Suite 200 Naples, Florida. Our telephone number is +1 (646)-491-9132, +and our website can be found at https://www.conduitpharma.com. +Item +1A. Risk Factors +An +investment in our securities involves a high degree of risk. Investors should carefully consider the risks described below before making +an investment decision. Our business, prospects, financial condition, or operating results could be harmed by any of these risks, as +well as other risks not currently known to us or that we currently consider immaterial. The trading price of our securities could decline +due to any of these risks, and, as a result, stockholders may lose all or part of their investment. Certain statements in “Risk +Factors” are forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements.” +29 +Risks +Related to Our Business and Industry +We +have incurred significant net losses since our inception and we anticipate future losses and negative cash flow. It is uncertain if or +when we will become profitable. +We +have incurred net losses since our inception. Our net losses were $17.8 million for the year ended December 31, 2024 and $0.5 million +for the year ended December 31, 2023. As of December 31, 2024, we had an accumulated deficit of $29.1 million. We do not expect to generate +any significant revenues, if any, until we successfully complete adequate development of our first clinical asset. As of December 31, +2024, our clinical assets are still in development and have not been approved by the FDA or any other regulatory body. +We +have not yet demonstrated our ability to generate revenue, and we may never be able to produce revenues or operate on a profitable basis. +We expect to experience operating losses and negative cash flow for the foreseeable future. Even if we are able to commercialize our +technology, which may include licensing, we may never recover our research and development expenses. +Our +business is dependent on the successful development, regulatory approval, and commercialization of our clinical assets, in particular +a glucokinase activator which we believe is active in a range of autoimmune disorders, which we refer to as AZD1656, and a potent, irreversible +inhibitor of human Myeloperoxidase that has the potential to treat idiopathic male infertility, which we refer to as AZD5904. +The +success of our business, including our ability to finance our operations and generate any revenue in the future, will primarily depend +on the successful development, regulatory approval, and commercialization or partnering of our clinical assets. In the future, we may +also become dependent on just one of our clinical assets or any future clinical assets that we may in-license, acquire, or develop. The +preclinical, clinical and commercial success of our clinical assets will depend on a number of factors, including the following: +● +the +ability to raise additional capital to fund our current pre-clinical and clinical plans on acceptable terms, or at all; +● +the +timely completion of our clinical trials, which may be significantly slower or cost more than we currently anticipate and will depend +substantially upon the performance of third-party contractors; +● +whether +we are required by the FDA or similar foreign regulatory agencies to conduct additional preclinical or clinical trials beyond those +planned to support the approval and commercialization of our clinical assets or any future clinical assets; +● +the +acceptance of our proposed indications and primary endpoint assessments relating to the proposed indications of our clinical assets +by the FDA or similar foreign regulatory authorities; +● +our +ability to demonstrate the safety and efficacy of our clinical assets or any future clinical assets to the satisfaction of the FDA +and similar foreign regulatory authorities; +● +the +prevalence, duration, and severity of potential side effects experienced in connection with our clinical assets or future approved +products, if any; +30 +● +the +timely receipt of necessary marketing approvals from the FDA and similar foreign regulatory authorities; +● +achieving +and maintaining, and, where applicable, ensuring that our third-party contractors achieve and maintain, compliance with our contractual +obligations and with all regulatory requirements applicable to our clinical assets or any future clinical assets or approved products, +if any; +● +the +ability of third parties with whom we contract to manufacture clinical trial and commercial supplies of our clinical assets or any +future clinical assets, remain in good standing with regulatory agencies, and develop, validate, and maintain commercially viable +manufacturing processes that are compliant with cGMP; +● +a +continued acceptable safety profile during preclinical and clinical development and following approval of our clinical assets or +any future clinical assets; +● +our +ability to successfully commercialize our clinical assets or any future clinical assets in the U.S. and internationally, if approved +for marketing, sale, and distribution in such countries and territories, whether alone or in collaboration with others; +● +the +acceptance by physicians, patients, and payors of the benefits, safety, and efficacy of our clinical assets or any future clinical +assets, if approved, including relative to alternative and competing treatments; +● +our +ability to comply with numerous post-approval regulatory requirements; +● +our +and our partners’ ability to establish and enforce intellectual property rights in and to our clinical assets or any future +clinical assets; +● +our +and our partners’ ability to avoid third-party patent interference or intellectual property infringement claims; and +● +our +ability to in-license or acquire additional clinical assets or commercial-stage products that we believe that we can successfully +develop and commercialize. +If +we are unable to achieve one or more of the above factors, many of which are beyond our control, in a timely manner or at all, we could +experience significant delays and increased costs or an inability to obtain regulatory approvals or commercialize our clinical assets. +Even if regulatory approvals are obtained, we may never be able to successfully commercialize any of our clinical assets. Accordingly, +we cannot assure investors that we will be able to generate sufficient revenue through the sale of our clinical assets or any future +clinical assets to continue operations. +There is substantial +doubt regarding our ability to continue as a going concern. We will need to raise additional funding, which may not be available on acceptable +terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our commercial programs, +product development efforts or other operations. +The report of our independent registered public accounting +firm on the Company’s financial statements as of and for the year ended December 31, 2024, includes an explanatory paragraph indicating +that there is substantial doubt about our ability to continue as a going concern for at least one year from the date of filing. Through +the date of the Business Combination, Old Conduit financed its working capital requirements by raising capital through private placements +of its ordinary shares and issuing of short-term and convertible notes. The Company has financed its working capital requirements since +the Business Combination primarily through the PIPE Financing (the “PIPE Financing”) completed in September 2023, and through +issuing of short-term and convertible notes. +We will need to raise additional funding, which may +not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or +terminate our commercial programs, product development efforts or other operations. We do not expect to generate meaningful product revenues +in the foreseeable future. Based on our current business plan as of the date of our consolidated financial statements appearing elsewhere +in this Annual Report on Form 10-K, there is substantial doubt regarding our ability to continue as a going concern. We will need to raise +additional funding in order to execute on our current business plans and strategy, including prior to becoming profitable. +Our efforts to raise additional funding may divert +our management from their day-to-day activities, which may adversely affect our ability to develop our products. In addition, we cannot +guarantee that financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing +may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities, whether equity or debt, +by us, or the possibility of such issuance, may cause the market price of our shares to decline. The sale of additional equity or convertible +securities would dilute all of our stockholders. The incurrence of indebtedness would result in increased fixed payment obligations, and +we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations +on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our +ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or otherwise +at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our technologies or product +candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results +and prospects. +Moreover, as a result of recent volatile market conditions, +the cost and availability of capital has been and may continue to be adversely affected. Concern about the stability of the banking sector +has generally led many lenders and institutional investors to reduce, and in some cases, cease to provide credit to businesses and consumers. +Continued turbulence in the U.S. market and economy may adversely affect our liquidity and financial condition, including our ability +to access the capital markets to meet liquidity needs. +If we are unable to obtain funding on a timely basis, +or if revenues from collaboration arrangements are less than we have projected, we may be required to further revise our business plan +and strategy, which may result in us significantly curtailing, delaying or discontinuing one or more of our research or development programs +or may result in our being unable to expand our operations or otherwise capitalize on our business opportunities. As a result, our business, +financial condition and results of operations could be materially affected. +As +a result of our limited operating history, we may not be able to correctly estimate, operating expenses, need for investment capital, +or stability of operations, which could lead to cash shortfalls. +We +have a limited operating history from which to evaluate our business. As a result, our historical financial data is of limited value +in estimating future operating expenses. We have not obtained regulatory approvals for any of our clinical assets. Therefore, our budgeted +operating expense levels are based in part on our expectations concerning the FDA approval process and expenses related to development +of other clinical assets. Failing to reach our short-term developmental milestones within anticipated timelines due to serious adverse or unacceptable side effects caused by our clinical assets, or other events, many of which +may be beyond our control, may cause our financial condition and operating results to continue to fluctuate significantly from quarter +to quarter and year to year. +Preclinical +drug development for our clinical assets (AZD1656 and AZD5904) is expensive, time-consuming, and uncertain. Our preclinical trials may +fail to adequately demonstrate pharmacologic activity in therapeutic areas of interest; cause unintended short- or long-term effects +in other bodily systems; or produce unexpected toxicity that may alter or risk benefit assessment. +The +scientific discoveries that form the basis for our efforts to generate and develop our clinical assets are relatively recent. AZD1656 +is a glucokinase activator that is in a number of Phase II ready autoimmune disorders including uveitis, Hashimoto’s thyroiditis, +preterm labor, and renal transplant, and the successful development of AZD1656 may require additional studies and efforts to optimize +its therapeutic potential. In addition, our development pipeline includes what we believe to be a potent irreversible inhibitor of human +Myeloperoxidase (MPO) that has the potential to treat idiopathic male infertility, which we refer to as AZD5904. AZD5904 may not demonstrate +in patients the therapeutic properties ascribed to it in the laboratory or preclinical studies, and may interact with human biological +systems in unforeseen, ineffective, or even harmful ways. If we are not able to successfully develop and commercialize our clinical assets, +including AZD1656 and AZD5904, we may never become profitable and the value of our capital stock may decline. +31 +It +is difficult to predict the time and cost of development and of subsequently obtaining regulatory approval for AZD1656 as it employs +newly developed technology. +AZD1656 +uses a novel mechanism to reduce inflammation in many of the immune pathways. We have concentrated our research and development efforts +of AZD1656 on a limited number of initial targeted disease indications for AZD1656. There can be no assurance that we will not experience +problems or delays in developing our current or future indications for AZD1656 and that such problems or delays will not cause unanticipated +costs, or that any such development problems can be solved. Moreover, AZD1656 would also represent a novel approach for the treatment +of uveitis as steroids are currently the most common treatment for uveitis even though there are numerous side effects associated with +the use of steroids. The clinical development of these novel technologies will require review and allowance by the FDA under an Investigational +New Drug Application. +We +may not be successful in our efforts to use and expand our development platform to build a pipeline of clinical assets. +A +key element of our strategy is to use our experienced management and scientific team to build a pipeline of clinical assets that address +a broad range of human diseases in order to treat unmet medical needs. Our current clinical assets and pipeline address the areas of +autoimmune disease and idiopathic male infertility. Although our research and development efforts to date have resulted in potential +clinical assets, we may not be able to continue to identify and develop additional clinical assets. Even if we are successful in continuing +to build our pipeline, the potential clinical assets that we identify may not be suitable for clinical development. For example, these +potential clinical assets may be shown to have harmful side effects or other characteristics that indicate that they are unlikely to +receive marketing approval and achieve market acceptance. If we do not successfully develop and commercialize clinical assets based upon +our approach, we will not be able to obtain product revenue in future periods, which likely would result in significant harm to our financial +position. There is no assurance that we will be successful in our preclinical and clinical development of our current or future clinical +assets, and the process of obtaining regulatory approvals will, in any event, require the expenditure of substantial time and financial +resources. +Clinical +drug development for our clinical assets is very expensive, time-consuming, difficult to design and implement, and uncertain. Our clinical +trials may fail to adequately demonstrate the safety and efficacy of our clinical assets, which could prevent or delay regulatory approval +and commercialization. +Clinical +drug development for our clinical assets is very expensive, time-consuming, difficult to design and implement, and its outcome is inherently +uncertain. Before obtaining regulatory approval for the commercial sale of a clinical asset, we must demonstrate through clinical trials +that a clinical asset is both safe and effective for use in the target indication, which is impossible to predict. Most clinical assets +that commence clinical trials are never approved by regulatory authorities for commercialization. Our clinical assets are in various +stages of development and a failure of one more clinical trial can occur at any stage of testing or at any time during the trial process. +We expect that clinical trials for these clinical assets will continue for several years but may take significantly longer than expected +to complete. Not all of our clinical assets have been tested in humans and the first use in humans may reveal unexpected effects. We +have not completed all clinical trials for the approval of any of our clinical assets. +32 +We +may experience delays in ongoing and future clinical trials for our clinical assets and we do not know if future clinical trials, if +any, will begin on time, need to be redesigned, enroll adequate number of patients on time or be completed on schedule, if at all. In +addition, the Company, any partner with which we currently or may in the future collaborate, the FDA, an IRB or other regulatory authorities, including state and local agencies and counterpart agencies in foreign countries, may suspend, +delay, require modifications to, or terminate our clinical trials at any time, for various reasons, including: +● +discovery +of safety or tolerability concerns, such as serious or unexpected toxicities or side effects or exposure to otherwise unacceptable +health risks, experienced by study participants or other safety issues; +● +lack +of effectiveness of any clinical asset during clinical trials or the failure of our clinical assets to meet specified endpoints; +● +slower +than expected rates of subject recruitment and enrollment rates or inability to enroll a sufficient number of patients in clinical +trials resulting from numerous factors, including the prevalence of other companies’ clinical trials for their clinical assets +for the same indication, or clinical trials for indications for which patients do not as commonly seek treatment; +● +difficulty +in retaining subjects who have initiated a clinical trial but may withdraw at any time due to adverse side effects from the therapy, +insufficient efficacy, fatigue with the clinical trial process, or for any other reason; +● +difficulty +in obtaining IRB approval for studies to be conducted at each clinical trial site; +● +delays +in manufacturing or obtaining, or inability to manufacture or obtain, sufficient quantities of materials for use in clinical trials; +● +inadequacy +of or changes in our manufacturing process or the product formulation or method of delivery; +● +changes +in applicable laws, regulations, and regulatory policies; +● +delays +or failure in reaching agreement on acceptable terms in clinical trial contracts or protocols with prospective CROs, clinical trial sites, and other third-party contractors; +● +inability +to add a sufficient number of clinical trial sites; +● +uncertainty +regarding proper formulation and dosing; +● +failure +by us, our employees, our CROs or their employees, or other third-party contractors to comply with contractual and applicable regulatory +requirements or to perform their services in a timely or acceptable manner; +● +failure +by us, our employees, our CROs or their employees, or any partner with which we may collaborate or their employees to comply with +applicable FDA or other regulatory requirements relating to the conduct of clinical trials or the handling, storage, security, and +recordkeeping for drug and biologic products; +● +scheduling +conflicts with participating clinicians and clinical institutions; +● +failure +to design appropriate clinical trial protocols; +● +insufficient +data to support regulatory approval; +● +inability +or unwillingness of medical investigators to follow our clinical trial protocols; or +● +difficulty +in maintaining contact with subjects during or after treatment, which may result in incomplete data. +33 +We +or any partner with which we may collaborate may suffer significant setbacks in their clinical trials similar to the experience of a +number of other companies in the pharmaceutical and biotechnology industries, even after receiving promising results in earlier trials. +In the event that we or our potential partners abandon or are delayed in the clinical development efforts related to our clinical assets, +we may not be able to execute on our business plan effectively and our business, financial condition, operating results, and prospects +would be harmed. +We +may be unable to obtain regulatory approval for our early-stage clinical assets under applicable regulatory requirements. The FDA and +foreign regulatory bodies have substantial discretion in the approval process, including the ability to delay, limit, or deny approval +of clinical assets. The delay, limitation, or denial of any regulatory approval would adversely impact commercialization, our potential +to generate revenue, our business, and our operating results. +We +currently have no products approved for sale, and we may never obtain regulatory approval to commercialize any of our current or future +clinical assets. The research, testing, manufacturing, safety surveillance, efficacy, quality control, recordkeeping, labeling, packaging, +storage, approval, sale, marketing, distribution, import, export, and reporting of safety and other post-market information related to +our drug products are subject to extensive regulation by the FDA and other regulatory authorities in the U.S. and in foreign countries, +and such regulations differ from country to country. We are not permitted to market any of our current clinical assets in the U.S. until +we receive approval of an NDA, Biologics License Application (a “BLA”), or other applicable regulatory filing from the FDA. +We are also not permitted to market any of our current clinical assets in any foreign countries until we or our partners receive the +requisite approval from the applicable regulatory authorities of such countries. To gain approval to market a new drug such as AZD1656 +and AZD5904, the FDA and/or foreign regulatory authorities must receive, among other things, preclinical and clinical data that adequately +demonstrate the safety, purity, potency, efficacy, and compliant manufacturing of the drug product for the intended indication applied +for in a NDA, BLA, or other applicable regulatory filing. The development and approval of new drug products involves a long, expensive, +and uncertain process, and delay or failure can occur at any stage. A number of companies in the pharmaceutical and biopharmaceutical +industry have suffered significant setbacks in nonclinical development, clinical trials, including in Phase III clinical development, +even after promising results in earlier preclinical studies or clinical trials. These setbacks have been caused by, among other things, +findings made while clinical trials were underway and safety or efficacy observations made in clinical trials, including previously unreported +adverse events. Success in clinical trials does not ensure that later clinical trials will be successful, or that nonclinical studies +will be successful. The results of clinical trials by other parties may not be indicative of the results in trials that we or our partners +may conduct. +The +FDA and foreign regulatory bodies have substantial discretion in the drug development and approval process, including the ability to +delay, limit drug development, or limit or deny approval of clinical assets for many reasons. The FDA or the applicable foreign regulatory +body may: +● +disagree +with the design or implementation of one or more clinical trials; +● +not +deem a clinical asset safe and effective for its proposed indication, or may deem a clinical asset’s safety or other perceived +risks to outweigh its clinical or other benefits; +● +not +find the data from preclinical studies and clinical trials sufficient to support approval, or the results of clinical trials may +not meet the level of statistical or clinical significance required by the FDA or the applicable foreign regulatory body for approval; +● +disagree +with our interpretation of data from preclinical studies or clinical trials performed by us or third parties, or with the interpretation +of any partner with which we may collaborate; +34 +● +determine +the data collected from preclinical or clinical trials may not be sufficient to support the submission of an Investigational New +Drug Application (“IND”) or NDA, or other applicable regulatory filing; +● +require +additional preclinical studies or clinical trials; +● +identify +deficiencies in the formulation, quality control, labeling, or specifications of our current or future clinical assets; +● +require +clinical trials in pediatric patients in order to establish pharmacokinetics or safety for this more drug-sensitive population; +● +grant +approval contingent on the performance of costly additional post-approval clinical trials; +● +approve +our current or any future clinical assets for a more limited indication or a narrower patient population than we originally requested +or with strong warnings that may affect marketability; +● +not +approve the labeling that we believe is necessary or desirable for the successful commercialization of our clinical assets; +● +not +approve of the manufacturing processes, controls, or facilities of third-party manufacturers or testing labs with which we contract; +● +consider +our products a device instead of a drug requiring a different approval process and manufacturing needs; +● +consider +one of our products a combination product instead of a singular drug requiring additional clinical trials or increased number of +patients per study; or +● +change +its approval policies or adopt new regulations in a manner rendering our clinical data or regulatory filings insufficient for approval. +Any +delay, limitation, or denial in any applicable regulatory approval for any of our clinical assets would delay or adversely impact commercialization +of our clinical assets and would harm our business, financial condition, operating results, and prospects. +35 +We +have identified material weaknesses in our internal control over financial reporting. If we fail to remedy these weaknesses or maintain +an effective system of internal controls, then our ability to produce timely and accurate financial statements or comply with applicable +regulations could be adversely affected. We may identify additional material weaknesses in our internal controls over financing reporting +which we may not be able to remedy in a timely manner. +In +connection with the preparation and audit of the financial statements as of and for the fiscal years ended December 31, 2024 and 2023, +material weaknesses were identified in our internal control over financial reporting. A material weakness is a deficiency, or a combination +of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement +of annual or interim financial statements will not be prevented or detected on a timely basis. These material weaknesses primarily relate +to the following matters that are relevant to the preparation of our financial statements: +● +We +have limited segregation of duties. For the periods under audit, the Company did not have any internal personnel in the financial +accounting and reporting department, instead relied upon third party consultants to perform these activities. +● +We +lack a formal process for review and approval of financial statements. For the periods under audit, especially prior to the business +combination, numerous, recurring errors in account balances and disclosures were detected in the financial statements that resulted +in a reasonable possibility that a material misstatement would not have been detected on a timely basis. +● +We +did not design adequate and appropriate internal controls, including monitoring controls, to review and evaluate the accounting implications +of all material transactions that occurred in the audit period. +If +these material weaknesses are not remediated, it could result in a misstatement of account balances or disclosures that would result +in a material misstatement to the annual or interim financial statements that would not be prevented or detected. We are reviewing measures +designed to improve our internal control over financial reporting to remediate these material weaknesses, although they have not been +fully remediated as of the date of this filing. As a part of these measures, we also expect to engage an external advisor to assist with +evaluating and documenting the design and operating effectiveness of internal controls and assisting with the remediation of deficiencies +when funding and additional liquidity becomes available, as necessary. The primary costs associated with such measures are corresponding +recruiting and additional salary and consulting costs, which are difficult to estimate but which may be significant. These additional +resources and procedures are intended to enable us to broaden the scope and quality of our internal review of underlying information +related to financial reporting and to formalize and enhance our internal control procedures. +The +material weaknesses will not be considered remediated until a remediation plan has been fully implemented, the applicable controls +operate for a sufficient period of time, and we have concluded, through testing, that the newly implemented and enhanced controls are +operating effectively. A failure to implement and maintain effective internal control over financial reporting could result +in errors in our financial statements that could result in a restatement of our financial statements and could cause us to fail to meet +our reporting obligations, any of which could diminish investor confidence in us and cause a decline in the price of our common stock. +Our +independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over +financial reporting until after we are no longer an “emerging growth company,” as defined in the JOBS Act. At such time, +our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level +at which our internal control over financial reporting is documented, designed, or operating. +36 +There +is a risk that we will fail to maintain an effective system of internal controls and our ability to produce timely and accurate financial +statements or comply with applicable regulations could be adversely affected. We may identify material weaknesses in our internal controls +over financing reporting which we may not be able to remedy in a timely manner. +As +a public company, we operate in an increasingly demanding regulatory environment, which requires us to comply with the Sarbanes-Oxley +Act, the regulations of Nasdaq, the rules and regulations of the SEC, expanded disclosure requirements, accelerated reporting requirements, +and more complex accounting rules. Responsibilities required by the Sarbanes-Oxley Act include establishing corporate oversight and adequate +internal control over financial reporting and disclosure controls and procedures. Effective internal controls are necessary for us to +produce reliable financial reports and are important to help prevent financial fraud. +We +may discover additional weaknesses in our system of internal financial and accounting controls and procedures that could result in a +material misstatement of our financial statements. Our internal control over financial reporting will not prevent or detect all errors +and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that +the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls +can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud +will be detected. +If +we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain +proper and effective internal controls, we may not be able to produce timely and accurate financial statements. If we cannot provide +reliable financial reports or prevent fraud, our business and results of operations could be harmed, investors could lose confidence +in our reported financial information, and we could be subject to sanctions or investigations by Nasdaq, the SEC, or other regulatory +authorities. +If +we do not develop and implement all required accounting practices and policies, we may be unable to provide the financial information +required of a U.S. publicly traded company in a timely and reliable manner. +If +we fail to develop and maintain effective internal controls and procedures and disclosure procedures and controls, we may be unable to +provide financial information and required SEC reports that a U.S. publicly traded company is required to provide in a timely and reliable +fashion. Any such delays or deficiencies could penalize us, including by limiting our ability to obtain financing, either in the public +capital markets or from private sources and hurt our reputation and could thereby impede our ability to implement our growth strategy. +In addition, any such delays or deficiencies could result in our failure to meet the requirements for continued listing of our shares +of common stock on a national securities exchange. +We +may face product liability exposure, and if successful claims are brought against us, we may incur substantial liability if our insurance +coverage for those claims is inadequate. +We +face an inherent risk of product liability as a result of the clinical testing of our clinical assets and will face an even greater risk +if we commercialize any products. This risk exists even if a product is approved for commercial sale by the FDA and manufactured in facilities +licensed and regulated by the FDA or an applicable foreign regulatory authority. Our products and clinical assets are designed to affect +important bodily functions and processes. Any side effects, manufacturing defects, misuse, or abuse associated with our clinical assets +could result in injury to a patient or even death. We cannot offer any assurance that we will not face product liability suits in the +future, nor can we assure investors that our insurance coverage will be sufficient to cover our liability under any such cases. In addition, +a liability claim may be brought against us even if our clinical assets merely appear to have caused an injury. Product liability claims +may be brought against us by consumers, health care providers, pharmaceutical companies, or others selling or otherwise coming into contact +with our clinical assets, among others. If we cannot successfully defend ourselves against product liability claims, we will incur substantial +liabilities and reputational harm. +37 +We +currently rely on, and expect to continue to rely on, third-party CROs and other third parties to conduct and oversee our clinical trials +and other aspects of product development. If these third parties do not meet our requirements or otherwise conduct the trials as required, +we may not be able to satisfy our contractual obligations or obtain regulatory approval for, or commercialize, our clinical assets when +expected or at all. +We +have in the past relied and expect to continue to rely on third-party CROs to conduct and oversee our clinical trials and other aspects +of product development. We also rely upon various medical institutions, clinical investigators, and contract laboratories to conduct +our trials in accordance with our clinical trial protocols and all applicable regulatory requirements, including the FDA’s regulations +and GCPs, which are an international standard meant to protect the rights and health of patients and to define the roles of clinical +trial sponsors, administrators and monitors, and state regulations governing the handling, storage, security, and recordkeeping for drug +and biologic products. These CROs and other third parties play a significant role in the conduct of these trials and the subsequent collection +and analysis of data from the clinical trials. We rely heavily on these parties for the execution of our clinical trials and preclinical +studies, and control only certain aspects of their activities. We, our CROs, and other third-party contractors are required to comply +with GCP, GLP, and GACP requirements, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities +for products in clinical development. Regulatory authorities enforce these GCP, GLP, and GACP requirements through periodic inspections +of trial sponsors, principal investigators, and trial sites. If we or any of these third parties fail to comply with applicable GCP, +GLP, or GACP requirements, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or other regulatory +authority may require us to perform additional clinical trials before approving our or our partners’ marketing applications. We +cannot assure investors that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our +clinical or preclinical trials complies with applicable GCP and GLP requirements. In addition, our clinical trials must generally be +conducted with product produced under cGMP regulations. Our failure to comply with these regulations and policies may require us to repeat +clinical trials, which would delay the regulatory approval process. +Our +CROs are not our employees, and we do not control whether or not they devote sufficient time and resources to our clinical trials. Our +CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical +trials, or other drug development activities, which could harm our competitive position. We face the risk of potential unauthorized disclosure +or misappropriation of our intellectual property by CROs, which may reduce our trade secret protection and allow potential competitors +to access and exploit our proprietary technology. If our CROs do not successfully carry out their contractual duties or obligations, +fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to +adhere to our clinical trial protocols or regulatory requirements or for any other reason, our clinical trials may be extended, delayed, +or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize any clinical asset that we develop. +As a result, our financial results and the commercial prospects for any clinical asset that we develop would be harmed, our costs could +increase, and our ability to generate revenue could be delayed. +If +any of our CROs or clinical trial sites terminate their involvement in one of our clinical trials for any reason, we may not be able +to enter into arrangements with alternative CROs or clinical trial sites or do so on commercially reasonable terms. In addition, if our +relationship with clinical trial sites is terminated, we may experience the loss of follow-up information on patients enrolled in our +ongoing clinical trials unless we are able to transfer the care of those patients to another qualified clinical trial site. In addition, +principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and could receive +cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived +or actual conflicts of interest, the integrity of the data generated at the applicable clinical trial site may be questioned by the FDA. +38 +We +rely completely on third-party contractors to supply, manufacture, and distribute clinical drug supplies for our clinical assets, including +certain sole-source suppliers and manufacturers. We intend to rely on third parties for commercial supply, manufacturing, and distribution +if any of our clinical assets receive regulatory approval and we expect to rely on third parties for supply, manufacturing, and distribution +of preclinical, clinical, and commercial supplies of any future clinical assets. +We +do not currently have, nor do we plan to acquire, the infrastructure or capability to supply, manufacture, or distribute preclinical, +clinical, or commercial quantities of drug substances or products. Our ability to develop our clinical assets depends and our ability +to commercially supply our products will depend, in part, on our ability to successfully obtain the raw materials and APIs and other +substances and materials used in our clinical assets from third parties and to have finished products manufactured by third parties in +accordance with regulatory requirements and in sufficient quantities for preclinical and clinical testing and commercialization. If we +fail to develop and maintain supply relationships with these third parties, we may be unable to continue to develop or commercialize +our clinical assets. +We +rely and will continue to rely on certain third parties as the sole source of the materials they supply or the finished products they +manufacture. Any of our existing suppliers or manufacturers may: +● +fail +to supply us with product on a timely basis or in the requested amount due to unexpected damage to or destruction of facilities or +equipment or otherwise; +● +fail +to increase manufacturing capacity and produce drug product and components in larger quantities and at higher yields in a timely +or cost-effective manner, or at all, to sufficiently meet our commercial needs; +● +be +unable to meet our production demands due to issues related to their reliance on sole-source suppliers and manufacturers; +● +supply +us with product that fails to meet regulatory requirements; +● +become +unavailable through business interruption or financial insolvency; +● +lose +regulatory status as an approved source; +● +be +unable or unwilling to renew current supply agreements when such agreements expire on a timely basis, on acceptable terms or at all; +or +● +discontinue +production or manufacturing of necessary drug substances or products. +In +the event of any of the foregoing, if we do not have an alternative supplier or manufacturer in place, we would be required to expend +substantial management time and expense to identify, qualify, and transfer processes to alternative suppliers or manufacturers. Transferring +technology to other sites may require additional processes, technologies, and validation studies, which are costly, may take considerable +amounts of time, may not be successful and, in most cases, require review and approval by the FDA. Any need to find and qualify new suppliers +or manufacturers could significantly delay production of our clinical assets, adversely impact our ability to market our clinical assets, +and adversely affect our business. Replacements may not be available to us on a timely basis, on acceptable terms, or at all. Additionally, +we and our manufacturers do not currently maintain significant inventory of drug substances and other materials. Any interruption in +the supply of a drug substance or other material or in the manufacture of our clinical assets could have a material adverse effect on +our business, financial condition, operating results, and prospects. +We +do not have direct control over the ability of our contract suppliers and manufacturers to maintain adequate capacity and capabilities +to serve our needs, including quality control, quality assurance, and qualified personnel. Although we are ultimately responsible for +ensuring compliance with regulatory requirements such as cGMPs and GACP, we are dependent on our contract suppliers and manufacturers +for day-to-day compliance with cGMPs or GACP for production of raw materials, APIs, and finished products. Facilities used by our contract +suppliers and manufacturers to produce the APIs and other substances and materials or finished products for commercial sale must pass +inspection and be approved by the FDA and other relevant regulatory authorities. Our contract suppliers and manufacturers must comply +with cGMP and GACP requirements enforced by the FDA through its facilities inspection program and review of submitted technical information. +If the safety of any product or clinical asset or component is compromised due to a failure to adhere to applicable laws or for other +reasons, we may not be able to successfully commercialize or obtain regulatory approval for the affected product or clinical asset, and +we may be held liable for injuries sustained as a result. Any of these factors could cause a delay or termination of preclinical studies, +clinical trials, or regulatory submissions or approvals of our clinical assets, and could entail higher costs or result in us being unable +to effectively commercialize our approved products on a timely basis, or at all. +In +addition, these contract manufacturers are engaged with other companies to supply and manufacture materials or products for such companies, +which also exposes our suppliers and manufacturers to regulatory risks for the production of such materials and products. As a result, +failure to meet the regulatory requirements for the production of those materials and products may also affect the regulatory clearance +of a contract supplier’s or manufacturer’s facility. If the FDA or a comparable foreign regulatory agency does not approve +these facilities for the supply or manufacture of our clinical assets, or if it withdraws its approval in the future, we may need to +find alternative supply or manufacturing facilities, which would negatively impact our ability to develop, obtain regulatory approval +of, or market our clinical assets, if approved. +39 +If +any of our third-party contractors terminate their involvement in the supply, manufacture, or distribution of clinical drug supplies +for us for any reason, we may not be able to enter into arrangements with alternative third party-contractors, or do so on commercially +reasonable terms. In addition, if our relationship with such third-party contractors is terminated, we may experience a negative impact +to the respective licenses on which we rely and, therefore, on our ability to obtain regulatory approval for, or commercialize, our clinical +assets when expected or at all. +Our +reliance on contract manufacturers and suppliers further exposes us to the possibility that they, or third parties with access to their +facilities, will have access to and may misappropriate our trade secrets or other proprietary information. +In +addition, the manufacturing facilities of certain of our suppliers are located outside of the U.S. This may give rise to difficulties +in importing our products or clinical assets or their components into the U.S. or other countries as a result of, among other things, +regulatory agency approval requirements or import inspections, incomplete or inaccurate import documentation, or defective packaging. +We +currently rely on agreements with third parties for the purpose of licensing our clinical assets. In the near-term, we intend to rely +on third parties for the licensing of clinical assets and those which may arise through future partnerships. +We +currently rely on agreements with third parties for the purpose of licensing clinical assets from large pharmaceutical companies. For +example, we have agreements with AstraZeneca pursuant to which we license clinical assets from AstraZeneca. If we are in breach of the +agreements, the termination of such agreement(s) could materially adversely affect our business, financial condition, operating results, +and prospects. Our business strategy heavily depends on our ability to commercialize our clinical assets and our ability to enter into +license agreements relating to such clinical assets is critical to the success of our operations +We +may choose not to continue developing or commercializing any of our clinical assets at any time during development or after approval, +which would reduce or eliminate our potential return on investment for those clinical assets. +We +may decide to discontinue the development of any of our clinical assets or not to continue commercializing one or more of our approved +clinical assets for a variety of reasons, including the appearance of new technologies that make a product obsolete, competition from +a competing product, or changes in or failure to comply with applicable regulatory requirements at any time. If we terminate a program +in which we have invested significant resources, we will not receive any return on our investment and we will have missed the opportunity +to have allocated those resources to potentially more productive uses. +If +we fail to attract and retain management and other key personnel, we may be unable to continue to successfully develop or commercialize +our clinical assets or otherwise implement our business plan. +Our +ability to compete in the highly competitive pharmaceuticals industry depends upon our ability to attract and retain highly qualified +managerial, scientific, medical, sales, marketing, and other personnel. We are highly dependent on our management, including our Chief +Executive Officer, David Tapolczay. The loss of the services of any of these individuals could impede, delay, or prevent the successful +development of our product pipeline, completion of our planned clinical trials, commercialization of our clinical assets, or in-licensing +or acquisition of new assets and could negatively impact our ability to successfully implement our business plan. If we lose the services +of any of these individuals, we might not be able to find suitable replacements on a timely basis or at all, and our business could be +harmed as a result. We do not maintain “key man” insurance policies on the lives of these individuals or the lives of any +of our other employees. In order to retain valuable employees, in addition to salary and cash incentives, we provide stock options that +vest over time. +40 +We +might not be able to attract or retain qualified management and other key personnel in the future due to the intense competition for +qualified personnel among biotechnology, pharmaceutical, and other businesses. We could have difficulty attracting experienced personnel +to the Company and may be required to expend significant financial resources in our employee recruitment and retention efforts. Many +of the other pharmaceutical companies with whom we compete for qualified personnel have greater financial and other resources, different +risk profiles, and longer histories in the industry than we do. They also may provide more diverse opportunities and better chances for +career advancement. If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we may experience +constraints that will harm our ability to implement our business strategy and achieve our business objectives. +In +addition, we have scientific and clinical advisors who assist us in formulating our development and clinical strategies. These advisors +are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability +to us. In addition, our advisors may have arrangements with other companies to assist those companies in developing products or technologies +that may compete with those of the Company. +We +currently have limited marketing capabilities and no sales organization. If we do not establish sales and marketing capabilities on our +own or through third parties, we will be limited in our commercialization to license deals with third parties following successful Phase +II trials. +We +currently have limited marketing capabilities and no sales organization. If we do not establish sales and marketing capabilities on our +own or through third parties, we will be limited in our commercialization to license deals with third parties following successful Phase +II trials. To commercialize our clinical assets, if approved, in the U.S., Canada, the European Union, and other jurisdictions that we +seek to enter, we must build our marketing, sales, distribution, managerial, and other non-technical capabilities or make arrangements +with third parties to perform these services, and we may not be successful in doing so. Although our management team has experience in +the marketing, sale, and distribution of pharmaceutical products from prior employment at other companies, we as a company have no prior +experience in the marketing, sale, and distribution of pharmaceutical products and there are significant risks involved in building and +managing a sales organization, including our ability to hire, retain, and incentivize qualified individuals, generate sufficient sales +leads, provide adequate training to sales and marketing personnel, and effectively manage a geographically dispersed sales and marketing +team. Any failure or delay in the development of our internal sales, marketing, and distribution capabilities would adversely impact +the commercialization of these products. We may choose to collaborate with additional third parties that have direct sales forces and +established distribution systems, either to augment our own sales force and distribution systems or in lieu of its own sales force and +distribution systems. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully +commercialize our clinical assets. If we are unable to successfully commercialize our clinical assets, either on our own or through collaborations +with one or more third parties, our business, financial condition, operating results, and prospects would suffer. +Our +failure to successfully in-license, acquire, develop, and market additional clinical assets or approved products would impair our ability +to grow our business. +We +intend to in-license, acquire, develop, and market additional products and clinical assets and we may in-license or acquire commercial-stage +products or engage in other strategic transactions. Because our internal research and development capabilities are limited, we may be +dependent upon pharmaceutical companies, academic scientists, and other researchers to sell or license products or technology to us. +The success of this strategy depends partly upon our ability to identify and select promising pharmaceutical clinical assets and products, +negotiate licensing or acquisition agreements with their current owners, and finance these arrangements. +41 +The +process of proposing, negotiating, and implementing a license or acquisition of a clinical asset or approved product is lengthy and complex. +Other companies, including some with substantially greater financial, marketing, sales, and other resources, may compete with us for +the license or acquisition of clinical assets and approved products. We have limited resources to identify and execute the acquisition +or in-licensing of third-party products, businesses, and technologies and integrate them into our current infrastructure. Moreover, we +may devote resources to potential acquisitions or licensing opportunities that are never completed, or we may fail to realize the anticipated +benefits of such efforts. We may not be able to acquire the rights to additional clinical assets on terms that we find acceptable, or +at all. +Further, +any clinical asset that we acquire may require additional development efforts prior to commercial sale, including preclinical or clinical +testing and approval by the FDA and applicable foreign regulatory authorities. All clinical assets are prone to risks of failure typical +of pharmaceutical product development, including the possibility that a clinical asset will not be shown to be sufficiently safe and +effective for approval by regulatory authorities. In addition, we cannot provide assurance that any approved products that we acquire +will be manufactured or sold profitably or achieve market acceptance. +Additional +potential transactions that we may consider include a variety of different business arrangements, including spin-offs, strategic partnerships, +joint ventures, restructurings, divestitures, business combinations, and investments. Any such transaction may require us to incur non-recurring +or other charges, may increase our near- and long-term expenditures, and may pose significant integration challenges or disrupt our management +or business, which could adversely affect our operations and financial results. For example, these transactions entail numerous potential +operational and financial risks, including: +● +exposure +to unknown liabilities; +● +disruption +of our business and diversion of our management’s time and attention in order to develop acquired products, clinical assets, +or technologies; +● +incurrence +of substantial debt or dilutive issuances of equity securities to pay for acquisitions; +● +substantial +acquisition and integration costs; +● +write-downs +of assets or impairment charges; +● +increased +amortization expenses; +● +difficulty +and cost in combining the operations and personnel of any acquired businesses with our operations and personnel; +● +impairment +of relationships with key suppliers, partners, or customers of any acquired businesses due to changes in management and ownership; +and +● +inability +to retain our key employees or those of any acquired businesses. +Accordingly, +there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, and any transaction +that we do complete could harm our business, financial condition, operating results, and prospects. +42 +Manufacturing +and supply of the APIs and other substances and materials used in our clinical assets is a complex and technically challenging undertaking, +and there is potential for failure at many points in the manufacturing, testing, quality assurance, and distribution supply chain, as +well as the potential for latent defects after products have been manufactured and distributed. +Manufacturing +and supply of APIs, other substances, and materials and finished drug products is technically challenging. Changes beyond our direct +control can impact the quality, volume, price, and successful delivery of our clinical assets and can impede, delay, limit, or prevent +the successful development and commercialization of our clinical assets. Mistakes and mishandling are not uncommon and can affect successful +production and supply. Some of these risks include: +● +failure +of our manufacturers to follow cGMP or GACP requirements or mishandling of product while in production or in preparation for transit; +● +inability +of our contract suppliers and manufacturers to efficiently and cost-effectively increase and maintain high yields and batch quality, +consistency, and stability; +● +our +inability to develop an FDA-approved bioassay for release of any future product; +● +difficulty +in establishing optimal drug delivery substances and techniques, production, and storage methods and packaging and shipment processes; +● +transportation +and import/export risk, particularly given the global nature of our supply chain; +● +delays +in analytical results or failure of analytical techniques that we depend on for quality control and release of any future product; +● +natural +disasters, pandemics, labor disputes, financial distress, lack of raw material supply, issues with facilities and equipment, or other +forms of disruption to business operations of our contract manufacturers and suppliers; and +● +latent +defects that may become apparent after the product has been released and which may result in recall and destruction of product. +Any +of these factors could result in delays or higher costs in connection with our clinical trials, regulatory submissions, required approvals, +or commercialization of our clinical assets, which could harm our business, financial condition, operating results, and prospects. +Our +operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating +results to fall below expectations. +The +operations of the Company since the Business Combination and of Old Conduit prior to the Business Combination have been primarily limited +to researching and developing our clinical assets and undertaking preclinical studies and clinical trials of our clinical assets. We +have not yet obtained regulatory approvals for any of our clinical assets. Consequently, any predictions investors make about our future +success or viability may not be as accurate as they could be if we had a longer operating history or approved products on the market. +Furthermore, our operating results may fluctuate due to a variety of other factors, many of which are outside of our control and may +be difficult to predict, including the following: +● +delays +in the commencement, enrollment, and the timing of clinical testing for our clinical assets; +● +the +timing and success or failure of clinical trials for our clinical assets or competing clinical assets, or any other change in the +competitive landscape of our industry, including consolidation among our competitors or partners; +● +any +delays in regulatory review and approval of clinical assets in clinical development; +● +the +timing and cost of, and level of investment in, research and development activities relating to our clinical assets, which may change +from time to time; +● +the +cost of manufacturing our clinical assets, which may vary depending on FDA guidelines and requirements, and the quantity of production; +● +our +ability to obtain additional funding to develop our clinical assets; +● +expenditures +that we will or may incur to acquire or develop additional clinical assets and technologies; +● +the +level of demand for our clinical assets, should they receive approval, which may vary significantly; +43 +● +potential +side effects of our clinical assets that could delay or prevent commercialization or cause an approved drug to be taken off the market; +● +the +ability of patients or healthcare providers to obtain coverage of or sufficient reimbursement for our clinical assets, if approved; +● +our +dependency on third-party manufacturers to supply or manufacture our clinical assets; +● +our +ability to establish an effective sales, marketing, and distribution infrastructure in a timely manner; +● +market +acceptance of our clinical assets, if approved, and our ability to forecast demand for those clinical assets; +● +our +ability to receive approval and commercialize our clinical assets outside of the U.S.; +● +our +ability to establish and maintain collaborations, licensing, or other arrangements; +● +our +ability and third parties’ abilities to protect intellectual property rights; +● +costs +related to and outcomes of potential litigation or other disputes; +● +our +ability to adequately support future growth; +● +our +ability to attract and retain key personnel to manage our business effectively; +● +potential +liabilities associated with hazardous materials; +● +our +ability to maintain adequate insurance policies; and +● +future +accounting pronouncements or changes in our accounting policies. +44 +Fluctuations +in foreign currency could have an effect on our reported results of operations. +Our +exposure to fluctuations in foreign currency rates results primarily from the translation exposure associated with the preparation of +our consolidated financial statements, as well as from transaction exposure associated with transactions in currencies other than our +functional currency. While our consolidated financial statements are reported in U.S. dollars, our financial statements of foreign subsidiaries +are prepared using the British pound sterling as the functional currency and then translated into U.S. dollars. We cannot accurately +predict the nature or extent of future exchange rate variability of the British pound sterling or the exchange rate relative to the U.S. +dollar. Foreign exchange rates are sensitive to factors beyond our control. In addition, Brexit has caused, and may continue to cause, +significant volatility in currency exchange rates, especially between the U.S. dollar and the British pound sterling. These fluctuations +in foreign currency exchange rates could negatively affect our results of operations and impact reported financial results. +Our +operating results and liquidity needs could be negatively affected by market fluctuations and economic downturn. +Our +operating results and liquidity could be negatively affected by economic conditions generally, both in the U.S. and elsewhere around +the world. The market for discretionary medical products and procedures may be particularly vulnerable to unfavorable economic conditions. +Some patients may consider certain of our clinical assets to be discretionary, and if full reimbursement for such products is not available, +demand for these products may be tied to the discretionary spending levels of our targeted patient populations. Domestic and international +equity and debt markets have experienced and may continue to experience heightened volatility and turmoil based on domestic and international +economic conditions and concerns. In the event these economic conditions and concerns continue or worsen and the markets continue to +remain volatile, our operating results and liquidity could be adversely affected by those factors in many ways, including weakening demand +for certain of our products and making it more difficult for us to raise funds if necessary. Additionally, although we plan to market +our products primarily in the U.S., we could in the future have partners with extensive global operations, indirectly exposing us to +risk. +We +maintain our cash and cash equivalents with high quality, accredited financial institutions. However, some of these accounts exceed the +government-insured limits, and, while we believe that we are not exposed to significant credit risk due to the financial strength of +these depository institutions or investments, the failure or collapse of one or more of these depository institutions or default on these +investments could materially adversely affect our ability to recover these assets and/or materially harm our financial condition. +45 +We +are increasingly dependent on information technology, and our systems and infrastructure face certain risks, including cybersecurity +and data leakage risks. +Significant +disruptions to our information technology systems or breaches of information security could adversely affect our business. In the ordinary +course of business, we collect, store, and transmit large amounts of confidential information, and it is critical that we do so in a +secure manner to maintain the confidentiality and integrity of such confidential information. The size and complexity of our information +technology systems, and those of our third-party vendors with whom we contract, make such systems potentially vulnerable to service interruptions +and security breaches from inadvertent or intentional actions by our employees, partners, or vendors, from attacks by malicious third +parties, or from intentional or accidental physical damage to our systems infrastructure maintained by us or by third parties. Maintaining +the secrecy of this confidential, proprietary, or trade secret information is important to our competitive business position. While we +have taken steps to protect such information and invested in information technology, there can be no assurance that our efforts will +prevent service interruptions or security breaches in our systems or the unauthorized or inadvertent wrongful use or disclosure of confidential +information that could adversely affect our business operations or result in the loss, dissemination, or misuse of critical or sensitive +information. A breach of our security measures or the accidental loss, inadvertent disclosure, unapproved dissemination, misappropriation +or misuse of trade secrets, proprietary information, or other confidential information, whether as a result of theft, hacking, fraud, +trickery, or other forms of deception, or for any other reason, could enable others to produce competing products, use our proprietary +technology or information, or adversely affect our business or financial condition. Further, any such interruption, security breach, +loss, or disclosure of confidential information could result in financial, legal, business, and reputational harm to us and could have +a material adverse effect on our business, financial position, results of operations, or cash flow. +Our +business and operations would suffer in the event of failures in our internal computer systems. +Despite +the implementation of security measures, our computer systems and those of our current and any future partners, contractors, and consultants +are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war, and telecommunication and electrical +failures. While we have not experienced any such material system failure, accident, or security breach to date, if such an event were +to occur and cause interruptions in our operations, it could result in a material disruption of our manufacturing activities, development +programs, and business operations. For example, the loss of manufacturing records or clinical trial data from completed or future clinical +trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. +If we experienced a security breach, our online sources were hacked, or we experienced a data leak, it could result in confidential clinical +trial data being leaked to competitors and the market. To the extent that any disruption or security breach were to result in a loss +of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability +and the further commercialization and development of our products and clinical assets could be delayed. +Risks +Related to Intellectual Property +Failure +to adequately protect our intellectual property could adversely affect our business, financial condition, and operating results. +Our +business depends on our intellectual property and proprietary technology, the protection of which is crucial to the success of our business. +We rely on a combination of trademark, copyright, and trade secret laws, license agreements, intellectual property assignment agreements, +and confidentiality procedures to protect our intellectual property. Additionally, we rely on proprietary information (such as trade +secrets, know-how, and confidential information) to protect intellectual property that may not be patentable, or that we believe is best +protected by means that do not require public disclosure. We generally attempt to protect our intellectual property, technology, and +confidential information by requiring our employees and consultants who develop intellectual property on our behalf to enter into confidentiality +and invention assignment agreements and third parties that we share information with to enter into nondisclosure agreements. These agreements +may not effectively prevent unauthorized use or disclosure of our confidential information, intellectual property, or technology and +may not provide an adequate remedy in the event of unauthorized use or disclosure of our confidential information or technology, or infringement +of our intellectual property. For example, we may fail to enter into the necessary agreements, and even if entered into, these agreements +may be willfully breached or may otherwise fail to prevent disclosure, third-party infringement, or misappropriation of our proprietary +information, may be limited as to their term, and may not provide an adequate remedy in the event of unauthorized disclosure or use of +proprietary information. In addition, our proprietary information may otherwise become known or be independently developed by our competitors +or other third parties. To the extent that our employees, consultants, contractors, and other third parties use intellectual property +owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. Costly and +time-consuming litigation could be necessary to enforce and determine the scope of our intellectual property rights and other proprietary +rights, and failure to obtain or maintain protection for our proprietary information could adversely affect our competitive business +position. +46 +Despite +our efforts to protect our proprietary rights, other parties may unintentionally or willfully disclose, obtain, or use our technologies +or systems, which may allow unauthorized parties to copy aspects of our platform or other software, technology, and functionality or +obtain and use information that we consider proprietary. In addition, unauthorized parties may also attempt, or successfully endeavor, +to obtain our intellectual property, confidential information, and trade secrets through various methods, including through scraping +of public data or other content from our website or mobile applications, cybersecurity attacks, and legal or other methods of protecting +this data may be inadequate. Monitoring unauthorized use and disclosures of our intellectual property, proprietary technology, or confidential +information can be difficult and expensive and we cannot be sure that the steps we have taken will prevent misappropriation or infringement +of our intellectual property or proprietary rights. +We +have registered the domain name for the website that we use in our business, which is www.conduitpharma.com. The inclusion of the website +address in this Annual Report does not include or incorporate by reference the information on the Company’s website into this document. +Competitors +have and may continue to adopt service names similar to ours, thereby harming our ability to build brand identity and possibly leading +to user confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other trademarks +that are similar to our trademarks. Further, litigation or proceedings before the U.S. Patent and Trademark Office or other governmental +authorities and administrative bodies in the U.S. and abroad may be necessary in the future to enforce our intellectual property rights +and to determine the validity and scope of the proprietary rights of others. Any litigation initiated by us concerning the violation +by third parties of our intellectual property rights is likely to be expensive and time-consuming and could lead to the invalidation +of, or render unenforceable, our intellectual property, or could otherwise have negative consequences for us. Even when we sue other +parties for such infringement, that suit may have adverse consequences for our business. In addition, we may not timely or successfully +apply for a patent or register our trademarks or otherwise secure our intellectual property, which could result in negative effects to +our market share, financial condition, and results of operations. Our efforts to protect, maintain, or enforce our proprietary rights +may not be respected in the future or may be invalidated, circumvented, or challenged, and could result in substantial costs and diversion +of resources, which could adversely affect our business, financial condition, and operating results. +We +may be unable to continue to use the domain name that we use in our business or prevent third parties from acquiring and using domain +names that infringe on, are similar to, or otherwise decrease the value of our brand, trademarks, or service marks. +We +have registered the domain name that we use in our business. If we lose the ability to use that domain name, whether due to trademark +claims, failure to renew the applicable registration, or any other cause, we may be forced to market our business under a new domain +name, which could cause us substantial harm, or to incur significant expense in order to purchase rights to the domain name in question. +We may not be able to obtain preferred domain names outside the U.S. due to a variety of reasons, including because they are already +held by others. In addition, our competitors and others could attempt to capitalize on our brand recognition by using domain names similar +to our domain name. We may be unable to prevent third parties from acquiring and using domain names that infringe on, are similar to, +or otherwise decrease the value of our brand or our trademarks or service marks. Protecting, maintaining, and enforcing our rights in +our domain names may require litigation, which could result in substantial costs and diversion of resources, which could in turn adversely +affect our business, financial condition, and operating results. +We +may not be able to protect our intellectual property rights throughout the world. +Filing, +prosecuting, and defending patents on our clinical assets in all countries throughout the world would be prohibitively expensive. The +requirements for patentability may differ in certain countries, particularly developing countries. In addition, the laws of some foreign +countries do not protect intellectual property rights to the same extent as laws in the U.S. Consequently, we may not be able to prevent +third parties from practicing our inventions in all countries outside the U.S. Competitors may use our technologies in jurisdictions +where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to +territories where we have patent protection, but enforcement on infringing activities is inadequate. These products may compete with +our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. +47 +Many +companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The +legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual +property protection, particularly those relating to pharmaceuticals, which could make it difficult for us to stop the infringement of +our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights +in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could +put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing, and could provoke +third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, +if any, may not be commercially meaningful. In addition, certain countries in Europe and certain developing countries have compulsory +licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, we may have limited +remedies if our patents are infringed or if we are compelled to grant a license to our patents to a third party, which could materially +diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectual +property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we +own or license. Our ability to protect and enforce our intellectual property rights may also be adversely affected by unforeseen changes +in foreign intellectual property laws. +Obtaining +and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements +imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. +Periodic +maintenance and annuity fees on any issued patent are due to be paid to the United States Patent and Trademark Office (“USPTO”) +and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies +require compliance with a number of procedural, documentary, fee payment, and other similar provisions during the patent application +process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable +rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting +in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or +lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of +fees, and failure to properly legalize and submit formal documents. If we or our licensors fail to maintain the patents and patent applications +covering our clinical assets, our competitors might be able to enter the market, which would have an adverse effect on our business. +If +we fail to comply with our obligations under our intellectual property license agreements, we could lose license rights that are important +to our business. +We +are a party to certain license agreements that impose various diligence, milestone, royalty, insurance, and other obligations on us. +If we fail to comply with these obligations, the respective licensors may have the right to terminate the license, in which event we +may not be able to develop or market the affected clinical asset. Our business strategy depends on our ability to commercialize our +clinical assets and our ability to enter into license agreements relating to such clinical assets is critical to the success of our +operations. The loss of such rights could materially adversely affect our business, financial condition, operating results, and +prospects. For more information about these license arrangements, see “Business — Principal Strategic Partnerships.” +If +we are sued for infringing intellectual property rights of third parties, it will be costly and time-consuming, and an unfavorable outcome +in that litigation could have a material adverse effect on our business. +Our +commercial success depends upon its ability to develop, manufacture, market, and sell our clinical assets and use our proprietary technologies +without infringing the proprietary rights of third parties. We cannot guarantee that marketing and selling such candidates and using +such technologies will not infringe existing or future patents. Numerous U.S. and foreign issued patents and pending patent applications +owned by third parties exist in the fields relating to our clinical assets. As the biotechnology and pharmaceutical industries expand +and more patents are issued, the risk increases that others may assert that our clinical assets, technologies, or methods of delivery +or use infringe their patent rights. Moreover, it is not always clear to industry participants, including us, which patents cover various +drugs, biologics, drug delivery systems, or their methods of use, and which of these patents may be valid and enforceable. Thus, because +of the large number of patents issued and patent applications filed in our fields, there may be a risk that third parties may allege +they have patent rights encompassing our clinical assets, technologies, or methods. +48 +In +addition, there may be issued patents of third parties that are infringed or are alleged to be infringed by our clinical assets or proprietary +technologies. We cannot be certain that others have not filed patent applications for technology covered by our own and in-licensed issued +patents or our pending applications because some patent applications in the U.S. may be maintained in secrecy until the patents are issued, +patent applications in the U.S. and many foreign jurisdictions are typically not published until eighteen months after filing, and publications +in the scientific literature often lag behind actual discoveries. Our competitors may have filed, and may in the future file, patent +applications covering our clinical assets or technology similar to ours. Any such patent application may have priority over our own and +in-licensed patent applications or patents, which could further require us to obtain rights to issued patents covering such technologies. +If another party has filed a U.S. patent application on inventions similar to those owned or in-licensed to us, we or, in the case of +in-licensed technology, the licensor may have to participate, in the U.S., in an interference proceeding to determine priority of invention. +We +may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights alleging +that our clinical assets or proprietary technologies infringe such third parties’ intellectual property rights, including litigation. +These lawsuits could claim that there are existing patent rights for such drug and this type of litigation can be costly and could adversely +affect our operating results and divert the attention of managerial and technical personnel, even if we do not infringe such patents +or the patents asserted against us are ultimately established as invalid. There is a risk that a court would decide that we are infringing +the third party’s patents and would order us to stop the activities covered by the patents. In addition, there is a risk that a +court will order us to pay the other party damages for having violated the other party’s patents. +As +a result of patent infringement claims, or to avoid potential claims, we may choose or be required to seek licenses from third parties. +These licenses may not be available on commercially acceptable terms, or at all. Even if we are able to obtain a license, the license +would likely obligate us to pay license fees or royalties or both, and the rights granted to us might be nonexclusive, which could result +in our competitors gaining access to the same intellectual property, or such rights might be restrictive and limit our present and future +activities. Ultimately, we or a licensee could be prevented from commercializing a product or be forced to cease some aspect of our business +operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms. +In +addition to possible infringement claims against us, we may become a party to other patent litigation and other proceedings, including +interference, derivation, re-examination, or other post-grant proceedings declared or granted by the USPTO, and similar proceedings in +foreign countries, regarding intellectual property rights with respect to our current or future products. +There +is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical +industries generally. To date, no litigation asserting infringement claims has ever been brought against us. If a third-party claims +that we infringe its intellectual property rights, we may face a number of issues, including: +● +infringement +and other intellectual property claims which, regardless of merit, may be expensive and time-consuming to litigate and may divert +our management’s attention from our core business; +● +substantial +damages for infringement, which we may have to pay if a court decides that the product or technology at issue infringes or violates +the third party’s rights, and if the court finds that the infringement was willful, we could be ordered to pay treble damages +and the patent owner’s attorneys’ fees; +● +a +court prohibiting us from selling or licensing the product or using the technology unless the third party licenses its intellectual +property rights to us, which it is not required to do; +49 +● +if +a license is available from a third party, we may have to pay substantial royalties or upfront fees or grant cross-licenses to intellectual +property rights for our products or technologies; and +● +redesigning +our products or processes so they do not infringe, which may not be possible or may require substantial monetary expenditures and +time. +Some +of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially +greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could harm our ability +to raise additional funds or otherwise adversely affect our business, financial condition, operating results, and prospects. +Because +we rely on certain third-party licensors and partners, and will continue to do so in the future, if one of our licensors or partners +is sued for infringing a third party’s intellectual property rights, our business, financial condition, operating results, and +prospects could suffer in the same manner as if we were sued directly. In addition to facing litigation risks, we have agreed to indemnify +certain third-party licensors and partners against claims of infringement caused by our proprietary technologies, and we have entered +or may enter into cost-sharing agreements with some our licensors and partners that could require us to pay some of the costs of patent +litigation brought against those third parties whether or not the alleged infringement is caused by our proprietary technologies. In +certain instances, these cost-sharing agreements could also require us to assume greater responsibility for infringement damages than +would be assumed just on the basis of our technology. +The +occurrence of any of the foregoing could adversely affect our business, financial condition, or operating results. +We +may become involved in lawsuits to protect or enforce our patents or other intellectual property or the patents of our licensors, or +other claims may be made against us, which could be expensive and time-consuming. +Competitors +may infringe our intellectual property, including our patents or the patents of our licensors. As a result, we may be required to file +infringement claims to stop third-party infringement or unauthorized use. This can be expensive and time-consuming, particularly for +a company of our size. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable +or may refuse to stop the other party from using the technology at issue on the grounds that our patent claims do not cover its technology +or that the factors necessary to grant an injunction against an infringer are not satisfied. An adverse determination of any litigation +or other proceedings could put one or more of our patents at risk of being invalidated, interpreted narrowly, or amended such that they +do not cover our clinical assets. Moreover, such adverse determinations could put our patent applications at risk of not issuing or issuing +with limited and potentially inadequate scope to cover our clinical assets or to prevent others from marketing similar products. +Interference, +derivation, or other proceedings brought at the USPTO may be necessary to determine the priority or patentability of inventions with +respect to our patent applications or those of our licensors or potential partners. Litigation or USPTO proceedings brought by us may +fail or may be invoked against us by third parties. Even if we are successful, domestic or foreign litigation or USPTO or foreign patent +office proceedings may result in substantial costs and distraction to our management. We may not be able, alone or with our licensors +or potential partners, to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect +such rights as fully as in the U.S. +Furthermore, +because of the substantial amount of discovery required in connection with intellectual property litigation or other proceedings, there +is a risk that some of our confidential information could be compromised by disclosure during this type of litigation or other proceedings. +In addition, during the course of this kind of litigation or proceedings, there could be public announcements of the results of hearings, +motions, or other interim proceedings or developments or public access to related documents. +In +addition, in August 2023, prior to the Business Combination, our now wholly-owned subsidiary, Conduit Pharmaceuticals Limited, received +a letter from Strand Hanson Limited (“Strand”) claiming it was owed advisory fees pursuant to a previously executed letter. +Conduit rejected and disputed the substance of the letter in full. Following such rejection, on September 7, 2023, Strand filed a claim +in the Business and Property Courts of England and Wales claiming it is entitled to be paid the sum of $2 million and, as a result of +the event the Business Combination is completed, to be issued 65 thousand shares of common stock. We intend to vigorously defend against +these claims. Regardless of its outcome, the litigation may impact our business due to, among other things, defense legal cost and the +diversion of the attention of our management. +50 +Our +reliance on third parties requires us to share our trade secrets, which increases the possibility that our trade secrets will be misappropriated +or disclosed, and confidentiality agreements with employees and third parties may not adequately prevent disclosure of trade secrets +and protect other proprietary information. +We +consider proprietary trade secrets or confidential know-how and unpatented know-how to be important to our business. We may rely on trade +secrets or confidential know-how to protect our technology, especially where we believe that patent protection is of limited value. +To +protect this type of information against disclosure or appropriation by competitors, our policy is to require our employees, consultants, +collaborators, contractors, and advisors to enter into confidentiality agreements and, if applicable, material transfer agreements, consulting +agreements, or other similar agreements with us prior to beginning research or disclosing proprietary information. These agreements typically +limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. However, current +or former employees, consultants, collaborators, contractors, and advisors may unintentionally or willfully disclose our confidential +information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosure +of confidential information. The need to share trade secrets and other confidential information increases the risk that such trade secrets +become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation +of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery +of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have an adverse effect on +our business and results of operations. Enforcing a claim that a third party obtained illegally and is using trade secrets or confidential +know-how is expensive, time consuming, and unpredictable. The enforceability of confidentiality agreements may vary from jurisdiction +to jurisdiction. +In +addition, these agreements typically restrict the ability of our employees, consultants, collaborators, contractors, and advisors to +publish data potentially relating to our trade secrets, although our agreements may contain certain limited publication rights. Despite +our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of our agreements with +third parties, independent development, or publication of information by any of our third-party collaborators. A competitor’s discovery +of our trade secrets would impair our competitive position and have an adverse impact on our business. +We +may be subject to claims that our employees, consultants, or independent contractors have wrongfully used or disclosed to us alleged +trade secrets of their former employers or their former or current customers. +As +is common in the biotechnology and pharmaceutical industries, certain of our employees were formerly employed by other biotechnology +or pharmaceutical companies, including our competitors or potential competitors. Moreover, we engage the services of consultants to assist +it in the development of our products and clinical assets, many of whom were previously employed at or may have previously been or are +currently providing consulting services to, other biotechnology or pharmaceutical companies, including our competitors or potential competitors. +We may be subject to claims that these employees and consultants or we have inadvertently or otherwise used or disclosed trade secrets +or other proprietary information of their former employers or their former or current customers. Although we have no knowledge of any +such claims being alleged to date, if such claims were to arise, litigation may be necessary to defend against any such claims. Even +if we are successful in defending against any such claims, any such litigation could be protracted, expensive, a distraction to our management +team, not viewed favorably by investors and other third parties, and may potentially result in an unfavorable outcome. +51 +If +our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest +and our business may be adversely affected. +Our +unregistered trademarks or trade names may be challenged, infringed, circumvented, or declared generic or determined to be infringing +on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition +among potential collaborators or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar +to those of ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could +be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate +variations of our unregistered trademarks or trade names. Over the long term, if we are unable to successfully register its trademarks +and trade names and establish name recognition based on its trademarks and trade names, then we may not be able to compete effectively, +and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, +domain names, copyrights, or other intellectual property may be ineffective and could result in substantial costs and diversion of resources +and could adversely impact our financial condition or results of operations. +Our +proprietary information may be lost, or we may suffer security breaches. +In +the ordinary course of our business, we collect and store sensitive data, including intellectual property, clinical trial data, proprietary +business information, personal data, and personally identifiable information of our clinical trial subjects and employees, in our data +centers and on our networks. The secure processing, maintenance, and transmission of this information is critical to our operations. +Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due +to employee error, malfeasance, or other disruptions. Although, to our knowledge, we have not experienced any such material security +breach to date, any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, +lost, or stolen. Any such access, disclosure, or other loss of information could result in legal claims or proceedings, liability under +laws that protect the privacy of personal information, significant regulatory penalties, disrupt our operations, damage our reputation, +and cause a loss of confidence in us and our ability to conduct clinical trials, which could adversely affect our reputation and delay +our clinical development of our clinical assets. +We +use artificial intelligence technology in our business, specifically, in relation to our service agreement with Sarborg and +challenges with properly managing such technology could result in reputational harm, competitive harm and legal liability, and +adversely affect our business, financial condition and results of operations. +On +December 12, 2024, we entered into the Sarborg Agreement with Sarborg. Under the terms of the Sarborg Agreement, Sarborg will provide +algorithmic and cybernetic technology services to Conduit, including the development of decision-support tools and advanced cybernetic +systems tailored to enhance Conduit’s decision-making processes and maximize the value of its pharmaceutical asset portfolio. +Sarborg +will perform the services to Conduit comprised of three phases: the Initial Phase (0-24 weeks) focuses on establishing a foundation for +collaboration and aligning Sarborg’s services with Conduit’s strategic goals; the Development Phase (24-36 weeks) involves +building technological infrastructure, including dashboards and predictive models; and the Ongoing Services Phase (36-52 weeks) ensures +the sustained functionality and relevance of Sarborg’s deliverables while supporting Conduit’s growth through iterative improvements +and updates. Sarborg will create specific deliverables, including reports, computer programs, software applications, APIs, mobile applications, +source code, written technical specifications and designs, operating and maintenance manuals, and other recorded data and information +arising from or relating to the services. Sarborg will provide all necessary resources to perform the services and deliver the deliverables +in accordance with the Sarborg Agreement. +To +date, Conduit has successfully completed the Initial Phase of its collaboration with Sarborg, establishing a strong foundation for +integrating AI-driven solutions into our operations. This phase focused on identifying key inputs for the algorithmic approach and +ensuring alignment between Sarborg’s services and Conduit’s strategic goals. As part of this effort, Sarborg has +successfully delivered three key milestones. First, they conducted detailed teach-in sessions with Conduit’s management team +to gain a deeper understanding of our objectives, challenges, and operational workflows, resulting in documented meeting agendas, +minutes, and action plans. Second, they finalized and validated a set of proprietary inputs essential for their cybernetic models, +tailored specifically to Conduit’s portfolio and R&D pipeline. Finally, they completed an in-depth market analysis of +potential cocrystal candidates, assessing the patent landscape, competitive positioning, and market size. The insights from this +market analysis are now informing Conduit’s ongoing strategic decision-making. With these key milestones delivered, we are now +progressing to the next phase of development. +Sarborg +has now commenced Phase II: The Development Phase, which focuses on building the technological infrastructure necessary to integrate +AI into Conduit’s operations. As part of this, Sarborg has successfully completed the first milestone, Dashboard Creation and Refinement, +delivering personalized dashboards that provide Conduit’s key personnel with real-time access to critical data related to deliverables, +clinical trials, and drug discovery. These initial dashboards, along with user interface mock-ups and a dashboard user guide, will serve +as the foundation for further refinements. Moving forward, the platform will continue to be optimized to maximize efficiency and ensure +seamless integration into Conduit’s workflows. +As +with many developing technologies, AI presents risks and challenges that could affect its further development, adoption, and use, and +therefore our business. AI algorithms may be flawed or biased. Datasets used to train or develop AI systems may be insufficient, of inferior +quality, or contain biased information. Additionally, the laws and regulations concerning the use of AI continue to evolve. If the use +or integration of AI systems, or the outputs generated by such systems, were determined to be non-compliant (e.g., in relation to intellectual +property or data privacy rights), this may result in liability, including legal liability, or adversely affect our business, reputation, +brand, financial condition and results of operations. It is possible that emerging regulations may limit or block the use of AI in our +business and solutions or otherwise impose other restrictions that may affect or impair the usability or efficiency of our business or +services for an extended period of time or indefinitely. Our competitors or other third parties may incorporate AI into their product +development, technology and infrastructure more quickly or more successfully than us, which could impair our ability to compete effectively +and adversely affect our business, financial condition and results of operations. +Risks +Related to Securities Markets and Investment in Our Stock +If we do not maintain +our trading market’s listing requirements, Nasdaq may delist our securities from trading on its exchange. +In August 2024, the Company +received deficiency letters from Nasdaq notifying the Company that it was not in compliance with Listing Rule 5450(a)(1) (the “Bid +Price Rule”), Listing Rule 5450(b)(2)(C) (the “MVPHS Rule”) and Listing Rule 5450(b)(2)(A) (the “MVLS Rule”, +together with the Bid Price Rule and the MVPHS Rule, the “Rules”). The Company had until February 10, 2025, and February +11, 2025, to regain compliance with the Rules. On December 17, 2024, Nasdaq issued a letter to the Company that as of December 17, 2024, +it determined that the Company’s securities had a closing bid price of $0.10 or less for ten consecutive trading days. As a result, +Nasdaq had determined to delist the Company’s common stock and redeemable warrants from The Nasdaq Global Market, on December 27, +2024. The Company subsequently requested and received a hearing (the “Nasdaq Hearing”) from the Nasdaq Hearings Panel (the +“Panel”). The Company submitted a written plan of compliance to cure its Rule deficiencies to Nasdaq on January 22, 2025, +and attended the Nasdaq Hearing for the Company on February 11, 2025. On March 5, 2025, the Company received a written notification (the +“Notice”) from the Panel confirming it has granted the Company such an extension for the Company to regain compliance with +the MVPHS and MVLS rules, provided that the Company, (i) on or before March 12, 2025, files an application to transfer to the Nasdaq +Capital Market, which application was submitted on March 7, 2025, and (ii) on or before March 31, 2025, demonstrates compliance with all Nasdaq listing rules, +which it intends to do, and believes it will satisfy. Additionally, the Company was also notified in the Notice that as of February +26, 2025, it had regained compliance with the Bid Price Rule. +Following +the transfer to the Nasdaq Capital Market, the Company’s current MVPHS will be compliant with the MVPHS continued listing +standard of greater than $1.0 million and the Company believes it will be able to demonstrate its compliance with the Equity +Standard of Stockholder’s Equity greater than $2.5 million prior to the March 31, 2025, deadline to the satisfaction of +Nasdaq, although no such assurance can be given. The inability to comply with Nasdaq’s continued requirements or standards +could result in the delisting of our common stock, which could have a material adverse effect on our financial condition and could +cause the value of the common stock to decline. +If +our common stock were to be delisted from trading on The Nasdaq Global Market and the trading price of our common stock were below $5.00 +per share on the date the common stock is delisted, trading in our common stock would also be subject to the requirements of certain +rules promulgated under the Exchange Act. These rules require additional disclosure by broker-dealers in connection with any trades involving +a stock defined as a “penny stock” and impose various sales practice requirements on broker-dealers who sell penny stocks +to persons other than established customers and accredited investors, generally institutions. These additional requirements may discourage +broker-dealers from effecting transactions in securities that are classified as penny stocks, which could severely limit the market price +and liquidity of such securities and the ability of purchasers to sell such securities in the secondary market. A penny stock is defined +generally as any non-exchange listed equity security that has a market price of less than $5.00 per share, subject to certain exceptions. +We +do not anticipate paying any dividends in the foreseeable future. +The +current expectation is that we will retain our future earnings to fund the development and growth of our business. As a result, capital +appreciation, if any, of the shares of our common stock will stockholders’ sole source of gain, if any, for the foreseeable future. +52 +Our +Second Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) provides, subject to limited +exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation +matters, which could limit our stockholders’ ability to obtain a chosen judicial forum for disputes with us or our directors, officers, +employees, or stockholders. +Our +Certificate of Incorporation requires to the fullest extent permitted by law, that derivative actions brought in our name, actions against +directors, officers and employees for breach of fiduciary duty and other similar actions may be brought in the Court of Chancery in the +State of Delaware or, if that court lacks subject matter jurisdiction, another federal or state court situated in the State of Delaware. +Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of +and consented to the forum provisions in our Certificate of Incorporation. In addition, our Certificate of Incorporation and Bylaws provide +that the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause +of action under the Securities Act and the Exchange Act. Neither the exclusive forum provisions nor the federal securities laws (and +the rules and regulations thereunder) may be waived by a stockholder. +In +March 2020, the Delaware Supreme Court issued a decision in Salzburg et al. v. Sciabacucchi , which found that an exclusive forum +provision providing for claims under the Securities Act to be brought in federal court is facially valid under Delaware law. We intend +to enforce this provision, but we do not know whether courts in other jurisdictions will agree with this decision or enforce it. +This +choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with +us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims and, +if a stockholder were to bring such a claim, the choice of forum provision may result in the stockholder incurring increased costs in +connection with bring such a claim as such stockholder will be required to bring the claim in the state or federal courts located in +the State of Delaware. Alternatively, if a court were to find the choice of forum provision contained in our Certificate of Incorporation +to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, +which could harm its business, operating results, and financial condition. +Our +charter documents and Delaware law could prevent a takeover that stockholders consider favorable and could also reduce the market price +of our common stock. +Our +Certificate of Incorporation and Bylaws contain provisions that could delay or prevent a change in control of the Company. These provisions +could also make it more difficult for stockholders to elect directors and take other corporate actions. These provisions include: +● +authorizing +our board of directors to issue preferred stock with voting or other rights or preferences that could discourage a takeover attempt +or delay changes in control; +● +prohibiting +cumulative voting in the election of directors; +● +providing +that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum; +● +prohibiting +stockholder action by written consent; +● +limiting +the persons who may call special meetings of stockholders; and +● +requiring +advance notification of stockholder nominations and proposals. +These +provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult +for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. These +and other provisions in our Certificate of Incorporation and Bylaws and under Delaware law could discourage potential takeover attempts, +reduce the price investors might be willing to pay in the future for shares of common stock and result in the market price of common +stock being lower than it would be without these provisions. +53 +If +securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our market, or if they +adversely change their recommendations or publish negative reports regarding our business or our common stock, our share price and trading +volume could decline. +The +trading market for our common stock will depend on the research and reports that securities or industry analysts publish about us, our +business, or our market. Currently, we do not have any analyst coverage and may not obtain analyst coverage in the future. In the event +we obtain analyst coverage, we will not have any control over such analysts. If one or more of the analysts who cover us downgrade the +common stock or change their opinion of such shares, the share price of the common stock would likely decline. If one or more of these +analysts cease coverage of the Company or fail to regularly publish reports on the Company, we could lose visibility in the financial +markets, which could cause the share price or trading volume of the common stock to decline. +We +are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth +companies will make our securities less attractive to investors. +We +are an “emerging growth company,” as defined in the JOBS Act. Emerging growth companies can delay adopting new or revised +accounting standards until such time as those standards apply to private companies. As an emerging growth company, we are not required +to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, we have reduced disclosure obligations +regarding executive compensation in our periodic reports and proxy statements, and we are exempt from the requirements of holding a nonbinding +advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot +predict if investors will find our stock less attractive because we may rely on these provisions. If some investors find our stock less +attractive as a result, there may be a less active trading market for our shares and our stock price may be more volatile. +We +will remain an emerging growth company until the earliest of (i) the end of the fiscal year in which the market value of our common stock +that is held by non-affiliates exceeds $700 million as of the end of the second fiscal quarter, (ii) the end of the fiscal year in which +we have total annual gross revenues of $1.235 billion or more during such fiscal year, (iii) the date on which we issue more than $1 +billion in non-convertible debt in a three-year period, or (iv) the end of the fiscal year following the fifth anniversary of the date +of the first sale of our common stock pursuant to an effective registration statement filed under the Securities Act. +Claims +for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us +and may reduce the amount of money available to us. +Our +Certificate of Incorporation and Bylaws provides that we will indemnify our directors and officers, in each case to the fullest extent +permitted by Delaware law. +In +addition, as permitted by Section 145 of the DGCL, our Bylaws and our indemnity agreements that we entered into with our directors and +officers provide that: +● +We +will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, +to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person +acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant +and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful; +● +We +may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law; +● +We +will be required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except +that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled +to indemnification; +54 +● +We +will not be obligated pursuant to our Bylaws to indemnify a person with respect to proceedings initiated by that person against us +or our other indemnitees, except with respect to proceedings authorized by our board of directors; +● +the +rights conferred in our Bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, +officers, employees and agents and to obtain insurance to indemnify such persons; and +● +we +may not retroactively amend our Bylaw provisions to reduce our indemnification obligations to directors, officers, employees and +agents. +Risks +Related to Finances and Capital Requirements +We +will require substantial additional funding in the future, which may not be available to us on acceptable terms, or at all, and, if not +so available, may require us to delay, limit, reduce, or cease our operations. +Our +operations have consumed substantial amounts of cash since our inception. As of December 31, 2024, we had an accumulated deficit of $29.1 +million and our net loss was $17.8 million for the fiscal year ended December 31, 2024. We expect to continue to incur significant expenses +and increasing operating losses for the foreseeable future. Our business will require substantial additional capital for implementation +of our long-term business plan and development of clinical assets. Our ability to raise additional funds may be adversely impacted by +potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in +the U.S. As we require additional funds, we may seek to fund our operations through the sale of additional equity securities, debt financing, +and/or strategic collaboration agreements. We cannot be sure that additional financing from any of these sources will be available when +needed or that, if available, the additional financing will be obtained on favorable terms. +Our +future funding requirements will depend on many factors, including, but not limited to: +● +the +progress, timing, scope, and costs of our clinical trials, including the ability to timely enroll patients in our potential future +clinical trials; +● +the +outcome, timing, and cost of regulatory approvals by the FDA and comparable regulatory authorities, including the potential that +the FDA or comparable regulatory authorities may require that we perform more studies than those that we currently expect; +● +the +amount of revenues, if any, from our current clinical assets or any future clinical assets; +● +the +terms and timing of any potential future collaborations, licensing, or other arrangements that we may establish; +● +cash +requirements of any future acquisitions and/or the development of other clinical assets; +● +the +costs of operating as a public company; +● +the +time and cost necessary to respond to technological and market developments; +● +any +disputes which may occur between us, employees, collaborators, or other prospective business partners; and +● +the +costs of filing, prosecuting, defending, and enforcing any patent claims and other intellectual property rights +If +we raise additional funds by selling shares of our common stock or other equity-linked securities, the ownership interest of our current +stockholders will be diluted. We may seek to access the public or private capital markets whenever conditions are favorable, even if +we do not have an immediate need for additional capital at that time. If we raise additional funds through collaborations, strategic +alliances or marketing, distribution, or licensing arrangements with third parties, we may have to relinquish valuable rights to our +technologies, future revenue streams, or clinical assets or to grant licenses on terms that may not be acceptable to us. If we raise +additional funds through debt financing, we may have to grant a security interest on our assets to the future lenders, our debt service +costs may be substantial, and the lenders may have a preferential position in connection with any future bankruptcy or liquidation involving +the Company. +55 +On +March 27, 2025, the last quoted sale price for our common stock as reported on Nasdaq was $0.77 per share. Currently, the exercise +prices of the Company’s warrants are significantly greater than the current market price of our common stock. Accordingly, +such warrants are unlikely to be exercised and therefore the Company does not expect to receive any proceeds from such exercise of +the warrants in the near term. Whether any holders of Warrants determine to exercise such warrants, which would result in cash +proceeds to the Company, will likely depend upon the market price of our common stock at the time of any such holder’s +determination. +If +we are unable to raise additional capital when needed, we may be required to curtail the development of our technology or materially +curtail or reduce our operations. We could be forced to sell or dispose of our rights or assets. Any inability to raise adequate funds +on commercially reasonable terms could have a material adverse effect on our business, results of operations, and financial condition, +including the possibility that a lack of funds could cause our business to fail and our Company to dissolve and liquidate with little +or no return to investors. +We +will continue to incur significant increased costs as a result of operating as a public company, and our management will be required +to devote substantial time to new compliance initiatives. +As +a publicly traded company, we will incur significant legal, accounting, and other expenses under the Exchange Act, the Sarbanes-Oxley +Act, and other applicable securities rules and regulations. In addition, new and changing laws, regulations, and standards relating to +corporate governance and public disclosure, including the Dodd Frank Wall Street Reform and Consumer Protection Act and the rules and +regulations promulgated and to be promulgated thereunder, as well as under the Sarbanes-Oxley Act, the JOBS Act, and the rules and regulations +of the SEC and national securities exchanges have created uncertainty for public companies and increased the costs and the time that +our board of directors and management must devote to complying with these rules and regulations. We expect these rules and regulations +to increase our legal and financial compliance costs and will divert management time and attention from revenue generating activities. +Furthermore, +the need to establish the corporate infrastructure demanded of a public company may divert management’s attention from implementing +our growth strategy, which could prevent us from improving our business, results of operations, and financial condition. We have made, +and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our +reporting obligations as a publicly traded company. However, the measures we take may not be sufficient to satisfy our obligations as +a publicly traded company. +For +as long as we remain an “emerging growth company” as defined in the JOBS Act, we may take advantage of certain exemptions +from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” +We may remain an “emerging growth company” until the earliest of (i) the last day of our fiscal year following February 7, +2027 (the fifth anniversary of the consummation of the SPAC IPO), (ii) the last day of the fiscal year in which the market value of our +shares of common stock that are held by non-affiliates exceeds $700 million as of June 30 of that fiscal year, (iii) the last day of +the fiscal year in which we have total annual gross revenue of $1.235 billion or more during such fiscal year (as indexed for inflation) +or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt in the prior three-year period. Further, there +is no guarantee that the exemptions available to us under the JOBS Act will result in significant savings. To the extent we choose not +to use exemptions from various reporting requirements under the JOBS Act, we will incur additional compliance costs, which may impact +earnings. +56 +We +may issue additional shares of common stock or preferred stock under an employee incentive plan or under our existing at the market offering program, which would dilute the interest of +our stockholders. +We +may issue a substantial number of additional shares of common or preferred stock under an employee incentive plan or under our ongoing at the market offering program. The issuance of +additional shares of common or preferred stock: +● +may +significantly dilute the equity interest of investors; +● +may +subordinate the rights of holders of common stock if preferred stock is issued with rights senior to those afforded our common stock; +● +could +cause a change of control if a substantial number of shares of our common stock are issued, which may affect, among other things, +our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers +and directors; and +● +may +adversely affect prevailing market prices for the common stock. +Item +1B. Unresolved Staff Comments +None. +Item +1C. Cybersecurity +We +operate in the biotechnology sector, which is subject to various cybersecurity risks that could adversely affect our business, +financial condition, and results of operations, including intellectual property theft; fraud; extortion; harm to employees or +customers; violation of privacy laws and other litigation and legal risk; and reputational risk. We have implemented a risk-based +approach to identify and assess the cybersecurity threats that could affect our business and information systems. We +have implemented a risk-based approach to identify and assess cybersecurity threats that could impact our business and information +systems. As part of this strategy, the Company has engaged a third-party service provider to implement comprehensive IT and +cybersecurity policies, including Guardz, Cyber Essentials, and others. These initiatives are supported by detailed policies, staff +training programs, and the use of advanced tools such as firewalls and VPNs to prevent cybersecurity incidents. Additionally, +consultation with third-party experts has further strengthened the Company’s IT framework and improved overall compliance. We +require third-party service providers with access to personal, confidential or proprietary information to implement and +maintain comprehensive cybersecurity practices consistent with applicable legal standards and industry best practices. +The Company has engaged a third-party service provider +to implement comprehensive IT and cybersecurity policies, including Guardz, Cyber Essentials, and others. These initiatives are supported +by detailed policies and staff training programs, which have strengthened the Company’s IT framework and improved compliance. +In +light of the pervasive and increasing threat from cyberattacks, the Company’s Board +of Directors and the Audit Committee, with input from management, assess the Company’s cybersecurity threats and the +measures implemented by the Company to mitigate and prevent cyberattacks. The Audit +Committee consults with management regarding ongoing cybersecurity initiatives, and requests management to report to the +Audit Committee or the full Board regularly on their assessment of the Company’s cybersecurity program and risks. +As +of the date of this Annual Report, the Company is not aware of any risks from cybersecurity threats that have materially affected or +are reasonably likely to materially affect the Company, including its business strategy, results of operations, or financial condition. +Item +2. Properties +We +currently operate as a virtual company, but also lease property in the United Kingdom. On March 7, 2024, we entered into a lease for +laboratory space at Cambridge Science Park. Rent is £92,925 per annum, the equivalent of approximately $10,000 per month. The lease +runs until January of 2027, and the laboratory space is intended to provide us with the ability to extend or develop proprietary solid-form +intellectual property for existing and future clinical assets. +Item +3. Legal Proceedings +Other +than as set forth below, we are not currently party to or aware of being subject to any material legal proceedings. However, we may from +time to time become a party to various legal proceedings arising in the ordinary course of our business, which could have a material +adverse effect on our business, financial condition, or results of operations. Regardless of outcome, litigation could impact our business +due to defense and settlement costs, diversion of management resources and other factors. +In +August 2023, prior to the Business Combination, our now wholly-owned subsidiary, Conduit Pharmaceuticals Limited, received a letter from +Strand Hanson Limited (“Strand”) claiming it was owed advisory fees pursuant to a previously executed letter. Conduit rejected +and disputes the substance of the letter in full. Following such rejection, on September 7, 2023, Strand filed a claim in the Business +and Property Courts of England and Wales claiming it is entitled to be paid the sum of $2 million and, as a result of the completion +of the Business Combination, to be issued 6.5 million shares of common stock. As of December 31, 2024, the potential contingency is considered +probable and reasonably estimable and as such, the Company accrued an estimated liability of $0.4 million in the accompanying financial +statements. We intend to vigorously defend against these claims. Regardless of its outcome, the litigation may impact our business due +to, among other things, defense legal cost and the diversion of the attention of our management. +On December 18, 2024, Conduit UK Management Limited +(“Conduit”) received a notification from the UK Intellectual Property Office (“UK IPO”) notifying the company +that St George Street Capital had initiated patent entitlement proceedings with respect to patent application PCT/IB2022/00775 (“Patent +Application”). Conduit refutes the claims made by St George Street Capital and filed a counterstatement on February 26, 2025 with +the UK IPO. In addition, each of the three inventors named in the Patent Application filed simultaneous counterstatements fully supporting +Conduit’s position, and assertions that the claims are without merit. Further updates will be made following notification by the +UK IPO. +Item +4. Mine Safety Disclosures +Not +applicable. +57 +PART +II +Item +5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities +(a) +Market Information +Our +common stock and warrants are traded on The Nasdaq Global Market and The Nasdaq Capital Market, respectively, under the symbols “CDT” +and “CDTTW”, respectively. Prior to the completion of the Business Combination, the securities of MURF were listed on The +Nasdaq Global Market under the symbols “MURFU,” “MURF,” and “MURFW”, all of which are no longer listed +on The Nasdaq Global Market. +On +March 27, 2025, the last quoted sale price for our common stock as reported on Nasdaq was $0.77 per share. +(b) +Holders +As +of March 28, 2025, there were approximately 400 holders of record of our common stock. Such numbers do not include beneficial owners +holding our securities through nominee names. +(c) +Dividends +We +have never declared or paid any cash dividends on our capital stock, and we do not currently intend to pay any cash dividends for the +foreseeable future. We expect to retain future earnings, if any, to fund the development and growth of our business. Any future determination +to pay dividends on our common stock will be at the discretion of our board of directors and will depend upon, among other factors, our +financial condition, operating results, current and anticipated cash needs, plans for expansion, and other factors that our board of +directors may deem relevant. +(d) +Securities Authorized for Issuance Under Equity Compensation Plans +Reference +is made to the information contained in the Equity Compensation Plan table contained in Item 11 of this Annual Report. +(e) +Recent Sales of Unregistered Securities +There were no unregistered sales of equity securities which have not been +previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K since January 1, 2024. +(f) +Use of Proceeds from Registered Offerings +None. +(g) +Purchases of Equity Securities by the Issuer and Affiliated Purchasers +None. +Item +6. [Reserved]. +Item +7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +The +following discussion and analysis of our financial condition and results of operations should be read together with the other sections +of this Annual Report on Form 10-K, including our audited financial statements for the year ended December 31, 2024, together with related +notes thereto, included elsewhere in this Annual Report. The following discussion contains forward-looking statements based upon current +expectations that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these +forward-looking statements as a result of various factors, including those set forth under the section titled “Risk Factors” +or in other parts of this Annual Report and our other filings with the SEC. Our historical results are not necessarily indicative of +the results that may be expected for any period in the future. Conduit Pharmaceuticals Limited entered into an Agreement and Plan of +Merger (the “Merger Agreement”) with Murphy Canyon Acquisition Corp. (“MURF”) on November 8, 2022. The transaction +contemplated by the terms of the Merger Agreement was completed on September 22, 2023, in conjunction with which MURF changed its name +to Conduit Pharmaceuticals Inc. (hereafter referred to, collectively with is subsidiaries as “Conduit”, the “Company”, +“we”, “us” or “our”, unless the context otherwise requires. All dollar amounts are expressed in thousands +of United States dollars (“$”), unless otherwise indicated. +Overview +On +September 22, 2023, a merger transaction (the “Business Combination”) between Conduit Pharmaceuticals Limited (“Old +Conduit”), Murphy Canyon Acquisition Corp (“MURF”) and Conduit Merger Sub, Inc., a Cayman Islands exempted company +and a wholly owned subsidiary of MURF (“Merger Sub”), was completed pursuant to the Agreement and Plan of Merger, dated November +8, 2022, as amended, (the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, at the closing, (i) Merger +Sub merged with and into Old Conduit, with Old Conduit surviving the Business Combination as a wholly-owned subsidiary of MURF, and (ii) +MURF changed its name from Murphy Canyon Acquisition Corp. to Conduit Pharmaceuticals Inc. +Conduit +has developed a unique business model that allows it to act as a conduit to bring clinical assets from pharmaceutical companies and develop +new treatments for patients. Our novel approach addresses unmet medical needs and lengthens the intellectual property for our existing +assets through cutting-edge solid-form technology and then commercializing these products with life science companies. We continue to +evaluate novel artificial intelligence and cybernetics approaches to drug re-purposing, intellectual property and asset selection to +give Conduit a competitive advantage. +58 +We +are led by highly experienced pharmaceutical executives: Dr. Freda Lewis-Hall, former Chief Medical Officer of Pfizer Inc., the Chair +of our Board of Directors, and Dr. David Tapolczay, former Chief Executive Officer of the United Kingdom-based medical research charity +LifeArc, our Chief Executive Officer. Our management team includes active senior scientists who have an extensive understanding of the +pharmaceuticals market, which supports our strategy of developing clinical assets in a cost-efficient manner while focusing on therapeutic +efficacy and patient safety. +Simultaneously, +Conduit leverages the capabilities of our Cambridge laboratory facility and highly experienced team of solid-form experts to extend or +develop proprietary solid-form intellectual property for our existing and future clinical assets. Our own intellectual property portfolio +comprises pending patent applications in several international jurisdictions describing a solid-form compound, including the AZD1656 +Cocrystal (a HK-4 Glucokinase Activator), targeting a wide range of autoimmune disorders. Our pipeline research includes a number of +compounds that serve as promising alternatives to existing clinical assets currently marketed and sold by large pharmaceutical companies, +which we have identified as having an opportunity to develop further intellectual property positions through solid-form technology. +In +connection with the funding and development of clinical assets, we expect to evaluate and select the specific molecules to be +developed and collaborate with external CROs and Key Opinion Leaders +(“KOLs”) to run clinical trials that are managed, funded, and overseen by us. We intend to leverage our comprehensive +clinical and scientific expertise in order to facilitate development of clinical assets through Phase II trials in an efficient +manner by using CROs and third-party service providers. We will also collaborate closely with disease specific KOLs to collectively +assess and determine the most appropriate indications for all our current and forthcoming assets. +We +believe that successful Phase II trials of the clinical assets in our pipeline will increase the value of our assets. There is no assurance +that any clinical trials on the assets owned or licensed by us will be successful, however, following a successful Phase II clinical +trial, we would look to licensing opportunities with large biotech or pharmaceutical companies, typically for up-front milestone payments +and royalty income streams for the life of the asset patent. We anticipate using any future royalty income stream to develop our asset +portfolio in combination with other potential sources of financing, including debt or equity financing. +Outside +of our proprietary owned patented clinical assets, AstraZeneca agreed to grant a license to the Company under certain intellectual property +rights controlled by AstraZeneca related to HK-4 Glucokinase activators AZD1656 and AZD5658 in all indications and myeloperoxidase inhibitor +AZD5904 for the treatment, prevention, and prophylaxis of idiopathic male infertility. The Company will be responsible for the development +and commercialization of the Licensed Products under the related License Agreement. The +Company is required to use commercially reasonable efforts to develop and commercialize the Licensed Products. +AstraZeneca +has conducted initial pre-clinical and, in some instances, clinical trials on these assets, but has decided to license them for further +development. As the clinical assets have undergone initial pre-clinical and clinical testing conducted by AstraZeneca, we are able to +use the safety data generated in these clinical trials to assess which clinical assets to further develop and for which indications. +Through +this relationship, there are considerable APIs that were manufactured by AstraZeneca +(prior to conducting its clinical trials) available to Conduit. As a result, Conduit may not have to develop the APIs, which is often +a time consuming and expensive process, and the APIs already produced were subject to rigorous quality control measures. +In +collaboration with SARBORG Limited (“Sarborg”), a related party, Conduit intends to leverage an advanced AI and cybernetics platform to evaluate key deliverables across multiple areas of the Company’s operations, +including drug repurposing, drug discovery, solid-form identification, and clinical trial monitoring. +The +Sarborg Agreement is designed to address longstanding challenges in the pharmaceutical sector, in particular by reducing human error +in critical decision-making processes in both clinical development and asset identification. By integrating Sarborg’s +algorithmic AI/cybernetics technology, Conduit aims to enhance efficiency, lower costs, and accelerate timelines by minimizing human +intervention, ultimately optimizing the drug development cycle and giving Conduit a competitive advantage in the sector. +Through +this relationship, Conduit will gain access to cutting-edge predictive models and dashboards, enabling the Company to evaluate drug candidates, +streamline clinical trials, and optimize asset management with real-time data. These tools will drive faster, more accurate decisions, +improving efficiency and reducing costs. By leveraging these insights, Conduit can differentiate itself in a competitive sector and gain +unique data-driven insights that position the Company for success across both its current and future asset portfolio. +In +addition, Conduit will retain a perpetual, non-exclusive, royalty-free, and assignable right to use any platform or technology developed +by Sarborg in association with the deliverables. Ongoing support from Sarborg will ensure these systems evolve with Conduit’s needs, +driving long-term innovation in areas like IP creation, regulatory strategy, and clinical trial monitoring. This partnership reinforces +Conduit’s commitment to leveraging AI-driven solutions to accelerate growth, deliver value to shareholders, and maintain a competitive +edge in the pharmaceutical sector. +This +strategic move reaffirms Conduit’s commitment to adopting forward-thinking solutions to stay at the forefront of innovation in +the pharmaceutical industry. By reducing reliance on traditional, labor-intensive methods and harnessing the power of AI-driven technology, +Conduit is well-positioned to lead in areas such as drug repurposing, clinical trial monitoring, and IP creation, ensuring the Company’s +long-term growth and market leadership. +Furthermore, +Conduit is well positioned to pursue, and intends to pursue, additional relationships and/or partnerships with third parties for the +licensing of further assets which are currently deprioritized. We plan to focus our efforts on developing clinical assets to address +disorders that impact a large population where there is no present treatment or the present treatment, carries significant unwanted side +effects. +59 +Reverse +Stock Split +On +January 22, 2025, we filed a certificate of amendment to the Company’s Second Amended and Restated Certificate of Incorporation +(the “Amendment”) with the Secretary of State of the State of Delaware to effectuate a 1-for-100 reverse stock split (the +“Reverse Stock Split”) of the outstanding shares of our common stock. Our stockholders previously approved the Reverse Stock +Split and granted the board of directors the authority to determine the exact split ratio and when to proceed with the Reverse Stock +Split at our annual meeting of stockholders held on December 18, 2024. The Reverse Stock Split became effective on January 24, 2025, +and the common stock begin trading on The Nasdaq Global Market on a Reverse Stock Split-adjusted basis on January 27, 2025. The par value +and other terms of the common stock were not affected by the Reverse Stock Split. +As +a result of the reverse stock split, every 100 shares of our common stock issued or outstanding were automatically reclassified into +and became one new share of common stock, and the number of our issued and outstanding shares of common stock was reduced to 1,384,801 +and 738,295 as of December 31, 2024 and December 31, 2023, respectively. All references to numbers of shares of common stock and per-share +information in this Annual Report on Form 10-K have been adjusted retroactively, as appropriate, to reflect the reverse stock split. +Nasdaq Stock Market Correspondence and Subsequent +Nasdaq Capital Market Listing +We are compliant with the MVPHS +continued listing standard of Nasdaq Capital Market being greater than $1.0 million. The current MVPHS is $5,166,785 based on +the closing price of the common stock on March 27, 2025. +On a pro-forma basis at March 31, 2025, we expect to satisfy compliance +with the Nasdaq Capital Market Equity Standard of Stockholder’s Equity greater than $2.5 million, after anticipating all Q1 +2025 expected losses. Through the date of the consolidated financial statements, Stockholder’s Equity has increased significantly, +through (i) fundraising of an additional $8.332 million from the Sales Agreement with AGP, (ii) conversion of $1.785 million from the +Nirland Notes into 924,200 shares of common stock, and (iii) capitalization of certain invoices and fees. We expect to maintain +continued compliance with the Equity Standard through additional issuance under its Sales Agreement, additional conversions of outstanding +debt and capitalization of fees and a tight control of expenditure, although no such assurance can be given. +Key +Component of Result of Operations +Operating +Expenses +Research +and Development Expenses +Research +and development expenses consist primarily of costs incurred in connection with the research and development of our candidates and programs. +We expense research and development costs and intangible assets acquired that have no alternative future use as incurred. These expenses +include: +● +personnel-related +expenses, including salaries, bonuses, benefits and stock-based compensation for employees engaged in research and development functions; +● +expenses +incurred in connection with the clinical development and regulatory approval of our clinical assets, including under agreements with +third parties, such as consultants, contractors and CROs; +● +license +fees with no alternative use; and +● +other +expenses related to research and development. +We +expense research and development costs as incurred. Advance payments that we make for goods or services to be received in the future +for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the benefits are +consumed. +Our research and development +activities have been wholly focused on developing co-crystals of AZD1656 to increase patent life. Some of this work was completed by +third-party CROs but all intellectual property is retained by us. We currently have one pending international patent application and +two pending national patent applications. The successful completion of clinical trials increases the value of clinical assets and may +lead to the commercialization and/or licensing of such assets to other pharmaceutical companies. There is no assurance that any clinical +trials on the assets owned or licensed by us will be successful. +60 +General +and Administrative Expenses +General +and administrative expenses consist of salaries and other related costs, legal fees relating to intellectual property and corporate matters, +professional fees for accounting, auditing, tax and consulting services, insurance costs, travel, and other operating costs. +We +anticipate that our general and administrative expenses will increase substantially for the foreseeable future as we increase our administrative +headcount to operate as a public company and as we advance clinical assets through clinical development. We also will incur additional +expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the +SEC and the Nasdaq listing rules, additional insurance expenses, investor relations activities and other administrative and professional +services. In addition, if regulatory approval is obtained for clinical assets, we expect to incur expenses associated with building a +sales and marketing team. +Other +Income (Expenses) +Other +income (expenses), net +Other +income (expense), net consists of change in the fair value of options, change in fair value of convertible notes, and expense incurred +upon the issuance of warrants during the year. +Interest +expense, net +Interest +expense, net consists primarily of interest expense on convertible loan notes and promissory notes and interest expense on deferred commissions +payable to an advisor for fees related to the merger, as well as a small amount of interest income on cash and cash equivalents held +by the Company. +Results +of Operations +The +following table set forth our results of operations for the periods indicated: +Years ended +December 31, +Change +(Dollar amounts in thousands) +2024 +2023 +Amount +% +Research and development expenses +$ 3,378 +$ 90 +$ 3,288 +3,653 % +61 +Research +and development expenses increased by approximately $3.3 million, or 3,653%, to approximately $3.4 million for the year ended December +31, 2024, as compared to approximately $90 thousand for the year ended December 31, 2023. The increase was primarily driven by a $3.1 +million upfront payment to AstraZeneca in connection with the license agreement, comprised of $1.5 million cash and $1.6 million of our +common shares issued to AstraZeneca with no comparable activity in 2023. +General +and administrative expenses +Years ended +December 31, +Change +(Dollar amounts in thousands) +2024 +2023 +Amount +% +General and administrative expenses +$ 12,041 +$ 5,173 +$ 6,868 +133 % +General +and administrative expenses increased by $6.9 million, or 133%, to approximately $12.0 million for the year ended December 31, 2024, +as compared to approximately $5.2 million for the year ended December 31, 2023. The increase was primarily driven by a $3.4 million increase +in salaries, stock-based compensation and payroll, a $1.3 million increase in other G&A expenses, a $1.1 million increase in D&O +insurance, a $0.5 million increase in professional fees including: legal fees, accounting and tax expense, listing fees and consulting +fees and a $0.5 million increase in travel expenses. +Other +income (expense), net +Years ended +December 31, +Change +(Dollar amounts in thousands) +2024 +2023 +Amount +% +Other income (expense), net +$ (890 ) +$ 4,923 +$ (5,813 ) +(118 )% +Other +income (expense), net changed by $5.8 million, or 118%, to other expense of approximately $0.9 million for the year ended December +31, 2024, as compared to other income of $4.9 million for the year ended December 31, 2023. In 2024, other expense was driven by a +$2.7 million loss on the issuance of warrants, and a $0.7 million expense related to a net loss on extinguishments, offset by a $2.0 +million gain on the change in fair value of convertible notes payable, a $0.3 million increase from an income tax refund and a $0.2 +million increase in the gain on change in fair value of warrants. In 2023, other income was driven by a $1.5 million gain on the +derecognition of the Cizzle option in 2023, a $1.3 million gain on the change in fair value of the Cizzle option, a $2.8 million +gain on the derecognition of the deferred revenue for the Vela option prior to the exercise of the Vela option, and a $1.0 million +gain on the change in fair value of the Vela option. This was offset by a $1.0 million loss on issuance related to the Vela option, +$0.4 million change in the fair value of convertible notes payable and $0.3 million realized foreign currency transaction +loss. +For +further details refer to Note 17 in the consolidated financial statements as of December 31, 2024 and 2023 included elsewhere in this +Annual Report. +62 +Interest +expense, net +Years ended +December 31, +Change +(Dollar amounts in thousands) +2024 +2023 +Amount +% +Interest expense, net +$ (1,506 ) +$ (211 ) +$ (1,295 ) +614 % +Interest +expense, net changed by $1.3 million or 614%, to $1.5 million for the year ended December 31, 2024, from $0.2 million for the year +ended December 31, 2023. The change was driven by a $0.9 million increase in the amortization of debt issuance costs and debt +discounts and a $0.4 million increase in interest expense incurred on interest-bearing convertible promissory notes. +Liquidity +and Capital Resources +Management +assesses liquidity in terms of our ability to generate cash to fund operating, investing and financing activities. Since our inception, +and in line with our growth strategy, we have prepared our financial statements assuming we will continue as a going concern. Since our +inception, we have incurred net losses and experienced negative cash flows from operations. To date, our primary sources of capital have +been through private placements of equity securities and convertible debt and the Sales Agreement with A.G.P. During the years ended December +31, 2024 and 2023, we incurred operating losses of $15.4 million and $5.3 million, respectively. +Our +primary uses of cash are to fund our operations as we continue to grow our business. We will require a significant amount of cash +for expenditures as we invest in ongoing research and development and business operations. Until such time we can generate +significant revenue from the successful approval and commercialization of a product candidate, we expect to finance our cash needs for +ongoing research and development and business operations through public or private equity or debt financings or other capital +sources, including strategic partnerships. However, we may be unable to raise additional funds or enter into such other +arrangements, when needed, on favorable terms or at all. To the extent that we raise additional capital through the sale of equity +or convertible debt securities, the ownership interest of our stockholders will be, or could be, diluted, and the terms of these +securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing +and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take +specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to raise +additional funds through equity or debt financings when needed, we may be required to delay, limit, or substantially reduce research +and development efforts all of which could have a material adverse effect on the Company and its financial results. +While +the Company believes in the viability of its ability to raise additional funds, there can be no assurances to that effect. We have based +our estimates on assumptions of operating costs that may prove to be wrong. As a result, we could deplete our capital resources sooner +than we currently expect. If, for any reason, our expenses differ materially from our assumptions or we utilize our cash more quickly +than anticipated, or if we are unable to obtain funding on a timely basis we may be required to revise our business plan and strategy, +which may result in significantly curtailing, delaying or discontinuing one or more of our research or development programs or the commercialization +of any product candidates or may result in our being unable to expand our operations or otherwise capitalize on our business opportunities. +As a result, our business, financial condition, and results of operations could be materially affected. +Management +has concluded that there is substantial doubt regarding our ability to continue as a going concern for a period of at least 12 months +from the date of the filing of this Annual Report. This is based on our analysis under applicable accounting principles. These financial +statements have been prepared assuming the Company will continue as a going concern and do not include adjustments to reflect the possible +effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the +outcome of this uncertainty. +Cash +Requirements +Our +material cash requirements include the following contractual and other obligations. +Loans +Payable +In +May 2022, we entered into two loan agreements (the “Loans”), with an aggregate principal amount of $0.2 million, with +two lenders. The Loans were to mature and become payable in full two years from the date of the loan agreement and they bear no +interest. On October 9, 2024, the Company executed agreements to extend the loan maturity date for each loan to December 19, 2024. +As of December 31, 2024, the Loans are still outstanding and considered to be in default. The Company repaid the lenders in full during February 2025. Refer to Note 8 to our financial statements included elsewhere in this +Annual Report. +63 +Promissory +Convertible Note +In +March 2023, we issued an aggregate principal amount of $0.8 million convertible promissory note (the “March 2023 Convertible Note”) +payable to an investor. +The +March 2023 Convertible Note originally was to mature and become payable in full, 18 months from the date of the March 2023 Convertible +Note. The March 2023 Convertible Note carries 20% interest per annum and interest is payable every six months from the date of the March +2023 Convertible Note until the maturity date. The March 2023 Convertible Note became convertible into Common Stock following the consummation +of the Merger. +On +October 9, 2024, the Company and the loan holder signed an extension for the March 2023 Convertible Note to extend the maturity date +from September 20, 2024 to October 20, 2024 with the option for the Company to further extend the maturity date two times, each by +an additional 30-day period. The Company exercised both options to extend the maturity date to December 19, 2024. As of December 31, +2024, the March 2023 Convertible Note is still outstanding and considered to be in default. On March 6, 2025, the Company reached an agreement with the loan holder +to pay $0.7 million in order to settle the March 2023 Convertible Note in full. The Company repaid the loan holder the settlement amount +$0.7 million on March 13, 2025. Refer to Note 7 to our financial statements included elsewhere in this +Annual Report. +A.G.P +Convertible Note +On +November 25, 2024, the Company issued to A.G.P. a convertible promissory note (the “A.G.P. Convertible Note”) in the principal +amount of $5.7 million to evidence the A.G.P.’s currently owed deferred commission payable. Unless earlier converted as specified +in the Convertible Note, the principal amount plus all accrued but unpaid interest is due on November 25, 2025 (the “Maturity Date”). +The A.G.P. Convertible Note accrues interest at 5.5% per annum. +At +any time prior to the full payment of the A.G.P. Convertible Note, provided that the A.G.P. has given at least three business days +written notice to the Company, A.G.P., in its sole discretion, may elect to have all or any portion of the outstanding principal amount +and all interest accrued converted into shares of the Company’s common stock, at the lower of the Reverse Split price and the market +price per share at the time of the conversion date, but in no event less than $1.00, subject to adjustment as provided therein and to +take into account any future share splits or reverse splits. However, the conversion of the A.G.P. Convertible Note may not occur +prior to the Company having sufficiently authorized shares of common stock to permit the entire conversion of the convertible promissory +note. Refer to Note 8 to our financial statements included elsewhere in this Annual Report. Per the terms outlined in the agreement, we are required to undertake capital raises to paydown the A.G.P. Convertible +Note. +August +2024 Nirland Note +On +August 6, 2024, the Company entered into a Senior Secured Promissory Note (the “August 2024 Nirland Note”) with Nirland, +a related party of the Company, pursuant to which the Company issued and sold to Nirland the August 2024 Note in the original principal +amount of $2,650,000, inclusive of a $500,000 original issuance discount. Refer to Note 8 to our financial statements included elsewhere +in this Annual Report. +On +October 31, 2024, the Company and Nirland amended the August 2024 Nirland Note, whereby the August 2024 Nirland Note was amended to (i) +provide for the conversion of the August 2024 Nirland Note into shares of Common Stock, at Nirland’s discretion, in a multiple +of any unpaid amounts, if not otherwise previously paid, pursuant to the conversion rate contained therein, (ii) remove Nirland’s +Mandatory Prepayment Right, and (iii) remove Nirland’s right of first refusal to participate in any future equity or debt offerings +of the Company. The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to shall be determined +by dividing (x) such conversion amount by (y) the conversion price. Conversion amount means two and one quarter times the sum of (x) +portion of the principal to be converted, redeemed or otherwise with respect to which this determination is being made and (y) all accrued +and unpaid interest with respect to such portion of the principal amount, if any. Conversion price means, as of any conversion date or +other date of determination, $10, subject to adjustment as provided within the amended agreement. Note 7 to our financial statements +included elsewhere in this Annual Report. +On +November 22, 2024, the Company and Nirland entered into a Second Amendment to the August 2024 Nirland Note (the “Second +Amendment”). Pursuant to the Second Amendment, the Nirland Note may not be converted (other than partial conversions that may +be permitted pursuant to the rules and regulations of NASDAQ (or any successor entity)) prior to receipt of stockholder approval to +provide for such conversion of the Nirland Note, and subsequent issuance of the Company’s Common Stock, pursuant to the +stockholder approval rules under the rules and regulations of The Nasdaq Stock Market. If the Company has not held a special meeting +of the stockholders to approve the full conversion of the August 2024 Nirland Note on or before January 9, 2025, then the Company +shall be obligated to pay Nirland a penalty of $100,000 per day until the special meeting is held. The special meeting was held on +January 9, 2025, in which stockholder approval was obtained. In addition, the existing conversion rate was amended to be two and one +half times the sum of (x) the portion of the principal to be converted, redeemed or otherwise with respect to which this +determination is being made and (y) all accrued and unpaid interest (including default interest) with respect to such portion of the +principal amount, if any divided by $0.10, pre-split in January 2025 (or following any reverse splits that may occur in a ratio greater than 10 to 1, the lower +of such reverse split price and the market price per share at the time of the conversion date, but in no event less than $1.00), +subject to adjustment as provided therein and to take into account any future share splits or reverse splits. On January 24, 2025, the Reverse Stock Split became effective, resulting in every 100 shares of our common stock +issued or outstanding becoming one new share of our common stock, resulting in the conversion price increasing to $6.86 as of December +31, 2024. +On December 9, 2024, Nirland +exercised their conversion option and converted $0.1 million of principal for 23,000 shares of common stock pursuant to the rules and +regulations of the NASDAQ. As of December 31, 2024, $2.6 million of principal and accrued interest remains outstanding. +October +2024 Nirland Note +On +October 28, 2024, the Company issued a promissory note (the “October 2024 Nirland Note”) to Nirland in the original +principal amount of $0.6 million in exchange for funds in such amount. The October 2024 Nirland Note bears interest at a rate of 12% +per annum, is due and payable semi-annually in arrears, and matures on October 31, 2025. If an event of default under and as defined +in the Nirland Note occurs, the interest rate will be increased to 18% per annum or to the maximum rate permitted by law. In +connection with the Nirland Note, the Company has agreed to pay Nirland a 1% arrangement fee, which will be included with the +principal and interest owed under the Nirland Note. The Company paid down $0.2 million of the October 2024 Nirland Note on December +11, 2024 and as of the date of filing this Annual Report, such note has been repaid in full. Refer to Note 8 and Note 20 to our +financial statements included elsewhere in this Annual Report. +Working +Capital +We +currently anticipate that cash required for working capital for the next 12 months is approximately $22.9 million, which includes forecasted +research and development costs of $6.0 million, forecasted operating expenses of $6.2 million, accrued expenses and other current liabilities +of $3.4 million, a convertible promissory note payable, if not converted prior to maturity of $6.0 million, a convertible promissory +note, if not converted prior to maturity, of $0.8 million and loans payable due within the next 12 months of $0.5 million. We do anticipate +being able to fund required working capital for the next 12 months with cash and cash equivalents on hand and current borrowings. Management +believes that we will be able to fund cash required for the next 12 months through borrowings and equity raises. We have historically +been able to access funds through the issuance of debt, and more recently the at the market offering program agreement, and believe we +can continue to obtain funding through such debt financing agreements and Sales agreement as needed to meet cash requirements +for the next 12 months. +As +of December 31, 2024, we have raised $3.3 million (net of fees) out of the $23.9 million available to us +through the Sales agreement and expect to raise the additional $20.4 million over the next 12 months. +Through the date of the issuance of the consolidated financial statements, +we have raised an additional $8.1 million, net of fees due to A.G.P., through the Sales Agreement. After considering the issuances subsequent +to December 31, 2024, we have $12.0 million available to us through the Sales Agreement. +64 +Cash +Flows +The +following table set forth our cash flows for the period indicated (in thousands): +Years ended +December 31, +2024 +2023 +Net cash (used in) provided by: +Operating Activities +$ (9,682 ) +$ (7,725 ) +Investing Activities +(43 ) +725 +Financing Activities +6,067 +10,929 +Effect of exchange rate changes on cash and cash equivalents +(16 ) +299 +Net (decrease) increase in cash and cash equivalents +$ (3,674 ) +$ 4,228 +Cash +Flows Used in Operating Activities +Net +cash used in operating activities for the year ended December 31, 2024 was $9.7 million, resulting primarily from a net loss of $17.8 +million, a gain on the change in fair value of convertible notes payable of $2.0 million, a gain on change in fair value of warrant liabilities +of $0.2 million and a $0.1 million cash outflow from operating assets and liabilities. This was partially offset by a $2.7 million loss +on the issuance of warrants, $1.7 million of amortization of directors and officers insurance, a $1.6 million outflow attributable to +the purchase of licensing rights, $1.6 million of stock-based compensation, $0.9 million of debt discount amortization, a $0.7 million +loss on debt extinguishment, $0.5 million of non-cash interest expense, $0.4 million of amortization expense, a $0.2 million share issuance +for services and a $0.1 million of non-cash lease expense. The $0.1 million cash outflow from operating assets and liabilities is primarily +due to a $2.3 million cash outflow from prepaid expenses and other current assets and a $0.1 million cash outflow from lease liabilities, +partially offset by a cash inflow of $1.2 million from accounts payable and a cash inflow of $1.2 million from accrued expenses and other +current liabilities. +Net +cash used in operating activities for the year ended December 31, 2023 was $7.7 million, resulting primarily from a net loss of $0.5 +million, adjusted for non-cash items including a $4.3 million reduction of deferred income upon exercise of the Cizzle and Vela option, +a $2.5 million change in operating assets and liabilities, a $2.3 million gain on the change in fair value of the Vela and Cizzle options, +a $0.2 million change in the reserve for uncollectible loans and a $0.1 million gain on warrant remeasurement, partially offset by a +$1.0 million loss upon the issuance of the Vela option, a $0.5 million change in amortization on directors & officers insurance, +a $0.4 million loss on change in fair value of convertible notes and a $0.2 million increase in stock based compensation expense. The +$2.5 million cash outflow from operating assets and liabilities is primarily due to a $1.0 million cash outflow from prepaid expenses +and a $1.7 million cash outflow from accrued expenses and other current liabilities partially offset by a $0.2 million cash inflow from +accounts payable. +65 +Cash +Flows (Used) Provided by Investing Activities +Net +cash used in investing activities for the year ended December 31, 2024 was $43 thousand, resulting from purchases +of short-term investments of $0.5 million and purchases of property, plant and equipment of $0.1 million, partially offset by sales of +short-term investments of $0.5 million. +Net +cash provided by investing activities for the year ended December 31, 2023 was $0.7 million, resulting from $0.5 million in proceeds from +an option fee received from Vela and $0.6 million proceeds from the repayment of a loan from a related party, partially +offset by an issuance of a loan to a related party of $0.4 million. +Cash +Flows Provided by Financing Activities +Net +cash provided by financing activities for the year ended December 31, 2024 was $6.1 million, resulting from proceeds from the Sales Agreement +of $3.3 million, proceeds from the issuance of notes payable of $3.2 million, proceeds from the exercise of warrants of $0.2 million +and proceeds from the exercise of warrants of $0.1 million, partially offset by repayments of notes payable of $0.8 million. +Net +cash provided by financing activities during the year ended December 31, 2023 was $11.0 million. resulting from the proceeds from the +Merger and related PIPE financing, net of transaction costs of $8.5 million, $2.3 million from issuance of convertible notes payable, +and $0.2 million capital contribution from a related party. +Contractual +Obligations and Other Commitments +Laboratory Lease +As +of December 31, 2024, we are the lessee under one laboratory space lease for a term of two years. The annual rent payments +are $0.1 million for the years ending December 31, 2025 and December 31, 2026. The laboratory space lease has a remaining lease term +of approximately 1.2 years. +Critical +Accounting Estimates +The +preparation of financial statements in conformity with U.S. GAAP requires us to make estimates, judgments and assumptions that affect +the amounts reported in the Consolidated Financial Statements. These estimates, judgments and assumptions are evaluated on an ongoing +basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable at that time, the +results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent +from other sources. Actual results may differ materially from those estimates. The accounting policies that reflect our more significant +estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported +financial results include the following: +66 +Fair +Value of Convertible Notes +The +Company has elected the fair value measurement option for convertible debt with embedded derivatives that would otherwise require bifurcation, +and has recorded the entire hybrid financial instrument at fair value under the guidance in ASC 825, Financial Instruments. +To value the convertible debt, the Company utilizes Binomial Lattice Pricing Models. The Binomial Lattice Pricing Models involve the +construction of various intermediate lattices: stock price tree, conversion value tree, conversion probability tree, and discount rate +tree. In doing so, we assume the holders act rationally to maximize return and minimize cost at each decision point. We computed the +notes payoff at maturity and at intermediate decision nodes based upon the better of (i) conversion or (ii) repayment of principal and +interest. +The +significant inputs and assumptions used to estimate the fair value include: (i) the Company’s stock price, (ii) the term of the +convertible debt, (iii) the sum of the notes’ principal and unpaid accrued interest, (iv) expected volatility, (v) risk-free interest +rate, (vi) the corporate bond yield, (vii) the credit spread, (viii) probability of default, and (ix) the estimated recovery upon default. +Any change to the unobservable inputs to estimate fair value could produce significantly higher or lower fair value measurements and +result in a material change within the financial statements. +The +convertible debt will subsequently be remeasured at fair value each reporting date until settled or converted. +Fair +Value of Warrants +The +Company has issued warrants to investors in our debt and equity offerings. The Company has also issued warrants to service providers +in relation to our financing offerings. We evaluate all warrants issued to determine the appropriate classification under ASC 480 and ASC +815. +For +warrants that are determined to be equity-classified, we estimate the fair value at issuance and record the amounts to additional paid +in capital. For warrants that are determined to be liability-classified, we estimate the fair value at issuance and each subsequent reporting date. +For +the Company’s liability classified warrants, we estimate fair value using the Black-Scholes model. The significant inputs and assumptions +used to estimate the fair value include: (i) the Company’s stock price, (ii) the risk-free rate, (iii) the expected volatility, +and (iv) the dividend yield. The use of these valuation models requires the input of highly subjective assumptions. Any change to these +inputs could produce significantly higher or lower fair value measurements and result in a material change within the financial statements. +67 +Contingencies +In +the ordinary course of business, we are involved in various legal proceedings that are complex in nature and have outcomes that are difficult +to predict. We describe our legal proceedings and other matters that are significant or that we believe could become significant in Note +15 to the consolidated financial statements. We record accruals for loss contingencies to the extent that we conclude it is probable +that a liability has been incurred and the amount of the related loss can be reasonably estimated. We evaluate, on a quarterly basis, +developments in legal proceedings and other matters that could cause an increase or decrease in the amount of the liability that has +been accrued previously or modifications to contingency disclosures that are considered material. +Stock-Based +Compensation +We +record stock compensation expense related to our 2023 Plan in accordance with ASC 718, Compensation - Stock Compensation +which requires our stock-based awards, including restricted stock units (“RSUs”) and stock options to be measured at +fair value. +The +fair value of stock options is estimated on the grant date using the Black-Scholes option-valuation model. The calculation of stock-based +compensation expense requires that we make assumptions and judgments about the variables used in the Black- Scholes option-valuation +model, including the fair value of our common stock, expected term, expected volatility of the underlying common stock, and risk-free +interest rate. +The +assumption inputs subject to significant estimation include: +Expected +Term. The expected term represents the period that the Company’s stock options are expected to be outstanding. Due to +limitations on the sale or transfer of the Company’s common stock under the lock-up agreements and market standoff components of +the stock option agreements, the Company does not believe its historical exercise pattern is indicative of the pattern it will experience +after restricted periods expire. The Company uses the simplified method to calculate the expected term, which is the average of the contractual +term and vesting period. +Volatility. We +determine the price volatility based on the historical volatilities of industry peers as we have limited trading history for our common +stock price. We intend to continue to consistently apply this process using the same or a similar peer group of public companies, until +a sufficient amount of historical information regarding the volatility of our own common stock price becomes available, or unless circumstances +change such that the identified peer companies are no longer similar, in which case other suitable peer companies whose common stock +prices are publicly available would be utilized in the calculation. +68 +Recent +Accounting Pronouncements +A +discussion of recent accounting pronouncements is included in Note 1 - Nature of the Business and Basis of Presentation and Summary +of Significant Accounting Policies to our financial statements included elsewhere in this Annual Report. +Emerging +Growth Company Status and Smaller Reporting Company Status +The +Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under +the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of +the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period +for complying with new or revised accounting standards that have different effective dates for public and private companies until the +earlier of the date that: (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended +transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with +the new or revised accounting pronouncements as of public company effective dates. +Upon +closing of the Merger, the surviving company remained an emerging growth company, as defined by the Jumpstart Our Business Startups act +of 2012, until the earliest of (i) the last day of the combined entity’s first fiscal year following the fifth anniversary of the +completion of MURF’s initial public offering, (ii) the last day of the fiscal year in which the combined entity has total annual +gross revenue of at least $1.235 billion, (iii) the last day of the fiscal year in which the combined entity is deemed to be a large +accelerated filer, which means the market value of the combined entity’s common stock that is held by non-affiliates exceeds $700.0 +million as of the prior December 31st or (iv) the date on which the combined entity has issued more than $1.0 billion in non-convertible +debt securities during the prior three year period. +In +addition, Conduit is a smaller reporting company as defined in the Exchange Act. The Company may continue to be a smaller reporting company +even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller +reporting companies and will be able to take advantage of these scaled disclosures for so long as (i) Conduit’s voting and non-voting +common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter or (ii) +Conduit’s annual revenue is less than $100.0 million during the most recently completed fiscal year and its voting and non-voting +common stock held by non-affiliates is less than $700.0 million measured on the last business day of its second fiscal quarter. +69 +Item +7A. Quantitative and Qualitative Disclosures about Market Risk +As +a smaller reporting company, we are not required to provide the information required by this item. +Item +8. Financial Statements and Supplementary Data +This +information appears following Item 15 of this Annual Report and is included herein by reference. +Item +9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +None. +Item +9A. Controls and Procedures +Controls +and Procedures +Disclosure +controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed +under the Exchange Act, such as this Annual Report, is recorded, processed, summarized, and reported within the time period specified +in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated +and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely +decisions regarding required disclosure. Our management evaluated, with the participation of our current chief executive officer and +chief financial officer (our “Certifying Officers”), the effectiveness of our disclosure controls and procedures as of December +31, 2024, pursuant to Rule 13a-15(b) under the Exchange Act. +We +do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and +procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the +disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there +are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure +controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all +our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain +assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated +goals under all potential future conditions. +Management’s +Report on Internal Controls Over Financial Reporting +Our +management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined +in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our Management, including our Chief Executive Officer +and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting. In connection +with the preparation and audit of the financial statements as of and for the fiscal years ended December 31, 2024 and 2023, material +weaknesses were identified in our internal control over financial reporting. A material weakness is a deficiency, or a combination of +deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of +annual or interim financial statements will not be prevented or detected on a timely basis. These material weaknesses primarily relate +to the following: +● +The segregation of duties is limited and heavily reliant on interim personnel and third-party consultants to perform these activities. +● +The Company lacks a formal process for review and approval of significant transactions and accounts on a contemporaneous basis and there have been numerous, recurring errors in account balances and disclosures. +● +The Company has not designed adequate and appropriate internal controls +under an appropriate internal control over financial reporting framework. +● +The Company did not appropriately review and evaluate the accounting implications of all material transactions that occurred in the audit period which resulted in a restatement of previous periods. +● +The review controls around certain related party transactions did no operate +consistently and the review of such transactions was not always contemporaneously documented. +70 +If +these material weaknesses are not remediated, it could result in a misstatement of account balances or disclosures that would result +in a material misstatement to the annual or interim financial statements that would not be prevented or detected. We are reviewing +measures designed to improve our internal control over financial reporting to remediate these material weaknesses, although they +have not been fully remediated as of the date of this filing. We anticipate hiring additional qualified accounting personnel with +experience with complex GAAP and SEC rules while, meanwhile, continuing to engage consultants to assist with our financial statement +close process, segregating duties among accounting personnel to enable adequate review controls, further developing and documenting +our accounting policies, and designing, implementing, and/or expanding IT systems and application controls in our systems relevant +to the preparation of the consolidated financial statements. We also expect to engage an external advisor to assist with evaluating +and documenting the design and operating effectiveness of internal controls and assisting with the remediation of deficiencies, as +necessary if sufficient capital resources become available. +The ability to perform these remediation plans are dependent on +our ability to enhance funding and liquidity. The primary +costs associated with such measures are corresponding recruiting and additional salary and consulting costs, which are difficult to +estimate but which may be significant. These additional resources and procedures are intended to enable us to broaden the scope and +quality of our internal review of underlying information related to financial reporting and to formalize and enhance our internal +control procedures. +The +material weaknesses will not be considered remediated until a remediation plan has been fully implemented, the applicable controls +operate for a sufficient period of time, and we have concluded, through testing, that the newly implemented and enhanced controls, provided we are able to obtain sufficient capital resources to cover +the cost of our remediation plan, are +operating effectively. A failure to implement and maintain effective internal control over financial reporting could result +in errors in our financial statements that could result in a restatement of our financial statements and could cause us to fail to meet +our reporting obligations, any of which could diminish investor confidence in us and cause a decline in the price of our common stock. +Our +independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over +financial reporting until after we are no longer an “emerging growth company,” as defined in the JOBS Act. At such time, +our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level +at which our internal control over financial reporting is documented, designed, or operating. +Changes +in Internal Control over Financial Reporting +There +have been a number of changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) +of the Exchange Act) during the most recent fiscal year that have materially affected, or are reasonably likely to materially affect, +our internal control over financial reporting. These changes include the implementation of enterprise resource planning accounting systems, +and increased accounting and financial reporting consulting resources. +Item +9B. Other Information +During +the fiscal quarter ended December 31, 2024, none of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) +adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy +the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement”. +Item +9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not +applicable. +71 +PART +III +Item +10. Directors, Executive Officers and Corporate Governance +Executive +Officers and Directors +The +following table sets forth certain information concerning our executive officers and directors as of March 28, 2025: +Name +Age +Position +David +Tapolczay +65 +Chief +Executive Officer and Director +James +Bligh +37 +Interim +Chief Financial Officer and Director +Freda +Lewis-Hall +70 +Chairperson +of the Board of Directors +Faith +L. Charles +63 +Director +Chele +Chiavacci Farley +58 +Director +Simon +Fry +65 +Director +Andrew +Regan +59 +Director +Executive +Officers +David +Tapolczay . Dr. Tapolczay has more than 20 years of experience in research and development management. He has served as our Chief +Executive Officer and a member of the board of directors since September 2023. He was a co-founder and served as the Chief Executive +Officer a member of the board of directors of Old Conduit from 2019 until the Business Combination in September 2023. He served as Chief +Executive Officer of St George Street Capital, a United Kingdom-based medical research charity that is a business partner to Conduit, +from July 2018 to September 2023. He also serves as Chief Executive Officer of Medeor Pharma Ltd, a pharmaceutical consultancy company, +a position which he has held since 2006. +From +February 2008 to December 2018, he served as Chief Executive Officer at LifeArc (formerly the Medical Research Counsel Technology Group +(MRCT)), a United-Kingdom based charity advancing lab-based scientific discoveries to a point at which they can be developed into the +next generation of diagnostics, treatments and cures. He previously served as joint worldwide head of chemistry for Zeneca Agrochemicals, +a research and development unit of AstraZeneca, and as senior manager of chemical development for GlaxoSmithKlein plc, a pharmaceutical +and biotechnology company. Dr. Tapolczay served as Executive Vice President at Cambridge Discovery Chemistry, where he was responsible +for the rapid growth of Cambridge Discovery Chemistry and was a key figure in two successful sales of that company, the first to Oxford +Molecular and the second to Millennium Pharmaceuticals. After this last acquisition, Dr. Tapolczay was Senior Vice President of Pharmaceutical +Sciences at Millennium Pharmaceuticals, with responsibility for over 230 scientists. On leaving Millennium, Dr. Tapolczay was a founder +and Chairman of Pharmorphix Ltd., which was acquired by Sigma Aldrich Fine Chemicals in August 2006. He has also been involved with the +start-up of five companies, all of which are still trading and one of which has been AIM listed. He was VP of Technology Development +for GSK Pharmaceuticals from December 2005 to April 2007. He was awarded visiting Professorial Chair in Chemistry at Sussex University +from August 1999 to May 2007 and has previously held the position of visiting lecturer at Nottingham, Reading and Durham Universities +and a member of both the Technical Opportunities Panel and the User Panel of the EPSRC. He holds a BSc Hons and PhD in Chemistry from +the University of Southampton. Dr. Tapolczay also completed his Post-Doctoral Experience in Organic Chemistry from the University of +Oxford. Dr. Tapolczay was selected to serve on our board of directors following the Business Combination based on his deep knowledge +of Conduit, his extensive experience in research and development of clinical assets, and his in-depth knowledge of the pharmaceutical +industry. +72 +James +(“Jamie”) Bligh. Mr. Bligh has served as a member of our board of directors since September 2023, and also currently +serves as our Interim Chief Financial Officer. He was a co-founder of Conduit Pharmaceuticals Limited in 2019 and has served as a member +of its board of directors since its inception. From 2008 to 2019, Mr. Bligh worked closely with investment vehicle Corvus Capital Limited, +including as a Partner, where he led a number of reverse takeover transactions, stock market listings, initial public offerings, secondary +fundraisings, and merger transactions. Mr. Bligh’s prior transaction experience includes advising several special purpose acquisition +vehicles in listing on the London Stock Exchange, including the listing of Bermele Plc, a special purpose acquisition vehicle, and the +subsequent acquisition of Bermele by East Imperial Pte. Ltd., a global purveyor of ultra-premium beverages, in June 2019; the listing +of Leverett Plc, which subsequently acquired Nuformix Plc, a pharmaceutical development company targeting unmet medical needs in fibrosis +and oncology via drug repurposing; and Cizzle Biotechnology Holdings PLC, a UK-based diagnostics developer. Jamie previously served as +a director of Bermele Plc from June 2021 through February 2022; Mertz Plc from January 2021 through March 2022; and East Imperial Pte. +Ltd. from September 2017 through April 2018. Jamie graduated from the University of Bristol with a BSc in Economics & Finance. Mr. +Bligh was selected to serve on our board of directors following the Business Combination based on his past experience with business development, +capital raising, financings, public offerings and other strategic transactions, including mergers and acquisitions. +Directors +Freda +Lewis-Hall, M.D., DFAPA . Dr. Lewis-Hall has served as a member of our Board since September 2023. She served as Senior Medical +Advisor to the CEO of Pfizer Inc., or Pfizer, from December 2019 until her retirement in March 2020. Before assuming that responsibility, +beginning January 2019, Dr. Lewis-Hall served as Chief Patient Officer and Executive Vice President of Pfizer. Dr. Lewis-Hall served +as Pfizer’s Chief Medical Officer from 2009 to January 2019. Prior to joining Pfizer in 2009, Dr. Lewis-Hall held various senior +leadership positions including Chief Medical Officer and Executive Vice President, Medicines Development at Vertex Pharmaceuticals Incorporated +from June 2008 to May 2009; Senior Vice President, U.S. Pharmaceuticals, Medical Affairs for Bristol-Myers Squibb Company from 2003 until +May 2008; Vice President Research and Development at Pharmacia Corporation from 2002-2003; Product Team Leader at Pharmacia and Eli Lilly +and Company from 1998 to 2002; Director of Lilly Center for Women’s Health from 1996-1999; and Clinical Research Physician at Eli +Lilly from 1994 through 1996. In October 2021, Dr. Lewis-Hall became a member of the board of directors for Pyxis Oncology (Nasdaq: PYXS), +(where she serves as a member of the Nominating and Corporate Governance Committee); she serves as a member of the board of directors +for Milliken & Company since July 2019, as a member of the Audit and HR and Compensation Committees; and as a member of the board +of directors of SpringWorks Therapeutics, Inc. (Nasdaq GS: SWTX) since 2017, where she serves as the chair of the Nominating and Governance +Committee and as a member of the audit committee. Dr. Lewis-Hall served as a member of the board of directors for Exact Sciences Corporation +(Nasdaq: EXAS) from April 2020 to June 2024 where she served as a member of the Human Capital and Innovation, Technology and Pipeline +Committees; a member of 1LifeHealthCare, Inc. (Nasdaq: ONEM) board from November 2019 to 2023, serving as a member of the Nominating +and Corporate Governance Committee; she also served as a member of the board of directors for Tenet Healthcare Corporation (NYSE: THC) +from 2014 to 2017. +Dr. +Lewis-Hall holds an M.D. from Howard University College of Medicine and a B.A. in natural sciences from the Johns Hopkins University. +The Company believes Dr. Lewis-Hall is qualified to serve on the Board based on her expertise and experience in the biopharmaceutical +industry and her leadership experience as a senior executive at various biopharmaceutical companies. +73 +Faith +L. Charles . Ms. Charles has served as a member of our board of directors since September 2023. She has been a corporate +transactions and securities partner at the law firm of Thompson Hine LLP since 2010. She leads Thompson Hine’s Life Sciences practice +and co-heads the securities practice, advising public and emerging biotech and pharmaceutical companies in the U.S. and internationally. +Ms. Charles negotiates complex private and public financing transactions, mergers and acquisitions, licensing transactions and strategic +collaborations. She serves as outside counsel to a myriad of life sciences companies and is known in the industry as an astute business +advisor, providing valuable insights into capital markets, corporate governance and strategic development. Ms. Charles has been a member +of the board of directors of: CNS Pharmaceuticals, Inc. (Nasdaq: CNSP), a biotechnology company developing novel treatments for cancers +of the brain and central nervous system, since December 2022; Avenue Therapeutics, Inc. (Nasdaq: ATXI), a specialty pharmaceutical company +specializing in developing and commercializing therapies for the treatment of the central nervous system, since May 2022; and Abeona +Therapeutics, Inc. (Nasdaq: ABEO), a fully integrated gene and cell therapy company, since March 2021. Ms. Charles serves as Chair of +CNS Pharmaceuticals, on the Audit Committee of Avenue Therapeutics and on the Audit Committee and as the Chair of the Nominating and +Governance Committee of Abeona Therapeutics. From 2018 until October 2021, Ms. Charles served on the Board of Directors and as a member +of the Audit Committee and Chair of the Compensation Committee of Entera Bio Ltd., a publicly-traded biotechnology company. Ms. Charles +founded the Women in Bio Metro New York chapter and chaired the chapter for five years. She also served on the national board of Women +in Bio. Ms. Charles is also a member of the board of Red Door Community (formerly Gilda’s Club New York City.) She has been recognized +as a Life Sciences Star by Euromoney’s LMG Life Sciences, has been named a BTI Client Service All-Star, and was named by Crain’s +New York Business to the list of 2020 Notable Women in the Law. Ms. Charles holds a J.D degree from The George Washington University +Law School and a B.A. in Psychology from Barnard College, Columbia University. Ms. Charles is a graduate of Women in Bio’s Boardroom +Ready Program, an Executive Education Program taught by The George Washington University School of Business. Ms. Charles’ qualifications +to serve on our Board include her leadership skills and her vast legal experience representing companies in the biotech and pharmaceutical +field. +Chele +Chiavacci Farley . Ms. Chiavacci Farley has served on our board of directors since the closing of our initial public offering. +She currently serves as a partner and managing director of Mistral Capital International (“Mistral”), a private equity firm, +that she has been a part of since 1995. In her role as Partner and Managing Director of Mistral, Ms. Farley originates, evaluates and +executes equity investment opportunities, creates and implements deal and financial structures, negotiates with banks for credit facilities, +and oversees management. Ms. Farley is the President and a member of the Board of Directors and Management Committee of Palmilla San +Jose Inmobiliaria, the Master Developer of the luxury Palmilla resort development in Cabo San Lucas, Mexico. Prior to Mistral, Ms. Farley +was Vice President of Tricap International from 1994 to 1995. From 1992 to 1994, Ms. Farley was an Associate at UBS Capital Corporation, +and analyzed and evaluated principal investment and financing opportunities for the firm’s internal $1 billion fund. Ms. Farley +began her career as a Financial Analyst in the Global Finance department - Energy and Telecom Group of Goldman, Sachs & Co. Ms. Farley +has also had an active political career. In 2020, Ms. Farley ran for election to the U.S. House of Representatives to represent New York’s +18th Congressional district. In 2018, Ms. Farley ran for election to the U.S. Senate to represent New York. Ms. Farley graduated from +Stanford University with a B.S. and M.S. in Industrial Engineering. She is a member of YPO - Young Presidents’ Organization. Ms. +Farley was selected to serve on our board of directors following the Business Combination based on her past experience with business +development, capital raising, financings, and banking. +74 +Simon +Fry. Mr. Fry has served as a member of our board of directors since November 2024. Mr. Fry has over 30 years’ experience +in investment banking having held senior executive positions at various top-tier institutions, such as Nomura and Credit Suisse First +Boston. In 2003, Mr. Fry was appointed as Chief Executive Officer at Crosby Asset Management. He previously worked at Nomura, where he +was Managing Director and European Board member, as well as a member of the risk committee and credit committee. During his time at Nomura, +Mr. Fry initiated and built the Company’s Asset Investment Group, whose focus was to create specific product and strategy groups +within it to invest in mis-priced and undervalued credit and equity exposures. During this period, Mr. Fry was also responsible for building +Nomura’s highly regarded International Markets Division, which was responsible for all the European capital market activity in +equity, fixed income and derivatives including primary origination. Prior to this, Mr. Fry spent 14 years at Credit Suisse First Boston +(CSFB) trading a variety of securities including both fixed income and equities. From 1990, Mr. Fry developed CSFB’s Asset Trading +Group, and as Managing Director built a team that generated significant returns over a number of years for CSFB. Mr. Fry is based in +Los Angeles. His expertise in capital markets and strategic asset management is expected to contribute to Conduit’s growth goals +as the company pursues development-ready assets and aims to enhance shareholder value. +Andrew +Regan . Dr. Regan is a British born polar explorer and entrepreneur. He has served as a member of our board of directors since +September 2023. He was a co-founder of Conduit Pharmaceuticals Limited and has served as a board member of Old Conduit since 2019. Dr. +Regan also founded Corvus Capital Limited and has been its Chief Executive Officer since 2008. Corvus Capital is an investment vehicle +that was previously listed on the London Stock Exchange prior to being taken private in 2008. Corvus Capital continues to invest in a +number of industries and sectors. Dr. Regan also has experience as an investor in a number of public and private companies, including +ASOS.com Ltd, a global online fashion and beauty retailer, Virtual Internet, an IT services company that specializes in hosting infrastructure +such as VMWare cloud hosting and Managed and Dedicated Servers, and Imperial Energy Corporation plc, an upstream oil and gas exploration +and production company. Prior to that, Dr. Regan was the Chief Executive Officer of Hobson Plc, which was listed on the London Stock +Exchange, until its sale in 1996 through a cash takeover. Dr. Regan has a strong interest in the use of bio-inspired science to create +solutions for present day problems. In 2014, he was awarded a PhD from Oxford Brookes University for his research in writing and developing +a bio-inspired algorithm for forecasting the financial markets. He is passionate about the polar regions and is an accomplished polar +explorer having led a number of expeditions to both the Arctic and Antarctica. Dr. Regan was selected to serve on our board of directors +following the Business Combination based on his knowledge of Old Conduit and his extensive experience in investing, financing, overseeing +and developing companies. +Board +Composition +Our +business and affairs are organized under the direction of our board of directors. The board of directors will meet on a regular basis +and additionally as required. In accordance with the terms of the amended and restated certificate of incorporation, the board of directors +may establish the authorized number of directors from time to time by resolution. Our board of directors currently consists of seven +directors. +Director +Independence +Under +the Nasdaq listing standards, a majority of the members of our board of directors must qualify as “independent,” as affirmatively +determined by the board of directors. The Company’s board of directors affirmatively determined that all of the Company’s +directors, except for Messrs. Bligh, Tapolczay, and Regan are independent directors within the meaning of the applicable Nasdaq listing +standards. A majority of the members of the board of directors and all members of the Audit Committee, Compensation Committee, and Nominating +and Corporate Governance Committee are independent directors under the applicable Nasdaq listing standards. +75 +Board +Leadership Structure +The +board of directors is responsible for the control and direction of the Company. We separate the positions of Chairperson of the board +of directors and Chief Executive Officer of the Company. Dr. Lewis-Hall serves as the Chairperson of the board of directors and Dr. Tapolczay +serves as the Chief Executive Officer of the Company and as a member of the board of directors. The board of directors believe that this +structure serves us well by maintaining a link between management, through Dr. Tapolczay’s membership on the board of directors, +and the non-executive directors led by Dr. Lewis-Hall in her role as a non-executive Chairperson. +Board +Oversight of Risk +One +of the key functions of our board of directors is to conduct informed oversight of our risk management process. The board of directors +does not anticipate having a standing risk management committee, but rather administers this oversight function directly through the +board of directors as a whole, as well as through various standing committees of the board of directors that address risks inherent in +their respective areas of oversight. In particular, the board of directors will be responsible for monitoring and assessing strategic +risk exposure and the Audit Committee will have the responsibility to consider and discuss the Company’s major financial risk exposures +and the steps our management will take to monitor and control such exposures, including guidelines and policies to govern the process +by which risk assessment and management is undertaken. The Audit Committee also monitors compliance with legal and regulatory requirements. +The Compensation Committee assesses and monitors whether our compensation plans, policies, and programs comply with applicable legal +and regulatory requirements. +Committees +of the Board of Directors +The +board of directors has formed the committees described below. Each of the committees operates pursuant to a written charter adopted by +the committee or our board of directors. Each charter sets forth the committee’s specific functions and responsibilities. The board +of directors of may from time to time establish other committees. +Audit +Committee +The +Audit Committee assists the board of directors with its oversight of the integrity of the financial statements; the compliance with legal +and regulatory requirements; the qualifications, independence and performance of the independent registered public accounting firm; the +design and implementation of the financial risk assessment and risk management. Among other things, the Audit Committee is responsible +for reviewing and discussing with management the adequacy and effectiveness of disclosure controls and procedures. The Audit Committee +also discusses with management and independent registered public accounting firm the annual audit plan and scope of audit activities, +scope, and timing of the annual audit of the financial statements, and the results of the audit, quarterly reviews of the financial statements +and, as appropriate, initiates inquiries into certain aspects of the financial affairs. +The +Audit Committee is responsible for establishing and overseeing procedures for the receipt, retention, and treatment of any complaints +regarding accounting, internal accounting controls or auditing matters, as well as for the confidential and anonymous submissions by +employees of concerns regarding questionable accounting or auditing matters. In addition, the Audit Committee has direct responsibility +for the appointment, compensation, retention, and oversight of the work of the independent registered public accounting firm. The Audit +Committee has sole authority to approve the hiring and discharging of the independent registered public accounting firm, all audit engagement +terms and fees and all permissible non-audit engagements with the independent auditor. The Audit Committee reviews and oversees all related +party transactions in accordance with policies and procedures. +The +Audit Committee is comprised of three members: Ms. Farley (Chairperson), Dr. Lewis-Hall and Mr. Fry. Each member of the Audit Committee +meets the requirements for independence under the current Nasdaq and SEC rules and regulations and each member is financially literate. +In addition, the board of directors has determined that each of Ms. Farley and Mr. Fry is an “audit committee financial expert” +as defined in Item 407(d)(5)(ii) of Regulation S-K promulgated under the Securities Act. +76 +Compensation +Committee +The +Compensation Committee assists the board of directors with its oversight of the forms and amount of compensation for executive officers +(including officers reporting under Section 16 of the Exchange Act), the administration of equity and non-equity incentive plans for +employees and other service providers and certain other matters related to compensation programs. The Compensation Committee, among other +responsibilities, evaluates the performance of our Chief Executive Officer and, in consultation with the Chief Executive Officer, evaluates +the performance of other executive officers (including officers reporting under Section 16 of the Exchange Act). +The +Compensation Committee is comprised of three members: Ms. Charles (Chairperson), Ms. Farley, and Mr. Fry. The composition of the Compensation +Committee meets the requirements for independence under the current Nasdaq and SEC rules and regulations. Each member of the Compensation +Committee is a “non-employee” director within the meaning of Rule 16b-3 promulgated under the Exchange Act. +Nominating +and Governance Committee +The +Nominating and Corporate Governance Committee assists the board of directors with its oversight of and identification of individuals +qualified to become members of the board of directors, consistent with criteria approved by the board of directors, and selects, or recommends +that the board of directors selects, director nominees; develops and recommends to the board of directors a set of corporate governance +guidelines; oversees the evaluation of the board of directors; and reviews the environmental, safety, sustainability, and corporate social +responsibility policies, objectives, and practices on a periodic basis. +The +Nominating and Corporate Governance Committee is comprised of two members: Dr. Lewis-Hall (Chairperson) and Ms. Charles. The composition +of the Nominating and Corporate Governance Committee meets the requirements for independence under the current Nasdaq and SEC rules and +regulations. +Compensation +Committee Interlocks and Insider Participation +No +member of our Compensation Committee was at any time during fiscal year 2024, or at any other time, one of our officers or employees. +None of our executive officers have served as a director or member of a compensation committee (or other committee serving an equivalent +function) of any entity, one of whose executive officers served as a director of our board of directors or member of our Compensation +Committee. +Family +Relationships +There +are no family relationships among our directors and executive officers. +Code +of Conduct +We +adopted a written Code of Conduct applicable to all of our directors, officers, and employees, which is available on the Company’s +website at http://www.conduitpharma.com. Our Internet website address is provided as an inactive textual reference only. The Code of +Conduct covers fundamental ethical and compliance-related principles and practices such as accurate accounting records and financial +reporting, avoiding conflicts of interest, the protection and use of property and information, and compliance with legal and regulatory +requirements. The Code of Conduct is a “code of ethics,” as defined in Item 406(b) of Regulation S-K. The Company will make +any legally required disclosures regarding amendments to, or waivers of, provisions of its Code of Conduct on its corporate website. +Director +and Officer Liability and Indemnification +We +have purchased directors’ and officers’ liability insurance and have entered into indemnification agreements with each of +directors and executive officers. The indemnification agreements and our amended and restated certificate of incorporation and amended +and restated bylaws require us to indemnify our directors and officers to the fullest extent permitted by Delaware law. +77 +Insider +Trading Policy +The +use of material non-public information in securities transactions or the communication of such information to others who use it in securities +trading (“Tipping”) violates the federal securities laws. Such violations are likely to result in harsh consequences for +the individuals involved including exposure to investigations by the SEC, criminal and civil prosecution, disgorgement of any profits +realized or losses avoided through use of the non-public information and penalties equal to three times such profits or losses. Further, +insider trading violations expose the Company, its management, and other personnel acting in supervisory capacities to potential civil +liabilities and penalties for the actions of employees under their control who engage in Insider Trading violations. +Our +Insider Trading Policy (the “Insider Trading Policy”) prohibits our executive officers, the non-employee members of our board +of directors and certain other employees from engaging in the following transactions: +● +selling +any of our securities that they do not own at the time of the sale (referred to as a “short sale”); +● +passing +material nonpublic information on to others or recommending that another engage in transactions in any securities that they have +information on; +● +buying +or selling puts, calls, other derivative securities of the Company or any derivative securities that provide the economic equivalent +of ownership of any of our securities or an opportunity, direct or indirect, to profit from any change in the value of our securities +or engaging in any other hedging transaction with respect to our securities; +● +using +our securities as collateral in a margin account; and +● +pledging +our securities as collateral for a loan (or modifying an existing pledge). +While +the Company has not adopted a formal policy governing transactions by the Company in its securities, the Company will not engage in transactions +in Company securities, or adopt any securities repurchase plans, while in possession of material non-public information relating to the +Company or its securities other than in compliance with applicable law, subject to the policies and procedures adopted by the Company. +On +or around August 14, 2024, the Company was first made aware that one of its directors, through a wholly owned subsidiary, had +previously entered into certain collateral pledge agreements that resulted in the disposition of a substantial amount of shares in +the Company pursuant to those agreements without the Company’s knowledge. In addition, the Company also became aware that +approximately 300,000 thousand shares (or 31% of our then outstanding common stock as of August 14, 2024) were subject to a +further third-party pledge arrangement with a then significant stockholder of the Company. Upon learning of these transactions, the +board of directors has appointed an independent committee of the board of directors (the “Special Committee”) and +delegated to the Special Committee the authority to review these matters and determine action(s), if any, to be taken by the Company +in response thereto. Additionally, the Company formed another committee of the board of directors (the “Trading Review +Committee”) and delegated to the Trading Review Committee the authority to investigate and review the trading patterns of +certain of the Company’s stockholders and determine action(s), if any, to be taken by the Company in response thereto. The +Company values its stockholders and wants to have all available data at its disposal to act in its fiduciary capacity. +Section +16(a) Beneficial Ownership Reporting Compliance +Section +16(a) of the Exchange Act requires that our directors and executive officers, and persons who own more than ten percent of a registered +class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock +and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by SEC regulation +to furnish us with copies of all Section 16(a) forms they file. +To +our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other +reports were required, during the year ended December 31, 2024, all Section 16(a) filing requirements applicable to our officers, +directors and greater than ten percent beneficial owners were complied with, except for the Form 4 filed Andrew Regan on September +19, 2024 reporting a pledging of shares on June 14, 2024 and the sale of shares from July 2, 2024 to July 17, 2024. The delinquent +filing was inadvertent. +78 +Item +11. Executive Compensation +Fiscal +2024 Summary Compensation Table +The +following table summarizes the compensation earned by or paid to our principal executive officer and our principal financial officer, +who constitute all of our executive officers, for fiscal 2024 and fiscal 2023. We have no defined benefit or actuarial pension plan, +and no deferred compensation plan. +NAME AND PRINCIPAL POSITION +FISCAL YEAR +SALARY +(1) ($) +STOCK AWARDS +(2) ($) +OPTION AWARDS +(3) ($) +NONEQUITY INCENTIVE PLAN COMPENSATIONS +($) +ALL OTHER COMPENSATION +(4) +TOTAL +($) +David Tapolczay +2024 +$ 558,578 +$ - +$ 58,800 +$ - +$ - +$ 617,378 +Chief Executive Officer and Director +2023 +$ 139,933 +$ - +$ 1,203,239 +$ - +$ - +$ 1,343,172 +James Bligh, Interim Chief Financial Officer +2024 +$ 438,060 +$ 105,852 +$ 132,300 +$ - +$ 16,732 +$ 692,944 +Adam Sragovicz (5) +2024 +$ 143,333 +$ - +$ - +$ - +$ 103,300 +$ 246,333 +Chief Financial Officer +2023 +$ +116,667 +$ +410,743 +$ +- +$ +- +$ +- +$ +527,410 +(1) +Salaries +converted from British Pounds to US Dollars based on the following exchange rate in effect as of December 31, 2024: 1.2549. +(2) +Reflects +the grant date fair value of the 372 fully vested shares issued to Mr. Bligh in June 2024 to reflect his increased responsibilities +as interim Chief Executive Officer, based on a stock price of $284 on the date of grant. +(3) +Reflects +the grant date fair value of stock option awards for the applicable year computed in accordance with FASB ASC Topic 718. See Note +11 to the consolidated financial statements included in this Annual Report for a discussion of the relevant assumptions used in calculating +the grant date fair value pursuant to FASB ASC Topic 718. As required by SEC rules, the amounts shown exclude the impact of estimated +forfeitures related to service-based vesting conditions. Our named executive officers will only realize compensation to the extent +the trading price of our common stock is greater than the exercise price of such stock options. +(4) +The amounts shown for 2024 represent 401(k) matching contributions +of $16,732 and $3,300 for Mr. Bligh and Mr. Sragovicz, respectively. +(5) +For +Mr. Sragovicz, includes severance benefits of continued payment of his base salary, and subsidized health insurance premiums, for +a period of four months after the effective date of his resignation. +Compensation +Adjustments for 2024 +Annual +Base Salaries +We +provide a base salary to retain and attract key executive talent and to align our compensation with market practices. Base salaries are +reviewed and established by the Compensation Committee and the board of directors on a competitive basis each year to align with market +levels. +In +2024, the board of directors (i) increased Dr. Tapolczay’s base salary by 3%, and (ii) increased Mr. Bligh’s base salary +by £60,000 to compensate for his additional duties as Chief Financial Officer. +Equity +Awards +The +Compensation Committee believes that a competitive long-term incentive program is an important component of the compensation of our named +executive officers because it: (i) enhances the retentive value of our compensation; (ii) rewards executives for increasing our stock +price and developing long-term value; and (iii) provides executives with an opportunity for stock ownership to align their interests +with those of our stockholders. +In +November 2024, the board of directors, with the help of Aon, its independent compensation consultant, conducted a review of the long-term +incentive opportunities for our named executive officers. Based on a review of each executive’s individual performance, Mr. Bligh’s +additional duties as interim Chief Financial Officer, and the applicable market data, the board of directors approved the following stock +option grants: (i) Dr. Tapolczay received a stock option to purchase 8,400 shares, and (ii) Mr. Bligh received a stock option to purchase +18,900 shares. Each stock option vests 50% of the grant date and 50% in three equal annual installments thereafter. Also, Mr. Bligh received +a one-time grant of 372.72 full vested shares in June 2024, in recognition of his increased responsibilities as interim Chief Executive +Officer. These grant levels have been adjusted to reflect the 1-for-100 reverse stock split on January 24, 2025. +Employment +Agreements +We +entered into an employment agreement with our chief executive officer on September 22, 2023, which was the closing date of +the Business Combination. Mr. James Bligh is serving as the Company’s interim chief +financial officer. These agreements are summarized below. +Dr. +Tapolczay +On +September 22, 2023, we entered into an employment agreement (the “Tapolczay Employment Agreement”) with Dr. Tapolczay, pursuant +to which he serves as our Chief Executive Officer of and a member of our board of directors. +Under +the Tapolczay Employment Agreement, Dr. Tapolczay is entitled to (i) an annual base salary of $550,000 increased to $566,500 effective November 1, 2024, and (ii) a target annual +bonus opportunity equal to 50% of his base salary, payable based on the achievement of performance objectives as determined by our +board of directors. In addition, the Tapolczay Employment Agreement provides that Dr. Tapolczay is entitled to receive a sign-on +stock option award to purchase 0.40% of the shares of our Common Stock pursuant to the terms of the 2023 Stock Incentive Plan, which +shall vest in equal annual installments on the first four anniversaries of the Business Combination. The Tapolczay Employment +Agreement provides that if we terminate Dr. Tapolczay’s employment other than for cause or disability, or if he terminates his +employment for good reason, in either case other than the change in control protection period (described below), he would be +entitled to receive (i) continued payment of his annual base salary for 12 months following the date of termination, (ii) a lump sum +payment of his annual cash performance bonus that had been earned by him for a completed fiscal year or other measuring period but +that had not yet been paid to him as of the date of termination, (iii) a lump sum payment equal to his then target annual bonus +opportunity, pro-rated based on the total number of days elapsed in the calendar year through the date of termination, (iv) payment +or reimbursement of the COBRA premiums for him and his eligible dependents, or if COBRA is not available under our group health +plan, a cash amount equal to such payments or reimbursements (in either case, less the premiums he was paying for such coverage +while employed), until the earliest of (x) the last day of the applicable salary continuation period specified above, or (y) the +date he becomes eligible for comparable health insurance coverage under a subsequent employer’s group health plan; and (v) +accelerated vesting of such number of his unvested equity awards as would have vested had he remained employed during the 12-month +period following his date of termination (provided, however, that, any equity awards that vest in whole or in part based on the +attainment of performance-vesting conditions shall be governed by the terms of the applicable award agreement). +The +Tapolczay Employment Agreement provides that if we terminate Dr. Tapolczay’s employment other than for cause or disability, or +if he terminates his employment for good reason, in either case within three months prior to or 12 months after a change in control (such +period, the change in control period), he would be entitled to receive (i) continued payment of his annual base salary for 18 months +following the date of termination, (ii) a lump sum payment of his annual cash performance bonus that had been earned by him for a completed +fiscal year or other measuring period but that had not yet been paid to him as of the date of termination, (iii) a lump sum payment equal +to 150% of his then target annual bonus opportunity (without pro-ration), (iv) payment or reimbursement of the COBRA premiums for him +and his eligible dependents, or if COBRA is not available under our group health plan, a cash amount equal to such payments or reimbursements +(in either case, less the premiums he was paying for such coverage while employed), until the earliest of (x) the last day of the applicable +salary continuation period specified above, or (y) the date he becomes eligible for comparable health insurance coverage under a subsequent +employer’s group health plan; and (v) accelerated vesting of 100% of his unvested equity awards (provided, however, that, any equity +awards that vest in whole or in part based on the attainment of performance-vesting conditions shall be governed by the terms of the +applicable award agreement). +Additionally, +to the extent that any payment or benefit received in connection with a change in control would be subject to an excise tax under Section +4999 of the Code, such payments and/or benefits will be subject to a “best pay cap” reduction if such reduction would result +in a greater net after-tax benefit to the executive than receiving the full amount of such payments. +In +exchange for the severance benefits described above, Dr. Tapolczay must (i) sign and not revoke a release of claims in favor of the Company, +(ii) comply with his proprietary information and inventions assignment agreement, (iii) refrain from soliciting employees of the Company +for a period of one year after his termination of employment, and (iv) comply with the other provisions of the Tapolczay Employment Agreement. +James Bligh +On November 15, 2024, Conduit +Pharmaceuticals Limited and Conduit UK Management LTD., wholly-owned subsidiaries of the Company, entered into an amended and restated +employment agreement (the “Bligh Employment Agreement”) with James Bligh, pursuant to which Mr. Bligh will +continue to be employed by Conduit UK Management LTD. and continue to serve as the Interim Chief Financial Officer and Senior +Vice President - Strategy of the Company. Under the Bligh Employment Agreement, Mr. Bligh will receive an annual base salary +of £400,000 and will be entitled to a discretionary cash bonus of up to 40% of his base salary, subject to the achievement of certain +milestones that may be established by the Board of Directors or a committee thereof, from time to time. Mr. Bligh is also entitled to +reimbursement for reasonable out-of-pocket expenses incurred by him in the performance of his duties, subject to the terms of any expenses +policy the Company may have. +The Bligh Employment Agreement requires at least six months’ advanced +written notice for Mr. Bligh or Conduit UK Management LTD. to terminate Mr. Bligh’s employment, except in the case +of a summary dismissal (as described in the Bligh Employment Agreement). However, Conduit UK Management LTD. may, at its sole discretion +and by written notice, terminate Mr. Bligh’s employment immediately and provide compensation to Mr. Bligh for the unexpired +portion of such notice period. The Bligh Employment Agreement replaces and supersedes the prior employment agreement between Conduit Pharmaceuticals +Limited and Mr. Bligh. +Mr. +Sragovicz +On +May 10, 2024, Adam Sragovicz informed the Board of Directors of his intention to resign as Chief Financial Officer of the Company. In +connection with his resignation, Mr. Sragovicz agreed to continue in his current role, with the same responsibilities and obligations +as he previously had, through the day after the filing of this Quarterly Report on Form 10-Q, so that his resignation will become effective +on May 15, 2024. Mr. Sragovicz’s resignation was not due to any disagreement with management or the Company’s operations, +policies or practices. +The +Company entered into a separation agreement with Mr. Sragovicz on May 12, 2024, which provides for continued payment of his base salary, +and subsidized health insurance premiums, for a period of four months after the effective date of his resignation. In exchange for these +benefits, Mr. Sragovicz has signed a mutual release of claims, agreed to a mutual non-disparagement covenant, and re-affirmed certain +confidentiality, non-solicitation and post-departure cooperation covenants. +79 +Outstanding +Equity Awards at 2024 Fiscal Year-End +The +following table summarizes all of the outstanding equity-based awards held by our named executive officers as of December 31, 2024, the +end of our fiscal year. The option shares reported below have been adjusted to reflect the 1-for-100 +reverse stock split on January 24, 2025. +OPTION AWARDS +NAME +OPTION OR STOCK AWARD GRANT DATE +NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS (#) EXERCISABLE +NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS +(#) UNEXERCISABLE +OPTION EXERCISE PRICE +($) +OPTION EXPIRATION DATE +David Tapolczay +11/18/2024 +(2) +4,200 +4,200 +$ 9.20 +11/17/2034 +12/1/2023 (1) +745 +2,236 +551 +11/30/2033 +James Bligh +11/18/2024 (2) +9,450 +9,450 +$ 9.20 +11/17/2034 +11/18/2024 (1) +559 +1,677 +551 +11/30/2033 +(1) +The +stock option vests as to 1/4 of the underlying shares on each of the first four anniversaries of the vesting commencement date +(2) +The stock options vests 50% of the grant date and 50% in three equal annual installments thereafter +2023 +Stock Incentive Plan +On +September 20, 2023, MURF stockholders approved the Conduit Pharmaceuticals Inc. 2023 Stock Incentive Plan (the “2023 Plan”). +The 2023 Plan permits our board of directors or compensation committee to grant may grant or issue stock options, stock appreciation +rights, restricted stock, restricted stock units, performance stock units, other stock- or cash-based awards and dividend equivalents, +or any combination thereof, to officers, employees, directors or consultants of the Company. +Subject +to adjustment for stock splits or similar events, the 2023 Plan initially reserved 114,976 shares of Common Stock for issuance +pursuant to awards, plus an annual increase on the first day of each calendar year beginning in 2024 and ending in 2033 equal to the +lesser of (i) 5% of the shares of Common Stock outstanding on the last day of the immediately preceding calendar year and (ii) such +smaller number of shares of Common Stock as determined by our board of directors. The 2023 Plan was increased +by 36,914 shares of common stock effective January 1, 2024, and by 69,240 shares of common stock effective January 1, +2025. On February 6, 2025, the Company filed a registration statement on Form S-8 that increased the number of shares of Common +Stock available for issuance under the 2023 Plan by 69,240 shares. +80 +Securities +Authorized for Issuance under Equity Compensation Plans +The +following table provides a summary of the securities authorized for issuance under our equity compensation plans as of December 31, 2024. +Plan category +Number of securities to be issued upon exercise of outstanding options, warrants and rights +Weighted-average exercise price of outstanding options, +warrants and rights +Number of securities +remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) +(a) +(b) +(c) +Equity compensation plans approved by security holders +2023 Plan +65,509 +$ 81.52 +84,885 +Equity compensation plans not approved by security holders +- +- +- +Total +65,509 +$ 81.52 +84,885 +Director +Compensation +The +following table sets forth the compensation we paid to our non-employee directors during fiscal 2024: +Name +Fees earned or +paid in cash +($) +Stock +awards +($) (1)(2) +Option +awards +($) (3) +All Other +Compensation +TOTAL +($) +Faith L. Charles +$ 24,500 +$ 31,400 +$ 21,000 +$ - +$ 76,900 +Chele Chiavacci Farley +$ 27,500 +$ 133,352 +$ 21,000 +$ - +$ 181,852 +Freda Lewis-Hall +$ 40,250 +$ 40,250 +$ 21,000 +$ - +$ 101,500 +Simon Fry +$ - +$ - +$ 21,000 +$ - +$ 21,000 +Jennifer I. McNealey (4) +$ +11,875 +$ - +$ - +$ - +$ +11,875 +Andrew Regan (5) +$ - +$ - +$ - +$ - +$ - +(1) +Dr. +Lewis-Hall elected to receive $40,250 of her cash fees in the form of fully vested shares, +Ms. Chiavacci Farley elected to receive $27,500 of her cash fees in the form of fully vested +shares, and Ms. Charles elected to receive $24,500 of her cash fees in the form of fully +vested shares. +(2) +Reflects +the grant date fair value of (i) the 372 fully vested shares issued to Ms. Chiavacci Farley in June 2024, based on a stock price +of $284 on the date of grant, and (ii) the 750 fully vested shares issued to Ms. Charles in November 2024, based on a stock price +of $9.20 on the date of grant. +(3) +Amounts +in this column represents the aggregate grant date fair value, determined in accordance with FASB ASC Topic 718, of option awards +granted to participating non-employee directors in 2024. For a description of the assumptions we used to calculate these amounts, +see Note 11 to the consolidated financial statements included in this Annual Report. +(4) +On May 12, 2024, Ms. McNealey announced her resignation, due to personal +reasons, as a member of the Board of Directors of the Company and from all committees on which she served, effective as of May 13, 2024. +Ms. McNealey’s resignation was not due to any disagreement with management or the Company’s operations, policies or practices. +(5) +Dr. +Regan waived his right to receive any compensation for services as +a non-employee director of the Company, effective as of the closing of the Business Combination. As a result, Dr. Regan has not been +paid any cash retainers or received any equity retainers since the closing date. +81 +As of December 31, 2024, our non-employee directors held the following +stock options: +OPTION AWARDS +NAME +OPTION OR +STOCK AWARD +GRANT DATE +NUMBER OF +SECURITIES +UNDERLYING +UNEXERCISED +OPTIONS +(#) +EXERCISABLE +NUMBER OF +SECURITIES +UNDERLYING +UNEXERCISED +OPTIONS +(#) +UNEXERCISABLE +OPTION +EXERCISE PRICE +($) +OPTION +EXPIRATION +DATE +Faith L. Charles +12/18/2024 (2) +- +4,200 +$ 7.10 +12/17/2034 +12/1/2023 (1) +217 +433 +551 +11/30/2033 +Chele Chiavacci Farley +12/18/2024 (2) +- +4,200 +$ 7.10 +12/17/2034 +12/1/2023 (1) +217 +433 +551 +11/30/2033 +Freda Lewis-Hall +12/18/2024 (2) +- +4,200 +$ 7.10 +12/17/2034 +12/1/2023 (1) +217 +433 +551 +11/30/2033 +Simon Fry +12/18/2024 (2) +- +4,200 +$ 7.10 +12/17/2034 +(1) +The stock option vests as to 1/3 of the underlying shares on each of the first three anniversaries of the vesting commencement date +(2) +The stock options vests 100% of the underlying shares on the first anniversary of the vesting commencement date +Compensation +Program for the Board of Directors +We +adopted a compensation program for our board of directors, which became effective upon completion of the Business Combination, and was +amended on November 15, 2024. Under the compensation program, the non-employee directors will receive the following annual cash +retainers for their service on the board of directors and its committees: +● +$35,000 +for each non-employee director; +● +$30,000 +for the Chairperson of the board of directors; +● +$15,000 +for the chair of the Audit Committee and $7,500 for each of the other members of that committee; +● +$10,000 +for the chair of the Compensation Committee and $5,000 for each of the other members of that committee; and +● +$8,000 +for the chair of the Nominating and Corporate Governance Committee and $4,000 for each of the other members of that committee. +In addition, each non-employee director who is +initially elected or appointed to the board of directors will automatically be granted on the day of such first election or appointment +a stock option to purchase 4,200 shares of our Common Stock (the “Initial Award”). Each Initial Award will vest and become +exercisable in substantially equal installments on each of the first three anniversaries of the date of grant, subject to the non-employee +director continuing in service on the board of directors through each such vesting date. +A non-employee director who is serving on the +board of directors as of the date of any annual meeting after the effective date of the new program, and who will continue to serve as +a non-employee director immediately following such meeting, will automatically be granted on the date of such annual meeting a stock option +to purchase 4,200 shares of our Common Stock, which amount is pro-rated for new directors to reflect their service since the last annual +meeting (the “Annual Award”). Each Annual Award will vest and become exercisable on the earlier of (i) the first anniversary +of the date of grant, or (ii) the date immediately prior to the next annual meeting of the Company’s stockholders following the +date of grant, subject to the non-employee director continuing in service on the board of directors through such vesting date. +Upon a change in control, all outstanding equity +awards that are held by a non-employee director shall become fully vested and exercisable. +In 2024, the board of directors appointed Dr. Hall and Ms. Charles +to serve on the Special Committee and approved an additional cash retainer of $7,500 for each of them to reflect her service on the Special +Committee. In June 2024, the board of directors authorized the grant of a one-time additional equity retainer to Ms. Chiavacci Farley +in the form of 372 fully vested shares to recognize the significant time she has devoted to the Company since September 2023, in her capacity +as a member of the board, assisting and advising the Company on certain strategic transactions, financings and accounting matters. In +November 2024, the board of directors authorized the grant of a one-time additional equity retainer to Ms. Charles in the form of 750 +fully vested shares to recognize the significant time she has devoted to the Company since September 2023, in her capacity as a member +of the board, assisting and advising the Company on certain strategic transactions and financings. +Board members who are also +employees of the Company, such as Dr. Tapolczay and Mr. Bligh, are not eligible to participate in the non-employee director compensation +program described above and did not receive any compensation for service on the board of directors. Moreover, Dr. Regan waived his right +to receive any compensation under the program. +The +2023 Plan provides that the sum of the grant date fair value of all equity-based awards and the maximum amount of cash that may become +payable to any individual for services as a non-employee director during any calendar year may not exceed $750,000, increased to $1,000,000 +in the calendar year of a non-employee director’s initial service as a non-employee director. The plan administrator may make exceptions +to this limit for individual non-employee directors in extraordinary circumstances, as the plan administrator may determine in its discretion, +provided that the non-employee director receiving such additional compensation may not participate in the decision to award such compensation +or in other contemporaneous compensation decisions involving non-employee directors. +82 +Item +12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The +following table sets forth beneficial ownership of the Company’s Common Stock as of March 28, 2025 by: +● +each +person known to be the beneficial owner of more than 5% of the outstanding Common Stock of the Company; +● +each +of the Company’s executive officers and directors; and +● +all +of the Company’s current executive officers and directors as a group. +Beneficial +ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security +if he, she or it possesses sole or shared voting or investment power over that security. Under those rules, beneficial ownership includes +securities that the individual or entity has the right to acquire, such as through the exercise of warrants or stock options or the vesting +of restricted stock units, within 60 days of March 28, 2025. Shares subject to warrants or options that are currently exercisable or +exercisable within 60 days of March 28, 2025 or subject to restricted stock units that vest within 60 days of March 28, 2025 are considered +outstanding and beneficially owned by the person holding such warrants, options, or restricted stock units for the purpose of computing +the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any +other person. +Except +as noted by footnote, and subject to community property laws where applicable, based on the information provided to the Company, the +persons and entities named in the table below have sole voting and investment power with respect to all shares shown as beneficially +owned by them. Unless otherwise indicated, the business address of each beneficial owner listed in the table below is c/o Conduit Pharmaceuticals +Inc., 4581 Tamiami Trail North, Suite 200 Naples, Florida 34103. +The +beneficial ownership of our Common Stock is based on 6,662,755 shares of Common Stock issued and outstanding as of March 28, 2025, which +number excludes the shares of Common Stock issuable upon exercise of the warrants. Unless otherwise indicated, we believe that all persons +named in the table have sole voting and investment power with respect to all of the shares shown to be beneficially owned by them. +Name and Address of Beneficial Owner (1) +Number of +shares of +Common Stock +% of +Common Stock* +Directors and executive officers +James Bligh +10,381 (2) +* +Faith L. Charles +3,631 (3) +* +Chele Chiavacci Farley +5,914 (4) +* +Freda Lewis-Hall +34,836 (5) +* +Andrew Regan +302,926 (6) +4.55 % +David Tapolczay +30,987 (7) +* +Simon Fry +2,000 (8) +* +All directors and executive officers as a group (6 individuals) +390,675 +5.81 % +* +Indicates +beneficial ownership of less than 1%. +(1) +The +table does not include Adam Sragovicz, the Company’s former Chief Financial Officer, who resigned effective May 15, 2024, and +following such resignation, to the Company’s knowledge, did not beneficially own any securities of the Company. +(2) +Consists +of (i) 372 shares of Common Stock and (ii) options to purchase 10,009 shares Common Stock that are currently exercisable. Excludes +11,127 unvested options to purchase shares of Common Stock that are not exercisable within 60 days. +(3) +Consists +of (i) 3,415 shares of Common Stock and (ii) options to purchase 216 shares of Common Stock that are currently exercisable. Excludes +4,633 unvested options to purchase shares of Common Stock that are not exercisable within 60 days. +(4) +Consists +of (i) 3,515 shares of Common Stock, (ii) warrants to purchase 2,183 shares of Common Stock and (iii) options to purchase 216 shares +of Common Stock that are currently exercisable. Excludes 4,633 unvested options to purchase shares of Common Stock that are not +exercisable within 60 days. +(5) +Includes +234,836 shares of Common Stock, of which (i) 4,379 are held directly by Dr. Lewis-Hall, (ii) 20,033 were issued to Intelmed LLC, of which +Dr. Lewis-Hall is the Managing Director, (iii) 5,169 shares of Common Stock were received by Mr. Emerson Hall, Jr., Dr. +Lewis-Hall’s spouse, and (iv) 216 are underlying options that are currently exercisable and are held directly by Dr. +Lewis-Hall, (v) warrants to purchase 1,033 shares of Common Stock held directly by Dr. Lewis-Hall and (vi) warrants to purchase +4,006 shares of Common Stock held by Intelmed LLC. By virtue of this relationship with both Intelmed LLC and her spouse, Dr. Lewis-Hall may be deemed to share beneficial +ownership of the securities held of record by Intelmed LLC and Mr. Emerson Hall, Jr. Dr. Lewis-Hall disclaims any such beneficial +ownership except to the extent of her pecuniary interest therein. Excludes 4,633 unvested options to purchase shares of Common Stock +that are not exercisable within 60 days. The business address of +Intelmed LLC is 11421 Golden Eagle Court Naples, Florida 34120. +83 +(6) +Consists +of (i) 666 shares of Common Stock held directly by Dr. Regan, (ii) 300,484 shares of Common Stock held by Corvus Capital Limited, and +(iii) 1,776 shares of Common Stock held by Algo Holdings, Inc. Dr. Regan is the Chief Executive Officer of Corvus Capital Limited and +Algo Holdings, Inc. is a wholly owned subsidiary of Corvus Capital Limited. By virtue of this relationship, Dr. Regan may be deemed +to share beneficial ownership of the securities held of record by Corvus Capital Limited and Algo Holdings, Inc. Dr. Regan disclaims +any such beneficial ownership except to the extent of his pecuniary interest therein. Pursuant to a participation and inducement +agreement with Nirland Limited, the 30,048 shares of Common Stock held by Corvus Capital Limited may, in certain circumstances, be +subject to transfer to Nirland Limited and all such shares of Common Stock are subject to a pledge agreement with respect to such +arrangement. The business address of Corvus Capital Limited is Floor 2, Willow House, Cricket Square PO Box 709 Grand Cayman KY1-1107, +Cayman Islands. +(7) +Consists +of (i) 20,033 shares received pursuant to the Agreement and Plan of Merger, dated as of November 8, 2022 and as amended on January +27, 2023 and May 11, 2023, by and among the Company, Conduit and the Merger Sub and (ii) options to purchase 4,945 shares of Common +Stock that are currently exercisable and, (iii) warrants to purchase 6,009 shares of Common Stock. Excludes 6,436 options to purchase shares of Common Stock that are not exercisable within 60 days. +(8) +Consist of 2,000 shares of common stock and excludes 4,200 options +to purchase shares of Common Stock that are not exercisable within 60 days. +Item +13. Certain Relationships and Related Transactions, and Director Independence +In +addition to the compensation arrangements with directors and executive officers described under the sections titled “Executive +Compensation” and “Management,” the following is a description of each transaction since January 1, 2023 and each currently +proposed transaction, in which: +● +we +have been or are to be a participant; +● +the +amount involved exceeds or will exceed $120,000; and +● +any +of our directors, executive officers, or beneficial holders of more than 5% of our capital stock, or any immediate family member +of, or person sharing the household with, any of these individuals (other than tenants or employees), had or will have a direct or +indirect material interest. +Policies +and Procedures for Related Party Transactions +Our +board of directors adopted a policy, at the closing of the Business Combination, with respect to the review, approval, and ratification +of related party transactions. Under the policy, the audit committee of the board of directors is responsible for reviewing and approving +related party transactions. In the course of its review and approval of related party transactions, the audit committee will consider +the relevant facts and circumstances to decide whether to approve such transactions. In particular, the policy requires the audit committee +to consider, among other factors it deems appropriate: +● +whether +the transaction was undertaken in the ordinary course of business of the Company; +84 +● +whether +the related party transaction was initiated by the Company, a subsidiary, or the related party; +● +whether +the transaction with the related party is proposed to be, or was, entered into on terms no less favorable to the Company than terms +that could have been reached with an unrelated third party; +● +the +purpose of, and the potential benefits to the Company of, the related party transaction; +● +if +the approximate dollar value of the amount involved in the related party transaction, particularly as it relates to the related party; +● +the +related party’s interest in the related party transaction; +● +whether +the related party transaction would impair the independence of an otherwise independent director; and +● +any +other information regarding the related party transaction or the related party that would be material to investors in light of the +circumstances of the particular transaction +The +audit committee may approve the related party transaction only if the audit committee determines in good faith that, under all of the +circumstances, the transaction is in the best interests of the Company and its stockholders. +Founder +Shares +On +November 16, 2021, the Sponsor, Murphy Canyon Acquisition Sponsor LLC, previously an affiliate of MURF, purchased an aggregate of 43,125 +shares of Common Stock for the aggregate price of $25,000 (the “Founder Shares”). The Founder Shares included an aggregate +of up to 7,500 shares subject to forfeiture by the Sponsor to the extent that the underwriters’ over-allotment was not exercised +in full or in part, or 10,062 shares if the underwriters’ over-allotment was exercised in full, so that the Sponsor would collectively +own 20% of the Company’s issued and outstanding shares after the IPO (assuming that, in the IPO, the Sponsor only purchased Class +A common stock consisting of (i) the Founder Shares and (ii) the 7,540 shares of Class A common stock included in the units purchased +by the Sponsor in connection with the IPO (together, the “Private Shares”). As a result of the underwriters’ election +to exercise their over-allotment option, on January 26, 2022, the Sponsor surrendered and forfeited 10,062 Founder Shares. Following +such forfeiture, the Sponsor held 33,062 Founder Shares. +The +Sponsor agreed, subject to certain limited exceptions, not to transfer, assign or sell any of the Founder Shares until the earlier to +occur of: (A) six months after the completion of our initial business combination, and (B) subsequent to the initial business combination +if we complete a liquidation, merger, stock exchange or other similar transaction that results in all of our public stockholders having +the right to exchange their public shares for cash, securities or other property. Notwithstanding the foregoing, the Sponsor shall have +the right to transfer its ownership in the Founder Shares at any time to the extent that it determines, in good faith, that such transfer +is necessary to ensure that it and/or any of its parents, subsidiaries or affiliates are in compliance with the Investment Company Act +of 1940. +Private +Units +Contemporaneously +with the closing of the IPO and the exercise of the overallotment option, the Sponsor purchased an aggregate of 754,000 private units +of MURF in a private placement at a price of $10.00 per private unit. Each private unit consists of one Private Share and one Private +Warrant (the “Private Warrant”). The private units are identical to the units sold in the IPO except that the (a) the placement +units and their component securities will not be transferable, assignable or saleable until October 22, 2023 except to permitted transferees +and (b) the warrants and rights included as a component of the placement units, so long as they are held by the Sponsor or its permitted +transferees, will be entitled to registration rights, respectively. Additionally, the warrants underlying the placement units contain +a cashless exercise provision and shall be non-redeemable while held by the initial purchasers thereof or their permitted assignees. +The Sponsor had agreed not to transfer, assign or sell any of the private units and underlying securities (except in connection with +the same limited exceptions that the Private Shares may be transferred as described above) until after the Business Combination. In connection +with completion of the Business Combination, the Sponsor transferred 45,000 placement units (15,000 each) to each of Mrs. Knuettell and +Feinberg, former Directors of MURF, and Ms. Chiavacci Farley, former Director of MURF and current Director of Conduit. +85 +Sponsor +Support Agreement +Concurrently +with the execution of the Merger Agreement, the Company entered into a support agreement with the Sponsor pursuant to which the Sponsor +agreed to, among other things, vote all of the shares of MURF common stock legally and beneficially owned by it in favor of the Business +Combination. On September 20, 2023, the Sponsor voted all of the shares of MURF common stock then legally and beneficially owned by it +in favor of the Business Combination. +PIPE +Subscription Agreement +In +September 2023, concurrently with the completion of the Business Combination, pursuant to the PIPE Subscription Agreement (the “PIPE +Subscription Agreement “) for an aggregate purchase price of $20.0 million, the Company issued an aggregate of 20,000 shares +of the Company’s Common Stock and PIPE Warrants (the “PIPE Warrants”) to purchase 20,000 shares of Company Common +Stock. In conjunction with the execution of the PIPE Subscription Agreement, Corvus Capital and its affiliates entered into a participation +and inducement agreement with the Private Placement Investor whereby Corvus agreed to provide certain payments and economic benefits +to such investor in the event Corvus Capital sold or pledged in a debt transaction any of the shares it was receiving in the Business +Combination. In certain circumstances, such investor may have a right to cause Corvus Capital to transfer certain of its shares to such +investor. +The +PIPE Subscription Agreement contains registration rights, pursuant to which within 15 business days after the closing of the PIPE Financing, +the Company was required to use reasonable best efforts to file with the SEC a registration statement registering the resale of shares +of the Company’s common stock. On October 17, 2023, the Company filed a registration statement on Form S-1 (SEC File No. 333-275056) +to satisfy that contractual requirement, which registration statement was declared effective by the SEC on December 15, 2023. +The +PIPE Warrants are exercisable until September 22, 2028 (five years after the completion of the Business Combination) and have an exercise +price of $11.50 per share, subject to adjustment as set forth in the PIPE Warrants for stock splits, stock dividends, recapitalizations +and similar customary adjustments. The Private Placement Investor may exercise each PIPE Warrant on a cashless basis if the shares underlying +the PIPE Warrants are not then registered for resale pursuant to an effective registration statement. +The +Company common stock and PIPE Warrants to purchase Company common stock issued pursuant to the PIPE Subscription Agreement were not registered +under the Securities Act and were issued in reliance upon the exemption provided under Section 4(a)(2) of the Securities Act and/or Regulation +D promulgated thereunder. +On +December 11, 2024, the warrants were modified to reduce the exercise price to $0.0883 and the warrants were exercised on December 31, 2024. +86 +Consulting +Agreement with Jack K. Heilbron +Jack +K. Heilbron, who served as the MURF’s Chief Executive Officer, President, and Chairman of the board of directors until September +22, 2023, has entered into a Consulting Agreement (the “Consulting Agreement”) with the Company, which became effective upon +the closing of the Business Combination. The Consulting Agreement provides that Mr. Heilbron will provide advisory and consulting services +from time to time to the Company until September 22, 2024. Pursuant to the terms of the Consulting Agreement, Mr. Heilbron is entitled +to rights as an observer to the Company’s board of directors. Mr. Heilbron is entitled to be paid $25,000 per calendar quarter +for his consulting services and is also entitled to a stock option to purchase the number of shares of Common Stock determined by dividing +(i) $300,000, by (ii) the per share Black-Scholes valuation as of the grant date, utilizing the same assumptions used in preparation +of the financial statements, with the resulting quotient rounded down to the nearest whole share. Mr. Heilbron was award stock options to purchase 30,000 shares of Common +Stock on December 1, 2023. As of December 31, 2024, and subsequent +agreement between the parties, the Company has paid Mr. Heilbron approximately $25,000 and granted Mr. Heilbron 6,900 shares of the Company’s +common stock. +Shareholder +Support Agreements +Concurrently +with the execution of the Merger Agreement, MURF, Old Conduit, and certain shareholders of Old Conduit (the “Old Conduit Shareholders”) +entered into a certain shareholder support agreement dated November 8, 2022, pursuant to which the Old Conduit Shareholders agreed to +vote all Old Conduit shares beneficially owned by them, including any additional shares of Old Conduit they acquire ownership of or the +power to vote, in favor of the Business Combination and related transactions. Under the support agreements, each Old Conduit Shareholder +also agreed that, prior to the termination of the applicable support agreement, such Old Conduit Shareholder would not transfer or otherwise +enter into any agreement or understanding with respect to a transfer relating to any shares of Old Conduit owned by such shareholder. +The support agreements automatically terminated on September 22, 2023. +Old +Conduit Shareholder Lockup Agreements +Under +the Merger Agreement, as a condition to receiving Common Stock of the Company after the closing of the Business Combination in respect +of their Old Conduit shares, certain shareholders of Old Conduit executed lockup agreements pursuant to which such shareholders agreed +not to sell, transfer or take certain other actions with respect to such shares of our Common Stock for a period of 180 days after the +closing of the Business Combination, subject to certain customary exceptions. +Transactions +with Corvus Capital Limited +Corvus +Capital Limited (“Corvus Capital”) received 311,484 shares of our common stock, pursuant to the terms of the Merger +Agreement, following the completion of the Business Combination. As of December 31, 2024, Corvus Capital owned 300,484 shares of our +Common Stock directly and 1,776 shares of our Common Stock through its wholly-owned subsidiary Algo Holdings, Inc., or in the +aggregate approximately 21.8% of the then outstanding shares of our Common Stock. Dr. Andrew Regan, the Chief Executive Officer of +Corvus Capital and 100% ultimate beneficial owner, is also a member of our board of directors. +87 +August +2024 Nirland Note +On +August 6, 2024, the Company entered into a Senior Secured Promissory Note (the “August 2024 Nirland Note”) with Nirland, +a related party of the Company, pursuant to which the Company issued and sold to Nirland the August 2024 Note in the original principal +amount of $2,650,000, inclusive of a $500,000 original issuance discount. Refer to Note 7 for additional details. +On +October 31, 2024, the Company and Nirland amended the August 2024 Nirland Note, whereby the August 2024 Nirland Note was amended to (i) +provide for the conversion of the August 2024 Nirland Note into shares of Common Stock, at Nirland’s discretion, in a multiple +of any unpaid amounts, if not otherwise previously paid, pursuant to the conversion rate contained therein, (ii) remove Nirland’s +Mandatory Prepayment Right, and (iii) remove Nirland’s right of first refusal to participate in any future equity or debt offerings +of the Company. The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to shall be determined +by dividing (x) such conversion amount by (y) the conversion price. Conversion amount means two and one quarter times the sum of (x) +portion of the principal to be converted, redeemed or otherwise with respect to which this determination is being made and (y) all accrued +and unpaid interest with respect to such portion of the principal amount, if any. Conversion price means, as of any conversion date or +other date of determination, $10, subject to adjustment as provided within the amended agreement. +October 2024 Nirland Note +On October 28, 2024, the Company issued a promissory note (the “October +2024 Nirland Note”) to Nirland, a related party, in the original principal amount of $600,000 in exchange for funds in such amount. +In connection with the October 2024 Nirland Note, the Company paid Nirland a 1% arrangement fee. The October 2024 Nirland Note bears interest +at a rate of 12% per annum, is due and payable semi-annually in arrears, and matures on October 31, 2025. Refer to Note 8 for additional +details. +Sarborg Agreement +On December 12, 2024, the Company +entered into the Sarborg Agreement with Sarborg. Under the terms of the Sarborg Agreement, Sarborg will provide algorithmic +and cybernetic technology services to Conduit, including the development of decision-support tools and advanced cybernetic systems tailored +to enhance Conduit’s decision-making processes and maximize the value of its pharmaceutical asset portfolio. +Sarborg will perform the +services to Conduit comprised of three phases: the Initial Phase (0-24 weeks) focuses on establishing a foundation for collaboration and +aligning Sarborg’s services with Conduit’s strategic goals; the Development Phase (24-36 weeks) involves building technological +infrastructure, including dashboards and predictive models; and the Ongoing Services Phase (36-52 weeks) ensures the sustained functionality +and relevance of Sarborg’s deliverables while supporting Conduit’s growth through iterative improvements and updates. Sarborg will +create specific deliverables, including reports, computer programs, software applications, APIs, mobile applications, source code, written +technical specifications and designs, operating and maintenance manuals, and other recorded data and information arising from or relating +to the services. Sarborg will provide all necessary resources to perform the services and deliver the deliverables in accordance +with the Sarborg Agreement. +The Sarborg Agreement has an +initial term of twelve months, commencing on the effective date, and may be renewed or extended upon mutual written agreement of the parties. +Either party may terminate the Sarborg Agreement for any reason upon ninety days’ written notice or immediately upon written notice +if the other party breaches any material term of the Sarborg Agreement and fails to cure such breach within thirty days or becomes insolvent, +files for bankruptcy, or is placed under the control of a receiver, trustee, or similar authority. +In consideration of the services, +Conduit has agreed to pay Sarborg an initial cash payment of $200,000 and $200,000 payable through the issuance of 22,727 +shares of common stock, determined by the closing price on the day preceding the execution of the Sarborg Agreement. Further milestone +payments payable in conjunction with the achievement of certain milestones over the term of the Sarborg Agreement, totaling up to $1,800,000, +are payable in cash or shares, at the discretion of Conduit. Sarborg will be reimbursed for pre-approved, necessary, and reasonable +out-of-pocket expenses directly incurred in connection with the performance of the services. +The Sarborg Agreement includes +provisions for the ownership and use of intellectual property. Sarborg will own its pre-existing intellectual property rights, +including proprietary tools and methodologies used in the performance of the services. Conduit will own all deliverables resulting from +the services performed by Sarborg under the Sarborg Agreement. +The Sarborg Agreement provides Sarborg with +registration rights for any common stock of Conduit that Sarborg receives as consideration under the Sarborg Agreement. Conduit +must use commercially reasonable efforts to prepare and file a registration statement covering the resale of the common stock within sixty +days after the issuance of the shares to Sarborg. The Company must cause the registration statement covering such shares to become effective +withing ninety days of the filing of the registration statement. The Sarborg Agreement also includes confidentiality obligations, representations +and warranties, indemnification, limitation of liability, and insurance requirements. +Dr. Andrew Regan, a member of Conduit’s board of directors, also +sits on the board of directors of Sarborg. +Directors +and Officers +Certain +of the individuals that serve as members of our board of directors since completion of the Business Combination have relationships with +MURF, Old Conduit, and/or one of their respective stockholders. Dr. Freda Lewis-Hall, the Chairperson of our board of directors, was +an indirect shareholder of Conduit and indirectly received 2,003 shares of our Common Stock upon completion of the Business Combination. +Dr. David Tapolczay, our Chief Executive Officer and a member of our board of directors, was a shareholder of Old Conduit and received +2,003 shares of our Common Stock upon completion of the Business Combination. Dr. Tapolczay is also a director of Old Conduit. Dr. Andrew +Regan, a member of our board of directors, is a director of Old Conduit and received 67 shares of our Common Stock upon completion of +the Business Combination. James Bligh, a member of our board of directors and interim chief financial officer, was an employee of Old +Conduit and currently serves as a member of its board of directors. Faith L. Charles, a member of our board of directors, is a partner +at Thompson Hine LLP, a law firm that provides legal services to us. +On April 22, 2024, the Company issued in a private placement common stock +purchase warrants (the “April Warrants”) to third parties, including certain directors, to purchase up to an aggregate of +9,077 shares of the Company’s common stock, in exchange for entering into a lock-up with respect to the shares of common stock held +by such holder and for such directors, $12.50 per warrant. The April Warrants are not exercisable until one year after their date of issuance. +Each April Warrant is exercisable into one share of the Company’s common stock at a price per share of $312 (as adjusted from time +to time in accordance with the terms thereof) for a two-year period after the date of exercisability. There is no established public trading +market for the April Warrants. The issuance of the April Warrants were made in reliance on the exemption from registration provided by +Section 4(a)(3) of the Securities Act, and/or Regulation D promulgated thereunder. +88 +Item +14. Principal Accountant Fees and Services +The +following is a summary of fees paid or to be paid to Marcum LLP, or Marcum, for services rendered. +Audit +Fees . Audit fees consist of fees billed for professional services rendered for the audit of our year-end financial statements and +services that are normally provided by Marcum in connection with regulatory filings. The aggregate fees billed by Marcum for professional +services rendered for the audit of our annual financial statements for the year ended December 31, 2024 totaled approximately $341,200, +and for the year ended December 31, 2023 totaled approximately $440,200. +Audit-Related Fees . Audit-related +services consist of fees billed for assurance and related services that are reasonably related to performance of the audit or review of +our financial statements and are not reported under “Audit Fees.” Audit related fees primarily include review of regulatory +documents filed with the SEC. For the year ended December 31, 2024, we paid Marcum audit-related fees totaling approximately $120,170. +For the year ended December 31, 2023, we paid Marcum audit-related fees totaling approximately $118,525. +Tax Fees . Tax fees consists +of fees billed for tax compliance, tax planning and tax advice. We paid Marcum tax fees for the year ended December 31, 2024 totaling +approximately $83,405. We did not pay Marcum tax fees for the year ended December 31, 2023. +All +Other Fees . We did not pay Marcum for other services for the years ended December 31, 2024 or December 31, 2023. +Pre-Approval +Policy +Our +audit committee was formed upon the consummation of our initial public offering. As a result, the audit committee did not pre-approve +all of the foregoing services, although any services rendered prior to the formation of our audit committee were approved by our board +of directors. Since the formation of our audit committee, and on a going-forward basis, the audit committee has and will pre-approve +all auditing services and permitted non-audit services to be performed for us by our auditors, including the fees and terms thereof (subject +to the de minimis exceptions for non-audit services described in the Exchange Act which are approved by the audit committee prior +to the completion of the audit). +89 +PART +IV +Item +15. Exhibits, Financial Statement Schedules +The +following documents are filed as part of this annual report: +1. +Financial +Statements: (see “Financial Statements and Supplementary Data” at Item 8 and incorporated herein by reference). +2. +Financial +Statement Schedule: (Schedules to the Financial Statements have been omitted because the information required to be set forth therein +is not applicable or is shown in the accompanying Financial Statements or notes thereto). +3. +Exhibits: +The exhibits listed in the accompanying “Exhibit Index” are filed or incorporated by reference as part of this Annual +Report on Form 10-K. +EXHIBIT +INDEX +Exhibit +No. +Description +2.1 +Agreement +and Plan of Merger Agreement dated as of November 8, 2022, by and among Murphy Canyon Acquisition Corp., Conduit Merger Sub, Inc. +and Conduit Pharmaceuticals Limited (filed as Annex A-1 to the Registrant’s Proxy Statement/Prospectus filed on August 11, +2023, and incorporated herein by reference). +2.2 +Amendment +to Agreement and Plan of Merger dated as of January 27, 2023, by and among Murphy Canyon Acquisition Corp., Conduit Merger Sub, Inc. +and Conduit Pharmaceuticals Limited (filed as Annex A-2 to the Registrant’s Proxy Statement/Prospectus filed on August 11, +2023, and incorporated herein by reference). +2.3 +Second +Amendment to Agreement and Plan of Merger dated as of May 11, 2023, by and among Murphy Canyon Acquisition Corp., Conduit Merger +Sub, Inc. and Conduit Pharmaceuticals Limited (filed as Annex A-3 to the Registrant’s Proxy Statement/Prospectus filed on August +11, 2023, and incorporated herein by reference). +3.1 +Second +Amended and Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.1 to the Registrant’s Current Report +on Form 8-K filed on September 29, 2023, and incorporated herein by reference). +3.2 +Amended +and Restated Bylaws of the Registrant (filed as Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on September +29, 2023, and incorporated herein by reference). +3.3 +Amendment No.1 to the Amended and Restated Bylaws (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on November 19, 2024, and incorporated herein by reference) +3.4 +Certificate of Amendment filed with the Delaware Secretary of State on January 22, 2025 (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on January 23, 2025, and incorporated herein by reference). +4.1* +Description of Registered Securities +4.2 +Form of Senior Secured Promissory Note (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on August 7, 2024, and incorporated herein by reference). +4.4 +Form of Warrant (Filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on November 1, 2024, and incorporated herein by reference). +4.5 +Nirland Note (Filed as Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed on November 1, 2024, and incorporated herein by reference). +4.6 +Amendment to the Senior Secured Promissory Note and Security Agreement, dated October 31, 2024, between Nirland Limited and Conduit Pharmaceuticals Inc. (filed as Exhibit 4.4 to the Registrant’s Current Report on Form 8-K filed on November 1, 2024, and incorporated herein by reference). +4.7 +Convertible Promissory Note, dated November 25, 2024, between Conduit Pharmaceuticals Inc. and A.G.P./Alliance Global Partners (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on November 25, 2024, and incorporated herein by reference). +4.8 +Second Amendment to the Senior Secured Promissory Note, dated November 22, 2024, between Conduit Pharmaceuticals Inc. and Nirland Limited (filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on November 25, 2024, and incorporated herein by reference). +10.1 +Letter +Agreement, dated February 2, 2022, among Murphy Canyon Acquisition Corp., Murphy Canyon Acquisition Sponsor, LLC, and each of the +executive officers and directors of Murphy Canyon Acquisition Corp. (filed as Exhibit 10.1 to the Registrant’s Current Report +on Form 8-K filed on February 8, 2022, and incorporated herein by reference). +10.2 +Underwriting +Agreement (filed as Exhibit 1.1 to the Registrant’s Current Report on Form 8-K filed February 8, 2022, and incorporated herein +by reference). +10.3 +Promissory +Note, dated November 4, 2021, issued to Murphy Canyon Acquisition Sponsor, LLC, by Murphy Canyon Acquisition Corp. (filed as Exhibit +10.2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-262036) filed on January 6, 2022, and incorporated +herein by reference). +10.4 +Investment +Management Trust Agreement, dated February 2, 2022, between Murphy Canyon Acquisition Corp. and Wilmington Trust Company (filed as +Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on February 2, 2022, and incorporated herein by reference). +10.5 +Registration +Rights Agreement, dated February 2, 2022, among Murphy Canyon Acquisition Corp. and certain securityholders (filed as Exhibit 10.3 +to the Registrant’s Current Report on Form 8-K filed on February 2, 2022, and incorporated herein by reference) +90 +10.6 +Securities +Subscription Agreement, dated November 4, 2021, between Murphy Canyon Acquisition Corp. and Murphy Canyon Acquisition Sponsor, LLC +(filed as Exhibit 10.5 to the Registrant’s Registration Statement on Form S-1 (File No. 333-262036) filed on January 6, 2022, +and incorporated herein by reference). +10.7 +Placement +Unit Purchase Agreement, dated February 2, 2022, between Murphy Canyon Acquisition Corp. and Murphy Canyon Acquisition Sponsor, LLC +(filed as Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on February 8, 2022, and incorporated herein by +reference). +10.8 +Form +of Conduit Pharmaceuticals Inc. Indemnity Agreement (filed as Exhibit 10.9 to the Registrant’s Current Report on Form 8-K filed +on September 29, 2023, and incorporated herein by reference). +10.9 +Administrative +Support Agreement, dated February 2, 2022, by and between Murphy Canyon Acquisition Corp. and Murphy Canyon Management Group, Inc. +(filed as Exhibit 10.6 to the Registrant’s Current Report on Form 8-K filed on February 8, 2022, and incorporated herein by +reference). +10.10 +Form +of Lock-Up Agreement (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on November 14, 2022, and +incorporated herein by reference). +10.11 +Sponsor +Support Agreement, dated as of November 8, 2022, by and among Murphy Canyon Acquisition Corp. and each of the Persons set forth on +Schedule I attached thereto (filed as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on November 14, 2022, +and incorporated herein by reference). +10.12 +Shareholder +Support Agreement dated as of November 8, 2022, by and among Murphy Canyon Acquisition Corp., Conduit Pharmaceuticals Limited and +each of the Persons set forth on Schedule I attached thereto (filed as Exhibit 10.4 to the Registrant’s Current Report on Form +8-K filed November 14, 2022, and incorporated herein by reference). +10.13 +Form +of Amended and Restated Warrant (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on January 30, 2023, +and incorporated herein by reference). +10.14 +Form +of Note, issued March 7, 2023, by and between Murphy Canyon Acquisition Corp. and Murphy Canyon Acquisition Sponsor, LLC (filed as +Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed March 7, 2023, and incorporated herein by reference). +10.15 +Form +of Subscription Agreement between Murphy Canyon Acquisition Corp. and the investor named therein (filed as Exhibit 10.1 to the Registrant’s +Current Report on Form 8-K filed on September 13, 2023, and incorporated herein by reference). +10.16 +Form +of PIPE Warrant (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on September 13, 2023, and incorporated +herein by reference). +10.17# +Conduit +Pharmaceuticals Inc. 2023 Stock Incentive Plan (filed as Annex C to the Registrant’s Proxy Statement/Prospectus filed on August +11, 2023, and incorporated herein by reference). +10.18# +Form +of Stock Option Agreement under Conduit Pharmaceuticals Inc. 2023 Stock Incentive Plan (filed as Exhibit 10.17 to the Registrant’s +Registration Statement on Form S-4 (File No. 333-271903) filed on May 12, 2023, and incorporated herein by reference). +10.19# +Form +of Employment Agreement with David Tapolczay (filed as Exhibit 10.17 to the Registrant’s Amendment No. 2 to Registration Statement +on Form S-4 (File No. 333-271903) filed on July 28, 2023, and incorporated herein by reference). +10.22+ +AZD1656 +Project Funding Agreement For Use In Renal Transplant between St George Street Capital Limited and Conduit Pharmaceuticals Limited, +dated November 2, 2022 (filed as Exhibit 10.21 to the Registrant’s Registration Statement on Form S-4 (File No. 333-271903) +filed on May 12, 2023, and incorporated herein by reference). +10.23+ +AZD1656 +Project Funding Agreement For Use In Preterm Labor between St George Street Capital Limited and Conduit Pharmaceuticals Limited, +dated November 2, 2022 (filed as Exhibit 10.22 to the Registrant’s Registration Statement on Form S-4 (File No. 333-271903) +filed on May 12, 2023, and incorporated herein by reference). +10.24+ +AZD1656 +Project Funding Agreement For Use In Hashimoto’s Thyroiditis between St George Street Capital Limited and Conduit Pharmaceuticals +Limited, dated November 2, 2022 (filed as Exhibit 10.23 to the Registrant’s Registration Statement on Form S-4 (File No. 333-271903) +filed on May 12, 2023, and incorporated herein by reference). +10.25+ +AZD1656 +Project Funding Agreement For Use In Uveitis between St George Street Capital Limited and Conduit Pharmaceuticals Limited, dated +November 2, 2022 (filed as Exhibit 10.24 to the Registrant’s Registration Statement on Form S-4 (File No. 333-271903) filed +on May 12, 2023, and incorporated herein by reference). +91 +10.26+ +AZD5904 +Project Funding Agreement between St George Street Capital Limited and Conduit Pharmaceuticals Limited, dated November 2, 2022 (filed +as Exhibit 10.25 to the Registrant’s Registration Statement on Form S-4 (File No. 333-271903) filed on May 12, 2023, and incorporated +herein by reference). +10.27# +Consulting +Agreement between with Jack Heilbron and Murphy Canyon Acquisition Corp. (filed as Exhibit 10.24 to the Registrant’s Amendment +No. 1 to Registration Statement on Form S-4 (File No. 333-271903) filed on July 11, 2023, and incorporated herein by reference). +10.28# +Form +of Non-Employee Director Compensation Program (filed as Exhibit 10.26 to the Registrant’s Amendment No. 2 to Registration Statement +on Form S-4 (File No. 333-271903) filed on July 28, 2023, and incorporated herein by reference). +10.29 +Separation Agreement, dated May 12, 2024, between Mr. Sragovicz and Conduit Pharmaceuticals Inc. (filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on May 14, 2024, and incorporated herein by reference). +10.30 +Security Agreement, dated August 6, 2024, between Nirland Limited and Conduit Pharmaceuticals Inc. (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 7, 2024, and incorporated herein by reference). +10.31 +Convertible Promissory Note between Conduit Pharmaceuticals Limited and Vrezh and Sharon Lee Isayan, dated March 20, 2023 (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October 15, 2024, and incorporated herein by reference). +10.32 +Bridge Loan Agreement, dated October 29, 2024, between A.G.P./Alliance Global Partners and Conduit Pharmaceuticals (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on November 1, 2024, and incorporated herein by reference). +10.33# +Employment Agreement, dated November 15, 2024, between James Bligh, Conduit Pharmaceuticals Limited and Conduit UK Management LTD. (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on November 19, 2024, and incorporated herein by reference). +10.34 +Services Agreement dated December 12, 2024, between Conduit Pharmaceuticals Inc. and SARBORG Limited. (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 17, 2024, and incorporated herein by reference). +19.1* +Conduit Pharmaceuticals, Inc. Insider Trading Policy +21.1 +Subsidiaries +of Conduit Pharmaceuticals Limited (filed as Exhibit 21.1 to the Registrant’s Amendment No. 2 to Registration Statement on +Form S-4 (File No. 333-271903) filed on July 28, 2023, and incorporated herein by reference). +23.1* +Consent of Marcum LLP, independent public accounting firm of Conduit Pharmaceuticals Inc. +24.1 +Power of Attorney (reference is made to the signature page hereto). +31.1* +Certification of Principal Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +31.2* +Certification of Principal Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32.1§ +Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +32.2§ +Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97.1 +Conduit Pharmaceuticals, Inc. Compensation Recovery Policy (filed as Exhibit 97.1 to the Registrant’s Annual Report filed on April 16, 2024, and incorporated herein by reference). +101.INS* +Inline +XBRL Instance Document. +101.CAL* +Inline +XBRL Taxonomy Extension Calculation Linkbase Document. +101.SCH* +Inline +XBRL Taxonomy Extension Schema Document. +101.DEF* +Inline +XBRL Taxonomy Extension Definition Linkbase Document. +101.LAB* +Inline +XBRL Taxonomy Extension Labels Linkbase Document. +101.PRE* +Inline +XBRL Taxonomy Extension Presentation Linkbase Document. +104 +Cover +Page Interactive Data File (embedded within the Inline XBRL document). +* +Filed herewith. +# +Management contract or compensatory plan or arrangement. ++ +Certain portions of this Exhibit have been omitted in accordance with Item 601(b)(10) of Regulation S-K. The Registrant agrees to furnish +supplementally an unredacted copy of this Exhibit to the SEC upon its request. +§ +In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986, Final Rule: Management’s Reports +on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished +in Exhibits 32.1 and 32.2 hereto is deemed to accompany this Annual Report on Form 10-K and will not be deemed “filed” for +purposes of Section 18 of the Exchange Act. Such certification will not be deemed to be incorporated by reference into any filing under +the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. +Item +16. Form 10–K Summary +None. +92 +SIGNATURES +Pursuant +to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed +on its behalf by the undersigned, thereunto duly authorized. +CONDUIT +PHARMACEUTICALS INC. +Date: +March 28, 2025 +By: +/s/ +David Tapolczay +Name: +David +Tapolczay +Title: +Chief +Executive Officer +POWER +OF ATTORNEY +KNOW +ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David Tapolczay and James Bligh, +and each of them, as his or her attorneys-in-fact, with the power of substitution, for him or her in any and all capacities, to sign +any amendments to this report, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities +and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact, and each of them, or his or her substitute +or substitutes may lawfully do or cause to be done by virtue hereof. +Pursuant +to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the +registrant and in the capacities and on the dates indicated. +Signature +Title +Date +/s/ +David Tapolczay +Chief +Executive Officer and Director +March +28, 2025 +David +Tapolczay +(Principal +Executive Officer) +/s/ +James Bligh +Interim +Chief Financial Officer +March +28, 2025 +Jamie +Bligh +(Principal +Financial Officer and Principal Accounting Officer) +/s/ +Freda Lewis-Hall +Director +and Chairperson of the Board of Directors +March +28, 2025 +Freda +Lewis-Hall +/s/ +James Bligh +Director +March +28, 2025 +James +Bligh +/s/ +Faith L. Charles +Director +March +28, 2025 +Faith +L. Charles +/s/ +Chele Chiavacci Farley +Director +March +28, 2025 +Chele +Chiavacci Farley +/s/ +Simon Fry +Director +March +28, 2025 +Simon +Fry +/s/ +Andrew Regan +Director +March +28, 2025 +Andrew +Regan +93 +CONDUIT +PHARMACEUTICALS INC. +INDEX +TO FINANCIAL STATEMENTS +Page +Audited +Financial Statements of Conduit Pharmaceuticals Inc.: +Report of Independent Registered Public Accounting Firm (PCAOB No. 688 ) +F-2 +Consolidated Balance Sheets as of December 31, 2024 and 2023 +F-3 +Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2024 and 2023 +F-4 +Consolidated Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2024 and 2023 +F-5 +Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023 +F-7 +Notes to Financial Statements +F-8 +F- 1 +REPORT +OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To +the Shareholders and Board of Directors of +Conduit +Pharmaceuticals Inc. +Opinion +on the Financial Statements +We +have audited the accompanying consolidated balance sheets of Conduit Pharmaceuticals Inc. (the “Company”) as of December +31, 2024 and 2023, the related consolidated statements of operations and comprehensive income (loss), stockholders’ deficit and +cash flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the “financial +statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the +Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period +ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. +Explanatory +Paragraph – Going Concern +The +accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more +fully described in Note 1, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise +additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s +ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated +financial statements do not include any adjustments that might result from the outcome of this uncertainty. +Basis +for Opinion +These +financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s +financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board +(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal +securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We +conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain +reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company +is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits +we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion +on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our +audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error +or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding +the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant +estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits +provide a reasonable basis for our opinion. +/s/ +Marcum LLP +Marcum +LLP +We +have served as the Company’s auditor since 2022. +Morristown, NJ +March 28, 2025 +F- 2 +CONDUIT +PHARMACEUTICALS INC. +CONSOLIDATED +BALANCE SHEETS +(in +thousands, except share amounts) +December 31, +2024 +December 31, +2023 +ASSETS +Current assets +Cash and cash equivalents +$ 554 +$ 4,228 +Prepaid expenses +2,161 +1,505 +Total current assets +2,715 +5,733 +Operating lease right-of-use assets. net +263 +- +Property, plant and equipment, net +40 +- +Prepaid expenses and other long-term assets +1,175 +1,491 +Total assets +$ 4,193 +$ 7,224 +LIABILITIES AND STOCKHOLDERS’ DEFICIT +Current liabilities +Accounts payable +$ 1,428 +$ 215 +Accrued expenses and other current liabilities +1,963 +601 +Operating lease liability, current portion +119 +- +Convertible promissory note payable +800 +800 +Convertible promissory notes payable at fair value +2,985 +- +Convertible promissory notes payable at fair value – related parties +2,871 +- +Convertible promissory notes payable at fair value +2,871 +- +Notes payable +150 +185 +Notes payable – related parties +425 +- +Notes payable +425 +- +Total current liabilities +10,741 +1,801 +Operating lease liability, non-current portion +107 +- +Derivative warrant liability +138 +142 +Deferred commission payable +- +5,738 +Total liabilities +10,986 +7,681 +Commitments and contingencies (see note 15) +- +- +Stockholders’ deficit +Common stock, par value $ 0.0001 ; +250,000,000 shares authorized at December +31, 2024 and December 31, 2023, respectively, 1,384,801 +shares and 738,295 shares issued +and outstanding at December 31, 2024 and December 31, 2023, respectively +14 +7 +Preferred stock, par value $ 0.0001 ; 1,000,000 shares authorized at December 31, 2024 and December 31, 2023, respectively; nil shares issued and outstanding at December 31, 2024 and December 31, 2023 +- +- +Additional paid-in capital +21,880 +10,424 +Accumulated deficit +( 29,101 ) +( 11,299 ) +Accumulated other comprehensive income +414 +411 +Total stockholders’ deficit +( 6,793 ) +( 457 ) +Total liabilities and stockholders’ deficit +$ 4,193 +$ 7,224 +The +accompanying notes are an integral part of these consolidated financial statements. +F- 3 +CONDUIT +PHARMACEUTICALS INC. +CONSOLIDATED +STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS ) +(in +thousands, except share amounts and per share data) +2024 +2023 +Year Ended December 31, +2024 +2023 +Operating expenses: +Research and development expenses +$ 3,378 +$ 90 +General and administrative expenses +12,041 +5,172 +Total operating costs and expenses +15,419 +5,262 +Operating loss +( 15,419 ) +( 5,262 ) +Other income (expenses): +Other income (expense), net +( 890 ) +4,923 +Interest income +13 +15 +Interest expense, net +( 1,506 ) +( 211 ) +Total other (expense) income, net +( 2,383 ) +4,727 +Net income (loss) +$ ( 17,802 ) +$ ( 535 ) +Less: Change in fair value and income impact of option liabilities +- +( 5,521 ) +Net income (loss) - diluted +( 17,802 ) +( 6,056 ) +Basic earnings/(net loss) per share +$ ( 20.53 ) +$ ( 0.79 ) +Diluted earnings/(net loss) per share +$ ( 20.53 ) +$ ( 8.92 ) +Basic weighted-average common shares outstanding +867,096 +669,739 +Diluted weighted-average common shares outstanding +867,096 +678,939 +Comprehensive income (loss): +Foreign currency translation adjustment +3 +( 264 ) +Total comprehensive income (loss) +$ ( 17,799 ) +$ ( 799 ) +The +accompanying notes are an integral part of these consolidated financial statements. +F- 4 +CONDUIT +PHARMACEUTICALS INC. +CONSOLIDATED +STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT +(in +thousands, except share amounts) +Shares +Amount +capital +deficit +income +deficit +Common stock +Additional +paid-in +Accumulated +Accumulated +other +comprehensive +Total +stockholders’ +Shares +Amount +capital +deficit +income +deficit +Balance at January 1, 2023 +20 +$ - +$ - +$ ( 10,764 ) +$ 675 +$ ( 10,089 ) +Retroactive application of Merger +646,244 +6 +( 6 ) +- +- +- +Reclassification of additional paid-in-capital ** +- +- +6 +( 6 ) +- +- +Adjusted Balances, beginning of period * +646,264 +$ 6 +$ - +$ ( 10,770 ) +$ 675 +$ ( 10,089 ) +Reclassification of additional paid-in-capital *** +- +- +( 6 ) +6 +- +- +Issuance of Conduit Pharmaceuticals Inc. common stock to holders of Conduit Pharmaceuticals Limited convertible notes on the Closing Date (Note 2) +3,735 +- +3,685 +- +- +3,685 +Issuance of common stock upon conversion of MURF Class A & Class B common stock in connection with merger (Note 2) +41,183 +1 +( 15,219 ) +- +- +( 15,218 ) +Issuance of Conduit Pharmaceuticals Inc. common stock in connection with PIPE Financing (Note 2) +20,000 +- +19,779 +- +- +19,779 +Issuance of Conduit Pharmaceuticals Inc. common stock to Cizzle Biotechnology Holding PLC +3,955 +- +151 +- +- +151 +Issuance of Conduit Pharmaceuticals Inc. common stock to Vela Technologies PLC +10,158 +- +544 +- +- +544 +Issuance of Conduit Pharmaceuticals Inc. common stock to an advisor for services directly related to the Merger (Note 2) +13,000 +- +- +- +- +- +Reduction of excise tax liability associated with the Merger (Note2) +- +- +1,141 +1,141 +Capital contribution - related party +- +- +150 +- +- +150 +Stock-based compensation +- +- +199 +- +- +199 +Foreign currency translation adjustment +- +- +- +( 264 ) +( 264 ) +Net loss +- +- +- +( 535 ) +- +( 535 ) +Balance at December 31, 2023 +738,295 +$ 7 +$ 10,424 +$ ( 11,299 ) +$ 411 +$ ( 457 ) +* +Shares +of legacy common stock have been retroactively restated to give effect to the Merger. +** +Reclassification +is made as additional paid-in capital cannot be presented as a negative for either its beginning or ending balance. +*** +Reclassification +is made as the impact of the retroactive application of the Merger can be shown as a reduction to additional paid-in capital during +the period as presenting the reduction does not result in additional paid-in capital being presented as a negative for its ending +balance. +F- 5 +Common stock +Additional +paid-in +Accumulated +Accumulated +other +comprehensive +Total +stockholders’ +Shares +Amount +capital +deficit +income +deficit +Balance at January 1, 2024 +738,295 +$ 7 +$ 10,424 +$ ( 11,299 ) +$ 411 +$ ( 457 ) +Balance +738,295 +$ 7 +$ 10,424 +$ ( 11,299 ) +$ 411 +$ ( 457 ) +Correction of immaterial error related to franchise tax expense +- +- +144 +144 +Issuance of Common Stock for services +19,500 +- +242 +- +- +242 +Issuance of Common Stock upon vesting of restricted stock units +745 +- +- +- +- +- +Issuance of Common Stock for note payable +95,045 +2 +995 +- +- +997 +Issuance of Common Stock for licensing right +125,000 +1 +1,567 +- +- +1,568 +Issuance of Common Stock under the ATM Program +323,273 +3 +3,218 +- +- +3,221 +Issuance of Common Stock in Exchange for Debt Modification +39,193 +1 +488 +- +- +489 +Issuance of Common Stock upon Exercise of Conversion Option +23,000 +- +92 +- +- +92 +Issuance of Warrants +- +- +2,890 +- +- +2,890 +Issuance of Common Stock Upon Exercise of Warrants +20,000 +- +188 +- +- +188 +Stock-based compensation +750 +- +1,632 +- +- +1,632 +Foreign currency translation adjustment +- +- +- +- +3 +3 +Net loss +- +- +- +( 17,802 ) +- +( 17,802 ) +Balance at December 31, 2024 +1,384,801 +$ 14 +$ 21,880 +$ ( 29,101 ) +$ 414 +$ ( 6,793 ) +Balance +1,384,801 +$ 14 +$ 21,880 +$ ( 29,101 ) +$ 414 +$ ( 6,793 ) +The +accompanying notes are an integral part of these consolidated financial statements. +F- 6 +CONDUIT +PHARMACEUTICALS INC. +CONSOLIDATED +STATEMENTS OF CASH FLOWS +(in +thousands) +2024 +2023 +Year Ended December 31, +2024 +2023 +Cash flows from operating activities: +Net loss +$ ( 17,802 ) +$ ( 535 ) +Adjustments to reconcile net loss to net cash used in operating activities: +Gain on change in fair value of Cizzle option +- +( 1,280 ) +Gain on change in fair value of Vela option +- +( 970 ) +Loss on issuance of Vela option +- +987 +Change in reserve for related party uncollectible loan +- +( 240 ) +Loss on debt extinguishment, net +707 +- +Loss on related party loan forgiveness +- +12 +Realized gain on short-term investments +( 8 ) +- +Unrealized foreign exchange gain +13 +( 39 ) +Loss (gain) on change in fair value of convertible notes payable +( 2,018 ) +426 +Gain on change in FV of the warrants +( 221 ) +( 81 ) +Non-cash reduction of deferred income upon exercise of option liability +- +( 4,254 ) +Loss on issuance of warrants +2,710 +- +Non-cash lease expense +89 +- +Stock-based compensation expense +1,632 +199 +Issuance of Common Stock for licensing right +1,568 +- +Non-cash interest expense +536 +87 +Depreciation expense +10 +- +Amortization of financed Directors and Officers insurance +1,666 +479 +Amortization Expense +447 +- +Amortization of debt discount +929 +- +Issuance of common stock for services +202 +- +Changes in operating assets and liabilities: +Prepaid expenses and other current assets +( 2,273 ) +( 990 ) +Accounts payable +1,225 +215 +Accrued expenses and other current liabilities +1,030 +( 1,746 ) +Lease liability +( 124 ) +- +Intangible assets +- +5 +Net cash flows from operating activities +( 9,682 ) +( 7,725 ) +Cash flows from investing activities: +Issuance of loan - related party +- +( 357 ) +Purchases of property and equipment +( 51 ) +- +Purchases of short-term investments +( 490 ) +- +Proceeds from the sale of short-term investments +498 +- +Proceeds from issuance of option +- +497 +Proceeds from loan repayment - related party +- +585 +Net cash flows from investing activities +( 43 ) +725 +Cash flows from financing activities: +Proceeds from Merger and related PIPE Financing, net of transaction costs +- +8,493 +Proceeds from the issuance of notes payable – related parties +2,626 +- +Proceeds from the issuance of notes payable – related parties +600 +- +Capital contribution - related party +- +150 +Proceeds from issuance of common shares related to ATM program +3,328 +- +Exercise of warrants +176 +- +Repayment of notes payable +( 776 ) +- +Proceeds from issuance of warrants +113 +- +Proceeds from issuance of convertible promissory note payable, carried at cost +- +2,286 +Net cash flows from financing activities +6,067 +10,929 +Net change in cash and cash equivalents before effect of exchange rate changes +( 3,658 ) +3,929 +Effect of exchange rate changes on cash and cash equivalents +( 16 ) +299 +Net change in cash +( 3,674 ) +4,228 +Cash and cash equivalents at beginning of period +4,228 +- +Cash and cash equivalents at end of period +$ 554 +$ 4,228 +Non-cash investing and financing activities +Right of Use Asset obtained in exchange for Operating Lease Liabilities +$ 352 +$ - +Correction of immaterial error related to franchise tax expense +$ 144 +$ - +Issuance of Common Stock upon exercise of conversion option +$ 92 +$ - +Issuance of Common Stock in exchange for debt extension +$ 489 +$ - +Conversion of deferred commission payable to convertible promissory note +$ 5,378 +$ - +Issuance of Conduit Pharmaceuticals Inc. common stock to Cizzle Biotechnology Holding PLC upon exercise of option +$ - +$ 151 +Issuance of Conduit Pharmaceuticals Inc. common stock to Vela Technologies PLC upon exercise of option +$ - +$ 544 +Exchange of Conduit Pharmaceuticals Limited convertible notes for shares of Conduit Pharmaceuticals Inc. common stock in connection with the Merger +$ - +$ 3,685 +Deferred Underwriting Costs +$ - +$ 5,738 +Prepaid expense of directors and officers insurance paid out of PIPE financings proceeds in connection with the Merger +$ - +$ 2,253 +Accumulated deficit assumed to APIC as a result of the business combination +$ - +$ 6,124 +Initial value of warrant liabilities issued in connection with PIPE Financing +$ - +$ 223 +Non-Cash Assets Assumed in the Merger Financing +$ - +91 +Non-Cash Liabilities Assumed in the Merger Financing +$ - +124 +Supplemental Cash Disclosures +Cash paid for interest +$ 80 +124 +The +accompanying notes are an integral part of these consolidated financial statements. +F- 7 +CONDUIT +PHARMACEUTICALS INC. +NOTES +TO CONSOLIDATED FINANCIAL STATEMENTS +1. +Nature of the Business, Basis of Presentation and Summary of Significant Accounting Policies +Conduit +Pharmaceuticals Inc., a Delaware corporation (“Conduit” or the “Company”), is a clinical-stage specialty +biopharmaceutical company that was formed to facilitate the development and commercialization of clinical assets. The Company has +developed a unique business model that allows it to act as a conduit to bring clinical assets from pharmaceutical companies and +develop new treatments for patients. Our novel approach addresses unmet medical needs and lengthens the intellectual property for +our existing assets through cutting-edge solid-form technology with the expectation of commercializing these products with life +science companies. Our initial development plan is to conduct a Phase II clinical trial on AZD1656 in Lupus (including Lupus +Nephritis) and ANCA Vasculitis (AAV). We anticipate developing our Initial Pipeline (which has already undergone pre-clinical and +clinical trials) through the Phase II stage and then monetizing such clinical assets through a license, royalty, or other +transaction at this stage. At this time, we do not expect that we will commercialize any clinical assets or seek marketing approval +from the FDA (or similar organizations) as we intend to enter into agreements with third parties following Phase II clinical trials +for each such clinical asset that would provide that such third party would pursue the further development, commercialization, and +marketing of such assets. +Merger +Agreement +On +September 22, 2023 (the “Closing Date”), a merger transaction between Conduit Pharmaceuticals Limited (“Old Conduit”), +Murphy Canyon Acquisition Corp (“MURF”) and Conduit Merger Sub, Inc., a Cayman Islands exempted company and a wholly owned +subsidiary of MURF (“Merger Sub”), was completed (the “Merger”, see Note 2) pursuant to the initial merger agreement +dated November 8, 2022 and subsequent amendments to the merger agreement dated January 27, 2023 and May 11, 2023 (together, the “Merger +Agreement”). Pursuant to the terms of the Merger Agreement, on the Closing Date, (i) Merger Sub merged with and into Old Conduit, +with Old Conduit surviving the merger as a wholly-owned subsidiary of MURF, and (ii) MURF changed its name from Murphy Canyon Acquisition +Corp. to Conduit Pharmaceuticals Inc. The common stock of the Company (the “Common Stock”) commenced trading on The Nasdaq +Global Market under the symbol “CDT” on September 25, 2023, and the Company’s warrants commenced trading on The Nasdaq +Capital Market under the symbol “CDTTW” on September 25, 2023. On March 7, 2025, the Company filed an application to list our Common Stock on The Nasdaq Capital Market as part +of our plan to regain compliance with all NASDAQ rules. See Note 20 for additional details. +The +Merger was accounted for as a reverse recapitalization in accordance with accounting principles generally accepted in the United States +of America (“U.S. GAAP”). Under the reverse recapitalization method, MURF was treated as the acquired company for financial +reporting purposes, and the accounting acquirer was assumed to have issued shares of stock for the net assets of MURF, with no goodwill +or other intangible assets recorded. +Basis +of Presentation +The +accompanying consolidated financial statements have been prepared by the Company in accordance with U.S. GAAP as set forth by the Financial +Accounting Standards Board (“FASB”) and pursuant to the rules and regulations of the United States Securities and Exchange +Commission (“SEC”). References to U.S. GAAP issued by the FASB in these notes to the accompanying consolidated financial +statements are to the FASB Accounting Standards Codifications (“ASC”) and Accounting Standards Update (“ASUs”). +Principles +of Consolidation +The +accompanying consolidated financial statements include the accounts of Conduit Pharmaceuticals, Inc. and its wholly owned subsidiaries +Conduit UK Management Ltd. (United Kingdom) and Conduit Pharmaceuticals, Ltd. (Cayman Islands). As used herein, references to the “Company” +include references to Conduit Pharmaceuticals, Inc, and its subsidiaries. All intercompany balances and transactions have been eliminated +in consolidation. +Liquidity +and Going Concern +In +accordance with ASC 205-40, Going Concern, the Company has evaluated whether there are conditions and events, considered in the aggregate, +that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial +statements are issued. Since its inception, the Company has generated significant losses and as of December 31, 2024, the Company had +an accumulated deficit of $ 29.1 million. As of December 31, 2024 and December 31, 2023, the Company had cash and cash equivalents and +short-term investments of $ 0.6 million and $ 4.2 million, respectively. For the year ended December 31, 2024 and 2023, the Company had +net operating losses of $ 15.4 million and $ 5.3 million, respectively, and cash used in operating activities of $ 9.7 million and $ 7.7 +million, respectively. Management has determined that it does not have sufficient cash and other sources of liquidity to fund its current +business plan. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for at least +the next 12 months from the financial statement filing date. +The +Company’s expectation is to generate operating losses and negative operating cash flows in the future and will need additional +funding to support its current business plan in addition to the remaining at the market offering program (the “Sales +Agreement”) of $ 12.0 million (See Note 20), as of the financial statement release date. Management’s plans to alleviate the +conditions that raise substantial doubt through the pursuit of additional cash resources through public or private equity or debt +financings. However, there is no assurance that such funding will be available when needed or on acceptable terms. If additional +funding is not available when required, the Company would need to delay or curtail its operations and its research and development +activities until such funding is received, all of which could have a material adverse effect on the Company and its financial +condition. +These +financial statements have been prepared assuming the Company will continue as a going concern and do not include adjustments to reflect +the possible effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result +from the outcome of this uncertainty. +Reverse +Stock Split +On +January 24, 2025, the Company amended its Second Amended and Restated Certificate of Incorporation with the Secretary of State of the +State of Delaware in order to effect a 1-for-100 reverse stock split of its outstanding shares of common stock (the “Reverse Stock +Split”). As a result of the reverse stock split, every 100 shares of the Company’s common stock issued or outstanding were +automatically reclassified into one new share of common stock, subject to the treatment of fractional shares as described below, without +any action on the part of the holders. All historical share and per-share amounts reflected throughout the accompanying consolidated +financial statements and other financial information in this Annual Report on Form 10-K have been retroactively adjusted to reflect the +2025 Reverse Stock Split as if the split occurred as of the earliest period presented. The Reverse Stock Split did not affect the number +of authorized shares of common stock or the par value of the common stock. No fractional shares were issued in connection with the Reverse +Stock Split. Stockholders who would otherwise have been entitled to receive fractional shares as a result of the Reverse Stock Split +were entitled to a cash payment in lieu thereof at a price equal to the fraction to which the stockholder would otherwise be entitled +multiplied by the closing price per share of the common stock (as adjusted to give effect to the Reverse Stock Split) on The Nasdaq Global +Market on January 24, 2025. +F- 8 +Other +Risks and Uncertainties +The +Company is subject to risks common to companies in the development stage and pharmaceutical industry including, but not limited to, uncertainties +related to pre-clinical and clinical outcomes competitor products, regulatory approvals, dependence on key products, dependence on key +suppliers and protection of intellectual property rights (see note 15 for details on a claim against our AZD 1656 co-crystal patent). +Clinical assets currently under development will require significant additional research and development efforts, including extensive +preclinical and clinical testing and regulatory approval prior to commercialization. These efforts will require significant amounts of +additional capital, adequate personnel, infrastructure, and extensive compliance and reporting capabilities. Even if the Company’s +efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from royalties or product sales. +The +Company licenses clinical assets from AstraZeneca. See Note 10. If there is a breach or other termination of such agreements, there could +be a material adverse effect on the Company’s business, financial condition, operating results, and prospects. +The Company is also subject +to risks associated with the Nasdaq Stock Market Correspondence and Subsequent Nasdaq Capital Market Listing. See note 20 for further +details. +Summary +of Significant Accounting Policies +Cash +and Cash Equivalents +Cash +and cash equivalents are primarily maintained with major financial institutions in the United States, United Kingdom, and Switzerland. +The Company considers cash equivalents to be short-term, highly liquid investments that (a) are readily convertible into known amounts +of cash, (b) are traded and held for cash management purposes, and (c) have original maturities of three months or less at the time of +purchase. The Switzerland bank accounts holding cash balances are uninsured, and the UK bank account, with a year-end balance of approximately +£ 100,000 (or approximately $ 125,000 ) exceeds the country’s deposit limit of £ 85,000 (approximately $ 107,000 ). The Company’s +US depository bank participates in the Demand Deposit Marketplace program, insuring deposits up to $ 10 million by sweeping amounts in +excess of the $ 250,000 deposit insurance limit among participating banks. The Company has not experienced any losses on any accounts +through the year ended December 31, 2024. +The +Company had $ 0.6 million +and $ 4.2 million +in cash and cash equivalents on hand as of December 31, 2024 and December 31, 2023, respectively. As of December 31, 2024, $ 0.2 +million of the Company’s $ 0.6 +million cash and cash equivalents balance was +invested in money market funds. The money market funds do not have significant liquidity restrictions that would require the exclusion +from cash and cash equivalents. +Property, +Plant and Equipment +Property, +plant and equipment are initially recorded at cost. Depreciation and amortization are computed using the straight-line method over the +estimated useful lives of the assets or, for leasehold improvements, the life of the lease, if shorter. When assets are retired or otherwise +disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected +in other income or expense for the period. As of December 31, 2024, property, plant and equipment primarily consisted of leasehold improvements. +Leases +In +accordance with ASC 842, Leases (ASC 842), the Company records a right-of-use (ROU) asset and a lease liability on the balance sheet +for all leases with terms longer than 12 months and classifies them as either operating or finance leases. +At +the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and +circumstances present and the classification of the lease including whether the contract involves the use of a distinct identified asset, +whether the Company obtains the right to substantially all the economic benefit from the use of the asset, and whether the Company has +the right to direct the use of the asset. Leases with a term greater than one year are recognized on the balance sheet as ROU assets, +lease liabilities and, if applicable, long-term lease liabilities. The Company has elected not to recognize on the balance sheet leases +with terms of one year or less under practical expedient in paragraph ASC 842-20-25-2. For contracts with lease and non-lease components, +the Company has elected not to allocate the contract consideration, and to account for the lease and non-lease components as a single +lease component. +Lease +liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. +The implicit rate within our operating leases is generally not determinable and, therefore, the Company uses the incremental borrowing +rate at the lease commencement date to determine the present value of lease payments. The determination of the Company’s incremental +borrowing rate requires judgment. The Company determines the incremental borrowing rate for each lease using our estimated borrowing +rate, adjusted for various factors including level of collateralization, term and currency to align with the terms of the lease. The +operating lease ROU asset also includes any lease prepayments, offset by lease incentives. +An +option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain +we will exercise that option. An option to terminate is considered unless it is reasonably certain we will not exercise the option. +F- 9 +Use +of Estimates +The +preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the +reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the financial +statements as well as the reported amounts of revenues and expenses during the reporting period. Estimates are based on several factors +including the facts and circumstances available at the time the estimates are made, historical experience, risk of loss, general economic +conditions and trends, and the assessment of the probable future outcome. Actual results could differ materially from such estimates. +Estimates and assumptions are reviewed periodically by management and changes in estimates are made as management becomes aware of changes +in circumstances surrounding the estimates. The effects of changes are reflected in the financial statements in the period that they +are determined. +Fair +Value Measurements +ASC +Topic 820, Fair Value Measurements and Disclosures , defines fair value, establishes a framework for measuring fair value, and +expands disclosures about fair value measurements. Fair value is to be determined based on the exchange price that would be received +for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability +in an orderly transaction between market participants. In determining fair value, the Company used various valuation approaches. A fair +value hierarchy has been established for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes +the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that +market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. +Unobservable +inputs reflect the Company’s assumption about the inputs that market participants would use in pricing the asset or liability developed +based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels, based on the +inputs, as follows: +● +Level +1—Valuations based on quoted prices for identical instruments in active markets. Since valuations are based on quoted prices +that are readily and regularly available in an active market, valuation of these instruments does not entail a significant degree +of judgment. +● +Level +2— Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for either similar +instruments in active markets, identical or similar instruments in markets that are not active, or model-derived valuations whose +inputs or significant value drivers are observable or can be corroborated by observable market data. +● +Level +3—Valuations based on inputs that are unobservable. These valuations require significant judgment. +The +Company’s Level 1 assets consist of cash and cash equivalents, including money market funds, in the accompanying balance sheets +and the value of accrued expenses and other current liabilities approximate fair value due to the short-term nature of these assets and +liabilities. +As +of December 31, 2024, the Company has two financial liabilities, warrant liabilities for which the fair value is determined based on +Level 2 and Level 3 inputs, and convertible debt carried at fair value for which the fair value is +determined based on Level 3 input. The Level 2 inputs are valued based on observable inputs other than quoted +prices included in Level 1, such as quoted prices for similar instruments in active markets. The level 3 inputs as such inputs are based +on unobservable inputs and require significant judgement. As of December 31 2023, the Company has one financial liability, a warrant liability for which the fair value is determined +based on Level 2 inputs as such inputs are valued based on observable inputs other than quoted prices included in Level 1, such as +quoted prices for similar instruments in active markets. See Note 3 for further information on the Company’s +financial liabilities carried at fair value. +F- 10 +Fair +Value Option +The +Company has elected the fair value measurement option for convertible debt with embedded derivatives that would otherwise require bifurcation +and has recorded the entire hybrid financial instrument at fair value under the guidance in ASC 825, Financial Instruments. As a result, +the August 2024 Nirland Note was recorded at fair value subsequent to the Second Amendment and the A.G.P. Convertible Note was recorded +at fair value upon issuance. The notes will subsequently be remeasured at fair value each reporting date until settled or converted. +The Company reports interest expense, including accrued interest, related to the convertible debt under the fair value option, separately +from within the change in fair value of the convertible debt in the accompanying consolidated statement of operations and comprehensive +income (loss). Any changes in fair value caused by instrument-specific credit risk are presented separately in other comprehensive income. +During the year ended December 31, 2024, the Company did not record any changes in fair value related to instrument-specific credit risk. +Research +and Development +Research +and development expenses consist primarily of costs incurred in connection with the research and development of our clinical assets +and programs, see Note 10 for further discussion of research and development expense. Conduit holds all licenses to conduct clinical +research through a third-party pharmaceutical company. The Company expenses research and development costs and intangible assets +acquired that have no alternative future use as incurred. These expenses include: +● +expenses +incurred under agreements with organizations that support the Company’s drug discovery and development activities; +● +expenses +incurred in connection with the preclinical and clinical development of the Company’s clinical assets and programs, including +under agreements with contract research organizations, or CROs; +● +costs +related to contract manufacturing organizations, or CMOs, that are primarily engaged to provide drug substance and product for our +clinical trials, research and development programs, as well as investigative sites and consultants that conduct the Company’s +clinical trials, nonclinical studies and other scientific development services; +● +the +costs of acquiring and manufacturing nonclinical and clinical trial materials, including manufacturing registration and validation +batches; +● +employee-related +expenses, including salaries, related benefits and equity-based compensation expense, for employees engaged in research and development +functions; +● +acquisition costs related to the purchase of licensed intellectual property; +● +costs +related to compliance with quality and regulatory requirements; +● +payments +made under third-party licensing agreements; and +● +direct +and allocated costs related to facilities, information technology, personnel and other overhead. +Advance +payments that we make for goods or services to be received in the future for use in research and development activities are recorded +as prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or consumed or the related services are performed, +or until it is no longer expected that the goods will be delivered, or the services rendered. +General +and Administrative Expenses +General +and administrative expenses consist primarily of salaries and related costs for personnel in executive management, finance, corporate +and business development, and administrative functions. General and administrative expenses also include legal fees relating to patent +and corporate matters; professional fees for accounting, auditing, tax, and administrative consulting services; insurance costs; +administrative travel expenses and other operating costs. +Income +Taxes +ASC +Topic 740, Income Taxes , sets forth standards for financial presentation and disclosure of income tax liabilities and expense. +Interest and penalties recognized have been classified in the consolidated statements of operations and comprehensive income (loss) as +income taxes. Deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between +the financial statement carrying amount of existing assets and liabilities and their respective tax bases and operating losses carried +forward. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in +which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change +in tax rates is recognized in the consolidated statements of operations and comprehensive income (loss) in the period that includes the +enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits of which +future realization is uncertain. +F- 11 +Earnings/(Net +Loss) per Share +The +Company calculates basic and diluted earnings/(net loss) per share under ASC Topic 260, Earnings Per Share . Basic earnings/(net +loss) per share is computed by dividing the net income/(loss) by the number of weighted-average common shares outstanding for the period. +Diluted earnings/(net loss) is computed by adjusting net income/(loss) based on the impact of any dilutive instruments. Diluted earnings/(net +loss) per share is computed by dividing the diluted net income/(loss) by the number of weighted-average common shares outstanding for +the period including the effect, if dilutive, of any instruments that can be settled in common shares. When computing diluted net income/(loss) +per share, the numerator is adjusted to eliminate the effects that have been recorded in net income/(loss) (net of tax, if any) attributable +to any liability-classified dilutive instruments. +Warrants +The +Company determines the accounting classification of Warrants as either liability or equity by first assessing whether the Warrants meet +liability classification in accordance with ASC 480, Distinguishing Liabilities from Equity (“ASC 480”). Under ASC 480, a +financial instrument that embodies an unconditional obligation, or a financial instrument other than an outstanding share that embodies +a conditional obligation, that the issuer must or may settle by issuing a variable number of its equity shares must be classified as +a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly +on any one of the following: (a) a fixed monetary amount known at inception; (b) variations in something other than the fair value of +the issuer’s equity shares; or (c) variations inversely related to changes in the fair value of the issuer’s equity shares. +If +financial instruments, such as the Warrants, are not required to be classified as liabilities under ASC 480, the Company assesses whether +such instruments are indexed to the Company’s own stock under ASC 815-40. In order for an instrument to be considered indexed to +an entity’s own stock, its settlement amount must always equal the difference between the following: (a) the fair value of a fixed +number of the Company’s equity shares, and (b) a fixed monetary amount or a fixed amount of a debt instrument issued by the Company. +The Company determined that the settlement amount of the Equity Classified Warrants would equal the difference between the fair value +of a fixed number of shares and a fixed monetary amount (or a fixed amount of a debt instrument) and must be classified as equity, while +the settlement amount of the Liability Classified Warrants would not equal the difference between the fair value of a fixed number of +shares and a fixed monetary amount (or a fixed amount of a debt instrument) and must be classified as a liability. +The +Equity Classified Warrants are recorded in stockholders’ deficit and the Liability Classified Warrants are recorded as liabilities +in the Consolidated Balance Sheet. The Liability Classified Warrants are remeasured each period with changes in fair value recorded in +the Consolidated Statements of Operations and Comprehensive Income (Loss). +Foreign +Currency Translation +The +Company translated the assets and liabilities of foreign subsidiaries from their respective functional currency, the British pound, to +United States dollars at the appropriate spot rates as of the balance sheet date. Income and expenses of operations are translated to +United States dollars using weighted average exchange rates during the year. The foreign subsidiaries use the local currency as their +functional currency. The effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive +income in the accompanying consolidated statements of changes in stockholders’ deficit. Non-monetary items in the subsidiaries’ +functional currency are re-measured into the reporting currency at the historical exchange rate (i.e., the rate of exchange at the date +of the transaction). +F- 12 +Emerging +Growth Company Status +The +Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under +the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of +the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period +for complying with new or revised accounting standards that have different effective dates for public and private companies until the +earlier of the date that: (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended +transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with +the new or revised accounting pronouncements as of public company effective dates. +Following +the Merger, the Company will remain an emerging growth company, as defined by the Jumpstart Our Business Startups act of 2012, until +the earliest of (i) the last day of the combined entity’s first fiscal year following the fifth anniversary of the completion of +MURF’s initial public offering (the “MURF IPO”), (ii) the last day of the fiscal year in which the combined entity +has total annual gross revenue of at least $1.235 billion, (iii) the last day of the fiscal year in which the combined entity is deemed +to be a large accelerated filer, which means the market value of the combined entity’s common stock that is held by non-affiliates +exceeds $700.0 million as of the prior December 31st or (iv) the date on which the combined entity has issued more than $1.0 billion +in non-convertible debt securities during the prior three year period. +Recently +Adopted Accounting Pronouncements +In +November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) (“ASU 2023-07”), which enhances the segment disclosure +requirements for public entities on an annual and interim basis. Under this proposal, public entities are required to disclose significant +segment expenses that are regularly provided to the chief operating decision maker (the “CODM”) and included within each +reported measure of segment profit or loss. Additionally, current annual disclosures about a reportable segment’s profit or loss +and assets will be required on an interim basis. Entities are also required to disclose information about the CODM’s title and +position at the Company along with an explanation of how the CODM uses the reported measures of segment profit or loss in their assessment +of segment performance and deciding whether how to allocate resources. Finally, ASU 2023-07 requires all segment disclosures for public +entities, even those with a single reportable segment. The amendments are effective for fiscal years beginning after December 15, 2023, +and interim periods within fiscal years beginning after December 15, 2024, and should be applied on a retrospective basis to all periods +presented. As of December 31, 2024, the Company only has one reportable segment. The Company adopted this accounting standard as of January +1, 2024. See Note 19 for the Company’s segments disclosures. +F- 13 +Recently +Issued Accounting Standards Not Yet Adopted +In +December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). +ASU 2023-09 modifies the reporting requirements for income tax disclosures related to effective tax rates and cash income taxes paid. +Pursuant to ASU 2023-09, public business entities are required to disclose certain categories in the income tax rate reconciliation, +as well as additional information for reconciling items that meet a specific quantitative threshold. Additionally, ASU 2023-09 requires +annual disclosures of income taxes paid for all entities, including the amount of income taxes paid, net of refunds received, disaggregated +by federal, state, and foreign jurisdictions. The standard is effective for fiscal years beginning after December 15, 2024, with early +adoption permitted. The Company is currently evaluating the impact of ASU 2023-09 on its consolidated financial statements. +In +November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic +220-40): Disaggregation of Income Statement Expenses, which is intended to provide more detailed information about specified categories +of expenses (purchases of inventory, employee compensation, depreciation and amortization) included in certain expense captions presented +on the consolidated statements of operations and comprehensive income (loss). The guidance in this ASU is effective for fiscal years +beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. +The amendments may be applied either (1) prospectively to financial statements issued for periods after the effective date of this ASU +or (2) retrospectively to all prior periods presented in the consolidated financial statements. The Company is currently evaluating the +impact that the adoption of ASU 2024-03 will have on its consolidated financial statements and disclosures. +2. +Merger and Financing +As +discussed in Note 1 – Nature of the Business, Basis of Presentation and Summary of Significant Accounting Policies , on September +22, 2023, the Company and MURF completed the Merger. Upon the closing of the Merger, the following occurred: +● +Each +share of Old Conduit common stock issued and outstanding immediately prior to the closing of the Merger, which totaled 2,000 shares, +was exchanged for the right to receive 323 shares of the Company’s Common Stock (“Common Stock”) resulting +in the issuance of 646,264 shares of Conduit Pharmaceuticals, Inc. Common Stock. +● +In +addition to the shares issued to legacy Conduit shareholders noted above, an additional 3,735 shares of Common Stock was issued +to Conduit convertible note holders, resulting in a total of 650,000 shares of Common Stock being issued to Conduit shareholders +and holders of Conduit convertible notes payable. +● +In +connection with the Merger, 450 shares of MURF Class A common stock held by the MURF Sponsor was transferred to MURF Directors. Each +share was exchanged on a one-for-one basis for shares of Common Stock. +● +Each +share of MURF Class A common stock held by the MURF Sponsor prior to the closing of the Merger, which totaled 7,090 shares, was exchanged +for, on a one-for-one basis for shares of Common Stock. +● +Each +share of MURF common stock subject to possible redemption that was not redeemed prior to the closing of the Merger, which totaled +580 shares, was exchanged for, on a one-for-one basis for shares of Common Stock. +● +In +connection with the Merger, 33,062 shares of MURF Class B common stock held by the Sponsor was automatically converted into shares +of MURF Class A common stock and then subsequently converted into shares of Common Stock on a one-for-one basis. +F- 14 +● +In +connection with the Merger, A.G.P./Alliance Global Partners (“A.G.P.”), whom acted as a financial advisor to both MURF +and Conduit, was due to receive (i) a cash fee of $ 6.5 million, 13,000 shares of Common Stock and warrants to purchase 540 shares +of Common Stock at an exercise price of $ 1,100 per share pursuant to its engagement agreement with Conduit entered into on August +2, 2022 and (ii) $ 4.6 million of deferred underwriting fees as a result of its engagement for MURF’s initial public offering. +Upon closing of the Merger, A.G.P. received a cash payment of $ 5.6 million, 13,000 shares of Common Stock, and 540 warrants to purchase +540 shares of Common Stock. The remaining $ 5.7 million of cash payments due to A.G.P upon closing of the Merger was deferred and +to be paid on or before March 21, 2025, with annual interest of 5.5 %. The remaining cash payments due, which were directly attributable +to the Merger, were accounted for as a liability with an offset to additional paid-in capital in accordance with SAB Topic 5.A on +the Company’s consolidated balance sheet. See Note 7 for discussion of amendment of the note that took place during the year ended December 31, 2024. +● +In +connection with the Merger, MURF entered into subscription agreements (the “Subscription Agreements”) with certain accredited +investors (the “PIPE Investors”) for an aggregate of 20,000 units, with each unit consisting of one share of Company +common stock (the “PIPE Shares”), together with one warrant exercisable into one share of Company common stock (the “PIPE +Warrants”), at a purchase price of $ 1,000 per unit, for an aggregate purchase price of $ 20,000,000 (the “PIPE Financing”). +Upon the closing of the PIPE Financing (which closed in connection with the closing of the Merger), the Company received $ 20.0 million +in cash from the PIPE Financing, which was used to settle related party promissory notes issued by MURF to the MURF Sponsor and an +affiliate of the MURF Sponsor as well as transaction costs. +● +The +proceeds received by the Company from the Merger and PIPE Financing, net of transaction costs, and other payments for existing liabilities +and prepayments, totaled $8.5 million. +● +The +Merger was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, MURF was treated +as the acquired company for financial reporting purposes (see Note 1 for further details). Accordingly, for accounting purposes, +the Merger was treated as the equivalent of the Company issuing shares for the net assets of MURF, accompanied by a recapitalization. +The net assets of MURF were stated at historical cost with no goodwill or other intangible assets recorded. +The +following table presents the total Common Stock outstanding immediately after the closing of the Merger: +Schedule +of Common Stock Outstanding +Number of +Shares +Exchange of MURF common stock subject to possible redemption for Conduit Pharmaceuticals Inc. common stock +580 +Exchange of MURF Class A common stock held by MURF Directors for Conduit Pharmaceuticals Inc. common stock +450 +Exchange of MURF Class A common stock held by MURF Sponsor for Conduit Pharmaceuticals Inc. common stock +40,152 +Subtotal - Merger, net of redemptions +41,182 +Issuance of Conduit Pharmaceuticals Inc. common stock in connection with PIPE Financing +20,000 +Exchange of Conduit Pharmaceuticals Limited ordinary shares for Conduit Pharmaceuticals Inc. common stock on the Closing Date +646,264 +Issuance of Conduit Pharmaceuticals Inc. common stock to holders of Conduit Pharmaceuticals Limited convertible notes on the Closing Date +3,735 +Issuance of Conduit Pharmaceuticals Inc. common stock to an advisor for services directly related to the Merger +13,000 +Total - Conduit Pharmaceuticals Inc. common stock outstanding as a result of the Merger, PIPE Financing, exchange of Conduit Pharmaceuticals Limited shares for shares of Conduit Pharmaceuticals Inc., issuance of Conduit Pharmaceuticals Inc. common stock to holders of Conduit Pharmaceuticals Limited convertible notes, and advisors. +724,181 +F- 15 +3. +Fair Value +During +the period ended December 31, 2024, there were no transfers between Level 1 and Level 2, nor into or out of Level 3. The following +table presents as of December 31, 2024 the Company’s assets and liabilities subject to measurement at fair value on a +recurring basis (in thousands): +Schedule +of Assets Subject to Measurement at Fair Value on Recurring Basis +Fair Value Measurements as of December 31, 2024 +Level 1 +Level 2 +Level 3 +Total +Assets: +Cash equivalents +$ 192 +$ - +$ - +$ 192 +Total Assets +$ 192 +$ - +$ - +$ 192 +Liabilities: +Convertible notes payable at fair value +$ - +$ - +$ 5,856 +$ 5,856 +Liability Classified Warrants +- +0 +138 +138 +Total Liabilities +$ - +$ - +$ 5,994 +$ 5,994 +The +following table presents as of December 31, 2023 the Company’s liabilities subject to measurement at fair value on a recurring +basis (in thousands): +Fair Value Measurements as of December 31, 2023 +Level 1 +Level 2 +Level 3 +Total +Liabilities: +Liability Classified Warrants +$ - +$ 142 +$ - +$ 142 +Total Liabilities +$ - +$ 142 +$ - +$ 142 +Cash +equivalents consist of highly liquid money market funds with maturities of three months or less and are reflected in the Consolidated +Balance Sheets at carrying value, which approximates fair value due to their short-term nature. +The +following table presents additional information about the Convertible Notes Payable subject to measurement at fair value on a recurring +basis and warrant liabilities, for which the Company used significant unobservable inputs (Level 3) (in thousands): +Schedule +of Additional Information About the Financial Liabilities Subject To Measurement at Fair Value +Convertible Notes +Payable +Liability Classified Warrants +Balance as of December 31, 2023 +$ - +$ - +Fair value at Issuance +7,899 +229 +Conversion of convertible note +( 92 ) +- +Change in fair value +( 1,951 ) +( 91 ) +Balance as of December 31, 2024 +$ 5,856 +$ 138 +Convertible +Notes Payable +As +discussed in Note 7, during on October 31, 2024, the Company and Nirland agreed to amend the August 2024 Nirland Note, whereby the +August 2024 Nirland Note was amended to provide for the conversion of the August 2024 Nirland Note into shares of common stock, at +Nirland’s discretion, in a multiple of any unpaid amounts, if not otherwise previously paid, pursuant to the conversion rate +contained therein. The August 2024 Nirland Note was then amended for a second time on November +22, 2024.Additionally, as discussed in Note 7, during November 2024, the Company issued to A.G.P. a convertible promissory +note (the “A.G.P. Convertible Note”) in the principal amount of $ 5.7 +million to evidence the A.G.P.’s currently owed deferred commission payable. The Company elected to account for the August +2024 Nirland Note and A.G.P. Convertible Note (collectively the “Convertible Notes Payable”) at fair value. The fair +value of the Convertible Notes Payable is estimated each period using a binomial lattice model. Significant estimates in the +binomial lattice model include the Company’s stock price, volatility, risk-free rate, corporate bond yield, credit +spread, probability of default, and recovery upon default. +The +fair value of the August 2024 Nirland Note and A.G.P. Convertible Note as of December 31, 2024 were estimated using a binomial +lattice model. +The following +table outlines the range of significant unobservable inputs used in calculating the fair value of the August 2024 Nirland Note as of +the dates noted below: +Schedule +of Fair Value of Assumptions +October 31, +2024 +November 22, +2024 +December 31, +2024 +Stock Price +$ +9.10 +$ +10.40 +$ 6.90 +Term (years) +0.8 +0.7 +0.6 +Corporate bond yield +9.1 +% +8.7 +% +11.4 % +Credit Spread +15.9 +% +15.9 +% +15.9 % +Probability of default +40 % +40 % +40 % +Recovery upon default +20 % +20 % +20 % +Volatility +103.2 +% +96.5 +% +123.7 % +The +following table outlines the range of significant unobservable inputs used in calculating the fair value of the A.G.P. Convertible +Note as of the dates noted below: +Schedule +of Fair Value of Assumptions +November 25, +2024 +December 31, +2024 +Stock Price +$ +9.10 +$ 6.90 +Term (years) +1 +0.9 +Corporate bond yield +8.8 +% +9.0 % +Credit Spread +26.2 +% +26.2 % +Probability of Default +40 +% +40 % +Recovery upon default +0 +% +0 % +Volatility +108.7 +% +101.6 % +F- 16 +Liability +Classified Warrants +The +PIPE Warrants, A.G.P. Warrants, and A.G.P. 2024 Warrants, as defined in Note 18, are accounted for as liabilities in accordance with ASC 815-40 and are presented +within Warrant liabilities in the consolidated balance sheets. Warrant liabilities are measured at fair value at inception and on a recurring +basis, with changes in fair value presented within other income (expense), net in the consolidated statements of operations and comprehensive +income (loss). +The +measurement of the PIPE Warrants and the measurement of the A.G.P warrants are classified as Level 2 fair value measurements due to the +use of an observable market quote for the Company’s publicly traded warrants, which are considered to be a similar asset in an +active market. +The +PIPE Warrant and A.G.P. Warrant liabilities are calculated by multiplying the quoted market price of the Company’s publicly traded +warrants by the number of liability classified warrants. +On +December 11, 2024, the Company amended the exercise price of the PIPE Warrants to be $ 8.83 , +at which time all PIPE Warrants were exercised. As the exercise price was amended on the same date that the PIPE Warrants were +exercised, the Company remeasured the warrant liability immediately before exercise based on the difference between the closing +stock price of the Company’s common stock on December 11, 2024, and the amendment exercise price of the PIPE Warrants, +resulting in a gain on the change in fair value of warrant liability of approximately $ 12 +thousand. Refer to Note 18 for additional information. Upon exercise of the PIPE Warrants, less than $ 1 +thousand of Level 2 liability classified warrants remain on the consolidated balance sheet as of December 31, 2024. +The +measurement of the A.G.P. 2024 Warrants is classified as Level 3 due to the use of an option-pricing model that utilizes unobservable inputs and requires significant judgement. The Company estimated +the fair value of the warrants issued as the issuance date, October 29, 2024, and as of December 31, 2024, using a Black-Scholes +option-pricing model utilizing the following assumptions: +Schedule +of Fair Value of Assumptions +October 29, 2024 +December 31, 2024 +Closing stock price +$ +10.48 +$ 6.90 +Contractual exercise price +$ +10 +$ 10.00 +Risk-free rate +4.11 +% +4.38 % +Estimated volatility +98.4 +% +98.6 % +Time period to expiration (in years) +5.2 +5.0 +4. +Balance Sheet Details – Current Assets +Current +assets consisted of the following as of December 31, 2024 and December 31, 2023 (in thousands): +Schedule +of Balance Sheet Details +As of +As of +December 31, 2024 +December 31, 2023 +Prepaid directors’ and officers’ insurance +$ 1,187 +$ 1,365 +Prepaid expenses +85 +140 +Prepaid expenses – related parties +400 +- +Other receivables +489 +- +Total prepaid expenses and other current assets +$ 2,161 +$ 1,505 +F- 17 +5. +Leases +During +the year ended December 31, 2024, we entered into an operating lease for laboratory space. The remaining lease terms for our operating +lease is approximately two years and does not provide a renewal option. We apply the short-term lease policy election, which allows us +to exclude from recognition leases with an original term of 12 months or less. +Upon +commencement of the laboratory lease on March 7, 2024, the Company recorded a right-of-use asset of $ 0.4 million, short-term lease liability +of $ 0.2 million, and long-term lease liability of $ 0.2 million. +Lease +costs associated the Company’s operating and short-term leases are recorded within general and administrative expense in the consolidated +statement of operations and comprehensive income (loss). The following table sets forth information about our lease costs for the year +ended December 31, 2024 (in thousands): +Schedule +of Lease Cost +Lease Cost +December 31, +2024 +Operating lease cost +$ 116 +Short-term lease cost +128 +Variable lease cost +15 +Total lease cost +$ 259 +The +following table sets forth information about our operating lease for the year ended December 31, 2024 (in thousands): +Schedule +of Operating Lease Liabilities +Supplemental cash flow and other information +December 31, +2024 +Cash paid for amounts included in the measurement of lease liabilities: +Operating cash flows from operating leases +$ 143 +ROU assets obtained in the exchange for lease liabilities +$ 352 +Weighted-average remaining lease term (in years) +2.0 +Weighted-average discount rate +11.2 % +The +Company’s future minimum lease payments for our operating lease as of the year ended December 31, 2024, are as follows (in thousands): +Schedule +of Future Minimum Lease Payments For Operating Lease +December 31, +2024 +Year ending December 31, +2025 +$ 140 +2026 +113 +Total +253 +Less: imputed interest +( 27 ) +Total lease liability +$ 226 +6. +Liability Related to the Sale of Future Revenue +Vela +Technologies PLC +The +Company entered into an Agreement with SGSC to approve an Indirect Investment from Vela Technologies PLC (“Vela”) on October +20, 2020, whereby Vela agreed to provide funding to the Company for an indirect investment in AZD 1656 for use in the field in exchange +for 8 % of future revenue earned if AZD 1656 is commercialized (the “Vela Agreement”). Total consideration under the Vela +Agreement was $ 2.9 million (£ 2.35 million), consisting of $ 1.6 million (£ 1.25 million) cash and the issuance of 1.1 billion +common shares in Vela, which based on the Vela’s fair value per share and was $ 1.3 million. During the year ended December 31, +2021, the Company sold all 1.1 billion of its Vela shares for $ 1.2 million and recorded a loss of $ 0.1 million on the sale. The Company +received the $ 1.6 million (£ 1.25 ) million cash consideration during the year ended December 31, 2020. This consideration was recorded +as a liability related to the future sale of revenue on the balance sheet in accordance with ASC 470-10. +In +April 2023, the Company entered into an agreement with Vela which granted Vela the right, but not the obligation, to sell its 8 % royalty +interest in AZD 1656 back to Conduit. Vela paid a one-time, non-refundable option fee to Conduit of $ 0.5 million (£ 0.4 million). +Total consideration payable to Vela upon exercise of the option was £ 4.0 million ($ 5.08 million on the exercise date) worth of +new common shares in the combined entity after the Merger between Conduit Pharmaceuticals Limited and MURF, following the consummation +of the Merger, at a price per share equal to the volume-weighted average price per share over the ten (10) business days prior to the +date of the notice of exercise. The option contained a provision stating that in no event would the price per share for the consideration +shares be lower than $ 5 or higher than $ 15 . The option was exercisable in whole at any time from the close of the Merger (the “Effective +Time”) until the earlier of (i) the date that was six (6) months from the Effective Time, and (ii) February 7, 2024, the expiration +date of the term. +On +November 30, 2023, Vela exercised its option to sell back its indirect investment in AZD 1656 in exchange for 10,157 shares of the Common +Stock. The Company recognized the $ 2.8 million of deferred revenue and recorded $ 2.8 million to other income (expense), net, on the consolidated +statement of operations and comprehensive income (loss) for the year ended December 31, 2023. As of December 31, 2023, there was no liability +for the sale of future revenue related to Vela. +F- 18 +Cizzle +Biotechnology Holdings PLC +On +February 11, 2022, the Company entered into an agreement with Cizzle PLC (“Cizzle”) whereby Cizzle agreed to purchase a percentage +of future revenue earned in AZD 1656, should it reach the commercialization stage. Total consideration under the agreement is specified +as $ 1.6 million (£ 1.2 million), consisting of the issuance of the fair value of 25.0 million new common shares in Cizzle on the +date of the agreement and the fair value of 22.0 million shares to be issued at the earlier of Cizzle’s shareholder approval or +one year from the date of the agreement. The 22.0 million shares were received by the Company in the fourth quarter of 2022 and were +subsequently sold within the fourth quarter of 2022. The Company recorded a liability related to deferred revenue of $ 1.4 million for +the consideration received from Cizzle as of December 31, 2022. +The +payments received for the sale of future revenue were classified as a liability related to the future sale of revenue. Under ASC 470-10-25, +a seller of future revenue should evaluate whether the proceeds received should be accounted for as debt or deferred income. In assessing +the factors that created a rebuttable presumption of debt within the guidance, the Company determined that there were factors present +to overcome the debt presumption and deferred income classification to be appropriate. The main factors the Company considered were that +the transactions in form were sales, and not debt transactions. Each agreement does not guarantee a return to each purchaser, the return +is based solely on future performance of AZD 1656 should it reach commercialization, with neither purchaser having an involvement in +generating future cash flows from AZD 1656. +On +December 15, 2022, the Company entered into an agreement with Cizzle whereby the Company granted Cizzle the option, but not the obligation, +to sell its economic interest in AZD 1656 back to the Company. The agreement contained an option period of nine months from the date +of the agreement for Cizzle to notify the Company of its intent to exercise the option to sell its economic interest in AZD 1656. Upon +closing of the agreement, Cizzle agreed to pay the Company an option fee of $ 0.1 million (£ 0.1 million). +On +September 26, 2023, Cizzle exercised its option to sell back its indirect investment in AZD 1656 in exchange for 3,954 +shares of the Common Stock. The Company recognized +the $ 1.5 +million of deferred revenue and recorded $ 1.5 +million to other income (expense), net, on the +consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2023. As of December 31, 2023, +there was no liability for the sale of future revenue related to Cizzle. +F- 19 +7. +Convertible Notes Payable +Convertible +Promissory Notes Payable +During +March 2023, the Company issued a convertible promissory note payable (the “Convertible Promissory Notes Payable”) with an +aggregate principal amount of $ 0.8 +million to a non-related third party. The +Convertible Promissory Note Payable had a maturity date of 18 months from the date of issuance. The +note carries interest at a rate of 20 % +annually, which is payable every six (6) months from the date of the note until the maturity date. +On +October 9, 2024, the Company and the loan holder signed an extension to extend the maturity date from September 20, 2024 to October +20, 2024 with the option for the Company to further extend the maturity date two times, each by an additional 30-day period. The +Company exercised both options to extend the maturity date to December 19, 2024 which included interest previously payable as well as the principal. As consideration for extending the maturity date, +the Company amended the form of repayment of the remaining interest due on the loan. As payment for the interest, the Company issued +the loan holder, (i) $ 80,000 worth +of Common Stock to be issued at the closing market price on the date prior to issuance and (ii) 20,000 shares +of Common Stock. On October 11, 2024, the Company issued the loan holder 27,812 shares +of Common Stock in satisfaction of the obligations in (i) and (ii) in the preceding sentence. +The +extension met the criteria for as a debt extinguishment under ASC 470-50. As of October 9, 2024, the Company recorded a gain on debt extinguishment +of $ 0.1 +million, calculated as the difference between (i) the $ 0.8 million +carrying value of the Convertible Promissory Note Payable immediately prior to the amendment (ii) the $ 0.4 +million fair value of the Convertible Promissory Note Payable immediately after the amendment and (iii) the $ 0.3 +million fair value of the shares issued to the holder as consideration for extending the maturity date. The difference between the +$ 0.8 million +carrying value immediately prior to the amendment and the $ 0.4 +million fair value immediately after the amendment was recorded as a debt discount and amortized over the amended maturity date of +the Convertible Promissory Note using the effective interest method. +In +connection with the extension of the loan, the Company entered into a consulting agreement with an unrelated third party to negotiate +the extension of the of the convertible note with the loan holder on behalf of the Company. The Company issued the third-party 8,500 shares +on October 11, 2024, in exchange for services provided. The fair value of the shares were $ 0.1 million, as determined +by multiplying the closing share price on October 10, 2024 (day prior to issuance) of $ 10.24 by the total number of shares issued, 8,500 . +This amount was capitalized as a debt issuance cost and accreted over the amended term of the Convertible Promissory Notes Payable +using the effective interest method. +For +the year ended December 31, 2024, and December 31, 2023, the Company incurred interest expense on the Convertible Promissory Note +Payable of $ 0.5 +million and $ 0.1 +million, respectively. The promissory note payable remained outstanding as of December 31, 2024, therefore the Company was +considered to be in default. On March 6, 2025, the Company reached an agreement with the loan holder to pay $ 0.7 +million in order to settle the March 2023 Convertible Note in full. The Company repaid the loan holder the settlement amount $ 0.7 +million on March 13, 2025. See Note 20 for additional details. +August +2024 Nirland Note +On +August 6, 2024, the Company entered into a Senior Secured Promissory Note (the “August 2024 Nirland Note”) with Nirland, +a related party of the Company, pursuant to which the Company issued and sold to Nirland the August 2024 Note in the original principal +amount of $ 2.7 million, inclusive of a $ 0.5 million original issuance discount. See Note 16 for further reference to the relationship +between the Company and Nirland. Of the total amount of the August 2024 Nirland Note, $ 1.7 million was issued upon execution of +the August 2024 Nirland Note. In connection with the August 2024 Nirland Note, the Company issued to Nirland 125,000 shares +of the Company’s Common Stock on August 6, 2024. The balance of $ 0.5 million became payable to the Company when the shares +were registered for resale in September 2024. In the event the Company completes any public or private equity or debt financing, the +Company shall be required to mandatorily prepay (“Mandatory Prepayment Right”), any amounts that may be then outstanding +under the August 2024 Nirland Note, within two business days following the closing of such financing, in an amount of no less than 75 % +of the net proceeds received. Per the terms of the August 2024 Nirland Note, the Company is prohibited from entering into a variable +rate transaction without prior written consent from Nirland. The August 2024 Nirland Note bears interest at a rate of 12 % per annum, +accruing daily on a 365-day basis, payable monthly in arrears as cash, or accrued at Nirland’s discretion. The August 2024 +Nirland Note matures 12 months from August 6, 2024. +As noted above, the Company issued to Nirland 125,000 shares +of the Company’s Common Stock on August 6, 2024. The Company determined that loan agreement and share issuance should were part +of a basket transaction and allocated the net proceeds on a relative fair value basis. Of the total $ 2.2 net proceeds, $ 1.2 million +was allocated to the August 2024 Nirland Note including $ 1.5 million gross proceeds, less $ 0.3 million Original Issue Discount +(“OID”). The remaining $ 1.0 million was allocated to the common stock, including $ 1.2 million gross proceeds less +$ 0.2 OID. The $ 1.2 million allocated to the common stock was considered to be a discount on the August 2024 Nirland Note making +the balance of the note to be $ 2.7 million note payable, less a total debt discount of $ 1.5 million. The debt discount will +be amortized to interest expense using the effective interest method over the life of the note. +On +October 31, 2024, the Company and Nirland amended the August 2024 Nirland Note (the “First Amendment”), whereby the August +2024 Nirland Note was amended to (i) provides for the conversion of the August 2024 Nirland Note into shares of Common Stock, at Nirland’s +discretion, in a multiple of any unpaid amounts, if not otherwise previously paid, pursuant to the conversion rate contained therein, +(ii) removes Nirland’s Mandatory Prepayment Right, and (iii) removes Nirland’s right of first refusal to participate in any +future equity or debt offerings of the Company. The number of shares of Common Stock issuable upon conversion of any Conversion Amount +pursuant to shall be determined by dividing (x) such conversion amount by (y) the conversion price. Conversion amount means two +and one quarter times the sum of (x) portion of the principal to be converted, redeemed or otherwise with respect to which this determination +is being made and (y) all accrued and unpaid interest with respect to such portion of the principal amount, if any. Conversion price +means, as of any conversion date or other date of determination, $ 10.00 , subject to adjustment as provided within the amended agreement. +We +evaluated the conversion feature of this note offering for embedded derivatives in accordance with ASC 815, Derivatives +and Hedging , and the substantial premium model in accordance with ASC 470, Debt . Based on our assessment, +separate accounting for the conversion feature of this note offering is not required and will be accounted for under the substantial +premium model. Under the substantial premium model, the excess above the fair value of the August 2024 Nirland Note will be recorded +in additional paid-in-capital. The August 2024 Nirland Note will be carried at amortized cost using the effective interest method. +F- 20 +The +Company determined the fair value of the August 2024 Nirland Note to be $ 3.6 million as of October 31, 2024 through the use of a binomial +lattice model. See Note 3 for additional information regarding the fair value measurement of the August 2024 Nirland Note. The Company +accounted for the First Amendment as a debt extinguishment, as the First Amendment added a substantive conversion option. As of October +31, 2024, a loss on debt extinguishment of $ 2.2 million was recorded consisting of (i) the derecognition of the $ 1.3 million carrying +value immediately prior to the First Amendment (ii) recognition of the $ 2.7 million par value and (iii) recognition of the $ 0.8 million +substantial premium. +On +November 22, 2024, the Company and Nirland entered into a Second Amendment to the August 2024 Nirland Note (the “Second +Amendment”). Pursuant to the Second Amendment, the Nirland Note may not be converted (other than partial conversions that may +be permitted pursuant to the rules and regulations of NASDAQ (or any successor entity)) prior to receipt of stockholder approval to +provide for such conversion of the Nirland Note, and subsequent issuance of the Company’s Common Stock, pursuant to the +stockholder approval rules under the rules and regulations of The Nasdaq Stock Market. If the Company has not held a special meeting +of the stockholders to approve the full conversion of the August 2024 Nirland Note on or before January 9, 2025, then the Company +shall be obligated to pay Nirland a penalty of $ 0.1 +million per day until the special meeting is held. In addition, the existing conversion rate was amended to be two and one half +times the sum of (x) the portion of the principal to be converted, redeemed or otherwise with respect to which this determination is +being made and (y) all accrued and unpaid interest (including default interest) with respect to such portion of the principal +amount, if any divided by $ 0.10 , prior to the Reverse Stock Split, (or following any reverse splits that may occur in a ratio greater than 10 to 1, the lower of +such reverse split price and the market price per share at the time of the Conversion Date, but in no event less than $1.00), +subject to adjustment as provided therein and to take into account any future share splits or reverse splits to maintain the +economic equivalence of the conversion rights as at the amendment effective date. The Company notes that the reverse split provision +in the preceding sentence was tripped, effective January 25, 2025, following the 1-for-100 +reverse stock split that occurred on that date. +As +of the Second Amendment, the Company elected to account for the August 2024 Nirland Note at fair value under ASC 825. The Company determined that the amendment to the conversion features present in the Second Amendment fall under the +guidance within ASC 825 that notes that if a significant modification of debt occurs an entity is able to make an accounting election +on that date to account for that debt under the fair value option. At the end of each +reporting period, the Company calculates the fair value of the August 2024 Nirland Note, and any changes in fair value are reported in +the current period’s consolidated statements of operations and comprehensive income (loss). +The +Company remeasured the fair value of the August 2024 Nirland Note as of the Second Amendment date and calculated a fair value of $ 4.5 +million using a binomial lattice model. See Note 3 for additional information regarding the fair value measurement of the August 2024 +Nirland Note. The Company accounted for the Second Amendment as a debt extinguishment, as the terms of the August 2024 Nirland Note were +deemed to be substantially different after the Second Amendment. As of November 22, 2024, a loss on debt extinguishment of $ 0.9 million +was recorded consisting of (i) the derecognition of the 2.7 million carrying value immediately prior to the First Amendment (ii) derecognition +of $ 0.1 million in accrued interest (iii) derecognition of the $ 0.8 million substantial premium and (iv) recognition of the $ 4.4 million +fair value. +On +December 9, 2024, and prior to obtaining shareholder approval, Nirland exercised their conversion option and converted $ 0.1 million of +principal for 23,000 shares of common stock pursuant to the rules and regulations of the NASDAQ. As of December 31, 2024, $ 2.6 million +of principal and accrued interest remains outstanding. As of December 31, 2024, the August 2024 Nirland Note had a fair value of approximately $ 2.8 million and is included +within Convertible promissory notes payable at fair value – +related parties on the consolidated balance sheets. +For +the year ended December 31, 2024, the Company recorded a $ 1.5 million +gain from the change in fair value of convertible promissory note and interest expense of approximately $ 0.4 +million. The interest expense of $ 0.4 million is comprised of (i) accrued interest of $ 0.2 million and (ii) $ 0.2 million in +amortization expense related to the initial debt discount of $ 1.5 million. The $ 2.2 +million loss on debt extinguishment from the Frist Amendment, $ 0.9 +million loss on debt extinguishment from the Second Amendment, and the $ 1.5 +million gain on the change in fair value are presented within other income (expense), net, while the $ 0.4 +million of interest expense is presented within Interest expense, net, in the consolidated statement of operations and comprehensive +income (loss). +A.G.P. +Convertible Note +On +November 25, 2024, the Company issued to A.G.P. a convertible promissory note (the “A.G.P. Convertible Note”) in the principal +amount of $ 5.7 million to evidence the A.G.P.’s currently owed deferred commission payable. Refer to the Note 9 for additional +information. Unless earlier converted as specified in the Convertible Note, the principal amount, plus all accrued but unpaid interest, +is due on November 25, 2025 (the “Maturity Date”). The convertible promissory note accrues interest at 5.5 % per annum. +F- 21 +At +any time prior to the full payment of the convertible promissory note, provided that the A.G.P. has given at least three business +days written notice to the Company, A.G.P., in its sole discretion, may elect to have all or any portion of the outstanding +principal amount and all interest accrued converted into shares of the Company’s common stock, at a fixed price of $ 10.00 +(or following any reverse splits that may occur in a ratio greater than 10 to 1, the lower of such reverse split price and the +market price per share at the time of the conversion date, but in no event less than $ 1.00 ), +subject to adjustment as provided therein and to take into account any future share splits or reverse splits. The +Company notes that the reverse split provision in the preceding sentence was tripped, effective January 25, 2025, following the 1-for-100 reverse stock split +that occurred on that date . However, the conversion of the convertible promissory note may not occur prior to the +Company having sufficiently authorized shares of common stock to permit the entire conversion of the convertible promissory note. In +addition, the conversion of the convertible promissory note may also not occur prior to receipt of stockholder approval to provide +for such conversion of the convertible promissory note, and subsequent issuance of the Company’s common stock, pursuant to the +stockholder approval rules under the rules and regulations of The Nasdaq Stock Market. Further, following the A.G.P.’s ability +to convert the convertible promissory note, if at all, A.G.P. will not be entitled to receive the Company’s common stock upon +conversion, if such conversion would result in A.G.P. owning greater than 9.99 % +of the Company’s then currently outstanding common stock. A.G.P. is also entitled to resale registration rights as identified +in the convertible promissory note. +The +Company may prepay the convertible promissory note in whole or in part. In the event of certain Events of Default (as defined in the +convertible promissory note), all outstanding principal and accrued interest under the Convertible Note will become, or may become at +A.G.P.’s election, immediately due and payable to the A.G.P. +The +Company elected to account for the A.G.P. Convertible Note at fair value under ASC 825. The Company determined that the substantive +conversion option within the A.G.P. Convertible Note falls under the guidance within ASC 825 that notes that if a significant +modification of debt occurs an entity is able to make an accounting election on that date to account for that debt under the fair +value option. At the end of each reporting period, the Company calculates the fair value of the A.G.P. Convertible Note, and any +changes in fair value are reported in the current period’s consolidated statements of operations and comprehensive income +(loss). The change in fair value attributable to instrument-specific credit risk, if any, will be recognize within other +comprehensive income each reporting period. As an accounting policy, the Company elected to present interest expense separately from +other changes in the A.G.P. Convertible Note’s fair value. Interest expense will be presented within Interest expense, net, +while the other changes in the fair value with be presented within other income (expense), net in the consolidated statements of +operations and comprehensive income (loss). +The +Company determined the fair value of the A.G.P. Convertible Note to be $ 3.4 million as of November 25, 2024 through the use of a binomial +lattice model. See Note 3 for additional information regarding the fair value measurement of the A.G.P Convertible Promissory Note. The +Company accounted for the issuance on the A.G.P. Convertible Promissory Note as a debt extinguishment, as it was issued to evidence the +A.G.P.’s currently owed deferred commission payable discussed in Note 9. A gain on debt extinguishment of $ 2.4 million was recorded +as of November 25, 2024, consisting of (i) the derecognition of the $ 5.7 million deferred commission payable and (ii) recognition of +the $ 3.4 million fair value of the A.G.P. Convertible Note. For the year ended December 31, 2024, the Company recorded a $ 0.5 million +gain in the change in fair value of the A.G.P. Convertible Note and interest expense of approximately $ 32 thousand. The $ 2.4 million +gain on extinguishment and $ 0.5 million gain on the change in fair value are presented within other income (expense), net, while the +$ 32 thousand of interest expense is presented within Interest expense, net, in the consolidated statement of operations and comprehensive +income (loss). +8. +Loans Payable +Loans +On +May 1, 2022, the Company entered into Loan Agreements (the “Loans”) with two lenders, totaling $ 0.2 million. The Loans +mature two years from the date of the agreement and bear no interest. Each loan was made available to the Company by the lenders in +three tranches of (i) $ 33 thousand (£ 30 thousand); (ii) $ 33 thousand (£ 30 thousand) and (iii) $ 28 thousand (£ 25 +thousand), totaling $ 0.2 million. The Loans provided for events of default, including, among others, failure to make payment, +bankruptcy and non-compliance with the terms of the Loans. As of December 31, 2024, the Company utilized all three tranches of the +first loan and two out of three tranches of the second loan, with loans payable totaling $ 0.2 million at December 31, 2023 and +December 31, 2024 respectively. +F- 22 +On +October 9, 2024, the Company and the Loans holders amended the loan agreements (the “Loans Amendment”) to extend the maturity +date for the Loans to December 19, 2024 . The Loans Amendment also modified the payment terms for the Loans from a cash payment of +£ 85,000 per loan to (1) a cash payment of £ 60,000 , (2) £ 25,000 worth of shares of Common Stock converted +into USD at the prevailing exchange rate, to be issued at the closing market price on the date prior to issuance, and in consideration +for the extension, and (3) 2,500 additional shares of Common stock. On October 11, 2024, the Company issued each of the Loan +holders 5,690 shares ( 11,380 in total). The Loans remain outstanding as of December 31, 2024. +The +extension was accounted for as a debt extinguishment. On October 9, 2024, the Company recorded a loss on debt extinguishment of approximately +$ 42 thousand calculated as the difference between (i) the $ 0.2 million carrying value of the Loans immediately prior to the Loans Amendment +(ii) the $ 0.1 million fair value of the Loans immediately after the Loans Amendment and (iii) the $ 0.1 million fair value of the shares +issued to the holder as consideration for extending the maturity date. The difference between the $ 0.2 million carrying value immediately +prior to the Loans Amendment and the $ 0.1 million fair value immediately after the Loans Amendment was recorded as a debt discount and +amortized over the term date of the Loans using the effective interest method. +During +the year ended December 31, 2024, the Company incurred interest expense on the Loans of approximately $ 40 +thousand related to the amortization of the debt +discount recorded as a result of the Loans Amendment. No +interest expense was recorded for the year ended +December 31, 2023. The Loans remained outstanding as of December 31, 2024, therefore the Company was considered to be in default. The +Company repaid the lenders the outstanding principal balance of $ 0.1 +million in February 2025. See Note 20 for additional +details. +F- 23 +October +2024 Nirland Note +On +October 28, 2024, the Company issued a promissory note (the “October 2024 Nirland Note”) to Nirland, a related party, in +the original principal amount of $ 0.6 +million in exchange for funds in such amount. See Note 16 for further reference to the relationship between the Company and Nirland. +The Nirland Note bears interest at a rate of 12 % +per annum, is due and payable semi-annually in arrears, and matures on October 31, 2025. If an event of default under and as defined +in the Nirland Note occurs, the interest rate will be increased to 18 % +per annum or to the maximum rate permitted by law. In connection with the Nirland Note, the Company has agreed to pay Nirland a 1 % +arrangement fee, which will be included with the principal and interest owed under the Nirland Note. The 1 % +arrangement fee is accounted for as a debt discount and will be amortized to interest expense, net in the consolidated statement of +operations and comprehensive income (loss) using the effective interest method over the life of the October 2024 Nirland +Note. +During +the year ended December 31, 2024, the Company recorded approximately $ 14,000 of interest expense. The interest expense of $ 14,000 is comprised of (i) accrued interest of $ 13,000 based on the coupon rate of the debt and (ii) amortization of the debt discount of $ 1 thousand, +with both components recorded within interest expense, net in the consolidated statement of operations and comprehensive income +(loss). Accrued interest of $ 13,000 was recorded as a liability on the Company’s consolidated balance sheet within accrued expenses and other current liabilities. +The $ 1,000 amortization of the debt discount decreased the debt discount contra-liability included within the Loans payable, current portion on +the consolidated balance sheets. +A.G.P. +Bridge Note +On +October 29, 2024, the Company entered into a Bridge Loan Agreement (the “Bridge Agreement”), with A.G.P., pursuant to which +AGP. made an advance (the “Advance”) to the Company in an amount not to exceed $ 0.6 million (the “Commitment”). +As partial consideration for the Advance, the Company entered into a Common Stock Purchase Warrant Agreement (the “Warrant Agreement”) +and issued AGP warrants to purchase up to 28,625 shares of the Company’s common stock, $ 0.0001 par value per share, which is equal +to 50 % of the sum of the Commitment divided by the closing price of the Company’s Common Stock on October 29, 2024, at an exercise +price of $ 10.48 per share. Refer to Note 18 for additional information on the warrants issued to A.G.P. +In +connection with the Advance, the Company issued a promissory note (the “A.G.P. Bridge Note”) to A.G.P. in the original principal +amount of $ 0.6 million. The Bridge Note bears interest at a rate of 4.21 % per annum and is due and payable on December 31, 2024. +As +noted above, the Company issued to A.G.P. warrants to purchase up to 28,625 +shares of the Company’s common stock. The Company determined that the Bridge Note and Warrant Agreement issuance were part of +a basket transaction and allocated the net proceeds using the residual value method. The warrants issued under the Warrant Agreement +were initially recorded at their fair value of $ 0.2 +million. The warrants were classified as derivative liabilities because they do not meet the criteria in ASC 815-40 to be considered +indexed to the entity’s own stock. Refer to Note 18 for additional information and discussion of liability classification. The $ 0.2 million +recorded for the warrants was considered to be a discount on the A.G.P. Bridge Note making the balance of the note to be $ 0.6 million +note payable, less a total debt discount of $ 0.2 million. +The debt discount will be amortized to interest expense using the effective interest method over the life of the note. +During +the year ended December 31, 2024, the Company recorded and paid approximately $ 1 thousand of interest expense related to the A.G.P. Additionally, +the entire debt discount of $ 0.2 million was amortized and recorded as interest expense during the year. The interest expense of $ 1 thousand +and amortization of the debt discount of $ 0.2 million were recorded within Interest expense, net in the consolidated statement of operations +and comprehensive income (loss). As of December 31, 2024, the A.G.P. Bridge note was fully repaid. +F- 24 +9. +Deferred Commission Payable +As +discussed in Note 2, A.G.P was a financial advisor to both MURF and Old Conduit in connection with the Merger transaction. Upon the completion +of the Merger, A.G.P.: (i) received a cash fee of $ 6.5 million, 13,000 shares of Common Stock, and warrants to purchase 540 shares of +Common Stock at an exercise price of $ 1,100 per share pursuant to its engagement agreement with Old Conduit entered into on August 2, +2022, and (ii) agreed to defer payment, to be paid in the future under certain circumstances by a date no later than March 21, 2025, +of $ 5.7 million of fees plus annual interest of 5.5 % as a result of its engagement for MURF’s IPO. The $ 5.7 million deferred commissions +payable was recorded as a non-current liability on the Company’s consolidated balance sheet as of December 31, 2023. Accrued interest +was recorded as a liability on the Company’s consolidated balance sheet under accrued expenses and other current liabilities and +totaled $ 0.4 million and $ 0.1 million as of December 31, 2024, and December 31, 2023, respectively. +On +November 25, 2024, the Company issued the A.G.P. Convertible Note in the principal amount of $ 5.7 million to evidence the currently owed +deferred commission payable, at which time the deferred commission payable balance was removed. Refer to the Note 7 for additional information. +10. +Research and Development Expense +August +2024 License Agreement +On August 7, 2024, the Company and AstraZeneca AB (PUBL) (“AstraZeneca”) entered into a License Agreement, dated August 7, +2024 (the “August 2024 License Agreement”). Pursuant to the August 2024 License Agreement, AstraZeneca agreed to grant a +license to the Company under certain intellectual property rights controlled by AstraZeneca related to HK-4 Glucokinase activators AZD1656 +and AZD5658 in all indications and myeloperoxidase inhibitor AZD5904 for the treatment, prevention, and prophylaxis of idiopathic male +infertility. The Company will be responsible for the development and commercialization of the Licensed Products under the August +2024 License Agreement. +As +consideration for the grant of the license, the Company (i) granted AstraZeneca Common Stock pursuant to a stock issuance agreement +(the “Issuance Agreement”), (ii) paid AstraZeneca an up-front payment of $ 1.5 million, +and (iii) is obligated to pay AstraZeneca a percentage (on a tiered basis) of any amounts it may receive in connection with a grant +of a sublicense (subject to various customary exceptions). The Issuance Agreement called for the Company to issue AstraZeneca 95,044 +shares of the Company’s Common Stock. The Issuance Agreement provides AstraZeneca with resale registration rights for such +shares. As of December 31, 2024, the Company recorded $ 1.6 million +and $ 1.5 million +in research and development expenses related to the share issuance and upfront payment to AstraZeneca, respectively. +AstraZeneca +has been granted a right of first negotiation to develop, manufacture, and commercialize a Licensed Product if the Company receives an +offer for, or solicits, a transaction where a third party would obtain the right to develop, manufacture, or commercialize a Licensed +Product. If AstraZeneca exercises such right, the parties will negotiate in good faith for an agreed period of time on an exclusive basis. +Either +party may terminate the August 2024 License Agreement for material breach (subject to a cure period) or insolvency of the other party. +The Company may terminate the August 2024 License Agreement for convenience (in its entirety or on a Licensed Product-by-Licensed Product +basis). In addition, AstraZeneca may terminate the August 2024 License Agreement in certain circumstances, including (but not limited +to) the Company ceasing development of all Licensed Products (subject to certain exceptions for normal pauses or gaps between clinical +studies). +As +a result of the above, the Company will no longer fund the development of AZD1656 or AZD5904 under the terms of the Exclusive Funding +Agreement, dated March 26, 2021 with St George Street Capital (the “Funding Agreement”). In this regard, the Company previously +entered into a deed of amendment amending such Funding Agreement. The parties agreed that the project funding provisions of such Funding +Agreement whereby the Company had the right to fund a project or refer other parties to St George Street Capital, were amended to provide +that St George Street Capital must still include the Company in any project funding opportunities and requests but may now seek other +third-parties to fund projects in addition to the Company. In November and December 2024, the Company received a letter from St George Street Capital and formal complaints +filed with the Intellectual Property Office claiming the Company was not the sole owner of the AZD 1656 co-crystal patent. See note 15 +for additional details on the claim. +SARBORG +Service Agreement +On +December 12, 2024, the Company entered into a Services Agreement (the “Sarborg Service Agreement”) with SARBORG Limited +(“Sarborg”), a Cayman Islands company and related party of the Company. See Note 16 for further reference to the +relationship between the Company and Sarborg. Under the terms of the Sarborg Service Agreement, Sarborg will provide algorithmic and +cybernetic technology services to Conduit, including the development of decision-support tools and advanced cybernetic systems +tailored to enhance Conduit’s decision-making processes and maximize the value of its pharmaceutical asset +portfolio. +F- 25 +Sarborg +will perform the services to Conduit comprised of three phases: the Initial Phase (0-24 weeks) focuses on establishing a foundation for +collaboration and aligning Sarborg’s services with Conduit’s strategic goals; the Development Phase (24-36 weeks) involves +building technological infrastructure, including dashboards and predictive models; and the Ongoing Services Phase (36-52 weeks) ensures +the sustained functionality and relevance of Sarborg’s deliverables while supporting Conduit’s growth through iterative improvements +and updates. Sarborg will create specific deliverables, including reports, computer programs, software applications, APIs, mobile applications, +source code, written technical specifications and designs, operating and maintenance manuals, and other recorded data and information +arising from or relating to the services. Sarborg will provide all necessary resources to perform the services and deliver the deliverables +in accordance with the Sarborg Service Agreement. +The +Sarborg Service Agreement has an initial term of 12 months, which commenced on the effective date, and may be renewed or extended +upon mutual written agreement of the parties. Either party may terminate the Sarborg Service Agreement for any reason upon 90 +days’ written notice or immediately upon written notice if the other party breaches any material term of the Sarborg Service +Agreement and fails to cure such breach within thirty days or becomes insolvent, files for bankruptcy, or is placed under the +control of a receiver, trustee, or similar authority. +The +Sarborg Service Agreement includes provisions for the ownership and use of intellectual property. Sarborg will own its pre-existing +intellectual property rights, including proprietary tools and methodologies used in the performance of the services. Conduit will +own all deliverables resulting from the services performed by Sarborg under the Sarborg Service Agreement. +The Sarborg Service Agreement provides Sarborg with registration rights +for any Common Stock of Conduit that Sarborg receives as consideration under the Sarborg Service Agreement. In such event, Conduit will +use commercially reasonable efforts to (i) file a registration statement covering the resale of the Common Stock within 60 days after +the issuance; and (ii) ensure that such registration statement becomes effective within 90 days after filing. This Agreement also includes +confidentiality obligations, representations and warranties, indemnification, limitation of liability, and insurance requirements. +In +consideration of the services, Conduit agreed to pay Sarborg an initial cash payment of $ 0.2 +million and $ 0.2 +million payable through the issuance of 22,727 +shares of common stock, determined by the closing price on the day preceding the execution of the Sarborg Service Agreement. +Further milestone payments payable in conjunction with the achievement of certain milestones over the term of the Sarborg Service +Agreement, totaling up to $ 1.8 +million, are payable in cash or shares, at the discretion of Conduit. Sarborg will be reimbursed for pre-approved, necessary, and +reasonable out-of-pocket expenses directly incurred in connection with the performance of the services. +Management +determined that the cost incurred under the Sarborg Service Agreement should be recorded to research and development expense in the +statement of operations and comprehensive income (loss), as the Sarborg Service Agreement is designed to provide the +Company with software/dashboard to aid in research and development activities. The initial cash payment of $ 0.2 +million and issuance of 22,727 +shares of Common Stock were recorded to prepaid expense and will be amortized over the initial term of the Sarborg Service Agreement to research and +development expense. As of December 31, 2024, the 22,727 +shares of common stock were yet to be issued and are recorded within accrued expense and other current liabilities in the +consolidated balance sheets. As of December 31, 2024, the Company has recognized $ 0.2 +million of amortization within research and development expense in the consolidated statement of operations and comprehensive income +(loss). +11. +Share Based Compensation +On +September 22, 2023, in connection with the Merger, the Company adopted the Conduit Pharmaceuticals Inc. 2023 Stock Incentive Plan +(the “2023 Plan”). The 2023 Plan became effective upon the closing of the Merger. The 2023 Plan initially provided for +the issuance of up to 114,976 shares +of Common Stock. Pursuant to the 2023 Plan’s “evergreen” provision, on February 6, 2025, the Company increased the +number of shares of Common Stock available for issuance under the 2023 Plan by 69,240 +shares. Total shares available for issuance is 154,125 effective January +1, 2025. The number of authorized shares will automatically increase on January 1, 2026 and +continuing annually on each anniversary thereof through (and including) January 1, 2033, equal to the lesser of (i) 5 % +of the shares of common stock outstanding on the last day of the immediately preceding fiscal year and (ii) such smaller number of +shares of common stock as determined by the Board or the applicable committee of the Board. The 2023 Plan allows for awards to be +issued to employees and non-employee directors in the form of options, stock appreciation rights, restricted stock, restricted stock +units (“RSUs”), performance stock units, dividend equivalents, other stock-based, or other cash-based awards. As of +December 31, 2024, there were 84,885 shares +of Common Stock available for issuance under the 2023 Plan. +F- 26 +During the year ended December 31, 2024, the Company issued a total of +56,700 stock options to employees and non-employee directors with an aggregate grant date fair value of $ 0.4 million. For +the year ended December 31, 2024 and December 31, 2023, there was a total of $ 1.6 million and $ 0.2 million, respectively in stock-based +compensation expense recognized within General and Administrative expenses on the consolidated statements of operations and Comprehensive +Loss, respectively. +On +June 24, 2024, in connection with a services agreement with an unrelated third party to provide marketing services, the Company +issued 961 shares of its Common Stock (the “Service Shares”). The Company valued the Service Shares at $ 156 per +share, the closing price of the Company’s Common Stock on June 21, 2024, adjusted for the Reverse Stock Split. The total +compensation for these shares is $ 0.2 million +which will be recognized within general and administrative expense over the service period of the agreement. +On +November 18, 2024, certain non-employee directors elected to receive a portion of their unpaid cash retainers due under the Director +Compensation Program in the form of shares. In total, $ 0.1 million +of unpaid retainers was settled through the issuance 10,027 shares +of Common Stock (the “Retainer Shares”). The Company valued the Retainer Shares at $ 9.0 per +share, the closing price of the Company’s Common Stock on November 18, 2024, adjusted for the Reverse Stock Split. The Company +previously accrued in the unpaid retainers in Accrued expenses and other current liabilities in the Company’s consolidated +balance sheets. Upon issuance of the shares of Common Stock, the accrual was reduced based on the value of the shares +issued. +On +November 18, 2024, the Board of Directors approved a one-time equity retainer in the form of 750 fully +vested shares of Common Stock (the “Board Shares”) to a member of the Board of Directors for prior services. The Company +valued the Board Shares at $ 9.20 per +share, the closing price of the Company’s Common Stock on November 18, 2024, adjusted for the Reverse Stock Split. The total +compensation for these shares is $ 75 thousand +which was immediately recognized within General and administrative expense in the consolidated statement of operations and +comprehensive income (loss). The shares of common stock were issued under the 2023 Plan. +November +18, 2024, Mr. Heilbron elected to have the $ 0.1 million owed to him under the Consulting Agreement paid in share of the Company’s +Common Stock. In total 8,161 shares are to be issued to Mr. Heilbron based on the closing price of the Company’s Common Stock on +November 18, 2024, $ 9.20 per share, adjusted for the Reverse Stock Split. As of December 31, 2024, the shares had not been issued to Mr. +Heilbron. The value of the shares are recorded as an accrued expense and other current liability on the consolidated balance sheets as +of December 31, 2024. +F- 27 +Restricted +Stock +In +connection with the Merger, as discussed in Notes 1 and 2, and by Unanimous Written Consent of the Board of Directors, the then +Chief Financial Officer of the Company was granted 745 RSUs +on December 1, 2023 at a weighted average grant date fair value of $ 551 per unit. +The RSUs were to vest in equal annual instalments on the first three anniversaries of the closing of the Merger. Upon the then Chief +Financial Officer’s resignation, effective May 15, 2024, all such RSUs were forfeited. On June 7, 2024, by Unanimous Written +Consent of the Board of Directors, the Interim Chief Financial Officer of the Company and a Board member were each +granted 372 shares +of immediately vested restricted stock at a weighted average grant date fair value of $ 284 . +The shares of restricted stock were fully vested as of the grant date. No additional +RSU’s or shares of restricted common stock were granted during the year ended December 31, 2024. There were 745 shares +of restricted common stock vested as of December 31, 2024 and no RSUs +vested as of December 31, 2023. +The +following table summarizes restricted stock activity for the 2023 Plan: +Schedule +of Restricted Stock Activity +Number of +Awards +Weighted Average Grant Date Fair Value Per Unit +Outstanding at December 31, 2023 +745 +$ 551 +Granted +745 +$ 284 +Cancelled/forfeited +( 745 ) +$ ( 551 ) +Vested +( 745 ) +$ ( 284 ) +Outstanding at December 31, 2024 +- +$ - +Stock +Options +The +Company estimates the fair value of each option award on the date of grant using the Black-Scholes option-pricing model. The Company +then recognizes the grant date fair value of each option as compensation expense ratably using the straight-line attribution method over +the service period (generally the vesting period). The Black-Scholes model incorporates the following assumptions: +● +Expected +volatility – the Company estimates the volatility of the share price of their peer companies at the date of grant using a “look-back” +period which coincides with the expected term, defined below. The Company believes using a “look-back” period which coincides +with the expected term is the most appropriate measure for determining expected volatility. +● +Expected +term – the Company estimates the expected term using the “simplified” method outlined in SEC Staff Accounting Bulletin +No. 107, “Share-Based Payment.” +● +Risk-free +interest rate – the Company estimates the risk- free interest rate using the U.S. Treasury Yield curve for periods equal to +the expected term of the options in effect at the time of grant. +● +Dividends +– the Company uses an expected dividend yield of zero because the Company has not declared nor paid a cash dividend, nor are +there any plans to declare a dividend. +The +Company estimated the fair value of stock options granted in the periods presented using a Black-Scholes option-pricing model utilizing +the following assumptions: +Schedule of Fair Value +of Stock Option Granted +For the year ended December 31, +2024 +2023 +Expected volatility (%) +83.2 - 85.4 % +79.0 % - 80.0 % +Expected term (years) +5.5 - 5.6 +3.5 - 6.5 +Risk-free interest rate (%) +4.28 % - 4.40 % +4.16 % - 4.35 % +Expected dividend yield (%) +0 % +0 % +The +Company accounts for forfeitures as they occur, which may result in the reversal of compensation costs in subsequent periods as the forfeitures +arise. +The +following table summarizes stock option activity for the 2023 Plan: +Schedule +of Stock Option Activity +Number of Options +Weighted Average Exercise Price +Weighted Average Remaining Contractual Term (years) +Aggregate +Intrinsic Value (in thousands) +Outstanding at December 31, 2023 +10,717 +$ 551 +8.85 +$ - +Granted +56,700 +$ 8.58 +- +$ - +Cancelled/forfeited +1,908 +$ 551 +- +$ - +Exercised +- +$ - +- +$ - +Outstanding at December 31, 2024 +65,509 +$ 81.52 +9.72 +$ - +Exercisable +23,154 +$ 84.18 +9.66 +$ - +Unvested +42,355 +$ 80.07 +9.76 +$ - +F- 28 +The +aggregate intrinsic value of options is calculated as the difference between the exercise price of the underlying options and the fair +value of the Company’s common stock for those options that had exercise prices lower than the fair value of the Company’s +common stock. As of December 31, 2024, the total compensation cost related to non-vested option awards not yet recognized was $ 2.4 million +with a weighted average remaining vesting period of 2.07 years. +12. +Income Taxes +Loss from operations before income +taxes for the years ended December 31, 2024 and 2023 is summarized below (in thousands): +Schedule of Income before Income Tax, Domestic and Foreign +2024 +2023 +For the year ended December 31, +2024 +2023 +Loss from operations before income taxes: +US +( 12,855 ) +( 1,990 ) +Foreign +( 4,947 ) +1,454 +Loss from operations before income taxes +( 17,802 ) +( 536 ) +The +provision (benefit) for income taxes for the years ended December 31, 2024 and December 31, 2023 is as follows (in thousands): +Schedule of Provision for Income Tax +2024 +2023 +For The Years Ended +2024 +2023 +Current +Federal +- +- +State +- +- +Foreign +- +- +Current income tax +- +- +Deferred +Federal +( 2,429 ) +( 843 ) +State +355 +( 355 ) +Foreign +( 931 ) +( 251 ) +Deferred income tax +( 3,005 ) +( 1,449 ) +Change in Valuation Allowance +3,005 +1,449 +Net Income Tax Expense +- +- +Income +tax provision differed from the amount computed by applying the U.S. federal income tax rate of 21 % to income (loss) before taxes, as +follows (in thousands): +Schedule +of Federal Income Tax Rate +US +Foreign +Consolidated +For The Year Ended +2024 +US +Foreign +Consolidated +Taxes at federal statutory rate +$ ( 2,705 ) +$ ( 1,039 ) +$ ( 3,744 ) +Foreign Rate Differential +- +91 +91 +Meals & Entertainment +0 +- +0 +Eq Comp Perm +84 +- +84 +Convertible Debt Adjustment +268 +- +268 +State Re-Rate +355 +- +355 +Other +( 76 ) +17 +( 59 ) +Change In Valuation Allowance +2,074 +931 +3,005 +Total provision (benefit) for income taxes +$ - +$ - +$ - +US +Foreign +Consolidated +For The Year Ended +2023 +US +Foreign +Consolidated +Taxes at federal statutory rate +$ ( 417 ) +$ 305 +$ ( 112 ) +State Taxes +( 175 ) +- +( 175 ) +Foreign Rate Differential +- +490 +490 +Meals & Entertainment +0 +2 +2 +Eq Comp Perm +3 +- +3 +Convertible Debt Adjustment +- +( 1,048 ) +( 1,048 ) +Purchase Accounting Adjustment +( 609 ) +- +( 609 ) +Change In Valuation Allowance +1,198 +251 +1,449 +Total provision (benefit) for income taxes +$ - +$ - +$ - +The +tax effects of temporary differences which give rise to significant portions of deferred tax assets are as follows as of December 31 +(in thousands): +Schedule +of Deferred Tax Assets and Liabilities +US +Foreign +Consolidated +For The Year Ended +2024 +US +Foreign +Consolidated +Deferred Tax Assets +Stock options +$ 280 +$ - +$ 280 +Transaction Costs +393 +- +393 +Research & Development +671 +- +671 +Accruals +141 +- +141 +Net operating loss +1,788 +1,182 +2,970 +Total deferred tax asset +3,273 +1,182 +4,455 +Valuation allowance +( 3,273 ) +( 1,182 ) +( 4,455 ) +Net deferred tax assets (liability) +$ - +$ - +$ - +US +Foreign +Consolidated +For The Year Ended +2023 +US +Foreign +Consolidated +Deferred Tax Assets +Stock options +$ 37 +$ - +$ 37 +Transaction Costs +599 +599 +Net operating loss +562 +251 +813 +Total deferred tax asset +1,198 +251 +1,449 +Valuation allowance +( 1,198 ) +( 251 ) +( 1,449 ) +Net deferred tax assets (liability) +$ - +$ - +$ - +F- 29 +As +of December 31, 2024 and December 31, 2023, the Company had net operating loss (“NOL”) carryforwards for U.S. +federal” purposes of approximately $ 8.5 +million and $ 1.9 +million, respectively, which carryforward indefinitely and can offset 80 % +of taxable income in future years. As of December 31, 2024 and December 31, 2023, the Company had state NOL carryforwards of nil and $ 1.9 +million, respectively. As of December 31, 2024 and December 31, 2023, the Company had net +operating loss (“NOL”) carryforwards for foreign purposes of approximately $ 4.7 +million and $ 1.0 +million, respectively, which carryforward indefinitely. Net operating loss (NOL) carryforwards are subject to limitations in +the event of a change in control under Section 382 of the Internal Revenue Code. This section limits the amount of taxable income +that can be offset by NOLs after an ownership change. The limitation is calculated as the value of the old loss corporation +multiplied by the long-term tax-exempt rate. If the new loss corporation does not continue the business enterprise of the old loss +corporation for a specified period, the NOL carryforwards may be disallowed. The Company has not yet conducted a Section 382 study +to determine whether any ownership changes have occurred that would impose annual limitations on its ability to utilize its NOL +carryforwards. Until such a study is completed, there is substantial uncertainty regarding the amount of NOL carryforwards that +could be utilized annually to offset future taxable income. +The +Company establishes a valuation allowance when it is more likely than not that the Company’s recorded net deferred tax asset +will not be realized. In determining whether a valuation allowance is required, the Company must take into account all positive and +negative evidence with regard to the utilization of a deferred tax asset. As of December 31, 2024 and December 31, 2023, the +valuation allowance for deferred tax assets totaled approximately $ 4.5 +million and $ 1.4 +million, respectively. +13. +Common Stock and Preferred Stock +Common +Stock +As +of December 31, 2024, and December 31, 2023, the Company has authorized the issuance of up to 250,000,000 shares +of common stock, respectively, at a par value $ 0.0001 per +share. +As +of December 31, 2024, and December 31, 2023 there were 1,384,801 and 738,295 shares of Common Stock issued and outstanding, respectively. +No cash dividends have been declared or paid as of December 31, 2024. +Holders +of the Common Stock are entitled to one vote per share, and to receive dividends, on and if declared by the board of directors and, upon +liquidation or dissolution, are entitled to receive all assets available for distribution, subordinate to the rights, preferences, and +privileges of any outstanding preferred shares (if any) with respect to dividends and in connection with liquidation, winding up and +dissolution of the Company. The holders have no preemptive or other subscription rights. +Preferred +Stock +As +of December 31, 2024, the Company has authorized the issuance of up to 1,000,000 shares of Conduit Pharmaceuticals, Inc. preferred stock +(the “Preferred Stock”). As of December 31, 2024, and December 31, 2023, no preferred shares were issued and outstanding. +At-the-Market +Offering +On +October 23, 2024, the Company entered into the Sales Agreement with A.G.P. relating to shares of the Company’s Common Stock. In +accordance with the terms of the Sales Agreement, the Company may offer and sell shares of our Common Stock having an aggregate offering +price of up to $ 3.6 +million from time to time through A.G.P., +acting as our sales agent or principal. +The +compensation to A.G.P. for sales of common stock sold pursuant to the Sales Agreement will be equal to 3.0 % of the gross proceeds of +any shares of common stock sold under the sales agreement. +During +the year ended December 31, 2024, the Company sold 323,273 +shares of Common Stock under the Sales Agreement +and generated $ 3.3 +million in net proceeds after paying fees +to A.G.P. and other issuance costs of $ 0.2 +million. See Note 20 for information on the issuances +and increases to the aggregate offering price subsequent to December 31, 2024. +F- 30 +14. +Earnings/(Net Loss) Per Share +The +following table presents the calculation of basic and diluted earnings/(net loss) per share (in thousands, except share amounts and per +share data): +Schedule +of Basic and Diluted Net Loss Per Share +2024 +2023 +For +the years ended +December 31, +2024 +2023 +Numerator: +Net income (loss) - basic +$ ( 17,802 ) +$ ( 535 ) +Less: Change in fair value and income impact of option liabilities +- +( 5,521 ) +Net income (loss) - diluted +$ ( 17,802 ) +$ ( 6,056 ) +Denominator: +Weighted average common stock outstanding, basic +867,096 +669,739 +Add: Option liability conversion shares +- +9,200 +Weighted average shares used in computing net loss per share - diluted +867,096 +678,939 +Net income (loss) per share, basic +$ ( 20.53 ) +$ ( 0.79 ) +Net income (loss) per share, diluted +$ ( 20.53 ) +$ ( 8.92 ) +The +Company notes that the adjustment to the numerator in 2023 for the change in fair value and income impact of Vela and Cizzle +accounts for changes in fair value of each option, gains (losses) at the time of issuance of each option and the statement of +operations impact of the derecognition of deferred revenue that originated upon the initial sale of royalties to both Vela and +Cizzle. +Potentially +dilutive securities (upon conversion) that were not included in the diluted per share calculations because they would have been anti-dilutive +were as follows: +Schedule +of Potentially Dilutive Securities +As of +As of +December 31, 2024 +December 31, 2023 +Public warrants +139,790 +139,790 +PIPE Warrants +- +20,000 +A.G.P. Warrants +540 +540 +Convertible Promissory Notes Payable +800 +805 +Stock Options +65,509 +10,717 +Restricted stock Units +- +1,470 +August 2024 Nirland Note +672,007 +- +A.G.P. Convertible Note +576,949 +- +March 2024 Warrants +2,600 +- +April 2024 Warrants +14,477 +- +A.G.P. 2024 Warrants +28,626 +- +Antidilutive Securities +1,501,298 +173,322 +15. +Commitments and Contingencies +Legal +Proceedings +The +Company is subject to certain claims and contingent liabilities that arise in the normal course of business. While we do not expect that +the ultimate resolution of any of these pending actions will have a material effect on our consolidated results of operations, financial +position or cash flows, litigation is subject to inherent uncertainties. As such, there can be no assurance that any pending legal action, +does not become material in the future. +In +August 2023, prior to the Business Combination, our now wholly-owned subsidiary, Conduit Pharmaceuticals Limited, received a letter +from Strand Hanson Limited (“Strand”) claiming it was owed advisory fees pursuant to a previously executed letter. +Conduit rejected the claim from Strand and disputed the substance of the letter in full. Following such rejection, on September 7, +2023, Strand filed a claim in the Business and Property Courts of England and Wales claiming it is entitled to be paid the sum of +$ 2 +million and, as a result of the completion of the Business Combination, to be issued 65 +thousand shares of common stock. As of December 31, 2024, the potential contingency is considered probable and reasonably estimable +and as such, the Company accrued an estimated liability of $ 0.4 million +in the accompanying financial statements. The trial in this matter remains scheduled for October 20, 2025. We intend to vigorously +defend against these claims. Regardless of its outcome, the litigation may impact our business due to, among other things, legal +costs and the diversion of the attention of our management. +In November and +December 2024, the Company received a letter from St George Street Capital and formal complaints filed with the Intellectual +Property Office claiming the Company was assigned the US Application, and was not the sole owner, of the AZD 1656 co-crystal patent. +In January 2025, Conduit issued a counter statement to the Intellectual Property Office disputing the claim filed by St George +Street Capital. As of December 31, 2024, the damages sought by St George Street Capital are unknown and the potential contingency is +not considered probable. As such, the Company has not accrued a loss contingency in the accompanying +financial statements. We intend to vigorously defend against these claims. Regardless of its outcome, the litigation may impact our +business due to, among other things, legal costs and the diversion of the attention of our management. +F- 31 +16. +Related Party Transactions +Corvus +Capital Limited +Corvus +Capital Limited (“Corvus”) is a significant investor in the Company through subscribing to 1,000 common +shares prior to the closing of the Merger on September 22, 2023. As discussed in Note 2, the shares held by Corvus on the closing +date of the Merger were exchanged for shares of Conduit Pharmaceuticals Inc. common stock. The Chief Executive Officer and principal +owner of Corvus is a member of Conduit’s board of directors. Occasionally, Corvus provides advisory services to the Company +and is paid a fee for the services. As of December 31, 2024, and December 31, 2023, no advisory fees were due to Corvus. +For +the years ended December 31, 2024 and 2023, the Company incurred director travel expenses payable to the board of directors member +of approximately $ 0.4 million +and $ 1.0 million, +respectively. As of December 31, 2024, and December 31, 2023, the Company did not owe the CEO of Corvus any director’s fees as +the CEO of Corvus and the Company agreed to cease director’s fees to the CEO of Corvus effective at the closing of the Merger. +Amounts owed to this director are included in accrued expenses and other current liabilities in the +balance sheet. +During +the year ended December 31, 2023, Corvus provided a $ 0.2 million cash contribution to the Company to maintain liquidity through the closing +of the Merger. There was no intention of repayment by both Corvus and the Company, and as such, the Company recorded the contribution +to the consolidated statement of changes in stockholders’ deficit. +During +January and February 2023, the Company issued convertible notes payable with an aggregate principal amount of $ 0.4 +million (£ 0.3 +million) to this related party. The convertible +notes payable mature three years after issuance and bear 5 % +interest, only to be paid in the event of a material breach by the Company. In the event of a Change of Control, the convertible notes +payable automatically convert into common shares of the Company at a conversion price equal to a 20 % +discount to the price per share paid for the most senior class of shares in respect of such Change of Control. All of the convertible +notes payable converted into Common Stock upon the closing of the Merger at a 20 % +discount as specified. Refer to Note 2 above for additional information. +At the time of the execution of the PIPE Subscription Agreement, Corvus +and its affiliates entered into a participation and inducement agreement with Nirland whereby Corvus agreed to provide certain payments +and economic benefits to Nirland. In certain circumstances, Nirland may have a right to cause Corvus to transfer 300,484 shares held to Nirland. +Related +Party Loan +The +loans made to a related party were stated at a total principal amount of $ 0.8 million, with no balance outstanding at December 31, 2024 +and December 31, 2023, respectively. The loan carried no interest, and as such, no interest receivable was recorded. The Company recorded +a full reserve against the loan as the related party did not have the ability to repay the loans as of December 31, 2022. On September +22, 2023, the related party paid back a significant portion of its outstanding loan and the Company forgave the remaining portion of +the loan and the Company recorded the $ 0.3 million payoff as a gain within general and administrative expense on the consolidated statement +of operations and comprehensive income (loss), as it had previously been fully reserved. +Nirland +On +August 6, 2024, the Company entered into the August 2024 Nirland Note with Nirland, a related party of the Company. The Company +determined that Nirland was a related party due to Nirland’s ownership interest in the Company concurrently with the execution +of the August 2024 Nirland Note. Additionally, on October 28, 2024, the Company issued the October 2024 Nirland Note to Nirland, and +on October 31, 2024, the Company and Nirland amended the August 2024 Nirland Note, and on November 22, 2024, the Company and Nirland +amended the August 2024 Nirland Note for a second time. Refer to Note 7, Note 8 and Note 20 above for additional +information. +SARBORG +On +December 12, 2024, the Company entered into the Sarborg Service Agreement with Sarborg. Dr. Andrew Regan, a member of +Conduit’s board of directors, also sits on the board of directors of Sarborg but does not have an equity interest in Sarborg. +During the year ended December 31, 2024, the Company recorded $ 0.1 +million as research and development expense related to the Sarborg Service Agreement. Refer to Note 10 above for additional +information. +Officers and +Directors +On April 22, 2024, +the Company issued in a private placement common stock purchase warrants (the “April Warrants”) to third parties which also +included certain directors, to purchase up to an aggregate of 9,077 +shares of the Company’s common stock, in exchange for entering into a lock-up with respect to the shares of common stock +held by such holder and for such directors, $ 12.50 +per warrant. The April Warrants are not exercisable until one year after their date of issuance. Each April Warrant is exercisable +into one share of the Company’s common stock at a price per share of $ 312 +(as adjusted from time to time in accordance with the terms thereof) for a two-year period after the date of exercisability. +F- 32 +17. +Other Income (expense), net +The +following table presents other income (expense), net, for the years ended December 31, 2024 and 2023 (in thousands): +Schedule +of Other Expense, Net +2024 +2023 +For the years ended +December 31, +2024 +2023 +Other income: +Recognition of Cizzle deferred revenue upon option exercise +$ - +$ 1,480 +Recognition of Vela deferred revenue upon option exercise +- +2,774 +Change in fair value of Cizzle option +- +1,280 +Change in fair value of Vela option +- +970 +Change in fair value of warrant liability +221 +81 +Change in fair value of convertible note payment +2,018 +- +Gain on debt extinguishment +2,473 +- +Interest Income +13 +15 +Income Tax Refund +314 +- +Unrealized foreign currency transaction gain +2 +39 +Other +7 +115 +Total other income: +5,048 +6,754 +Other expense: +Loss on issuance of Vela option +- +987 +Change in fair value of convertible notes payable +- +426 +Interest expense +577 +211 +Amortization of debt issuance costs +929 +- +Loss on issuance of warrants +2,710 +- +Loss on Debt Extinguishment +3,179 +- +Realized foreign currency transaction loss +16 +403 +Other expense +20 +- +Total other expense +7,431 +2,027 +Total other (expense) income, net +$ ( 2,383 ) +$ 4,727 +18. +Warrants +Upon +the closing of the Merger, the Company assumed (i) the warrants initially included in the MURF units issued in MURF’s initial public +offering (the “Publicly Traded Warrants”), and (ii) the warrants that were included in the private placement units issued +to the Sponsor simultaneously with the closing of MURF’s initial public offering (the “Private Placement Warrants”). +In connection with the Merger, the Company also issued warrants to the PIPE Investors (the “PIPE Warrants”) pursuant to the +Subscription Agreements and to an advisor (the “A.G.P. Warrants,” and together with the PIPE Warrants, the “Liability +Classified Warrants”) pursuant to the Company’s engagement agreement with the advisor. +The +Company determined that the settlement amount of the Publicly Traded Warrants and the Private Placement Warrants would equal the difference +between the fair value of a fixed number of shares and a fixed monetary amount (or a fixed amount of a debt instrument) and must be classified +as equity, while the settlement amount of the Liability Classified Warrants would not equal the difference between the fair value of +a fixed number of shares and a fixed monetary amount (or a fixed amount of a debt instrument) and must be classified as a liability. +On +March 20, 2024, the Company issued in a private placement equity classified common stock purchase warrants (the “March 2024 +Warrants”) to an investor to purchase up to an aggregate 2,600 +shares of the Company’s Common Stock, in exchange for entering into a lock-up with respect to the shares of common stock held +by such holder (the “March Lock-Up Agreement”). The Company recognized at $ 0.5 +million loss on the issuance of the warrants during the year ended December 31, 2024. The Company determined that the March 2024 Warrants +should be classified within equity and estimated the fair value of the warrants issued as of March 20, 2024, using a Black-Scholes +option-pricing model utilizing the following assumptions: +Schedule +of Black-Scholes Option Pricing Model +March 20, 2024 +Closing stock price +$ 347 +Contractual exercise price +$ 318 +Risk-free rate +4.41 % +Estimated volatility +78.5 % +Time period to expiration +3 Years +F- 33 +On +April 20, 2024, the Company issued in a private placement equity classified common stock purchase warrants (the “April 2024 Warrants”) +to shareholders’ of the Company to purchase up to an aggregate 14,477 shares of the Company’s Common Stock, in exchange for +(1) $ 12.50 per warrant and (2) entering into a lock-up with respect to the shares of common stock held by such holders (the “April +Lock-Up Agreement”). 9,077 of the total April 2024 Warrants issued were issued to directors, related parties and management of +the Company. The Company received cash of $ 0.2 million and recognized a $ 2.2 million loss on the issuance of the warrants during the year ended December 31, 2024. The Company determined that the April 2024 Warrants should be classified within equity and estimated the +fair value of the warrants issued as of April 20, 2024, using a Black-Scholes option-pricing model utilizing the following assumptions: +April 20, 2024 +Closing stock price +$ 308 +Contractual exercise price +$ 312 +Risk-free rate +4.81 % +Estimated volatility +78.3 % +Time period to expiration +3 Years +As +partial consideration for the Advance issued to the Company by A.G.P. on October 29, 2024, the Company issued A.G.P. Warrants (the “A.G.P. +2024 Warrants”) to purchase up to 28,625 shares of the Company’s Common Stock at an exercise price of $ 0.1048 per +share. The Company determined that the A.G.P. 2024 Warrants should be classified as a liability and estimated the fair value of the warrants +as of October 29, 2024, and December 31, 2024, using a Black-Scholes option-pricing model. Refer to Note 3 above for additional information. +Equity +Classified Warrants +Pursuant +to MURF’s initial public offering, the Company sold 132,250 units at a price of $ 10.00 per unit. Each unit consisted of one share +of MURF Class A common stock and one redeemable Publicly Traded Warrant. Each whole Publicly Traded Warrant entitled the holder to purchase +one share of Class A common stock at a price of $ 11.50 per share, subject to adjustment. The warrants are publicly traded on The Nasdaq +Capital Market under the trading symbol CDTTW. +Simultaneously +with the closing of its initial public offering, MURF consummated the private sale to the Sponsor of 7,540 private placement units at +a price of $ 10.00 per private placement unit. Each private placement unit was comprised of one share of MURF Class A common stock and +one Private Placement Warrant. Each Private Placement Warrant was exercisable to purchase one share of MURF Class A common stock at a +price of $ 11.50 per share, subject to adjustment. The private placement units (including the Class A common stock issuable upon exercise +of the warrants included in the private placement units) were not transferable, assignable, or saleable until 30 days after the completion +of a Merger, subject to certain exceptions. +In +connection with the closing of the Merger on September 22, 2023, the Equity Classified Warrants were amended to entitle each holder to +purchase one share of the Company’s Common Stock. +The +Equity Classified Warrants became exercisable 30 days after the Closing Date of the Merger. The Equity Classified Warrants will expire +five years after the Closing Date of the Merger or earlier upon redemption or liquidation. +The +Company will not be obligated to deliver any shares of Common Stock pursuant to the exercise of an Equity Classified Warrant and will +have no obligation to settle such exercise unless a registration statement under the Securities Act with respect to the shares of Common +Stock underlying the warrants is then effective and a prospectus relating thereto is current, subject to our satisfying our obligations +described below with respect to registration. No Equity Classified Warrant will be exercisable and we will not be obligated to issue +shares of Common Stock upon exercise unless the Common Stock issuable upon such exercise has been registered, qualified or deemed to +be exempt under the securities laws of the state of residence of the registered holder of the Equity Classified Warrant. In the event +that the conditions in the two immediately preceding sentences are not satisfied with respect to an Equity Classified Warrant, the holder +of such warrant will not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In no event will +we be required to net cash settle any Equity Classified Warrant. In the event that a registration statement is not effective for the +exercised Equity Classified Warrant, the purchaser of a unit containing such Equity Classified Warrant will have paid the full purchase +price for the unit solely for the share of Common Stock underlying such unit. +F- 34 +Conduit +may call the Publicly Traded Warrants in whole and not in part, at a price of $ 1.00 per warrant, +● +upon +not less than 30 days’ prior written notice of redemption to each Publicly Traded Warrant holder; and +● +if, +and only if, the reported last sale price of the Common Stock equals or exceeds $ 1,800.00 per share (as adjusted for stock splits, stock +dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period commencing once the +Publicly Traded Warrants become exercisable and ending three business days before we send the notice of redemption to the warrant holders. +If +and when the Publicly Traded Warrants become redeemable by Conduit, Conduit may not exercise its redemption right if the issuance of +shares of Common Stock upon exercise of the Publicly Traded Warrants is not exempt from registration or qualification under applicable +state blue sky laws or Conduit are unable to effect such registration or qualification. Conduit will use its best efforts to register +or qualify such shares of Common Stock under the blue sky laws of the state of residence in those states in which the Publicly Traded +Warrants were offered by Conduit in the offering. +If +Conduit calls the Publicly Traded Warrants for redemption as described above, Conduit’s management will have the option to require +any holder that wishes to exercise its Publicly Traded Warrant to do so on a “cashless basis.” In determining whether to +require all holders to exercise their Publicly Traded Warrants on a “cashless basis,” Conduit’s management will consider, +among other factors, Conduit’s cash position, the number of Publicly Traded Warrants that are outstanding and the dilutive effect +on Conduit stockholders of issuing the maximum number of shares of Common Stock issuable upon the exercise of our Publicly Traded Warrants. +If Conduit’s management takes advantage of this option, all holders of Publicly Traded Warrants would pay the exercise price by +surrendering their Publicly Traded Warrants for that number of shares of Common Stock equal to the quotient obtained by dividing (x) +the product of the number of shares of Common Stock underlying the Publicly Traded Warrants, multiplied by the difference between the +exercise price of the Publicly Traded Warrants and the “fair market value” (defined below) by (y) the fair market value. +The “fair market value” for this purpose shall mean the average reported last sale price of the Common Stock for the 10 trading +days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of Publicly Traded Warrants. +If Conduit’s management takes advantage of this option, the notice of redemption will contain the information necessary to calculate +the number of shares of Common Stock to be received upon exercise of the Publicly Traded Warrants, including the “fair market value” +in such case. Requiring a cashless exercise in this manner will reduce the number of shares to be issued and thereby lessen the dilutive +effect of a Publicly Traded Warrant redemption. +The +Private Placement Warrants are identical to the Publicly Traded Warrants, except that such warrants will be exercisable for cash or on +a cashless basis, at the holder’s option, and will not be redeemable by Conduit, in each case so long as they are still held by +the Sponsor or its permitted transferees. +As +summarized above, the Company has the option to redeem all of the Publicly Traded Warrants at a cash price of $ 0.01 per warrant during +the exercisability period if the Company’s common stock has closed at a trading price above $ 18.00 for 20 days during a 30-day +trading window. Management notes that this option is within the Company’s control, therefore it does not represent an “obligation” +and does not create a liability under ASC 480. Management considered the guidance within ASC 815-40-15-7A, noting that an exercise contingency +would not preclude permanent equity classification if all of the other equity criteria are met. As all other criteria to be classified +as permanent equity are met, the Publicly Traded Warrants are classified as permanent equity on the Consolidated Balance Sheets. +F- 35 +Management +assessed the Private Placement Warrants and determined that the warrants are considered to be indexed to the entity’s own stock +and met all the criteria for permanent equity classification. As such, the Publicly Traded Warrants are classified as permanent equity +on the Consolidated Balance Sheets. +The March 2024 Warrants are not exercisable until one year after their date of issuance. Each March +2024 Warrant is exercisable into one share of the Company’s Common Stock at a price per share of $ 3.18 (as adjusted from time to +time in accordance with the terms thereof) for a two-year period after the date of exercisability. There is no established public trading +market for the March 2024 Warrants. Notwithstanding the foregoing, the March 2024 Warrants shall vest, and not be subject to forfeiture, +with respect to 25% of such March 2024 Warrants commencing on the 90th day after the date of the March Lock-Up Agreement and 25% on each +subsequent 90-day anniversary, in each case vesting only if the holder agrees to continue to have its shares of common stock remain locked +up pursuant to the March Lock-Up Agreement on such date. +The +April 2024 Warrants are not exercisable until one year after their date of issuance. Each April 2024 Warrant is exercisable into one +share of the Company’s Common Stock at a price per share of $ 312 (as adjusted from time to time in accordance with the terms thereof) +for a two-year period after the date of exercisability. There is no established public trading market for the April 2024 Warrants. Notwithstanding +the foregoing, the April 2024 Warrants shall vest, and not be subject to forfeiture, with respect to 25% of such March 2024 Warrants +commencing on the 90th day after the date of the April Lock-Up Agreement and 25% on each subsequent 90-day anniversary, in each case +vesting only if the holder agrees to continue to have its shares of common stock remain locked up pursuant to the April Lock-Up Agreement +on such date. +Liability +Classified Warrants +As +discussed in Note 2, 20,000 PIPE Warrants were issued to the PIPE Investors as of the closing of the Merger pursuant to subscription +agreements. The warrants provide the PIPE Investors the right to purchase up to 20,000 shares of Common Stock at an exercise price of +$ 1,150 . Additionally, on the Closing Date of the Merger, the Company issued 540 A.G.P. Warrants to an advisor for services provided directly +related to the Merger. The warrants provide the advisor the right to purchase up to 540 shares of Common Stock at an exercise price of +$ 1,100 per share. +The +warrants issued to the PIPE Investors and the advisor contain materially the same terms and are exercisable for a period of five years, +beginning on October 22, 2023. +The +PIPE Warrants are exercisable for cash or on a cashless basis, at the holder’s option. The PIPE Warrants are not redeemable by +the Company. +The +A.G.P. Warrants are exercisable for cash or on a cashless basis, at the holder’s option. The Company may call the A.G.P. Warrants +for redemption, in whole and not in part, at any time after the A.G.P. Warrants become exercisable and prior to their expiration, at +a price of $ 1.00 per A.G.P. Warrant, +● +upon +not less than 30 days’ prior written notice of redemption to each warrant holder; +● +if, +and only if, the reported last sale price of the Common Stock equals or exceeds $ 1,800 per share (as adjusted for stock splits, stock +dividends, recapitalizations and other similar events) for any 20 trading days within a 30-trading day period commencing once the +A.G.P. Warrants become exercisable and ending three business days before we send the notice of redemption to the warrant holders; +and +● +provided +there is a current registration statement in effect with respect to the shares of Common Stock underlying the A.G.P. Warrants for +each day in the 30-trading day period and continuing each thereafter until the redemption date. +If +the Company calls the A.G.P. Warrants for redemption as described above, our management will have the option to require any holder that +wishes to exercise its A.G.P. Warrant to do so on a “cashless basis.” If our management takes advantage of this option, holders +of A.G.P. Warrants would pay the exercise price by surrendering their A.G.P. Warrants for that number of shares of Common Stock as calculated +pursuant to the A.G.P. Warrant. Requiring a cashless exercise in this manner will reduce the number of shares to be issued and thereby +lessen the dilutive effect of an A.G.P. Warrant redemption. +The +exercise of the A.G.P. 2024 Warrants and the issuance of the shares of Common Stock underlying the Warrants is subject to stockholder +approval under applicable rules and regulations of Nasdaq. The warrants are exercisable for a period of five years, beginning on the +stockholder approval date. The A.G.P 2024 Warrants are exercisable for cash, or on a cashless basis if at the time of exercise there +is no effective registration statement registering the resale of the warrant shares. The A.G.P. 2024 Warrants are not redeemable by the +Company. On October 29, 2024, the Company recorded a warrant liability of $ 0.2 million. As part of the special meeting of stockholders +taking place on January 9, 2025, the stockholders approved the issuance of up to an aggregate of 28,625 shares of the Company’s +common stock upon exercise of the A.G.P. 2024 Warrants. +The +PIPE Warrants, A.G.P. Warrants, and the A.G.P 2024 Warrants (collectively the “Liability Classified Warrants”) are classified +as derivative liabilities because they do not meet the criteria in ASC 815-40 to be considered indexed to the entity’s own stock +as the warrants could be settled for an amount that is not equal to the difference between the fair value of a fixed number of the entity’s +shares and a fixed monetary amount. The Liability Classified Warrants are initially measured at fair value and are remeasured at fair +value at subsequent financial reporting period end dates and upon exercise (see Note 7 for additional information regarding fair value). +On +December 11, 2024, the Company reduced the exercise price of the PIPE Warrants to be $ 8.83 , at which time all PIPE Warrants were exercised. +The Company received approximately $ 0.2 million of proceeds from the exercise of the Warrants, all of which was used to pay down the +October 2024 Nirland Note. +For +the years ended December 31, 2024, and December 31, 2023, the Company remeasured the fair value of the Liability Classified Warrants +and recorded a gain on the change in the fair value of $ 0.2 +million and $ 0.1 +million, respective. The gains were recorded +to other income (expense), net, on the consolidated statements of operations and comprehensive income (loss). As of December 31, 2024 +and December 31, 2024, the balance sheets contained warrant liabilities of $ 0.1 +million and $ 0.01 +million, respectively. +F- 36 +19. +Segments +The +Company has one operating segment focused on the research and development of clinical assets. The accounting policies of the single operating +segment are identical to those described in Note 1. The CODM, which the Company has identified as David Tapolczay, Chief Executive +Officer, manages the Company’s operations on a consolidated basis, assesses performance for the operating segment and decides how +to allocate resources based on consolidated net loss, which is reported on the consolidated statements of operations and comprehensive +income (loss). Depreciation expense, amortization expense, stock-based compensation expense, and non-cash lease expense are significant +noncash items included in consolidated net loss reviewed by the CODM and are reported on the consolidated statements of cash flows. The +measure of segment assets is reported on the consolidated balance sheets as total consolidated assets. Expenditures for additions to +long-lived assets, which include purchases of property and equipment, are included in total consolidated assets reviewed by the chief +operating decision maker and are reported on the consolidated statements of cash flows. +The +CODM uses consolidated net loss and budget-to-actual variances to assess the performance of the operating segment and determine if the +Company is progressing towards its goals. +The +following table presents certain financial data for the Company’s reportable segment (in thousands): +Schedule +of Financial Data for the Company’s Reportable Segment +2024 +2023 +December 31, +2024 +2023 +Research & development expense – new licenses +$ 3,114 +$ — +Research & development expense – clinical asset development +264 +90 +General and administrative expenses – legal & professional fees +2,258 +314 +General and administrative expenses – accounting & audit fees +1,625 +3,064 +General and administrative expenses – salaries, payroll and stock-based compensation +4,098 +721 +General and administrative expenses – other +4,060 +1,073 +Loss from segment operations +$ 15,419 +$ 5,262 +Other +segment items consist of the items within Note 17 to the consolidated financial statements. +20. +Subsequent Events +Reverse +Stock Split +On +January 24, 2025, the Company effected the Reverse Stock Split, pursuant to which every 100 shares of the Company’s common stock +issued or outstanding were automatically reclassified into one new share of common stock, subject to the treatment of fractional shares +as previously described, without any action on the part of the holders. For a description of the Reverse Stock Split, refer to Note 1 +above. +Nirland Notes +Repayment +On February 7, 2025, +the Company fully repaid its outstanding October 2024 Nirland Note to Nirland Limited in the principal amount of $ 600,000 . +This payment settled all obligations under the October 2024 Nirland Note. +With +respect to the August 2024 Nirland Note, the Lender converted approximately $ 1.7 million +of the original principal amount of $ 2,650,000 under +into shares of common stock of the Company. Of the $ 1.7 million of original principal that was converted into shares of common stock +of the Company, $ 0.1 million was converted on December 12, 2024, while the remaining $ 1.6 million was converted between January 13, +2025 and February 10, 2025. On February 13, 2025, the Company paid the remaining outstanding portion of the August 2024 +Nirland Note, approximately $ 0.9 +million, and, accordingly, satisfied all of its obligations in all respects to Nirland. As a result of satisfying its obligations under the +August 2024 Nirland Note, all of the Company’s assets are once again free and clear of any liens, security interests or +encumbrances. +March 2023 Convertible Note +Repayment +On March 13, 2025, +the Company fully repaid its outstanding March 2023 Convertible Note. The Company notes that the note holder agreed on March 6, 2025 +to reduce the principal from $ 0.8 +million to $ 0.7 +million. This payment settled all obligations under the March 2023 Convertible Note. The March 2023 Convertible Note Repayment was considered +to be in default until payment on March 13, 2025. +Nasdaq Stock +Market Correspondence and Subsequent Nasdaq Capital Market Listing +On +February 11, 2025, the Company presented its plan of compliance to The Nasdaq Stock Market LLC Hearing Panel (the “Panel”) +and requested an extension of time to achieve compliance with Nasdaq Listing Rules, the Minimum Bid Price (“Bid Price”), +Market Value of Publicly Held Shares (“MVPHS”) and Market Value of Listed Securities (“MVLS”) rules, respectively. +On +March 5, 2025, the Company received a written notification from the Panel confirming it has granted the Company such an extension for +the Company to regain compliance with the MVPHS and MVLS rules, provided that the Company, (i) on or before March 12, 2025, files an +application to transfer to the Nasdaq Capital Market, which application was submitted on March 7, 2025, and (ii) on or before March 31, +2025, demonstrates compliance with all Nasdaq listing rules, which it intends to do. Additionally, the Company was also notified in the +Notice that as of February 26, 2025, it had regained compliance with the Bid Price rule. The Company notes that there is no assurance +that the Company can maintain ongoing compliance with the Bid Price Rule. The Company expects to submit its compliance document with +respect to the MVPHS and MVLS rules which will be subject to review by the Panel. The Panel, may, in its discretion, request additional +information before determining that the Company has complied with the terms of the exception. There can be no assurances that the Panel’s +decision will agree with the Company’s compliance document. +Common Stock +Issuances in Relation to the Sales Agreement +The Company +increased the aggregate offering price under the Sales Agreement to up to $ 4,835,433 , +$ 8,183,156 , +$ 13,450,017 , +$ 17,816,270 , +and $ 23,922,782 on January 15, 2025, February 6, 2025, February 10, 2025, February 19, 2025, and March 10, respectively. From +January 22, 2025 through the issuance of the Company’s consolidated financial statements, the Company sold 4,345,913 +shares of the Company’s Common Stock through the Sales Agreement. The Company received proceeds of $ 8.1 +million, net of commissions payable to A.G.P. of $ 0.2 +million. As of the financial statement filing date, the Company has $ 12.0 million +available under the Sales Agreement. +F- 37 \ No newline at end of file diff --git a/raw/filings/0001896212/2024/0001641172-25-001246/filing_metadata.csv b/raw/filings/0001896212/2024/0001641172-25-001246/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..03c68dc76894d2de8c15d0b5323adc102709a772 --- /dev/null +++ b/raw/filings/0001896212/2024/0001641172-25-001246/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001896212,CDTTW,CDT Equity Inc.,2024,10-K,2025-03-28,2024-12-31,2025-03-28T20:54:33.000Z,0001641172-25-001246,form10-k.htm,,11517043,1,1,https://www.sec.gov/Archives/edgar/data/1896212/000164117225001246/form10-k.htm,https://www.sec.gov/Archives/edgar/data/1896212/000164117225001246/ diff --git a/raw/filings/0001896212/2024/0001641172-25-001246/item1.txt b/raw/filings/0001896212/2024/0001641172-25-001246/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..e372c0e01d74d7ed8f5c41382f3bf53d8cd9c3cc --- /dev/null +++ b/raw/filings/0001896212/2024/0001641172-25-001246/item1.txt @@ -0,0 +1,1718 @@ +Item +1. Business +Overview +On +September 22, 2023, a merger transaction (the “Business Combination”) between Conduit Pharmaceuticals Limited (“Old +Conduit”), Murphy Canyon Acquisition Corp (“MURF”) and Conduit Merger Sub, Inc., a Cayman Islands exempted company +and a wholly owned subsidiary of MURF (“Merger Sub”), was completed pursuant to the Agreement and Plan of Merger, dated November +8, 2022, as amended, (the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, at the closing, (i) Merger +Sub merged with and into Old Conduit, with Old Conduit surviving the Business Combination as a wholly-owned subsidiary of MURF, and (ii) +MURF changed its name from Murphy Canyon Acquisition Corp. to Conduit Pharmaceuticals Inc. (“Conduit” or the “Company”). +Conduit +has developed a unique business model that allows it to act as a conduit to bring clinical assets from pharmaceutical companies and +develop new treatments for patients. Our novel approach addresses unmet medical needs and lengthens the intellectual property for +our existing assets through cutting-edge solid-form technology and then commercializing these products with life science companies. +We continue to evaluate novel artificial intelligence (“AI”) and cybernetics approaches to drug re-purposing, +intellectual property and asset selection to give Conduit a competitive advantage. +We +are led by highly experienced pharmaceutical executives: Dr. Freda Lewis-Hall, former Chief Medical Officer of Pfizer Inc., the Chair +of our Board of Directors, and Dr. David Tapolczay, former Chief Executive Officer of the United Kingdom-based medical research charity +LifeArc, our Chief Executive Officer. Our management team includes active senior scientists who have an extensive understanding of the +pharmaceuticals market, which supports our strategy of developing clinical assets in a cost-efficient manner while focusing on therapeutic +efficacy and patient safety. +Simultaneously, +Conduit leverages the capabilities of our Cambridge laboratory facility and highly experienced team of solid-form experts to extend or +develop proprietary solid-form intellectual property for our existing and future clinical assets. Our own intellectual property portfolio +comprises pending patent applications in several international jurisdictions describing a solid-form compound, including the AZD1656 +Cocrystal (a HK-4 Glucokinase Activator), targeting a wide range of autoimmune disorders. Our pipeline research includes a number of +compounds that serve as promising alternatives to existing clinical assets currently marketed and sold by large pharmaceutical companies, +which we have identified as having an opportunity to develop further intellectual property positions through solid-form technology. +In +connection with the funding and development of clinical assets, we evaluate and select the specific molecules to be developed and collaborate +with external CROs and Key Opinion Leaders (“KOLs”) to run clinical trials +that are managed, funded, and overseen by us. We intend to leverage our comprehensive clinical and scientific expertise in order to facilitate +development of clinical assets through Phase II trials in an efficient manner by using CROs and third-party service providers. We will +also collaborate closely with disease specific KOLs to collectively assess and determine the most appropriate indications for all our +current and forthcoming assets. +We +believe that successful Phase II trials of the clinical assets in our pipeline will increase the value of our assets. There is no assurance +that any clinical trials on the assets owned or licensed by us will be successful, however, following a successful Phase II clinical +trial, we would look to licensing opportunities with large biotech or pharmaceutical companies, typically for up-front milestone payments +and royalty income streams for the life of the asset patent. We anticipate using any future royalty income stream to develop our asset +portfolio in combination with other potential sources of financing, including debt or equity financing. +Outside +of our proprietary owned patented clinical assets, AstraZeneca agreed to grant a license to the Company under certain intellectual property +rights controlled by AstraZeneca related to HK-4 Glucokinase activators AZD1656 and AZD5658 in all indications and myeloperoxidase inhibitor +AZD5904 for the treatment, prevention, and prophylaxis of idiopathic male infertility. The Company will be responsible for the development +and commercialization of the relevant products licensed under the related License Agreement (the “Licensed Products”). The +Company is required to use commercially reasonable efforts to develop and commercialize the Licensed Products. +AstraZeneca +has conducted initial pre-clinical and, in some instances, clinical trials on these assets, but has decided to license them for further +development. As the clinical assets have undergone initial pre-clinical and clinical testing conducted by AstraZeneca, we are able to +use the safety data generated in these clinical trials to assess which clinical assets to further develop and for which indications. +Through +this relationship, there are considerable APIs that were manufactured by AstraZeneca +(prior to conducting its clinical trials) available to Conduit. As a result, Conduit may not have to develop the APIs, which is often +a time consuming and expensive process, and the APIs already produced were subject to rigorous quality control measures. +In +collaboration with SARBORG Limited (“Sarborg”), Conduit intends to leverage an advanced +artificial intelligence (AI) and cybernetics platform to evaluate key deliverables across multiple areas of the Company’s +operations, including drug repurposing, drug discovery, solid-form identification, and clinical trial monitoring. +The +Sarborg Agreement (defined and described below) is designed to address longstanding challenges in the pharmaceutical sector, in +particular by reducing human error in critical decision-making processes in both clinical development and asset identification. By +integrating Sarborg’s algorithmic AI/cybernetics technology, Conduit aims to enhance efficiency, lower costs, and accelerate +timelines by minimizing human intervention, ultimately optimizing the drug development cycle and giving Conduit a competitive +advantage in the sector. +Through +this relationship, Conduit will gain access to cutting-edge predictive models and dashboards, enabling the Company to evaluate drug candidates, +streamline clinical trials, and optimize asset management with real-time data. These tools will drive faster, more accurate decisions, +improving efficiency and reducing costs. By leveraging these insights, Conduit to differentiate itself in a competitive sector and gain +unique data-driven insights that position the Company for success across both its current and future asset portfolio. +In +addition, Conduit will retain a perpetual, non-exclusive, royalty-free, and assignable right to use any platform or technology developed +by Sarborg in association with the deliverables. Ongoing support from Sarborg will ensure these systems evolve with Conduit’s needs, +driving long-term innovation in areas like IP creation, regulatory strategy, and clinical trial monitoring. This partnership reinforces +Conduit’s commitment to leveraging AI-driven solutions to accelerate growth, deliver value to stockholders, and maintain a competitive +edge in the pharmaceutical sector. +Sarborg is considered to +be a related party of conduit, as Dr. Andrew Regan, a stockholder of Conduit and member of Conduit’s board of directors, +also sits on the board of directors of Sarborg. Refer to Note 16 to our financial statements included elsewhere in this Annual Report +for additional details on the relationship between Conduit and Sarborg. +1 +This +strategic move reaffirms Conduit’s commitment to adopting forward-thinking solutions to stay at the forefront of innovation in +the pharmaceutical industry. By reducing reliance on traditional, labor-intensive methods and harnessing the power of AI-driven technology, +Conduit is well-positioned to lead in areas such as drug repurposing, clinical trial monitoring, and IP creation, ensuring the Company’s +long-term growth and market leadership. +Furthermore, +Conduit believes that it is well positioned to pursue, and intends to pursue, additional relationships and/or partnerships with +third parties for the licensing of further assets which are currently deprioritized. We plan to focus our efforts on developing +clinical assets to address disorders that impact a large population where there is no present treatment or the present treatment, +carries significant unwanted side effects. +Our +Initial Pipeline: HK-4 Glucokinase Activator Cocrystal, AZD1656, and its metabolite AZD5658 and AZD5904 +We +wholly own the intellectual property and the rights to further develop the solid-form Cocrystals of AZD1656 (AZD1656 Cocrystal– +pending international patent applications, which, if granted should expire no earlier than 2042) that we intend to target a wide range +of autoimmune disorders. +In +addition, we currently have the exclusive rights to develop clinical assets, AZD1656 and AZD5658 in all human indications and AZD5904 +in idiopathic male infertility which are licensed to us by AstraZeneca. +Outside +of our proprietary owned patented clinical assets, AstraZeneca granted a license to the Company of certain intellectual property rights +controlled by AstraZeneca related to HK-4 Glucokinase activators AZD1656 and AZD5658 in all indications and myeloperoxidase inhibitor +AZD5904 for the treatment, prevention, and prophylaxis of idiopathic male infertility. The Company will be responsible for the development +and commercialization of the Licensed Products. The Company is required to use commercially reasonable efforts to develop and commercialize +the Licensed Products. +Due +to our relationship with AstraZeneca, we intend to leverage the data generated from these historical trials in order to investigate the +efficacy and safety to AZD1656 to potentially treat Lupus and ANCA Vasculitis patients, and the efficacy and safety of AZD5904 to treat +IMI. AZD1656 has undergone testing in a total of 20 Phase I clinical trials and five Phase II clinical trials conducted by AstraZeneca +since 2008 and 19 of which were conducted in the U.S. Additional information about those clinical trials is available at the U.S. National +Library of Medicine’s website at www.clinicaltrials.gov (however, the information contained on or otherwise accessible through +such website is not part of this annual report). AZD5904 has undergone testing in five Phase I clinical trials conducted by AstraZeneca, +one of which was conducted in the U.S. While a significant amount of clinical trial data has already been generated for both AZD1656 +and AZD5904, some of this data was generated outside of the U.S. and accordingly may not be accepted by the FDA. In the event that such +data is not accepted by the FDA, additional clinical trials may be required to commercialize these assets in the United States, which +would result in additional costs and time to develop these clinical assets. +AZD1656 +underwent Phase I and Phase II clinical trials consisting of 23 studies in 526 subjects, 446 of whom were dosed with AZD1656. Other +than for the intended effect of lowering glucose, there were no difference identified between the AZD1656-treated and +placebo-treated subjects relating to adverse events. All of the cases where low glucose levels were identified were managed by the +patients and resolved. Based on these clinical trials, no safety signals were identified regarding vital signs, safety laboratory +values or electrocardiogram data. No deaths occurred in any studies with healthy volunteers or patients. AZD1656 was also subject to +Phase II clinical trials consisting of two studies where AZD1656 was given to patients with Type 2 Diabetes Mellitus for four months +or longer. In total, there were 754 randomized patients, 516 of whom were exposed to AZD1656 (316 men and 200 women). There were no +clinically important differences in the adverse effects profile between the AZD1656 treatment group and the AZD1656 placebo group +and there were no deaths in either of the Phase II studies. The efficacy of AZD1656 as a potential treatment for diabetes was also +assessed during the Phase II clinical trials, including whether the efficacy was statistically significant. Clinically relevant and +statistically significant reductions in HbA1c were seen after four months; however, the initial improvement in glucose control +deteriorated over time and the change in HbA1c levels after four months were not statistically different than the placebo. This +decreasing efficacy over time was seen in both Phase II studies. +AZD5658 +was subject to a randomized, single-blind, placebo-controlled, single-center, Phase I study to assess the safety, tolerability, pharmacokinetics, +pharmacodynamics and the effect of fasting after single ascending oral doses of AZD5658 in Type 2 Diabetes Mellitus patients. There were +six dose levels with eight patients in each cohort, six receiving AZD5658 and two receiving placebo. The effect of fasting on the pharmacokinetics +of AZD5658 was also studied for two dose levels. Each patient treated with metformin received a maximum of two single oral suspension +doses (one on a low dose of AZD5658/placebo and one on a high dose of AZD5658/placebo under fed conditions), except for patients participating +in the evaluation of the effect of fasting, who received a maximum of three single oral suspension doses. For each patient the study +included a pre-entry visit (Visit 1), two or three clinic-based treatment visits (Visit 2, 3, and 4) and a follow-up visit (Visit 5). +Hence, the total duration of the study for each patient was approximately two and one-half months, assuming three weeks between dose +levels. There were no deaths, serious adverse events, discontinuations due to adverse events, or adverse events of severe intensity during +the study. Overall, there were 13 (61.9%) AZD5658-treated patients with adverse events compared to 2 (28.6%) patients who received placebo. +There were no trends noted with increasing dose in the number of adverse events overall or within any preferred term. The most frequently +occurring adverse events were hypoglycemia and diarrhea, each occurring in three AZD5658-treated patients. One adverse event of ear +pain (30 mg AZD5658 fed) was assessed by the study investigator as moderate in intensity; all other adverse events were of mild intensity. +Five adverse events in AZD5658- treated patients were assessed by the investigator as causally related to investigational product, including +hypoglycemia in three patients (100 mg, 200 mg fasted, and 400 mg AZD5658), diarrhea in one patient (200 mg AZD5658 fasted), and headache +in one patient (30 mg AZD5658). No adverse events in placebo-treated patients were assessed as causally related to investigational product. +The three patients who experienced hypoglycemia adverse events were treated with intake of food or orange juice and the episodes resolved +in less than one hour. +2 +AZD5904 +was subject to five Phase I clinical studies, with a total of 1,181 subjects being exposed to AZD5904. Single doses of up to 1200 mg +and multiple doses of up to 325 mg for up to three times per day for 21 days have been administered as an oral solution in the completed +clinical studies. In addition, single doses of up to 1,400 mg and multiple doses of up to 600 mg for 10 days have been administered as +an “extended release” formulation. The data from these studies did not identify any expected adverse drug reactions for AZD5904 +and no adverse effects were reported as related to AZD5904. In addition, the data revealed no clinically significant changes in blood +pressure or pulse rate related to AZD5904 and electrocardiogram data was within the physiological range for the population studied. The +effect of AZD5904 on human myeloperoxidase, which we refer to as MPO, activity was evaluated by determination in an ex vivo assay of +MPO activity in plasma. The correlation between MPO activity and plasma concentrations was assessed for single and multiple doses of +AZD5904. A relationship between plasma concentrations of AZD5904 and MPO activity was demonstrated, which indicates that AZD5904 may +be an effective inhibitor of MPO activity in humans. However, Phase I trials do not assess statistical significance so additional Phase +II trials are necessary to determine if the inhibition of MPO activity as a result of AZD5904 is statistically significant. +Asset +Development +Our +initial development plan is to conduct a Phase II clinical trial on AZD1656 in Lupus (including Lupus Nephritis) and ANCA Vasculitis +(AAV). Should we choose to develop AZD1656, AZD5658, or AZD5904, that development would be subject to the terms of the License Agreement, +described in more detail below. We anticipate developing our Initial Pipeline (which has already undergone pre-clinical and clinical +trials) through the Phase II stage and then monetizing such clinical assets through a license, royalty, or other transaction at this +stage. At this time, we do not expect that we will commercialize any clinical assets or seek marketing approval from the FDA (or similar +organizations) as we intend to enter into agreements with third parties following Phase II clinical trials for each such clinical asset +that would provide that such third party would pursue the further development, commercialization, and marketing of such assets. +To +enable us to monetize our clinical assets, we, in partnership with CROs and KOLs, intend to conduct additional clinical trials on our +clinical assets in order to generate clinical data to support the further development of our clinical assets beyond the Phase II stage. +In the event successful clinical trial data is generated for a clinical asset with a particular indication, at that point, we will seek +to enter into a license, royalty, or other transaction with a third party whereby the third party would continue to pursue the development +of the clinical asset in Phase III clinical trials. There is no assurance that any clinical trials on the assets owned or licensed by +us will be successful. +We +intend to use the income received from licensing clinical assets in our pipeline to fund the development of additional clinical assets, +which will allow us to use the existing income stream from clinical assets that have been licensed to fund our on-going operations, including +the development and commercialization of additional clinical assets, without having to rely solely on debt and/or equity financing. +Our +Development Strategy +Our +strategy is to generate value through the development of new medicines, or clinical assets, for patients where our research +indicates that there are not effective pharmaceutical treatments available or such existing pharmaceutical treatments are not +adequate due to, among other things, cost of such pharmaceuticals and side effects. We are working to develop new medicines in +disorders where competitive treatments carry a high incidence of unacceptable side effects resulting in tolerability and compliance +issues. We aim to extend and develop solid-form intellectual property on assets which are licensed from pharmaceutical companies or +generated within our facility in Cambridge, United Kingdom (the“UK”). We believe that our Cambridge facility positions us at the nexus of scientific +advancement, providing an environment to drive cutting-edge research and development initiatives. +There +is evidence that promising solid-form candidates can supersede original pharmaceutical products. We are currently in the process of developing +new solid-form intellectual property on clinical assets which we believe will serve as promising alternatives for existing products on +the market. We believe that our expertise and utilization of solid-form technology can potentially enhance the efficacy, bioavailability, +solubility and delivery of existing products on the market. Once a candidate has been identified and patented, we will fund and conduct +clinical trials through CROs. +As +previously indicated, our strategy also involves establishing strategic collaborations with globally recognized KOLs. We will collaborate +closely with disease specific KOLs to collectively assess and determine the most appropriate indications for all our current and forthcoming +assets. This approach ensures that the selection of indications aligns with the KOLs’ insights, in addition to our internal expertise, +optimizing the development and success of Conduit’s diverse portfolio. +Our +unique relationships allow us to bypass certain traditional hurdles for the development of clinical assets. Through our relationship +with AstraZeneca, our Initial Pipeline has already undergone initial pre-clinical, and, in some instances, clinical testing conducted +by AstraZeneca, which enables us to use the safety data generated in the prior trials in order to assess which assets to continue to +develop. We regularly assess our asset portfolio to identify potential risks and take steps to mitigate those risks, such as the repurposing +of assets, which reduces development costs and timelines, as the clinical asset has already undergone safety and toxicity testing in +humans, as well as extending the remaining patent life by up to 20 years on all assets which are licensed. +3 +The +prior preclinical and clinical studies conducted by AstraZeneca allow us to reduce the costs, expenses, and time in the development of +these assets by allowing us to continue the Phase Ib or Phase II stage, rather than the preclinical or Phase I stage, even if we are +investigating the assets for a new indication. For example, if a clinical asset was subject to a Phase I trial, such clinical asset may +be advanced to a Phase II trial even if the clinical asset is being investigated for a different indication. In addition, we have access +to API manufactured by AstraZeneca and as a result, should we use their formulation, we do not have to develop a route of manufacture +for the API, which is time consuming and expensive. +Principal +Strategic Partnerships +License +Agreement – Conduit and AstraZeneca +On +August 7, 2024, the Company and AstraZeneca entered into the License Agreement. Pursuant to such License Agreement, AstraZeneca agreed +to grant a license to the Company under certain intellectual property rights controlled by AstraZeneca related to HK-4 Glucokinase activators +AZD1656 and AZD5658 in all indications and myeloperoxidase inhibitor AZD5904 for the treatment, prevention, and prophylaxis of idiopathic +male infertility. The Company will be responsible for the development and commercialization of the Licensed Products under the +related License Agreement. The Company is required to use commercially reasonable efforts to develop +and commercialize the Licensed Products. +As +consideration for the grant of the license, the Company (i) granted AstraZeneca common stock pursuant to the Issuance Agreement (as further +set out below), (ii) paid AstraZeneca an up-front payment of $1.5 million, and (iii) is obligated to pay AstraZeneca a percentage (on +a tiered basis) of any amounts it may receive in connection with a grant of a sublicense (subject to various customary exceptions). +AstraZeneca +has been granted a right of first negotiation to develop, manufacture, and commercialize a Licensed Product if the Company receives an +offer for, or solicits, a transaction where a third party would obtain the right to develop, manufacture, or commercialize a Licensed +Product. If AstraZeneca exercises such right, the parties would negotiate in good faith for an agreed period of time on an exclusive +basis. +Either +party may terminate the License Agreement for material breach (subject to a cure period) or insolvency of the other party. The Company +may terminate the License Agreement for convenience (in its entirety or on a Licensed Product-by-Licensed Product basis). In addition, +AstraZeneca may terminate the License Agreement in certain circumstances, including (but not limited to) the Company ceasing development +of all Licensed Products (subject to certain exceptions for normal pauses or gaps between clinical studies). +In +addition, in connection with the execution of the License Agreement, the Company and AstraZeneca entered into the Issuance Agreement, +whereby the Company issued AstraZeneca 95,044 shares of the Company’s Common Stock. The Issuance Agreement provides +AstraZeneca with resale registration rights for such shares. +Services +Agreement – Conduit and Sarborg Limited +On +December 12, 2024, the Company entered into a Services Agreement (the “Sarborg Agreement”) with Sarborg, a Cayman +Islands company and related party of the Company. Under the terms of the Sarborg Agreement, Sarborg will provide algorithmic and cybernetic technology services to +Conduit, including the development of decision-support tools and advanced cybernetic systems tailored to enhance Conduit’s +decision-making processes and maximize the value of its pharmaceutical asset portfolio. +Sarborg +will perform the services to Conduit comprised of three phases: the Initial Phase (0-24 weeks) focuses on establishing a foundation for +collaboration and aligning Sarborg’s services with Conduit’s strategic goals; the Development Phase (24-36 weeks) involves +building technological infrastructure, including dashboards and predictive models; and the Ongoing Services Phase (36-52 weeks) ensures +the sustained functionality and relevance of Sarborg’s deliverables while supporting Conduit’s growth through iterative improvements +and updates. Sarborg will create specific deliverables, including reports, computer programs, software applications, APIs, mobile applications, +source code, written technical specifications and designs, operating and maintenance manuals, and other recorded data and information +arising from or relating to the services. Sarborg will provide all necessary resources to perform the services and deliver the deliverables +in accordance with the Sarborg Agreement. +To +date, Conduit has successfully completed the Initial Phase of its collaboration with Sarborg, establishing a strong foundation for integrating +AI-driven solutions into our operations. This phase focused on identifying key inputs for the algorithmic approach and ensuring alignment +between Sarborg’s services and Conduit’s strategic goals. As part of this effort, Sarborg has successfully delivered three +key milestones. First, they conducted detailed teach-in sessions with Conduit’s management team to gain a deeper understanding +of our objectives, challenges, and operational workflows, resulting in documented meeting agendas, minutes, and action plans. Second, +they finalized and validated a set of proprietary inputs essential for their cybernetic models, tailored specifically to Conduit’s +portfolio and R&D pipeline. Finally, they completed an in-depth market analysis of potential cocrystal candidates, assessing the +patent landscape, competitive positioning, and market size. The insights from this Annual Report are now informing Conduit’s ongoing +strategic decision-making. With these key milestones delivered, we are now progressing to the next phase of development. +Sarborg +has now commenced Phase II: The Development Phase, which focuses on building the technological infrastructure necessary to integrate +AI into Conduit’s operations. As part of this, Sarborg has successfully completed the first milestone, Dashboard Creation and Refinement, +delivering personalized dashboards that provide Conduit’s key personnel with real-time access to critical data related to deliverables, +clinical trials, and drug discovery. These initial dashboards, along with user interface mock-ups and a dashboard user guide, will serve +as the foundation for further refinements. Moving forward, the platform will continue to be optimized to maximize efficiency and ensure +seamless integration into Conduit’s workflows. +4 +Master +Service Agreement – Conduit and Charles River Laboratories +On +February 7, 2025, Conduit and Charles River Laboratories (“Charles River”) entered into a Master Services Agreement (the +“Charles River MSA”). Under the Charles River MSA, Charles River agreed to provide preclinical testing and research +services to Conduit, including the evaluation of compounds in animal models and other related services. The services are defined in +individual Statements of Work (“SOWs”) or Protocols, which outline the specific scope, design, and timelines for each +study. To date, one SOW, dated February 11, 2025, has been entered into. Charles River will conduct the studies in compliance with +applicable laws and industry standards, and Conduit will provide necessary test articles and materials. The Charles River MSA +includes provisions for confidentiality, intellectual property ownership, indemnification, and dispute resolution. The Charles River +MSA has a term of five years and can be terminated by either party under specified conditions. +Market +Overview +Global +Biotechnology Industry +The +global biotechnology industry comprises a large range of companies engaged in diverse activities, such as biopharmaceutical development. +The industry companies also span across a wide spectrum of operational models. Some small, dedicated biotechnology companies are research +and development (“R&D”) intensive and operate primarily with venture capital, grants, initial public offerings and collaborative +agreements. Conversely, large, diversified companies hold significant in-house R&D resources and well-established production, commercialization, +and distribution processes. +Management +believes that the global biotechnology market was valued at $1.68 trillion in 2024 and is projected to grow at a compound annual growth +rate (“CAGR”) of 9.18% from 2024 to 2033. 1 The market is driven by strong government support through initiatives +aimed at the modernization of regulatory framework, improvements in approval processes and reimbursement policies, as well as standardization +of clinical studies. +Global +investor confidence has fallen during the period, which served to somewhat subdue revenue growth. However, global investment in R&D +has grown strongly and consistently in recent years, with much of this funding funneled into medical biotechnology development, aimed +at providing better care for the aging global population, thus bolstering industry revenue. +Global +Pharmaceutical Industry +Over +the previous five years, pharmaceutical companies have benefited from an aging population in developed economies and a growing middle +class in emerging economies. Many companies have also tapped into regional demand for pharmaceuticals that may differ from developed +markets and have expanded their global presence to tap into regional market needs. +Patent +cliffs have continued to hamper industry revenue during the current period. When drugs lose patent exclusivity, the market is inundated +with low-cost generic drugs. As manufacturers contend with more price-based competition from generics, many operators respond by lowering +their R&D expenditures, which limits the industry’s drug pipelines. Additionally, many governments and health insurance organizations +have reduced their drug reimbursements to control healthcare costs, such as implementing incentives for patients to use generic drugs. +Moving +forward, revenue is forecast to grow an annualized 3.2% to $1.3 trillion over the next five years amid an anticipated persistence of +global demand for industry products. 2 +Our +Initial Pipeline: AZD1656, AZD5658 and AZD5904 +We +wholly own the intellectual property and the rights to further develop the solid-form Cocrystals of AZD1656 (AZD1656 Cocrystal– +pending international patent applications if granted should expire no earlier than 2042) which we intend to target a wide range of autoimmune +disorders. +In +addition, we currently have the exclusive rights to develop clinical assets, AZD1656 and AZD5658 in all human indications and AZD5904 +in idiopathic male infertility which are licensed to us by AstraZeneca. +Outside +of our proprietary owned patented clinical assets, AstraZeneca granted a license to the Company of certain intellectual property rights +controlled by AstraZeneca related to HK-4 Glucokinase activators AZD1656 and AZD5658 in all indications and myeloperoxidase inhibitor +AZD5904 for the treatment, prevention, and prophylaxis of idiopathic male infertility. The Company will be responsible for the development +and commercialization of the Licensed Products. The Company is required to use commercially reasonable efforts to develop and commercialize +the Licensed Products. +Due +to our relationship with AstraZeneca, we intend to leverage the data generated from these historical trials in order to investigate the +efficacy and safety to AZD1656 to potentially treat Lupus and ANCA Vasculitis patients, and the efficacy and safety of AZD5904 to treat +IMI. AZD1656 has undergone testing in a total of 20 Phase I clinical trials and five Phase II clinical trials conducted by AstraZeneca +since 2008 and 19 of which were conducted in the U.S. Additional information about those clinical trials is available at the U.S. National +Library of Medicine’s website at www.clinicaltrials.gov (however, the information contained on or otherwise accessible through +such website is not part of this annual report). AZD5904 has undergone testing in five Phase I clinical trials conducted by AstraZeneca, +one of which was conducted in the U.S. While a significant amount of clinical trial data has already been generated for both AZD1656 +and AZD5904, some of this data was generated outside of the U.S. and accordingly may not be accepted by the FDA. In the event that such +data is not accepted by the FDA, additional clinical trials may be required, which would result in additional costs and time to develop +these clinical assets. +1 (2025, +January 8). Biotechnology Market Size to Worth Around USD 3.54 Trillion by 2033 . BioSpace.com. https://www.biospace.com/press-releases/biotechnology-market-size-to-worth-around-usd-3-54-trillion-by-2033 +2 +IBISWorld Industry Report L6724-GL – Global Biotechnology, May 2021 +5 +The +table below sets forth the pre-clinical or clinical trials that have been conducted by or at the direction of AstraZeneca to date on +the particular clinical asset. All of these pre-clinical or clinical trials were conducted by AstraZeneca prior to Conduit entering into +the License Agreement with AstraZeneca. None of the pre-clinical or clinical trials that have taken place to date were conducted by or +at the direction of the Company. +Asset +Therapeutic +Area +Stage +of Development +Location +of Trials +AZD1656 +Type +2 Diabetes +Preliminary, +Phase I and Phase II +United +Kingdom; United States +AZD1656 +Renal +Transplant Patients with Type II Diabetes +Preliminary, +Phase I and Phase II +United +Kingdom +AZD1656 +Covid-19 +Preliminary, +Phase I +United +Kingdom +AZD5904 +Idiopathic +Male Infertility +Preliminary, +Phase I +European +Union; United States +AZD5658 +Type +2 Diabetes +Preliminary, +Phase I +United +States +The +following table sets forth the current asset development stage for each of AZD1656 and AZD5904 for the indications noted below. +Asset +Therapeutic +Area +Assets +at Their Present Stage of Readiness (1) +Next +Stage of Development to be Conducted by Conduit +Anticipated +Exit Stage for Monetization (3) +Phase +I +Phase +II +Phase +III +AZD1656 +Lupus +& ANCA Vasculitis +☒ +Phase +II +Following +completion of Phase II +AZD5904 +Idiopathic +Male Infertility +☒ +Phase +II +Following +completion of Phase II +AZD5658 +Further +Autoimmune Disorders +☒ +Phase +II +Following +completion of Phase II +AZD1656 +Covid-19, +Long Covid +☒ +N/A (2) +N/A (2) +(1) +Indicates +that the asset is considered ready for this Phase. For example, if an asset is listed under Phase II, this means that the asset has +already completed Phase I trials and is therefore considered Phase II ready. +(2) +We +do not intend to provide additional funding to develop AZD1656 for Covid-19, which is principally owned by third parties. However, +we are entitled to a portion of the revenues in the event that AZD1656 is further developed by a third party and is monetized, whether +through a sale, license agreement, or otherwise. +(3) +Reflects +the stage at which we currently anticipate that we will seek to monetize such assets through a license, royalty, or other transaction +with a third party, who would then seek to continue the development of such clinical asset until its potential commercialization +after Phase III clinical trials were completed. There is no assurance that we will be able to monetize such assets by entering into +a license, royalty, or other transaction with a third party. In addition, there is no assurance that any of the clinical assets licensed +or owned by us will successfully complete Phase II or Phase III clinical trials or obtain regulatory approvals, or that such assets +will be monetized or commercialized. +6 +AZD1656 +was subject to Phase I and Phase II clinical trials consisting of 23 studies in 526 subjects, 446 of whom were dosed with AZD1656. +Other than for the intended effect of lowering glucose, there were no difference identified between the AZD1656-treated and +placebo-treated subjects relating to adverse events. All of the cases where low glucose levels were identified were managed by the +patients and resolved. Based on these clinical trials, no safety signals were identified regarding vital signs, safety laboratory +values or electrocardiogram data. No deaths occurred in any studies with healthy volunteers or patients. AZD1656 was also subject to +Phase II clinical trials consisting of two studies where AZD1656 was given to patients with Type 2 Diabetes Mellitus for four months +or longer. In total, there were 754 randomized patients, 516 of whom were exposed to AZD1656 (316 men and 200 women). There were no +clinically important differences in the adverse effects profile between the AZD1656 treatment group and the AZD1656 placebo group +and there were no deaths in either of the Phase II studies. The efficacy of AZD1656 as a potential treatment for diabetes was also +assessed during the Phase II clinical trials, including whether the efficacy was statistically significant. Clinically relevant and +statistically significant reductions in HbA1c were seen after four months; however, the initial improvement in glucose control +deteriorated over time and the change in HbA1c levels after four months were not statistically different than the placebo. This +decreasing efficacy over time was seen in both Phase II studies. +AZD5658 +was subject to a randomized, single-blind, placebo-controlled, single-center, Phase I study to assess the safety, tolerability, pharmacokinetics, +pharmacodynamics and the effect of fasting after single ascending oral doses of AZD5658 in Type 2 Diabetes Mellitus patients. There were +six dose levels with eight patients in each cohort, six receiving AZD5658 and two receiving placebo. The effect of fasting on the pharmacokinetics +of AZD5658 was also studied for two dose levels. Each patient treated with metformin received a maximum of two single oral suspension +doses (one on a low dose of AZD5658/placebo and one on a high dose of AZD5658/placebo under fed conditions), except for patients participating +in the evaluation of the effect of fasting, who received a maximum of three single oral suspension doses. For each patient the study +included a pre-entry visit (Visit 1), two or three clinic-based treatment visits (Visit 2, 3, and 4) and a follow-up visit (Visit 5). +Hence, the total duration of the study for each patient was approximately two and one-half months, assuming three weeks between dose +levels. There were no deaths, serious adverse events, discontinuations due to adverse events, or adverse events of severe intensity during +the study. Overall, there were 13 (61.9%) AZD5658-treated patients with adverse events compared to 2 (28.6%) patients who received placebo. +There were no trends noted with increasing dose in the number of adverse events overall or within any preferred term. The most frequently +occurring adverse events were hypoglycemia and diarrhea, each occurring in three AZD5658-treated patients. One adverse event of ear pain +(30 mg AZD5658 fed) was assessed by the study investigator as moderate in intensity; all other adverse events were of mild intensity. +Five adverse events in AZD5658- treated patients were assessed by the investigator as causally related to investigational product, including +hypoglycemia in three patients (100 mg, 200 mg fasted, and 400 mg AZD5658), diarrhea in one patient (200 mg AZD5658 fasted), and headache +in one patient (30 mg AZD5658). No adverse events in placebo-treated patients were assessed as causally related to investigational product. +The three patients who experienced hypoglycemia adverse events were treated with intake of food or orange juice and the episodes resolved +in less than one hour. +AZD5904 +was subject to five Phase I clinical studies, with a total of 1,181 subjects being exposed to AZD5904. Single doses of up to 1,200 mg and +multiple doses of up to 325 mg for up to three times per day for 21 days have been administered as an oral solution in the completed +clinical studies. In addition, single doses of up to 1,400 mg and multiple doses of up to 600 mg for 10 days have been administered as +an “extended release” formulation. The data from these studies did not identify any expected adverse drug reactions for AZD5904 +and no adverse effects were reported as related to AZD5904. In addition, the data revealed no clinically significant changes in blood +pressure or pulse rate related to AZD5904 and electrocardiogram data was within the physiological range for the population studied. The +effect of AZD5904 on human myeloperoxidase, which we refer to as MPO, activity was evaluated by determination in an ex vivo assay of +MPO activity in plasma. The correlation between MPO activity and plasma concentrations was assessed for single and multiple doses of +AZD5904. A relationship between plasma concentrations of AZD5904 and MPO activity was demonstrated, which indicates that AZD5904 may +be an effective inhibitor of MPO activity in humans. However, Phase I trials do not assess statistical significance so additional Phase +II trials are necessary to determine if the inhibition of MPO activity as a result of AZD5904 is statistically significant. +7 +AZ1656 +in Autoimmune Disorders +Autoimmune +disorders refers to a broad group of disorders and conditions that arise from an abnormal immune response to a functioning body part. +For example, autoimmune disorders may arise from an abnormal immune response of major organs (i.e., the heart, kidneys, bladder, liver, +lungs, and skin), glands (i.e., the adrenal gland, pancreas, thyroid, or reproductive organs), digestive system, and tissue (i.e., blood, +connective tissue, muscle, eyes, ears, or vascular system). Management believes that there are over 80 types of autoimmune disorders +that have been identified, including lupus, celiac disease, multiple sclerosis, rheumatoid arthritis, psoriasis, and inflammatory bowel +disease. Autoimmune disorders are often difficult to diagnose and often the cause of the disorders is not known. +It +is estimated by the American Autoimmune Related Diseases Association (“AARDA”) that as many as 50 million Americans are living +with an autoimmune disease – at a cost of $86 billion a year and there is presently no totally effective treatment known to management. +The currently available treatments for autoimmune disorders include non-steroidal anti-inflammatory drugs (“NSAIDS”) or immune +suppressants. These treatments often improve the symptoms but ultimately do not cure the disease and often involve side effects. +AZD1656 +is a highly specific glucokinase activator; originally developed by AstraZeneca for use in diabetes mellitus. It has now been tested +in over 1,000 patients with both type I and II diabetes and no significant safety concerns have been raised. It was most recently tested +in the ARCADIA Phase II trial in diabetic patients hospitalized with Covid-19 on the basis of new research into immunometabolic modulation. +We believe that AZD1656 may be used to activate a patient’s own immune system in order to limit harmful inflation. We have identified +several autoimmune disorders, which reflects good market potential, with a high level of need that may be treatable using AZD1656. We +believe that our clinical assets have the potential to treat numerous autoimmune disorders. We intend to initially focus on the indications +below in order to maximize the commercial potential of our clinical assets. +Lupus +Nephritis +Lupus +Nephritis (“LN”) is a severe progression of Systemic Lupus Erythematosus (“SLE”) where the immune system attacks +the kidneys, often resulting in renal failure. There is currently no cure or long-term remission treatment available. LN is clinically +evident in 50-60% of patients with SLE, and is histologically evident in most SLE patients, even those without clinical manifestations +of kidney disease. LN is the main cause of SLE related mortality. Current therapy is based on long-term corticosteroid or immunosuppressive +therapy, with clinical efficacy of biological drugs not yet proven in LN. Side effect issues of all current therapies demonstrate an +unmet need for a safer, patient compliant therapy in LN. +The +Company believes that LN presents a lucrative opportunity given the potential oversight of two conditions, as a Phase IIa trial can be +designed to allow readouts on the wider characteristics of SLE as well as the nephritis aspects, allowing assessment of the potential +of AZD1656 in the field of SLE as a whole. Additionally, LN is an orphan disease that the Company believes has around 80,000 to 100,000 +patients in the U.S., and one million patients worldwide, thereby offering additional incentives for investors. +The +Company believes the global LN market was valued at $3.3 billion in 2022 and is projected to grow from $3.6 billion in 2023 to $6.78 +billion by 2032, exhibiting a CAGR of 10.3% during the forecast period. +SLE +is characterized by dysregulation and a hyperactivity of immune response. In LN, Teff subtype (TH17) has shown significant hyperactivation +leading to skewed T cell differentiation resulting in continued proinflammatory environment, leading to prolonged inflammation and subsequent +tissue damage and organ function loss. TH17/Treg dysregulation has been characterized in lupus patients compared to healthy individuals. 1 +During +a study in mice, findings showed that the IL2/CD25 fusion protein that selectively targets IL-2 on Treg cells induced immune suppression +in a preclinical LN model demonstrating inhibition of LN based on levels of proteinuria, autoantibody titers and kidney histology scores. 2 +ANCA +Vasculitis +ANCA +Vasculitis (“AAV”) is an orphan status autoimmune disease affecting small blood vessels which can lead to multiple organ +injury, especially the kidneys, lungs and peripheral nerves. Undiagnosed AAV has a 90% mortality rate within two years. 3 +Current +maintenance therapies rely on combination of corticosteroid and rituximab, both known for long term use side effects. Recently approved +drugs target specific subpopulations of AAV and have tolerability and side effect issues which demonstrate an unmet need for safer long-term +therapies applicable to all AAV sufferers. +An +imbalance of Th17/activated Treg cells has been shown in AAV and this has been correlated with renal involvement (with a positive correlation +in creatinine and BUN levels). 4 +Low +dose IL2 therapy in AAV patients, the Company believes, resulted in rebalance of Th17/Treg ration. The levels of Erythrocyte Sedimentation +Rate (ESR) and C-Reactive Protein (CSR) were also significantly decreased, which the Company believes indicates an improvement in disease +activity. +The +Company believes the seven major AAV markets reached a value of $339.0 million in 2023 and is expected to reach $534.3 million by 2034, +exhibiting a CAGR of 4.22% during 2024 to 2034. +1 +Paquissi FC et al. Front Med (Lausanne). 2021 Sep; 8: 654912 ( https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8446428/ ) +2 +Wang et al. Mol Immunol. 2020; 118: 19-29 (https://pubmed.ncbi.nlm.nih.gov/34108258/) +3 +Hunter et al. BMJ. 2020;369 (https://www.bmj.com/content/369/bmj.m1070) +4 +Wang et al. Mol Immunol. 2020; 118: 19-29 (https://pubmed.ncbi.nlm.nih.gov/34108258/) +8 +AZD1656 +was previously subject to preclinical and clinical trials, including Phase I and Phase II trials, conducted by AstraZeneca relating to +its potential to treat type 2 diabetes. As of the date hereof, no preclinical or clinical trials have been conducted on the use of AZD1656 +to treat autoimmune disorders. +We +intend to conduct further trials on AZD1656 relating to autoimmune disorders. We plan to conduct further research on AZD1656 to investigate +if AZD1656 is a treatment option, including investigating any negative side effects in the use of AZD1656 as compared to the currently +available treatment options. +AZD5904 +in Idiopathic Male Infertility +Idiopathic +Male Infertility (“IMI”) is defined as failure of a couple to conceive after one year of regular sexual intercourse where +the physical examination and endocrine laboratory testing of the male are normal, but semen analysis reveals sperm abnormalities. Approximately +15% of couples globally, or 48.5 million couples globally, are infertile and that 30% of infertility cases can be attributed solely to +the female, 30% can be attributed solely to the male, 30% can be attributed to a combination of both partners, and 10% of cases have +an unknown cause. 5 According to the National Library of Medicine, male infertility accounts for 30% of infertility cases +and its prevalence in the general population approximately ranges between 9 to 15%. 6 Our management believes that male +sperm counts have declined in Western men and will continue to decline due, in part, to increasing rates of disorders such as obesity +and diabetes that can reduce fertility. +IMI +affects families worldwide and is inherent in problems of reproduction. Currently, there are no specific treatments for male infertility, +and we are not aware of any other company that is developing a treatment for male infertility. There are no approved pharmacotherapies +for idiopathic male infertility. Lifestyle medicine and unproven supplements are often used. Intracytoplasmic sperm injection, a form +of in vitro fertilization, is the only treatment currently available for male infertility. This process is not a treatment of male infertility +but rather is an alternative means of fertilizing the egg. In vitro fertilization places a significant burden on the woman as it requires +the induction of egg production and harvesting of eggs. In vitro fertilization is costly and time consuming and has modest success rates. +Management believes that the male infertility market size is expected to grow from $3.72 billion in 2023 to $4.42 billion by 2028, at +a CAGR of 3.54% during the period 2023-2028. +Damaged +sperm are unable to successfully fertilize eggs due to factors including impaired motility, impaired ability to penetrate and/or DNA +damaged sperm that is unable to form a viable fetus. Our development pipeline for AZD5904 includes a potent, irreversible inhibitor of +human myeloperoxidase, which we refer to as MPO, that has the potential to treat idiopathic male infertility. +AZD5904 +was investigated by AstraZeneca for the treatment of idiopathic male infertility in Phase I trials, which confirmed the suitability to +progress to Phase II trials. While AZD5904 is Phase II ready, our management intends to conduct a Phase Ib “proof of mechanism” +trial to verify AZD5904 has the intended biological effect in semen (as well as in blood) prior to commencing a Phase II trial for the +use of AZD5904 to treat idiopathic male infertility. Specifically, our management intends to conduct the Phase Ib study in order to see +if the trial will provide evidence that AZD5904 has its intended effect of inhibiting myeloperoxidase and reduce oxidative stress in +semen. We believe that AZD5904 has the potential to be used to create a tablet that could treat IMI and would be the first drug developed +to directly treat IMI. We, in connection with a CRO, have prepared clinical trial protocols relating to the use of AZD5904 to treat IMI +in a Phase Ib clinical trial: a Phase Ib, randomized, double-blind, placebo-controlled, dose escalation study to evaluate the safety, +tolerability and preliminary efficacy of AZD5904 in adult men with IMI with an anticipated enrollment of 60 patients, and a Phase II +clinical trial: a Phase II, randomized, double-blind, placebo-controlled clinical trial to evaluate the efficacy and safety of AZD5904 +in the treatment of IMI with an anticipated enrollment of 200 patients. There can be no assurances that the clinical trials that we intend +to conduct on AZD5904 to treat idiopathic male infertility will be successful. +Future +Clinical Assets +As +part of our strategic planning process, we intend to explore the efficacy of using AZD1656 and AZD5658 to treat other disorders. +Specifically, we intend to conduct research on whether AZD1656 and AZD5658 may be effective treating other autoimmune disorders, +include rheumatoid arthritis, multiple sclerosis, motor neuron disease, and amyotrophic lateral sclerosis. As part of our strategic +planning process, we intend to explore the efficacy of using AZD1656 to treat other disorders. We also plan to further develop the +co-crystals that we own from our prior development work on AZD1656, including to research the ability of the co-crystals developed +from AZD1656 to treat psoriasis, Crohn’s disease, lupus, sarcoidosis, diabetic wound healing, idiopathic pulmonary fibrosis, +and non-alcoholic steatohepatitis. In addition, we currently intend to explore the use of AZD5904 for the treatment of glioma. We +expect to seek to develop other clinical assets and determine based on pre-clinical and clinical data which clinical assets in order +to determine which assets in our pipeline to continue to develop. Accordingly, we believe that our management team will be able to +effectively allocate resources to the development of clinical assets that we believe show the most promise. However, there can be no +guarantee that the clinical trials conducted by us of our clinical assets will be successful. If we are unable to commercialize our +clinical assets or experience significant delays in doing so, our business will be materially harmed. +Manufacturing +We +do not currently own or operate any facilities to formulate, manufacture, test, store, package, or distribute any of the clinical assets +that we are developing or may seek to develop and do not currently have the capabilities to conduct such activities. We currently rely +on third parties to manufacture, store, and test the clinical assets that we seek to develop, including material manufactured originally +by AstraZeneca. We will depend on third-party suppliers and manufacturing organizations for all our required raw materials and drug substance +and to formulate, manufacture, test, store, package, and distribute clinical trial quantities of clinical assets that we may seek to +develop. We plan to continue to use third-party suppliers and manufacturing organizations and we anticipate expanding our network of +third-party suppliers and manufacturing organizations as our operations expand. +5 +“A unique view on male infertility around the globe,” by Ashok Agarwal, Aditi Mulgund, Alaa Hamada, and Michelle Renee +Chyatte (Link: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4424520/). +6 +https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10057583/#B1-jcm-12-02366 +9 +We +have internal personnel and utilize consultants with extensive technical, manufacturing, analytical, and quality experience to oversee +our contract manufacturing and testing activities. Manufacturing is subject to extensive regulations that impose procedural and documentation +requirements, including, but not limited to, record-keeping, manufacturing processes and controls, personnel, quality control, and quality +assurance. Our systems, procedures, and contractors are required to be in compliance with these regulations and are assessed through +regular monitoring and formal audits. +Research +and Development +Our +research and development activities have included developing co-crystals of AZD1656 to increase patent life. Most of this work is conducted +in our laboratories based in Cambridge, UK, but parts of this work is completed by third-party CROs but all intellectual property is +retained by us. The successful completion of clinical trials increases the value of clinical assets and may lead to the commercialization +and/or licensing of such assets to other pharmaceutical companies. There is no assurance that any clinical trials on the assets owned +or licensed by us will be successful or any assurance our co-crystal development will be successful. +We +do not intend to further fund the research and development of the use of AZD1656 in Covid; however, we retain an economic interest in +the AZD1656 in the indication of Covid and if AZD1656 is further developed in Covid through funding provided by other third parties, +then we may be entitled to receive compensation from those development activities conducted by third parties due to its economic interest +in AZD1656 in Covid. +Sales +and Marketing +We +do not currently have marketing, sales, or distribution capabilities. In order to commercialize any clinical asset that is approved for +commercial sale, we must either develop our own sales, marketing, and distribution infrastructure or collaborate with third parties that +have such commercial infrastructure and relevant marketing and sales experience. We anticipate relying on licensing, co-sale, co-promotion, +and distribution agreements with strategic partners for the commercialization of our products. We do not currently anticipate that we +would develop our own internal sales force organization. +Competition +We +operate in the highly competitive pharmaceutical and biotechnology industry. Our competitors may include public and private companies, +universities, governmental agencies, and other research organizations actively engaged in the research and development of clinical assets +and biopharmaceutical products. Our competitors may have greater financial, technical, and human resources than we currently have and/or +may be better equipped to develop, manufacture, and market their products. Our competitors may be developing clinical assets for products +for similar indications. However, we believe that we have an unprecedented advantage in novelty. As discussed above, AZD1656 is an activator +(not an inhibitor) of a metabolic process. We anticipate that the number of companies seeking to develop clinical assets, biopharmaceutical +products, and therapies will continue to increase. As a result, the competition we face may also increase. However, both in the treatment +of autoimmune disease and idiopathic male infertility the competition is currently expected to come in years, even if biopharmaceutical +products that we develop and/or commercialize were not to compete with products of our competitors based on the product efficacy, safety, +ease of use, price, demonstrated cost-effectiveness, marketing effectiveness, service, reputation, and access to technical information. +However, we believe that our ability to focus on clinical assets that have been deprioritized by larger pharmaceutical companies is a +competitive advantage. +Intellectual +Property +We +hold exclusive rights to develop AZD1656, AZD5658, and AZD5904 through our License Agreement with AstraZeneca and we also own the intellectual +property and the rights to further develop co-crystals resulting from our prior research and development work on AZD1656. +On December 18, 2024, Conduit UK Management Limited (“Conduit”) received a notification from the UK Intellectual +Property Office (“UK IPO”) notifying the company that St George Street Capital had initiated patent entitlement proceedings +with respect to patent application PCT/IB2022/00775 (“Patent Application”). Conduit refutes the claims made by St George Street +Capital and filed a counterstatement on February 26, 2025 with the UK IPO. In addition, each of the three inventors named in the Patent +Application filed simultaneous counterstatements fully supporting Conduit’s position, and assertions that the claims are without +merit. Further updates will be made following notification by the UK IPO. +10 +We +currently have eight pending patent applications in several international jurisdictions. Even though we have filed patent applications, +there is no guarantee that the validity of the patents will be upheld if challenged by a third party, that patents will be granted on +the applications filed in the respective jurisdictions, or that once granted, the patents will contain claims that encompass our commercial +products. There can be no assurance that any of our intellectual property rights will afford us any protection from competition. +The +following patent applications are relevant to the operation of our business: +Related +Clinical Asset +Mechanism +of Action +Patent +Information and Number +Patent +Ownership/Licensing +Status; +Patent Status +Jurisdictions +Protected +Expiration +AZD1656 +Glucokinase +Activator +Composition +of Matter Patent; 101901 (family number) +Licensed +to Conduit from AstraZeneca for use in all human indications. Granted and in force. +Brazil, +Canada, Switzerland, China, Germany, European Procedure, Spain, France, United Kingdom, Hong Kong, India, Japan, South Korea, Mexico, +Netherlands, Russian Federation, Sweden, Turkey, United States. Granted in Australia +Expires +July 3, 2026. +AZD1656 +Glucokinase +Activator +Polymorph +Patent; 103631 (family number) +Licensed +to Conduit from AstraZeneca for use in human applications. Granted and in force. +China +and United States +Expires +February 2030. +AZD1656 +Glucokinase +Activator +Co-crystal +PCT/IB2022/00075 +Owned +by Conduit Pharmaceuticals. +Filed +September 2, 2022. +Global +Filing +date September 2, 2022. If granted, will expire September 2, 2042. +AZD1656 +Glucokinase +Activator +Co-crystal +JP2022-176753 +Owned +by Conduit Pharmaceuticals. +Filed +November 2, 2022. +Granted: +Japan +Expires +November 2, 2042. +AZD5904 +MPO +Inhibitor +Idiopathic +Male Infertility; AZD5904 use patent; 200644 (family number) +[WO/2019/016074] +Licensed +to Conduit from AstraZeneca. +International +Description +Expires +July 12, 2038. +AZD5658 +Glucokinase +Activator +Composition +of Matter Patent; 101901 (family number) +Licensed +to Conduit from AstraZeneca for use in all human indications. Granted and in force. +Australia, +Brazil, Canada, Switzerland, China, Germany, European Procedure, Spain, France, United Kingdom, Hong Kong, India, Japan, South Korea, +Mexico, Netherlands, Russian Federation, Sweden, Turkey, United States +Expires +July 3, 2026 +We +have not filed any applications for trademark protection of any names or logos for products or technologies in development. We plan to +seek trademark protection inside and outside of the United States where and when appropriate and if available. We intend to use these +registered marks in connection with our pharmaceutical research and development, including proprietary technologies, as well as our clinical +assets. +We +expect to protect our products and technologies through a combination of patents, regulatory exclusivity, and potentially confidential +and proprietary know-how. We intend to actively seek to obtain, where appropriate, the broadest commercially reasonable intellectual +property protection possible for our clinical assets and technologies, including any future clinical assets and technologies under development, +our proprietary information, and our proprietary technology through a combination of contractual arrangements and patents, in the United +States and abroad. However, we cannot guarantee that patent protection will provide complete protection against competitors who seek +to circumvent our patents. +11 +Government +Regulation and Product Approval +Government +authorities in the United States, at the federal, state, and local level, and in other countries, extensively regulate, among other things, +the research, development, clinical trials, testing, manufacture, including any manufacturing changes, authorization, pharmacovigilance, +adverse event reporting, recalls, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, import +and export of pharmaceutical products and clinical assets, including clinical assets such as those we are developing. The processes for +obtaining regulatory approvals in the United States and in foreign countries, along with subsequent compliance with applicable statutes +and regulations have no guaranteed outcomes and require the expenditure of substantial time and financial resources. +Our +development plan for each of AZD1656, AZD5658 and AZD5904 is to conduct clinical trials and if those trials are successful, we will then +seek to enter into a transaction with a third party with respect to AZD1656, AZD5658 orAZD5904, as applicable, for the particular indication. +We do not intend to continue development of such clinical assets beyond Phase II clinical trials. Accordingly, we anticipate developing +clinical assets, which we own or license from third parties, that have undergone pre-clinical and clinical trials through the Phase II +stage and then monetizing such clinical assets through a license, royalty, or other transaction. We do not expect that we will commercialize +any clinical assets or seek marketing approval from the FDA (or similar organizations) as we intend to enter into agreements with third +parties following Phase II clinical trials for each such clinical asset that would provide that such third party would pursue the further +development, commercialization, and marketing of such assets. +The +following description of the process relating to obtaining regulatory approvals in the United States and in foreign countries is intended +for informational purposes only as we do not expect to continue the development of any of the clinical assets beyond the Phase II stage. +There is no assurance that any clinical trials on the assets owned or licensed by us will be successful. +United +States Government Regulation +In +the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic +Act (“FDCA”) and implementing regulations. Failure to comply with the applicable United States requirements at any time during +the product development process, approval process or after approval, may subject an applicant to a variety of administrative or judicial +sanctions, such as the FDA’s refusal to approve pending New Drug Applications (“NDAs”), withdrawal of an approval, +imposition of a clinical hold, issuance of warning letters, product recalls, product seizures, total or partial suspension of production +or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil and/or criminal penalties. +The +process required by the FDA before a drug may be marketed in the United States generally involves the following steps, each of which +requires the expenditure of substantial time and financial resources: +● +completion +of preclinical laboratory tests, animal studies and formulation studies in compliance with good laboratory practices (“GLPs”) +and other applicable regulations; +● +submission +to the FDA of an Investigational New Drug Application (“IND”), which must become effective before human clinical trials +may begin; +● +approval +by an independent institutional review board (“IRB”) at each clinical site before each trial may be initiated; +● +performance +of well-controlled human clinical trials in accordance with good clinical practices (“GCPs”), which may include placebo +controls, to establish the safety and efficacy of the proposed drug product for each indication; +● +submission +to the FDA of an NDA and payment of fees; +● +satisfactory +completion of an FDA advisory committee review, if applicable; +● +satisfactory +completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the product is produced to assess +compliance with current good manufacturing practices (“cGMPs”) and to assure that the facilities, methods and controls +are adequate to preserve the drug’s identity, strength, quality and purity; +● +satisfactory +completion of audits of clinical trial sites conducted by FDA to assure compliance with GCPs and the integrity of clinical data; +and +● +FDA +review and approval of the NDA. +12 +Preclinical +Studies +Preclinical +studies include laboratory evaluation of product chemistry, toxicity, and formulation, as well as animal studies to assess potential +safety and efficacy. Preclinical tests intended for submission to the FDA to support the safety of a clinical asset must be conducted +in compliance with GLP regulations and the U.S. Department of Agriculture’s Animal Welfare Act. A drug sponsor must submit the +results of the preclinical tests, together with manufacturing information, analytical data and any available ex-U.S. clinical data or +relevant literature, among other things, to the FDA as part of an IND. Some nonclinical testing may continue even after the IND is submitted. +An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions +related to one or more proposed clinical trials and places the clinical trial on a clinical hold. In such a case, the IND sponsor and +the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in +the FDA allowing clinical trials to commence. A clinical hold may occur at any time during the life of an IND and may affect one or more +specific studies or all studies conducted under the IND. +Furthermore, +the FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research +subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or +terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s +requirements or if the drug candidate has been associated with unexpected serious harm to patients. +Clinical +Trials +Clinical +trials involve the administration of the investigational new drug to human subjects under the supervision of qualified investigators +in accordance with GCP requirements, which include the requirement that all research subjects provide their informed consent in writing +for their participation in any clinical trial along with the requirement to ensure that the data and results reported from the clinical +trials are credible and accurate. Clinical trials are conducted under protocols detailing, among other things, the objectives of the +trial, the criteria for determining subject eligibility, the dosing plan, the parameters to be used in monitoring safety, the procedure +for timely reporting of adverse events, and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent +protocol amendments must be submitted to the FDA as part of the IND. In addition, an IRB at each institution participating in the clinical +trial must review and approve the plan for any clinical trial before it commences at that institution. +Information +about certain clinical trials and clinical trial results must be submitted within specific timeframes to the National Institutes of Health +for public dissemination on the Clinicaltrials.gov registry. Failure to timely register a covered clinical study or to submit study results +as provided for in the law can give rise to civil monetary penalties and prevent the non-compliant party from receiving future grant +funds from the federal government. The government has begun enforcing these registration and results reporting requirements +against non-compliant clinical trial sponsors. +Human +clinical trials are typically conducted in at least three sequential phases and occasionally four or more, which may require repetition, +or overlap or be combined: +Phase +I : The drug candidate is initially introduced into healthy human subjects or patients with the target disease or condition and +tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of +its effectiveness. During Phase I clinical trials, sufficient information about the investigational drug’s pharmacokinetics and +pharmacological effects may be obtained to permit the design of well-controlled and scientifically valid Phase II clinical trials. +13 +Phase +II : The drug candidate is administered to a larger, but still limited patient population to identify possible adverse effects +and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted indications and to determine dosage tolerance +and optimal dosage. Phase II clinical trials are typically well-controlled and closely monitored. +Phase +III : The drug candidate is administered to an expanded patient population, generally at geographically dispersed clinical trial +sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for +approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for the labeling of the product. +Phase III clinical trials usually involve a larger number of participants than a Phase II clinical trial. +There +is no guarantee that a clinical asset will successfully complete any such clinical trials. There is no assurance that any clinical trials +on the assets owned or licensed by Conduit will be successful. +Interactions +with FDA During the Clinical Development Program +Following +the clearance of an IND and the commencement of clinical trials, the sponsor of such trial will continue to have interactions with the +FDA. Progress reports detailing the results of clinical trials must be submitted at least annually to the FDA and more frequently if +serious adverse events occur. In addition, IND safety reports must be submitted to the FDA for any of the following: serious and unexpected +suspected adverse reactions; findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed +to the product; and any clinically important increase in the occurrence of a serious suspected adverse reaction over that listed in the +protocol or investigator brochure. +In +addition, sponsors are given opportunities to meet with the FDA at certain points in the clinical development program. Specifically, +sponsors may meet with the FDA prior to the submission of an IND (“pre-IND meeting”), at the end of Phase II clinical trial +(“EOP2” meeting) and before an NDA is submitted (“pre-NDA meeting”). Meetings at other times may also be requested. +These meetings provide an opportunity for the sponsor to share information about the data gathered to date with the FDA and for the FDA +to provide advice on the next phase of development. For example, at an EOP2, a sponsor may discuss its Phase II clinical results and +present its plans for the pivotal Phase III clinical trial(s) that it believes will support the approval of the new product. Such meetings +may be conducted in person, via teleconference/videoconference or written response only with minutes reflecting the questions that the +sponsor posed to the FDA and the agency’s responses. The FDA has indicated that its responses, as conveyed in meeting minutes and +advice letters, only constitute recommendations and/or advice made to a sponsor and, as such, sponsors are not bound by such recommendations +and/or advice. Nonetheless, from a practical perspective, a sponsor’s failure to follow the FDA’s recommendations for design +of a clinical program may put the program at significant risk of failure. +Acceptance +of NDAs +Assuming +successful completion of the required clinical testing, the results of the preclinical studies and clinical trials, along with information +relating to the product’s chemistry, manufacturing, controls, safety updates, patent information, abuse information and proposed +labeling, are submitted to the FDA as part of an application requesting approval to market the clinical asset for one or more indications. +Data may come from company-sponsored clinical trials intended to test the safety and efficacy of a product’s use or from a number +of alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient +in quality and quantity to establish the safety and efficacy of a drug product. The fee required for the submission and review of an +application under the Prescription Drug User Fee Act (“PDUFA”) is substantial, and the sponsor of an approved application +is also subject to an annual program fee assessed based on eligible prescription drug products. These fees are typically adjusted annually, +and exemptions and waivers may be available under certain circumstances, such as where a waiver is necessary to protect the public health, +where the fee would present a significant barrier to innovation, or where the applicant is a small business submitting its first human +therapeutic application for review. +14 +The +FDA conducts a preliminary review of all applications within 60 days of receipt and must inform the sponsor at that time or before whether +an application is sufficiently complete to permit substantive review. In pertinent part, the FDA’s regulations provide that the +agency may refuse to file an application if the application does not include all pertinent information and data necessary for review +by the FDA. In the event that the FDA determines that an application does not satisfy this standard, it will issue a Refuse to File (“RTF”) +determination to the applicant. Typically, an RTF will be based on administrative incompleteness, such as clear omission of information +or sections of required information; scientific incompleteness, such as omission of critical data, information or analyses needed to +evaluate safety and efficacy or provide adequate directions for use; or inadequate content, presentation, or organization of information +such that substantive and meaningful review is precluded. The FDA may request additional information rather than accept an application +for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject +to review before the FDA accepts it for filing. +Review +of NDAs +After +the submission is accepted for filing, the FDA begins an in-depth substantive review of the application. The FDA reviews the application +to determine, among other things, whether the proposed product is safe and effective for its intended use, whether it has an acceptable +purity profile and whether the product is being manufactured in accordance with cGMP. +Under +the goals and policies agreed to by the FDA under PDUFA, the FDA has 10 months from the filing date in which to complete its initial +review of a standard application that is a new molecular entity, and six months from the filing date for an application with “priority +review.” The review process may be extended by the FDA for three additional months to consider new information or in the case of +a clarification provided by the applicant to address an outstanding deficiency identified by the FDA following the original submission. +Despite these review goals, the NDA review process can be very lengthy, and it is not uncommon for FDA review of an application to extend +beyond the PDUFA target action date. Most innovative drug products (other than biological products) obtain FDA marketing approval pursuant +to an NDA submitted under Section 505(b)(1) of the FDCA, commonly referred to as a traditional or “full NDA.” In 1984, with +passage of the Drug Price Competition and Patent Term Restoration Act, informally known as the Hatch-Waxman Act, that established an +abbreviated regulatory scheme authorizing the FDA to approve generic drugs based on an innovator or “reference” product, +Congress also enacted Section 505(b)(2) of the FDCA, which provides a hybrid pathway combining features of a traditional NDA and a generic +drug application. Section 505(b)(2) enables the applicant to rely, in part, on the FDA’s prior findings of safety and efficacy +data for an existing product, or published literature, in support of its application. Section 505(b)(2) NDAs may provide an alternate +path to FDA approval for new or improved formulations or new uses of previously approved products that would require new clinical data +to demonstrate safety or effectiveness. Section 505(b)(2) permits the filing of an NDA in which the applicant relies, at least in part, +on information from studies made to show whether a drug is safe or effective that were not conducted by or for the applicant and for +which the applicant has not obtained a right of reference or use. A Section 505(b)(2) applicant may eliminate or reduce the need to conduct +certain preclinical or clinical studies, if it can establish that reliance on studies conducted for a previously approved product is +scientifically appropriate. The FDA may also require companies to perform additional studies or measurements, including nonclinical and +clinical studies, to support the change from the approved product. The FDA may then approve the new clinical asset for all or some of +the labeled indications for which the referenced product has been approved, as well as for any new indication for which the Section 505(b)(2) +NDA applicant has submitted data. +In +connection with its review of an application, the FDA will typically submit information requests to the applicant and set deadlines for +responses thereto. The FDA will also conduct a pre-approval inspection of the manufacturing facilities for the new product to determine +whether the manufacturing processes and facilities comply with cGMPs. The FDA will not approve the product unless it determines that +the manufacturing processes and facilities are in compliance with cGMP requirements and are adequate to assure consistent production +of the product within required specifications. +15 +The +FDA also may inspect the sponsor and one or more clinical trial sites to assure compliance with IND and GCP requirements and the integrity +of the clinical data submitted to the FDA. To ensure cGMP and GCP compliance by its employees and third-party contractors, an applicant +may incur significant expenditure of time, money and effort in the areas of training, record keeping, production and quality control. +The FDA generally accepts data from foreign clinical trials in support of an NDA if the trials were conducted under an IND. If a foreign +clinical trial is not conducted under an IND, the FDA nevertheless may accept the data in support of an NDA if the study was conducted +in accordance with GCPs and the FDA is able to validate the data through an on-site inspection, if deemed necessary. Although the FDA +generally requests that marketing applications be supported by some data from domestic clinical trials, the FDA may accept foreign data +as the sole basis for marketing approval if (1) the foreign data are applicable to the United States population and United States medical +practice, (2) the studies were performed by clinical investigators with recognized competence, and (3) the data may be considered valid +without the need for an on-site inspection or, if the FDA considers the inspection to be necessary, the FDA is able to validate the data +through an on-site inspection or other appropriate means. +The +FDA may also refer an application, including applications for novel clinical asset which present difficult questions of safety or efficacy, +to an advisory committee for review, evaluation and recommendation as to whether the application should be approved and under what conditions. +Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, +evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound +by the recommendation of an advisory committee, but it considers such recommendations when making final decisions on approval. +Data +from clinical trials are not always conclusive, and the FDA or its advisory committee may interpret data differently than the sponsor +interprets the same data. The FDA may also re-analyze the clinical trial data, which could result in extensive discussions between the +FDA and the applicant during the review process or delay, limit or prevent regulatory approval. The FDA may not grant approval on a timely +basis or at all. +The +FDA also may require submission of a risk evaluation and mitigation strategy (“REMS”) if it determines that a REMS is necessary +to ensure that the benefits of the drug product outweigh its risks and to assure the safe use of the product. The REMS could include +medication guides, physician communication plans, assessment plans and/or elements to assure safe use, such as restricted distribution +methods, patient registries or other risk minimization tools. The FDA determines the requirement for a REMS, as well as the specific +REMS provisions, on a case-by-case basis. If the FDA concludes a REMS is needed, the sponsor of the application must submit a proposed +REMS and the FDA will not approve the application without a REMS. +Decisions +on NDAs +The +FDA reviews an application to determine, among other things, whether the product is safe and whether it is effective for its intended +use(s), with the latter determination being made on the basis of substantial evidence. The term “substantial evidence” is +defined under the FDCA as “evidence consisting of adequate and well-controlled investigations, including clinical investigations, +by experts qualified by scientific training and experience to evaluate the effectiveness of the drug involved, on the basis of which +it could fairly and responsibly be concluded by such experts that the drug will have the effect it purports or is represented to have +under the conditions of use prescribed, recommended, or suggested in the labeling or proposed labeling thereof.” +The +FDA has interpreted this evidentiary standard to require at least two adequate and well-controlled clinical investigations to establish +effectiveness of a new product. Under certain circumstances, however, the FDA has indicated that a single trial with certain characteristics +and additional information may satisfy this standard. This approach was subsequently endorsed by Congress in 1998 with legislation providing, +in pertinent part, that “If [the FDA] determines, based on relevant science, that data from one adequate and well-controlled clinical +investigation and confirmatory evidence (obtained prior to or after such investigation) are sufficient to establish effectiveness, the +FDA may consider such data and evidence to constitute substantial evidence.” This modification to the law recognized the potential +for the FDA to find that one adequate and well controlled clinical investigation with confirmatory evidence, including supportive data +outside of a controlled trial, is sufficient to establish effectiveness. In December 2019, the FDA issued draft guidance further explaining +the studies that are needed to establish substantial evidence of effectiveness, and in September 2023 it issued a draft guidance that +complements the 2019 draft guidance. The FDA has not yet finalized either guidance. +16 +After +evaluating the application and all related information, including the advisory committee recommendations, if any, and inspection reports +of manufacturing facilities and clinical trial sites, the FDA will issue either a Complete Response Letter (“CRL”) or an +approval letter. To approve the application, the FDA must determine that the drug is effective and that its expected benefits outweigh +its potential risks to patients. This “benefit-risk” assessment is informed by the extensive body of evidence about the product’s +safety and efficacy in the NDA. This assessment is also informed by other factors, including: the severity of the underlying condition +and how well patients’ medical needs are addressed by currently available therapies; uncertainty about how the premarket clinical +trial evidence will extrapolate to real-world use of the product in the post-market setting; and whether risk management tools are necessary +to manage specific risks. In connection with this assessment, the FDA review team will assemble all individual reviews and other documents +into an “action package,” which becomes the record for FDA review. The review team then issues a recommendation, and a senior +FDA official makes a decision. +A +CRL indicates that the review cycle of the application is complete, and the application will not be approved in its present form. A CRL +generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the +FDA to reconsider the application. The CRL may require additional clinical or other data, additional pivotal Phase III clinical trial(s) +and/or other significant and time-consuming requirements related to clinical trials, preclinical studies or manufacturing. If a CRL is +issued, the applicant will have one year to respond to the deficiencies identified by the FDA, at which time the FDA can deem the application +withdrawn or, in its discretion, grant the applicant an additional six-month extension to respond. The FDA has committed to reviewing +resubmissions in response to an issued CRL in either two or six months depending on the type of information included. Even with the submission +of this additional information, however, the FDA ultimately may decide that the application does not satisfy the regulatory criteria +for approval. +An +approval letter, on the other hand, authorizes commercial marketing of the product with specific prescribing information for specific +indications. That is, the approval will be limited to the conditions of use ( e.g. , patient population, indication) described in +the FDA-approved labeling. Further, depending on the specific risk(s) to be addressed, the FDA may require that contraindications, warnings +or precautions be included in the product labeling, require that post-approval trials, including Phase 4 clinical trials, be conducted +to further assess a product’s safety after approval, require testing and surveillance programs to monitor the product after commercialization +or impose other conditions, including distribution and use restrictions or other risk management mechanisms under a REMS which can materially +affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the +results of post-marketing trials or surveillance programs. After approval, some types of changes to the approved product, such as adding +new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and +approval. +Special +FDA Expedited Review Programs +The +FDA is authorized to designate certain products for expedited development or review if they are intended to address an unmet medical +need in the treatment of a serious or life-threatening disease or condition. These programs include fast track designation, breakthrough +therapy designation, and priority review designation. The purpose of these programs is to provide important new drugs to patients earlier +than under standard FDA review procedures. +To +be eligible for a fast-track designation, the FDA must determine, based on the request of a sponsor, that a product is intended to treat +a serious or life-threatening disease or condition and demonstrates the potential to address an unmet medical need. The FDA will determine +that a product will fill an unmet medical need if it will provide a therapy where none exists or provide a therapy that may be potentially +superior to existing therapy based on efficacy or safety factors. Fast track designation provides additional opportunities for interaction +with the FDA’s review team and may allow for a rolling review of NDA components before the completed application is submitted, +if the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines +that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA. In addition, +fast track designation may be withdrawn by the sponsor or rescinded by the FDA if the designation is no longer supported by data emerging +in the clinical trial process. +17 +In +addition, with the enactment of the FDA Safety and Innovation Act (“FDASIA”) in 2012, Congress created a new regulatory program +for therapeutic candidates designated by FDA as “breakthrough therapies” upon a request made by the IND sponsors. A breakthrough +therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening +disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing +therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. +The FDA must take certain actions with respect to breakthrough therapies, such as holding timely meetings with and providing advice to +the product sponsor, intended to expedite the development and review of an application for approval of a breakthrough therapy. +Finally, +the FDA may designate a product for priority review if it is a drug that treats a serious condition and, if approved, would provide a +significant improvement in safety or effectiveness. The FDA determines at the time that the marketing application is submitted, on a +case-by-case basis, whether the proposed drug represents a significant improvement in treatment, prevention or diagnosis of disease when +compared with other available therapies. Significant improvement may be illustrated by evidence of increased effectiveness in the treatment +of a condition, elimination or substantial reduction of a treatment-limiting drug reaction, documented enhancement of patient compliance +that may lead to improvement in serious outcomes, or evidence of safety and effectiveness in a new subpopulation. A priority review designation +is intended to direct overall attention and resources to the evaluation of such applications, and to shorten the FDA’s goal for +taking action on a marketing application from ten months to six months for an NDA for a new molecular entity from the date of filing. +Even +if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for +qualification or decide that the time period for FDA review or approval will not be shortened. Furthermore, fast track designation, breakthrough +therapy designation and priority review do not change the standards for approval and may not ultimately expedite the development or approval +process. +Accelerated +Approval Pathway +In +addition, a product studied for its safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful +therapeutic benefit over existing treatments may receive accelerated approval, meaning that it may be approved on (i) the basis of adequate +and well-controlled clinical trials establishing that the drug product has an effect on a surrogate endpoint that is reasonably likely +to predict clinical benefit, or (ii) on an intermediate clinical endpoint that can be measured earlier than irreversible morbidity or +mortality (“IMM”) and that is reasonably likely to predict an effect on IMM or other clinical benefits, taking into account +the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, +the FDA may require a sponsor of a drug receiving accelerated approval to perform post-marketing studies to verify and describe the predicted +effect on IMM or other clinical endpoints, and the drug may be subject to expedited withdrawal procedures. Drugs granted accelerated +approval must meet the same statutory standards for safety and effectiveness as those granted traditional approval. +The +accelerated approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional +post-approval confirmatory studies to verify and describe the drug’s clinical benefit. As a result, a therapeutic candidate +approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or +post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or +to confirm the predicted clinical benefit of the product during post-marketing studies, would allow the FDA to withdraw approval of +the drug. All promotional materials for drug products being considered and approved under the accelerated approval program are +subject to prior review by the FDA. Lawmakers, FDA officials, and other stakeholders continually evaluate the accelerated approval +program which may lead to legislative and/or administrative changes in the future. +Post-Approval +Requirements +Drugs +manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among +other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion +and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications +or other labeling claims, are subject to prior FDA review and approval. Certain modifications to the product, including changes in indications +or manufacturing processes or facilities, may require the applicant to develop additional data or conduct additional preclinical studies +and clinical trials to support the submission to FDA. As previously noted, there also are continuing, annual user fee requirements for +any marketed products, as well as new application fees for supplemental applications with clinical data. +18 +The +FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require post-marketing +testing, including Phase 4 clinical trials, and surveillance to further assess and monitor the product’s safety and effectiveness +after commercialization. +In +addition, FDA regulations require that products be manufactured in specific approved facilities and in accordance with cGMPs. The cGMP +regulations include requirements relating to the organization of personnel, buildings and facilities, equipment, control of components +and drug product containers and closures, production and process controls, packaging and labeling controls, holding and distribution, +laboratory controls, records and reports and returned or salvaged products. Drug manufacturers and other entities involved in the manufacture +and distribution of approved drugs are required to register their establishments with the FDA and some state agencies and are subject +to periodic unannounced inspections by the FDA for compliance with cGMP requirements and other laws. Changes to the manufacturing process +are strictly regulated and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA +regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements +upon the sponsor and any third-party manufacturers. Accordingly, manufacturers must continue to expend time, money, and effort in production +and quality control to maintain compliance with cGMP and other aspects of quality control and quality assurance. +The +FDA strictly regulates the marketing, labeling, advertising and promotion of drug products that are placed on the market. A product cannot +be commercially promoted before it is approved, and approved drugs may generally be promoted only for their approved indications and +for use in patient populations described in the product’s approved labeling. Promotional claims must also be consistent with the +product’s FDA-approved label, including claims related to safety and effectiveness. The government closely scrutinizes the promotion +of prescription drugs in specific contexts such as direct-to-consumer advertising, industry-sponsored scientific and educational activities, +and promotional activities involving the Internet and social media. Although physicians may prescribe legally available products for +off-label uses, manufacturers may not market or promote such uses. +Later +discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing +processes, or failure to comply with regulatory requirements, may result in mandatory revisions to the approved labeling to add new safety +information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other +restrictions under a REMS program. Other potential consequences of regulatory non-compliance include, among other things: +● +restrictions +on, or suspensions of, the marketing or manufacturing of the product, complete withdrawal of the product from the market or product +recalls; +● +interruption +of production processes, including the shutdown of manufacturing facilities or production lines or the imposition of new manufacturing +requirements; +● +fines, +warning letters or other enforcement letters or clinical holds on post-approval clinical trials; +● +mandated +modification of promotional materials and labeling and the issuance of corrective information; +● +refusal +of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product approvals; +● +product +seizure or detention, or refusal to permit the import or export of products; +● +injunctions +or the imposition of civil or criminal penalties; or +● +consent +decrees, corporate integrity agreements, debarment, or exclusion from federal healthcare programs. +19 +In +addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act (“PDMA”) +which regulates the distribution of drugs and drug samples at the federal level and sets minimum standards for the registration and regulation +of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples +and impose requirements to ensure accountability in distribution. The Drug Supply Chain Security Act (the “DSCSA”), +was enacted with the aim of building an electronic system to identify and trace certain prescription drugs distributed in the United +States. The DSCSA mandated phased-in and resource-intensive obligations for pharmaceutical +manufacturers, wholesale distributors and dispensers by November 2023, but, so as not to disrupt supply chains, the FDA has granted certain +exemptions from enhanced drug distribution security requirements for eligible trading partners for particular periods of time. From time to time, new legislation and regulations +may be implemented that could significantly change the statutory provisions governing the approval, manufacturing and marketing of products +regulated by the FDA. For example, the FDA released proposed regulations in February 2022 to amend the national standards for licensing +of wholesale drug distributors by the states; establish new minimum standards for state licensing third-party logistics providers; and +create a federal system for licensure for use in the absence of a state program, each of which is mandated by the DSCSA. It is impossible +to predict whether further legislative or regulatory changes will be enacted, or FDA regulations, guidance or interpretations will be +changed or what the impact of such potential changes, if any, may be. +Regulatory +Exclusivity and Approval of Follow-on Products +Hatch-Waxman +Exclusivity +In +addition to enacting Section 505(b)(2) of the FDCA as part of the Hatch-Waxman Amendments to the FDCA, Congress also established an abbreviated +regulatory scheme authorizing the FDA to approve generic drugs that are shown to contain the same active ingredients as, and to be bioequivalent +to, drugs previously approved by the FDA pursuant to NDAs. To obtain approval of a generic drug, an applicant must submit an abbreviated +new drug application (“ANDA”) to the agency. An ANDA is a comprehensive submission that contains, among other things, data +and information pertaining to the active pharmaceutical ingredient, bioequivalence, drug product formulation, specifications and stability +of the generic drug, as well as analytical methods, manufacturing process validation data and quality control procedures. ANDAs are “abbreviated” +because they cannot include preclinical and clinical data to demonstrate safety and effectiveness. Instead, in support of such applications, +a generic manufacturer must rely on the preclinical and clinical testing previously conducted for a drug product previously approved +under an NDA, known as the reference listed drug (“RLD”). +In +order for an ANDA to be approved, the FDA must find that the generic version is identical to the RLD with respect to the active ingredients, +the route of administration, the dosage form, the strength of the drug and the conditions of use of the drug. At the same time, the FDA +must also determine that the generic drug is “bioequivalent” to the innovator drug. Under the statute, a generic drug is +bioequivalent to an RLD if “the rate and extent of absorption of the drug do not show a significant difference from the rate and +extent of absorption of the listed drug.” Unlike the 505(b)(2) NDA pathway that permits a follow-on applicant to conduct and submit +data from additional clinical trials or nonclinical studies in order to support the proposed change(s) to the reference product, the +ANDA regulatory pathway does not allow applicants to submit new clinical data other than bioavailability or bioequivalence data. +Upon +approval of an ANDA, the FDA indicates whether the generic product is “therapeutically equivalent” to the RLD in its publication +“Approved Drug Products with Therapeutic Equivalence Evaluations,” also referred to as the “Orange Book.” Physicians +and pharmacists consider a therapeutic equivalent generic drug to be fully substitutable for the RLD. In addition, by operation of certain +state laws and numerous health insurance programs, the FDA’s designation of therapeutic equivalence often results in substitution +of the generic drug without the knowledge or consent of either the prescribing physician or patient. +As +part of the NDA review and approval process, applicants are required to list with the FDA each patent that has claims that cover the +applicant’s product or method of therapeutic use. Upon approval of a new drug, each of the patents listed in the application for +the drug is then published in the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential follow-on competitors +in support of approval of an ANDA or 505(b)(2) NDA. +20 +When +an ANDA applicant submits its application to the FDA, it is required to certify to the FDA concerning any patents listed for the reference +product in the FDA’s Orange Book. Specifically, the applicant must certify that: (i) the required patent information has not been +filed; (ii) the listed patent has expired; (iii) the listed patent has not expired but will expire on a particular date and approval +is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. Moreover, to the +extent that the Section 505(b)(2) NDA applicant is relying on studies conducted for an already approved product, the applicant also is +required to certify to the FDA concerning any patents listed for the NDA-approved product in the Orange Book to the same extent that +an ANDA applicant would. +If +the follow-on applicant does not challenge the innovator’s listed patents, the FDA will not approve the ANDA or 505(b)(2) application +until all the listed patents claiming the referenced product have expired. A certification that the new product will not infringe the +already approved product’s listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the follow-on +applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification +to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent +infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within +45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA or 505(b)(2) NDA until +the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable +to the ANDA or 505(b)(2) applicant. +An +ANDA or 505(b)(2) application also will not be approved until any applicable non-patent exclusivities listed in the Orange Book for the +referenced product have expired. The Hatch-Waxman Amendments to the FDCA provided a five-year period of non-patent data exclusivity within +the United States to the first applicant to gain approval of an NDA for a new chemical entity (“NCE”). For the purposes of +this provision, an NCE is a drug that contains no active moiety that has previously been approved by the FDA in any other NDA. An active +moiety is the molecule or ion responsible for the physiological or pharmacological action of the drug substance. In cases where such +NCE exclusivity has been granted, an ANDA or 505(b)(2) NDA may not be filed with the FDA until the expiration of five years unless the +submission is accompanied by a Paragraph IV certification, in which case the applicant may submit its application four years following +the original product approval. +The +FDCA also provides for a period of three years of data exclusivity if an NDA or NDA supplement includes reports of one or more new clinical +investigations, other than bioavailability or bioequivalence studies, that were conducted or sponsored by the applicant are deemed by +the FDA to be essential to the approval of the application. This three-year exclusivity period often protects changes to a previously +approved drug product, such as new indications, dosage forms, route of administration or combination of ingredients. Three-year exclusivity +would be available for a drug product that contains a previously approved active moiety, provided the statutory requirement for a new +clinical investigation is satisfied. Unlike five-year NCE exclusivity, an award of three-year exclusivity does not block the FDA from +accepting ANDAs or 505(b)(2) NDAs seeking approval for generic versions of the drug as of the date of approval of the original drug product; +rather, this three-year exclusivity covers only the conditions of use associated with the new clinical investigations and, as a general +matter, does not prohibit the FDA from approving follow-on applications for drugs containing the original active ingredient. +Five-year +and three-year exclusivity also will not delay the submission or approval of a traditional NDA filed under Section 505(b)(1) of the FDCA; +however, an applicant submitting a traditional NDA would be required to conduct or obtain a right of reference to all of the preclinical +studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness. +Orphan +Drug Designation and Exclusivity +Under +the Orphan Drug Act, the FDA may grant orphan drug designation to a drug intended to treat a rare disease or condition, which is generally +a disease or condition that affects either (i) fewer than 200,000 individuals in the United States, or (ii) more than 200,000 individuals +in the United States and for which there is no reasonable expectation that the cost of developing and making available in the United +States a drug for this type of disease or condition will be recovered from sales in the United States for that drug. Legislative proposals +are currently being considered that would revise or revoke the second option available for a drug candidate to receive an orphan designation, +the so-called “cost recovery” pathway. Orphan drug designation must be requested before submitting an NDA. After the FDA +grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use will be disclosed publicly by the +FDA; the posting will also indicate whether a drug is no longer designated as an orphan drug. +21 +More +than one clinical asset may receive an orphan drug designation for the same indication, and the same clinical asset can be designated +for more than one qualified orphan indication. The benefits of orphan drug designation include research and development tax credits and +exemption from FDA prescription drug user fees. Orphan drug designation does not convey any advantage in or shorten the duration of the +regulatory review and approval process if or when an NDA for the drug candidate is filed. +If +a product that has orphan drug designation subsequently receives the first FDA approval for the indication for which it has such designation, +the product is entitled to orphan product exclusivity, which means that for seven years, the FDA may not approve any other marketing +applications for the same drug for the same indication, except under limited circumstances described further below. Orphan exclusivity +does not block the approval of a different drug for the same rare disease or condition, nor does it block the approval of the same drug +for different conditions. As a result, the FDA can still approve different drugs for use in treating the same indication or disease. +Additionally, if a drug designated as an orphan product receives marketing approval for an indication broader than what was designated, +it may not be entitled to orphan drug exclusivity. +Orphan +exclusivity will not bar approval of another product with the same drug for the same condition under certain circumstances, including +if a subsequent product with the same drug for the same condition is shown to be clinically superior to the approved product on the basis +of greater efficacy or safety or a major contribution to patient care, or if the company with orphan drug exclusivity cannot assure the +availability of sufficient quantities of the drug to meet the needs of persons with the disease or condition for which the drug was designated. +The FDA is now required to publish a summary of the clinical superiority findings when a drug is eligible for orphan product exclusivity +on the basis of a demonstration of clinical superiority. +Patent +Term Extension +A +patent claiming a prescription drug for which FDA approval is granted may be eligible for a limited patent term extension under the FDCA, +which permits a patent restoration of up to five years for patent term lost during product development and the FDA regulatory review +provided that certain statutory and regulatory requirements are met. The length of the patent term extension is related to the length +of time the drug is under regulatory review while the patent is in force. The restoration period granted on a patent covering a new FDA-regulated +medical product is typically one-half the time between the date a clinical investigation on human beings is begun and the submission +date of an application for premarket approval of the product, plus the time between the submission date of an application for approval +of the product and the ultimate approval date. Patent term restoration cannot be used to extend the remaining term of a patent past a +total of 14 years from the product’s approval date. Only one patent applicable to an approved drug product is eligible for the +extension, and the application for the extension must be submitted prior to the expiration of the patent in question. A patent that covers +multiple products for which approval is sought can only be extended in connection with one of the marketing approvals. The USPTO reviews +and approves the application for any patent term extension or restoration in consultation with the FDA. +Other +U.S. Healthcare Laws and Regulations +Manufacturing, +sales, promotion, and other activities following product approval may also be subject to regulation by other regulatory authorities in +the United States in addition to the FDA. Depending on the nature of the product, those authorities may include the Centers for Medicare +and Medicaid Services (“CMS”), other divisions of the Department of Health and Human Services (“HHS”), the Department +of Justice, the Drug Enforcement Administration, the Federal Trade Commission, the Occupational Safety and Health Administration, and +state and local governments. +22 +For +example, in the United States, sales and marketing for prescription biopharmaceutical products must comply with state and federal fraud +and abuse laws. These laws include the federal Anti-Kickback Statute, which makes it illegal for any person, including a prescription +drug manufacturer (or a party acting on its behalf), to knowingly and willfully solicit, receive, offer or pay any remuneration that +is intended to induce or reward referrals, including the purchase, recommendation, order or prescription of a particular drug, for which +payment may be made under a federal healthcare program, such as Medicare or Medicaid. Violations of this law are punishable by up to +ten years in prison, criminal fines, administrative civil money penalties and exclusion from participation in federal healthcare programs. +In addition, the Patient Protection and Affordable Care Act, or ACA, among other things, amended the intent requirement of the federal +Anti-Kickback Statute and two of the five criminal healthcare fraud statutes created by the Health Insurance Portability and Accountability +Act of 1996, or HIPAA. A person or entity no longer needs to have actual knowledge of these two provisions in the statute or specific +intent to violate them; specifically with respect to the prohibition on executing or attempting to execute a scheme or artifice to defraud +or to fraudulently obtain money or property of any healthcare benefit program and the prohibition on disposing of assets to enable a +person to become eligible for Medicaid. Moreover, the government may now assert that a claim including items or services resulting from +a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act. +Pricing +and rebate programs must comply with the Medicaid rebate requirements of the U.S. Omnibus Budget Reconciliation Act of 1990 and more +recent requirements in the ACA. If products are made available to authorized users of the Federal Supply Schedule of the General Services +Administration, additional laws and requirements apply. There also are federal transparency requirements under the Physician Payments +Sunshine Act that require manufacturers of FDA-approved drugs, devices, biologics and medical supplies covered by Medicare or Medicaid +to report, on an annual basis, to CMS information related to payments and other transfers of value to physicians, teaching hospitals, +and certain advanced non-physician healthcare practitioners and physician ownership and investment interests. Prescription drug products +also must meet applicable child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act. +Manufacturing, +sales, promotion, and other activities also are potentially subject to federal and state consumer protection and unfair competition laws. +Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines, +or the relevant compliance guidance promulgated by the federal government, in addition to requiring drug manufacturers to report information +related to payments to physicians and other healthcare providers or marketing expenditures to the extent that those laws impose requirements +that are more stringent than the Physician Payments Sunshine Act. State and foreign laws also govern the privacy and security of health +information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus +complicating compliance efforts. +The +failure to comply with any of these laws or regulatory requirements subjects firms to possible legal or regulatory action. Depending +on the circumstances, failure to meet applicable regulatory requirements can result in criminal prosecution, fines or other penalties, +injunctions, requests for recall, seizure of products, total or partial suspension of production, denial or withdrawal of product approvals +or refusal to allow a firm to enter into supply contracts, including government contracts. +Government +Regulation Outside the U.S. +In +addition to regulations in the United States, we will be subject to a variety of foreign regulations that govern, among other things, +clinical trials and any commercial sales and distribution of our products, if approved, either directly or through distribution partners. +Whether or not we obtain FDA approval for a product candidate, we must obtain the requisite approvals from regulatory authorities in +foreign countries or economic areas, such as the European Union and the United Kingdom, among other foreign countries, before we may +commence clinical trials or market products in those countries or areas. The foreign regulatory approval process includes all of the +risks associated with the FDA approval described above, and the time required to obtain approval in other countries and jurisdictions +might differ from and be longer than that required to obtain FDA approval. Some foreign jurisdictions have a drug product approval process +similar to that in the U.S., which requires the submission of a clinical trial application much like the IND prior to the commencement +of clinical studies. In Europe, for example, a clinical trial application, or CTA, must be submitted to each country’s national +health authority and an independent ethics committee, much like the FDA and IRB, respectively. Once the CTA is approved in accordance +with a country’s requirements, clinical trial development may proceed. To obtain regulatory approval of a medicinal product candidate +under European Union regulatory systems, we would be required to submit a Marketing Authorisation Application, or MAA, which is similar +to the NDA, except that, among other things, there are country-specific document requirements. For countries outside of the European +Union, such as countries in Eastern Europe, Latin America or Asia, and recently the United Kingdom, the requirements governing the conduct +of clinical trials, product approval, pricing and reimbursement vary from country to country. Regulatory approval in one country or jurisdiction +does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction +may negatively impact the regulatory process in others. Moreover, some nations may not accept clinical studies performed for U.S. approval +to support approval in their countries or require that additional studies be performed on natives of their countries. In addition, in +certain foreign markets, the pricing of drug products is subject to government control and reimbursement may in some cases be unavailable +or insufficient. If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, +suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions, and criminal prosecution. +23 +As +of January 31, 2020, the United Kingdom is no longer a member state of the European Union, and therefore a separate marketing authorization +application and approval will be required to market a medicinal product in the U.K. The Medicines and Healthcare products Regulatory +Agency, or the MHRA, is the U.K.’s standalone pharmaceutical regulator. +Clinical +Trials and Regulation of Medicinal Products in Europe +As +in the United States, medicinal products can be marketed in the European Union only if a marketing authorization from the competent regulatory +agencies has been obtained. Similar to the United States, the various phases of preclinical and clinical research in the European Union +are subject to significant regulatory controls. +Pursuant +to the European Clinical Trials Directive, a system for the approval of clinical trials in the European Union has been implemented through +national legislation of the member states. Under this system, an applicant must obtain approval from the competent national authority +of a European Union member state in which the clinical trial is to be conducted. Furthermore, the applicant may only start a clinical +trial after a competent ethics committee has issued a favorable opinion. Clinical trial applications must be accompanied by an investigational +medicinal product dossier with supporting information prescribed by the European Clinical Trials Directive and corresponding national +laws of the member states and further detailed in applicable guidance documents. In April 2014, the new Clinical Trials Regulation, (EU) +No 536/2014 (Clinical Trials Regulation) was adopted and became effective on January 31, 2022. The Clinical Trials Regulation is directly +applicable in all the European Union Member States, repealing the prior Clinical Trials Directive 2001/20/EC. The extent to which ongoing +clinical trials will be governed by the Clinical Trials Regulation will depend on the duration of the individual clinical trial; if a +clinical trial continues for more than three years from the day on which the Clinical Trials Regulation becomes applicable the Clinical +Trials Regulation will at that time begin to apply to the clinical trial. +The +new Clinical Trials Regulation aims to simplify and streamline the approval of clinical trials in the European Union. The main characteristics +of the regulation include: a streamlined application procedure via a single entry point; a single set of documents to be prepared and +submitted for the application as well as simplified reporting procedures for clinical trial sponsors; and a harmonized procedure for +the assessment of applications for clinical trials. +To +obtain marketing approval of a drug in the European Union, an applicant must submit a MAA either under a centralized or decentralized +procedure. The centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid +for all European Union member states, Iceland, Lichtenstein and Norway. The centralized procedure is compulsory for specific products, +including for medicines produced by certain biotechnological processes, products designated as orphan medicinal products, advanced therapy +products (such as gene-therapy, somatic cell-therapy or tissue-engineered medicines) and products with a new active substance indicated +for the treatment of certain disorders. For products with a new active substance indicated for the treatment of certain disorders and +products that are highly innovative or for which a centralized process is in the interest of patients, the centralized procedure may +be optional. Under the centralized procedure the maximum timeframe for the evaluation of an MAA by the European Medicines Agency (“EMA”) +is 210 days, excluding clock stops, when additional written or oral information is to be provided by the applicant in response to questions +asked by the Committee for Medicinal Products for Human Use (“CHMP”). Accelerated assessment might be granted by the CHMP +in exceptional cases, when a medicinal product is expected to be of a major public health interest, particularly from the point of view +of therapeutic innovation. The timeframe for the evaluation of an MAA under the accelerated assessment procedure is of 150 days, excluding +stop-clocks. +24 +The +decentralized procedure is available to applicants who wish to market a product in specific European Union member states where such product +has not received marketing approval in any European Union member states before. The decentralized procedure provides for an applicant +to apply to one-member state to assess the application (the reference member state) and specifically list other member states in which +it wishes to obtain approval (concerned member states). +In +the European Union, only products for which marketing authorizations have been granted may be promoted. A marketing authorization is +valid for five years in principle and the marketing authorization may be renewed after five years on the basis of a re-evaluation of +the risk-benefit balance by the EMA or by the competent authority of the authorizing member state. To this end, the marketing authorization +holder must provide the EMA or the competent authority with a consolidated version of the file in respect of quality, safety and efficacy, +including all variations introduced since the marketing authorization was granted, at least six months before the marketing authorization +ceases to be valid. Once renewed, the marketing authorization is valid for an unlimited period, unless the European Commission or the +competent authority decides, on justified grounds relating to pharmacovigilance, to proceed with one additional five-year renewal. Any +authorization which is not followed by the actual placing of the drug on the European Union market (in case of centralized procedure) +or on the market of the authorizing member state within three years after authorization ceases to be valid (the so-called sunset clause). +Moreover, +even if authorized to be marketed in the European Union, prescription medicines may only be promoted to healthcare professionals, not +the general public. All promotion should be in accordance with the particulars listed in the summary of product characteristics. Promotional +materials must also comply with various laws, and codes of conduct developed by pharmaceutical industry bodies in the European Union +which govern (among other things) the training of sales staff, promotional claims and their justification, comparative advertising, misleading +advertising, endorsements, and (where permitted) advertising to the general public. Failure to comply with these requirements could lead +to the imposition of penalties by the competent authorities of the European Union member states. The penalties could include warnings, +orders to discontinue the promotion of the drug product, seizure of promotional materials, fines and possible imprisonment. +Regulation +of New Drugs in the United Kingdom +The +United Kingdom left the European Union on January 31, 2020 (commonly referred to as “Brexit”), with a transitional period +that expired on December 31, 2020. The United Kingdom and the European Union entered into a trade agreement known as the Trade and Cooperation +Agreement, which went into effect on January 1, 2021. We are currently evaluating the potential +impacts on our business of the Trade and Cooperation Agreement and guidance issued to date by the United Kingdom’s MHRA regarding +the requirements for licensing and marketing medicinal products in the United Kingdom. +Since +the regulatory framework for pharmaceutical products in the United Kingdom covering the quality, safety and efficacy of pharmaceutical +products, clinical trials, marketing authorization, commercial sales and distribution of medicinal products has only recently changed, +it is difficult to draw comparisons about the impact of the new regulatory regime and impact on the approval of product candidates in +the United Kingdom. In addition, even if a drug is licensed in the UK by the MHRA, it must further be approved by the National Institute +for Health & Care Excellence to ensure use within the UK’s National Health Service (NHS). +25 +Pharmaceutical +Coverage, Pricing and Reimbursement, and Healthcare Reform +Sales +of our products, if approved for marketing, will depend, in part, on the availability and extent of coverage and reimbursement by third-party +payors, such as government health programs, including Medicare and Medicaid, commercial insurance and managed healthcare organizations. +These third-party payors are increasingly challenging the price and limiting the coverage and reimbursement amounts for medical products +and services. There may be significant delays in obtaining coverage and reimbursement for approved products, and coverage may be more +limited than the purposes for which the product is approved by the FDA or regulatory authorities in other countries. It is time-consuming +and expensive to seek reimbursement from third-party payors. Moreover, eligibility for reimbursement does not imply that any product +will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. +Interim payments for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Payment +rates may vary according to the use of the product and the clinical setting in which it is used, may be based on payments allowed for +lower-cost products that are already reimbursed and may be incorporated into existing payments for other services. Net prices for products +may be reduced by mandatory discounts or rebates required by third-party payors and by any future relaxation of laws that presently restrict +imports of products from countries where they may be sold at lower prices than in the United States. In the United States, third-party +payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies, but they also have +their own methods and approval process apart from Medicare coverage and reimbursement determinations. Accordingly, one third-party payor’s +determination to provide coverage for a product does not assure that other payors will also provide coverage for the product. +In +addition, the containment of healthcare costs has become a priority for federal and state governments, and the prices of drugs have been +a focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing +cost-containment programs, including price controls, restrictions on coverage and reimbursement, and requirements for substitution of +generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions +with existing controls and measures, could further limit our net revenue and results. Decreases in third-party reimbursement for our +clinical assets or a decision by a third-party payor to not cover our clinical assets could reduce physician usage of the clinical asset +and have a material adverse effect on our sales, results of operations and financial condition. Moreover, there has been heightened governmental +scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries +and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review +the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug +products. Individual states in the United States have also increasingly passed legislation and implemented regulations designed to control +pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access +and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and +bulk purchasing. In December 2020, the U.S. Supreme Court held unanimously that federal law does not preempt the states’ ability +to regulate pharmaceutical benefit managers (“PBMs”) and other members of the healthcare and pharmaceutical supply chain, +an important decision that has led to further and more aggressive efforts by states in this area. +On August 16, 2022, President +Biden signed into the law the Inflation Reduction Act of 2022, or the IRA. Among other things, the IRA has multiple provisions that can +impact the prices of drug products that are both sold into the Medicare program and throughout the United States. Beginning in 2023, a +manufacturer of drugs covered by Medicare Parts B or D must pay a rebate to the federal government if their drug product’s price +increases faster than the rate of inflation. This calculation is made on a drug product by drug product basis and the amount of the rebate +owed to the federal government is directly dependent on the volume of a drug product that is paid for by Medicare Parts B or D. Additionally, +starting for payment year 2026, CMS will negotiate drug prices annually for a select number of single source Part D drugs without generic +or biosimilar competition. CMS will also negotiate drug prices for a select number of Part B drugs starting for payment year 2028. If +a drug product is selected by CMS for negotiation, it is expected that the revenue generated from such drug will decrease. +In +addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements +governing drug pricing vary widely from country to country. For example, in the European Union, the sole legal instrument at the European +Union level governing the pricing and reimbursement of medicinal products is Council Directive 89/105/EEC (the “Price Transparency +Directive”). The aim of the Price Transparency Directive is to ensure that pricing and reimbursement mechanisms established in +the European Union Member States are transparent and objective, do not hinder the free movement of and trade in medicinal products in +the European Union, and do not hinder, prevent or distort competition on the market. The Price Transparency Directive does not provide +any guidance concerning the specific criteria on the basis of which pricing and reimbursement decisions are to be made in the individual +European Union Member States, nor does it have any direct consequence for pricing or reimbursement levels in the individual European +Union Member States. The European Union Member States are free to restrict the range of medicinal products for which their national health +insurance systems provide reimbursement, and to control the prices and/or reimbursement levels of medicinal products for human use. A +European Union Member State may approve a specific price or level of reimbursement for the medicinal product, or alternatively adopt +a system of direct or indirect controls on the profitability of the company responsible for placing the medicinal product on the market, +including volume-based arrangements, caps and reference pricing mechanisms. +26 +Health +Technology Assessment (“HTA”) of medicinal products is becoming an increasingly common part of the pricing and reimbursement +procedures in some European Union Member States, including France, Germany, Ireland, Italy and Sweden. The HTA process in the European +Union Member States is governed by the national laws of these countries. HTA is the procedure according to which the assessment of the +public health impact, therapeutic impact, and the economic and societal impact of the use of a given medicinal product in the national +healthcare systems of the individual country is conducted. HTA generally focuses on the clinical efficacy and effectiveness, safety, +cost, and cost-effectiveness of individual medicinal products as well as their potential implications for the healthcare system. Those +elements of medicinal products are compared with other treatment options available on the market. The outcome of HTA regarding specific +medicinal products will often influence the pricing and reimbursement status granted to these medicinal products by the competent authorities +of individual European Union Member States. The extent to which pricing and reimbursement decisions are influenced by the HTA of the +specific medicinal product vary between the European Union Member States. For example, European Union Member States that have not yet +developed HTA mechanisms could rely to some extent on the HTA performed in countries with a developed HTA framework when adopting decisions +concerning the pricing and reimbursement of a specific medicinal product. +Separately +from cost containment efforts, in the United States and some foreign jurisdictions, there also have been, and continue to be, several +legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval +of product candidates or restrict or regulate post-approval activities. The FDA’s and other regulatory authorities’ policies +may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our current +or future product candidates. +Data +Privacy and the Protection of Personal Information +We +are subject to laws and regulations governing data privacy and the protection of personal information including health information. The +legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing focus on privacy +and data protection issues which will continue to affect our business. In the United States, we may be subject to state security breach +notification laws, state laws protecting the privacy of health and personal information and federal and state consumer protections laws +that regulate the collection, use, disclosure and transmission of personal information. These laws overlap and often conflict and each +of these laws is subject to varying interpretations by courts and government agencies, creating complex compliance issues. If we fail +to comply with applicable laws and regulations we could be subject to penalties or sanctions, including criminal penalties. Our customers +and research partners must comply with laws governing the privacy and security of health information, including HIPAA and state health +information privacy laws. If we knowingly obtain health information that is protected under HIPAA, called “protected health information,” +our customers or research collaborators may be subject to enforcement, and we may have direct liability for the unlawful receipt of protected +health information or for aiding and abetting a HIPAA violation. +State +laws protecting health and personal information are becoming increasingly stringent. For example, California has implemented the California +Confidentiality of Medical Information Act that imposes restrictive requirements regulating the use and disclosure of health information +and other personally identifiable information, and California has recently adopted the California Consumer Privacy Act of 2018 (“CCPA”). +The CCPA mirrors a number of the key provisions of the EU General Data Protection Regulation (“GDPR”) described below. The +CCPA establishes a new privacy framework for covered businesses by creating an expanded definition of personal information, establishing +new data privacy rights for consumers in the State of California, imposing special rules on the collection of consumer data from minors, +and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement +reasonable security procedures and practices to prevent data breaches. Since passage of the CCPA, several other states (Connecticut, +Colorado, Virginia, and Utah) have also enacted comprehensive consumer privacy laws that include key differences from California’s +law, further complicating compliance by industry and other stakeholders. Other states in the U.S. are considering privacy laws similar +to the CCPA. +27 +In +Europe, the GDPR went into effect in May 2018, implementing a broad data protection framework that expanded the scope of European Union +data protection law, including to non- European Union entities that process, or control the processing of, personal data relating to +individuals located in the European Union, including clinical trial data. The GDPR sets out a number of requirements that must be complied +with when handling the personal data of European Union-based data subjects including: providing expanded disclosures about how their +personal data will be used; higher standards for organizations to demonstrate that they have obtained valid consent or have another legal +basis in place to justify their data processing activities; the obligation to appoint data protection officers in certain circumstances; +new rights for individuals to be “forgotten” and rights to data portability, as well as enhanced current rights (e.g. access +requests); the principal of accountability and demonstrating compliance through policies, procedures, training and audit; and a new mandatory +data breach regime. In particular, medical or health data, genetic data and biometric data where the latter is used to uniquely identify +an individual are all classified as “special category” data under the GDPR and afforded greater protection and require additional +compliance obligations. Further, European Union member states have a broad right to impose additional conditions – including restrictions +– on these data categories. This is because the GDPR allows European Union member states to derogate from the requirements of the +GDPR mainly in regard to specific processing situations (including special category data and processing for scientific or statistical +purposes). As the European Union states continue to reframe their national legislation to harmonize with the GDPR, we will need to monitor +compliance with all relevant European Union member states’ laws and regulations, including where permitted derogations from the +GDPR are introduced. We will also be subject to evolving European Union laws on data export, if we transfer data outside the European +Union to ourselves or third parties outside of the European Union. +The EU GDPR is an EU Regulation +and it no longer applies to the UK. If you operate inside the UK, you need to comply with the Data Protection Act 2018 (DPA 2018). The +provisions of the EU GDPR have been incorporated directly into UK law as the UK GDPR. On 28 June 2021, the EU approved adequacy decisions +for the EU GDPR and the Law Enforcement Directive (LED). This means data can continue to flow freely from the EU to the UK, in the majority +of cases. +The +Cayman Islands Government enacted the Data Protection Act on May 18, 2017 (as amended, the “DPA”). The DPA regulates the +processing of personal data in the Cayman Islands. Under the DPA, the Company is a “data controller” and the Company’s +affiliates and/or its delegates may be “data processors” (or, in some circumstances, data controllers in their own right), +in respect of such personal data. +U.S. +Foreign Corrupt Practices Act and Anti-bribery Regulations +In +general, the Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, prohibits offering to pay, paying, promising to pay, or +authorizing the payment of money or anything of value to a foreign official in order to influence any act or decision of the foreign +official in his or her official capacity or to secure any other improper advantage in order to obtain or retain business for or with, +or in order to direct business to, any person. The prohibitions apply not only to payments made to “any foreign official,” +but also to those made to “any foreign political party or official thereof,” to “any candidate for foreign political +office” or to any person, while knowing that all or a portion of the payment will be offered, given, or promised to anyone in any +of the foregoing categories. “Foreign officials” under the FCPA include officers or employees of a department, agency, or +instrumentality of a foreign government. The term “instrumentality” is broad and can include state-owned or state-controlled +entities. Importantly, United States authorities deem most healthcare professionals and other employees of foreign hospitals, clinics, +research facilities and medical schools in countries with public healthcare and/or public education systems to be “foreign officials” +under the FCPA. When we interact with foreign healthcare professionals and researchers in testing and marketing our products abroad, +should any of our product candidates receive foreign regulatory approval in the future, we must have policies and procedures in place +sufficient to prevent us and agents acting on our behalf from providing any bribe, gift or gratuity, including excessive or lavish meals, +travel or entertainment in connection with marketing our products and services or securing required permits and approvals. The FCPA also +obligates companies whose securities are listed in the United States to comply with accounting provisions requiring us to maintain books +and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise +and maintain an adequate system of internal accounting controls for international operations. +28 +We +are also subject to U.K. Bribery Act of 2010, which prohibits both domestic and international bribery, as well as bribery across both +private and public sectors. In addition, an organization that “fails to prevent bribery” committed by anyone associated with +the organization can be charged under the U.K. Bribery Act unless the organization can establish the defense of having implemented “adequate +procedures” to prevent bribery. As we expand our operations, we are likely to be subject to additional laws and restrictions relating +to anti-bribery. +Environmental, +Health, and Safety Regulation +We +are subject to numerous federal, state, and local environmental, health, and safety (“EHS”) laws and regulations relating +to, among other matters, safe working conditions, product stewardship, environmental protection, and handling or disposition of products, +including those governing the generation, storage, handling, use, transportation, release, and disposal of hazardous or potentially hazardous +materials, medical waste, and infectious materials that may be handled by our partner research laboratories. Some of these laws and regulations +also require us to obtain licenses or permits to conduct our operations. If we fail to comply with such laws or obtain and comply with +the applicable permits, we could face substantial fines or possible revocation of our permits or limitations on our ability to conduct +our operations. Certain of our development and manufacturing activities may involve, from time to time, use of hazardous materials, and +we believe we are in compliance with the applicable environmental laws, regulations, permits, and licenses. However, we cannot ensure +that EHS liabilities will not develop in the future. EHS laws and regulations are complex, change frequently and have tended to become +more stringent over time. Although the costs to comply with applicable laws and regulations, have not been material, we cannot predict +the impact on our business of new or amended laws or regulations or any changes in the way existing and future laws and regulations are +interpreted or enforced, nor can we ensure we will be able to obtain or maintain any required licenses or permits. +Employees +As +of December 31, 2024, we had a total of six full-time employees. +We +currently rely on several consultants who provide services to our Company. None of our employees are represented by a labor union or +covered by collective bargaining agreements. We consider our relationship with our employees to be good. We anticipate that the number +of employees will increase as we continue to develop the assets in our pipeline and other clinical assets that we seek to develop. Additionally, +we utilize and expect to continue to utilize clinical research organizations and third parties to perform our pre-clinical studies, clinical +studies, and manufacturing. +Corporate +Information +We +were incorporated under the name “Murphy Canyon Acquisition Corp.” in October 2021 under the laws of the State of Delaware +for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business +combination with one or more businesses. We changed our name to “Conduit Pharmaceuticals Inc.” in connection with the completion +of the Business Combination in September 2023. +Our +principal executive offices are located at 4581 Tamiami Trail North, Suite 200 Naples, Florida. Our telephone number is +1 (646)-491-9132, +and our website can be found at https://www.conduitpharma.com. \ No newline at end of file diff --git a/raw/filings/0001896212/2024/0001641172-25-001246/item13.txt b/raw/filings/0001896212/2024/0001641172-25-001246/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..db8d40ad6d99dd1c3b34bee67761e9c24eec7706 --- /dev/null +++ b/raw/filings/0001896212/2024/0001641172-25-001246/item13.txt @@ -0,0 +1,4 @@ +Item +13. +Certain Relationships and Related Transactions, and Director Independence +84 \ No newline at end of file diff --git a/raw/filings/0001896212/2025/0001493152-26-016858/filing.txt b/raw/filings/0001896212/2025/0001493152-26-016858/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..393f2bb9dc3fbbb082608f10cca166481574b6c8 --- /dev/null +++ b/raw/filings/0001896212/2025/0001493152-26-016858/filing.txt @@ -0,0 +1,10294 @@ +false +FY +0001896212 +0001896212 +2025-01-01 +2025-12-31 +0001896212 +CDT:CommonStockParValue0.0001PerShareMember +2025-01-01 +2025-12-31 +0001896212 +CDT:RedeemableWarrantsEachWholeWarrantExercisableForOneShareOfCommonStockAtExercisePriceOf1150Member +2025-01-01 +2025-12-31 +0001896212 +2026-04-15 +0001896212 +2025-06-30 +0001896212 +2024-01-01 +2024-12-31 +0001896212 +2025-10-01 +2025-12-31 +0001896212 +2025-12-31 +0001896212 +2024-12-31 +0001896212 +us-gaap:NonrelatedPartyMember +2025-12-31 +0001896212 +us-gaap:NonrelatedPartyMember +2024-12-31 +0001896212 +us-gaap:RelatedPartyMember +2025-12-31 +0001896212 +us-gaap:RelatedPartyMember +2024-12-31 +0001896212 +us-gaap:CommonStockMember +2023-12-31 +0001896212 +us-gaap:TreasuryStockCommonMember +2023-12-31 +0001896212 +us-gaap:AdditionalPaidInCapitalMember +2023-12-31 +0001896212 +us-gaap:RetainedEarningsMember +2023-12-31 +0001896212 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2023-12-31 +0001896212 +2023-12-31 +0001896212 +us-gaap:CommonStockMember +2024-12-31 +0001896212 +us-gaap:TreasuryStockCommonMember +2024-12-31 +0001896212 +us-gaap:AdditionalPaidInCapitalMember +2024-12-31 +0001896212 +us-gaap:RetainedEarningsMember +2024-12-31 +0001896212 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2024-12-31 +0001896212 +us-gaap:CommonStockMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:TreasuryStockCommonMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:AdditionalPaidInCapitalMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:RetainedEarningsMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:CommonStockMember +2025-01-01 +2025-12-31 +0001896212 +us-gaap:TreasuryStockCommonMember +2025-01-01 +2025-12-31 +0001896212 +us-gaap:AdditionalPaidInCapitalMember +2025-01-01 +2025-12-31 +0001896212 +us-gaap:RetainedEarningsMember +2025-01-01 +2025-12-31 +0001896212 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2025-01-01 +2025-12-31 +0001896212 +us-gaap:CommonStockMember +us-gaap:RelatedPartyMember +2025-01-01 +2025-12-31 +0001896212 +us-gaap:TreasuryStockCommonMember +us-gaap:RelatedPartyMember +2025-01-01 +2025-12-31 +0001896212 +us-gaap:AdditionalPaidInCapitalMember +us-gaap:RelatedPartyMember +2025-01-01 +2025-12-31 +0001896212 +us-gaap:RetainedEarningsMember +us-gaap:RelatedPartyMember +2025-01-01 +2025-12-31 +0001896212 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +us-gaap:RelatedPartyMember +2025-01-01 +2025-12-31 +0001896212 +us-gaap:RelatedPartyMember +2025-01-01 +2025-12-31 +0001896212 +us-gaap:CommonStockMember +2025-12-31 +0001896212 +us-gaap:TreasuryStockCommonMember +2025-12-31 +0001896212 +us-gaap:AdditionalPaidInCapitalMember +2025-12-31 +0001896212 +us-gaap:RetainedEarningsMember +2025-12-31 +0001896212 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2025-12-31 +0001896212 +2025-01-24 +2025-01-24 +0001896212 +2025-05-19 +2025-05-19 +0001896212 +2025-10-10 +2025-10-10 +0001896212 +2026-03-26 +2026-03-26 +0001896212 +CDT:ResearchAndDevelopmentExpensesMember +2024-12-31 +0001896212 +CDT:SaleAndPurchaseAgreementMember +us-gaap:CommonStockMember +2025-12-08 +2025-12-08 +0001896212 +CDT:SaleAndPurchaseAgreementMember +CDT:PrefundedWarrantsMember +2025-12-08 +0001896212 +CDT:SaleAndPurchaseAgreementMember +CDT:PrefundedWarrantsMember +us-gaap:SubsequentEventMember +2026-03-24 +2026-03-24 +0001896212 +CDT:SaleAndPurchaseAgreementMember +2025-12-16 +2025-12-16 +0001896212 +CDT:SaleAndPurchaseAgreementMember +2025-12-31 +0001896212 +2025-12-08 +2025-12-08 +0001896212 +CDT:SaleAndPurchaseAgreementMember +us-gaap:CommonStockMember +2025-12-05 +0001896212 +CDT:SaleAndPurchaseAgreementMember +us-gaap:CommonStockMember +2025-12-05 +2025-12-05 +0001896212 +CDT:SaleAndPurchaseAgreementMember +CDT:PrefundedWarrantsMember +2025-12-05 +2025-12-05 +0001896212 +CDT:AugustTwoThousandTwentyFourNoteMember +2025-01-01 +2025-12-31 +0001896212 +CDT:AGPConvertibleNoteMember +2025-01-01 +2025-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +2025-01-01 +2025-12-31 +0001896212 +us-gaap:FairValueInputsLevel1Member +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:CashAndCashEquivalentsMember +2025-12-31 +0001896212 +us-gaap:FairValueInputsLevel2Member +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:CashAndCashEquivalentsMember +2025-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:CashAndCashEquivalentsMember +2025-12-31 +0001896212 +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:CashAndCashEquivalentsMember +2025-12-31 +0001896212 +us-gaap:FairValueInputsLevel1Member +us-gaap:FairValueMeasurementsRecurringMember +2025-12-31 +0001896212 +us-gaap:FairValueInputsLevel2Member +us-gaap:FairValueMeasurementsRecurringMember +2025-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:FairValueMeasurementsRecurringMember +2025-12-31 +0001896212 +us-gaap:FairValueMeasurementsRecurringMember +2025-12-31 +0001896212 +us-gaap:FairValueInputsLevel1Member +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:ConvertibleNotesPayableMember +2025-12-31 +0001896212 +us-gaap:FairValueInputsLevel2Member +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:ConvertibleNotesPayableMember +2025-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:ConvertibleNotesPayableMember +2025-12-31 +0001896212 +us-gaap:ConvertibleNotesPayableMember +us-gaap:FairValueMeasurementsRecurringMember +2025-12-31 +0001896212 +us-gaap:FairValueInputsLevel1Member +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:CashAndCashEquivalentsMember +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel2Member +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:CashAndCashEquivalentsMember +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:CashAndCashEquivalentsMember +2024-12-31 +0001896212 +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:CashAndCashEquivalentsMember +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel1Member +us-gaap:FairValueMeasurementsRecurringMember +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel2Member +us-gaap:FairValueMeasurementsRecurringMember +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:FairValueMeasurementsRecurringMember +2024-12-31 +0001896212 +us-gaap:FairValueMeasurementsRecurringMember +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel1Member +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:ConvertibleNotesPayableMember +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel2Member +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:ConvertibleNotesPayableMember +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:ConvertibleNotesPayableMember +2024-12-31 +0001896212 +us-gaap:ConvertibleNotesPayableMember +us-gaap:FairValueMeasurementsRecurringMember +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel1Member +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:WarrantMember +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel2Member +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:WarrantMember +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:WarrantMember +2024-12-31 +0001896212 +us-gaap:FairValueMeasurementsRecurringMember +us-gaap:WarrantMember +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:ConvertibleNotesPayableMember +2023-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:WarrantMember +2023-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:ConvertibleNotesPayableMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:WarrantMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:ConvertibleNotesPayableMember +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:WarrantMember +2024-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:ConvertibleNotesPayableMember +2025-01-01 +2025-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:WarrantMember +2025-01-01 +2025-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:ConvertibleNotesPayableMember +2025-12-31 +0001896212 +us-gaap:FairValueInputsLevel3Member +us-gaap:WarrantMember +2025-12-31 +0001896212 +2024-11-30 +0001896212 +us-gaap:MeasurementInputSharePriceMember +CDT:AugustTwoThousandTwentyFourNoteMember +2024-10-31 +0001896212 +us-gaap:MeasurementInputSharePriceMember +CDT:AugustTwoThousandTwentyFourNoteMember +2024-11-22 +0001896212 +us-gaap:MeasurementInputSharePriceMember +CDT:AugustTwoThousandTwentyFourNoteMember +2024-12-31 +0001896212 +us-gaap:MeasurementInputExpectedTermMember +CDT:AugustTwoThousandTwentyFourNoteMember +2024-10-31 +2024-10-31 +0001896212 +us-gaap:MeasurementInputExpectedTermMember +CDT:AugustTwoThousandTwentyFourNoteMember +2024-11-22 +2024-11-22 +0001896212 +us-gaap:MeasurementInputExpectedTermMember +CDT:AugustTwoThousandTwentyFourNoteMember +2024-01-01 +2024-12-31 +0001896212 +CDT:CorporateBondYieldEstimatedTimingOfConversionMember +CDT:AugustTwoThousandTwentyFourNoteMember +2024-10-31 +0001896212 +CDT:CorporateBondYieldEstimatedTimingOfConversionMember +CDT:AugustTwoThousandTwentyFourNoteMember +2024-11-22 +0001896212 +CDT:CorporateBondYieldEstimatedTimingOfConversionMember +CDT:AugustTwoThousandTwentyFourNoteMember +2024-12-31 +0001896212 +us-gaap:MeasurementInputCreditSpreadMember +CDT:AGPConvertibleNoteMember +2024-10-31 +0001896212 +us-gaap:MeasurementInputCreditSpreadMember +CDT:AugustTwoThousandTwentyFourNoteMember +2024-11-22 +0001896212 +us-gaap:MeasurementInputCreditSpreadMember +CDT:AugustTwoThousandTwentyFourNoteMember +2024-12-31 +0001896212 +CDT:MeasurementInputProbabilityOfDefaultMember +CDT:AGPConvertibleNoteMember +2024-10-31 +0001896212 +CDT:MeasurementInputProbabilityOfDefaultMember +CDT:AugustTwoThousandTwentyFourNoteMember +2024-11-22 +0001896212 +CDT:MeasurementInputProbabilityOfDefaultMember +CDT:AugustTwoThousandTwentyFourNoteMember +2024-12-31 +0001896212 +CDT:MeasurementInputRecoveryUponDefaultMember +CDT:AugustTwoThousandTwentyFourNoteMember +2024-10-31 +0001896212 +CDT:MeasurementInputRecoveryUponDefaultMember +CDT:AugustTwoThousandTwentyFourNoteMember +2024-11-22 +0001896212 +CDT:MeasurementInputRecoveryUponDefaultMember +CDT:AugustTwoThousandTwentyFourNoteMember +2024-12-31 +0001896212 +us-gaap:MeasurementInputPriceVolatilityMember +CDT:AGPConvertibleNoteMember +2024-10-31 +0001896212 +us-gaap:MeasurementInputPriceVolatilityMember +CDT:AugustTwoThousandTwentyFourNoteMember +2024-11-22 +0001896212 +us-gaap:MeasurementInputPriceVolatilityMember +CDT:AugustTwoThousandTwentyFourNoteMember +2024-12-31 +0001896212 +us-gaap:MeasurementInputSharePriceMember +CDT:AGPConvertibleNoteMember +2024-11-25 +0001896212 +us-gaap:MeasurementInputSharePriceMember +CDT:AGPConvertibleNoteMember +2024-12-31 +0001896212 +us-gaap:MeasurementInputSharePriceMember +CDT:AGPConvertibleNoteMember +2025-12-31 +0001896212 +us-gaap:MeasurementInputExpectedTermMember +CDT:AGPConvertibleNoteMember +2024-11-25 +2024-11-25 +0001896212 +us-gaap:MeasurementInputExpectedTermMember +CDT:AGPConvertibleNoteMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:MeasurementInputExpectedTermMember +CDT:AGPConvertibleNoteMember +2025-01-01 +2025-12-31 +0001896212 +CDT:CorporateBondYieldEstimatedTimingOfConversionMember +CDT:AGPConvertibleNoteMember +2024-11-25 +0001896212 +CDT:CorporateBondYieldEstimatedTimingOfConversionMember +CDT:AGPConvertibleNoteMember +2024-12-31 +0001896212 +CDT:CorporateBondYieldEstimatedTimingOfConversionMember +CDT:AGPConvertibleNoteMember +2025-12-31 +0001896212 +us-gaap:MeasurementInputCreditSpreadMember +CDT:AGPConvertibleNoteMember +2024-11-25 +0001896212 +us-gaap:MeasurementInputCreditSpreadMember +CDT:AGPConvertibleNoteMember +2024-12-31 +0001896212 +us-gaap:MeasurementInputCreditSpreadMember +CDT:AGPConvertibleNoteMember +2025-12-31 +0001896212 +CDT:MeasurementInputProbabilityOfDefaultMember +CDT:AGPConvertibleNoteMember +2024-11-25 +0001896212 +CDT:MeasurementInputProbabilityOfDefaultMember +CDT:AGPConvertibleNoteMember +2024-12-31 +0001896212 +CDT:MeasurementInputProbabilityOfDefaultMember +CDT:AGPConvertibleNoteMember +2025-12-31 +0001896212 +CDT:MeasurementInputRecoveryUponDefaultMember +CDT:AGPConvertibleNoteMember +2024-11-25 +0001896212 +CDT:MeasurementInputRecoveryUponDefaultMember +CDT:AGPConvertibleNoteMember +2024-12-31 +0001896212 +CDT:MeasurementInputRecoveryUponDefaultMember +CDT:AGPConvertibleNoteMember +2025-12-31 +0001896212 +us-gaap:MeasurementInputPriceVolatilityMember +CDT:AGPConvertibleNoteMember +2024-11-25 +0001896212 +us-gaap:MeasurementInputPriceVolatilityMember +CDT:AGPConvertibleNoteMember +2024-12-31 +0001896212 +us-gaap:MeasurementInputPriceVolatilityMember +CDT:AGPConvertibleNoteMember +2025-12-31 +0001896212 +us-gaap:MeasurementInputSharePriceMember +us-gaap:FairValueInputsLevel3Member +2025-12-31 +0001896212 +us-gaap:MeasurementInputSharePriceMember +us-gaap:FairValueInputsLevel3Member +2024-12-31 +0001896212 +us-gaap:MeasurementInputSharePriceMember +us-gaap:FairValueInputsLevel3Member +2024-10-29 +0001896212 +us-gaap:MeasurementInputExercisePriceMember +us-gaap:FairValueInputsLevel3Member +2025-12-31 +0001896212 +us-gaap:MeasurementInputExercisePriceMember +us-gaap:FairValueInputsLevel3Member +2024-12-31 +0001896212 +us-gaap:MeasurementInputExercisePriceMember +us-gaap:FairValueInputsLevel3Member +2024-10-29 +0001896212 +us-gaap:MeasurementInputRiskFreeInterestRateMember +us-gaap:FairValueInputsLevel3Member +2025-12-31 +0001896212 +us-gaap:MeasurementInputRiskFreeInterestRateMember +us-gaap:FairValueInputsLevel3Member +2024-12-31 +0001896212 +us-gaap:MeasurementInputRiskFreeInterestRateMember +us-gaap:FairValueInputsLevel3Member +2024-10-29 +0001896212 +us-gaap:MeasurementInputPriceVolatilityMember +us-gaap:FairValueInputsLevel3Member +2025-12-31 +0001896212 +us-gaap:MeasurementInputPriceVolatilityMember +us-gaap:FairValueInputsLevel3Member +2024-12-31 +0001896212 +us-gaap:MeasurementInputPriceVolatilityMember +us-gaap:FairValueInputsLevel3Member +2024-10-29 +0001896212 +us-gaap:MeasurementInputExpectedTermMember +us-gaap:FairValueInputsLevel3Member +2025-01-01 +2025-12-31 +0001896212 +us-gaap:MeasurementInputExpectedTermMember +us-gaap:FairValueInputsLevel3Member +2024-01-01 +2024-12-31 +0001896212 +us-gaap:MeasurementInputExpectedTermMember +us-gaap:FairValueInputsLevel3Member +2024-10-29 +2024-10-29 +0001896212 +2024-03-07 +0001896212 +CDT:ConvertiblePromissoryNotesPayableMember +2023-03-31 +0001896212 +CDT:ConvertiblePromissoryNotesPayableMember +2023-03-01 +2023-03-31 +0001896212 +us-gaap:CommonStockMember +2024-10-09 +2024-10-09 +0001896212 +CDT:ConvertiblePromissoryNoteMember +us-gaap:CommonStockMember +2024-10-11 +2024-10-11 +0001896212 +CDT:TwentyTwentyThreeConvertibleNoteMember +2025-03-06 +2025-03-06 +0001896212 +CDT:TwentyTwentyThreeConvertibleNoteMember +2025-03-13 +2025-03-13 +0001896212 +CDT:ConvertiblePromissoryNotePayableMember +2025-01-01 +2025-12-31 +0001896212 +CDT:ConvertiblePromissoryNotePayableMember +us-gaap:CommonStockMember +2025-03-06 +0001896212 +CDT:ConvertiblePromissoryNoteMember +us-gaap:CommonStockMember +CDT:ConsultingAgreementMember +2025-03-06 +2025-03-06 +0001896212 +CDT:ConvertiblePromissoryNoteMember +us-gaap:CommonStockMember +CDT:ConsultingAgreementMember +2025-03-31 +2025-03-31 +0001896212 +CDT:ConvertiblePromissoryNoteMember +us-gaap:CommonStockMember +CDT:ConsultingAgreementMember +2025-03-28 +2025-03-28 +0001896212 +CDT:ConvertiblePromissoryNoteMember +us-gaap:CommonStockMember +CDT:ConsultingAgreementMember +2025-03-28 +0001896212 +CDT:ConvertiblePromissoryNoteMember +2024-01-01 +2024-12-31 +0001896212 +CDT:SeniorSecuredPromissoryNoteMember +CDT:NirlandLimitedMember +2024-08-06 +0001896212 +CDT:SeniorSecuredPromissoryNoteMember +CDT:NirlandLimitedMember +2024-08-06 +2024-08-06 +0001896212 +CDT:SeniorSecuredPromissoryNoteMember +2024-08-06 +0001896212 +CDT:NirlandLimitedMember +CDT:FirstAmendmentMember +2024-10-31 +0001896212 +CDT:NirlandLimitedMember +CDT:FirstAmendmentMember +2024-10-31 +2024-10-31 +0001896212 +CDT:ConvertiblePromissoryNotesPayableMember +CDT:NirlandLimitedMember +2024-01-01 +2024-12-31 +0001896212 +CDT:ConvertiblePromissoryNotesPayableMember +CDT:NirlandLimitedMember +CDT:FirstAmendmentMember +2024-01-01 +2024-12-31 +0001896212 +CDT:ConvertiblePromissoryNotesPayableMember +CDT:NirlandLimitedMember +CDT:SecondAmendmentMember +2024-01-01 +2024-12-31 +0001896212 +CDT:ConvertiblePromissoryNotesPayableMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:CommonStockMember +2024-12-09 +2024-12-09 +0001896212 +CDT:ConvertiblePromissoryNotesMember +2024-12-31 +0001896212 +us-gaap:CommonStockMember +2025-01-01 +2025-01-31 +0001896212 +us-gaap:CommonStockMember +2025-02-01 +2025-02-28 +0001896212 +CDT:ConvertiblePromissoryNotesPayableMember +2025-02-12 +2025-02-12 +0001896212 +CDT:AllianceGlobalPartnersMember +2023-09-22 +2023-09-22 +0001896212 +CDT:AllianceGlobalPartnersMember +us-gaap:CommonStockMember +2023-09-22 +2023-09-22 +0001896212 +CDT:AllianceGlobalPartnersMember +2023-09-22 +0001896212 +CDT:AllianceGlobalPartnersMember +2025-03-21 +2025-03-21 +0001896212 +CDT:AllianceGlobalPartnersMember +2025-03-21 +0001896212 +CDT:AllianceGlobalPartnersMember +2024-12-31 +0001896212 +CDT:AllianceGlobalPartnersMember +2025-01-01 +2025-12-31 +0001896212 +CDT:AllianceGobalPartnersConvertibleNoteMember +2024-11-25 +0001896212 +CDT:AllianceGobalPartnersConvertibleNoteMember +2025-01-25 +2025-01-25 +0001896212 +CDT:AllianceGobalPartnersConvertibleNoteMember +2024-11-25 +2024-11-25 +0001896212 +CDT:AllianceGobalPartnersConvertibleNoteMember +2024-01-01 +2024-12-31 +0001896212 +CDT:AllianceGobalPartnersConvertibleNoteMember +2025-09-29 +0001896212 +CDT:AllianceGobalPartnersConvertibleNoteMember +2025-12-31 +0001896212 +CDT:ConvertibleNoteBinomialLatticeModelMember +2025-12-31 +0001896212 +CDT:AllianceGobalPartnersConvertibleNoteMember +2025-01-01 +2025-12-31 +0001896212 +2022-05-01 +0001896212 +2024-10-09 +2024-10-09 +0001896212 +us-gaap:CommonStockMember +2024-10-09 +0001896212 +2024-10-11 +2024-10-11 +0001896212 +CDT:LoansAmendmentMember +2025-02-01 +2025-02-28 +0001896212 +CDT:OctoberTwoThousandTwentyFourNirlandNoteMember +2024-10-31 +0001896212 +CDT:OctoberTwoThousandTwentyFourNirlandNoteMember +srt:MinimumMember +2024-10-31 +0001896212 +CDT:OctoberTwoThousandTwentyFourNirlandNoteMember +2024-10-01 +2024-10-31 +0001896212 +CDT:PIPEWarrantsMember +CDT:OctoberTwoThousandTwentyFourNirlandNoteMember +2024-12-31 +0001896212 +CDT:OctoberTwoThousandTwentyFourNirlandNoteMember +2024-12-01 +2024-12-31 +0001896212 +CDT:OctoberTwoThousandTwentyFourNirlandNoteMember +2025-01-14 +2025-01-14 +0001896212 +CDT:OctoberTwoThousandTwentyFourNirlandNoteMember +2025-01-31 +2025-01-31 +0001896212 +CDT:OctoberTwoThousandTwentyFourNirlandNoteMember +2025-02-07 +2025-02-07 +0001896212 +CDT:OctoberTwoThousandTwentyFourNirlandNoteMember +2025-12-31 +0001896212 +CDT:OctoberTwoThousandTwentyFourNirlandNoteMember +2025-01-01 +2025-12-31 +0001896212 +CDT:BridgeLoanAgreementMember +2024-10-29 +2024-10-29 +0001896212 +CDT:BridgeLoanAgreementMember +2024-10-29 +0001896212 +CDT:BridgeLoanAgreementMember +2024-08-06 +0001896212 +CDT:BridgeLoanAgreementMember +2024-01-01 +2024-12-31 +0001896212 +CDT:AstraZenecaMember +2025-01-01 +2025-12-31 +0001896212 +CDT:AstraZenecaMember +2024-01-01 +2024-12-31 +0001896212 +CDT:SARBORGServiceAgreementMember +2025-01-01 +2025-12-31 +0001896212 +us-gaap:CommonStockMember +CDT:SARBORGServiceAgreementMember +2025-01-01 +2025-12-31 +0001896212 +CDT:SARBORGServiceAgreementMember +2025-01-17 +2025-01-17 +0001896212 +us-gaap:CommonStockMember +CDT:SARBORGServiceAgreementMember +2025-01-17 +2025-01-17 +0001896212 +CDT:SARBORGServiceAgreementMember +2024-01-01 +2024-12-31 +0001896212 +CDT:SARBORGServiceAgreementMember +2025-12-31 +0001896212 +CDT:SARBORGServiceAgreementMember +2024-12-31 +0001896212 +CDT:ServiceAgreementMember +2025-12-31 +0001896212 +CDT:ServiceAgreementMember +2025-01-01 +2025-12-31 +0001896212 +CDT:ResearchAndDevelopmentExpensesMember +CDT:SARBORGServiceAgreementMember +2024-01-01 +2024-12-31 +0001896212 +CDT:SARBORGAdditionalAgreementMember +2025-03-31 +2025-03-31 +0001896212 +CDT:SARBORGAdditionalAgreementMember +2025-03-31 +0001896212 +us-gaap:CommonStockMember +CDT:SARBORGAdditionalAgreementMember +2025-03-31 +2025-03-31 +0001896212 +CDT:SARBORGAdditionalAgreementMember +2025-03-30 +0001896212 +CDT:SARBORGAdditionalAgreementMember +2025-01-01 +2025-12-31 +0001896212 +CDT:SARBORGAdditionalServiceAgreementMember +2025-12-31 +0001896212 +CDT:SarborgLimitedMember +2025-07-01 +2025-07-31 +0001896212 +CDT:SarborgLimitedMember +2025-01-01 +2025-12-31 +0001896212 +CDT:SarborgLimitedMember +2025-07-01 +2025-09-30 +0001896212 +CDT:SarborgLimitedMember +2025-08-11 +2025-08-11 +0001896212 +CDT:SarborgLimitedMember +2025-08-11 +0001896212 +us-gaap:CommonStockMember +CDT:ManoiraJointDevelopmentAgreementMember +2025-06-03 +2025-06-03 +0001896212 +us-gaap:CommonStockMember +CDT:ManoiraJointDevelopmentAgreementMember +2025-06-03 +0001896212 +CDT:ManoiraJointDevelopmentAgreementMember +2025-06-03 +2025-06-03 +0001896212 +CDT:ManoiraJointDevelopmentAgreementMember +2025-01-01 +2025-12-31 +0001896212 +CDT:TwentyTwentyThreeStockIncentivePlanMember +2023-09-22 +0001896212 +CDT:TwentyTwentyThreeStockIncentivePlanMember +2025-02-06 +0001896212 +CDT:TwentyTwentyThreeStockIncentivePlanMember +2024-01-10 +0001896212 +CDT:TwentyTwentyThreeStockIncentivePlanMember +2023-09-21 +2023-09-22 +0001896212 +CDT:TwentyTwentyThreeStockIncentivePlanMember +2025-08-05 +2025-08-05 +0001896212 +CDT:TwentyTwentyThreeStockIncentivePlanMember +2025-12-31 +0001896212 +CDT:TwentyTwentyThreeStockIncentivePlanMember +2026-01-01 +0001896212 +srt:DirectorMember +2025-01-01 +2025-12-31 +0001896212 +srt:DirectorMember +2025-06-27 +2025-06-27 +0001896212 +srt:DirectorMember +2025-04-16 +2025-04-16 +0001896212 +srt:DirectorMember +2025-08-05 +2025-08-05 +0001896212 +CDT:CryptoConsultingAgreementMember +2025-06-27 +2025-06-27 +0001896212 +CDT:CryptoConsultingAgreementMember +2025-06-27 +0001896212 +CDT:CryptoConsultingAgreementMember +2025-01-01 +2025-12-31 +0001896212 +srt:ChiefExecutiveOfficerMember +2025-09-19 +2025-09-19 +0001896212 +srt:ChiefFinancialOfficerMember +2025-09-19 +2025-09-19 +0001896212 +srt:ManagementMember +2025-01-01 +2025-12-31 +0001896212 +us-gaap:RestrictedStockUnitsRSUMember +srt:ChiefFinancialOfficerMember +2023-12-01 +2023-12-01 +0001896212 +us-gaap:RestrictedStockUnitsRSUMember +srt:ChiefFinancialOfficerMember +2024-06-07 +2024-06-07 +0001896212 +us-gaap:RestrictedStockUnitsRSUMember +CDT:ThreeBoardMembersMember +2025-08-12 +2025-08-12 +0001896212 +us-gaap:RestrictedStockUnitsRSUMember +CDT:ThreeBoardMemberMember +2025-08-12 +2025-08-12 +0001896212 +2025-08-12 +0001896212 +srt:MinimumMember +2024-01-01 +2024-12-31 +0001896212 +srt:MinimumMember +2025-01-01 +2025-12-31 +0001896212 +CDT:TwoThousandTwentyThreePlanMember +2024-12-31 +0001896212 +CDT:TwoThousandTwentyThreePlanMember +2024-01-01 +2024-12-31 +0001896212 +CDT:TwoThousandTwentyThreePlanMember +2025-01-01 +2025-12-31 +0001896212 +CDT:TwoThousandTwentyThreePlanMember +2025-12-31 +0001896212 +us-gaap:DomesticCountryMember +2025-01-01 +2025-12-31 +0001896212 +us-gaap:DomesticCountryMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:ForeignCountryMember +2025-01-01 +2025-12-31 +0001896212 +us-gaap:ForeignCountryMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:DomesticCountryMember +2025-12-31 +0001896212 +us-gaap:DomesticCountryMember +2024-12-31 +0001896212 +us-gaap:StateAndLocalJurisdictionMember +2025-12-31 +0001896212 +CDT:ExpiryTwentyTwentyFourMember +2025-12-31 +0001896212 +CDT:IndefinitePeriodMember +2025-12-31 +0001896212 +us-gaap:StateAndLocalJurisdictionMember +2024-12-31 +0001896212 +us-gaap:ForeignCountryMember +2025-12-31 +0001896212 +us-gaap:ForeignCountryMember +2024-12-31 +0001896212 +country:GB +2025-01-01 +2025-12-31 +0001896212 +country:GB +2024-01-01 +2024-12-31 +0001896212 +2024-10-23 +2024-10-23 +0001896212 +us-gaap:CommonStockMember +CDT:SalesAgreementMember +2025-01-01 +2025-12-31 +0001896212 +us-gaap:CommonStockMember +CDT:SalesAgreementMember +2024-01-01 +2024-12-31 +0001896212 +CDT:PublicWarrantsMember +2025-01-01 +2025-12-31 +0001896212 +CDT:PublicWarrantsMember +2024-01-01 +2024-12-31 +0001896212 +CDT:AGPWarrantsMember +2025-01-01 +2025-12-31 +0001896212 +CDT:AGPWarrantsMember +2024-01-01 +2024-12-31 +0001896212 +CDT:ConvertiblePromissoryNotesPayableMember +2025-01-01 +2025-12-31 +0001896212 +CDT:ConvertiblePromissoryNotesPayableMember +2024-01-01 +2024-12-31 +0001896212 +us-gaap:StockOptionMember +2025-01-01 +2025-12-31 +0001896212 +us-gaap:StockOptionMember +2024-01-01 +2024-12-31 +0001896212 +CDT:AugustTwentyTwentyFourNirlandNoteMember +2025-01-01 +2025-12-31 +0001896212 +CDT:AugustTwentyTwentyFourNirlandNoteMember +2024-01-01 +2024-12-31 +0001896212 +CDT:AGPConvertibleNoteMember +2025-01-01 +2025-12-31 +0001896212 +CDT:AGPConvertibleNoteMember +2024-01-01 +2024-12-31 +0001896212 +CDT:MarchTwentyTwentyFourWarrantsMember +2025-01-01 +2025-12-31 +0001896212 +CDT:MarchTwentyTwentyFourWarrantsMember +2024-01-01 +2024-12-31 +0001896212 +CDT:AprilTwentyTwentyFourWarrantsMember +2025-01-01 +2025-12-31 +0001896212 +CDT:AprilTwentyTwentyFourWarrantsMember +2024-01-01 +2024-12-31 +0001896212 +CDT:AGPTwentyTwentyFourWarrantsMember +2025-01-01 +2025-12-31 +0001896212 +CDT:AGPTwentyTwentyFourWarrantsMember +2024-01-01 +2024-12-31 +0001896212 +CDT:SaleAndPurchaseAgreementMember +CDT:PrefundedWarrantsMember +2025-12-31 +0001896212 +2023-09-07 +2023-09-07 +0001896212 +us-gaap:CommonStockMember +2023-09-07 +2023-09-07 +0001896212 +CDT:CorvusCapitalLimitedMember +2023-09-22 +0001896212 +CDT:BoardOfDirectorsMember +2025-01-01 +2025-12-31 +0001896212 +CDT:BoardOfDirectorsMember +2024-01-01 +2024-12-31 +0001896212 +srt:ChiefExecutiveOfficerMember +2025-12-31 +0001896212 +CDT:SARBORGLtdMember +CDT:SARBORGServicesAgreementMember +2025-01-01 +2025-12-31 +0001896212 +CDT:JointDevelopmentAgreementMember +2025-06-03 +2025-06-03 +0001896212 +CDT:JointDevelopmentAgreementMember +2025-01-01 +2025-12-31 +0001896212 +CDT:JointDevelopmentAgreementMember +2025-12-31 +0001896212 +CDT:OfficersAndDirectorsMember +us-gaap:PrivatePlacementMember +us-gaap:CommonStockMember +2024-04-22 +2024-04-22 +0001896212 +CDT:OfficersAndDirectorsMember +us-gaap:PrivatePlacementMember +us-gaap:CommonStockMember +2024-04-22 +0001896212 +CDT:OfficersAndDirectorsMember +2025-01-01 +2025-12-31 +0001896212 +us-gaap:IPOMember +CDT:PublicWarrantMember +2023-09-22 +0001896212 +us-gaap:IPOMember +CDT:PrivatePlacementWarrantMember +2023-09-22 +0001896212 +CDT:MarchLockUpAgreementMember +2024-03-20 +0001896212 +CDT:MarchLockUpAgreementMember +2024-01-01 +2024-12-31 +0001896212 +CDT:MarchLockUpAgreementMember +CDT:MarchTwentyTwentyFourWarrantsMember +2024-03-20 +0001896212 +CDT:AprilLockUpAgreementMember +CDT:AprilTwentyTwentyFourWarrantsMember +2024-04-20 +0001896212 +us-gaap:WarrantMember +srt:DirectorMember +2024-04-20 +2024-04-20 +0001896212 +us-gaap:WarrantMember +srt:DirectorMember +2024-04-01 +2024-12-31 +0001896212 +srt:DirectorMember +2024-01-01 +2024-12-31 +0001896212 +CDT:AprilLockUpAgreementMember +CDT:AprilTwentyTwentyFourWarrantsMember +2024-04-30 +0001896212 +CDT:PurchaseAgreementCorvusMember +us-gaap:CommonStockMember +2024-04-30 +0001896212 +CDT:PreFundedWarrantMember +2025-01-01 +2025-12-31 +0001896212 +CDT:PurchaseAgreementCorvusMember +CDT:PreFundedWarrantMember +2025-01-01 +2025-12-31 +0001896212 +CDT:MurphyCanyonAcquisitionCorpMember +CDT:SubscriptionAgreementsMember +2023-10-21 +2023-10-22 +0001896212 +CDT:MurphyCanyonAcquisitionCorpMember +CDT:SubscriptionAgreementsMember +2023-10-22 +0001896212 +CDT:MurphyCanyonAcquisitionCorpMember +2023-10-21 +2023-10-22 +0001896212 +CDT:MurphyCanyonAcquisitionCorpMember +2023-09-22 +0001896212 +CDT:MurphyCanyonAcquisitionCorpMember +2023-10-22 +0001896212 +2023-10-22 +0001896212 +CDT:AGPTwentyTwentyFourWarrantsMember +2024-10-29 +2024-10-29 +0001896212 +CDT:PIPEWarrantsMember +2024-12-11 +0001896212 +CDT:PIPEWarrantsMember +2024-12-11 +2024-12-11 +0001896212 +2024-03-20 +0001896212 +2024-03-20 +2024-03-20 +0001896212 +2024-04-20 +0001896212 +2024-04-20 +2024-04-20 +0001896212 +CDT:ClinicalAssetDevelopmentMember +2025-01-01 +2025-12-31 +0001896212 +CDT:ClinicalAssetDevelopmentMember +2024-01-01 +2024-12-31 +0001896212 +CDT:RelatedPartiesMember +2025-01-01 +2025-12-31 +0001896212 +CDT:RelatedPartiesMember +2024-01-01 +2024-12-31 +0001896212 +CDT:RelatedPartiesDigitalAssetsMember +2025-01-01 +2025-12-31 +0001896212 +CDT:RelatedPartiesDigitalAssetsMember +2024-01-01 +2024-12-31 +0001896212 +CDT:LegalAndProfessionalFeesMember +2025-01-01 +2025-12-31 +0001896212 +CDT:LegalAndProfessionalFeesMember +2024-01-01 +2024-12-31 +0001896212 +CDT:LitigationLiabilityAccrualMember +2025-01-01 +2025-12-31 +0001896212 +CDT:LitigationLiabilityAccrualMember +2024-01-01 +2024-12-31 +0001896212 +CDT:AccountingAndAuditFeesMember +2025-01-01 +2025-12-31 +0001896212 +CDT:AccountingAndAuditFeesMember +2024-01-01 +2024-12-31 +0001896212 +CDT:SalariesPayrollAndStockBasedCompensationMember +2025-01-01 +2025-12-31 +0001896212 +CDT:SalariesPayrollAndStockBasedCompensationMember +2024-01-01 +2024-12-31 +0001896212 +CDT:IssuanceOfCommonStockAndPreFundedWarrantsMember +2025-01-01 +2025-12-31 +0001896212 +CDT:IssuanceOfCommonStockAndPreFundedWarrantsMember +2024-01-01 +2024-12-31 +0001896212 +CDT:OtherMember +2025-01-01 +2025-12-31 +0001896212 +CDT:OtherMember +2024-01-01 +2024-12-31 +0001896212 +CDT:EquityPurchaseAgreementMember +us-gaap:SubsequentEventMember +2026-01-16 +2026-01-16 +0001896212 +CDT:EquityPurchaseAgreementMember +us-gaap:SubsequentEventMember +2026-01-16 +0001896212 +us-gaap:SubsequentEventMember +2026-03-03 +0001896212 +CDT:SecuritiesPurchaseAgreementMember +us-gaap:SubsequentEventMember +CDT:SarborgLimitedMember +2026-02-19 +2026-02-19 +0001896212 +CDT:SecuritiesPurchaseAgreementMember +us-gaap:SubsequentEventMember +CDT:SarborgLimitedMember +2026-02-19 +0001896212 +CDT:SaleAndPurchaseAgreementMember +CDT:PrefundedWarrantsMember +us-gaap:SubsequentEventMember +2026-03-19 +2026-03-19 +0001896212 +CDT:SaleAndPurchaseAgreementMember +CDT:PrefundedWarrantsMember +us-gaap:SubsequentEventMember +2026-03-19 +0001896212 +us-gaap:SubsequentEventMember +CDT:AGPConvertibleNoteMember +2026-04-03 +2026-04-03 +0001896212 +us-gaap:SubsequentEventMember +CDT:ConsultingAgreementMember +2026-02-23 +2026-02-23 +0001896212 +us-gaap:SubsequentEventMember +CDT:ConsultingAgreementMember +2026-02-24 +2026-02-24 +0001896212 +us-gaap:SubsequentEventMember +CDT:ConsultingAgreementMember +2026-02-06 +2026-02-06 +0001896212 +us-gaap:SubsequentEventMember +us-gaap:CommonStockMember +CDT:SarborgLimitedMember +2026-01-02 +2026-01-02 +0001896212 +us-gaap:SubsequentEventMember +us-gaap:CommonStockMember +CDT:SecondAdditionalAgreementMember +2026-01-02 +2026-01-02 +iso4217:USD +xbrli:shares +iso4217:USD +xbrli:shares +xbrli:pure +iso4217:GBP +iso4217:GBP +xbrli:shares +utr:sqft +CDT:Integer +UNITED +STATES +SECURITIES +AND EXCHANGE COMMISSION +WASHINGTON, +DC 20549 +FORM +10-K +☒ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the fiscal year ended December 31 , 2025 +OR +☐ +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the transition period from to +Commission +File No. 001-41245 +CDT +EQUITY INC. +(Exact +name of registrant as specified in its charter) +Delaware +87-3272543 +(State +or other jurisdiction +of +incorporation or organization) +(I.R.S. +Employer +Identification +Number) +4581 +Tamiami Trail North , Suite 200 +Naples , +Florida +34103 +(Address +of principal executive offices) +(Zip +Code) +Registrant’s +telephone number, including area code: +(646) - 491-9132 +Securities +registered pursuant to Section 12(b) of the Act: +Title +of each class +Trading +Symbol +Name +of each exchange on which registered +Common +Stock, par value $0.0001 per share +CDT +The +Nasdaq Stock Market LLC +Redeemable +Warrants, each whole warrant exercisable for one share of Common Stock +CDTTW +The +Nasdaq Stock Market LLC +Securities +registered pursuant to Section 12(g) of the Act: +None +Indicate +by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate +by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ +No ☒ +Indicate +by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange +Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) +has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate +by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule +405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant +was required to submit such files). Yes ☒ No ☐ +Indicate +by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting +company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” +“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large +accelerated filer ☐ +Accelerated +filer ☐ +Non-accelerated +filer ☒ +Smaller +reporting company ☒ +Emerging +growth company ☒ +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying +with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate +by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness +of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered +public accounting firm that prepared or issued its audit report. ☐ +If +securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant +included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate +by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation +received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate +by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ +As +of April 15, 2026, there were 4,858,417 shares +of common stock, $ 0.0001 par +value (the “Common Stock”) of the Registrant issued and outstanding. The aggregate market value of the common stock held +by non-affiliates of the registrant as of June 30, 2025, the last business day of the registrant’s most recently completed +second fiscal quarter, was $ 552.00 based upon the closing +price reported for such date on The Nasdaq Capital Market. +On +January 24, 2025, May 19, 2025, October 10, 2025 and March 26, 2026, the Registrant effected 1-for-100, 1-for-15, 1-for-8 and +1-for-25 reverse stock splits of its authorized shares of common stock, respectively. Each reverse stock split was accompanied by a corresponding decrease +in its issued and outstanding shares of common stock. All references to numbers of shares of common stock and per-share information +in this Annual Report on Form 10-K have been adjusted retroactively, as appropriate, to reflect the reverse stock splits. +TABLE +OF CONTENTS +PART I +Item +1. +Business +1 +Item +1A. +Risk Factors +26 +Item +1B. +Unresolved Staff Comments +51 +Item +IC. +Cybersecurity +51 +Item +2. +Properties +52 +Item +3. +Legal Proceedings +52 +Item +4. +Mine Safety Disclosures +52 +PART II +Item +5. +Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +53 +Item +6. +Reserved +53 +Item +7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +54 +Item +7A. +Quantitative and Qualitative Disclosures About Market Risk +62 +Item +8. +Financial Statements and Supplementary Data +62 +Item +9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +62 +Item +9A. +Controls and Procedures +63 +Item +9B. +Other Information +64 +Item +9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +64 +PART III +Item +10. +Directors, Executive Officers and Corporate Governance +65 +Item +11. +Executive Compensation +70 +Item +12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +73 +Item +13. +Certain Relationships and Related Transactions, and Director Independence +75 +Item +14. +Principal Accountant Fees and Services +80 +PART IV +Item +15. +Exhibits and Financial Statement Schedules +81 +Item +16. +Form 10-K Summary. +85 +Signatures. +86 +i +CAUTIONARY +NOTE REGARDING FORWARD-LOOKING STATEMENTS +This +Annual Report on Form 10-K (this “Annual Report”) and the information incorporated herein by reference contain forward-looking +statements. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only +on the Company’s current beliefs, expectations, and assumptions regarding the future of our business, future plans and strategies, +projections, anticipated events and trends, the economy, and other future conditions. This includes, without limitation, statements regarding +the financial position and the plans and objectives of management for our future operations. Such statements can be identified by the +fact that they do not relate strictly to historical or current facts. When used in this Annual Report, words such as “anticipate,” +“believe,” “continue,” “could,” “estimate,” “expect,” “intend,” +“may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” +“should,” “strive,” “would” and similar expressions may identify forward-looking statements, but +the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this Annual Report and +in any document incorporated by reference in this Annual Report may include, for example, statements about: +● +the +ability to maintain the listing of our securities on The Nasdaq Stock Market +LLC (“Nasdaq”), and the potential liquidity and trading of our securities; +● +the +risk of disruption to our current plans and operations; +● +the +ability to recognize the anticipated benefits of our business and the business combination completed in September 2023 (the “Business +Combination”), which may be affected by, among other things, competition and the ability to grow, manage growth profitably, +and retain key employees; +● +costs +related to our business; +● +changes +in applicable laws or regulations; +● +our +ability to meet future capital requirements to fund our operations, which may involve debt and/or equity financing, and to obtain +such debt and/or equity financing on favorable terms, and our sources and uses of cash; +● +our +ability to execute our plans to develop and commercialize our current clinical assets, as well as any future clinical assets that +we license, and the timing of any such commercialization; +● +our +ability to maintain existing license agreements; +● +our +estimates regarding expenses, future revenue, capital requirements, and needs for additional financing; +● +our +ability to use artificial intelligence and our relationship with Sarborg Limited to enhance our decision-making processes and +maximize the value of our pharmaceutical asset portfolio; +● +the +occurrence of any event, change or other circumstances, including the outcome of any legal proceedings that may be instituted against +us; and +● +other +factors disclosed under the section entitled “Risk Factors” in this Annual Report. +These +forward-looking statements are based on information available as of the date of this Annual Report and current expectations, forecasts, +and assumptions, and involve a number of judgments, risks, and uncertainties. Accordingly, forward-looking statements should not be relied +upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements +to reflect events or circumstances after the date they were made, whether as a result of new information, future events, or otherwise, +except as may be required under applicable securities laws. +ii +TRADEMARKS +This +document contains references to trademarks and service marks belonging to other entities. Solely for convenience, trademarks and trade +names referred to in this Annual Report may appear without the ® or ™ symbols, but such references are not intended to indicate, +in any way, that the applicable licensor will not assert, to the fullest extent under applicable law, its rights to these trademarks +and trade names. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship +with, or endorsement or sponsorship of it by, any other companies. +SUMMARY +OF RISK FACTORS +The +following is a summary of the principal risks that could adversely affect our business, financial condition, operating results, cash +flows and/or stock price. Discussion of the risks listed below, and other risks that we face, are discussed in the section titled “Risk +Factors” in Part I, Item 1A of this Annual Report. +Risks +Related to Our Business and Industry +● +Our +business is dependent on the successful development, regulatory approval, and commercialization of our clinical assets, in particular +a glucokinase activator which we believe is active in a range of autoimmune disorders, which we refer to as AZD1656, and a potent, +irreversible inhibitor of human Myeloperoxidase that has the potential to treat idiopathic male infertility, which we refer to as +AZD5904. +● +Preclinical +drug development for our clinical assets is expensive, time-consuming, and uncertain. Our preclinical trials may fail to adequately +demonstrate pharmacologic activity in therapeutic areas of interest; cause unintended short- or long-term effects in other bodily +systems; or produce unexpected toxicity that may alter or risk benefit assessment. +● +We +may not be successful in our efforts to use and expand our research and development platform to build a pipeline of clinical assets. +● +Clinical +drug development for our clinical assets is very expensive, time-consuming, difficult to design and implement, and uncertain. Our +clinical trials may fail to adequately demonstrate the safety and efficacy of our clinical assets, which could prevent or delay regulatory +approval and commercialization. +● +We +may be unable to obtain regulatory approval for our early-stage clinical assets under applicable regulatory requirements. The U.S. +Food and Drug Administration (the “FDA”) and foreign regulatory bodies have substantial discretion in the approval process, +including the ability to delay, limit, or deny approval of clinical assets. The delay, limitation, or denial of any regulatory approval +would adversely impact commercialization, our potential to generate revenue, our business, and our operating results. +● +We +may face product liability exposure, and if successful claims are brought against us, we may incur substantial liability if our insurance +coverage for those claims is inadequate. +● +We +currently rely on, and expect to continue to rely on, third-party contract research organizations (“CROs”) and other +third parties to conduct and oversee our clinical trials and other aspects of product development. If these third parties do not +meet our requirements or otherwise conduct the trials as required, we may not be able to satisfy our contractual obligations or obtain +regulatory approval for, or commercialize, our clinical assets when expected or at all. +● +Manufacturing +and supply of the active pharmaceutical ingredients (“APIs”) and other substances and materials used in our clinical +assets is a complex and technically challenging undertaking, and there is potential for failure at many points in the manufacturing, +testing, quality assurance, and distribution supply chain, as well as the potential for latent defects after products have been manufactured +and distributed. +Risks +Related to Intellectual Property +● +Failure +to adequately protect our intellectual property could adversely affect our business, financial condition, and operating results. +● +We +may not be able to protect our intellectual property rights throughout the world. +● +Our +intellectual property rights throughout the world may be challenged by third parties, on prospectively a correct or incorrect basis +Risks +Related to Securities Markets and Investment in Our Stock +● +Claims +for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against +us and may reduce the amount of money available to us. +Risks +Related to Finances and Capital Requirements +● +There +is substantial doubt regarding our ability to continue as a going concern. We will need to raise additional funding, which may not +be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or +terminate our commercial programs, product development efforts or other operations, all of which could have a material adverse effect +on the Company and its financial results. +● +We +may issue additional shares of common stock or preferred stock, including issuances upon exercise of outstanding pre-funded warrants, in connection +with capital raising transactions and under an employee incentive plan, which issuances would significantly dilute the +interest of our stockholders. +iii +PART +I +Item +1. Business +Overview +CDT +Equity Inc., formerly Conduit Pharmaceuticals Inc., a Delaware corporation (“CDT”, “CDT Equity” or the “Company”), +is a data-driven pharmaceutical development, focused on identifying, enhancing, and advancing +high-potential therapeutic assets through scientific innovation and strategic partnerships. The Company has evolved into a broader, more +agile platform that leverages artificial intelligence, solid-form chemistry, and efficient asset repositioning to accelerate the development +of novel treatments. +The +Company’s strategy is centered on unlocking the untapped value of clinical-stage compounds, particularly those deprioritized by +larger pharmaceutical companies with strong, supporting Phase I safety data. Through advanced co-crystallization and solid-form technologies +developed at our Cambridge facilities, the Company improves drug properties and extends patent life by up to 20 years. In partnership +with Sarborg Limited (“Sarborg”), the Company also applies AI-powered signature analysis to rapidly identify new therapeutic +applications and combinations for existing compounds. +The +Company’s pipeline includes candidates that target autoimmune disorders, as well as idiopathic male infertility, oncology, +dermatology, rare disease and animal health. Ongoing in vitro and in vivo studies, guided by AI insights, are designed to support +licensing and commercialization partnerships. The Company will seek an exit through third-party license deals following successful +in vitro and in vivo pre-clinical trials, by entering into agreements with third-parties to pursue further development, FDA +approval, commercialization and marketing of the Company’s assets. +Operating +with a lean, asset-agnostic model, the Company prioritizes speed, adaptability, and capital efficiency. We avoid the cost burden of +early and late-stage clinical trials, focusing instead on high-leverage development strategies. +Our +current pipeline includes candidates targeting inflammatory and autoimmune disorders, as well as idiopathic male infertility, dermatology, +and animal health. The intellectual property portfolio comprises pending patent applications in several international jurisdictions describing +a solid-form compound, including the AZD1656 Cocrystal (a HK-4 Glucokinase Activator). Our pipeline research includes a number of compounds +that serve as promising alternatives to existing clinical assets currently marketed and sold by large pharmaceutical companies, which +we have identified as potential opportunities to develop further intellectual property positions through solid-form technology. +On +December 12, 2024, Sarborg and the Company entered into an agreement (the “Sarborg Agreement”) designed to address longstanding +challenges in the pharmaceutical sector, in particular by reducing human error in critical decision-making processes in both clinical +development and asset identification. By integrating Sarborg’s signature intelligence technology, the Company aims to enhance +efficiency, lower costs, and accelerate timelines by minimizing human intervention, ultimately optimizing the drug development cycle +and giving the Company a competitive advantage in the sector. Through this relationship, the Company will gain access to cutting-edge +predictive models and dashboards, enabling the Company to evaluate drug candidates, streamline clinical trials, and optimize asset management +with real-time data. These tools will drive faster, more accurate decisions, improving efficiency and reducing costs. By leveraging these +insights, the Company can differentiate itself in a competitive sector and gain unique data-driven insights that position the Company +for success across both its current and future asset portfolio. Our collaboration with Sarborg enables us to apply proprietary algorithms +utilizing AI-powered disease mapping to identify novel re-purposing opportunities across a database of more than 3,000 disease signatures. +Sarborg’s insights have directly informed two new combination patent filings, strengthening our intellectual property portfolio. +In addition, the Company has initiated pre-clinical in-vitro models to explore new indications, guided by AI-insights without human intervention. +We will seek an exit through third-party license deals following successful in vitro and in vivo pre-clinical trials, entering into agreements +with third parties to pursue further development, FDA approval, commercialization, and marketing of our assets. We continue to evaluate +novel artificial intelligence and cybernetics approaches to drug re-purposing, intellectual property, and asset selection to give the +Company a competitive advantage. Sarborg is considered to be a related party of CDT, as Dr. Andrew Regan, Chief Executive Officer +of CDT, also sits on the board of directors of Sarborg, and Chele Chiavacci Farley, a director of CDT is also a shareholder of +Sarborg. Refer to Note 16 and Note 20 to our financial statements included elsewhere in this Annual +Report for additional details on the relationship between CDT and Sarborg. +A +further partnership with Manoira Corporation (“Manoira”) (as described more in this Annual Report) enables the Company to +expand the scope of its drug portfolio into the animal health market in a cost-efficient manner. This collaboration allows us to accelerate +the understanding of the mechanism of action, safety, and potential efficacy of its portfolio across multiple species, while retaining +100% ownership of all data and intellectual property generated relating to human applications. This is expected to enhance the core human +therapeutic pipeline but also opens potential new revenue streams in the high-growth veterinary market. +1 +Repositioning +the Company enables us to explore multiple opportunities in the healthcare, biotech and broader technology innovation. Operating +with a lean disease-agnostic model, the Company prioritizes speed, adaptability, and capital efficiency. We avoid the cost burden of +late-stage clinical trials, focusing instead on high-leverage development strategies. Led by highly experienced executives: Dr. +Freda Lewis-Hall, former Chief Medical Officer of Pfizer Inc., the Chair of the Company’s Board; Dr. Andrew Regan, CEO and +James Bligh, CFO; our management team includes active senior executives who also have an extensive understanding of the +pharmaceutical market, supporting our strategy of developing clinical assets in a cost-efficient manner focused on therapeutic +efficacy. +Simultaneously, +CDT leverages the capabilities of our Cambridge laboratory facility and highly experienced team of solid-form experts to extend or develop +proprietary solid-form intellectual property for our existing and future clinical assets. Our own intellectual property portfolio comprises +pending patent applications in several international jurisdictions describing a solid-form compound, including the AZD1656 Cocrystal +(a HK-4 Glucokinase Activator), targeting a wide range of autoimmune disorders. Our pipeline research includes a number of compounds +that serve as promising alternatives to existing clinical assets currently marketed and sold by large pharmaceutical companies, which +we have identified as having an opportunity to develop further intellectual property positions through solid-form technology. +We +believe that successful pre-clinical trials of the assets in our pipeline +will increase the value of our assets. There is no assurance that any pre-clinical trials on the assets owned or licensed by us will be +successful, however, following a successful pre-clinical trial, we would look to licensing opportunities with large biotech or pharmaceutical +companies, typically for up-front milestone payments and royalty income streams for the life of the asset patent. We anticipate using +any future royalty income stream to develop our asset portfolio in combination with other potential sources of financing, including debt +or equity financing. +Our +Initial Pipeline: HK-4 Glucokinase Activator Cocrystal, AZD1656, and its metabolite AZD5658 and AZD5904 +In +August 2024, AstraZeneca granted a license to the Company under certain intellectual property rights controlled by AstraZeneca related +to HK-4 Glucokinase activators AZD1656 and AZD5658 in all indications and myeloperoxidase inhibitor AZD5904 for the treatment, prevention, +and prophylaxis of idiopathic male infertility. The Company will be responsible for development and commercialization of the Licensed +Products under the related License Agreement. The Company is required to use commercially reasonable efforts to develop and commercialize +the Licensed Products. +AstraZeneca +has conducted initial pre-clinical and, in some instances, clinical trials on these assets, but has decided to license them for further +development. As the clinical assets have undergone initial pre-clinical and clinical testing conducted by AstraZeneca, we are able to +use the safety data generated in these clinical trials to assess which clinical assets to further develop and re-purpose. +On +June 3, 2025, the Company entered into a joint development agreement (the “Joint Development Agreement”) with Manoira for +a term of one year, which will be automatically renewed for successive one-year terms unless advance termination notice is provided in +accordance with the terms of the Joint Development Agreement. Manoira is an entity controlled by Dr. Andrew Regan, of which he is sole +director, and is therefore considered a related party of the Company. +Pursuant +to the Joint Development Agreement, the Company granted Manoira a non-exclusive, non-transferable, non-sublicensable, fully paid-up, +royalty-free license to the intellectual property rights related to the pharmaceutical compounds known individually and together as AZD1656 +and AZD5658 (the “CDT Assets”). Manoira will evaluate the CDT Assets’ applicability in animal health, explore +veterinary market opportunities, and provide data from the evaluations to inform the Company’s human clinical programs. The license +does not grant Manoira the right to distribute, market, promote or sell the products or services that are related to or incorporate the +CDT Assets. +2 +In +addition, we currently have the exclusive rights to develop clinical assets, AZD1656 and AZD5658 in all human indications and AZD5904 +in idiopathic male infertility which are licensed to us by AstraZeneca. +Pursuant +to the various programs, AZD1656 underwent Phase I and Phase II clinical trials consisting of 23 studies in 526 subjects, 446 of whom +were dosed with AZD1656. Other than for the intended effect of lowering glucose, there were no difference identified between the AZD1656-treated +and placebo-treated subjects relating to adverse events. All of the cases where low glucose levels were identified were managed by the +patients and resolved. Based on these clinical trials, no safety signals were identified regarding vital signs, safety laboratory values +or electrocardiogram data. No deaths occurred in any studies with healthy volunteers or patients. AZD1656 was also subject to Phase II +clinical trials consisting of two studies where AZD1656 was given to patients with Type 2 Diabetes Mellitus for four months or longer. +In total, there were 754 randomized patients, 516 of whom were exposed to AZD1656 (316 men and 200 women). There were no clinically important +differences in the adverse effects profile between the AZD1656 treatment group and the AZD1656 placebo group and there were no deaths +in either of the Phase II studies. The efficacy of AZD1656 as a potential treatment for diabetes was also assessed during the Phase II +clinical trials, including whether the efficacy was statistically significant. Clinically relevant and statistically significant reductions +in HbA1c were seen after four months; however, the initial improvement in glucose control deteriorated over time and the change in HbA1c +levels after four months were not statistically different than the placebo. This decreasing efficacy over time was seen in both Phase +II studies. +AZD5658 +was subject to a randomized, single-blind, placebo-controlled, single-center, Phase I study to assess the safety, tolerability, pharmacokinetics, +pharmacodynamics and the effect of fasting after single ascending oral doses of AZD5658 in Type 2 Diabetes Mellitus patients. There were +six dose levels with eight patients in each cohort, six receiving AZD5658 and two receiving placebo. The effect of fasting on the pharmacokinetics +of AZD5658 was also studied for two dose levels. Each patient treated with metformin received a maximum of two single oral suspension +doses (one on a low dose of AZD5658/placebo and one on a high dose of AZD5658/placebo under fed conditions), except for patients participating +in the evaluation of the effect of fasting, who received a maximum of three single oral suspension doses. For each patient, the study +included a pre-entry visit (Visit 1), two or three clinic-based treatment visits (Visit 2, 3, and 4) and a follow-up visit (Visit 5). +Hence, the total duration of the study for each patient was approximately two and one-half months, assuming three weeks between dose +levels. There were no deaths, serious adverse events, discontinuations due to adverse events, or adverse events of severe intensity during +the study. Overall, there were 13 (61.9%) AZD5658-treated patients with adverse events compared to 2 (28.6%) patients who received placebo. +There were no trends noted with increasing dose in the number of adverse events overall or within any preferred term. The most frequently +occurring adverse events were hypoglycemia and diarrhea, each occurring in three AZD5658-treated patients. One adverse event of ear pain +(30 mg AZD5658 fed) was assessed by the study investigator as moderate in intensity; all other adverse events were of mild intensity. +Five adverse events in AZD5658- treated patients were assessed by the investigator as causally related to investigational product, including +hypoglycemia in three patients (100 mg, 200 mg fasted, and 400 mg AZD5658), diarrhea in one patient (200 mg AZD5658 fasted), and headache +in one patient (30 mg AZD5658). No adverse events in placebo-treated patients were assessed as causally related to investigational product. +The three patients who experienced hypoglycemia adverse events were treated with intake of food or orange juice and the episodes resolved +in less than one hour. +AZD5904 +was subject to five Phase I clinical studies, with a total of 1,181 subjects being exposed to AZD5904. Single doses of up to 1200 mg +and multiple doses of up to 325 mg for up to three times per day for 21 days have been administered as an oral solution in the completed +clinical studies. In addition, single doses of up to 1,400 mg and multiple doses of up to 600 mg for 10 days have been administered as +an “extended release” formulation. The data from these studies did not identify any expected adverse drug reactions for AZD5904 +and no adverse effects were reported as related to AZD5904. In addition, the data revealed no clinically significant changes in blood +pressure or pulse rate related to AZD5904 and electrocardiogram data was within the physiological range for the population studied. The +effect of AZD5904 on human myeloperoxidase, which we refer to as MPO, activity was evaluated by determination in an ex vivo assay of +MPO activity in plasma. The correlation between MPO activity and plasma concentrations was assessed for single and multiple doses of +AZD5904. A relationship between plasma concentrations of AZD5904 and MPO activity was demonstrated, which indicates that AZD5904 may +be an effective inhibitor of MPO activity in humans. However, Phase I trials do not assess statistical significance so additional Phase +II trials are necessary to determine if the inhibition of MPO activity as a result of AZD5904 is statistically significant. +Our +Development Strategy +The +Company’s strategy is centered on unlocking the untapped value of clinical-stage compounds, particularly those deprioritized by +larger pharmaceutical companies with strong, supporting Phase I safety data. Through advanced co-crystallization and solid-form technologies +developed at our Cambridge facilities, the Company improves drug properties and extends patent life by up to 20 years. In partnership +with Sarborg Limited, the Company also applies AI-powered disease mapping to rapidly identify new therapeutic applications for existing +compounds. +To +enable us to monetize our clinical assets, we, in partnership with CROs +and KOLs, intend to conduct additional pre-clinical trials on our assets in order to generate clinical data to support the further development +of our assets beyond the Phase I stage. In the event successful pre-clinical trial data is generated for an asset with a particular indication, +at that point, we will seek to enter into a license, royalty, or other transaction with a third party whereby the third party would continue +to pursue the development of the clinical asset in clinical trials, including Phase I, where necessary, and beyond. There is no assurance +that any pre-clinical trials on the assets owned or licensed by us will be successful. We intend to use the income received from licensing +assets in our pipeline to fund the development of additional assets, which will allow us to use the existing income stream from assets +that have been licensed to fund our on-going operations, including the development and commercialization of additional assets, without +having to rely solely on debt and/or equity financing. +3 +Principal +Strategic Partnerships +Services +Agreement – CDT Equity and Sarborg Limited +On +December 12, 2024, the Company entered into a Services Agreement (the “Sarborg Agreement”) with Sarborg, a Cayman Islands +company and related party of the Company. Under the terms of the Sarborg Agreement, Sarborg agreed to provide algorithmic and cybernetic technology +services to CDT, including the development of decision-support tools and advanced cybernetic systems tailored to enhance CDT’s +decision-making processes and maximize the value of its pharmaceutical asset portfolio. +Sarborg +agreed to perform the services to CDT comprised of three phases: the Initial Phase (0-24 weeks) focuses on establishing a foundation for +collaboration and aligning Sarborg’s services with CDT’s strategic goals; the Development Phase (24-36 weeks) involves +building technological infrastructure, including dashboards and predictive models; and the Ongoing Services Phase (36-52 weeks) ensures +the sustained functionality and relevance of Sarborg’s deliverables while supporting CDT’s growth through iterative improvements +and updates. Sarborg will create specific deliverables, including reports, computer programs, software applications, APIs, mobile applications, +source code, written technical specifications and designs, operating and maintenance manuals, and other recorded data and information +arising from or relating to the services. Sarborg will provide all necessary resources to perform the services and deliver the deliverables +in accordance with the Sarborg Agreement. To date, Sarborg has successfully completed all phases and has achieved all milestones provided for pursuant to the +Sarborg Agreement. +During the year ended December 31, 2025, the Company +incurred costs under the Sarborg Service Agreement, including $1.8 million of milestone payments related to the Services Agreement and +$0.4 million of expense to be capitalized related to the delivery and ongoing use of a diagnostic dashboard. Of the total costs incurred, +$0.4 million was capitalized as a diagnostic asset associated with the dashboard, of which $0.2 million was amortized during the year +and recorded within general and administrative expenses in the consolidated statement of operations and comprehensive loss. The remaining +$2.2 million, consisting of milestone payments and related services (including signature mapping reports), was expensed as incurred within +research and development expenses. As of December 31, 2025, there were no outstanding payables under the Sarborg Service Agreement. +SARBORG +Additional Agreement +Effective March 31, 2025, the Company entered +into an additional license and use agreement (the “Sarborg Additional Agreement”) with Sarborg, a related party, for analysis +of acquired AstraZeneca assets. The agreement provides for $2.0 million in total consideration, payable in cash or stock. On March 31, +2025, the Company prepaid $1.65 million through the issuance of 617 shares of Common Stock, recorded at fair value of $2,670 per share. +The term was extended from six to 12 months on May 2, 2025 at no additional cost. Effective October 1, 2025, the term was extended to +be 12 months from the previous extension to extend the term of the license to March 31, 2027 at no additional cost to the Company. The +Company recorded the fair value of $1.5 million as prepaid within the consolidated balance sheets. During the year ended December 31, +2025, the Company recorded research and development expense of $1.3 million within the consolidated statements of operations and comprehensive +loss related to the Sarborg Additional Agreement. As of December 31, 2025, $0.6 million of the prepaid balance remains within the consolidated +balance sheet. +4 +First +Addendum to the SARBORG Additional Agreement +Effective +July 1, 2025 the Company entered into an Addendum (the “First Addendum”) to the Additional Agreement with Sarborg, to expand +the scope to include third-party pharma asset analysis for drug re-purposing using Sarborg’s machine learning platform. The scope +of work was expected to be completed in four weeks, with options for renewal by mutual agreement. The Company paid $0.3 million during +the year ended December 31, 2025 and included the total in the consolidated statement of operations and comprehensive loss. +Second +Addendum to the SARBORG Additional Agreement +Effective +August 11, 2025 the Company entered into Addendum 2 (the “Second Addendum”) to the Additional Agreement with Sarborg to integrate +a Cryptocurrency AI Agent for identifying, forecasting, and recommending digital currencies into CDT Equity’s treasury operations. +The term is a minimum of four months, renewable by mutual agreement. The Company paid $0.3 million during the year ended December 31, +2025 and included the total in the consolidated statement of operations and comprehensive loss. +Consulting +Agreement with NJS Foresight Bio-Advisory, LLC +On +January 2, 2026, the Company entered into a Consulting Agreement, dated December 29, 2025 (the “NJS Agreement”) with NJS +Foresight Bio Advisory, LLC (“NJS”) pursuant to which NJS agreed to provide advisory and business development services +to the Company focused on identification, introduction and support of potential licensing partners in connection with the +out-licensing of the Company’s asset portfolio. Work under the NJS Agreement commenced on December 30, 2025. On February 23, +2026 (the “NJS Effective Date”), the Company and NJS entered into Addendum No. 1 to the NJS Agreement (the “NJS +Addendum”) to extend the term of the NJS Agreement an additional twelve months from its initial termination date, December 29, +2026, to December 29, 2027, unless terminated earlier in accordance with its terms. As consideration for entering into the NJS +Addendum, on the NJS Effective Date, the Company paid an additional one-time fixed retainer of $150,000 (the “NJS Extension +Retainer”) in the form of 7,989 shares of Common Stock (the “NJS Shares”) issued to NJS, valued at $18.77 per share, +the closing price of the Common Stock on February 20, 2026, the trading day prior to the NJS Effective Date. All other terms and +conditions contained in the NJS Agreement remain the same. The Company recorded the $0.2 million consideration to NJS as a prepaid +expense on the Company’s consolidated balance sheet as of December 31, 2025. +Master +Service Agreement – CDT and Charles River Laboratories +On +February 7, 2025, CDT and Charles River Laboratories (“Charles River”) entered into a Master Services Agreement (the +“Charles River MSA”). Under the Charles River MSA, Charles River agreed to provide preclinical testing and research services +to CDT, including the evaluation of compounds in animal models and other related services. The services are defined in individual +Statements of Work (“SOWs”) or Protocols, which outline the specific scope, design, and timelines for each study. To date, all services provided for pursuant to the Charle s River MSA have +been completed. For the year ended December 31, 2025, the Company recognized $0.2 million in research and development expense in +the consolidated statement of operations and comprehensive loss related to the Charles River MSA. +Thesprogen +Consulting Agreement +Effective March 25, 2025, the Company entered +into a Consulting Agreement (the “Consulting Agreement”) with Thesprogen PC (“Thesprogen”), an expert in advising +clients on strategies for pharmaceutical and biotech development. Consulting fees were settled through the issuance of fully vested unregistered +Common Stock shares, valued at the fair value of the shares based on the closing share price of the shares at issuance. The Company recorded +the transaction as prepaid and recognized research and development expense through amortization during the periods ended December 31, +2025. On February 24, 2026 (the “Thesprogen Effective Date”), the Company and Thesprogen entered into Addendum No. 1 to the +Thesprogen Agreement (the “Thesprogen Addendum”) to extend the term of the Thesprogen Agreement an additional twelve months +from its initial termination date, June 28, 2026, to June 28, 2027, unless terminated in accordance with its terms. As consideration for +entering into the Thesprogen Addendum, on the Thesprogen Effective Date, the Company paid an additional one-time fixed retainer of $245,000 +(the “Thesprogen Extension Retainer”) in the form of 13,668 shares of Common Stock (the “Thesprogen Shares”) issued +to Thesprogen, valued at $17.93 per share, the closing price of the Common Stock on February 23, 2026, the trading day prior to the Thesprogen +Effective Date. All other terms and conditions contained in the Thesprogen Agreement remain the same. During the year ended December 31, +2025, the Company recorded research and development expense of $0.3 million within the consolidated statements of operations and comprehensive +loss related to the amortization of the prepaid expense. +5 +Manoira +Joint Development Agreement +On +June 3, 2025, the Company entered into the Joint Development Agreement with Manoira for a term of one year, which will be automatically +renewed for successive one-year terms unless advance termination notice is provided in accordance with the terms of the Joint Development +Agreement. Manoira is an entity controlled by Dr. Andrew Regan, of which he is sole director, and is therefore considered a related party +of the Company. See Note 16 for additional details. +Under +the agreement, the Company granted Manoira a non-exclusive, non-transferable, royalty-free license to intellectual property rights related +to pharmaceutical compounds AZD1656 and AZD5658. Manoira will evaluate the compounds for animal health applications, explore veterinary +market opportunities, and provide data to inform the Company’s human clinical programs. The license does not permit distribution, +marketing, promotion, or sale of related products. +Consideration was settled through the issuance +of Common Stock shares, valued at fair value based on the closing price of the shares. The Company recorded the fair value of $0.4 million +as prepaid within the consolidated balance sheets. During the year ended December 31, 2025, the Company recorded $0.1 million amortization +expense for research and development activities provided to date. +Market +Overview +Global +Biotechnology Industry +The +global biotechnology industry comprises a large range of companies engaged in diverse activities, such as biopharmaceutical development. +The industry companies also span across a wide spectrum of operational models. Some small, dedicated biotechnology companies are research +and development (“R&D”) intensive and operate primarily with venture capital, grants, initial public offerings and collaborative +agreements. Conversely, large, diversified companies hold significant in-house R&D resources and well-established production, commercialization, +and distribution processes. +Management +believes that the global biotechnology market was valued at $1.77 trillion in 2025 and is projected to grow at a compound annual growth +rate (“CAGR”) of 13.9% from 2025 to 2033. 1 The market is driven by strong government support through initiatives +aimed at the modernization of regulatory framework, improvements in approval processes and reimbursement policies, as well as standardization +of clinical studies. +Global +investor confidence has fallen during the period, which served to somewhat subdue revenue growth. However, global investment in R&D +has grown strongly and consistently in recent years, with much of this funding funneled into medical biotechnology development, aimed +at providing better care for the aging global population, thus bolstering industry revenue. +Global +Pharmaceutical Industry +Over +the previous five years, pharmaceutical companies have benefited from an aging population in developed economies and a growing middle +class in emerging economies. Many companies have also tapped into regional demand for pharmaceuticals that may differ from developed +markets and have expanded their global presence to tap into regional market needs. +Patent +cliffs have continued to hamper industry revenue during the current period. When drugs lose patent exclusivity, the market is inundated +with low-cost generic drugs. As manufacturers contend with more price-based competition from generics, many operators respond by lowering +their R&D expenditures, which limits the industry’s drug pipelines. Additionally, many governments and health insurance organizations +have reduced their drug reimbursements to control healthcare costs, such as implementing incentives for patients to use generic drugs. +Industry revenue has expanded at a compound annual +growth rate of approximately 5.4% over the past five years to $857.1 billion, with continued growth of approximately 3.4% expected in +2025, supported by sustained global demand for biotechnology products. However, growth remains dependent on clinical success, regulatory +approvals, manufacturing execution and access to capital, as companies increasingly prioritize capital efficiency, differentiated pipelines +and strategic partnerships in a more selective funding environment. 2 +1 (2026, +January 02). Biotechnology Market Size, Share, and Trends 2026 to 2035. Precedenceresearch.com +https://www.precedenceresearch.com/biotechnology-market. +2 +IBISWorld Industry Report L6724-GL – Global Biotechnology, January 2026 +6 +Manufacturing +The +Company has a lease agreement for approximately 2,100 square feet of space in Cambridge, England, with a term from March 2024 to January +2027. At the Cambridge facility aforementioned, we are developing advanced co-crystallization and solid-form technologies. +We +otherwise do not currently own or operate any facilities to formulate, manufacture, test, store, package, or distribute any of the clinical +assets that we are developing or may seek to develop and do not currently have the capabilities to conduct such activities. We currently +rely on third parties to manufacture, store, and test the clinical assets that we seek to develop. We will depend on third-party suppliers +and manufacturing organizations for all our required raw materials and drug substance and to formulate, manufacture, test, store, package, +and distribute clinical trial quantities of clinical assets that we may seek to develop. We plan to continue to use third-party suppliers +and manufacturing organizations and we anticipate expanding our network of third-party suppliers and manufacturing organizations as our +operations expand. +We +have internal personnel and utilize consultants with extensive technical, manufacturing, analytical, and quality experience to oversee +our contract manufacturing and testing activities. Manufacturing is subject to extensive regulations that impose procedural and documentation +requirements, including, but not limited to, record-keeping, manufacturing processes and controls, personnel, quality control, and quality +assurance. Our systems, procedures, and contractors are required to be in compliance with these regulations and are assessed through +regular monitoring and formal audits. +Research +and Development +Our +research and development activities have included developing co-crystals of AZD1656, and other products, to increase patent life. Most of this work is conducted +in our laboratories based in Cambridge, UK, but parts of this work is completed by third-party CROs but all intellectual property is +retained by us. The successful completion of clinical trials increases the value of clinical assets and may lead to the commercialization +and/or licensing of such assets to other pharmaceutical companies. There is no assurance that any clinical trials on the assets owned +or licensed by us will be successful or any assurance our co-crystal development will be successful. +We +do not intend to further fund the research and development of the use of AZD1656 in Covid; however, we retain an economic interest in +the AZD1656 in the indication of Covid and if AZD1656 is further developed in Covid through funding provided by other third parties, +then we may be entitled to receive compensation from those development activities conducted by third parties due to its economic interest +in AZD1656 in Covid. +Sales +and Marketing +We +do not currently have marketing, sales, or distribution capabilities. In order to commercialize any clinical asset that is approved for +commercial sale, we must either develop our own sales, marketing, and distribution infrastructure or collaborate with third parties that +have such commercial infrastructure and relevant marketing and sales experience. We anticipate relying on licensing, co-sale, co-promotion, +and distribution agreements with strategic partners for the commercialization of our products. We do not currently anticipate that we +would develop our own internal sales force organization. +7 +Competition +We +operate in the highly competitive pharmaceutical and biotechnology industry. Our competitors may include public and private companies, +universities, governmental agencies, and other research organizations actively engaged in the research and development of clinical assets +and biopharmaceutical products. Our competitors may have greater financial, technical, and human resources than we currently have and/or +may be better equipped to develop, manufacture, and market their products. Our competitors may be developing clinical assets for products +for similar indications. However, we believe that we have an unprecedented advantage in novelty. As discussed above, AZD1656 is an activator +(not an inhibitor) of a metabolic process. We anticipate that the number of companies seeking to develop clinical assets, biopharmaceutical +products, and therapies will continue to increase. As a result, the competition we face may also increase. However, both in the treatment +of autoimmune disease and idiopathic male infertility the competition is currently expected to come in years, even if biopharmaceutical +products that we develop and/or commercialize were not to compete with products of our competitors based on the product efficacy, safety, +ease of use, price, demonstrated cost-effectiveness, marketing effectiveness, service, reputation, and access to technical information. +However, we believe that our ability to focus on clinical assets that have been deprioritized by larger pharmaceutical companies is a +competitive advantage. +Intellectual +Property +We +hold exclusive rights to develop AZD1656, AZD5658, and AZD5904 through our License Agreement with AstraZeneca and we also own the intellectual +property and the rights to further develop co-crystals resulting from our prior research and development work on AZD1656. +On +December 18, 2024, Conduit UK Management Limited (“Conduit UK”) received a notification from the UK Intellectual Property +Office (“UK IPO”) notifying the company that St George Street Capital had initiated patent entitlement proceedings with +respect to patent application PCT/IB2022/00775 (“Patent Application”). Conduit UK refutes the claims made by St George +Street Capital and filed a counterstatement on February 26, 2025 with the UK IPO. In addition, each of the three inventors named in +the Patent Application filed simultaneous counterstatements fully supporting Conduit UK’s position, and assertions that the +claims are without merit. Further updates will be made following notification by the UK IPO. +We +currently have eight pending patent applications in several international jurisdictions. Even though we have filed patent applications, +there is no guarantee that the validity of the patents will be upheld if challenged by a third party, that patents will be granted on +the applications filed in the respective jurisdictions, or that once granted, the patents will contain claims that encompass our commercial +products. There can be no assurance that any of our intellectual property rights will afford us any protection from competition. +8 +The +following patent applications are relevant to the operation of our business: +Related +Clinical Asset +Mechanism +of Action +Patent +Information and Number +Patent +Ownership/Licensing +Status; +Patent Status +Jurisdictions +Protected +Expiration +AZD1656 +Glucokinase +Activator +Composition +of Matter Patent; 101901 (family number) +Licensed +to CDT from AstraZeneca for use in all human indications. Granted and in force. +Brazil, +Canada, Switzerland, China, Germany, European Procedure, Spain, France, United Kingdom, Hong Kong, India, Japan, South Korea, Mexico, +Netherlands, Russian Federation, Sweden, Turkey, United States. Granted in Australia +Expires +July 3, 2026. +AZD1656 +Glucokinase +Activator +Polymorph +Patent; 103631 (family number) +Licensed +to CDT from AstraZeneca for use in human applications. Granted and in force. +China +and United States +Expires +February 2030. +AZD1656 +Glucokinase +Activator +Co-crystal +PCT/IB2022/00075 +Owned +by CDT. +Filed +September 2, 2022. +Global +Filing +date September 2, 2022. If granted, will expire September 2, 2042. +AZD1656 +Glucokinase +Activator +Co-crystal +JP2022-176753 +Owned +by CDT. +Filed +November 2, 2022. +Granted: +Japan +Expires +November 2, 2042. +AZD5904 +MPO +Inhibitor +Idiopathic +Male Infertility; AZD5904 use patent; 200644 (family number) +[WO/2019/016074] +Licensed +to CDT from AstraZeneca. +International +Description +Expires +July 12, 2038. +AZD5658 +Glucokinase +Activator +Composition +of Matter Patent; 101901 (family number) +Licensed +to CDT from AstraZeneca for use in all human indications. Granted and in force. +Australia, +Brazil, Canada, Switzerland, China, Germany, European Procedure, Spain, France, United Kingdom, Hong Kong, India, Japan, South Korea, +Mexico, Netherlands, Russian Federation, Sweden, Turkey, United States +Expires +July 3, 2026 +We +have not filed any applications for trademark protection of any names or logos for products or technologies in development. We plan to +seek trademark protection inside and outside of the United States where and when appropriate and if available. We intend to use these +registered marks in connection with our pharmaceutical research and development, including proprietary technologies, as well as our clinical +assets. +We +expect to protect our products and technologies through a combination of patents, regulatory exclusivity, and potentially confidential +and proprietary know-how. We intend to actively seek to obtain, where appropriate, the broadest commercially reasonable intellectual +property protection possible for our clinical assets and technologies, including any future clinical assets and technologies under development, +our proprietary information, and our proprietary technology through a combination of contractual arrangements and patents, in the United +States and abroad. However, we cannot guarantee that patent protection will provide complete protection against competitors who seek +to circumvent our patents. +9 +Government +Regulation and Product Approval +Government +authorities in the United States, at the federal, state, and local level, and in other countries, extensively regulate, among other things, +the research, development, clinical trials, testing, manufacture, including any manufacturing changes, authorization, pharmacovigilance, +adverse event reporting, recalls, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, import +and export of pharmaceutical products and clinical assets, including clinical assets such as those we are developing. The processes for +obtaining regulatory approvals in the United States and in foreign countries, along with subsequent compliance with applicable statutes +and regulations have no guaranteed outcomes and require the expenditure of substantial time and financial resources. +Our +development plan for AZD5904 is to conduct clinical trials and if those trials are successful, we will then seek to enter into a transaction +with a third party with respect to AZD5904, as applicable, for the particular indication. Pursuant to the Joint Development Agreement, +the Company granted Manoira a non-exclusive, non-transferable, royalty-free license to intellectual property rights related to pharmaceutical +compounds AZD1656 and AZD5658. Manoira will evaluate the compounds for animal health applications, explore veterinary market opportunities, +and provide data to inform the Company’s human clinical programs. The license does not permit distribution, marketing, promotion, +or sale of related products. +We +anticipate developing clinical assets, which we own or license from third parties, that have undergone pre-clinical and clinical trials +through the Phase II stage and then monetizing such clinical assets through a license, royalty, or other transaction. We do not expect +that we will commercialize any clinical assets or seek marketing approval from the FDA (or similar organizations) as we intend to enter +into agreements with third parties following Phase II clinical trials for each such clinical asset that would provide that such third +party would pursue the further development, commercialization, and marketing of such assets. +The +following description of the process relating to obtaining regulatory approvals in the United States and in foreign countries is intended +for informational purposes only as we do not expect to continue the development of any of the clinical assets beyond the Phase II stage. +There is no assurance that any clinical trials on the assets owned or licensed by us will be successful. +United +States Government Regulation +In +the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (“FDCA”) and implementing regulations. +Failure to comply with the applicable United States requirements at any time during the product development process, approval process +or after approval, may subject an applicant to a variety of administrative or judicial sanctions, such as the FDA’s refusal to +approve pending New Drug Applications (“NDAs”), withdrawal of an approval, imposition of a clinical hold, issuance of warning +letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of +government contracts, restitution, disgorgement or civil and/or criminal penalties. +The +process required by the FDA before a drug may be marketed in the United States generally involves the following steps, each of which +requires the expenditure of substantial time and financial resources: +● +completion +of preclinical laboratory tests, animal studies and formulation studies in compliance with good laboratory practices (“GLPs”) +and other applicable regulations; +● +submission +to the FDA of an Investigational New Drug Application (“IND”), which must become effective before human clinical trials +may begin; +● +approval +by an independent institutional review board (“IRB”) at each clinical site before each trial may be initiated; +● +performance +of well-controlled human clinical trials in accordance with good clinical practices (“GCPs”), which may include placebo +controls, to establish the safety and efficacy of the proposed drug product for each indication; +● +submission +to the FDA of an NDA and payment of fees; +● +satisfactory +completion of an FDA advisory committee review, if applicable; +● +satisfactory +completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the product is produced to assess +compliance with current good manufacturing practices (“cGMPs”) and to assure that the facilities, methods and controls +are adequate to preserve the drug’s identity, strength, quality and purity; +● +satisfactory +completion of audits of clinical trial sites conducted by FDA to assure compliance with GCPs and the integrity of clinical data; +and +● +FDA +review and approval of the NDA. +10 +Preclinical +Studies +Preclinical +studies include laboratory evaluation of product chemistry, toxicity, and formulation, as well as animal studies to assess potential +safety and efficacy. Preclinical tests intended for submission to the FDA to support the safety of a clinical asset must be conducted +in compliance with GLP regulations and the U.S. Department of Agriculture’s Animal Welfare Act. A drug sponsor must submit the +results of the preclinical tests, together with manufacturing information, analytical data and any available ex-U.S. clinical data or +relevant literature, among other things, to the FDA as part of an IND. Some nonclinical testing may continue even after the IND is submitted. +An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions +related to one or more proposed clinical trials and places the clinical trial on a clinical hold. In such a case, the IND sponsor and +the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in +the FDA allowing clinical trials to commence. A clinical hold may occur at any time during the life of an IND and may affect one or more +specific studies or all studies conducted under the IND. +Furthermore, +the FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research +subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at +its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug candidate +has been associated with unexpected serious harm to patients. +Clinical +Trials +Clinical +trials involve the administration of the investigational new drug to human subjects under the supervision of qualified investigators +in accordance with GCP requirements, which include the requirement that all research subjects provide their informed consent in writing +for their participation in any clinical trial along with the requirement to ensure that the data and results reported from the clinical +trials are credible and accurate. Clinical trials are conducted under protocols detailing, among other things, the objectives of the +trial, the criteria for determining subject eligibility, the dosing plan, the parameters to be used in monitoring safety, the procedure +for timely reporting of adverse events, and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent +protocol amendments must be submitted to the FDA as part of the IND. In addition, an IRB at each institution participating in the clinical +trial must review and approve the plan for any clinical trial before it commences at that institution. +Information +about certain clinical trials and clinical trial results must be submitted within specific timeframes to the National Institutes of Health +for public dissemination on the Clinicaltrials.gov registry. Failure to timely register a covered clinical study or to submit study results +as provided for in the law can give rise to civil monetary penalties and prevent the non-compliant party from receiving future grant +funds from the federal government. The government has begun enforcing these registration and results reporting requirements against non-compliant +clinical trial sponsors. +Human +clinical trials are typically conducted in at least three sequential phases and occasionally four or more, which may require repetition, +or overlap or be combined: +Phase +I : The drug candidate is initially introduced into healthy human subjects or patients with the target disease or condition and +tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of +its effectiveness. During Phase I clinical trials, sufficient information about the investigational drug’s pharmacokinetics and +pharmacological effects may be obtained to permit the design of well-controlled and scientifically valid Phase II clinical trials. +Phase +II : The drug candidate is administered to a larger, but still limited patient population to identify possible adverse effects +and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted indications and to determine dosage tolerance +and optimal dosage. Phase II clinical trials are typically well-controlled and closely monitored. +Phase +III : The drug candidate is administered to an expanded patient population, generally at geographically dispersed clinical trial +sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for +approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for the labeling of the product. +Phase III clinical trials usually involve a larger number of participants than a Phase II clinical trial. +There +is no guarantee that a clinical asset will successfully complete any such clinical trials. There is no assurance that any clinical trials +on the assets owned or licensed by CDT will be successful. +11 +Interactions +with FDA During the Clinical Development Program +Following +the clearance of an IND and the commencement of clinical trials, the sponsor of such trial will continue to have interactions with the +FDA. Progress reports detailing the results of clinical trials must be submitted at least annually to the FDA and more frequently if +serious adverse events occur. In addition, IND safety reports must be submitted to the FDA for any of the following: serious and unexpected +suspected adverse reactions; findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed +to the product; and any clinically important increase in the occurrence of a serious suspected adverse reaction over that listed in the +protocol or investigator brochure. +In +addition, sponsors are given opportunities to meet with the FDA at certain points in the clinical development program. Specifically, +sponsors may meet with the FDA prior to the submission of an IND (“pre-IND meeting”), at the end of Phase II clinical trial +(“EOP2” meeting) and before an NDA is submitted (“pre-NDA meeting”). Meetings at other times may also be requested. +These meetings provide an opportunity for the sponsor to share information about the data gathered to date with the FDA and for the FDA +to provide advice on the next phase of development. For example, at an EOP2, a sponsor may discuss its Phase II clinical results and +present its plans for the pivotal Phase III clinical trial(s) that it believes will support the approval of the new product. Such meetings +may be conducted in person, via teleconference/videoconference or written response only with minutes reflecting the questions that the +sponsor posed to the FDA and the agency’s responses. The FDA has indicated that its responses, as conveyed in meeting minutes and +advice letters, only constitute recommendations and/or advice made to a sponsor and, as such, sponsors are not bound by such recommendations +and/or advice. Nonetheless, from a practical perspective, a sponsor’s failure to follow the FDA’s recommendations for design +of a clinical program may put the program at significant risk of failure. +Acceptance +of NDAs +Assuming +successful completion of the required clinical testing, the results of the preclinical studies and clinical trials, along with information +relating to the product’s chemistry, manufacturing, controls, safety updates, patent information, abuse information and proposed +labeling, are submitted to the FDA as part of an application requesting approval to market the clinical asset for one or more indications. +Data may come from company-sponsored clinical trials intended to test the safety and efficacy of a product’s use or from a number +of alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient +in quality and quantity to establish the safety and efficacy of a drug product. The fee required for the submission and review of an +application under the Prescription Drug User Fee Act (“PDUFA”) is substantial, and the sponsor of an approved application +is also subject to an annual program fee assessed based on eligible prescription drug products. These fees are typically adjusted annually, +and exemptions and waivers may be available under certain circumstances, such as where a waiver is necessary to protect the public health, +where the fee would present a significant barrier to innovation, or where the applicant is a small business submitting its first human +therapeutic application for review. +The +FDA conducts a preliminary review of all applications within 60 days of receipt and must inform the sponsor at that time or before whether +an application is sufficiently complete to permit substantive review. In pertinent part, the FDA’s regulations provide that the +agency may refuse to file an application if the application does not include all pertinent information and data necessary for review +by the FDA. In the event that the FDA determines that an application does not satisfy this standard, it will issue a Refuse to File (“RTF”) +determination to the applicant. Typically, an RTF will be based on administrative incompleteness, such as clear omission of information +or sections of required information; scientific incompleteness, such as omission of critical data, information or analyses needed to +evaluate safety and efficacy or provide adequate directions for use; or inadequate content, presentation, or organization of information +such that substantive and meaningful review is precluded. The FDA may request additional information rather than accept an application +for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject +to review before the FDA accepts it for filing. +12 +Review +of NDAs +After +the submission is accepted for filing, the FDA begins an in-depth substantive review of the application. The FDA reviews the application +to determine, among other things, whether the proposed product is safe and effective for its intended use, whether it has an acceptable +purity profile and whether the product is being manufactured in accordance with cGMP. +Under +the goals and policies agreed to by the FDA under PDUFA, the FDA has 10 months from the filing date in which to complete its initial +review of a standard application that is a new molecular entity, and six months from the filing date for an application with “priority +review.” The review process may be extended by the FDA for three additional months to consider new information or in the case of +a clarification provided by the applicant to address an outstanding deficiency identified by the FDA following the original submission. +Despite these review goals, the NDA review process can be very lengthy, and it is not uncommon for FDA review of an application to extend +beyond the PDUFA target action date. Most innovative drug products (other than biological products) obtain FDA marketing approval pursuant +to an NDA submitted under Section 505(b)(1) of the FDCA, commonly referred to as a traditional or “full NDA.” In 1984, with +passage of the Drug Price Competition and Patent Term Restoration Act, informally known as the Hatch-Waxman Act, that established an +abbreviated regulatory scheme authorizing the FDA to approve generic drugs based on an innovator or “reference” product, +Congress also enacted Section 505(b)(2) of the FDCA, which provides a hybrid pathway combining features of a traditional NDA and a generic +drug application. Section 505(b)(2) enables the applicant to rely, in part, on the FDA’s prior findings of safety and efficacy +data for an existing product, or published literature, in support of its application. Section 505(b)(2) NDAs may provide an alternate +path to FDA approval for new or improved formulations or new uses of previously approved products that would require new clinical data +to demonstrate safety or effectiveness. Section 505(b)(2) permits the filing of an NDA in which the applicant relies, at least in part, +on information from studies made to show whether a drug is safe or effective that were not conducted by or for the applicant and for +which the applicant has not obtained a right of reference or use. A Section 505(b)(2) applicant may eliminate or reduce the need to conduct +certain preclinical or clinical studies, if it can establish that reliance on studies conducted for a previously approved product is +scientifically appropriate. The FDA may also require companies to perform additional studies or measurements, including nonclinical and +clinical studies, to support the change from the approved product. The FDA may then approve the new clinical asset for all or some of +the labeled indications for which the referenced product has been approved, as well as for any new indication for which the Section 505(b)(2) +NDA applicant has submitted data. +In +connection with its review of an application, the FDA will typically submit information requests to the applicant and set deadlines for +responses thereto. The FDA will also conduct a pre-approval inspection of the manufacturing facilities for the new product to determine +whether the manufacturing processes and facilities comply with GMPs. The FDA will not approve the product unless it determines that +the manufacturing processes and facilities are in compliance with cGMP requirements and are adequate to assure consistent production +of the product within required specifications. +The +FDA also may inspect the sponsor and one or more clinical trial sites to assure compliance with IND and GCP requirements and the integrity +of the clinical data submitted to the FDA. To ensure cGMP and GCP compliance by its employees and third-party contractors, an applicant +may incur significant expenditure of time, money and effort in the areas of training, record keeping, production and quality control. +The FDA generally accepts data from foreign clinical trials in support of an NDA if the trials were conducted under an IND. If a foreign +clinical trial is not conducted under an IND, the FDA nevertheless may accept the data in support of an NDA if the study was conducted +in accordance with GCPs and the FDA is able to validate the data through an on-site inspection, if deemed necessary. Although the FDA +generally requests that marketing applications be supported by some data from domestic clinical trials, the FDA may accept foreign data +as the sole basis for marketing approval if (1) the foreign data are applicable to the United States population and United States medical +practice, (2) the studies were performed by clinical investigators with recognized competence, and (3) the data may be considered valid +without the need for an on-site inspection or, if the FDA considers the inspection to be necessary, the FDA is able to validate the data +through an on-site inspection or other appropriate means. +The +FDA may also refer an application, including applications for novel clinical asset which present difficult questions of safety or efficacy, +to an advisory committee for review, evaluation and recommendation as to whether the application should be approved and under what conditions. +Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, +evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound +by the recommendation of an advisory committee, but it considers such recommendations when making final decisions on approval. +Data +from clinical trials are not always conclusive, and the FDA or its advisory committee may interpret data differently than the sponsor +interprets the same data. The FDA may also re-analyze the clinical trial data, which could result in extensive discussions between the +FDA and the applicant during the review process or delay, limit or prevent regulatory approval. The FDA may not grant approval on a timely +basis or at all. +The +FDA also may require submission of a risk evaluation and mitigation strategy (“REMS”) if it determines that a REMS is necessary +to ensure that the benefits of the drug product outweigh its risks and to assure the safe use of the product. The REMS could include +medication guides, physician communication plans, assessment plans and/or elements to assure safe use, such as restricted distribution +methods, patient registries or other risk minimization tools. The FDA determines the requirement for a REMS, as well as the specific +REMS provisions, on a case-by-case basis. If the FDA concludes a REMS is needed, the sponsor of the application must submit a proposed +REMS and the FDA will not approve the application without a REMS. +13 +Decisions +on NDAs +The +FDA reviews an application to determine, among other things, whether the product is safe and whether it is effective for its intended +use(s), with the latter determination being made on the basis of substantial evidence. The term “substantial evidence” is +defined under the FDCA as “evidence consisting of adequate and well-controlled investigations, including clinical investigations, +by experts qualified by scientific training and experience to evaluate the effectiveness of the drug involved, on the basis of which +it could fairly and responsibly be concluded by such experts that the drug will have the effect it purports or is represented to have +under the conditions of use prescribed, recommended, or suggested in the labeling or proposed labeling thereof.” +The +FDA has interpreted this evidentiary standard to require at least two adequate and well-controlled clinical investigations to establish +effectiveness of a new product. Under certain circumstances, however, the FDA has indicated that a single trial with certain characteristics +and additional information may satisfy this standard. This approach was subsequently endorsed by Congress in 1998 with legislation providing, +in pertinent part, that “If [the FDA] determines, based on relevant science, that data from one adequate and well-controlled clinical +investigation and confirmatory evidence (obtained prior to or after such investigation) are sufficient to establish effectiveness, the +FDA may consider such data and evidence to constitute substantial evidence.” This modification to the law recognized the potential +for the FDA to find that one adequate and well controlled clinical investigation with confirmatory evidence, including supportive data +outside of a controlled trial, is sufficient to establish effectiveness. In December 2019, the FDA issued draft guidance further explaining +the studies that are needed to establish substantial evidence of effectiveness, and in September 2023 it issued a draft guidance that +complements the 2019 draft guidance. The FDA has not yet finalized either guidance. +After +evaluating the application and all related information, including the advisory committee recommendations, if any, and inspection reports +of manufacturing facilities and clinical trial sites, the FDA will issue either a Complete Response Letter (“CRL”) or an +approval letter. To approve the application, the FDA must determine that the drug is effective and that its expected benefits outweigh +its potential risks to patients. This “benefit-risk” assessment is informed by the extensive body of evidence about the product’s +safety and efficacy in the NDA. This assessment is also informed by other factors, including: the severity of the underlying condition +and how well patients’ medical needs are addressed by currently available therapies; uncertainty about how the premarket clinical +trial evidence will extrapolate to real-world use of the product in the post-market setting; and whether risk management tools are necessary +to manage specific risks. In connection with this assessment, the FDA review team will assemble all individual reviews and other documents +into an “action package,” which becomes the record for FDA review. The review team then issues a recommendation, and a senior +FDA official makes a decision. +A +CRL indicates that the review cycle of the application is complete, and the application will not be approved in its present form. A CRL +generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the +FDA to reconsider the application. The CRL may require additional clinical or other data, additional pivotal Phase III clinical trial(s) +and/or other significant and time-consuming requirements related to clinical trials, preclinical studies or manufacturing. If a CRL is +issued, the applicant will have one year to respond to the deficiencies identified by the FDA, at which time the FDA can deem the application +withdrawn or, in its discretion, grant the applicant an additional six-month extension to respond. The FDA has committed to reviewing +resubmissions in response to an issued CRL in either two or six months depending on the type of information included. Even with the submission +of this additional information, however, the FDA ultimately may decide that the application does not satisfy the regulatory criteria +for approval. +An +approval letter, on the other hand, authorizes commercial marketing of the product with specific prescribing information for specific +indications. That is, the approval will be limited to the conditions of use ( e.g. , patient population, indication) described in +the FDA-approved labeling. Further, depending on the specific risk(s) to be addressed, the FDA may require that contraindications, warnings +or precautions be included in the product labeling, require that post-approval trials, including Phase 4 clinical trials, be conducted +to further assess a product’s safety after approval, require testing and surveillance programs to monitor the product after commercialization +or impose other conditions, including distribution and use restrictions or other risk management mechanisms under a REMS which can materially +affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the +results of post-marketing trials or surveillance programs. After approval, some types of changes to the approved product, such as adding +new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and +approval. +14 +Special +FDA Expedited Review Programs +The +FDA is authorized to designate certain products for expedited development or review if they are intended to address an unmet medical +need in the treatment of a serious or life-threatening disease or condition. These programs include fast track designation, breakthrough +therapy designation, and priority review designation. The purpose of these programs is to provide important new drugs to patients earlier +than under standard FDA review procedures. +To +be eligible for a fast-track designation, the FDA must determine, based on the request of a sponsor, that a product is intended to treat +a serious or life-threatening disease or condition and demonstrates the potential to address an unmet medical need. The FDA will determine +that a product will fill an unmet medical need if it will provide a therapy where none exists or provide a therapy that may be potentially +superior to existing therapy based on efficacy or safety factors. Fast track designation provides additional opportunities for interaction +with the FDA’s review team and may allow for a rolling review of NDA components before the completed application is submitted. If the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines +that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA. In addition, +fast track designation may be withdrawn by the sponsor or rescinded by the FDA if the designation is no longer supported by data emerging +in the clinical trial process. +In +addition, with the enactment of the FDA Safety and Innovation Act (“FDASIA”) in 2012, Congress created a new regulatory program +for therapeutic candidates designated by FDA as “breakthrough therapies” upon a request made by the IND sponsors. A breakthrough +therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening +disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing +therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. +The FDA must take certain actions with respect to breakthrough therapies, such as holding timely meetings with and providing advice to +the product sponsor, intended to expedite the development and review of an application for approval of a breakthrough therapy. +Finally, +the FDA may designate a product for priority review if it is a drug that treats a serious condition and, if approved, would provide a +significant improvement in safety or effectiveness. The FDA determines at the time that the marketing application is submitted, on a +case-by-case basis, whether the proposed drug represents a significant improvement in treatment, prevention or diagnosis of disease when +compared with other available therapies. Significant improvement may be illustrated by evidence of increased effectiveness in the treatment +of a condition, elimination or substantial reduction of a treatment-limiting drug reaction, documented enhancement of patient compliance +that may lead to improvement in serious outcomes, or evidence of safety and effectiveness in a new subpopulation. A priority review designation +is intended to direct overall attention and resources to the evaluation of such applications, and to shorten the FDA’s goal for +taking action on a marketing application from ten months to six months for an NDA for a new molecular entity from the date of filing. +Even +if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for +qualification or decide that the time period for FDA review or approval will not be shortened. Furthermore, fast track designation, breakthrough +therapy designation and priority review do not change the standards for approval and may not ultimately expedite the development or approval +process. +Accelerated +Approval Pathway +In +addition, a product studied for its safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful +therapeutic benefit over existing treatments may receive accelerated approval, meaning that it may be approved on (i) the basis of adequate +and well-controlled clinical trials establishing that the drug product has an effect on a surrogate endpoint that is reasonably likely +to predict clinical benefit, or (ii) on an intermediate clinical endpoint that can be measured earlier than irreversible morbidity or +mortality (“IMM”) and that is reasonably likely to predict an effect on IMM or other clinical benefits, taking into account +the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, +the FDA may require a sponsor of a drug receiving accelerated approval to perform post-marketing studies to verify and describe the predicted +effect on IMM or other clinical endpoints, and the drug may be subject to expedited withdrawal procedures. Drugs granted accelerated +approval must meet the same statutory standards for safety and effectiveness as those granted traditional approval. +The +accelerated approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional post-approval +confirmatory studies to verify and describe the drug’s clinical benefit. As a result, a therapeutic candidate approved on this +basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials +to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or to confirm the predicted clinical +benefit of the product during post-marketing studies, would allow the FDA to withdraw approval of the drug. All promotional materials +for drug products being considered and approved under the accelerated approval program are subject to prior review by the FDA. Lawmakers, +FDA officials, and other stakeholders continually evaluate the accelerated approval program which may lead to legislative and/or administrative +changes in the future. +15 +Post-Approval +Requirements +Drugs +manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among +other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion +and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications +or other labeling claims, are subject to prior FDA review and approval. Certain modifications to the product, including changes in indications +or manufacturing processes or facilities, may require the applicant to develop additional data or conduct additional preclinical studies +and clinical trials to support the submission to FDA. As previously noted, there also are continuing, annual user fee requirements for +any marketed products, as well as new application fees for supplemental applications with clinical data. +The +FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require post-marketing +testing, including Phase 4 clinical trials, and surveillance to further assess and monitor the product’s safety and effectiveness +after commercialization. +In +addition, FDA regulations require that products be manufactured in specific approved facilities and in accordance with cGMPs. The cGMP +regulations include requirements relating to the organization of personnel, buildings and facilities, equipment, control of components +and drug product containers and closures, production and process controls, packaging and labeling controls, holding and distribution, +laboratory controls, records and reports and returned or salvaged products. Drug manufacturers and other entities involved in the manufacture +and distribution of approved drugs are required to register their establishments with the FDA and some state agencies and are subject +to periodic unannounced inspections by the FDA for compliance with cGMP requirements and other laws. Changes to the manufacturing process +are strictly regulated and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA +regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements +upon the sponsor and any third-party manufacturers. Accordingly, manufacturers must continue to expend time, money, and effort in production +and quality control to maintain compliance with cGMP and other aspects of quality control and quality assurance. +The +FDA strictly regulates the marketing, labeling, advertising and promotion of drug products that are placed on the market. A product cannot +be commercially promoted before it is approved, and approved drugs may generally be promoted only for their approved indications and +for use in patient populations described in the product’s approved labeling. Promotional claims must also be consistent with the +product’s FDA-approved label, including claims related to safety and effectiveness. The government closely scrutinizes the promotion +of prescription drugs in specific contexts such as direct-to-consumer advertising, industry-sponsored scientific and educational activities, +and promotional activities involving the Internet and social media. Although physicians may prescribe legally available products for +off-label uses, manufacturers may not market or promote such uses. +Later +discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing +processes, or failure to comply with regulatory requirements, may result in mandatory revisions to the approved labeling to add new safety +information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other +restrictions under a REMS program. Other potential consequences of regulatory non-compliance include, among other things: +● +restrictions +on, or suspensions of, the marketing or manufacturing of the product, complete withdrawal of the product from the market or product +recalls; +● +interruption +of production processes, including the shutdown of manufacturing facilities or production lines or the imposition of new manufacturing +requirements; +● +fines, +warning letters or other enforcement letters or clinical holds on post-approval clinical trials; +● +mandated +modification of promotional materials and labeling and the issuance of corrective information; +● +refusal +of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product approvals; +● +product +seizure or detention, or refusal to permit the import or export of products; +● +injunctions +or the imposition of civil or criminal penalties; or +● +consent +decrees, corporate integrity agreements, debarment, or exclusion from federal healthcare programs. +16 +In +addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act (“PDMA”) +which regulates the distribution of drugs and drug samples at the federal level and sets minimum standards for the registration and regulation +of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples +and impose requirements to ensure accountability in distribution. The Drug Supply Chain Security Act (the “DSCSA”), was enacted +with the aim of building an electronic system to identify and trace certain prescription drugs distributed in the United States. The +DSCSA mandated phased-in and resource-intensive obligations for pharmaceutical manufacturers, wholesale distributors and dispensers by +November 2023, but so as not to disrupt supply chains, the FDA has granted certain exemptions from enhanced drug distribution security +requirements for eligible trading partners for particular periods of time. From time to time, new legislation and regulations may be +implemented that could significantly change the statutory provisions governing the approval, manufacturing and marketing of products +regulated by the FDA. For example, the FDA released proposed regulations in February 2022 to amend the national standards for licensing +of wholesale drug distributors by the states; establish new minimum standards for state licensing third-party logistics providers; and +create a federal system for licensure for use in the absence of a state program, each of which is mandated by the DSCSA. It is impossible +to predict whether further legislative or regulatory changes will be enacted, or FDA regulations, guidance or interpretations will be +changed or what the impact of such potential changes, if any, may be. +Regulatory +Exclusivity and Approval of Follow-on Products +Hatch-Waxman +Exclusivity +In +addition to enacting Section 505(b)(2) of the FDCA as part of the Hatch-Waxman Amendments to the FDCA, Congress also established an abbreviated +regulatory scheme authorizing the FDA to approve generic drugs that are shown to contain the same active ingredients as, and to be bioequivalent +to, drugs previously approved by the FDA pursuant to NDAs. To obtain approval of a generic drug, an applicant must submit an abbreviated +new drug application (“ANDA”) to the agency. An ANDA is a comprehensive submission that contains, among other things, data +and information pertaining to the active pharmaceutical ingredient, bioequivalence, drug product formulation, specifications and stability +of the generic drug, as well as analytical methods, manufacturing process validation data and quality control procedures. ANDAs are “abbreviated” +because they cannot include preclinical and clinical data to demonstrate safety and effectiveness. Instead, in support of such applications, +a generic manufacturer must rely on the preclinical and clinical testing previously conducted for a drug product previously approved +under an NDA, known as the reference listed drug (“RLD”). +In +order for an ANDA to be approved, the FDA must find that the generic version is identical to the RLD with respect to the active ingredients, +the route of administration, the dosage form, the strength of the drug and the conditions of use of the drug. At the same time, the FDA +must also determine that the generic drug is “bioequivalent” to the innovator drug. Under the statute, a generic drug is +bioequivalent to an RLD if “the rate and extent of absorption of the drug do not show a significant difference from the rate and +extent of absorption of the listed drug.” Unlike the 505(b)(2) NDA pathway that permits a follow-on applicant to conduct and submit +data from additional clinical trials or nonclinical studies in order to support the proposed change(s) to the reference product, the +ANDA regulatory pathway does not allow applicants to submit new clinical data other than bioavailability or bioequivalence data. +Upon +approval of an ANDA, the FDA indicates whether the generic product is “therapeutically equivalent” to the RLD in its publication +“Approved Drug Products with Therapeutic Equivalence Evaluations,” also referred to as the “Orange Book.” Physicians +and pharmacists consider a therapeutic equivalent generic drug to be fully substitutable for the RLD. In addition, by operation of certain +state laws and numerous health insurance programs, the FDA’s designation of therapeutic equivalence often results in substitution +of the generic drug without the knowledge or consent of either the prescribing physician or patient. +As +part of the NDA review and approval process, applicants are required to list with the FDA each patent that has claims that cover the +applicant’s product or method of therapeutic use. Upon approval of a new drug, each of the patents listed in the application for +the drug is then published in the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential follow-on competitors +in support of approval of an ANDA or 505(b)(2) NDA. +17 +When +an ANDA applicant submits its application to the FDA, it is required to certify to the FDA concerning any patents listed for the reference +product in the FDA’s Orange Book. Specifically, the applicant must certify that: (i) the required patent information has not been +filed; (ii) the listed patent has expired; (iii) the listed patent has not expired but will expire on a particular date and approval +is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. Moreover, to the +extent that the Section 505(b)(2) NDA applicant is relying on studies conducted for an already approved product, the applicant also is +required to certify to the FDA concerning any patents listed for the NDA-approved product in the Orange Book to the same extent that +an ANDA applicant would. +If +the follow-on applicant does not challenge the innovator’s listed patents, the FDA will not approve the ANDA or 505(b)(2) application +until all the listed patents claiming the referenced product have expired. A certification that the new product will not infringe the +already approved product’s listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the follow-on +applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification +to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent +infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within +45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA or 505(b)(2) NDA until +the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable +to the ANDA or 505(b)(2) applicant. +An +ANDA or 505(b)(2) application also will not be approved until any applicable non-patent exclusivities listed in the Orange Book for the +referenced product have expired. The Hatch-Waxman Amendments to the FDCA provided a five-year period of non-patent data exclusivity within +the United States to the first applicant to gain approval of an NDA for a new chemical entity (“NCE”). For the purposes of +this provision, an NCE is a drug that contains no active moiety that has previously been approved by the FDA in any other NDA. An active +moiety is the molecule or ion responsible for the physiological or pharmacological action of the drug substance. In cases where such +NCE exclusivity has been granted, an ANDA or 505(b)(2) NDA may not be filed with the FDA until the expiration of five years unless the +submission is accompanied by a Paragraph IV certification, in which case the applicant may submit its application four years following +the original product approval. +The +FDCA also provides for a period of three years of data exclusivity if an NDA or NDA supplement includes reports of one or more new clinical +investigations, other than bioavailability or bioequivalence studies, that were conducted or sponsored by the applicant are deemed by +the FDA to be essential to the approval of the application. This three-year exclusivity period often protects changes to a previously +approved drug product, such as new indications, dosage forms, route of administration or combination of ingredients. Three-year exclusivity +would be available for a drug product that contains a previously approved active moiety, provided the statutory requirement for a new +clinical investigation is satisfied. Unlike five-year NCE exclusivity, an award of three-year exclusivity does not block the FDA from +accepting ANDAs or 505(b)(2) NDAs seeking approval for generic versions of the drug as of the date of approval of the original drug product; +rather, this three-year exclusivity covers only the conditions of use associated with the new clinical investigations and, as a general +matter, does not prohibit the FDA from approving follow-on applications for drugs containing the original active ingredient. +Five-year +and three-year exclusivity also will not delay the submission or approval of a traditional NDA filed under Section 505(b)(1) of the FDCA; +however, an applicant submitting a traditional NDA would be required to conduct or obtain a right of reference to all of the preclinical +studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness. +Orphan +Drug Designation and Exclusivity +Under +the Orphan Drug Act, the FDA may grant orphan drug designation to a drug intended to treat a rare disease or condition, which is generally +a disease or condition that affects either (i) fewer than 200,000 individuals in the United States, or (ii) more than 200,000 individuals +in the United States and for which there is no reasonable expectation that the cost of developing and making available in the United +States a drug for this type of disease or condition will be recovered from sales in the United States for that drug. Legislative proposals +are currently being considered that would revise or revoke the second option available for a drug candidate to receive an orphan designation, +the so-called “cost recovery” pathway. Orphan drug designation must be requested before submitting an NDA. After the FDA +grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use will be disclosed publicly by the +FDA; the posting will also indicate whether a drug is no longer designated as an orphan drug. +18 +More +than one clinical asset may receive an orphan drug designation for the same indication, and the same clinical asset can be designated +for more than one qualified orphan indication. The benefits of orphan drug designation include research and development tax credits and +exemption from FDA prescription drug user fees. Orphan drug designation does not convey any advantage in or shorten the duration of the +regulatory review and approval process if or when an NDA for the drug candidate is filed. +If +a product that has orphan drug designation subsequently receives the first FDA approval for the indication for which it has such designation, +the product is entitled to orphan product exclusivity, which means that for seven years, the FDA may not approve any other marketing +applications for the same drug for the same indication, except under limited circumstances described further below. Orphan exclusivity +does not block the approval of a different drug for the same rare disease or condition, nor does it block the approval of the same drug +for different conditions. As a result, the FDA can still approve different drugs for use in treating the same indication or disease. +Additionally, if a drug designated as an orphan product receives marketing approval for an indication broader than what was designated, +it may not be entitled to orphan drug exclusivity. +Orphan +exclusivity will not bar approval of another product with the same drug for the same condition under certain circumstances, including +if a subsequent product with the same drug for the same condition is shown to be clinically superior to the approved product on the basis +of greater efficacy or safety or a major contribution to patient care, or if the company with orphan drug exclusivity cannot assure the +availability of sufficient quantities of the drug to meet the needs of persons with the disease or condition for which the drug was designated. +The FDA is now required to publish a summary of the clinical superiority findings when a drug is eligible for orphan product exclusivity +on the basis of a demonstration of clinical superiority. +Patent +Term Extension +A +patent claiming a prescription drug for which FDA approval is granted may be eligible for a limited patent term extension under the FDCA, +which permits a patent restoration of up to five years for patent term lost during product development and the FDA regulatory review +provided that certain statutory and regulatory requirements are met. The length of the patent term extension is related to the length +of time the drug is under regulatory review while the patent is in force. The restoration period granted on a patent covering a new FDA-regulated +medical product is typically one-half the time between the date a clinical investigation on human beings is begun and the submission +date of an application for premarket approval of the product, plus the time between the submission date of an application for approval +of the product and the ultimate approval date. Patent term restoration cannot be used to extend the remaining term of a patent past a +total of 14 years from the product’s approval date. Only one patent applicable to an approved drug product is eligible for the +extension, and the application for the extension must be submitted prior to the expiration of the patent in question. A patent that covers +multiple products for which approval is sought can only be extended in connection with one of the marketing approvals. The USPTO reviews +and approves the application for any patent term extension or restoration in consultation with the FDA. +Other +U.S. Healthcare Laws and Regulations +Manufacturing, +sales, promotion, and other activities following product approval may also be subject to regulation by other regulatory authorities in +the United States in addition to the FDA. Depending on the nature of the product, those authorities may include the Centers for Medicare +and Medicaid Services (“CMS”), other divisions of the Department of Health and Human Services (“HHS”), the Department +of Justice, the Drug Enforcement Administration, the Federal Trade Commission, the Occupational Safety and Health Administration, and +state and local governments. +For +example, in the United States, sales and marketing for prescription biopharmaceutical products must comply with state and federal fraud +and abuse laws. These laws include the federal Anti-Kickback Statute, which makes it illegal for any person, including a prescription +drug manufacturer (or a party acting on its behalf), to knowingly and willfully solicit, receive, offer or pay any remuneration that +is intended to induce or reward referrals, including the purchase, recommendation, order or prescription of a particular drug, for which +payment may be made under a federal healthcare program, such as Medicare or Medicaid. Violations of this law are punishable by up to +ten years in prison, criminal fines, administrative civil money penalties and exclusion from participation in federal healthcare programs. +In addition, the Patient Protection and Affordable Care Act, or ACA, among other things, amended the intent requirement of the federal +Anti-Kickback Statute and two of the five criminal healthcare fraud statutes created by the Health Insurance Portability and Accountability +Act of 1996, or HIPAA. A person or entity no longer needs to have actual knowledge of these two provisions in the statute or specific +intent to violate them; specifically with respect to the prohibition on executing or attempting to execute a scheme or artifice to defraud +or to fraudulently obtain money or property of any healthcare benefit program and the prohibition on disposing of assets to enable a +person to become eligible for Medicaid. Moreover, the government may now assert that a claim including items or services resulting from +a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act. +19 +Pricing +and rebate programs must comply with the Medicaid rebate requirements of the U.S. Omnibus Budget Reconciliation Act of 1990 and more +recent requirements in the ACA. If products are made available to authorized users of the Federal Supply Schedule of the General Services +Administration, additional laws and requirements apply. There also are federal transparency requirements under the Physician Payments +Sunshine Act that require manufacturers of FDA-approved drugs, devices, biologics and medical supplies covered by Medicare or Medicaid +to report, on an annual basis, to CMS information related to payments and other transfers of value to physicians, teaching hospitals, +and certain advanced non-physician healthcare practitioners and physician ownership and investment interests. Prescription drug products +also must meet applicable child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act. +Manufacturing, +sales, promotion, and other activities also are potentially subject to federal and state consumer protection and unfair competition laws. +Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines, +or the relevant compliance guidance promulgated by the federal government, in addition to requiring drug manufacturers to report information +related to payments to physicians and other healthcare providers or marketing expenditures to the extent that those laws impose requirements +that are more stringent than the Physician Payments Sunshine Act. State and foreign laws also govern the privacy and security of health +information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus +complicating compliance efforts. +The +failure to comply with any of these laws or regulatory requirements subjects firms to possible legal or regulatory action. Depending +on the circumstances, failure to meet applicable regulatory requirements can result in criminal prosecution, fines or other penalties, +injunctions, requests for recall, seizure of products, total or partial suspension of production, denial or withdrawal of product approvals +or refusal to allow a firm to enter into supply contracts, including government contracts. +Government +Regulation Outside the U.S. +In +addition to regulations in the United States, we will be subject to a variety of foreign regulations that govern, among other things, +clinical trials and any commercial sales and distribution of our products, if approved, either directly or through distribution partners. +Whether or not we obtain FDA approval for a product candidate, we must obtain the requisite approvals from regulatory authorities in +foreign countries or economic areas, such as the European Union and the United Kingdom, among other foreign countries, before we may +commence clinical trials or market products in those countries or areas. The foreign regulatory approval process includes all of the +risks associated with the FDA approval described above, and the time required to obtain approval in other countries and jurisdictions +might differ from and be longer than that required to obtain FDA approval. Some foreign jurisdictions have a drug product approval process +similar to that in the U.S., which requires the submission of a clinical trial application much like the IND prior to the commencement +of clinical studies. In Europe, for example, a clinical trial application, or CTA, must be submitted to each country’s national +health authority and an independent ethics committee, much like the FDA and IRB, respectively. Once the CTA is approved in accordance +with a country’s requirements, clinical trial development may proceed. To obtain regulatory approval of a medicinal product candidate +under European Union regulatory systems, we would be required to submit a Marketing Authorisation Application, or MAA, which is similar +to the NDA, except that, among other things, there are country-specific document requirements. For countries outside of the European +Union, such as countries in Eastern Europe, Latin America or Asia, and recently the United Kingdom, the requirements governing the conduct +of clinical trials, product approval, pricing and reimbursement vary from country to country. Regulatory approval in one country or jurisdiction +does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction +may negatively impact the regulatory process in others. Moreover, some nations may not accept clinical studies performed for U.S. approval +to support approval in their countries or require that additional studies be performed on natives of their countries. In addition, in +certain foreign markets, the pricing of drug products is subject to government control and reimbursement may in some cases be unavailable +or insufficient. If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, +suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions, and criminal prosecution. +As +of January 31, 2020, the United Kingdom is no longer a member state of the European Union, and therefore a separate marketing authorization +application and approval will be required to market a medicinal product in the U.K. The Medicines and Healthcare products Regulatory +Agency, or the MHRA, is the U.K.’s standalone pharmaceutical regulator. +20 +Clinical +Trials and Regulation of Medicinal Products in Europe +As +in the United States, medicinal products can be marketed in the European Union only if a marketing authorization from the competent regulatory +agencies has been obtained. Similar to the United States, the various phases of preclinical and clinical research in the European Union +are subject to significant regulatory controls. +Pursuant +to the European Clinical Trials Directive, a system for the approval of clinical trials in the European Union has been implemented through +national legislation of the member states. Under this system, an applicant must obtain approval from the competent national authority +of a European Union member state in which the clinical trial is to be conducted. Furthermore, the applicant may only start a clinical +trial after a competent ethics committee has issued a favorable opinion. Clinical trial applications must be accompanied by an investigational +medicinal product dossier with supporting information prescribed by the European Clinical Trials Directive and corresponding national +laws of the member states and further detailed in applicable guidance documents. In April 2014, the new Clinical Trials Regulation, (EU) +No 536/2014 (Clinical Trials Regulation) was adopted and became effective on January 31, 2022. The Clinical Trials Regulation is directly +applicable in all the European Union Member States, repealing the prior Clinical Trials Directive 2001/20/EC. The extent to which ongoing +clinical trials will be governed by the Clinical Trials Regulation will depend on the duration of the individual clinical trial; if a +clinical trial continues for more than three years from the day on which the Clinical Trials Regulation becomes applicable the Clinical +Trials Regulation will at that time begin to apply to the clinical trial. +The +new Clinical Trials Regulation aims to simplify and streamline the approval of clinical trials in the European Union. The main characteristics +of the regulation include: a streamlined application procedure via a single entry point; a single set of documents to be prepared and +submitted for the application as well as simplified reporting procedures for clinical trial sponsors; and a harmonized procedure for +the assessment of applications for clinical trials. +To +obtain marketing approval of a drug in the European Union, an applicant must submit a MAA either under a centralized or decentralized +procedure. The centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid +for all European Union member states, Iceland, Lichtenstein and Norway. The centralized procedure is compulsory for specific products, +including for medicines produced by certain biotechnological processes, products designated as orphan medicinal products, advanced therapy +products (such as gene-therapy, somatic cell-therapy or tissue-engineered medicines) and products with a new active substance indicated +for the treatment of certain disorders. For products with a new active substance indicated for the treatment of certain disorders and +products that are highly innovative or for which a centralized process is in the interest of patients, the centralized procedure may +be optional. Under the centralized procedure the maximum timeframe for the evaluation of an MAA by the European Medicines Agency (“EMA”) +is 210 days, excluding clock stops, when additional written or oral information is to be provided by the applicant in response to questions +asked by the Committee for Medicinal Products for Human Use (“CHMP”). Accelerated assessment might be granted by the CHMP +in exceptional cases, when a medicinal product is expected to be of a major public health interest, particularly from the point of view +of therapeutic innovation. The timeframe for the evaluation of an MAA under the accelerated assessment procedure is of 150 days, excluding +stop-clocks. +The +decentralized procedure is available to applicants who wish to market a product in specific European Union member states where such product +has not received marketing approval in any European Union member states before. The decentralized procedure provides for an applicant +to apply to one-member state to assess the application (the reference member state) and specifically list other member states in which +it wishes to obtain approval (concerned member states). +21 +In +the European Union, only products for which marketing authorizations have been granted may be promoted. A marketing authorization is +valid for five years in principle and the marketing authorization may be renewed after five years on the basis of a re-evaluation of +the risk-benefit balance by the EMA or by the competent authority of the authorizing member state. To this end, the marketing authorization +holder must provide the EMA or the competent authority with a consolidated version of the file in respect of quality, safety and efficacy, +including all variations introduced since the marketing authorization was granted, at least six months before the marketing authorization +ceases to be valid. Once renewed, the marketing authorization is valid for an unlimited period, unless the European Commission or the +competent authority decides, on justified grounds relating to pharmacovigilance, to proceed with one additional five-year renewal. Any +authorization which is not followed by the actual placing of the drug on the European Union market (in case of centralized procedure) +or on the market of the authorizing member state within three years after authorization ceases to be valid (the so-called sunset clause). +Moreover, +even if authorized to be marketed in the European Union, prescription medicines may only be promoted to healthcare professionals, not +the general public. All promotion should be in accordance with the particulars listed in the summary of product characteristics. Promotional +materials must also comply with various laws, and codes of conduct developed by pharmaceutical industry bodies in the European Union +which govern (among other things) the training of sales staff, promotional claims and their justification, comparative advertising, misleading +advertising, endorsements, and (where permitted) advertising to the general public. Failure to comply with these requirements could lead +to the imposition of penalties by the competent authorities of the European Union member states. The penalties could include warnings, +orders to discontinue the promotion of the drug product, seizure of promotional materials, fines and possible imprisonment. +Regulation +of New Drugs in the United Kingdom +The +United Kingdom left the European Union on January 31, 2020 (commonly referred to as “Brexit”), with a transitional period +that expired on December 31, 2020. The United Kingdom and the European Union entered into a trade agreement known as the Trade and Cooperation +Agreement, which went into effect on January 1, 2021. We are currently evaluating the potential impacts on our business of the Trade +and Cooperation Agreement and guidance issued to date by the United Kingdom’s MHRA regarding the requirements for licensing and +marketing medicinal products in the United Kingdom. +Since +the regulatory framework for pharmaceutical products in the United Kingdom covering the quality, safety and efficacy of pharmaceutical +products, clinical trials, marketing authorization, commercial sales and distribution of medicinal products has only recently changed, +it is difficult to draw comparisons about the impact of the new regulatory regime and impact on the approval of product candidates in +the United Kingdom. In addition, even if a drug is licensed in the UK by the MHRA, it must further be approved by the National Institute +for Health & Care Excellence to ensure use within the UK’s National Health Service (NHS). +Pharmaceutical +Coverage, Pricing and Reimbursement, and Healthcare Reform +Sales +of our products, if approved for marketing, will depend, in part, on the availability and extent of coverage and reimbursement by third-party +payors, such as government health programs, including Medicare and Medicaid, commercial insurance and managed healthcare organizations. +These third-party payors are increasingly challenging the price and limiting the coverage and reimbursement amounts for medical products +and services. There may be significant delays in obtaining coverage and reimbursement for approved products, and coverage may be more +limited than the purposes for which the product is approved by the FDA or regulatory authorities in other countries. It is time-consuming +and expensive to seek reimbursement from third-party payors. Moreover, eligibility for reimbursement does not imply that any product +will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. +Interim payments for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Payment +rates may vary according to the use of the product and the clinical setting in which it is used, may be based on payments allowed for +lower-cost products that are already reimbursed and may be incorporated into existing payments for other services. Net prices for products +may be reduced by mandatory discounts or rebates required by third-party payors and by any future relaxation of laws that presently restrict +imports of products from countries where they may be sold at lower prices than in the United States. In the United States, third-party +payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies, but they also have +their own methods and approval process apart from Medicare coverage and reimbursement determinations. Accordingly, one third-party payor’s +determination to provide coverage for a product does not assure that other payors will also provide coverage for the product. +22 +In +addition, the containment of healthcare costs has become a priority for federal and state governments, and the prices of drugs have been +a focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing +cost-containment programs, including price controls, restrictions on coverage and reimbursement, and requirements for substitution of +generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions +with existing controls and measures, could further limit our net revenue and results. Decreases in third-party reimbursement for our +clinical assets or a decision by a third-party payor to not cover our clinical assets could reduce physician usage of the clinical asset +and have a material adverse effect on our sales, results of operations and financial condition. Moreover, there has been heightened governmental +scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries +and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review +the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug +products. Individual states in the United States have also increasingly passed legislation and implemented regulations designed to control +pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access +and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and +bulk purchasing. In December 2020, the U.S. Supreme Court held unanimously that federal law does not preempt the states’ ability +to regulate pharmaceutical benefit managers (“PBMs”) and other members of the healthcare and pharmaceutical supply chain, +an important decision that has led to further and more aggressive efforts by states in this area. +On +August 16, 2022, President Biden signed into the law the Inflation Reduction Act of 2022, or the IRA. Among other things, the IRA has +multiple provisions that can impact the prices of drug products that are both sold into the Medicare program and throughout the United +States. Beginning in 2023, a manufacturer of drugs covered by Medicare Parts B or D must pay a rebate to the federal government if their +drug product’s price increases faster than the rate of inflation. This calculation is made on a drug product by drug product basis +and the amount of the rebate owed to the federal government is directly dependent on the volume of a drug product that is paid for by +Medicare Parts B or D. Additionally, starting for payment year 2026, CMS will negotiate drug prices annually for a select number of single +source Part D drugs without generic or biosimilar competition. CMS will also negotiate drug prices for a select number of Part B drugs +starting for payment year 2028. If a drug product is selected by CMS for negotiation, it is expected that the revenue generated from +such drug will decrease. +In +addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements +governing drug pricing vary widely from country to country. For example, in the European Union, the sole legal instrument at the European +Union level governing the pricing and reimbursement of medicinal products is Council Directive 89/105/EEC (the “Price Transparency +Directive”). The aim of the Price Transparency Directive is to ensure that pricing and reimbursement mechanisms established in +the European Union Member States are transparent and objective, do not hinder the free movement of and trade in medicinal products in +the European Union, and do not hinder, prevent or distort competition on the market. The Price Transparency Directive does not provide +any guidance concerning the specific criteria on the basis of which pricing and reimbursement decisions are to be made in the individual +European Union Member States, nor does it have any direct consequence for pricing or reimbursement levels in the individual European +Union Member States. The European Union Member States are free to restrict the range of medicinal products for which their national health +insurance systems provide reimbursement, and to control the prices and/or reimbursement levels of medicinal products for human use. A +European Union Member State may approve a specific price or level of reimbursement for the medicinal product or alternatively adopt +a system of direct or indirect controls on the profitability of the company responsible for placing the medicinal product on the market, +including volume-based arrangements, caps and reference pricing mechanisms. +Health +Technology Assessment (“HTA”) of medicinal products is becoming an increasingly common part of the pricing and reimbursement +procedures in some European Union Member States, including France, Germany, Ireland, Italy and Sweden. The HTA process in the European +Union Member States is governed by the national laws of these countries. HTA is the procedure according to which the assessment of the +public health impact, therapeutic impact, and the economic and societal impact of the use of a given medicinal product in the national +healthcare systems of the individual country is conducted. HTA generally focuses on the clinical efficacy and effectiveness, safety, +cost, and cost-effectiveness of individual medicinal products as well as their potential implications for the healthcare system. Those +elements of medicinal products are compared with other treatment options available on the market. The outcome of HTA regarding specific +medicinal products will often influence the pricing and reimbursement status granted to these medicinal products by the competent authorities +of individual European Union Member States. The extent to which pricing and reimbursement decisions are influenced by the HTA of the +specific medicinal product vary between the European Union Member States. For example, European Union Member States that have not yet +developed HTA mechanisms could rely to some extent on the HTA performed in countries with a developed HTA framework when adopting decisions +concerning the pricing and reimbursement of a specific medicinal product. +Separately +from cost containment efforts, in the United States and some foreign jurisdictions, there also have been, and continue to be, several +legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval +of product candidates or restrict or regulate post-approval activities. The FDA’s and other regulatory authorities’ policies +may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our current +or future product candidates. +23 +Data +Privacy and the Protection of Personal Information +We +are subject to laws and regulations governing data privacy and the protection of personal information including health information. The +legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing focus on privacy +and data protection issues which will continue to affect our business. In the United States, we may be subject to state security breach +notification laws, state laws protecting the privacy of health and personal information and federal and state consumer protections laws +that regulate the collection, use, disclosure and transmission of personal information. These laws overlap and often conflict and each +of these laws is subject to varying interpretations by courts and government agencies, creating complex compliance issues. If we fail +to comply with applicable laws and regulations we could be subject to penalties or sanctions, including criminal penalties. Our customers +and research partners must comply with laws governing the privacy and security of health information, including HIPAA and state health +information privacy laws. If we knowingly obtain health information that is protected under HIPAA, called “protected health information,” +our customers or research collaborators may be subject to enforcement, and we may have direct liability for the unlawful receipt of protected +health information or for aiding and abetting a HIPAA violation. +State +laws protecting health and personal information are becoming increasingly stringent. For example, California has implemented the California +Confidentiality of Medical Information Act that imposes restrictive requirements regulating the use and disclosure of health information +and other personally identifiable information, and California has recently adopted the California Consumer Privacy Act of 2018 (“CCPA”). +The CCPA mirrors a number of the key provisions of the EU General Data Protection Regulation (“GDPR”) described below. The +CCPA establishes a new privacy framework for covered businesses by creating an expanded definition of personal information, establishing +new data privacy rights for consumers in the State of California, imposing special rules on the collection of consumer data from minors, +and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement +reasonable security procedures and practices to prevent data breaches. Since passage of the CCPA, several other states (Connecticut, +Colorado, Virginia, and Utah) have also enacted comprehensive consumer privacy laws that include key differences from California’s +law, further complicating compliance by industry and other stakeholders. Other states in the U.S. are considering privacy laws similar +to the CCPA. +In +Europe, the GDPR went into effect in May 2018, implementing a broad data protection framework that expanded the scope of European Union +data protection law, including to non- European Union entities that process, or control the processing of, personal data relating to +individuals located in the European Union, including clinical trial data. The GDPR sets out a number of requirements that must be complied +with when handling the personal data of European Union-based data subjects including: providing expanded disclosures about how their +personal data will be used; higher standards for organizations to demonstrate that they have obtained valid consent or have another legal +basis in place to justify their data processing activities; the obligation to appoint data protection officers in certain circumstances; +new rights for individuals to be “forgotten” and rights to data portability, as well as enhanced current rights (e.g. access +requests); the principal of accountability and demonstrating compliance through policies, procedures, training and audit; and a new mandatory +data breach regime. In particular, medical or health data, genetic data and biometric data where the latter is used to uniquely identify +an individual are all classified as “special category” data under the GDPR and afforded greater protection and require additional +compliance obligations. Further, European Union member states have a broad right to impose additional conditions – including restrictions +– on these data categories. This is because the GDPR allows European Union member states to derogate from the requirements of the +GDPR mainly in regard to specific processing situations (including special category data and processing for scientific or statistical +purposes). As the European Union states continue to reframe their national legislation to harmonize with the GDPR, we will need to monitor +compliance with all relevant European Union member states’ laws and regulations, including where permitted derogations from the +GDPR are introduced. We will also be subject to evolving European Union laws on data export, if we transfer data outside the European +Union to ourselves or third parties outside of the European Union. +The +EU GDPR is an EU Regulation and it no longer applies to the UK. If you operate inside the UK, you need to comply with the Data Protection +Act 2018 (DPA 2018). The provisions of the EU GDPR have been incorporated directly into UK law as the UK GDPR. On 28 June 2021, the EU +approved adequacy decisions for the EU GDPR and the Law Enforcement Directive (LED). This means data can continue to flow freely from +the EU to the UK, in the majority of cases. +The +Cayman Islands Government enacted the Data Protection Act on May 18, 2017 (as amended, the “DPA”). The DPA regulates the +processing of personal data in the Cayman Islands. Under the DPA, the Company is a “data controller” and the Company’s +affiliates and/or its delegates may be “data processors” (or, in some circumstances, data controllers in their own right), +in respect of such personal data. +24 +U.S. +Foreign Corrupt Practices Act and Anti-bribery Regulations +In +general, the Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, prohibits offering to pay, paying, promising to pay, or +authorizing the payment of money or anything of value to a foreign official in order to influence any act or decision of the foreign +official in his or her official capacity or to secure any other improper advantage in order to obtain or retain business for or with, +or in order to direct business to, any person. The prohibitions apply not only to payments made to “any foreign official,” +but also to those made to “any foreign political party or official thereof,” to “any candidate for foreign political +office” or to any person, while knowing that all or a portion of the payment will be offered, given, or promised to anyone in any +of the foregoing categories. “Foreign officials” under the FCPA include officers or employees of a department, agency, or +instrumentality of a foreign government. The term “instrumentality” is broad and can include state-owned or state-controlled +entities. Importantly, United States authorities deem most healthcare professionals and other employees of foreign hospitals, clinics, +research facilities and medical schools in countries with public healthcare and/or public education systems to be “foreign officials” +under the FCPA. When we interact with foreign healthcare professionals and researchers in testing and marketing our products abroad, +should any of our product candidates receive foreign regulatory approval in the future, we must have policies and procedures in place +sufficient to prevent us and agents acting on our behalf from providing any bribe, gift or gratuity, including excessive or lavish meals, +travel or entertainment in connection with marketing our products and services or securing required permits and approvals. The FCPA also +obligates companies whose securities are listed in the United States to comply with accounting provisions requiring us to maintain books +and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise +and maintain an adequate system of internal accounting controls for international operations. +We +are also subject to U.K. Bribery Act of 2010, which prohibits both domestic and international bribery, as well as bribery across both +private and public sectors. In addition, an organization that “fails to prevent bribery” committed by anyone associated with +the organization can be charged under the U.K. Bribery Act unless the organization can establish the defense of having implemented “adequate +procedures” to prevent bribery. As we expand our operations, we are likely to be subject to additional laws and restrictions relating +to anti-bribery. +Environmental, +Health, and Safety Regulation +We +are subject to numerous federal, state, and local environmental, health, and safety (“EHS”) laws and regulations relating +to, among other matters, safe working conditions, product stewardship, environmental protection, and handling or disposition of products, +including those governing the generation, storage, handling, use, transportation, release, and disposal of hazardous or potentially hazardous +materials, medical waste, and infectious materials that may be handled by our partner research laboratories. Some of these laws and regulations +also require us to obtain licenses or permits to conduct our operations. If we fail to comply with such laws or obtain and comply with +the applicable permits, we could face substantial fines or possible revocation of our permits or limitations on our ability to conduct +our operations. Certain of our development and manufacturing activities may involve, from time to time, use of hazardous materials, and +we believe we are in compliance with the applicable environmental laws, regulations, permits, and licenses. However, we cannot ensure +that EHS liabilities will not develop in the future. EHS laws and regulations are complex, change frequently and have tended to become +more stringent over time. Although the costs to comply with applicable laws and regulations have not been material, we cannot predict +the impact on our business of new or amended laws or regulations or any changes in the way existing and future laws and regulations are +interpreted or enforced, nor can we ensure we will be able to obtain or maintain any required licenses or permits. +25 +Employees +As +of December 31, 2025, we had a total of four full-time employees. +We +currently rely on several consultants who provide services to our Company. None of our employees are represented by a labor union or +covered by collective bargaining agreements. We consider our relationship with our employees to be good. We anticipate that the number +of employees will increase as we continue to develop the assets in our pipeline and other clinical assets that we seek to develop. Additionally, +we utilize and expect to continue to utilize clinical research organizations and third parties to perform our pre-clinical studies, clinical +studies, and manufacturing. +Corporate +Information +We +were incorporated under the name “Murphy Canyon Acquisition Corp.” in October 2021 under the laws of the State of Delaware +for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business +combination with one or more businesses. We changed our name to “Conduit Pharmaceuticals Inc.” in connection with the completion +of the Business Combination in September 2023. Effective August 5, 2025, the Company changed its name from Conduit Pharmaceuticals Inc. +to CDT Equity Inc. Our change to CDT Equity Inc. reflects the evolution of our strategy as a data-driven biotech development company +focused on identifying, enhancing, and advancing high-potential therapeutic assets through scientific innovation and strategic partnerships. +Our +principal executive offices are located at 4581 Tamiami Trail North, Suite 200 Naples, Florida. Our telephone number is +1 (646)-491-9132, +and our website can be found at https://www.cdtequity.com. +Item +1A. Risk Factors +An +investment in our securities involves a high degree of risk. Investors should carefully consider the risks described below before making +an investment decision. Our business, prospects, financial condition, or operating results could be harmed by any of these risks, as +well as other risks not currently known to us or that we currently consider immaterial. The trading price of our securities could decline +due to any of these risks, and, as a result, stockholders may lose all or part of their investment. Certain statements in “Risk +Factors” are forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements.” +Risks +Related to Our Business and Industry +We +have incurred significant net losses since our inception and we anticipate future losses and negative cash flow. It is uncertain if or +when we will become profitable. +We have incurred net losses since our inception. +Our net losses were $39.2 million for the year ended December 31, 2025, and $17.8 million for the year ended December 31, 2024. As of +December 31, 2025, we had an accumulated deficit of $68.3 million. We do not expect to generate any significant revenues, if any, until +we successfully complete adequate development of our first clinical asset. As of December 31, 2025, our clinical assets are still in development +and have not been approved by the FDA or any other regulatory body. +We +have not yet demonstrated our ability to generate revenue, and we may never be able to produce revenues or operate on a profitable basis. +We expect to experience operating losses and negative cash flow for the foreseeable future. Even if we are able to commercialize our +technology, which may include licensing, we may never recover our research and development expenses. +26 +Our +business is dependent on the successful development, regulatory approval, and commercialization of our clinical assets, in particular +a glucokinase activator which we believe is active in a range of autoimmune disorders, which we refer to as AZD1656, and a potent, irreversible +inhibitor of human Myeloperoxidase that has the potential to treat idiopathic male infertility, which we refer to as AZD5904. +The +success of our business, including our ability to finance our operations and generate any revenue in the future, will primarily depend +on the successful development, regulatory approval, and commercialization or partnering of our clinical assets. In the future, we may +also become dependent on just one of our clinical assets or any future clinical assets that we may in-license, acquire, or develop. The +preclinical, clinical and commercial success of our clinical assets will depend on a number of factors, including the following: +● +the +ability to raise additional capital to fund our current pre-clinical and clinical plans on acceptable terms, or at all; +● +the +timely completion of our clinical trials, which may be significantly slower or cost more than we currently anticipate and will depend +substantially upon the performance of third-party contractors; +● +the +success that Manoira has in evaluating the CDT Assets’ applicability in animal health, explore veterinary market opportunities +related to AZD1656; +● +whether +we are required by the FDA or similar foreign regulatory agencies to conduct additional preclinical or clinical trials beyond those +planned to support the approval and commercialization of our clinical assets or any future clinical assets; +● +the +acceptance of our proposed indications and primary endpoint assessments relating to the proposed indications of our clinical assets +by the FDA or similar foreign regulatory authorities; +● +our +ability to demonstrate the safety and efficacy of our clinical assets or any future clinical assets to the satisfaction of the FDA +and similar foreign regulatory authorities; +● +the +prevalence, duration, and severity of potential side effects experienced in connection with our clinical assets or future approved +products, if any; +● +the +timely receipt of necessary marketing approvals from the FDA and similar foreign regulatory authorities; +● +achieving +and maintaining, and, where applicable, ensuring that our third-party contractors achieve and maintain compliance with our contractual +obligations and with all regulatory requirements applicable to our clinical assets or any future clinical assets or approved products, +if any; +● +the +ability of third parties with whom we contract to manufacture clinical trial and commercial supplies of our clinical assets or any +future clinical assets, remain in good standing with regulatory agencies, and develop, validate, and maintain commercially viable +manufacturing processes that are compliant with cGMP; +● +a +continued acceptable safety profile during preclinical and clinical development and following approval of our clinical assets or +any future clinical assets; +● +our +ability to successfully commercialize our clinical assets or any future clinical assets in the U.S. and internationally, if approved +for marketing, sale, and distribution in such countries and territories, whether alone or in collaboration with others; +● +the +acceptance by physicians, patients, and payors of the benefits, safety, and efficacy of our clinical assets or any future clinical +assets, if approved, including relative to alternative and competing treatments; +● +our +ability to comply with numerous post-approval regulatory requirements; +● +our +and our partners’ ability to establish and enforce intellectual property rights in and to our clinical assets or any future +clinical assets; +● +our +and our partners’ ability to avoid third-party patent interference or intellectual property infringement claims; and +● +our +ability to in-license or acquire additional clinical assets or commercial-stage products that we believe can successfully +develop and commercialize. +If +we are unable to achieve one or more of the above factors, many of which are beyond our control, in a timely manner or at all, we could +experience significant delays and increased costs or an inability to obtain regulatory approvals or commercialize our clinical assets. +Even if regulatory approvals are obtained, we may never be able to successfully commercialize any of our clinical assets. Accordingly, +we cannot assure investors that we will be able to generate sufficient revenue through the sale of our clinical assets or any future +clinical assets to continue operations. +27 +There +is substantial doubt regarding our ability to continue as a going concern. We will need to raise additional funding, which may not be +available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate +our commercial programs, product development efforts or other operations. +The +report of our independent registered public accounting firm on the Company’s financial statements as of and for the year ended +December 31, 2025, includes an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going +concern for at least one year from the date of filing. Through the date of the Business Combination, Old Conduit financed its working +capital requirements by raising capital through private placements of its ordinary shares and issuing of short-term and convertible notes. +The Company has financed its working capital requirements since the Business Combination primarily through the PIPE Financing (the “PIPE +Financing”) completed in September 2023, and through issuing of short-term and convertible notes, and via an at the market program +with A.G.P./Alliance Global Partners. +We +will need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital +when needed may force us to delay, limit or terminate our commercial programs, product development efforts or other operations. We do +not expect to generate meaningful product revenues in the foreseeable future. Based on our current business plan as of the date of our +consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, there is substantial doubt regarding our ability +to continue as a going concern. We will need to raise additional funding in order to execute on our current business plans and strategy, +including prior to becoming profitable. +Our +efforts to raise additional funding may divert our management from their day-to-day activities, which may adversely affect our ability +to develop our products. In addition, we cannot guarantee that financing will be available in sufficient amounts or on terms acceptable +to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance +of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares +to decline. The sale of additional equity or convertible securities would dilute all of our stockholders. The incurrence of indebtedness +would result in increased fixed payment obligations, and we may be required to agree to certain restrictive covenants, such as limitations +on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other +operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through +arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable and we may be required to +relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us, any of which may have +a material adverse effect on our business, operating results and prospects. +Moreover, +as a result of recent volatile market conditions, the cost and availability of capital has been and may continue to be adversely affected. +Concern about the stability of the banking sector has generally led many lenders and institutional investors to reduce, and in some cases, +cease to provide credit to businesses and consumers. Continued turbulence in the U.S. market and economy may adversely affect our liquidity +and financial condition, including our ability to access the capital markets to meet liquidity needs. +If +we are unable to obtain funding on a timely basis, or if revenues from collaboration arrangements are less than we have projected, we +may be required to further revise our business plan and strategy, which may result in us significantly curtailing, delaying or discontinuing +one or more of our research or development programs or may result in our being unable to expand our operations or otherwise capitalize +on our business opportunities. As a result, our business, financial condition and results of operations could be materially affected. +28 +As +a result of our limited operating history, we may not be able to correctly estimate, operating expenses, need for investment capital, +or stability of operations, which could lead to cash shortfalls. +We +have a limited operating history from which to evaluate our business. As a result, our historical financial data is of limited value +in estimating future operating expenses. We have not obtained regulatory approvals for any of our clinical assets. Therefore, our budgeted +operating expense levels are based in part on our expectations concerning the FDA approval process and expenses related to development +of other clinical assets. Failing to reach our short-term developmental milestones within anticipated timelines due to serious adverse +or unacceptable side effects caused by our clinical assets, or other events, many of which may be beyond our control, may cause our financial +condition and operating results to continue to fluctuate significantly from quarter to quarter and year to year. +Preclinical +drug development for our clinical assets (AZD1656 and AZD5904) is expensive, time-consuming, and uncertain. Our preclinical trials may +fail to adequately demonstrate pharmacologic activity in therapeutic areas of interest; cause unintended short- or long-term effects +in other bodily systems; or produce unexpected toxicity that may alter or risk benefit assessment. +The +scientific discoveries that form the basis for our efforts to generate and develop our clinical assets are relatively recent. AZD1656 +is a glucokinase activator that is in a number of Phase II ready autoimmune disorders including uveitis, Hashimoto’s thyroiditis, +preterm labor, and renal transplant, and the successful development of AZD1656 may require additional studies and efforts to optimize +its therapeutic potential. In addition, our development pipeline includes what we believe to be a potent irreversible inhibitor of human +Myeloperoxidase (MPO) that has the potential to treat idiopathic male infertility, which we refer to as AZD5904. AZD5904 may not demonstrate +in patients the therapeutic properties ascribed to it in the laboratory or preclinical studies, and may interact with human biological +systems in unforeseen, ineffective, or even harmful ways. If we are not able to successfully develop and commercialize our clinical assets, +including AZD1656 and AZD5904, we may never become profitable and the value of our capital stock may decline. Additionally, Manoira may +not be successful in evaluating the CDT Assets’ applicability in animal health, explore veterinary market opportunities related +to AZD1656, and as such we may never develop and commercialize such assets. +We +may not be successful in our efforts to use and expand our development platform to build a pipeline of clinical assets. +A +key element of our strategy is to use our experienced management and scientific team to build a pipeline of clinical assets that address +a broad range of human diseases in order to treat unmet medical needs. Our current clinical assets and pipeline address the areas of +autoimmune disease and idiopathic male infertility. Although our research and development efforts to date have resulted in potential +clinical assets, we may not be able to continue to identify and develop additional clinical assets. Even if we are successful in continuing +to build our pipeline, the potential clinical assets that we identify may not be suitable for clinical development. For example, these +potential clinical assets may be shown to have harmful side effects or other characteristics that indicate that they are unlikely to +receive marketing approval and achieve market acceptance. If we do not successfully develop and commercialize clinical assets based upon +our approach, we will not be able to obtain product revenue in future periods, which likely would result in significant harm to our financial +position. There is no assurance that we will be successful in our preclinical and clinical development of our current or future clinical +assets, and the process of obtaining regulatory approvals will, in any event, require the expenditure of substantial time and financial +resources. +29 +Clinical +drug development for our clinical assets is very expensive, time-consuming, difficult to design and implement, and uncertain. Our clinical +trials may fail to adequately demonstrate the safety and efficacy of our clinical assets, which could prevent or delay regulatory approval +and commercialization. +Clinical +drug development for our clinical assets is very expensive, time-consuming, difficult to design and implement, and its outcome is inherently +uncertain. Before obtaining regulatory approval for the commercial sale of a clinical asset, we must demonstrate through clinical trials +that a clinical asset is both safe and effective for use in the target indication, which is impossible to predict. Most clinical assets +that commence clinical trials are never approved by regulatory authorities for commercialization. Our clinical assets are in various +stages of development and a failure of one more clinical trial can occur at any stage of testing or at any time during the trial process. +We expect that clinical trials for these clinical assets will continue for several years but may take significantly longer than expected +to complete. Not all of our clinical assets have been tested in humans and the first use in humans may reveal unexpected effects. We +have not completed all clinical trials for the approval of any of our clinical assets. +We +may experience delays in ongoing and future clinical trials for our clinical assets and we do not know if future clinical trials, if +any, will begin on time, need to be redesigned, enroll adequate number of patients on time or be completed on schedule, if at all. In +addition, the Company, any partner with which we currently or may in the future collaborate, the FDA, an IRB or other regulatory authorities, +including state and local agencies and counterpart agencies in foreign countries, may suspend, delay, require modifications to, or terminate +our clinical trials at any time, for various reasons, including: +● +discovery +of safety or tolerability concerns, such as serious or unexpected toxicities or side effects or exposure to otherwise unacceptable +health risks, experienced by study participants or other safety issues; +● +lack +of effectiveness of any clinical asset during clinical trials or the failure of our clinical assets to meet specified endpoints; +● +slower +than expected rates of subject recruitment and enrollment rates or inability to enroll a sufficient number of patients in clinical +trials resulting from numerous factors, including the prevalence of other companies’ clinical trials for their clinical assets +for the same indication, or clinical trials for indications for which patients do not as commonly seek treatment; +● +difficulty +in retaining subjects who have initiated a clinical trial but may withdraw at any time due to adverse side effects from the therapy, +insufficient efficacy, fatigue with the clinical trial process, or for any other reason; +● +difficulty +in obtaining IRB approval for studies to be conducted at each clinical trial site; +● +delays +in manufacturing or obtaining, or inability to manufacture or obtain, sufficient quantities of materials for use in clinical trials; +● +inadequacy +of or changes in our manufacturing process or the product formulation or method of delivery; +● +changes +in applicable laws, regulations, and regulatory policies; +● +delays +or failure in reaching agreement on acceptable terms in clinical trial contracts or protocols with prospective CROs, clinical trial +sites, and other third-party contractors; +● +inability +to add a sufficient number of clinical trial sites; +● +uncertainty +regarding proper formulation and dosing; +● +failure +by us, our employees, our CROs or their employees, or other third-party contractors to comply with contractual and applicable regulatory +requirements or to perform their services in a timely or acceptable manner; +● +failure +by us, our employees, our CROs or their employees, or any partner with which we may collaborate or their employees to comply with +applicable FDA or other regulatory requirements relating to the conduct of clinical trials or the handling, storage, security, and +recordkeeping for drug and biologic products; +● +scheduling +conflicts with participating clinicians and clinical institutions; +● +failure +to design appropriate clinical trial protocols; +● +insufficient +data to support regulatory approval; +● +inability +or unwillingness of medical investigators to follow our clinical trial protocols; or +● +difficulty +in maintaining contact with subjects during or after treatment, which may result in incomplete data. +We +or any partner with which we may collaborate may suffer significant setbacks in their clinical trials similar to the experience of a +number of other companies in the pharmaceutical and biotechnology industries, even after receiving promising results in earlier trials. +In the event that we or our potential partners abandon or are delayed in the clinical development efforts related to our clinical assets, +we may not be able to execute on our business plan effectively and our business, financial condition, operating results, and prospects +would be harmed. +30 +We +may be unable to obtain regulatory approval for our early-stage clinical assets under applicable regulatory requirements. The FDA and +foreign regulatory bodies have substantial discretion in the approval process, including the ability to delay, limit, or deny approval +of clinical assets. The delay, limitation, or denial of any regulatory approval would adversely impact commercialization, our potential +to generate revenue, our business, and our operating results. +We +currently have no products approved for sale, and we may never obtain regulatory approval to commercialize any of our current or future +clinical assets. The research, testing, manufacturing, safety surveillance, efficacy, quality control, recordkeeping, labeling, packaging, +storage, approval, sale, marketing, distribution, import, export, and reporting of safety and other post-market information related to +our drug products are subject to extensive regulation by the FDA and other regulatory authorities in the U.S. and in foreign countries, +and such regulations differ from country to country. We are not permitted to market any of our current clinical assets in the U.S. until +we receive approval of an NDA, Biologics License Application (a “BLA”), or other applicable regulatory filing from the FDA. +We are also not permitted to market any of our current clinical assets in any foreign countries until we or our partners receive the +requisite approval from the applicable regulatory authorities of such countries. To gain approval to market a new drug such as AZD1656 +and AZD5904, the FDA and/or foreign regulatory authorities must receive, among other things, preclinical and clinical data that adequately +demonstrate the safety, purity, potency, efficacy, and compliant manufacturing of the drug product for the intended indication applied +for in a NDA, BLA, or other applicable regulatory filing. The development and approval of new drug products involves a long, expensive, +and uncertain process, and delay or failure can occur at any stage. A number of companies in the pharmaceutical and biopharmaceutical +industry have suffered significant setbacks in nonclinical development, clinical trials, including in Phase III clinical development, +even after promising results in earlier preclinical studies or clinical trials. These setbacks have been caused by, among other things, +findings made while clinical trials were underway and safety or efficacy observations made in clinical trials, including previously unreported +adverse events. Success in clinical trials does not ensure that later clinical trials will be successful, or that nonclinical studies +will be successful. The results of clinical trials by other parties may not be indicative of the results in trials that we or our partners +may conduct. +The +FDA and foreign regulatory bodies have substantial discretion in the drug development and approval process, including the ability to +delay, limit drug development, or limit or deny approval of clinical assets for many reasons. The FDA or the applicable foreign regulatory +body may: +● +disagree +with the design or implementation of one or more clinical trials; +● +not +deem a clinical asset safe and effective for its proposed indication, or may deem a clinical asset’s safety or other perceived +risks to outweigh its clinical or other benefits; +● +not +find the data from preclinical studies and clinical trials sufficient to support approval, or the results of clinical trials may +not meet the level of statistical or clinical significance required by the FDA or the applicable foreign regulatory body for approval; +● +disagree +with our interpretation of data from preclinical studies or clinical trials performed by us or third parties, or with the interpretation +of any partner with which we may collaborate; +● +determine +the data collected from preclinical or clinical trials may not be sufficient to support the submission of an Investigational New +Drug Application (“IND”) or NDA, or other applicable regulatory filing; +● +require +additional preclinical studies or clinical trials; +● +identify +deficiencies in the formulation, quality control, labeling, or specifications of our current or future clinical assets; +● +require +clinical trials in pediatric patients in order to establish pharmacokinetics or safety for this more drug-sensitive population; +● +grant +approval contingent on the performance of costly additional post-approval clinical trials; +● +approve +our current or any future clinical assets for a more limited indication or a narrower patient population than we originally requested +or with strong warnings that may affect marketability; +● +not +approve the labeling that we believe is necessary or desirable for the successful commercialization of our clinical assets; +● +not +approve of the manufacturing processes, controls, or facilities of third-party manufacturers or testing labs with which we contract; +● +consider +our products a device instead of a drug requiring a different approval process and manufacturing needs; +● +consider +one of our products a combination product instead of a singular drug requiring additional clinical trials or increased number of +patients per study; or +● +change +its approval policies or adopt new regulations in a manner rendering our clinical data or regulatory filings insufficient for approval. +Any +delay, limitation, or denial in any applicable regulatory approval for any of our clinical assets would delay or adversely impact commercialization +of our clinical assets and would harm our business, financial condition, operating results, and prospects. +31 +We +have identified material weaknesses in our internal control over financial reporting. If we fail to remedy these weaknesses or maintain +an effective system of internal controls, then our ability to produce timely and accurate financial statements or comply with applicable +regulations could be adversely affected. We may identify additional material weaknesses in our internal controls over financing reporting +which we may not be able to remedy in a timely manner. +In +connection with the preparation and audit of the financial statements as of and for the fiscal years ended December 31, 2025 and 2024, +material weaknesses were identified in our internal control over financial reporting. A material weakness is a deficiency, or a combination +of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement +of annual or interim financial statements will not be prevented or detected on a timely basis. These material weaknesses primarily relate +to the following matters that are relevant to the preparation of our financial statements: +● +The segregation of duties is limited and heavily reliant on interim personnel and third-party consultants to perform +these activities, including the lack of timely review and approval of travel and entertainment expenses. +● +The Company lacks a formal process for review and approval of significant transactions and accounts on a contemporaneous basis and there have been numerous, recurring errors in account balances and disclosures. +● +The Company has not designed adequate and appropriate and internal controls under an appropriate internal control over financial reporting framework. +● +The Company did not appropriately review and evaluate the accounting implications of all material transactions that occurred during the period. +● +The review controls around certain related party transactions did not operate consistently and the review of such transactions was not always contemporaneously documented. +If +these material weaknesses are not remediated, it could result in a misstatement of account balances or disclosures that would result +in a material misstatement to the annual or interim financial statements that would not be prevented or detected. We are reviewing measures +designed to improve our internal control over financial reporting to remediate these material weaknesses, although they have not been +fully remediated as of the date of this filing. As a part of these measures, we also expect to engage an external advisor to assist with +evaluating and documenting the design and operating effectiveness of internal controls and assisting with the remediation of deficiencies +when funding and additional liquidity becomes available, as necessary. The primary costs associated with such measures are corresponding +recruiting and additional salary and consulting costs, which are difficult to estimate but which may be significant. These additional +resources and procedures are intended to enable us to broaden the scope and quality of our internal review of underlying information +related to financial reporting and to formalize and enhance our internal control procedures. +The +material weaknesses will not be considered remediated until a remediation plan has been fully implemented, the applicable controls operate +for a sufficient period of time, and we have concluded, through testing, that the newly implemented and enhanced controls are operating +effectively. A failure to implement and maintain effective internal control over financial reporting could result in errors in our financial +statements that could result in a restatement of our financial statements and could cause us to fail to meet our reporting obligations, +any of which could diminish investor confidence in us and cause a decline in the price of our common stock. +Our +independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over +financial reporting until after we are no longer an “emerging growth company,” as defined in the JOBS Act. At such time, +our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level +at which our internal control over financial reporting is documented, designed, or operating. +32 +There +is a risk that we will fail to maintain an effective system of internal controls and our ability to produce timely and accurate financial +statements or comply with applicable regulations could be adversely affected. We may identify material weaknesses in our internal controls +over financing reporting which we may not be able to remedy in a timely manner. +As +a public company, we operate in an increasingly demanding regulatory environment, which requires us to comply with the Sarbanes-Oxley +Act, the regulations of Nasdaq, the rules and regulations of the SEC, expanded disclosure requirements, accelerated reporting requirements, +and more complex accounting rules. Responsibilities required by the Sarbanes-Oxley Act include establishing corporate oversight and adequate +internal control over financial reporting and disclosure controls and procedures. Effective internal controls are necessary for us to +produce reliable financial reports and are important to help prevent financial fraud. +We +may discover additional weaknesses in our system of internal financial and accounting controls and procedures that could result in a +material misstatement of our financial statements. Our internal control over financial reporting will not prevent or detect all errors +and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that +the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls +can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud +will be detected. +If +we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain +proper and effective internal controls, we may not be able to produce timely and accurate financial statements. If we cannot provide +reliable financial reports or prevent fraud, our business and results of operations could be harmed, investors could lose confidence +in our reported financial information, and we could be subject to sanctions or investigations by Nasdaq, the SEC, or other regulatory +authorities. +If +we do not develop and implement all required accounting practices and policies, we may be unable to provide the financial information +required of a U.S. publicly traded company in a timely and reliable manner. +If +we fail to develop and maintain effective internal controls and procedures and disclosure procedures and controls, we may be unable to +provide financial information and required SEC reports that a U.S. publicly traded company is required to provide in a timely and reliable +fashion. Any such delays or deficiencies could penalize us, including by limiting our ability to obtain financing, either in the public +capital markets or from private sources and hurt our reputation and could thereby impede our ability to implement our growth strategy. +In addition, any such delays or deficiencies could result in our failure to meet the requirements for continued listing of our shares +of common stock on a national securities exchange. +We +may face product liability exposure, and if successful claims are brought against us, we may incur substantial liability if our insurance +coverage for those claims is inadequate. +We +face an inherent risk of product liability as a result of the clinical testing of our clinical assets and will face an even greater risk +if we commercialize any products. This risk exists even if a product is approved for commercial sale by the FDA and manufactured in facilities +licensed and regulated by the FDA or an applicable foreign regulatory authority. Our products and clinical assets are designed to affect +important bodily functions and processes. Any side effects, manufacturing defects, misuse, or abuse associated with our clinical assets +could result in injury to a patient or even death. We cannot offer any assurance that we will not face product liability suits in the +future, nor can we assure investors that our insurance coverage will be sufficient to cover our liability under any such cases. In addition, +a liability claim may be brought against us even if our clinical assets merely appear to have caused an injury. Product liability claims +may be brought against us by consumers, health care providers, pharmaceutical companies, or others selling or otherwise coming into contact +with our clinical assets, among others. If we cannot successfully defend ourselves against product liability claims, we will incur substantial +liabilities and reputational harm. +33 +We +currently rely on, and expect to continue to rely on, third-party CROs and other third parties to conduct and oversee our clinical trials +and other aspects of product development. If these third parties do not meet our requirements or otherwise conduct the trials as required, +we may not be able to satisfy our contractual obligations or obtain regulatory approval for, or commercialize, our clinical assets when +expected or at all. +We +have in the past relied and expect to continue to rely on third-party CROs to conduct and oversee our clinical trials and other aspects +of product development. We also rely upon various medical institutions, clinical investigators, and contract laboratories to conduct +our trials in accordance with our clinical trial protocols and all applicable regulatory requirements, including the FDA’s regulations +and GCPs, which are an international standard meant to protect the rights and health of patients and to define the roles of clinical +trial sponsors, administrators and monitors, and state regulations governing the handling, storage, security, and recordkeeping for drug +and biologic products. These CROs and other third parties play a significant role in the conduct of these trials and the subsequent collection +and analysis of data from the clinical trials. We rely heavily on these parties for the execution of our clinical trials and preclinical +studies, and control only certain aspects of their activities. We, our CROs, and other third-party contractors are required to comply +with GCP, GLP, and GACP requirements, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities +for products in clinical development. Regulatory authorities enforce these GCP, GLP, and GACP requirements through periodic inspections +of trial sponsors, principal investigators, and trial sites. If we or any of these third parties fail to comply with applicable GCP, +GLP, or GACP requirements, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or other regulatory +authority may require us to perform additional clinical trials before approving our or our partners’ marketing applications. We +cannot assure investors that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our +clinical or preclinical trials complies with applicable GCP and GLP requirements. In addition, our clinical trials must generally be +conducted with product produced under cGMP regulations. Our failure to comply with these regulations and policies may require us to repeat +clinical trials, which would delay the regulatory approval process. +Our +CROs are not our employees, and we do not control whether or not they devote sufficient time and resources to our clinical trials. Our +CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical +trials, or other drug development activities, which could harm our competitive position. We face the risk of potential unauthorized disclosure +or misappropriation of our intellectual property by CROs, which may reduce our trade secret protection and allow potential competitors +to access and exploit our proprietary technology. If our CROs do not successfully carry out their contractual duties or obligations, +fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to +adhere to our clinical trial protocols or regulatory requirements or for any other reason, our clinical trials may be extended, delayed, +or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize any clinical asset that we develop. +As a result, our financial results and the commercial prospects for any clinical asset that we develop would be harmed, our costs could +increase, and our ability to generate revenue could be delayed. +If +any of our CROs or clinical trial sites terminate their involvement in one of our clinical trials for any reason, we may not be able +to enter into arrangements with alternative CROs or clinical trial sites or do so on commercially reasonable terms. In addition, if our +relationship with clinical trial sites is terminated, we may experience the loss of follow-up information on patients enrolled in our +ongoing clinical trials unless we are able to transfer the care of those patients to another qualified clinical trial site. In addition, +principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and could receive +cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived +or actual conflicts of interest, the integrity of the data generated at the applicable clinical trial site may be questioned by the FDA. +We +rely completely on third-party contractors to supply, manufacture, and distribute clinical drug supplies for our clinical assets, including +certain sole-source suppliers and manufacturers. We intend to rely on third parties for commercial supply, manufacturing, and distribution +if any of our clinical assets receive regulatory approval and we expect to rely on third parties for supply, manufacturing, and distribution +of preclinical, clinical, and commercial supplies of any future clinical assets. +With +the exception of our work at our Cambridge facilities, we do not currently have, nor do we plan to acquire, the infrastructure or capability +to supply, manufacture, or distribute preclinical, clinical, or commercial quantities of drug substances or products. Our ability to +develop our clinical assets depends and our ability to commercially supply our products will depend, in part, on our ability to successfully +obtain the raw materials and APIs and other substances and materials used in our clinical assets from third parties and to have finished +products manufactured by third parties in accordance with regulatory requirements and in sufficient quantities for preclinical and clinical +testing and commercialization. If we fail to develop and maintain supply relationships with these third parties, we may be unable to +continue to develop or commercialize our clinical assets. +34 +We +rely and will continue to rely on certain third parties as the sole source of the materials they supply or the finished products they +manufacture. Any of our existing suppliers or manufacturers may: +● +fail +to supply us with product on a timely basis or in the requested amount due to unexpected damage to or destruction of facilities or +equipment or otherwise; +● +fail +to increase manufacturing capacity and produce drug product and components in larger quantities and at higher yields in a timely +or cost-effective manner, or at all, to sufficiently meet our commercial needs; +● +be +unable to meet our production demands due to issues related to their reliance on sole-source suppliers and manufacturers; +● +supply +us with product that fails to meet regulatory requirements; +● +become +unavailable through business interruption or financial insolvency; +● +lose +regulatory status as an approved source; +● +be +unable or unwilling to renew current supply agreements when such agreements expire on a timely basis, on acceptable terms or at all; +or +● +discontinue +production or manufacturing of necessary drug substances or products. +In +the event of any of the foregoing, if we do not have an alternative supplier or manufacturer in place, we would be required to expend +substantial management time and expense to identify, qualify, and transfer processes to alternative suppliers or manufacturers. Transferring +technology to other sites may require additional processes, technologies, and validation studies, which are costly, may take considerable +amounts of time, may not be successful and, in most cases, require review and approval by the FDA. Any need to find and qualify new suppliers +or manufacturers could significantly delay production of our clinical assets, adversely impact our ability to market our clinical assets, +and adversely affect our business. Replacements may not be available to us on a timely basis, on acceptable terms, or at all. Additionally, +we and our manufacturers do not currently maintain significant inventory of drug substances and other materials. Any interruption in +the supply of a drug substance or other material or in the manufacture of our clinical assets could have a material adverse effect on +our business, financial condition, operating results, and prospects. +We +do not have direct control over the ability of our contract suppliers and manufacturers to maintain adequate capacity and capabilities +to serve our needs, including quality control, quality assurance, and qualified personnel. Although we are ultimately responsible for +ensuring compliance with regulatory requirements such as cGMPs and GACP, we are dependent on our contract suppliers and manufacturers +for day-to-day compliance with cGMPs or GACP for production of raw materials, APIs, and finished products. Facilities used by our contract +suppliers and manufacturers to produce the APIs and other substances and materials or finished products for commercial sale must pass +inspection and be approved by the FDA and other relevant regulatory authorities. Our contract suppliers and manufacturers must comply +with cGMP and GACP requirements enforced by the FDA through its facilities inspection program and review of submitted technical information. +If the safety of any product or clinical asset or component is compromised due to a failure to adhere to applicable laws or for other +reasons, we may not be able to successfully commercialize or obtain regulatory approval for the affected product or clinical asset, and +we may be held liable for injuries sustained as a result. Any of these factors could cause a delay or termination of preclinical studies, +clinical trials, or regulatory submissions or approvals of our clinical assets, and could entail higher costs or result in us being unable +to effectively commercialize our approved products on a timely basis, or at all. +In +addition, these contract manufacturers are engaged with other companies to supply and manufacture materials or products for such companies, +which also exposes our suppliers and manufacturers to regulatory risks for the production of such materials and products. As a result, +failure to meet the regulatory requirements for the production of those materials and products may also affect the regulatory clearance +of a contract supplier’s or manufacturer’s facility. If the FDA or a comparable foreign regulatory agency does not approve +these facilities for the supply or manufacture of our clinical assets, or if it withdraws its approval in the future, we may need to +find alternative supply or manufacturing facilities, which would negatively impact our ability to develop, obtain regulatory approval +of, or market our clinical assets, if approved. +35 +If +any of our third-party contractors terminate their involvement in the supply, manufacture, or distribution of clinical drug supplies +for us for any reason, we may not be able to enter into arrangements with alternative third party-contractors, or do so on commercially +reasonable terms. In addition, if our relationship with such third-party contractors is terminated, we may experience a negative impact +to the respective licenses on which we rely and, therefore, on our ability to obtain regulatory approval for, or commercialize, our clinical +assets when expected or at all. +Our +reliance on contract manufacturers and suppliers further exposes us to the possibility that they, or third parties with access to their +facilities, will have access to and may misappropriate our trade secrets or other proprietary information. +In +addition, the manufacturing facilities of certain of our suppliers are located outside of the U.S. This may give rise to difficulties +in importing our products or clinical assets or their components into the U.S. or other countries as a result of, among other things, +regulatory agency approval requirements or import inspections, incomplete or inaccurate import documentation, or defective packaging. +We +may choose not to continue developing or commercializing any of our clinical assets at any time during development or after approval, +which would reduce or eliminate our potential return on investment for those clinical assets. +We +may decide to discontinue the development of any of our clinical assets or not to continue commercializing one or more of our approved +clinical assets for a variety of reasons, including the appearance of new technologies that make a product obsolete, competition from +a competing product, or changes in or failure to comply with applicable regulatory requirements at any time. If we terminate a program +in which we have invested significant resources, we will not receive any return on our investment and we will have missed the opportunity +to have allocated those resources to potentially more productive uses. +If +we fail to attract and retain management and other key personnel, we may be unable to continue to successfully develop or commercialize +our clinical assets or otherwise implement our business plan. +Our +ability to compete in the highly competitive pharmaceuticals industry depends upon our ability to attract and retain highly qualified +managerial, scientific, medical, sales, marketing, and other personnel. We are highly dependent on our management, including our Chief +Executive Officer, Andrew Regan. The loss of the services of any of these individuals could impede, delay, or prevent the successful +development of our product pipeline, completion of our planned clinical trials, commercialization of our clinical assets, or in-licensing +or acquisition of new assets and could negatively impact our ability to successfully implement our business plan. If we lose the services +of any of these individuals, we might not be able to find suitable replacements on a timely basis or at all, and our business could be +harmed as a result. We do not maintain “key man” insurance policies on the lives of these individuals or the lives of any +of our other employees. In order to retain valuable employees, in addition to salary and cash incentives, we provide stock options that +vest over time. +We +might not be able to attract or retain qualified management and other key personnel in the future due to the intense competition for +qualified personnel among biotechnology, pharmaceutical, and other businesses. We could have difficulty attracting experienced personnel +to the Company and may be required to expend significant financial resources in our employee recruitment and retention efforts. Many +of the other pharmaceutical companies with whom we compete for qualified personnel have greater financial and other resources, different +risk profiles, and longer histories in the industry than we do. They also may provide more diverse opportunities and better chances for +career advancement. If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we may experience +constraints that will harm our ability to implement our business strategy and achieve our business objectives. +In +addition, we have scientific and clinical advisors who assist us in formulating our development and clinical strategies. These advisors +are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability +to us. In addition, our advisors may have arrangements with other companies to assist those companies in developing products or technologies +that may compete with those of the Company. +36 +We +currently have limited marketing capabilities and no sales organization. If we do not establish sales and marketing capabilities on our +own or through third parties, we will be limited in our commercialization to license deals with third parties following successful Phase +II trials. +We +currently have limited marketing capabilities and no sales organization. If we do not establish sales and marketing capabilities on our +own or through third parties, we will be limited in our commercialization to license deals with third parties following successful Phase +II trials. To commercialize our clinical assets, if approved, in the U.S., Canada, the European Union, and other jurisdictions that we +seek to enter, we must build our marketing, sales, distribution, managerial, and other non-technical capabilities or make arrangements +with third parties to perform these services, and we may not be successful in doing so. Although our management team has experience in +the marketing, sale, and distribution of pharmaceutical products from prior employment at other companies, we as a company have no prior +experience in the marketing, sale, and distribution of pharmaceutical products and there are significant risks involved in building and +managing a sales organization, including our ability to hire, retain, and incentivize qualified individuals, generate sufficient sales +leads, provide adequate training to sales and marketing personnel, and effectively manage a geographically dispersed sales and marketing +team. Any failure or delay in the development of our internal sales, marketing, and distribution capabilities would adversely impact +the commercialization of these products. We may choose to collaborate with additional third parties that have direct sales forces and +established distribution systems, either to augment our own sales force and distribution systems or in lieu of its own sales force and +distribution systems. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully +commercialize our clinical assets. If we are unable to successfully commercialize our clinical assets, either on our own or through collaborations +with one or more third parties, our business, financial condition, operating results, and prospects would suffer. +Our +failure to successfully in-license, acquire, develop, and market additional clinical assets or approved products would impair our ability +to grow our business. +We +intend to in-license, acquire, develop, and market additional products and clinical assets and we may in-license or acquire commercial-stage +products or engage in other strategic transactions. Because our internal research and development capabilities are limited, we may be +dependent upon pharmaceutical companies, academic scientists, and other researchers to sell or license products or technology to us. +The success of this strategy depends partly upon our ability to identify and select promising pharmaceutical clinical assets and products, +negotiate licensing or acquisition agreements with their current owners, and finance these arrangements. +The +process of proposing, negotiating, and implementing a license or acquisition of a clinical asset or approved product is lengthy and complex. +Other companies, including some with substantially greater financial, marketing, sales, and other resources, may compete with us for +the license or acquisition of clinical assets and approved products. We have limited resources to identify and execute the acquisition +or in-licensing of third-party products, businesses, and technologies and integrate them into our current infrastructure. Moreover, we +may devote resources to potential acquisitions or licensing opportunities that are never completed, or we may fail to realize the anticipated +benefits of such efforts. We may not be able to acquire the rights to additional clinical assets on terms that we find acceptable, or +at all. +Further, +any clinical asset that we acquire may require additional development efforts prior to commercial sale, including preclinical or clinical +testing and approval by the FDA and applicable foreign regulatory authorities. All clinical assets are prone to risks of failure typical +of pharmaceutical product development, including the possibility that a clinical asset will not be shown to be sufficiently safe and +effective for approval by regulatory authorities. In addition, we cannot provide assurance that any approved products that we acquire +will be manufactured or sold profitably or achieve market acceptance. +37 +Additional +potential transactions that we may consider include a variety of different business arrangements, including spin-offs, strategic partnerships, +joint ventures, restructurings, divestitures, business combinations, and investments. Any such transaction may require us to incur non-recurring +or other charges, may increase our near- and long-term expenditures, and may pose significant integration challenges or disrupt our management +or business, which could adversely affect our operations and financial results. For example, these transactions entail numerous potential +operational and financial risks, including: +● +exposure +to unknown liabilities; +● +disruption +of our business and diversion of our management’s time and attention in order to develop acquired products, clinical assets, +or technologies; +● +incurrence +of substantial debt or dilutive issuances of equity securities to pay for acquisitions; +● +substantial +acquisition and integration costs; +● +write-downs +of assets or impairment charges; +● +increased +amortization expenses; +● +difficulty +and cost in combining the operations and personnel of any acquired businesses with our operations and personnel; +● +impairment +of relationships with key suppliers, partners, or customers of any acquired businesses due to changes in management and ownership; +and +● +inability +to retain our key employees or those of any acquired businesses. +Accordingly, +there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, and any transaction +that we do complete could harm our business, financial condition, operating results, and prospects. +Manufacturing +and supply of the APIs and other substances and materials used in our clinical assets is a complex and technically challenging undertaking, +and there is potential for failure at many points in the manufacturing, testing, quality assurance, and distribution supply chain, as +well as the potential for latent defects after products have been manufactured and distributed. +Manufacturing +and supply of APIs, other substances, and materials and finished drug products is technically challenging. Changes beyond our direct +control can impact the quality, volume, price, and successful delivery of our clinical assets and can impede, delay, limit, or prevent +the successful development and commercialization of our clinical assets. Mistakes and mishandling are not uncommon and can affect successful +production and supply. Some of these risks include: +● +failure +of our manufacturers to follow cGMP or GACP requirements or mishandling of product while in production or in preparation for transit; +● +inability +of our contract suppliers and manufacturers to efficiently and cost-effectively increase and maintain high yields and batch quality, +consistency, and stability; +● +our +inability to develop an FDA-approved bioassay for release of any future product; +● +difficulty +in establishing optimal drug delivery substances and techniques, production, and storage methods and packaging and shipment processes; +● +transportation +and import/export risk, particularly given the global nature of our supply chain; +● +delays +in analytical results or failure of analytical techniques that we depend on for quality control and release of any future product; +● +natural +disasters, pandemics, labor disputes, financial distress, lack of raw material supply, issues with facilities and equipment, or other +forms of disruption to business operations of our contract manufacturers and suppliers; and +● +latent +defects that may become apparent after the product has been released and which may result in recall and destruction of product. +Any +of these factors could result in delays or higher costs in connection with our clinical trials, regulatory submissions, required approvals, +or commercialization of our clinical assets, which could harm our business, financial condition, operating results, and prospects. +38 +Our +operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating +results to fall below expectations. +The +operations of the Company since the Business Combination and of Old Conduit prior to the Business Combination have been primarily limited +to researching and developing our clinical assets and undertaking preclinical studies and clinical trials of our clinical assets. We +have not yet obtained regulatory approvals for any of our clinical assets. Consequently, any predictions investors make about our future +success or viability may not be as accurate as they could be if we had a longer operating history or approved products on the market. +Furthermore, our operating results may fluctuate due to a variety of other factors, many of which are outside of our control and may +be difficult to predict, including the following: +● +delays +in the commencement, enrollment, and the timing of clinical testing for our clinical assets; +● +the +timing and success or failure of clinical trials for our clinical assets or competing clinical assets, or any other change in the +competitive landscape of our industry, including consolidation among our competitors or partners; +● +any +delays in regulatory review and approval of clinical assets in clinical development; +● +the +timing and cost of, and level of investment in, research and development activities relating to our clinical assets, which may change +from time to time; +● +the +cost of manufacturing our clinical assets, which may vary depending on FDA guidelines and requirements, and the quantity of production; +● +our +ability to obtain additional funding to develop our clinical assets; +● +expenditures +that we will or may incur to acquire or develop additional clinical assets and technologies; +● +the +level of demand for our clinical assets, should they receive approval, which may vary significantly; +● +potential +side effects of our clinical assets that could delay or prevent commercialization or cause an approved drug to be taken off the market; +● +the +ability of patients or healthcare providers to obtain coverage of or sufficient reimbursement for our clinical assets, if approved; +● +our +dependency on third-party manufacturers to supply or manufacture our clinical assets; +● +our +ability to establish an effective sales, marketing, and distribution infrastructure in a timely manner; +● +market +acceptance of our clinical assets, if approved, and our ability to forecast demand for those clinical assets; +● +our +ability to receive approval and commercialize our clinical assets outside of the U.S.; +● +our +ability to establish and maintain collaborations, licensing, or other arrangements; +● +our +ability and third parties’ abilities to protect intellectual property rights; +● +costs +related to and outcomes of potential litigation or other disputes; +● +our +ability to adequately support future growth; +● +our +ability to attract and retain key personnel to manage our business effectively; +● +potential +liabilities associated with hazardous materials; +● +our +ability to maintain adequate insurance policies; and +● +future +accounting pronouncements or changes in our accounting policies. +39 +Fluctuations +in foreign currency could have an effect on our reported results of operations. +Our +exposure to fluctuations in foreign currency rates results primarily from the translation exposure associated with the preparation of +our consolidated financial statements, as well as from transaction exposure associated with transactions in currencies other than our +functional currency. While our consolidated financial statements are reported in U.S. dollars, our financial statements of foreign subsidiaries +are prepared using the British pound sterling as the functional currency and then translated into U.S. dollars. We cannot accurately +predict the nature or extent of future exchange rate variability of the British pound sterling or the exchange rate relative to the U.S. +dollar. Foreign exchange rates are sensitive to factors beyond our control. In addition, Brexit has caused, and may continue to cause, +significant volatility in currency exchange rates, especially between the U.S. dollar and the British pound sterling. These fluctuations +in foreign currency exchange rates could negatively affect our results of operations and impact reported financial results. +Our +operating results and liquidity needs could be negatively affected by market fluctuations and economic downturn. +Our +operating results and liquidity could be negatively affected by economic conditions generally, both in the U.S. and elsewhere around +the world. The market for discretionary medical products and procedures may be particularly vulnerable to unfavorable economic conditions. +Some patients may consider certain of our clinical assets to be discretionary, and if full reimbursement for such products is not available, +demand for these products may be tied to the discretionary spending levels of our targeted patient populations. Domestic and international +equity and debt markets have experienced and may continue to experience heightened volatility and turmoil based on domestic and international +economic conditions and concerns. In the event these economic conditions and concerns continue or worsen and the markets continue to +remain volatile, our operating results and liquidity could be adversely affected by those factors in many ways, including weakening demand +for certain of our products and making it more difficult for us to raise funds if necessary. Additionally, although we plan to market +our products primarily in the U.S., we could in the future have partners with extensive global operations, indirectly exposing us to +risk. +We +maintain our cash and cash equivalents with high quality, accredited financial institutions. However, some of these accounts exceed the +government-insured limits, and, while we believe that we are not exposed to significant credit risk due to the financial strength of +these depository institutions or investments, the failure or collapse of one or more of these depository institutions or default on these +investments could materially adversely affect our ability to recover these assets and/or materially harm our financial condition. +We +are increasingly dependent on information technology, and our systems and infrastructure face certain risks, including cybersecurity +and data leakage risks. +Significant +disruptions to our information technology systems or breaches of information security could adversely affect our business. In the ordinary +course of business, we collect, store, and transmit large amounts of confidential information, and it is critical that we do so in a +secure manner to maintain the confidentiality and integrity of such confidential information. The size and complexity of our information +technology systems, and those of our third-party vendors with whom we contract, make such systems potentially vulnerable to service interruptions +and security breaches from inadvertent or intentional actions by our employees, partners, or vendors, from attacks by malicious third +parties, or from intentional or accidental physical damage to our systems infrastructure maintained by us or by third parties. Maintaining +the secrecy of this confidential, proprietary, or trade secret information is important to our competitive business position. While we +have taken steps to protect such information and invested in information technology, there can be no assurance that our efforts will +prevent service interruptions or security breaches in our systems or the unauthorized or inadvertent wrongful use or disclosure of confidential +information that could adversely affect our business operations or result in the loss, dissemination, or misuse of critical or sensitive +information. A breach of our security measures or the accidental loss, inadvertent disclosure, unapproved dissemination, misappropriation +or misuse of trade secrets, proprietary information, or other confidential information, whether as a result of theft, hacking, fraud, +trickery, or other forms of deception, or for any other reason, could enable others to produce competing products, use our proprietary +technology or information, or adversely affect our business or financial condition. Further, any such interruption, security breach, +loss, or disclosure of confidential information could result in financial, legal, business, and reputational harm to us and could have +a material adverse effect on our business, financial position, results of operations, or cash flow. +40 +Our +business and operations would suffer in the event of failures in our internal computer systems. +Despite +the implementation of security measures, our computer systems and those of our current and any future partners, contractors, and consultants +are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war, and telecommunication and electrical +failures. While we have not experienced any such material system failure, accident, or security breach to date, if such an event were +to occur and cause interruptions in our operations, it could result in a material disruption of our manufacturing activities, development +programs, and business operations. For example, the loss of manufacturing records or clinical trial data from completed or future clinical +trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. +If we experienced a security breach, our online sources were hacked, or we experienced a data leak, it could result in confidential clinical +trial data being leaked to competitors and the market. To the extent that any disruption or security breach were to result in a loss +of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability +and the further commercialization and development of our products and clinical assets could be delayed. +Risks +Related to Intellectual Property +Failure +to adequately protect our intellectual property could adversely affect our business, financial condition, and operating results. +Our +business depends on our intellectual property and proprietary technology, the protection of which is crucial to the success of our business. +We rely on a combination of trademark, copyright, and trade secret laws, license agreements, intellectual property assignment agreements, +and confidentiality procedures to protect our intellectual property. Additionally, we rely on proprietary information (such as trade +secrets, know-how, and confidential information) to protect intellectual property that may not be patentable, or that we believe is best +protected by means that do not require public disclosure. We generally attempt to protect our intellectual property, technology, and +confidential information by requiring our employees and consultants who develop intellectual property on our behalf to enter into confidentiality +and invention assignment agreements and third parties that we share information with to enter into nondisclosure agreements. These agreements +may not effectively prevent unauthorized use or disclosure of our confidential information, intellectual property, or technology and +may not provide an adequate remedy in the event of unauthorized use or disclosure of our confidential information or technology, or infringement +of our intellectual property. For example, we may fail to enter into the necessary agreements, and even if entered into, these agreements +may be willfully breached or may otherwise fail to prevent disclosure, third-party infringement, or misappropriation of our proprietary +information, may be limited as to their term, and may not provide an adequate remedy in the event of unauthorized disclosure or use of +proprietary information. In addition, our proprietary information may otherwise become known or be independently developed by our competitors +or other third parties. To the extent that our employees, consultants, contractors, and other third parties use intellectual property +owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. Costly and +time-consuming litigation could be necessary to enforce and determine the scope of our intellectual property rights and other proprietary +rights, and failure to obtain or maintain protection for our proprietary information could adversely affect our competitive business +position. +Despite +our efforts to protect our proprietary rights, other parties may unintentionally or willfully disclose, obtain, or use our technologies +or systems, which may allow unauthorized parties to copy aspects of our platform or other software, technology, and functionality or +obtain and use information that we consider proprietary. In addition, unauthorized parties may also attempt, or successfully endeavor, +to obtain our intellectual property, confidential information, and trade secrets through various methods, including through scraping +of public data or other content from our website or mobile applications, cybersecurity attacks, and legal or other methods of protecting +this data may be inadequate. Monitoring unauthorized use and disclosures of our intellectual property, proprietary technology, or confidential +information can be difficult and expensive and we cannot be sure that the steps we have taken will prevent misappropriation or infringement +of our intellectual property or proprietary rights. +We +have registered the domain name for the website that we use in our business, which is www.cdtequity.com. The inclusion of the website +address in this Annual Report does not include or incorporate by reference the information on the Company’s website into this document. +41 +Competitors +have and may continue to adopt service names similar to ours, thereby harming our ability to build brand identity and possibly leading +to user confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other trademarks +that are similar to our trademarks. Further, litigation or proceedings before the U.S. Patent and Trademark Office or other governmental +authorities and administrative bodies in the U.S. and abroad may be necessary in the future to enforce our intellectual property rights +and to determine the validity and scope of the proprietary rights of others. Any litigation initiated by us concerning the violation +by third parties of our intellectual property rights is likely to be expensive and time-consuming and could lead to the invalidation +of, or render unenforceable, our intellectual property, or could otherwise have negative consequences for us. Even when we sue other +parties for such infringement, that suit may have adverse consequences for our business. In addition, we may not timely or successfully +apply for a patent or register our trademarks or otherwise secure our intellectual property, which could result in negative effects to +our market share, financial condition, and results of operations. Our efforts to protect, maintain, or enforce our proprietary rights +may not be respected in the future or may be invalidated, circumvented, or challenged, and could result in substantial costs and diversion +of resources, which could adversely affect our business, financial condition, and operating results. +We +may be unable to continue to use the domain name that we use in our business or prevent third parties from acquiring and using domain +names that infringe on, are similar to, or otherwise decrease the value of our brand, trademarks, or service marks. +We +have registered the domain name that we use in our business. If we lose the ability to use that domain name, whether due to trademark +claims, failure to renew the applicable registration, or any other cause, we may be forced to market our business under a new domain +name, which could cause us substantial harm, or to incur significant expense in order to purchase rights to the domain name in question. +We may not be able to obtain preferred domain names outside the U.S. due to a variety of reasons, including because they are already +held by others. In addition, our competitors and others could attempt to capitalize on our brand recognition by using domain names similar +to our domain name. We may be unable to prevent third parties from acquiring and using domain names that infringe on, are similar to, +or otherwise decrease the value of our brand or our trademarks or service marks. Protecting, maintaining, and enforcing our rights in +our domain names may require litigation, which could result in substantial costs and diversion of resources, which could in turn adversely +affect our business, financial condition, and operating results. +We +may not be able to protect our intellectual property rights throughout the world. +Filing, +prosecuting, and defending patents on our clinical assets in all countries throughout the world would be prohibitively expensive. The +requirements for patentability may differ in certain countries, particularly developing countries. In addition, the laws of some foreign +countries do not protect intellectual property rights to the same extent as laws in the U.S. Consequently, we may not be able to prevent +third parties from practicing our inventions in all countries outside the U.S. Competitors may use our technologies in jurisdictions +where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to +territories where we have patent protection, but enforcement on infringing activities is inadequate. These products may compete with +our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. +Many +companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The +legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual +property protection, particularly those relating to pharmaceuticals, which could make it difficult for us to stop the infringement of +our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights +in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could +put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing, and could provoke +third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, +if any, may not be commercially meaningful. In addition, certain countries in Europe and certain developing countries have compulsory +licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, we may have limited +remedies if our patents are infringed or if we are compelled to grant a license to our patents to a third party, which could materially +diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectual +property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we +own or license. Our ability to protect and enforce our intellectual property rights may also be adversely affected by unforeseen changes +in foreign intellectual property laws. +42 +Obtaining +and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements +imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. +Periodic +maintenance and annuity fees on any issued patent are due to be paid to the United States Patent and Trademark Office (“USPTO”) +and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies +require compliance with a number of procedural, documentary, fee payment, and other similar provisions during the patent application +process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable +rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting +in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or +lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of +fees, and failure to properly legalize and submit formal documents. If we or our licensors fail to maintain the patents and patent applications +covering our clinical assets, our competitors might be able to enter the market, which would have an adverse effect on our business. +If +we fail to comply with our obligations under our intellectual property license agreements, we could lose license rights that are important +to our business. +We +are a party to certain license agreements that impose various diligence, milestone, royalty, insurance, and other obligations on us. +If we fail to comply with these obligations, the respective licensors may have the right to terminate the license, in which event we +may not be able to develop or market the affected clinical asset. Our business strategy depends on our ability to commercialize our clinical +assets and our ability to enter into license agreements relating to such clinical assets is critical to the success of our operations. +The loss of such rights could materially adversely affect our business, financial condition, operating results, and prospects. For more +information about these license arrangements, see “Business — Principal Strategic Partnerships.” +If +we are sued for infringing intellectual property rights of third parties, it will be costly and time-consuming, and an unfavorable outcome +in that litigation could have a material adverse effect on our business. +Our +commercial success depends upon its ability to develop, manufacture, market, and sell our clinical assets and use our proprietary technologies +without infringing the proprietary rights of third parties. We cannot guarantee that marketing and selling such candidates and using +such technologies will not infringe existing or future patents. Numerous U.S. and foreign issued patents and pending patent applications +owned by third parties exist in the fields relating to our clinical assets. As the biotechnology and pharmaceutical industries expand +and more patents are issued, the risk increases that others may assert that our clinical assets, technologies, or methods of delivery +or use infringe their patent rights. Moreover, it is not always clear to industry participants, including us, which patents cover various +drugs, biologics, drug delivery systems, or their methods of use, and which of these patents may be valid and enforceable. Thus, because +of the large number of patents issued and patent applications filed in our fields, there may be a risk that third parties may allege +they have patent rights encompassing our clinical assets, technologies, or methods. +In +addition, there may be issued patents of third parties that are infringed or are alleged to be infringed by our clinical assets or proprietary +technologies. We cannot be certain that others have not filed patent applications for technology covered by our own and in-licensed issued +patents or our pending applications because some patent applications in the U.S. may be maintained in secrecy until the patents are issued, +patent applications in the U.S. and many foreign jurisdictions are typically not published until eighteen months after filing, and publications +in the scientific literature often lag behind actual discoveries. Our competitors may have filed, and may in the future file, patent +applications covering our clinical assets or technology similar to ours. Any such patent application may have priority over our own and +in-licensed patent applications or patents, which could further require us to obtain rights to issued patents covering such technologies. +If another party has filed a U.S. patent application on inventions similar to those owned or in-licensed to us, we or, in the case of +in-licensed technology, the licensor may have to participate, in the U.S., in an interference proceeding to determine priority of invention. +We +may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights alleging +that our clinical assets or proprietary technologies infringe such third parties’ intellectual property rights, including litigation. +These lawsuits could claim that there are existing patent rights for such drug and this type of litigation can be costly and could adversely +affect our operating results and divert the attention of managerial and technical personnel, even if we do not infringe such patents +or the patents asserted against us are ultimately established as invalid. There is a risk that a court would decide that we are infringing +the third party’s patents and would order us to stop the activities covered by the patents. In addition, there is a risk that a +court will order us to pay the other party damages for having violated the other party’s patents. +As +a result of patent infringement claims, or to avoid potential claims, we may choose or be required to seek licenses from third parties. +These licenses may not be available on commercially acceptable terms, or at all. Even if we are able to obtain a license, the license +would likely obligate us to pay license fees or royalties or both, and the rights granted to us might be nonexclusive, which could result +in our competitors gaining access to the same intellectual property, or such rights might be restrictive and limit our present and future +activities. Ultimately, we or a licensee could be prevented from commercializing a product or be forced to cease some aspect of our business +operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms. +In +addition to possible infringement claims against us, we may become a party to other patent litigation and other proceedings, including +interference, derivation, re-examination, or other post-grant proceedings declared or granted by the USPTO, and similar proceedings in +foreign countries, regarding intellectual property rights with respect to our current or future products. +43 +There +is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical +industries generally. To date, no litigation asserting infringement claims has ever been brought against us. If a third-party claims +that we infringe its intellectual property rights, we may face a number of issues, including: +● +infringement +and other intellectual property claims which, regardless of merit, may be expensive and time-consuming to litigate and may divert +our management’s attention from our core business; +● +substantial +damages for infringement, which we may have to pay if a court decides that the product or technology at issue infringes or violates +the third party’s rights, and if the court finds that the infringement was willful, we could be ordered to pay treble damages +and the patent owner’s attorneys’ fees; +● +a +court prohibiting us from selling or licensing the product or using the technology unless the third party licenses its intellectual +property rights to us, which it is not required to do; +● +if +a license is available from a third party, we may have to pay substantial royalties or upfront fees or grant cross-licenses to intellectual +property rights for our products or technologies; and +● +redesigning +our products or processes so they do not infringe, which may not be possible or may require substantial monetary expenditures and +time. +Some +of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially +greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could harm our ability +to raise additional funds or otherwise adversely affect our business, financial condition, operating results, and prospects. +Because +we rely on certain third-party licensors and partners, and will continue to do so in the future, if one of our licensors or partners +is sued for infringing a third party’s intellectual property rights, our business, financial condition, operating results, and +prospects could suffer in the same manner as if we were sued directly. In addition to facing litigation risks, we have agreed to indemnify +certain third-party licensors and partners against claims of infringement caused by our proprietary technologies, and we have entered +or may enter into cost-sharing agreements with some our licensors and partners that could require us to pay some of the costs of patent +litigation brought against those third parties whether or not the alleged infringement is caused by our proprietary technologies. In +certain instances, these cost-sharing agreements could also require us to assume greater responsibility for infringement damages than +would be assumed just on the basis of our technology. +The +occurrence of any of the foregoing could adversely affect our business, financial condition, or operating results. +We +may become involved in lawsuits to protect or enforce our patents or other intellectual property or the patents of our licensors, or +other claims may be made against us, which could be expensive and time-consuming. +Competitors +may infringe our intellectual property, including our patents or the patents of our licensors. As a result, we may be required to file +infringement claims to stop third-party infringement or unauthorized use. This can be expensive and time-consuming, particularly for +a company of our size. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable +or may refuse to stop the other party from using the technology at issue on the grounds that our patent claims do not cover its technology +or that the factors necessary to grant an injunction against an infringer are not satisfied. An adverse determination of any litigation +or other proceedings could put one or more of our patents at risk of being invalidated, interpreted narrowly, or amended such that they +do not cover our clinical assets. Moreover, such adverse determinations could put our patent applications at risk of not issuing or issuing +with limited and potentially inadequate scope to cover our clinical assets or to prevent others from marketing similar products. +Interference, +derivation, or other proceedings brought at the USPTO may be necessary to determine the priority or patentability of inventions with +respect to our patent applications or those of our licensors or potential partners. Litigation or USPTO proceedings brought by us may +fail or may be invoked against us by third parties. Even if we are successful, domestic or foreign litigation or USPTO or foreign patent +office proceedings may result in substantial costs and distraction to our management. We may not be able, alone or with our licensors +or potential partners, to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect +such rights as fully as in the U.S. +Furthermore, +because of the substantial amount of discovery required in connection with intellectual property litigation or other proceedings, there +is a risk that some of our confidential information could be compromised by disclosure during this type of litigation or other proceedings. +In addition, during the course of this kind of litigation or proceedings, there could be public announcements of the results of hearings, +motions, or other interim proceedings or developments or public access to related documents. +In November and December 2024, the Company received +a letter from St George Street Capital and formal complaints filed with the Intellectual Property Office claiming the Company was assigned +the US Application, and was not the sole owner, of the AZD 1656 co-crystal patent. In January 2025, Conduit issued a counter statement +to the Intellectual Property Office disputing the claim filed by St George Street Capital. As of December 31, 2025, the damages sought +by St George Street Capital are unknown and the potential contingency is not considered probable. As such, the Company has not accrued +a loss contingency in the accompanying financial statements. We intend to vigorously defend against these claims. Regardless of its outcome, +the litigation may impact our business due to, among other things, legal costs and the diversion of the attention of our management. +In addition, in August 2023, prior to the +Business Combination, our now wholly-owned subsidiary, Conduit Pharmaceuticals Limited, received a letter from Strand Hanson Limited (“Strand”) +claiming it was owed advisory fees pursuant to a previously executed letter. Conduit Pharmaceuticals Limited rejected and disputed the +substance of the letter in full. Following such rejection, on September 7, 2023, Strand filed a claim in the Business and Property Courts +of England and Wales claiming it is entitled to be paid the sum of $2 million and, as a result of the event the Business Combination is +completed, to be issued 21 shares of common stock. On December 16, 2025, the High Court of Justice, Business and Property Courts of England +and Wales, ultimately ruled in favor of Strand, with a judgment amount payable from CPL to Strand totaling $9.6 million. +44 +Our +reliance on third parties requires us to share our trade secrets, which increases the possibility that our trade secrets will be misappropriated +or disclosed, and confidentiality agreements with employees and third parties may not adequately prevent disclosure of trade secrets +and protect other proprietary information. +We +consider proprietary trade secrets or confidential know-how and unpatented know-how to be important to our business. We may rely on trade +secrets or confidential know-how to protect our technology, especially where we believe that patent protection is of limited value. +To +protect this type of information against disclosure or appropriation by competitors, our policy is to require our employees, consultants, +collaborators, contractors, and advisors to enter into confidentiality agreements and, if applicable, material transfer agreements, consulting +agreements, or other similar agreements with us prior to beginning research or disclosing proprietary information. These agreements typically +limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. However, current +or former employees, consultants, collaborators, contractors, and advisors may unintentionally or willfully disclose our confidential +information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosure +of confidential information. The need to share trade secrets and other confidential information increases the risk that such trade secrets +become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation +of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery +of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have an adverse effect on +our business and results of operations. Enforcing a claim that a third party obtained illegally and is using trade secrets or confidential +know-how is expensive, time consuming, and unpredictable. The enforceability of confidentiality agreements may vary from jurisdiction +to jurisdiction. +In +addition, these agreements typically restrict the ability of our employees, consultants, collaborators, contractors, and advisors to +publish data potentially relating to our trade secrets, although our agreements may contain certain limited publication rights. Despite +our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of our agreements with +third parties, independent development, or publication of information by any of our third-party collaborators. A competitor’s discovery +of our trade secrets would impair our competitive position and have an adverse impact on our business. +We +may be subject to claims that our employees, consultants, or independent contractors have wrongfully used or disclosed to us alleged +trade secrets of their former employers or their former or current customers. +As +is common in the biotechnology and pharmaceutical industries, certain of our employees were formerly employed by other biotechnology +or pharmaceutical companies, including our competitors or potential competitors. Moreover, we engage the services of consultants to assist +it in the development of our products and clinical assets, many of whom were previously employed at or may have previously been or are +currently providing consulting services to, other biotechnology or pharmaceutical companies, including our competitors or potential competitors. +We may be subject to claims that these employees and consultants or we have inadvertently or otherwise used or disclosed trade secrets +or other proprietary information of their former employers or their former or current customers. Although we have no knowledge of any +such claims being alleged to date, if such claims were to arise, litigation may be necessary to defend against any such claims. Even +if we are successful in defending against any such claims, any such litigation could be protracted, expensive, a distraction to our management +team, not viewed favorably by investors and other third parties, and may potentially result in an unfavorable outcome. +45 +If +our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest +and our business may be adversely affected. +Our +unregistered trademarks or trade names may be challenged, infringed, circumvented, or declared generic or determined to be infringing +on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition +among potential collaborators or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar +to those of ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could +be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate +variations of our unregistered trademarks or trade names. Over the long term, if we are unable to successfully register its trademarks +and trade names and establish name recognition based on its trademarks and trade names, then we may not be able to compete effectively, +and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, +domain names, copyrights, or other intellectual property may be ineffective and could result in substantial costs and diversion of resources +and could adversely impact our financial condition or results of operations. +Our +proprietary information may be lost, or we may suffer security breaches. +In +the ordinary course of our business, we collect and store sensitive data, including intellectual property, clinical trial data, proprietary +business information, personal data, and personally identifiable information of our clinical trial subjects and employees, in our data +centers and on our networks. The secure processing, maintenance, and transmission of this information is critical to our operations. +Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due +to employee error, malfeasance, or other disruptions. Although, to our knowledge, we have not experienced any such material security +breach to date, any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, +lost, or stolen. Any such access, disclosure, or other loss of information could result in legal claims or proceedings, liability under +laws that protect the privacy of personal information, significant regulatory penalties, disrupt our operations, damage our reputation, +and cause a loss of confidence in us and our ability to conduct clinical trials, which could adversely affect our reputation and delay +our clinical development of our clinical assets. +We +use artificial intelligence technology in our business, specifically, in relation to our Service Agreement with Sarborg and challenges +with properly managing such technology could result in reputational harm, competitive harm and legal liability, and adversely affect +our business, financial condition and results of operations. +On +December 12, 2024, we entered into the Sarborg Agreement with Sarborg. Under the terms of the Sarborg Agreement, Sarborg agreed to provide +algorithmic and cybernetic technology services to CDT, including the development of decision-support tools and advanced cybernetic +systems tailored to enhance CDT’s decision-making processes and maximize the value of its pharmaceutical asset portfolio. +Sarborg +agreed to perform the services to CDT comprised of three phases: the Initial Phase (0-24 weeks) focuses on establishing a foundation for +collaboration and aligning Sarborg’s services with CDT’s strategic goals; the Development Phase (24-36 weeks) involves +building technological infrastructure, including dashboards and predictive models; and the Ongoing Services Phase (36-52 weeks) ensures +the sustained functionality and relevance of Sarborg’s deliverables while supporting CDT’s growth through iterative improvements +and updates. Sarborg will create specific deliverables, including reports, computer programs, software applications, APIs, mobile applications, +source code, written technical specifications and designs, operating and maintenance manuals, and other recorded data and information +arising from or relating to the services. Sarborg will provide all necessary resources to perform the services and deliver the deliverables +in accordance with the Sarborg Agreement. To date, Sarborg has successfully completed all phases and has achieved all milestones provided for pursuant to the +Sarborg Agreement. +46 +As +with many developing technologies, AI presents risks and challenges that could affect its further development, adoption, and use, and +therefore our business. AI algorithms may be flawed or biased. Datasets used to train or develop AI systems may be insufficient, of inferior +quality, or contain biased information. Additionally, the laws and regulations concerning the use of AI continue to evolve. If the use +or integration of AI systems, or the outputs generated by such systems, were determined to be non-compliant (e.g., in relation to intellectual +property or data privacy rights), this may result in liability, including legal liability, or adversely affect our business, reputation, +brand, financial condition and results of operations. It is possible that emerging regulations may limit or block the use of AI in our +business and solutions or otherwise impose other restrictions that may affect or impair the usability or efficiency of our business or +services for an extended period of time or indefinitely. Our competitors or other third parties may incorporate AI into their product +development, technology and infrastructure more quickly or more successfully than us, which could impair our ability to compete effectively +and adversely affect our business, financial condition and results of operations. For more information on our dealings with Sarborg, +see “Business- Principal Strategic Partnerships Services Agreement – CDT and Sarborg Limited”. +Risks +Related to Securities Markets and Investment in Our Stock +If +we do not maintain our trading market’s listing requirements, Nasdaq may delist our securities from trading on its exchange. +The +inability to comply with Nasdaq’s continued requirements or standards could result in the delisting of our common stock, which +could have a material adverse effect on our financial condition and could cause the value of the common stock to decline. +We +do not anticipate paying any dividends in the foreseeable future. +The +current expectation is that we will retain our future earnings to fund the development and growth of our business. As a result, +capital appreciation, if any, of the shares of our common stock will be stockholders’ sole source of gain, if any, for the +foreseeable future. +Our +Second Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) provides, subject to limited +exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation +matters, which could limit our stockholders’ ability to obtain a chosen judicial forum for disputes with us or our directors, officers, +employees, or stockholders. +Our +Certificate of Incorporation requires to the fullest extent permitted by law, that derivative actions brought in our name, actions against +directors, officers and employees for breach of fiduciary duty and other similar actions may be brought in the Court of Chancery in the +State of Delaware or, if that court lacks subject matter jurisdiction, another federal or state court situated in the State of Delaware. +Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of +and consented to the forum provisions in our Certificate of Incorporation. In addition, our Certificate of Incorporation and Bylaws provide +that the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause +of action under the Securities Act and the Exchange Act. Neither the exclusive forum provisions nor the federal securities laws (and +the rules and regulations thereunder) may be waived by a stockholder. +In +March 2020, the Delaware Supreme Court issued a decision in Salzburg et al. v. Sciabacucchi , which found that an exclusive forum +provision providing for claims under the Securities Act to be brought in federal court is facially valid under Delaware law. We intend +to enforce this provision, but we do not know whether courts in other jurisdictions will agree with this decision or enforce it. +This +choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with +us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims and, +if a stockholder were to bring such a claim, the choice of forum provision may result in the stockholder incurring increased costs in +connection with bring such a claim as such stockholder will be required to bring the claim in the state or federal courts located in +the State of Delaware. Alternatively, if a court were to find the choice of forum provision contained in our Certificate of Incorporation +to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, +which could harm its business, operating results, and financial condition. +47 +Our +charter documents and Delaware law could prevent a takeover that stockholders consider favorable and could also reduce the market price +of our common stock. +Our +Certificate of Incorporation and Bylaws contain provisions that could delay or prevent a change in control of the Company. These provisions +could also make it more difficult for stockholders to elect directors and take other corporate actions. These provisions include: +● +authorizing +our board of directors to issue preferred stock with voting or other rights or preferences that could discourage a takeover attempt +or delay changes in control; +● +prohibiting +cumulative voting in the election of directors; +● +providing +that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum; +● +prohibiting +stockholder action by written consent; +● +limiting +the persons who may call special meetings of stockholders; and +● +requiring +advance notification of stockholder nominations and proposals. +These +provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult +for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. These +and other provisions in our Certificate of Incorporation and Bylaws and under Delaware law could discourage potential takeover attempts, +reduce the price investors might be willing to pay in the future for shares of common stock and result in the market price of common +stock being lower than it would be without these provisions. +If +securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our market, or if they +adversely change their recommendations or publish negative reports regarding our business or our common stock, our share price and trading +volume could decline. +The +trading market for our common stock will depend on the research and reports that securities or industry analysts publish about us, our +business, or our market. Currently, we do not have any analyst coverage and may not obtain analyst coverage in the future. In the event +we obtain analyst coverage, we will not have any control over such analysts. If one or more of the analysts who cover us downgrade the +common stock or change their opinion of such shares, the share price of the common stock would likely decline. If one or more of these +analysts cease coverage of the Company or fail to regularly publish reports on the Company, we could lose visibility in the financial +markets, which could cause the share price or trading volume of the common stock to decline. +We +are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth +companies will make our securities less attractive to investors. +We +are an “emerging growth company,” as defined in the JOBS Act. Emerging growth companies can delay adopting new or revised +accounting standards until such time as those standards apply to private companies. As an emerging growth company, we are not required +to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, we have reduced disclosure obligations +regarding executive compensation in our periodic reports and proxy statements, and we are exempt from the requirements of holding a nonbinding +advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot +predict if investors will find our stock less attractive because we may rely on these provisions. If some investors find our stock less +attractive as a result, there may be a less active trading market for our shares and our stock price may be more volatile. +We +will remain an emerging growth company until the earliest of (i) the end of the fiscal year in which the market value of our common stock +that is held by non-affiliates exceeds $700 million as of the end of the second fiscal quarter, (ii) the end of the fiscal year in which +we have total annual gross revenues of $1.235 billion or more during such fiscal year, (iii) the date on which we issue more than $1 +billion in non-convertible debt in a three-year period, or (iv) the end of the fiscal year following the fifth anniversary of the date +of the first sale of our common stock pursuant to an effective registration statement filed under the Securities Act. +48 +Claims +for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us +and may reduce the amount of money available to us. +Our +Certificate of Incorporation and Bylaws provides that we will indemnify our directors and officers, in each case to the fullest extent +permitted by Delaware law. +In +addition, as permitted by Section 145 of the DGCL, our Bylaws and our indemnity agreements that we entered into with our directors and +officers provide that: +● +We +will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, +to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person +acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant +and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful; +● +We +may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law; +● +We +will be required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except +that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled +to indemnification; +● +We +will not be obligated pursuant to our Bylaws to indemnify a person with respect to proceedings initiated by that person against us +or our other indemnitees, except with respect to proceedings authorized by our board of directors; +● +the +rights conferred in our Bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, +officers, employees and agents and to obtain insurance to indemnify such persons; and +● +we +may not retroactively amend our Bylaw provisions to reduce our indemnification obligations to directors, officers, employees and +agents. +Risks +Related to Finances and Capital Requirements +We +will require substantial additional funding in the future, which may not be available to us on acceptable terms, or at all, and, if not +so available, may require us to delay, limit, reduce, or cease our operations. +Our +operations have consumed substantial amounts of cash since our inception. As of December 31, 2025, we had an accumulated deficit of $68.3 +million and our net loss was $39.2 million for the fiscal year ended December 31, 2025. We expect to continue to incur significant +expenses and increasing operating losses for the foreseeable future. Our business will require substantial additional capital for implementation +of our long-term business plan and development of clinical assets. Our ability to raise additional funds may be adversely impacted by +potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in +the U.S. As we require additional funds, we may seek to fund our operations through the sale of additional equity securities, debt financing, +and/or strategic collaboration agreements. We cannot be sure that additional financing from any of these sources will be available when +needed or that, if available, the additional financing will be obtained on favorable terms. +49 +Our +future funding requirements will depend on many factors, including, but not limited to: +● +the +progress, timing, scope, and costs of our clinical trials, including the ability to timely enroll patients in our potential future +clinical trials; +● +the +outcome, timing, and cost of regulatory approvals by the FDA and comparable regulatory authorities, including the potential that +the FDA or comparable regulatory authorities may require that we perform more studies than those that we currently expect; +● +the +amount of revenues, if any, from our current clinical assets or any future clinical assets; +● +the +terms and timing of any potential future collaborations, licensing, or other arrangements that we may establish; +● +cash +requirements of any future acquisitions and/or the development of other clinical assets; +● +the +costs of operating as a public company; +● +the +time and cost necessary to respond to technological and market developments; +● +any +disputes which may occur between us, employees, collaborators, or other prospective business partners; and +● +the +costs of filing, prosecuting, defending, and enforcing any patent claims and other intellectual property rights +On +April 15, 2026, the last quoted sale price for our common stock +as reported on Nasdaq was $4.88 per share. Currently, the exercise prices of the Company’s Public Warrants are significantly +greater than the current market price of our common stock. Accordingly, such Public Warrants are unlikely to be exercised and therefore +the Company does not expect to receive any proceeds from such exercise of the warrants in the near term. Whether any holders of Public +Warrants determine to exercise such Public Warrants, which would result in cash proceeds to the Company, will likely depend upon the market +price of our common stock at the time of any such holder’s determination. +If +we are unable to raise additional capital when needed, we may be required to curtail the development of our technology or materially +curtail or reduce our operations. We could be forced to sell or dispose of our rights or assets. Any inability to raise adequate funds +on commercially reasonable terms could have a material adverse effect on our business, results of operations, and financial condition, +including the possibility that a lack of funds could cause our business to fail and our Company to dissolve and liquidate with little +or no return to investors. +50 +We +will continue to incur significant increased costs as a result of operating as a public company, and our management will be required +to devote substantial time to new compliance initiatives. +As +a publicly traded company, we will incur significant legal, accounting, and other expenses under the Exchange Act, the Sarbanes-Oxley +Act, and other applicable securities rules and regulations. In addition, new and changing laws, regulations, and standards relating to +corporate governance and public disclosure, including the Dodd Frank Wall Street Reform and Consumer Protection Act and the rules and +regulations promulgated and to be promulgated thereunder, as well as under the Sarbanes-Oxley Act, the JOBS Act, and the rules and regulations +of the SEC and national securities exchanges have created uncertainty for public companies and increased the costs and the time that +our board of directors and management must devote to complying with these rules and regulations. We expect these rules and regulations +to increase our legal and financial compliance costs and will divert management time and attention from revenue generating activities. +Furthermore, +the need to establish the corporate infrastructure demanded of a public company may divert management’s attention from implementing +our growth strategy, which could prevent us from improving our business, results of operations, and financial condition. We have made, +and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our +reporting obligations as a publicly traded company. However, the measures we take may not be sufficient to satisfy our obligations as +a publicly traded company. +For +as long as we remain an “emerging growth company” as defined in the JOBS Act, we may take advantage of certain exemptions +from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” +We may remain an “emerging growth company” until the earliest of (i) the last day of our fiscal year following February 7, +2027 (the fifth anniversary of the consummation of the SPAC IPO), (ii) the last day of the fiscal year in which the market value of our +shares of common stock that are held by non-affiliates exceeds $700 million as of June 30 of that fiscal year, (iii) the last day of +the fiscal year in which we have total annual gross revenue of $1.235 billion or more during such fiscal year (as indexed for inflation) +or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt in the prior three-year period. Further, there +is no guarantee that the exemptions available to us under the JOBS Act will result in significant savings. To the extent we choose not +to use exemptions from various reporting requirements under the JOBS Act, we will incur additional compliance costs, which may impact +earnings. +We +may issue additional shares of common stock or preferred stock, including issuances upon exercise of outstanding pre-funded warrants, +in connection with capital raising transactions and under an employee incentive plan or under our existing at the market offering +program, which would dilute the interest of our stockholders. +We +may issue a substantial number of additional shares of common or preferred stock pursuant to the exercise of previously issued +pre-funded warrants, under an employee incentive plan or under our ongoing at the market offering program. The issuance of +additional shares of common or preferred stock: +● +may +significantly dilute the equity interest of investors; +● +may +subordinate the rights of holders of common stock if preferred stock is issued with rights senior to those afforded our common stock; +● +could +cause a change of control if a substantial number of shares of our common stock are issued, which may affect, among other things, +our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers +and directors; and +● +may +adversely affect prevailing market prices for the common stock. +Item +1B. Unresolved Staff Comments +None. +Item +1C. Cybersecurity +We +operate in the biotechnology sector, which is subject to various cybersecurity risks that could adversely affect our business, financial +condition, and results of operations, including intellectual property theft; fraud; extortion; harm to employees or customers; violation +of privacy laws and other litigation and legal risk; and reputational risk. We have implemented a risk-based approach to identify and +assess the cybersecurity threats that could affect our business and information systems. We have implemented a risk-based approach to +identify and assess cybersecurity threats that could impact our business and information systems. As part of this strategy, the Company +has engaged a third-party service provider to implement comprehensive IT and cybersecurity policies, including Guardz, Cyber Essentials, +and others. These initiatives are supported by detailed policies, staff training programs, and the use of advanced tools such as firewalls +and VPNs to prevent cybersecurity incidents. Additionally, consultation with third-party experts has further strengthened the Company’s +IT framework and improved overall compliance. We require third-party service providers with access to personal, confidential or proprietary +information to implement and maintain comprehensive cybersecurity practices consistent with applicable legal standards and industry best +practices. +The +Company has engaged a third-party service provider to implement comprehensive IT and cybersecurity policies, including Guardz, Cyber +Essentials, and others. These initiatives are supported by detailed policies and staff training programs, which have strengthened the +Company’s IT framework and improved compliance. +51 +In +light of the pervasive and increasing threat from cyberattacks, the Company’s Board of Directors and the Audit Committee, with +input from management, assess the Company’s cybersecurity threats and the measures implemented by the Company to mitigate and prevent +cyberattacks. The Audit Committee consults with management regarding ongoing cybersecurity initiatives, and requests management to report +to the Audit Committee or the full Board regularly on their assessment of the Company’s cybersecurity program and risks. +As +of the date of this Annual Report, the Company is not aware of any risks from cybersecurity threats that have materially affected or +are reasonably likely to materially affect the Company, including its business strategy, results of operations, or financial condition. +Item +2. Properties +We +currently operate as a virtual company, but also lease property in the United Kingdom. On March 7, 2024, we entered into a lease for +laboratory space at Cambridge Science Park. Rent is £92,925 per annum, the equivalent of approximately $10,000 per month. The lease +runs until January of 2027, and the laboratory space is intended to provide us with the ability to extend or develop proprietary solid-form +intellectual property for existing and future clinical assets. +Item +3. Legal Proceedings +In August 2023, prior to the Business Combination, +our now wholly-owned subsidiary, Conduit Pharmaceuticals Limited (“CPL”), received a letter from Strand Hanson Limited (“Strand”) +claiming it was owed advisory fees pursuant to a previously executed letter. CDT rejected and disputes the substance of the letter in +full. Following such rejection, on September 7, 2023, Strand filed a claim in the Business and Property Courts of England and Wales claiming +it is entitled to be paid the sum of $2 million and, as a result of the completion of the Business Combination, to be issued 21 shares +of common stock. In 2024, the Company offered a $0.4 million settlement to Strand Hanson to avoid expensive litigation, thereby booking +an estimated liability of $0.4 million in the accompanying financial statements. On December 8, 2025, the Company and Corvus Capital Limited +(“Corvus”) entered into a Sale and Purchase Agreement (the “Agreement”) for the issuance of all of the outstanding +shares of CPL held of record by the Company to Corvus. The Company sold CPL, including the potential liability associated with the litigation, +to Corvus, a wholly-owned subsidiary of the Company’s Chief Executive Officer for a settlement amount of $7 million that was satisfied +through the issuance of shares and pre-funded warrants. On or about January 13, February 20, 2026 and March 4, 2026, CDT received correspondence +from Strand, in which, Strand seeks to recover from CDT a judgment it obtained against CPL from the High Court of England and Wales on +December 16, 2025 (the “Judgment”), in the amount of approximately $7 million, plus interest and repayment of a fraction of +Strand’s costs. CDT denies any and all liability. +On +December 18, 2024, Conduit UK Management Limited (“Conduit UK”) received a notification from the UK Intellectual Property +Office (“UK IPO”) notifying the company that St George Street Capital had initiated patent entitlement proceedings with +respect to patent application PCT/IB2022/00775 (“Patent Application”). Conduit UK refutes the claims made by St George +Street Capital and filed a counterstatement on February 26, 2025 with the UK IPO. In addition, each of the three inventors named in +the Patent Application filed simultaneous counterstatements fully supporting Conduit UK’s position, and assertions that the +claims are without merit. Further updates will be made following notification by the UK IPO. +Item +4. Mine Safety Disclosures +Not +applicable. +52 +PART +II +Item +5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities +(a) +Market Information +Our +common stock and warrants are traded on The Nasdaq Capital Market under the symbols “CDT” and “CDTTW”, respectively. +Prior to the completion of the Business Combination, the securities of MURF were listed on The Nasdaq Global Market under the symbols +“MURFU,” “MURF,” and “MURFW”, all of which are no longer listed on The Nasdaq Global Market. +On +April 14, 2026, the last quoted sale price for our common stock as reported on Nasdaq was $4.77 per share. +(b) +Holders +As +of April 14, 2026, there were approximately 400 holders of record of our common stock. Such numbers do not include beneficial owners +holding our securities through nominee names. +(c) +Dividends +We +have never declared or paid any cash dividends on our capital stock, and we do not currently intend to pay any cash dividends for the +foreseeable future. We expect to retain future earnings, if any, to fund the development and growth of our business. Any future determination +to pay dividends on our common stock will be at the discretion of our board of directors and will depend upon, among other factors, our +financial condition, operating results, current and anticipated cash needs, plans for expansion, and other factors that our board of +directors may deem relevant. +(d) +Securities Authorized for Issuance Under Equity Compensation Plans +Reference +is made to the information contained in the Equity Compensation Plan table contained in Item 11 of this Annual Report. +(e) +Recent Sales of Unregistered Securities +There +were no unregistered sales of equity securities which have not been previously disclosed in a quarterly report on Form 10-Q or a current +report on Form 8-K since January 1, 2025. +(f) +Use of Proceeds from Registered Offerings +None. +(g) +Purchases of Equity Securities by the Issuer and Affiliated Purchasers +None. +Item +6. [Reserved]. +53 +Item +7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +The +following discussion and analysis of our financial condition and results of operations should be read together with the other +sections of this Annual Report on Form 10-K, including our audited financial statements for the year ended December 31, 2025, +together with related notes thereto, included elsewhere in this Annual Report. The following discussion contains forward-looking +statements based upon current expectations that involve risks, uncertainties, and assumptions. Our actual results may differ +materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth +under the section titled “Risk Factors” or in other parts of this Annual Report and our other filings with the SEC. Our +historical results are not necessarily indicative of the results that may be expected for any period in the future. CDT Equity Inc. +(formerly Conduit Pharmaceuticals Limited) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with +Murphy Canyon Acquisition Corp. (“MURF”) on November 8, 2022. The transaction contemplated by the terms of the Merger +Agreement was completed on September 22, 2023, in conjunction with which MURF changed its name to Conduit Pharmaceuticals Inc. +(hereafter referred to, collectively with is subsidiaries as “CDT”, “CDT Equity”, the “Company”, “we”, +“us” or “our”, unless the context otherwise requires. All dollar amounts are expressed in thousands of +United States dollars (“$”), unless otherwise indicated. +Overview +On +September 22, 2023, a merger transaction (the “Business Combination”) between Conduit Pharmaceuticals Limited (“Old +Conduit”), Murphy Canyon Acquisition Corp (“MURF”) and Conduit Merger Sub, Inc., a Cayman Islands exempted company +and a wholly owned subsidiary of MURF (“Merger Sub”), was completed pursuant to the Agreement and Plan of Merger, dated November +8, 2022, as amended, (the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, at the closing, (i) Merger +Sub merged with and into Old Conduit, with Old Conduit surviving the Business Combination as a wholly-owned subsidiary of MURF, and (ii) +MURF changed its name from Murphy Canyon Acquisition Corp. to Conduit Pharmaceuticals Inc. Effective August 5, 2025, the Company changed +its name from Conduit Pharmaceuticals Inc. to CDT Equity Inc. Our change to CDT Equity Inc. reflects the evolution of our strategy as +a data-driven biotech development company focused on identifying, enhancing, and advancing high-potential therapeutic assets through +scientific innovation and strategic partnerships. +CDT +Equity is a data-driven biotech development company focused on identifying, enhancing, and advancing +high-potential therapeutic assets through scientific innovation and strategic partnerships. The Company has evolved into a broader, more +agile platform that leverages artificial intelligence, solid-form chemistry, and efficient asset repositioning to accelerate the development +of novel therapeutic treatments. +CDT +Equity’s strategy is centered on unlocking the untapped value of clinical-stage compounds, particularly those deprioritized by +larger pharmaceutical companies with strong, supporting Phase I safety data. Through advanced co-crystallization and solid-form technologies +developed at our Cambridge facility, we aim to improve drug properties and have successfully extended the patent life of certain drugs +by up to 20 years. +Our +current pipeline includes candidates targeting inflammatory and autoimmune disorders, as well as idiopathic male infertility, +dermatology, and animal health. The intellectual property portfolio comprises pending patent applications in several international +jurisdictions describing a solid-form compound, including the AZD1656 Cocrystal (a HK-4 Glucokinase Activator). Our pipeline +research includes a number of additional compounds that serve as promising alternatives to existing clinical assets currently +marketed and sold by large pharmaceutical companies, which we have identified as potential opportunities to develop further +intellectual property positions through solid-form technology. +Our +collaboration with Sarborg enables us to apply proprietary algorithms utilizing AI-powered disease mapping to identify novel re-purposing +opportunities across a database of more than 3,000 disease signatures. Sarborg’s insights have directly informed two new combination +patent filings, strengthening our intellectual property portfolio. In addition, CDT Equity has initiated pre-clinical in-vitro models +to explore new indications, guided by AI-insights without human intervention. We will seek an exit through third-party license deals +following successful in vitro and in vivo pre-clinical trials, entering into agreements with third parties to pursue further development, +FDA approval, commercialization, and marketing of our assets. +54 +The +Sarborg Agreement entered into between the Company and Sarborg on December 12, 2024 is designed to address longstanding challenges in +the pharmaceutical sector, in particular by reducing human error in critical decision-making processes in both clinical development and +asset identification. By integrating Sarborg’s algorithmic AI/cybernetics technology, CDT Equity aims to enhance efficiency, lower +costs, and accelerate timelines by minimizing human intervention, ultimately optimizing the drug development cycle and giving CDT Equity +a competitive advantage in the sector. +Through +this relationship, CDT Equity will gain access to cutting-edge predictive models and dashboards, enabling the Company to evaluate drug +candidates, streamline clinical trials, and optimize asset management with real-time data. These tools will drive faster, more accurate +decisions, improving efficiency and reducing costs. By leveraging these insights, CDT Equity can differentiate itself in a competitive +sector and gain unique data-driven insights that position the Company for success across both its current and future asset portfolio. +A +further partnership with Manoira enables CDT Equity to expand the scope of its drug portfolio into the animal health market in a cost-efficient +manner. This collaboration allows us to accelerate the understanding of the mechanism of action, safety, and potential efficacy of its +portfolio across multiple species, while retaining 100% ownership of all data and intellectual property generated relating to human applications. +This is expected to enhance the core human therapeutic pipeline but also opens potential new revenue streams in the high-growth veterinary +market. +Repositioning +CDT Equity enables the Company to explore multiple opportunities in the healthcare, biotech, artificial intelligence and broader technology +innovation. The Board continues to evaluate an artificial intelligence led strategy, collaborating with consultants to best advise a +growing market which has seen significant recent activity and success for respective stakeholders. Long-term exposure to artificial intelligence +can present both strategic and financial benefits as part of a diversified capital management approach. +Operating +with a lean disease-agnostic model, CDT Equity prioritizes speed, adaptability, and capital efficiency. We avoid the cost burden of late-stage +clinical trials, focusing instead on high-leverage development strategies. Led by highly experienced executives: Dr. Freda Lewis-Hall, +former Chief Medical Officer of Pfizer Inc., the Chair of the Company’s Board; Dr. Andrew Regan, CEO and James Bligh, CFO. Our +management team includes active senior scientists who have an extensive understanding of the pharmaceuticals market, supporting our strategy +of developing clinical assets in a cost-efficient manner focused on therapeutic efficacy. +In +2024, AstraZeneca granted a license to the Company under certain intellectual property rights controlled by AstraZeneca related to HK-4 +Glucokinase activators AZD1656 and AZD5658 in all indications and myeloperoxidase inhibitor AZD5904 for the treatment, prevention, and +prophylaxis of idiopathic male infertility. The Company will be responsible for development and commercialization of the Licensed Products +under the related License Agreement. The Company is required to use commercially reasonable efforts to develop and commercialize the +Licensed Products. +AstraZeneca +has conducted initial pre-clinical and, in some instances, clinical trials on these assets, but has decided to license them for further +development. As the clinical assets have undergone initial pre-clinical and clinical testing conducted by AstraZeneca, we are able to +use the safety data generated in these clinical trials to assess which clinical assets to further develop and re-purpose. +Furthermore, +CDT Equity is well positioned to pursue, and intends to pursue additional relationships and/or partnerships with third parties to license +assets which are currently deprioritized. We plan to focus our efforts on developing clinical assets to address disorders that impact +large populations where there is no present treatment or the existing treatments carry significant unwanted side effects. +Reverse +Stock Split +During +the year ended December 31, 2025, the Company effected three reverse stock splits of its common stock pursuant to amendments to the Company’s +Second Amended and Restated Certificate of Incorporation that were previously approved by the Company’s stockholders and authorized +by the Board of Directors. The reverse stock splits were implemented as follows: a 1-for-100 reverse stock split effective January 24, +2025, a 1-for-15 reverse stock split effective May 19, 2025, and a 1-for-8 reverse stock split effective October 10, 2025. +On +March 26, 2026, the company effected a 1-for-25 reverse stock split. No fractional shares were issued in connection with the reverse +stock splits. Stockholders who otherwise would have been entitled to receive fractional shares received cash in lieu of fractional shares +based on the applicable post-split trading price of the Company’s common stock. All references to numbers of shares of common stock +and per-share information in this Annual Report on Form 10-K have been adjusted retroactively, as appropriate, to reflect the reverse +stock split. +Reverse +stock splits were applied sequentially at their respective effective dates (resulting in a cumulative effect equivalent to an approximate +1-for-300,000 reverse stock split). +55 +The +reverse stock splits automatically combined the Company’s issued and outstanding shares of common stock at the applicable ratios +without affecting the number of authorized shares of common stock or the par value of $0.0001 per share. No fractional shares were issued +in connection with the reverse stock splits. Stockholders who otherwise would have been entitled to receive fractional shares received +cash in lieu of fractional shares based on the applicable post-split trading price of the Company’s common stock. +As +a result of the aggregate of the reverse stock splits, every 300,000 shares +of our common stock issued or outstanding were automatically reclassified into and became one new share of common stock. The number of +our issued and outstanding shares of common stock, when accounting for the reverse stock splits, was 92,140 and 461 shares as of December +31, 2025 and December 31, 2024, respectively. +In +accordance with ASC 260, Earnings Per Share, all historical share and per-share amounts presented in the accompanying consolidated financial +statements and related notes have been retroactively adjusted to reflect the effect of the reverse stock splits for all periods presented. +Accordingly, all references to common stock share amounts and per-share information in this Annual Report on Form 10-K have been retroactively +adjusted, as applicable, to reflect the reverse stock splits. +Key +Component of Result of Operations +Operating +Expenses +Research +and Development Expenses +Research +and development expenses consist primarily of costs incurred in connection with the research and development of our candidates and programs. +We expense research and development costs and intangible assets acquired that have no alternative future use as incurred. These expenses +include: +● +personnel-related +expenses, including salaries, bonuses, benefits and stock-based compensation for employees engaged in research and development functions; +● +expenses +incurred in connection with the clinical development and regulatory approval of our clinical assets, including under agreements with +third parties, such as consultants, contractors and CROs; +● +license +fees with no alternative use; and +● +other +expenses related to research and development. +We +expense research and development costs as incurred. Advance payments that we make for goods or services to be received in the future +for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the benefits are +consumed. +Our +research and development activities have been wholly focused on developing co-crystals of AZD1656 to increase patent life. Some of this +work was completed by third-party CROs but all intellectual property is retained by us. We currently have one pending international patent +application and two pending national patent applications. The successful completion of clinical trials increases the value of clinical +assets and may lead to the commercialization and/or licensing of such assets to other pharmaceutical companies. There is no assurance +that any clinical trials on the assets owned or licensed by us will be successful. +General +and Administrative Expenses +General +and administrative expenses consist of salaries and other related costs, legal fees relating to intellectual property and corporate matters, +professional fees for accounting, auditing, tax and consulting services, insurance costs, travel, and other operating costs. +We +anticipate that our general and administrative expenses will increase substantially for the foreseeable future as we increase our administrative +headcount to operate as a public company and as we advance clinical assets through clinical development. We also will incur additional +expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the +SEC and the Nasdaq listing rules, additional insurance expenses, investor relations activities and other administrative and professional +services. In addition, if regulatory approval is obtained for clinical assets, we expect to incur expenses associated with building a +sales and marketing team. +56 +Other +Income (Expenses) +Other +income (expenses), net +Other +income (expense), net consists of change in the fair value of options, change in fair value of convertible notes, and expense incurred +upon the issuance of warrants during the year. +Interest +expense, net +Interest +expense, net consists primarily of interest expense on convertible loan notes and promissory notes and interest expense on deferred commissions +payable to an advisor for fees related to the merger, as well as a small amount of interest income on cash and cash equivalents held +by the Company. +Results +of Operations +The +following table set forth our results of operations for the periods indicated: +Years ended +December 31, +Change +(Dollar amounts in thousands) +2025 +2024 +Amount +% +Research and development expenses +$ 5,054 +$ 3,378 +$ 1,676 +50 % +Research +and development expenses increased by approximately $1.7 million, or 50%, to approximately $5.1 million for the year ended December 31, +2025, as compared to approximately $3.4 million for the year ended December 31, 2024. The increase was primarily driven by an increase +of $4.2 million related to work performed under the Sarborg agreements, a $0.3 million increase related to Thesprogen, a $0.2 million +increase related to Charles River and a $0.1 million increase related to Manoira, partially offset by a $3.1 million decrease related +to an upfront payment to AstraZeneca with no comparable activity in 2025. +General +and administrative expenses +Years ended +December 31, +Change +(Dollar amounts in thousands) +2025 +2024 +Amount +% +General and administrative expenses +$ 31,703 +$ 12,041 +$ 19,662 +163 % +General and administrative +expenses increased by $19.7 million, or 163%, to approximately $31.7 million for the year ended December 31, 2025, as compared to approximately +$12.0 million for the year ended December 31, 2024. The $19.7 million increase was primarily driven by a $9.6 million increase in litigation +liability expense in relation to the Strand litigation, a $7.0 million increase in compensation expense associated with the issuance of +common stock and pre-funded warrants as consideration for the sale of CPL, a $2.4 million increase in legal fees, and a $0.9 million increase +in salaries and stock-based compensation, partially offset by a $0.2 million decrease in directors’ and officers’ (D&O) +insurance costs. +Other expense, net +Years ended +December 31, +Change +(Dollar amounts in thousands) +2025 +2024 +Amount +% +Other expense, net +$ (2,176 ) +$ (890 ) +$ (1,286 ) +144 % +57 +Activity +for the year ended December 31, 2025 consisted of a loss on the change in fair value of convertible notes of $2.7 million, a loss on +the disposition of digital assets of $0.4 million, partially offset by a gain on the waiver of accrued interest of $0.4 million , +a gain on debt extinguishment of $0.3 million, and a gain on the change in the fair value of warrant liability of $0.2 million. +Activity for the +year ended December 31, 2024 consisted of a loss of debt extinguishment of $3.2 million and a loss on the issuance of warrants for lock-up of $2.7 million, partially offset by a gain on debt extinguishment of $2.5 million, +a gain on the change in fair value of +convertible notes of $2.0 million, a $0.3 million income tax refund and a gain on the change in the fair value of warrant liability of $0.2 million. +For +further details refer to Note 17, “Other income (expense), net,” in the consolidated financial statements as of December +31, 2025 and 2024 included elsewhere in this Annual Report. +Interest +expense, net +Years ended +December 31, +Change +(Dollar amounts in thousands) +2025 +2024 +Amount +% +Interest expense, net +$ (319 ) +$ (1,506 ) +$ 1,187 +(79 )% +Interest +expense, net changed by $1.2 million or 79%, to $0.3 million for the year ended December 31, 2025, from $1.5 million for the year ended +December 31, 2024. The decrease was primarily attributable to a $0.9 million decrease in the amortization of debt issuance costs, debt +discounts, and conversion costs, and a $0.4 million decrease in interest expense and conversion costs related to interest-bearing convertible +promissory notes, partially offset by a $0.1 million increase in loan settlement fees. +Liquidity +and Capital Resources +Management +assesses liquidity in terms of our ability to generate cash to fund operating, investing and financing activities. Since our inception, +and in line with our growth strategy, we have prepared our financial statements assuming we will continue as a going concern. Since our +inception, we have incurred net losses and experienced negative cash flows from operations. To date, our primary sources of capital have +been through private placements of equity securities and convertible debt and the Sales Agreement with A.G.P. During the years ended +December 31, 2025 and 2024, we incurred operating losses of $36.8 million and $15.4 million, respectively. +Our +primary uses of cash are to fund our operations as we continue to grow our business. We will require a significant amount of cash for +expenditures as we invest in ongoing research and development and business operations. Until such time we can generate significant revenue +from the successful approval and commercialization of a product candidate, we expect to finance our cash needs for ongoing research and +development and business operations through public or private equity or debt financings or other capital sources, including strategic +partnerships. However, we may be unable to raise additional funds or enter into such other arrangements, when needed, on favorable terms +or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest +of our stockholders will be, or could be, diluted, and the terms of these securities may include liquidation or other preferences that +adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that +include limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures +or declaring dividends. If we are unable to raise additional funds through equity or debt financings when needed, we may be required +to delay, limit, or substantially reduce research and development efforts all of which could have a material adverse effect on the Company +and its financial results. +While +the Company believes in the viability of its ability to raise additional funds, there can be no assurances to that effect. We have based +our estimates on assumptions of operating costs that may prove to be wrong. As a result, we could deplete our capital resources sooner +than we currently expect. If, for any reason, our expenses differ materially from our assumptions or we utilize our cash more quickly +than anticipated, or if we are unable to obtain funding on a timely basis we may be required to revise our business plan and strategy, +which may result in significantly curtailing, delaying or discontinuing one or more of our research or development programs or the commercialization +of any product candidates or may result in our being unable to expand our operations or otherwise capitalize on our business opportunities. +As a result, our business, financial condition, and results of operations could be materially affected. +Management +has concluded that there is substantial doubt regarding our ability to continue as a going concern for a period of at least 12 months +from the date of the filing of this Annual Report. This is based on our analysis under applicable accounting principles. These financial +statements have been prepared assuming the Company will continue as a going concern and do not include adjustments to reflect the possible +effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the +outcome of this uncertainty. +58 +Cash +Requirements +Our +material cash requirements include the following contractual and other obligations. +A.G.P +Convertible Note +On +November 25, 2024, the Company issued to A.G.P. a convertible promissory note (the “A.G.P. Convertible Note”) in the principal +amount of $5.7 million to evidence the A.G.P.’s currently owed deferred commission payable. Unless earlier converted as specified +in the Convertible Note, the principal amount plus all accrued but unpaid interest is due on November 25, 2025 (the “Maturity Date”). +The A.G.P. Convertible Note accrues interest at 5.5% per annum. +At +any time prior to the full payment of the A.G.P. Convertible Note, provided that the A.G.P. has given at least three business days written +notice to the Company, A.G.P., in its sole discretion, may elect to have all or any portion of the outstanding principal amount and all +interest accrued converted into shares of the Company’s common stock, at the lower of the Reverse Split price and the market price +per share at the time of the conversion date, but in no event less than $1.00, subject to adjustment as provided therein and to take +into account any future share splits or reverse splits. However, the conversion of the A.G.P. Convertible Note may not occur prior to +the Company having sufficiently authorized shares of common stock to permit the entire conversion of the convertible promissory note. +Refer to Note 8 to our financial statements included elsewhere in this Annual Report. +During +the year ended December 31, 2025, the holder of the A.G.P. Convertible Note converted $3.5 million of principal and interest into +18,711 shares of the Company’s Common Stock, respectively. As of December 31, 2025 and the date of filing the consolidated +financial statements, approximately $2.5 million and $1.2 million, respectively, of principal and interest remained outstanding +under the A.G.P. Convertible Note. +Working +Capital +We +currently anticipate that cash required for working capital for the next 12 months is approximately $10.0 million, which includes forecasted operating expenses of $6.3 million, +accrued expenses and other current liabilities of $2.5 million, the A.G.P. Convertible Promissory Note payable, if not converted prior to maturity +of $1.2 million and forecasted research and development costs of $60 thousand. We do anticipate being able to fund required working capital +for the next 12 months with cash and cash equivalents on hand and current borrowings. Management believes that we will be able to fund +cash required for the next 12 months through borrowings and equity raises. We have historically been able to access funds through the +issuance of debt, and more recently the at the market offering program agreement and believe we can continue to obtain funding through +such debt financing agreements and Sales agreement as needed to meet cash requirements for the next 12 months. +As +of December 31, 2025, we have raised the full $23.9 million (net of fees) out of the $23.9 million available to us through the Sales +agreement. We expect to raise additional funds from an updated at the market offering program agreement and ELOC over the next 12 months but can’t guarantee the +additional funding from the at the market offering program agreement, ELOC and other potential debt and equity raises will cover the required +cash required for working capital for the next 12 months. +59 +Cash +Flows +The +following table set forth our cash flows for the period indicated (in thousands): +Years ended December 31, +2025 +2024 +Net cash (used in) provided by: +Operating Activities +$ (15,555 ) +$ (9,682 ) +Investing Activities +(808 ) +(43 ) +Financing Activities +17,422 +6,067 +Effect of exchange rate changes on cash and cash equivalents +(104 ) +(16 ) +Net increase (decrease) in cash and cash equivalents +$ 955 +$ (3,674 ) +Cash +Flows Used in Operating Activities +Net cash used in +operating activities for the year ended December 31, 2025 was $15.6 million, resulting primarily from a net loss of $39.2 million, a +gain on the waiver of accrued interest of $0.4 million, a gain on debt extinguishment of $0.3 million and a gain on the change in +fair value of warrant liabilities of $0.1 million. This was partially offset by a $7.0 million compensation expense from the +issuance of shares and warrants upon the sale of a previously controlled subsidiary, $4.7 million cash inflow from operating assets +and liabilities, a $3.2 million cash inflow from the issuance of common stock for services, a $2.7 million loss on the change in +fair value of convertible notes payable, $2.4 million of amortization expense, $2.2 million cash outflow of stock-based +compensation, $1.4 million of amortization of directors and officers insurance, a $0.4 million loss on the change in fair value of +digital assets, $0.3 million of non-cash interest expense and $0.1 million of non-cash lease expense. The $4.7 million cash inflow +from operating assets and liabilities was primarily driven by a $9.6 million increase in accrued litigation liability, a $0.4 +million cash inflow from accounts payable, partially offset by a $4.1 million cash outflow from prepaid expenses, $0.9 million cash +outflow from accrued expenses and other liabilities, and other current assets and a $0.1 million cash outflow from lease +liabilities. +Net +cash used in operating activities for the year ended December 31, 2024 was $9.7 million, resulting primarily from a net loss of +$17.8 million, a gain on the change in fair value of convertible notes payable of $2.0 million, a gain on change in fair value of +warrant liabilities of $0.2 million and a $0.1 million cash outflow from operating assets and liabilities. This was partially offset +by a $2.7 million loss on the issuance of warrants, $1.7 million of amortization of directors and officers insurance, a $1.6 million +outflow attributable to the issuance of common stock for licensing rights, $1.6 million of stock-based compensation, $0.9 million of +debt discount amortization, a $0.7 million loss on debt extinguishment, $0.5 million of non-cash interest expense, $0.4 million of +amortization expense, a $0.2 million share issuance for services and a $0.1 million of non-cash lease expense. The $0.1 million cash +outflow from operating assets and liabilities is primarily due to a $2.3 million cash outflow from prepaid expenses and other +current assets and a $0.1 million cash outflow from lease liabilities, partially offset by a cash inflow of $1.2 million from +accounts payable and a cash inflow of $1.0 million from accrued expenses and other current liabilities. +Cash +Flows Used in Investing Activities +Net +cash used in investing activities for the year ended December 31, 2025 was $0.8 million, consisting of $2.0 million of digital asset +purchases and $0.4 million of equipment and clinical assets, partially offset by proceeds of $1.6 million from digital asset disposals. +Net +cash used in investing activities for the year ended December 31, 2024 was $43 thousand, resulting from purchases of short-term investments +of $0.5 million and purchases of property, plant and equipment of $0.1 million, partially offset by sales of short-term investments of +$0.5 million. +60 +Cash +Flows Provided by Financing Activities +Net +cash provided by financing activities for the year ended December 31, 2025 was $17.4 million, resulting from $19.7 million of proceeds +from the issuance of common shares under the ATM program, partially offset by $2.2 million of debt repayments and $0.1 million of treasury +stock purchases. +Net +cash provided by financing activities for the year ended December 31, 2024 was $6.1 million, resulting from proceeds from the +issuance of common shares under the ATM program of $3.3 million, proceeds from the issuance of notes payable of $3.2 million, +proceeds from the exercise of warrants of $0.2 million and proceeds from the issuance of warrants of $0.1 million, partially offset +by repayments of notes payable of $0.8 million. +Contractual +Obligations and Other Commitments +Laboratory +Lease +As +of December 31, 2025, we are the lessee under one laboratory space lease for a term of two years. The annual rent payments are $0.1 million +for the years ending December 31, 2025 and December 31, 2026. The laboratory space lease has a remaining lease term of approximately +one year. +Critical +Accounting Estimates +The +preparation of financial statements in conformity with U.S. GAAP requires us to make estimates, judgments and assumptions that affect +the amounts reported in the Consolidated Financial Statements. These estimates, judgments and assumptions are evaluated on an ongoing +basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable at that time, the +results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent +from other sources. Actual results may differ materially from those estimates. The accounting policies that reflect our more significant +estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported +financial results include the following: +Fair +Value of Convertible Notes +The +Company has elected the fair value measurement option for convertible debt with embedded derivatives that would otherwise require bifurcation, +and has recorded the entire hybrid financial instrument at fair value under the guidance in ASC 825, Financial Instruments. To value +the convertible debt, the Company utilizes Binomial Lattice Pricing Models. The Binomial Lattice Pricing Models involve the construction +of various intermediate lattices: stock price tree, conversion value tree, conversion probability tree, and discount rate tree. In doing +so, we assume the holders act rationally to maximize return and minimize cost at each decision point. We computed the notes payoff at +maturity and at intermediate decision nodes based upon the better of (i) conversion or (ii) repayment of principal and interest. +The +significant inputs and assumptions used to estimate the fair value include: (i) the Company’s stock price, (ii) the term of the +convertible debt, (iii) the sum of the notes’ principal and unpaid accrued interest, (iv) expected volatility, (v) risk-free interest +rate, (vi) the corporate bond yield, (vii) the credit spread, (viii) probability of default, and (ix) the estimated recovery upon default. +Any change to the unobservable inputs to estimate fair value could produce significantly higher or lower fair value measurements and +result in a material change within the financial statements. +The +convertible debt will subsequently be remeasured at fair value each reporting date until settled or converted. +Contingencies +In +the ordinary course of business, we are involved in various legal proceedings that are complex in nature and have outcomes that are difficult +to predict. We describe our legal proceedings and other matters that are significant or that we believe could become significant in Note +15 to the consolidated financial statements. We record accruals for loss contingencies to the extent that we conclude it is probable +that a liability has been incurred and the amount of the related loss can be reasonably estimated. We evaluate, on a quarterly basis, +developments in legal proceedings and other matters that could cause an increase or decrease in the amount of the liability that has +been accrued previously or modifications to contingency disclosures that are considered material. +61 +Recent +Accounting Pronouncements +A +discussion of recent accounting pronouncements is included in Note 3 - Basis of Presentation and Summary +of Significant Accounting Policies to our financial statements included elsewhere in this Annual Report. +Emerging +Growth Company Status and Smaller Reporting Company Status +The +Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under +the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of +the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period +for complying with new or revised accounting standards that have different effective dates for public and private companies until the +earlier of the date that: (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended +transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with +the new or revised accounting pronouncements as of public company effective dates. +Upon +closing of the Merger, the surviving company remained an emerging growth company, as defined by the Jumpstart Our Business Startups act +of 2012, until the earliest of (i) the last day of the combined entity’s first fiscal year following the fifth anniversary of the +completion of MURF’s initial public offering, (ii) the last day of the fiscal year in which the combined entity has total annual +gross revenue of at least $1.235 billion, (iii) the last day of the fiscal year in which the combined entity is deemed to be a large +accelerated filer, which means the market value of the combined entity’s common stock that is held by non-affiliates exceeds $700.0 +million as of the prior December 31st or (iv) the date on which the combined entity has issued more than $1.0 billion in non-convertible +debt securities during the prior three year period. +In +addition, CDT Equity is a smaller reporting company as defined in the Exchange Act. The Company may continue to be a smaller reporting +company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available +to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as (i) CDT’s voting +and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal +quarter or (ii) CDT’s annual revenue is less than $100.0 million during the most recently completed fiscal year and its voting +and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of its second fiscal +quarter. +Item +7A. Quantitative and Qualitative Disclosures about Market Risk +As +a smaller reporting company, we are not required to provide the information required by this item. +Item +8. Financial Statements and Supplementary Data +This +information appears following Item 15 of this Annual Report and is included herein by reference. +Item +9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +None. +62 +Item +9A. Controls and Procedures +Controls +and Procedures +Disclosure +controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports +filed under the Exchange Act, such as this Annual Report, is recorded, processed, summarized, and reported within the time period +specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such +information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as +appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our current +chief executive officer and chief financial officer (our “Certifying Officers”), the effectiveness of our disclosure +controls and procedures as of December 31, 2025, pursuant to Rule 13a-15(b) under the Exchange Act. Based on this evaluation, our +Certifying Officers concluded that our disclosure controls and procedures were not effective as of December 31, 2025. +We +do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and +procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the +disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there +are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure +controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all +our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain +assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated +goals under all potential future conditions. +Management’s +Report on Internal Controls Over Financial Reporting +Our +management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined +in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our Management, including our Chief Executive Officer +and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting. In connection +with the preparation and audit of the financial statements as of and for the fiscal year ended December 31, 2025, material +weaknesses were identified in our internal control over financial reporting. A material weakness is a deficiency, or a combination of +deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of +annual or interim financial statements will not be prevented or detected on a timely basis. Our management conducted an evaluation of the effectiveness of the system +of internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee +of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded our system of internal control +over financial reporting was not effective as of December 31, 2025 due to the following material weaknesses: +● +The +segregation of duties is limited and heavily reliant on interim personnel and third-party consultants to perform these activities, including +the lack of timely review and approval of travel and entertainment expenses. +● +The +Company lacks a formal process for review and approval of significant transactions and accounts on a contemporaneous basis and there +have been numerous, recurring errors in account balances and disclosures. +● +The +Company has not designed adequate and appropriate internal controls under an appropriate internal control over financial reporting +framework. +● +The +Company did not appropriately review and evaluate the accounting implications of all material transactions that occurred in the audit +periods. +● +The +review controls around certain related party transactions did not operate consistently and the review of such transactions was not +always contemporaneously documented. +63 +If +these material weaknesses are not remediated, it could result in a misstatement of account balances or disclosures that would result +in a material misstatement to the annual or interim financial statements that would not be prevented or detected. We are reviewing measures +designed to improve our internal control over financial reporting to remediate these material weaknesses, although they have not been +fully remediated as of the date of this filing. We anticipate hiring additional qualified accounting personnel with experience with complex +GAAP and SEC rules while, meanwhile, continuing to engage consultants to assist with our financial statement close process, segregating +duties among accounting personnel to enable adequate review controls, further developing and documenting our accounting policies, and +designing, implementing, and/or expanding IT systems and application controls in our systems relevant to the preparation of the consolidated +financial statements. We also expect to engage an external advisor to assist with evaluating and documenting the design and operating +effectiveness of internal controls and assisting with the remediation of deficiencies, as necessary if sufficient capital resources become +available. +The +ability to perform these remediation plans are dependent on our ability to enhance funding and liquidity. The primary costs associated +with such measures are corresponding recruiting and additional salary and consulting costs, which are difficult to estimate but which +may be significant. These additional resources and procedures are intended to enable us to broaden the scope and quality of our internal +review of underlying information related to financial reporting and to formalize and enhance our internal control procedures. +The +material weaknesses will not be considered remediated until a remediation plan has been fully implemented, the applicable controls operate +for a sufficient period of time, and we have concluded, through testing, that the newly implemented and enhanced controls, provided we +are able to obtain sufficient capital resources to cover the cost of our remediation plan, are operating effectively. A failure to implement +and maintain effective internal control over financial reporting could result in errors in our financial statements that could result +in a restatement of our financial statements and could cause us to fail to meet our reporting obligations, any of which could diminish +investor confidence in us and cause a decline in the price of our common stock. +Our +independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over +financial reporting until after we are no longer an “emerging growth company,” as defined in the JOBS Act. At such time, +our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level +at which our internal control over financial reporting is documented, designed, or operating. +Changes +in Internal Control over Financial Reporting +There were no changes in our internal control +over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended December +31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. +Item +9B. Other Information +During +the fiscal quarter ended December 31, 2025, none of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Exchange +Act) adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended +to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement”. +Item +9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not +applicable. +64 +PART +III +Item +10. Directors, Executive Officers and Corporate Governance +Executive +Officers and Directors +The +following table sets forth certain information concerning our executive officers and directors as of April 15, 2026: +Name +Age +Position +Andrew +Regan +60 +Chief +Executive Officer and Director +James +Bligh +38 +Chief +Financial Officer and Director +Freda +Lewis-Hall +71 +Chairperson +of the Board of Directors +Chele +Chiavacci Farley +59 +Director +Simon +Fry +66 +Director +Executive +Officers +Andrew +Regan. Dr. Andrew Regan, the founder and initial financial backer of Conduit Pharmaceuticals (now CDT Equity Inc.), was +appointed Chief Executive Officer of the Company on April 15, 2025. Dr. Regan succeeds Dr. David Tapolczay, who stepped down as CEO +and as a member of the Board of Directors for personal reasons, but will continue to serve the Company as Head of Strategy & +Licensing. +Dr. +Regan is a British born polar explorer and entrepreneur. He has served as a member of the Board since September 2023 and is a successful +entrepreneur with an extensive background in founding and scaling innovative companies across sectors. Dr. Regan was a co-founder of +Conduit Pharmaceuticals Limited (“Old Conduit”) and has served as a board member of Old Conduit since 2019. He also founded +Corvus Capital Limited (“Corvus Capital”), an investment vehicle that was listed on the London Stock Exchange prior to being +taken private in 2008 and has served as its Chief Executive Officer since then, overseeing its continued investments across several industries. +Dr. Regan also has experience as an investor in a number of public and private companies, including ASOS.com Ltd, a global online fashion +and beauty retailer, Virtual Internet, an IT services company that specializes in hosting infrastructure such as VMWare cloud hosting +and Managed and Dedicated Servers, and Imperial Energy Corporation plc, an upstream oil and gas exploration and production company. Prior +to that, Dr. Regan was the Chief Executive Officer of Hobson Plc, which was listed on the London Stock Exchange, until its sale in 1996 +through a cash takeover. +Dr. +Regan has a strong interest in the use of bio-inspired science to create solutions for present-day problems. In 2014, he was awarded +a PhD from Oxford Brookes University for his research in writing and developing a bio-inspired algorithm for forecasting the financial +markets. He is passionate about the polar regions and is an accomplished polar explorer having led a number of expeditions to both the +Arctic and Antarctica. Dr. Regan was selected to serve on the Board following the business combination based on his knowledge of Old +Conduit and his extensive experience in investing, financing, overseeing and developing companies. +Dr. +Regan sits on the board of directors of Sarborg Limited (“Sarborg”), a significant stockholder of the Company, with which +the Company, as previously disclosed, has entered into a Services Agreement (the “Sarborg Agreement”) with in December 2024. +Since the beginning of this fiscal year, as previously disclosed in a Current Report to Form 8-K filed on April 4, 2025, on March 31, +2025, the Company entered into an additional license and use agreement with Sarborg (the “Additional Agreement”) covering +certain additional deliverables and incorporating a new scope of work focused on analysis of CDT’s acquired AstraZeneca assets. +Dr. Regan does not have an equity or ownership interest in Sarborg. Except for the Sarborg Agreement and the Additional Agreement, Dr. +Regan has no direct or indirect material interest in any other transaction required to be disclosed pursuant to Item 404(a) of Regulation +S-K. +65 +James +(“Jamie”) Bligh. Mr. Bligh has served as a member of our Board since September 2023. He served as the Company’s +Interim CFO from May 2024 until August 4, 2025, when he was appointed permanent Chief Financial Officer. He was a co-founder of Conduit +Pharmaceuticals Limited in 2019 and has served as a member of its board of directors since September 2023. From 2008 to 2019, Mr. Bligh +worked closely with investment vehicle Corvus Capital Limited, including as a Partner, where he led a number of reverse takeover transactions, +stock market listings, initial public offerings, secondary fundraisings, and merger transactions. Mr. Bligh’s prior transaction +experience includes advising several special purpose acquisition vehicles in listing on the London Stock Exchange, including the listing +of Bermele Plc, a special purpose acquisition vehicle, and the subsequent acquisition of Bermele by East Imperial Pte. Ltd., a global +purveyor of ultra-premium beverages, in June 2019; the listing of Leverett Plc, which subsequently acquired Nuformix Plc, a pharmaceutical +development company targeting unmet medical needs in fibrosis and oncology via drug repurposing; and Cizzle Biotechnology Holdings PLC, +a UK-based diagnostics developer. Jamie previously served as a director of Bermele Plc from June 2021 through February 2022; Mertz Plc +from January 2021 through March 2022. Jamie graduated from the University +of Bristol with a BSc in Economics & Finance. Mr. Bligh was selected to serve on our board of directors following the Business Combination +based on his past experience with business development, capital raising, financings, public offerings and other strategic transactions, +including mergers and acquisitions. +Directors +Freda +Lewis-Hall, M.D., DFAPA . Dr. Lewis-Hall has served as a member of our Board since September 2023. She served as Senior Medical +Advisor to the CEO of Pfizer Inc., or Pfizer, from December 2019 until her retirement in March 2020. Before assuming that responsibility, +beginning January 2019, Dr. Lewis-Hall served as Chief Patient Officer and Executive Vice President of Pfizer. Dr. Lewis-Hall served +as Pfizer’s Chief Medical Officer from 2009 to January 2019. Prior to joining Pfizer in 2009, Dr. Lewis-Hall held various senior +leadership positions including Chief Medical Officer and Executive Vice President, Medicines Development at Vertex Pharmaceuticals Incorporated +from June 2008 to May 2009; Senior Vice President, U.S. Pharmaceuticals, Medical Affairs for Bristol-Myers Squibb Company from 2003 until +May 2008; Vice President Research and Development at Pharmacia Corporation from 2002-2003; Product Team Leader at Pharmacia and Eli Lilly +and Company from 1998 to 2002; Director of Lilly Center for Women’s Health from 1996-1999; and Clinical Research Physician at Eli +Lilly from 1994 through 1996. In October 2021, Dr. Lewis-Hall became a member of the board of directors for Pyxis Oncology (Nasdaq: PYXS), +(where she serves as a member of the Nominating and Corporate Governance Committee); she serves as a member of the board of directors +for Milliken & Company since July 2019, as a member of the Audit and HR and Compensation Committees; and as a member of the board +of directors of SpringWorks Therapeutics, Inc. (Nasdaq GS: SWTX) since 2017, where she serves as the chair of the Nominating and Governance +Committee and as a member of the audit committee. Dr. Lewis-Hall served as a member of the board of directors for Exact Sciences Corporation +(Nasdaq: EXAS) from April 2020 to June 2024 where she served as a member of the Human Capital and Innovation, Technology and Pipeline +Committees; a member of 1LifeHealthCare, Inc. (Nasdaq: ONEM) board from November 2019 to 2023, serving as a member of the Nominating +and Corporate Governance Committee; she also served as a member of the board of directors for Tenet Healthcare Corporation (NYSE: THC) +from 2014 to 2017. +Dr. +Lewis-Hall holds an M.D. from Howard University College of Medicine and a B.A. in natural sciences from the Johns Hopkins University. +The Company believes Dr. Lewis-Hall is qualified to serve on the Board based on her expertise and experience in the biopharmaceutical +industry and her leadership experience as a senior executive at various biopharmaceutical companies. +Chele Chiavacci Farley . +Chele Chiavacci Farley. Ms. Chiavacci Farley has served on our board of directors since the closing of our initial public offering. +Ms. Farley currently serves as a Partner and Managing Director of Mistral Capital International, a middle-market private equity fund +that has invested over $1.6 billion since its inception and that she has been a part of since 1995, where she focuses on private +equity investments and strategic advisory across a range of sectors. During her tenure at Mistral Capital International, Ms. Farley +has completed transactions with Goldman Sachs, Starwood Capital and Royal Dutch Shell. +Ms. Farley is a Director of a Nasdaq-listed +special purpose acquisition company, General Purpose Acquisition Corp, where she is Chair of the Nominating and Corporate Governance +Committee. She is also a member of the Board of Directors of the WordPress Foundation, which supports open-source initiatives and +digital literacy worldwide, and a member of the Board of Directors of Palmilla San Jose Inmobiliara, a real estate resort +development in Cabo San Lucas. Earlier in her career, Ms. Farley held merchant banking and investment banking roles at UBS Capital +and Goldman Sachs, where she advised on capital markets transactions and mergers and acquisitions. +Ms. Farley graduated from Stanford University +with a B.S. and M.S. in Industrial Engineering. We believe Ms. Farley’s expansive financial background and past experience with +business development and capital raising make her well qualified to serve as a member of our board of directors. +Simon +Fry. Mr. Fry has served as a member of our board of directors since November 2024. Mr. Fry has over 30 years’ experience +in investment banking having held senior executive positions at various top-tier institutions, such as Nomura and Credit Suisse First +Boston. In 2003, Mr. Fry was appointed as Chief Executive Officer at Crosby Asset Management. He previously worked at Nomura, where he +was Managing Director and European Board member, as well as a member of the risk committee and credit committee. During his time at Nomura, +Mr. Fry initiated and built the Company’s Asset Investment Group, whose focus was to create specific product and strategy groups +within it to invest in mis-priced and undervalued credit and equity exposures. During this period, Mr. Fry was also responsible for building +Nomura’s highly regarded International Markets Division, which was responsible for all the European capital market activity in +equity, fixed income and derivatives including primary origination. Prior to this, Mr. Fry spent 14 years at Credit Suisse First Boston +(CSFB) trading a variety of securities including both fixed income and equities. From 1990, Mr. Fry developed CSFB’s Asset Trading +Group, and as Managing Director built a team that generated significant returns over a number of years for CSFB. Mr. Fry is based in +Los Angeles. His expertise in capital markets and strategic asset management is expected to contribute to CDT’s growth goals +as the company pursues development-ready assets and aims to enhance shareholder value. +66 +Board +Composition +Our +business and affairs are organized under the direction of our board of directors. The board of directors will meet on a regular basis +and additionally as required. In accordance with the terms of the amended and restated certificate of incorporation, the board of directors +may establish the authorized number of directors from time to time by resolution. Our board of directors currently consists of seven +directors. +Director +Independence +Under +the Nasdaq listing standards, a majority of the members of our board of directors must qualify as “independent,” as affirmatively +determined by the board of directors. The Company’s board of directors affirmatively determined that all of the Company’s +directors, except for Messrs. Bligh and Regan are independent directors within the meaning of the applicable Nasdaq listing standards. +A majority of the members of the board of directors and all members of the Audit Committee, Compensation Committee, and Nominating and +Corporate Governance Committee are independent directors under the applicable Nasdaq listing standards. +Board +Leadership Structure +The +board of directors is responsible for the control and direction of the Company. We separate the positions of Chairperson of the board +of directors and Chief Executive Officer of the Company. Dr. Lewis-Hall serves as the Chairperson of the board of directors and Dr. Regan +serves as the Chief Executive Officer of the Company and as a member of the board of directors. The board of directors believe that this +structure serves us well by maintaining a link between management, through Dr. Regan’s membership on the board of directors, and +the non-executive directors led by Dr. Lewis-Hall in her role as a non-executive Chairperson. +Board +Oversight of Risk +One +of the key functions of our board of directors is to conduct informed oversight of our risk management process. The board of directors +does not anticipate having a standing risk management committee, but rather administers this oversight function directly through the +board of directors as a whole, as well as through various standing committees of the board of directors that address risks inherent in +their respective areas of oversight. In particular, the board of directors will be responsible for monitoring and assessing strategic +risk exposure and the Audit Committee will have the responsibility to consider and discuss the Company’s major financial risk exposures +and the steps our management will take to monitor and control such exposures, including guidelines and policies to govern the process +by which risk assessment and management is undertaken. The Audit Committee also monitors compliance with legal and regulatory requirements. +The Compensation Committee assesses and monitors whether our compensation plans, policies, and programs comply with applicable legal +and regulatory requirements. +Committees +of the Board of Directors +The +board of directors has formed the committees described below. Each of the committees operates pursuant to a written charter adopted by +the committee or our board of directors. Each charter sets forth the committee’s specific functions and responsibilities. The board +of directors may from time to time establish other committees. +Audit +Committee +The +Audit Committee assists the board of directors with its oversight of the integrity of the financial statements; the compliance with legal +and regulatory requirements; the qualifications, independence and performance of the independent registered public accounting firm; the +design and implementation of the financial risk assessment and risk management. Among other things, the Audit Committee is responsible +for reviewing and discussing with management the adequacy and effectiveness of disclosure controls and procedures. The Audit Committee +also discusses with management and independent registered public accounting firm the annual audit plan and scope of audit activities, +scope, and timing of the annual audit of the financial statements, and the results of the audit, quarterly reviews of the financial statements +and, as appropriate, initiates inquiries into certain aspects of the financial affairs. +67 +The +Audit Committee is responsible for establishing and overseeing procedures for the receipt, retention, and treatment of any complaints +regarding accounting, internal accounting controls or auditing matters, as well as for the confidential and anonymous submissions by +employees of concerns regarding questionable accounting or auditing matters. In addition, the Audit Committee has direct responsibility +for the appointment, compensation, retention, and oversight of the work of the independent registered public accounting firm. The Audit +Committee has sole authority to approve the hiring and discharging of the independent registered public accounting firm, all audit engagement +terms and fees and all permissible non-audit engagements with the independent auditor. The Audit Committee reviews and oversees all related +party transactions in accordance with policies and procedures. +The +Audit Committee is comprised of three members: Ms. Farley (Chairperson), Dr. Lewis-Hall and Mr. Fry. Each member of the Audit Committee +meets the requirements for independence under the current Nasdaq and SEC rules and regulations and each member is financially literate. +In addition, the board of directors has determined that each of Ms. Farley and Mr. Fry is an “audit committee financial expert” +as defined in Item 407(d)(5)(ii) of Regulation S-K promulgated under the Securities Act. +Compensation +Committee +The +Compensation Committee assists the board of directors with its oversight of the forms and amount of compensation for executive officers +(including officers reporting under Section 16 of the Exchange Act), the administration of equity and non-equity incentive plans for +employees and other service providers and certain other matters related to compensation programs. The Compensation Committee, among other +responsibilities, evaluates the performance of our Chief Executive Officer and, in consultation with the Chief Executive Officer, evaluates +the performance of other executive officers (including officers reporting under Section 16 of the Exchange Act). +The +Compensation Committee is comprised of two members: Dr. Lewis-Hall and Mr. Fry (chairperson). The composition of the Compensation Committee +meets the requirements for independence under the current Nasdaq and SEC rules and regulations. Each member of the Compensation Committee +is a “non-employee” director within the meaning of Rule 16b-3 promulgated under the Exchange Act. +Nominating +and Governance Committee +The +Nominating and Corporate Governance Committee assists the board of directors with its oversight of and identification of individuals +qualified to become members of the board of directors, consistent with criteria approved by the board of directors, and selects, or recommends +that the board of directors selects, director nominees; develops and recommends to the board of directors a set of corporate governance +guidelines; oversees the evaluation of the board of directors; and reviews the environmental, safety, sustainability, and corporate social +responsibility policies, objectives, and practices on a periodic basis. +The +Nominating and Corporate Governance Committee is comprised of three members: Dr. Lewis-Hall (Chairperson) Ms. Chiavacci Farley, and Mr. +Fry. The composition of the Nominating and Corporate Governance Committee meets the requirements for independence under the current Nasdaq +and SEC rules and regulations. +Compensation +Committee Interlocks and Insider Participation +No +member of our Compensation Committee was at any time during fiscal year 2025, or at any other time, one of our officers or employees. +None of our executive officers have served as a director or member of a compensation committee (or other committee serving an equivalent +function) of any entity, one of whose executive officers served as a director of our board of directors or member of our Compensation +Committee. +Family +Relationships +There +are no family relationships among our directors and executive officers. +68 +Code +of Conduct +We +adopted a written Code of Conduct applicable to all of our directors, officers, and employees, which is available on the Company’s +website at http://www.cdtequity.com. Our Internet website address is provided as an inactive textual reference only. The Code of +Conduct covers fundamental ethical and compliance-related principles and practices such as accurate accounting records and financial +reporting, avoiding conflicts of interest, the protection and use of property and information, and compliance with legal and regulatory +requirements. The Code of Conduct is a “code of ethics,” as defined in Item 406(b) of Regulation S-K. The Company will make +any legally required disclosures regarding amendments to, or waivers of, provisions of its Code of Conduct on its corporate website. +Director +and Officer Liability and Indemnification +We +have purchased directors’ and officers’ liability insurance and have entered into indemnification agreements with each of +directors and executive officers. The indemnification agreements and our amended and restated certificate of incorporation and amended +and restated by laws require us to indemnify our directors and officers to the fullest extent permitted by Delaware law. +Insider +Trading Policy +The +use of material non-public information in securities transactions or the communication of such information to others who use it in securities +trading (“Tipping”) violates the federal securities laws. Such violations are likely to result in harsh consequences for +the individuals involved including exposure to investigations by the SEC, criminal and civil prosecution, disgorgement of any profits +realized or losses avoided through use of the non-public information and penalties equal to three times such profits or losses. Further, +insider trading violations expose the Company, its management, and other personnel acting in supervisory capacities to potential civil +liabilities and penalties for the actions of employees under their control who engage in Insider Trading violations. +Our +Insider Trading Policy (the “Insider Trading Policy”) prohibits our executive officers, the non-employee members of our board +of directors and certain other employees from engaging in the following transactions: +● +selling +any of our securities that they do not own at the time of the sale (referred to as a “short sale”); +● +passing +material nonpublic information on to others or recommending that another engage in transactions in any securities that they have +information on; +● +buying +or selling puts, calls, other derivative securities of the Company or any derivative securities that provide the economic equivalent +of ownership of any of our securities or an opportunity, direct or indirect, to profit from any change in the value of our securities +or engaging in any other hedging transaction with respect to our securities; +● +using +our securities as collateral in a margin account; and +● +pledging +our securities as collateral for a loan (or modifying an existing pledge). +While +the Company has not adopted a formal policy governing transactions by the Company in its securities, the Company will not engage in transactions +in Company securities, or adopt any securities repurchase plans, while in possession of material non-public information relating to the +Company or its securities other than in compliance with applicable law, subject to the policies and procedures adopted by the Company. +On +or around August 14, 2024, the Company was first made aware that one of its directors, through a wholly owned subsidiary, had previously +entered into certain collateral pledge agreements that resulted in the disposition of a substantial amount of shares in the Company pursuant +to those agreements without the Company’s knowledge. In addition, the Company also became aware that approximately 100 +shares (or 31% of our then outstanding common stock as of August 14, 2024) were subject to a further third-party pledge arrangement with +a then significant stockholder of the Company. Upon learning of these transactions, the board of directors has appointed an independent +committee of the board of directors (the “Special Committee”) and delegated to the Special Committee the authority to review +these matters and determine action(s), if any, to be taken by the Company in response thereto. Additionally, the Company formed another +committee of the board of directors (the “Trading Review Committee”) and delegated to the Trading Review Committee the authority +to investigate and review the trading patterns of certain of the Company’s stockholders and determine action(s), if any, to be +taken by the Company in response thereto. The Company values its stockholders and wants to have all available data at its disposal to +act in its fiduciary capacity. +69 +Section +16(a) Beneficial Ownership Reporting Compliance +Section +16(a) of the Exchange Act requires that our directors and executive officers, and persons who own more than ten percent of a registered +class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock +and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by SEC regulation +to furnish us with copies of all Section 16(a) forms they file. +To +our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other +reports were required, during the year ended December 31, 2025, all Section 16(a) filing requirements applicable to our officers, +directors and greater than ten percent beneficial owners were complied with, except for one Form 3, reporting one transaction, filed +by Sarborg Ltd. on May 7, 2025, two Form 4s filed by Andrew Regan, reporting two transactions as filed on June 13, 2025 and December 22, 2025, one Form 4 +filed by Chele Chiavacci Farley, reporting one transaction, on August 26, 2025, one Form 4 filed by Freda C. Lewis-Hall, reporting one transaction, on August 26, 2025, and one Form 4 filed by +Simon Fry, reporting one transaction, on August 26, 2025. Late reports amounted to one for Sarborg Ltd, two for Andrew Regan, one +for Chele Chiavacci Farley, one for Freda C. Lewis-Hall, and one for Simon Fry. +Item +11. Executive Compensation +Fiscal +2025 Summary Compensation Table +The +following table summarizes the compensation earned by or paid to our principal executive officer, our former principal executive officer, +and our principal financial officer, who constitute all of our executive officers for fiscal 2025 and fiscal 2024. We have no defined +benefit or actuarial pension plan, and no deferred compensation plan. +NAME AND PRINCIPAL POSITION +FISCAL YEAR +SALARY +(1) ($) +Bonus (2) ($) +STOCK AWARDS +(3) ($) +OPTION AWARDS +(4) ($) +NONEQUITY INCENTIVE PLAN COMPENSATIONS +($) +ALL OTHER COMPENSATION +(5) +TOTAL +($) +Andrew Regan (6) +2025 +$ - +$ 400,110 +$ 768,686 +$ - +$ - +$ 7,000,000 +$ 8,168,796 +David Tapolczay +2025 +$ 391,506 +$ 127,000 +$ - +$ - +$ - +$ - +$ 518,506 +Former Chief Executive Officer and Director and Current Head of Licensing & Strategy +2024 +$ 558,578 +$ - +$ 58,800 +$ - +$ - +$ 617,378 +James Bligh, +2025 +$ 528,000 +$ 345,840 +$ 577,082 +$ - +$ - +$ - +$ 1,450,922 +Chief Financial Officer +2024 +$ 438,060 +- +$ 105,852 +$ - +$ 132,300 +$ 16,732 +$ 692,944 +(1) +Salaries converted from +British Pounds to US Dollars based on the following exchange rate in effect as of December 31, 2025: 1.35. +(2) +Reflects +a sign-on bonus of £100,000 for Dr. Tapolczay upon his appointment as Head of Licensing & Strategy. Reflects bonuses of +£160,000 and £102,000 awarded to James Bligh for the years ended December 31, 2025 and 2024, respectively; the 2025 +bonus was accrued and paid within 2025, while the 2024 bonus was accrued in 2024 and paid during 2025. Reflects a one-time bonus of $0.4 million to Andrew Regan in lieu of a salary. +(3) +Reflects the grant date +fair value of fully vested stock awards granted to each of Dr. Regan and Mr. Bligh in 2025 computed in accordance with FASB ASC Topic +718. See Note 11 to the consolidated financial statements included in this Annual Report for a discussion of the relevant assumptions +used in calculating the grant date fair value pursuant to FASB ASC Topic 718. +(4) +Reflects the grant date +fair value of stock option awards for the applicable year computed in accordance with FASB ASC Topic 718. See Note 11 to the consolidated +financial statements included in this Annual Report for a discussion of the relevant assumptions used in calculating the grant date +fair value pursuant to FASB ASC Topic 718. As required by SEC rules, the amounts shown exclude the impact of estimated forfeitures +related to service-based vesting conditions. Our named executive officers will only realize compensation to the extent the trading +price of our common stock is greater than the exercise price of such stock options. +(5) +The amounts shown for 2024 represent 401(k) matching contributions of $16,732 +for Mr. Bligh and compensation expense of $7.0 million to Andrew Regan in connection with the transfer of CPL to Corvus. +(6) +Dr. Regan was appointed +as the Chief Executive Officer of the Company on April 15, 2025. +Compensation +Adjustments for 2025 +Annual +Base Salaries +We +provide a base salary to retain and attract key executive talent and to align our compensation with market practices. Base salaries are +reviewed and established by the Compensation Committee and the board of directors on a competitive basis each year to align with market +levels. +Equity +Awards +The +Compensation Committee believes that a competitive long-term incentive program is an important component of the compensation of our named +executive officers because it: (i) enhances the retentive value of our compensation; (ii) rewards executives for increasing our stock +price and developing long-term value; and (iii) provides executives with an opportunity for stock ownership to align their interests +with those of our stockholders. +70 +In +September 2025, the board of directors, conducted a review of the long-term incentive opportunities for our named executive officers. +Based on a review of each executive’s individual performance, having not provided a cash bonus to Mr. Bligh in two years, having +not provided a salary or bonus to Dr. Regan for his services, and the applicable market data, the board of directors approved the following +stock grants: (i) Dr. Regan received a fully vested stock award of 5,600 shares, and (ii) Mr. Bligh received a fully vested stock award of +2,400 shares. These grant levels have been adjusted to reflect the 1-for-25 reverse stock split on March 26, 2025. +Employment +Agreements +Dr. +Tapolczay +On +September 22, 2023, we entered into an employment agreement (the “Tapolczay Employment Agreement”) with Dr. Tapolczay, pursuant +to which he serves as our Chief Executive Officer of and a member of our board of directors. +Under +the Tapolczay Employment Agreement, Dr. Tapolczay was entitled to (i) an annual base salary of $550,000 increased to $566,500 effective +November 1, 2024, and (ii) a target annual bonus opportunity equal to 50% of his base salary, payable based on the achievement of performance +objectives as determined by our board of directors. In addition, the Tapolczay Employment Agreement provides that Dr. Tapolczay was entitled +to receive a sign-on stock option award to purchase 0.40% of the shares of our Common Stock pursuant to the terms of the 2023 Stock Incentive +Plan, which shall vest in equal annual installments over four years. The Tapolczay Employment Agreement provided for severance benefits +if he incurred certain terminations of employment. +On +April 12, 2025, Dr. Tapolczay notified the Board of the Company of his resignation from both the Board and his position as Chief Executive +Officer effective immediately. The Tapolczay Employment Agreement was terminated and he was not entitled to receive any severance benefits +under that agreement. However, Conduit UK Management LTD, a wholly owned subsidiary of the Company, entered into an Employment Agreement +(the “Conduit UK Tapolczay Employment Agreement”) with Dr. Tapolczay pursuant to which Dr. Tapolczay provides strategic advisory +services as Head of Licensing & Strategy, reporting to the Chief Executive Officer. In exchange for Dr. Tapolczay’s services, +he received a sign-on bonus of £100,000 and an annual base salary of £240,000. Consistent with the terms of the Company’s +2023 Stock Incentive Plan, as amended, and subject to Dr. Tapolczay’s continued service pursuant to his Conduit UK Tapolczay Employment +Agreement, his outstanding equity awards he has previously received will remain outstanding and continue to vest based on the vesting +dates thereof. Dr. Tapolczay will provide the Company with a release of claims and will be subject to certain non-competition, non-solicitation, +non-disparagement, and confidentiality covenants. +James +Bligh +On November 15, 2024, Conduit Pharmaceuticals +Limited and Conduit UK Management LTD., wholly-owned subsidiaries of the Company, entered into an amended and restated employment +agreement (the “Bligh Employment Agreement”) with James Bligh, pursuant to which Mr. Bligh will continue to be employed +by Conduit UK Management LTD. and continue to serve as the Interim Chief Financial Officer and Senior Vice President - Strategy +of the Company. Under the Bligh Employment Agreement, Mr. Bligh will receive an annual base salary of £400,000 (approximately +$500k), and will be entitled to a discretionary cash bonus of up to 40% of his base salary, subject to the achievement of certain milestones +that may be established by the Board of Directors or a committee thereof, from time to time. Mr. Bligh is also entitled to reimbursement +for reasonable out-of-pocket expenses incurred by him in the performance of his duties, subject to the terms of any expenses policy the +Company may have. +The +Bligh Employment Agreement requires at least six months’ advanced written notice for Mr. Bligh or Conduit UK Management +LTD. to terminate Mr. Bligh’s employment, except in the case of a summary dismissal (as described in the Bligh Employment +Agreement). However, Conduit UK Management LTD. may, at its sole discretion and by written notice, terminate Mr. Bligh’s employment +immediately and provide compensation to Mr. Bligh for the unexpired portion of such notice period. The Bligh Employment Agreement +replaces and supersedes the prior employment agreement between Conduit Pharmaceuticals Limited and Mr. Bligh. +Effective +August 4, 2025, James Bligh, co-founder, director and Interim Chief Financial Officer had been appointed as the permanent Chief +Financial Officer of the Company. Mr. Bligh will remain a member of the Company’s board of directors. +Andrew +Regan +On April 15, 2025, the Company appointed Andrew +Regan as Chief Executive Officer, effective immediately (the “Appointment”). As a result of the Appointment, Dr. Regan will +serve as Chief Executive Officer of the Company and will continue to serve as a director on the Board. Dr. Regan has not entered into +any compensation plans and will continue to waive all salary in connection with his service as Chief Executive Officer, and will be entitled +to reimbursement of expenses incurred in connection with his role as Chief Executive Officer, although the Board may assess this determination +from time to time, resulting in the grant of one-time bonuses to Dr. Regan. +71 +Outstanding +Equity Awards at 2025 Fiscal Year-End +The +following table summarizes all of the outstanding equity-based awards held by our named executive officers as of December 31, 2025, the +end of our fiscal year. The option shares reported below have been adjusted to reflect the 1-for-25 reverse stock split on March 26, 2026. +OPTION +AWARDS +NAME +OPTION +OR STOCK AWARD GRANT DATE +NUMBER +OF SECURITIES UNDERLYING UNEXERCISED OPTIONS (#) EXERCISABLE +NUMBER +OF SECURITIES UNDERLYING UNEXERCISED OPTIONS (#) UNEXERCISABLE +OPTION +EXERCISE PRICE +($) +OPTION +EXPIRATION DATE +David Tapolczay +11/18/2024 +(2) +2 +1 +$ +27,600 +11/17/2034 +12/1/2023 +(1) +1 +1 +$ +1,653,000 +11/30/2033 +James Bligh +11/18/2024 +(2) +4 +2 +$ +27,600 +11/17/2034 +12/01/2023 +(1) +1 +1 +$ +1,653,000 +11/30/2033 +Jo Holland +11/18/2024 +(2) +1 +1 +$ +27,600 +11/17/2034 +12/01/2023 +(1) +1 +1 +$ +1,653,000 +11/30/2033 +(1) +The stock option vests +as to 1/4 of the underlying shares on each of the first four anniversaries of the vesting commencement date +(2) +The stock options vests +50% of the grant date and 50% in three equal annual installments thereafter +Securities +Authorized for Issuance under Equity Compensation Plans +The +following table provides a summary of the securities authorized for issuance under our equity compensation plans as of December 31, 2025. The table reported below have been adjusted to reflect the 1-for-25 +reverse stock split on March 26, 2026. +Plan category +Number of securities to be issued upon exercise of outstanding options, warrants and rights +Weighted-average exercise price of outstanding options, +warrants and rights +Number of securities +remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) +(a) +(b) +(c) +Equity compensation plans approved by security holders +2023 Plan +242 +$ 42,480 +1,212 +Equity compensation plans not approved by security holders +- +- +- +Total +242 +$ 42,480 +1,212 +Director +Compensation +The +following table sets forth the compensation we paid to our non-employee directors during fiscal 2025 (The shares reported below have +been adjusted to reflect the 1-for-25 reverse stock split on March 26, 2026): +Name +Fees earned or +paid in cash +($) +Stock +awards +($) (1) +Option +awards +($) (2) +All Other +Compensation +TOTAL +($) +James Bligh +$ - +$ - +$ - +$ - +$ - +Faith L. Charles (3) +$ 30,000 +$ 136,738 +$ - +$ - +$ 166,738 +Chele Chiavacci Farley +$ 55,375 +$ 88,121 +$ 28,350 +$ - +$ 171,846 +Freda Lewis-Hall +$ 61,750 +$ 100,871 +$ 28,350 +$ - +$ 190,971 +Simon Fry +$ 54,500 +$ 84,371 +$ +28,350 +$ - +$ +167,221 +Andrew Regan +$ - +$ - +$ - +$ - +$ - +(1) +Dr. Lewis-Hall elected to receive $40,250 of her cash fees in the form +of fully vested shares, Ms. Chiavacci Farley elected to receive $27,500 of her cash fees in the form of fully vested shares, Mr. Fry elected +to receive $23,750 of his cash fees in the form of fully vested shares, and Ms. Charles elected to receive $36,750 of her cash fees in +the form of fully vested shares. +(2) +Reflects the grant date fair value of fully vested stock awards granted +to each of Mr. Fry, Ms. Farley and Ms. Lewis-Hall in 2025 computed in accordance with FASB ASC Topic 718. See Note 11 to the consolidated +financial statements included in this Annual Report for a discussion of the relevant assumptions used in calculating the grant date fair +value pursuant to FASB ASC Topic 718. +(3) +On April 16, 2025, Ms. +Charles announced her resignation, due to personal reasons, as a member of the Board of Directors of the Company and from all committees +on which she served, effective as of April 16, 2025. Ms. Charles’s resignation was not due to any disagreement with management +or the Company’s operations, policies or practices. +72 +As +of December 31, 2025, our non-employee directors held the following stock options (the option shares reported below have been adjusted +to reflect the 1-for-25 reverse stock split on March 26, 2026): +OPTION +AWARDS +NAME +OPTION +OR +STOCK AWARD +GRANT DATE +NUMBER +OF +SECURITIES +UNDERLYING +UNEXERCISED +OPTIONS +(#) +EXERCISABLE +NUMBER +OF +SECURITIES +UNDERLYING +UNEXERCISED +OPTIONS +(#) +UNEXERCISABLE +OPTION +EXERCISE PRICE +($) +OPTION +EXPIRATION +DATE +Faith L. Charles +12/18/2024 +(1) +1 +1 +$ +21,000 +12/18/2034 +12/1/2023 +(1) +1 +1 +$ +1,653,000 +11/30/2033 +Chele Chiavacci Farley +08/05/2025 +(2) +75 +1 +$ +378 +08/05/2035 +12/18/2024 +(1) +1 +1 +$ +21,000 +12/18/2034 +12/1/2023 +(1) +1 +1 +$ +1,653,000 +11/30/2033 +Freda Lewis-Hall +08/05/2025 +(2) +75 +1 +$ +378 +08/05/2035 +12/18/2024 +(1) +1 +1 +$ +21,000 +12/18/2034 +12/1/2023 +(1) +1 +1 +$ +1,653,000 +11/30/2033 +Simon Fry +08/05/2025 +(2) +75 +1 +$ +378 +08/05/2035 +12/18/2024 +(1) +1 +1 +$ +21,000 +12/18/2034 +(1) +The stock option vests +as to 1/3 of the underlying shares on each of the first three anniversaries of the vesting commencement date. +(2) +The stock options vests +100% of the underlying shares on the vesting commencement date. +Compensation +Program for the Board of Directors +We +adopted a compensation program for our board of directors, which became effective upon completion of the Business Combination, and was +amended on September 15, 2025. Under the compensation program, the non-employee directors will receive the following +annual cash retainers for their service on the board of directors and its committees: +● +$100,000 for each non-employee +director; +● +$25,000 for the chair of +the Audit Committee and $12,500 for each of the other members of that committee; +● +$25,000 for the chair of +the Compensation Committee and $12,500 for each of the other members of that committee; and +● +$25,000 for the chair of +the Nominating and Corporate Governance Committee and $12,500 for each of the other members of that committee. +A non-employee director who is serving on the Board as of the date of any annual meeting after the effective date +of the program, and who will continue to serve as a non-employee director immediately following such meeting, will automatically be granted +on the date of such annual meeting a stock option to purchase 15,000 shares of our Common Stock, which amount is pro-rated for new directors +to reflect their service since the last annual meeting (the “Annual Award”). Each Annual Award will vest and become exercisable +on the earlier of (i) the first anniversary of the date of grant, or (ii) the date immediately prior to the next annual meeting of the +Company’s stockholders following the date of grant, subject to the non-employee director continuing in service on the Board through +such vesting date. +Board +members who are also employees of the Company, such as Dr. Regan and Mr. Bligh, are not eligible to participate in the non-employee director +compensation program described above and did not receive any compensation for service on the board of directors. +Our +2023 Stock Incentive Plan, as amended, provides that the sum of the grant date fair value of all equity-based awards and the maximum +amount of cash that may become payable to any individual for services as a non-employee director during any calendar year may not exceed +$750,000, increased to $1,000,000 in the calendar year of a non-employee director’s initial service as a non-employee director. +The plan administrator may make exceptions to this limit for individual non-employee directors in extraordinary circumstances, as the +plan administrator may determine in its discretion, provided that the non-employee director receiving such additional compensation may +not participate in the decision to award such compensation or in other contemporaneous compensation decisions involving non-employee +directors. +Item +12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The +following table sets forth beneficial ownership of the Company’s Common Stock as of April 15, 2026 by: +● +each +person known to be the beneficial owner of more than 5% of the outstanding Common Stock of the Company; +● +each +of the Company’s executive officers and directors; and +● +all +of the Company’s current executive officers and directors as a group. +Beneficial +ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security +if he, she or it possesses sole or shared voting or investment power over that security. Under those rules, beneficial ownership includes +securities that the individual or entity has the right to acquire, such as through the exercise of warrants or stock options or the vesting +of restricted stock units, within 60 days of April 15, 2026. Shares subject to warrants or options that are currently +exercisable or exercisable within 60 days of April 15, 2026 or subject to restricted stock units that vest within 60 days of April 15, 2026 are considered outstanding and beneficially owned by the person holding such warrants, options, or restricted stock units for the +purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage +ownership of any other person. +Except +as noted by footnote, and subject to community property laws where applicable, based on the information provided to the Company, the +persons and entities named in the table below have sole voting and investment power with respect to all shares shown as beneficially +owned by them. Unless otherwise indicated, the business address of each beneficial owner listed in the table below is c/o CDT Equity +Inc., 4581 Tamiami Trail North, Suite 200 Naples, Florida 34103. +73 +The +beneficial ownership of our Common Stock is based on 4,858,417 shares of Common Stock issued and outstanding as of April 15, 2026, +which number excludes the shares of Common Stock issuable upon exercise of the warrants. Unless otherwise indicated, we believe that +all persons named in the table have sole voting and investment power with respect to all of the shares shown to be beneficially +owned by them. The table reported below have been adjusted to reflect the 1-for-25 reverse stock split effected on March 26, +2026. +Name +and Address of Beneficial Owner (1) +Number +of +shares +of +Common +Stock +% +of +Common +Stock* +Directors and executive officers +James Bligh +2,405 +(1)   +* +Chele Chiavacci Farley +78,302 +(2) +1.61% +Freda Lewis-Hall +278 +(3) +* +Andrew Regan +162,866 +(4) +3.35 +% +Simon Fry +260 +(5) +* +All directors and executive officers as a group +(5 individuals) +244,111 +5.02 +% +Mark Taylor +2,068,000 +(6) +42.57 +% +Craig Wigglesworth +433,543 +(7) +8.92 +% +Primary Development Fund (Cayman) SPC +416,728 +(8) +8.58 +% +Nirland Limited +346,834 +(9) +7.14 +% +* +Indicates +beneficial ownership of less than 1%. +(1) +Consists of (i) 2,400 shares of Common Stock, and (ii) options to purchase 5 shares of Common Stock that are currently +exercisable. Excludes 3 unvested options to purchase shares of Common Stock that are not exercisable within 60 days. +(2) +Consists of (i) 78,224 shares of Common Stock, (ii) warrants to purchase 1 shares of Common Stock and (iii) options +to purchase 77 shares of Common Stock that are currently exercisable. Excludes 2 unvested options to purchase shares of Common Stock that +are not exercisable within 60 days. +(3) +Consists of shares of Common Stock, of which (i) 192 are held directly by +Dr. Lewis-Hall, (ii) 6 were issued to Intelmed LLC, of which Dr. Lewis-Hall is the Managing Director, (iii) 1 share of Common Stock +was received by Mr. Emerson Hall, Jr., Dr. Lewis-Hall’s spouse, (iv) 77 are underlying options that are currently exercisable +and are held directly by Dr. Lewis-Hall, (v) warrants to purchase 1 share of Common Stock held directly by Dr. Lewis-Hall, and (vi) warrants +to purchase 1 share of Common Stock held by Intelmed LLC. By virtue of this relationship with both Intelmed LLC and her spouse, Dr. Lewis-Hall +may be deemed to share beneficial ownership of the securities held of record by Intelmed LLC and Mr. Emerson Hall, Jr. Dr. Lewis-Hall +disclaims any such beneficial ownership except to the extent of her pecuniary interest therein. Excludes 2 unvested option to purchase +shares of Common Stock that are not exercisable within 60 days. The business address of Intelmed LLC is 11421 Golden Eagle Court Naples, +Florida 34120. +(4) +Consists of (i) 5,600 shares of Common Stock held directly by Dr. Regan, +(ii) 156,393 shares of Common Stock held by Corvus Capital Limited (“Corvus”), and (iii) 773 shares of Common Stock held by Manoira Corporation (“Manoira”). Corvus is +the owner of 99.0% of the equity interests of Manoira and Algo is a wholly owned subsidiary of Corvus, and, therefore, may also be deemed +to beneficially own the shares of Common Stock held of record by Manoira and Algo. Dr. Regan is the sole director of Manoira and the Chief +Executive Officer and sole shareholder of Corvus. By virtue of these relationships, Dr. Regan may be deemed to beneficially own the shares +of Common Stock held by Manoira, Algo and Corvus. Each of Corvus and Dr. Regan disclaims any such beneficial ownership except to the extent +of its or his pecuniary interest therein. Pursuant to a participation and inducement agreement with Nirland Limited, 100 shares of Common +Stock held by Corvus may, in certain circumstances, be subject to transfer to Nirland Limited and all such shares of Common Stock are +subject to a pledge agreement with respect to such arrangement. The business address of Corvus is Floor 2, Willow House, Cricket Square +PO Box 709 Grand Cayman KY1-1107, Cayman Islands. +(5) +Consists of 184 shares of Common Stock and options to purchase 76 shares +of Common Stock that are currently exercisable. Excludes 2 options to purchase shares of Common Stock that are not exercisable within +60 days. +(6) +Consists of shares issued pursuant to the February 2026 Sarborg Transaction +(defined below) comprising of (i) 1,469,711 shares of Common Stock held directly by Prospect Capital Securities Limited (“PCSL”); +and (ii) 598,289 shares of Common Stock held directly by Prospect Finance Limited (“PFL”). Mr. Taylor disclaims beneficial ownership of such shares of Common Stock +held by PCSL and PFL except to the extent of his pecuniary interest. The business address of each of Mark Taylor, PCSL, and PFL is Level +4, 16 Viaduct Harbour Avenue, Auckland, New Zealand. +(7) +Consists of shares issued pursuant to the February 2026 Sarborg Transaction +(defined below). The address of Craig Wigglesworth is 264 Riddell Road, Glendowie, Auckland 1071, New Zealand. +(8) +Consists of shares issued pursuant to the February 2026 Sarborg Transaction +(defined below). The address of Primary Development Fund (Cayman) SPC is FOR SUB A/C OF E3 FUND SP, IFINA UK Ltd., Ifina House, 6 the +Court, Holywell Business Park, Northfield Road, Southam, Warwickshire, CV47 OFS United Kingdom. +(9) +Consists of shares issued pursuant to the February 2026 Sarborg Transaction +(defined below). The business address of Nirland Limited is The Old Stables Rue a L’Or, St Peter Port, Guernsey GY1 1QG. +74 +Item +13. Certain Relationships and Related Transactions, and Director Independence +In +addition to the compensation arrangements with directors and executive officers described under the sections titled “Executive +Compensation” and “Management,” the following is a description of each transaction since January 1, 2024 and each currently +proposed transaction, in which: +● +we +have been or are to be a participant; +● +the +amount involved exceeds or will exceed $120,000; and +● +any +of our directors, executive officers, or beneficial holders of more than 5% of our capital stock, or any immediate family member +of, or person sharing the household with, any of these individuals (other than tenants or employees), had or will have a direct or +indirect material interest. +Policies +and Procedures for Related Party Transactions +Our +board of directors adopted a policy, at the closing of the Business Combination, with respect to the review, approval, and ratification +of related party transactions. Under the policy, the audit committee of the board of directors is responsible for reviewing and approving +related party transactions. In the course of its review and approval of related party transactions, the audit committee will consider +the relevant facts and circumstances to decide whether to approve such transactions. In particular, the policy requires the audit committee +to consider, among other factors it deems appropriate: +● +whether +the transaction was undertaken in the ordinary course of business of the Company; +● +whether +the related party transaction was initiated by the Company, a subsidiary, or the related party; +● +whether +the transaction with the related party is proposed to be, or was, entered into on terms no less favorable to the Company than terms +that could have been reached with an unrelated third party; +● +the +purpose of, and the potential benefits to the Company of, the related party transaction; +● +if +the approximate dollar value of the amount involved in the related party transaction, particularly as it relates to the related party; +● +the +related party’s interest in the related party transaction; +● +whether +the related party transaction would impair the independence of an otherwise independent director; and +● +any +other information regarding the related party transaction or the related party that would be material to investors in light of the +circumstances of the particular transaction +The +audit committee may approve the related party transaction only if the audit committee determines in good faith that, under all of the +circumstances, the transaction is in the best interests of the Company and its stockholders. +Private +Units +Contemporaneously +with the closing of the IPO and the exercise of the overallotment option, the Sponsor purchased an aggregate of 2 private units +of MURF in a private placement at a price of $3,000,000 per private unit. Each private unit consists of one Private Share and one Private +Warrant (the “Private Warrant”). The private units are identical to the units sold in the IPO except that the (a) the placement +units and their component securities will not be transferable, assignable or saleable until October 22, 2023 except to permitted transferees +and (b) the warrants and rights included as a component of the placement units, so long as they are held by the Sponsor or its permitted +transferees, will be entitled to registration rights, respectively. Additionally, the warrants underlying the placement units contain +a cashless exercise provision and shall be non-redeemable while held by the initial purchasers thereof or their permitted assignees. +The Sponsor had agreed not to transfer, assign or sell any of the private units and underlying securities (except in connection with +the same limited exceptions that the Private Shares may be transferred as described above) until after the Business Combination. In connection +with completion of the Business Combination, the Sponsor transferred placement units to each of Mrs. Knuettell and +Feinberg, former Directors of MURF, and Ms. Chiavacci Farley, former Director of MURF and current Director of CDT. +Sponsor +Support Agreement +Concurrently +with the execution of the Merger Agreement, the Company entered into a support agreement with the Sponsor pursuant to which the Sponsor +agreed to, among other things, vote all of the shares of MURF common stock legally and beneficially owned by it in favor of the Business +Combination. On September 20, 2023, the Sponsor voted all of the shares of MURF common stock then legally and beneficially owned by it +in favor of the Business Combination. +75 +PIPE +Subscription Agreement +In +September 2023, concurrently with the completion of the Business Combination, pursuant to the PIPE Subscription Agreement (the “PIPE +Subscription Agreement “) for an aggregate purchase price of $20.0 million, the Company issued an aggregate of 6 shares of +the Company’s Common Stock and PIPE Warrants (the “PIPE Warrants”) to purchase 6 shares of Company Common Stock. +In conjunction with the execution of the PIPE Subscription Agreement, Corvus Capital and its affiliates entered into a participation +and inducement agreement with the Private Placement Investor whereby Corvus agreed to provide certain payments and economic benefits +to such investor in the event Corvus Capital sold or pledged in a debt transaction any of the shares it was receiving in the Business +Combination. In certain circumstances, such investor may have a right to cause Corvus Capital to transfer certain of its shares to such +investor. +The +PIPE Subscription Agreement contains registration rights, pursuant to which within 15 business days after the closing of the PIPE Financing, +the Company was required to use reasonable best efforts to file with the SEC a registration statement registering the resale of shares +of the Company’s common stock. On October 17, 2023, the Company filed a registration statement on Form S-1 (SEC File No. 333-275056) +to satisfy that contractual requirement, which registration statement was declared effective by the SEC on December 15, 2023. +The +PIPE Warrants are exercisable until September 22, 2028 (five years after the completion of the Business Combination) and have an exercise +price of $3,450,000 per share, subject to adjustment as set forth in the PIPE Warrants for stock splits, stock dividends, recapitalizations +and similar customary adjustments. The Private Placement Investor may exercise each PIPE Warrant on a cashless basis if the shares underlying +the PIPE Warrants are not then registered for resale pursuant to an effective registration statement. +The +Company common stock and PIPE Warrants to purchase Company common stock issued pursuant to the PIPE Subscription Agreement were not registered +under the Securities Act and were issued in reliance upon the exemption provided under Section 4(a)(2) of the Securities Act and/or Regulation +D promulgated thereunder. +On +December 11, 2024, the warrants were modified to reduce the exercise price to $2,694,000 and the warrants were exercised on December 31, +2024. +Consulting +Agreement with Jack K. Heilbron +Jack +K. Heilbron, who served as the MURF’s Chief Executive Officer, President, and Chairman of the board of directors until September +22, 2023, has entered into a Consulting Agreement (the “Consulting Agreement”) with the Company, which became effective upon +the closing of the Business Combination. The Consulting Agreement provides that Mr. Heilbron will provide advisory and consulting services +from time to time to the Company until September 22, 2024. Pursuant to the terms of the Consulting Agreement, Mr. Heilbron is entitled +to rights as an observer to the Company’s board of directors. Mr. Heilbron is entitled to be paid $25,000 per calendar quarter +for his consulting services and is also entitled to a stock option to purchase the number of shares of Common Stock determined by dividing +(i) $300,000 by (ii) the per share Black-Scholes valuation as of the grant date, utilizing the same assumptions used in preparation +of the financial statements, with the resulting quotient rounded down to the nearest whole share. Mr. Heilbron was awarded stock options +to purchase 10 shares of Common Stock on December 1, 2023. As of December 31, 2024, and subsequent agreement between the parties, +the Company has paid Mr. Heilbron approximately $25,000 and granted Mr. Heilbron 2 shares of the Company’s common stock +76 +Transactions +with Corvus Capital Limited +Corvus +Capital Limited (“Corvus”) is a significant investor in the Company through subscribing to 1 common shares prior to the +closing of the Merger on September 22, 2023. Shares held by Corvus on the closing date of the Merger were exchanged for shares of the +Company’s Common Stock. The Chief Executive Officer and principal owner of Corvus, Dr. Andrew Regan, is a member of the Board and +was appointed as the Chief Executive Officer of the Company on April 15, 2025. Dr. Regan has not entered into any compensation plans +and will continue to waive all compensation fees in connection with his service as Chief Executive Officer of the Company and is entitled +to reimbursement of expenses incurred in connection with his role as Chief Executive Officer. +For the years ended December 31, 2025 and 2024, the Company incurred director +travel expenses payable to Dr. Regan of approximately $0.4 million and $0.4 million, respectively. Director fees were discontinued effective +upon the closing of the Merger, and no director’s fees were payable as of December 31, 2025 or 2024. +In +September 2023, concurrently with the completion of the Merger, pursuant +to the PIPE Subscription Agreement (the “PIPE Subscription Agreement “) for an aggregate purchase price of $20.0 million, +the Company issued an aggregate of 6 shares of the Company’s Common Stock and PIPE Warrants (the “PIPE Warrants”) to +purchase 6 shares of Company Common Stock. At the time of the execution of the PIPE Subscription Agreement, Corvus and its affiliates +entered into a participation and inducement agreement with Nirland whereby Corvus agreed to provide certain payments and economic benefits +to Nirland. In certain circumstances, Nirland may have a right to cause Corvus to transfer 100 shares held by Corvus to Nirland. +On +December 8, 2025, the Company and Corvus entered into a Sale and Purchase Agreement (the “Agreement”) for the issuance of +all of the outstanding shares of Conduit Pharmaceuticals Limited (“CPL”) held of record by the Company (the “CPL Share”), +8,992 shares of Common Stock and 147,432 pre-funded warrants (the “Pre-Funded Warrants”) to purchase shares of Common Stock +(the “Pre-Funded Warrant Shares”) collectively to Corvus. The issuance to Corvus was in connection with the sale of CPL, +a current subsidiary of the Company, that has been the subject of an ongoing litigation as previously disclosed. The Company sold CPL, +including the potential liability associated with the litigation, to Corvus, a wholly-owned subsidiary of the Company’s Chief Executive +Officer for a settlement amount of $7,000,000 that was satisfied through the issuance of the Common Stock and Pre-Funded Warrants. +August +2024 Nirland Note +On +August 6, 2024, the Company entered into a Senior Secured Promissory Note (the “August 2024 Nirland Note”) with Nirland, +a related party of the Company, pursuant to which the Company issued and sold to Nirland the August 2024 Note in the original principal +amount of $2,650,000, inclusive of a $500,000 original issuance discount. Refer to Note 9 for additional details. +On +October 31, 2024, the Company and Nirland amended the August 2024 Nirland Note, whereby the August 2024 Nirland Note was amended to (i) +provide for the conversion of the August 2024 Nirland Note into shares of Common Stock, at Nirland’s discretion, in a multiple +of any unpaid amounts, if not otherwise previously paid, pursuant to the conversion rate contained therein, (ii) remove Nirland’s +Mandatory Prepayment Right, and (iii) remove Nirland’s right of first refusal to participate in any future equity or debt offerings +of the Company. The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to shall be determined +by dividing (x) such conversion amount by (y) the conversion price. Conversion amount means two and one quarter times the sum of (x) +portion of the principal to be converted, redeemed or otherwise with respect to which this determination is being made and (y) all accrued +and unpaid interest with respect to such portion of the principal amount, if any. Conversion price means, as of any conversion date or +other date of determination, $10, subject to adjustment as provided within the amended agreement. +77 +October +2024 Nirland Note +On +October 28, 2024, the Company issued a promissory note (the “October 2024 Nirland Note”) to Nirland, a related party, in +the original principal amount of $600,000 in exchange for funds in such amount. In connection with the October 2024 Nirland Note, the +Company paid Nirland a 1% arrangement fee. The October 2024 Nirland Note bears interest at a rate of 12% per annum, is due and payable +semi-annually in arrears, and matures on October 31, 2025. Refer to Note 8 for additional details. +In +December 2024, the Company reduced the exercise price of the PIPE Warrants held by Nirland to $8.83, after which all such warrants were +exercised, resulting in proceeds of approximately $0.2 million. These proceeds were applied to reduce the outstanding balance of the +October 2024 Nirland Note. +The +Company made additional repayments of $0.1 million, $0.2 million, and $0.1 million on January 14, 2025, January 31, 2025, and February +7, 2025, respectively. As of December 31, 2025, the October 2024 Nirland Note had been fully repaid and no obligations remained outstanding. +For the year ended December 31, 2025, the Company recorded approximately +$9,000 of interest expense. +Sarborg +Service Agreement +On +December 12, 2024, the Company entered into a Services Agreement (the “Sarborg +Service Agreement”) with Sarborg Limited (“Sarborg”), a Cayman Islands company and related party of the Company. See +Note 16 for further reference to the relationship between the Company and Sarborg. Under the terms of the Sarborg Service Agreement, Sarborg +agreed to provide algorithmic and cybernetic technology services to CDT, including the development of decision-support tools and advanced +cybernetic systems tailored to enhance CDT’s decision-making processes and maximize the value of its pharmaceutical asset portfolio. +Sarborg agreed to perform the services to CDT comprised of three phases: +the Initial Phase (0-24 weeks) focuses on establishing a foundation for collaboration and aligning Sarborg’s services with CDT’s +strategic goals; the Development Phase (24-36 weeks) involves building technological infrastructure, including dashboards and predictive +models; and the Ongoing Services Phase (36-52 weeks) ensures the sustained functionality and relevance of Sarborg’s deliverables +while supporting CDT’s growth through iterative improvements and updates. Sarborg will create specific deliverables, including reports, +computer programs, software applications, APIs, mobile applications, source code, written technical specifications and designs, operating +and maintenance manuals, and other recorded data and information arising from or relating to the services. Sarborg will provide all necessary +resources to perform the services and deliver the deliverables in accordance with the Sarborg Agreement. To date, Sarborg has successfully +completed all phases and has achieved all milestones provided for pursuant to the Sarborg Agreement. +During +the year ended December 31, 2025, the Company incurred costs under the Sarborg Service agreement, including $1.8 million of +milestone payments related to the Services agreement and $0.4 million of ongoing service fees. Of the total costs +incurred, $0.4 million was capitalized as a diagnostic asset associated with the +dashboard, of which $0.2 million was amortized during the year and recorded within general and administrative expenses in the consolidated statement of operations and +comprehensive loss. The remaining $2.2 million, consisting of milestone payments and related services (including signature mapping +reports), was expensed as incurred within research and development expenses. As of December 31, 2025, there were no outstanding payables +under the Sarborg Service Agreement. +78 +Sarborg +Additional Agreement +Effective March 31, 2025, +the Company entered into an additional license and use agreement (the “Sarborg Additional Agreement”) with Sarborg, a related +party, covering certain additional deliverables and incorporating a new scope of work focused on analysis of the Company’s acquired +AstraZeneca assets. The term of the Sarborg Additional Agreement is for six months and provides for the payment, in aggregate, of $2.0 +million, which includes an up-front license fee for the term of such agreement, in cash or stock at the Company’s election at the +closing price on the day preceding the effective date of such agreement. On March 31, 2025, the Company prepaid $1.65 million of the Sarborg +Additional Agreement through the issuance of 617 fully vested unregistered shares of Common Stock. The Company recorded the shares issued +under the Sarborg Additional Agreement at their fair value, as determined by the closing price of the Company’s Common Stock on +March 30, 2025, $2,670. Effective June 24, 2025, the term was extended to be 12 months from the effective date of the Sarborg Additional +Agreement at no additional cost to the Company. Effective October 1, 2025, the term was extended to be 12 months from the previous extension +to extend the term of the license to March 31, 2027 at no additional cost to the Company. The Company recorded the fair value of $1.5 +million as prepaid within the consolidated balance sheets. During the year ended December 31, 2025, the Company recorded research and +development expense of $1.3 million within the consolidated statements of operations and comprehensive loss related to the Sarborg Additional +Agreement. As of December 31, 2025, $0.6 million of the prepaid balance remains within the consolidated balance sheet. +First +Addendum to the Sarborg Additional Agreement +Effective +July 1, 2025 the Company entered into an Addendum (the “First Addendum”) to the Additional Agreement with Sarborg, a related +party. Under the terms of the Addendum, Sarborg will expand the scope of the Additional Agreement to provide external analysis of third-party +pharma companies assets suitable for drug re-purposing and evaluate the efficacy of the assets utilizing CDT’s license to Sarborg’s +machine learning platform. The scope of work is expected to be completed in 4 weeks, which may be renewed or extended upon the mutual +written agreement of the parties. The total consideration for the additional services, payable in cash in two tranches, was $0.3 million. +The Company paid $0.3 million during the year ended December 31, 2025 and included the total in the consolidated statement of operations +and comprehensive loss. +Second +Addendum to the Sarborg Additional Agreement +Effective +August 11, 2025 the Company entered into Addendum 2 (the “Second Addendum”) to the Additional Agreement with Sarborg. Under +the terms of the Second Addendum, Sarborg expanded the scope of work to integrate a Cryptocurrency AI Agent, developed specifically for +identifying, forecasting and recommending digital currencies into CDT Equity’s operations as part of its treasury strategy. +The +term of the Second Addendum is a minimum of four (4) months, which may be renewed or extended upon the mutual written agreement of +the Company and Sarborg. The initial consideration for the expanded scope of work was $0.2 million, which was paid during the third +quarter of 2025 and included in the consolidated statement of operations and comprehensive loss. The Company agreed to pay an +additional consideration of up to $0.2 million in cash or shares, at the Company’s sole discretion, at the time the +Company invests more than $0.6 million in cryptocurrency as part of its treasury strategy. The Company paid the $0.2 million during +the fourth quarter of 2025. The Company paid $0.3 million during the year ended December 31, 2025 and included the total in the +consolidated statement of operations and comprehensive loss. +In +total, the Company recorded $4.2 million of research and development expense for the year ended December 31, 2025, all of which related +to services and costs incurred through the Sarborg Agreement, Sarborg Additional Agreement, First Addendum to the Sarborg Additional +Agreement and the Second Addendum to the Sarborg Additional Agreement, collectively. +February +2026 Sarborg Transaction +On +February 19, 2026, the Company entered into a Securities Purchase Agreement with all of the stockholders of Sarborg (the “February +2026 Sarborg Transaction”). The investors of Corvus agreed to sell to the Company, and the Company agreed to acquire from the investors, +an aggregate of 1,020 shares of Sarborg, representing approximately 20% of the outstanding common stock of Sarborg. +As +consideration for the purchase, the Company has agreed to issue to the investors, in the aggregate: (i) 23,920 shares of the Company’s +Common Stock, par value $0.0001 per share and (ii) pre-funded warrants (the to purchase up to 4,399,156 shares of Common. In addition, +the Company has agreed to pay Sarborg cash consideration of $8 million, with the cash portion of the consideration deferred until such +time as the Company raises no less than $20 million through the use of an at-the-market facility program. +Manoira +Joint Development Agreement +On +June 3, 2025, the Company entered into the Joint Development Agreement with Manoira for a term of one year, which will be +automatically renewed for successive one-year terms unless advance termination notice is provided in accordance with the terms of +the Joint Development Agreement. Manoira is an entity controlled by Dr. Andrew Regan, of which he is sole director, and of which +Chele Chiavacci Farley is a shareholder, and is therefore considered a related party of the Company. +Pursuant +to the Joint Development Agreement, CDT granted Manoira a non-exclusive, non-transferable, non-sublicensable, fully paid-up, royalty-free +license to the intellectual property rights related to the CDT Assets. Manoira will evaluate the CDT Assets’ applicability in animal +health, explore veterinary market opportunities, and provide data from the evaluations to inform CDT’s human clinical programs. +The license does not grant Manoira the right to distribute, market, promote or sell the products or services that are related to or incorporate +the CDT Assets. +Effective June 3, 2025, in +exchange for the approximate $0.5 million of consideration to be paid by CDT under the Joint Development Agreement, CDT issued to Manoira +774 shares of its Common Stock, (the “Consideration Shares”) valued at the closing price of the Common Stock immediately preceding +execution of the Joint Development Agreement. The Company recorded the shares issued under the Joint Development Agreement at their fair +value, as determined by the closing price of the Company’s Common Stock on June 3, 2025, $646. The Company recorded the fair value +of $0.4 million as prepaid within the consolidated balance sheets. During the year ended December 31, 2025, the Company recorded $0.1 +million amortization expense for research and development activities provided to date. +79 +Directors +and Officers +Certain +of the individuals that serve as members of our board of directors since completion of the Business Combination have relationships +with MURF, Old Conduit, and/or one of their respective stockholders. Dr. Freda Lewis-Hall, the Chairperson of our board of +directors, was an indirect shareholder of Old Conduit and indirectly received 80 shares of our Common Stock upon completion of +the Business Combination. Dr. Andrew Regan, our Chief Executive Officer, is a director of Old Conduit and received 1 shares of our +Common Stock upon completion of the Business Combination. James Bligh, a member of our board of directors and interim chief +financial officer, was an employee of Old Conduit and currently serves as a member of its board of directors. +On +April 22, 2024, the Company issued in a private placement common stock +purchase warrants (the “April Warrants”) to third parties, including certain directors, to purchase up to an aggregate of +3 shares of the Company’s common stock, in exchange for entering into a lock-up with respect to the shares of common stock held +by such holder and for such directors, $37,500 per warrant. The April Warrants are not exercisable until one year after their date of +issuance. Each April Warrant is exercisable into one share of the Company’s common stock at a price per share of $936,000 (as adjusted +from time to time in accordance with the terms thereof) for a two-year period after the date of exercisability. There is no established +public trading market for the April Warrants. The issuance of the April Warrants were made in reliance on the exemption from registration +provided by Section 4(a)(3) of the Securities Act, and/or Regulation D promulgated thereunder. +Item +14. Principal Accountant Fees and Services +The +following is a summary of fees paid or to be paid to Marcum LLP, or Marcum, and CBIZ CPAs P.C., or CBIZ (which previously acquired Marcum +on November 1, 2024), for services rendered. +Audit Fees . Audit fees +consist of fees incurred for professional services rendered for the audit of financial statements, for reviews of our interim consolidated +financial statements included in our quarterly reports on Form 10-Q, and for services that are normally provided in connection with statutory +or regulatory filings or engagements. The aggregate fees billed by CBIZ for professional services rendered for the year ended December +31, 2025 totaled approximately $495,000. The aggregate fees billed by Marcum for professional services rendered for the year ended December +31, 2025 totaled approximately $51,500. The aggregate fees billed by Marcum for professional services rendered for the year ended December +31, 2024 totaled approximately $460,415. +Tax Fees . Tax fees +consists of fees billed for tax compliance, tax planning and tax advice. We did not pay CBIZ any tax fees for the year ended December +31, 2025. We paid Marcum tax fees for the year ended December 31, 2024 totaling approximately $55,748. +All +Other Fees . We did not pay CBIZ or Marcum for other services for the years ended December 31, 2025 or December 31, 2024. +Pre-Approval +Policy +Our +audit committee was formed upon the consummation of our initial public offering. As a result, the audit committee did not pre-approve +all of the foregoing services, although any services rendered prior to the formation of our audit committee were approved by our board +of directors. Since the formation of our audit committee, and on a going-forward basis, the audit committee has and will pre-approve +all auditing services and permitted non-audit services to be performed for us by our auditors, including the fees and terms thereof (subject +to the de minimis exceptions for non-audit services described in the Exchange Act which are approved by the audit committee prior +to the completion of the audit). +80 +PART +IV +Item +15. Exhibits, Financial Statement Schedules +The +following documents are filed as part of this annual report: +1. +Financial +Statements: (see “Financial Statements and Supplementary Data” at Item 8 and incorporated herein by reference). +2. +Financial +Statement Schedule: (Schedules to the Financial Statements have been omitted because the information required to be set forth therein +is not applicable or is shown in the accompanying Financial Statements or notes thereto). +3. +Exhibits: +The exhibits listed in the accompanying “Exhibit Index” are filed or incorporated by reference as part of this Annual +Report on Form 10-K. +EXHIBIT +INDEX +Exhibit +No. +Description +2.1 +Agreement and Plan of Merger Agreement dated as of November 8, 2022, by and among Murphy Canyon Acquisition Corp., Conduit Merger Sub, Inc. and Conduit Pharmaceuticals Limited (filed as Annex A-1 to the Registrant’s Proxy Statement/Prospectus filed on August 11, 2023, and incorporated herein by reference). +2.2 +Amendment to Agreement and Plan of Merger dated as of January 27, 2023, by and among Murphy Canyon Acquisition Corp., Conduit Merger Sub, Inc. and Conduit Pharmaceuticals Limited (filed as Annex A-2 to the Registrant’s Proxy Statement/Prospectus filed on August 11, 2023, and incorporated herein by reference). +2.3 +Second Amendment to Agreement and Plan of Merger dated as of May 11, 2023, by and among Murphy Canyon Acquisition Corp., Conduit Merger Sub, Inc. and Conduit Pharmaceuticals Limited (filed as Annex A-3 to the Registrant’s Proxy Statement/Prospectus filed on August 11, 2023, and incorporated herein by reference). +3.1 +Second Amended and Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on September 29, 2023, and incorporated herein by reference). +3.2 +Amended and Restated Bylaws of the Registrant (filed as Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on September 29, 2023, and incorporated herein by reference). +3.3 +Amendment No.1 to the Amended and Restated Bylaws (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on November 19, 2024, and incorporated herein by reference) +3.4 +Certificate of Amendment filed with the Delaware Secretary of State on January 22, 2025 (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on January 23, 2025, and incorporated herein by reference). +3.5 +Certificate of Amendment filed with the Delaware Secretary of State on August 8, 2025 (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on August 8, 2025, and incorporated herein by reference). +3.6 +Second Amended and Restated Bylaws of the Company, effective August 5, 2025 (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on August 8, 2025, and incorporated herein by reference). +3.7 +Certificate of Amendment filed with the Delaware Secretary of State on October 8, 2025 (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 9, 2025, and incorporated herein by reference). +3.8 +Certificate of Amendment filed with the Delaware Secretary of State on March 24, 2026 (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on March 25, 2026, and incorporated herein by reference). +4.1 +Description of Registered Securities. +4.2 +Form of Senior Secured Promissory Note (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on August 7, 2024, and incorporated herein by reference). +4.4 +Form of Warrant (Filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on November 1, 2024, and incorporated herein by reference). +4.5 +Nirland Note (Filed as Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed on November 1, 2024, and incorporated herein by reference). +4.6 +Amendment to the Senior Secured Promissory Note and Security Agreement, dated October 31, 2024, between Nirland Limited and CDT Equity Inc. (filed as Exhibit 4.4 to the Registrant’s Current Report on Form 8-K filed on November 1, 2024, and incorporated herein by reference). +81 +4.7 +Convertible Promissory Note, dated November 25, 2024, between CDT Equity Inc. and A.G.P./Alliance Global Partners (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on November 25, 2024, and incorporated herein by reference). +4.8 +Second Amendment to the Senior Secured Promissory Note, dated November 22, 2024, between Conduit Pharmaceuticals Inc. and Nirland Limited (filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on November 25, 2024, and incorporated herein by reference). +4.9 +Pre-Funded Warrant entered into by and between the Company and Corvus on December 8, 2025 (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 12, 2025, and incorporated herein by reference). +4.10 +Form of Pre-Funded Warrant, dated February 19, 2026 (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on February 24, 2026, and incorporated herein by reference). +4.11 +Form of Senior Secured Convertible Promissory Note, by and between the Company and the Purchaser, dated March 3, 2026 (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 9, 2026, and incorporated herein by reference). +10.1 +Letter Agreement, dated February 2, 2022, among Murphy Canyon Acquisition Corp., Murphy Canyon Acquisition Sponsor, LLC, and each of the executive officers and directors of Murphy Canyon Acquisition Corp. (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 8, 2022, and incorporated herein by reference). +10.2 +Underwriting Agreement (filed as Exhibit 1.1 to the Registrant’s Current Report on Form 8-K filed February 8, 2022, and incorporated herein by reference). +10.3 +Promissory Note, dated November 4, 2021, issued to Murphy Canyon Acquisition Sponsor, LLC, by Murphy Canyon Acquisition Corp. (filed as Exhibit 10.2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-262036) filed on January 6, 2022, and incorporated herein by reference). +10.4 +Investment Management Trust Agreement, dated February 2, 2022, between Murphy Canyon Acquisition Corp. and Wilmington Trust Company (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on February 2, 2022, and incorporated herein by reference). +10.5 +Registration Rights Agreement, dated February 2, 2022, among Murphy Canyon Acquisition Corp. and certain securityholders (filed as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on February 2, 2022, and incorporated herein by reference) +10.6 +Securities Subscription Agreement, dated November 4, 2021, between Murphy Canyon Acquisition Corp. and Murphy Canyon Acquisition Sponsor, LLC (filed as Exhibit 10.5 to the Registrant’s Registration Statement on Form S-1 (File No. 333-262036) filed on January 6, 2022, and incorporated herein by reference). +10.7 +Placement Unit Purchase Agreement, dated February 2, 2022, between Murphy Canyon Acquisition Corp. and Murphy Canyon Acquisition Sponsor, LLC (filed as Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on February 8, 2022, and incorporated herein by reference). +10.8 +Form of CDT Equity Inc. Indemnity Agreement (filed as Exhibit 10.9 to the Registrant’s Current Report on Form 8-K filed on September 29, 2023, and incorporated herein by reference). +10.9 +Administrative Support Agreement, dated February 2, 2022, by and between Murphy Canyon Acquisition Corp. and Murphy Canyon Management Group, Inc. (filed as Exhibit 10.6 to the Registrant’s Current Report on Form 8-K filed on February 8, 2022, and incorporated herein by reference). +10.10 +Form of Lock-Up Agreement (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on November 14, 2022, and incorporated herein by reference). +10.11 +Sponsor Support Agreement, dated as of November 8, 2022, by and among Murphy Canyon Acquisition Corp. and each of the Persons set forth on Schedule I attached thereto (filed as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on November 14, 2022, and incorporated herein by reference). +10.12 +Shareholder Support Agreement dated as of November 8, 2022, by and among Murphy Canyon Acquisition Corp., Conduit Pharmaceuticals Limited and each of the Persons set forth on Schedule I attached thereto (filed as Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed November 14, 2022, and incorporated herein by reference). +10.13 +Form of Amended and Restated Warrant (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on January 30, 2023, and incorporated herein by reference). +82 +10.14 +Form of Note, issued March 7, 2023, by and between Murphy Canyon Acquisition Corp. and Murphy Canyon Acquisition Sponsor, LLC (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed March 7, 2023, and incorporated herein by reference). +10.15 +Form of Subscription Agreement between Murphy Canyon Acquisition Corp. and the investor named therein (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 13, 2023, and incorporated herein by reference). +10.16 +Form of PIPE Warrant (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on September 13, 2023, and incorporated herein by reference). +10.17# +CDT Equity Inc. 2023 Stock Incentive Plan (filed as Annex C to the Registrant’s Proxy Statement/Prospectus filed on August 11, 2023, and incorporated herein by reference). +10.18# +Form of Stock Option Agreement under CDT Equity Inc. 2023 Stock Incentive Plan (filed as Exhibit 10.17 to the Registrant’s Registration Statement on Form S-4 (File No. 333-271903) filed on May 12, 2023, and incorporated herein by reference). +10.19# +Form of Employment Agreement with David Tapolczay (filed as Exhibit 10.17 to the Registrant’s Amendment No. 2 to Registration Statement on Form S-4 (File No. 333-271903) filed on July 28, 2023, and incorporated herein by reference). +10.22+ +AZD1656 Project Funding Agreement For Use In Renal Transplant between St George Street Capital Limited and Conduit Pharmaceuticals Limited, dated November 2, 2022 (filed as Exhibit 10.21 to the Registrant’s Registration Statement on Form S-4 (File No. 333-271903) filed on May 12, 2023, and incorporated herein by reference). +10.23+ +AZD1656 Project Funding Agreement For Use In Preterm Labor between St George Street Capital Limited and Conduit Pharmaceuticals Limited, dated November 2, 2022 (filed as Exhibit 10.22 to the Registrant’s Registration Statement on Form S-4 (File No. 333-271903) filed on May 12, 2023, and incorporated herein by reference). +10.24+ +AZD1656 Project Funding Agreement For Use In Hashimoto’s Thyroiditis between St George Street Capital Limited and Conduit Pharmaceuticals Limited, dated November 2, 2022 (filed as Exhibit 10.23 to the Registrant’s Registration Statement on Form S-4 (File No. 333-271903) filed on May 12, 2023, and incorporated herein by reference). +10.25+ +AZD1656 Project Funding Agreement For Use In Uveitis between St George Street Capital Limited and Conduit Pharmaceuticals Limited, dated November 2, 2022 (filed as Exhibit 10.24 to the Registrant’s Registration Statement on Form S-4 (File No. 333-271903) filed on May 12, 2023, and incorporated herein by reference). +10.26+ +AZD5904 Project Funding Agreement between St George Street Capital Limited and Conduit Pharmaceuticals Limited, dated November 2, 2022 (filed as Exhibit 10.25 to the Registrant’s Registration Statement on Form S-4 (File No. 333-271903) filed on May 12, 2023, and incorporated herein by reference). +10.27# +Consulting Agreement between with Jack Heilbron and Murphy Canyon Acquisition Corp. (filed as Exhibit 10.24 to the Registrant’s Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-271903) filed on July 11, 2023, and incorporated herein by reference). +83 +10.28 +Separation Agreement, dated May 12, 2024, between Mr. Sragovicz and CDT Equity Inc. (filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on May 14, 2024, and incorporated herein by reference). +10.29 +Security Agreement, dated August 6, 2024, between Nirland Limited and CDT Equity Inc. (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 7, 2024, and incorporated herein by reference). +10.30 +Convertible Promissory Note between Conduit Pharmaceuticals Limited and Vrezh and Sharon Lee Isayan, dated March 20, 2023 (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October 15, 2024, and incorporated herein by reference). +10.31 +Bridge Loan Agreement, dated October 29, 2024, between A.G.P./Alliance Global Partners and CDT Equity (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on November 1, 2024, and incorporated herein by reference). +10.32# +Employment Agreement, dated November 15, 2024, between James Bligh, Conduit Pharmaceuticals Limited and Conduit UK Management LTD. (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on November 19, 2024, and incorporated herein by reference). +10.33 +Services Agreement dated December 12, 2024, between CDT Equity Inc. and SARBORG Limited. (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 17, 2024, and incorporated herein by reference). +10.34 +Additional Agreement, dated March 31, 2025, between Sarborg Limited and CDT Equity Inc. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 16, 2025, and incorporated herein by reference). +10.35 +Joint Development Agreement, dated June 3, 2025 by and between CDT Equity Inc. and Manoira Corporation (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 9, 2025, and incorporated herein by reference). +10.36 +Consulting Agreement, dated June 27, 2025, by and between the Company and Harold Eytan (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 8, 2025, and incorporated herein by reference). +10.37 +Amended and Restated 2023 Stock Incentive Plan (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 9, 2025, and incorporated herein by reference). +10.38 +Sale and Purchase Agreement, dated December 8, 2025, by and between the Company and Corvus (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 12, 2025, and incorporated herein by reference). +10.39 +Consulting Agreement, dated December 28, 2025, between CDT Equity, Inc. and Thesprogen, PC (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 2, 2026 and incorporated herein by reference). +10.40 +Consulting Agreement, dated December 29, 2025, between CDT Equity, Inc. and NJS Foresight Bio-Advisory, LLC (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on January 2, 2026, and incorporated herein by reference). +10.41 +Equity Purchase Agreement, dated January 16, 2026, by and among the Company and the Purchaser (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 22, 2026, and incorporated herein by reference). +10.42 +Registration Rights Agreement, dated January 16, 2026, by and among the Company and the Purchase (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on January 22, 2026, and incorporated herein by reference). +10.43 +Form of Securities Purchase Agreement, dated February 19, 2026 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 24, 2026, and incorporated herein by reference). +10.44 +Addendum No. 1, dated February 23, 2026, to the Consulting Agreement, dated December 29, 2025 by and between the Company and NJS Foresight Bio-Advisory, LLC (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 24, 2026, and incorporated herein by reference). +10.45 +Addendum No. 1, dated February 23, 2026, to the Consulting Agreement, dated December 29, 2025 by and between the Company and Thesprogen, PC (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on February 24, 2026, and incorporated herein by reference). +84 +10.46 +Form of Amendment to Equity Purchase Agreement, dated March 3, 2026 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 9, 2026, and incorporated herein by reference) +10.47 +Note Purchase Agreement, by and between the Company and Purchaser, dated March 3, 2026 (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 9, 2026, and incorporated herein by reference) +10.48 +Security Agreement, by and between the Company and the Purchaser, dated March 3, 2026 (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on March 9, 2026, and incorporated herein by reference) +10.49#* +Form of Non-Employee Director Compensation Program, dated September 1, 2025 +10.50 +Guaranty, by and between the Company and the Purchaser, dated March 3, 2026 (filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on March 9, 2026, and incorporated herein by reference) +19.1 +CDT Equity Inc. Insider Trading Policy (filed as Exhibit 19.1 to the Company’s Annual report on Form 10-K filed on March 28, 2025, and incorporated herein by reference). +21.1 +Subsidiaries of Conduit Pharmaceuticals Limited (filed as Exhibit 21.1 to the Registrant’s Amendment No. 2 to Registration Statement on Form S-4 (File No. 333-271903) filed on July 28, 2023, and incorporated herein by reference). +23.1* +Consent of Marcum LLP, independent public accounting firm of CDT Equity Inc. +23.2* +Consent of CBIZ CPAs P.C., independent public accounting firm of CDT Equity Inc. +24.1 +Power of Attorney (reference is made to the signature page hereto). +31.1* +Certification of Principal Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +31.2* +Certification of Principal Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32.1§ +Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +32.2§ +Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97.1 +CDT Equity Inc. Compensation Recovery Policy (filed as Exhibit 97.1 to the Registrant’s Annual Report filed on April 16, 2024, and incorporated herein by reference). +101.INS* +Inline +XBRL Instance Document. +101.CAL* +Inline +XBRL Taxonomy Extension Calculation Linkbase Document. +101.SCH* +Inline +XBRL Taxonomy Extension Schema Document. +101.DEF* +Inline +XBRL Taxonomy Extension Definition Linkbase Document. +101.LAB* +Inline +XBRL Taxonomy Extension Labels Linkbase Document. +101.PRE* +Inline +XBRL Taxonomy Extension Presentation Linkbase Document. +104 +Cover +Page Interactive Data File (embedded within the Inline XBRL document). +* +Filed herewith. +# +Management contract or compensatory plan or arrangement. ++ +Certain portions of this Exhibit have been omitted in accordance with Item 601(b)(10) of Regulation S-K. The Registrant agrees to furnish +supplementally an unredacted copy of this Exhibit to the SEC upon its request. +§ +In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986, Final Rule: Management’s Reports +on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished +in Exhibits 32.1 and 32.2 hereto is deemed to accompany this Annual Report on Form 10-K and will not be deemed “filed” for +purposes of Section 18 of the Exchange Act. Such certification will not be deemed to be incorporated by reference into any filing under +the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. +Item +16. Form 10–K Summary +None. +85 +SIGNATURES +Pursuant +to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed +on its behalf by the undersigned, thereunto duly authorized. +CDT +EQUITY INC. +Date: +April 15, 2026 +By: +/s/ +Andrew Regan +Name: +Andrew +Regan +Title: +Chief +Executive Officer +POWER +OF ATTORNEY +KNOW +ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Andrew Regan and James Bligh, +and each of them, as his or her attorneys-in-fact, with the power of substitution, for him or her in any and all capacities, to sign +any amendments to this report, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities +and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact, and each of them, or his or her substitute +or substitutes may lawfully do or cause to be done by virtue hereof. +Pursuant +to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the +registrant and in the capacities and on the dates indicated. +Signature +Title +Date +/s/ +Andrew Regan +Chief +Executive Officer and Director +April 15, 2026 +Andrew +Regan +(Principal +Executive Officer) +/s/ +James Bligh +Chief +Financial Officer and Director +April 15, 2026 +Jamie +Bligh +(Principal +Financial Officer and Principal Accounting Officer) +/s/ +Freda Lewis-Hall +Director +and Chairperson of the Board of Directors +April 15, 2026 +Freda +Lewis-Hall +/s/ +Chele Chiavacci Farley +Director +April 15, 2026 +Chele +Chiavacci Farley +/s/ +Simon Fry +Director +April 15, 2026 +Simon +Fry +86 +CDT +EQUITY INC. +INDEX +TO FINANCIAL STATEMENTS +Page +Audited +Financial Statements of Conduit Pharmaceuticals Inc.: +Report of Independent Registered Public Accounting Firm (PCAOB No. 199 ) +F-2 +Report of Independent Registered Public Accounting Firm +(PCAOB No. 688 ) +F-3 +Consolidated Balance Sheets as of December 31, 2025 and 2024 +F-4 +Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2025 and 2024 +F-5 +Consolidated Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2025 and 2024 +F-6 +Consolidated Statements of Cash Flows for the years ended December 31, 2025 and 2024 +F-7 +Notes +to Consolidated Financial Statements +F-8 +F- 1 +Report of Independent Registered Public Accounting +Firm +To the Stockholders and Board of Directors of +CDT Equity Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated +balance sheet of CDT Equity Inc. (the “Company”) as of December 31, 2025, the related consolidated statements of operations +and comprehensive loss, changes in stockholders’ deficit and cash flows for the year ended December 31, 2025, and the related notes +(collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all +material respects, the financial position of the Company as of December 31, 2025, and the results of its operations and its cash flows +for the year ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. +Explanatory Paragraph – Going Concern +The accompanying consolidated financial statements +have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has a significant +working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its +operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in +regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might +result from the outcome of this uncertainty. +Basis for Opinion +These financial statements are the responsibility +of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We +are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are +required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and +regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the +standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial +statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged +to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding +of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal +control over financial reporting. Accordingly, we express no such opinion. +Our audit included performing procedures to assess +the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond +to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. +Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating +the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. +/s/ CBIZ CPAs P.C. +CBIZ CPAs P.C. +We have served as the Company’s auditor +since 2022 (such date takes into account the acquisition of the attest business of Marcum llp +by CBIZ CPAs P.C. effective November 1, 2024). +New York, NY +April 15, 2026 +F- 2 +Report of Independent Registered Public Accounting +Firm +To the Stockholders and Board of Directors of +CDT Equity Inc. +Opinion +on the Financial Statements +We have audited the accompanying consolidated +balance sheet of CDT Equity Inc. (f/k/a Conduit Pharmaceuticals Inc.) (the “Company”) as of December 31, 2024, the related +consolidated statements of operations and comprehensive loss, changes in stockholders’ deficit and cash flows for the year ended +December 31, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial +statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of +its operations and its cash flows for the year ended December 31, 2024, in conformity with accounting principles generally accepted in +the United States of America. +Explanatory Paragraph – Going Concern +The accompanying consolidated financial statements +have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has a significant +working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its +operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in +regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might +result from the outcome of this uncertainty. +Basis +for Opinion +These financial statements are the responsibility +of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We +are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are +required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and +regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the +standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial +statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged +to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding +of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal +control over financial reporting. Accordingly, we express no such opinion. +Our audit included performing procedures to assess +the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond +to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. +Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating +the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. +/s/ Marcum llp +Marcum LLP +We served as the Company’s auditor from +2022 to 2025. +New York, NY +March 28, 2025, except for the effects of the reverse stock splits +described in Note 1 and adoption of ASU 2023-09, Income Taxes described in Note 3 to the financial statements, as to which the date is +April 15, 2026 +F- 3 +CDT +EQUITY INC. +CONSOLIDATED +BALANCE SHEETS +(in +thousands, except share amounts) +December +31, +2025 +December +31, +2024 +ASSETS +Current assets +Cash and cash +equivalents +$ 1,509 +$ 554 +Prepaid R&D services- +related party (see Note 10 and Note 16) +881 +380 +Prepaid R&D services +166 +- +Prepaid +expenses and other current assets +1,823 +1,781 +Total current assets +4,379 +2,715 +Operating lease right-of-use +assets, net +142 +263 +Equipment and clinical +assets, net +269 +40 +Prepaid +expenses and other long-term assets +860 +1,175 +Total +assets +$ 5,650 +$ 4,193 +LIABILITIES AND STOCKHOLDERS’ +EQUITY (DEFICIT) +Current liabilities +Accounts payable +$ 1,913 +$ 1,428 +Accrued expenses and other +current liabilities +538 +1,963 +Accrued litigation liability +9,594 +- +Operating lease liability, +current portion +115 +119 +Convertible promissory +note payable +- +800 +Convertible promissory +notes payable at fair value +660 +2,985 +Convertible promissory +notes payable at fair value – related parties +- +2,871 +Convertible promissory notes payable at fair value +- +2,871 +Notes payable +- +150 +Notes +payable – related parties +- +425 +Notes payable +- +425 +Total +current liabilities +12,820 +10,741 +Operating lease liability, +non-current portion +- +107 +Derivative +warrant liability +- +138 +Total +liabilities +12,820 +10,986 +Commitments and contingencies +(see Note 15) +- +- +Stockholders’ equity +(deficit) +Common stock, par value +$ 0.0001 ; 250,000,000 shares authorized at December 31, 2025 and December 31, 2024, respectively, 92,140 shares and 461 shares +issued and outstanding at December 31, 2025 and December 31, 2024, respectively +- +- +Preferred stock, par value +$ 0.0001 ; 1,000,000 shares authorized at December 31, 2025 and December 31, 2024, respectively; nil shares issued and outstanding +at December 31, 2025 and December 31, 2024, respectively +- +- +Additional paid-in capital +61,171 +21,894 +Accumulated deficit +( 68,325 ) +( 29,101 ) +Accumulated +other comprehensive income (loss) +( 16 ) +414 +Total +stockholders’ equity (deficit) +( 7,170 ) +( 6,793 ) +Total +liabilities and stockholders’ equity (deficit) +$ 5,650 +$ 4,193 +The +accompanying notes are an integral part of these consolidated financial statements. +F- 4 +CDT +EQUITY INC. +CONSOLIDATED +STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS +(in +thousands, except share amounts and per share data) +2025 +2024 +Year +Ended December 31, +2025 +2024 +Operating expenses: +Research and development expenses +$ 5,054 +$ 3,378 +General and administrative +expenses +31,703 +12,041 +Total +operating costs and expenses +36,757 +15,419 +Operating loss +( 36,757 ) +( 15,419 ) +Other income (expenses): +Other expense, net +( 2,176 ) +( 890 ) +Interest income +28 +13 +Interest expense, net +( 319 ) +( 1,506 ) +Total +other expense, net +( 2,467 ) +( 2,383 ) +Net +loss +$ ( 39,224 ) +$ ( 17,802 ) +Basic and diluted net +loss per share +$ ( 1,177.89 ) +$ ( 61,598.62 ) +Basic and diluted weighted-average +common shares outstanding +33,300 +289 +Comprehensive loss: +Foreign currency translation +adjustment +( 430 ) +3 +Total +comprehensive loss +$ ( 39,654 ) +$ ( 17,799 ) +The +accompanying notes are an integral part of these consolidated financial statements. +F- 5 +CDT +EQUITY INC. +CONSOLIDATED +STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT +(in +thousands, except share amounts) +Shares +Amount +capital +deficit +income +deficit +Common +stock +Additional +paid-in +Accumulated +Accumulated +other +comprehensive +Total +stockholders’ +Shares +Amount +capital +deficit +income +deficit +Balance at January 1, 2024 +246 +$ - - +$ 10,431 +$ ( 11,299 ) +$ 411 +$ ( 457 ) +Correction of immaterial error related to franchise +tax expense +- +- +144 +- +- +144 +Issuance of Common Stock for services +6 +- +242 +- +- +242 +Issuance of Common Stock upon vesting of restricted +stock units +1 +- +- +- +- +- +Issuance of Common Stock for note payable +31 +- +997 +- +- +997 +Issuance of Common Stock for licensing right +41 +- +1,568 +- +- +1,568 +Issuance of Common Stock under the ATM Program, net of issuance cost +108 +- +3,221 +- +- +3,221 +Issuance of Common Stock in Exchange for Debt +Modification +13 +- +489 +- +- +489 +Issuance of Common Stock upon Exercise of Conversion +Option +8 +- +92 +- +- +92 +Issuance of Warrants +- +- +2,890 +- +- +2,890 +Issuance of Common Stock Upon Exercise of Warrants +6 +- +188 +- +- +188 +Stock-based compensation +1 +- +1,632 +- +- +1,632 +Foreign currency translation adjustment +- +- +- +- +3 +3 +Net loss +- +- - +- +( 17,802 ) +- +( 17,802 ) +Balance at December 31, 2024 +461 +$ - - +$ 21,894 +$ ( 29,101 ) +$ 414 +$ ( 6,793 ) +Shares +Amount +Stock +capital +deficit +income +deficit +Common +stock +Treasury +Additional +paid-in +Accumulated +Accumulated +other +comprehensive +Total +stockholders’ +Shares +Amount +Stock +capital +deficit +income +deficit +Balance at January 1, 2025 +461 +$ - +$ - +$ 21,894 +$ ( 29,101 ) +$ 414 +$ ( 6,793 ) +Issuance of Common Stock for services +9,239 +- +- +1,152 +- +- +1,152 +Issuance of common stock for services - related party +1,400 +- +- +2,097 +- +- +2,097 +Issuance of common stock for services +1,400 +- +- +2,097 +- +- +2,097 +Issuance of Common Stock upon vesting of restricted +stock units +525 +- +- +- +- +- +- +Issuance of Common Stock under the ATM Program, net of issuance cost +44,570 +- +- +19,806 +- +- +19,806 +Issuance of Common Stock upon Exercise of Conversion +Option +19,012 +- +- +7,145 +- +- +7,145 +Stock-based compensation +8,000 +- +- +2,183 +- +- +2,183 +Share repurchases +- +- +( 106 ) +- +- +- +( 106 ) +Share cancellation +( 59 ) +- +106 +( 106 ) +- +- +- +Issuance of common stock upon the sale of subsidiary +8,992 +- +- +402 +- +- +402 +Issuance of warrants upon the sale of subsidiary +- +- +- +6,598 +- +- +6,598 +Foreign currency translation adjustment +- +- +- +- +- +( 430 ) +( 430 ) +Net loss +- +- +- +- +( 39,224 ) +- +( 39,224 ) +Balance at December 31, 2025 +92,140 +$ - +$ - +$ 61,171 +$ ( 68,325 ) +$ ( 16 ) +$ ( 7,170 ) +The +accompanying notes are an integral part of these consolidated financial statements. +F- 6 +CDT +EQUITY INC. +CONSOLIDATED +STATEMENTS OF CASH FLOWS +(in +thousands) +2025 +2024 +Year +Ended December 31, +2025 +2024 +Cash flows from operating +activities: +Net loss +$ ( 39,224 ) +$ ( 17,802 ) +Adjustments to reconcile net loss to net cash +used in operating activities: +Compensation expense +recognized for the issuance of shares and warrants in connection with the sale of a previously controlled subsidiary +7,000 +- +Gain on debt extinguishment, +net +( 278 ) +- +Loss on debt extinguishment, net +- +707 +Realized gain on short-term +investments +- +( 8 ) +Loss on disposal of crypto holdings +403 +- +Gain on waiver of accrued +interest +( 371 ) +- +Unrealized foreign exchange +gain / loss +( 16 ) +13 +Loss (gain) on change in +fair value of convertible notes payable +2,737 +( 2,018 ) +Gain on change in fair +value of warrants +( 138 ) +( 221 ) +Loss on issuance of warrants +- +2,710 +Non-cash lease expense +125 +89 +Stock-based compensation +expense +2,183 +1,632 +Issuance of common stock +for licensing right +- +1,568 +Non-cash interest expense +253 +536 +Depreciation expense +21 +10 +Amortization of prepaid +directors and officers insurance +1,440 +1,666 +Amortization expense +2,404 +447 +Issuance of common stock for services +1,152 +- +Issuance of common stock for services - related party +2,097 +- +Amortization of debt discount +- +929 +Gain (loss) on issuance of common stock +for services +( 70 ) +202 +Changes in operating assets and liabilities: +Prepaid expenses and other +current assets +( 4,062 ) +( 2,273 ) +Accounts payable +434 +1,225 +Accrued expenses and other +current liabilities +( 1,114 ) +1,030 +Accrued litigation liability +9,594 +- +Lease +liability +( 125 ) +( 124 ) +Net +cash used in operating activities +( 15,555 ) +( 9,682 ) +Cash flows from investing +activities: +Purchase of digital assets +( 1,998 ) +- +Proceeds from disposal of digital assets +1,595 +- +Purchase of equipment and +clinical assets +( 405 ) +( 51 ) +Purchases of short-term +investments +- +( 490 ) +Proceeds +from the sale of short-term investments +- +498 +Net +cash flows used in investing activities +( 808 ) +( 43 ) +Cash flows from financing +activities: +Proceeds from the issuance +of notes payable – related parties +- +3,226 +Proceeds from issuance +of common shares related to ATM program +19,699 +3,328 +Exercise of warrants +- +176 +Repayment of notes payable +( 158 ) +( 776 ) +Proceeds from issuance +of warrants +- +113 +Repayment of notes payable +- related parties +( 425 ) +- +Repayment of convertible notes payable - related parties +( 927 ) +- +Repayment of convertible notes payable +( 661 ) +- +Purchases of treasury stock +( 106 ) +- +Net +cash flows provided by financing activities +17,422 +6,067 +Net change in cash and cash +equivalents before effect of exchange rate changes +1,059 +( 3,658 ) +Effect of exchange rate +changes on cash and cash equivalents +( 104 ) +( 16 ) +Net change in cash +955 +( 3,674 ) +Cash +and cash equivalents at beginning of year +554 +4,228 +Cash +and cash equivalents at end of year +$ 1,509 +$ 554 +Non-cash investing and financing activities +Right +of Use Asset obtained in exchange for Operating Lease Liabilities +$ - +$ 352 +Correction +of immaterial error related to franchise tax expense +$ - +$ 144 +Issuance +of Common Stock upon exercise of conversion option +$ 7,145 +$ 92 +Issuance +of Common Stock in exchange for debt extension +$ - +$ 489 +Shares cancelled +$ ( 106 ) +$ - +Conversion +of deferred commission payable to convertible promissory note +$ - +$ 5,378 +Supplemental +Cash Disclosures +Cash +paid for interest +$ - +$ 80 +The +accompanying notes are an integral part of these consolidated financial statements. +F- 7 +CDT +EQUITY INC. +NOTES +TO CONSOLIDATED FINANCIAL STATEMENTS +1. +Nature of the Business +CDT +Equity Inc., formerly Conduit Pharmaceuticals Inc., a Delaware corporation (“CDT”, “CDT Equity” or the “Company”), +is a data-driven pharmaceutical development and digital asset treasury management company focused on identifying, enhancing, and advancing +high-potential therapeutic assets through scientific innovation and strategic partnerships. The Company has evolved into a broader, more +agile platform that leverages artificial intelligence, solid-form chemistry, and efficient asset repositioning to accelerate the development +of novel treatments. +The +Company’s strategy is centered on unlocking the untapped value of clinical-stage compounds, particularly those deprioritized by +larger pharmaceutical companies with strong, supporting Phase I safety data. Through advanced co-crystallization and solid-form technologies +developed at our Cambridge facilities, the Company improves drug properties and extends patent life by up to 20 years. In partnership +with Sarborg Limited, the Company also applies AI-powered disease mapping to rapidly identify new therapeutic applications for existing +compounds. +The +Company’s pipeline includes candidates that target autoimmune disorders, as well as idiopathic male infertility, oncology, dermatology, +and animal health. Ongoing in vitro and in vivo studies, guided by AI insights, are designed to support licensing and commercialization +partnerships. The Company will seek an exit through third-party license deals following successful in vitro and in vivo pre-clinical +trials, by entering into agreements with third-parties to pursue further development, FDA approval, commercialization and marketing of +the Company’s assets. +Operating +with a lean, asset-agnostic model, CDT Equity prioritizes speed, adaptability, and capital efficiency. We avoid the cost burden of late-stage +clinical trials, focusing instead on high-leverage development strategies. +Effective August +5, 2025, the Company changed its name from Conduit Pharmaceuticals Inc. to CDT Equity Inc. Our change to CDT Equity Inc. reflects the +evolution of our strategy as a data-driven biotech development company focused on identifying, enhancing, and advancing high-potential +therapeutic assets through scientific innovation and strategic partnerships. +On +May 23, 2025, the Company’s Common Stock commenced trading, as further described herein, on The Nasdaq Capital Market under the +symbol “CDT”. +Reverse +Stock Splits +During +the year ended December 31, 2025, the Company completed three reverse stock splits: a 1-for-100 +split effective January 24, 2025 (the “January Reverse Stock Split”), a 1-for-15 +split effective May 19, 2025 (the “May Reverse Stock Split”), and a 1-for-8 +split effective October 10, 2025 (the “October Reverse Stock Split”). On March 26, 2026, the Company completed a +1-for-25 reverse stock split (the “March 2026 Reverse Stock Split”). The January Reverse Stock Split, May Reverse Stock +Split, October Reverse Stock Split and March 2026 Reverse Stock Split are reflected collectively (the “Reverse Stock +Splits”). Each split reduced the number of issued and outstanding shares without affecting the number of authorized shares or +the par value of the Common Stock. No fractional shares were issued; instead, stockholders received cash in lieu of fractional +shares based on the respective post-split closing share prices. All share and per-share information has been retroactively adjusted +to reflect the Reverse Stock Splits for all periods presented. +All +historical share and per-share amounts reflected throughout the accompanying consolidated financial statements and other financial +information in this Annual Report on Form 10-K have been retroactively adjusted to reflect the January Reverse Stock Split, May +Reverse Stock Split, October Reverse Stock Split and March 2026 Reverse Stock Split as if the Reverse Stock Splits occurred as of +the earliest period presented. +F- 8 +2. +Liquidity and Going Concern +In +accordance with ASC 205-40, Going Concern, the Company has evaluated whether there are conditions and events, considered in the aggregate, +that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial +statements are issued. Since its inception, the Company has generated significant losses and as of December 31, 2025, the Company had +an accumulated deficit of $ 68.3 million. As of December 31, 2025 and December 31, 2024, the Company had cash and cash equivalents of $ 1.5 million and $ 0.6 million, respectively. For the years ended December 31, 2025 and 2024, the Company had +net operating losses of $ 36.8 million and $ 15.4 million, respectively, and cash used in operating activities of $ 15.6 million and $ 9.7 +million, respectively. Management has determined that it does not have sufficient cash and other sources of liquidity to fund its current +business plan. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for at least +the next 12 months from the financial statement filing date. +The +Company’s expectation is to generate operating losses and negative operating cash flows in the future and will need additional +funding to support its current business plan in addition to re-stickering the funds available from the at the market offering program +(the “Sales Agreement”). The Company currently has no remaining funds available from the Sales Agreement as of the financial +statement release date. Management’s plans to alleviate the conditions that raise substantial doubt through the pursuit of additional +cash resources through public or private equity or debt financings. However, there is no assurance that such funding will be available +when needed or on acceptable terms. If additional funding is not available when required, the Company would need to delay or curtail +its operations and its research and development activities until such funding is received, all of which could have a material adverse +effect on the Company and its financial condition. +These +financial statements have been prepared assuming the Company will continue as a going concern and do not include adjustments to reflect +the possible effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result +from the outcome of this uncertainty. +3. +Basis of Presentation and Summary of Significant Accounting Policies +Basis +of Presentation +The +accompanying consolidated financial statements have been prepared by the Company in accordance with accounting principles generally +accepted in the United States of America (“U.S. GAAP”) as set forth by the Financial Accounting Standards Board +(“FASB”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission +(“SEC”). References to U.S. GAAP issued by the FASB in these notes to the accompanying consolidated financial statements +are to the FASB Accounting Standards Codifications (“ASC”) and Accounting Standards Update +(“ASUs”). +F- 9 +Principles +of Consolidation +The +accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary Conduit UK +Management Ltd. (United Kingdom) and Conduit Pharmaceuticals, Ltd. (Cayman Islands). The operating results of Conduit +Pharmaceuticals, Ltd. are included in the Company’s consolidated financial statements for the full period presented. As used +herein, references to the “Company” include Conduit Pharmaceuticals, Inc. and its subsidiaries. All +intercompany balances and transactions have been eliminated in consolidation. +Reclassification +In +order to conform with current period presentation, $ 0.4 million of related party research and development prepaid expenses have been +reclassified from prepaid expenses to related party prepaid expenses on our consolidated balance sheet as of December 31, 2024. This +change in presentation does not affect previously reported results. +Other +Risks and Uncertainties +The +Company is subject to risks common to companies in the development stage and pharmaceutical industry including, but not limited to, uncertainties +related to pre-clinical and clinical outcomes competitor products, regulatory approvals, dependence on key products, dependence on key +suppliers and protection of intellectual property rights (see Note 15 for details on a claim against our AZD 1656 co-crystal patent). +Clinical assets currently under development will require significant additional research and development efforts, including extensive +preclinical and clinical testing and regulatory approval prior to commercialization. These efforts will require significant amounts of +additional capital, adequate personnel, infrastructure, and extensive compliance and reporting capabilities. Even if the Company’s +efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from royalties or product sales. +The +Company licenses clinical assets from AstraZeneca. If there is a breach or other termination of such agreements, there could be a material +adverse effect on the Company’s business, financial condition, operating results, and prospects. See Note 10 for further discussion +of the agreement with AstraZeneca. +F- 10 +Use +of Estimates +The +preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the +reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the financial +statements as we l as the reported amounts of revenues and expenses during the reporting period. Estimates are based on several factors +including the facts and circumstances available at the time the estimates are made, historical experience, risk of loss, general economic +conditions and trends, and the assessment of the probable future outcome. Actual results could differ materially from such estimates. +Estimates and assumptions are reviewed periodically by management and changes in estimates are made as management becomes aware of changes +in circumstances surrounding the estimates. The effects of changes are reflected in the financial statements in the period that they +are determined. Our significant accounting policies that involve significant judgment and estimates include accounting for the fair value +of convertible notes payable, stock based compensation, contingencies and going concern. +Cash +and Cash Equivalents +Cash +and cash equivalents are primarily maintained with major financial institutions in the United States, United Kingdom, and Switzerland. +The Company considers cash equivalents to be short-term, highly liquid investments that (a) are readily convertible into known amounts +of cash, (b) are traded and held for cash management purposes, and (c) have original maturities of three months or less at the time of +purchase. The Switzerland bank accounts holding cash balances are uninsured, and the UK bank account, with a balance at December 31, +2025 of approximately £ 96,000 (or approximately $ 130,000 ) exceeds the country’s deposit limit of £ 85,000 (approximately +$ 114,000 ). The Company’s US depository bank participates in the Demand Deposit Marketplace program, insuring deposits up to $ 10 +million by sweeping amounts in excess of the $ 250,000 deposit insurance limit among participating banks. The Company has not experienced +any losses on any accounts through the year ended December 31, 2025. +The +Company had $ 1.5 million and $ 0.6 million in cash and cash equivalents on hand as of December 31, 2025 and December 31, 2024, respectively. +As of December 31, 2025, $ 0.7 million of the Company’s $ 1.5 million cash and cash equivalents balance was invested in money market +funds. +F- 11 +Fair +Value Measurements +ASC +Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value, and expands +disclosures about fair value measurements. Fair value is to be determined based on the exchange price that would be received for an asset +or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly +transaction between market participants. In determining fair value, the Company used various valuation approaches. A fair value hierarchy +has been established for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable +inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would +use in pricing the asset or liability based on market data obtained from sources independent of the Company. +Unobservable +inputs reflect the Company’s assumption about the inputs that market participants would use in pricing the asset or liability developed +based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels, based on the +inputs, as follows: +● +Level +1—Valuations based on quoted prices for identical instruments in active markets. Since valuations are based on quoted prices +that are readily and regularly available in an active market, valuation of these instruments does not entail a significant degree +of judgment. +● +Level +2— Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for either similar +instruments in active markets, identical or similar instruments in markets that are not active, or model-derived valuations whose +inputs or significant value drivers are observable or can be corroborated by observable market data. +● +Level +3—Valuations based on inputs that are unobservable. These valuations require significant judgment. +The +Company’s Level 1 assets consist of cash and cash equivalents in the accompanying consolidated balance sheets and the carrying +value of accrued expenses and other current liabilities approximate fair value due to the short-term nature of these assets and +liabilities. +As +of December 31, 2025 and December 31, 2024, the Company has two financial liabilities, warrant liabilities for which the fair value is +determined based on Level 2 and Level 3 inputs, and convertible debt carried at fair value for which the fair value is determined based +on Level 3 input. The Level 2 inputs are valued based on observable inputs other than quoted prices included in Level 1, such as quoted +prices for similar instruments in active markets. The Level 3 inputs as such inputs are based on unobservable inputs and require significant +judgement. +Fair +Value Option +The +Company has elected the fair value measurement option for convertible debt with embedded derivatives that would otherwise require bifurcation +and has recorded the entire hybrid financial instrument at fair value under the guidance in ASC 825, Financial Instruments. As a result, +the August 2024 Nirland Note was recorded at fair value subsequent to the Second Amendment and the A.G.P. Convertible Note was recorded +at fair value upon issuance. The notes will subsequently be remeasured at fair value each reporting date until settled or converted. +The Company reports interest expense, including accrued interest, related to the convertible debt under the fair value option, separately +from within the change in fair value of the convertible debt in the accompanying consolidated statement of operations and comprehensive +loss. Any changes in fair value caused by instrument-specific credit risk are presented separately in other comprehensive loss. +During the year ended December 31, 2025, the Company did not record any changes in fair value related to instrument-specific credit risk. +Equipment +and Clinical Assets +Equipment +and clinical assets are initially recorded at cost. Depreciation and amortization are computed using the straight-line method over the +estimated useful lives of the assets or, for leasehold improvements, the life of the lease, if shorter. When assets are retired or otherwise +disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected +in other income or expense for the period. As of December 31, 2025, equipment and clinical assets primarily consisted of an acquired +clinical asset and leasehold improvements. +F- 12 +Leases +In +accordance with ASC 842, Leases (“ASC 842”), the Company records a right-of-use (ROU) asset and a lease liability on the +balance sheet for all leases with terms longer than 12 months and classifies them as either operating or finance leases. +At +the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and +circumstances present and the classification of the lease including whether the contract involves the use of a distinct identified asset, +whether the Company obtains the right to substantially all the economic benefit from the use of the asset, and whether the Company has +the right to direct the use of the asset. Leases with a term greater than one year are recognized on the balance sheet as ROU assets, +lease liabilities and, if applicable, long-term lease liabilities. The Company has elected not to recognize on the balance sheet leases +with terms of one year or less under practical expedient in paragraph ASC 842-20-25-2. For contracts with lease and non-lease components, +the Company has elected not to allocate the contract consideration, and to account for the lease and non-lease components as a single +lease component. +Lease +liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. +The implicit rate within our operating leases is generally not determinable and, therefore, the Company uses the incremental borrowing +rate at the lease commencement date to determine the present value of lease payments. The determination of the Company’s incremental +borrowing rate requires judgment. The Company determines the incremental borrowing rate for each lease using our estimated borrowing +rate, adjusted for various factors including level of collateralization, term and currency to align with the terms of the lease. The +operating lease ROU asset also includes any lease prepayments, offset by lease incentives. +An +option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain +we will exercise that option. An option to terminate is considered unless it is reasonably certain we will not exercise the option. +Research +and Development +Research +and development expenses consist primarily of costs incurred in connection with the research and development of our clinical assets and +programs, see Note 10 for further discussion of research and development expense. CDT holds all licenses to conduct clinical research +through a third-party pharmaceutical company. The Company expenses research and development costs and intangible assets acquired that +have no alternative future use as incurred. These expenses include: +● +expenses +incurred under agreements with organizations that support the Company’s drug discovery and development activities; +● +expenses +incurred in connection with the preclinical and clinical development of the Company’s clinical assets and programs, including +under agreements with contract research organizations, or CROs; +● +costs +related to contract manufacturing organizations, or CMOs, that are primarily engaged to provide drug substance and product for our +clinical trials, research and development programs, as well as investigative sites and consultants that conduct the Company’s +clinical trials, nonclinical studies and other scientific development services; +● +the +costs of acquiring and manufacturing nonclinical and clinical trial materials, including manufacturing registration and validation +batches; +● +employee-related +expenses, including salaries, related benefits and equity-based compensation expense, for employees engaged in research and development +functions; +● +acquisition +costs related to the purchase of licensed intellectual property; +● +costs +related to compliance with quality and regulatory requirements; +● +payments +made under third-party licensing agreements; and +● +direct +and allocated costs related to facilities, information technology, personnel and other overhead. +Advance +payments that we make for goods or services to be received in the future for use in research and development activities are recorded +as prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or consumed or the related services are performed, +or until it is no longer expected that the goods will be delivered, or the services rendered. +F- 13 +Purchased +Research and Development Assets +The +Company accounts for its research and development costs in accordance with ASC 730, Research and Development. ASC 730 requires that research +and development are generally recognized as an expense as incurred. However, some costs associated with research and development activities +that have an alternative future use may be capitalizable. Purchases of assets related to research and development activities are evaluated +based on the usefulness to the Company currently and for alternative future uses. Purchased research and development assets with alternative +future use are recorded at cost and subsequently amortized using the straight-line method over their estimated useful lives. To date, +the Company has one purchased asset, a diagnostic tool used to monitor clinical trials, aggregate data on an ongoing basis and tracking +intellectual property patent status. The Company determined that the diagnostic tool has an alternative future use, namely using its +predictive modeling capability to track and evaluate delisted patents in the marketplace, potentially facilitating strategic entry into +de-prioritized asset markets that might otherwise be overlooked by other market participants. The asset is depreciated on a straight-line +basis over its useful life of two years. +Income +Taxes +ASC +Topic 740, Income Taxes, sets forth standards for financial presentation and disclosure of income tax liabilities and expense. Interest +and penalties recognized have been classified in the consolidated statements of operations and comprehensive loss as income +taxes. Deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the +financial statement carrying amount of existing assets and liabilities and their respective tax bases and operating losses carried forward. +Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those +temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates +is recognized in the consolidated statements of operations and comprehensive loss in the period that includes the enactment +date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits of which future +realization is uncertain. +Net +Loss per Share Attributable to Common Stockholders +The +Company calculates basic and diluted net loss per share under ASC Topic 260, Earnings Per Share. Basic net loss per share is computed +by dividing the net loss by the number of weighted-average common shares outstanding for the period. Diluted net loss is computed by +adjusting net loss based on the impact of any dilutive instruments. Diluted net loss per share is computed by dividing the diluted net +loss by the number of weighted-average common shares outstanding for the period including the effect, if dilutive, of any instruments +that can be settled in common shares. When computing diluted net loss per share, the numerator is adjusted to eliminate the effects that +have been recorded in net loss (net of tax, if any) attributable to any liability-classified dilutive instruments. +Warrants +The +Company determines the accounting classification of Warrants as either liability or equity by first assessing whether the Warrants meet +liability classification in accordance with ASC 480, Distinguishing Liabilities from Equity (“ASC 480”). Under ASC 480, a +financial instrument that embodies an unconditional obligation, or a financial instrument other than an outstanding share that embodies +a conditional obligation, that the issuer must or may settle by issuing a variable number of its equity shares must be classified as +a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly +on any one of the following: (a) a fixed monetary amount known at inception; (b) variations in something other than the fair value of +the issuer’s equity shares; or (c) variations inversely related to changes in the fair value of the issuer’s equity shares. +If +financial instruments, such as the Warrants, are not required to be classified as liabilities under ASC 480, the Company assesses whether +such instruments are indexed to the Company’s own stock under ASC 815-40. In order for an instrument to be considered indexed to +an entity’s own stock, its settlement amount must always equal the difference between the following: (a) the fair value of a fixed +number of the Company’s equity shares, and (b) a fixed monetary amount or a fixed amount of a debt instrument issued by the Company. +The Company determined that the settlement amount of the Equity Classified Warrants would equal the difference between the fair value +of a fixed number of shares and a fixed monetary amount (or a fixed amount of a debt instrument) and must be classified as equity, while +the settlement amount of the Liability Classified Warrants would not equal the difference between the fair value of a fixed number of +shares and a fixed monetary amount (or a fixed amount of a debt instrument) and must be classified as a liability. +F- 14 +The +Equity Classified Warrants are recorded in stockholders’ deficit and the Liability Classified Warrants are recorded as liabilities +in the Consolidated Balance Sheet. The Liability Classified Warrants are remeasured each period with changes in fair value recorded in +the consolidated statements of operations and comprehensive loss. +Stock-based Compensation +The +Company estimates the fair value of each option award on the date of grant using the Black-Scholes option-pricing model. The Company +then recognizes the grant date fair value of each option as compensation expense ratably using the straight-line attribution method over +the service period (generally the vesting period). The Black-Scholes model incorporates the following assumptions: +● +Expected volatility – The Company estimates +expected volatility based on the historical and implied volatility of its common stock. The Company considered the standard deviation +of daily lognormal returns and applied a downward adjustment to the observed historical volatility based on an analysis incorporating +Black-Scholes modeling and market participant assumptions. +● +Expected term – the Company estimates the expected term using the “simplified” method outlined in SEC Staff Accounting Bulletin No. 107, “Share-Based Payment.” +● +Risk-free interest rate – the Company estimates the risk- free interest rate using the U.S. Treasury Yield curve for periods equal to the expected term of the options in effect at the time of grant. +● +Dividends – the Company uses an expected dividend yield of zero because the Company has not declared nor paid a cash dividend, nor are there any plans to declare a dividend. +The +Company accounts for forfeitures as they occur, which may result in the reversal of compensation costs in subsequent periods as the forfeitures +arise. +Foreign +Currency Translation +The +Company translated the assets and liabilities of its foreign subsidiary from their respective functional currency, the British pound, +to United States dollars at the appropriate spot rates as of the balance sheet date. Income and expenses of operations are translated +to United States dollars using weighted average exchange rates during the year. The foreign subsidiaries use the local currency as their +functional currency. The effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive +income in the accompanying consolidated statements of changes in stockholders’ deficit. Non-monetary items in the subsidiaries’ +functional currency are re-measured into the reporting currency at the historical exchange rate (i.e., the rate of exchange at the date +of the transaction). +F- 15 +Recently +Issued Accounting Pronouncements Adopted +In +December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). +ASU 2023-09 modifies the reporting requirements for income tax disclosures related to effective tax rates and cash income taxes paid. +Pursuant to ASU 2023-09, public business entities are required to disclose certain categories in the income tax rate reconciliation, +as well as additional information for reconciling items that meet a specific quantitative threshold. Additionally, ASU 2023-09 requires +annual disclosures of income taxes paid for all entities, including the amount of income taxes paid, net of refunds received, disaggregated +by federal, state, and foreign jurisdictions. The standard is effective for fiscal years beginning after December 15, 2024, with early +adoption permitted. The Company retrospectively adopted ASU 2023-09 and all periods presented within the consolidated financial statements +will reflect the adoption. The retrospective adoption of ASU 2023-09 resulted in enhanced disclosures in our consolidated financial statements. Refer to Note 12 for further information. +In +December 2023, the FASB issued ASU No. 2023-08, Intangibles-Goodwill and Other-Crypto Assets (Subtopic 350-60): Accounting for and Disclosure +of Crypto Assets. The amendments in ASU No. 2023-08 are intended to improve the accounting for certain crypto assets by requiring an +entity to measure those crypto assets at fair value each reporting period with changes in fair value recognized in net income. The amendments +also improve the information provided to investors about an entity’s crypto asset holdings by requiring disclosure about significant +holdings, contractual sale restrictions, and changes during the reporting period. The amendments are effective for all entities for fiscal +years beginning after December 15, 2024, including interim periods within those fiscal years. Early adoption is permitted for both interim +and annual financial statements. The Company elected to adopt ASU 2023-08, effective as of July 1, 2025, the first quarter in which the +Company held digital assets. Refer to Note 6 for further information. +Recently +Issued Accounting Standards Not Yet Adopted +In +December 2025, the FASB issued Accounting Standards Update No. 2025-11, Interim Reporting (Topic 270) Narrow-Scope Improvements (“ASU +2025-11”), to improve the navigability and clarity of interim reporting guidance in the FASB Accounting Standards Codification +and clarify when Topic 270 applies. The amendments add a comprehensive list of interim disclosure requirements currently required by +GAAP and a new disclosure principle requiring an entity to disclose events since the end of the most recent fiscal year that have a material +impact on the entity’s interim financial statements. ASU 2025-11 is effective for interim reporting periods within annual reporting +periods beginning after December 15, 2027 for public business entities and after December 15, 2028 for entities other than public business +entities. Early adoption is permitted. The Company is currently evaluating the potential impact of adopting ASU 2025-11 on our interim +reporting practices and related disclosures. +In +July 2025, the FASB issued ASU 2025-05, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable +and Contract Assets. This ASU introduces a practical expedient for estimating expected credit losses on current accounts receivable and +current contract assets arising from transactions accounted for under ASC 606, Revenue from Contracts with Customers. Under the expedient, +entities may assume that the current conditions applied in determining credit loss allowances remain unchanged for the remaining life +of those assets. This ASU is required to be adopted on a prospective basis. ASU 2025-05 is effective for annual reporting periods beginning +after December 15, 2025, including interim periods within those years, with early adoption permitted. The Company adopted this standard effective January 1, 2026 and does not expect +the adoption of the ASU 2025-05 to have a material impact on the Company’s consolidated financial statements. +In +November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic +220-40): Disaggregation of Income Statement Expenses, which is intended to provide more detailed information about specified categories +of expenses (purchases of inventory, employee compensation, depreciation and amortization) included in certain expense captions presented +on the consolidated statements of operations and comprehensive loss. The guidance in this ASU is effective for fiscal years +beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. +The amendments may be applied either (1) prospectively to financial statements issued for periods after the effective date of this ASU +or (2) retrospectively to all prior periods presented in the consolidated financial statements. The Company is currently evaluating the +impact that the adoption of ASU 2024-03 will have on its consolidated financial statements and disclosures. +F- 16 +4. +Sale of Wholly-Owned Subsidiary +On +December 8, 2025, the Company and Corvus Capital Limited (“Corvus”), entered into a Sale and Purchase Agreement (the +“Agreement”) for the sale of all of the outstanding shares of CPL held of record by the Company (the “CPL +Share”), together with 8,992 shares +of the Company’s Common Stock (“Common Stock”) and 147,432 pre-funded +warrants (the “Pre-Funded Warrants”) to purchase shares of Common Stock (the “Pre-Funded Warrant Shares”). +CPL had net liabilities as of the date of the sale. On March 24, 2026, all 147,432 +of the Pre-Funded Warrants were exercised through a cashless exercise into 147,401 shares of the Company’s Common Stock. +CPL was subject +to ongoing litigation prior to the sale, for which judgment was rendered on December 16, 2025 in favor of the claimant for $ 2.0 +million for cash advisory fees, $ 5.0 +million representing damages in respect of 21 carry shares, plus interest, penalties and a portion of legal cost reimbursement of +$ 2.6 +million, totaling $ 9.6 +million. The $ 9.6 million was recorded as a litigation accrual in the consolidated balance sheet. +Total +consideration for the disposition of CPL was $ 7.0 million, +which was satisfied through the issuance of the aforementioned Common Stock and Pre-Funded Warrants to Corvus, a wholly-owned entity +of the Company’s Chief Executive Officer (“CEO”). The fair value of the consideration upon the transfer of CPL was +equal to the closing price of the Company’s Common Stock of $ 44.75 on +December 5, 2025, consisting of approximately $ 0.4 million +attributable to the Common Stock and $ 6.6 +million attributable to the Pre-Funded Warrants. +The Company determined the total consideration for the disposition by performing a broad, mid-point evaluation of the range of damages, +should CPL receive an unfavorable judgment, based on the ranges of the Experts’ Evidence at the second valuation date, which was +agreed by the parties in evidence and confirmed in the judges’ summing-up. The referenced second valuation date considered a range +of damages resulting from the non-payment of the cash advisory fee and non-delivery of carry shares, to include the expected value of +the disposal of the shares following the 180-day lock-up period that would have been entered into at the time of the business combination. +Following the sale of +CPL on December 8, 2025, the Company has determined that, while the transaction resulted in the legal disposition of CPL and its net +liabilities, from an accounting perspective the criteria for isolation and deconsolidation were not met as of December 31, 2025. +Accordingly, CPL remains consolidated within the consolidated financial statements of the Company at December 31, 2025. +The +Company recognized the compensation expense of $ 7.0 million +for the issuance of shares and warrants, which is presented within general and administrative expense, in the consolidated statement +of operations and comprehensive loss for the year ended December 31, 2025. +Through the filing of the consolidated financial statements, the judgment has not been settled by CPL and, therefore, it is currently +not in compliance with the judgment’s stated settlement date of January 13, 2026. CPL’s subsequent appeal of the judgment +was later dismissed. Corvus, as the sole shareholder in CPL, maintains the decision making process in the handling of the judgment following +the sale of CPL. Strand has not attempted to enforce the judgment against CPL, but during the first quarter of 2026, the Company received +correspondence from Strand’s counsel discussing the potential of Strand seeking to enforce the judgment against the Company directly. +To date, no legal action against the Company has commenced and the Company will continue to vigorously defend its position as it relates +to the litigation with Strand. +See Note 15 and Note 18 for +further discussion of the litigation and Pre-Funded Warrants. +5. +Fair Value +During +the period ended December 31, 2025, there were no transfers between Level 1 and Level 2, nor into or out of Level 3. The following table +presents as of December 31, 2025 the Company’s assets and liabilities subject to measurement at fair value on a recurring basis +(in thousands): +Schedule of Assets Subject to Measurement at Fair Value on Recurring Basis +Fair +Value Measurements as of December 31, 2025 +Level +1 +Level +2 +Level +3 +Total +Assets: +Cash equivalents +$ 739 +$ - +$ - +$ 739 +Total Assets +$ 739 +$ - +$ - +$ 739 +Liabilities: +Convertible notes payable +at fair value +$ - +$ - +$ 660 +$ 660 +Total Liabilities +$ - +$ - +$ 660 +$ 660 +F- 17 +The +following table presents as of December 31, 2024 the Company’s assets and liabilities subject to measurement at fair value on a +recurring basis (in thousands): +Fair +Value Measurements as of December 31, 2024 +Level +1 +Level +2 +Level +3 +Total +Assets: +Cash equivalents +$ 192 +$ - +$ - +$ 192 +Total Assets +$ 192 +$ - +$ - +$ 192 +Liabilities: +Convertible notes payable at fair value +$ - +$ - +$ 5,856 +$ 5,856 +Liability Classified +Warrants +- +- +138 +138 +Total Liabilities +$ - +$ - +$ 5,994 +$ 5,994 +The +following table presents additional information about the Convertible Notes Payable subject to measurement at fair value on a recurring +basis and warrant liabilities, for which the Company used unobservable inputs (Level 3) (in thousands): +Schedule of Additional Information About the Financial Liabilities Subject To Measurement at Fair Value +Convertible +Notes +Payable +Liability +Classified Warrants +Balance as of December 31, 2023 +$ - +$ - +Fair value at Issuance +7,899 +229 +Conversion of convertible notes +( 92 ) +- +Change in fair value +( 1,951 ) +( 91 ) +Balance as of December 31, 2024 +$ 5,856 +$ 138 +Conversion of convertible notes +( 4,530 ) +- +Interest expense +277 +- +Change in fair value +( 815 ) +( 138 ) +Gain on settlement of convertible note +( 128 ) +- +Balance as of December 31, 2025 +$ 660 +$ - +During +the year ended December 31, 2025, there were no transfers between Level 1 and Level 2, nor into or out of Level 3. +Digital +Assets +Digital +assets are measured at fair value on a recurring basis using quoted prices in their principal market (Level 1 inputs). The Company has +designated a principal market based on the market the Company has access to and that has the greatest volume and level of orderly transactions +for BTC. The Company reassesses its principal market when facts and circumstances change, including but not limited to when new markets +become accessible, or the volume/activity in the current principal market declines. +Convertible +Notes Payable +As +discussed in Note 8, on October 31, 2024, the Company and Nirland agreed to amend the Senior Secured Promissory Note entered into by +the Company and Nirland on August 6, 2024 (the “August 2024 Nirland Note”), whereby the August 2024 Nirland Note was amended +to provide for the conversion of the August 2024 Nirland Note into shares of Common Stock, at Nirland’s discretion, in a multiple +of any unpaid amounts, if not otherwise previously paid, pursuant to the conversion rate contained therein. The August 2024 Nirland Note +was then amended for a second time on November 22, 2024. On February 12, 2025, the August 2024 Nirland Note was repaid in full. +Additionally, +as discussed in Note 8, during November 2024, the Company issued to Alliance Global Partners (“A.G.P.”) a convertible promissory +note (the “A.G.P. Convertible Note”) in the principal amount of $ 5.7 million to evidence the A.G.P.’s currently owed +deferred commission payable. +The +Company elected to account for the August 2024 Nirland Note and A.G.P. Convertible Note (collectively the “Convertible Notes Payable”) +at fair value. The fair value of the Convertible Notes Payable is estimated each period using a binomial lattice model. Significant estimates +in the binomial lattice model include the Company’s stock price, volatility, risk-free rate, corporate bond yield, credit spread, +probability of default, and recovery upon default. +F- 18 +The +fair value of the August 2024 Nirland Note and A.G.P. Convertible Note as of December 31, 2024 were estimated using a binomial lattice +model. +The following table outlines the +range of significant unobservable inputs used in calculating the fair value of the August 2024 Nirland Note as of the dates noted below: +Schedule of Fair Value of Input +October +31, +2024 +November +22, +2024 +December +31, +2024 +Stock Price +$ +27,299 +$ +31,198 +$ +20,579 +Term (years) +0.8 +0.7 +0.6 +Corporate bond yield +9.1 +% +8.7 +% +11.4 +% +Credit Spread +15.9 +% +15.9 +% +15.9 +% +Probability of Default +40 +% +40 +% +40 +% +Recovery upon default +20 +% +20 +% +20 +% +Volatility +103.2 +% +96.5 +% +123.7 +% +As +of December 31, 2025, no obligations remain under the August 2024 Nirland Note (refer to Note 8 for details) and therefore only the fair +value of the A.G.P. Convertible Note was estimated using a binomial lattice model. +The +following table outlines the range of significant unobservable inputs used in calculating the fair value of the A.G.P. Convertible Note +as of the dates noted below: +Schedule of Fair Value of Assumptions +November +25, +2024 +December +31, +2024 +December +31, +2025 +Stock Price +$ 27,299 +$ 20,579 +$ 32 +Term (years) +1 +0.9 +0.4 +Corporate bond yield +8.8 % +9.0 % +5.5 % +Credit Spread +26.2 % +26.2 % +26.2 % +Probability of Default +40 % +40 % +70 % +Recovery upon default +0 % +0 % +0 % +Volatility +108.7 % +101.6 % +135 % +Liability +Classified Warrants +Liability +Classified Warrants The A.G.P. 2024 Warrants, as defined in Note 18, are accounted for as liabilities in accordance with ASC 815-40 and +are presented within Warrant liabilities in the consolidated balance sheets. Warrant liabilities are measured at fair value at inception +and on a recurring basis, with changes in fair value presented within other income (expense), net in the consolidated statements of operations +and comprehensive loss. +The +measurement of the A.G.P. 2024 Warrants is classified as Level 3 due to the use of an option-pricing model that utilizes +unobservable inputs and requires significant judgement. The Company estimated the fair value of the warrants issued as the issuance +date, October 29, 2024, as of December 31, 2024 and as of December 31, 2025, using a Black-Scholes option-pricing model utilizing +the following assumptions: +Schedule of Fair Value of Assumptions +December +31, 2025 +December +31, 2024 +October +29, 2024 +Closing stock price +$ 32 +$ 20,579 +$ +31,438 +Contractual exercise price +$ 30,000 +$ 30,000 +$ +30,000 +Risk-free rate +3.73 % +4.38 % +4.11 +% +Estimated volatility +99.3 % +98.6 % +98.4 +% +Time period to expiration (in years) +4.0 +5.0 +5.2 +6. +Digital Assets +Adoption +of ASU 2023-08, Accounting for and Disclosure of Crypto Assets: +Effective +during the third quarter of 2025, the Company adopted ASU 2023-08, which requires entities to measure crypto assets at fair value with +changes recognized in the Consolidated Statement of Operations each reporting period. The Company’s did not hold any digital assets +prior to the release of ASU 2023-08 and no accounting for the transition guidance was necessary. +The +following table presents a reconciliation of the fair values of the Company’s investments in digital assets as of December 31, +2025. +Schedule +of Investments Digital Assets +Digital +Assets +Balance as of December 31, 2024 +$ - +Purchases +1,998 +Dispositions +( 1,595 ) +Realized losses on dispositions +( 403 ) +Balance as of December 31, 2025 +$ - +The +Company disposed of all digital asset holdings during the fourth quarter of the year ended December 31, 2025. +F- 19 +7. +Leases +During the year ended +December 31, 2024, the Company entered into an operating lease for laboratory space. The remaining lease terms for the operating lease +is approximately one year and does not provide a renewal option. The Company has elected the short-term lease policy election, which +allows the Company to exclude from recognition leases with an original term of 12 months or less. +Upon +commencement of the laboratory lease on March 7, 2024, the Company recorded a right-of-use asset of $ 0.4 million, short-term lease liability +of $ 0.2 million, and long-term lease liability of $ 0.2 million. +Lease +costs associated with the Company’s operating and short-term leases are recorded within general and administrative expense in +the consolidated statement of operations and comprehensive loss. The following table sets forth information about our lease +costs for the year ended December 31, 2025 and 2024 (in thousands): +Schedule +of Lease Cost +Lease Cost +December +31, +2025 +December 31, +2024 +Operating lease cost +$ 142 +$ +116 +Short-term lease cost +128 +128 +Variable lease cost +15 +15 +Total lease cost +$ 285 +$ +259 +The +following table sets forth information about our operating lease for the year ended December 31, 2025 and 2024 (in +thousands): +Schedule +of Operating Lease Liabilities +Supplemental +cash flow and other information +December +31, +2025 +December 31, +2024 +Cash paid for amounts included in the measurement +of lease liabilities: +Operating cash +flows from operating leases +$ 125 +$ +143 +ROU assets obtained in exchange for lease liabilities +- +352 +Weighted-average remaining lease term (in years) +1.0 +2.0 +Weighted-average discount rate +11.2 % +11.2 +% +The +Company’s future minimum lease payments for our operating lease as of December 31, 2025 are as follows (in +thousands): +Schedule +of Future Minimum Lease Payments For Operating Lease +December +31, +2025 +Year ending December 31, +2026 +$ 122 +Total +122 +Less: imputed interest +( 7 ) +Total lease liability +$ 115 +F- 20 +8. +Convertible Notes Payable +Convertible +Promissory Notes Payable +During +March 2023, the Company issued a convertible promissory note payable (the “Convertible Promissory Notes Payable”) with an +aggregate principal amount of $ 0.8 million to a non-related third party. The Convertible Promissory Note Payable had a maturity date +of 18 months from the date of issuance. The note carries interest at a rate of 20 % annually, which is payable every six (6) months from +the date of the note until the maturity date. +On +October 9, 2024, the Company and the loan holder signed an extension to extend the maturity date from September 20, 2024 to October 20, +2024 with the option for the Company to further extend the maturity date two times, each by an additional 30-day period. The Company +exercised both options to extend the maturity date to December 19, 2024 which included interest previously payable as well as the principal. +As consideration for extending the maturity date, the Company amended the form of repayment of the remaining interest due on the loan. +As payment for the interest, the Company issued the loan holder, (i) $ 80,000 +worth of Common Stock to be issued at the closing market price +on the date prior to issuance and (ii) 6 +shares of Common Stock. On October 11, 2024, the Company issued 9 +shares of Common Stock to the loan holder in satisfaction of +the obligations in (i) and (ii) in the preceding sentence. As of December 31, 2024, the promissory note payable remained outstanding +and the Company was considered to be in default until settlement on March 6, 2025. +On +March 6, 2025, the Company reached a Settlement Agreement (the “Settlement Agreement”) with the loan holder to pay $ 0.7 million +in order to settle the Convertible Promissory Note Payable in full. The Company repaid the loan holder the settlement amount of $ 0.7 +million on March 13, 2025 . The Settlement Agreement and subsequent repayment was treated as a debt extinguishment. During the +year ended December 31, 2025, the Company recorded a gain on debt extinguishment of $ 0.1 million, calculated as the difference between +(i) the $ 0.8 million carrying value of the Convertible Promissory Note Payable immediately prior to the amendment, and (ii) the $ 0.7 +million repayment of the Convertible Promissory Note Payable. The $ 0.1 million gain on debt extinguishment was recorded within other +income (expense) in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2025. +In +connection with the Settlement Agreement, the Company entered into a consulting agreement with a third party to negotiate the +settlement of the Convertible Promissory Note Payable with the loan holder on behalf of the Company. In exchange for negotiating the +Settlement Agreement, the Company agreed to pay $ 0.1 +million through the issuance of shares of Common Stock or cash. On March 31, 2025, the Company issued 24 +shares of Common Stock. The number of shares issued was determined based on the agreement amount of $ 0.1 +million, divided by the closing share price on March 28, 2025 (prior trading date) of $ 2,670 . +For +the years ended December 31, 2025 and December 31, 2024, the Company incurred interest expense on the Convertible Promissory Note Payable +of nil and $ 0.1 million, respectively. +August +2024 Nirland Note +On +August 6, 2024, the Company issued a Senior Secured Promissory Note to Nirland (the “ August 2024 Nirland Note”) with an +original principal amount of $ 2.7 million, inclusive of a $ 0.5 million original issuance discount (“OID”). In connection +with the financing, the Company issued 41 shares of the Company’s common stock to Nirland. Nirland is a related party of the +Company (see Note 16). The Company determined that the note and share issuance constituted a basket transaction and allocated the $ 2.2 +million of net proceeds on a relative fair value basis, resulting in a total debt discount of $ 1.5 million, which was amortized to interest +using the effective interest method. +On +October 31, 2024, the Company and Nirland entered into an amendment to the August 2024 Nirland Note that introduced a conversion feature +permitting the holder to convert outstanding amounts into shares of the Company’s common stock and removed certain provisions related +to mandatory prepayment and participation in future financings. The amendment was accounted for as a debt extinguishment as the modified +terms were determined to be substantially different from the original instrument. +The +Company determined the fair value of the August 2024 Nirland Note to be $ 3.6 million as of October 31, 2024 through the use of a binomial +lattice model. +As +of October 31, 2024, a loss on debt extinguishment of $ 2.2 million was recorded consisting of (i) the derecognition of the $ 1.3 million +carrying value immediately prior to the First Amendment (ii) recognition of the $ 2.7 million par value and (iii) recognition of the $ 0.8 +million substantial premium. +On +November 22, 2024, the Company and Nirland entered into a second amendment modifying the conversion provisions and restricting conversion +prior to stockholder approval under Nasdaq rules. In connection with this amendment, the Company elected the fair value option under +ASC 825. At the end of each reporting period, the Company calculates the fair value of the August 2024 Nirland Note, and any changes +in fair value are reported in the current period’s consolidated statements of operations and comprehensive loss. +For +the year ended December 31, 2024, the Company recorded a $ 1.5 million gain from the change in fair value of convertible promissory +note and interest expense of approximately $ 0.4 million. The interest expense of $ 0.4 million is comprised of (i) accrued interest +of $ 0.2 million and (ii) $ 0.2 million in amortization expense related to the initial debt discount of $ 1.5 million. The $ 2.2 million +loss on debt extinguishment from the Frist Amendment, $ 0.9 million loss on debt extinguishment from the Second Amendment, and the +$ 1.5 million gain on the change in fair value are presented within other income (expense), net, while the $ 0.4 million of interest +expense is presented within Interest expense, net, in the consolidated statement of operations and comprehensive loss. +Subsequent changes in the fair value of the August 2024 Nirland Note were recognized in the consolidated statement of operations. +See Note 5 for additional information regarding fair value measurements. +F- 21 +On +December 9, 2024, Nirland converted $ 0.1 million of principal into 7 shares of the Company’s common stock pursuant to Nasdaq +partial conversion rules. As of December 31, 2024, approximately $ 2.6 million of principal and accrued interest remained outstanding +and the August 2024 Nirland Note had a fair value of approximately $ 2.8 million. +During +January and February 2025, Nirland converted approximately $ 1.8 million of principal into 300 shares of the Company’s common +stock. On February 12, 2025, the Company repaid the remaining principal and accrued interest of approximately $ 0.9 million in cash. +As +of December 31, 2025, the August 2024 Nirland Note had been fully settled and no amounts remained outstanding, and the Company had no +further obligations under the note. +A.G.P. +Convertible Note +A.G.P +was a financial advisor to both MURF and Conduit Pharmaceuticals, Limited (“Old Conduit”) in connection with the Merger on +September 22, 2023. Upon the completion of the Merger, A.G.P.: (i) received a cash fee of $ 6.5 million, 4 shares of Common Stock, and +warrants to purchase 1 share of Common Stock at an exercise price of $ 3,300,000 per share pursuant to its engagement agreement with Old +Conduit entered into on August 2, 2022, and (ii) agreed to defer payment, to be paid in the future under certain circumstances by a date +no later than March 21, 2025, of $ 5.7 million of fees plus annual interest of 5.5 % (the “Deferred Commission Payable”) as +a result of its engagement for MURF’s IPO. Accrued interest was recorded as a liability on the Company’s consolidated balance +sheet under accrued expenses and other current liabilities and totaled $ 0.4 million as of December 31, 2024. During the year ended December +31, 2025, the Company reached an agreement with A.G.P. to waive all previously accrued interest. As such, the Company removed accrued +interest of $ 0.4 million and recorded other income of $ 0.4 million for the year ended December 31, 2025. For the years ended December +31, 2025 and December 31, 2024, the Company recorded $ 0.2 million and $ 32,000 of interest expense related to the deferred commission +payable balance in the consolidated statement of operations and comprehensive loss, respectively. +On +November 25, 2024, the Company issued to A.G.P. a convertible promissory note (the “A.G.P. Convertible Note”) in the principal +amount of $ 5.7 million to evidence A.G.P.’s currently owed deferred commission payable in connection with the Merger. Unless earlier +converted as specified in the Convertible Note, the principal amount, plus all accrued but unpaid interest, is due on November 25, 2025 +(the “Maturity Date”). The convertible promissory note accrues interest at 5.5 % per annum. +At +any time prior to the full payment of the convertible promissory note, provided that the A.G.P. has given at least three business days +written notice to the Company, A.G.P., in its sole discretion, may elect to have all or any portion of the outstanding principal amount +and all interest accrued converted into shares of the Company’s common stock, at a fixed price of $ 10.00 (or following any reverse +splits that may occur in a ratio greater than 10 to 1, the lower of such reverse split price and the market price per share at the time +of the conversion date, but in no event less than $ 1.00 ), subject to adjustment as provided therein and to take into account any future +share splits or reverse splits. The Company notes that the reverse split provision in the preceding sentence was tripped, effective January +25, 2025, following the 1-for-100 reverse stock split that occurred on that date. However, the conversion of the convertible promissory +note may not occur prior to the Company having sufficiently authorized shares of common stock to permit the entire conversion of the +convertible promissory note. In addition, the conversion of the convertible promissory note may also not occur prior to receipt of stockholder +approval to provide for such conversion of the convertible promissory note, and subsequent issuance of the Company’s common stock, +pursuant to the stockholder approval rules under the rules and regulations of The Nasdaq Stock Market. Further, following the A.G.P.’s +ability to convert the convertible promissory note, if at all, A.G.P. will not be entitled to receive the Company’s common stock +upon conversion, if such conversion would result in A.G.P. owning greater than 9.99 % of the Company’s then currently outstanding +common stock. A.G.P. is also entitled to resale registration rights as identified in the convertible promissory note. +F- 22 +The +Company may prepay the convertible promissory note in whole or in part. In the event of certain Events of Default (as defined in the +convertible promissory note), all outstanding principal and accrued interest under the Convertible Note will become, or may become at +A.G.P.’s election, immediately due and payable to the A.G.P. +The +Company elected to account for the A.G.P. Convertible Note at fair value under ASC 825. The Company determined that the substantive conversion +option within the A.G.P. Convertible Note falls under the guidance within ASC 825 that notes that if a significant modification of debt +occurs an entity is able to make an accounting election on that date to account for that debt under the fair value option. At the end +of each reporting period, the Company calculates the fair value of the A.G.P. Convertible Note, and any changes in fair value are reported +in the current period’s consolidated statements of operations and comprehensive loss. The change in fair value attributable +to instrument-specific credit risk, if any, will be recognize within other comprehensive income each reporting period. As an accounting +policy, the Company elected to present interest expense separately from other changes in the A.G.P. Convertible Note’s fair value. +Interest expense will be presented within Interest expense, net, while the other changes in the fair value with be presented within other +income (expense), net in the consolidated statements of operations and comprehensive loss. +The +Company determined the fair value of the A.G.P. Convertible Note to be $ 3.4 million as of November 25, 2024 through the use of a binomial +lattice model. See Note 5 for additional information regarding the fair value measurement of the A.G.P Convertible Promissory Note. The +Company accounted for the issuance on the A.G.P. Convertible Promissory Note as a debt extinguishment, as the Convertible Promissory +Note was issued to evidence the A.G.P.’s currently owed deferred commission payable. A gain on debt extinguishment of $ 2.4 million +was recorded as of November 25, 2024, consisting of (i) the derecognition of the $ 5.7 million deferred commission payable and (ii) recognition +of the $ 3.4 million fair value of the A.G.P. Convertible Note. For the year ended December 31, 2024, the Company recorded a $ 0.5 million +gain in the change in fair value of the A.G.P. Convertible Note and interest expense of approximately $ 32 thousand. The $ 2.4 million +gain on extinguishment and $ 0.5 million gain on the change in fair value are presented within other income (expense), net, while the +$ 32 thousand of interest expense is presented within Interest expense, net, in the consolidated statement of operations and comprehensive +loss. +During the year +ended December 31, 2025, the holder of the A.G.P. Convertible Note converted $ 3.4 +million of principal and interest into 18,711 +shares of the Company’s Common Stock, respectively. As of March 31, 2025, the Company’s Common Stock price was trading +below the Conversion Price Floor. As of March 31, 2025 and April 16, 2025, the Company’s Common Stock price was trading below +the Conversion Price Floor. For the purpose of the March 31, 2025 and April 16, 2025 conversions, the Company waived the Conversion +Price Floor and allowed A.G.P. to convert at the respective March 31, 2025 and April 16, 2025 closing stock prices. +During +November 2025, the Company and A.G.P. agreed to extend the maturity date of the A.G.P. Convertible Note six months from November 25, +2025 to May 25, 2026. The Company did not pay any consideration to induce the extension of the maturity date. +On +December 31, 2025, the Company remeasured the fair value of the A.G.P. Convertible Note through the use of a binomial lattice model and +calculated a fair value of approximately $ 0.7 million. For the year ended December 31, 2025, the Company recorded a $ 0.6 million loss +in the change in fair value of the A.G.P. Convertible Note and interest expense of approximately $ 0.2 million. As of December 31, 2025, +there was approximately $ 2.5 million in outstanding principal and interest remaining. +F- 23 +9. +Loans Payable +Loans +On +May 1, 2022, the Company entered into two non-interest-bearing loan agreements totaling $ 0.2 million, funded in multiple tranches. As +of December 31, 2024, all tranches under the first loan and two tranches under the second loan had been drawn. +On +October 9, 2024, the parties amended the loan agreements to extend the maturity date to December +19, 2024 and modify repayment terms to include (i) a £ 60,000 +cash payment, (ii) £ 25,000 +of Common Stock valued at the market price prior to issuance, and (iii) 1 additional share of Common Stock as consideration for the +extension. On October 11, 2024, the Company issued a total of 3 +shares to the lenders. +The +Company repaid the remaining principal balance of $ 0.1 million in February 2025, and no obligations remained as of December, 2025. No +interest expense was recorded for the year ended December 31, 2025. During the year ended December 31, 2024, the Company incurred interest expense on the Loans of approximately $ 40 +thousand related to the amortization of the debt discount recorded as a result of the Loans Amendment. +October +2024 Nirland Note +In +October 2024, the Company issued a $ 0.6 million promissory note to Nirland, a related party (the “October 2024 Nirland Note”). +The note bore interest at 12 % per annum, included a 1 % arrangement fee accounted for as a debt discount, and was scheduled to mature +on October 31, 2025. See Note 16 for further reference to the relationship between the Company and Nirland. +In +December 2024, the Company reduced the exercise price of the PIPE Warrants held by Nirland to $ 8.83 , after which all such warrants were +exercised, resulting in proceeds of approximately $ 0.2 million. These proceeds were applied to reduce the outstanding balance of the +October 2024 Nirland Note. +The +Company made additional repayments of $ 0.1 million, $ 0.2 million, and $ 0.1 million on January 14, 2025, January 31, 2025, and February +7, 2025, respectively. As of December 31, 2025, the October 2024 Nirland Note had been fully repaid and no obligations remained outstanding. +For +the year ended December 31, 2025, the Company recorded approximately $ 9 +thousand of interest expense. +A.G.P. +Bridge Note +On +October 29, 2024, the Company entered into a Bridge Loan Agreement (the “Bridge Agreement”), with A.G.P., pursuant to which +AGP. made an advance (the “Advance”) to the Company in an amount not to exceed $ 0.6 million (the “Commitment”). +As partial consideration for the Advance, the Company entered into a Common Stock Purchase Warrant Agreement (the “Warrant Agreement”) +and issued AGP warrants to purchase up to 9 shares of the Company’s common stock, $ 0.0001 par value per share, which is equal +to 50 % of the sum of the Commitment divided by the closing price of the Company’s Common Stock on October 29, 2024, at an exercise +price of $ 31,438.43 per share. Refer to Note 16 for additional information on the warrants issued to A.G.P. +In +connection with the Advance, the Company issued a promissory note (the “A.G.P. Bridge Note”) to A.G.P. in the original principal +amount of $ 0.6 million. The Bridge Note bears interest at a rate of 4.21 % per annum and was due and payable on December 31, 2024. +As +noted above, the Company issued warrants to A.G.P. to purchase up to 9 shares of the Company’s common stock. The Company determined +that the Bridge Note and Warrant Agreement issuance were part of a basket transaction and allocated the net proceeds using the residual +value method. The warrants issued under the Warrant Agreement were initially recorded at their fair value of $ 0.2 million. The warrants +were classified as derivative liabilities because they do not meet the criteria in ASC 815-40 to be considered indexed to the entity’s +own stock. Refer to Note 16 for additional information and discussion of liability classification. The $ 0.2 million recorded for the +warrants was considered to be a discount on the A.G.P. Bridge Note making the balance of the note to be $ 0.6 million note payable, less +a total debt discount of $ 0.2 million. The debt discount will be amortized to interest expense using the effective interest method over +the life of the note. +F- 24 +During +the year ended December 31, 2024, the Company recorded and paid approximately $ 1 thousand of interest expense related to the A.G.P. Additionally, +the entire debt discount of $ 0.2 million was amortized and recorded as interest expense during the year. The interest expense of $ 1 thousand +and amortization of the debt discount of $ 0.2 million were recorded within Interest expense, net in the consolidated statement of operations +and comprehensive loss. As of December 31, 2024, the A.G.P. Bridge note was fully repaid. +10. +Research and Development Expense +August +2024 License Agreement +On +August 7, 2024, the Company and AstraZeneca AB (PUBL) (“AstraZeneca”) entered into a License Agreement, dated August 7, 2024 +(the “August 2024 License Agreement”). Pursuant to the August 2024 License Agreement, AstraZeneca agreed to grant a license +to the Company under certain intellectual property rights controlled by AstraZeneca related to HK-4 Glucokinase activators AZD1656 and +AZD5658 in all indications and myeloperoxidase inhibitor AZD5904 for the treatment, prevention, and prophylaxis of idiopathic male infertility. +The Company will be responsible for the development and commercialization of the Licensed Products under the August 2024 License Agreement. +As +consideration for the grant of the license, the Company (i) granted AstraZeneca Common Stock pursuant to a stock issuance agreement (the +“Issuance Agreement”), (ii) paid AstraZeneca an up-front payment of $ 1.5 million, and (iii) is obligated to pay AstraZeneca +a percentage (on a tiered basis) of any amounts it may receive in connection with a grant of a sublicense (subject to various customary +exceptions). The Issuance Agreement called for the Company to issue AstraZeneca 31 shares of the Company’s Common Stock. The +Issuance Agreement provides AstraZeneca with resale registration rights for such shares. As of December 31, 2024, the Company recorded +$ 1.6 million and $ 1.5 million in research and development expenses related to the share issuance and upfront payment to AstraZeneca, +respectively. +AstraZeneca +has been granted the right of first negotiation to develop, manufacture, and commercialize a Licensed Product if the Company receives +an offer for, or solicits, a transaction where a third party would obtain the right to develop, manufacture, or commercialize a Licensed +Product. If AstraZeneca exercises such right, the parties will negotiate in good faith for an agreed period of time on an exclusive basis. +Either +party may terminate the August 2024 License Agreement for material breach (subject to a cure period) or insolvency of the other party. +The Company may terminate the August 2024 License Agreement for convenience (in its entirety or on a Licensed Product-by-Licensed Product +basis). In addition, AstraZeneca may terminate the August 2024 License Agreement in certain circumstances, including (but not limited +to) the Company ceasing development of all Licensed Products (subject to certain exceptions for normal pauses or gaps between clinical +studies). +As +a result of the above, the Company will no longer fund the development of AZD1656 or AZD5904 under the terms of the Exclusive Funding +Agreement, dated March 26, 2021 with St George Street Capital (the “Funding Agreement”). In this regard, the Company previously +entered into a deed of amendment amending such Funding Agreement. The parties agreed that the project funding provisions of such Funding +Agreement whereby the Company had the right to fund a project or refer other parties to St George Street Capital, were amended to provide +that St George Street Capital must still include the Company in any project funding opportunities and requests but may now seek other +third-parties to fund projects in addition to the Company. In November and December 2024, the Company received a letter from St George +Street Capital and formal complaints filed with the Intellectual Property Office claiming the Company was not the sole owner of the AZD +1656 co-crystal patent. See note 15 for additional details on the claim. +Sarborg +Service Agreement – Related Party +On +December 12, 2024, the Company entered into a Services Agreement (the “Sarborg Service Agreement”) with Sarborg Limited (“Sarborg”), +a Cayman Islands company and related party of the Company. See Note 16 for further reference to the relationship between the Company +and Sarborg. Under the terms of the Sarborg Service Agreement, Sarborg will provide algorithmic and cybernetic technology services to +CDT, including the development of decision-support tools and advanced cybernetic systems tailored to enhance CDT’s decision-making +processes and maximize the value of its pharmaceutical asset portfolio. +F- 25 +Sarborg +will perform the services to CDT comprised of three phases: the Initial Phase (0-24 weeks) focuses on establishing a foundation for collaboration +and aligning Sarborg’s services with CDT’s strategic goals; the Development Phase (24-36 weeks) involves building technological +infrastructure, including dashboards and predictive models; and the Ongoing Services Phase (36-52 weeks) ensures the sustained functionality +and relevance of Sarborg’s deliverables while supporting CDT’s growth through iterative improvements and updates. Sarborg +will create specific deliverables, including reports, computer programs, software applications, APIs, mobile applications, source code, +written technical specifications and designs, operating and maintenance manuals, and other recorded data and information arising from +or relating to the services. Sarborg will provide all necessary resources to perform the services and deliver the deliverables in accordance +with the Sarborg Service Agreement. +The +Sarborg Service Agreement has an initial term of 12 months, which commenced on the effective date, and may be renewed or extended upon +mutual written agreement of the parties. Either party may terminate the Sarborg Service Agreement for any reason upon 90 days’ +written notice or immediately upon written notice if the other party breaches any material term of the Sarborg Service Agreement and +fails to cure such breach within thirty days or becomes insolvent, files for bankruptcy, or is placed under the control of a receiver, +trustee, or similar authority. +The +Sarborg Service Agreement includes provisions for the ownership and use of intellectual property. Sarborg will own its pre-existing intellectual +property rights, including proprietary tools and methodologies used in the performance of the services. CDT will own all deliverables +resulting from the services performed by Sarborg under the Sarborg Service Agreement. +The +Sarborg Service Agreement provides Sarborg with registration rights for any Common Stock of CDT that Sarborg receives as consideration +under the Sarborg Service Agreement. In such event, CDT will use commercially reasonable efforts to (i) file a registration statement +covering the resale of the Common Stock within 60 days after the issuance; and (ii) ensure that such registration statement becomes effective +within 90 days after filing. This Agreement also includes confidentiality obligations, representations and warranties, indemnification, +limitation of liability, and insurance requirements. +In +consideration of the services, CDT agreed to pay Sarborg an initial cash payment of $ 0.2 million and $ 0.2 million payable through the +issuance of 7 shares of Common Stock, determined by the closing price on the day preceding the execution of the Sarborg Service Agreement. +The initial cash payment of $ 0.2 million was made on December 20, 2024, and the 7 shares of Common Stock were issued on January 17, +2025. Further milestone payments payable in conjunction with the achievement of certain milestones over the term of the Sarborg Service +Agreement, totaling up to $ 1.8 million. Sarborg will be reimbursed for pre-approved, +necessary, and reasonable out-of-pocket expenses directly incurred in connection with the performance of the services. +The +Company made an initial cash payment of $ 0.2 million +and issued 7 shares +of Common Stock in connection with the Sarborg Service Agreement. These costs were capitalized as prepaid expenses and are +being amortized to research and development expense over the initial term of the agreement. For +the years ended December 31, 2025, and 2024, the Company recorded amortization expense of $ 0.4 million +and $ 0.2 million, respectively, in research and development expenses in the consolidated statement of operations and comprehensive +loss. As of December 31, 2025, and 2024, nil and $ 0.4 million +of the prepaid balance remain in the consolidated balance sheets, respectively. +Under +the Sarborg Service Agreement, the Company will be provided with a dashboard that will be utilized for both the Company’s existing +and future asset portfolio. Specifically, the dashboard includes a clinical trial monitoring functionality and a dynamic pharmaceutical +patent landscape module to assess both the Company’s current assets undergoing clinical trials and delisted patents in the marketplace +that may be overlooked by other market participants. These features will be used by management to monitor progress, assess trial status, +identify new opportunities, and support decision-making across all current and future development programs. The Company assessed the +guidance in ASC 730 and determined that $ 0.4 million of total cost of the acquired asset should be capitalized as the dashboard is considered +a purchased diagnostic asset with alternative future use. Management determined that the dashboard has a useful life of two years. The +dashboard was placed in service on March 18, 2025. During the year ended December 31, 2025, the Company recorded $ 0.2 million in amortization +expense. +F- 26 +All +other costs under the Sarborg Service Agreement shall be expensed as incurred and recorded within research and development expense in +the consolidated statement of operations and comprehensive loss, as the services are designed to aid in the Company’s research +and development activities. +During +the year ended December 31, 2025, Sarborg was paid $ 1.8 million +for completed milestones under the Sarborg Service Agreement and had no outstanding payable balance as of December 31, 2025. The +Company capitalized $ 0.4 million of diagnostic asset related to the delivery of the dashboard on the consolidated balance. In total, +the Company recorded $ 2.2 million +in expense related to milestone payments and signature reports within research and development expense in the consolidated statement +of operations and comprehensive loss for the year ended December 31, 2025. During the year ended December 31, 2024, the Company +recognized $ 0.2 million +of amortization expense within general and administrative expense in the consolidated statement of operations and comprehensive +loss. +Sarborg +Additional Agreement +Effective +March 31, 2025, the Company entered into an additional license and use agreement (the “Sarborg Additional Agreement”) with +Sarborg, a related party, covering certain additional deliverables and incorporating a new scope of work focused on analysis of the Company’s +acquired AstraZeneca assets. The term of the Sarborg Additional Agreement is for six months and provides for the payment, in aggregate, +of $ 2.0 +million, which includes an up-front license fee for the term +of such agreement, in cash or stock at the Company’s election at the closing price on the day preceding the effective date of such +agreement. On March 31, 2025, the Company prepaid $ 1.65 +million of the Sarborg Additional Agreement through the issuance +of 617 +fully vested unregistered shares of Common Stock. The Company +recorded the shares issued under the Sarborg Additional Agreement at their fair value, as determined by the closing price of the Company’s +Common Stock on March 30, 2025, $ 2,669.87 . +Effective June 24, 2025, the term was extended to be 12 months from the effective date of the Sarborg Additional Agreement at no additional +cost to the Company. Effective October 1, 2025, the term was extended to be 12 months from the previous extension date of May 2, 2025 +to extend the term of the license to March 31, 2027 at no additional cost to the Company. The Company recorded the fair value of $ 1.5 +million +as prepaid within the consolidated balance sheets. During the year ended December 31, 2025, the Company recorded research and development +expense of $ 1.3 +million +within the consolidated statements of operations and comprehensive loss related to the Sarborg Additional Agreement. As of December 31, +2025, $ 0.6 +million +of the prepaid balance remains within the consolidated balance sheet. +First +Addendum to the Sarborg Additional Agreement +Effective +July 1, 2025 the Company entered into an Addendum (the “First Addendum”) to the Additional Agreement with Sarborg, a related +party. Under the terms of the Addendum, Sarborg will expand the scope of the Additional Agreement to provide external analysis of third-party +pharma companies assets suitable for drug re-purposing and evaluate the efficacy of the assets utilizing CDT’s license to Sarborg’s +machine learning platform. The scope of work is expected to be completed in 4 weeks, which may be renewed or extended upon the mutual +written agreement of the parties. The total consideration for the additional services, payable in cash in two tranches, was $ 0.3 million. +The Company paid $ 0.3 million during the year ended December 31, 2025 and included the total in the consolidated statement of operations +and comprehensive loss. +Second +Addendum to the Sarborg Additional Agreement +Effective +August 11, 2025 the Company entered into Addendum 2 (the “Second Addendum”) to the Additional Agreement with Sarborg. Under +the terms of the Second Addendum, Sarborg expanded the scope of work to integrate a Cryptocurrency AI Agent, developed specifically for +identifying, forecasting and recommending digital currencies into CDT Equity’s operations as part of its treasury strategy. +The +term of the Second Addendum is a minimum of four (4) months, which may be renewed or extended upon the mutual written agreement of +the Company and Sarborg. The initial consideration for the expanded scope of work was $ 0.2 million, +which was paid during the third quarter of 2025 and included in the consolidated statement of operations and comprehensive loss. The +Company agreed to pay further consideration of up to $ 0.2 +million in cash or shares, at the Company’s sole discretion, at such time as the Company invests more than $ 0.6 million +in cryptocurrency as part of its treasury strategy. The Company paid $ 0.3 million +in total during the year ended December 31, 2025 and included the total in the consolidated statement of operations and +comprehensive loss. +F- 27 +In +total, the Company recorded $ 4.2 +million of research and development expense for the year ended December 31, 2025, all of which related to services and costs incurred +through the Sarborg Agreement, Sarborg Additional Agreement, First Addendum to the Sarborg Additional Agreement and the Second Addendum +to the Sarborg Additional Agreement, collectively. +Manoira +Joint Development Agreement +On +June 3, 2025, the Company entered into a joint development agreement (the “Joint Development Agreement”) with Manoira +Corporation (“Manoira”) for a term of one year, which will be automatically renewed for successive one-year terms unless +advance termination notice is provided in accordance with the terms of the Joint Development Agreement. Manoira is an entity +controlled by Dr. Andrew Regan, of which he is sole director, and of which Chele Chiavavcci Farley is a shareholder, and is +therefore considered a related party of the Company. Refer to Note 16 for additional details. +Pursuant +to the Joint Development Agreement, CDT granted Manoira a non-exclusive, non-transferable, non-sublicensable, fully paid-up, royalty-free +license to the intellectual property rights related to the pharmaceutical compounds known individually and together as AZD1656 and AZD5658 +(the “CDT Assets”). Manoira will evaluate the CDT Assets’ applicability in animal health, explore veterinary market +opportunities, and provide data from the evaluations to inform CDT’s human clinical programs. The license does not grant Manoira +the right to distribute, market, promote or sell the products or services that are related to or incorporate the CDT Assets. +Effective +June 3, 2025, in exchange for the approximate $ 0.5 +million of consideration to be paid by CDT under the Joint +Development Agreement, CDT issued to Manoira 774 +shares of its Common Stock, (the “Consideration Shares”) +valued at the closing price of the Common Stock immediately preceding execution of the Joint Development Agreement. The Company recorded +the shares issued under the Joint Development Agreement at their fair value, as determined by the closing price of the Company’s +Common Stock on June 3, 2025, $ 646. +The Company recorded the fair value of $ 0.4 +million as prepaid within the consolidated balance sheets. +During the year ended December 31, 2025, the Company recorded $ 0.1 +million amortization expense for research and development activities +provided to date. +11. +Share Based Compensation +On +September 22, 2023, in connection with the Merger, the Company adopted the CDT Equity Inc. 2023 Stock Incentive Plan (the “2023 +Plan”). The 2023 Plan became effective upon the closing of the Merger. The 2023 Plan initially provided for the issuance of up +to 38 shares of Common Stock. Pursuant to the 2023 Plan’s “evergreen” provision, on February 6, 2025 and January 10, +2024, the Company increased the number of shares of Common Stock available for issuance under the 2023 Plan by 23 and 12 shares, respectively. +The number of authorized shares will automatically increase on January 1, 2026 and continuing annually on each anniversary thereof through +(and including) January 1, 2033, equal to the lesser of (i) 5 % of the shares of Common Stock outstanding on the last day of the immediately +preceding fiscal year and (ii) such smaller number of shares of Common Stock as determined by the Board or the applicable committee of +the Board. The 2023 Plan allows for awards to be issued to employees and non-employee directors in the form of options, stock appreciation +rights, restricted stock, restricted stock units (“RSUs”), performance stock units, dividend equivalents, other stock-based, +or other cash-based awards. +F- 28 +On +August 5, 2025, at the Company’s 2025 Annual Meeting of Stockholders, stockholders approved an amendment and restatement of the +Company’s 2023 Stock Incentive Plan (as amended, the “Amended 2023 Stock Incentive Plan”) to authorize an additional +10,000 +shares of Common Stock for awards under the Amended 2023 Stock +Incentive Plan. The Amended 2023 Stock Incentive Plan was recommended and approved by the Board on July 8, 2025. As of December 31, 2025, +there were 1,212 +shares of Common Stock available for issuance under the 2023 +Plan. For the years ended December 31, 2025 and December 31, 2024, and all share-based compensation expense was recorded within +general and administrative expense on the consolidated statement of operations and comprehensive loss. +On +January 1, 2026, in accordance with the 2023 Plan, the number of authorized shares under the 2023 plan increased by 4,630 shares. Following +the increase on January 1, 2026, 5,842 shares of Common Stock are available for issuance under the 2023 Plan. +Board +of Directors Shares +On +March 30, 2025, certain non-employee directors elected to receive their unpaid cash retainers due through the period ended June 30, 2025, +under the Director Compensation Program, in the form of fully vested shares of Common Stock. In total, $ 0.1 +million of unpaid retainers was settled through the issuance +53 +unregistered shares of Common Stock (the “Retainer Shares”). +The Company recorded the Retainer Shares at their fair value, as determined by intraday share prices of the Company’s Common Stock +on March 31, 2025. In relation to the Retainer Shares, the Company recorded $ 0.1 +million of expense within general & administration expense +in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2025. +On +April 16, 2025, 38 shares of the Company’s Common Stock were issued to a non-employee director. The shares were approved by the +Board as a one-time award for services provided to the Company. The Company recorded the shares at their fair value, as determined by +the Company’s closing share price on the prior trading day, April 15, 2025. The Company recorded $ 0.1 million within general & +administration expense in the consolidated statement of operations and comprehensive loss during the year ended December 31, 2025 in +relation to the shares. +On +August 5, 2025, the Company approved and granted equity awards to non-employee directors under the 2023 Plan, in the form of 225 options +to purchase the Company’s Common Stock, which vested immediately upon issuance. The Company compensation expense based on the weighted-average +fair market value per share of the awards on the grant date of $ 0.1 million. +Cryptocurrency +Consulting +Effective +June 27, 2025, the Company entered into an agreement (the “Crypto Consulting Agreement”) for a third-party consultant to +evaluate and advise on the potential adoption of a part cryptocurrency treasury reserve strategy. The Crypto Consulting Agreement contains +a term of 12 months and required compensation of $ 0.2 million in the form of shares of the Company’s Common Stock. On June 27, +2025, the Company issued 478 shares of Common Stock valued at the closing price for the previous day, $ 576 . The $ 0.2 million of +compensation was recorded as a prepaid expense in the consolidated balance sheets. For the year ended December 31, 2025, the Company +recorded $ 0.1 million of general and administrative expense within the consolidated statements of operations and comprehensive loss related +to the amortization of the prepaid expenses. +Management +Shares +Effective +September 19, 2025, 5,600 and 2,400 shares of the Company’s Common Stock were issued to the Company’s CEO and CFO, respectively. +The shares were approved by the Board as a one-time award for services provided to the Company. The Company recorded the shares at their +fair value, as determined by the Company’s closing share price on the prior trading day, September 18, 2025. The Company recorded +$ 1.1 million within general & administration expense in the consolidated statement of operations and comprehensive loss during the +year ended December 31, 2025 in relation to the shares. +Restricted +Stock +In +connection with the Merger, and by Unanimous Written Consent of the Board of Directors, the then Chief Financial Officer of the Company +was granted 1 RSU on December 1, 2023 at a weighted average grant date fair value of $ 1,653,000 per unit. The RSUs were to vest in equal +annual instalments on the first three anniversaries of the closing of the Merger. Upon the then Chief Financial Officer’s resignation, +effective May 15, 2024, the RSU was forfeited. On June 7, 2024, by Unanimous Written Consent of the Board of Directors, the Interim +Chief Financial Officer of the Company and a Board member were each granted 1 share of immediately vested restricted stock at a weighted +average grant date fair value of $ 852,000 . The shares of restricted stock were fully vested as of the grant date. +F- 29 +By +unanimous written consent of the Board, the Company granted 525 +Restricted Stock Units to three Board members ( 175 +RSUs per Board member) for past services performed on August 12, 2025. The RSUs fully vested on the grant date and the expense was +recorded to general and administrative expense in the consolidated statement of operations and comprehensive loss based upon the CDT +closing share price of $ 348 on the +date of the grants. +The +following table summarizes restricted stock activity for the 2023 Plan: +Schedule +of Restricted Stock Activity +Number +of Awards +Weighted +Average Grant Date Fair Value Per Unit +Outstanding at December 31, 2024 +- +$ - +Granted +525 +$ 348 +Cancelled/forfeited +- +$ - +Vested +( 525 ) +$ ( 348 ) +Outstanding at December 31, 2025 +- +$ - +Stock +Options +The +Company estimated the fair value of stock options granted in the periods presented using a Black-Scholes option-pricing model utilizing +the following weighted-average assumptions: +Schedule of Fair Value +of Stock Option Granted +For +the year ended December 31, +2025 +2024 +Expected +volatility (%) +158.5 +% +83.9 +% +Expected +term (years) +10.0 +5.5 +Risk-free +interest rate (%) +4.22 +% +4.32 +% +Expected +dividend yield (%) +0 +% +0 +% +The +Company granted 225 and 18 stock +options during the years ended December 31, 2025 and December 31, 2024, respectively. The weighted-average grant-date fair value of +the options granted was $ 378 and +$ 25,740 for +the years ended December 31, 2025 and December 31, 2024, respectively. +F- 30 +The +following table summarizes stock activity for the 2023 Plan: +Schedule +of Stock Option Activity +Number +of +Options +Weighted +Average +Exercise +Price +Weighted +Average +Remaining +Contractual +Term +(years) +Aggregate +Intrinsic +Value +(in +thousands) +Outstanding at December 31, +2024 +21 +$ 244,560 +9.72 +$ - +Granted +225 +$ 378 +- +$ - +Cancelled/forfeited +( 1 ) +$ 341,988 +- +$ - +Exercised +- +$ - +- +$ - +Outstanding at December +31, 2025 +245 +$ 19,914 +8.74 +$ - +Exercisable +239 +$ 12,460 +8.64 +$ - +Unvested +6 +$ 309,740 +8.23 +$ - +The +aggregate intrinsic value of options is calculated as the difference between the exercise price of the underlying options and the fair +value of the Company’s common stock for those options that had exercise prices lower than the fair value of the Company’s +common stock. As of December 31, 2025, the total compensation cost related to non-vested option awards not yet recognized was $ 2.8 million +with a weighted average remaining vesting period of 1.14 years. +12. +Income Taxes +Loss +from operations before income taxes for the years ended December 31, 2025 and 2024 is summarized below (in thousands): +Schedule of Income before Income Tax, Domestic and Foreign +2025 +2024 +For +the year ended December 31, +2025 +2024 +Loss from operations before income taxes: +US +( 22,067 ) +( 12,855 ) +Foreign +( 17,157 ) +( 4,947 ) +Loss from operations +before income taxes +( 39,224 ) +( 17,802 ) +The +provision (benefit) for income taxes for the years ended December 31, 2025 and December 31, 2024 is as follows (in thousands): +Schedule of Provision for Income Tax +2025 +2024 +For +The Years Ended +2025 +2024 +Current +$ +$ +Federal +- +- +State +- +- +Foreign +- +- +Current income tax +- +- +Deferred +Federal +( 2,531 ) +( 2,429 ) +State +( 483 ) +355 +Foreign +( 1,550 ) +( 931 ) +Deferred income tax +- +- +Net Income Tax Expense +$ - +$ - +F- 31 +The +total unrecognized tax benefits for the years ended December 31, 2025 and December 31, 2024, are summarized below (in thousands): +Schedule +of Unrecognized Tax Benefits +2025 +2024 +For +The Years Ended +2025 +2024 +Unrecognized tax benefits, beginning +of period +$ +- +$ +- +Increases (decreases) for prior year tax positions +- +- +Decreases for expiration of statute of limitations +Settlements +Unrecognized +tax benefits, end of period +$ +- +$ +- +The Company accounts for uncertain tax positions in accordance with ASC 740, Income Taxes. As of December 31, 2025 +and 2024, the Company had no unrecognized tax benefits. Interest and penalties related to uncertain tax positions, if any, are recognized +as a component of income tax expense, and none were accrued as of December 31, 2025 and 2024. +The +total income taxes paid (net of refunds received) for the years for the years ended December 31, 2025 and December 31, 2024, are summarized +below (in thousands): +Schedule +of Income Taxes Net of Refunds +2025 +2024 +For +The Years Ended +2025 +2024 +Federal +$ - +$ - +Foreign +- +- +Total +$ - +$ - +The following summarizes the jurisdictions that exceeded 5% of the Company’s +total income taxes paid (net of refunds) for the years presented below (in thousands): +For +The Years Ended +2025 +2024 +Federal +$ - +$ - +Foreign +- +- +Total +$ - +$ - +The +following table reconciles the U.S. federal statutory income tax rate of 21 % to the Company’s effective income tax rate for the +year ended December 31, 2025. The reconciliation reflects the enhanced rate-reconciliation disclosure requirements retrospectively adopted during the year ended December 31, 2025 under ASU +2023-09 (in thousands, except percentages). +Schedule +of Effective Income Tax Rate Reconciliation +Taxes at federal statutory rate +$ (6,186 ) +21.0 % +$ (3,745 ) +21.0 % +Year +Ended December 31, 2025 +Year +Ended December 31, 2024 +Taxes at federal statutory rate +$ ( 8,237 ) +21.0 % +$ ( 3,745 ) +21.0 % +State income tax, net of federal benefit +- +0 % +710 +- 4.0 % +Foreign tax effects: +United Kingdom: +NOL adjustment +147 +- 0.4 % +- +0 % +Change in valuation allowance +1,525 +- 3.9 % +931 +- 5.2 % +Other +( 276 ) +0.7 % +( 135 ) +0.8 % +Cayman: +Foreign Rate Differential +2,155 +- 5.5 +% +244 +- 1.4 +% +Change in valuation allowance +2,531 +- 6.5 % +1,719 +- 9.7 % +Nontaxable or nondeductible items: +Non-deductible loss on +stock issuance +1,470 +- 3.7 % +- +0.0 % +Convertible debt +480 +- 1.2 % +268 +- 1.5 % +Other permanent items +129 +- 0.3 % +84 +- 0.5 % +Other adjustments: +Other +76 +- 0.2 % +( 76 ) +0.4 % +State Re-Rate +- +0 % +- +0 +% +Total provision (benefit) +for income taxes +$ - +0.0 % +$ - +0.0 % +The +tax effects of temporary differences which give rise to significant portions of deferred tax assets are as follows as of December 31 +(in thousands): +Schedule +of Deferred Tax Assets and Liabilities +2025 +2024 +December +31, +2025 +2024 +Total deferred tax Assets: +Stock options +$ 394 +$ 280 +Transaction Costs +397 +393 +Research & Development +1,682 +671 +Accruals +27 +141 +Net operating loss carryforward +6,519 +2,970 +Valuation allowance +( 9,019 ) +( 4,455 ) +Net deferred income tax asset +- +- +Total deferred tax liabilities: +Total deferred tax liabilities +- +- +Net deferred income +tax liability +$ - +$ - +As +of December 31, 2025 and 2024, the Company had U.S. federal net operating loss (“NOL”) carryforwards of approximately $ 16.7 +million and $ 1.9 million, respectively, which have indefinite carryforward periods and may offset up to 80 % of future taxable income. +As +of December 31, 2025, the Company had state NOL carryforwards of approximately $ 5.5 million, consisting of $ 1.9 million that began to +expire in 2024 and $ 3.7 million with indefinite carryforward periods. State NOL carryforwards were approximately $ 1.9 million as of December +31, 2024. +As +of December 31, 2025, the Company had foreign NOL carryforwards of approximately $ 11.0 million, all related to United Kingdom operations, +which carry forward indefinitely. Foreign NOL carryforwards were approximately $ 4.7 million as of December 31, 2024. +F- 32 +The +Company evaluates the realizability of its deferred tax assets at each reporting date. Based on the weight of available evidence, including +cumulative losses since inception, the Company concluded that it is more likely than not that its deferred tax assets will not be realized. +Accordingly, the Company maintains a full valuation allowance, which totaled approximately $ 9.0 million and $ 4.5 million as of December +31, 2025 and 2024, respectively. +The +Company’s ability to utilize its NOL carryforwards may be limited under Section 382 of the Internal Revenue Code if an ownership +change occurs. The Company has not completed a formal Section 382 analysis, and therefore the extent to which NOL carryforwards may be +subject to limitation is uncertain. Deferred taxes have not been recorded for outside basis differences related to investments in foreign +subsidiaries because such differences are not expected to result in taxable income in the foreseeable future. +Sale +of Wholly-Owned Subsidiary - Tax Treatment +Under +Section 1032 of the Internal Revenue Code, a corporation does not recognize gain or loss on the issuance of its own stock. Accordingly, +the issuance of common stock as consideration for the sale was not a taxable event to the Company. The Company’s amount realized +on the disposition was zero, as the stock issued represents consideration paid rather than proceeds received. The Company’s adjusted +tax basis in CPL was de minimis. The loss recognized under GAAP is treated as a permanent book-tax difference and has no current or deferred +income tax effect. This permanent difference is reflected in the effective tax rate reconciliation as a non-deductible loss on stock +issuance of approximately $ 1.5 million, or 3.7 % of consolidated pre-tax loss. +Upon +completion of the disposition, the outside basis difference was resolved with no incremental tax, as CPL operated in a zero-tax jurisdiction, +and the disposition did not generate taxable gain. +13. +Common Stock and Preferred Stock +Common +Stock +As +of December 31, 2025 and 2024, the Company has authorized the issuance of up to 250,000,000 shares of common stock, respectively, at +a par value $ 0.0001 per share. +As +of December 31, 2025 and 2024 there were 92,140 and 461 shares of Common Stock issued and outstanding, respectively. No cash dividends +have been declared or paid as of December 31, 2025. +Holders +of the Common Stock are entitled to one vote per share, and to receive dividends, on and if declared by the board of directors and, upon +liquidation or dissolution, are entitled to receive all assets available for distribution, subordinate to the rights, preferences, and +privileges of any outstanding preferred shares (if any) with respect to dividends and in connection with liquidation, winding up and +dissolution of the Company. The holders have no preemptive or other subscription rights. +Preferred +Stock +As +of December 31, 2025 and 2024, the Company has authorized the issuance of up to 1,000,000 shares of Conduit Pharmaceuticals, Inc. preferred +stock (the “Preferred Stock”). December 31, 2025 and 2024, no preferred shares were issued and outstanding. +At-the-Market +Offering +On +October 23, 2024, the Company entered into the Sales Agreement with A.G.P. relating to shares of the Company’s Common Stock. In +accordance with the terms of the Sales Agreement, the Company may offer and sell shares of our Common Stock having an aggregate offering +price of up to $ 23.9 million from time to time through A.G.P., acting as our sales agent or principal. +The +compensation to A.G.P. for sales of common stock sold pursuant to the Sales Agreement will be equal to 3.0 % of the gross proceeds of +any shares of common stock sold under the sales agreement. +During +the year ended December 31, 2025, the Company sold 44,570 shares of Common Stock under the Sales Agreement and generated $ 19.8 million +in net proceeds after paying $ 0.7 million in fees to A.G.P. +During +the year ended December 31, 2024, the Company sold 107 +shares of Common Stock under the Sales Agreement and generated $ 3.2 +million in net proceeds after paying fees to A.G.P. and other +issuance costs of $ 0.2 +million. +No +shares remained to be sold under the Sales Agreement as of December 31, 2025. +F- 33 +14. +Net Loss Per Share +The +following table presents the calculation of basic and diluted earnings/(net loss) per share (in thousands, except share amounts and per +share data): +Schedule +of Basic and Diluted Net Loss Per Share +For +the years ended +December +31, +2025 +2024 +Numerator: +Net +loss – basic and diluted +$ ( 39,224 ) +$ ( 17,802 ) +Denominator: +Weighted average shares +used in computing net loss per share - diluted +33,300 +289 +Net loss per share, +basic and diluted +$ ( 1,177.89 ) +$ ( 61,598.62 ) +Potentially +dilutive securities (upon conversion) that were not included in the diluted per share calculations because they would have been anti-dilutive +were as follows: +Schedule +of Potentially Dilutive Securities +December +31, 2025 +December +31, 2024 +Public warrants +46 +46 +A.G.P. Warrants +1 +1 +Convertible Promissory Notes Payable +- +1 +Stock Options +21 +21 +August 2024 Nirland Note +- +224 +A.G.P. Convertible Note +51 +192 +March 2024 Warrants +1 +1 +April 2024 Warrants +4 +4 +A.G.P. 2024 Warrants +9 +9 +Antidilutive Securities +133 +499 +For +the year ended December 31, 2025, 147,432 shares of the Pre-Funded Warrants were included in the denominator of both the basic and +diluted net loss per share calculation because the Pre-Funded Warrants are exercisable for nominal cash consideration and considered +outstanding for the purposes of net loss per share. +15. +Commitments and Contingencies +Legal +Proceedings +The +Company is subject to certain claims and contingent liabilities that arise in the normal course of business. While we do not expect +that the ultimate resolution of any of these pending actions will have a material effect on our consolidated results of operations, +financial position or cash flows, litigation is subject to inherent uncertainties. As such, there can be no assurance that any legal +action, pending or otherwise, does not become material in the future. +On +September 7, 2023, following the merger between Conduit Pharmaceuticals Limited and Conduit Merger Sub, Inc., a Cayman Islands +exempted company, Strand filed a claim in the Business and Property Courts of England and Wales claiming it was entitled to be paid +the sum of $ 2 million +and, as a result of the completion of the Business Combination, to be issued 21 shares +of the Company’s Common Stock as a market value calculated by Strand of $ 65 +million. The trial in this matter ended in October 2025, with a judgment finalized on December 16, 2025, in the amount of +approximately $ 7 +million, plus interest and repayment of a fraction of Strand’s costs totaling $ 9.6 million. CDT is not a party to the CPL judgment. +F- 34 +Prior to the issuance of +the judgment, the Company completed the sale of CPL to Corvus, pursuant to the Sale and Purchase Agreement. See Note 4, Note 16 and +Note 18 for further discussion of the sale of CPL in relation to the Strand litigation. In connection with the transaction, the +Company obtained legal advice and structured the arrangement such that CPL retained the obligation associated with the Strand +litigation following the sale on December 8, 2025. However, as discussed in Note 4, the Company evaluated the accounting +implications of the transaction, including the assessment of isolation, and concluded that the arrangement did not satisfy isolation +of the Company from Conduit Pharmaceuticals Limited (“CPL”). Accordingly, in connection with the judgment, Conduit +Pharmaceuticals Limited recorded a $ 9.6 +million litigation liability and included in the Company’s consolidated balance sheet. To date, no legal action against the Company has commenced to enforce the judgement against the Company and the Company +will continue to vigorously defend its position as it relates to the litigation with Strand. +Separately, +during November and December 2024, the Company received a letter from St George Street Capital and formal complaints filed with the +Intellectual Property Office claiming the Company was incorrectly assigned the US Application, and was not the correct owner, of the +AZD 1656 co-crystal patent. In January 2025, Conduit issued a counter statement to the Intellectual Property Office disputing the +claim filed by St George Street Capital. The litigation challenges the registration of the patent and the Company does not believe +there to be any financial implications from the litigation. As of December 31, 2025, the damages sought by St George Street Capital +are unknown and the potential contingency is not considered probable. As such, the Company has not accrued a loss contingency in the +accompanying financial statements. We intend to vigorously defend against these IP claims. Regardless of the eventual outcome, the patent dispute +may impact our business due to, among other things, legal costs and the diversion of the attention of our management. +16. +Related Party Transactions +Corvus +Capital Limited +Corvus +Capital Limited (“Corvus”) is a significant investor in the Company through subscribing to 1 common shares prior to the +closing of the Merger on September 22, 2023. The shares held by Corvus on the closing date of the Merger were exchanged for shares of +Conduit Pharmaceuticals Inc. common stock. The Chief Executive Officer and principal owner of Corvus is a member of Conduit’s board +of directors. Occasionally, Corvus provides advisory services to the Company and is paid a fee for the services. As of December 31, 2025 +and 2024, no advisory fees were due to Corvus. +For +the years ended December 31, 2025 and 2024, the Company incurred director travel expenses payable to the member of the board of directors +of approximately $ 0.4 +million and $ 0.4 +million, respectively. During the year ended December 31, 2025, +the Company’s Compensation Committee approved a one-time payment of $ 0.4 +million to Corvus in lieu of cash fees paid to the CEO. +Corvus +- Sale of CPL +See Note 4 and Note 15 for discussion of the sale of CPL to Corvus. +Nirland +On +August 6, 2024, the Company entered into the August 2024 Nirland Note with Nirland, a related party of the Company. The Company determined +that Nirland was a related party due to Nirland’s ownership interest in the Company concurrently with the execution of the August +2024 Nirland Note. Additionally, on October 28, 2024, the Company issued the October 2024 Nirland Note to Nirland, and on October 31, +2024, the Company and Nirland amended the August 2024 Nirland Note, and on November 22, 2024, the Company and Nirland amended the August +2024 Nirland Note for a second time. During the first quarter of the year ended December 31, 2025, the Company repaid Nirland through +conversions and a final cash payment. As of December 31, 2025, there was no remaining balance payable to Nirland. Refer to Note 8 and +Note 16 above for additional information. +F- 35 +Sarborg +On +December 12, 2024, the Company entered into the Sarborg Service Agreement with Sarborg. During 2025, the Company and Sarborg entered +into the Sarborg Additional Agreement, First Addendum to the Sarborg Additional Agreement and the Second Addendum to the Sarborg Additional +Agreement. Dr. Andrew Regan, a member of Conduit’s board of directors, also sits on the board of directors of Sarborg but does +not have an equity interest in Sarborg. During the year ended December 31, 2025, the Company recorded $ 4.2 million as research and development +expense related to the Sarborg Service Agreement. Refer to Note 10 above for additional information regarding the Company’s agreements +with Sarborg. +Manoira +On +June 3, 2025, the Company entered into a joint development agreement (the “Joint Development Agreement”) with Manoira Corporation. +Dr. Andrew Regan, Chief Executive Officer and member of the Board, also is a director and controlling member of Manoira. Through the +Joint Development Agreement, the Company and Manoira intend to jointly evaluate AZD1656, and any of its derivatives, as well as AZD5658, +in animal health indications and produce transitional data to inform the Company’s human clinical programs while exploring veterinary +market opportunities. The Company delivered shares of the Company’s Common Stock worth $ 0.5 million to Manoira as its contribution +to the Joint Development Agreement, with Manoira bearing all subsequent costs incurred during the joint development period. During the +year ended December 31, 2025, the Company recorded $ 0.1 million of research and development expense in the consolidated statement of +operations and comprehensive loss. As of December 31, 2025, the Company has a $ 0.3 million prepaid expense related to the Joint Development +Agreement recorded in the consolidated balance sheet. Refer to Note 10 for additional details. +Officers +and Directors +On +April 22, 2024, the Company issued in a private placement common stock purchase warrants (the “April Warrants”) to third +parties which also included certain directors, to purchase up to an aggregate of 3 shares of the Company’s common stock, in exchange +for entering into a lock-up with respect to the shares of common stock held by such holder and for such directors, $ 37,500 per warrant. +The April Warrants are not exercisable until one year after their date of issuance. Each April Warrant is exercisable into one share +of the Company’s common stock at a price per share of $ 936,000 (as adjusted from time to time in accordance with the terms thereof) +for a two-year period after the date of exercisability. The April Warrants are classified within permanent equity on the consolidated +balance sheets, as the settlement amount would equal the difference between the fair value of a fixed number of shares and a fixed monetary +amount (or a fixed amount of a debt instrument). See Note 18 for additional information on the April 2024 Warrants. +As discussed above, in relation +to Corvus, the Company’s Compensation Committee approved a one-time payment of $ 0.4 million to Corvus in lieu of cash fees paid +to the CEO that was paid during the year ended December 31, 2025. There was no comparative activity during the year ended December 31, +2024. +17. +Other Expense, net +The +following table presents other expense, net, for the years ended December 31, 2025 and 2024 (in thousands): +Schedule +of Other Expense, Net +2025 +2024 +For +the years ended +December +31, +2025 +2024 +Other income: +Change in fair value of warrant +liability +138 +221 +Change in fair value of convertible note payment +- +2,018 +Gain on debt extinguishment +278 +2,473 +Income Tax Refund +- +314 +Unrealized foreign currency transaction gain +16 +2 +Gain on waiver of accrued interest +371 +- +Research and development tax receivable +97 +- +Gain on the issuance of shares for services +70 +- +Other +- +7 +Total other income: +970 +5,035 +Other expense: +Loss on issuance of warrants +- +2,710 +Loss on Debt Extinguishment +- +3,179 +Loss on the change in fair +value of convertible notes payable +2,737 +- +Realized losses on +disposition of digital assets +403 +- +Realized foreign currency +transaction loss +- +16 +Other +expense +6 +20 +Total other expense +3,146 +5,925 +Total expense, net +$ ( 2,176 ) +$ ( 890 ) +F- 36 +18. +Warrants +Equity +Classified Warrants +The +Publicly Traded Warrants, Private Placement Warrants, March 2024 Warrants, the April 2024 Warrants and Pre-Funded Warrants (collectively +the “Equity Classified Warrants”), are classified within permanent equity on the consolidated balance sheets, as the settlement +amount would equal the difference between the fair value of a fixed number of shares and a fixed monetary amount (or a fixed amount of +a debt instrument). +Publicly +Traded and Private Placement Warrants +Pursuant +to MURF’s initial public offering, the Company sold 44 units at a price of $ 3,000,000 per unit. Each unit consisted of one share +of MURF Class A common stock and one redeemable warrant “the “Publicly Traded Warrant”). Each whole Publicly Traded +Warrant entitled the holder to purchase one share of Class A common stock at a price of $ 3,450,000 per share, subject to adjustment. The +warrants are publicly traded on The Nasdaq Capital Market under the trading symbol “CDTTW”. +Simultaneously +with the closing of its initial public offering, MURF consummated the private sale to the Sponsor of 2 private placement units at a +price of $ 3,000,000 per private placement unit. Each private placement unit was comprised of one share of MURF Class A common stock and +one warrant (the “Private Placement Warrant”). Each Private Placement Warrant was exercisable to purchase one share of MURF +Class A common stock at a price of $ 3,450,000 per share, subject to adjustment. The private placement units (including the Class A common +stock issuable upon exercise of the warrants included in the private placement units) were not transferable, assignable, or saleable +until 30 days after the completion of a Merger, subject to certain exceptions. +Upon +the closing of the Merger, the Company assumed the Publicly Traded Warrants and Private Placement Warrant. The Publicly Traded Warrant +and Private Placement Warrant were amended to entitle each holder to purchase one share of the Company’s Common Stock. +March +2024 Warrants +On +March 20, 2024, the Company issued in a private placement equity classified common stock purchase warrants (the “March 2024 Warrants”) +to an investor to purchase up to an aggregate 1 share of the Company’s Common Stock, in exchange for entering into a lock-up +with respect to the shares of common stock held by such holder (the “March Lock-Up Agreement”). The Company recognized at +$ 0.5 million loss on the issuance of the warrants during the year ended December 31, 2024. The Company determined that the March 2024 +Warrants should be classified within equity and estimated the fair value of the warrants issued as of March 20, 2024, using a Black-Scholes +option-pricing model utilizing the following assumptions: +Schedule +of Black-Scholes Option Pricing Model +March +20, 2024 +Closing stock price +$ 1,041,000 +Contractual exercise price +$ 954,000 +Risk-free rate +4.41 % +Estimated volatility +78.5 % +Time period to expiration +3 +Years +F- 37 +A +fair value of $ 0.5 million was calculated and recorded within additional paid-in capital on the consolidated balance sheets. The March +2024 Warrants are not exercisable until one year after their date of issuance. Each March 2024 Warrant is exercisable into one share +of the Company’s Common Stock at a price per share of $ 954,000 (as adjusted from time to time in accordance with the terms thereof) +for a two-year period after the date of exercisability. There is no established public trading market for the March 2024 Warrants. Notwithstanding +the foregoing, the March 2024 Warrants shall vest, and not be subject to forfeiture, with respect to 25% of such March 2024 Warrants +commencing on the 90th day after the date of the March Lock-Up Agreement and 25% on each subsequent 90-day anniversary, in each case +vesting only if the holder agrees to continue to have its shares of Common Stock remain locked up pursuant to the March Lock-Up Agreement +on such date. +April +2024 Warrants +On +April 20, 2024, the Company issued in a private placement equity classified common stock purchase warrants (the “April 2024 Warrants”) +to shareholders’ of the Company to purchase up to an aggregate 4 shares of the Company’s Common Stock, in exchange for +(1) $ 37,500 per warrant and (2) entering into a lock-up with respect to the shares of common stock held by such holders (the “April +Lock-Up Agreement”). 3 of the total April 2024 Warrants issued were issued to directors, related parties and management of the +Company. The Company received cash of $ 0.2 million and recognized a $ 2.2 million loss on the issuance of the warrants during the year +ended December 31, 2024. The Company determined that the April 2024 Warrants should be classified within equity and estimated the fair +value of the warrants issued as of April 20, 2024, using a Black-Scholes option-pricing model utilizing the following assumptions: +April +20, 2024 +Closing stock price +$ 924,000 +Contractual exercise price +$ 936,000 +Risk-free rate +4.81 % +Estimated volatility +78.3 % +Time period to expiration +3 +Years +A +fair value of $ 2.4 million was calculated and recorded within additional paid-in capital on the -consolidated balance sheets. The April +2024 Warrants are not exercisable until one year after their date of issuance. Each April 2024 Warrant is exercisable into one share +of the Company’s Common Stock at a price per share of $ 936,000 (as adjusted from time to time in accordance with the terms thereof) +for a two-year period after the date of exercisability. There is no established public trading market for the April 2024 Warrants. Notwithstanding +the foregoing, the April 2024 Warrants shall vest, and not be subject to forfeiture, with respect to 25% of such April 2024 Warrants +commencing on the 90th day after the date of the April Lock-Up Agreement and 25% on each subsequent 90-day anniversary, in each case +vesting only if the holder agrees to continue to have its shares of Common Stock remain locked up pursuant to the April Lock-Up Agreement +on such date. +Pre-Funded +Warrants +In +connection with the Sale and Purchase Agreement with Corvus, the Company issued Pre-Funded Warrants to purchase up to 147,432 shares +of the Company’s Common Stock at an exercise price of $ .0025 per Pre-Funded Warrant. The Pre-Funded Warrants are exercisable at +any time on or after shareholder approval (the “Shareholder Approval Date”) and remains outstanding until exercised in full. +The exercise price is considered nominal, and the holder is only required to pay the exercise price upon exercise to receive the underlying +common shares. The Pre-Funded Warrants do not expire. +F- 38 +The +Pre-Funded Warrants provide the holders with the right to exercise on a cash or cashless basis and do not contain any provisions that +would require the Company to settle the warrants in cash or any other assets. The warrants are indexed to the Company’s own stock +and meet all of the criteria for equity classification under ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own +Equity. Accordingly, the Pre-Funded Warrants are classified in additional paid-in capital within the Company’s consolidated statements +of changes in stockholders’ deficit. +Because +the exercise price of the Pre-Funded Warrants is nominal, the Company considers the shares underlying the Pre-Funded Warrants to be common +stock equivalents that are substantively outstanding as of the issuance date. As a result, the underlying shares are included in basic +and diluted weighted-average shares outstanding in accordance with ASC 260, Earnings Per Share. +The +Pre-Funded Warrants include provisions that restrict the holder from exercising any portion of the warrants to the extent that, following +such exercise, the holder and its affiliates would beneficially own more than 49.99% of the Company’s outstanding Common Stock. +During +the year ended December 31, 2025, the Company recorded the issuance of the Pre-Funded Warrants as an increase to additional paid-in capital +of $ 6.6 million, representing the fair value of the Pre-Funded Warrants at issuance. The $ 6.6 million fair value of the Pre-Funded Warrants +was also recorded as a loss upon the issuance of warrants within other expense of the Company’s consolidated statement of operations +and comprehensive loss. There is no subsequent remeasurement because the warrants are classified as equity. See Note 4 for further discussion +of the Sale and Purchase Agreement. +Liability +Classified Warrants +Pursuant to +subscription agreements, 6 +PIPE Warrants were issued to the PIPE Investors as of the closing of the Merger. The warrants +provide the PIPE Investors the right to purchase up to 6 +shares of Common Stock at an exercise price of $ 3,450,000 . +Additionally, on the Closing Date of the Merger, the Company issued 1 +A.G.P. Warrants to an advisor for services provided directly related to the Merger. The warrants provide the advisor the right to +purchase up to 1 +shares of Common Stock at an exercise price of $ 3,300,000 +per share. +The +warrants issued to the PIPE Investors and the advisor contain materially the same terms and are exercisable for a period of five years, +beginning on October 22, 2023. +The +PIPE Warrants are exercisable for cash or on a cashless basis, at the holder’s option. The PIPE Warrants are not redeemable by +the Company. +The +A.G.P. Warrants are exercisable for cash or on a cashless basis, at the holder’s option. The Company may call the A.G.P. Warrants +for redemption, in whole and not in part, at any time after the A.G.P. Warrants become exercisable and prior to their expiration, at +a price of $ 3,000 per A.G.P. Warrant. +● +upon +not less than 30 days’ prior written notice of redemption to each warrant holder; +● +if, +and only if, the reported last sale price of the Common Stock equals or exceeds $ 5,400,000 per share (as adjusted for stock splits, stock +dividends, recapitalizations and other similar events) for any 20 trading days within a 30-trading day period commencing once the +A.G.P. Warrants become exercisable and ending three business days before we send the notice of redemption to the warrant holders; +and +● +provided +there is a current registration statement in effect with respect to the shares of Common Stock underlying the A.G.P. Warrants for +each day in the 30-trading day period and continuing each thereafter until the redemption date. +F- 39 +If +the Company calls the A.G.P. Warrants for redemption as described above, our management will have the option to require any holder that +wishes to exercise its A.G.P. Warrant to do so on a “cashless basis.” If our management takes advantage of this option, holders +of A.G.P. Warrants would pay the exercise price by surrendering their A.G.P. Warrants for that number of shares of Common Stock as calculated +pursuant to the A.G.P. Warrant. Requiring a cashless exercise in this manner will reduce the number of shares to be issued and thereby +lessen the dilutive effect of an A.G.P. Warrant redemption. +The +exercise of the A.G.P. 2024 Warrants and the issuance of the shares of Common Stock underlying the Warrants is subject to stockholder +approval under applicable rules and regulations of Nasdaq. The warrants are exercisable for a period of five years, beginning on the +stockholder approval date. The A.G.P 2024 Warrants are exercisable for cash, or on a cashless basis if at the time of exercise there +is no effective registration statement registering the resale of the warrant shares. The A.G.P. 2024 Warrants are not redeemable by the +Company. On October 29, 2024, the Company recorded a warrant liability of $ 0.2 million. As part of the special meeting of stockholders +taking place on January 9, 2025, the stockholders approved the issuance of up to an aggregate of 9 shares of the Company’s +common stock upon exercise of the A.G.P. 2024 Warrants. +The +PIPE Warrants, A.G.P. Warrants, and the A.G.P 2024 Warrants (collectively the “Liability Classified Warrants”) are classified +as derivative liabilities because they do not meet the criteria in ASC 815-40 to be considered indexed to the entity’s own stock +as the warrants could be settled for an amount that is not equal to the difference between the fair value of a fixed number of the entity’s +shares and a fixed monetary amount. The Liability Classified Warrants are initially measured at fair value and are remeasured at fair +value at subsequent financial reporting period end dates and upon exercise (see Note 5 for additional information regarding fair value). +On +December 11, 2024, the Company reduced the exercise price of the PIPE Warrants to be $ 26,490 , at which time all PIPE Warrants were exercised. +The Company received approximately $ 0.2 million of proceeds from the exercise of the Warrants, all of which was used to pay down the +October 2024 Nirland Note. +For +the years ended December 31, 2025 and 2024, the Company remeasured the fair value of the Liability Classified Warrants and recorded a +gain on the change in the fair value of $ 0.1 million and $ 0.2 million, respective. The gains were recorded to other income (expense), +net, on the consolidated statements of operations and comprehensive loss. As of December 31, 2025 the consolidated balance sheet +contained an immaterial warrant liability balance. As of December 31, 2024, the consolidated balance sheets contained a warrant liability +of $ 0.1 million. +19. +Segments +The +Company has one operating segment focused on the research and development of clinical assets. The accounting policies of the single operating +segment are identical to those described in Note 3. The CODM, which the Company has identified as Andrew Regan, Chief Executive Officer, +manages the Company’s operations on a consolidated basis, assesses performance for the operating segment and decides how to allocate +resources based on consolidated net loss, which is reported on the consolidated statements of operations and comprehensive loss. +Depreciation expense, amortization expense, stock-based compensation expense, and non-cash lease expense are significant noncash items +included in consolidated net loss reviewed by the CODM and are reported on the consolidated statements of cash flows. The measure of +segment assets is reported on the consolidated balance sheets as total consolidated assets. Expenditures for additions to long-lived +assets, which include purchases of property and equipment, are included in total consolidated assets reviewed by the chief operating +decision maker and are reported on the consolidated statements of cash flows. +The +CODM uses consolidated net loss and budget-to-actual variances to assess the performance of the operating segment and determine if the +Company is progressing towards its goals. +F- 40 +The +following table presents certain financial data for the Company’s reportable segment (in thousands): +Schedule +of Financial Data for the Company’s Reportable Segment +(Dollar amounts +in thousands) +2025 +2024 +December +31, +(Dollar amounts +in thousands) +2025 +2024 +Operating expenses: +Research & development expenses-clinical +asset development +$ 802 +$ 3,278 +Research & development expense – +related parties +3,952 +100 +Research & development expense – +related parties - digital assets +300 +- +General and administrative expenses – +legal & professional fees +4,682 +2,258 +General and administrative expenses – litigation liability accrual +9,594 +- +General and administrative expenses – +accounting & audit fees +1,749 +1,625 +General and administrative expenses – +salaries, payroll and stock-based compensation +5,020 +4,098 +General and administrative expenses - issuance of common stock and pre-funded warrants +7,000 +- +General and administrative +expenses - other +3,658 +4,060 +General and administrative +expenses +3,658 +4,060 +Total +operating costs and expenses +36,757 +15,419 +Operating loss +( 36,757 ) +( 15,419 ) +Other expenses: +Other expense +( 1,774 ) +( 890 ) +Other expense – digital assets +( 402 ) +- +Total other expense, net +( 2,176 ) +( 890 ) +Interest Income +28 +13 +Interest expense, net +( 319 ) +( 1,506 ) +Total +other expense, net +( 2,467 ) +( 2,383 ) +Net +loss +$ ( 39,224 ) +$ ( 17,802 ) +Other +segment items consist of the items within Note 17 to the consolidated financial statements. +20. +Subsequent Events +Equity +Purchase Agreement +On +January 16, 2026, the Company entered into a directed stock purchase agreement with an institutional investor relating to an equity line +of credit facility (the “ELOC”). Pursuant to the directed stock purchase agreement. the Company will have the right from +time to time at its option to sell to the purchaser up to $ 25 million of the Company’s Common Stock, par value $ 0.0001 per share. +The +Purchase Agreement is subject to certain customary conditions and limitations, including that (i) the Purchaser shall not be obligated +to purchase or acquire and shares of Common Stock that would result in its beneficial ownership exceeding 9.99% of the Company’s +then-outstanding voting power and (ii) the Purchaser shall not be obligated to purchase shares of Common Stock if the volume weighted +average price for the Common Stock on an advance notice date is less than a floor price of $ 33.75 . On each six-month anniversary, the +floor price will adjust to the lower of the Nasdaq Official Closing Price for the day prior to the relevant adjustment date, and the +average of the Nasdaq Official Closing Price for the five-day period prior to the relevant adjustment date. +On March 3, 2026, the Company and +the institutional investor entered into an amendment to the ELOC. The amendment updated the definition of the regular price floor from +the minimum price as of the date of this agreement to $ 15.00 where applicable within the ELOC. No consideration was payable as a result +of the amendment. +Senior Secured +Convertible Promissory Note +On March 3, 2026, the Company +entered into a securities purchase agreement with an institutional investor. Pursuant to the terms of the ELOC, the Company issued a senior +secured convertible Promissory Note with a total principal amount of up to $ 0.6 million (the “Note”). The Note bears interest +at an annual rate of 10 % and matures on July 3, 2026. The Company and the institutional investor may mutually agree to extend the maturity +date by a period of two months. +Transactions +with Investors of Sarborg Limited +On +February 19, 2026, the Company entered into a Securities Purchase Agreement with all of the stockholders of Sarborg. The investors of +Corvus agreed to sell to the Company, and the Company agreed to acquire from the investors, an aggregate of 1,020 shares of Sarborg, +representing approximately 20% of the outstanding common stock of Sarborg. +As +consideration for the purchase, the Company has agreed to issue to the investors, in the aggregate: (i) 23,920 shares of the Company’s +Common Stock, par value $ 0.0025 per share and (ii) pre-funded warrants (the to purchase up to 4,399,156 shares of Common. In addition, +the Company has agreed to pay Sarborg cash consideration of $ 8 million, with the cash portion of the consideration deferred until such +time as the Company raises no less than $ 20 million through the use of an at-the-market facility program. +The +pre-funded warrants portion of the consideration transferred have an exercise price of $ 0.0025 +per share, subject to adjustment as set forth therein and may not be exercised until such time as the Company obtains the requisite +approval from its stockholders in accordance with applicable Nasdaq rules and requirements, including approval for the issuance of +the pre-funded warrant shares upon exercise of the pre-funded warrants, as a whole and in the aggregate, in excess of 19.99% of the +Common Stock or the voting power that was outstanding on the date of the Securities Purchase Agreement. On March 19, 2026, all 4,399,156 +of the pre-funded warrants were exercised through a cashless exercise into 4,398,218 shares of the Company’s Common Stock. +Conversions +of the A.G.P Convertible Note +Subsequent +to December 31, 2025, the holder of the A.G.P. Convertible Note converted $ 1.3 +million of principal and interest into 161,735 +shares of the Company’s Common Stock. +Addendum to Consulting +Agreement with NJS Foresight Bio-Advisory, LLC +On February 23, 2026, the +Company and NJS entered into an addendum to the NJS Agreement to extend the term of the NJS Agreement an additional twelve months from +its initial termination date, December 29, 2026, to December 29, 2027, unless terminated earlier in accordance with the terms of the NJS +Agreement. As consideration for entering into the addendum, the Company paid an additional one-time fixed retainer of $0.2 million in +the form of 7,989 shares of the Company’s Common Stock, with a fair value of $18.77 per share , the closing price of the Company’s +Common Stock on February 20, 2026, the day prior to the date of the addendum. +Addendum to Consulting +Agreement with Thesprogen, PC Conversions +On February 24, 2026, the Company and Thesprogen entered into an addendum to the Thesprogen Agreement to extend +the term of the Thesprogen Agreement an additional twelve months from its initial termination date, June 28, 2026, to June 28, 2027, unless +terminated earlier in accordance with the terms of the Thesprogen Agreement. As consideration for entering into the addendum, the Company +paid an additional one-time fixed retainer of $0.2 million in the form of 13,668 shares of the Company’s Common Stock, with a fair +value of $17.93 per share , the closing price of the Company’s Common Stock on February 23, 2023, the day prior to the date of the +addendum. +Agreement +with Maxim Group LLC +On +February 6, 2026 The Company and Maxim entered into an agreement to provide general financial advisory and investment banking services +to the Company. As Consideration to the agreement, the Company issued to Maxim 5,200 shares of the Company’s Common Stock, with +a fair value of $25.25 per share, the closing price of the Company’s Common Stock on February 5, 2026, the day prior to the date +of the addendum. +Second +Additional Agreement with Sarborg +On +January 2, 2026, the Company and Sarborg entered into the Second Additional Agreement. The Second Additional Agreement has a term of +six weeks and can be renewed upon the mutual written agreement of both parties. Total consideration payable from the Company to +Sarborg totals $ 0.4 +million, with $ 0.2 +million due, and paid, upon execution of the Second Additional Agreement and the remaining balance due as mutually agreed by the +parties. +F- 41 \ No newline at end of file diff --git a/raw/filings/0001896212/2025/0001493152-26-016858/filing_metadata.csv b/raw/filings/0001896212/2025/0001493152-26-016858/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..fcba5601992a37d5a2eee436878fd4b071363a6b --- /dev/null +++ b/raw/filings/0001896212/2025/0001493152-26-016858/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001896212,CDTTW,CDT Equity Inc.,2025,10-K,2026-04-15,2025-12-31,2026-04-15T21:01:33.000Z,0001493152-26-016858,form10-k.htm,10-K,12269844,1,1,https://www.sec.gov/Archives/edgar/data/1896212/000149315226016858/form10-k.htm,https://www.sec.gov/Archives/edgar/data/1896212/000149315226016858/ diff --git a/raw/filings/0001896212/2025/0001493152-26-016858/item1.txt b/raw/filings/0001896212/2025/0001493152-26-016858/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..32b3d7bf4383bcf4010ba83638594d50abfcac07 --- /dev/null +++ b/raw/filings/0001896212/2025/0001493152-26-016858/item1.txt @@ -0,0 +1,1394 @@ +Item +1. Business +Overview +CDT +Equity Inc., formerly Conduit Pharmaceuticals Inc., a Delaware corporation (“CDT”, “CDT Equity” or the “Company”), +is a data-driven pharmaceutical development, focused on identifying, enhancing, and advancing +high-potential therapeutic assets through scientific innovation and strategic partnerships. The Company has evolved into a broader, more +agile platform that leverages artificial intelligence, solid-form chemistry, and efficient asset repositioning to accelerate the development +of novel treatments. +The +Company’s strategy is centered on unlocking the untapped value of clinical-stage compounds, particularly those deprioritized by +larger pharmaceutical companies with strong, supporting Phase I safety data. Through advanced co-crystallization and solid-form technologies +developed at our Cambridge facilities, the Company improves drug properties and extends patent life by up to 20 years. In partnership +with Sarborg Limited (“Sarborg”), the Company also applies AI-powered signature analysis to rapidly identify new therapeutic +applications and combinations for existing compounds. +The +Company’s pipeline includes candidates that target autoimmune disorders, as well as idiopathic male infertility, oncology, +dermatology, rare disease and animal health. Ongoing in vitro and in vivo studies, guided by AI insights, are designed to support +licensing and commercialization partnerships. The Company will seek an exit through third-party license deals following successful +in vitro and in vivo pre-clinical trials, by entering into agreements with third-parties to pursue further development, FDA +approval, commercialization and marketing of the Company’s assets. +Operating +with a lean, asset-agnostic model, the Company prioritizes speed, adaptability, and capital efficiency. We avoid the cost burden of +early and late-stage clinical trials, focusing instead on high-leverage development strategies. +Our +current pipeline includes candidates targeting inflammatory and autoimmune disorders, as well as idiopathic male infertility, dermatology, +and animal health. The intellectual property portfolio comprises pending patent applications in several international jurisdictions describing +a solid-form compound, including the AZD1656 Cocrystal (a HK-4 Glucokinase Activator). Our pipeline research includes a number of compounds +that serve as promising alternatives to existing clinical assets currently marketed and sold by large pharmaceutical companies, which +we have identified as potential opportunities to develop further intellectual property positions through solid-form technology. +On +December 12, 2024, Sarborg and the Company entered into an agreement (the “Sarborg Agreement”) designed to address longstanding +challenges in the pharmaceutical sector, in particular by reducing human error in critical decision-making processes in both clinical +development and asset identification. By integrating Sarborg’s signature intelligence technology, the Company aims to enhance +efficiency, lower costs, and accelerate timelines by minimizing human intervention, ultimately optimizing the drug development cycle +and giving the Company a competitive advantage in the sector. Through this relationship, the Company will gain access to cutting-edge +predictive models and dashboards, enabling the Company to evaluate drug candidates, streamline clinical trials, and optimize asset management +with real-time data. These tools will drive faster, more accurate decisions, improving efficiency and reducing costs. By leveraging these +insights, the Company can differentiate itself in a competitive sector and gain unique data-driven insights that position the Company +for success across both its current and future asset portfolio. Our collaboration with Sarborg enables us to apply proprietary algorithms +utilizing AI-powered disease mapping to identify novel re-purposing opportunities across a database of more than 3,000 disease signatures. +Sarborg’s insights have directly informed two new combination patent filings, strengthening our intellectual property portfolio. +In addition, the Company has initiated pre-clinical in-vitro models to explore new indications, guided by AI-insights without human intervention. +We will seek an exit through third-party license deals following successful in vitro and in vivo pre-clinical trials, entering into agreements +with third parties to pursue further development, FDA approval, commercialization, and marketing of our assets. We continue to evaluate +novel artificial intelligence and cybernetics approaches to drug re-purposing, intellectual property, and asset selection to give the +Company a competitive advantage. Sarborg is considered to be a related party of CDT, as Dr. Andrew Regan, Chief Executive Officer +of CDT, also sits on the board of directors of Sarborg, and Chele Chiavacci Farley, a director of CDT is also a shareholder of +Sarborg. Refer to Note 16 and Note 20 to our financial statements included elsewhere in this Annual +Report for additional details on the relationship between CDT and Sarborg. +A +further partnership with Manoira Corporation (“Manoira”) (as described more in this Annual Report) enables the Company to +expand the scope of its drug portfolio into the animal health market in a cost-efficient manner. This collaboration allows us to accelerate +the understanding of the mechanism of action, safety, and potential efficacy of its portfolio across multiple species, while retaining +100% ownership of all data and intellectual property generated relating to human applications. This is expected to enhance the core human +therapeutic pipeline but also opens potential new revenue streams in the high-growth veterinary market. +1 +Repositioning +the Company enables us to explore multiple opportunities in the healthcare, biotech and broader technology innovation. Operating +with a lean disease-agnostic model, the Company prioritizes speed, adaptability, and capital efficiency. We avoid the cost burden of +late-stage clinical trials, focusing instead on high-leverage development strategies. Led by highly experienced executives: Dr. +Freda Lewis-Hall, former Chief Medical Officer of Pfizer Inc., the Chair of the Company’s Board; Dr. Andrew Regan, CEO and +James Bligh, CFO; our management team includes active senior executives who also have an extensive understanding of the +pharmaceutical market, supporting our strategy of developing clinical assets in a cost-efficient manner focused on therapeutic +efficacy. +Simultaneously, +CDT leverages the capabilities of our Cambridge laboratory facility and highly experienced team of solid-form experts to extend or develop +proprietary solid-form intellectual property for our existing and future clinical assets. Our own intellectual property portfolio comprises +pending patent applications in several international jurisdictions describing a solid-form compound, including the AZD1656 Cocrystal +(a HK-4 Glucokinase Activator), targeting a wide range of autoimmune disorders. Our pipeline research includes a number of compounds +that serve as promising alternatives to existing clinical assets currently marketed and sold by large pharmaceutical companies, which +we have identified as having an opportunity to develop further intellectual property positions through solid-form technology. +We +believe that successful pre-clinical trials of the assets in our pipeline +will increase the value of our assets. There is no assurance that any pre-clinical trials on the assets owned or licensed by us will be +successful, however, following a successful pre-clinical trial, we would look to licensing opportunities with large biotech or pharmaceutical +companies, typically for up-front milestone payments and royalty income streams for the life of the asset patent. We anticipate using +any future royalty income stream to develop our asset portfolio in combination with other potential sources of financing, including debt +or equity financing. +Our +Initial Pipeline: HK-4 Glucokinase Activator Cocrystal, AZD1656, and its metabolite AZD5658 and AZD5904 +In +August 2024, AstraZeneca granted a license to the Company under certain intellectual property rights controlled by AstraZeneca related +to HK-4 Glucokinase activators AZD1656 and AZD5658 in all indications and myeloperoxidase inhibitor AZD5904 for the treatment, prevention, +and prophylaxis of idiopathic male infertility. The Company will be responsible for development and commercialization of the Licensed +Products under the related License Agreement. The Company is required to use commercially reasonable efforts to develop and commercialize +the Licensed Products. +AstraZeneca +has conducted initial pre-clinical and, in some instances, clinical trials on these assets, but has decided to license them for further +development. As the clinical assets have undergone initial pre-clinical and clinical testing conducted by AstraZeneca, we are able to +use the safety data generated in these clinical trials to assess which clinical assets to further develop and re-purpose. +On +June 3, 2025, the Company entered into a joint development agreement (the “Joint Development Agreement”) with Manoira for +a term of one year, which will be automatically renewed for successive one-year terms unless advance termination notice is provided in +accordance with the terms of the Joint Development Agreement. Manoira is an entity controlled by Dr. Andrew Regan, of which he is sole +director, and is therefore considered a related party of the Company. +Pursuant +to the Joint Development Agreement, the Company granted Manoira a non-exclusive, non-transferable, non-sublicensable, fully paid-up, +royalty-free license to the intellectual property rights related to the pharmaceutical compounds known individually and together as AZD1656 +and AZD5658 (the “CDT Assets”). Manoira will evaluate the CDT Assets’ applicability in animal health, explore +veterinary market opportunities, and provide data from the evaluations to inform the Company’s human clinical programs. The license +does not grant Manoira the right to distribute, market, promote or sell the products or services that are related to or incorporate the +CDT Assets. +2 +In +addition, we currently have the exclusive rights to develop clinical assets, AZD1656 and AZD5658 in all human indications and AZD5904 +in idiopathic male infertility which are licensed to us by AstraZeneca. +Pursuant +to the various programs, AZD1656 underwent Phase I and Phase II clinical trials consisting of 23 studies in 526 subjects, 446 of whom +were dosed with AZD1656. Other than for the intended effect of lowering glucose, there were no difference identified between the AZD1656-treated +and placebo-treated subjects relating to adverse events. All of the cases where low glucose levels were identified were managed by the +patients and resolved. Based on these clinical trials, no safety signals were identified regarding vital signs, safety laboratory values +or electrocardiogram data. No deaths occurred in any studies with healthy volunteers or patients. AZD1656 was also subject to Phase II +clinical trials consisting of two studies where AZD1656 was given to patients with Type 2 Diabetes Mellitus for four months or longer. +In total, there were 754 randomized patients, 516 of whom were exposed to AZD1656 (316 men and 200 women). There were no clinically important +differences in the adverse effects profile between the AZD1656 treatment group and the AZD1656 placebo group and there were no deaths +in either of the Phase II studies. The efficacy of AZD1656 as a potential treatment for diabetes was also assessed during the Phase II +clinical trials, including whether the efficacy was statistically significant. Clinically relevant and statistically significant reductions +in HbA1c were seen after four months; however, the initial improvement in glucose control deteriorated over time and the change in HbA1c +levels after four months were not statistically different than the placebo. This decreasing efficacy over time was seen in both Phase +II studies. +AZD5658 +was subject to a randomized, single-blind, placebo-controlled, single-center, Phase I study to assess the safety, tolerability, pharmacokinetics, +pharmacodynamics and the effect of fasting after single ascending oral doses of AZD5658 in Type 2 Diabetes Mellitus patients. There were +six dose levels with eight patients in each cohort, six receiving AZD5658 and two receiving placebo. The effect of fasting on the pharmacokinetics +of AZD5658 was also studied for two dose levels. Each patient treated with metformin received a maximum of two single oral suspension +doses (one on a low dose of AZD5658/placebo and one on a high dose of AZD5658/placebo under fed conditions), except for patients participating +in the evaluation of the effect of fasting, who received a maximum of three single oral suspension doses. For each patient, the study +included a pre-entry visit (Visit 1), two or three clinic-based treatment visits (Visit 2, 3, and 4) and a follow-up visit (Visit 5). +Hence, the total duration of the study for each patient was approximately two and one-half months, assuming three weeks between dose +levels. There were no deaths, serious adverse events, discontinuations due to adverse events, or adverse events of severe intensity during +the study. Overall, there were 13 (61.9%) AZD5658-treated patients with adverse events compared to 2 (28.6%) patients who received placebo. +There were no trends noted with increasing dose in the number of adverse events overall or within any preferred term. The most frequently +occurring adverse events were hypoglycemia and diarrhea, each occurring in three AZD5658-treated patients. One adverse event of ear pain +(30 mg AZD5658 fed) was assessed by the study investigator as moderate in intensity; all other adverse events were of mild intensity. +Five adverse events in AZD5658- treated patients were assessed by the investigator as causally related to investigational product, including +hypoglycemia in three patients (100 mg, 200 mg fasted, and 400 mg AZD5658), diarrhea in one patient (200 mg AZD5658 fasted), and headache +in one patient (30 mg AZD5658). No adverse events in placebo-treated patients were assessed as causally related to investigational product. +The three patients who experienced hypoglycemia adverse events were treated with intake of food or orange juice and the episodes resolved +in less than one hour. +AZD5904 +was subject to five Phase I clinical studies, with a total of 1,181 subjects being exposed to AZD5904. Single doses of up to 1200 mg +and multiple doses of up to 325 mg for up to three times per day for 21 days have been administered as an oral solution in the completed +clinical studies. In addition, single doses of up to 1,400 mg and multiple doses of up to 600 mg for 10 days have been administered as +an “extended release” formulation. The data from these studies did not identify any expected adverse drug reactions for AZD5904 +and no adverse effects were reported as related to AZD5904. In addition, the data revealed no clinically significant changes in blood +pressure or pulse rate related to AZD5904 and electrocardiogram data was within the physiological range for the population studied. The +effect of AZD5904 on human myeloperoxidase, which we refer to as MPO, activity was evaluated by determination in an ex vivo assay of +MPO activity in plasma. The correlation between MPO activity and plasma concentrations was assessed for single and multiple doses of +AZD5904. A relationship between plasma concentrations of AZD5904 and MPO activity was demonstrated, which indicates that AZD5904 may +be an effective inhibitor of MPO activity in humans. However, Phase I trials do not assess statistical significance so additional Phase +II trials are necessary to determine if the inhibition of MPO activity as a result of AZD5904 is statistically significant. +Our +Development Strategy +The +Company’s strategy is centered on unlocking the untapped value of clinical-stage compounds, particularly those deprioritized by +larger pharmaceutical companies with strong, supporting Phase I safety data. Through advanced co-crystallization and solid-form technologies +developed at our Cambridge facilities, the Company improves drug properties and extends patent life by up to 20 years. In partnership +with Sarborg Limited, the Company also applies AI-powered disease mapping to rapidly identify new therapeutic applications for existing +compounds. +To +enable us to monetize our clinical assets, we, in partnership with CROs +and KOLs, intend to conduct additional pre-clinical trials on our assets in order to generate clinical data to support the further development +of our assets beyond the Phase I stage. In the event successful pre-clinical trial data is generated for an asset with a particular indication, +at that point, we will seek to enter into a license, royalty, or other transaction with a third party whereby the third party would continue +to pursue the development of the clinical asset in clinical trials, including Phase I, where necessary, and beyond. There is no assurance +that any pre-clinical trials on the assets owned or licensed by us will be successful. We intend to use the income received from licensing +assets in our pipeline to fund the development of additional assets, which will allow us to use the existing income stream from assets +that have been licensed to fund our on-going operations, including the development and commercialization of additional assets, without +having to rely solely on debt and/or equity financing. +3 +Principal +Strategic Partnerships +Services +Agreement – CDT Equity and Sarborg Limited +On +December 12, 2024, the Company entered into a Services Agreement (the “Sarborg Agreement”) with Sarborg, a Cayman Islands +company and related party of the Company. Under the terms of the Sarborg Agreement, Sarborg agreed to provide algorithmic and cybernetic technology +services to CDT, including the development of decision-support tools and advanced cybernetic systems tailored to enhance CDT’s +decision-making processes and maximize the value of its pharmaceutical asset portfolio. +Sarborg +agreed to perform the services to CDT comprised of three phases: the Initial Phase (0-24 weeks) focuses on establishing a foundation for +collaboration and aligning Sarborg’s services with CDT’s strategic goals; the Development Phase (24-36 weeks) involves +building technological infrastructure, including dashboards and predictive models; and the Ongoing Services Phase (36-52 weeks) ensures +the sustained functionality and relevance of Sarborg’s deliverables while supporting CDT’s growth through iterative improvements +and updates. Sarborg will create specific deliverables, including reports, computer programs, software applications, APIs, mobile applications, +source code, written technical specifications and designs, operating and maintenance manuals, and other recorded data and information +arising from or relating to the services. Sarborg will provide all necessary resources to perform the services and deliver the deliverables +in accordance with the Sarborg Agreement. To date, Sarborg has successfully completed all phases and has achieved all milestones provided for pursuant to the +Sarborg Agreement. +During the year ended December 31, 2025, the Company +incurred costs under the Sarborg Service Agreement, including $1.8 million of milestone payments related to the Services Agreement and +$0.4 million of expense to be capitalized related to the delivery and ongoing use of a diagnostic dashboard. Of the total costs incurred, +$0.4 million was capitalized as a diagnostic asset associated with the dashboard, of which $0.2 million was amortized during the year +and recorded within general and administrative expenses in the consolidated statement of operations and comprehensive loss. The remaining +$2.2 million, consisting of milestone payments and related services (including signature mapping reports), was expensed as incurred within +research and development expenses. As of December 31, 2025, there were no outstanding payables under the Sarborg Service Agreement. +SARBORG +Additional Agreement +Effective March 31, 2025, the Company entered +into an additional license and use agreement (the “Sarborg Additional Agreement”) with Sarborg, a related party, for analysis +of acquired AstraZeneca assets. The agreement provides for $2.0 million in total consideration, payable in cash or stock. On March 31, +2025, the Company prepaid $1.65 million through the issuance of 617 shares of Common Stock, recorded at fair value of $2,670 per share. +The term was extended from six to 12 months on May 2, 2025 at no additional cost. Effective October 1, 2025, the term was extended to +be 12 months from the previous extension to extend the term of the license to March 31, 2027 at no additional cost to the Company. The +Company recorded the fair value of $1.5 million as prepaid within the consolidated balance sheets. During the year ended December 31, +2025, the Company recorded research and development expense of $1.3 million within the consolidated statements of operations and comprehensive +loss related to the Sarborg Additional Agreement. As of December 31, 2025, $0.6 million of the prepaid balance remains within the consolidated +balance sheet. +4 +First +Addendum to the SARBORG Additional Agreement +Effective +July 1, 2025 the Company entered into an Addendum (the “First Addendum”) to the Additional Agreement with Sarborg, to expand +the scope to include third-party pharma asset analysis for drug re-purposing using Sarborg’s machine learning platform. The scope +of work was expected to be completed in four weeks, with options for renewal by mutual agreement. The Company paid $0.3 million during +the year ended December 31, 2025 and included the total in the consolidated statement of operations and comprehensive loss. +Second +Addendum to the SARBORG Additional Agreement +Effective +August 11, 2025 the Company entered into Addendum 2 (the “Second Addendum”) to the Additional Agreement with Sarborg to integrate +a Cryptocurrency AI Agent for identifying, forecasting, and recommending digital currencies into CDT Equity’s treasury operations. +The term is a minimum of four months, renewable by mutual agreement. The Company paid $0.3 million during the year ended December 31, +2025 and included the total in the consolidated statement of operations and comprehensive loss. +Consulting +Agreement with NJS Foresight Bio-Advisory, LLC +On +January 2, 2026, the Company entered into a Consulting Agreement, dated December 29, 2025 (the “NJS Agreement”) with NJS +Foresight Bio Advisory, LLC (“NJS”) pursuant to which NJS agreed to provide advisory and business development services +to the Company focused on identification, introduction and support of potential licensing partners in connection with the +out-licensing of the Company’s asset portfolio. Work under the NJS Agreement commenced on December 30, 2025. On February 23, +2026 (the “NJS Effective Date”), the Company and NJS entered into Addendum No. 1 to the NJS Agreement (the “NJS +Addendum”) to extend the term of the NJS Agreement an additional twelve months from its initial termination date, December 29, +2026, to December 29, 2027, unless terminated earlier in accordance with its terms. As consideration for entering into the NJS +Addendum, on the NJS Effective Date, the Company paid an additional one-time fixed retainer of $150,000 (the “NJS Extension +Retainer”) in the form of 7,989 shares of Common Stock (the “NJS Shares”) issued to NJS, valued at $18.77 per share, +the closing price of the Common Stock on February 20, 2026, the trading day prior to the NJS Effective Date. All other terms and +conditions contained in the NJS Agreement remain the same. The Company recorded the $0.2 million consideration to NJS as a prepaid +expense on the Company’s consolidated balance sheet as of December 31, 2025. +Master +Service Agreement – CDT and Charles River Laboratories +On +February 7, 2025, CDT and Charles River Laboratories (“Charles River”) entered into a Master Services Agreement (the +“Charles River MSA”). Under the Charles River MSA, Charles River agreed to provide preclinical testing and research services +to CDT, including the evaluation of compounds in animal models and other related services. The services are defined in individual +Statements of Work (“SOWs”) or Protocols, which outline the specific scope, design, and timelines for each study. To date, all services provided for pursuant to the Charle s River MSA have +been completed. For the year ended December 31, 2025, the Company recognized $0.2 million in research and development expense in +the consolidated statement of operations and comprehensive loss related to the Charles River MSA. +Thesprogen +Consulting Agreement +Effective March 25, 2025, the Company entered +into a Consulting Agreement (the “Consulting Agreement”) with Thesprogen PC (“Thesprogen”), an expert in advising +clients on strategies for pharmaceutical and biotech development. Consulting fees were settled through the issuance of fully vested unregistered +Common Stock shares, valued at the fair value of the shares based on the closing share price of the shares at issuance. The Company recorded +the transaction as prepaid and recognized research and development expense through amortization during the periods ended December 31, +2025. On February 24, 2026 (the “Thesprogen Effective Date”), the Company and Thesprogen entered into Addendum No. 1 to the +Thesprogen Agreement (the “Thesprogen Addendum”) to extend the term of the Thesprogen Agreement an additional twelve months +from its initial termination date, June 28, 2026, to June 28, 2027, unless terminated in accordance with its terms. As consideration for +entering into the Thesprogen Addendum, on the Thesprogen Effective Date, the Company paid an additional one-time fixed retainer of $245,000 +(the “Thesprogen Extension Retainer”) in the form of 13,668 shares of Common Stock (the “Thesprogen Shares”) issued +to Thesprogen, valued at $17.93 per share, the closing price of the Common Stock on February 23, 2026, the trading day prior to the Thesprogen +Effective Date. All other terms and conditions contained in the Thesprogen Agreement remain the same. During the year ended December 31, +2025, the Company recorded research and development expense of $0.3 million within the consolidated statements of operations and comprehensive +loss related to the amortization of the prepaid expense. +5 +Manoira +Joint Development Agreement +On +June 3, 2025, the Company entered into the Joint Development Agreement with Manoira for a term of one year, which will be automatically +renewed for successive one-year terms unless advance termination notice is provided in accordance with the terms of the Joint Development +Agreement. Manoira is an entity controlled by Dr. Andrew Regan, of which he is sole director, and is therefore considered a related party +of the Company. See Note 16 for additional details. +Under +the agreement, the Company granted Manoira a non-exclusive, non-transferable, royalty-free license to intellectual property rights related +to pharmaceutical compounds AZD1656 and AZD5658. Manoira will evaluate the compounds for animal health applications, explore veterinary +market opportunities, and provide data to inform the Company’s human clinical programs. The license does not permit distribution, +marketing, promotion, or sale of related products. +Consideration was settled through the issuance +of Common Stock shares, valued at fair value based on the closing price of the shares. The Company recorded the fair value of $0.4 million +as prepaid within the consolidated balance sheets. During the year ended December 31, 2025, the Company recorded $0.1 million amortization +expense for research and development activities provided to date. +Market +Overview +Global +Biotechnology Industry +The +global biotechnology industry comprises a large range of companies engaged in diverse activities, such as biopharmaceutical development. +The industry companies also span across a wide spectrum of operational models. Some small, dedicated biotechnology companies are research +and development (“R&D”) intensive and operate primarily with venture capital, grants, initial public offerings and collaborative +agreements. Conversely, large, diversified companies hold significant in-house R&D resources and well-established production, commercialization, +and distribution processes. +Management +believes that the global biotechnology market was valued at $1.77 trillion in 2025 and is projected to grow at a compound annual growth +rate (“CAGR”) of 13.9% from 2025 to 2033. 1 The market is driven by strong government support through initiatives +aimed at the modernization of regulatory framework, improvements in approval processes and reimbursement policies, as well as standardization +of clinical studies. +Global +investor confidence has fallen during the period, which served to somewhat subdue revenue growth. However, global investment in R&D +has grown strongly and consistently in recent years, with much of this funding funneled into medical biotechnology development, aimed +at providing better care for the aging global population, thus bolstering industry revenue. +Global +Pharmaceutical Industry +Over +the previous five years, pharmaceutical companies have benefited from an aging population in developed economies and a growing middle +class in emerging economies. Many companies have also tapped into regional demand for pharmaceuticals that may differ from developed +markets and have expanded their global presence to tap into regional market needs. +Patent +cliffs have continued to hamper industry revenue during the current period. When drugs lose patent exclusivity, the market is inundated +with low-cost generic drugs. As manufacturers contend with more price-based competition from generics, many operators respond by lowering +their R&D expenditures, which limits the industry’s drug pipelines. Additionally, many governments and health insurance organizations +have reduced their drug reimbursements to control healthcare costs, such as implementing incentives for patients to use generic drugs. +Industry revenue has expanded at a compound annual +growth rate of approximately 5.4% over the past five years to $857.1 billion, with continued growth of approximately 3.4% expected in +2025, supported by sustained global demand for biotechnology products. However, growth remains dependent on clinical success, regulatory +approvals, manufacturing execution and access to capital, as companies increasingly prioritize capital efficiency, differentiated pipelines +and strategic partnerships in a more selective funding environment. 2 +1 (2026, +January 02). Biotechnology Market Size, Share, and Trends 2026 to 2035. Precedenceresearch.com +https://www.precedenceresearch.com/biotechnology-market. +2 +IBISWorld Industry Report L6724-GL – Global Biotechnology, January 2026 +6 +Manufacturing +The +Company has a lease agreement for approximately 2,100 square feet of space in Cambridge, England, with a term from March 2024 to January +2027. At the Cambridge facility aforementioned, we are developing advanced co-crystallization and solid-form technologies. +We +otherwise do not currently own or operate any facilities to formulate, manufacture, test, store, package, or distribute any of the clinical +assets that we are developing or may seek to develop and do not currently have the capabilities to conduct such activities. We currently +rely on third parties to manufacture, store, and test the clinical assets that we seek to develop. We will depend on third-party suppliers +and manufacturing organizations for all our required raw materials and drug substance and to formulate, manufacture, test, store, package, +and distribute clinical trial quantities of clinical assets that we may seek to develop. We plan to continue to use third-party suppliers +and manufacturing organizations and we anticipate expanding our network of third-party suppliers and manufacturing organizations as our +operations expand. +We +have internal personnel and utilize consultants with extensive technical, manufacturing, analytical, and quality experience to oversee +our contract manufacturing and testing activities. Manufacturing is subject to extensive regulations that impose procedural and documentation +requirements, including, but not limited to, record-keeping, manufacturing processes and controls, personnel, quality control, and quality +assurance. Our systems, procedures, and contractors are required to be in compliance with these regulations and are assessed through +regular monitoring and formal audits. +Research +and Development +Our +research and development activities have included developing co-crystals of AZD1656, and other products, to increase patent life. Most of this work is conducted +in our laboratories based in Cambridge, UK, but parts of this work is completed by third-party CROs but all intellectual property is +retained by us. The successful completion of clinical trials increases the value of clinical assets and may lead to the commercialization +and/or licensing of such assets to other pharmaceutical companies. There is no assurance that any clinical trials on the assets owned +or licensed by us will be successful or any assurance our co-crystal development will be successful. +We +do not intend to further fund the research and development of the use of AZD1656 in Covid; however, we retain an economic interest in +the AZD1656 in the indication of Covid and if AZD1656 is further developed in Covid through funding provided by other third parties, +then we may be entitled to receive compensation from those development activities conducted by third parties due to its economic interest +in AZD1656 in Covid. +Sales +and Marketing +We +do not currently have marketing, sales, or distribution capabilities. In order to commercialize any clinical asset that is approved for +commercial sale, we must either develop our own sales, marketing, and distribution infrastructure or collaborate with third parties that +have such commercial infrastructure and relevant marketing and sales experience. We anticipate relying on licensing, co-sale, co-promotion, +and distribution agreements with strategic partners for the commercialization of our products. We do not currently anticipate that we +would develop our own internal sales force organization. +7 +Competition +We +operate in the highly competitive pharmaceutical and biotechnology industry. Our competitors may include public and private companies, +universities, governmental agencies, and other research organizations actively engaged in the research and development of clinical assets +and biopharmaceutical products. Our competitors may have greater financial, technical, and human resources than we currently have and/or +may be better equipped to develop, manufacture, and market their products. Our competitors may be developing clinical assets for products +for similar indications. However, we believe that we have an unprecedented advantage in novelty. As discussed above, AZD1656 is an activator +(not an inhibitor) of a metabolic process. We anticipate that the number of companies seeking to develop clinical assets, biopharmaceutical +products, and therapies will continue to increase. As a result, the competition we face may also increase. However, both in the treatment +of autoimmune disease and idiopathic male infertility the competition is currently expected to come in years, even if biopharmaceutical +products that we develop and/or commercialize were not to compete with products of our competitors based on the product efficacy, safety, +ease of use, price, demonstrated cost-effectiveness, marketing effectiveness, service, reputation, and access to technical information. +However, we believe that our ability to focus on clinical assets that have been deprioritized by larger pharmaceutical companies is a +competitive advantage. +Intellectual +Property +We +hold exclusive rights to develop AZD1656, AZD5658, and AZD5904 through our License Agreement with AstraZeneca and we also own the intellectual +property and the rights to further develop co-crystals resulting from our prior research and development work on AZD1656. +On +December 18, 2024, Conduit UK Management Limited (“Conduit UK”) received a notification from the UK Intellectual Property +Office (“UK IPO”) notifying the company that St George Street Capital had initiated patent entitlement proceedings with +respect to patent application PCT/IB2022/00775 (“Patent Application”). Conduit UK refutes the claims made by St George +Street Capital and filed a counterstatement on February 26, 2025 with the UK IPO. In addition, each of the three inventors named in +the Patent Application filed simultaneous counterstatements fully supporting Conduit UK’s position, and assertions that the +claims are without merit. Further updates will be made following notification by the UK IPO. +We +currently have eight pending patent applications in several international jurisdictions. Even though we have filed patent applications, +there is no guarantee that the validity of the patents will be upheld if challenged by a third party, that patents will be granted on +the applications filed in the respective jurisdictions, or that once granted, the patents will contain claims that encompass our commercial +products. There can be no assurance that any of our intellectual property rights will afford us any protection from competition. +8 +The +following patent applications are relevant to the operation of our business: +Related +Clinical Asset +Mechanism +of Action +Patent +Information and Number +Patent +Ownership/Licensing +Status; +Patent Status +Jurisdictions +Protected +Expiration +AZD1656 +Glucokinase +Activator +Composition +of Matter Patent; 101901 (family number) +Licensed +to CDT from AstraZeneca for use in all human indications. Granted and in force. +Brazil, +Canada, Switzerland, China, Germany, European Procedure, Spain, France, United Kingdom, Hong Kong, India, Japan, South Korea, Mexico, +Netherlands, Russian Federation, Sweden, Turkey, United States. Granted in Australia +Expires +July 3, 2026. +AZD1656 +Glucokinase +Activator +Polymorph +Patent; 103631 (family number) +Licensed +to CDT from AstraZeneca for use in human applications. Granted and in force. +China +and United States +Expires +February 2030. +AZD1656 +Glucokinase +Activator +Co-crystal +PCT/IB2022/00075 +Owned +by CDT. +Filed +September 2, 2022. +Global +Filing +date September 2, 2022. If granted, will expire September 2, 2042. +AZD1656 +Glucokinase +Activator +Co-crystal +JP2022-176753 +Owned +by CDT. +Filed +November 2, 2022. +Granted: +Japan +Expires +November 2, 2042. +AZD5904 +MPO +Inhibitor +Idiopathic +Male Infertility; AZD5904 use patent; 200644 (family number) +[WO/2019/016074] +Licensed +to CDT from AstraZeneca. +International +Description +Expires +July 12, 2038. +AZD5658 +Glucokinase +Activator +Composition +of Matter Patent; 101901 (family number) +Licensed +to CDT from AstraZeneca for use in all human indications. Granted and in force. +Australia, +Brazil, Canada, Switzerland, China, Germany, European Procedure, Spain, France, United Kingdom, Hong Kong, India, Japan, South Korea, +Mexico, Netherlands, Russian Federation, Sweden, Turkey, United States +Expires +July 3, 2026 +We +have not filed any applications for trademark protection of any names or logos for products or technologies in development. We plan to +seek trademark protection inside and outside of the United States where and when appropriate and if available. We intend to use these +registered marks in connection with our pharmaceutical research and development, including proprietary technologies, as well as our clinical +assets. +We +expect to protect our products and technologies through a combination of patents, regulatory exclusivity, and potentially confidential +and proprietary know-how. We intend to actively seek to obtain, where appropriate, the broadest commercially reasonable intellectual +property protection possible for our clinical assets and technologies, including any future clinical assets and technologies under development, +our proprietary information, and our proprietary technology through a combination of contractual arrangements and patents, in the United +States and abroad. However, we cannot guarantee that patent protection will provide complete protection against competitors who seek +to circumvent our patents. +9 +Government +Regulation and Product Approval +Government +authorities in the United States, at the federal, state, and local level, and in other countries, extensively regulate, among other things, +the research, development, clinical trials, testing, manufacture, including any manufacturing changes, authorization, pharmacovigilance, +adverse event reporting, recalls, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, import +and export of pharmaceutical products and clinical assets, including clinical assets such as those we are developing. The processes for +obtaining regulatory approvals in the United States and in foreign countries, along with subsequent compliance with applicable statutes +and regulations have no guaranteed outcomes and require the expenditure of substantial time and financial resources. +Our +development plan for AZD5904 is to conduct clinical trials and if those trials are successful, we will then seek to enter into a transaction +with a third party with respect to AZD5904, as applicable, for the particular indication. Pursuant to the Joint Development Agreement, +the Company granted Manoira a non-exclusive, non-transferable, royalty-free license to intellectual property rights related to pharmaceutical +compounds AZD1656 and AZD5658. Manoira will evaluate the compounds for animal health applications, explore veterinary market opportunities, +and provide data to inform the Company’s human clinical programs. The license does not permit distribution, marketing, promotion, +or sale of related products. +We +anticipate developing clinical assets, which we own or license from third parties, that have undergone pre-clinical and clinical trials +through the Phase II stage and then monetizing such clinical assets through a license, royalty, or other transaction. We do not expect +that we will commercialize any clinical assets or seek marketing approval from the FDA (or similar organizations) as we intend to enter +into agreements with third parties following Phase II clinical trials for each such clinical asset that would provide that such third +party would pursue the further development, commercialization, and marketing of such assets. +The +following description of the process relating to obtaining regulatory approvals in the United States and in foreign countries is intended +for informational purposes only as we do not expect to continue the development of any of the clinical assets beyond the Phase II stage. +There is no assurance that any clinical trials on the assets owned or licensed by us will be successful. +United +States Government Regulation +In +the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (“FDCA”) and implementing regulations. +Failure to comply with the applicable United States requirements at any time during the product development process, approval process +or after approval, may subject an applicant to a variety of administrative or judicial sanctions, such as the FDA’s refusal to +approve pending New Drug Applications (“NDAs”), withdrawal of an approval, imposition of a clinical hold, issuance of warning +letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of +government contracts, restitution, disgorgement or civil and/or criminal penalties. +The +process required by the FDA before a drug may be marketed in the United States generally involves the following steps, each of which +requires the expenditure of substantial time and financial resources: +● +completion +of preclinical laboratory tests, animal studies and formulation studies in compliance with good laboratory practices (“GLPs”) +and other applicable regulations; +● +submission +to the FDA of an Investigational New Drug Application (“IND”), which must become effective before human clinical trials +may begin; +● +approval +by an independent institutional review board (“IRB”) at each clinical site before each trial may be initiated; +● +performance +of well-controlled human clinical trials in accordance with good clinical practices (“GCPs”), which may include placebo +controls, to establish the safety and efficacy of the proposed drug product for each indication; +● +submission +to the FDA of an NDA and payment of fees; +● +satisfactory +completion of an FDA advisory committee review, if applicable; +● +satisfactory +completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the product is produced to assess +compliance with current good manufacturing practices (“cGMPs”) and to assure that the facilities, methods and controls +are adequate to preserve the drug’s identity, strength, quality and purity; +● +satisfactory +completion of audits of clinical trial sites conducted by FDA to assure compliance with GCPs and the integrity of clinical data; +and +● +FDA +review and approval of the NDA. +10 +Preclinical +Studies +Preclinical +studies include laboratory evaluation of product chemistry, toxicity, and formulation, as well as animal studies to assess potential +safety and efficacy. Preclinical tests intended for submission to the FDA to support the safety of a clinical asset must be conducted +in compliance with GLP regulations and the U.S. Department of Agriculture’s Animal Welfare Act. A drug sponsor must submit the +results of the preclinical tests, together with manufacturing information, analytical data and any available ex-U.S. clinical data or +relevant literature, among other things, to the FDA as part of an IND. Some nonclinical testing may continue even after the IND is submitted. +An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions +related to one or more proposed clinical trials and places the clinical trial on a clinical hold. In such a case, the IND sponsor and +the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in +the FDA allowing clinical trials to commence. A clinical hold may occur at any time during the life of an IND and may affect one or more +specific studies or all studies conducted under the IND. +Furthermore, +the FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research +subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at +its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug candidate +has been associated with unexpected serious harm to patients. +Clinical +Trials +Clinical +trials involve the administration of the investigational new drug to human subjects under the supervision of qualified investigators +in accordance with GCP requirements, which include the requirement that all research subjects provide their informed consent in writing +for their participation in any clinical trial along with the requirement to ensure that the data and results reported from the clinical +trials are credible and accurate. Clinical trials are conducted under protocols detailing, among other things, the objectives of the +trial, the criteria for determining subject eligibility, the dosing plan, the parameters to be used in monitoring safety, the procedure +for timely reporting of adverse events, and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent +protocol amendments must be submitted to the FDA as part of the IND. In addition, an IRB at each institution participating in the clinical +trial must review and approve the plan for any clinical trial before it commences at that institution. +Information +about certain clinical trials and clinical trial results must be submitted within specific timeframes to the National Institutes of Health +for public dissemination on the Clinicaltrials.gov registry. Failure to timely register a covered clinical study or to submit study results +as provided for in the law can give rise to civil monetary penalties and prevent the non-compliant party from receiving future grant +funds from the federal government. The government has begun enforcing these registration and results reporting requirements against non-compliant +clinical trial sponsors. +Human +clinical trials are typically conducted in at least three sequential phases and occasionally four or more, which may require repetition, +or overlap or be combined: +Phase +I : The drug candidate is initially introduced into healthy human subjects or patients with the target disease or condition and +tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of +its effectiveness. During Phase I clinical trials, sufficient information about the investigational drug’s pharmacokinetics and +pharmacological effects may be obtained to permit the design of well-controlled and scientifically valid Phase II clinical trials. +Phase +II : The drug candidate is administered to a larger, but still limited patient population to identify possible adverse effects +and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted indications and to determine dosage tolerance +and optimal dosage. Phase II clinical trials are typically well-controlled and closely monitored. +Phase +III : The drug candidate is administered to an expanded patient population, generally at geographically dispersed clinical trial +sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for +approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for the labeling of the product. +Phase III clinical trials usually involve a larger number of participants than a Phase II clinical trial. +There +is no guarantee that a clinical asset will successfully complete any such clinical trials. There is no assurance that any clinical trials +on the assets owned or licensed by CDT will be successful. +11 +Interactions +with FDA During the Clinical Development Program +Following +the clearance of an IND and the commencement of clinical trials, the sponsor of such trial will continue to have interactions with the +FDA. Progress reports detailing the results of clinical trials must be submitted at least annually to the FDA and more frequently if +serious adverse events occur. In addition, IND safety reports must be submitted to the FDA for any of the following: serious and unexpected +suspected adverse reactions; findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed +to the product; and any clinically important increase in the occurrence of a serious suspected adverse reaction over that listed in the +protocol or investigator brochure. +In +addition, sponsors are given opportunities to meet with the FDA at certain points in the clinical development program. Specifically, +sponsors may meet with the FDA prior to the submission of an IND (“pre-IND meeting”), at the end of Phase II clinical trial +(“EOP2” meeting) and before an NDA is submitted (“pre-NDA meeting”). Meetings at other times may also be requested. +These meetings provide an opportunity for the sponsor to share information about the data gathered to date with the FDA and for the FDA +to provide advice on the next phase of development. For example, at an EOP2, a sponsor may discuss its Phase II clinical results and +present its plans for the pivotal Phase III clinical trial(s) that it believes will support the approval of the new product. Such meetings +may be conducted in person, via teleconference/videoconference or written response only with minutes reflecting the questions that the +sponsor posed to the FDA and the agency’s responses. The FDA has indicated that its responses, as conveyed in meeting minutes and +advice letters, only constitute recommendations and/or advice made to a sponsor and, as such, sponsors are not bound by such recommendations +and/or advice. Nonetheless, from a practical perspective, a sponsor’s failure to follow the FDA’s recommendations for design +of a clinical program may put the program at significant risk of failure. +Acceptance +of NDAs +Assuming +successful completion of the required clinical testing, the results of the preclinical studies and clinical trials, along with information +relating to the product’s chemistry, manufacturing, controls, safety updates, patent information, abuse information and proposed +labeling, are submitted to the FDA as part of an application requesting approval to market the clinical asset for one or more indications. +Data may come from company-sponsored clinical trials intended to test the safety and efficacy of a product’s use or from a number +of alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient +in quality and quantity to establish the safety and efficacy of a drug product. The fee required for the submission and review of an +application under the Prescription Drug User Fee Act (“PDUFA”) is substantial, and the sponsor of an approved application +is also subject to an annual program fee assessed based on eligible prescription drug products. These fees are typically adjusted annually, +and exemptions and waivers may be available under certain circumstances, such as where a waiver is necessary to protect the public health, +where the fee would present a significant barrier to innovation, or where the applicant is a small business submitting its first human +therapeutic application for review. +The +FDA conducts a preliminary review of all applications within 60 days of receipt and must inform the sponsor at that time or before whether +an application is sufficiently complete to permit substantive review. In pertinent part, the FDA’s regulations provide that the +agency may refuse to file an application if the application does not include all pertinent information and data necessary for review +by the FDA. In the event that the FDA determines that an application does not satisfy this standard, it will issue a Refuse to File (“RTF”) +determination to the applicant. Typically, an RTF will be based on administrative incompleteness, such as clear omission of information +or sections of required information; scientific incompleteness, such as omission of critical data, information or analyses needed to +evaluate safety and efficacy or provide adequate directions for use; or inadequate content, presentation, or organization of information +such that substantive and meaningful review is precluded. The FDA may request additional information rather than accept an application +for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject +to review before the FDA accepts it for filing. +12 +Review +of NDAs +After +the submission is accepted for filing, the FDA begins an in-depth substantive review of the application. The FDA reviews the application +to determine, among other things, whether the proposed product is safe and effective for its intended use, whether it has an acceptable +purity profile and whether the product is being manufactured in accordance with cGMP. +Under +the goals and policies agreed to by the FDA under PDUFA, the FDA has 10 months from the filing date in which to complete its initial +review of a standard application that is a new molecular entity, and six months from the filing date for an application with “priority +review.” The review process may be extended by the FDA for three additional months to consider new information or in the case of +a clarification provided by the applicant to address an outstanding deficiency identified by the FDA following the original submission. +Despite these review goals, the NDA review process can be very lengthy, and it is not uncommon for FDA review of an application to extend +beyond the PDUFA target action date. Most innovative drug products (other than biological products) obtain FDA marketing approval pursuant +to an NDA submitted under Section 505(b)(1) of the FDCA, commonly referred to as a traditional or “full NDA.” In 1984, with +passage of the Drug Price Competition and Patent Term Restoration Act, informally known as the Hatch-Waxman Act, that established an +abbreviated regulatory scheme authorizing the FDA to approve generic drugs based on an innovator or “reference” product, +Congress also enacted Section 505(b)(2) of the FDCA, which provides a hybrid pathway combining features of a traditional NDA and a generic +drug application. Section 505(b)(2) enables the applicant to rely, in part, on the FDA’s prior findings of safety and efficacy +data for an existing product, or published literature, in support of its application. Section 505(b)(2) NDAs may provide an alternate +path to FDA approval for new or improved formulations or new uses of previously approved products that would require new clinical data +to demonstrate safety or effectiveness. Section 505(b)(2) permits the filing of an NDA in which the applicant relies, at least in part, +on information from studies made to show whether a drug is safe or effective that were not conducted by or for the applicant and for +which the applicant has not obtained a right of reference or use. A Section 505(b)(2) applicant may eliminate or reduce the need to conduct +certain preclinical or clinical studies, if it can establish that reliance on studies conducted for a previously approved product is +scientifically appropriate. The FDA may also require companies to perform additional studies or measurements, including nonclinical and +clinical studies, to support the change from the approved product. The FDA may then approve the new clinical asset for all or some of +the labeled indications for which the referenced product has been approved, as well as for any new indication for which the Section 505(b)(2) +NDA applicant has submitted data. +In +connection with its review of an application, the FDA will typically submit information requests to the applicant and set deadlines for +responses thereto. The FDA will also conduct a pre-approval inspection of the manufacturing facilities for the new product to determine +whether the manufacturing processes and facilities comply with GMPs. The FDA will not approve the product unless it determines that +the manufacturing processes and facilities are in compliance with cGMP requirements and are adequate to assure consistent production +of the product within required specifications. +The +FDA also may inspect the sponsor and one or more clinical trial sites to assure compliance with IND and GCP requirements and the integrity +of the clinical data submitted to the FDA. To ensure cGMP and GCP compliance by its employees and third-party contractors, an applicant +may incur significant expenditure of time, money and effort in the areas of training, record keeping, production and quality control. +The FDA generally accepts data from foreign clinical trials in support of an NDA if the trials were conducted under an IND. If a foreign +clinical trial is not conducted under an IND, the FDA nevertheless may accept the data in support of an NDA if the study was conducted +in accordance with GCPs and the FDA is able to validate the data through an on-site inspection, if deemed necessary. Although the FDA +generally requests that marketing applications be supported by some data from domestic clinical trials, the FDA may accept foreign data +as the sole basis for marketing approval if (1) the foreign data are applicable to the United States population and United States medical +practice, (2) the studies were performed by clinical investigators with recognized competence, and (3) the data may be considered valid +without the need for an on-site inspection or, if the FDA considers the inspection to be necessary, the FDA is able to validate the data +through an on-site inspection or other appropriate means. +The +FDA may also refer an application, including applications for novel clinical asset which present difficult questions of safety or efficacy, +to an advisory committee for review, evaluation and recommendation as to whether the application should be approved and under what conditions. +Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, +evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound +by the recommendation of an advisory committee, but it considers such recommendations when making final decisions on approval. +Data +from clinical trials are not always conclusive, and the FDA or its advisory committee may interpret data differently than the sponsor +interprets the same data. The FDA may also re-analyze the clinical trial data, which could result in extensive discussions between the +FDA and the applicant during the review process or delay, limit or prevent regulatory approval. The FDA may not grant approval on a timely +basis or at all. +The +FDA also may require submission of a risk evaluation and mitigation strategy (“REMS”) if it determines that a REMS is necessary +to ensure that the benefits of the drug product outweigh its risks and to assure the safe use of the product. The REMS could include +medication guides, physician communication plans, assessment plans and/or elements to assure safe use, such as restricted distribution +methods, patient registries or other risk minimization tools. The FDA determines the requirement for a REMS, as well as the specific +REMS provisions, on a case-by-case basis. If the FDA concludes a REMS is needed, the sponsor of the application must submit a proposed +REMS and the FDA will not approve the application without a REMS. +13 +Decisions +on NDAs +The +FDA reviews an application to determine, among other things, whether the product is safe and whether it is effective for its intended +use(s), with the latter determination being made on the basis of substantial evidence. The term “substantial evidence” is +defined under the FDCA as “evidence consisting of adequate and well-controlled investigations, including clinical investigations, +by experts qualified by scientific training and experience to evaluate the effectiveness of the drug involved, on the basis of which +it could fairly and responsibly be concluded by such experts that the drug will have the effect it purports or is represented to have +under the conditions of use prescribed, recommended, or suggested in the labeling or proposed labeling thereof.” +The +FDA has interpreted this evidentiary standard to require at least two adequate and well-controlled clinical investigations to establish +effectiveness of a new product. Under certain circumstances, however, the FDA has indicated that a single trial with certain characteristics +and additional information may satisfy this standard. This approach was subsequently endorsed by Congress in 1998 with legislation providing, +in pertinent part, that “If [the FDA] determines, based on relevant science, that data from one adequate and well-controlled clinical +investigation and confirmatory evidence (obtained prior to or after such investigation) are sufficient to establish effectiveness, the +FDA may consider such data and evidence to constitute substantial evidence.” This modification to the law recognized the potential +for the FDA to find that one adequate and well controlled clinical investigation with confirmatory evidence, including supportive data +outside of a controlled trial, is sufficient to establish effectiveness. In December 2019, the FDA issued draft guidance further explaining +the studies that are needed to establish substantial evidence of effectiveness, and in September 2023 it issued a draft guidance that +complements the 2019 draft guidance. The FDA has not yet finalized either guidance. +After +evaluating the application and all related information, including the advisory committee recommendations, if any, and inspection reports +of manufacturing facilities and clinical trial sites, the FDA will issue either a Complete Response Letter (“CRL”) or an +approval letter. To approve the application, the FDA must determine that the drug is effective and that its expected benefits outweigh +its potential risks to patients. This “benefit-risk” assessment is informed by the extensive body of evidence about the product’s +safety and efficacy in the NDA. This assessment is also informed by other factors, including: the severity of the underlying condition +and how well patients’ medical needs are addressed by currently available therapies; uncertainty about how the premarket clinical +trial evidence will extrapolate to real-world use of the product in the post-market setting; and whether risk management tools are necessary +to manage specific risks. In connection with this assessment, the FDA review team will assemble all individual reviews and other documents +into an “action package,” which becomes the record for FDA review. The review team then issues a recommendation, and a senior +FDA official makes a decision. +A +CRL indicates that the review cycle of the application is complete, and the application will not be approved in its present form. A CRL +generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the +FDA to reconsider the application. The CRL may require additional clinical or other data, additional pivotal Phase III clinical trial(s) +and/or other significant and time-consuming requirements related to clinical trials, preclinical studies or manufacturing. If a CRL is +issued, the applicant will have one year to respond to the deficiencies identified by the FDA, at which time the FDA can deem the application +withdrawn or, in its discretion, grant the applicant an additional six-month extension to respond. The FDA has committed to reviewing +resubmissions in response to an issued CRL in either two or six months depending on the type of information included. Even with the submission +of this additional information, however, the FDA ultimately may decide that the application does not satisfy the regulatory criteria +for approval. +An +approval letter, on the other hand, authorizes commercial marketing of the product with specific prescribing information for specific +indications. That is, the approval will be limited to the conditions of use ( e.g. , patient population, indication) described in +the FDA-approved labeling. Further, depending on the specific risk(s) to be addressed, the FDA may require that contraindications, warnings +or precautions be included in the product labeling, require that post-approval trials, including Phase 4 clinical trials, be conducted +to further assess a product’s safety after approval, require testing and surveillance programs to monitor the product after commercialization +or impose other conditions, including distribution and use restrictions or other risk management mechanisms under a REMS which can materially +affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the +results of post-marketing trials or surveillance programs. After approval, some types of changes to the approved product, such as adding +new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and +approval. +14 +Special +FDA Expedited Review Programs +The +FDA is authorized to designate certain products for expedited development or review if they are intended to address an unmet medical +need in the treatment of a serious or life-threatening disease or condition. These programs include fast track designation, breakthrough +therapy designation, and priority review designation. The purpose of these programs is to provide important new drugs to patients earlier +than under standard FDA review procedures. +To +be eligible for a fast-track designation, the FDA must determine, based on the request of a sponsor, that a product is intended to treat +a serious or life-threatening disease or condition and demonstrates the potential to address an unmet medical need. The FDA will determine +that a product will fill an unmet medical need if it will provide a therapy where none exists or provide a therapy that may be potentially +superior to existing therapy based on efficacy or safety factors. Fast track designation provides additional opportunities for interaction +with the FDA’s review team and may allow for a rolling review of NDA components before the completed application is submitted. If the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines +that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA. In addition, +fast track designation may be withdrawn by the sponsor or rescinded by the FDA if the designation is no longer supported by data emerging +in the clinical trial process. +In +addition, with the enactment of the FDA Safety and Innovation Act (“FDASIA”) in 2012, Congress created a new regulatory program +for therapeutic candidates designated by FDA as “breakthrough therapies” upon a request made by the IND sponsors. A breakthrough +therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening +disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing +therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. +The FDA must take certain actions with respect to breakthrough therapies, such as holding timely meetings with and providing advice to +the product sponsor, intended to expedite the development and review of an application for approval of a breakthrough therapy. +Finally, +the FDA may designate a product for priority review if it is a drug that treats a serious condition and, if approved, would provide a +significant improvement in safety or effectiveness. The FDA determines at the time that the marketing application is submitted, on a +case-by-case basis, whether the proposed drug represents a significant improvement in treatment, prevention or diagnosis of disease when +compared with other available therapies. Significant improvement may be illustrated by evidence of increased effectiveness in the treatment +of a condition, elimination or substantial reduction of a treatment-limiting drug reaction, documented enhancement of patient compliance +that may lead to improvement in serious outcomes, or evidence of safety and effectiveness in a new subpopulation. A priority review designation +is intended to direct overall attention and resources to the evaluation of such applications, and to shorten the FDA’s goal for +taking action on a marketing application from ten months to six months for an NDA for a new molecular entity from the date of filing. +Even +if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for +qualification or decide that the time period for FDA review or approval will not be shortened. Furthermore, fast track designation, breakthrough +therapy designation and priority review do not change the standards for approval and may not ultimately expedite the development or approval +process. +Accelerated +Approval Pathway +In +addition, a product studied for its safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful +therapeutic benefit over existing treatments may receive accelerated approval, meaning that it may be approved on (i) the basis of adequate +and well-controlled clinical trials establishing that the drug product has an effect on a surrogate endpoint that is reasonably likely +to predict clinical benefit, or (ii) on an intermediate clinical endpoint that can be measured earlier than irreversible morbidity or +mortality (“IMM”) and that is reasonably likely to predict an effect on IMM or other clinical benefits, taking into account +the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, +the FDA may require a sponsor of a drug receiving accelerated approval to perform post-marketing studies to verify and describe the predicted +effect on IMM or other clinical endpoints, and the drug may be subject to expedited withdrawal procedures. Drugs granted accelerated +approval must meet the same statutory standards for safety and effectiveness as those granted traditional approval. +The +accelerated approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional post-approval +confirmatory studies to verify and describe the drug’s clinical benefit. As a result, a therapeutic candidate approved on this +basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials +to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or to confirm the predicted clinical +benefit of the product during post-marketing studies, would allow the FDA to withdraw approval of the drug. All promotional materials +for drug products being considered and approved under the accelerated approval program are subject to prior review by the FDA. Lawmakers, +FDA officials, and other stakeholders continually evaluate the accelerated approval program which may lead to legislative and/or administrative +changes in the future. +15 +Post-Approval +Requirements +Drugs +manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among +other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion +and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications +or other labeling claims, are subject to prior FDA review and approval. Certain modifications to the product, including changes in indications +or manufacturing processes or facilities, may require the applicant to develop additional data or conduct additional preclinical studies +and clinical trials to support the submission to FDA. As previously noted, there also are continuing, annual user fee requirements for +any marketed products, as well as new application fees for supplemental applications with clinical data. +The +FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require post-marketing +testing, including Phase 4 clinical trials, and surveillance to further assess and monitor the product’s safety and effectiveness +after commercialization. +In +addition, FDA regulations require that products be manufactured in specific approved facilities and in accordance with cGMPs. The cGMP +regulations include requirements relating to the organization of personnel, buildings and facilities, equipment, control of components +and drug product containers and closures, production and process controls, packaging and labeling controls, holding and distribution, +laboratory controls, records and reports and returned or salvaged products. Drug manufacturers and other entities involved in the manufacture +and distribution of approved drugs are required to register their establishments with the FDA and some state agencies and are subject +to periodic unannounced inspections by the FDA for compliance with cGMP requirements and other laws. Changes to the manufacturing process +are strictly regulated and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA +regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements +upon the sponsor and any third-party manufacturers. Accordingly, manufacturers must continue to expend time, money, and effort in production +and quality control to maintain compliance with cGMP and other aspects of quality control and quality assurance. +The +FDA strictly regulates the marketing, labeling, advertising and promotion of drug products that are placed on the market. A product cannot +be commercially promoted before it is approved, and approved drugs may generally be promoted only for their approved indications and +for use in patient populations described in the product’s approved labeling. Promotional claims must also be consistent with the +product’s FDA-approved label, including claims related to safety and effectiveness. The government closely scrutinizes the promotion +of prescription drugs in specific contexts such as direct-to-consumer advertising, industry-sponsored scientific and educational activities, +and promotional activities involving the Internet and social media. Although physicians may prescribe legally available products for +off-label uses, manufacturers may not market or promote such uses. +Later +discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing +processes, or failure to comply with regulatory requirements, may result in mandatory revisions to the approved labeling to add new safety +information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other +restrictions under a REMS program. Other potential consequences of regulatory non-compliance include, among other things: +● +restrictions +on, or suspensions of, the marketing or manufacturing of the product, complete withdrawal of the product from the market or product +recalls; +● +interruption +of production processes, including the shutdown of manufacturing facilities or production lines or the imposition of new manufacturing +requirements; +● +fines, +warning letters or other enforcement letters or clinical holds on post-approval clinical trials; +● +mandated +modification of promotional materials and labeling and the issuance of corrective information; +● +refusal +of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product approvals; +● +product +seizure or detention, or refusal to permit the import or export of products; +● +injunctions +or the imposition of civil or criminal penalties; or +● +consent +decrees, corporate integrity agreements, debarment, or exclusion from federal healthcare programs. +16 +In +addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act (“PDMA”) +which regulates the distribution of drugs and drug samples at the federal level and sets minimum standards for the registration and regulation +of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples +and impose requirements to ensure accountability in distribution. The Drug Supply Chain Security Act (the “DSCSA”), was enacted +with the aim of building an electronic system to identify and trace certain prescription drugs distributed in the United States. The +DSCSA mandated phased-in and resource-intensive obligations for pharmaceutical manufacturers, wholesale distributors and dispensers by +November 2023, but so as not to disrupt supply chains, the FDA has granted certain exemptions from enhanced drug distribution security +requirements for eligible trading partners for particular periods of time. From time to time, new legislation and regulations may be +implemented that could significantly change the statutory provisions governing the approval, manufacturing and marketing of products +regulated by the FDA. For example, the FDA released proposed regulations in February 2022 to amend the national standards for licensing +of wholesale drug distributors by the states; establish new minimum standards for state licensing third-party logistics providers; and +create a federal system for licensure for use in the absence of a state program, each of which is mandated by the DSCSA. It is impossible +to predict whether further legislative or regulatory changes will be enacted, or FDA regulations, guidance or interpretations will be +changed or what the impact of such potential changes, if any, may be. +Regulatory +Exclusivity and Approval of Follow-on Products +Hatch-Waxman +Exclusivity +In +addition to enacting Section 505(b)(2) of the FDCA as part of the Hatch-Waxman Amendments to the FDCA, Congress also established an abbreviated +regulatory scheme authorizing the FDA to approve generic drugs that are shown to contain the same active ingredients as, and to be bioequivalent +to, drugs previously approved by the FDA pursuant to NDAs. To obtain approval of a generic drug, an applicant must submit an abbreviated +new drug application (“ANDA”) to the agency. An ANDA is a comprehensive submission that contains, among other things, data +and information pertaining to the active pharmaceutical ingredient, bioequivalence, drug product formulation, specifications and stability +of the generic drug, as well as analytical methods, manufacturing process validation data and quality control procedures. ANDAs are “abbreviated” +because they cannot include preclinical and clinical data to demonstrate safety and effectiveness. Instead, in support of such applications, +a generic manufacturer must rely on the preclinical and clinical testing previously conducted for a drug product previously approved +under an NDA, known as the reference listed drug (“RLD”). +In +order for an ANDA to be approved, the FDA must find that the generic version is identical to the RLD with respect to the active ingredients, +the route of administration, the dosage form, the strength of the drug and the conditions of use of the drug. At the same time, the FDA +must also determine that the generic drug is “bioequivalent” to the innovator drug. Under the statute, a generic drug is +bioequivalent to an RLD if “the rate and extent of absorption of the drug do not show a significant difference from the rate and +extent of absorption of the listed drug.” Unlike the 505(b)(2) NDA pathway that permits a follow-on applicant to conduct and submit +data from additional clinical trials or nonclinical studies in order to support the proposed change(s) to the reference product, the +ANDA regulatory pathway does not allow applicants to submit new clinical data other than bioavailability or bioequivalence data. +Upon +approval of an ANDA, the FDA indicates whether the generic product is “therapeutically equivalent” to the RLD in its publication +“Approved Drug Products with Therapeutic Equivalence Evaluations,” also referred to as the “Orange Book.” Physicians +and pharmacists consider a therapeutic equivalent generic drug to be fully substitutable for the RLD. In addition, by operation of certain +state laws and numerous health insurance programs, the FDA’s designation of therapeutic equivalence often results in substitution +of the generic drug without the knowledge or consent of either the prescribing physician or patient. +As +part of the NDA review and approval process, applicants are required to list with the FDA each patent that has claims that cover the +applicant’s product or method of therapeutic use. Upon approval of a new drug, each of the patents listed in the application for +the drug is then published in the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential follow-on competitors +in support of approval of an ANDA or 505(b)(2) NDA. +17 +When +an ANDA applicant submits its application to the FDA, it is required to certify to the FDA concerning any patents listed for the reference +product in the FDA’s Orange Book. Specifically, the applicant must certify that: (i) the required patent information has not been +filed; (ii) the listed patent has expired; (iii) the listed patent has not expired but will expire on a particular date and approval +is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. Moreover, to the +extent that the Section 505(b)(2) NDA applicant is relying on studies conducted for an already approved product, the applicant also is +required to certify to the FDA concerning any patents listed for the NDA-approved product in the Orange Book to the same extent that +an ANDA applicant would. +If +the follow-on applicant does not challenge the innovator’s listed patents, the FDA will not approve the ANDA or 505(b)(2) application +until all the listed patents claiming the referenced product have expired. A certification that the new product will not infringe the +already approved product’s listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the follow-on +applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification +to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent +infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within +45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA or 505(b)(2) NDA until +the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable +to the ANDA or 505(b)(2) applicant. +An +ANDA or 505(b)(2) application also will not be approved until any applicable non-patent exclusivities listed in the Orange Book for the +referenced product have expired. The Hatch-Waxman Amendments to the FDCA provided a five-year period of non-patent data exclusivity within +the United States to the first applicant to gain approval of an NDA for a new chemical entity (“NCE”). For the purposes of +this provision, an NCE is a drug that contains no active moiety that has previously been approved by the FDA in any other NDA. An active +moiety is the molecule or ion responsible for the physiological or pharmacological action of the drug substance. In cases where such +NCE exclusivity has been granted, an ANDA or 505(b)(2) NDA may not be filed with the FDA until the expiration of five years unless the +submission is accompanied by a Paragraph IV certification, in which case the applicant may submit its application four years following +the original product approval. +The +FDCA also provides for a period of three years of data exclusivity if an NDA or NDA supplement includes reports of one or more new clinical +investigations, other than bioavailability or bioequivalence studies, that were conducted or sponsored by the applicant are deemed by +the FDA to be essential to the approval of the application. This three-year exclusivity period often protects changes to a previously +approved drug product, such as new indications, dosage forms, route of administration or combination of ingredients. Three-year exclusivity +would be available for a drug product that contains a previously approved active moiety, provided the statutory requirement for a new +clinical investigation is satisfied. Unlike five-year NCE exclusivity, an award of three-year exclusivity does not block the FDA from +accepting ANDAs or 505(b)(2) NDAs seeking approval for generic versions of the drug as of the date of approval of the original drug product; +rather, this three-year exclusivity covers only the conditions of use associated with the new clinical investigations and, as a general +matter, does not prohibit the FDA from approving follow-on applications for drugs containing the original active ingredient. +Five-year +and three-year exclusivity also will not delay the submission or approval of a traditional NDA filed under Section 505(b)(1) of the FDCA; +however, an applicant submitting a traditional NDA would be required to conduct or obtain a right of reference to all of the preclinical +studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness. +Orphan +Drug Designation and Exclusivity +Under +the Orphan Drug Act, the FDA may grant orphan drug designation to a drug intended to treat a rare disease or condition, which is generally +a disease or condition that affects either (i) fewer than 200,000 individuals in the United States, or (ii) more than 200,000 individuals +in the United States and for which there is no reasonable expectation that the cost of developing and making available in the United +States a drug for this type of disease or condition will be recovered from sales in the United States for that drug. Legislative proposals +are currently being considered that would revise or revoke the second option available for a drug candidate to receive an orphan designation, +the so-called “cost recovery” pathway. Orphan drug designation must be requested before submitting an NDA. After the FDA +grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use will be disclosed publicly by the +FDA; the posting will also indicate whether a drug is no longer designated as an orphan drug. +18 +More +than one clinical asset may receive an orphan drug designation for the same indication, and the same clinical asset can be designated +for more than one qualified orphan indication. The benefits of orphan drug designation include research and development tax credits and +exemption from FDA prescription drug user fees. Orphan drug designation does not convey any advantage in or shorten the duration of the +regulatory review and approval process if or when an NDA for the drug candidate is filed. +If +a product that has orphan drug designation subsequently receives the first FDA approval for the indication for which it has such designation, +the product is entitled to orphan product exclusivity, which means that for seven years, the FDA may not approve any other marketing +applications for the same drug for the same indication, except under limited circumstances described further below. Orphan exclusivity +does not block the approval of a different drug for the same rare disease or condition, nor does it block the approval of the same drug +for different conditions. As a result, the FDA can still approve different drugs for use in treating the same indication or disease. +Additionally, if a drug designated as an orphan product receives marketing approval for an indication broader than what was designated, +it may not be entitled to orphan drug exclusivity. +Orphan +exclusivity will not bar approval of another product with the same drug for the same condition under certain circumstances, including +if a subsequent product with the same drug for the same condition is shown to be clinically superior to the approved product on the basis +of greater efficacy or safety or a major contribution to patient care, or if the company with orphan drug exclusivity cannot assure the +availability of sufficient quantities of the drug to meet the needs of persons with the disease or condition for which the drug was designated. +The FDA is now required to publish a summary of the clinical superiority findings when a drug is eligible for orphan product exclusivity +on the basis of a demonstration of clinical superiority. +Patent +Term Extension +A +patent claiming a prescription drug for which FDA approval is granted may be eligible for a limited patent term extension under the FDCA, +which permits a patent restoration of up to five years for patent term lost during product development and the FDA regulatory review +provided that certain statutory and regulatory requirements are met. The length of the patent term extension is related to the length +of time the drug is under regulatory review while the patent is in force. The restoration period granted on a patent covering a new FDA-regulated +medical product is typically one-half the time between the date a clinical investigation on human beings is begun and the submission +date of an application for premarket approval of the product, plus the time between the submission date of an application for approval +of the product and the ultimate approval date. Patent term restoration cannot be used to extend the remaining term of a patent past a +total of 14 years from the product’s approval date. Only one patent applicable to an approved drug product is eligible for the +extension, and the application for the extension must be submitted prior to the expiration of the patent in question. A patent that covers +multiple products for which approval is sought can only be extended in connection with one of the marketing approvals. The USPTO reviews +and approves the application for any patent term extension or restoration in consultation with the FDA. +Other +U.S. Healthcare Laws and Regulations +Manufacturing, +sales, promotion, and other activities following product approval may also be subject to regulation by other regulatory authorities in +the United States in addition to the FDA. Depending on the nature of the product, those authorities may include the Centers for Medicare +and Medicaid Services (“CMS”), other divisions of the Department of Health and Human Services (“HHS”), the Department +of Justice, the Drug Enforcement Administration, the Federal Trade Commission, the Occupational Safety and Health Administration, and +state and local governments. +For +example, in the United States, sales and marketing for prescription biopharmaceutical products must comply with state and federal fraud +and abuse laws. These laws include the federal Anti-Kickback Statute, which makes it illegal for any person, including a prescription +drug manufacturer (or a party acting on its behalf), to knowingly and willfully solicit, receive, offer or pay any remuneration that +is intended to induce or reward referrals, including the purchase, recommendation, order or prescription of a particular drug, for which +payment may be made under a federal healthcare program, such as Medicare or Medicaid. Violations of this law are punishable by up to +ten years in prison, criminal fines, administrative civil money penalties and exclusion from participation in federal healthcare programs. +In addition, the Patient Protection and Affordable Care Act, or ACA, among other things, amended the intent requirement of the federal +Anti-Kickback Statute and two of the five criminal healthcare fraud statutes created by the Health Insurance Portability and Accountability +Act of 1996, or HIPAA. A person or entity no longer needs to have actual knowledge of these two provisions in the statute or specific +intent to violate them; specifically with respect to the prohibition on executing or attempting to execute a scheme or artifice to defraud +or to fraudulently obtain money or property of any healthcare benefit program and the prohibition on disposing of assets to enable a +person to become eligible for Medicaid. Moreover, the government may now assert that a claim including items or services resulting from +a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act. +19 +Pricing +and rebate programs must comply with the Medicaid rebate requirements of the U.S. Omnibus Budget Reconciliation Act of 1990 and more +recent requirements in the ACA. If products are made available to authorized users of the Federal Supply Schedule of the General Services +Administration, additional laws and requirements apply. There also are federal transparency requirements under the Physician Payments +Sunshine Act that require manufacturers of FDA-approved drugs, devices, biologics and medical supplies covered by Medicare or Medicaid +to report, on an annual basis, to CMS information related to payments and other transfers of value to physicians, teaching hospitals, +and certain advanced non-physician healthcare practitioners and physician ownership and investment interests. Prescription drug products +also must meet applicable child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act. +Manufacturing, +sales, promotion, and other activities also are potentially subject to federal and state consumer protection and unfair competition laws. +Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines, +or the relevant compliance guidance promulgated by the federal government, in addition to requiring drug manufacturers to report information +related to payments to physicians and other healthcare providers or marketing expenditures to the extent that those laws impose requirements +that are more stringent than the Physician Payments Sunshine Act. State and foreign laws also govern the privacy and security of health +information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus +complicating compliance efforts. +The +failure to comply with any of these laws or regulatory requirements subjects firms to possible legal or regulatory action. Depending +on the circumstances, failure to meet applicable regulatory requirements can result in criminal prosecution, fines or other penalties, +injunctions, requests for recall, seizure of products, total or partial suspension of production, denial or withdrawal of product approvals +or refusal to allow a firm to enter into supply contracts, including government contracts. +Government +Regulation Outside the U.S. +In +addition to regulations in the United States, we will be subject to a variety of foreign regulations that govern, among other things, +clinical trials and any commercial sales and distribution of our products, if approved, either directly or through distribution partners. +Whether or not we obtain FDA approval for a product candidate, we must obtain the requisite approvals from regulatory authorities in +foreign countries or economic areas, such as the European Union and the United Kingdom, among other foreign countries, before we may +commence clinical trials or market products in those countries or areas. The foreign regulatory approval process includes all of the +risks associated with the FDA approval described above, and the time required to obtain approval in other countries and jurisdictions +might differ from and be longer than that required to obtain FDA approval. Some foreign jurisdictions have a drug product approval process +similar to that in the U.S., which requires the submission of a clinical trial application much like the IND prior to the commencement +of clinical studies. In Europe, for example, a clinical trial application, or CTA, must be submitted to each country’s national +health authority and an independent ethics committee, much like the FDA and IRB, respectively. Once the CTA is approved in accordance +with a country’s requirements, clinical trial development may proceed. To obtain regulatory approval of a medicinal product candidate +under European Union regulatory systems, we would be required to submit a Marketing Authorisation Application, or MAA, which is similar +to the NDA, except that, among other things, there are country-specific document requirements. For countries outside of the European +Union, such as countries in Eastern Europe, Latin America or Asia, and recently the United Kingdom, the requirements governing the conduct +of clinical trials, product approval, pricing and reimbursement vary from country to country. Regulatory approval in one country or jurisdiction +does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction +may negatively impact the regulatory process in others. Moreover, some nations may not accept clinical studies performed for U.S. approval +to support approval in their countries or require that additional studies be performed on natives of their countries. In addition, in +certain foreign markets, the pricing of drug products is subject to government control and reimbursement may in some cases be unavailable +or insufficient. If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, +suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions, and criminal prosecution. +As +of January 31, 2020, the United Kingdom is no longer a member state of the European Union, and therefore a separate marketing authorization +application and approval will be required to market a medicinal product in the U.K. The Medicines and Healthcare products Regulatory +Agency, or the MHRA, is the U.K.’s standalone pharmaceutical regulator. +20 +Clinical +Trials and Regulation of Medicinal Products in Europe +As +in the United States, medicinal products can be marketed in the European Union only if a marketing authorization from the competent regulatory +agencies has been obtained. Similar to the United States, the various phases of preclinical and clinical research in the European Union +are subject to significant regulatory controls. +Pursuant +to the European Clinical Trials Directive, a system for the approval of clinical trials in the European Union has been implemented through +national legislation of the member states. Under this system, an applicant must obtain approval from the competent national authority +of a European Union member state in which the clinical trial is to be conducted. Furthermore, the applicant may only start a clinical +trial after a competent ethics committee has issued a favorable opinion. Clinical trial applications must be accompanied by an investigational +medicinal product dossier with supporting information prescribed by the European Clinical Trials Directive and corresponding national +laws of the member states and further detailed in applicable guidance documents. In April 2014, the new Clinical Trials Regulation, (EU) +No 536/2014 (Clinical Trials Regulation) was adopted and became effective on January 31, 2022. The Clinical Trials Regulation is directly +applicable in all the European Union Member States, repealing the prior Clinical Trials Directive 2001/20/EC. The extent to which ongoing +clinical trials will be governed by the Clinical Trials Regulation will depend on the duration of the individual clinical trial; if a +clinical trial continues for more than three years from the day on which the Clinical Trials Regulation becomes applicable the Clinical +Trials Regulation will at that time begin to apply to the clinical trial. +The +new Clinical Trials Regulation aims to simplify and streamline the approval of clinical trials in the European Union. The main characteristics +of the regulation include: a streamlined application procedure via a single entry point; a single set of documents to be prepared and +submitted for the application as well as simplified reporting procedures for clinical trial sponsors; and a harmonized procedure for +the assessment of applications for clinical trials. +To +obtain marketing approval of a drug in the European Union, an applicant must submit a MAA either under a centralized or decentralized +procedure. The centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid +for all European Union member states, Iceland, Lichtenstein and Norway. The centralized procedure is compulsory for specific products, +including for medicines produced by certain biotechnological processes, products designated as orphan medicinal products, advanced therapy +products (such as gene-therapy, somatic cell-therapy or tissue-engineered medicines) and products with a new active substance indicated +for the treatment of certain disorders. For products with a new active substance indicated for the treatment of certain disorders and +products that are highly innovative or for which a centralized process is in the interest of patients, the centralized procedure may +be optional. Under the centralized procedure the maximum timeframe for the evaluation of an MAA by the European Medicines Agency (“EMA”) +is 210 days, excluding clock stops, when additional written or oral information is to be provided by the applicant in response to questions +asked by the Committee for Medicinal Products for Human Use (“CHMP”). Accelerated assessment might be granted by the CHMP +in exceptional cases, when a medicinal product is expected to be of a major public health interest, particularly from the point of view +of therapeutic innovation. The timeframe for the evaluation of an MAA under the accelerated assessment procedure is of 150 days, excluding +stop-clocks. +The +decentralized procedure is available to applicants who wish to market a product in specific European Union member states where such product +has not received marketing approval in any European Union member states before. The decentralized procedure provides for an applicant +to apply to one-member state to assess the application (the reference member state) and specifically list other member states in which +it wishes to obtain approval (concerned member states). +21 +In +the European Union, only products for which marketing authorizations have been granted may be promoted. A marketing authorization is +valid for five years in principle and the marketing authorization may be renewed after five years on the basis of a re-evaluation of +the risk-benefit balance by the EMA or by the competent authority of the authorizing member state. To this end, the marketing authorization +holder must provide the EMA or the competent authority with a consolidated version of the file in respect of quality, safety and efficacy, +including all variations introduced since the marketing authorization was granted, at least six months before the marketing authorization +ceases to be valid. Once renewed, the marketing authorization is valid for an unlimited period, unless the European Commission or the +competent authority decides, on justified grounds relating to pharmacovigilance, to proceed with one additional five-year renewal. Any +authorization which is not followed by the actual placing of the drug on the European Union market (in case of centralized procedure) +or on the market of the authorizing member state within three years after authorization ceases to be valid (the so-called sunset clause). +Moreover, +even if authorized to be marketed in the European Union, prescription medicines may only be promoted to healthcare professionals, not +the general public. All promotion should be in accordance with the particulars listed in the summary of product characteristics. Promotional +materials must also comply with various laws, and codes of conduct developed by pharmaceutical industry bodies in the European Union +which govern (among other things) the training of sales staff, promotional claims and their justification, comparative advertising, misleading +advertising, endorsements, and (where permitted) advertising to the general public. Failure to comply with these requirements could lead +to the imposition of penalties by the competent authorities of the European Union member states. The penalties could include warnings, +orders to discontinue the promotion of the drug product, seizure of promotional materials, fines and possible imprisonment. +Regulation +of New Drugs in the United Kingdom +The +United Kingdom left the European Union on January 31, 2020 (commonly referred to as “Brexit”), with a transitional period +that expired on December 31, 2020. The United Kingdom and the European Union entered into a trade agreement known as the Trade and Cooperation +Agreement, which went into effect on January 1, 2021. We are currently evaluating the potential impacts on our business of the Trade +and Cooperation Agreement and guidance issued to date by the United Kingdom’s MHRA regarding the requirements for licensing and +marketing medicinal products in the United Kingdom. +Since +the regulatory framework for pharmaceutical products in the United Kingdom covering the quality, safety and efficacy of pharmaceutical +products, clinical trials, marketing authorization, commercial sales and distribution of medicinal products has only recently changed, +it is difficult to draw comparisons about the impact of the new regulatory regime and impact on the approval of product candidates in +the United Kingdom. In addition, even if a drug is licensed in the UK by the MHRA, it must further be approved by the National Institute +for Health & Care Excellence to ensure use within the UK’s National Health Service (NHS). +Pharmaceutical +Coverage, Pricing and Reimbursement, and Healthcare Reform +Sales +of our products, if approved for marketing, will depend, in part, on the availability and extent of coverage and reimbursement by third-party +payors, such as government health programs, including Medicare and Medicaid, commercial insurance and managed healthcare organizations. +These third-party payors are increasingly challenging the price and limiting the coverage and reimbursement amounts for medical products +and services. There may be significant delays in obtaining coverage and reimbursement for approved products, and coverage may be more +limited than the purposes for which the product is approved by the FDA or regulatory authorities in other countries. It is time-consuming +and expensive to seek reimbursement from third-party payors. Moreover, eligibility for reimbursement does not imply that any product +will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. +Interim payments for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Payment +rates may vary according to the use of the product and the clinical setting in which it is used, may be based on payments allowed for +lower-cost products that are already reimbursed and may be incorporated into existing payments for other services. Net prices for products +may be reduced by mandatory discounts or rebates required by third-party payors and by any future relaxation of laws that presently restrict +imports of products from countries where they may be sold at lower prices than in the United States. In the United States, third-party +payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies, but they also have +their own methods and approval process apart from Medicare coverage and reimbursement determinations. Accordingly, one third-party payor’s +determination to provide coverage for a product does not assure that other payors will also provide coverage for the product. +22 +In +addition, the containment of healthcare costs has become a priority for federal and state governments, and the prices of drugs have been +a focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing +cost-containment programs, including price controls, restrictions on coverage and reimbursement, and requirements for substitution of +generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions +with existing controls and measures, could further limit our net revenue and results. Decreases in third-party reimbursement for our +clinical assets or a decision by a third-party payor to not cover our clinical assets could reduce physician usage of the clinical asset +and have a material adverse effect on our sales, results of operations and financial condition. Moreover, there has been heightened governmental +scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries +and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review +the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug +products. Individual states in the United States have also increasingly passed legislation and implemented regulations designed to control +pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access +and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and +bulk purchasing. In December 2020, the U.S. Supreme Court held unanimously that federal law does not preempt the states’ ability +to regulate pharmaceutical benefit managers (“PBMs”) and other members of the healthcare and pharmaceutical supply chain, +an important decision that has led to further and more aggressive efforts by states in this area. +On +August 16, 2022, President Biden signed into the law the Inflation Reduction Act of 2022, or the IRA. Among other things, the IRA has +multiple provisions that can impact the prices of drug products that are both sold into the Medicare program and throughout the United +States. Beginning in 2023, a manufacturer of drugs covered by Medicare Parts B or D must pay a rebate to the federal government if their +drug product’s price increases faster than the rate of inflation. This calculation is made on a drug product by drug product basis +and the amount of the rebate owed to the federal government is directly dependent on the volume of a drug product that is paid for by +Medicare Parts B or D. Additionally, starting for payment year 2026, CMS will negotiate drug prices annually for a select number of single +source Part D drugs without generic or biosimilar competition. CMS will also negotiate drug prices for a select number of Part B drugs +starting for payment year 2028. If a drug product is selected by CMS for negotiation, it is expected that the revenue generated from +such drug will decrease. +In +addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements +governing drug pricing vary widely from country to country. For example, in the European Union, the sole legal instrument at the European +Union level governing the pricing and reimbursement of medicinal products is Council Directive 89/105/EEC (the “Price Transparency +Directive”). The aim of the Price Transparency Directive is to ensure that pricing and reimbursement mechanisms established in +the European Union Member States are transparent and objective, do not hinder the free movement of and trade in medicinal products in +the European Union, and do not hinder, prevent or distort competition on the market. The Price Transparency Directive does not provide +any guidance concerning the specific criteria on the basis of which pricing and reimbursement decisions are to be made in the individual +European Union Member States, nor does it have any direct consequence for pricing or reimbursement levels in the individual European +Union Member States. The European Union Member States are free to restrict the range of medicinal products for which their national health +insurance systems provide reimbursement, and to control the prices and/or reimbursement levels of medicinal products for human use. A +European Union Member State may approve a specific price or level of reimbursement for the medicinal product or alternatively adopt +a system of direct or indirect controls on the profitability of the company responsible for placing the medicinal product on the market, +including volume-based arrangements, caps and reference pricing mechanisms. +Health +Technology Assessment (“HTA”) of medicinal products is becoming an increasingly common part of the pricing and reimbursement +procedures in some European Union Member States, including France, Germany, Ireland, Italy and Sweden. The HTA process in the European +Union Member States is governed by the national laws of these countries. HTA is the procedure according to which the assessment of the +public health impact, therapeutic impact, and the economic and societal impact of the use of a given medicinal product in the national +healthcare systems of the individual country is conducted. HTA generally focuses on the clinical efficacy and effectiveness, safety, +cost, and cost-effectiveness of individual medicinal products as well as their potential implications for the healthcare system. Those +elements of medicinal products are compared with other treatment options available on the market. The outcome of HTA regarding specific +medicinal products will often influence the pricing and reimbursement status granted to these medicinal products by the competent authorities +of individual European Union Member States. The extent to which pricing and reimbursement decisions are influenced by the HTA of the +specific medicinal product vary between the European Union Member States. For example, European Union Member States that have not yet +developed HTA mechanisms could rely to some extent on the HTA performed in countries with a developed HTA framework when adopting decisions +concerning the pricing and reimbursement of a specific medicinal product. +Separately +from cost containment efforts, in the United States and some foreign jurisdictions, there also have been, and continue to be, several +legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval +of product candidates or restrict or regulate post-approval activities. The FDA’s and other regulatory authorities’ policies +may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our current +or future product candidates. +23 +Data +Privacy and the Protection of Personal Information +We +are subject to laws and regulations governing data privacy and the protection of personal information including health information. The +legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing focus on privacy +and data protection issues which will continue to affect our business. In the United States, we may be subject to state security breach +notification laws, state laws protecting the privacy of health and personal information and federal and state consumer protections laws +that regulate the collection, use, disclosure and transmission of personal information. These laws overlap and often conflict and each +of these laws is subject to varying interpretations by courts and government agencies, creating complex compliance issues. If we fail +to comply with applicable laws and regulations we could be subject to penalties or sanctions, including criminal penalties. Our customers +and research partners must comply with laws governing the privacy and security of health information, including HIPAA and state health +information privacy laws. If we knowingly obtain health information that is protected under HIPAA, called “protected health information,” +our customers or research collaborators may be subject to enforcement, and we may have direct liability for the unlawful receipt of protected +health information or for aiding and abetting a HIPAA violation. +State +laws protecting health and personal information are becoming increasingly stringent. For example, California has implemented the California +Confidentiality of Medical Information Act that imposes restrictive requirements regulating the use and disclosure of health information +and other personally identifiable information, and California has recently adopted the California Consumer Privacy Act of 2018 (“CCPA”). +The CCPA mirrors a number of the key provisions of the EU General Data Protection Regulation (“GDPR”) described below. The +CCPA establishes a new privacy framework for covered businesses by creating an expanded definition of personal information, establishing +new data privacy rights for consumers in the State of California, imposing special rules on the collection of consumer data from minors, +and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement +reasonable security procedures and practices to prevent data breaches. Since passage of the CCPA, several other states (Connecticut, +Colorado, Virginia, and Utah) have also enacted comprehensive consumer privacy laws that include key differences from California’s +law, further complicating compliance by industry and other stakeholders. Other states in the U.S. are considering privacy laws similar +to the CCPA. +In +Europe, the GDPR went into effect in May 2018, implementing a broad data protection framework that expanded the scope of European Union +data protection law, including to non- European Union entities that process, or control the processing of, personal data relating to +individuals located in the European Union, including clinical trial data. The GDPR sets out a number of requirements that must be complied +with when handling the personal data of European Union-based data subjects including: providing expanded disclosures about how their +personal data will be used; higher standards for organizations to demonstrate that they have obtained valid consent or have another legal +basis in place to justify their data processing activities; the obligation to appoint data protection officers in certain circumstances; +new rights for individuals to be “forgotten” and rights to data portability, as well as enhanced current rights (e.g. access +requests); the principal of accountability and demonstrating compliance through policies, procedures, training and audit; and a new mandatory +data breach regime. In particular, medical or health data, genetic data and biometric data where the latter is used to uniquely identify +an individual are all classified as “special category” data under the GDPR and afforded greater protection and require additional +compliance obligations. Further, European Union member states have a broad right to impose additional conditions – including restrictions +– on these data categories. This is because the GDPR allows European Union member states to derogate from the requirements of the +GDPR mainly in regard to specific processing situations (including special category data and processing for scientific or statistical +purposes). As the European Union states continue to reframe their national legislation to harmonize with the GDPR, we will need to monitor +compliance with all relevant European Union member states’ laws and regulations, including where permitted derogations from the +GDPR are introduced. We will also be subject to evolving European Union laws on data export, if we transfer data outside the European +Union to ourselves or third parties outside of the European Union. +The +EU GDPR is an EU Regulation and it no longer applies to the UK. If you operate inside the UK, you need to comply with the Data Protection +Act 2018 (DPA 2018). The provisions of the EU GDPR have been incorporated directly into UK law as the UK GDPR. On 28 June 2021, the EU +approved adequacy decisions for the EU GDPR and the Law Enforcement Directive (LED). This means data can continue to flow freely from +the EU to the UK, in the majority of cases. +The +Cayman Islands Government enacted the Data Protection Act on May 18, 2017 (as amended, the “DPA”). The DPA regulates the +processing of personal data in the Cayman Islands. Under the DPA, the Company is a “data controller” and the Company’s +affiliates and/or its delegates may be “data processors” (or, in some circumstances, data controllers in their own right), +in respect of such personal data. +24 +U.S. +Foreign Corrupt Practices Act and Anti-bribery Regulations +In +general, the Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, prohibits offering to pay, paying, promising to pay, or +authorizing the payment of money or anything of value to a foreign official in order to influence any act or decision of the foreign +official in his or her official capacity or to secure any other improper advantage in order to obtain or retain business for or with, +or in order to direct business to, any person. The prohibitions apply not only to payments made to “any foreign official,” +but also to those made to “any foreign political party or official thereof,” to “any candidate for foreign political +office” or to any person, while knowing that all or a portion of the payment will be offered, given, or promised to anyone in any +of the foregoing categories. “Foreign officials” under the FCPA include officers or employees of a department, agency, or +instrumentality of a foreign government. The term “instrumentality” is broad and can include state-owned or state-controlled +entities. Importantly, United States authorities deem most healthcare professionals and other employees of foreign hospitals, clinics, +research facilities and medical schools in countries with public healthcare and/or public education systems to be “foreign officials” +under the FCPA. When we interact with foreign healthcare professionals and researchers in testing and marketing our products abroad, +should any of our product candidates receive foreign regulatory approval in the future, we must have policies and procedures in place +sufficient to prevent us and agents acting on our behalf from providing any bribe, gift or gratuity, including excessive or lavish meals, +travel or entertainment in connection with marketing our products and services or securing required permits and approvals. The FCPA also +obligates companies whose securities are listed in the United States to comply with accounting provisions requiring us to maintain books +and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise +and maintain an adequate system of internal accounting controls for international operations. +We +are also subject to U.K. Bribery Act of 2010, which prohibits both domestic and international bribery, as well as bribery across both +private and public sectors. In addition, an organization that “fails to prevent bribery” committed by anyone associated with +the organization can be charged under the U.K. Bribery Act unless the organization can establish the defense of having implemented “adequate +procedures” to prevent bribery. As we expand our operations, we are likely to be subject to additional laws and restrictions relating +to anti-bribery. +Environmental, +Health, and Safety Regulation +We +are subject to numerous federal, state, and local environmental, health, and safety (“EHS”) laws and regulations relating +to, among other matters, safe working conditions, product stewardship, environmental protection, and handling or disposition of products, +including those governing the generation, storage, handling, use, transportation, release, and disposal of hazardous or potentially hazardous +materials, medical waste, and infectious materials that may be handled by our partner research laboratories. Some of these laws and regulations +also require us to obtain licenses or permits to conduct our operations. If we fail to comply with such laws or obtain and comply with +the applicable permits, we could face substantial fines or possible revocation of our permits or limitations on our ability to conduct +our operations. Certain of our development and manufacturing activities may involve, from time to time, use of hazardous materials, and +we believe we are in compliance with the applicable environmental laws, regulations, permits, and licenses. However, we cannot ensure +that EHS liabilities will not develop in the future. EHS laws and regulations are complex, change frequently and have tended to become +more stringent over time. Although the costs to comply with applicable laws and regulations have not been material, we cannot predict +the impact on our business of new or amended laws or regulations or any changes in the way existing and future laws and regulations are +interpreted or enforced, nor can we ensure we will be able to obtain or maintain any required licenses or permits. +25 +Employees +As +of December 31, 2025, we had a total of four full-time employees. +We +currently rely on several consultants who provide services to our Company. None of our employees are represented by a labor union or +covered by collective bargaining agreements. We consider our relationship with our employees to be good. We anticipate that the number +of employees will increase as we continue to develop the assets in our pipeline and other clinical assets that we seek to develop. Additionally, +we utilize and expect to continue to utilize clinical research organizations and third parties to perform our pre-clinical studies, clinical +studies, and manufacturing. +Corporate +Information +We +were incorporated under the name “Murphy Canyon Acquisition Corp.” in October 2021 under the laws of the State of Delaware +for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business +combination with one or more businesses. We changed our name to “Conduit Pharmaceuticals Inc.” in connection with the completion +of the Business Combination in September 2023. Effective August 5, 2025, the Company changed its name from Conduit Pharmaceuticals Inc. +to CDT Equity Inc. Our change to CDT Equity Inc. reflects the evolution of our strategy as a data-driven biotech development company +focused on identifying, enhancing, and advancing high-potential therapeutic assets through scientific innovation and strategic partnerships. +Our +principal executive offices are located at 4581 Tamiami Trail North, Suite 200 Naples, Florida. Our telephone number is +1 (646)-491-9132, +and our website can be found at https://www.cdtequity.com. \ No newline at end of file diff --git a/raw/filings/0001896212/2025/0001493152-26-016858/item13.txt b/raw/filings/0001896212/2025/0001493152-26-016858/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..575c86748c024aad74d0ba6f5f98ad5f702065b9 --- /dev/null +++ b/raw/filings/0001896212/2025/0001493152-26-016858/item13.txt @@ -0,0 +1,4 @@ +Item +13. +Certain Relationships and Related Transactions, and Director Independence +75 \ No newline at end of file diff --git a/raw/filings/0001896677/2025/0001193125-26-104243/filing.txt b/raw/filings/0001896677/2025/0001193125-26-104243/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..0866217b649d3fee8404be620ccdd88d2d82eec5 --- /dev/null +++ b/raw/filings/0001896677/2025/0001193125-26-104243/filing.txt @@ -0,0 +1,3317 @@ +10-K +false 0001896677 FY 0 Unlimited Unlimited http://grayscalesolanatrustetf.com/20251231#InvestmentInSOLMember http://grayscalesolanatrustetf.com/20251231#InvestmentInSOLMember 1 5 0.5 5 0001896677 2025-12-31 0001896677 us-gaap:SubsequentEventMember 2026-03-06 0001896677 us-gaap:FairValueInputsLevel2Member 2024-12-31 0001896677 sol:InvestmentMember 2024-12-31 0001896677 2025-11-05 0001896677 2024-10-01 2024-12-31 0001896677 2024-07-01 2024-09-30 0001896677 sol:SponsorMember srt:MaximumMember 2025-10-27 2025-10-27 0001896677 2025-06-30 0001896677 sol:SponsorMember 2025-01-01 2025-11-05 0001896677 2024-01-01 2024-03-31 0001896677 2025-10-29 2025-10-29 0001896677 sol:InvestmentInSOLMember 2024-12-31 0001896677 sol:SponsorMember 2024-01-01 2024-12-31 0001896677 sol:SponsorMember 2025-10-06 2025-12-31 0001896677 sol:GrayscaleSolanaTrustMember 2025-12-31 0001896677 2022-12-31 0001896677 sol:GrayscaleSolanaTrustMember 2024-12-31 0001896677 sol:SponsorMember 2025-12-31 0001896677 us-gaap:FairValueInputsLevel3Member 2024-12-31 0001896677 2025-07-01 2025-09-30 0001896677 2025-04-01 2025-06-30 0001896677 us-gaap:FairValueInputsLevel2Member 2025-12-31 0001896677 srt:MinimumMember sol:SponsorMember 2025-10-27 2025-10-27 0001896677 sol:InvestmentMember 2025-12-31 0001896677 us-gaap:SubsequentEventMember 2026-02-05 0001896677 2025-01-01 2025-03-31 0001896677 2023-03-20 2023-03-20 0001896677 2024-01-01 2024-12-31 0001896677 2023-12-31 0001896677 2024-04-01 2024-06-30 0001896677 us-gaap:FairValueInputsLevel3Member 2025-12-31 0001896677 us-gaap:FairValueInputsLevel1Member 2025-12-31 0001896677 2025-10-29 0001896677 sol:LiabilitiesInExcessOfOtherAssetsMember 2025-12-31 0001896677 us-gaap:SubsequentEventMember sol:SponsorMember 2026-03-06 2026-03-06 0001896677 sol:SponsorMember 2025-10-27 2025-10-27 0001896677 sol:NonSponsorPaidExpensesMember 2025-01-01 2025-12-31 0001896677 sol:SponsorMember 2024-12-31 0001896677 sol:InvestmentInSOLMember 2025-12-31 0001896677 2026-03-06 0001896677 2024-12-09 2024-12-09 0001896677 2024-12-31 0001896677 2025-10-01 2025-12-31 0001896677 us-gaap:SubsequentEventMember 2026-03-06 2026-03-06 0001896677 2023-01-01 2023-12-31 0001896677 sol:SponsorMember 2025-01-01 2025-12-31 0001896677 2025-01-01 2025-12-31 0001896677 us-gaap:FairValueInputsLevel1Member 2024-12-31 xbrli:pure sol:Right xbrli:shares iso4217:USD xbrli:shares iso4217:USD sol:Segment sol:Sol +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +☒ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , 2025 +or +☐ +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from _____ to ______ +Commission File Number 001-42920 +Grayscale Solana Staking ETF +SPONSORED BY GRAYSCALE INVESTMENTS SPONSORS, LLC +(Exact Name of Registrant as Specified in Its Charter) +Delaware +87-6771043 +(State or Other Jurisdiction of +Incorporation or Organization) +(I.R.S. Employer +Identification No.) +290 Harbor Drive , 4 th Floor +Stamford , Connecticut +06902 +(Address of Principal Executive Offices) +(Zip Code) +( 212 ) 668-1427 +(Registrant’s telephone number, including area code) +Securities registered pursuant to Section 12(b) of the Act: +Title of each class +Trading Symbol(s) +Name of each exchange on which registered +Grayscale Solana Staking ETF Shares +GSOL +NYSE Arca, Inc. +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer +☐ +Accelerated filer +☐ +Non-accelerated filer +☒ +Smaller reporting company +☒ +Emerging growth company +☒ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ +Aggregate market value of registrant’s Shares held by non-affiliates of the registrant, based upon the closing price of a Share on June 30, 2025, as reported by NYSE Arca, Inc. on that date: Not applicable +Number of Shares of the registrant outstanding as of March 6, 2026 : 17,744,135 +DOCUMENTS INCORPORATED BY REFERENCE: None +i +Industry and Market Data +Although we are responsible for all disclosure contained in this Annual Report on Form 10-K, in some cases we have relied on certain market and industry data obtained from third-party sources that we believe to be reliable. Market estimates are calculated by using independent industry publications in conjunction with our assumptions regarding the Solana industry and market. While we are not aware of any misstatements regarding any market, industry or similar data presented herein, such data involves risks and uncertainties and is subject to change based on various factors, including those discussed under the headings “Forward-Looking Statements” and “Item 1A. Risk Factors” in this Annual Report. +Forward-Looking Statements +This Annual Report on Form 10-K contains “forward-looking statements” with respect to the financial conditions, results of operations, plans, objectives, future performance and business of Grayscale Solana Staking ETF (the “Trust”). Statements preceded by, followed by or that include words such as “may,” “might,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of these terms and other similar expressions are intended to identify some of the forward-looking statements. All statements (other than statements of historical fact) included in this Annual Report that address activities, events or developments that will or may occur in the future, including such matters as changes in market prices and conditions, the Trust’s operations, the plans of Grayscale Investments Sponsors, LLC (the “Sponsor”), and references to the Trust’s future success and other similar matters are forward-looking statements. These statements are only predictions. Actual events or results may differ materially from such statements. These statements are based upon certain assumptions and analyses the Sponsor made based on its perception of historical trends, current conditions and expected future developments, as well as other factors appropriate in the circumstances. Whether or not actual results and developments will conform to the Sponsor’s expectations and predictions, however, is subject to a number of risks and uncertainties, including, but not limited to, those described in “Part I, Item 1A. Risk Factors.” Forward-looking statements are made based on the Sponsor’s beliefs, estimates and opinions on the date the statements are made and neither the Trust nor the Sponsor is under a duty or undertakes an obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change, other than as required by applicable laws. Investors are therefore cautioned against relying on forward-looking statements. Factors which could have a material adverse effect on the Trust’s business, financial condition or results of operations and future prospects or which could cause actual results to differ materially from the Trust’s expectations include, but are not limited to, those described in “Item 1A. Risk Factors.” +Summary of Risk Factors +Below is a summary of the principal factors that make an investment in the Shares speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below in “Item 1A. Risk Factors.” Some of the factors that could materially and adversely affect our business include, but are not limited to, the following: +Risk Factors Related to Digital Assets +• +Extreme volatility of trading prices that many digital assets, including SOL, have experienced in recent periods and may continue to experience, could have a material adverse effect on the value of the Shares and the Shares could lose all or substantially all of their value. +• +The medium-to-long term value of the Shares is subject to a number of factors relating to the capabilities and development of blockchain technologies and to the fundamental investment characteristics of digital assets. +• +Digital assets represent a relatively new and rapidly evolving industry, and the value of the Shares depends on the acceptance of SOL. +• +Digital assets may have concentrated ownership and large sales or distributions by holders of such digital assets could have an adverse effect on the market price of such digital assets. +• +A temporary or permanent “fork” or a “clone” could adversely affect the value of the Shares. +Risk Factors Related to the Digital Asset Markets +• +Recent developments in the digital asset economy have led to extreme volatility and disruption in digital asset markets, a loss of confidence in participants of the digital asset ecosystem, significant negative publicity surrounding digital assets broadly and market-wide declines in liquidity. +ii +• +The value of the Shares relates directly to the value of SOL held by the Trust, the value of which may be highly volatile and subject to fluctuations. +• +The largely unregulated nature and lack of transparency surrounding the operations of Digital Asset Trading Platforms may adversely affect the value of digital assets and, consequently, the value of the Shares. +• +Digital Asset Trading Platforms may be exposed to front-running and wash-trading. +• +The Index has a limited history and a failure of the Index Price could adversely affect the value of the Shares. +• +Competition from the emergence or growth of other digital assets could have a negative impact on the price of SOL and adversely affect the value of the Shares. +Risk Factors Related to the Trust and the Shares +• +The Trust relies on third-party service providers to perform certain functions essential to the affairs of the Trust and the replacement of such service providers could pose challenges to the safekeeping of the Trust’s SOL and to the operations of the Trust. +• +The liquidity of the Shares may be affected if Authorized Participants cease to perform their obligations under the Participant Agreements or the Liquidity Engager is unable to engage Liquidity Providers. +• +The Shares may trade at a price that is at, above or below the Trust’s NAV per Share as a result of the non-concurrent trading hours between NYSE Arca and the Digital Asset Trading Platform Market. +• +Any suspension or other unavailability of the Trust’s redemption program may cause the Shares to trade at a discount to the NAV per Share. +• +Shareholders may suffer a loss on their investment if the Shares trade above or below the Trust’s NAV per Share. +• +The current unavailability of in-kind creations and redemptions of Shares could have adverse consequences for the Trust. +• +Extraordinary expenses, tax liabilities arising from SOL sales without distributions, indemnification obligations, intellectual property claims, and disruptions from pandemics or other disasters could adversely affect the value of the Shares. +Risk Factors Related to the Regulation of Digital Assets, the Trust and the Shares +• +A determination that SOL or any other digital asset is a “security” may adversely affect the value of SOL and the value of the Shares, and result in potentially extraordinary, nonrecurring expenses to, or termination of, the Trust. +• +Regulatory changes or actions by the U.S. Congress or any U.S. federal or state agencies may affect the value of the Shares or restrict the use of one or more digital assets, validating activity or the operation of their networks or the Digital Asset Markets in a manner that adversely affects the value of the Shares. +• +Regulatory changes or other events in foreign jurisdictions may affect the value of the Shares or restrict the use of one or more digital assets, validating activity or the operation of their networks or the Digital Asset Trading Platform Market in a manner that adversely affects the value of the Shares. +• +The Authorized Participant, the Trust or the Sponsor could be subject to regulation as a money service business or money transmitter, which could result in extraordinary expenses to the Authorized Participant, the Trust or the Sponsor and also result in decreased liquidity for the Shares. +• +Regulatory changes or interpretations could obligate the Trust or the Sponsor to register and comply with new regulations, resulting in potentially extraordinary, nonrecurring expenses to the Trust. +• +The uncertain and evolving tax treatment of the Trust, digital assets, SOL and transactions involving SOL under U.S. federal, state, and local tax laws could adversely affect the value of the Shares. +Risk Factors Related to Potential Conflicts of Interest +• +Conflicts of interest may arise among the Sponsor or its affiliates and the Trust. +• +Shareholders cannot be assured of the Sponsor’s continued services, the discontinuance of which may be detrimental to the Trust. +• +If the Custodian resigns or is removed by the Sponsor, or otherwise, without replacement, it would trigger early termination of the Trust. +iii +Risk Factors Related to Staking +• +The lack of ability to participate in any different form of Staking to the extent the Staking Condition is not satisfied, which could have adverse consequences for the Trust. +• +Staking introduces a risk of loss of SOL which could adversely affect the value of the Shares. +• +Staked SOL tokens will be inaccessible for a variable period of time, determined by a range of factors, which could result in certain liquidity risk to the Trust. +• +The Trust will be dependent on third parties to effectively execute the Trust’s Staking Arrangements. +• +The regulatory landscape surrounding Staking is uncertain. +• +Beneficial owners of Shares could incur tax liabilities without receiving corresponding distributions from the Trust. +Unless otherwise stated or the context otherwise requires, the terms “we,” “our” and “us” in this Annual Report refer to the Sponsor acting on behalf of the Trust. +A glossary of industry and other defined terms is included in this Annual Report, beginning on page 111 . +iv +Table of Contents +Item No. +Item Caption +Page +PART I +Item 1. +Business +1 +Item 1A. +Risk Factors +52 +Item 1B. +Unresolved Staff Comments +92 +Item 1C. +Cybersecurity +92 +Item 2. +Properties +92 +Item 3. +Legal Proceedings +93 +Item 4. +Mine Safety Disclosures +93 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +94 +Item 6. +[Reserved] +94 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +95 +Item 7A. +Quantitative and Qualitative Disclosures about Market Risk +103 +Item 8. +Financial Statements and Supplementary Data +103 +Item 9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +103 +Item 9A. +Controls and Procedures +104 +Item 9B. +Other Information +104 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +104 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +105 +Item 11. +Executive Compensation +106 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +106 +Item 13. +Certain Relationships and Related Transactions and Director Independence +107 +Item 14. +Principal Accountant Fees and Services +108 +PART IV +Item 15. +Exhibits and Financial Statement Schedules +109 +Item 16. +Form 10-K Summary +110 +Glossary of Defined Terms +111 +v +PART I +Item 1. B usiness +Overview of the Trust and the Shares +Grayscale Solana Staking ETF (formerly known as Grayscale Solana Trust (SOL) and Grayscale Solana Trust ETF) (the “Trust”) is a Delaware Statutory Trust that was formed on November 9, 2021, by the filing of the Certificate of Trust with the Delaware Secretary of State in accordance with the provisions of the Delaware Statutory Trust Act. The Trust’s purpose is to hold Solana tokens (“SOL”), which are digital assets that are created and transmitted through the operations of the peer-to-peer Solana Network, a decentralized network of computers that operates on cryptographic protocols. +As of December 31, 2025, the Trust holds approximately 0.23% of the SOL in circulation. The size of the Trust’s position does not itself enable the Sponsor or the Trust to participate in or otherwise influence the development of the Solana Network. As a decentralized digital asset network, the Solana Network consists of several stakeholders, including core developers of SOL, users, services, businesses, validators and other constituencies, of which the Trust is only one constituent. Furthermore, in contrast to other protocols in which token holders participate in the governance of the network, ownership of SOL confers no such rights. +On January 5, 2026, the Trust changed its name from Grayscale Solana Trust ETF to Grayscale Solana Staking ETF and previously, on October 28, 2025, the Trust changed its name from Grayscale Solana Trust (SOL) to Grayscale Solana Trust ETF, in each case by filing a Certificate of Amendment to the Certificate of Trust with the Delaware Secretary of State. On December 3, 2024, NYSE Arca, Inc. (“NYSE Arca”) submitted an application under Rule 19b-4 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) to list the Shares of the Trust on NYSE Arca. On September 17, 2025, the Securities and Exchange Commission (the “SEC”) approved a proposed rule change for new Rule 8.201-E (Generic) with the SEC pursuant to Rule 19b-4 under the Exchange Act to amend NYSE Arca’s listing rules to permit the listing and trading of shares of certain commodity-based exchange-traded products that satisfy certain generic requirements (the “Generic Listing Standards”). On October 28, 2025, the Sponsor’s application to list and trade the Trust’s Shares on NYSE Arca under the Generic Listing Standards was approved and the Trust began trading on NYSE Arca on October 29, 2025 (the “Uplisting Date”), following the effectiveness of the Trust’s registration statement on Form S-1, as amended (File No. 333-286374). The Shares are listed on NYSE Arca under the ticker symbol “GSOL.” The Trust issues common units of fractional undivided beneficial interest (“Shares”), which represent ownership in the Trust, on a continuous basis pursuant to the registration statement under the Securities Act of 1933, as amended (the “Securities Act”) in exchange for deposits of SOL. +As a passive investment vehicle, the Trust’s investment objective is for the value of the Shares (based on SOL per Share) to reflect the value of the SOL held by the Trust, including SOL earned as Staking Consideration, determined by reference to the Index Price, less the Trust’s expenses and other liabilities. Except for any SOL earned as Staking Consideration, the Trust does not seek to generate returns beyond tracking the price of SOL. There can be no assurance that the Trust will be able to achieve its investment objective. Historically, the Trust has not met its investment objective and, prior to their uplisting to NYSE Arca on October 29, 2025, the Shares quoted on the OTCQX Best Market® (“OTCQX”) of OTC Markets Group Inc. did not reflect the value of the SOL held by the Trust, less the Trust’s expenses and other liabilities, but instead had traded at both premiums and discounts to such value, which at times were substantial, although the Sponsor has observed that the Trust has begun to meet its investment objective more closely following the uplisting of the Shares to NYSE Arca. The Trust will not utilize leverage, derivatives or any similar arrangements in seeking to meet its investment objective. +Until December 31, 2024, Grayscale Investments, LLC was the sponsor and administrator of the Trust. As a result of the Reorganization (as defined herein) on January 1, 2025, Grayscale Investments Sponsors, LLC (“GSIS”) and Grayscale Operating, LLC (“GSO”), consolidated subsidiaries of Digital Currency Group, Inc. (“DCG”), became Co-Sponsors of the Trust. On January 3, 2025 GSO voluntarily withdrew as a Sponsor of the Trust, and effective May 3, 2025 GSIS is the sole remaining Sponsor. Prior to May 3, 2025, all references herein to the “Sponsor” shall be deemed to include both GSIS and GSO as Sponsors unless the context otherwise requires, and on or after May 3, 2025, all references herein to the “Sponsor” shall refer only to GSIS. CSC Delaware Trust Company is the trustee of the Trust (the “Trustee”), The Bank of New York Mellon is the transfer agent (in such capacity, the “Transfer Agent”) and the administrator (in such capacity, the “Administrator”) of the Trust, Continental Stock Transfer & Trust Company is the co-transfer agent of the Trust (the “Co-Transfer Agent”), Coinbase, Inc. is the prime broker (the “Prime Broker”) of the Trust, Coinbase Custody Trust Company, LLC is the custodian of the Trust (the “Custodian”), and Anchorage Digital Bank N.A. (the “Additional Custodian”) is an available alternative custodian of the Trust. +The Trust issues Shares only in one or more blocks of 10,000 Shares (a block of 10,000 Shares is called a “Basket”) to certain authorized participants (“Authorized Participants”) from time to time. The Trust creates Baskets of Shares only upon receipt of SOL and redeems Shares only by distributing SOL or proceeds from the disposition of SOL. At this time, Authorized Participants may only submit orders to create or redeem Shares through transactions that are referred to as “Cash Orders”, as the Participant Agreements do not currently provide for in-kind creations and redemptions. The Trust may effect creations and redemptions through in-kind transactions in the future if and when a Participant Agreement is entered into or amended to provide for in-kind creations and redemptions. The value of a Basket is based on the amount of SOL represented by the Basket, determined by reference to the Index Price. For a more detailed description of the Index and the Index Price, see “—The Index and the Index Price.” For a more detailed description of the creation and redemption procedures, see “—Description of Creation and Redemption of Shares.” +1 +The Shares are neither interests in nor obligations of the Sponsor or the Trustee. As provided under the Trust Agreement, the Trust’s assets will not be loaned or pledged, or serve as collateral for any loan, margin, rehypothecation, or other similar activity to which the Sponsor, the Trust or any of their respective affiliates are a party. +The Sponsor maintains an internet website at etfs.grayscale.com/gsol, through which the registrant’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as amended, are made available free of charge after they have been filed or furnished to the SEC. Additional information regarding the Trust may also be found on the SEC’s EDGAR database at www.sec.gov. +The contents of the websites referred to above and any websites referred to herein are not incorporated into this filing or any other reports or documents we file with or furnish to the SEC. Further, our references to the URLs for these websites are intended to be inactive textual references only. +Investment Objective +The Trust’s investment objective is for the value of the Shares (based on SOL per Share) to reflect the value of SOL held by the Trust, including SOL earned as Staking Consideration, determined by reference to the Index Price, less the Trust’s expenses and other liabilities. Historically, the Trust has not met its investment objective and, prior to their uplisting to NYSE Arca on October 29, 2025, the Shares quoted on OTCQX did not reflect the value of the SOL held by the Trust, less the Trust’s expenses and other liabilities, but instead had traded at both premiums and discounts to such value, which at times were substantial, although the Sponsor has observed that the Trust has begun to meet its investment objective more closely following the uplisting of the Shares to NYSE Arca on October 29, 2025. +In the event the Shares trade at a substantial premium, investors who purchase Shares on NYSE Arca will pay substantially more for their Shares than investors who purchase Shares directly from Authorized Participants. The value of the Shares may not reflect the value of the Trust’s SOL, less the Trust’s expenses and other liabilities, for a variety of reasons, including any halting of creations or redemptions by the Trust, SOL price volatility, trading volumes on, or closures of, trading platforms where digital assets trade due to fraud, failure, security breaches or otherwise, and the non-concurrent trading hours between NYSE Arca and the global trading platform market for trading SOL. As a result, the Shares may trade at a premium over, or a discount to, the value of the Trust’s SOL, less the Trust’s expenses and other liabilities, and the Trust may be unable to meet its investment objective from time to time. +From October 29, 2025, the Uplisting Date, to December 31, 2025, the maximum premium of the closing price of the Shares listed on NYSE Arca over the value of the Trust’s NAV per Share was 0.32%, the average premium was 0.12%, the maximum discount of the closing price of the Shares listed on NYSE Arca below the value of the Trust’s NAV per Share was 0.55%, and the average discount was 0.12%. As of December 31, 2025, the Trust’s Shares were listed on NYSE Arca at a premium of 0.03% to the Trust’s NAV per Share. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Secondary Market Trading.” +While an investment in the Shares is not a direct investment in SOL, the Shares are designed to provide investors with a cost-effective and convenient way to gain investment exposure to SOL. A substantial direct investment in SOL may require expensive and sometimes complicated arrangements in connection with the acquisition, security and safekeeping of the SOL and may involve the payment of substantial fees to acquire such SOL from third-party facilitators through cash payments of U.S. dollars. Because the value of the Shares is correlated with the value of the SOL held by the Trust, it is important to understand the investment attributes of, and the market for, SOL. +The Trust’s SOL are carried, for financial statement purposes, at fair value, as required by the U.S. generally accepted accounting principles (“U.S. GAAP”). The Trust determines the fair value of SOL based on the price provided by the Digital Asset Market that the Trust considers its principal market as of 4:00 p.m., New York time, on the valuation date. The net asset value of the Trust determined on a U.S. GAAP basis is referred to in this Annual Report as “Principal Market NAV.” See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Principal Market and Fair Value Determination” for more information on the Trust’s principal market selection. +The Trust uses the Index Price to calculate its “NAV,” a non-GAAP metric, which is the aggregate value, expressed in U.S. dollars, of the Trust’s assets (other than U.S. dollars or other fiat currency), less the U.S. dollar value of the Trust’s expenses and other liabilities, calculated in the manner set forth under “—Valuation of SOL and Determination of NAV.” “NAV per Share” is calculated by dividing NAV by the number of Shares currently outstanding. NAV and NAV per Share are not measures calculated in accordance with U.S. GAAP. NAV is not intended to be a substitute for the Trust’s Principal Market NAV calculated in accordance with U.S. GAAP, and NAV per Share is not intended to be a substitute for the Trust’s Principal Market NAV per Share calculated in accordance with U.S. GAAP. +2 +Pursuant to the terms of the Trust Agreement, the Trust is required to dissolve under certain circumstances. In addition, the Sponsor may, in its sole discretion, dissolve the Trust for a number of reasons, including if the Sponsor determines, in its sole discretion, that it is desirable or advisable for any reason to discontinue the affairs of the Trust. For example, if the Sponsor determines that SOL is a security under the federal securities laws, whether that determination is initially made by the Sponsor itself, or because a federal court upholds an allegation that SOL is a security, the Sponsor does not intend to permit the Trust to continue holding SOL in a way that would violate the federal securities laws (and therefore would either dissolve the Trust or potentially seek to operate the Trust in a manner that complies with the federal securities laws, including the Investment Company Act of 1940, as amended (the “Investment Company Act”)). See “—Description of the Trust Agreement—Termination of the Trust” for additional discussion of the circumstances under which the Trust could be dissolved. See “Item 1A. Risk Factors—Risk Factors Related to the Trust and the Shares—A determination that SOL or any other digital asset is a “security” may adversely affect the value of SOL and the value of the Shares, and result in potentially extraordinary, nonrecurring expenses to, or termination of, the Trust.” +Characteristics of the Shares +The Shares are intended to offer investors an opportunity to gain exposure to digital assets through an investment in securities. As of December 31, 2025, each Share represented approximately 0.0734 of one SOL. The logistics of accepting, transferring and safekeeping of SOL are dealt with by the Sponsor and Custodian, and the related expenses are built into the value of the Shares. Therefore, shareholders do not have additional tasks or costs over and above those generally associated with investing in any other privately placed security. +The Shares have certain other key characteristics, including the following: +• +Easily Accessible and Relatively Cost Efficient . Investors in the Shares can also directly access the Digital Asset Markets. The Sponsor believes that investors will be able to more effectively implement strategic and tactical asset allocation strategies that use SOL by using the Shares instead of directly purchasing and holding SOL, and for many investors, transaction costs related to the Shares will be lower than those associated with the direct purchase, storage and safekeeping of SOL. +• +Market-Traded and Transparent . The Shares are listed on NYSE Arca. The Sponsor believes the quotation of the Shares on NYSE Arca provides investors with an efficient means to implement various investment strategies. The Trust will not hold or employ any derivative securities. Furthermore, the value of the Trust’s assets will be reported each day on etfs.grayscale.com/gsol. +• +Minimal Credit Risk . The Shares represent an interest in actual SOL owned by the Trust. The Trust’s SOL are not subject to borrowing arrangements with third parties and are subject to counterparty and minimal credit risk with respect to the Custodian. This contrasts with the other financial products such as CoinShares exchange-traded notes, TeraExchange swaps and SOL futures and options traded on the Chicago Mercantile Exchange (“CME”) and the Intercontinental Exchange (“ICE”) through which investors gain exposure to digital assets through the use of derivatives that are subject to counterparty and credit risks. +• +Safekeeping System . The Custodian has been appointed to control and secure the SOL for the Trust using offline storage, or “cold storage”, mechanisms to secure the Trust’s private key “shards”. The hardware, software, administration and continued technological development that are used by the Custodian may not be available or cost-effective for many investors. +The Trust differentiates itself from many competing digital asset financial vehicles in the following ways: +• +Custodian . The Custodian that holds the private key shards associated with the Trust’s SOL is Coinbase Custody Trust Company, LLC. Other digital asset financial vehicles that use cold storage may not use a custodian to hold their private keys. +• +Cold Storage of Private Keys . The private key shards associated with the Trust’s SOL are kept in cold storage, which means that the Trust’s SOL are disconnected and/or deleted entirely from the internet. See “—Custody of the Trust’s SOL” for more information relating to the storage and retrieval of the Trust’s private keys to and from cold storage. Other digital asset financial vehicles may not utilize cold storage or may utilize less effective cold storage-related hardware and security protocols. +• +Location of Private Vaults . Private key shards associated with the Trust’s SOL are distributed geographically by the Custodian in secure vaults around the world, including in the United States. The locations of the secure vaults may change regularly and are kept confidential by the Custodian for security purposes. +• +Enhanced Security . Transfers from the Trust’s Vault Balance require certain security procedures, including but not limited to, multiple encrypted private key shards, usernames, passwords and 2-step verification. Multiple private key shards held by the Custodian must be combined to reconstitute the private key to sign any transaction in order to transfer the Trust’s SOL. Private key shards are distributed geographically in secure vaults around the world, including in the United States. As a result, if any one secure vault is ever compromised, this event will have no impact on the ability of the Trust to access its assets, other than +3 +a possible delay in operations, while one or more of the other secure vaults is used instead. These security procedures are intended to remove single points of failure in the protection of the Trust’s SOL. +• +Custodian Inspections . The Custodian has agreed to allow the Trust and the Sponsor to take such steps as necessary to verify that satisfactory internal control systems and procedures are in place. +• +Directly Held SOL . The Trust directly owns actual SOL held through the Custodian. This may differ from other digital asset financial vehicles that provide SOL exposure through other means, such as the use of financial or derivative instruments. +• +Sponsor’s Fee . The Sponsor’s Fee is a competitive factor that may influence the value of the Shares. +Activities of the Trust +The activities of the Trust are limited to (i) issuing Baskets in exchange for SOL transferred to the Trust as consideration in connection with the creations, (ii) transferring or selling SOL as necessary to cover the Sponsor’s Fee, the Sponsor’s Staking Fee and/or any Additional Trust Expenses, (iii) transferring SOL in exchange for Baskets surrendered for redemption, (iv) causing the Sponsor to sell SOL on the termination of the Trust, (v) making distributions of Incidental Rights and/or IR Virtual Currency or cash from the sale thereof (subject to NYSE Arca obtaining regulatory approval from the SEC), as described in “—Incidental Rights and IR Virtual Currency” below, (vi) engaging in any form of Staking, but only if (and, then, only to the extent that) the Staking Condition has been satisfied with respect thereto, (vii) receiving Staking Consideration and, after payment of the Sponsor’s Staking Fee therefrom, making distributions of Staking Consideration received by the Trust (or cash from the sale thereof), and (viii) engaging in all administrative and security procedures necessary to accomplish such activities in accordance with the provisions of the Trust Agreement, the Prime Broker Agreement, the Index License Agreement and the Participant Agreements. +The Trust may engage in any lawful activity necessary or desirable in order to facilitate shareholders’ access to Incidental Rights or IR Virtual Currency (subject to NYSE Arca obtaining regulatory approval from the SEC), provided that such activities do not conflict with the terms of the Trust Agreement. See “—Incidental Rights and IR Virtual Currency” for more information. The Trust will not be actively managed. It will not engage in any activities designed to obtain a profit from, or to ameliorate losses caused by, changes in the market prices of SOL. +Staking +Staking on the Solana Network refers to using SOL, or permitting SOL to be used through an agent or otherwise, in the Solana Network’s proof-of-stake validation protocol, in exchange for the receipt of staking rewards paid in-kind (“Staking”). The Trust Agreement provides that the Trust may engage in Staking, but only if (and, then, only to the extent that) the Staking Condition has been satisfied. On October 6, 2025, the Staking Condition was satisfied with respect to the form of Staking described in this Annual Report, and on that date the Trust commenced Staking pursuant to the Staking Arrangements described below. The Sponsor may from time-to-time modify the form of Staking in which the Trust engages, but only if (and, then, only to the extent that) the Staking Condition has been satisfied with respect to any such modified form of Staking, and subject to compliance with any additional requirements that may arise in connection with satisfaction of the Staking Condition with respect thereto . +Staking Arrangements and Provider-Facilitated Staking Model +The Sponsor has caused, and from time to time may cause, the Trust to enter into written arrangements (the “Staking Arrangements”) with the Custodian and one or more third party staking providers (each, a “Staking Provider”), which may be affiliates of the Custodian or other trusted institutional validators, to stake the Trust’s SOL to a Staking Provider operating validator software and associated hardware (“Provider-Facilitated Staking”). The Sponsor anticipates that the Trust’s SOL is and will be staked exclusively by means of Provider-Facilitated Staking . +Under the Staking Arrangements, the Trust is permitted to accept only Staking Consideration received in the form of SOL, and is not permitted to accept any Other Staking Consideration in the form of other digital assets. Neither the Trust, nor the Sponsor on behalf of the Trust, has the ability under the Staking Arrangements to take advantage of any variations in the market to improve the investments of shareholders, including with respect to variations based on the value of SOL or the amount of Staking Consideration received as staking rewards. As a whole, the Staking Arrangements permit the Trust to retain ownership of its SOL at all times for U.S. federal income tax purposes while simultaneously protecting and conserving the Trust Estate by mitigating the risk that another party or group could control a majority of the Solana Network and engage in transactions that could reduce the Trust Estate’s value. +A Staking Provider must meet certain requirements in order to be selected to participate in the Provider-Facilitated Staking model contemplated by the Staking Arrangements. For example, each Staking Provider is required to be unrelated to both the Trust and the +4 +Sponsor. Under the Staking Arrangements, the Staking Provider bears all of its own expenses (including those on account of its validation activities). +The Staking Provider is the node operator and is obligated to operate the validator through which the Trust’s SOL is staked to ensure that validation occurs. The Trust’s SOL is currently staked from the Trust’s wallets administered by the Custodian, and the Staking Provider performs any related validation activities. The Trust retains control of its staked SOL because (1) the staked SOL remains in the Trust’s wallet administered by the Custodian (rather than transferred to a wallet address controlled by the Staking Provider) and (2) the Trust (rather than the Staking Provider) retains the ability through the Custodian to un-stake its SOL from the applicable smart contracts. Because staked SOL remains in the Trust wallet administered by the Custodian, even when staked, the Trust’s SOL is not commingled with the SOL of any other SOL holder in connection with Staking, such as the Staking Provider or others who stake to the Staking Provider, despite the Trust delegating its validation rights to the Staking Provider, which may be in receipt of other SOL holders’ validation rights. The Trust does not itself undertake any validation activities, and the Sponsor is not required to perform any services. Moreover, the Sponsor is not required to make any decisions or take any actions, other than (i) selecting the Staking Provider(s) and entering into the corresponding Staking Arrangement(s), and (ii) determining, from time to time, what portion of the Trust’s SOL to stake and un-stake, and informing the Staking Provider(s) of those determinations. +The Sponsor currently engages in and anticipates that it will continue to engage in staking with respect to all of the Trust’s SOL at all times, except (i) as necessary to pay the Sponsor’s Fee, (ii) as necessary to pay any additional Trust expenses, (iii) as necessary to satisfy existing and reasonably foreseen potential redemption requests as determined by the Sponsor, (iv) as necessary to reduce the SOL obtained by the Trust as Staking Consideration to cash for distribution at regular intervals, (v) if the Sponsor determines that Staking raises significant governmental, policy or regulatory concerns or is subject or likely subject to a specialized regulatory regime, (vi) if the Sponsor determines there exists vulnerabilities in the source code or cryptography underlying the Solana Network and any associated software, (vii) if the Custodian or Staking Provider discontinues their arrangements with the Trust, (viii) if the Sponsor otherwise determines that continued Staking of such portion of the Trust’s assets would be inconsistent with the Trust’s purpose of protecting and preserving the value of the Trust Estate, (ix) to fund or replenish the Liquidity Sleeve (as defined herein) or (x) in accordance with any other exception that is expressly contemplated by an opinion, ruling or tax guidance that satisfies the Staking Condition. All SOL received by the Trust in connection with the creation of new Shares, or as Staking Consideration, would also be staked upon receipt by the Trust, unless one or more of the exceptions described in clauses (i)-(ix) above applies. Moreover, any staked SOL which must be un-staked in order to fulfill a distribution in connection with a redemption (to the extent such distribution cannot be fulfilled utilizing the portion of the Trust’s SOL that has not been staked, or through another mechanism to manage liquidity in connection with Redemption Orders contemplated by an opinion of a Tax Advisor, a Tax Ruling or Tax Guidance that satisfies the Staking Condition) will be un-staked only after the redemption request is approved by the Trust, the Sponsor executes an un-stake or withdrawal transaction through the Custodian, and such transaction is processed by the Solana Network. The Staking Provider is not able to transfer unstaked SOL or Staking Consideration to another address on the Solana Network. +The Sponsor has satisfied the Staking Condition with respect to certain liquidity procedures, which it believes will ensure that it will satisfy existing and reasonably foreseen redemption requests. Specifically, the Sponsor intends to maintain a portion of unstaked SOL in the Trust (the “Liquidity Sleeve”). Because the SOL in the Liquidity Sleeve is freely transferable, there is no timing mismatch between settlement of Shares in primary market redemptions and the SOL transfer time. The percentage of the Trust’s SOL comprising the Liquidity Sleeve will be dynamic and subject to adjustment based on anticipated primary and secondary market activity of the Shares and the SOL unstaking process. The Sponsor generally seeks to stake as much of the Trust’s SOL as is practicable (i.e., up to 100%) at all times, with the remainder of the Trust’s SOL remaining unstaked in order to address the various exceptions and other considerations described herein. The percentage of the Trust’s SOL that is staked each day is reported the following day at 4:00 p.m., New York time, on etfs.grayscale.com/gsol. In the future and subject to the satisfaction of the Staking Condition thereto, the Sponsor, on behalf of the Trust, may be able to enter into other financing arrangements or implement other mechanisms to manage SOL liquidity constraints, including entering into short-term financing arrangements with its Custodian to provide SOL to the Trust for settlement of trades with the Trust’s Liquidity Provider(s), if necessary. These liquidity risk policies and procedures are intended to be consistent with NYSE Arca’s proposed generic listing standards. +Under the Staking Arrangements, any Staking Consideration earned accrues in accordance with the Solana Network’s rewards distribution mechanism to the Trust’s wallets administered by the Custodian. Periodically, the Trust may either (i) distribute SOL received as Staking Consideration to the Trust’s beneficiaries (likely using a liquidating agent), (ii) sell that SOL for cash and distribute the proceeds to the Trust’s beneficiaries, (iii) retain the SOL in the Trust, (iv) pay a portion of the Staking Consideration to the Sponsor (the “Sponsor's Staking Fee”) as consideration for its facilitation of the Staking Arrangements or (v) a combination of the foregoing, in the Sponsor’s sole discretion. The Sponsor has implemented a staking policy with respect to the Trust, which describes the frequency of, and conditions under which the Trust will make such distributions, if any, to the Trust’s beneficiaries. The Sponsor has made such staking policy available to shareholders on the Sponsor’s website. Subject to any slashing risk, the Trust (through the Custodian) will maintain control and remain the record and beneficial owner of the staked tokens at all times, and the tokens will remain associated with the Trust’s wallet. +5 +As of October 6, 2025, and pursuant to the Staking Arrangements, the Custodian and the Staking Provider became entitled to receive a portion of the gross Staking Consideration generated under the Staking Arrangements, reflecting the Custodian’s fee and the Staking Provider’s share of such Staking Consideration, with the remainder received by the Trust. The allocation of gross Staking Consideration between the Custodian and the Staking Provider reflects an arm’s length allocation that is independent of the expenses of both the Staking Provider and Custodian, and may be stated as a percentage of the gross Staking Consideration. In addition, pursuant to the Trust Agreement and as consideration for the Sponsor’s facilitation of Staking, the Sponsor is permitted to receive a fee equal to a portion of the Staking Consideration, payable in SOL, which accrues daily in U.S. dollars in an amount calculated as a per annum percentage of any Staking Consideration received by the Trust, as may be directed by the Sponsor in its sole discretion. The Sponsor’s Staking Fee is payable to the Sponsor daily in arrears. From November 5, 2025 until February 5, 2026 (the “Fee Waiver Period”), the Sponsor waived a portion of the fees associated with Staking, such that the Sponsor’s Staking Fee, the Custodian’s fee and the Staking Provider’s share of the Staking Consideration comprised an aggregate of 5% of the gross Staking Consideration generated under the Staking Arrangements, with the Trust receiving and retaining the remainder of such gross Staking Consideration. Following the expiration of the Fee Waiver Period on February 5, 2026, the Sponsor’s Staking Fee, the Custodian’s fee and the Staking Provider’s share of the Staking Consideration comprise an aggregate of 23% of the gross Staking Consideration generated under the Staking Arrangements. The Trust receives and retains the remainder of such gross Staking Consideration. +From time to time, the Trust may distribute SOL (or cash from the sale of SOL) received as Staking Consideration to the Trust’s shareholders. The Sponsor has implemented a staking policy with respect to the Trust, which describes the frequency of, and conditions under which the Trust will make such distributions, if any, to the Trust’s beneficiaries, which is available to shareholders on the Sponsor’s website. +The Staking Arrangements are based on market terms, consistent with those typically offered by leading digital asset firms that offer staking functionality. However, the Trust has and will continue to negotiate certain provisions as necessary or helpful to preserve the Trust’s status as a grantor trust and the security of the Trust’s SOL, as well as to address governmental, policy or regulatory concerns. For example, unlike certain digital asset firms that offer staking functionality through which one’s SOL is pooled with that of others (including, potentially, the Staking Provider in its general staking offerings), the Staking Arrangements do not permit the Trust’s SOL to be pooled with that of other SOL holders, including the Staking Provider or others that stake to the Staking Provider, as described above. In addition, the portion of staking rewards to be received by the Staking Provider is an agreed percentage of block rewards and transaction fees generated by the validating activities, unlike certain alternative staking arrangements under which a staking provider may be compensated as an agreed percentage of SOL staked. +The Trust has no right to direct the Staking Provider in the conduct of validation activities, except to stake, un-stake and withdraw its staked SOL pursuant to instructions delivered to the Custodian, and does not and will not bear any expenses incurred by the Staking Provider in conducting those activities. In particular, the amount of any Staking Consideration that the Trust receives is not and will not be determined with reference to any expenses incurred by the Custodian or the Staking Provider. The Staking Arrangements do not include any obligation of the Trust to continue staking its SOL, or for the Custodian or the Staking Provider to continue the Staking Arrangements, other than to the extent the Trust’s SOL cannot immediately be un-staked due to requirements of the Solana protocol. There may also be instances where the Staking Provider may pause or terminate its validation activities due to its own independent assessment of the vulnerabilities of the Solana Network which would result in the Trust’s SOL not being staked for a period of time. The Sponsor anticipates that the Solana protocol and the Staking Arrangements will permit withdrawal of staked SOL at regular intervals. The Sponsor believes that market practice for Provider-Facilitated Staking arrangements has largely become standardized, with little variation in terms, and therefore, the Sponsor anticipates that the Staking Arrangements generally align with the current practice of Staking Providers’ arrangements with other similarly situated third parties, subject to the negotiation of certain bespoke terms outlined above. Accordingly, and because transitioning to a new Staking Provider would involve friction costs, the Sponsor does not expect the Trust to change Staking Providers frequently, if at all. In addition, while the Trust may enter into Staking Arrangements with multiple Staking Providers, the Sponsor anticipates that any such arrangements would be substantively identical in all material respects to the Staking Arrangements described herein, including, for the avoidance of doubt, the bespoke terms of the Staking Arrangements outlined above. Any material deviation from the Staking Arrangements as described herein would be disclosed in the Trust’s subsequent filings with the Commission. +The Staking Arrangements have not and will not involve a disposition of the Trust’s SOL unless the Staking Provider commits a slash-worthy offense. Currently on the Solana Network, slashing generally operates by social consensus, rather than being automatically applied by the protocol’s code. The Solana community generally aspires to slash 100% of staked assets in cases where a Solana node is maliciously trying to violate safety rules and 0% during routine operations. As a result, there is currently no automatic slashing in the Solana Network. Rather, for regular consensus, after a safety violation, the Solana Network will halt. The validators will analyze the data prior to the halt to determine who was responsible and propose that the stake of the malicious actors responsible for the safety violation should be slashed after restart, typically 100% of their stake. Future protocol upgrades may include the implementation of automated slashing mechanisms, where penalties would be triggered and enforced directly by the network code without requiring social coordination. As of December 31, 2025, there have been no slashing events on the Solana Network. In light of the mechanical and +6 +standardized nature of validation activities, the Sponsor does not anticipate that the Staking Provider, which is expected to be an institution of recognized and trusted standing in the digital asset marketplace, with whom the Sponsor has had extensive prior interaction, will commit any slash-worthy offenses in the conduct of the Provider-Facilitated Staking activities. The Sponsor has the right to direct the Custodian to cease staking the Trust’s SOL with the Staking Provider at any time, subject to the extent the Trust’s SOL cannot immediately be un-staked due to technical considerations, and the Sponsor expects that notice of any slashing event will be timely and perm it the Sponsor to halt the staking of the Trust’s SOL, thereby mitigating the risk of permanent loss of the Trust’s SOL without replacement. +Security and Controls +The Trust’s Custodian has multiple layers of security protocols intended to protect the Trust’s assets from unauthorized access or transfer, which remain in place when the Trust’s SOL is staked. +The Trust’s SOL is staked from the Trust’s wallets and is not transferred to any other wallet to be staked. The Solana protocol (a) mandates that the executor of the staking transaction (i.e., the Sponsor on behalf of the Trust) can execute the withdraw function at any time through the Trust’s wallets administered by the Custodian and (b) limits the activities of the Staking Provider to executing only those activities specified by the protocol, such as staking, un-staking and performing validation activities and does not enable the Staking Provider to unilaterally transfer staked assets to any wallet not specified by the Sponsor. Accordingly, the Staking Provider does not have any powers to move the Trust’s staked SOL other than to stake or un-stake SOL at the direction of the Sponsor. In particular, the Staking Provider is not authorized to leverage or rehypothecate the Trust’s SOL tokens. The Staking Provider is also not able to change the designated wallet addresses on the Solana Network to which staked SOL is to be withdrawn or to which Staking Consideration shall be sent. +In addition, the Staking Arrangements do not alter the Trust’s custody environment or security procedures. The controls currently in place between the Sponsor and the Custodian also govern the activities related to staking and un-staking SOL, as outlined in the Staking Arrangements. +The foregoing description of the Staking Arrangements does not purport to be complete and is qualified in its entirety by reference to the full text of the staking addendum to the Prime Broker Agreement between the Trust and the Custodian, a copy of which is attached as an exhibit hereto and incorporated herein by reference. +Incidental Rights and IR Virtual Currency +The Sponsor has notified the Prime Broker, the Custodian and Coinbase Credit, Inc. (“Coinbase Credit”), on behalf of the Trust (such notice, the “Pre-Creation/Redemption Abandonment Notices”) that the Trust will abandon, irrevocably and for no direct or indirect consideration, effective immediately prior to each time at which the Trust creates or redeems Shares (each such time, a “Creation Time” or “Redemption Time”, respectively), all Incidental Rights and IR Virtual Currency to which it would otherwise be entitled as of such time. An abandonment made pursuant to the Pre-Creation/Redemption Abandonment Notices is referred to herein as a “Pre-Creation/Redemption Abandonment.” Pursuant to the Pre-Creation/Redemption Abandonment Notices, a Pre-Creation/Redemption Abandonment would not apply to any Incidental Right or IR Virtual Currency if (i) the Trust has taken, or is taking at such time, an “Affirmative Action” to acquire or abandon such Incidental Right or IR Virtual Currency at any time prior to the relevant Creation Time or Redemption Time or (ii) such Incidental Right or IR Virtual Currency has been subject to a previous Pre-Creation/Redemption Abandonment. An “Affirmative Action” refers to a written notification from the Sponsor to the Prime Broker, the Custodian or Coinbase Credit of the Trust’s intention (i) to acquire and/or retain an Incidental Right and/or IR Virtual Currency or (ii) to abandon, with effect prior to the relevant Creation Time or Redemption Time, an Incidental Right and/or IR Virtual Currency. +As a result of the Pre-Creation/Redemption Abandonment Notices, the Trust generally has abandoned, prior to each relevant Creation Time or Redemption Time, any Incidental Right or IR Virtual Currency that it may have had any right to receive at such time. The Trust has no right to receive any Incidental Right or IR Virtual Currency abandoned pursuant to either the Pre-Creation/Redemption Abandonment Notices or Affirmative Actions. Furthermore, the Prime Broker, the Custodian and Coinbase Credit has/have no authority, pursuant to the Prime Broker Agreement or otherwise, to exercise, obtain or hold, as the case may be, any such abandoned Incidental Right or IR Virtual Currency on behalf of the Trust or to transfer any such abandoned Incidental Right or IR Virtual Currency to the Trust if the Trust terminates its custodial arrangement with the Prime Broker, the Custodian and Coinbase Credit. In addition, the Sponsor has committed to cause the Trust not to take any Affirmative Action to acquire any Incidental Right or IR Virtual Currency and, therefore, irrevocably abandon any Incidental Right and IR Virtual Currency to which the Trust may become entitled in the future. +Because the Sponsor has committed to causing the Trust to irrevocably abandon all Incidental Rights and IR Virtual Currency to which the Trust otherwise would become entitled in the future, and causing the Trust not to take any Affirmative Actions, the Trust will not receive any direct or indirect consideration for the Incidental Rights or IR Virtual Currency and thus the value of the Shares will not reflect the value of the Incidental Rights or IR Virtual Currency. In addition, in the event the Sponsor seeks to change the Trust’s policy +7 +with respect to Incidental Rights or IR Virtual Currency, an application would need to be filed with the SEC by NYSE Arca seeking approval to amend its listing rules to permit the Trust to distribute the Incidental Rights or IR Virtual Currency in-kind to an agent of the shareholders for resale by such agent. However, there can be no assurance as to whether or when the Sponsor would make such a decision, or when NYSE Arca will seek or obtain this approval, if at all. See “Item 1A. Risk Factors—Risk Factors Related to the Trust and the Shares—Shareholders will not receive the benefits of any forks or airdrops.” +The Sponsor has controls in place to monitor for material hard forks or airdrops. The Sponsor will notify investors of any material change to its policy with respect to Incidental Rights and IR Virtual Currency by filing a current report on Form 8-K. +Secondary Market Trading +While the Trust’s investment objective is for the value of the Shares (based on SOL per Share) to reflect the value of SOL held by the Trust, including SOL earned as Staking Consideration, determined by reference to the Index Price, less the Trust’s expenses and other liabilities, the Shares may trade in the Secondary Market on NYSE Arca (or on another Secondary Market in the future) at prices that are lower or higher than the NAV per Share. The amount of the discount or premium in the trading price relative to the NAV per Share may be influenced by non-concurrent trading hours and liquidity between NYSE Arca and larger Digital Asset Trading Platforms. While the Shares are listed and trade on NYSE Arca from 4:00 a.m. until 8:00 p.m., New York time, liquidity in the Digital Asset Markets may fluctuate depending upon the volume and availability of larger Digital Asset Trading Platforms. As a result, during periods in which Digital Asset Market liquidity is limited or a major Digital Asset Trading Platform is off-line, trading spreads, and the resulting premium or discount, on the Shares may widen. +Overview of the Solana Industry and Market +SOL is a digital asset that is created and transmitted through the operations of the peer-to-peer Solana Network, a decentralized network of computers that operates on cryptographic protocols. No single entity owns or operates the Solana Network, the infrastructure of which is collectively maintained by a decentralized user base. The Solana Network allows people to exchange tokens of value, called SOL, which are recorded on a public transaction ledger known as a blockchain. SOL can be used to pay for goods and services, including to send a transaction on the Solana Network, or it can be converted to fiat currencies, such as the U.S. dollar, at rates determined on Digital Asset Markets that trade SOL, or in individual end-user-to-end-user transactions under a barter system. Furthermore, the Solana Network allows users to write and implement smart contracts—that is, general-purpose code that executes on every computer in the network and can instruct the transmission of information and value based on a sophisticated set of logical conditions. Using smart contracts, users can create markets, store registries of debts or promises, represent the ownership of property, move funds in accordance with conditional instructions and create digital assets other than SOL on the Solana Network. Smart contract operations are executed on the Blockchain in exchange for payment of SOL. The Solana Network is one of a number of projects intended to expand blockchain use beyond just a peer-to-peer money system. +The Solana protocol introduced the Proof-of-History (“PoH”) timestamping mechanism. PoH automatically orders on-chain transactions by creating a historical record that proves an event has occurred at a specific moment in time. PoH is intended to provide a transaction processing speed and capacity advantage over other blockchain networks, like the Bitcoin and Ethereum networks, which rely on sequential production of blocks and can lead to delays caused by validator confirmations. +In addition to the PoH mechanism, the Solana Network uses a proof-of-stake consensus mechanism to incentivize SOL holders to validate transactions. Unlike proof-of-work, in which miners expend computational resources to compete to validate transactions and are rewarded coins in proportion to the amount of computational resources expended, in proof-of-stake, validators risk or “stake” coins to compete to be randomly selected to validate transactions and are rewarded coins in proportion to the amount of coins staked. Any malicious activity, such as disagreeing with the eventual consensus or otherwise violating protocol rules, may result in a validator being selected less frequently by a consensus of other validators to validate blocks. Proof-of-stake is viewed as more energy efficient and scalable than proof-of-work and is sometimes referred to as “virtual mining”. +The Solana protocol was first conceived by Anatoly Yakovenko in a 2017 whitepaper. Development of the Solana Network is overseen by the Solana Foundation, a Swiss non-profit organization, and Solana Labs, Inc. (the “Company”), a Delaware corporation, which administered the original network launch and token distribution. +Although the Company and the Solana Foundation continue to exert significant influence over the direction of the development of the Solana project, the Solana Network is believed to be decentralized and does not require governmental authorities or financial institution intermediaries to create, transmit or determine the value of SOL. +SOL Spot and Futures Markets +The CFTC has regulatory jurisdiction over the SOL futures markets. In addition, because the CFTC has determined that SOL is a non-security “commodity” under the CEA and the rules thereunder, it has jurisdiction to prosecute fraud and manipulation in the cash, +8 +or spot, market for SOL. Beyond instances of fraud or manipulation, the CFTC generally does not oversee cash or spot market exchanges, spot Digital Asset Trading Platforms or transactions involving spot SOL that do not utilize collateral, leverage, or financing. The National Futures Association (“NFA”) is the self-regulatory agency for the U.S. futures industry, and as such has jurisdiction over SOL futures. However, the NFA does not have regulatory oversight authority for the cash or spot market for SOL trading or transactions. +In February 2021, certain designated contract markets (“DCMs”) registered with the CFTC, including the CME, launched new contracts for SOL futures products. DCMs are boards of trades (commonly referred to as exchanges) that operate under the regulatory oversight of the CFTC, pursuant to Section 5 of the CEA. To obtain and maintain designation as a DCM, an exchange must comply on an initial and ongoing basis with twenty-three Core Principles established under Section 5(d) of the CEA. Among other things, DCMs are required to establish self-regulatory programs designed to enforce the DCM’s rules, prevent market manipulation and customer and market abuses, and ensure the recording and safe storage of trade information. The CFTC engaged in a “heightened review” of the self-certification of SOL futures, which required DCMs to enter direct or indirect information sharing agreements with spot market platforms to allow access to trade and trader data; monitor data from cash markets with respect to price settlements and other SOL prices more broadly, and identify anomalies and disproportionate moves in the cash markets compared to the futures markets; engage in inquiries, including at the trade settlement level when necessary; and agree to regular coordination with CFTC surveillance staff on trade activities, including providing the CFTC surveillance team with trade settlement data upon request. +In February 2025, certain DCMs registered with the CFTC, including the CME, launched new contracts for SOL futures products. These futures contracts are cash-settled, based on the CME CF Solana-Dollar Reference Rate, calculated daily at 4:00 p.m. London time. The first day of trading on CME saw approximately $12 million in notional value traded. On June 24, 2025 1.75 million contracts traded, marking the highest level ever recorded for SOL futures on CME. As of late June 2025, open interest in SOL futures on CME surpassed $6.1 billion, indicating sustained institutional engagement. +Smart Contracts and Development on the Solana Network +Smart contracts are programs that run on a blockchain that can execute automatically when certain conditions are met. Smart contracts facilitate the exchange of anything representative of value, such as money, information, property, or voting rights. Using smart contracts, users can send or receive digital assets, create markets, store registries of debts or promises, represent ownership of property or a company, move funds in accordance with conditional instructions and create new digital assets. +Development on the Solana Network involves building more complex tools on top of smart contracts, such as decentralized apps (DApps); organizations that are autonomous, known as decentralized autonomous organizations (DAOs); and entirely new decentralized networks. For example, a company that distributes charitable donations on behalf of users could hold donated funds in smart contracts that are paid to charities only if the charity satisfies certain pre-defined conditions. +Additionally, the Solana Network has been used for decentralized finance (DeFi) or open finance platforms, which seek to democratize access to financial services, such as borrowing, lending, custody, trading, derivatives and insurance, by removing third-party intermediaries. DeFi can allow users to lend and earn interest on their digital assets, exchange one digital asset for another and create derivative digital assets such as stablecoins, which are digital assets pegged to a reserve asset such as fiat currency. +In addition, the Solana Network and other smart contract platforms have been used for creating non-fungible tokens, or NFTs. Unlike digital assets native to smart contract platforms that are fungible and enable the payment of fees for smart contract execution, NFTs allow for digital ownership of assets that convey certain rights to other digital or real world assets. This paradigm allows users to own rights to other assets through NFTs, which enable users to trade them with others on the Solana Network. For example, an NFT may convey rights to a digital asset that exists in an online game or a DApp, and users can trade their NFT in the DApp or game, and carry them to other digital experiences, creating an entirely new free-market internet-native economy that can be monetized in the physical world. +Overview of the Solana Network’s Operations +In order to own, transfer or use SOL directly on the Solana Network, as opposed to through an intermediary, such as a custodian, a person generally must have internet access to connect to the Solana Network. SOL transactions may be made directly between end-users without the need for a third-party intermediary. To prevent the possibility of double-spending SOL, a user must notify the Solana Network of the transaction by broadcasting the transaction data to its network peers. The Solana Network provides confirmation against double-spending by memorializing every transaction in the Blockchain, which is publicly accessible and transparent. This memorialization and verification against double-spending is accomplished through the Solana Network validation process, which adds “blocks” of data, including recent transaction information, to the Solana Blockchain. Unlike other blockchains that rely solely on sequential production of blocks through PoW or PoS mechanisms, however, the Solana Network introduces PoH, which creates a historical record that proves an event has occurred at a specific moment in time. +9 +Summary of a SOL Transaction +Prior to engaging in SOL transactions directly on the Solana Network, a user generally must first install on its computer or mobile device a Solana Network software program that will allow the user to generate a private and public key pair associated with a SOL address, commonly referred to as a “wallet.” The Solana Network software program and the SOL address also enable the user to connect to the Solana Network and transfer SOL to, and receive SOL from, other users. +Each Solana Network address, or wallet, is associated with a unique “public key” and “private key” pair. To receive SOL, the SOL recipient must provide its public key to the party initiating the transfer. This activity is analogous to a recipient for a transaction in U.S. dollars providing a routing address in wire instructions to the payor so that cash may be wired to the recipient’s account. The payor approves the transfer to the address provided by the recipient by “signing” a transaction that consists of the recipient’s public key with the private key of the address from where the payor is transferring the SOL. The recipient, however, does not make public or provide to the sender its related private key. +Neither the recipient nor the sender reveal their private keys in a transaction because the private key authorizes transfer of the funds in that address to other users. Therefore, if a user loses his or her private key, the user may permanently lose access to the SOL contained in the associated address. Likewise, SOL is irretrievably lost if the private key associated with them is deleted and no backup has been made. When sending SOL, a user’s Solana Network software program must validate the transaction with the associated private key. In addition, since every computation on the Solana Network requires processing power, there is a transaction fee involved with the transfer that is paid by the payor. The resulting digitally validated transaction is sent by the user’s Solana Network software program to the Solana Network validators to allow transaction confirmation. +As discussed in greater detail below in “—Creation of SOL,” Solana Network validators record and confirm transactions when they validate and add blocks of information to the Blockchain. In proof-of-stake, validators compete to be randomly selected to validate transactions. When a validator is selected to validate a block, it creates that block, which includes data relating to (i) the verification of newly submitted and accepted transactions and (ii) a reference to the prior block in the Solana Blockchain to which the new block is being added. The validator becomes aware of outstanding, unrecorded transactions through the data packet transmission and distribution discussed above. +Upon the addition of a block included in the Blockchain, the Solana Network software program of both the spending party and the receiving party will show confirmation of the transaction on the Solana Blockchain and reflect an adjustment to the SOL balance in each party’s Solana Network public key, completing the SOL transaction. Once a transaction is confirmed on the Blockchain, it is irreversible. +Some SOL transactions are conducted “off-blockchain” and are therefore not recorded in the Blockchain. These “off-blockchain transactions” involve the transfer of control over, or ownership of, a specific digital wallet holding SOL or the reallocation of ownership of certain SOL in a pooled-ownership digital wallet, such as a digital wallet owned by a Digital Asset Trading Platform. In contrast to on-blockchain transactions, which are publicly recorded in the Blockchain, information and data regarding off-blockchain transactions are generally not publicly available. Therefore, off-blockchain transactions are not truly SOL transactions in that they do not involve the transfer of transaction data on the Solana Network and do not reflect a movement of SOL between addresses recorded on the Solana Blockchain. For these reasons, off-blockchain transactions are subject to risks as any such transfer of SOL ownership is not protected by the protocol behind the Solana Network or recorded in, and validated through, the blockchain mechanism. +Creation of New SOL +Initial Creation of SOL +Unlike other digital assets such as Bitcoin, which are solely created through a progressive mining process, 500 million SOL were created in connection with the launch of the Solana Network. The initial 500 million SOL were distributed as follows: +• +Investors : 189 million SOL, or 37.8% of the supply, was sold in private sales to venture capital and other investors conducted between 2018 to 2021. +• +Solana Foundation : 52 million SOL, or 10.4% of the supply, was distributed to the Solana Foundation for operational costs incurred in the development of the Solana Network. +• +Solana Labs, Inc. : 64 million SOL, or 12.8% of the supply, was retained by Solana Labs to be used, at least in part, to compensate the employees of Solana Labs. +• +Community : 195 million SOL, or 39.0% of the supply, was distributed to the Solana Foundation to be deployed as bounties, incentive programs, marketing and grants. +10 +Following the launch of the Solana Network, SOL supply increases through a progressive minting process. +SOL Supply +The rate at which new SOL supply has been minted and put into circulation has varied since network launch. Additionally, the Solana protocol reduces the SOL supply by eliminating 50% of transaction fees paid to the network. As a result, net changes in SOL supply are expected to vary in the future. +At network launch, the SOL circulating supply was 8 million SOL. Between network launch and December 31, 2025, the circulating supply of SOL increased by roughly 7,040% to approximately 563 million SOL. +In February 2021, the SOL supply inflation rate was changed from 0.1% to a new initial inflation rate of 8%. The 8% initial inflation rate is scheduled to decline in 15% increments until a long-term inflation rate of 1.5% is reached. As of December 31, 2025, the SOL supply issuance rate was approximately 3.97% on an annual basis before any offsets for eliminated transaction fees. +Modifications to the Solana Protocol +Historically the Solana Network’s development has been overseen by Solana Labs, the Solana Foundation and other core developers. The Solana Foundation and core developers are able to access and alter the Solana Network source code and, as a result, they are responsible for quasi-official releases of updates and other changes to the Solana Network’s source code. +The release of updates to the Solana Network’s source code does not guarantee that the updates will be automatically adopted. Users and nodes must accept any changes made to the Solana source code by downloading the proposed modification of the Solana Network’s source code. A modification of the Solana Network’s source code is effective only with respect to the Solana users that download it. If a modification is accepted by only a percentage of users and validators, a division in the Solana Network may occur such that one network will run the pre-modification source code and the other network will run the modified source code. Such a division is known as a “fork.” See “Item 1A. Risk Factors—Risk Factors Related to Digital Assets—A temporary or permanent “fork” or a “clone” could adversely affect the value of the Shares”. Consequently, as a practical matter, a modification to the source code becomes part of the Solana Network only if accepted by participants collectively having a majority of the processing power on the Solana Network. +Core development of the Solana source code has increasingly focused on modifications of the Solana protocol to increase speed and scalability and also allow for financial and non-financial next generation uses. The Trust’s activities will not directly relate to such projects, though such projects may utilize SOL as tokens for the facilitation of their non-financial uses, thereby potentially increasing demand for SOL and the utility of the Solana Network as a whole. Conversely, projects that operate and are built within the Blockchain may increase the data flow on the Solana Network and could either “bloat” the size of the Solana Blockchain or slow confirmation times. +Forms of Attack Against the Solana Network +All networked systems are vulnerable to various kinds of attacks. As with any computer network, the Solana Network contains certain flaws. For example, the Solana Network is currently vulnerable to attacks where, if a validator or group of validators acting in concert were to gain control of more than certain thresholds of staked SOL, a malicious actor would be able to gain full control of the network and the ability to manipulate the Solana Blockchain. As of December 31, 2025, the top three largest staking pools controlled approximately 58% of the SOL staked on the Solana Network. In addition, many digital asset networks have been subjected to a number of denial of service attacks, which has led to temporary delays in block creation and the transfer of digital assets. +For example, on September 14, 2021, the Solana Network experienced a significant disruption, later attributed to a type of denial of service attack, and was offline for 17 hours, only returning to full functionality 24 hours later. While persons associated with Solana Labs and/or the Solana Foundation are understood to have played a key role in bringing the network back online, the broader community also played a key role, as Solana validators coordinated to upgrade and restart the network. Any similar attacks on the Solana Network that impact the ability to transfer SOL could have a material adverse effect on the price of SOL and the value of the Shares. This is not intended to be an exhaustive list of all forms of attack against the Solana Network. For additional information, see “Item1A. Risk Factors—Risk Factors Related to Digital Assets.” +Following periods of network congestion and service interruptions in earlier stages of the Solana Network’s operation, core developers, validators and other ecosystem participants have implemented a series of protocol- and infrastructure-level modifications intended to improve network stability, transaction prioritization and resistance to spam or denial-of-service activity. These measures have included changes to transaction fee markets and quality-of-service mechanisms, improvements to transaction ingestion and scheduling, and enhancements to validator software. In addition, development efforts have increasingly focused on diversifying validator client implementations. While these efforts are intended to reduce correlated failure risk and improve the resilience of the Solana Network over time, there can be no assurance that such measures will prevent future network disruptions or address all potential vulnerabilities. +11 +Market Participants +Validators +Validators range from Solana enthusiasts to professional operations that design and build dedicated machines and data centers, including “clusters,” which are groups of validators that act cohesively and combine their processing to confirm transactions. When a validator confirms a transaction, the validator and any associated stakers receive a fee. During the course of ordering transactions and validating blocks, validators may be able to prioritize certain transactions in return for increased transaction fees, an incentive system known as “Maximal Extractable Value” or MEV. For example, in blockchain networks that facilitate DeFi protocols in particular, such as the Ethereum network, users may attempt to gain an advantage over other users by offering greater transaction fees. Validators less commonly capture MEV in the Solana Network because, unlike the Ethereum network, it does not publicly expose transactions before they are accepted by a validator. However, some efforts are underway to help Solana validators consistently capture MEV. See “—Summary of a SOL Transaction” above. +Investment and Speculative Sector +This sector includes the investment and trading activities of both private and professional investors and speculators. Historically, larger financial services institutions are publicly reported to have limited involvement in investment and trading in digital assets, although the participation landscape is beginning to change. Currently, there is relatively limited use of digital assets in the retail and commercial marketplace in comparison to relatively extensive use by speculators, and a significant portion of demand for digital assets is generated by speculators and investors seeking to profit from the short- or long-term holding of digital assets. +Retail Sector +The retail sector includes users transacting in direct peer-to-peer SOL transactions through the direct sending of SOL over the Solana Network. The retail sector also includes transactions in which consumers purchase goods and services from commercial or service businesses through direct transactions or third-party service providers, although the use of SOL as a means of payment is still developing and has not yet been accepted in the same manner as Bitcoin or Ether due to its infancy and because SOL has a different purpose than Bitcoin and Ether. +Service Sector +This sector includes companies that provide a variety of services including the buying, selling, payment processing and storing of SOL. For example, Kraken, Bullish, Crypto.com, Bybit and Bitstamp by Robinhood are some of the largest Digital Asset Trading Platforms by volume traded. For storing SOL, Coinbase Custody Trust Company, LLC, the Custodian for the Trust, is a digital asset custodian that provides custodial accounts that store SOL for users. As the Solana Network continues to grow in acceptance, it is anticipated that service providers will expand the currently available range of services and that additional parties will enter the service sector for the Solana Network. +Competition +Thousands of digital assets have been developed since the inception of Bitcoin, which is currently one of the most developed digital asset because of the length of time it has been in existence, the investment in the infrastructure that supports it, and the network of individuals and entities that are using Bitcoin in transactions. While the Solana Network has enjoyed some success in its limited history, the aggregate value of outstanding SOL is smaller than that of Bitcoin and may be eclipsed by the more rapid development of other digital assets. In addition, a number of newer digital assets also function as smart contracts platforms, including Ethereum, Avalanche, and Cardano. Some industry groups have also created private, permissioned blockchains. For example, J.P. Morgan has developed a platform called Kinexys (formerly known as Onyx), which is described as a blockchain-based platform designed for use by the financial services industry. +SOL Value +Digital Asset Trading Platform Valuation +The value of SOL is determined by the value that various market participants place on SOL through their transactions. The most common means of determining the value of a SOL is by surveying one or more Digital Asset Trading Platforms where SOL is traded publicly and transparently. Additionally, there are over-the-counter dealers or market makers that transact in SOL. +Prior to October 1, 2025, the Trust valued the SOL held by the Trust for operational purposes by reference to the CoinDesk Solana Price Ind ex (SLX). Effective October 1, 2025, the Index was changed to the CoinDesk Solana Benchmark Rate (formerly known as the CoinDesk SOL CCIXber Reference Rate). +12 +Digital Asset Trading Platform Public Market Data +On each online Digital Asset Trading Platform, SOL is traded with publicly disclosed valuations for each executed trade, measured by one or more fiat currencies such as the U.S. dollar or euro, or stablecoins such as U.S. Dollar Coin (“USDC”). Over-the-counter dealers or market makers do not typically disclose their trade data. +As of December 31, 2025, the Digital Asset Trading Platforms included in the Index were Kraken, Crypto.com, Bitfinex, Bitstamp by Robinhood, Gemini, LMAX Digital, Bullish, OKX, and Bybit. The Sponsor and the Trust reasonably believe each of these Digital Asset Trading Platforms are in material compliance with applicable licensing requirements based on the inclusion criteria and jurisdiction, as detailed below, and maintain practices and policies designed to comply with anti-money laundering (“AML”)and know-your-customer (“KYC”) regulations . +Bitf inex: A British Virgin Islands based trading platform. Bitfinex does not hold any licenses or registrations in the U.S. and is not available to U.S.-based customers. +Bitsta mp by Robinhood: A U.K.-based trading platform that has U.S. operations and entities registered as money service businesses (“MSBs”) with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”), holds a BitLicense, and that is licensed as a money transmitter in various U.S. states. +Bullish : A Gibraltar-based trading platform that has entities registered as MSBs with FinCEN, and that is licensed as a virtual currency business under the New York State Department of Financial Services’ (“NYDFS”) BitLicense. +Bybit : A United Arab Emirates-based trading platform. Bybit does not hold any licenses or registrations in the U.S. and is not available to U.S. based customers. +Crypt o.com: A Singapore-based trading platform that has entities registered as MSBs with FinCEN, and that is licensed as a money transmitter in various U.S. states and chartered as a non-depository trust company by the New Hampshire Banking Department. Crypto.com does not hold a BitLicense. +Gemini : A U.S.-based trading platform that has entities registered as MSBs with FinCEN and that is licensed as a money transmitter in various U.S. states. Gemini also has a New York entity that holds a limited purpose trust charter and has received approval from the NYDFS to engage in virtual currency business activity and is exempt from applying for a BitLicense under the framework established by NYDFS because of their trust charter under New York Banking Law. +Kra ken: A U.S.-based trading platform that has entities registered as MSBs with FinCEN, and that is licensed as a money transmitter in various U.S. states, and chartered as a Special Purpose Depository Institution by the Wyoming Division of Banking. Kraken does not hold a BitLicense. +LMAX Digital : A U.K.-based trading platform that has entities registered as a broker with the U.K. Financial Conduct Authority, and that is licensed as an MSB with FinCEN and regulated by the Gibraltar Financial Services Commission. +OKX : A Seychelles-based trading platform. OKX does not hold any licenses or registrations in the U.S. and is not available to U.S.-based customers. +Currently, there are several Digital Asset Trading Platforms operating worldwide, and online Digital Asset Trading Platforms represent a substantial percentage of SOL buying and selling activity and provide the most data with respect to prevailing valuations of SOL. These trading platforms include established trading platforms such as trading platforms included in the Index which provide a number of options for buying and selling SOL. +The below tables re flect the trading volume in SOL and market share of the SOL-U.S. dollar and SOL-USDC trading pairs of each of the Digital Asset Trading Platforms included in the Index as of December 31, 2025 (collectively, “Constituent Trading Platforms”), using data since the inception of the Trust. +13 +Digital Asset Trading Platforms included in the Index as of December 31, 2025 +Volume (SOL) +Market Share (1) +Kraken +257,683,151 +17.40 +% +Crypto.com +191,716,800 +12.95 +% +Bitstamp by Robinhood +65,718,765 +4.44 +% +LMAX Digital +32,466,524 +2.19 +% +Gemini +27,030,101 +1.83 +% +Bitfinex +18,919,974 +1.28 +% +Bullish +10,565,804 +0.71 +% +OKX +10,295,481 +0.70 +% +Total SOL-U.S. Dollar trading pair +614,396,600 +41.50 +% +Digital Asset Trading Platforms included in the Index as of December 31, 2025 +Volume (SOL) +Market Share (1) +Bybit +94,870,343 +11.67 +% +Bullish +72,872,402 +8.96 +% +OKX +30,603,317 +3.76 +% +Kraken +7,269,332 +0.89 +% +Bitstamp by Robinhood +82,272 +0.01 +% +Total SOL-USDC trading pair +205,697,666 +25.29 +% +(1) +Market share is calculated using trading volume (in SOL) for certain Digital Asset Trading Platforms, including Kraken, Bullish, Crypto.com, Bybit, Bitstamp by Robinhood, Bitfinex, Gemini, LMAX Digital and OKX, as well as certain other large U.S. dollar and USDC denominated Digital Asset Trading Platforms that were not included in the Index as of December 31, 2025, including Binance, Binance.US, CEX.IO (data included through February 23, 2025), Coinbase, Deribit (data included from February 26, 2024), GATE, Hitbtc, Itbit, Kucoin, LBank, and MEXC. +The domicile, regulation and legal compliance of the Digital Asset Trading Platforms included in the Index varies. Information regarding each Digital Asset Trading Platform may be found, where available, on the websites for such Digital Asset Trading Platforms, among other places. +Although the Index is designed to accurately capture the market price of SOL, third parties may be able to purchase and sell SOL on public or private markets not included among the Constituent Trading Platforms of the Index, and such transactions may take place at prices materially higher or lower than the Index Price. Moreover, there may be variances in the prices of SOL on the various Digital Asset Trading Platforms, including as a result of differences in fee structures or administrative procedures on different Digital Asset Trading Platforms. For example, based on data provided by the Index Provider, on any given day during the year ended December 31, 2025, the maximum differential between the 4:00 p.m., New York time, spot price of any single Digital Asset Trading Platform included in the Index and the Index Price was 3.76% and the average of the maximum differentials of the 4:00 p.m., New York time, spot price of each Digital Asset Trading Platform included in the Index and the Index Price was 0.55%. During this same period, the average differential between the 4:00 p.m., New York time, spot prices of all the Digital Asset Trading Platforms included in the Index and the Index Price was 0.005%. All Digital Asset Trading Platforms that were included in the Index throughout the period were considered in this analysis. To the extent such prices differ materially from the Index Price, investors may lose confidence in the Shares’ ability to track the market price of SOL. +The Index and the Index Price +The Index is a U.S. dollar-denominated composite reference rate for the price of SOL. The Index is designed to (1) mitigate the effects of fraud, manipulation and other anomalous trading activity from impacting the SOL reference rate, (2) provide a real-time, volume-weighted fair value of SOL and (3) appropriately handle and adjust for non-market related events. +The Index Price is determined by the Index Provider through a process in which trade data is cleansed and compiled in such a manner as to algorithmically reduce the impact of anomalistic or manipulative trading. This is accomplished by adjusting the weight of each data input based on price deviation relative to the observable set, as well as recent and long-term trading volume at each venue relative to the observable set. The Index Price is calculated using non-GAAP methodology and is not used in the Trust’s financial statements. +All references to the NAV and NAV per Share of the Trust in this report have been calculated using the Index Price unless indicated otherwise. +14 +All references to the NAV and NAV per Share of the Trust in this Annual Report prior to October 1, 2025 have been calculated using the Index Price based on the CoinDesk Solana Price Index (SLX) unless otherwise indicated. Effective October 1, 2025, the NAV and NAV per Shar e of the Trust is calculated using the Index Price based on the CoinDesk Solana Benchmark Rate. +Constituent Trading Platform Selection +Digital Asset Trading Platforms are selected for inclusion in the Index based on a methodology developed by the Index Provider in alignment with th e International Organization of Securities Commissions (“IOSCO”) Principles for Financial Benchmarks. To qualify as a Constituent Trading Platform, a platform is evaluated across the following core criteria listed below (the “Inclusion Criteria”): +• +Market Quality: Overall liquidity, trading activity, price reliability, and market stability. +• +Security: Cybersecurity safeguards, custody practices, and operational risk controls. +• +Legal and Regulatory: Licensing status, regulatory compliance, and legal transparency. +• +KYC: Assessment of anti-money laundering (“AML”) and know-your-customer (“KYC”) frameworks, transaction monitoring capabilities, and market oversight. +• +Data Provision: Quality, accessibility, and reliability of trading data and technical infrastructure. +• +Transparency: Financial and operational disclosures, including reserve and governance transparency. +• +Team: Assessment of executive leadership, relevant experience, organizational structure, and service offerings across institutional and retail markets. +• +Negative Events: The Index Provider may apply a downward adjustment for material adverse events, including data breaches, regulatory penalties, withdrawal freezes, or other significant incidents. +Trading platforms that meet these Inclusion Criteria are also required to be licensed and able to serve customers in one or more of the following jurisdictions: +• +United States (FinCEN, state regulatory authorities) +• +United Kingdom (FCA) +• +European Union (MiCA passport) +• +Hong Kong (SFC) +• +Singapore (MAS) +• +United Arab Emirates, including the emirates of Dubai and Abu Dhabi (VARA, ADGM) +• +Gibraltar (GFSC) +A Digital Asset Trading Platform is removed from the Constituent Trading Platforms when it no longer satisfies the Inclusion Criteria. The Index Provider may also exclude certain trading platforms that require additional support from contributing trading platforms at its discretion. The Index Provider does not currently include data from over-the-counter markets or derivatives platforms among the Constituent Trading Platforms. Over-the-counter data is not currently included because of the potential for trades to include a significant premium or discount paid for larger liquidity, which creates an uneven comparison relative to more active markets. There is also a higher potential for over-the-counter transactions to not be arms-length, and thus not be representative of a true market price. SOL derivative markets are also not currently included. While the Index Provider has no plans to include data from over-the-counter markets or derivative platforms at this time, the Index Provider will consider IOSCO principles for financial benchmarks, the management of trading venues of SOL derivatives and the aforementioned Inclusion Criteria when considering whether to include over-the-counter or derivative platform data in the future. +The Index Provider and the Sponsor have entered into the index license agreement, dated as of February 1, 2022 (as amended, the “Index License Agreement”), governing the Sponsor’s use of the Index Price. Pursuant to the terms of the Index License Agreement, the Index Provider may adjust the calculation methodology for the Index Price without notice to, or consent of, the Trust or its shareholders. The Index Provider may decide to change the calculation methodology to maintain the integrity of the Index Price calculation should it identify or become aware of previously unknown variables or issues with the existing methodology that it believes could materially impact its performance and/or reliability. The Index Provider has sole discretion over the determination of the Index Price and may change the methodologies for determining the Index Price from time to time. Shareholders will be notified of any material changes to the calculation methodology or the Index Price in the Trust’s current reports and will be notified of all other changes that the +15 +Sponsor considers significant in the Trust’s periodic or current reports. The Sponsor will determine the materiality of any changes to the Index Price on a case-by-case basis, in consultation with external counsel. +The Index Provider may change the trading venues that are used to calculate the Index or otherwise change the way in which the Index is calculated at any time. For example, the Index Provider has scheduled monthly reviews in which it may add or remove Constituent Trading Platforms that satisfy or fail the Inclusion Criteria as well as other requirements detailed in the Index Methodology. The Index Provider does not have any obligation to consider the interests of the Sponsor, the Trust, the shareholders, or anyone else in connection with such changes. While the Index Provider is not required to publicize or explain the changes or to alert the Sponsor to such changes, it has historically notified the Trust of certain changes to the Constituent Trading Platforms, including any additions or removals of the Constituent Trading Platforms, in addition to issuing press releases in connection with the same. The Sponsor will provide updates of such changes in the Trust’s quarterly reports on Form 10-Q. Although the Index methodology is designed to operate without any manual intervention, rare events would justify manual intervention. Intervention of this kind would be in response to non-market-related events, such as the halting of deposits or withdrawals of funds on a Digital Asset Trading Platform, the unannounced closure of operations on a Digital Asset Trading Platform, insolvency or the compromise of user funds. In the event that such an intervention is necessary, the Index Provider would issue a public announcement through its website, API and other established communication channels with its clients. +Determination of the Index Price +The Index applies an algorithm to the price of SOL on the Constituent Trading Platforms calculated every 5 seconds over a 24-hour period. The Index’s algorithm is expected to reflect a five-pronged methodology to calculate the Index Price from the Constituent Trading P latforms: +• +Volume Weighting: Constituent Trading Platforms with greater liquidity receive a higher weighting in each Index, increasing the ability to execute against (i.e., replicate) the Index in the underlying spot markets. The Index methodology is a volume-weighted real-time price where the latest trade price for each Constituent Trading Platform is weighted based on its trailing 24-hour volume. +• +FX Conversion: The Index algorithm utilizes a volume-weighted real-time FX conversion rate for any trading activity for the relevant Stablecoin-USD pair. This normalizes all trading activity to USD denomination. +• +Outlier Detection Factor: The Index algorithm excludes trade data and price(s) deemed to be an outlier relative to the most recently calculated Index. +• +Inactivity Adjustment: The Index algorithm penalizes stale activity from any given Constituent Trading Platform. When a Constituent Trading Platform does not have recent trading data, the outdated prices and their contribution to the Index calculation are gradually reduced until they are de-weighted to 0.1%. Similarly, once trading activity at a Constituent Trading Platform resumes, the corresponding weighting for that Constituent Trading Platform will no longer be penalized. +• +Manipulation Resistance: In an effort to determine and prioritize the most significant Constituent Trading Platforms (i.e., those that are likely to have the most impact on price discovery) for a given asset, the Index Provider conducts a Constituent Trading Platform selection and review process, which seeks to identify the highest-ranking Constituent Trading Platforms based on both qualitative and quantitative factors. The qualitative review includes legal and regulation, data provision, security, trade monitoring, market quality, and negative events policy, among others. The quantitative review includes review of trading activity for the asset on the given Constituent Trading Platform. +The Index Provider re-evaluates the weighting algorithm on a periodic basis, but maintains discretion to change the way in which an Index Price is calculated based on its periodic review or in extreme circumstances. The Index is designed to limit exposure to trading or price distortion of any individual Digital Asset Trading Platform that experiences periods of unusual activity or limited liquidity by discounting, in real-time, anomalous price movements at individual Digital Asset Trading Platforms. +The Sponsor believes the Index Provider’s selection process for Constituent Trading Platforms as well as the methodology of the Index Price’s algorithm provides a more accurate picture of SOL price movements than a simple average of Digital Asset Trading Platform spot prices, and that the weighting of SOL prices on the Constituent Trading Platforms limits the inclusion of data that is influenced by temporary price dislocations that may result from technical problems, limited liquidity or fraudulent activity elsewhere in the SOL spot market. +By referencing multiple trading venues and weighting them based on trade activity, the Sponsor believes that the impact of any potential fraud, manipulation or anomalous trading activity occurring on any single venue is reduced. +If the Index Price becomes unavailable, or if the Sponsor determines in good faith that such Index Price does not reflect an accurate price for SOL , then the Sponsor will contact the Index Provider to obtain the Index Price directly from the Index Provider. If after such +16 +contact such Index Price remains unavailable or the Sponsor continues to believe in good faith that such Index Price does not reflect an accurate price for SOL , then the Sponsor will employ a cascading set of rules to determine the Index Price, as described below in “—Determination of the Index Price When Index Price is Unavailable.” +The Trust values its SOL for operational purposes by reference to the Index Price. The Index Price is the value of a SOL as represented by the Index, calculated a t 4:00 p.m., New York time, on each business day. +Illustrative Example +For the purposes of illustration, outlined below are examples of how the attributes that impact weighting and adjustments in the aforementioned methodology may be utilized to generate the Index Price for a digital asset. +For example, the Constituent Trading Platforms used to calculate the Index Price of the digital asset may include trading platforms such as Crypto.com, Kraken, LMAX Digital and Bitstamp by Robinhood. +The Index Price algorithm, as described above, is designed to account for manipulation at the outset by only including data from executed trades on Constituent Trading Platforms that charge trading fees. Then, the below-listed elements may impact the weighting of the Constituent Trading Platforms on the Index Price as follows: +• +Volume Weighting: Each Constituent Trading Platform will be weighted to appropriately reflect the trading volume share of the Constituent Trading Platform relative to all the Constituent Trading Platforms during this same period. For example, a weighting of 67.06%, 14.57%, 11.88%, and 6.49% for Crypto.com, Kraken, LMAX Digital and Bitstamp by Robinhood , respectively, would represent each Constituent Trading Platform’s share of trading volume during the preceding 24 hours. +• +Inactivity Adjustment: Assume that a Constituent Trading Platform represented a 14% weighting on the Index Price of the digital asset and then went offline for approximately two hours. The index algorithm would automatically recognize inactivity and start de-weighting the Constituent Trading Platform at the 5-minute mark and continue to do so with each additional 5-minute period of inactivity until its influence was effectively zero, 25 minutes after becoming inactive. As soon as trading activity resumed at the Constituent Trading Platform, the index algorithm would re-weight it to the appropriate weighting based on trading volume and price-variance relative to the cohort of Constituent Trading Platforms included in the Index. +• +Price Outlier Detection: New traded prices from Constituent Trading Platforms are compared to the latest calculated Index Price. If a new traded price deviates by +/- 5% from the latest calculated Index Price, it will be considered an outlier and will not be used in the calculation of the Index Price until such time as a majority of the Constituent Trading Platforms are similarly considered outlier prices. In that case, the new prices will be used to calculate the Index Price. For example, if the Index Price is $10 and there is a new trade price of $11 from Constituent Trading Platform X, the price of $11 will be considered an outlier and will not be used. However, if the most recent prices on a majority of the Constituent Trading Platforms are aligned with the price of $11, then these prices will no longer be considered outliers and will be used to calculate the new Index Price. +Determination of the Index Price When Index Price is Unavailable +The Sponsor uses the following cascading set of rules to calculate the Index Price. For the avoidance of doubt, the Sponsor will employ the below rules sequentially and in the order as presented below, should one or more specific rule(s) fail: +1. +Index Price = The price set by the Index as of 4:00 p.m., New York time, on the valuation date. If the Index becomes unavailable, or if the Sponsor determines in good faith that the Index does not reflect an accurate price, then the Sponsor will, on a best efforts basis, contact the Index Provider to obtain the Index Price directly from the Index Provider. If after such contact the Index remains unavailable or the Sponsor continues to believe in good faith that the Index does not reflect an accurate price, then the Sponsor will employ the next rule to determine the Index Price. There are no predefined criteria to make a good faith assessment and it will be made by the Sponsor in its sole discretion. +2. +Index Price = The price set by Coin Metrics Real-Time Rate (the “Secondary Index”) as of 4:00 p.m., New York time, on the valuation date (the “Secondary Index Price”). The Secondary Index Price is a real-time reference rate price, calculated using trade data from constituent markets selected by Coin Metrics, Inc. (the “Secondary Index Provider”). The Secondary Index Price is calculated by applying weighted-median techniques to such trade data where half the weight is derived from the trading volume on each constituent market and half is derived from inverse price variance, where a constituent market with high price variance as a result of outliers or market anomalies compared to other constituent markets is assigned a smaller weight. The Secondary Index Provider and the Sponsor have entered into the master services agreement, dated as of August 4, 2020, and order forms thereunder, pursuant to which the Sponsor may obtain and use the Secondary Index and the +17 +Secondary Index Price from the Secondary Index Provider. If the Secondary Index becomes unavailable, or if the Sponsor determines in good faith that the Secondary Index does not reflect an accurate price, then the Sponsor will, on a best efforts basis, contact the Secondary Index Provider to obtain the Secondary Index Price directly from the Secondary Index Provider. If after such contact the Secondary Index remains unavailable or the Sponsor continues to believe in good faith that the Secondary Index does not reflect an accurate price, then the Sponsor will employ the next rule to determine the Index Price. There are no predefined criteria to make a good faith assessment and it will be made by the Sponsor in its sole discretion. +3. +Index Price = The price set by the Trust’s principal market (the “Tertiary Pricing Option”) as of 4:00 p.m., New York time, on the valuation date. The Tertiary Pricing Option is a spot price derived from the principal market’s public data feed that is believed to be consistently publishing pricing information as of 4:00 p.m., New York time, and is provided to the Sponsor via an application programming interface. If the Tertiary Pricing Option becomes unavailable, or if the Sponsor determines in good faith that the Tertiary Pricing Option does not reflect an accurate price, then the Sponsor will, on a best efforts basis, contact the Tertiary Pricing Provider to obtain the Tertiary Pricing Option directly from the Tertiary Pricing Provider. If after such contact the Tertiary Pricing Option remains unavailable or the Sponsor continues to believe in good faith that the Tertiary Pricing Option does not reflect an accurate price, then the Sponsor will employ the next rule to determine the Index Price. There are no predefined criteria to make a good faith assessment and it will be made by the Sponsor in its sole discretion. +4. +Index Price = The Sponsor will use its best judgment to determine a good faith estimate of the Index Price. There are no predefined criteria to make a good faith assessment and it will be made by the Sponsor in its sole discretion. +In the event of a fork, the Index Provider may calculate the Index Price based on a digital asset that the Sponsor does not believe to be the appropriate asset that is held by the Trust. In this event, the Sponsor has full discretion to use a different index provider or calculate the Index Price itself using its best judgment. +The Sponsor may, in its sole discretion, select a different index provider, select a different index price provided by the Index Provider, calculate the Index Price by using the cascading set of rules set forth above, or change the cascading set of rules set forth above at any time. The Sponsor will provide notice of any such changes in the Trust’s periodic or current reports and, if the Sponsor makes such a change other than on an ad hoc or temporary basis, will file a proposed rule change with the SEC. +Government Oversight +As digital assets have grown in both popularity and market size, the U.S. Congress and a number of U.S. federal and state agencies (including FinCEN, the Treasury Department Office of Foreign Assets Control (“OFAC”), SEC, CFTC, the Financial Industry Regulatory Authority (“FINRA”), the Consumer Financial Protection Bureau (“CFPB”), the Department of Justice, the Department of Homeland Security, the Federal Bureau of Investigation, the U.S. Internal Revenue Service, a bureau of the U.S. Department of the Treasury (the “IRS”), the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Reserve and state financial institution and securities regulators) have been examining the operations of digital asset networks, digital asset users and the digital asset markets, with particular focus on the extent to which digital assets can be used to launder the proceeds of illegal activities, evade sanctions or fund criminal or terrorist enterprises and the safety and soundness of trading platforms and other service providers that hold or custody digital assets for users. Many of these state and federal agencies have issued consumer advisories regarding the risks posed by digital assets to investors. In addition, federal and state agencies, and other countries and international bodies have issued rules or guidance about the treatment of digital asset transactions or requirements for businesses engaged in digital asset activity. Moreover, the failure of FTX Trading Ltd. (“FTX”) in November 2022 and the resulting market turmoil substantially increased regulatory scrutiny in the United States and globally and led to SEC enforcement actions, criminal investigations, and other regulatory activity across the digital asset ecosystem. +On January 23, 2025, President Trump issued an executive order titled “Strengthening American Leadership in Digital Financial Technology” aimed at supporting “the responsible growth and use of digital assets, blockchain technology, and related technologies across all sectors of the economy.” The executive order established an interagency working group tasked with “proposing a Federal regulatory framework governing the issuance and operation of digital assets” in the United States. Pursuant to this executive order, the working group released a report in July 2025 outlining the administration's recommendations to Congress and various agencies reflecting the administration's “pro-innovation mindset toward digital assets and blockchain technologies.” +In addition, the SEC, U.S. state securities regulators and several foreign governments have issued warnings and instituted legal proceedings in which they argue that certain digital assets may be classified as securities and that both those digital assets and any related initial coin offerings or other primary and secondary market transactions are subject to securities regulations. For example, in June 2023, the SEC brought charges against Binance Holdings Ltd. (the “Binance Complaint”) and Coinbase, Inc. (the “Coinbase Complaint”), and in November 2023, the SEC brought charges against Kraken (the “Kraken Complaint”), alleging that they operated unregistered securities exchanges, brokerages and clearing agencies. In its complaints, the SEC asserted that several digital assets are securities under the federal securities laws. Between February 2025 and May 2025, the SEC entered into court-approved joint stipulations to dismiss +18 +each of the Binance Complaint, Coinbase Complaint and the Kraken Complaint. The SEC has terminated its investigation or enforcement action into many other digital asset market participants as well. Additionally, U.S. state and federal, and foreign regulators and legislatures have taken action against virtual currency businesses or enacted restrictive regimes in response to adverse publicity arising from hacks, consumer harm, or criminal activity stemming from virtual currency activity. +There have been several bills introduced in Congress that propose to establish additional regulation and oversight of the digital asset markets. Certain of these bills passed out of relevant committees and were passed in the House of Representatives in the last Congress, though not the Senate. Some of these bills have since been reintroduced with changes, and continue to be contemplated in the relevant committees, as well as the full House of Representatives and Senate. For example, in July 2025, the GENIUS Act was signed into law and the House of Representatives passed the Digital Asset Market Clarity Act of 2025 (“CLARITY Act”) in an effort to pass laws relating to digital asset market structure. It is difficult to predict whether, or when, any of these developments will lead to Congress granting additional authorities to the SEC or other regulators, what the nature of such additional authorities might be, how additional legislation and/or regulatory oversight might impact the ability of digital asset markets to function or how any new regulations or changes to existing regulations might impact the value of digital assets. See “Item 1A. Risk Factors—Risk Factors Related to the Regulation of Digital Assets, the Trust and the Shares— Regulatory changes or actions by the U.S. Congress or any U.S. federal or state agencies may affect the value of the Shares or restrict the use of SOL, validating activity or the operation of the Solana Network or the Digital Asset Markets in a manner that adversely affects the value of the Shares,” and “Item 1A. Risk Factors—Risk Factors Related to the Regulation of Digital Assets, the Trust and the Shares—A determination that SOL or any other digital asset is a “security” may adversely affect the value of SOL and the value of the Shares, and result in potentially extraordinary, nonrecurring expenses to, or termination of, the Trust.” +Various foreign jurisdictions have, and may continue to, in the near future, adopt laws, regulations or directives that affect a digital asset network, the Digital Asset Markets, and their users, particularly Digital Asset Trading Platforms and service providers that fall within such jurisdictions’ regulatory scope. For example: +• +China has made transacting in cryptocurrencies illegal for Chinese citizens in mainland China, and additional restrictions may follow. China has banned initial coin offerings and there have been reports that Chinese regulators have taken action to shut down a number of China-based Digital Asset Trading Platforms. +• +South Korea determined to amend its Financial Information Act in March 2020 to require virtual asset service providers to register and comply with its AML and counter-terrorism funding framework. These measures also provide the government with the authority to close Digital Asset Trading Platforms that do not comply with specified processes. South Korea has also banned initial coin offerings. +• +The Reserve Bank of India in April 2018 banned the entities it regulates from providing services to any individuals or business entities dealing with or settling digital assets. In March 2020, this ban was overturned in the Indian Supreme Court, although the Reserve Bank of India is currently challenging this ruling. +• +The United Kingdom’s Financial Conduct Authority published final rules in October 2020 banning the sale of derivatives and exchange-traded notes that reference certain types of digital assets, contending that they are “ill-suited” to retail investors citing extreme volatility, valuation challenges and association with financial crime. A new law, the Financial Services and Markets Act 2023 (“FSMA”), received royal assent in June 2023. The FSMA brings digital asset activities within the scope of existing laws governing financial institutions, markets and assets. +• +The Parliament of the European Union approved the text of the Markets in Crypto-Assets Regulation (“MiCA”) in April 2023, establishing a regulatory framework for digital asset services across the European Union. MiCA is intended to serve as a comprehensive regulation of digital asset markets and imposes various obligations on digital asset issuers and service providers. The main aims of MiCA are industry regulation, consumer protection, prevention of market abuse and upholding the integrity of digital asset markets. MiCA was formally approved by the European Union’s member states in 2023. Certain parts of MiCA became effective as of June 2024 and the remainder applied as of December 2024. +There remains significant uncertainty regarding foreign governments’ future actions with respect to the regulation of digital assets and Digital Asset Trading Platforms. Such laws, regulations or directives may conflict with those of the United States and may negatively impact the acceptance of SOL by users, merchants and service providers outside the United States and may therefore impede the growth or sustainability of the Solana ecosystem in the United States and globally, or otherwise negatively affect the value of SOL held by the Trust. The effect of any future regulatory change on the Trust or the SOL held by the Trust is impossible to predict, but such change could be substantial and adverse to the Trust and the value of the Shares. +The CFTC has regulatory jurisdiction over the SOL futures markets because the CFTC believes that SOL is a non-security “commodity” under the Commodity Exchange Act of 1936, as amended (the “CEA”) and the rules thereunder, such that it takes the position that it has jurisdiction to prosecute fraud and manipulation in the cash, or spot, market for SOL. Beyond instances of fraud or manipulation, the CFTC generally does not oversee cash or spot market exchanges, spot Digital Asset Trading Platforms or retail +19 +transactions involving spot SOL that do not utilize collateral, leverage, or financing. The National Futures Association (“NFA”) is the self-regulatory agency for the U.S. futures industry, and as such has jurisdiction over SOL futures. However, the NFA does not have regulatory oversight authority for the cash or spot market for SOL trading or transactions. +In February 2021, certain designated contract markets (“DCMs”) registered with the CFTC, including the CME, launched new contracts for SOL futures products. DCMs are boards of trades (commonly referred to as exchanges) that operate under the regulatory oversight of the CFTC, pursuant to Section 5 of the CEA. To obtain and maintain designation as a DCM, an exchange must comply on an initial and ongoing basis with twenty-three Core Principles established under Section 5(d) of the CEA. Among other things, DCMs are required to establish self-regulatory programs designed to enforce the DCM’s rules, prevent market manipulation and customer and market abuses, and ensure the recording and safe storage of trade information. The CFTC engaged in a “heightened review” of the self-certification of SOL futures, which required DCMs to enter direct or indirect information sharing agreements with spot market platforms to allow access to trade and trader data; monitor data from cash markets with respect to price settlements and other SOL prices more broadly, and identify anomalies and disproportionate moves in the cash markets compared to the futures markets; engage in inquiries, including at the trade settlement level when necessary; and agree to regular coordination with CFTC surveillance staff on trade activities, including providing the CFTC surveillance team with trade settlement data upon request. In December 2025, the CFTC announced that spot digital assets could begin being traded on CFTC-registered futures exchanges. Soon after, spot digital assets began trading on Bitnomial, a CFTC registered-futures exchange and member of the Intermarket Surveillance Group, a global body of exchanges sharing surveillance information with member exchanges. +See “Item 1A. Risk Factors—Risk Factors Related to the Regulation of Digital Assets, the Trust and the Shares—Regulatory changes or actions by the U.S. Congress or any U.S. federal or state agencies may affect the value of the Shares or restrict the use of SOL, validating activity or the operation of the Solana Network or the Digital Asset Markets in a manner that adversely affects the value of the Shares.” +Description of the Trust +The Trust is a Delaware Statutory Trust that was formed on November 9, 2021 by the filing of the Certificate of Trust with the Delaware Secretary of State in accordance with the provisions of the Delaware Statutory Trust Act (“DSTA”). On January 5, 2026, the Trust changed its name from Grayscale Solana Trust ETF to Grayscale Solana Staking ETF and previously, on October 28, 2025, the Trust changed its name from Grayscale Solana Trust (SOL) to Grayscale Solana Trust ETF by filing a Certificate of Amendment to the Certificate of Trust with the Delaware Secretary of State in accordance with the provisions of the DSTA. The Trust operates pursuant to the Trust Agreement. +The Shares represent units of fractional undivided beneficial interest in and ownership of the Trust. The Trust is passive and is not managed like a corporation or an active investment vehicle. The Trust’s SOL are held by the Custodian on behalf of the Trust. The Trust’s SOL will be transferred out of the Vault Balance only in the following circumstances: (i) transferred to pay the Sponsor’s Fee, the Sponsor’s Staking Fee or any Additional Trust Expenses, (ii) sold on an as-needed basis to pay Additional Trust Expenses or (iii) sold on behalf of the Trust in the event the Trust terminates and liquidates its assets or as otherwise required by law or regulation. Assuming that the Trust is treated as a grantor trust for U.S. federal income tax purposes, each delivery or sale of SOL by the Trust to pay the Sponsor’s Fee or any Additional Trust Expenses will be a taxable event for shareholders. See “—Material U.S. Federal Income Tax Consequences—Tax Consequences to U.S. Holders.” +The Trust is not a registered investment company under the Investment Company Act and the Sponsor believes that the Trust is not required to register under the Investment Company Act. The Trust will not trade, buy, sell or hold SOL derivatives, including SOL futures contracts, on any futures exchange. The Trust is authorized solely to take immediate delivery of actual SOL. The Sponsor does not believe the Trust’s activities are required to be regulated by the CFTC under the CEA as a “commodity pool” under current law, regulation and interpretation. The Trust will not be operated by a CFTC-regulated commodity pool operator because it will not trade, buy, sell or hold SOL derivatives, including SOL futures contracts, on any futures exchange. Investors in the Trust will not receive the regulatory protections afforded to investors in regulated commodity pools, nor may the COMEX division of the New York Mercantile Exchange or any futures exchange enforce its rules with respect to the Trust’s activities. In addition, investors in the Trust will not benefit from the protections afforded to investors in SOL futures contracts on regulated futures exchanges. +The Trust creates and redeems Shares from time to time but only in Baskets. A Basket equals a block of 10,000 Shares. See “—Description of Creation and Redemption of Shares.” The Sponsor will determine the Trust’s NAV on each business day as of 4:00 p.m., New York time, or as soon thereafter as practicable. The Sponsor will also determine the NAV per Share, which equals the NAV divided by the number of outstanding Shares. Each business day, the Sponsor will publish the Trust’s NAV and NAV per Share on the Trust’s website, etfs.grayscale.com/gsol, as soon as practicable after the Trust’s NAV and NAV per Share have been determined by the Sponsor. See “—Valuation of SOL and Determination of NAV.” +20 +The Trust’s assets consist solely of SOL, cash proceeds from the sale of SOL and any rights of the Trust pursuant to any agreements, other than the Trust Agreement, to which the Trust is a party. The Sponsor has committed to cause the Trust not to take any Affirmative Action to acquire any Incidental Rights or IR Virtual Currency, thereby irrevocably abandoning any Incidental Rights and IR Virtual Currency to which the Trust may become entitled in the future. As a result, the Trust does not expect to hold any Incidental Rights or IR Virtual Currency or to take any Incidental Rights or IR Virtual Currency into account for the purposes of determining the NAV or the NAV per Share. +Each Share represents a proportional interest, based on the total number of Shares outstanding, in each of the Trust’s assets as determined in the case of SOL by reference to the Index Price, less the Trust’s expenses and other liabilities (which include accrued but unpaid fees and expenses). The Sponsor expects that the market price of the Shares will fluctuate over time in response to the market prices of SOL. In addition, because the Shares reflect the estimated accrued but unpaid expenses of the Trust, the amount of SOL represented by a Share will gradually decrease over time as the Trust’s SOL are used to pay the Trust’s expenses. +SOL pricing information is available on a 24-hour basis from various financial information service providers or Solana Network information sites, such as CoinMarketCap.com. The spot price and bid/ask spreads may also be available directly from Digital Asset Trading Platforms. As of December 31, 2025, the Constituent Trading Platforms of the Index were Kraken, Crypto.com, Bitfinex, Bitstamp by Robinhood, Gemini, LMAX Digital, Bullish, OKX, and Bybit. The Index Provider may remove or add Digital Asset Trading Platforms to the Index in the future at its discretion. Market prices for the Shares will be available from a variety of sources, including brokerage firms, information websites and other information service providers. In addition, on each business day the Trust’s website will provide pricing information for the Shares. +The Trust has no fixed termination date. +Service Providers of the Trust +The Sponsor +As of the date of this Annual Report, the Trust’s Sponsor is Grayscale Investments Sponsors, LLC. Until December 31, 2024, the Trust’s Sponsor was Grayscale Investments, LLC, a Delaware limited liability company formed on May 29, 2013 and a consolidated subsidiary of DCG. See “—Overview of the Trust and the Shares” for more information regarding the Reorganization on January 1, 2025. The Sponsor’s principal place of business is 290 Harbor Drive, 4th Floor, Stamford, Connecticut 06902, and its telephone number is (212) 668-1427. Under the Delaware Limited Liability Company Act and the governing documents of the Sponsor, DCG, the indirect parent company of the Sponsor, is not responsible for the debts, obligations and liabilities of the Sponsor solely by reason of being the indirect parent company of the Sponsor. +The Sponsor is neither an investment adviser registered with the SEC nor a commodity pool operator registered with the CFTC, and will not be acting in either such capacity with respect to the Trust, and the Sponsor’s provision of services to the Trust will not be governed by the Investment Advisers Act or the CEA. +The Sponsor arranged for the creation of the Trust and, following their uplisting on October 29, 2025, listing of the Shares on NYSE Arca (the Shares were previously quoted on OTCQX). As partial consideration for its receipt of the Sponsor’s Fee from the Trust, the Sponsor is obligated to pay the Sponsor-paid Expenses. The Sponsor also paid the costs of the Trust’s organization and the costs of the initial sale of the Shares. +The Sponsor is generally responsible for the day-to-day administration of the Trust under the provisions of the Trust Agreement. This includes (i) preparing and providing periodic reports and financial statements on behalf of the Trust for investors, (ii) processing orders to create Baskets and coordinating the processing of such orders with the Custodian and the Transfer Agent, (iii) calculating and publishing the NAV and the NAV per Share of the Trust each business day as of 4:00 p.m., New York time, or as soon thereafter as practicable, (iv) selecting and monitoring the Trust’s service providers and from time to time engaging additional, successor or replacement service providers, (v) instructing the Custodian to transfer the Trust’s SOL, as needed to pay the Sponsor’s Fee and any Additional Trust Expenses, (vi) upon dissolution of the Trust, distributing the Trust’s remaining SOL or the cash proceeds of the sale thereof to the owners of record of the Shares and (vii) establishing the principal market for U.S. GAAP valuation. In addition, if there is a fork in the Solana Network after which there is a dispute as to which network resulting from the fork is the Solana Network, the Sponsor has the authority to select the network that it believes in good faith is the Solana Network, unless such selection or authority would otherwise conflict with the Trust Agreement. +The Sponsor does not store, hold, or maintain custody or control of the Trust’s SOL but instead has entered into the Prime Broker Agreement with the Custodian to facilitate the security of the Trust’s SOL. +21 +The Sponsor may transfer all or substantially all of its assets to an entity that carries on the business of the Sponsor if at the time of the transfer the successor assumes all of the obligations of the Sponsor under the Trust Agreement. In such an event, the Sponsor will be relieved of all further liability under the Trust Agreement. +The Sponsor’s Fee is paid by the Trust to the Sponsor as compensation for services performed under the Trust Agreement and as partial consideration for the Sponsor’s agreement to pay the Sponsor-paid Expenses. See “—Expenses; Sales of SOL.” +The Sponsor may, in its sole discretion, select a different index provider, select a different index price provided by the Index Provider, calculate the Index Price by using the cascading set of rules set forth under “—Overview of the Solana Industry and Market—SOL Value—The Index and the Index Price—Determination of the Index Price When Index Price is Unavailable” above, or change the cascading set of rules set forth above at any time. +Marketing Agent Agreement +The Sponsor, on behalf of the Trust, is party to a marketing agent agreement dated October 3, 2025 (the “Marketing Agent Agreement”) with Foreside Fund Services, LLC (the “Marketing Agent” or “Foreside”). Under the Marketing Agent Agreement, the Marketing Agent will provide the following services to the Sponsor: (i) assist the Sponsor in facilitating Participant Agreements between and among Authorized Participants, the Sponsor, on behalf of the Trust, and the Transfer Agent; (ii) provide prospectuses to Authorized Participants; (iii) work with the Transfer Agent to review and approve orders placed by the Authorized Participants and transmitted to the Transfer Agent; (iv) review and file applicable marketing materials with FINRA and (v) maintain, reproduce and store applicable books and records related to the services provided under the Marketing Agent Agreement. The Sponsor will pay the Marketing Agent an annual fee, as well as certain out-of-pocket fees and expenses of the Marketing Agent incurred in connection with its assistance in the marketing of the Trust and its Shares. +As of October 29, 2025, the Sponsor amended, solely with respect to the Trust, the Distribution and Marketing Agreement, dated as of October 3, 2022, among the Sponsor, the Trust and Grayscale Securities, LLC (“Grayscale Securities”), an affiliate of the Sponsor and an affiliate and related party of the Trust, to remove the Trust as an entity covered by the Distribution and Marketing Agreement. In its capacity as distributor and marketer, Grayscale Securities assisted the Sponsor in developing an ongoing marketing plan for the Trust, preparing marketing materials regarding the Shares, including the content on the Trust’s website, and executing the marketing plan for the Trust. +Index License Agreement +The Sponsor has entered into the Index License Agreement with CoinDesk Indices, Inc., the Index Provider, governing the Sponsor’s use of the Index for calculation of the Index Price. The Index Provider may adjust the calculation methodology for the Index without notice to, or consent of, the Trust or its shareholders. Under the Index License Agreement, the Sponsor pays a monthly fee and a fee based on the NAV of the Trust to the Index Provider in consideration of its license to the Sponsor of Index-related intellectual property. The initial term of the Index License Agreement was February 1, 2022 through the later of February 29, 2024 and the latest date set forth on any order form executed under the Index License Agreement. On June 20, 2023, the Sponsor and the Index Provider, entered into an amendment to the Index License Agreement to extend the initial term of the Index License Agreement from February 29, 2024, to February 28, 2025. On February 5, 2025, the Sponsor and the Index Provider, entered into an amendment to the Index License Agreement to extend the term of the Index License Agreement from February 28, 2025, to February 29, 2028. Thereafter, the Index License Agreement will automatically renew on an annual basis, unless a notice of non-renewal is provided. The Index License Agreement is terminable by either party upon written notice in the event of a material breach that remains uncured for thirty days after initial written notice of such breach. Further, either party may terminate the Index License Agreement immediately upon notice under certain circumstances, including with respect to the other party’s (i) insolvency, bankruptcy or analogous event or (ii) violation of money transmission, taxation or trading regulations that materially adversely affect either party’s ability to perform under the Index License Agreement. +COINDESK® and CoinDesk SOLANA BENCHMARK Rate (the “Index”) are trade or service marks of CoinDesk Indices, Inc. (with its affiliates, including CC Data Limited, “CDI”) and/or its licensors. CDI or CDI’s licensors own all proprietary rights in the Data. +CDI is not the issuer or producer of the Trust and has no responsibilities, obligations, or duties to investors in or holders of the Trust. The Index is licensed for use by the Sponsor as the sponsor of the Trust. The only relationship that CDI has with the Sponsor in respect of the Trust is the licensing of the Index, which is administered and published by CDI, or any successor thereto, without regard to the Sponsor or the owners or holders of Shares of the Trust. +Investors or holders acquire shares of the Trust offered by the Sponsor and investors and holders neither acquire any interest in the Index nor enter into any relationship of any kind whatsoever with CDI upon making an investment in or acquisition of the Trust. The Trust is not sponsored, endorsed, sold, or promoted by CDI. CDI makes no representation or warranty, express or implied, regarding the advisability of investing in or otherwise acquiring the Trust or the advisability of investing in securities or digital assets generally or +22 +the ability of the Index to track corresponding or relative market performance. CDI has not passed on the legality or suitability of the Trust with respect to any person or entity. CDI is not responsible for, nor has participated in, the determination of the timing of, prices at, or quantities of the Trust to be issued. CDI has no obligation to take the needs of the Sponsor or the owners or holders of the Trust or any other third party into consideration in administering, composing, calculating, or publishing the Index. CDI has no obligation or liability in connection with administration, marketing, or trading of the Trust. +The licensing agreement between the Sponsor and CDI is solely for the benefit of the Sponsor and CDI and not for the benefit of the owners or holders of Shares of the Trust or any other third parties. +CDI shall have no liability to the Sponsor, the Trust, investors, holders or other third parties for the quality, accuracy and/or completeness of the Index or any data included therein or for interruptions in the delivery of the data. CDI hereby expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Index or any other data included therein. CDI reserves the right to change the methods of calculation or publication, or to cease the calculation or publication of the Index and shall not be liable for any miscalculation of or any incorrect, delayed, or interrupted publication with respect to the Index. CDI shall not be liable for any damages, including, without limitation, any special, indirect or consequential damages, or any lost profits, even if advised of the possibility of such, resulting from the use of the Index or any other data included therein or with respect to the Trust. +Administration and Accounting Agreement +The Sponsor has entered into a Fund Administration and Accounting Agreement with BNY Mellon Asset Servicing, a division of The Bank of New York Mellon (the “Fund Administration and Accounting Agreement”), to provide administration and accounting services to the Trust. Pursuant to the terms of the Fund Administration and Accounting Agreement and under the supervision and direction of the Sponsor and the Trust, BNY Mellon Asset Servicing keeps the operational records of the Trust and prepares and files certain regulatory filings on behalf of the Trust. BNY Mellon Asset Servicing may also perform other services for the Trust pursuant to the Fund Administration and Accounting Agreement as mutually agreed upon by the Sponsor, the Trust and BNY Mellon Asset Servicing from time to time. The Administrator’s fees are paid on behalf of the Trust by the Sponsor. +The Trustee +CSC Delaware Trust Company (formerly known as Delaware Trust Company) serves as Delaware trustee of the Trust under the Trust Agreement. The Trustee has its principal office at 251 Little Falls Drive, Wilmington, Delaware 19808. The Trustee is unaffiliated with the Sponsor. A copy of the Trust Agreement is available for inspection at the Sponsor’s principal office identified above. +The Trustee is appointed to serve as the trustee of the Trust in the State of Delaware for the sole purpose of satisfying the requirement of Section 3807(a) of the DSTA that the Trust have at least one trustee with a principal place of business in the State of Delaware. The duties of the Trustee will be limited to (i) accepting legal process served on the Trust in the State of Delaware and (ii) the execution of any certificates required to be filed with the Delaware Secretary of State which the Delaware Trustee is required to execute under the DSTA. To the extent that, at law or in equity, the Trustee has duties (including fiduciary duties) and liabilities relating thereto to the Trust or the shareholders, such duties and liabilities will be replaced by the duties and liabilities of the Trustee expressly set forth in the Trust Agreement. The Trustee will have no obligation to supervise, nor will it be liable for, the acts or omissions of the Sponsor, Transfer Agent, Custodian, Prime Broker, or any other person. +Neither the Trustee, either in its capacity as trustee or in its individual capacity, nor any director, officer or controlling person of the Trustee is, or has any liability as, the issuer, director, officer or controlling person of the issuer of Shares. The Trustee’s liability in connection with the issuance and sale of Shares is limited solely to the express obligations of the Trustee as set forth in the Trust Agreement. +The Trustee has not prepared or verified, and will not be responsible or liable for, any information, disclosure or other statement in this Annual Report or in any other document issued or delivered in connection with the sale or transfer of the Shares. The Trust Agreement provides that the Trustee will not be responsible or liable for the genuineness, enforceability, collectability, value, sufficiency, location or existence of any of the SOL or other assets of the Trust. See “—Description of the Trust Agreement.” +The Trustee is permitted to resign upon at least 180 days’ notice to the Trust. The Trustee will be compensated by the Sponsor and indemnified by the Sponsor and the Trust against any expenses it incurs relating to or arising out of the formation, operation or termination of the Trust, or the performance of its duties pursuant to the Trust Agreement except to the extent that such expenses result from gross negligence, willful misconduct or bad faith of the Trustee. The Sponsor has the discretion to replace the Trustee. +Fees paid to the Trustee are a Sponsor-paid Expense. +The Transfer Agent and the Co-Transfer Agent +The Bank of New York Mellon serves as the Transfer Agent of the Trust pursuant to the terms and provisions of the Transfer Agency and Service Agreement (the “Transfer Agency and Service Agreement”). The Transfer Agent: (1) facilitates the issuance and redemption of Shares of the Trust; (2) responds to correspondence by Trust shareholders and others relating to its duties; (3) maintains +23 +shareholder accounts; and (4) makes periodic reports to the Trust. The Transfer Agent has its principal office at 240 Greenwich Street, New York, New York 10286. A copy of the Transfer Agency and Service Agreement is available for inspection at the Sponsor’s principal office identified herein. +Continental Stock Transfer & Trust Company, a Delaware corporation, serves as a co-transfer agent for the Trust (the “Co-Transfer Agent”) pursuant to the terms and provisions of the Co-Transfer Agency Agreement (the “Co-Transfer Agency Agreement”). The Co-Transfer Agent has its principal office at 1 State Street, 30th Floor, New York, New York 10004. A copy of the Co-Transfer Agency Agreement is available for inspection at the Sponsor’s principal office identified herein. +Fees paid to the Transfer Agent and Co-Transfer Agent are a Sponsor-paid Expense. +Administrator +BNY Mellon Asset Servicing, a division of The Bank of New York Mellon. BNY Mellon Asset Servicing also serves as the administrator for the Trust. The Administrator’s fees are paid on behalf of the Trust by the Sponsor. +Authorized Participants +An Authorized Participant must enter into a “Participant Agreement” with the Sponsor and the Trust to govern its placement of orders to create and redeem Baskets. The Participant Agreement sets forth the procedures for the creation and redemption of Baskets and for the delivery of SOL required for creations. A copy of the form of Participant Agreement is available for inspection at the Sponsor’s principal office identified herein. +Each Authorized Participant (i) is a registered broker-dealer and (ii) has entered into a Participant Agreement with the Sponsor and the Transfer Agent. If and when an Authorized Participant enters into or amends a Participant Agreement to provide for creations and redemptions effected through in-kind orders (as defined below), any Authorized Participants creating and redeeming Shares through In-Kind Orders (as defined below) must own, or its designee in connection with In-Kind Orders (“AP Designee”), must own, a SOL wallet address that is known to the Custodian as belonging to the Authorized Participant or its AP Designee and maintain an account with the Custodian. +The Trust issues Shares to, and redeems Shares from, Authorized Participants on an ongoing basis, but only in one or more Baskets (with a “Basket” being a block of 10,000 Shares). See “—Description of Creation and Redemption of Shares.” +As of the date of this filing, NYSE Arca has received regulatory approval permitting the Trust to conduct creations and redemptions of Shares via in-kind transactions with Authorized Participants or AP Designees in exchange for SOL. The Trust is also able to accept Cash Orders (as defined herein). However, at this time, the Trust is only permitted to conduct creations and redemptions of Shares pursuant to Cash Orders (as described herein). See “Item 1A. Risk Factors—Risk Factors Related to the Trust and the Shares—The current unavailability of in-kind creations and redemptions of Shares could have adverse consequences for the Trust” for more information. +As of the date of this Annual Report, the Sponsor, on behalf of the Trust, and the Transfer Agent entered into Participant Agreements with Jane Street Capital, LLC, Virtu Americas LLC, Macquarie Capital (USA) Inc., and ABN AMRO Clearing USA LLC, pursuant to which such entities have agreed to act as Authorized Participants. The Sponsor may engage additional Authorized Participants who are unaffiliated with the Trust in the future. +No Authorized Participant has any obligation or responsibility to the Sponsor or the Trust to effect any sale or resale of Shares. +Liquidity Providers +Liquidity Providers facilitate the purchase and sale of SOL in connection with Cash Orders for creations or redemptions of Baskets. The Liquidity Providers with which Grayscale Investments Sponsors, LLC, (in such capacity, the “Liquidity Engager”), will engage in SOL transactions are third parties that are not affiliated with the Sponsor or the Trust and are not acting as agents of the Trust, the Sponsor, or any Authorized Participant. Except for the contractual relationships between each Liquidity Provider and Grayscale Investments Sponsors, LLC in its capacity as the Liquidity Engager, there is no contractual relationship between each Liquidity Provider and the Trust, the Sponsor, or any Authorized Participant. +As of the date of this Annual Report, the Liquidity Engager has engaged JSCT, LLC, Virtu Financial Singapore Pte. Ltd., Flow Traders B.V., Flowdesk, Cumberland DRW LLC, and Galaxy Digital Trading Cayman LLC as Liquidity Providers. The Liquidity Engager may engage additional Liquidity Providers who are unaffiliated with the Trust in the future. +24 +Jane Street Capital, LLC, one of the Authorized Participants, is an affiliate of JSCT, LLC, one of the Liquidity Providers. Virtu Americas LLC, one of the Authorized Participants, is an affiliate of Virtu Financial Singapore Pte., Ltd, one of the Liquidity Providers. +The Custodian and Prime Broker +Coinbase Custody Trust Company, LLC is a fiduciary under § 100 of the New York Banking Law and a qualified custodian for purposes of Rule 206(4)-2(d)(6) under the Investment Advisers Act. The Custodian is authorized to serve as the Trust’s custodian under the Trust Agreement and pursuant to the terms and provisions of the Prime Broker Agreement. The Custodian has its principal office at 200 Park Avenue South, Suite 1208, New York, NY 10003. A copy of the Prime Broker Agreement is available for inspection at the Sponsor’s principal office identified herein. +Under the Prime Broker Agreement, the Custodian controls and secures the Trust’s “Vault Balance,” a segregated custody account to store private keys, which allow for the transfer of ownership or control of the Trust’s SOL, on the Trust’s behalf. The Custodian’s services (i) allow SOL to be deposited from a public blockchain address to the Trust’s Vault Balance and (ii) allow the Trust or Sponsor to withdraw SOL from the Trust’s Vault Balance to a public blockchain address the Trust or Sponsor controls (the “Custodial and Prime Broker Services”). Pursuant to the addendum to the Coinbase Custody Custodial Services Agreement attached as Exhibit A to the Coinbase Prime Broker Agreement, the Sponsor has caused, and from time to time may cause, the Trust to enter into Staking Arrangements with the Custodian and one or more Staking Providers, which may be affiliates of the Custodian or other trusted institutional validators, to stake the Trust’s SOL via Provider-Facilitated Staking. The Sponsor anticipates that the Trust’s SOL is and will be staked exclusively by means of Provider-Facilitated Staking. +The Vault Balance uses offline storage, or “cold” storage, mechanisms to secure the Trust’s private keys. The term cold storage refers to a safeguarding method by which the private keys corresponding to digital assets are disconnected. +The Custodian will withdraw from the Trust’s Vault Balance the amount of SOL necessary to pay the Trust’s expenses. +Fees paid to the Custodian are a Sponsor-paid Expense. +Under the Prime Broker Agreement, each of the Custodian and the Trust has agreed to indemnify and hold harmless the other party from any third-party claim or third-party demand (including reasonable and documented attorneys’ fees and any fines, fees or penalties imposed by any regulatory authority) arising out of or related to the Custodian’s or the Trust’s, as the case may be, breach of the Prime Broker Agreement, inaccuracy in any of the Custodian’s or the Trust’s, as the case may be, representations or warranties in the Prime Broker Agreement, or the Trust’s violation, or the Custodian’s knowing violation, of any law, rule or regulation, or the rights of any third party, except where such claim directly results from the negligence, fraud or willful misconduct of the other such party. In addition, the Trust has agreed to indemnify the Custodian with respect to any Incidental Rights or IR Virtual Currency abandoned by the Trust and any tax liability relating thereto or arising therefrom. +The Custodian and its affiliates may from time to time purchase or sell SOL for their own accounts and as agent for their customers or Shares for their own accounts. The foregoing notwithstanding, SOL in the Vault Balance are not treated as general assets of the Custodian and cannot be commingled with any other digital assets held by the Custodian. The Custodian serves as a fiduciary and custodian on the Trust’s behalf, and the SOL in the Vault Balance are considered fiduciary assets that remain the Trust’s property at all times. +Once each calendar year, the Sponsor or the Trust may request that the Custodian deliver a certificate signed by a duly authorized officer to certify that all representations and warranties made by the Custodian in the Prime Broker Agreement are true and correct on and as of the date of such certificate, and have been true and correct throughout the preceding year. In addition, the Custodian has agreed to allow the Trust and the Sponsor to take any necessary steps to verify that satisfactory internal control system and procedures are in place, and to visit and inspect the systems on which the Custodian’s coins are held. +If the Custodian resigns in its capacity as custodian, the Sponsor may appoint an additional or replacement custodian and enter into a custodian agreement on behalf of the Trust with such custodian. Furthermore, the Sponsor and the Trust may use SOL custody services or similar services provided by entities other than Coinbase Custody Trust Company, LLC at any time without prior notice to Coinbase Custody Trust Company, LLC. +The Additional Custodian +In addition, Anchorage Digital Bank N.A. (“Anchorage Digital” or the “Additional Custodian”), a national trust bank chartered by the Office of the Comptroller of the Currency, provides services related to custody and safekeeping of the Trust’s SOL holdings, pursuant to a Master Custody Services Agreement, dated as of August 8, 2025 (the “Anchorage Digital Custodian Agreement”). +The Sponsor currently utilizes Anchorage Digital’s services to custody a portion of the Trust’s SOL. The Trust’s existing custody arrangement with Coinbase Custody Trust Company, LLC is unaffected by the Trust’s entry into the Anchorage Digital Custodian Agreement, and Coinbase remains the Trust’s primary custodian. The Sponsor shall, in its sole discretion, determine the amounts held at either custodian as permitted by the Trust Agreement. At the current time, the Sponsor has not determined the total amount of the Trust’s SOL it will move to Anchorage Digital. The addition of Anchorage Digital reflects the Sponsor’s ongoing risk management +25 +approach as part of the Trust’s growing size. References to the “Custodian” in this Annual Report refer to Coinbase Custody Trust Company, LLC, Anchorage Digital and/or other custodians, collectively or in their individual capacities, as the context may require. +Under the Anchorage Digital Custodian Agreement, Anchorage Digital is required to keep all of the private keys associated with the Trust’s SOL held at Anchorage Digital in cold storage. +In the event of a fork of the Blockchain, the Anchorage Digital Custodian Agreement provides that Anchorage Digital may temporarily suspend services, and may, in its sole discretion, determine whether or not to support (or cease supporting) either branch of the forked protocol entirely, provided that Anchorage shall use commercially reasonable efforts to avoid ceasing to support both branches of such forked protocol. +The Anchorage Digital Custodian Agreement requires the Trust to indemnify Anchorage Digital, its affiliates and their respective officers, directors, agents, employees and representatives against certain losses arising from or related to the Trust’s material breach of the Anchorage Digital Custodian Agreement, among other things, except where a claim was caused by certain acts of Anchorage Digital. The Anchorage Digital Custodian Agreement also requires Anchorage Digital to maintain insurance policies and coverage. +The foregoing description of the Anchorage Digital Custodian Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Anchorage Digital Custodian Agreement filed as an exhibit to the Trust’s Registration Statement on Form S-1 filed on September 26, 2025, which is incorporated by reference herein. +Custody of the Trust’s SOL +Digital assets and digital asset transactions are recorded and validated on blockchains, the public transaction ledgers of a digital asset network. Each digital asset blockchain serves as a record of ownership for all of the units of such digital asset, even in the case of certain privacy-preserving digital assets, where the transactions themselves are not publicly viewable. All digital assets recorded on a blockchain are associated with a public blockchain address, also referred to as a digital wallet. Digital assets held at a particular public blockchain address may be accessed and transferred using a corresponding private key. +Key Generation +Public addresses and their corresponding private keys are generated by the Custodian in secret key generation ceremonies at secure locations inside faraday cages, which are enclosures used to block electromagnetic fields and thus mitigate against attacks. The Custodian uses quantum random number generators to generate the public and private key pairs. +Once generated, private keys are encrypted, separated into “shards”, and then further encrypted. After the key generation ceremony, all materials used to generate private keys, including computers, are destroyed. All key generation ceremonies are performed offline. No party other than the Custodian has access to the private key shards of the Trust, including the Trust itself. +Key Storage +Private key shards are distributed geographically by the Prime Broker and the Custodian (together, the “Custodial Entities”) in secure vaults around the world, including in the United States. The locations of the secure vaults may change regularly and are kept confidential by the Custodian and the Prime Broker for security purposes. +The Vault Balance primarily uses “cold” storage mechanisms to secure a substantial portion of the Trust’s private keys. A substantial portion of the Trust’s SOL holdings are held in cold storage at all times, with a portion of the Settlement Balance held temporarily in hot storage from time to time, for purposes of facilitating the receipt and distribution of SOL in connection with the creation and redemption of Baskets. Any SOL credited to the Trust’s Settlement Balance is stored in omnibus accounts, either on the Prime Broker’s systems or at Coinbase Connected Venues, using a combination of cold and hot storage mechanisms to secure the private keys representing the assets credited to the Trust’s Settlement Balance. +Cold storage is a safeguarding method with multiple layers of protections and protocols, by which the private keys corresponding to the Trust’s SOL are generated and stored in an offline manner. A digital wallet may receive deposits of digital assets but may not send digital assets without use of the digital assets’ corresponding private keys. In order to send digital assets from a digital wallet in which the private keys are kept in cold storage, either the private keys must be retrieved from cold storage and entered into an online, or “hot”, digital asset software program to sign the transaction, or the unsigned transaction must be transferred to the cold server in which the private keys are held for signature by the private keys and then transferred back to the online digital asset software program. At that point, the user of the digital wallet can transfer its digital assets. While private keys held in hot storage are more accessible and therefore enable more efficient transfers, such assets are more vulnerable to theft, loss or damage. +Security Procedures +The Custodian and the Prime Broker hold the Trust’s private keys in custody in accordance with the terms and provisions of the Prime Broker Agreement. Transfers to and from the Vault Balance and, where held in cold storage, the Trust’s Settlement Balance, require certain security procedures, including but not limited to, multiple encrypted private key shards, usernames, passwords and +26 +2-step verification. Multiple private key shards held by the applicable Custodial Entity or Entities must be combined to reconstitute the private key to sign any transaction in order to transfer the Trust’s assets. Private key shards are distributed geographically by the Custodial Entities in secure vaults around the world, including in the United States. +As a result, if any one secure vault is ever compromised, this event will have no impact on the ability of the Trust to access its assets, other than a possible delay in operations, while one or more of the other secure vaults is used instead. These security procedures are intended to remove single points of failure in the protection of the Trust’s assets. +Transfers of SOL to the Vault Balance from the Settlement Balance will be available to the Trust once processed on the Blockchain, subject to the availability of the Prime Broker’s online platform. When SOL is credited to the Settlement Balance, certain movements to allocate the balance among (i) omnibus cold storage wallets and omnibus hot storage wallets on the Prime Broker’s platform; or (ii) omnibus accounts at Coinbase Connected Venues may not be viewable by the Trust via the Prime Broker’s online portal. In addition, on a monthly basis the Custodial Entities will provide the Sponsor with an account statement identifying the amount of cash and SOL in the Trust’s Accounts at the end of the period and listing all account activity during that period. +The process of accessing and withdrawing SOL from the Trust to redeem a Basket by an Authorized Participant follows the same general procedure as transferring SOL to the Trust to create a Basket by an Authorized Participant, only in reverse. See “—Description of Creation and Redemption of Shares.” +The Marketing Agent +Prior to October 29, 2025, Grayscale Securities was the distributor and marketer of the Shares. Since October 29, 2025, Foreside Fund Services, LLC (“Foreside”) is the marketing agent of the Shares, and Grayscale Securities ceased acting as the distributor and marketer of the Shares of the Trust. Foreside is a registered broker-dealer with the SEC and is a member of FINRA. +In its capacity as marketing agent, Foreside provides the following services to the Sponsor: (i) assist the Sponsor in facilitating Participant Agreements between and among Authorized Participants, the Sponsor, on behalf of the Trust, and the Transfer Agent; (ii) provide prospectuses to Authorized Participants; (iii) work with the Transfer Agent to review and approve orders placed by the Authorized Participants and transmitted to the Transfer Agent; (iv) review and file applicable marketing materials with FINRA and (v) maintain, reproduce and store applicable books and records related to the services provided under the Marketing Agent Agreement. +The Sponsor has entered into a Marketing Agent Agreement with Foreside. The Sponsor may engage additional or successor marketing agents in the future. +Description of the Shares +The Trust is authorized under the Trust Agreement to create and issue an unlimited number of Shares. Shares will be issued only in Baskets (a Basket equals a block of 10,000 Shares) in connection with creations. The Shares represent units of fractional undivided beneficial interest in and ownership of the Trust and have no par value. The Shares are listed on NYSE Arca under the ticker symbol “GSOL.” +Description of Limited Rights +The Shares do not represent a traditional investment and should not be viewed as similar to “shares” of a corporation operating a business enterprise with management and a board of directors. A shareholder will not have the statutory rights normally associated with the ownership of shares of a corporation. Each Share is transferable, is fully paid and non-assessable and entitles the holder to vote on the limited matters upon which shareholders may vote under the Trust Agreement. For example, shareholders do not have the right to elect or re move directors and will not receive dividends. The Shares do not entitle their holders to any conversion or pre-emptive rights or, except as discussed below, any redemption rights or rights to distributions. +Voting and Approvals +The shareholders take no part in the management or control of the Trust. Under the Trust Agreement, shareholders have limited voting rights. For example, in the event that the Sponsor withdraws, a majority of the shareholders may elect and appoint a successor sponsor to carry out the affairs of the Trust. The Sponsor is also permitted to make certain restatements, amendments or supplements to the Trust Agreement that would materially adversely affect the interests of the shareholders as determined by the Sponsor in its sole discretion with a 20-day notice to shareholders. Additionally, the Sponsor is permitted to make certain restatements, amendments or supplements to the Trust Agreement that could adversely affect the status of the Trust as a grantor trust for U.S. federal income tax purposes, but only if ce rtain conditions set forth in the amendments relating to the qualification of the Trust as a grantor trust for U.S. federal income tax purposes are satisfied. Furthermore, subject to certain limitations, the Sponsor may make any other amendments to the Trust Agreement which do not materially adversely affect the interests of the shareholders in its sole discretion without shareholder consent. +27 +Distributions +Pursuant to the terms of the Trust Agreement, the Trust may make distributions on the Shares in-cash or in-kind. In addition, if the Trust is terminated and liquidated, the Sponsor will distribute to the shareholders any amounts of the cash proceeds of the liquidation remaining after the satisfaction of all outstanding liabilities of the Trust and the establishment of reserves for applicable taxes, other governmental charges and contingent or future liabilities as the Sponsor will determine. See “—Description of the Trust Agreemen t—Termination of the Trust.” Shareholders of record on the record date fixed by the Transfer Agent for a distribution will be entitled to receive their pro rata portions of any distribution. +Creation of Shares +The Trust creates Shares at such times and for such periods as determined by the Sponsor, but only in one or more whole Baskets. A Basket equals 10,000 Shares. See “—Description of Creation and Redemption of Shares.” The creation of a Basket requires the delivery to the Trust of the amount of SOL (or cash to acquire the amount of SOL) represented by one Share immediately prior to such creation multiplied by 10,000. The Trust may from time to time halt creations, including for extended periods of time, for a variety of reasons, including in connection with forks, airdrops and other similar occurrences. +Redemption of Shares +On October 28, 2025, the Sponsor’s application to list and trade the Trust’s Shares on NYSE Arca under the Generic Listing Standards was approved and the Trust began trading on NYSE Arca on October 29, 2025 (the “Uplisting Date”), following the effectiveness of the Trust’s registration statement on Form S-1, as amended (File No. 333-286374). In connection with the uplisting of the Shares, the Sponsor authorized the commencement of the Trust’s redemption program in reliance on Regulation M exemptive relief available to similarly situated commodity-based exchange-traded products. +Shares are redeemable only in accordance with the provisions of the Trust Agreement and the relevant Participant Agreement. Through its redemption program, the Trust redeems Shares from Authorized Participants on an ongoing basis. Although the Trust redeems Baskets by distributing SOL or proceeds from the disposition of SOL, at this time, an Authorized Participant can only submit Cash Orders. In a Cash Order, the Authorized Participant will accept cash from the Cash Account (as defined herein) in connection with the redemption of Baskets. +Cash Orders are facilitated by the Transfer Agent and Grayscale Investments Sponsors, LLC, which acts on behalf of the Trust in its capacity as Liquidity Engager and will engage one or more Liquidity Providers that is not an agent of, or otherwise acting on behalf of, any Authorized Participant receiving SOL in connection with such orders. If and when Authorized Participants enter into or amend their respective Participant Agreements to provide for in-kind creations and redemptions, the Trust may also redeem Baskets via In-Kind Orders, pursuant to which an Authorized Participant or its AP Designee would deposit SOL directly with the Trust or receive SOL directly from the Trust. However, at this time Baskets will not be redeemed through In-Kind Orders and will only be redeemed through Cash Orders. See “Description of Creation and Redemption of Shares.” +The Sponsor may suspend the Trust’s redemption program in its sole discretion, or the redemption program may otherwise become unavailable, which could cause the Shares to trade at a discount to the NAV per Share. See “Item 1A. Risk Factors—Risk Factors Related to the Trust and the Share—Any suspension or other unavailability of the Trust’s redemption program may cause the Shares to trade at a discount to the NAV per Share.” +Book-Entry Form +Shares are held primarily in book-entry form by the Transfer Agent. The Sponsor or its delegate will direct the Transfer Agent to credit or debit, as applicable, the number of Baskets to the applicable Authorized Participant. The Transfer Agent will issue or cancel Baskets, as applicable. Transfers will be made in accordance with standard securities industry practice. The Sponsor may cause the Trust to issue Shares in certificated form in limited circumstances in its sole discretion. +Share Splits +In its discretion, the Sponsor may direct the Transfer Agent to declare a split or reverse split in the number of Shares outstanding and to make a corresponding change in the number of Shares constituting a Basket. For example, if the Sponsor believes that the per Share price in the secondary market for Shares has risen or fallen outside a desirable trading price range, it may declare such a split or reverse split. +Description of Creation and Redemption of Shares +General +The Trust issues Shares to and redeems Shares from Authorized Participants on an ongoing basis, but only in one or more Baskets (with a “Basket” being a block of 10,000 Shares). The Trust will not issue fractions of a Basket. The Sponsor believes that the creation +28 +and redemption order size of 10,000 Shares will enable Authorized Participants to manage inventory and facilitate an effective arbitrage mechanism for the Trust. However, the Sponsor may in the future adjust the creation and redemption order size in order to improve the effectiveness of the activities of Authorized Participants in the secondary market for the Shares if the Sponsor determines it to be necessary or advisable. As such, the Sponsor does not expect that the size of the Baskets will have an impact on the arbitrage mechanism. +The creation and redemption of Baskets will be made only upon the delivery to the Trust, or the distribution or other disposition by the Trust, of the amount of whole and fractional SOL represented by each Basket being created or redeemed, which is determined by dividing (x) the amount of SOL owned by the Trust at 4:00 p.m., New York time, on the trade date of a creation or redemption order, after deducting the amount of SOL representing the U.S. dollar value of accrued but unpaid fees and expenses of the Trust (converted using the Index Price at such time, and carried to the eighth decimal place), by (y) the number of Shares outstanding at such time (with the quotient so obtained calculated to one one-hundred-millionth of one SOL (i.e., carried to the eighth decimal place)), and multiplying such quotient by 10,000 (the “Basket Amount”). The U.S. dollar value of a Basket is calculated by multiplying the Basket Amount by the Index Price as of the trade date (the “Basket NAV”). The Basket NAV multiplied by the number of Baskets being created or redeemed is referred to as the “Total Basket NAV.” All questions as to the calculation of the Basket Amount will be conclusively determined by the Sponsor and will be final and binding on all persons interested in the Trust. One or more major market data vendors may provide an intra-day indicative value (“IIV”) per Share updated every 15 seconds, as calculated by NYSE Arca or a third-party financial data provider during NYSE Arca’s Core Trading Session (9:30 a.m. to 4:00 p.m., New York time). Such IIV will be calculated using the same methodology as the NAV per Share of the Trust, specifically by using the prior day’s closing NAV per Share as a base and updating that value during the NYSE Arca Core Trading Session to reflect changes in the value of the Trust’s NAV during the trading day. The IIV on a per Share basis disseminated during the Core Trading Session should not be viewed as a real-time update of the NAV, which is calculated once a day. The amount of SOL represented by a Share will gradually decrease over time as the Trust’s SOL are used to pay the Trust’s expenses. +Authorized Participants are the only persons that may place orders to create and redeem Baskets. Each Authorized Participant must (i) be a registered broker-dealer and (ii) enter into a Participant Agreement with the Sponsor and the Transfer Agent. If and when Authorized Participants enter into or amend their respective Participant Agreements to provide for creations and redemptions effected through In-Kind Orders, any Authorized Participants creating and redeeming Shares through In-Kind Orders must own a SOL wallet address that is known to the Custodian as belonging to the Authorized Participant and maintain an account with the Custodian (or if the Authorized Participant does not itself trade in SOL, a designee of such Authorized Participant (each, an “AP Designee”) must own a SOL wallet address that is known to the Custodian as belonging to such AP Designee and maintain an account with the Custodian. +An Authorized Participant may act for its own account or as agent for broker-dealers, custodians and other securities market participants that wish to create or redeem Baskets. Shareholders who are not Authorized Participants will only be able to create or redeem their Shares through an Authorized Participant. +The creation of Baskets requires the delivery to the Trust of the Total Basket Amount (or cash to acquire the Total Basket Amount) and the redemption of Baskets requires the distribution or other disposition by the Trust of the Total Basket Amount. Although the Trust creates Baskets only upon the receipt of SOL, and redeems Baskets only by distributing SOL or proceeds from the disposition of SOL, at this time an Authorized Participant can only submit Cash Orders, pursuant to which the Authorized Participant will deposit cash into, or accept cash from, a segregated account maintained by the Transfer Agent in the name of the Trust for purposes of receiving and distributing cash in connection with the creation and redemption of Baskets (such account, the “Cash Account”), as Authorized Participants have not entered into or amended their respective Participant Agreements to provide for creations and redemptions effected through in-kind orders. The Trust may effect creations and redemptions through in-kind transactions if and when Authorized Participants enter into or amend their respective Participant Agreements to provide for such transactions. +Cash Orders will be facilitated by the Transfer Agent and Grayscale Investments Sponsors, LLC. On an order-by-order basis, Grayscale Investments Sponsors, LLC, acting in its capacity as Liquidity Engager, will engage one or more Liquidity Providers to obtain or receive SOL in exchange for cash in connection with such order, as described in more detail below. Each Liquidity Provider must enter into a Liquidity Provider Agreement with the Liquidity Engager and the Sponsor (on behalf of the Trust), which will obligate it to obtain or receive SOL in connection with creations and redemptions pursuant to Cash Orders. +Unless the Sponsor requires that a Cash Order be effected at actual execution prices (an “Actual Execution Cash Order”), each Authorized Participant that submits a Cash Order to create or redeem Baskets will pay a fee (the “Variable Fee”) based on the Total Basket NAV (a “Variable Fee Cash Order”), and any price differential between (x) the Total Basket NAV on the trade date and (y) the price realized in acquiring or disposing of the corresponding Total Basket Amount, as the case may be, will be borne solely by the Liquidity Provider until such SOL have been received or liquidated by the Trust. The Variable Fee is intended to cover all of a Liquidity Provider’s expenses in connection with the creation or redemption order, including any exchange fees that the Liquidity Provider incurs in connection with buying or selling SOL. The amount may be changed by the Sponsor in its sole discretion at any time, and Liquidity Providers will communicate to the Sponsor in advance the Variable Fee they would be willing to accept in connection with a Variable Fee Cash Order, based on market conditions and other factors existing at the time of such Variable Fee Cash Order. +29 +Alternatively, the Sponsor may require that a Cash Order be effected as an Actual Execution Cash Order, in its sole discretion based on market conditions and other factors existing at the time of such Cash Order, and under such circumstances, any price differential between (x) the Total Basket NAV on the trade date and (y) the price realized in acquiring or disposing of the corresponding Total Basket Amount, as the case may be, will be borne solely by such Authorized Participant until such SOL have been received or liquidated by the Trust. See “—Creation Procedures—Actual Execution Cash Orders” and “—Redemption Procedures—Actual Execution Cash Orders.” +In the case of creations pursuant to Cash Orders, to transfer the Total Basket Amount to the Trust’s Vault Balance, the Liquidity Provider will transfer SOL to one of the public key addresses associated with the Vault Balance and as provided by the Sponsor. In the case of redemptions pursuant to Cash Orders, the same procedure is conducted, but in reverse, using the public key addresses associated with the wallet of the Liquidity Provider, and as provided by such party. All such transactions will be conducted on the Blockchain and parties acknowledge and agree that such transfers may be irreversible if done incorrectly. See “Item 1A. Risk Factors—Risk Factors Related to the Trust and the Shares—SOL transactions are irrevocable and stolen or incorrectly transferred SOL may be irretrievable. As a result, any incorrectly executed SOL transactions could adversely affect the value of the Shares.” +At this time the Trust does not create and redeem shares via in-kind transactions with Authorized Participants. If and when one or more Authorized Participants enter into or amend a Participant Agreement to provide for in-kind creations and redemptions the Trust may also create and redeem Baskets via In-Kind Orders, pursuant to which an Authorized Participant or its AP Designee would deposit SOL directly with the Trust or receive SOL directly from the Trust. However, at this time Baskets will not be created or redeemed through In-Kind Orders and will only be created or redeemed through Cash Orders. There can be no assurance as to whether or when any Authorized Participant will enter into or amend a Participant Agreement to provide for in-kind creations and redemption. See “Item 1A. Risk Factors—Risk Factors Related to the Trust and the Shares—The current unavailability of in-kind creations and redemptions of Shares could have adverse consequences for the Trust.” +Authorized Participants do not pay a transaction fee to the Trust in connection with the creation or redemption of Baskets, but there may be transaction fees associated with the validation of the transfer of SOL by the Solana Network, which will be paid by the Custodian in the case of redemptions and an Authorized Participant, its AP Designee or the Liquidity Provider in the case of creations. Service providers may charge Authorized Participants or AP Designees administrative fees for order placement and other services related to the creation or redemption of Baskets. As discussed above, Authorized Participants will also pay the Variable Fee in connection with Variable Fee Cash Orders. As discussed in further detail below under “—Creation Procedures—Actual Execution Cash Orders” and “—Redemption Procedures—Actual Execution Cash Orders”, under certain circumstances Authorized Participants may also be required to deposit additional cash in the Cash Account, or be entitled to receive excess cash from the Cash Account, in connection with creations and redemptions pursuant to Actual Execution Cash Orders. Authorized Participants will receive no fees, commissions or other form of compensation or inducement of any kind from either the Sponsor or the Trust and no such person has any obligation or responsibility to the Sponsor or the Trust to effect any sale or resale of Shares. +The Participant Agreements and the related procedures attached thereto may be amended by the Sponsor and the relevant Authorized Participant. Under the Participant Agreements, the Sponsor has agreed to indemnify each Authorized Participant against certain liabilities, including liabilities under the Securities Act. +The following description of the procedures for the creation and redemption of Baskets is only a summary and shareholders should refer to the relevant provisions of the Trust Agreement and the form of Participant Agreement for more detail. +Creation Procedures +On any business day, an Authorized Participant may place an order with the Transfer Agent to create one or more Baskets. Orders for creation must be placed with the Transfer Agent no later than 3:59:59 p.m., New York time, and Cash Orders for creation must be placed with the Transfer Agent no later than 1:59:59 p.m., New York time (the “Order Cutoff Time”). +The Sponsor may in its sole discretion limit the number of Shares created pursuant to Cash Orders on any specified day without notice to the Authorized Participants and may direct the Marketing Agent to reject any Cash Orders in excess of such capped amount. In exercising its discretion to limit the number of Shares created pursuant to Cash Orders, the Sponsor expects to take into consideration a number of factors, including (i) the availability of Liquidity Providers to facilitate Cash Orders and (ii) to the extent Authorized Participants have entered into or amended Participant Agreements to provide for in-kind creations and redemptions, the cost of processing Cash Orders relative to the cost of processing In-Kind Orders. If the Sponsor decides to limit Cash Orders and the Trust is otherwise unable to satisfy creation orders made in cash, the Trust’s ability to create new Shares could be negatively impacted or, if Authorized Participants have not entered into or amended Participant Agreements to provide for in-kind creations and redemptions as of such time, would be unavailable, which could impact the Shares’ liquidity and/or cause the Shares to trade at premiums to the NAV per Share, and otherwise have a negative impact on the value of the Shares. In addition, if the Sponsor decides to limit Cash Orders at a time when the Shares are trading at a premium to the NAV per Share, and in-kind creations are not then being effected pursuant to Participant Agreements, the arbitrage mechanism may fail to effectively function, which could impact the Shares’ liquidity and/or cause the Shares to trade at premiums to the NAV per Share, and otherwise have a negative impact on the value of the Shares. See “Item 1A. Risk Factors—Risk Factors Related to the Trust and the Shares—The current unavailability of in-kind creations and redemptions +30 +of Shares could have adverse consequences for the Trust.” +Creations pursuant to Cash Orders will take place as follows, where “T” is the trade date and each day in the sequence must be a business day. Before a creation order is placed, the Sponsor determines if such creation pursuant to a Cash Order will be a Variable Fee Cash Order or an Actual Execution Cash Order, which determination is communicated to the Authorized Participant. +31 +Trade Date (T) +Settlement Date +(T+1, or T+2, as established at the time of order placement) +• +The Authorized Participant places a creation order with the Transfer Agent. +• +The Marketing Agent accepts (or rejects) the creation order, which is communicated to the Authorized Participant by the Transfer Agent. +• +The Sponsor notifies the Liquidity Provider of the creation order. +• +The Sponsor determines the Total Basket NAV and any Variable Fee and Additional Creation Cash as soon as practicable after 4:00 p.m., New York time. +• +The Authorized Participant delivers to the Cash Account: +(x) in the case of a Variable Fee Cash Order, the Total Basket NAV, plus any Variable Fee; or +(y) in the case of an Actual Execution Cash Order, the Total Basket NAV, plus any Additional Creation Cash, less any Excess Creation Cash, if applicable (such amount, as applicable, the “Required Creation Cash”). +• +The Liquidity Provider transfers the Total Basket Amount to the Trust’s Vault Balance. +• +Once the Trust is in simultaneous possession of (x) the Total Basket Amount and (y) the Required Creation Cash, the Trust issues the aggregate number of Shares corresponding to the Baskets ordered by the Authorized Participant, which the Transfer Agent holds for the benefit of the Authorized Participant. +• +Cash equal to the Required Creation Cash is delivered to the Liquidity Provider from the Cash Account. +• +The Transfer Agent delivers Shares to the Authorized Participant by crediting the number of Baskets created to the Authorized Participant’s DTC account. +Variable Fee Cash Orders +Unless the Sponsor determines otherwise in its sole discretion based on market conditions and other factors existing at the time of such Cash Order, all creations pursuant to Cash Orders are expected to be executed as Variable Fee Cash Orders, and any price differential between (x) the Total Basket NAV on the trade date and (y) the price realized in acquiring the corresponding Total Basket Amount will be borne solely by the Liquidity Provider until such SOL have been received by the Trust. +The Sponsor anticipates that the Trust’s cost to acquire the Total Basket Amount in connection with a Variable Fee Cash Order will equal the sum of the corresponding Total Basket NAV and Variable Fee to be delivered by the Authorized Participant to the Trust. In the event that, by 12:00 p.m., New York time on the settlement date of a creation pursuant to a Variable Fee Cash Order, either (x) the Trust’s Vault Balance has not been credited with SOL in an amount equal to the Total Basket Amount or (y) the Cash Account has not been credited with the Total Basket NAV, plus any Variable Fee, such Cash Order will be deemed a failed trade, with any consideration that has been delivered by the Authorized Participant or the Liquidity Provider in respect of such Cash Order being returned by the Trust. +The Transfer Agent shall under no circumstances cause the Trust to issue Shares in respect of a Variable Fee Cash Order until such time as each of (x) the Total Basket Amount and (y) the Total Basket NAV, plus any Variable Fee, has been delivered to the Trust, and the Trust is in simultaneous possession of both. +Actual Execution Cash Orders +With respect to a creation pursuant to an Actual Execution Cash Order, as between the Trust and an Authorized Participant, the Authorized Participant is responsible for the dollar cost of the difference between the SOL price utilized in calculating Total Basket NAV on the trade date and the price at which the Trust acquires the SOL on the settlement date. If the price realized in acquiring the corresponding Total Basket Amount is higher than the Total Basket NAV, the Authorized Participant will bear the dollar cost of such difference by delivering cash in the amount of such difference (the “Additional Creation Cash”) to the Cash Account. If the price realized in acquiring the corresponding Total Basket Amount is lower than the Total Basket NAV, the Authorized Participant will benefit from +32 +such difference, with the Trust promptly returning cash in the amount of such excess (the “Excess Creation Cash”) to the Authorized Participant. +In the event that, by 12:00 p.m., New York time on the settlement date of a creation pursuant to an Actual Execution Cash Order, either (x) the Trust’s Vault Balance has not been credited with SOL in an amount equal to the Total Basket Amount or (y) the Cash Account has not been credited with the Total Basket NAV (net of any Additional Creation Cash or Excess Creation Cash, if applicable), such Cash Order will be deemed a failed trade, with any consideration that has been delivered by the Authorized Participant or the Liquidity Provider in respect of such Cash Order being returned by the Trust. +The Transfer Agent shall under no circumstances cause the Trust to issue Shares in respect of a Cash Order until such time as each of (x) the Total Basket Amount and (y) the Total Basket NAV (net of any Additional Creation Cash or Excess Creation Cash, if applicable) has been delivered to the Trust, and the Trust is in simultaneous possession of both. +Redemption Procedures +The procedures by which an Authorized Participant can redeem one or more Baskets mirror the procedures for the creation of Baskets. On any business day, an Authorized Participant may place a redemption order specifying the number of Baskets to be redeemed. +The redemption of Shares pursuant to Cash Orders will only take place if approved by the Sponsor in writing, in its sole discretion and on a case-by-case basis. In exercising its discretion to approve the redemption of Shares pursuant to Cash Orders, the Sponsor expects to take into consideration a number of factors, including (i) the availability of Liquidity Providers to facilitate Cash Orders and (ii) to the extent Authorized Participants have entered into or amended Participant Agreements to provide for in-kind creations and redemptions, the cost of processing Cash Orders relative to the cost of processing In-Kind Orders. If the Sponsor decides to limit Cash Orders and the Trust is unable to satisfy redemption orders made in cash, the Trust’s ability to create new Shares could be negatively impacted or, if Authorized Participants have not entered into or amended Participant Agreements to provide for in-kind creations and redemptions as of such time, would be unavailable, which could impact the Shares’ liquidity and/or cause the Shares to trade at discounts, and could have a negative impact on the value of the Shares. In addition, if the Sponsor decides to limit Cash Orders at a time when the Shares are trading at a discount to the NAV per Share, and in-kind redemptions are not then being effected pursuant to Participant Agreements, the arbitrage mechanism may fail to effectively function, which could impact the Shares’ liquidity and/or cause the Shares to trade at discounts to the NAV per Share, and otherwise have a negative impact on the value of the Shares. See “Item 1A. Risk Factors—Risk Factors Related to the Trust and the Shares—The current unavailability of in-kind creations and redemptions of Shares could have adverse consequences for the Trust.” for more information. +Cash Orders for redemption must be placed no later than 1:59:59 p.m., New York time on each business day. The Authorized Participants may only redeem Baskets and cannot redeem any Shares in an amount less than a Basket. +Redemptions pursuant to Cash Orders will take place as follows, where “T” is the trade date and each day in the sequence must be a business day. Before a redemption pursuant to Cash Order is placed, the Sponsor determines if such redemption order will be a Variable Fee Cash Order or an Actual Execution Cash Order, which determination is communicated to the Authorized Participant. +33 +Trade Date (T) +Settlement Date +(T+1, or T+2, as established at the time of order placement) +• +The Authorized Participant places a redemption order with the Transfer Agent. +• +The Marketing Agent accepts (or rejects) the redemption order, which is communicated to the Authorized Participant by the Transfer Agent. +• +The Sponsor notifies the Liquidity Provider of the redemption order. +• +The Sponsor determines the Total Basket NAV and, in the case of a Variable Fee Cash Order, any Variable Fee, as soon as practicable after 4:00 p.m., New York time. +• +The Authorized Participant delivers Baskets to be redeemed from its DTC account to the Transfer Agent. +• +The Liquidity Provider delivers to the Cash Account: +(x) in the case of a Variable Fee Cash Order, the Total Basket NAV less any Variable Fee; or +(y) in the case of an Actual Execution Cash Order, the actual proceeds to the Trust from the liquidation of the Total Basket Amount (such amount, as applicable, the “Required Redemption Cash”). +• +Once the Trust is in simultaneous possession of (x) the Total Basket Amount and (y) the Required Redemption Cash, the Transfer Agent cancels the Shares comprising the number of Baskets redeemed by the Authorized Participant. +• +The Custodian sends the Liquidity Provider the Total Basket Amount, and cash equal to the Required Redemption Cash is delivered to the Authorized Participant from the Cash Account. +Variable Fee Cash Orders +Unless the Sponsor determines otherwise in its sole discretion based on market conditions and other factors existing at the time of such Cash Order, all redemptions pursuant to Cash Orders are expected to be executed as Variable Fee Cash Orders, and any price differential between (x) the Total Basket NAV on the trade date and (y) the price realized in disposing of the corresponding Total Basket Amount will be borne solely by the Liquidity Provider. +The Sponsor anticipates that the Trust’s proceeds from liquidating the Total Basket Amount in connection with a Variable Fee Cash Order will equal the corresponding Total Basket NAV less the Variable Fee to be delivered by the Liquidity Provider to the Trust. In the event that, by 12:00 p.m. (New York time) on the settlement date of a redemption pursuant to a Variable Fee Cash Order, either (x) the Transfer Agent’s account at DTC has not been credited with the total number of Shares corresponding to the total number of Baskets to be redeemed or (y) the Cash Account has not been credited with the Total Basket NAV, less any Variable Fee, such Cash Order will be deemed a failed trade, with any consideration that has been delivered by the Authorized Participant or the Liquidity Provider in respect of such Cash Order being returned by the Trust. +The Transfer Agent shall under no circumstances deliver the Required Redemption Cash to the Authorized Participant in respect of a Variable Fee Cash Order until such time as (x) the Baskets to be redeemed have been delivered to the Transfer Agent and (y) the Total Basket NAV, less any Variable Fee, has been delivered to the Cash Account, and the Trust and/or the Transfer Agent is in simultaneous possession of both. +34 +Actual Execution Cash Orders +With respect to a redemption pursuant to an Actual Execution Cash Order, as between the Trust and an Authorized Participant, the Authorized Participant is responsible for the dollar cost of the difference between the SOL price utilized in calculating Total Basket NAV on the trade date and the price at which the Trust disposes of the SOL on the settlement date. If the price realized in disposing the corresponding Total Basket Amount on the settlement date is lower than the Total Basket NAV on the trade date, the Authorized Participant will bear the dollar cost of such difference (the “Redemption Cash Shortfall”), with the amount of cash to be delivered to the Authorized Participant being reduced by the amount of such Redemption Cash Shortfall. If the price realized in disposing the corresponding Total Basket Amount on the settlement date is higher than the Total Basket NAV on the trade date, the Trust will deliver cash in the amount of such excess (the “Additional Redemption Cash”) to the Authorized Participant. +In the event that, by 12:00 p.m. (New York time) on the settlement date of a redemption pursuant to an Actual Execution Cash Order, either (x) the Transfer Agent’s account at DTC has not been credited with the total number of Shares corresponding to the total number of Baskets to be redeemed or (y) the Cash Account has not been credited with the Total Basket NAV (plus any Additional Redemption Cash or net of any Redemption Cash Shortfall), such Cash Order will be deemed a failed trade, with any consideration that has been delivered by the Authorized Participant or the Liquidity Provider in respect of such Cash Order being returned by the Trust. +The Transfer Agent shall under no circumstances deliver the Required Redemption Cash to the Authorized Participant in respect of a Cash Order until such time as (x) the Total Basket Amount has been delivered to the Transfer Agent and (y) the Total Basket NAV (plus any Additional Redemption Cash or net of any Redemption Cash Shortfall, if applicable) has been delivered to the Trust, and the Trust and/or the Transfer Agent is in simultaneous possession of both. +Suspension or Rejection of Orders and Total Basket Amount +The creation or redemption of Shares may be suspended generally, or refused with respect to particular requested creations or redemptions, during any period when the transfer books of the Transfer Agent are closed or if circumstances outside the control of the Sponsor or its delegates make it for all practical purposes not feasible to process creation orders or redemption orders or for any other reason at any time or from time to time. The Marketing Agent may reject an order or, after accepting an order, may cancel such order, if: (i) such order is not presented in proper form as described in the Participant Agreement, (ii) to the extent Authorized Participants have entered into or amended Participant Agreements to provide for in-kind creations and redemptions, in the case of In-Kind Orders, the transfer of the Total Basket Amount comes from an account other than a SOL wallet address that is known to the Custodian as belonging to the Authorized Participant or its AP Designee or (iii) the fulfillment of the order, in the opinion of counsel, might be unlawful, among other reasons. None of the Sponsor or its delegates will be liable for the suspension, rejection or acceptance of any creation order or redemption order. +The Sponsor will notify investors of any suspension of creations or redemptions of Shares by filing a current report on Form 8-K. Suspension of the creation or redemption of Shares could negatively impact the Shares’ liquidity and/or cause the Shares to trade at premiums and discounts, and otherwise have a negative impact on the value of the Shares. +Tax Responsibility +Authorized Participants are responsible for any transfer tax, sales or use tax, stamp tax, recording tax, value-added tax or similar tax or governmental charge applicable to the creation and redemption of Baskets, regardless of whether such tax or charge is imposed directly on the Authorized Participants, and agree to indemnify the Sponsor and the Trust if the Sponsor or the Trust is required by law to pay any such tax, together with any applicable penalties, additions to tax or interest thereon. +35 +Valuation of SOL and Determination of NAV +The Sponsor will evaluate the SOL held by the Trust and determine the NAV of the Trust in accordance with the relevant provisions of the Trust Documents. The following is a description of the material terms of the Trust Documents as they relate to valuation of the Trust’s SOL and the NAV calculations, which is calculated using non-GAAP methodology and is not used in the Trust’s financial statements. +On each business day at 4:00 p.m., New York time, or as soon thereafter as practicable (the “Evaluation Time”), the Sponsor will evaluate the SOL held by the Trust and calculate and publish the NAV of the Trust. To calculate the NAV, the Sponsor will: +1. +Determine the Index Price as of such business day. +2. +Multiply the Index Price by the Trust’s aggregate amount of SOL owned by the Trust as of 4:00 p.m., New York time, on the immediately preceding day, less the aggregate amount of SOL payable as the accrued and unpaid Sponsor’s Fee and Sponsor’s Staking Fee as of 4:00 p.m., New York time, on the immediately preceding day. +3. +Add the U.S. dollar value of SOL, calculated using the Index Price, receivable under pending creation orders, if any, determined by multiplying the number of the Creation Baskets represented by such creation orders by the Basket Amount and then multiplying such product by the Index Price. +4. +Subtract the U.S. dollar amount of accrued and unpaid Additional Trust Expenses, if any. +5. +Subtract the U.S. dollar value of the SOL, calculated using the Index Price, which are either (i) to be distributed under pending redemption orders, if any, determined by multiplying the number of Baskets to be redeemed represented by such redemption orders by the Basket Amount and then multiplying such product by the Index Price, or (ii) to be distributed to shareholders pursuant to a binding obligation of the Trust following the declaration of an in-kind dividend (including through interests in any liquidating trust or other vehicle formed to hold such SOL) (the amount derived from steps 1 through 5 above, the “NAV Fee Basis Amount”). +6. +Subtract the U.S. dollar amount of the Sponsor’s Fee that accrues for such business day, as calculated based on the NAV Fee Basis Amount for such business day. +In the event that the Sponsor determines that the primary methodology used to determine the Index Price is not an appropriate basis for valuation of the Trust’s SOL, the Sponsor will utilize the cascading set of rules as described in “—Overview of the Solana Industry and Market—SOL Value—The Index and the Index Price.” +The Sponsor will publish the Index Price, the Trust’s NAV and the NAV per Share on the Trust’s website as soon as practicable after its determination. If the NAV and NAV per Share have been calculated using a price per SOL other than the Index Price for such Evaluation Time, the publication on the Trust’s website will note the valuation methodology used and the price per SOL resulting from such calculation. +In the event of a hard fork of the Solana Network, the Sponsor will, if permitted by the terms of the Trust Agreement, use its discretion to determine, in good faith, which peer-to-peer network, among a group of incompatible forks of the Solana Network, is generally accepted as the network for SOL and should therefore be considered the appropriate network for the Trust’s purposes. The Sponsor will base its determination on a variety of then relevant factors, including (but not limited to) the following: (i) the Sponsor’s beliefs regarding expectations of the core developers of SOL, users, services, businesses, validators and other constituencies and (ii) the actual continued acceptance of, validating power on, and community engagement with the Solana Network. +The shareholders may rely on any evaluation furnished by the Sponsor. The determinations that the Sponsor makes will be made in good faith upon the basis of, and the Sponsor will not be liable for any errors contained in, information reasonably available to it. The Sponsor will not be liable to the Authorized Participants, the shareholders or any other person for errors in judgment. However, the preceding liability exclusion will not protect the Sponsor against any liability resulting from gross negligence, willful misconduct or bad faith in the performance of its duties. +Expenses; Sales of SOL +The Trust’s only ordinary recurring expense is expected to be the Sponsor’s Fee. From inception to October 28, 2025, the Sponsor’s Fee was 2.5%. Effective October 29, 2025, the Sponsor’s Fee was lowered to 0.35%. The Sponsor’s Fee will accrue daily in U.S. dollars at an annual rate of 0.35% of the NAV Fee Basis Amount of the Trust as of 4:00 p.m., New York time, on each day; provided that for a day that is not a business day, the calculation will be based on the NAV Fee Basis Amount from the most recent business day, reduced by the accrued and unpaid Sponsor’s Fee for such most recent business day and for each day after such most recent business day and prior to the relevant calculation date. This dollar amount for each daily accrual will then be converted into SOL by reference to the same Index Price used to determine such accrual. The Sponsor’s Fee is payable in SOL to the Sponsor daily in arrears. +36 +The Sponsor, from time to time, may temporarily waive all or a portion of the Sponsor’s Fee in its sole discretion for stated periods of time. Effective November 5, 2025, the Sponsor has determined to waive a portion of the Sponsor’s Fee until the earlier of (x) February 5, 2026 and (y) the first date on which the NAV of the Trust exceeds $1.0 billion (such period, the “Fee Waiver +Period”). If the Trust’s NAV exceeded $1.0 billion prior to February 5, 2026, the Sponsor’s Fee charged on assets over $1.0 billion would have become 0.35%. All investors will incur the same Sponsor’s Fee, which is the weighted average for those fee rates. Following the expiration of the Fee Waiver Period on February 5, 2026, the effective Sponsor’s Fee is now 0.35%. From November 5, 2025 to December 31, 2025, the Trust’s assets did not exceed $1.0 billion and no Sponsor’s Fee had been incurred. +Expenses to Be Paid by the Sponsor +The Trust pays the Sponsor’s Fee to the Sponsor. As partial consideration for its receipt of the Sponsor’s Fee from the Trust, the Sponsor is obligated under the Trust Agreement to assume and pay all fees and other expenses incurred by the Trust in the ordinary course of its affairs, excluding taxes, but including: (i) the Marketing Fee; (ii) the Administrator Fee, if any; (iii) the Custodian Fee and fees for any other security vendor engaged by the Trust; (iv) the Transfer Agent Fee; (v) the Trustee fee; (vi) fees and expenses related to the listing, quotation or trading of the Shares on any Secondary Market (including customary legal, marketing and audit fees and expenses) in an amount up to $600,000 in any given fiscal year; (vii) ordinary course legal fees and expenses; (viii) audit fees; (ix) regulatory fees, including, if applicable, any fees relating to registration of the Shares under the Securities Act or the Exchange Act; (x) printing and mailing costs; (xi) the costs of maintaining the Trust’s website; and (xii) applicable license fees (each a “Sponsor-paid Expense”), provided that any expense that qualifies as an Additional Trust Expense will be deemed to be an Additional Trust Expense and not a Sponsor-paid Expense. The Sponsor, from time to time, may temporarily waive all or a portion of the Sponsor’s Fee of the Trust in its discretion for stated periods of time. The Sponsor has previously waived the Sponsor’s Fee during the Fee Waiver Period, which ended on February 5, 2026. Presently, the Sponsor does not intend to waive any of the Sponsor’s Fee for the Trust and, except as set forth above, there are no circumstances under which the Sponsor has determined it will definitely waive the fee. The Sponsor is under no obligation to waive any portion of its fees, and any such waiver shall create no obligation to waive any such fees during any period not covered by the waiver. +The Sponsor’s Fee will generally be paid in SOL. +After the Trust’s payment of the Sponsor’s Fee to the Sponsor, the Sponsor may elect to convert the SOL received as payment of the Sponsor’s Fee into U.S. dollars. The rate at which the Sponsor converts such SOL to U.S. dollars may differ from the rate at which the relevant Sponsor’s Fee was determined. The Trust will not be responsible for any fees and expenses incurred by the Sponsor to convert SOL received in payment of the Sponsor’s Fee into U.S. dollars. +Extraordinary and Other Expenses +In certain extraordinary circumstances, the Trust may incur certain extraordinary, non-recurring expenses that are not Sponsor-paid Expenses, including, but not limited to: taxes and governmental charges; expenses and costs of any extraordinary services performed by the Sponsor (or any other service provider) on behalf of the Trust to protect the Trust or the interests of shareholders; any indemnification of the Custodian or other agents, service providers or counterparties of the Trust; the fees and expenses related to the listing, quotation or trading of the Shares on any Secondary Market (including legal, marketing and audit fees and expenses) to the extent exceeding $600,000 in any given fiscal year; and extraordinary legal fees and expenses, including any legal fees and expenses incurred in connection with litigation, regulatory enforcement or investigation matters (collectively, “Additional Trust Expenses”). If Additional Trust Expenses are incurred, the Trust will be required to pay these Additional Trust Expenses by selling or delivering SOL. Generally, the Sponsor will cover such expenses on behalf of the Trust and the Trust will reimburse the Sponsor by delivering to the Sponsor SOL in an amount equal to such expenses. When the Trust and the Sponsor, acting on behalf of the Trust, sell or deliver, as applicable, SOL, they generally do not transact directly with counterparties other than the Authorized Participants, a Liquidity Provider or other similarly eligible financial institutions that are subject to federal and state licensing requirements and maintain practices and policies designed to comply with AML and KYC regulations. +The Sponsor or any of its affiliates may be reimbursed only for the actual cost to the Sponsor or such affiliate of any expenses that it advances on behalf of the Trust for payment of which the Trust is responsible. In addition, the Trust Agreement prohibits the Trust from paying to the Sponsor or such affiliate for indirect expenses incurred in performing services for the Trust in its capacity as the Sponsor (or an affiliate of the Sponsor) of the Trust, such as salaries and fringe benefits of officers and directors, rent or depreciation, utilities and other administrative items generally falling within the category of the Sponsor’s “overhead.” +Disposition of SOL +To cause the Trust to pay the Sponsor’s Fee, the Sponsor will instruct the Custodian to (i) withdraw from the Vault Balance the amount of SOL, determined as described above in “—Expenses; Sales of SOL,” equal to the accrued but unpaid Sponsor’s Fee and (ii) transfer such SOL to an account maintained by the Custodian for the Sponsor at such times as the Sponsor determines in its absolute discretion. In addition, if the Trust incurs any Additional Trust Expenses, the Sponsor or its delegates (i) will instruct the Custodian to withdraw from the Vault Balance SOL in such quantity as may be necessary to permit payment of such Additional Trust Expenses and +37 +(ii) may either (x) cause the Trust to convert such SOL into U.S. dollars or other fiat currencies at the Actual Exchange Rate or (y) when the Sponsor incurs such expenses on behalf of the Trust, cause the Trust (or its delegate) to deliver such SOL in-kind to the Sponsor, in each case in such quantity as may be necessary to permit payment of such Additional Trust Expenses. The Sponsor’s Fee and Additional Trust Expenses payable by the Trust will generally be paid in SOL. Shareholders do not have the option of choosing to pay their proportionate shares of Additional Trust Expenses in lieu of having their shares of Additional Trust Expenses paid by the Trust’s delivery or disposition of SOL. Assuming that the Trust is a grantor trust for U.S. federal income tax purposes, the transfer or sale of SOL to pay the Trust’s expenses will be a taxable event for shareholders. See “Material U.S. Federal Income Tax Consequences—Tax Consequences to U.S. Holders.” +Because the amount of SOL held by the Trust will decrease as a consequence of the payment of the Sponsor’s Fee in SOL or the sale of SOL to pay Additional Trust Expenses (and the Trust will incur additional fees associated with converting SOL into U.S. dollars), the amount of SOL represented by a Share will decline at such time and the Trust’s NAV may also decrease. Accordingly, the shareholders will bear the cost of the Sponsor’s Fee and any Additional Trust Expenses. New SOL deposited into the Vault Balance in exchange for additional new Baskets issued by the Trust will not reverse this trend. +The Sponsor will also cause the sale of the Trust’s SOL if the Sponsor determines that sale is required by applicable law or regulation or in connection with the termination and liquidation of the Trust. The Sponsor will not be liable or responsible in any way for depreciation or loss incurred by reason of any sale of SOL. +The quantity of SOL to be delivered to the Sponsor or other relevant payee in payment of the Sponsor’s Fee or any Additional Trust Expenses, or sold to permit payment of Additional Trust Expenses, will vary from time to time depending on the level of the Trust’s expenses and the value of SOL held by the Trust. See “—Expenses; Sales of SOL.” Assuming that the Trust is a grantor trust for U.S. federal income tax purposes, each delivery or sale of SOL by the Trust for the payment of expenses will be a taxable event to shareholders. See “—Material U.S. Federal Income Tax Consequences—Tax Consequences to U.S. Holders.” +Discretion of the Index Provider +The Index Provider has sole discretion over the determination of the Index Price and may change the methodologies for determining the Index Price from time to time. +Description of the Trust Agreement +The following is a description of the material terms of the Trust Agreement. The Trust Agreement establishes the roles, rights and duties of the Sponsor and the Trustee. +The Sponsor +Liability of the Sponsor and Indemnification +Neither the Sponsor nor the Trust insure the Trust’s SOL. The Sponsor and its affiliates (each a “Covered Person”) will not be liable to the Trust or any shareholder for any loss suffered by the Trust which arises out of any action or inaction of such Covered Person if such Covered Person determined in good faith that such course of conduct was in the best interests of the Trust. However, the preceding liability exclusion will not protect any Covered Person against any liability resulting from its own willful misconduct, bad faith or gross negligence in the performance of its duties. +Each Covered Person will be indemnified by the Trust against any loss, judgment, liability, expense incurred or amount paid in settlement of any claim sustained by it in connection with the Covered Person’s activities for the Trust, provided that (i) the Covered Person was acting on behalf of, or performing services for, the Trust and had determined, in good faith, that such course of conduct was in the best interests of the Trust and such liability or loss was not the result of fraud, gross negligence, bad faith, willful misconduct or a material breach of the Trust Agreement on the part of such Covered Person and (ii) any such indemnification will be recoverable only from the property of the Trust. Any amounts payable to an indemnified party will be payable in advance under certain circumstances. +Fiduciary and Regulatory Duties of the Sponsor +The Sponsor is not effectively subject to the duties and restrictions imposed on “fiduciaries” under both statutory and common law. Rather, the general fiduciary duties that would apply to the Sponsor are defined and limited in scope by the Trust Agreement. +Under Delaware law, a shareholder may bring a derivative action if the shareholder is a shareholder at the time the action is brought and either (i) was a shareholder at the time of the transaction at issue or (ii) acquired the status of shareholder by operation of law or the Trust’s governing instrument from a person who was a shareholder at the time of the transaction at issue. Additionally, Section 3816(e) of the Delaware Statutory Trust Act specifically provides that “a beneficial owner’s right to bring a derivative action may be subject to such additional standards and restrictions, if any, as are set forth in the governing instrument of the statutory trust, including, without limitation, the requirement that beneficial owners owning a specified beneficial interest in the statutory trust join in the bringing of the derivative action.” In addition to the requirements of applicable law, Section 7.4 of the Trust Agreement provides that no shareholder will have the right, power or authority to bring or maintain a derivative action, suit or other proceeding on behalf of the +38 +Trust unless two or more shareholders who (i) are not “Affiliates” (as defined in the Trust Agreement and below) of one another and (ii) collectively hold at least 10.0% of the outstanding Shares join in the bringing or maintaining of such action, suit or other proceeding. The Trust selected the 10.0% ownership threshold because the Trust believed that this was a threshold that investors would be comfortable with based on market precedent. +This provision applies to any derivative action brought in the name of the Trust other than claims brought under the federal securities laws or the rules and regulations thereunder, to which Section 7.4 does not apply. Due to this additional requirement, a shareholder attempting to bring a derivative action in the name of the Trust will be required to locate other shareholders with which it is not affiliated and that have sufficient Shares to meet the 10.0% threshold based on the number of Shares outstanding on the date the claim is brought and thereafter throughout the duration of the action, suit or proceeding. +“Affiliate” is defined in the Trust Agreement to mean any natural person, partnership, limited liability company, statutory trust, corporation, association or other legal entity (each, a “Person”) directly or indirectly owning, controlling or holding with power to vote 10% or more of the outstanding voting securities of such Person, (ii) any Person 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled or held with power to vote by such Person, (iii) any Person, directly or indirectly, controlling, controlled by or under common control of such Person, (iv) any employee, officer, director, member, manager or partner of such Person, or (v) if such Person is an employee, officer, director, member, manager or partner, any Person for which such Person acts in any such capacity. +Any shareholders seeking to bring a derivative action may determine whether the 10.0% ownership threshold required to bring a derivative action has been met by dividing the number of Shares owned by such shareholders by the total number of Shares outstanding. The Trust offers Shares on a periodic basis at such times and for such periods as the Sponsor determines in its sole discretion. As a result, in order to maintain the 10.0% ownership threshold required to maintain a derivative action, shareholders may need to increase their holdings or locate additional shareholders during the pendency of a claim. The Trust posts the number of Shares outstanding as of the end of each month on its website and as of the end of each quarter in its annual and quarterly filings with the SEC. The Trust additionally reports sales of unregistered securities on Form 8-K pursuant to Item 3.02 thereof. Shareholders may monitor the number of Shares outstanding at any time for purposes of calculating their ownership threshold by reviewing the Trust’s website and SEC filings and by requesting the number of Shares outstanding on any date from the Sponsor at any time pursuant to Sections 7.2 and 8.1 of the Trust Agreement. Shareholders have the opportunity at any time to increase their holdings or locate other shareholders to maintain the 10.0% threshold throughout the duration of a derivative claim. Shareholders may do so by requesting from the Sponsor the list of the names and last known address of all shareholders pursuant to Sections 7.2 and 8.1 of the Trust Agreement and Section 3819(a) of the DSTA. Because the Trust is a grantor trust, it may only issue one class of securities, the Shares. +The Sponsor is not aware of any reason to believe that Section 7.4 of the Trust Agreement is not enforceable under state or federal law. The Court of Chancery of Delaware has stated that “[t]he DSTA is enabling in nature and, as such, permits a trust through its declarations of trust to delineate additional standards and requirements with which a stockholder-plaintiff must comply to proceed derivatively in the name of the trust.” Hartsel v. Vanguard Group, Inc., Del. Ch. June 15, 2011. However, there is limited case law addressing the enforceability of provisions like Section 7.4 under state and federal law and it is possible that this provision would not be enforced by a court in another jurisdiction or under other circumstances. +Beneficial owners may have the right, subject to certain legal requirements, to bring class actions in federal court to enforce their rights under the federal securities laws and the rules and regulations promulgated thereunder by the SEC. Beneficial owners who have suffered losses in connection with the purchase or sale of their beneficial interests may be able to recover such losses from the Sponsor where the losses result from a violation by the Sponsor of the anti-fraud provisions of the federal securities laws. +Actions Taken to Protect the Trust +The Sponsor may prosecute, defend, settle or compromise actions or claims at law or in equity that it considers necessary or proper to protect the Trust or the interests of the shareholders. The expenses incurred by the Sponsor in connection therewith (including the fees and disbursements of legal counsel) will be expenses of the Trust and are deemed to be Additional Trust Expenses. The Sponsor will be entitled to be reimbursed for the Additional Trust Expenses it pays on behalf of the Trust. +Successor Sponsors +If the Sponsor is adjudged bankrupt or insolvent, the Trust may dissolve and a Liquidating Trustee may be appointed to terminate and liquidate the Trust and distribute its remaining assets. The Trustee will have no obligation to appoint a successor sponsor or to assume the duties of the Sponsor, and will have no liability to any person because the Trust is or is not terminated. However, if a certificate of dissolution or revocation of the Sponsor’s charter is filed (and ninety (90) days have passed after the date of notice to the Sponsor of revocation without a reinstatement of the Sponsor’s charter) or the withdrawal, removal, adjudication or admission of bankruptcy or insolvency of the Sponsor has occurred, shareholders holding at least a majority (over 50%) of the Shares may agree in writing to continue the affairs of the Trust and to select, effective as of the date of such event, one or more successor sponsors within ninety (90) days of any such event. +39 +The Trustee +The Trustee is a fiduciary under the Trust Agreement and must satisfy the requirements of Section 3807 of the Delaware Statutory Trust Act. However, the fiduciary duties, responsibilities and liabilities of the Trustee are limited by, and are only those specifically set forth in, the Trust Agreement. +Limitation on Trustee’s Liability +Under the Trust Agreement, the Sponsor has exclusive control of the management of all aspects of the activities of the Trust and the Trustee has only nominal duties and liabilities to the Trust. The Trustee is appointed to serve as the trustee for the sole purpose of satisfying Section 3807(a) of the DSTA which requires that the Trust have at least one trustee with a principal place of business in the State of Delaware. The duties of the Trustee are limited to (i) accepting legal process served on the Trust in the State of Delaware and (ii) the execution of any certificates required to be filed with the Delaware Secretary of State which the Trustee is required to execute under the DSTA. +To the extent the Trustee has duties (including fiduciary duties) and liabilities to the Trust or the shareholders under the DSTA, such duties and liabilities will be replaced by the duties and liabilities of the Trustee expressly set forth in the Trust Agreement. The Trustee will have no obligation to supervise, nor will it be liable for, the acts or omissions of the Sponsor, Transfer Agent, Custodian or any other person. Neither the Trustee, either in its capacity as trustee or in its individual capacity, nor any director, officer or controlling person of the Trustee is, or has any liability as, the issuer, director, officer or controlling person of the issuer of Shares. The Trustee’s liability is limited solely to the express obligations of the Trustee as set forth in the Trust Agreement. +Under the Trust Agreement, the Sponsor has the exclusive management, authority and control of all aspects of the activities of the Trust. The Trustee has no duty or liability to supervise or monitor the performance of the Sponsor, nor does the Trustee have any liability for the acts or omissions of the Sponsor. The existence of a trustee should not be taken as an indication of any additional level of management or supervision over the Trust. The Trust Agreement provides that the management authority with respect to the Trust is vested directly in the Sponsor and that the Trustee is not responsible or liable for the genuineness, enforceability, collectability, value, sufficiency, location or existence of any of the SOL or other assets of the Trust. +Possible Repayment of Distributions Received by Shareholders; Indemnification by Shareholders +The Shares are limited liability investments. Investors may not lose more than the amount that they invest plus any profits recognized on their investment. Although it is unlikely, the Sponsor may, from time to time, make distributions to the shareholders. However, shareholders could be required, as a matter of bankruptcy law, to return to the estate of the Trust any distribution they received at a time when the Trust was in fact insolvent or in violation of its Trust Agreement. In addition, the Trust Agreement provides that shareholders will indemnify the Trust for any harm suffered by it as a result of shareholders’ actions unrelated to the activities of the Trust. +The foregoing repayment of distributions and indemnity provisions (other than the provision for shareholders indemnifying the Trust for taxes imposed upon it by a state, local or foreign taxing authority, which is included only as a formality due to the fact that many states do not have statutory trust statutes therefore the tax status of the Trust in such states might, theoretically, be challenged) are commonplace in statutory trusts and limited partnerships. +Indemnification of the Trustee +The Trustee and any of the officers, directors, employees and agents of the Trustee will be indemnified by the Trust as primary obligor and the Sponsor as secondary obligor and held harmless against any loss, damage, liability, claim, action, suit, cost, expense, disbursement (including the reasonable fees and expenses of counsel), tax or penalty of any kind and nature whatsoever, arising out of, imposed upon or asserted at any time against such indemnified person in connection with the performance of its obligations under the Trust Agreement, the creation, operation or termination of the Trust or the transactions contemplated therein; provided, however, that neither the Trust nor the Sponsor will be required to indemnify any such indemnified person for any such expenses which are a result of the willful misconduct, bad faith or gross negligence of such indemnified person. If the Trust has insufficient assets or improperly refuses to pay such an indemnified person within 60 days of a request for payment owed under the Trust Agreement, the Sponsor will, as secondary obligor, compensate or reimburse the Trustee or indemnify, defend and hold harmless such an indemnified person as if it were the primary obligor under the Trust Agreement. Any amount payable to such an indemnified person under the Trust Agreement may be payable in advance under certain circumstances and will be secured by a lien on the Trust property. The obligations of the Sponsor and the Trust to indemnify such indemnified persons under the Trust Agreement will survive the termination of the Trust Agreement. +Holding of Trust Property +The Trust will hold and record the ownership of the Trust’s assets in a manner such that it will be owned for the benefit of the shareholders for the purposes of, and subject to and limited by the terms and conditions set forth in, the Trust Agreement. The Trust will +40 +not create, incur or assume any indebtedness or borrow money from or loan money to any person. The Trustee may not commingle its assets with those of any other person. +The Trustee may employ agents, attorneys, accountants, auditors and nominees and will not be answerable for the conduct or misconduct of any such custodians, agents, attorneys or nominees if such custodians, agents, attorneys and nominees have been selected with reasonable care. +Resignation, Discharge or Removal of Trustee; Successor Trustees +The Trustee may resign as Trustee by written notice of its election so to do, delivered to the Sponsor with at least 180 days’ notice. The Sponsor may remove the Trustee in its discretion. If the Trustee resigns or is removed, the Sponsor, acting on behalf of the shareholders, will appoint a successor trustee. The successor Trustee will become fully vested with all of the rights, powers, duties and obligations of the outgoing Trustee. +If the Trustee resigns and no successor trustee is appointed within 180 days after the Trustee notifies the Sponsor of its resignation, the Trustee will terminate and liquidate the Trust and distribute its remaining assets. +Amendments to the Trust Agreement +In general, the Sponsor may amend the Trust Agreement without the consent of any shareholder. In particular, the Sponsor may, without the approval of the shareholders, amend the Trust Agreement if the Trust is advised at any time by the Trust’s accountants or legal counsel that the amendments are necessary to permit the Trust to take the position that it is a grantor trust for U.S. federal income tax purposes. The Sponsor is also permitted to make certain restatements, amendments or supplements to the Trust Agreement that would materially adversely affect the interests of the shareholders as determined by the Sponsor in its sole discretion with a 20-day notice to shareholders. Additionally, the Sponsor is permitted to make certain restatements, amendments or supplements to the Trust Agreement that could adversely affect the status of the Trust as a grantor trust for U.S. federal income tax purposes, but only if certain conditions set forth in the amendments relating to the qualification of the Trust as a grantor trust for U.S. federal income tax purposes are satisfied. Furthermore, subject to certain limitations, the Sponsor may make any other amendments to the Trust Agreement which do not materially adversely affect the interests of the shareholders in its sole discretion without shareholder consent. +Termination of the Trust +Pursuant to the terms of the Trust Agreement, the Trust is required to dissolve under certain circumstances. In addition, the Sponsor may, in its sole discretion, dissolve the Trust for a number of reasons, including if the Sponsor determines, in its sole discretion, that it is desirable or advisable for any reason to discontinue the affairs of the Trust. +Upon dissolution of the Trust and surrender of Shares by the shareholders, shareholders will receive a distribution in U.S. dollars or in SOL at the sole discretion of the Sponsor, after the Sponsor has sold the Trust’s SOL, if applicable, and has paid or made provision for the Trust’s claims and obligations. +If the Trust is forced to liquidate, the Trust will be liquidated under the Sponsor’s direction. The Sponsor, on behalf of the Trust, will engage directly with Digital Asset Markets to liquidate the Trust’s SOL as promptly as possible while obtaining the best fair value possible. The proceeds therefrom will be applied and distributed in the following order of priority: (a) to the expenses of liquidation and termination and to creditors, including shareholders who are creditors, to the extent otherwise permitted by law, in satisfaction of liabilities of the Trust other than liabilities for distributions to shareholders and (b) to the holders of Shares pro rata in accordance with the respective percentages of Shares that they hold. It is expected that the Sponsor would be subject to the same regulatory requirements as the Trust, and therefore, the markets available to the Sponsor will be the same markets available to the Trust. +Governing Law +The Trust Agreement and the rights of the Sponsor, Trustee and shareholders under the Trust Agreement are governed by the laws of the State of Delaware. +Description of the Prime Broker Agreement +The Prime Broker Agreement establishes the rights and responsibilities of the Custodian, the Prime Broker, the Sponsor and the Trust with respect to the Trust’s SOL which is held in accounts maintained and operated by the Custodian, as a fiduciary with respect to the Trust’s assets, and the Prime Broker (together with the Custodian, the “Custodial Entities”) on behalf of the Trust. For a general description of the Custodian’s obligations, see “—Service Providers of the Trust—The Custodian and Prime Broker.” +Account; Location of SOL +All of the Trust’s SOL, other than that which is credited to a settlement balance maintained with the Prime Broker (the “Settlement Balance”), is held in custody accounts maintained on the books of the Custodian, as to which the Custodian controls the private keys which allow for the transfer of ownership or control of the Trust’s SOL on the Trust’s behalf (the “Vault Balance”). The Prime Broker +41 +Agreement provides that the Trust’s Vault Balance will be held by the Custodian in segregated wallets or accounts. The Custodian will keep all of the private keys associated with the Trust’s SOL held in the Vault Balance in an offline manner. The term “cold storage” refers to a safeguarding method where the storage of private keys may involve keeping such keys’ materials on a non-networked computer or electronic device or storing the private keys on a storage device. Cold storage is a safeguarding method with multiple layers of protections and protocols, by which the private keys corresponding to the Trust’s SOL are generated and stored in an offline manner. The term “hot storage” refers to the safeguarding method by which the private keys are held online, where they are more accessible, leading to more efficient transfers, though they are potentially more vulnerable to theft, loss or damage. +Additionally, at the Sponsor’s discretion, a portion of the Trust’s SOL holdings may be credited to the Settlement Balance, which will be reflected in a ledger maintained on the books of the Prime Broker. The Prime Broker Agreement provides that any SOL credited to the Trust’s Settlement Balance will be held (i) in omnibus cold storage wallets; (ii) in omnibus hot storage wallets; or (iii) in omnibus accounts with one of the third-party venues to which Coinbase has established connections (each, a “Coinbase Connected Venue”). The Settlement Balance shall be separate from the Vault Balance and any other account(s) the Trust or the Sponsor maintain with the Custodian. From time to time, the Prime Broker may temporarily keep a portion of the private keys associated with the SOL credited to the Trust’s Settlement Balance in hot storage for purposes of facilitating the receipt and distribution of SOL in connection with the creation and redemption of Baskets. +Private key shards associated with the Trust’s SOL are distributed geographically by the Custodial Entities in secure vaults around the world, including in the United States. The locations of the secure vaults may change and are kept confidential by the Custodian for security purposes. +The Prime Broker Agreement states that the Custodian serves as a fiduciary and custodian on the Trust’s behalf with respect to the Trust’s SOL held in the Vault Balance and the SOL in the Vault Balance are considered fiduciary assets that remain the Trust’s property at all times and are not treated as general assets of the Custodian. Under the Prime Broker Agreement, the Custodian represents and warrants that it has no right, interest, or title in the SOL in the Trust’s Vault Balance, and agrees that it will not, directly or indirectly, lend, pledge, hypothecate or rehypothecate such digital assets. The Custodian does not reflect such digital assets as assets on the balance sheet of the Custodian, but does reflect the obligation to safeguard such digital assets with a corresponding asset measured at fair value for such obligation. With respect to the Trust’s SOL credited to the Settlement Balance, the Prime Broker maintains an internal ledger that specifies the SOL credited to the Trust’s Settlement Balance. The Prime Broker Agreement states that the Prime Broker treats such SOL as custodial assets held for the benefit of the Trust, and shall not be considered the property of the Prime Broker. Additionally, under the Prime Broker Agreement, the Prime Broker represents and warrants that it will not, directly or indirectly, sell, transfer, loan, rehypothecate or otherwise alienate the Trust’s SOL credited to the Settlement Balance. +The Prime Broker Agreement also contains an agreement by the parties to treat the digital assets credited to the Trust’s Vault Balance and Settlement Balance as “financial assets” under Article 8 of the New York Uniform Commercial Code (“Article 8”) and to treat the Vault Balance and Settlement Balance as “securities accounts” with respect to which the Trust is the “entitlement holder” within the meaning of Article 8. The Custodial Entities’ ultimate parent, Coinbase Global, Inc. (“Coinbase Global”), has stated in its public securities filings that in light of the inclusion in its custody agreements of provisions relating to Article 8 it believes that a court would not treat custodied digital assets as part of its general estate, although due to the novelty of digital assets courts have not yet considered this type of treatment for custodied digital assets. See “Item 1A. Risk Factors—Risk Factors Related to the Trust and the Shares—The Trust relies on third-party service providers to perform certain functions essential to the affairs of the Trust and the replacement of such service providers could pose challenges to the safekeeping of the Trust’s SOL and to the operations of the Trust.” +Safekeeping of SOL +The Custodian will use commercially reasonable efforts to keep in safe custody on behalf of the Trust all SOL received by the Custodian. All SOL credited to the Vault Balance will (i) be held in the Vault Balance at all times, and the Vault Balance will be controlled by the Custodian; (ii) be labeled or otherwise appropriately identified as being held for the Trust; (iii) be held on a non-fungible basis; (iv) not be commingled with other digital assets held by the Custodian, whether held for the Custodian’s own account or the account of other clients other than the Trust; and (v) not without the prior written consent of the Trust be deposited or held with any third-party depositary, custodian, clearance system or wallet. Additionally, the Custodian will use commercially reasonable efforts to keep the private key or keys for the Vault Balance secure, and will not disclose such keys to the Trust, the Sponsor or to any other individual or entity except to the extent that any keys are disclosed consistent with a standard of commercially reasonable efforts and as part of a multiple signature solution that would not result in the Trust or the Sponsor “storing, holding, or maintaining custody or control of” the SOL “on behalf of others” within the meaning of the New York BitLicense Rule (23 NYCRR Part 200) as in effect as of June 24, 2015 such that it would require the Trust or the Sponsor to become licensed under such law. +SOL credited to the Trust’s Settlement Balance may be held in omnibus wallets maintained by the Prime Broker and/or at Coinbase Connected Venues. While the SOL credited to the Trust’s Settlement Balance could be commingled with other assets, the SOL in the Trust’s Settlement Balance will represent entitlement to a pro-rata share of the SOL held in such omnibus wallets and/or at Coinbase Connected Venues. In all circumstances the Prime Broker will keep an internal ledger that specifies the assets credited to the Settlement Balance such that the Trust, its auditors and regulators can identify the Trust’s pro-rata share of the SOL held in omnibus wallets and/or +42 +at Coinbase Connected Venues. Neither the Trust nor the Sponsor have a contractual relationship with the Coinbase Connected Venues utilized by the Custodial Entities. +Insurance +Pursuant to the terms of the Prime Broker Agreement, the Custodian is required to maintain insurance in such types and amounts as are commercially reasonable for the custodial services it provides. The Custodian has advised the Sponsor that it has insurance coverage pursuant to policies held by Coinbase Global, which procures fidelity (or crime) insurance coverage at commercially reasonable amounts for the custodial services provided. This insurance coverage is limited to losses of the digital assets the Custodian custodies on behalf of its clients, including the Trust’s SOL, resulting from theft, including internal theft by employees of Coinbase and its subsidiaries and theft or fraud by a director of Coinbase if the director is acting in the capacity of an employee of Coinbase or its subsidiaries. Although the Prime Broker is not required to maintain insurance under the terms of the Prime Broker Agreement, the Custodial Entities have also advised the Sponsor that they maintain insurance coverage pursuant to such policies held by Coinbase Global. +Moreover, while the Custodian maintains certain capital reserve requirements depending on the assets under custody and to the extent required by applicable law, and such capital reserves may provide additional means to cover client asset losses, the Sponsor does not know the amount of such capital reserves, and neither the Trust nor the Sponsor have access to such information. The Trust cannot be assured that the Custodian will maintain capital reserves sufficient to cover losses with respect to the Trust’s digital assets. Furthermore, Coinbase has represented in securities filings that the total value of crypto assets in its possession and control is significantly greater than the total value of insurance coverage that would compensate Coinbase in the event of theft or other loss of funds. +Deposits, Withdrawals and Storage +The Custodian and the Prime Broker provide for: (i) holding of the Trust’s SOL in the Vault Balance and the Settlement Balance; (ii) transfer of the Trust’s SOL between the relevant Vault Balance and the Settlement Balance; (iii) the deposit of SOL from a public blockchain address into the respective account or accounts in which the Vault Balance or the Settlement Balance are maintained; and (iv) the withdrawal of SOL from the Vault Balance to a public blockchain address the Trust controls (each such transaction is a “Custody Transaction”) (collectively, the “Custodial and Prime Broker Services”). +The Custodian reserves the right to refuse to process or to cancel any pending Custody Transaction as required by law or in response to a subpoena, court order, or other binding government order or to enforce transaction, threshold, and condition limits, in each case as communicated to the Trust as soon as reasonably practicable where the Custodian is permitted to do so, or if the Custodian reasonably believes that the Custody Transaction may violate or facilitate the violation of an applicable law, regulation or applicable rule of a governmental authority or self-regulatory organization. The Custodial Entities may suspend, restrict, or terminate the Trust’s and the Sponsor’s access to the Custodial and Prime Broker Services, and/or suspend, restrict, or close the accounts associated with the Trust’s Vault Balance and Settlement Balance (the “Accounts”) if the Trust or Sponsor has taken certain actions, including any prohibited use or prohibited business as set forth in the Prime Broker Agreement, or if either or both of the Custodial Entities are required to do so by a subpoena, court order, or other binding government order. +From the time the Custodian has verified the authorization of a complete set of instructions to withdraw SOL from the Vault Balance, the Custodian will have a limited amount of time to process and complete such withdrawal. The Custodian will ensure that initiated deposits are processed in a timely manner but the Custodian makes no representations or warranties regarding the amount of time needed to complete processing which is dependent upon many factors outside of the Custodian’s control. +Transactions relating to SOL held in the Settlement Balance occur on the Blockchain. +The Custodial Entities make no other representations or warranties with respect to the availability and/or accessibility of SOL or the availability and/or accessibility of the Vault Balance, the Settlement Balance or the Custodial and Prime Broker Services. +Security of the Accounts +The Custodial Entities securely store all digital asset private keys held by the Custodian on secure servers or offline, in cold storage. Under the Prime Broker Agreement, the Custodian must use commercially reasonable efforts to keep the private key or keys to the Vault Balance secure, and may not disclose such private keys to the Sponsor, Trust or any other individual or entity. +The Custodial Entities have implemented and will maintain reasonable information security programs that include policies and procedures that are reasonably designed to safeguard the Custodial Entities’ electronic systems and the Trust’s and the Sponsor’s confidential information from, among other things, unauthorized access or misuse. In the event of a Data Security Event (as defined in the Prime Broker Agreement), the Custodial Entities will promptly (subject to any legal or regulatory requirements) notify the Trust and the Sponsor. +43 +Record Keeping; Inspection and Auditing +The Custodian will keep timely and accurate records as to the deposit, disbursement, investment and reinvestment of the SOL in the Vault Balance, and such records must be retained by the Custodian for no less than seven years. The Prime Broker Agreement also provides that each Custodial Entity will permit, to the extent it may legally do so, the Trust’s third-party representatives, upon thirty days’ notice, to inspect, take extracts from and audit the records that it maintains, take such steps as necessary to verify that satisfactory internal control systems and procedures are in place, as the Trust may reasonably request. The Prime Broker is obligated to notify the Trust of any audit report prepared by its internal or independent auditors if such report reveals any material deficiencies or makes any material objections. +The Trust and the Sponsor obtain and perform a comprehensive review of the Services Organization Controls (“SOC”) 1 report and SOC 2 each year. For additional information, see “—Description of Trust Documents—Description of the Prime Broker Agreement—Annual Certificate and Report.” In addition to the review of SOC 1 and SOC 2 reports, the Trust, the Sponsor and/or their respective auditors may inspect or audit the Custodian’s records in a variety of manners if considered necessary. Such processes, may include validating the existing balances as reflected on the Custodian’s user interface to nodes of the underlying blockchain and confirming that such digital assets are associated with its public keys to validate the existence and exclusive ownership of the digital assets. To validate software functionality of the private keys, the Trust may transfer a portion of its digital assets from one public key to another public key of the Trust. +The Trust, the Sponsor and their independent auditors may evaluate the Custodian’s protection of private keys and other customer information, including review of supporting documentation related to the processes surrounding key lifecycle management, the key generation process (hardware, software, and algorithms associated with generation) the infrastructure used to generate and store private keys, how private keys are stored (for example, cold wallets), the segregation of duties in the authorization of digital asset transactions, and the number of users required to process a transaction and the monitoring of addresses for any unauthorized activity. For additional information, see “—Custody of the Trust’s SOL.” +Once each calendar year, the Trust and the Sponsor are entitled to request that the Custodial Entities provide a copy of the SOC 1 report and SOC 2 report once per calendar year. Such reports are required to be dated within one year prior to such request. The Custodial Entities reserve the right to combine the SOC 1 and SOC 2 reports into a comprehensive report. In the event that the Custodial Entities do not deliver a SOC 1 Report or SOC 2 Report, as applicable, the Sponsor and the Trust will be entitled to terminate the Prime Broker Agreement. In addition to the review of SOC 1 and SOC 2 reports, the Trust may also request letters of representation on a quarterly basis between SOC reports regarding any known changes or conclusions to the SOC 1 and SOC 2 report. +Standard of Care; Limitations of Liability +The Custodian will use commercially reasonable efforts to keep in safe custody on behalf of the Trust all SOL received by the Custodian. The Custodial Entities are liable to the Sponsor and the Trust for the loss of any SOL to the extent such loss resulted from the negligence, fraud or willful misconduct of the Custodial Entities. To the extent any loss is caused by a Custodial Entity’s negligence, fraud or willful misconduct, the Custodial Entities are required to return to the Trust a quantity of SOL equal to the quantity of any such lost SOL. +The Custodial Entities’ or Trust’s total liability under the Prime Broker Agreement will not exceed the greater of: (i) the value of the SOL or cash involved in the event, including but not limited to transaction(s) or deliveries(s), giving rise to such liability at the time of the event giving rise to such liability; (ii) the aggregate amount of fees paid by the Trust to the Custodial Entities in respect of the Custodial and Prime Broker Services in the 12-month period prior to the event giving rise to such liability; or (iii) five million U.S. dollars. The Custodian’s total liability under the Prime Broker Agreement will not exceed the greater of: (i) the aggregate amount of fees paid by the Trust to the Custodian in respect of the custodial services in the 12-month period prior to the event giving rise to such liability; or (ii) the value of the SOL on deposit in the Vault Balance at the time of the events giving rise to the liability occurred, the value of which will be determined in accordance with the Prime Broker Agreement. In addition, the Custodian’s maximum liability in respect of each cold storage address that holds SOL shall be limited to $100 million (the “Cold Storage Threshold”). The Sponsor monitors the value of SOL deposited in cold storage addresses for whether the Cold Storage Threshold has been met by determining the U.S. dollar value of SOL deposited in each cold storage address on business days. Although the Cold Storage Threshold has to date not been met for a given cold storage address, to the extent it is met the Trust would not have a claim against the Custodian with respect to the digital assets held in such address to the extent the value exceeds the Cold Storage Threshold. +The Custodial Entities and the Trust are not liable to each other for any special, incidental, indirect, punitive, or consequential damages, whether or not the other party had been advised of such losses or knew or should have known of the possibility of such damages. In addition, the Custodial Entities are not liable to the Trust for circumstances resulting from certain force majeure events. +Indemnity +The Trust and the Custodial Entities have agreed to indemnify one another from and against certain claims or losses, subject to customary exceptions and limitations. +44 +Fees and Expenses +The Sponsor will pay an annualized fee to the Coinbase Entities, covering the Trust’s use of the Custodial and Prime Broker Services, that is accrued on a monthly basis as a percentage of the Trust’s monthly assets under custody. The Sponsor will also pay a monthly fee to the Prime Broker, covering withdrawals and deposits to or from the Settlement Balance in connection with the creation and redemption of Shares. +Term; Termination and Suspension +The Prime Broker Agreement will remain in effect until either party terminates the Prime Broker Agreement; provided, however, that the Coinbase Entities shall not restrict, suspend, or modify any Prime Broker Services following termination of the Prime Broker Agreement by a Custodial Entity without Cause (as defined in the Prime Broker Agreement) or by the Trust until the end of the applicable notice period and neither party’s termination of the Prime Broker Agreement will be effective until the Trust and/or the Custodial Entities, as the case may be, have fully satisfied their obligations thereunder. +The Trust may terminate the Prime Broker Agreement in whole or in part upon thirty days’ prior written notice to the applicable Custodial Entity; and (ii) for Custodian Cause (as defined in the Prime Broker Agreement) at any time by written notice to the Prime Broker, effective immediately, or on such later date as may be specified in such notice. The Trust will also be entitled to terminate the Prime Broker Agreement in the event that the Custodial Entities do not deliver a SOC 1 Report or SOC 2 Report, as applicable. See “—Record Keeping; Inspection and Auditing.” +The Custodial Entities may terminate the Prime Broker Agreement (i) upon one hundred eighty days’ prior written notice to the Trust; and (ii) for Cause at any time by written notice to the Trust, effective immediately, or on such later date as may be specified in the notice. +In the event that either the Trust or the Custodial Entities terminate the Prime Broker Agreement without Cause, the Custodial Entities shall use reasonable efforts to assist the Trust with transferring any digital assets, fiat currency or funds associated with the Trust’s Accounts to another custodial services provider within ninety days of receipt of the applicable termination notice. +Governing Law +The Prime Broker Agreement is governed by New York law. +45 +MATERIAL U.S. Federal Income Tax Consequences +The following discussion addresses the material U.S. federal income tax consequences of the ownership of Shares. This discussion does not describe all of the tax consequences that may be relevant to a beneficial owner of Shares in light of the beneficial owner’s particular circumstances, including tax consequences applicable to beneficial owners subject to special rules, such as: +• +financial institutions; +• +dealers in securities or commodities; +• +traders in securities or commodities that have elected to apply a mark-to-market method of tax accounting in respect thereof; +• +persons holding Shares as part of a hedge, “straddle,” integrated transaction or similar transaction; +• +Authorized Participants (as defined below); +• +U.S. Holders (as defined below) whose functional currency is not the U.S. dollar; +• +entities or arrangements classified as partnerships for U.S. federal income tax purposes; +• +real estate investment trusts; +• +regulated investment companies; and +• +tax-exempt entities, including individual retirement accounts. +This discussion applies only to Shares that are held as capital assets and does not address alternative minimum tax consequences or consequences of the Medicare contribution tax on net investment income. +If an entity or arrangement that is classified as a partnership for U.S. federal income tax purposes holds Shares, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding Shares and partners in those partnerships are urged to consult their tax advisers about the particular U.S. federal income tax consequences of owning Shares. +This discussion is based on the Code, administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations (“Treasury Regulations”) as of the date hereof, changes to any of which subsequent to the date hereof may affect the tax consequences described herein. For the avoidance of doubt, this summary does not discuss any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction. Shareholders are urged to consult their tax advisers about the application of the U.S. federal income tax laws to their particular situations, as well as any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction. +Tax Treatment of the Trust +The Sponsor intends to take the position that the Trust is properly treated as a grantor trust for U.S. federal income tax purposes. Assuming that the Trust is a grantor trust, the Trust will not be subject to U.S. federal income tax. Rather, if the Trust is a grantor trust, each beneficial owner of Shares will be treated as directly owning its pro rata share of the Trust’s assets and a pro rata portion of the Trust’s income, gains, losses and deductions will “flow through” to each beneficial owner of Shares. +The Staking Condition has been satisfied as to the particular form of Staking described herein, and the Sponsor intends to continue to take the position that the Trust is properly treated as a grantor trust for U.S. federal income tax purposes and that any Staking activity undertaken by the Trust in compliance with the opinion, ruling or other guidance relied upon to satisfy the Staking Condition will not prevent the Trust from continuing to qualify as a grantor trust for such purposes. The Internal Revenue Service (“IRS”) recently issued a revenue procedure providing a staking safe harbor for certain grantor trust vehicles whose beneficial interests are listed and traded on a national securities exchange (the “2025 Revenue Procedure”). However, certain aspects of the 2025 Revenue Procedure are unclear, and therefore the Trust may not currently satisfy all conditions of the safe harbor. Accordingly, due to the uncertainty regarding the ability of a grantor trust to engage in Staking activities, there can be no assurance that the IRS or any court would agree with the Sponsor’s position (or with any opinion of counsel delivered to the Sponsor in support thereof). Therefore, the Trust might cease to qualify as a grantor trust for U.S. federal income tax purposes. +The Trust has taken certain positions with respect to the tax consequences of Incidental Rights and its receipt of IR Virtual Currency. If the IRS were to disagree with, and successfully challenge, any of these positions, the Trust might not qualify as a grantor trust. In addition, the Pre-Creation/Redemption Abandonment Notices (as defined herein) provide that the Trust will irrevocably abandon, effective immediately prior to each Creation Time or Redemption Time, all Incidental Rights or IR Virtual Currency to which it would otherwise be entitled as of such time and with respect to which it has not taken any Affirmative Action at or prior to such time. +46 +The Sponsor has committed to cause the Trust to irrevocably abandon any Incidental Rights and IR Virtual Currency to which the Trust may become entitled in the future. There can be no complete assurance that these abandonments will be treated as effective for U.S. federal income tax purposes. If the Trust were treated as owning any asset other than SOL as of any date on which it creates or redeems Shares, it might cease to qualify as a grantor trust for U.S. federal income tax purposes. +In addition, at this time the Trust is not permitted to create or redeem Shares via in-kind transactions with Authorized +Participants. Unless and until Authorized Participants enter into or amend their respective Participant Agreements to provide for in-kind creations and redemptions, Baskets will be created or redeemed only through Cash Orders. In general, investment vehicles intended to be treated as grantor trusts for U.S. federal income tax purposes historically have created additional trust interests only in-kind, and there is no authority directly addressing whether a grantor trust may create or redeem trust interests under procedures similar to those that govern Cash Orders. Accordingly, there can be no complete assurance that the creation or redemption of Shares under the procedures governing Cash Orders will not cause the Trust to fail to qualify as a grantor trust for U.S. federal income tax purposes. +Moreover, because of the evolving nature of digital assets, it is not possible to predict potential future developments that may arise with respect to digital assets, including forks, airdrops and other similar occurrences. Assuming that the Trust is currently a grantor trust for U.S. federal income tax purposes, certain future developments could render it impossible, or impracticable, for the Trust to continue to be treated as a grantor trust for such purposes. +If the Trust is not properly classified as a grantor trust, the Trust might be classified as a partnership for U.S. federal income tax purposes. However, due to the uncertain treatment of digital assets for U.S. federal income tax purposes, there can be no assurance in this regard. If the Trust were classified as a partnership for U.S. federal income tax purposes, the tax consequences of owning Shares generally would not be materially different from the tax consequences described herein, although there might be certain differences, including with respect to timing of the recognition of taxable income or loss. In addition, tax information reports provided to beneficial owners of Shares would be made in a different form. Moreover, it is possible, in that case, that a portion of the Trust’s income would be considered to be “effectively connected” with the conduct of a trade or business in the United States and, accordingly, a non-U.S. person owning Shares could be subject to U.S. federal income tax on a net income basis with respect to that “effectively connected” income and be required to file a U.S. tax return. If none of the Trust’s Staking income were considered to be “effectively connected” income, a non-U.S. person owning Shares would be subject to withholding on its pro rata portion of U.S.-source “fixed or determinable annual or periodical” (“FDAP”) income as described below. Tax-exempt shareholders may also recognize “unrelated business taxable income” (“UBTI”) from the Trust’s Staking activities if the Trust is not treated as a corporation for U.S. federal income tax purposes. +If the Trust were not classified as either a grantor trust or a partnership for U.S. federal income tax purposes, it would be classified as a corporation for such purposes. In that event, the Trust would be subject to entity-level U.S. federal income tax (currently at the rate of 21%) on its net taxable income and certain distributions made by the Trust to shareholders would be treated as taxable dividends to the extent of the Trust’s current and accumulated earnings and profits. Any such dividend distributed to a beneficial owner of Shares that is a non-U.S. person for U.S. federal income tax purposes would be subject to U.S. federal withholding tax at a rate of 30% (or such lower rate as provided in an applicable tax treaty). +The remainder of this discussion is based on the assumption that the Trust will be treated as a grantor trust for U.S. federal income tax purposes. +Uncertainty Regarding the U.S. Federal Income Tax Treatment of Digital Assets +Each beneficial owner of Shares will be treated for U.S. federal income tax purposes as the owner of an undivided interest in the SOL (and any Incidental Rights and/or IR Virtual Currency) held in the Trust. Due to the new and evolving nature of digital assets and the absence of comprehensive guidance with respect to digital assets, many significant aspects of the U.S. federal income tax treatment of digital assets are uncertain. +In 2014, the IRS released a notice (the “Notice”) discussing certain aspects of the treatment of “convertible virtual currency” (that is, digital assets that have an equivalent value in fiat currency or that act as substitutes for fiat currency) for U.S. federal income tax purposes. In the Notice, the IRS stated that, for U.S. federal income tax purposes, such digital assets (i) are “property,” (ii) are not “currency” for purposes of the provisions of the Code relating to foreign currency gain or loss and (iii) may be held as a capital asset. In 2019, the IRS released a revenue ruling and a set of “Frequently Asked Questions” that has been updated from time to time since (the “Ruling & FAQs”). The Ruling & FAQs provide some additional guidance, including guidance to the effect that, under certain circumstances, hard forks of digital assets are taxable events giving rise to ordinary income and guidance with respect to the determination of the tax basis of digital assets. Moreover, in 2023, the IRS released a revenue ruling that provided guidance on digital asset staking, including guidance to the effect that staking rewards will, under certain circumstances, be treated as giving rise to taxable income (the “2023 Staking Guidance”). Further, the IRS recently issued the 2025 Revenue Procedure, which provides a staking safe harbor for certain grantor trust vehicles. However, the Notice, the Ruling & FAQs, the 2023 Staking Guidance and the 2025 Revenue Procedure do not address other significant aspects of the U.S. federal income tax treatment of digital assets. For example, for a non-U.S. +47 +Holder, there currently is no guidance directly addressing whether or in what circumstances engaging in certain activities to generate yield on digital assets, including Staking, could give rise to income that is effectively connected with a trade or business in the United States. Similarly, for a U.S. tax-exempt shareholder, there currently is no guidance directly addressing whether or in what circumstances such activities could give rise to UBTI. Moreover, although the Ruling & FAQs address the treatment of hard forks, there continues to be uncertainty with respect to the timing and amount of the income inclusions. While the Ruling & FAQs do not address most situations in which airdrops occur, it is clear from the reasoning of the Ruling & FAQs that the IRS generally would treat an airdrop as a taxable event giving rise to ordinary income. +There can be no assurance that the IRS will not alter its position with respect to digital assets in the future or that a court would uphold the treatment set forth in the Notice the Ruling & FAQs, the 2023 Staking Guidance and the 2025 Revenue Procedure. It is also unclear what additional guidance on the treatment of digital assets for U.S. federal income tax purposes may be issued in the future. Any such alteration of the current IRS positions or additional guidance could result in adverse tax consequences for shareholders and could have an adverse effect on the prices of digital assets, including the price of SOL in the Digital Asset Market, and therefore could have an adverse effect on the value of Shares. Future developments that may arise with respect to digital assets may increase the uncertainty with respect to the treatment of digital assets for U.S. federal income tax purposes. For example, the Notice addresses only digital assets that are “convertible virtual currency,” and it is conceivable that, as a result of a fork, airdrop or similar occurrence, the Trust could hold certain types of digital assets that are not within the scope of the Notice, in the event the Sponsor seeks to change the Trust’s policy with respect to Incidental Rights or IR Virtual Currency, subject to NYSE Arca obtaining regulatory approval from the SEC. +The remainder of this discussion assumes that SOL, and any Incidental Rights or IR Virtual Currency that the Trust may hold, is properly treated for U.S. federal income tax purposes as property that may be held as a capital asset and that is not currency for purposes of the provisions of the Code relating to foreign currency gain and loss. +Shareholders are urged to consult their tax advisers regarding the tax consequences of an investment in the Trust and in digital assets in general, including, in the case of shareholders that are generally exempt from U.S. federal income taxation, whether such shareholders may recognize UBTI as a consequence of Staking or the occurrence of a fork, airdrop or similar event. +Tax Consequences to U.S. Holders +As used herein, the term “U.S. Holder” means a beneficial owner of a Share for U.S. federal income tax purposes that is: +• +an individual who is a citizen or resident of the United States for U.S. federal income tax purposes; +• +a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States or of any political subdivision thereof; or +• +an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source. +Except as specifically noted, the discussion below assumes that each U.S. Holder will acquire all of its Shares on the same date for the same price per Share and solely for cash or solely for SOL that were originally acquired by the U.S. Holder for cash on the same date. +As discussed in the section entitled “Description of Creation and Redemption of Shares,” a U.S. Holder may be able to acquire Shares of the Trust by contributing SOL in-kind to the Trust (either directly or through an Authorized Participant acting as agent of the U.S. Holder). Assuming that the Trust is properly treated as a grantor trust for U.S. federal income tax purposes, such a contribution should not be a taxable event to the U.S. Holder. +For U.S. federal income tax purposes, each U.S. Holder will be treated as owning an undivided interest in the SOL held in the Trust and will be treated as directly realizing its pro rata share of the Trust’s income, gains, losses and deductions (including any Staking income). When a U.S. Holder purchases Shares solely for cash, (i) the U.S. Holder’s initial tax basis in its pro rata share of the SOL held in the Trust will be equal to the amount paid for the Shares and (ii) the U.S. Holder’s holding period for its pro rata share of such SOL will begin on the date of such purchase. When a U.S. Holder acquires Shares in exchange for SOL, (i) the U.S. Holder’s initial tax basis in its pro rata share of the SOL held in the Trust will be equal to the U.S. Holder’s tax basis in the SOL that the U.S. Holder transferred to the Trust and (ii) the U.S. Holder’s holding period for its pro rata share of such SOL generally will include the period during which the U.S. Holder held the SOL that the U.S. Holder transferred to the Trust. The Ruling & FAQs confirm that if a taxpayer acquires tokens of a digital asset at different times and for different prices, the taxpayer has a separate tax basis in each lot of such tokens. Under the Ruling & FAQs, if a U.S. Holder that owns more than one lot of SOL contributes a portion of its SOL to the Trust in exchange for Shares, the U.S. Holder could designate the lot(s) from which such contribution will be made, provided that the U.S. Holder is able to identify specifically which SOL it is contributing and to substantiate its tax basis in that SOL. In general, if a U.S. Holder acquires Shares (i) solely for cash at different prices, (ii) partly for cash and partly in exchange for a contribution of SOL or (iii) in exchange for a contribution of SOL with different tax bases, the U.S. Holder’s share of the Trust’s SOL will consist of separate lots +48 +with separate tax bases. In addition, in this situation, the U.S. Holder’s holding period for the separate lots may be different. In addition, any SOL received as Staking Consideration received by the Trust will constitute a separate lot with a separate tax basis and holding period. +Gains or losses from the sale of SOL to fund cash redemptions are expected to be treated as incurred only by the shareholder that is being redeemed. However, when the Trust transfers SOL to the Sponsor as payment of the Sponsor’s Fee or the Sponsor’s Staking Fee, or sells SOL to fund payment of any cash distributions or of any Additional Trust Expenses, each U.S. Holder will be treated as having sold its pro rata share of that SOL for their fair market value at that time (which, in the case of SOL sold by the Trust, generally will be equal to the cash proceeds received by the Trust in respect thereof). As a result, each U.S. Holder will recognize gain or loss in an amount equal to the difference between (i) the fair market value of the U.S. Holder’s pro rata share of the SOL transferred and (ii) the U.S. Holder’s tax basis for its pro rata share of the SOL transferred. Any such gain or loss will be short-term capital gain or loss if the U.S. Holder’s holding period for its pro rata share of the SOL is one year or less and long-term capital gain or loss if the U.S. Holder’s holding period for its pro rata share of the SOL is more than one year. A U.S. Holder’s tax basis in its pro rata share of any SOL transferred by the Trust generally will be determined by multiplying the tax basis of the U.S. Holder’s pro rata share of all of the SOL held in the Trust immediately prior to the transfer by a fraction the numerator of which is the amount of SOL transferred and the denominator of which is the total amount of SOL held in the Trust immediately prior to the transfer. Immediately after the transfer, the U.S. Holder’s tax basis in its pro rata share of the SOL remaining in the Trust will be equal to the tax basis of its pro rata share of the SOL held in the Trust immediately prior to the transfer, less the portion of that tax basis allocable to its pro rata share of the SOL transferred. A U.S. Holder’s receipt of distributions of cash proceeds from the sale of SOL (other than in connection with a redemption) should not, itself, be a taxable event to a U.S. Holder. +As noted above, the IRS has taken the position in the Ruling & FAQs that, under certain circumstances, a hard fork of a digital asset constitutes a taxable event giving rise to ordinary income, and it is clear from the reasoning of the Ruling & FAQs that the IRS generally would treat an airdrop as a taxable event giving rise to ordinary income. As described above, the Sponsor has committed to causing the Trust to abandon all Incidental Rights and IR Virtual Currency to which the Trust otherwise might become entitled. If, however, the Trust were to receive and retain IR Virtual Currency in the future, a U.S. Holder would have a basis in that IR Virtual Currency equal to the amount of income the U.S. Holder recognizes as a result of such fork or airdrop and the U.S. Holder’s holding period for such IR Virtual Currency would begin as of the time it recognizes such income. Similarly, although the IRS has not issued similar guidance with respect to staking, if the Trust receives any Staking Consideration in connection with Staking, it is likely that a U.S. Holder will have a basis in any SOL received as part of such Staking Consideration equal to the amount of income that the U.S. Holder recognizes and the U.S. Holder’s holding period for such Staking Consideration will begin as of the time it recognizes such income. +U.S. Holders’ pro rata shares of the expenses incurred by the Trust will be treated as “miscellaneous itemized deductions” for U.S. federal income tax purposes. As a result, a non-corporate U.S. Holder’s share of these expenses will not be deductible for U.S. federal income tax purposes. +On a sale or other disposition of Shares, a U.S. Holder will be treated as having sold the SOL underlying such Shares. Accordingly, the U.S. Holder generally will recognize gain or loss in an amount equal to the difference between (i) the amount realized on the sale of the Shares and (ii) the portion of the U.S. Holder’s tax basis in its pro rata share of the SOL held in the Trust that is attributable to the Shares that were sold or otherwise subject to a disposition. Such tax basis generally will be determined by multiplying the tax basis of the U.S. Holder’s pro rata share of all of the SOL held in the Trust immediately prior to such sale or other disposition by a fraction the numerator of which is the number of Shares disposed of and the denominator of which is the total number of Shares held by such U.S. Holder immediately prior to such sale or other disposition (such fraction, expressed as a percentage, the “Share Percentage”). If the U.S. Holder’s share of the Trust’s SOL consists of separate lots with separate tax bases and/or holding periods, the U.S. Holder will be treated as having sold the Share Percentage of each such lot. Gain or loss recognized by a U.S. Holder on a sale or other disposition of Shares will generally be short-term capital gain or loss if the U.S. Holder’s holding period for the SOL underlying such Shares is one year or less and long-term capital gain or loss if the U.S. Holder’s holding period for the SOL underlying such Shares is more than one year. The deductibility of capital losses is subject to significant limitations. +If the Trust redeems all or a portion of a U.S. Holder’s Shares in exchange for the underlying SOL represented by the redeemed Shares, such redemption generally will not be a taxable event to the U.S. Holder. The U.S. Holder’s tax basis in the SOL received in the redemption generally will be the same as the U.S. Holder’s tax basis for the portion of its pro rata share of the SOL held in the Trust immediately prior to the redemption that was attributable to the Shares redeemed, determined as described above, and the U.S. Holder’s tax basis in its remaining pro rata portion, if any, of the SOL held in the Trust after the redemption will be equal to the tax basis of its pro rata share of the total amount of the SOL held in the Trust immediately prior to the redemption, less the U.S. Holder’s tax basis in the SOL received in the redemption. The U.S. Holder’s holding period with respect to the SOL received will generally include the period during which the U.S. Holder held the Shares so redeemed. A subsequent sale of the SOL received in such redemption will generally be a taxable event. +49 +After any sale or other disposition of fewer than all of a U.S. Holder’s Shares, the U.S. Holder’s tax basis in its pro rata share of the SOL held in the Trust immediately after the disposition will equal the tax basis in its pro rata share of the total amount of the SOL held in the Trust immediately prior to the disposition, less the portion of that tax basis that is taken into account in determining the amount of gain or loss recognized by the U.S. Holder on the disposition (or, in the case of a redemption pursuant to an In-Kind Order, the portion of tax basis that is treated as the basis of the SOL received by the U.S. Holder in the redemption). +Any brokerage or other transaction fee incurred by a U.S. Holder in purchasing Shares generally will be added to the U.S. Holder’s tax basis in the underlying assets of the Trust. Similarly, any brokerage fee or other transaction fee incurred by a U.S. Holder in selling Shares generally will reduce the amount realized by the U.S. Holder with respect to the sale. +If the Trust receives Staking Consideration, that Staking Consideration would be reportable to shareholders as taxable income under current IR S guidance. +In the absence of guidance to the contrary, it is possible that any income recognized by a U.S. tax-exempt shareholder as a consequence of Staking, or the occurrence of a hard fork, airdrop or similar event, would constitute UBTI. A tax-exempt shareholder should consult its tax adviser regarding whether such shareholder may recognize some UBTI as a consequence of an investment in Shares. +Tax Consequences to Non-U.S. Holders +As used herein, the term “non-U.S. Holder” means a beneficial owner of a Share for U.S. federal income tax purposes that is not a U.S. Holder. The term “non-U.S. Holder” does not include (i) a nonresident alien individual who is present in the United States for 183 days or more in a taxable year, (ii) a former U.S. citizen or U.S. resident or an entity that has expatriated from the United States; (iii) a person whose income in respect of Shares is effectively connected with the conduct of a trade or business in the United States; or (iv) an entity that is treated as a partnership for U.S. federal income tax purposes. Shareholders described in the preceding sentence should consult their tax advisers regarding the U.S. federal income tax consequences of owning Shares. +A non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax with respect to its share of any gain recognized on the Trust’s transfer of SOL in payment of the Sponsor’s Fee, the Sponsor’s Staking Fee or any Additional Trust Expense or on the Trust’s sale or other disposition of SOL. In addition, assuming that the Trust holds no asset other than SOL, a non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax with respect to any gain it recognizes on a sale or other disposition of Shares. A non-U.S. Holder also will generally not be subject to U.S. federal income or withholding tax with respect to any distribution received from the Trust, whether in cash or in-kind. +Provided that it does not constitute income that is treated as “effectively connected” with the conduct of a trade or business in the United States, U.S.-source FDAP income received, or treated as received, by a non-U.S. Holder will generally be subject to U.S. withholding tax at the rate of 30% (subject to possible reduction or elimination pursuant to an applicable tax treaty and to statutory exemptions such as the portfolio interest exemption). Although the Sponsor has committed to causing the Trust to abandon all Incidental Rights and IR Virtual Currency to which the Trust may become entitled in the future, and although there is no guidance on point, if the Trust were to receive and retain IR Virtual Currency arising from a future fork, airdrop or similar occurrence, it is likely that any ordinary income recognized by a non-U.S. Holder as a result would constitute FDAP income. It is also possible that the receipt of any Staking Consideration by the Trust would constitute FDAP income. It is unclear, however, whether any such FDAP income would be properly treated as U.S.-source or foreign-source FDAP income. Based on the current manner in which the Trust’s Staking activities are undertaken and certain assurances from the Trust’s Staking Providers regarding their connections to the United States, the Trust believes that its income from staking rewards should not be treated as U.S.-source FDAP income. However, that conclusion is not free from doubt under current law due to the lack of direct governing authority, and no assurance can be given that a withholding agent (including a broker through which Shares are held) will not take a contrary position. In addition, changes in law or changes to the Trust’s Staking Arrangements could cause all or a portion of the Trust’s staking rewards to be treated as U.S.-source FDAP income in the future . +A non-U.S. Holder that is a resident of a country that maintains an income tax treaty with the United States may be eligible to claim the benefits of that treaty to reduce or eliminate, or to obtain a partial or full refund of, the 30% U.S. withholding tax on its share of any U.S.-source FDAP income, but only if the non-U.S. Holder’s home country treats the Trust as “fiscally transparent,” as defined in applicable Treasury Regulations. +In order to prevent the possible imposition of U.S. “backup” withholding and (if applicable) to qualify for a reduced rate of withholding tax at source under a treaty, a non-U.S. Holder must comply with certain certification requirements (generally, by delivering a properly executed IRS Form W-8BEN or W-8BEN-E to the relevant withholding agent). +50 +U.S. Information Reporting and Backup Withholding +The Trust or the appropriate broker will file certain information returns with the IRS and provide shareholders with information regarding their annual income (if any) and expenses with respect to the Trust in accordance with applicable Treasury Regulations. +A U.S. Holder will generally be subject to information reporting requirements and backup withholding unless (i) the U.S. Holder is a corporation or other exempt recipient or (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding. In order to avoid the information reporting and backup withholding requirements, a non-U.S. Holder may have to comply with certification procedures to establish that it is not a U.S. person. The amount of any backup withholding will be allowed as a credit against the shareholder’s U.S. federal income tax liability and may entitle the holder to a refund, provided that the required information is furnished to the IRS. +FATCA +As discussed above, it is unclear whether any ordinary income recognized by a non-U.S. Holder as a result of a fork, airdrop or similar occurrence or Staking Consideration would constitute U.S.-source FDAP income. Provisions of the Code commonly referred to as “FATCA” require withholding of 30% on payments of U.S.-source FDAP income and, subject to the discussion of proposed Treasury Regulations below, of gross proceeds of dispositions of certain types of property that produce U.S.-source FDAP income to, “foreign financial institutions” (which is broadly defined for this purpose and in general includes investment vehicles) and certain other non-U.S. entities unless various U.S. information reporting and due diligence requirements (generally relating to ownership by U.S. persons of interests in or accounts with those entities) have been satisfied, or an exemption applies. An intergovernmental agreement between the United States and an applicable foreign country may modify these requirements. In addition, regulations proposed by the U.S. Department of the Treasury (the preamble to which indicates that taxpayers may rely on the regulations pending their finalization) would eliminate the requirement under FATCA of withholding on gross proceeds. If FATCA withholding is imposed, a beneficial owner that is not a foreign financial institution generally may obtain a refund of any amounts withheld by filing a U.S. federal income tax return (which may entail significant administrative burden). Shareholders should consult their tax advisers regarding the effects of FATCA on an investment in the Trust. +51 +Item 1A. Ri sk Factors +The following risks, some of which have occurred and any of which may occur in the future, can have a material adverse effect on our business or financial performance, which in turn can affect the price of the Shares. These are not the only risks we face. There may be other risks we are not currently aware of or that we currently deem not to be material but may become material in the future. +The risk factors below should be read in conjunction with the other information included in this Annual Report on Form 10-K, including the Trust’s financial statements and related notes thereto, and our other filings with the SEC. +Risk Factors Related to Digital Assets +The trading prices of many digital assets, including SOL, have experienced extreme volatility and may continue to do so. Extreme volatility in the future, including declines in the trading prices of SOL, could have a material adverse effect on the value of the Shares and the Shares could lose all or substantially all of their value. +The trading prices of many digital assets, including SOL, have experienced extreme volatility throughout their existence and may continue to do so. For instance, following significant increases throughout the majority of 2020, digital asset prices, including SOL, experienced significant volatility throughout 2021 and 2022. This volatility became extreme in November 2022 when FTX Trading Ltd. (“FTX”) halted customer withdrawals. Additionally, on October 10, 2025, it was reported that a sharp decline in digital asset market prices triggered the liquidation of approximately $20 billion in leveraged positions across the digital asset industry. Any similar halting of withdrawals or liquidations across leveraged positions in the digital asset industry in the future could further impact trading prices. See “—Recent developments in the digital asset economy have led to extreme volatility and disruption in digital asset markets, a loss of confidence in participants of the digital asset ecosystem, significant negative publicity surrounding digital assets broadly and market-wide declines in liquidity.” Digital asset prices, including SOL, have continued to fluctuate widely through the date of this Annual Report. +Extreme volatility in the future, including declines in the trading prices of SOL, could have a material adverse effect on the value of the Shares and the Shares could lose all or substantially all of their value. Furthermore, negative perception, a lack of stability and standardized regulation in the digital asset economy may reduce confidence in the digital asset economy and may result in greater volatility in the price of SOL and other digital assets, including a depreciation in value. The Trust is not actively managed and will not take any actions to take advantage, or mitigate the impacts, of volatility in the price of SOL. For additional information that quantifies the volatility of SOL prices and the value of the Shares, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Historical NAV and SOL Prices.” +Furthermore, changes in U.S. political leadership and economic policies may create uncertainty that materially affects the price of SOL and the Trust’s Shares. For example, on March 6, 2025, President Trump signed an Executive Order to establish a Strategic Bitcoin Reserve and a United States Digital Asset Stockpile. Pursuant to this Executive Order, the Strategic Bitcoin Reserve will be capitalized with Bitcoin owned by the U.S. Department of the Treasury that was forfeited as part of criminal or civil asset forfeiture proceedings, and the Secretaries of Treasury and Commerce are authorized to develop budget-neutral strategies for acquiring additional Bitcoin, provided that those strategies impose no incremental costs on American taxpayers. Conversely, the Digital Asset Stockpile will consist of all digital assets other than Bitcoin owned by the U.S. Department of the Treasury that were forfeited in criminal or civil asset forfeiture proceedings, but the U.S. government will not acquire additional assets for the U.S. Digital Asset Stockpile beyond those obtained through such proceedings. The anticipation of a U.S. government-funded strategic cryptocurrency reserve had motivated large-scale purchases of certain digital assets in the expectation of the U.S. government acquiring such digital assets to fund such reserve, and the market price of such digital assets decreased significantly as a result of the ultimate content of the Executive Order. Any similar action or omission by the U.S. federal administration or other government authorities with respect to SOL or other digital assets may negatively and significantly impact the price of SOL and the Trust’s Shares. +Digital assets such as SOL were only introduced within the past two decades, and the medium-to-long term value of the Shares is subject to a number of factors relating to the capabilities and development of blockchain technologies and to the fundamental investment characteristics of digital assets. +Digital assets such as SOL were only introduced within the past two decades, and the medium-to-long term value of the Shares is subject to a number of factors relating to the capabilities and development of blockchain technologies, such as the recency of their development, their dependence on the internet and other technologies, their dependence on the role played by users, developers and validators and the potential for malicious activity. For example, the realization of one or more of the following risks could materially adversely affect the value of the Shares: +• +Digital asset networks and related protocols are in the early stages of development. Given the recency of the development of digital asset networks and related protocols, digital assets and the underlying digital asset networks and related protocols may not function as intended and parties may be unwilling to use digital assets, which would dampen the growth, if any, of digital asset networks and related protocols. +52 +• +The loss of access to a private key required to access a digital asset may be irreversible. If a private key is lost and no backup of the private key is accessible, or if the private key is otherwise compromised, the owner would be unable to access the digital asset corresponding to that private key. +• +Digital asset networks and related protocols are dependent upon the internet. A disruption of the internet or a digital asset network or related protocol, such as the Solana Network, would affect the ability to transfer digital assets, including SOL, and, consequently, their value. +• +The acceptance of software patches or upgrades to a digital asset network by a significant, but not overwhelming, percentage of the users and validators in a digital asset network, such as the Solana Network, could result in a “fork” in such network’s blockchain, resulting in the operation of multiple separate blockchain networks. +• +Digital asset validating operations can consume significant amounts of electricity, which may have a negative environmental impact and give rise to public opinion against allowing, or government regulations restricting, the use of electricity for validating operations. Additionally, validators may be forced to cease operations during an electricity shortage or power outage. +• +Many digital asset networks face significant scaling challenges and are being upgraded with various features to increase the speed and throughput of digital asset transactions. These attempts to increase the volume of transactions may not be effective. +• +The open-source structure of many digital asset network protocols, such as the protocol for the Solana Network, means that developers and other contributors are often not compensated for their contributions in maintaining and developing such protocols. As a result, the developers and other contributors of a particular digital asset may lack a financial incentive to maintain or develop the network or may lack the resources to adequately address emerging issues. Alternatively, some developers may be funded by companies whose interests are at odds with other participants in a particular digital asset network. A failure to properly monitor and upgrade the protocol of the Solana Network could damage that network. +• +Moreover, in the past, flaws in the source code for digital asset networks and related protocols have been exposed and exploited, including flaws that disabled some functionality for users, exposed users’ personal information and/or resulted in the theft of users’ digital assets. The cryptography underlying the Solana Network could prove to be flawed or ineffective, or developments in mathematics and/or technology, including advances in digital computing, algebraic geometry and quantum computing, could result in such cryptography becoming ineffective. Quantum computing technology is an emerging phenomenon which, because it is still developing, makes it difficult to predict its ultimate effect on the future value of SOL and other digital assets. However, if quantum computing technology is able to advance and significantly increase its capacity relative to the capacity of today’s leading quantum computers, it could potentially undermine the viability of many of the cryptographic algorithms used across the world’s information technology infrastructure, including the cryptographic algorithms used for digital assets like SOL. If quantum computing is able to advance in that way, there is a risk that quantum computing could materially reduce the security assumptions underlying the Solana Network and result in the cryptography underlying the Solana Network becoming ineffective. If such is realized, it could compromise the security of the Solana Network or allow a malicious actor to compromise the wallets holding SOL owned by the Trust or others on the Solana Network, which would result in losses to shareholders. For example, if sufficiently powerful quantum computers are developed, they could use known quantum algorithms to derive private keys from publicly available public keys, potentially allowing malicious actors to forge transaction signatures and misappropriate SOL. There is no guarantee that new quantum-proof architectures will be built and appropriate transitions will be implemented across the network at scale in a timely manner; any such changes could require the achievement of broad consensus within the Solana Network community and may result in a fork (or multiple forks), and there can be no assurance that such consensus would be achieved or the changes implemented successfully. In such a scenario, the Solana Network may not be able to transition to quantum-resistant cryptography in a timely or effective manner. In any of these circumstances, a malicious actor may be able to take the Trust’s SOL, which would adversely affect the value of the Shares. Moreover, functionality of the Solana Network may be negatively affected by such an exploit such that it is no longer attractive to users, thereby dampening demand for SOL. Even if another digital asset other than SOL were affected by similar circumstances, any reduction in confidence in the source code or cryptography underlying digital asset networks and related protocols generally could negatively affect the demand for digital assets and therefore adversely affect the value of the Shares. +Moreover, because digital assets, including SOL, have existed for a short period of time and are continuing to be developed, there may be additional risks to digital asset networks and related protocols that are impossible to predict as of the date of this Annual Report. +53 +Digital assets represent a relatively new and rapidly evolving industry, and the value of the Shares depends on the acceptance of SOL. +The first digital asset, Bitcoin, was launched in 2009. SOL was launched in 2017. In general, digital asset networks, including the Solana Network and related protocols represent a relatively new and rapidly evolving industry that is subject to a variety of factors that are difficult to evaluate. For example, the realization of one or more of the following risks could materially adversely affect the value of the Shares: +• +SOL is only selectively accepted as a means of payment by retail and commercial outlets, and use of SOL by consumers remains limited. Banks and other established financial institutions, whether voluntarily or in response to regulatory feedback, may refuse to process funds for SOL transactions; process wire transfers to or from Digital Asset Trading Platforms, SOL-related companies or service providers; or maintain accounts for persons or entities transacting in SOL. As a result, the prices of SOL are largely determined by speculators and validators, thus contributing to price volatility that makes retailers less likely to accept SOL in the future. While the use of other digital assets, such as Bitcoin, to purchase goods and services from commercial or service businesses is developing, SOL has not yet been accepted in the same manner because it has a slightly different purpose than Bitcoin. +• +Banks may not provide banking services, or may cut off banking services, to businesses that provide digital asset-related services or that accept digital assets as payment, which could dampen liquidity in the market and damage the public perception of digital assets generally or any one digital asset in particular, such as SOL, and their or its utility as a payment system, which could decrease the price of digital assets generally or individually. +• +The prices of digital assets may be determined on a relatively small number of Digital Asset Trading Platforms by a relatively small number of market participants, many of whom are speculators or those intimately involved with the issuance of such digital assets, such as validators or developers, which could contribute to price volatility that makes retailers less likely to accept digital assets in the future. +• +Certain privacy-preserving features have been or are expected to be introduced to a number of digital asset networks. If any such features are introduced to the Solana Network, any trading platforms or businesses that facilitate transactions in SOL may be at an increased risk of criminal or civil lawsuits, or of having banking services cut off if there is a concern that these features interfere with the performance of anti-money laundering duties and economic sanctions checks. +• +Users, developers and validators may switch to or adopt certain digital asset networks or protocols at the expense of their engagement with other digital asset networks and protocols, which may negatively impact those networks and protocols, including the Solana Network. +The Solana protocol was only conceived in 2017 and the Solana protocol or its Proof-of-History timestamping mechanism may not function as intended, which could have an adverse impact on the value of SOL and an investment in the Shares. +The Solana protocol was first conceived by Anatoly Yakovenko in a 2017 whitepaper, and introduced the Proof-of-History (“PoH”) timestamping mechanism. PoH is a timestamping mechanism that automatically orders on-chain transactions by creating a historical record that proves an event has occurred at a specific moment in time. PoH is intended to provide a transaction processing speed and capacity advantage over other blockchain networks like Bitcoin and Ethereum, which rely on sequential production of blocks and can lead to delays caused by miner or validator confirmations. +PoH is a new blockchain technology that is not widely used, and may not function as intended. For example, it may require more specialized equipment to participate in the network and fail to attract a significant number of users. In addition, there may be flaws in the cryptography underlying PoH or the Solana protocol, including flaws that affect functionality of the Solana Network or make the network vulnerable to attack. +For example, at multiple times during 2022, the Solana Network experienced significant disruptions, later attributed to a type of denial of service attack caused by an extreme amount of transaction activity, and was offline for extended periods during these disruptions, ranging from 1.5 to 18 hours. The Solana Network has experienced subsequent disruptions as well. +Smart contracts are a new technology and ongoing development may magnify initial problems, cause volatility on the networks that use smart contracts and reduce interest in them, which could have an adverse impact on the value of SOL. +Smart contracts are programs that run on a blockchain that execute automatically when certain conditions are met. Since smart contracts typically cannot be stopped or reversed, vulnerabilities in their programming can have damaging effects. For example, in June 2016, a vulnerability in the smart contracts underlying The DAO, a distributed autonomous organization for venture capital funding, allowed an attack by a hacker to syphon approximately $60 million worth of Ether from The DAO’s accounts into a segregated account. In the aftermath of the theft, certain developers and core contributors pursued a “hard fork” of the Ethereum network in order to erase any record of the theft. Despite these efforts, the price of Ether dropped approximately 35% in the aftermath of the attack and subsequent hard fork. In addition, in July 2017, a vulnerability in a smart contract for a multi-signature wallet software developed by Parity led to +54 +a $30 million theft of Ether, and in November 2017, a new vulnerability in Parity’s wallet software led to roughly $160 million worth of Ether being indefinitely frozen in an account. In another example, in February 2022, a vulnerability in a smart contract for Wormhole, a bridge between the Ethereum and Solana networks led to a $320 million theft of Ether. While persons associated with Solana Labs and/or the Solana Foundation are understood to have played a key role in bringing the network back online, the broader community also played a key role, as Solana validators coordinated to upgrade and restart the network. Other smart contracts, such as bridges between blockchain networks and DeFi protocols have also been manipulated, exploited or used in ways that were not intended or envisioned by their creators such that attackers syphoned over $3.8 billion worth of digital assets from smart contracts in 2022. Initial problems and continued problems with the development, design and deployment of smart contracts may have an adverse effect on the value of SOL, which could have a negative impact on the value of the Shares. +Changes in the governance of a digital asset network or protocol may not receive sufficient support from users and validators, which may negatively affect that digital asset network’s or protocol’s ability to grow and respond to challenges. +The governance of some digital asset networks and protocols, such as the Solana Network, is generally by voluntary consensus and open competition. For such networks and protocols, there may be a lack of consensus or clarity on that network’s or protocol’s governance, which may stymie such network’s or protocol’s utility, adaptability and ability to grow and face challenges. +The foregoing notwithstanding, the underlying software for some digital asset networks and protocols, such as the Solana Network, is informally or formally managed or developed by a group of core developers that propose amendments to the relevant network’s or protocol’s source code. Core developers’ roles may evolve over time, generally based on self-determined participation. If a significant majority of users and validators were to adopt amendments to a decentralized network based on the proposals of such core developers, such network would be subject to new source code that may adversely affect the value of the relevant digital asset. +As a result of the foregoing, it may be difficult to find solutions or marshal sufficient effort to overcome any future problems, especially long-term problems, on digital asset networks. +Digital asset networks face significant scaling challenges and efforts to increase the volume and speed of transactions may not be successful. +Many digital asset networks face significant scaling challenges due to the fact that public, permissionless blockchains generally face a tradeoff between security and scalability. One means through which digital asset networks that utilize public, permissionless blockchains achieve security is decentralization, meaning that no intermediary is responsible for securing and maintaining these systems. For example, a greater degree of decentralization of a public, permissionless blockchain generally means a given digital asset network is less susceptible to manipulation or capture. In practice, this typically means that every single node on a given digital asset network is responsible for securing the system by processing every transaction and maintaining a copy of the entire state of the network. As a result, a digital asset network that utilizes a public, permissionless blockchain may be limited in the number of transactions it can process by the computing capabilities of each single fully participating node. Many developers are actively researching and testing scalability solutions for public blockchains that do not necessarily result in lower levels of security or decentralization, such as off-chain payment channels and Layer 2 networks. Off-chain payment channels would allow parties to transact without requiring the full processing power of a blockchain. Layer 2 networks can increase the scalability of a blockchain by allowing users to transact on a second blockchain deployed on top of a “Layer 1” network. +As of December 31, 2025, the Solana Network handled approximately 4,160 transactions per second. In an effort to increase the volume of transactions that can be processed on a given digital asset network, many digital asset networks are being upgraded with various features to increase the speed and throughput of digital asset transactions. +As corresponding increases in throughput lag behind growth in the use of digital asset networks, average transaction fees and settlement times may increase considerably. Since inception, transaction fees on the Solana Network have comprised of a fixed rate of 0.000005 SOL per transaction, plus a variable fee component based on the computation resources used during the transaction. SOL holders can also pay an additional prioritization fee to expedite their transaction. Increased transaction fees and decreased settlement speeds could preclude certain uses for SOL (e.g., micropayments), and could reduce demand for, and the price of, SOL, which could adversely impact the value of the Shares. +There is no guarantee that any of the mechanisms in place or being explored for increasing the scale of settlement or throughput of Solana Network transactions will be effective, or how long these mechanisms will take to become effective, which could adversely impact the value of the Shares. +Digital asset networks are developed by a diverse set of contributors and the perception that certain high-profile contributors will no longer contribute to the network could have an adverse effect on the market price of the related digital asset. +Digital asset networks and related protocols are often developed by a diverse set of contributors, but are also often developed by identifiable and high-profile contributors. The perception that certain high-profile contributors may no longer contribute to the applicable digital asset network or protocol may have an adverse effect on the market price of any related digital assets. For example, in June 2017, +55 +an unfounded rumor circulated that Ethereum protocol developer Vitalik Buterin had died. Following the rumor, the price of Ether decreased approximately 20% before recovering after Buterin himself dispelled the rumor. Some have speculated that the rumor led to the decrease in the price of Ether. In the event a high-profile contributor to the Solana Network, such as Anatoly Yakovenko, is perceived as no longer contributing to the Solana Network due to death, retirement, withdrawal, incapacity, or otherwise, whether or not such perception is valid, it could negatively affect the price of SOL, which could adversely impact the value of the Shares. +Digital assets may have concentrated ownership and large sales or distributions by holders of such digital assets, or any ability to participate in or otherwise influence a digital asset’s underlying network, could have an adverse effect on the market price of such digital asset. +As of December 31, 2025, the largest 100 SOL wallets held approximately 29% of the SOL in circulation. Moreover, it is possible that other persons or entities control multiple wallets that collectively hold a significant amount of SOL, even if they individually only hold a small amount, and it is possible that some of these wallets are controlled by the same person or entity. Further, holders with substantial SOL positions may directly or indirectly exert influence over other ecosystem participants such as validators, developers, or major wallet and infrastructure providers. For example, these large holders may signal large potential sales or otherwise affect the stability of the market price of SOL, which could influence protocol development, governance dynamics, or market conditions. As a result of this concentration of ownership, large sales or distributions by such holders could have an adverse effect on the market price of SOL. +Validators may suffer losses due to Staking, or Staking may prove unattractive to validators, which could adversely affect the Solana Network. +Validation on the Solana Network requires SOL to be transferred into smart contracts on the underlying blockchain network not under the control of the person who owns such SOL. If the Solana Network source code or protocol were to fail to behave as expected, suffer cybersecurity attacks or hacks, experience security issues, or encounter other problems, such transferred (i.e., staked) SOL may be irretrievably lost. In addition, the Solana Network’s underlying protocol dictates requirements for participation in validation activity, and may impose penalties, if the relevant activities are not performed correctly. +In addition, the Solana Networks dictate requirements for participation in validation activity, and may impose penalties, if the relevant activities are not performed correctly. The Solana Network’s penalties (i.e., “slashing”) may be imposed if a validator commits malicious acts related to the validation of blocks with invalid transactions. Currently on the Solana Network, slashing is theoretically possible by social consensus, rather than being automatically applied by the protocol’s code. The Solana community generally aspires to slash 100% of staked assets in cases where a Solana node is maliciously trying to violate safety rules and 0% during routine operations. As a result, there is currently no automatic slashing in the Solana Network. Rather, for regular consensus, after a safety violation, the Solana Network will halt. The validators will analyze the data prior to the halt to determine who was responsible and propose that the stake of the malicious actors responsible for the safety violation should be slashed after restart, typically 100% of their stake. Future protocol upgrades may include the implementation of automated slashing mechanisms, where penalties would be triggered and enforced directly by the network code without requiring social coordination. As of December 31, 2025, there have been no slashing events on the Solana Network. Automatic slashing (i.e. slashing functionality that is applied by the protocol’s code) is expected to be introduced in the future. +Separately, as part of the “activating” and “de-activating” or “cooling down” processes of staking, staked SOL will be inaccessible for a variable period of time determined by a range of factors, including network congestion, resulting in potential inaccessibility during those periods. “Activation” is the funding of a validator to be included in the active set, thereby allowing the validator to participate in the Solana Network’s proof-of-stake consensus protocol. “De-activating” is the request to exit from the active set and no longer participate in the Solana Network’s proof-of-stake consensus protocol. As part of these “activating” and “de-activating” processes of staking on the Solana Network, any staked SOL will be inaccessible for a period of time, denominated in “epochs.” On the Solana Network, an epoch is approximately two days, and deactivation can take between one to several epochs to complete. The duration of activation and de-activation periods are dependent on a range of network-based factors, including the point at which an unstaking transaction is submitted during an epoch, the overall responsiveness and reliability of the Solana validator network (commonly referred to as “cluster performance”), the speed at which validators reach agreement on the network’s state (commonly referred to as “consensus pace”), network congestion, and validator-specific behaviors such as the batching of unstaking transactions, each of which may increase deactivation times. Once the de-activation period ends, the stake becomes fully inactive and can be withdrawn. +Since staking was enabled on the Solana Network in 2021, unstaking durations have varied based on network performance. For example, unstaking times have ranged from approximately 1.7 days in December 2021 to over 3.6 days in January 2022. On average, since mid-2023, it has taken approximately 2.3 days to complete staking deactivation, assuming the process is initiated near the beginning of an epoch and under normal conditions. Because the Solana Network processes deactivations at epoch boundaries, unstaking can typically be completed within a single epoch; however, as described above, actual durations may ultimately vary based on validator-specific factors and network state. +56 +The Solana Network requires the payment of base fees and the practice of paying prioritization fees is common, and such fees can become significant as the amount and complexity of the transaction grows, depending on the degree of network congestion and the price of SOL. Any cybersecurity attacks, security issues, hacks, penalties, slashing events, or other problems could damage validators’ willingness to participate in validation, discourage existing and future validators from serving as such, and adversely impact the Solana Network’s adoption or the price of SOL. Any disruption of validation on the Solana Network could interfere with network operations and cause the Solana Network to be less attractive to users and application developers than competing blockchain networks, which could cause the price of SOL to decrease. The limited liquidity during the “activation” or “de-activation” processes could dissuade potential validators from participating, which could interfere with network operations or security and cause the Solana Network to be less attractive to users and application developers than competing blockchain networks, which could cause the price of SOL to decrease. +The Sponsor has satisfied the Staking Condition with respect to certain liquidity procedures, which it believes will ensure that it will satisfy existing and reasonably foreseen redemption requests. Specifically, the Sponsor intends to maintain a portion of unstaked SOL in the Trust (the “Liquidity Sleeve”). Because the SOL in the Liquidity Sleeve is freely transferable, there is no timing mismatch between settlement of Shares in primary market redemptions and the SOL transfer time. The percentage of the Trust’s SOL comprising the Liquidity Sleeve will be dynamic and subject to adjustment based on anticipated primary and secondary market activity of the Shares and the SOL de-activation process. As of the date of this filing, the Sponsor generally seeks to stake as much of the Trust’s SOL as is practicable (i.e., up to 100%) at all times, with the remainder of the Trust’s SOL remaining unstaked in the Liquidity Sleeve in order to address the various exceptions and other considerations described herein, but may maintain a greater proportion of the Trust’s SOL in the Liquidity Sleeve from time to time in order to satisfy existing and reasonably foreseen redemption requests. +The Sponsor anticipates that it will engage in staking with respect to all of the Trust’s SOL at all times, except (i) as necessary to pay the Sponsor’s Fee, (ii) as necessary to pay any additional Trust expenses, (iii) as necessary to satisfy existing and reasonably foreseen potential redemption requests (assuming the Trust is then permitted to operate an ongoing redemption program) as determined by the Sponsor, (iv) as necessary to reduce the SOL obtained by the Trust as Staking Consideration to cash for distribution at regular intervals, (v) if the Sponsor determines that Staking raises significant governmental, policy or regulatory concerns or is subject or likely subject to a specialized regulatory regime, (vi) if the Sponsor determines there exists vulnerabilities in the source code or cryptography underlying the Solana Network, (vii) if the Custodian or Staking Provider discontinues their arrangements with the Trust, (viii) if the Sponsor otherwise determines that continued Staking of such portion of the Trust’s assets would be inconsistent with the Trust’s purpose of protecting and preserving the value of the Trust Estate, (ix) to fund or replenish the Liquidity Sleeve (as defined herein) or (x) in accordance with any other exception that is expressly contemplated by an opinion, ruling or tax guidance that satisfies the Staking Condition. All SOL received by the Trust in connection with the creation of new Shares, or as Staking Consideration, would also be staked upon receipt by the Trust, unless one or more of the exceptions described in clauses (i)-(ix) above applies. Moreover, any staked SOL which must be un-staked in order to fulfill a distribution in connection with a redemption (to the extent such distribution cannot be fulfilled utilizing the portion of the Trust’s SOL that has not been staked, or through another mechanism to manage liquidity in connection with Redemption Orders contemplated by an opinion of a Tax Advisor, a Tax Ruling or Tax Guidance that satisfies the Staking Condition) will be un-staked only after the redemption request is approved by the Trust, the Sponsor executes an un-stake or withdrawal transaction through the Custodian, and such transaction is processed by the Solana Network. The Staking Provider will not be able to transfer unstaked SOL or Staking Consideration to another address on the Solana Network. +As of the date of this filing, the Sponsor generally seeks to stake as much of the Trust’s SOL as is practicable (i.e., up to 100%) at all times, with the remainder of the Trust’s SOL remaining unstaked in order to address the various exceptions and other considerations described herein. The approximate percentage of the Trust’s SOL that is staked each day will be reported the following day at 4:00 p.m., New York time, on etfs.grayscale.com/gsol. +If the digital asset reward or transaction fees for recording transactions on the Solana Network are not sufficiently high to incentivize validators, or if certain jurisdictions continue to limit or otherwise regulate validating activities, validators may cease expanding validating power or demand high transaction fees, which could negatively impact the value of SOL and the value of the Shares. +If the digital asset awards or transaction fees for recording transactions on the Solana Network are not sufficiently high to incentivize validators, or if certain jurisdictions continue to limit or otherwise regulate validating activities, validators may cease expending validati ng power to validate blocks and confirmations of transactions on the Blockchain could be slowed. For example, the realization of one or more of the following risks could materially adversely affect the value of the Shares: +• +Over the past several years, digital asset validating operations have evolved from individual users validating with computer processors, graphics processing units and first-generation application specific integrated circuit machines to “professionalized” validating operations using proprietary hardware or sophisticated machines. If the profit margins of digital asset validating operations are not sufficiently high, digital asset validators are more likely to immediately sell digital assets earned by validating, resulting in an increase in liquid supply of that digital asset, which would generally tend to reduce that digital asset’s market price. +57 +• +A reduction in digital assets staked by validators on the Solana Network could increase the likelihood of a malicious actor or botnet obtaining control. See “—If a malicious actor or botnet obtains control of more than 50% of the validating power on the Solana Network, or otherwise obtains control over the Solana Network through its influence over core developers or otherwise, such actor or botnet could manipulate the Blockchain to adversely affect the value of the Shares or the ability of the Trust to operate.” +• +Validators have historically accepted relatively low transaction confirmation fees on most digital asset networks. If validators demand higher transaction fees for recording transactions in the Blockchain, the cost of using SOL may increase and the marketplace may be reluctant to accept SOL as a means of payment. Alternatively, validators could collude in an anti-competitive manner to reject low transaction fees on the Solana Network and force users to pay higher fees, thus reducing the attractiveness of the Solana Network. Higher transaction confirmation fees resulting through collusion or otherwise may adversely affect the attractiveness of the Solana Network, the value of SOL and the value of the Shares. +• +To the extent that any validators cease to record transactions that do not include the payment of a transaction fee in validated blocks or do not record a transaction because the transaction fee is too low, such transactions will not be recorded on the SOL Blockchain until a block is validated by a validator who is willing to accept a lower fee. Any widespread delays in the recording of transactions could result in a loss of confidence in the digital asset network. +• +During the course of ordering transactions and validating blocks, validators may be able to prioritize certain transactions in return for increased transaction fees, an incentive system known as “Maximal Extractable Value” or MEV. For example, in blockchain networks that facilitate DeFi protocols in particular, such as the Solana Network, users may attempt to gain an advantage over other users by increasing offered transaction fees. Certain software solutions, such as Flashbots, have been developed which facilitate validators in capturing MEV produced by these increased fees. The MEV incentive system may lead to an increase in transaction fees on the Solana Network, which may diminish its use. Users or other stakeholders on the Solana Network could also view the existence of MEV as unfair manipulation of decentralized digital asset networks, and refrain from using DeFi protocols or the Solana Network generally. In addition, it’s possible regulators or legislators could enact rules which restrict the use of MEV, which could diminish the popularity of the Solana Network among users and validators. Any of these or other outcomes related to MEV may adversely affect the value of SOL and the value of the Shares. +Proof-of-stake blockchains are a relatively recent innovation, and have not been subject to as widespread use or adoption over as long of a period of time as traditional proof-of-work blockchains. +Certain digital assets, such as bitcoin, use a “proof-of-work” consensus algorithm. The genesis block on the Bitcoin blockchain was mined in 2009, and Bitcoin’s blockchain has been in operation since then. Many newer blockchains enabling smart contract functionality, including the current Ethereum network following the completion of the Merge in 2022, use a newer consensus algorithm known as “proof-of-stake.” While their proponents believe that they may have certain advantages, the “proof-of-stake” consensus mechanisms and governance systems underlying many newer blockchain protocols, including the Solana Network, and their associated digital assets – including the SOL held by the Trust – have not been tested at scale over as long of a period of time or subject to as widespread use or adoption as, for example, Bitcoin’s proof-of-work consensus mechanism has. This could lead to these blockchains, and their associated digital assets, having undetected vulnerabilities, structural design flaws, suboptimal incentive structures for network participants (e.g., validators), technical disruptions, or a wide variety of other problems, any of which could cause these blockchains not to function as intended, lead to outright failure to function entirely causing a total outage or disruption of network activity, or to suffer other operational problems or reputational damage, leading to a loss of users or adoption or a loss in value of the associated digital assets, including the Trust’s assets. Over the long term, there can be no assurance that the proof-of-stake blockchain on which the Trust’s assets rely will achieve widespread scale or adoption or perform successfully; any failure to do so could negatively impact the value of the Trust’s assets. +If a malicious actor or botnet obtains control of a sufficient amount of the validating power on the Solana Network, or otherwise obtains control over the Solana Network through its influence over core developers or otherwise, such actor or botnet could manipulate the Blockchain to adversely affect the value of the Shares or the ability of the Trust to operate. +All networked systems are vulnerable to various types of attacks. As with any computer network, the Solana Network could be attacked. For example, the Solana Network is currently vulnerable to several types of attacks, including: +• +“33% attack” where, if a validator or group of validators were to gain control of more than 33% of the total staked SOL on the Solana Network, a malicious actor could temporarily impede or delay block confirmation or even cause a temporary fork in the blockchain. +• +“50% attack” where, if a validator or group of validators acting in concert were to gain control of more than 50% of the total staked SOL on the Solana Network, a malicious actor would be able to gain full control of the Solana Network and the ability to manipulate the blockchain on a forward-looking basis, including censoring transactions following the achievement +58 +of threshold, double-spending and fraudulent block propagation, while the attacker maintains the threshold. In theory, the minority non-attackers might reach social consensus to reject blocks proposed by the malicious majority attacker, reducing the attacker’s ability to engage in malicious activity, but there can be no assurance this would happen or that non-attackers would be able to coordinate effectively. +• +“>66% attack” where, if a validator or group of validators acting in concert were to gain control of more than 66% of the total staked SOL on the Solana Network, a malicious actor could permanently and irreversibly manipulate the blockchain, including censorship, double-spending and fraudulent block propagation, both on a forward-and backward-looking basis. The attacker could unilaterally finalize their preferred chain without the votes of any other stakers, and could also reverse past finalized blocks. The Solana Network’s proof-of-stake consensus mechanism requires a 2/3 supermajority of validators who have staked SOL to vote in favor in order to finalize transactions and add blocks to the Solana Blockchain. +Although there are no known reports of malicious control of the Solana Network, if groups of coordinating or connected SOL holders that together have more than 50% of outstanding SOL were to stake that SOL and run validators, they could exert authority over the validation of SOL transactions. This risk is heightened if a substantial amount of the validating power on the network falls within the jurisdiction of a single governmental authority. If network participants, including the core developers and the administrators of validating pools, do not act to ensure greater decentralization of Solana Network validators, the feasibility of a malicious actor obtaining control of the validating power on the Solana Network will increase, which may adversely affect the value of SOL and the value of the Shares. +A malicious actor may also obtain control over the Solana Network through its influence over core developers by gaining direct control over a core developer or an otherwise influential programmer. The less that the Solana ecosystem grows, the greater the possibility that a malicious actor may be able to maliciously influence the Solana Network in this manner. Moreover, it is possible that a group of SOL holders that together control more than a substantial amount of outstanding SOL are in fact part of the initial or current core developer group, or are otherwise influential members of the Solana community. To the extent that the initial or current core developer groups also control higher than a threshold of outstanding SOL necessary for an attack, as some believe, the risk of this particular group of users causing the Solana Network to adopt updates to the core protocol that this particular group wants to be implemented will be even greater, and should this materialize, it may adversely affect the value of the Shares. +If validators exit the Solana Network, it could increase the likelihood of a malicious actor obtaining control. +Validators exiting the network could make the Solana Network more vulnerable to a malicious actor obtaining control of a large percentage of staked SOL, which might enable them to manipulate the Blockchain by censoring or manipulating specific transactions, as discussed previously. If the Blockchain suffers such an attack, the price of SOL could be negatively affected, and a loss of confidence in the Solana Network could result. Any reduction in confidence in the transaction confirmation process or staking power of the Solana Network may adversely affect an investment in the Trust. +A temporary or permanent “fork” or a “clone” could adversely affect the value of the Shares. +The Solana Network operates using open-source protocols, meaning that any user can download the software, modify it and then propose that the users and validators of SOL adopt the modification. When a modification is introduced and a substantial majority of users and validators’ consent to the modification, the change is implemented and the network remains uninterrupted. However, if less than a substantial majority of users and validators’ consent to the proposed modification, and the modification is not compatible with the software prior to its modification, the consequence would be what is known as a “hard fork” of the Solana Network, with one group running the pre-modified software and the other running the modified software. The effect of such a fork would be the existence of two versions of Solana running in parallel, yet lacking interchangeability. For example, in September 2022, the Ethereum network transitioned to a proof-of-stake model, in an upgrade referred to as the “Merge.” Following the Merge, a hard fork of the Ethereum network occurred, as certain Ethereum miners and network participants planned to maintain the proof-of-work consensus mechanism that was removed as part of the Merge. This version of the network was rebranded as “Ethereum Proof-of-Work.” +Forks may also occur as a digital asset network community’s response to a significant security breach. For example, in July 2016, Ethereum “forked” into Ethereum and a new digital asset, Ethereum Classic, as a result of the Ethereum network community’s response to a significant security breach. In June 2016, an anonymous hacker exploited a smart contract running on the Ethereum network to syphon approximately $60 million of Ether held by The DAO, a distributed autonomous organization, into a segregated account. In response to the exploit, most participants in the Ethereum community elected to adopt a “fork” that effectively reversed the exploit. However, a minority of users continued to develop the original blockchain, referred to as “Ethereum Classic” with the digital asset on that blockchain now referred to as ETC. ETC now trades on several Digital Asset Trading Platforms. A fork may also occur as a result of an unintentional or unanticipated software flaw in the various versions of otherwise compatible software that users run. Such a fork could lead to users and validators abandoning the digital asset with the flawed software. It is possible, however, that a substantial number of users and validators could adopt an incompatible version of the digital asset while resisting community-led efforts to merge the two chains. This could result in a permanent fork, as in the case of Ethereum and Ethereum Classic. +59 +Furthermore, a hard fork can lead to new security concerns. For example, when the Ethereum and Ethereum Classic networks split in July 2016, replay attacks, in which transactions from one network were rebroadcast to nefarious effect on the other network, plagued Ethereum trading platforms through at least October 2016. An Ethereum trading platform announced in July 2016 that it had lost 40,000 Ethereum Classic, worth about $100,000 at that time, as a result of replay attacks. Similar replay attack concerns occurred in connection with the Bitcoin Cash and Bitcoin Satoshi’s Vision networks split in November 2018. Another possible result of a hard fork is an inherent decrease in the level of security due to significant amounts of validating power remaining on one network or migrating instead to the new forked network. After a hard fork, it may become easier for an individual validator or validating pool’s validating power to exceed 50% of the validating power of a digital asset network that retained or attracted less validating power, thereby making digital asset networks that rely on proof-of-stake more susceptible to attack. +Digital asset networks and related protocols may also be cloned. Unlike a fork of a digital asset network, which modifies an existing blockchain, and results in two competing digital asset networks, each with the same genesis block, a “clone” is a copy of a protocol’s codebase, but results in an entirely new blockchain and new genesis block. Tokens are created solely from the new “clone” network and, in contrast to forks, holders of tokens of the existing network that was cloned do not receive any tokens of the new network. A “clone” results in a competing network that has characteristics substantially similar to the network it was based on, subject to any changes as determined by the developer(s) that initiated the clone. +A hard fork may adversely affect the price of SOL at the time of announcement or adoption. For example, the announcement of a hard fork could lead to increased demand for the pre-fork digital asset, in anticipation that ownership of the pre-fork digital asset would entitle holders to a new digital asset following the fork. The increased demand for the pre-fork digital asset may cause the price of the digital asset to rise. After the hard fork, it is possible the aggregate price of the two versions of the digital asset running in parallel would be less than the price of the digital asset immediately prior to the fork. Furthermore, while the Trust would be entitled to both versions of the digital asset running in parallel, the Sponsor will, as permitted by the terms of the Trust Agreement, determine which version of the digital asset is generally accepted as the Solana Network and should therefore be considered the appropriate network for the Trust’s purposes, and there is no guarantee that the Sponsor will choose the digital asset that is ultimately the most valuable fork. Either of these events could therefore adversely impact the value of the Shares. For example, following the DAO hack in July 2016, holders of Ethereum voted on-chain to reverse the hack, effectively causing a hard fork. For the days following the vote, the price of Ethereum rose from $11.65 on July 15, 2016 to $14.66 on July 21, 2016, the day after the first Ethereum Classic block was mined. A clone may also adversely affect the price of SOL at the time of announcement or adoption. For example, on November 6, 2016, Rhett Creighton, a Zcash developer, cloned the Zcash network to launch Zclassic, a substantially identical version of the Zcash network that eliminated the Founders’ Reward. For the days following the date the first Zclassic block was mined, the price of ZEC fell from $504.57 on November 5, 2016 to $236.01 on November 7, 2016 in the midst of a broader sell off of ZEC beginning immediately after the Zcash network launch on October 28, 2016. A clone may also adversely affect the price of SOL at the time of announcement or adoption. +A future fork in or clone of the Solana Network could adversely affect the value of the Shares or the ability of the Trust to operate. +In the event of a hard fork of the Solana Network, the Sponsor will, if permitted by the terms of the Trust Agreement, use its discretion to determine which network should be considered the appropriate network for the Trust’s purposes, and in doing so may adversely affect the value of the Shares. +In the event of a hard fork of the Solana Network, the Sponsor will, as permitted by the terms of the Trust Agreement, use its discretion to determine, in good faith, which digital asset network, among a group of incompatible forks of the Solana Network, is generally accepted as the Solana Network and should therefore be considered the appropriate digital asset network for the Trust’s purposes. The Sponsor will base its determination on a variety of then relevant factors, including, but not limited to, the Sponsor’s beliefs regarding expectations of the core developers of SOL, users, services, businesses, validators and other constituencies, as well as the actual continued acceptance of, validating power on, and community engagement with, the Solana Network. There is no guarantee that the Sponsor will choose the digital asset network or digital asset that is ultimately the most valuable fork, and the Sponsor’s decision may adversely affect the value of the Shares as a result. The Sponsor may also disagree with shareholders, security vendors and the Index Provider on what is generally accepted as SOL and should therefore be considered “SOL” for the Trust’s purposes, which may also adversely affect the value of the Shares as a result. +Any name change and any associated rebranding initiative by the core developers of SOL may not be favorably received by the digital asset community, which could negatively impact the value of SOL and the value of the Shares. +From time to time, digital assets may undergo name changes and associated rebranding initiatives. For example, Bitcoin Cash may sometimes be referred to as Bitcoin ABC in an effort to differentiate itself from any Bitcoin Cash hard forks, such as Bitcoin Satoshi’s Vision, and in the third quarter of 2018, the team behind ZEN rebranded and changed the name of ZenCash to “Horizen.” We cannot predict the impact of any name change and any associated rebranding initiative on the Solana Network or SOL. After a name change and an associated rebranding initiative, a digital asset may not be able to achieve or maintain brand name recognition or status that is comparable to the recognition and status previously enjoyed by such digital asset. The failure of any name change and any associated rebranding initiative by a digital asset may result in such digital asset not realizing some or all of the anticipated benefits +60 +contemplated by the name change and associated rebranding initiative, and could negatively impact the value of SOL and the value of the Shares. +If the Solana Network is used to facilitate illicit activities, businesses that facilitate transactions in SOL could be at increased risk of criminal or civil lawsuits, or of having services cut off, which could negatively affect the price of SOL and the value of the Shares. +Digital asset networks have in the past been, and may continue to be, used to facilitate illicit activities. If the Solana Network is used to facilitate illicit activities, businesses that facilitate transactions in SOL could be at increased risk of potential criminal or civil lawsuits, or of having banking or other services cut off, if there is a concern that certain smart contracts on the Solana Network could interfere with the performance of anti-money laundering activities and economic sanctions checks. There is also a risk that Digital Asset Trading Platforms may remove SOL from their platforms as a result of these concerns. Other service providers of such businesses may also cut off services if there is a concern that the Solana Network is being used to facilitate crime. Any of the aforementioned occurrences could increase regulatory scrutiny of the Solana Network and/or adversely affect the price of SOL, the attractiveness of the Solana Network and an investment in the Shares of the Trust. +When the Trust and the Sponsor, acting on behalf of the Trust, sell or deliver, as applicable, SOL or, subject to NYSE Arca obtaining regulatory approval from the SEC, Incidental Rights and/or IR Virtual Currency, they generally do not transact directly with counterparties other than the Authorized Participant, a Liquidity Provider or other similarly eligible financial institutions that are subject to federal and state licensing requirements and maintain practices and policies designed to comply with AML and KYC regulations. When an Authorized Participant or a Liquidity Provider sources SOL in connection with the creation of the Shares or facilitates transactions in SOL at the direction of the Trust or the Sponsor, it directly faces its counterparty and, in all instances, the Authorized Participant or the Liquidity Provider, as applicable, follow policies and procedures designed to ensure that it knows the identity of its counterparty. The Authorized Participant is a registered broker-dealer and therefore subject to AML and countering the financing of terrorism obligations under the Bank Secrecy Act as administered by FinCEN and further overseen by the SEC and FINRA. +In accordance with its regulatory obligations, the Authorized Participant, or the Liquidity Provider, conducts customer due diligence and enhanced due diligence on its counterparties, which enables it to determine each counterparty’s AML and other risks and assign an appropriate risk rating. +As part of its counterparty onboarding process, each of the Authorized Participant and the Liquidity Provider uses third-party services to screen prospective counterparties against various watch lists, including the Specially Designated Nationals List of the Treasury Department Office of Foreign Assets Control (“OFAC”) and countries and territories identified as non-cooperative by the Financial Action Task Force. If the Sponsor, the Trust, the Authorized Participant or the Liquidity Provider were nevertheless to transact with such a sanctioned entity, the Sponsor, the Trust, the Authorized Participant and the Liquidity Provider would be at increased risk of potential criminal or civil lawsuits. +Liquid staking applications pose centralization concerns, and a single liquid staking application has reportedly controlled a significant percentage of the total staked SOL on the Solana Network. +On the Solana Network, holders of SOL may participate in the proof-of-stake consensus mechanism by delegating SOL to a validator, which validates transactions and produces blocks that are added to the Solana blockchain. Because there is no fixed per-validator minimum or protocol-imposed cap on the amount of SOL that may be delegated to a validator, a single validator operator or coordinated group of validators may manage substantial delegated stake and therefore a disproportionate amount of validation power. For example, Jito operates a liquid staking protocol that permits holders of SOL to deposit SOL into a staking program, which then delegates such SOL across a set of validators while issuing the holder a transferable token (“JitoSOL”) representing a claim on the underlying staked SOL and accrued rewards. Public sources have indicated that Jito’s liquid staking protocol has at times represented a meaningful share of the liquid-staked SOL on the Solana Network, and that validators utilizing Jito-related infrastructure have accounted for a substantial portion of overall network stake. While it is generally understood that a liquid staking provider or other large staking intermediary would have economic disincentives to disrupt transaction finality or block production—because doing so could impair the value of SOL, reduce staking rewards, and potentially expose delegated stake to penalties or loss—any validator operator, liquid staking protocol, or coordinated group controlling a substantial percentage of total delegated SOL could, in theory, seek to influence block production, transaction ordering, or network governance in a manner adverse to the Solana Network. Such centralization or coordination risks, whether arising from a single liquid staking protocol, a dominant validator set, or reliance on a particular validator client, could negatively affect the security, decentralization, and perceived integrity of the Solana Network, the market value of SOL, and, consequently, the value of the Shares. +61 +Risk Factors Related to the Digital Asset Markets +Recent developments in the digital asset economy have led to extreme volatility and disruption in digital asset markets, a loss of confidence in participants of the digital asset ecosystem, significant negative publicity surrounding digital assets broadly and market-wide declines in liquidity. +In the past and through the date of this Annual Report, digital asset prices have experienced significant fluctuations, leading to volatility and disruption in the digital asset markets and financial difficulties for several prominent industry participants, including Digital Asset Trading Platforms, hedge funds and lending platforms. For example, in the first half of 2022, digital asset lenders Celsius Network LLC and Voyager Digital Ltd. and digital asset hedge fund Three Arrows Capital each entered into insolvency proceedings. This resulted in a loss of confidence in participants in the digital asset ecosystem, negative publicity surrounding digital assets more broadly and market-wide declines in digital asset trading prices and liquidity. +Thereafter, in November 2022, FTX, the third largest Digital Asset Trading Platform by volume at the time, halted customer withdrawals amid rumors of the company’s liquidity issues and likely insolvency. Shortly thereafter, FTX’s CEO resigned and FTX and several affiliates of FTX filed for bankruptcy. The U.S. Department of Justice subsequently brought criminal charges, including charges of fraud, violations of federal securities laws, money laundering, and campaign finance offenses, against FTX’s former CEO and others. In November 2023, FTX’s former CEO was convicted of fraud and money laundering. Similar charges related to violations of anti-money laundering laws were brought in November 2023 against Binance and its former CEO. +In addition, several other entities in the digital asset industry filed for bankruptcy following FTX’s bankruptcy filing, such as BlockFi Inc. and Genesis Global Capital, LLC (“Genesis Capital”), a subsidiary of Genesis Global Holdco, LLC (“Genesis Holdco”). The SEC also brought charges against Genesis Capital and Gemini Trust Company, LLC (“Gemini”) in January 2023 for their alleged unregistered offer and sale of securities to retail investors. In October 2023, the New York Attorney General (“NYAG”) brought charges against Gemini, Genesis Capital, Genesis Asia Pacific PTE. LTD. (“Genesis Asia Pacific”), Genesis Holdco (together with Genesis Capital and Genesis Asia Pacific, the “Genesis Entities”), Genesis Capital’s former CEO, DCG, and DCG’s CEO alleging violations of the New York Penal Law, the New York General Business Law and the New York Executive Law. In February 2024, the NYAG amended its complaint to expand the charges against Gemini, the Genesis Entities, Genesis Capital’s former CEO, DCG, and DCG’s CEO to include harm to additional investors. Also in February 2024, the Genesis Entities entered into a settlement agreement with the NYAG to resolve the NYAG’s allegations against the Genesis Entities, which settlement was subsequently approved by the Bankruptcy Court of the Southern District of New York. +On January 17, 2025, DCG agreed to entry of a cease-and-desist order and payment of a $38 million civil money penalty arising out of the SEC’s allegations that (i) DCG negligently engaged in conduct that misled investors about the impact of the default on Genesis Capital’s financial condition and (ii) DCG’s failure to exercise reasonable care in connection with certain statements concerning Genesis Capital’s financial condition created a materially false impression to the public regarding Genesis Capital’s financial health. +Furthermore, Genesis Holdco, together with certain of its subsidiaries, filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in January 2023. While Genesis Holdco is not a service provider to the Trust, it is a wholly owned subsidiary of DCG, and is an affiliate of the Trust and the Sponsor. +These events have led to significant negative publicity around digital asset market participants including DCG, Genesis and DCG’s other affiliated entities. This publicity could negatively impact the reputation of the Sponsor and have an adverse effect on the trading price and/or the value of the Shares. Moreover, sales of a significant number of Shares of the Trust as a result of these events could have a negative impact on the trading price of the Shares. +These events have also led to a substantial increase in regulatory and enforcement scrutiny of the industry as a whole and of Digital Asset Trading Platforms in particular, including from the Department of Justice, the SEC, the CFTC, the White House and Congress. For example, in June 2023, the SEC brought charges against Binance (the “Binance Complaint”) and Coinbase (the “Coinbase Complaint”), alleging that they solicited U.S. investors to buy, sell, and trade “crypto asset securities” through their unregistered trading platforms and operated unregistered securities exchanges, brokerages and clearing agencies. Binance subsequently announced that it would be suspending USD deposits and withdrawals on Binance.US and that it plans to delist its USD trading pairs. In addition, in November 2023, the SEC brought similar charges against Kraken (the “Kraken Complaint”), alleging that it operated as an unregistered securities exchange, brokerage and clearing agency. The Binance Complaint, the Coinbase Complaint and the Kraken Complaint have led, and may in the future lead, to further volatility in digital asset prices. Between February 2025 and May 2025, the SEC entered into court-approved joint stipulations to dismiss each of the Binance Complaint, Coinbase Complaint and the Kraken Complaint. The SEC has terminated its investigation or enforcement action into many other digital asset market participants, as well. +In January 2025, the SEC launched a crypto task force dedicated to developing a comprehensive and clear regulatory framework for digital assets led by Commissioner Hester Peirce. Subsequently, Commissioner Peirce announced a list of specific priorities to further that initiative, which included pursuing final rules related to a digital asset’s security status, a revised path to registered offerings and listings for digital asset-based investment vehicles, and clarity regarding digital asset custody, lending and staking. Digital asset markets have also been negatively impacted by the failure of entities perceived to be integral to the digital asset ecosystem. For example, in +62 +March 2023, state banking regulators placed Silicon Valley Bank and Signature Bank into Federal Deposit Insurance Corporation (“FDIC”) receiverships. Also, in March 2023, Silvergate Bank announced plans to wind down and liquidate its operations. Because these banks were perceived to be the banks most open to providing services for the digital asset ecosystem in the United States, their failures may impact the willingness of banks (based on regulatory pressure or otherwise) to provide banking services to digital asset market participants. In addition, because these banks were perceived to be the banks most open to providing services for the digital asset ecosystem, their failure has caused a number of companies that provide digital asset-related services to be unable to find banks that are willing to provide them with such banking services. The inability to access banking services could negatively impact digital asset market participants and therefore the value of digital assets, including SOL, and thus the Shares. In addition, although these events did not have an impact directly on the Trust or the Sponsor when these bank failures occurred, it is possible that a future closing of a bank with which the Trust or the Sponsor has a financial relationship could subject the Trust or the Sponsor to adverse conditions and pose challenges in finding an alternative suitable bank to provide the Trust or the Sponsor with bank accounts and banking services. +Events such as these that impact the wider digital asset ecosystem are continuing to develop and change at a rapid pace and it is not possible to predict at this time all of the risks that they may pose to the Sponsor, the Trust, their affiliates and/or the Trust’s third-party service providers, or on the digital asset industry as a whole. +Continued disruption and instability in the digital asset markets as these events develop, including declines in the trading prices and liquidity of SOL, or the failure of service providers to the Trust, could have a material adverse effect on the value of the Shares and the Shares could lose all or substantially all of their value. +The value of the Shares relates directly to the value of SOL, the value of which may be highly volatile and subject to fluctuations due to a number of factors. +The value of the Shares relates directly to the value of the SOL held by the Trust and fluctuations in the price of SOL could adversely affect the value of the Shares. The market price of SOL may be highly volatile, and subject to a number of factors, including: +• +an increase in the global SOL supply that is publicly available for trading; +• +manipulative trading activity on Digital Asset Trading Platforms, which, in many cases, are largely unregulated; +• +the adoption of SOL as a medium of exchange, store-of-value or other consumptive asset and the maintenance and development of the open-source software protocol of the Solana Network; +• +forks in the Solana Network; +• +investors’ expectations with respect to interest rates, the rates of inflation of fiat currencies or SOL, and Digital Asset Trading Platform rates; +• +consumer preferences and perceptions of SOL specifically and digital assets generally; +• +fiat currency withdrawal and deposit policies on Digital Asset Trading Platforms; +• +the liquidity of Digital Asset Markets and any increase or decrease in trading volume on Digital Asset Markets; +• +investment and trading activities of large investors that invest directly or indirectly in SOL, including trading activity related to so-called digital asset treasury companies or similar vehicles that are intended to provide investors with indirect exposure to SOL; +• +a “short squeeze” resulting from speculation on the price of SOL, if aggregate short exposure exceeds the number of Shares available for purchase; +• +an active derivatives market for SOL or for digital assets generally; +• +a determination that SOL is a security or changes in SOL’s status under the federal securities laws; +• +monetary policies of governments, trade restrictions, currency devaluations and revaluations and regulatory measures or enforcement actions, if any, that restrict the use of SOL as a form of payment or the purchase of SOL on the Digital Asset Markets; +• +global or regional political, economic or financial conditions, events and situations, such as the novel coronavirus outbreak; +• +fees associated with processing a SOL transaction and the speed at which SOL transactions are settled on the Solana Network, including as may be negatively impacted by the recent proliferation of Solana-based memecoins; +• +interruptions in service from or closures or failures of major Digital Asset Trading Platforms; +• +decreased confidence in Digital Asset Trading Platforms due to the largely unregulated nature and lack of transparency surrounding the operations of Digital Asset Trading Platforms; +63 +• +increased competition from other forms of digital assets or payment services; and +• +the Trust’s own acquisitions or dispositions of SOL, since there is no limit on the amount of SOL that the Trust may acquire. +In addition, there is no assurance that SOL will maintain its value in the long or intermediate term. In the event that the price of SOL declines, the Sponsor expects the value of the Shares to decline proportionately. +The value of SOL as represented by the Index Price or by the Trust’s principal market may also be subject to momentum pricing due to speculation regarding future appreciation in value, leading to greater volatility that could adversely affect the value of the Shares. Momentum pricing typically is associated with growth stocks and other assets whose valuation, as determined by the investing public, accounts for future appreciation in value, if any. The Sponsor believes that momentum pricing of SOL has resulted, and may continue to result, in speculation regarding future appreciation in the value of SOL, inflating and making the Index Price more volatile. As a result, SOL may be more likely to fluctuate in value due to changing investor confidence, which could impact future appreciation or depreciation in the Index Price and could adversely affect the value of the Shares. +Due to the largely unregulated nature and lack of transparency surrounding the operations of Digital Asset Trading Platforms, they may experience fraud, market manipulation, business failures, security failures or operational problems, which may adversely affect the value of SOL and, consequently, the value of the Shares. +Digital Asset Trading Platforms are relatively new and, in many ways, are not subject to, or may not comply with, regulation in relevant jurisdictions in a manner similar to other regulated trading platforms, such as national securities exchanges or designated contract markets. While many prominent Digital Asset Trading Platforms provide the public with significant information regarding their on-chain activities, ownership structure, management teams, corporate practices, cybersecurity practices and regulatory compliance, many other Digital Asset Trading Platforms do not provide this information. Furthermore, while Digital Asset Trading Platforms are and may continue to be subject to federal and state licensing requirements in the United States, Digital Asset Trading Platforms do not currently appear to be subject to regulation in a similar manner as other regulated trading platforms, such as national securities exchanges or designated contract markets. As a result, the marketplace may lose confidence in Digital Asset Trading Platforms, including prominent trading platforms that handle a significant volume of SOL trading. +Many Digital Asset Trading Platforms, both in the United States and abroad, are unlicensed, not subject to, or not in compliance with, regulation in relevant jurisdictions, or operate without extensive supervision by governmental authorities. In particular, those located outside the United States may be subject to significantly less stringent regulatory and compliance requirements in their local jurisdictions and may take the position that they are not subject to laws and regulations that would apply to a national securities exchange or designated contract market in the United States, or may, as a practical matter, be beyond the ambit of U.S. regulators. As a result, trading activity on or reported by these Digital Asset Trading Platforms is generally significantly less regulated than trading activity on or reported by regulated U.S. securities and commodities markets, and may reflect behavior that would be prohibited in regulated U.S. trading venues. For example, in 2022 one report claimed that trading volumes on Digital Asset Trading Platforms were inflated by over 70% due to false or non-economic trades, with specific focus on unlicensed trading platforms located outside of the United States. Such reports may indicate that the Digital Asset Trading Platform Market is significantly smaller than expected and that the U.S. makes up a significantly larger percentage of the Digital Asset Trading Platform Market than is commonly understood, or that a much larger portion of digital asset market activity takes place on decentralized finance platforms than is commonly understood. Nonetheless, any actual or perceived false trading in the Digital Asset Trading Platform Market, and any other fraudulent or manipulative acts and practices, could adversely affect the value of SOL and/or negatively affect the market perception of SOL, which could in turn adversely impact the value of the Shares. +The SEC has also identified possible sources of fraud and manipulation in the Digital Asset Markets generally, including, among others (1) “wash-trading”; (2) persons with a dominant position in a digital asset manipulating pricing in such digital asset; (3) hacking of the underlying digital asset network and trading platforms; (4) malicious control of the underlying digital asset network; (5) trading based on material, non-public information (for example, plans of market participants to significantly increase or decrease their holdings in a digital asset, new sources of demand for a digital asset) or based on the dissemination of false and misleading information; (6) manipulative activity involving purported “stablecoins,” including Tether; and (7) fraud and manipulation at Digital Asset Markets. The use or presence of such acts and practices in the Digital Asset Markets could, for example, falsely inflate the volume of SOL present in the Digital Asset Markets or cause distortions in the price of SOL, among other things that could adversely affect the Trust or cause losses to shareholders. Moreover, tools to detect and deter fraudulent or manipulative trading activities, such as market manipulation, front-running of trades, and wash-trading, may not be available to or employed by Digital Asset Markets, or may not exist at all. Many Digital Asset Markets also lack certain safeguards put in place by exchanges for more traditional assets to enhance the stability of trading on the exchanges and prevent “flash crashes,” such as limit-down circuit breakers. As a result, the prices of SOL on Digital Asset Markets may be subject to larger and/or more frequent sudden declines than assets traded on more traditional exchanges. +In addition, over the past several years, some Digital Asset Trading Platforms have been closed, been subject to criminal and civil litigation and have entered into bankruptcy proceedings due to fraud and manipulative activity, business failure and/or security breaches. In many of these instances, the customers of such Digital Asset Trading Platforms were not compensated or made whole for the partial +64 +or complete losses of their account balances in such Digital Asset Trading Platforms. In some instances, customers are made whole only in dollar terms as of the Digital Asset Trading Platform’s date of failure, rather than on a digital asset basis, meaning customers may still lose out on any price increase in digital assets. +While smaller Digital Asset Trading Platforms are less likely to have the infrastructure and capitalization that make larger Digital Asset Trading Platforms more stable, larger Digital Asset Trading Platforms are more likely to be appealing targets for hackers and malware. For example, in February 2025, hackers reportedly compromised a transaction from Bybit’s multisignature cold wallets, enabling the hackers to steal over $1.5 billion of Ether from Bybit. Shortcomings or ultimate failures of larger Digital Asset Trading Platforms are more likely to have contagion effects on the digital asset ecosystem, including on the price of SOL, and therefore may also be more likely to be targets of regulatory enforcement action. For example, in November 2022, FTX, another of the world’s largest Digital Asset Trading Platforms, filed for bankruptcy protection and subsequently halted customer withdrawals as well as trading on its FTX.US platform. Fraud, security failures and operational problems all played a role in FTX’s issues and downfall. Moreover, Digital Asset Trading Platforms have been a subject of enhanced regulatory and enforcement scrutiny, and Digital Asset Markets have experienced continued instability, following the failure of FTX. In particular, in June 2023, the SEC brought the Binance Complaint and Coinbase Complaint, alleging that Binance and Coinbase operated unregistered securities exchanges, brokerages and clearing agencies. In addition, in November 2023, the SEC brought the Kraken Complaint, alleging that Kraken operated as an unregistered securities exchange, brokerage and clearing agency. Between February 2025 and May 2025, the SEC entered into court-approved joint stipulations to dismiss each of the Binance Complaint, Coinbase Complaint and the Kraken Complaint. The SEC has terminated its investigation or enforcement action into many other digital asset market participants as well. +Negative perception, a lack of stability and standardized regulation in the Digital Asset Markets and/or the closure or temporary shutdown of Digital Asset Trading Platforms due to fraud, business failure, security breaches or government mandated regulation, and associated losses by customers, may reduce confidence in the Solana Network and result in greater volatility in the prices of SOL. Furthermore, the closure or temporary shutdown of a Digital Asset Trading Platform used in calculating the Index Price may result in a loss of confidence in the Trust’s ability to determine its NAV on a daily basis. These potential consequences of such a Digital Asset Trading Platform’s failure could adversely affect the value of the Shares. +Digital Asset Trading Platforms may be exposed to front-running. +Digital Asset Trading Platforms may be susceptible to “front-running,” which refers to the process when someone uses technology or market advantage to get prior knowledge of upcoming transactions. Front-running is a frequent activity on centralized as well as decentralized trading platforms. By using bots functioning on a millisecond-scale timeframe, bad actors are able to take advantage of the forthcoming price movement and make economic gains at the cost of those who had introduced these transactions. The objective of a front runner is to buy tokens at a low price and later sell them at a higher price while simultaneously exiting the position. To the extent that front-running occurs, it may result in investor frustrations and concerns as to the price integrity of Digital Asset Trading Platforms and digital assets more generally. +Digital Asset Trading Platforms may be exposed to wash-trading. +Digital Asset Trading Platforms may be susceptible to wash-trading. Wash-trading occurs when offsetting trades are entered into for other than bona fide reasons, such as the desire to inflate reported trading volumes. Wash-trading may be motivated by non-economic reasons, such as a desire for increased visibility on popular websites that monitor markets for digital assets so as to improve a trading platform’s attractiveness to investors who look for maximum liquidity, or it may be motivated by the ability to attract listing fees from token issuers who seek the most liquid and high-volume trading platforms on which to list their tokens. Results of wash-trading may include unexpected obstacles to trade and erroneous investment decisions based on false information. +Even in the United States, there have been allegations of wash-trading even on regulated venues. Any actual or perceived false trading on Digital Asset Trading Platforms, and any other fraudulent or manipulative acts and practices, could adversely affect the value of SOL and/or negatively affect the market perception of SOL. +To the extent that wash-trading either occurs or appears to occur in Digital Asset Trading Platforms, investors may develop negative perceptions about SOL and the digital assets industry more broadly, which could adversely impact the price of SOL and, therefore, the price of the Shares. Wash-trading also may place more legitimate Digital Asset Trading Platforms at a relative competitive disadvantage. +The Index has a limited history and a failure of the Index Price could adversely affect the value of the Shares. +The Index has a limited history and the Index Price is a composite reference rate calculated using trading price data from various Digital Asset Trading Platforms chosen by the Index Provider. The Digital Asset Trading Platforms chosen by the Index Provider have also changed over time. The Index Provider may remove or add Digital Asset Trading Platforms to the Index in the future at its discretion. For more information on the inclusion criteria for Digital Asset Trading Platforms in the Index, see “Item 1. Business—Overview of the Solana Industry and Market—SOL Value—The Index and the Index Price.” +65 +Although the Index is designed to accurately capture the market price of SOL, third parties may be able to purchase and sell SOL on public or private markets not included among the Constituent Trading Platforms of the Index, and such transactions may take place at prices materially higher or lower than the Index Price. Moreover, there may be variances in the prices of SOL on the various Digital Asset Trading Platforms, including as a result of differences in fee structures or administrative procedures on different Digital Asset Trading Platforms. For example, based on data provided by the Index Provider, on any given day during the year ended December 31, 2025, the maximum differential between the 4:00 p.m., New York time spot price of any single Digital Asset Trading Platform included in the Index and the Index Price was 3.76% and the average of the maximum differentials of the 4:00 p.m., New York time spot price of each Digital Asset Trading Platform included in the Index and the Index Price was 0.55%. During this same period, the average differential between the 4:00 p.m., New York time spot prices of all the Digital Asset Trading Platforms included in the Index and the Index Price was 0.005%. All Digital Asset Trading Platforms that were included in the Index throughout the period were considered in this analysis. To the extent such prices differ materially from the Index Price, investors may lose confidence in the Shares’ ability to track the market price of SOL, which could adversely affect the value of the Shares. +The Index Price used to calculate the value of the Trust’s SOL may be volatile, and purchasing and selling activity in the Digital Asset Markets associated with Basket creations and redemptions may affect the Index Price and Share trading prices, adversely affecting the value of the Shares. +The price of SOL on public Digital Asset Trading Platforms has a very limited history, and during this history, SOL prices on the Digital Asset Markets more generally, and on Digital Asset Trading Platforms individually, have been volatile and subject to influence by many factors, including operational interruptions. While the Index is designed to limit exposure to the interruption of individual Digital Asset Trading Platforms, the Index Price, and the price of SOL generally, remains subject to volatility experienced by Digital Asset Trading Platforms, and such volatility could adversely affect the value of the Shares. For example, since November 18, 2021 (the commencement of the Trust’s operations) through December 31, 2025, the Index Price ranged from $8.29 to $277.39, with the straight average being $107.27 through December 31, 2025. The Sponsor has not observed a material difference between the Index Price and average prices from the Constituent Trading Platforms individually or as a group. The price of SOL more generally has experienced volatility similar to the Index Price during these periods. For additional information on movement of the Index Price and the price of SOL, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Historical NAV and SOL Prices.” +Furthermore, because the number of Digital Asset Trading Platforms is limited, the Index will necessarily be comprised of a limited number of Digital Asset Trading Platforms. If a Digital Asset Trading Platform were subjected to regulatory, volatility or other pricing issues, the Index Provider would have limited ability to remove such Digital Asset Trading Platform from the Index, which could skew the price of SOL as represented by the Index. Trading on a limited number of Digital Asset Trading Platforms may result in less favorable prices and decreased liquidity of SOL and, therefore, could have an adverse effect on the value of the Shares. +Purchasing activity associated with acquiring SOL required for the creation of Baskets may increase the market price of SOL on the Digital Asset Markets, which will result in higher prices for the Shares. Alternatively, selling activity associated with sales of SOL withdrawn from the Trust in connection with the redemption of Baskets may decrease the market price of SOL on the Digital Asset Markets, which will result in lower prices for the Shares. Increases or decreases in the market price of SOL may also occur as a result of the purchasing or selling activity of other market participants. Other market participants may attempt to benefit from an increase or decrease in the market price of SOL that may result from increased purchasing or selling activity of SOL connected with the creation or redemption of Baskets. Consequently, the market price of SOL may decline immediately after Baskets are created. Decreases in the market price of SOL may also occur as a result of sales in Secondary Markets by other market participants. If the Index Price declines, the value of the Shares will generally also decline. +Competition from the emergence or growth of other digital assets could have a negative impact on the price of SOL and adversely affect the value of the Shares. +As of December 31, 2025, SOL was the seventh largest digital asset by market capitalization, as tracked by CoinMarketCap.com. As of December 31, 2025, the alternative digital assets tracked by CoinMarketCap.com had a total market capitalization of approximately $2,678.0 billion (including the approximately $70.1 billion market cap of SOL), as calculated using market prices and total available supply of each digital asset, excluding stablecoins and tokens pegged to other assets. In addition, SOL faces competition from a wide range of digital assets, including Bitcoin and Ether. Many consortiums and financial institutions are also researching and investing resources into private or permissioned smart contracts platforms rather than open platforms like the Solana Network. In addition, SOL is supported by fewer trading platforms than more established digital assets, such as Bitcoin and Ether, which could impact its liquidity. In addition, the Solana Network is in direct competition with other smart contract platforms, such as the Ethereum, Polkadot, Avalanche and Cardano networks. Competition from the emergence or growth of alternative digital assets and smart contracts platforms, such as Solana, Avalanche or Cardano, could have a negative impact on the demand for, and price of, SOL and thereby adversely affect the value of the Shares. Moreover, the growth of tokenized assets and other on-chain financial products that offer yield, stability, or regulatory clarity may also divert capital and user engagement away from the Solana Network, which could negatively impact SOL’s market demand and the value of the Shares. +66 +Investors may also invest in SOL through means other than the Shares, including through direct investments in SOL and other financial vehicles, including securities backed by or linked to SOL and digital asset financial vehicles similar to the Trust. +The Trust and the Sponsor face competition with respect to the creation of competing exchange-traded spot SOL products, among other digital asset vehicles. Whether the Trust is successful in maintaining its scale and achieving its intended competitive position may be impacted by a range of factors, including its fee structure relative to those competing products. The Trust’s competitors may also charge a substantially lower fee than the Sponsor’s Fee in an effort to achieve initial market acceptance and scale, which could cause investors to favor such competing products over the Trust. +If the Trust fails to continue to maintain or grow sufficient scale due to competition, the Sponsor may have difficulty raising sufficient revenue to cover the costs associated with maintaining the Trust and such shortfalls could impact the Sponsor’s ability to properly invest in robust ongoing operations and controls of the Trust to minimize the risk of operating events, errors, or other forms of losses to the shareholders. Furthermore, the Trust may fail to continue to attract adequate liquidity in the secondary market due to such competition, resulting in a small number of Authorized Participants willing to make a market in the Shares, which in turn could result in the Shares trading at a significant premium or discount for extended periods. Likewise, market and financial conditions, among other conditions outside the Trust’s control, may cause investors to find it more attractive to gain exposure to SOL through other vehicles, rather than the Trust. +In addition, to the extent digital asset financial vehicles other than the Trust tracking the price of SOL come to represent a significant proportion of the demand for SOL, large purchases or redemptions of the securities of these digital asset financial vehicles, or private funds holding SOL, could negatively affect the Index Price, the NAV, the NAV per Share, the value of the Shares, the Principal Market NAV and the Principal Market NAV per Share. Accordingly, there can be no assurance that the Trust will be able to maintain its scale and achieve its intended competitive positioning relative to competitors, which could adversely affect the performance of the Trust and the value of the Shares. +Congestion or delay on the Solana Network may delay purchases or sales of SOL by the Trust. +Increased transaction volume could result in delays in the recording of transactions on the Solana Network. Moreover, unforeseen system failures, disruptions in operations, or poor connectivity may also result in delays in the recording of transactions on the Blockchain. This surge resulted in delays and transaction errors on the Blockchain. Any delay in the Blockchain could affect an Authorized Participant’s ability to buy or sell SOL at an advantageous price resulting in decreased confidence in the Blockchain. Over the longer term, delays in confirming transactions could reduce the attractiveness to merchants and other commercial parties as a means of payment. As a result, the Solana Network and the value of the Trust would be adversely affected. +The SEC has approved generic listing standards for commodity-based trust shares and may approve other applications under Rule 19b-4 of the Exchange Act to list competing digital assets as exchange-traded products, which could reduce demand for, and the price of, SOL and adversely impact the value of the Shares. +To date, the SEC has approved applications under Rule 19b-4 of the Exchange Act to list spot digital asset exchange-traded products which hold Bitcoin and Ether, as well as generic listing standards for commodity-based trust shares holding digital assets. To the extent competing digital assets exchange-traded products, other than those which hold SOL, come to represent a significant proportion of the demand for digital assets generally, demand for, and the price of, SOL could be reduced. Such reduced demand could in turn negatively affect the Index Price, the NAV, the NAV per Share, the value of the Shares, the Principal Market NAV and the Principal Market NAV per Share. Accordingly, there can be no assurance that the Trust will be able to maintain its scale and achieve its intended competitive positioning relative to competitors, which could adversely affect the performance of the Trust and the value of the Shares. +Competition from central bank digital currencies (“CBDCs”) and emerging payments initiatives involving financial institutions could adversely affect the price of SOL and other digital assets. +Central banks in various countries have introduced digital forms of legal tender (“CBDCs”). China’s CBDC project, known as Digital Currency Electronic Payment, has reportedly been tested in a live pilot program conducted in multiple cities in China. Central banks representing at least 130 countries have published retail or wholesale CBDC work ranging from research to pilot projects. Whether or not they incorporate blockchain or similar technology, CBDCs, as legal tender in the issuing jurisdiction, could have an advantage in competing with, or replace, SOL and other cryptocurrencies as a medium of exchange or store of value. Central banks and other governmental entities have also announced cooperative initiatives and consortia with private sector entities, with the goal of leveraging blockchain and other technology to reduce friction in cross-border and interbank payments and settlement, and commercial banks and other financial institutions have also recently announced a number of initiatives of their own to incorporate new technologies, including blockchain and similar technologies, into their payments and settlement activities, which could compete with, or reduce the demand for, SOL. As a result of any of the foregoing factors, the price of SOL could decrease, which could adversely affect an investment in the Trust. +67 +Prices of SOL may be affected due to stablecoins (including Tether and USDC), the activities of stablecoin issuers and their regulatory treatment. +While the Trust does not invest in stablecoins, it may nonetheless be exposed to these and other risks that stablecoins pose for the market for SOL and other digital assets. Stablecoins are digital assets designed to have a stable value over time as compared to typically volatile digital assets, and are typically marketed as being pegged to the value of a referenced asset, normally a fiat currency, such as the U.S. dollar. Although the prices of stablecoins are intended to be stable compared to their referenced asset, in many cases their prices fluctuate, sometimes significantly. This volatility has in the past impacted the prices of certain digital assets, and has at times caused certain stablecoins to lose their “peg” to the underlying fiat currency. Stablecoins are a relatively new phenomenon, and it is impossible to know all of the risks that they could pose to participants in the digital asset markets. In addition, some have argued that some stablecoins, particularly Tether, are improperly issued without sufficient backing in a way that could cause artificial rather than genuine demand for digital assets, raising their prices. Regulators have also charged stablecoin issuers with violations of law or otherwise required certain stablecoin issuers to cease certain operations. For example, on February 17, 2021, the New York Attorney General entered into an agreement with Tether’s operators, requiring them to cease any further trading activity with New York persons and pay $18.5 million in penalties for false and misleading statements made regarding the assets backing Tether. On October 15, 2021, the CFTC announced a settlement with Tether’s operators in which they agreed to pay $42.5 million in fines to settle charges that, among others, Tether’s claims that it maintained sufficient U.S. dollar reserves to back every Tether stablecoin in circulation with the “equivalent amount of corresponding fiat currency” held by Tether were untrue. +USDC is a reserve-backed stablecoin issued by Circle Internet Financial that is commonly used as a method of payment in digital asset markets, including the SOL market. The issuer of USDC uses the Circle Reserve Fund to hold cash, U.S. Treasury bills, notes and other obligations issued or guaranteed as to principal and interest by the U.S. Department of the Treasury, and repurchase agreements secured by such obligations or cash, which serve as reserves backing USDC stablecoins. While USDC is designed to maintain a stable value at 1 U.S. dollar at all times, on March 10, 2023, the value of USDC fell below $1.00 (and remained below for multiple days) after Circle Internet Financial disclosed that $3.3 billion of the USDC reserves were held at Silicon Valley Bank, which had entered FDIC receivership earlier that day. Popular stablecoins are reliant on the U.S. banking system and U.S. treasuries, and the failure of either to function normally could impede the function of stablecoins or lead to outsized redemption requests, and therefore could adversely affect the value of the Shares. +Given the role that stablecoins play in global digital asset markets, their fundamental liquidity can have a dramatic impact on the broader digital asset market, including the market for SOL. Because a large portion of the digital asset market still depends on stablecoins such as Tether and USDC, there is a risk that a disorderly de-pegging or a run on Tether or USDC could lead to dramatic market volatility in, and/or materially and adversely affect the prices of, digital assets more broadly. +Volatility in stablecoins, operational issues with stablecoins (for example, technical issues that prevent settlement), concerns about the sufficiency of any reserves that support stablecoins, or regulatory concerns about stablecoin issuers or intermediaries that support stablecoins, could impact individuals’ willingness to trade on trading venues that rely on stablecoins and could impact the price of SOL, and in turn, an investment in the Shares. +Further, because a significant portion of transaction activity and gas usage on the Solana Network is associated with stablecoin transfers and stablecoin-based decentralized finance applications, disruptions or failures affecting major stablecoins could diminish network activity and adversely affect the price of SOL. Moreover, stablecoin issuers may also exert significant or disproportionate influence in the event of a fork of the Solana Network because stablecoins are widely used as collateral and settlement assets in DeFi and other on-chain transactions. If a stablecoin issuer supports only one forked network, the stablecoins on the unsupported network may become worthless or illiquid, which could materially affect the viability of that fork and negatively impact the price of SOL and the value of the Shares. In addition, recent federal legislation establishing a regulatory framework for fully reserved payment stablecoins, such as the GENIUS Act, may increase the adoption of regulated stablecoins as digital payment instruments. While this could increase overall transactional activity on the Solana Network, greater resiliance on stablecoins for payments may reduce the use of SOL itself as a medium of exchange and for certain on-chain transactions, which could adversely affect the demand for SOL and therefore the value of the Shares. +Risk Factors Related to the Trust and the Shares +The Trust relies on third-party service providers to perform certain functions essential to the affairs of the Trust and the replacement of such service providers could pose challenges to the safekeeping of the Trust’s SOL and to the operations of the Trust. +The Trust relies on the Custodial Entities, the Authorized Participants and other third-party service providers to perform certain functions essential to managing the affairs of the Trust. In addition, Liquidity Providers are relied upon to facilitate the purchase and sale of SOL in connection with creations and redemptions of Shares in cash (“Cash Orders”), and the Transfer Agent and Grayscale Investments Sponsors, LLC (in such capacity, the “Liquidity Engager”), are relied upon to facilitate such Cash Orders. Any disruptions to a service provider’s business operations, resulting from business failures, financial instability, security failures, government mandated regulation or operational problems, could have an adverse impact on the Trust’s ability to access critical services and be disruptive to +68 +the operations of the Trust and require the Sponsor or the Liquidity Engager, as the case may be, to replace such service provider. Moreover, the Sponsor could decide to replace a service provider to the Trust, or the Liquidity Engager may decide to replace a Liquidity Provider, for other reasons. +If the Sponsor decides, or is required, to replace Coinbase Custody Trust Company, LLC as the custodian of the Trust’s SOL, Anchorage Digital Bank N.A., as the additional custodian of the Trust’s SOL, or Coinbase, Inc. as the prime broker controlling and securing the Trust’s Settlement Balance, transfer of the respective maintenance responsibilities of the Vault Balance or the Settlement Balance to another party or parties will likely be complex and could subject the Trust’s SOL to the risk of loss during the transfer, which could have a negative impact on the performance of the Shares or result in loss of the Trust’s assets. +Moreover, the legal rights of customers with respect to digital assets held on their behalf by a third-party custodian, such as the Custodial Entities, in insolvency proceedings are currently uncertain. The Prime Broker Agreement contains an agreement by the parties to treat the digital assets credited to the Trust’s Vault Balance and Settlement Balance as financial assets under Article 8 in addition to stating that the Custodian will serve as fiduciary and custodian on the Trust’s behalf with respect to the Trust’s SOL held in the Vault Balance, and that any SOL credited to the Settlement Balance will be treated as custodial assets. +The Custodial Entities’ parent, Coinbase Global, has also stated in its public securities filings that in light of the inclusion of provisions relating to Article 8 in its custody and prime broker client agreements, it believes that a court would not treat custodied digital assets as part of its general estate in the event the Custodial Entities were to experience insolvency. However, due to the novelty of digital asset custodial arrangements courts have not yet considered this type of treatment for custodied digital assets and it is not possible to predict with certainty how they would rule in such a scenario. Moreover, the Custodian and the Prime Broker are potentially subject to different insolvency regimes and there is no assurance that the digital assets credited to the Trust’s Settlement Balance would be treated similarly to those credited to the Trust’s Vault Balance in an insolvency, notwithstanding the rights and obligations conferred under the Prime Broker Agreement or Coinbase Global’s views regarding the treatment of such assets under Article 8. In the event that the Custodian or the Prime Broker and/or Coinbase Global became subject to insolvency proceedings and a court were to rule that the custodied digital assets were part of the Custodian’s, the Prime Broker’s and/or Coinbase Global’s general estate and not the property of the Trust, then the Trust would be treated as a general unsecured creditor in such insolvency proceedings and the Trust would be subject to the loss of all or a significant portion of its assets. +In addition, the Custodian is a fiduciary under § 100 of the New York Banking Law and a qualified custodian for purposes of Rule 206(4)-2(d)(6) under the Investment Advisers Act and is licensed to custody the Trust’s SOL in trust on the Trust’s behalf. However, the SEC previously released proposed amendments in February 2023 to Rule 206(4)-2 that, if enacted as proposed, would amend the definition of a “qualified custodian” under Rule 206(4)-2(d)(6). Executive officers of the Custodian’s parent company have made public statements indicating that the Custodian would remain a qualified custodian under the proposed SEC rule, if enacted as proposed. In June 2025, however, the SEC formally withdrew that proposed rulemaking and stated that it does not intend to issue final rules based on the proposal. However, there can be no assurance that the Custodian would continue to qualify as a “qualified custodian” under a final rule that may be proposed or adopted by the SEC in the future. +To the extent that the Sponsor is not able to find a suitable party willing to serve as custodian, the Sponsor may be required to terminate the Trust and liquidate the Trust’s SOL. In addition, to the extent that the Sponsor finds a suitable party and must enter into a modified or separate custody agreement that is less favorable for the Trust or Sponsor and/or transfer the Trust’s assets in a relatively short time period, the safekeeping of the Trust’s SOL may be adversely affected, which may in turn adversely affect the value of the Shares. Likewise, if the Sponsor is required to replace any other service provider, they may not be able to find a party willing to serve in such capacity in a timely manner or at all. If the Sponsor decides, or is required, to replace an Authorized Participant and/or if the Liquidity Engager decides, or is required, to replace a Liquidity Provider, this could negatively impact the Trust’s ability to create new Shares, which would impact the Shares’ liquidity and could have a negative impact on the value of the Shares. +The liquidity of the Shares may be affected if Authorized Participants cease to perform their obligations under the Participant Agreements or the Liquidity Engager is unable to engage Liquidity Providers. +In the event that one or more Authorized Participants having substantial interests in Shares or otherwise responsible for a significant portion of the Shares’ daily trading volume on NYSE Arca terminates its Participant Agreement, the liquidity of the Shares would likely decrease, which could adversely affect the value of the Shares. In addition, if the Liquidity Engager is unable to engage one or more Liquidity Providers to obtain or receive SOL in connection with Cash Orders, the Trust may have difficulty maintaining the participation of certain Authorized Participants or engaging additional Authorized Participants. Under such circumstances, the liquidity of the Shares would likely decrease, which could adversely affect the value of the Shares. +The Shares may trade at a price that is at, above or below the Trust’s NAV per Share as a result of the non-concurrent trading hours between NYSE Arca and the Digital Asset Trading Platform Market. +The Trust’s NAV per Share will fluctuate with changes in the market value of SOL, and the Sponsor expects the trading price of the Shares to fluctuate in accordance with changes in the Trust’s NAV per Share, as well as market supply and demand. However, the Shares may trade on NYSE Arca at a price that is at, above or below the Trust’s NAV per Share for a variety of reasons. For example, +69 +NYSE Arca is open for trading in the Shares for a limited period each day, but the Digital Asset Trading Platform Market is a 24-hour marketplace. During periods when NYSE Arca is closed but Digital Asset Trading Platforms are open, significant changes in the price of SOL on the Digital Asset Trading Platform Market could result in a difference in performance between the value of SOL as measured by the Index and the most recent NAV per Share or closing trading price. For example, if the price of SOL on the Digital Asset Trading Platform Market, and the value of SOL as measured by the Index, move significantly in a negative direction after the close of NYSE Arca, the trading price of the Shares may “gap” down to the full extent of such negative price shift when NYSE Arca reopens. If the price of SOL on the Digital Asset Trading Platform Market drops significantly during hours NYSE Arca is closed, shareholders may not be able to sell their Shares until after the “gap” down has been fully realized, resulting in an inability to mitigate losses in a negative market. Even during periods when NYSE Arca is open, large Digital Asset Trading Platforms (or a substantial number of smaller Digital Asset Trading Platforms) may be lightly traded or closed for any number of reasons, which could increase trading spreads and widen any premium or discount on the Shares. +Any suspension or other unavailability of the Trust’s redemption program may cause the Shares to trade at a discount to the NAV per Share. +Prior to their uplisting to NYSE Arca, the Shares traded on OTCQX at both premiums and discounts to the NAV per Share, which at times were substantial. The Sponsor believes that the trading price of the Shares has diverged from the NAV per Share in the past due, in part, to the holding period under Rule 144 for Shares purchased in the private placement and the lack of an ongoing redemption program, as a result of which Authorized Participants had been unable to take advantage of arbitrage opportunities when the market value of the Shares deviated from the NAV per Share. Although the Sponsor has observed that the commencement of the Trust’s redemption program, in conjunction with the listing of the Shares on NYSE Arca, has had the effect of reducing the discount at which the Shares had been trading on the OTCQX immediately prior to the commencement of the redemption program, there can be no assurance that the Trust’s redemption program will not be suspended or become unavailable again in the future. In addition, if the Sponsor decides to limit Cash Orders at a time when the Shares are trading at a premium or a discount to the NAV per Share, and Authorized Participants have not entered into or amended their respective Participant Agreements to provide for in-kind creations and redemptions as of such time or in-kind creations or redemptions are not then being effected pursuant to such Participant Agreements, the arbitrage mechanism may fail to effectively function, which could impact the Shares’ liquidity and/or cause the Shares to trade at premiums and discounts to the NAV per Share, and otherwise have a negative impact on the value of the Shares. +Shareholders may suffer a loss on their investment if the Shares trade above or below the Trust’s NAV per Share. +Historically, the Shares have traded at both premiums and discounts to the NAV per Share, which at times were substantial. If the Shares trade on NYSE Arca in the future at a premium, investors who purchase Shares on NYSE Arca will pay more for their Shares than investors who purchase Shares directly from Authorized Participants. In contrast, if the Shares trade on NYSE Arca in the future at a discount, investors who purchase Shares directly from Authorized Participants will pay more for their Shares than investors who purchase Shares on NYSE Arca. The premium or discount at which the Shares have traded has fluctuated over time. For example, from November 18, 2021 to October 28, 2025, the maximum premium of the closing price of the Shares quoted on OTCQX over the value of the Trust’s NAV per Share was 875%, the average premium was 278%, the maximum discount of the closing price of the Shares quoted on OTCQX below the value of the Trust’s NAV per Share was 1.4%, and the average discount was 1.3%. The closing price of the Shares, as quoted on OTCQX at 4:00 p.m., New York time, on each business day between November 18, 2021 and October 28, 2025, has been quoted at a discount on 2 days. +From October 29, 2025, the Uplisting Date, to December 31, 2025, the maximum premium of the closing price of the Shares listed on NYSE Arca over the value of the Trust’s NAV per Share was 0.32%, the average premium was 0.12%, the maximum discount of the closing price of the Shares listed on NYSE Arca below the value of the Trust’s NAV per Share was 0.55%, and the average discount was 0.12%. As of December 31, 2025, the Trust’s Shares were listed on NYSE Arca at a premium of 0.03% to the Trust’s NAV per Share. As a result, shareholders who purchase Shares on NYSE Arca at a premium may suffer a loss on their investment if they sell their Shares at a time when the premium has decreased from the premium at which they purchased the Shares even if the NAV per Share remains the same. Likewise, shareholders that purchase Shares directly from the Trust may suffer a loss on their investment if they sell their Shares at a time when the Shares are trading at a discount on NYSE Arca. Furthermore, shareholders may suffer a loss on their investment even if the NAV per Share increases because the decrease in any premium or increase in any discount may offset any increase in the NAV per Share. +The amount of the Trust’s assets represented by each Share will decline over time as the Trust pays the Sponsor’s Fee and Additional Trust Expenses, and as a result, the value of the Shares may decrease over time. +The Sponsor’s Fee accrues daily in U.S. dollars at an annual rate based on the NAV Fee Basis Amount, which is based on the NAV of the Trust, and is paid to the Sponsor in SOL. See “Item 1. Business—Valuation of SOL and Determination of NAV—Disposition of SOL.” As a result, the amount of Trust’s assets represented by each Share declines as the Trust pays the Sponsor’s Fee (or sells SOL in order to raise cash to pay any Additional Trust Expenses), which may cause the Shares to decrease in value over time or dampen any increase in value. +70 +The value of the Shares may be influenced by a variety of factors unrelated to the value of SOL. +The value of the Shares may be influenced by a variety of factors unrelated to the price of SOL and the Digital Asset Trading Platforms included in the Index that may have an adverse effect on the value of the Shares. These factors include the following factors: +• +Unanticipated problems or issues with respect to the mechanics of the Trust’s operations and the trading of the Shares may arise, in particular due to the fact that the mechanisms and procedures governing the creation and offering of the Shares and storage of SOL have been developed specifically for this product; +• +The Trust could experience difficulties in operating and maintaining its technical infrastructure, including in connection with expansions or updates to such infrastructure, which are likely to be complex and could lead to unanticipated delays, unforeseen expenses and security vulnerabilities; +• +The Trust could experience unforeseen issues relating to the performance and effectiveness of the security procedures used to protect the Vault Balance, or the security procedures may not protect against all errors, software flaws or other vulnerabilities in the Trust’s technical infrastructure, which could result in theft, loss or damage of its assets; or +• +Although the Solana Network does not have any privacy enhancing features at this time, if any such features are introduced to the Solana Network in the future, service providers may decide to terminate their relationships with the Trust due to concerns that the introduction of privacy enhancing features to the Solana Network may increase the potential for SOL to be used to facilitate crime, exposing such service providers to potential reputational harm. +Any of these factors could affect the value of the Shares, either directly or indirectly through their effect on the Trust’s assets. +Shareholders do not have the protections associated with ownership of shares in an investment company registered under the Investment Company Act or the protections afforded by the CEA. +The Investment Company Act is designed to protect investors by preventing insiders from managing investment companies to their benefit and to the detriment of public investors, such as: the issuance of securities having inequitable or discriminatory provisions; the management of investment companies by irresponsible persons; the use of unsound or misleading methods of computing earnings and asset value; changes in the character of investment companies without the consent of investors; and investment companies from engaging in excessive leveraging. To accomplish these ends, the Investment Company Act requires the safekeeping and proper valuation of fund assets, restricts greatly transactions with affiliates, limits leveraging, and imposes governance requirements as a check on fund management. +The Trust is not a registered investment company under the Investment Company Act, and the Sponsor believes that the Trust is not required to register under such act. Consequently, shareholders do not have the regulatory protections provided to investors in investment companies. +The Trust will not hold or trade in commodity interests regulated by the CEA, as administered by the CFTC. Furthermore, the Sponsor believes that the Trust is not a commodity pool for purposes of the CEA, and that neither the Sponsor nor the Trustee is subject to regulation by the CFTC as a commodity pool operator or a commodity trading adviser in connection with the operation of the Trust. Consequently, shareholders will not have the regulatory protections provided to investors in CEA-regulated instruments or commodity pools. +There is no guarantee that an active trading market for the Shares will continue to develop. +The Shares are trading on NYSE Arca, and an active trading market for the Shares has developed. However, there can be no assurance that such trading market will be maintained or continue to develop on NYSE Arca. In addition, NYSE Arca can halt the trading of the Shares for a variety of reasons. To the extent that NYSE Arca halts trading in the Shares, whether on a temporary or permanent basis, investors may not be able to buy or sell Shares, which could adversely affect the value of the Shares. If an active trading market for the Shares does not continue to exist, the market prices and liquidity of the Shares may be adversely affected. +As the Sponsor and its management have limited history of operating investment vehicles like the Trust, their experience may be inadequate or unsuitable to manage the Trust. +The past performances of the Sponsor’s management in other investment vehicles, including their experiences in the digital asset and venture capital industries, are no indication of their ability to manage an investment vehicle such as the Trust. If the experience of the Sponsor and its management is inadequate or unsuitable to manage an investment vehicle such as the Trust, the operations of the Trust may be adversely affected. +Furthermore, the Sponsor is currently engaged in the management of other investment vehicles which could divert their attention and resources. If the Sponsor were to experience difficulties in the management of such other investment vehicles that damaged the Sponsor or its reputation, it could have an adverse impact on the Sponsor’s ability to continue to serve as Sponsor for the Trust. +71 +Security threats to the Trust’s Vault Balance or Settlement Balance could result in the halting of Trust operations, including the creation and redemption of Baskets, and a loss of Trust assets or damage to the reputation of the Trust, each of which could result in a reduction in the value of the Shares. +Security breaches, computer malware and computer hacking attacks have been a prevalent concern in relation to digital assets. The Sponsor believes that the Trust’s SOL held in the Vault Balance, as well as the Trust’s SOL held temporarily in the Settlement Balance, will be an appealing target to hackers or malware distributors seeking to destroy, damage or steal the Trust’s SOL and will only become more appealing as the Trust’s assets grow. To the extent that the Trust, the Sponsor or the Custodial Entities are unable to identify and mitigate or stop new security threats or otherwise adapt to technological changes in the digital asset industry, the Trust’s SOL may be subject to theft, loss, destruction or other attack. +The Sponsor believes that the security procedures in place for the Trust, including, but not limited to, offline storage, or “cold storage”, for a substantial portion of the Trust’s SOL, multiple encrypted private key “shards”, usernames, passwords and 2-step verification, are reasonably designed to safeguard the Trust’s SOL. Nevertheless, the security procedures cannot guarantee the prevention of any loss due to a security breach, software defect or act of God that may be borne by the Trust. Additionally, because a portion of the Trust’s SOL from time to time will be held in hot storage, such SOL will be more vulnerable to a potential hack or other cyberattack that could lead to a loss of Trust assets. +The security procedures and operational infrastructure may be breached due to the actions of outside parties, error or malfeasance of an employee of the Sponsor, a Custodial Entity, or otherwise, and, as a result, an unauthorized party may obtain access to an Account, the relevant private keys (and therefore SOL) or other data of the Trust. Additionally, outside parties may attempt to fraudulently induce employees of the Sponsor or a Custodial Entity to disclose sensitive information in order to gain access to the Trust’s infrastructure. As the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, or may be designed to remain dormant until a predetermined event and often are not recognized until launched against a target, the Sponsor and the Custodial Entities may be unable to anticipate these techniques or implement adequate preventative measures. Moreover, the Custodial Entities will not be liable for any claims or losses arising out of or relating to the acts and/or omissions of any unauthorized third parties, except to the extent such losses are caused by a Custodial Entity’s negligence, fraud or willful misconduct. +An actual or perceived breach of the accounts associated with the Trust’s Vault Balance and Settlement Balance (the “Accounts”) could harm the Trust’s operations, result in loss of the Trust’s assets, damage the Trust’s reputation and negatively affect the market perception of the effectiveness of the Trust, all of which could in turn reduce demand for the Shares, resulting in a reduction in the value of the Shares. The Trust may also cease operations, the occurrence of which could similarly result in a reduction in the value of the Shares. +SOL transactions are irrevocable and stolen or incorrectly transferred SOL may be irretrievable. As a result, any incorrectly executed SOL transactions could adversely affect the value of the Shares. +SOL transactions are typically not reversible without the consent and active participation of the recipient of the transaction. Once a transaction has been verified and recorded in a block that is added to the Blockchain, an incorrect transfer or theft of SOL generally will not be reversible and the Trust may not be capable of seeking compensation for any such transfer or theft. Although the Trust’s transfers of SOL will regularly be made to or from the Vault Balance, it is possible that, through computer or human error, or through theft or criminal action, the Trust’s SOL could be transferred from the Trust’s Vault Balance in incorrect amounts or to unauthorized third parties, or to uncontrolled accounts. +Such events have occurred in connection with digital assets in the past. To the extent that the Trust is unable to seek a corrective transaction with such third party or is incapable of identifying the third party which has received the Trust’s SOL through error or theft, the Trust will be unable to revert or otherwise recover incorrectly transferred SOL. The Trust will also be unable to convert or recover its SOL transferred to uncontrolled accounts. To the extent that the Trust is unable to seek redress for such error or theft, such loss could adversely affect the value of the Shares. +The lack of full insurance and shareholders’ limited rights of legal recourse against the Trust, Trustee, Sponsor, Transfer Agent and Custodial Entities expose the Trust and its shareholders to the risk of loss of the Trust’s SOL for which no person or entity is liable. +The Trust is not a banking institution or otherwise a member of the FDIC or Securities Investor Protection Corporation (“SIPC”) and, therefore, deposits held with or assets held by the Trust are not subject to the protections enjoyed by depositors with FDIC or SIPC member institutions. In addition, neither the Trust nor the Sponsor insure the Trust’s SOL. +While the Custodian is required under the Prime Broker Agreement to maintain insurance coverage that is commercially reasonable for the custodial services it provides, and the Custodial Entities have advised the Sponsor that they maintain insurance coverage at commercially reasonable amounts for the digital assets custodied on behalf of clients, including the Trust’s SOL, resulting from theft, shareholders cannot be assured that the Custodian or the Prime Broker will maintain adequate insurance or that such coverage will cover losses with respect to the Trust’s SOL. Moreover, while the Custodian maintains certain capital reserve requirements +72 +depending on the assets under custody and to the extent required by applicable law, and such capital reserves may provide additional means to cover client asset losses, the Sponsor does not know the amount of such capital reserves, and neither the Trust nor the Sponsor have access to such information. The Trust cannot be assured that the Custodial Entities will maintain capital reserves sufficient to cover losses with respect to the Trust’s digital assets. Furthermore, Coinbase has represented in securities filings that the total value of crypto assets in its possession and control is significantly greater than the total value of insurance coverage that would compensate Coinbase in the event of theft or other loss of funds. +Furthermore, the Custodial Entities’ aggregate maximum liability with respect to breach of their obligations under the Prime Broker Agreement will not exceed the greater of: (i) the value of the SOL or cash involved in the event, including but not limited to transaction(s) or deliveries(s), giving rise to such liability at the time of the event giving rise to such liability; (ii) the aggregate amount of fees paid by the Trust to the Custodial Entities in respect of the Custodial and Prime Broker Services in the 12-month period prior to the event giving rise to such liability; or (iii) five million U.S. dollars. The Custodian’s total liability under the Prime Broker Agreement will not exceed the greater of: (i) the aggregate amount of fees paid by the Trust to the Custodian in respect of the custodial services in the 12-month period prior to the event giving rise to such liability; or (ii) the value of the SOL on deposit in the Vault Balance at the time of the events giving rise to the liability occurred, the value of which will be determined in accordance with the Prime Broker Agreement. +In addition, the Custodian’s maximum liability in respect of each cold storage address that holds SOL is limited to the “Cold Storage Threshold” of $100 million. The Sponsor monitors the value of SOL deposited in cold storage addresses for whether the Cold Storage Threshold has been met by determining the U.S. dollar value of SOL deposited in each cold storage address on business days. Although the Cold Storage Threshold has never been met for a given cold storage address, to the extent it is met the Trust would not have a claim against the Custodian with respect to the digital assets held in such address to the extent the value exceeds the Cold Storage Threshold. The Custodial Entities and the Trust are not liable to each other for any special, incidental, indirect, punitive, or consequential damages, whether or not the other party had been advised of such losses or knew or should have known of the possibility of such damages. +The shareholders’ recourse against the Sponsor and the Trust’s other service providers for the services they provide to the Trust, including those relating to the provision of instructions relating to the movement of SOL, is limited. Consequently, a loss may be suffered with respect to the Trust’s SOL that is not covered by insurance and for which no person is liable in damages. As a result, the recourse of the Trust or the shareholders, under New York law, is limited. +The Trust may be required, or the Sponsor may deem it appropriate, to terminate and liquidate at a time that is disadvantageous to shareholders. +Pursuant to the terms of the Trust Agreement, the Trust is required to dissolve under certain circumstances. In addition, the Sponsor may, in its sole discretion, dissolve the Trust for a number of reasons, including if the Sponsor determines, in its sole discretion, that it is desirable or advisable for any reason to discontinue the affairs of the Trust. For example, the Sponsor expects that it may be advisable to discontinue the affairs of the Trust if a federal court upholds an allegation that SOL is a security under the federal securities laws, among other reasons. See “Item 1. Business—Description of the Trust Agreement—Termination of the Trust.” +If the Trust is required to terminate and liquidate, or the Sponsor determines in accordance with the terms of the Trust Agreement that it is appropriate to terminate and liquidate the Trust, such termination and liquidation could occur at a time that is disadvantageous to shareholders, such as when the Actual Exchange Rate of SOL is lower than the Index Price was at the time when shareholders purchased their Shares. In such a case, when the Trust’s SOL is sold as part of its liquidation, the resulting proceeds distributed to shareholders will be less than if the Actual Exchange Rate were higher at the time of sale. See “Item 1. Business—Description of the Trust Agreement—Termination of the Trust” for more information about the termination of the Trust, including when the termination of the Trust may be triggered by events outside the direct control of the Sponsor, the Trustee or the shareholders. +The Trust Agreement includes provisions that limit shareholders’ voting rights and restrict shareholders’ right to bring a derivative action. +Under the Trust Agreement, shareholders have limited voting rights and the Trust will not have regular shareholder meetings. Shareholders take no part in the management or control of the Trust. Accordingly, shareholders do not have the right to authorize actions, appoint service providers or take other actions as may be taken by shareholders of other trusts or companies where shares carry such rights. The shareholders’ limited voting rights give almost all control under the Trust Agreement to the Sponsor and the Trustee. The Sponsor may take actions in the operation of the Trust that may be adverse to the interests of shareholders and may adversely affect the value of the Shares. +Moreover, pursuant to the terms of the Trust Agreement, shareholders’ statutory right under Delaware law to bring a derivative action (i.e., to initiate a lawsuit in the name of the Trust in order to assert a claim belonging to the Trust against a fiduciary of the Trust or against a third party when the Trust’s management has refused to do so) is restricted. Under Delaware law, a shareholder may bring a derivative action if the shareholder is a shareholder at the time the action is brought and either (i) was a shareholder at the time of the transaction at issue or (ii) acquired the status of shareholder by operation of law or the Trust’s governing instrument from a person who +73 +was a shareholder at the time of the transaction at issue. Additionally, Section 3816(e) of the Delaware Statutory Trust Act specifically provides that a “beneficial owner’s right to bring a derivative action may be subject to such additional standards and restrictions, if any, as are set forth in the governing instrument of the statutory trust, including, without limitation, the requirement that beneficial owners owning a specified beneficial interest in the statutory trust join in the bringing of the derivative action.” In addition to the requirements of applicable law and in accordance with Section 3816(e), the Trust Agreement provides that no shareholder will have the right, power or authority to bring or maintain a derivative action, suit or other proceeding on behalf of the Trust unless two or more shareholders who (i) are not “Affiliates” (as defined in the Trust Agreement and below) of one another and (ii) collectively hold at least 10.0% of the outstanding Shares join in the bringing or maintaining of such action, suit or other proceeding. This provision applies to any derivative actions brought in the name of the Trust other than claims under the federal securities laws and the rules and regulations thereunder. +Due to this additional requirement, a shareholder attempting to bring or maintain a derivative action in the name of the Trust will be required to locate other shareholders with which it is not affiliated and that have sufficient Shares to meet the 10.0% threshold based on the number of Shares outstanding on the date the claim is brought and thereafter throughout the duration of the action, suit or proceeding. This may be difficult and may result in increased costs to a shareholder attempting to seek redress in the name of the Trust in court. Moreover, if shareholders bringing a derivative action, suit or proceeding pursuant to this provision of the Trust Agreement do not hold 10.0% of the outstanding Shares on the date such an action, suit or proceeding is brought, or such shareholders are unable to maintain Share ownership meeting the 10.0% threshold throughout the duration of the action, suit or proceeding, such shareholders’ derivative action may be subject to dismissal. As a result, the Trust Agreement limits the likelihood that a shareholder will be able to successfully assert a derivative action in the name of the Trust, even if such shareholder believes that he or she has a valid derivative action, suit or other proceeding to bring on behalf of the Trust. See “Item 1. Business—Description of the Trust Agreement—The Sponsor—Fiduciary and Regulatory Duties of the Sponsor” for more detail. +The Sponsor is solely responsible for determining the value of the NAV and NAV per Share and any errors, discontinuance or changes in such valuation calculations may have an adverse effect on the value of the Shares. +The Sponsor will determine the Trust’s NAV and NAV per Share on a daily basis as soon as practicable after 4:00 p.m., New York time, on each business day. The Sponsor’s determination is made utilizing data from the operations of the Trust and the Index Price, calculated at 4:00 p.m., New York time, on such day. If the Sponsor determines in good faith that the Index does not reflect an accurate SOL price, then the Sponsor will employ an alternative method to determine the Index Price under the cascading set of rules set forth in “Item 1. Business—Overview of the Solana Industry and Market—SOL Value—The Index and the Index Price—Determination of the Index Price When Index Price is Unavailable.” In the context of applying such rules, the Sponsor may determine in good faith that the alternative method applied does not reflect an accurate SOL price and apply the next alternative method under the cascading set of rules. If the Sponsor determines after employing all of the alternative methods that the Index Price does not reflect an accurate SOL price, the Sponsor will use its best judgment to determine a good faith estimate of the Index Price. +There are no predefined criteria to make a good faith assessment in these scenarios and such decisions will be made by the Sponsor in its sole discretion. The Sponsor may calculate the Index Price in a manner that ultimately inaccurately reflects the price of SOL. To the extent that the NAV, NAV per Share or the Index Price are incorrectly calculated, the Sponsor may not be liable for any error and such misreporting of valuation data could adversely affect the value of the Shares and investors could suffer a substantial loss on their investment in the Trust. Moreover, the terms of the Trust Agreement do not prohibit the Sponsor from changing the Index Price used to calculate the NAV and NAV per Share of the Trust. Any such change in the Index Price could affect the value of the Shares and investors could suffer a substantial loss on their investment in the Trust. +Extraordinary expenses resulting from unanticipated events may become payable by the Trust, adversely affecting the value of the Shares. +In consideration for the Sponsor’s Fee, the Sponsor has contractually assumed all ordinary-course operational and periodic expenses of the Trust. See “Item 1. Business—Expenses; Sales of SOL.” Extraordinary expenses incurred by the Trust, such as taxes and governmental charges; expenses and costs of any extraordinary services performed by the Sponsor (or any other service provider) on behalf of the Trust to protect the Trust or the interests of shareholders; or extraordinary legal fees and expenses are not assumed by the Sponsor and are borne by the Trust. The Sponsor will cause the Trust to either (i) sell SOL held by the Trust or (ii) deliver SOL in-kind to the Sponsor to pay Trust expenses not assumed by the Sponsor on an as-needed basis. Accordingly, the Trust may be required to sell or otherwise dispose of SOL at a time when the trading prices for those assets are depressed. +The sale or other disposition of assets of the Trust in order to pay extraordinary expenses could have a negative impact on the value of the Shares for several reasons. These include the following factors: +• +The Trust is not actively managed and no attempt will be made to protect against or to take advantage of fluctuations in the prices of SOL. Consequently, if the Trust incurs expenses in U.S. dollars, the Trust’s SOL may be sold at a time when the values of the disposed assets are low, resulting in a negative impact on the value of the Shares. +74 +• +Because the Trust does not generate any income, every time that the Trust pays expenses, it will deliver SOL to the Sponsor or sell SOL. Any sales of the Trust’s assets in connection with the payment of expenses will decrease the amount of the Trust’s assets represented by each Share each time its assets are sold or transferred to the Sponsor. +• +Assuming that the Trust is a grantor trust for U.S. federal income tax purposes, each delivery or sale of SOL by the Trust to pay the Sponsor’s Fee and/or Additional Trust Expenses will be a taxable event to beneficial owners of Shares. Thus, the Trust’s payment of expenses could result in beneficial owners of Shares incurring tax liability without an associated distribution from the Trust. Any such tax liability could adversely affect an investment in the Shares. See “Item 1. Business—Material U.S. Federal Income Tax Consequences.” +The Trust’s delivery or sale of SOL to pay expenses or other operations of the Trust could result in shareholders’ incurring tax liability without an associated distribution from the Trust. +Assuming that the Trust is treated as a grantor trust for U.S. federal income tax purposes, each delivery of SOL by the Trust to pay the Sponsor’s Fee or other expenses and each sale of SOL by the Trust to pay Additional Trust Expenses will be a taxable event to beneficial owners of Shares. Thus, the Trust’s payment of expenses could result in beneficial owners of Shares incurring tax liability without an associated distribution from the Trust. Any such tax liability could adversely affect an investment in the Shares. See “Item 1. Business—Material U.S. Federal Income Tax Consequences.” +The value of the Shares will be adversely affected if the Trust is required to indemnify the Sponsor, the Trustee, the Transfer Agent or the Custodian under the Trust Documents. +Under the Trust Documents, each of the Sponsor, the Trustee, the Transfer Agent and the Custodian has a right to be indemnified by the Trust for certain liabilities or expenses that it incurs without gross negligence, bad faith or willful misconduct on its part. Therefore, the Sponsor, Trustee, Transfer Agent or the Custodian may require that the assets of the Trust be sold in order to cover losses or liability suffered by it. Any sale of that kind would reduce the NAV of the Trust and the value of the Shares. +Intellectual property rights claims may adversely affect the Trust and the value of the Shares. +The Sponsor is not aware of any intellectual property rights claims that may prevent the Trust from operating and holding SOL. However, third parties may assert intellectual property rights claims relating to the operation of the Trust and the mechanics instituted for the investment in, holding of and transfer of SOL. Regardless of the merit of an intellectual property or other legal action, any legal expenses to defend or payments to settle such claims would be extraordinary expenses that would be borne by the Trust through the sale or transfer of its SOL. Additionally, a meritorious intellectual property rights claim could prevent the Trust from operating and force the Sponsor to terminate the Trust and liquidate its SOL. As a result, an intellectual property rights claim against the Trust could adversely affect the value of the Shares. +Pandemics, epidemics and other natural and man-made disasters could negatively impact the value of the Trust’s holdings and/or significantly disrupt its affairs. +Pandemics, epidemics and other natural and man-made disasters could negatively impact demand for digital assets, including SOL, and disrupt the operations of many businesses, including the businesses of the Trust’s service providers. For example, the COVID-19 pandemic had serious adverse effects on the economies and financial markets of many countries, resulting in increased volatility and uncertainty in economies and financial markets of many countries and in the Digital Asset Markets. Moreover, governmental authorities and regulators throughout the world have in the past responded to major economic disruptions, including as a result of the COVID-19 pandemic, with a variety of fiscal and monetary policy changes, such as quantitative easing, new monetary programs and lower interest rates. An unexpected or quick reversal of any such policies, or the ineffectiveness of such policies, could increase volatility in economies and financial market generally, and could specifically increase volatility in the Digital Asset Markets, which could adversely affect the value of SOL and the value of the Shares. +In addition, pandemics, epidemics and other natural and man-made disasters could disrupt the operations of many businesses. For example, in response to the COVID-19 pandemic, many governments imposed travel restrictions and prolonged, closed international borders and enhanced health screenings at ports of entry and elsewhere, which disrupted businesses around the world. While the Sponsor and the Trust were not materially impacted by these events, any disruptions to the Sponsor’s, the Trust’s or the Trust’s service providers’ business operations resulting from business restrictions, quarantines or restrictions on the ability of personnel to perform their jobs as a result of any future pandemic, epidemic or other disaster could have an adverse impact on the Trust’s ability to access critical services and could be disruptive to the affairs of the Trust. +The current unavailability of in-kind creations and redemptions of Shares could have adverse consequences for the Trust. +The Trust is currently only able to accept Cash Orders, which means that an Authorized Participant will deposit cash into, or +accept cash from, the Cash Account in connection with the creation and redemption of Baskets, and a Liquidity Provider will obtain or receive SOL in exchange for cash in connection with such order. However, the Trust does not at this time create and redeem Shares +75 +via in-kind transactions with Authorized Participants in exchange for SOL because Authorized Participants have not entered into or amended Participant Agreements to provide for in-kind creations and redemptions. +Authorized participants must be registered broker-dealers. Registered broker-dealers are subject to various requirements of the federal securities laws and rules, including financial responsibility rules such as the customer protection rule, the net capital rule and recordkeeping requirements. Although the SEC recently approved orders to permit in-kind creations and redemptions by authorized participants for certain spot digital asset ETP shares, it is not yet clear whether or how market participants, including registered broker-dealers, will adjust their activities to account for the new orders. In particular, registered broker-dealers participating in the in-kind creation or redemption of Shares for SOL will need to ensure that they can demonstrate compliance with applicable financial responsibility rules. While compliance with such requirements would be the broker-dealer’s responsibility, a national securities exchange is required to enforce compliance by its member broker-dealers with applicable federal securities law and rules. The Sponsor may engage additional Authorized Participants who are unaffiliated with the Trust in the future, and such Authorized Participants may be able to conduct creations and redemptions in-kind, in cash, or both. +In particular, the current unavailability of in-kind creations and redemptions could result in the exchange-traded product arbitrage mechanism failing to function as efficiently as it otherwise would, leading to the potential for the Shares to trade at premiums or discounts to the NAV per Share, and such premiums or discounts could be substantial. Furthermore, if Cash Orders are unavailable, either due to the Sponsor’s decision to reject or suspend such orders or otherwise, it will not be possible, at this time, for Authorized Participants to redeem or create Shares, in which case the arbitrage mechanism would be unavailable. This could result in impaired liquidity for the Shares, wider bid/ask spreads in secondary trading of the Shares and greater costs to investors and other market participants. In addition, the current unavailability of in-kind creations and redemptions, and resulting reliance on cash creations and redemptions, could cause the Sponsor to halt or suspend the creation of redemption of Shares during times of market volatility or turmoil, among other consequences. +Even if Authorized Participants enter into or amend their respective Participant Agreements to create and redeem Shares via in-kind transactions with Authorized Participants, there can be no assurance that additional broker-dealers would be willing to serve as Authorized Participants with respect to the in-kind creation and redemption of Shares. Any of these factors could adversely affect the performance of the Trust and the value of the Shares. +76 +Shareholders will not receive the benefits of any forks or airdrops. +The Solana Network operates using open-source protocols, meaning that any user can download the software, modify it and then propose that the users and validators of SOL adopt the modification. When a modification is introduced and a substantial majority of users and validators consent to the modification, the change is implemented and the network remains uninterrupted. However, if less than a substantial majority of users and validators consent to the proposed modification, and the modification is not compatible with the software prior to its modification, the consequence would be what is known as a “hard fork” of the Solana Network, with one group running the pre-modified software and the other running the modified software. The effect of such a fork would be the existence of two versions of Solana running in parallel, yet lacking interchangeability. In addition to forks, a digital asset may become subject to a similar occurrence known as an “airdrop.” In an airdrop, the promoters of a new digital asset announce to holders of another digital asset that such holders will be entitled to claim a certain amount of the new digital asset, generally for free, based on the fact that they hold such other digital asset. We refer to the right to receive any benefits arising from a fork, airdrop or similar event as an “Incidental Right” and any such virtual currency acquired through an Incidental Right as “IR Virtual Currency.” +With respect to any fork, airdrop or similar event, the Sponsor will cause the Trust to irrevocably abandon the Incidental Rights and any IR Virtual Currency associated with such event. As such, shareholders will not receive the benefits of any forks, and the Trust is not able to participate in any airdrop. +In the event the Sponsor seeks to change the Trust’s policy with respect to Incidental Rights or IR Virtual Currency, an application would need to be filed with the SEC by NYSE Arca seeking approval to amend its listing rules to permit the Trust to distribute the Incidental Rights or IR Virtual Currency in-kind to an agent of the shareholders for resale by such agent. However, there can be no assurance as to whether or when the Sponsor would make such a decision, or when NYSE Arca will seek or obtain this approval, if at all. +Even if such regulatory approval is sought and obtained, shareholders may not receive the benefits of any forks, the Trust may not choose, or be able, to participate in an airdrop, and the timing of receiving any benefits from a fork, airdrop or similar event is uncertain. Any inability to recognize the economic benefit of a hard fork or airdrop could adversely affect the value of the Shares. +Although the Trust is permitted to engage in Staking, the Trust will not be permitted to engage in any different form of Staking unless (and, then, only to the extent that) the Staking Condition is satisfied in addition to the Trust satisfying any additional requirements that may arise in connection with the satisfaction of the Staking Condition, which could negatively affect the value of the Shares. +Although the Trust is permitted to engage in Staking as of the date hereof, the Trust is only permitted to engage in Staking to the extent that the Staking Condition is satisfied with respect thereto. There can be no assurance that the Trust will be permitted to engage in any different form of Staking in the future. The Trust Agreement provides that the Trust may engage in Staking, but only if (and, then, only to the extent that) the Staking Condition has been satisfied. +Subject to the Staking Condition being satisfied and subject to compliance with certain related requirements, in the future the Sponsor may modify the form of Staking in which the Trust engages, but only if (and, then, only to the extent that) the Staking Condition has been satisfied with respect to any such modified form of Staking, and subject to compliance with any additional requirements that may arise in connection with satisfaction of the Staking Condition with respect thereto. However, as long as the Staking Condition and any related requirements have not been satisfied with respect to any modified form of Staking, the Trust will not engage in such modified form of Staking, which could place the Shares at a comparative disadvantage relative to an investment in SOL directly or through a vehicle that is not subject to such a prohibition, which could negatively affect the value of the Shares. +Coinbase Global serves as the SOL custodian and prime execution agent for several competing exchange-traded SOL products, which could adversely affect the Trust’s operations and ultimately the value of the Shares. +The Prime Broker and Custodian are both affiliates of Coinbase Global. As of the date hereof, Coinbase Global is the largest publicly traded digital asset company in the world by market capitalization and is also the largest digital asset custodian in the world by assets under custody. By virtue of its leading market position and capabilities, and the relatively limited number of institutionally-capable providers of digital asset brokerage and custody services, Coinbase Global serves as the SOL custodian and prime execution agent for several competing exchange-traded SOL products. Therefore, Coinbase Global plays a critical role in supporting the U.S. spot SOL exchange-traded product ecosystem, and its size and market share create the risk that Coinbase Global may fail to properly resource its operations to adequately support all such products that use its services, which could harm the Trust, the shareholders and the value of the Shares. If Coinbase Global were to favor the interests of certain products over others, it could result in inadequate attention or +77 +comparatively unfavorable commercial terms to less favored products, which could adversely affect the Trust’s operations and ultimately the value of the Shares. +Certain of the Authorized Participants engaged by the Trust may serve in a similar capacity for competing exchange-traded SOL products, which could adversely affect the arbitrage mechanism, the Trust’s operations, the performance of the Trust and ultimately the value of the Shares. +Certain of the Authorized Participants engaged by the Trust may serve in a similar capacity for competing exchange-traded SOL products. As a result, the Authorized Participants may be unable to adequately support all of the exchange-traded SOL products that use their respective services. This risk may also be exacerbated as a consequence of the price and volatility of SOL, as well as the amount of SOL that is required to create or redeem Shares of the Trust. Moreover, the Authorized Participants may choose to facilitate creations and redemptions for competing products rather than for the Trust, including as a result of, among other things, how effectively the arbitrage mechanism of the Trust functions, the liquidity for the Shares, the bid/ask spreads in secondary trading of the Shares and the costs associated with creating and redeeming Shares of the Trust, in each case relative to competing products. In addition, given the relatively limited number of market participants that could serve as Authorized Participants of the Trust, the Trust may not be able to engage other providers to serve as Authorized Participants. If any or all of the Authorized Participants were to cease to act in their capacity as Authorized Participants of the Trust, or if any of the Authorized Participants were to favor creating and redeeming shares of competing products over those of the Trust, the Trust may receive inadequate attention or be subject to comparatively unfavorable commercial terms, which could adversely affect the arbitrage mechanism, the Trust’s operations, the performance of the Trust and ultimately the value of the Shares. See also “—Risk Factors Related to the Trust and the Shares—Competition from the emergence or growth of other digital assets could have a negative impact on the price of SOL and adversely affect the value of the Shares.” +Shareholders that are not Authorized Participants may only purchase or sell their Shares in secondary trading markets, and the conditions associated with trading in secondary markets may adversely affect investors’ investment in the Shares. +Only Authorized Participants may purchase or redeem Baskets. All other investors that desire to purchase or sell Shares must do so through NYSE Arca or in other markets, if any, in which the Shares may be traded. Shares may trade at a premium or discount to the NAV per Share. +The Sponsor may implement restatements, amendments or supplements to the Trust Agreement that may not necessarily align with shareholder interests +There can be no assurance that the Sponsor will implement restatements, amendments or supplements that align with the interests of shareholders. To the extent shareholders do not agree with future amendments to the Trust Agreement, shareholders will not have any ability to consent or object to such amendments, and the shareholders’ sole recourse will be to divest or, through an Authorized Participant, redeem their Shares prior to the effective date of such amendments. +The Sponsor may implement restatements, amendments or supplements to the Trust Agreement that may increase risk to the Trust’s intended tax treatment +It is possible that, in the future, the Sponsor will implement restatements, amendments or supplements to the Trust Agreement that could adversely affect the intended tax treatment of the Trust as a grantor trust for U.S. federal income tax purposes, including on the receipt of an opinion of counsel to the effect that doing so should not cause the Trust to fail to qualify as a grantor trust for those purposes. There can be no assurance that the IRS or any court will agree with any such position, or that the Trust will not cease to qualify as a grantor trust as a result of any such restatement, amendment or supplement. +Risk Factors Related to the Regulation of Digital Assets, the Trust and the Shares +A determination that SOL or any other digital asset is a “security” may adversely affect the value of SOL and the value of the Shares, and result in potentially extraordinary, nonrecurring expenses to, or termination of, the Trust. +The SEC, at least under the prior administration, has stated that certain digital assets may be considered “securities” under the federal securities laws. The test for determining whether a particular digital asset is a “security” is complex and difficult to apply, and the outcome is difficult to predict. A number of SEC and SEC staff actions with respect to a variety of digital assets demonstrate this difficulty. For example, public though non-binding, statements by senior officials at the SEC have indicated that the SEC did not consider Bitcoin or Ether to be securities, and does not currently consider Bitcoin to be a security. In addition, the SEC, by action through delegated authority approving the exchange rule filings to list shares of trusts holding Ether as commodity-based ETPs, appears to have implicitly taken the view that Ether is not a security. The SEC staff has also provided informal assurances via no-action letter to a handful of promoters that their digital assets are not securities. Moreover, the SEC’s Division of Corporation Finance has published statements that it does not consider, under certain circumstances, “meme coins” or some stablecoins to be securities. However, such statements may be withdrawn at any time without notice and comment by the Division of Corporation Finance at the SEC or the SEC itself. In addition, the SEC under former SEC Chair Gensler’s leadership brought enforcement actions against the issuers and promoters +78 +of several other digital assets on the basis that the digital assets in question are securities. The SEC also under former SEC Chair Gensler’s leadership brought enforcement actions against Digital Asset Trading Platforms for allegedly operating unregistered securities exchanges on the basis that certain of the digital assets traded on their platforms are securities. +Whether a digital asset is a security, or offers and sales of a digital asset are securities transactions under the federal securities laws depends on whether it is included in the lists of instruments making up the definition of “security” in such laws. Digital assets as such do not appear in any of these lists, although each list includes the terms “investment contract” and “note,” and the SEC has typically analyzed whether a particular digital asset, is a security or the offer and sale of a digital asset is a securities transaction by reference to whether it meets the tests developed by the federal courts interpreting these terms, known as the Howey and Reves tests, respectively. For many digital assets, whether or not the Howey or Reves tests are met is difficult to resolve definitively, and substantial legal arguments can often be made both in favor of and against a particular digital asset qualifying as a security or a particular offer and sale of a digital asset qualifying as a securities transaction under one or both of the Howey and Reves tests. Adding to the complexity, the SEC staff has indicated that the security status of a particular digital asset can change over time as the relevant facts evolve, though arguments advanced in some cases may suggest that the SEC no longer believes the status of a digital asset can change over time. +These developments demonstrate the difficulty in applying the federal securities laws to digital assets generally. In January 2025, the SEC launched a crypto task force dedicated to developing a comprehensive and clear regulatory framework for digital assets led by Commissioner Hester Peirce. Subsequently, Commissioner Peirce announced a list of specific priorities to further that initiative, which included pursuing final rules related to a digital asset’s security status, a revised path to registered offerings and listings for digital assets-based investment vehicles, and clarity regarding digital asset custody, lending, and staking. On July 31, 2025, Chairman Atkins announced “Project Crypto,” a Commission-wide initiative to modernize securities rules for digital assets, reshore innovation in the United States, and implement the recommendations of the working group report. Chairman Atkins had directed the SEC’s policy divisions to work with the Crypto Task Force to draft “clear and simple rules of the road for crypto asset distributions, custody, and trading,” and the Commission and SEC staff will also consider using interpretive, exemptive, and other authorities with respect to digital asset markets. However, the efforts of the crypto task force and Project Crypto have only just begun, and how or whether the SEC regulates digital asset activity in the future remains to be seen. +As part of determining whether SOL is a security or a transaction in SOL by the Sponsor is a securities transaction, for purposes of the federal securities laws, the Sponsor takes into account a number of factors, including the various definitions of “security” under the federal securities laws and federal court decisions interpreting elements of these definitions, such as the U.S. Supreme Court’s decisions in the Howey and Reves cases and their progeny, as well as reports, orders, press releases, public statements and speeches by the SEC, its commissioners and its staff providing guidance on when a digital asset may be a security or when an offer and sale of a digital asset may be a securities transaction for purposes of the federal securities laws. Finally, the Sponsor discusses the security status of SOL and the Sponsor’s transactions in SOL with external counsel, and has received a memorandum regarding the status of SOL and the Sponsor’s transactions in SOL under the federal securities laws from external counsel. +Through this process the Sponsor believes that it is applying the proper legal standards in determining that SOL is not a security in light of the uncertainties inherent in the Howey and Reves tests. However, such policies and procedures are risk-based judgments made by the Sponsor and not a legal standard or determination binding on any regulatory body or court. The Sponsor has been contacted by staff from the SEC’s Division of Enforcement with respect to securities law compliance matters involving SOL and has responded to the SEC staff. The Sponsor subsequently received a termination notice from the SEC staff with respect to this inquiry. +In light of these uncertainties and the fact-based nature of the analysis, the Sponsor acknowledges that the SEC may take a contrary position; and the Sponsor’s conclusion, even if reasonable under the circumstances, would not preclude legal or regulatory action based on the presence of a security. +As is the case with SOL, analyses from counsel typically review the often-complex facts surrounding a particular digital asset’s underlying technology, creation, use case and usage development, distribution and secondary-market trading characteristics as well as contributions of and marketing or promotional efforts by the individuals or organizations who appear to be involved in these activities, among other relevant facts, usually drawing on publicly available information. This information, usually found on the internet, often includes both information that originated with or is attributed to such individuals or organizations, as well as information from third-party sources and databases that may or may not have a connection to such individuals or organizations, and the availability and nature of such information can change over time. The Sponsor and counsel often have no independent means of verifying the accuracy or completeness of such information, and therefore of necessity usually must assume that such information is materially accurate and complete for purposes of the Howey and Reves analyses. After having gathered this information, counsel typically analyzes it in light of the Howey and Reves tests, in order to inform a judgment as to whether or not a federal court would conclude that the digital asset, or transactions in the digital asset, in question is or is not a security, or are or are not securities transactions, respectively, for purposes of the federal securities laws. Often, certain factors appear to support a conclusion that the digital asset in question, or transactions in the digital asset, is a security, or are or are not securities transactions, respectively, while other factors appear to support the opposite conclusion, and in such a case counsel endeavors to weigh the importance and relevance of the competing factors. This analytical process is further complicated by the fact that, at present, federal judicial case law applying the relevant tests to digital assets is limited and in some situations inconsistent, with no federal appellate court having considered the question on the merits, as well as the fact that because +79 +each digital asset presents its own unique set of relevant facts, it is not always possible to directly analogize the analysis of one digital asset to another. Because of this factual complexity and the current lack of a well-developed body of federal case law applying the relevant tests to a variety of different fact patterns, the Sponsor has not in the past received, and currently does not expect that it would be able to receive, “opinions” of counsel stating that a particular digital asset, or transactions in the digital asset, is or is not a security, or are or are not securities transactions, respectively, for federal securities law purposes. The Sponsor understands that as a matter of practice, counsel is generally able to render a legal “opinion” only when the relevant facts are substantially ascertainable and the applicable law is both well-developed and settled. As a result, given the relative novelty of digital assets, the challenges inherent in fact-gathering for particular digital assets, and the fact that federal courts have only recently been tasked with adjudicating the applicability of federal securities law to digital assets, the Sponsor understands that at present counsel is generally not in a position to render a legal “opinion” on the securities law status of SOL or any other particular digital asset. +As such, notwithstanding the Sponsor’s receipt of a memorandum regarding the status of SOL under the federal securities laws from external counsel and the Sponsor’s view that SOL is not a security and the Sponsor’s transactions in SOL are not securities transactions, the SEC under former SEC Chair Gensler’s leadership took, and a federal court may in the future take a different view as to the security status of SOL. +If the Sponsor determines that SOL, or transactions in SOL, are a security or securities transactions, respectively, under the federal securities laws, whether that determination is initially made by the Sponsor itself, or because a federal court upholds an allegation that SOL is a security, the Sponsor does not intend to permit the Trust to continue holding SOL in a way that would violate the federal securities laws (and therefore would either dissolve the Trust or potentially seek to operate the Trust in a manner that complies with the federal securities laws, including the Investment Company Act). Because the legal tests for determining whether a digital asset or transactions in the digital asset, are or are not a security or securities transactions, respectively, often leave room for interpretation, for so long as the Sponsor believes there to be good faith grounds to conclude that the Trust’s SOL is not a security, the Sponsor does not intend to dissolve the Trust on the basis that SOL could at some future point be finally determined to be a security. +Any enforcement action by the SEC or a state securities regulator asserting that SOL, or transactions in SOL, are a security, or securities transactions, respectively, or a court decision to that effect, would be expected to have an immediate material adverse impact on the trading value of SOL, as well as the Shares. This is because the market structure behind most digital assets are incompatible with regulations applying to transactions in securities. If a digital asset or transactions in that digital asset are determined to be a security or securities transactions, respectively, it is likely to become difficult or impossible for the digital asset to be traded, cleared or custodied in the United States through the same channels used by non-security digital assets, which in addition to materially and adversely affecting the trading value of the digital asset is likely to significantly impact its liquidity and market participants’ ability to convert the digital asset into U.S. dollars. Any assertion that a digital asset or transactions in that digital asset are a security or securities transactions, respectively, by the SEC or another regulatory authority may have similar effects. +For example, in 2020 the SEC filed a complaint against the issuer of XRP, Ripple Labs, Inc., and two of its executives, alleging that they raised more than $1.3 billion through XRP sales that should have been registered under the federal securities laws, but were not. In the years prior to the SEC’s action, XRP’s market capitalization at times reached over $140 billion. However, in the weeks following the SEC’s complaint, XRP’s market capitalization fell to less than $10 billion, which was less than half of its market capitalization in the days prior to the complaint. Subsequently, in July 2023, the District Court for the Southern District of New York held that while XRP is not a security, certain sales of XRP to certain buyers (but not other types of sales to other buyers) amounted to “investment contracts” under the Howey test. The District Court entered a final judgment in the case on August 7, 2024 and the parties each dismissed their appeals to the Second Circuit on August 7, 2025. +Likewise, in the days following the announcement of SEC enforcement actions against certain digital asset issuers and trading platforms, the prices of various digital assets have declined significantly and may continue to decline as such cases advance through the federal court system. Furthermore, the decisions in cases involving digital assets have resulted in seemingly inconsistent views of different district court judges, including one that explicitly disagreed with the analysis underlying the decision regarding XRP, which underscore the continuing uncertainty around which digital assets, or transactions in digital assets, are securities and what the correct analysis is to determine each digital asset’s status. For example, the conflicting district court opinions and analyses demonstrate that factors such as how long a digital asset has been in existence, how widely held it is, how large its market capitalization is, the manner in which it is offered, sold or promoted, and whether it has actual use in commercial transactions, ultimately may have limited or no bearing on whether the SEC, a state securities regulator or any particular court will find it to be a security. +In addition, if SOL, or transactions in SOL, are in fact a security, or securities transactions, respectively, the Trust could be considered an unregistered “investment company” under the Investment Company Act, which could necessitate the Trust’s liquidation. In this case, the Trust and the Sponsor may be deemed to have participated in an illegal offering of investment company securities and there is no guarantee that the Sponsor will be able to register the Trust under the Investment Company Act at such time or take such other actions as may be necessary to ensure the Trust’s activities comply with applicable law, which could force the Sponsor to liquidate the Trust. +80 +Moreover, whether or not the Sponsor or the Trust were subject to additional regulatory requirements as a result of any determination that the Trust’s assets include securities or the Trust’s transactions in digital assets constitute securities transactions, the Sponsor may nevertheless decide to terminate the Trust, in order, if possible, to liquidate the Trust’s assets while a liquid market still exists. For example, in response to the SEC’s action against the issuer of the digital asset XRP, certain significant market participants announced they would no longer support XRP and announced measures, including the delisting of XRP from major Digital Asset Trading Platforms, resulting in the Sponsor’s conclusion that it was likely to be increasingly difficult for U.S. investors, including Grayscale XRP Trust (XRP), an affiliate of the Trust, to convert XRP into U.S. dollars. The Sponsor subsequently dissolved Grayscale XRP Trust (XRP) and liquidated its assets. The Sponsor has since established a new investment vehicle that holds XRP, Grayscale XRP Trust ETF. If the SEC or a federal court were to determine that SOL is a security or transactions in SOL are securities transactions, it is likely that the value of the Shares of the Trust would decline significantly. Furthermore, if a federal court upholds an allegation that SOL is a security or transactions in SOL are securities transactions, the Trust itself may be terminated and, if practical, its assets liquidated. +Regulatory changes or actions by the U.S. Congress or any U.S. federal or state agencies may affect the value of the Shares or restrict the use of SOL, validating activity or the operation of the Solana Network or the Digital Asset Markets in a manner that adversely affects the value of the Shares. +As digital assets have grown in both popularity and market size, the U.S. Congress and a number of U.S. federal and state agencies (including FinCEN, OFAC, SEC, CFTC, FINRA, the Consumer Financial Protection Bureau (“CFPB”), the Department of Justice, the Department of Homeland Security, the Federal Bureau of Investigation, the IRS, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Reserve and state financial institution and securities regulators) have been examining the operations of digital asset networks, digital asset users and the Digital Asset Markets, with particular focus on the extent to which digital assets can be used to launder the proceeds of illegal activities, evade sanctions, or fund criminal or terrorist enterprises and the safety and soundness of trading platforms and other service providers that hold or custody digital assets for users. Many of these state and federal agencies have issued consumer advisories regarding the risks posed by digital assets to investors. Ongoing and future regulatory actions with respect to digital assets generally or SOL in particular may alter, perhaps to a materially adverse extent, the nature of an investment in the Shares or the ability of the Trust to continue to operate. +On January 23, 2025, President Trump issued an executive order titled “Strengthening American Leadership in Digital Financial Technology” aimed at supporting “the responsible growth and use of digital assets, blockchain technology, and related technologies across all sectors of the economy.” The Executive Order also established an interagency working group that is tasked with “proposing a Federal regulatory framework governing the issuance and operation of digital assets” in the United States. Pursuant to this Executive Order, the working group released a report in July 2025 outlining the administration's recommendations to Congress and various agencies reflecting the administration’s “pro-innovation mindset toward digital assets and blockchain technologies.” In particular, the report recommends that Congress enact legislation regarding self custody of digital assets, clarifying the applicability of Bank Secrecy Act obligations with respect to digital asset service providers, granting the CFTC authority to regulate spot markets in non-security digital assets, prohibiting the adoption of a CBDC, and clarifying tax laws as relevant to digital assets. In addition, the report recommends that agencies reevaluate existing guidance on digital asset activities, use existing authorities to enable the trading of digital assets at the federal level, embrace DeFi, launch or relaunch crypto innovation efforts, and promote U.S. private sector leadership in the responsible development of cross-border payments and financial markets technologies, among others. +There have also been several bills introduced in Congress that propose to establish additional regulation and oversight of the digital asset markets. For example, the CLARITY Act was passed by the House of Representatives in July 2025, which would, if enacted, regulate digital asset markets and digital asset trading platforms in the United States. In addition, also in July 2025, the Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025 (the “GENIUS Act”) became the first federal law specifically regulating the issuance, custody and other stablecoin-related matters in the United States. It is difficult to predict whether, or when, the CLARITY Act or another bill that would regulate digital asset markets and digital asset trading platforms may become law or what any such bill may entail. It is also difficult to predict whether, or when, any of these developments will lead to Congress granting additional authorities to the SEC or other regulators, what the nature of such additional authorities might be, how additional legislation and/or regulatory oversight might impact the ability of Digital Asset Markets to function or how any new regulations or changes to existing regulations might impact the value of digital assets generally and SOL held by the Trust specifically. The consequences of increased federal regulation of digital assets and digital asset activities could have a material adverse effect on the Trust and the Shares. +Law enforcement agencies have often relied on the transparency of blockchains to facilitate investigations. However, certain privacy-enhancing features have been, or are expected to be, introduced to a number of digital asset networks, including the Solana Network. These features, including those adopted by the Solana Network or which may be introduced on the Solana Network in the future, may provide law enforcement agencies with less visibility into transaction-level data. Europol, the European Union’s law enforcement agency, released a report in October 2017 noting the increased use of privacy-enhancing digital assets like Zcash and Monero in criminal activity on the internet. In August 2022, OFAC banned all U.S. citizens from using Tornado Cash, a digital asset protocol designed to obfuscate blockchain transactions, by adding certain Solana wallet addresses associated with the protocol to its Specially Designated Nationals and Blocked Persons List. A large portion of Solana validators globally, as well as notable industry +81 +participants such as Centre, the issuer of the USDC stablecoin, have reportedly complied with the sanctions and blacklisted the sanctioned addresses from interacting with their networks. In October 2023, FinCEN issued a notice of proposed rulemaking that identified convertible virtual currency (CVC) mixing as a class of transactions of primary money laundering concern and proposed requiring covered financial institutions to implement certain recordkeeping and reporting requirements on transactions that covered financial institutions know, suspect, or have reason to suspect involve CVC mixing within or involving jurisdictions outside the United States. In April 2024, the DOJ arrested and charged the 25 developers of the Samourai Wallet mixing service with conspiracy to commit money laundering and conspiracy to operate an unlicensed money transmitting business. In May 2024, a co-founder of Tornado Cash was sentenced to more than five years imprisonment in the Netherlands for developing Tornado Cash on the basis that he had helped launder more than $2 billion worth of digital assets through Tornado Cash. In October 2023, FinCEN issued a notice of proposed rulemaking that identified convertible virtual currency (CVC) mixing as a class of transactions of primary money laundering concern and proposed requiring covered financial institutions to implement certain recordkeeping and reporting requirements on transactions that covered financial institutions know, suspect, or have reason to suspect involve CVC mixing within or involving jurisdictions outside the United States. In April 2024, the DOJ arrested and charged the developers of the Samourai Wallet mixing service with conspiracy to commit money laundering and conspiracy to operate an unlicensed money transmitting business. In May 2024, a co-founder of Tornado Cash was sentenced to more than five years imprisonment in the Netherlands for developing Tornado Cash on the basis that he had helped launder more than $2 billion worth of digital assets through Tornado Cash. In August 2025, a co-founder of Tornado Cash was convicted of conspiracy to operate an unlicensed money transmitting business, but a mistrial was declared with respect to charges of conspiracy to commit money laundering and conspiracy to violate U.S. sanctions. Future additional regulatory action with respect to privacy-enhancing digital assets is possible. +The SEC has previously taken the view that SOL is a “security,” and a final determination that SOL or any other digital asset is a “security” may adversely affect the value of SOL and the value of the Shares, and result in potentially extraordinary, nonrecurring expenses to, or termination of, the Trust. +Through enforcement actions and other statements, the SEC and its staff have taken the position that a digital asset’s initial manner of sale may be a key factor in determining whether that digital asset was a security, at least at the time of the digital asset’s delivery as part of that sale. Many blockchain startups that have offered digital assets to the public in the form of initial coin offerings, or through Simple Agreements for Future Tokens (“SAFTs”), have been alleged by the SEC to have engaged in illegal unregistered distributions of securities. Courts have, in certain instances, agreed with the SEC that distributions of digital assets pursuant to SAFT or similar arrangements, or related public sales conducted in close proximity thereto, constituted unregistered securities offerings. Although courts have reached nuanced conclusions in certain cases regarding whether particular digital asset transactions constitute “investment contracts” under the Howey test, regulatory uncertainty remains. +Solana Labs, Inc., the developer of the Solana Network and the creator of SOL, used a SAFT to distribute approximately 38% of the total supply of SOL. Certain individuals and entities associated with Solana Labs, Inc. have also distributed SOL. SOL’s distribution through a SAFT shares characteristics with other offerings of digital assets through SAFTs that the SEC has alleged were used to effect the unregistered public distribution of a security. While SOL may be distinguishable from digital assets that have been the subject of prior enforcement actions, the initial manner of distribution of SOL, including through SAFT arrangements, may increase the risk that regulators or courts could determine that SOL was offered or sold as a security, or that certain transactions in SOL constitute securities transactions. +For example, although SOL is decentralized in certain respects, a significant amount of SOL remains under the control of Solana Labs, Inc. and related parties, and the degree of influence retained by such parties could be viewed by a regulator as relevant to an analysis under the federal securities laws. In addition, even setting aside SOL’s initial manner of offering, a significant portion of demand for digital assets is generated by speculators and investors, not necessarily by those seeking to use digital assets for consumptive purposes. If the Solana Network cannot retain users and demonstrate that its primary consumptive use case for SOL is serious and viable, this could increase the risk that SOL is determined to be a security. +If SOL is determined to be a “security,” or if transactions in SOL are determined to constitute securities transactions, under federal or state securities laws by the SEC or a state regulatory agency, or in a proceeding in a court of law or otherwise, such determination would have material adverse consequences for SOL and an investment in the Shares. For example, it may become difficult or impossible for SOL to be traded, cleared or custodied in the United States through the same channels used by non-security digital assets, which could materially and adversely affect the trading value, liquidity, market participants’ ability to convert SOL into U.S. dollars and general acceptance of SOL, and could cause users and developers to migrate to other digital assets. +In addition, if SOL were determined to be a security, the Trust could be considered an unregistered “investment company” under the Investment Company Act of 1940, which could require the Trust to liquidate or to take other remedial actions that may not be feasible. The Trust could also be required to register under the Investment Company Act or the Securities Act, which may not be possible or may result in significant additional expenses. Any such developments could result in potentially extraordinary, nonrecurring expenses to, or termination of, the Trust and could adversely affect the value of the Shares. +82 +Competing industries may have more influence with policymakers than the digital asset industry, which could lead to the adoption of laws and regulations that are harmful to the digital asset industry. +The digital asset industry is relatively new, although its influence over public policy is increasing, and it may not have the same access to policymakers and lobbying organizations in many jurisdictions compared to industries with which digital assets may be seen to compete, such as banking, payments and consumer finance. Competitors from other, more established industries may have greater access to and influence with governmental officials and regulators and may be successful in persuading these policymakers that digital assets require heightened levels of regulation compared to the regulation of traditional financial services. As a result, new laws and regulations may be proposed and adopted in the United States and elsewhere, or existing laws and regulations may be interpreted in new ways, that disfavor or impose compliance burdens on the digital asset industry or digital asset platforms, which could adversely impact the value of SOL and therefore the value of the Shares. +Regulatory changes or other events in foreign jurisdictions may affect the value of the Shares or restrict the use of one or more digital assets, validating activity or the operation of their networks or the Digital Asset Trading Platform Market in a manner that adversely affects the value of the Shares. +Various foreign jurisdictions have, and may continue to adopt laws, regulations or directives that affect the digital asset network, the Digital Asset Markets, and their users, particularly Digital Asset Trading Platforms and service providers that fall within such jurisdictions’ regulatory scope. For example, if foreign jurisdictions in addition to China were to ban or otherwise restrict validating activity, including by regulating or limiting manufacturers’ ability to produce or sell semiconductors or hard drives in connection with validating, it would have a material adverse effect on digital asset networks (including the Solana Network), the Digital Asset Market, and as a result, impact the value of the Shares. +A number of foreign jurisdictions have recently taken regulatory action aimed at digital asset activities. China has made transacting in cryptocurrencies illegal for Chinese citizens in mainland China, and additional restrictions may follow. Both China and South Korea have banned initial coin offerings entirely and regulators in other jurisdictions, including Canada, Singapore and Hong Kong, have opined that initial coin offerings may constitute securities offerings subject to local securities regulations. The United Kingdom’s Financial Conduct Authority published final rules in October 2020 banning the sale of derivatives and exchange-traded notes that reference certain types of digital assets, contending that they are “ill-suited” to retail investors citing extreme volatility, valuation challenges and association with financial crime. A new law, the Financial Services and Markets Act 2023 (“FSMA”), received royal assent in June 2023. The FSMA brings digital asset activities within the scope of existing laws governing financial institutions, markets and assets. In addition, the Parliament of the European Union approved the text of the Markets in Crypto-Assets Regulation (“MiCA”) in April 2023, establishing a regulatory framework for digital asset services across the European Union. Certain parts of MiCA became effective as of June 2024 and the remainder became effective as of December 2024. MiCA is intended to serve as a comprehensive regulation of digital asset markets and imposes various obligations on digital asset issuers and service providers. The main aims of MiCA are industry regulation, consumer protection, prevention of market abuse and upholding the integrity of digital asset markets. See “Item 1. Business—Overview of the Solana Industry and Market—Government Oversight.” +Foreign laws, regulations or directives may conflict with those of the United States and may negatively impact the acceptance of one or more digital assets by users, merchants and service providers outside the United States and may therefore impede the growth or sustainability of the digital asset economy in the European Union, China, Japan, Russia and the United States and globally, or otherwise negatively affect the value of SOL. Moreover, other events, such as the interruption in telecommunications or internet services, cyber-related terrorist acts, civil disturbances, war or other catastrophes, could also negatively affect the digital asset economy in one or more jurisdictions. For example, Russia’s invasion of Ukraine on February 24, 2022 led to volatility in digital asset prices, with an initial steep decline followed by a sharp rebound in prices. The effect of any future regulatory change or other events on the Trust or SOL is impossible to predict, and such change could be substantial and adverse to the Trust and the value of the Shares. +If regulators subject an Authorized Participant, the Trust or the Sponsor to regulation as a money service business or money transmitter, this could result in extraordinary expenses to the Authorized Participant, the Trust or the Sponsor and also result in decreased li quidity for the Shares . +To the extent that the activities of any Authorized Participant, the Trust or the Sponsor cause it to be deemed a “money services business” under the regulations promulgated by FinCEN, such Authorized Participant, the Trust or the Sponsor may be required to comply with FinCEN regulations, including those that would mandate the Authorized Participant, the Trust or the Sponsor to implement anti-money laundering programs, make certain reports to FinCEN and maintain certain records. Similarly, the activities of an Authorized Participant, the Trust or the Sponsor may require it to be licensed as a money transmitter or as a digital asset business, such as under the NYDFS’ BitLicense regulations or California’s Digital Financial Assets Law, once effective. +Such additional regulatory obligations may cause the Authorized Participant, the Trust or the Sponsor to incur extraordinary expenses. If the Authorized Participant, the Trust or the Sponsor decided to seek the required licenses, there is no guarantee that they will timely receive them. An Authorized Participant may instead decide to terminate its role as Authorized Participant of the Trust, or the Sponsor may decide to discontinue and wind up the Trust. An Authorized Participant’s decision to cease acting as such may decrease +83 +the liquidity of the Shares, which could adversely affect the value of the Shares, and termination of the Trust in response to the changed regulatory circumstances may be at a time that is disadvantageous to the shareholders. +Additionally, to the extent an Authorized Participant, the Trust or the Sponsor is found to have operated without appropriate state or federal licenses, or registration, it may be subject to investigation, administrative or court proceedings, and civil or criminal monetary fines and penalties, all of which would harm the reputation of the Trust or the Sponsor, decrease the liquidity, and have a material adverse effect on the price of the Shares. +Statutory or regulatory changes or interpretations could obligate the Trust or the Sponsor to register and comply with new regulations, resulting in potentially extraordinary, nonrecurring expenses to the Trust. +Current and future legislation, CFTC and SEC rulemaking and other regulatory developments may impact the manner in which SOL is treated. In particular, SOL may be classified by the CFTC as a “commodity interest” under the CEA or may be classified by the SEC as a “security” under U.S. federal securities laws. It is also possible that a new Administration and Congress in the United States creates a new classification for digital assets. For example, the current draft of the CLARITY Act would add “digital commodities” to the list of assets that are commodity interests under the CEA. The Sponsor and the Trust cannot be certain as to how future regulatory developments will impact the treatment of SOL under the law. In the face of such developments, the required registrations and compliance steps may result in extraordinary, nonrecurring expenses to the Trust. If the Sponsor decides to terminate the Trust in response to the changed regulatory circumstances, the Trust may be dissolved or liquidated at a time that is disadvantageous to shareholders. +To the extent that SOL is deemed to fall within the definition of a “commodity interest” under the CEA, due to the passage of the CLARITY Act or otherwise, the Trust and the Sponsor may be subject to additional regulation under the CEA and CFTC regulations. The Sponsor may be required to register as a commodity pool operator or commodity trading adviser with the CFTC and become a member of the National Futures Association and may be subject to additional regulatory requirements with respect to the Trust, including disclosure and reporting requirements. These additional requirements may result in extraordinary, recurring and/or nonrecurring expenses of the Trust, thereby materially and adversely impacting the Shares. If the Sponsor determines not to comply with such additional regulatory and registration requirements, the Sponsor will terminate the Trust. Any such termination could result in the liquidation of the Trust’s SOL at a time that is disadvantageous to shareholders. +To the extent that SOL is determined to be a security under U.S. federal securities laws, the Trust and the Sponsor may be subject to additional requirements under the Investment Company Act and the Sponsor may be required to register as an investment adviser under the Investment Advisers Act. Such additional registration may result in extraordinary, recurring and/or non-recurring expenses of the Trust, thereby materially and adversely impacting the Shares. If the Sponsor determines not to comply with such additional regulatory and registration requirements, the Sponsor will terminate the Trust. Any such termination could result in the liquidation of the Trust’s SOL at a time that is disadvantageous to shareholders. +The treatment of the Trust for U.S. federal income tax purposes is uncertain. +The Sponsor intends to take the position that the Trust is properly treated as a grantor trust for U.S. federal income tax purposes. Assuming that the Trust is a grantor trust, the Trust will not be subject to U.S. federal income tax. Rather, if the Trust is a grantor trust, each beneficial owner of Shares will be treated as directly owning its pro rata share of the Trust’s assets and a pro rata portion of the Trust’s income, gains, losses and deductions will “flow through” to each beneficial owner of Shares. +In particular, the Staking Condition has been satisfied as to the particular form of Staking described herein, and the Sponsor intends to continue to take the position that the Trust is properly treated as a grantor trust for U.S. federal income tax purposes and that any Staking activity undertaken by the Trust in compliance with the opinion, ruling or other guidance relied upon to satisfy the Staking Condition will not prevent the Trust from continuing to qualify as a grantor trust for such purposes. The IRS recently issued a revenue procedure providing a staking safe harbor for certain grantor trust vehicles whose beneficial interests are listed and traded on a national securities exchange (the “2025 Revenue Procedure”), but certain aspects of the 2025 Revenue Procedure are unclear, and therefore the Trust may not currently satisfy all conditions of the safe harbor. Accordingly, due to the uncertainty regarding the ability of a grantor trust to engage in Staking activities, there can be no assurance that the Internal Revenue Service (“IRS”) or any court would agree with this position (or with any opinion of counsel delivered to the Sponsor in support thereof). Therefore, the Trust might cease to qualify as a grantor trust for U.S. federal income tax purposes. +The Trust has taken certain positions with respect to the tax consequences of Incidental Rights and its receipt of IR Virtual Currency. If the IRS were to disagree with, and successfully challenge, any of these positions the Trust might not qualify as a grantor trust. In addition, the Pre-Creation/Redemption Abandonment Notices (as defined herein) provide that the Trust will irrevocably abandon, effective immediately prior to each Creation Time or Redemption Time, all Incidental Rights or IR Virtual Currency to which it would otherwise be entitled as of such time and with respect to which it has not taken any Affirmative Action at or prior to such time. The Sponsor has committed to cause the Trust to irrevocably abandon any Incidental Rights and IR Virtual Currency to which the Trust may become entitled in the future. There can be no complete assurance that these abandonments will be treated as effective for U.S. +84 +federal income tax purposes. If the Trust were treated as owning any asset other than SOL as of any date on which it creates or redeems Shares, it might cease to qualify as a grantor trust for U.S. federal income tax purposes. +In addition, at this time the Trust is not permitted to create or redeem Shares via in-kind transactions with Authorized Participants. Unless and until Authorized Participants enter into or amend their respective Participant Agreements to provide for in-kind creations and redemptions, Baskets will be created or redeemed only through Cash Orders. In general, investment vehicles intended to be treated as grantor trusts for U.S. federal income tax purposes historically have created additional trust interests only in-kind, and there is no authority directly addressing whether a grantor trust may create or redeem trust interests under procedures similar to those that govern Cash Orders. Accordingly, there can be no complete assurance that the creation or redemption of Shares under the procedures governing Cash Orders will not cause the Trust to fail to qualify as a grantor trust for U.S. federal income tax purposes. +Moreover, because of the evolving nature of digital assets, it is not possible to predict potential future developments that may arise with respect to digital assets, including forks, airdrops and other similar occurrences. Assuming that the Trust is currently a grantor trust for U.S. federal income tax purposes, certain future developments could render it impossible, or impracticable, for the Trust to continue to be treated as a grantor trust for such purposes. +If the Trust is not properly classified as a grantor trust, the Trust might be classified as a partnership for U.S. federal income tax purposes. However, due to the uncertain treatment of digital assets for U.S. federal income tax purposes (as discussed in “Material U.S. Federal Income Tax Consequences—Uncertainty Regarding the U.S. Federal Income Tax Treatment of Digital Assets”), there can be no assurance in this regard. If the Trust were classified as a partnership for U.S. federal income tax purposes, the tax consequences of owning Shares generally would not be materially different from the tax consequences described herein, although there might be certain differences, including with respect to timing of the recognition of taxable income or loss. In addition, tax information reports provided to beneficial owners of Shares would be made in a different form. Moreover, it is possible, in that case, that a portion of the Trust’s income would be considered to be “effectively connected” with the conduct of a trade or business in the United States and, accordingly, a non-U.S. person owning Shares could be subject to U.S. federal income tax on a net income basis with respect to that “effectively connected” income and be required to file a U.S. tax return. If none of the Trust’s Staking income were considered to be “effectively connected” income, a non-U.S. person owning Shares might be subject to withholding on its pro rata portion of income from the Trust’s Staking activities as described below in “—Shareholders may be subject to withholding tax on Staking Consideration received as staking rewards and income derived from forks, airdrops and similar occurrences.” Tax-exempt shareholders may also recognize “unrelated business taxable income” (“UBTI”) from the Trust’s Staking activities if the Trust is not treated as a corporation for U.S. federal income tax purposes. +If the Trust were not classified as either a grantor trust or a partnership for U.S. federal income tax purposes, it would be classified as a corporation for such purposes. In that event, the Trust would be subject to entity-level U.S. federal income tax (currently at the rate of 21%) on its net taxable income and certain distributions made by the Trust to shareholders would be treated as taxable dividends to the extent of the Trust’s current and accumulated earnings and profits. Any such dividend distributed to a beneficial owner of Shares that is a non-U.S. person for U.S. federal income tax purposes would be subject to U.S. federal withholding tax at a rate of 30% (or such lower rate as provided in an applicable tax treaty). As a result, the taxation of the Trust as a corporation could materially reduce the after-tax return on an investment in Shares, and substantially reduce the value of the Shares, and result in a material divergence between NAV and the value of the Trust’s SOL. +The treatment of digital assets for U.S. federal income tax purposes is uncertain. +As discussed in the section entitled “Material U.S. Federal Income Tax Consequences—Uncertainty Regarding the U.S. Federal Income Tax Treatment of Digital Assets,” assuming that the Trust is properly treated as a grantor trust for U.S. federal income tax purposes, each beneficial owner of Shares will be treated for U.S. federal income tax purposes as the owner of an undivided interest in the SOL (and, if applicable, any Incidental Rights, IR Virtual Currency and/or any Staking Consideration) held in the Trust. Due to the new and evolving nature of digital assets and the absence of comprehensive guidance with respect to digital assets, many significant aspects of the U.S. federal income tax treatment of digital assets are uncertain. +In 2014, the IRS released a notice (the “Notice”) discussing certain aspects of “convertible virtual currency” (that is, digital assets that have an equivalent value in fiat currency or that act as substitutes for fiat currency) for U.S. federal income tax purposes and, in particular, stating that such digital assets (i) are “property” (ii) are not “currency” for purposes of the rules relating to foreign currency gain or loss and (iii) may be held as a capital asset. In 2019, the IRS released a revenue ruling and a set of “Frequently Asked Questions” that has been updated from time to time since (the “Ruling & FAQs”). The Ruling & FAQs provide some additional guidance, including guidance to the effect that, under certain circumstances, hard forks of digital assets are taxable events giving rise to ordinary income and guidance with respect to the determination of the tax basis of digital assets. Moreover, in 2023, the IRS released a revenue ruling that provided guidance on digital asset staking, including guidance to the effect that staking rewards will, under certain circumstances, be treated as giving rise to taxable income (the “2023 Staking Guidance”). Further, the IRS recently issued the 2025 Revenue Procedure, which provides a staking safe harbor for certain grantor trust vehicles. However, the Notice, the Ruling & FAQs, the 2023 Staking Guidance and the 2025 Revenue Procedure do not address other significant aspects of the U.S. federal income tax treatment of digital assets. For example, for a non-U.S. Holder (as defined below), there currently is no guidance directly addressing whether or in what +85 +circumstances engaging in certain activities to generate yield on digital assets, including Staking, could give rise to income that is effectively connected with a trade or business in the United States. Similarly, for a U.S. tax-exempt shareholder, there currently is no guidance directly addressing whether or in what circumstances such activities could give rise to UBTI. Moreover, although the Ruling & FAQs address the treatment of hard forks, there continues to be uncertainty with respect to the timing and amount of the income inclusions. While the Ruling & FAQs do not address most situations in which airdrops occur, it is clear from the reasoning of the Ruling & FAQs that the IRS generally would treat an airdrop as a taxable event giving rise to ordinary income. +There can be no assurance that the IRS will not alter its position with respect to digital assets in the future or that a court would uphold the treatment set forth in the Notice, the Ruling & FAQs, the 2023 Staking Guidance and the 2025 Revenue Procedure. It is also unclear what additional guidance on the treatment of digital assets for U.S. federal income tax purposes may be issued in the future. Any such alteration of the current IRS positions or additional guidance could result in adverse tax consequences for shareholders and could have an adverse effect on the value of SOL. Future developments that may arise with respect to digital assets may increase the uncertainty with respect to the treatment of digital assets for U.S. federal income tax purposes. For example, the Notice addresses only digital assets that are “convertible virtual currency,” and it is conceivable that, as a result of a fork, airdrop or similar occurrence, the Trust could hold certain types of digital assets that are not within the scope of the Notice, in the event the Sponsor seeks to change the Trust’s policy with respect to Incidental Rights or IR Virtual Currency, subject to NYSE Arca obtaining regulatory approval from the SEC. +Shareholders are urged to consult their tax advisers regarding the tax consequences of owning and disposing of Shares and digital assets in general. +Future developments regarding the treatment of digital assets for U.S. federal income tax purposes could adversely affect the value of the Shares. +As discussed above, many significant aspects of the U.S. federal income tax treatment of digital assets, such as SOL, are uncertain, and it is unclear what guidance on the treatment of digital assets for U.S. federal income tax purposes may be issued in the future. It is possible that any such guidance would have an adverse effect on the prices of digital assets, including on the price of SOL in the Digital Asset Markets, and therefore may have an adverse effect on the value of the Shares. +Because of the evolving nature of digital assets, it is not possible to predict potential future developments that may arise with respect to digital assets, including forks, airdrops and similar occurrences. Such developments may increase the uncertainty with respect to the treatment of digital assets for U.S. federal income tax purposes. Moreover, certain future developments could render it impossible, or impracticable, for the Trust to continue to be treated as a grantor trust for U.S. federal income tax purposes. +Future developments in the treatment of digital assets for tax purposes other than U.S. federal income tax purposes could adversely affect the value of the Shares. +The taxing authorities of certain states, including New York, (i) have announced that they will follow the Notice with respect to the treatment of digital assets for state income tax purposes and/or (ii) have issued guidance exempting the purchase and/or sale of digital assets for fiat currency from state sales tax. However, it is unclear what further guidance on the treatment of digital assets for state tax purposes may be issued in the future. +The treatment of digital assets for tax purposes by non-U.S. jurisdictions may differ from the treatment of digital assets for U.S. federal, state or local tax purposes. It is possible, for example, that a non-U.S. jurisdiction would impose sales tax or value-added tax on purchases and sales of digital assets for fiat currency. If a foreign jurisdiction with a significant share of the market of Solana Network users imposes onerous tax burdens on digital asset users, or imposes sales or value-added tax on purchases and sales of digital assets for fiat currency, such actions could result in decreased demand for SOL in such jurisdiction. +Any future guidance on the treatment of digital assets for state, local or non-U.S. tax purposes could increase the expenses of the Trust and could have an adverse effect on the prices of digital assets, including on the price of SOL in the Digital Asset Markets. As a result, any such future guidance could have an adverse effect on the value of the Shares. +The tax treatment of SOL and transactions involving SOL for state and local tax purposes is not settled. +Because SOL is a new technological innovation, the tax treatment of SOL for state and local tax purposes, including, without limitation state and local income and sales and use taxes, is not settled. It is uncertain what guidance, if any, on the treatment of SOL for state and local tax purposes may be issued in the future. A state or local government authority’s treatment of SOL may have negative consequences, including the imposition of a greater tax burden on investors in SOL or the imposition of a greater cost on the acquisition and disposition of SOL generally. Any such treatment may have a negative effect on prices of SOL and may adversely affect the value of the Shares. +86 +A U.S. tax-exempt shareholder may recognize “unrelated business taxable income” as a consequence of an investment in Shares. +Under the guidance provided in the Ruling & FAQs, hard forks, airdrops and similar occurrences with respect to digital assets will under certain circumstances be treated as taxable events giving rise to ordinary income. Moreover, as separately provided by the IRS in the 2023 Staking Guidance, staking rewards will, under certain circumstances, be treated as giving rise to taxable income. In the absence of guidance to the contrary, it is possible that any such income recognized by a U.S. tax-exempt shareholder would constitute UBTI. A tax-exempt shareholder should consult its tax adviser regarding whether such shareholder may recognize UBTI as a consequence of an investment in Shares. See “Material U.S. Federal Income Tax Consequences.” +Shareholders may be subject to withholding tax on Staking Consideration received as staking rewards and income derived from forks, airdrops and similar occurrences. +The Ruling & FAQs do not address whether income recognized by a non-U.S. person as a result of a fork, airdrop or similar occurrence or staking could be subject to the 30% withholding tax imposed on U.S.-source “fixed or determinable annual or periodical” income. Based on the current manner in which the Trust’s Staking activities are undertaken and certain assurances from the Trust’s Staking Providers regarding their connections to the United States, the Trust believes that its income from staking rewards should not be treated as U.S.-source FDAP income. However, that conclusion is not free from doubt under current law due to the lack of direct governing authority, and no assurance can be given that a withholding agent (including a broker through which Shares are held) will not take a contrary position. In addition, changes in law or changes to the Trust’s Staking Arrangements could cause all or a portion of the Trust’s staking rewards to be treated as U.S.-source FDAP income in the future. As a result, Non-U.S. Holders (as defined under “Material U.S. Federal Income Tax Consequences—Tax Consequences to Non-U.S. Holders”) should be aware that, in the absence of guidance, a withholding agent (including a broker through which a Non-U.S. Holder holds Shares) may withhold 30% of any such income recognized by a non-U.S. Holder in respect of its Shares, including by deducting such withheld amounts from proceeds that such non-U.S. Holder would otherwise be entitled to receive in connection with a distribution of Incidental Rights, IR Virtual Currency or Staking Consideration received as staking rewards. See “Material U.S. Federal Income Tax Consequences.” +In addition, the Trust may enter into Staking Arrangements with Staking Providers organized in, or that have operations in, a non-U.S. jurisdiction. Non-U.S. jurisdictions may seek to impose withholding tax on Staking Consideration received by the Trust as staking rewards, which may negatively affect a shareholder’s investment in the Trust. +Risk Factors Related to Potential Conflicts of Interest +Potential conflicts of interest may arise among the Sponsor or its affiliates and the Trust. The Sponsor and its affiliates have no fiduciary duties to the Trust and its shareholders other than as provided in the Trust Agreement, which may permit them to favor their own interests to the detriment of the Trust and its shareholders. +The Sponsor will manage the affairs of the Trust. Conflicts of interest may arise among the Sponsor and its affiliates, on the one hand, and the Trust and its shareholders, on the other hand. As a result of these conflicts, the Sponsor may favor its own interests and the interests of its affiliates over the Trust and its shareholders. These potential conflicts include, among others, the following: +• +The Sponsor has no fiduciary duties to, and is allowed to take into account the interests of parties other than, the Trust and its shareholders in resolving conflicts of interest, provided the Sponsor does not act in bad faith; +• +The Trust has agreed to indemnify the Sponsor and its affiliates pursuant to the Trust Agreement; +• +The Sponsor is responsible for allocating its own limited resources among different clients and potential future business ventures, to each of which it owes fiduciary duties; +• +The Sponsor and its staff also service affiliates of the Sponsor, including several other digital asset investment vehicles, and their respective clients and cannot devote all of its, or their, respective time or resources to the management of the affairs of the Trust; +• +The Sponsor, its affiliates and their respective officers and employees are not prohibited from engaging in other businesses or activities, including those that might be in direct competition with the Trust; +• +Affiliates of the Sponsor have substantial direct investments in SOL that they are permitted to manage taking into account their own interests without regard to the interests of the Trust or its shareholders, and any increases, decreases or other changes in such investments could affect the Index Price and, in turn, the value of the Shares; +• +There is an absence of arm’s-length negotiation with respect to certain terms of the Trust, and, where applicable, there has been no independent due diligence conducted with respect to the Trust; +• +The Sponsor’s indirect parent company, DCG, holds less than 1% of the Shares representing ownership in the Trust, as of March 6, 2026; +87 +• +Several employees of the Sponsor and the Sponsor’s indirect parent company, DCG, are FINRA-registered representatives who historically maintained their licenses through Genesis and currently maintain their licenses through Grayscale Securities; +• +DCG is (i) the indirect parent company of the Sponsor; (ii) the indirect parent company of Grayscale Securities, the Authorized Participant from October 3, 2022 through October 28, 2025; and (iii) a minority interest holder in Kraken, one of the Digital Asset Trading Platforms included in the Index, representing less than 1.0% of its equity; +• +DCG has investments in a large number of digital assets and companies involved in the digital asset ecosystem, including trading platforms and custodians. DCG’s positions on changes that should be adopted in the Solana Network could be adverse to positions that would benefit the Trust or its shareholders. Additionally, before or after a hard fork on the Solana Network, DCG’s position regarding which fork among a group of incompatible forks of the Solana Network should be considered the “true” Solana Network could be adverse to positions that would most benefit the Trust; +• +DCG has been vocal in the past about its support for digital assets other than SOL. Any investments in, or public positions taken on, digital assets other than SOL by DCG could have an adverse impact on the price of SOL; +• +The Sponsor decides whether to retain separate counsel, accountants or others to perform services for the Trust; +• +While the Index Provider does not currently utilize data from over-the-counter markets or derivatives platforms, it may decide to include pricing from such markets or platforms in the future; +• +The Sponsor may appoint an agent to act on behalf of the shareholders, and such agent may be the Sponsor or an affiliate of the Sponsor; and +• +The Sponsor has historically, and may again select an Index Provider that is an affiliate of the Sponsor and the Trust. +By purchasing the Shares, shareholders agree and consent to the provisions set forth in the Trust Agreement. See “Item 1. Business—Description of the Trust Agreement.” +For a further discussion of the conflicts of interest among the Sponsor, the distributor, the marketer, Authorized Participant, Liquidity Providers, the Trust and others, see “Item 13. Certain Relationships and Related Transactions and Director Independence.” +DCG is a minority interest holder in Kraken, which operates one of the Digital Asset Trading Platforms included in the Index Price. +DCG, the indirect parent company of the Sponsor, holds a minority interest of less than 1.0% in Kraken. The Sponsor values its digital assets by reference to the Index Price. The Index Price is the price in U.S. dollars of a SOL derived from the Digital Asset Trading Platforms that are reflected in the Index developed by CoinDesk Indices, Inc. as of 4:00 p.m., New York time on each business day. Kraken is one of the Digital Asset Trading Platforms included in the Index. +Although DCG does not exercise control over Kraken, it is possible that investors could have concerns that DCG could influence market data provided by this Digital Asset Trading Platform in a way that benefits DCG, for example by artificially inflating the values of SOL in order to increase the Sponsor’s fees. This could make the Trust’s Shares less attractive to investors than the shares of similar vehicles that do not present these concerns, adversely affect investor sentiment about the Trust and negatively affect Share trading prices. +Shareholders cannot be assured of the Sponsor’s continued services, the discontinuance of which may be detrimental to the Trust. +Shareholders cannot be assured that the Sponsor will be willing or able to continue to serve as sponsor to the Trust for any length of time. If the Sponsor discontinues its activities on behalf of the Trust and a substitute sponsor is not appointed, the Trust will terminate and liquidate its SOL. +Appointment of a substitute sponsor will not guarantee the Trust’s continued operation, successful or otherwise. Because a substitute sponsor may have no experience managing a digital asset financial vehicle, a substitute sponsor may not have the experience, knowledge or expertise required to ensure that the Trust will operate successfully or continue to operate at all. Therefore, the appointment of a substitute sponsor may not necessarily be beneficial to the Trust and the Trust may terminate. See “Item 13. Certain Relationships and Related Transactions and Director Independence—The Sponsor.” +Although the Custodian is a fiduciary with respect to the Trust’s assets, if the Custodian resigns or is removed by the Sponsor or otherwise, without replacement, it would trigger early termination of the Trust. +The Custodian is a fiduciary under § 100 of the New York Banking Law and a qualified custodian for purposes of Rule 206(4)-2(d)(6) under the Investment Advisers Act and is licensed to custody the Trust’s SOL in trust on the Trust’s behalf. However, the SEC previously released proposed amendments in February 2023 to Rule 206(4)-2 that, if enacted as proposed, would amend the definition of a “qualified custodian” under Rule 206(4)-2(d)(6). Executive officers of the Custodian’s parent company have made public statements indicating that the Custodian will remain a qualified custodian under the proposed SEC rule, if enacted as proposed. In June 2025, however, the SEC formally withdrew that proposed rulemaking and stated that it does not intend to issue final rules based on the +88 +proposal. However, there can be no assurance that the Custodian would continue to qualify as a “qualified custodian” under a final rule that may be proposed or adopted by the SEC in the future. +Furthermore, during the initial term, the Custodian may terminate the Prime Broker Agreement for Cause (as defined in “Description of the Prime Broker Agreement—Termination”) at any time, and after the initial term, the Custodian can terminate the Agreement for any reason upon the notice period provided under the Prime Broker Agreement. If the Custodian resigns or is removed by the Sponsor or otherwise, without replacement, the Trust will dissolve in accordance with the terms of the Trust Agreement. +Shareholders may be adversely affected by the lack of independent advisers representing investors in the Trust. +The Sponsor has consulted with counsel, accountants and other advisers regarding the formation and operation of the Trust. No counsel was appointed to represent investors in connection with the formation of the Trust or the establishment of the terms of the Trust Agreement and the Shares. Moreover, no counsel has been appointed to represent an investor in connection with the offering of the Shares. Accordingly, an investor should consult his, her or its own legal, tax and financial advisers regarding the desirability of the value of the Shares. Lack of such consultation may lead to an undesirable investment decision with respect to investment in the Shares. +The Trust is an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may make the Shares less attractive to investors. +The Trust is an “emerging growth company,” as defined in the JOBS Act, and intends to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and exemptions from the requirement of shareholder approval of any golden parachute payments not previously approved. The Trust intends to take advantage of these reporting exemptions until it is no longer an emerging growth company. The Sponsor and the Trust cannot predict if investors will find the Shares less attractive because the Trust will rely on these exemptions. The Trust will remain an emerging growth company for up to five years after its initial public offering, although it will lose that status sooner if the Trust has more than $1.235 billion of revenues in a fiscal year, has more than $700 million in market value of Shares held by non-affiliates as of any June 30 or issues more than $1.0 billion of non-convertible debt over a rolling three-year period. If some investors find the Shares less attractive as a result, there may be a less active trading market for the Shares and the price of the Shares may be more volatile. +Risk Factors Related to Staking +Although the Trust is permitted to engage in Staking, the Trust will not be permitted to engage in any different form of Staking unless (and, then, only to the extent that) the Staking Condition is satisfied in addition to the Trust satisfying any additional requirements that may arise in connection with the satisfaction of the Staking Condition, which could negatively affect the value of the Shares. +Although the Trust is permitted to engage in Staking, the Trust is only permitted to engage in Staking to the extent that the Staking Condition is satisfied with respect thereto. There can be no assurance that the Trust will be permitted to engage in any different form of Staking in the future. The Trust Agreement provides that the Trust may engage in Staking, but only if (and, then, only to the extent that) the Staking Condition has been satisfied. +Subject to the Staking Condition being satisfied and subject to compliance with certain related requirements, in the future the Sponsor may, from time to time, seek to modify the form of Staking in which the Trust engages, but only if (and, then, only to the extent that) the Staking Condition has been satisfied with respect to any such modified form of Staking, and subject to compliance with any additional requirements that may arise in connection with satisfaction of the Staking Condition with respect thereto. However, as long as the Staking Condition and any related requirements have not been satisfied with respect to any modified form of Staking, the Trust will not be permitted to engage in such modified form of Staking, which could place the Shares at a comparative disadvantage relative to an investment in SOL directly or through a vehicle that is not subject to such a prohibition, which could negatively affect the value of the Shares. +Staking introduces a risk of loss of SOL, which could adversely affect the value of the Shares. +Staking introduces a risk of loss of SOL. None of the Trust’s assets, including potentially staked assets, are subject to the protections enjoyed by depositors or customers of institutions with FDIC or Securities Investor Protection Corporation membership. +The Solana Network may impose penalties (i.e., “slashing”) if a validator commits malicious acts related to the validation of blocks with invalid transactions. Currently on the Solana Network, slashing generally operates theoretically possible by social consensus, rather than being automatically applied by the protocol’s code. The Solana community generally aspires to slash 100% of staked assets in cases where a Solana node is maliciously trying to violate safety rules and 0% during routine operations. As a result, there is currently no automatic slashing in the Solana Network. Rather, for regular consensus, after a safety violation, the Solana +89 +Network will halt. The validators will analyze the data prior to the halt to determine who was responsible and propose that the stake of the malicious actors responsible for the safety violation should be slashed after restart, typically 100% of their stake. Future protocol upgrades may include the implementation of automated slashing mechanisms, where penalties would be triggered and enforced directly by the network code without requiring social coordination. As of December 31, 2025, there have been no slashing events on the Solana Network. +There can be no guarantee that slashing penalties and resulting losses will not occur as a result of the activities of a Staking Provider. Furthermore, a Staking Provider’s liability to the Trust is expected to be limited, and a Staking Provider may lack the assets or insurance in order to support the recovery of any losses incurred. While the Staking Arrangements may provide for indemnification up to a specified cap, slashing insurance or other reimbursement programs, there can be no guarantee that the Trust would recover any of its staked assets, or the value thereof, if it is subject to penalties imposed by the Solana Network. +Staked SOL tokens will be inaccessible for a variable period of time, determined by a range of factors, which could result in certain liquidity risk to the Trust. +Under current Solana Network protocols, staked SOL tokens are permitted to be un-staked by the holder of the private keys for the withdrawal address of such SOL tokens. However, as part of the “activating” and “exiting” processes of staking, staked SOL tokens will be inaccessible for a variable period of time determined by a range of factors, including network congestion, resulting in certain liquidity risks that the Sponsor plans to manage. “Activation” is the funding of a validator to be included in the active set, thereby allowing the validator to participate in the Solana Network’s proof-of-stake consensus protocol. “Exit” is the request to exit from the active set and no longer participate in the Solana Network’s proof-of-stake consensus protocol. As part of these “activating” and “exiting” processes of staking on the Solana Network, any staked SOL will be inaccessible for a period of time. The duration of activating and exiting periods are dependent on a range of factors, including network conditions. However, depending on demand, un-staking can take between hours, days or weeks to complete. This can result in certain liquidity risk to the Trust, which the Sponsor will seek to manage through a range of risk management methods. +The Sponsor anticipates that it will engage in staking with respect to all of the Trust’s SOL at all times, except (i) as necessary to pay the Sponsor’s Fee, (ii) as necessary to pay any additional Trust expenses, (iii) as necessary to satisfy existing and reasonably foreseen potential redemption requests (assuming the Trust is then permitted to operate an ongoing redemption program) as determined by the Sponsor, (iv) as necessary to reduce the SOL obtained by the Trust as Staking Consideration to cash for distribution at regular intervals, (v) if the Sponsor determines that Staking raises significant governmental, policy or regulatory concerns or is subject or likely subject to a specialized regulatory regime, (vi) if the Sponsor determines there exists vulnerabilities in the source code or cryptography underlying the Solana Network and any associated software, (vii) if the Custodian or Staking Provider discontinues their arrangements with the Trust, (viii) if the Sponsor otherwise determines that continued Staking of such portion of the Trust’s assets would be inconsistent with the Trust’s purpose of protecting and preserving the value of the Trust Estate, (ix) to fund or replenish the Liquidity Sleeve or (x) in accordance with any other exception that is expressly contemplated by an opinion, ruling or tax guidance that satisfies the Staking Condition. All SOL received by the Trust in connection with the creation of new Shares, or as Staking Consideration, would also be staked upon receipt by the Trust, unless one or more of the exceptions described in clauses (i)-(ix) above applies. +As of the date of this filing, and subject to the satisfaction of the Staking Condition, the Sponsor generally seeks to stake as much of the Trust’s SOL as is practicable (i.e., up to 100%) at all times, with the remainder of the Trust’s SOL remaining unstaked in order to address the various exceptions and other considerations described herein. The percentage of the Trust’s SOL that is staked each day is reported the following day at 4:00 p.m., New York time, on etfs.grayscale.com/gsol. +Due to the time involved in “exiting” the staking process, there is a risk that the Trust could become unable to timely meet excessive redemption requests in amounts that are greater than the portion of the Trust’s SOL that remains un-staked, leading to temporary delays in settlement and, in extreme scenarios, the temporary unavailability of the Trust’s redemption program. Moreover, any staked SOL which must be un-staked in order to fulfill a redemption (to the extent such redemption cannot be fulfilled utilizing the portion of the Trust’s SOL that has not been staked, or through another mechanism to manage liquidity in connection with Redemption Orders contemplated by an opinion of a Tax Advisor, a Tax Ruling or Tax Guidance that satisfies the Staking Condition) will be un-staked only after the redemption request is approved by the Trust, the Sponsor executes an un-stake or withdrawal transaction through the Custodian, and such transaction is processed by the Solana Network. The Staking Provider will not be able to transfer unstaked SOL or Staking Consideration to another address on the Solana Network. +Although the Sponsor anticipates that the Trust may enter into financing arrangements to borrow SOL in order to fulfill redemption requests if the Trust’s unstaked SOL is insufficient to do so, there can be no assurance that such arrangements will be available as intended or provide sufficient liquidity to satisfy redemption requests. +90 +The Trust will be dependent on third parties or intermediary technical systems to effectively execute the Trust’s Staking Arrangements. +Staking is carried out by the third-party Staking Providers, the amount of Staking Consideration that the Trust’s staking activity generates is dependent on the performance of the Staking Provider, including the adequacy and reliability of the hardware and software utilized by the Staking Provider. If the Custodian or the Staking Provider experience service outages or otherwise are unable to optimally execute the Staking of the Trust’s SOL, the Trust’s Staking Consideration may be adversely affected. Moreover, the Trust’s Staking Arrangements may rely on smart contracts, wallet infrastructure, validator clients, or other intermediary technical systems that could malfunction, contain vulnerabilities, or be subject to cyberattacks, any of which could result in loss or inaccessibility of SOL. +The regulatory landscape surrounding Staking is uncertain. +The regulatory landscape surrounding Staking is highly uncertain, and may expose the Sponsor, Custodian, third-party Staking Providers and the Trust and its shareholders to unforeseen regulatory risks or potential enforcement actions. For example, there is a risk that the Staking Arrangements could constitute an “investment contract” under the federal securities laws, such that it is a security, and thus needs to be registered or eligible for an exemption from registration. In May 2025, staff at the SEC Division of Corporation Finance issued a statement (the “SEC Staking Statement”) expressing the view that certain staking activities do not involve the offer and sale of securities within the meaning of the federal securities laws, and we believe the Staking Arrangements satisfy the criteria in this guidance. However, the SEC Staking Statement is not a rule, regulation, guidance, or statement of the SEC, and has no legal force or effect. There is accordingly a risk that a court could disagree with the views expressed in the SEC Staking Statement. In that case, or if SOL were deemed a security, there would also be a risk that a Staking Provider could be deemed to be acting as a broker-dealer, on the basis that the Staking Provider is receiving a commission for effecting the staking transactions and receipt of Staking Consideration. +The Sponsor is permitted to cause the Trust to engage in Staking only if certain conditions set forth in the Trust Agreement relating to the qualification of the Trust as a grantor trust for U.S. federal income tax purposes are satisfied. Due to the lack of authority regarding the ability of a grantor trust to engage in activities such as Staking, there can be no assurance whether or when these conditions will be satisfied or the Trust will be permitted to engage in Staking. +Beneficial owners of Shares could incur tax liabilities without receiving corresponding distributions from the Trust. +As of the date of this filing, the Staking Condition has been satisfied as to the particular form of Staking described in this Annual Report. Shareholders may suffer adverse tax consequences as a result. In particular, the IRS has indicated that the receipt of Staking Consideration gives rise to current, ordinary income for U.S. federal income tax purposes. Assuming that the Trust is properly treated as a grantor trust for U.S. federal income tax purposes, beneficial owners of Shares will be required to take their ratable share of any such income into account in determining their own tax liability, regardless of whether the Trust makes any corresponding distributions. Shareholders should therefore expect that other sources of funds may be needed to satisfy any associated tax liability. Moreover, if the Trust were to sell SOL to fund cash distributions in respect of that tax liability, a shareholder generally would be treated as having sold its pro rata share of those SOL for their fair market value at that time (which, in the case of SOL sold by the Trust, generally will be equal to the cash proceeds received by the Trust in respect thereof), and the shareholders generally would recognize gain or loss on such sale as described in the section entitled “Item 1. Business—Material U.S. Federal Income Tax Consequences.” +91 +Item 1B. Unresolv ed Staff Comments +Not applicable. +Item 1C. Cybersecurity +To prevent, detect and respond to information security threats, the Sponsor maintains a cyber risk management program . The program is supervised by an in-house dedicated Chief Information Security Officer (“CISO”), with over 15 years of experience in financial services risk management, whose team is responsible for leading enterprise-wide cybersecurity strategy, policy, standards, architecture, and processes. The Enterprise Risk Committee (“ERC”), which includes members of management of the Sponsor, receives regular reports from the CISO on, among other things, the Sponsor’s cyber risks and threats, the status of projects to strengthen the Sponsor’s information security systems, assessments of the Sponsor’s security program and the emerging threat landscape. +The ERC provides updates to the Board quarterly , including on changes to security risks and outcomes. The CISO also promptly informs and updates the ERC and the Board of the Sponsor about any information security incidents that may pose a material risk to the Sponsor. The Sponsor contracts an independent third party to conduct a full cyber risk assessment annually, and the results of those assessments are included in reporting to the ERC and the Board. Material outcomes from any penetration testing, vulnerability scanning, and business continuity or disaster recovery testing are additionally included in reporting to the ERC and Board. +The Sponsor’s Security Awareness Program includes training that reinforces the Sponsor’s Information Security policies, standards, and practices, and the expectation that employees will comply with these policies. The Security Awareness Program engages personnel through training on how to identify potential cybersecurity risks and protect the Sponsor’s resources and information. This training is mandatory for all employees upon onboarding at the firm and again annually, and it is supplemented by firmwide training and testing initiatives, including periodic phishing tests. +The Sponsor administers a Third-Party Risk Management Program at the firm to identify, assess and oversee the risk associated with service providers and third parties involved in the supply chain. Third parties are assessed for risk and may additionally be required to adhere to additional security diligence requirements administered with oversight from the CISO according to risk, including cybersecurity diligence questionnaires, evidence validation, SOC report reviews, and/or on-site assessments. Material changes to the program, new, or worsening security risks associated with third parties are reported to the ERC at least quarterly. +Cybersecurity Breaches: +During the year ended December 31, 2025 , we did not identify any cybersecurity threats at the Sponsor or the Trust that have materially affected or are reasonably likely to materially affect our business strategy, results of operations, or financial condition. However, even though we take steps to employ reasonable cybersecurity efforts, not every cybersecurity incident can be prevented or detected. Therefore, while we believe there are currently no risks from any potential cybersecurity threat or cybersecurity incident that are reasonably likely to have a material effect on our results of operations or financial condition, the likelihood or severity of such risks are difficult to predict. +Item 2. P roperties +None. +92 +Item 3. Legal Proceedings +Grayscale Operating, LLC, the former Co-Sponsor of the Trust until May 3, 2025, was a party to certain legal proceedings during the period covered by this report. Although the Trust is not a party to these proceedings, the Trust may in the future be subject to legal proceedings or disputes. +On May 19, 2025, Genesis Global Capital, LLC (“Genesis Capital”) and Genesis Asia Pacific Pte. Ltd. (“Genesis Asia”) filed a complaint in the United States Bankruptcy Court for the Southern District of New York (“SDNY Bankruptcy Court”) against Digital Currency Group, Inc. (“DCG”) and certain of its affiliates including GSO alleging that Genesis Capital made certain preferential transfers to GSI, the predecessor in interest to GSO prior to the Merger, during the preference period prior to Genesis Capital’s filing of a bankruptcy petition in SDNY Bankruptcy Court while GSI was allegedly an insider to Genesis Capital pursuant to 11 U.S.C. § 101(31). Genesis Capital seeks to avoid the alleged preferential transfers pursuant to 11 U.S.C. § 547(b), as well as recovery of property and disallowance of claims. Genesis Capital is seeking to avoid transfers to GSI, the predecessor in interest to GSO prior to the Merger, of 105 Bitcoin and 37,647.06 Ethereum Classic tokens. GSO believes this lawsuit is without merit and intends to vigorously defend against it. +As of the date of this Annual Report, the Sponsor does not expect the foregoing proceedings to have a material adverse effect on the Trust’s business, financial condition or results of operations. +The Sponsor and/or the Trust may be subject to additional legal proceedings and disputes in the future. +Item 4. Mine Saf ety Disclosures +Not applicable. +93 +PART II +Item 5. Market for Registrant’s Common Equity, Related Stock holder Matters and Issuer Purchases of Equity Securities +Market Information +The Shares commenced trading on NYSE Arca on October 29, 2025 under the ticker symbol “GSOL.” +Holders of Record +As of December 31, 2025, there were approximately 17 DTC participating shareholders of record of the Trust. Because most of the Trust’s Shares are held by brokers and other institutions on behalf of shareholders, we are unable to estimate the total number of shareholders represented by these record holders. +Dividends +The Trust made no distributions to shareholders during the years ended December 31, 2025 and 2024. The Trust has no obligation to make periodic distributions to shareholders. +Recent Sales of Unregistered Shares +Prior to the Uplisting Date, the Registrant had distributed 7,234,135 Shares at varying prices determined by reference to the NAV per Share to selected “accredited investors,” within the meaning of Rule 501 of Regulation D under the Securities Act. The Shares were sold in connection with an ongoing offering pursuant to Rule 506(c) of Regulation D under the Securities Act. Genesis acted as the Authorized Participant with respect to these distributions. In exchange for these sales, the Trust received an aggregate of 551,985.97201267 SOL. Because Shares have been, and continue to be, created and issued on a periodic basis, a “distribution,” as such term is used in the Securities Act, may be occurring from time to time. As a result, an Authorized Participant facilitating the creation of Shares and acting as a distributor and marketer during any such period may be deemed an “underwriter” under Section 2(a)(11) of the Securities Act. No underwriting discounts or commissions were paid to an Authorized Participant with respect to such sales. +Purchases of Equity Securities +Although the Trust does not purchase Shares directly from its shareholders, in connection with its redemption of Baskets from Authorized Participants during the three months ended December 31, 2025, the Trust redeemed the following Shares: +Period +Total Number of Shares of GSOL Redeemed +Average Price Paid per Share of GSOL (1) +October 1, 2025 - October 31, 2025 +- +$ +- +November 1, 2025 - November 30, 2025 +- +- +December 1, 2025 - December 31, 2025 +- +- +Total +- +$ +- +(1) +The Price Paid per Share is based on the NAV per Share, which is derived from the Index Price as represented by the Index as of 4:00 p.m., New York time, on the valuation date. The Trust’s NAV per Share is calculated using a non-GAAP methodology where the price is derived from multiple Digital Asset Trading Platforms. +Item 6. [ R e served] +94 +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +The following discussion and analysis of our financial condition and results of operations should be read together with, and is qualified in its entirety by reference to, our audited financial statements and related notes included elsewhere in this Annual Report, which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The following discussion may contain forward-looking statements based on assumptions we believe to be reasonable. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Annual Report, particularly in “Item 1A. Risk Factors” and “Forward-Looking Statements.” +Trust Overview +The Trust is a passive entity that is managed and administered by the Sponsor and does not have any officers, directors or employees. The Trust holds SOL and, from time to time on a periodic basis, issues Creation Baskets in exchange for deposits of SOL. On October 28, 2025, in connection with the approval for listing and trading of the Shares of the Trust under the Generic Listing Standards and the effectiveness of the registration statement on Form S-1, as amended (File No. 333-286374), the Sponsor authorized the commencement of a redemption program. Shares of the Trust began trading on NYSE Arca on October 29, 2025, following the effectiveness of the Trust’s registration statement on Form S-1, as amended. The Trust issues Shares only in one or more blocks of 10,000 Shares (a block of 10,000 Shares is called a “Basket”) to certain Authorized Participants from time to time. Baskets are offered in exchange for SOL. Through its redemption program, the Trust redeems Shares from Authorized Participants on an ongoing basis. As a passive investment vehicle, the Trust’s investment objective is for the value of the Shares (based on SOL per Share) to reflect the value of the SOL held by the Trust, including SOL earned as Staking Consideration, determined by reference to the Index Price, less the Trust’s expenses and other liabilities. While an investment in the Shares is not a direct investment in SOL, the Shares are designed to provide investors with a cost-effective and convenient way to gain investment exposure to SOL. The Trust is not managed like a business corporation or an active investment vehicle. The Trust will not utilize leverage, derivatives or any similar arrangements in seeking to meet its investment objective. +Historically, the Trust has not met its investment objective and, prior to their uplisting to NYSE Arca on October 29, 2025, the Shares quoted on OTCQX did not reflect the value of the SOL held by the Trust, less the Trust’s expenses and other liabilities, but instead have traded at both premiums and discounts to such value, which at times were substantial, although the Sponsor has observed that the Trust has begun to meet its investment objective more closely following the uplisting of the Shares to NYSE Arca. +Staking +On October 6, 2025, the Trust began staking its SOL pursuant to staking arrangements with the Custodian and certain third-party staking providers. As a result, the Trust may earn staking rewards in the form of additional SOL (“Staking Consideration”). +The amount of Staking Consideration received by the Trust, if any, may vary from period to period and is influenced by a number of factors, including prevailing Solana Network conditions, protocol-level reward rates, the amount of SOL held by the Trust during the period, and the portion of the Trust’s SOL that is staked. Because staking rewards are determined by network-level mechanics rather than by the Trust or the Sponsor, the Trust does not expect Staking Consideration to be earned at a consistent rate. +Pursuant to the Trust’s staking arrangements and the Trust Agreement, a portion of gross Staking Consideration is allocated among the Custodian, the applicable staking provider(s), and the Sponsor (the “Sponsor’s Staking Fee”), with the Trust retaining the remainder. The net amount of Staking Consideration retained by the Trust increases the Trust’s SOL holdings, while any SOL distributed or sold for cash in connection with distributions reduces the Trust’s SOL holdings by the amount distributed or sold. +From time to time, the Trust may distribute SOL (or cash from the sale of SOL) received as Staking Consideration to shareholders, although the timing and amount of any such distributions, if made, are subject to the Sponsor’s discretion and applicable requirements under the Trust Agreement. Shareholders may incur tax liabilities with respect to Staking Consideration regardless of whether the Trust makes corresponding distributions. +Staking introduces additional operational, liquidity, regulatory and tax considerations for the Trust. In particular, staked SOL may be inaccessible for a period of time required to un-stake and withdraw SOL under Solana Network protocols, and the Trust remains dependent on third-party staking providers and related technical systems for the execution of staking activities. These considerations, and the risks associated with staking, are discussed further under “Item 1. Business—Staking” and “Item 1A. Risk Factors—Risk Factors Related to Staking.” +95 +Critical Accounting Policies and Estimates +Investment Transactions and Revenue Recognition +The Trust considers investment transactions to be the receipt of SOL by the Trust in connection with Share creations and the delivery of SOL by the Trust in connection with Share redemptions or for payment of expenses in SOL. Prior to October 29, 2025, the Trust was not accepting redemption requests, however the Sponsor has since authorized the commencement of the Trust’s redemption program on October 28, 2025 in connection with the uplisting of the Shares to NYSE Arca. The Trust records its investment transactions on a trade date basis and changes in fair value are reflected as net change in unrealized appreciation or depreciation on investments. Realized gains and losses are calculated using the specific identification method. Realized gains and losses are recognized in connection with transactions including settling obligations for the Sponsor’s Fee in SOL. +Principal Market and Fair Value Determination +To determine which market is the Trust’s principal market (or in the absence of a principal market, the most advantageous market) for purposes of calculating the Trust’s net asset value in accordance with U.S. GAAP (“Principal Market NAV”), the Trust follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820-10, Fair Value Measurement, which outlines the application of fair value accounting. ASC 820-10 determines fair value to be the price that would be received for SOL in a current sale, which assumes an orderly transaction between market participants on the measurement date. ASC 820-10 requires the Trust to assume that SOL is sold in its principal market to market participants or, in the absence of a principal market, the most advantageous market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. +The Trust only receives SOL in connection with a creation order from the Authorized Participant (or a Liquidity Provider) and does not itself transact on any Digital Asset Markets. Therefore, the Trust looks to market-based volume and level of activity for Digital Asset Markets. The Authorized Participant(s), or a Liquidity Provider, may transact in a Brokered Market, a Dealer Market, Principal-to-Principal Markets and Exchange Markets (referred to as “Trading Platform Markets” in this Annual Report), each as defined in the FASB ASC Master Glossary (collectively, “Digital Asset Markets”). +In determining which of the eligible Digital Asset Markets is the Trust’s principal market, the Trust reviews these criteria in the following order: +• +First, the Trust reviews a list of Digital Asset Markets that maintain practices and policies designed to comply with anti-money laundering (“AML”) and know-your-customer (“KYC”) regulations, and non-Digital Asset Trading Platform Markets that the Trust reasonably believes are operating in compliance with applicable law, including federal and state licensing requirements, based upon information and assurances provided to it by each market. +• +Second, the Trust sorts these Digital Asset Markets from high to low by market-based volume and level of activity of SOL traded on each Digital Asset Market in the trailing twelve months. +• +Third, the Trust then reviews pricing fluctuations and the degree of variances in price on Digital Asset Markets to identify any material notable variances that may impact the volume or price information of a particular Digital Asset Market. +• +Fourth, the Trust then selects a Digital Asset Market as its principal market based on the highest market-based volume, level of activity and price stability in comparison to the other Digital Asset Markets on the list. Based on information reasonably available to the Trust, Trading Platform Markets have the greatest volume and level of activity for the asset. The Trust therefore looks to accessible Trading Platform Markets as opposed to the Brokered Market, Dealer Market and Principal-to-Principal Markets to determine its principal market. As a result of the aforementioned analysis, a Trading Platform Market has been selected as the Trust’s principal market. +96 +The Trust determines its principal market (or in the absence of a principal market the most advantageous market) annually and conducts a quarterly analysis to determine (i) if there have been recent changes to each Digital Asset Market’s trading volume and level of activity in the trailing twelve months, (ii) if any Digital Asset Markets have developed that the Trust has access to, or (iii) if recent changes to each Digital Asset Market’s price stability have occurred that would materially impact the selection of the principal market and necessitate a change in the Trust’s determination of its principal market. +The cost basis of the SOL received by the Trust in connection with a creation order is recorded by the Trust at the fair value of SOL at 4:00 p.m., New York time, on the creation date for financial reporting purposes. The cost basis recorded by the Trust may differ from proceeds collected by the Authorized Participant from the sale of the corresponding Shares to investors. +Investment Company Considerations +The Trust is an investment company for U.S. GAAP purposes and follows accounting and reporting guidance in accordance with the FASB ASC Topic 946, Financial Services—Investment Companies. The Trust uses fair value as its method of accounting for SOL in accordance with its classification as an investment company for accounting purposes. The Trust is not a registered investment company un der the Investment Company Act. U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates and these differences could be material. +Review of Financial Results +Financial Highlights for the Years ended December 31, 2025, 2024 and 2023 +(All amounts in the following table and the subsequent paragraphs, except Share, per Share, SOL and price of SOL amounts, are in thousands) +For the Years Ended December 31, +2025 +2024 +2023 +Net realized and unrealized (loss) gain on investment in SOL +$ +(48,914 +) +$ +34,051 +$ +15,097 +Net (decrease) increase in net assets resulting from operations +$ +(49,327 +) +$ +32,293 +$ +14,995 +Net assets (1) +$ +160,357 +$ +102,631 +$ +25,190 +(1) +Net assets in the above table and subsequent paragraphs are calculated in accordance with U.S. GAAP based on the Digital Asset Market price of SOL on the Digital Asset Trading Platform that the Trust considered its principal market, as of 4:00 p.m., New York time, on the valuation date. +Net realized and unrealized loss on investment in SOL for the year ended December 31, 2025 was ($48,914), which includes a real ized gain of $516 on the transfer of SOL to pay expenses, net change in unrealized appreciation/depreciation on investment in SOL of (49,455), and net change in unrealized appreciation/depreciation on Sponsor’s Staking Fee in SOL of $25. Net realized and unrealized loss on investment in SOL for the period was driven by SOL price depreciation from $193.69 per SOL as of December 31, 2024, to $123.97 per SOL as of December 31, 2025. Net decrease in net assets resulting from operations was ($49,327) for the year ended December 31, 2025, which consisted of the net realized and unrealized loss on investment in SOL and net investment loss of ($413). Net assets increased to $160,357 at December 31, 2025, a 56% increase for the year. The increase in net assets resulted from the contribution of approximately 763,741 SOL with a value of $107,053 to the Trust in connection with Share creations during the period and the contribution of approximately 11,419 SOL (of which approximately 343 SOL with a value of $43 to the Trust was a receivable) with a value of $1,611 in connection with Staking Rewards, partially offset by the aforementioned SOL price depreciation and the redemption of approximately 10,943 SOL to pay the foregoing Sponsor’s Fee and the payable of approximately 569 SOL to pay the foregoing Sponsor’s Staking Fee. +Net realized and unrealized gain on investment in SOL for the year ended December 31, 2024 was $34,051, which includes a realized gain of $433 on the transfer of SOL to pay the Sponsor’s Fee and net change in unrealized appreciation/depreciation on investment in SOL of $33,618. Net realized and unrealized gain on investment in SOL for the period was driven by SOL price appreciation from $104.79 per SOL as of December 31, 2023 to $193.69 per SOL as of December 31, 2024. Net increase in net assets resulting from operations was $32,293 for the year ended December 31, 2024, which consisted of the net realized and unrealized gain on investment in SOL, less the Sponsor’s Fee of $1,758. Net assets increased to $102,631 at December 31, 2024, a 307% increase for the year. The increase in net assets resulted from the aforementioned SOL price appreciation and the contribution of approximately 300,450 SOL with a value of $45,149 to the Trust in connection with Share creations, partially offset by the withdrawal of approximately 10,957 SOL to pay the foregoing Sponsor’s Fee. +97 +Net realized and unrealized gain on investment in SOL for the year ended December 31, 2023 was $15,097, which includes a realized loss of ($290) on the transfer of SOL to pay the Sponsor’s Fee and net change in unrealized appreciation/depreciation on investment in SOL of $15,387. Net realized and unrealized gain on investment in SOL for the period was driven by SOL price appreciation from $10.09 per SOL as of December 31, 2022 to $104.79 per SOL as of December 31, 2023. Net increase in net assets resulting from operation s was $14,995 for the year ended December 31, 2023, which consisted of the net realized and unrealized gain on investment in SOL, less the Sponsor’s Fee of $102. Net assets increased to $25,190 at December 31, 2023, a 2008% increase for the year. The increase in net assets resulted from the aforementioned SOL price appreciation and the contribution of approximately 125,094 SOL with a value of $8,999 to the Trust in connection with Share creations, partially offset by the withdrawal of approximately 3,128 SOL to pay the foregoing Sponsor’s Fee. +Cash Resources and Liquidity +The Trust only receives and holds cash in order to facilitate creations and redemptions pursuant to Cash Orders, and has not otherwise had or maintained a cash balance at any time since inception. When selling SOL in the Digital Asset Market to pay Additional Trust Expenses on behalf of the Trust, the Sponsor endeavors to sell the exact amount of SOL needed to pay expenses in order to minimize the Trust’s holdings of assets other than SOL. In addition, upon the consummation or deemed failure of a Cash Order to create or redeem Baskets, the Trust will promptly return any excess cash it continues to hold with respect to such Cash Order to the applicable counterparty. As a consequence, the Sponsor expects that the Trust will not record any cash flow from its operations and that its cash balance will be zero at the end of each reporting period. Furthermore, the Trust is not a party to any off-balance sheet arrangements. +Generally, the Trust does not intend to hold cash, except in connection with Cash Orders for creations or redemptions of Baskets. Cash includes non-interest bearing non-restricted cash with one institution. Cash in a bank deposit account, at times, may exceed U.S. federally insured limits. The Trust has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risk on such bank deposits. +In exchange for the Sponsor’s Fee, the Sponsor has agreed to assume most of the expenses incurred by the Trust. As a result, the only ordinary expense of the Trust expected to be incurred is the Sponsor’s Fee. +The Sponsor, from time to time, may temporarily waive all or a portion of the Sponsor’s Fee of the Trust in its discretion for stated periods of time. Effective November 5, 2025, the Sponsor has determined to waive a portion of the Sponsor’s Fee until the earlier of (x) February 5, 2026 and (y) the first date on which the NAV of the Trust exceeds $1.0 billion (such period, the “Fee Waiver Period”). If the Trust’s NAV exceeded $1.0 billion prior to February 5, 2026, the Sponsor’s Fee charged on assets over $1.0 billion would have become 0.35%. All investors will incur the same Sponsor’s Fee, which is the weighted average of those fee rates. Following the expiration of the Fee Waiver Period on February 5, 2026, the effective Sponsor’s Fee is now 0.35%. From November 5, 2025 to December 31, 2025, the Trust’s assets did not exceed $1.0 billion and no Sponsor’s Fee had been incurred. +The Trust is not aware of any trends, demands, conditions or events that are reasonably likely to result in material changes to its liquidity needs. +Selected Operating Data +As of December 31, +2025 +2024 +2023 +Price of SOL on principal market +$ +123.97 +$ +193.69 +$ +104.79 +Principal Market NAV per Share (1)(2) +$ +9.09 +$ +14.33 +$ +7.95 +Principal Market NAV (2) +$ +160,357,924 +$ +102,631,276 +$ +25,189,559 +Index Price +$ +124.02 +$ +193.76 +$ +104.63 +NAV per Share (1)(3) +$ +9.10 +$ +14.34 +$ +7.94 +NAV (Non-GAAP) (3) +$ +160,422,600 +$ +102,668,367 +$ +25,151,098 +(1) +Share and per Share amounts for periods presented prior to the Share Split have been retroactively adjusted for the 5-for-1 Share Split of the Trust’s issued and outstanding Shares completed on December 9, 2024. +(2) +The Principal Market NAV and Principal Market NAV per Share are calculated using the fair value of SOL based on the price provided by the Digital Asset Trading Platform that the Trust considered its principal market, as of 4:00 p.m., New York time, on the valuation date, in accordance with U.S. GAAP. +(3) +The Trust’s NAV and NAV per Share are derived from the Index Price as represented by the Index as of 4:00 p.m., New York time, on the valuation date. The Trust’s NAV per Share is calculated using a non-GAAP methodology where the price is derived from multiple Digital Asset Trading Platforms. +98 +Historical NAV and SOL Prices +As movements in the price of SOL will directly affect the price of the Shares, investors should understand recent movements in the price of SOL. Investors, however, should also be aware that past movements in the SOL price are not indicators of future movements. Movements may be influenced by various factors, including, but not limited to, government regulation, security breaches experienced by service providers, as well as political and economic uncertainties around the world. +The Trust’s performance prior to October 29, 2025 is based on market-determined prices on the OTCQX marketplace and on the Trust’s performance without an ongoing share creation and redemption program. Prior to October 29, 2025, the Trust’s Shares traded at both premiums and discounts to the value of the Trust’s assets, less its expenses and other liabilities, which at times were substantial, in part due to the lack of an ongoing redemption program. Effective as of October 29, 2025, the Trust established an ongoing share creation and redemption program and the Shares of the Trust were listed to NYSE Arca. Hence, the Trust’s performance for periods prior to October 29, 2025 is not directly comparable to, and should not be used to make conclusions in conjunction with, the Trust’s performance for periods subsequent to October 29, 2025. +The following chart illustrates the movement in the Trust’s NAV per Share (as adjusted for the Reverse Share Splits and Share Split for periods prior to June 23, 2022, March 20, 2023, and December 9, 2024, respectively) versus the Index Price and the Trust’s Principal Market NAV per Share (as adjusted for the Reverse Share Splits and Share Split for periods prior to June 23, 2022, March 20, 2023, and December 9, 2024, respectively) from November 18, 2021 (the commencement of the Trust’s operations) to December 31, 2025. For more information on the determination of the Trust’s NAV, see “Item 1. Business—Overview of the Solana Industry and Market—SOL Value—The Index and the Index Price.” +99 +The following table illustrates the movements in the Index Price from November 18, 2021 (the commencement of the Trust’s operations) to December 31, 2025. The Sponsor has not observed a material difference between the Index Price and average prices from the Constituent Trading Platforms individually or as a group. +High +Low +Period +Average +Index Price +Date +Index Price +Date +End of +period +Last +business +day +November 18, 2021 (the commencement of the Trust’s operations) to December 31, 2021 +$ +192.12 +$ +228.15 +12/2/2021 +$ +156.13 +12/14/2021 +$ +172.57 +$ +172.57 +Twelve months ended December 31, 2022 +$ +64.37 +$ +274.60 +4/2/2022 +$ +8.29 +12/29/2022 +$ +10.09 +$ +9.86 +Twelve months ended December 31, 2023 +$ +29.28 +$ +119.53 +12/25/2023 +$ +9.98 +1/1/2023 +$ +104.63 +$ +104.84 +Twelve months ended December 31, 2024 +$ +155.17 +$ +255.64 +11/23/2024 +$ +81.25 +1/23/2024 +$ +193.76 +$ +193.76 +Twelve months ended December 31, 2025 +$ +169.91 +$ +277.39 +1/19/2025 +$ +103.89 +4/8/2025 +$ +124.02 +$ +124.02 +November 18, 2021 (the commencement of the Trust’s operations) to December 31, 2025 +$ +107.27 +$ +277.39 +1/19/2025 +$ +8.29 +12/29/2022 +$ +124.02 +$ +124.02 +The following table illustrates the movements in the Digital Asset Market price of SOL, as reported on the Trust’s principal market, from November 18, 2021 (the commencement of the Trust’s operations) to December 31, 2025. +High +Low +Period +Average +Digital Asset Market Price +Date +Digital Asset Market Price +Date +End of +period +Last +business +day +November 18, 2021 (the commencement of the Trust’s operations) to December 31, 2021 +$ +193.26 +$ +239.94 +12/2/2021 +$ +151.98 +12/13/2021 +$ +168.25 +$ +168.25 +Twelve months ended December 31, 2022 +$ +58.07 +$ +177.75 +1/1/2022 +$ +8.29 +12/29/2022 +$ +10.09 +$ +9.86 +Twelve months ended December 31, 2023 +$ +29.28 +$ +119.79 +12/25/2023 +$ +9.97 +1/1/2023 +$ +104.79 +$ +104.82 +Twelve months ended December 31, 2024 +$ +155.17 +$ +255.75 +11/23/2024 +$ +81.17 +1/23/2024 +$ +193.69 +$ +193.69 +Twelve months ended December 31, 2025 +$ +169.90 +$ +280.00 +1/19/2025 +$ +103.92 +4/8/2025 +$ +123.97 +$ +123.97 +November 18, 2021 (the commencement of the Trust’s operations) to December 31, 2025 +$ +105.78 +$ +280.00 +1/19/2025 +$ +8.29 +12/29/2022 +$ +123.97 +$ +123.97 +100 +The following chart sets out the historical closing prices for the Shares as reported by OTCQX and the Trust’s NAV per Share from April 19, 2023 to October 28, 2025. +GSOL Premium/(Discount): GSOL Share Price vs. NAV per Share (Non-GAAP) ($) +The following chart sets out the historical closing prices for the Shares as reported by NYSE Arca from October 29, 2025 to December 31, 2025 and the Trust’s NAV per Share from October 29, 2025 to December 31, 2025. +GSOL Premium/(Discount): GSOL Share Price vs. NAV per Share (Non-GAAP) ($) +The following chart sets out the historical premium and discount for the Shares calculated as a percentage of the historical closing prices for the Shares as reported by OTCQX and the Trust’s NAV per Share from April 19, 2023 to October 28, 2025. +101 +GSOL Premium/(Discount): GSOL Share Price vs. NAV per Share (Non-GAAP) (%) +The following chart sets out the historical premium and discount for the Shares calculated as a percentage of the historical closing prices for the Shares as reported by NYSE Arca from October 29, 2025 to December 31, 2025 divided by the Trust’s NAV per Share from October 29, 2025 to December 31, 2025. +GSOL Premium/(Discount): GSOL Share Price vs. NAV per Share (Non-GAAP) (%) +102 +Item 7A. Quantitative and Qualitat ive Disclosures about Market Risk +The Trust Agreement does not authorize the Trust to borrow for payment of the Trust’s ordinary expenses. The Trust does not engage in transactions in foreign currencies which could expose the Trust or holders of Shares to any foreign currency related market risk. The Trust does not invest in derivative financial instruments and has no foreign operations or long-term debt instruments. +Item 8. Financial Statemen ts and Supplementary Data +See Index to Financial Statements on page F-1 for a list of the financial statements being filed therein. +Item 9. Changes in and Disagreements with Accou ntants on Accounting and Financial Disclosure +There have been no disagreements with accountants on any matter of accounting principles or practices or financial statement disclosures during the year ended December 31, 2025. +103 +Item 9A. Control s and Procedures +Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures +The Trust maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Principal Executive Officer and Principal Financial and Accounting Officer of the Sponsor, and to the audit committee of the Sponsor, as appropriate, to allow timely decisions regarding required disclosure. +Under the supervision and with the participation of the Principal Executive Officer and the Principal Financial and Accounting Officer of the Sponsor, the Sponsor conducted an evaluation of the Trust’s disclosure controls and procedures, as defined under Exchange Act Rule 13a-15(e). Based on this evaluation, the Principal Executive Officer and the Principal Financial and Accounting Officer of the Sponsor concluded that, as of December 31, 2025, the Trust’s disclosure controls and procedures were effective. +Management’s Report on Internal Control over Financial Reporting +This annual report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the Trust’s registered public accounting firm due to a transition period established by rules of the SEC for newly public companies. In addition, because we are an “emerging growth company” under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting for so long as we are an emerging growth company. +Changes in Internal Control Over Financial Reporting +There was no change in the Trust’s internal controls over financial reporting that occurred during the Trust’s most recently completed fiscal quarter ended December 31, 2025 that has materially affected, or is reasonably likely to materially affect, these internal controls. +Item 9B. Other Information +No t applicable. +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not applicable. +104 +PART III +Item 10. Directors, Executive Of ficers and Corporate Governance +Management of the Sponsor +The Trust does not have any directors, officers or employees. Under the Trust Agreement, all management functions of the Trust have been delegated to and are conducted by the Sponsor, its agents and its affiliates, including without limitation, the Custodian and its agents. As officers of the Sponsor, Peter Mintzberg, the principal executive officer of the Sponsor, and Edward McGee, the principal financial and accounting officer of the Sponsor, may take certain actions and execute certain agreements and certifications for the Trust, in their capacity as the principal officers of the Sponsor. +As of and prior to December 31, 2024, GSI had a board of directors that was responsible for managing and directing the affairs of the Sponsor. From January 1, 2025 to October 22, 2025, GSO Intermediate Holdings Corporation (“GSOIH”), a Delaware corporation formed in connection with the Reorganization, which was the sole managing member of GSO and an indirect subsidiary of DCG, had a board of directors which was responsible for managing and directing the affairs of the Sponsor. +On October 22, 2025, GSOIH consummated an internal corporate reorganization (the “Management Reorganization”), pursuant to which GSOIH transferred a portion of its common membership units of GSO for Class A shares of Grayscale Investments, Inc. (“Grayscale Investments”), a Delaware corporation incorporated in connection with the Management Reorganization, and ceded its managing member rights in GSO to Grayscale Investments. As a result of the Management Reorganization, Grayscale Investments is now the sole managing member of GSO, the sole member of the Sponsor. +From and after October 22, 2025, as a result of the Management Reorganization, DCG Grayscale Holdco, LLC (“DCG Holdco”), the sole stockholder of Grayscale Investments, elected a board of directors (the “Board”) at Grayscale Investments. As a result of the Management Reorganization, the Board of Grayscale Investments is responsible for managing and directing the affairs of the Sponsor and consists of Barry Silbert, Mark Shifke, Simon Koster, Peter Mintzberg and Edward McGee, the same members as the board of directors of GSOIH prior to the Management Reorganization. Mr. Mintzberg and Mr. McGee also retain the authority granted to them as officers of the Sponsor under the limited liability company agreement of the Sponsor. +The Sponsor has an Audit Committee. The Audit Committee has the responsibility for overseeing the financial reporting process of the Trust, including the risks and controls of that process and such other oversight functions as are typically performed by an audit committee of a public company. +The Sponsor has a code of ethics (the “Code of Ethics”) that applies to its executive officers and agents. The Code of Ethics is available by writing the Sponsor at 290 Harbor Drive, 4th Floor, Stamford, Connecticut 06902 or calling the Sponsor at (212) 668-1427. The Sponsor’s Code of Ethics is intended to be a codification of the business and ethical principles that guide the Sponsor, and to deter wrongdoing, to promote honest and ethical conduct, to avoid conflicts of interest, and to foster compliance with applicable governmental laws, rules and regulations, the prompt internal reporting of violations and accountability for adherence to this code. +Prior to January 1, 2025, references to the “Sponsor” in this section refer to GSI, and thereafter refer to GSO or GSIS, as applicable. In connection with the Reorganization, the former Board of GSI was reconstituted at GSOIH and in connection with the Management Reorganization, the former board of GSOIH was reconstituted at Grayscale Investments. Prior to January 1, 2025, any references to the “Board” refer to the board of directors of Grayscale Investments, LLC, the former sponsor of the Trust. From January 1, 2025 to October 22, 2025, any references to the “Board” refer to the board of directors of GSOIH. From and after October 22, 2025, any references to the “Board” refer to the board of directors of Grayscale Investments. +Barry Silbert, Chairman of the Board +Barry Silbert, 49, is the Founder and Chief Executive Officer of DCG and has served as chairman of the Board since August 2025 (previously served as a director and chairman of the Board from February 2020 through December 2023). Until January 2021, Mr. Silbert was the Chief Executive Officer of the Sponsor. A pioneer in blockchain investing, Mr. Silbert established himself in 2012 as one of the earliest and most active investors in the industry. Mr. Silbert founded DCG in 2015 and today, it is one of the world’s most prolific investors in decentralized technologies, backing over 250 early-stage companies in more than 40 countries. Mr. Silbert founded Yuma, a decentralized AI-focused subsidiary of DCG, where he also serves as CEO. Yuma invests in, builds, and scales the Bittensor network. The Sponsor is a consolidated subsidiary of DCG. DCG also owns Foundry, Fortitude, Luno and Yuma. DCG also invests directly in digital currencies and other digital assets. Prior to leading DCG, Mr. Silbert was the founder and CEO of SecondMarket, a venture-backed technology company that was acquired by Nasdaq. Mr. Silbert has received numerous awards and accolades, including being named “Entrepreneur of the Year” by both Ernst & Young and Crain’s, and being selected to Fortune’s prestigious “40 under 40” list. Before becoming an entrepreneur, Mr. Silbert worked as an investment banker. He graduated with honors from the Goizueta Business School of Emory University. +105 +Mark Shifke, Board Member +Mark Shifke, 66, is the Chief Financial Officer of DCG and has served as a director of the Board since January 2024. Since March 2021, Mr. Shifke has served on the board of directors of Dock Ltd., a full-stack payments and digital banking platform. Since September 2023, Mr. Shifke has served on the board of directors of Luno, a cryptocurrency platform. Mr. Shifke has nearly four decades of financial and fintech experience, and more than eight years of CFO experience leading two publicly-traded companies. Prior to joining DCG, Mr. Shifke served as CFO of Billtrust, a company focused on providing AR and cloud-based solutions around payments, and as CFO of Green Dot (NYSE: GDOT), a mobile banking company and payments platform. Previously, Mr. Shifke led teams at JPMorgan Chase and Goldman Sachs, specializing in M&A Structuring and Advisory, as well as Tax Asset Investments. Mr. Shifke also served as the Head of International Structured Finance Group at KPMG. Mr. Shifke began his career at Davis Polk, where he was a partner. He is a graduate of Tulane University (B.A./J.D.) and the New York University School of Law (LL.M. in Taxation). +Simon Koster, Board Member +Simon Koster, 44, is the Chief Strategy Officer of DCG and has served as a director of the Board since October 2025. As CSO, Mr. Koster leads the investment team, managing the portfolio comprised of digital assets, wholly owned subsidiaries, and more than 250 early-stage companies in over 35 nations across the world as of the date of this filing. Prior to his current role, Mr. Koster was the CEO of Real Estate at DCG, spearheading both internal and external real estate ventures. Previously, he served as CEO of The Collective and brings a decade of real estate experience from JDS Development Group, where he was instrumental in the acquisition and development of top-tier residential, hospitality, and mixed-use projects in New York City and Miami. He is a graduate of Rutgers University (B.S.) and holds a Master’s degree in Engineering from the University of Michigan. Mr. Koster has served on the board of directors of Foundry and Luno since 2023. He has served as a director of Fortitude since 2024 and as a director of Yuma since 2025. Each of Foundry, Luno, Fortitude and Yuma are affiliated with the registrant. +Peter Mintzberg, Board Member and Chief Executive Officer +Peter Mintzberg, 57, has been the Chief Executive Officer of the Sponsor and has served as a director of the Board since August 2024. Mr. Mintzberg joins the Sponsor from Goldman Sachs, where he served as Global Head of Strategy for Asset and Wealth Management. Prior, he held several global leadership roles in Strategy, M&A, and Investor Relations at BlackRock, Apollo, OppenheimerFunds, and Invesco. With deep knowledge across a broad base of client types and asset classes, Mr. Mintzberg has over two decades of experience developing and executing strategy and innovating to drive growth. Mr. Mintzberg started his career working at McKinsey & Co. in New York, San Francisco, and São Paulo, focused on the financial services and technology sectors. Mr. Mintzberg was recognized as a Latino leader in Finance by The Alumni Society in 2018, and was selected as a David Rockefeller Fellow in the 2016-2017 Class by the Partnership for New York City. He earned a bachelor’s degree in engineering from the Universidade Federal Rio de Janeiro, and an MBA from Harvard University. +Edward McGee, Board Member and Chief Financial Officer +Edward McGee, 42, has been the Chief Financial Officer of the Sponsor since January 2022 and has served as a director of the Sponsor since January 2024. Before serving as CFO, Mr. McGee was Vice President, Finance and Controller of the Sponsor since June 2019. Prior to taking on his role at the Sponsor, Mr. McGee served as a Vice President, Accounting Policy at Goldman, Sachs & Co. providing coverage to their SEC Financial Reporting team facilitating the preparation and review of their financial statements and provided U.S. GAAP interpretation, application and policy development while servicing their Special Situations Group, Merchant Banking Division and Urban Investments Group from 2014 to 2019. From 2011 to 2014, Mr. McGee was an auditor at Ernst & Young providing assurance services to publicly listed companies. Mr. McGee earned his Bachelor of Science degree in accounting from the John H. Sykes College of Business at the University of Tampa and graduated with honors while earning his Master of Accountancy in Financial Accounting from the Rutgers Business School at the State University of New Jersey. Mr. McGee is a Certified Public Accountant licensed in the state of New York. +Item 11. Executi ve Compensation +Not applicable. +Item 12. Security Ownership of Certain Beneficial Ow ners and Management and Related Stockholder Matters +Securities Authorized for Issuance under Equity Compensation Plans and Related Stockholder Matters +Not applicable. +106 +Security Ownership of Certain Beneficial Owners and Management +The Trust does not have any directors, officers or employees. The following table sets forth certain information with respect to the beneficial ownership of the Shares for (i) each person that, to the Sponsor’s knowledge based on the records of the Transfer Agent and other ownership information provided to the Sponsor, owns beneficially a significant portion of the Shares; (ii) each director and executive officer of the Sponsor individually; and (iii) all directors and executive officers of the Sponsor as a group. +The number of Shares beneficially owned and percentages of beneficial ownership set forth below are based on the number of Shares outstanding as of March 6, 2026. +In accordance with the rules of the SEC, beneficial ownership includes voting or investment power with respect to securities. +Name and Address of Beneficial Owner +Amount and +Nature of +Beneficial +Ownership +Percentage of +Beneficial +Ownership +Significant Shareholders: +Digital Currency Group, Inc. (1) +* +* % +Directors & Executive Officers of the Sponsor: (2) +Barry Silbert (3) +* +* % +Mark Shifke +* +* % +Simon Koster +* +* % +Peter Mintzberg +* +* % +Edward McGee +* +* % +Directors & Executive Officers of the Sponsor as a group +* +* % +(1) +Barry Silbert is the Chief Executive Officer of DCG and in such capacity may be deemed to have voting and dispositive power over the securities held, directly or indirectly, by such entity. +(2) +The Trust does not have any directors, officers or employees. Under the Trust Agreement, all management functions of the Trust have been delegated to and are conducted by the Sponsor, its agents and its affiliates. +(3) +Does not include Shares beneficially owned through DCG. +* Represents beneficial ownership of less than 1%. +Unless otherwise indicated, the address for each shareholder listed in the table above is c/o Grayscale Investments Sponsors, LLC, 290 Harbor Drive, 4 th Floor, Stamford, Connecticut 06902. +Item 13. Certain Relationships and Relate d Transactions and Director Independence +General +The Sponsor has not established formal procedures to resolve all potential conflicts of interest. Consequently, shareholders may be dependent on the good faith of the respective parties subject to such conflicts to resolve them equitably. Although the Sponsor attempts to monitor these conflicts, it is extremely difficult, if not impossible, for the Sponsor to ensure that these conflicts do not, in fact, result in adverse consequences to the Trust. +The Sponsor presently intends to assert that shareholders have, by subscribing for Shares of the Trust, consented to the following conflicts of interest in the event of any proceeding alleging that such conflicts violated any duty owed by the Sponsor to investors. +Digital Currency Group, Inc. +DCG is (i) the indirect parent company of the Sponsor, (ii) the indirect parent company of Grayscale Securities, the Authorized Participant from October 3, 2022 through October 28, 2025, and (iii) a minority interest holder in Kraken, one of the Digital Asset Trading Platforms included in the Index, representing less than 1.0% of its equity. +DCG has investments in a large number of digital assets and companies involved in the digital asset ecosystem, including trading platforms and custodians. DCG’s positions on changes that should be adopted in the Solana Network could be adverse to positions that would benefit the Trust or its shareholders. Additionally, before or after a hard fork, DCG’s position regarding which fork among a group of incompatible forks of the Solana Network should be considered the “true” Solana Network could be adverse to positions that would most benefit the Trust. +107 +The Sponsor +The Sponsor has a conflict of interest in allocating its own limited resources among, when applicable, different clients and potential future business ventures, to each of which it owes fiduciary duties. Additionally, the professional staff of the Sponsor also services other affiliates of the Trust, including several other digital asset investment vehicles, and their respective clients. Although the Sponsor and its professional staff cannot and will not devote all of its or their respective time or resources to the management of the affairs of the Trust, the Sponsor intends to devote, and to cause its professional staff to devote, sufficient time and resources to manage properly the affairs of the Trust consistent with its or their respective fiduciary duties to the Trust and others. +The Sponsor and Grayscale Securities are affiliates of each other, and the Sponsor may engage other affiliated service providers in the future. Because of the Sponsor’s affiliated status, it may be disincentivized from replacing affiliated service providers. In connection with this conflict of interest, shareholders should understand that affiliated service providers will receive fees for providing services to the Trust. Clients of the affiliated service providers may pay commissions at negotiated rates which are greater or less than the rate paid by the Trust. +The Sponsor and any affiliated service provider may, from time to time, have conflicting demands in respect of their obligations to the Trust and, in the future, to other clients. It is possible that future business ventures of the Sponsor and affiliated service providers may generate larger fees, resulting in increased payments to employees, and therefore, incentivizing the Sponsor and/or the affiliated service providers to allocate its/their limited resources accordingly to the potential detriment of the Trust. +There is an absence of arm’s length negotiation with respect to some of the terms of the Trust, and, where applicable, there has been no independent due diligence conducted with respect to the Trust. The Sponsor will, however, not retain any affiliated service providers for the Trust which the Sponsor has reason to believe would knowingly or deliberately favor any other client over the Trust. +Authorized Participants +Prior to October 3, 2022, Genesis, an affiliate of the Trust and the Sponsor, was the only Authorized Participant and was party to a participant agreement with the Sponsor and the Trust. From October 3, 2022 through October 28, 2025, Grayscale Securities, an affiliate of the Trust and the Sponsor, was the Authorized Participant. Effective October 29, 2025, the Sponsor, on behalf of the Trust, and the Transfer Agent entered into Participant Agreements with Jane Street Capital, LLC, Virtu Americas LLC, Macquarie Capital (USA) Inc., and ABN AMRO Clearing USA LLC, pursuant to which such entities have agreed to act as Authorized Participants. The Sponsor may engage additional Authorized Participants who are unaffiliated with the Trust in the future. +Proprietary Trading/Other Clients +Because the officers of the Sponsor may trade SOL for their own personal trading accounts (subject to certain internal trading policies and procedures) at the same time as they are managing the account of the Trust, the activities of the officers of the Sponsor, subject to their fiduciary duties, may, from time-to-time, result in their taking positions in their personal trading accounts which are opposite of the positions taken for the Trust. Records of the Sponsor’s officers’ personal trading accounts will not be available for inspection by shareholders. +Item 14. Principal Accou ntant Fees and Services +Fees for services performed by KPMG LLP (“KPMG”) for the years ended December 31, 2025 and 2024 were: +Years Ended December 31, +2025 +2024 +Audit fees +$ +124,800 +$ +67,600 +Total +$ +124,800 +$ +67,600 +In the table above, in accordance with the SEC’s definitions and rules, Audit Fees are fees paid to KPMG for professional services for the audit of the Trust’s financial statements included in the annual report on Form 10-K and review of financial statements included in the quarterly reports on Form 10-Q, and for services that are normally provided by the accountants in connection with regulatory filings or engagements. +Pre-Approved Policies and Procedures +The Trust has no board of directors, and as a result, has no audit committee or pre-approval policy with respect to fees paid to its principal accounting firm. Such determinations, including for the fiscal year ended December 31, 2025, are made by the Sponsor’s Board and Audit Committee. Prior to January 1, 2025, “Board” refers to the board of directors of Grayscale Investments, LLC, the former Sponsor of the Trust. From January 1, 2025, to October 22, 2025, “Board” refers to the board of directors of GSOIH. From and after October 22, 2025, “Board” refers to the board of directors of Grayscale Investments. +108 +PART IV +Item 15. Exhibits and Fina ncial Statements Schedules +1. Financial Statements +See Index to Financial Statements on Page F-1 for a list of the financial statements being filed herein. +2. Financial Statement Schedules +Schedules have been omitted since they are either not required, not applicable, or the information has otherwise been included. +3. Exhibits +Exhibit Number +Exhibit Description +3.1 +Certificate of Trust (incorporated by reference to Exhibit 3.1 of the Registration Statement on Form S-1 filed by the Registrant on April 4, 2025). +3.2 +Certificate of Amendment to Certificate of Trust (incorporated by reference to Exhibit 3.2 of the Registration Statement on Form S-1 filed by the Registrant on April 4, 2025). +3.3* +Certificate of Amendment to Certificate of Trust. +3.4* +Certificate of Amendment to Certificate of Trust. +4.1 +Second Amended and Restated Declaration of Trust and Trust Agreement, by and among CSC Delaware Trust Company, as trustee, and Grayscale Investments Sponsors, LLC, as sponsor (incorporated by reference to Exhibit 4.1 of the Registration Statement on Form S-1 filed by the Registrant on September 26, 2025). +4.2 +Amendment No. 1 to Second Amended and Restated Declaration of Trust and Trust Agreement (incorporated by reference to Exhibit 4.1 of the Form 8-K filed by the Registrant on October 29, 2025) . +4.3 +Amendment No. 2 to Second Amended and Restated Declaration of Trust and Trust Agreement(incorporated by reference to Exhibit 4.1 of the Form 8-K filed by the Registrant on January 5, 2026). +4.4 +Form of Participant Agreement (incorporated by reference to Exhibit 4.2 of the Registration Statement on Form S-1 filed by the Registrant on September 26, 2025). +4.5* +Description of Registrant’s Securities. +10.1† +Prime Broker Agreement (incorporated by reference to Exhibit 10.1 of the Registration Statement on Form S-1 filed by the Registrant on October 9, 2025). +10.2† +Staking Addendum to the Coinbase Custody Custodial Services Agreement, dated as of October 6, 2025, between the Sponsor, the Trust, and Coinbase, on behalf of itself and the Coinbase Entities (incorporated by reference to Exhibit 10.13 of the Registration Statement on Form S-1 filed by the Registrant on October 9, 2025). +10.3† +Fund Administration and Accounting Agreement (incorporated by reference to Exhibit 10.2 of the Registration Statement on Form S-1 filed by the Registrant on October 9, 2025). +10.4† +Index License Agreement, dated February 1, 2022, between the Sponsor, and the Index Provider (incorporated by reference to Exhibit 10.3 of the Registration Statement on Form S-1 filed by the Registrant on April 4, 2025). +10.5† +Amendment No. 1 to the Index License Agreement, dated June 20, 2023, between the Sponsor and Index Provider (incorporated by reference to Exhibit 10.4 of the Registration Statement on Form S-1 filed by the Registrant on April 4, 2025). +10.6† +Amendment No. 6 to the Index License Agreement, dated March 1, 2025, between the Sponsor and Index Provider (incorporated by reference to Exhibit 10.5 of the Registration Statement on Form S-1 filed by the Registrant on April 4, 2025). +10.7† +Marketing Agent Agreement (incorporated by reference to Exhibit 10.6 of the Registration Statement on Form S-1 filed by the Registrant on October 9, 2025). +109 +10.8† +Transfer Agency and Service Agreement (incorporated by reference to Exhibit 10.7 of the Registration Statement on Form S-1 filed by the Registrant on October 9, 2025). +10.9† +Co-Transfer Agency Agreement, dated October 9, 2025, between the Sponsor and the Co-Transfer Agent (incorporated by reference to Exhibit 10.8 of the Registration Statement on Form S-1 filed by the Registrant on October 9, 2025). +10.10† +Assignment and Assumption Agreement (incorporated by reference to Exhibit 10.9 of the Registration Statement on Form S-1 filed by the Registrant on April 4, 2025). +10.11† +Coinbase Assignment Agreement (incorporated by reference to Exhibit 10.10 of the Registration Statement on Form S-1 filed by the Registrant on April 4, 2025). +10.12† +Master Custody Service Agreement, dated August 8, 2025, between the Trust and Anchorage Digital Bank N.A. (incorporated by reference to Exhibit 10.11 of the Registration Statement on Form S-1 filed by the Registrant on September 26, 2025). +10.13 +Second Amendment to Master Custody Service Agreement, dated September 25, 2025, between the Trust and Anchorage Digital Bank N.A. (incorporated by reference to Exhibit 10.12 of the Registration Statement on Form S-1 filed by the Registrant on September 26, 2025). +10.14†* +Master Services Agreement, dated August 6, 2020, between Sponsor and the Secondary Index Provider. +31.1* +Certification by Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +31.2* +Certification by Principal Financial and Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32.1* +Certification by Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +32.2* +Certification by Principal Financial and Accounting Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97.1* +Recovery of Erroneously Awarded Compensation Policy. +101.INS* +Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. +101.SCH* +Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents. +104 +Cover Page Interactive Data File—The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document +* Filed herewith. +† Portions of this exhibit (indicated by asterisks) have been omitted as the Registrant has determined that (i) the omitted information is not material and (ii) the omitted information is of the type that the Registrant treats as private or confidential. +Item 16. Form 10-K Summary +Not applicable. +110 +Glossary of D efined Terms +In this Annual Report, each of the following quoted terms has the meanings set forth after such term: +“ Actual Exchange Rate ”—With respect to any particular asset, at any time, the price per single unit of such asset (determined net of any associated fees) at which the Trust is able to sell such asset for U.S. dollars (or other applicable fiat currency) at such time to enable the Trust to timely pay any Additional Trust Expenses, through use of the Sponsor’s commercially reasonable efforts to obtain the highest such price. +“ Actual Execution Cash Order ”—A Cash Order pursuant to which any price differential between (x) the Total Basket NAV on the trade date and (y) the price realized in acquiring or disposing of the corresponding Total Basket Amount, as the case may be, will be borne solely by the Authorized Participant. +“ Additional Creation Cash ”—In connection with a creation pursuant to an Actual Execution Cash Order, the amount of additional cash required to be delivered by the Authorized Participant in the event the price realized in acquiring the corresponding Total Basket Amount is higher than the Total Basket NAV on the trade date. +“ Additional Custodian ” or “ Anchorage Digital ”—Anchorage Digital Bank N.A. +“ Additional Redemption Cash ”—In connection with a redemption pursuant to an Actual Execution Cash Order, the amount of additional cash to be delivered to the Authorized Participant in the event the price realized in disposing the corresponding Total Basket Amount is higher than the Total Basket NAV on the trade date. +“ Additional Trust Expenses ”—Together, any expenses incurred by the Trust in addition to the Sponsor’s Fee that are not Sponsor-paid Expenses, including, but not limited to, (i) taxes and governmental charges, (ii) expenses and costs of any extraordinary services performed by the Sponsor (or any other service provider) on behalf of the Trust to protect the Trust or the interests of shareholders, (iii) any indemnification of the Custodian or other agents, service providers or counterparties of the Trust, (iv) the fees and expenses related to the listing, quotation or trading of the Shares on any Secondary Market (including legal, marketing and audit fees and expenses) to the extent exceeding $600,000 in any given fiscal year and (v) extraordinary legal fees and expenses, including any legal fees and expenses incurred in connection with litigation, regulatory enforcement or investigation matters. +“ Administrator ”— The Bank of New York Mellon, a New York corporation authorized to conduct banking business. +“ Administrator Fee ”—The fee payable to any administrator of the Trust for services it provides to the Trust, which the Sponsor will pay such administrator as a Sponsor-paid Expense. +“ Affirmative Action ”—A decision by the Trust to acquire or abandon specific Incidental Rights and IR Virtual Currency at any time prior to the time of a creation or redemption of Shares. +“ Anchorage Digital Custodian Agreement ”—The Master Custody Service Agreement, dated as of August 8, 2025, as +amended by the Second Amendment, dated September 25, 2025, between the Trust and Anchorage Digital regarding the custody and safekeeping of the Trust’s SOL holdings. +“ AML ”—Anti-money laundering. +“ AP Designee ”— An Authorized Participant’s designee in connection with In-Kind Orders (to the extent Authorized Participants enter into or amend their respective Participant Agreements to provide for in-kind creations and redemptions). +“ Authorized Participant ”— Certain eligible financial institutions that have entered into an agreement with the Trust and the Sponsor concerning the creation or redemption of Shares. Each Authorized Participant (i) is a registered broker-dealer and (ii) has entered into a Participant Agreement with the Sponsor and the Transfer Agent. Subject to the Sponsor causing the Trust to create and redeem Shares via in-kind transactions with Authorized Participants, in the future any Authorized Participants creating and redeeming Shares through In-Kind Orders must also own, or their AP Designee (as defined above) must own, a SOL wallet address that is known to the Custodian as belonging to the Authorized Participant or its AP Designee and maintain an account with the Custodian. +“ Basket ”—A block of 10,000 Shares. +“ Basket Amount ”—On any trade date, the amount of SOL required as of such trade date for the creation or redemption of a Basket, as determined by dividing (x) the amount of SOL owned by the Trust at 4:00 p.m., New York time, on such trade date, after +111 +deducting the amount of SOL representing the U.S. dollar value of accrued but unpaid fees and expenses of the Trust (converted using the Index Price at such time, and carried to the eighth decimal place), by (y) the number of Shares outstanding at such time (with the quotient so obtained calculated to one one-hundred-millionth of one SOL ( i.e. , carried to the eighth decimal place)), and multiplying such quotient by 10,000. +“ Basket NAV ”— The U.S. dollar value of a Basket calculated by multiplying the Basket Amount by the Index Price as of the trade date. +“ Binance ”—Binance Holdings Ltd. +“ Bitcoin ”—A type of digital asset based on an open-source cryptographic protocol existing on the Bitcoin network. +“ Blockchain ”—The public transaction ledger of the Solana Network on which transactions in SOL are recorded. +“ Board ”—Board of Directors of Grayscale Investments, Inc., which, as of October 22, 2025, and pursuant to the Management Reorganization, manages and directs the affairs of the Sponsor. Prior to January 1, 2025, any references to the “Board” refer to the board of directors of Grayscale Investments, LLC, the former Sponsor of the Trust. From January 1, 2025, to October 22, 2025, any references to the “Board” refer to the board of directors of GSOIH. From and after October 22, 2025, any references to the “Board” refer to the board of directors of Grayscale Investments. +“ Cash Account ”—The segregated account maintained by the Transfer Agent in the name of the Trust for purposes of receiving cash from Authorized Participants in connection with creations of Shares and distributing cash to Authorized Participants in connection with redemptions of Shares. +“ Cash Order ”—An order for the creation or redemption of Shares pursuant to procedures facilitated by the Transfer Agent and pursuant to which a Liquidity Provider is engaged to facilitate the purchase or sale of SOL. A Cash Order may be executed as either a Variable Fee Cash Order or an Actual Execution Cash Order. Unless the Sponsor determines otherwise in its sole discretion based on market conditions and other factors existing at the time of such Cash Order, all creations and redemptions pursuant to Cash Orders are expected to be executed as Variable Fee Cash Orders. +“ CDI ”—CoinDesk Indices, Inc., with its affiliates, including CC Data Limited. +“ CEA ”—Commodity Exchange Act of 1936, as amended. +“ CFPB ”—The Consumer Financial Protection Bureau. +“ CFTC ”—The U.S. Commodity Futures Trading Commission, an independent agency with the mandate to regulate commodity futures and option markets in the United States. +“ CME ”—The Chicago Mercantile Exchange. +“ Code ”—The U.S. Internal Revenue Code of 1986, as amended. +“ Coinbase ”—Coinbase, Inc. +“ Coinbase Credit ”—Coinbase Credit, Inc. +“ Co-Transfer Agent ”—Continental Stock Transfer & Trust Company. +“ Covered Person ”—The Sponsor and its affiliates. See “Item 1. Business—Description of the Trust Agreement—The Sponsor—Liability of the Sponsor and Indemnification.” +“ Creation Basket ”—Basket of Shares issued by the Trust upon deposit of the Basket Amount required for each such Creation Basket. +“ Creation Time ”—With respect to the creation of any Shares by the Trust, the time at which the Trust creates such Shares. +112 +“ Custodial and Prime Broker Services ”—The services of the Custodian and the Prime Broker that provide for: (i) holding of the Trust’s SOL in the Vault Balance and the Settlement Balance; (ii) transfer of the Trust’s SOL between the relevant Vault Balance and the Settlement Balance; (iii) the deposit of SOL from a public blockchain address into the respective account or accounts in which the Vault Balance or the Settlement Balance are maintained; and (iv) the withdrawal of SOL from the Vault Balance to a public blockchain address the Trust controls. +“ Custodial Entities ”—The Prime Broker, together with the Custodian. +“ Custodian ”—Coinbase Custody Trust Company, LLC, Anchorage Digital Bank, N.A. and/or other custodians, collectively or in their individual capacities, as the context may require. +“ Custodian Fee ”—Fee payable to the Custodian and the Prime Broker for services they provide to the Trust, which the Sponsor shall pay to the Custodian and the Prime Broker as a Sponsor-paid Expense. +“ DAOs ”—Decentralized autonomous organizations. +“ DCG ”—Digital Currency Group, Inc. +“ DCG Holdco ”—DCG Grayscale Holdco, LLC. +“ DCM ”—A designated contract market, which is a board of trade (commonly referred to as an exchange) that operates under the regulatory oversight of the CFTC. +“ Digital Asset Market ”—A “Brokered Market,” “Dealer Market,” “Principal-to-Principal Market” or “Exchange Market” (referred to as “Trading Platform Market” in this Annual Report), as each such term is defined in the Financial Accounting Standards Board Accounting Standards Codification Master Glossary. +“ Digital Asset Trading Platform ”—An electronic marketplace where trading platform participants may trade, buy and sell SOL based on bid-ask trading. The largest Digital Asset Trading Platforms are online and typically trade on a 24-hour basis, publishing transaction price and volume data. +“ Digital Asset Trading Platform Market ”—The global trading platform market for the trading of SOL, which consists of transactions on electronic Digital Asset Trading Platforms. +“ DSTA ”—The Delaware Statutory Trust Act, as amended. +“ DTC ”—The Depository Trust Company. DTC is a limited purpose trust company organized under New York law, a member of the U.S. Federal Reserve System and a clearing agency registered with the SEC. DTC will act as the securities depository for the Shares. +“ Ether ”—Ethereum tokens, which are a type of digital asset based on an open-source cryptographic protocol existing on the Ethereum network. +“ Excess Creation Cash ”—In connection with a creation pursuant to an Actual Execution Cash Order, the amount of excess cash to be returned to the Authorized Participant in the event the price realized in acquiring the corresponding Total Basket Amount is lower than the Total Basket NAV on the trade date. +“ Exchange Act ”—The Securities Exchange Act of 1934, as amended. +“ FDIC ”—The Federal Deposit Insurance Corporation. +“ Fee Waiver Period ”—The period from November 5, 2025 until the earlier of (x) February 5, 2026 and (y) the first date on which the NAV of the Trust exceeds $1.0 billion. +“ FinCEN ”—The Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury. +“ FINRA ”—The Financial Industry Regulatory Authority, Inc., which is the primary regulator in the United States for broker-dealers, including Authorized Participants. +113 +“ FSMA ”—The Financial Services and Markets Act 2023. +“ FTX ”—FTX Trading Ltd. +“ Genesis ”—Genesis Global Trading, Inc., a wholly owned subsidiary of Digital Currency Group, Inc. +“ Grayscale Investments ”—Grayscale Investments, Inc., a Delaware corporation and a consolidated subsidiary of DCG. +“ Grayscale Securities ”—Grayscale Securities, LLC, a consolidated subsidiary of Grayscale Operating, LLC, which served as the Authorized Participant from October 3, 2022 through October 28, 2025, and GSO thereafter. +“ GSI ”—Grayscale Investments, LLC, the Sponsor of the Trust until December 31, 2024. +“ GSIS ”—Grayscale Investments Sponsors, LLC, a Delaware limited liability company and a consolidated subsidiary of Grayscale Operating, LLC. +“ GSO ”—Grayscale Operating, LLC, a Delaware limited liability company and a consolidated subsidiary of DCG. +“ GSOIH ”—GSO Intermediate Holdings Corporation, a Delaware corporation and a consolidated subsidiary of DCG. +“ ICE ”—Intercontinental Exchange. +“ Incidental Rights ”—Rights to acquire, or otherwise establish dominion and control over, any virtual currency or other asset or right, which rights are incident to the Trust’s ownership of SOL and arise without any action of the Trust, or of the Sponsor or Trustee on behalf of the Trust. +“ Index ”—Prior to October 1, 2025, the CoinDesk Solana Price Index (SLX). As of October 1, 2025, the Index is the CoinDesk Solana Benchmark Rate (formerly known as the CoinDesk SOL CCIXber Reference Rate). +“ Index License Agreement ”—The license agreement, dated as of February 1, 2022, between the Index Provider and the Sponsor governing the Sponsor’s use of the Index for calculation of the Index Price, as amended from time to time. +“ Index Price ”—The U.S. dollar value of a SOL token derived from the Digital Asset Trading Platforms that are reflected in the Index, calculated at 4:00 p.m., New York time, on each business day. See “Item 1. Business—Overview of the Solana Industry and Market—SOL Value—The Index and the Index Price” for a description of how the Index Price is calculated. For purposes of the Trust Agreement, the term SOL Index Price shall mean the Index Price as defined herein. +“ Index Provider ”—CoinDesk Indices, Inc., a Delaware corporation that publishes the Index. +“ In-Kind Order ”—An order for the creation or redemption of Shares pursuant to which the Authorized Participant (or its AP Designee) will deliver or receive SOL directly from the Trust’s Vault Balance. At this time, the Trust is not permitted to create or redeem Shares through In-Kind Orders. +“ Investment Advisers Act ”—Investment Advisers Act of 1940, as amended. +“ Investment Company Act ”—Investment Company Act of 1940, as amended. +“ Investor ”—Any investor that has entered into a subscription agreement with an Authorized Participant, pursuant to which such Authorized Participant will act as agent for the investor. +“ IR Virtual Currency ”—Any virtual currency tokens, or other asset or right, acquired by the Trust through the exercise (subject to the applicable provisions of the Trust Agreement) of any Incidental Right. +“ IRS ”—The U.S. Internal Revenue Service, a bureau of the U.S. Department of the Treasury. +“ KYC ”—Know-your-customer. +“ Layer 1 ”—The underlying smart contract platform blockchain on which a digital asset functions. +114 +“ Layer 2 ”—Protocols built on top of an underlying smart contract platform blockchain intended to provide scalability to the underlying blockchain by increasing transaction efficiency. +“Liquidity Engager” —Until December 31, 2024, Grayscale Investments, LLC, and on or after January 1, 2025, Grayscale Investments Sponsors, LLC, in each case acting other than in its capacity as Sponsor, and in its capacity to engage one or more Liquidity Providers. +“Liquidity Provider” —One or more eligible companies that facilitate the purchase and sale of SOL in connection with creations or redemptions pursuant to Cash Orders. The Liquidity Providers with which Grayscale Investments Sponsors, LLC, acting in its capacity as the Liquidity Engager, will engage in SOL transactions are third parties that are not affiliated with the Sponsor or the Trust and are not acting as agents of the Trust, the Sponsor, or any Authorized Participant. Except for the contractual relationships between each Liquidity Provider and Grayscale Investments Sponsors, LLC in its capacity as the Liquidity Engager, there is no contractual relationship between each Liquidity Provider and the Trust, the Sponsor, or any Authorized Participant. +“ Liquidity Sleeve ”—The portion of SOL in the Trust intended to be maintained as unstaked, as determined by the Sponsor from time to time. +“ Management Reorganization ”—An internal corporate reorganization consummated on October 22, 2025. As a result of the Management Reorganization, Grayscale Investments is now the sole managing member of GSO, the sole member of the Sponsor, and the Board of Grayscale Investments is responsible for managing and directing the affairs of the Sponsor. +“Marketing Agent” — Foreside Fund Services, LLC. +“ Marketing Agent Agreement ”—An agreement entered into by the Sponsor, on behalf of the Trust, dated October 3, 2025, with Foreside Fund Services, LLC. +“ Marketing Fee ”—Fee payable to the marketer for services it provides to the Trust, which the Sponsor will pay to the marketer as a Sponsor-paid Expense. +“ Merger ”—The merger of Grayscale Investments, LLC with and into Grayscale Operating, LLC, with Grayscale Operating, LLC continuing as the surviving company. +“ MiCA ”—The Markets in Crypto-Assets Regulation, which was approved by the Parliament of the European Union in 2023. +“ MSB ”—A money services business. +“ NAV ”—The aggregate value, expressed in U.S. dollars, of the Trust’s assets (other than U.S. dollars or other fiat currency), less its liabilities (which include estimated accrued but unpaid fees and expenses), a non-GAAP metric, calculated in the manner set forth under “Item 1. Business—Valuation of SOL and Determination of NAV.” See also “Item 1. Business—Investment Objective” for a description of the Trust’s Principal Market NAV, as calculated in accordance with U.S. GAAP. Prior to February 23, 2024, NAV was referred to as Digital Asset Holdings. +“ NAV Fee Basis Amount ”—The amount on which the Sponsor’s Fee for the Trust is based, as calculated in the manner set forth under “Item 1. Business—Valuation of SOL and Determination of NAV”. +“ NYSE Arca ”—NYSE Arca, Inc. +“ OTCQX ”—The OTCQX Best Market® of OTC Markets Group Inc. +“ Participant Agreement ”—An agreement entered into by an Authorized Participant with the Sponsor and the Transfer Agent that provides the procedures for the creation and redemption of Baskets. +“ Pre-Creation/Redemption Abandonment ”—The abandonment by the Trust, irrevocably for no direct or indirect consideration, all Incidental Rights and IR Virtual Currency to which the Trust would otherwise be entitled, effective immediately prior to a Creation Time or a Redemption Time (as the case may be) for the Trust. +“ Pre-Creation/Redemption Abandonment Notices ”—The notices, collectively, as amended or supplemented from time to time, delivered by the Sponsor to each of the Prime Broker, the Custodian and Coinbase Credit, on behalf of the Trust, stating that the Trust +115 +will abandon irrevocably and for no direct or indirect consideration, effective immediately prior to each Creation Time and each Redemption Time for the Trust, all Incidental Rights and IR Virtual Currency to which it would otherwise be entitled as of such time and with respect to which the Trust has not taken any Affirmative Action at or prior to such time. +“ Prime Broker ”—Coinbase, Inc. +“ Prime Broker Agreement ”—The Prime Broker Agreement, dated as of May 22, 2024, by and among the Trust, the Sponsor and the Prime Broker, on behalf of itself, the Custodian and Coinbase Credit, that governs the Trust’s and the Sponsor’s use of the Custodial and Prime Broker Services provided by the Custodian and the Prime Broker. +“ Principal Market NAV ”—The net asset value of the Trust determined on a U.S. GAAP basis. Prior to February 23, 2024, Principal Market NAV was referred to as NAV. +“ Redemption Basket ”—Basket of Shares redeemed by the Trust upon distribution or disposition of the Basket Amount required for each such Redemption Basket. +“ Redemption Cash Shortfall ”—In connection with a redemption pursuant to an Actual Execution Cash Order, the amount by which the cash to be delivered to the Authorized Participant is reduced in the event the price realized in disposing the corresponding Total Basket Amount is lower than the Total Basket NAV on the trade date. +“ Redemption Time ”—With respect to the redemption of any Shares by the Trust, the time at which the Trust redeems such Shares. +“ Reorganization ”—The internal corporate reorganization of Grayscale Investments, LLC consummated on January 1, 2025. +“ Required Redemption Cash ”—The actual proceeds to the Trust from the liquidation of the Total Basket Amount. +“ Reverse Share Split ”— 1-for-20 reverse Share split of the Trust’s issued and outstanding Shares, which was effected on June 23, 2022 to shareholders of record as of the close of business on June 22, 2022. A 1-for-2 reverse Share split of the Trust’s issued and outstanding Shares, which was effected on March 20, 2023 to shareholders of record as of the close of business on March 15, 2023. +“ SEC ”—The U.S. Securities and Exchange Commission. +“ Secondary Index ”—The Coin Metrics Real-Time Rate. +“ Secondary Index Price ”—The price set by Coin Metrics Real-Time Rate as of 4:00 p.m., New York time, on the valuation date. See “Item 1. Business—Overview of the Solana Industry and Market—SOL Value—The Index and the Index Price—Determination of the Index Price When Index Price is Unavailable” for a description of how the Secondary Index Price is utilized when the Index Price is unavailable. +“ Secondary Index Provider ”—Coin Metrics Inc., a Delaware corporation that publishes the Secondary Index. +“ Secondary Market ”—Any marketplace or other alternative trading system, as determined by the Sponsor, on which the Shares may then be listed, quoted or traded, including but not limited to, NYSE Arca and and the OTCQX Best Market® of OTC Markets Group Inc. +“ Securities Act” —The Securities Act of 1933, as amended. +“ Settlement Balance ”—An account controlled and maintained by the Custodian to which cash and digital assets of the Trust are credited on the Trust’s behalf. +“ Shares ”—Common units of fractional undivided beneficial interest in, and ownership of, the Trust. +“ Share Percentage ”—A fraction the numerator of which is the number of Shares disposed of and the denominator of which is the total number of Shares held by such U.S. Holder immediately prior to such sale or other disposition. +“ Share Split ”—A 5-for-1 Share split of the Trust’s issued and outstanding Shares, which was effected on December 9, 2024 to shareholders of record as of the close of business on December 5, 2024. +116 +“ SIPC ”—The Securities Investor Protection Corporation. +“ SOL ”— SOL tokens, which are a type of digital asset based on an open source cryptographic protocol existing on the Solana +Network, comprising units that constitute the assets underlying the Trust’s Shares. +“ Solana Network ”—The online, end-user-to-end-user network hosting a public transaction ledger, known as the Solana +blockchain, and the source code comprising the basis for the cryptographic and algorithmic protocols governing the Solana network. +“ Sponsor ” or “ Co-Sponsor ”—The sponsor of the Trust. Grayscale Investments, LLC was the sponsor of the Trust before January 1, 2025, Grayscale Operating, LLC was a co-sponsor of the Trust from January 1, 2025 to May 3, 2025, and Grayscale Investments Sponsors, LLC was a co-sponsor of the Trust from January 1, 2025 to May 3, 2025 and became the sole remaining sponsor thereafter. +“ Sponsor Contracts ”—Certain contracts assigned by GSO pertaining to its role as Sponsor (as such term is defined in the Trust Agreement) of the Trust to GSIS in connection with the Reorganization. +“ Sponsor-paid Expenses ”—The fees and expenses incurred by the Trust in the ordinary course of its affairs that the Sponsor is obligated to assume and pay, excluding taxes, but including: (i) the Marketing Fee, (ii) the Administrator Fee, (iii) the Custodian Fee and fees for any other security vendor engaged by the Trust, (iv) the Transfer Agent Fee, (v) the Trustee fee, (vi) the fees and expenses related to the listing, quotation or trading of the Shares on any Secondary Market (including customary legal, marketing and audit fees and expenses) in an amount up to $600,000 in any given fiscal year, (vii) ordinary course, legal fees and expenses, (viii) audit fees, (ix) regulatory fees, including, if applicable, any fees relating to the registration of the Shares under the Securities Act or the Exchange Act, (x) printing and mailing costs, (xi) costs of maintaining the Trust’s website and (xii) applicable license fees, provided that any expense that qualifies as an Additional Trust Expense will be deemed to be an Additional Trust Expense and not a Sponsor-paid Expense. +“ Sponsor’s Fee ”—A fee, payable in SOL, which accrues daily in U.S. dollars at an annual rate of 0.35% of the NAV Fee Basis Amount of the Trust as of 4:00 p.m., New York time, on each day; provided that for a day that is not a business day, the calculation of the Sponsor’s Fee will be based on the NAV Fee Basis Amount from the most recent business day, reduced by the accrued and unpaid Sponsor’s Fee for such most recent business day and for each day after such most recent business day and prior to the relevant calculation date. The Sponsor has previously waived the Sponsor's Fee during the Fee Waiver Period, which ended on February 5, 2026, as described in more detail under “Item 1. Business—Expenses; Sales of SOL.” +“ Sponsor’s Staking Fee ”—In addition to the Sponsor’s Fee, as partial consideration for the Sponsor’s facilitation of Staking but only if (and, then, only to the extent that) the Staking Condition has been satisfied with respect thereto, a portion of the staking rewards payable to the Sponsor in SOL (or, if applicable, in the form of any Other Staking Consideration), which accrues daily in U.S. dollars in an amount calculated as a per annum percentage of any Staking Consideration received by the Trust, as may be directed by the Sponsor in its sole discretion. The Sponsor’s Staking Fee is payable to the Sponsor daily in arrears. As of the date hereof, the Sponsor’s Staking Fee, the Custodian’s fee and the Staking Provider’s share of such Staking Consideration comprises an aggregate of 23% of the gross Staking Consideration generated under the Staking Arrangements. The Trust will receive and retain the remainder of such gross Staking Consideration. +“ Staking ”— (i) Using, or permitting to be used, in any manner, through an agent or otherwise (including, for the avoidance of doubt, through a delegation of rights to any third party with respect to any portion of the Trust Estate, by making any portion of the Trust Estate available to any third party or by entering into any similar arrangement with a third party), any portion of the Trust Estate in a proof-of-stake validation protocol, (ii) accepting any Staking Consideration, (iii) holding any Other Staking Consideration accepted by the Trust pursuant to clause (ii), for not more than 30 days after the Trust’s receipt thereof, pending the use of such Other Staking Consideration for payment of Additional Trust Expenses or distribution to the Shareholders and (iv) any financing arrangement or other mechanism utilized by the Sponsor, on behalf of the Trust, in connection with Redemption Orders to manage SOL liquidity constraints arising from activities described in the preceding clauses. For the avoidance of doubt, (i) the mere act of transferring units of virtual currency on a peer-to-peer virtual currency network that utilizes a proof-of-stake validation protocol shall not be considered to be “Staking” and (ii) “Staking” shall include any related activity contemplated by a Tax Ruling, an opinion or Tax Guidance, in each case, described in the definition of Staking Condition (and, in the case of a Tax Ruling, that is described in the private letter ruling request (as supplemented from time to time) submitted to the U.S. Internal Revenue Service in connection therewith). +“ Staking Condition ”—With respect to a particular form of Staking, the condition that (i) (x) engaging in such form of Staking should not cause the Trust to be treated as other than a grantor trust for U.S. federal income tax purposes and (y) the Trust shall have received (1) a written opinion from a Tax Advisor or (2) a Tax Ruling, in each case, to that effect or (ii) such form of Staking is confirmed in Tax Guidance to be a permissible undertaking by a grantor trust. As of the date of this filing, the Staking Condition has been satisfied as to the particular form of Staking described in the Trust’s Annual Report, as amended from time to time, and the Sponsor intends to +117 +cause the Trust to engage in Staking as described therein. The Sponsor may in the future modify the form of Staking in which the Trust engages, but only if (and, then, only to the extent that) the Staking Condition has been satisfied with respect to any such modified form of Staking, and subject to compliance with any additional requirements that may arise in connection with satisfaction of the Staking Condition with respect thereto. +“ Staking Consideration ”—Any consideration of any kind whatsoever, including, but not limited to, any staking reward paid in fiat currency or paid in-kind, in exchange for using, or permitting to be used, any portion of the Trust Estate as described in clause (i) of the definition of “Staking.” +“ Tax Advisor ”—An independent law firm that is recognized as being expert in tax matters. +“ Tax Guidance ”—any tax guidance that is issued by the U.S. Internal Revenue Service or the U.S. Department of the Treasury and on which taxpayers may rely. +“ Tax Ruling ”—A binding ruling issued by the U.S. Internal Revenue Service. +“ Tertiary Pricing Option ”—The price set by the Trust’s principal market. +“ Total Basket Amount ”—With respect to any creation or redemption order, the applicable Basket Amount multiplied by the number of Baskets being created or redeemed. +“ Total Basket NAV ”—The applicable Basket NAV Amount multiplied by the number of Baskets being created or redeemed. +“ Transfer Agency and Service Agreement ”—The agreement between the Sponsor and the Transfer Agent which sets forth the obligations and responsibilities of the Transfer Agent with respect to transfer agency services and related matters. +“ Transfer Agent ”— The Bank of New York Mellon, a New York corporation authorized to conduct banking business. +“ Transfer Agent Fee ”—Fee payable to the Transfer Agent for services it provides to the Trust, which the Sponsor will pay to the Transfer Agent as a Sponsor-paid Expense. +“ Treasury Regulations ”—The regulations, including proposed or temporary regulations, promulgated under the Code. +“ Trust ”—Grayscale Solana Staking Trust ETF, a Delaware statutory trust, formed on November 9, 2021 under the DSTA and pursuant to the Trust Agreement. On January 5, 2026, the Trust changed its name from Grayscale Solana Trust ETF to Grayscale Solana Staking ETF and previously, on October 28, 2025, the Trust changed its name from Grayscale Solana Trust (SOL) to Grayscale Solana Trust ETF by filing a Certificate of Amendment to the Certificate of Trust with the Delaware Secretary of State in accordance with the provisions of the DSTA. +“ Trust Agreement ”—The Second Amended and Restated Declaration of Trust and Trust Agreement, dated as of September 19, 2025, between the Trustee and the Sponsor establishing and governing the operations of the Trust, as amended by Amendments No. 1 and No. 2 thereto, and as the same may be further amended from time to time. +“ Trustee ”—CSC Delaware Trust Company (formerly known as Delaware Trust Company), a Delaware trust company, is the Delaware trustee of the Trust. +“ Trust Estate ”—Without duplication, (i) all the SOL in the Trust’s accounts, including the SOL Account, (ii) all Incidental Rights held by the Trust, (iii) all IR Virtual Currency in the Trust’s accounts, (iv) all Other Staking Consideration held by the Trust, (v) all proceeds from the sale of SOL, Incidental Rights, IR Virtual Currency and Other Staking Consideration pending use of such cash for payment of Additional Trust Expenses or distribution to the Shareholders and (vi) any rights of the Trust pursuant to any agreements, other than this Trust Agreement, to which the Trust is a party. +“ UBTI ”—Unrelated business taxable income. +“ Uplisting Date ”—October 29, 2025, the date on which the shares of Grayscale Solana Staking ETF began trading on NYSE Arca as shares of an exchange-traded product. +“ U.S. ”—United States. +118 +“ U.S. dollar ” or “ $ ”—United States dollar or dollars. +“ U.S. GAAP ”—United States generally accepted accounting principles. +“ Variable Fee ”—An amount in cash based on the Total Basket NAV, which shall be paid by the Authorized Participant in connection with Variable Fee Cash Orders. The amount may be changed by the Sponsor in its sole discretion at any time. +“ Variable Fee Cash Order ”—A Cash Order pursuant to which any price differential between (x) the Total Basket NAV on the trade date and (y) the price realized in acquiring or disposing of the corresponding Total Basket Amount, as the case may be, will be borne solely by the applicable Liquidity Provider. +“Vault Balance” —A segregated custody account controlled and secured by the Custodian to store private keys, which allow for the transfer of ownership or control of the Trust’s SOL on the Trust’s behalf. +119 +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned in the capacities* indicated, thereunto duly authorized. +Grayscale Investments Sponsors, LLC as Sponsor of Grayscale Solana Staking ETF +By: +/s/ Peter Mintzberg +Name: +Peter Mintzberg +Title: +Member of the Board of Directors and Chief Executive Officer (Principal Executive Officer)* +By: +/s/ Edward McGee +Name: +Edward McGee +Title: +Member of the Board of Directors and Chief Financial Officer (Principal Financial and Accounting Officer)* +By: +/s/ Barry Silbert +Name: +Barry Silbert +Title: +Chairman of the Board of Directors +Director* +By: +/s/ Mark Shifke +Name: +Mark Shifke +Title: +Member of the Board of Directors +Director* +By: +/s/ Simon Koster +Name: +Simon Koster +Title: +Member of the Board of Directors +Director* +Date: March 12, 2026 +* The Registrant is a trust and the persons are signing in their capacities as officers of Grayscale Investments Sponsors, LLC, the Sponsor of the Registrant, or directors of Grayscale Investments, Inc., the sole managing member of Grayscale Operating, LLC, the sole member of Grayscale Investments Sponsors, LLC, as applicable. +120 +INDEX TO FINANCIAL STATEMENTS +Page +Grayscale Solana Staking ETF Annual Financial Statements +Reports of Independent Registered Public Accounting Firms ( KPMG LLP , PCAOB ID 185 , Marcum LLP PCAOB ID 688 ) +F- 2 +Statements of Assets and Liabilities at December 31, 2025 and 2024 +F- 3 +Schedules of Investment at December 31, 2025 and 2024 +F- 4 +Statements of Operations for the Years Ended December 31, 2025, 2024 and 2023 +F- 5 +Statements of Changes in Net Assets for the Years Ended December 31, 2025, 2024 and 2023 +F- 6 +Statement of Cash Flows for the Year Ended December 31, 2025 +F- 7 +Notes to Financial Statements +F- 8 +F- 1 +REPORT OF INDEPENDENT REGIS TERED PUBLIC ACCOUNTING FIRM +To the Shareholders and Sponsor of +Grayscale Solana Staking ETF: +Opinion on the Financial Statements +We have audited the accompanying statements of assets and liabilities, including the schedules of investment of Grayscale Solana Staking ETF (the Trust) as of December 31, 2025 and December 31, 2024, the related statements of operations and changes in net assets for the years then ended, the statement of cash flows for the year ended December 31, 2025 and the related notes (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Trust as of December 31, 2025 and December 31, 2024, and the results of its operations and changes in its net assets for the years then ended, and its cash flows for the year ended December 31, 2025, in conformity with U.S. generally accepted accounting principles. +Basis for Opinion +These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ KPMG LLP +We have served as the Trust’s auditor since 2024. +New York, New York +March 12, 2026 +F- 2 +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To the Shareholders and Sponsor of +Grayscale Solana Staking ETF +Opinion on the Financial Statements +We have audited the statements of operations and changes in net assets of Grayscale Solana Staking ETF (the “Trust”) for the year ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects the results of its operations for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. +Basis for Opinion +These financial statements are the responsibility of the management of the Trust’s Sponsor, Grayscale Investments Sponsors, LLC. Our responsibility is to express an opinion on the Trust’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. +Emphasis of Matter - Investment in SOL +In forming our opinion, we have considered the adequacy of the disclosures included in Note 7 to the financial statements concerning among other things the risks and uncertainties related to the Trust’s investment in SOL and Incidental Rights or IR Virtual Currency that arise as a result of the Trust’s investment in SOL. The risks and rewards to be recognized by the Trust associated with its investment in SOL will be dependent on many factors outside of the Trust’s control. The currently immature nature of the SOL market including clearing, settlement, custody and trading mechanisms, the dependency on information technology to sustain SOL continuity, as well as valuation and volume volatility all subject SOL to unique risks of theft, loss, or other misappropriation as well as valuation uncertainty. Furthermore, these factors also contribute to the significant uncertainty with respect to the future viability and value of SOL. Our opinion is not qualified in respect to this matter. +/s/ Marcum LLP +We have served as the Trust’s auditor from 2021 to 2024 (such date takes into account the acquisition of certain assets of Friedman LLP by Marcum LLP effective September 1, 2022). +New York, New York +March 8, 2024, except for the retrospective application of the Share Split described in Note 1, as to which the date is March 19, 2025. +F- 3 +GRAYSCALE SOLANA STAKING ETF +STATEMENT OF ASSET S AND LIABILITIES +( Amounts in thousands, except Share and per Share amounts) +December 31, +2025 +2024 +Assets: +Investment in SOL, at fair value (cost $ 174,992 and $ 67,786 as of December 31, 2025 and 2024, respectively) +$ +160,385 +$ +102,631 +Staking Reward receivable, at fair value +$ +43 +$ +- +Total assets +$ +160,428 +$ +102,631 +Liabilities: +Sponsor’s Staking Fee payable, related party +$ +71 +$ +- +Sponsor’s Fee payable, related party +- +- +Total liabilities +71 +- +Net assets +$ +160,357 +$ +102,631 +Shares issued and outstanding, no par value ( unlimited Shares authorized) +17,634,135 +7,160,335 +Principal Market NAV per Share +$ +9.09 +$ +14.33 +See accompanying notes to financial statements. +F- 3 +GRAYSCALE SOLANA STAKING ETF +SCHEDULE OF INVESTMENT +( Amounts in thousands, except quantity of SOL and percentages) +December 31, 2025 +Quantity of SOL +Cost +Fair Value +% of Net +Assets +Investment in SOL +1,293,746.87210555 +$ +174,992 +$ +160,385 +100 +% +Total Investment +$ +174,992 +$ +160,385 +100 +% +Liabilities in Excess of Other Assets +$ +( 28 +) +0 +% +Net assets +$ +160,357 +100 +% +December 31, 2024 +Quantity of SOL +Cost +Fair Value +% of Net +Assets +Investment in SOL +529,873.89849530 +$ +67,786 +$ +102,631 +100 +% +Total Investment +$ +67,786 +$ +102,631 +100 +% +Net assets +$ +102,631 +100 +% +See accompanying notes to financial statements. +F- 4 +GRAYSCALE SOLANA STAKING ETF +STATEMENTS OF OPERATIONS +( Amounts in thousands) +Years Ended December 31, +2025 +2024 +2023 +Investment income: +Staking Reward income +$ +1,611 +$ +- +$ +- +Investment income +- +- +- +Total Investment income +$ +1,611 +$ +- +$ +- +Expenses: +Sponsor's Staking Fee, related party +$ +96 +$ +- +$ +- +Sponsor’s Fee, related party +2,001 +1,758 +102 +Gross Expenses +2,097 +1,758 +102 +Sponsor’s Fee Waiver, related party +( 73 +) +- +- +Net expenses +2,024 +1,758 +102 +Net investment loss +( 413 +) +( 1,758 +) +( 102 +) +Net realized and unrealized (loss) gain from: +Net realized gain (loss) on investment in SOL sold to pay expenses +516 +433 +( 290 +) +Net realized gain (loss) on investment in SOL sold for redemption of Shares +- +- +- +Net change in unrealized appreciation/depreciation on investment in SOL +( 49,455 +) +33,618 +15,387 +Net change in unrealized appreciation/depreciation on Sponsor's Staking Fee payable in SOL +25 +- +- +Net realized and unrealized (loss) gain on investment +( 48,914 +) +34,051 +15,097 +Net (decrease) increase in net assets resulting from operations +$ +( 49,327 +) +$ +32,293 +$ +14,995 +See accompanying notes to financial statements. +F- 5 +GRAYSCALE SOLANA STAKING ETF +STATEMENTS OF CHANG ES IN NET ASSETS +( Amounts in thousands, except change in Shares outstanding) +Years Ended December 31, +2025 +2024 +2023 +Decrease (increase) in net assets from operations: +Net investment loss +$ +( 413 +) +$ +( 1,758 +) +$ +( 102 +) +Net realized gain (loss) on investment in SOL sold to pay expenses +516 +433 +( 290 +) +Net realized gain (loss) on investment in SOL sold for redemption of Shares +- +- +- +Net change in unrealized appreciation/depreciation on investment in SOL +( 49,455 +) +33,618 +15,387 +Net change in unrealized appreciation/depreciation on Sponsor's Staking Fee payable in SOL +25 +- +- +Net decrease (increase) in net assets resulting from operations +( 49,327 +) +32,293 +14,995 +Increase in net assets from capital share transactions: +Shares issued +107,053 +45,149 +8,999 +Shares redeemed +- +- +- +Net increase in net assets resulting from capital share transactions +107,053 +45,149 +8,999 +Total increase in net assets from operations and capital share +transactions +57,726 +77,442 +23,994 +Net assets: +Beginning of year +102,631 +25,189 +1,195 +End of year +$ +160,357 +$ +102,631 +$ +25,189 +Change in Shares outstanding: (1)(2) +Shares outstanding at beginning of year +7,160,335 +3,168,135 +1,522,135 +Shares issued +10,473,800 +3,992,200 +1,646,000 +Shares redeemed +- +- +- +Net increase in Shares +10,473,800 +3,992,200 +1,646,000 +Shares outstanding at end of year +17,634,135 +7,160,335 +3,168,135 +(1) +Share amounts for periods presented prior to the Share Split have been retroactively adjusted to reflect the 1-for-2 Reverse Share Split of the Trust’s issued and outstanding Shares completed on March 20, 2023. +(2) +Share amounts for periods presented prior to the Share Split have been retroactively adjusted to reflect the 5-for-1 Share Split of the Trust’s issued and outstanding Shares completed on December 9, 2024. +See accompanying notes to financial statements. +F- 6 +GRAYSCALE SOLANA STAKING ETF +STATEMENT OF CASH FLOWS +(Amounts in thousands) +Year Ended December 31, 2025 (1) +Cash used in operating activities +Net decrease in net assets resulting from operations +$ +( 49,327 +) +Adjustments to reconcile net decrease in net assets resulting from operations to net cash used in operating activities: +Purchases of SOL (2) +$ +( 106,937 +) +Proceeds from SOL sold to pay expenses (2) +1,928 +SOL received as Staking Rewards +( 1,568 +) +Net realized gain on Sponsor's Fee +( 516 +) +Net increase in unrealized appreciation/depreciation on investment in SOL +49,455 +Net increase in unrealized appreciation/depreciation on Sponsor Staking Fee payable +( 25 +) +Change in operating assets and liabilities: +SOL Staking Reward Receiveable +( 43 +) +Sponsor’s Staking Fee payable, related party +96 +Net cash used in operating activities +$ +( 106,937 +) +Cash provided by financing activities +Proceeds from issuance of capital shares (2) +$ +106,937 +Net cash provided by financing activities (2) +$ +106,937 +Cash +Net increase in cash +$ +- +Cash, beginning of year +- +Cash, end of year +$ +- +Supplemental disclosure of noncash activities +In-kind contributions of SOL for Shares issued +$ +949 +Transfer of SOL to pay for Sponsor’s Fee +$ +1,928 +SOL received as Staking Rewards +$ +1,568 +(1) +No comparative financial statements have been provided, as the Trust did not hold any cash or cash equivalents prior to the Uplisting Date. +(2) +The proceeds collected by an Authorized Participant from the sale of Shares and the payments for Shares redeemed by an Authorized Participant do not correlate with the amounts in the Statement of Operations and the Statement of Changes in Net Assets for the period due to creations and redemptions occurring at the Index Price as defined in the Trust Agreement. +See accompanying notes to financial statements. +F- 7 +GRAYSCALE SOLANA STAKING ETF +NOTES TO THE FINA NCIAL STATEMENTS +1. Organization +Grayscale Solana Staking ETF (the “Trust”) is a Delaware Statutory Trust that was formed on November 9, 2021 and commenced operations on November 18, 2021. In general, the Trust holds Solana (“SOL”) and, from time to time, issues common units of fractional undivided beneficial interest (“Shares”) in exchange for SOL. On January 5, 2026, the Trust changed its name from Grayscale Solana Trust ETF to Grayscale Solana Staking ETF and previously, on October 28, 2025, the Trust changed its name from Grayscale Solana Trust (SOL) to Grayscale Solana Trust ETF, in each case, by filing a Certificate of Amendment to the Certificate of Trust with the Delaware Secretary of State. Prior to October 28, 2025, the redemption of Shares was not contemplated and the Trust did not operate a redemption program. However, the Sponsor has since authorized the commencement of the Trust’s ’s redemption program on October 28, 2025 in connection with the uplisting of the Shares to NYSE Arca, Inc. (“NYSE Arca”). On December 3, 2024, NYSE Arca submitted an application under Rule 19b-4 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) to list the Shares of the Trust on NYSE Arca. On September 17, 2025, the Securities and Exchange Commission (the “SEC”) approved a proposed rule change for new Rule 8.201-E (Generic) with the SEC pursuant to Rule 19b-4 under the Exchange Act to amend NYSE Arca’s listing rules to permit the listing and trading of shares of certain commodity-based exchange-traded products that satisfy certain generic requirements (the “Generic Listing Standards”). On October 28, 2025, the Sponsor’s application to list and trade the Trust’s Shares on NYSE Arca under the Generic Listing Standards was approved and the Trust began trading on NYSE Arca on October 29, 2025 (the “Uplisting Date”), following the effectiveness of the Trust’s registration statement on Form S-1, as amended (File No. 333-286374). The Shares are listed on NYSE Arca under the ticker symbol “GSOL.” As of the date of this Annual Report, the Trust is an SEC reporting company with its Shares registered pursuant to Section 12(b) of the Exchange Act. +On October 28, 2025, in connection with the approval for listing and trading of the Shares of the Trust under the Generic Listing Standards and the effectiveness of the registration statement on Form S-1, as amended, Grayscale Investments Sponsors, LLC (“GSIS”) authorized the commencement of a redemption program. Effective October 29, 2025, the Trust creates and redeems Shares at such times and for such periods as determined by the Sponsor (as defined below), but only in one or more whole “Baskets.” A Basket equals 10,000 Shares. The creation of a Basket requires the delivery to the Trust of the amount of SOL (or cash to acquire such amount of SOL) represented by one Share immediately prior to such creation multiplied by 10,000 . The redemption of a Basket requires distribution by the Trust of the amount of SOL represented by one Share immediately prior to such redemption multiplied by 10,000 . The Trust may from time to time halt creations and redemptions for a variety of reasons, including in connection with forks, airdrops and other similar occurrences. +The Trust’s investment objective is for the value of the Shares (based on SOL per Share) to reflect the value of the SOL held by the Trust and to reflect rewards from Staking a portion of the Trust’s SOL, less the Trust’s expenses and other liabilities. +GSI was the sponsor of the Trust before January 1, 2025, Grayscale Operating, LLC (“GSO”), was the co-sponsor of the Trust from January 1, 2025 to May 3, 2025, and Grayscale Investments Sponsors, LLC (“GSIS” or the “Sponsor”), was the co-sponsor of the Trust from January 1, 2025 to May 3, 2025 and is the sole remaining sponsor thereafter. GSI was, and each of GSO and GSIS are, a consolidated subsidiary of Digital Currency Group, Inc. (“DCG”). The Sponsor is responsible for the day-to-day administration of the Trust pursuant to the provisions of the Trust Agreement. The Sponsor is responsible for preparing and providing annual and quarterly reports on behalf of the Trust to investors and is also responsible for selecting and monitoring the Trust’s service providers. As partial consideration for the Sponsor’s services, the Trust pays the Sponsor a Sponsor’s Fee as discussed in Note 6. The Sponsor also acts as the sponsor and manager of other single-asset and diversified investment products, each of which is an affiliate of the Trust. Information related to the affiliated investment products can be found on the Sponsor’s website at www.grayscale.com/resources/regulatory-filings. Any information contained on or linked from such website is not part of nor incorporated by reference into these audited financial statements. Several of the affiliated investment products are SEC reporting companies with their shares registered pursuant to Section 12(g) of the Exchange Act. In addition, the following affiliated investment products are also SEC reporting companies with their shares registered pursuant to Section 12(b) of the Exchange Act: Grayscale Bitcoin Trust ETF, Grayscale Ethereum Staking ETF, Grayscale Ethereum Staking Mini ETF, Grayscale Bitcoin Mini Trust ETF, Grayscale CoinDesk Crypto 5 ETF, Grayscale XRP Trust ETF, Grayscale Dogecoin Trust ETF, Grayscale Chainlink Trust ETF, and as of February 18, 2026, Grayscale Sui Staking ETF. +Staking on the Solana Network refers to the use of SOL, or the permission for SOL to be used through an agent or otherwise, in the Solana Network’s proof-of-stake validation protocol in exchange for the receipt of staking rewards paid in-kind (“Staking”). The Trust Agreement permits the Trust to engage in Staking, and on October 6, 2025, the Trust commenced Staking pursuant to the Staking Arrangements. The Sponsor has caused, and from time to time may cause, the Trust to enter into written arrangements (the “Staking Arrangements”) with the Custodian and one or more third party staking providers (each, a “Staking Provider”), which may be affiliates of the Custodian or other trusted institutional validators, to stake the Trust’s SOL to a Staking Provider operating validator software and associated hardware (“Provider-Facilitated Staking”). Effective October 6, 2025, and pursuant to the Staking Arrangements, the Custodian and the applicable Staking Provider became entitled to receive a portion of the gross staking rewards generated thereunder, +F- 8 +representing the Custodian’s fee and the Staking Provider’s share of such staking rewards (collectively, the “Validator Fees”), with the remaining staking rewards received by the Trust, as discussed in Note 6. +Authorized Participants of the Trust are the only entities who may place orders to create or redeem Baskets. Grayscale Securities, LLC (“Grayscale Securities” or, in such capacity, an “Authorized Participant”), a registered broker-dealer and affiliate of the Sponsor, was the only Authorized Participant from October 3, 2022 through October 28, 2025. On or after October 29, 2025, the Sponsor, on behalf of the Trust, and the Transfer Agent entered into Participant Agreements with a number of unaffiliated Authorized Participants in connection with the approval of NYSE Arca’s application under Rule 19b-4 of the Exchange Act, and the Trust has also since engaged other Authorized Participants. In connection with the entry into the Participant Agreements, as of October 29, 2025, the Sponsor amended, solely, with respect to the Trust, the Participant Agreement, dated as of October 3, 2022, between the Sponsor and Grayscale Securities, to remove the Trust as an entity covered by the Agreement. Effective October 29, 2025, Grayscale Securities no longer serves as Authorized Participant of the Trust. Additional Authorized Participants may be added at any time, subject to the discretion of the Sponsor. +Liquidity Providers facilitate the purchase and sale of SOL in connection with cash orders for creations or redemptions of Baskets. The Liquidity Providers with which GSIS, acting in its capacity as the “Liquidity Engager,” will engage in SOL transactions are third parties that are not affiliated with the Sponsor or the Trust and are not acting as agents of the Trust, the Sponsor, or any Authorized Participant. Except for the contractual relationships between each Liquidity Provider and GSIS in its capacity as the Liquidity Engager, there is no contractual relationship between each Liquidity Provider and the Trust, the Sponsor, or any Authorized Participant. The Liquidity Engager may engage additional Liquidity Providers who are unaffiliated with the Trust in the future. +Effective October 29, 2025, the Trust, the Sponsor and Coinbase, Inc., the prime broker of the Trust (“Coinbase” or the “Prime Broker”), on behalf of itself and as agent for Coinbase Custody Trust Company, LLC (“Coinbase Custody” or the “Custodian”) and Coinbase Credit, Inc. (“Coinbase Credit” and, collectively with Coinbase and Coinbase Custody, the “Coinbase Entities”), entered into the Coinbase Prime Broker Agreement governing the Trust’s and the Sponsor’s use of the Custodial and Prime Broker Services provided by the Custodian and the Prime Broker. The Prime Broker Agreement establishes the rights and responsibilities of the Custodian, the Prime Broker, the Sponsor and the Trust with respect to the Trust’s SOL which is held in accounts maintained and operated by the Custodian, as a fiduciary with respect to the Trust’s assets, and the Prime Broker (together with the Custodian, the “Custodial Entities”) on behalf of the Trust. The Custodian is responsible for safeguarding the SOL held by the Trust, and holding the private key(s) that provide access to the Trust’s digital wallets and vaults. Additionally, Anchorage Digital Bank N.A. (“Anchorage Digital” or the “Additional Custodian”), a national trust bank chartered by the Office of the Comptroller of the Currency, provides services related to custody and safekeeping of the Trust’s SOL holdings, pursuant to a Master Custody Services Agreement, dated as of August 8, 2025, as amended by a certain Second Amendment, dated September 25, 2025, which provides that the Trust was added as a party to such Master Custody Service Agreement (collectively, the “Anchorage Digital Custodian Agreement”). Pursuant to the Anchorage Digital Custodian Agreement, Anchorage Digital will provide services related to custody and safekeeping of the Trust’s SOL holdings. +Effective October 29, 2025, the transfer agent for the Trust (the “Transfer Agent”) is The Bank of New York Mellon. The responsibilities of the Transfer Agent are to (1) facilitate the issuance and redemption of shares of the Trust; (2) respond to correspondence by Trust shareholders and others relating to its duties; (3) maintain shareholder accounts; and (4) make periodic reports to the Trust. The co-transfer agent for the Trust (the “Co-Transfer Agent”) is Continental Stock Transfer & Trust Company. The administrator for the Trust (the “Administrator”) is BNY Mellon Asset Servicing, a division of The Bank of New York Mellon. BNY Mellon Asset Servicing provides administration and accounting services to the Trust. The Administrator’s fees are paid on behalf of the Trust by the Sponsor. +The marketing agent for the Trust (the “Marketing Agent”) is Foreside Fund Services, LLC. Effective October 29, 2025, the Marketing Agent provides the following services to the Sponsor: (i) assist the Sponsor in facilitating Participant Agreements between and among Authorized Participants, the Sponsor, on behalf of the Trust, and the Transfer Agent; (ii) provide prospectuses to Authorized Participants; (iii) work with the Transfer Agent to review and approve orders placed by the Authorized Participants and transmitted to the Transfer Agent; (iv) review and file applicable marketing materials with FINRA and (v) maintain, reproduce and store applicable books and records. +On December 9, 2024, the Trust completed a 5-for-1 Share Split of the Trust’s issued and outstanding Shares. In connection with the Share Split, shareholders of record on December 5, 2024, received four additional Shares of the Trust for each Share held. The number of outstanding Shares and per-Share amounts disclosed for periods prior to December 10, 2024 have been retroactively adjusted to reflect the effects of the Share Split. On March 20, 2023, the Trust completed a 1-for-2 Reverse Share Split of the Trust’s issued and outstanding Shares. In connection with the Share Split, shareholders of record on March 15, 2023, received one Share for every two Shares of the Trust held. The number of outstanding Shares and per-Share amounts disclosed for periods prior to March 21, 2023 have been retroactively adjusted to reflect the effects of the Share Split. On April 17, 2023, the Trust received notice that its Shares were qualified for public trading on the OTCQB U.S. Market (“OTCQB”) of OTC Markets Group Inc. On March 7, 2024, the Trust qualified to trade on the OTCQX Best Market® (“OTCQX”) of OTC Markets Group Inc. Until October 28, 2025, the Trust’s trading symbol on OTCQX was “GSOL.” On September 17, 2025, the SEC approved a proposed rule change for new Rule 8.201-E (Generic) with the SEC pursuant to Rule 19b-4 under the Exchange Act to amend NYSE Arca’s listing rules to permit the listing and trading of shares of certain commodity-based exchange-traded products that satisfy the Generic Listing Standards. On October 28, 2025, the Sponsor’s +F- 9 +application to list and trade the Trust’s Shares on NYSE Arca under the Generic Listing Standards was approved and following the effectiveness of the Trust’s registration statement on Form S-1, as amended (File No. 333-286374), Shares of the Trust began trading on NYSE Arca on October 29, 2025. The Trust’s trading symbol on NYSE Arca is “GSOL” and the CUSIP number for its Shares is 38965D104. +The Trust may also receive Incidental Rights and/or IR Virtual Currency as a result of the Trust’s investment in SOL, in accordance with the terms of the Trust Agreement. +Incidental Rights are rights to claim, or otherwise establish dominion and control over, any virtual currency or other asset or right, which rights are incident to the Trust’s ownership of SOL and arise without any action of the Trust, or of the Sponsor or Trustee on behalf of the Trust; IR Virtual Currency is any virtual currency tokens, or other asset or right, received by the Trust through the exercise (subject to the applicable provisions of the Trust Agreement) of any Incidental Right. The Sponsor has committed to cause the Trust to abandon irrevocably for no direct or indirect consideration, effective immediately prior to each time at which the Trust creates or redeems Shares, all Incidental Rights and IR Virtual Currency to which it would otherwise be entitled as of such time. In furtherance of that commitment, the Prime Broker Agreement provides that the Trust is abandoning irrevocably, for no direct or indirect consideration, effective immediately prior to each Creation Time and each Redemption Time, all Incidental Rights or IR Virtual Currency to which it would otherwise be entitled as of such time. The Sponsor has committed to cause the Trust not to take any Affirmative Action to acquire any Incidental Rights or IR Virtual Currency, thereby irrevocably abandoning any Incidental Rights and IR Virtual Currency to which the Trust may become entitled in the future. Because the Sponsor has now committed to causing the Trust to irrevocably abandon all Incidental Rights and IR Virtual Currency to which the Trust otherwise would become entitled in the future, and causing the Trust not to take any Affirmative Actions, the Trust will not receive any direct or indirect consideration for the Incidental Rights or IR Virtual Currency and thus the value of the Shares will not reflect the value of the Incidental Rights or IR Virtual Currency. In addition, in the event the Sponsor seeks to change the Trust’s policy with respect to Incidental Rights or IR Virtual Currency, an application would need to be filed with the SEC by NYSE Arca seeking approval to amend its listing rules to permit the Trust to distribute the Incidental Rights or IR Virtual Currency in-kind to an agent of the shareholders for resale by such agent. +2. Summary of Significant Accounting Policies +The following is a summary of significant accounting policies followed by the Trust: +The financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The Trust qualifies as an investment company for accounting purposes pursuant to the accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services—Investment Companies. The Trust uses fair value as its method of accounting for SOL in accordance with its classification as an investment company for accounting purposes. The Trust is not a registered investment company under the Investment Company Act of 1940. U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates and these differences could be material. +The Trust conducts its transactions in SOL, including receiving SOL for the creation of Shares and delivering SOL for the redemption of Shares and for the payment of the Sponsor’s Fee and Sponsor’s Staking Fee. The Sponsor will determine the Trust’s net asset value (“NAV”) on each business day as of 4:00 p.m., New York time, or as soon thereafter as practicable. +Cash and Cash Equivalents +Generally, the Trust does not intend to hold cash, except in connection with cash orders for creations or redemptions of Baskets. Cash includes non-interest bearing non-restricted cash with one institution. Cash in a bank deposit account, at times, may exceed U.S. federally insured limits. The Trust has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risk on such bank deposits. +Principal Market and Fair Value Determination +To determine which market is the Trust’s principal market (or in the absence of a principal market, the most advantageous market) for purposes of calculating the Trust’s net asset value in accordance with U.S. GAAP (“Principal Market NAV”), the Trust follows ASC Topic 820-10, Fair Value Measurement , which outlines the application of fair value accounting. ASC 820-10 determines fair value to be the price that would be received for SOL in a current sale, which assumes an orderly transaction between market participants on the measurement date. ASC 820-10 requires the Trust to assume that SOL is sold in its principal market to market participants or, in the absence of a principal market, the most advantageous market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. +The Trust only receives SOL in connection with a creation order from the Authorized Participant (or a Liquidity Provider) and does not itself transact on any Digital Asset Markets. Therefore, the Trust looks to market-based volume and level of activity for Digital Asset +F- 10 +Markets. The Authorized Participant(s), or a Liquidity Provider, may transact in a Brokered Market, a Dealer Market, Principal-to-Principal Markets and Exchange Markets (referred to as “Trading Platform Markets” in this Annual Report), each as defined in the FASB ASC Master Glossary (collectively, “Digital Asset Markets”). +In determining which of the eligible Digital Asset Markets is the Trust’s principal market, the Trust reviews these criteria in the following order: +First, the Trust reviews a list of Digital Asset Markets that maintain practices and policies designed to comply with anti-money laundering (“AML”) and know-your-customer (“KYC”) regulations, and non-Digital Asset Trading Platform Markets that the Trust reasonably believes are operating in compliance with applicable law, including federal and state licensing requirements, based upon information and assurances provided to it by each market. +Second, the Trust sorts these Digital Asset Markets from high to low by market-based volume and level of activity of SOL traded on each Digital Asset Market in the trailing twelve months. +Third, the Trust then reviews pricing fluctuations and the degree of variances in price on Digital Asset Markets to identify any material notable variances that may impact the volume or price information of a particular Digital Asset Market. +Fourth, the Trust then selects a Digital Asset Market as its principal market based on the highest market-based volume, level of activity and price stability in comparison to the other Digital Asset Markets on the list. Based on information reasonably available to the Trust, Trading Platform Markets have the greatest volume and level of activity for the asset. The Trust therefore looks to accessible Trading Platform Markets as opposed to the Brokered Market, Dealer Market and Principal-to-Principal Markets to determine its principal market. As a result of the aforementioned analysis, a Trading Platform Market has been selected as the Trust’s principal market. +The Trust determines its principal market (or in the absence of a principal market the most advantageous market) annually and conducts a quarterly analysis to determine (i) if there have been recent changes to each Digital Asset Market’s trading volume and level of activity in the trailing twelve months, (ii) if any Digital Asset Markets have developed that the Trust has access to, or (iii) if recent changes to each Digital Asset Market’s price stability have occurred that would materially impact the selection of the principal market and necessitate a change in the Trust’s determination of its principal market. +The cost basis of the SOL received by the Trust in connection with a creation order is recorded by the Trust at the fair value of SOL at 4:00 p.m., New York time, on the creation date for financial reporting purposes. The cost basis recorded by the Trust may differ from proceeds collected by the Authorized Participant from the sale of the corresponding Shares to investors. +Investment Transactions and Revenue Recognition +The Trust considers investment transactions to be the receipt of SOL for Share creations and the delivery of SOL for Share redemptions or for payment of expenses in SOL. The Trust records its investment transactions on a trade date basis and changes in fair value are reflected as net change in unrealized appreciation or depreciation on investments. Realized gains and losses are calculated using the specific identification method. Realized gains and losses are recognized in connection with transactions including settling obligations for the Sponsor’s Fee in SOL. +Solana Staking +The Trust earns staking rewards by delegating a portion of its SOL on the Solana Network’s proof-of-stake consensus protocol. The Sponsor has entered into contractual arrangements with the Custodian and one or more third-party staking service providers, which may include affiliates of the Custodian or other institutional validators, to facilitate the staking of the Trust’s SOL. The Trust retains control of its SOL throughout the staking process. The delegation of SOL for staking purposes does not constitute a sale, transfer, or other derecognition event, as control of the SOL is not transferred to the validator or staking provider. Accordingly, the staked SOL is not derecognized under ASC Topic 610-20, Other Income, Gains and Losses from the Derecognition of Nonfinancial Assets , or ASC Topic 350-60, Intangibles, Goodwill and Other, Crypto Assets . +The Trust recognizes staking rewards as revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). Under the staking arrangements, the validator (e.g., the Custodian or other staking provider) is considered the customer, as it receives access to the Trust’s staking capacity (i.e., the delegation of SOL), which represents the Trust’s performance obligation. In exchange, the Trust is entitled to staking rewards generated by the Solana protocol, net of Validator Fees. +Staking rewards represent variable consideration, as the amount of rewards is not known until the applicable validation activities are completed, and the Trust receives rewards in their custodial account. The contract term is the length of each staking epoch. Staking rewards are recognized as revenue when the Trust satisfies its performance obligations (i.e., successfully validates blocks or transactions as determined by the protocol) ratably over the contract term. Staking rewards are received in SOL, which represents non-cash consideration. Non-cash consideration is measured at fair value at the inception of each contract (i.e., the beginning of each staking +F- 11 +epoch), in accordance with ASC 606. +Because the Trust is not the principal to the block validation service, it does not control the full output of the reward-generating activity, and instead receives net staking rewards, after Validator Fees are deducted. As such, the Trust presents staking revenue on a net basis, reflecting only the portion of protocol rewards to which it is entitled. Staking revenue is recorded as staking reward income on the Statements of Operations. Any staking (block) rewards that have been earned and collected by validators (held in the validator’s address and under the validator’s control) but not yet transferred to the Trust’s digital asset wallet are recorded as a Staking Reward receivable, at fair value on the Statement of Assets and Liabilities. +Fair Value Measurement +Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the ‘exit price’) in an orderly transaction between market participants at the measurement date. +U.S. GAAP utilizes a fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Trust. Unobservable inputs reflect the Trust’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. +F- 12 +The fair value hierarchy is categorized into three levels based on the inputs as follows: +• +Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Trust has the ability to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, these valuations do not entail a significant degree of judgment. +• +Level 2 – Valuations based on quoted prices in markets that are not active or for which significant inputs are observable, either directly or indirectly. +• +Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement. +The availability of valuation techniques and observable inputs can vary by investment. To the extent that valuations are based on sources that are less observable or unobservable in the market, the determination of fair value requires more judgment. Fair value estimates do not necessarily represent the amounts that may be ultimately realized by the Trust. +Fair Value Measurement Using +(Amounts in thousands) +Amount at +Fair Value +Level 1 +Level 2 +Level 3 +December 31, 2025 +Assets +Investment in SOL +$ +160,385 +$ +160,385 +$ +- +$ +- +December 31, 2024 +Assets +Investment in SOL +$ +102,631 +$ +102,631 +$ +- +$ +- +Segment Reporting +The Chief Executive Officer and Chief Financial Officer of the Sponsor act as the Trust’s chief operating decision maker (“CODM”). The Trust represents a single operating segment, as the CODM monitors the operating results of the Trust as a whole and the Trust’s passive investment objective is pre-determined in accordance with the terms of the Trust Agreement. The financial information in the form of the Trust’s total returns, expense ratios and changes in net assets (i.e., changes in net assets resulting from operations and capital share transactions), which are used by the CODM to assess the segment’s performance, are consistent with that presented within the Trust’s financial statements. Segment assets are reflected on the accompanying Statements of Assets and Liabilities as Total assets and the only significant segment expenses, the Sponsor’s Fee, related party and Sponsor’s Staking Fee, related party, are included in the accompanying Statements of Operations. +3. Fair Value of SOL +SOL is held by the Custodian on behalf of the Trust and is carried at fair value. As of December 31, 2025, 2024, and 2023 the Trust held 1,294,090.55476756 , 529,873.8984953 , and 240,381.32738679 SOL, respectively. +The Trust determined the fair value per SOL to be $ 123.97 , 193.69 , and 104.79 on December 31, 2025, 2024, and 2023, respectively, using the price provided at 4:00 p.m., New York time, by the Digital Asset Trading Platform Market considered to be the Trust’s principal market (Coinbase). +The Trust performed an assessment of the principal market at December 31, 2025, 2024, and 2023 and identified Coinbase as the principal market. +F- 13 +The following represents the changes in quantity of SOL and the respective fair value: +(Amounts in thousands, except SOL amounts) +Quantity +Fair Value +Balance at December 31, 2022 +118,415.28927248 +1,195 +SOL contributed +125,094.35983579 +8,999 +SOL distributed for Sponsor’s Fee, related party +( 3,128.32172148 +) +( 102 +) +Net change in unrealized appreciation/depreciation on investment in SOL +- +15,387 +Net realized gain (loss) on investment in SOL +- +( 290 +) +Balance at December 31, 2023 +240,381.32738679 +$ +25,189 +SOL contributed +300,449.71934981 +45,149 +SOL distributed for Sponsor’s Fee, related party +( 10,957.14824130 +) +( 1,758 +) +Net change in unrealized appreciation/depreciation on investment in SOL +- +33,618 +Net realized gain (loss) on investment in SOL +- +433 +Balance at December 31, 2024 +529,873.89849530 +$ +102,631 +SOL contributed +763,741.08814985 +107,053 +SOL redeemed +- +- +Staking Reward income +11,075.32111722 +1,568 +SOL distributed for Sponsor’s Fee, related party +( 10,943.43565681 +) +( 1,928 +) +Net change in unrealized appreciation/depreciation on investment in SOL +- +( 49,455 +) +Net realized gain on investment in SOL sold to pay expenses +- +516 +Net realized gain (loss) on investment in SOL sold for redemption of Shares +- +- +Balance at December 31, 2025 +1,293,746.87210555 +$ +160,385 +4. Creations and Redemptions of Shares +At December 31, 2025, there were an unlimited number of Shares authorized by the Trust. The Trust creates and redeems Shares from time to time, but only in one or more Baskets. The creation and redemption of Baskets on behalf of investors are made by the Authorized Participant in exchange for the delivery of SOL to the Trust or the distribution of SOL by the Trust. The amount of SOL required for each Creation Basket or Redemption Basket is determined by dividing (x) the amount of SOL owned by the Trust at 4:00 p.m., New York time, on such trade date of a creation or redemption order, after deducting the amount of SOL representing the U.S. dollar value of accrued but unpaid fees and expenses of the Trust, by (y) the number of Shares outstanding at such time and multiplying the quotient obtained by 10,000. Each Share represented approximately 0.0734 and 0.0740 of one SOL at December 31, 2025 and 2024, respectively. The decrease in the amount of SOL represented by each Share is primarily a result of the periodic withdrawal of SOL to pay the Sponsor’s Fee. +The cost basis of investments in SOL recorded by the Trust is the fair value of SOL, as determined by the Trust, at 4:00 p.m., New York time, on the date of transfer to the Trust by the Authorized Participant, or Liquidity Provider, based on the Creation Baskets. The cost basis recorded by the Trust may differ from proceeds collected by the Authorized Participant from the sale of each Share to investors. The Authorized Participant, or Liquidity Provider, may realize significant profits buying, selling, creating and redeeming Shares as a result of changes in the value of Shares or SOL. +On October 28, 2025, in connection with the approval for listing and trading of the Shares of the Trust under the Generic Listing Standards and the effectiveness of the registration statement on Form S-1, as amended, the Sponsor authorized the commencement of a redemption program once the registration statement on Form S-1, as amended, was declared effective. +Prior to uplisting the Shares to NYSE Arca, the Trust created Shares via both cash and in-kind transactions with the Authorized Participant and Liquidity Providers in exchange for SOL. As of the date of this Annual Report, Authorized Participants may only submit orders to create or redeem Shares through transactions that are referred to as “cash orders”, as the agreements with Authorized Participants do not currently provide for in-kind creations and redemptions. +F- 14 +Years Ended December 31, +2025 +2024 +Activity in Number of Shares Issued and Redeemed: (1) +Shares issued +10,473,800 +3,992,200 +Shares redeemed +- +- +Net Change in Number of Shares Issued and Redeemed +10,473,800 +3,992,200 +Years Ended December 31, +(Amounts in thousands) +2025 +2024 +Activity in Value of Shares Issued and Redeemed: +Shares issued +$ +107,053 +$ +45,149 +Shares redeemed +$ +- +$ +- +Net Change in Value of Shares Issued and Redeemed +$ +107,053 +$ +45,149 +(1) +Share amounts for periods presented prior to the Share Split have been retroactively adjusted to reflect the 5-for-1 Share Split of the Trust’s issued and outstanding Shares completed on December 9, 2024. +SOL receivable represents the value of SOL covered by contractually binding orders for the creation of Shares where the SOL has not yet been transferred to the Trust’s account. Generally, ownership of the SOL is transferred within no more than two business days of the trade date. +Years Ended December 31, +(Amounts in thousands) +2025 +2024 +SOL receivable +$ +- +$ +- +SOL payable represents the value of SOL covered by contractually binding orders for the redemption of Shares where the SOL has not yet been transferred out of the Trust’s account. Generally, ownership of the SOL is transferred within no more than two business days of the trade date. +Years Ended December 31, +(Amounts in thousands) +2025 +2024 +SOL payable +$ +- +$ +- +F- 15 +5. Income Taxes +The Sponsor takes the position that the Trust is properly treated as a grantor trust for U.S. federal income tax purposes. Assuming that the Trust is a grantor trust, the Trust will not be subject to U.S. federal income tax. Rather, if the Trust is a grantor trust, each beneficial owner of Shares will be treated as directly owning its pro rata Share of the Trust’s assets and a pro rata portion of the Trust’s income, gains, losses and deductions will “flow through” to each beneficial owner of Shares. +If the Trust were not properly classified as a grantor trust, the Trust might be classified as a partnership for U.S. federal income tax purposes. However, due to the uncertain treatment of digital assets, with respect to staking and including forks, airdrops and similar occurrences for U.S. federal income tax purposes, there can be no assurance in this regard. If the Trust were classified as a partnership for U.S. federal income tax purposes, the tax consequences of owning Shares generally would not be materially different from the tax consequences described herein, although there might be certain differences, including with respect to timing. In addition, tax information reports provided to beneficial owners of Shares would be made in a different form. If the Trust were not classified as either a grantor trust or a partnership for U.S. federal income tax purposes, it would be classified as a corporation for such purposes. In that event, the Trust would be subject to entity-level U.S. federal income tax (currently at the rate of 21 %) on its net taxable income and certain distributions made by the Trust to shareholders would be treated as taxable dividends to the extent of the Trust’s current and accumulated earnings and profits. +In accordance with U.S. GAAP, the Trust has defined the threshold for recognizing the benefits of tax positions in the financial statements as “more-likely-than-not” to be sustained by the applicable taxing authority and requires measurement of a tax position meeting the “more-likely-than-not” threshold, based on the largest benefit that is more than 50% likely to be realized. Tax positions deemed to meet the “more-likely-than-not” threshold are recorded as a tax benefit in the current period. As of and during the years ended December 31, 2025, 2024, and 2023 , the Trust did no t have a liability for any unrecognized tax amounts. However, the Sponsor’s conclusions concerning its determination of “more-likely-than-not” tax positions may be subject to review and adjustment at a later date based on factors including, but not limited to, further implementation guidance, and ongoing analyses of and changes to tax laws, regulations and interpretations thereof. +The Sponsor of the Trust has evaluated whether or not there are uncertain tax positions that require financial statement recognition and has determined that no reserves for uncertain tax positions related to federal, state and local income taxes existed as of December 31, 2025 or 2024 +6. Related Parties +The Trust considered the following entities, their directors, and certain employees to be related parties of the Trust as of December 31, 2025: DCG, GSO, GSIS and Grayscale Securities. As of December 31, 2025 and 2024, 164,214 and 297,606 Shares of the Trust were held by related parties of the Trust, respectively. +On January 1, 2025, GSI consummated an internal corporate reorganization (the “Reorganization”), pursuant to which GSI, the Sponsor of the Trust prior to the Reorganization, merged with and into GSO, a Delaware limited liability company and a consolidated subsidiary of DCG, with GSO continuing as the surviving company (the “Merger”). As a result of the Merger, GSO succeeded by operation of law to all the rights, powers, privileges and franchises and became subject to all of the obligations, liabilities, restrictions and disabilities of GSI, including with respect to the Sponsor Contracts (as defined below), all as provided under the Delaware Limited Liability Company Act. The Reorganization is not expected to have any material impact on the operations of the Trust. +In connection with the Reorganization, on January 1, 2025, and promptly following the effectiveness of the Merger, GSO assigned certain contracts pertaining to its role as Sponsor (as such term is defined in the Trust Agreement) of the Trust (such contracts, the “Sponsor Contracts”) to GSIS, a Delaware limited liability company and a consolidated subsidiary of GSO, whereby GSIS assumed all of the rights and obligations of GSO under the Sponsor Contracts. Other than the assumption of the Sponsor Contracts by GSIS, the Reorganization does not alter the rights or obligations under any of the Sponsor Contracts. +In connection with the Reorganization, on January 1, 2025, and promptly following the effectiveness of the Merger, GSO and GSIS executed a Certificate of Admission, pursuant to which GSIS was admitted as an additional Sponsor of the Trust under the Trust Agreement, by and among GSO (as successor in interest to GSI), the Trustee, and the shareholders from time to time thereunder, as amended from time to time. GSIS shall be subject to the rights and obligations of a Sponsor under the Trust Agreement. On January 3, 2025, GSO voluntarily withdrew as a Sponsor of the Trust pursuant to the terms of the Trust Agreement, and, effective May 3, 2025, became the sole remaining Sponsor of the Trust. +On October 22, 2025, GSO Intermediate Holdings Corporation (“GSOIH”), a Delaware corporation which was the sole managing member of GSO, consummated an internal corporate reorganization (the “Management Reorganization”). Pursuant to the Management Reorganization, GSOIH transferred a portion of its common membership units of GSO for Class A shares of Grayscale Investments, +F- 16 +Inc. (“Grayscale Investments”), a Delaware corporation incorporated in connection with the Management Reorganization, and ceded its managing member rights in GSO to Grayscale Investments. As a result of the Reorganization, Grayscale Investments is now the sole managing member of GSO, the sole member of the Sponsor. Also in connection with the Reorganization, on October 22, 2025, DCG Grayscale Holdco, LLC (“DCG Holdco”), the sole stockholder of Grayscale Investments, elected a board of directors (the “Board”) at Grayscale Investments. +On October 27, 2025, the Sponsor and the Trustee entered into Amendment No. 1 to the Second A&R Trust Agreement in order to reduce the Sponsor’s Fee to 0.35 %, effective as of the Uplisting Date. As a result, effective October 29, 2025, the Sponsor’s Fee was lowered from 2.5 % to 0.35 %. In accordance with the Trust Agreement governing the Trust, the Trust pays a fee to the Sponsor, calculated as 0.35 % of the aggregate value of the Trust’s assets, less its liabilities (which include any accrued but unpaid expenses up to, but excluding, the date of calculation), as calculated and published by the Sponsor or its delegates in the manner set forth in the Trust Agreement (the “Sponsor’s Fee”). The Sponsor’s Fee accrues daily in U.S. dollars and is payable in SOL monthly in arrears prior to the reduction in Sponsor’s Fees on October 29, 2025 and daily in arrears on and after October 29, 2025. The amount of SOL payable in respect of each daily U.S. dollar accrual will be determined by reference to the same U.S. dollar value of SOL used to determine such accrual. For purposes of these financial statements, the U.S. dollar value of SOL is determined by reference to the Digital Asset Trading Platform Market that the Trust considers its principal market as of 4:00 p.m., New York time, on each valuation date. The Trust held no Incidental Rights or IR Virtual Currency as of December 31, 2025 and 2024 . No Incidental Rights or IR Virtual Currencies have been distributed in payment of the Sponsor’s Fee during the years ended December 31, 2025, 2024, and 2023. +Effective October 6, 2025, and pursuant to the Staking Arrangements, the Custodian and the applicable Staking Provider became entitled to receive a portion of the gross staking rewards generated thereunder, representing the Custodian’s fee and the Staking Provider’s share of such staking rewards (collectively, the “Validator Fees”), with the remaining staking rewards received by the Trust. In addition, pursuant to the Trust Agreement and as consideration for the Sponsor’s facilitation of Staking, the Sponsor is entitled to receive a fee equal to a portion of the staking rewards, payable in SOL, which accrues daily in U.S. dollars and is calculated as a per annum percentage of the staking rewards received by the Trust, as directed by the Sponsor in its sole discretion (the “Sponsor’s Staking Fee”). The Sponsor’s Staking Fee is payable daily in arrears. From November 5, 2025 until February 5, 2026 (the “Fee Waiver Period”), the Sponsor waived a portion of the fees associated with Staking, such that the Sponsor’s Staking Fee, the Custodian’s fee and the Staking Provider’s share of the gross staking rewards comprised an aggregate of 5 % of the gross staking rewards generated under the Staking Arrangements, with the Trust receiving and retaining the remainder of such gross Staking Consideration. Following the expiration of the Fee Waiver Period on February 5, 2026, the Sponsor’s Staking Fee, the Custodian’s fee and the Staking Provider’s share of the gross staking rewards comprise an aggregate of 23 % of the gross staking rewards generated under the Staking Arrangements. The Trust receives and retains the remainder of such gross staking rewards. +As partial consideration for receipt of the Sponsor’s Fee, the Sponsor is obligated under the Trust Agreement to assume and pay all fees and other expenses incurred by the Trust in the ordinary course of its affairs, excluding taxes, but including marketing fees; administrator fees, if any; custodian fees; transfer agent fees; trustee fees; the fees and expenses related to the listing, quotation or trading of the Shares on any secondary market (including customary legal, marketing and audit fees and expenses) in an amount up to $ 600,000 in any given fiscal year; ordinary course legal fees and expenses; audit fees; regulatory fees, including, if applicable, any fees relating to the registration of the Shares under the Securities Act or the Exchange Act; printing and mailing costs; the costs of maintaining the Trust’s website and applicable license fees (together, the “Sponsor-paid Expenses”), provided that any expense that qualifies as an Additional Trust Expense will be deemed to be an Additional Trust Expense and not a Sponsor-paid Expense. +F- 17 +The Trust may incur certain extraordinary, non-recurring expenses that are not Sponsor-paid Expenses, including, but not limited to, taxes and governmental charges, expenses and costs of any extraordinary services performed by the Sponsor (or any other service provider) on behalf of the Trust to protect the Trust or the interests of shareholders, any indemnification of the Custodian or other agents, service providers or counterparties of the Trust, the fees and expenses related to the listing, quotation or trading of the Shares on any secondary market (including legal, marketing and audit fees and expenses) to the extent exceeding $ 600,000 in any given fiscal year and extraordinary legal fees and expenses, including any legal fees and expenses incurred in connection with litigation, regulatory enforcement or investigation matters (collectively “Additional Trust Expenses”). In such circumstances, the Sponsor or its delegate (i) will instruct the Custodian to withdraw from the Vault Balance SOL in such quantity as may be necessary to permit payment of such Additional Trust Expenses and (ii) may either (x) cause the Trust (or its delegate) to convert such SOL into U.S. dollars or other fiat currencies at the Actual Exchange Rate or (y) when the Sponsor incurs such expenses on behalf of the Trust, cause the Trust (or its delegate) to deliver such SOL in-kind to the Sponsor, in each case in such quantity as may be necessary to permit payment of such Additional Trust Expenses. +The Sponsor, from time to time, may temporarily waive all or a portion of the Sponsor’s Fee of the Trust in its discretion for stated periods of time. Effective November 5, 2025, the Sponsor has determined to waive a portion of the Sponsor’s Fee until the earlier of (x) February 5, 2026 and (y) the first date on which the NAV of the Trust exceeds $ 1.0 billion (such period, the “Fee Waiver Period”). If the Trust’s NAV exceeds $ 1.0 billion prior to February 5, 2026, the Sponsor’s Fee charged on assets over $ 1.0 billion would have become 0.35 %. All investors will incur the same Sponsor’s Fee, which is the weighted average of those fee rates. Following the expiration of the Fee Waiver Period on February 5, 2026, the effective Sponsor’s Fee is now 0.35 %. +Prior to the Fee Waiver Period, for the period from January 1, 2025 until November 5, 2025, and the year ended December 31, 2024, the Trust incurred Sponsor’s Fees of $ 1,927,562 and $ 1,758,499 , respectively. As of December 31, 2025 and 2024 , there were no accrued and unpaid Sponsor’s Fees. In addition, the Sponsor may pay Additional Trust Expenses on behalf of the Trust, which are reimbursable by the Trust to the Sponsor. For the years ended December 31, 2025 and 2024 , the Sponsor did no t pay any Additional Trust Expenses on behalf of the Trust. +For the period from October 6, 2025, when the Trust began staking SOL, through December 31, 2025, the Trust incurred Sponsor’s Staking Fees of $ 95,648 . +7. Risks and Uncertainties +The Trust is subject to various risks including market risk, liquidity risk, and other risks related to its concentration in a single asset, SOL. Investing in SOL is currently highly speculative and volatile. +The Principal Market NAV of the Trust, calculated by reference to the principal market price in accordance with U.S. GAAP, relates primarily to the value of the SOL held by the Trust, and fluctuations in the price of SOL could materially and adversely affect an investment in the Shares of the Trust. The price of SOL has a limited history. During such history, SOL prices have been volatile and subject to influence by many factors, including the levels of liquidity. If Digital Asset Markets continue to experience significant price fluctuations, the Trust may experience losses. Several factors may affect the price of SOL, including, but not limited to, global SOL supply and demand, theft of SOL from global trading platforms or vaults, competition from other forms of digital currency or payment services, global or regional political, economic or financial conditions, and other unforeseen events and situations. +The SOL held by the Trust are commingled, and the Trust’s shareholders have no specific rights to any specific SOL. In the event of the insolvency of the Trust, its assets may be inadequate to satisfy a claim by its shareholders. +There is currently no clearing house for SOL, nor is there a central or major depository for the custody of SOL. There is a risk that some or all of the Trust’s SOL could be lost or stolen. There can be no assurance that the Custodian will maintain adequate insurance or that such coverage will cover losses with respect to the Trust’s SOL. Further, transactions in SOL are irrevocable. Stolen or incorrectly transferred SOL may be irretrievable. As a result, any incorrectly executed SOL transactions could adversely affect an investment in the Shares. +The SEC, at least under the prior administration, has stated that certain digital assets may be considered “securities” under the federal securities laws. The test for determining whether a particular digital asset is a “security” is complex and difficult to apply, and the outcome is difficult to predict. A number of SEC and SEC staff actions with respect to a variety of digital assets demonstrate this difficulty. For example, public, though non-binding, statements by senior officials at the SEC have indicated that the SEC did not consider Bitcoin or Ether to be securities, and does not currently consider Bitcoin to be a security. Moreover, in a recent settlement with another market participant relating to allegations that it acted as an unregistered broker-dealer for facilitating trading in certain digital assets, the SEC highlighted that the firm would cease trading in all digital assets other than Bitcoin, Bitcoin Cash and Ether—activity that, if the SEC believed Ether was presently a security—would continue to constitute unregistered brokerage activity. The SEC staff has also provided informal assurances via no-action letter to a handful of promoters that their digital assets are not securities. Moreover, the SEC’s Division of Corporation Finance has published statements that it does not consider, under certain circumstances, “meme +F- 18 +coins” or some stablecoins to be securities. However, such statements may be withdrawn at any time without notice and comment by the Division of Corporation Finance at the SEC or the SEC itself. In addition, the SEC has brought enforcement actions against the issuers and promoters of several other digital assets on the basis that the digital assets in question are securities and has not formally or explicitly confirmed that it does not deem Ether to be a security. These developments demonstrate the difficulty in applying the federal securities laws to digital assets generally. In January 2025, the SEC launched a crypto task force dedicated to developing a comprehensive and clear regulatory framework for digital assets led by Commissioner Hester Peirce. Subsequently, Commissioner Peirce announced a list of specific priorities to further that initiative, which included pursuing final rules related to a digital asset’s security status, a revised path to registered offerings and listings for digital assets-based investment vehicles, and clarity regarding digital asset custody, lending, and staking. On July 31, 2025, Chairman Atkins announced “Project Crypto,” a Commission-wide initiative to modernize securities rules for digital assets, reshore innovation in the United States, and implement the recommendations of the working group report. Chairman Atkins had directed the SEC’s policy divisions to work with the Crypto Task Force to draft “clear and simple rules of the road for crypto asset distributions, custody, and trading,” and the Commission and SEC staff will also consider using interpretive, exemptive, and other authorities with respect to digital asset markets. However, the efforts of the crypto task force have only just begun, and how or whether the SEC regulates digital asset activity in the future remains to be seen. +If SOL is determined to be a “security” under federal or state securities laws by the SEC or any other agency, or in a proceeding in a court of law or otherwise, it may have material adverse consequences for SOL. For example, it may become more difficult for SOL to be traded, cleared and custodied as compared to other digital assets that are not considered to be securities, which could, in turn, negatively affect the liquidity and general acceptance of SOL and cause users to migrate to other digital assets. As such, any determination that SOL is a security under federal or state securities laws may adversely affect the value of SOL and, as a result, an investment in the Shares. +In addition, if SOL is in fact a security, the Trust could be considered an unregistered “investment company” under the Investment Company Act of 1940, which could necessitate the Trust’s liquidation. In this case, the Trust and the Sponsor may be deemed to have participated in an illegal offering of securities and there is no guarantee that the Sponsor will be able to register the Trust under the Investment Company Act of 1940 at such time or take such other actions as may be necessary to ensure the Trust’s activities comply with applicable law, which could force the Sponsor to liquidate the Trust. +To the extent a private key, held by the Custodian, required to access an address on the Solana Network holding SOL is lost, destroyed or otherwise compromised and no backup of the private keys are accessible, the Trust may be unable to access the SOL controlled by the private key and the private key will not be capable of being restored by the Solana Network. The processes by which SOL transactions are settled are dependent on the Solana peer-to-peer network, and as such, the Trust is subject to operational risk. A risk also exists with respect to previously unknown technical vulnerabilities, which may adversely affect the value of SOL. +The Trust relies on third-party service providers, including Staking Providers and custodial counterparties, to perform certain functions essential to its staking activities and other operations. Any disruptions to the Trust’s service providers’ business operations resulting from business failures, financial instability, security failures, government mandated regulation or operational problems could have an adverse impact on the Trust’s ability to access critical services and be disruptive to the operations of the Trust. +In addition, the Trust’s participation in staking arrangements subjects it to risks that may directly affect its SOL holdings and financial position. Protocol-level penalties, including slashing or inactivity leaks, or operational failures by custodians or Staking Providers, may result in the permanent loss of staked SOL and would require a corresponding reduction in the carrying amount of the Trust’s digital assets and could result in realized losses. Staked SOL may be subject to temporary lock-up periods or other transfer restrictions, which could limit the Trust’s ability to meet redemptions or to sell SOL to fund expenses or other obligations and could require sales at unfavorable prices. Staking rewards may be recognized as income for U.S. federal income tax purposes without a corresponding receipt of cash. In addition, Sponsor fees or other amounts payable in SOL or determined by reference to the value of SOL may increase volatility in the Trust’s net assets and results of operations due to remeasurement at fair value, and disruptions or failures affecting Staking Providers or custodians could require accruals, impairments, or expanded subsequent event disclosures. +The Sponsor and the Trust may be subject to various litigation, regulatory investigations, and other legal proceedings that arise in the ordinary course of its business. +F- 19 +8. Quarterly Statements of Operations +Fiscal Year Ended December 31, 2025 +Three Months Ended +(unaudited) +(Amounts in thousands) +Mar-31, 2025 +Jun-30, 2025 +Sept-30, 2025 +Dec-31, 2025 +Year Ended +December 31, 2025 +Investment income: +Staking Reward income +$ +- +$ +- +$ +- +$ +1,611 +$ +1,611 +Investment income +- +- +- +- +- +Total Investment income +$ +- +$ +- +$ +- +$ +1,611 +$ +1,611 +Expenses +Sponsor’s Staking Fee, related party +$ +- +$ +- +$ +- +$ +96 +$ +96 +Sponsor’s Fee, related party +589 +492 +635 +285 +2,001 +Gross Expenses +589 +492 +635 +381 +2,097 +Sponsor’s Fee Waiver, related party +- +- +- +( 73 +) +( 73 +) +Net Expenses +589 +492 +635 +308 +2,024 +Net investment (loss) gain +$ +( 589 +) +$ +( 492 +) +$ +( 635 +) +$ +1,303 +$ +( 413 +) +Net realized and unrealized (loss) gain from: +Net realized gain (loss) on investment in SOL sold to pay expenses +167 +66 +207 +76 +516 +Net realized gain (loss) on investment in SOL sold for redemption of Shares +- +- +- +- +- +Net change in unrealized appreciation/depreciation on investment in SOL +( 36,815 +) +17,213 +26,752 +( 56,605 +) +( 49,455 +) +Net change in unrealized appreciation/depreciation on Sponsor's Staking Fee payable in SOL +- +- +- +25 +25 +Net realized and unrealized (loss) gain on investment +( 36,648 +) +17,279 +26,959 +( 56,504 +) +( 48,914 +) +Net (decrease) increase in net assets resulting from operations +$ +( 37,237 +) +$ +16,787 +$ +26,324 +$ +( 55,201 +) +$ +( 49,327 +) +Fiscal Year Ended December 31, 2024 +Three Months Ended +(unaudited) +(Amounts in thousands) +Mar-31, 2024 +Jun-30, 2024 +Sept-30, 2024 +Dec-31, 2024 +Year Ended +December 31, 2024 +Expenses +Sponsor's Fee, related party +$ +233 +$ +432 +$ +454 +$ +639 +$ +1,758 +Net investment loss +$ +( 233 +) +$ +( 432 +) +$ +( 454 +) +$ +( 639 +) +$ +( 1,758 +) +Net realized and unrealized gain (loss) from: +Net realized gain on investment in SOL +$ +47 +$ +92 +$ +72 +$ +222 +$ +433 +Net change in unrealized appreciation/depreciation on investment in SOL +33,024 +( 24,337 +) +4,894 +20,037 +33,618 +Net realized and unrealized gain (loss) on investment +33,071 +( 24,245 +) +4,966 +20,259 +34,051 +Net increase (decrease) in net assets resulting from operations +$ +32,838 +$ +( 24,677 +) +$ +4,512 +$ +19,620 +$ +32,293 +F- 20 +9. Financial Highlights Per Share Performance +Years Ended December 31, +2025 +2024 (2) +2023 (1)(2) +Per Share Data: +Principal Market NAV, beginning of year +$ +14.33 +$ +7.95 +$ +0.78 +Net (decrease) increase in net assets from investment operations: +Net investment loss +( 0.05 +) +( 0.30 +) +( 0.06 +) +Net realized and unrealized (loss) gain +( 5.19 +) +6.68 +7.23 +Net (decrease) increase in net assets resulting from operations +( 5.24 +) +6.38 +7.17 +Principal Market NAV, end of year +$ +9.09 +$ +14.33 +$ +7.95 +Total return +- 36.57 +% +80.25 +% +914.03 +% +Ratios to average net assets: +Net investment loss +- 0.41 +% +- 2.50 +% +- 2.50 +% +Sponsor Fee +- 1.93 +% +- 2.50 +% +- 2.50 +% +Sponsor's Staking Fee +- 0.10 +% +0.00 +% +0.00 +% +Gross Expenses +- 2.03 +% +- 2.50 +% +- 2.50 +% +Sponsor Fee Waiver +0.07 +% +0.00 +% +0.00 +% +Net expenses +- 1.96 +% +- 2.50 +% +- 2.50 +% +(1) +Per Share amounts have been retroactively adjusted to reflect the 1-for-2 Reverse Share Split of the Trust’s issued and outstanding Shares completed on March 20, 2023. +(2) +Per Share amounts have been retroactively adjusted to reflect the 5-for-1 Share Split of the Trust’s issued and outstanding Shares completed on December 9, 2024. +An individual shareholder’s return, ratios, and per Share performance may vary from those presented above based on the timing of Share transactions. The amount shown for a Share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the number of Shares issued in Creations occurring at an operational value derived from an operating metric as defined in the Trust Agreement. +Total return is calculated assuming an initial investment made at the Principal Market NAV at the beginning of the year and assuming redemption on the last day of the year. +10. Indemnifications +In the normal course of business, the Trust enters into certain contracts that provide a variety of indemnities, including contracts with the Sponsor and affiliates of the Sponsor, DCG and its officers, directors, employees, subsidiaries and affiliates, and the Custodian and the Additional Custodian as well as others relating to services provided to the Trust. The Trust’s maximum exposure under these and its other indemnities is unknown. However, no liabilities have arisen under these indemnities in the past and, while there can be no assurances in this regard, there is no expectation that any will occur in the future. Therefore, the Sponsor does not consider it necessary to record a liability in this regard. +F- 21 +11. Subsequent Events +On January 5, 2026, the Trust changed its name from Grayscale Solana Trust ETF to Grayscale Solana Staking ETF by filing a Certificate of Amendment to the Certificate of Trust with the Delaware Secretary of State. +Following the expiration of the three-month Sponsor’s Fee waiver on February 5, 2026, the effective Sponsor’s Fee is now 0.35 %. +As of the close of business on March 6, 2026 , the fair value of SOL determined in accordance with the Trust’s accounting policy was $ 85.00 per SOL. +There are no known events that have occurred that require disclosure other than that which has already been disclosed in these notes to the financial statements. +F- 22 \ No newline at end of file diff --git a/raw/filings/0001896677/2025/0001193125-26-104243/filing_metadata.csv b/raw/filings/0001896677/2025/0001193125-26-104243/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..0d6c8ccaff76201b3305dd64171f0551ceb00d0e --- /dev/null +++ b/raw/filings/0001896677/2025/0001193125-26-104243/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001896677,GSOL,Grayscale Solana Staking ETF,2025,10-K,2026-03-12,2025-12-31,2026-03-12T20:26:20.000Z,0001193125-26-104243,sol-20251231.htm,10-K,12621130,1,1,https://www.sec.gov/Archives/edgar/data/1896677/000119312526104243/sol-20251231.htm,https://www.sec.gov/Archives/edgar/data/1896677/000119312526104243/ diff --git a/raw/filings/0001896677/2025/0001193125-26-104243/item1.txt b/raw/filings/0001896677/2025/0001193125-26-104243/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..be0f583fb746c85dc51a172812c713c9c9eff531 --- /dev/null +++ b/raw/filings/0001896677/2025/0001193125-26-104243/item1.txt @@ -0,0 +1,791 @@ +Item 1. B usiness +Overview of the Trust and the Shares +Grayscale Solana Staking ETF (formerly known as Grayscale Solana Trust (SOL) and Grayscale Solana Trust ETF) (the “Trust”) is a Delaware Statutory Trust that was formed on November 9, 2021, by the filing of the Certificate of Trust with the Delaware Secretary of State in accordance with the provisions of the Delaware Statutory Trust Act. The Trust’s purpose is to hold Solana tokens (“SOL”), which are digital assets that are created and transmitted through the operations of the peer-to-peer Solana Network, a decentralized network of computers that operates on cryptographic protocols. +As of December 31, 2025, the Trust holds approximately 0.23% of the SOL in circulation. The size of the Trust’s position does not itself enable the Sponsor or the Trust to participate in or otherwise influence the development of the Solana Network. As a decentralized digital asset network, the Solana Network consists of several stakeholders, including core developers of SOL, users, services, businesses, validators and other constituencies, of which the Trust is only one constituent. Furthermore, in contrast to other protocols in which token holders participate in the governance of the network, ownership of SOL confers no such rights. +On January 5, 2026, the Trust changed its name from Grayscale Solana Trust ETF to Grayscale Solana Staking ETF and previously, on October 28, 2025, the Trust changed its name from Grayscale Solana Trust (SOL) to Grayscale Solana Trust ETF, in each case by filing a Certificate of Amendment to the Certificate of Trust with the Delaware Secretary of State. On December 3, 2024, NYSE Arca, Inc. (“NYSE Arca”) submitted an application under Rule 19b-4 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) to list the Shares of the Trust on NYSE Arca. On September 17, 2025, the Securities and Exchange Commission (the “SEC”) approved a proposed rule change for new Rule 8.201-E (Generic) with the SEC pursuant to Rule 19b-4 under the Exchange Act to amend NYSE Arca’s listing rules to permit the listing and trading of shares of certain commodity-based exchange-traded products that satisfy certain generic requirements (the “Generic Listing Standards”). On October 28, 2025, the Sponsor’s application to list and trade the Trust’s Shares on NYSE Arca under the Generic Listing Standards was approved and the Trust began trading on NYSE Arca on October 29, 2025 (the “Uplisting Date”), following the effectiveness of the Trust’s registration statement on Form S-1, as amended (File No. 333-286374). The Shares are listed on NYSE Arca under the ticker symbol “GSOL.” The Trust issues common units of fractional undivided beneficial interest (“Shares”), which represent ownership in the Trust, on a continuous basis pursuant to the registration statement under the Securities Act of 1933, as amended (the “Securities Act”) in exchange for deposits of SOL. +As a passive investment vehicle, the Trust’s investment objective is for the value of the Shares (based on SOL per Share) to reflect the value of the SOL held by the Trust, including SOL earned as Staking Consideration, determined by reference to the Index Price, less the Trust’s expenses and other liabilities. Except for any SOL earned as Staking Consideration, the Trust does not seek to generate returns beyond tracking the price of SOL. There can be no assurance that the Trust will be able to achieve its investment objective. Historically, the Trust has not met its investment objective and, prior to their uplisting to NYSE Arca on October 29, 2025, the Shares quoted on the OTCQX Best Market® (“OTCQX”) of OTC Markets Group Inc. did not reflect the value of the SOL held by the Trust, less the Trust’s expenses and other liabilities, but instead had traded at both premiums and discounts to such value, which at times were substantial, although the Sponsor has observed that the Trust has begun to meet its investment objective more closely following the uplisting of the Shares to NYSE Arca. The Trust will not utilize leverage, derivatives or any similar arrangements in seeking to meet its investment objective. +Until December 31, 2024, Grayscale Investments, LLC was the sponsor and administrator of the Trust. As a result of the Reorganization (as defined herein) on January 1, 2025, Grayscale Investments Sponsors, LLC (“GSIS”) and Grayscale Operating, LLC (“GSO”), consolidated subsidiaries of Digital Currency Group, Inc. (“DCG”), became Co-Sponsors of the Trust. On January 3, 2025 GSO voluntarily withdrew as a Sponsor of the Trust, and effective May 3, 2025 GSIS is the sole remaining Sponsor. Prior to May 3, 2025, all references herein to the “Sponsor” shall be deemed to include both GSIS and GSO as Sponsors unless the context otherwise requires, and on or after May 3, 2025, all references herein to the “Sponsor” shall refer only to GSIS. CSC Delaware Trust Company is the trustee of the Trust (the “Trustee”), The Bank of New York Mellon is the transfer agent (in such capacity, the “Transfer Agent”) and the administrator (in such capacity, the “Administrator”) of the Trust, Continental Stock Transfer & Trust Company is the co-transfer agent of the Trust (the “Co-Transfer Agent”), Coinbase, Inc. is the prime broker (the “Prime Broker”) of the Trust, Coinbase Custody Trust Company, LLC is the custodian of the Trust (the “Custodian”), and Anchorage Digital Bank N.A. (the “Additional Custodian”) is an available alternative custodian of the Trust. +The Trust issues Shares only in one or more blocks of 10,000 Shares (a block of 10,000 Shares is called a “Basket”) to certain authorized participants (“Authorized Participants”) from time to time. The Trust creates Baskets of Shares only upon receipt of SOL and redeems Shares only by distributing SOL or proceeds from the disposition of SOL. At this time, Authorized Participants may only submit orders to create or redeem Shares through transactions that are referred to as “Cash Orders”, as the Participant Agreements do not currently provide for in-kind creations and redemptions. The Trust may effect creations and redemptions through in-kind transactions in the future if and when a Participant Agreement is entered into or amended to provide for in-kind creations and redemptions. The value of a Basket is based on the amount of SOL represented by the Basket, determined by reference to the Index Price. For a more detailed description of the Index and the Index Price, see “—The Index and the Index Price.” For a more detailed description of the creation and redemption procedures, see “—Description of Creation and Redemption of Shares.” +1 +The Shares are neither interests in nor obligations of the Sponsor or the Trustee. As provided under the Trust Agreement, the Trust’s assets will not be loaned or pledged, or serve as collateral for any loan, margin, rehypothecation, or other similar activity to which the Sponsor, the Trust or any of their respective affiliates are a party. +The Sponsor maintains an internet website at etfs.grayscale.com/gsol, through which the registrant’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as amended, are made available free of charge after they have been filed or furnished to the SEC. Additional information regarding the Trust may also be found on the SEC’s EDGAR database at www.sec.gov. +The contents of the websites referred to above and any websites referred to herein are not incorporated into this filing or any other reports or documents we file with or furnish to the SEC. Further, our references to the URLs for these websites are intended to be inactive textual references only. +Investment Objective +The Trust’s investment objective is for the value of the Shares (based on SOL per Share) to reflect the value of SOL held by the Trust, including SOL earned as Staking Consideration, determined by reference to the Index Price, less the Trust’s expenses and other liabilities. Historically, the Trust has not met its investment objective and, prior to their uplisting to NYSE Arca on October 29, 2025, the Shares quoted on OTCQX did not reflect the value of the SOL held by the Trust, less the Trust’s expenses and other liabilities, but instead had traded at both premiums and discounts to such value, which at times were substantial, although the Sponsor has observed that the Trust has begun to meet its investment objective more closely following the uplisting of the Shares to NYSE Arca on October 29, 2025. +In the event the Shares trade at a substantial premium, investors who purchase Shares on NYSE Arca will pay substantially more for their Shares than investors who purchase Shares directly from Authorized Participants. The value of the Shares may not reflect the value of the Trust’s SOL, less the Trust’s expenses and other liabilities, for a variety of reasons, including any halting of creations or redemptions by the Trust, SOL price volatility, trading volumes on, or closures of, trading platforms where digital assets trade due to fraud, failure, security breaches or otherwise, and the non-concurrent trading hours between NYSE Arca and the global trading platform market for trading SOL. As a result, the Shares may trade at a premium over, or a discount to, the value of the Trust’s SOL, less the Trust’s expenses and other liabilities, and the Trust may be unable to meet its investment objective from time to time. +From October 29, 2025, the Uplisting Date, to December 31, 2025, the maximum premium of the closing price of the Shares listed on NYSE Arca over the value of the Trust’s NAV per Share was 0.32%, the average premium was 0.12%, the maximum discount of the closing price of the Shares listed on NYSE Arca below the value of the Trust’s NAV per Share was 0.55%, and the average discount was 0.12%. As of December 31, 2025, the Trust’s Shares were listed on NYSE Arca at a premium of 0.03% to the Trust’s NAV per Share. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Secondary Market Trading.” +While an investment in the Shares is not a direct investment in SOL, the Shares are designed to provide investors with a cost-effective and convenient way to gain investment exposure to SOL. A substantial direct investment in SOL may require expensive and sometimes complicated arrangements in connection with the acquisition, security and safekeeping of the SOL and may involve the payment of substantial fees to acquire such SOL from third-party facilitators through cash payments of U.S. dollars. Because the value of the Shares is correlated with the value of the SOL held by the Trust, it is important to understand the investment attributes of, and the market for, SOL. +The Trust’s SOL are carried, for financial statement purposes, at fair value, as required by the U.S. generally accepted accounting principles (“U.S. GAAP”). The Trust determines the fair value of SOL based on the price provided by the Digital Asset Market that the Trust considers its principal market as of 4:00 p.m., New York time, on the valuation date. The net asset value of the Trust determined on a U.S. GAAP basis is referred to in this Annual Report as “Principal Market NAV.” See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Principal Market and Fair Value Determination” for more information on the Trust’s principal market selection. +The Trust uses the Index Price to calculate its “NAV,” a non-GAAP metric, which is the aggregate value, expressed in U.S. dollars, of the Trust’s assets (other than U.S. dollars or other fiat currency), less the U.S. dollar value of the Trust’s expenses and other liabilities, calculated in the manner set forth under “—Valuation of SOL and Determination of NAV.” “NAV per Share” is calculated by dividing NAV by the number of Shares currently outstanding. NAV and NAV per Share are not measures calculated in accordance with U.S. GAAP. NAV is not intended to be a substitute for the Trust’s Principal Market NAV calculated in accordance with U.S. GAAP, and NAV per Share is not intended to be a substitute for the Trust’s Principal Market NAV per Share calculated in accordance with U.S. GAAP. +2 +Pursuant to the terms of the Trust Agreement, the Trust is required to dissolve under certain circumstances. In addition, the Sponsor may, in its sole discretion, dissolve the Trust for a number of reasons, including if the Sponsor determines, in its sole discretion, that it is desirable or advisable for any reason to discontinue the affairs of the Trust. For example, if the Sponsor determines that SOL is a security under the federal securities laws, whether that determination is initially made by the Sponsor itself, or because a federal court upholds an allegation that SOL is a security, the Sponsor does not intend to permit the Trust to continue holding SOL in a way that would violate the federal securities laws (and therefore would either dissolve the Trust or potentially seek to operate the Trust in a manner that complies with the federal securities laws, including the Investment Company Act of 1940, as amended (the “Investment Company Act”)). See “—Description of the Trust Agreement—Termination of the Trust” for additional discussion of the circumstances under which the Trust could be dissolved. See “Item 1A. Risk Factors—Risk Factors Related to the Trust and the Shares—A determination that SOL or any other digital asset is a “security” may adversely affect the value of SOL and the value of the Shares, and result in potentially extraordinary, nonrecurring expenses to, or termination of, the Trust.” +Characteristics of the Shares +The Shares are intended to offer investors an opportunity to gain exposure to digital assets through an investment in securities. As of December 31, 2025, each Share represented approximately 0.0734 of one SOL. The logistics of accepting, transferring and safekeeping of SOL are dealt with by the Sponsor and Custodian, and the related expenses are built into the value of the Shares. Therefore, shareholders do not have additional tasks or costs over and above those generally associated with investing in any other privately placed security. +The Shares have certain other key characteristics, including the following: +• +Easily Accessible and Relatively Cost Efficient . Investors in the Shares can also directly access the Digital Asset Markets. The Sponsor believes that investors will be able to more effectively implement strategic and tactical asset allocation strategies that use SOL by using the Shares instead of directly purchasing and holding SOL, and for many investors, transaction costs related to the Shares will be lower than those associated with the direct purchase, storage and safekeeping of SOL. +• +Market-Traded and Transparent . The Shares are listed on NYSE Arca. The Sponsor believes the quotation of the Shares on NYSE Arca provides investors with an efficient means to implement various investment strategies. The Trust will not hold or employ any derivative securities. Furthermore, the value of the Trust’s assets will be reported each day on etfs.grayscale.com/gsol. +• +Minimal Credit Risk . The Shares represent an interest in actual SOL owned by the Trust. The Trust’s SOL are not subject to borrowing arrangements with third parties and are subject to counterparty and minimal credit risk with respect to the Custodian. This contrasts with the other financial products such as CoinShares exchange-traded notes, TeraExchange swaps and SOL futures and options traded on the Chicago Mercantile Exchange (“CME”) and the Intercontinental Exchange (“ICE”) through which investors gain exposure to digital assets through the use of derivatives that are subject to counterparty and credit risks. +• +Safekeeping System . The Custodian has been appointed to control and secure the SOL for the Trust using offline storage, or “cold storage”, mechanisms to secure the Trust’s private key “shards”. The hardware, software, administration and continued technological development that are used by the Custodian may not be available or cost-effective for many investors. +The Trust differentiates itself from many competing digital asset financial vehicles in the following ways: +• +Custodian . The Custodian that holds the private key shards associated with the Trust’s SOL is Coinbase Custody Trust Company, LLC. Other digital asset financial vehicles that use cold storage may not use a custodian to hold their private keys. +• +Cold Storage of Private Keys . The private key shards associated with the Trust’s SOL are kept in cold storage, which means that the Trust’s SOL are disconnected and/or deleted entirely from the internet. See “—Custody of the Trust’s SOL” for more information relating to the storage and retrieval of the Trust’s private keys to and from cold storage. Other digital asset financial vehicles may not utilize cold storage or may utilize less effective cold storage-related hardware and security protocols. +• +Location of Private Vaults . Private key shards associated with the Trust’s SOL are distributed geographically by the Custodian in secure vaults around the world, including in the United States. The locations of the secure vaults may change regularly and are kept confidential by the Custodian for security purposes. +• +Enhanced Security . Transfers from the Trust’s Vault Balance require certain security procedures, including but not limited to, multiple encrypted private key shards, usernames, passwords and 2-step verification. Multiple private key shards held by the Custodian must be combined to reconstitute the private key to sign any transaction in order to transfer the Trust’s SOL. Private key shards are distributed geographically in secure vaults around the world, including in the United States. As a result, if any one secure vault is ever compromised, this event will have no impact on the ability of the Trust to access its assets, other than +3 +a possible delay in operations, while one or more of the other secure vaults is used instead. These security procedures are intended to remove single points of failure in the protection of the Trust’s SOL. +• +Custodian Inspections . The Custodian has agreed to allow the Trust and the Sponsor to take such steps as necessary to verify that satisfactory internal control systems and procedures are in place. +• +Directly Held SOL . The Trust directly owns actual SOL held through the Custodian. This may differ from other digital asset financial vehicles that provide SOL exposure through other means, such as the use of financial or derivative instruments. +• +Sponsor’s Fee . The Sponsor’s Fee is a competitive factor that may influence the value of the Shares. +Activities of the Trust +The activities of the Trust are limited to (i) issuing Baskets in exchange for SOL transferred to the Trust as consideration in connection with the creations, (ii) transferring or selling SOL as necessary to cover the Sponsor’s Fee, the Sponsor’s Staking Fee and/or any Additional Trust Expenses, (iii) transferring SOL in exchange for Baskets surrendered for redemption, (iv) causing the Sponsor to sell SOL on the termination of the Trust, (v) making distributions of Incidental Rights and/or IR Virtual Currency or cash from the sale thereof (subject to NYSE Arca obtaining regulatory approval from the SEC), as described in “—Incidental Rights and IR Virtual Currency” below, (vi) engaging in any form of Staking, but only if (and, then, only to the extent that) the Staking Condition has been satisfied with respect thereto, (vii) receiving Staking Consideration and, after payment of the Sponsor’s Staking Fee therefrom, making distributions of Staking Consideration received by the Trust (or cash from the sale thereof), and (viii) engaging in all administrative and security procedures necessary to accomplish such activities in accordance with the provisions of the Trust Agreement, the Prime Broker Agreement, the Index License Agreement and the Participant Agreements. +The Trust may engage in any lawful activity necessary or desirable in order to facilitate shareholders’ access to Incidental Rights or IR Virtual Currency (subject to NYSE Arca obtaining regulatory approval from the SEC), provided that such activities do not conflict with the terms of the Trust Agreement. See “—Incidental Rights and IR Virtual Currency” for more information. The Trust will not be actively managed. It will not engage in any activities designed to obtain a profit from, or to ameliorate losses caused by, changes in the market prices of SOL. +Staking +Staking on the Solana Network refers to using SOL, or permitting SOL to be used through an agent or otherwise, in the Solana Network’s proof-of-stake validation protocol, in exchange for the receipt of staking rewards paid in-kind (“Staking”). The Trust Agreement provides that the Trust may engage in Staking, but only if (and, then, only to the extent that) the Staking Condition has been satisfied. On October 6, 2025, the Staking Condition was satisfied with respect to the form of Staking described in this Annual Report, and on that date the Trust commenced Staking pursuant to the Staking Arrangements described below. The Sponsor may from time-to-time modify the form of Staking in which the Trust engages, but only if (and, then, only to the extent that) the Staking Condition has been satisfied with respect to any such modified form of Staking, and subject to compliance with any additional requirements that may arise in connection with satisfaction of the Staking Condition with respect thereto . +Staking Arrangements and Provider-Facilitated Staking Model +The Sponsor has caused, and from time to time may cause, the Trust to enter into written arrangements (the “Staking Arrangements”) with the Custodian and one or more third party staking providers (each, a “Staking Provider”), which may be affiliates of the Custodian or other trusted institutional validators, to stake the Trust’s SOL to a Staking Provider operating validator software and associated hardware (“Provider-Facilitated Staking”). The Sponsor anticipates that the Trust’s SOL is and will be staked exclusively by means of Provider-Facilitated Staking . +Under the Staking Arrangements, the Trust is permitted to accept only Staking Consideration received in the form of SOL, and is not permitted to accept any Other Staking Consideration in the form of other digital assets. Neither the Trust, nor the Sponsor on behalf of the Trust, has the ability under the Staking Arrangements to take advantage of any variations in the market to improve the investments of shareholders, including with respect to variations based on the value of SOL or the amount of Staking Consideration received as staking rewards. As a whole, the Staking Arrangements permit the Trust to retain ownership of its SOL at all times for U.S. federal income tax purposes while simultaneously protecting and conserving the Trust Estate by mitigating the risk that another party or group could control a majority of the Solana Network and engage in transactions that could reduce the Trust Estate’s value. +A Staking Provider must meet certain requirements in order to be selected to participate in the Provider-Facilitated Staking model contemplated by the Staking Arrangements. For example, each Staking Provider is required to be unrelated to both the Trust and the +4 +Sponsor. Under the Staking Arrangements, the Staking Provider bears all of its own expenses (including those on account of its validation activities). +The Staking Provider is the node operator and is obligated to operate the validator through which the Trust’s SOL is staked to ensure that validation occurs. The Trust’s SOL is currently staked from the Trust’s wallets administered by the Custodian, and the Staking Provider performs any related validation activities. The Trust retains control of its staked SOL because (1) the staked SOL remains in the Trust’s wallet administered by the Custodian (rather than transferred to a wallet address controlled by the Staking Provider) and (2) the Trust (rather than the Staking Provider) retains the ability through the Custodian to un-stake its SOL from the applicable smart contracts. Because staked SOL remains in the Trust wallet administered by the Custodian, even when staked, the Trust’s SOL is not commingled with the SOL of any other SOL holder in connection with Staking, such as the Staking Provider or others who stake to the Staking Provider, despite the Trust delegating its validation rights to the Staking Provider, which may be in receipt of other SOL holders’ validation rights. The Trust does not itself undertake any validation activities, and the Sponsor is not required to perform any services. Moreover, the Sponsor is not required to make any decisions or take any actions, other than (i) selecting the Staking Provider(s) and entering into the corresponding Staking Arrangement(s), and (ii) determining, from time to time, what portion of the Trust’s SOL to stake and un-stake, and informing the Staking Provider(s) of those determinations. +The Sponsor currently engages in and anticipates that it will continue to engage in staking with respect to all of the Trust’s SOL at all times, except (i) as necessary to pay the Sponsor’s Fee, (ii) as necessary to pay any additional Trust expenses, (iii) as necessary to satisfy existing and reasonably foreseen potential redemption requests as determined by the Sponsor, (iv) as necessary to reduce the SOL obtained by the Trust as Staking Consideration to cash for distribution at regular intervals, (v) if the Sponsor determines that Staking raises significant governmental, policy or regulatory concerns or is subject or likely subject to a specialized regulatory regime, (vi) if the Sponsor determines there exists vulnerabilities in the source code or cryptography underlying the Solana Network and any associated software, (vii) if the Custodian or Staking Provider discontinues their arrangements with the Trust, (viii) if the Sponsor otherwise determines that continued Staking of such portion of the Trust’s assets would be inconsistent with the Trust’s purpose of protecting and preserving the value of the Trust Estate, (ix) to fund or replenish the Liquidity Sleeve (as defined herein) or (x) in accordance with any other exception that is expressly contemplated by an opinion, ruling or tax guidance that satisfies the Staking Condition. All SOL received by the Trust in connection with the creation of new Shares, or as Staking Consideration, would also be staked upon receipt by the Trust, unless one or more of the exceptions described in clauses (i)-(ix) above applies. Moreover, any staked SOL which must be un-staked in order to fulfill a distribution in connection with a redemption (to the extent such distribution cannot be fulfilled utilizing the portion of the Trust’s SOL that has not been staked, or through another mechanism to manage liquidity in connection with Redemption Orders contemplated by an opinion of a Tax Advisor, a Tax Ruling or Tax Guidance that satisfies the Staking Condition) will be un-staked only after the redemption request is approved by the Trust, the Sponsor executes an un-stake or withdrawal transaction through the Custodian, and such transaction is processed by the Solana Network. The Staking Provider is not able to transfer unstaked SOL or Staking Consideration to another address on the Solana Network. +The Sponsor has satisfied the Staking Condition with respect to certain liquidity procedures, which it believes will ensure that it will satisfy existing and reasonably foreseen redemption requests. Specifically, the Sponsor intends to maintain a portion of unstaked SOL in the Trust (the “Liquidity Sleeve”). Because the SOL in the Liquidity Sleeve is freely transferable, there is no timing mismatch between settlement of Shares in primary market redemptions and the SOL transfer time. The percentage of the Trust’s SOL comprising the Liquidity Sleeve will be dynamic and subject to adjustment based on anticipated primary and secondary market activity of the Shares and the SOL unstaking process. The Sponsor generally seeks to stake as much of the Trust’s SOL as is practicable (i.e., up to 100%) at all times, with the remainder of the Trust’s SOL remaining unstaked in order to address the various exceptions and other considerations described herein. The percentage of the Trust’s SOL that is staked each day is reported the following day at 4:00 p.m., New York time, on etfs.grayscale.com/gsol. In the future and subject to the satisfaction of the Staking Condition thereto, the Sponsor, on behalf of the Trust, may be able to enter into other financing arrangements or implement other mechanisms to manage SOL liquidity constraints, including entering into short-term financing arrangements with its Custodian to provide SOL to the Trust for settlement of trades with the Trust’s Liquidity Provider(s), if necessary. These liquidity risk policies and procedures are intended to be consistent with NYSE Arca’s proposed generic listing standards. +Under the Staking Arrangements, any Staking Consideration earned accrues in accordance with the Solana Network’s rewards distribution mechanism to the Trust’s wallets administered by the Custodian. Periodically, the Trust may either (i) distribute SOL received as Staking Consideration to the Trust’s beneficiaries (likely using a liquidating agent), (ii) sell that SOL for cash and distribute the proceeds to the Trust’s beneficiaries, (iii) retain the SOL in the Trust, (iv) pay a portion of the Staking Consideration to the Sponsor (the “Sponsor's Staking Fee”) as consideration for its facilitation of the Staking Arrangements or (v) a combination of the foregoing, in the Sponsor’s sole discretion. The Sponsor has implemented a staking policy with respect to the Trust, which describes the frequency of, and conditions under which the Trust will make such distributions, if any, to the Trust’s beneficiaries. The Sponsor has made such staking policy available to shareholders on the Sponsor’s website. Subject to any slashing risk, the Trust (through the Custodian) will maintain control and remain the record and beneficial owner of the staked tokens at all times, and the tokens will remain associated with the Trust’s wallet. +5 +As of October 6, 2025, and pursuant to the Staking Arrangements, the Custodian and the Staking Provider became entitled to receive a portion of the gross Staking Consideration generated under the Staking Arrangements, reflecting the Custodian’s fee and the Staking Provider’s share of such Staking Consideration, with the remainder received by the Trust. The allocation of gross Staking Consideration between the Custodian and the Staking Provider reflects an arm’s length allocation that is independent of the expenses of both the Staking Provider and Custodian, and may be stated as a percentage of the gross Staking Consideration. In addition, pursuant to the Trust Agreement and as consideration for the Sponsor’s facilitation of Staking, the Sponsor is permitted to receive a fee equal to a portion of the Staking Consideration, payable in SOL, which accrues daily in U.S. dollars in an amount calculated as a per annum percentage of any Staking Consideration received by the Trust, as may be directed by the Sponsor in its sole discretion. The Sponsor’s Staking Fee is payable to the Sponsor daily in arrears. From November 5, 2025 until February 5, 2026 (the “Fee Waiver Period”), the Sponsor waived a portion of the fees associated with Staking, such that the Sponsor’s Staking Fee, the Custodian’s fee and the Staking Provider’s share of the Staking Consideration comprised an aggregate of 5% of the gross Staking Consideration generated under the Staking Arrangements, with the Trust receiving and retaining the remainder of such gross Staking Consideration. Following the expiration of the Fee Waiver Period on February 5, 2026, the Sponsor’s Staking Fee, the Custodian’s fee and the Staking Provider’s share of the Staking Consideration comprise an aggregate of 23% of the gross Staking Consideration generated under the Staking Arrangements. The Trust receives and retains the remainder of such gross Staking Consideration. +From time to time, the Trust may distribute SOL (or cash from the sale of SOL) received as Staking Consideration to the Trust’s shareholders. The Sponsor has implemented a staking policy with respect to the Trust, which describes the frequency of, and conditions under which the Trust will make such distributions, if any, to the Trust’s beneficiaries, which is available to shareholders on the Sponsor’s website. +The Staking Arrangements are based on market terms, consistent with those typically offered by leading digital asset firms that offer staking functionality. However, the Trust has and will continue to negotiate certain provisions as necessary or helpful to preserve the Trust’s status as a grantor trust and the security of the Trust’s SOL, as well as to address governmental, policy or regulatory concerns. For example, unlike certain digital asset firms that offer staking functionality through which one’s SOL is pooled with that of others (including, potentially, the Staking Provider in its general staking offerings), the Staking Arrangements do not permit the Trust’s SOL to be pooled with that of other SOL holders, including the Staking Provider or others that stake to the Staking Provider, as described above. In addition, the portion of staking rewards to be received by the Staking Provider is an agreed percentage of block rewards and transaction fees generated by the validating activities, unlike certain alternative staking arrangements under which a staking provider may be compensated as an agreed percentage of SOL staked. +The Trust has no right to direct the Staking Provider in the conduct of validation activities, except to stake, un-stake and withdraw its staked SOL pursuant to instructions delivered to the Custodian, and does not and will not bear any expenses incurred by the Staking Provider in conducting those activities. In particular, the amount of any Staking Consideration that the Trust receives is not and will not be determined with reference to any expenses incurred by the Custodian or the Staking Provider. The Staking Arrangements do not include any obligation of the Trust to continue staking its SOL, or for the Custodian or the Staking Provider to continue the Staking Arrangements, other than to the extent the Trust’s SOL cannot immediately be un-staked due to requirements of the Solana protocol. There may also be instances where the Staking Provider may pause or terminate its validation activities due to its own independent assessment of the vulnerabilities of the Solana Network which would result in the Trust’s SOL not being staked for a period of time. The Sponsor anticipates that the Solana protocol and the Staking Arrangements will permit withdrawal of staked SOL at regular intervals. The Sponsor believes that market practice for Provider-Facilitated Staking arrangements has largely become standardized, with little variation in terms, and therefore, the Sponsor anticipates that the Staking Arrangements generally align with the current practice of Staking Providers’ arrangements with other similarly situated third parties, subject to the negotiation of certain bespoke terms outlined above. Accordingly, and because transitioning to a new Staking Provider would involve friction costs, the Sponsor does not expect the Trust to change Staking Providers frequently, if at all. In addition, while the Trust may enter into Staking Arrangements with multiple Staking Providers, the Sponsor anticipates that any such arrangements would be substantively identical in all material respects to the Staking Arrangements described herein, including, for the avoidance of doubt, the bespoke terms of the Staking Arrangements outlined above. Any material deviation from the Staking Arrangements as described herein would be disclosed in the Trust’s subsequent filings with the Commission. +The Staking Arrangements have not and will not involve a disposition of the Trust’s SOL unless the Staking Provider commits a slash-worthy offense. Currently on the Solana Network, slashing generally operates by social consensus, rather than being automatically applied by the protocol’s code. The Solana community generally aspires to slash 100% of staked assets in cases where a Solana node is maliciously trying to violate safety rules and 0% during routine operations. As a result, there is currently no automatic slashing in the Solana Network. Rather, for regular consensus, after a safety violation, the Solana Network will halt. The validators will analyze the data prior to the halt to determine who was responsible and propose that the stake of the malicious actors responsible for the safety violation should be slashed after restart, typically 100% of their stake. Future protocol upgrades may include the implementation of automated slashing mechanisms, where penalties would be triggered and enforced directly by the network code without requiring social coordination. As of December 31, 2025, there have been no slashing events on the Solana Network. In light of the mechanical and +6 +standardized nature of validation activities, the Sponsor does not anticipate that the Staking Provider, which is expected to be an institution of recognized and trusted standing in the digital asset marketplace, with whom the Sponsor has had extensive prior interaction, will commit any slash-worthy offenses in the conduct of the Provider-Facilitated Staking activities. The Sponsor has the right to direct the Custodian to cease staking the Trust’s SOL with the Staking Provider at any time, subject to the extent the Trust’s SOL cannot immediately be un-staked due to technical considerations, and the Sponsor expects that notice of any slashing event will be timely and perm it the Sponsor to halt the staking of the Trust’s SOL, thereby mitigating the risk of permanent loss of the Trust’s SOL without replacement. +Security and Controls +The Trust’s Custodian has multiple layers of security protocols intended to protect the Trust’s assets from unauthorized access or transfer, which remain in place when the Trust’s SOL is staked. +The Trust’s SOL is staked from the Trust’s wallets and is not transferred to any other wallet to be staked. The Solana protocol (a) mandates that the executor of the staking transaction (i.e., the Sponsor on behalf of the Trust) can execute the withdraw function at any time through the Trust’s wallets administered by the Custodian and (b) limits the activities of the Staking Provider to executing only those activities specified by the protocol, such as staking, un-staking and performing validation activities and does not enable the Staking Provider to unilaterally transfer staked assets to any wallet not specified by the Sponsor. Accordingly, the Staking Provider does not have any powers to move the Trust’s staked SOL other than to stake or un-stake SOL at the direction of the Sponsor. In particular, the Staking Provider is not authorized to leverage or rehypothecate the Trust’s SOL tokens. The Staking Provider is also not able to change the designated wallet addresses on the Solana Network to which staked SOL is to be withdrawn or to which Staking Consideration shall be sent. +In addition, the Staking Arrangements do not alter the Trust’s custody environment or security procedures. The controls currently in place between the Sponsor and the Custodian also govern the activities related to staking and un-staking SOL, as outlined in the Staking Arrangements. +The foregoing description of the Staking Arrangements does not purport to be complete and is qualified in its entirety by reference to the full text of the staking addendum to the Prime Broker Agreement between the Trust and the Custodian, a copy of which is attached as an exhibit hereto and incorporated herein by reference. +Incidental Rights and IR Virtual Currency +The Sponsor has notified the Prime Broker, the Custodian and Coinbase Credit, Inc. (“Coinbase Credit”), on behalf of the Trust (such notice, the “Pre-Creation/Redemption Abandonment Notices”) that the Trust will abandon, irrevocably and for no direct or indirect consideration, effective immediately prior to each time at which the Trust creates or redeems Shares (each such time, a “Creation Time” or “Redemption Time”, respectively), all Incidental Rights and IR Virtual Currency to which it would otherwise be entitled as of such time. An abandonment made pursuant to the Pre-Creation/Redemption Abandonment Notices is referred to herein as a “Pre-Creation/Redemption Abandonment.” Pursuant to the Pre-Creation/Redemption Abandonment Notices, a Pre-Creation/Redemption Abandonment would not apply to any Incidental Right or IR Virtual Currency if (i) the Trust has taken, or is taking at such time, an “Affirmative Action” to acquire or abandon such Incidental Right or IR Virtual Currency at any time prior to the relevant Creation Time or Redemption Time or (ii) such Incidental Right or IR Virtual Currency has been subject to a previous Pre-Creation/Redemption Abandonment. An “Affirmative Action” refers to a written notification from the Sponsor to the Prime Broker, the Custodian or Coinbase Credit of the Trust’s intention (i) to acquire and/or retain an Incidental Right and/or IR Virtual Currency or (ii) to abandon, with effect prior to the relevant Creation Time or Redemption Time, an Incidental Right and/or IR Virtual Currency. +As a result of the Pre-Creation/Redemption Abandonment Notices, the Trust generally has abandoned, prior to each relevant Creation Time or Redemption Time, any Incidental Right or IR Virtual Currency that it may have had any right to receive at such time. The Trust has no right to receive any Incidental Right or IR Virtual Currency abandoned pursuant to either the Pre-Creation/Redemption Abandonment Notices or Affirmative Actions. Furthermore, the Prime Broker, the Custodian and Coinbase Credit has/have no authority, pursuant to the Prime Broker Agreement or otherwise, to exercise, obtain or hold, as the case may be, any such abandoned Incidental Right or IR Virtual Currency on behalf of the Trust or to transfer any such abandoned Incidental Right or IR Virtual Currency to the Trust if the Trust terminates its custodial arrangement with the Prime Broker, the Custodian and Coinbase Credit. In addition, the Sponsor has committed to cause the Trust not to take any Affirmative Action to acquire any Incidental Right or IR Virtual Currency and, therefore, irrevocably abandon any Incidental Right and IR Virtual Currency to which the Trust may become entitled in the future. +Because the Sponsor has committed to causing the Trust to irrevocably abandon all Incidental Rights and IR Virtual Currency to which the Trust otherwise would become entitled in the future, and causing the Trust not to take any Affirmative Actions, the Trust will not receive any direct or indirect consideration for the Incidental Rights or IR Virtual Currency and thus the value of the Shares will not reflect the value of the Incidental Rights or IR Virtual Currency. In addition, in the event the Sponsor seeks to change the Trust’s policy +7 +with respect to Incidental Rights or IR Virtual Currency, an application would need to be filed with the SEC by NYSE Arca seeking approval to amend its listing rules to permit the Trust to distribute the Incidental Rights or IR Virtual Currency in-kind to an agent of the shareholders for resale by such agent. However, there can be no assurance as to whether or when the Sponsor would make such a decision, or when NYSE Arca will seek or obtain this approval, if at all. See “Item 1A. Risk Factors—Risk Factors Related to the Trust and the Shares—Shareholders will not receive the benefits of any forks or airdrops.” +The Sponsor has controls in place to monitor for material hard forks or airdrops. The Sponsor will notify investors of any material change to its policy with respect to Incidental Rights and IR Virtual Currency by filing a current report on Form 8-K. +Secondary Market Trading +While the Trust’s investment objective is for the value of the Shares (based on SOL per Share) to reflect the value of SOL held by the Trust, including SOL earned as Staking Consideration, determined by reference to the Index Price, less the Trust’s expenses and other liabilities, the Shares may trade in the Secondary Market on NYSE Arca (or on another Secondary Market in the future) at prices that are lower or higher than the NAV per Share. The amount of the discount or premium in the trading price relative to the NAV per Share may be influenced by non-concurrent trading hours and liquidity between NYSE Arca and larger Digital Asset Trading Platforms. While the Shares are listed and trade on NYSE Arca from 4:00 a.m. until 8:00 p.m., New York time, liquidity in the Digital Asset Markets may fluctuate depending upon the volume and availability of larger Digital Asset Trading Platforms. As a result, during periods in which Digital Asset Market liquidity is limited or a major Digital Asset Trading Platform is off-line, trading spreads, and the resulting premium or discount, on the Shares may widen. +Overview of the Solana Industry and Market +SOL is a digital asset that is created and transmitted through the operations of the peer-to-peer Solana Network, a decentralized network of computers that operates on cryptographic protocols. No single entity owns or operates the Solana Network, the infrastructure of which is collectively maintained by a decentralized user base. The Solana Network allows people to exchange tokens of value, called SOL, which are recorded on a public transaction ledger known as a blockchain. SOL can be used to pay for goods and services, including to send a transaction on the Solana Network, or it can be converted to fiat currencies, such as the U.S. dollar, at rates determined on Digital Asset Markets that trade SOL, or in individual end-user-to-end-user transactions under a barter system. Furthermore, the Solana Network allows users to write and implement smart contracts—that is, general-purpose code that executes on every computer in the network and can instruct the transmission of information and value based on a sophisticated set of logical conditions. Using smart contracts, users can create markets, store registries of debts or promises, represent the ownership of property, move funds in accordance with conditional instructions and create digital assets other than SOL on the Solana Network. Smart contract operations are executed on the Blockchain in exchange for payment of SOL. The Solana Network is one of a number of projects intended to expand blockchain use beyond just a peer-to-peer money system. +The Solana protocol introduced the Proof-of-History (“PoH”) timestamping mechanism. PoH automatically orders on-chain transactions by creating a historical record that proves an event has occurred at a specific moment in time. PoH is intended to provide a transaction processing speed and capacity advantage over other blockchain networks, like the Bitcoin and Ethereum networks, which rely on sequential production of blocks and can lead to delays caused by validator confirmations. +In addition to the PoH mechanism, the Solana Network uses a proof-of-stake consensus mechanism to incentivize SOL holders to validate transactions. Unlike proof-of-work, in which miners expend computational resources to compete to validate transactions and are rewarded coins in proportion to the amount of computational resources expended, in proof-of-stake, validators risk or “stake” coins to compete to be randomly selected to validate transactions and are rewarded coins in proportion to the amount of coins staked. Any malicious activity, such as disagreeing with the eventual consensus or otherwise violating protocol rules, may result in a validator being selected less frequently by a consensus of other validators to validate blocks. Proof-of-stake is viewed as more energy efficient and scalable than proof-of-work and is sometimes referred to as “virtual mining”. +The Solana protocol was first conceived by Anatoly Yakovenko in a 2017 whitepaper. Development of the Solana Network is overseen by the Solana Foundation, a Swiss non-profit organization, and Solana Labs, Inc. (the “Company”), a Delaware corporation, which administered the original network launch and token distribution. +Although the Company and the Solana Foundation continue to exert significant influence over the direction of the development of the Solana project, the Solana Network is believed to be decentralized and does not require governmental authorities or financial institution intermediaries to create, transmit or determine the value of SOL. +SOL Spot and Futures Markets +The CFTC has regulatory jurisdiction over the SOL futures markets. In addition, because the CFTC has determined that SOL is a non-security “commodity” under the CEA and the rules thereunder, it has jurisdiction to prosecute fraud and manipulation in the cash, +8 +or spot, market for SOL. Beyond instances of fraud or manipulation, the CFTC generally does not oversee cash or spot market exchanges, spot Digital Asset Trading Platforms or transactions involving spot SOL that do not utilize collateral, leverage, or financing. The National Futures Association (“NFA”) is the self-regulatory agency for the U.S. futures industry, and as such has jurisdiction over SOL futures. However, the NFA does not have regulatory oversight authority for the cash or spot market for SOL trading or transactions. +In February 2021, certain designated contract markets (“DCMs”) registered with the CFTC, including the CME, launched new contracts for SOL futures products. DCMs are boards of trades (commonly referred to as exchanges) that operate under the regulatory oversight of the CFTC, pursuant to Section 5 of the CEA. To obtain and maintain designation as a DCM, an exchange must comply on an initial and ongoing basis with twenty-three Core Principles established under Section 5(d) of the CEA. Among other things, DCMs are required to establish self-regulatory programs designed to enforce the DCM’s rules, prevent market manipulation and customer and market abuses, and ensure the recording and safe storage of trade information. The CFTC engaged in a “heightened review” of the self-certification of SOL futures, which required DCMs to enter direct or indirect information sharing agreements with spot market platforms to allow access to trade and trader data; monitor data from cash markets with respect to price settlements and other SOL prices more broadly, and identify anomalies and disproportionate moves in the cash markets compared to the futures markets; engage in inquiries, including at the trade settlement level when necessary; and agree to regular coordination with CFTC surveillance staff on trade activities, including providing the CFTC surveillance team with trade settlement data upon request. +In February 2025, certain DCMs registered with the CFTC, including the CME, launched new contracts for SOL futures products. These futures contracts are cash-settled, based on the CME CF Solana-Dollar Reference Rate, calculated daily at 4:00 p.m. London time. The first day of trading on CME saw approximately $12 million in notional value traded. On June 24, 2025 1.75 million contracts traded, marking the highest level ever recorded for SOL futures on CME. As of late June 2025, open interest in SOL futures on CME surpassed $6.1 billion, indicating sustained institutional engagement. +Smart Contracts and Development on the Solana Network +Smart contracts are programs that run on a blockchain that can execute automatically when certain conditions are met. Smart contracts facilitate the exchange of anything representative of value, such as money, information, property, or voting rights. Using smart contracts, users can send or receive digital assets, create markets, store registries of debts or promises, represent ownership of property or a company, move funds in accordance with conditional instructions and create new digital assets. +Development on the Solana Network involves building more complex tools on top of smart contracts, such as decentralized apps (DApps); organizations that are autonomous, known as decentralized autonomous organizations (DAOs); and entirely new decentralized networks. For example, a company that distributes charitable donations on behalf of users could hold donated funds in smart contracts that are paid to charities only if the charity satisfies certain pre-defined conditions. +Additionally, the Solana Network has been used for decentralized finance (DeFi) or open finance platforms, which seek to democratize access to financial services, such as borrowing, lending, custody, trading, derivatives and insurance, by removing third-party intermediaries. DeFi can allow users to lend and earn interest on their digital assets, exchange one digital asset for another and create derivative digital assets such as stablecoins, which are digital assets pegged to a reserve asset such as fiat currency. +In addition, the Solana Network and other smart contract platforms have been used for creating non-fungible tokens, or NFTs. Unlike digital assets native to smart contract platforms that are fungible and enable the payment of fees for smart contract execution, NFTs allow for digital ownership of assets that convey certain rights to other digital or real world assets. This paradigm allows users to own rights to other assets through NFTs, which enable users to trade them with others on the Solana Network. For example, an NFT may convey rights to a digital asset that exists in an online game or a DApp, and users can trade their NFT in the DApp or game, and carry them to other digital experiences, creating an entirely new free-market internet-native economy that can be monetized in the physical world. +Overview of the Solana Network’s Operations +In order to own, transfer or use SOL directly on the Solana Network, as opposed to through an intermediary, such as a custodian, a person generally must have internet access to connect to the Solana Network. SOL transactions may be made directly between end-users without the need for a third-party intermediary. To prevent the possibility of double-spending SOL, a user must notify the Solana Network of the transaction by broadcasting the transaction data to its network peers. The Solana Network provides confirmation against double-spending by memorializing every transaction in the Blockchain, which is publicly accessible and transparent. This memorialization and verification against double-spending is accomplished through the Solana Network validation process, which adds “blocks” of data, including recent transaction information, to the Solana Blockchain. Unlike other blockchains that rely solely on sequential production of blocks through PoW or PoS mechanisms, however, the Solana Network introduces PoH, which creates a historical record that proves an event has occurred at a specific moment in time. +9 +Summary of a SOL Transaction +Prior to engaging in SOL transactions directly on the Solana Network, a user generally must first install on its computer or mobile device a Solana Network software program that will allow the user to generate a private and public key pair associated with a SOL address, commonly referred to as a “wallet.” The Solana Network software program and the SOL address also enable the user to connect to the Solana Network and transfer SOL to, and receive SOL from, other users. +Each Solana Network address, or wallet, is associated with a unique “public key” and “private key” pair. To receive SOL, the SOL recipient must provide its public key to the party initiating the transfer. This activity is analogous to a recipient for a transaction in U.S. dollars providing a routing address in wire instructions to the payor so that cash may be wired to the recipient’s account. The payor approves the transfer to the address provided by the recipient by “signing” a transaction that consists of the recipient’s public key with the private key of the address from where the payor is transferring the SOL. The recipient, however, does not make public or provide to the sender its related private key. +Neither the recipient nor the sender reveal their private keys in a transaction because the private key authorizes transfer of the funds in that address to other users. Therefore, if a user loses his or her private key, the user may permanently lose access to the SOL contained in the associated address. Likewise, SOL is irretrievably lost if the private key associated with them is deleted and no backup has been made. When sending SOL, a user’s Solana Network software program must validate the transaction with the associated private key. In addition, since every computation on the Solana Network requires processing power, there is a transaction fee involved with the transfer that is paid by the payor. The resulting digitally validated transaction is sent by the user’s Solana Network software program to the Solana Network validators to allow transaction confirmation. +As discussed in greater detail below in “—Creation of SOL,” Solana Network validators record and confirm transactions when they validate and add blocks of information to the Blockchain. In proof-of-stake, validators compete to be randomly selected to validate transactions. When a validator is selected to validate a block, it creates that block, which includes data relating to (i) the verification of newly submitted and accepted transactions and (ii) a reference to the prior block in the Solana Blockchain to which the new block is being added. The validator becomes aware of outstanding, unrecorded transactions through the data packet transmission and distribution discussed above. +Upon the addition of a block included in the Blockchain, the Solana Network software program of both the spending party and the receiving party will show confirmation of the transaction on the Solana Blockchain and reflect an adjustment to the SOL balance in each party’s Solana Network public key, completing the SOL transaction. Once a transaction is confirmed on the Blockchain, it is irreversible. +Some SOL transactions are conducted “off-blockchain” and are therefore not recorded in the Blockchain. These “off-blockchain transactions” involve the transfer of control over, or ownership of, a specific digital wallet holding SOL or the reallocation of ownership of certain SOL in a pooled-ownership digital wallet, such as a digital wallet owned by a Digital Asset Trading Platform. In contrast to on-blockchain transactions, which are publicly recorded in the Blockchain, information and data regarding off-blockchain transactions are generally not publicly available. Therefore, off-blockchain transactions are not truly SOL transactions in that they do not involve the transfer of transaction data on the Solana Network and do not reflect a movement of SOL between addresses recorded on the Solana Blockchain. For these reasons, off-blockchain transactions are subject to risks as any such transfer of SOL ownership is not protected by the protocol behind the Solana Network or recorded in, and validated through, the blockchain mechanism. +Creation of New SOL +Initial Creation of SOL +Unlike other digital assets such as Bitcoin, which are solely created through a progressive mining process, 500 million SOL were created in connection with the launch of the Solana Network. The initial 500 million SOL were distributed as follows: +• +Investors : 189 million SOL, or 37.8% of the supply, was sold in private sales to venture capital and other investors conducted between 2018 to 2021. +• +Solana Foundation : 52 million SOL, or 10.4% of the supply, was distributed to the Solana Foundation for operational costs incurred in the development of the Solana Network. +• +Solana Labs, Inc. : 64 million SOL, or 12.8% of the supply, was retained by Solana Labs to be used, at least in part, to compensate the employees of Solana Labs. +• +Community : 195 million SOL, or 39.0% of the supply, was distributed to the Solana Foundation to be deployed as bounties, incentive programs, marketing and grants. +10 +Following the launch of the Solana Network, SOL supply increases through a progressive minting process. +SOL Supply +The rate at which new SOL supply has been minted and put into circulation has varied since network launch. Additionally, the Solana protocol reduces the SOL supply by eliminating 50% of transaction fees paid to the network. As a result, net changes in SOL supply are expected to vary in the future. +At network launch, the SOL circulating supply was 8 million SOL. Between network launch and December 31, 2025, the circulating supply of SOL increased by roughly 7,040% to approximately 563 million SOL. +In February 2021, the SOL supply inflation rate was changed from 0.1% to a new initial inflation rate of 8%. The 8% initial inflation rate is scheduled to decline in 15% increments until a long-term inflation rate of 1.5% is reached. As of December 31, 2025, the SOL supply issuance rate was approximately 3.97% on an annual basis before any offsets for eliminated transaction fees. +Modifications to the Solana Protocol +Historically the Solana Network’s development has been overseen by Solana Labs, the Solana Foundation and other core developers. The Solana Foundation and core developers are able to access and alter the Solana Network source code and, as a result, they are responsible for quasi-official releases of updates and other changes to the Solana Network’s source code. +The release of updates to the Solana Network’s source code does not guarantee that the updates will be automatically adopted. Users and nodes must accept any changes made to the Solana source code by downloading the proposed modification of the Solana Network’s source code. A modification of the Solana Network’s source code is effective only with respect to the Solana users that download it. If a modification is accepted by only a percentage of users and validators, a division in the Solana Network may occur such that one network will run the pre-modification source code and the other network will run the modified source code. Such a division is known as a “fork.” See “Item 1A. Risk Factors—Risk Factors Related to Digital Assets—A temporary or permanent “fork” or a “clone” could adversely affect the value of the Shares”. Consequently, as a practical matter, a modification to the source code becomes part of the Solana Network only if accepted by participants collectively having a majority of the processing power on the Solana Network. +Core development of the Solana source code has increasingly focused on modifications of the Solana protocol to increase speed and scalability and also allow for financial and non-financial next generation uses. The Trust’s activities will not directly relate to such projects, though such projects may utilize SOL as tokens for the facilitation of their non-financial uses, thereby potentially increasing demand for SOL and the utility of the Solana Network as a whole. Conversely, projects that operate and are built within the Blockchain may increase the data flow on the Solana Network and could either “bloat” the size of the Solana Blockchain or slow confirmation times. +Forms of Attack Against the Solana Network +All networked systems are vulnerable to various kinds of attacks. As with any computer network, the Solana Network contains certain flaws. For example, the Solana Network is currently vulnerable to attacks where, if a validator or group of validators acting in concert were to gain control of more than certain thresholds of staked SOL, a malicious actor would be able to gain full control of the network and the ability to manipulate the Solana Blockchain. As of December 31, 2025, the top three largest staking pools controlled approximately 58% of the SOL staked on the Solana Network. In addition, many digital asset networks have been subjected to a number of denial of service attacks, which has led to temporary delays in block creation and the transfer of digital assets. +For example, on September 14, 2021, the Solana Network experienced a significant disruption, later attributed to a type of denial of service attack, and was offline for 17 hours, only returning to full functionality 24 hours later. While persons associated with Solana Labs and/or the Solana Foundation are understood to have played a key role in bringing the network back online, the broader community also played a key role, as Solana validators coordinated to upgrade and restart the network. Any similar attacks on the Solana Network that impact the ability to transfer SOL could have a material adverse effect on the price of SOL and the value of the Shares. This is not intended to be an exhaustive list of all forms of attack against the Solana Network. For additional information, see “Item1A. Risk Factors—Risk Factors Related to Digital Assets.” +Following periods of network congestion and service interruptions in earlier stages of the Solana Network’s operation, core developers, validators and other ecosystem participants have implemented a series of protocol- and infrastructure-level modifications intended to improve network stability, transaction prioritization and resistance to spam or denial-of-service activity. These measures have included changes to transaction fee markets and quality-of-service mechanisms, improvements to transaction ingestion and scheduling, and enhancements to validator software. In addition, development efforts have increasingly focused on diversifying validator client implementations. While these efforts are intended to reduce correlated failure risk and improve the resilience of the Solana Network over time, there can be no assurance that such measures will prevent future network disruptions or address all potential vulnerabilities. +11 +Market Participants +Validators +Validators range from Solana enthusiasts to professional operations that design and build dedicated machines and data centers, including “clusters,” which are groups of validators that act cohesively and combine their processing to confirm transactions. When a validator confirms a transaction, the validator and any associated stakers receive a fee. During the course of ordering transactions and validating blocks, validators may be able to prioritize certain transactions in return for increased transaction fees, an incentive system known as “Maximal Extractable Value” or MEV. For example, in blockchain networks that facilitate DeFi protocols in particular, such as the Ethereum network, users may attempt to gain an advantage over other users by offering greater transaction fees. Validators less commonly capture MEV in the Solana Network because, unlike the Ethereum network, it does not publicly expose transactions before they are accepted by a validator. However, some efforts are underway to help Solana validators consistently capture MEV. See “—Summary of a SOL Transaction” above. +Investment and Speculative Sector +This sector includes the investment and trading activities of both private and professional investors and speculators. Historically, larger financial services institutions are publicly reported to have limited involvement in investment and trading in digital assets, although the participation landscape is beginning to change. Currently, there is relatively limited use of digital assets in the retail and commercial marketplace in comparison to relatively extensive use by speculators, and a significant portion of demand for digital assets is generated by speculators and investors seeking to profit from the short- or long-term holding of digital assets. +Retail Sector +The retail sector includes users transacting in direct peer-to-peer SOL transactions through the direct sending of SOL over the Solana Network. The retail sector also includes transactions in which consumers purchase goods and services from commercial or service businesses through direct transactions or third-party service providers, although the use of SOL as a means of payment is still developing and has not yet been accepted in the same manner as Bitcoin or Ether due to its infancy and because SOL has a different purpose than Bitcoin and Ether. +Service Sector +This sector includes companies that provide a variety of services including the buying, selling, payment processing and storing of SOL. For example, Kraken, Bullish, Crypto.com, Bybit and Bitstamp by Robinhood are some of the largest Digital Asset Trading Platforms by volume traded. For storing SOL, Coinbase Custody Trust Company, LLC, the Custodian for the Trust, is a digital asset custodian that provides custodial accounts that store SOL for users. As the Solana Network continues to grow in acceptance, it is anticipated that service providers will expand the currently available range of services and that additional parties will enter the service sector for the Solana Network. +Competition +Thousands of digital assets have been developed since the inception of Bitcoin, which is currently one of the most developed digital asset because of the length of time it has been in existence, the investment in the infrastructure that supports it, and the network of individuals and entities that are using Bitcoin in transactions. While the Solana Network has enjoyed some success in its limited history, the aggregate value of outstanding SOL is smaller than that of Bitcoin and may be eclipsed by the more rapid development of other digital assets. In addition, a number of newer digital assets also function as smart contracts platforms, including Ethereum, Avalanche, and Cardano. Some industry groups have also created private, permissioned blockchains. For example, J.P. Morgan has developed a platform called Kinexys (formerly known as Onyx), which is described as a blockchain-based platform designed for use by the financial services industry. +SOL Value +Digital Asset Trading Platform Valuation +The value of SOL is determined by the value that various market participants place on SOL through their transactions. The most common means of determining the value of a SOL is by surveying one or more Digital Asset Trading Platforms where SOL is traded publicly and transparently. Additionally, there are over-the-counter dealers or market makers that transact in SOL. +Prior to October 1, 2025, the Trust valued the SOL held by the Trust for operational purposes by reference to the CoinDesk Solana Price Ind ex (SLX). Effective October 1, 2025, the Index was changed to the CoinDesk Solana Benchmark Rate (formerly known as the CoinDesk SOL CCIXber Reference Rate). +12 +Digital Asset Trading Platform Public Market Data +On each online Digital Asset Trading Platform, SOL is traded with publicly disclosed valuations for each executed trade, measured by one or more fiat currencies such as the U.S. dollar or euro, or stablecoins such as U.S. Dollar Coin (“USDC”). Over-the-counter dealers or market makers do not typically disclose their trade data. +As of December 31, 2025, the Digital Asset Trading Platforms included in the Index were Kraken, Crypto.com, Bitfinex, Bitstamp by Robinhood, Gemini, LMAX Digital, Bullish, OKX, and Bybit. The Sponsor and the Trust reasonably believe each of these Digital Asset Trading Platforms are in material compliance with applicable licensing requirements based on the inclusion criteria and jurisdiction, as detailed below, and maintain practices and policies designed to comply with anti-money laundering (“AML”)and know-your-customer (“KYC”) regulations . +Bitf inex: A British Virgin Islands based trading platform. Bitfinex does not hold any licenses or registrations in the U.S. and is not available to U.S.-based customers. +Bitsta mp by Robinhood: A U.K.-based trading platform that has U.S. operations and entities registered as money service businesses (“MSBs”) with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”), holds a BitLicense, and that is licensed as a money transmitter in various U.S. states. +Bullish : A Gibraltar-based trading platform that has entities registered as MSBs with FinCEN, and that is licensed as a virtual currency business under the New York State Department of Financial Services’ (“NYDFS”) BitLicense. +Bybit : A United Arab Emirates-based trading platform. Bybit does not hold any licenses or registrations in the U.S. and is not available to U.S. based customers. +Crypt o.com: A Singapore-based trading platform that has entities registered as MSBs with FinCEN, and that is licensed as a money transmitter in various U.S. states and chartered as a non-depository trust company by the New Hampshire Banking Department. Crypto.com does not hold a BitLicense. +Gemini : A U.S.-based trading platform that has entities registered as MSBs with FinCEN and that is licensed as a money transmitter in various U.S. states. Gemini also has a New York entity that holds a limited purpose trust charter and has received approval from the NYDFS to engage in virtual currency business activity and is exempt from applying for a BitLicense under the framework established by NYDFS because of their trust charter under New York Banking Law. +Kra ken: A U.S.-based trading platform that has entities registered as MSBs with FinCEN, and that is licensed as a money transmitter in various U.S. states, and chartered as a Special Purpose Depository Institution by the Wyoming Division of Banking. Kraken does not hold a BitLicense. +LMAX Digital : A U.K.-based trading platform that has entities registered as a broker with the U.K. Financial Conduct Authority, and that is licensed as an MSB with FinCEN and regulated by the Gibraltar Financial Services Commission. +OKX : A Seychelles-based trading platform. OKX does not hold any licenses or registrations in the U.S. and is not available to U.S.-based customers. +Currently, there are several Digital Asset Trading Platforms operating worldwide, and online Digital Asset Trading Platforms represent a substantial percentage of SOL buying and selling activity and provide the most data with respect to prevailing valuations of SOL. These trading platforms include established trading platforms such as trading platforms included in the Index which provide a number of options for buying and selling SOL. +The below tables re flect the trading volume in SOL and market share of the SOL-U.S. dollar and SOL-USDC trading pairs of each of the Digital Asset Trading Platforms included in the Index as of December 31, 2025 (collectively, “Constituent Trading Platforms”), using data since the inception of the Trust. +13 +Digital Asset Trading Platforms included in the Index as of December 31, 2025 +Volume (SOL) +Market Share (1) +Kraken +257,683,151 +17.40 +% +Crypto.com +191,716,800 +12.95 +% +Bitstamp by Robinhood +65,718,765 +4.44 +% +LMAX Digital +32,466,524 +2.19 +% +Gemini +27,030,101 +1.83 +% +Bitfinex +18,919,974 +1.28 +% +Bullish +10,565,804 +0.71 +% +OKX +10,295,481 +0.70 +% +Total SOL-U.S. Dollar trading pair +614,396,600 +41.50 +% +Digital Asset Trading Platforms included in the Index as of December 31, 2025 +Volume (SOL) +Market Share (1) +Bybit +94,870,343 +11.67 +% +Bullish +72,872,402 +8.96 +% +OKX +30,603,317 +3.76 +% +Kraken +7,269,332 +0.89 +% +Bitstamp by Robinhood +82,272 +0.01 +% +Total SOL-USDC trading pair +205,697,666 +25.29 +% +(1) +Market share is calculated using trading volume (in SOL) for certain Digital Asset Trading Platforms, including Kraken, Bullish, Crypto.com, Bybit, Bitstamp by Robinhood, Bitfinex, Gemini, LMAX Digital and OKX, as well as certain other large U.S. dollar and USDC denominated Digital Asset Trading Platforms that were not included in the Index as of December 31, 2025, including Binance, Binance.US, CEX.IO (data included through February 23, 2025), Coinbase, Deribit (data included from February 26, 2024), GATE, Hitbtc, Itbit, Kucoin, LBank, and MEXC. +The domicile, regulation and legal compliance of the Digital Asset Trading Platforms included in the Index varies. Information regarding each Digital Asset Trading Platform may be found, where available, on the websites for such Digital Asset Trading Platforms, among other places. +Although the Index is designed to accurately capture the market price of SOL, third parties may be able to purchase and sell SOL on public or private markets not included among the Constituent Trading Platforms of the Index, and such transactions may take place at prices materially higher or lower than the Index Price. Moreover, there may be variances in the prices of SOL on the various Digital Asset Trading Platforms, including as a result of differences in fee structures or administrative procedures on different Digital Asset Trading Platforms. For example, based on data provided by the Index Provider, on any given day during the year ended December 31, 2025, the maximum differential between the 4:00 p.m., New York time, spot price of any single Digital Asset Trading Platform included in the Index and the Index Price was 3.76% and the average of the maximum differentials of the 4:00 p.m., New York time, spot price of each Digital Asset Trading Platform included in the Index and the Index Price was 0.55%. During this same period, the average differential between the 4:00 p.m., New York time, spot prices of all the Digital Asset Trading Platforms included in the Index and the Index Price was 0.005%. All Digital Asset Trading Platforms that were included in the Index throughout the period were considered in this analysis. To the extent such prices differ materially from the Index Price, investors may lose confidence in the Shares’ ability to track the market price of SOL. +The Index and the Index Price +The Index is a U.S. dollar-denominated composite reference rate for the price of SOL. The Index is designed to (1) mitigate the effects of fraud, manipulation and other anomalous trading activity from impacting the SOL reference rate, (2) provide a real-time, volume-weighted fair value of SOL and (3) appropriately handle and adjust for non-market related events. +The Index Price is determined by the Index Provider through a process in which trade data is cleansed and compiled in such a manner as to algorithmically reduce the impact of anomalistic or manipulative trading. This is accomplished by adjusting the weight of each data input based on price deviation relative to the observable set, as well as recent and long-term trading volume at each venue relative to the observable set. The Index Price is calculated using non-GAAP methodology and is not used in the Trust’s financial statements. +All references to the NAV and NAV per Share of the Trust in this report have been calculated using the Index Price unless indicated otherwise. +14 +All references to the NAV and NAV per Share of the Trust in this Annual Report prior to October 1, 2025 have been calculated using the Index Price based on the CoinDesk Solana Price Index (SLX) unless otherwise indicated. Effective October 1, 2025, the NAV and NAV per Shar e of the Trust is calculated using the Index Price based on the CoinDesk Solana Benchmark Rate. +Constituent Trading Platform Selection +Digital Asset Trading Platforms are selected for inclusion in the Index based on a methodology developed by the Index Provider in alignment with th e International Organization of Securities Commissions (“IOSCO”) Principles for Financial Benchmarks. To qualify as a Constituent Trading Platform, a platform is evaluated across the following core criteria listed below (the “Inclusion Criteria”): +• +Market Quality: Overall liquidity, trading activity, price reliability, and market stability. +• +Security: Cybersecurity safeguards, custody practices, and operational risk controls. +• +Legal and Regulatory: Licensing status, regulatory compliance, and legal transparency. +• +KYC: Assessment of anti-money laundering (“AML”) and know-your-customer (“KYC”) frameworks, transaction monitoring capabilities, and market oversight. +• +Data Provision: Quality, accessibility, and reliability of trading data and technical infrastructure. +• +Transparency: Financial and operational disclosures, including reserve and governance transparency. +• +Team: Assessment of executive leadership, relevant experience, organizational structure, and service offerings across institutional and retail markets. +• +Negative Events: The Index Provider may apply a downward adjustment for material adverse events, including data breaches, regulatory penalties, withdrawal freezes, or other significant incidents. +Trading platforms that meet these Inclusion Criteria are also required to be licensed and able to serve customers in one or more of the following jurisdictions: +• +United States (FinCEN, state regulatory authorities) +• +United Kingdom (FCA) +• +European Union (MiCA passport) +• +Hong Kong (SFC) +• +Singapore (MAS) +• +United Arab Emirates, including the emirates of Dubai and Abu Dhabi (VARA, ADGM) +• +Gibraltar (GFSC) +A Digital Asset Trading Platform is removed from the Constituent Trading Platforms when it no longer satisfies the Inclusion Criteria. The Index Provider may also exclude certain trading platforms that require additional support from contributing trading platforms at its discretion. The Index Provider does not currently include data from over-the-counter markets or derivatives platforms among the Constituent Trading Platforms. Over-the-counter data is not currently included because of the potential for trades to include a significant premium or discount paid for larger liquidity, which creates an uneven comparison relative to more active markets. There is also a higher potential for over-the-counter transactions to not be arms-length, and thus not be representative of a true market price. SOL derivative markets are also not currently included. While the Index Provider has no plans to include data from over-the-counter markets or derivative platforms at this time, the Index Provider will consider IOSCO principles for financial benchmarks, the management of trading venues of SOL derivatives and the aforementioned Inclusion Criteria when considering whether to include over-the-counter or derivative platform data in the future. +The Index Provider and the Sponsor have entered into the index license agreement, dated as of February 1, 2022 (as amended, the “Index License Agreement”), governing the Sponsor’s use of the Index Price. Pursuant to the terms of the Index License Agreement, the Index Provider may adjust the calculation methodology for the Index Price without notice to, or consent of, the Trust or its shareholders. The Index Provider may decide to change the calculation methodology to maintain the integrity of the Index Price calculation should it identify or become aware of previously unknown variables or issues with the existing methodology that it believes could materially impact its performance and/or reliability. The Index Provider has sole discretion over the determination of the Index Price and may change the methodologies for determining the Index Price from time to time. Shareholders will be notified of any material changes to the calculation methodology or the Index Price in the Trust’s current reports and will be notified of all other changes that the +15 +Sponsor considers significant in the Trust’s periodic or current reports. The Sponsor will determine the materiality of any changes to the Index Price on a case-by-case basis, in consultation with external counsel. +The Index Provider may change the trading venues that are used to calculate the Index or otherwise change the way in which the Index is calculated at any time. For example, the Index Provider has scheduled monthly reviews in which it may add or remove Constituent Trading Platforms that satisfy or fail the Inclusion Criteria as well as other requirements detailed in the Index Methodology. The Index Provider does not have any obligation to consider the interests of the Sponsor, the Trust, the shareholders, or anyone else in connection with such changes. While the Index Provider is not required to publicize or explain the changes or to alert the Sponsor to such changes, it has historically notified the Trust of certain changes to the Constituent Trading Platforms, including any additions or removals of the Constituent Trading Platforms, in addition to issuing press releases in connection with the same. The Sponsor will provide updates of such changes in the Trust’s quarterly reports on Form 10-Q. Although the Index methodology is designed to operate without any manual intervention, rare events would justify manual intervention. Intervention of this kind would be in response to non-market-related events, such as the halting of deposits or withdrawals of funds on a Digital Asset Trading Platform, the unannounced closure of operations on a Digital Asset Trading Platform, insolvency or the compromise of user funds. In the event that such an intervention is necessary, the Index Provider would issue a public announcement through its website, API and other established communication channels with its clients. +Determination of the Index Price +The Index applies an algorithm to the price of SOL on the Constituent Trading Platforms calculated every 5 seconds over a 24-hour period. The Index’s algorithm is expected to reflect a five-pronged methodology to calculate the Index Price from the Constituent Trading P latforms: +• +Volume Weighting: Constituent Trading Platforms with greater liquidity receive a higher weighting in each Index, increasing the ability to execute against (i.e., replicate) the Index in the underlying spot markets. The Index methodology is a volume-weighted real-time price where the latest trade price for each Constituent Trading Platform is weighted based on its trailing 24-hour volume. +• +FX Conversion: The Index algorithm utilizes a volume-weighted real-time FX conversion rate for any trading activity for the relevant Stablecoin-USD pair. This normalizes all trading activity to USD denomination. +• +Outlier Detection Factor: The Index algorithm excludes trade data and price(s) deemed to be an outlier relative to the most recently calculated Index. +• +Inactivity Adjustment: The Index algorithm penalizes stale activity from any given Constituent Trading Platform. When a Constituent Trading Platform does not have recent trading data, the outdated prices and their contribution to the Index calculation are gradually reduced until they are de-weighted to 0.1%. Similarly, once trading activity at a Constituent Trading Platform resumes, the corresponding weighting for that Constituent Trading Platform will no longer be penalized. +• +Manipulation Resistance: In an effort to determine and prioritize the most significant Constituent Trading Platforms (i.e., those that are likely to have the most impact on price discovery) for a given asset, the Index Provider conducts a Constituent Trading Platform selection and review process, which seeks to identify the highest-ranking Constituent Trading Platforms based on both qualitative and quantitative factors. The qualitative review includes legal and regulation, data provision, security, trade monitoring, market quality, and negative events policy, among others. The quantitative review includes review of trading activity for the asset on the given Constituent Trading Platform. +The Index Provider re-evaluates the weighting algorithm on a periodic basis, but maintains discretion to change the way in which an Index Price is calculated based on its periodic review or in extreme circumstances. The Index is designed to limit exposure to trading or price distortion of any individual Digital Asset Trading Platform that experiences periods of unusual activity or limited liquidity by discounting, in real-time, anomalous price movements at individual Digital Asset Trading Platforms. +The Sponsor believes the Index Provider’s selection process for Constituent Trading Platforms as well as the methodology of the Index Price’s algorithm provides a more accurate picture of SOL price movements than a simple average of Digital Asset Trading Platform spot prices, and that the weighting of SOL prices on the Constituent Trading Platforms limits the inclusion of data that is influenced by temporary price dislocations that may result from technical problems, limited liquidity or fraudulent activity elsewhere in the SOL spot market. +By referencing multiple trading venues and weighting them based on trade activity, the Sponsor believes that the impact of any potential fraud, manipulation or anomalous trading activity occurring on any single venue is reduced. +If the Index Price becomes unavailable, or if the Sponsor determines in good faith that such Index Price does not reflect an accurate price for SOL , then the Sponsor will contact the Index Provider to obtain the Index Price directly from the Index Provider. If after such +16 +contact such Index Price remains unavailable or the Sponsor continues to believe in good faith that such Index Price does not reflect an accurate price for SOL , then the Sponsor will employ a cascading set of rules to determine the Index Price, as described below in “—Determination of the Index Price When Index Price is Unavailable.” +The Trust values its SOL for operational purposes by reference to the Index Price. The Index Price is the value of a SOL as represented by the Index, calculated a t 4:00 p.m., New York time, on each business day. +Illustrative Example +For the purposes of illustration, outlined below are examples of how the attributes that impact weighting and adjustments in the aforementioned methodology may be utilized to generate the Index Price for a digital asset. +For example, the Constituent Trading Platforms used to calculate the Index Price of the digital asset may include trading platforms such as Crypto.com, Kraken, LMAX Digital and Bitstamp by Robinhood. +The Index Price algorithm, as described above, is designed to account for manipulation at the outset by only including data from executed trades on Constituent Trading Platforms that charge trading fees. Then, the below-listed elements may impact the weighting of the Constituent Trading Platforms on the Index Price as follows: +• +Volume Weighting: Each Constituent Trading Platform will be weighted to appropriately reflect the trading volume share of the Constituent Trading Platform relative to all the Constituent Trading Platforms during this same period. For example, a weighting of 67.06%, 14.57%, 11.88%, and 6.49% for Crypto.com, Kraken, LMAX Digital and Bitstamp by Robinhood , respectively, would represent each Constituent Trading Platform’s share of trading volume during the preceding 24 hours. +• +Inactivity Adjustment: Assume that a Constituent Trading Platform represented a 14% weighting on the Index Price of the digital asset and then went offline for approximately two hours. The index algorithm would automatically recognize inactivity and start de-weighting the Constituent Trading Platform at the 5-minute mark and continue to do so with each additional 5-minute period of inactivity until its influence was effectively zero, 25 minutes after becoming inactive. As soon as trading activity resumed at the Constituent Trading Platform, the index algorithm would re-weight it to the appropriate weighting based on trading volume and price-variance relative to the cohort of Constituent Trading Platforms included in the Index. +• +Price Outlier Detection: New traded prices from Constituent Trading Platforms are compared to the latest calculated Index Price. If a new traded price deviates by +/- 5% from the latest calculated Index Price, it will be considered an outlier and will not be used in the calculation of the Index Price until such time as a majority of the Constituent Trading Platforms are similarly considered outlier prices. In that case, the new prices will be used to calculate the Index Price. For example, if the Index Price is $10 and there is a new trade price of $11 from Constituent Trading Platform X, the price of $11 will be considered an outlier and will not be used. However, if the most recent prices on a majority of the Constituent Trading Platforms are aligned with the price of $11, then these prices will no longer be considered outliers and will be used to calculate the new Index Price. +Determination of the Index Price When Index Price is Unavailable +The Sponsor uses the following cascading set of rules to calculate the Index Price. For the avoidance of doubt, the Sponsor will employ the below rules sequentially and in the order as presented below, should one or more specific rule(s) fail: +1. +Index Price = The price set by the Index as of 4:00 p.m., New York time, on the valuation date. If the Index becomes unavailable, or if the Sponsor determines in good faith that the Index does not reflect an accurate price, then the Sponsor will, on a best efforts basis, contact the Index Provider to obtain the Index Price directly from the Index Provider. If after such contact the Index remains unavailable or the Sponsor continues to believe in good faith that the Index does not reflect an accurate price, then the Sponsor will employ the next rule to determine the Index Price. There are no predefined criteria to make a good faith assessment and it will be made by the Sponsor in its sole discretion. +2. +Index Price = The price set by Coin Metrics Real-Time Rate (the “Secondary Index”) as of 4:00 p.m., New York time, on the valuation date (the “Secondary Index Price”). The Secondary Index Price is a real-time reference rate price, calculated using trade data from constituent markets selected by Coin Metrics, Inc. (the “Secondary Index Provider”). The Secondary Index Price is calculated by applying weighted-median techniques to such trade data where half the weight is derived from the trading volume on each constituent market and half is derived from inverse price variance, where a constituent market with high price variance as a result of outliers or market anomalies compared to other constituent markets is assigned a smaller weight. The Secondary Index Provider and the Sponsor have entered into the master services agreement, dated as of August 4, 2020, and order forms thereunder, pursuant to which the Sponsor may obtain and use the Secondary Index and the +17 +Secondary Index Price from the Secondary Index Provider. If the Secondary Index becomes unavailable, or if the Sponsor determines in good faith that the Secondary Index does not reflect an accurate price, then the Sponsor will, on a best efforts basis, contact the Secondary Index Provider to obtain the Secondary Index Price directly from the Secondary Index Provider. If after such contact the Secondary Index remains unavailable or the Sponsor continues to believe in good faith that the Secondary Index does not reflect an accurate price, then the Sponsor will employ the next rule to determine the Index Price. There are no predefined criteria to make a good faith assessment and it will be made by the Sponsor in its sole discretion. +3. +Index Price = The price set by the Trust’s principal market (the “Tertiary Pricing Option”) as of 4:00 p.m., New York time, on the valuation date. The Tertiary Pricing Option is a spot price derived from the principal market’s public data feed that is believed to be consistently publishing pricing information as of 4:00 p.m., New York time, and is provided to the Sponsor via an application programming interface. If the Tertiary Pricing Option becomes unavailable, or if the Sponsor determines in good faith that the Tertiary Pricing Option does not reflect an accurate price, then the Sponsor will, on a best efforts basis, contact the Tertiary Pricing Provider to obtain the Tertiary Pricing Option directly from the Tertiary Pricing Provider. If after such contact the Tertiary Pricing Option remains unavailable or the Sponsor continues to believe in good faith that the Tertiary Pricing Option does not reflect an accurate price, then the Sponsor will employ the next rule to determine the Index Price. There are no predefined criteria to make a good faith assessment and it will be made by the Sponsor in its sole discretion. +4. +Index Price = The Sponsor will use its best judgment to determine a good faith estimate of the Index Price. There are no predefined criteria to make a good faith assessment and it will be made by the Sponsor in its sole discretion. +In the event of a fork, the Index Provider may calculate the Index Price based on a digital asset that the Sponsor does not believe to be the appropriate asset that is held by the Trust. In this event, the Sponsor has full discretion to use a different index provider or calculate the Index Price itself using its best judgment. +The Sponsor may, in its sole discretion, select a different index provider, select a different index price provided by the Index Provider, calculate the Index Price by using the cascading set of rules set forth above, or change the cascading set of rules set forth above at any time. The Sponsor will provide notice of any such changes in the Trust’s periodic or current reports and, if the Sponsor makes such a change other than on an ad hoc or temporary basis, will file a proposed rule change with the SEC. +Government Oversight +As digital assets have grown in both popularity and market size, the U.S. Congress and a number of U.S. federal and state agencies (including FinCEN, the Treasury Department Office of Foreign Assets Control (“OFAC”), SEC, CFTC, the Financial Industry Regulatory Authority (“FINRA”), the Consumer Financial Protection Bureau (“CFPB”), the Department of Justice, the Department of Homeland Security, the Federal Bureau of Investigation, the U.S. Internal Revenue Service, a bureau of the U.S. Department of the Treasury (the “IRS”), the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Reserve and state financial institution and securities regulators) have been examining the operations of digital asset networks, digital asset users and the digital asset markets, with particular focus on the extent to which digital assets can be used to launder the proceeds of illegal activities, evade sanctions or fund criminal or terrorist enterprises and the safety and soundness of trading platforms and other service providers that hold or custody digital assets for users. Many of these state and federal agencies have issued consumer advisories regarding the risks posed by digital assets to investors. In addition, federal and state agencies, and other countries and international bodies have issued rules or guidance about the treatment of digital asset transactions or requirements for businesses engaged in digital asset activity. Moreover, the failure of FTX Trading Ltd. (“FTX”) in November 2022 and the resulting market turmoil substantially increased regulatory scrutiny in the United States and globally and led to SEC enforcement actions, criminal investigations, and other regulatory activity across the digital asset ecosystem. +On January 23, 2025, President Trump issued an executive order titled “Strengthening American Leadership in Digital Financial Technology” aimed at supporting “the responsible growth and use of digital assets, blockchain technology, and related technologies across all sectors of the economy.” The executive order established an interagency working group tasked with “proposing a Federal regulatory framework governing the issuance and operation of digital assets” in the United States. Pursuant to this executive order, the working group released a report in July 2025 outlining the administration's recommendations to Congress and various agencies reflecting the administration's “pro-innovation mindset toward digital assets and blockchain technologies.” +In addition, the SEC, U.S. state securities regulators and several foreign governments have issued warnings and instituted legal proceedings in which they argue that certain digital assets may be classified as securities and that both those digital assets and any related initial coin offerings or other primary and secondary market transactions are subject to securities regulations. For example, in June 2023, the SEC brought charges against Binance Holdings Ltd. (the “Binance Complaint”) and Coinbase, Inc. (the “Coinbase Complaint”), and in November 2023, the SEC brought charges against Kraken (the “Kraken Complaint”), alleging that they operated unregistered securities exchanges, brokerages and clearing agencies. In its complaints, the SEC asserted that several digital assets are securities under the federal securities laws. Between February 2025 and May 2025, the SEC entered into court-approved joint stipulations to dismiss +18 +each of the Binance Complaint, Coinbase Complaint and the Kraken Complaint. The SEC has terminated its investigation or enforcement action into many other digital asset market participants as well. Additionally, U.S. state and federal, and foreign regulators and legislatures have taken action against virtual currency businesses or enacted restrictive regimes in response to adverse publicity arising from hacks, consumer harm, or criminal activity stemming from virtual currency activity. +There have been several bills introduced in Congress that propose to establish additional regulation and oversight of the digital asset markets. Certain of these bills passed out of relevant committees and were passed in the House of Representatives in the last Congress, though not the Senate. Some of these bills have since been reintroduced with changes, and continue to be contemplated in the relevant committees, as well as the full House of Representatives and Senate. For example, in July 2025, the GENIUS Act was signed into law and the House of Representatives passed the Digital Asset Market Clarity Act of 2025 (“CLARITY Act”) in an effort to pass laws relating to digital asset market structure. It is difficult to predict whether, or when, any of these developments will lead to Congress granting additional authorities to the SEC or other regulators, what the nature of such additional authorities might be, how additional legislation and/or regulatory oversight might impact the ability of digital asset markets to function or how any new regulations or changes to existing regulations might impact the value of digital assets. See “Item 1A. Risk Factors—Risk Factors Related to the Regulation of Digital Assets, the Trust and the Shares— Regulatory changes or actions by the U.S. Congress or any U.S. federal or state agencies may affect the value of the Shares or restrict the use of SOL, validating activity or the operation of the Solana Network or the Digital Asset Markets in a manner that adversely affects the value of the Shares,” and “Item 1A. Risk Factors—Risk Factors Related to the Regulation of Digital Assets, the Trust and the Shares—A determination that SOL or any other digital asset is a “security” may adversely affect the value of SOL and the value of the Shares, and result in potentially extraordinary, nonrecurring expenses to, or termination of, the Trust.” +Various foreign jurisdictions have, and may continue to, in the near future, adopt laws, regulations or directives that affect a digital asset network, the Digital Asset Markets, and their users, particularly Digital Asset Trading Platforms and service providers that fall within such jurisdictions’ regulatory scope. For example: +• +China has made transacting in cryptocurrencies illegal for Chinese citizens in mainland China, and additional restrictions may follow. China has banned initial coin offerings and there have been reports that Chinese regulators have taken action to shut down a number of China-based Digital Asset Trading Platforms. +• +South Korea determined to amend its Financial Information Act in March 2020 to require virtual asset service providers to register and comply with its AML and counter-terrorism funding framework. These measures also provide the government with the authority to close Digital Asset Trading Platforms that do not comply with specified processes. South Korea has also banned initial coin offerings. +• +The Reserve Bank of India in April 2018 banned the entities it regulates from providing services to any individuals or business entities dealing with or settling digital assets. In March 2020, this ban was overturned in the Indian Supreme Court, although the Reserve Bank of India is currently challenging this ruling. +• +The United Kingdom’s Financial Conduct Authority published final rules in October 2020 banning the sale of derivatives and exchange-traded notes that reference certain types of digital assets, contending that they are “ill-suited” to retail investors citing extreme volatility, valuation challenges and association with financial crime. A new law, the Financial Services and Markets Act 2023 (“FSMA”), received royal assent in June 2023. The FSMA brings digital asset activities within the scope of existing laws governing financial institutions, markets and assets. +• +The Parliament of the European Union approved the text of the Markets in Crypto-Assets Regulation (“MiCA”) in April 2023, establishing a regulatory framework for digital asset services across the European Union. MiCA is intended to serve as a comprehensive regulation of digital asset markets and imposes various obligations on digital asset issuers and service providers. The main aims of MiCA are industry regulation, consumer protection, prevention of market abuse and upholding the integrity of digital asset markets. MiCA was formally approved by the European Union’s member states in 2023. Certain parts of MiCA became effective as of June 2024 and the remainder applied as of December 2024. +There remains significant uncertainty regarding foreign governments’ future actions with respect to the regulation of digital assets and Digital Asset Trading Platforms. Such laws, regulations or directives may conflict with those of the United States and may negatively impact the acceptance of SOL by users, merchants and service providers outside the United States and may therefore impede the growth or sustainability of the Solana ecosystem in the United States and globally, or otherwise negatively affect the value of SOL held by the Trust. The effect of any future regulatory change on the Trust or the SOL held by the Trust is impossible to predict, but such change could be substantial and adverse to the Trust and the value of the Shares. +The CFTC has regulatory jurisdiction over the SOL futures markets because the CFTC believes that SOL is a non-security “commodity” under the Commodity Exchange Act of 1936, as amended (the “CEA”) and the rules thereunder, such that it takes the position that it has jurisdiction to prosecute fraud and manipulation in the cash, or spot, market for SOL. Beyond instances of fraud or manipulation, the CFTC generally does not oversee cash or spot market exchanges, spot Digital Asset Trading Platforms or retail +19 +transactions involving spot SOL that do not utilize collateral, leverage, or financing. The National Futures Association (“NFA”) is the self-regulatory agency for the U.S. futures industry, and as such has jurisdiction over SOL futures. However, the NFA does not have regulatory oversight authority for the cash or spot market for SOL trading or transactions. +In February 2021, certain designated contract markets (“DCMs”) registered with the CFTC, including the CME, launched new contracts for SOL futures products. DCMs are boards of trades (commonly referred to as exchanges) that operate under the regulatory oversight of the CFTC, pursuant to Section 5 of the CEA. To obtain and maintain designation as a DCM, an exchange must comply on an initial and ongoing basis with twenty-three Core Principles established under Section 5(d) of the CEA. Among other things, DCMs are required to establish self-regulatory programs designed to enforce the DCM’s rules, prevent market manipulation and customer and market abuses, and ensure the recording and safe storage of trade information. The CFTC engaged in a “heightened review” of the self-certification of SOL futures, which required DCMs to enter direct or indirect information sharing agreements with spot market platforms to allow access to trade and trader data; monitor data from cash markets with respect to price settlements and other SOL prices more broadly, and identify anomalies and disproportionate moves in the cash markets compared to the futures markets; engage in inquiries, including at the trade settlement level when necessary; and agree to regular coordination with CFTC surveillance staff on trade activities, including providing the CFTC surveillance team with trade settlement data upon request. In December 2025, the CFTC announced that spot digital assets could begin being traded on CFTC-registered futures exchanges. Soon after, spot digital assets began trading on Bitnomial, a CFTC registered-futures exchange and member of the Intermarket Surveillance Group, a global body of exchanges sharing surveillance information with member exchanges. +See “Item 1A. Risk Factors—Risk Factors Related to the Regulation of Digital Assets, the Trust and the Shares—Regulatory changes or actions by the U.S. Congress or any U.S. federal or state agencies may affect the value of the Shares or restrict the use of SOL, validating activity or the operation of the Solana Network or the Digital Asset Markets in a manner that adversely affects the value of the Shares.” +Description of the Trust +The Trust is a Delaware Statutory Trust that was formed on November 9, 2021 by the filing of the Certificate of Trust with the Delaware Secretary of State in accordance with the provisions of the Delaware Statutory Trust Act (“DSTA”). On January 5, 2026, the Trust changed its name from Grayscale Solana Trust ETF to Grayscale Solana Staking ETF and previously, on October 28, 2025, the Trust changed its name from Grayscale Solana Trust (SOL) to Grayscale Solana Trust ETF by filing a Certificate of Amendment to the Certificate of Trust with the Delaware Secretary of State in accordance with the provisions of the DSTA. The Trust operates pursuant to the Trust Agreement. +The Shares represent units of fractional undivided beneficial interest in and ownership of the Trust. The Trust is passive and is not managed like a corporation or an active investment vehicle. The Trust’s SOL are held by the Custodian on behalf of the Trust. The Trust’s SOL will be transferred out of the Vault Balance only in the following circumstances: (i) transferred to pay the Sponsor’s Fee, the Sponsor’s Staking Fee or any Additional Trust Expenses, (ii) sold on an as-needed basis to pay Additional Trust Expenses or (iii) sold on behalf of the Trust in the event the Trust terminates and liquidates its assets or as otherwise required by law or regulation. Assuming that the Trust is treated as a grantor trust for U.S. federal income tax purposes, each delivery or sale of SOL by the Trust to pay the Sponsor’s Fee or any Additional Trust Expenses will be a taxable event for shareholders. See “—Material U.S. Federal Income Tax Consequences—Tax Consequences to U.S. Holders.” +The Trust is not a registered investment company under the Investment Company Act and the Sponsor believes that the Trust is not required to register under the Investment Company Act. The Trust will not trade, buy, sell or hold SOL derivatives, including SOL futures contracts, on any futures exchange. The Trust is authorized solely to take immediate delivery of actual SOL. The Sponsor does not believe the Trust’s activities are required to be regulated by the CFTC under the CEA as a “commodity pool” under current law, regulation and interpretation. The Trust will not be operated by a CFTC-regulated commodity pool operator because it will not trade, buy, sell or hold SOL derivatives, including SOL futures contracts, on any futures exchange. Investors in the Trust will not receive the regulatory protections afforded to investors in regulated commodity pools, nor may the COMEX division of the New York Mercantile Exchange or any futures exchange enforce its rules with respect to the Trust’s activities. In addition, investors in the Trust will not benefit from the protections afforded to investors in SOL futures contracts on regulated futures exchanges. +The Trust creates and redeems Shares from time to time but only in Baskets. A Basket equals a block of 10,000 Shares. See “—Description of Creation and Redemption of Shares.” The Sponsor will determine the Trust’s NAV on each business day as of 4:00 p.m., New York time, or as soon thereafter as practicable. The Sponsor will also determine the NAV per Share, which equals the NAV divided by the number of outstanding Shares. Each business day, the Sponsor will publish the Trust’s NAV and NAV per Share on the Trust’s website, etfs.grayscale.com/gsol, as soon as practicable after the Trust’s NAV and NAV per Share have been determined by the Sponsor. See “—Valuation of SOL and Determination of NAV.” +20 +The Trust’s assets consist solely of SOL, cash proceeds from the sale of SOL and any rights of the Trust pursuant to any agreements, other than the Trust Agreement, to which the Trust is a party. The Sponsor has committed to cause the Trust not to take any Affirmative Action to acquire any Incidental Rights or IR Virtual Currency, thereby irrevocably abandoning any Incidental Rights and IR Virtual Currency to which the Trust may become entitled in the future. As a result, the Trust does not expect to hold any Incidental Rights or IR Virtual Currency or to take any Incidental Rights or IR Virtual Currency into account for the purposes of determining the NAV or the NAV per Share. +Each Share represents a proportional interest, based on the total number of Shares outstanding, in each of the Trust’s assets as determined in the case of SOL by reference to the Index Price, less the Trust’s expenses and other liabilities (which include accrued but unpaid fees and expenses). The Sponsor expects that the market price of the Shares will fluctuate over time in response to the market prices of SOL. In addition, because the Shares reflect the estimated accrued but unpaid expenses of the Trust, the amount of SOL represented by a Share will gradually decrease over time as the Trust’s SOL are used to pay the Trust’s expenses. +SOL pricing information is available on a 24-hour basis from various financial information service providers or Solana Network information sites, such as CoinMarketCap.com. The spot price and bid/ask spreads may also be available directly from Digital Asset Trading Platforms. As of December 31, 2025, the Constituent Trading Platforms of the Index were Kraken, Crypto.com, Bitfinex, Bitstamp by Robinhood, Gemini, LMAX Digital, Bullish, OKX, and Bybit. The Index Provider may remove or add Digital Asset Trading Platforms to the Index in the future at its discretion. Market prices for the Shares will be available from a variety of sources, including brokerage firms, information websites and other information service providers. In addition, on each business day the Trust’s website will provide pricing information for the Shares. +The Trust has no fixed termination date. +Service Providers of the Trust +The Sponsor +As of the date of this Annual Report, the Trust’s Sponsor is Grayscale Investments Sponsors, LLC. Until December 31, 2024, the Trust’s Sponsor was Grayscale Investments, LLC, a Delaware limited liability company formed on May 29, 2013 and a consolidated subsidiary of DCG. See “—Overview of the Trust and the Shares” for more information regarding the Reorganization on January 1, 2025. The Sponsor’s principal place of business is 290 Harbor Drive, 4th Floor, Stamford, Connecticut 06902, and its telephone number is (212) 668-1427. Under the Delaware Limited Liability Company Act and the governing documents of the Sponsor, DCG, the indirect parent company of the Sponsor, is not responsible for the debts, obligations and liabilities of the Sponsor solely by reason of being the indirect parent company of the Sponsor. +The Sponsor is neither an investment adviser registered with the SEC nor a commodity pool operator registered with the CFTC, and will not be acting in either such capacity with respect to the Trust, and the Sponsor’s provision of services to the Trust will not be governed by the Investment Advisers Act or the CEA. +The Sponsor arranged for the creation of the Trust and, following their uplisting on October 29, 2025, listing of the Shares on NYSE Arca (the Shares were previously quoted on OTCQX). As partial consideration for its receipt of the Sponsor’s Fee from the Trust, the Sponsor is obligated to pay the Sponsor-paid Expenses. The Sponsor also paid the costs of the Trust’s organization and the costs of the initial sale of the Shares. +The Sponsor is generally responsible for the day-to-day administration of the Trust under the provisions of the Trust Agreement. This includes (i) preparing and providing periodic reports and financial statements on behalf of the Trust for investors, (ii) processing orders to create Baskets and coordinating the processing of such orders with the Custodian and the Transfer Agent, (iii) calculating and publishing the NAV and the NAV per Share of the Trust each business day as of 4:00 p.m., New York time, or as soon thereafter as practicable, (iv) selecting and monitoring the Trust’s service providers and from time to time engaging additional, successor or replacement service providers, (v) instructing the Custodian to transfer the Trust’s SOL, as needed to pay the Sponsor’s Fee and any Additional Trust Expenses, (vi) upon dissolution of the Trust, distributing the Trust’s remaining SOL or the cash proceeds of the sale thereof to the owners of record of the Shares and (vii) establishing the principal market for U.S. GAAP valuation. In addition, if there is a fork in the Solana Network after which there is a dispute as to which network resulting from the fork is the Solana Network, the Sponsor has the authority to select the network that it believes in good faith is the Solana Network, unless such selection or authority would otherwise conflict with the Trust Agreement. +The Sponsor does not store, hold, or maintain custody or control of the Trust’s SOL but instead has entered into the Prime Broker Agreement with the Custodian to facilitate the security of the Trust’s SOL. +21 +The Sponsor may transfer all or substantially all of its assets to an entity that carries on the business of the Sponsor if at the time of the transfer the successor assumes all of the obligations of the Sponsor under the Trust Agreement. In such an event, the Sponsor will be relieved of all further liability under the Trust Agreement. +The Sponsor’s Fee is paid by the Trust to the Sponsor as compensation for services performed under the Trust Agreement and as partial consideration for the Sponsor’s agreement to pay the Sponsor-paid Expenses. See “—Expenses; Sales of SOL.” +The Sponsor may, in its sole discretion, select a different index provider, select a different index price provided by the Index Provider, calculate the Index Price by using the cascading set of rules set forth under “—Overview of the Solana Industry and Market—SOL Value—The Index and the Index Price—Determination of the Index Price When Index Price is Unavailable” above, or change the cascading set of rules set forth above at any time. +Marketing Agent Agreement +The Sponsor, on behalf of the Trust, is party to a marketing agent agreement dated October 3, 2025 (the “Marketing Agent Agreement”) with Foreside Fund Services, LLC (the “Marketing Agent” or “Foreside”). Under the Marketing Agent Agreement, the Marketing Agent will provide the following services to the Sponsor: (i) assist the Sponsor in facilitating Participant Agreements between and among Authorized Participants, the Sponsor, on behalf of the Trust, and the Transfer Agent; (ii) provide prospectuses to Authorized Participants; (iii) work with the Transfer Agent to review and approve orders placed by the Authorized Participants and transmitted to the Transfer Agent; (iv) review and file applicable marketing materials with FINRA and (v) maintain, reproduce and store applicable books and records related to the services provided under the Marketing Agent Agreement. The Sponsor will pay the Marketing Agent an annual fee, as well as certain out-of-pocket fees and expenses of the Marketing Agent incurred in connection with its assistance in the marketing of the Trust and its Shares. +As of October 29, 2025, the Sponsor amended, solely with respect to the Trust, the Distribution and Marketing Agreement, dated as of October 3, 2022, among the Sponsor, the Trust and Grayscale Securities, LLC (“Grayscale Securities”), an affiliate of the Sponsor and an affiliate and related party of the Trust, to remove the Trust as an entity covered by the Distribution and Marketing Agreement. In its capacity as distributor and marketer, Grayscale Securities assisted the Sponsor in developing an ongoing marketing plan for the Trust, preparing marketing materials regarding the Shares, including the content on the Trust’s website, and executing the marketing plan for the Trust. +Index License Agreement +The Sponsor has entered into the Index License Agreement with CoinDesk Indices, Inc., the Index Provider, governing the Sponsor’s use of the Index for calculation of the Index Price. The Index Provider may adjust the calculation methodology for the Index without notice to, or consent of, the Trust or its shareholders. Under the Index License Agreement, the Sponsor pays a monthly fee and a fee based on the NAV of the Trust to the Index Provider in consideration of its license to the Sponsor of Index-related intellectual property. The initial term of the Index License Agreement was February 1, 2022 through the later of February 29, 2024 and the latest date set forth on any order form executed under the Index License Agreement. On June 20, 2023, the Sponsor and the Index Provider, entered into an amendment to the Index License Agreement to extend the initial term of the Index License Agreement from February 29, 2024, to February 28, 2025. On February 5, 2025, the Sponsor and the Index Provider, entered into an amendment to the Index License Agreement to extend the term of the Index License Agreement from February 28, 2025, to February 29, 2028. Thereafter, the Index License Agreement will automatically renew on an annual basis, unless a notice of non-renewal is provided. The Index License Agreement is terminable by either party upon written notice in the event of a material breach that remains uncured for thirty days after initial written notice of such breach. Further, either party may terminate the Index License Agreement immediately upon notice under certain circumstances, including with respect to the other party’s (i) insolvency, bankruptcy or analogous event or (ii) violation of money transmission, taxation or trading regulations that materially adversely affect either party’s ability to perform under the Index License Agreement. +COINDESK® and CoinDesk SOLANA BENCHMARK Rate (the “Index”) are trade or service marks of CoinDesk Indices, Inc. (with its affiliates, including CC Data Limited, “CDI”) and/or its licensors. CDI or CDI’s licensors own all proprietary rights in the Data. +CDI is not the issuer or producer of the Trust and has no responsibilities, obligations, or duties to investors in or holders of the Trust. The Index is licensed for use by the Sponsor as the sponsor of the Trust. The only relationship that CDI has with the Sponsor in respect of the Trust is the licensing of the Index, which is administered and published by CDI, or any successor thereto, without regard to the Sponsor or the owners or holders of Shares of the Trust. +Investors or holders acquire shares of the Trust offered by the Sponsor and investors and holders neither acquire any interest in the Index nor enter into any relationship of any kind whatsoever with CDI upon making an investment in or acquisition of the Trust. The Trust is not sponsored, endorsed, sold, or promoted by CDI. CDI makes no representation or warranty, express or implied, regarding the advisability of investing in or otherwise acquiring the Trust or the advisability of investing in securities or digital assets generally or +22 +the ability of the Index to track corresponding or relative market performance. CDI has not passed on the legality or suitability of the Trust with respect to any person or entity. CDI is not responsible for, nor has participated in, the determination of the timing of, prices at, or quantities of the Trust to be issued. CDI has no obligation to take the needs of the Sponsor or the owners or holders of the Trust or any other third party into consideration in administering, composing, calculating, or publishing the Index. CDI has no obligation or liability in connection with administration, marketing, or trading of the Trust. +The licensing agreement between the Sponsor and CDI is solely for the benefit of the Sponsor and CDI and not for the benefit of the owners or holders of Shares of the Trust or any other third parties. +CDI shall have no liability to the Sponsor, the Trust, investors, holders or other third parties for the quality, accuracy and/or completeness of the Index or any data included therein or for interruptions in the delivery of the data. CDI hereby expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Index or any other data included therein. CDI reserves the right to change the methods of calculation or publication, or to cease the calculation or publication of the Index and shall not be liable for any miscalculation of or any incorrect, delayed, or interrupted publication with respect to the Index. CDI shall not be liable for any damages, including, without limitation, any special, indirect or consequential damages, or any lost profits, even if advised of the possibility of such, resulting from the use of the Index or any other data included therein or with respect to the Trust. +Administration and Accounting Agreement +The Sponsor has entered into a Fund Administration and Accounting Agreement with BNY Mellon Asset Servicing, a division of The Bank of New York Mellon (the “Fund Administration and Accounting Agreement”), to provide administration and accounting services to the Trust. Pursuant to the terms of the Fund Administration and Accounting Agreement and under the supervision and direction of the Sponsor and the Trust, BNY Mellon Asset Servicing keeps the operational records of the Trust and prepares and files certain regulatory filings on behalf of the Trust. BNY Mellon Asset Servicing may also perform other services for the Trust pursuant to the Fund Administration and Accounting Agreement as mutually agreed upon by the Sponsor, the Trust and BNY Mellon Asset Servicing from time to time. The Administrator’s fees are paid on behalf of the Trust by the Sponsor. +The Trustee +CSC Delaware Trust Company (formerly known as Delaware Trust Company) serves as Delaware trustee of the Trust under the Trust Agreement. The Trustee has its principal office at 251 Little Falls Drive, Wilmington, Delaware 19808. The Trustee is unaffiliated with the Sponsor. A copy of the Trust Agreement is available for inspection at the Sponsor’s principal office identified above. +The Trustee is appointed to serve as the trustee of the Trust in the State of Delaware for the sole purpose of satisfying the requirement of Section 3807(a) of the DSTA that the Trust have at least one trustee with a principal place of business in the State of Delaware. The duties of the Trustee will be limited to (i) accepting legal process served on the Trust in the State of Delaware and (ii) the execution of any certificates required to be filed with the Delaware Secretary of State which the Delaware Trustee is required to execute under the DSTA. To the extent that, at law or in equity, the Trustee has duties (including fiduciary duties) and liabilities relating thereto to the Trust or the shareholders, such duties and liabilities will be replaced by the duties and liabilities of the Trustee expressly set forth in the Trust Agreement. The Trustee will have no obligation to supervise, nor will it be liable for, the acts or omissions of the Sponsor, Transfer Agent, Custodian, Prime Broker, or any other person. +Neither the Trustee, either in its capacity as trustee or in its individual capacity, nor any director, officer or controlling person of the Trustee is, or has any liability as, the issuer, director, officer or controlling person of the issuer of Shares. The Trustee’s liability in connection with the issuance and sale of Shares is limited solely to the express obligations of the Trustee as set forth in the Trust Agreement. +The Trustee has not prepared or verified, and will not be responsible or liable for, any information, disclosure or other statement in this Annual Report or in any other document issued or delivered in connection with the sale or transfer of the Shares. The Trust Agreement provides that the Trustee will not be responsible or liable for the genuineness, enforceability, collectability, value, sufficiency, location or existence of any of the SOL or other assets of the Trust. See “—Description of the Trust Agreement.” +The Trustee is permitted to resign upon at least 180 days’ notice to the Trust. The Trustee will be compensated by the Sponsor and indemnified by the Sponsor and the Trust against any expenses it incurs relating to or arising out of the formation, operation or termination of the Trust, or the performance of its duties pursuant to the Trust Agreement except to the extent that such expenses result from gross negligence, willful misconduct or bad faith of the Trustee. The Sponsor has the discretion to replace the Trustee. +Fees paid to the Trustee are a Sponsor-paid Expense. +The Transfer Agent and the Co-Transfer Agent +The Bank of New York Mellon serves as the Transfer Agent of the Trust pursuant to the terms and provisions of the Transfer Agency and Service Agreement (the “Transfer Agency and Service Agreement”). The Transfer Agent: (1) facilitates the issuance and redemption of Shares of the Trust; (2) responds to correspondence by Trust shareholders and others relating to its duties; (3) maintains +23 +shareholder accounts; and (4) makes periodic reports to the Trust. The Transfer Agent has its principal office at 240 Greenwich Street, New York, New York 10286. A copy of the Transfer Agency and Service Agreement is available for inspection at the Sponsor’s principal office identified herein. +Continental Stock Transfer & Trust Company, a Delaware corporation, serves as a co-transfer agent for the Trust (the “Co-Transfer Agent”) pursuant to the terms and provisions of the Co-Transfer Agency Agreement (the “Co-Transfer Agency Agreement”). The Co-Transfer Agent has its principal office at 1 State Street, 30th Floor, New York, New York 10004. A copy of the Co-Transfer Agency Agreement is available for inspection at the Sponsor’s principal office identified herein. +Fees paid to the Transfer Agent and Co-Transfer Agent are a Sponsor-paid Expense. +Administrator +BNY Mellon Asset Servicing, a division of The Bank of New York Mellon. BNY Mellon Asset Servicing also serves as the administrator for the Trust. The Administrator’s fees are paid on behalf of the Trust by the Sponsor. +Authorized Participants +An Authorized Participant must enter into a “Participant Agreement” with the Sponsor and the Trust to govern its placement of orders to create and redeem Baskets. The Participant Agreement sets forth the procedures for the creation and redemption of Baskets and for the delivery of SOL required for creations. A copy of the form of Participant Agreement is available for inspection at the Sponsor’s principal office identified herein. +Each Authorized Participant (i) is a registered broker-dealer and (ii) has entered into a Participant Agreement with the Sponsor and the Transfer Agent. If and when an Authorized Participant enters into or amends a Participant Agreement to provide for creations and redemptions effected through in-kind orders (as defined below), any Authorized Participants creating and redeeming Shares through In-Kind Orders (as defined below) must own, or its designee in connection with In-Kind Orders (“AP Designee”), must own, a SOL wallet address that is known to the Custodian as belonging to the Authorized Participant or its AP Designee and maintain an account with the Custodian. +The Trust issues Shares to, and redeems Shares from, Authorized Participants on an ongoing basis, but only in one or more Baskets (with a “Basket” being a block of 10,000 Shares). See “—Description of Creation and Redemption of Shares.” +As of the date of this filing, NYSE Arca has received regulatory approval permitting the Trust to conduct creations and redemptions of Shares via in-kind transactions with Authorized Participants or AP Designees in exchange for SOL. The Trust is also able to accept Cash Orders (as defined herein). However, at this time, the Trust is only permitted to conduct creations and redemptions of Shares pursuant to Cash Orders (as described herein). See “Item 1A. Risk Factors—Risk Factors Related to the Trust and the Shares—The current unavailability of in-kind creations and redemptions of Shares could have adverse consequences for the Trust” for more information. +As of the date of this Annual Report, the Sponsor, on behalf of the Trust, and the Transfer Agent entered into Participant Agreements with Jane Street Capital, LLC, Virtu Americas LLC, Macquarie Capital (USA) Inc., and ABN AMRO Clearing USA LLC, pursuant to which such entities have agreed to act as Authorized Participants. The Sponsor may engage additional Authorized Participants who are unaffiliated with the Trust in the future. +No Authorized Participant has any obligation or responsibility to the Sponsor or the Trust to effect any sale or resale of Shares. +Liquidity Providers +Liquidity Providers facilitate the purchase and sale of SOL in connection with Cash Orders for creations or redemptions of Baskets. The Liquidity Providers with which Grayscale Investments Sponsors, LLC, (in such capacity, the “Liquidity Engager”), will engage in SOL transactions are third parties that are not affiliated with the Sponsor or the Trust and are not acting as agents of the Trust, the Sponsor, or any Authorized Participant. Except for the contractual relationships between each Liquidity Provider and Grayscale Investments Sponsors, LLC in its capacity as the Liquidity Engager, there is no contractual relationship between each Liquidity Provider and the Trust, the Sponsor, or any Authorized Participant. +As of the date of this Annual Report, the Liquidity Engager has engaged JSCT, LLC, Virtu Financial Singapore Pte. Ltd., Flow Traders B.V., Flowdesk, Cumberland DRW LLC, and Galaxy Digital Trading Cayman LLC as Liquidity Providers. The Liquidity Engager may engage additional Liquidity Providers who are unaffiliated with the Trust in the future. +24 +Jane Street Capital, LLC, one of the Authorized Participants, is an affiliate of JSCT, LLC, one of the Liquidity Providers. Virtu Americas LLC, one of the Authorized Participants, is an affiliate of Virtu Financial Singapore Pte., Ltd, one of the Liquidity Providers. +The Custodian and Prime Broker +Coinbase Custody Trust Company, LLC is a fiduciary under § 100 of the New York Banking Law and a qualified custodian for purposes of Rule 206(4)-2(d)(6) under the Investment Advisers Act. The Custodian is authorized to serve as the Trust’s custodian under the Trust Agreement and pursuant to the terms and provisions of the Prime Broker Agreement. The Custodian has its principal office at 200 Park Avenue South, Suite 1208, New York, NY 10003. A copy of the Prime Broker Agreement is available for inspection at the Sponsor’s principal office identified herein. +Under the Prime Broker Agreement, the Custodian controls and secures the Trust’s “Vault Balance,” a segregated custody account to store private keys, which allow for the transfer of ownership or control of the Trust’s SOL, on the Trust’s behalf. The Custodian’s services (i) allow SOL to be deposited from a public blockchain address to the Trust’s Vault Balance and (ii) allow the Trust or Sponsor to withdraw SOL from the Trust’s Vault Balance to a public blockchain address the Trust or Sponsor controls (the “Custodial and Prime Broker Services”). Pursuant to the addendum to the Coinbase Custody Custodial Services Agreement attached as Exhibit A to the Coinbase Prime Broker Agreement, the Sponsor has caused, and from time to time may cause, the Trust to enter into Staking Arrangements with the Custodian and one or more Staking Providers, which may be affiliates of the Custodian or other trusted institutional validators, to stake the Trust’s SOL via Provider-Facilitated Staking. The Sponsor anticipates that the Trust’s SOL is and will be staked exclusively by means of Provider-Facilitated Staking. +The Vault Balance uses offline storage, or “cold” storage, mechanisms to secure the Trust’s private keys. The term cold storage refers to a safeguarding method by which the private keys corresponding to digital assets are disconnected. +The Custodian will withdraw from the Trust’s Vault Balance the amount of SOL necessary to pay the Trust’s expenses. +Fees paid to the Custodian are a Sponsor-paid Expense. +Under the Prime Broker Agreement, each of the Custodian and the Trust has agreed to indemnify and hold harmless the other party from any third-party claim or third-party demand (including reasonable and documented attorneys’ fees and any fines, fees or penalties imposed by any regulatory authority) arising out of or related to the Custodian’s or the Trust’s, as the case may be, breach of the Prime Broker Agreement, inaccuracy in any of the Custodian’s or the Trust’s, as the case may be, representations or warranties in the Prime Broker Agreement, or the Trust’s violation, or the Custodian’s knowing violation, of any law, rule or regulation, or the rights of any third party, except where such claim directly results from the negligence, fraud or willful misconduct of the other such party. In addition, the Trust has agreed to indemnify the Custodian with respect to any Incidental Rights or IR Virtual Currency abandoned by the Trust and any tax liability relating thereto or arising therefrom. +The Custodian and its affiliates may from time to time purchase or sell SOL for their own accounts and as agent for their customers or Shares for their own accounts. The foregoing notwithstanding, SOL in the Vault Balance are not treated as general assets of the Custodian and cannot be commingled with any other digital assets held by the Custodian. The Custodian serves as a fiduciary and custodian on the Trust’s behalf, and the SOL in the Vault Balance are considered fiduciary assets that remain the Trust’s property at all times. +Once each calendar year, the Sponsor or the Trust may request that the Custodian deliver a certificate signed by a duly authorized officer to certify that all representations and warranties made by the Custodian in the Prime Broker Agreement are true and correct on and as of the date of such certificate, and have been true and correct throughout the preceding year. In addition, the Custodian has agreed to allow the Trust and the Sponsor to take any necessary steps to verify that satisfactory internal control system and procedures are in place, and to visit and inspect the systems on which the Custodian’s coins are held. +If the Custodian resigns in its capacity as custodian, the Sponsor may appoint an additional or replacement custodian and enter into a custodian agreement on behalf of the Trust with such custodian. Furthermore, the Sponsor and the Trust may use SOL custody services or similar services provided by entities other than Coinbase Custody Trust Company, LLC at any time without prior notice to Coinbase Custody Trust Company, LLC. +The Additional Custodian +In addition, Anchorage Digital Bank N.A. (“Anchorage Digital” or the “Additional Custodian”), a national trust bank chartered by the Office of the Comptroller of the Currency, provides services related to custody and safekeeping of the Trust’s SOL holdings, pursuant to a Master Custody Services Agreement, dated as of August 8, 2025 (the “Anchorage Digital Custodian Agreement”). +The Sponsor currently utilizes Anchorage Digital’s services to custody a portion of the Trust’s SOL. The Trust’s existing custody arrangement with Coinbase Custody Trust Company, LLC is unaffected by the Trust’s entry into the Anchorage Digital Custodian Agreement, and Coinbase remains the Trust’s primary custodian. The Sponsor shall, in its sole discretion, determine the amounts held at either custodian as permitted by the Trust Agreement. At the current time, the Sponsor has not determined the total amount of the Trust’s SOL it will move to Anchorage Digital. The addition of Anchorage Digital reflects the Sponsor’s ongoing risk management +25 +approach as part of the Trust’s growing size. References to the “Custodian” in this Annual Report refer to Coinbase Custody Trust Company, LLC, Anchorage Digital and/or other custodians, collectively or in their individual capacities, as the context may require. +Under the Anchorage Digital Custodian Agreement, Anchorage Digital is required to keep all of the private keys associated with the Trust’s SOL held at Anchorage Digital in cold storage. +In the event of a fork of the Blockchain, the Anchorage Digital Custodian Agreement provides that Anchorage Digital may temporarily suspend services, and may, in its sole discretion, determine whether or not to support (or cease supporting) either branch of the forked protocol entirely, provided that Anchorage shall use commercially reasonable efforts to avoid ceasing to support both branches of such forked protocol. +The Anchorage Digital Custodian Agreement requires the Trust to indemnify Anchorage Digital, its affiliates and their respective officers, directors, agents, employees and representatives against certain losses arising from or related to the Trust’s material breach of the Anchorage Digital Custodian Agreement, among other things, except where a claim was caused by certain acts of Anchorage Digital. The Anchorage Digital Custodian Agreement also requires Anchorage Digital to maintain insurance policies and coverage. +The foregoing description of the Anchorage Digital Custodian Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Anchorage Digital Custodian Agreement filed as an exhibit to the Trust’s Registration Statement on Form S-1 filed on September 26, 2025, which is incorporated by reference herein. +Custody of the Trust’s SOL +Digital assets and digital asset transactions are recorded and validated on blockchains, the public transaction ledgers of a digital asset network. Each digital asset blockchain serves as a record of ownership for all of the units of such digital asset, even in the case of certain privacy-preserving digital assets, where the transactions themselves are not publicly viewable. All digital assets recorded on a blockchain are associated with a public blockchain address, also referred to as a digital wallet. Digital assets held at a particular public blockchain address may be accessed and transferred using a corresponding private key. +Key Generation +Public addresses and their corresponding private keys are generated by the Custodian in secret key generation ceremonies at secure locations inside faraday cages, which are enclosures used to block electromagnetic fields and thus mitigate against attacks. The Custodian uses quantum random number generators to generate the public and private key pairs. +Once generated, private keys are encrypted, separated into “shards”, and then further encrypted. After the key generation ceremony, all materials used to generate private keys, including computers, are destroyed. All key generation ceremonies are performed offline. No party other than the Custodian has access to the private key shards of the Trust, including the Trust itself. +Key Storage +Private key shards are distributed geographically by the Prime Broker and the Custodian (together, the “Custodial Entities”) in secure vaults around the world, including in the United States. The locations of the secure vaults may change regularly and are kept confidential by the Custodian and the Prime Broker for security purposes. +The Vault Balance primarily uses “cold” storage mechanisms to secure a substantial portion of the Trust’s private keys. A substantial portion of the Trust’s SOL holdings are held in cold storage at all times, with a portion of the Settlement Balance held temporarily in hot storage from time to time, for purposes of facilitating the receipt and distribution of SOL in connection with the creation and redemption of Baskets. Any SOL credited to the Trust’s Settlement Balance is stored in omnibus accounts, either on the Prime Broker’s systems or at Coinbase Connected Venues, using a combination of cold and hot storage mechanisms to secure the private keys representing the assets credited to the Trust’s Settlement Balance. +Cold storage is a safeguarding method with multiple layers of protections and protocols, by which the private keys corresponding to the Trust’s SOL are generated and stored in an offline manner. A digital wallet may receive deposits of digital assets but may not send digital assets without use of the digital assets’ corresponding private keys. In order to send digital assets from a digital wallet in which the private keys are kept in cold storage, either the private keys must be retrieved from cold storage and entered into an online, or “hot”, digital asset software program to sign the transaction, or the unsigned transaction must be transferred to the cold server in which the private keys are held for signature by the private keys and then transferred back to the online digital asset software program. At that point, the user of the digital wallet can transfer its digital assets. While private keys held in hot storage are more accessible and therefore enable more efficient transfers, such assets are more vulnerable to theft, loss or damage. +Security Procedures +The Custodian and the Prime Broker hold the Trust’s private keys in custody in accordance with the terms and provisions of the Prime Broker Agreement. Transfers to and from the Vault Balance and, where held in cold storage, the Trust’s Settlement Balance, require certain security procedures, including but not limited to, multiple encrypted private key shards, usernames, passwords and +26 +2-step verification. Multiple private key shards held by the applicable Custodial Entity or Entities must be combined to reconstitute the private key to sign any transaction in order to transfer the Trust’s assets. Private key shards are distributed geographically by the Custodial Entities in secure vaults around the world, including in the United States. +As a result, if any one secure vault is ever compromised, this event will have no impact on the ability of the Trust to access its assets, other than a possible delay in operations, while one or more of the other secure vaults is used instead. These security procedures are intended to remove single points of failure in the protection of the Trust’s assets. +Transfers of SOL to the Vault Balance from the Settlement Balance will be available to the Trust once processed on the Blockchain, subject to the availability of the Prime Broker’s online platform. When SOL is credited to the Settlement Balance, certain movements to allocate the balance among (i) omnibus cold storage wallets and omnibus hot storage wallets on the Prime Broker’s platform; or (ii) omnibus accounts at Coinbase Connected Venues may not be viewable by the Trust via the Prime Broker’s online portal. In addition, on a monthly basis the Custodial Entities will provide the Sponsor with an account statement identifying the amount of cash and SOL in the Trust’s Accounts at the end of the period and listing all account activity during that period. +The process of accessing and withdrawing SOL from the Trust to redeem a Basket by an Authorized Participant follows the same general procedure as transferring SOL to the Trust to create a Basket by an Authorized Participant, only in reverse. See “—Description of Creation and Redemption of Shares.” +The Marketing Agent +Prior to October 29, 2025, Grayscale Securities was the distributor and marketer of the Shares. Since October 29, 2025, Foreside Fund Services, LLC (“Foreside”) is the marketing agent of the Shares, and Grayscale Securities ceased acting as the distributor and marketer of the Shares of the Trust. Foreside is a registered broker-dealer with the SEC and is a member of FINRA. +In its capacity as marketing agent, Foreside provides the following services to the Sponsor: (i) assist the Sponsor in facilitating Participant Agreements between and among Authorized Participants, the Sponsor, on behalf of the Trust, and the Transfer Agent; (ii) provide prospectuses to Authorized Participants; (iii) work with the Transfer Agent to review and approve orders placed by the Authorized Participants and transmitted to the Transfer Agent; (iv) review and file applicable marketing materials with FINRA and (v) maintain, reproduce and store applicable books and records related to the services provided under the Marketing Agent Agreement. +The Sponsor has entered into a Marketing Agent Agreement with Foreside. The Sponsor may engage additional or successor marketing agents in the future. +Description of the Shares +The Trust is authorized under the Trust Agreement to create and issue an unlimited number of Shares. Shares will be issued only in Baskets (a Basket equals a block of 10,000 Shares) in connection with creations. The Shares represent units of fractional undivided beneficial interest in and ownership of the Trust and have no par value. The Shares are listed on NYSE Arca under the ticker symbol “GSOL.” +Description of Limited Rights +The Shares do not represent a traditional investment and should not be viewed as similar to “shares” of a corporation operating a business enterprise with management and a board of directors. A shareholder will not have the statutory rights normally associated with the ownership of shares of a corporation. Each Share is transferable, is fully paid and non-assessable and entitles the holder to vote on the limited matters upon which shareholders may vote under the Trust Agreement. For example, shareholders do not have the right to elect or re move directors and will not receive dividends. The Shares do not entitle their holders to any conversion or pre-emptive rights or, except as discussed below, any redemption rights or rights to distributions. +Voting and Approvals +The shareholders take no part in the management or control of the Trust. Under the Trust Agreement, shareholders have limited voting rights. For example, in the event that the Sponsor withdraws, a majority of the shareholders may elect and appoint a successor sponsor to carry out the affairs of the Trust. The Sponsor is also permitted to make certain restatements, amendments or supplements to the Trust Agreement that would materially adversely affect the interests of the shareholders as determined by the Sponsor in its sole discretion with a 20-day notice to shareholders. Additionally, the Sponsor is permitted to make certain restatements, amendments or supplements to the Trust Agreement that could adversely affect the status of the Trust as a grantor trust for U.S. federal income tax purposes, but only if ce rtain conditions set forth in the amendments relating to the qualification of the Trust as a grantor trust for U.S. federal income tax purposes are satisfied. Furthermore, subject to certain limitations, the Sponsor may make any other amendments to the Trust Agreement which do not materially adversely affect the interests of the shareholders in its sole discretion without shareholder consent. +27 +Distributions +Pursuant to the terms of the Trust Agreement, the Trust may make distributions on the Shares in-cash or in-kind. In addition, if the Trust is terminated and liquidated, the Sponsor will distribute to the shareholders any amounts of the cash proceeds of the liquidation remaining after the satisfaction of all outstanding liabilities of the Trust and the establishment of reserves for applicable taxes, other governmental charges and contingent or future liabilities as the Sponsor will determine. See “—Description of the Trust Agreemen t—Termination of the Trust.” Shareholders of record on the record date fixed by the Transfer Agent for a distribution will be entitled to receive their pro rata portions of any distribution. +Creation of Shares +The Trust creates Shares at such times and for such periods as determined by the Sponsor, but only in one or more whole Baskets. A Basket equals 10,000 Shares. See “—Description of Creation and Redemption of Shares.” The creation of a Basket requires the delivery to the Trust of the amount of SOL (or cash to acquire the amount of SOL) represented by one Share immediately prior to such creation multiplied by 10,000. The Trust may from time to time halt creations, including for extended periods of time, for a variety of reasons, including in connection with forks, airdrops and other similar occurrences. +Redemption of Shares +On October 28, 2025, the Sponsor’s application to list and trade the Trust’s Shares on NYSE Arca under the Generic Listing Standards was approved and the Trust began trading on NYSE Arca on October 29, 2025 (the “Uplisting Date”), following the effectiveness of the Trust’s registration statement on Form S-1, as amended (File No. 333-286374). In connection with the uplisting of the Shares, the Sponsor authorized the commencement of the Trust’s redemption program in reliance on Regulation M exemptive relief available to similarly situated commodity-based exchange-traded products. +Shares are redeemable only in accordance with the provisions of the Trust Agreement and the relevant Participant Agreement. Through its redemption program, the Trust redeems Shares from Authorized Participants on an ongoing basis. Although the Trust redeems Baskets by distributing SOL or proceeds from the disposition of SOL, at this time, an Authorized Participant can only submit Cash Orders. In a Cash Order, the Authorized Participant will accept cash from the Cash Account (as defined herein) in connection with the redemption of Baskets. +Cash Orders are facilitated by the Transfer Agent and Grayscale Investments Sponsors, LLC, which acts on behalf of the Trust in its capacity as Liquidity Engager and will engage one or more Liquidity Providers that is not an agent of, or otherwise acting on behalf of, any Authorized Participant receiving SOL in connection with such orders. If and when Authorized Participants enter into or amend their respective Participant Agreements to provide for in-kind creations and redemptions, the Trust may also redeem Baskets via In-Kind Orders, pursuant to which an Authorized Participant or its AP Designee would deposit SOL directly with the Trust or receive SOL directly from the Trust. However, at this time Baskets will not be redeemed through In-Kind Orders and will only be redeemed through Cash Orders. See “Description of Creation and Redemption of Shares.” +The Sponsor may suspend the Trust’s redemption program in its sole discretion, or the redemption program may otherwise become unavailable, which could cause the Shares to trade at a discount to the NAV per Share. See “Item 1A. Risk Factors—Risk Factors Related to the Trust and the Share—Any suspension or other unavailability of the Trust’s redemption program may cause the Shares to trade at a discount to the NAV per Share.” +Book-Entry Form +Shares are held primarily in book-entry form by the Transfer Agent. The Sponsor or its delegate will direct the Transfer Agent to credit or debit, as applicable, the number of Baskets to the applicable Authorized Participant. The Transfer Agent will issue or cancel Baskets, as applicable. Transfers will be made in accordance with standard securities industry practice. The Sponsor may cause the Trust to issue Shares in certificated form in limited circumstances in its sole discretion. +Share Splits +In its discretion, the Sponsor may direct the Transfer Agent to declare a split or reverse split in the number of Shares outstanding and to make a corresponding change in the number of Shares constituting a Basket. For example, if the Sponsor believes that the per Share price in the secondary market for Shares has risen or fallen outside a desirable trading price range, it may declare such a split or reverse split. +Description of Creation and Redemption of Shares +General +The Trust issues Shares to and redeems Shares from Authorized Participants on an ongoing basis, but only in one or more Baskets (with a “Basket” being a block of 10,000 Shares). The Trust will not issue fractions of a Basket. The Sponsor believes that the creation +28 +and redemption order size of 10,000 Shares will enable Authorized Participants to manage inventory and facilitate an effective arbitrage mechanism for the Trust. However, the Sponsor may in the future adjust the creation and redemption order size in order to improve the effectiveness of the activities of Authorized Participants in the secondary market for the Shares if the Sponsor determines it to be necessary or advisable. As such, the Sponsor does not expect that the size of the Baskets will have an impact on the arbitrage mechanism. +The creation and redemption of Baskets will be made only upon the delivery to the Trust, or the distribution or other disposition by the Trust, of the amount of whole and fractional SOL represented by each Basket being created or redeemed, which is determined by dividing (x) the amount of SOL owned by the Trust at 4:00 p.m., New York time, on the trade date of a creation or redemption order, after deducting the amount of SOL representing the U.S. dollar value of accrued but unpaid fees and expenses of the Trust (converted using the Index Price at such time, and carried to the eighth decimal place), by (y) the number of Shares outstanding at such time (with the quotient so obtained calculated to one one-hundred-millionth of one SOL (i.e., carried to the eighth decimal place)), and multiplying such quotient by 10,000 (the “Basket Amount”). The U.S. dollar value of a Basket is calculated by multiplying the Basket Amount by the Index Price as of the trade date (the “Basket NAV”). The Basket NAV multiplied by the number of Baskets being created or redeemed is referred to as the “Total Basket NAV.” All questions as to the calculation of the Basket Amount will be conclusively determined by the Sponsor and will be final and binding on all persons interested in the Trust. One or more major market data vendors may provide an intra-day indicative value (“IIV”) per Share updated every 15 seconds, as calculated by NYSE Arca or a third-party financial data provider during NYSE Arca’s Core Trading Session (9:30 a.m. to 4:00 p.m., New York time). Such IIV will be calculated using the same methodology as the NAV per Share of the Trust, specifically by using the prior day’s closing NAV per Share as a base and updating that value during the NYSE Arca Core Trading Session to reflect changes in the value of the Trust’s NAV during the trading day. The IIV on a per Share basis disseminated during the Core Trading Session should not be viewed as a real-time update of the NAV, which is calculated once a day. The amount of SOL represented by a Share will gradually decrease over time as the Trust’s SOL are used to pay the Trust’s expenses. +Authorized Participants are the only persons that may place orders to create and redeem Baskets. Each Authorized Participant must (i) be a registered broker-dealer and (ii) enter into a Participant Agreement with the Sponsor and the Transfer Agent. If and when Authorized Participants enter into or amend their respective Participant Agreements to provide for creations and redemptions effected through In-Kind Orders, any Authorized Participants creating and redeeming Shares through In-Kind Orders must own a SOL wallet address that is known to the Custodian as belonging to the Authorized Participant and maintain an account with the Custodian (or if the Authorized Participant does not itself trade in SOL, a designee of such Authorized Participant (each, an “AP Designee”) must own a SOL wallet address that is known to the Custodian as belonging to such AP Designee and maintain an account with the Custodian. +An Authorized Participant may act for its own account or as agent for broker-dealers, custodians and other securities market participants that wish to create or redeem Baskets. Shareholders who are not Authorized Participants will only be able to create or redeem their Shares through an Authorized Participant. +The creation of Baskets requires the delivery to the Trust of the Total Basket Amount (or cash to acquire the Total Basket Amount) and the redemption of Baskets requires the distribution or other disposition by the Trust of the Total Basket Amount. Although the Trust creates Baskets only upon the receipt of SOL, and redeems Baskets only by distributing SOL or proceeds from the disposition of SOL, at this time an Authorized Participant can only submit Cash Orders, pursuant to which the Authorized Participant will deposit cash into, or accept cash from, a segregated account maintained by the Transfer Agent in the name of the Trust for purposes of receiving and distributing cash in connection with the creation and redemption of Baskets (such account, the “Cash Account”), as Authorized Participants have not entered into or amended their respective Participant Agreements to provide for creations and redemptions effected through in-kind orders. The Trust may effect creations and redemptions through in-kind transactions if and when Authorized Participants enter into or amend their respective Participant Agreements to provide for such transactions. +Cash Orders will be facilitated by the Transfer Agent and Grayscale Investments Sponsors, LLC. On an order-by-order basis, Grayscale Investments Sponsors, LLC, acting in its capacity as Liquidity Engager, will engage one or more Liquidity Providers to obtain or receive SOL in exchange for cash in connection with such order, as described in more detail below. Each Liquidity Provider must enter into a Liquidity Provider Agreement with the Liquidity Engager and the Sponsor (on behalf of the Trust), which will obligate it to obtain or receive SOL in connection with creations and redemptions pursuant to Cash Orders. +Unless the Sponsor requires that a Cash Order be effected at actual execution prices (an “Actual Execution Cash Order”), each Authorized Participant that submits a Cash Order to create or redeem Baskets will pay a fee (the “Variable Fee”) based on the Total Basket NAV (a “Variable Fee Cash Order”), and any price differential between (x) the Total Basket NAV on the trade date and (y) the price realized in acquiring or disposing of the corresponding Total Basket Amount, as the case may be, will be borne solely by the Liquidity Provider until such SOL have been received or liquidated by the Trust. The Variable Fee is intended to cover all of a Liquidity Provider’s expenses in connection with the creation or redemption order, including any exchange fees that the Liquidity Provider incurs in connection with buying or selling SOL. The amount may be changed by the Sponsor in its sole discretion at any time, and Liquidity Providers will communicate to the Sponsor in advance the Variable Fee they would be willing to accept in connection with a Variable Fee Cash Order, based on market conditions and other factors existing at the time of such Variable Fee Cash Order. +29 +Alternatively, the Sponsor may require that a Cash Order be effected as an Actual Execution Cash Order, in its sole discretion based on market conditions and other factors existing at the time of such Cash Order, and under such circumstances, any price differential between (x) the Total Basket NAV on the trade date and (y) the price realized in acquiring or disposing of the corresponding Total Basket Amount, as the case may be, will be borne solely by such Authorized Participant until such SOL have been received or liquidated by the Trust. See “—Creation Procedures—Actual Execution Cash Orders” and “—Redemption Procedures—Actual Execution Cash Orders.” +In the case of creations pursuant to Cash Orders, to transfer the Total Basket Amount to the Trust’s Vault Balance, the Liquidity Provider will transfer SOL to one of the public key addresses associated with the Vault Balance and as provided by the Sponsor. In the case of redemptions pursuant to Cash Orders, the same procedure is conducted, but in reverse, using the public key addresses associated with the wallet of the Liquidity Provider, and as provided by such party. All such transactions will be conducted on the Blockchain and parties acknowledge and agree that such transfers may be irreversible if done incorrectly. See “Item 1A. Risk Factors—Risk Factors Related to the Trust and the Shares—SOL transactions are irrevocable and stolen or incorrectly transferred SOL may be irretrievable. As a result, any incorrectly executed SOL transactions could adversely affect the value of the Shares.” +At this time the Trust does not create and redeem shares via in-kind transactions with Authorized Participants. If and when one or more Authorized Participants enter into or amend a Participant Agreement to provide for in-kind creations and redemptions the Trust may also create and redeem Baskets via In-Kind Orders, pursuant to which an Authorized Participant or its AP Designee would deposit SOL directly with the Trust or receive SOL directly from the Trust. However, at this time Baskets will not be created or redeemed through In-Kind Orders and will only be created or redeemed through Cash Orders. There can be no assurance as to whether or when any Authorized Participant will enter into or amend a Participant Agreement to provide for in-kind creations and redemption. See “Item 1A. Risk Factors—Risk Factors Related to the Trust and the Shares—The current unavailability of in-kind creations and redemptions of Shares could have adverse consequences for the Trust.” +Authorized Participants do not pay a transaction fee to the Trust in connection with the creation or redemption of Baskets, but there may be transaction fees associated with the validation of the transfer of SOL by the Solana Network, which will be paid by the Custodian in the case of redemptions and an Authorized Participant, its AP Designee or the Liquidity Provider in the case of creations. Service providers may charge Authorized Participants or AP Designees administrative fees for order placement and other services related to the creation or redemption of Baskets. As discussed above, Authorized Participants will also pay the Variable Fee in connection with Variable Fee Cash Orders. As discussed in further detail below under “—Creation Procedures—Actual Execution Cash Orders” and “—Redemption Procedures—Actual Execution Cash Orders”, under certain circumstances Authorized Participants may also be required to deposit additional cash in the Cash Account, or be entitled to receive excess cash from the Cash Account, in connection with creations and redemptions pursuant to Actual Execution Cash Orders. Authorized Participants will receive no fees, commissions or other form of compensation or inducement of any kind from either the Sponsor or the Trust and no such person has any obligation or responsibility to the Sponsor or the Trust to effect any sale or resale of Shares. +The Participant Agreements and the related procedures attached thereto may be amended by the Sponsor and the relevant Authorized Participant. Under the Participant Agreements, the Sponsor has agreed to indemnify each Authorized Participant against certain liabilities, including liabilities under the Securities Act. +The following description of the procedures for the creation and redemption of Baskets is only a summary and shareholders should refer to the relevant provisions of the Trust Agreement and the form of Participant Agreement for more detail. +Creation Procedures +On any business day, an Authorized Participant may place an order with the Transfer Agent to create one or more Baskets. Orders for creation must be placed with the Transfer Agent no later than 3:59:59 p.m., New York time, and Cash Orders for creation must be placed with the Transfer Agent no later than 1:59:59 p.m., New York time (the “Order Cutoff Time”). +The Sponsor may in its sole discretion limit the number of Shares created pursuant to Cash Orders on any specified day without notice to the Authorized Participants and may direct the Marketing Agent to reject any Cash Orders in excess of such capped amount. In exercising its discretion to limit the number of Shares created pursuant to Cash Orders, the Sponsor expects to take into consideration a number of factors, including (i) the availability of Liquidity Providers to facilitate Cash Orders and (ii) to the extent Authorized Participants have entered into or amended Participant Agreements to provide for in-kind creations and redemptions, the cost of processing Cash Orders relative to the cost of processing In-Kind Orders. If the Sponsor decides to limit Cash Orders and the Trust is otherwise unable to satisfy creation orders made in cash, the Trust’s ability to create new Shares could be negatively impacted or, if Authorized Participants have not entered into or amended Participant Agreements to provide for in-kind creations and redemptions as of such time, would be unavailable, which could impact the Shares’ liquidity and/or cause the Shares to trade at premiums to the NAV per Share, and otherwise have a negative impact on the value of the Shares. In addition, if the Sponsor decides to limit Cash Orders at a time when the Shares are trading at a premium to the NAV per Share, and in-kind creations are not then being effected pursuant to Participant Agreements, the arbitrage mechanism may fail to effectively function, which could impact the Shares’ liquidity and/or cause the Shares to trade at premiums to the NAV per Share, and otherwise have a negative impact on the value of the Shares. See “Item 1A. Risk Factors—Risk Factors Related to the Trust and the Shares—The current unavailability of in-kind creations and redemptions +30 +of Shares could have adverse consequences for the Trust.” +Creations pursuant to Cash Orders will take place as follows, where “T” is the trade date and each day in the sequence must be a business day. Before a creation order is placed, the Sponsor determines if such creation pursuant to a Cash Order will be a Variable Fee Cash Order or an Actual Execution Cash Order, which determination is communicated to the Authorized Participant. +31 +Trade Date (T) +Settlement Date +(T+1, or T+2, as established at the time of order placement) +• +The Authorized Participant places a creation order with the Transfer Agent. +• +The Marketing Agent accepts (or rejects) the creation order, which is communicated to the Authorized Participant by the Transfer Agent. +• +The Sponsor notifies the Liquidity Provider of the creation order. +• +The Sponsor determines the Total Basket NAV and any Variable Fee and Additional Creation Cash as soon as practicable after 4:00 p.m., New York time. +• +The Authorized Participant delivers to the Cash Account: +(x) in the case of a Variable Fee Cash Order, the Total Basket NAV, plus any Variable Fee; or +(y) in the case of an Actual Execution Cash Order, the Total Basket NAV, plus any Additional Creation Cash, less any Excess Creation Cash, if applicable (such amount, as applicable, the “Required Creation Cash”). +• +The Liquidity Provider transfers the Total Basket Amount to the Trust’s Vault Balance. +• +Once the Trust is in simultaneous possession of (x) the Total Basket Amount and (y) the Required Creation Cash, the Trust issues the aggregate number of Shares corresponding to the Baskets ordered by the Authorized Participant, which the Transfer Agent holds for the benefit of the Authorized Participant. +• +Cash equal to the Required Creation Cash is delivered to the Liquidity Provider from the Cash Account. +• +The Transfer Agent delivers Shares to the Authorized Participant by crediting the number of Baskets created to the Authorized Participant’s DTC account. +Variable Fee Cash Orders +Unless the Sponsor determines otherwise in its sole discretion based on market conditions and other factors existing at the time of such Cash Order, all creations pursuant to Cash Orders are expected to be executed as Variable Fee Cash Orders, and any price differential between (x) the Total Basket NAV on the trade date and (y) the price realized in acquiring the corresponding Total Basket Amount will be borne solely by the Liquidity Provider until such SOL have been received by the Trust. +The Sponsor anticipates that the Trust’s cost to acquire the Total Basket Amount in connection with a Variable Fee Cash Order will equal the sum of the corresponding Total Basket NAV and Variable Fee to be delivered by the Authorized Participant to the Trust. In the event that, by 12:00 p.m., New York time on the settlement date of a creation pursuant to a Variable Fee Cash Order, either (x) the Trust’s Vault Balance has not been credited with SOL in an amount equal to the Total Basket Amount or (y) the Cash Account has not been credited with the Total Basket NAV, plus any Variable Fee, such Cash Order will be deemed a failed trade, with any consideration that has been delivered by the Authorized Participant or the Liquidity Provider in respect of such Cash Order being returned by the Trust. +The Transfer Agent shall under no circumstances cause the Trust to issue Shares in respect of a Variable Fee Cash Order until such time as each of (x) the Total Basket Amount and (y) the Total Basket NAV, plus any Variable Fee, has been delivered to the Trust, and the Trust is in simultaneous possession of both. +Actual Execution Cash Orders +With respect to a creation pursuant to an Actual Execution Cash Order, as between the Trust and an Authorized Participant, the Authorized Participant is responsible for the dollar cost of the difference between the SOL price utilized in calculating Total Basket NAV on the trade date and the price at which the Trust acquires the SOL on the settlement date. If the price realized in acquiring the corresponding Total Basket Amount is higher than the Total Basket NAV, the Authorized Participant will bear the dollar cost of such difference by delivering cash in the amount of such difference (the “Additional Creation Cash”) to the Cash Account. If the price realized in acquiring the corresponding Total Basket Amount is lower than the Total Basket NAV, the Authorized Participant will benefit from +32 +such difference, with the Trust promptly returning cash in the amount of such excess (the “Excess Creation Cash”) to the Authorized Participant. +In the event that, by 12:00 p.m., New York time on the settlement date of a creation pursuant to an Actual Execution Cash Order, either (x) the Trust’s Vault Balance has not been credited with SOL in an amount equal to the Total Basket Amount or (y) the Cash Account has not been credited with the Total Basket NAV (net of any Additional Creation Cash or Excess Creation Cash, if applicable), such Cash Order will be deemed a failed trade, with any consideration that has been delivered by the Authorized Participant or the Liquidity Provider in respect of such Cash Order being returned by the Trust. +The Transfer Agent shall under no circumstances cause the Trust to issue Shares in respect of a Cash Order until such time as each of (x) the Total Basket Amount and (y) the Total Basket NAV (net of any Additional Creation Cash or Excess Creation Cash, if applicable) has been delivered to the Trust, and the Trust is in simultaneous possession of both. +Redemption Procedures +The procedures by which an Authorized Participant can redeem one or more Baskets mirror the procedures for the creation of Baskets. On any business day, an Authorized Participant may place a redemption order specifying the number of Baskets to be redeemed. +The redemption of Shares pursuant to Cash Orders will only take place if approved by the Sponsor in writing, in its sole discretion and on a case-by-case basis. In exercising its discretion to approve the redemption of Shares pursuant to Cash Orders, the Sponsor expects to take into consideration a number of factors, including (i) the availability of Liquidity Providers to facilitate Cash Orders and (ii) to the extent Authorized Participants have entered into or amended Participant Agreements to provide for in-kind creations and redemptions, the cost of processing Cash Orders relative to the cost of processing In-Kind Orders. If the Sponsor decides to limit Cash Orders and the Trust is unable to satisfy redemption orders made in cash, the Trust’s ability to create new Shares could be negatively impacted or, if Authorized Participants have not entered into or amended Participant Agreements to provide for in-kind creations and redemptions as of such time, would be unavailable, which could impact the Shares’ liquidity and/or cause the Shares to trade at discounts, and could have a negative impact on the value of the Shares. In addition, if the Sponsor decides to limit Cash Orders at a time when the Shares are trading at a discount to the NAV per Share, and in-kind redemptions are not then being effected pursuant to Participant Agreements, the arbitrage mechanism may fail to effectively function, which could impact the Shares’ liquidity and/or cause the Shares to trade at discounts to the NAV per Share, and otherwise have a negative impact on the value of the Shares. See “Item 1A. Risk Factors—Risk Factors Related to the Trust and the Shares—The current unavailability of in-kind creations and redemptions of Shares could have adverse consequences for the Trust.” for more information. +Cash Orders for redemption must be placed no later than 1:59:59 p.m., New York time on each business day. The Authorized Participants may only redeem Baskets and cannot redeem any Shares in an amount less than a Basket. +Redemptions pursuant to Cash Orders will take place as follows, where “T” is the trade date and each day in the sequence must be a business day. Before a redemption pursuant to Cash Order is placed, the Sponsor determines if such redemption order will be a Variable Fee Cash Order or an Actual Execution Cash Order, which determination is communicated to the Authorized Participant. +33 +Trade Date (T) +Settlement Date +(T+1, or T+2, as established at the time of order placement) +• +The Authorized Participant places a redemption order with the Transfer Agent. +• +The Marketing Agent accepts (or rejects) the redemption order, which is communicated to the Authorized Participant by the Transfer Agent. +• +The Sponsor notifies the Liquidity Provider of the redemption order. +• +The Sponsor determines the Total Basket NAV and, in the case of a Variable Fee Cash Order, any Variable Fee, as soon as practicable after 4:00 p.m., New York time. +• +The Authorized Participant delivers Baskets to be redeemed from its DTC account to the Transfer Agent. +• +The Liquidity Provider delivers to the Cash Account: +(x) in the case of a Variable Fee Cash Order, the Total Basket NAV less any Variable Fee; or +(y) in the case of an Actual Execution Cash Order, the actual proceeds to the Trust from the liquidation of the Total Basket Amount (such amount, as applicable, the “Required Redemption Cash”). +• +Once the Trust is in simultaneous possession of (x) the Total Basket Amount and (y) the Required Redemption Cash, the Transfer Agent cancels the Shares comprising the number of Baskets redeemed by the Authorized Participant. +• +The Custodian sends the Liquidity Provider the Total Basket Amount, and cash equal to the Required Redemption Cash is delivered to the Authorized Participant from the Cash Account. +Variable Fee Cash Orders +Unless the Sponsor determines otherwise in its sole discretion based on market conditions and other factors existing at the time of such Cash Order, all redemptions pursuant to Cash Orders are expected to be executed as Variable Fee Cash Orders, and any price differential between (x) the Total Basket NAV on the trade date and (y) the price realized in disposing of the corresponding Total Basket Amount will be borne solely by the Liquidity Provider. +The Sponsor anticipates that the Trust’s proceeds from liquidating the Total Basket Amount in connection with a Variable Fee Cash Order will equal the corresponding Total Basket NAV less the Variable Fee to be delivered by the Liquidity Provider to the Trust. In the event that, by 12:00 p.m. (New York time) on the settlement date of a redemption pursuant to a Variable Fee Cash Order, either (x) the Transfer Agent’s account at DTC has not been credited with the total number of Shares corresponding to the total number of Baskets to be redeemed or (y) the Cash Account has not been credited with the Total Basket NAV, less any Variable Fee, such Cash Order will be deemed a failed trade, with any consideration that has been delivered by the Authorized Participant or the Liquidity Provider in respect of such Cash Order being returned by the Trust. +The Transfer Agent shall under no circumstances deliver the Required Redemption Cash to the Authorized Participant in respect of a Variable Fee Cash Order until such time as (x) the Baskets to be redeemed have been delivered to the Transfer Agent and (y) the Total Basket NAV, less any Variable Fee, has been delivered to the Cash Account, and the Trust and/or the Transfer Agent is in simultaneous possession of both. +34 +Actual Execution Cash Orders +With respect to a redemption pursuant to an Actual Execution Cash Order, as between the Trust and an Authorized Participant, the Authorized Participant is responsible for the dollar cost of the difference between the SOL price utilized in calculating Total Basket NAV on the trade date and the price at which the Trust disposes of the SOL on the settlement date. If the price realized in disposing the corresponding Total Basket Amount on the settlement date is lower than the Total Basket NAV on the trade date, the Authorized Participant will bear the dollar cost of such difference (the “Redemption Cash Shortfall”), with the amount of cash to be delivered to the Authorized Participant being reduced by the amount of such Redemption Cash Shortfall. If the price realized in disposing the corresponding Total Basket Amount on the settlement date is higher than the Total Basket NAV on the trade date, the Trust will deliver cash in the amount of such excess (the “Additional Redemption Cash”) to the Authorized Participant. +In the event that, by 12:00 p.m. (New York time) on the settlement date of a redemption pursuant to an Actual Execution Cash Order, either (x) the Transfer Agent’s account at DTC has not been credited with the total number of Shares corresponding to the total number of Baskets to be redeemed or (y) the Cash Account has not been credited with the Total Basket NAV (plus any Additional Redemption Cash or net of any Redemption Cash Shortfall), such Cash Order will be deemed a failed trade, with any consideration that has been delivered by the Authorized Participant or the Liquidity Provider in respect of such Cash Order being returned by the Trust. +The Transfer Agent shall under no circumstances deliver the Required Redemption Cash to the Authorized Participant in respect of a Cash Order until such time as (x) the Total Basket Amount has been delivered to the Transfer Agent and (y) the Total Basket NAV (plus any Additional Redemption Cash or net of any Redemption Cash Shortfall, if applicable) has been delivered to the Trust, and the Trust and/or the Transfer Agent is in simultaneous possession of both. +Suspension or Rejection of Orders and Total Basket Amount +The creation or redemption of Shares may be suspended generally, or refused with respect to particular requested creations or redemptions, during any period when the transfer books of the Transfer Agent are closed or if circumstances outside the control of the Sponsor or its delegates make it for all practical purposes not feasible to process creation orders or redemption orders or for any other reason at any time or from time to time. The Marketing Agent may reject an order or, after accepting an order, may cancel such order, if: (i) such order is not presented in proper form as described in the Participant Agreement, (ii) to the extent Authorized Participants have entered into or amended Participant Agreements to provide for in-kind creations and redemptions, in the case of In-Kind Orders, the transfer of the Total Basket Amount comes from an account other than a SOL wallet address that is known to the Custodian as belonging to the Authorized Participant or its AP Designee or (iii) the fulfillment of the order, in the opinion of counsel, might be unlawful, among other reasons. None of the Sponsor or its delegates will be liable for the suspension, rejection or acceptance of any creation order or redemption order. +The Sponsor will notify investors of any suspension of creations or redemptions of Shares by filing a current report on Form 8-K. Suspension of the creation or redemption of Shares could negatively impact the Shares’ liquidity and/or cause the Shares to trade at premiums and discounts, and otherwise have a negative impact on the value of the Shares. +Tax Responsibility +Authorized Participants are responsible for any transfer tax, sales or use tax, stamp tax, recording tax, value-added tax or similar tax or governmental charge applicable to the creation and redemption of Baskets, regardless of whether such tax or charge is imposed directly on the Authorized Participants, and agree to indemnify the Sponsor and the Trust if the Sponsor or the Trust is required by law to pay any such tax, together with any applicable penalties, additions to tax or interest thereon. +35 +Valuation of SOL and Determination of NAV +The Sponsor will evaluate the SOL held by the Trust and determine the NAV of the Trust in accordance with the relevant provisions of the Trust Documents. The following is a description of the material terms of the Trust Documents as they relate to valuation of the Trust’s SOL and the NAV calculations, which is calculated using non-GAAP methodology and is not used in the Trust’s financial statements. +On each business day at 4:00 p.m., New York time, or as soon thereafter as practicable (the “Evaluation Time”), the Sponsor will evaluate the SOL held by the Trust and calculate and publish the NAV of the Trust. To calculate the NAV, the Sponsor will: +1. +Determine the Index Price as of such business day. +2. +Multiply the Index Price by the Trust’s aggregate amount of SOL owned by the Trust as of 4:00 p.m., New York time, on the immediately preceding day, less the aggregate amount of SOL payable as the accrued and unpaid Sponsor’s Fee and Sponsor’s Staking Fee as of 4:00 p.m., New York time, on the immediately preceding day. +3. +Add the U.S. dollar value of SOL, calculated using the Index Price, receivable under pending creation orders, if any, determined by multiplying the number of the Creation Baskets represented by such creation orders by the Basket Amount and then multiplying such product by the Index Price. +4. +Subtract the U.S. dollar amount of accrued and unpaid Additional Trust Expenses, if any. +5. +Subtract the U.S. dollar value of the SOL, calculated using the Index Price, which are either (i) to be distributed under pending redemption orders, if any, determined by multiplying the number of Baskets to be redeemed represented by such redemption orders by the Basket Amount and then multiplying such product by the Index Price, or (ii) to be distributed to shareholders pursuant to a binding obligation of the Trust following the declaration of an in-kind dividend (including through interests in any liquidating trust or other vehicle formed to hold such SOL) (the amount derived from steps 1 through 5 above, the “NAV Fee Basis Amount”). +6. +Subtract the U.S. dollar amount of the Sponsor’s Fee that accrues for such business day, as calculated based on the NAV Fee Basis Amount for such business day. +In the event that the Sponsor determines that the primary methodology used to determine the Index Price is not an appropriate basis for valuation of the Trust’s SOL, the Sponsor will utilize the cascading set of rules as described in “—Overview of the Solana Industry and Market—SOL Value—The Index and the Index Price.” +The Sponsor will publish the Index Price, the Trust’s NAV and the NAV per Share on the Trust’s website as soon as practicable after its determination. If the NAV and NAV per Share have been calculated using a price per SOL other than the Index Price for such Evaluation Time, the publication on the Trust’s website will note the valuation methodology used and the price per SOL resulting from such calculation. +In the event of a hard fork of the Solana Network, the Sponsor will, if permitted by the terms of the Trust Agreement, use its discretion to determine, in good faith, which peer-to-peer network, among a group of incompatible forks of the Solana Network, is generally accepted as the network for SOL and should therefore be considered the appropriate network for the Trust’s purposes. The Sponsor will base its determination on a variety of then relevant factors, including (but not limited to) the following: (i) the Sponsor’s beliefs regarding expectations of the core developers of SOL, users, services, businesses, validators and other constituencies and (ii) the actual continued acceptance of, validating power on, and community engagement with the Solana Network. +The shareholders may rely on any evaluation furnished by the Sponsor. The determinations that the Sponsor makes will be made in good faith upon the basis of, and the Sponsor will not be liable for any errors contained in, information reasonably available to it. The Sponsor will not be liable to the Authorized Participants, the shareholders or any other person for errors in judgment. However, the preceding liability exclusion will not protect the Sponsor against any liability resulting from gross negligence, willful misconduct or bad faith in the performance of its duties. +Expenses; Sales of SOL +The Trust’s only ordinary recurring expense is expected to be the Sponsor’s Fee. From inception to October 28, 2025, the Sponsor’s Fee was 2.5%. Effective October 29, 2025, the Sponsor’s Fee was lowered to 0.35%. The Sponsor’s Fee will accrue daily in U.S. dollars at an annual rate of 0.35% of the NAV Fee Basis Amount of the Trust as of 4:00 p.m., New York time, on each day; provided that for a day that is not a business day, the calculation will be based on the NAV Fee Basis Amount from the most recent business day, reduced by the accrued and unpaid Sponsor’s Fee for such most recent business day and for each day after such most recent business day and prior to the relevant calculation date. This dollar amount for each daily accrual will then be converted into SOL by reference to the same Index Price used to determine such accrual. The Sponsor’s Fee is payable in SOL to the Sponsor daily in arrears. +36 +The Sponsor, from time to time, may temporarily waive all or a portion of the Sponsor’s Fee in its sole discretion for stated periods of time. Effective November 5, 2025, the Sponsor has determined to waive a portion of the Sponsor’s Fee until the earlier of (x) February 5, 2026 and (y) the first date on which the NAV of the Trust exceeds $1.0 billion (such period, the “Fee Waiver +Period”). If the Trust’s NAV exceeded $1.0 billion prior to February 5, 2026, the Sponsor’s Fee charged on assets over $1.0 billion would have become 0.35%. All investors will incur the same Sponsor’s Fee, which is the weighted average for those fee rates. Following the expiration of the Fee Waiver Period on February 5, 2026, the effective Sponsor’s Fee is now 0.35%. From November 5, 2025 to December 31, 2025, the Trust’s assets did not exceed $1.0 billion and no Sponsor’s Fee had been incurred. +Expenses to Be Paid by the Sponsor +The Trust pays the Sponsor’s Fee to the Sponsor. As partial consideration for its receipt of the Sponsor’s Fee from the Trust, the Sponsor is obligated under the Trust Agreement to assume and pay all fees and other expenses incurred by the Trust in the ordinary course of its affairs, excluding taxes, but including: (i) the Marketing Fee; (ii) the Administrator Fee, if any; (iii) the Custodian Fee and fees for any other security vendor engaged by the Trust; (iv) the Transfer Agent Fee; (v) the Trustee fee; (vi) fees and expenses related to the listing, quotation or trading of the Shares on any Secondary Market (including customary legal, marketing and audit fees and expenses) in an amount up to $600,000 in any given fiscal year; (vii) ordinary course legal fees and expenses; (viii) audit fees; (ix) regulatory fees, including, if applicable, any fees relating to registration of the Shares under the Securities Act or the Exchange Act; (x) printing and mailing costs; (xi) the costs of maintaining the Trust’s website; and (xii) applicable license fees (each a “Sponsor-paid Expense”), provided that any expense that qualifies as an Additional Trust Expense will be deemed to be an Additional Trust Expense and not a Sponsor-paid Expense. The Sponsor, from time to time, may temporarily waive all or a portion of the Sponsor’s Fee of the Trust in its discretion for stated periods of time. The Sponsor has previously waived the Sponsor’s Fee during the Fee Waiver Period, which ended on February 5, 2026. Presently, the Sponsor does not intend to waive any of the Sponsor’s Fee for the Trust and, except as set forth above, there are no circumstances under which the Sponsor has determined it will definitely waive the fee. The Sponsor is under no obligation to waive any portion of its fees, and any such waiver shall create no obligation to waive any such fees during any period not covered by the waiver. +The Sponsor’s Fee will generally be paid in SOL. +After the Trust’s payment of the Sponsor’s Fee to the Sponsor, the Sponsor may elect to convert the SOL received as payment of the Sponsor’s Fee into U.S. dollars. The rate at which the Sponsor converts such SOL to U.S. dollars may differ from the rate at which the relevant Sponsor’s Fee was determined. The Trust will not be responsible for any fees and expenses incurred by the Sponsor to convert SOL received in payment of the Sponsor’s Fee into U.S. dollars. +Extraordinary and Other Expenses +In certain extraordinary circumstances, the Trust may incur certain extraordinary, non-recurring expenses that are not Sponsor-paid Expenses, including, but not limited to: taxes and governmental charges; expenses and costs of any extraordinary services performed by the Sponsor (or any other service provider) on behalf of the Trust to protect the Trust or the interests of shareholders; any indemnification of the Custodian or other agents, service providers or counterparties of the Trust; the fees and expenses related to the listing, quotation or trading of the Shares on any Secondary Market (including legal, marketing and audit fees and expenses) to the extent exceeding $600,000 in any given fiscal year; and extraordinary legal fees and expenses, including any legal fees and expenses incurred in connection with litigation, regulatory enforcement or investigation matters (collectively, “Additional Trust Expenses”). If Additional Trust Expenses are incurred, the Trust will be required to pay these Additional Trust Expenses by selling or delivering SOL. Generally, the Sponsor will cover such expenses on behalf of the Trust and the Trust will reimburse the Sponsor by delivering to the Sponsor SOL in an amount equal to such expenses. When the Trust and the Sponsor, acting on behalf of the Trust, sell or deliver, as applicable, SOL, they generally do not transact directly with counterparties other than the Authorized Participants, a Liquidity Provider or other similarly eligible financial institutions that are subject to federal and state licensing requirements and maintain practices and policies designed to comply with AML and KYC regulations. +The Sponsor or any of its affiliates may be reimbursed only for the actual cost to the Sponsor or such affiliate of any expenses that it advances on behalf of the Trust for payment of which the Trust is responsible. In addition, the Trust Agreement prohibits the Trust from paying to the Sponsor or such affiliate for indirect expenses incurred in performing services for the Trust in its capacity as the Sponsor (or an affiliate of the Sponsor) of the Trust, such as salaries and fringe benefits of officers and directors, rent or depreciation, utilities and other administrative items generally falling within the category of the Sponsor’s “overhead.” +Disposition of SOL +To cause the Trust to pay the Sponsor’s Fee, the Sponsor will instruct the Custodian to (i) withdraw from the Vault Balance the amount of SOL, determined as described above in “—Expenses; Sales of SOL,” equal to the accrued but unpaid Sponsor’s Fee and (ii) transfer such SOL to an account maintained by the Custodian for the Sponsor at such times as the Sponsor determines in its absolute discretion. In addition, if the Trust incurs any Additional Trust Expenses, the Sponsor or its delegates (i) will instruct the Custodian to withdraw from the Vault Balance SOL in such quantity as may be necessary to permit payment of such Additional Trust Expenses and +37 +(ii) may either (x) cause the Trust to convert such SOL into U.S. dollars or other fiat currencies at the Actual Exchange Rate or (y) when the Sponsor incurs such expenses on behalf of the Trust, cause the Trust (or its delegate) to deliver such SOL in-kind to the Sponsor, in each case in such quantity as may be necessary to permit payment of such Additional Trust Expenses. The Sponsor’s Fee and Additional Trust Expenses payable by the Trust will generally be paid in SOL. Shareholders do not have the option of choosing to pay their proportionate shares of Additional Trust Expenses in lieu of having their shares of Additional Trust Expenses paid by the Trust’s delivery or disposition of SOL. Assuming that the Trust is a grantor trust for U.S. federal income tax purposes, the transfer or sale of SOL to pay the Trust’s expenses will be a taxable event for shareholders. See “Material U.S. Federal Income Tax Consequences—Tax Consequences to U.S. Holders.” +Because the amount of SOL held by the Trust will decrease as a consequence of the payment of the Sponsor’s Fee in SOL or the sale of SOL to pay Additional Trust Expenses (and the Trust will incur additional fees associated with converting SOL into U.S. dollars), the amount of SOL represented by a Share will decline at such time and the Trust’s NAV may also decrease. Accordingly, the shareholders will bear the cost of the Sponsor’s Fee and any Additional Trust Expenses. New SOL deposited into the Vault Balance in exchange for additional new Baskets issued by the Trust will not reverse this trend. +The Sponsor will also cause the sale of the Trust’s SOL if the Sponsor determines that sale is required by applicable law or regulation or in connection with the termination and liquidation of the Trust. The Sponsor will not be liable or responsible in any way for depreciation or loss incurred by reason of any sale of SOL. +The quantity of SOL to be delivered to the Sponsor or other relevant payee in payment of the Sponsor’s Fee or any Additional Trust Expenses, or sold to permit payment of Additional Trust Expenses, will vary from time to time depending on the level of the Trust’s expenses and the value of SOL held by the Trust. See “—Expenses; Sales of SOL.” Assuming that the Trust is a grantor trust for U.S. federal income tax purposes, each delivery or sale of SOL by the Trust for the payment of expenses will be a taxable event to shareholders. See “—Material U.S. Federal Income Tax Consequences—Tax Consequences to U.S. Holders.” +Discretion of the Index Provider +The Index Provider has sole discretion over the determination of the Index Price and may change the methodologies for determining the Index Price from time to time. +Description of the Trust Agreement +The following is a description of the material terms of the Trust Agreement. The Trust Agreement establishes the roles, rights and duties of the Sponsor and the Trustee. +The Sponsor +Liability of the Sponsor and Indemnification +Neither the Sponsor nor the Trust insure the Trust’s SOL. The Sponsor and its affiliates (each a “Covered Person”) will not be liable to the Trust or any shareholder for any loss suffered by the Trust which arises out of any action or inaction of such Covered Person if such Covered Person determined in good faith that such course of conduct was in the best interests of the Trust. However, the preceding liability exclusion will not protect any Covered Person against any liability resulting from its own willful misconduct, bad faith or gross negligence in the performance of its duties. +Each Covered Person will be indemnified by the Trust against any loss, judgment, liability, expense incurred or amount paid in settlement of any claim sustained by it in connection with the Covered Person’s activities for the Trust, provided that (i) the Covered Person was acting on behalf of, or performing services for, the Trust and had determined, in good faith, that such course of conduct was in the best interests of the Trust and such liability or loss was not the result of fraud, gross negligence, bad faith, willful misconduct or a material breach of the Trust Agreement on the part of such Covered Person and (ii) any such indemnification will be recoverable only from the property of the Trust. Any amounts payable to an indemnified party will be payable in advance under certain circumstances. +Fiduciary and Regulatory Duties of the Sponsor +The Sponsor is not effectively subject to the duties and restrictions imposed on “fiduciaries” under both statutory and common law. Rather, the general fiduciary duties that would apply to the Sponsor are defined and limited in scope by the Trust Agreement. +Under Delaware law, a shareholder may bring a derivative action if the shareholder is a shareholder at the time the action is brought and either (i) was a shareholder at the time of the transaction at issue or (ii) acquired the status of shareholder by operation of law or the Trust’s governing instrument from a person who was a shareholder at the time of the transaction at issue. Additionally, Section 3816(e) of the Delaware Statutory Trust Act specifically provides that “a beneficial owner’s right to bring a derivative action may be subject to such additional standards and restrictions, if any, as are set forth in the governing instrument of the statutory trust, including, without limitation, the requirement that beneficial owners owning a specified beneficial interest in the statutory trust join in the bringing of the derivative action.” In addition to the requirements of applicable law, Section 7.4 of the Trust Agreement provides that no shareholder will have the right, power or authority to bring or maintain a derivative action, suit or other proceeding on behalf of the +38 +Trust unless two or more shareholders who (i) are not “Affiliates” (as defined in the Trust Agreement and below) of one another and (ii) collectively hold at least 10.0% of the outstanding Shares join in the bringing or maintaining of such action, suit or other proceeding. The Trust selected the 10.0% ownership threshold because the Trust believed that this was a threshold that investors would be comfortable with based on market precedent. +This provision applies to any derivative action brought in the name of the Trust other than claims brought under the federal securities laws or the rules and regulations thereunder, to which Section 7.4 does not apply. Due to this additional requirement, a shareholder attempting to bring a derivative action in the name of the Trust will be required to locate other shareholders with which it is not affiliated and that have sufficient Shares to meet the 10.0% threshold based on the number of Shares outstanding on the date the claim is brought and thereafter throughout the duration of the action, suit or proceeding. +“Affiliate” is defined in the Trust Agreement to mean any natural person, partnership, limited liability company, statutory trust, corporation, association or other legal entity (each, a “Person”) directly or indirectly owning, controlling or holding with power to vote 10% or more of the outstanding voting securities of such Person, (ii) any Person 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled or held with power to vote by such Person, (iii) any Person, directly or indirectly, controlling, controlled by or under common control of such Person, (iv) any employee, officer, director, member, manager or partner of such Person, or (v) if such Person is an employee, officer, director, member, manager or partner, any Person for which such Person acts in any such capacity. +Any shareholders seeking to bring a derivative action may determine whether the 10.0% ownership threshold required to bring a derivative action has been met by dividing the number of Shares owned by such shareholders by the total number of Shares outstanding. The Trust offers Shares on a periodic basis at such times and for such periods as the Sponsor determines in its sole discretion. As a result, in order to maintain the 10.0% ownership threshold required to maintain a derivative action, shareholders may need to increase their holdings or locate additional shareholders during the pendency of a claim. The Trust posts the number of Shares outstanding as of the end of each month on its website and as of the end of each quarter in its annual and quarterly filings with the SEC. The Trust additionally reports sales of unregistered securities on Form 8-K pursuant to Item 3.02 thereof. Shareholders may monitor the number of Shares outstanding at any time for purposes of calculating their ownership threshold by reviewing the Trust’s website and SEC filings and by requesting the number of Shares outstanding on any date from the Sponsor at any time pursuant to Sections 7.2 and 8.1 of the Trust Agreement. Shareholders have the opportunity at any time to increase their holdings or locate other shareholders to maintain the 10.0% threshold throughout the duration of a derivative claim. Shareholders may do so by requesting from the Sponsor the list of the names and last known address of all shareholders pursuant to Sections 7.2 and 8.1 of the Trust Agreement and Section 3819(a) of the DSTA. Because the Trust is a grantor trust, it may only issue one class of securities, the Shares. +The Sponsor is not aware of any reason to believe that Section 7.4 of the Trust Agreement is not enforceable under state or federal law. The Court of Chancery of Delaware has stated that “[t]he DSTA is enabling in nature and, as such, permits a trust through its declarations of trust to delineate additional standards and requirements with which a stockholder-plaintiff must comply to proceed derivatively in the name of the trust.” Hartsel v. Vanguard Group, Inc., Del. Ch. June 15, 2011. However, there is limited case law addressing the enforceability of provisions like Section 7.4 under state and federal law and it is possible that this provision would not be enforced by a court in another jurisdiction or under other circumstances. +Beneficial owners may have the right, subject to certain legal requirements, to bring class actions in federal court to enforce their rights under the federal securities laws and the rules and regulations promulgated thereunder by the SEC. Beneficial owners who have suffered losses in connection with the purchase or sale of their beneficial interests may be able to recover such losses from the Sponsor where the losses result from a violation by the Sponsor of the anti-fraud provisions of the federal securities laws. +Actions Taken to Protect the Trust +The Sponsor may prosecute, defend, settle or compromise actions or claims at law or in equity that it considers necessary or proper to protect the Trust or the interests of the shareholders. The expenses incurred by the Sponsor in connection therewith (including the fees and disbursements of legal counsel) will be expenses of the Trust and are deemed to be Additional Trust Expenses. The Sponsor will be entitled to be reimbursed for the Additional Trust Expenses it pays on behalf of the Trust. +Successor Sponsors +If the Sponsor is adjudged bankrupt or insolvent, the Trust may dissolve and a Liquidating Trustee may be appointed to terminate and liquidate the Trust and distribute its remaining assets. The Trustee will have no obligation to appoint a successor sponsor or to assume the duties of the Sponsor, and will have no liability to any person because the Trust is or is not terminated. However, if a certificate of dissolution or revocation of the Sponsor’s charter is filed (and ninety (90) days have passed after the date of notice to the Sponsor of revocation without a reinstatement of the Sponsor’s charter) or the withdrawal, removal, adjudication or admission of bankruptcy or insolvency of the Sponsor has occurred, shareholders holding at least a majority (over 50%) of the Shares may agree in writing to continue the affairs of the Trust and to select, effective as of the date of such event, one or more successor sponsors within ninety (90) days of any such event. +39 +The Trustee +The Trustee is a fiduciary under the Trust Agreement and must satisfy the requirements of Section 3807 of the Delaware Statutory Trust Act. However, the fiduciary duties, responsibilities and liabilities of the Trustee are limited by, and are only those specifically set forth in, the Trust Agreement. +Limitation on Trustee’s Liability +Under the Trust Agreement, the Sponsor has exclusive control of the management of all aspects of the activities of the Trust and the Trustee has only nominal duties and liabilities to the Trust. The Trustee is appointed to serve as the trustee for the sole purpose of satisfying Section 3807(a) of the DSTA which requires that the Trust have at least one trustee with a principal place of business in the State of Delaware. The duties of the Trustee are limited to (i) accepting legal process served on the Trust in the State of Delaware and (ii) the execution of any certificates required to be filed with the Delaware Secretary of State which the Trustee is required to execute under the DSTA. +To the extent the Trustee has duties (including fiduciary duties) and liabilities to the Trust or the shareholders under the DSTA, such duties and liabilities will be replaced by the duties and liabilities of the Trustee expressly set forth in the Trust Agreement. The Trustee will have no obligation to supervise, nor will it be liable for, the acts or omissions of the Sponsor, Transfer Agent, Custodian or any other person. Neither the Trustee, either in its capacity as trustee or in its individual capacity, nor any director, officer or controlling person of the Trustee is, or has any liability as, the issuer, director, officer or controlling person of the issuer of Shares. The Trustee’s liability is limited solely to the express obligations of the Trustee as set forth in the Trust Agreement. +Under the Trust Agreement, the Sponsor has the exclusive management, authority and control of all aspects of the activities of the Trust. The Trustee has no duty or liability to supervise or monitor the performance of the Sponsor, nor does the Trustee have any liability for the acts or omissions of the Sponsor. The existence of a trustee should not be taken as an indication of any additional level of management or supervision over the Trust. The Trust Agreement provides that the management authority with respect to the Trust is vested directly in the Sponsor and that the Trustee is not responsible or liable for the genuineness, enforceability, collectability, value, sufficiency, location or existence of any of the SOL or other assets of the Trust. +Possible Repayment of Distributions Received by Shareholders; Indemnification by Shareholders +The Shares are limited liability investments. Investors may not lose more than the amount that they invest plus any profits recognized on their investment. Although it is unlikely, the Sponsor may, from time to time, make distributions to the shareholders. However, shareholders could be required, as a matter of bankruptcy law, to return to the estate of the Trust any distribution they received at a time when the Trust was in fact insolvent or in violation of its Trust Agreement. In addition, the Trust Agreement provides that shareholders will indemnify the Trust for any harm suffered by it as a result of shareholders’ actions unrelated to the activities of the Trust. +The foregoing repayment of distributions and indemnity provisions (other than the provision for shareholders indemnifying the Trust for taxes imposed upon it by a state, local or foreign taxing authority, which is included only as a formality due to the fact that many states do not have statutory trust statutes therefore the tax status of the Trust in such states might, theoretically, be challenged) are commonplace in statutory trusts and limited partnerships. +Indemnification of the Trustee +The Trustee and any of the officers, directors, employees and agents of the Trustee will be indemnified by the Trust as primary obligor and the Sponsor as secondary obligor and held harmless against any loss, damage, liability, claim, action, suit, cost, expense, disbursement (including the reasonable fees and expenses of counsel), tax or penalty of any kind and nature whatsoever, arising out of, imposed upon or asserted at any time against such indemnified person in connection with the performance of its obligations under the Trust Agreement, the creation, operation or termination of the Trust or the transactions contemplated therein; provided, however, that neither the Trust nor the Sponsor will be required to indemnify any such indemnified person for any such expenses which are a result of the willful misconduct, bad faith or gross negligence of such indemnified person. If the Trust has insufficient assets or improperly refuses to pay such an indemnified person within 60 days of a request for payment owed under the Trust Agreement, the Sponsor will, as secondary obligor, compensate or reimburse the Trustee or indemnify, defend and hold harmless such an indemnified person as if it were the primary obligor under the Trust Agreement. Any amount payable to such an indemnified person under the Trust Agreement may be payable in advance under certain circumstances and will be secured by a lien on the Trust property. The obligations of the Sponsor and the Trust to indemnify such indemnified persons under the Trust Agreement will survive the termination of the Trust Agreement. +Holding of Trust Property +The Trust will hold and record the ownership of the Trust’s assets in a manner such that it will be owned for the benefit of the shareholders for the purposes of, and subject to and limited by the terms and conditions set forth in, the Trust Agreement. The Trust will +40 +not create, incur or assume any indebtedness or borrow money from or loan money to any person. The Trustee may not commingle its assets with those of any other person. +The Trustee may employ agents, attorneys, accountants, auditors and nominees and will not be answerable for the conduct or misconduct of any such custodians, agents, attorneys or nominees if such custodians, agents, attorneys and nominees have been selected with reasonable care. +Resignation, Discharge or Removal of Trustee; Successor Trustees +The Trustee may resign as Trustee by written notice of its election so to do, delivered to the Sponsor with at least 180 days’ notice. The Sponsor may remove the Trustee in its discretion. If the Trustee resigns or is removed, the Sponsor, acting on behalf of the shareholders, will appoint a successor trustee. The successor Trustee will become fully vested with all of the rights, powers, duties and obligations of the outgoing Trustee. +If the Trustee resigns and no successor trustee is appointed within 180 days after the Trustee notifies the Sponsor of its resignation, the Trustee will terminate and liquidate the Trust and distribute its remaining assets. +Amendments to the Trust Agreement +In general, the Sponsor may amend the Trust Agreement without the consent of any shareholder. In particular, the Sponsor may, without the approval of the shareholders, amend the Trust Agreement if the Trust is advised at any time by the Trust’s accountants or legal counsel that the amendments are necessary to permit the Trust to take the position that it is a grantor trust for U.S. federal income tax purposes. The Sponsor is also permitted to make certain restatements, amendments or supplements to the Trust Agreement that would materially adversely affect the interests of the shareholders as determined by the Sponsor in its sole discretion with a 20-day notice to shareholders. Additionally, the Sponsor is permitted to make certain restatements, amendments or supplements to the Trust Agreement that could adversely affect the status of the Trust as a grantor trust for U.S. federal income tax purposes, but only if certain conditions set forth in the amendments relating to the qualification of the Trust as a grantor trust for U.S. federal income tax purposes are satisfied. Furthermore, subject to certain limitations, the Sponsor may make any other amendments to the Trust Agreement which do not materially adversely affect the interests of the shareholders in its sole discretion without shareholder consent. +Termination of the Trust +Pursuant to the terms of the Trust Agreement, the Trust is required to dissolve under certain circumstances. In addition, the Sponsor may, in its sole discretion, dissolve the Trust for a number of reasons, including if the Sponsor determines, in its sole discretion, that it is desirable or advisable for any reason to discontinue the affairs of the Trust. +Upon dissolution of the Trust and surrender of Shares by the shareholders, shareholders will receive a distribution in U.S. dollars or in SOL at the sole discretion of the Sponsor, after the Sponsor has sold the Trust’s SOL, if applicable, and has paid or made provision for the Trust’s claims and obligations. +If the Trust is forced to liquidate, the Trust will be liquidated under the Sponsor’s direction. The Sponsor, on behalf of the Trust, will engage directly with Digital Asset Markets to liquidate the Trust’s SOL as promptly as possible while obtaining the best fair value possible. The proceeds therefrom will be applied and distributed in the following order of priority: (a) to the expenses of liquidation and termination and to creditors, including shareholders who are creditors, to the extent otherwise permitted by law, in satisfaction of liabilities of the Trust other than liabilities for distributions to shareholders and (b) to the holders of Shares pro rata in accordance with the respective percentages of Shares that they hold. It is expected that the Sponsor would be subject to the same regulatory requirements as the Trust, and therefore, the markets available to the Sponsor will be the same markets available to the Trust. +Governing Law +The Trust Agreement and the rights of the Sponsor, Trustee and shareholders under the Trust Agreement are governed by the laws of the State of Delaware. +Description of the Prime Broker Agreement +The Prime Broker Agreement establishes the rights and responsibilities of the Custodian, the Prime Broker, the Sponsor and the Trust with respect to the Trust’s SOL which is held in accounts maintained and operated by the Custodian, as a fiduciary with respect to the Trust’s assets, and the Prime Broker (together with the Custodian, the “Custodial Entities”) on behalf of the Trust. For a general description of the Custodian’s obligations, see “—Service Providers of the Trust—The Custodian and Prime Broker.” +Account; Location of SOL +All of the Trust’s SOL, other than that which is credited to a settlement balance maintained with the Prime Broker (the “Settlement Balance”), is held in custody accounts maintained on the books of the Custodian, as to which the Custodian controls the private keys which allow for the transfer of ownership or control of the Trust’s SOL on the Trust’s behalf (the “Vault Balance”). The Prime Broker +41 +Agreement provides that the Trust’s Vault Balance will be held by the Custodian in segregated wallets or accounts. The Custodian will keep all of the private keys associated with the Trust’s SOL held in the Vault Balance in an offline manner. The term “cold storage” refers to a safeguarding method where the storage of private keys may involve keeping such keys’ materials on a non-networked computer or electronic device or storing the private keys on a storage device. Cold storage is a safeguarding method with multiple layers of protections and protocols, by which the private keys corresponding to the Trust’s SOL are generated and stored in an offline manner. The term “hot storage” refers to the safeguarding method by which the private keys are held online, where they are more accessible, leading to more efficient transfers, though they are potentially more vulnerable to theft, loss or damage. +Additionally, at the Sponsor’s discretion, a portion of the Trust’s SOL holdings may be credited to the Settlement Balance, which will be reflected in a ledger maintained on the books of the Prime Broker. The Prime Broker Agreement provides that any SOL credited to the Trust’s Settlement Balance will be held (i) in omnibus cold storage wallets; (ii) in omnibus hot storage wallets; or (iii) in omnibus accounts with one of the third-party venues to which Coinbase has established connections (each, a “Coinbase Connected Venue”). The Settlement Balance shall be separate from the Vault Balance and any other account(s) the Trust or the Sponsor maintain with the Custodian. From time to time, the Prime Broker may temporarily keep a portion of the private keys associated with the SOL credited to the Trust’s Settlement Balance in hot storage for purposes of facilitating the receipt and distribution of SOL in connection with the creation and redemption of Baskets. +Private key shards associated with the Trust’s SOL are distributed geographically by the Custodial Entities in secure vaults around the world, including in the United States. The locations of the secure vaults may change and are kept confidential by the Custodian for security purposes. +The Prime Broker Agreement states that the Custodian serves as a fiduciary and custodian on the Trust’s behalf with respect to the Trust’s SOL held in the Vault Balance and the SOL in the Vault Balance are considered fiduciary assets that remain the Trust’s property at all times and are not treated as general assets of the Custodian. Under the Prime Broker Agreement, the Custodian represents and warrants that it has no right, interest, or title in the SOL in the Trust’s Vault Balance, and agrees that it will not, directly or indirectly, lend, pledge, hypothecate or rehypothecate such digital assets. The Custodian does not reflect such digital assets as assets on the balance sheet of the Custodian, but does reflect the obligation to safeguard such digital assets with a corresponding asset measured at fair value for such obligation. With respect to the Trust’s SOL credited to the Settlement Balance, the Prime Broker maintains an internal ledger that specifies the SOL credited to the Trust’s Settlement Balance. The Prime Broker Agreement states that the Prime Broker treats such SOL as custodial assets held for the benefit of the Trust, and shall not be considered the property of the Prime Broker. Additionally, under the Prime Broker Agreement, the Prime Broker represents and warrants that it will not, directly or indirectly, sell, transfer, loan, rehypothecate or otherwise alienate the Trust’s SOL credited to the Settlement Balance. +The Prime Broker Agreement also contains an agreement by the parties to treat the digital assets credited to the Trust’s Vault Balance and Settlement Balance as “financial assets” under Article 8 of the New York Uniform Commercial Code (“Article 8”) and to treat the Vault Balance and Settlement Balance as “securities accounts” with respect to which the Trust is the “entitlement holder” within the meaning of Article 8. The Custodial Entities’ ultimate parent, Coinbase Global, Inc. (“Coinbase Global”), has stated in its public securities filings that in light of the inclusion in its custody agreements of provisions relating to Article 8 it believes that a court would not treat custodied digital assets as part of its general estate, although due to the novelty of digital assets courts have not yet considered this type of treatment for custodied digital assets. See “Item 1A. Risk Factors—Risk Factors Related to the Trust and the Shares—The Trust relies on third-party service providers to perform certain functions essential to the affairs of the Trust and the replacement of such service providers could pose challenges to the safekeeping of the Trust’s SOL and to the operations of the Trust.” +Safekeeping of SOL +The Custodian will use commercially reasonable efforts to keep in safe custody on behalf of the Trust all SOL received by the Custodian. All SOL credited to the Vault Balance will (i) be held in the Vault Balance at all times, and the Vault Balance will be controlled by the Custodian; (ii) be labeled or otherwise appropriately identified as being held for the Trust; (iii) be held on a non-fungible basis; (iv) not be commingled with other digital assets held by the Custodian, whether held for the Custodian’s own account or the account of other clients other than the Trust; and (v) not without the prior written consent of the Trust be deposited or held with any third-party depositary, custodian, clearance system or wallet. Additionally, the Custodian will use commercially reasonable efforts to keep the private key or keys for the Vault Balance secure, and will not disclose such keys to the Trust, the Sponsor or to any other individual or entity except to the extent that any keys are disclosed consistent with a standard of commercially reasonable efforts and as part of a multiple signature solution that would not result in the Trust or the Sponsor “storing, holding, or maintaining custody or control of” the SOL “on behalf of others” within the meaning of the New York BitLicense Rule (23 NYCRR Part 200) as in effect as of June 24, 2015 such that it would require the Trust or the Sponsor to become licensed under such law. +SOL credited to the Trust’s Settlement Balance may be held in omnibus wallets maintained by the Prime Broker and/or at Coinbase Connected Venues. While the SOL credited to the Trust’s Settlement Balance could be commingled with other assets, the SOL in the Trust’s Settlement Balance will represent entitlement to a pro-rata share of the SOL held in such omnibus wallets and/or at Coinbase Connected Venues. In all circumstances the Prime Broker will keep an internal ledger that specifies the assets credited to the Settlement Balance such that the Trust, its auditors and regulators can identify the Trust’s pro-rata share of the SOL held in omnibus wallets and/or +42 +at Coinbase Connected Venues. Neither the Trust nor the Sponsor have a contractual relationship with the Coinbase Connected Venues utilized by the Custodial Entities. +Insurance +Pursuant to the terms of the Prime Broker Agreement, the Custodian is required to maintain insurance in such types and amounts as are commercially reasonable for the custodial services it provides. The Custodian has advised the Sponsor that it has insurance coverage pursuant to policies held by Coinbase Global, which procures fidelity (or crime) insurance coverage at commercially reasonable amounts for the custodial services provided. This insurance coverage is limited to losses of the digital assets the Custodian custodies on behalf of its clients, including the Trust’s SOL, resulting from theft, including internal theft by employees of Coinbase and its subsidiaries and theft or fraud by a director of Coinbase if the director is acting in the capacity of an employee of Coinbase or its subsidiaries. Although the Prime Broker is not required to maintain insurance under the terms of the Prime Broker Agreement, the Custodial Entities have also advised the Sponsor that they maintain insurance coverage pursuant to such policies held by Coinbase Global. +Moreover, while the Custodian maintains certain capital reserve requirements depending on the assets under custody and to the extent required by applicable law, and such capital reserves may provide additional means to cover client asset losses, the Sponsor does not know the amount of such capital reserves, and neither the Trust nor the Sponsor have access to such information. The Trust cannot be assured that the Custodian will maintain capital reserves sufficient to cover losses with respect to the Trust’s digital assets. Furthermore, Coinbase has represented in securities filings that the total value of crypto assets in its possession and control is significantly greater than the total value of insurance coverage that would compensate Coinbase in the event of theft or other loss of funds. +Deposits, Withdrawals and Storage +The Custodian and the Prime Broker provide for: (i) holding of the Trust’s SOL in the Vault Balance and the Settlement Balance; (ii) transfer of the Trust’s SOL between the relevant Vault Balance and the Settlement Balance; (iii) the deposit of SOL from a public blockchain address into the respective account or accounts in which the Vault Balance or the Settlement Balance are maintained; and (iv) the withdrawal of SOL from the Vault Balance to a public blockchain address the Trust controls (each such transaction is a “Custody Transaction”) (collectively, the “Custodial and Prime Broker Services”). +The Custodian reserves the right to refuse to process or to cancel any pending Custody Transaction as required by law or in response to a subpoena, court order, or other binding government order or to enforce transaction, threshold, and condition limits, in each case as communicated to the Trust as soon as reasonably practicable where the Custodian is permitted to do so, or if the Custodian reasonably believes that the Custody Transaction may violate or facilitate the violation of an applicable law, regulation or applicable rule of a governmental authority or self-regulatory organization. The Custodial Entities may suspend, restrict, or terminate the Trust’s and the Sponsor’s access to the Custodial and Prime Broker Services, and/or suspend, restrict, or close the accounts associated with the Trust’s Vault Balance and Settlement Balance (the “Accounts”) if the Trust or Sponsor has taken certain actions, including any prohibited use or prohibited business as set forth in the Prime Broker Agreement, or if either or both of the Custodial Entities are required to do so by a subpoena, court order, or other binding government order. +From the time the Custodian has verified the authorization of a complete set of instructions to withdraw SOL from the Vault Balance, the Custodian will have a limited amount of time to process and complete such withdrawal. The Custodian will ensure that initiated deposits are processed in a timely manner but the Custodian makes no representations or warranties regarding the amount of time needed to complete processing which is dependent upon many factors outside of the Custodian’s control. +Transactions relating to SOL held in the Settlement Balance occur on the Blockchain. +The Custodial Entities make no other representations or warranties with respect to the availability and/or accessibility of SOL or the availability and/or accessibility of the Vault Balance, the Settlement Balance or the Custodial and Prime Broker Services. +Security of the Accounts +The Custodial Entities securely store all digital asset private keys held by the Custodian on secure servers or offline, in cold storage. Under the Prime Broker Agreement, the Custodian must use commercially reasonable efforts to keep the private key or keys to the Vault Balance secure, and may not disclose such private keys to the Sponsor, Trust or any other individual or entity. +The Custodial Entities have implemented and will maintain reasonable information security programs that include policies and procedures that are reasonably designed to safeguard the Custodial Entities’ electronic systems and the Trust’s and the Sponsor’s confidential information from, among other things, unauthorized access or misuse. In the event of a Data Security Event (as defined in the Prime Broker Agreement), the Custodial Entities will promptly (subject to any legal or regulatory requirements) notify the Trust and the Sponsor. +43 +Record Keeping; Inspection and Auditing +The Custodian will keep timely and accurate records as to the deposit, disbursement, investment and reinvestment of the SOL in the Vault Balance, and such records must be retained by the Custodian for no less than seven years. The Prime Broker Agreement also provides that each Custodial Entity will permit, to the extent it may legally do so, the Trust’s third-party representatives, upon thirty days’ notice, to inspect, take extracts from and audit the records that it maintains, take such steps as necessary to verify that satisfactory internal control systems and procedures are in place, as the Trust may reasonably request. The Prime Broker is obligated to notify the Trust of any audit report prepared by its internal or independent auditors if such report reveals any material deficiencies or makes any material objections. +The Trust and the Sponsor obtain and perform a comprehensive review of the Services Organization Controls (“SOC”) 1 report and SOC 2 each year. For additional information, see “—Description of Trust Documents—Description of the Prime Broker Agreement—Annual Certificate and Report.” In addition to the review of SOC 1 and SOC 2 reports, the Trust, the Sponsor and/or their respective auditors may inspect or audit the Custodian’s records in a variety of manners if considered necessary. Such processes, may include validating the existing balances as reflected on the Custodian’s user interface to nodes of the underlying blockchain and confirming that such digital assets are associated with its public keys to validate the existence and exclusive ownership of the digital assets. To validate software functionality of the private keys, the Trust may transfer a portion of its digital assets from one public key to another public key of the Trust. +The Trust, the Sponsor and their independent auditors may evaluate the Custodian’s protection of private keys and other customer information, including review of supporting documentation related to the processes surrounding key lifecycle management, the key generation process (hardware, software, and algorithms associated with generation) the infrastructure used to generate and store private keys, how private keys are stored (for example, cold wallets), the segregation of duties in the authorization of digital asset transactions, and the number of users required to process a transaction and the monitoring of addresses for any unauthorized activity. For additional information, see “—Custody of the Trust’s SOL.” +Once each calendar year, the Trust and the Sponsor are entitled to request that the Custodial Entities provide a copy of the SOC 1 report and SOC 2 report once per calendar year. Such reports are required to be dated within one year prior to such request. The Custodial Entities reserve the right to combine the SOC 1 and SOC 2 reports into a comprehensive report. In the event that the Custodial Entities do not deliver a SOC 1 Report or SOC 2 Report, as applicable, the Sponsor and the Trust will be entitled to terminate the Prime Broker Agreement. In addition to the review of SOC 1 and SOC 2 reports, the Trust may also request letters of representation on a quarterly basis between SOC reports regarding any known changes or conclusions to the SOC 1 and SOC 2 report. +Standard of Care; Limitations of Liability +The Custodian will use commercially reasonable efforts to keep in safe custody on behalf of the Trust all SOL received by the Custodian. The Custodial Entities are liable to the Sponsor and the Trust for the loss of any SOL to the extent such loss resulted from the negligence, fraud or willful misconduct of the Custodial Entities. To the extent any loss is caused by a Custodial Entity’s negligence, fraud or willful misconduct, the Custodial Entities are required to return to the Trust a quantity of SOL equal to the quantity of any such lost SOL. +The Custodial Entities’ or Trust’s total liability under the Prime Broker Agreement will not exceed the greater of: (i) the value of the SOL or cash involved in the event, including but not limited to transaction(s) or deliveries(s), giving rise to such liability at the time of the event giving rise to such liability; (ii) the aggregate amount of fees paid by the Trust to the Custodial Entities in respect of the Custodial and Prime Broker Services in the 12-month period prior to the event giving rise to such liability; or (iii) five million U.S. dollars. The Custodian’s total liability under the Prime Broker Agreement will not exceed the greater of: (i) the aggregate amount of fees paid by the Trust to the Custodian in respect of the custodial services in the 12-month period prior to the event giving rise to such liability; or (ii) the value of the SOL on deposit in the Vault Balance at the time of the events giving rise to the liability occurred, the value of which will be determined in accordance with the Prime Broker Agreement. In addition, the Custodian’s maximum liability in respect of each cold storage address that holds SOL shall be limited to $100 million (the “Cold Storage Threshold”). The Sponsor monitors the value of SOL deposited in cold storage addresses for whether the Cold Storage Threshold has been met by determining the U.S. dollar value of SOL deposited in each cold storage address on business days. Although the Cold Storage Threshold has to date not been met for a given cold storage address, to the extent it is met the Trust would not have a claim against the Custodian with respect to the digital assets held in such address to the extent the value exceeds the Cold Storage Threshold. +The Custodial Entities and the Trust are not liable to each other for any special, incidental, indirect, punitive, or consequential damages, whether or not the other party had been advised of such losses or knew or should have known of the possibility of such damages. In addition, the Custodial Entities are not liable to the Trust for circumstances resulting from certain force majeure events. +Indemnity +The Trust and the Custodial Entities have agreed to indemnify one another from and against certain claims or losses, subject to customary exceptions and limitations. +44 +Fees and Expenses +The Sponsor will pay an annualized fee to the Coinbase Entities, covering the Trust’s use of the Custodial and Prime Broker Services, that is accrued on a monthly basis as a percentage of the Trust’s monthly assets under custody. The Sponsor will also pay a monthly fee to the Prime Broker, covering withdrawals and deposits to or from the Settlement Balance in connection with the creation and redemption of Shares. +Term; Termination and Suspension +The Prime Broker Agreement will remain in effect until either party terminates the Prime Broker Agreement; provided, however, that the Coinbase Entities shall not restrict, suspend, or modify any Prime Broker Services following termination of the Prime Broker Agreement by a Custodial Entity without Cause (as defined in the Prime Broker Agreement) or by the Trust until the end of the applicable notice period and neither party’s termination of the Prime Broker Agreement will be effective until the Trust and/or the Custodial Entities, as the case may be, have fully satisfied their obligations thereunder. +The Trust may terminate the Prime Broker Agreement in whole or in part upon thirty days’ prior written notice to the applicable Custodial Entity; and (ii) for Custodian Cause (as defined in the Prime Broker Agreement) at any time by written notice to the Prime Broker, effective immediately, or on such later date as may be specified in such notice. The Trust will also be entitled to terminate the Prime Broker Agreement in the event that the Custodial Entities do not deliver a SOC 1 Report or SOC 2 Report, as applicable. See “—Record Keeping; Inspection and Auditing.” +The Custodial Entities may terminate the Prime Broker Agreement (i) upon one hundred eighty days’ prior written notice to the Trust; and (ii) for Cause at any time by written notice to the Trust, effective immediately, or on such later date as may be specified in the notice. +In the event that either the Trust or the Custodial Entities terminate the Prime Broker Agreement without Cause, the Custodial Entities shall use reasonable efforts to assist the Trust with transferring any digital assets, fiat currency or funds associated with the Trust’s Accounts to another custodial services provider within ninety days of receipt of the applicable termination notice. +Governing Law +The Prime Broker Agreement is governed by New York law. +45 +MATERIAL U.S. Federal Income Tax Consequences +The following discussion addresses the material U.S. federal income tax consequences of the ownership of Shares. This discussion does not describe all of the tax consequences that may be relevant to a beneficial owner of Shares in light of the beneficial owner’s particular circumstances, including tax consequences applicable to beneficial owners subject to special rules, such as: +• +financial institutions; +• +dealers in securities or commodities; +• +traders in securities or commodities that have elected to apply a mark-to-market method of tax accounting in respect thereof; +• +persons holding Shares as part of a hedge, “straddle,” integrated transaction or similar transaction; +• +Authorized Participants (as defined below); +• +U.S. Holders (as defined below) whose functional currency is not the U.S. dollar; +• +entities or arrangements classified as partnerships for U.S. federal income tax purposes; +• +real estate investment trusts; +• +regulated investment companies; and +• +tax-exempt entities, including individual retirement accounts. +This discussion applies only to Shares that are held as capital assets and does not address alternative minimum tax consequences or consequences of the Medicare contribution tax on net investment income. +If an entity or arrangement that is classified as a partnership for U.S. federal income tax purposes holds Shares, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding Shares and partners in those partnerships are urged to consult their tax advisers about the particular U.S. federal income tax consequences of owning Shares. +This discussion is based on the Code, administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations (“Treasury Regulations”) as of the date hereof, changes to any of which subsequent to the date hereof may affect the tax consequences described herein. For the avoidance of doubt, this summary does not discuss any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction. Shareholders are urged to consult their tax advisers about the application of the U.S. federal income tax laws to their particular situations, as well as any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction. +Tax Treatment of the Trust +The Sponsor intends to take the position that the Trust is properly treated as a grantor trust for U.S. federal income tax purposes. Assuming that the Trust is a grantor trust, the Trust will not be subject to U.S. federal income tax. Rather, if the Trust is a grantor trust, each beneficial owner of Shares will be treated as directly owning its pro rata share of the Trust’s assets and a pro rata portion of the Trust’s income, gains, losses and deductions will “flow through” to each beneficial owner of Shares. +The Staking Condition has been satisfied as to the particular form of Staking described herein, and the Sponsor intends to continue to take the position that the Trust is properly treated as a grantor trust for U.S. federal income tax purposes and that any Staking activity undertaken by the Trust in compliance with the opinion, ruling or other guidance relied upon to satisfy the Staking Condition will not prevent the Trust from continuing to qualify as a grantor trust for such purposes. The Internal Revenue Service (“IRS”) recently issued a revenue procedure providing a staking safe harbor for certain grantor trust vehicles whose beneficial interests are listed and traded on a national securities exchange (the “2025 Revenue Procedure”). However, certain aspects of the 2025 Revenue Procedure are unclear, and therefore the Trust may not currently satisfy all conditions of the safe harbor. Accordingly, due to the uncertainty regarding the ability of a grantor trust to engage in Staking activities, there can be no assurance that the IRS or any court would agree with the Sponsor’s position (or with any opinion of counsel delivered to the Sponsor in support thereof). Therefore, the Trust might cease to qualify as a grantor trust for U.S. federal income tax purposes. +The Trust has taken certain positions with respect to the tax consequences of Incidental Rights and its receipt of IR Virtual Currency. If the IRS were to disagree with, and successfully challenge, any of these positions, the Trust might not qualify as a grantor trust. In addition, the Pre-Creation/Redemption Abandonment Notices (as defined herein) provide that the Trust will irrevocably abandon, effective immediately prior to each Creation Time or Redemption Time, all Incidental Rights or IR Virtual Currency to which it would otherwise be entitled as of such time and with respect to which it has not taken any Affirmative Action at or prior to such time. +46 +The Sponsor has committed to cause the Trust to irrevocably abandon any Incidental Rights and IR Virtual Currency to which the Trust may become entitled in the future. There can be no complete assurance that these abandonments will be treated as effective for U.S. federal income tax purposes. If the Trust were treated as owning any asset other than SOL as of any date on which it creates or redeems Shares, it might cease to qualify as a grantor trust for U.S. federal income tax purposes. +In addition, at this time the Trust is not permitted to create or redeem Shares via in-kind transactions with Authorized +Participants. Unless and until Authorized Participants enter into or amend their respective Participant Agreements to provide for in-kind creations and redemptions, Baskets will be created or redeemed only through Cash Orders. In general, investment vehicles intended to be treated as grantor trusts for U.S. federal income tax purposes historically have created additional trust interests only in-kind, and there is no authority directly addressing whether a grantor trust may create or redeem trust interests under procedures similar to those that govern Cash Orders. Accordingly, there can be no complete assurance that the creation or redemption of Shares under the procedures governing Cash Orders will not cause the Trust to fail to qualify as a grantor trust for U.S. federal income tax purposes. +Moreover, because of the evolving nature of digital assets, it is not possible to predict potential future developments that may arise with respect to digital assets, including forks, airdrops and other similar occurrences. Assuming that the Trust is currently a grantor trust for U.S. federal income tax purposes, certain future developments could render it impossible, or impracticable, for the Trust to continue to be treated as a grantor trust for such purposes. +If the Trust is not properly classified as a grantor trust, the Trust might be classified as a partnership for U.S. federal income tax purposes. However, due to the uncertain treatment of digital assets for U.S. federal income tax purposes, there can be no assurance in this regard. If the Trust were classified as a partnership for U.S. federal income tax purposes, the tax consequences of owning Shares generally would not be materially different from the tax consequences described herein, although there might be certain differences, including with respect to timing of the recognition of taxable income or loss. In addition, tax information reports provided to beneficial owners of Shares would be made in a different form. Moreover, it is possible, in that case, that a portion of the Trust’s income would be considered to be “effectively connected” with the conduct of a trade or business in the United States and, accordingly, a non-U.S. person owning Shares could be subject to U.S. federal income tax on a net income basis with respect to that “effectively connected” income and be required to file a U.S. tax return. If none of the Trust’s Staking income were considered to be “effectively connected” income, a non-U.S. person owning Shares would be subject to withholding on its pro rata portion of U.S.-source “fixed or determinable annual or periodical” (“FDAP”) income as described below. Tax-exempt shareholders may also recognize “unrelated business taxable income” (“UBTI”) from the Trust’s Staking activities if the Trust is not treated as a corporation for U.S. federal income tax purposes. +If the Trust were not classified as either a grantor trust or a partnership for U.S. federal income tax purposes, it would be classified as a corporation for such purposes. In that event, the Trust would be subject to entity-level U.S. federal income tax (currently at the rate of 21%) on its net taxable income and certain distributions made by the Trust to shareholders would be treated as taxable dividends to the extent of the Trust’s current and accumulated earnings and profits. Any such dividend distributed to a beneficial owner of Shares that is a non-U.S. person for U.S. federal income tax purposes would be subject to U.S. federal withholding tax at a rate of 30% (or such lower rate as provided in an applicable tax treaty). +The remainder of this discussion is based on the assumption that the Trust will be treated as a grantor trust for U.S. federal income tax purposes. +Uncertainty Regarding the U.S. Federal Income Tax Treatment of Digital Assets +Each beneficial owner of Shares will be treated for U.S. federal income tax purposes as the owner of an undivided interest in the SOL (and any Incidental Rights and/or IR Virtual Currency) held in the Trust. Due to the new and evolving nature of digital assets and the absence of comprehensive guidance with respect to digital assets, many significant aspects of the U.S. federal income tax treatment of digital assets are uncertain. +In 2014, the IRS released a notice (the “Notice”) discussing certain aspects of the treatment of “convertible virtual currency” (that is, digital assets that have an equivalent value in fiat currency or that act as substitutes for fiat currency) for U.S. federal income tax purposes. In the Notice, the IRS stated that, for U.S. federal income tax purposes, such digital assets (i) are “property,” (ii) are not “currency” for purposes of the provisions of the Code relating to foreign currency gain or loss and (iii) may be held as a capital asset. In 2019, the IRS released a revenue ruling and a set of “Frequently Asked Questions” that has been updated from time to time since (the “Ruling & FAQs”). The Ruling & FAQs provide some additional guidance, including guidance to the effect that, under certain circumstances, hard forks of digital assets are taxable events giving rise to ordinary income and guidance with respect to the determination of the tax basis of digital assets. Moreover, in 2023, the IRS released a revenue ruling that provided guidance on digital asset staking, including guidance to the effect that staking rewards will, under certain circumstances, be treated as giving rise to taxable income (the “2023 Staking Guidance”). Further, the IRS recently issued the 2025 Revenue Procedure, which provides a staking safe harbor for certain grantor trust vehicles. However, the Notice, the Ruling & FAQs, the 2023 Staking Guidance and the 2025 Revenue Procedure do not address other significant aspects of the U.S. federal income tax treatment of digital assets. For example, for a non-U.S. +47 +Holder, there currently is no guidance directly addressing whether or in what circumstances engaging in certain activities to generate yield on digital assets, including Staking, could give rise to income that is effectively connected with a trade or business in the United States. Similarly, for a U.S. tax-exempt shareholder, there currently is no guidance directly addressing whether or in what circumstances such activities could give rise to UBTI. Moreover, although the Ruling & FAQs address the treatment of hard forks, there continues to be uncertainty with respect to the timing and amount of the income inclusions. While the Ruling & FAQs do not address most situations in which airdrops occur, it is clear from the reasoning of the Ruling & FAQs that the IRS generally would treat an airdrop as a taxable event giving rise to ordinary income. +There can be no assurance that the IRS will not alter its position with respect to digital assets in the future or that a court would uphold the treatment set forth in the Notice the Ruling & FAQs, the 2023 Staking Guidance and the 2025 Revenue Procedure. It is also unclear what additional guidance on the treatment of digital assets for U.S. federal income tax purposes may be issued in the future. Any such alteration of the current IRS positions or additional guidance could result in adverse tax consequences for shareholders and could have an adverse effect on the prices of digital assets, including the price of SOL in the Digital Asset Market, and therefore could have an adverse effect on the value of Shares. Future developments that may arise with respect to digital assets may increase the uncertainty with respect to the treatment of digital assets for U.S. federal income tax purposes. For example, the Notice addresses only digital assets that are “convertible virtual currency,” and it is conceivable that, as a result of a fork, airdrop or similar occurrence, the Trust could hold certain types of digital assets that are not within the scope of the Notice, in the event the Sponsor seeks to change the Trust’s policy with respect to Incidental Rights or IR Virtual Currency, subject to NYSE Arca obtaining regulatory approval from the SEC. +The remainder of this discussion assumes that SOL, and any Incidental Rights or IR Virtual Currency that the Trust may hold, is properly treated for U.S. federal income tax purposes as property that may be held as a capital asset and that is not currency for purposes of the provisions of the Code relating to foreign currency gain and loss. +Shareholders are urged to consult their tax advisers regarding the tax consequences of an investment in the Trust and in digital assets in general, including, in the case of shareholders that are generally exempt from U.S. federal income taxation, whether such shareholders may recognize UBTI as a consequence of Staking or the occurrence of a fork, airdrop or similar event. +Tax Consequences to U.S. Holders +As used herein, the term “U.S. Holder” means a beneficial owner of a Share for U.S. federal income tax purposes that is: +• +an individual who is a citizen or resident of the United States for U.S. federal income tax purposes; +• +a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States or of any political subdivision thereof; or +• +an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source. +Except as specifically noted, the discussion below assumes that each U.S. Holder will acquire all of its Shares on the same date for the same price per Share and solely for cash or solely for SOL that were originally acquired by the U.S. Holder for cash on the same date. +As discussed in the section entitled “Description of Creation and Redemption of Shares,” a U.S. Holder may be able to acquire Shares of the Trust by contributing SOL in-kind to the Trust (either directly or through an Authorized Participant acting as agent of the U.S. Holder). Assuming that the Trust is properly treated as a grantor trust for U.S. federal income tax purposes, such a contribution should not be a taxable event to the U.S. Holder. +For U.S. federal income tax purposes, each U.S. Holder will be treated as owning an undivided interest in the SOL held in the Trust and will be treated as directly realizing its pro rata share of the Trust’s income, gains, losses and deductions (including any Staking income). When a U.S. Holder purchases Shares solely for cash, (i) the U.S. Holder’s initial tax basis in its pro rata share of the SOL held in the Trust will be equal to the amount paid for the Shares and (ii) the U.S. Holder’s holding period for its pro rata share of such SOL will begin on the date of such purchase. When a U.S. Holder acquires Shares in exchange for SOL, (i) the U.S. Holder’s initial tax basis in its pro rata share of the SOL held in the Trust will be equal to the U.S. Holder’s tax basis in the SOL that the U.S. Holder transferred to the Trust and (ii) the U.S. Holder’s holding period for its pro rata share of such SOL generally will include the period during which the U.S. Holder held the SOL that the U.S. Holder transferred to the Trust. The Ruling & FAQs confirm that if a taxpayer acquires tokens of a digital asset at different times and for different prices, the taxpayer has a separate tax basis in each lot of such tokens. Under the Ruling & FAQs, if a U.S. Holder that owns more than one lot of SOL contributes a portion of its SOL to the Trust in exchange for Shares, the U.S. Holder could designate the lot(s) from which such contribution will be made, provided that the U.S. Holder is able to identify specifically which SOL it is contributing and to substantiate its tax basis in that SOL. In general, if a U.S. Holder acquires Shares (i) solely for cash at different prices, (ii) partly for cash and partly in exchange for a contribution of SOL or (iii) in exchange for a contribution of SOL with different tax bases, the U.S. Holder’s share of the Trust’s SOL will consist of separate lots +48 +with separate tax bases. In addition, in this situation, the U.S. Holder’s holding period for the separate lots may be different. In addition, any SOL received as Staking Consideration received by the Trust will constitute a separate lot with a separate tax basis and holding period. +Gains or losses from the sale of SOL to fund cash redemptions are expected to be treated as incurred only by the shareholder that is being redeemed. However, when the Trust transfers SOL to the Sponsor as payment of the Sponsor’s Fee or the Sponsor’s Staking Fee, or sells SOL to fund payment of any cash distributions or of any Additional Trust Expenses, each U.S. Holder will be treated as having sold its pro rata share of that SOL for their fair market value at that time (which, in the case of SOL sold by the Trust, generally will be equal to the cash proceeds received by the Trust in respect thereof). As a result, each U.S. Holder will recognize gain or loss in an amount equal to the difference between (i) the fair market value of the U.S. Holder’s pro rata share of the SOL transferred and (ii) the U.S. Holder’s tax basis for its pro rata share of the SOL transferred. Any such gain or loss will be short-term capital gain or loss if the U.S. Holder’s holding period for its pro rata share of the SOL is one year or less and long-term capital gain or loss if the U.S. Holder’s holding period for its pro rata share of the SOL is more than one year. A U.S. Holder’s tax basis in its pro rata share of any SOL transferred by the Trust generally will be determined by multiplying the tax basis of the U.S. Holder’s pro rata share of all of the SOL held in the Trust immediately prior to the transfer by a fraction the numerator of which is the amount of SOL transferred and the denominator of which is the total amount of SOL held in the Trust immediately prior to the transfer. Immediately after the transfer, the U.S. Holder’s tax basis in its pro rata share of the SOL remaining in the Trust will be equal to the tax basis of its pro rata share of the SOL held in the Trust immediately prior to the transfer, less the portion of that tax basis allocable to its pro rata share of the SOL transferred. A U.S. Holder’s receipt of distributions of cash proceeds from the sale of SOL (other than in connection with a redemption) should not, itself, be a taxable event to a U.S. Holder. +As noted above, the IRS has taken the position in the Ruling & FAQs that, under certain circumstances, a hard fork of a digital asset constitutes a taxable event giving rise to ordinary income, and it is clear from the reasoning of the Ruling & FAQs that the IRS generally would treat an airdrop as a taxable event giving rise to ordinary income. As described above, the Sponsor has committed to causing the Trust to abandon all Incidental Rights and IR Virtual Currency to which the Trust otherwise might become entitled. If, however, the Trust were to receive and retain IR Virtual Currency in the future, a U.S. Holder would have a basis in that IR Virtual Currency equal to the amount of income the U.S. Holder recognizes as a result of such fork or airdrop and the U.S. Holder’s holding period for such IR Virtual Currency would begin as of the time it recognizes such income. Similarly, although the IRS has not issued similar guidance with respect to staking, if the Trust receives any Staking Consideration in connection with Staking, it is likely that a U.S. Holder will have a basis in any SOL received as part of such Staking Consideration equal to the amount of income that the U.S. Holder recognizes and the U.S. Holder’s holding period for such Staking Consideration will begin as of the time it recognizes such income. +U.S. Holders’ pro rata shares of the expenses incurred by the Trust will be treated as “miscellaneous itemized deductions” for U.S. federal income tax purposes. As a result, a non-corporate U.S. Holder’s share of these expenses will not be deductible for U.S. federal income tax purposes. +On a sale or other disposition of Shares, a U.S. Holder will be treated as having sold the SOL underlying such Shares. Accordingly, the U.S. Holder generally will recognize gain or loss in an amount equal to the difference between (i) the amount realized on the sale of the Shares and (ii) the portion of the U.S. Holder’s tax basis in its pro rata share of the SOL held in the Trust that is attributable to the Shares that were sold or otherwise subject to a disposition. Such tax basis generally will be determined by multiplying the tax basis of the U.S. Holder’s pro rata share of all of the SOL held in the Trust immediately prior to such sale or other disposition by a fraction the numerator of which is the number of Shares disposed of and the denominator of which is the total number of Shares held by such U.S. Holder immediately prior to such sale or other disposition (such fraction, expressed as a percentage, the “Share Percentage”). If the U.S. Holder’s share of the Trust’s SOL consists of separate lots with separate tax bases and/or holding periods, the U.S. Holder will be treated as having sold the Share Percentage of each such lot. Gain or loss recognized by a U.S. Holder on a sale or other disposition of Shares will generally be short-term capital gain or loss if the U.S. Holder’s holding period for the SOL underlying such Shares is one year or less and long-term capital gain or loss if the U.S. Holder’s holding period for the SOL underlying such Shares is more than one year. The deductibility of capital losses is subject to significant limitations. +If the Trust redeems all or a portion of a U.S. Holder’s Shares in exchange for the underlying SOL represented by the redeemed Shares, such redemption generally will not be a taxable event to the U.S. Holder. The U.S. Holder’s tax basis in the SOL received in the redemption generally will be the same as the U.S. Holder’s tax basis for the portion of its pro rata share of the SOL held in the Trust immediately prior to the redemption that was attributable to the Shares redeemed, determined as described above, and the U.S. Holder’s tax basis in its remaining pro rata portion, if any, of the SOL held in the Trust after the redemption will be equal to the tax basis of its pro rata share of the total amount of the SOL held in the Trust immediately prior to the redemption, less the U.S. Holder’s tax basis in the SOL received in the redemption. The U.S. Holder’s holding period with respect to the SOL received will generally include the period during which the U.S. Holder held the Shares so redeemed. A subsequent sale of the SOL received in such redemption will generally be a taxable event. +49 +After any sale or other disposition of fewer than all of a U.S. Holder’s Shares, the U.S. Holder’s tax basis in its pro rata share of the SOL held in the Trust immediately after the disposition will equal the tax basis in its pro rata share of the total amount of the SOL held in the Trust immediately prior to the disposition, less the portion of that tax basis that is taken into account in determining the amount of gain or loss recognized by the U.S. Holder on the disposition (or, in the case of a redemption pursuant to an In-Kind Order, the portion of tax basis that is treated as the basis of the SOL received by the U.S. Holder in the redemption). +Any brokerage or other transaction fee incurred by a U.S. Holder in purchasing Shares generally will be added to the U.S. Holder’s tax basis in the underlying assets of the Trust. Similarly, any brokerage fee or other transaction fee incurred by a U.S. Holder in selling Shares generally will reduce the amount realized by the U.S. Holder with respect to the sale. +If the Trust receives Staking Consideration, that Staking Consideration would be reportable to shareholders as taxable income under current IR S guidance. +In the absence of guidance to the contrary, it is possible that any income recognized by a U.S. tax-exempt shareholder as a consequence of Staking, or the occurrence of a hard fork, airdrop or similar event, would constitute UBTI. A tax-exempt shareholder should consult its tax adviser regarding whether such shareholder may recognize some UBTI as a consequence of an investment in Shares. +Tax Consequences to Non-U.S. Holders +As used herein, the term “non-U.S. Holder” means a beneficial owner of a Share for U.S. federal income tax purposes that is not a U.S. Holder. The term “non-U.S. Holder” does not include (i) a nonresident alien individual who is present in the United States for 183 days or more in a taxable year, (ii) a former U.S. citizen or U.S. resident or an entity that has expatriated from the United States; (iii) a person whose income in respect of Shares is effectively connected with the conduct of a trade or business in the United States; or (iv) an entity that is treated as a partnership for U.S. federal income tax purposes. Shareholders described in the preceding sentence should consult their tax advisers regarding the U.S. federal income tax consequences of owning Shares. +A non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax with respect to its share of any gain recognized on the Trust’s transfer of SOL in payment of the Sponsor’s Fee, the Sponsor’s Staking Fee or any Additional Trust Expense or on the Trust’s sale or other disposition of SOL. In addition, assuming that the Trust holds no asset other than SOL, a non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax with respect to any gain it recognizes on a sale or other disposition of Shares. A non-U.S. Holder also will generally not be subject to U.S. federal income or withholding tax with respect to any distribution received from the Trust, whether in cash or in-kind. +Provided that it does not constitute income that is treated as “effectively connected” with the conduct of a trade or business in the United States, U.S.-source FDAP income received, or treated as received, by a non-U.S. Holder will generally be subject to U.S. withholding tax at the rate of 30% (subject to possible reduction or elimination pursuant to an applicable tax treaty and to statutory exemptions such as the portfolio interest exemption). Although the Sponsor has committed to causing the Trust to abandon all Incidental Rights and IR Virtual Currency to which the Trust may become entitled in the future, and although there is no guidance on point, if the Trust were to receive and retain IR Virtual Currency arising from a future fork, airdrop or similar occurrence, it is likely that any ordinary income recognized by a non-U.S. Holder as a result would constitute FDAP income. It is also possible that the receipt of any Staking Consideration by the Trust would constitute FDAP income. It is unclear, however, whether any such FDAP income would be properly treated as U.S.-source or foreign-source FDAP income. Based on the current manner in which the Trust’s Staking activities are undertaken and certain assurances from the Trust’s Staking Providers regarding their connections to the United States, the Trust believes that its income from staking rewards should not be treated as U.S.-source FDAP income. However, that conclusion is not free from doubt under current law due to the lack of direct governing authority, and no assurance can be given that a withholding agent (including a broker through which Shares are held) will not take a contrary position. In addition, changes in law or changes to the Trust’s Staking Arrangements could cause all or a portion of the Trust’s staking rewards to be treated as U.S.-source FDAP income in the future . +A non-U.S. Holder that is a resident of a country that maintains an income tax treaty with the United States may be eligible to claim the benefits of that treaty to reduce or eliminate, or to obtain a partial or full refund of, the 30% U.S. withholding tax on its share of any U.S.-source FDAP income, but only if the non-U.S. Holder’s home country treats the Trust as “fiscally transparent,” as defined in applicable Treasury Regulations. +In order to prevent the possible imposition of U.S. “backup” withholding and (if applicable) to qualify for a reduced rate of withholding tax at source under a treaty, a non-U.S. Holder must comply with certain certification requirements (generally, by delivering a properly executed IRS Form W-8BEN or W-8BEN-E to the relevant withholding agent). +50 +U.S. Information Reporting and Backup Withholding +The Trust or the appropriate broker will file certain information returns with the IRS and provide shareholders with information regarding their annual income (if any) and expenses with respect to the Trust in accordance with applicable Treasury Regulations. +A U.S. Holder will generally be subject to information reporting requirements and backup withholding unless (i) the U.S. Holder is a corporation or other exempt recipient or (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding. In order to avoid the information reporting and backup withholding requirements, a non-U.S. Holder may have to comply with certification procedures to establish that it is not a U.S. person. The amount of any backup withholding will be allowed as a credit against the shareholder’s U.S. federal income tax liability and may entitle the holder to a refund, provided that the required information is furnished to the IRS. +FATCA +As discussed above, it is unclear whether any ordinary income recognized by a non-U.S. Holder as a result of a fork, airdrop or similar occurrence or Staking Consideration would constitute U.S.-source FDAP income. Provisions of the Code commonly referred to as “FATCA” require withholding of 30% on payments of U.S.-source FDAP income and, subject to the discussion of proposed Treasury Regulations below, of gross proceeds of dispositions of certain types of property that produce U.S.-source FDAP income to, “foreign financial institutions” (which is broadly defined for this purpose and in general includes investment vehicles) and certain other non-U.S. entities unless various U.S. information reporting and due diligence requirements (generally relating to ownership by U.S. persons of interests in or accounts with those entities) have been satisfied, or an exemption applies. An intergovernmental agreement between the United States and an applicable foreign country may modify these requirements. In addition, regulations proposed by the U.S. Department of the Treasury (the preamble to which indicates that taxpayers may rely on the regulations pending their finalization) would eliminate the requirement under FATCA of withholding on gross proceeds. If FATCA withholding is imposed, a beneficial owner that is not a foreign financial institution generally may obtain a refund of any amounts withheld by filing a U.S. federal income tax return (which may entail significant administrative burden). Shareholders should consult their tax advisers regarding the effects of FATCA on an investment in the Trust. +51 \ No newline at end of file diff --git a/raw/filings/0001896677/2025/0001193125-26-104243/item13.txt b/raw/filings/0001896677/2025/0001193125-26-104243/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..fd0c99824b09c5bf4aca04e1c18eb3a1e4239ea1 --- /dev/null +++ b/raw/filings/0001896677/2025/0001193125-26-104243/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions and Director Independence +107 \ No newline at end of file diff --git a/raw/filings/0001897245/2024/0001641172-25-001707/filing.txt b/raw/filings/0001897245/2024/0001641172-25-001707/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..09441b73758a1ac756ad708208ce423e25b43162 --- /dev/null +++ b/raw/filings/0001897245/2024/0001641172-25-001707/filing.txt @@ -0,0 +1,6210 @@ +false +FY +0001897245 +http://fasb.org/us-gaap/2024#UsefulLifeTermOfLeaseMember +0001897245 +2024-01-01 +2024-12-31 +0001897245 +2024-07-01 +0001897245 +2025-03-31 +0001897245 +2024-12-31 +0001897245 +2023-12-31 +0001897245 +us-gaap:CommonClassAMember +2024-12-31 +0001897245 +us-gaap:CommonClassAMember +2023-12-31 +0001897245 +us-gaap:CommonClassBMember +2024-12-31 +0001897245 +us-gaap:CommonClassBMember +2023-12-31 +0001897245 +us-gaap:SubsequentEventMember +2025-02-24 +2025-02-24 +0001897245 +2023-01-01 +2023-12-31 +0001897245 +us-gaap:MembershipMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:MembershipMember +2023-01-01 +2023-12-31 +0001897245 +ACAX:NonMembershipMember +2024-01-01 +2024-12-31 +0001897245 +ACAX:NonMembershipMember +2023-01-01 +2023-12-31 +0001897245 +us-gaap:CommonStockMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:CommonStockMember +us-gaap:CommonClassAMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:CommonStockMember +us-gaap:CommonClassBMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:CommonStockMember +2023-01-01 +2023-12-31 +0001897245 +us-gaap:CommonStockMember +us-gaap:CommonClassAMember +2023-01-01 +2023-12-31 +0001897245 +us-gaap:CommonStockMember +us-gaap:CommonClassBMember +2023-01-01 +2023-12-31 +0001897245 +us-gaap:CommonClassAMember +us-gaap:CommonStockMember +2022-12-31 +0001897245 +us-gaap:CommonClassBMember +us-gaap:CommonStockMember +2022-12-31 +0001897245 +us-gaap:CommonStockMember +2022-12-31 +0001897245 +us-gaap:AdditionalPaidInCapitalMember +2022-12-31 +0001897245 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2022-12-31 +0001897245 +us-gaap:RetainedEarningsMember +2022-12-31 +0001897245 +us-gaap:ParentMember +2022-12-31 +0001897245 +us-gaap:NoncontrollingInterestMember +2022-12-31 +0001897245 +2022-12-31 +0001897245 +us-gaap:CommonClassAMember +us-gaap:CommonStockMember +2023-12-31 +0001897245 +us-gaap:CommonClassBMember +us-gaap:CommonStockMember +2023-12-31 +0001897245 +us-gaap:CommonStockMember +2023-12-31 +0001897245 +us-gaap:AdditionalPaidInCapitalMember +2023-12-31 +0001897245 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2023-12-31 +0001897245 +us-gaap:RetainedEarningsMember +2023-12-31 +0001897245 +us-gaap:ParentMember +2023-12-31 +0001897245 +us-gaap:NoncontrollingInterestMember +2023-12-31 +0001897245 +us-gaap:AdditionalPaidInCapitalMember +2023-01-01 +2023-12-31 +0001897245 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2023-01-01 +2023-12-31 +0001897245 +us-gaap:RetainedEarningsMember +2023-01-01 +2023-12-31 +0001897245 +us-gaap:ParentMember +2023-01-01 +2023-12-31 +0001897245 +us-gaap:NoncontrollingInterestMember +2023-01-01 +2023-12-31 +0001897245 +us-gaap:AdditionalPaidInCapitalMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:RetainedEarningsMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:ParentMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:NoncontrollingInterestMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:CommonClassAMember +us-gaap:CommonStockMember +2024-12-31 +0001897245 +us-gaap:CommonClassBMember +us-gaap:CommonStockMember +2024-12-31 +0001897245 +us-gaap:CommonStockMember +2024-12-31 +0001897245 +us-gaap:AdditionalPaidInCapitalMember +2024-12-31 +0001897245 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2024-12-31 +0001897245 +us-gaap:RetainedEarningsMember +2024-12-31 +0001897245 +us-gaap:ParentMember +2024-12-31 +0001897245 +us-gaap:NoncontrollingInterestMember +2024-12-31 +0001897245 +ACAX:MergerAgreementMember +ACAX:HWHInternationalIncMember +us-gaap:CommonStockMember +2022-09-09 +2022-09-09 +0001897245 +ACAX:MergerAgreementMember +ACAX:HWHInternationalIncMember +us-gaap:CommonStockMember +2022-09-09 +0001897245 +ACAX:HWHWorldIncMember +2024-01-01 +2024-12-31 +0001897245 +ACAX:HWHWorldIncMember +2023-01-01 +2023-12-31 +0001897245 +ACAX:FAndBBusinessMember +2024-01-01 +2024-12-31 +0001897245 +ACAX:FAndBBusinessMember +2023-01-01 +2023-12-31 +0001897245 +ACAX:AlsetFAndBOnePte.LtdBusinessMember +2024-01-01 +2024-12-31 +0001897245 +ACAX:AlsetFAndBOnePte.LtdBusinessMember +2023-01-01 +2023-12-31 +0001897245 +ACAX:HapiCafeKoreaIncMember +2024-01-01 +2024-12-31 +0001897245 +ACAX:HapiCafeKoreaIncMember +2023-01-01 +2023-12-31 +0001897245 +ACAX:HapiCafeSGPte.LtdMember +2024-01-01 +2024-12-31 +0001897245 +ACAX:HapiCafeSGPte.LtdMember +2023-01-01 +2023-12-31 +0001897245 +ACAX:AlsetFAndBPte.LtdBusinessMember +2024-01-01 +2024-12-31 +0001897245 +ACAX:AlsetFAndBPte.LtdBusinessMember +2023-01-01 +2023-12-31 +0001897245 +ACAX:KetomeiPte.LtdMember +2024-01-01 +2024-12-31 +0001897245 +ACAX:KetomeiPte.LtdMember +2023-01-01 +2023-12-31 +0001897245 +us-gaap:CommonClassAMember +2024-01-09 +2024-01-09 +0001897245 +us-gaap:CommonClassAMember +2024-01-09 +0001897245 +us-gaap:GeneralAndAdministrativeExpenseMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:FoodAndBeverageMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:FoodAndBeverageMember +2023-01-01 +2023-12-31 +0001897245 +2024-04-24 +0001897245 +us-gaap:OfficeEquipmentMember +srt:MinimumMember +2024-12-31 +0001897245 +us-gaap:OfficeEquipmentMember +srt:MaximumMember +2024-12-31 +0001897245 +us-gaap:FurnitureAndFixturesMember +srt:MinimumMember +2024-12-31 +0001897245 +us-gaap:FurnitureAndFixturesMember +srt:MaximumMember +2024-12-31 +0001897245 +ACAX:KitchenEquipmentMember +srt:MinimumMember +2024-12-31 +0001897245 +ACAX:KitchenEquipmentMember +srt:MaximumMember +2024-12-31 +0001897245 +ACAX:OperatingEquipmentMember +srt:MinimumMember +2024-12-31 +0001897245 +ACAX:OperatingEquipmentMember +srt:MaximumMember +2024-12-31 +0001897245 +us-gaap:LeaseholdImprovementsMember +2024-12-31 +0001897245 +us-gaap:ProductMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:ProductMember +2023-01-01 +2023-12-31 +0001897245 +ACAX:FinishedGoodsMember +2024-01-01 +2024-12-31 +0001897245 +ACAX:RelatedShippingMember +2024-01-01 +2024-12-31 +0001897245 +ACAX:HandlingFeeMember +2024-01-01 +2024-12-31 +0001897245 +ACAX:ContractorFeeMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:FranchiseMember +2024-01-01 +2024-12-31 +0001897245 +ACAX:DepreciationMember +2024-01-01 +2024-12-31 +0001897245 +ACAX:FinishedGoodsMember +2023-01-01 +2023-12-31 +0001897245 +ACAX:RelatedShippingMember +2023-01-01 +2023-12-31 +0001897245 +ACAX:HandlingFeeMember +2023-01-01 +2023-12-31 +0001897245 +ACAX:ContractorFeeMember +2023-01-01 +2023-12-31 +0001897245 +us-gaap:FranchiseMember +2023-01-01 +2023-12-31 +0001897245 +ACAX:SalesCommissionMember +2023-01-01 +2023-12-31 +0001897245 +ACAX:InventoryWrittenOffMember +2023-01-01 +2023-12-31 +0001897245 +ACAX:DepreciationMember +2023-01-01 +2023-12-31 +0001897245 +2022-09-09 +2022-09-09 +0001897245 +ACAX:ClassACommonStockMember +2022-09-09 +2022-09-09 +0001897245 +ACAX:ClassBCommonStockMember +2022-09-09 +2022-09-09 +0001897245 +2022-09-09 +0001897245 +ACAX:HWHInternationalIncMember +us-gaap:CommonStockMember +2022-09-09 +2022-09-09 +0001897245 +ACAX:ThirdPartyMember +2022-09-09 +2022-09-09 +0001897245 +ACAX:AlsetInternationalLimitedMember +2022-09-09 +0001897245 +ACAX:AlsetIncMember +2022-09-09 +0001897245 +srt:ScenarioPreviouslyReportedMember +2023-01-01 +2023-12-31 +0001897245 +ACAX:MergerWithHWHInternationalIncNevadaCorporationMember +2023-01-01 +2023-12-31 +0001897245 +srt:ScenarioPreviouslyReportedMember +us-gaap:MembershipMember +2023-01-01 +2023-12-31 +0001897245 +ACAX:MergerWithHWHInternationalIncNevadaCorporationMember +us-gaap:MembershipMember +2023-01-01 +2023-12-31 +0001897245 +srt:ScenarioPreviouslyReportedMember +ACAX:NonMembershipMember +2023-01-01 +2023-12-31 +0001897245 +ACAX:MergerWithHWHInternationalIncNevadaCorporationMember +ACAX:NonMembershipMember +2023-01-01 +2023-12-31 +0001897245 +srt:ScenarioPreviouslyReportedMember +2023-12-31 +0001897245 +ACAX:MergerWithHWHInternationalIncNevadaCorporationMember +2023-12-31 +0001897245 +srt:ScenarioPreviouslyReportedMember +us-gaap:RelatedPartyMember +2023-12-31 +0001897245 +ACAX:MergerWithHWHInternationalIncNevadaCorporationMember +us-gaap:RelatedPartyMember +2023-12-31 +0001897245 +us-gaap:RelatedPartyMember +2023-12-31 +0001897245 +srt:ScenarioPreviouslyReportedMember +us-gaap:CommonClassAMember +2023-12-31 +0001897245 +ACAX:MergerWithHWHInternationalIncNevadaCorporationMember +us-gaap:CommonClassAMember +2023-12-31 +0001897245 +srt:ScenarioPreviouslyReportedMember +us-gaap:CommonClassBMember +2023-12-31 +0001897245 +ACAX:MergerWithHWHInternationalIncNevadaCorporationMember +us-gaap:CommonClassBMember +2023-12-31 +0001897245 +us-gaap:OfficeEquipmentMember +2024-12-31 +0001897245 +us-gaap:FurnitureAndFixturesMember +2024-12-31 +0001897245 +ACAX:KitchenEquipmentMember +2024-12-31 +0001897245 +ACAX:OperatingEquipmentMember +2024-12-31 +0001897245 +us-gaap:OfficeEquipmentMember +2023-12-31 +0001897245 +us-gaap:FurnitureAndFixturesMember +2023-12-31 +0001897245 +ACAX:KitchenEquipmentMember +2023-12-31 +0001897245 +ACAX:OperatingEquipmentMember +2023-12-31 +0001897245 +us-gaap:LeaseholdImprovementsMember +2023-12-31 +0001897245 +us-gaap:OfficeEquipmentMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:FurnitureAndFixturesMember +2024-01-01 +2024-12-31 +0001897245 +ACAX:HealthWealthHappinessPteLtdMember +2024-04-25 +0001897245 +ACAX:MrChanMember +2024-04-25 +0001897245 +ACAX:JointVentureCompanyMember +2024-04-25 +0001897245 +ACAX:LoanAgreementMember +2024-11-06 +0001897245 +ACAX:LoanAgreementMember +2024-11-06 +2024-11-06 +0001897245 +ACAX:HapiTravelPteLtdMember +2024-12-18 +0001897245 +2024-03-14 +2024-03-14 +0001897245 +2024-03-14 +0001897245 +ACAX:SubscriptionAgreementMember +2024-05-23 +2024-05-23 +0001897245 +ACAX:SubscriptionAgreementMember +2024-03-13 +2024-03-13 +0001897245 +ACAX:SubscriptionAgreementMember +2024-03-14 +2024-03-14 +0001897245 +ACAX:IdealFoodAndBeveragePteLtdMember +2024-12-31 +0001897245 +ACAX:SubscriptionAgreementMember +2024-12-31 +0001897245 +ACAX:SalesCommissionMember +2024-01-01 +2024-12-31 +0001897245 +ACAX:KetomeiPteLtdMember +2024-01-01 +2024-12-31 +0001897245 +ACAX:KetomeiPteLtdMember +2022-02-21 +0001897245 +ACAX:KetomeiPteLtdMember +2022-02-21 +2022-02-21 +0001897245 +ACAX:KetomeiPteLtdMember +2024-12-31 +0001897245 +ACAX:HWHInternationalIncMember +2023-12-18 +0001897245 +ACAX:HWHInternationalIncMember +2023-12-18 +2023-12-18 +0001897245 +ACAX:HWHInternationalIncMember +2024-01-09 +2024-01-09 +0001897245 +ACAX:HWHInternationalIncMember +2024-01-09 +0001897245 +ACAX:AlsetIncMember +2024-12-31 +0001897245 +ACAX:AlsetIncMember +2023-12-31 +0001897245 +ACAX:CreditFacilityAgreementMember +2024-04-24 +0001897245 +ACAX:CreditFacilityAgreementMember +2024-04-24 +2024-04-24 +0001897245 +ACAX:CreditFacilityAgreementMember +2024-09-24 +0001897245 +ACAX:CreditFacilityAgreementMember +2024-12-31 +0001897245 +ACAX:DebtConversionAgreementMember +2024-09-24 +2024-09-24 +0001897245 +ACAX:DebtConversionAgreementMember +2024-09-24 +0001897245 +ACAX:AlsetInternationalLtdMember +2024-12-31 +0001897245 +ACAX:AlsetInternationalLtdMember +2023-12-31 +0001897245 +ACAX:DebtConversionAgreementMember +ACAX:AlsetInternationalLimitedMember +2024-09-24 +2024-09-24 +0001897245 +ACAX:DebtConversionAgreementMember +ACAX:AlsetInternationalLimitedMember +2024-09-24 +0001897245 +ACAX:AlsetBusinessDevelopmentPteLtdMember +2024-12-31 +0001897245 +ACAX:AlsetBusinessDevelopmentPteLtdMember +2023-12-31 +0001897245 +ACAX:BmiCapitalPartnersInternationalLtdMember +2024-12-31 +0001897245 +ACAX:BmiCapitalPartnersInternationalLtdMember +2023-12-31 +0001897245 +ACAX:AlsetManagementGroupIncrMember +2024-01-01 +2024-12-31 +0001897245 +ACAX:WorkingCapitalLoanMember +ACAX:SponsorMember +srt:MaximumMember +2024-01-01 +2024-12-31 +0001897245 +2023-06-05 +0001897245 +2023-07-06 +0001897245 +ACAX:KetomeiMember +us-gaap:ConvertibleDebtMember +2023-08-31 +0001897245 +ACAX:KetomeiMember +2023-08-31 +0001897245 +ACAX:HapiCafeIncMember +us-gaap:ConvertibleDebtMember +2023-10-26 +0001897245 +ACAX:HapiCafeIncMember +2023-10-26 +0001897245 +ACAX:KetomeiMember +2024-02-20 +0001897245 +ACAX:KetomeiPteLtdMember +2024-02-20 +0001897245 +us-gaap:ConvertibleDebtMember +ACAX:KetomeiMember +2024-02-20 +0001897245 +ACAX:KetomeiMember +2024-02-20 +0001897245 +ACAX:SharingServicesGlobalCorpMember +2024-03-20 +0001897245 +ACAX:SharingServicesGlobalCorpMember +2024-03-20 +2024-03-20 +0001897245 +ACAX:SharingServicesGlobalCorpMember +2024-05-09 +0001897245 +ACAX:SharingServicesGlobalCorpMember +2024-05-09 +2024-05-09 +0001897245 +ACAX:SharingServicesGlobalCorpMember +2024-06-06 +0001897245 +ACAX:SharingServicesGlobalCorpMember +2024-06-06 +2024-06-06 +0001897245 +ACAX:SharingServicesGlobalCorpMember +2024-08-13 +0001897245 +ACAX:SharingServicesGlobalCorpMember +2024-08-13 +2024-08-13 +0001897245 +ACAX:SharingServicesGlobalCorpMember +2024-12-31 +0001897245 +us-gaap:RelatedPartyMember +us-gaap:FoodAndBeverageMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:RelatedPartyMember +us-gaap:FoodAndBeverageMember +2023-01-01 +2023-12-31 +0001897245 +us-gaap:RelatedPartyMember +2024-12-31 +0001897245 +us-gaap:RelatedPartyMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:RelatedPartyMember +2023-01-01 +2023-12-31 +0001897245 +us-gaap:WarrantMember +ACAX:SharingServicesGlobalCorpMember +us-gaap:FairValueInputsLevel1Member +2024-12-31 +0001897245 +us-gaap:WarrantMember +ACAX:SharingServicesGlobalCorpMember +us-gaap:FairValueInputsLevel2Member +2024-12-31 +0001897245 +us-gaap:WarrantMember +ACAX:SharingServicesGlobalCorpMember +us-gaap:FairValueInputsLevel3Member +2024-12-31 +0001897245 +us-gaap:WarrantMember +ACAX:SharingServicesGlobalCorpMember +2024-12-31 +0001897245 +ACAX:ConvertibleLoansReceivableMember +ACAX:SharingServicesGlobalCorpMember +us-gaap:FairValueInputsLevel1Member +2024-12-31 +0001897245 +ACAX:ConvertibleLoansReceivableMember +ACAX:SharingServicesGlobalCorpMember +us-gaap:FairValueInputsLevel2Member +2024-12-31 +0001897245 +ACAX:ConvertibleLoansReceivableMember +ACAX:SharingServicesGlobalCorpMember +us-gaap:FairValueInputsLevel3Member +2024-12-31 +0001897245 +ACAX:ConvertibleLoansReceivableMember +ACAX:SharingServicesGlobalCorpMember +2024-12-31 +0001897245 +us-gaap:FairValueInputsLevel1Member +2024-12-31 +0001897245 +us-gaap:FairValueInputsLevel2Member +2024-12-31 +0001897245 +us-gaap:FairValueInputsLevel3Member +2024-12-31 +0001897245 +us-gaap:MeasurementInputSharePriceMember +2024-12-31 +0001897245 +us-gaap:MeasurementInputExercisePriceMember +2024-12-31 +0001897245 +us-gaap:MeasurementInputRiskFreeInterestRateMember +2024-12-31 +0001897245 +us-gaap:MeasurementInputPriceVolatilityMember +2024-12-31 +0001897245 +us-gaap:MeasurementInputExpectedDividendRateMember +2024-12-31 +0001897245 +us-gaap:MeasurementInputExpectedTermMember +2024-12-31 +0001897245 +us-gaap:ConvertibleDebtMember +us-gaap:MeasurementInputRiskFreeInterestRateMember +2024-03-18 +0001897245 +us-gaap:ConvertibleDebtMember +us-gaap:MeasurementInputRiskFreeInterestRateMember +2024-05-09 +0001897245 +us-gaap:ConvertibleDebtMember +us-gaap:MeasurementInputRiskFreeInterestRateMember +2024-06-06 +0001897245 +us-gaap:ConvertibleDebtMember +us-gaap:MeasurementInputRiskFreeInterestRateMember +2024-08-13 +0001897245 +us-gaap:MeasurementInputExpectedTermMember +us-gaap:ConvertibleDebtMember +2024-03-18 +2024-03-18 +0001897245 +us-gaap:MeasurementInputExpectedTermMember +us-gaap:ConvertibleDebtMember +2024-05-09 +2024-05-09 +0001897245 +us-gaap:MeasurementInputExpectedTermMember +us-gaap:ConvertibleDebtMember +2024-06-06 +2024-06-06 +0001897245 +us-gaap:MeasurementInputExpectedTermMember +us-gaap:ConvertibleDebtMember +2024-08-13 +2024-08-13 +0001897245 +us-gaap:ConvertibleDebtMember +us-gaap:MeasurementInputDiscountRateMember +2024-03-18 +0001897245 +us-gaap:ConvertibleDebtMember +us-gaap:MeasurementInputDiscountRateMember +2024-05-09 +0001897245 +us-gaap:ConvertibleDebtMember +us-gaap:MeasurementInputDiscountRateMember +2024-06-06 +0001897245 +us-gaap:ConvertibleDebtMember +us-gaap:MeasurementInputDiscountRateMember +2024-08-13 +0001897245 +us-gaap:ConvertibleDebtMember +us-gaap:MeasurementInputPriceVolatilityMember +2024-03-18 +0001897245 +us-gaap:ConvertibleDebtMember +us-gaap:MeasurementInputPriceVolatilityMember +2024-05-09 +0001897245 +us-gaap:ConvertibleDebtMember +us-gaap:MeasurementInputPriceVolatilityMember +2024-06-06 +0001897245 +us-gaap:ConvertibleDebtMember +us-gaap:MeasurementInputPriceVolatilityMember +2024-08-13 +0001897245 +us-gaap:ConvertibleDebtMember +us-gaap:MeasurementInputExpectedDividendRateMember +2024-03-18 +0001897245 +us-gaap:ConvertibleDebtMember +us-gaap:MeasurementInputExpectedDividendRateMember +2024-05-09 +0001897245 +us-gaap:ConvertibleDebtMember +us-gaap:MeasurementInputExpectedDividendRateMember +2024-06-06 +0001897245 +us-gaap:ConvertibleDebtMember +us-gaap:MeasurementInputExpectedDividendRateMember +2024-08-13 +0001897245 +us-gaap:ConvertibleDebtMember +2024-03-18 +0001897245 +us-gaap:ConvertibleDebtMember +2024-05-09 +0001897245 +us-gaap:ConvertibleDebtMember +2024-06-06 +0001897245 +us-gaap:ConvertibleDebtMember +2024-08-13 +0001897245 +us-gaap:IPOMember +srt:MaximumMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:OverAllotmentOptionMember +2022-02-03 +0001897245 +us-gaap:OverAllotmentOptionMember +2022-02-03 +2022-02-03 +0001897245 +us-gaap:IPOMember +2022-02-03 +0001897245 +us-gaap:IPOMember +2022-02-03 +2022-02-03 +0001897245 +us-gaap:PreferredStockMember +2024-12-31 +0001897245 +us-gaap:CommonClassAMember +us-gaap:WarrantMember +2024-12-31 +0001897245 +us-gaap:WarrantMember +2023-12-31 +0001897245 +us-gaap:WarrantMember +2023-01-01 +2023-12-31 +0001897245 +us-gaap:WarrantMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:WarrantMember +2024-12-31 +0001897245 +us-gaap:WarrantMember +2022-12-31 +0001897245 +us-gaap:WarrantMember +2022-01-01 +2022-12-31 +0001897245 +us-gaap:CostOfGoodsTotalMember +us-gaap:SupplierConcentrationRiskMember +ACAX:FiveSuppliersMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:CostOfGoodsTotalMember +us-gaap:SupplierConcentrationRiskMember +ACAX:FiveSuppliersMember +2023-01-01 +2023-12-31 +0001897245 +ACAX:KetomeiPteLtdMember +2024-01-01 +2024-12-31 +0001897245 +ACAX:SharingServicesGlobalCorporationMember +2024-01-01 +2024-12-31 +0001897245 +ACAX:KetomeiPteLtdMember +ACAX:InvestmentInAssociateRelatedPartyMember +2023-12-31 +0001897245 +ACAX:KetomeiPteLtdMember +ACAX:InvestmentInAssociateRelatedPartyMember +2024-01-01 +2024-12-31 +0001897245 +ACAX:KetomeiPteLtdMember +ACAX:InvestmentInAssociateRelatedPartyMember +2024-12-31 +0001897245 +ACAX:KetomeiPteLtdMember +ACAX:ConvertibleNoteReceivableRelatedPartyMember +2023-12-31 +0001897245 +ACAX:KetomeiPteLtdMember +ACAX:ConvertibleNoteReceivableRelatedPartyMember +2024-01-01 +2024-12-31 +0001897245 +ACAX:KetomeiPteLtdMember +ACAX:ConvertibleNoteReceivableRelatedPartyMember +2024-12-31 +0001897245 +ACAX:KetomeiPteLtdMember +2023-12-31 +0001897245 +ACAX:KetomeiPteLtdMember +2024-12-31 +0001897245 +ACAX:KetomeiPteLtdMember +ACAX:InvestmentInAssociateRelatedPartyMember +2022-12-31 +0001897245 +ACAX:KetomeiPteLtdMember +ACAX:InvestmentInAssociateRelatedPartyMember +2023-01-01 +2023-12-31 +0001897245 +ACAX:KetomeiPteLtdMember +ACAX:ConvertibleNoteReceivableRelatedPartyMember +2022-12-31 +0001897245 +ACAX:KetomeiPteLtdMember +ACAX:ConvertibleNoteReceivableRelatedPartyMember +2023-01-01 +2023-12-31 +0001897245 +ACAX:KetomeiPteLtdMember +2022-12-31 +0001897245 +ACAX:KetomeiPteLtdMember +2023-01-01 +2023-12-31 +0001897245 +ACAX:SharingServicesGlobalCorporationMember +ACAX:ConvertibleNoteReceivableRelatedPartyMember +2023-12-31 +0001897245 +ACAX:SharingServicesGlobalCorporationMember +ACAX:ConvertibleNoteReceivableRelatedPartyMember +2024-01-01 +2024-12-31 +0001897245 +ACAX:SharingServicesGlobalCorporationMember +ACAX:ConvertibleNoteReceivableRelatedPartyMember +2024-12-31 +0001897245 +ACAX:SharingServicesGlobalCorporationMember +2023-12-31 +0001897245 +ACAX:SharingServicesGlobalCorporationMember +2024-12-31 +0001897245 +ACAX:ConvertibleNoteReceivableRelatedPartyMember +2024-01-01 +2024-12-31 +0001897245 +ACAX:ConvertibleNoteReceivableRelatedPartyMember +2023-01-01 +2023-12-31 +0001897245 +ACAX:KetomeiPteLtdMember +2024-02-20 +2024-02-20 +0001897245 +ACAX:SharingServicesGlobalCorporationMember +ACAX:ConvertibleNoteReceivableRelatedPartyMember +us-gaap:AdditionalPaidInCapitalMember +2024-01-01 +2024-12-31 +0001897245 +ACAX:AlsetHWHAndHWHMergerSubIncMember +2023-12-31 +0001897245 +ACAX:AlsetHWHAndHWHMergerSubIncMember +us-gaap:CommonClassAMember +2023-12-31 +0001897245 +ACAX:AlsetHWHAndHWHMergerSubIncMember +us-gaap:CommonClassBMember +2023-12-31 +0001897245 +ACAX:AlsetHWHAndHWHMergerSubIncMember +2023-12-01 +2023-12-31 +0001897245 +us-gaap:CommonStockMember +us-gaap:SubsequentEventMember +2025-01-03 +0001897245 +ACAX:PreFundedWarrantsMember +us-gaap:SubsequentEventMember +2025-01-03 +0001897245 +us-gaap:SubsequentEventMember +2025-01-03 +0001897245 +us-gaap:IPOMember +ACAX:PreFundedWarrantsMember +us-gaap:SubsequentEventMember +2025-01-03 +0001897245 +ACAX:PreFundedWarrantsMember +us-gaap:SubsequentEventMember +2025-01-03 +2025-01-03 +0001897245 +us-gaap:SubsequentEventMember +ACAX:DBoralCapitalLLCMember +2025-01-03 +2025-01-03 +0001897245 +us-gaap:CommonStockMember +us-gaap:SubsequentEventMember +2025-01-16 +0001897245 +us-gaap:CommonStockMember +us-gaap:SubsequentEventMember +2025-01-16 +2025-01-16 +0001897245 +ACAX:LEHInsuranceGroupLLCMember +2024-11-19 +0001897245 +ACAX:SharingServicesGlobalCorpMember +2024-11-19 +0001897245 +ACAX:OriginalOwnerMember +2024-11-19 +0001897245 +ACAX:SharingServicesGlobalCorpJohnThatchMember +2024-11-19 +0001897245 +us-gaap:SubsequentEventMember +ACAX:SecuritiesPurchaseAgreementMember +2025-03-31 +0001897245 +us-gaap:CommonStockMember +us-gaap:SubsequentEventMember +ACAX:SecuritiesPurchaseAgreementMember +2025-03-31 +0001897245 +2024-10-01 +2024-12-31 +iso4217:USD +xbrli:shares +iso4217:USD +xbrli:shares +iso4217:SGD +xbrli:pure +UNITED +STATES +SECURITIES +AND EXCHANGE COMMISSION +Washington, +D.C. 20549 +FORM +10-K +(Mark +One) +☒ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the fiscal year ended December 31 , 2024 +or +☐ +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the transition period from _________ to _________ +Commission +File Number: 001-41254 +HWH +INTERNATIONAL INC. +(Exact +name of registrant as specified in its charter) +Delaware +87-3296100 +(State +or other jurisdiction of +incorporation +or organization) +(I.R.S. +Employer +Identification +Number) +4800 +Montgomery Lane , Suite 210 +Bethesda , +MD 20814 +301 - 971-3955 +(Address +of Principal +Executive +Offices) +Registrant’s +telephone number, +including +area code +Securities +registered pursuant to Section 12(b) of the Act: +Title +of each class +Trading +Symbol +Name +of each exchange on which registered +Common +Stock, par value $0.0001 per share +HWH +The +Nasdaq Capital Market +Securities +registered pursuant to Section 12(g) of the Act: None +Indicate +by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No +☒ +Indicate +by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No +☒ +Indicate +by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange +Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) +has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate +by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule +405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant +was required to submit such files). Yes ☒ No ☐ +Indicate +by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting +company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” +“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +☐ +Large accelerated filer +☐ +Accelerated filer +☒ +Non-accelerated filer +☒ +Smaller reporting company +☒ +Emerging growth company +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying +with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate +by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness +of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C 7262(b)) by the registered +public accounting firm that prepared or issued its audit report. ☐ +If +securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statement of the registrant +included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate +by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation +received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate +by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No +☒ +Aggregate +market value of voting and non-voting common equity held by non-affiliates of the registrant as of July 1, 2024 based upon the closing +price of the common stock as reported by the Nasdaq Global Select Market on such date, was approximately $ 22,702,995 . +As +of March 31, 2025, there were 6,476,400 +shares of Common Stock, par value $ 0.0001 per share of the Company issued and outstanding. +DOCUMENTS +INCORPORATED BY REFERENCE +None. +HWH +International Inc. +Form +10-K +For +the Year Ended December 31, 2024 +Table +of Contents +Page +PART I +Item +1. +Business +4 +Item +1A. +Risk Factors +9 +Item +1B. +Unresolved Staff Comments +9 +Item 1C. +Cybersecurity +9 +Item +2. +Properties +9 +Item +3. +Legal Proceedings +9 +Item +4. +Mine Safety Disclosures +9 +PART II +Item +5. +Market for Company’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities +10 +Item +6. +[RESERVED] +11 +Item +7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +12 +Item +7A. +Quantitative and Qualitative Disclosures About Market Risk +21 +Item +8. +Consolidated Financial Statements and Supplementary Data +22 +Item +9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosures +23 +Item +9A. +Controls and Procedures +23 +Item +9B. +Other Information +23 +Item +9C +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +23 +PART III +Item +10. +Directors, Executive Officers and Corporate Governance +24 +Item +11. +Executive Compensation +29 +Item +12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +30 +Item +13. +Certain Relationships and Related Transactions, and Director Independence +31 +Item +14. +Principal Accounting Fees and Services +34 +PART IV +Item +15. +Exhibit and Consolidated Financial Statement Schedules +35 +Item +16. +Form 10-K Summary +36 +Signatures +36 +2 +Throughout +this Report on Form 10-K, the terms the “Company,” “HWH,” “we,” “us,” and “our” +refer to HWH International Inc., and “our board of directors” refers to the board of directors of HWH International Inc. +CAUTIONARY +STATEMENT REGARDING FORWARD-LOOKING INFORMATION +This +Annual Report on Form 10-K contains forward-looking statements regarding, among other things, our future operating results and financial +position, our business strategy, and other objectives for our future operations. The words “anticipate,” “believe,” +“intend,” “expect,” “may,” “estimate,” “predict,” “project,” +“potential” and similar expression are intended to identify forward-looking statements, although not all forward-looking +statements contain these identifying words. We have based these forward-looking statements largely on our current expectations and projections +about future events and financial trends that we believe may affect our business, financial condition and results of operations. There +are a number of important risks and uncertainties that could cause our actual results to differ materially from those indicated by forward-looking +statements. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should +not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions +and expectations disclosed in the forward-looking statements we make. Our forward-looking statements do not reflect the potential impact +of any future acquisitions, mergers, dispositions, joint ventures or investments that we may make. +You +should read this Report on Form 10-K and the documents that we have filed as exhibits to this Report on Form 10-K completely and with +the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained +in this Report on Form 10-K are made as of the date of this Report on Form 10-K, and we do not assume any obligation to update any forward-looking +statements, whether as a result of new information, future events or otherwise, except as required by applicable law. +3 +PART +I +Item +1. Business. +General +The +Company was incorporated in Delaware on October 20, 2021 under the name Alset Capital Acquisition Corp. The Company was formed for the +purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination +with one or more businesses (the “Business Combination”). On February 3, 2022, the Company completed its Initial Public Offering. +The Company consummated the Business Combination on January 9, 2024 and changed its name from “Alset Capital Acquisition Corp.” +to “HWH International Inc.” +The +business we acquired in January of 2024 started in South Korea with a single-level membership marketing model with limited products for +sale. We registered the business on April 1, 2019, and we started selling founders packages on July 1, 2019. While we had been profitable +and growing, the COVID-19 pandemic had a material adverse effect on such growth and profits. We created a new corporate structure, with +subsidiaries in the United States, Hong Kong and Singapore, that would allow for quick geographical expansion and turning our focus to +the Hapi Café development. +We +have 9,811 individuals with founding member status. This is a privileged class that will be able to enjoy continuous membership benefits +given that they have trusted the Company and joined at an early stage. Such benefits include the ability to purchase new future memberships, +in the model described below, at a favorable rate to be determined by the Company. They will also continue to be able to earn affiliate +commissions as they sell our products in the marketplace and enjoy discounted rates when visiting Hapi Cafés until further notice. +The total number of founding members was capped at 10,000. The Company is in the midst of implementing a new membership model. While +we are not currently selling memberships, we intend to resume membership sales under this new model. +Members +will get exclusive discounts on Hapi Marketplace products, priority invites to product launch events and other parties, and look to earn +passive income through affiliate commissions at Hapi Marketplace. +Our +operations include: +Hapi +Marketplace, which offers certain products at a discounted price to our members. Hapi Marketplace, HWH’s online consumer +marketplace, went live in September of 2024, and now offers over 6,500 products from manufacturers and wholesalers, including a wide +range of items such as bathroom supplies, fashion products, accessories, cosmetics, and health supplements. +Hapi +Cafés, which are, and will be, in-person, location-based social experiences, offer members the opportunity to build a +sense of community with like-minded customers who share a potential interest in our products. The cafes expose our members to and educate +them about the products and services of our affiliates, providing us with the chance to significantly increase our membership base as +well as increase the amounts spent by our members on our affiliates’ products and services. Each of our cafés is a “Hapi +Café.” We opened proof-of-concept Hapi Café locations in Seoul, South Korea and Singapore in May 2022, July 2022 +and April 2024, respectively, and plan to open additional Hapi Cafés as we beta test and further improve our business concept. +We intend to grow our memberships as we grow the number of Hapi Cafés around the world. Hapi Cafe is positioned to be an integral +part of HWH’s business model. +Our +travel business is in the planning stage as we are working with our affiliates to determine the market-by-market services. Through +our travel business, we plan to offer exclusive access to unpublished rates and discounts on air travel, cruises, car rentals, +hotels, and resorts for members. We have made a minority investment into a travel agency with a HK, China and Malaysia presence. The +focus is primarily on educational tours for China’s primary and secondary school students visiting attractions and tours in +China and overseas. We also conduct business for hotel booking offers to a hotel booking platform as well as organizing tour +conferences for groups and communities. The Company shall continue develop consumer traveling services and hotel booking services in +Asia. +4 +Hapi +Wealth Builder is in the planning stage as we are exploring the options of providing services to our members through +financial informational materials aimed at various types of investing opportunities. The team has been diligently producing digital +content for Hapi Wealth Builder and working to collaborate with the right partners to launch the program and make it available to +members. We have completed a soft launch with Hapi Cafe China to build the credibility and reputation of the Company and its Hapi Wealth Builder business, which we intend to launch later +in 2025. +Market +Opportunity +Following +the COVID-19 pandemic, we believe people are looking for in-person communities. By offering a social and business centric atmosphere +at our Hapi Cafés, we plan to leverage this deeply-rooted desire and build a membership organization, increase their familiarity +with and educate them about the products and services of our affiliates and how those products and services can help them in their own +individual pursuits of health, wealth and happiness. +Growth +Strategy +Our +strategy is to continuously grow our membership base, while displaying to our members the added benefits of the higher tiers of membership. +We will look to accomplish this by providing a comfortable in person setting of a Hapi Café for our customers in many more locations. +We also plan to continually expand our product offerings and the services our affiliate companies can provide in the belief that this +can serve to grow our membership base and have our members increasingly opt to avail themselves of membership options that offer them +larger discounts and other benefits on the products and services of our affiliates. +Nasdaq +Deficiency +On +March 7, 2024, we received notice from Nasdaq Stock Market, LLC (“Nasdaq”) indicating that, because the market value of our +common stock had been below $50,000,000 for the prior 37 consecutive business days, we no longer complied with the minimum market value +of listed securities (the “MVLS”) requirement for continued listing on the Nasdaq Global Market under Rule 5450(b)(2)(A) +of Nasdaq Listing Rules. +Nasdaq’s +notice had no immediate effect on the listing of our common stock on the Nasdaq Global Market. Pursuant to Nasdaq Marketplace Rule 5810(c)(3)(C), +we had been provided an initial compliance period of 180 calendar days, or until September 3, 2024, to regain compliance with the MVLS +requirement. To regain compliance, the Company’s MVLS was required to be at least $50,000,000 or more for a minimum of ten consecutive +business days prior to September 3, 2024. In that regard, on September 9, 2024, the Company received a notice from the Staff that the +matter of the MVLS deficiency was to be considered at the Company’s upcoming appeal with the Nasdaq Hearings Panel. +5 +On +February 22, 2024, the Nasdaq Staff (the “Staff”) notified the Company that for the previous 30 consecutive trading days, +the MVPHS had been below the minimum $15,000,000 required for continued listing as set forth in Listing Rule 5450(b)(2)(C) (the “Rule”). +Therefore, in accordance with Marketplace Rule 5810(c)(3)(D), the Company was provided 180 calendar days, or until August 20, 2024, to +regain compliance with the Rule. In that regard, on August 27, 2024, the Company received a notice from the Staff that the Company will +be delisted from the Nasdaq Global Market, unless the Company requested an appeal of this determination by September 3, 2024. +The +Company presented its compliance plan to the Panel at a hearing on October 15, 2024. On October 21, 2024, the Company received a notice +from the Panel granting the Company an extension to phase down its securities to the Nasdaq Capital Market and demonstrate compliance +with the market value of its publicly held shares (the “MVPHS”) and Stockholders’ Equity requirements as set forth +in Nasdaq Listing Rules 5550(a)(5) and 5550(b)(1). +On +September 4, 2024, the Company received written notice (the “Notice”) from the Listing Qualifications Staff of Nasdaq notifying +the Company that for the prior 30 consecutive business days prior to the date of the Notice, the Company’s bid price was below +the minimum $1 required for continued listing on the Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(a)(1) (the “Bid +Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), Nasdaq provided the Company with 180 calendar days, +or until March 3, 2025, (the “Compliance Date”), to regain compliance with the Bid Price Requirement. +On +March 10, 2025, the Company received written notice (the “Compliance Notice”) from Nasdaq informing the Company that it has +regained compliance with Nasdaq Listing Rule 5550(a)(2), which requires that companies listed on the Nasdaq Capital Market maintain a +minimum bid price of $1.00 per share. Nasdaq notified the Company in the Compliance Notice that, from February 24, 2025 to March 7, 2025, +the closing bid price of the Company’s common stock had been $1.00 per share or greater and, accordingly, the Company had regained +compliance with Nasdaq Listing Rule 5550(a)(2) and that the matter was now closed. The Company is currently listed on the Nasdaq Capital Market. +On +February 18, 2025, the Company filed a Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation +with the Delaware Secretary of State to effect a 1-for-5 reverse stock split (the “Reverse Stock Split”). The Reverse Stock +Split became effective as of market open on February 24, 2025. The par value of the common stock following the reverse stock split remains +at $0.001 per share. The reverse stock split has been retroactively applied to all financial statements presented. +As +of December 31, 2024 and 2023, the total outstanding common shares of the Company were 5,593,920 and 2,000, respectively; the total outstanding +class A common shares of the Company were 0 and 94,750, respectively; the total outstanding class B common shares of the Company were +0 and 431,250, respectively. +Credit +Facility +On +April 24, 2024, we entered into a Credit Facility Agreement (the “Credit Agreement”) with Alset Inc., a Texas corporation +and the Company’s indirect, majority stockholder, pursuant to which Alset Inc. has provided the Company a line of credit facility +(the “Credit Facility”), which provides a maximum, aggregate credit line of up to $1,000,000. As of December 31, 2024, $300,000 credit was used and $700,000 is available to use in the future. +Pursuant +to the Credit Agreement, the Company may request an advance (each, an “Advance”) on the Credit Facility. Each Advance shall +bear a simple interest rate of three percent (3%) per annum. Each Advance and all accrued but unpaid interest shall be due and payable +at the first (1st) anniversary of the effective date of the Credit Agreement. HWH may at any time during the term of the Credit Agreement +prepay a portion or all amounts of its indebtedness without penalty. Each advance shall not be secured by a lien or other encumbrance +on any HWH assets, but shall be solely a general unsecured debt obligation of HWH. +6 +Debt +Conversion Agreements +On +September 24, 2024, HWH International Inc. entered into two debt conversion agreements with creditors (each an “Agreement,” +or collectively, the “Agreements”): (i) Alset International Limited (the Company’s majority stockholder); and (ii) +Alset Inc. (which is Alset International Limited’s majority stockholder). Each Agreement converts debt owed by the Company to the +respective creditor into shares of the Company’s common stock. The Agreements are substantially the same with the exception of +the amount of debt to be converted under each. +Under +the terms of their respective agreements, Alset Inc. converted $300,000 of the Company’s debt into 476,190 shares of the Company’s +common stock, and Alset International Limited converted $3,501,759 of the Company’s debt into 5,558,347 shares of the Company’s +common stock. Under the Agreements, the debt conversions resulted in the issuance of newly issued shares of the Company’s common +stock. The debt conversion price was set at $0.63 per share. Cumulatively, the newly issued shares contemplated by the Agreements represent +6,034,537 new shares of the Company’s common stock, constituting an increase to the total issued and outstanding shares of the +Company’s common stock of 37.2% over the amount immediately preceding the effectiveness of the Agreements. The shares contemplated +by the Agreements are restricted securities under the Securities Act of 1933, and shall be issued in reliance upon the safe harbor provided +by Rule 506 of Regulation D. +Stock +Purchase Agreements +On +November 25, 2024, the Company entered into a stock purchase agreement with Alset Inc. (“AEI”), pursuant to which Alset Inc. +agreed to purchase 4,411,764 shares of the Company’s common stock for a purchase price of $0.68 per share. AEI is the majority +shareholder of the Company, and immediately prior to the effectiveness of the stock purchase agreement, AEI directly and through its +subsidiaries owned 86.6% of the issued and outstanding shares of HWH common stock. +On +December 24, 2024, the Company entered into a Stock Purchase Agreement with AEI, pursuant to which AEI agreed to purchase 1,300,000 shares +of the Company’s common stock (the “Shares”) for a total of $585,000, representing a purchase price of $0.45 per share. +AEI is the majority shareholder of the Company. +AEI’s +investments are intended to support the growth and development of HWH. The Company believes that these investments of additional funds +into HWH are in the best interests of each of AEI and the Company. +Going +Concern and Management’s Plan +On +January 9, 2024, the Company consummated the Business Combination (the “Closing”) contemplated by the previously announced +Agreement and Plan of Merger, dated as of September 9, 2022 (the “Merger Agreement”). The Company’s common stock commenced +trading on the Nasdaq Global Market LLC under the ticker symbol “HWH” on January 9, 2024, and the Company’s warrants +are expected to commence trading at a later date. +The +Company has incurred continuing losses from its operations and has a working capital deficit of $2,163,723 as of December 31, 2024. There are no assurances the Company will be able to raise capital +on acceptable terms or that cash flows generated from its operations will be sufficient to meet its current operating costs. If the Company +is unable to obtain sufficient amounts of additional capital, it may be required to reduce the scope of its business, which could harm +its financial condition and operating results. +These conditions +raise substantial doubt about the Company’s ability to continue ongoing operations. However, the Company believes that the available +cash in the Company’s bank accounts, anticipated cash from operations, and financing availability from related parties are sufficient +to fund our operations for at least the next 12 months. +On April 24, 2024, the Company +entered into a Credit Facility Agreement (the “Agreement”) with Alset Inc., a Texas corporation and the Company’s indirect, +majority stockholder, pursuant to which Alset Inc. has provided the Company a line of credit facility (the “Credit Facility”) +which provides a maximum, aggregate credit line of up to $1,000,000. As of December 31, 2024, there are no outstanding amounts related +to the Credit Facility, as the debt with Alset Inc. was converted to equity on September 24, 2024. The remaining credit of $700,000 is +available for draw as on December 31, 2024. +Pursuant to the Agreement, the +Company may request an advance (each, an “Advance”) on the Credit Facility. Each advance shall bear a simple interest rate +of three percent (3%) per annum. Each Advance and all accrued but unpaid interest shall be due and payable at the first (1st) anniversary +of the effective date of the Agreement. HWH may at any time during the term of the Agreement prepay a portion or all amounts of its indebtedness +without penalty. Each Advance shall not be secured by a lien or other encumbrance on any HWH assets, but shall be solely a general unsecured +debt obligation of the Company. +The Company has obtained letters of financial support from Alset International Limited and Alset Inc., an indirect +and direct owner of the Company, respectively. Alset International Limited and Alset Inc. committed to provide any additional funding +required by the Company and would not demand repayment through twelve months from the issuance of these consolidated financial statements. +7 +Our +Organizational Chart: +Employees +At +the present time, the Company has 16 employees. The Company had an agreement with Alset Management Group, Inc., pursuant to which, for +a fee, Alset Management Group, Inc. provided the Company with secretarial and administrative services. This agreement expired at the +time of closing of Business Combination. +Intellectual +Property +We +anticipate filing additional trademark applications as we expand into new areas of business. +Corporate +Information +Our +mailing address is 4800 Montgomery Lane, Suite 210, Bethesda, MD, 20814. We were incorporated in Delaware on October 20, 2021 under the +name Alset Capital Acquisition Corp. The Company is an early stage and emerging growth company and, as such, the Company is subject to +all of the risks associated with early stage and emerging growth companies. +Additional +Information +The +Company is subject to the information requirements of the Exchange Act, and, in accordance therewith, files annual, quarterly, and special +reports, proxy statements and other information with the Securities and Exchange Commission (the “Commission”). The Commission +maintains an internet website at http://www.sec.gov that contains reports, proxy and information statements and other information regarding +issuers that file electronically with the Commission. The periodic reports, proxy statements and other information that the Company files +with the Commission are available for inspection on the Commission’s website free of charge as soon as reasonably practicable after +they are electronically filed with or furnished to the Commission. +The +Company maintains a website at https://www.hwhintl.com where you may also access these materials free of charge. We have included our +website address as an inactive textual reference only and the information contained in, and that can be accessed through, our website +is not incorporated into and is not part of this report on Form 10-K. +8 +Item +1A. Risk Factors. +Not +applicable to smaller reporting companies. +Item +1B. Unresolved Staff Comments. +Not +applicable to smaller reporting companies. +Item 1C. Cybersecurity. +Risk Management and Strategy +We recognize the critical importance +of developing, implementing, and maintaining robust cybersecurity measures to safeguard our information systems and protect the confidentiality, +integrity, and availability of our data. +Managing Material Risks and Integrated Overall +Risk Management +We have strategically integrated +cybersecurity risk management into our broader risk management framework to promote a company-wide culture of cybersecurity risk management. +This integration ensures that cybersecurity considerations are an integral part of our decision-making processes at every level. Our management +continuously evaluate and addresses cybersecurity risks in alignment with our business objectives and operational needs. +Risks from Cybersecurity Threats +We have not encountered cybersecurity +challenges that have materially impaired our operations or financial standing. +Cybersecurity Governance +Our Board +considers cybersecurity risk as part of its risk oversight function and has delegated to the Audit Committee (the “Committee”) +oversight of cybersecurity, data privacy and other information technology risks. The Committee oversees management’s implementation +of our cybersecurity risk management program and cybersecurity risk exposures, and the steps taken by management to monitor and mitigate +cybersecurity risks. The Committee is composed of members of our board of directors with diverse expertise, which has prepared them to +oversee our cybersecurity risks. +The Committee receives periodic +reports from management on our cybersecurity risks. In addition, management updates the Committee, as necessary, regarding any material +cybersecurity incidents, as well as any incidents with lesser impact potential. +The Committee reports +to the Board regarding its activities, including those related to cybersecurity. The Board also receives briefings from management +on our cybersecurity risk management program. +Our management team, including our Chief Executive Officer, are responsible for assessing and managing +our material risks from cybersecurity threats. The team has primary responsibility for our overall cybersecurity risk management +program and supervises efforts to prevent, detect, mitigate and remediate cybersecurity risks and incidents through various means, which +may include briefings from internal security consultants; threat intelligence and other information obtained from governmental, public +or private sources, including external consultants which may be engaged by us; and alerts and reports produced by security tools deployed +in the information technology environment. Our management team’s experience includes monitoring the cybersecurity landscape +for new risks and best practices, developing and executing cybersecurity strategies, overseeing related governance policies, testing compliance +with applicable technical standards, remediating known risks and leading employee training programs . +Item +2. Properties +Our +executive offices are located at 4800 Montgomery Lane, Suite 210, Bethesda, MD 20814, and our telephone number is (301) 971-3955. The +cost for our use of this space was included in the $10,000 per month fee we paid to Alset Management Group Inc. for office space, administrative +and shared personnel support services. Upon completion of the Business Combination, the Company ceased paying these monthly fees. At +the present time, our majority stockholder is temporarily providing us office space at no cost. We consider our current office space +adequate for our current operations. +Item +3. Legal Proceedings. +The +Company is not a party to any material pending legal proceedings. +There +are no material proceedings to which any director, officer or affiliate of the Company, or any owner of record or beneficially of more +than five percent of any class of voting securities of the Company, or any associate of any such director, officer, affiliate of the +Company, or security holder is a party adverse to the Company or any of its subsidiaries or has a material interest adverse to the Company +or any of its subsidiaries. +Item +4. Mine Safety Disclosures +Not +applicable. +9 +PART +II +Item +5. Market for Company’s Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities +Market +Information +Our +common stock is currently listed on the Nasdaq Capital Market under the symbol “HWH”. As of December 31, 2024, we had approximately +5,593,920 shares of common stock issued and outstanding. +Prior +to our initial listing on the Nasdaq Global Market there was no public trading market for our securities. We subsequently moved to the +Nasdaq Capital Market. +Holders +As +of December 31, 2024, the Company had eight stockholders of record. The number of holders of record does not include a substantially +greater number of “street name” holders or beneficial holders whose shares of the Company’s common stock are held of +record by banks, brokers and other financial institutions. +Dividends +We +have never declared or paid cash dividends on our capital stock. We intend to retain all available funds and any future earnings for +use in the operation of our business and do not anticipate paying any cash dividends on our capital stock in the foreseeable future. +Notwithstanding the foregoing, any determination to pay cash dividends will be at the discretion of our board of directors and will depend +upon a number of factors, including our results of operations, financial condition, future prospects, contractual restrictions, restrictions +imposed by applicable law and other factors our board of directors deems relevant. +Securities +authorized for issuance under equity compensation plans. +The +Company does not have securities authorized for issuance under any equity compensation plans. +Performance +graph +Not +applicable to smaller reporting companies. +Recent +sales of unregistered securities; use of proceeds from registered securities +On +November 8, 2021, our Sponsor purchased 2,156,250 founder shares for an aggregate purchase price of $25,000, or approximately $0.012 +per share. Such securities were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. +Prior to the initial investment in the Company of $25,000 by our Sponsor, the Company had no assets, tangible or intangible. The per +share purchase price of the founder shares was determined by dividing the amount of cash contributed to the Company by the aggregate +number of founder shares issued. The number of founder shares issued was determined based on the expectation that the founder shares +would represent 20% of the outstanding shares after the Initial Public Offering (excluding the placement units and underlying securities). +On +February 3, 2022, we consummated our Initial Public Offering (the “Offering”) of an aggregate of 8,625,000 units (“Units”) +including the issuance of 1,125,000 Units as a result of the underwriter’s full exercise of its over-allotment option. The Units +were sold at an offering price of $10.00 per Unit, generating gross proceeds of $86,250,000. +10 +Simultaneously +with the consummation of the Offering, the Company consummated the private placement of 473,750 units (the “Private Placement Units”) +to the Sponsor, including the issuance of 33,750 Private Placement Units in connection with the underwriter’s full exercise of +its over-allotment option, at a price of $10.00 per Private Placement Unit, generating total gross proceeds of $4,735,500 (the “Private +Placement”). The Private Placement was conducted as a non-public transaction and, as a transaction by an issuer not involving a +public offering, was exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act. +Of +the gross proceeds received from the Offering, including the full exercise of the over-allotment option, and the Private Placement Units, +$86.25 million and $4.7 million was placed in the Trust Account, respectively. +On +February 3, 2022, the Company paid a cash underwriting discount of $0.20 per Unit, or $1,725,000. In addition, the underwriters were +entitled to a deferred fee of $0.35 per Unit, or $3,018,750 in the aggregate. The deferred fee was payable to the underwriters from the +amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the +underwriting agreement. +On +December 18, 2023, the Company entered into a Satisfaction and Discharge of Indebtedness Agreement (the “Satisfaction Agreement”) +in connection with the Underwriting Agreement, dated January 31, 2022 (the “Underwriting Agreement”), with EF Hutton, LLC +(“EF Hutton”) (now known as D. Boral Capital LLC), in which, pursuant to that certain Underwriting Agreement, the Company +was due to pay $3,018,750 to EF Hutton as deferred underwriting commission (the “Deferred Underwriting Commission”) upon +the closing of the Business Combination. In lieu of the Company tendering the full amount of Deferred Underwriting Commission, the Company +and EF Hutton entered into the Satisfaction Agreement, pursuant to which EF Hutton accepted a combination of $325,000 in cash (the “Cash +Payment”) paid upon the closing of the Business Combination, 149,443 shares of the Company’s common stock (the “Shares”) +and a $1,184,375 promissory note (the “Promissory Note”) as full satisfaction of the Deferred Underwriting Commission. Satisfaction +and discharge of the Deferred Underwriting Commission depended on the Company’s delivery of the Cash Payment, the Shares and the +Promissory Note under the terms of the Satisfaction Agreement. Additionally, the Company has granted EF Hutton an irrevocable right of +first refusal (the “ROFR”) to act as the sole investment banker, sole book-runner, and/or sole placement agent, at EF Hutton’s +sole discretion, for each and every future public and private equity and debt offering, including all equity linked financing for a period +commencing on the date of the satisfaction and ending twenty-four months after the closing of the business combination. +On +January 3, 2025, the Company announced the pricing of its public offering of 3,162,500 shares of common stock, par value $0.0001 per +share and 1,250,000 pre-funded warrants to purchase shares of common stock (the “Pre-Funded Warrants”). These shares and +the Pre-Funded Warrants were offered at a public offering price of $0.40 per share and $0.3999 per the Pre-Funded Warrant. The Pre-Funded +Warrants are exercisable immediately upon issuance and have an exercise price of $0.0001 per share. The gross proceeds to the Company +from the offering were approximately $1.76 million, before deducting placement agent fees and other offering expenses of approximately $355,017. +The +offering was conducted pursuant to the Company’s registration statement on Form S-1, which was initially filed with the Commission +on October 10, 2024, subsequently amended on October 23, 2024, December 4, 2024, and December 10, 2024, and declared effective on December +19, 2024. The offering closed on January 6, 2025. +D. +Boral Capital LLC (“D. Boral Capital”) was acting as the exclusive placement agent for the offering. Pursuant to the Placement +Agency Agreement, the Company has agreed to pay D. Boral Capital a cash fee equal to 7.5% of the gross proceeds from the offering, a +non-accountable expense allowance equal to 1.0% of the gross proceeds, and reimbursement for legal and out-of-pocket expenses up to $75,000. +Purchases +of Equity Securities by the issuer and affiliated purchasers +The +Company did not repurchase any shares of the Company’s common stock during 2024 and 2023. +Item +6. [RESERVED] +11 +Item +7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. +References +to the “Company,” “HWH International Inc.,” “HWH,” “our,” “us” or “we” +refer to HWH International Inc. and its subsidiaries. The following discussion and analysis of the Company’s financial condition +and results of operations should be read in conjunction with the unaudited interim financial statements and the notes thereto contained +elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements +that involve risks and uncertainties. +This +Form 10-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For +this purpose, any statements contained in this Form 10-K that are not statements of historical fact including, without limitation, statements +under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the +Company’s financial position, business strategy and the plans and objectives of management for future operations, may be deemed +to be forward-looking statements. Without limiting the foregoing, words such as “may”, “will”, “expect”, +“believe”, “anticipate”, “estimate” or “continue” or comparable terminology are intended +to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results +may differ materially depending on a variety of factors, many of which are not within our control. These factors include by are not limited +to economic conditions generally and in the industries in which we may participate; competition within our chosen industry, including +competition from much larger competitors; technological advances and failure to successfully develop business relationships. Such forward-looking +statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, the Company’s +management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors +detailed in our filings with the SEC. +The +following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated +financial statements and the notes thereto contained elsewhere in this Report. Certain information contained in the discussion and analysis +set forth below includes forward-looking statements that involve risks and uncertainties. +Overview +HWH +International Inc. and its consolidated subsidiaries (collectively, the “Company” or “HWH”) operate a food and +beverage (“F&B”) business in Singapore and South Korea. The F&B business operates four cafés, two of which +are located in South Korea and two in Singapore, as well as an online healthy food store, serving customers in Singapore. The Company +previously operated a membership model in which individuals paid an upfront membership fee to become members. As members, these individuals +received discounted access to products and services offered by the Company’s affiliates. The Company had approximately 9,811 members, +primarily in South Korea. Currently, this membership business has been temporarily suspended, however the Company intends to resume this +business following the ongoing restructuring of the membership model. +HWH +International Inc. was originally incorporated in Delaware on October 20, 2021 under the name Alset Capital Acquisition Corp. The Company +was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar +business combination with one or more businesses (the “Business Combination”). The Company consummated the Business Combination +on January 9, 2024 and changed its name from “Alset Capital Acquisition Corp.” to “HWH International Inc.” The +Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early +stage and emerging growth companies. +On +September 9, 2022, the Company entered into an agreement and plan of merger (the “Merger Agreement”) by and among the Company, +HWH International Inc., a Nevada corporation (the “HWH Nevada” or “Target”) and HWH Merger Sub Inc., a Nevada +corporation and a wholly owned subsidiary of the Company (“Merger Sub”). The Company and Merger Sub are sometimes referred +to collectively as the “ACAX Parties.” Pursuant to the Merger Agreement, a Business Combination between the Company and the +Target was effected through the merger of Merger Sub with and into HWH Nevada, with the Target surviving the merger as a wholly owned +subsidiary of the Company (the “Merger”). Upon the closing of the Merger (the “Closing”) on January 9, 2024, +the Company changed its name to “HWH International Inc.” The board of directors of the Company (i) approved and declared +advisable the Merger Agreement, the Ancillary Agreements (as defined in the Merger Agreement) and the transactions contemplated thereby +and (ii) resolved to recommend approval of the Merger Agreement and related transactions by the stockholders of the Company. +12 +The +Target was owned and controlled by certain member officers and directors of the Company and its Sponsor. The Merger was consummated following +the receipt of the required approval by the stockholders of the Company and the shareholders of the Target and the satisfaction of certain +other customary closing conditions. +The +total consideration paid at the Closing (the “Merger Consideration”) by the Company to the Target’s shareholders was +$125,000,000, and was payable in shares of the common stock, par value $0.0001 per share, of the Company (“Company Common Stock”). +The number of shares of the Company Common Stock paid to the shareholders of the Target as Merger Consideration was 12,500,000, with +each share being valued at $10.00. +Our +newly acquired business started in South Korea with a single-level membership marketing model with limited products for sale. We registered +the business on April 1, 2019, and we started selling founders package on July 1, 2019. While we had been profitable and growing, the +COVID-19 pandemic had a material adverse effect on such growth and profits. Due to the decline in membership and revenue starting in +2020, we reorganized our internal staff by adding a broader team in each of the United States, Hong Kong and Singapore with direct selling +and business development experience to head up and expand our operations across various geographies and revised our business plan to +a tiered membership model in 2022, with more products and services to be made available to our members. We created a new corporate structure, +with subsidiaries in the U.S., Hong Kong and Singapore, that would allow for quick geographical expansion and turned our focus to the +Hapi Café development. +We +have 9,811 individuals with founding member status. This is a privileged class that will be able to enjoy continuous membership benefits +in time to come, given that they have trusted the Company and joined at an early stage. Such benefits include the ability to purchase +new memberships, in the model described below, at a favorable rate to be determined by the Company. They will also continue to be able +to earn affiliate commissions as they sell our products in the marketplace and enjoy discounted rates when visiting Hapi Cafés +until further notice. The total number of founding members was capped at 10,000. The Company is in the midst of implementing a new membership +model that operates on a yearly subscription basis. While we are not currently selling memberships, we intend to resume membership sales +under this new model. +Members +will get exclusive discounts on Hapi Marketplace products, priority invites to product launch events and other parties, and can earn +passive income when a member’s referral signs up for membership or makes an initial purchase of Hapi Marketplace products through +them. +Our +operations include: +Hapi +Marketplace. On November 4, 2024, the Company announced the launch of its business-to-consumer marketplace, Hapi Marketplace. +Hapi Marketplace features a selection of over forty-seven product categories including wellness, elderly care, auto accessories and more. +Launching first in the United States, we intend for Hapi Marketplace to expand in the near future to South Korea and Hong Kong, followed +by further expansion across Asia. +The +various aspects of the Hapi Marketplace will be launched in phases in different regions, each with their own timeline, depending on +the completion of logistical aspects for implementation (i.e., payment gateway systems, business licenses, banking set up, import +licenses, managerial resources, etc.) We are expanding the product range into robotics for consumer and commercial markets. +Hapi +Cafés, which are, and will be, in-person, location-based social experiences, offer members the opportunity to build a +sense of community with like-minded customers who share a potential interest in our products. The cafes are designed to operate sustainably +as standalone businesses. The cafes also seek to be an avenue to create awareness to and educate potential and existing members about +the products and services of HWH, providing us with the chance to significantly increase our membership base as well as increase the +amounts spent by our members on our affiliates’ products and services. Each of our cafés is a “Hapi Café.” +We opened proof-of-concept Hapi Café locations in Seoul, the Republic of Korea and Singapore in May and July 2022, respectively, +one more opened in Seoul, the Republic of Korea in May 2024. We plan to open additional Hapi Cafés as we beta test and further +improve our business concept. We intend to grow our memberships as we grow the number of Hapi Cafés around the world. Hapi Cafes +are positioned to be integral parts of HWH’s business model. In June 2024, the Company’s decision to close the café +under Alset F&B (PLQ) Pte. Ltd. (“F&BPLQ”) was driven by the unsustainable revenue it generated. We believe it is +more strategic to refocus our efforts and resources on other business ventures that have greater growth potential. +Our +travel business is in the planning stage as we are working with our affiliates to determine the market-by-market services. Through our +travel business, we plan to offer exclusive access to unpublished rates and discounts on air travel, cruises, car rentals, hotels, and +resorts for members. +13 +Hapi +Wealth Builder seeks to provide participants the opportunity to attend courses, workshops, and coaching sessions in person, fostering +a collaborative learning environment for those dedicated to learning investment in equities and wealth-building strategies. The team +has been diligently producing digital content for Hapi Wealth Builder and working to collaborate with the right partners to launch the +program and make it available to members. Hapi Wealth Builder will leverage the wealth of knowledge and experience of its leaders to +make wealth building accessible and effective for its members. Our unique community-centric approach will offer members tools for making +informed financial decisions while creating pathways for sustained growth. +On +October 31, 2024, we announced that the Company scheduled the launch of Hapi Wealth, a program dedicated to providing comprehensive +education in equity investment and wealth-building strategies. We are targeting a rollout in selected regions later in 2025 +as well. +To +further support its mission, Hapi Wealth is opening its China headquarters, designed as a conducive environment for individuals to participate +in tutorials and workshops. The hub will offer participants the opportunity to attend courses, workshops, and coaching sessions in person, +fostering a collaborative learning environment for those dedicated to learning investment in equities and wealth-building strategies. +Our +Revenue Model +Our +total revenue for the years ended December 31, 2024 and 2023 was $1,253,577 and $830,519, respectively. Our net loss for the years ended +December 31, 2024 and 2023 was $2,606,504 and $1,076,662, respectively. +We +currently recognize revenue from food and beverage sales, sale of products, and memberships to customers. Sales of food and beverage +accounted for approximately 100% and 98% of revenue in the years ended December 31, 2024, and 2023, respectively. Sales of memberships +accounted for approximately 0% of revenue in the year ended December 31, 2024, and 2% of revenue in the year ended December 31, 2023. +From +a geographical perspective, we recognized 6% and 94% of our total revenue in the year ended on December 31, 2024, in South Korea and +Singapore, respectively, and 8% and 92% in the year ended December 31, 2023, in South Korea and Singapore, respectively. +Matters +that May or Are Currently Affecting Our Business +In +addition to the matters described above, the primary challenges and trends that could affect or are affecting our financial results include: +● +Our ability to improve our revenue through cross-selling and revenue-sharing arrangements among our group of companies; +● +Our ability to identify complementary businesses for acquisition, obtain additional financing for these acquisitions, if and when +needed, and profitably integrate them into our existing operation; +● +Our ability to attract competent and skilled technical and sales personnel for each of our businesses at acceptable compensation +levels to manage our overhead; and +● Our +ability to control our operating expenses as we expand each of our businesses and product and service offerings. +14 +Summary +of Significant Accounting Policies +Basis +of Presentation and Principles of Consolidation +The +Company’s consolidated financial statements and related notes include all the accounts of the Company and its wholly owned subsidiaries. +They have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. +GAAP”). All intercompany transactions have been eliminated in consolidation. +Use +of Estimates and Critical Accounting Estimates and Assumptions +The +preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the +reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements +and the reported amounts of revenues and expenses during the reporting periods. Significant estimates made by management include, but +are not limited to, allowance for credit losses, recoverability and useful lives of property, plant and equipment, the valuation allowance +of deferred taxes, contingencies, and equity compensation. Actual results could differ from those estimates. +Revenue +Recognition and Cost of Sales +Product +Sales: The Company’s performance obligation is to transfer ownership of its products to its members. The Company generally +recognizes revenue when a product is delivered to its member. Revenue is recorded net of applicable taxes, allowances, refund or returns. +The Company receives the net sales price in cash or through credit card payments at the point of sale. +If +any member returns a product to the Company on a timely basis, they may obtain a replacement product from the Company for such returned +product. Allowances for product and membership returns are provided at the time the sale is recorded. This accrual is based upon historical +return rates for each country and the relevant return pattern, which reflects anticipated returns to be received over a period of up +to 12 months following the original sale. Product and membership returns for the years ended December 31, 2024, and 2023 were approximately +$0 and $1,184, respectively. +Membership +Fee: The Company collects an annual membership fee from its members. The fee is fixed, paid in full at the time of joining the membership +and is not refundable. The Company’s performance obligation is to provide its members with the right to (a) purchase products from +the Company, (b) access to certain back-office services, (c) receive commissions and (d) attend corporate events. The associated performance +obligation is satisfied over time, generally over the term of the membership agreement, which is for a one-year period. The Company recognizes +revenue from membership fee over the one-year period of membership. +Food +and Beverage: The revenue received from food and beverage business in the years ended December 31, 2024, and 2023 was $1,253,577 +and $817,761, respectively. +Cost +of Revenue: Cost of revenue consists of cost of procuring finished goods from suppliers and related shipping and handling fees. +Results +of Operations +Summary +of Statements of Operations for the Years Ended December 31, 2024 and 2023 +Years Ended +December 31, +2024 +2023 +Revenue +$ 1,253,577 +$ 830,519 +Cost of revenue +651,721 +334,825 +Operating expenses +3,027,024 +3,402,793 +Other expenses / (income) +181,336 +(2,245,820 ) +Provision for income taxes +- +415,383 +Net loss +$ 2,606,504 +$ 1,076,662 +15 +Revenue +Revenue +was $1,253,577 and $830,519 for the years ended December 31, 2024 and 2023, respectively. Word of mouth, a social media presence, +and the availability of meeting spaces are significant drivers of our revenue and revenue potential. Our revenue increased in 2024 +due to increased customer base from the acquisition of Ketomei Pte. Limited in Singapore and new café under Hapi Café +Korea Inc. in South Korea. +For +the years ended December 31, 2024 and 2023, our revenue was generated as per the following: +Years Ended +December 31, +2024 +2023 +Membership Fee +$ - +$ 12,293 +Product Sales +- +465 +Food and Beverage +1,253,577 +817,761 +Total +$ 1,253,577 +$ 830,519 +Cost +of revenue +Cost +of revenue increased from $334,825 in the year ended December 31, 2023 to $651,721 in the year ended December 31, 2024. The increase +is a result of the increase in sales of F&B business. +Sales +commissions decreased from $13,827 to $0 in the years ended December 31, 2023 and 2024, respectively, due to decrease in sale of memberships. +The +gross margin increased from $495,694 to $601,856 in the years ended December 31, 2023 and 2024, respectively. The increase of gross margin +was caused by the increase of customer base in F&B revenue. +Operating +expenses +Operating +expenses decreased from $3,402,793 to $3,027,024 in the years ended December 31, 2023 and 2024, respectively, due to general and administrative +expenses decreased from $2,908,895 to $2,646,627 in the years ended December 31, 2023 and 2024, respectively. The decrease of general +and administrative expenses in 2024 compared with 2023 was mostly caused by the decrease in professional fees paid in relation to pursuing +Business Combination by the Company. +Other +income (expense) +In +the year ended December 31, 2024, the Company had other expenses of $181,336, compared to the other income of $2,245,820 in the year ended +December 31, 2023. This decrease is due to the decrease in interest income from $2,029,414 to $64,407, and unrealized loss on convertible +note receivable – related party from unrealized profit of $0 to unrealized loss of $379,887 in the years ended December 31, +2023 and 2024, respectively. +Net +loss +In +the year ended December 31, 2024 the Company had a net loss of $2,606,504, compared to $1,076,662 in the year ended December 31, 2023. +16 +Liquidity +and Capital Resources +Our +cash has increased from $1,159,201 as of December 31, 2023 to $4,341,746 as of December 31, 2024. Our liabilities decreased from +$6,207,17 8 at December 31, 2023 to $3,531,523 at +December 31, 2024. Our total assets have decreased from $23,710,684 as of December 31, 2023 to $6,408,722 as of December 31, +2024. +The +Company believes that the available cash in the Company’s bank accounts, anticipated cash from operations, and financing availability +from related parties are sufficient to fund our operations for at least the next 12 months. The Company’s capital requirements +for the planned expansion are based on, among other items, geographical specific property costs, team requirements, and marketing steps +needed. Our expansion consists of plans to take over leases of existing Hapi Cafes we currently do not own, as we look to add more Hapi +Cafes over the next two (2) years. There is no guarantee that we will be able to execute on our plans as laid out above. +On April 24, 2024, the Company +entered into a Credit Facility Agreement (the “Agreement”) with Alset Inc., a Texas corporation and the Company’s indirect, +majority stockholder, pursuant to which Alset Inc. has provided the Company a line of credit facility (the “Credit Facility”) +which provides a maximum, aggregate credit line of up to $1,000,000. As of December 31, 2024, there are no outstanding amounts related +to the Credit Facility, as the debt with Alset Inc. was converted to equity on September 24, 2024. This conversion is reflected under +Advances from Related Parties in the cash flow statement. The remaining credit of $700,000 is available for draw as on December 31, 2024. +Pursuant +to the Agreement, the Company may request an advance (each, an “Advance”) on the Credit Facility. Each advance shall bear +a simple interest rate of three percent (3%) per annum. Each Advance and all accrued but unpaid interest shall be due and payable at +the first (1st) anniversary of the effective date of the Agreement. HWH may at any time during the term of the Agreement prepay a portion +or all amounts of its indebtedness without penalty. Each Advance shall not be secured by a lien or other encumbrance on any HWH assets, +but shall be solely a general unsecured debt obligation of the Company. +The +accompanying financial statements have been prepared assuming the Company will continue as a going concern and do not contain any adjustments +that might be required should the Company be unable to continue as a going concern. +The +Company has obtained letters of financial support from Alset International Limited and Alset Inc., an indirect and direct owner of the +Company, respectively. Alset International Limited and Alset Inc. committed to provide any additional funding required by the Company +and would not demand repayment through twelve months from the issuance of these consolidated financial statements. +Summary +of Cash Flows for the Years Ended December 31, 2024 and 2023 +Years Ended December 31, +2024 +2023 +Net cash used in operating activities +$ (1,659,999 ) +$ (2,6 00,370 ) +Net cash provided by investing activities +$ 20,452,029 +$ 68,431,427 +Net cash used in financing activities +$ (15,756,940 ) +$ (67,4 63,957 ) +Cash +Flows from Operating Activities +Net +cash used in operating activities was $1,659,999 in the year ended of December 31, 2024, as compared to net cash used in operating activities +of $2,6 00,370 in the same period of 2023. The increase of impairment loss on goodwill and unrealized loss on convertible note receivable +– related party, which reflects the change in the value of the convertible note and was deducted from the net income, led to the decrease of cash used in operating activities in the year ended December 31, 2024. +Cash +Flows from Investing Activities +Net +cash provided by investing activities was $20,452,029 in the year of December 31, 2024, as compared to net cash provided by +investing activities of $68,431,427 in the same period of 2023. In the year ended December 31, 2024 we paid $30,394 for purchases of +property and equipment, $850,000 for convertible note receivable – related party, $14,345 for investment in joint venture, $21,102,871 cash was withdrawn from Trust +Account for redemptions and $243,897 cash withdrawn from Trust Account was available to the Company. In the year ended December 31, +2023 we paid $14,574 for purchases of property and equipment, $68,351,348 cash withdrawn was from Trust Account for redemptions, +$299,958 cash withdrawn from Trust Account was available to the Company and $205,305 cash was deposited into Trust +Account. +Cash +Flows from Financing Activities +Net +cash used in financing activities was $15,756,940 in the year ended December 31, 2024, compared to net cash used in financing activities +of $67,4 63,957 in the same period of 2023. In the year ended December 31, 2024 we received $2,170,993 from a related party, and repaid +$21,102,872 of class A common stock. In the year ended December 31, 2023 we received $526,323 from a related party, received $205,305 +from proceeds from extension loan and paid $68,351,348 for repayment of class A common stock. +17 +Nasdaq +Compliance +On +March 7, 2024, we received notice from Nasdaq Stock Market, LLC (“Nasdaq”) indicating that, because the market value of our +common stock had been below $50,000,000 for the prior 37 consecutive business days, we no longer complied with the minimum market value +of listed securities (the “MVLS”) requirement for continued listing on the Nasdaq Global Market under Rule 5450(b)(2)(A) +of Nasdaq Listing Rules. +Nasdaq’s +notice had no immediate effect on the listing of our common stock on the Nasdaq Global Market. Pursuant to Nasdaq Marketplace Rule 5810(c)(3)(C), +we had been provided an initial compliance period of 180 calendar days, or until September 3, 2024, to regain compliance with the MVLS +requirement. To regain compliance, the Company’s MVLS was required to be at least $50,000,000 or more for a minimum of ten consecutive +business days prior to September 3, 2024. In that regard, on September 9, 2024, the Company received a notice from the Staff that the +matter of the MVLS deficiency was to be considered at the Company’s upcoming appeal with the Nasdaq Hearings Panel. +On +February 22, 2024, the Nasdaq Staff (the “Staff”) notified the Company that for the previous 30 consecutive trading days, +the MVPHS had been below the minimum $15,000,000 required for continued listing as set forth in Listing Rule 5450(b)(2)(C) (the “Rule”). +Therefore, in accordance with Marketplace Rule 5810(c)(3)(D), the Company was provided 180 calendar days, or until August 20, 2024, to +regain compliance with the Rule. In that regard, on August 27, 2024, the Company received a notice from the Staff that the Company will +be delisted from the Nasdaq Global Market, unless the Company requested an appeal of this determination by September 3, 2024. +The +Company presented its compliance plan to the Panel at a hearing on October 15, 2024. On October 21, 2024, the Company received a notice +from the Panel granting the Company an extension to phase down its securities to the Nasdaq Capital Market and demonstrate compliance +with the market value of its publicly held shares (the “MVPHS”) and Stockholders’ Equity requirements as set forth +in Nasdaq Listing Rules 5550(a)(5) and 5550(b)(1). +On +September 4, 2024, the Company received written notice (the “Notice”) from the Listing Qualifications Staff of Nasdaq notifying +the Company that for the prior 30 consecutive business days prior to the date of the Notice, the Company’s bid price was below +the minimum $1 required for continued listing on the Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(a)(1) (the “Bid +Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), Nasdaq provided the Company with 180 calendar days, +or until March 3, 2025, (the “Compliance Date”), to regain compliance with the Bid Price Requirement. +On +March 10, 2025, the Company received written notice (the “Compliance Notice”) from Nasdaq informing the Company that it has +regained compliance with Nasdaq Listing Rule 5550(a)(2), which requires that companies listed on the Nasdaq Capital Market maintain a +minimum bid price of $1.00 per share. Nasdaq notified the Company in the Compliance Notice that, from February 24, 2025 to March 7, 2025, +the closing bid price of the Company’s common stock had been $1.00 per share or greater and, accordingly, the Company had regained +compliance with Nasdaq Listing Rule 5550(a)(2) and that the matter was now closed. The Company is currently listed on the Nasdaq Capital Market. +On +February 18, 2025, the Company filed a Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation +with the Delaware Secretary of State to effect a 1-for-5 reverse stock split (the “Reverse Stock Split”). The Reverse Stock +Split became effective as of market open on February 24, 2025. +Contractual +Obligations +As +of December 31, 2024, we did not have any long-term debt obligations, capital lease obligations, operating lease obligations, purchase +obligations or long-term liabilities. +Administrative +Services Agreement +We +agreed to pay Alset Management Group Inc. $10,000 per month for office space, utilities and secretarial and administrative support services +commencing on the date that our securities were first listed on the Nasdaq. Upon completion of the initial Business Combination, +we ceased paying these monthly fees. +Underwriting +Agreement +On +February 3, 2022, the Company paid a cash underwriting discount of $0.20 per Unit, or $1,725,000. +18 +In +addition, the underwriters, EF Hutton, LLC (“EF Hutton”) (now known as D. Boral Capital LLC), were entitled to a deferred +fee of $0.35 per Unit, or $3,018,750 in the aggregate, however, on December 18, 2023, the Company entered into a Satisfaction and Discharge +of Indebtedness Agreement in connection with the Underwriting Agreement, under which in lieu of the Company tendering the full amount, +the underwriters accepted a combination of $325,000 in cash paid upon the closing of the Business Combination, 149,443 shares of the +Company’s common stock and a $1,184,375 promissory note as full satisfaction. This agreement was effective at the closing of Business +Combination on January 9, 2024. Additionally, the Company has granted EF Hutton an irrevocable right of first refusal (the “ROFR”) +to act as the sole investment banker, sole book-runner, and/or sole placement agent, at EF Hutton’s sole discretion, for each and +every future public and private equity and debt offering, including all equity linked financing for a period commencing on the date of +the satisfaction and ending twenty-four (24) months after the closing of the Business Combination. +Merger +Agreement +As +previously disclosed, on August 1, 2023, the Company held the Special Meeting, at which the Company’s stockholders considered and +adopted, among other matters, a proposal to approve the Business Combination. On the Closing Date, the parties consummated the Business +Combination pursuant to the terms of that certain Agreement and Plan of Merger, dated September 9, 2022 (the “Merger Agreement”), +by and among the Company, Merger Sub, and HWH Nevada. +Pursuant +to the terms of the Merger Agreement, (and upon all other conditions pursuant to the Merger Agreement being satisfied or waived), on +the Closing Date, (i) the Merger Agreement provided for the combination of HWH Nevada and Merger Sub under the Company, with HWH Nevada +surviving as the Surviving Corporation (collectively, the “Merger”). At the consummation of the Merger, HWH Nevada survived +as a direct, wholly-owned subsidiary of the Company; and (ii) the Company changed its name to “HWH International Inc.” +The +transaction has closed, as all closing conditions referenced in the Merger Agreement have either been met or waived by the parties. Certain +closing conditions that have been waived by the parties, pursuant to the Merger Agreement include Section 8.1(i), which states “the +aggregate cash available to the Company at the Closing from the Trust Account (after giving effect to the redemption of any shares of +the Company’s Class A Common Stock in connection with the Company’s Proposals, but before giving effect to (i) the payment +of the Outstanding Alset Transaction Expenses, and (ii) the payment of the Outstanding Company Transaction Expenses), shall equal or +exceed Thirty Million dollars ($30,000,000); and 8.1(j), which states “upon the closing, the Company shall not have redeemed shares +of the Company’s Class A Common Stock in the Offer in an amount that would cause the Company to have less than $5,000,001 of net +tangible assets (as determined in accordance with Rule 3a51-1(g)(1) under the Exchange Act).” +Registration +Rights Agreement +On +January 31, 2022 the Company, the Sponsor, and certain persons and entities holding securities of the Company entered into a Registration +Rights Agreement (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, the Company is obligated +to register certain securities, including (i) all of the shares of the Company’s common stock and warrants held by the Sponsor, +and the Company’s common stock issuable upon exercise of such warrants, and (ii) the shares of the Company’s common stock +and the Company’s common stock underlying warrants that were issued in the Private Placement on January 31, 2022. The Company is +obligated to (a) file a resale registration statement to register such securities within 15 business days after the closing of the Business +Combination, and (b) use reasonable best efforts to cause such registration statement to be declared effective by the SEC within 60 business +days after the closing of the Business Combination. +19 +Lock-Up +Agreements +In +connection with the execution of the Merger Agreement, at the closing, each of the HWH Holders holding more than 5% of the HWH Common +Stock and certain members of HWH’s management team entered into a Lock-Up Agreement with the Company in substantially the form +attached to the letter Agreement dated January 31, 2022 (the “Letter Agreement”) (each, a “Lock-Up Agreement”). +Under the Lock-Up Agreement, each such holder agreed not to, during the period commencing from the Closing and with respect to the shares +of the Company’s Common Stock to be received as part of the Merger Consideration by the HWH Holder (together with any securities +paid as dividends or distributions with respect to such securities or into which such securities are exchanged or converted, the “Restricted +Securities”), (A) ending on the earlier of nine months after the date of the Closing, the date on which the closing sale price +of shares of the Company’s Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, +recapitalizations and the like) for any 20 trading days within any 30 trading day period commencing at least 150 days after the Closing +or (y) the date after the Closing on which the Company consummates a liquidation, merger, share exchange or other similar transaction +with an unaffiliated third party that results in all of the Company’s stockholders having the right to exchange their equity holdings +in the Company for cash, securities or other property. +Termination +of Subscription Agreement +On +July 30, 2023, the Company entered into a Subscription Agreement (the “Subscription Agreement”) with Meteora Special Opportunity +Fund I, LP (“MSOF”), Meteora Capital Partners, LP (“MCP”), Meteora Select Trading Opportunities Master, LP (“MSTO”) +and Meteora Strategic Capital, LLC, (“MSC”, and together with MSOF, MCP and MSTO, are referred to herein collectively as +“Meteora”). The Subscription Agreement was subsequently terminated. The Company and Meteora entered into a Settlement Agreement +as of April 11, 2024 (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company paid Meteora $200,000, +and agreed that Meteora could retain $100,000 already paid to Meteora. +Impact +of Inflation +We +believe that inflation has not had a material impact on our results of operations for the years ended December 31, 2024 or December 31, +2023. We cannot assure you that future inflation will not have an adverse impact on our operating results and financial condition. +Impact +of Foreign Exchange Rates +The +effects of foreign exchange rate changes on the intercompany loans (under ASC 830), which mostly consist of loans from Singapore to South +Korea and which were approximately $0.9 million and $2.1 million on December 31, 2024 and December 31, 2023, respectively, are the reason +for the fluctuation in foreign currency transaction gains or losses which are included in the Consolidated Statements of Operations and +Other Comprehensive Income. Because the intercompany loan balances between Singapore and South Korea will remain at approximately $1 +million over the next year, we expect this fluctuation of foreign exchange rates to still impact the results of operations in 2025, especially +given that the foreign exchange rate may and is expected to be volatile. If the amount of intercompany loan is lowered in the future, +the effect will also be reduced. However, at this moment, we do not expect to repay the intercompany loans in the short term. +Emerging +Growth Company Status +We +are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various +reporting requirements that are applicable to other public companies that are not “emerging growth companies.” Section 107 +of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided +in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging +growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. +We have elected to take advantage of these exemptions until we are no longer an emerging growth company or until we affirmatively and +irrevocably opt out of this exemption. +20 +Controls +and Procedures +We +are not currently required to maintain an effective system of internal controls as defined by Section 404 of the Sarbanes-Oxley Act. +Only in the event that we are deemed to be a large accelerated filer or an accelerated filer would we be required to comply with the +independent registered public accounting firm attestation requirement. Further, for as long as we remain an emerging growth company as +defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to +other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent +registered public accounting firm attestation requirement. +Management +is responsible for the preparation and fair presentation of the financial statements included in this prospectus. The financial statements +have been prepared in conformity with accounting principles generally accepted in the United States of America and reflect management’s +judgment and estimates concerning effects of events and transactions that are accounted for or disclosed. +Management +is also responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial +reporting includes those policies and procedures that pertain to our ability to record, process, summarize and report reliable data. +Management recognizes that there are inherent limitations in the effectiveness of any internal control over financial reporting, including +the possibility of human error and the circumvention or overriding of internal control. Accordingly, even effective internal control +over financial reporting can provide only reasonable assurance with respect to financial statement presentation. Further, because of +changes in conditions, the effectiveness of internal control over financial reporting may vary over time. +In +order to ensure that our internal control over financial reporting is effective, management regularly assesses controls and did so most +recently for its financial reporting as of December 31, 2024. This assessment was based on criteria for effective internal control over +financial reporting described in the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) +of the Treadway Commission. In connection with management’s evaluation of the effectiveness of our Company’s internal control +over financial reporting as of December 31, 2024, management determined that our Company did not maintain effective controls over financial +reporting due to having a limited staff with U.S. GAAP and SEC reporting experience. Management determined that the ineffective controls +over financial reporting constitute a material weakness. To remediate such weaknesses, we plan to appoint additional qualified personnel +with financial accounting, U.S. GAAP and SEC experience. +This +prospectus does not include an attestation report of our registered public accounting firm regarding internal control over financial +reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules +of the SEC that permit us to provide only management’s report in this prospectus. +Item +7A. Quantitative and Qualitative Disclosures About Market Risk +We +are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise +required under this item. +21 +Item +8. Financial Statements and Supplementary Data +HWH +INTERNATIONAL INC. +(Formerly +known as Alset Capital Acquisition Corp.) +CONSOLIDATED +FINANCIAL STATEMENTS +December +31, 2024 and 2023 +Contents +Page(s) +Report of Independent Registered Public Accounting Firm (PCAOB ID: 606 ) +F-1 +Consolidated +Balance Sheets as of December 31, 2024 and 2023 (recast) +F-2 +Consolidated +Statements of Operations and Other Comprehensive Loss for the Years Ended December 31, 2024 and 2023 (recast) +F-3 +Consolidated +Statements of Changes in Stockholders’ (Deficit) for the Years Ended December 31, 2024 and 2023 (recast) +F-4 +Consolidated +Statements of Cash Flows for the Years Ended December 31, 2024 and 2023 (recast) +F-5 +Notes to the Consolidated Financial Statements +F-6 +22 +REPORT +OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To +the Board of Directors and Stockholders of +HWH +International Inc. and Subsidiaries +Bethesda, +Maryland +Opinion +on the Consolidated Financial Statements +We +have audited the accompanying consolidated balance sheets of HWH International Inc. and Subsidiaries (the “Company”) as of +December 31, 2024 and 2023, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ +equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the consolidated financial +statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of +the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years then ended, +in conformity with accounting principles generally accepted in the United States of America. +Basis +for Opinion +These +consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion +on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public +Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance +with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We +conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain +reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. +The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part +of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing +an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our +audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether +due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence +regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles +used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. +We believe that our audits provide a reasonable basis for our opinion. +Emphasis +of Matter +The +Company has significant transactions with related parties which are described in Notes 8, 11, 12, 13, and 21 of the consolidated financial +statements. Transactions involving related parties cannot be presumed to be carried out on an arm’s length basis, as the requisite +condition of competitive, free market dealings may not exist. +GRASSI & CO., CPAs, P.C. +We +have served as the Company’s auditor since 2022. +Jericho, +New York +March +31, 2025 +F- 1 +HWH +INTERNATIONAL INC. +(Formerly +known as Alset Capital Acquisition Corp.) +CONSOLIDATED +BALANCE SHEETS +December 31, 2024 +December 31, 2023 +(recast) +ASSETS +Current Assets +Cash +$ 4,341,746 +$ 1,159,201 +Account receivable, net +17,546 +28,611 +Inventory +1,574 +1,977 +Other receivables, net +342,712 +41,203 +Convertible loans receivable - related party, at fair value +744,652 +- +Investment security – related party +13,272 +- +Prepaid expenses +13,495 +106,862 +Total Current Assets +$ 5,474,997 +$ 1,337,854 +Non-Current Assets +Property and equipment, net +$ 33,588 +$ 129,230 +Cash and marketable securities held in Trust Account +- +21,346,768 +Deposits +351,240 +298,324 +Investment at cost +140 +- +Operating lease right-of-use assets, net +548,757 +598,508 +Total Non-Current Assets +$ 933,725 +$ 22,372,830 +TOTAL ASSETS +$ 6,408,722 +$ 23,710,684 +LIABILITIES AND STOCKHOLDERS’ DEFICIT +Current Liabilities +Accounts payable and accrued expenses +$ 483,430 +$ 167,355 +Accrued commissions +73,022 +85,206 +Due to related parties, net +1,191,960 +2,323,800 +Operating lease liabilities - current +340,651 +429,687 +Deferred underwriting fee payable +- +3,018,750 +Notes payable - current +1,222,211 +- +Total Current Liabilities +$ 3,311,274 +$ 6,024,798 +Non-Current Liabilities +Operating lease liabilities - non-current +$ 220,249 +$ 182,380 +Total Non-Current Liabilities +$ 220,249 +$ 182,380 +Commitments and Contingencies (Note 15) +- +- +Temporary equity: +Class A common stock subject to possible redemption; 395,207 shares (at approximately $ 53.40 per share) as of December 31, 2023* +$ - +$ 21,102,871 +Stockholders’ Equity +Preferred stock, $ 0.0001 par value; 1,000,000 shares authorized; none issued and outstanding as of December 31, 2024 and 2023 +- +- +Common stock, $ 0.0001 +par value; 50,000,000 shares authorized; +5,593,920 and 2,000 +issued and outstanding as of December 31, 2024 and 2023, respectively * +559 +- +Class A common stock, $ 0.0001 +par value; 50,000,000 +shares authorized; 0 +and 94,750 issued and outstanding as of December 31, 2024 and 2023, respectively * +- +9 +Class B common stock, $ 0.0001 +par value; 50,000,000 +shares authorized; 0 +and 431,250 +issued and outstanding as of December 31, 2024 and 2023, respectively * +- +43 +Common stock value +- +43 +Additional paid in capital +9,339,413 +155,984 +Accumulated other comprehensive loss +( 416,861 ) +( 197,051 ) +Accumulated deficit +( 6,157,747 ) +( 3,567,016 ) +Total HWH International Inc. Stockholders’ equity (deficit) +$ 2,765,364 +$ ( 3,608,031 ) +Non-controlling interests +111,835 +8,666 +Total Stockholders’ Equity (Deficit) +2,877,199 +( 3,599,365 ) +TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY +$ 6,408,722 +$ 23,710,684 +* The common stock share +amounts were adjusted retrospectively to reflect the 5-for-1 reverse stock split on February 24, 2025 +The +accompanying notes are an integral part of these consolidated financial statements. +F- 2 +HWH +INTERNATIONAL INC. +(Formerly +known as Alset Capital Acquisition Corp.) +CONSOLIDATED +STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS +Year Ended +December 31, 2024 +Year Ended +December 31, 2023 +(recast) +Revenue +- Membership +$ - +$ 12,293 +- Non-membership +1,253,577 +818,226 +Total Revenue +$ 1,253,577 +$ 830,519 +Cost of revenue +- Membership +$ - +$ ( 13,827 ) +- Non-membership +( 651,721 ) +( 320,998 ) +Total Cost of revenue +$ ( 651,721 ) +$ ( 334,825 ) +Gross profit +$ 601,856 +$ 495,694 +Operating expenses: +General and administrative expenses +$ ( 2,646,627 ) +$ ( 2,908,895 ) +Impairment of convertible note receivable – related party, and equity method investment - related party +( 42,328 ) +( 493,898 ) +Impairment loss on goodwill +( 323,864 ) +- +Impairment of investment in Joint Venture +( 14,205 +) +- +Total Operating expenses +$ ( 3,027,024 ) +$ ( 3,402,793 ) +Other income (expense) +Other income +$ 345,997 +$ 2,210,921 +Interest expense +( 72,076 ) +- +Foreign exchange transaction (loss) gain +( 55,221 ) +68,797 +Loss on equity method investment - related party +( 20,149 ) +( 33,898 ) +Unrealized loss on convertible note receivable – related party +( 379,887 ) +- +Total Other (expense) income +$ ( 181,336 ) +$ 2,245,820 +Loss before provision for income taxes +( 2,606,504 ) +( 661,279 ) +Provision for income taxes +- +( 415,383 ) +Net loss +$ ( 2,606,504 ) +$ ( 1,076,662 ) +Less: Net (loss) income attributable to non-controlling Interests +( 15,773 ) +3,830 +Net loss attributable to common stockholders +$ ( 2,590,731 ) +$ ( 1,080,492 ) +Net Loss +( 2,606,504 ) +( 1,076,662 ) +Other comprehensive (loss) income, net of tax: +Foreign currency translation adjustment +$ ( 219,898 ) +$ ( 49,045 ) +Total comprehensive (loss), net of tax: +$ ( 2,826,402 ) +$ ( 1,125,707 ) +Less Comprehensive (loss) income attributable to non-controlling interests +( 15,861 ) +3,830 +Total Comprehensive loss attributable to common stockholders +$ ( 2,810,541 ) +$ ( 1,129,537 ) +Year +Ended December 31, 2024 +Year +Ended December 31, 2023 +Common +stock +Class +A common stock +Class +B common stock +Common +stock +Class +A common stock +Class +B common stock +Loss +per common share +Basic +$ +( 0.72 +) +$ +( 0.72 +) +$ +( 0.72 +) +$ +( 2.05 +) +$ +( 2.05 +) +$ +( 2.05 +) +Diluted +$ +( 0.72 +) +$ +( 0.72 +) +$ +( 0.72 +) +$ +( 2.05 +) +$ +( 2.05 +) +$ +( 2.05 +) +Weighted +average number of common shares outstanding * +Basic * +3,595,124 +2,071 +9,426 +2,000 +94,750 +431,250 +Diluted * +3,595,124 +2,071 +9,426 +2,000 +94,750 +431,250 +* The numbers of +weighted average outstanding common stock - basic and diluted were adjusted retrospectively to reflect the 5-for-1 reverse stock split +on February 24, 2025 +The +accompanying notes are an integral part of these consolidated financial statements. +F- 3 +HWH +INTERNATIONAL INC. +(Formerly +known as Alset Capital Acquisition Corp.) +CONSOLIDATED +STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) +FOR +THE YEARS ENDED DECEMBER 31, 2024 AND 2023 (RECAST) +Class +A Common stock +Class +B Common stock +Common +Stock +Total +HWH +Shares +Par +Value $0.0001 +Shares +Par +Value $0.0001 +Shares +Par +Value $0.0001 +Additional Paid in Capital +Accumulated +Other +Comprehensive (Loss) +Accumulated +Deficit +International +Inc. Stockholders’ +deficit +Non- +controlling interests +Total +Stockholders’ +deficit +Balances at December 31, 2022 +94,750 +$ +9 +431,250 +$ +43 +2,000 +$ +- +$ +221 +$ +( 148,006 +) +$ +( 1,235,959 +) +$ +( 1,383,692 +) +$ +4,836 +$ +( 1,378,856 +) +Remeasurement of Class A common stock to redemption +value +- +- +- +- +- +- +- +- +$ +( 1,045,260 +$ +( 1,045,260 +) +- +$ +( 1,045,260 +) +Contribution from Majority Stockholder +- +- +- +- +- +- +155,763 +- +- +155,763 +- +155,763 +Extension Loan +- +- +- +- +- +- +- +- +$ +( 205,305 +) +$ +( 205,305 +) +- +$ +( 205,305 +) +Net (loss) income +- +- +- +- +- +- +- +- +$ +( 1,080,492 +) +$ +( 1,080,492 +) +$ +3,830 +$ +( 1,076,662 +) +Foreign currency translation adjustment +- +- +- +- +- +- +- +$ +( 49,045 +) +- +$ +( 49,045 +) +$ +( 49,045 +) +Balances at December 31, 2023 +94,750 +$ +9 +431,250 +$ +43 +2,000 +$ +- +$ +155,984 +$ +( 197,051 +) +$ +( 3,567,016 +) +$ +( 3,608,031 +) +$ +8,666 +$ +( 3,599,365 +) +Balance +94,750 +$ +9 +431,250 +$ +43 +2,000 +$ +- +$ +155,984 +$ +( 197,051 +) +$ +( 3,567,016 +) +$ +( 3,608,031 +) +$ +8,666 +$ +( 3,599,365 +) +Issuance of Common Stock to EF Hutton for Deferred +Underwriting Compensation +- +- +- +- +29,889 +$ +3 +$ +1,509,387 +- +- +$ +1,509,390 +- +$ +1,509,390 +Issuance of Common Stock during Merger +- +- +- +- +2,686,772 +$ +269 +$ +( 294 +) +- +- +$ +( 25 +) +- +$ +( 25 +) +Issuance of Common Stock to AI +- +- +- +- +1,142,352 +$ +114 +$ +3,584,886 +- +- +$ +3,585,000 +- +$ +3,585,000 +Convert Common Stock Class A and B to Common Stock +( 94,750 +) +$ +( 9 +) +( 431,250 +) +$ +( 43 +) +526,000 +$ +52 +- +- +- +- +- +- +Revaluation for SHRG note receivable and warrants +- +- +- +- +- +- +$ +287,812 +- +- +$ +287,812 +$ +- +$ +287,812 +Change in Non-Controlling Interest Ketomei +- +- +- +- +- +- +- +- +- +- +$ +119,030 +$ +119,030 +AI and AIL Debt conversion to shares +- +- +- +- +1,206,907 +121 +$ +3,801,638 +- +- +$ +3,801,759 +- +$ +3,801,759 +Net loss +- +- +- +- +- +- +- +- +$ +( 2,590,731 +) +$ +( 2,590,731 +) +$ +( 15,773 +) +$ +( 2,606,504 +) +Net +income (loss) +- +- +- +- +- +- +- +- +$ +( 2,590,731 +) +$ +( 2,590,731 +) +$ +( 15,773 +) +$ +( 2,606,504 +) +Foreign currency translation adjustment +- +- +- +- +- +- +- +$ +( 219,810 +) +- +$ +( 219,810 +) +$ +( 88 +) +$ +( 219,898 +) +Balances at December 31, 2024 +- +- +- +- +5,593,920 +$ +559 +$ +9,339,413 +$ +( 416,861 +) +$ +( 6,157,747 +) +$ +2,765,364 +$ +111,835 +$ +2,877,199 +Balance +- +- +- +- +5,593,920 +$ +559 +$ +9,339,413 +$ +( 416,861 +) +$ +( 6,157,747 +) +$ +2,765,364 +$ +111,835 +$ +2,877,199 +The +accompanying notes are an integral part of these consolidated financial statements. +F- 4 +HWH +INTERNATIONAL INC. +(Formerly +known as Alset Capital Acquisition Corp.) +CONSOLIDATED STATEMENTS OF CASH FLOWS +Year +Ended +December 31, 2024 +Year +Ended +December 31, 2023 +(recast) +Cash flows from operating activities: +Net loss +$ ( 2,606,504 ) +$ ( 1,076,662 ) +Adjustments to reconcile net loss to net cash used in operating activities: +Interest income +- +( 2,023,638 ) +Foreign exchange transaction loss (gain) +55,221 +( 68,797 ) +Loss on equity method investment - related party +20,149 +33,898 +Depreciation expense +48,172 +58,006 +Non-cash lease expense +490,122 +509,340 +Inventory write off expenses +- +30,752 +Impairment of convertible note receivable – related party, and equity method investment - related party +42,328 +493,898 +Impairment loss on goodwill +323,864 +- +Impairment in investment in Joint Venture +14,205 +- +Unrealized loss on convertible note receivable – related party +379,887 +- +Loss on disposal of equipment +5,878 +- +Impairment loss on equipment +69,293 +- +Bad debt written off +11,177 +- +Changes in operating assets and liabilities: +Account receivables +5,384 +187,813 +Other receivables +( 299,525 ) +( 375,745 ) +Prepaid expenses +90,398 +( 93,263 ) +Deposit +( 71,147 ) +1,008 +Inventory +336 +184 +Accounts payable and accrued expenses +228,644 +306,299 +Accrued commissions +( 1,904 ) +( 54,247 ) +Deferred revenue +- +( 21,198 ) +Operating lease liabilities +( 465,977 ) +( 508,018 ) +Net cash used in operating activities +$ ( 1,659,999 ) +$ ( 2,600,370 ) +Cash flows from investing activities: +Purchases of property and equipment +$ ( 30,394 ) +$ ( 14,574 ) +Convertible loans receivable - related party +( 850,000 ) +- +Investment at cost +( 14,345 ) +- +Cash withdrawn from Trust Account for redemptions +21,102,871 +299,958 +Cash withdrawn from Trust Account available to the Company +243,897 +68,351,348 +Cash deposited into Trust Account +- +( 205,305 ) +Net cash provided by investing activities +$ 20,452,029 +$ 68,431,427 +Cash flows from financing activities: +Repayment of loans and borrowing +$ ( 85,061 ) +$ - +Repayment of deferred underwriting compensation +( 325,000 ) +- +Contribution from Majority Stockholder +- +155,763 +Proceeds from extension loan +- +205,305 +Advances from related parties +2,170,993 +526,323 +Borrowing from notes payable - related parties +- +33,475 +Repayment to notes payable - related parties +- +( 33,475 ) +Proceed of issuance of Class A Common Stock +3,585,000 +- +Repayment of Class A Common Stock +( 21,102,872 ) +( 68,351,348 ) +Net cash used in financing activities +$ ( 15,756,940 ) +$ ( 67,463,957 ) +Net increase (decrease) in cash +$ 3,035,090 +$ ( 1,632,900 ) +Effects of foreign exchange rate on cash +147,455 +2,307 +Cash at beginning of year +1,159,201 +2,789,794 +Cash at end of year +$ 4,341,746 +$ 1,159,201 +Supplemental Cash Flow Information +Cash Paid for Interest +$ 616 +$ - +Cash Paid for Taxes +$ - +$ - +Supplemental disclosure of non-cash investing and financing activities +Issuance of HWH common stock to EF Hutton for deferred underwriting compensation +$ 1,509,375 +$ - +Settlement of deferred underwriting compensation payable with promissory note +$ 1,184,375 +$ - +Debt to equity conversion +$ 3,801,759 +$ - +Valuation gain from notes receivable and warrants - SHRG +$ 287,812 +$ - +Initial recognition of operating lease right-of-use asset and liability +$ 519,353 +$ 125,331 +The +accompanying notes are an integral part of these consolidated financial statements. +F- 5 +HWH +INTERNATIONAL INC. +(Formerly +known as Alset Capital Acquisition Corp.) +Notes +to the CONSOLIDATED financial statements +FOR +THE YEARS ENDED DECEMBER 31, 2024 AND 2023 +NOTE +1 — DESCRIPTION OF ORGANIZATION, BUSINESS OPERATIONS AND LIQUIDITY +HWH +International Inc. (“HWH”) and its consolidated subsidiaries (collectively, the “Company”) operate a food and +beverage (“F&B”) business in Singapore and South Korea. The F&B business operates four cafés, two of which +are located in South Korea and two in Singapore, as well as an online healthy food store serving customers in Singapore. The Company +previously operated a membership model in which individuals paid an upfront membership fee to become members. As members, these individuals +received discounted access to products and services offered by the Company’s affiliates. The Company had approximately 9,811 members, +primarily in South Korea. Currently, this membership business has been temporarily suspended, however the Company intends to resume this +business following the ongoing restructuring of the membership model. +HWH +International Inc. was originally incorporated in Delaware on October 20, 2021 under the name Alset Capital Acquisition Corp. The Company +was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar +business combination with one or more businesses (the “Business Combination”). The Company consummated the Business Combination +on January 9, 2024 and changed its name from “Alset Capital Acquisition Corp.” to “HWH International Inc.” The +Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early +stage and emerging growth companies. +On +September 9, 2022, the Company entered into an agreement and plan of merger (the “Merger Agreement”) by and among the Company, +HWH International Inc., a Nevada corporation (the “HWH Nevada” or “Target”) and HWH Merger Sub Inc., a Nevada +corporation and a wholly owned subsidiary of the Company (“Merger Sub”). The Company and Merger Sub are sometimes referred +to collectively as the “ACAX Parties.” Pursuant to the Merger Agreement, the Business Combination between the Company and +the Target was effected through the merger of Merger Sub with and into HWH Nevada, with the Target surviving the merger as a wholly owned +subsidiary of the Company (the “Merger”). Upon the closing of the Merger (the “Closing”) on January 9, 2024, +the Company changed its name to “HWH International Inc.” The board of directors of the Company (i) approved and declared +advisable the Merger Agreement, the Ancillary Agreements (as defined in the Merger Agreement) and the transactions contemplated thereby +and (ii) resolved to recommend approval of the Merger Agreement and related transactions by the stockholders of the Company. +The +Target was owned and controlled by certain member officers and directors of the Company and its Sponsor. The Merger was consummated following +the receipt of the required approval by the stockholders of the Company and the shareholders of the Target and the satisfaction of certain +other customary closing conditions. +The +total consideration paid at Closing (the “Merger Consideration”) by the Company to the Target’s shareholders was $ 125,000,000 , +and was payable in shares of the common stock, par value $ 0.0001 per share, of the Company (“Company Common Stock”). The +number of shares of the Company Common Stock paid to the shareholders of the Target as Merger Consideration was 12,500,000 , with each +share being valued at $ 10.00 . +Our +newly acquired business started in South Korea with a single-level membership marketing model with limited products for sale. We registered +the business on April 1, 2019, and we started selling founders package on July 1, 2019. While we had been profitable and growing, the +COVID-19 pandemic had a material adverse effect on such growth and profits. Due to the decline in membership and revenue starting in +2020, we reorganized our internal staff by adding a broader team in each of the United States, Hong Kong and Singapore with direct selling +and business development experience to head up and expand our operations across various geographies and revised our business plan to +a tiered membership model in 2022, with more products and services to be made available to our members. We created a new corporate structure, +with subsidiaries in the U.S., Hong Kong and Singapore, that would allow for quick geographical expansion and we turned our focus to +the Hapi Café development. +F- 6 +We +have 9,811 individuals with founding member status. This is a privileged class that will be able to enjoy continuous membership benefits +in time to come, given that they have trusted the Company and joined at an early stage. Such benefits include the ability to purchase +new memberships, in the model described below, at a favorable rate to be determined by the Company. They will also continue to be able +to earn affiliate commissions as they sell our products in the marketplace and enjoy discounted rates when visiting Hapi Cafés +until further notice. The total number of founding members was capped at 10,000. The Company is in the midst of implementing a new membership +model that operates on a yearly subscription basis. While we are not currently selling memberships, we intend to resume membership sales +under this new model. +Members +will get exclusive discounts on Hapi Marketplace products, priority invites to product launch events and other parties, and can earn +passive income when a member’s referral signs up for membership or makes an initial purchase of Hapi Marketplace products through +them. +Our +operations include: +Hapi +Marketplace. On November 4, 2024, the Company announced the launch of its business-to-consumer marketplace, Hapi Marketplace. +Hapi Marketplace features a selection of over forty-seven product categories including wellness, elderly care, auto accessories and more. +Launching first in the United States, we intend for Hapi Marketplace to expand in the near future to South Korea and Hong Kong, followed +by further expansion across Asia. +The +various aspects of the Hapi Marketplace will be launched in phases in different regions, each with their own timeline, depending on +the completion of logistical aspects for implementation (i.e., payment gateway systems, business licenses, banking set up, import +licenses, managerial resources, etc.) We are expanding the product range into robotics for consumer and commercial markets. +Hapi +Cafés, which are, and will be, in-person, location-based social experiences, offer members the opportunity to build a +sense of community with like-minded customers who share a potential interest in our products. The cafes are designed to operate sustainably +as standalone businesses. The cafes also seek to be an avenue to create awareness to and educate potential and existing members about +the products and services of HWH, providing us with the chance to significantly increase our membership base as well as increase the +amounts spent by our members on our affiliates’ products and services. Each of our cafés is a “Hapi Café.” +We opened proof-of-concept Hapi Café locations in Seoul, the Republic of Korea and Singapore in May and July 2022, respectively, +one more opened in Seoul, the Republic of Korea in May 2024, and we plan to open additional Hapi Cafés as we beta test and further +improve our business concept. We intend to grow our memberships as we grow the number of Hapi Cafés around the world. Hapi Cafe +is positioned to be an integral part of HWH’s business model. In June 2024, the Company’s decision to close the café +under Alset F&B (PLQ) Pte. Ltd. (“F&BPLQ”) was driven by the unsustainable revenue it generated. We believe it is +more strategic to refocus our efforts and resources on other business ventures that have greater growth potential. +We +have made a minority investment into a travel agency with a HK, China and Malaysia presence. The focus is primarily on educational +tours for China’s primary and secondary school students visiting attractions and tours in China and overseas. We also conduct +business for hotel booking offers to a hotel booking platform as well as organizing tour conferences for groups and communities. The +Company shall continue develop consumer traveling services and hotel booking services in Asia. +F- 7 +Hapi +Wealth Builder seeks to provide participants the opportunity to attend courses, workshops, and coaching sessions in person, fostering +a collaborative learning environment for those dedicated to learning about investment in equities and wealth-building strategies. The +team has been diligently producing digital content for Hapi Wealth Builder and working to collaborate with the right partners to launch +the program and make it available to members. Hapi Wealth will leverage the wealth of knowledge and experience of its leaders to make +wealth building accessible and effective for its members. Our unique community-centric approach will offer members tools for making informed +financial decisions while creating pathways for sustained growth. +On +October 31, 2024, we announced that the Company scheduled the launch of Hapi Wealth, a program dedicated to providing comprehensive +education in equity investment and wealth-building strategies. We are targeting a rollout in selected regions later in 2025 +as well. +To +further support its mission, Hapi Wealth is opening its China headquarters, designed as a conducive environment for individuals to participate +in tutorials and workshops. The hub will offer participants the opportunity to attend courses, workshops, and coaching sessions in person, +fostering a collaborative learning environment for those dedicated to learning about investment in equities and wealth-building strategies. +NOTE +2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Basis +of Presentation +The +accompanying consolidated financial statements are presented in conformity with accounting principles generally accepted in the United +States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). +Through November 30, 2023, HWH (then known as Alset Capital Acquisition Corp.) reported on a twelve-month fiscal year that ended on November +30. In connection with the Business Combination, the Company’s fiscal year end was changed from November 30 to December 31. As +a result of this change, the Company had a one-month transition period that began on December 1, 2023 and ended on December 31, 2023. +For details see note 22 - Change in Fiscal Year. +Principles +of Consolidation +The +consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant intercompany +transactions and balances between the Company and its subsidiaries are eliminated upon consolidation. The Company consolidates entities +in which it owns more than 50% of the voting common stock and controls operations. All intercompany transactions and balances among consolidated +subsidiaries have been eliminated. +The +following chart describes the Company’s ownership of various subsidiaries: +The +Company mainly focuses on the F&B business. During the years ended December 31, 2024 and 2023, substantially all of the Company’s +business was generated by its wholly owned subsidiaries, 0 % and 2 % from HWH World Inc. (“HWH Korea”), respectively, and 100 % +and 98 % from F&B business, respectively. F&B business was generated by the following subsidiaries at December 31, 2024 and 2023, +respectively: 37 % and 49 % from Alset F&B One Pte. Ltd (“F&B1”), 6 % and 6 % from Hapi Café Korea Inc.(“HCKI”), +20 % and 22 % from Hapi Café SG Pte. Ltd. (“HCSGPL”), 7 % and 21 % from Alset F&B (PLQ) Pte. Ltd. (“F&BPLQ”) +and 30 % and 0 % from Ketomei Pte. Ltd. (“KPL”). HWH Korea was incorporated in the Republic of Korea (“South Korea”) +on May 7, 2019. HWH Korea is in the business of sourcing and distributing dietary supplements and other health products through its network +of members in South Korea. HWH Korea generates product sales via its direct sale model as products are sold to its members. Through the +use of a Hapi Gig platform that combines e-commerce, social media, and a customized rewards system, HWH Korea equips, trains, and empowers +its members. F&B1 was incorporated in Singapore on April 10, 2017, HCSGPL was incorporated in Singapore on April 4, 2022, F&BPLQ +was incorporated in Singapore on November 11, 2022 and KPL was incorporated in Singapore on September 17, 2019. F&B1, HCSGPL, F&BPLQ +and KPL are in the F&B business in Singapore. In the second quarter of 2024, the Company ceased operations of its subsidiary Alset +F&B (PLQ) Pte. Ltd. Due to the closure of this subsidiary, the Company wrote off $ 5,878 of fixed assets, which is included in general +and administrative expenses, and recorded a gain on termination of lease of $ 248 , which is included in other income on the Company’s +Statement of Operations for the year ended December 31, 2024. +F- 8 +Emerging +Growth Company +The +Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities +Act”), as modified by the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), and it may take +advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging +growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation +requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic +reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and +stockholder approval of any golden parachute payments not previously approved. +Further, +Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting +standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do +not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting +standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements +that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of +such extended transition period which means that when a standard is issued or revised and it has different application dates for public +or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies +adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which +is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult +or impossible because of the potential differences in accounting standards used. +Functional +and Reporting Currency +The +functional and reporting currency of the Company is the United States dollar (“$”). The financial records of the Company’s +subsidiaries located in South Korea, Singapore, Hong Kong, and Malaysia are maintained in their local currencies, the Korean Won (₩), +Singapore Dollar (S$), Hong Kong Dollar (HK$) and Malaysian Ringgit (MYR), which are also the functional currencies of these entities. +Use +of Estimates +The +preparation of the financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions +that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance +sheet. +Making +estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of +a condition, situation or set of circumstances that existed at the date of the balance sheet, which management considered in formulating +its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ +significantly from those estimates. +Cash +and Cash Equivalents +The +Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. +The Company had cash of $ 4,341,746 and $ 1,159,201 as of December 31, 2024 and December 31, 2023, respectively. The Company had no cash +equivalents as of December 31, 2024 and 2023. +Investments +Held in Trust Account +At +December 31, 2024 and 2023, the Company had approximately $ 0 and $ 21 million, respectively, in investments in treasury securities held +in the Trust Account. In connection with the closing of the Business Combination on January 9, +2024, Class A Common Stock stockholders redeemed 1,942,108 shares for approximately $ 21 million held in the Trust Account. The Trust +Account was closed in May 2024. The funds in Trust Account were valued at Level 1 observable input. +F- 9 +Fair +Value of Financial Instruments +The +Company adopted Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures”, for +assets and liabilities measured at fair value on a recurring basis. ASC 820 defines fair value as the exchange price that would be received +for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability +in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which +requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC +820 describes three levels of inputs that may be used to measure fair value: +Level +1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities +Level +2: Observable market-based inputs or unobservable inputs that are corroborated by market data +Level +3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions +For +purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current +transaction between willing parties, other than in a forced sale or liquidation. The carrying values reported in balance sheets for current +assets and liabilities approximate their estimated fair market values based on the short-term maturity of these instruments. +Investment +Securities at Cost +Investments +in equity securities without readily determinable fair values are measured at cost minus impairment adjusted by observable price changes +in orderly transactions for the identical or similar investments of the same issuer. These investments are measured at fair value on +a nonrecurring basis when there are events or changes in circumstances that may have a significant adverse effect. An impairment loss, +which is recognized in the consolidated statements of comprehensive income, equals the amount by which the carrying value exceeds the +fair value of the investment. +Inventory +Inventory +is stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method and includes all costs +in bringing the inventories to their present location and condition. Net realizable value is an estimated selling price in the ordinary +course of business less the estimated costs necessary to make the sale. As of December 31, 2024 and 2023, inventory consisted of finished +goods procured from suppliers. The Company continuously evaluates the need for reserve for obsolescence and possible price concessions +required to write-down inventory to its net realizable value. +Leases +The +Company follows FASB ASC Topic 842 in accounting for its operating lease right-of-use assets and operating lease liabilities. At inception +of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is or contains a lease if it conveys the +right to control the use of an identified asset for a period of time in exchange of a consideration. To assess whether a contract is +or contains a lease, the Company assesses whether the contract involves the use of an identified asset, whether it has the right to obtain +substantially all of the economic benefits from the use of the asset and whether it has the right to control the use of the asset. The +right-of-use assets and related lease liabilities are recognized at the lease commencement date. The Company recognizes operating lease +expenses on a straight-line basis over the lease term. For leases that contain related non-lease components, such as maintenance, the +Company will account for these payments as a single lease component. +F- 10 +Right-of-use +of Assets +The +right-of-use of asset is measured at cost, which comprises the amount of the lease liability adjusted for any lease payments made at +or before the commencement date, plus any initial direct costs incurred and less any lease incentive received. +Lease +liabilities +Lease +liability is measured at the present value of the outstanding lease payments at the commencement date, discounted using the Company’s +incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise mainly of fixed lease payments. +Short-term +Leases and Leases of Low Value Assets +The +Company has elected to not recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 +months or less at inception and leases of low value assets. Lease payments associated with these leases are expensed as +incurred. +Property, +Plant and Equipment +Property, +plant and equipment are recorded at cost, less depreciation. Repairs and maintenance are expensed as incurred. Expenditures incurred +as a consequence of acquiring or using the asset, or that increase the value or productive capacity of assets are capitalized. When property +and equipment is retired, sold, or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are +removed from the accounts and any gain or loss is included in statement of operations. Depreciation is computed by the reducing balance +method (after considering their respective estimated residual values) over the estimated useful lives of the respective assets as follows: +SCHEDULE +OF ESTIMATED USEFUL LIVES OF PROPERTY PLANT AND EQUIPMENT +Office Equipment +3 – 5 years +Furniture and Fittings +3 – 5 years +Kitchen Equipment +3 – 5 years +Operating Equipment +3 – 5 years +Leasehold Improvements +Shorter of lease life or asset life +The +Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying +value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. +In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized, equaling an +amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment +include current operating results, trends, and prospects, as well as the effects of obsolescence, demand, competition, and other economic +factors. +As +at December 31, 2024, the Company has determined the value-in-use to be zero based on the discounted cash flow of the cash generating +unit (“CGU”), which involves the cash flow projections covering a 3-year period and the fair value less cost of disposal +to be zero considering the re-sale value of these assets to be insignificant. Based on the assessment, the recoverable amount of the +CGU was determined to be zero, which was below the carrying amount of these non-financial assets. Accordingly, impairment losses on plant +and equipment of $ 69,293 are recognized in general and administrative expenses in the consolidated statement of operations and other +comprehensive loss for the financial year ended December 31, 2024. +Deposit +Deposit +represents rental deposit paid for the office and the cafes used. +F- 11 +Revenue +Recognition +ASC +606 – Revenue from Contracts with Customers (“ASC 606”), establishes principles for reporting information about +the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services +to customers. +In +accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized +reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods or services. The provisions +of ASC 606 include a five-step process by which the determination of revenue recognition, depicting the transfer of goods or services +to customers in amounts reflecting the payment to which the Company expects to be entitled in exchange for those goods or services. ASC +606 requires the Company to apply the following steps: +(1) +identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; +(4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, performance +obligations are satisfied. +The +Company generates its revenue primarily from membership fees, product sales and F&B business. +Membership +Fee: The Company collects an annual membership fee from its members. The fee is fixed, paid in full at the time upon joining the +membership and is not refundable. The Company’s performance obligation is to provide its members the right to (a) purchase products +from the Company, (b) access to certain back-office services, (c) receive commissions and (d) attend corporate events. The associated +performance obligation is satisfied over time, generally over the term of the membership agreement which is for a one-year period. The +Company recognizes revenue from membership fee over the one-year period of the membership. +Product +Sales: The Company’s performance obligation is to transfer ownership of its products to its members. The Company generally +recognizes revenue when product is delivered to its members. Revenue is recorded net of applicable taxes, allowances, refunds or returns. +The Company receives the net sales price in cash or through credit card payments at the point of sale. +If +any member returns a product to the Company on a timely basis, they may obtain a replacement product from the Company for such +returned product. We do not have buyback program. However, when the customer requests a return and management decides that the +refund is necessary, we initiate the refund after deducting all the benefits that a member has earned. The returns are deducted from +our sales revenue on our financial statements. Allowances for product and membership returns are provided at the time the sale is +recorded. This accrual is based upon historical return rates for each country and the relevant return pattern, which reflects +anticipated returns to be received over a period of up to 12 months following the original sale. Product and membership returns for +the years ended December 31, 2024 and 2023 were $ 0 +and $ 1,184 , +respectively. The table below represents a breakout of the returns related to product sales and the returns related to +memberships: +SCHEDULE +OF PRODUCT SALES AND RETURNS RELATED TO MEMBERSHIPS +Membership +Products +Total +Returns +Membership +Products +Total +For the year ended: +December 31, 2024 +$ - +$ - +$ - +December 31, 2023 +$ 1,184 +$ - +$ 1,184 +Revenue returns +$ 1,184 +$ - +$ 1,184 +Food +and Beverage : The Company’s performance obligation is to transfer ownership of its F&B products to its customers. The Company +generally recognizes revenue when F&B products are delivered to its customers. Revenue is recorded net of applicable taxes, allowances, +refunds or returns. The Company receives the net sales price in cash or through credit card payments at the point of sale or from web-based +ordering system. The revenue received from Food and Beverage business for the years ended December 31, 2024 and 2023 was $ 1,253,577 and +$ 817,761 , respectively. +F- 12 +Contract +Assets and Liabilities +Below +is a summary of the beginning and ending balances of the Company’s contract assets and liabilities as of December 31, 2024 and +2023. +SCHEDULE +OF CONTRACT ASSETS AND LIABILITIES +December 31, 2024 +December 31, 2023 +Prepaid Sales Commission +Balances at the beginning of the year +$ - +$ 6,839 +Movement for the year +- +( 6,839 ) +Balances at the end of the year +$ - +$ - +December 31, 2024 +December 31, 2023 +Deferred Revenue +Balances at the beginning of the year +$ - +$ 21,198 +Movement for the year +- +( 21,198 ) +Balances at the end of the year +$ - +$ - +Value-added +Tax +The +Company is obligated to pay value-added tax (“VAT”), among other things, on its inventory purchase as well as its rent payments +and payment of professional fees. As of December 31, 2024 and 2023, included in other receivables was VAT paid of $ 33,914 and $ 37,179 , +respectively, due primarily to the purchase of inventory and payment of rents and accounting fees. +Cost +of Revenue +Cost +of revenue consists of the cost of procuring finished goods from suppliers and related shipping and handling fees from third-parties +money platform, contractor fees for part-time staff, franchise commission and sales commission from membership business. +Below +is a breakdown of the Company’s cost of revenue for the years ended December 31, 2024 and 2023. +For +the years ended: +SCHEDULE +OF COST OF REVENUE +Total +December 31, 2024 +Finished goods +$ 492,113 +Related shipping +3,370 +Handling fee +47,590 +Contractor fee +43,787 +Franchise commission +17,133 +Depreciation +47,728 +Total of Cost of revenue +$ 651,721 +December 31, 2023 +Finished goods +$ 151,703 +Related shipping +9,346 +Handling fee +22,629 +Contractor fee +30,977 +Franchise commission +18,428 +Sales commission +13,827 +Inventory written off +30,753 +Depreciation +57,162 +Total of Cost of revenue +$ 334,825 +F- 13 +Shipping +and Handling Fees +The +Company utilizes the practical expedient under ASC 606-10-25-18B treating shipping and handling as fulfillment activities rather than +a promised service (i.e. a revenue element). Shipping and handling fees are included in cost of revenue within the statements of operations. +Commission +Expense +The +Company compensates its sales leaders with leadership incentives for services rendered, relating to the development, retention, and management +of their sales organizations. Leadership incentives are payable based on achieved sales volume, which are recorded in cost of revenue. +Member will get 25 % commission of the membership fee income if the member successfully refers a new member to subscribe to the membership. +The commission will be payable after the referee’s membership is confirmed and been paid by the new member. +Advertising +Expenses +Costs +incurred for advertising the Company’s products are charged to operations as incurred. Advertising expenses for the years ended +December 31, 2024 and 2023 were $ 19,472 and $ 4,191 , respectively. +Income +Taxes +The +Company accounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income Taxes” (“ASC 740-10”), +which requires, among other things, assets and liabilities approach to calculating deferred income taxes. The assets and liabilities +approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences +between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred +tax assets for which management believes it is more likely than not that the net deferred tax assets will not be realized. Tax positions +that meet the more likely than not recognition threshold are measured at the largest amount of tax benefit, that is, more than 50 percent +likely of being realized upon settlement with the applicable taxing authority. +The +Company follows the provision of ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, there +may be uncertainty about the merits of positions taken or the amount of the position that would be ultimately sustained. In accordance +with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, +based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, +including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. +The +Company has not recorded any unrecognized tax benefits. The Company’s policy is to recognize interest and penalties related to +income taxes in income tax expense. +Delaware +Franchise Tax +The +State of Delaware, where the Company is incorporated, imposes a franchise tax that applies to most business entities that are formed +or qualified to do business, or which are otherwise doing business, in Delaware. Delaware franchise tax is +based on authorized shares or on assumed par and non-par capital, whichever yields a lower result. Under the authorized shares method, +each share is taxed at a graduated rate based on the number of authorized shares. During years ended December 31, 2024 and 2023 the Company +incurred $ 48,180 and $ 205,000 in Delaware franchise tax, respectively. +Non-controlling +Interests +Non-controlling +interests represent the equity in a subsidiary not attributable, directly or indirectly, to owners of the Company, and are presented +separately in the Consolidated Statements of Operations and Other Comprehensive Income, and within equity in the Consolidated Balance +Sheets, separately from equity attributable to owners of the Company. +On December 31, +2024 and 2023, the aggregate non-controlling interests in the Company were $ 111,835 +and $ 8,666 , +respectively. +F- 14 +Liquidity +and Capital Resources +In +the year ended December 31, 2024, we incurred a net loss, a loss from operations and negative cash flow from operations as we expanded +our business of operating cafés and restructured our membership model. These factors raise substantial doubt about our ability to continue as a going concern. +Notwithstanding +the above, the Company believes that the available cash in the Company’s bank accounts, anticipated cash from operations, and +financing availability from related parties are sufficient to alleviate substantial doubt about the Company’s ability to +continue as a going concern for at least the next 12 months. The Company’s capital requirements for the planned expansion are +based on, among other items, location-specific property costs, team requirements, and marketing steps needed. Our expansion includes +plans to take over leases of existing Hapi Cafes that we currently do not own, with a goal to add additional Hapi Cafes over the +next two years. Executing these plans will require a minimum investment for each Hapi Café location. There is no +guarantee, however, that we will be able to achieve these plans as described. +The +accompanying financial statements have been prepared assuming the Company will continue as a going concern and do not contain any adjustments +that might be required should the Company be unable to continue as a going concern. +On +April 24, 2024, the Company entered into a Credit Facility Agreement (the “Credit Agreement”) with Alset Inc., a Texas +corporation and the Company’s indirect, majority stockholder, pursuant to which Alset Inc. has provided the Company a +non-revolving line of credit facility (the “Credit Facility”), which provides a maximum, aggregate credit line of up to +$ 1,000,000 . During +2024, $ 300,000 was drawn from the loan, which was converted to equity on September 24, 2024. This conversion is reflected under +Advances from Related Parties in the cash flow statement. The remaining credit of $ 700,000 is available for draw as on December 31, +2024. +Pursuant +to the Credit Agreement, the Company may request an advance (each, an “Advance”) on the Credit Facility. Each Advance shall +bear a simple interest rate of three percent (3%) per annum. Each Advance and all accrued but unpaid interest shall be due and payable +at the first (1 st ) anniversary of the effective date of the Credit Agreement. The Company may at any time during the term +of the Credit Agreement prepay a portion or all amounts of its indebtedness without penalty. Each advance shall not be secured by a lien +or other encumbrance on any of the Company’s assets, but shall be solely a general unsecured debt obligation of the Company. +The +Company has obtained letters of financial support from Alset International Limited and Alset Inc., a majority owners of the Company. +Alset International Limited and Alset Inc. committed to provide any additional funding required by the Company and would not demand repayment +through twelve months from the issuance of these consolidated financial statements. +Recent +Accounting Pronouncement +Management +does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect +on the Company’s consolidated financial statements. +Segment +reporting +On +November 27, 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2023-07, Improvements +to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 amends ASC 280, Segment Reporting (“ASC 280”) +to expand segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the Company’s +chief operating decision maker (“CODM”), the amount and description of other segment items, the title and position of the +CODM, and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and +deciding how to allocate resources. ASU 2023-07 further permits disclosure of more than one measure of segment profit or loss and extends +the full disclosure requirements of ASC 280 to companies with single reportable segments. The Company adopted ASU 2023-07 on December +31, 2024 on a retrospective basis. See —Segment reporting below for additional information. +Accounting +pronouncements pending adoption +On +November 4, 2024, the FASB issued ASU No. 2024-03, Expense Disaggregation Disclosures (“ASU 2024-03”). ASU 2024-03 +amends ASC 220, Comprehensive Income to expand income statement expense disclosures and require disclosure in the notes to the +financial statements of specified information about certain costs and expenses. ASU 2024-03 is required to be adopted for fiscal years +commencing after December 15, 2026, with early adoption permitted. The Company is currently evaluating the impact of adopting the standard +on the Consolidated Financial Statements. +Segment +reporting +The +Company reports its segment information to reflect the manner in which the CODM reviews and assesses performance. The Company’s +Chief Executive Officer and President and Chief Operating Officer have joint responsibility as the CODM and review and assess the performance +of the Company as a whole. +The +primary financial measures used by the CODM to evaluate performance and allocate resources are net income (loss) and operating income +(loss). The CODM uses net income (loss) and operating income (loss) to evaluate the performance of the Company’s ongoing operations +and as part of the Company’s internal planning and forecasting processes. Information on Net income (loss) and Operating income +(loss) is disclosed in the Consolidated Statements of Operations. Segment expenses and other segment items are provided to the CODM on +the same basis as disclosed in the Consolidated Statements of Operations. +The +CODM does not evaluate performance or allocate resources based on segment assets, and therefore such information is not presented in +the notes to the financial statements. +NOTE +3 - MERGER WITH HWH INTERNATIONAL INC. (A NEVADA CORPORATION) +HWH +International Inc. (f.k.a. Alset Capital Acquisition Corp.; “SPAC”, the “Company”) was a special purpose acquisition +company, incorporated in Delaware on October 20, 2021 and formed for the purpose of effecting a merger, capital stock exchange, asset +acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On January 9, 2024, the Company, +HWH International Inc. (a Nevada corporation, “HWH Nevada”) and HWH Merger Sub Inc. consummated the merger (the “Reverse +Recapitalization” or “Business Combination”) pursuant to an agreement and plan of merger dated as of September 9, 2022. +The +transaction was accounted for as a Reverse Recapitalization in accordance with U.S. GAAP. Under this method of accounting, SPAC was treated +as the “acquired” company for financial reporting purposes. This determination is primarily based on the fact that subsequent +to the Reverse Recapitalization, HWH Nevada stockholders comprise a majority of voting power on the Company, most of senior management +of HWH Nevada continued as senior management of the combined company and identified a majority of the members of the board of directors +of the combined company, both companies are under common control, and HWH Nevada’s operations comprise the ongoing operations of +the combined company. Accordingly, for accounting purposes, the Company is considered to be a continuation of HWH Nevada, with the net +identifiable assets of SPAC deemed to have been acquired by HWH Nevada in exchange for HWH Nevada common shares accompanied by a recapitalization, +with no goodwill or intangible assets recorded. +F- 15 +In +connection with the Business Combination: +● +The +holders of 8,591,072 Public Shares properly exercised their right to have such shares redeemed for a full pro rata portion of the +Trust Account holding the proceeds from the IPO. +● +Immediately +prior to the consummation of the Reverse Recapitalization (i) each of the 1,972,896 shares of SPAC’s Class A Common Stock was +cancelled and converted into 1,972,896 shares of the Company’s common stock; (ii) each of the issued and outstanding 2,156,250 +shares of SPAC’s Class B Common Shares were converted into 2,156,250 shares of SPAC’s Class A Common Stock and subsequently +into 2,156,250 shares of the Company’s common stock; (iii) each of the SPAC’s 476,890 units were split into their component +securities; and (iv) 909,875 new shares of the Company’s common stock were issued in connection with the conversion of the +SPAC’s rights into the Company’s common shares. +● +12,500,000 +shares of the Company’s common stock were delivered as consideration in the Business Combination +● +149,443 +shares of the Company’s common stock were issued to a third party as payment for $ 1,509,375 of underwriting compensation. +The +transaction described above was a transaction between entities under common control. SPAC, prior to the Business Combination, was 26 % +owned by Alset International Limited, a public company listed on the Singapore Exchange Securities Trading Limited and 32 % owned by Alset +Inc., the ultimate owner of both SPAC and HWH Nevada. HWH Nevada was wholly-owned by Alset International Limited. In the transactions +under common control, financial statements and financial information were presented as of the beginning of the period as though the assets +and liabilities had been transferred at that date. +SCHEDULE +OF RESTATED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND BALANCE SHEETS +Consolidated +Statement of Operations and Other Comprehensive Loss for the Year Ended on December 31, 2023 +As SPAC previously +booked +Merger with HWH-NV +Recast +Revenue +-Membership +$ - +$ 12,293 +$ 12,293 +-Non-membership +- +818,226 +818,226 +Total revenue +$ - +$ 830,519 +$ 830,519 +Cost of revenue +-Membership +$ - +$ ( 13,827 ) +$ ( 13,827 ) +-Non-membership +- +( 320,998 ) +( 320,998 ) +Total cost of revenue +$ - +$ ( 334,825 ) +$ ( 334,825 ) +Gross profit +$ - +$ 495,694 +$ 495,694 +Operating expenses: +General and administrative expenses +$ ( 1,034,367 ) +$ ( 1,874,528 ) +$ ( 2,908,895 ) +Impairment of convertible note receivable – related party, and investment in associate, related party +- +( 493,898 ) +( 493,898 ) +Total operating expenses +$ ( 1,034,367 ) +$ ( 2,368,426 ) +$ ( 3,402,793 ) +Other income (expenses) +Other income +$ 2,023,638 +$ 187,283 +$ 2,210,921 +Foreign exchange transaction gain +68,797 +68,797 +Loss on equity method investment, related party +- +( 33,898 ) +( 33,898 ) +Total other income +$ 2,023,638 +$ 222,182 +$ 2,245,820 +Income (loss) before provision for income taxes +989,271 +( 1,650,550 ) +( 661,279 ) +Provision for income taxes +( 415,383 ) +- +( 415,383 ) +Net income (loss) +$ 573,888 +$ ( 1,650,550 ) +$ ( 1,076,662 ) +Less: Net income attributable to Non-Controlling Interests +- +3,830 +3,830 +Net income (loss) attributable to the common shareholders +$ 573,888 +$ ( 1,654,380 ) +$ ( 1,080,492 ) +Other comprehensive loss: +Foreign exchange translation adjustment +- +( 49,045 ) +( 49,045 ) +Total Other comprehensive loss, net of tax +$ - +$ ( 49,045 ) +$ ( 49,045 ) +Comprehensive income (loss): +$ 573,888 +$ ( 1,703,425 ) +$ ( 1,129,537 ) +F- 16 +Consolidated +Balance Sheet as of December 31, 2023 +As SPAC previously +booked +Merger with HWH-NV +Recast +ASSETS +Current Assets +Cash +$ 280,398 +$ 878,803 +$ 1,159,201 +Account receivable, net +- +28,611 +28,611 +Inventory +- +1,977 +1,977 +Other receivables, net +- +41,203 +41,203 +Prepaid expenses +100,000 +6,862 +106,862 +Total Current Assets +$ 380,398 +$ 957,456 +$ 1,337,854 +Non-Current Assets +Property and equipment, net +$ - +$ 129,230 +$ 129,230 +Cash and marketable securities held in Trust Account +21,346,768 +- +21,346,768 +Deposits +- +298,324 +298,324 +Operating lease right-of-use assets, net +- +598,508 +598,508 +Total Non-Current Assets +$ 21,346,768 +$ 1,026,062 +$ 22,372,830 +TOTAL ASSETS +$ 21,727,166 +$ 1,983,518 +$ 23,710,684 +LIABILITIES AND STOCKHOLDERS’ EQUITY +Current Liabilities +Accounts payable and accrued expenses +$ 30,156 +$ 137,199 +$ 167,355 +Accrued commissions +- +85,206 +85,206 +Due to related parties, net +205,305 +2,118,495 +2,323,800 +Operating lease liabilities - current +- +429,687 +429,687 +Deferred underwriting fee payable +3,018,750 +- +3,018,750 +Total Current Liabilities +$ 3,254,211 +$ 2,770,587 +$ 6,024,798 +Non-Current Liabilities +Operating lease liabilities - Non-current +$ - +$ 182,380 +$ 182,380 +Total Non-Current Liabilities +$ - +$ 182,380 +$ 182,380 +Commitments and Contingencies +- +- +- +Temporary equity: +Class A common stock subject to possible redemption; 395,207 shares (at approximately $ 53.40 per share) as of December 31, 2023* +$ 21,102,871 +$ - +$ 21,102,871 +Stockholders’ Equity +Preferred stock, $ 0.0001 par value; 1,000,000 shares authorized; none issued and outstanding as of December 31, 2023 +- +- +- +Common stock, $ 0.0001 par value; 50,000,000 shares authorized; 2,000 issued and outstanding as of December 31, 2023 * +- +- +- +Class A common stock, $ 0.0001 par value; 50,000,000 shares authorized; 94,750 issued and outstanding as of December 31, 2023 * +9 +- +9 +Class B common stock, $ 0.0001 par value; 50,000,000 shares authorized; 431,250 issued and outstanding as of December 31, 2023 * +43 +- +43 +Common stock value +43 +- +43 +Additional paid in capital +155,974 +10 +155,984 +Accumulated other comprehensive loss +- +( 197,051 ) +( 197,051 ) +Accumulated deficit +( 2,785,942 ) +( 781,074 ) +( 3,567,016 ) +Total Stockholders’ Deficit +$ ( 2,629,916 ) +$ ( 978,115 ) +$ ( 3,608,031 ) +Non-controlling interests +- +8,666 +8,666 +Total Stockholders’ Deficit +( 2,629,916 ) +( 969,449 ) +( 3,599,365 ) +TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT +$ 21,727,166 +$ 1,983,518 +$ 23,710,684 +* The common stock share +amounts were adjusted retrospectively to reflect the 5-for-1 reverse stock split on February 24, 2025 +NOTE +4 — ACCOUNTS RECEIVABLE, NET +Accounts +receivable, net at December 31, 2024, December 31, 2023 and December 31, 2022 of $ 17,546 , $ 28,611 and $ 9,070 , respectively, represent +collections received by the credit card processor in F&B business and rent receivable. Accounts receivable are recorded at invoiced +amounts net of an allowance for credit losses and do not bear interest. The allowance for credit losses is the Company’s best estimate +of the amount of probable credit losses in the Company’s existing accounts receivable. The measurement and recognition of credit +losses involves the use of judgment. Management’s assessment of expected credit losses includes consideration of current and expected +economic conditions, market and industry factors affecting the Company’s customers (including their financial condition), the aging +of account balances, historical credit loss experience, customer concentrations, customer creditworthiness, and the existence of sources +of payment. The Company also establishes an allowance for credit losses for specific receivables when it is probable that the receivable +will not be collected and the loss can be reasonably estimated. Accounts receivable considered uncollectible are charged against the +allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of December 31, 2024 +and 2023, the allowance for credit losses was an immaterial amount. The Company does not have any off-balance sheet credit exposure related +to its customers. As of December 31, 2024 and 2023, $ 11,177 and $ 0 of rent receivable was written off, respectively. +NOTE +5 — PREPAID COMMISSIONS +During +the normal course of business, the Company pays commission to its members for product sales as well as membership sales. Prepaid commissions +are recorded for commissions paid on membership sales and recognized as an expense over the same period as the related membership revenue. +F- 17 +NOTE +6 — INVENTORY +As +of December 31, 2024 and 2023, the balance of finished goods was $ 1,574 and $ 1,977 , respectively. There is no provision for slow-moving +or obsolete inventory during the year ended December 31, 2024. During the year ended December 31, 2023, the Company wrote off $ 30,753 +of expired, slow-moving and obsolete inventory. This was recorded in the Company’s consolidated statement of operations in cost +of revenue (non-membership) during the year ended December 31, 2023. +NOTE +7 — PROPERTY AND EQUIPMENT, NET +The +components of property and equipment are as follows: +SCHEDULE +OF PROPERTY AND EQUIPMENT, NET +Total +December 31, 2024 +Cost: +Office Equipment +$ 37,455 +Furniture and Fittings +42,328 +Kitchen Equipment +30,473 +Operating Equipment +11,594 +Leasehold Improvements +133,548 +Accumulated Depreciation: +Office equipment +( 30,179 ) +Furniture and Fittings +( 40,028 ) +Kitchen Equipment +( 13,221 ) +Operating Equipment +( 5,107 ) +Leasehold Improvements +( 65,048 ) +Impairment: +Office equipment +( 6,774 ) +Furniture and Fittings +( 2,300 ) +Kitchen Equipment +( 8,931 ) +Operating Equipment +( 3,450 ) +Leasehold Improvements +( 46,772 ) +Total, net +$ 33,588 +December 31, 2023 +Cost: +Office Equipment +$ 30,861 +Furniture and Fittings +46,376 +Kitchen Equipment +23,044 +Operating Equipment +8,522 +Leasehold Improvements +122,083 +Accumulated Depreciation: +Office Equipment +( 15,848 ) +Furniture and Fittings +( 31,518 ) +Kitchen Equipment +( 8,368 ) +Operating Equipment +( 3,373 ) +Leasehold Improvements +( 42,549 ) +Total, net +$ 129,230 +For +the years ended December 31, 2024 and 2023, the Company recorded depreciation expenses of $ 48,172 and $ 58,006 and impairment of property +and equipment of $ 69,293 and $ 0 , respectively. The impairment was determined by the Company based on the discounted cash flow of the +cash generating unit (“CGU”), which involves the cash flow projections covering a 3-year period and the fair value less cost +of disposal. Based on the assessment, the recoverable amount of the CGU was determined to be zero, which was below the carrying amount +of these non-financial assets. As of December 31, 2024, the Company disposed of office equipment, at a cost of $ 7,429 , and furniture +and fittings, at a cost of $ 2,784 , from F&BPLQ due to café’s closure. $ 5,878 loss on disposal of PPE was recorded in +the general and administrative expenses. +NOTE +8 — INVESTMENTS AT COST +Investments +in equity securities without readily determinable fair values are measured at cost minus impairment adjusted by observable price changes +in orderly transactions for the identical or a similar investment of the same issuer. These investments are measured at fair value on +a nonrecurring basis when there are events or changes in circumstances that may have a significant adverse effect. An impairment loss, +which is recognized in the consolidated statements of comprehensive income, equals to the amount by which the carrying value exceeds +the fair value of the investment. No impairment was recorded as of and for the year ended December 31, 2024. +Joint +Venture +On +April 25, 2024, the Company entered into a binding term sheet (the “Term Sheet”) through its subsidiary Health Wealth Happiness +Pte. Ltd. (“HWHPL”) outlining a joint venture with Chen Ziping, an experienced entrepreneur in the travel industry, and Chan +Heng Fai Ambrose, HWH’s Executive Chairman, as a part of HWH’s strategy of building its travel business in Asia. The planned +joint venture company (referred to here as the “JVC” or “HTHPL”) will be known as HapiTravel Holding Pte. Ltd. +The JVC will be initially owned as follows: (a) HWHPL will hold 19 % +of the shares in the JVC; (b) Mr. Chan will hold 11 %; +and (c) the remaining 70 % +of the shares in the JVC will be held by Mr. Chen. +On +November 6, 2024, the Company signed a loan agreement with HTHPL in the amount of $ 137,658 at a rate of 5 % per annum, the maturity date +of which is on or before the second anniversary of the effective date. +On +December 18, 2024, the Company sold Hapi Travel Pte. Ltd. (“HTPL”) to HTHPL for a consideration of $ 834 . +F- 18 +As +of December 31, 2024, HTHPL owed the Company a total of $ 139,370 , which is recorded in other receivables in the financial statements, which included +the subscription fee for 19 % of the shares of the JVC. +Ideal +Food & Beverage Pte. Ltd. +On +March 14, 2024, the Company entered into a share subscription agreement through its subsidiary Alset F&B Holding Pte. Ltd. (“F&BH”) +for 19,000 shares of Ideal Food & Beverage Pte. Ltd. (“IFBPL”), constituting 19 % of the issued shares of IFBPL. The +subscription fee of $ 14,010 was paid to IFBPL on May 23, 2024. +On +March 14, 2024, the Company entered into a share subscription agreement through its subsidiary Alset F&B Holding Pte. Ltd. (“F&BH”) +for 19,000 shares of Ideal Food & Beverage Pte. Ltd. (“IFBPL”), constituting 19 % of the issued shares of IFBPL. The subscription +fee of $ 14,010 was paid to IFBPL on May 23, 2024. The Company impaired this investment of $ 14,010 to $ 0 and total impairment expenses +were $ 14,205 , which included $ 14,010 of investment and $ 195 exchange difference, due to net liabilities of IFBPL as of December 31, 2024. +NOTE +9 — COMMISSIONS EXPENSE +Accrued +commissions as of December 31, 2024 and 2023 represent mainly sales commission payable. For the years ended December 31, 2024 and 2023, +sales commission expenses of $ 0 and $ 13,827 respectively, were recorded and included in cost of revenue in the Company’s consolidated +statement of operations. +NOTE +10 – LOANS DUE TO THIRD PARTIES +Loans +for Operations +The +Company’s subsidiary, Ketomei Pte Ltd (“Ketomei”) has a loan from DBS Bank Limited, which was used to fund Ketomei’s +current operations. Ketomei owes the bank $ 34,155 at December 31, 2024. +Ketomei also borrowed $ 42,696 from an individual on February 21, 2022, which consisted of principal of $ 36,807 and +interest of $ 5,889 for 2 years at 8 % interest rate per annum. Ketomei repaid $ 39,015 in 2024 and owes $ 3,681 at December 31, 2024, which +will be repaid in 6 installments in 2025. +Promissory +Note to EF Hutton LLC +On +December 18, 2023, the Company entered into a Satisfaction and Discharge of Indebtedness Agreement in connection with an underwriting +agreement previously entered into by HWH and EF Hutton LLC (“EF Hutton”) (now known as D. Boral Capital LLC), a division +of Benchmark Investments, LLC, under which in lieu of HWH tendering the full amount due of $ 3,018,750 , the underwriters accepted a combination +of $ 325,000 in cash paid upon the closing of Business Combination, 149,443 shares of the Company’s common stock and a $ 1,184,375 +promissory note as full satisfaction. This agreement was effective at the closing of Business Combination on January 9, 2024. The 149,443 +shares were issued at the price of $ 10.10 , totaling the amount of $ 1,509,375 . The fair value of the HWH shares at issuance on January +9, 2024 was $ 2.82 per share or $ 421,429 . No gain or loss was recognized upon issuance of the shares on January 9, 2024, as this was an +adjustment to prior underwriting costs accounted for in equity. The promissory note carries interest rate equal to SOFR (secured overnight +financing rate for U.S. Government Securities Business Day published by the Federal Reserve Bank of New York) plus a margin of one percent. +The principal amount of the promissory note and any accrued interest shall mature (i) partially in the event HWH completes an offering +within one year of the date of the promissory note, the amount of outstanding debt maturing being proportionate to the amount of proceeds +of the future offering, or (ii) in partial installments through October of 2028, the outstanding balance being paid annually until the +balance owed is paid in full. The first installment of the note that was due in October 2024 was paid in January 2025, resulting in a default due +to the delay in payment. We are currently in negotiations with EF Hutton to resolve the default status and restore the account to good +standing. +NOTE +11 — DUE TO ALSET INC. +Alset +Inc (“AEI”) is our ultimate holding company that is incorporated in the United States of America. The amount due to AEI represents +short-term working capital advances to the Company for its daily operations. There is no written, executed agreement and no financial/non-financial +covenants and the amount due to AEI is non-interest bearing. Since the amount due to AEI is due upon request, it is classified as a current +liability. The amounts due to AEI at December 31, 2024 and 2023 are $ 209,614 and $ 202,645 respectively. +On +April 24, 2024, the Company entered into a Credit Facility Agreement (the “Credit Agreement”) with Alset Inc., pursuant to +which AEI has provided the Company a line of credit facility (the “Credit Facility”) which provides a maximum, aggregate +credit line of up to $ 1,000,000 . +Pursuant +to the Credit Agreement, the Company may request an advance (each, an “Advance”) on the Credit Facility. Each Advance shall +bear a simple interest rate of three percent ( 3 %) per annum. Each Advance and all accrued but unpaid interest shall be due and payable +at the first (1 st ) anniversary of the effective date of the Credit Agreement. The Company may at any time during the term +of the Credit Agreement prepay a portion or all amounts of its indebtedness without penalty. Each Advance shall not be secured by a lien +or other encumbrance on any of the Company’s assets, but shall be solely a general unsecured debt obligation of the Company. On +September 24, 2024 the Company drew $ 300,000 from the credit line and accrued $ 3,164 in interest. On December 31, 2024, $ 3,164 of the +interest remained outstanding. +On +September 24, 2024, the Company entered into a Debt Conversion Agreement (the “AEI Conversion”) with Alset Inc., pursuant +to which a debt of $ 300,000 due to AEI was converted into shares of the Company’s common stock at a price per share of $ 0.63 for +a total of 476,190 shares. +NOTE +12 — DUE TO/FROM RELATED PARTIES +Due +to Alset International Limited. +Alset +International Limited (“AIL”) is incorporated in Singapore and is a fellow subsidiary of the common parent company, +Alset Inc. The amount due to AIL represents short-term working capital advances to the Company for its daily operations. There is no +written, executed agreement and no financial/non-financial covenants and the amount due to AIL is non-interest bearing. Since the +amount due to AIL is due upon request, it is classified as a current liability. The amounts due to AIL at December 31, 2024 and 2023 +are $ 5,096,047 +and $ 1,729,901 , +respectively. +On +September 24, 2024, the Company entered into a Debt Conversion Agreement (the “AIL Conversion”) with Alset International +Limited, pursuant to which a debt of $ 3,501,759 due to AIL was converted into shares of the Company’s common stock at a price per +share of $ 0.63 for a total of 5,558,347 shares. +Due +to Alset Business Development Pte. Limited. +Alset +Business Development Pte. Limited (“ABD”) is incorporated in Singapore and is a fellow subsidiary of the common parent company, +Alset Inc. The amount due to ABD represents amount loaned by ABD to Hapi Cafe Inc. for the investment in Ketomei Pte. Ltd (“Ketomei”) +in March 2022, and also represents amount loaned HWHPL to ABD in November 2024. There is no written, executed agreement and no financial/non-financial +covenants and the amount due to ABD is non-interest bearing. Since the amount due to ABD is due upon request, it is classified as a current +liability. The amount due from ABD at December 31, 2024 is $ 4,113,701 and amount due to ABD at December 31, 2023 is $ 184,507 . +Due +to BMI Capital Partners International Limited. +BMI +Capital Partners International Limited (“BMI”) is incorporated in Hong Kong and is a fellow subsidiary of the common parent +company, Alset Inc. The amount due to BMI represents short-term working capital advances to the Company for its daily operations. There +is no written, executed agreement and no financial/non-financial covenants and the amount due to BMI is non-interest bearing. Since the +amount due to BMI is due upon request, it is classified as a current liability. The amounts due to BMI at December 31, 2024 and 2023 +are $ 0 and $ 1,442 , respectively. +F- 19 +General +and Administrative Services +Commencing +on the date the Company’s common stock was first listed on the Nasdaq, the Company has agreed to pay to Alset Management Group +Inc. a total of $ 10,000 per month for office space, utilities, and secretarial and administrative support for up to 24 months. Upon completion +of the Business Combination, the Company ceased paying these monthly fees. During the years ended December 31, 2024 and 2023, the Company +recorded a charge of $ 0 and $ 120,000 , respectively, to the statement of operations pursuant to the agreement. +Related +Party Loans +Working +Capital Loans +In +order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain +of the Company’s officers and directors were permitted to, but were not obligated to, loan the Company funds as may be required +(“Working Capital Loans”). Such Working Capital Loans would be evidenced by promissory notes. The notes were to be repaid +upon completion of a Business Combination, without interest, or, at the lender’s discretion, up to $ 1,500,000 of the notes may +be converted upon completion of a Business Combination into units at a price of $ 10.00 per unit. Such units would be identical to the +Private Placement Units. The Business Combination has closed, and there are no amounts outstanding +under these Working Capital Loans. No amounts were converted into the units at the Business Combination. +Extension +Loan +On +May 1, 2023, the Company amended the Investment Management Trust Agreement (the “Trust Agreement”) with Wilmington Trust, +National Association, a national banking association, which was entered into on January 31, 2022. On May 2, 2023 the Company filed an +Amendment to the Amended and Restated Certificate of Incorporation. The Trust Agreement and Amended and Restated Certificate of Incorporation +were amended, in part, so that the Company’s ability to complete a business combination was extended in additional increments of +one month up to a total of twenty-one (21) additional months from the closing date of the Offering, subject to the payment into the Trust +Account by the Company of one-third of 1% of the funds remaining in the Trust Account following any redemptions in connection with the +approval of the amendment to the Company’s Amended and Restated Certificate of Incorporation. The Sponsor funded the first 30-day +extension payment on May 3, 2023. The Sponsor also made subsequent extension payments on June 5 th and July 6 th of +$ 68,928 and $ 69,158 , respectively. The Sponsor was entitled to the repayment of these extension payments, without interest. As of December +31, 2024 and 2023 there was $ 0 and $ 205,305 outstanding under the extension loan, respectively. +NOTE +13 — RELATED PARTY TRANSACTIONS +On +August 31, 2023, Hapi Café Inc. and Ketomei Pte. Ltd. entered into a binding term sheet pursuant to which HCI agreed to lend Ketomei +up to $ 36,634 pursuant to a convertible loan, with a term of 12 months. After the initial 12 months, the interest on such loan will be +3.5 %. This loan was written off upon the acquisition of Ketomei in February 2024. +On +October 26, 2023, the same parties entered into another binding term sheet pursuant to which HCI agreed to lend Ketomei up to $ 37,876 +pursuant to a non- convertible loan, with a term of 12 months. After the initial 12 months, the interest on such loan will be 3.5 %. This +loan was written off upon the acquisition of Ketomei in February 2024. +On +February 20, 2024, the Company invested additional $ 312,064 for an additional 38.41 % ownership interest in Ketomei by converting $ 312,064 +of convertible loan. The loan was impaired at the year ended December 31, 2023, therefore, $ 312,064 was transferred from impairment of +convertible loan to impairment of loss on goodwill. After this additional investment, the Company owns 55.65 % of Ketomei’s +outstanding shares and Ketomei is consolidated into the financial statements of the Company beginning on February 20, 2024. +On +March 20, 2024, the Company entered into a securities purchase agreement with Sharing Services Global Corporation (“SHRG”), +pursuant to which the Company purchased from SHRG a (i) Convertible Promissory Note (“CN 1”) in the amount of $ 250,000 , convertible +into 208,333,333 shares of SHRG’s common stock at the option of the Company, and (ii) certain warrants exercisable into 208,333,333 +shares of SHRG’s common stock at an exercise price of $ 0.0012 per share, the exercise period of the warrant being five (5) years +from the date of the securities purchase agreement, for an aggregate purchase price of $ 250,000 . At the time of filing, the Company has +not converted any of the debt contemplated by CN 1 nor exercised any of the warrants. +On +May 9, 2024, the Company entered into a securities purchase agreement with Sharing Services Global Corporation, pursuant to which the +Company purchased from SHRG a Convertible Promissory Note (“CN 2”) in the amount of $ 250,000 , convertible into 125,000,000 +shares of SHRG’s common stock at the option of the Company for an aggregate purchase price of $ 250,000 . CN 2 bears an 8 % interest +rate and has a scheduled maturity three years from the date of the CN 2. Additionally, upon signing CN 2, SHRG owed the Company a commitment +fee of 8 % of the principal amount, $ 20,000 in total, to be paid either in cash or in common stock of SHRG, at the discretion of the Company. +On +June 6, 2024, the Company entered into a securities purchase agreement with Sharing Services Global Corporation, pursuant to which the +Company purchased from SHRG a Convertible Promissory Note (“CN 3”) in the amount of $ 250,000 , convertible into 125,000,000 +shares of SHRG’s common stock at the option of the Company for an aggregate purchase price of $ 250,000 . CN 3 bears an 8 % interest +rate and has a scheduled maturity three years from the date of the CN 3. Additionally, upon signing CN 3, SHRG owed the Company a commitment +fee of 8 % of the principal amount, $ 20,000 in total, to be paid either in cash or in common stock of SHRG, at the discretion of the Company. +On +August 13, 2024, the Company entered into a securities purchase agreement with Sharing Services Global Corporation, pursuant to which +the Company purchased from SHRG a Convertible Promissory Note (“CN 4”) in the amount of $ 100,000 , convertible into 50,000,000 +shares of SHRG’s common stock at the option of the Company for an aggregate purchase price of $ 100,000 . CN 4 bears an 8 % interest +rate and has a scheduled maturity three years from the date of the CN 4. Additionally, upon signing CN 4, SHRG owed the Company a commitment +fee of 8 % of the principal amount, $ 8,000 in total, to be paid either in cash or in common stock of SHRG, at the discretion of the Company. +As +of December 31, 2024, a total of $ 48,000 +in commitment fees and $ 39,323 +of convertible note interest was recorded under other receivable. +SHRG +is a related party of our Company, as our stockholders Alset Inc. and Alset International Limited, in addition to certain entities affiliated +with them, are significant stockholders of SHRG, and our Chief Executive Officer and Chairman are also the Chief Executive Officer and +Chairman, respectively, of SHRG. +F- 20 +Financial +assets measured at fair value on a recurring basis are summarized below and disclosed on the consolidated balance sheet as of December +31, 2024: +SCHEDULE +OF FINANCIAL ASSETS MEASURED AT FAIR VALUE ON A RECURRING BASIS +Fair +Value Measurement Using +Amount +at +Level +1 +Level +2 +Level +3 +Fair +Value +December +31, 2024 +Assets +Warrants +– SHRG +$ +- +$ +13,272 +$ +- +$ +13,272 +Convertible +loans receivable – SHRG +- +744,652 +- +744,652 +Total +Investment in securities at Fair Value +$ +- +$ +757,924 +$ +- +$ +757,924 +The +fair value of the SHRG warrants under level 2 category as of December 31, 2024 was calculated using a binomial option pricing model valued +with the following weighted average assumptions: +SCHEDULE +OF FAIR VALUE WEIGHTED AVERAGE ASSUMPTIONS +December 31, 2024 +Stock price +$ 1.000 +Exercise price +$ 1.6800 +Risk free interest rate +4.34 % +Annualized volatility +204.14 % +Dividend yield +0.00 % +Year to maturity +4.21 +Warrants measurement input +4.21 +The +Company has elected to recognize the convertible loan at fair value and therefore there was no further evaluation of embedded features +for bifurcation. The Company engaged a valuation firm to perform the valuation of convertible loans. The fair value of the +convertible loans is calculated using the binomial tree model based on probability of remaining as straight debt using discounted cash +flow with the following assumptions: +As of December 31, 2024 +CN# +1 +2 +3 +4 +Issued date +March 18, 2024 +May 9, 2024 +June 6, 2024 +August 13, 2024 +Risk-free interest rate +4.248 % +4.253 % +4.255 % +4.261 % +Expected life +2.21 year +2.35 year +2.43 year +2.62 year +Discount rate +6.00 % +8.00 % +8.00 % +8.00 % +Expected volatility +204.138 % +204.138 % +204.138 % +204.138 % +Expected dividend yield +0 % +0 % +0 % +0 % +Debt measurement input +0 % +0 % +0 % +0 % +Fair value +$ 212,708 +$ 230,871 +$ 212,865 +$ 88,208 +Changes +in the observable input values would likely cause material changes in the fair value of the Company’s Level 2 financial instruments. +A significant increase (decrease) in this likelihood would result in a higher (lower) fair value measurement. +Revenue +from F&B business amounting to approximately $ 4,488 and $ 7,444 during the years ended December 31, 2024 and 2023, respectively, was +related to corporate sales. That revenue was derived from corporate sales to related parties who purchased meals and paid for their staff. +Included +in Accounts Receivable, net at December 31, 2024 and 2023 is $ 1,652 and $ 6,181 , respectively, of amounts due from related parties. +Included +in other income during the years ended December 31, 2024 and 2023 is $ 6,462 and $ 6,756 , respectively of rental income from related parties. +NOTE +14 — COMMITMENTS AND CONTINGENCIES +From time to time the Company +may be named in claims arising in the ordinary course of business. Currently, no legal proceedings, government actions, administrative +actions, investigations or claims are pending against the Company or involve the Company that, in the opinion of management, could reasonably +be expected to have a material adverse effect on its business and financial condition. For all periods presented, the Company was not +a party to any pending material litigation or other material legal proceedings. +Registration +Rights +The +holders of the Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans (and +any shares of common stock issuable upon the exercise of the Private Placement Warrants or warrants issued upon conversion of the Working +Capital Loans and upon conversion of the Founder Shares) will be entitled to registration rights pursuant to a registration rights agreement +to be signed prior to or on the effective date of Initial Public Offering requiring the Company to register such securities for resale. +The holders of these securities will be entitled to make up to three demands, excluding short form registration demands, that the Company +register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration +statements filed subsequent to completion of a Business Combination and rights to require the Company to register for resale such securities +pursuant to Rule 415 under the Securities Act. However, the registration rights agreement provides that the Company will not be required +to effect or permit any registration or cause any registration statement to become effective until the securities covered thereby are +released from their lock-up restrictions. The Company will bear the expenses incurred in connection with the filing of any such registration +statements. +F- 21 +Underwriting +Agreement +The +Company granted the underwriters a 45-day option from the date of Initial Public Offering to purchase up to 1,125,000 additional Units +to cover over-allotments, if any, at the Initial Public Offering price less the underwriting discounts and commissions. On February 3, +2022, the underwriters elected to fully exercise their over-allotment option. The Units were sold at an offering price of $ 10.00 per +Unit, generating additional gross proceeds to the Company of $ 11,250,000 . +The +underwriters were paid a cash underwriting discount of $ 0.20 per Unit, or $ 1,725,000 in the aggregate, upon the closing of the Initial +Public Offering. In addition, the underwriters were entitled to a deferred fee of $ 0.35 per Unit, or $ $ 3,018,750 in the aggregate. The +deferred fee was paid to the underwriters in the form of cash, shares and promissory note upon completion of the Business Combination +NOTE +15 — STOCKHOLDERS’ EQUITY +The +total amount of authorized capital stock of the Company is 56,000,000 shares, consisting of (a) 55,000,000 shares of common stock, and +(b) 1,000,000 shares of preferred stock. As of December 31, 2024 and 2023, there were no shares of preferred stock outstanding. +The +Company previously had shares of Class B common stock outstanding, which automatically converted into Class A common stock at the time +of the Business Combination, on a one-for-one basis. +Rights +- Each holder of a right automatically received one-tenth (1/10) of one share of common stock upon consummation of the Business +Combination. +Warrants +— Public Warrants may only be exercised for a whole number of shares. No fractional warrants will be issued upon separation +of the Units and only whole warrants will trade. The Public Warrants became exercisable 30 days after the completion of the Business +Combination. The Public Warrants will expire five years after the completion of the Business Combination. +The +Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise of a warrant and will have no obligation +to settle such warrant exercise unless a registration statement under the Securities Act covering the issuance of the shares of Class +A common stock issuable upon exercise of the warrants is then effective and a current prospectus relating to those shares of Class A +common stock is available, subject to the Company satisfying its obligations with respect to registration, or a valid exemption from +registration is available. No warrant will be exercisable for cash or on a cashless basis, and the Company will not be obligated to issue +any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified +under the securities laws of the state of residence of the exercising holder, or an exemption from registration is available. +F- 22 +Redemption +of Warrants When the Price per Share of Class A Common Stock Equals or Exceeds $18.00 — Once the warrants become exercisable, +the Company may redeem the outstanding Public Warrants: +● +in +whole and not in part; +● +at +a price of $ 0.01 per Public Warrant; +● +upon +a minimum of 30 days’ prior written notice of redemption, or the 30-day redemption period to each warrant holder; and +● +if, +and only if, the last reported sale price of the Class A common stock equals or exceeds $ 18.00 per share (as adjusted for stock splits, +stock dividends, reorganization, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on +the trading day prior to the date on which the Company sends the notice of redemption to warrant holders. +If +and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register +or qualify the underlying securities for sale under all applicable state securities laws. +If +the Company calls the Public Warrants for redemption, as described above, its management will have the option to require any holder that +wishes to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise +price and number of common stock issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in +the event of a stock dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. However, except as +described below, the Public Warrants will not be adjusted for issuances of common stock at a price below its exercise price. Additionally, +in no event will the Company be required to net cash settle the Public Warrants. +The +Private Placement Warrants are identical to the Public Warrants underlying the Units being sold in the Initial Public Offering except +the Private Placement Warrants (including the Class A common stock issuable upon exercise of the Private Placement Warrants) were transferable, +assignable or salable until 30 days after the completion of the Business Combination, subject to certain exceptions. +The +following table summarizes the warrant activity for the years ended December 31, 2024 and 2023. +SCHEDULE +OF WARRANT ACTIVITY +Warrant for +Weighted +Remaining Contractual +Aggregate +Common +Average +Term +Intrinsic +Shares +Exercise Price +(Years) +Value +Warrants Outstanding as of December 31, 2023 +909,875 +$ 57.5 +5.03 +$ - +Warrants Vested and exercisable at December 31, 2023 +909,875 +$ 57.5 +5.03 +$ - +Granted +- +- +Exercised +- +- +Forfeited, cancelled, expired +( 1 ) +- +Warrants Outstanding as of December 31, 2024 +909,874 +$ 57.5 +4.03 +$ - +Warrants Vested and exercisable at December 31, 2024 +909,874 +$ 57.5 +4.03 +$ - +Warrant +for +Weighted +Remaining +Contractual +Aggregate +Common +Average +Term +Intrinsic +Shares +Exercise +Price +(Years) +Value +Warrants +Outstanding as of December 31, 2022 +909,875 +$ +57.5 +6.03 +$ +- +Warrants +Vested and exercisable at December 31, 2022 +909,875 +$ +57.5 +6.03 +$ +- +Granted +- +- +Exercised +- +- +Forfeited, +cancelled, expired +- +- +Warrants +Outstanding as of December 31, 2023 +909,875 +$ +57.5 +5.03 +$ +- +Warrants +Vested and exercisable at December 31, 2023 +909,875 +$ +57.5 +5.03 +$ +- +Issuance +of HWH Shares to EF Hutton +On +December 18, 2023, the Company entered into a Satisfaction and Discharge of Indebtedness Agreement in connection with an underwriting +agreement previously entered into by the Company and EF Hutton, a division of Benchmark Investments, LLC, under which in lieu of the +Company tendering the full amount due of $ 3,018,750 , the underwriters accepted a combination of $ 325,000 in cash payable upon the closing +of the Business Combination, 149,443 shares of the Company’s common stock and a $ 1,184,375 promissory note as full satisfaction. +This agreement was effective at the closing of the Business Combination on January 9, 2024. The 149,443 shares were issued at the price +of $ 10.10 , totaling the amount of $ 1,509,375 . The fair value of the Company shares at issuance +on January 9, 2024 was $ 2.82 per share or $ 421,429 . No gain or loss was recognized upon issuance of the shares on January 9, 2024 as +this was an adjustment to prior underwriting costs accounted for in equity. +F- 23 +NOTE +16 — INCOME TAXES +The +provision for income taxes consisted of the following: +SCHEDULE +OF PROVISION FOR INCOME TAXES +2024 +2023 +Current +$ - +$ 415,383 +Deferred +- +- +Total +$ - +$ +415,383 +SCHEDULE +OF EFFECTIVE INCOME TAX RATE RECONCILIATION +2024 +2023 +Income taxes at statutory rate +20.39 % +18.91 % +Change in valuation allowance +( 20.39 )% +( 18.91 )% +Other +- % +- % +Effective tax rate +- % +- % +Significant +components of the Company’s deferred tax assets and liabilities are as follows: +SCHEDULE +OF DEFERRED TAX ASSETS AND LIABILITIES +2024 +2023 +Deferred tax assets: +Receivable from related party +$ 897 +$ 1,020 +Inventory +5,800 +6,766 +Lease Liability +108,318 +126,336 +Accrued Commission +11 +18,745 +Net Operation Loss +777,572 +468,414 +Total deferred tax assets +$ 892,598 +$ 621,281 +Deferred tax liabilities: +Prepaid commissions +$ - +$ - +Right-of-Use Assets +( 105,754 ) +( 123,371 ) +Total deferred tax liabilities +$ ( 105,754 ) +$ ( 123,371 ) +Deferred tax assets / (liabilities), net +$ 786,844 +$ 497,910 +Less valuation allowance +( 786,844 ) +( 497,910 ) +Deferred tax asset c/f +$ - +$ - +After +consideration of all the evidence, both positive and negative, management has recognized a valuation allowance with respect to its net +deferred tax assets as at December 31, 2024 and 2023, as it believes it is unlikely that such deferred tax assets will be realized against +taxable income in future years. +NOTE +17 — LEASES +The +Company has operating leases for its office spaces, one F&B store in South Korea and two F&B stores in Singapore. In the second +quarter of 2024, the Company ceased its operations of F&BPLQ and recorded a gain on termination of the operating lease of $ 248 , which +is included in other income on the Company’s Statement of Operations for the year ended December 31, 2024. +The +related lease agreements do not contain any material residual value guarantees or material restrictive covenants. Since the Company’s +leases do not provide an implicit rate that can be readily determined, management uses a discount rate based on the incremental borrowing +rate. The Company’s weighted-average remaining lease term relating to its operating leases is 1.76 years, with a weighted-average +discount rate of 3.39 %. +The +Company has also utilized the following practical expedients: +● +Short-term +leases – for leases that are for a period of 12 months or less, the Company will not apply the recognition requirements of +ASC 842. +● +For +leases that contain related non-lease components, such as maintenance, the Company will account for these payments as a single lease +component. +F- 24 +The +current portion of operating lease liabilities and the non-current portion of operating lease liabilities are presented on the balance +sheets. Total lease expenses amounted to $ 490,122 and $ 509,340 , which were included in general and administrative expenses in the statements +of operations for the years ended December 31, 2024 and 2023, respectively. Total cash paid for operating leases amounted to $ 465,733 +and $ 580,580 for the years ended December 31, 2024 and 2023, respectively. In addition, the Company leases certain equipment on a short-term +(12 months or less) basis. Total short-term lease expense of $ 20,615 and $ 14,348 is included in general and administrative expenses for +the years ended December 31, 2024 and 2023, respectively. Supplemental balance sheet information related to operating leases is as follows: +SCHEDULE OF BALANCE SHEET INFORMATION RELATED TO OPERATING LEASES +December 31, 2024 +December 31, 2023 +Right-of-use assets +$ 548,757 +$ 598,508 +Lease liabilities - current +$ 340,651 +$ 429,687 +Lease liabilities - non-current +220,249 +182,380 +Total lease liabilities +$ 560,900 +$ 612,067 +As +of December 31, 2024, the aggregate future minimum rental payments under non-cancelable agreements are as follows: +SCHEDULE OF AGGREGATE FUTURE MINIMUM RENTAL PAYMENTS +Maturity of Lease Liabilities +Total +12 months ending December 31, 2025 +$ 353,550 +12 months ending December 31, 2026 +156,668 +12 months ending December 30, 2027 +68,426 +Total undiscounted lease payments +$ 578,644 +Less: Imputed interest +( 17,744 ) +Present value of lease liabilities +$ 560,900 +Operating lease liabilities - Current +340,651 +Operating lease liabilities - Non-current +$ 220,249 +NOTE +18 — DISAGGREGATION OF REVENUE +Selected +financial information of the Company’s operating revenue for disaggregated revenue purposes by revenue source are as follows: Product +sales only represent sales to members, not third parties who are not members. +SCHEDULE OF DISAGGREGATION OF REVENUE +Year Ended +December 31, 2024 +Year Ended +December 31, 2023 +Membership Fee +$ - +$ 12,293 +Product Sales +- +465 +Food and Beverage +1,253,577 +817,761 +Total +$ 1,253,577 +$ 830,519 +Revenue +$ 1,253,577 +$ 830,519 +F- 25 +NOTE +19 — CONCENTRATION RISK +The +Company maintains cash balances at various financial institutions in different countries. These balances are usually secured by the central +banks’ insurance companies. At times, these balances may exceed the insurance limits. As of December 31, 2024 and 2023, uninsured +cash balances were $ 6,403,985 and $ 21,989,947 , respectively. +Major +Suppliers +For +the year ended December 31, 2024, five suppliers accounted for approximately over 80 % of the Company’s total cost of revenue. +For +the year ended December 31, 2023, five suppliers accounted for approximately over 54 % of the Company’s total cost of revenue. +NOTE +20 — INVESTMENT IN ASSOCIATE AND CONVERTIBLE NOTES RECEIVABLE, RELATED PARTY +Until +February 20, 2024, the Company held an equity method investment in a related party, Ketomei, and also had a convertible note receivable +with Ketomei. The following table shows the activity of the investment and note during the years ended December 31, 2024 and 2023. +SCHEDULE OF EQUITY METHOD INVESTMENT IN A RELATED PARTY +December 31, 2023 +Additions +Loss on +investment +Impairment +December 31, 2024 +Investment in associate, related party +$ - +$ 14,744 +$ ( 14,744 ) +$ - +$ - +Convertible note receivable, related party +- +42,328 +- +( 42,328 ) +- +Total +$ - +$ 57,072 +$ ( 14,744 ) +$ ( 42,328 ) +$ - +December 31, +2022 +Additions +Loss on +investment +Impairment +December 31, 2023 +Investment in associate, related party +$ 155,369 +$ 4,128 +$ ( 33,898 ) +$ ( 125,599 ) +$ - +Convertible note receivable, related party +198,125 +170,174 +- +( 368,299 ) +- +Total +$ 353,494 +$ 174,302 +$ ( 33,898 ) +$ ( 493,898 ) +$ - +During +the year of 2024, the Company impaired convertible note receivable of $ 42,328 +to $ 0 +and goodwill of $323,864 to $0, which was generated from net asset value during the acquisition. Total impairment expenses +were $ 366,192 . +On +February 20, 2024, the Company invested an additional $ 312,064 for an additional 38.41 % ownership interest in Ketomei by converting $ 312,064 +of convertible loan. The loan was impaired at the year ended December 31, 2023, therefore, $ 312,064 was transferred from impairment of +convertible loan to impairment of equity method investment. After this additional investment, the Company owns 55.65 % of Ketomei’s +outstanding shares and Ketomei is consolidated into the financial statements of HWH International Inc. beginning on February 20, 2024. +During +the year ended December 31, 2024, the Company held convertible notes receivable with SHRG. The following table shows the activity of +the notes during the year ended December 31, 2024. +SCHEDULE OF EQUITY METHOD INVESTMENT IN A RELATED PARTY +December +31, +2023 +Additions +Net +Unrealized Losses +December +31, 2024 +Convertible +note receivable - related party +$ +- +$ +850,000 +$ +105,348 +$ +744,652 +Total +$ +- +$ +850,000 +$ +105,348 +$ +744,652 +During +the year ended December 31, 2024, the Company revalued the convertible note receivable with SHRG of $ 850,000 to $ 744,652 . The total $ 379,887 +revaluated loss amount was booked in unrealized loss on convertible note receivable – related party and $ 287,512 revaluated gain +amount was booked in additional paid in capital as this was a related party transaction. +F- 26 +NOTE +21 — CHANGE IN FISCAL YEAR +In +connection with the Business Combination, the Company changed its fiscal year end from November 30 to December 31. The Company reported its audited financial statements on Form 10-K for the year ended November 30, 2023. The Company’s financial +statement for one month of December 2023, that were not previously reported include expenses related to business combination, +ordinary business expenses and investment income. +HWH +INTERNATIONAL INC. +(Formerly +known as Alset Capital Acquisition Corp.) +CONDENSED CONSOLIDATED BALANCE SHEETS +SCHEDULE OF CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS +December 31, 2023 +(recast) +ASSETS +Current assets: +Cash +$ 280,398 +Other current assets +100,000 +Total current assets +380,398 +Cash and marketable securities held in Trust Account +21,346,768 +Total assets +$ 21,727,166 +LIABILITIES AND STOCKHOLDERS’ DEFICIT +Current liabilities: +Accounts payable and accrued expenses +$ 30,156 +Extension Loan – Related Party +205,305 +Total current liabilities +235,461 +Deferred underwriting compensation +3,018,750 +Total liabilities +3,254,211 +Commitments and contingencies +- +Temporary equity: +Class A common stock subject to possible redemption; 395,207 shares (at approximately $ 53.40 per share) as of December 31, 2023* +21,102,871 +Stockholders’ deficit: +Preferred stock, $ 0.0001 par value; 1,000,000 shares authorized; none issued and outstanding +- +Class A common stock, $ 0.0001 +par value; 50,000,000 +shares authorized; 94,750 +issued and outstanding (excluding 395,207 +shares subject to possible redemption) as of December 31, 2023 * +9 +Class B common stock, $ 0.0001 +par value; 5,000,000 +shares authorized; 431,250 +shares issued and outstanding as of December 31, 2023 * +43 +Common +stock, value +43 +Additional Share Capital +155,974 +Accumulated deficit +( 2,785,942 ) +Total stockholders’ deficit +( 2,629,916 ) +Total liabilities and stockholders’ deficit +$ 21,727,166 +* The common stock share +amounts were adjusted retrospectively to reflect the 5-for-1 reverse stock split on February 24, 2025 +F- 27 +HWH +INTERNATIONAL INC. +(Formerly +known as Alset Capital Acquisition Corp.) +CONDENSED +CONSOLIDATED STATEMENTS OF OPERATIONS +For the One +Month Ended +December 31, 2023 +(recast) +EXPENSES +Administration fee - related party +$ 10,000 +General and administrative +( 115,724 ) +TOTAL EXPENSES +( 105,724 ) +OTHER INCOME +Investment income earned on cash and marketable securities held in Trust Account +94,130 +TOTAL OTHER INCOME +94,130 +Pre-tax loss +199,853 +Income tax expense +35,372 +Net loss +$ 235,225 +NOTE +22 — SUBSEQUENT EVENT +Public +Offering +On +January 3, 2025, the Company announced the pricing of its public offering of 3,162,500 +shares of common stock, par value $ 0.0001 +per share (the “Shares”) and 1,250,000 +pre-funded warrants to purchase shares of common stock (“Pre-Funded Warrants”). The Shares and Pre-Funded Warrants were +offered at a public offering price of $ 0.40 +per share and $ 0.3999 +per Pre-Funded Warrant. The Pre-Funded Warrants were exercisable immediately upon issuance and have an exercise price of $ 0.0001 +per share. The gross proceeds to the Company from the offering were approximately $ 1.76 +million, before deducting placement agent fees and other offering expenses of approximately $ 355,017 . +The +offering was conducted pursuant to the Company’s registration statement on Form S-1 (File No. 333-282567), which was initially +filed with the Securities and Exchange Commission on October 10, 2024, subsequently amended on October 23, 2024, December 4, 2024, and +December 10, 2024, and declared effective on December 19, 2024. The offering closed on January 6, 2025. +D. +Boral Capital LLC (“D. Boral Capital”) was acting as the exclusive placement agent for the offering. Pursuant to the Placement +Agency Agreement, the Company has agreed to pay D. Boral Capital a cash fee equal to 7.5 % of the gross proceeds from the offering, a +non-accountable expense allowance equal to 1.0 % of the gross proceeds, and reimbursement for legal and out-of-pocket expenses up to $ 75,000 . +Amendment +to Amended and Restated Certificate of Incorporation +On +January 8, 2025, the Company amended the text of Section 7.3 of Article VII of the Company’s Amended and Restated Certificate of +Incorporation with the State of Delaware to permit the stockholders of the Company to take action by majority written consent. This Amendment +of the Company’s Amended and Restated Certificate of Incorporation was approved by the Company’s stockholders at the Company’s +annual meeting of stockholders on December 12, 2024. +The +Reverse Stock Split +On +January 16, 2025, the holders of a majority of the issued and outstanding shares of common stock of the Company, approved by written +consent, an amendment of the Company’s Amended and Restated Certificate of Incorporation to effect a reverse stock split of the +Company’s common stock, par value $ 0.0001 per share, at a ratio of 1-for-5 (the “Reverse Stock Split”). The reverse +stock split was effectuated on February 24, 2025. +Acquisition +of L.E.H. Insurance Group, LLC +On +November 19, 2024, HWH entered definitive agreements to acquire a controlling 60 % +interest in L.E.H. Insurance Group, LLC (“LEH”). The acquisition closed on February 27, 2025. This acquisition was +facilitated through the purchase of shares from Sharing Services Global Corp. (“SHRG”) SHRG sold its 60 % +interest in LEH to HWH, while the remaining 40 % +stake was retained by the original owner. However, following this transaction, the original owner sold their 40 % +interest to SHRG. John Thatch, the Chief Executive Officer of the Company, is also the Chief Executive Officer of both LEH and SHRG. +LEH is a licensed insurance agency representing over 600 insurance companies, serving as an independent advisor to businesses and +individuals. LEH provides personalized insurance solutions, offering expert guidance to meet the unique coverage needs of each +customer. LEH is in the early stages of its development, has no employees on its payroll, and has yet to turn a profit. +Securities P urchase A greement +with S H RG +On March 31, 2025, the Company entered into a securities purchase agreement with Sharing Services Global Corporation +(“SHRG”), pursuant to which SHRG issued a convertible promissory note to the Company in the amount of $ 150,000 , the indebtedness +thereunder being convertible into SHRG common stock at $ 0.80 per share at HWH’s option until maturity of the convertible note three +(3) years from the date of the securities purchase agreement. Further, SHRG granted the Company warrants exercisable into 937,500 shares +of SHRG common stock, the exercise period of the warrants being three (3) years from the date of the securities purchase agreement at +an exercise price of $ 0.85 per share. +F- 28 +Item +9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. +Not +Applicable. +Item +9A. Controls and Procedures. +Evaluation +of Disclosure Controls and Procedures +In +connection with the preparation of our Report on Form 10-K, an evaluation was carried out by management, with the participation of our +Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules +13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act) as of December 31, 2024. Disclosure controls and procedures +are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, +summarized and reported within the time periods specified, and that such information is accumulated and communicated to management, including +the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. +During +evaluation of disclosure controls and procedures as of December 31, 2024, conducted as part of our annual audit and preparation of our +annual financial statements, management conducted an evaluation of the effectiveness of the design and operations of our disclosure controls +and procedures and concluded that our disclosure controls and procedures were ineffective for those reasons set forth below. +Management’s +Report on Internal Control over Financial Reporting +Management +is responsible for the preparation and fair presentation of the financial statements included in this Annual Report. The financial statements +have been prepared in conformity with accounting principles generally accepted in the United States of America and reflect management’s +judgment and estimates concerning effects of events and transactions that are accounted for or disclosed. +Management +is also responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial +reporting includes those policies and procedures that pertain to our ability to record, process, summarize and report reliable data. +Management recognizes that there are inherent limitations in the effectiveness of any internal control over financial reporting, including +the possibility of human error and the circumvention or overriding of internal control. Accordingly, even effective internal control +over financial reporting can provide only reasonable assurance with respect to financial statement presentation. Further, because of +changes in conditions, the effectiveness of internal control over financial reporting may vary over time. +In +order to ensure that our internal control over financial reporting is effective, management regularly assesses controls and did so most +recently for its financial reporting as of December 31, 2024. This assessment was based on criteria for effective internal control over +financial reporting described in the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) +of the Treadway Commission. In connection with management’s evaluation of the effectiveness of the Company’s internal control +over financial reporting as of December 31, 2024, management determined that the following issues constitute as material weakness: +● +The Company has limited accounting personnel, and as such, is unable to properly segregate duties relating to the Company’s internal +controls over financial reporting. +● +Additionally, well-defined accounting policies and procedures have not been established and many financial close procedures, including +period-end review and reconciliations, did not occur on a timely basis or failed to identify material adjustments. +This +Annual Report filed on Form 10-K does not include an attestation report of the Company’s registered public accounting firm regarding +internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting +firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in +this Annual Report. +Changes +in Internal Control over Financial Reporting +We +continue taking steps to enhance and improve the design of our internal controls over financial reporting. During the period covered +by this Annual Report on Form 10-K, we have not been able to completely remediate the material weaknesses identified above. To remediate +such weaknesses, we plan to appoint additional qualified personnel with financial accounting, U.S. GAAP, and SEC experience. +Item +9B. Other Information. +Insider +Trading Arrangements +During +the quarterly period ended December 31, 2024, none of our directors or officers (as defined in Rule 16a-1(f) promulgated under the Exchange +Act) adopted or terminated any “Rule 10b5-1 trading arrangement” or any “non-Rule 10b5-1 trading arrangement,” +as each term is defined in Item 408 of Regulation S-K. +Item +9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +None. +23 +PART +III +Item +10. Directors, Executive Officers and Corporate Governance. +Identification +of Directors and Executive Officers +The +name, age and position of our officers and directors are set forth below: +Name +Age +Position(s) +Heng +Fai Ambrose Chan +80 +Executive +Chairman, Director +John +“J.T.” Thatch +63 +Chief +Executive Officer +Rongguo +(Ronald) Wei +53 +Chief +Financial Officer +Lim +Sheng Hon Danny +33 +Chief +Operating Officer +William +Wu +58 +Independent +Director +Wong +Shui Yeung +54 +Independent +Director +Wong +Tat Keung +54 +Independent +Director +The +mailing address for each of the officers and directors named above is c/o of the Company at: 4800 Montgomery Lane, Suite 210, Bethesda, +MD 20814. +Business +Experience +Heng +Fai Ambrose Chan. Mr. Chan has served as our Chairman since October 2021 and served as our Chief Executive Officer from October 2021 +to January 2024. Mr. Chan is an expert in banking and finance, with 45 years of experience in these industries. He has restructured numerous +companies in various industries and countries during the past 40 years. Mr. Chan has served as a director of Alset International Limited, +an SGX listed company, since May 2013, has served as its Chief Executive Officer since April 2014 and has served as its Chairman of the +Board since June 2017. Mr. Chan has served as a director of Hapi Metaverse Inc. since October 2014 and as Chairman since July 2021. Mr. +Chan has served as a director of the LiquidValue Development Inc. since January 2017 and has served as its Chairman of the Board since +December 2017. Mr. Chan has served as a director of DSS, Inc., an NYSE listed company, since January 2017 and has served as its Chairman +of the Board since March 2019. Mr. Chan is the founder of Alset Inc., a Nasdaq listed company, the majority shareholder of the Company +and has served as its Chairman of the Board and Chief Executive Officer since its inception in March 2018. Mr. Chan has served as director +of Sharing Services Global Corporation, an OTC Pink listed company, since April 2020 and has served as its Chairman of the Board since +July 2021. Mr. Chan has served as director of Value Exchange International, Inc., an OTCQB listed company, since December 2021. Mr. Chan +has served as director of Impact BioMedical Inc., a NYSE listed company, since March 2025. +Mr. +Chan was the Executive Chairman of China Gas Holdings Limited, an HKSE listed company, an investor and operator of municipal gas pipeline +infrastructure in China from 1997 to 2002. Mr. Chan served as director of Heng Fai Enterprises Limited (now known as Zensun Enterprises +Limited), an HKSE listed company, an investment holding company, from September 1992 to 2015, and as the Managing Chairman from 1995 +to 2015. Mr. Chan was the Managing Director of SingHaiyi Group Ltd. (now known as SingHaiyi Group Pte. Ltd.), a Singapore property development +company formerly listed on the SGX, from March 2003 to September 2013. Mr. Chan served as a director of Skywest Ltd., a public Australian +airline company from 2005 to 2006. Mr. Chan served as a director of Holista CollTech Ltd., an ASX listed company, from July 2013 until +June 2021. Mr. Chan served as a director of Global Medical REIT Inc., an NYSE listed company, a healthcare facility real estate company, +from December 2013 to July 2015. Mr. Chan served as a director of OptimumBank Holdings, Inc. from June 2018 until April 2022. Mr. Chan +served as a director of RSI International Systems, Inc. (now known as ARCpoint Inc.), a TSXV listed company, the developer of RoomKeyPMS, +a web-based property management system, from June 2014 to February 2019. +Mr. +Chan leads the board and guides our company. Mr. Chan brings extensive knowledge to our company and a deep background in growth companies, +emerging markets, mergers and acquisitions, and capital market activities. The board of directors appointed Mr. Chan in recognition of +his abilities to assist the Company in expanding its business and the contributions he can make to the Company’s strategic direction. +24 +John +“JT” Thatch. Mr. Thatch has served as HWH’s Chief Executive Officer since January 9, 2024. Mr. Thatch has also +served as a director of DSS, Inc., a NYSE traded company, from May 2019 to October 2023, during which time he was their Lead Independent +Director. Mr. Thatch is an accomplished, energetic, entrepreneur-minded executive who has the vision and knowledge to create growth and +shareholder value for any organization. Mr. Thatch has successfully started, owned and operated several sized businesses in various industries, +including service, retail, wholesale, on-line learning, finance, real estate management and technology companies. Since March 2018, Mr. +Thatch has served as the President, Chief Executive Officer and Vice Chairman of Sharing Services Global Corporation, a publicly traded +holding company focused in the direct selling and marketing industry. He is a minority member of Superior Wine & Spirits, a Florida-based +wholesale company since February of 2016. Mr. Thatch served as Chief Executive Officer of Universal Education Strategies, Inc. from January +2009 to January 2016, an organization involved in the development and sales of educational products and services. From 2000 to 2005, +he was the Chief Executive Officer of Onscreen Technologies, Inc., currently listed on NASDAQ as Orbital Energy Group “OEG”, +once a global leader in the development of cutting-edge thermal management technologies for integrated LED technologies, circuits, superconductors +and solar energy solutions. Mr. Thatch was responsible for all aspects of the company including board and stockholder communications, +public reporting and compliance with Sarbanes-Oxley, structuring and managing the firm’s financial operations, and expansion initiatives +for all corporate products and services. Mr. Thatch’s public company financial and management experience in the strategic growth +and development of various companies qualify him to serve as Chief Executive Officer of HWH. +Rongguo +(Ronald) Wei. Mr. Wei has served as our Chief Financial Officer since October of 2021. Mr. Wei is a finance professional with more +than 15 years of experience working in public and private corporations in the United States. As the Co-Chief Financial Officer of Alset +Inc., the majority shareholder of Alset International Limited, HWH’s owner, and Chief Financial Officer of SeD Development Management +LLC, Mr. Wei is responsible for oversight of all finance, accounting, reporting and taxation activities for those companies. Prior to +joining SeD Development Management LLC in August 2016, Mr. Wei worked for several different U.S. multinational and private companies +including serving as Controller at American Silk Mill, LLC, a textile manufacturing and distribution company, from August 2014 to July +2016, serving as a Senior Financial Analyst at Air Products & Chemicals, Inc., a manufacturing company, from January 2013 to June +2014, and serving as a Financial/Accounting Analyst at First Quality Enterprise, Inc., a personal products company, from 2011 to 2012. +Mr. Wei served as a member of the Board Directors of Amarantus Bioscience Holdings, Inc., a biotech company, from February to May 2017, +and has served as Chief Financial Officer of that company from February 2017 until November 2017. Before Mr. Wei came to the United States, +he worked as an equity analyst at Hong Yuan Securities, an investment bank in Beijing, China, concentrating on industrial and public +company research and analysis. Mr. Wei is a certified public accountant and received his Master of Business Administration from the University +of Maryland and a Master of Business Taxation from the University of Minnesota. Mr. Wei also holds a Master in Business degree from Tsinghua +University and a Bachelor’s degree from Beihang University. +Lim +Sheng Hon Danny. Mr. Lim was appointed Chief Operating Officer of HWH in February 2024 and also serves as Chief Strategy Officer +of the Company. Mr. Lim has served as Senior Vice President, Business Development and as Executive Director of Alset International Limited, +an SGX listed company since 2020. Mr. Lim has served as a director of Alset Inc., a Nasdaq listed company, the majority shareholder of +the Company, since October 2022. Mr. Lim has served as a director of DSS, Inc., an NYSE listed company, since October 2023. Mr. Lim has +served as a director of Value Exchange International Inc., an OTCQB listed company, since December 2023. +Mr. +Lim has over 8 years of experience in business development, merger & acquisitions, corporate restructuring and strategic planning +and execution. Mr. Lim manages business development efforts, focusing on corporate strategic planning, merger and acquisition and capital +markets activities. Mr. Lim oversees and ensures executional efficiency, and facilitates implementation of the Group’s strategies +by internal and external stakeholders. Mr. Lim liaises with corporate partners or investment prospects for potential working/investment +collaborations, and operational subsidiaries locally and overseas to augment a close parent-subsidiary working relationship. Mr. Lim +graduated from Singapore Nanyang Technological University with a Bachelor’s Degree with Honors in Business, specializing in Banking +and Finance. +25 +We +have also assembled a group of independent directors who will provide public company governance, executive leadership, operational oversight, +private equity investment management and capital markets experience. Included in this group is William Wu, Wong Shui Yeung (Frankie) +and Wong Tat Keung (Aston). +William +Wu. Mr. Wu has served as a member of our Board of Directors since January of 2022. Mr. Wu previously served as the Executive Director +and Chief Executive Officer of Power Financial Group Limited from November 2017 to January 2019. Mr. Wu has served on the Board of Directors +of Alset Inc. since November of 2020. Mr. Wu has served as an independent non-executive director of JY Grandmark Holdings Limited since +November 2019. Mr. Wu has served as a member of the Board of Directors of DSS, Inc. since October of 2019. Mr. Wu has served as a Director +of Asia Allied Infrastructure Holdings Limited since February 2015. Mr. Wu previously served as a Director and Chief Executive Officer +of RHB Hong Kong Limited from April 2011 to October 2017. Mr. Wu served as the Chief Executive Officer of SW Kingsway Capital Holdings +Limited (now known as Sunwah Kingsway Capital Holdings Limited) from April 2006 to September 2010. Mr. Wu holds a Bachelor of Business +Administration degree and a Master of Business Administration degree of Simon Fraser University in Canada. He was qualified as a Chartered +Financial Analyst of The Institute of Chartered Financial Analysts in 1996. +Mr. +Wu previously worked for a number of international investment banks and possesses over 28 years of experience in the investment banking, +capital markets, institutional broking and direct investment businesses. He is a registered license holder to carry out Type 6 (advising +on corporate finance) and Type 9 (asset management) regulated activities under the Securities and Futures Ordinance (Chapter 571 of the +Laws of Hong Kong). We believe that Mr. Wu’s knowledge of complex, cross-border financial matters is highly relevant to our business +and qualifies him to serve as an independent member of the board. +Mr. +Wu demonstrates extensive knowledge of complex, cross-border financial matters highly relevant to our business, making him well-qualified +to serve as an independent member of the board. Mr. Wu serves on our Audit Committee and Compensation Committee. +Wong +Shui Yeung (Frankie). Mr. Wong has served as a member of our Board of Directors since January of 2022. Mr. Wong is a practicing member +and fellow of Hong Kong Institute of Certified Public Accountants. He holds a bachelor’s degree in business administration. He +has over 25 years’ experience in accounting, auditing, corporate finance, corporate investment and development, and company secretarial +practice. Mr. Wong has served as a director of Alset Inc. and DSS Inc. since November 2021 and July 2022, respectively, the shares of +which are listed on NASDAQ and NYSE, respectively, and Value Exchange International, Inc. since April 2022, the shares of which are listed +on the OTCQB. He has served as an independent non-executive director of Alset International Limited since June 2017, the shares of which +are listed on the Catalist Board of the Singapore Stock Exchange and First Credit Finance Group Limited since February 2024, the shares +of which are listed on the GEM Board of The Stock Exchange of Hong Kong Limited. Mr. Wong was an Independent Non-Executive Director of +SMI Holdings Group Limited from April 2017 to December 2020 and SMI Culture & Travel Group Holdings Limited from December 2019 to +November 2020, the shares of which were listed on the Main Board of The Stock Exchange of Hong Kong Limited. +Mr. +Wong’s knowledge of complex, cross-border financial, accounting and tax matters highly relevant to our business, as well as working +experience in internal corporate controls, qualify him to serve as an independent member of the board. Mr. Wong serves on our Audit Committee +and Compensation Committee. +Wong +Tat Keung (Aston). Mr. Wong has served as a member of our Board of Directors since January of 2022. Mr. Wong has over 20 years’ +experience in audit, accounting, taxation and business advisory. Since 2010, Mr. Wong has served as the director of Aston Wong CPA Limited. +He has been an independent non-executive director of Alset International since January 2017, and a director of Alset Inc. since November +2020. Mr. Wong has been an independent non-executive director of Roma Group Limited, a valuation and technical advisory firm, since March +2016, and has served as an independent non-executive director of Lerthai Group Limited, a property, investment, management and development +company, since December 2018. Previously, he served as the director and sole proprietor of Aston Wong & Co., a registered certified +public accounting firm, from January 2006 to February 2010. From January 2005 to December 2005, he was a Partner at Aston Wong, Chan +& Co., Certified Public Accountants. From April 2003 to December 2004, he served at Gary Cheng & Co., Certified Public Accountants +as Audit Senior. He served as an Audit Junior to Supervisor of Hui Sik Wing & Co., certified public accountants from April 1993 to +December 1999. He served as an independent non-executive director of SingHaiyi from July 2009 to July 2013 and ZH Holdings from December +2009 to July 2015. Mr. Wong is a Certified Public Accountant admitted to practice in Hong Kong. He is a Fellow Member of Association +of Chartered Certified Accountants and an Associate Member of the Hong Kong Institute of Certified Public Accountants. He holds a Master +in Business Administration degree (financial services) from the University of Greenwich, London, England. +26 +Mr. +Wong demonstrates extensive knowledge of complex, cross-border financial, accounting and tax matters highly relevant to our business, +as well as working experience in internal corporate controls, making him well-qualified to serve as an independent member of the board. +Mr. Wong serves on our Audit Committee and Compensation Committee. +Family +Relationships +There +are no family relationships among the officers and directors, nor are there any arrangements or understanding between any of the directors +or officers of the Company. +Section +16(a) Beneficial Ownership Reporting Compliance +To +our knowledge, no director, officer or beneficial owner of more than ten percent of any class of our equity securities, failed to file +on a timely basis reports required by Section 16(a) of the Exchange Act during the fiscal year ended December 31, 2024. +Code +of Ethics +We +adopted a code of ethics on January 31, 2022, that applies to our principal executive officer, principal financial officer, principal +accounting officer or controller or persons performing similar functions. +Corporate +Governance +There +have been no changes in any state law or other procedures by which security holders may recommend nominees to our board of directors. +We do not have a standing nominating committee though we intend to form a corporate governance and nominating committee. +Insider +Trading Policy +On +March 18, 2025 we adopted an insider trading policy and procedures governing the purchase, sale, and/or other dispositions of our securities +by directors, officers and employees, which are reasonably designed to promote compliance with insider trading laws, rules and regulations, +and applicable Nasdaq listing standards (the “Insider Trading Policy”). +The +foregoing description of the Insider Trading Policy does not purport to be complete and is qualified in its entirety by the terms and +conditions of the Insider Trading Policy, a copy of which is attached hereto as Exhibit 19.1 and is incorporated herein by reference. +Board +Committees +Our +Board of Directors has an Audit Committee and a Compensation Committee. Each of these committees is currently composed of Wong Tat Keung, +William Wu and Wong Shui Yeung. +Our +Audit Committee and Compensation Committee will each comply with the listing requirements of the Nasdaq Marketplace Rules. At least one +member of the Audit Committee will be an “audit committee financial expert,” as that term is defined in Item 407(d)(5)(ii) +of Regulation S-K, and each member will be “independent” as that term is defined in Rule 5605(a) of the Nasdaq Marketplace +Rules. Our Board of Directors has determined that each of Wong Tat Keung, William Wu and Wong Shui Yeung is independent. +Involvement +in Certain Legal Proceedings +None +of our directors, executive officers and control persons/promoters has been involved in any of the following events during the past ten +years: +● +Any +bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the +time of the bankruptcy or within two years prior to that time, +27 +● +Any +conviction in a criminal proceeding or being subject to any pending criminal proceeding (excluding traffic violations and other minor +offenses); +● +Being +subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, +permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities +or banking activities; or +● +Being +found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have +violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated. +Conflicts +of Interest +In +general, officers and directors of a corporation incorporated under the laws of the State of Delaware are required to present business +opportunities to a corporation if: +● +the +corporation could financially undertake the opportunity; +● +the +opportunity is within the corporation’s line of business; and +● +it +would not be fair to the corporation and its stockholders for the opportunity not to be brought to the attention of the corporation. +The +Company’s Audit Committee, pursuant to its written charter, is responsible for reviewing and approving related-party transactions +to the extent the Company enters into such transactions. The Audit Committee will consider all relevant factors when determining whether +to approve a related party transaction, including whether the related party transaction is on terms no less favorable to the Company +than terms generally available from an unaffiliated third-party under the same or similar circumstances and the extent of the related +party’s interest in the transaction. No director may participate in the approval of any transaction in which he is a related party, +but that director is required to provide the Audit Committee with all material information concerning the transaction. The Company also +requires each of its directors and executive officers to complete a directors’ and officers’ questionnaire that elicits information +about related party transactions. +These +procedures are intended to determine whether any such related party transaction impairs the independence of a director or presents a +conflict of interest on the part of a director, employee or officer. +As +a result of the relationship between HWH Nevada and the Company, the Company obtained a fairness opinion in connection with the board’s +approval of the Agreement and Plan of Merger with HWH Nevada. +28 +Item +11. Executive Compensation. +None +of our executive officers has received any cash compensation for services rendered to us. We agreed to pay to Alset Management Group +Inc. a total of $10,000 per month for office space, utilities and secretarial and administrative support. Upon completion of the Business +Combination, we ceased paying these monthly fees. No compensation of any kind, including any finder’s fee, reimbursement, consulting +fee or monies in respect of any payment of a loan, was paid by us to our Sponsor, officers or directors or any affiliate of our Sponsor, +officers or directors, prior to, or in connection with any services rendered in order to effectuate, the consummation of the Business +Combination (regardless of the type of transaction that it is). However, these individuals were reimbursed for any out-of-pocket expenses +incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on +suitable business combinations. Our Audit Committee reviews on a quarterly basis all payments that were made to our Sponsor, officers +or directors or our or their affiliates. Any such payments prior to the Business Combination were made using funds held outside the Trust +Account. Other than quarterly Audit Committee’s review of such payments, we do not expect to have any additional controls in place +governing our reimbursement payments to our directors and executive officers for their out-of-pocket expenses incurred in connection +with identifying and consummating the Business Combination. +After +the completion of the Business Combination, directors or members of our management team who remained with the Company may be paid consulting +or management fees, or other fees, from the Company. We have not established any limit on the amount of such fees that may be paid by +the Company to our directors or members of management. No compensation has been paid to the Company’s Chairman for his services. +In 2024 we set the cash compensation for our three independent directors at $10,000 per year, to be paid in quarterly increments of $2,500 +beginning with the quarter which ended on March 31, 2024. +Director +Compensation +The +following table sets forth the cash and non-cash compensation awarded to or earned by the members of our Board of Directors during the +fiscal year ended December 31, 2024: +Name +Directors’ Fee +Salary +Consultation +Bonus +Total Compensation +Wong Tat Keung +$ 10,000 +$ 10,000 +William Wu +$ 10,000 +$ 10,000 +Wong Shui Yeung +$ 10,000 +$ 10,000 +Chan Heng Fai +$ - +$ - +Outstanding +Equity Awards at Fiscal Year-End +There +were no grants of stock options through the date of this report. +We +do not have any long-term incentive plans that provide compensation intended to serve as incentive for performance. +The +board of directors of the Company has not adopted a stock option plan. The Company has no plans to adopt it but may choose to do so in +the future. If such a plan is adopted, this may be administered by the board or a committee appointed by the board (the “Committee”). +The Committee would have the power to modify, extend or renew outstanding options and to authorize the grant of new options in substitution +therefore, provided that any such action may not impair any rights under any option previously granted. The Company may develop an incentive-based +stock option plan for its officers and directors. +Stock +Awards Plan +The +Company has not adopted a Stock Awards Plan but may do so in the future. The terms of any such plan have not been determined. +29 +Item +12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. +Security +Ownership +The +following table and accompanying footnotes set forth certain information with respect to the beneficial ownership of our common stock +as of March 31, 2025, referred to in the table below as the “Beneficial Ownership Date,” by: +● +each +person who is known to be the beneficial owner of 5% or more of the outstanding shares of our common stock; +● +each +member of our board of directors, director nominees and each of our named executive officers individually; and +● +all +of our directors, director nominees and executive officers as a group. +Beneficial +ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and +the percentage ownership of that person, shares of common stock subject to stock options or warrants held by that person that are currently +exercisable or exercisable within 60 days of the Beneficial Ownership Date and shares of restricted stock subject to vesting until the +occurrence of certain events, are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other +person (however, neither the stockholder nor the directors and officers listed below own any stock options or warrants to purchase shares +of our common stock at the present time). The percentages of beneficial ownership are based on 6,476,400 shares of HWH International +Inc. Common Stock outstanding as of the Beneficial Ownership Date. +To +our knowledge, except as set forth in the footnotes to this table and subject to applicable community property laws, each person named +in the table has sole voting and investment power with respect to the shares set forth opposite such person’s name. +Name +and Address +Number +of Common +Shares +Beneficially +Owned +Percentage +of +Outstanding +Common +Shares (1) +Directors +and Executive Officers (2): +Heng Fai Ambrose Chan (3)(4) +5,067,334 +78.2 % +John “JT” +Thatch +0 +0.00 % +Rongguo (Ronald) Wei +0 +0.00 % +Lim Sheng Hon Danny +0 +0.00 % +William Wu +0 +0.00 % +Wong Shui Yeung +0 +0.00 % +Wong Tat Keung +0 +0.00 % +All Directors and Officers +(7 individuals) +5,067,334 +78.2 % +Alset Acquisition Sponsor, +LLC (3) +535,475 +5.5 % +Alset International Limited +1,991,669 +30.8 % +Alset Inc. (3) +5,064,734 +78.2 % +Other +Stockholders: None +(1) +Based +upon 6,476,400 shares of Common Stock outstanding as of March 31, 2025. +(2) +The +mailing address for each individual and entity set forth above is c/o HWH International Inc., 4800 Montgomery Lane, Suite 210, MD +20814. +(3) +Alset +Acquisition Sponsor, LLC, our Sponsor, is the record holder of the securities reported herein. Alset Inc. and Alset International +Limited are the owners of 55% and 45% respectively of Alset Acquisition Sponsor, LLC. Alset Inc. owns 85.5% of Alset International +Limited. Heng Fai Ambrose Chan is the Chairman, Chief Executive Officer and Majority Stockholder of Alset Inc. Mr. Chan may be deemed +to share beneficial ownership of the securities held of record by our Sponsor. Mr. Chan disclaims any such beneficial ownership except +to the extent of his pecuniary interest. +(4) +Heng +Fai Ambrose Chan directly owns 2,600 shares of HWH International Inc. +30 +Item +13. Certain Relationships and Related Transactions, and Director Independence. +Family +Relationships +Not +applicable. +Policies +and Procedures for Transactions with Related Persons +Following +the Business Combination, the Company’s Code of Ethics was amended to require it to avoid, wherever possible, all related party +transactions that could result in actual or potential conflicts of interests, except under guidelines approved by the Board (or the Audit +Committee). Related-party transactions are defined as transactions in which (1) the aggregate amount involved will or may be expected +to exceed $120,000 in any calendar year, (2) the Company or any of its subsidiaries is a participant, and (3) any (a) executive officer, +director or nominee for election as a director, (b) greater than 4% beneficial owner of the Company Common Stock, or (c) immediate family +member of the persons referred to in clauses (a) and (b), has or will have a direct or indirect material interest (other than solely +as a result of being a director or a less than 10% beneficial owner of another entity). A conflict-of-interest situation can arise when +a person takes actions or has interests that may make it difficult to perform his or her work objectively and effectively. Conflicts +of interest may also arise if a person, or a member of his or her family, receives improper personal benefits as a result of his or her +position. +The +Company’s Audit Committee, pursuant to its written charter, is responsible for reviewing and approving related-party transactions +to the extent the Company enters into such transactions. The Audit Committee will consider all relevant factors when determining whether +to approve a related party transaction, including whether the related party transaction is on terms no less favorable to the Company +than terms generally available from an unaffiliated third-party under the same or similar circumstances and the extent of the related +party’s interest in the transaction. No director may participate in the approval of any transaction in which he is a related party, +but that director is required to provide the Audit Committee with all material information concerning the transaction. The Company also +requires each of its directors and executive officers to complete a directors’ and officers’ questionnaire that elicits information +about related party transactions. +These +procedures are intended to determine whether any such related party transaction impairs the independence of a director or presents a +conflict of interest on the part of a director, employee or officer. +As +a result of the relationship between the Company and HWH Nevada, the Company obtained a fairness opinion in connection with the board’s +approval of the Agreement and plan of Merger with HWH Nevada. +Transactions +with Related Persons, Promoters, and Certain Control Persons +Founder +Shares +On +November 8, 2021, the Sponsor received 2,156,250 shares of the Company’s Class B common stock (the “Founder Shares”) +for $25,000. The Founder Shares include an aggregate of up to 281,250 shares subject to forfeiture to the extent that the underwriters’ +over-allotment is not exercised in full or in part, so that the number of Founder Shares will equal, on an as-converted basis, to approximately +20% of the Company’s issued and outstanding shares of common stock after the Initial Public Offering (excluding the placement units +and underlying securities). In connection with the exercise of the underwriters’ overallotment option, these shares are no longer +subject to forfeiture. +The +holder of the Founder Shares have agreed, subject to limited exceptions, not to transfer, assign or sell any of the Founder Shares until +the earlier to occur of: (A) one year after the completion of a Business Combination and (B) subsequent to a Business Combination, (x) +if the last reported sale price of the Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock capitalizations, +reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days +after a Business Combination, or (y) the date on which the Company completes a liquidation, merger, capital stock exchange or other similar +transaction that results in all of the Public Stockholders having the right to exchange their shares of common stock for cash, securities +or other property. +31 +Advances +from Related Party +The +Sponsor paid certain offering costs on behalf of the Company and advanced working capital to the Company. These advances are due on demand +and are non-interest bearing. During the year ended December 31, 2023, the Sponsor paid a total of $33,475 of operating costs on behalf +of the Company. During the year ended December 31, 2023, the Company repaid the outstanding balance. As of December 31, 2024 and 2023, +$0 and $0 was due to the related party, respectively. +General +and Administrative Services +The +Company agreed to pay the Alset Management Group Inc. a total of $10,000 per month for office space, utilities and secretarial and administrative +support for up to 24 months commencing on the date the Units were first listed on the Nasdaq. Upon completion of the Business Combination +the Company ceased paying these monthly fees. During the years ended December 31, 2024 and 2023, the Company recorded a charge of $0 +and $120,000, respectively, to the statement of operations pursuant to the agreement. +Related +Party Loans +Working +Capital Loans +In +order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain +of the Company’s officers and directors were permitted to, but were not obligated to, loan the Company funds as may be required +(“Working Capital Loans”). Such Working Capital Loans would be evidenced by promissory notes. The notes were to be repaid +upon completion of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of the notes may +be converted upon completion of a Business Combination into units at a price of $10.00 per unit. Such units would be identical to the +Private Placement Units. The Business Combination has closed, and there are no amounts outstanding +under these Working Capital Loans. No amounts were converted into the units at the Business Combination. +Extension +Loan +On +May 1, 2023, the Company amended the Investment Management Trust Agreement (the “Trust Agreement”) with Wilmington Trust, +National Association, a national banking association, which was entered into on January 31, 2022. On May 2, 2023 the Company filed an +Amendment to the Amended and Restated Certificate of Incorporation. The Trust Agreement and Amended and Restated Certificate of Incorporation +were amended, in part, so that the Company’s ability to complete a business combination was extended in additional increments of +one month up to a total of twenty-one (21) additional months from the closing date of the Offering, subject to the payment into the Trust +Account by the Company of one-third of 1% of the funds remaining in the Trust Account following any redemptions in connection with the +approval of the amendment to the Company’s Amended and Restated Certificate of Incorporation. The Sponsor funded the first 30-day +extension payment on May 3, 2023. The Sponsor also made subsequent extension payments on June 5 th and July 6 th of +$68,928 and $69,158, respectively. The Sponsor was entitled to the repayment of these extension payments, without interest. As of December +31, 2024 and 2023 there was $0 and $205,305 outstanding under the extension loan, respectively. +Due +To Alset Inc. +Alset +Inc (“AEI”) is our ultimate holding company that is incorporated in the United States of America. The amount due to AEI represents +short-term working capital advances to the Company for its daily operations. There is no written, executed agreement and no financial/non-financial +covenants and the amount due to AEI is non-interest bearing. Since the amount due to AEI is due upon request, it is classified as a current +liability. The amounts due to AEI at December 31, 2024 and 2023 are $209,614 and $202,645 respectively. +On +April 24, 2024, the Company entered into a Credit Facility Agreement (the “Credit Agreement”) with Alset Inc., pursuant to +which AEI has provided the Company a line of credit facility (the “Credit Facility”) which provides a maximum, aggregate +credit line of up to $1,000,000. +32 +Pursuant +to the Credit Agreement, the Company may request an advance (each, an “Advance”) on the Credit Facility. Each Advance shall +bear a simple interest rate of three percent (3%) per annum. Each Advance and all accrued but unpaid interest shall be due and payable +at the first (1 st ) anniversary of the effective date of the Credit Agreement. The Company may at any time during the term +of the Credit Agreement prepay a portion or all amounts of its indebtedness without penalty. Each Advance shall not be secured by a lien +or other encumbrance on any of the Company’s assets, but shall be solely a general unsecured debt obligation of the Company. On +September 24, 2024 the Company drew $300,000 from the credit line and accrued $3,164 in interest. On December 31, 2024, $3,164 +of the interest remained outstanding. +On +September 24, 2024, the Company entered into a Debt Conversion Agreement (the “AEI Conversion”) with Alset Inc., pursuant +to which a debt of $300,000 due to AEI was converted into shares of the Company’s common stock at a price per share of $0.63 for +a total of 476,190 shares. +Due +to Alset International Limited +Alset +International Limited (“AIL”) is incorporated in Singapore and is a fellow subsidiary of the common parent company, Alset +Inc. The amount due to AIL represents short-term working capital advances to the Company for its daily operations. There is no written, +executed agreement and no financial/non-financial covenants and the amount due to AIL is non-interest bearing. Since the amount due to +AIL is due upon request, it is classified as a current liability. The amounts due to AIL at December 31, 2024 and 2023 are $5,096,0 47 +and $1,729,901, respectively. +On +September 24, 2024, the Company entered into a Debt Conversion Agreement (the “AIL Conversion”) with Alset International +Limited, pursuant to which a debt of $3,501,759 due to AIL was converted into shares of the Company’s common stock at a price per +share of $0.63 for a total of 5,558,347 shares. +Due +to Alset Business Development Pte. Limited +Alset +Business Development Pte. Limited (“ABD”) is incorporated in Singapore and is a fellow subsidiary of the common parent company, +Alset Inc. The amount due to ABD represents amount loaned by ABD to Hapi Cafe Inc. for the investment in Ketomei Pte. Ltd (“Ketomei”) +in March 2022, and also represents amount loaned HWHPL to ABD in November 2024. There is no written, executed agreement and no financial/non-financial +covenants and the amount due to ABD is non-interest bearing. Since the amount due to ABD is due upon request, it is classified as a current +liability. The amount due from ABD at December 31, 2024 is $4,113,701 and amount due to ABD at December 31, 2023 is $184,507. +Due +to BMI Capital Partners International Limited +BMI +Capital Partners International Limited (“BMI”) is incorporated in Hong Kong and is a fellow subsidiary of the common parent +company, Alset Inc. The amount due to BMI represents short-term working capital advances to the Company for its daily operations. There +is no written, executed agreement and no financial/non-financial covenants and the amount due to BMI is non-interest bearing. Since the +amount due to BMI is due upon request, it is classified as a current liability. The amounts due to BMI at December 31, 2024 and 2023 +are $0 and $1,442, respectively. +Related +Party Transactions +On +August 31, 2023, Hapi Café Inc. and Ketomei Pte. Ltd. entered into a binding term sheet pursuant to which HCI agreed to lend Ketomei +up to $36,634 pursuant to a convertible loan, with a term of 12 months. After the initial 12 months, the interest on such loan will be +3.5%. This loan was written off upon the acquisition of Ketomei in February 2024. +On +October 26, 2023, the same parties entered into another binding term sheet pursuant to which HCI agreed to lend Ketomei up to $37,876 +pursuant to a non- convertible loan, with a term of 12 months. After the initial 12 months, the interest on such loan will be 3.5%. This +loan was written off upon the acquisition of Ketomei in February 2024. +33 +On +February 20, 2024, the Company invested additional $312,064 for an additional 38.41% ownership interest in Ketomei by converting $312,064 +of convertible loan. The loan was impaired at the year ended December 31, 2023, therefore, $312,064 was transferred from impairment of +convertible loan to impairment of equity method investment. After this additional investment, the Company owns 55.65% of Ketomei’s +outstanding shares and Ketomei is consolidated into the financial statements of the Company beginning on February 20, 2024. +On +March 20, 2024, the Company entered into a securities purchase agreement with Sharing Services Global Corporation (“SHRG”), +pursuant to which the Company purchased from SHRG a (i) Convertible Promissory Note (“CN 1”) in the amount of $250,000, convertible +into 208,333,333 shares of SHRG’s common stock at the option of the Company, and (ii) certain warrants exercisable into 208,333,333 +shares of SHRG’s common stock at an exercise price of $0.0012 per share, the exercise period of the warrant being five (5) years +from the date of the securities purchase agreement, for an aggregate purchase price of $250,000. At the time of filing, the Company has +not converted any of the debt contemplated by CN 1 nor exercised any of the warrants. +On +May 9, 2024, the Company entered into a securities purchase agreement with Sharing Services Global Corporation, pursuant to which the +Company purchased from SHRG a Convertible Promissory Note (“CN 2”) in the amount of $250,000, convertible into 125,000,000 +shares of SHRG’s common stock at the option of the Company for an aggregate purchase price of $250,000. CN 2 bears an 8% interest +rate and has a scheduled maturity three years from the date of the CN 2. Additionally, upon signing CN 2, SHRG owed the Company a commitment +fee of 8% of the principal amount, $20,000 in total, to be paid either in cash or in common stock of SHRG, at the discretion of the Company. +On +June 6, 2024, the Company entered into a securities purchase agreement with Sharing Services Global Corporation, pursuant to which the +Company purchased from SHRG a Convertible Promissory Note (“CN 3”) in the amount of $250,000, convertible into 125,000,000 +shares of SHRG’s common stock at the option of the Company for an aggregate purchase price of $250,000. CN 3 bears an 8% interest +rate and has a scheduled maturity three years from the date of the CN 3. Additionally, upon signing CN 3, SHRG owed the Company a commitment +fee of 8% of the principal amount, $20,000 in total, to be paid either in cash or in common stock of SHRG, at the discretion of the Company. +On +August 13, 2024, the Company entered into a securities purchase agreement with Sharing Services Global Corporation, pursuant to which +the Company purchased from SHRG a Convertible Promissory Note (“CN 4”) in the amount of $100,000, convertible into 50,000,000 +shares of SHRG’s common stock at the option of the Company for an aggregate purchase price of $100,000. CN 4 bears an 8% interest +rate and has a scheduled maturity three years from the date of the CN 4. Additionally, upon signing CN 4, SHRG owed the Company a commitment +fee of 8% of the principal amount, $8,000 in total, to be paid either in cash or in common stock of SHRG, at the discretion of the Company. +SHRG +is a related party of our Company, as our stockholders Alset Inc. and Alset International Limited, in addition to certain entities affiliated +with them, are significant stockholders of SHRG, and our Chief Executive Officer and Chairman are also the Chief Executive Officer and +Chairman, respectively, of SHRG. +Item +14. Principal Accounting Fees and Services +The +following table indicates the fees paid by us for services performed for the years ended December 31, 2024 and 2023: +Year +Ended +December +31, 2024 +Year +Ended +December +31, 2023 +Audit Fees +$ 283,563 +$ 193,170 +Audit-Related Fees +$ +115,594 +$ +50,861 +Tax Fees +$ - +$ - +All Other Fees +$ - +$ - +Total +$ +398,157 +$ 244,031 +Audit +Fees . This category includes the aggregate fees billed for professional services rendered by the independent auditors +during the years ended December 31, 2024 and 2023 for the audit of our consolidated financial statements and review of previous years’ +Form 10-Qs. +Tax +Fees . This category includes the aggregate fees billed for tax services rendered in the preparation of our federal and +state income tax returns. +All +Other Fees . This category includes the aggregate fees billed for all other services, exclusive of the fees disclosed above, +rendered during the years ended December 31, 2024 and 2023. +34 +PART +IV +Item +15. Exhibit and Financial Statement Schedules +(a)(1) +List of Financial statements included in Part II hereof: +Consolidated +Balance Sheets as of December 31, 2024 and 2023 (recast) +Consolidated +Statements of Operations for the Years Ended December 31, 2024 and 2023 (recast) +Consolidated +Statements of Changes in Stockholders’ Deficit for the Years Ended December 31, 2024 and 2023 (recast) +Consolidated +Statements of Cash Flows for the Years Ended December 31, 2024 and 2023 (recast) +(a)(2) +List of Financial Statement schedules included in Part IV hereof: +None. +(a)(3) +Exhibits +The +following exhibits are filed with this report or incorporated by reference: +Exhibit +No. +Description +1.1 +Underwriting Agreement, incorporated by reference to Exhibit 1.1 of the Registrant’s Current Report on Form 8-K/A filed with the SEC on February 8, 2022 +2.1 +Merger Agreement dated September 9, 2022 by and among Alset Capital Acquisition Corp., HWH Merger Sub, Inc. and HWH International Inc., incorporated by reference to Exhibit 2.1 to Form 8-K filed with the SEC on September 12, 2022. +3.1 +Amended and Restated Certificate of Incorporation dated February 2, 2022, incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K/A filed with the SEC on February 8, 2022. +3.2 +By Laws, incorporated by reference to Exhibit 3.3 of the Registrant’s Registration Statement on Form S-1 filed with the SEC on January 13, 2022. +3.3 +Amendment to the Amended and Restated Certificate of Incorporation of Alset Capital Acquisition Corp., dated May 2, 2023, incorporated by reference to Exhibit 3.1 of the registrant’s current report on Form 8-K filed with the SEC on May 3, 2023. +3.4 +Amendment to Certificate of Incorporation, incorporated by reference to the registrant’s current report on Form 8-K filed with the SEC on November 3, 2023. +4.1 +Specimen Unit Certificate, incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-1 filed with the SEC on January 13, 2022 +4.2 +Specimen Class A Common Stock Certificate, incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-1 filed with the SEC on January 13, 2022 +4.3 +Specimen Warrant Certificate, incorporated by reference to Exhibit 4.3 of the Registrant’s Registration Statement on Form S-1 filed with the SEC on January 13, 2022 +4.4 +Specimen Right Certificate, incorporated by reference to Exhibit 4.4 of the Registrant’s Registration Statement on Form S-1 filed with the SEC on January 13, 2022 +4.5 +Warrant Agreement between Vstock Transfer LLC and the Registrant, incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K/A filed with the SEC on February 8, 2022 +4.6 +Rights Agreement between Vstock Transfer LLC and the Registrant, incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K/A filed with the SEC on February 8, 2022 +4.7* +Description of the Registrant’s Securities registered pursuant to Section 12 of the Securities and Exchange Act of 1934 +10.1 +Letter Agreement among the Registrant and our officers, directors and Alset Management Group, Inc., incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K/A filed with the SEC on February 8, 2022. +10.2 +Promissory Note, dated November 8, 2021, issued to Alset Acquisition Sponsor LLC, incorporated by reference to Exhibit 10.2 of the Registrant’s Registration Statement on Form S-1 filed with the SEC on January 13, 2022. +10.3 +Investment Management Trust Agreement between Wilmington Trust Company and the Registrant, incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K/A filed with the SEC on February 8, 2022. +10.4 +Registration Rights Agreement between the Registrant and certain security holders, incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K/A filed with the SEC on February 8, 2022. +10.5 +Securities Subscription Agreement, dated November 8, 2021, between the Registrant and Alset Acquisition Sponsor LLC, incorporated by reference to Exhibit 10.5 of the Registrant’s Registration Statement on Form S-1 filed with the SEC on January 13, 2022. +35 +10.6 +Placement Unit Purchase Agreement between the Registrant and Alset Acquisition Sponsor, LLC, incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K/A filed with the SEC on February 8, 2022. +10.7 +Form of Indemnity Agreement, incorporated by reference to Exhibit 10.7 of the Registrant’s Registration Statement on Form S-1 filed with the SEC on January 13, 2022 . +10.8 +Administrative Support Agreement by and between the Registrant and Alset Management Group, Inc., incorporated by reference to Exhibit 10.6 of the Registrant’s Current Report on Form 8-K/A filed with the SEC on February 8, 2022 +10.9 +Sponsor Support Agreement dated as of September 9, 2022, by and among Alset Capital Acquisition Corp. and each of the Persons set forth on Schedule I attached thereto, incorporated by reference to Exhibit 10.1 to Form 8-K filed with the SEC on September 12, 2022. +10.10 +Shareholder Support Agreement dated as of September 9, 2022, by and among Alset Capital Acquisition Corp., HWH International Inc. and each of the Persons set forth on Schedule I attached thereto, incorporated by reference to Exhibit 10.2 to Form 8-K filed with the SEC on September 12, 2022. +10.11 +Amendment No. 1 to Investment Management Trust Agreement, incorporated by reference to Exhibit 10.1 of the registrant’s current report on Form 8-K filed with the SEC on May 3, 2023. +10.12 +Form of Forward Share Purchase Agreement, dated July 30, 2023, incorporated by reference to Exhibit 10.1 of the registrant’s current report on Form 8-K filed with the SEC on July 31, 2023. +10.13 +Form of FPA Funding Amount PIPE Subscription Agreement, dated July 30, 2023, incorporated by reference to Exhibit 10.2 of the registrant’s current report on Form 8-K filed with the SEC on July 31, 2023. +10.14 +Amendment No. 2 to Investment Management Trust Agreement, incorporated by reference to Exhibit 10.1 of the registrant’s current report on Form 8-K filed with the SEC on November 3, 2023. +10.15 +Satisfaction and Discharge Agreement, dated December 18, 2023, incorporated by reference to Exhibit 10.3 of the registrant’s current report on Form 8-K filed with the SEC on January 12, 2024. +10.16 +Credit Facility Agreement dated April 24, 2024, incorporated by reference to Exhibit 10.1 of the registrant’s current report on Form 8-K filed with the SEC on April 25, 2024. +10.17 +Debt Conversion Agreement dated September 24, 2024, incorporated by reference to Exhibit 10.1 of the registrant’s current report on Form 8-K filed with the SEC on September 25, 2024. +10.18 +Debt Conversion Agreement dated September 24, 2024, incorporated by reference to Exhibit 10.1 of the registrant’s current report on Form 8-K filed with the SEC on September 25, 2024. +10.19 +Stock Purchase Agreement dated November 25, 2024, incorporated by reference to Exhibit 10.1 of the registrant’s current report on Form 8-K filed with the SEC on November 26, 2024. +10.20 +Stock Purchase Agreement dated December 24, 2024, incorporated by reference to Exhibit 10.1 of the registrant’s current report on Form 8-K filed with the SEC on December 26, 2024. +14 +Code of Ethics, incorporated by reference to Exhibit 14 of the Registrant’s Registration Statement on Form S-1 filed with the SEC on January 13, 2022 +19.1** +Insider Trading Policy +21* +Subsidiaries of the Company +31.1* +Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +31.2* +Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32.1** +Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +32.2** +Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97.1 +Clawback Policy of HWH International Inc., incorporated by reference to Exhibit 97.1 of the registrant’s annual report on Form 10-K filed with the SEC on February 28, 2024 +99.1 +Audit Committee Charter, incorporated by reference to Exhibit 99.1 of the Registrant’s Registration Statement on Form S-1 filed with the SEC on January 13, 2022 +99.2 +Compensation Committee Charter, incorporated by reference to Exhibit 99.2 of the Registrant’s Registration Statement on Form S-1 filed with the SEC on January 13, 2022 +101.INS +XBRL +Instance Document +101.SCH +XBRL +Taxonomy Extension Schema Document +101.CAL +XBRL +Taxonomy Extension Calculation Linkbase Document +101.DEF +XBRL +Taxonomy Extension Definition Linkbase Document +101.LAB +XBRL +Taxonomy Extension Label Linkbase Document +101.PRE +XBRL +Taxonomy Extension Presentation Linkbase Document +* +Filed herewith. +** +Furnished herewith. +Item +16. Form 10-K Summary +None. +36 +SIGNATURES +Pursuant +to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed +on its behalf by the undersigned, thereunto duly authorized. +HWH +International Inc. +Dated: +March 31, 2025 +By: +/s/ +Rongguo (Ronald) Wei +Name: +Rongguo +(Ronald) Wei +Title: +Chief +Financial Officer +Pursuant +to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the +registrant and in the capacities and on the dates indicated. +Signature +Title +Date +/s/ +John Thatch +Chief +Executive Officer +March 31, 2025 +John +Thatch +(Principal +Executive Officer) +/s/ +Rongguo (Ronald) Wei +Chief +Financial Officer +March 31, 2025 +Rongguo +(Ronald) Wei +(Principal +Financial Officer and +Principal +Accounting Officer) +/s/ +Wong Shui Yeung (Frankie) +Director +March 31, 2025 +Wong +Shui Yeung (Frankie) +/s/ +William Wu +Director +March 31, 2025 +William +Wu +/s/ +Wong Tat Keung (Aston) +Director +March 31, 2025 +Wong +Tat Keung (Aston) +/s/ +Heng Fai Ambrose Chan +Director +March 31, 2025 +Heng +Fai Ambrose Chan +37 \ No newline at end of file diff --git a/raw/filings/0001897245/2024/0001641172-25-001707/filing_metadata.csv b/raw/filings/0001897245/2024/0001641172-25-001707/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..b5612b9f1828eb37d96012a7dcaf91d876b82dd0 --- /dev/null +++ b/raw/filings/0001897245/2024/0001641172-25-001707/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001897245,HWH,HWH International Inc.,2024,10-K,2025-03-31,2024-12-31,2025-03-31T20:05:57.000Z,0001641172-25-001707,form10-k.htm,,11089202,1,1,https://www.sec.gov/Archives/edgar/data/1897245/000164117225001707/form10-k.htm,https://www.sec.gov/Archives/edgar/data/1897245/000164117225001707/ diff --git a/raw/filings/0001897245/2024/0001641172-25-001707/item1.txt b/raw/filings/0001897245/2024/0001641172-25-001707/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..303357d64bef47369fb508832a9107360a7efed0 --- /dev/null +++ b/raw/filings/0001897245/2024/0001641172-25-001707/item1.txt @@ -0,0 +1,223 @@ +Item +1. Business. +General +The +Company was incorporated in Delaware on October 20, 2021 under the name Alset Capital Acquisition Corp. The Company was formed for the +purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination +with one or more businesses (the “Business Combination”). On February 3, 2022, the Company completed its Initial Public Offering. +The Company consummated the Business Combination on January 9, 2024 and changed its name from “Alset Capital Acquisition Corp.” +to “HWH International Inc.” +The +business we acquired in January of 2024 started in South Korea with a single-level membership marketing model with limited products for +sale. We registered the business on April 1, 2019, and we started selling founders packages on July 1, 2019. While we had been profitable +and growing, the COVID-19 pandemic had a material adverse effect on such growth and profits. We created a new corporate structure, with +subsidiaries in the United States, Hong Kong and Singapore, that would allow for quick geographical expansion and turning our focus to +the Hapi Café development. +We +have 9,811 individuals with founding member status. This is a privileged class that will be able to enjoy continuous membership benefits +given that they have trusted the Company and joined at an early stage. Such benefits include the ability to purchase new future memberships, +in the model described below, at a favorable rate to be determined by the Company. They will also continue to be able to earn affiliate +commissions as they sell our products in the marketplace and enjoy discounted rates when visiting Hapi Cafés until further notice. +The total number of founding members was capped at 10,000. The Company is in the midst of implementing a new membership model. While +we are not currently selling memberships, we intend to resume membership sales under this new model. +Members +will get exclusive discounts on Hapi Marketplace products, priority invites to product launch events and other parties, and look to earn +passive income through affiliate commissions at Hapi Marketplace. +Our +operations include: +Hapi +Marketplace, which offers certain products at a discounted price to our members. Hapi Marketplace, HWH’s online consumer +marketplace, went live in September of 2024, and now offers over 6,500 products from manufacturers and wholesalers, including a wide +range of items such as bathroom supplies, fashion products, accessories, cosmetics, and health supplements. +Hapi +Cafés, which are, and will be, in-person, location-based social experiences, offer members the opportunity to build a +sense of community with like-minded customers who share a potential interest in our products. The cafes expose our members to and educate +them about the products and services of our affiliates, providing us with the chance to significantly increase our membership base as +well as increase the amounts spent by our members on our affiliates’ products and services. Each of our cafés is a “Hapi +Café.” We opened proof-of-concept Hapi Café locations in Seoul, South Korea and Singapore in May 2022, July 2022 +and April 2024, respectively, and plan to open additional Hapi Cafés as we beta test and further improve our business concept. +We intend to grow our memberships as we grow the number of Hapi Cafés around the world. Hapi Cafe is positioned to be an integral +part of HWH’s business model. +Our +travel business is in the planning stage as we are working with our affiliates to determine the market-by-market services. Through +our travel business, we plan to offer exclusive access to unpublished rates and discounts on air travel, cruises, car rentals, +hotels, and resorts for members. We have made a minority investment into a travel agency with a HK, China and Malaysia presence. The +focus is primarily on educational tours for China’s primary and secondary school students visiting attractions and tours in +China and overseas. We also conduct business for hotel booking offers to a hotel booking platform as well as organizing tour +conferences for groups and communities. The Company shall continue develop consumer traveling services and hotel booking services in +Asia. +4 +Hapi +Wealth Builder is in the planning stage as we are exploring the options of providing services to our members through +financial informational materials aimed at various types of investing opportunities. The team has been diligently producing digital +content for Hapi Wealth Builder and working to collaborate with the right partners to launch the program and make it available to +members. We have completed a soft launch with Hapi Cafe China to build the credibility and reputation of the Company and its Hapi Wealth Builder business, which we intend to launch later +in 2025. +Market +Opportunity +Following +the COVID-19 pandemic, we believe people are looking for in-person communities. By offering a social and business centric atmosphere +at our Hapi Cafés, we plan to leverage this deeply-rooted desire and build a membership organization, increase their familiarity +with and educate them about the products and services of our affiliates and how those products and services can help them in their own +individual pursuits of health, wealth and happiness. +Growth +Strategy +Our +strategy is to continuously grow our membership base, while displaying to our members the added benefits of the higher tiers of membership. +We will look to accomplish this by providing a comfortable in person setting of a Hapi Café for our customers in many more locations. +We also plan to continually expand our product offerings and the services our affiliate companies can provide in the belief that this +can serve to grow our membership base and have our members increasingly opt to avail themselves of membership options that offer them +larger discounts and other benefits on the products and services of our affiliates. +Nasdaq +Deficiency +On +March 7, 2024, we received notice from Nasdaq Stock Market, LLC (“Nasdaq”) indicating that, because the market value of our +common stock had been below $50,000,000 for the prior 37 consecutive business days, we no longer complied with the minimum market value +of listed securities (the “MVLS”) requirement for continued listing on the Nasdaq Global Market under Rule 5450(b)(2)(A) +of Nasdaq Listing Rules. +Nasdaq’s +notice had no immediate effect on the listing of our common stock on the Nasdaq Global Market. Pursuant to Nasdaq Marketplace Rule 5810(c)(3)(C), +we had been provided an initial compliance period of 180 calendar days, or until September 3, 2024, to regain compliance with the MVLS +requirement. To regain compliance, the Company’s MVLS was required to be at least $50,000,000 or more for a minimum of ten consecutive +business days prior to September 3, 2024. In that regard, on September 9, 2024, the Company received a notice from the Staff that the +matter of the MVLS deficiency was to be considered at the Company’s upcoming appeal with the Nasdaq Hearings Panel. +5 +On +February 22, 2024, the Nasdaq Staff (the “Staff”) notified the Company that for the previous 30 consecutive trading days, +the MVPHS had been below the minimum $15,000,000 required for continued listing as set forth in Listing Rule 5450(b)(2)(C) (the “Rule”). +Therefore, in accordance with Marketplace Rule 5810(c)(3)(D), the Company was provided 180 calendar days, or until August 20, 2024, to +regain compliance with the Rule. In that regard, on August 27, 2024, the Company received a notice from the Staff that the Company will +be delisted from the Nasdaq Global Market, unless the Company requested an appeal of this determination by September 3, 2024. +The +Company presented its compliance plan to the Panel at a hearing on October 15, 2024. On October 21, 2024, the Company received a notice +from the Panel granting the Company an extension to phase down its securities to the Nasdaq Capital Market and demonstrate compliance +with the market value of its publicly held shares (the “MVPHS”) and Stockholders’ Equity requirements as set forth +in Nasdaq Listing Rules 5550(a)(5) and 5550(b)(1). +On +September 4, 2024, the Company received written notice (the “Notice”) from the Listing Qualifications Staff of Nasdaq notifying +the Company that for the prior 30 consecutive business days prior to the date of the Notice, the Company’s bid price was below +the minimum $1 required for continued listing on the Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(a)(1) (the “Bid +Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), Nasdaq provided the Company with 180 calendar days, +or until March 3, 2025, (the “Compliance Date”), to regain compliance with the Bid Price Requirement. +On +March 10, 2025, the Company received written notice (the “Compliance Notice”) from Nasdaq informing the Company that it has +regained compliance with Nasdaq Listing Rule 5550(a)(2), which requires that companies listed on the Nasdaq Capital Market maintain a +minimum bid price of $1.00 per share. Nasdaq notified the Company in the Compliance Notice that, from February 24, 2025 to March 7, 2025, +the closing bid price of the Company’s common stock had been $1.00 per share or greater and, accordingly, the Company had regained +compliance with Nasdaq Listing Rule 5550(a)(2) and that the matter was now closed. The Company is currently listed on the Nasdaq Capital Market. +On +February 18, 2025, the Company filed a Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation +with the Delaware Secretary of State to effect a 1-for-5 reverse stock split (the “Reverse Stock Split”). The Reverse Stock +Split became effective as of market open on February 24, 2025. The par value of the common stock following the reverse stock split remains +at $0.001 per share. The reverse stock split has been retroactively applied to all financial statements presented. +As +of December 31, 2024 and 2023, the total outstanding common shares of the Company were 5,593,920 and 2,000, respectively; the total outstanding +class A common shares of the Company were 0 and 94,750, respectively; the total outstanding class B common shares of the Company were +0 and 431,250, respectively. +Credit +Facility +On +April 24, 2024, we entered into a Credit Facility Agreement (the “Credit Agreement”) with Alset Inc., a Texas corporation +and the Company’s indirect, majority stockholder, pursuant to which Alset Inc. has provided the Company a line of credit facility +(the “Credit Facility”), which provides a maximum, aggregate credit line of up to $1,000,000. As of December 31, 2024, $300,000 credit was used and $700,000 is available to use in the future. +Pursuant +to the Credit Agreement, the Company may request an advance (each, an “Advance”) on the Credit Facility. Each Advance shall +bear a simple interest rate of three percent (3%) per annum. Each Advance and all accrued but unpaid interest shall be due and payable +at the first (1st) anniversary of the effective date of the Credit Agreement. HWH may at any time during the term of the Credit Agreement +prepay a portion or all amounts of its indebtedness without penalty. Each advance shall not be secured by a lien or other encumbrance +on any HWH assets, but shall be solely a general unsecured debt obligation of HWH. +6 +Debt +Conversion Agreements +On +September 24, 2024, HWH International Inc. entered into two debt conversion agreements with creditors (each an “Agreement,” +or collectively, the “Agreements”): (i) Alset International Limited (the Company’s majority stockholder); and (ii) +Alset Inc. (which is Alset International Limited’s majority stockholder). Each Agreement converts debt owed by the Company to the +respective creditor into shares of the Company’s common stock. The Agreements are substantially the same with the exception of +the amount of debt to be converted under each. +Under +the terms of their respective agreements, Alset Inc. converted $300,000 of the Company’s debt into 476,190 shares of the Company’s +common stock, and Alset International Limited converted $3,501,759 of the Company’s debt into 5,558,347 shares of the Company’s +common stock. Under the Agreements, the debt conversions resulted in the issuance of newly issued shares of the Company’s common +stock. The debt conversion price was set at $0.63 per share. Cumulatively, the newly issued shares contemplated by the Agreements represent +6,034,537 new shares of the Company’s common stock, constituting an increase to the total issued and outstanding shares of the +Company’s common stock of 37.2% over the amount immediately preceding the effectiveness of the Agreements. The shares contemplated +by the Agreements are restricted securities under the Securities Act of 1933, and shall be issued in reliance upon the safe harbor provided +by Rule 506 of Regulation D. +Stock +Purchase Agreements +On +November 25, 2024, the Company entered into a stock purchase agreement with Alset Inc. (“AEI”), pursuant to which Alset Inc. +agreed to purchase 4,411,764 shares of the Company’s common stock for a purchase price of $0.68 per share. AEI is the majority +shareholder of the Company, and immediately prior to the effectiveness of the stock purchase agreement, AEI directly and through its +subsidiaries owned 86.6% of the issued and outstanding shares of HWH common stock. +On +December 24, 2024, the Company entered into a Stock Purchase Agreement with AEI, pursuant to which AEI agreed to purchase 1,300,000 shares +of the Company’s common stock (the “Shares”) for a total of $585,000, representing a purchase price of $0.45 per share. +AEI is the majority shareholder of the Company. +AEI’s +investments are intended to support the growth and development of HWH. The Company believes that these investments of additional funds +into HWH are in the best interests of each of AEI and the Company. +Going +Concern and Management’s Plan +On +January 9, 2024, the Company consummated the Business Combination (the “Closing”) contemplated by the previously announced +Agreement and Plan of Merger, dated as of September 9, 2022 (the “Merger Agreement”). The Company’s common stock commenced +trading on the Nasdaq Global Market LLC under the ticker symbol “HWH” on January 9, 2024, and the Company’s warrants +are expected to commence trading at a later date. +The +Company has incurred continuing losses from its operations and has a working capital deficit of $2,163,723 as of December 31, 2024. There are no assurances the Company will be able to raise capital +on acceptable terms or that cash flows generated from its operations will be sufficient to meet its current operating costs. If the Company +is unable to obtain sufficient amounts of additional capital, it may be required to reduce the scope of its business, which could harm +its financial condition and operating results. +These conditions +raise substantial doubt about the Company’s ability to continue ongoing operations. However, the Company believes that the available +cash in the Company’s bank accounts, anticipated cash from operations, and financing availability from related parties are sufficient +to fund our operations for at least the next 12 months. +On April 24, 2024, the Company +entered into a Credit Facility Agreement (the “Agreement”) with Alset Inc., a Texas corporation and the Company’s indirect, +majority stockholder, pursuant to which Alset Inc. has provided the Company a line of credit facility (the “Credit Facility”) +which provides a maximum, aggregate credit line of up to $1,000,000. As of December 31, 2024, there are no outstanding amounts related +to the Credit Facility, as the debt with Alset Inc. was converted to equity on September 24, 2024. The remaining credit of $700,000 is +available for draw as on December 31, 2024. +Pursuant to the Agreement, the +Company may request an advance (each, an “Advance”) on the Credit Facility. Each advance shall bear a simple interest rate +of three percent (3%) per annum. Each Advance and all accrued but unpaid interest shall be due and payable at the first (1st) anniversary +of the effective date of the Agreement. HWH may at any time during the term of the Agreement prepay a portion or all amounts of its indebtedness +without penalty. Each Advance shall not be secured by a lien or other encumbrance on any HWH assets, but shall be solely a general unsecured +debt obligation of the Company. +The Company has obtained letters of financial support from Alset International Limited and Alset Inc., an indirect +and direct owner of the Company, respectively. Alset International Limited and Alset Inc. committed to provide any additional funding +required by the Company and would not demand repayment through twelve months from the issuance of these consolidated financial statements. +7 +Our +Organizational Chart: +Employees +At +the present time, the Company has 16 employees. The Company had an agreement with Alset Management Group, Inc., pursuant to which, for +a fee, Alset Management Group, Inc. provided the Company with secretarial and administrative services. This agreement expired at the +time of closing of Business Combination. +Intellectual +Property +We +anticipate filing additional trademark applications as we expand into new areas of business. +Corporate +Information +Our +mailing address is 4800 Montgomery Lane, Suite 210, Bethesda, MD, 20814. We were incorporated in Delaware on October 20, 2021 under the +name Alset Capital Acquisition Corp. The Company is an early stage and emerging growth company and, as such, the Company is subject to +all of the risks associated with early stage and emerging growth companies. +Additional +Information +The +Company is subject to the information requirements of the Exchange Act, and, in accordance therewith, files annual, quarterly, and special +reports, proxy statements and other information with the Securities and Exchange Commission (the “Commission”). The Commission +maintains an internet website at http://www.sec.gov that contains reports, proxy and information statements and other information regarding +issuers that file electronically with the Commission. The periodic reports, proxy statements and other information that the Company files +with the Commission are available for inspection on the Commission’s website free of charge as soon as reasonably practicable after +they are electronically filed with or furnished to the Commission. +The +Company maintains a website at https://www.hwhintl.com where you may also access these materials free of charge. We have included our +website address as an inactive textual reference only and the information contained in, and that can be accessed through, our website +is not incorporated into and is not part of this report on Form 10-K. +8 \ No newline at end of file diff --git a/raw/filings/0001897245/2024/0001641172-25-001707/item13.txt b/raw/filings/0001897245/2024/0001641172-25-001707/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..5ca807aa51d0b9caf37016b027dea94768833e61 --- /dev/null +++ b/raw/filings/0001897245/2024/0001641172-25-001707/item13.txt @@ -0,0 +1,4 @@ +Item +13. +Certain Relationships and Related Transactions, and Director Independence +31 \ No newline at end of file diff --git a/raw/filings/0001897245/2025/0001493152-26-012738/filing.txt b/raw/filings/0001897245/2025/0001493152-26-012738/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..192cfcf4e7915f51993fc57219c59bcf44836b82 --- /dev/null +++ b/raw/filings/0001897245/2025/0001493152-26-012738/filing.txt @@ -0,0 +1,6259 @@ +false +FY +0001897245 +http://fasb.org/us-gaap/2025#UsefulLifeTermOfLeaseMember +0001897245 +2025-01-01 +2025-12-31 +0001897245 +2025-07-01 +0001897245 +2026-03-25 +0001897245 +2024-01-01 +2024-12-31 +0001897245 +2025-12-31 +0001897245 +2024-12-31 +0001897245 +us-gaap:RelatedPartyMember +2025-12-31 +0001897245 +us-gaap:RelatedPartyMember +2024-12-31 +0001897245 +us-gaap:NonrelatedPartyMember +2025-12-31 +0001897245 +us-gaap:NonrelatedPartyMember +2024-12-31 +0001897245 +2025-02-24 +2025-02-24 +0001897245 +2025-11-13 +0001897245 +2025-11-14 +0001897245 +us-gaap:CommonClassAMember +us-gaap:CommonStockMember +2023-12-31 +0001897245 +us-gaap:CommonClassBMember +us-gaap:CommonStockMember +2023-12-31 +0001897245 +us-gaap:CommonStockMember +2023-12-31 +0001897245 +us-gaap:AdditionalPaidInCapitalMember +2023-12-31 +0001897245 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2023-12-31 +0001897245 +us-gaap:RetainedEarningsMember +2023-12-31 +0001897245 +us-gaap:ParentMember +2023-12-31 +0001897245 +us-gaap:NoncontrollingInterestMember +2023-12-31 +0001897245 +2023-12-31 +0001897245 +us-gaap:CommonClassAMember +us-gaap:CommonStockMember +2024-12-31 +0001897245 +us-gaap:CommonClassBMember +us-gaap:CommonStockMember +2024-12-31 +0001897245 +us-gaap:CommonStockMember +2024-12-31 +0001897245 +us-gaap:AdditionalPaidInCapitalMember +2024-12-31 +0001897245 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2024-12-31 +0001897245 +us-gaap:RetainedEarningsMember +2024-12-31 +0001897245 +us-gaap:ParentMember +2024-12-31 +0001897245 +us-gaap:NoncontrollingInterestMember +2024-12-31 +0001897245 +us-gaap:CommonClassAMember +us-gaap:CommonStockMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:CommonClassBMember +us-gaap:CommonStockMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:CommonStockMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:AdditionalPaidInCapitalMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:RetainedEarningsMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:ParentMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:NoncontrollingInterestMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:CommonClassAMember +us-gaap:CommonStockMember +2025-01-01 +2025-12-31 +0001897245 +us-gaap:CommonClassBMember +us-gaap:CommonStockMember +2025-01-01 +2025-12-31 +0001897245 +us-gaap:CommonStockMember +2025-01-01 +2025-12-31 +0001897245 +us-gaap:AdditionalPaidInCapitalMember +2025-01-01 +2025-12-31 +0001897245 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2025-01-01 +2025-12-31 +0001897245 +us-gaap:RetainedEarningsMember +2025-01-01 +2025-12-31 +0001897245 +us-gaap:ParentMember +2025-01-01 +2025-12-31 +0001897245 +us-gaap:NoncontrollingInterestMember +2025-01-01 +2025-12-31 +0001897245 +us-gaap:CommonClassAMember +us-gaap:CommonStockMember +2025-12-31 +0001897245 +us-gaap:CommonClassBMember +us-gaap:CommonStockMember +2025-12-31 +0001897245 +us-gaap:CommonStockMember +2025-12-31 +0001897245 +us-gaap:AdditionalPaidInCapitalMember +2025-12-31 +0001897245 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2025-12-31 +0001897245 +us-gaap:RetainedEarningsMember +2025-12-31 +0001897245 +us-gaap:ParentMember +2025-12-31 +0001897245 +us-gaap:NoncontrollingInterestMember +2025-12-31 +0001897245 +us-gaap:IPOMember +us-gaap:CommonStockMember +2025-01-06 +2025-01-06 +0001897245 +us-gaap:IPOMember +us-gaap:CommonStockMember +2025-01-06 +0001897245 +2025-01-06 +2025-01-06 +0001897245 +us-gaap:IPOMember +HWH:PreFundedWarrantsMember +2025-01-06 +2025-01-06 +0001897245 +HWH:PrefundWarrantsMember +2025-01-06 +2025-01-06 +0001897245 +us-gaap:IPOMember +2025-01-06 +0001897245 +us-gaap:IPOMember +HWH:PreFundedWarrantsMember +2025-01-06 +0001897245 +HWH:PreFundedWarrantsMember +2025-01-06 +0001897245 +us-gaap:IPOMember +2025-01-06 +2025-01-06 +0001897245 +HWH:PlacementAgencyAgreementMember +2025-01-06 +2025-01-06 +0001897245 +HWH:SaleAndPurchaseAgreementMember +HWH:AlsetFAndBPte.LtdBusinessMember +2025-09-10 +2025-09-10 +0001897245 +HWH:AlsetFAndBOnePte.LtdBusinessMember +2025-01-01 +2025-12-31 +0001897245 +HWH:AlsetFAndBOnePte.LtdBusinessMember +2024-01-01 +2024-12-31 +0001897245 +HWH:HapiCafeKoreaIncMember +2025-01-01 +2025-12-31 +0001897245 +HWH:HapiCafeKoreaIncMember +2024-01-01 +2024-12-31 +0001897245 +HWH:HapiCafeSGPte.LtdMember +2025-01-01 +2025-12-31 +0001897245 +HWH:HapiCafeSGPte.LtdMember +2024-01-01 +2024-12-31 +0001897245 +HWH:AlsetFAndBPte.LtdBusinessMember +2025-01-01 +2025-12-31 +0001897245 +HWH:AlsetFAndBPte.LtdBusinessMember +2024-01-01 +2024-12-31 +0001897245 +HWH:KetomeiPte.LtdMember +2025-01-01 +2025-12-31 +0001897245 +HWH:KetomeiPte.LtdMember +2024-01-01 +2024-12-31 +0001897245 +HWH:KetomeiPte.LtdMember +2025-08-05 +0001897245 +us-gaap:FoodAndBeverageMember +2025-01-01 +2025-12-31 +0001897245 +us-gaap:FoodAndBeverageMember +2024-01-01 +2024-12-31 +0001897245 +2024-04-24 +0001897245 +us-gaap:OfficeEquipmentMember +srt:MinimumMember +2025-12-31 +0001897245 +us-gaap:OfficeEquipmentMember +srt:MaximumMember +2025-12-31 +0001897245 +us-gaap:FurnitureAndFixturesMember +srt:MinimumMember +2025-12-31 +0001897245 +us-gaap:FurnitureAndFixturesMember +srt:MaximumMember +2025-12-31 +0001897245 +HWH:KitchenEquipmentMember +srt:MinimumMember +2025-12-31 +0001897245 +HWH:KitchenEquipmentMember +srt:MaximumMember +2025-12-31 +0001897245 +HWH:OperatingEquipmentMember +srt:MinimumMember +2025-12-31 +0001897245 +HWH:OperatingEquipmentMember +srt:MaximumMember +2025-12-31 +0001897245 +us-gaap:LeaseholdImprovementsMember +2025-12-31 +0001897245 +HWH:FinishedGoodsMember +2025-01-01 +2025-12-31 +0001897245 +HWH:RelatedShippingMember +2025-01-01 +2025-12-31 +0001897245 +HWH:HandlingFeeMember +2025-01-01 +2025-12-31 +0001897245 +HWH:ContractorFeeMember +2025-01-01 +2025-12-31 +0001897245 +us-gaap:FranchiseMember +2025-01-01 +2025-12-31 +0001897245 +HWH:DepreciationMember +2025-01-01 +2025-12-31 +0001897245 +HWH:FinishedGoodsMember +2024-01-01 +2024-12-31 +0001897245 +HWH:RelatedShippingMember +2024-01-01 +2024-12-31 +0001897245 +HWH:HandlingFeeMember +2024-01-01 +2024-12-31 +0001897245 +HWH:ContractorFeeMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:FranchiseMember +2024-01-01 +2024-12-31 +0001897245 +HWH:DepreciationMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:OfficeEquipmentMember +2025-12-31 +0001897245 +us-gaap:FurnitureAndFixturesMember +2025-12-31 +0001897245 +HWH:KitchenEquipmentMember +2025-12-31 +0001897245 +HWH:OtherOperatingEquipmentMember +2025-12-31 +0001897245 +us-gaap:OfficeEquipmentMember +2024-12-31 +0001897245 +us-gaap:FurnitureAndFixturesMember +2024-12-31 +0001897245 +HWH:KitchenEquipmentMember +2024-12-31 +0001897245 +HWH:OtherOperatingEquipmentMember +2024-12-31 +0001897245 +us-gaap:LeaseholdImprovementsMember +2024-12-31 +0001897245 +us-gaap:OfficeEquipmentMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:FurnitureAndFixturesMember +2024-01-01 +2024-12-31 +0001897245 +2024-03-14 +2024-03-14 +0001897245 +2024-03-14 +0001897245 +HWH:SubscriptionAgreementMember +2024-05-23 +2024-05-23 +0001897245 +HWH:SubscriptionAgreementMember +2024-03-13 +2024-03-13 +0001897245 +HWH:SubscriptionAgreementMember +2024-03-14 +2024-03-14 +0001897245 +HWH:AesGroupIncMember +2025-04-20 +0001897245 +HWH:AesGroupIncMember +2025-04-23 +0001897245 +HWH:AesGroupIncMember +2025-04-23 +2025-04-23 +0001897245 +2025-09-10 +2025-09-10 +0001897245 +HWH:HWHInternationalIncMember +2023-12-18 +0001897245 +HWH:HWHInternationalIncMember +2023-12-18 +2023-12-18 +0001897245 +HWH:HWHInternationalIncMember +2024-01-09 +2024-01-09 +0001897245 +HWH:HWHInternationalIncMember +2024-01-09 +0001897245 +HWH:DBoralCapitalLLCMember +2025-12-31 +0001897245 +srt:ScenarioForecastMember +2026-10-01 +2026-10-31 +0001897245 +srt:ScenarioForecastMember +2027-10-01 +2027-10-31 +0001897245 +srt:ScenarioForecastMember +2028-10-01 +2028-10-31 +0001897245 +HWH:KetomeiPte.LtdMember +2022-02-21 +0001897245 +HWH:KetomeiPte.LtdMember +2022-02-21 +2022-02-21 +0001897245 +HWH:KetomeiPte.LtdMember +2025-12-31 +0001897245 +HWH:KetomeiPte.LtdMember +2024-12-31 +0001897245 +HWH:AlsetIncMember +2025-12-31 +0001897245 +HWH:AlsetIncMember +2024-12-31 +0001897245 +HWH:CreditFacilityAgreementMember +2024-04-24 +0001897245 +HWH:CreditFacilityAgreementMember +2024-04-24 +2024-04-24 +0001897245 +HWH:CreditFacilityAgreementMember +2024-09-24 +0001897245 +HWH:CreditFacilityAgreementMember +2025-12-31 +0001897245 +HWH:DebtConversionAgreementMember +2024-09-24 +2024-09-24 +0001897245 +HWH:DebtConversionAgreementMember +2024-09-24 +0001897245 +HWH:AlsetInternationalLtdMember +2025-12-31 +0001897245 +HWH:AlsetInternationalLtdMember +2024-12-31 +0001897245 +HWH:DebtConversionAgreementMember +HWH:AlsetInternationalLimitedMember +2024-06-30 +2024-06-30 +0001897245 +HWH:DebtConversionAgreementMember +HWH:AlsetInternationalLimitedMember +2024-06-30 +0001897245 +HWH:AlsetBusinessDevelopmentPteLtdMember +2024-11-01 +2024-11-30 +0001897245 +HWH:AlsetBusinessDevelopmentPteLtdMember +2024-12-01 +2024-12-31 +0001897245 +HWH:AlsetBusinessDevelopmentPteLtdMember +2025-12-31 +0001897245 +HWH:AlsetBusinessDevelopmentPteLtdMember +2024-12-31 +0001897245 +HWH:HotAppInternationalLimitedMember +2025-12-31 +0001897245 +HWH:SharingServicesGlobalCorpMember +2024-03-20 +0001897245 +HWH:SharingServicesGlobalCorpMember +2024-03-20 +2024-03-20 +0001897245 +HWH:SharingServicesGlobalCorpMember +2024-05-09 +0001897245 +HWH:SharingServicesGlobalCorpMember +2024-05-09 +2024-05-09 +0001897245 +HWH:SharingServicesGlobalCorpMember +2024-06-06 +0001897245 +HWH:SharingServicesGlobalCorpMember +2024-06-06 +2024-06-06 +0001897245 +HWH:SharingServicesGlobalCorpMember +2024-08-13 +0001897245 +HWH:SharingServicesGlobalCorpMember +2024-08-13 +2024-08-13 +0001897245 +HWH:SharingServicesGlobalCorpMember +2025-01-15 +0001897245 +HWH:SharingServicesGlobalCorpMember +2025-01-15 +2025-01-15 +0001897245 +HWH:SharingServicesGlobalCorpMember +2025-03-31 +0001897245 +HWH:SharingServicesGlobalCorpMember +2025-03-31 +2025-03-31 +0001897245 +HWH:LoanAgreementOneMember +HWH:SharingServicesGlobalCorpMember +2025-04-21 +0001897245 +HWH:SharingServicesGlobalCorpMember +HWH:LoanAgreementOneMember +2025-04-21 +2025-04-21 +0001897245 +HWH:LoanAgreementTwoMember +HWH:SharingServicesGlobalCorpMember +2025-04-25 +0001897245 +HWH:SharingServicesGlobalCorpMember +HWH:LoanAgreementTwoMember +2025-04-25 +2025-04-25 +0001897245 +HWH:SharingServicesGlobalCorpMember +HWH:LoanAgreementMember +2025-04-25 +0001897245 +HWH:SharingServicesGlobalCorpMember +2025-06-27 +0001897245 +HWH:SharingServicesGlobalCorpMember +2025-06-27 +2025-06-27 +0001897245 +HWH:SharingServicesGlobalCorpMember +2025-09-17 +0001897245 +HWH:SharingServicesGlobalCorpMember +2025-09-17 +2025-09-17 +0001897245 +HWH:SharingServicesGlobalCorpMember +2025-10-06 +0001897245 +HWH:SharingServicesGlobalCorpMember +2025-10-06 +2025-10-06 +0001897245 +HWH:SharingServicesGlobalCorpMember +2025-12-10 +0001897245 +HWH:SharingServicesGlobalCorpMember +2025-12-10 +2025-12-10 +0001897245 +HWH:SharingServicesGlobalCorpMember +2025-12-31 +0001897245 +HWH:SharingServicesGlobalCorpMember +2024-12-31 +0001897245 +us-gaap:RelatedPartyMember +us-gaap:FoodAndBeverageMember +2025-01-01 +2025-12-31 +0001897245 +us-gaap:RelatedPartyMember +us-gaap:FoodAndBeverageMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:RelatedPartyMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:RelatedPartyMember +2025-01-01 +2025-12-31 +0001897245 +HWH:LEHInsuranceGroupLLCMember +2024-11-19 +0001897245 +HWH:SharingServicesGlobalCorpMember +2024-11-19 +0001897245 +HWH:OriginalOwnerMember +2024-11-19 +0001897245 +HWH:SharingServicesGlobalCorpJohnThatchMember +2024-11-19 +0001897245 +HWH:AcquisitionOfLEHInsuranceGroupLLCMember +2024-11-19 +2024-11-19 +0001897245 +HWH:AcquisitionOfLEHInsuranceGroupLLCMember +2024-11-19 +0001897245 +HWH:DefinitiveAgreementMember +2025-09-17 +0001897245 +HWH:HealthWealthHappinessPteLtdMember +2024-04-25 +0001897245 +HWH:MrChanMember +2024-04-25 +0001897245 +HWH:JointVentureCompanyMember +2024-04-25 +0001897245 +HWH:LoanAgreementMember +2024-11-06 +0001897245 +HWH:LoanAgreementMember +2024-11-06 +2024-11-06 +0001897245 +HWH:HapiTravelPteLtdMember +2024-12-18 +0001897245 +HWH:HapiTravelPteLtdMember +2025-12-31 +0001897245 +HWH:HapiTravelPteLtdMember +2025-01-01 +2025-12-31 +0001897245 +us-gaap:WarrantMember +HWH:SharingServicesGlobalCorpMember +us-gaap:FairValueInputsLevel1Member +2025-12-31 +0001897245 +us-gaap:WarrantMember +HWH:SharingServicesGlobalCorpMember +us-gaap:FairValueInputsLevel2Member +2025-12-31 +0001897245 +us-gaap:WarrantMember +HWH:SharingServicesGlobalCorpMember +us-gaap:FairValueInputsLevel3Member +2025-12-31 +0001897245 +us-gaap:WarrantMember +HWH:SharingServicesGlobalCorpMember +2025-12-31 +0001897245 +HWH:ConvertibleLoansReceivableMember +HWH:SharingServicesGlobalCorpMember +us-gaap:FairValueInputsLevel1Member +2025-12-31 +0001897245 +HWH:ConvertibleLoansReceivableMember +HWH:SharingServicesGlobalCorpMember +us-gaap:FairValueInputsLevel2Member +2025-12-31 +0001897245 +HWH:ConvertibleLoansReceivableMember +HWH:SharingServicesGlobalCorpMember +us-gaap:FairValueInputsLevel3Member +2025-12-31 +0001897245 +HWH:ConvertibleLoansReceivableMember +HWH:SharingServicesGlobalCorpMember +2025-12-31 +0001897245 +HWH:InvestmentSecuritiesMember +HWH:TradingMember +us-gaap:FairValueInputsLevel1Member +2025-12-31 +0001897245 +HWH:InvestmentSecuritiesMember +HWH:TradingMember +us-gaap:FairValueInputsLevel2Member +2025-12-31 +0001897245 +HWH:InvestmentSecuritiesMember +HWH:TradingMember +us-gaap:FairValueInputsLevel3Member +2025-12-31 +0001897245 +HWH:InvestmentSecuritiesMember +HWH:TradingMember +2025-12-31 +0001897245 +us-gaap:FairValueInputsLevel1Member +2025-12-31 +0001897245 +us-gaap:FairValueInputsLevel2Member +2025-12-31 +0001897245 +us-gaap:FairValueInputsLevel3Member +2025-12-31 +0001897245 +us-gaap:WarrantMember +HWH:SharingServicesGlobalCorpMember +us-gaap:FairValueInputsLevel1Member +2024-12-31 +0001897245 +us-gaap:WarrantMember +HWH:SharingServicesGlobalCorpMember +us-gaap:FairValueInputsLevel2Member +2024-12-31 +0001897245 +us-gaap:WarrantMember +HWH:SharingServicesGlobalCorpMember +us-gaap:FairValueInputsLevel3Member +2024-12-31 +0001897245 +us-gaap:WarrantMember +HWH:SharingServicesGlobalCorpMember +2024-12-31 +0001897245 +HWH:ConvertibleLoansReceivableMember +HWH:SharingServicesGlobalCorpMember +us-gaap:FairValueInputsLevel1Member +2024-12-31 +0001897245 +HWH:ConvertibleLoansReceivableMember +HWH:SharingServicesGlobalCorpMember +us-gaap:FairValueInputsLevel2Member +2024-12-31 +0001897245 +HWH:ConvertibleLoansReceivableMember +HWH:SharingServicesGlobalCorpMember +us-gaap:FairValueInputsLevel3Member +2024-12-31 +0001897245 +HWH:ConvertibleLoansReceivableMember +HWH:SharingServicesGlobalCorpMember +2024-12-31 +0001897245 +us-gaap:FairValueInputsLevel1Member +2024-12-31 +0001897245 +us-gaap:FairValueInputsLevel2Member +2024-12-31 +0001897245 +us-gaap:FairValueInputsLevel3Member +2024-12-31 +0001897245 +HWH:WRNT1Member +us-gaap:MeasurementInputSharePriceMember +2025-12-31 +0001897245 +HWH:WRNT1Member +us-gaap:MeasurementInputSharePriceMember +2024-12-31 +0001897245 +HWH:WRNT1Member +us-gaap:MeasurementInputExercisePriceMember +2025-12-31 +0001897245 +HWH:WRNT1Member +us-gaap:MeasurementInputExercisePriceMember +2024-12-31 +0001897245 +HWH:WRNT1Member +us-gaap:MeasurementInputRiskFreeInterestRateMember +2025-12-31 +0001897245 +HWH:WRNT1Member +us-gaap:MeasurementInputRiskFreeInterestRateMember +2024-12-31 +0001897245 +HWH:WRNT1Member +us-gaap:MeasurementInputPriceVolatilityMember +2025-12-31 +0001897245 +HWH:WRNT1Member +us-gaap:MeasurementInputPriceVolatilityMember +2024-12-31 +0001897245 +HWH:WRNT1Member +us-gaap:MeasurementInputExpectedDividendRateMember +2025-12-31 +0001897245 +HWH:WRNT1Member +us-gaap:MeasurementInputExpectedDividendRateMember +2024-12-31 +0001897245 +HWH:WRNT1Member +us-gaap:MeasurementInputExpectedTermMember +2025-12-31 +0001897245 +HWH:WRNT1Member +us-gaap:MeasurementInputExpectedTermMember +2024-12-31 +0001897245 +HWH:WRNT2Member +us-gaap:MeasurementInputSharePriceMember +2025-12-31 +0001897245 +HWH:WRNT2Member +us-gaap:MeasurementInputExercisePriceMember +2025-12-31 +0001897245 +HWH:WRNT2Member +us-gaap:MeasurementInputRiskFreeInterestRateMember +2025-12-31 +0001897245 +HWH:WRNT2Member +us-gaap:MeasurementInputPriceVolatilityMember +2025-12-31 +0001897245 +HWH:WRNT2Member +us-gaap:MeasurementInputExpectedDividendRateMember +2025-12-31 +0001897245 +HWH:WRNT2Member +us-gaap:MeasurementInputExpectedTermMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtOneMember +us-gaap:MeasurementInputRiskFreeInterestRateMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtTwoMember +us-gaap:MeasurementInputRiskFreeInterestRateMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtThreeMember +us-gaap:MeasurementInputRiskFreeInterestRateMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtFourMember +us-gaap:MeasurementInputRiskFreeInterestRateMember +2025-12-31 +0001897245 +us-gaap:MeasurementInputExpectedTermMember +HWH:ConvertibleDebtOneMember +2025-01-01 +2025-12-31 +0001897245 +us-gaap:MeasurementInputExpectedTermMember +HWH:ConvertibleDebtTwoMember +2025-01-01 +2025-12-31 +0001897245 +us-gaap:MeasurementInputExpectedTermMember +us-gaap:ConvertibleDebtMember +2025-01-01 +2025-12-31 +0001897245 +us-gaap:MeasurementInputExpectedTermMember +HWH:ConvertibleDebtFourMember +2025-01-01 +2025-12-31 +0001897245 +HWH:ConvertibleDebtOneMember +us-gaap:MeasurementInputDiscountRateMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtTwoMember +us-gaap:MeasurementInputDiscountRateMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtThreeMember +us-gaap:MeasurementInputDiscountRateMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtFourMember +us-gaap:MeasurementInputDiscountRateMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtOneMember +us-gaap:MeasurementInputPriceVolatilityMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtTwoMember +us-gaap:MeasurementInputPriceVolatilityMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtThreeMember +us-gaap:MeasurementInputPriceVolatilityMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtFourMember +us-gaap:MeasurementInputPriceVolatilityMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtOneMember +us-gaap:MeasurementInputExpectedDividendRateMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtTwoMember +us-gaap:MeasurementInputExpectedDividendRateMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtThreeMember +us-gaap:MeasurementInputExpectedDividendRateMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtFourMember +us-gaap:MeasurementInputExpectedDividendRateMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtOneMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtTwoMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtThreeMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtFourMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtFiveMember +us-gaap:MeasurementInputRiskFreeInterestRateMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtSixMember +us-gaap:MeasurementInputRiskFreeInterestRateMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtSevenMember +us-gaap:MeasurementInputRiskFreeInterestRateMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtEightMember +us-gaap:MeasurementInputRiskFreeInterestRateMember +2025-12-31 +0001897245 +us-gaap:MeasurementInputExpectedTermMember +HWH:ConvertibleDebtFiveMember +2025-01-01 +2025-12-31 +0001897245 +us-gaap:MeasurementInputExpectedTermMember +HWH:ConvertibleDebtSixMember +2025-01-01 +2025-12-31 +0001897245 +us-gaap:MeasurementInputExpectedTermMember +HWH:ConvertibleDebtSevenMember +2025-01-01 +2025-12-31 +0001897245 +us-gaap:MeasurementInputExpectedTermMember +HWH:ConvertibleDebtEightMember +2025-01-01 +2025-12-31 +0001897245 +HWH:ConvertibleDebtFiveMember +us-gaap:MeasurementInputDiscountRateMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtSixMember +us-gaap:MeasurementInputDiscountRateMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtSevenMember +us-gaap:MeasurementInputDiscountRateMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtEightMember +us-gaap:MeasurementInputDiscountRateMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtFiveMember +us-gaap:MeasurementInputPriceVolatilityMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtSixMember +us-gaap:MeasurementInputPriceVolatilityMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtSevenMember +us-gaap:MeasurementInputPriceVolatilityMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtEightMember +us-gaap:MeasurementInputPriceVolatilityMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtFiveMember +us-gaap:MeasurementInputExpectedDividendRateMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtSixMember +us-gaap:MeasurementInputExpectedDividendRateMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtSevenMember +us-gaap:MeasurementInputExpectedDividendRateMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtEightMember +us-gaap:MeasurementInputExpectedDividendRateMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtFiveMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtSixMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtSevenMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtEightMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtNineMember +us-gaap:MeasurementInputRiskFreeInterestRateMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtTenMember +us-gaap:MeasurementInputRiskFreeInterestRateMember +2025-12-31 +0001897245 +us-gaap:MeasurementInputExpectedTermMember +HWH:ConvertibleDebtNineMember +2025-01-01 +2025-12-31 +0001897245 +us-gaap:MeasurementInputExpectedTermMember +HWH:ConvertibleDebtTenMember +2025-01-01 +2025-12-31 +0001897245 +HWH:ConvertibleDebtNineMember +us-gaap:MeasurementInputDiscountRateMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtTenMember +us-gaap:MeasurementInputDiscountRateMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtNineMember +us-gaap:MeasurementInputPriceVolatilityMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtTenMember +us-gaap:MeasurementInputPriceVolatilityMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtNineMember +us-gaap:MeasurementInputExpectedDividendRateMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtTenMember +us-gaap:MeasurementInputExpectedDividendRateMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtNineMember +2025-12-31 +0001897245 +HWH:ConvertibleDebtTenMember +2025-12-31 +0001897245 +HWH:ConvertibleNoteReceivableRelatedPartyMember +2024-12-31 +0001897245 +HWH:ConvertibleNoteReceivableRelatedPartyMember +2025-01-01 +2025-12-31 +0001897245 +HWH:ConvertibleNoteReceivableRelatedPartyMember +2025-12-31 +0001897245 +HWH:ConvertibleNoteReceivableRelatedPartyMember +2023-12-31 +0001897245 +HWH:ConvertibleNoteReceivableRelatedPartyMember +2024-01-01 +2024-12-31 +0001897245 +HWH:SharingServicesGlobalCorporationMember +srt:MinimumMember +2025-12-31 +0001897245 +HWH:SharingServicesGlobalCorporationMember +srt:MaximumMember +2025-12-31 +0001897245 +HWH:SharingServicesGlobalCorporationMember +srt:MinimumMember +2024-12-31 +0001897245 +HWH:SharingServicesGlobalCorporationMember +srt:MaximumMember +2024-12-31 +0001897245 +HWH:SharingServicesGlobalCorporationMember +HWH:ConvertibleNoteReceivableRelatedPartyMember +2025-01-01 +2025-12-31 +0001897245 +HWH:SharingServicesGlobalCorporationMember +HWH:ConvertibleNoteReceivableRelatedPartyMember +2024-01-01 +2024-12-31 +0001897245 +HWH:SharingServicesGlobalCorporationMember +2025-01-01 +2025-12-31 +0001897245 +us-gaap:PreferredStockMember +2025-12-31 +0001897245 +us-gaap:CommonClassAMember +us-gaap:WarrantMember +2025-12-31 +0001897245 +us-gaap:CommonStockMember +2025-01-03 +2025-01-03 +0001897245 +us-gaap:CommonStockMember +2025-01-03 +0001897245 +HWH:PreFundedWarrantsMember +2025-01-03 +0001897245 +2025-01-03 +0001897245 +us-gaap:IPOMember +HWH:PreFundedWarrantsMember +2025-01-03 +0001897245 +HWH:PreFundedWarrantsMember +2025-01-03 +2025-01-03 +0001897245 +HWH:DBoralCapitalLLCMember +2025-01-03 +2025-01-03 +0001897245 +us-gaap:CommonStockMember +2025-01-16 +0001897245 +us-gaap:CommonStockMember +2025-02-24 +2025-02-24 +0001897245 +HWH:MergerAgreementMember +HWH:HWHInternationalIncMember +2025-11-14 +2025-11-14 +0001897245 +HWH:MergerAgreementMember +HWH:HWHInternationalIncMember +us-gaap:CommonStockMember +2025-11-14 +2025-11-14 +0001897245 +HWH:MergerAgreementMember +HWH:HWHInternationalIncMember +us-gaap:CommonStockMember +2025-11-14 +0001897245 +HWH:MergerAgreementMember +HWH:HWHInternationalIncMember +us-gaap:PreferredStockMember +2025-11-14 +2025-11-14 +0001897245 +HWH:MergerAgreementMember +HWH:HWHInternationalIncMember +us-gaap:PreferredStockMember +2025-11-14 +0001897245 +HWH:MergerAgreementMember +HWH:HWHInternationalIncMember +2025-11-14 +0001897245 +srt:ChiefExecutiveOfficerMember +us-gaap:CommonStockMember +HWH:TwoThousandTwentyFiveIncentiveCompensationPlanMember +2025-11-26 +2025-11-26 +0001897245 +us-gaap:WarrantMember +2024-12-31 +0001897245 +us-gaap:WarrantMember +2024-01-01 +2024-12-31 +0001897245 +us-gaap:WarrantMember +2025-01-01 +2025-12-31 +0001897245 +us-gaap:WarrantMember +2025-12-31 +0001897245 +us-gaap:WarrantMember +2023-12-31 +0001897245 +us-gaap:WarrantMember +2023-01-01 +2023-12-31 +0001897245 +us-gaap:CostOfGoodsTotalMember +us-gaap:SupplierConcentrationRiskMember +HWH:FiveSuppliersMember +2025-01-01 +2025-12-31 +0001897245 +us-gaap:CostOfGoodsTotalMember +us-gaap:SupplierConcentrationRiskMember +HWH:FiveSuppliersMember +2024-01-01 +2024-12-31 +0001897245 +srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember +2024-01-01 +2024-03-31 +0001897245 +srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember +2024-01-01 +2024-12-31 +0001897245 +HWH:SharingServicesGlobalCorporationMember +HWH:SecuritiesPurchaseAgreementMember +HWH:ConvertiblePromissoryNoteMember +us-gaap:SubsequentEventMember +2026-01-02 +0001897245 +HWH:SharingServicesGlobalCorporationMember +HWH:SecuritiesPurchaseAgreementMember +us-gaap:SubsequentEventMember +us-gaap:CommonStockMember +2026-01-02 +0001897245 +HWH:SharingServicesGlobalCorporationMember +HWH:SecuritiesPurchaseAgreementMember +us-gaap:SubsequentEventMember +us-gaap:CommonStockMember +2026-01-02 +2026-01-02 +0001897245 +HWH:SharingServicesGlobalCorporationMember +HWH:SecuritiesPurchaseAgreementMember +HWH:ConvertiblePromissoryNoteMember +us-gaap:SubsequentEventMember +2026-01-08 +0001897245 +HWH:SharingServicesGlobalCorporationMember +HWH:SecuritiesPurchaseAgreementMember +us-gaap:SubsequentEventMember +us-gaap:CommonStockMember +2026-01-08 +0001897245 +HWH:SharingServicesGlobalCorporationMember +HWH:SecuritiesPurchaseAgreementMember +us-gaap:SubsequentEventMember +us-gaap:CommonStockMember +2026-01-08 +2026-01-08 +0001897245 +HWH:SharingServicesGlobalCorporationMember +HWH:SecuritiesPurchaseAgreementMember +HWH:ConvertiblePromissoryNoteMember +us-gaap:SubsequentEventMember +2026-02-04 +0001897245 +HWH:SharingServicesGlobalCorporationMember +HWH:SecuritiesPurchaseAgreementMember +us-gaap:SubsequentEventMember +us-gaap:CommonStockMember +2026-02-04 +0001897245 +HWH:SharingServicesGlobalCorporationMember +HWH:SecuritiesPurchaseAgreementMember +us-gaap:SubsequentEventMember +us-gaap:CommonStockMember +2026-02-04 +2026-02-04 +0001897245 +us-gaap:SubsequentEventMember +HWH:StockPurchaseAgreementMember +HWH:HapiMetaverseIncMember +2026-02-05 +2026-02-05 +0001897245 +2025-10-01 +2025-12-31 +iso4217:USD +xbrli:shares +iso4217:USD +xbrli:shares +xbrli:pure +iso4217:SGD +UNITED +STATES +SECURITIES +AND EXCHANGE COMMISSION +Washington, +D.C. 20549 +FORM +10-K +(Mark +One) +☒ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the fiscal year ended December 31 , 2025 +or +☐ +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the transition period from _________ to _________ +Commission +File Number: 001-41254 +HWH +INTERNATIONAL INC. +(Exact +name of registrant as specified in its charter) +Nevada +87-3296100 +(State +or other jurisdiction of +incorporation +or organization) +(I.R.S. +Employer +Identification +Number) +4800 +Montgomery Lane , Suite 210 +Bethesda , +MD 20814 +301 - 971-3955 +(Address +of Principal +Executive +Offices) +Registrant’s +telephone number, +including +area code +Securities +registered pursuant to Section 12(b) of the Act: +Title +of each class +Trading +Symbol +Name +of each exchange on which registered +Common +Stock, par value $0.0001 per share +HWH +The +Nasdaq Capital Market +Securities +registered pursuant to Section 12(g) of the Act: None +Indicate +by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate +by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ +Indicate +by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange +Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) +has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate +by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule +405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant +was required to submit such files). Yes ☒ No ☐ +Indicate +by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting +company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” +“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +☐ +Large accelerated filer +☐ +Accelerated filer +☒ +Non-accelerated filer +☒ +Smaller reporting company +☒ +Emerging growth company +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying +with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate +by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness +of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C 7262(b)) by the registered +public accounting firm that prepared or issued its audit report. ☐ +If +securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statement of the registrant +included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate +by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation +received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate +by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒ +Aggregate +market value of voting and non-voting common equity held by non-affiliates of the registrant as of July 1, 2025 based upon the closing +price of the common stock as reported by the Nasdaq Stock Market LLC on such date, was approximately $ 2,018,682 . +As +of March 25, 2026, there were 7,476,400 shares of Common Stock, par value $ 0.0001 per share of the Company issued and outstanding. +DOCUMENTS +INCORPORATED BY REFERENCE +None . +HWH +International Inc. +Form +10-K +For +the Year Ended December 31, 2025 +Table +of Contents +Page +PART I +Item +1. +Business +4 +Item +1A. +Risk +Factors +9 +Item +1B. +Unresolved +Staff Comments +9 +Item +1C. +Cybersecurity +9 +Item +2. +Properties +9 +Item +3. +Legal +Proceedings +9 +Item +4. +Mine +Safety Disclosures +9 +PART II +Item +5. +Market +for Company’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities +10 +Item +6. +[RESERVED] +11 +Item +7. +Management’s +Discussion and Analysis of Financial Condition and Results of Operations +12 +Item +7A. +Quantitative +and Qualitative Disclosures About Market Risk +20 +Item +8. +Consolidated Financial Statements and Supplementary Data +21 +Item +9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosures +22 +Item +9A. +Controls +and Procedures +22 +Item +9B. +Other +Information +22 +Item +9C +Disclosure +Regarding Foreign Jurisdictions that Prevent Inspections +22 +PART III +Item +10. +Directors, +Executive Officers and Corporate Governance +23 +Item +11. +Executive +Compensation +28 +Item +12. +Security +Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +29 +Item +13. +Certain +Relationships and Related Transactions, and Director Independence +30 +Item +14. +Principal +Accounting Fees and Services +34 +PART IV +Item +15. +Exhibit +and Consolidated Financial Statement Schedules +35 +Item +16. +Form 10-K Summary +36 +Signatures +37 +2 +Throughout +this Report on Form 10-K, the terms the “Company,” “HWH,” “we,” “us,” and “our” +refer to HWH International Inc., and “our board of directors” refers to the board of directors of HWH International Inc. +CAUTIONARY +STATEMENT REGARDING FORWARD-LOOKING INFORMATION +This +Annual Report on Form 10-K contains forward-looking statements regarding, among other things, our future operating results and financial +position, our business strategy, and other objectives for our future operations. The words “anticipate,” “believe,” +“intend,” “expect,” “may,” “estimate,” “predict,” “project,” +“potential” and similar expression are intended to identify forward-looking statements, although not all forward-looking +statements contain these identifying words. We have based these forward-looking statements largely on our current expectations and projections +about future events and financial trends that we believe may affect our business, financial condition and results of operations. There +are a number of important risks and uncertainties that could cause our actual results to differ materially from those indicated by forward-looking +statements. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should +not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions +and expectations disclosed in the forward-looking statements we make. Our forward-looking statements do not reflect the potential impact +of any future acquisitions, mergers, dispositions, joint ventures or investments that we may make. +You +should read this Report on Form 10-K and the documents that we have filed as exhibits to this Report on Form 10-K completely and with +the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained +in this Report on Form 10-K are made as of the date of this Report on Form 10-K, and we do not assume any obligation to update any forward-looking +statements, whether as a result of new information, future events or otherwise, except as required by applicable law. +3 +PART +I +Item +1. Business. +General +The +Company was originally incorporated in Delaware on October 20, 2021 under the name Alset Capital Acquisition Corp. The Company was formed +for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business +combination with one or more businesses (the “Business Combination”). The Company consummated the Business Combination on +January 9, 2024 and changed its name from “Alset Capital Acquisition Corp.” to “HWH International Inc.” The Company +is an early stage and smaller reporting company and, as such, the Company is subject to all of the risks associated with early stage +and emerging growth companies. +On +January 6, 2025, the Company announced the closing of its previously disclosed public offering of 632,500 shares of common stock, +par value $0.0001 per share (the “Shares”) (following the 1-for-5 reverse stock split; equivalent to 3,162,500 shares +pre-split) and 250,000 pre-funded warrants (following the 1-for-5 reverse stock split; equivalent to 1,250,000 warrants pre-split) +to purchase shares of common stock (“Pre-Funded Warrants”). The Shares and Pre-Funded Warrants were offered at a public +offering price of $2.00 per share and $1.9995 per Pre-Funded Warrant. The Pre-Funded Warrants are exercisable immediately upon +issuance and have an exercise price of $0.0001 per share. The gross proceeds to the Company from the offering were approximately +$1.76 million, before deducting placement agent fees and other offering expenses. Each of the amounts of warrants and shares and the +prices thereof in the foregoing paragraph are adjusted for a 1-for-5 reverse stock split of the Company’s stock split +effective on February 24, 2025. +On +November 14, 2025, the Company completed a merger pursuant to which the Delaware parent merged with and into its wholly owned Nevada +subsidiary, with the Nevada entity surviving. As a result, HWH International Inc., a Nevada corporation, succeeded to all assets and +liabilities of the former parent and became the publicly traded registrant. The transaction constituted a change in legal domicile only, +with each outstanding share converting on a one-for-one basis, and had no impact on the Company’s consolidated financial position, +results of operations, or cash flows. The Company is the successor issuer under Rule 12g-3 of the Securities Exchange Act of 1934. +Hapi +Marketplace. On November 4, 2024, the Company announced the launch of its business-to-consumer marketplace, Hapi Marketplace. +Hapi Marketplace features a selection of over forty-seven product categories including wellness, elderly care, auto accessories and more. +Launching first in the United States, we intend for Hapi Marketplace to expand in the near future to South Korea and Hong Kong, followed +by further expansion across Asia. +The +various aspects of the Hapi Marketplace will be launched in phases in different regions, each with their own timeline, depending on the +completion of logistical aspects for implementation (i.e., payment gateway systems, business licenses, banking set up, import licenses, +managerial resources, etc.). We are expanding the product range into robotics for consumer and commercial markets. As of December 31, +2025, this project was not launched yet. +Hapi +Cafés, which are, and will be, in-person, location-based social experiences, offer customers the opportunity to build +a sense of community with like-minded customers who share a potential interest in our products. The cafes are designed to operate sustainably +as standalone businesses. The cafes also seek to be an avenue to create awareness to and educate potential and existing customers about +the products and services of HWH, providing us with the chance to significantly increase our customer base as well as increase the amounts +spent by our customers on our affiliates’ products and services. Each of our cafés is a “Hapi Café.” +We opened proof-of-concept Hapi Café locations in Seoul, the Republic of Korea and Singapore in May and July 2022, respectively, +one more opened in Seoul, the Republic of Korea in May 2024. We plan to open additional Hapi Cafés as we beta test and further +improve our business concept. We intend to grow our customer base as we grow the number of Hapi Cafés around the world. Hapi Cafes +are positioned to be integral parts of HWH’s business model. In June 2024, the Company’s decision to close the café +under Alset F&B (PLQ) Pte. Ltd. (“F&BPLQ”) was driven by the unsustainable revenue it generated. In August 2025 and +September 2025, the Company’s decision to close the café under Ketomei Pte. Ltd. (“KPL”) and Hapi Café +Korea Inc. (“HCKI”), respectively, both were driven by the unsustainable revenue they generated. We believe it is more strategic +to refocus our efforts and resources on other F&B business ventures that have greater growth potential. On September 10, 2025, Alset +F&B Holdings Pte. Ltd., (the “Seller”), a Singapore subsidiary of the Company, entered into a sale and purchase agreement +(the “Sale and Purchase Agreement”) with Alset International Limited (the “Buyer”), pursuant to which the Seller +agreed to sell 70% of the outstanding shares of its subsidiary, Alset F&B One Pte. Ltd. (“Alset F&B One”) to the +Buyer in exchange for S$218,941 Singapore Dollars (equal to approximately $170,754 U.S. Dollars). Alset F&B One was incorporated +in Singapore on April 10, 2017, and operates a cafe in Singapore. It generated approximately $470,000 in revenue in 2024. Following this +sale, the Seller continues to own 20% of Alset F&B One as of December 31, 2025. +4 +Hapi +Wealth Builder seeks to provide participants the opportunity to attend courses, workshops, and coaching sessions in person, fostering +a collaborative learning environment for those dedicated to learning investment in equities and wealth-building strategies. The team +has been diligently producing digital content for Hapi Wealth Builder and working to collaborate with the right partners to launch the +program and make it available to customers. Hapi Wealth Builder will leverage the wealth of knowledge and experience of its leaders to +make wealth building accessible and effective for its members. Our unique community-centric approach will offer members tools for making +informed financial decisions while creating pathways for sustained growth. +On +October 31, 2024, we announced that the Company scheduled the launch of Hapi Wealth, a program dedicated to providing comprehensive education +in equity investment and wealth-building strategies. We are targeting a rollout in selected regions later in 2026. +To +further support its mission, Hapi Wealth is opening its China headquarters, designed as a conducive environment for individuals to participate +in tutorials and workshops. The hub will offer participants the opportunity to attend courses, workshops, and coaching sessions in person, +fostering a collaborative learning environment for those dedicated to learning investment in equities and wealth-building strategies. +Market +Opportunity +Following +the COVID-19 pandemic, we believe people are looking for in-person communities. By offering a social and business centric atmosphere +at our Hapi Cafés, we plan to leverage this deeply-rooted desire to educate them about the products and services of our affiliates +and how those products and services can help them in their own individual pursuits of health, wealth and happiness. +Growth +Strategy +Our +strategy is to continuously grow our F&B business. We will look to accomplish this by providing a comfortable in person setting of +a Hapi Café for our customers in many more locations. We also plan to continually expand our product offerings and the services +our affiliate companies can provide in the belief that this can serve to grow our membership base and have our members increasingly opt +to avail themselves of membership options that offer them larger discounts and other benefits on the products and services of our affiliates. +Nasdaq +Deficiency +On +March 7, 2024, we received notice from Nasdaq Stock Market, LLC (“Nasdaq”) indicating that, because the market value of our +common stock had been below $50,000,000 for the prior 37 consecutive business days, we no longer complied with the minimum market value +of listed securities (the “MVLS”) requirement for continued listing on the Nasdaq Global Market under Rule 5450(b)(2)(A) +of Nasdaq Listing Rules. +Nasdaq’s +notice had no immediate effect on the listing of our common stock on the Nasdaq Global Market. Pursuant to Nasdaq Marketplace Rule 5810(c)(3)(C), +we had been provided an initial compliance period of 180 calendar days, or until September 3, 2024, to regain compliance with the MVLS +requirement. To regain compliance, the Company’s MVLS was required to be at least $50,000,000 or more for a minimum of ten consecutive +business days prior to September 3, 2024. In that regard, on September 9, 2024, the Company received a notice from the Staff that the +matter of the MVLS deficiency was to be considered at the Company’s upcoming appeal with the Nasdaq Hearings Panel. +5 +On +February 22, 2024, the Nasdaq Staff (the “Staff”) notified the Company that for the previous 30 consecutive trading days, +the MVPHS had been below the minimum $15,000,000 required for continued listing as set forth in Listing Rule 5450(b)(2)(C) (the “Rule”). +Therefore, in accordance with Marketplace Rule 5810(c)(3)(D), the Company was provided 180 calendar days, or until August 20, 2024, to +regain compliance with the Rule. In that regard, on August 27, 2024, the Company received a notice from the Staff that the Company will +be delisted from the Nasdaq Global Market, unless the Company requested an appeal of this determination by September 3, 2024. +The +Company presented its compliance plan to the Panel at a hearing on October 15, 2024. On October 21, 2024, the Company received a notice +from the Panel granting the Company an extension to phase down its securities to the Nasdaq Capital Market and demonstrate compliance +with the market value of its publicly held shares (the “MVPHS”) and Stockholders’ Equity requirements as set forth +in Nasdaq Listing Rules 5550(a)(5) and 5550(b)(1). +On +September 4, 2024, the Company received written notice (the “Notice”) from the Listing Qualifications Staff of Nasdaq notifying +the Company that for the prior 30 consecutive business days prior to the date of the Notice, the Company’s bid price was below +the minimum $1 required for continued listing on the Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(a)(1) (the “Bid +Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), Nasdaq provided the Company with 180 calendar days, +or until March 3, 2025, (the “Compliance Date”), to regain compliance with the Bid Price Requirement. +On +February 18, 2025, the Company filed a Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation +with the Delaware Secretary of State to effect a 1-for-5 reverse stock split (the “Reverse Stock Split”). The Reverse Stock +Split became effective as of market open on February 24, 2025. +On +March 10, 2025, the Company received written notice (the “Compliance Notice”) from Nasdaq informing the Company that it has +regained compliance with Nasdaq Listing Rule 5550(a)(2), which requires that companies listed on the Nasdaq Capital Market maintain a +minimum bid price of $1.00 per share. Nasdaq notified the Company in the Compliance Notice that, from February 24, 2025 to March 7, 2025, +the closing bid price of the Company’s common stock had been $1.00 per share or greater and, accordingly, the Company had regained +compliance with Nasdaq Listing Rule 5550(a)(2) and that the matter was now closed. The Company remains listed on the Nasdaq Capital +Market. +As +of December 31, 2025 and 2024, the total outstanding common shares of the Company were 7,476,400 and 5,593,920, respectively +Credit +Facility +On +April 24, 2024, the Company entered into a Credit Facility Agreement (the “Credit Agreement”) with Alset Inc., a Texas corporation +and the Company’s indirect, majority stockholder, pursuant to which Alset Inc. has provided the Company a non-revolving line of +credit facility (the “Credit Facility”), which provides a maximum, aggregate credit line of up to $1,000,000. During 2024, +$300,000 was drawn from the loan, which was converted to equity on September 24, 2024. The remaining credit of $700,000 is available +for draw as on December 31, 2025. +Pursuant +to the Credit Agreement, the Company may request an advance (each, an “Advance”) on the Credit Facility. Each Advance shall +bear a simple interest rate of three percent (3%) per annum. Each Advance and all accrued but unpaid interest shall be due and payable +at the first (1 st ) anniversary of the effective date of the Credit Agreement. The Company may at any time during the term +of the Credit Agreement prepay a portion or all amounts of its indebtedness without penalty. Each advance shall not be secured by a lien +or other encumbrance on any of the Company’s assets, but shall be solely a general unsecured debt obligation of the Company. +On +April 14, 2025, the Company entered into an amendment (the “Amendment”) to this Credit Facility Agreement. Under the terms +of the Amendment, the date upon which each advance made under the Credit Facility and all accrued but unpaid interest shall be due and +payable was extended from April 24, 2025 to April 14, 2026. +The +Company has obtained letters of financial support from Alset Inc., a direct majority owner of the Company. Alset Inc. committed to provide +any additional funding required by the Company and would not demand repayment through twelve months from the issuance of these consolidated +financial statements. +6 +Debt +Conversion Agreements +On +September 24, 2024, HWH International Inc. entered into two debt conversion agreements with creditors (each an “Agreement,” +or collectively, the “Agreements”): (i) Alset International Limited (a fellow subsidiary of the common parent company, Alset +Inc.); and (ii) Alset Inc. (which is Alset International Limited’s majority stockholder). Each Agreement converts debt owed by +the Company to the respective creditor into shares of the Company’s common stock. The Agreements are substantially the same with +the exception of the amount of debt to be converted under each. +Under +the terms of their respective agreements, Alset Inc. converted $300,000 of the Company’s debt into 476,190 shares of the Company’s +common stock, and Alset International Limited converted $3,501,759 of the Company’s debt into 5,558,347 shares of the Company’s +common stock. Under the Agreements, the debt conversions resulted in the issuance of newly issued shares of the Company’s common +stock. The debt conversion price was set at $0.63 per share. Cumulatively, the newly issued shares contemplated by the Agreements represent +6,034,537 new shares of the Company’s common stock, constituting an increase to the total issued and outstanding shares of the +Company’s common stock of 37.2% over the amount immediately preceding the effectiveness of the Agreements. The shares contemplated +by the Agreements are restricted securities under the Securities Act of 1933, and shall be issued in reliance upon the safe harbor provided +by Rule 506 of Regulation D. +Stock +Purchase Agreements +On +November 25, 2024, the Company entered into a stock purchase agreement with Alset Inc. (“AEI”), pursuant to which Alset Inc. +agreed to purchase 4,411,764 shares of the Company’s common stock for a purchase price of $0.68 per share. AEI is the majority +shareholder of the Company, and immediately prior to the effectiveness of the stock purchase agreement, AEI directly and through its +subsidiaries owned 86.6% of the issued and outstanding shares of HWH common stock (which was subsequently reduced to 67.74% at December +31, 2025).. +On +December 24, 2024, the Company entered into a Stock Purchase Agreement with AEI, pursuant to which AEI agreed to purchase 1,300,000 shares +of the Company’s common stock (the “Shares”) for a total of $585,000, representing a purchase price of $0.45 per share. +AEI’s +investments are intended to support the growth and development of HWH. The Company believes that these investments of additional funds +into HWH are in the best interests of each of AEI and the Company. +Going +Concern and Management’s Plan +On +January 9, 2024, the Company consummated the Business Combination (the “Closing”) contemplated by the previously announced +Agreement and Plan of Merger, dated as of September 9, 2022 (the “Merger Agreement”). The Company’s common stock commenced +trading on the Nasdaq Global Market LLC under the ticker symbol “HWH” on January 9, 2024, and the Company’s warrants +are expected to commence trading at a later date. +The +Company has incurred continuing losses from its operations and has a working capital deficit of $1,692,996 as of December 31, 2025. There +are no assurances the Company will be able to raise capital on acceptable terms or that cash flows generated from its operations will +be sufficient to meet its current operating costs. If the Company is unable to obtain sufficient amounts of additional capital, it may +be required to reduce the scope of its business, which could harm its financial condition and operating results. +These +conditions raise substantial doubt about the Company’s ability to continue ongoing operations. However, the Company believes that +the available cash in the Company’s bank accounts, anticipated cash from operations, and financing availability from related parties +are sufficient to fund our operations for at least the next 12 months. +On +April 24, 2024, the Company entered into a Credit Facility Agreement (the “Agreement”) with Alset Inc., a Texas corporation +and the Company’s indirect, majority stockholder, pursuant to which Alset Inc. has provided the Company a line of credit facility +(the “Credit Facility”) which provides a maximum, aggregate credit line of up to $1,000,000. As of December 31, 2024, there +are no outstanding amounts related to the Credit Facility, as the debt with Alset Inc. was converted to equity on September 24, 2024. +The remaining credit of $700,000 is available for draw as of December 31, 2025. +The +Company has obtained a letter of financial support from Alset Inc., the Company’s corporate parent. Alset Inc. committed to provide +any additional funding required by the Company and would not demand repayment through twelve months from the issuance of the consolidated +financial statements included in this filing. +7 +Our +Organizational Chart: +Employees +As of December 31, 2025 the Company had 4 employees. Our largest stockholder, Alset Inc., has provided staff without charge to our Company +at no incremental effort or cost to Alset’s own operations. We intend to outsource many functions of our business in the immediate +future. +Intellectual +Property +We +anticipate filing additional trademark applications as we expand into new areas of business. +Corporate +Information +Our +mailing address is 4800 Montgomery Lane, Suite 210, Bethesda, MD, 20814. We were incorporated in Delaware on October 20, 2021 under the +name Alset Capital Acquisition Corp. We reincorporated in Nevada on November 14, 2025. The Company is an early stage and emerging growth +company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies. +Additional +Information +The +Company is subject to the information requirements of the Exchange Act, and, in accordance therewith, files annual, quarterly, and special +reports, proxy statements and other information with the Securities and Exchange Commission (the “Commission”). The Commission +maintains an internet website at http://www.sec.gov that contains reports, proxy and information statements and other information regarding +issuers that file electronically with the Commission. The periodic reports, proxy statements and other information that the Company files +with the Commission are available for inspection on the Commission’s website free of charge as soon as reasonably practicable after +they are electronically filed with or furnished to the Commission. +The +Company maintains a website at https://www.hwhintl.com where you may also access these materials free of charge. We have included our +website address as an inactive textual reference only and the information contained in, and that can be accessed through, our website +is not incorporated into and is not part of this report on Form 10-K. +8 +Item +1A. Risk Factors. +Not +applicable to smaller reporting companies. +Item +1B. Unresolved Staff Comments. +Not +applicable to smaller reporting companies. +Item +1C. Cybersecurity. +Risk +Management and Strategy +We +recognize the critical importance of developing, implementing, and maintaining robust cybersecurity measures to safeguard our information +systems and protect the confidentiality, integrity, and availability of our data. +Managing +Material Risks and Integrated Overall Risk Management +We +have strategically integrated cybersecurity risk management into our broader risk management framework to promote a company-wide culture +of cybersecurity risk management. This integration ensures that cybersecurity considerations are an integral part of our decision-making +processes at every level. Our management continuously evaluate and addresses cybersecurity risks in alignment with our business objectives +and operational needs. +Risks +from Cybersecurity Threats +We +have no t encountered cybersecurity challenges that have materially impaired our operations or financial standing. +Cybersecurity Governance +Our +Board considers cybersecurity risk as part of its risk oversight function and has delegated to the Audit Committee (the “Committee”) +oversight of cybersecurity, data privacy and other information technology risks. The Committee oversees management’s implementation +of our cybersecurity risk management program and cybersecurity risk exposures, and the steps taken by management to monitor and mitigate +cybersecurity risks. The Committee is composed of members of our board of directors with diverse expertise, which has prepared them to +oversee our cybersecurity risks. +The +Committee receives periodic reports from management on our cybersecurity risks. In addition, management updates the Committee, as necessary, +regarding any material cybersecurity incidents, as well as any incidents with lesser impact potential. +The +Committee reports to the Board regarding its activities, including those related to cybersecurity. The Board also receives +briefings from management on our cybersecurity risk management program. +Our +management team, including our Chief Executive Officer, are responsible for assessing and managing our material risks from +cybersecurity threats. The team has primary responsibility for our overall cybersecurity risk management program and supervises +efforts to prevent, detect, mitigate and remediate cybersecurity risks and incidents through various means, which may include briefings +from internal security consultants; threat intelligence and other information obtained from governmental, public or private sources, +including external consultants which may be engaged by us; and alerts and reports produced by security tools deployed in the information +technology environment. Our management team’s experience includes monitoring the cybersecurity landscape for new risks and +best practices, developing and executing cybersecurity strategies, overseeing related governance policies, testing compliance with applicable +technical standards, remediating known risks and leading employee training programs. +Item +2. Properties +Our +executive offices are located at 4800 Montgomery Lane, Suite 210, Bethesda, MD 20814, and our telephone number is (301) 971-3955. +At +the present time, our majority stockholder is temporarily providing us office space at no cost. We consider our current office space +adequate for our current operations. +Item +3. Legal Proceedings. +The +Company is not a party to any material pending legal proceedings. +There +are no material proceedings to which any director, officer or affiliate of the Company, or any owner of record or beneficially of more +than five percent of any class of voting securities of the Company, or any associate of any such director, officer, affiliate of the +Company, or security holder is a party adverse to the Company or any of its subsidiaries or has a material interest adverse to the Company +or any of its subsidiaries. +Item +4. Mine Safety Disclosures +Not +applicable. +9 +PART +II +Item +5. Market for Company’s Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities +Market +Information +Our +common stock is currently listed on the Nasdaq Capital Market under the symbol “HWH”. As of December 31, 2025, we had approximately +7,476,400 shares of common stock issued and outstanding. +Prior +to our initial listing on the Nasdaq Global Market there was no public trading market for our securities. We subsequently moved to the +Nasdaq Capital Market. +Holders +As +of December 31, 2025, the Company had six stockholders of record. The number of holders of record does not include a substantially greater +number of “street name” holders or beneficial holders whose shares of the Company’s common stock are held of record +by banks, brokers and other financial institutions. +Dividends +We +have never declared or paid cash dividends on our capital stock. We intend to retain all available funds and any future earnings for +use in the operation of our business and do not anticipate paying any cash dividends on our capital stock in the foreseeable future. +Notwithstanding the foregoing, any determination to pay cash dividends will be at the discretion of our board of directors and will depend +upon a number of factors, including our results of operations, financial condition, future prospects, contractual restrictions, restrictions +imposed by applicable law and other factors our board of directors deems relevant. +Securities +authorized for issuance under equity compensation plans. +The +Company does not have securities authorized for issuance under any equity compensation plans. +Performance +graph +Not +applicable to smaller reporting companies. +Recent +sales of unregistered securities; use of proceeds from registered securities +On +November 8, 2021, our Sponsor purchased 2,156,250 founder shares for an aggregate purchase price of $25,000, or approximately $0.012 +per share. Such securities were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. +Prior to the initial investment in the Company of $25,000 by our Sponsor, the Company had no assets, tangible or intangible. The per +share purchase price of the founder shares was determined by dividing the amount of cash contributed to the Company by the aggregate +number of founder shares issued. The number of founder shares issued was determined based on the expectation that the founder shares +would represent 20% of the outstanding shares after the Initial Public Offering (excluding the placement units and underlying securities). +On +February 3, 2022, we consummated our Initial Public Offering (the “Offering”) of an aggregate of 8,625,000 units (“Units”) +including the issuance of 1,125,000 Units as a result of the underwriter’s full exercise of its over-allotment option. The Units +were sold at an offering price of $10.00 per Unit, generating gross proceeds of $86,250,000. +10 +Simultaneously +with the consummation of the Offering, the Company consummated the private placement of 473,750 units (the “Private Placement Units”) +to the Sponsor, including the issuance of 33,750 Private Placement Units in connection with the underwriter’s full exercise of +its over-allotment option, at a price of $10.00 per Private Placement Unit, generating total gross proceeds of $4,735,500 (the “Private +Placement”). The Private Placement was conducted as a non-public transaction and, as a transaction by an issuer not involving a +public offering, was exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act. +Of +the gross proceeds received from the Offering, including the full exercise of the over-allotment option, and the Private Placement Units, +$86.25 million and $4.7 million was placed in the Trust Account, respectively. +On +February 3, 2022, the Company paid a cash underwriting discount of $0.20 per Unit, or $1,725,000. In addition, the underwriters were +entitled to a deferred fee of $0.35 per Unit, or $3,018,750 in the aggregate. The deferred fee was payable to the underwriters from the +amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the +underwriting agreement. +On +December 18, 2023, the Company entered into a Satisfaction and Discharge of Indebtedness Agreement (the “Satisfaction +Agreement”) in connection with the Underwriting Agreement, dated January 31, 2022 (the “Underwriting Agreement”), +with D. Boral Capital, LLC (“D. Boral Capital”) (formerly known as EF Hutton, LLC), in which, pursuant to that +certain Underwriting Agreement, the Company was due to pay $3,018,750 to D. Boral Capital as deferred underwriting commission (the +“Deferred Underwriting Commission”) upon the closing of the Business Combination. In lieu of the Company tendering the +full amount of Deferred Underwriting Commission, the Company and D. Boral Capital entered into the Satisfaction Agreement, pursuant to +which D. Boral Capital accepted a combination of $325,000 in cash (the “Cash Payment”) paid upon the closing of the Business +Combination, 149,443 shares of the Company’s common stock (the “Shares”) and a $1,184,375 promissory note (the +“Promissory Note”) as full satisfaction of the Deferred Underwriting Commission. Satisfaction and discharge of the +Deferred Underwriting Commission depended on the Company’s delivery of the Cash Payment, the Shares and the Promissory Note +under the terms of the Satisfaction Agreement. Additionally, the Company has granted D. Boral Capital an irrevocable right of first refusal +(the “ROFR”) to act as the sole investment banker, sole book-runner, and/or sole placement agent, at D. Boral Capital’s +sole discretion, for each and every future public and private equity and debt offering, including all equity linked financing for a +period commencing on the date of the satisfaction and ending twenty-four months after the closing of the business +combination. +On +January 3, 2025, the Company announced the pricing of its public offering of 3,162,500 shares of common stock, par value $0.0001 per +share and 1,250,000 pre-funded warrants to purchase shares of common stock (the “Pre-Funded Warrants”). These shares and +the Pre-Funded Warrants were offered at a public offering price of $0.40 per share and $0.3999 per the Pre-Funded Warrant. The Pre-Funded +Warrants are exercisable immediately upon issuance and have an exercise price of $0.0001 per share. The gross proceeds to the Company +from the offering were approximately $1.76 million, before deducting placement agent fees and other offering expenses of approximately +$355,017. +The +offering was conducted pursuant to the Company’s registration statement on Form S-1, which was initially filed with the Commission +on October 10, 2024, subsequently amended on October 23, 2024, December 4, 2024, and December 10, 2024, and declared effective on December +19, 2024. The offering closed on January 6, 2025. +D. +Boral Capital, LLC (“D. Boral Capital”) was acting as the exclusive placement agent for the offering. Pursuant to the Placement +Agency Agreement, the Company has agreed to pay D. Boral Capital a cash fee equal to 7.5% of the gross proceeds from the offering, a +non-accountable expense allowance equal to 1.0% of the gross proceeds, and reimbursement for legal and out-of-pocket expenses up to $75,000. +On +October 20, 2025, the Company entered into an agreement and plan of merger (“Merger Agreement”) with HWH International Inc., +a Nevada corporation and a wholly owned subsidiary of the Company (the “New HWH”). The Company has determined it advisable +and in the best interests of such corporation and its stockholders that the Company merge with and into the New HWH, with the New HWH +being the surviving corporation (the “ Merger ”), upon the terms and subject to the conditions set forth in the Merger +Agreement. The Merger was completed on November 14, 2025. After the Merger, the total number of shares of capital stock which the New +HWH has the authority to issue is five hundred million (500,000,000), of which (i) four hundred and fifty million (450,000,000) shares +are designated as common stock, par value of $0.0001 per share, which shares shall not be subject to any preemptive rights, and (ii) +fifty million (50,000,000) shares of preferred stock, par value of $0.0001 per share. +Purchases +of Equity Securities by the issuer and affiliated purchasers +The +Company did not repurchase any shares of the Company’s common stock during 2025 and 2024. +Item +6. [RESERVED] +11 +Item +7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. +References +to the “Company,” “HWH International Inc.,” “HWH,” “our,” “us” or “we” +refer to HWH International Inc. and its subsidiaries. The following discussion and analysis of the Company’s financial condition +and results of operations should be read in conjunction with the unaudited interim financial statements and the notes thereto contained +elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements +that involve risks and uncertainties. +This +Form 10-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For +this purpose, any statements contained in this Form 10-K that are not statements of historical fact including, without limitation, statements +under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the +Company’s financial position, business strategy and the plans and objectives of management for future operations, may be deemed +to be forward-looking statements. Without limiting the foregoing, words such as “may”, “will”, “expect”, +“believe”, “anticipate”, “estimate” or “continue” or comparable terminology are intended +to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results +may differ materially depending on a variety of factors, many of which are not within our control. These factors include by are not limited +to economic conditions generally and in the industries in which we may participate; competition within our chosen industry, including +competition from much larger competitors; technological advances and failure to successfully develop business relationships. Such forward-looking +statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, the Company’s +management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors +detailed in our filings with the SEC. +The +following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated +financial statements and the notes thereto contained elsewhere in this Report. Certain information contained in the discussion and analysis +set forth below includes forward-looking statements that involve risks and uncertainties. +Overview +HWH +International Inc. (“HWH”) and its consolidated subsidiaries (collectively, the “Company”) operate a food and +beverage (“F&B”) business in Singapore. The F&B business operates one café in Singapore. +The +Company is presently developing Hapi Marketplace, a business-to-consumer platform featuring diverse product categories, and Hapi Wealth +Builder, an educational program focused on wealth-building strategies. Both initiatives are being rolled out in phases, with digital +content development, partner collaborations, and regional infrastructure setup currently underway. +HWH +International Inc. was originally incorporated in Delaware on October 20, 2021 under the name Alset Capital Acquisition Corp. The Company +was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar +business combination with one or more businesses (the “Business Combination”). The Company consummated the Business Combination +on January 9, 2024 and changed its name from “Alset Capital Acquisition Corp.” to “HWH International Inc.” The +Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early +stage and emerging growth companies. +On +September 9, 2022, the Company entered into an agreement and plan of merger (the “Merger Agreement”) by and among the Company, +HWH International Inc., a Nevada corporation (the “HWH Nevada” or “Target”) and HWH Merger Sub Inc., a Nevada +corporation and a wholly owned subsidiary of the Company (“Merger Sub”). Pursuant to the Merger Agreement, the Business Combination +between the Company and the Target was effected through the merger of Merger Sub with and into HWH Nevada, with the Target surviving +the merger as a wholly owned subsidiary of the Company (the “Merger”). Upon the closing of the Merger (the “Closing”) +on January 9, 2024, the Company changed its name to “HWH International Inc.” The board of directors of the Company (i) approved +and declared advisable the Merger Agreement, the Ancillary Agreements (as defined in the Merger Agreement) and the transactions contemplated +thereby and (ii) resolved to recommend approval of the Merger Agreement and related transactions by the stockholders of the Company. +12 +On +January 6, 2025, the Company announced the closing of its previously disclosed public offering of 632,500 shares of common stock, +par value $0.0001 per share (the “Shares”) (following the 1-for-5 reverse stock split; equivalent to 3,162,500 shares +pre-split) and 250,000 pre-funded warrants (following the 1-for-5 reverse stock split; equivalent to 1,250,000 warrants pre-split) +to purchase shares of common stock (“Pre-Funded Warrants”). The Shares and Pre-Funded Warrants were offered at a public +offering price of $2.00 per share and $1.9995 per Pre-Funded Warrant. The Pre-Funded Warrants were exercisable immediately upon +issuance and have an exercise price of $0.0001 per share. The gross proceeds to the Company from the offering were approximately +$1.76 million, before deducting placement agent fees and other offering expenses. Each of the amounts of warrants and shares and the +prices thereof in the foregoing paragraph are adjusted for a 1-for-5 reverse stock split of the Company’s stock split +effective on February 24, 2025. +On +November 14, 2025, the Company completed a merger pursuant to which the Delaware parent merged with and into its wholly owned Nevada +subsidiary, with the Nevada entity surviving. As a result, HWH International Inc., a Nevada corporation, succeeded to all assets and +liabilities of the former parent and became the publicly traded registrant. The transaction constituted a change in legal domicile only, +with each outstanding share converting on a one-for-one basis, and had no impact on the Company’s consolidated financial position, +results of operations, or cash flows. The Company is the successor issuer under Rule 12g-3 of the Securities Exchange Act of 1934. +Hapi +Marketplace. On November 4, 2024, the Company announced the launch of its business-to-consumer marketplace, Hapi Marketplace. +Hapi Marketplace features a selection of over forty-seven product categories including wellness, elderly care, auto accessories and more. +Launching first in the United States, we intend for Hapi Marketplace to expand in the near future to South Korea and Hong Kong, followed +by further expansion across Asia. +The +various aspects of the Hapi Marketplace will be launched in phases in different regions, each with their own timeline, depending on the +completion of logistical aspects for implementation (i.e., payment gateway systems, business licenses, banking set up, import licenses, +managerial resources, etc.) We are expanding the product range into robotics for consumer and commercial markets. As of December 31, +2025, this project was not launched yet. +Hapi +Cafés, which are, and will be, in-person, location-based social experiences, offer customers the opportunity to build +a sense of community with like-minded customers who share a potential interest in our products. The cafes are designed to operate sustainably +as standalone businesses. The cafes also seek to be an avenue to create awareness to and educate potential and existing customers about +the products and services of HWH, providing us with the chance to significantly increase our customer base as well as increase the amounts +spent by our customers on our affiliates’ products and services. Each of our cafés is a “Hapi Café.” +We opened proof-of-concept Hapi Café locations in Seoul, the Republic of Korea and Singapore in May and July 2022, respectively, +and one more opened in Seoul, the Republic of Korea in May 2024. We plan to open additional Hapi Cafés as we beta test and further +improve our business concept. We intend to grow our customer base as we grow the number of Hapi Cafés around the world. Hapi Cafes +are positioned to be integral parts of HWH’s business model. In June 2024, the Company’s decision to close the café +under Alset F&B (PLQ) Pte. Ltd. (“F&BPLQ”) was driven by the unsustainable revenue it generated. In August 2025 and +September 2025, the Company’s decision to close the café under Ketomei Pte. Ltd. (“KPL”) and Hapi Café +Korea Inc. (“HCKI”), respectively, both were driven by the unsustainable revenue they generated. We believe it is more strategic +to refocus our efforts and resources on other F&B business ventures that have greater growth potential. On September 10, 2025, Alset +F&B Holdings Pte. Ltd., (the “Seller”), a Singapore subsidiary of the Company, entered into a sale and purchase agreement +(the “Sale and Purchase Agreement”) with Alset International Limited (the “Buyer”), pursuant to which the Seller +agreed to sell 70% of the outstanding shares of its subsidiary, Alset F&B One Pte. Ltd. (“Alset F&B One”) to the +Buyer in exchange for S$218,941 Singapore Dollars (equal to approximately $170,754 U.S. Dollars). Alset F&B One was incorporated +in Singapore on April 10, 2017, and operates a cafe in Singapore. It generated approximately $470,000 in revenue in 2024. Following this +sale, the Seller continues to own 20% of Alset F&B One as of December 31, 2025. +13 +Hapi +Wealth Builder seeks to provide participants the opportunity to attend courses, workshops, and coaching sessions in person, fostering +a collaborative learning environment for those dedicated to learning investment in equities and wealth-building strategies. The team +has been diligently producing digital content for Hapi Wealth Builder and working to collaborate with the right partners to launch the +program and make it available to members. Hapi Wealth Builder will leverage the wealth of knowledge and experience of its leaders to +make wealth building accessible and effective for its members. Our unique community-centric approach will offer members tools for making +informed financial decisions while creating pathways for sustained growth. +On +October 31, 2024, we announced that the Company scheduled the launch of Hapi Wealth, a program dedicated to providing comprehensive education +in equity investment and wealth-building strategies. We are targeting a rollout in selected regions later in 2026 as well. +To +further support its mission, Hapi Wealth is opening its China headquarters, designed as a conducive environment for individuals to participate +in tutorials and workshops. The hub will offer participants the opportunity to attend courses, workshops, and coaching sessions in person, +fostering a collaborative learning environment for those dedicated to learning investment in equities and wealth-building strategies. +Our +Revenue Model +Our +total revenue for the years ended December 31, 2025 and 2024 was $866,926 and $1,253,577, respectively. Our net loss for the years ended +December 31, 2025 and 2024 was $2,657,929 and $2,765,767, respectively. +We +currently recognize revenue from food and beverage sales, which accounted for approximately 100% of revenue in the years ended December +31, 2025 and 2024. +From +a geographical perspective, we recognized 8% and 92% of our total revenue in the year ended on December 31, 2025, in South Korea and +Singapore, respectively, and 6% and 94% of our total revenue in the year ended on December 31, 2024, in South Korea and Singapore, respectively. +Matters +that May or Are Currently Affecting Our Business +In +addition to the matters described above, the primary challenges and trends that could affect or are affecting our financial results include: +● +Our ability to improve our revenue through cross-selling and revenue-sharing arrangements among our group of companies; +● +Our ability to identify complementary businesses for acquisition, obtain additional financing for these acquisitions, if and when needed, +and profitably integrate them into our existing operation; +● +Our ability to attract competent and skilled technical and sales personnel for each of our businesses at acceptable compensation levels +to manage our overhead; and +● +Our ability to control our operating expenses as we expand each of our businesses and product and service offerings. +14 +Summary +of Critical Accounting Policies +Basis +of Presentation and Principles of Consolidation +The +Company’s consolidated financial statements and related notes include all the accounts of the Company and its wholly owned subsidiaries. +They have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. +GAAP”). All intercompany transactions have been eliminated in consolidation. +Use +of Estimates and Critical Accounting Estimates and Assumptions +The +preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the +reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements +and the reported amounts of revenues and expenses during the reporting periods. Significant estimates made by management include, but +are not limited to, allowance for credit losses, recoverability and useful lives of property, plant and equipment, the valuation allowance +of deferred taxes, contingencies, and equity compensation. Actual results could differ from those estimates. +Revenue +Recognition and Cost of Revenue +Product +Sales: The Company’s performance obligation is to transfer ownership of its products to its customers. The Company generally +recognizes revenue when a product is delivered to the customer. Revenue is recorded net of applicable taxes, allowances, refund or returns. +The Company receives the net sales price in cash or through credit card payments at the point of sale. +If +any customer returns a product to the Company on a timely basis, they may obtain a replacement product from the Company for such returned +product. Allowances for product returns are provided at the time the sale is recorded. This accrual is based upon historical return rates +for each country and the relevant return pattern, which reflects anticipated returns to be received over a period of up to 12 months +following the original sale. Product returns for the years ended December 31, 2025, and 2024 were approximately $0. +Food +and Beverage: The revenue received from food and beverage business in the years ended December 31, 2025, and 2024 was $866,926 and +$1,253,577, respectively. +Cost +of Revenue: Cost of revenue consists of cost of procuring finished goods from suppliers and related shipping and handling fees. +Results +of Operations +Summary +of Statements of Operations for the Years Ended December 31, 2025 and 2024 +Years Ended +December 31, +2025 +2024 +Revenue +$ 866,926 +$ 1,253,577 +Cost of revenue +407,199 +651,721 +Operating expenses +3,648,405 +3,186,287 +Other (income) / expenses +(578,221 ) +181,336 +Provision for income taxes +47,472 +- +Net loss +$ 2,657,929 +$ 2,765,767 +15 +Revenue +Revenue +was $866,926 and $1,253,577 for the years ended December 31, 2025 and 2024, respectively. Word of mouth, social media presence, and the +availability of meeting spaces are significant drivers of our revenue and revenue potential. Our revenue decreased in 2025 due to the +cessation of operations of cafes located in Singapore and Korea in August and September 2025, respectively. +Cost +of revenue +Cost +of revenue decreased from $651,721 in the year ended December 31, 2024 to $407,199 in the year ended December 31, 2025. The decrease +is a result of the cessation of operations of cafes located in Singapore and Korea in August and September 2025, respectively. +The +gross margin decreased from $601,856 in the year ended December 31, 2024 to $459,727 in the year ended December 31, 2025. The decrease +in gross margin is a result of the cessation of operations of cafes located in Singapore and Korea in August and September 2025, respectively. +Operating +expenses +Operating +expenses increased from $3,186,287 in the year ended December 31, 2024 to $3,648,405 in the year ended December 31, 2025, due to the +increase in general and administrative expenses from $2,805,890 in the year ended December 31, 2024 to $3,531,757 in the year ended December +31, 2025. The increase in general and administrative expenses in 2025 compared to 2024 was primarily due to the cost of a bonus of one +million shares of our common stock issued in 2025. +Other +non-operating (income) expense +Other +non-operating expenses was $181,336 in the year ended December 31, 2024 and non-operating income was $578,221 in the year ended +December 31, 2025. The increase in non-operating income is mainly due to a decrease in unrealized loss on convertible note +receivable and warrants – related party from $379,887 to $146,550 in the years ended December 31, 2024 and 2025, and $383,667 +gain on disposal of subsidiaries in the years ended December 31, 2025. +Net +loss +Net +loss decreased from $2,765,767 to $2,657,929 in the years ended December 31, 2024 and 2025, respectively. +16 +Liquidity +and Capital Resources +Our +cash has decreased from $4,341,746 as of December 31, 2024 to $2,085,918 as of December 31, 2025. Our liabilities decreased from $3,531,523 +at December 31, 2024 to $1,883,133 at December 31, 2025. Our total assets have decreased from $6,408,722 as of December 31, 2024 to $4,567,858 +as of December 31, 2025. +In the year ended December +31, 2025, we incurred a net loss, a loss from operations and negative cash flow from operating cafés during the period. These factors +raise substantial doubt about our ability to continue as a going concern. +The +Company believes that the available cash in the Company’s bank accounts, anticipated cash from operations, and financing availability +from related parties are sufficient to fund our operations for at least the next 12 months. The Company’s capital requirements +for the planned expansion are based on, among other items, geographical specific property costs, team requirements, and marketing steps +needed. Our expansion consists of plans to take over leases of existing Hapi Cafes we currently do not own, as we look to add more Hapi +Cafes over the next two years. There is no guarantee that we will be able to execute on our plans as laid out above. +On +April 24, 2024, the Company entered into a Credit Facility Agreement (the “Agreement”) with Alset Inc., a Texas corporation +and the Company’s indirect, majority stockholder, pursuant to which Alset Inc. has provided the Company a line of credit facility +(the “Credit Facility”) which provides a maximum, aggregate credit line of up to $1,000,000. As of December 31, 2025, there +are no outstanding amounts related to the Credit Facility, as the debt with Alset Inc. was converted to equity on September 24, 2024. +The remaining credit of $700,000 is available for draw as on December 31, 2025. +Pursuant +to the Agreement, the Company may request an advance (each, an “Advance”) on the Credit Facility. Each advance shall bear +a simple interest rate of three percent (3%) per annum. Each Advance and all accrued but unpaid interest shall be due and payable at +the first (1st) anniversary of the effective date of the Agreement. HWH may at any time during the term of the Agreement prepay a portion +or all amounts of its indebtedness without penalty. Each Advance shall not be secured by a lien or other encumbrance on any HWH assets, +but shall be solely a general unsecured debt obligation of the Company. +The +accompanying financial statements have been prepared assuming the Company will continue as a going concern and do not contain any adjustments +that might be required should the Company be unable to continue as a going concern. +The +Company has obtained letters of financial support from Alset Inc., an indirect owner of the Company. Alset Inc. committed to provide +any additional funding required by the Company and would not demand repayment through twelve months from the issuance of these consolidated +financial statements. +Summary +of Cash Flows for the Years Ended December 31, 2025 and 2024 +Years +Ended December 31, +2025 +2024 +Net +cash used in operating activities +$ +(1,750,290 +) +$ +(1,819,262 +) +Net +cash (used in) / provided by investing activities +$ +(1,188,686 +) +$ +20,452,029 +Net +cash provided by / (used in) financing activities +$ +934,714 +$ +(15,597,681 +) +Cash +Flows from Operating Activities +Net +cash used in operating activities was $1,750,290 in the year ended of December 31, 2025, as compared to net cash used in operating activities +of $1,819,262 in the same period of 2024. The decrease of cash used in operating activities in the year ended December 31, 2025 was due +to gain on disposal of subsidiary of $383,667 generated during disposal of HWH World Inc, and $292,890 in foreign exchange transaction +gain. +Cash +Flows from Investing Activities +Net +cash used in investing activities was $1,188,686 in the year of December 31, 2025, as compared to net cash provided by investing activities +of $20,452,029 in the same period of 2024. In the year ended December 31, 2025 we paid $780,000 for convertible note receivable – +related party, $280,000 paid for the loans to related party, and $85,872 for purchase of marketable securities. In the +year ended December 31, 2024 we paid $30,394 for purchases of property and equipment, $850,000 for convertible note receivable – +related party, $14,345 for investment in joint venture, $21,102,871 cash was withdrawn from Trust Account for redemptions and $243,897 +cash withdrawn from Trust Account was available to the Company. +Cash +Flows from Financing Activities +Net +cash provided by financing activities was $934,714 in the year ended December 31, 2025, compared to net cash used in financing activities +of $15,597,681 in the same period of 2024. In the year ended December 31, 2025 we received $1,409,983 from issuance of common stock and +warrants and repaid $477,643 of note payable. In the year ended December 31, 2024 we received $2,330,252 from a related party, and repaid +$21,102,872 of class A common stock. +17 +Nasdaq +Compliance +On +March 7, 2024, we received notice from Nasdaq Stock Market, LLC (“Nasdaq”) indicating that, because the market value of our +common stock had been below $50,000,000 for the prior 37 consecutive business days, we no longer complied with the minimum market value +of listed securities (the “MVLS”) requirement for continued listing on the Nasdaq Global Market under Rule 5450(b)(2)(A) +of Nasdaq Listing Rules. +Nasdaq’s +notice had no immediate effect on the listing of our common stock on the Nasdaq Global Market. Pursuant to Nasdaq Marketplace Rule 5810(c)(3)(C), +we had been provided an initial compliance period of 180 calendar days, or until September 3, 2024, to regain compliance with the MVLS +requirement. To regain compliance, the Company’s MVLS was required to be at least $50,000,000 or more for a minimum of ten consecutive +business days prior to September 3, 2024. In that regard, on September 9, 2024, the Company received a notice from the Staff that the +matter of the MVLS deficiency was to be considered at the Company’s upcoming appeal with the Nasdaq Hearings Panel. +On +February 22, 2024, the Nasdaq Staff (the “Staff”) notified the Company that for the previous 30 consecutive trading days, +the market value of its publicly held shares had been below the minimum $15,000,000 required for continued listing as set forth in Listing +Rule 5450(b)(2)(C) (the “Rule”). Therefore, in accordance with Marketplace Rule 5810(c)(3)(D), the Company was provided 180 +calendar days, or until August 20, 2024, to regain compliance with the Rule. In that regard, on August 27, 2024, the Company received +a notice from the Staff that the Company will be delisted from the Nasdaq Global Market, unless the Company requested an appeal of this +determination by September 3, 2024. +The +Company presented its compliance plan to the Panel at a hearing on October 15, 2024. On October 21, 2024, the Company received a notice +from the Panel granting the Company an extension to phase down its securities to the Nasdaq Capital Market and demonstrate compliance +with the market value of its publicly held shares and Stockholders’ Equity requirements as set forth in Nasdaq Listing Rules 5550(a)(5) +and 5550(b)(1). +On +September 4, 2024, the Company received written notice (the “Notice”) from the Listing Qualifications Staff of Nasdaq notifying +the Company that for the prior 30 consecutive business days prior to the date of the Notice, the Company’s bid price was below +the minimum $1 required for continued listing on the Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(a)(1) (the “Bid +Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), Nasdaq provided the Company with 180 calendar days, +or until March 3, 2025, (the “Compliance Date”), to regain compliance with the Bid Price Requirement. +On +February 18, 2025, the Company filed a Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation +with the Delaware Secretary of State to effect a 1-for-5 reverse stock split (the “Reverse Stock Split”). The Reverse Stock +Split became effective as of market open on February 24, 2025. +On +March 10, 2025, the Company received written notice (the “Compliance Notice”) from Nasdaq informing the Company that it has +regained compliance with Nasdaq Listing Rule 5550(a)(2), which requires that companies listed on the Nasdaq Capital Market maintain a +minimum bid price of $1.00 per share. Nasdaq notified the Company in the Compliance Notice that, from February 24, 2025 to March 7, 2025, +the closing bid price of the Company’s common stock had been $1.00 per share or greater and, accordingly, the Company had regained +compliance with Nasdaq Listing Rule 5550(a)(2) and that the matter was now closed. The Company remains listed on the Nasdaq Capital +Market. +Contractual +Obligations +As +of December 31, 2025, we did not have any long-term debt obligations, capital lease obligations, operating lease obligations, purchase +obligations or long-term liabilities. +Underwriting +Agreement +On +February 3, 2022, the Company paid a cash underwriting discount of $0.20 per Unit, or $1,725,000. +18 +In +addition, the underwriters, D. Boral Capital, LLC (“D. Boral Capital”) (formerly known as EF Hutton, LLC), were +entitled to a deferred fee of $0.35 per Unit, or $3,018,750 in the aggregate, however, on December 18, 2023, the Company entered +into a Satisfaction and Discharge of Indebtedness Agreement in connection with the Underwriting Agreement, under which in lieu of +the Company tendering the full amount, the underwriters accepted a combination of $325,000 in cash paid upon the closing of the +Business Combination, 149,443 shares of the Company’s common stock and a $1,184,375 promissory note as full satisfaction. This +agreement was effective at the closing of Business Combination on January 9, 2024. Additionally, the Company has granted D. Boral Capital +an irrevocable right of first refusal (the “ROFR”) to act as the sole investment banker, sole book-runner, and/or sole +placement agent, at D. Boral Capital’s sole discretion, for each and every future public and private equity and debt offering, +including all equity linked financing for a period commencing on the date of the satisfaction and ending twenty-four (24) months +after the closing of the Business Combination. +Merger +Agreement +As +previously disclosed, on August 1, 2023, the Company held the Special Meeting, at which the Company’s stockholders considered and +adopted, among other matters, a proposal to approve the Business Combination. +On +September 9, 2022, the Company entered into an agreement and plan of merger (the “Merger Agreement”) by and among the Company, +HWH International Inc., a Nevada corporation (the “HWH Nevada” or “Target”) and HWH Merger Sub Inc., a Nevada +corporation and a wholly owned subsidiary of the Company (the “Merger Sub”). Pursuant to the Merger Agreement, the Business +Combination between the Company and the Target was effected through the merger of the Merger Sub with and into HWH Nevada, with the Target +surviving the merger as a wholly owned subsidiary of the Company (the “Merger”). Upon the closing of the Merger (the “Closing”) +on January 9, 2024, the Company changed its name to “HWH International Inc.” +The +transaction has closed, as all closing conditions referenced in the Merger Agreement have either been met or waived by the parties. Certain +closing conditions that have been waived by the parties, pursuant to the Merger Agreement include Section 8.1(i), which states “the +aggregate cash available to the Company at the Closing from the Trust Account (after giving effect to the redemption of any shares of +the Company’s Class A Common Stock in connection with the Company’s Proposals, but before giving effect to (i) the payment +of the Outstanding Alset Transaction Expenses, and (ii) the payment of the Outstanding Company Transaction Expenses), shall equal or +exceed Thirty Million dollars ($30,000,000); and 8.1(j), which states “upon the closing, the Company shall not have redeemed shares +of the Company’s Class A Common Stock in the Offer in an amount that would cause the Company to have less than $5,000,001 of net +tangible assets (as determined in accordance with Rule 3a51-1(g)(1) under the Exchange Act).” +Impact +of Inflation +We +believe that inflation has not had a material impact on our results of operations for the years ended December 31, 2025 or December 31, +2024. We cannot assure you that future inflation will not have an adverse impact on our operating results and financial condition. +Impact +of Foreign Exchange Rates +The +effects of foreign exchange rate changes on the intercompany loans (under ASC 830), which mostly consist of loans from Singapore to South +Korea and which were approximately $0.7 million and $0.9 million on December 31, 2025 and December 31, 2024, respectively, are the reason +for the fluctuation in foreign currency transaction gains or losses which are included in the Consolidated Statements of Operations and +Other Comprehensive Income. Because the intercompany loan balances between Singapore and South Korea will remain at approximately $1 +million over the next year, we expect this fluctuation of foreign exchange rates to still impact the results of operations in 2026, especially +given that the foreign exchange rate may and is expected to be volatile. If the amount of intercompany loan is lowered in the future, +the effect will also be reduced. However, at this moment, we do not expect to repay the intercompany loans in the short term. +19 +Emerging +Growth Company Status +We +are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various +reporting requirements that are applicable to other public companies that are not emerging growth companies. Section 107 of the JOBS +Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the +Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption +of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of +these exemptions until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of this exemption. +Controls +and Procedures +We +are not currently required to maintain an effective system of internal controls as defined by Section 404 of the Sarbanes-Oxley Act. +Only in the event that we are deemed to be a large accelerated filer or an accelerated filer would we be required to comply with the +independent registered public accounting firm attestation requirement. Further, for as long as we remain an emerging growth company as +defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to +other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent +registered public accounting firm attestation requirement. +Management +is responsible for the preparation and fair presentation of the financial statements included in this prospectus. The financial statements +have been prepared in conformity with accounting principles generally accepted in the United States of America and reflect management’s +judgment and estimates concerning effects of events and transactions that are accounted for or disclosed. +Management +is also responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial +reporting includes those policies and procedures that pertain to our ability to record, process, summarize and report reliable data. +Management recognizes that there are inherent limitations in the effectiveness of any internal control over financial reporting, including +the possibility of human error and the circumvention or overriding of internal control. Accordingly, even effective internal control +over financial reporting can provide only reasonable assurance with respect to financial statement presentation. Further, because of +changes in conditions, the effectiveness of internal control over financial reporting may vary over time. +In +order to ensure that our internal control over financial reporting is effective, management regularly assesses controls and did so most +recently for its financial reporting as of December 31, 2025. This assessment was based on criteria for effective internal control over +financial reporting described in the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) +of the Treadway Commission. In connection with management’s evaluation of the effectiveness of our Company’s internal control +over financial reporting as of December 31, 2025, management determined that the following issues constitute as material weakness: +● +The +Company has limited accounting personnel, and as such, is unable to properly segregate duties relating to the Company’s internal +controls over financial reporting. +● +Well-defined +accounting policies and procedures have not been established and many financial close procedures, including period-end review and +reconciliations, did not occur on a timely basis or failed to identify material adjustments. +This +prospectus does not include an attestation report of our registered public accounting firm regarding internal control over financial +reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules +of the SEC that permit us to provide only management’s report in this prospectus. +Item +7A. Quantitative and Qualitative Disclosures About Market Risk +We +are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise +required under this item. +20 +Item +8. Financial Statements and Supplementary Data +HWH +INTERNATIONAL INC. +CONSOLIDATED +FINANCIAL STATEMENTS +December +31, 2025 and 2024 +Contents +Page(s) +Report of Independent Registered Public Accounting Firm (PCAOB ID: 7000 ) +F-1 +Report of Independent Registered Public Accounting Firm (PCAOB ID: 606 ) +F-2 +Consolidated Balance Sheets as of December 31, 2025 and 2024 +F-3 +Consolidated Statements of Operations and Other Comprehensive Loss for the Years Ended December 31, 2025 and 2024 +F-4 +Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2025 and 2024 +F-5 +Consolidated Statements of Cash Flows for the Years Ended December 31, 2025 and 2024 +F-6 +Notes to the Consolidated Financial Statements +F-7 +21 +REPORT +OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To +the Board of Directors and Stockholders of +HWH +International Inc. and Subsidiaries +Opinion +on the Consolidated Financial Statements +We +have audited the accompanying consolidated balance sheet of HWH International Inc. and its subsidiaries (collectively, the “Company”) +as of December 31, 2025, and the related consolidated statement of operations and other comprehensive loss, consolidated statement of +changes in stockholders’ equity, and consolidated statement of cash flows for the year ended December 31, 2025, including the related +notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements +present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and the results of its operations +and its cash flows for the year ended December 31, 2025, in conformity with accounting principles generally accepted in the United States +of America. +Basis +for Opinion +These +consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion +on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public +Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance +with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We +conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain +reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. +The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part +of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing +an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our +audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due +to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence +regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles +used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. +We believe that our audit provides a reasonable basis for our opinion. +Emphasis +of Matter +The +Company has significant transactions with related parties which are described in Notes 7, 8 and 9 of the consolidated financial statements. +Transactions involving related parties cannot be presumed to be carried out on an arm’s length basis, as the requisite condition +of competitive, free market dealings may not exist. +/s/ HTL International, LLC +We have served as the Company’s auditor since 2025 +Houston, Texas +March 25, 2026 +F- 1 +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING +FIRM +To the Board of Directors and Stockholders of +HWH International Inc. and Subsidiaries +Bethesda, Maryland +Opinion on the Consolidated Financial Statements +We have audited the accompanying consolidated balance +sheet of HWH International Inc. and Subsidiaries (the “Company”) as of December 31, 2024, and the related consolidated statements +of operations and comprehensive loss, changes in stockholders’ equity(deficit), and cash flows for the year then ended, and the +related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements +present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations +and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. +Basis for Opinion +These consolidated financial statements are the responsibility +of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements +based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) +and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable +rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards +of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated +financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we +engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding +of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s +internal control over financial reporting. Accordingly, we express no such opinion. +Our audit included performing procedures to assess +the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures +that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the +consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by +management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides +a reasonable basis for our opinion. +Emphasis of Matter +The Company has significant transactions with related +parties which are described in Notes 7, 8, 9, 10, and 17 of the consolidated financial statements. Transactions involving related parties +cannot be presumed to be carried out on an arm’s length basis, as the requisite condition of competitive, free market dealings may +not exist. +GRASSI & CO., CPAs, P.C. +We served as the Company’s auditor from 2022 to 2025. +Glastonbury, Connecticut +March 31, 2025, except for Note 17, as to which the +date is February 5, 2026 +F- 2 +HWH +INTERNATIONAL INC. +CONSOLIDATED +BALANCE SHEETS +December 31, 2025 +December 31, 2024 +ASSETS +Current Assets +Cash +$ 2,085,918 +$ 4,341,746 +Account receivable, net +3,324 +17,546 +Inventory +1,057 +1,574 +Other receivables, net +614,577 +342,712 +Deposit - current +21,205 +- +Convertible loans receivable - related party, at fair value +160,941 +744,652 +Investment security – related party +- +13,272 +Marketable securities +84,466 +- +Prepaid expenses +549 +13,495 +Total Current Assets +$ 2,972,037 +$ 5,474,997 +Non-Current Assets +Property and equipment, net +$ 19,153 +$ 33,588 +Deposit – non-current +104,209 +351,240 +Investment in associate - related party +60,708 +- +Investment in associate +60,708 +- +Investment at cost +1,531 +140 +Convertible loans receivable - related party, at fair value +1,317,478 +- +Other non-current asset +87 +- +Operating lease right-of-use assets, net +92,655 +548,757 +Total Non-Current Assets +$ 1,595,821 +$ 933,725 +TOTAL ASSETS +$ 4,567,858 +$ 6,408,722 +LIABILITIES AND STOCKHOLDERS’ DEFICIT +Current Liabilities +Accounts payable and accrued expenses +$ 305,028 +$ 483,430 +Accrued commissions +- +73,022 +Due to related parties, net +613,140 +1,191,960 +Operating lease liabilities - current +84,122 +340,651 +Brokerage margin loans +17,461 +- +Notes payable - current +259,290 +1,222,211 +Total Current Liabilities +$ 1,279,041 +$ 3,311,274 +Non-Current Liabilities +Operating lease liabilities - non-current +$ 11,785 +$ 220,249 +Accrued Interest for promissory note – non-current +118,557 +- +Notes payable - non-current +473,750 +- +Total Non-Current Liabilities +$ 604,092 +$ 220,249 +Commitments and Contingencies (Note 15) +- +- +Stockholders’ Equity +Preferred stock, $ 0.0001 par value; 50,000,000 shares authorized**; none issued and outstanding as of December 31, 2025 and 2024 +- +- +Common stock, $ 0.0001 +par value; 450,000,000 shares authorized**; +7,476,400 and 5,593,920 +issued and outstanding as of December 31, 2025 and 2024, respectively * +747 +559 +Additional paid in capital +12,470,373 +9,339,413 +Accumulated other comprehensive loss +( 904,609 ) +( 257,598 ) +Accumulated deficit +( 8,947,630 ) +( 6,317,010 ) +Total HWH International Inc. Stockholders’ equity +$ 2,618,881 +$ 2,765,364 +Non-controlling interests +65,844 +111,835 +Total Stockholders’ Equity +2,684,725 +2,877,199 +TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY +$ 4,567,858 +$ 6,408,722 +* +The +common stock share amounts were adjusted retrospectively to reflect the 1-for-5 reverse stock split on February 24, 2025 +** +The +authorized common stock and preferred stock were increased on November 14, 2025 Authorized common stock increased from 50,000,000 shares +to 450,000,000 shares / Authorized preferred stock increased from 1,000,000 shares to 50,000,000 shares +The +accompanying notes are an integral part of these consolidated financial statements. +F- 3 +HWH +INTERNATIONAL INC. +CONSOLIDATED +STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS +Year Ended +December 31, 2025 +Year Ended +December 31, 2024 +Food & Beverage Revenue +$ 866,926 +$ 1,253,577 +Cost of revenue +$ ( 407,199 ) +$ ( 651,721 ) +Gross profit +$ 459,727 +$ 601,856 +Operating expenses: +General and administrative expenses +$ ( 3,531,757 ) +$ ( 2,805,890 ) +Impairment of convertible note receivable – related party, and equity method investment - related party +- +( 42,328 ) +Impairment loss on goodwill +( 116,648 ) +( 323,864 ) +Impairment of investment in Joint Venture +- +( 14,205 ) +Total Operating expenses +$ ( 3,648,405 ) +$ ( 3,186,287 ) +Other non-operating income (expense) +Other income +$ 121,477 +$ 345,997 +Interest expense +( 52,242 ) +( 72,076 ) +Foreign exchange transaction gain (loss) +292,890 +( 55,221 ) +Loss on disposal of marketable securities +( 4,424 ) +- +Unrealized loss on marketable securities +( 737 ) +- +Gain on disposal of subsidiaries +383,667 +- +Loss from deconsolidation of subsidiaries +( 21,611 ) +- +Gain on equity method investment - related party +5,751 +- +Loss on equity method investment - related party +- +( 20,149 ) +Unrealized loss on convertible note receivable and warrants – related +party +( 146,550 ) +( 379,887 ) +Total Other non-operating income (expense) +$ 578,221 +$ ( 181,336 ) +Loss before provision for income taxes +( 2,610,457 ) +( 2,765,767 ) +Income taxes +( 47,472 ) +- +Net loss +$ ( 2,657,929 ) +$ ( 2,765,767 ) +Less: Net loss attributable to non-controlling Interests +( 27,309 ) +( 15,773 ) +Net loss attributable to common stockholders +$ ( 2,630,620 ) +$ ( 2,749,994 ) +Net Loss +( 2,657,929 ) +( 2,765,767 ) +Other comprehensive loss, net of tax: +Foreign currency translation adjustment +$ ( 647,372 ) +$ ( 60,635 ) +Total comprehensive loss, net of tax: +$ ( 3,305,301 ) +$ ( 2,826,402 ) +Less Comprehensive loss attributable to non-controlling interests +( 27,670 ) +( 15,861 ) +Total Comprehensive loss attributable to common stockholders +$ ( 3,277,631 ) +$ ( 2,810,541 ) +Year +Ended +December +31, 2025 +Year +Ended +December +31, 2024 +Common +stock +Common +stock +Loss +per common share +Basic +$ +( 0.40 +) +$ +( 0.76 +) +Diluted +$ +( 0.40 +) +$ +( 0.76 +) +Weighted +average number of common shares outstanding* +Basic +* +6,560,204 +3,606,621 +Diluted +* +6,560,204 +3,606,621 +* +The +numbers of weighted average outstanding common stock - basic and diluted were adjusted retrospectively to reflect the 1-for-5 reverse stock split on February 24, 2025 +The +accompanying notes are an integral part of these consolidated financial statements. +F- 4 +HWH +INTERNATIONAL INC. +CONSOLIDATED +STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) +FOR +THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +Shares +Par +Value +$0.0001 +Shares +Par +Value +$0.0001 +Shares +Par +Value +$0.0001 +Additional +Paid in +Capital +Accumulated +Other +Comprehensive +Loss +Accumulated +Deficit +International Inc. +Stockholders’ +(Deficit) +Equity +Non- +controlling +interests +Total +Stockholders’ +(Deficit) +Equity +Class A +Common stock +Class B +Common stock +Common Stock +Total +HWH +Shares +Par +Value +$0.0001 +Shares +Par +Value +$0.0001 +Shares* +Par +Value +$0.0001 +Additional +Paid in +Capital +Accumulated +Other +Comprehensive +Loss +Accumulated +Deficit +International Inc. +Stockholders’ +(Deficit) +Equity +Non- +controlling +interests +Total +Stockholders’ +(Deficit) +Equity +Balances at December 31, 2023 +94,750 +$ 9 +431,250 +$ 43 +2,000 +$ - +$ 155,984 +$ ( 197,051 ) +$ ( 3,567,016 ) +$ ( 3,608,031 ) +$ 8,666 +$ ( 3,599,365 ) +Issuance of Common Stock to D. Boral for Deferred Underwriting Compensation +- +- +- +- +29,889 +$ 3 +$ 1,509,387 +- +- +$ 1,509,390 +- +$ 1,509,390 +Issuance of Common Stock during Merger +- +- +- +- +2,686,772 +$ 269 +$ ( 294 ) +- +- +$ ( 25 ) +- +$ ( 25 ) +Issuance of Common Stock to AI +- +- +- +- +1,142,352 +$ 114 +$ 3,584,886 +- +- +$ 3,585,000 +- +$ 3,585,000 +Convert Common Stock Class A and B to Common Stock +( 94,750 ) +$ ( 9 ) +( 431,250 ) +$ ( 43 ) +526,000 +$ 52 +- +- +- +- +- +- +Revaluation for SHRG note receivable and warrants +- +- +- +- +- +- +$ 287,812 +- +- +$ 287,812 +$ +$ 287,812 +Change in Non-Controlling Interest Ketomei +- +- +- +- +- +- +- +- +- +- +$ 119,030 +$ 119,030 +AI and AIL Debt conversion to shares +- +- +- +- +1,206,907 +121 +$ 3,801,638 +- +- +$ 3,801,759 +- +$ 3,801,759 +Net loss +- +- +- +- +- +- +- +- +$ ( 2,749,994 ) +$ ( 2,749,994 ) +$ ( 15,773 ) +$ ( 2,765,767 ) +Foreign currency translation adjustment +- +- +- +- +- +- +- +$ ( 60,547 ) +- +$ ( 60,547 ) +$ ( 88 ) +$ ( 60,635 ) +Balances at December 31, 2024 +- +- +- +- +5,593,920 +$ 559 +$ 9,339,413 +$ ( 257,598 ) +$ ( 6,317,010 ) +$ 2,765,364 +$ 111,835 +$ 2,877,199 +Balance +- +- +- +- +5,593,920 +$ 559 +$ 9,339,413 +$ ( 257,598 ) +$ ( 6,317,010 ) +$ 2,765,364 +$ 111,835 +$ 2,877,199 +Issuance of Common Stock +- +- +- +- +632,480 +$ 63 +$ 1,409,795 +- +- +$ 1,409,858 +- +$ 1,409,858 +Issuance of Common Stock for incentive plan 2025 +- +- +- +- +1,000,000 +$ 100 +$ 1,579,900 +- +- +$ 1,580,000 +$ 1,580,000 +Warrants exercised to Common Stock +- +- +- +- +250,000 +$ 25 +$ 100 ) +- +- +$ 125 +- +$ 125 +Revaluation for SHRG note receivable and warrants +- +- +- +- +- +- +$ 87,131 +- +- +$ 87,131 +- +$ 87,131 +Acquisition of LEH Insurance Group LLC +- +- +- +- +- +- +- +- +- +- +$ ( 1,715 ) +$ ( 1,715 ) +Elimination of NCI’s share of deficit due to purchase of remaining shares of LEH +- +- +- +- +- +- +- +- +- +- +$ 6,151 +$ 6,151 +Deconsolidation of Alset F&B One Pte. Ltd +- +- +- +- +- +- +$ 54,024 +- +- +$ 54,024 +$ ( 23,349 ) +$ 30,675 +Reclassification of NCI +- +- +- +- +- +- +- +- +- +- +$ 592 +$ 592 +Reincorporation merger +- +- +- +- +- +- +$ 10 +- +- +$ 10 +- +$ 10 +Net loss +- +- +- +- +- +- +- +- +$ ( 2,630,620 ) +$ ( 2,630,620 ) +$ ( 27,309 ) +$ ( 2,657,929 ) +Net (income) loss +- +- +- +- +- +- +- +- +$ ( 2,630,620 ) +$ ( 2,630,620 ) +$ ( 27,309 ) +$ ( 2,657,929 ) +Foreign currency translation adjustment +- +- +- +- +- +- +- +$ ( 647,011 ) +- +$ ( 647,011 ) +$ ( 361 ) +$ ( 647,372 ) +Balances at December 31, 2025 +- +- +- +- +7,476,400 +$ 747 +$ 12,470,373 +$ ( 904,609 ) +$ ( 8,947,630 ) +$ 2,618,881 +$ 65,844 +$ 2,684,725 +Balance +- +- +- +- +7,476,400 +$ 747 +$ 12,470,373 +$ ( 904,609 ) +$ ( 8,947,630 ) +$ 2,618,881 +$ 65,844 +$ 2,684,725 +* +The common stock share amounts were adjusted retrospectively to reflect the 1-for-5 reverse stock split on February 24, 2025 +The +accompanying notes are an integral part of these consolidated financial statements. +F- 5 +HWH +INTERNATIONAL INC. +CONSOLIDATED STATEMENTS OF CASH FLOWS +Year +Ended +December +31, 2025 +Year +Ended +December +31, 2024 +Cash +flows from operating activities: +Net +loss +$ +( 2,657,929 +) +$ +( 2,765,767 +) +Adjustments +to reconcile net loss to net cash used in operating activities: +Foreign +exchange transaction (gain) loss +( 292,890 +) +55,221 +Loss +on equity method investment - related party +- +20,149 +Gain +on disposal of subsidiaries +( 383,667 +) +- +Loss +on disposal of subsidiaries +21,611 +- +Depreciation +expense +19,646 +48,172 +Non-cash +lease expense +253,781 +490,122 +Impairment +of convertible note receivable – related party, and equity method investment - related party +- +42,328 +Share +of result of an associate +( 5,751 +) +- +Impairment +loss on goodwill +116,648 +323,864 +Impairment +of investment in Joint Venture +- +14,205 +Unrealized +loss on convertible note receivable and warrants – related party +146,550 +379,887 +Fair +value loss on marketable securities +737 +- +Loss +on disposal of marketable securities +4,424 +- +Loss +on disposal of equipment +- +5,878 +Impairment +loss on equipment +17,686 +69,293 +Bad +debt written off +158,036 +11,177 +Executive +performance share expense +1,580,000 +- +Changes +in operating assets and liabilities: +Account +receivables +14,080 +5,384 +Receivable +from related party +( 445,470 +) +- +Other +receivables +( 129,861 +) +( 299,525 +) +Prepaid +expenses +12,862 +90,398 +Deposit +218,604 +( 71,147 +) +Inventory +412 +336 +Accounts +payable and accrued expenses +( 141,809 +) +228,644 +Accrued +commissions +- +( 1,904 +) +Operating +lease liabilities +( 257,990 +) +( 465,977 +) +Net +cash used in operating activities +$ +( 1,750,290 +) +$ +( 1,819,262 +) +Cash +flows from investing activities: +Purchases +of property and equipment +$ +( 19,464 +) +$ +( 30,394 +) +Convertible +loans receivable - related party +( 780,000 +) +( 850,000 +) +Investment +at cost +- +( 14,345 +) +Purchase +of marketable securities +( 85,872 +) +- +Cash +withdrawn from trust account for redemptions +- +21,102,871 +Cash +withdrawn from trust account available to the Company +- +243,897 +Deconsolidation +of Alset F&B One Pte. Ltd. +( 23,350 +) +- +Loans +to related party +( 280,000 +) +- +Net +cash (used in) / provided by investing activities +$ +( 1,188,686 +) +$ +20,452,029 +Cash +flows from financing activities: +Repayment +of loans and borrowing +$ +( 13,709 +) +$ +( 85,061 +) +Repayment +of deferred underwriting compensation +- +( 325,000 +) +Advances +from related parties +- +2,330,252 +Proceed from brokerage margin and loans +16,083 +- +Proceed +from issuance of Common Stock and Warrants +1,409,983 +3,585,000 +Repayment +of Class A Common Stock +- +( 21,102,872 +) +Repayment +of note payable +( 477,643 +) +- +Net +cash provided by / (used in) financing activities +$ +934,714 +$ +( 15,597,681 +) +Net +(decrease) increase in cash +$ +( 2,004,262 +) +$ +3,035,086 +Effects +of foreign exchange rate on cash +( 251,566 +) +147,459 +Cash +at beginning of year +4,341,746 +1,159,201 +Cash +at end of year +$ +2,085,918 +$ +4,341,746 +Supplemental +Cash Flow Information +Cash +Paid for Interest +$ +4,655 +$ +616 +Cash +Paid for Taxes +$ +47,472 +$ +- +Supplemental +disclosure of non-cash investing and financing activities +Issuance +of HWH Common Stock to D. Boral Capital (f.k.a. EF Hutton) for Deferred Underwriting Compensation +$ +- +$ +1,509,375 +Issuance +of Common Stock for incentive plan 2025 +$ +1,580,000 +$ +- +Settlement +of deferred underwriting compensation payable with promissory note +$ +- +$ +1,184,375 +Debt +to equity conversion +$ +- +$ +3,801,759 +Valuation +gain from notes receivable and warrants - SHRG +$ +87,131 +$ +287,812 +Initial +recognition of operating lease right-of-use asset and liability +$ +- +$ +519,353 +The +accompanying notes are an integral part of these consolidated financial statements. +F- 6 +HWH +INTERNATIONAL INC. +Notes +to the CONSOLIDATED financial statements +FOR +THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +NOTE +1 — DESCRIPTION OF ORGANIZATION, BUSINESS OPERATIONS AND LIQUIDITY +HWH +International Inc. (“HWH”) and its consolidated subsidiaries (collectively, the “Company”) operate a food and +beverage (“F&B”) business in Singapore. The F&B business operates one café in Singapore. +The +Company is presently developing Hapi Marketplace, a business-to-consumer platform featuring diverse product categories, and Hapi Wealth +Builder, an educational program focused on wealth-building strategies. Both initiatives are being rolled out in phases, with digital +content development, partner collaborations, and regional infrastructure setup currently underway. +HWH +International Inc. was originally incorporated in Delaware on October 20, 2021 under the name Alset Capital Acquisition Corp. The Company +was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar +business combination with one or more businesses (the “Business Combination”). The Company consummated the Business Combination +on January 9, 2024 and changed its name from “Alset Capital Acquisition Corp.” to “HWH International Inc.” The +Company is an early stage and smaller reporting company and, as such, the Company is subject to all of the risks associated with early +stage and smaller reporting companies. +On +September 9, 2022, the Company entered into an agreement and plan of merger (the “Merger Agreement”) by and among the Company, +HWH International Inc., a Nevada corporation (the “HWH Nevada” or “Target”) and HWH Merger Sub Inc., a Nevada +corporation and a wholly owned subsidiary of the Company (“Merger Sub”). Pursuant to the Merger Agreement, the Business Combination +between the Company and the Target was effected through the merger of Merger Sub with and into HWH Nevada, with the Target surviving +the merger as a wholly owned subsidiary of the Company (the “Merger”). Upon the closing of the Merger (the “Closing”) +on January 9, 2024, the Company changed its name to “HWH International Inc.” The board of directors of the Company (i) approved +and declared advisable the Merger Agreement, the Ancillary Agreements (as defined in the Merger Agreement) and the transactions contemplated +thereby and (ii) resolved to recommend approval of the Merger Agreement and related transactions by the stockholders of the Company. +On +January 6, 2025, the Company announced the closing of its previously disclosed public offering of 632,500 +shares of common stock, par value $ 0.0001 +per share (the “Shares”) (following the 1-for-5 reverse stock split; equivalent to 3,162,500 shares pre-split) and 250,000 +pre-funded warrants (following the 1-for-5 reverse stock split; equivalent to 1,250,000 warrants pre-split) to purchase shares of +common stock (“Pre-Funded Warrants”). The Shares and Pre-Funded Warrants were offered at a public offering price of +$ 2.00 +per share and $ 1.9995 +per Pre-Funded Warrant. The Pre-Funded Warrants are exercisable immediately upon issuance and have an exercise price of $ 0.0001 +per share. The gross proceeds to the Company from the offering were approximately $ 1.76 +million, before deducting placement agent fees and other offering expenses. Each of the amounts of warrants and shares and the +prices thereof in the foregoing paragraph are adjusted for a 1-for-5 reverse stock split of the Company’s stock split +effective on February 24, 2025. +D. +Boral Capital, LLC (“D. Boral Capital”) acted as the exclusive placement agent for the offering. Pursuant to the Placement +Agency Agreement, the Company paid D. Boral Capital a cash fee equal to 7.5 % of the gross proceeds from the offering, a non-accountable +expense allowance equal to 1.0 % of the gross proceeds, and reimbursement for legal and out-of-pocket expenses up to $ 75,000 . +On +November 14, 2025, the Company completed a merger pursuant to which the Delaware parent merged with and into its wholly owned Nevada +subsidiary, with the Nevada entity surviving. As a result, HWH International Inc., a Nevada corporation, succeeded to all assets and +liabilities of the former parent and became the publicly traded registrant. The transaction constituted a change in legal domicile only, +with each outstanding share converting on a one-for-one basis, and had no impact on the Company’s consolidated financial position, +results of operations, or cash flows. The Company is the successor issuer under Rule 12g-3 of the Securities Exchange Act of 1934. +Hapi +Marketplace. On November 4, 2024, the Company announced the launch of its business-to-consumer marketplace, Hapi Marketplace. +Hapi Marketplace features a selection of over forty-seven product categories including wellness, elderly care, auto accessories and more. +Launching first in the United States, we intend for Hapi Marketplace to expand in the near future to South Korea and Hong Kong, followed +by further expansion across Asia. +F- 7 +The +various aspects of the Hapi Marketplace will be launched in phases in different regions, each with their own timeline, depending on the +completion of logistical aspects for implementation (i.e., payment gateway systems, business licenses, banking set up, import licenses, +managerial resources, etc.). We are expanding the product range into robotics for consumer and commercial markets. As of December 31, +2025, this project was not launched yet. +Hapi +Cafés, which are, and will be, in-person, location-based social experiences, offer customers the opportunity to build +a sense of community with like-minded customers who share a potential interest in our products. The cafes are designed to operate sustainably +as standalone businesses. The cafes also seek to be an avenue to create awareness to and educate potential and existing customers about +the products and services of HWH, providing us with the chance to significantly increase our customer base as well as increase the amounts +spent by our customers on our affiliates’ products and services. Each of our cafés is a “Hapi Café.” +We opened proof-of-concept Hapi Café locations in Seoul, the Republic of Korea and Singapore in May and July 2022, respectively, +one more opened in Seoul, the Republic of Korea in May 2024. We plan to open additional Hapi Cafés as we beta test and further +improve our business concept. We intend to grow our customer base as we grow the number of Hapi Cafés around the world. Hapi Cafes +are positioned to be integral parts of HWH’s business model. In June 2024, the Company’s decision to close the café +under Alset F&B (PLQ) Pte. Ltd. (“F&BPLQ”) was driven by the unsustainable revenue it generated. In August 2025 and +September 2025, the Company’s decision to close the café under Ketomei Pte. Ltd. (“KPL” or “Ketomei”) +and Hapi Café Korea Inc. (“HCKI”), respectively, both were driven by the unsustainable revenue they generated. We +believe it is more strategic to refocus our efforts and resources on other F&B business ventures that have greater growth potential. +On September 10, 2025, Alset F&B Holdings Pte. Ltd., (the “Seller”), a Singapore subsidiary of the Company, entered into +a sale and purchase agreement (the “Sale and Purchase Agreement”) with Alset International Limited (the “Buyer”), +pursuant to which the Seller agreed to sell 70% of the outstanding shares of its subsidiary, Alset F&B One Pte. Ltd. (“Alset +F&B One”) to the Buyer in exchange for S$218,941 Singapore Dollars (equal to approximately $170,754 U.S. Dollars). Alset F&B +One was incorporated in Singapore on April 10, 2017, and operates a cafe in Singapore. It generated approximately $470,000 in revenue +in 2024. Following this sale, the Seller continues to own 20% of Alset F&B One as of December 31, 2025. +Hapi +Wealth Builder seeks to provide participants the opportunity to attend courses, workshops, and coaching sessions in person, fostering +a collaborative learning environment for those dedicated to learning investment in equities and wealth-building strategies. The team +has been diligently producing digital content for Hapi Wealth Builder and working to collaborate with the right partners to launch the +program and make it available to customers. Hapi Wealth Builder will leverage the wealth of knowledge and experience of its leaders to +make wealth building accessible and effective for its members. Our unique community-centric approach will offer members tools for making +informed financial decisions while creating pathways for sustained growth. +On +October 31, 2024, we announced that the Company scheduled the launch of Hapi Wealth, a program dedicated to providing comprehensive education +in equity investment and wealth-building strategies. We are targeting a rollout in selected regions later in 2026. +To +further support its mission, Hapi Wealth is opening its China headquarters, designed as a conducive environment for individuals to participate +in tutorials and workshops. The hub will offer participants the opportunity to attend courses, workshops, and coaching sessions in person, +fostering a collaborative learning environment for those dedicated to learning investment in equities and wealth-building strategies. +NOTE +2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Basis +of Presentation +The +accompanying consolidated financial statements are presented in conformity with accounting principles generally accepted in the United +States of America (“US GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). +F- 8 +Principles +of Consolidation +The +consolidated financial statements include all accounts of the Company and its majority owned and controlled subsidiaries. The Company +consolidates entities in which it owns more than 50% of the voting common stock and controls operations. All intercompany transactions +and balances among consolidated subsidiaries have been eliminated. +The +following chart describes the Company’s ownership of various subsidiaries: +The +Company mainly focuses on the F&B business. During the years ended December 31, 2025 and 2024, substantially all of the Company’s +business was generated by F&B business. F&B business was generated by the following subsidiaries at December 31, 2025 and 2024, +respectively: 39 % and 37 % from Alset F&B One Pte. Ltd, 8 % and 6 % from Hapi Café Korea Inc., 28 % and 20 % from Hapi Café +SG Pte. Ltd. (“HCSGPL”), 0 % and 7 % from Alset F&B (PLQ) Pte. Ltd. and 25 % and 30 % from Ketomei Pte. Ltd. Alset F&B +One was incorporated in Singapore on April 10, 2017, HCSGPL was incorporated in Singapore on April 4, 2022, F&BPLQ was incorporated +in Singapore on November 11, 2022 and KPL was incorporated in Singapore on September 17, 2019. Alset F&B One, HCSGPL, F&BPLQ +and KPL are in the F&B business in Singapore. In the second quarter of 2024 the Company ceased operations of its subsidiary Alset +F&B (PLQ) Pte. Ltd. Due to the closure of this subsidiary the Company wrote off $ 5,878 of fixed assets, which was included in general +and administrative expenses, and recorded a gain on termination of lease of $ 248 during 2024. On August 05, 2025, the Company ceased +operation of its subsidiary Ketomei Pte. Ltd. Due to the closure of this subsidiary the Company refunded $ 20,562 for customer deferred +orders. On September 13, 2025, the Company ceased operations of its subsidiary Hapi Café Korea Inc. +F- 9 +Emerging +Growth Company +The +Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities +Act”), as modified by the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), and it may take +advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging +growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation +requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic +reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and +stockholder approval of any golden parachute payments not previously approved. +Further, +Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting +standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do +not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting +standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements +that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of +such extended transition period which means that when a standard is issued or revised and it has different application dates for public +or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies +adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which +is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult +or impossible because of the potential differences in accounting standards used. +Functional +and Reporting Currency +The +functional and reporting currency of the Company is the United States dollar (“$”). The financial records of the Company’s +subsidiaries located in South Korea, Singapore, Hong Kong, and Malaysia are maintained in their local currencies, the Korean Won (₩), +Singapore Dollar (S$), Hong Kong Dollar (HK$) and Malaysian Ringgit (MYR), which are also the functional currencies of these entities. +Use +of Estimates +The +preparation of the financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions +that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance +sheet. +Making +estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of +a condition, situation or set of circumstances that existed at the date of the balance sheet, which management considered in formulating +its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ +significantly from those estimates. +Cash +and Cash Equivalents +The +Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. +The Company had cash of $ 2,085,918 and $ 4,341,746 as of December 31, 2025 and 2024, respectively. The Company had no cash equivalents +as of December 31, 2025 and 2024. +F- 10 +Fair +Value of Financial Instruments +The +Company adopted Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures”, for +assets and liabilities measured at fair value on a recurring basis. ASC 820 defines fair value as the exchange price that would be received +for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability +in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which +requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC +820 describes three levels of inputs that may be used to measure fair value: +Level +1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities +Level +2: Observable market-based inputs or unobservable inputs that are corroborated by market data +Level +3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions +Level +1 marketable securities are liquid and transparent financial instruments with readily observable market prices. Their value is based +on unadjusted quoted prices in active markets for identical assets. Examples often include U.S. treasury securities, listed equities, +exchange-traded funds and open-end mutual funds, foreign currencies, and gold bullion. An active market is defined by sufficient transaction +frequency and volume to provide ongoing pricing information. +For +purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current +transaction between willing parties, other than in a forced sale or liquidation. The carrying values reported in balance sheets for current +assets and liabilities approximate their estimated fair market values based on the short-term maturity of these instruments. +The +Company has a portfolio of trading level 1 marketable securities. The objective is to generate profits on short-term differences in market +prices. The Company does not have significant influence over any trading securities in our portfolio and fair value of these trading +securities are determined by quoted stock prices. +Investment +Securities at Cost +Investments +in equity securities without readily determinable fair values are measured at cost minus impairment adjusted by observable price changes +in orderly transactions for the identical or similar investments of the same issuer. These investments are measured at fair value on +a nonrecurring basis when there are events or changes in circumstances that may have a significant adverse effect. An impairment loss +is recognized in the consolidated statements of comprehensive income equals to the amount by which the carrying value exceeds the fair +value of the investment. +Inventory +Inventory +is stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method and includes all costs +in bringing the inventories to their present location and condition. Net realizable value is an estimated selling price in the ordinary +course of business less the estimated costs necessary to make the sale. As of December 31, 2025 and 2024, inventory consisted of finished +goods procured from suppliers. The Company continuously evaluates the need for reserve for obsolescence and possible price concessions +required to write-down inventory to its net realizable value. +Leases +The +Company follows FASB ASC Topic 842 in accounting for its operating lease right-of-use assets and operating lease liabilities. At inception +of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is or contains a lease if it conveys the +right to control the use of an identified asset for a period of time in exchange of a consideration. To assess whether a contract is +or contains a lease, the Company assesses whether the contract involves the use of an identified asset, whether it has the right to obtain +substantially all of the economic benefits from the use of the asset and whether it has the right to control the use of the asset. The +right-of-use assets and related lease liabilities are recognized at the lease commencement date. The Company recognizes operating lease +expenses on a straight-line basis over the lease term. For leases that contain related non-lease components, such as maintenance, the +Company will account for these payments as a single lease component. +F- 11 +Right-of-use +of Assets +The +right-of-use of asset is measured at cost, which comprises the amount of the lease liability adjusted for any lease payments made at +or before the commencement date, plus any initial direct costs incurred and less any lease incentive received. +Lease +liabilities +Lease +liability is measured at the present value of the outstanding lease payments at the commencement date, discounted using the Company’s +incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise mainly of fixed lease payments. +Short-term +Leases and Leases of Low Value Assets +The +Company has elected to not recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months +or less at inception and leases of low value assets. Lease payments associated with these leases are expensed as incurred. +Property +and Equipment +Property +and equipment are recorded at cost, less depreciation. Repairs and maintenance are expensed as incurred. Expenditures incurred as a consequence +of acquiring or using the asset, or that increase the value or productive capacity of assets are capitalized. When property and equipment +is retired, sold, or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from the +accounts and any gain or loss is included in statement of operations. Depreciation is computed by the reducing balance method (after +considering their respective estimated residual values) over the estimated useful lives of the respective assets as follows: +SCHEDULE +OF ESTIMATED USEFUL LIVES OF PROPERTY AND EQUIPMENT +Office Equipment +3 – 5 years +Furniture and Fittings +3 – 5 years +Kitchen Equipment +3 – 5 years +Operating Equipment +3 – 5 years +Leasehold Improvements +Shorter of lease life or asset life +The +Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying +value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. +In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized, equaling an +amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment +include current operating results, trends, and prospects, as well as the effects of obsolescence, demand, competition, and other economic +factors. +Deposit +Deposits +represent rental deposit paid for the office and the cafes which are refundable at the end of the rental period. A deposit would be considered +as current if it is related to the rental which would expire within the next twelve months, while a deposit would be considered as non-current +if it is related to the rental which would continue longer than the next twelve months. As of December 31, 2025, $ 21,205 in deposits +were current and would be refundable within the next twelve months, $ 104,209 in deposits were non-current and would be refundable after +twelve months. +F- 12 +Revenue +Recognition +ASC +606 – Revenue from Contracts with Customers (“ASC 606”), establishes principles for reporting information about +the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services +to customers. +In +accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized +reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods or services. The provisions +of ASC 606 include a five-step process by which the determination of revenue recognition, depicting the transfer of goods or services +to customers in amounts reflecting the payment to which the Company expects to be entitled in exchange for those goods or services. ASC +606 requires the Company to apply the following steps: +(1) +identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; +(4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, performance +obligations are satisfied. +The +Company generates its revenue primarily from product sales and the F&B business. +Food +and Beverage : The Company’s performance obligation is to transfer ownership of its F&B products to its customers. The Company +generally recognizes revenue when F&B products are delivered to its customers. Revenue is recorded net of applicable taxes, allowances, +refunds or returns. The Company receives the net sales price in cash or through credit card payments at the point of sale or from web-based +ordering system. The revenue received from Food and Beverage business for the years ended December 31, 2025 and 2024 was $ 866,926 and +$ 1,253,577 , respectively. +Accounts +Receivable +Accounts +receivable is recorded at invoiced amounts net of an allowance for credit losses and does not bear interest. The allowance for credit +losses is the Company’s best estimate of the amount of probable credit losses in the Company’s existing account receivable. +The measurement and recognition of credit losses involves the use of judgment. Management’s assessment of expected credit losses +includes consideration of current and expected economic conditions, market and industry factors affecting the Company’s customers +(including their financial condition), the aging of account balances, historical credit loss experience, customer concentrations, customer +creditworthiness, and the existence of sources of payment. The Company also establishes an allowance for credit losses for specific receivables +when it is probable that the receivable will not be collected and the loss can be reasonably estimated. Account receivable considered +uncollectible is charged against the allowance after all means of collection have been exhausted and the potential for recovery is considered +remote. +Value-added +Tax +The +Company is obligated to pay value-added tax (“VAT”), among other things, on its inventory purchase as well as its rent payments +and payment of professional fees. As of December 31, 2025 and 2024, the amount of VAT paid in other receivables was $ 3,027 and $ 33,914 , +respectively, due primarily to the purchase of inventory and payment of rents and accounting fees. +F- 13 +Cost +of Revenue +Cost +of revenue consists of the cost of procuring finished goods from suppliers and related shipping and handling fees from third party money +platforms, and contractor fees for part-time staff. +Below +is a breakdown of the Company’s cost of revenue for the years ended December 31, 2025 and 2024. +For +the years ended: +SCHEDULE OF COST OF REVENUE +Total +December 31, 2025 +Finished goods +$ 291,513 +Related shipping +29,821 +Handling fee +36,267 +Contractor fee +21,070 +Franchise commission +10,170 +Depreciation +18,358 +Total of Cost of revenue +$ 407,199 +December 31, 2024 +Finished goods +$ 492,113 +Related shipping +3,370 +Handling fee +47,590 +Contractor fee +43,787 +Franchise commission +17,133 +Depreciation +47,728 +Total of Cost of revenue +$ 651,721 +Shipping +and Handling Fees +The +Company utilizes the practical expedient under ASC 606-10-25-18B treating shipping and handling as fulfillment activities rather than +a promised service (i.e. a revenue element). Shipping and handling fees are included in cost of revenue within the statements of operations. +Advertising +Expenses +Costs +incurred for advertising the Company’s products are charged to operations as incurred. Advertising expenses for the years ended +December 31, 2025 and 2024 were $ 116,488 and $ 19,472 , respectively. +Income +Taxes +The +Company accounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income Taxes” (“ASC 740-10”), +which requires, among other things, assets and liabilities approach to calculating deferred income taxes. The assets and liabilities +approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences +between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred +tax assets for which management believes it is more likely than not that the net deferred tax assets will not be realized. Tax positions +that meet the more likely than not recognition threshold are measured at the largest amount of tax benefit that is more than 50 percent +likely of being realized upon settlement with the applicable taxing authority. +The +Company follows the provision of ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, there +may be uncertainty about the merits of positions taken or the amount of the position that would be ultimately sustained. In accordance +with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, +based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, +including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. +The +Company has not recorded any unrecognized tax benefits. The Company’s policy is to recognize interest and penalties related to +income taxes in income tax expense. +The Company’s tax returns +for 2022, 2023 and 2024 remain open to examination. +F- 14 +Franchise +Tax +The +Company was reincorporated in the State of Nevada on November 14, 2025, through a reincorporation merger. As a Nevada corporation, +we are no longer subject to the Delaware franchise tax. Prior to the reincorporation the Company was subject to annual Delaware franchise +taxes, which are a privilege fee and not an income tax. During the year ended December 31, 2025 the Company received a refund of prepaid +Delaware franchise tax of $ 41,349 and during the year ended December 31, 2024 the Company paid $ 48,180 in Delaware franchise tax. +Earnings +(Loss) per Share +The +Company presents basic and diluted earnings (loss) per share data for its common shares. Basic earnings (loss) per share is calculated +by dividing the profit or loss attributable to common stock shareholders of the Company by the weighted-average number of common shares +outstanding during the year, adjusted for treasury shares held by the Company. +Diluted +earnings (loss) per share is determined by adjusting the profit or loss attributable to common stock shareholders and the weighted-average +number of common shares outstanding, adjusted for treasury shares held, for the effects of all dilutive potential ordinary shares, which +comprise convertible securities, such as stock options, convertible bonds and warrants. During the year ended December 31, 2025 there +were 909,874 potentially dilutive warrants outstanding. +For +the years ended December 31, 2025 and 2024, basic and diluted earnings (loss) per share were the same, as the effect of potentially dilutive +securities was anti-dilutive during periods of net loss and therefore did not reduce the loss per share. +Non-controlling +Interests +Non-controlling +interests represent the equity in a subsidiary not attributable, directly or indirectly, to owners of the Company, and are presented +separately in the Consolidated Statements of Operations and Other Comprehensive Income, and within equity in the Consolidated Balance +Sheets, separately from equity attributable to owners of the Company. +On +December 31, 2025 and 2024, the aggregate non-controlling interests in the Company were $ 65,844 and $ 111,835 , respectively. +Liquidity +and Capital Resources +In +the year ended December 31, 2025, we incurred a net loss, a loss from operations and negative cash flow from operating cafés during +the period. These factors raise substantial doubt about our ability to continue as a going concern. +Notwithstanding +the above, the Company believes that the available cash in the Company’s bank accounts, anticipated cash from operations, and financing +availability from related parties are sufficient to alleviate substantial doubt about the Company’s ability to continue as a going +concern for at least the next 12 months. The Company’s capital requirements for the planned expansion are based on, among other +items, location-specific property costs, team requirements, and marketing steps needed. Our expansion includes plans to take over leases +of existing Hapi Cafes that we currently do not own, with a goal to add additional Hapi Cafes over the next two years. Executing these +plans will require a minimum investment for each Hapi Café location. There is no guarantee, however, that we will be able to achieve +these plans as described. +The +accompanying financial statements have been prepared assuming the Company will continue as a going concern and do not contain any adjustments +that might be required should the Company be unable to continue as a going concern. +F- 15 +On +April 24, 2024, the Company entered into a Credit Facility Agreement (the “Credit Agreement”) with Alset Inc., a Texas corporation +and the Company’s indirect, majority stockholder, pursuant to which Alset Inc. has provided the Company a non-revolving line of +credit facility (the “Credit Facility”), which provides a maximum, aggregate credit line of up to $ 1,000,000 . During 2024, +$ 300,000 was drawn from the loan, which was converted to equity on September 24, 2024. The remaining credit of $ 700,000 is available +for draw as on December 31, 2025. +Pursuant +to the Credit Agreement, the Company may request an advance (each, an “Advance”) on the Credit Facility. Each Advance shall +bear a simple interest rate of three percent ( 3 %) per annum. Each Advance and all accrued but unpaid interest shall be due and payable +at the first (1 st ) anniversary of the effective date of the Credit Agreement. The Company may at any time during the term +of the Credit Agreement prepay a portion or all amounts of its indebtedness without penalty. Each advance shall not be secured by a lien +or other encumbrance on any of the Company’s assets, but shall be solely a general unsecured debt obligation of the Company. +On +April 14, 2025, the Company entered into an amendment (the “Amendment”) to this Credit Facility Agreement. Under the terms +of the Amendment, the date upon which each advance made under the Credit Facility and all accrued but unpaid interest shall be due and +payable was extended from April 24, 2025 to April 14, 2026. +The +Company has obtained letters of financial support from Alset Inc. pursuant to which Alset Inc. committed to provide any additional funding +required by the Company and would not demand repayment through twelve months from the issuance of these consolidated financial statements. +Recent +Accounting Pronouncement +Management +does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect +on the Company’s consolidated financial statements. +Segment +reporting +On +November 27, 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2023-07, Improvements +to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 amends ASC 280, Segment Reporting (“ASC 280”) +to expand segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the Company’s +chief operating decision maker (“CODM”), the amount and description of other segment items, the title and position of the +CODM, and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and +deciding how to allocate resources. ASU 2023-07 further permits disclosure of more than one measure of segment profit or loss and extends +the full disclosure requirements of ASC 280 to companies with single reportable segments. The Company adopted ASU 2023-07 on December +31, 2025 on a retrospective basis. See —Segment reporting below for additional information. +In +December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures (“ASU 2023-09”). +ASU 2023-09 requires that an entity, on an annual basis, disclose additional income tax information, primarily related to the rate reconciliation +and income taxes paid. The amendment in the ASU is intended to enhance the transparency and decision usefulness of income tax disclosures. +The ASU’s amendments are effective for annual periods beginning after December 15, 2024. The Company adopted ASU 2023-09 for the +year ended December 31, 2025. The adoption of this ASU did not have a material impact on our consolidated financial statements. +Accounting +pronouncements pending adoption +On +November 4, 2024, the FASB issued ASU No. 2024-03, Expense Disaggregation Disclosures (“ASU 2024-03”). ASU 2024-03 +amends ASC 220, Comprehensive Income to expand income statement expense disclosures and require disclosure in the notes to the +financial statements of specified information about certain costs and expenses. ASU 2024-03 is required to be adopted for fiscal years +commencing after December 15, 2026, with early adoption permitted. The Company is currently evaluating the impact of adopting the standard +on the Consolidated Financial Statements. +In November 2024, the FASB issued +ASU 2024-04—Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments +(“ASU 2024-04”) to improve the relevance and consistency in the application of induced conversion guidance in Subtopic 470-20, +Debt—Debt with Conversion and Other Options. The amendments in ASU 2024-04 clarify the requirements for determining whether certain +settlements of convertible debt instruments should be accounted for as an induced conversion. The amendments in ASU 2024-04 affect entities +that settle convertible debt instruments for which the conversion privileges were changed to induce conversion. The amendments in ASU +2024-04 are effective for all entities for annual reporting periods beginning after December 15, 2025, and interim reporting periods within +those annual reporting periods. Early adoption is permitted for all entities that have adopted the amendments in ASU 2020-06. The amendments +in ASU 2024-04 permit an entity to apply the new guidance on either a prospective or a retrospective basis. The Company is currently evaluating +the impact of the adoption of ASU 2024-04 will have on the Company’s financial position, results of operations or cash flows. +F- 16 +Segment +reporting +The +Company reports its segment information to reflect the manner in which the CODM reviews and assesses performance. As of December 31, +2025, the Company only has one segment in F&B business. The Company’s Chief Executive Officer, President and Chief Operating +Officer have joint responsibility as the CODMs and review and assess the performance of the Company as a whole. +The +primary financial measures used by the CODMs to evaluate performance and allocate resources are net income (loss) and operating income +(loss). The CODMs use net income (loss) and operating income (loss) to evaluate the performance of the Company’s ongoing operations +and as part of the Company’s internal planning and forecasting processes. Information on net income (loss) and operating income +(loss) is disclosed in the Consolidated Statements of Operations. Segment expenses and other segment items are provided to the CODMs +on the same basis as disclosed in the Consolidated Statements of Operations. +NOTE +3 — ACCOUNTS RECEIVABLE, NET +Accounts +receivable, net at December 31, 2025, December 31, 2024 and December 31, 2023 of $ 3,324 , $ 17,546 and $ 28,611 , respectively, represent +collections received by the credit card processor in F&B business and rent receivable. Accounts receivable is recorded at invoiced +amounts net of an allowance for credit losses and do not bear interest. As of December 31, 2025 and 2024, the allowance for credit losses +was an immaterial amount. The Company does not have any off-balance sheet credit exposure related to its customers. As of December 31, +2025 and 2024, $ 158,036 and $ 11,177 of rent receivable was written off, respectively. +NOTE +4 — PROPERTY AND EQUIPMENT, NET +The +components of property and equipment are as follows: +SCHEDULE OF PROPERTY AND EQUIPMENT, NET +Total +December 31, 2025 +Cost: +Office Equipment +$ 39,021 +Furniture and Fittings +5,839 +Kitchen Equipment +31,960 +Other Operating Equipment +12,263 +Leasehold Improvements +159,518 +Accumulated Depreciation: +Office equipment +$ ( 31,856 ) +Furniture and Fittings +( 3,406 ) +Kitchen Equipment +( 15,655 ) +Other Operating Equipment +( 5,402 ) +Leasehold Improvements +( 83,005 ) +Impairment: +Office equipment +$ ( 7,165 ) +Furniture and Fittings +( 2,433 ) +Kitchen Equipment +( 12,518 ) +Other Operating Equipment +( 6,861 ) +Leasehold Improvements +( 61,147 ) +Total, net +$ 19,153 +December 31, 2024 +Cost: +Office Equipment +$ 37,455 +Furniture and Fittings +42,328 +Kitchen Equipment +30,473 +Other Operating Equipment +11,594 +Leasehold Improvements +133,548 +Accumulated Depreciation: +Office equipment +$ ( 30,179 ) +Furniture and Fittings +( 40,028 ) +Kitchen Equipment +( 13,221 ) +Other Operating Equipment +( 5,107 ) +Leasehold Improvements +( 65,048 ) +Impairment: +Office equipment +$ ( 6,774 ) +Furniture and Fittings +( 2,300 ) +Kitchen Equipment +( 8,931 ) +Other Operating Equipment +( 3,450 ) +Leasehold Improvements +( 46,772 ) +Total, net +$ 33,588 +F- 17 +For +the years ended December 31, 2025 and 2024, the Company recorded depreciation expenses of $ 19,494 and $ 48,172 and impairment of property +and equipment of $ 17,686 and $ 69,293 , respectively. As of December 31, 2024, the Company disposed of office equipment, at a cost of $ 7,429 , +and furniture and fittings, at a cost of $ 2,784 , from F&BPLQ due to café’s closure. $ 5,878 loss on disposal of PPE was +recorded in the general and administrative expenses. +NOTE +5 — INVESTMENTS +Investments +in equity securities without readily determinable fair values are measured at cost minus impairment adjusted by observable price changes +in orderly transactions for the identical or a similar investment of the same issuer. These investments are measured at fair value on +a nonrecurring basis when there are events or changes in circumstances that may have a significant adverse effect. An impairment loss, +which is recognized in the consolidated statements of comprehensive income, equals to the amount by which the carrying value exceeds +the fair value of the investment. No impairment was recorded for the year ended December 31, 2025 and 2024. +Ideal +Food & Beverage Pte. Ltd. +On +March 14, 2024, the Company entered into a share subscription agreement through its subsidiary Alset F&B Holding Pte. Ltd. (“F&BH”) +for 19,000 shares of Ideal Food & Beverage Pte. Ltd. (“IFBPL”), constituting 19 % of the issued shares of IFBPL. The subscription +fee of $ 14,010 was paid to IFBPL on May 23, 2024. The Company impaired this investment of $ 14,010 to $ 0 , due to net liabilities of IFBPL +as of December 31, 2024. +Sale +of HWH World Inc. and Acquisition of AES Group Inc. +On +April 23, 2025, the Company completed the sale of HWH World Inc. (“HWHKOR”) by Health Wealth Happiness Pte. Ltd. (“HWHPL”) +to AES Group Inc. (“AES”), a Korean entity. The sale was consummated under a term sheet signed on April 20, 2025, pursuant +to which the Company agreed to transfer its 100 % equity interest in HWHKOR to AES. In exchange, AES agreed to issue new shares to the +Company upon closing, representing 19.9 % of AES’s enlarged share capital, with a total cost basis of $ 1,354 . Total of $ 383,667 +gain was generated from this deal and recorded in other non-operating income / (expenses) in the statement of operations. The disposal +of HWH World Inc. had immaterial effect on the Company’s consolidated financial statements and the deconsolidation did not meet +the criteria for presentation as discontinued operations under ASC 205-20. +Sale +of Alset F&B One Pte. Ltd. +On +September 10, 2025, Alset F&B Holdings Pte. Ltd., entered into a sale and purchase agreement (the “Sale and Purchase Agreement”) +with Alset International Limited (“AIL”), pursuant to which the Seller agreed to sell 70% of the outstanding shares of its +subsidiary, Alset F&B One Pte. Ltd. to the AIL in exchange for $170,754. Following this sale, F&BH will continue to own 20% of +Alset F&B One. Total $ 21,611 loss was generated from this deal and recorded in other non-operating income / (expenses) in the statement +of operations. Total $60,708 was generated from the fair value of the remaining 20% investment in Alset F&B One which is treated +as basis of equity method investment. The deconsolidation did not meet the criteria for presentation as discontinued operations under +ASC 205-20. +F- 18 +NOTE +6 – LOANS DUE TO THIRD PARTIES +Promissory +Note to D. Boral Capita l, LLC +On +December 18, 2023, the Company entered into a Satisfaction and Discharge of Indebtedness Agreement in connection with an +underwriting agreement previously entered into by HWH and D. Boral Capital LLC (“D. Boral Capital”) (formerly known as +EF Hutton, LLC), a division of Benchmark Investments, LLC, under which in lieu of HWH tendering the full amount due of $ 3,018,750 , +the underwriters accepted a combination of $ 325,000 +in cash paid upon the closing of Business Combination, 149,443 +shares of the Company’s common stock and a $ 1,184,375 +promissory note as full satisfaction. This agreement was effective at the closing of Business Combination on January 9, 2024. The 149,443 +shares were issued at the price of $ 10.10 , +totaling the amount of $ 1,509,375 . +The fair value of the HWH shares at issuance on January 9, 2024 was $ 2.82 +per share or $ 421,429 . +No gain or loss was recognized upon issuance of the shares on January 9, 2024, as this was an adjustment to prior underwriting costs +accounted for in equity. The promissory note carries interest rate equal to SOFR (secured overnight financing rate for U.S. +Government Securities Business Day published by the Federal Reserve Bank of New York) plus a margin of one percent. The principal +amount of the promissory note and any accrued interest shall mature (i) partially in the event HWH completes an offering within one +year of the date of the promissory note, the amount of outstanding debt maturing being proportionate to the amount of proceeds of +the future offering, or (ii) in partial installments through October of 2028, the outstanding balance being paid annually until the +balance owed is paid in full. The first installment of the note that was due in October 2024 was paid in January 2025, resulting in +a default due to the delay in payment. The second installment of the note was paid in October 2025. We have concluded negotiations +with D. Boral Capital LLC and cured the default stemming from the late payment of the installation due in October of +2024. The total due to D. Boral Capital as of December 31, 2025, is $ 829,182 , which includes $ 710,625 in principal and +$ 118,557 in interest. The remaining principal will be repaid in three installments of $ 236,875 due in October of 2026, 2027, and 2028. +Loans +for Operations +The +Company’s subsidiary, Ketomei Pte Ltd (“Ketomei”) has a loan from DBS Bank Limited, which was used to fund Ketomei’s +current operations. Ketomei owes the bank $ 22,415 and $ 34,155 at December 31, 2025 and 2024, respectively. +Ketomei +also borrowed $ 42,696 from an individual on February 21, 2022, which consisted of principal of $ 36,807 and interest of $ 5,889 for 2 years +at 8 % interest rate per annum. Ketomei repaid $ 3,681 and $ 39,015 in 2025 and 2024, and owes $ 0 and $ 3,681 at December 31, 2025 and 2024, +respectively. +NOTE +7 — DUE TO ALSET INC. +Alset +Inc (“AEI”) is our ultimate holding company that is incorporated in the United States of America. The amount due to AEI represents +short-term working capital advances to the Company for its daily operations. There is no written, executed agreement and no financial/non-financial +covenants and the amount due to AEI is non-interest bearing. Since the amount due to AEI is due upon request, it is classified as a current +liability. The amounts due to AEI at December 31, 2025 and 2024 are $ 569,614 and $ 209,614 respectively. +F- 19 +On +April 24, 2024, the Company entered into a Credit Facility Agreement (the “Credit Agreement”) with Alset Inc., pursuant to +which AEI has provided the Company a line of credit facility (the “Credit Facility”) which provides a maximum, aggregate +credit line of up to $ 1,000,000 . On April 14, 2025, the Company entered into an amendment (the “Amendment”) to this Credit +Facility Agreement. Under the terms of the Amendment, the date upon which each advance made under the Credit Facility and all accrued +but unpaid interest shall be due and payable was extended from April 24, 2025 to April 14, 2026. The terms of Alset Inc.’s Letter +of Continuing Financial Support to the Company were not altered by the Amendment. +Pursuant +to the Credit Agreement, the Company may request an advance (each, an “Advance”) on the Credit Facility. Each Advance shall +bear a simple interest rate of three percent ( 3 %) per annum. Each Advance and all accrued but unpaid interest shall be due and payable +at the first (1 st ) anniversary of the effective date of the Credit Agreement. The Company may at any time during the term +of the Credit Agreement prepay a portion or all amounts of its indebtedness without penalty. Each Advance shall not be secured by a lien +or other encumbrance on any of the Company’s assets, but shall be solely a general unsecured debt obligation of the Company. On +September 24, 2024 the Company drew $ 300,000 from the credit line and accrued $ 3,164 in interest. On December 31, 2025, $ 3,164 of the +interest remained outstanding. +On +September 24, 2024, the Company entered into a Debt Conversion Agreement (the “AEI Conversion”) with Alset Inc., pursuant +to which a debt of $ 300,000 due to AEI was converted into shares of the Company’s common stock at a price per share of $ 0.63 for +a total of 476,190 shares. +NOTE +8 — DUE TO/FROM RELATED PARTIES +Due +to Alset International Limited. +Alset +International Limited (“AIL”) is incorporated in Singapore and is a fellow subsidiary of the common parent company, Alset +Inc. The amount due to AIL represents short-term working capital advances to the Company for its daily operations. There is no written, +executed agreement and no financial/non-financial covenants and the amount due to AIL is non-interest bearing. Since the amount due to +AIL is due upon request, it is classified as a current liability. The amounts due to AIL at December 31, 2025 and December 31, 2024 are +$ 4,653,037 and $ 5,096,047 , respectively. +On +September 24, 2024, the Company entered into a Debt Conversion Agreement (the “AIL Conversion”) with Alset International +Limited, pursuant to which a debt payable to AIL as of June 30, 2024, $ 3,501,759 was fully converted into shares of the Company’s +common stock at a price per share of $ 0.63 , for a total of 5,558,347 shares. +On +April 14, 2025, the Company entered into an amendment (the “Amendment”) to the Credit Facility Agreement with Alset Inc. +dated April 24, 2024, pursuant to which, the Company released Alset International Limited from its obligations under its Letter of Continuing +Financial Support to the Company dated March 28, 2025. +Due +from Alset Business Development Pte. Limited. +Alset +Business Development Pte. Limited (“ABD”) is incorporated in Singapore and is a fellow subsidiary of Alset Inc. The amount +due from ABD represents amount lent by ABD to Hapi Cafe Inc. for the investment in Ketomei Pte. Ltd in March 2022, and $ 5,000,000 lent +from HWHPL to ABD in November 2024, with partial repayment of $ 707,000 received by the Company in December 2024. There is no written, +executed agreement and no financial/non-financial covenants and the amount due from ABD is non-interest bearing. Since the amount due +from ABD is due upon request, it is classified as a current asset. The amount due from ABD at December 31, 2025 and December 31, 2024 +is $ 4,232,313 and $ 4,113,701 , respectively. +Due +from HotApp International Limited. +HotApp +International Limited (“HAIL”) is incorporated in Hong Kong and is a fellow subsidiary of Alset Inc. The amount due from +HAIL represents the amount HWHPL lent to HAIL in January 2025. There is no written, executed agreement and no financial/non-financial +covenants and the amount due from HAIL is non-interest bearing. Since the amount due from HAIL is due upon request, it is classified +as a current asset. The amount due from HAIL at December 31, 2025 is $ 381,461 . +F- 20 +NOTE +9 — RELATED PARTY TRANSACTIONS +On +March 20, 2024, the Company entered into a securities purchase agreement with Sharing Services Global Corporation (“SHRG”), +pursuant to which the Company purchased from SHRG a (i) Convertible Promissory Note (“CN 1”) in the amount of $ 250,000 , convertible +into 208,333,333 shares of SHRG’s common stock at the option of the Company, and (ii) certain warrants exercisable into 208,333,333 +shares of SHRG’s common stock at an exercise price of $ 0.0012 per share, the exercise period of the warrant being five (5) years +from the date of the securities purchase agreement, for an aggregate purchase price of $ 250,000 (“WRNT 1”). CN +1 bears a 6 % interest rate and has scheduled maturity on March 19, 2027 , three years from the date of the CN 1. At +the time of filing, the Company has not converted any of the debt contemplated by CN 1 nor exercised any of the warrants. +On +May 9, 2024, the Company entered into a securities purchase agreement with Sharing Services Global Corporation, pursuant to which the +Company purchased from SHRG a Convertible Promissory Note (“CN 2”) in the amount of $ 250,000 , convertible into 125,000,000 +shares of SHRG’s common stock at the option of the Company for an aggregate purchase price of $ 250,000 . CN 2 bears an 8 % interest +rate and has scheduled maturity on May 8, 2027 , three years from the date of the CN 2. Additionally, upon signing CN 2, SHRG owed the +Company a commitment fee of 8 % of the principal amount, $ 20,000 in total, to be paid either in cash or in common stock of SHRG, at the +discretion of the Company. At the time of filing, the Company has not converted any of the debt +contemplated by CN 2. +On +June 6, 2024, the Company entered into a securities purchase agreement with Sharing Services Global Corporation, pursuant to which the +Company purchased from SHRG a Convertible Promissory Note (“CN 3”) in the amount of $ 250,000 , convertible into 125,000,000 +shares of SHRG’s common stock at the option of the Company for an aggregate purchase price of $ 250,000 . CN 3 bears an 8 % interest +rate and has scheduled maturity on June 5, 2027 , three years from the date of the CN 3. Additionally, upon signing CN 3, SHRG owed the +Company a commitment fee of 8 % of the principal amount, $ 20,000 in total, to be paid either in cash or in common stock of SHRG, at the +discretion of the Company. At the time of filing, the Company has not converted any of the debt +contemplated by CN 3. +On +August 13, 2024, the Company entered into a securities purchase agreement with Sharing Services Global Corporation, pursuant to which +the Company purchased from SHRG a Convertible Promissory Note (“CN 4”) in the amount of $ 100,000 , convertible into 50,000,000 +shares of SHRG’s common stock at the option of the Company for an aggregate purchase price of $ 100,000 . CN 4 bears an 8 % interest +rate and has scheduled maturity on August 13, 2027 , three years from the date of the CN 4. Additionally, upon signing CN 4, SHRG owed +the Company a commitment fee of 8 % of the principal amount, $ 8,000 in total, to be paid either in cash or in common stock of SHRG, at +the discretion of the Company. At the time of filing, the Company has not converted any of the +debt contemplated by CN 4. +On +January 15, 2025, the Company entered into a securities purchase agreement with Sharing Services Global Corporation pursuant to which +the Company purchased from SHRG a Convertible Promissory Note (“CN 5”) in the amount of $ 150,000 , convertible into 309,650 +shares of SHRG’s common stock at the option of the Company for an aggregate purchase price of $ 150,000 . CN 5 bears an 8 % interest +rate and has scheduled maturity on January 15, 2028 , three years from the date of the CN 5. At +the time of filing, the Company has not converted any of the debt contemplated by CN 5. +On +March 31, 2025, the Company entered into a securities purchase agreement with Sharing Services Global Corporation pursuant to which the +Company purchased from SHRG a (i) Convertible Promissory Note (“CN 6”) in the amount of $ 150,000 , convertible into 187,500 +shares of SHRG’s common stock at the option of the Company, and (ii) certain warrants exercisable into 937,500 shares of SHRG’s +common stock at an exercise price of $ 0.85 per share, the exercise period of the warrant being three ( 3 ) years from the date of the securities +purchase agreement, for an aggregate purchase price of $ 796,875 . (“WRNT 2”). At the time of filing, the Company has not converted +any of the debt contemplated by CN 6 nor exercised any of the warrants. Additionally, +upon signing CN 6, SHRG owed the Company a commitment fee of 8 % of the principal amount, $ 12,000 in total, to be paid either in cash +or in common stock of SHRG, at the discretion of the Company. CN 6 bears an 8 % interest rate and has scheduled maturity on March 30, +2028 , three years from the date of the CN 6. At the time of filing, the Company has not converted +any of the debt contemplated by CN 6 nor exercised any of the warrants. +F- 21 +On +April 21, 2025, the Company entered into a loan agreement (the “Loan Agreement 1”) with Sharing Services Global Corporation, +under which the Company provided a loan to SHRG in the amount of $ 30,000 . The maturity date of the Loan Agreement 1 is April 21, 2026 . +The Loan Agreement 1 bears a 10 % interest rate. +On +April 25, 2025, the Company entered into a loan agreement (the “Loan Agreement 2”) with Sharing Services Global Corporation, +under which the Company provided a loan to SHRG in the amount of $ 250,000 . The maturity date of the Loan Agreement 2 is April 25, 2026 . +The Loan Agreement 2 bears an 8 % interest rate. Additionally, upon execution of the Loan Agreement 2 SHRG incurred a commitment fee representing +5 % of the loan principal, $ 12,500 . +On +June 27, 2025, the Company entered into a securities purchase agreement with Sharing Services Global Corporation pursuant to which the +Company purchased from SHRG a Convertible Promissory Note (“CN 7”) in the amount of $ 60,000 , convertible into 10,000,000 +shares of SHRG’s common stock at the option of the Company for an aggregate purchase price of $ 60,000 , Additionally, +upon signing CN 7, SHRG owed the Company a commitment fee of 8 % of the principal amount $ 4,800 in total, to be paid either in cash or +in common stock of SHRG, at the discretion of the Company. CN 7 bears an 8 % interest rate and has scheduled maturity on June 26, 2028 , +three years from the date of the CN 7. At the time of filing, the Company has not converted any +of the debt contemplated by CN 7. +On +September 17, 2025, the Company entered into a securities purchase agreement with Sharing Services Global Corporation pursuant to which +the Company purchased from SHRG a Convertible Promissory Note (“CN 8”) in the amount of $ 70,000 , convertible into 11,666,667 +shares of SHRG’s common stock at the option of the Company for an aggregate purchase price of $ 70,000 , Additionally, +upon signing CN 8, SHRG owed the Company a commitment fee of 8 % of the principal amount, $ 5,600 in total, to be paid either in cash or +in common stock of SHRG, at the discretion of the Company. CN 8 bears an 8 % interest rate and has scheduled maturity on September 16, +2028 , three years from the date of the CN 8. At the time of filing, the Company has not converted +any of the debt contemplated by CN 8. +On +October 6, 2025, the Company entered into a securities purchase agreement with Sharing Services Global Corporation pursuant to which +the Company purchased from SHRG a Convertible Promissory Note (“CN 9”) in the amount of $ 200,000 , convertible into 33,333,333 +shares of SHRG’s common stock at the option of the Company for an aggregate purchase price of $ 200,000 , Additionally, +upon signing CN 9, SHRG owed the Company a commitment fee of 8 % of the principal amount, $ 16,000 in total, to be paid either in cash +or in common stock of SHRG, at the discretion of the Company. CN 9 bears an 8 % interest rate and has scheduled maturity on October 6, +2028 , three years from the date of the CN 9. At the time of filing, the Company has not converted +any of the debt contemplated by CN 9. +On +December 10, 2025, the Company entered into a securities purchase agreement with Sharing Services Global Corporation pursuant to which +the Company purchased from SHRG a Convertible Promissory Note (“CN 10”) in the amount of $ 150,000 , convertible into 25,000,000 +shares of SHRG’s common stock at the option of the Company for an aggregate purchase price of $ 150,000 , Additionally, upon +signing CN 10, SHRG owed the Company a commitment fee of 8 % of the principal amount, $ 12,000 in total, to be paid either in cash or in +common stock of SHRG, at the discretion of the Company. CN 10 bears an 8 % interest rate and has scheduled maturity on December 10, 2028 , +three years from the date of the CN 10. At the time of filing, the Company has not converted any +of the debt contemplated by CN 10. +As +of December 31, 2025 and 2024, a total of $ 110,900 and $ 48,000 in commitment fees and $ 147,504 and $ 39,323 of interest was recorded under +other receivable, net, respectively. +F- 22 +SHRG +is a related party of the Company, as our stockholders Alset Inc. and Alset International Limited, in addition to certain entities affiliated +with them, are significant stockholders of SHRG, and our former Chief Executive Officer, John Thatch, is also the Chief Executive Officer +of SHRG. +Revenue +from F&B business amounting to approximately $ 3,711 and $ 4,488 during the years ended December 31, 2025 and 2024, respectively, was +related to corporate sales. That revenue was derived from corporate sales to related parties who purchased meals and paid for their staff. +Included +in Accounts Receivable, net at December 31, 2025 and 2024 is $ 0 and $ 1,652 , respectively, of amounts due from related parties. +Included +in other income during the years ended December 31, 2025 and 2024 is $ 1,951 and $ 6,462 , respectively of rental income from related parties. +Other +Receivables, Net +Other +receivables, net, are primarily composed of miscellaneous receivables from related parties, including interest accrued on loans to related +parties. The remaining portion mainly represents VAT receivables expected to be refunded by the local government. As of December 31, +2025, and 2024, the amount of other receivable, net was $ 614,577 and $ 342,712 , respectively, including the amount due from related parties +of $ 605,627 and $ 302,102 , respectively. The impairment of other receivables, net was $ 158,036 and $ 0 as of December 31, 2025, and 2024, +respectively. +Acquisition +of L.E.H. Insurance Group, LLC +On +November 19, 2024, HWH entered into a definitive agreement to acquire a controlling 60 % interest in L.E.H. Insurance Group, LLC (“LEH”). +The acquisition closed on February 27, 2025. This acquisition was facilitated through the purchase of shares from Sharing Services Global +Corporation. SHRG sold its 60 % interest in LEH to HWH, while the remaining 40 % stake was retained by the original owner. However, following +this transaction, the original owner sold their 40 % interest to SHRG. LEH is a licensed insurance agency representing over 600 insurance +companies, serving as an independent advisor to businesses and individuals. LEH provides personalized insurance solutions, offering expert +guidance to meet the unique coverage needs of each customer. LEH is in the early stages of its development, has no employees on its payroll, +and has yet to turn a profit. The Company paid $ 75,000 for the acquisition and recorded $ 74,024 of goodwill as result of the acquisition, +which was written off due to the poor financial situation of LEH. +On +September 17, 2025, HWH entered into another definitive agreement to acquire the remaining 40 % +interest in L.E.H. Insurance Group, LLC. The acquisition closed on August 27, 2025. This acquisition was facilitated through the +purchase of shares from Sharing Services Global Corporation. The Company paid $ 40,000 +for the acquisition and recorded $ 42,624 +of goodwill as result of the acquisition, which was written off due to the poor financial situation of LEH. +As +of December 31, 2025, the Company impaired goodwill of $ 116,648 to $ 0 , which was generated from net asset value during the acquisition. +Total impairment expenses were $ 116,648 . +HapiTravel +Holding Pte. Ltd. +On +April 25, 2024, the Company entered into a binding term sheet (the “Term Sheet”) through its subsidiary Health Wealth Happiness +Pte. Ltd., outlining a joint venture with Chen Ziping, an experienced entrepreneur in the travel industry, and Chan Heng Fai, HWH’s +Executive Chairman, as a part of HWH’s strategy of building its travel business in Asia. The planned joint venture company (referred +to here as the “JVC” or “HTHPL”) will be known as HapiTravel Holding Pte. Ltd. The JVC will be initially owned +as follows: (a) HWHPL will hold 19 % of the shares in the JVC; (b) Mr. Chan will hold 11 %; and (c) the remaining 70 % of the shares in +the JVC will be held by Mr. Chen. +On +November 6, 2024, the Company signed a loan agreement with HTHPL in the amount of $ 137,658 at an interest rate of 5 % per annum, the maturity +date of which is on or before the second anniversary of the effective date. +On +December 18, 2024, the Company sold Hapi Travel Pte. Ltd. (“HTPL”) to HTHPL for a consideration of $ 834 . +As +of December 31, 2025, HTHPL owed the Company a total of $ 26,623 , which is recorded in other receivables in the financial statements. +This amount is presented net of the subscription fee of $ 190 that the Company owed for the 19 % shareholding in the JVC. $ 145,478 was +written off as bad debt and record in general and administrative expenses in the financial statements +F- 23 +NOTE +10 - FINANCIAL ASSETS AT FAIR VALUE +Financial +assets measured at fair value on a recurring basis are summarized below and disclosed on the consolidated balance sheet as of December +31, 2025 and 2024: +SCHEDULE OF FINANCIAL ASSETS MEASURED AT FAIR VALUE ON A RECURRING BASIS +Fair Value Measurement Using +Amount at +Level 1 +Level 2 +Level 3 +Fair Value +December 31, 2025 +Assets +Warrants – SHRG +$ - +$ 87 +$ - +$ 87 +Convertible loans receivable – SHRG +- +1,478,419 +- +1,478,419 +Marketable securities - Trading +84,466 +- +- +84,466 +Total Investment in securities at Fair Value +$ 84,466 +$ 1,478,506 +$ - +$ 1,478,506 +Fair +Value Measurement Using +Amount +at +Level +1 +Level +2 +Level +3 +Fair +Value +December +31, 2024 +Assets +Warrants +– SHRG +$ +- +$ +13,272 +$ +- +$ +13,272 +Convertible +loans receivable – SHRG +- +744,652 +- +744,652 +Total +Investment in securities at Fair Value +$ +- +$ +757,924 +$ +- +$ +757,924 +The +fair value of the SHRG warrants under level 2 category as of December 31, 2025 and 2024 were calculated using a binomial option pricing +model valued with the following weighted average assumptions: +SCHEDULE OF FAIR VALUE WEIGHTED AVERAGE ASSUMPTIONS +December 31, 2025 +December 31, 2024 +WRNT 1 +Stock price +$ 0.023 +$ 1.000 +Exercise price +$ 1.6800 +$ 1.6800 +Risk free interest rate +3.56 % +4.34 % +Annualized volatility +390.99 % +204.14 % +Dividend yield +0.00 % +0.00 % +Year to maturity +3.21 +4.21 +December 31, 2025 +WRNT 2 +Stock price +$ 0.023 +Exercise price +$ 0.8500 +Risk free interest rate +3.49 % +Annualized volatility +390.99 % +Dividend yield +0.00 % +Year to maturity +2.25 +Warrants measurement input +2.25 +F- 24 +The +Company has elected to recognize the convertible loan at fair value and therefore there was no further evaluation of embedded features +for bifurcation. The Company engaged third party valuation firm to perform the valuation of convertible loans. The fair value of the +convertible loans is calculated using the binomial tree model based on probability of remaining as straight debt using discounted cash +flow with the following assumptions: +CN# +1 +2 +3 +4 +Valuation date +December 31, +2025 +December 31, +2025 +December 31, +2025 +December 31, +2025 +Risk-free interest rate +3.471 % +3.471 % +3.471 % +3.472 % +Expected life +1.21 year +1.35 year +1.43 year +1.62 year +Discount rate +6.00 % +8.00 % +8.00 % +8.00 % +Expected volatility +390.988 % +390.988 % +390.988 % +390.988 % +Expected dividend yield +0 % +0 % +0 % +0 % +Fair value +$ 227,909 +$ 231,679 +$ 230,383 +$ 91,066 +CN# +5 +6 +7 +8 +Valuation date +December 31, +2025 +December 31, +2025 +December 31, +2025 +December 31, +2025 +Risk-free interest rate +3.590 % +3.489 % +3.505 % +3.520 % +Expected life +0.04 year +2.25 year +2.49 year +2.71 year +Discount rate +8.00 % +8.00 % +8.00 % +8.00 % +Expected volatility +390.988 % +390.988 % +390.988 % +390.988 % +Expected dividend yield +0 % +0 % +0 % +0 % +Fair value +$ 160,941 +$ 127,260 +$ 52,535 +$ 59,621 +CN# +9 +10 +Valuation date +December 31, +2025 +December 31, +2025 +Risk-free interest rate +3.524 % +3.535 % +Expected life +2.77 year +2.94 year +Discount rate +8.00 % +8.00 % +Expected volatility +390.988 % +390.988 % +Expected dividend yield +0 % +0 % +Warrant measurement input +0 % +0 % +Fair value +$ 170,945 +$ 126,081 +Changes +in the observable input values would likely cause material changes in the fair value of the Company’s Level 2 financial instruments. +A significant increase (decrease) in this likelihood would result in a higher (lower) fair value measurement. +During +the years ended December 31, 2025 and 2024, the Company held convertible notes receivable with SHRG. The following table shows the activity +of the notes during the years ended December 31, 2025 and 2024. +F- 25 +SCHEDULE OF CONVERTIBLE NOTES RECEIVABLE, RELATED PARTY +December 31, +2024 +Additions +Unrealized +Loss +December 31, +2025 +Convertible note receivable, related party +$ 744,652 +$ 780,000 +$ ( 46,234 ) +$ 1,478,419 +Total +$ 744,652 +$ 780,000 +$ ( 46,234 ) +$ 1,478,419 +December 31, +2023 +Additions +Unrealized Loss +December 31, 2024 +Convertible note receivable, related party +$ - +$ 850,000 +$ 105,348 +$ 744,652 +Total +$ - +$ 850,000 +$ 105,348 +$ 744,652 +During +the years ended December 31, 2025 and 2024, the Company revalued the convertible note receivable with SHRG and the balance increased +from $ 744,652 +to $ 1,478,419 +and $ 0 +to $ 744,652 , +respectively. The total $ 46,234 +revaluated loss amount was booked in unrealized loss on convertible note receivable and warrants – related party, and $ 105,348 +revaluated gain amount was booked in unrealized loss on convertible note receivable and warrants – related party. +During +the year ended December 31, 2025, the Company reclassified “Investment in securities at fair value – related party” +and some of “Convertible Loan Receivables at Fair Value – Related Party” from current assets to noncurrent assets in +the consolidated balance sheet based on management’s assessment of the expected holding period. This change in classification had +no impact on the Company’s consolidated statements of operations, cash flows, or shareholders’ equity. +The +Company’s investment portfolio includes the following Level 1 securities, measured at fair value using unadjusted quoted market +prices in active markets. For U.S. trading stocks, we use MarketWatch stock prices as the share prices to calculate fair value. For overseas +stock, we use the stock price from the local stock exchange to calculate fair value. +Realized +loss on marketable securities for the year ended December 31, 2025 was $ 4,424 . Unrealized loss on marketable securities was $ 737 in the +year ended December 31, 2025. These gains and losses were recorded directly to net loss. +NOTE +11 — STOCKHOLDERS’ EQUITY +The +total amount of authorized capital stock of the Company of 500,000,000 shares, consists of (a) 450,000,000 shares of common stock (the +“Common Stock”), and (b) 50,000,000 shares of preferred stock (the “Preferred Stock”). As of December 31, 2025 +and 2024, there were no shares of preferred stock outstanding. +The +Company previously had shares of Class B common stock outstanding, which automatically converted into Class A common stock at the time +of the Business Combination, on a one-for-one basis. +Rights +- Each holder of a right automatically received one-tenth (1/10) of one share of common stock upon consummation of the Business +Combination. +Warrants +— Public Warrants may only be exercised for a whole number of shares. No fractional warrants will be issued upon separation +of the Units and only whole warrants will trade. The Public Warrants became exercisable 30 days after the completion of the Business +Combination. The Public Warrants will expire five years after the completion of the Business Combination. +The +Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise of a warrant and will have no obligation +to settle such warrant exercise unless a registration statement under the Securities Act covering the issuance of the shares of Class +A common stock issuable upon exercise of the warrants is then effective and a current prospectus relating to those shares of Class A +common stock is available, subject to the Company satisfying its obligations with respect to registration, or a valid exemption from +registration is available. No warrant will be exercisable for cash or on a cashless basis, and the Company will not be obligated to issue +any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified +under the securities laws of the state of residence of the exercising holder, or an exemption from registration is available. +F- 26 +Redemption +of Warrants When the Price per Share of Class A Common Stock Equals or Exceeds $18.00 — Once the warrants become exercisable, +the Company may redeem the outstanding Public Warrants: +● +in +whole and not in part; +● +at +a price of $ 0.01 per Public Warrant; +● +upon +a minimum of 30 days’ prior written notice of redemption, or the 30-day redemption period to each warrant holder; and +● +if, +and only if, the last reported sale price of the Class A common stock equals or exceeds $ 18.00 per share (as adjusted for stock splits, +stock dividends, reorganization, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on +the trading day prior to the date on which the Company sends the notice of redemption to warrant holders. +If +and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register +or qualify the underlying securities for sale under all applicable state securities laws. +If +the Company calls the Public Warrants for redemption, as described above, its management will have the option to require any holder that +wishes to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise +price and number of common stock issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in +the event of a stock dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. However, except as +described below, the Public Warrants will not be adjusted for issuances of common stock at a price below its exercise price. Additionally, +in no event will the Company be required to net cash settle the Public Warrants. +The +Private Placement Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering except the Private +Placement Warrants (including the Class A common stock issuable upon exercise of the Private Placement Warrants) were not transferable, +assignable or salable until 30 days after the completion of the Business Combination, subject to certain exceptions. +The +following table summarizes the warrant activity for the years ended December 31, 2025 and 2024. +SCHEDULE OF WARRANT ACTIVITY +Warrants for +Weighted +Remaining Contractual +Aggregate +Common +Average +Term +Intrinsic +Shares +Exercise Price +(Years) +Value +Warrants Outstanding as of December 31, 2024 +909,874 +$ 57.5 +4.03 +$ - +Warrants Vested and exercisable at December 31, 2024 +909,874 +$ 57.5 +4.03 +$ - +Granted +250,000 +$ 2.0 +Exercised +( 250,000 ) +$ ( 2.0 ) +Forfeited, cancelled, expired +- +- +Warrants Outstanding as of December 31, 2025 +909,874 +$ 57.5 +3.03 +$ - +Warrants Vested and exercisable at December 31, 2025 +909,874 +$ 57.5 +3.03 +$ - +F- 27 +Warrant for +Weighted +Remaining Contractual +Aggregate +Common +Average +Term +Intrinsic +Shares +Exercise Price +(Years) +Value +Warrants Outstanding as of December 31, 2023 +909,875 +$ 57.5 +5.03 +$ - +Warrants Vested and exercisable at December 31, 2023 +909,875 +$ 57.5 +5.03 +$ - +Granted +- +- +Exercised +- +- +Forfeited, cancelled, expired +( 1 ) +- +Warrants Outstanding as of December 31, 2024 +909,874 +$ 57.5 +4.03 +$ - +Warrants Vested and exercisable at December 31, 2024 +909,874 +$ 57.5 +4.03 +$ - +Public +Offering +On +January 3, 2025, the Company announced the pricing of its public offering of 3,162,500 shares of common stock, par value $ 0.0001 per +share (the “Shares”) and 1,250,000 pre-funded warrants to purchase shares of common stock (“Pre-Funded Warrants”). +The Shares and Pre-Funded Warrants were offered at a public offering price of $ 0.40 per share and $ 0.3999 per Pre-Funded Warrant. The +Pre-Funded Warrants were exercisable immediately upon issuance and have an exercise price of $ 0.0001 per share. The gross proceeds to +the Company from the offering were approximately $ 1.76 million, before deducting placement agent fees and other offering expenses of +approximately $ 355,017 . +The +offering was conducted pursuant to the Company’s registration statement on Form S-1 (File No. 333-282567), which was initially +filed with the Securities and Exchange Commission on October 10, 2024, subsequently amended on October 23, 2024, December 4, 2024, and +December 10, 2024, and declared effective on December 19, 2024. The offering closed on January 6, 2025. +D. +Boral Capital LLC (“D. Boral Capital”) was acting as the exclusive placement agent for the offering. Pursuant to the Placement +Agency Agreement, the Company has agreed to pay D. Boral Capital a cash fee equal to 7.5 % of the gross proceeds from the offering, a +non-accountable expense allowance equal to 1.0 % of the gross proceeds, and reimbursement for legal and out-of-pocket expenses up to $ 75,000 . +The +Reverse Stock Split +On +January 16, 2025, the holders of a majority of the issued and outstanding shares of common stock of the Company, approved by written +consent, an amendment of the Company’s Amended and Restated Certificate of Incorporation to effect a reverse stock split of the +Company’s common stock, par value $ 0.0001 per share, at a ratio of 1-for-5 (the “Reverse Stock Split”). The Reverse +Stock Split was effectuated on February 24, 2025. +Merger +with HWH International Inc – Nevada +On +November 12, 2025, the Company entered into an agreement and plan of merger (“Merger Agreement”) with HWH International Inc., +a Nevada corporation and a wholly owned subsidiary of the Company (“New HWH”). The Company determined it advisable and in +the best interests of the Company and its stockholders that the Company merge with and into New HWH, with New HWH being the surviving +corporation (the “ Merger ”), upon the terms and subject to the conditions set forth in the Merger Agreement. The merger +was completed on November 14, 2025. After the Merger, the total number of shares of capital stock which New HWH has the authority to +issue is five hundred million ( 500,000,000 ), of which (i) four hundred and fifty million ( 450,000,000 ) shares be designated as common +stock, par value of $ 0.0001 per share, which shares shall not be subject to any preemptive rights, and (ii) fifty million ( 50,000,000 ) +shares of preferred stock, par value of $ 0.0001 per share. $ 10 of share capital from HWH International Inc. – Nevada was transferred +to additional paid-in capital on November 14, 2025. +2025 +Incentive Compensation Plan +On +November 26, 2025, the Board of Directors of the Company awarded the Company’s Chairman and Chief Executive Officer Chan Heng Fai 1,000,000 +shares of the Company’s common stock (the “Shares”). The Shares were granted to Mr. Chan as compensation for services rendered +to the Company pursuant to the Company’s 2025 Incentive Compensation Plan, as adopted on October 10, 2025. As of the date of issuance of the Shares, the fair value of the Shares was approximately $ 1,580,000 , and the related cost is included +in general and administrative expenses. +F- 28 +NOTE +12 — INCOME TAXES +The +provision for income taxes consisted of the following: +SCHEDULE OF PROVISION FOR INCOME TAXES +2025 +2024 +Current +$ ( 47,472 ) +$ - +Deferred +- +- +Total +$ ( 47,472 ) +$ - +SCHEDULE OF EFFECTIVE INCOME TAX RATE RECONCILIATION +2025 +2024 +Income +taxes at statutory rate +17.84 +% +20.39 +% +Change +in valuation allowance +( 17.84 +)% +( 20.39 +)% +Other +- +% +- +% +Effective +tax rate +- +% +- +% +Significant +components of the Company’s deferred tax assets and liabilities are as follows: +SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES +2025 +2024 +Deferred +tax assets: +Receivable +from related party +$ +- +$ +897 +Inventory +- +5,800 +Lease +Liability +12,278 +108,318 +Accrued +Commission +- +11 +Net +Operation Loss +886,022 +777,572 +Total +deferred tax assets +$ +898,300 +$ +892,598 +Deferred +tax liabilities: +Prepaid +commissions +$ +- +$ +- +Right-of-Use +Assets +( 11,889 +) +( 105,754 +) +Total +deferred tax liabilities +$ +( 11,889 +) +$ +( 105,754 +) +Deferred +tax assets / (liabilities), net +$ +886,411 +$ +786,844 +Less +valuation allowance +( 886,411 +) +( 786,844 +) +Deferred +tax asset c/f +$ +- +$ +- +After +consideration of all the evidence, both positive and negative, management has recognized a valuation allowance with respect to its net +deferred tax assets as at December 31, 2025 and 2024, as it believes it is unlikely that such deferred tax assets will be realized against +taxable income in future years. +The Company’s tax returns +for 2022, 2023 and 2024 remain open to examination. +As of December 31, 2025, the Company +had federal net operating loss carryforwards of approximately $ 886,022 , which do not expire and may be carried forward indefinitely. +F- 29 +NOTE +13 — LEASES +The +Company has operating leases for its one F&B store in South Korea and one F&B stores in Singapore as of December 31, 2025. The related lease +agreements do not contain any material residual value guarantees or material restrictive covenants. Since the Company’s leases +do not provide an implicit rate that can be readily determined, management uses a discount rate based on the incremental borrowing +rate. The Company’s weighted-average remaining lease term relating to its operating leases is 0.91 +years, with a weighted-average discount rate of 3.59 %. +The +Company has also utilized the following practical expedients: +● +Short-term +leases – for leases that are for a period of 12 months or less, the Company will not apply the recognition requirements of +ASC 842. +● +For +leases that contain related non-lease components, such as maintenance, the Company will account for these payments as a single lease +component. +The +current portion of operating lease liabilities and the non-current portion of operating lease liabilities are presented on the balance +sheets. Total lease expenses of $ 253,782 and $ 490,122 were included in general and administrative expenses in the statements of operations +for the years ended December 31, 2025 and 2024, respectively. Total cash paid for operating leases was $ 259,849 and $ 465,733 for the +years ended December 31, 2025 and 2024, respectively. In addition, the Company leases certain equipment on a short-term (12 months or +less) basis. Total short-term lease expense of $ 11,664 and $ 20,615 is included in general and administrative expenses for the years ended +December 31, 2025 and 2024, respectively. Supplemental balance sheet information related to operating leases is as follows: +SCHEDULE OF BALANCE SHEET INFORMATION RELATED TO OPERATING LEASES +December 31, 2025 +December 31, 2024 +Right-of-use assets +$ 92,655 +$ 548,757 +Lease liabilities - current +$ 84,122 +$ 340,651 +Lease liabilities - non-current +11,785 +220,249 +Total lease liabilities +$ 95,907 +$ 560,900 +As +of December 31, 2025, the aggregate future minimum rental payments under non-cancelable agreements are as follows: +SCHEDULE OF AGGREGATE FUTURE MINIMUM RENTAL PAYMENTS +Maturity of Lease Liabilities +Total +12 months ended December 31, 2026 +$ 86,161 +12 months ended December 31, 2027 +11,880 +Total undiscounted lease payments +$ 98,041 +Less: Imputed interest +( 2,134 ) +Present value of lease liabilities +$ 95,907 +Operating lease liabilities - Current +84,122 +Operating lease liabilities - Non-current +$ 11,785 +NOTE +14 — COMMITMENTS AND CONTINGENCIES +From +time to time the Company may be named in claims arising in the ordinary course of business. Currently, no legal proceedings, government +actions, administrative actions, investigations or claims are pending against the Company or involve the Company that, in the opinion +of management, could reasonably be expected to have a material adverse effect on its business and financial condition. For all periods +presented, the Company was not a party to any pending material litigation or other material legal proceedings. +NOTE +15 — CONCENTRATION RISK +The +Company maintains cash balances at various financial institutions in different countries. These balances are usually secured by the central +banks’ insurance companies. At times, these balances may exceed the insurance limits. As of December 31, 2025 and 2024, uninsured +cash balances were $ 1,624,957 and $ 3,861,339 , respectively. +Major +Suppliers +For +the year ended December 31, 2025, five suppliers accounted for approximately over 65 % of the Company’s total cost of revenue. +For +the year ended December 31, 2024, five suppliers accounted for approximately over 80 % of the Company’s total cost of revenue. +F- 30 +NOTE +16 – CORRECTION OF AN IMMATERIAL ERROR IN PREVIOUSLY ISSUED FINANCIAL STATEMENTS +During +the year ended December 31, 2024, the Company identified an immaterial error related to amounts allocated to Temporary Equity in its +previously issued financial statements for the three months ended March 31, 2024. +The +error resulted in an overstatement of Retained Earnings and a corresponding understatement of Temporary Equity by approximately $ 645,860 +for the three months ended March 31, 2024. There was no impact on net income, earnings per share, or total equity for any period presented. +During +the period ended March 31, 2025, the Company identified an immaterial error related to foreign currency translation adjustment in its +previously issued financial statements for the year ended December 31, 2024. +The +error resulted in an understatement of general and administrative expenses and a corresponding overstatement of foreign currency translation +adjustment by approximately $ 159,263 for the year ended December 31, 2024. There was $ 159,263 increase on net loss, a ($ 0.04 ) decrease +in earnings per share, and a $ 159,263 decrease in total equity. +The +accompanying comparative 2024 financial statements have been revised to correct this error. The Company has evaluated the error in accordance +with the SEC’s Staff Accounting Bulletin No. 99 and SAB No. 108 and concluded that it was not material to its previously issued +financial statements and therefore has been corrected herein through revision. +NOTE +17— SUBSEQUENT EVENTS +The +Company has evaluated all subsequent events and transactions through March 25, 2026, the date that the consolidated financial statements +were available to be issued and noted no subsequent events requiring financial statement recognition or disclosure other than noted below: +Securities +Purchase Agreements with SHRG +On +January 2, 2026, the Company entered into a securities purchase agreement with Sharing Services Global Corporation (“SHRG”), +pursuant to which SHRG issued a convertible promissory note to the Company in the amount of $ 40,000 , the indebtedness thereunder being +convertible into SHRG common stock at $ 0.006 per share at HWH’s option until maturity of the convertible note three ( 3 ) years from +the date of the securities purchase agreement with an 8 % interest per annum and commitment fee of 8 % of the principal amount. +On +January 8 2026, the Company entered into a securities purchase agreement with Sharing Services Global Corporation, pursuant to which +SHRG issued a convertible promissory note to the Company in the amount of $ 120,000 , the indebtedness thereunder being convertible into +SHRG common stock at $ 0.006 per share at HWH’s option until maturity of the convertible note three ( 3 ) years from the date of the +securities purchase agreement with an 8 % interest per annum and commitment fee of 8 % of the principal amount. +On +February 4, 2026, the Company entered into a securities purchase agreement with Sharing Services Global Corporation, pursuant to which +SHRG issued a convertible promissory note to the Company in the amount of $ 125,000 , the indebtedness thereunder being convertible into +SHRG common stock at $ 0.006 per share at HWH’s option until maturity of the convertible note three ( 3 ) years from the date of the +securities purchase agreement with an 8 % interest per annum and commitment fee of 8 % of the principal amount. +Acquisition +of Hapi Metaverse Inc. +On +February 5, 2026, Alset Inc., the Company’s majority stockholder entered into a Stock Purchase Agreement with the Company, pursuant +to which Alset Inc. agreed to sell to the Company 505,341,376 shares of Hapi Metaverse Inc. (“Hapi”) for a purchase price +of $ 19,910,603 in the form of a promissory note convertible into newly issued shares of common stock of the Company Effectively, upon +closing this transaction, the Company will become Hapi’s controlling stockholder. +F- 31 +Item +9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. +Not +Applicable. +Item +9A. Controls and Procedures. +Evaluation +of Disclosure Controls and Procedures +In +connection with the preparation of our Report on Form 10-K, an evaluation was carried out by management, with the participation of our +Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules +13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act) as of December 31, 2025. Disclosure controls and procedures +are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, +summarized and reported within the time periods specified, and that such information is accumulated and communicated to management, including +the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. +During +evaluation of disclosure controls and procedures as of December 31, 2025, conducted as part of our annual audit and preparation of our +annual financial statements, management conducted an evaluation of the effectiveness of the design and operations of our disclosure controls +and procedures and concluded that our disclosure controls and procedures were ineffective for those reasons set forth below. +Management’s +Report on Internal Control over Financial Reporting +Management +is responsible for the preparation and fair presentation of the financial statements included in this Annual Report. The financial statements +have been prepared in conformity with accounting principles generally accepted in the United States of America and reflect management’s +judgment and estimates concerning effects of events and transactions that are accounted for or disclosed. +Management +is also responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial +reporting includes those policies and procedures that pertain to our ability to record, process, summarize and report reliable data. +Management recognizes that there are inherent limitations in the effectiveness of any internal control over financial reporting, including +the possibility of human error and the circumvention or overriding of internal control. Accordingly, even effective internal control +over financial reporting can provide only reasonable assurance with respect to financial statement presentation. Further, because of +changes in conditions, the effectiveness of internal control over financial reporting may vary over time. +In +order to ensure that our internal control over financial reporting is effective, management regularly assesses controls and did so most +recently for its financial reporting as of December 31, 2025. This assessment was based on criteria for effective internal control over +financial reporting described in the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) +of the Treadway Commission. In connection with management’s evaluation of the effectiveness of the Company’s internal control +over financial reporting as of December 31, 2025, management determined that the following issues constitute as material weakness: +● +The +Company has limited accounting personnel, and as such, is unable to properly segregate duties relating to the Company’s internal +controls over financial reporting. +● +Additionally, +well-defined accounting policies and procedures have not been established and many financial close procedures, including period-end +review and reconciliations, did not occur on a timely basis or failed to identify material adjustments. +This +Annual Report filed on Form 10-K does not include an attestation report of the Company’s registered public accounting firm regarding +internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting +firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in +this Annual Report. +Changes +in Internal Control over Financial Reporting +We +continue taking steps to enhance and improve the design of our internal controls over financial reporting. During the period covered +by this Annual Report on Form 10-K, we have not been able to completely remediate the material weaknesses identified above. To remediate +such weaknesses, we plan to appoint additional qualified personnel with financial accounting, U.S. GAAP, and SEC experience. +Item +9B. Other Information. +Insider +Trading Arrangements +During +the quarterly period ended December 31, 2025, none of our directors or officers (as defined in Rule 16a-1(f) promulgated under the Exchange +Act) adopted or terminated any “Rule 10b5-1 trading arrangement” or any “non-Rule 10b5-1 trading arrangement,” +as each term is defined in Item 408 of Regulation S-K. +Item +9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +None. +22 +PART +III +Item +10. Directors, Executive Officers and Corporate Governance. +Identification +of Directors and Executive Officers +The +name, age and position of our officers and directors are set forth below: +Name +Age +Position(s) +Heng +Fai Ambrose Chan +81 +Executive +Chairman, Chief Executive Officer, Director +Rongguo +(Ronald) Wei +54 +Chief +Financial Officer +Lim +Sheng Hon Danny +34 +Director +and Chief Operating Officer +William +Wu +59 +Independent +Director +Wong +Shui Yeung +55 +Independent +Director +Wong +Tat Keung +55 +Independent +Director +The +mailing address for each of the officers and directors named above is c/o of the Company at: 4800 Montgomery Lane, Suite 210, Bethesda, +MD 20814. +Business +Experience +Heng +Fai Ambrose Chan. Mr. Chan has served as our Chairman since October 2021 and has served as our Chief Executive Officer from October +2021 to January 2024 and since October 2025. Mr. Chan is an expert in banking and finance, with 45 years of experience in these industries. +He has restructured numerous companies in various industries and countries during the past 40 years. Mr. Chan has served as a director +of Alset International Limited, an SGX listed company, since May 2013, has served as its Chief Executive Officer since April 2014 and +has served as its Chairman of the Board since June 2017. Mr. Chan has served as a director of Hapi Metaverse Inc. since October 2014 +and as Chairman since July 2021. Mr. Chan has served as a director of Winning Catering Group, Inc. (formerly known as LiquidValue Development +Inc.) since January 2017 and has served as its Chairman of the Board since December 2017. Mr. Chan has served as a director of DSS, Inc., +an NYSE listed company, since January 2017 and has served as its Chairman of the Board since March 2019. Mr. Chan is the founder of Alset +Inc., a Nasdaq listed company, the majority shareholder of the Company and has served as its Chairman of the Board and Chief Executive +Officer since its inception in March 2018. Mr. Chan has served as a director of Value Exchange International, Inc., an OTC Markets company, +since December 2021. Mr. Chan has served as a director of Impact BioMedical Inc., a NYSE listed company, since March 2025. Mr. Chan has +served as a non-executive director of True Partner Capital Holding Limited, an HKSE listed company, since June 2025. +Mr. +Chan was the Executive Chairman of China Gas Holdings Limited, an HKSE listed company, an investor and operator of city gas pipeline +infrastructure in China from 1997 to 2002. Mr. Chan served as director of Skywest Ltd., a public Australian airline company from 2005 +to 2006. Mr. Chan was the Managing Director of SingHaiyi Group Ltd. (now known as SingHaiyi Group Pte. Ltd.), a Singapore property development +company formerly listed on the SGX, from March 2003 to September 2013. Mr. Chan served as a director of Heng Fai Enterprises Limited +(now known as Zensun Enterprises Limited), an HKSE listed company, an investment holding company, from September 1992 to 2015, and as +the Managing Chairman from 1995 to 2015. Mr. Chan served as a director of Global Medical REIT Inc., a NYSE listed company, a healthcare +facility real estate company, from December 2013 to July 2015. Mr. Chan served as a director of RSI International Systems, Inc. (now +known as ARCpoint Inc.), a TSXV listed company, the developer of RoomKeyPMS, a web-based property management system, from June 2014 to +February 2019. Mr. Chan served as director of Holista CollTech Ltd., an ASX listed company, from July 2013 until June 2021. Mr. Chan +served as a director of OptimumBank Holdings, Inc. from June 2018 until April 2022. Mr. Chan served as a director of Sharing Services +Global Corporation, an OTC Markets listed company, from April 2020 to July 2025 and served as its Chairman of the Board from July 2021 +to July 2025. +Mr. +Chan brings extensive knowledge to our company and a deep background in growth companies, emerging markets, mergers and acquisitions, +and capital market activities. The board of directors appointed Mr. Chan in recognition of his abilities to assist the Company in expanding +its business and the contributions he can make to the Company’s strategic direction. +23 +Rongguo +(Ronald) Wei. Mr. Wei has served as our Chief Financial Officer since October of 2021. Mr. Wei is a finance professional with more +than 15 years of experience working in public and private corporations in the United States. As the Co-Chief Financial Officer of Alset +Inc., the majority shareholder of Alset International Limited, HWH’s owner, and Chief Financial Officer of SeD Development Management +LLC, Mr. Wei is responsible for oversight of all finance, accounting, reporting and taxation activities for those companies. Prior to +joining SeD Development Management LLC in August 2016, Mr. Wei worked for several different U.S. multinational and private companies +including serving as Controller at American Silk Mill, LLC, a textile manufacturing and distribution company, from August 2014 to July +2016, serving as a Senior Financial Analyst at Air Products & Chemicals, Inc., a manufacturing company, from January 2013 to June +2014, and serving as a Financial/Accounting Analyst at First Quality Enterprise, Inc., a personal products company, from 2011 to 2012. +Mr. Wei served as a member of the Board Directors of Amarantus Bioscience Holdings, Inc., a biotech company, from February to May 2017, +and has served as Chief Financial Officer of that company from February 2017 until November 2017. Before Mr. Wei came to the United States, +he worked as an equity analyst at Hong Yuan Securities, an investment bank in Beijing, China, concentrating on industrial and public +company research and analysis. Mr. Wei is a certified public accountant and received his Master of Business Administration from the University +of Maryland and a Master of Business Taxation from the University of Minnesota. Mr. Wei also holds a Master in Business degree from Tsinghua +University and a Bachelor’s degree from Beihang University. +Lim +Sheng Hon Danny. Mr. Lim was appointed Chief Operating Officer of HWH in February 2024 and also serves as Chief Strategy Officer +of the Company. Mr. Lim has served as a member of our Board of Directors since October of 2025. Mr. Lim has served as Senior Vice President, +Business Development and as Executive Director of Alset International Limited, an SGX listed company since 2020. Mr. Lim has served as +a director of Alset Inc., a Nasdaq listed company, the majority shareholder of the Company, since October 2022. Mr. Lim has served as +a director of DSS, Inc., a NYSE listed company, since October 2023. Mr. Lim has served as a director of Value Exchange International +Inc., an OTC Markets listed company, since December 2023. +Mr. +Lim has extensive experience in business development, merger & acquisitions, corporate restructuring and strategic planning and execution. +Mr. Lim manages business development efforts, focusing on corporate strategic planning, merger and acquisition and capital markets activities. +Mr. Lim oversees and ensures executional efficiency, and facilitates implementation of our company’s strategies by internal and +external stakeholders. Mr. Lim liaises with corporate partners or investment prospects for potential working/investment collaborations, +and operational subsidiaries to augment a close parent-subsidiary working relationship. Mr. Lim graduated from Singapore Nanyang Technological +University with a Bachelor’s Degree with Honors in Business, specializing in Banking and Finance. +We +have also assembled a group of independent directors who will provide public company governance, executive leadership, operational oversight, +private equity investment management and capital markets experience. Included in this group is William Wu, Wong Shui Yeung (Frankie) +and Wong Tat Keung (Aston). +William +Wu. Mr. Wu has served as a member of our Board of Directors since January of 2022. Mr. Wu previously served as the Executive Director +and Chief Executive Officer of Power Financial Group Limited from November 2017 to January 2019. Mr. Wu has served on the Board of Directors +of Alset Inc. since November of 2020. Mr. Wu has served as an independent non-executive director of JY Grandmark Holdings Limited since +November 2019. Mr. Wu has served as a member of the Board of Directors of DSS, Inc. since October of 2019. Mr. Wu has served as a Director +of Asia Allied Infrastructure Holdings Limited since February 2015. Mr. Wu previously served as a Director and Chief Executive Officer +of RHB Hong Kong Limited from April 2011 to October 2017. Mr. Wu served as the Chief Executive Officer of SW Kingsway Capital Holdings +Limited (now known as Sunwah Kingsway Capital Holdings Limited) from April 2006 to September 2010. Mr. Wu holds a Bachelor of Business +Administration degree and a Master of Business Administration degree of Simon Fraser University in Canada. He was qualified as a Chartered +Financial Analyst of The Institute of Chartered Financial Analysts in 1996. +Mr. +Wu previously worked for a number of international investment banks and possesses over 28 years of experience in the investment banking, +capital markets, institutional broking and direct investment businesses. He is a registered license holder to carry out Type 6 (advising +on corporate finance) and Type 9 (asset management) regulated activities under the Securities and Futures Ordinance (Chapter 571 of the +Laws of Hong Kong). We believe that Mr. Wu’s knowledge of complex, cross-border financial matters is highly relevant to our business +and qualifies him to serve as an independent member of the board. +24 +Mr. +Wu demonstrates extensive knowledge of complex, cross-border financial matters highly relevant to our business, making him well-qualified +to serve as an independent member of the board. Mr. Wu serves on our Audit Committee and Compensation Committee. +Wong +Shui Yeung (Frankie). Mr. Wong has served as a member of our Board of Directors since January of 2022. Mr. Wong is a practicing member +and fellow of Hong Kong Institute of Certified Public Accountants. He holds a bachelor’s degree in business administration. He +has over 25 years’ experience in accounting, auditing, corporate finance, corporate investment and development, and company secretarial +practice. Mr. Wong has served as a director of Alset Inc. and DSS Inc. since November 2021 and July 2022, respectively, the shares of +which are listed on NASDAQ and NYSE, respectively, and Value Exchange International, Inc. since April 2022, the shares of which are listed +on the OTC Markets. He has served as an independent non-executive director of Alset International Limited since June 2017, the shares +of which are listed on the Catalist Board of the Singapore Stock Exchange and First Credit Finance Group Limited since February 2024, +the shares of which are listed on the GEM Board of The Stock Exchange of Hong Kong Limited. Mr. Wong was an Independent Non-Executive +Director of SMI Holdings Group Limited from April 2017 to December 2020 and SMI Culture & Travel Group Holdings Limited from December +2019 to November 2020, the shares of which were listed on the Main Board of The Stock Exchange of Hong Kong Limited. +Mr. +Wong’s knowledge of complex, cross-border financial, accounting and tax matters highly relevant to our business, as well as working +experience in internal corporate controls, qualify him to serve as an independent member of the board. Mr. Wong serves on our Audit Committee +and Compensation Committee. +Wong +Tat Keung (Aston). Mr. Wong has served as a member of our Board of Directors since January of 2022. Mr. Wong has over 20 years’ +experience in audit, accounting, taxation and business advisory. Since 2010, Mr. Wong has served as the director of Aston Wong CPA Limited. +He has been an independent non-executive director of Alset International since January 2017, and a director of Alset Inc. since November +2020. Mr. Wong has served as a director of Value Exchange International Inc., an OTC Markets listed company, since April 2022. Mr. Wong +has been an independent non-executive director of Roma Group Limited, a valuation and technical advisory firm, since March 2016, and +has served as an independent non-executive director of Lerthai Group Limited, a property, investment, management and development company, +since December 2018. Previously, he served as the director and sole proprietor of Aston Wong & Co., a registered certified public +accounting firm, from January 2006 to February 2010. From January 2005 to December 2005, he was a Partner at Aston Wong, Chan & Co., +Certified Public Accountants. From April 2003 to December 2004, he served at Gary Cheng & Co., Certified Public Accountants as Audit +Senior. He served as an Audit Junior to Supervisor of Hui Sik Wing & Co., certified public accountants from April 1993 to December +1999. He served as an independent non-executive director of SingHaiyi from July 2009 to July 2013 and ZH Holdings from December 2009 +to July 2015. Mr. Wong is a Certified Public Accountant admitted to practice in Hong Kong. He is a Fellow Member of Association of Chartered +Certified Accountants and an Associate Member of the Hong Kong Institute of Certified Public Accountants. He holds a Master in Business +Administration degree (financial services) from the University of Greenwich, London, England. +Mr. +Wong demonstrates extensive knowledge of complex, cross-border financial, accounting and tax matters highly relevant to our business, +as well as working experience in internal corporate controls, making him well-qualified to serve as an independent member of the board. +Mr. Wong serves on our Audit Committee and Compensation Committee. +Family +Relationships +There +are no family relationships among the officers and directors, nor are there any arrangements or understanding between any of the directors +or officers of the Company. +Section +16(a) Beneficial Ownership Reporting Compliance +To +our knowledge, no director, officer or beneficial owner of more than ten percent of any class of our equity securities, failed to file +on a timely basis reports required by Section 16(a) of the Exchange Act during the fiscal year ended December 31, 2025. +25 +Code +of Ethics +We +adopted a code of ethics on January 31, 2022, that applies to our principal executive officer, principal financial officer, principal +accounting officer or controller or persons performing similar functions. +Corporate +Governance +There +have been no changes in any state law or other procedures by which security holders may recommend nominees to our board of directors. +We do not have a standing nominating committee though we intend to form a corporate governance and nominating committee. +Insider +Trading Policy +On +March 18, 2025 we adopted an insider trading policy and procedures governing the purchase, sale, and/or other dispositions of our securities +by directors, officers and employees, which are reasonably designed to promote compliance with insider trading laws, rules and regulations, +and applicable Nasdaq listing standards (the “Insider Trading Policy”). +The +foregoing description of the Insider Trading Policy does not purport to be complete and is qualified in its entirety by the terms and +conditions of the Insider Trading Policy, a copy of which is attached hereto as Exhibit 19.1 and is incorporated herein by reference. +Board +Committees +Our +Board of Directors has an Audit Committee and a Compensation Committee. Each of these committees is currently composed of Wong Tat Keung, +William Wu and Wong Shui Yeung. +Our +Audit Committee and Compensation Committee will each comply with the listing requirements of the Nasdaq Marketplace Rules. At least one +member of the Audit Committee will be an “audit committee financial expert,” as that term is defined in Item 407(d)(5)(ii) +of Regulation S-K, and each member will be “independent” as that term is defined in Rule 5605(a) of the Nasdaq Marketplace +Rules. Our Board of Directors has determined that each of Wong Tat Keung, William Wu and Wong Shui Yeung is independent. +Involvement +in Certain Legal Proceedings +None +of our directors, executive officers and control persons/promoters has been involved in any of the following events during the past ten +years: +● +Any +bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the +time of the bankruptcy or within two years prior to that time, +● +Any +conviction in a criminal proceeding or being subject to any pending criminal proceeding (excluding traffic violations and other minor +offenses); +● +Being +subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, +permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities +or banking activities; or +● +Being +found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have +violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated. +26 +Conflicts +of Interest +During +the period covered by this report, the Company was incorporated under the laws of the State of Delaware until November 14, 2025, at which +time the Company became a Nevada corporation pursuant to a merger, as described in Item 1 of Part I of this Annual Report. +In +general, officers and directors of a corporation incorporated under the laws of the State of Delaware are required to present business +opportunities to a corporation if: +● the +corporation could financially undertake the opportunity; +● the +opportunity is within the corporation’s line of business; and +● it +would not be fair to the corporation and its stockholders for the opportunity not to be brought +to the attention of the corporation. +As +a result of the change of our state of incorporation, we are now governed by the Nevada Revised Statutes. +Under +NRS 78.140, contracts or other transactions between us and one or more of our directors or officers, or between us and any other entity +in which one or more of our directors or officers have a financial interest, are not void or voidable solely for that reason, provided +that: +(i) +the material facts as to the director’s or officer’s relationship or interest are disclosed or known to the board of directors, +and the board authorizes, approves or ratifies the transaction in good faith; +(ii) +the material facts are disclosed or known to the stockholders, and the stockholders approve or ratify the transaction in good faith; +or +(iii) +the transaction is fair to the corporation at the time it is authorized or approved. +Under +NRS 78.070, a Nevada corporation may renounce its interest in business opportunities. +The +Company’s Audit Committee, pursuant to its written charter, is responsible for reviewing and approving related-party transactions +to the extent the Company enters into such transactions. The Audit Committee will consider all relevant factors when determining whether +to approve a related party transaction, including whether the related party transaction is on terms no less favorable to the Company +than terms generally available from an unaffiliated third-party under the same or similar circumstances and the extent of the related +party’s interest in the transaction. No director may participate in the approval of any transaction in which he is a related party, +but that director is required to provide the Audit Committee with all material information concerning the transaction. The Company also +requires each of its directors and executive officers to complete a directors’ and officers’ questionnaire that elicits information +about related party transactions. +These +procedures are intended to determine whether any such related party transaction impairs the independence of a director or presents a +conflict of interest on the part of a director, employee or officer. +As +a result of the relationship between HWH Nevada and the Company, the Company obtained a fairness opinion in connection with the board’s +approval of the Agreement and Plan of Merger with HWH Nevada. +27 +Item +11. Executive Compensation. +None +of our executive officers has received any cash compensation for services rendered to us. We agreed to pay to Alset Management Group +Inc. a total of $10,000 per month for office space, utilities and secretarial and administrative support. Upon completion of the Business +Combination, we ceased paying these monthly fees. No compensation of any kind, including any finder’s fee, reimbursement, consulting +fee or monies in respect of any payment of a loan, was paid by us to our Sponsor, officers or directors or any affiliate of our Sponsor, +officers or directors, prior to, or in connection with any services rendered in order to effectuate, the consummation of the Business +Combination (regardless of the type of transaction that it is). However, these individuals were reimbursed for any out-of-pocket expenses +incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on +suitable business combinations. Our Audit Committee reviews on a quarterly basis all payments that were made to our Sponsor, officers +or directors or our or their affiliates. Any such payments prior to the Business Combination were made using funds held outside the Trust +Account. Other than quarterly Audit Committee’s review of such payments, we do not expect to have any additional controls in place +governing our reimbursement payments to our directors and executive officers for their out-of-pocket expenses incurred in connection +with identifying and consummating the Business Combination. +After +the completion of the Business Combination, directors or members of our management team who remained with the Company may be paid consulting +or management fees, or other fees, from the Company. We have not established any limit on the amount of such fees that may be paid by +the Company to our directors or members of management. No compensation has been paid to the Company’s Chairman for his services. +In 2024 we set the cash compensation for our three independent directors at $10,000 per year, to be paid in quarterly increments of $2,500 +beginning with the quarter which ended on March 31, 2024. +On +November 26, 2025, the Board of Directors of the Company awarded the Company’s Chairman and Chief Executive Officer Chan Heng Fai 1,000,000 +shares of the Company’s common stock (the “Shares”). The Shares were granted to Mr. Chan as compensation for services rendered +to the Company pursuant to the Company’s 2025 Incentive Compensation Plan, as adopted on October 10, 2025. +Director +Compensation +The +following table sets forth the cash and non-cash compensation awarded to or earned by the members of our Board of Directors during the +fiscal year ended December 31, 2025: +Name +Directors’ +Fee +Salary +Consultation +Stock +Award +Total +Compensation +Wong +Tat Keung +$ +10,000 +$ +10,000 +William +Wu +$ +10,000 +$ +10,000 +Wong +Shui Yeung +$ +10,000 +$ +10,000 +Chan +Heng Fai +$ +- +$ +1,580,000 +$ +1,580,000 +Lim Sheng Hon Danny +$ +- +$ +- +Outstanding +Equity Awards at Fiscal Year-End +There +were no grants of stock options through the date of this report. +We +do not have any long-term incentive plans that provide compensation intended to serve as incentive for performance. +The +board of directors of the Company has not adopted a stock option plan. The Company has no plans to adopt it but may choose to do so in +the future. If such a plan is adopted, this may be administered by the board or a committee appointed by the board (the “Committee”). +The Committee would have the power to modify, extend or renew outstanding options and to authorize the grant of new options in substitution +therefore, provided that any such action may not impair any rights under any option previously granted. The Company may develop an incentive-based +stock option plan for its officers and directors. +Stock +Awards Plan +On +November 26, 2025, the Board of Directors of the Company awarded the Company’s Chairman and Chief Executive Officer Chan Heng Fai 1,000,000 +shares of the Company’s common stock (the “Shares”). The Shares were granted to Mr. Chan as compensation for services rendered +to the Company pursuant to the Company’s 2025 Incentive Compensation Plan, as adopted on October 10, 2025. +28 +Item +12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. +Security +Ownership +The +following table and accompanying footnotes set forth certain information with respect to the beneficial ownership of our common stock +as of March 25, 2026, referred to in the table below as the “Beneficial Ownership Date,” by: +● +each +person who is known to be the beneficial owner of 5% or more of the outstanding shares of our common stock; +● +each +member of our board of directors, director nominees and each of our named executive officers individually; and +● +all +of our directors, director nominees and executive officers as a group. +Beneficial +ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and +the percentage ownership of that person, shares of common stock subject to stock options or warrants held by that person that are currently +exercisable or exercisable within 60 days of the Beneficial Ownership Date and shares of restricted stock subject to vesting until the +occurrence of certain events, are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other +person (however, neither the stockholder nor the directors and officers listed below own any stock options or warrants to purchase shares +of our common stock at the present time). The percentages of beneficial ownership are based on 6,476,400 shares of HWH International +Inc. Common Stock outstanding as of the Beneficial Ownership Date. +To +our knowledge, except as set forth in the footnotes to this table and subject to applicable community property laws, each person named +in the table has sole voting and investment power with respect to the shares set forth opposite such person’s name. +Name and Address +Number of Common +Shares Beneficially +Owned +Percentage of +Outstanding +Common Shares (1) +Directors and Executive Officers (2): +Heng Fai Ambrose Chan (3)(4) +6,067,334 +81.15 % +Rongguo (Ronald) Wei +0 +0.00 % +Lim Sheng Hon Danny +0 +0.00 % +William Wu +0 +0.00 % +Wong Shui Yeung +0 +0.00 % +Wong Tat Keung +0 +0.00 % +All Directors and Officers (6 individuals) +6,067,334 +81.15 % +Alset Acquisition Sponsor, LLC (3) +535,475 +7.16 % +Alset International Limited +1,991,669 +26.64 % +Alset Inc. (3) +5,064,734 +67.74 % +Other Stockholders: None +(1) +Based +upon 7,476,400 shares of Common Stock outstanding as of March 25, 2026. +(2) +The +mailing address for each individual and entity set forth above is c/o HWH International Inc., 4800 Montgomery Lane, Suite 210, Bethesda, +MD 20814. +(3) +Alset +Acquisition Sponsor, LLC, our Sponsor, is the record holder of the securities reported herein. Alset Inc. and Alset International +Limited are the owners of 55% and 45% respectively of Alset Acquisition Sponsor, LLC. Alset Inc. owns 85.7% of Alset International +Limited. Heng Fai Ambrose Chan is the Chairman, Chief Executive Officer and Majority Stockholder of Alset Inc. Mr. Chan may be deemed +to share beneficial ownership of the securities held of record by our Sponsor. Mr. Chan disclaims any such beneficial ownership except +to the extent of his pecuniary interest. +(4) +Heng +Fai Ambrose Chan directly owns 1,002,600 shares of HWH International Inc. +29 +Item +13. Certain Relationships and Related Transactions, and Director Independence. +Family +Relationships +Not +applicable. +Policies +and Procedures for Transactions with Related Persons +Following +the Business Combination, the Company’s Code of Ethics was amended to require it to avoid, wherever possible, all related party +transactions that could result in actual or potential conflicts of interests, except under guidelines approved by the Board (or the Audit +Committee). Related-party transactions are defined as transactions in which (1) the aggregate amount involved will or may be expected +to exceed $120,000 in any calendar year, (2) the Company or any of its subsidiaries is a participant, and (3) any (a) executive officer, +director or nominee for election as a director, (b) greater than 4% beneficial owner of the Company Common Stock, or (c) immediate family +member of the persons referred to in clauses (a) and (b), has or will have a direct or indirect material interest (other than solely +as a result of being a director or a less than 10% beneficial owner of another entity). A conflict-of-interest situation can arise when +a person takes actions or has interests that may make it difficult to perform his or her work objectively and effectively. Conflicts +of interest may also arise if a person, or a member of his or her family, receives improper personal benefits as a result of his or her +position. +The +Company’s Audit Committee, pursuant to its written charter, is responsible for reviewing and approving related-party transactions +to the extent the Company enters into such transactions. The Audit Committee will consider all relevant factors when determining whether +to approve a related party transaction, including whether the related party transaction is on terms no less favorable to the Company +than terms generally available from an unaffiliated third-party under the same or similar circumstances and the extent of the related +party’s interest in the transaction. No director may participate in the approval of any transaction in which he is a related party, +but that director is required to provide the Audit Committee with all material information concerning the transaction. The Company also +requires each of its directors and executive officers to complete a directors’ and officers’ questionnaire that elicits information +about related party transactions. +These +procedures are intended to determine whether any such related party transaction impairs the independence of a director or presents a +conflict of interest on the part of a director, employee or officer. +As +a result of the relationship between the Company and HWH Nevada, the Company obtained a fairness opinion in connection with the board’s +approval of the Agreement and plan of Merger with HWH Nevada. +Transactions +with Related Persons, Promoters, and Certain Control Persons +Founder +Shares +On +November 8, 2021, the Sponsor received 2,156,250 shares of the Company’s Class B common stock (the “Founder Shares”) +for $25,000. The Founder Shares include an aggregate of up to 281,250 shares subject to forfeiture to the extent that the underwriters’ +over-allotment is not exercised in full or in part, so that the number of Founder Shares will equal, on an as-converted basis, to approximately +20% of the Company’s issued and outstanding shares of common stock after the Initial Public Offering (excluding the placement units +and underlying securities). In connection with the exercise of the underwriters’ overallotment option, these shares are no longer +subject to forfeiture. +The +holder of the Founder Shares have agreed, subject to limited exceptions, not to transfer, assign or sell any of the Founder Shares until +the earlier to occur of: (A) one year after the completion of a Business Combination and (B) subsequent to a Business Combination, (x) +if the last reported sale price of the Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock capitalizations, +reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days +after a Business Combination, or (y) the date on which the Company completes a liquidation, merger, capital stock exchange or other similar +transaction that results in all of the Public Stockholders having the right to exchange their shares of common stock for cash, securities +or other property. +30 +Due +To Alset Inc. +Alset +Inc (“AEI”) is our ultimate holding company that is incorporated in the United States of America. The amount due to AEI represents +short-term working capital advances to the Company for its daily operations. There is no written, executed agreement and no financial/non-financial +covenants and the amount due to AEI is non-interest bearing. Since the amount due to AEI is due upon request, it is classified as a current +liability. The amounts due to AEI at December 31, 2025 and 2024 are $569,614 and $209,614 respectively. +On +April 24, 2024, the Company entered into a Credit Facility Agreement (the “Credit Agreement”) with Alset Inc., pursuant to +which AEI has provided the Company a line of credit facility (the “Credit Facility”) which provides a maximum, aggregate +credit line of up to $1,000,000. On April 14, 2025, the Company entered into an amendment (the “Amendment”) to this Credit +Facility Agreement. Under the terms of the Amendment, the date upon which each advance made under the Credit Facility and all accrued +but unpaid interest shall be due and payable was extended from April 24, 2025 to April 14, 2026. The terms of Alset Inc.’s Letter +of Continuing Financial Support to the Company were not altered by the Amendment. +Pursuant +to the Credit Agreement, the Company may request an advance (each, an “Advance”) on the Credit Facility. Each Advance shall +bear a simple interest rate of three percent (3%) per annum. Each Advance and all accrued but unpaid interest shall be due and payable +at the first (1 st ) anniversary of the effective date of the Credit Agreement. The Company may at any time during the term +of the Credit Agreement prepay a portion or all amounts of its indebtedness without penalty. Each Advance shall not be secured by a lien +or other encumbrance on any of the Company’s assets, but shall be solely a general unsecured debt obligation of the Company. On +September 24, 2024 the Company drew $300,000 from the credit line and accrued $3,164 in interest. On December 31, 2025, $3,164 of +the interest remained outstanding. +On +September 24, 2024, the Company entered into a Debt Conversion Agreement (the “AEI Conversion”) with Alset Inc., pursuant +to which a debt of $300,000 due to AEI was converted into shares of the Company’s common stock at a price per share of $0.63 for +a total of 476,190 shares. +Due +to Alset International Limited +Alset +International Limited (“AIL”) is incorporated in Singapore and is a fellow subsidiary of the common parent company, Alset +Inc. The amount due to AIL represents short-term working capital advances to the Company for its daily operations. There is no written, +executed agreement and no financial/non-financial covenants and the amount due to AIL is non-interest bearing. Since the amount due to +AIL is due upon request, it is classified as a current liability. The amounts due to AIL at December 31, 2025 and 2024 are $4,653,037 +and $5,096,047, respectively. +On +September 24, 2024, the Company entered into a Debt Conversion Agreement (the “AIL Conversion”) with Alset International +Limited, pursuant to which a debt of the balance payable to AIL as of June 30, 2024, $3,501,759 was fully converted into shares of the +Company’s common stock at a price per share of $0.63, for a total of 5,558,347 shares. +31 +On +April 14, 2025, the Company entered into an amendment (the “Amendment”) to the Credit Facility Agreement with Alset Inc. +dated April 24, 2024, pursuant to which, the Company released Alset International Limited from its obligations under its Letter of Continuing +Financial Support to the Company dated March 28, 2025. +Due +from Alset Business Development Pte. Limited +Alset +Business Development Pte. Limited (“ABD”) is incorporated in Singapore and is a fellow subsidiary of Alset Inc. The amount +due from ABD represents amount lent by ABD to Hapi Cafe Inc. for the investment in Ketomei Pte. Ltd in March 2022, and $5,000,000 lent +from Health Wealth Happiness Pte. Ltd. (“HWHPL”) to ABD in November 2024, with partial repayment of $707,000 received by +the Company in December 2024. There is no written, executed agreement and no financial/non-financial covenants and the amount due from +ABD is non-interest bearing. Since the amount due from ABD is due upon request, it is classified as a current asset. The amount due from +ABD at December 31, 2025 and 2024 are $4,232,313 and $4,113,701, respectively. +Due +from HotApp International Limited. +HotApp +International Limited (“HAIL”) is incorporated in Hong Kong and is a fellow subsidiary of Alset Inc. The amount due from +HAIL represents the amount HWHPL lent to HAIL in January 2025. There is no written, executed agreement and no financial/non-financial +covenants and the amount due from HAIL is non-interest bearing. Since the amount due from HAIL is due upon request, it is classified +as a current asset. The amount due from HAIL at December 31, 2025 is $381,461. +Loans +to Sharing Services Global Corporation +On +March 20, 2024, the Company entered into a securities purchase agreement with Sharing Services Global Corporation (“SHRG”), +pursuant to which the Company purchased from SHRG a (i) Convertible Promissory Note (“CN 1”) in the amount of $250,000, convertible +into 208,333,333 shares of SHRG’s common stock at the option of the Company, and (ii) certain warrants exercisable into 208,333,333 +shares of SHRG’s common stock at an exercise price of $0.0012 per share, the exercise period of the warrant being five (5) years +from the date of the securities purchase agreement, for an aggregate purchase price of $250,000 (“WRNT 1”). CN +1 bears a 6% interest rate and has scheduled maturity on March 19, 2027, three years from the date of the CN 1. At +the time of filing, the Company has not converted any of the debt contemplated by CN 1 nor exercised any of the warrants. +On +May 9, 2024, the Company entered into a securities purchase agreement with Sharing Services Global Corporation, pursuant to which the +Company purchased from SHRG a Convertible Promissory Note (“CN 2”) in the amount of $250,000, convertible into 125,000,000 +shares of SHRG’s common stock at the option of the Company for an aggregate purchase price of $250,000. CN 2 bears an 8% interest +rate and has scheduled maturity on May 8, 2027, three years from the date of the CN 2. Additionally, upon signing CN 2, SHRG owed the +Company a commitment fee of 8% of the principal amount, $20,000 in total, to be paid either in cash or in common stock of SHRG, at the +discretion of the Company. At the time of filing, the Company has not converted any of the debt +contemplated by CN 2. +On +June 6, 2024, the Company entered into a securities purchase agreement with Sharing Services Global Corporation, pursuant to which the +Company purchased from SHRG a Convertible Promissory Note (“CN 3”) in the amount of $250,000, convertible into 125,000,000 +shares of SHRG’s common stock at the option of the Company for an aggregate purchase price of $250,000. CN 3 bears an 8% interest +rate and has scheduled maturity on June 5, 2027, three years from the date of the CN 3. Additionally, upon signing CN 3, SHRG owed the +Company a commitment fee of 8% of the principal amount, $20,000 in total, to be paid either in cash or in common stock of SHRG, at the +discretion of the Company. At the time of filing, the Company has not converted any of the debt +contemplated by CN 3. +32 +On +August 13, 2024, the Company entered into a securities purchase agreement with Sharing Services Global Corporation, pursuant to which +the Company purchased from SHRG a Convertible Promissory Note (“CN 4”) in the amount of $100,000, convertible into 50,000,000 +shares of SHRG’s common stock at the option of the Company for an aggregate purchase price of $100,000. CN 4 bears an 8% interest +rate and has scheduled maturity on August 13, 2027, three years from the date of the CN 4. Additionally, upon signing CN 4, SHRG owed +the Company a commitment fee of 8% of the principal amount, $8,000 in total, to be paid either in cash or in common stock of SHRG, at +the discretion of the Company. At the time of filing, the Company has not converted any of the +debt contemplated by CN 4. +On +January 15, 2025, the Company entered into a securities purchase agreement with Sharing Services Global Corporation pursuant to which +the Company purchased from SHRG a Convertible Promissory Note (“CN 5”) in the amount of $150,000, convertible into 309,650 +shares of SHRG’s common stock at the option of the Company for an aggregate purchase price of $150,000. CN 5 bears an 8% interest +rate and has scheduled maturity on January 15, 2028, three years from the date of the CN 5. At +the time of filing, the Company has not converted any of the debt contemplated by CN 5. +On +March 31, 2025, the Company entered into a securities purchase agreement with Sharing Services Global Corporation pursuant to which the +Company purchased from SHRG a (i) Convertible Promissory Note (“CN 6”) in the amount of $150,000, convertible into 187,500 +shares of SHRG’s common stock at the option of the Company, and (ii) certain warrants exercisable into 937,500 shares of SHRG’s +common stock at an exercise price of $0.85 per share, the exercise period of the warrant being three (3) years from the date of the securities +purchase agreement, for an aggregate purchase price of $796,875. (“WRNT 2”). At the time of filing, the Company has not converted +any of the debt contemplated by CN 6 nor exercised any of the warrants. Additionally, +upon signing CN 6, SHRG owed the Company a commitment fee of 8% of the principal amount, $12,000 in total, to be paid either in cash +or in common stock of SHRG, at the discretion of the Company. CN 6 bears an 8% interest rate and has scheduled maturity on March 30, +2028, three years from the date of the CN 6. At the time of filing, the Company has not converted +any of the debt contemplated by CN 6 nor exercised any of the warrants. +On +April 21, 2025, the Company entered into a loan agreement (the “Loan Agreement 1”) with Sharing Services Global Corporation, +under which the Company provided a loan to SHRG in the amount of $30,000. The maturity date of the Loan Agreement 1 is April 21, 2026. +The Loan Agreement 1 bears a 10% interest rate. +On +April 25, 2025, the Company entered into a loan agreement (the “Loan Agreement 2”) with Sharing Services Global Corporation, +under which the Company provided a loan to SHRG in the amount of $250,000. The maturity date of the Loan Agreement 2 is April 25, 2026. +The Loan Agreement 2 bears an 8% interest rate. Additionally, upon execution of the Loan Agreement 2 SHRG incurred a commitment fee representing +5% of the loan principal, $12,500. +On +June 27, 2025, the Company entered into a securities purchase agreement with Sharing Services Global Corporation pursuant to which the +Company purchased from SHRG a Convertible Promissory Note (“CN 7”) in the amount of $60,000, convertible into 10,000,000 +shares of SHRG’s common stock at the option of the Company for an aggregate purchase price of $60,000, Additionally, +upon signing CN 7, SHRG owed the Company a commitment fee of 8% of the principal amount $4,800 in total, to be paid either in cash or +in common stock of SHRG, at the discretion of the Company. CN 7 bears an 8% interest rate and has scheduled maturity on June 26, 2028, +three years from the date of the CN 7. At the time of filing, the Company has not converted any +of the debt contemplated by CN 7. +On +September 17, 2025, the Company entered into a securities purchase agreement with Sharing Services Global Corporation pursuant to which +the Company purchased from SHRG a Convertible Promissory Note (“CN 8”) in the amount of $70,000, convertible into 11,666,667 +shares of SHRG’s common stock at the option of the Company for an aggregate purchase price of $70,000, Additionally, +upon signing CN 8, SHRG owed the Company a commitment fee of 8% of the principal amount, $5,600 in total, to be paid either in cash or +in common stock of SHRG, at the discretion of the Company. CN 8 bears an 8% interest rate and has scheduled maturity on September 16, +2028, three years from the date of the CN 8. At the time of filing, the Company has not converted +any of the debt contemplated by CN 8. +33 +On +October 6, 2025, the Company entered into a securities purchase agreement with Sharing Services Global Corporation pursuant to which +the Company purchased from SHRG a Convertible Promissory Note (“CN 9”) in the amount of $200,000, convertible into 33,333,333 +shares of SHRG’s common stock at the option of the Company for an aggregate purchase price of $200,000, Additionally, +upon signing CN 9, SHRG owed the Company a commitment fee of 8% of the principal amount, $16,000 in total, to be paid either in cash +or in common stock of SHRG, at the discretion of the Company. CN 9 bears an 8% interest rate and has scheduled maturity on October 6, +2028, three years from the date of the CN 9. At the time of filing, the Company has not converted +any of the debt contemplated by CN 9. +On +December 10, 2025, the Company entered into a securities purchase agreement with Sharing Services Global Corporation pursuant to which +the Company purchased from SHRG a Convertible Promissory Note (“CN 10”) in the amount of $150,000, convertible into 25,000,000 +shares of SHRG’s common stock at the option of the Company for an aggregate purchase price of $150,000, Additionally, +upon signing CN 10, SHRG owed the Company a commitment fee of 8% of the principal amount, $12,000 in total, to be paid either in cash +or in common stock of SHRG, at the discretion of the Company. CN 10 bears an 8% interest rate and has scheduled maturity on December +10, 2028, three years from the date of the CN 10. At the time of filing, the Company has not converted +any of the debt contemplated by CN 10. +SHRG +is a related party of the Company, as our stockholders Alset Inc. and Alset International Limited, in addition to certain entities affiliated +with them, are significant stockholders of SHRG, and our former Chief Executive Officer, John Thatch, is also the Chief Executive Officer +of SHRG. +Item +14. Principal Accounting Fees and Services +The +following table indicates the fees paid by us for services performed for the years ended December 31, 2025 and 2024: +Year +Ended +December +31, +2025 (HTL +International, LLC) +Year +Ended +December +31, +2024 (Grassi & +Co., CPAs, P.C.) +Audit +Fees +$ +50,000 +$ +283,563 +Audit-Related +Fees +$ +- +$ +115,594 +Tax +Fees +$ +- +$ +- +All +Other Fees +$ +- +$ +- +Total +$ +50,000 +$ +398,157 +Audit +Fees . This category includes the aggregate fees billed for professional services rendered by the independent auditors +during the years ended December 31, 2025 and 2024 for the audit of our consolidated financial statements and review of +Form 10-Qs. +Audit-Related +Fees. This category includes the aggregate fees billed for professional services rendered by the independent auditors during +the years ended December 31, 2025 and December 31, 2024 that are reasonably related to the performance of the audit or review of our +financial statements and are not reported above under “Audit Fees.” +Tax +Fees . This category includes the aggregate fees billed for tax services rendered in the preparation of our federal and +state income tax returns. +All +Other Fees . This category includes the aggregate fees billed for all other services, exclusive of the fees disclosed above, +rendered during the years ended December 31, 2025 and 2024. +On +January 13, 2024, the Company engaged Grassi & Co., CPAs, P.C. (“Grassi”) as its independent registered public accounting +firm for the Company’s fiscal year ending December 31, 2024. The decision to engage Grassi was recommended by the Company’s +Audit Committee and approved by the Company’s Board of Directors. +On +July 2, 2025, the Company engaged HTL International, LLC (“HTL”) as its independent registered public accounting firm for +the Company’s fiscal year ending December 31, 2025. The decision to engage HTL was recommended by the Company’s Audit Committee +and approved by the Company’s Board of Directors. +34 +PART +IV +Item +15. Exhibit and Financial Statement Schedules +(a)(1) +List of Financial statements included in Part II hereof: +Consolidated Balance Sheets as of December 31, 2025 and 2024 +Consolidated Statements of Operations for the Years Ended December 31, 2025 and 2024 +Consolidated Statements of Changes in Stockholders’ Deficit for the Years Ended December 31, 2025 and 2024 +Consolidated Statements of Cash Flows for the Years Ended December 31, 2025 and 2024 +(a)(2) +List of Financial Statement schedules included in Part IV hereof: +None. +(a)(3) +Exhibits +The +following exhibits are filed with this report or incorporated by reference: +Exhibit No. +Description +1.1 +Underwriting Agreement, incorporated by reference to Exhibit 1.1 of the Registrant’s Current Report on Form 8-K/A filed with the SEC on February 8, 2022 +1.2 +Placement Agency Agreement, dated January 3, 2025, by and between HWH International Inc. and D. Boral Capital LLC, incorporated by reference to the registrant’s current report on Form 8-K filed with the SEC on January 3, 2025. +2.1 +Merger Agreement dated September 9, 2022 by and among Alset Capital Acquisition Corp., HWH Merger Sub, Inc. and HWH International Inc., incorporated by reference to Exhibit 2.1 to Form 8-K filed with the SEC on September 12, 2022. +2.2 +Agreement and Plan of Merger, dated as of November 12, 2025, by and between HWH International Inc., a Delaware company, and HWH International Inc., a Nevada company, incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on November 14, 2025. +3.1 +Amended and Restated Certificate of Incorporation dated February 2, 2022, incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K/A filed with the SEC on February 8, 2022. +3.2 +By Laws, incorporated by reference to Exhibit 3.3 of the Registrant’s Registration Statement on Form S-1 filed with the SEC on January 13, 2022. +3.3 +Amendment to the Amended and Restated Certificate of Incorporation of Alset Capital Acquisition Corp., dated May 2, 2023, incorporated by reference to Exhibit 3.1 of the registrant’s current report on Form 8-K filed with the SEC on May 3, 2023. +3.4 +Amendment to Certificate of Incorporation, incorporated by reference to the registrant’s current report on Form 8-K filed with the SEC on November 3, 2023. +3.5 +Amendment to Amended and Restated Certificate of Incorporated, incorporated by reference to Exhibit 3.1 to the registrant’s current report on Form 8-K filed with the SEC on January 10, 2025. +3.6 +Amendment to Amended and Restated Certificate of Incorporation, incorporated by reference to Exhibit 3.1 to the registrant’s current report on Form 8-K filed with the SEC on February 20, 2025. +3.7 +Nevada Certificate of Merger, incorporated by reference to Exhibit 3.1 to the registrant’s current report on Form 8-K filed with the SEC on November 14, 2025. +3.8 +Delaware Certificate of Merger, incorporated by reference to Exhibit 3.2 to the registrant’s current report on Form 8-K filed with the SEC on November 14, 2025. +3.9 +Amended and Restated Articles of Incorporation of HWH International Inc., incorporated by reference to Exhibit 3.3 to the registrant’s current report on Form 8-K filed with the SEC on November 14, 2025. +3.10 +Bylaws of HWH International Inc., incorporated by reference to Exhibit 3.1 to the registrant’s current report on Form 8-K filed with the SEC on November 14, 2025. +4.1 +Specimen Unit Certificate, incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-1 filed with the SEC on January 13, 2022 +4.2 +Specimen Class A Common Stock Certificate, incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-1 filed with the SEC on January 13, 2022 +4.3 +Specimen Warrant Certificate, incorporated by reference to Exhibit 4.3 of the Registrant’s Registration Statement on Form S-1 filed with the SEC on January 13, 2022 +4.4 +Specimen Right Certificate, incorporated by reference to Exhibit 4.4 of the Registrant’s Registration Statement on Form S-1 filed with the SEC on January 13, 2022 +4.5 +Warrant Agreement between Vstock Transfer LLC and the Registrant, incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K/A filed with the SEC on February 8, 2022 +4.6 +Rights Agreement between Vstock Transfer LLC and the Registrant, incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K/A filed with the SEC on February 8, 2022 +4.7 +Form of Pre-Funded Warrant, incorporated by reference to Exhibit 4.1 of the Company’s current report on Form 8-K filed with the SEC on January 3, 2025. +35 +4.8* +Description of the Registrant’s Securities registered pursuant to Section 12 of the Securities and Exchange Act of 1934 +10.1 +Satisfaction and Discharge Agreement, dated December 18, 2023, incorporated by reference to Exhibit 10.3 of the registrant’s current report on Form 8-K filed with the SEC on January 12, 2024. +10.2 +Credit Facility Agreement dated April 24, 2024, incorporated by reference to Exhibit 10.1 of the registrant’s current report on Form 8-K filed with the SEC on April 25, 2024. +10.3 +Debt Conversion Agreement dated September 24, 2024, incorporated by reference to Exhibit 10.1 of the registrant’s current report on Form 8-K filed with the SEC on September 25, 2024. +10.4 +Debt Conversion Agreement dated September 24, 2024, incorporated by reference to Exhibit 10.1 of the registrant’s current report on Form 8-K filed with the SEC on September 25, 2024. +10.5 +Stock Purchase Agreement dated November 25, 2024, incorporated by reference to Exhibit 10.1 of the registrant’s current report on Form 8-K filed with the SEC on November 26, 2024. +10.6 +Stock Purchase Agreement dated December 24, 2024, incorporated by reference to Exhibit 10.1 of the registrant’s current report on Form 8-K filed with the SEC on December 26, 2024. +10.7 +Sale and Purchase Agreement with Alset International Limited dated September 10, 2025, incorporated by reference to Exhibit 10.1 of the registrant’s current report on Form 8-K filed with the SEC on September 16, 2025. +10.8 +Incentive Compensation Plan Stock Award Agreement, dated November 26, 2025, incorporated by reference to Exhibit 10.1 of the registrant’s current report on Form 8-K filed with the SEC on December 1, 2025. +14 +Code of Ethics, incorporated by reference to Exhibit 14 of the Registrant’s Registration Statement on Form S-1 filed with the SEC on January 13, 2022 +16.1 +Letter from Grassi & Co., CPAs, P.C., incorporated by reference to Exhibit 16.1 of the Company’s Current Report on Form 8-K filed with the SEC on July 2, 2025. +19.1** +Insider Trading Policy +21* +Subsidiaries of the Company +23* +Consent of Independent Registered Public Accounting Firm from Grassi & Co., CPAs, P.C. +31.1* +Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +31.2* +Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32.1** +Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +32.2** +Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97.1 +Clawback Policy of HWH International Inc., incorporated by reference to Exhibit 97.1 of the registrant’s annual report on Form 10-K filed with the SEC on February 28, 2024 +99.1 +Audit Committee Charter, incorporated by reference to Exhibit 99.1 of the Registrant’s Registration Statement on Form S-1 filed with the SEC on January 13, 2022 +99.2 +Compensation Committee Charter, incorporated by reference to Exhibit 99.2 of the Registrant’s Registration Statement on Form S-1 filed with the SEC on January 13, 2022 +99.3 +2025 Incentive Compensation Plan (Incorporated by Reference in the Company’s Definitive Information Statement Pursuant to Section 14(c) of the Securities Exchange Act of 1934, filed by the Company with the SEC on October 20, 2025). +101.INS +Inline XBRL Instance Document +101.SCH +Inline XBRL Taxonomy Extension Schema Document +101.CAL +Inline XBRL Taxonomy Extension Calculation Linkbase +Document +101.DEF +Inline XBRL Taxonomy Extension Definition Linkbase +Document +101.LAB +Inline XBRL Taxonomy Extension Label Linkbase Document +101.PRE +Inline XBRL Taxonomy Extension Presentation Linkbase +Document +* +Filed herewith. +** +Furnished herewith. +Item +16. Form 10-K Summary +None. +36 +SIGNATURES +Pursuant +to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed +on its behalf by the undersigned, thereunto duly authorized. +HWH +International Inc. +Dated: +March 25, 2026 +By: +/s/ +Rongguo (Ronald) Wei +Name: +Rongguo +(Ronald) Wei +Title: +Chief +Financial Officer +Pursuant +to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the +registrant and in the capacities and on the dates indicated. +Signature +Title +Date +/s/ +Chan Heng Fai +Chief +Executive Officer +March 25, 2026 +Chan +Heng Fai +(Principal +Executive Officer) +/s/ +Rongguo (Ronald) Wei +Chief +Financial Officer +March 25, 2026 +Rongguo +(Ronald) Wei +(Principal +Financial Officer and +Principal +Accounting Officer) +/s/ +Wong Shui Yeung (Frankie) +Director +March 25, 2026 +Wong +Shui Yeung (Frankie) +/s/ +William Wu +Director +March 25, 2026 +William +Wu +/s/ +Wong Tat Keung (Aston) +Director +March 25, 2026 +Wong +Tat Keung (Aston) +/s/ Lim Sheng Hon Danny +Director +March 25, 2026 +Lim Sheng Hon Danny +37 \ No newline at end of file diff --git a/raw/filings/0001897245/2025/0001493152-26-012738/filing_metadata.csv b/raw/filings/0001897245/2025/0001493152-26-012738/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..cdd139112a3bbe056b316fefa972999e4bf77f8a --- /dev/null +++ b/raw/filings/0001897245/2025/0001493152-26-012738/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001897245,HWH,HWH International Inc.,2025,10-K,2026-03-26,2025-12-31,2026-03-25T23:02:00.000Z,0001493152-26-012738,form10-k.htm,10-K,9414081,1,1,https://www.sec.gov/Archives/edgar/data/1897245/000149315226012738/form10-k.htm,https://www.sec.gov/Archives/edgar/data/1897245/000149315226012738/ diff --git a/raw/filings/0001897245/2025/0001493152-26-012738/item1.txt b/raw/filings/0001897245/2025/0001493152-26-012738/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..67eb3244d132b0cc3065d7945bac3ca6ce5c4f3f --- /dev/null +++ b/raw/filings/0001897245/2025/0001493152-26-012738/item1.txt @@ -0,0 +1,239 @@ +Item +1. Business. +General +The +Company was originally incorporated in Delaware on October 20, 2021 under the name Alset Capital Acquisition Corp. The Company was formed +for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business +combination with one or more businesses (the “Business Combination”). The Company consummated the Business Combination on +January 9, 2024 and changed its name from “Alset Capital Acquisition Corp.” to “HWH International Inc.” The Company +is an early stage and smaller reporting company and, as such, the Company is subject to all of the risks associated with early stage +and emerging growth companies. +On +January 6, 2025, the Company announced the closing of its previously disclosed public offering of 632,500 shares of common stock, +par value $0.0001 per share (the “Shares”) (following the 1-for-5 reverse stock split; equivalent to 3,162,500 shares +pre-split) and 250,000 pre-funded warrants (following the 1-for-5 reverse stock split; equivalent to 1,250,000 warrants pre-split) +to purchase shares of common stock (“Pre-Funded Warrants”). The Shares and Pre-Funded Warrants were offered at a public +offering price of $2.00 per share and $1.9995 per Pre-Funded Warrant. The Pre-Funded Warrants are exercisable immediately upon +issuance and have an exercise price of $0.0001 per share. The gross proceeds to the Company from the offering were approximately +$1.76 million, before deducting placement agent fees and other offering expenses. Each of the amounts of warrants and shares and the +prices thereof in the foregoing paragraph are adjusted for a 1-for-5 reverse stock split of the Company’s stock split +effective on February 24, 2025. +On +November 14, 2025, the Company completed a merger pursuant to which the Delaware parent merged with and into its wholly owned Nevada +subsidiary, with the Nevada entity surviving. As a result, HWH International Inc., a Nevada corporation, succeeded to all assets and +liabilities of the former parent and became the publicly traded registrant. The transaction constituted a change in legal domicile only, +with each outstanding share converting on a one-for-one basis, and had no impact on the Company’s consolidated financial position, +results of operations, or cash flows. The Company is the successor issuer under Rule 12g-3 of the Securities Exchange Act of 1934. +Hapi +Marketplace. On November 4, 2024, the Company announced the launch of its business-to-consumer marketplace, Hapi Marketplace. +Hapi Marketplace features a selection of over forty-seven product categories including wellness, elderly care, auto accessories and more. +Launching first in the United States, we intend for Hapi Marketplace to expand in the near future to South Korea and Hong Kong, followed +by further expansion across Asia. +The +various aspects of the Hapi Marketplace will be launched in phases in different regions, each with their own timeline, depending on the +completion of logistical aspects for implementation (i.e., payment gateway systems, business licenses, banking set up, import licenses, +managerial resources, etc.). We are expanding the product range into robotics for consumer and commercial markets. As of December 31, +2025, this project was not launched yet. +Hapi +Cafés, which are, and will be, in-person, location-based social experiences, offer customers the opportunity to build +a sense of community with like-minded customers who share a potential interest in our products. The cafes are designed to operate sustainably +as standalone businesses. The cafes also seek to be an avenue to create awareness to and educate potential and existing customers about +the products and services of HWH, providing us with the chance to significantly increase our customer base as well as increase the amounts +spent by our customers on our affiliates’ products and services. Each of our cafés is a “Hapi Café.” +We opened proof-of-concept Hapi Café locations in Seoul, the Republic of Korea and Singapore in May and July 2022, respectively, +one more opened in Seoul, the Republic of Korea in May 2024. We plan to open additional Hapi Cafés as we beta test and further +improve our business concept. We intend to grow our customer base as we grow the number of Hapi Cafés around the world. Hapi Cafes +are positioned to be integral parts of HWH’s business model. In June 2024, the Company’s decision to close the café +under Alset F&B (PLQ) Pte. Ltd. (“F&BPLQ”) was driven by the unsustainable revenue it generated. In August 2025 and +September 2025, the Company’s decision to close the café under Ketomei Pte. Ltd. (“KPL”) and Hapi Café +Korea Inc. (“HCKI”), respectively, both were driven by the unsustainable revenue they generated. We believe it is more strategic +to refocus our efforts and resources on other F&B business ventures that have greater growth potential. On September 10, 2025, Alset +F&B Holdings Pte. Ltd., (the “Seller”), a Singapore subsidiary of the Company, entered into a sale and purchase agreement +(the “Sale and Purchase Agreement”) with Alset International Limited (the “Buyer”), pursuant to which the Seller +agreed to sell 70% of the outstanding shares of its subsidiary, Alset F&B One Pte. Ltd. (“Alset F&B One”) to the +Buyer in exchange for S$218,941 Singapore Dollars (equal to approximately $170,754 U.S. Dollars). Alset F&B One was incorporated +in Singapore on April 10, 2017, and operates a cafe in Singapore. It generated approximately $470,000 in revenue in 2024. Following this +sale, the Seller continues to own 20% of Alset F&B One as of December 31, 2025. +4 +Hapi +Wealth Builder seeks to provide participants the opportunity to attend courses, workshops, and coaching sessions in person, fostering +a collaborative learning environment for those dedicated to learning investment in equities and wealth-building strategies. The team +has been diligently producing digital content for Hapi Wealth Builder and working to collaborate with the right partners to launch the +program and make it available to customers. Hapi Wealth Builder will leverage the wealth of knowledge and experience of its leaders to +make wealth building accessible and effective for its members. Our unique community-centric approach will offer members tools for making +informed financial decisions while creating pathways for sustained growth. +On +October 31, 2024, we announced that the Company scheduled the launch of Hapi Wealth, a program dedicated to providing comprehensive education +in equity investment and wealth-building strategies. We are targeting a rollout in selected regions later in 2026. +To +further support its mission, Hapi Wealth is opening its China headquarters, designed as a conducive environment for individuals to participate +in tutorials and workshops. The hub will offer participants the opportunity to attend courses, workshops, and coaching sessions in person, +fostering a collaborative learning environment for those dedicated to learning investment in equities and wealth-building strategies. +Market +Opportunity +Following +the COVID-19 pandemic, we believe people are looking for in-person communities. By offering a social and business centric atmosphere +at our Hapi Cafés, we plan to leverage this deeply-rooted desire to educate them about the products and services of our affiliates +and how those products and services can help them in their own individual pursuits of health, wealth and happiness. +Growth +Strategy +Our +strategy is to continuously grow our F&B business. We will look to accomplish this by providing a comfortable in person setting of +a Hapi Café for our customers in many more locations. We also plan to continually expand our product offerings and the services +our affiliate companies can provide in the belief that this can serve to grow our membership base and have our members increasingly opt +to avail themselves of membership options that offer them larger discounts and other benefits on the products and services of our affiliates. +Nasdaq +Deficiency +On +March 7, 2024, we received notice from Nasdaq Stock Market, LLC (“Nasdaq”) indicating that, because the market value of our +common stock had been below $50,000,000 for the prior 37 consecutive business days, we no longer complied with the minimum market value +of listed securities (the “MVLS”) requirement for continued listing on the Nasdaq Global Market under Rule 5450(b)(2)(A) +of Nasdaq Listing Rules. +Nasdaq’s +notice had no immediate effect on the listing of our common stock on the Nasdaq Global Market. Pursuant to Nasdaq Marketplace Rule 5810(c)(3)(C), +we had been provided an initial compliance period of 180 calendar days, or until September 3, 2024, to regain compliance with the MVLS +requirement. To regain compliance, the Company’s MVLS was required to be at least $50,000,000 or more for a minimum of ten consecutive +business days prior to September 3, 2024. In that regard, on September 9, 2024, the Company received a notice from the Staff that the +matter of the MVLS deficiency was to be considered at the Company’s upcoming appeal with the Nasdaq Hearings Panel. +5 +On +February 22, 2024, the Nasdaq Staff (the “Staff”) notified the Company that for the previous 30 consecutive trading days, +the MVPHS had been below the minimum $15,000,000 required for continued listing as set forth in Listing Rule 5450(b)(2)(C) (the “Rule”). +Therefore, in accordance with Marketplace Rule 5810(c)(3)(D), the Company was provided 180 calendar days, or until August 20, 2024, to +regain compliance with the Rule. In that regard, on August 27, 2024, the Company received a notice from the Staff that the Company will +be delisted from the Nasdaq Global Market, unless the Company requested an appeal of this determination by September 3, 2024. +The +Company presented its compliance plan to the Panel at a hearing on October 15, 2024. On October 21, 2024, the Company received a notice +from the Panel granting the Company an extension to phase down its securities to the Nasdaq Capital Market and demonstrate compliance +with the market value of its publicly held shares (the “MVPHS”) and Stockholders’ Equity requirements as set forth +in Nasdaq Listing Rules 5550(a)(5) and 5550(b)(1). +On +September 4, 2024, the Company received written notice (the “Notice”) from the Listing Qualifications Staff of Nasdaq notifying +the Company that for the prior 30 consecutive business days prior to the date of the Notice, the Company’s bid price was below +the minimum $1 required for continued listing on the Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(a)(1) (the “Bid +Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), Nasdaq provided the Company with 180 calendar days, +or until March 3, 2025, (the “Compliance Date”), to regain compliance with the Bid Price Requirement. +On +February 18, 2025, the Company filed a Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation +with the Delaware Secretary of State to effect a 1-for-5 reverse stock split (the “Reverse Stock Split”). The Reverse Stock +Split became effective as of market open on February 24, 2025. +On +March 10, 2025, the Company received written notice (the “Compliance Notice”) from Nasdaq informing the Company that it has +regained compliance with Nasdaq Listing Rule 5550(a)(2), which requires that companies listed on the Nasdaq Capital Market maintain a +minimum bid price of $1.00 per share. Nasdaq notified the Company in the Compliance Notice that, from February 24, 2025 to March 7, 2025, +the closing bid price of the Company’s common stock had been $1.00 per share or greater and, accordingly, the Company had regained +compliance with Nasdaq Listing Rule 5550(a)(2) and that the matter was now closed. The Company remains listed on the Nasdaq Capital +Market. +As +of December 31, 2025 and 2024, the total outstanding common shares of the Company were 7,476,400 and 5,593,920, respectively +Credit +Facility +On +April 24, 2024, the Company entered into a Credit Facility Agreement (the “Credit Agreement”) with Alset Inc., a Texas corporation +and the Company’s indirect, majority stockholder, pursuant to which Alset Inc. has provided the Company a non-revolving line of +credit facility (the “Credit Facility”), which provides a maximum, aggregate credit line of up to $1,000,000. During 2024, +$300,000 was drawn from the loan, which was converted to equity on September 24, 2024. The remaining credit of $700,000 is available +for draw as on December 31, 2025. +Pursuant +to the Credit Agreement, the Company may request an advance (each, an “Advance”) on the Credit Facility. Each Advance shall +bear a simple interest rate of three percent (3%) per annum. Each Advance and all accrued but unpaid interest shall be due and payable +at the first (1 st ) anniversary of the effective date of the Credit Agreement. The Company may at any time during the term +of the Credit Agreement prepay a portion or all amounts of its indebtedness without penalty. Each advance shall not be secured by a lien +or other encumbrance on any of the Company’s assets, but shall be solely a general unsecured debt obligation of the Company. +On +April 14, 2025, the Company entered into an amendment (the “Amendment”) to this Credit Facility Agreement. Under the terms +of the Amendment, the date upon which each advance made under the Credit Facility and all accrued but unpaid interest shall be due and +payable was extended from April 24, 2025 to April 14, 2026. +The +Company has obtained letters of financial support from Alset Inc., a direct majority owner of the Company. Alset Inc. committed to provide +any additional funding required by the Company and would not demand repayment through twelve months from the issuance of these consolidated +financial statements. +6 +Debt +Conversion Agreements +On +September 24, 2024, HWH International Inc. entered into two debt conversion agreements with creditors (each an “Agreement,” +or collectively, the “Agreements”): (i) Alset International Limited (a fellow subsidiary of the common parent company, Alset +Inc.); and (ii) Alset Inc. (which is Alset International Limited’s majority stockholder). Each Agreement converts debt owed by +the Company to the respective creditor into shares of the Company’s common stock. The Agreements are substantially the same with +the exception of the amount of debt to be converted under each. +Under +the terms of their respective agreements, Alset Inc. converted $300,000 of the Company’s debt into 476,190 shares of the Company’s +common stock, and Alset International Limited converted $3,501,759 of the Company’s debt into 5,558,347 shares of the Company’s +common stock. Under the Agreements, the debt conversions resulted in the issuance of newly issued shares of the Company’s common +stock. The debt conversion price was set at $0.63 per share. Cumulatively, the newly issued shares contemplated by the Agreements represent +6,034,537 new shares of the Company’s common stock, constituting an increase to the total issued and outstanding shares of the +Company’s common stock of 37.2% over the amount immediately preceding the effectiveness of the Agreements. The shares contemplated +by the Agreements are restricted securities under the Securities Act of 1933, and shall be issued in reliance upon the safe harbor provided +by Rule 506 of Regulation D. +Stock +Purchase Agreements +On +November 25, 2024, the Company entered into a stock purchase agreement with Alset Inc. (“AEI”), pursuant to which Alset Inc. +agreed to purchase 4,411,764 shares of the Company’s common stock for a purchase price of $0.68 per share. AEI is the majority +shareholder of the Company, and immediately prior to the effectiveness of the stock purchase agreement, AEI directly and through its +subsidiaries owned 86.6% of the issued and outstanding shares of HWH common stock (which was subsequently reduced to 67.74% at December +31, 2025).. +On +December 24, 2024, the Company entered into a Stock Purchase Agreement with AEI, pursuant to which AEI agreed to purchase 1,300,000 shares +of the Company’s common stock (the “Shares”) for a total of $585,000, representing a purchase price of $0.45 per share. +AEI’s +investments are intended to support the growth and development of HWH. The Company believes that these investments of additional funds +into HWH are in the best interests of each of AEI and the Company. +Going +Concern and Management’s Plan +On +January 9, 2024, the Company consummated the Business Combination (the “Closing”) contemplated by the previously announced +Agreement and Plan of Merger, dated as of September 9, 2022 (the “Merger Agreement”). The Company’s common stock commenced +trading on the Nasdaq Global Market LLC under the ticker symbol “HWH” on January 9, 2024, and the Company’s warrants +are expected to commence trading at a later date. +The +Company has incurred continuing losses from its operations and has a working capital deficit of $1,692,996 as of December 31, 2025. There +are no assurances the Company will be able to raise capital on acceptable terms or that cash flows generated from its operations will +be sufficient to meet its current operating costs. If the Company is unable to obtain sufficient amounts of additional capital, it may +be required to reduce the scope of its business, which could harm its financial condition and operating results. +These +conditions raise substantial doubt about the Company’s ability to continue ongoing operations. However, the Company believes that +the available cash in the Company’s bank accounts, anticipated cash from operations, and financing availability from related parties +are sufficient to fund our operations for at least the next 12 months. +On +April 24, 2024, the Company entered into a Credit Facility Agreement (the “Agreement”) with Alset Inc., a Texas corporation +and the Company’s indirect, majority stockholder, pursuant to which Alset Inc. has provided the Company a line of credit facility +(the “Credit Facility”) which provides a maximum, aggregate credit line of up to $1,000,000. As of December 31, 2024, there +are no outstanding amounts related to the Credit Facility, as the debt with Alset Inc. was converted to equity on September 24, 2024. +The remaining credit of $700,000 is available for draw as of December 31, 2025. +The +Company has obtained a letter of financial support from Alset Inc., the Company’s corporate parent. Alset Inc. committed to provide +any additional funding required by the Company and would not demand repayment through twelve months from the issuance of the consolidated +financial statements included in this filing. +7 +Our +Organizational Chart: +Employees +As of December 31, 2025 the Company had 4 employees. Our largest stockholder, Alset Inc., has provided staff without charge to our Company +at no incremental effort or cost to Alset’s own operations. We intend to outsource many functions of our business in the immediate +future. +Intellectual +Property +We +anticipate filing additional trademark applications as we expand into new areas of business. +Corporate +Information +Our +mailing address is 4800 Montgomery Lane, Suite 210, Bethesda, MD, 20814. We were incorporated in Delaware on October 20, 2021 under the +name Alset Capital Acquisition Corp. We reincorporated in Nevada on November 14, 2025. The Company is an early stage and emerging growth +company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies. +Additional +Information +The +Company is subject to the information requirements of the Exchange Act, and, in accordance therewith, files annual, quarterly, and special +reports, proxy statements and other information with the Securities and Exchange Commission (the “Commission”). The Commission +maintains an internet website at http://www.sec.gov that contains reports, proxy and information statements and other information regarding +issuers that file electronically with the Commission. The periodic reports, proxy statements and other information that the Company files +with the Commission are available for inspection on the Commission’s website free of charge as soon as reasonably practicable after +they are electronically filed with or furnished to the Commission. +The +Company maintains a website at https://www.hwhintl.com where you may also access these materials free of charge. We have included our +website address as an inactive textual reference only and the information contained in, and that can be accessed through, our website +is not incorporated into and is not part of this report on Form 10-K. +8 \ No newline at end of file diff --git a/raw/filings/0001897245/2025/0001493152-26-012738/item13.txt b/raw/filings/0001897245/2025/0001493152-26-012738/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..290bfee8b426fafcf3a777423b7beae4e88b4d3d --- /dev/null +++ b/raw/filings/0001897245/2025/0001493152-26-012738/item13.txt @@ -0,0 +1,5 @@ +Item +13. +Certain +Relationships and Related Transactions, and Director Independence +30 \ No newline at end of file diff --git a/raw/filings/0001897463/2024/0001410578-25-000338/filing.txt b/raw/filings/0001897463/2024/0001410578-25-000338/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..78261a98bcb7d11d6953c9c7a1757cf603ca2e11 --- /dev/null +++ b/raw/filings/0001897463/2024/0001410578-25-000338/filing.txt @@ -0,0 +1,2668 @@ +GRAF GLOBAL CORP._December 31, 2024 +http://fasb.org/us-gaap/2024#RelatedPartyMember 0001897463 --12-31 2024 FY 00-0000000 http://fasb.org/us-gaap/2024#RelatedPartyMember 0.5 P10D 0.5 http://www.graf.com/20241231#SponsorMember http://www.graf.com/20241231#SponsorMember 1.00 false 0001897463 us-gaap:MeasurementInputSharePriceMember 2024-06-27 0001897463 us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-06-27 0001897463 us-gaap:MeasurementInputExpectedTermMember 2024-06-27 0001897463 graf:MeasurementInputPriceVolatilityPreBusinessCombinationMember 2024-06-27 0001897463 graf:MeasurementInputPriceVolatilityPostBusinessCombinationMember 2024-06-27 0001897463 graf:MeasurementInputMarketPricingAdjustmentRateMember 2024-06-27 0001897463 graf:CommonClassaSharesSubjectToPossibleRedemptionMember 2023-12-31 0001897463 graf:CommonClassaSharesSubjectToPossibleRedemptionMember 2024-12-31 0001897463 graf:FounderSharesMember us-gaap:CommonClassBMember 2021-11-24 2021-11-24 0001897463 us-gaap:RetainedEarningsMember 2024-12-31 0001897463 us-gaap:RetainedEarningsMember 2023-12-31 0001897463 us-gaap:AdditionalPaidInCapitalMember 2023-12-31 0001897463 us-gaap:RetainedEarningsMember 2022-12-31 0001897463 us-gaap:AdditionalPaidInCapitalMember 2022-12-31 0001897463 2022-12-31 0001897463 2024-06-27 0001897463 graf:FounderSharesMember 2024-06-07 0001897463 2024-07-02 2024-07-02 0001897463 graf:RelatedPartyLoansMember 2024-06-27 2024-06-27 0001897463 graf:SingleReportableSegmentMember 2023-01-01 2023-12-31 0001897463 us-gaap:RetainedEarningsMember 2023-01-01 2023-12-31 0001897463 graf:SingleReportableSegmentMember 2024-01-01 2024-12-31 0001897463 us-gaap:CommonClassBMember 2024-01-01 2024-12-31 0001897463 us-gaap:CommonClassBMember 2023-01-01 2023-12-31 0001897463 us-gaap:CommonClassAMember 2023-01-01 2023-12-31 0001897463 graf:CommonClassaSharesNotSubjectToPossibleRedemptionMember 2023-01-01 2023-12-31 0001897463 graf:RelatedPartyLoansMember 2021-11-21 0001897463 us-gaap:CommonClassBMember us-gaap:CommonStockMember 2024-12-31 0001897463 graf:CommonClassaSharesNotSubjectToPossibleRedemptionMember 2024-12-31 0001897463 us-gaap:CommonClassBMember us-gaap:CommonStockMember 2023-12-31 0001897463 graf:CommonClassaSharesNotSubjectToPossibleRedemptionMember 2023-12-31 0001897463 us-gaap:CommonClassBMember us-gaap:CommonStockMember 2022-12-31 0001897463 graf:FounderSharesMember us-gaap:CommonClassBMember 2021-11-24 0001897463 graf:PublicWarrantsMember 2024-12-31 0001897463 graf:PrivatePlacementWarrantsMember 2024-12-31 0001897463 graf:PrivatePlacementWarrantsMember us-gaap:CommonClassAMember 2024-06-27 0001897463 graf:PrivatePlacementWarrantsMember 2024-06-27 0001897463 graf:SingleReportableSegmentMember 2024-12-31 0001897463 graf:PublicWarrantsMember us-gaap:AdditionalPaidInCapitalMember 2024-01-01 2024-12-31 0001897463 graf:PrivatePlacementWarrantsMember us-gaap:AdditionalPaidInCapitalMember 2024-01-01 2024-12-31 0001897463 graf:RelatedPartyLoansMember 2023-12-31 0001897463 graf:RelatedPartyLoansMember 2024-12-31 0001897463 graf:RelatedPartyLoansMember 2024-01-01 2024-12-31 0001897463 us-gaap:IPOMember 2024-06-27 2024-06-27 0001897463 graf:FounderSharesMember 2024-06-27 2024-06-27 0001897463 graf:AdministrativeServicesAgreementMember 2024-06-25 2024-06-25 0001897463 2023-01-01 2023-12-31 0001897463 us-gaap:IPOMember 2024-06-27 0001897463 us-gaap:CommonClassBMember 2024-12-31 0001897463 us-gaap:CommonClassAMember 2024-12-31 0001897463 us-gaap:CommonClassBMember 2023-12-31 0001897463 us-gaap:CommonClassAMember 2023-12-31 0001897463 us-gaap:CommonClassAMember us-gaap:IPOMember 2024-06-27 0001897463 graf:FounderSharesMember 2024-02-08 2024-02-08 0001897463 2024-06-27 2024-06-27 0001897463 us-gaap:FairValueMeasurementsRecurringMember 2024-12-31 0001897463 graf:FounderSharesMember 2024-01-01 2024-12-31 0001897463 graf:FounderSharesMember 2024-02-08 0001897463 2024-06-28 2024-06-28 0001897463 graf:FounderSharesMember 2021-11-24 2021-11-24 0001897463 us-gaap:OverAllotmentOptionMember 2024-06-27 0001897463 us-gaap:OverAllotmentOptionMember 2024-06-27 2024-06-27 0001897463 graf:PublicWarrantsMember 2024-01-01 2024-12-31 0001897463 us-gaap:PrivatePlacementMember 2024-06-27 2024-06-27 0001897463 graf:SponsorMember graf:PrivatePlacementWarrantsMember 2024-06-27 2024-06-27 0001897463 graf:CantorFitzgeraldAndCo.Member graf:PrivatePlacementWarrantsMember 2024-06-27 2024-06-27 0001897463 graf:PrivatePlacementWarrantsMember 2024-06-27 2024-06-27 0001897463 graf:PrivatePlacementWarrantsMember 2024-01-01 2024-12-31 0001897463 graf:FounderSharesMember 2024-06-07 2024-06-07 0001897463 2024-12-31 0001897463 2023-12-31 0001897463 us-gaap:RetainedEarningsMember 2024-01-01 2024-12-31 0001897463 us-gaap:AdditionalPaidInCapitalMember 2024-01-01 2024-12-31 0001897463 2024-10-01 2024-12-31 0001897463 us-gaap:WarrantMember 2024-01-01 2024-12-31 0001897463 us-gaap:CommonClassAMember 2024-01-01 2024-12-31 0001897463 graf:UnitsEachConsistingOfOneShareOfClassCommonStockAndOneHalfOfOneWarrantMember 2024-01-01 2024-12-31 0001897463 2024-06-28 0001897463 us-gaap:CommonClassBMember 2025-03-13 0001897463 us-gaap:CommonClassAMember 2025-03-13 0001897463 2024-01-01 2024-12-31 xbrli:shares iso4217:USD xbrli:pure iso4217:USD xbrli:shares graf:D graf:director graf:Vote graf:segment graf:Y +Table of Contents +​ +​ +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +(Mark One) +☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31, 2024 +☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from to +GRAF GLOBAL CORP. +(Exact name of registrant as specified in its charter) +​ +​ +​ +​ +​ +Cayman Islands +001-42142 +N/A +(State or other jurisdiction of +incorporation or organization) +​ +(Commission +File Number) +(I.R.S. Employer +Identification Number) +​ +1790 Hughes Landing Blvd., Suite 400 +The Woodlands , Texas +​ +​ +​ +77380 +(Address of principal executive offices) +​ +(Zip Code) +​ +Registrant’s telephone number, including area code: ( 310 ) 745-8669 +​ +Not Applicable +(Former name or former address, if changed since last report) +​ +Securities registered pursuant to Section 12(b) of the Act: +​ +​ +​ +​ +​ +Title of Each Class: +Trading Symbols +Name of Each Exchange on Which Registered: +Units, each consisting of one Class A ordinary share, $0.0001 par value, and one-half of one redeemable warrant +GRAF.U +NYSE American LLC +Class A ordinary shares, par value $0.0001 per share +GRAF +NYSE American LLC +Warrants, each whole warrant exercisable for one Class A ordinary share at an exercise price of $11.50 per share +GRAF WS +NYSE American LLC +​ +Securities registered pursuant to Section 12(g) of the Act: None +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +​ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒ +​ +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +​ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐ +​ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer +☐ +​ +Accelerated filer +☐ +Non-accelerated filer +☒ +​ +Smaller reporting company +☒ +Emerging growth company +☒ +​ +​ +​ +​ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +​ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ +​ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +​ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐ +​ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒ No ☐ +​ +On June 28, 2024, the last business day of the registrant’s most recently completed second fiscal quarter, only the registrant’s units were then trading on the NYSE American LLC. The registrant’s units began trading on the NYSE American LLC on June 26, 2024, and the registrant’s Class A ordinary shares began separate trading on the NYSE American LLC on August 16, 2024. On June 28, 2024, the aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates, computed by reference to the closing sales price for the registrant’s units on June 28, 2024, as reported on the NYSE American LLC of $10.00, was $ 230 million. +​ +As of March 13, 2025, there were 23,000,000 Class A ordinary shares, par value $0.0001 per share, and 5,750,000 Class B ordinary shares, par value $0.0001 per share, of the registrant issued and outstanding. +​ +Documents Incorporated by Reference: None . +​ +​ +Table of Contents +​ +TABLE OF CONTENTS +​ +​ +PAGE +PART I +1 +Item 1. +Business +1 +Item 1A. +Risk Factors +16 +Item 1B. +Unresolved Staff Comments +51 +Item 1C. +Cybersecurity +51 +Item 2. +Properties +51 +Item 3. +Legal Proceedings +51 +Item 4. +Mine Safety Disclosures +51 +PART II +51 +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +51 +Item 6. +[RESERVED] +52 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +52 +Item 7A. +Quantitative and Qualitative Disclosures about Market Risk +55 +Item 8. +Financial Statements and Supplementary Data +55 +Item 9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +55 +Item 9A. +Controls and Procedures +55 +Item 9B. +Other Information +57 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +57 +PART III +58 +Item 10. +Directors, Executive Officers and Corporate Governance Officers +58 +Item 11. +Executive Compensation +63 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +63 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +65 +Item 14. +Principal Accounting Fees and Services +67 +PART IV +68 +Item 15. +Exhibits, Financial Statement Schedules +68 +Item 16. +Form 10-K Summary +69 +​ +​ +​ +​ +i +Table of Contents +CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTOR SUMMARY +Certain statements in this Annual Report on Form 10-K (this “Form 10-K”) may constitute “forward-looking statements” for purposes of the federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this Form 10-K may include, for example, statements about: +● our ability to select an appropriate target business or businesses; +● our ability to complete our initial Business Combination; +● our expectations around the performance of the prospective target business or businesses; +● our success in retaining or recruiting, or changes required in, our officers, key employees or directors following our initial Business Combination; +● our officers and directors allocating their time to other businesses and potentially having conflicts of interest with our business or in approving our initial Business Combination; +● our potential ability to obtain additional financing to complete our initial Business Combination; +● our pool of prospective target businesses; +● the adverse impacts that events outside of our control, such as increased geopolitical unrest, significant outbreaks of infectious diseases (such as COVID-19) and increased volatility in the dent and equity markets, may have on out ability to consummate an initial Business Combination; +● our public securities’ potential liquidity and trading; +● the lack of a market for our securities; +● the use of proceeds not held in the trust account (as defined below) or available to us from interest income on the trust account balance; +● the trust account not being subject to claims of third parties; or +● our financial performance. +The forward-looking statements contained in this Form 10-K are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the section of this Form 10-K entitled “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. +​ +1 +Table of Contents +Summary of Risk Factors +An investment in our securities involves a high degree of risk. The occurrence of one or more of the events or circumstances described in the section titled “ Risk Factors ,” alone or in combination with other events or circumstances, may materially adversely affect our business, financial condition and operating results. In that event, the trading price of our securities could decline, and you could lose all or part of your investment. Such risks include, but are not limited to: +● We are a blank check company with no operating history and no revenues, and you have no basis on which to evaluate our ability to achieve our business objective. +● Our public shareholders may not be afforded an opportunity to vote on our proposed initial Business Combination, and even if we hold a vote, holders of our founder shares will participate in such vote, which means we may complete our initial Business Combination even though a majority of our public shareholders do not support such a combination. +● Your only opportunity to effect your investment decision regarding a potential Business Combination may be limited to the exercise of your right to redeem your shares from us for cash. +● If we seek shareholder approval of our initial Business Combination, our initial shareholders and management team have agreed to vote in favor of such initial Business Combination, regardless of how our public shareholders vote. +● The ability of our public shareholders to redeem their shares for cash may make our financial condition unattractive to potential Business Combination targets, which may make it difficult for us to enter into a Business Combination with a target. +● The ability of our public shareholders to exercise redemption rights with respect to a large number of our shares and the amount of deferred underwriting compensation may not allow us to complete the most desirable Business Combination or optimize our capital structure, and may substantially dilute your investment in us. +● The requirement that we complete our initial Business Combination within the duration of the Completion Window may give potential target businesses leverage over us in negotiating a Business Combination and may limit the time we have in which to conduct due diligence on potential Business Combination targets, in particular as we approach our dissolution deadline, which could undermine our ability to complete our initial Business Combination on terms that would produce value for our shareholders. +● Our search for a Business Combination, and any target business with which we ultimately consummate a Business Combination, may be materially adversely affected by events that are outside of our control, such as increased geopolitical unrest, pandemic outbreaks (such as COVID-19), and volatility in the debt and equity markets. +● If we seek shareholder approval of our initial Business Combination, our Sponsor, directors, officers, and their affiliates may elect to purchase shares or warrants from public shareholders, which may influence a vote on a proposed Business Combination and reduce the public “float” of our securities. +● If a shareholder fails to receive notice of our offer to redeem our public shares in connection with our initial Business Combination, or fails to comply with the procedures for submitting or tendering its shares, such shares may not be redeemed. +● If we are deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete our initial Business Combination or force us to abandon our efforts to complete an initial Business Combination. +● Our officers and directors will allocate their time to other businesses thereby causing conflicts of interest in their determination as to how much time to devote to our affairs. This conflict of interest could have a negative impact on our ability to complete our initial Business Combination. +● You will not have any rights or interests in funds from the trust account, except under certain limited circumstances. Therefore, to liquidate your investment, you may be forced to sell your public shares or warrants, potentially at a loss. +● the NYSE American may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions. +● The nominal purchase price paid by our Sponsor for the founder shares may result in significant dilution to the implied value of your public shares upon consummation of our initial Business Combination, and our Sponsor is likely to make a substantial profit on its investment in us in the event we consummate an initial Business Combination even if the Business Combination causes the trading price of our ordinary shares to materially decline. +2 +Table of Contents +● The value of the founder shares following completion of our initial Business Combination is likely to be substantially higher than the nominal price paid for them, even if the trading price of our ordinary shares at such time is substantially less than $10.00 per share. +● You will not be entitled to protections normally afforded to investors of many other blank check companies. +● Because of our limited resources and the significant competition for Business Combination opportunities, it may be more difficult for us to complete our initial Business Combination. If we have not completed our initial Business Combination within the required time period, our public shareholders may receive only approximately $10.00 per share, or less in certain circumstances, on our redemption of their shares, and our warrants will expire worthless. +● If the net proceeds of our initial public offering and the sale of the Private Placement Warrants not being held in the trust account are insufficient to allow us to operate for at least the duration of the Completion Window, it could limit the amount of cash available to fund our search for a target business or businesses and complete our initial Business Combination, and we will depend on loans from our Sponsor or management team to fund our search and to complete our initial Business Combination. +● Past performance by our management team and their affiliates, including investments and transactions in which they have participated and businesses with which they have been associated, may not be indicative of future performance of an investment in the company. +● We may be a passive foreign investment company, or “PFIC,” which could result in adverse United States federal income tax consequences to U.S. investors. +● An investment in our securities may result in uncertain U.S. federal income tax consequences. +● We may reincorporate in or transfer by way of continuation to another jurisdiction which may result in taxes imposed on shareholders or warrant holders. +● The 1% US federal excise tax on stock buybacks could be imposed on redemptions of our stock if we were to become a “covered corporation” in the future. +● In recent years, the number of special purpose acquisition companies that have been formed has increased substantially, potentially resulting in more competition for attractive targets. This could increase the cost of our initial Business Combination and could even result in our inability to find a target or to consummate an initial Business Combination. +● Our initial Business Combination and our structure thereafter may not be tax-efficient to our shareholders and warrant holders. As a result of our Business Combination, our tax obligations may be more complex, burdensome and uncertain. +​ +​ +3 +Table of Contents +PART I +Item 1. Business +References in this Form 10-K to “we,” “us,” “our” or the “Company” refer to Graf Global Corp. References to our “management” or our “management team” refer to our officers and directors. +Introduction +We are a blank check company incorporated on November 17, 2021 as a Cayman Islands exempted company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”). We have 24 months from the closing of our initial public offering, or until such earlier liquidation date as our board of directors may approve (the “Completion Window”) to complete our initial Business Combination. +We have reviewed, and continue to review, a number of opportunities to enter into a Business Combination, but we are not able to determine at this time whether we will complete a Business Combination with any of the target businesses that we have reviewed or with any other target business. We may pursue an acquisition opportunity in any industry or geographic location. We also have neither engaged in any operations nor generated any revenue to date. Based on our business activities, the Company is a “shell company” as defined under the Exchange Act of 1934 (the “Exchange Act”) because we have no operations and nominal assets consisting almost entirely of cash. +The registration statement for our initial public offering was declared effective on June 25, 2024. On June 27, 2024, we consummated the initial public offering of 23,000,000 units (the “Units” and, with respect to the Class A ordinary shares included in the Units being offered, the “Public Shares” or “Class A Ordinary Shares”), which includes the full exercise by the underwriters of their over-allotment option in the amount of 3,000,000 Units, at $10.00 per Unit, generating gross proceeds of $230,000,000. Each Unit consists of one Class A Ordinary Share and one-half of one redeemable warrant of the Company (the “Public Warrants”), with each whole warrant entitling the holder thereof to purchase one Class A Ordinary Share at $11.50 per share. +Simultaneously with the closing of our initial public offering, we consummated the sale of an aggregate of 6,000,000 warrants (the “Private Placement Warrants”) at a price of $1.00 per Private Placement Warrant, in a private placement to the Company’s sponsor, Graf Global Sponsor LLC, a Delaware limited liability company (the “Sponsor”), and Cantor Fitzgerald & Co. (“Cantor”), the representative of the underwriters of the initial public offering, generating gross proceeds of $6,000,000. +Prior to the consummation of the IPO, on November 24, 2021, our Sponsor paid an aggregate of $25,000 for certain expenses on our behalf in exchange for issuance of 7,187,500 Class B ordinary shares (the “Founder Shares”). On February 8, 2024, Sponsor surrendered 1,437,500 Founder Shares for no consideration, resulting in the Sponsor holding 5,750,000 Founder Shares. The number of Founder Shares issued was determined based on the expectation that such Founder Shares would represent 20% of the outstanding shares after the IPO. +Following the closing of the initial public offering, on June 27, 2024, an amount of $230,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units and the sale of the Private Placement Warrants was placed in the trust account (the “Trust Account”), with Continental Stock Transfer & Trust Company acting as trustee and held as cash or invested only in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act, which invest only in direct U.S. government treasury obligations., until the earlier of (i) the completion of a Business Combination and (ii) the distribution of the Trust Account as described below. To mitigate the risk that might be deemed to be an investment company for purposes of the Investment Company Act, which risk increases the longer that the Company holds investments in the Trust Account, the Company may, at any time in its own discretion, instruct the trustee to liquidate the investments held in the Trust Account and instead to hold the funds in the Trust Account in an interest bearing bank demand deposit account. +Effecting our Initial Business Combination +General +We are not presently engaged in, and we will not engage in, any operations for an indefinite period of time. We intend to effectuate our initial Business Combination using cash from the proceeds of our IPO, the sale of the Private Placement Warrants, the proceeds of the sale of our shares in connection with our initial Business Combination (including pursuant to forward purchase +1 +Table of Contents +agreements or backstop agreements we may enter into following the consummation of the IPO or otherwise), shares issued to the owners of the target, debt issued to bank or other lenders or the owners of the target, or a combination of the foregoing. We may seek to complete our initial Business Combination with a company or business that may be financially unstable or in its early stages of development or growth, which would subject us to the numerous risks inherent in such companies and businesses. +Business Strategy +Our strategy is to leverage our team’s extensive track record in SPAC-related mergers & acquisitions and capital markets to identify and complete an initial Business Combination. We may pursue an acquisition opportunity in any industry or geographic location. +We intend to distinguish ourselves from other SPAC sponsor teams through four key dimensions of experience: +● Our ability to leverage an extensive global network of relationships to create a pipeline of initial Business Combination opportunities, as well as being a priority contact for bankers and other advisors seeking SPAC partners for their clients. Prior to our initial public offering, we had not, nor had anyone on our behalf, engaged in any substantive discussions, directly or indirectly, with any Business Combination target with respect to an initial Business Combination with us. However, members of our management team had been actively in discussions with potential Business Combination partners in their capacity as officers and directors of Graf Industrial Corp. (“GRAF I”) (which consummated its initial business combination on September 29, 2020) and Graf Acquisition Corp. IV (“GRAF IV” and, together with GRAF I, the “GRAF SPACs”) (which consummated its initial business combination on October 2, 2023), and we may pursue Business Combination partners that had previously been in discussions with the management teams of the GRAF SPACs; +● Unique capabilities and rigor to the process of identifying, executing and consummating an initial Business Combination that will be well-received in the public markets, with the ability to provide ongoing support thereafter; +● Our understanding of global financial markets and events, financing and overall corporate strategy options; and +● Our background as business founders, investors and managers. +Business Combination Criteria +Based on our management’s experience, including with prior special purpose acquisition companies, we have developed the following non-exclusive investment criteria that we intend to use to screen for and evaluate prospective target businesses. +● Leading Industry Position with Supportive Long-Term Dynamics and Competitive Market Advantage . We intend to target businesses that hold, or have the potential to hold, a leading position in an industry sector with attractive macro-characteristics. We intend to target businesses that have, or have the potential to have, sustainable competitive advantages that would be challenging for a competitor to replicate. Factors contributing to sustainable competitive advantages may include: (iii) proprietary or superior technology or trade secrets; (ii) broad distribution networks; (iii) well- established brand names; (iv) territorial exclusivity or a well-defined market; (v) diverse and stable customer and supplier base; (vi) low-cost production capability; (vii) customer habit/ share of mind; (viii) a lack of available substitutes and/or high search or switching costs; (ix) network effects; and/or (x) limited exposure to technological obsolescence and cyclicality. Our management team expects to target businesses that have clearly demonstrated an ability to defend and grow their market positions over time as a result of one or more of these sustainable competitive advantages, or have demonstrable potential to do so. We intend to seek opportunities that will benefit from secular growth and are able to differentiate their market position to create value for our shareholders over time. +● Stable Free Cash Flow, Prudent Debt and Financial Visibility . We will seek to acquire a business that has historically generated or has the potential to generate not only current revenues, but strong and sustainable free cash flow. Additionally, our prospective Business Combination criteria include prudent balance sheet management and, as such, we would seek to limit leverage ratios of a combined company immediately following an initial Business Combination. To provide reliable guidance, we would also seek to acquire a business that has reasonable visibility on forward financial performance and straightforward operating metrics, and a business that is not extremely sensitive to macro- economic conditions or industry +2 +Table of Contents +cycles. Specifically, we would prioritize businesses that may be evaluated and priced by the market using financial metrics or other key milestones not more than one year forward. +● Benefit Uniquely from a Business Combination with a Special Purpose Acquisition Company . We will seek to acquire a business that has a clear use of proceeds and a clear catalyst or inflection point resulting from our capital, team, public listing, roll-up synergies, deleveraging and/or re-rating milestones expected to propel the business through our structural dilution in the near term with enhanced financial results, margins, market position and shareholder value. +● Would Benefit Uniquely from our Capabilities . We will seek to acquire a business where the collective capabilities of our management team, board of directors and Sponsor, and any operating partners we involve, can be leveraged to tangibly improve the operations and market position of the target. +● Proprietary and/or Optimally Positioned Transactions . We intend to leverage our extensive business network to source our initial Business Combination on a proprietary basis if possible. Notwithstanding the foregoing, we would utilize our collective experience and insight to strategically consider participating in formal processes focused primarily on narrowing a pool of SPACs to a single winning bidder to instances where we believe we are optimally positioned to win such processes. +● Committed and Capable Management Team . We will seek to acquire a business with a management team whose interests are aligned with those of our shareholders and who can clearly and confidently articulate the business plan and market opportunities to public market investors. Where necessary, we may also look to complement and enhance the capabilities of the target business’s management team and their board of directors by recruiting additional talent through our network of contacts or otherwise. This may include recruiting experienced industry professionals, or operating partners, to assist in our evaluation of the opportunity and marketing of the Business Combination prior to its completion, who may assume an ongoing role with the business or board thereafter. While not a requirement, we would view favorably opportunities where the target’s chief financial officer has experience as a public company chief financial officer or other substantive public market experience, and ideally where other members of senior management have public market experience as well. +● Potential to Grow, Including Through Further Acquisition Opportunities . We will seek to acquire a business that has the potential to grow both organically and inorganically through acquisitions, with management having identified a pipeline of potentially actionable accretive acquisition targets. We expect to work with the ongoing management team to develop the business strategy around geographic expansion, new products, high-return capital expenditure projects and acquisitions, as well as creating and maintaining the optimal capital structure for growth. +● Preparedness for the Process and Public Markets . We will seek to acquire a business that has or can put in place prior to the closing of a Business Combination, the material governance, financial systems and controls required in the public markets. Specifically, we will seek to avoid situations where extensive accounting or restructuring work is required with an uncertain timetable or outcome before a transaction can be completed. +These criteria are not intended to be exhaustive or exclusive. Any evaluation relating to the merits of a particular initial Business Combination may be based, to the extent relevant, on these general guidelines as well as other considerations, factors and criteria that our management may deem relevant. In the event that we decide to enter into our initial Business Combination with a target business that does not meet the above criteria and guidelines, we intend to disclose that the target business does not meet the above criteria in our shareholder communications related to our initial Business Combination, which would be in the form of proxy solicitation materials or tender offer documents that we would file with the SEC. +Selection of a Target Business and Structuring of our Initial Business Combination +We will provide our public shareholders with the opportunity to redeem all or a portion of their Class A Ordinary Shares upon the completion of our initial Business Combination either (i) in connection with a general meeting called to approve the Business Combination or (ii) without a shareholder vote by means of a tender offer. Each public shareholder may elect to redeem their Public +3 +Table of Contents +Shares irrespective of whether they vote for or against an initial Business Combination, or whether they do not vote or abstain from voting on the initial Business Combination. If we seek shareholder approval, we will complete our initial Business Combination only if we receive an ordinary resolution under Cayman Islands law, passed by the affirmative vote of at least a majority of the votes cast by the shareholders of the issued shares represented in person or represented by proxy and entitled to vote on such matter at a general meeting of the company and are voted at a general meeting of the company. The decision as to whether we will seek shareholder approval of a proposed Business Combination or conduct a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would require us to seek shareholder approval under applicable law or stock exchange listing requirement. +We have until the end of the Completion Window to consummate our initial Business Combination. If we anticipate that we may be unable to consummate our initial Business Combination within such 24-month period, we may seek shareholder approval to amend our amended and restated memorandum and articles of association to extend the date by which we must consummate our initial Business Combination. If we seek shareholder approval for an extension, holders of Class A Ordinary Shares will be offered an opportunity to redeem their shares at a per share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned thereon (less taxes payable), divided by the number of then issued and outstanding Class A Ordinary Shares, subject to applicable law. +If we are unable to complete our initial Business Combination within the Completion Window, we will redeem 100% of the Public Shares at a per share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned thereon (which interest shall be net of taxes payable and up to $100,000 of interest income to pay liquidation expenses), divided by the number of then issued and outstanding Class A Ordinary Shares, subject to applicable law and certain conditions as further described herein. We expect the pro rata redemption price to be approximately $10.00 per public share, without taking into account any interest or other income earned on such funds. However, we cannot assure you that we will in fact be able to distribute such amounts as a result of claims of creditors, which may take priority over the claims of our public shareholders. +NYSE American rules require that we must consummate an initial Business Combination with one or more operating businesses or assets with a fair market value equal to at least 80% of the net assets held in the Trust Account (excluding the amount of any deferred underwriting commissions and taxes payable on the income earned on the Trust Account) at the time of our signing a definitive agreement in connection with our initial Business Combination. Our board of directors will make the determination as to the fair market value of our initial Business Combination. If our board of directors is not able to independently determine the fair market value of our initial Business Combination, we will obtain an opinion from an independent investment banking firm or another independent valuation or appraisal firm that regularly provides fairness opinions solely with respect to the satisfaction of such criteria. While we consider it unlikely that our board will not be able to make such independent determination of fair market value, it may be unable to do so if the board is less familiar or experienced with the target company’s business, there is a significant amount of uncertainty as to the value of the company’s assets or prospects, including if such company is at an early stage of development, operations or growth, or if the anticipated transaction involves a complex financial analysis or other specialized skills and the board determines that outside expertise would be helpful or necessary in conducting such analysis. Since any opinion, if obtained, would merely state that the fair market value meets the 80% of net assets test, unless such opinion includes material information regarding the valuation of a target business or the consideration to be provided, it is not anticipated that copies of such opinion would be distributed to our shareholders. However, if required under applicable law, any proxy statement that we deliver to shareholders and file with the SEC in connection with a proposed transaction will include such opinion. +We anticipate structuring our initial Business Combination so that the post-transaction company in which our public shareholders own shares will own or acquire 100% of the equity interests or assets of the target business or businesses. We may, however, structure our initial Business Combination such that the post- transaction company owns or acquires less than 100% of such interests or assets of the target business in order to meet certain objectives of the target management team or shareholders or for other reasons, but we will only complete such Business Combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”). Even if the post-transaction company owns or acquires 50% or more of the voting securities of the target, our shareholders prior to the Business Combination may collectively own a minority interest in the post-transaction company, depending on valuations ascribed to the target and us in the Business Combination transaction. For example, we could pursue a transaction in which we issue a substantial number of new shares in exchange for all of the outstanding capital stock of a target. In this case, we would acquire a 100% controlling interest in the target. However, as a result of the issuance of a substantial number of new shares, our shareholders immediately prior to our initial Business Combination could own less than a majority of our outstanding shares subsequent to our initial Business Combination. If less than 100% of the equity interests or assets of a target business or businesses are owned or acquired by the post-transaction company, the portion of such business or businesses that is owned or acquired is what will be taken into account for purposes of the NYSE American’s +4 +Table of Contents +80% net assets test. If the Business Combination involves more than one target business, the 80% net assets test will be based on the aggregate value of all of the target businesses. +Our Business Combination Process +We believe our management team’s significant operating and transactional experience and relationships provide us with access to a substantial number of potential initial Business Combination targets. Over the course of their careers, the members of our management team have developed a broad network of contacts and relationships with private companies, investment bankers, private equity and debt investors, high net worth families and their advisors, commercial bankers, attorneys, management consultants, accountants and other transaction intermediaries, as well as corporate sector executives and board members around the world. This network has grown through the activities of our management team sourcing, acquiring and financing businesses, the reputation of our management team for integrity and fair dealing with sellers, financing sources and target management teams and the experience of our management team in executing transactions, especially special purpose acquisition company transactions, under varying economic and financial market conditions. +In addition, we anticipate that target Business Combination candidates will be brought to our attention from various unaffiliated sources, including investment bankers, private equity funds and large business enterprises seeking to divest non-core assets or divisions. +In evaluating a prospective target business, we expect to conduct a due diligence review which may encompass, among other things, meetings with incumbent management and employees, document reviews, interviews of customers and suppliers, inspections of facilities, as well as reviewing financial and other information made available to us and other reviews as we deem appropriate. We may also retain consultants with expertise relating to a prospective target business. +We are not prohibited from pursuing an initial Business Combination with a company that is affiliated with our Sponsor, officers or directors. In the event we seek to complete our initial Business Combination with a company that is affiliated with our Sponsor, officers or directors, we, or a committee of independent directors, will obtain an opinion from an independent investment banking firm or another independent valuation or appraisal firm that regularly provides fairness opinions that our initial Business Combination is fair to our company from a financial point of view. +Members of our management team and our independent directors will directly or indirectly own Founder Shares and/or Private Placement Warrants and, accordingly, may have a conflict of interest in determining whether a particular target business is an appropriate business with which to effectuate our initial Business Combination. The low price that our Sponsor, executive officers and directors (directly or indirectly) paid for the Founder Shares creates an incentive whereby our officers and directors could potentially make a substantial profit even if we select an acquisition target that subsequently declines in value and is unprofitable for public shareholders. If we are unable to complete our initial Business Combination within the Completion Window, the Founder Shares and Private Placement Warrants may expire worthless, except to the extent they receive liquidating distributions from assets outside the Trust Account, which could create an incentive for our Sponsor, executive officers and directors to complete a transaction even if we select an acquisition target that subsequently declines in value and is unprofitable for public shareholders. Further, each of the members of our management team may have a conflict of interest with respect to evaluating a particular Business Combination if the retention or resignation of any such person was included by a target business as a condition to any agreement with respect to our initial Business Combination. +Our officers and directors presently and in the future may have additional, fiduciary or contractual obligations to other entities pursuant to which such officer or director is or will be required to present a Business Combination opportunity. Accordingly, if any of our officers or directors becomes aware of a Business Combination opportunity which is suitable for an entity to which he or she has then-current fiduciary or contractual obligations, he or she will honor his or her fiduciary or contractual obligations to present such opportunity to such entity. In addition, certain of our officers and directors are members of our Sponsor and own membership interests of our Sponsor. The remaining membership interests are held by third party investors that are not affiliated with members of our management. We do not believe, however, that the fiduciary duties or contractual obligations of our officers or directors will materially affect our ability to complete our Business Combination. +In addition, our Sponsor and our officers and directors or any of their affiliates may Sponsor or form other special purpose acquisition companies similar to ours or may pursue other business or investment ventures during the period in which we are seeking an initial Business Combination. Any such companies, businesses or investments may present additional conflicts of interest in pursuing an initial Business Combination. However, we do not believe that such duties or obligations will materially affect our ability to complete our initial Business Combination. +5 +Table of Contents +Further, certain members of our Sponsor and our officers and directors may have similar responsibilities in, or serve as directors of other SPACs, and Mr. Graf is also serving as an independent director of Catcha Investment Corp. Any such companies may present additional conflicts of interest in pursuing an acquisition target. +We are not prohibited from pursuing an initial Business Combination with a company that is affiliated with our Sponsor, executive officers or directors, or completing the Business Combination through a joint venture or other form of shared ownership with our Sponsor, executive officers or directors. In the event we seek to complete an initial Business Combination with a target that is affiliated (as defined in our amended and restated memorandum and articles of association) with our Sponsor, executive officers or directors, we, or a committee of independent directors, would obtain an opinion from an independent investment banking firm which is a member of FINRA or another independent entity that commonly renders valuation opinions stating that the consideration to be paid by us in such an initial Business Combination is fair to our company from a financial point of view. We are not required to obtain such an opinion in any other context. +Our officers and directors presently and in the future may have additional, fiduciary or contractual obligations to another entity pursuant to which such officer or director is or will be required to present a Business Combination opportunity to such entity. Accordingly, if any of our officers or directors becomes aware of a Business Combination opportunity which is suitable for an entity to which he or she has then current fiduciary or contractual obligations, he or she will honor his or her fiduciary or contractual obligations to present such Business Combination opportunity to such other entity, subject to their fiduciary duties under Cayman Islands law. +Our amended and restated memorandum and articles of association provide that, to the fullest extent permitted by applicable law: (i) no individual serving as a director or an officer shall have any duty, except and to the extent expressly assumed by contract, to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as us, and (ii) we renounce any interest or expectancy in, or in being offered an opportunity to participate in, any potential transaction or matter which may be a corporate opportunity for any director or officer, on the one hand, and us, on the other. The purpose for the surrender of corporate opportunities is to allow officers, directors or other representatives with multiple business affiliations to continue to serve as an officer of our company or on our board of directors. Our officers and directors may from time to time be presented with opportunities that could benefit both another business affiliation and us. In the absence of the “corporate opportunity” waiver in our charter, certain candidates would not be able to serve as an officer or director. We believe we substantially benefit from having representatives who bring significant, relevant and valuable experience to our management, and, as a result, the inclusion of the “corporate opportunity” waiver in our amended and restated memorandum and articles of association provide us with greater flexibility to attract and retain the officers and directors that we feel are the best candidates. We do not believe, however, that the fiduciary duties or contractual obligations of our officers or directors will materially affect our ability to complete our initial business. +Financial Position +With funds available for a Business Combination initially in the amount of $230,000,000, we offer a target business a variety of options such as creating a liquidity event for its owners, providing capital for the potential growth and expansion of its operations or strengthening its balance sheet by reducing its debt ratio. Because we are able to complete our initial Business Combination using our cash, debt or equity securities, or a combination of the foregoing, we have the flexibility to use the most efficient combination that will allow us to tailor the consideration to be paid to the target business to fit its needs and desires. However, we have not taken any steps to secure third party financing and there can be no assurance it will be available to us. +Lack of Business Diversification +For an indefinite period of time after the completion of our initial Business Combination, the prospects for our success may depend entirely on the future performance of a single business. Unlike other entities that have the resources to complete Business Combinations with multiple entities in one or several industries, it is probable that we will not have the resources to diversify our operations and mitigate the risks of being in a single line of business in a single industry. By completing our initial Business Combination with only a single entity, our lack of diversification may: +● subject us to negative economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact on the particular industry in which we operate after our initial Business Combination, and +● cause us to depend on the marketing and sale of a single product or limited number of products or services. +6 +Table of Contents +Limited Ability to Evaluate the Target’s Management Team +Although we intend to closely scrutinize the management of a prospective target business when evaluating the desirability of effecting our initial Business Combination with that business, our assessment of the target business’ management may not prove to be correct. In addition, the future management may not have the necessary skills, qualifications or abilities to manage a public company. Furthermore, the future role of members of our management team, if any, in the target business cannot presently be stated with any certainty. The determination as to whether any of the members of our management team will remain with the combined company will be made at the time of our initial Business Combination. While it is possible that one or more of our directors will remain associated in some capacity with us following our initial Business Combination, it is unlikely that any of them will devote their full efforts to our affairs subsequent to our initial Business Combination. Moreover, we cannot assure you that members of our management team will have significant experience or knowledge relating to the operations of the particular target business. +We cannot assure you that any of our key personnel will remain in senior management or advisory positions with the combined company. The determination as to whether any of our key personnel will remain with the combined company will be made at the time of our initial Business Combination. +Following a Business Combination, we may seek to recruit additional managers to supplement the incumbent management of the target business. We cannot assure you that we will have the ability to recruit additional managers, or that additional managers will have the requisite skills, knowledge or experience necessary to enhance the incumbent management. +Shareholders May Not Have the Ability to Approve our Initial Business Combination +We may conduct redemptions without a shareholder vote pursuant to the tender offer rules of the SEC subject to the provisions of our amended and restated memorandum and articles of association. However, we will seek shareholder approval if it is required by law or applicable stock exchange rule, or we may decide to seek shareholder approval for business or other legal reasons. +Under the NYSE American’s listing rules, shareholder approval would be required for our initial Business Combination if, for example: +● we issue ordinary shares that will be equal to or in excess of 20% of the number of our ordinary shares then issued and outstanding (other than in a public offering); +● any of our directors, officers or substantial shareholders (as defined by NYSE American rules) has a 5% or greater interest earned on the Trust Account (or such persons collectively have a 10% or greater interest), directly or indirectly, in the target business or assets to be acquired or otherwise and the present or potential issuance of ordinary shares could result in an increase in outstanding; +● ordinary shares or voting power of 5% or more; or +● the issuance or potential issuance of ordinary shares will result in our undergoing a change of control. +The decision as to whether we will seek shareholder approval of a proposed Business Combination in those instances in which shareholder approval is not required by applicable law or stock exchange listing requirements will be made by us, solely in our discretion, and will be based on business and legal reasons, which include a variety of factors, including, but not limited to: (i) the timing of the transaction, including in the event we determine shareholder approval would require additional time and there is either not enough time to seek shareholder approval or doing so would place the company at a disadvantage in the transaction or result in other additional burdens on the company; (ii) the expected cost of holding a shareholder vote; (ii) the risk that the shareholders would fail to approve the proposed Business Combination; (iv) other time and budget constraints of the company; and (v) additional legal complexities of a proposed Business Combination that would be time-consuming and burdensome to present to shareholders. +Permitted Purchases of our Securities +If we seek shareholder approval of our initial Business Combination and we do not conduct redemptions in connection with our initial Business Combination pursuant to the tender offer rules, our Sponsor, initial shareholders, directors, executive officers, advisors or their affiliates may purchase shares or Public Warrants in privately negotiated transactions or in the open market either prior to or following the completion of our initial Business Combination, although they are under no obligation or duty to do so. Any such price per share may be different than the amount per share a public shareholder would receive if it elected to redeem its shares in connection with our initial Business Combination. Such a purchase may include a contractual acknowledgment that such shareholder, +7 +Table of Contents +although still the record holder of our shares is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. +In the event that our Sponsor, initial shareholders, directors, officers, advisors or their affiliates purchase shares in privately negotiated transactions from public shareholders who have already elected to exercise their redemption rights, such selling shareholders would be required to revoke their prior elections to redeem their shares. It is intended that, if Rule 10b-18 would apply to purchases by Sponsor, initial shareholders, directors, officers, advisors and their affiliates, then such purchases will comply with Rule 10b-18 under the Exchange Act, to the extent it applies, which provides a safe harbor for purchases made under certain conditions, including with respect to timing, pricing and volume of purchases. +Additionally, at any time at or prior to our initial Business Combination, subject to applicable securities laws (including with respect to material nonpublic information), our Sponsor, initial shareholders, directors, officers, advisors and their affiliates may enter into transactions with investors and others to provide them with incentives to acquire Public Shares, vote their Public Shares in favor of our initial Business Combination or not redeem their Public Shares. However, they have no current commitments, plans or intentions to engage in such transactions and have not formulated any terms or conditions for any such transactions. None of the funds in the Trust Account will be used to purchase Public Shares, rights or warrants in such transactions. +The purpose of any such transaction could be to (i) increase the likelihood of obtaining shareholder approval of the Business Combination, (ii) reduce the number of Public Warrants outstanding and/or increase the likelihood of approval on any matters submitted to public warrant holders for approval in connection with our initial Business Combination or (iii) to satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain amount of cash at the closing of our initial Business Combination, where it appears that such requirement would otherwise not be met. +In addition, if such purchases are made, the public “float” of our Class A Ordinary Shares or Public Warrants may be reduced and the number of beneficial holders of our securities may be reduced, which may make it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities exchange. +Our Sponsor, initial shareholders, officers, directors and/or their affiliates anticipate that they may identify the shareholders with whom our initial shareholders, officers, directors or their affiliates may pursue privately negotiated purchases by either the shareholders contacting us directly or by our receipt of redemption requests submitted by shareholders (in the case of Class A Ordinary Shares) following our mailing of proxy materials in connection with our initial Business Combination. To the extent that our Sponsor, officers, directors, advisors or their affiliates enter into a private purchase, they would identify and contact only potential selling shareholders who have expressed their election to redeem their shares for a pro rata share of the Trust Account or vote against our initial Business Combination, whether or not such shareholder has already submitted a proxy with respect to our initial Business Combination but only if such shares have not already been voted at the shareholder meeting related to our initial Business Combination. Our Sponsor, executive officers, directors, advisors or any of their affiliates will select which shareholders to purchase shares from based on a negotiated price and number of shares and any other factors that they may deem relevant and will only purchase shares if such purchases comply with Regulation M under the Exchange Act and the other federal securities laws. Our Sponsor, officers, directors and/or their affiliates will be restricted from making purchases of shares if the purchases would violate Section 9(a)(2) or Rule 10b-5 of the Exchange Act. We expect any such purchases will be reported pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchases are subject to such reporting requirements. +Our Sponsor, initial shareholders, directors, officers and their affiliates will be restricted from making purchases of shares if the purchases would violate Section 9(a)(2) or Rule 10b-5 of the Exchange Act. Any such purchases will be reported pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchasers are subject to such reporting requirements. Additionally, in the event our Sponsor, initial shareholders, directors, officers and their affiliates were to purchase Public Shares or warrants from public shareholders, such purchases would be structured in compliance with the requirements of Rule 14e-5 under the Exchange Act including, in pertinent part, through adherence to the following: +● our registration statement/proxy statement filed for our Business Combination transaction would disclose the possibility that our Sponsor, initial shareholders, directors, officers and their affiliates may purchase Public Shares or warrants from public shareholders outside the redemption process, along with the purpose of such purchases; +● if our Sponsor, initial shareholders, directors, officers and their affiliates were to purchase Public Shares or warrants from public shareholders, they would do so at a price no higher than the price offered through our redemption process; +8 +Table of Contents +● our registration statement/proxy statement filed for our Business Combination transaction would include a representation that any of our securities purchased by our Sponsor, initial shareholders, directors, officers and their affiliates would not be voted in favor of approving the Business Combination transaction; +● our Sponsor, initial shareholders, directors, officers and their affiliates would not possess any redemption rights with respect to our securities or, if they do acquire and possess redemption rights, they would waive such rights; and +● we would disclose in a Form 8-K, before our security holder meeting to approve the Business Combination transaction, the following material items: +● the amount of our securities purchased outside of the redemption offer by our Sponsor, initial shareholders, directors, officers and their affiliates, along with the purchase price; +● the purpose of the purchases by our Sponsor, initial shareholders, directors, officers and their affiliates; +● the impact, if any, of the purchases by our Sponsor, initial shareholders, directors, officers and their affiliates on the likelihood that the Business Combination transaction will be approved; +● the identities of our security holders who sold to our Sponsor, initial shareholders, directors, officers and their affiliates (if not purchased on the open market) or the nature of our security holders (e.g., 5% security holders) who sold to our Sponsor, initial shareholders, directors, officers and their affiliates; and +● the number of our securities for which we have received redemption requests pursuant to our redemption offer. +Please see “ Risk Factors — If we seek shareholder approval of our initial Business Combination, our Sponsor, initial shareholders, directors, officers and their affiliates may elect to purchase shares or Public Warrants from public shareholders, which may influence a vote on a proposed Business Combination and reduce the public “float” of our securities. ” +Redemption Rights for Public Stockholders upon Completion of our Initial Business Combination +We will provide our public shareholders with the opportunity to redeem all or a portion of their Class A Ordinary Shares upon the completion of our initial Business Combination at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account calculated as of two business days prior to the consummation of the initial Business Combination, including interest earned on the funds held in the Trust Account (which interest shall be net of taxes payable), divided by the number of then outstanding Public Shares, subject to the limitations and on the conditions described herein. The amount in the Trust Account is initially anticipated to be $10.00 per public share. The per share amount we will distribute to investors who properly redeem their shares will not be reduced by the deferred underwriting commissions we will pay to the underwriters. Our initial shareholders, Sponsor, officers and directors have entered into a letter agreement with us, pursuant to which they have agreed to waive their redemption rights with respect to any Founder Shares and Public Shares they may hold in connection with the completion of our initial Business Combination. +Limitations on Redemptions +Our proposed initial Business Combination may impose a minimum cash requirement for: (i) cash consideration to be paid to the target or its owners, (ii) cash for working capital or other general corporate purposes or (iii) the retention of cash to satisfy other conditions. In the event the aggregate cash consideration we would be required to pay for all Class A Ordinary Shares that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the proposed initial Business Combination exceed the aggregate amount of cash available to us, we will not complete the initial Business Combination or redeem any shares in connection with such initial Business Combination, and all Class A Ordinary Shares submitted for redemption will be returned to the holders thereof. We may, however, raise funds through the issuance of equity-linked securities or through loans, advances or other indebtedness in connection with our initial Business Combination, including pursuant to forward purchase agreements or backstop arrangements we may enter into, in order to, among other reasons, satisfy such net tangible assets or minimum cash requirements. +Manner of Conducting Redemptions +We will provide our public shareholders with the opportunity to redeem all or a portion of their Public Shares upon the completion of our initial Business Combination either (i) in connection with a shareholder meeting called to approve the initial Business Combination or (ii) without a shareholder vote by means of a tender offer. The decision as to whether we will seek shareholder approval of a proposed initial Business Combination or conduct a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would require us to seek shareholder approval under applicable law or stock exchange listing requirements. Asset acquisitions and share purchases would not typically require shareholder approval while direct mergers with our company where we do not survive and any transactions where we issue more than +9 +Table of Contents +20% of our outstanding ordinary shares or seek to amend our amended and restated memorandum and articles of association would require shareholder approval. So long as we obtain and maintain a listing for our securities on the NYSE American, we will be required to comply with the NYSE American’s shareholder approval rules. +The requirement that we provide our public shareholders with the opportunity to redeem their Public Shares by one of the two methods listed above are contained in provisions of our amended and restated memorandum and articles of association and apply whether or not we maintain our registration under the Exchange Act or our listing on the NYSE American. Such provisions may be amended if approved by a special resolution passed by the affirmative vote of at least two-thirds of our ordinary shares which are represented in person or by proxy and are voted at a general meeting of the company, so long as we offer redemption in connection with such amendment. +If we provide our public shareholders with the opportunity to redeem their Public Shares in connection with a shareholder meeting, we will: +● conduct the redemptions in conjunction with a proxy solicitation pursuant to Regulation 14A of the Exchange Act, which regulates the solicitation of proxies, and not pursuant to the tender offer rules, and +● file proxy materials with the SEC. +In the event that we seek shareholder approval of our initial Business Combination, we will distribute proxy materials and, in connection therewith, provide our public shareholders with the redemption rights described above upon completion of the initial Business Combination. +If we seek shareholder approval, we will complete our initial Business Combination only if we receive the approval of an ordinary resolution under Cayman Islands law, passed by the affirmative vote of at least a majority of the votes cast by the shareholders of the issued shares represented in person or represented by proxy and are voted at a general meeting of the company. In accordance with our amended and restated memorandum and articles of association, a quorum for such meeting will be present if the holders of one third of issued and outstanding shares entitled to vote at the meeting are represented in person or by proxy. Our initial shareholders will count towards this quorum and, pursuant to the letter agreement, our Sponsor, officers and directors have agreed to vote any Founder Shares they hold and any Public Shares purchased during our initial public offering or thereafter (including in open market and privately-negotiated transactions) in favor of our initial Business Combination. For purposes of seeking approval of an ordinary resolution, non- votes will have no effect on the approval of our initial Business Combination once a quorum is obtained. As a result, in addition to our initial shareholders’ Founder Shares, we would need 8,625,001 or 37.5% of the 23,000,000 Public Shares sold in our initial public offering to be voted in favor of an initial Business Combination in order to have our initial Business Combination approved (assuming all outstanding shares are voted). Assuming that only the holders of one-third of our issued and outstanding ordinary shares, representing a quorum under our amended and restated memorandum and articles of association, vote their ordinary shares at a general meeting of the company, we will not need any Public Shares in addition to our Founder Shares to be voted in favor of an initial Business Combination in order to approve an initial Business Combination. However, if our initial Business Combination is structured as a statutory merger or consolidation with another company under Cayman Islands law, the approval of our initial Business Combination will require a special resolution passed by the affirmative vote of at least two-thirds of our ordinary shares which are represented in person or by proxy and are voted at a general meeting of the company These quorum and voting thresholds, and the voting agreements of our initial shareholders, may make it more likely that we will consummate our initial Business Combination. However, if our initial Business Combination is structured as a statutory merger or consolidation with another company under Cayman Islands law, the approval of our initial Business Combination will require a special resolution, passed by the affirmative vote of at least two-thirds of the votes cast by the shareholders of the issued shares represented in person or represented by proxy and entitled to vote on such matter at a general meeting of the company and are voted at a general meeting of the company. Each public shareholder may elect to redeem its Public Shares irrespective of whether they vote for or against the proposed transaction, or whether they do not vote or abstain from voting on the proposed transaction, or whether they were a shareholder on the record date for the shareholder meeting held to approve the proposed transaction. +If a shareholder vote is not required and we do not decide to hold a shareholder vote for business or other legal reasons, we will: +● conduct the redemptions pursuant to Rule 13e-4 and Regulation 14E of the Exchange Act, which regulate issuer tender offers, and +10 +Table of Contents +● file tender offer documents with the SEC prior to completing our initial Business Combination, which contain substantially the same financial and other information about the initial Business Combination and the redemption rights as is required under Regulation 14A of the Exchange Act, which regulates the solicitation of proxies. +In the event we conduct redemptions pursuant to the tender offer rules, our offer to redeem will remain open for at least 20 business days, in accordance with Rule 14e-1(a) under the Exchange Act, and we will not be permitted to complete our initial Business Combination until the expiration of the tender offer period. +Upon the public announcement of our initial Business Combination, if we elect to conduct redemptions pursuant to the tender offer rules, we or our Sponsor will terminate any plan established in accordance with Rule 10b5-1 to purchase our Class A Ordinary Shares in the open market, in order to comply with Rule 14e-5 under the Exchange Act. +We intend to require our public shareholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” to, at the holder’s option, either deliver their share certificates to our transfer agent or deliver their shares to our transfer agent electronically using The Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) system, prior to the date set forth in the proxy materials or tender offer documents, as applicable. In the case of proxy materials, this date may be up to two business days prior to the scheduled vote on the proposal to approve the initial Business Combination. In addition, if we conduct redemptions in connection with a shareholder vote, we intend to require a public shareholder seeking redemption of its Public Shares to also submit a written request for redemption to our transfer agent two business days prior to the scheduled vote in which the name of the beneficial owner of such shares is included. The proxy materials or tender offer documents, as applicable, that we will furnish to holders of our Public Shares in connection with our initial Business Combination will indicate whether we are requiring public shareholders to satisfy such delivery requirements. We believe that this will allow our transfer agent to efficiently process any redemptions without the need for further communication or action from the redeeming public shareholders, which could delay redemptions and result in additional administrative cost. If the proposed initial Business Combination is not approved and we continue to search for a target company, we will promptly return any certificates or shares delivered by public shareholders who elected to redeem their shares. +Our proposed initial Business Combination may impose a minimum cash requirement for: (i) cash consideration to be paid to the target or its owners, (ii) cash for working capital or other general corporate purposes or (iii) the retention of cash to satisfy other conditions. In the event the aggregate cash consideration we would be required to pay for all Class A Ordinary Shares that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the proposed initial Business Combination exceed the aggregate amount of cash available to us, we will not complete the initial Business Combination or redeem any shares in connection with such initial Business Combination, and all Class A Ordinary Shares submitted for redemption will be returned to the holders thereof. We may, however, raise funds through the issuance of equity-linked securities or through loans, advances or other indebtedness in connection with our initial Business Combination, including pursuant to forward purchase agreements or backstop arrangements, in order to, among other reasons, satisfy such net tangible assets or minimum cash requirements. +Limitation on Redemption Upon Completion of our Initial Business Combination if We Seek Shareholder Approval +If we seek shareholder approval of our initial Business Combination and we do not conduct redemptions in connection with our initial Business Combination pursuant to the tender offer rules, our amended and restated memorandum and articles of association provide that a public shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from seeking redemption rights with respect to Excess Shares, without our prior consent. We believe this restriction will discourage shareholders from accumulating large blocks of shares, and subsequent attempts by such holders to use their ability to exercise their redemption rights against a proposed Business Combination as a means to force us or our management to purchase their shares at a significant premium to the then-current market price or on other undesirable terms. Absent this provision, a public shareholder holding more than an aggregate of 15% of the shares sold in our initial public offering could threaten to exercise its redemption rights if such holder’s shares are not purchased by us, our Sponsor or our management at a premium to the then-current market price or on other undesirable terms. By limiting our shareholders’ ability to redeem no more than 15% of the shares sold in our initial public offering without our prior consent, we believe we will limit the ability of a small group of shareholders to unreasonably attempt to block our ability to complete our initial Business Combination, particularly in connection with a Business Combination with a target that requires as a closing condition that we have a minimum net worth or a certain amount of cash. +However, we would not be restricting our shareholders’ ability to vote all of their shares (including Excess Shares) for or against our initial Business Combination. +11 +Table of Contents +Delivering Share Certificates in Connection with the Exercise of Redemption Rights +As described above, we intend to require our public shareholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” to, at the holder’s option, either deliver their share certificates to our transfer agent or deliver their shares to our transfer agent electronically using The Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) system, prior to the date set forth in the proxy materials or tender offer documents, as applicable. In the case of proxy materials, this date may be up to two business days prior to the scheduled vote on the proposal to approve the initial Business Combination. In addition, if we conduct redemptions in connection with a shareholder vote, we intend to require a public shareholder seeking redemption of its Public Shares to also submit a written request for redemption to our transfer agent two business days prior to the scheduled vote in which the name of the beneficial owner of such shares is included. The proxy materials or tender offer documents, as applicable, that we will furnish to holders of our Public Shares in connection with our initial Business Combination will indicate whether we are requiring public shareholders to satisfy such delivery requirements. Accordingly, a public shareholder would have up to two business days prior to the scheduled vote on the initial Business Combination if we distribute proxy materials, or from the time we send out our tender offer materials until the close of the tender offer period, as applicable, to submit or tender its shares if it wishes to seek to exercise its redemption rights. In the event that a shareholder fails to comply with these or any other procedures disclosed in the proxy or tender offer materials, as applicable, its shares may not be redeemed. Given the relatively short exercise period, it is advisable for shareholders to use electronic delivery of their Public Shares. +There is a nominal cost associated with the above-referenced process and the act of certificating the shares or delivering them through the DWAC system. The transfer agent will typically charge the broker submitting or tendering shares a fee of approximately $100 and it would be up to the broker whether or not to pass this cost on to the redeeming holder. However, this fee would be incurred regardless of whether or not we require holders seeking to exercise redemption rights to submit or tender their shares. The need to deliver shares is a requirement of exercising redemption rights regardless of the timing of when such delivery must be effectuated. +Any request to redeem such shares, once made, may be withdrawn at any time up to the date set forth in the proxy materials or tender offer documents, as applicable. Furthermore, if a holder of a public share delivered its certificate in connection with an election of redemption rights and subsequently decides prior to the applicable date not to elect to exercise such rights, such holder may simply request that the transfer agent return the certificate (physically or electronically). It is anticipated that the funds to be distributed to holders of our Public Shares electing to redeem their shares will be distributed promptly after the completion of our initial Business Combination. +If our initial Business Combination is not approved or completed for any reason, then our public shareholders who elected to exercise their redemption rights would not be entitled to redeem their shares for the applicable pro rata share of the Trust Account. In such case, we will promptly return any certificates delivered by public holders who elected to redeem their shares. +If our initial proposed initial Business Combination is not completed, we may continue to try to complete an initial Business Combination with a different target until the end of the Completion Window. +Redemption of Public Shares and Liquidation if No Initial Business Combination +Our amended and restated memorandum and articles of association provide that we have only the duration of the closing window to complete our initial Business Combination. If we are unable to complete our initial Business Combination within such 24-month period, we will, as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account (which interest shall be net of taxes payable and up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will constitute full and complete payment for the Public Shares and completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidating or other distributions, if any) +Our initial shareholders, Sponsor, officers and directors have entered into a letter agreement with us, pursuant to which they have waived their rights to liquidating distributions from the Trust Account with respect to any Founder Shares they hold if we fail to complete our initial Business Combination within the Completion Window, although they will be entitled to liquidating distributions from assets outside the Trust Account. However, if our initial shareholders, Sponsor or management team acquire Public Shares, they will be entitled to liquidating distributions from the Trust Account and liquidating distributions from assets outside the Trust Account with respect to such Public Shares if we fail to complete our initial Business Combination within the allotted 24- month time period. +12 +Table of Contents +Our initial shareholders, Sponsor, officers and directors have agreed, pursuant to a letter agreement with us, that they will not propose any amendment to our amended and restated memorandum and articles of association (A) to modify the substance or timing of our obligation to redeem 100% of our Public Shares if we do not complete our initial Business Combination within the Completion Window or (B) with respect to any other material provisions relating to shareholders’ rights or pre-initial Business Combination activity, unless we provide our public shareholders with the opportunity to redeem their Public Shares upon approval of any such amendment at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account (which interest shall be net of taxes payable), divided by the number of then outstanding Public Shares. +We expect that all costs and expenses associated with implementing our plan of dissolution, as well as payments to any creditors, will be funded from amounts remaining out of the approximately $1,250,000 of proceeds held outside the Trust Account, although we cannot assure you that there will be sufficient funds for such purpose. However, if those funds are not sufficient to cover the costs and expenses associated with implementing our plan of dissolution, to the extent that there is any interest accrued in the Trust Account not required to pay taxes, we may request the trustee to release to us an additional amount of up to $100,000 of such accrued interest to pay those costs and expenses. +If we were to expend all of the net proceeds of our initial public offering and the sale of the Private Placement Warrants, other than the proceeds deposited in the Trust Account, and without taking into account interest, if any, earned on the Trust Account and any tax payments or expenses for the dissolution of the trust, the per-share redemption amount received by shareholders upon our dissolution would be approximately $10.00. +The proceeds deposited in the Trust Account could, however, become subject to the claims of our creditors which would have higher priority than the claims of our public shareholders. We cannot assure you that the actual per-share redemption amount received by shareholders will not be substantially less than $10.00. While we intend to pay such amounts, if any, we cannot assure you that we will have funds sufficient to pay or provide for all creditors’ claims. +Although we will seek to have all vendors, service providers (other than our independent registered public accounting firm), prospective target businesses and other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the Trust Account for the benefit of our public shareholders, there is no guarantee that they will execute such agreements or even if they execute such agreements that they would be prevented from bringing claims against the Trust Account including but not limited to fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain an advantage with respect to a claim against our assets, including the funds held in the Trust Account. If any third party refuses to execute an agreement waiving such claims to the monies held in the Trust Account, our management will consider whether competitive alternatives are reasonably available to us and will only enter into an agreement with such third party if management believes that such third party’s engagement would be in the best interests of the company under the circumstances. Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. The underwriters of our initial public offering and our independent registered public accounting firm will not execute agreements with us waiving such claims to the monies held in the Trust Account. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the Trust Account for any reason. In order to protect the amounts held in the Trust Account, our Sponsor has agreed that it will be liable to us if and to the extent any claims by a third party for services rendered or products sold to us (except for the company’s independent auditors), or a prospective target business with which we have entered into a written letter of intent, confidentiality or other similar agreement or Business Combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.00 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.00 per public share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to the monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under our indemnity of the underwriters of our initial public offering against certain liabilities, including liabilities under the Securities Act. However, we have not asked our Sponsor to reserve for such indemnification obligations, nor have we independently verified whether our Sponsor has sufficient funds to satisfy its indemnity obligations and we believe that our Sponsor’s only assets are securities of our company. Therefore, we cannot assure you that our Sponsor would be able to satisfy those obligations. As a result, if any such claims were successfully made against the Trust Account, the funds available for our initial Business Combination and redemptions could be reduced to less than $10.00 per public share. In such event, we may not be able to complete our initial Business Combination, and you would receive such lesser amount per share in connection with any redemption of your Public Shares. None of our officers or directors will indemnify us for claims by third parties including, without limitation, claims by vendors and prospective target businesses. +13 +Table of Contents +In the event that the proceeds in the Trust Account are reduced below the lesser of (i) $10.00 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account if less than $10.00 per share due to reductions in the value of the trust assets, in each case less taxes payable, and our Sponsor asserts that it is unable to satisfy its indemnification obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against our Sponsor to enforce its indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against our Sponsor to enforce its indemnification obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so in any particular instance. Accordingly, we cannot assure you that due to claims of creditors the actual value of the per-share redemption price will not be less than $10.00 per share. +We will seek to reduce the possibility that our Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers, prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account. Our Sponsor will also not be liable as to any claims under our indemnity of the underwriters of our initial public offering against certain liabilities, including liabilities under the Securities Act. We will have access to up to approximately $1,250,000 from the proceeds of our initial public offering with which to pay any such potential claims (including costs and expenses incurred in connection with our liquidation, currently estimated to be no more than approximately $100,000). In the event that we liquidate and it is subsequently determined that the reserve for claims and liabilities is insufficient, shareholders who received funds from our Trust Account could be liable for claims made by creditors. In the event that our offering expenses exceed our estimate of $750,000, we may fund such excess with funds from the funds not to be held in the Trust Account. In such case, the amount of funds we intend to be held outside the Trust Account would decrease by a corresponding amount. Conversely, in the event that the offering expenses are less than our estimate of $750,000, the amount of funds we intend to be held outside the Trust Account would increase by a corresponding amount. +If we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy or insolvency law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our shareholders. To the extent any bankruptcy claims deplete the Trust Account, we cannot assure you we will be able to return $10.00 per share to our public shareholders. Additionally, if we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, any distributions received by shareholders could be viewed under applicable debtor/creditor and/ or bankruptcy or insolvency laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy or insolvency court could seek to recover some or all amounts received by our shareholders. Furthermore, our board of directors may be viewed as having breached its fiduciary duty to our creditors and/or may have acted in bad faith, and thereby exposing itself and our company to claims of punitive damages, by paying public shareholders from the Trust Account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons. +Our public shareholders will be entitled to receive funds from the Trust Account only (i) in the event of the redemption of our Public Shares if we do not complete our initial Business Combination within the Completion Window, (ii) in connection with a shareholder vote to amend our amended and restated memorandum and articles of association (A) to modify the substance or timing of our obligation to redeem 100% of our Public Shares if we do not complete our initial Business Combination within the Completion Window or (B) with respect to any other material provisions relating to shareholders’ rights or pre- initial Business Combination activity or (iii) if they redeem their respective shares for cash upon the completion of our initial Business Combination. In no other circumstances will a shareholder have any right or interest of any kind to or in the Trust Account. In the event we seek shareholder approval in connection with our initial Business Combination, a shareholder’s voting in connection with the Business Combination alone will not result in a shareholder’s redeeming its shares to us for an applicable pro rata share of the Trust Account. Such shareholder must have also exercised its redemption rights described above. These provisions of our amended and restated memorandum and articles of association, like all provisions of our amended and restated memorandum and articles of association, may be amended with a shareholder vote. +Competition +In identifying, evaluating and selecting a target business for our initial Business Combination, we may encounter competition from other entities having a business objective similar to ours, including other special purpose acquisition companies, private equity groups and leveraged buyout funds, public companies and operating businesses seeking strategic acquisitions. Many of these entities are well established and have extensive experience identifying and effecting Business Combinations directly or through affiliates. Moreover, many of these competitors possess similar or greater financial, technical, human and other resources than us. Our ability to acquire larger target businesses will be limited by our available financial resources. This inherent limitation gives others an advantage in pursuing the acquisition of a target business. Furthermore, our obligation to pay cash in connection with our public shareholders who +14 +Table of Contents +exercise their redemption rights may reduce the resources available to us for our initial Business Combination and our outstanding warrants, and the future dilution they potentially represent, may not be viewed favorably by certain target businesses. Either of these factors may place us at a competitive disadvantage in successfully negotiating an initial Business Combination. +Facilities +We currently utilize office space at 1790 Hughes Landing Blvd., Suite 400, The Woodlands, Texas 77380 from our Sponsor. We consider our current office space adequate for our current operations. We will pay our Sponsor (and/or its affiliates or designees) an aggregate of up to $20,000 per month for office space, secretarial, administrative and support services provided to us and members of our management team. Upon completion of our initial Business Combination or our liquidation, we will cease paying these monthly fees. +Employees +We currently have one executive officer: James A. Graf, our Chief Executive Officer and Chief Financial Officer. Mr. Graf is not obligated to devote any specific number of hours to our matters but he intends to devote as much of his time as he deems necessary to our affairs until we have completed our initial Business Combination. The amount of time Mr. Graf will devote in any time period will vary based on whether a target business has been selected for our initial Business Combination and the stage of the Business Combination process we are in. We do not intend to have any full time employees prior to the completion of our initial Business Combination. +Available Information +We are required to file Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q with the SEC on a regular basis, and are required to disclose certain material events (e.g., changes in corporate control, acquisitions or dispositions of a significant amount of assets other than in the ordinary course of business and bankruptcy) in a Current Report on Form 8-K. The SEC maintains an Internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The SEC’s Internet website is located at http://www.sec.gov . In addition, we will provide copies of these documents without charge upon request from us in writing at 1790 Hughes Landing Blvd., Suite 400, The Woodlands, Texas 77380 or by telephone at (310) 745-8669. +Emerging Growth Company and Smaller Reporting Company +We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes- Oxley Act reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile. +In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period. +We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our initial public offering, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Class A Ordinary Shares that are held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. +Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our ordinary shares held by non-affiliates is equal to or exceeds $250 million as of the prior June 30th, or (2) our annual revenues +15 +Table of Contents +equaled to or exceeded $100 million during such completed fiscal year and the market value of our ordinary shares held by non-affiliates is equal to or exceeds $700 million as of the prior June 30th. +Legal Proceedings +There is no material litigation, arbitration or governmental proceeding currently pending against us or any members of our management team and our board of directors in their capacity as such. +Item 1A. Risk Factors +An investment in our securities involves a high degree of risk. You should consider carefully all of the risks described below, together with the other information contained in this Form 10-K. If any of the following events occur, our business, financial condition and operating results may be materially adversely affected. In that event, the trading price of our securities could decline, and you could lose all or part of your investment . +Risks Relating to our Search for, Consummation of, or Inability to Consummate, a Business Combination +Our shareholders may not be afforded an opportunity to vote on our proposed initial Business Combination, and even if we hold a vote, holders of our Founder Shares will participate in such vote, which means we may complete our initial Business Combination even though a majority of our public shareholders do not support such a combination. +We may choose not to hold a shareholder vote to approve our initial Business Combination if the Business Combination would not require shareholder approval under applicable law or stock exchange listing requirement. Except for as required by applicable law or stock exchange requirement, the decision as to whether we will seek shareholder approval of a proposed Business Combination or will allow shareholders to sell their shares to us in a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors, such as the timing of the transaction and whether the terms of the transaction would otherwise require us to seek shareholder approval. Even if we seek shareholder approval, the holders of our Founder Shares will participate in the vote on such approval. Accordingly, we may complete our initial Business Combination even if a majority of our public shareholders do not approve of the Business Combination we complete. Please see the section entitled “ Business - Shareholders May Not Have the Ability to Approve Our Initial Business Combination ” for additional information. +If we seek shareholder approval of our initial Business Combination, our initial shareholders and management team have agreed to vote in favor of such initial Business Combination, regardless of how our public shareholders vote. +Our initial shareholders own 20% of our outstanding ordinary shares. Our initial shareholders and management team also may from time-to-time purchase Class A Ordinary Shares prior to our initial Business Combination. Our amended and restated memorandum and articles of association provides that, if we seek shareholder approval of an initial Business Combination, such initial Business Combination will be approved if we receive the affirmative vote of at least a majority of the voted at such meeting of the company. As a result, in addition to our initial shareholders’ Founder Shares, we would need 8,625,001 or 37.5% of the 23,000,000 Public Shares sold in our initial public offering to be voted in favor of an initial Business Combination in order to have our initial Business Combination approved (assuming all outstanding shares are voted). Assuming that only the holders of one-third of our issued and outstanding ordinary shares, representing a quorum under our amended and restated memorandum and articles of association, vote their ordinary shares at a general meeting of the company, we will not need any Public Shares in addition to our Founder Shares to be voted in favor of an initial Business Combination in order to approve an initial Business Combination. However, if our initial Business Combination is structured as a statutory merger or consolidation with another company under Cayman Islands law, the approval of our initial Business Combination requires a special resolution passed by the affirmative vote of at least two-thirds of our ordinary shares which are represented in person or by proxy and are voted at a general meeting of the company. Accordingly, if we seek shareholder approval of our initial Business Combination, the agreement by our initial shareholders and management team to vote in favor of our initial Business Combination will increase the likelihood that we will receive the requisite shareholder approval for such initial Business Combination. +Your only opportunity to effect your investment decision regarding a potential Business Combination may be limited to the exercise of your right to redeem your shares from us for cash. +At the time of your investment in us, you will not be provided with an opportunity to evaluate the specific merits or risks of our initial Business Combination. Since our board of directors may complete a Business Combination without seeking shareholder approval, public shareholders may not have the right or opportunity to vote on the Business Combination, unless we seek such shareholder vote. Accordingly, your only opportunity to effect your investment decision regarding our initial Business Combination +16 +Table of Contents +may be limited to exercising your redemption rights within the period of time (which will be at least 20 business days) set forth in our tender offer documents mailed to our public shareholders in which we describe our initial Business Combination. The amount of the deferred underwriting commissions payable to the underwriters is not currently required to be adjusted for any shares that are redeemed in connection with an initial Business Combination. The per share amount we will distribute to shareholders who properly exercise their redemption rights will not be reduced by the deferred underwriting commission and after such redemptions, the per-share value of shares held by non-redeeming shareholders will reflect our obligation to pay the deferred underwriting commission. +The ability of our public shareholders to redeem their shares for cash may make our financial condition unattractive to potential Business Combination targets, which may make it difficult for us to enter into a Business Combination with a target. +We may seek to enter into a Business Combination transaction agreement with minimum cash requirement for (i) cash consideration to be paid to the target or its owners, (ii) cash for working capital or other general corporate purposes or (iii) the retention of cash to satisfy other conditions. If too many public shareholders exercise their redemption rights, we would not be able to meet such closing condition and, as a result, would not be able to proceed with the Business Combination. +Consequently, if accepting all properly submitted redemption requests would not allow us to satisfy a closing condition as described above, we would not proceed with such redemption and the related Business Combination and may instead search for an alternate Business Combination. Prospective targets will be aware of these risks and, thus, may be reluctant to enter into a Business Combination transaction with us. +The ability of our public shareholders to exercise redemption rights with respect to a large number of our shares and the amount of deferred underwriting compensation may not allow us to complete the most desirable Business Combination or optimize our capital structure, and may substantially dilute your investment in us. +At the time we enter into an agreement for our initial Business Combination, we will not know how many shareholders may exercise their redemption rights, and therefore will need to structure the transaction based on our expectations as to the number of shares that will be submitted for redemption. If our initial Business Combination agreement requires us to use a portion of the cash in the Trust Account to pay the purchase price, or requires us to have a minimum amount of cash at closing, we will need to reserve a portion of the cash in the Trust Account to meet such requirements, or arrange for third party financing. In addition, if a larger number of shares is submitted for redemption than we initially expected, we may need to restructure the transaction to reserve a greater portion of the cash in the Trust Account or arrange for third party financing. Raising additional third-party financing may involve dilutive equity issuances or the incurrence of indebtedness at higher than desirable levels. Furthermore, this dilution would increase to the extent that the anti-dilution provision of the Class B ordinary shares results in the issuance of Class A Ordinary Shares on a greater than one-to-one basis upon conversion of the Class B ordinary shares at the time of our initial Business Combination. In addition, the amount of the deferred underwriting commissions payable to the underwriters will not be adjusted for any shares that are redeemed in connection with an initial Business Combination. The per share amount we will distribute to shareholders who properly exercise their redemption rights will not be reduced by the deferred underwriting commission and after such redemptions, the amount held in trust will continue to reflect our obligation to pay the entire deferred underwriting commissions. The above considerations may limit our ability to complete the most desirable Business Combination available to us or optimize our capital structure. As a result, our obligations to redeem Public Shares for which redemption is requested and to pay the deferred underwriting commissions may not allow us to complete the most desirable Business Combination or optimize our capital structure. +In addition, raising additional third-party financing may involve dilutive equity issuances or the incurrence of indebtedness at higher than desirable levels. Furthermore, this dilution would increase to the extent that the anti-dilution provisions of the Class B ordinary shares result in the issuance of Class A Ordinary Shares on a greater than one-to-one basis upon conversion of the Class B ordinary shares at the time of our Business Combination. The above considerations may limit our ability to complete the most desirable Business Combination available to us or optimize our capital structure and may result in substantial dilution from your purchase of our Class A Ordinary Shares. The effect of this dilution will be greater for shareholders who do not redeem. The amount of the deferred underwriting compensation payable to the underwriters will not be adjusted for any shares that are redeemed in connection with an initial Business Combination, which may further dilute your investment. The per-share amount we will distribute to stockholders who properly exercise their redemption rights will not be reduced by the deferred underwriting compensation and after such redemptions, the per-share value of shares held by non-redeeming shareholders will reflect our obligation to pay the deferred underwriting compensation. We may not be able to generate sufficient value from the completion of our initial Business Combination in order to overcome the dilutive impact of these and other factors, and, accordingly, you may incur a net loss on your investment. Please see “- Risks Relating to Our Securities  -  The nominal purchase price paid by our Sponsor for the Founder Shares may result in significant dilution to the implied value of your Public Shares upon the consummation of our initial Business Combination, and our Sponsor is +17 +Table of Contents +likely to make a substantial profit on its investment in us in the event we consummate an initial Business Combination even if the Business Combination causes the trading price of our ordinary shares to materially decline .” +The ability of our public shareholders to exercise redemption rights with respect to a large number of our shares could increase the probability that our initial Business Combination would be unsuccessful and that you would have to wait for liquidation in order to redeem your shares. +If our initial Business Combination agreement requires us to use a portion of the cash in the Trust Account to pay the purchase price, or requires us to have a minimum amount of cash at closing, the probability that our initial Business Combination would be unsuccessful is increased. If our initial Business Combination is unsuccessful, you would not receive your pro rata portion of the funds in the Trust Account until we liquidate the Trust Account. If you are in need of immediate liquidity, you could attempt to sell your shares in the open market; however, at such time our shares may trade at a discount to the pro rata amount per share in the Trust Account. In either situation, you may suffer a material loss on your investment or lose the benefit of funds expected in connection with your exercise of redemption rights until we liquidate or you are able to sell your shares in the open market. +The requirement that we complete our initial Business Combination within the Completion Window may give potential target businesses leverage over us in negotiating a Business Combination and may limit the time we have in which to conduct due diligence on potential Business Combination targets, in particular as we approach our dissolution deadline, which could undermine our ability to complete our initial Business Combination on terms that would produce value for our shareholders. +Any potential target business with which we enter into negotiations concerning a Business Combination will be aware that we must complete our initial Business Combination within the Completion Window. Consequently, such target business may obtain leverage over us in negotiating a Business Combination, knowing that if we do not complete our initial Business Combination with that particular target business, we may be unable to complete our initial Business Combination with any target business. This risk will increase as we get closer to the timeframe described above. In addition, we may have limited time to conduct due diligence and may enter into our initial Business Combination on terms that we would have rejected upon a more comprehensive investigation. The length of time it may take us to complete our diligence and negotiate a Business Combination may reduce the amount of time available for us to ultimately complete an initial Business Combination should such diligence or negotiations not lead to a consummated initial Business Combination. +Our search for a Business Combination, and any target business with which we ultimately consummate a Business Combination, may be materially adversely affected by events that are outside of our control, such as increased geopolitical unrest, pandemic outbreaks (such as COVID-19), and volatility in the debt and equity markets. +Our ability to find a potential target business and the business of any potential business with which we may consummate a Business Combination could be materially and adversely affected by events that are outside of our control. For example, geopolitical unrest (such as the ongoing military conflict between Russia and Ukraine and the military conflict in Israel and Gaza), including war, terrorist activity and acts of civil or international hostility are increasing. In particular, although the length, impact and outcome of the ongoing military conflict in Ukraine and the recent armed conflict between Israel and Hamas is highly unpredictable, these conflicts could lead to significant market and other disruptions, including significant volatility in commodity prices and supply of energy resources, instability in financial markets, supply chain interruptions, political and social instability, changes in consumer or purchaser preferences as well as increase in cyberattacks and espionage. +Similarly other events outside of our control, including natural disasters, climate-related events pandemic or heal crises (such as the COVID-19 pandemic) may arise from time to time, any such events may cause significant volatility and declines in the global markets, disproportionate impacts to certain industries or sectors, disruptions to commerce (including to economic activity, travel and supply chain), loss of life and property damage, and may adversely affect the global economy or capital markets, and the business of any potential target business with which we may consummate a Business Combination and could be materially adversely affected. In addition, our ability to consummate a transaction may be dependent on the ability to raise equity and debt financing which may be impacted by these and other events, including as a result of increased market volatility, decreased market liquidity in third-party financing being unavailable on terms acceptable or at all. +We may not be able to complete our initial Business Combination within the Completion Window, in which case we would cease all operations except for the purpose of winding up and we would redeem our Public Shares and liquidate. +We may not be able to find a suitable target business and complete our initial Business Combination within the Completion Window. Our ability to complete our initial Business Combination may be negatively impacted by general market conditions, volatility +18 +Table of Contents +in the capital and debt markets and the other risks described herein. If we have not completed our initial Business Combination within such time period, we will: as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account (which interest shall be net of taxes payable and up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will constitute full and complete payment and completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidating distributions or other distributions, if any), subject to our obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. +We may decide not to extend the term we have to consummate our initial Business Combination, in which case we would redeem our Public Shares, and the warrants may be worthless. +We have until the end of the Completion Window to consummate our initial Business Combination. If we anticipate that we may be unable to consummate our initial Business Combination within such period, we may seek shareholder approval to amend our amended and restated memorandum and articles of association to extend the date by which we must consummate our initial Business Combination. However, we may decide not to seek to extend the date by which we must consummate our initial Business Combination. If we do not seek to extend the date by which we must consummate our initial Business Combination, and we are unable to consummate our initial Business Combination within the applicable time period, we will, as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares for a pro rata portion of the funds held in the Trust Account, subject to our obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. In such event, the warrants may be worthless. +If we seek shareholder approval of our initial Business Combination, our Sponsor, initial shareholders, directors, executive officers, advisors and their affiliates may elect to purchase shares or Public Warrants from public shareholders, which may influence a vote on a proposed Business Combination and reduce the public “float” of our securities. +If we seek shareholder approval of our initial Business Combination and we do not conduct redemptions in connection with our initial Business Combination pursuant to the tender offer rules, our Sponsor, initial shareholders, directors, executive officers, advisors or their affiliates may purchase Public Shares or warrants in privately negotiated transactions or in the open market either prior to or following the completion of our initial Business Combination, although they are under no obligation to do so. Any such price per share may be different than the amount per share a public shareholder would receive if it elected to redeem its shares in connection with our initial Business Combination. Such a purchase may include a contractual acknowledgment that such shareholder, although still the record holder of our shares, is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. +In the event that our Sponsor, initial shareholders, directors, executive officers, advisors or their affiliates purchase shares in privately negotiated transactions from public shareholders who have already elected to exercise their redemption rights, such selling shareholders would be required to revoke their prior elections to redeem their shares. It is intended that, if Rule 10b-18 would apply to purchases by Sponsor, initial shareholders, directors, officers, advisors and their affiliates, then such purchases will comply with Rule 10b-18 under the Exchange Act, to the extent it applies, which provides a safe harbor for purchases made under certain conditions, including with respect to timing, pricing and volume of purchases. +Additionally, at any time at or prior to our initial Business Combination, subject to applicable securities laws (including with respect to material nonpublic information), our Sponsor, initial shareholders, directors, officers, advisors and their affiliates may enter into transactions with investors and others to provide them with incentives to acquire Public Shares, vote their Public Shares in favor of our initial Business Combination or not redeem their Public Shares. However, they have no current commitments, plans or intentions to engage in such transactions and have not formulated any terms or conditions for any such transactions. None of the funds in the Trust Account will be used to purchase Public Shares, rights or warrants in such transactions. +The purpose of any such transactions could be to (i) increase the likelihood of obtaining shareholder approval of the Business Combination, (ii) reduce the number of Public Warrants outstanding and/or increase the likelihood of approval on any matters submitted to the public warrant holders for approval in connection with our initial Business Combination or (iii) satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain amount of cash at the closing of our initial Business Combination, where it appears that such requirement would otherwise not be met. Any such purchases of our securities may result in the completion of our Business Combination that may not otherwise have been possible. +In addition, if such purchases are made, the public “float” of our securities may be reduced and the number of beneficial holders of our securities may be reduced, which may make it difficult to maintain or obtain the quotation, listing or trading of our securities on +19 +Table of Contents +a national securities exchange. Any such purchases will be reported pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchasers are subject to such reporting requirements. Additionally, in the event our Sponsor, initial shareholders, directors, officers, advisors and their affiliates were to purchase Public Shares or warrants from public shareholders, such purchases would be structured in compliance with the requirements of Rule 14e-5 under the Exchange Act including, in pertinent part, through adherence to the following: +● our registration statement/proxy statement filed for our Business Combination transaction would disclose the possibility that our Sponsor, initial shareholders, directors, officers, advisors and their affiliates may purchase Public Shares or warrants from public shareholders outside the redemption process, along with the purpose of such purchases; +● if our Sponsor, initial shareholders, directors, officers, advisors and their affiliates were to purchase Public Shares or warrants from public shareholders, they would do so at a price no higher than the price offered through our redemption process; +● our registration statement/proxy statement filed for our Business Combination transaction would include a representation that any of our securities purchased by our Sponsor, initial shareholders, directors, officers, advisors and their affiliates would not be voted in favor of approving the Business Combination transaction; +● our Sponsor, initial shareholders, directors, officers, advisors and their affiliates would not possess any redemption rights with respect to our securities or, if they do acquire and possess redemption rights, they would waive such rights; and +● we would disclose in a Form 8-K, before our security holder meeting to approve the Business Combination transaction, the following material items: +● the amount of our securities purchased outside of the redemption offer by our Sponsor, initial shareholders, directors, officers, advisors and their affiliates, along with the purchase price; +● the purpose of the purchases by our Sponsor, initial shareholders, directors, officers, advisors and their affiliates; +● the impact, if any, of the purchases by our Sponsor, initial shareholders, directors, officers, advisors and their affiliates on the likelihood that the Business Combination transaction will be approved; +● the identities of our security holders who sold to our Sponsor, initial shareholders, directors, officers, advisors and their affiliates (if not purchased on the open market) or the nature of our security holders (e.g., 5% security holders) who sold to our Sponsor, initial shareholders, directors, officers, advisors and their affiliates; and +● the number of our securities for which we have received redemption requests pursuant to our redemption offer. +Please see “ Business - Permitted Purchases of Our Securities ” for a description of how such persons will determine from which shareholders to seek to acquire securities. +If a shareholder fails to receive notice of our offer to redeem our Public Shares in connection with our initial Business Combination, or fails to comply with the procedures for tendering its shares, such shares may not be redeemed. +We will comply with the proxy rules or tender offer rules, as applicable, when conducting redemptions in connection with our initial Business Combination. Despite our compliance with these rules, if a shareholder fails to receive our proxy materials or tender offer documents, as applicable, such shareholder may not become aware of the opportunity to redeem its shares. In addition, proxy materials or tender offer documents, as applicable, that we will furnish to holders of our Public Shares in connection with our initial Business Combination will describe the various procedures that must be complied with in order to validly tender or submit Public Shares for redemption. For example, we intend to require our public shareholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” to, at the holder’s option, either deliver their share certificates to our transfer agent, or to deliver their shares to our transfer agent electronically prior to the date set forth in the proxy materials or tender offer documents, as applicable. In the case of proxy materials, this date may be up to two business days prior to the scheduled vote on the proposal to approve the initial Business Combination. In addition, if we conduct redemptions in connection with a shareholder vote, we intend to require a public shareholder seeking redemption of its Public Shares to also submit a written request for redemption to our transfer agent two business days prior to the scheduled vote in which the name of the beneficial owner of such shares is included. In the event that a shareholder fails to comply with these or any other procedures disclosed in the proxy or tender offer materials, as applicable, its shares may not be redeemed. See the section of this Form 10-K entitled “ Business – Manner of Conducting Redemptions .” +20 +Table of Contents +You will not be entitled to protections normally afforded to investors of other blank check companies subject to Rule 419 of the Securities Act. +Since the net proceeds of the IPO and the sale of the Private Placement Warrants are intended to be used to complete one or more initial Business Combinations with a target business or businesses that have not been selected, we may be deemed to be a “blank check” company under the United States securities laws. However, we are exempt from rules promulgated by the SEC to protect investors in blank check companies, such as Rule 419. Accordingly, investors will not be afforded the benefits or protections of those rules. Among other things, this means we will have a longer period of time to complete our initial Business Combinations than do companies subject to Rule 419. Moreover, if the IPO had been subject to Rule 419, that rule would prohibit the release of any interest earned on funds held in the Trust Account to us unless and until the funds in the Trust Account were released to us or in connection with our completion of an initial Business Combination. +If we seek shareholder approval of our initial Business Combination and we do not conduct redemptions pursuant to the tender offer rules, and if you or a “group” of shareholders are deemed to hold in excess of 15% of our Class A Ordinary Shares, you may lose the ability to redeem all such shares in excess of 15% of our Class A Ordinary Shares. +If we seek shareholder approval of our initial Business Combination and we do not conduct redemptions in connection with our initial Business Combination pursuant to the tender offer rules, our amended and restated memorandum and articles of association provide that a public shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from seeking redemption rights with respect to more than an aggregate of 15% of the shares sold in the initial public offering without our prior consent, which we refer to as the “Excess Shares.” However, we would not be restricting our shareholders’ ability to vote all of their shares (including Excess Shares) for or against our initial Business Combination. +Your inability to redeem the Excess Shares will reduce your influence over our ability to complete our initial Business Combination and you could suffer a material loss on your investment in us if you sell Excess Shares in open market transactions. Additionally, you will not receive redemption distributions with respect to the Excess Shares if we complete our initial Business Combination. And as a result, you will continue to hold that number of shares exceeding 15% and, in order to dispose of such shares, would be required to sell your shares in open market transactions, potentially at a loss. +Because of our limited resources and the significant competition for Business Combination opportunities, it may be more difficult for us to complete our initial Business Combination. If we are unable to complete our initial Business Combination, our public shareholders may receive only their pro rata portion of the funds in the Trust Account that are available for distribution to public shareholders, and our warrants will expire worthless. +We expect to encounter competition from other entities having a business objective similar to ours, including private investors (which may be individuals or investment partnerships), other blank check companies and other entities, domestic and international, competing for the types of businesses we intend to acquire. Many of these individuals and entities are well-established and have extensive experience in identifying and effecting, directly or indirectly, acquisitions of companies operating in or providing services to various industries. Many of these competitors possess similar or greater technical, human and other resources to ours or more local industry knowledge than we do and our financial resources are relatively limited when contrasted with those of many of these competitors. While we believe there are numerous target businesses we could potentially acquire with the net proceeds of the initial public offering and the sale of the Private Placement Warrants, our ability to compete with respect to the acquisition of certain target businesses that are sizable will be limited by our available financial resources. This inherent competitive limitation gives others an advantage in pursuing the acquisition of certain target businesses. Furthermore, we are obligated to offer holders of our Public Shares the right to redeem their shares for cash at the time of our initial Business Combination in conjunction with a shareholder vote or via a tender offer. Target companies will be aware that this may reduce the resources available to us for our initial Business Combination. Any of these obligations may place us at a competitive disadvantage in successfully negotiating a Business Combination. If we are unable to complete our initial Business Combination, our public shareholders may receive only their pro rata portion of the funds in the Trust Account that are available for distribution to public shareholders, and our warrants will expire worthless. +As the number of special purpose acquisition companies evaluating targets increases, attractive targets may become scarcer and there may be more competition for attractive targets. This could increase the cost of our initial Business Combination and could even result in our inability to find a target or to consummate an initial Business Combination. +In recent years, the number of special purpose acquisition companies that have been formed has increased substantially. Many potential targets for special purpose acquisition companies have already entered into an initial Business Combination, and there are still +21 +Table of Contents +many special purpose acquisition companies preparing for an initial public offering, as well as many such companies currently in registration. As a result, at times, fewer attractive targets may be available to consummate an initial Business Combination. +In addition, because there are more special purpose acquisition companies seeking to enter into an initial Business Combination with available targets, the competition for available targets with attractive fundamentals or business models may increase, which could cause targets companies to demand improved financial terms. Attractive deals could also become scarcer for other reasons, such as economic or industry sector downturns, geopolitical tensions, or increases in the cost of additional capital needed to close Business Combinations or operate targets post-Business Combination. This could increase the cost of, delay or otherwise complicate or frustrate our ability to find and consummate an initial Business Combination, and may result in our inability to consummate an initial Business Combination on terms favorable to our investors altogether. +If the net proceeds of the initial public offering not being held in the Trust Account are insufficient to allow us to operate for at least the duration of the Completion Window, it could limit the amount available to fund our search for a target business or businesses and complete our initial Business Combination, and we will depend on loans from our Sponsor or management team to fund our search and to complete our initial Business Combination. +$479,628 was available to us outside the Trust Account, as of December 31, 2024, to fund our working capital requirements. We believe that the funds available to us outside of the Trust Account will be sufficient to allow us to operate for at least the duration of the Completion Window; however, we cannot assure you that our estimate is accurate. Of the funds available to us, we could use a portion of the funds available to us to pay fees to consultants to assist us with our search for a target business. We could also use a portion of the funds as a down payment or to fund a “no-shop” provision (a provision in letters of intent or merger agreements designed to keep target businesses from “shopping” around for transactions with other companies or investors on terms more favorable to such target businesses) with respect to a particular proposed Business Combination, although we do not have any current intention to do so. If we entered into a letter of intent or merger agreement where we paid for the right to receive exclusivity from a target business and were subsequently required to forfeit such funds (whether as a result of our breach or otherwise), we might not have sufficient funds to continue searching for, or conduct due diligence with respect to, a target business. +If we are required to seek additional capital, we would need to borrow funds from our Sponsor, management team or other third parties to operate or may be forced to liquidate. Neither our Sponsor, members of our management team nor any of their affiliates is under any obligation to advance funds to us in such circumstances. Any such advances would be repaid only from funds held outside the Trust Account or from funds released to us upon completion of our initial Business Combination. Up to $1,500,000 of such loans may be convertible into Private Placement Warrants at a price of $1.00 per warrant, at the option of the lender. The warrants would be identical to the Private Placement Warrants, including as to exercisability and exercise price. Prior to the completion of our initial Business Combination, we do not expect to seek loans from parties other than our Sponsor or an affiliate of our Sponsor, as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our Trust Account. If we are unable to complete our initial Business Combination because we do not have sufficient funds available to us, we will be forced to liquidate the Trust Account. Consequently, our public shareholders may only receive an estimated $10.00 per share, or possibly less, on our redemption of our Public Shares, and our warrants will expire worthless. +If third parties bring claims against us, the proceeds held in the Trust Account could be reduced and the per- share redemption amount received by shareholders may be less than $10.00 per share. +Our placing of funds in the Trust Account may not protect those funds from third party claims against us. Although we will seek to have all vendors, service providers (except for our independent registered public accounting firm), prospective target businesses and other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the Trust Account for the benefit of our public shareholders, such parties may not execute such agreements, or even if they execute such agreements they may not be prevented from bringing claims against the Trust Account, including, but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain advantage with respect to a claim against our assets, including the funds held in the Trust Account. If any third party refuses to execute an agreement waiving such claims to the monies held in the Trust Account, our management will consider whether competitive alternatives are reasonably available to us and will only enter into an agreement with such third party if management believes that such third party’s engagement would be in the best interests of the company under the circumstances. The underwriters of the initial public as well as our registered independent public accounting firm will not execute agreements with us waiving such claims to the monies held in the Trust Account. +Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other +22 +Table of Contents +consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the Trust Account for any reason. Upon redemption of our Public Shares, if we are unable to complete our initial Business Combination within the prescribed timeframe, or upon the exercise of a redemption right in connection with our initial Business Combination, we will be required to provide for payment of claims of creditors that were not waived that may be brought against us within the 10 years following redemption. +Accordingly, the per-share redemption amount received by public shareholders could be less than the $10.00 per public share initially held in the Trust Account, due to claims of such creditors. Pursuant to the letter agreement, our Sponsor has agreed that it will be liable to us if and to the extent any claims by a third party for services rendered or products sold to us (except for the company’s independent auditors), or a prospective target business with which we have entered into a written letter of intent, confidentiality or other similar agreement or Business Combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.00 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.00 per public share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to the monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under our indemnity of the underwriters of the initial public offering against certain liabilities, including liabilities under the Securities Act. However, we have not asked our Sponsor to reserve for such indemnification obligations, nor have we independently verified whether our Sponsor has sufficient funds to satisfy its indemnity obligations and we believe that our Sponsor’s only assets are securities of our company. Therefore, we cannot assure you that our Sponsor would be able to satisfy those obligations. As a result, if any such claims were successfully made against the Trust Account, the funds available for our initial Business Combination and redemptions could be reduced to less than $10.00 per public share. In such event, we may not be able to complete our initial Business Combination, and you would receive such lesser amount per share in connection with any redemption of your Public Shares. None of our officers or directors will indemnify us for claims by third parties including, without limitation, claims by vendors and prospective target businesses. +Our directors may decide not to enforce the indemnification obligations of our Sponsor, resulting in a reduction in the amount of funds in the Trust Account available for distribution to our public shareholders. +In the event that the proceeds in the Trust Account are reduced below the lesser of (i) $10.00 per share and the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account if less than $10.00 per public share due to reductions in the value of the trust assets, in each case less taxes payable, and our Sponsor asserts that it is unable to satisfy its obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against our Sponsor to enforce its indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against our Sponsor to enforce its indemnification obligations to us, it is possible that our independent directors in exercising their business judgment and subject to their fiduciary duties may choose not to do so in any particular instance. If our independent directors choose not to enforce these indemnification obligations, the amount of funds in the Trust Account available for distribution to our public shareholders may be reduced below $10.00 per share. +If, after we distribute the proceeds in the Trust Account to our public shareholders, we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding up petition is filed against us that is not dismissed, a bankruptcy or insolvency court may seek to recover such proceeds, and the members of our board of directors may be viewed as having breached their fiduciary duties to our creditors, thereby exposing the members of our board of directors and us to claims of punitive damages. +If, after we distribute the proceeds in the Trust Account to our public shareholders, we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding up petition is filed against us that is not dismissed, any distributions received by shareholders could be viewed under applicable debtor/creditor and/or bankruptcy or insolvency laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy or insolvency court could seek to recover some or all amounts received by our shareholders. In addition, our board of directors may be viewed as having breached its fiduciary duty to our creditors and/or having acted in bad faith, by paying public shareholders from the Trust Account prior to addressing the claims of creditors, thereby exposing itself and us to claims of punitive damages. +23 +Table of Contents +If, before distributing the proceeds in the Trust Account to our public shareholders, we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding up petition is filed against us that is not dismissed, the claims of creditors in such proceeding may have priority over the claims of our shareholders and the per-share amount that would otherwise be received by our shareholders in connection with our liquidation may be reduced. +If, before distributing the proceeds in the Trust Account to our public shareholders, we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding up petition is filed against us that is not dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy or insolvency law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our shareholders. To the extent any bankruptcy claims deplete the Trust Account, the per-share amount that would otherwise be received by our shareholders in connection with our liquidation may be reduced. +If we are deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete our initial Business Combination or force us to abandon our efforts to complete an initial Business Combination. +If we are deemed to be an investment company under the Investment Company Act, our activities may be restricted, including: +● restrictions on the nature of our investments; and +● restrictions on the issuance of securities, each of which may make it difficult for us to complete our initial Business Combination. In addition, we may have imposed upon us burdensome requirements, including: +● registration as an investment company; +● adoption of a specific form of corporate structure; and +● reporting, record keeping, voting, proxy and disclosure requirements and other rules and regulations. +In order not to be regulated as an investment company under the Investment Company Act, unless it can qualify for an exclusion, a company must ensure that it is engaged primarily in a business other than investing, reinvesting or trading of securities and that its activities do not include investing, reinvesting, owning, holding or trading “investment securities” constituting more than 40% of our assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. +The SEC recently provided guidance that the determination of whether a special purpose acquisition company, like us, is an “investment company” under the Investment Company Act is a facts and circumstances determination requiring individualized analysis and depends on a variety of factors, including a SPAC’s duration, asset composition, business purpose and activities, and “is a question of facts and circumstances” requiring individualized analysis. When applying these factors to us we do not believe that our principal activities will subject us to the Investment Company Act. To this end, the Company was formed for the purpose of completing an initial Business Combination with one or more businesses. Our business is focused on identifying and completing an initial Business Combination, and thereafter, operating the post-transaction business or assets for the long term. Further, we do not plan to buy businesses or assets with a view to resale or profit from their resale and we do not plan to buy unrelated businesses or assets or to be a passive investor. In addition, the proceeds held in the Trust Account will only be held as cash or invested in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act which invest only in direct U.S. government treasury obligations. However, to mitigate the risk of us being deemed to have been operating as an unregistered investment company (including under the subjective test of Section 3(a)(1)(A) of the Investment Company Act), we may, in our own discretion, instruct Continental Stock Transfer & Trust Company, the trustee with respect to the Trust Account, to liquidate the U.S. government securities or money market funds held in the Trust Account and thereafter, until the earlier of consummation of our initial Business Combination or liquidation, to hold all funds in the Trust Account in an interest bearing bank demand deposit account, which may earn less interest than we otherwise would have if the Trust Account had remained invested in U.S. government securities or money market funds. This may mean that the amount of funds available for redemption would not increase, or would only minimally increase, thereby reducing the dollar amount our public shareholders would receive upon any redemption or liquidation of the Company. Pursuant to the investment management trust agreement, the trustee will not be permitted to invest in other securities or assets. By restricting the investment of the proceeds in this manner, and by focusing our directors’ and officers’ time toward, and operating our business for the purpose of, acquiring and growing businesses for the long term (rather than buying and selling businesses in the manner of a merchant bank or private equity fund or investing in assets for the purpose of achieving investment returns on such assets), we intend to avoid being deemed an “investment company” within the meaning of the Investment Company Act. Further, investing in our securities is not intended for persons who are seeking a return on investments in government securities or investment securities. Instead, the Trust Account is intended as a holding place for funds pending the earliest to occur of either: (i) the completion of our initial Business Combination; (ii) the redemption of any Public Shares properly submitted in connection with a shareholder vote to amend our amended +24 +Table of Contents +and restated memorandum and articles of association (A) to modify the substance or timing of our obligation to allow redemption in connection with our initial Business Combination or to redeem 100% of our Public Shares if we do not complete our initial Business Combination within the Completion Window or (B) with respect to any other material provisions relating to shareholders’ rights or pre-initial Business Combination activity; or (iii) absent an initial Business Combination within the Completion Window, our return of the funds held in the Trust Account to our public shareholders as part of our redemption of the Public Shares. If we do not invest the proceeds as described above, we may be deemed to be subject to the Investment Company Act. Notwithstanding the fact that we have limited our activities as described above, we could nevertheless be considered to be operating as an unregistered investment company. In addition, notwithstanding the investment of the proceeds of our initial public offering and concurrent private placement as described elsewhere herein, we may be considered to be operating as an unregistered investment company. If our facts and circumstances change over time, we will update our disclosure in future filings with the SEC to reflect how those changes impact the risk that we may be considered to be operating as an unregistered investment company. +If we were deemed to be an investment company for purposes of the Investment Company Act, we would need to register as such under the Investment Company Act and compliance with these additional regulatory burdens would require additional expenses for which we have not allotted funds and may hinder our ability to complete a Business Combination. We may also be forced to abandon our efforts to complete an initial Business Combination, and instead be required to liquidate the Trust Account and may be required to change our operations or wind down our operations. In which case, our investors would not be able to realize the benefits of owning shares in a successor operating business, including the potential appreciation in the value of our securities following such a transaction, and our warrants would expire worthless. +If we were deemed to be an investment company for purposes of the Investment Company Act, compliance with these additional regulatory burdens would require additional expenses for which we have not allotted funds and may hinder our ability to complete a Business Combination. We may also be forced to abandon our efforts to complete an initial Business Combination and instead be required to liquidate the Trust Account. If we are required to liquidate the Trust Account, our investors would not be able to realize the benefits of owning shares in a successor operating business, including the potential appreciation in the value of our securities following such a transaction, and our warrants would expire worthless. On the liquidation of our Trust Account, our public shareholders may receive only approximately $10.00, or less in certain circumstances, and our warrants will expire worthless. Changes in laws or regulations or in how such laws or regulations are interpreted or applied, or a failure to comply with any laws and regulations, may adversely affect our business, including our ability to negotiate and complete our initial Business Combination, and results of operations. +We are subject to rules and regulations enacted by various national, regional and local governing bodies, including for example, the SEC, and to new and evolving regulatory measures under applicable law. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly and our efforts to comply with such new and evolving laws and regulations have resulted in and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention, In addition, these changes could have a material adverse effect on our business, investments and results of operations. +Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. For example, on January 24, 2024, the SEC issued final rules and guidance relating to initial public offerings and Business Combination transactions of special purpose acquisition companies, like us, which, among other things, created new rules and guidance. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. A failure to comply with applicable laws or regulations and any subsequent changes, as interpreted and applied, could have a material adverse effect on our business, including our ability to negotiate and complete our initial Business Combination, and results of operations. +Our shareholders may be held liable for claims by third parties against us to the extent of distributions received by them upon redemption of their shares. +If we are forced to enter into an insolvent liquidation, any distributions received by shareholders could be viewed as an unlawful payment if it was proved that immediately following the date on which the distribution was made, we were unable to pay our debts as they fall due in the ordinary course of business. As a result, a liquidator could seek to recover some or all amounts received by our shareholders. Furthermore, our directors may be viewed as having breached their fiduciary duties to us or our creditors and/or may have acted in bad faith, thereby exposing themselves and our company to claims, by paying public shareholders from the Trust Account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons. We and our directors and officers who knowingly and willfully authorized or permitted any distribution to be paid out of our share premium account while we were unable to pay our debts as they fall due in the ordinary course of business would be guilty of an offence and may be liable to a fine of approximately $18,293 and to imprisonment for five years in the Cayman Islands. +25 +Table of Contents +We may not hold an annual general meeting until after the consummation of our initial Business Combination, which could delay the opportunity for our shareholders to appoint directors. +In accordance with the NYSE American’s corporate governance requirements, we are not required to hold an annual general meeting until no later than one year after our first fiscal year end following our listing on the NYSE American. There is no requirement under the Companies Act for us to hold annual or extraordinary general meetings to appoint directors. Until we hold an annual general meeting, public shareholders may not be afforded the opportunity to appoint directors and to discuss company affairs with management. Our board of directors is divided into three classes with only one class of directors being elected in each year and each class (except for those directors appointed prior to our first annual general meeting) serving a three-year term. In addition, as holders of our Class A Ordinary Shares, our public shareholders will not have the right to vote on the election of directors until after the consummation of our initial Business Combination. +Because we are neither limited to evaluating a target business in a particular industry sector nor have we selected any specific target businesses with which to pursue our initial Business Combination, you will be unable to ascertain the merits or risks of any particular target business’s operations. +Our efforts to identify a prospective initial Business Combination target will not be limited to a particular industry, sector or geographic region. Our amended and restated memorandum and articles of association prohibit us from effectuating a Business Combination solely with another blank check company or similar company with nominal operations. Because we have not yet selected any specific target business with respect to a Business Combination, there is no basis to evaluate the possible merits or risks of any particular target business’s operations, results of operations, cash flows, liquidity, financial condition or prospects. +To the extent we complete our initial Business Combination, we may be affected by numerous risks inherent in the business operations with which we combine. For example, if we combine with a financially unstable business or an entity lacking an established record of sales or earnings, we may be affected by the risks inherent in the business and operations of a financially unstable or a development stage entity. In recent years, a number of target businesses have underperformed financially post-Business Combination, There are no assurances that the target business with which we consummate our initial Business Combination will perform as anticipated. Although our officers and directors will endeavor to evaluate the risks inherent in a particular target business, we cannot assure you that we will properly ascertain or assess all of the significant risk factors or that we will have adequate time to complete due diligence. Furthermore, some of these risks may be outside of our control and leave us with no ability to control or reduce the chances that those risks will adversely impact a target business. We also cannot assure you that an investment in our units will ultimately prove to be more favorable to investors than a direct investment, if such opportunity were available, in a Business Combination target. +Accordingly, any shareholders or warrant holders who choose to remain shareholders or warrant holders following the Business Combination could suffer a reduction in the value of their securities. Such shareholders or warrant holders are unlikely to have a remedy for such reduction in value unless they are able to successfully claim that the reduction was due to the breach by our officers or directors of a duty of care or other fiduciary duty owed to them, or if they are able to successfully bring a private claim under securities laws that the proxy materials or tender offer documents, as applicable, relating to the Business Combination contained an actionable material misstatement or material omission. +Although we have identified general criteria and guidelines that we believe are important in evaluating prospective target businesses, we may enter into our initial Business Combination with a target that does not meet such criteria and guidelines, and as a result, the target business with which we enter into our initial Business Combination may not have attributes entirely consistent with our general criteria and guidelines. +Although we have identified general criteria and guidelines for evaluating prospective target businesses, it is possible that a target business with which we enter into our initial Business Combination will not have all of these positive attributes. If we complete our initial Business Combination with a target that does not meet some or all of these guidelines, such combination may not be as successful as a combination with a business that does meet all of our general criteria and guidelines. In addition, if we announce a prospective Business Combination with a target that does not meet our general criteria and guidelines, a greater number of shareholders may exercise their redemption rights, which may make it difficult for us to meet any closing condition with a target business that requires us to have a minimum net worth or a certain amount of cash. In addition, if shareholder approval of the transaction is required by law, or we decide to obtain shareholder approval for business or other legal reasons, it may be more difficult for us to attain shareholder approval of our initial Business Combination if the target business does not meet our general criteria and guidelines. If we are unable to complete our initial Business Combination, our public shareholders may only receive their pro rata portion of the funds in the Trust Account that are available for distribution to public shareholders, and our warrants will expire worthless. +26 +Table of Contents +We may not be required to obtain an opinion from an independent investment banking firm or from a valuation or appraisal firm, and consequently, you may have no assurance from an independent source that the consideration we are paying for the business is fair to our company from a financial point of view. +Unless we complete our initial Business Combination with an affiliated (as defined in our amended and restated memorandum and articles of association) entity or our board of directors cannot independently determine the fair market value of the target business or businesses (including with the assistance of financial advisors), we are not required to obtain an opinion from an independent investment banking firm which is a member of FINRA or from another independent entity that commonly renders valuation opinions that the consideration we are paying is fair to our company from a financial point of view. If no opinion is obtained, our shareholders will be relying on the judgment of our board of directors, who will determine fair market value based on standards generally accepted by the financial community. Such standards used will be disclosed in our proxy materials or tender offer documents, as applicable, related to our initial Business Combination. +We may issue notes or other debt securities, or otherwise incur substantial debt, to complete a Business Combination, which may adversely affect our leverage and financial condition and thus negatively impact the value of our shareholders’ investment in us. +Although we have no commitments as of the date of this Form 10-K to issue any notes or other debt securities, or to otherwise incur outstanding debt, we may choose to incur substantial debt to complete our initial Business Combination. We and our officers have agreed that we will not incur any indebtedness unless we have obtained from the lender a waiver of any right, title, interest or claim of any kind in or to the monies held in the Trust Account. As such, no issuance of debt will affect the per share amount available for redemption from the Trust Account. Nevertheless, the incurrence of debt could have a variety of negative effects, including: +● default and foreclosure on our assets if our operating revenues after an initial Business Combination are insufficient to repay our debt obligations; +● acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant; +● our immediate payment of all principal and accrued interest, if any, if the debt is payable on demand; +● our inability to obtain necessary additional financing if the debt contains covenants restricting our ability to obtain such financing while the debt is outstanding; +● our inability to pay dividends on our Class A Ordinary Shares; +● using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our Class A Ordinary Shares if declared, expenses, capital expenditures, acquisitions and other general corporate purposes; +● limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate; +● increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and +● limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt. +We may only be able to complete one Business Combination with the proceeds of the initial public offering and the sale of the Private Placement Warrants, which will cause us to be solely dependent on a single business which may have a limited number of products or services. This lack of diversification may negatively impact our operations and profitability. +We may effectuate our initial Business Combination with a single target business or multiple target businesses simultaneously or within a short period of time. However, we may not be able to effectuate our initial Business Combination with more than one target business because of various factors, including the existence of complex accounting issues and the requirement that we prepare and file pro forma financial statements with the SEC that present operating results and the financial condition of several target businesses as if they had been operated on a combined basis. By completing our initial Business Combination with only a single entity, our lack of diversification may subject us to numerous economic, competitive and regulatory developments. Further, we would not be able to diversify our operations or benefit from the possible spreading of risks or offsetting of losses, unlike other entities which may have the +27 +Table of Contents +resources to complete several Business Combinations in different industries or different areas of a single industry. Accordingly, the prospects for our success may be: +● solely dependent upon the performance of a single business, property or asset, or +● dependent upon the development or market acceptance of a single or limited number of products, processes or services. +This lack of diversification may subject us to numerous economic, competitive and regulatory risks, any or all of which may have a substantial adverse impact upon the particular industry in which we may operate subsequent to our initial Business Combination. +We may attempt to simultaneously complete Business Combinations with multiple prospective targets, which may hinder our ability to complete our initial Business Combination and give rise to increased costs and risks that could negatively impact our operations and profitability. +If we determine to simultaneously acquire several businesses that are owned by different sellers, we will need for each of such sellers to agree that our purchase of its business is contingent on the simultaneous closings of the other Business Combinations, which may make it more difficult for us, and delay our ability, to complete our initial Business Combination. With multiple Business Combinations, we could also face additional risks, including additional burdens and costs with respect to possible multiple negotiations and due diligence investigations (if there are multiple sellers) and the additional risks associated with the subsequent assimilation of the operations and services or products of the acquired companies in a single operating business. If we are unable to adequately address these risks, it could negatively impact our profitability and results of operations. +We may attempt to complete our initial Business Combination with a private company about which little information is available, which may result in a Business Combination with a company that is not as profitable as we suspected, if at all. +In pursuing our Business Combination strategy, we may seek to effectuate our initial Business Combination with a privately held company. Very little public information generally exists about private companies, and we could be required to make our decision on whether to pursue a potential initial Business Combination on the basis of limited information, which may result in a Business Combination with a company that is not as profitable as we suspected, if at all. +We do not have a specified maximum redemption threshold. The absence of such a redemption threshold may make it possible for us to complete our initial Business Combination with which a substantial majority of our shareholders do not agree. +Our amended and restated memorandum and articles of association do not provide a specified maximum redemption threshold. In addition, our proposed initial Business Combination may impose a minimum cash requirement for: (i) cash consideration to be paid to the target or its owners, (ii) cash for working capital or other general corporate purposes or (iii) the retention of cash to satisfy other conditions. As a result, we may be able to complete our initial Business Combination even though a substantial majority of our public shareholders do not agree with the transaction and have redeemed their shares or, if we seek shareholder approval of our initial Business Combination and do not conduct redemptions in connection with our initial Business Combination pursuant to the tender offer rules, have entered into privately negotiated agreements to sell their shares to our Sponsor, officers, directors, advisors or any of their affiliates. In the event the aggregate cash consideration we would be required to pay for all Class A Ordinary Shares that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the proposed Business Combination exceed the aggregate amount of cash available to us, we will not complete the Business Combination or redeem any shares in connection with such initial Business Combination, all Class A Ordinary Shares submitted for redemption will be returned to the holders thereof, and we instead may search for an alternate Business Combination. +In order to effectuate an initial Business Combination, special purpose acquisition companies have, in the recent past, amended various provisions of their charters and other governing instruments, including their warrant agreements. We cannot assure you that we will not seek to amend our amended and restated memorandum and articles of association or governing instruments in a manner that will make it easier for us to complete our initial Business Combination that our shareholders may not support. +In order to effectuate a Business Combination, special purpose acquisition companies have, in the recent past, amended various provisions of their charters and governing instruments, including their warrant agreements. For example, special purpose acquisition companies have amended the definition of Business Combination, increased redemption thresholds and extended the time to consummate an initial Business Combination and, with respect to their warrants, amended their warrant agreements to require the warrants to be exchanged for cash and/or other securities. Certain amendments to our amended and restated memorandum and articles of association requires a special resolution under Cayman Islands law, which requires the affirmative vote of at least two-thirds of our +28 +Table of Contents +ordinary shares which are represented in person or by proxy and are voted at a general meeting of the company, and amending our warrant agreement requires a vote of holders of at least 50% of the Public Warrants and, solely with respect to any amendment to the terms of the Private Placement Warrants or any provision of the warrant agreement with respect to the Private Placement Warrants, 50% of the number of the then outstanding Private Placement Warrants (including the vote or written consent of Cantor). In addition, our amended and restated memorandum and articles of association require us to provide our public shareholders with the opportunity to redeem their Public Shares for cash if we propose an amendment to our amended and restated memorandum and articles of association (A) to modify the substance or timing of our obligation to redeem 100% of our Public Shares if we do not complete an initial Business Combination within the Completion Window or (B) with respect to any other material provisions relating to shareholders’ rights or pre-initial Business Combination activity. To the extent any of such amendments would be deemed to fundamentally change the nature of the securities offered through the registration statement filed in connection with our initial public offering, we would register, or seek an exemption from registration for, the affected securities. We cannot assure you that we will not seek to amend our charter or governing instruments or extend the time to consummate an initial Business Combination in order to effectuate our initial Business Combination. +The provisions of our amended and restated memorandum and articles of association that relate to our pre- Business Combination activity (and corresponding provisions of the agreement governing the release of funds from our Trust Account) may be amended with the approval of holders of not less than two-thirds of our ordinary shares which are represented in person or by proxy and are voted at a general meeting of the company, which is a lower amendment threshold than that of some other special purpose acquisition companies. It may be easier for us, therefore, to amend our amended and restated memorandum and articles of association to facilitate the completion of an initial Business Combination that some of our shareholders may not support. +Our amended and restated memorandum and articles of association provide that any of its provisions related to pre-Business Combination activity (including the requirement to deposit proceeds of the initial public offering and the private placement of warrants into the Trust Account and not release such amounts except in specified circumstances, and to provide redemption rights to public shareholders as described herein) and corresponding provisions of the trust agreement governing the release of funds from our Trust Account may be amended if approved by special resolution, under Cayman Islands law passed by the affirmative vote of at least two-thirds of our ordinary shares which are represented in person or represented by proxy and are voted at a general meeting of the company. Our initial shareholders, who collectively beneficially own 20% of our ordinary shares, will participate in any vote to amend our amended and restated memorandum and articles of association and/or trust agreement and will have the discretion to vote in any manner they choose. As a result, we may be able to amend the provisions of our amended and restated memorandum and articles of association which govern our pre-Business Combination behavior more easily than some other special purpose acquisition companies, and this may increase our ability to complete a Business Combination with which you do not agree. Our shareholders may pursue remedies against us for any breach of our amended and restated memorandum and articles of association. +Our Sponsor, officers and directors have agreed, pursuant to a written agreement with us, that they will not propose any amendment to our amended and restated memorandum and articles of association (A) to modify the substance or timing of our obligation to allow redemption in connection with our initial Business Combination or to redeem 100% of our Public Shares if we do not complete our initial Business Combination within the Completion Window or (B) with respect to any other material provisions relating to shareholders’ rights or pre-initial Business Combination activity, unless we provide our public shareholders with the opportunity to redeem their Class A Ordinary Shares upon approval of any such amendment at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account (which interest shall be net of taxes payable), divided by the number of then outstanding Public Shares. Our shareholders are not parties to, or third-party beneficiaries of, these agreements and, as a result, will not have the ability to pursue remedies against our Sponsor, officers or directors for any breach of these agreements. As a result, in the event of a breach, our shareholders would need to pursue a shareholder derivative action, subject to applicable law. +Certain agreements entered into at the time of our initial public offering may be amended without shareholder approval. +Each of the agreements we entered into at the time of our initial public offering, other than the warrant agreement and the investment management trust agreement, may be amended without shareholder approval. Such agreements are: the underwriting agreement; the letter agreement among us and our initial shareholders, Sponsor, officers and directors; the registration rights agreement among us and our initial shareholders; the Private Placement Warrants purchase agreement between us and our Sponsor; and the administrative services agreement among us, our Sponsor and an affiliate of our Sponsor. These agreements contain various provisions that our public shareholders might deem to be material. For example, our letter agreement and the underwriting agreement contain certain lock-up provisions with respect to the Founder Shares, Private Placement Warrants and other securities held by our initial shareholders, Sponsor, officers and directors. Amendments to such agreements would require the consent of the applicable parties thereto and would need to be approved by our board of directors, which may do so for a variety of reasons, including to facilitate our initial Business Combination. While we do not expect our board of directors to approve any amendment to any of these agreements prior to +29 +Table of Contents +our initial Business Combination, it may be possible that our board of directors, in exercising its business judgment and subject to its fiduciary duties, chooses to approve one or more amendments to any such agreement. Any amendment entered into in connection with the consummation of our initial Business Combination will be disclosed in our proxy materials or tender offer documents, as applicable, related to such initial Business Combination, and any other material amendment to any of our material agreements will be disclosed in a filing with the SEC. Any such amendments would not require approval from our shareholders, may result in the completion of our initial Business Combination that may not otherwise have been possible, and may have an adverse effect on the value of an investment in our securities. For example, amendments to the lock-up provision discussed above may result in our initial shareholders selling their securities earlier than they would otherwise be permitted, which may have an adverse effect on the price of our securities. +We may be unable to obtain additional financing to complete our initial Business Combination or to fund the operations and growth of a target business, which could compel us to restructure or abandon a particular Business Combination. +We have not selected any specific Business Combination target but intend to target businesses with enterprise values that are greater than we could acquire with the net proceeds of the initial public offering and the sale of the Private Placement Warrants. As a result, if the cash portion of the purchase price exceeds the amount available from the Trust Account, net of amounts needed to satisfy any redemption by public shareholders, we may be required to seek additional financing to complete such proposed initial Business Combination. We cannot assure you that such financing will be available on acceptable terms, if at all. To the extent that additional financing proves to be unavailable when needed to complete our initial Business Combination, we would be compelled to either restructure the transaction or abandon that particular Business Combination and seek an alternative target business candidate. Further, we may be required to obtain additional financing in connection with the closing of our initial Business Combination for general corporate purposes, including for maintenance or expansion of operations of the post-transaction businesses, the payment of principal or interest due on indebtedness incurred in completing our initial Business Combination, or to fund the purchase of other companies. If we are unable to complete our initial Business Combination, our public shareholders may only receive their pro rata portion of the funds in the Trust Account that are available for distribution to public shareholders, and our warrants will expire worthless. In addition, even if we do not need additional financing to complete our initial Business Combination, we may require such financing to fund the operations or growth of the target business. The failure to secure additional financing could have a material adverse effect on the continued development or growth of the target business. None of our officers, directors or shareholders is required to provide any financing to us in connection with or after our initial Business Combination. +Our initial shareholders control a substantial interest in us and thus may exert a substantial influence on actions requiring a shareholder vote, potentially in a manner that you do not support. +Our initial shareholders own 20% of our issued and outstanding ordinary. Accordingly, they may exert a substantial influence on actions requiring a shareholder vote, potentially in a manner that you do not support, including amendments to our amended and restated memorandum and articles of association. In addition, prior to the closing of our initial Business Combination, only holders of our Founder Shares will have the right to vote to continue the company in a jurisdiction outside the Cayman Islands. This provision of our amended and restated memorandum and articles of association may only be amended by a special resolution passed by not less than 90% of our ordinary shares which are represented in person or by proxy and are voted at our general meeting. As a result, you will not have any influence over our continuation in a jurisdiction outside the Cayman Islands prior to our initial Business Combination. +If our initial shareholders purchase any additional Class A Ordinary Shares in the aftermarket or in privately negotiated transactions, this would increase their control. Neither our initial shareholders nor, to our knowledge, any of our officers or directors, have any current intention to purchase additional securities, other than as disclosed in this Form 10-K. +Factors that would be considered in making such additional purchases would include consideration of the current trading price of our Class A Ordinary Shares. In addition, our board of directors, whose members were appointed by our Sponsor, is and will be divided into three classes, each of which will generally serve for a term for three years with only one class of directors being appointed in each year. We may not hold an annual or extraordinary general meeting to appoint new directors prior to the completion of our initial Business Combination, in which case all of the current directors will continue in office until at least the completion of the Business Combination. If there is an annual general meeting, as a consequence of our “staggered” board of directors, only a minority of the board of directors will be considered for appointment and our initial shareholders, because of their ownership position, will have considerable influence regarding the outcome. Accordingly, our initial shareholders will continue to exert control at least until the completion of our initial Business Combination. +30 +Table of Contents +We may not be able to complete an initial Business Combination since such initial Business Combination may be subject to regulatory review and approval requirement, including foreign investment regulations and review by government entities such as the Committee on Foreign Investment in the United States (“CFIUS”), or may be ultimately prohibited. +Our initial Business Combination may be subject to regulatory review and approval requirements by governmental entities, or ultimately prohibited. For example, CFIUS has authority to review direct or indirect foreign investments in U.S. companies. Among other things, CFIUS is empowered to require certain foreign investors to make mandatory filings, to charge filing fees related to such filings, and to self-initiate national security reviews of foreign direct and indirect investments in U.S. companies if the parties to that investment choose not to file voluntarily. In the case that CFIUS determines an investment to be a threat to national security, CFIUS has the power to unwind or place restrictions on the investment. Whether CFIUS has jurisdiction to review an acquisition or investment transaction depends on - among other factors - the nature and structure of the transaction, including the level of beneficial ownership interest and the nature of any information or governance rights involved. For example, investments that result in “control” of a U.S. business by a foreign person always are subject to CFIUS jurisdiction. CFIUS’s expanded jurisdiction under the Foreign Investment Risk Review Modernization Act of 2018 and implementing regulations that became effective on February 13, 2020 further includes investments that do not result in control of a U.S. business by a foreign person but afford certain foreign investors certain information or governance rights in a U.S. business that has a nexus to “critical technologies,” “critical infrastructure” and/or “sensitive personal data.” +Our Sponsor owns approximately 20.0% of our issued and outstanding ordinary shares. Our Sponsor is exclusively “controlled” for CFIUS purposes by Mr. Graf, who is a U.S. citizen, and thus we do not believe that our Sponsor is a “foreign person” as defined in the CFIUS regulations. However, it is possible that non-U.S. persons could be involved in our initial Business Combination (e.g., as existing shareholders of a target company or as PIPE investors), which may increase the risk that our initial Business Combination becomes subject to regulatory review, including review by CFIUS. As such, an initial Business Combination with a U.S. business or foreign business with U.S. subsidiaries that we may wish to pursue may be subject to CFIUS review. If a particular proposed initial Business Combination with a U.S. business falls within CFIUS’s jurisdiction, we may determine that we are required to make a mandatory filing or that we will submit to CFIUS review on a voluntary basis, or to proceed with the transaction without submitting to CFIUS and risk CFIUS intervention, before or after closing the transaction. CFIUS may decide to block or delay our proposed initial Business Combination, impose conditions with respect to such initial Business Combination or request the President of the United States to order us to divest all or a portion of the U.S. target business of our initial Business Combination that we acquired without first obtaining CFIUS approval, which may limit the attractiveness of, delay or prevent us from pursuing certain target companies that we believe would otherwise be beneficial to us and our shareholders. As a result, the pool of potential targets with which we could complete an initial Business Combination may be limited and we may be adversely affected in terms of competing with other special purpose acquisition companies which do not have any foreign ownership issues. In addition, certain federally licensed businesses may be subject to rules or regulations that limit foreign ownership. The process of government review, whether by CFIUS or otherwise, could be lengthy. Because we have only a limited time to complete our initial Business Combination, our failure to obtain any required approvals within the requisite time period may require us to liquidate. If we are unable to consummate our initial Business Combination within the applicable time period required under our amended and restated memorandum and articles of association, including as a result of extended regulatory review of a potential initial Business Combination, we will, as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares for a pro rata portion of the funds held in the Trust Account, subject to our obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. In such event, our shareholders will miss the opportunity to benefit from an investment in a target company and the appreciation in value of such investment. Additionally, our warrants may be worthless. +Because we must furnish our shareholders with target business financial statements, we may lose the ability to complete an otherwise advantageous initial Business Combination with some prospective target businesses. +The federal proxy rules require that the proxy statement with respect to the vote on an initial Business Combination include historical and pro forma financial statement disclosure. We will include the same financial statement disclosure in connection with our tender offer documents, whether or not they are required under the tender offer rules. These financial statements may be required to be prepared in accordance with, or be reconciled to, accounting principles generally accepted in the United States of America (“GAAP”), or international financial reporting standards as issued by the International Accounting Standards Board (“IFRS”), depending on the circumstances and the historical financial statements may be required to be audited in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”). These financial statement requirements may limit the pool of potential target businesses we may acquire because some targets may be unable to provide such financial statements in time for us to disclose such statements in accordance with federal proxy rules and complete our initial Business Combination within the prescribed time frame. +31 +Table of Contents +Compliance obligations under the Sarbanes-Oxley Act may make it more difficult for us to effectuate our initial Business Combination, require substantial financial and management resources, and increase the time and costs of completing an initial Business Combination. +Section 404 of the Sarbanes-Oxley Act requires that we evaluate and report on our system of internal controls beginning with our Annual Report on Form 10-K for the year ending December 31, 2025. Only in the event we are deemed to be a large accelerated filer or an accelerated filer, and no longer qualify as an emerging growth company, will we be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting. Further, for as long as we remain an emerging growth company, we will not be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting. The fact that we are a blank check company makes compliance with the requirements of the Sarbanes-Oxley Act particularly burdensome on us as compared to other public companies because a target business with which we seek to complete our initial Business Combination may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy of its internal controls. The development of the internal control of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such Business Combination. +We may seek Business Combination opportunities with a high degree of complexity that require significant operational improvements, which could delay or prevent us from achieving our desired results. +We may seek Business Combination opportunities with large, highly complex companies that we believe would benefit from operational improvements. While we intend to implement such improvements, to the extent that our efforts are delayed or we are unable to achieve the desired improvements, the Business Combination may not be as successful as we anticipate. +To the extent we complete our initial Business Combination with a large complex business or entity with a complex operating structure, we may also be affected by numerous risks inherent in the operations of the business with which we combine, which could delay or prevent us from implementing our strategy. Although our management team will endeavor to evaluate the risks inherent in a particular target business and its operations, we may not be able to properly ascertain or assess all of the significant risk factors until we complete our Business Combination. If we are not able to achieve our desired operational improvements, or the improvements take longer to implement than anticipated, we may not achieve the gains that we anticipate. Furthermore, some of these risks and complexities may be outside of our control and leave us with no ability to control or reduce the chances that those risks and complexities will adversely impact a target business. Such combination may not be as successful as a combination with a smaller, less complex organization. +Our initial Business Combination and our structure thereafter may not be tax-efficient to our shareholders and warrant holders. As a result of our Business Combination, our tax obligations may be more complex, burdensome and uncertain. +Although we will attempt to structure our initial Business Combination in a tax-efficient manner, tax structuring considerations are complex, the relevant facts and law are uncertain and may change, and we may prioritize commercial and other considerations over tax considerations. For example, in connection with our initial Business Combination and subject to any requisite shareholder approval, we may structure our Business Combination in a manner that requires shareholders and/or warrant holders to recognize gain or income for tax purposes, effect a Business Combination with a target company in another jurisdiction, or reincorporate in a different jurisdiction (including, but not limited to, the jurisdiction in which the target company or business is located). We do not intend to make any cash distributions to shareholders or warrant holders to pay taxes in connection with our Business Combination or thereafter. Accordingly, a shareholder or a warrant holder may need to satisfy any liability resulting from our initial Business Combination with cash from its own funds or by selling all or a portion of the shares or warrants received. In addition, shareholders and warrant holders may also be subject to additional income, withholding or other taxes with respect to their ownership of us after our initial Business Combination. +In addition, we may effect a Business Combination with a target company that has business operations outside of the United States, and possibly, business operations in multiple jurisdictions. If we effect such a Business Combination, we could be subject to significant income, withholding and other tax obligations in a number of jurisdictions with respect to income, operations and subsidiaries related to those jurisdictions. +Due to the complexity of tax obligations and filings in other jurisdictions, we may have a heightened risk related to audits or examinations by U.S. federal, state, local and non-U.S. taxing authorities. This additional complexity and risk could have an adverse effect on our after-tax profitability and financial condition. +32 +Table of Contents +Risks Relating to the Post-Business Combination Company +Subsequent to our completion of our initial Business Combination, we may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and the price of our securities, which could cause you to lose some or all of your investment. +Even if we conduct due diligence on a target business with which we combine, we cannot assure you that this diligence will identify all material issues that may be present with a particular target business, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of the target business and outside of our control will not later arise. As a result of these factors, we may be forced to later write-down or write-off assets, restructure our operations, or incur impairment or other charges that could result in our reporting losses. Even if our due diligence successfully identifies certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. Even though these charges may be non-cash items and not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us or our securities. In addition, charges of this nature may cause us to violate net worth or other covenants to which we may be subject as a result of assuming pre-existing debt held by a target business or by virtue of our obtaining debt financing to partially finance the initial Business Combination or thereafter. Accordingly, any shareholders or warrant holders who choose to remain shareholders or warrant holders following the Business Combination could suffer a reduction in the value of our securities. Such shareholders or warrant holders are unlikely to have a remedy for such reduction in value unless they are able to successfully claim that the reduction was due to the breach by our officers or directors of a duty of care or other fiduciary duty owed to them, or if they are able to successfully bring a private claim under securities laws that the proxy materials or tender offer documents, as applicable, relating to the Business Combination contained an actionable material misstatement or material omission. +The nominal purchase price paid by our Sponsor for the Founder Shares may result in significant dilution to the implied value of your Public Shares upon the consummation of our initial Business Combination. +Prior to our initial public offering, our Sponsor paid a nominal aggregate purchase price of $25,000 for the Founder Shares, or approximately $0.005 per share. As a result, the value of your Public Shares may be significantly diluted upon the consummation of our initial Business Combination, when the Founder Shares are converted into Class A Ordinary Shares. For example, the following table shows the dilutive effect of the Founder Shares on the implied value of the Public Shares upon the consummation of our initial Business Combination assuming that our equity value at that time is $220,200,000 (following payment of $9,800,000 of deferred underwriting commissions), which is the amount we would have for our initial Business Combination in the Trust Account assuming no interest is earned on the funds held in the Trust Account and no Public Shares are redeemed in connection with our initial Business Combination, and without taking into account any other potential impacts on our valuation at such time, such as the trading price of our Public Shares, the Business Combination transaction costs, any equity issued or cash paid to the target’s sellers or other third parties, or the target’s business itself, including its assets, liabilities, management and prospects, as well as the value of our public and private warrants. At such valuation, each of our ordinary shares would have an implied value of $7.86 per share upon consummation of our initial Business Combination, which is a 20.0% decrease as compared to the initial implied value per public share (after taking into consideration the payment of the deferred underwriting commission) of $9.82. +​ +​ +​ +​ +​ +Public Shares +​ +23,000,000 +Founder Shares +​ +5,750,000 +Total shares +​ +28,750,000 +Total funds in trust available for initial Business Combination +​ +$ +220,200,000 +Initial implied value per public share +​ +$ +9.82 +Implied value per share upon consummation of initial Business Combination +​ +$ +7.86 +​ +The value of the Founder Shares following completion of our initial Business Combination is likely to be substantially higher than the nominal price paid for them, even if the trading price of our ordinary at such time is substantially less than $10.00 per share. +As a result of the initial public offering, our Sponsor has invested in us an aggregate of $4,025,000, comprised of the $25,000 purchase price for the Founder Shares and the $4,000,000 purchase price for the Private Placement Warrants. Assuming a trading price of $10.00 per share upon consummation of our initial Business Combination, the 5,000,000 Founder Shares would have an aggregate implied value of $50,000,000. Even if the trading price of our ordinary shares were as low as $0.81 per share, and the Private Placement Warrants are worthless, the value of the Founder Shares would be equal to the Sponsor’s initial investment in us. As a result, our Sponsor is likely to be able to make a substantial profit on its investment in us at a time when our Public Shares have lost significant value. Accordingly, our management team, which owns interests in our Sponsor, may be more willing to pursue a Business Combination with +33 +Table of Contents +a riskier or less-established target business than would be the case if our Sponsor had paid the same per share price for the Founder Shares as our public shareholders paid for their Public Shares. +Resources could be wasted in researching Business Combinations that are not completed, which could materially adversely affect subsequent attempts to locate and acquire or merge with another business. If we are unable to complete our initial Business Combination, our public shareholders may only receive their pro rata portion of the funds in the Trust Account that are available for distribution to public shareholders, and our warrants will expire worthless. +We anticipate that the investigation of each specific target business and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial costs for accountants, attorneys and others. If we decide not to complete a specific initial Business Combination, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, if we reach an agreement relating to a specific target business, we may fail to complete our initial Business Combination for any number of reasons including those beyond our control. Any such event will result in a loss to us of the related costs incurred which could materially adversely affect subsequent attempts to locate and acquire or merge with another business. If we are unable to complete our initial Business Combination, our public shareholders may only receive their pro rata portion of the funds in the Trust Account that are available for distribution to public shareholders, and our warrants will expire worthless. +Our ability to successfully effect our initial Business Combination and to be successful thereafter will be dependent upon the efforts of our key personnel, some of whom may join us following our initial Business Combination. The loss of key personnel could negatively impact the operations and profitability of our post- combination business. +Our ability to successfully effect our initial Business Combination is dependent upon the efforts of our key personnel. The role of our key personnel in the target business, however, cannot presently be ascertained. Although some of our key personnel may remain with the target business in senior management or advisory positions following our initial Business Combination, it is likely that some or all of the management of the target business will remain in place. While we intend to closely scrutinize any individuals we engage after our initial Business Combination, we cannot assure you that our assessment of these individuals will prove to be correct. These individuals may be unfamiliar with the requirements of operating a company regulated by the SEC, which could cause us to have to expend time and resources helping them become familiar with such requirements. +Our key personnel may negotiate employment or consulting agreements with a target business in connection with a particular Business Combination, and a particular Business Combination may be conditioned on the retention or resignation of such key personnel. These agreements may provide for them to receive compensation following our initial Business Combination and as a result, may cause them to have conflicts of interest in determining whether a particular Business Combination is the most advantageous. +Our key personnel may be able to remain with our company after the completion of our initial Business Combination only if they are able to negotiate employment or consulting agreements in connection with the Business Combination. Such negotiations would take place simultaneously with the negotiation of the Business Combination and could provide for such individuals to receive compensation in the form of cash payments and/or our securities for services they would render to us after the completion of the Business Combination. Such negotiations also could make such key personnel’s retention or resignation a condition to any such agreement. The personal and financial interests of such individuals may influence their motivation in identifying and selecting a target business, subject to their fiduciary duties under Cayman Islands law. +We may have a limited ability to assess the management of a prospective target business and, as a result, may effect our initial Business Combination with a target business whose management may not have the skills, qualifications or abilities to manage a public company. +When evaluating the desirability of effecting our initial Business Combination with a prospective target business, our ability to assess the target business’s management may be limited due to a lack of time, resources or information. Our assessment of the capabilities of the target business’s management, therefore, may prove to be incorrect and such management may lack the skills, qualifications or abilities we suspected. Should the target business’s management not possess the skills, qualifications or abilities necessary to manage a public company, the operations and profitability of the post-combination business may be negatively impacted. Accordingly, any shareholders or warrant holders who choose to remain shareholders or warrant holders following the Business Combination could suffer a reduction in the value of their securities. Such shareholders or warrant holders are unlikely to have a remedy for such reduction in value unless they are able to successfully claim that the reduction was due to the breach by our officers or directors of a duty of care or other fiduciary duty owed to them, or if they are able to successfully bring a private claim under securities laws that the proxy solicitation +34 +Table of Contents +or tender offer materials, as applicable, relating to the Business Combination contained an actionable material misstatement or material omission. +The officers and directors of an acquisition candidate may resign upon completion of our initial Business Combination. The loss of a Business Combination target’s key personnel could negatively impact the operations and profitability of our post-combination business. +The role of an acquisition candidate’s key personnel upon the completion of our initial Business Combination cannot be ascertained at this time. Although we contemplate that certain members of an acquisition candidate’s management team will remain associated with the acquisition candidate following our initial Business Combination, it is possible that members of the management of an acquisition candidate will not wish to remain in place. +Our management may not be able to maintain control of a target business after our initial Business Combination. We cannot provide assurance that, upon loss of control of a target business, new management will possess the skills, qualifications or abilities necessary to profitably operate such business. +We may structure our initial Business Combination so that the post-transaction company in which our public shareholders own shares will own less than 100% of the equity interests or assets of a target business, but we will only complete such Business Combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for us not to be required to register as an investment company under the Investment Company Act. We will not consider any transaction that does not meet such criteria. Even if the post- transaction company owns 50% or more of the voting securities of the target, our shareholders prior to the Business Combination may collectively own a minority interest in the post Business Combination company, depending on valuations ascribed to the target and us in the Business Combination. For example, we could pursue a transaction in which we issue a substantial number of new Class A Ordinary Shares in exchange for all of the outstanding capital stock of a target. In this case, we would acquire a 100% interest in the target. +However, as a result of the issuance of a substantial number of new Class A Ordinary Shares, our shareholders immediately prior to such transaction could own less than a majority of our outstanding Class A Ordinary Shares subsequent to such transaction. In addition, other minority shareholders may subsequently combine their holdings resulting in a single person or group obtaining a larger share of the company’s shares than we initially acquired. Accordingly, this may make it more likely that our management will not be able to maintain control of the target business. +Risks Relating to Acquiring and Operating a Business in Foreign Countries +If we effect our initial Business Combination with a company located outside of the United States, we would be subject to a variety of additional risks that may adversely affect us. +If we pursue a target company with operations or opportunities outside of the United States for our initial Business Combination, we may face additional burdens in connection with investigating, agreeing to and completing such initial Business Combination, and if we effect such initial Business Combination, we would be subject to a variety of additional risks that may negatively impact our operations. +If we pursue a target a company with operations or opportunities outside of the United States for our initial Business Combination, we would be subject to risks associated with cross-border Business Combinations, including in connection with investigating, agreeing to and completing our initial Business Combination, conducting due diligence in a foreign jurisdiction, having such transaction approved by any local governments, regulators or agencies and changes in the purchase price based on fluctuations in foreign exchange rates. +If we effect our initial Business Combination with such a company, we would be subject to any special considerations or risks associated with companies operating in an international setting, including any of the following: +● costs and difficulties inherent in managing cross-border business operations; +● rules and regulations regarding currency redemption; +● complex corporate withholding taxes on individuals; +● laws governing the manner in which future Business Combinations may be effected; +35 +Table of Contents +● exchange listing and/or delisting requirements; +● tariffs and trade barriers; +● regulations related to customs and import/export matters; +● local or regional economic policies and market conditions; +● unexpected changes in regulatory requirements; +● challenges in managing and staffing international operations; +● longer payment cycles; +● tax issues, such as tax law changes and variations in tax laws as compared to the United States; +● currency fluctuations and exchange controls; +● rates of inflation; +● challenges in collecting accounts receivable; +● cultural and language differences; +● employment regulations; +● underdeveloped or unpredictable legal or regulatory systems; +● corruption; +● protection of intellectual property; +● social unrest, crime, strikes, riots and civil disturbances; +● regime changes and political upheaval; +● terrorist attacks, natural disasters, widespread health emergencies and wars; and +● deterioration of political relations with the United States. +We may not be able to adequately address these additional risks. If we were unable to do so, we may be unable to complete such initial Business Combination, or, if we complete such initial Business Combination, our operations might suffer, either of which may adversely impact our business, financial condition and results of operations. +If we effect our initial Business Combination with a company located outside of the United States, we would be subject to a variety of additional risks that may adversely affect us. +Following our initial Business Combination, our management may resign from their positions as officers or directors of the company and the management of the target business at the time of the Business Combination may remain in place. Management of the target business may not be familiar with United States securities laws. If new management is unfamiliar with United States securities laws, they may have to expend time and resources becoming familiar with such laws. This could be expensive and time-consuming and could lead to various regulatory issues which may adversely affect our operations. +After our initial Business Combination, substantially all of our assets may be located in a foreign country and substantially all of our revenue will be derived from our operations in such country. Accordingly, our results of operations and prospects will be subject, to a significant extent, to the economic, political and legal policies, developments and conditions in the country in which we operate. +The economic, political and social conditions, as well as government policies, of the country in which our operations are located could affect our business. Economic growth could be uneven, both geographically and among various sectors of the economy and such growth may not be sustained in the future. If in the future such country’s economy experiences a downturn or grows at a slower rate than expected, there may be less demand for spending in certain industries. A decrease in demand for spending in certain industries could materially and adversely affect our ability to find an attractive target business with which to consummate our initial Business Combination and if we effect our initial Business Combination, the ability of that target business to become profitable. +Exchange rate fluctuations and currency policies may cause a target business’ ability to succeed in the international markets to be diminished. +In the event we acquire a non-U.S. target, all revenues and income would likely be received in a foreign currency, and the dollar equivalent of our net assets and distributions, if any, could be adversely affected by reductions in the value of the local currency. The value of the currencies in our target regions fluctuate and are affected by, among other things, changes in political and economic conditions. Any change in the relative value of such currency against our reporting currency may affect the attractiveness of any target +36 +Table of Contents +business or, following consummation of our initial Business Combination, our financial condition and results of operations. Additionally, if a currency appreciates in value against the dollar prior to the consummation of our initial Business Combination, the cost of a target business as measured in dollars will increase, which may make it less likely that we are able to consummate such transaction. +We are subject to changing law and regulations regarding regulatory matters, corporate governance and public disclosure that have increased both our costs and the risk of non-compliance. +We are subject to rules and regulations by various governing bodies, including, for example, the Securities and Exchange Commission, which are charged with the protection of investors and the oversight of companies whose securities are publicly traded, and to new and evolving regulatory measures under applicable law. Our efforts to comply with new and changing laws and regulations have resulted in and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue- generating activities to compliance activities. +Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. If we fail to address and comply with these regulations and any subsequent changes, we may be subject to penalty and our business may be harmed. +Risks Relating to our Management Team +We may not have sufficient funds to satisfy indemnification claims of our directors and executive officers. +We have agreed to indemnify our officers and directors to the fullest extent permitted by law. However, our officers and directors have agreed to waive any right, title, interest or claim of any kind in or to any monies in the Trust Account and to not seek recourse against the Trust Account for any reason whatsoever. Accordingly, any indemnification provided will be able to be satisfied by us only if (i) we have sufficient funds outside of the Trust Account or (ii) we consummate an initial Business Combination. Our obligation to indemnify our officers and directors may discourage shareholders from bringing a lawsuit against our officers or directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against our officers and directors, even though such an action, if successful, might otherwise benefit us and our shareholders. Furthermore, a shareholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against our officers and directors pursuant to these indemnification provisions. +Members of our management team and board of directors have significant experience as board members, officers or executives of other companies. As a result, certain of those persons have been, may be, or may become, involved in proceedings, investigations and litigation relating to the business affairs of the companies with which they were, are, or may in the future be, affiliated. This may have an adverse effect on us, which may impede our ability to consummate an initial Business Combination. +During the course of their careers, members of our management team and board of directors have had significant experience as board members, officers or executives of other companies. As a result of their involvement and positions in these companies, certain persons were, are now, or may in the future become, involved in litigation, investigations or other proceedings relating to the business affairs of such companies or transactions entered into by such companies. For example, directors and officers of GRAF I, including Mr. Graf in his capacity as Chief Executive Officer of GRAF I, as well as the GRAF I Sponsor (but not Mr. Graf in any personal capacity at the GRAF I Sponsor), are co-defendants in an ongoing class action in the Delaware Court of Chancery titled Berger v. Graf Acquisition LLC et al , Civ A. No. 2023-0873-LWW, in connection with the business combination between GRAF I and Velodyne. The class plaintiffs allege that the defendants withheld material information in the definitive proxy statement and that they proffered inflated financial projections about Velodyne to convince GRAF I public stockholders to refrain from exercising their redemption rights. The defendants do not believe the claims are meritorious and are defending themselves vigorously. The case remains pending. Such claims, and any such litigation, investigations or other proceedings may divert our management team’s and board’s attention and resources away from identifying and selecting a target business or businesses for our initial Business Combination and may negatively affect our reputation, which may impede our ability to complete an initial Business Combination. +Members of our management team and affiliated companies may have been, and may in the future be, involved in civil disputes or governmental investigations unrelated to our business. +Members of our management team have been (and intend to be) involved in a wide variety of businesses. Such involvement has, and may lead to, media coverage and public awareness. As a result, members of our management team and affiliated companies may have been, and may in the future be, involved in civil disputes or governmental investigations unrelated to our business. Any such +37 +Table of Contents +claims or investigations may be detrimental to our reputation and could negatively affect our ability to identify and complete an initial Business Combination and may have an adverse effect on the price of our securities. +Past performance by our management team and their affiliates may not be indicative of future performance of an investment in us. +Information regarding performance by, or businesses associated with, our management team or businesses associated with them is presented for informational purposes only. Past performance by our management team is not a guarantee either (i) of success with respect to any Business Combination we may consummate or (ii) that we will be able to locate a suitable candidate for our initial Business Combination. You should not rely on the historical record of the performance of our management team’s or businesses associated with them as indicative of our future performance of an investment in us or the returns we will, or is likely to, generate going forward. +We may seek Business Combination opportunities in industries or sectors that may be outside of our management’s areas of expertise. +We will consider a Business Combination outside of our management’s areas of expertise if a Business Combination candidate is presented to us and we determine that such candidate offers an attractive Business Combination opportunity for our company. Although our management will endeavor to evaluate the risks inherent in any particular Business Combination candidate, we cannot assure you that we will adequately ascertain or assess all of the significant risk factors. We also cannot assure you that an investment in our securities will not ultimately prove to be less favorable to investors than a direct investment, if an opportunity were available, in a Business Combination candidate. In the event we elect to pursue a Business Combination outside of the areas of our management’s expertise, our management’s expertise may not be directly applicable to its evaluation or operation, and the information contained in this Form 10-K regarding the areas of our management’s expertise would not be relevant to an understanding of the business that we elect to acquire. As a result, our management may not be able to ascertain or assess adequately all of the relevant risk factors. Accordingly, any shareholders who choose to remain shareholders following our initial Business Combination could suffer a reduction in the value of their shares. Such shareholders are unlikely to have a remedy for such reduction in value. +We are dependent upon our executive officers and directors and their loss, or a reduction in the amount of time they can dedicate to our initial Business Combination, could adversely affect our ability to operate. +Our operations are dependent upon a relatively small group of individuals and, in particular, our executive officers and directors and the members of our advisory board. We believe that our success depends on the continued service of our officers, directors and members of our advisory board, at least until we have completed our initial Business Combination. In addition, our executive officers and directors are not required to commit any specified amount of time to our affairs and, accordingly, will have conflicts of interest in allocating their time among various business activities, including identifying potential Business Combinations and monitoring the related due diligence. We do not have an employment agreement with, or key-man insurance on the life of, any of our directors or executive officers. The unexpected loss of the services of one or more of our directors or executive officers could have a detrimental effect on us. +Our executive officers and directors will allocate their time to other businesses thereby causing conflicts of interest in their determination as to how much time to devote to our affairs. This conflict of interest could have a negative impact on our ability to complete our initial Business Combination. +Our executive officers and directors are not required to, and will not, commit their full time to our affairs, which may result in a conflict of interest in allocating their time between our operations and our search for a Business Combination and their other businesses. We do not intend to have any full-time employees prior to the completion of our initial Business Combination. If our executive officers’ and directors’ other business affairs require them to devote substantial amounts of time to such affairs in excess of their current commitment levels, it could limit their ability to devote time to our affairs which may have a negative impact on our ability to complete our initial Business Combination. Any such companies, businesses or investments may present additional conflicts of interest in pursuing an initial Business Combination target. However, we do not believe that any such potential conflicts would materially affect our ability to complete our initial Business Combination. For a complete discussion of our executive officers’ and directors’ other business affairs, please see “ Management - Officers and Directors .” +38 +Table of Contents +Our officers and directors presently have, and any of them in the future may have additional, fiduciary or contractual obligations to other entities, including blank check companies, and, accordingly, may have conflicts of interest in allocating their time and in determining to which entity a particular business opportunity should be presented. +Until we consummate our initial Business Combination, we intend to engage in the business of identifying and combining with one or more businesses. Our Sponsor and our officers and directors are, and in the future may become, affiliated with such entities (such as operating companies or investment vehicles) that are engaged in a similar business. We do not have employment contracts with our officers and directors that will limit their ability to work at other businesses. Our officers and directors presently and any in the future may have, additional fiduciary or contractual obligations to other entities pursuant to which such officer or director is or will be required to present a Business Combination opportunity to such entities. Accordingly, they may have conflicts of interest in determining to which entity a particular business opportunity should be presented. These conflicts may not be resolved in our favor and a potential target business may be presented to another entity prior to its presentation to us. +Our officers and directors presently and in the future may have additional, fiduciary or contractual obligations to other entities pursuant to which such officer or director is or will be required to present a Business Combination opportunity. Accordingly, if any of our officers or directors becomes aware of a Business Combination opportunity which is suitable for an entity to which he or she has then-current fiduciary or contractual obligations, he or she will honor his or her fiduciary or contractual obligations to present such opportunity to such entity. In addition, certain of our officers and directors are members of our Sponsor and own membership interests of our Sponsor. The remaining membership interests are held by third party investors that are not affiliated with members of our management. We do not believe, however, that the fiduciary duties or contractual obligations of our officers or directors will materially affect our ability to complete our Business Combination. Our amended and restated memorandum and articles of association provide that, to the fullest extent permitted by applicable law: (i) no individual serving as a director or an officer shall have any duty, except and to the extent expressly assumed by contract, to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as us, and (ii) we renounce any interest or expectancy in, or in being offered an opportunity to participate in, any potential transaction or matter which may be a corporate opportunity for any director or officer, on the one hand, and us, on the other. The purpose for the surrender of corporate opportunities is to allow officers, directors or other representatives with multiple business affiliations to continue to serve as an officer of our company or on our board of directors. Our officers and directors may from time to time be presented with opportunities that could benefit both another business affiliation and us. In the absence of the “corporate opportunity” waiver in our charter, certain candidates would not be able to serve as an officer or director. We believe we substantially benefit from having representatives who bring significant, relevant and valuable experience to our management, and, as a result, the inclusion of the “corporate opportunity” waiver in our amended and restated memorandum and articles of association provide us with greater flexibility to attract and retain the officers and directors that we feel are the best candidates. We do not believe, however, that the fiduciary duties or contractual obligations of our officers or directors will materially affect our ability to complete our initial business. +In addition, our Sponsor and our officers and directors may Sponsor or form other special purpose acquisition companies with acquisition objectives that are similar to ours or may pursue other business or investment ventures during the period in which we are seeking an initial Business Combination. As a result, our Sponsor, officers and directors could have conflicts of interest in determining whether to present Business Combination to us or to any other special purpose acquisition company with which they may become involved. Any such companies, businesses or investments may present additional conflicts of interest in pursuing an initial Business Combination target. However, we do not believe any such potential conflict would materially affect our ability to complete our initial Business Combination. +Further, certain members of our management team may have similar responsibilities in, or serve as directors of, other SPACs, and Mr. Graf is also serving as an independent director of Catcha Investment Corp. Any such companies may present additional conflicts of interest in pursuing an acquisition target. For a complete discussion of our executive officers’ and directors’ business affiliations and the potential conflicts of interest that you should be aware of, please see “ Management - Officers and Directors ,” “ Management - Conflicts of Interest ” and “ Certain Relationships and Related Party Transactions .” +Our executive officers, directors, security holders and their respective affiliates may have competitive pecuniary interests that conflict with our interests. +We have not adopted a policy that expressly prohibits our directors, officers, security holders or affiliates from having a direct or indirect pecuniary or financial interest in any investment to be acquired or disposed of by us or in any transaction to which we are a party or have an interest. In fact, we may enter into a Business Combination with a target business that is affiliated with our Sponsor, our directors or officers, although we do not intend to do so. Nor do we have a policy that expressly prohibits any such persons from engaging for their own account in business activities of the types conducted by us. Accordingly, such persons or entities may have a conflict between their interests and ours. Any such companies, businesses or investments may present additional conflicts of interest in +39 +Table of Contents +pursuing an initial Business Combination target. However, we do not believe that any such potential conflicts would materially affect our ability to complete our initial Business Combination. +The personal and financial interests of our directors and officers may influence their motivation in timely identifying and selecting a target business and completing a Business Combination. Consequently, our directors’ and officers’ discretion in identifying and selecting a suitable target business may result in a conflict of interest when determining whether the terms, conditions and timing of a particular Business Combination are appropriate and in our shareholders’ best interest. If this were the case, it would be a breach of their fiduciary duties to us as a matter of Cayman Islands law and we or our shareholders might have a claim against such individuals for infringing on our shareholders’ rights. See the section titled “ Description of Securities-Certain Differences in Corporate Law-Shareholder Suits ” for further information on the ability to bring such claims. However, we might not ultimately be successful in any claim we may make against them for such reason. +We may engage in a Business Combination with one or more target businesses that have relationships with entities that may be affiliated with our Sponsor, executive officers, directors or existing holders which may raise potential conflicts of interest. +In light of the involvement of our Sponsor, executive officers and directors with other entities, we may decide to acquire one or more businesses affiliated with our Sponsor, executive officers, directors or existing holders. Our directors also serve as officers and board members for other entities, including, without limitation, those described under “ Management - Conflicts of Interest .” Such entities may compete with us for Business Combination opportunities. Our Sponsor, officers and directors are not currently aware of any specific opportunities for us to complete our initial Business Combination with any entities with which they are affiliated, and there have been no substantive discussions concerning a Business Combination with any such entity or entities. Although we will not be specifically focusing on, or targeting, any transaction with any affiliated entities, we would pursue such a transaction if we determined that such affiliated entity met our criteria for a Business Combination as set forth in “ Proposed Business - Business Combination Criteria ” and such transaction was approved by a majority of our independent and disinterested directors. Despite our agreement to obtain an opinion from an independent investment banking firm which is a member of FINRA or a valuation or appraisal firm regarding the fairness to our company from a financial point of view of a Business Combination with one or more domestic or international businesses affiliated with our Sponsor, executive officers, directors or existing holders, potential conflicts of interest still may exist and, as a result, the terms of the Business Combination may not be as advantageous to our public shareholders as they would be absent any conflicts of interest. +We may engage one or more of our underwriters or one of their respective affiliates to provide additional services to us, which may include acting as financial advisor in connection with an initial Business Combination or as placement agent in connection with a related financing transaction. Our underwriters are entitled to receive deferred commissions that will released from the trust only on a completion of an initial Business Combination. These financial incentives may cause them to have potential conflicts of interest in rendering any such additional services to us after our initial public offering, including, for example, in connection with the sourcing and consummation of an initial Business Combination. +We may engage one or more of our underwriters or one of their respective affiliates to provide additional services to us after our initial public offering, including, for example, identifying potential targets, providing financial advisory services, acting as a placement agent in a private offering or arranging debt financing. We may pay such underwriter or its affiliate fair and reasonable fees or other compensation that would be determined at that time in an arm’s length negotiation. The underwriters are also entitled to receive deferred commissions that are conditioned on the completion of an initial Business Combination. The underwriters’ or their respective affiliates’ financial interests tied to the consummation of a Business Combination transaction may give rise to potential conflicts of interest in providing any such additional services to us, including potential conflicts of interest in connection with the sourcing and consummation of an initial Business Combination. +Since our Sponsor, executive officers and directors will lose their entire investment in us if our initial Business Combination is not completed (other than with respect to Public Shares they have acquired, or may in the future acquire, if any), a conflict of interest may arise in determining whether a particular Business Combination target is appropriate for our initial Business Combination. +In November 2021, our Sponsor paid $25,000, or approximately $0.003 per share, to cover certain expenses on our behalf in consideration of 7,187,500 Founder Shares. On February 8, 2024, our Sponsor surrendered 1,437,500 Founder Shares for no consideration, resulting in our Sponsor holding 5,750,000 Founder Shares. On June 7, 2024, our Sponsor transferred 30,000 Founder Shares to each of the Company’s three independent directors (an aggregate of 90,000 Founder Shares), resulting in our Sponsor holding 5,660,000 Founder Shares. Prior to the initial investment in the company of $25,000 by the Sponsor, the company had no assets, tangible or intangible. The purchase price of the Founder Shares was determined by dividing the amount of cash paid to the Company by the number of Founder Shares issued. The number of Founder Shares outstanding was determined based on the expectation at the time that +40 +Table of Contents +the total size of the initial public offering would be a maximum of 23,000,000 units if the underwriters’ over-allotment option is exercised in full, and therefore that such Founder Shares would represent 20% of the outstanding shares after the initial public offering. +In addition, our Sponsor and Cantor purchased an aggregate of 6,000,000 Private Placement Warrants for an aggregate purchase price of $6,000,000, or $1.00 per warrant. Of those 6,000,000 Private Placement Warrants, our Sponsor purchased 4,000,000 Private Placement Warrants and Cantor purchased 2,000,000 Private Placement Warrants. The Private Placement Warrants will be worthless if we do not complete our initial Business Combination. +The personal and financial interests of our executive officers and directors may influence their motivation in identifying and selecting a target Business Combination, completing an initial Business Combination and influencing the operation of the business following the initial Business Combination. This risk may become more acute as the end of the Completion Window nears, which is the deadline for our completion of an initial Business Combination. +The non-managing Sponsor investors are not required to (i) hold any units, Class A Ordinary Shares or Public Warrants they purchased in the initial public offering or thereafter for any amount of time, (ii) vote any Class A Ordinary Shares they may own at the applicable time in favor of our initial Business Combination or (iii) refrain from exercising their right to redeem their Public Shares at the time of our initial Business Combination. The non-managing Sponsor investors will have the same rights to the funds held in the Trust Account with respect to the Class A Ordinary Shares underlying the units they may purchase in the initial offering as the rights afforded to our other public shareholders. +Risks Relating to our Securities +You will not have any rights or interests in funds from the Trust Account, except under certain limited circumstances. Therefore, to liquidate your investment, you may be forced to sell your Public Shares or warrants, potentially at a loss. +Our public shareholders will be entitled to receive funds from the Trust Account only upon the earlier to occur of: (i) our completion of an initial Business Combination, and then only in connection with those Class A Ordinary Shares that such shareholder properly elected to redeem, subject to the limitations described herein, (ii) the redemption of any Public Shares properly submitted in connection with a shareholder vote to amend our amended and restated memorandum and articles of association (A) to modify the substance or timing of our obligation to redeem 100% of our Public Shares if we do not complete our initial Business Combination within the Completion Window or (B) with respect to any other material provisions relating to shareholders’ rights or pre-initial Business Combination activity, and the redemption of our Public Shares if we are unable to complete an initial Business Combination within the Completion Window, subject to applicable law and as further described herein. In addition, if our plan to redeem our Public Shares if we are unable to complete an initial Business Combination within the Completion Window for any reason, compliance with Cayman Islands law may require that we submit a plan of dissolution to our then-existing shareholders for approval prior to the distribution of the proceeds held in our Trust Account. In that case, public shareholders may be forced to wait beyond the Completion Window before they receive funds from our Trust Account. In no other circumstances will a public shareholder have any right or interest of any kind in the Trust Account. Holders of warrants will not have any right to the proceeds held in the Trust Account with respect to the warrants. Accordingly, to liquidate your investment, you may be forced to sell your Public Shares or warrants, potentially at a loss. +NYSE American may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions. +Our Units Class A Ordinary Shares, and Public Warrants are listed on the NYSE American. We cannot assure you that our securities will continue to be listed on the NYSE American in the future or prior to our initial Business Combination. In order to continue listing our securities on the NYSE American prior to our initial Business Combination, we must maintain certain financial, distribution and share price levels. Additionally, in connection with our initial Business Combination, we will be required to demonstrate compliance with the NYSE American’s initial listing requirements, which are more rigorous than the NYSE American’s continued listing requirements, in order to continue to maintain the listing of our securities on the NYSE American. We cannot assure you that we will be able to meet those initial listing requirements at that time. +If the NYSE American delists our securities from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect our securities could be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including: +● a limited availability of market quotations for our securities; +41 +Table of Contents +● reduced liquidity for our securities; +● a determination that our Class A Ordinary Shares are a “penny stock” which will require brokers trading in our Class A Ordinary Shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; +● a limited amount of news and analyst coverage; and +● a decreased ability to issue additional securities or obtain additional financing in the future. +The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because our securities are listed on the NYSE American, our securities qualify as covered securities under the statute. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. While we are not aware of a state having used these powers to prohibit or restrict the sale of securities issued by blank check companies, other than the State of Idaho, certain state securities regulators view blank check companies unfavorably and might use these powers, or threaten to use these powers, to hinder the sale of securities of blank check companies in their states. Further, if we were no longer listed on the NYSE American, our securities would not qualify as covered securities under the statute and we would be subject to regulation in each state in which we offer our securities. +You will not be permitted to exercise your warrants unless we register and qualify the underlying Class A Ordinary Shares or certain exemptions are available. +If the issuance of the Class A Ordinary Shares upon exercise of the warrants is not registered, qualified or exempt from registration or qualification under the Securities Act and applicable state securities laws, holders of warrants will not be entitled to exercise such warrants and such warrants may have no value and expire worthless. In such event, holders who acquired their warrants as part of a purchase of units will have paid the full unit purchase price solely for the Class A Ordinary Shares included in the units. +We registered the Class A Ordinary Shares issuable upon exercise of the warrants in the registration statement for our initial public offering because the warrants will become exercisable 30 days after the completion of our initial Business Combination, which may be within one year of the initial public offering. However, because the warrants will be exercisable until their expiration date of up to five years after the completion of our initial Business Combination, in order to comply with the requirements of Section 10(a)(3) of the Securities Act following the consummation of our initial Business Combination under the terms of the warrant agreement, we have agreed that, as soon as practicable, but in no event later than 15 business days, after the closing of our initial Business Combination, we will use our best efforts to file with the SEC a post- effective amendment to the registration statement for our initial public offering, or a new registration statement covering the registration under the Securities Act of the Class A Ordinary Shares issuable upon exercise of the warrants and thereafter will use our best efforts to cause the same to become effective within 60 business days following our initial Business Combination and to maintain a current prospectus relating to the Class A Ordinary Shares issuable upon exercise of the warrants until the expiration of the warrants in accordance with the provisions of the warrant agreement. We cannot assure you that we will be able to do so if, for example, any facts or events arise which represent a fundamental change in the information set forth in the registration statement or prospectus, the financial statements contained or incorporated by reference therein are not current or correct or the SEC issues a stop order. +If the Class A Ordinary Shares issuable upon exercise of the warrants are not registered under the Securities Act, under the terms of the warrant agreement, holders of warrants who seek to exercise their warrants will not be permitted to do so for cash and, instead, will be required to do so on a cashless basis in accordance with Section 3(a)(9) of the Securities Act or another exemption. +In no event will warrants be exercisable for cash or on a cashless basis, and we will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, or an exemption from registration or qualification is available. +If our Class A Ordinary Shares are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition of “covered securities” under Section 18(b)(1) of the Securities Act, we may, at our option, not permit holders of warrants who seek to exercise their warrants to do so for cash and, instead, require them to do so on a cashless basis in accordance with Section 3(a)(9) of the Securities Act; in the event we so elect, we will not be required to file or maintain in effect a registration statement or register or qualify the shares underlying the warrants under applicable state securities laws, and in the event we do not so elect, we will use our commercially reasonable efforts to register or qualify the shares underlying the warrants under applicable state securities laws to the extent an exemption is not available. +42 +Table of Contents +In no event will we be required to net cash settle any warrant, or issue securities (other than upon a cashless exercise as described above) or other compensation in exchange for the warrants in the event that we are unable to register or qualify the shares underlying the warrants under the Securities Act or applicable state securities laws. +You may only be able to exercise your Public Warrants on a “cashless basis” under certain circumstances, and if you do so, you will receive fewer Class A Ordinary Shares from such exercise than if you were to exercise such warrants for cash. +The warrant agreement provides that in the following circumstances holders of warrants who seek to exercise their warrants will not be permitted to do for cash and will, instead, be required to do so on a cashless basis in accordance with Section 3(a)(9) of the Securities Act: (i) if the Class A Ordinary Shares issuable upon exercise of the warrants are not registered under the Securities Act in accordance with the terms of the warrant agreement; if we have so elected and the Class A Ordinary Shares are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition of “covered securities” under Section 18(b)(1) of the Securities Act; and (iii) if we have so elected and we call the Public Warrants for redemption. If you exercise your Public Warrants on a cashless basis, you would pay the warrant exercise price by surrendering the warrants for that number of Class A Ordinary Shares equal to the quotient obtained by dividing (x) the product of the number Class A Ordinary Shares underlying the warrants, multiplied by the excess of the “Fair Market Value” of our Class A Ordinary Shares (as defined in the next sentence) over the exercise price of the warrants by (y) the Fair Market Value. The “Fair Market Value” is the average reported closing price of the Class A Ordinary Shares for the 10 trading days ending on the third trading day prior to the date on which the notice of exercise is received by the warrant agent or on which the notice of redemption is sent to the holders of warrants, as applicable. As a result, you would receive fewer Class A Ordinary Shares from such exercise than if you were to exercise such warrants for cash. +The grant of registration rights to our initial shareholders and holders of our Private Placement Warrants may make it more difficult to complete our initial Business Combination, and the future exercise of such rights may adversely affect the market price of our Class A Ordinary Shares. +Pursuant to an agreement entered into concurrently with the issuance and sale of the securities in the initial public offering, our initial shareholders and their permitted transferees can demand that we register the Class A Ordinary Shares into which Founder Shares are convertible, holders of our Private Placement Warrants and their permitted transferees can demand that we register the Private Placement Warrants and the Class A Ordinary Shares issuable upon exercise of the Private Placement Warrants and holders of warrants that may be issued upon conversion of working capital loans (as defined below in the “Related Party Loans” section) may demand that we register such warrants or the Class A Ordinary Shares issuable upon conversion of such warrants. The registration rights will be exercisable with respect to the Founder Shares, the Private Placement Warrants and the Class A Ordinary Shares issuable upon exercise of such Private Placement Warrants. We will bear the cost of registering these securities. The registration and availability of such a significant number of securities for trading in the public market may have an adverse effect on the market price of our Class A Ordinary Shares. In addition, the existence of the registration rights may make our initial Business Combination more costly or difficult to conclude. This is because the shareholders of the target business may increase the equity stake they seek in the combined entity or ask for more cash consideration to offset the negative impact on the market price of our Class A Ordinary Shares that is expected when the ordinary shares owned by our initial shareholders, holders of our Private Placement Warrants or holders of our working capital loans (as defined below in the “Related Party Loans” section) or their respective permitted transferees are registered. +We may issue additional Class A Ordinary Shares or preference shares to complete our initial Business Combination or under an employee incentive plan after completion of our initial Business Combination. We may also issue Class A Ordinary Shares upon the conversion of the Founder Shares at a ratio greater than one-to- one at the time of our initial Business Combination as a result of the anti-dilution provisions contained in our amended and restated memorandum and articles of association. Any such issuances would dilute the interest of our shareholders and likely present other risks. +Our amended and restated memorandum and articles of association authorize the issuance of up to 400,000,000 Class A Ordinary Shares, par value $0.0001 per share, 80,000,000 Class B ordinary shares, par value $0.0001 per share, and 1,000,000 preference shares, par value $0.0001 per share. As of the date of this Form 10-K, there are 23,000,000 Class A Ordinary Shares, 5,750,000 Class B ordinary shares, and 17,500,000 warrants outstanding. The Class B ordinary shares are automatically convertible into Class A Ordinary Shares concurrently with or immediately following the consummation of our initial Business Combination, or earlier at the option of the holders thereof, initially at a one-for-one ratio but subject to adjustment as set forth herein and in our amended and restated memorandum and articles of association. The warrants will become exercisable for Class A Ordinary Shares at an initial exercise price of $11.50 per share beginning 30 days after the completion of our initial Business Combination. There are no preference shares issued and outstanding. +43 +Table of Contents +We may issue a substantial number of additional Class A Ordinary Shares or preference shares to complete our initial Business Combination or under an employee incentive plan after completion of our initial Business Combination. We may also issue Class A Ordinary Shares upon conversion of the Class B ordinary shares at a ratio greater than one-to-one at the time of our initial Business Combination as a result of the anti-dilution provisions as set forth therein. However, our amended and restated memorandum and articles of association provide, among other things, that prior to our initial Business Combination, we may not issue additional shares that would entitle the holders thereof to (i) receive funds from the Trust Account or (ii) vote as a class with our Public Shares on any initial Business Combination. These provisions of our amended and restated memorandum and articles of association, like all provisions of our amended and restated memorandum and articles of association, may be amended with a shareholder vote. The issuance of additional ordinary shares or preference shares: +● may significantly dilute the equity interest of investors in the initial public offering, which dilution would increase if the anti-dilution provisions in the Class B ordinary shares resulted in the issuance of Class A Ordinary Shares on a greater than one-to-one basis upon conversion of the Class B ordinary shares; +● may subordinate the rights of holders of Class A Ordinary Shares if preference shares are issued with rights senior to those afforded our Class A Ordinary Shares; +● may have the effect of delaying or preventing a change of control of us by diluting the share ownership or voting rights of a person seeking to obtain control of us; +● could cause a change in control if a substantial number of Class A Ordinary Shares are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors; +● may adversely affect prevailing market prices for our units, Class A Ordinary Shares and/or warrants; and may not result in adjustment to the exercise price of our warrants. +We may amend the terms of the warrants in a manner that may be adverse to holders of Public Warrants with the approval by the holders of at least 50% of the then outstanding Public Warrants. As a result, the exercise price of your warrants could be increased, the exercise period could be shortened and the number of Class A Ordinary Shares purchasable upon exercise of a warrant could be decreased, all without your approval. +Our warrants were issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least 50% of the then outstanding Public Warrants to make any change that adversely affects the interests of the registered holders of Public Warrants. Accordingly, we may amend the terms of the Public Warrants in a manner adverse to a holder if holders of at least 50% of the then outstanding Public Warrants approve of such amendment. Although our ability to amend the terms of the Public Warrants with the consent of at least 50% of the then outstanding Public Warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the Public Warrants, convert the Public Warrants into cash or share (at a ratio different than initially provided), shorten the exercise period or decrease the number of Class A Ordinary Shares purchasable upon exercise of a public warrant. +A provision of our warrant agreement may make it more difficult for us to consummate an initial Business Combination. +If (i) we issue additional ordinary shares or equity-linked securities for capital raising purposes in connection with the closing of our initial Business Combination at a Newly Issued Price of less than $9.20 per Class A ordinary share, (ii) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of our initial Business Combination (net of redemptions), and (iii) the  volume weighted average trading price of the Ordinary Shares during the 20 trading day period starting on the trading day prior to the day on which the Company consummates the Business Combination (such price, the “ Market Value ”) of our Class A Ordinary Shares is below $9.20 per share, then the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price, and the $18.00 per share redemption trigger prices described in the registration statement for our initial public offering under “ Description of Securities  -  Warrants  -  Public Warrants  -  Redemption of warrants for cash ” will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price. This may make it more difficult for us to consummate an initial Business Combination with a target business. +44 +Table of Contents +We may redeem your unexpired warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless. +We have the ability to redeem all of the outstanding warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the closing price of our Class A Ordinary Shares equals or exceeds $18.00 per share (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like and for certain issuances of Class A Ordinary Shares and equity- linked securities for capital raising purposes in connection with the closing of our initial Business Combination as described elsewhere in this Form 10-K) for any 20 trading days within a 30 trading-day period ending on the third trading day prior to proper notice of such redemption provided that on the date we give notice of redemption. We will not redeem the warrants unless an effective registration statement under the Securities Act covering issuance of the Class A Ordinary Shares issuable upon exercise of the warrants is effective and a current prospectus relating to those Class A Ordinary Shares is available throughout the 30-day measurement period, except if the warrants may be exercised on a cashless basis and such cashless exercise is exempt from registration under the Securities Act. If and when the warrants become redeemable by us, we may not exercise our redemption right if the issuance of ordinary shares upon exercise of the warrants is not exempt from registration or qualification under applicable state blue sky laws or we are unable to effect such registration or qualification. We will use our commercially reasonable efforts to register or qualify such ordinary shares under the blue sky laws of the state of residence in those states in which warrants were offered by us in the initial public offering. Redemption of the outstanding warrants could force you to (1) exercise your warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) sell your warrants at the then-current market price when you might otherwise wish to hold your warrants or (iii) accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market value of your warrants. +Our warrants may have an adverse effect on the market price of our Class A Ordinary Shares and make it more difficult to effectuate our initial Business Combination. +We issued warrants to purchase 11,500,000 Class A Ordinary Shares in connection with the initial public offering and, simultaneously with the closing of the initial public offering, we issued in a private placement an aggregate of 6,000,000 Private Placement Warrants, at $1.00 per warrant. In addition, if our Sponsor or an affiliate of our Sponsor or certain of our officers and directors makes any working capital loans (as defined below in the “Related Party Loans” section), such lender may convert those loans into up to an additional 1,500,000 Private Placement Warrants, at the price of $1.00 per warrant. +To the extent we issue ordinary shares to effectuate a business transaction, the potential for the issuance of a substantial number of additional Class A Ordinary Shares upon exercise of these warrants could make us a less attractive acquisition vehicle to a target business. Such warrants, when exercised, will increase the number of issued and outstanding Class A Ordinary Shares and reduce the value of the Class A Ordinary Shares issued to complete the business transaction. Therefore, our warrants may make it more difficult to effectuate a business transaction or increase the cost of acquiring the target business. +Because each unit contains one-half of one warrant and only a whole warrant may be exercised, the units may be worth less than units of other special purpose acquisition companies. +Each unit contains one-half of one warrant. Pursuant to the warrant agreement, no fractional warrants will be issued upon separation of the units, and only whole warrants will trade. If, upon exercise of the warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round down to the nearest whole number the number of Class A Ordinary Shares to be issued to the warrant holder. This is different from other offerings similar to ours whose units include one ordinary share and one warrant to purchase one whole share. We have established the components of the units in this way in order to reduce the dilutive effect of the warrants upon completion of a Business Combination since the warrants will be exercisable in the aggregate for one-third of the number of shares compared to units that each contain a whole warrant to purchase one share, thus making us, we believe, a more attractive merger partner for target businesses. Nevertheless, this unit structure may cause our units to be worth less than if it included a warrant to purchase one whole share. +Our warrant agreement designates the courts of the State of New York or the United States District Court for the Southern District of New York as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of our warrants, which could limit the ability of warrant holders to obtain a favorable judicial forum for disputes with our company. +Our warrant agreement provides that, subject to applicable law, (i) any action, proceeding or claim against us arising out of or relating in any way to the warrant agreement, including under the Securities Act, will be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and (ii) that we irrevocably submit to such jurisdiction, which jurisdiction shall be the exclusive forum for any such action, proceeding or claim. We have waived any objection to +45 +Table of Contents +such exclusive jurisdiction and that such courts represent an inconvenient forum. With respect to any complaint asserting a cause of action arising under the Securities Act or the rules and regulations promulgated thereunder, we note, however, that there is uncertainty as to whether a court would enforce this provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Section 22 of the Securities Act creates concurrent jurisdiction for state and federal courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. +Notwithstanding the foregoing, these provisions of the warrant agreement do not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal district courts of the United States of America are the sole and exclusive forum. Any person or entity purchasing or otherwise acquiring any interest in any of our warrants shall be deemed to have notice of and to have consented to the forum provisions in our warrant agreement. If any action, the subject matter of which is within the scope the forum provisions of the warrant agreement, is filed in a court other than a court of the State of New York or the United States District Court for the Southern District of New York (a “Foreign Action”) in the name of any holder of our warrants, such holder shall be deemed to have consented to: (x) the personal jurisdiction of the state and federal courts located in the State of New York in connection with any action brought in any such court to enforce the forum provisions (an “Enforcement Action”), and (y) having service of process made upon such warrant holder in any such Enforcement Action by service upon such warrant holder’s counsel in the Foreign Action as agent for such warrant holder. +This choice-of-forum provision may limit a warrant holder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with our company, which may discourage such lawsuits. Alternatively, if a court were to find this provision of our warrant agreement inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations and result in a diversion of the time and resources of our management and board of directors. +An active trading market for our securities may not develop, which would adversely affect the liquidity and price of our securities. +An active trading market for our securities may never develop or, if developed, it may not be sustained. You may be unable to sell your securities unless a market can be established and sustained. +Because we are incorporated under the laws of the Cayman Islands, you may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited. +We are an exempted company incorporated under the laws of the Cayman Islands. As a result, it may be difficult for investors to effect service of process within the United States upon our directors or officers, or enforce judgments obtained in the United States courts against our directors or officers. +Our corporate affairs are governed by our amended and restated memorandum and articles of association, the Companies Act (as the same may be supplemented or amended from time to time) and the common law of the Cayman Islands. We will also be subject to the federal securities laws of the United States. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, the decisions of whose courts are of persuasive authority, but are not binding on a court in the Cayman Islands. +The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are different from what they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a different body of securities laws as compared to the United States, and certain states, such as Delaware, may have more fully developed and judicially interpreted bodies of corporate law. In addition, Cayman Islands companies may not have standing to initiate a shareholders derivative action in a Federal court of the United States. +We have been advised by Maples and Calder (Cayman) LLP, Cayman Islands legal counsel, that the courts of the Cayman Islands are unlikely (i) to recognize or enforce against us judgments of courts of the United States predicated upon the civil liability provisions of the federal securities laws of the United States or any state; and (ii) in original actions brought in the Cayman Islands, to impose liabilities against us predicated upon the civil liability provisions of the federal securities laws of the United States or any state, so far as the liabilities imposed by those provisions are penal in nature. In those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided +46 +Table of Contents +certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands Court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere. +As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a United States company. +General Risk Factors +We are a blank check company with no operating history and no revenues, and you have no basis on which to evaluate our ability to achieve our business objective. +We are a blank check company incorporated under the laws of the Cayman Islands with no operating results, and we did not commence operations until obtaining funding through the initial public offering. Because we lack an operating history, you have no basis upon which to evaluate our ability to achieve our business objective of completing our initial Business Combination. We have no plans, arrangements or understandings with any prospective target business concerning a Business Combination and may be unable to complete our initial Business Combination. If we fail to complete our initial Business Combination, we will never generate any operating revenues. +Past performance by our management team, our advisors and their respective affiliates, including investments and transactions in which they have participated and businesses with which they have been associated, may not be indicative of future performance of an investment in the company. +Information regarding our management team, our advisors and their respective affiliates, including investments and transactions in which they have participated and businesses with which they have been associated, is presented for informational purposes only. Any past experience and performance by our management team, our advisors and their respective affiliates and the businesses with which they have been associated, is not a guarantee that we will be able to successfully identify a suitable candidate for our initial Business Combination, that we will be able to provide positive returns to our shareholders, or of any results with respect to any initial Business Combination we may consummate. You should not rely on the historical experiences of our management team, our advisors and their respective affiliates, including investments and transactions in which they have participated and businesses with which they have been associated, as indicative of the future performance of an investment in us or as indicative of every prior investment by each of the members of our management team, our advisors or their respective affiliates. The market price of our securities may be influenced by numerous factors, many of which are beyond our control, and our shareholders may experience losses on their investment in our securities. +Cyber incidents or attacks directed at us could result in information theft, data corruption, operational disruption and/or financial loss. +We depend on digital technologies, including information systems, infrastructure and cloud applications and services, including those of third parties with which we may deal. Sophisticated and deliberate attacks on, or security breaches in, our systems or infrastructure, or the systems or infrastructure of third parties or the cloud, could lead to corruption or misappropriation of our assets, proprietary information and sensitive or confidential data. As an early stage company without significant investments in data security protection, we may not be sufficiently protected against such occurrences. We may not have sufficient resources to adequately protect against, or to investigate and remediate any vulnerability to, cyber incidents. It is possible that any of these occurrences, or a combination of them, could have adverse consequences on our business and lead to financial loss. +We may be a passive foreign investment company, or “PFIC,” which could result in adverse United States federal income tax consequences to U.S. investors. +If we are a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. Holder (as defined in the section of the IPO registration statement captioned “ Taxation - United States Federal Income Tax Considerations - U.S. Holders ”) of our Class A Ordinary Shares or warrants, the U.S. Holder may be subject to adverse U.S. federal income tax consequences and may be subject to additional reporting requirements. Our PFIC status for our current and subsequent taxable years may depend on the status of an acquired company pursuant to a Business Combination and whether we qualify for the PFIC start-up exception (see the section of +47 +Table of Contents +the IPO registration statement captioned “ Taxation - United States Federal Income Tax Considerations - U.S. Holders - Passive Foreign Investment Company Rules ”). Depending on the particular circumstances the application of the start-up exception may be subject to uncertainty, and there cannot be any assurance that we will qualify for the start-up exception. Accordingly, there can be no assurances with respect to our status as a PFIC for our current taxable year or any subsequent taxable year. Our actual PFIC status for any taxable year, however, will not be determinable until after the end of such taxable year. In addition, our U.S. counsel expresses no opinion with respect to our PFIC status for any taxable year. +Moreover, if we determine we are a PFIC for any taxable year, upon written request, we will endeavor to provide to a U.S. Holder such information as the Internal Revenue Service (“IRS”) may require, including a PFIC annual information statement, in order to enable the U.S. Holder to make and maintain a “qualified electing fund” election, but there can be no assurance that we will timely provide such required information, and such election would be unavailable with respect to our warrants in all cases. We urge U.S. investors to consult their own tax advisors regarding the possible application of the PFIC rules. For a more detailed explanation of the tax consequences of PFIC classification to U.S. Holders, see the section of the IPO registration statement captioned “ Taxation - United States Federal Income Tax Considerations - U.S. Holders - Passive Foreign Investment Company Rules .” +An investment our securities may result in uncertain U.S. federal income tax consequences. +An investment in our securities may result in uncertain U.S. federal income tax consequences. For instance, because there are no authorities that directly address instruments similar to the units we issued in our initial public offering, the allocation an investor makes with respect to the purchase price of a unit between the Class A ordinary share and the one-half of one warrant included in each unit could be challenged by the IRS or courts. In addition, the U.S. federal income tax consequences of a cashless exercise of warrants included in the units we issued in our initial public offering is unclear under current law. Finally, it is unclear whether the redemption rights with respect to our Class A Ordinary Shares suspend the running of a U.S. Holder’s (as defined in section of the IPO registration statement titled “ Taxation — United States Federal Income Tax Considerations — U.S. Holders ”) holding period for purposes of determining whether any gain or loss realized by such holder on the sale or exchange of Class A Ordinary Shares is long-term capital gain or loss and for determining whether any dividend we pay would be considered “qualified dividend income” for U.S. federal income tax purposes. See the section of our IPO registration statement titled “ Taxation — United States Federal Income Tax Considerations ” for a summary of the U.S. federal income tax considerations of an investment in our securities. Investors are urged to consult their own tax advisors with respect to these and other tax consequences when acquiring, owning or disposing of our securities. +We may reincorporate in or transfer by way of continuation to another jurisdiction which may result in taxes imposed on shareholders or warrant holders. +We may, in connection with our initial Business Combination or otherwise, subject to requisite shareholder approval by special resolution under the Companies Act (with respect to which only holders of Class B ordinary shares will have the right to vote), reincorporate in or transfer by way of continuation to the jurisdiction in which the target company or business is located or in another jurisdiction. The transaction may require a shareholder or warrant holder to recognize taxable income in the jurisdiction in which the shareholder or warrant holder is a tax resident or in which its members are resident if it is a tax transparent entity (or may otherwise result in adverse tax consequences). We do not intend to make any cash distributions to shareholders or warrant holders to pay such taxes. Shareholders or warrant holders may be subject to withholding taxes or other taxes with respect to their ownership of us after the reincorporation or continuance. +After our initial Business Combination, it is possible that a majority of our directors and officers will live outside the United States and all of our assets will be located outside the United States; therefore, investors may not be able to enforce federal securities laws or their other legal rights. +It is possible that after our initial Business Combination, a majority of our directors and officers will reside outside of the United States and all of our assets will be located outside of the United States. As a result, it may be difficult, or in some cases not possible, for investors in the United States to enforce their legal rights, to effect service of process upon all of our directors or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties on our directors and officers under United States laws. +The 1% U.S. federal excise tax on stock buybacks could be imposed on redemptions of our stock if we were to become a “covered corporation” in the future. +On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which, among other things, generally imposes a 1% U.S. federal excise tax (the “Excise Tax”) on certain repurchases of stock by “covered corporations” (which include +48 +Table of Contents +publicly traded domestic (i.e., U.S.) corporations and certain domestic subsidiaries of publicly traded foreign (i.e., non-U.S.) corporations) occurring on or after January 1, 2023. The Excise Tax is imposed on the repurchasing corporation itself, not its holders from which the stock is repurchased. The amount of the Excise Tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the Excise Tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the Excise Tax. The U.S. Department of the Treasury (the “Treasury”) has authority to provide regulations and other guidance to carry out, and prevent the abuse or avoidance of the Excise Tax. On April 12, 2024, the Treasury published proposed Treasury regulations addressing the Excise Tax. Such proposed Treasury regulations clarify many aspects of the Excise Tax, although the interpretation and operation of certain other aspects of the Excise Tax remain unclear. Although these proposed Treasury regulations are not final, taxpayers generally may rely on them until final Treasury regulations are issued. +However, there can be no assurance that final regulations will not adversely affect the accuracy of the below description of the Excise Tax considerations that may be applicable to us if we were to become a “covered corporation” in the future. +We are currently not a “covered corporation” for purposes of the Excise Tax. Accordingly, we generally would not be subject to the Excise Tax on a redemptions of our stock in connection with an extension of the date by which we must consummate our initial Business Combination or in connection with our liquidation if we fail to consummate our initial Business Combination by such date. If we were to become a “covered corporation” in the future, whether in connection with the consummation of our initial Business Combination with a U.S. company (including if we were to redomicile as a U.S. corporation in connection therewith) or otherwise, whether and to what extent we would be subject to the Excise Tax on a redemption of our stock would depend on a number of factors, including (i) whether the redemption is treated as a repurchase of stock for purposes of the Excise Tax, (ii) the fair market value of the redemption treated as a repurchase of stock, (iii) the structure of our initial Business Combination, (iv) the nature and amount of any “PIPE” or other equity issuances (whether in connection with our initial Business Combination or otherwise) issued within the same taxable year of a redemption treated as a repurchase of stock and (v) the content of the final Treasury regulations and other guidance from the Treasury addressing the Excise Tax. As noted above, the Excise Tax would be payable by the repurchasing corporation, and not by the redeeming holder. If we were to become a “covered corporation” in the future, the imposition of the Excise Tax on us as a result of redemptions by us could reduce the amount of cash available to pay redemptions or reduce the cash available to the target business in connection with our initial Business Combination, which could cause investors in our securities who do not redeem or the other shareholders of the combined company to economically bear the impact of such Excise Tax. +We are an emerging growth company and a smaller reporting company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies or smaller reporting companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies. +We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor internal controls attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As a result, our shareholders may not have access to certain information they may deem important. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our Class A Ordinary Shares held by non-affiliates exceeds $700 million as of any June 30 before that time, in which case we would no longer be an emerging growth company as of the following December 31. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile. +Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company +49 +Table of Contents +which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. +Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our ordinary shares held by non-affiliates is equal to or exceeds $250 million as of the prior June 30 th , and (2) our annual revenues equaled or exceeded $100 million during such completed fiscal year and the market value of our ordinary shares held by non-affiliates equals to or exceeds $700 million as of the prior June 30 th . To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible. +Provisions in our amended and restated memorandum and articles of association may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our Class A Ordinary Shares and could entrench management. +Our amended and restated memorandum and articles of association contain provisions that may discourage unsolicited takeover proposals that shareholders may consider to be in their best interests. These provisions include a staggered board of directors and the ability of the board of directors to designate the terms of and issue new series of preference shares, which may make the removal of management more difficult and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities. +Our amended and restated memorandum and articles of association provide that the courts of the Cayman Islands will be the exclusive forums for certain disputes between us and our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum for complaints against us or our directors, officers or employees. +Our amended and restated memorandum and articles of association provide that unless we consent in writing to the selection of an alternative forum, the courts of the Cayman Islands shall have exclusive jurisdiction over any claim or dispute arising out of or in connection with our amended and restated memorandum and articles of association or otherwise related in any way to each shareholder’s shareholding in us, including but not limited to (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of any fiduciary or other duty owed by any of our current or former director, officer or other employee to us or our shareholders, (iii) any action asserting a claim arising pursuant to any provision of the Companies Act or our amended and restated memorandum and articles of association, or (iv) any action asserting a claim against us governed by the internal affairs doctrine (as such concept is recognized under the laws of the United States of America) and that each shareholder irrevocably submits to the exclusive jurisdiction of the courts of the Cayman Islands over all such claims or disputes. +The forum selection provision in our amended and restated memorandum and articles of association does not apply to actions or suits brought to enforce any liability or duty created by the Securities Act, Exchange Act or any claim for which the federal district courts of the United States of America are, as a matter of the laws of the United States of America, the sole and exclusive forum for determination of such a claim. +Our amended and restated memorandum and articles of association also provide that, without prejudice to any other rights or remedies that we may have, each of our shareholders acknowledges that damages alone would not be an adequate remedy for any breach of the selection of the courts of the Cayman Islands as exclusive forum and that accordingly we shall be entitled, without proof of special damages, to the remedies of injunction, specific performance or other equitable relief for any threatened or actual breach of the selection of the courts of the Cayman Islands as exclusive forum. +This choice of forum provision may increase a shareholder’s cost and limit the shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees. Any person or entity purchasing or otherwise acquiring any of our shares or other securities, whether by transfer, sale, operation of law or otherwise, shall be deemed to have notice of and have irrevocably agreed and consented to these provisions. There is uncertainty as to whether a court would enforce such provisions, and the enforceability of similar choice of forum provisions in other companies’ charter documents has been challenged in legal proceedings. It is possible that a court could find this type of provisions to be inapplicable or unenforceable, and if a court were to find this provision in our amended and restated memorandum and articles of association to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could have adverse effect on our business and financial performance. +50 +Table of Contents +Item 1B. Unresolved Staff Comments +None. +Item 1C. Cybersecurity +As a blank check company, we have no operations and therefore do not have any operations of our own that face cybersecurity threats . However, we do depend on the digital technologies of third parties , and as noted in “ Item 1A. Risk Factors ” of this Form 10-K, any sophisticated and deliberate attacks on, or security breaches in, systems or infrastructure or the cloud that we utilize, including those of third parties, could lead to corruption or misappropriation of our assets, proprietary information and sensitive or confidential data . Because of our reliance on the technologies of third parties, we also depend upon the personnel and the processes of third parties to protect against cybersecurity threats, and we have no personnel or processes of our own for this purpose . Our board of directors oversees risk for our Company, and prior to filings with the SEC, our board of directors reviews our risk factors, including the descriptions of the risks we face from cybersecurity threats , as described in “ Item 1A. Risk Factors ” of this Form 10-K. +Item 2. Properties +Our executive offices are located at 1790 Hughes Landing Blvd., The Woodlands, Texas 77380. Our executive offices are provided to us by an affiliate of our Sponsor, and we have agreed to pay such affiliate of our Sponsor up to $20,000 per month for office space, utilities and secretarial and administrative support. We consider our current office space adequate for our current operations. +Item 3. Legal Proceedings +There is no material litigation, arbitration or governmental proceeding currently pending against us or any members of our management team in their capacity as such. +Item 4. Mine Safety Disclosures +Not applicable. +PART II +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +Market Information +Our units, Class A Ordinary Shares, and warrants are listed on the NYSE American under the symbols “GRAF.U,” “GRAF” and “GRAF WS”, respectively. +Holders +As of March 13, 2025, there was 1 holder of record of our units, 1 holder of record of our Class A Ordinary Shares, 4 holders of record of our Class B ordinary shares, and 3 holders of record of our warrants. +Dividends +We have not paid any cash dividends on our ordinary shares to date and do not intend to pay cash dividends prior to the completion of an initial Business Combination. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial conditions subsequent to completion of an initial Business Combination. The payment of any cash dividends subsequent to an initial Business Combination will be within the discretion of our board of directors at such time. Further, if we incur any indebtedness, our ability to declare dividends may be limited by restrictive covenants we may agree to in connection therewith. +Securities Authorized for Issuance under Equity Compensation Plans +None. +51 +Table of Contents +Recent Sales of Unregistered Securities and Use of Proceeds from Registered Offerings +Unregistered Sales +In November 2021, Graf Global Sponsor LLC, our Sponsor, purchased an aggregate of 7,187,500 of our Class B ordinary shares in exchange for a capital contribution of $25,000 at an average purchase price of approximately $0.003 per share. Such securities were issued in connection with our organization pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. On February 8, 2024, our Sponsor surrendered 1,437,500 Founder Shares for no consideration, resulting in our Sponsor holding 5,750,000 Founder Shares. All share and per-share amounts have been retroactively restated to reflect the share capitalization. The number of Founder Shares outstanding was determined based on the expectation that the total size of the initial public offering would be a maximum of 23,000,000 units if the underwriters’ over-allotment option is exercised in full and therefore that such Founder Shares would represent 20% of the outstanding shares after the initial public offering. +Our Sponsor is an accredited investor for purposes of Rule 501 of Regulation D. Each of the equity holders in our Sponsor is an accredited investor under Rule 501 of Regulation D. The sole business of our Sponsor is to act as the company’s Sponsor in connection with the initial public offering. The limited liability company agreement of our Sponsor provides that its membership interests may only be transferred to our officers or directors or other persons affiliated with our Sponsor, or in connection with estate planning transfers. +Our Sponsor and Cantor have purchased an aggregate of 6,000,000 Private Placement Warrants for an aggregate purchase price of $6,000,000 or $1.00 per warrant. Of those 6,000,000 Private Placement Warrants, our Sponsor purchased 4,000,000 Private Placement Warrants and Cantor purchased 2,000,000 Private Placement Warrants. +This purchase took place on a private placement basis simultaneously with the completion of our initial public offering. This issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. +No underwriting discounts or commissions were paid with respect to such sales. +Use of Proceeds +On June 25, 2024, our registration statement on Form S-1 (File No. 333-279889) was declared effective by the SEC for our initial public offering in which we sold an aggregate of 23,000,000 Units at an offering price of $10.00 per Unit, including 3,000,000 Units as a result of the underwriters’ full exercise of its over-allotment option, generating gross proceeds of $230,000,000. +Transaction costs amounted to $14,455,519, consisting of $4,000,000 of cash underwriting fees, $9,800,000 of deferred underwriting fees payable upon the consummation of our initial Business Combination, and $655,519 of other offering costs. +Of the net proceeds from the initial public offering and simultaneous private placement, $230,000,000 was deposited into the Trust Account, and $1,160,185 was available for working capital. There has been no material change in the planned use of proceeds from our Public Offering as described in our final prospectus dated June 25, 2024, which was filed with the SEC. +As of December 31, 2024, after giving effect to our initial public offering and our operations subsequent thereto, approximately $235,764,764 was held in the Trust Account, and we had approximately $479,628 of unrestricted cash available to us for our activities in connection with identifying and consummating an initial Business Combination, and for general corporate matters. +Item 6. [Reserved] +​ +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with our audited financial statements and the notes related thereto which are included in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K. Certain information contained in the discussion and analysis set forth below includes forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “Cautionary Note Regarding Forward-Looking Statements and Risk Factor Summary,” “Item 1A. Risk Factors” and elsewhere in this Form 10-K. +52 +Table of Contents +Overview +We are a blank check company incorporated in the Cayman Islands on November 17, 2021 formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar Business Combination with one or more businesses that the Company has not yet identified. We intend to effectuate our Business Combination using cash derived from the proceeds of the Initial Public Offering and the sale of the Private Placement Warrants, our shares, debt or a combination of cash, shares and debt. +We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a Business Combination will be successful. +Results of Operations +We have neither engaged in any operations nor generated any revenues to date. Our only activities from November 17, 2021 (inception) through December 31, 2024 were organizational activities, those necessary to prepare for the Initial Public Offering, described below, and identifying a target company for a Business Combination. We do not expect to generate any operating revenues until after the completion of our Business Combination. We generate non-operating income in the form of interest income on cash and marketable securities held in the Trust Account. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses. +For the year ended December 31, 2024, we had a net income of $5,233,485, which consists of interest income on cash held in the Trust Account of $5,764,764, offset by operating costs of $531,279. +For the year ended December 31, 2023, we had a net loss of $3,151, which consists of formation and operational costs of $3,151. +Liquidity and Capital Resources +On June 27, 2024, we consummated the Initial Public Offering of 23,000,000 Units, which includes the full exercise by the underwriters of their over-allotment option in the amount of 3,000,000 Units, at $10.00 per Unit, generating gross proceeds of $230,000,000. Simultaneously with the closing of the Initial Public Offering, we consummated the sale of an aggregate of 6,000,000 Private Placement Warrants at a price of $1.00 per Private Placement Warrant, in a private placement to the Company’s Sponsor, generating gross proceeds of $6,000,000. +Following the Initial Public Offering, the full exercise of the over-allotment option, and the sale of the Private Units, a total of $230,000,000 was placed in the Trust Account. We incurred $14,455,519, consisting of $4,000,000 of cash underwriting fee, $9,800,000 of deferred underwriting fee (see additional discussion in Note 6), and $655,519 of other offering costs. +For the year ended December 31, 2024, cash used in operating activities was $912,010. Net income of $5,233,485 was affected by payment of operation costs through promissory note of $32,151 and interest earned on cash held in the Trust Account of $5,764,764. Changes in operating assets and liabilities used $412,882 of cash for operating activities. +For the year ended December 31, 2023, cash used in operating activities was $0. Net loss of $3,151 was affected by payment of operation costs through promissory note of $2,898. Changes in operating assets and liabilities used $253 of cash for operating activities. +As of December 31, 2024, we had cash held in the Trust Account of $235,764,764 (including approximately $5,764,764 of interest income). We may withdraw interest from the Trust Account to pay taxes, if any. We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less income taxes payable), to complete our Business Combination. To the extent that our share capital or debt is used, in whole or in part, as consideration to complete our Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies. +As of December 31, 2024, we had cash of $479,628. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a Business Combination. +53 +Table of Contents +In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, the Sponsor, or certain of our officers and directors or their affiliates may, but are not obligated to, loan us funds as may be required. If we complete a Business Combination, we would repay such loaned amounts. In the event that a Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1.5 million of such working capital loans may be converted into warrants of the post-Business Combination entity at a price of $1.00 per warrant at the option of the lender. The warrants would be identical to the Private Placement Warrants. +In connection with our assessment of going concern considerations in accordance with ASC 205-40, “Going Concern,” as of December 31, 2024, we may need to raise additional capital through loans or additional investments from its Sponsor, stockholders, officers, directors, or third parties. Our officers, directors and Sponsor may, but are not obligated to, loan us funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet our working capital needs. Accordingly, we may not be able to obtain additional financing. If we are unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses. We cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. +Management plans to address this uncertainty through a Business Combination. If a Business Combination is not consummated by the end of the Combination Period, currently June 27, 2026, there will be a mandatory liquidation and subsequent dissolution. Management has determined that the liquidity condition raises substantial doubt about our ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should be required to liquidate after the Combination Period. We intend to complete the initial Business Combination before the end of the Combination Period. However, there can be no assurance that we will be able to consummate any Business Combination by the end of the Combination Period. +Off-Balance Sheet Arrangements +We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of December 31, 2024. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets. +Contractual Obligations +We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay an affiliate of the Sponsor $20,000 per month for office space, utilities and secretarial and administrative support services provided to members of the management team. We began incurring these fees on June 25, 2024 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and our liquidation. For the years ended December 31, 2024 and 2023, the Company incurred and paid $124,000 and $0 in fees in administrative support services fee, respectively. +The underwriters were entitled to an underwriting discount of $0.20 per Unit on Units other than those sold pursuant to the underwriters’ option to purchase additional Units, or $4,000,000 in the aggregate, paid upon the closing of the Initial Public Offering. In addition, the underwriters are entitled to a deferred fee of $0.40 per Unit on Units other than those sold pursuant to the underwriters’ option to purchase additional Units, and $0.60 per Unit on Units sold pursuant to the underwriters’ over-allotment option or $9,800,000 in the aggregate. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement. +Critical Accounting Estimates +The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Making estimates requires management to exercise significant judgement. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management consider in formulating its estimated, could change in the near term due to one or more future confirming events. Accordingly, the actual results could materially differ from those estimates. As of December 31, 2024, we did not have any critical accounting estimates to be disclosed. +54 +Table of Contents +Net Income (Loss) per Ordinary Share +The Company complies with accounting and disclosure requirements of Accounting Standards Codification 260, “Earnings Per Share.” The Company has two classes of shares, which are referred to as Class A Ordinary Shares and Class B Ordinary Shares. Income and losses are shared pro rata between the two classes of shares. Net income (loss) per ordinary share is calculated by dividing the net income by the weighted average ordinary shares outstanding for the respective period. Basic net income (loss) per share attributable to ordinary shareholders is adjusted for potentially dilutive impact of outstanding warrants to determine diluted net income (loss) per share attributable to ordinary shareholders. However, because the warrants are anti-dilutive, diluted income (loss) per ordinary share is the same as basic income (loss) per ordinary share for the periods presented. +Recent Accounting Standards +In November 2023, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” The amendments in this ASU require disclosures, on an annual and interim basis, of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), as well as the aggregate amount of other segment items included in the reported measure of segment profit or loss. The ASU requires that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. Public entities will be required to provide all annual disclosures currently required by Topic 280 in interim periods, and entities with a single reportable segment are required to provide all the disclosures required by the amendments in this ASU and existing segment disclosures in Topic 280. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. +Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements. +Item 7A. Quantitative and Qualitative Disclosures about Market Risk +We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information otherwise required under this item. +Item 8. Financial Statements and Supplementary Data +This information appears following Item 15 of this Form 10-K and is included herein by reference. +Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +None. +Item 9A. Controls and Procedures. +Evaluation of Disclosure Controls and Procedures +Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. +As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2024. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective. Accordingly, management believes that the financial statements included in this Form 10-K present fairly in all material respects our financial position, results of operations, and cash flows for the period presented. +55 +Table of Contents +Management’s Report on Internal Controls Over Financial Reporting +As required by SEC rules and regulations implementing Section 404 of the Sarbanes-Oxley Act, our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that: +(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company, +(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and +(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. +Because of its inherent limitations, internal control over financial reporting may not prevent or detect errors or misstatements in our consolidated financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting at December 31, 2024. In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013). Based on our assessments and those criteria, management determined that we did maintain effective internal control over financial reporting as of December 31, 2024. +This Form 10-K does not include an attestation report of our independent registered public accounting firm due to our status as an emerging growth company under the JOBS Act. +56 +Table of Contents +Changes in Internal Control over Financial Reporting +There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. +Item 9B. Other Information +N o n e . +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not applicable. +​ +57 +Table of Contents +PART III +Item 10. Directors, Executive Officers and Corporate Governance Officers and Directors +Our executive officers and directors are as follows: +​ +​ +​ +​ +​ +​ +NAME +AGE +POSITION +James A. Graf +60 +Chief Executive Officer, Chief Financial Officer and Director +Louis Bélanger-Martin +54 +Director +Kenneth Weinstein +62 +Director +Fred S. Zeidman +78 +Director +​ +James A. Graf has served as our Chief Executive Officer, Chief Financial Officer and Director since November 2021, and as Interim Chief Financial Officer of NKGen Biotech, Inc. since October 2023. Mr. Graf served as an independent director of Catcha Investment Corp, a blank check company, from February 2021 through the completion of its business combination with Crown LNG Holdings Limited in July 2024. Previously, Mr. Graf served as the Chief Executive Officer of GRAF IV, a blank check company, from its inception in January 2021 through the completion of its initial business combination with NKGen in September 2023. Mr. Graf served as the Chief Executive Officer and director of GRAF I, a blank check company, from June 2018 through the completion of its initial business combination with Velodyne in September 2020 and served as an independent director of Velodyne from September 2020 until February 2021. Mr. Graf also served as a non-independent director of Platinum Eagle from January 2018 through the completion of its business combination with Target Logistics Management, LLC and RL Signor Holdings, LLC in March 2019. Mr. Graf served as the Vice President, Chief Financial Officer and Treasurer of Double Eagle from its inception in June 2015 through its business combination with Williams Scotsman (KNA WillScot Mobile Mini Holdings Corp.) in November 2017. He served as Vice President, Chief Financial Officer, Treasurer and Secretary of Silver Eagle from its inception in April 2013 through Silver Eagle’s business combination with VDTH, and he served as Vice President, Chief Financial Officer, Treasurer and Secretary of Global Eagle from its inception in February 2011 to its business combination with Row 44 and AIA in January 2013. Subsequently, Mr. Graf served as Vice Chairman of Global Entertainment AG, the holding company for GEE’s publicly listed German subsidiary, AIA from 2013 to 2014 and Special Advisor to GEE in 2013. He served as a Special Advisor to VDTH from 2015 to 2016. From 2008 to 2011, Mr. Graf served as Managing Director of TC Capital Ltd., an investment bank in Singapore. From 2007 to 2008, Mr. Graf was engaged as a consultant to provide financial advisory services to Metro- Goldwyn-Mayer, Inc. In 2001, Mr. Graf founded and became the Chief Executive Officer of Praedea Solutions, Inc., an enterprise software company with operations in the United States, Malaysia and Ukraine. The assets of Praedea Solutions, Inc. were sold in 2006 to Mergent Inc., a wholly-owned subsidiary of Xinhua Finance Ltd. and renamed Mergent Data Technology, Inc., where Mr. Graf continued to serve as Chief Executive Officer from 2006 to 2007. Praedea Solutions Inc. was renamed PSI Capital Inc. and currently serves as an investment holding company for Mr. Graf’s private investments, where Mr. Graf continues to serve as the Chief Executive Officer. Prior to founding Praedea, Mr. Graf was a Managing Director at Merrill Lynch in Singapore from 1998 to 2000 and a consultant to Merrill Lynch in 2001. From 1996 to 1998, Mr. Graf served as a director and then Managing Director and President of Deutsche Bank’s investment banking entity in Hong Kong, Deutsche Morgan Grenfell (Hong Kong) Ltd. From 1993 to 1996, he was a Vice President at Smith Barney in Hong Kong and Los Angeles. From 1987 to 1993, Mr. Graf was an analyst and then associate at Morgan Stanley in New York, Los Angeles, Hong Kong and Singapore. Mr. Graf received a Bachelor of Arts degree from the University of Chicago in 1987. We believe that Mr. Graf’s extensive business background and SPAC experience qualifies him to serve on our board of directors. +Louis Bélanger-Martin, CPA, has served on our board of directors since June 25, 2024. Mr. Bélanger-Martin has over 30 years of management, financial and business development experience. Since 2020, he has been Chief Financial Officer of Smize & Dream, a fast-growing super-premium, all-natural ice cream business he founded together with Tyra Banks, with whom he also worked on the development of the ModelLand location-based entertainment concept in Santa Monica, CA. Since 1996, Mr. Bélanger-Martin has been Co-Founder and Partner of Group W Inc., a multi-industry private equity firm. Mr. Bélanger-Martin was Vice Chairman of the board of Global Eagle Entertainment from 2013 to 2016 after completing the merger of AIA, with Global Eagle Acquisition Corp. a special purpose acquisition company, in 2013. He served as AIA’s Chief Executive Officer from 2011 to 2013. From 1995 to 2010, Mr. Bélanger-Martin served as Chief Executive Officer of DTI Software, a provider of in-flight entertainment software and services, which he co-founded and which was sold to AIA in 2008. Mr. Bélanger-Martin has been a director of Sonifi Solutions, Inc. (formerly LodgeNet), a privately held interactive content and connectivity solutions provider, and Hybrid Paytech World Inc., a mobile credit, debit and ecouponing company that is publicly listed on The Canadian Securities Exchange. Other roles have included Strategic Advisor at the One Web constellation of low earth orbit satellites in 2019-2020 and board member of e2ip Technologies in 2016-2019. Mr. Bélanger-Martin is a certified management accountant and Canadian CPA. Mr. Bélanger-Martin received a BA in business administration from École des sciences de la gestion (ESG UQAM) in Montreal, a law certificate from University of Montreal in 1994, certification as a member of the Certified Management Accountants of Canada in 1996, and a Harvard Business School executive +58 +Table of Contents +education program on effective corporate boards in 2013. We believe Mr. Bélanger-Martin is qualified to serve on our board of directors due to his extensive experience as a Chief Executive Officer, as someone who sold his company into a SPAC and as a certified management accountant. +Kenneth Weinstein, PhD, has served on our board of directors since June 25, 2024. Dr. Weinstein is currently the Japan Chair at the Hudson Institute and Chair and CEO of the Indo-Pacific Forum, an organization he co-founded in 2022 with the late Japanese Prime Minister, Shinzo Abe, to promote concrete initiatives to enhance connectivity, resilience, security and prosperity in the free and open Indo-Pacific. He joined Hudson in 1991, was appointed Chief Executive Officer in June 2005, was named president and Chief Executive Officer in March 2011 and maintained those positions through 2020. Under his leadership, Hudson grew significantly in size, prominence, visibility and impact, recruiting top-flight talent and advising officials around the globe. From 2017 until 2020, Dr. Weinstein chaired the Broadcasting Board of Governors, the oversight body for US Agency for Global Media, and was Chair of Radio Free Europe/Radio Liberty, Radio Free Asia, Middle East Broadcasting and the Open Technology Fund. He previously was a member of the National Humanities Council, the governing body of the National Endowment for the Humanities. Dr. Weinstein served, from 2018 to 2023, on the Advisory Committee on Trade Policy and Negotiations, which provides counsel on trade agreements to the United States Trade Representative. In March 2020, he was nominated to serve as US ambassador to Japan. His nomination was reported unanimously out of the Senate Foreign Relations Committee in September 2020, but his nomination expired with the end of the 116 th Congress. Dr. Weinstein has written widely for publications in the United States, Europe and Asia, including the Wall Street Journal, Le Monde and the Yomiuri Shimbun. In 2006, he was decorated with a knighthood in arts and letters by the government of France. He serves on the boards of nonprofit organizations in the United States and Europe. Dr. Weinstein earned his BA in General Studies in the Humanities from the University of Chicago, DEA in Soviet and Eastern European studies from Institut d’Etudes Politiques de Paris and PhD in Government from Harvard University. We believe Dr. Weinstein is well qualified to serve on our board of directors due to his vast company leadership background and experience as chair and board member of various organizations. +Fred S. Zeidman has served on our board of directors since June 25, 2024. Mr. Zeidman served as Chairman of Good Works II Acquisition Corp. from February 2021 through March 2023. He served as Chief Executive Officer and Co-Chairman of Good Works Acquisition Corp. from June 2020 until the merger with Cipher Mining in August 2021. Mr. Zeidman served as Chairman of Gordian Group LLC, a U.S. investment bank specializing in board level advice in complex financial matters from December 2014 through February 2021 and is currently Chairman of WoodRock & Co. Over the course of his distinguished 50-year career, Mr. Zeidman has served in a number of high-profile executive roles. He is also a director of Bluejay Diagnostics, Inc. (NASDAQ: BJDX), Camber Energy, Inc. (NYSE American: CEI) and Prosperity Bank in Houston. His leadership roles have included: Chairman of the Board and Chief Executive Officer of Unibar Corporation, the largest domestic independent drilling fluids company, until its sale to Anchor Drilling Fluids in 1992, President and Chief Executive Officer of Crown Services (1992 until its sale to ARS in1994), President and Chief Executive Officer of Intersystems, President and Chief Executive Officer of Interpak Systems (March 2002 to December 2007), Chairman, Chief Executive Officer and President of Seitel, Inc. (June 2002 until the sale of the company in February 2007), a Houston-based onshore seismic data provider where he was instrumental in the successful turnaround of the Company, Chief Bankruptcy Trustee of AremisSoft Corp. (1999-2002), Chief Restructuring Officer of TransMeridian Exploration Inc. (August 2009 until the sale in November 2009), a Director of the REMA subsidiary of NRG Energy, Lead Director of Straight Path Communications (July 2013 until its sale to Verizon Corp. in May 2017), and CFO of the Texas Heart Institute where he led a complex financial restructuring and assisted in the integration of St. Luke’s Episcopal Hospital System and Baylor College of Medicine into Catholic Health Initiatives. Mr. Zeidman was appointed Chairman of the US Holocaust Memorial Council by President George W. Bush in 2002, and served until 2010, and he was reappointed to the Council by President Donald Trump in 2019. He was Chairman of the University of Texas Health Science System Houston. Mr. Zeidman was a Director of the Texas Heart Institute. He is on the board of the Development Corp of Israel (Israel Bonds) and served on the Board and Executive Committee of the National World War II Museum. Mr. Zeidman holds a Bachelor’s degree from Washington University in St. Louis and a Master’s in Business Administration from New York University. We believe that Mr. Zeidman is well qualified to serve on our board of directors due to his extensive leadership, restructuring and corporate finance experience as well as his extensive relationships in the investing, investment banking and restructuring businesses. +Number and Terms of Office of Officers and Directors +Our board of directors consists of four members. Our board is divided into three classes, with only one class of directors being appointed in each year, and with each class (except for those directors appointed prior to our first annual meeting of shareholders) serving a three-year term. The term of office of the first class of directors, consisting of James Graf, will expire at our first annual meeting of shareholders. The term of office of the second class of directors, consisting of Fred Zeidman and Kenneth Weinstein, will expire at our second annual meeting of shareholders. The term of office of the third class of directors consisting of Louis Bélanger-Martin, will expire at our third annual meeting of shareholders. We may not hold an annual meeting of shareholders until after we consummate our initial Business Combination. Subject to any other special rights applicable to the shareholders, any vacancies on our board of directors may be filled by the affirmative vote of a majority of the directors present and voting at the meeting of our board, or +59 +Table of Contents +by a majority of the holders of our ordinary shares. Our officers are appointed by the board of directors and serve at the discretion of the board of directors, rather than for specific terms of office. Our board of directors is authorized to appoint persons to the offices set forth in our bylaws as it deems appropriate. Our bylaws provide that our officers may consist of a Chairman of the Board, Chief Executive Officer, Chief Financial Officer, President, Vice Presidents, Secretary, Treasurer, Assistant Secretaries and such other offices as may be determined by the board of directors. +Committees of the Board of Directors +Our board of directors has three standing committees: an audit committee, a compensation committee and a nominating and corporate governance committee. Each of our audit committee, our compensation committee and our nominating and corporate governance committee are composed solely of independent directors. Subject to phase-in rules, the rules of the NYSE American and Rule 10A-3 of the Exchange Act require that the audit committee of a listed company be comprised solely of independent directors, and the rules of the NYSE American require that the compensation committee and the nominating and corporate governance committee of a listed company be comprised solely of independent directors. Each committee operates under a charter that was approved by our board and has the composition and responsibilities described below. The charter of each committee is available as an exhibit to this Form 10-K. +Audit Committee +The members of our audit committee are Louis Bélanger-Martin, Kenneth Weinstein and Fred Zeidman, each of whom meet the independent director standard under NYSE American listing standards and under Rule 10-A-3(b)(1) of the Exchange Act. Mr. Bélanger-Martin serves as chairperson of the audit committee. +Each member of the audit committee is financially literate and our board of directors has determined that each of Mr. Bélanger-Martin, Mr. Zeidman and Dr. Weinstein qualifies as an “audit committee financial expert” as defined in applicable SEC rules and has accounting or related financial management expertise. +We have adopted an audit committee charter, which details the principal functions of the audit committee, including: +● assisting board oversight of (1) the integrity of our financial statements, (2) our compliance with legal and regulatory requirements, (3) our independent auditor’s qualifications and independence, and (4) the performance of our internal audit function and independent auditors; the appointment, compensation, retention, replacement, and oversight of the work of the independent auditors and any other independent registered public accounting firm engaged by us; +● pre-approving all audit and non-audit services to be provided by the independent auditors or any other registered public accounting firm engaged by us, and establishing pre-approval policies and procedures; reviewing and discussing with the independent auditors all relationships the auditors have with us in order to evaluate their continued independence; +● setting clear policies for audit partner rotation in compliance with applicable laws and regulations; obtaining and reviewing a report, at least annually, from the independent auditors describing (1) the independent auditor’s internal quality-control procedures and (2) any material issues raised by the most recent internal quality-control review, or peer review, of the audit firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years respecting one or more independent audits carried out by the firm and any steps taken to deal with such issues; +● meeting to review and discuss our annual audited financial statements and quarterly financial statements with management and the independent auditor, including reviewing our specific disclosures under “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ”; reviewing and approving any related party transaction required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the SEC prior to us entering into such transaction; and +● reviewing with management, the independent auditors, and our legal advisors, as appropriate, any legal, regulatory or compliance matters, including any correspondence with regulators or government agencies and any employee complaints or published reports that raise material issues regarding our financial statements or accounting policies and any significant changes in accounting standards or rules promulgated by the Financial Accounting Standards Board, the SEC or other regulatory authorities. +60 +Table of Contents +Compensation Committee +The members of our compensation committee are Louis Bélanger-Martin, Kenneth Weinstein and Fred Zeidman. Under the NYSE American listing standards and applicable SEC rules, we are required to have at least two members of the compensation committee, all of whom must be independent. Mr. Bélanger-Martin, Dr. Weinstein and Mr. Zeidman are independent and Dr. Weinstein chairs the compensation committee. +We have adopted a compensation committee charter, which details the principal functions of the compensation committee, including: +● reviewing and approving on an annual basis the corporate goals and objectives relevant to our chief executive officer’s compensation, evaluating our chief executive officer’s performance in light of such goals and objectives and determining and approving the remuneration (if any) of our chief executive officer based on such evaluation; +● reviewing and making recommendations to our board of directors with respect to the compensation, and any incentive compensation and equity based plans that are subject to board approval of all of our other officers; +● reviewing our executive compensation policies and plans; +● implementing and administering our incentive compensation equity-based remuneration plans; +● assisting management in complying with our proxy statement and annual report disclosure requirements; +● approving all special perquisites, special cash payments and other special compensation and benefit arrangements for our officers and employees; +● producing a report on executive compensation to be included in our annual proxy statement; and +● reviewing, evaluating and recommending changes, if appropriate, to the remuneration for directors. +Notwithstanding the foregoing, other than the payment of $20,000 per month to our Sponsor for office space, utilities and secretarial and administrative support and reimbursement of expenses, no compensation of any kind, including finders, consulting or other similar fees, will be paid to any of our existing shareholders, officers, directors or any of their respective affiliates, prior to, or for any services they render in order to effectuate the consummation of an initial Business Combination. Accordingly, it is likely that prior to the consummation of an initial Business Combination, the compensation committee will only be responsible for the review and recommendation of any compensation arrangements to be entered into in connection with such initial Business Combination. +The compensation committee charter also provides that the compensation committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, independent legal counsel or other adviser and is directly responsible for the appointment, compensation and oversight of the work of any such adviser. +However, before engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the compensation committee will consider the independence of each such adviser, including the factors required by the NYSE American and the SEC. +Nominating and Corporate Governance Committee +The members of our nominating and corporate governance are Louis Bélanger-Martin, Kenneth Weinstein and Fred Zeidman and Mr. Zeidman serves as chair of the nominating and corporate governance committee. +We have adopted a nominating and corporate governance committee charter, which details the purpose and responsibilities of the nominating and corporate governance committee, including: +● identifying, screening and reviewing individuals qualified to serve as directors, consistent with criteria approved by the board, and recommending to the board of directors candidates for nomination for appointment at the annual general meeting of shareholders or to fill vacancies on the board of directors; +● developing and recommending to the board of directors and overseeing implementation of our corporate governance guidelines; +● coordinating and overseeing the annual self-evaluation of the board of directors, its committees, individual directors and management in the governance of the company; and +● reviewing on a regular basis our overall corporate governance and recommending improvements as and when necessary. +61 +Table of Contents +The nominating and corporate governance committee charter also provides that the nominating and corporate governance committee may, in its sole discretion, retain or obtain the advice of, and terminate, any search firm to be used to identify director candidates, and will be directly responsible for approving the search firm’s fees and other retention terms. +We have not formally established any specific, minimum qualifications that must be met or skills that are necessary for directors to possess. In general, in identifying and evaluating nominees for director, the board of directors considers educational background, diversity of professional experience, knowledge of our business, integrity, professional reputation, independence, wisdom, and the ability to represent the best interests of our shareholders. Prior to our initial Business Combination, holders of our Public Shares will not have the right to recommend director candidates for nomination to our board of directors. +Compensation Committee Interlocks and Insider Participation +None of our officers currently serves, or in the past year has served, as a member of the compensation committee of any entity that has one or more officers serving on our board of directors. +Code of Business Conduct and Ethics +We have adopted a Code of Ethics applicable to our directors, officers and employees. We have filed a copy of our Code of Ethics as an exhibit to the registration statement in connection with our IPO. You are able to review this document by accessing our public filings at the SEC’s web site at www.sec.gov . In addition, a copy of the Code of Ethics and the charters of the committees of our board of directors can be provided without charge upon request from us. If we make any amendments to our Code of Ethics other than technical, administrative or other non-substantive amendments, or grant any waiver, including any implicit waiver, from a provision of the Code of Ethics applicable to our principal executive officer, principal financial officer principal accounting officer or controller or persons performing similar functions requiring disclosure under applicable SEC or NYSE American rules, we will disclose the nature of such amendment or waiver in a Current Report on Form 8-K. +Insider Trading Policy +We have adopted insider trading policies and procedures governing the purchase, sale, and other dispositions of the Company’s securities by directors, officers and employees that are reasonably designed to promote compliance with insider trading laws, rules and regulations (the “Insider Trading Policy”). It is also the policy of the Company to comply with all applicable securities laws when transacting in its own securities. A copy of our Insider Trading Policy is attached as an exhibit to this Form 10-K. +Limitation on Liability and Indemnification of Officers and Directors +Cayman Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against willful default, fraud or the consequences of committing a crime. Our amended and restated memorandum and articles of association provide for indemnification of our officers and directors to the maximum extent permitted by law, including for any liability incurred in their capacities as such, except through their own actual fraud, willful default or willful neglect. We have purchased a policy of directors’ and officers’ liability insurance that insures our officers and directors against the cost of defense, settlement or payment of a judgment in some circumstances and insures us against our obligations to indemnify our officers and directors. +Our officers and directors have agreed to waive any right, title, interest or claim of any kind in or to any monies in the Trust Account, and have agreed to waive any right, title, interest or claim of any kind they may have in the future as a result of, or arising out of, any services provided to us and will not seek recourse against the Trust Account for any reason whatsoever. Accordingly, any indemnification provided will only be able to be satisfied by us if (i) we have sufficient funds outside of the Trust Account or (ii) we consummate an initial Business Combination. +Our indemnification obligations may discourage shareholders from bringing a lawsuit against our officers or directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against our officers and directors, even though such an action, if successful, might otherwise benefit us and our shareholders. Furthermore, a shareholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against our officers and directors pursuant to these indemnification provisions. +62 +Table of Contents +We believe that these provisions, the insurance and the indemnity agreements are necessary to attract and retain talented and experienced officers and directors. +Item 11. Executive Compensation. +None of our executive officers or directors has received any cash compensation for services rendered. We will reimburse our Sponsor, for office space, secretarial and administrative services provided to members of our management team in an amount not to exceed $20,000 per month in the event such space and/or services are utilized and we do not pay directly for such services. No compensation of any kind, including any finder’s fee, reimbursement, consulting fee or monies in respect of any payment of a loan, will be paid by us to our Sponsor, officers and directors, or any affiliate of theirs, for services rendered prior to, or for any services rendered in order to effectuate, the consummation of our initial Business Combination (regardless of the type of transaction that it is). However, these individuals will be entitled to certain payments including, but not limited to, reimbursement for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable Business Combinations. Additionally, these individuals will be eligible to receive a transfer or reallocation of Founder Shares for any extraordinary services rendered in order to identify or effectuate the consummation of our initial Business Combination. Our audit committee will review on a quarterly basis all payments that were made to our Sponsor, officers or directors, or our or their affiliates. Any such payments prior to an initial Business Combination will be made using funds held outside the Trust Account. Other than quarterly audit committee review of such payments, we do not expect to have any additional controls in place governing our reimbursement payments to our directors and executive officers for their out-of-pocket expenses incurred in connection with identifying and consummating an initial Business Combination. +After the completion of our initial Business Combination, directors or members of our management team who remain with us may be paid consulting or management fees from the combined company. All of these fees will be fully disclosed to stockholders, to the extent then known, in the tender offer materials or proxy solicitation materials furnished to our stockholders in connection with a proposed initial Business Combination. We have not established any limit on the amount of such fees that may be paid by the combined company to our directors or members of management. It is unlikely the amount of such compensation will be known at the time of the proposed initial Business Combination, because the directors of the post-combination business will be responsible for determining officer and director compensation. Any compensation to be paid to our officers will be determined, or recommended to the board of directors for determination, either by a compensation committee constituted solely by independent directors or by a majority of the independent directors on our board of directors. +We do not intend to take any action to ensure that members of our management team maintain their positions with us after the consummation of our initial Business Combination, although it is possible that some or all of our officers and directors may negotiate employment or consulting arrangements to remain with us after our initial Business Combination. The existence or terms of any such employment or consulting arrangements to retain their positions with us may influence our management’s motivation in identifying or selecting a target business but we do not believe that the ability of our management to remain with us after the consummation of our initial Business Combination will be a determining factor in our decision to proceed with any potential Business Combination. We are not party to any agreements with our officers and directors that provide for benefits upon termination of employment. +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. +The following table sets forth information regarding the beneficial ownership of our ordinary shares as of March 13, 2025, by: +● each person known by us to be the beneficial owner of more than 5% of our outstanding ordinary shares; +● each of our officers and directors; and +● all our officers and directors as a group. +Unless otherwise indicated, we believe that all persons named in the table below have sole voting and investment power with respect to all ordinary shares beneficially owned by them. The following table does not reflect beneficial ownership of the Public Warrants or Private Placement Warrants as these warrants are not exercisable within 60 days of the date of this Form 10-K. +We have based our calculation of the percentage of beneficial ownership on 23,000,000 Class A Ordinary Shares and 5,750,000 Class B ordinary shares issued and outstanding as of March 13, 2025. +63 +Table of Contents +​ +​ +​ +​ +​ +​ +​ +​ +​ +NUMBER OF CLASS A +NUMBER OF CLASS B +​ +​ +​ +ORDINARY +​ +ORDINARY +​ +APPROXIMATE +​ +​ +SHARES +​ +SHARES +​ +PERCENTAGE OF +​ +​ +BENEFICIALLY +​ +BENEFICIALLY +​ +TOTAL VOTING +NAME AND ADDRESS OF BENEFICIAL OWNER(1) +​ +OWNED +​ +OWNED(2) +​ +POWER +Directors, Executive Officers and Founders +​ +James A. Graf(3) +— +5,660,000 +19.69 +% +Louis Bélanger-Martin +— +30,000 +* +​ +Kenneth Weinstein +— +30,000 +* +​ +Fred S. Zeidman +— +30,000 +* +​ +All executive officers, directors and director as a group (4 individuals) +— +5,750,000 +20.00 +% +Five Percent Holders +— +— +— +​ +Graf Global Sponsor, LLC(3) +— +5,660,000 +19.69 +% +Linden Capital L.P.(4) +1,500,000 +— +5.22 +% +Highbridge Capital Management, LLC(5) +1,500,000 +— +5.22 +% +Magnetar Financial LLC(6) +1,633,500 +— +5.68 +% +The Goldman Sachs Group, Inc.(7) +1,759,690 +— +6.12 +% +First Trust Merger Arbitrage Fund(8) +1,876,481 +— +6.53 +% +Polar Asset Management Partners Inc.(9) +1,500,000 +— +5.22 +% +AQR Capital Management, LLC(10) +1,573,974 +— +5.47 +% +Barclays PLC(11) +1,471,919 +— +5.12 +% +*Less than 1% +(1) Unless otherwise noted, the business address of each of the following entities or individuals is c/o Graf Global Corp., 1790 Hughes Landing Blvd., Suite 400, The Woodlands, Texas 77380. +(2) Interests shown consist solely of Founder Shares, classified as Class B ordinary shares. Such shares will automatically convert into Class A Ordinary Shares concurrently with or immediately following the consummation of our initial Business Combination, or earlier at the option of the holders thereof, on a one-for-one basis, subject to adjustment. +(3) Graf Global Sponsor LLC is the record holder of the shares reported herein. James A. Graf is the sole managing member of Graf Global Sponsor LLC. James A. Graf has voting and investment discretion with respect to the ordinary shares held of record by Graf Global Sponsor LLC. +(4) According to a Schedule 13G filed with the SEC on July 8, 2024 on behalf of Linden Capital L.P. (“Linden Capital”), Linden GP LLC (“Linden GP”), Linden Advisors LP (“Linden Advisors”), and Siu Min (Joe) Wong (“Mr. Wong”) with respect to shares held for the account of Linden Capital and one or more separately managed accounts (the “Managed Accounts”). Linden GP is the general partner of Linden Capital and, in such capacity, may be deemed to beneficially own the shares held by Linden Capital. Linden Advisors is the investment manager of Linden Capital and trading advisor or investment advisor for the Managed Accounts. Mr. Wong is the principal owner and controlling person of Linden Advisors and Linden GP. In such capacities, Linden Advisors and Mr. Wong may each be deemed to beneficially own the shares held by each of Linden Capital and the Managed Accounts. The principal business address for Linden Capital is Victoria Place, 31 Victoria Street, Hamilton HM10, Bermuda. The principal business address for each of Linden Advisors, Linden GP and Mr. Wong is 590 Madison Avenue, 15th Floor, New York, New York 10022. +(5) According to a Schedule 13G filed with the SEC on October 25, 2024 by Highbridge Capital Management, LLC (“Highbridge”). Highbridge is the investment advisor to certain funds and accounts (the “Highbridge Funds”) which directly hold Class A Ordinary Shares, and accordingly may be deemed to beneficially own 1,500,000 of the Company’s Class A Ordinary Shares. The business address for Highbridge is 277 Park Avenue, 23 rd Floor, New York, New York 10172 +(6) According to a Schedule 13G filed with the SEC on November 6, 2024 by Magnetar Financial LLC (“Magnetar Financial”), Magnetar Capital Partners LP (“Magnetar Capital Partners”), Supernova Management LLC (“Supernova Management”) and David J. Snyderman (“Mr. Snyderman”) with respect to shares held for Magnetar Constellation Master Fund, Ltd (“Constellation Master Fund”) Magnetar Xing He Master Fund Ltd (“Xing He Master Fund”), Magnetar SC Fund Ltd (“SC Fund”), Purpose Alternative Credit Fund Ltd (“Purpose Credit Fund”), Magnetar Structured Credit Fund, LP (“Structured Credit Fund”), Magnetar Alpha Star Fund LLC (“Alpha Star Fund”), Magnetar Lake Credit Fund LLC (“Lake Credit Fund”), Purpose Alternative Credit Fund - T LLC (“Purpose Credit Fund – T”), collectively (the “Magnetar Funds”). Magnetar +64 +Table of Contents +Financial serves as the investment adviser to the Magnetar Funds, and as such, Magnetar Financial exercises voting and investment power over the shares held for the Magnetar Funds’ accounts. Magnetar Capital Partners serves as the sole member and parent holding company of Magnetar Financial. Supernova Management is the general partner of Magnetar Capital Partners. The manager of Supernova Management is Mr. Snyderman. The address of the principal business office of each of Magnetar Financial, Magnetar Capital Partners, Supernova Management, and Mr. Snyderman is 1603 Orrington Avenue, 13 th Floor, Evanston, Illinois 60201. +(7) According to the Schedule 13G/A filed with the SEC on February 12, 2025 by The Goldman Sachs Group, Inc. and Goldman Sachs & Co., LLC. The securities owned by Goldman Sachs Group, Inc., as a parent holding company, are owned or may be deemed to be beneficially owned by Goldman Sachs & Co. LLC, a broker dealer registered under Section 15 of the Securities Act and an investment adviser registered under Section 203 of the Investment Advisers Act of 1940. The business address for Goldman Sachs Group, Inc. and Goldman Sachs & Co. LLC is 200 West Street, New York, New York 10282. +(8) According to a Schedule 13G filed with the SEC on November 14, 2024 by First Trust Merger Arbitrage Fund (“VARBX”), First Trust Capital Management L.P. (“FTCM”), First Trust Capital Solutions L.P. (“FTCS”), and FTCS Sub GP LLC (“Sub GP”). FTCM, an investment adviser registered with the SEC that provides investment advisory services to, among others, (i) series of Investment Managers Series Trust II, an investment company registered under the Investment Company Act of 1940, specifically First Trust Multi-Strategy Fund and VARBX, (ii) First Trust Alternative Opportunities Fund, an investment company registered under the Investment Company Act of 1940, and (iii) Highland Capital Management Institutional Fund II, LLC, a Delaware limited liability company (collectively, the “Client Accounts”). As investment adviser to the Client Accounts, FTCM has the authority to invest the funds of the Client Accounts in securities (including Ordinary Shares of the Issuer) as well as the authority to purchase, vote and dispose of securities, and may thus be deemed the beneficial owner of any shares of the Issuer’s Ordinary Shares held in the Client Accounts. As of September 30, 2024, VARBX owned 1,876,481 shares of the outstanding Ordinary Shares of the Issuer, while FTCM, FTCS and Sub GP collectively owned 2,098,916 shares of the outstanding Ordinary Shares of the Issuer. FTCS and Sub GP may be deemed to control FTCM and therefore may be deemed to be beneficial owners of the Ordinary Shares reported in this Schedule 13G. No one individual controls FTCS or Sub GP. FTCS and Sub GP do not own any Ordinary Shares of the Issuer for their own accounts. The principal business address of FTCM, FTCS and Sub GP is 225 W. Wacker Drive, 21 st Floor, Chicago, IL 60606. The principal business address of VARBX is 235 West Galena Street, Milwaukee, WI 53212. +(9) According to a Schedule 13G filed with the SEC on November 14, 2024 by Polar Asset Management Partners Inc. (“Polar Asset Management Partners”). Polar Asset Management Partners serves as the investment advisor to Polar Multi-Strategy Master Fund (“PMSMF”) with respect to the shares and warrants directly held by PMSMF. The principal business address of Polar Asset Management Partners is 16 York Street, Suite 2900, Toronto, ON, Canada. +(10) According to a Schedule 13G filed with the SEC on November 14, 2024 on behalf of AQR Capital Management, LLC, AQR Capital Management Holdings, LLC, and AQR Arbitrage, LLC. AQR Capital Management, LLC is a wholly owned subsidiary of AQR Capital Management Holdings, LLC. AQR Arbitrage, LLC is deemed to be controlled by AQR Capital Management, LLC. The principal business address of all three entities is One Greenwich Plaza, Greenwich, CT 06830. +(11) According to a Schedule 13G filed with the SEC on February 7, 2025 on behalf of Barclays PLC. The principal business address of Barclays PLC is 1 Churchill Place, London. +Item 13. Certain Relationships and Related Transactions, and Director Independence +Founder Shares +In November 2021, our Sponsor paid $25,000, or approximately $0.003 per share, to cover certain expenses on our behalf in consideration of 7,187,500 Founder Shares. On February 8, 2024, our Sponsor surrendered 1,437,500 Founder Shares for no consideration, resulting in our Sponsor holding 5,750,000 Founder Shares. On June 7, 2024, our Sponsor transferred 30,000 Founder Shares to each of the Company’s three independent directors (an aggregate of 90,000 Founder Shares), resulting in our Sponsor holding 5,660,000 Founder Shares. All share and per-share amounts have been retroactively restated to reflect the share capitalization. The number of Founder Shares outstanding was determined based on the expectation that the total size of the initial public offering would be a maximum of 23,000,000 units if the underwriters’ over-allotment option is exercised in full, and therefore that such Founder Shares would represent 20% of the outstanding shares after the initial public offering. +65 +Table of Contents +Private Placement Warrants +Our Sponsor and Cantor purchased an aggregate of 6,000,000 Private Placement Warrants for an aggregate purchase price of $6,000,000, or $1.00 per warrant, in a private placement that occurred simultaneously with the closing of the initial public offering. Of those 6,000,000 Private Placement Warrants, our Sponsor purchased 4,000,000 Private Placement Warrants and Cantor purchased 2,000,000 Private Placement Warrants. The Private Placement Warrants are identical to the warrants sold as part of the units in the initial public offering except that, so long as they are held by our Sponsor or its permitted transferees, (i) may not (including the underlying securities), subject to certain limited exceptions, be transferred, assigned or sold by the holders until 30 days after the completion of our initial Business Combination, (ii) and will be entitled to registration rights and (iii) with respect to Private Placement Warrants held by Cantor and/or its respective designees, will not be exercisable more than five years from the commencement of sales in the initial public offering in accordance with FINRA Rule 5110(g)(8). A portion of the purchase price of the Private Placement Warrants were added to the proceeds from the initial public offering to be held in the Trust Account such that $230,000,000 is held in the Trust Account. If we do not complete our initial Business Combination within the Completion Window, the Private Placement Warrants will expire worthless. The Private Placement Warrants and Private Placement Warrants are subject to the transfer restrictions described above. Otherwise, the Private Placement Warrants have terms and provisions that are identical to those of the units being sold in the initial public offering. +Administrative Services Agreement +We currently utilize office space at 1790 Hughes Landing Blvd., Suite 400, The Woodlands, Texas 77380 from our Sponsor. We consider our current office space adequate for our current operations. We pay our Sponsor (and/or its affiliates or designees) an aggregate of up to $20,000 per month for office space, secretarial, administrative and support services provided to us and members of our management team. Upon completion of our initial Business Combination or our liquidation, we well cease paying these monthly fees. +No compensation of any kind, including finder’s and consulting fees, will be paid by the company to our Sponsor, executive officers and directors, or any of their respective affiliates, for services rendered prior to or in connection with the completion of an initial Business Combination without shareholder approval. However, these individuals will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable Business Combinations. Our audit committee will review on a quarterly basis all payments that were made to our Sponsor, officers, directors or our or their affiliates. +Working Capital Loans +In addition, in order to finance transaction costs in connection with an intended initial Business Combination, our Sponsor or an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required on a non-interest basis. If we complete an initial Business Combination, we would repay such loaned amounts. In the event that the initial Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into Private Placement Warrants at a price of $1.00 per warrant, at the option of the lender. The warrants would be identical to the Private Placement Warrants, including as to exercisability and exercise price. Except as set forth above, the terms of such loans, if any, have not been determined and no written agreements exist with respect to such loans. Prior to the completion of our initial Business Combination, we do not expect to seek loans from parties other than our Sponsor or an affiliate of our Sponsor as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our Trust Account. +Any of the foregoing payments to our Sponsor, repayments of loans from our Sponsor or repayments of working capital loans prior to our initial Business Combination will be made using funds held outside the Trust Account. +After our initial Business Combination, members of our management team who remain with us may be paid consulting, management or other fees from the combined company with any and all amounts being fully disclosed to our shareholders, to the extent then known, in the proxy solicitation or tender offer materials, as applicable, furnished to our shareholders. It is unlikely the amount of such compensation will be known at the time of distribution of such tender offer materials or at the time of a shareholder meeting held to consider our initial Business Combination, as applicable, as it will be up to the directors of the post- combination business to determine executive and director compensation. +66 +Table of Contents +Registration Rights Agreement +The holders of Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of working capital loans (and any ordinary shares issuable upon the exercise of the Private Placement Warrants or warrants issued upon conversion of the working capital loans), will be entitled to registration rights pursuant to a registration rights agreement signed upon the consummation of the Initial Public Offering. These holders will be entitled to certain demand and “piggyback” registration rights. We will bear the expenses incurred in connection with the filing of any such registration statements. +Related Party Loans +On November 20, 2021, as amended on February 9, 2024, the Sponsor agreed to loan the Company up to $300,000 pursuant to a promissory note (the “Note”). The Note is non-interest bearing, unsecured and due on the earlier of December 31, 2024 or the closing of the Initial Public Offering. The outstanding balance of $155,688 was repaid at the closing of the Initial Public Offering on June 27, 2024. +In addition, in order to finance transaction costs in connection with a Business Combination, the Sponsor, members of the Company’s founding team or any of their affiliates may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. The Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1.5 million of such Working Capital Loans may be converted into warrants of the post Business Combination entity at a price of $1.00 per warrant. The warrants would be identical to the Private Placement Warrants. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. As of December 31, 2024, the Company had no borrowings under the Working Capital Loans. +Item 14. Principal Accounting Fees and Services. +The firm of WithumSmith+Brown, PC (“Withum”) acts as our independent registered public accounting firm. The following is a summary of fees paid to Withum for services rendered. +Audit Fees . For the year ended December 31, 2024 and 2023, fees for our independent registered public accounting firm were approximately $122,200 and $18,200, respectively for the services Withum performed in connection with our Initial Public Offering and the audit of our December 31, 2024 financial statements included in this Form 10-K. +Audit-Related Fees. For the year ended December 31, 2024 and 2023, our independent registered public accounting firm did not render assurance and related services related to the performance of the audit or review of financial statements, respectively. +Tax Fees . For the year ended December 31, 2024 and 2023, our independent registered public accounting firm did not render services to us for tax compliance, tax advice and tax planning, respectively. +All Other Fees . For the year ended December 31, 2024 and 2023, there were no fees billed for products and services provided by our independent registered public accounting firm other than those set forth above, respectively. +Pre-Approval Policy +Our audit committee was formed upon the consummation of our Initial Public Offering. As a result, the audit committee did not pre-approve all of the foregoing services, although any services rendered prior to the formation of our audit committee were approved by our board of directors. Since the formation of our audit committee, and on a going-forward basis, the audit committee has and will pre-approve all auditing services and permitted non-audit services to be performed for us by our auditors, including the fees and terms thereof (subject to the de minimis exceptions for non-audit services described in the Exchange Act which are approved by the audit committee prior to the completion of the audit). +67 +Table of Contents +PART IV +Item 15. Exhibits, Financial Statement Schedules. +(a) +The following documents are filed as part of this Form 10-K: +​ +(1) +Financial Statements: +​ +Page +Report of Independent Registered Public Accounting Firm +​ +Balance Sheets +F-1 +Statements of Operations +F-2 +Statements of Changes in Shareholders’ Deficit +F-3 +Statements of Cash Flows +F-4 +Notes to Financial Statements +F-5 +​ +(2) +Financial Statement Schedules: +​ +None. +(3) +Exhibits +​ +The exhibits listed in the Exhibit Index below are filed or incorporated by reference as part of this Form 10-K. +Exhibit Index +Number +Description +1.1 +​ +Underwriting Agreement, dated June 25, 2024, by and between the Company and Cantor Fitzgerald & Co., as representative of the underwriters (incorporated by reference to Exhibit 1.1 to the Registrant’s Current Report on Form 8-K (File No. 001-42142), filed with the SEC on June 28, 2024). +3.1 +​ +Amended and Restated Memorandum and Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-42142), filed with the SEC on June 28, 2024). +4.1 +​ +Specimen Unit Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Amended Registration Statement on Form S-1 (File No. 333-279889), filed with the SEC on June 20, 2024). +4.2 +​ +Specimen Class A Ordinary Shares Certificate (incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-279889), filed with the SEC on June 20, 2024). +4.3 +​ +Specimen Warrant Certificate (incorporated by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form S-1 (File No. 333-279889), filed with the SEC on June 20, 2024). +4.4 +​ +Warrant Agreement, dated June 25, 2024, by and between the Registrant and Continental Stock Transfer & Trust Company, as warrant agent (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File No. 001-42142), filed with the SEC on June 28, 2024). +4.5* +​ +Description of Securities. +10.1 +​ +Letter Agreement, dated June 25, 2024, by and among the Registrant, Graf Global Sponsor LLC and each of the executive officers and directors of Registrant (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-42142), filed with the SEC on June 28, 2024). +10.2 +​ +Investment Management Trust Agreement, dated June 25, 2024, by and between the Registrant and Continental Stock Transfer & Trust Company, as trustee (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-42142), filed with the SEC on June 28, 2024). +10.3 +​ +Registration Rights Agreement, dated June 25, 2024, by and among the Registrant, Graf Global Sponsor LLC and the other holders party thereto (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File No. 001-42142), filed with the SEC on June 28, 2024). +10.4 +​ +Securities Subscription Agreement, dated as of November 20, 2021, by and between the Registrant and Graf Global Sponsor LLC (incorporated by reference to Exhibit 10.8 to the Registrant’s Registration Statement on Form S-1 (File No. 333-279889), filed with the SEC on June 18, 2024). +10.5 +​ +Private Placement Warrants Purchase Agreement, dated June 25, 2024, by and between the Registrant and Graf Global Sponsor LLC (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K (File No. 001-42142), filed with the SEC on June 28, 2024). +68 +Table of Contents +10.6 +​ +Private Placement Warrants Purchase Agreement, dated June 25, 2024, by and between the Company and Cantor, Fitzgerald & Co. (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K (File No. 001-42142), filed with the SEC on June 28, 2024). +10.7 +​ +Form of Indemnity Agreement (incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form S-1 (File No. 333-279889), filed with the SEC on June 20, 2024). +10.8 +​ +Administrative Services Agreement, dated June 25, 2024, by and between the Company and Graf Global Sponsor LLC (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K (File No. 001-42142), filed with the SEC on June 28, 2024). +19.1* +​ +Insider Trading Policy. +24.1* +​ +Power of Attorney (included on the signature pages herein). +31.1* +​ +Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32.1** +​ +Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97.1* +​ +Policy relating to the recovery of erroneously awarded compensation. +99.1* +​ +Audit Committee Charter. +99.2* +​ +Compensation Committee Charter. +99.3* +​ +Nominating and Corporate Governance Committee Charter. +101.INS +​ +Inline XBRL Instance Document +101.SCH +​ +Inline XBRL Taxonomy Extension Schema Document +101.CAL +​ +Inline XBRL Taxonomy Extension Calculation Linkbase Document +101.DEF +​ +Inline XBRL Taxonomy Extension Definition Linkbase Document +101.LAB +​ +Inline XBRL Taxonomy Extension Label Linkbase Document +101.PRE +​ +Inline XBRL Taxonomy Extension Presentation Linkbase Document +104 +​ +Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit) +* +Filed herewith. +** +Furnished herewith. +Item 16. Form 10-K Summary. +​ +None. +​ +69 +Table of Contents +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. +​ +GRAF GLOBAL CORP. +​ +​ +​ +​ +By: +/s/ James A. Graf +​ +Name: +James A. Graf +​ +Title: +Chief Executive Officer and Chief Financial Officer +​ +(Principal executive officer and principal financial +and accounting officer) +Dated: March 13, 2025 +​ +​ +POWER OF ATTORNEY +Each of the undersigned, whose signature appears below, hereby constitutes and appoints James A. Graf his or her true and lawful attorney-in-fact, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities to sign any and all amendments including post-effective amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the SEC, hereby ratifying and confirming all that said attorney-in-fact or his substitute, each acting alone, may lawfully do or cause to be done by virtue thereof. +Pursuant to the requirements of the Securities Act of 1933, as amended, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. +Name +Title +Date +/s/ James A. Graf +​ +Chief Executive Officer, Chief Financial Officer and Director +​ +March 13, 2025 +James A. Graf +​ +( Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer) +​ +​ +​ +​ +​ +​ +​ +/s/ Louis Bélanger-Martin +​ +Director +​ +March 13, 2025 +Louis Bélanger-Martin +​ +​ +​ +​ +​ +​ +​ +​ +​ +/s/ Kenneth Weinstein +​ +Director +​ +March 13, 2025 +Kenneth Weinstein +​ +​ +​ +​ +​ +​ +​ +​ +​ +/s/ Fred S. Zeidman +​ +Director +​ +March 13, 2025 +Fred S. Zeidman +​ +​ +​ +​ +​ +​ +​ +​ +70 +Table of Contents +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +​ +To the Shareholders and the Board of Directors of +Graf Global Corp.: +Opinion on the Financial Statements +We have audited the accompanying balance sheets of Graf Global Corp. (the “ Company ” ) as of December 31, 2024 and 2023 and the related statements of operations, changes in shareholders ’ deficit, and cash flow for the years then ended, and the related notes (collectively referred to as the “ financial statements ” ). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flow for the year then ended, in conformity with accounting principles generally accepted in the United States of America. +Going Concern +The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, if the Company is unable to raise additional funds to alleviate liquidity needs and complete a business combination by June 29, 2026, then the Company will cease all operations except for the purpose of liquidating. The liquidity condition raises substantial doubt about the Company ’ s ability to continue as a going concern. Management ’ s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. +Basis for Opinion +These financial statements are the responsibility of the Company ’ s management. Our responsibility is to express an opinion on the Company ’ s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ( “ PCAOB ” ) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company ’ s internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ WithumSmith+Brown, PC +We have served as the Company’s auditor since 2021. +New York, New York +March 13, 2025 +PCAOB ID Number 100 +​ +​ +​ +Table of Contents +GRAF GLOBAL CORP. +BALANCE SHEETS +​ +​ +​ +​ +​ +​ +​ +​ +December 31, 2024 +December 31, 2023 +​ +​ +​ +​ +​ +​ +Assets +​ +​ +​ +​ +Current assets +​ +​ +Cash +​ +$ +479,628 +​ +$ +― +Prepaid expenses +​ +237,465 +​ +― +Total current assets +​ +717,093 +​ +― +Long-term prepaid insurance +​ +​ +109,710 +​ +​ +— +Cash held in Trust Account +​ +235,764,764 +​ +― +Total Assets +​ +$ +236,591,567 +​ +$ +― +​ +​ +​ +​ +​ +​ +​ +Liabilities and Shareholders’ Deficit +​ +​ +Current liabilities +​ +​ +Accrued offering costs +​ +$ +85,000 +​ +$ +― +Note payable – related party +​ +― +​ +5,692 +Accrued expenses +​ +84,690 +​ +150,397 +Total current liabilities +​ +169,690 +​ +156,089 +Deferred underwriting fee +​ +9,800,000 +​ +― +Total Liabilities +​ +9,969,690 +​ +156,089 +​ +​ +​ +​ +​ +​ +​ +Commitments (Note 6) +​ +​ +Class A ordinary shares subject to possible redemption, 23,000,000 and 0 shares at redemption value of approximately $ 10.25 and $ 0 per share as of December 31, 2024 and 2023, respectively +​ +235,764,764 +​ +― +​ +​ +​ +​ +​ +​ +​ +Shareholders’ Deficit +​ +​ +​ +Preference shares, $ 0.0001 par value; 1,000,000 shares authorized; none issued or outstanding as of December 31, 2024 and 2023 +​ +— +​ +— +Class A ordinary shares, $ 0.0001 par value; 400,000,000 shares authorized; none issued or outstanding (excluding 23,000,000 and 0 shares subject to possible redemption) as of December 31, 2024 and 2023, respectively +​ +— +​ +— +Class B ordinary shares, $ 0.0001 par value; 80,000,000 shares authorized; 5,750,000 shares issued and outstanding as of December 31, 2024 and 2023, respectively +​ +575 +​ +575 +Additional paid-in capital +​ +— +​ +24,425 +Accumulated deficit +​ +( 9,143,462 ) +​ +( 181,089 ) +Total Shareholders’ Deficit +​ +( 9,142,887 ) +​ +( 156,089 ) +Total Liabilities and Shareholders’ Deficit +​ +$ +236,591,567 +​ +$ +― +​ +The accompanying notes are an integral part of these financial statements. +​ +​ +F-1 +Table of Contents +GRAF GLOBAL CORP. +STATEMENTS OF OPERATIONS +​ +​ +​ +​ +​ +​ +​ +​ +​ +For the Years Ended December 31, +​ +2024 +2023 +Operating and formation costs +​ +$ +531,279 +​ +$ +3,151 +Loss from operations +​ +( 531,279 ) +​ +( 3,151 ) +​ +​ +​ +​ +​ +​ +​ +Other income: +​ +​ +​ +​ +Interest earned on cash held in Trust Account +​ +5,764,764 +​ +― +Total other income +​ +5,764,764 +​ +― +​ +​ +​ +​ +​ +​ +​ +Net income (loss) +​ +$ +5,233,485 +​ +$ +( 3,151 ) +​ +​ +​ +​ +​ +​ +​ +Weighted average shares outstanding of Class A ordinary shares +​ +11,783,562 +​ +― +Basic and diluted net income per ordinary share, Class A ordinary shares +​ +$ +0.30 +​ +$ +0.00 +​ +​ +​ +​ +​ +​ +​ +Weighted average shares outstanding of Class B ordinary shares +​ +5,384,247 +​ +5,000,000 +Basic and diluted net income (loss) per ordinary share, Class B ordinary shares +​ +$ +0.30 +​ +$ +( 0.00 ) +​ +The accompanying notes are an integral part of these financial statements. +​ +F-2 +Table of Contents +GRAF GLOBAL CORP. +STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT +​ +FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Class A Ordinary Shares +Class B Ordinary Shares +Additional Paid-in +Accumulated +Total Shareholders’ +​ +Shares +Amount +Shares +Amount +Capital +Deficit +Deficit +Balance — December 31, 2022 +​ +— +​ +$ +— +​ +5,750,000 +​ +$ +575 +​ +$ +24,425 +​ +$ +( 177,938 ) +​ +$ +( 152,938 ) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Net loss +— +​ +— +— +​ +— +​ +— +​ +( 3,151 ) +​ +( 3,151 ) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Balance – December 31, 2023 +― +​ +​ +― +5,750,000 +​ +​ +575 +​ +​ +24,425 +​ +​ +( 181,089 ) +​ +​ +( 156,089 ) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Sale of 6,000,000 Private Placement Warrants +― +​ +― +— +​ +— +​ +6,000,000 +​ +— +​ +6,000,000 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Fair value of Public Warrants at issuance +— +​ +— +― +​ +― +​ +920,000 +​ +— +​ +920,000 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Allocated value of transaction costs +― +​ +― +— +​ +— +​ +( 74,421 ) +​ +— +​ +( 74,421 ) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Accretion for Class A ordinary shares to redemption amount +― +​ +― +— +​ +— +​ +( 6,870,004 ) +​ +( 14,195,858 ) +​ +( 21,065,862 ) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Net income +— +​ +— +— +​ +— +​ +— +​ +5,233,485 +​ +5,233,485 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Balance – December 31, 2024 +― +​ +$ +― +5,750,000 +​ +$ +575 +​ +$ +― +​ +$ +( 9,143,462 ) +​ +$ +( 9,142,887 ) +​ +The accompanying notes are an integral part of these financial statements. +​ +F-3 +Table of Contents +GRAF GLOBAL CORP. +STATEMENTS OF CASH FLOWS +​ +​ +​ +​ +​ +​ +​ +​ +​ +For the Years Ended December 31, +​ +2024 +2023 +Cash Flows from Operating Activities: +​ +​ +​ +​ +Net income (loss) +​ +$ +5,233,485 +​ +$ +( 3,151 ) +Adjustments to reconcile net income (loss) to net cash used in operating activities: +​ +​ +​ +​ +Payment of operation costs through promissory note +​ +32,151 +​ +2,898 +Interest earned on cash held in Trust Account +​ +( 5,764,764 ) +​ +— +Changes in operating assets and liabilities: +​ +​ +​ +​ +Prepaid expenses and other current assets +​ +( 237,465 ) +​ +— +Long-term prepaid insurance +​ +​ +( 109,710 ) +​ +​ +— +Accrued expenses +​ +( 65,707 ) +​ +253 +Net cash used in operating activities +​ +( 912,010 ) +​ +— +​ +​ +​ +​ +​ +​ +​ +Cash Flows from Investing Activities: +​ +​ +​ +​ +Investment of cash in Trust Account +​ +( 230,000,000 ) +​ +— +Net cash used in investing activities +​ +( 230,000,000 ) +​ +— +​ +​ +​ +​ +​ +​ +​ +Cash Flows from Financing Activities: +​ +​ +​ +​ +Proceeds from sale of Units, net of underwriting discounts paid +​ +226,000,000 +​ +— +Proceeds from sale of Private Placements Warrants +​ +6,000,000 +​ +— +Advances from related party +​ +5,696 +​ +— +Repayment of advances from related party +​ +( 5,696 ) +​ +— +Repayment of promissory note - related party +​ +( 155,688 ) +​ +— +Payment of offering costs +​ +( 452,674 ) +​ +— +Net cash provided by financing activities +​ +​ +231,391,638 +​ +​ +— +​ +​ +​ +​ +​ +Net Change in Cash +​ +479,628 +​ +— +Cash – Beginning of year +​ +​ +— +​ +​ +— +Cash – End of year +​ +$ +479,628 +​ +$ +— +​ +​ +​ +​ +​ +Non-Cash investing and financing activities: +​ +​ +​ +​ +​ +​ +Offering costs included in accrued offering costs +​ +$ +85,000 +​ +$ +— +Deferred underwriting fee payable +​ +$ +9,800,000 +​ +$ +— +Deferred offering costs paid through promissory note – related party +​ +$ +117,845 +​ +$ +— +​ +The accompanying notes are an integral part of these financial statements. +​ +​ +F-4 +Table of Contents +GRAF GLOBAL CORP. +NOTES TO FINANCIAL STATEMENTS +DECEMBER 31, 2024 +NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS +Graf Global Corp. (the “Company”) is a blank check company incorporated as a Cayman Islands exempted company on November 17, 2021. The Company was incorporated for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses that the Company has not yet identified (“Business Combination”). The Company may pursue an acquisition opportunity in any industry or geographic location. +As of December 31, 2024, the Company had not yet commenced operations. All activity for the period from November 17, 2021 (inception) through December 31, 2024 relates to the Company’s formation, the initial public offering (“Initial Public Offering”), which is described below, and subsequent to the Initial Public Offering, identifying a target company for a Business Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company generates non-operating income in the form of interest income on cash and cash equivalents from the proceeds derived from the Initial Public Offering. The Company has selected December 31 as its fiscal year end. +The registration statement for the Company’s Initial Public Offering was declared effective on June 25, 2024. On June 27, 2024, the Company consummated the Initial Public Offering of 23,000,000 units (the “Units” and, with respect to the Class A ordinary shares included in the Units being offered, the “Public Shares” or “Class A Ordinary Shares”), which includes the full exercise by the underwriters of their over-allotment option in the amount of 3,000,000 Units, at $ 10.00 per Unit, generating gross proceeds of $ 230,000,000 , which is described in Note 3. Each Unit consists of one Class A Ordinary Share and one-half of one redeemable warrant of the Company (the “Public Warrants”), with each whole warrant entitling the holder thereof to purchase one Class A Ordinary Share at $ 11.50 per share. +Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of an aggregate of 6,000,000 warrants (the “Private Placement Warrants”) at a price of $ 1.00 per Private Placement Warrant, in a private placement to the Company’s sponsor, Graf Global Sponsor LLC, a Delaware limited liability company (the “Sponsor”), and Cantor Fitzgerald & Co., the representative of the underwriters of the Initial Public Offering, generating gross proceeds of $ 6,000,000 , which is described in Note 4. +Transaction costs amounted to $ 14,455,519 , consisting of $ 4,000,000 of cash underwriting fee, $ 9,800,000 of deferred underwriting fee (see additional discussion in Note 6), and $ 655,519 of other offering costs. +The Company’s management has broad discretion with respect to the specific application of the net proceeds of its Initial Public Offering and the sale of Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination (less deferred underwriting commissions). +The Company’s initial Business Combination must be with one or more operating businesses or assets with a fair market value equal to at least 80% of the net assets held in the Trust Account (as defined below) (excluding any deferred underwriters’ fees and taxes payable on the income earned on the Trust Account) at the time the Company signs a definitive agreement to enter into an initial Business Combination. +However, the Company will only complete a Business Combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”). There is no assurance that the Company will be able to successfully effect a Business Combination. +Following the closing of the Initial Public Offering, on June 27, 2024, an amount of $ 230,000,000 ($ 10.00 per Unit) from the net proceeds of the sale of the Units and the sale of the Private Placement Warrants was placed in the trust account (the “Trust Account”), with Continental Stock Transfer & Trust Company acting as trustee and held as cash or invested only in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act, which invest only in direct U.S. government treasury obligations, until the earlier of (i) the completion of a Business Combination and (ii) the distribution of the Trust Account as described below. To mitigate the risk that might be deemed to be an investment company for purposes of the Investment Company Act, which risk increases the longer that the Company holds investments in the Trust Account, the Company may, at any time in its own discretion, instruct the trustee to liquidate the investments held in the Trust Account and instead to hold the funds in the Trust Account in an interest bearing bank demand deposit account. +F-5 +Table of Contents +The Company will provide its holders of the Public Shares (the “Public Shareholders”) with the opportunity to redeem, regardless of whether they abstain, vote for, or against, a Business Combination, all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a shareholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek shareholder approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The Public Shareholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account (initially anticipated to be $10.00 per share, plus any pro rata interest earned on the funds held in the Trust Account (which interest shall be net of taxes payable). The per-share amount to be distributed to Public Shareholders who redeem their Public Shares will not be reduced by the deferred underwriting commissions the Company will pay to the underwriters of the Initial Public Offering (as discussed in Note 6). +All of the Public Shares contain a redemption feature which allows for the redemption of such Public Shares in connection with the liquidation, if there is a shareholder vote or tender offer in connection with the initial Business Combination and in connection with certain amendments to the Company’s Amended and Restated Memorandum and Articles of Association (the “Amended and Restated Memorandum and Articles of Association”). In accordance with U.S. Securities and Exchange Commission (“SEC”) and its guidance on redeemable equity instruments, which has been codified in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 480, “Distinguishing Liabilities from Equity” (“ASC 480”), paragraph 10-S99, redemption provisions not solely within the control of a company require ordinary shares subject to redemption to be classified outside of permanent equity. Accordingly, all of the Public Shares were presented as temporary equity, outside of the shareholders’ deficit section of the Company’s balance sheets. Given that the Public Shares were issued with other freestanding instruments (i.e., Public Warrants), the initial carrying value of Class A Ordinary Shares classified as temporary equity were the allocated proceeds determined in accordance with FASB ASC Topic 470-20, “Debt with Conversion and Other Options.” The resulting discount to the initial carrying value of temporary equity was accreted upon closing the Initial Public Offering such that the carrying value equals the redemption value on such date. The accretion or remeasurement is recognized as a reduction to retained earnings, or in absence of retained earnings, additional paid-in capital. Accretion associated with the redeemable Class A Ordinary Shares is excluded from earnings per share as the redemption value approximates fair value. The Public Shares are redeemable and were classified as such on the balance sheets until such date that a redemption event takes place. +Additionally, each Public Shareholder may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction. If the Company seeks shareholder approval in connection with a Business Combination, the holders of the Founder Shares (as defined in Note 5) prior to Initial Public Offering (the “Initial Shareholders”) have agreed to vote their Founder Shares and any Public Shares purchased during or after the Initial Public Offering in favor of a Business Combination. In addition, the Initial Shareholders have agreed to waive their redemption rights with respect to their Founder Shares and Public Shares in connection with the completion of a Business Combination. +Notwithstanding the foregoing, the Amended and Restated Memorandum and Articles of Association provide that a Public Shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), will be restricted from redeeming its shares with respect to more than an aggregate of 15 % or more of the Public Shares without the prior consent of the Company. +The Company’s Sponsor, executive officers and directors will agree not to propose an amendment to the Company’s Amended and Restated Memorandum and Articles of Association that would affect the substance or timing of the Company’s obligation to provide for the redemption of its Public Shares in connection with a Business Combination or to redeem 100 % of its Public Shares if the Company does not complete a Business Combination, unless the Company provides the Public Shareholders with the opportunity to redeem their Class A Ordinary Shares in conjunction with any such amendment. +If the Company is unable to complete a Business Combination within 24 months from the closing of the Initial Public Offering or during any extended time that the Company has to consummate a Business Combination beyond 24 months as a result of a shareholder vote to amend the Amended and Restated Memorandum and Articles of Association (the “Combination Period”), the Company will but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account (which interest shall be net of taxes payable and up to $ 100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish Public Shareholders’ rights as shareholders (including the right to receive further liquidating distributions, if any) subject to the Company’s obligations under Cayman Islands law to provide for claims of creditors and in all cases subject to the other requirements of applicable law. In such event, the warrants will expire and be worthless. +In connection with the redemption of 100% of the Company’s outstanding Public Shares for a portion of the funds held in the Trust Account, each holder will receive a full pro rata portion of the amount then in the Trust Account, plus any pro rata interest earned on +F-6 +Table of Contents +the fund held in the Trust Account (which interest shall be net of taxes payable and up to $ 100,000 of interest to pay dissolution expenses). +The Initial Shareholders have agreed to waive their liquidation rights with respect to the Founder Shares if the Company fails to complete a Business Combination within the Combination Period. However, if the Initial Shareholders should acquire Public Shares in or after the Initial Public Offering, they will be entitled to liquidating distributions from the Trust Account with respect to such Public Shares if the Company fails to complete a Business Combination within the Combination Period. The underwriters have agreed to waive their rights to their deferred underwriting commission (see Note 6) held in the Trust Account in the event the Company does not complete a Business Combination within the Combination Period and, in such event, such amounts will be included with the funds held in the Trust Account that will be available to fund the redemption of the Company’s Public Shares. In the event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be only $10.00 per share initially held in the Trust Account. In order to protect the amounts held in the Trust Account, the Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has entered into a written letter of intent, confidentiality or other similar agreement or Business Combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.00 per Public Share and (ii) the actual amount per Public Share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.00 per share due to reductions in the value of the trust assets, less taxes payable; provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to the monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under the Company’s indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). +Liquidity and Going Concern +As of December 31, 2024, the Company had $ 479,628 in its operating bank account and working capital of $ 547,403 . +The Company initially has until June 27, 2026 to consummate the initial Business Combination (assume no extensions). If the Company does not complete a Business Combination, the Company will trigger an automatic winding up, dissolution and liquidation pursuant to the terms of the Amended and Restated Memorandum and Articles of Association. Notwithstanding management’s belief that the Company would have sufficient funds to execute its business strategy, there is a possibility that Business Combination might not happen within the 24-month period from the date of the auditor’s report. +In connection with the Company’s assessment of going concern considerations in accordance with ASC 205-40, “Going Concern,” as of December 31, 2024, the Company may need to raise additional capital through loans or additional investments from its Sponsor, stockholders, officers, directors, or third parties. The Company’s officers, directors and Sponsor may, but are not obligated to, loan the Company funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet the Company’s working capital needs. Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. +Management plans to address this uncertainty through a Business Combination. If a Business Combination is not consummated by the end of the Combination Period, currently June 27, 2026, there will be a mandatory liquidation and subsequent dissolution of the Company. Management has determined that the liquidity condition raises substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after the Combination Period. The Company intends to complete the initial Business Combination before the end of the Combination Period. However, there can be no assurance that the Company will be able to consummate any Business Combination by the end of the Combination Period. +NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Basis of Presentation +The accompanying financial statements are presented in U.S. dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the accounting and disclosure rules and regulations of the SEC. +F-7 +Table of Contents +Emerging Growth Company +The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. +Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statement with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. +Use of Estimates +The preparation of the financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. +Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates. +Cash and Cash Equivalents +The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company had $ 479,628 and $ 0 in cash and no cash equivalents as of December 31, 2024 and 2023, respectively. +Cash Held in Trust Account +At December 31, 2024, the assets held in the Trust Account were in an interest-bearing demand deposit account at a bank, amounting to $ 235,764,764 . At December 31, 2023, there was no Trust Account. +Derivative Financial Instruments +The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480, “Distinguishing Liabilities from Equity”, and ASC 815-15, “Derivatives and Hedging”. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. In accordance with ASC 825-10, “Financial Instruments”, offering costs attributable to the issuance of the derivative warrant liabilities are allocated based on their relative fair value of total proceeds and are recognized in the statements of operations as incurred. +The Company accounted for the 17,500,000 warrants issued in connection with the Initial Public Offering (including the 11,500,000 Public Warrants included in the Units and the 6,000,000 Private Placement Warrants) in accordance with the guidance contained in ASC 815-40. Such guidance provides that the warrants described above were not precluded from equity classification. Equity-classified +F-8 +Table of Contents +contracts are initially measured at fair value (or allocated value). Subsequent changes in fair value are not recognized as long as the contracts continue to be classified in equity in accordance with ASC 480 and ASC 815. +Offering Costs +The Company complies with the requirements of the ASC 340-10-S99 and SEC Staff Accounting Bulletin Topic 5A, “Expenses of Offering.” Offering costs consist principally of professional and registration fees that are related to the Initial Public Offering. FASB ASC 470-20, “Debt with Conversion and Other Options,” addresses the allocation of proceeds from the issuance of convertible debt into its equity and debt components. The Company applies this guidance to allocate Initial Public Offering proceeds from the Units between Class A Ordinary Shares and warrants, using the residual method by allocating Initial Public Offering proceeds first to assigned value of the warrants and then to the Class A Ordinary Shares. Offering costs allocated to the Class A Ordinary Shares were charged to temporary equity and offering costs allocated to the Public Warrants and Private Placement Warrants were charged to shareholders’ deficit as Public Warrants and Private Placement Warrants after management’s evaluation were accounted for under equity treatment. +Class A Ordinary Shares Subject to Possible Redemption +The Public Shares contain a redemption feature which allows for the redemption of such Public Shares in connection with the Company’s liquidation, or if there is a shareholder vote or tender offer in connection with the Company’s initial Business Combination. In accordance with ASC 480-10-S99, the Company classifies Public Shares subject to redemption outside of permanent equity as the redemption provisions are not solely within the control of the Company. The Company recognizes changes in redemption value immediately as they occur and will adjust the carrying value of redeemable shares to equal the redemption value at the end of each reporting period. Immediately upon the closing of the Initial Public Offering, the Company recognized the accretion from initial book value to redemption amount value. The change in the carrying value of redeemable shares will result in charges against additional paid-in capital (to the extent available) and accumulated deficit. Accordingly, at December 31, 2024 and 2023, Class A Ordinary Shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders’ deficit section of the Company’s balance sheet. At December 31, 2024 and 2023, the Class A Ordinary Shares subject to redemption reflected in the balance sheets are reconciled in the following table: +​ +​ +​ +​ +​ +Gross proceeds +$ +230,000,000 +Less: +​ +​ +Proceeds allocated to Public Warrants +​ +( 920,000 ) +Class A ordinary shares issuance costs +​ +( 14,381,098 ) +Plus: +​ +​ +Remeasurement of carrying value to redemption value +​ +21,065,862 +Class A ordinary shares subject to possible redemption, December 31, 2024 +​ +$ +235,764,764 +​ +Income Taxes +The Company complies with the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” which prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company’s management determined that the Cayman Islands is the Company’s only major tax jurisdiction. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of December 31, 2024 and 2023. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. +There is currently no taxation imposed on income by the government of the Cayman Islands. In accordance with Cayman Islands federal income tax regulations, income taxes are not levied on the Company. Consequently, income taxes are not reflected in the Company’s financial statements. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months. +Net Income (Loss) per Ordinary Share +The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” The Company has two classes of shares, (i) Class A Ordinary Shares and non-redeemable Class A Ordinary Shares and (ii) Class B ordinary shares, +F-9 +Table of Contents +par value of $ 0.0001 per share (the “Class B Ordinary Shares,” and together with the Class A Ordinary Shares, the “Ordinary Shares”). Income and losses are shared pro rata between the two classes of shares. Net income (loss) per Ordinary Share is calculated by dividing the net income (loss) by the weighted average shares of Ordinary Shares outstanding for the respective period. +The calculation of diluted net income (loss) does not consider the effect of the Public Warrants underlying the Units sold in the Initial Public Offering (including the consummation of the over-allotment) and the Private Placement Warrants to purchase an aggregate of 6,000,000 shares of Class A Ordinary Shares in the calculation of diluted income per ordinary share, because their exercise is contingent upon future events. As a result, diluted net income (loss) per Ordinary Share is the same as basic net income (loss) per Ordinary Share for the years ended December 31, 2024 and 2023. Accretion associated with the redeemable Class A Ordinary Shares is excluded from earnings per share as the redemption value approximates fair value. +The following table reflects the calculation of basic and diluted net income (loss) per Ordinary Share (in dollars, except per share amounts): +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +For the Years Ended December 31, +​ +​ +2024 +​ +2023 +​ +​ +​ +​ +​ +​ +​ +​ +Class A - Non- +​ +Class A +Class B +Class A +Redeemable +Basic and diluted net income (loss) per ordinary share +​ +​ +​ +​ +​ +​ +​ +​ +Numerator: +​ +​ +​ +​ +​ +​ +Allocation of net income (loss), as adjusted +​ +$ +3,592,135 +​ +$ +1,641,350 +​ +$ +― +​ +$ +( 3,151 ) +Denominator: +​ +​ +​ +​ +​ +​ +​ +Basic and diluted weighted average ordinary shares outstanding +​ +11,783,562 +​ +5,384,247 +​ +― +​ +5,000,000 +Basic and diluted net income (loss) per ordinary share +​ +$ +0.30 +​ +$ +0.30 +​ +$ +0.00 +​ +$ +( 0.00 ) +​ +Concentration of Credit Risk +Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal Deposit Insurance Corporation coverage limit of $250,000. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company’s financial condition, results of operations, and cash flows. +Fair Value of Financial Instruments +The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC 820, “Fair Value Measurements,” approximates the carrying amounts represented in the balance sheets, primarily due to their short-term nature. +Warrant Instruments +The Company accounts for the Public Warrants and Private Placement Warrants issued in connection with the Initial Public Offering and the private placement in accordance with the guidance contained in FASB ASC Topic 815, “Derivatives and Hedging”. Accordingly, the Company evaluated and classified the warrant instruments under equity treatment at their assigned values. +​ +Recent Accounting Standards +In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” The amendments in this ASU require disclosures, on an annual and interim basis, of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), as well as the aggregate amount of other segment items included in the reported measure of segment profit or loss. The ASU requires that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. Public entities will be required to provide all annual disclosures currently required by Topic 280 in interim periods, and entities with a single reportable segment are required to provide all the disclosures required by the amendments in this ASU and existing segment disclosures in Topic 280. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. +Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements. +F-10 +Table of Contents +NOTE 3. INITIAL PUBLIC OFFERING +Pursuant to the Initial Public Offering, the Company sold 23,000,000 Units, which includes the full exercise by the underwriters of their over-allotment option in the amount of 3,000,000 Units, at a price of $ 10.00 per Unit. Each Unit consists of one Class A ordinary share and one -half of one redeemable Public Warrant. Each Public Warrant entitles the holder to purchase one Class A ordinary share at a price of $ 11.50 per share, subject to adjustment (see Note 7). +NOTE 4. PRIVATE PLACEMENT +Simultaneously with the closing of the Initial Public Offering, the Sponsor and Cantor Fitzgerald & Co. purchased an aggregate of 6,000,000 Private Placement Warrants, at a price of $ 1.00 per Private Placement Warrant, or $ 6,000,000 in the aggregate, in a private placement. Of those 6,000,000 Private Placement Warrants, the Sponsor purchased 4,000,000 Private Placement Warrants and Cantor Fitzgerald & Co. purchased 2,000,000 Private Placement Warrants. +Each whole Private Placement Warrant is exercisable for one whole Class A Ordinary Share at a price of $ 11.50 per share. A portion of the proceeds from the sale of the Private Placement Warrants was added to the proceeds from the Initial Public Offering to be held in the Trust Account. If the Company does not complete a Business Combination within the Combination Period, the Private Placement Warrants will expire worthless. +The Sponsor and the Company’s officers and directors have agreed, subject to limited exceptions, not to transfer, assign or sell any of their Private Placement Warrants until 30 days after the completion of the initial Business Combination. +NOTE 5. RELATED PARTY TRANSACTIONS +Founder Shares +On November 24, 2021, the Sponsor paid $ 25,000 to cover for certain expenses on behalf of the Company in exchange for issuance of 7,187,500 Class B Ordinary Shares, par value $ 0.0001 per share (the “Founder Shares”). On February 8, 2024, the Sponsor surrendered 1,437,500 Founder Shares for no consideration, resulting in the Sponsor holding 5,750,000 Founder Shares. All share and per-share amounts have been retroactively restated to reflect the share capitalization. The holders of the Founder Shares agreed to forfeit and cancel up to an aggregate of 750,000 Founder Shares, on a pro rata basis, to the extent that the option to purchase additional Units is not exercised in full by the underwriters. The forfeiture will be adjusted to the extent that the option to purchase additional Units is not exercised in full by the underwriters so that the Founder Shares will represent approximately 20 % of the Company’s issued and outstanding shares after the Initial Public Offering. On June 27, 2024, the underwriters exercised their over-allotment option in full as part of the closing of the Initial Public Offering. As such, the 750,000 Founder Shares are no longer subject to forfeiture. +On June 7, 2024, the Sponsor transferred 30,000 Founder Shares to each of the Company’s three independent directors, Louis Bélanger-Martin, Kenneth Weinstein, and Fred Zeidman, for an aggregate of 90,000 Founder Shares, at a price of $ 0.003 per share. Each independent director paid $ 90 or an aggregate purchase price of $ 270 in consideration of the assignment of shares. The sale of the Founders Shares to each of the Company’s three independent directors is in the scope of FASB ASC Topic 718, “Compensation-Stock Compensation” (“ASC 718”). Under ASC 718, stock-based compensation associated with equity-classified awards is measured at fair value upon the grant date. The fair value of the 90,000 shares granted to the Company’s three independent directors was $ 107,100 or $ 1.19 per share. The Founder Shares were granted subject to a performance condition (i.e., the occurrence of a Business Combination). Compensation expense related to the Founder Shares is recognized only when the performance condition is probable of occurrence under the applicable accounting literature in this circumstance. As of December 31, 2024, the Company determined that a Business Combination is not considered probable, and, therefore, no stock-based compensation expense has been recognized. Stock-based compensation would be recognized at the date a Business Combination is considered probable (i.e., upon consummation of a Business Combination) in an amount equal to the number of Founder Shares times the grant date fair value per share (unless subsequently modified) less the amount initially received for the purchase of the Founder Shares. +With certain limited exceptions, the Founder Shares are not transferable, assignable or salable (except to the Company’s officers and directors and other persons or entities affiliated with the Sponsor, each of whom will be subject to the same transfer restrictions) until the earlier to occur of (i) one year after the completion of the initial Business Combination or (ii) the date on which the Company completes a liquidation, merger, share exchange or other similar transaction after the initial Business Combination that results in all of the shareholders having the right to exchange their Class A Ordinary Shares for cash, securities or other property; except to certain permitted transferees and under certain circumstances as described herein. Any permitted transferees will be subject to the same restrictions and other agreements of the Initial Shareholders with respect to any Founder Shares. Notwithstanding the foregoing, if +F-11 +Table of Contents +(1) the closing price of the Class A Ordinary Shares equals or exceeds $ 12.00 per share (as adjusted for share subdivisions, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within any 30 -trading day period commencing at least 150 days after the initial Business Combination or (2) if the Company consummates a transaction after the initial Business Combination which results in the shareholders having the right to exchange their shares for cash, securities or other property, the Founder Shares will be released from the lock-up. +Administrative Services Agreement +The Company entered into an agreement, commencing on June 25, 2024, through the earlier of consummation of the initial Business Combination and the liquidation, to pay an affiliate of the Sponsor $ 20,000 per month for office space, utilities and secretarial and administrative support services provided to members of the management team. For the years ended December 31, 2024 and 2023, the Company incurred and paid $ 124,000 and $ 0 , respectively, in administrative support services fees. +In addition, the Sponsor, officers and directors, or their respective affiliates will be reimbursed for any out-of-pocket expenses incurred in connection with activities on the Company’s behalf such as identifying potential target businesses and performing due diligence on suitable Business Combinations. The Company’s audit committee will review on a quarterly basis all payments that were made by the Company to the Sponsor, executive officers or directors, or their affiliates. Any such payments prior to an initial Business Combination will be made using funds held outside the Trust Account. For the year ended December 31, 2024, the Company did not have any reimbursements. +Due from Sponsor +The Company paid the Sponsor $ 9,544 in excess of the outstanding promissory note balance at the closing of the Initial Public Offering. The excess payment was repaid by the Company as of December 31, 2024. There was no outstanding amount due from Sponsor as of December 31, 2023. +On June 28, 2024, the Sponsor paid $ 15,000 to a vendor to pay for certain accrued transaction expenses on behalf of the Company. Such payment cleared the amount due from Sponsor to the Company and created a net payable from the Company to the Sponsor in the amount of $ 5,696 . +On July 2, 2024, the Company paid the Sponsor an amount of $ 5,696 to clear all outstanding related party payables between the Company and the Sponsor. +Related Party Loans +On November 20, 2021, as amended on February 9, 2024, the Sponsor agreed to loan the Company up to $ 300,000 pursuant to a promissory note (the “Note”). The Note is non-interest bearing, unsecured and due on the earlier of December 31, 2024 or the closing of the Initial Public Offering. The outstanding balance of $ 155,688 was repaid at the closing of the Initial Public Offering on June 27, 2024. +In addition, in order to finance transaction costs in connection with a Business Combination, the Sponsor, members of the Company’s founding team or any of their affiliates may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. The Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $ 1.5 million of such Working Capital Loans may be converted into warrants of the post-Business Combination entity at a price of $ 1.00 per warrant. The warrants would be identical to the Private Placement Warrants. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. As of December 31, 2024 and 2023, the Company had no borrowings under the Working Capital Loans. +F-12 +Table of Contents +NOTE 6. COMMITMENTS +Risks and Uncertainties +The United States and global markets are experiencing volatility and disruption following the geopolitical instability resulting from the ongoing Russia-Ukraine conflict and the recent escalation of the Israel-Hamas conflict. In response to the ongoing Russia-Ukraine conflict, the North Atlantic Treaty Organization (“NATO”) deployed additional military forces to eastern Europe, and the United States, the United Kingdom, the European Union and other countries have announced various sanctions and restrictive actions against Russia, Belarus and related individuals and entities, including the removal of certain financial institutions from the Society for Worldwide Interbank Financial Telecommunication payment system. Certain countries, including the United States, have also provided and may continue to provide military aid or other assistance to Ukraine and to Israel, increasing geopolitical tensions among a number of nations. The invasion of Ukraine by Russia and the escalation of the Israel-Hamas conflict and the resulting measures that have been taken, and could be taken in the future, by NATO, the United States, the United Kingdom, the European Union, Israel and its neighboring states and other countries have created global security concerns that could have a lasting impact on regional and global economies. Although the length and impact of the ongoing conflicts are highly unpredictable, they could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions and increased cyberattacks against U.S. companies. Additionally, any resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets. +Any of the above mentioned factors, or any other negative impact on the global economy, capital markets or other geopolitical conditions resulting from the Russian invasion of Ukraine, the escalation of the Israel-Hamas conflict and subsequent sanctions or related actions, could adversely affect the Company’s search for an initial Business Combination and any target business with which the Company may ultimately consummate an initial Business Combination. +Registration and Shareholder Rights +Commencing on June 25, 2024, the holders of the Founder Shares, Private Placement Warrants, and warrants that may be issued upon conversion of Working Capital Loans (and any Class A Ordinary Shares issuable upon the exercise of the Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans and upon conversion of the Founder Shares) are entitled to registration rights pursuant to a registration and shareholder rights agreement requiring the Company to register a sale of any of the Company’s securities held by them prior to the consummation of the initial Business Combination. The holders of these securities are entitled to make up to three demands, excluding short form demands, that the Company registers such securities. In addition, the holders have certain piggyback registration rights with respect to registration statements filed subsequent to the completion of the initial Business Combination. The Company will bear the expenses incurred in connection with the filing of any such registration statements. +Underwriting Agreement +The Company granted the underwriters a 45 -day option from the date of the Initial Public Offering to purchase up to 3,000,000 additional Units to cover over-allotments, if any. On June 27, 2024, simultaneously with the closing of the Initial Public Offering, the underwriters elected to fully exercise the over-allotment option to purchase the additional 3,000,000 Units at a price of $ 10.00 per Unit. +The underwriters were entitled to an underwriting discount of $ 0.20 per Unit on Units other than those sold pursuant to the underwriters’ option to purchase additional Units, or $ 4,000,000 in the aggregate, paid upon the closing of the Initial Public Offering. In addition, the underwriters are entitled to a deferred fee of $ 0.40 per Unit on Units other than those sold pursuant to the underwriters’ option to purchase additional Units, and $ 0.60 per Unit on Units sold pursuant to the underwriters’ over-allotment option or $ 9,800,000 in the aggregate. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement. +NOTE 7. STOCKHOLDERS’ DEFICIT +Preference Shares — The Company is authorized to issue 1,000,000 preference shares with a par value of $ 0.0001 per share. As of December 31, 2024 and 2023, there were no preference shares issued or outstanding. +Class A Ordinary Shares — The Company is authorized to issue 400,000,000 Class A Ordinary Shares with a par value of $ 0.0001 per share. Holders of the Company’s Class A Ordinary Shares are entitled to one vote for each share. As of December 31, 2024 and 2023, there were no Class A Ordinary Shares issued or outstanding, excluding 23,000,000 and 0 Class A Ordinary Shares subject to possible redemption, respectively. +F-13 +Table of Contents +Class B Ordinary Shares — The Company is authorized to issue 80,000,000 Class B Ordinary Shares with a par value of $ 0.0001 per share. As of December 31, 2024 and 2023, there were 5,750,000 Class B Ordinary Shares issued and outstanding. Ordinary shareholders of record are entitled to one vote for each share held on all matters to be voted on by shareholders. Holders of Class A Ordinary Shares and holders of Class B Ordinary Shares will vote together as a single class on all matters submitted to a vote of the shareholders except as required by law. +The Class B Ordinary Shares will automatically convert into Class A Ordinary Shares concurrently with or immediately following the consummation of the initial Business Combination on a one -for-one basis, subject to adjustment for share subdivisions, share capitalizations, reorganizations, recapitalizations and the like, and subject to further adjustment as provided herein. In the case that additional Class A Ordinary Shares or equity-linked securities are issued or deemed issued in connection with the initial Business Combination, the number of Class A Ordinary Shares issuable upon conversion of all Founder Shares will equal, in the aggregate, 20 % of the total number of Class A Ordinary Shares outstanding after such conversion (after giving effect to any redemptions of Class A Ordinary Shares by Public Shareholders and not including the Class A Ordinary Shares underlying the Private Placement Warrants), including the total number of Class A Ordinary Shares issued, or deemed issued or issuable upon conversion or exercise of any equity-linked securities or rights issued or deemed issued, by the Company in connection with or in relation to the consummation of the initial Business Combination, excluding any Class A Ordinary Shares or equity-linked securities or rights exercisable for or convertible into Class A Ordinary Shares issued, or to be issued, to any seller in the initial Business Combination and any Private Placement Warrants issued to the Sponsor, officers or directors upon conversion of Working Capital Loans, provided that such conversion of Founder Shares will never occur on a less than one-for-one basis. +Warrants — As of December 31, 2024, there were 17,500,000 warrants outstanding, including 11,500,000 Public Warrants and 6,000,000 Private Placement Warrants. As of December 31, 2023, there were no outstanding warrants. Public Warrants may only be exercised for a whole number of shares. No fractional Public Warrants will be issued upon separation of the Units and only whole Public Warrants will trade. The Public Warrants will become exercisable 30 days after the completion of a Business Combination; provided that the Company has an effective registration statement under the Securities Act covering the Class A Ordinary Shares issuable upon exercise of the Public Warrants and a current prospectus relating to them is available (or the Company permit holders to exercise their warrants on a cashless basis under certain circumstances). The Company has agreed that as soon as practicable, but in no event later than 20 business days after the closing of the initial Business Combination, the Company will use commercially reasonable efforts to file with the SEC and have an effective registration statement covering the Class A Ordinary Shares issuable upon exercise of the warrants and to maintain a current prospectus relating to those Class A Ordinary Shares until the warrants expire or are redeemed, as specified in the warrant agreement. If a registration statement covering the Class A Ordinary Shares issuable upon exercise of the warrants is not effective by the 60th day after the closing of the initial Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding the above, if the Class A Ordinary Shares are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis” and, in the event the Company so elects, the Company will not be required to file or maintain in effect a registration statement, and in the event the Company does not so elect, it will use commercially reasonable efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. +The warrants have an exercise price of $ 11.50 per share, subject to adjustments, and will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation. In addition, if (x) the Company issues additional Class A Ordinary Shares or equity-linked securities for capital raising purposes in connection with the closing of the initial Business Combination at an issue price or effective issue price of less than $ 9.20 per Class A ordinary share (with such issue price or effective issue price to be determined in good faith by the board of directors and, in the case of any such issuance to the Initial Shareholders or their affiliates, without taking into account any Founder Shares held by the Initial Shareholders or such affiliates prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60 % of the total equity proceeds, and interest thereon, available for the funding of the initial Business Combination on the date of the consummation of the initial Business Combination (net of redemptions), and (z) the volume weighted average trading price of the Class A Ordinary Shares during the 20 trading day period starting on the trading day after the day on which the Company consummates the initial Business Combination (such price, the “Market Value”) is below $ 9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115 % of the higher of the Market Value and the Newly Issued Price, and the $ 18.00 per share redemption trigger price described under “Redemption of warrants for cash” will be adjusted (to the nearest cent) to be equal to 180 % of the higher of the Market Value and the Newly Issued Price. +F-14 +Table of Contents +The Private Placement Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Private Placement Warrants may not, subject to certain limited exceptions, be transferred, assigned or sold by the holders until 30 days after the completion of the Company’s initial Business Combination and will be entitled to registration rights. +Redemption of warrants for cash : Once the warrants become exercisable, the Company may redeem the outstanding warrants for cash: +● In whole and not in part; +● At a price of $ 0.01 per Public Warrant; +● Upon a minimum of 30 days ’ prior written notice of redemption; and +● If, and only if, the closing price of Class A Ordinary Shares equals or exceeds $ 18.00 per share (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like and for certain issuances of Class A Ordinary Shares and equity-linked securities for capital raising purposes in connection with the closing of the initial Business Combination) for any 20 trading days within a 30 - trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders. +​ +The Company will not redeem the warrants for cash unless a registration statement under the Securities Act covering the Class A Ordinary Shares issuable upon exercise of the warrants is then effective and a current prospectus relating to those Class A Ordinary Shares is available throughout the 30 -day redemption period. +If the Company calls the warrants for redemption for cash, as described above, the management will have the option to require all holders that wish to exercise the warrants to do so on a “cashless basis.” +If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless. +NOTE 8. FAIR VALUE MEASUREMENTS +The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities: +Level 1: +Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. +Level 2: +Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. +Level 3: +Unobservable inputs based on assessment of the assumptions that market participants would use in pricing the asset or liability. +At issuance, the fair value of Public Warrants was determined using Monte Carlo Simulation Model. The Public Warrants have been classified within shareholders’ deficit and will not require remeasurement after issuance. The following table presents the quantitative information regarding market assumptions used in the valuation of the Public Warrants: +F-15 +Table of Contents +​ +​ +​ +​ +​ +​ +​ +June 27, 2024 +Calculated Share Price +​ +$ +9.97 +​ +Weighted-Average Expected Life of Warrants in Years +​ +2.71 +​ +Risk-free rate +​ +4.55 +% +Pre-Business Combination Annual Volatility +​ +3.0 +% +Post-Business Combination Annual Volatility +​ +32.0 +% +Market Pricing Adjustment +​ +14.0 +% +​ +At December 31, 2024, assets held in the Trust Account were comprised of $ 235,764,764 in interest-bearing demand deposit at a bank. Through December 31, 2024, the Company did not withdraw any amount of interest earned on the Trust Account. The Trust Account did not exist as of December 31, 2023. +​ +NOTE 9. SEGMENT INFORMATION +ASC Topic 280, “Segment Reporting,” establishes standards for companies to report in their financial statement information about operating segments, products, services, geographic areas, and major customers. Operating segments are defined as components of an enterprise for which separate financial information is available that is regularly evaluated by the Company’s CODM, or group, in deciding how to allocate resources and assess performance. +The Company’s CODM has been identified as the Chief Financial Officer, who reviews the operating results for the Company as a whole to make decisions about allocating resources and assessing financial performance. Accordingly, management has determined that the Company only has one operating segment. +The CODM assesses performance for the single segment and decides how to allocate resources based on net income that also is reported on the statements of operations as net income (loss). The measure of segment assets is reported on the balance sheet as total assets. When evaluating the Company’s performance and making key decisions regarding resource allocation the CODM reviews several key metrics, which include the following: +​ +​ +​ +​ +​ +​ +​ +​ +​ +December 31, 2024 +December 31, 2023 +Trust Account +​ +$ +235,764,764 +​ +$ +― +Cash +​ +$ +479,628 +​ +$ +― +​ +​ +​ +​ +​ +​ +​ +​ +​ +December 31, 2024 +December 31, 2023 +Operating and formation costs +​ +$ +531,279 +​ +$ +3,151 +Interest earned on cash held in Trust Account +​ +$ +5,764,764 +​ +$ +― +​ +The CODM reviews interest earned on the Trust Account to measure and monitor shareholder value and determine the most effective strategy of investment with the Trust Account funds while maintaining compliance with the Trust Agreement. +General and administrative expenses are reviewed and monitored by the CODM to manage and forecast cash to ensure enough capital is available to complete a business combination or similar transaction within the business combination period. The CODM also reviews general and administrative costs to manage, maintain and enforce all contractual agreements to ensure costs are aligned with all agreements and budget. Operating and formation costs, as reported on the statements of operations, are the significant segment expenses provided to the CODM on a regular basis. +All other segment items included in net income are reported on the statement of operations and described within their respective disclosures. +The accounting policies used to measure the profit and loss of the segment are the same as those described in the summary of significant accounting policies. +​ +NOTE 10. SUBSEQUENT EVENTS +The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements. +. +F-16 \ No newline at end of file diff --git a/raw/filings/0001897463/2024/0001410578-25-000338/filing_metadata.csv b/raw/filings/0001897463/2024/0001410578-25-000338/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..36f3d2ec49cda6e0261db1ee266ff211737332ee --- /dev/null +++ b/raw/filings/0001897463/2024/0001410578-25-000338/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001897463,GRAF-WT,Graf Global Corp.,2024,10-K,2025-03-13,2024-12-31,2025-03-13T21:09:15.000Z,0001410578-25-000338,tmb-20241231x10k.htm,10-K,5505203,1,1,https://www.sec.gov/Archives/edgar/data/1897463/000141057825000338/tmb-20241231x10k.htm,https://www.sec.gov/Archives/edgar/data/1897463/000141057825000338/ diff --git a/raw/filings/0001897463/2024/0001410578-25-000338/item1.txt b/raw/filings/0001897463/2024/0001410578-25-000338/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..2bb48cc0107c23bee509e4c93786e2f17bb01c3f --- /dev/null +++ b/raw/filings/0001897463/2024/0001410578-25-000338/item1.txt @@ -0,0 +1,178 @@ +Item 1. Business +References in this Form 10-K to “we,” “us,” “our” or the “Company” refer to Graf Global Corp. References to our “management” or our “management team” refer to our officers and directors. +Introduction +We are a blank check company incorporated on November 17, 2021 as a Cayman Islands exempted company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”). We have 24 months from the closing of our initial public offering, or until such earlier liquidation date as our board of directors may approve (the “Completion Window”) to complete our initial Business Combination. +We have reviewed, and continue to review, a number of opportunities to enter into a Business Combination, but we are not able to determine at this time whether we will complete a Business Combination with any of the target businesses that we have reviewed or with any other target business. We may pursue an acquisition opportunity in any industry or geographic location. We also have neither engaged in any operations nor generated any revenue to date. Based on our business activities, the Company is a “shell company” as defined under the Exchange Act of 1934 (the “Exchange Act”) because we have no operations and nominal assets consisting almost entirely of cash. +The registration statement for our initial public offering was declared effective on June 25, 2024. On June 27, 2024, we consummated the initial public offering of 23,000,000 units (the “Units” and, with respect to the Class A ordinary shares included in the Units being offered, the “Public Shares” or “Class A Ordinary Shares”), which includes the full exercise by the underwriters of their over-allotment option in the amount of 3,000,000 Units, at $10.00 per Unit, generating gross proceeds of $230,000,000. Each Unit consists of one Class A Ordinary Share and one-half of one redeemable warrant of the Company (the “Public Warrants”), with each whole warrant entitling the holder thereof to purchase one Class A Ordinary Share at $11.50 per share. +Simultaneously with the closing of our initial public offering, we consummated the sale of an aggregate of 6,000,000 warrants (the “Private Placement Warrants”) at a price of $1.00 per Private Placement Warrant, in a private placement to the Company’s sponsor, Graf Global Sponsor LLC, a Delaware limited liability company (the “Sponsor”), and Cantor Fitzgerald & Co. (“Cantor”), the representative of the underwriters of the initial public offering, generating gross proceeds of $6,000,000. +Prior to the consummation of the IPO, on November 24, 2021, our Sponsor paid an aggregate of $25,000 for certain expenses on our behalf in exchange for issuance of 7,187,500 Class B ordinary shares (the “Founder Shares”). On February 8, 2024, Sponsor surrendered 1,437,500 Founder Shares for no consideration, resulting in the Sponsor holding 5,750,000 Founder Shares. The number of Founder Shares issued was determined based on the expectation that such Founder Shares would represent 20% of the outstanding shares after the IPO. +Following the closing of the initial public offering, on June 27, 2024, an amount of $230,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units and the sale of the Private Placement Warrants was placed in the trust account (the “Trust Account”), with Continental Stock Transfer & Trust Company acting as trustee and held as cash or invested only in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act, which invest only in direct U.S. government treasury obligations., until the earlier of (i) the completion of a Business Combination and (ii) the distribution of the Trust Account as described below. To mitigate the risk that might be deemed to be an investment company for purposes of the Investment Company Act, which risk increases the longer that the Company holds investments in the Trust Account, the Company may, at any time in its own discretion, instruct the trustee to liquidate the investments held in the Trust Account and instead to hold the funds in the Trust Account in an interest bearing bank demand deposit account. +Effecting our Initial Business Combination +General +We are not presently engaged in, and we will not engage in, any operations for an indefinite period of time. We intend to effectuate our initial Business Combination using cash from the proceeds of our IPO, the sale of the Private Placement Warrants, the proceeds of the sale of our shares in connection with our initial Business Combination (including pursuant to forward purchase +1 +Table of Contents +agreements or backstop agreements we may enter into following the consummation of the IPO or otherwise), shares issued to the owners of the target, debt issued to bank or other lenders or the owners of the target, or a combination of the foregoing. We may seek to complete our initial Business Combination with a company or business that may be financially unstable or in its early stages of development or growth, which would subject us to the numerous risks inherent in such companies and businesses. +Business Strategy +Our strategy is to leverage our team’s extensive track record in SPAC-related mergers & acquisitions and capital markets to identify and complete an initial Business Combination. We may pursue an acquisition opportunity in any industry or geographic location. +We intend to distinguish ourselves from other SPAC sponsor teams through four key dimensions of experience: +● Our ability to leverage an extensive global network of relationships to create a pipeline of initial Business Combination opportunities, as well as being a priority contact for bankers and other advisors seeking SPAC partners for their clients. Prior to our initial public offering, we had not, nor had anyone on our behalf, engaged in any substantive discussions, directly or indirectly, with any Business Combination target with respect to an initial Business Combination with us. However, members of our management team had been actively in discussions with potential Business Combination partners in their capacity as officers and directors of Graf Industrial Corp. (“GRAF I”) (which consummated its initial business combination on September 29, 2020) and Graf Acquisition Corp. IV (“GRAF IV” and, together with GRAF I, the “GRAF SPACs”) (which consummated its initial business combination on October 2, 2023), and we may pursue Business Combination partners that had previously been in discussions with the management teams of the GRAF SPACs; +● Unique capabilities and rigor to the process of identifying, executing and consummating an initial Business Combination that will be well-received in the public markets, with the ability to provide ongoing support thereafter; +● Our understanding of global financial markets and events, financing and overall corporate strategy options; and +● Our background as business founders, investors and managers. +Business Combination Criteria +Based on our management’s experience, including with prior special purpose acquisition companies, we have developed the following non-exclusive investment criteria that we intend to use to screen for and evaluate prospective target businesses. +● Leading Industry Position with Supportive Long-Term Dynamics and Competitive Market Advantage . We intend to target businesses that hold, or have the potential to hold, a leading position in an industry sector with attractive macro-characteristics. We intend to target businesses that have, or have the potential to have, sustainable competitive advantages that would be challenging for a competitor to replicate. Factors contributing to sustainable competitive advantages may include: (iii) proprietary or superior technology or trade secrets; (ii) broad distribution networks; (iii) well- established brand names; (iv) territorial exclusivity or a well-defined market; (v) diverse and stable customer and supplier base; (vi) low-cost production capability; (vii) customer habit/ share of mind; (viii) a lack of available substitutes and/or high search or switching costs; (ix) network effects; and/or (x) limited exposure to technological obsolescence and cyclicality. Our management team expects to target businesses that have clearly demonstrated an ability to defend and grow their market positions over time as a result of one or more of these sustainable competitive advantages, or have demonstrable potential to do so. We intend to seek opportunities that will benefit from secular growth and are able to differentiate their market position to create value for our shareholders over time. +● Stable Free Cash Flow, Prudent Debt and Financial Visibility . We will seek to acquire a business that has historically generated or has the potential to generate not only current revenues, but strong and sustainable free cash flow. Additionally, our prospective Business Combination criteria include prudent balance sheet management and, as such, we would seek to limit leverage ratios of a combined company immediately following an initial Business Combination. To provide reliable guidance, we would also seek to acquire a business that has reasonable visibility on forward financial performance and straightforward operating metrics, and a business that is not extremely sensitive to macro- economic conditions or industry +2 +Table of Contents +cycles. Specifically, we would prioritize businesses that may be evaluated and priced by the market using financial metrics or other key milestones not more than one year forward. +● Benefit Uniquely from a Business Combination with a Special Purpose Acquisition Company . We will seek to acquire a business that has a clear use of proceeds and a clear catalyst or inflection point resulting from our capital, team, public listing, roll-up synergies, deleveraging and/or re-rating milestones expected to propel the business through our structural dilution in the near term with enhanced financial results, margins, market position and shareholder value. +● Would Benefit Uniquely from our Capabilities . We will seek to acquire a business where the collective capabilities of our management team, board of directors and Sponsor, and any operating partners we involve, can be leveraged to tangibly improve the operations and market position of the target. +● Proprietary and/or Optimally Positioned Transactions . We intend to leverage our extensive business network to source our initial Business Combination on a proprietary basis if possible. Notwithstanding the foregoing, we would utilize our collective experience and insight to strategically consider participating in formal processes focused primarily on narrowing a pool of SPACs to a single winning bidder to instances where we believe we are optimally positioned to win such processes. +● Committed and Capable Management Team . We will seek to acquire a business with a management team whose interests are aligned with those of our shareholders and who can clearly and confidently articulate the business plan and market opportunities to public market investors. Where necessary, we may also look to complement and enhance the capabilities of the target business’s management team and their board of directors by recruiting additional talent through our network of contacts or otherwise. This may include recruiting experienced industry professionals, or operating partners, to assist in our evaluation of the opportunity and marketing of the Business Combination prior to its completion, who may assume an ongoing role with the business or board thereafter. While not a requirement, we would view favorably opportunities where the target’s chief financial officer has experience as a public company chief financial officer or other substantive public market experience, and ideally where other members of senior management have public market experience as well. +● Potential to Grow, Including Through Further Acquisition Opportunities . We will seek to acquire a business that has the potential to grow both organically and inorganically through acquisitions, with management having identified a pipeline of potentially actionable accretive acquisition targets. We expect to work with the ongoing management team to develop the business strategy around geographic expansion, new products, high-return capital expenditure projects and acquisitions, as well as creating and maintaining the optimal capital structure for growth. +● Preparedness for the Process and Public Markets . We will seek to acquire a business that has or can put in place prior to the closing of a Business Combination, the material governance, financial systems and controls required in the public markets. Specifically, we will seek to avoid situations where extensive accounting or restructuring work is required with an uncertain timetable or outcome before a transaction can be completed. +These criteria are not intended to be exhaustive or exclusive. Any evaluation relating to the merits of a particular initial Business Combination may be based, to the extent relevant, on these general guidelines as well as other considerations, factors and criteria that our management may deem relevant. In the event that we decide to enter into our initial Business Combination with a target business that does not meet the above criteria and guidelines, we intend to disclose that the target business does not meet the above criteria in our shareholder communications related to our initial Business Combination, which would be in the form of proxy solicitation materials or tender offer documents that we would file with the SEC. +Selection of a Target Business and Structuring of our Initial Business Combination +We will provide our public shareholders with the opportunity to redeem all or a portion of their Class A Ordinary Shares upon the completion of our initial Business Combination either (i) in connection with a general meeting called to approve the Business Combination or (ii) without a shareholder vote by means of a tender offer. Each public shareholder may elect to redeem their Public +3 +Table of Contents +Shares irrespective of whether they vote for or against an initial Business Combination, or whether they do not vote or abstain from voting on the initial Business Combination. If we seek shareholder approval, we will complete our initial Business Combination only if we receive an ordinary resolution under Cayman Islands law, passed by the affirmative vote of at least a majority of the votes cast by the shareholders of the issued shares represented in person or represented by proxy and entitled to vote on such matter at a general meeting of the company and are voted at a general meeting of the company. The decision as to whether we will seek shareholder approval of a proposed Business Combination or conduct a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would require us to seek shareholder approval under applicable law or stock exchange listing requirement. +We have until the end of the Completion Window to consummate our initial Business Combination. If we anticipate that we may be unable to consummate our initial Business Combination within such 24-month period, we may seek shareholder approval to amend our amended and restated memorandum and articles of association to extend the date by which we must consummate our initial Business Combination. If we seek shareholder approval for an extension, holders of Class A Ordinary Shares will be offered an opportunity to redeem their shares at a per share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned thereon (less taxes payable), divided by the number of then issued and outstanding Class A Ordinary Shares, subject to applicable law. +If we are unable to complete our initial Business Combination within the Completion Window, we will redeem 100% of the Public Shares at a per share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned thereon (which interest shall be net of taxes payable and up to $100,000 of interest income to pay liquidation expenses), divided by the number of then issued and outstanding Class A Ordinary Shares, subject to applicable law and certain conditions as further described herein. We expect the pro rata redemption price to be approximately $10.00 per public share, without taking into account any interest or other income earned on such funds. However, we cannot assure you that we will in fact be able to distribute such amounts as a result of claims of creditors, which may take priority over the claims of our public shareholders. +NYSE American rules require that we must consummate an initial Business Combination with one or more operating businesses or assets with a fair market value equal to at least 80% of the net assets held in the Trust Account (excluding the amount of any deferred underwriting commissions and taxes payable on the income earned on the Trust Account) at the time of our signing a definitive agreement in connection with our initial Business Combination. Our board of directors will make the determination as to the fair market value of our initial Business Combination. If our board of directors is not able to independently determine the fair market value of our initial Business Combination, we will obtain an opinion from an independent investment banking firm or another independent valuation or appraisal firm that regularly provides fairness opinions solely with respect to the satisfaction of such criteria. While we consider it unlikely that our board will not be able to make such independent determination of fair market value, it may be unable to do so if the board is less familiar or experienced with the target company’s business, there is a significant amount of uncertainty as to the value of the company’s assets or prospects, including if such company is at an early stage of development, operations or growth, or if the anticipated transaction involves a complex financial analysis or other specialized skills and the board determines that outside expertise would be helpful or necessary in conducting such analysis. Since any opinion, if obtained, would merely state that the fair market value meets the 80% of net assets test, unless such opinion includes material information regarding the valuation of a target business or the consideration to be provided, it is not anticipated that copies of such opinion would be distributed to our shareholders. However, if required under applicable law, any proxy statement that we deliver to shareholders and file with the SEC in connection with a proposed transaction will include such opinion. +We anticipate structuring our initial Business Combination so that the post-transaction company in which our public shareholders own shares will own or acquire 100% of the equity interests or assets of the target business or businesses. We may, however, structure our initial Business Combination such that the post- transaction company owns or acquires less than 100% of such interests or assets of the target business in order to meet certain objectives of the target management team or shareholders or for other reasons, but we will only complete such Business Combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”). Even if the post-transaction company owns or acquires 50% or more of the voting securities of the target, our shareholders prior to the Business Combination may collectively own a minority interest in the post-transaction company, depending on valuations ascribed to the target and us in the Business Combination transaction. For example, we could pursue a transaction in which we issue a substantial number of new shares in exchange for all of the outstanding capital stock of a target. In this case, we would acquire a 100% controlling interest in the target. However, as a result of the issuance of a substantial number of new shares, our shareholders immediately prior to our initial Business Combination could own less than a majority of our outstanding shares subsequent to our initial Business Combination. If less than 100% of the equity interests or assets of a target business or businesses are owned or acquired by the post-transaction company, the portion of such business or businesses that is owned or acquired is what will be taken into account for purposes of the NYSE American’s +4 +Table of Contents +80% net assets test. If the Business Combination involves more than one target business, the 80% net assets test will be based on the aggregate value of all of the target businesses. +Our Business Combination Process +We believe our management team’s significant operating and transactional experience and relationships provide us with access to a substantial number of potential initial Business Combination targets. Over the course of their careers, the members of our management team have developed a broad network of contacts and relationships with private companies, investment bankers, private equity and debt investors, high net worth families and their advisors, commercial bankers, attorneys, management consultants, accountants and other transaction intermediaries, as well as corporate sector executives and board members around the world. This network has grown through the activities of our management team sourcing, acquiring and financing businesses, the reputation of our management team for integrity and fair dealing with sellers, financing sources and target management teams and the experience of our management team in executing transactions, especially special purpose acquisition company transactions, under varying economic and financial market conditions. +In addition, we anticipate that target Business Combination candidates will be brought to our attention from various unaffiliated sources, including investment bankers, private equity funds and large business enterprises seeking to divest non-core assets or divisions. +In evaluating a prospective target business, we expect to conduct a due diligence review which may encompass, among other things, meetings with incumbent management and employees, document reviews, interviews of customers and suppliers, inspections of facilities, as well as reviewing financial and other information made available to us and other reviews as we deem appropriate. We may also retain consultants with expertise relating to a prospective target business. +We are not prohibited from pursuing an initial Business Combination with a company that is affiliated with our Sponsor, officers or directors. In the event we seek to complete our initial Business Combination with a company that is affiliated with our Sponsor, officers or directors, we, or a committee of independent directors, will obtain an opinion from an independent investment banking firm or another independent valuation or appraisal firm that regularly provides fairness opinions that our initial Business Combination is fair to our company from a financial point of view. +Members of our management team and our independent directors will directly or indirectly own Founder Shares and/or Private Placement Warrants and, accordingly, may have a conflict of interest in determining whether a particular target business is an appropriate business with which to effectuate our initial Business Combination. The low price that our Sponsor, executive officers and directors (directly or indirectly) paid for the Founder Shares creates an incentive whereby our officers and directors could potentially make a substantial profit even if we select an acquisition target that subsequently declines in value and is unprofitable for public shareholders. If we are unable to complete our initial Business Combination within the Completion Window, the Founder Shares and Private Placement Warrants may expire worthless, except to the extent they receive liquidating distributions from assets outside the Trust Account, which could create an incentive for our Sponsor, executive officers and directors to complete a transaction even if we select an acquisition target that subsequently declines in value and is unprofitable for public shareholders. Further, each of the members of our management team may have a conflict of interest with respect to evaluating a particular Business Combination if the retention or resignation of any such person was included by a target business as a condition to any agreement with respect to our initial Business Combination. +Our officers and directors presently and in the future may have additional, fiduciary or contractual obligations to other entities pursuant to which such officer or director is or will be required to present a Business Combination opportunity. Accordingly, if any of our officers or directors becomes aware of a Business Combination opportunity which is suitable for an entity to which he or she has then-current fiduciary or contractual obligations, he or she will honor his or her fiduciary or contractual obligations to present such opportunity to such entity. In addition, certain of our officers and directors are members of our Sponsor and own membership interests of our Sponsor. The remaining membership interests are held by third party investors that are not affiliated with members of our management. We do not believe, however, that the fiduciary duties or contractual obligations of our officers or directors will materially affect our ability to complete our Business Combination. +In addition, our Sponsor and our officers and directors or any of their affiliates may Sponsor or form other special purpose acquisition companies similar to ours or may pursue other business or investment ventures during the period in which we are seeking an initial Business Combination. Any such companies, businesses or investments may present additional conflicts of interest in pursuing an initial Business Combination. However, we do not believe that such duties or obligations will materially affect our ability to complete our initial Business Combination. +5 +Table of Contents +Further, certain members of our Sponsor and our officers and directors may have similar responsibilities in, or serve as directors of other SPACs, and Mr. Graf is also serving as an independent director of Catcha Investment Corp. Any such companies may present additional conflicts of interest in pursuing an acquisition target. +We are not prohibited from pursuing an initial Business Combination with a company that is affiliated with our Sponsor, executive officers or directors, or completing the Business Combination through a joint venture or other form of shared ownership with our Sponsor, executive officers or directors. In the event we seek to complete an initial Business Combination with a target that is affiliated (as defined in our amended and restated memorandum and articles of association) with our Sponsor, executive officers or directors, we, or a committee of independent directors, would obtain an opinion from an independent investment banking firm which is a member of FINRA or another independent entity that commonly renders valuation opinions stating that the consideration to be paid by us in such an initial Business Combination is fair to our company from a financial point of view. We are not required to obtain such an opinion in any other context. +Our officers and directors presently and in the future may have additional, fiduciary or contractual obligations to another entity pursuant to which such officer or director is or will be required to present a Business Combination opportunity to such entity. Accordingly, if any of our officers or directors becomes aware of a Business Combination opportunity which is suitable for an entity to which he or she has then current fiduciary or contractual obligations, he or she will honor his or her fiduciary or contractual obligations to present such Business Combination opportunity to such other entity, subject to their fiduciary duties under Cayman Islands law. +Our amended and restated memorandum and articles of association provide that, to the fullest extent permitted by applicable law: (i) no individual serving as a director or an officer shall have any duty, except and to the extent expressly assumed by contract, to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as us, and (ii) we renounce any interest or expectancy in, or in being offered an opportunity to participate in, any potential transaction or matter which may be a corporate opportunity for any director or officer, on the one hand, and us, on the other. The purpose for the surrender of corporate opportunities is to allow officers, directors or other representatives with multiple business affiliations to continue to serve as an officer of our company or on our board of directors. Our officers and directors may from time to time be presented with opportunities that could benefit both another business affiliation and us. In the absence of the “corporate opportunity” waiver in our charter, certain candidates would not be able to serve as an officer or director. We believe we substantially benefit from having representatives who bring significant, relevant and valuable experience to our management, and, as a result, the inclusion of the “corporate opportunity” waiver in our amended and restated memorandum and articles of association provide us with greater flexibility to attract and retain the officers and directors that we feel are the best candidates. We do not believe, however, that the fiduciary duties or contractual obligations of our officers or directors will materially affect our ability to complete our initial business. +Financial Position +With funds available for a Business Combination initially in the amount of $230,000,000, we offer a target business a variety of options such as creating a liquidity event for its owners, providing capital for the potential growth and expansion of its operations or strengthening its balance sheet by reducing its debt ratio. Because we are able to complete our initial Business Combination using our cash, debt or equity securities, or a combination of the foregoing, we have the flexibility to use the most efficient combination that will allow us to tailor the consideration to be paid to the target business to fit its needs and desires. However, we have not taken any steps to secure third party financing and there can be no assurance it will be available to us. +Lack of Business Diversification +For an indefinite period of time after the completion of our initial Business Combination, the prospects for our success may depend entirely on the future performance of a single business. Unlike other entities that have the resources to complete Business Combinations with multiple entities in one or several industries, it is probable that we will not have the resources to diversify our operations and mitigate the risks of being in a single line of business in a single industry. By completing our initial Business Combination with only a single entity, our lack of diversification may: +● subject us to negative economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact on the particular industry in which we operate after our initial Business Combination, and +● cause us to depend on the marketing and sale of a single product or limited number of products or services. +6 +Table of Contents +Limited Ability to Evaluate the Target’s Management Team +Although we intend to closely scrutinize the management of a prospective target business when evaluating the desirability of effecting our initial Business Combination with that business, our assessment of the target business’ management may not prove to be correct. In addition, the future management may not have the necessary skills, qualifications or abilities to manage a public company. Furthermore, the future role of members of our management team, if any, in the target business cannot presently be stated with any certainty. The determination as to whether any of the members of our management team will remain with the combined company will be made at the time of our initial Business Combination. While it is possible that one or more of our directors will remain associated in some capacity with us following our initial Business Combination, it is unlikely that any of them will devote their full efforts to our affairs subsequent to our initial Business Combination. Moreover, we cannot assure you that members of our management team will have significant experience or knowledge relating to the operations of the particular target business. +We cannot assure you that any of our key personnel will remain in senior management or advisory positions with the combined company. The determination as to whether any of our key personnel will remain with the combined company will be made at the time of our initial Business Combination. +Following a Business Combination, we may seek to recruit additional managers to supplement the incumbent management of the target business. We cannot assure you that we will have the ability to recruit additional managers, or that additional managers will have the requisite skills, knowledge or experience necessary to enhance the incumbent management. +Shareholders May Not Have the Ability to Approve our Initial Business Combination +We may conduct redemptions without a shareholder vote pursuant to the tender offer rules of the SEC subject to the provisions of our amended and restated memorandum and articles of association. However, we will seek shareholder approval if it is required by law or applicable stock exchange rule, or we may decide to seek shareholder approval for business or other legal reasons. +Under the NYSE American’s listing rules, shareholder approval would be required for our initial Business Combination if, for example: +● we issue ordinary shares that will be equal to or in excess of 20% of the number of our ordinary shares then issued and outstanding (other than in a public offering); +● any of our directors, officers or substantial shareholders (as defined by NYSE American rules) has a 5% or greater interest earned on the Trust Account (or such persons collectively have a 10% or greater interest), directly or indirectly, in the target business or assets to be acquired or otherwise and the present or potential issuance of ordinary shares could result in an increase in outstanding; +● ordinary shares or voting power of 5% or more; or +● the issuance or potential issuance of ordinary shares will result in our undergoing a change of control. +The decision as to whether we will seek shareholder approval of a proposed Business Combination in those instances in which shareholder approval is not required by applicable law or stock exchange listing requirements will be made by us, solely in our discretion, and will be based on business and legal reasons, which include a variety of factors, including, but not limited to: (i) the timing of the transaction, including in the event we determine shareholder approval would require additional time and there is either not enough time to seek shareholder approval or doing so would place the company at a disadvantage in the transaction or result in other additional burdens on the company; (ii) the expected cost of holding a shareholder vote; (ii) the risk that the shareholders would fail to approve the proposed Business Combination; (iv) other time and budget constraints of the company; and (v) additional legal complexities of a proposed Business Combination that would be time-consuming and burdensome to present to shareholders. +Permitted Purchases of our Securities +If we seek shareholder approval of our initial Business Combination and we do not conduct redemptions in connection with our initial Business Combination pursuant to the tender offer rules, our Sponsor, initial shareholders, directors, executive officers, advisors or their affiliates may purchase shares or Public Warrants in privately negotiated transactions or in the open market either prior to or following the completion of our initial Business Combination, although they are under no obligation or duty to do so. Any such price per share may be different than the amount per share a public shareholder would receive if it elected to redeem its shares in connection with our initial Business Combination. Such a purchase may include a contractual acknowledgment that such shareholder, +7 +Table of Contents +although still the record holder of our shares is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. +In the event that our Sponsor, initial shareholders, directors, officers, advisors or their affiliates purchase shares in privately negotiated transactions from public shareholders who have already elected to exercise their redemption rights, such selling shareholders would be required to revoke their prior elections to redeem their shares. It is intended that, if Rule 10b-18 would apply to purchases by Sponsor, initial shareholders, directors, officers, advisors and their affiliates, then such purchases will comply with Rule 10b-18 under the Exchange Act, to the extent it applies, which provides a safe harbor for purchases made under certain conditions, including with respect to timing, pricing and volume of purchases. +Additionally, at any time at or prior to our initial Business Combination, subject to applicable securities laws (including with respect to material nonpublic information), our Sponsor, initial shareholders, directors, officers, advisors and their affiliates may enter into transactions with investors and others to provide them with incentives to acquire Public Shares, vote their Public Shares in favor of our initial Business Combination or not redeem their Public Shares. However, they have no current commitments, plans or intentions to engage in such transactions and have not formulated any terms or conditions for any such transactions. None of the funds in the Trust Account will be used to purchase Public Shares, rights or warrants in such transactions. +The purpose of any such transaction could be to (i) increase the likelihood of obtaining shareholder approval of the Business Combination, (ii) reduce the number of Public Warrants outstanding and/or increase the likelihood of approval on any matters submitted to public warrant holders for approval in connection with our initial Business Combination or (iii) to satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain amount of cash at the closing of our initial Business Combination, where it appears that such requirement would otherwise not be met. +In addition, if such purchases are made, the public “float” of our Class A Ordinary Shares or Public Warrants may be reduced and the number of beneficial holders of our securities may be reduced, which may make it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities exchange. +Our Sponsor, initial shareholders, officers, directors and/or their affiliates anticipate that they may identify the shareholders with whom our initial shareholders, officers, directors or their affiliates may pursue privately negotiated purchases by either the shareholders contacting us directly or by our receipt of redemption requests submitted by shareholders (in the case of Class A Ordinary Shares) following our mailing of proxy materials in connection with our initial Business Combination. To the extent that our Sponsor, officers, directors, advisors or their affiliates enter into a private purchase, they would identify and contact only potential selling shareholders who have expressed their election to redeem their shares for a pro rata share of the Trust Account or vote against our initial Business Combination, whether or not such shareholder has already submitted a proxy with respect to our initial Business Combination but only if such shares have not already been voted at the shareholder meeting related to our initial Business Combination. Our Sponsor, executive officers, directors, advisors or any of their affiliates will select which shareholders to purchase shares from based on a negotiated price and number of shares and any other factors that they may deem relevant and will only purchase shares if such purchases comply with Regulation M under the Exchange Act and the other federal securities laws. Our Sponsor, officers, directors and/or their affiliates will be restricted from making purchases of shares if the purchases would violate Section 9(a)(2) or Rule 10b-5 of the Exchange Act. We expect any such purchases will be reported pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchases are subject to such reporting requirements. +Our Sponsor, initial shareholders, directors, officers and their affiliates will be restricted from making purchases of shares if the purchases would violate Section 9(a)(2) or Rule 10b-5 of the Exchange Act. Any such purchases will be reported pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchasers are subject to such reporting requirements. Additionally, in the event our Sponsor, initial shareholders, directors, officers and their affiliates were to purchase Public Shares or warrants from public shareholders, such purchases would be structured in compliance with the requirements of Rule 14e-5 under the Exchange Act including, in pertinent part, through adherence to the following: +● our registration statement/proxy statement filed for our Business Combination transaction would disclose the possibility that our Sponsor, initial shareholders, directors, officers and their affiliates may purchase Public Shares or warrants from public shareholders outside the redemption process, along with the purpose of such purchases; +● if our Sponsor, initial shareholders, directors, officers and their affiliates were to purchase Public Shares or warrants from public shareholders, they would do so at a price no higher than the price offered through our redemption process; +8 +Table of Contents +● our registration statement/proxy statement filed for our Business Combination transaction would include a representation that any of our securities purchased by our Sponsor, initial shareholders, directors, officers and their affiliates would not be voted in favor of approving the Business Combination transaction; +● our Sponsor, initial shareholders, directors, officers and their affiliates would not possess any redemption rights with respect to our securities or, if they do acquire and possess redemption rights, they would waive such rights; and +● we would disclose in a Form 8-K, before our security holder meeting to approve the Business Combination transaction, the following material items: +● the amount of our securities purchased outside of the redemption offer by our Sponsor, initial shareholders, directors, officers and their affiliates, along with the purchase price; +● the purpose of the purchases by our Sponsor, initial shareholders, directors, officers and their affiliates; +● the impact, if any, of the purchases by our Sponsor, initial shareholders, directors, officers and their affiliates on the likelihood that the Business Combination transaction will be approved; +● the identities of our security holders who sold to our Sponsor, initial shareholders, directors, officers and their affiliates (if not purchased on the open market) or the nature of our security holders (e.g., 5% security holders) who sold to our Sponsor, initial shareholders, directors, officers and their affiliates; and +● the number of our securities for which we have received redemption requests pursuant to our redemption offer. +Please see “ Risk Factors — If we seek shareholder approval of our initial Business Combination, our Sponsor, initial shareholders, directors, officers and their affiliates may elect to purchase shares or Public Warrants from public shareholders, which may influence a vote on a proposed Business Combination and reduce the public “float” of our securities. ” +Redemption Rights for Public Stockholders upon Completion of our Initial Business Combination +We will provide our public shareholders with the opportunity to redeem all or a portion of their Class A Ordinary Shares upon the completion of our initial Business Combination at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account calculated as of two business days prior to the consummation of the initial Business Combination, including interest earned on the funds held in the Trust Account (which interest shall be net of taxes payable), divided by the number of then outstanding Public Shares, subject to the limitations and on the conditions described herein. The amount in the Trust Account is initially anticipated to be $10.00 per public share. The per share amount we will distribute to investors who properly redeem their shares will not be reduced by the deferred underwriting commissions we will pay to the underwriters. Our initial shareholders, Sponsor, officers and directors have entered into a letter agreement with us, pursuant to which they have agreed to waive their redemption rights with respect to any Founder Shares and Public Shares they may hold in connection with the completion of our initial Business Combination. +Limitations on Redemptions +Our proposed initial Business Combination may impose a minimum cash requirement for: (i) cash consideration to be paid to the target or its owners, (ii) cash for working capital or other general corporate purposes or (iii) the retention of cash to satisfy other conditions. In the event the aggregate cash consideration we would be required to pay for all Class A Ordinary Shares that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the proposed initial Business Combination exceed the aggregate amount of cash available to us, we will not complete the initial Business Combination or redeem any shares in connection with such initial Business Combination, and all Class A Ordinary Shares submitted for redemption will be returned to the holders thereof. We may, however, raise funds through the issuance of equity-linked securities or through loans, advances or other indebtedness in connection with our initial Business Combination, including pursuant to forward purchase agreements or backstop arrangements we may enter into, in order to, among other reasons, satisfy such net tangible assets or minimum cash requirements. +Manner of Conducting Redemptions +We will provide our public shareholders with the opportunity to redeem all or a portion of their Public Shares upon the completion of our initial Business Combination either (i) in connection with a shareholder meeting called to approve the initial Business Combination or (ii) without a shareholder vote by means of a tender offer. The decision as to whether we will seek shareholder approval of a proposed initial Business Combination or conduct a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would require us to seek shareholder approval under applicable law or stock exchange listing requirements. Asset acquisitions and share purchases would not typically require shareholder approval while direct mergers with our company where we do not survive and any transactions where we issue more than +9 +Table of Contents +20% of our outstanding ordinary shares or seek to amend our amended and restated memorandum and articles of association would require shareholder approval. So long as we obtain and maintain a listing for our securities on the NYSE American, we will be required to comply with the NYSE American’s shareholder approval rules. +The requirement that we provide our public shareholders with the opportunity to redeem their Public Shares by one of the two methods listed above are contained in provisions of our amended and restated memorandum and articles of association and apply whether or not we maintain our registration under the Exchange Act or our listing on the NYSE American. Such provisions may be amended if approved by a special resolution passed by the affirmative vote of at least two-thirds of our ordinary shares which are represented in person or by proxy and are voted at a general meeting of the company, so long as we offer redemption in connection with such amendment. +If we provide our public shareholders with the opportunity to redeem their Public Shares in connection with a shareholder meeting, we will: +● conduct the redemptions in conjunction with a proxy solicitation pursuant to Regulation 14A of the Exchange Act, which regulates the solicitation of proxies, and not pursuant to the tender offer rules, and +● file proxy materials with the SEC. +In the event that we seek shareholder approval of our initial Business Combination, we will distribute proxy materials and, in connection therewith, provide our public shareholders with the redemption rights described above upon completion of the initial Business Combination. +If we seek shareholder approval, we will complete our initial Business Combination only if we receive the approval of an ordinary resolution under Cayman Islands law, passed by the affirmative vote of at least a majority of the votes cast by the shareholders of the issued shares represented in person or represented by proxy and are voted at a general meeting of the company. In accordance with our amended and restated memorandum and articles of association, a quorum for such meeting will be present if the holders of one third of issued and outstanding shares entitled to vote at the meeting are represented in person or by proxy. Our initial shareholders will count towards this quorum and, pursuant to the letter agreement, our Sponsor, officers and directors have agreed to vote any Founder Shares they hold and any Public Shares purchased during our initial public offering or thereafter (including in open market and privately-negotiated transactions) in favor of our initial Business Combination. For purposes of seeking approval of an ordinary resolution, non- votes will have no effect on the approval of our initial Business Combination once a quorum is obtained. As a result, in addition to our initial shareholders’ Founder Shares, we would need 8,625,001 or 37.5% of the 23,000,000 Public Shares sold in our initial public offering to be voted in favor of an initial Business Combination in order to have our initial Business Combination approved (assuming all outstanding shares are voted). Assuming that only the holders of one-third of our issued and outstanding ordinary shares, representing a quorum under our amended and restated memorandum and articles of association, vote their ordinary shares at a general meeting of the company, we will not need any Public Shares in addition to our Founder Shares to be voted in favor of an initial Business Combination in order to approve an initial Business Combination. However, if our initial Business Combination is structured as a statutory merger or consolidation with another company under Cayman Islands law, the approval of our initial Business Combination will require a special resolution passed by the affirmative vote of at least two-thirds of our ordinary shares which are represented in person or by proxy and are voted at a general meeting of the company These quorum and voting thresholds, and the voting agreements of our initial shareholders, may make it more likely that we will consummate our initial Business Combination. However, if our initial Business Combination is structured as a statutory merger or consolidation with another company under Cayman Islands law, the approval of our initial Business Combination will require a special resolution, passed by the affirmative vote of at least two-thirds of the votes cast by the shareholders of the issued shares represented in person or represented by proxy and entitled to vote on such matter at a general meeting of the company and are voted at a general meeting of the company. Each public shareholder may elect to redeem its Public Shares irrespective of whether they vote for or against the proposed transaction, or whether they do not vote or abstain from voting on the proposed transaction, or whether they were a shareholder on the record date for the shareholder meeting held to approve the proposed transaction. +If a shareholder vote is not required and we do not decide to hold a shareholder vote for business or other legal reasons, we will: +● conduct the redemptions pursuant to Rule 13e-4 and Regulation 14E of the Exchange Act, which regulate issuer tender offers, and +10 +Table of Contents +● file tender offer documents with the SEC prior to completing our initial Business Combination, which contain substantially the same financial and other information about the initial Business Combination and the redemption rights as is required under Regulation 14A of the Exchange Act, which regulates the solicitation of proxies. +In the event we conduct redemptions pursuant to the tender offer rules, our offer to redeem will remain open for at least 20 business days, in accordance with Rule 14e-1(a) under the Exchange Act, and we will not be permitted to complete our initial Business Combination until the expiration of the tender offer period. +Upon the public announcement of our initial Business Combination, if we elect to conduct redemptions pursuant to the tender offer rules, we or our Sponsor will terminate any plan established in accordance with Rule 10b5-1 to purchase our Class A Ordinary Shares in the open market, in order to comply with Rule 14e-5 under the Exchange Act. +We intend to require our public shareholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” to, at the holder’s option, either deliver their share certificates to our transfer agent or deliver their shares to our transfer agent electronically using The Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) system, prior to the date set forth in the proxy materials or tender offer documents, as applicable. In the case of proxy materials, this date may be up to two business days prior to the scheduled vote on the proposal to approve the initial Business Combination. In addition, if we conduct redemptions in connection with a shareholder vote, we intend to require a public shareholder seeking redemption of its Public Shares to also submit a written request for redemption to our transfer agent two business days prior to the scheduled vote in which the name of the beneficial owner of such shares is included. The proxy materials or tender offer documents, as applicable, that we will furnish to holders of our Public Shares in connection with our initial Business Combination will indicate whether we are requiring public shareholders to satisfy such delivery requirements. We believe that this will allow our transfer agent to efficiently process any redemptions without the need for further communication or action from the redeeming public shareholders, which could delay redemptions and result in additional administrative cost. If the proposed initial Business Combination is not approved and we continue to search for a target company, we will promptly return any certificates or shares delivered by public shareholders who elected to redeem their shares. +Our proposed initial Business Combination may impose a minimum cash requirement for: (i) cash consideration to be paid to the target or its owners, (ii) cash for working capital or other general corporate purposes or (iii) the retention of cash to satisfy other conditions. In the event the aggregate cash consideration we would be required to pay for all Class A Ordinary Shares that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the proposed initial Business Combination exceed the aggregate amount of cash available to us, we will not complete the initial Business Combination or redeem any shares in connection with such initial Business Combination, and all Class A Ordinary Shares submitted for redemption will be returned to the holders thereof. We may, however, raise funds through the issuance of equity-linked securities or through loans, advances or other indebtedness in connection with our initial Business Combination, including pursuant to forward purchase agreements or backstop arrangements, in order to, among other reasons, satisfy such net tangible assets or minimum cash requirements. +Limitation on Redemption Upon Completion of our Initial Business Combination if We Seek Shareholder Approval +If we seek shareholder approval of our initial Business Combination and we do not conduct redemptions in connection with our initial Business Combination pursuant to the tender offer rules, our amended and restated memorandum and articles of association provide that a public shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from seeking redemption rights with respect to Excess Shares, without our prior consent. We believe this restriction will discourage shareholders from accumulating large blocks of shares, and subsequent attempts by such holders to use their ability to exercise their redemption rights against a proposed Business Combination as a means to force us or our management to purchase their shares at a significant premium to the then-current market price or on other undesirable terms. Absent this provision, a public shareholder holding more than an aggregate of 15% of the shares sold in our initial public offering could threaten to exercise its redemption rights if such holder’s shares are not purchased by us, our Sponsor or our management at a premium to the then-current market price or on other undesirable terms. By limiting our shareholders’ ability to redeem no more than 15% of the shares sold in our initial public offering without our prior consent, we believe we will limit the ability of a small group of shareholders to unreasonably attempt to block our ability to complete our initial Business Combination, particularly in connection with a Business Combination with a target that requires as a closing condition that we have a minimum net worth or a certain amount of cash. +However, we would not be restricting our shareholders’ ability to vote all of their shares (including Excess Shares) for or against our initial Business Combination. +11 +Table of Contents +Delivering Share Certificates in Connection with the Exercise of Redemption Rights +As described above, we intend to require our public shareholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” to, at the holder’s option, either deliver their share certificates to our transfer agent or deliver their shares to our transfer agent electronically using The Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) system, prior to the date set forth in the proxy materials or tender offer documents, as applicable. In the case of proxy materials, this date may be up to two business days prior to the scheduled vote on the proposal to approve the initial Business Combination. In addition, if we conduct redemptions in connection with a shareholder vote, we intend to require a public shareholder seeking redemption of its Public Shares to also submit a written request for redemption to our transfer agent two business days prior to the scheduled vote in which the name of the beneficial owner of such shares is included. The proxy materials or tender offer documents, as applicable, that we will furnish to holders of our Public Shares in connection with our initial Business Combination will indicate whether we are requiring public shareholders to satisfy such delivery requirements. Accordingly, a public shareholder would have up to two business days prior to the scheduled vote on the initial Business Combination if we distribute proxy materials, or from the time we send out our tender offer materials until the close of the tender offer period, as applicable, to submit or tender its shares if it wishes to seek to exercise its redemption rights. In the event that a shareholder fails to comply with these or any other procedures disclosed in the proxy or tender offer materials, as applicable, its shares may not be redeemed. Given the relatively short exercise period, it is advisable for shareholders to use electronic delivery of their Public Shares. +There is a nominal cost associated with the above-referenced process and the act of certificating the shares or delivering them through the DWAC system. The transfer agent will typically charge the broker submitting or tendering shares a fee of approximately $100 and it would be up to the broker whether or not to pass this cost on to the redeeming holder. However, this fee would be incurred regardless of whether or not we require holders seeking to exercise redemption rights to submit or tender their shares. The need to deliver shares is a requirement of exercising redemption rights regardless of the timing of when such delivery must be effectuated. +Any request to redeem such shares, once made, may be withdrawn at any time up to the date set forth in the proxy materials or tender offer documents, as applicable. Furthermore, if a holder of a public share delivered its certificate in connection with an election of redemption rights and subsequently decides prior to the applicable date not to elect to exercise such rights, such holder may simply request that the transfer agent return the certificate (physically or electronically). It is anticipated that the funds to be distributed to holders of our Public Shares electing to redeem their shares will be distributed promptly after the completion of our initial Business Combination. +If our initial Business Combination is not approved or completed for any reason, then our public shareholders who elected to exercise their redemption rights would not be entitled to redeem their shares for the applicable pro rata share of the Trust Account. In such case, we will promptly return any certificates delivered by public holders who elected to redeem their shares. +If our initial proposed initial Business Combination is not completed, we may continue to try to complete an initial Business Combination with a different target until the end of the Completion Window. +Redemption of Public Shares and Liquidation if No Initial Business Combination +Our amended and restated memorandum and articles of association provide that we have only the duration of the closing window to complete our initial Business Combination. If we are unable to complete our initial Business Combination within such 24-month period, we will, as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account (which interest shall be net of taxes payable and up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will constitute full and complete payment for the Public Shares and completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidating or other distributions, if any) +Our initial shareholders, Sponsor, officers and directors have entered into a letter agreement with us, pursuant to which they have waived their rights to liquidating distributions from the Trust Account with respect to any Founder Shares they hold if we fail to complete our initial Business Combination within the Completion Window, although they will be entitled to liquidating distributions from assets outside the Trust Account. However, if our initial shareholders, Sponsor or management team acquire Public Shares, they will be entitled to liquidating distributions from the Trust Account and liquidating distributions from assets outside the Trust Account with respect to such Public Shares if we fail to complete our initial Business Combination within the allotted 24- month time period. +12 +Table of Contents +Our initial shareholders, Sponsor, officers and directors have agreed, pursuant to a letter agreement with us, that they will not propose any amendment to our amended and restated memorandum and articles of association (A) to modify the substance or timing of our obligation to redeem 100% of our Public Shares if we do not complete our initial Business Combination within the Completion Window or (B) with respect to any other material provisions relating to shareholders’ rights or pre-initial Business Combination activity, unless we provide our public shareholders with the opportunity to redeem their Public Shares upon approval of any such amendment at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account (which interest shall be net of taxes payable), divided by the number of then outstanding Public Shares. +We expect that all costs and expenses associated with implementing our plan of dissolution, as well as payments to any creditors, will be funded from amounts remaining out of the approximately $1,250,000 of proceeds held outside the Trust Account, although we cannot assure you that there will be sufficient funds for such purpose. However, if those funds are not sufficient to cover the costs and expenses associated with implementing our plan of dissolution, to the extent that there is any interest accrued in the Trust Account not required to pay taxes, we may request the trustee to release to us an additional amount of up to $100,000 of such accrued interest to pay those costs and expenses. +If we were to expend all of the net proceeds of our initial public offering and the sale of the Private Placement Warrants, other than the proceeds deposited in the Trust Account, and without taking into account interest, if any, earned on the Trust Account and any tax payments or expenses for the dissolution of the trust, the per-share redemption amount received by shareholders upon our dissolution would be approximately $10.00. +The proceeds deposited in the Trust Account could, however, become subject to the claims of our creditors which would have higher priority than the claims of our public shareholders. We cannot assure you that the actual per-share redemption amount received by shareholders will not be substantially less than $10.00. While we intend to pay such amounts, if any, we cannot assure you that we will have funds sufficient to pay or provide for all creditors’ claims. +Although we will seek to have all vendors, service providers (other than our independent registered public accounting firm), prospective target businesses and other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the Trust Account for the benefit of our public shareholders, there is no guarantee that they will execute such agreements or even if they execute such agreements that they would be prevented from bringing claims against the Trust Account including but not limited to fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain an advantage with respect to a claim against our assets, including the funds held in the Trust Account. If any third party refuses to execute an agreement waiving such claims to the monies held in the Trust Account, our management will consider whether competitive alternatives are reasonably available to us and will only enter into an agreement with such third party if management believes that such third party’s engagement would be in the best interests of the company under the circumstances. Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. The underwriters of our initial public offering and our independent registered public accounting firm will not execute agreements with us waiving such claims to the monies held in the Trust Account. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the Trust Account for any reason. In order to protect the amounts held in the Trust Account, our Sponsor has agreed that it will be liable to us if and to the extent any claims by a third party for services rendered or products sold to us (except for the company’s independent auditors), or a prospective target business with which we have entered into a written letter of intent, confidentiality or other similar agreement or Business Combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.00 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.00 per public share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to the monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under our indemnity of the underwriters of our initial public offering against certain liabilities, including liabilities under the Securities Act. However, we have not asked our Sponsor to reserve for such indemnification obligations, nor have we independently verified whether our Sponsor has sufficient funds to satisfy its indemnity obligations and we believe that our Sponsor’s only assets are securities of our company. Therefore, we cannot assure you that our Sponsor would be able to satisfy those obligations. As a result, if any such claims were successfully made against the Trust Account, the funds available for our initial Business Combination and redemptions could be reduced to less than $10.00 per public share. In such event, we may not be able to complete our initial Business Combination, and you would receive such lesser amount per share in connection with any redemption of your Public Shares. None of our officers or directors will indemnify us for claims by third parties including, without limitation, claims by vendors and prospective target businesses. +13 +Table of Contents +In the event that the proceeds in the Trust Account are reduced below the lesser of (i) $10.00 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account if less than $10.00 per share due to reductions in the value of the trust assets, in each case less taxes payable, and our Sponsor asserts that it is unable to satisfy its indemnification obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against our Sponsor to enforce its indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against our Sponsor to enforce its indemnification obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so in any particular instance. Accordingly, we cannot assure you that due to claims of creditors the actual value of the per-share redemption price will not be less than $10.00 per share. +We will seek to reduce the possibility that our Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers, prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account. Our Sponsor will also not be liable as to any claims under our indemnity of the underwriters of our initial public offering against certain liabilities, including liabilities under the Securities Act. We will have access to up to approximately $1,250,000 from the proceeds of our initial public offering with which to pay any such potential claims (including costs and expenses incurred in connection with our liquidation, currently estimated to be no more than approximately $100,000). In the event that we liquidate and it is subsequently determined that the reserve for claims and liabilities is insufficient, shareholders who received funds from our Trust Account could be liable for claims made by creditors. In the event that our offering expenses exceed our estimate of $750,000, we may fund such excess with funds from the funds not to be held in the Trust Account. In such case, the amount of funds we intend to be held outside the Trust Account would decrease by a corresponding amount. Conversely, in the event that the offering expenses are less than our estimate of $750,000, the amount of funds we intend to be held outside the Trust Account would increase by a corresponding amount. +If we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy or insolvency law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our shareholders. To the extent any bankruptcy claims deplete the Trust Account, we cannot assure you we will be able to return $10.00 per share to our public shareholders. Additionally, if we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, any distributions received by shareholders could be viewed under applicable debtor/creditor and/ or bankruptcy or insolvency laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy or insolvency court could seek to recover some or all amounts received by our shareholders. Furthermore, our board of directors may be viewed as having breached its fiduciary duty to our creditors and/or may have acted in bad faith, and thereby exposing itself and our company to claims of punitive damages, by paying public shareholders from the Trust Account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons. +Our public shareholders will be entitled to receive funds from the Trust Account only (i) in the event of the redemption of our Public Shares if we do not complete our initial Business Combination within the Completion Window, (ii) in connection with a shareholder vote to amend our amended and restated memorandum and articles of association (A) to modify the substance or timing of our obligation to redeem 100% of our Public Shares if we do not complete our initial Business Combination within the Completion Window or (B) with respect to any other material provisions relating to shareholders’ rights or pre- initial Business Combination activity or (iii) if they redeem their respective shares for cash upon the completion of our initial Business Combination. In no other circumstances will a shareholder have any right or interest of any kind to or in the Trust Account. In the event we seek shareholder approval in connection with our initial Business Combination, a shareholder’s voting in connection with the Business Combination alone will not result in a shareholder’s redeeming its shares to us for an applicable pro rata share of the Trust Account. Such shareholder must have also exercised its redemption rights described above. These provisions of our amended and restated memorandum and articles of association, like all provisions of our amended and restated memorandum and articles of association, may be amended with a shareholder vote. +Competition +In identifying, evaluating and selecting a target business for our initial Business Combination, we may encounter competition from other entities having a business objective similar to ours, including other special purpose acquisition companies, private equity groups and leveraged buyout funds, public companies and operating businesses seeking strategic acquisitions. Many of these entities are well established and have extensive experience identifying and effecting Business Combinations directly or through affiliates. Moreover, many of these competitors possess similar or greater financial, technical, human and other resources than us. Our ability to acquire larger target businesses will be limited by our available financial resources. This inherent limitation gives others an advantage in pursuing the acquisition of a target business. Furthermore, our obligation to pay cash in connection with our public shareholders who +14 +Table of Contents +exercise their redemption rights may reduce the resources available to us for our initial Business Combination and our outstanding warrants, and the future dilution they potentially represent, may not be viewed favorably by certain target businesses. Either of these factors may place us at a competitive disadvantage in successfully negotiating an initial Business Combination. +Facilities +We currently utilize office space at 1790 Hughes Landing Blvd., Suite 400, The Woodlands, Texas 77380 from our Sponsor. We consider our current office space adequate for our current operations. We will pay our Sponsor (and/or its affiliates or designees) an aggregate of up to $20,000 per month for office space, secretarial, administrative and support services provided to us and members of our management team. Upon completion of our initial Business Combination or our liquidation, we will cease paying these monthly fees. +Employees +We currently have one executive officer: James A. Graf, our Chief Executive Officer and Chief Financial Officer. Mr. Graf is not obligated to devote any specific number of hours to our matters but he intends to devote as much of his time as he deems necessary to our affairs until we have completed our initial Business Combination. The amount of time Mr. Graf will devote in any time period will vary based on whether a target business has been selected for our initial Business Combination and the stage of the Business Combination process we are in. We do not intend to have any full time employees prior to the completion of our initial Business Combination. +Available Information +We are required to file Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q with the SEC on a regular basis, and are required to disclose certain material events (e.g., changes in corporate control, acquisitions or dispositions of a significant amount of assets other than in the ordinary course of business and bankruptcy) in a Current Report on Form 8-K. The SEC maintains an Internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The SEC’s Internet website is located at http://www.sec.gov . In addition, we will provide copies of these documents without charge upon request from us in writing at 1790 Hughes Landing Blvd., Suite 400, The Woodlands, Texas 77380 or by telephone at (310) 745-8669. +Emerging Growth Company and Smaller Reporting Company +We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes- Oxley Act reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile. +In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period. +We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our initial public offering, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Class A Ordinary Shares that are held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. +Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our ordinary shares held by non-affiliates is equal to or exceeds $250 million as of the prior June 30th, or (2) our annual revenues +15 +Table of Contents +equaled to or exceeded $100 million during such completed fiscal year and the market value of our ordinary shares held by non-affiliates is equal to or exceeds $700 million as of the prior June 30th. +Legal Proceedings +There is no material litigation, arbitration or governmental proceeding currently pending against us or any members of our management team and our board of directors in their capacity as such. \ No newline at end of file diff --git a/raw/filings/0001897463/2024/0001410578-25-000338/item13.txt b/raw/filings/0001897463/2024/0001410578-25-000338/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..90e29ff2a32abe366dfcdf763d2ebd9642df8483 --- /dev/null +++ b/raw/filings/0001897463/2024/0001410578-25-000338/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions, and Director Independence +65 \ No newline at end of file diff --git a/raw/filings/0001897463/2025/0001104659-26-058645/filing.txt b/raw/filings/0001897463/2025/0001104659-26-058645/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..0f9361b6ffc939f7af0262c09488dccb9f2e542a --- /dev/null +++ b/raw/filings/0001897463/2025/0001104659-26-058645/filing.txt @@ -0,0 +1,2872 @@ +GRAF GLOBAL CORP._December 31, 2025 +0001897463 --12-31 2025 FY 00-0000000 http://fasb.org/us-gaap/2025#RelatedPartyMember 0.5 P10D 0.5 http://www.graf.com/20251231#SponsorMember http://www.graf.com/20251231#SponsorMember http://fasb.org/us-gaap/2025#RelatedPartyMember false 0001897463 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MeasurementInputSharePriceMember 2024-06-27 0001897463 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2024-06-27 0001897463 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MeasurementInputExpectedTermMember 2024-06-27 0001897463 us-gaap:FairValueMeasurementsRecurringMember graf:MeasurementInputPriceVolatilityPreBusinessCombinationMember 2024-06-27 0001897463 us-gaap:FairValueMeasurementsRecurringMember graf:MeasurementInputPriceVolatilityPostBusinessCombinationMember 2024-06-27 0001897463 us-gaap:FairValueMeasurementsRecurringMember graf:MeasurementInputMarketPricingAdjustmentRateMember 2024-06-27 0001897463 graf:CommonClassaSharesSubjectToPossibleRedemptionMember 2025-12-31 0001897463 graf:CommonClassaSharesSubjectToPossibleRedemptionMember 2024-12-31 0001897463 graf:FounderSharesMember us-gaap:CommonClassBMember 2021-11-24 2021-11-24 0001897463 us-gaap:RetainedEarningsMember 2025-12-31 0001897463 us-gaap:RetainedEarningsMember 2024-12-31 0001897463 us-gaap:RetainedEarningsMember 2023-12-31 0001897463 us-gaap:AdditionalPaidInCapitalMember 2023-12-31 0001897463 2023-12-31 0001897463 2024-06-27 0001897463 graf:FounderSharesMember 2024-06-07 0001897463 2024-07-02 2024-07-02 0001897463 graf:RelatedPartyLoansMember 2024-06-27 2024-06-27 0001897463 2025-03-31 2025-03-31 0001897463 2024-06-28 0001897463 graf:SingleReportableSegmentMember 2025-01-01 2025-12-31 0001897463 graf:SingleReportableSegmentMember 2024-01-01 2024-12-31 0001897463 us-gaap:CommonClassBMember 2025-01-01 2025-12-31 0001897463 us-gaap:CommonClassBMember 2024-01-01 2024-12-31 0001897463 us-gaap:CommonClassAMember 2024-01-01 2024-12-31 0001897463 graf:RelatedPartyLoansMember 2021-11-20 0001897463 us-gaap:CommonClassBMember us-gaap:CommonStockMember 2025-12-31 0001897463 graf:CommonClassaSharesNotSubjectToPossibleRedemptionMember 2025-12-31 0001897463 us-gaap:CommonClassBMember us-gaap:CommonStockMember 2024-12-31 0001897463 graf:CommonClassaSharesNotSubjectToPossibleRedemptionMember 2024-12-31 0001897463 us-gaap:CommonClassBMember us-gaap:CommonStockMember 2023-12-31 0001897463 graf:FounderSharesMember us-gaap:CommonClassBMember 2021-11-24 0001897463 graf:PublicWarrantsMember 2025-12-31 0001897463 graf:PrivatePlacementWarrantsMember 2025-12-31 0001897463 graf:PrivatePlacementWarrantsMember us-gaap:CommonClassAMember 2024-06-27 0001897463 graf:PrivatePlacementWarrantsMember 2024-06-27 0001897463 graf:SingleReportableSegmentMember 2025-12-31 0001897463 graf:SingleReportableSegmentMember 2024-12-31 0001897463 graf:PrivatePlacementWarrantsMember 2025-01-01 2025-12-31 0001897463 graf:FounderSharesMember 2024-01-01 2024-12-31 0001897463 graf:PublicWarrantsMember us-gaap:AdditionalPaidInCapitalMember 2024-01-01 2024-12-31 0001897463 graf:PrivatePlacementWarrantsMember us-gaap:AdditionalPaidInCapitalMember 2024-01-01 2024-12-31 0001897463 graf:PublicWarrantsMember 2024-01-01 2024-12-31 0001897463 graf:RelatedPartyLoansMember 2024-12-31 0001897463 graf:RelatedPartyLoansMember 2025-12-31 0001897463 graf:RelatedPartyLoansMember 2025-01-01 2025-12-31 0001897463 us-gaap:IPOMember 2024-06-27 2024-06-27 0001897463 graf:FounderSharesMember 2024-06-27 2024-06-27 0001897463 graf:AdministrativeServicesAgreementMember us-gaap:RelatedPartyMember 2024-06-25 2024-06-25 0001897463 graf:AdministrativeServicesAgreementMember us-gaap:RelatedPartyMember 2025-01-01 2025-12-31 0001897463 graf:AdministrativeServicesAgreementMember us-gaap:RelatedPartyMember 2024-01-01 2024-12-31 0001897463 us-gaap:IPOMember 2024-06-27 0001897463 us-gaap:CommonClassBMember 2025-12-31 0001897463 us-gaap:CommonClassAMember 2025-12-31 0001897463 us-gaap:CommonClassBMember 2024-12-31 0001897463 us-gaap:CommonClassAMember 2024-12-31 0001897463 us-gaap:CommonClassAMember us-gaap:IPOMember 2024-06-27 0001897463 graf:FounderSharesMember 2024-02-08 2024-02-08 0001897463 2024-06-27 2024-06-27 0001897463 us-gaap:FairValueMeasurementsRecurringMember 2025-12-31 0001897463 us-gaap:FairValueMeasurementsRecurringMember 2024-12-31 0001897463 graf:FounderSharesMember 2025-01-01 2025-12-31 0001897463 graf:FounderSharesMember 2024-02-08 0001897463 2024-06-28 2024-06-28 0001897463 graf:FounderSharesMember 2021-11-24 2021-11-24 0001897463 us-gaap:OverAllotmentOptionMember 2024-06-27 0001897463 us-gaap:OverAllotmentOptionMember 2024-06-27 2024-06-27 0001897463 graf:PublicWarrantsMember 2025-01-01 2025-12-31 0001897463 us-gaap:PrivatePlacementMember 2024-06-27 2024-06-27 0001897463 graf:SponsorMember graf:PrivatePlacementWarrantsMember 2024-06-27 2024-06-27 0001897463 graf:CantorFitzgeraldAndCo.Member graf:PrivatePlacementWarrantsMember 2024-06-27 2024-06-27 0001897463 graf:PrivatePlacementWarrantsMember 2024-06-27 2024-06-27 0001897463 graf:PrivatePlacementWarrantsMember 2024-01-01 2024-12-31 0001897463 graf:FounderSharesMember 2024-06-07 2024-06-07 0001897463 2025-12-31 0001897463 2024-12-31 0001897463 graf:AdministrativeServicesAgreementMember us-gaap:RelatedPartyMember 2025-12-31 0001897463 graf:AdministrativeServicesAgreementMember us-gaap:RelatedPartyMember 2024-12-31 0001897463 us-gaap:RetainedEarningsMember 2025-01-01 2025-12-31 0001897463 us-gaap:RetainedEarningsMember 2024-01-01 2024-12-31 0001897463 us-gaap:AdditionalPaidInCapitalMember 2024-01-01 2024-12-31 0001897463 2024-01-01 2024-12-31 0001897463 2025-10-01 2025-12-31 0001897463 us-gaap:WarrantMember 2025-01-01 2025-12-31 0001897463 us-gaap:CommonClassAMember 2025-01-01 2025-12-31 0001897463 graf:UnitsEachConsistingOfOneShareOfClassCommonStockAndOneHalfOfOneWarrantMember 2025-01-01 2025-12-31 0001897463 2025-06-30 0001897463 us-gaap:CommonClassBMember 2026-05-11 0001897463 us-gaap:CommonClassAMember 2026-05-11 0001897463 2025-01-01 2025-12-31 xbrli:shares iso4217:USD xbrli:pure iso4217:USD xbrli:shares graf:D graf:director graf:Vote graf:segment +Table of Contents +​ +​ +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +(Mark One) +☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31, 2025 +☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from to +GRAF GLOBAL CORP. +(Exact name of registrant as specified in its charter) +​ +​ +​ +​ +​ +Cayman Islands +​ ​ ​ +001-42142 +​ ​ ​ ​ +N/A +(State or other jurisdiction of +incorporation or organization) +​ +(Commission +File Number) +(I.R.S. Employer +Identification Number) +​ +1790 Hughes Landing Blvd., Suite 400 +The Woodlands , Texas +​ +​ +​ +​ ​ ​ +77380 +(Address of principal executive offices) +​ +(Zip Code) +​ +Registrant’s telephone number, including area code: ( 310 ) 745-8669 +​ +Not Applicable +(Former name or former address, if changed since last report) +​ +Securities registered pursuant to Section 12(b) of the Act: +​ +​ +​ +​ +​ +Title of Each Class: +​ ​ ​ +Trading Symbols +​ ​ ​ +Name of Each Exchange on Which Registered: +Units, each consisting of one Class A ordinary share, $0.0001 par value, and one-half of one redeemable warrant +GRAF.U +NYSE American LLC +Class A ordinary shares, par value $0.0001 per share +GRAF +NYSE American LLC +Warrants, each whole warrant exercisable for one Class A ordinary share at an exercise price of $11.50 per share +GRAF WS +NYSE American LLC +​ +Securities registered pursuant to Section 12(g) of the Act: None +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +​ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒ +​ +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +​ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐ +​ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer +☐ +​ +Accelerated filer +☐ +Non-accelerated filer +☒ +​ +Smaller reporting company +☒ +Emerging growth company +☒ +​ +​ +​ +​ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +​ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ +​ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +​ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐ +​ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒ No ☐ +​ +The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2025, the last business day of the registrant’s most recently completed second fiscal quarter, computed by reference to the closing price of Class A ordinary shares reported on NYSE American on June 30, 2025 of $10.46 per share, was approximately $ 240,580,000 . +​ +As of May 11, 2026, there were 23,000,000 Class A ordinary shares, par value $0.0001 per share, and 5,750,000 Class B ordinary shares, par value $0.0001 per share, of the registrant issued and outstanding. +​ +Documents Incorporated by Reference: None . +​ +​ +Table of Contents +​ +TABLE OF CONTENTS +​ +​ +PAGE +PART I +1 +Item 1. +Business +1 +Item 1A. +Risk Factors +17 +Item 1B. +Unresolved Staff Comments +53 +Item 1C. +Cybersecurity +54 +Item 2. +Properties +54 +Item 3. +Legal Proceedings +54 +Item 4. +Mine Safety Disclosures +54 +PART II +54 +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +54 +Item 6. +[RESERVED] +55 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +55 +Item 7A. +Quantitative and Qualitative Disclosures about Market Risk +58 +Item 8. +Financial Statements and Supplementary Data +58 +Item 9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +58 +Item 9A. +Controls and Procedures +58 +Item 9B. +Other Information +59 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +59 +PART III +60 +Item 10. +Directors, Executive Officers and Corporate Governance Officers +60 +Item 11. +Executive Compensation +65 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +66 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +68 +Item 14. +Principal Accounting Fees and Services +69 +PART IV +71 +Item 15. +Exhibits, Financial Statement Schedules +71 +Item 16. +Form 10-K Summary +72 +Signatures +73 +​ +​ +​ +​ +i +Table of Contents +CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTOR SUMMARY +Certain statements in this Annual Report on Form 10-K (this “Form 10-K”) may constitute “forward-looking statements” for purposes of the federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this Form 10-K may include, for example, statements about: +● our ability to select an appropriate target business or businesses; +● our ability to complete our initial Business Combination; +● our expectations around the performance of the prospective target business or businesses; +● our success in retaining or recruiting, or changes required in, our officers, key employees or directors following our initial Business Combination; +● our officers and directors allocating their time to other businesses and potentially having conflicts of interest with our business or in approving our initial Business Combination; +● our potential ability to obtain additional financing to complete our initial Business Combination; +● our pool of prospective target businesses; +● the adverse impacts that events outside of our control, such as increased geopolitical unrest, significant outbreaks of infectious diseases (such as COVID-19) and increased volatility in the dent and equity markets, may have on our ability to consummate an initial Business Combination; +● our public securities’ potential liquidity and trading; +● the lack of a market for our securities; +● the use of proceeds not held in the trust account (as defined below) or available to us from interest income on the trust account balance; +● the trust account not being subject to claims of third parties; or +● our financial performance. +The forward-looking statements contained in this Form 10-K are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the section of this Form 10-K entitled “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. +​ +1 +Table of Contents +Summary of Risk Factors +An investment in our securities involves a high degree of risk. The occurrence of one or more of the events or circumstances described in the section titled “ Risk Factors ,” alone or in combination with other events or circumstances, may materially adversely affect our business, financial condition and operating results. In that event, the trading price of our securities could decline, and you could lose all or part of your investment. Such risks include, but are not limited to: +● We are a blank check company with no operating history and no revenues, and you have no basis on which to evaluate our ability to achieve our business objective. +● Our public shareholders may not be afforded an opportunity to vote on our proposed initial Business Combination, and even if we hold a vote, holders of our founder shares will participate in such vote, which means we may complete our initial Business Combination even though a majority of our public shareholders do not support such a combination. +● Your only opportunity to effect your investment decision regarding a potential Business Combination may be limited to the exercise of your right to redeem your shares from us for cash. +● If we seek shareholder approval of our initial Business Combination, our initial shareholders and management team have agreed to vote in favor of such initial Business Combination, regardless of how our public shareholders vote. +● The ability of our public shareholders to redeem their shares for cash may make our financial condition unattractive to potential Business Combination targets, which may make it difficult for us to enter into a Business Combination with a target. +● The ability of our public shareholders to exercise redemption rights with respect to a large number of our shares and the amount of deferred underwriting compensation may not allow us to complete the most desirable Business Combination or optimize our capital structure, and may substantially dilute your investment in us. +● The requirement that we complete our initial Business Combination within the duration of the Completion Window may give potential target businesses leverage over us in negotiating a Business Combination and may limit the time we have in which to conduct due diligence on potential Business Combination targets, in particular as we approach our dissolution deadline, which could undermine our ability to complete our initial Business Combination on terms that would produce value for our shareholders. +● Our search for a Business Combination, and any target business with which we ultimately consummate a Business Combination, may be materially adversely affected by events that are outside of our control, such as increased geopolitical unrest, pandemic outbreaks (such as COVID-19), and volatility in the debt and equity markets. +● If we seek shareholder approval of our initial Business Combination, our Sponsor, directors, officers, and their affiliates may elect to purchase Public Shares or Public Warrants from public shareholders, which may influence a vote on a proposed Business Combination and reduce the public “float” of our securities. +● If a shareholder fails to receive notice of our offer to redeem our public shares in connection with our initial Business Combination, or fails to comply with the procedures for submitting or tendering its shares, such shares may not be redeemed. +● If we are deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete our initial Business Combination or force us to abandon our efforts to complete an initial Business Combination. +● Our officers and directors will allocate their time to other businesses thereby causing conflicts of interest in their determination as to how much time to devote to our affairs. This conflict of interest could have a negative impact on our ability to complete our initial Business Combination. +● You will not have any rights or interests in funds from the trust account, except under certain limited circumstances. Therefore, to liquidate your investment, you may be forced to sell your public shares or warrants, potentially at a loss. +● the NYSE American may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions. +● The nominal purchase price paid by our Sponsor for the founder shares may result in significant dilution to the implied value of your public shares upon consummation of our initial Business Combination. +2 +Table of Contents +● The value of the founder shares following completion of our initial Business Combination is likely to be substantially higher than the nominal price paid for them, even if the trading price of our ordinary shares at such time is substantially less than $10.00 per share. +● You will not be entitled to protections normally afforded to investors of many other blank check companies. +● Because of our limited resources and the significant competition for Business Combination opportunities, it may be more difficult for us to complete our initial Business Combination. If we have not completed our initial Business Combination within the required time period, our public shareholders may receive only approximately $10.00 per share, or less in certain circumstances, on our redemption of their shares, and our warrants will expire. +● If the net proceeds of our initial public offering and the sale of the Private Placement Warrants not being held in the trust account are insufficient to allow us to operate for at least the duration of the Completion Window, it could limit the amount of cash available to fund our search for a target business or businesses and complete our initial Business Combination, and we will depend on loans from our Sponsor or management team to fund our search and to complete our initial Business Combination. +● Past performance by our management team and their affiliates, including investments and transactions in which they have participated and businesses with which they have been associated, may not be indicative of future performance of an investment in the company. +● We may be a passive foreign investment company, or “PFIC,” which could result in adverse United States federal income tax consequences to U.S. investors. +● An investment in our securities may result in uncertain U.S. federal income tax consequences. +● We may reincorporate in or transfer by way of continuation to another jurisdiction which may result in taxes imposed on shareholders or warrant holders. +● The 1% US federal excise tax on stock buybacks could be imposed on redemptions of our Public Shares if we were to become a “covered corporation” in the future. +● In recent years, the number of special purpose acquisition companies that have been formed has increased substantially, potentially resulting in more competition for attractive targets. This could increase the cost of our initial Business Combination and could even result in our inability to find a target or to consummate an initial Business Combination. +● Our initial Business Combination and our structure thereafter may not be tax-efficient to our shareholders and warrant holders. As a result of our Business Combination, our tax obligations may be more complex, burdensome and uncertain. +​ +​ +3 +Table of Contents +PART I +Item 1. Business +References in this Form 10-K to “we,” “us,” “our” or the “Company” refer to Graf Global Corp. References to our “management” or our “management team” refer to our officers and directors. +Introduction +We are a blank check company incorporated on November 17, 2021 as a Cayman Islands exempted company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”). We have 24 months from the closing of our initial public offering, or until such earlier liquidation date as our board of directors may approve (the “Completion Window”) to complete our initial Business Combination. +We have reviewed, and continue to review, a number of opportunities to enter into a Business Combination, but we are not able to determine at this time whether we will complete a Business Combination with any of the target businesses that we have reviewed or with any other target business. We may pursue an acquisition opportunity in any industry or geographic location. We also have neither engaged in any operations nor generated any revenue to date. Based on our business activities, the Company is a “shell company” as defined under the Exchange Act of 1934 (the “Exchange Act”) because we have no operations and nominal assets consisting almost entirely of cash. +The registration statement for our initial public offering was declared effective on June 25, 2024. On June 27, 2024, we consummated the initial public offering of 23,000,000 units (the “Units” and, with respect to the Class A ordinary shares, par value $0.0001 per share, included in the Units being offered, the “Public Shares” or “Class A Ordinary Shares”), which includes the full exercise by the underwriters of their over-allotment option in the amount of 3,000,000 Units, at $10.00 per Unit, generating gross proceeds of $230,000,000. Each Unit consists of one Class A Ordinary Share and one-half of one redeemable warrant of the Company (the “Public Warrants”), with each whole warrant entitling the holder thereof to purchase one Class A Ordinary Share at $11.50 per share. +Simultaneously with the closing of our initial public offering, we consummated the sale of an aggregate of 6,000,000 warrants (the “Private Placement Warrants”) at a price of $1.00 per Private Placement Warrant, in a private placement to the Company’s sponsor, Graf Global Sponsor LLC, a Delaware limited liability company (the “Sponsor”), and Cantor Fitzgerald & Co. (“Cantor”), the representative of the underwriters of the initial public offering, generating gross proceeds of $6,000,000. +Prior to the consummation of our initial public offering, on November 24, 2021, our Sponsor paid an aggregate of $25,000 for certain expenses on our behalf in exchange for the issuance of 7,187,500 Class B ordinary shares, par value $0.0001 per share (the “Founder Shares” or “Class B Ordinary Shares”). On February 8, 2024, the Sponsor surrendered 1,437,500 Founder Shares for no consideration, resulting in the Sponsor holding 5,750,000 Founder Shares. The number of Founder Shares issued was determined based on the expectation that such Founder Shares would represent 20% of the outstanding shares after the initial public offering. +Following the closing of the initial public offering, on June 27, 2024, an amount of $230,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units and the sale of the Private Placement Warrants was placed in the trust account (the “Trust Account”), with Continental Stock Transfer & Trust Company acting as trustee, to be held as cash or invested only in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended (the “Investment Company Act”), which invest only in direct U.S. government treasury obligations, until the earlier of (i) the completion of a Business Combination and (ii) the distribution of the Trust Account as described below. To mitigate the risk that we might be deemed to be an investment company for purposes of the Investment Company Act, which risk increases the longer that the Company holds investments in the Trust Account, the Company may, at any time in its own discretion, instruct the trustee to liquidate the investments held in the Trust Account and instead to hold the funds in the Trust Account in an interest bearing bank demand deposit account. +1 +Table of Contents +Effecting our Initial Business Combination +General +We are not presently engaged in, and we will not engage in, any operations for an indefinite period of time. We intend to effectuate our initial Business Combination using cash from the proceeds of our initial public offering, the sale of the Private Placement Warrants, the proceeds of the sale of our shares in connection with our initial Business Combination (including pursuant to forward purchase agreements or backstop agreements we may enter into following the consummation of the initial public offering or otherwise), shares issued to the owners of the target, debt issued to bank or other lenders or the owners of the target, or a combination of the foregoing. We may seek to complete our initial Business Combination with a company or business that may be financially unstable or in its early stages of development or growth, which would subject us to the numerous risks inherent in such companies and businesses. +Business Strategy +Our strategy is to leverage our team’s extensive track record in SPAC-related mergers and acquisitions and capital markets to identify and complete an initial Business Combination. We may pursue an acquisition opportunity in any industry or geographic location. +We intend to distinguish ourselves from other SPAC sponsor teams through four key dimensions of experience: +● Our ability to leverage an extensive global network of relationships to create a pipeline of initial Business Combination opportunities, as well as being a priority contact for bankers and other advisors seeking SPAC partners for their clients. Prior to our initial public offering, we had not, nor had anyone on our behalf, engaged in any substantive discussions, directly or indirectly, with any Business Combination target with respect to an initial Business Combination with us. However, members of our management team had been actively in discussions with potential Business Combination partners in their capacity as officers and directors of Graf Industrial Corp. (“GRAF I”) (which consummated its initial business combination on September 29, 2020) and Graf Acquisition Corp. IV (“GRAF IV” and, together with GRAF I, the “GRAF SPACs”) (which consummated its initial business combination on October 2, 2023), and we may pursue Business Combination partners that had previously been in discussions with the management teams of the GRAF SPACs; +● Unique capabilities and rigor to the process of identifying, executing and consummating an initial Business Combination that will be well-received in the public markets, with the ability to provide ongoing support thereafter; +● Our understanding of global financial markets and events, financing and overall corporate strategy options; and +● Our background as business founders, investors and managers. +Business Combination Criteria +Based on our management’s experience, including with prior special purpose acquisition companies, we have developed the following non-exclusive investment criteria that we intend to use to screen for and evaluate prospective target businesses. +● Leading Industry Position with Supportive Long-Term Dynamics and Competitive Market Advantage . We intend to target businesses that hold, or have the potential to hold, a leading position in an industry sector with attractive macro-characteristics. We intend to target businesses that have, or have the potential to have, sustainable competitive advantages that would be challenging for a competitor to replicate. Factors contributing to sustainable competitive advantages may include: (iii) proprietary or superior technology or trade secrets; (ii) broad distribution networks; (iii) well- established brand names; (iv) territorial exclusivity or a well-defined market; (v) diverse and stable customer and supplier base; (vi) low-cost production capability; (vii) customer habit/ share of mind; (viii) a lack of available substitutes and/or high search or switching costs; (ix) network effects; and/or (x) limited exposure to technological obsolescence and cyclicality. Our management team expects to target businesses that have clearly demonstrated an ability to defend and grow their market positions over time as a result of one or more of these sustainable competitive advantages, or have demonstrable potential to do so. We intend to seek opportunities that will benefit from secular growth and are able to differentiate their market position to create value for our shareholders over time. +2 +Table of Contents +● Stable Free Cash Flow, Prudent Debt and Financial Visibility . We will seek to acquire a business that has historically generated or has the potential to generate not only current revenues, but strong and sustainable free cash flow. Additionally, our prospective Business Combination criteria includes prudent balance sheet management and, as such, we would seek to limit leverage ratios of a combined company immediately following an initial Business Combination. To provide reliable guidance, we would also seek to acquire a business that has reasonable visibility on forward financial performance and straightforward operating metrics, and a business that is not extremely sensitive to macro- economic conditions or industry cycles. Specifically, we would prioritize businesses that may be evaluated and priced by the market using financial metrics or other key milestones not more than one year forward. +● Benefit Uniquely from a Business Combination with a Special Purpose Acquisition Company . We will seek to acquire a business that has a clear use of proceeds and a clear catalyst or inflection point resulting from our capital, team, public listing, roll-up synergies, deleveraging and/or re-rating milestones expected to propel the business through our structural dilution in the near term with enhanced financial results, margins, market position and shareholder value. +● Would Benefit Uniquely from our Capabilities . We will seek to acquire a business where the collective capabilities of our management team, board of directors and Sponsor, and any operating partners we involve, can be leveraged to tangibly improve the operations and market position of the target. +● Proprietary and/or Optimally Positioned Transactions . We intend to leverage our extensive business network to source our initial Business Combination on a proprietary basis if possible. Notwithstanding the foregoing, we would utilize our collective experience and insight to strategically consider participating in formal processes focused primarily on narrowing a pool of SPACs to a single winning bidder to instances where we believe we are optimally positioned to win such processes. +● Committed and Capable Management Team . We will seek to acquire a business with a management team whose interests are aligned with those of our shareholders and who can clearly and confidently articulate the business plan and market opportunities to public market investors. Where necessary, we may also look to complement and enhance the capabilities of the target business’s management team and their board of directors by recruiting additional talent through our network of contacts or otherwise. This may include recruiting experienced industry professionals, or operating partners, to assist in our evaluation of the opportunity and marketing of the Business Combination prior to its completion, who may assume an ongoing role with the business or board thereafter. While not a requirement, we would view favorably opportunities where the target’s chief financial officer has experience as a public company chief financial officer or other substantive public market experience, and ideally where other members of senior management have public market experience as well. +● Potential to Grow, Including Through Further Acquisition Opportunities . We will seek to acquire a business that has the potential to grow both organically and inorganically through acquisitions, with management having identified a pipeline of potentially actionable accretive acquisition targets. We expect to work with the ongoing management team to develop the business strategy around geographic expansion, new products, high-return capital expenditure projects and acquisitions, as well as creating and maintaining the optimal capital structure for growth. +● Preparedness for the Process and Public Markets . We will seek to acquire a business that has or can put in place prior to the closing of a Business Combination, the material governance, financial systems and controls required in the public markets. Specifically, we will seek to avoid situations where extensive accounting or restructuring work is required with an uncertain timetable or outcome before a transaction can be completed. +These criteria are not intended to be exhaustive or exclusive. Any evaluation relating to the merits of a particular initial Business Combination may be based, to the extent relevant, on these general guidelines as well as other considerations, factors and criteria that our management may deem relevant. In the event that we decide to enter into our initial Business Combination with a target business that does not meet the above criteria and guidelines, we intend to disclose that the target business does not meet the above criteria in our shareholder communications related to our initial Business Combination, which would be in the form of proxy solicitation materials or tender offer documents that we would file with the SEC. +3 +Table of Contents +Selection of a Target Business and Structuring of our Initial Business Combination +We will provide our public shareholders with the opportunity to redeem all or a portion of their Class A Ordinary Shares upon the completion of our initial Business Combination either (i) in connection with a general meeting called to approve the Business Combination or (ii) without a shareholder vote by means of a tender offer. Each public shareholder may elect to redeem their Public Shares irrespective of whether they vote for or against an initial Business Combination, or whether they do not vote or abstain from voting on the initial Business Combination. If we seek shareholder approval, we will complete our initial Business Combination only if we receive an ordinary resolution under Cayman Islands law, passed by the affirmative vote of at least a majority of the votes cast by the shareholders of the issued shares represented in person or represented by proxy and entitled to vote on such matter at a general meeting of the company and are voted at a general meeting of the Company. The decision as to whether we will seek shareholder approval of a proposed Business Combination or conduct a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would require us to seek shareholder approval under applicable law or stock exchange listing requirement. +We have until the end of the Completion Window to consummate our initial Business Combination. If we anticipate that we may be unable to consummate our initial Business Combination within such 24-month period, we may seek shareholder approval to amend our amended and restated memorandum and articles of association to extend the date by which we must consummate our initial Business Combination. If we seek shareholder approval for an extension, holders of Class A Ordinary Shares will be offered an opportunity to redeem their shares at a per share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned thereon (less taxes payable), divided by the number of then issued and outstanding Class A Ordinary Shares, subject to applicable law. +If we are unable to complete our initial Business Combination within the Completion Window, we will redeem 100% of the Public Shares at a per share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned thereon (which interest shall be net of taxes payable and up to $100,000 of interest income to pay liquidation expenses), divided by the number of then issued and outstanding Class A Ordinary Shares, subject to applicable law and certain conditions as further described herein. We expect the pro rata redemption price to be approximately $10.00 per public share, without taking into account any interest or other income earned on such funds. However, we cannot assure you that we will in fact be able to distribute such amounts as a result of claims of creditors, which may take priority over the claims of our public shareholders. +NYSE American rules require that we must consummate one or more business combinations having a fair market value equal to at least 80% of the value of the Trust Account (excluding the amount of any deferred underwriting commissions and taxes payable on the income earned on the Trust Account) at the time of our signing a definitive agreement in connection with our initial Business Combination. Our board of directors will make the determination as to the fair market value of our initial Business Combination. If our board of directors is not able to independently determine the fair market value of our initial Business Combination, we will obtain an opinion from an independent investment banking firm or another independent valuation or appraisal firm that regularly provides fairness opinions solely with respect to the satisfaction of such criteria. While we consider it unlikely that our board will not be able to make such independent determination of fair market value, it may be unable to do so if the board is less familiar or experienced with the target company’s business, there is a significant amount of uncertainty as to the value of the company’s assets or prospects, including if such company is at an early stage of development, operations or growth, or if the anticipated transaction involves a complex financial analysis or other specialized skills and the board determines that outside expertise would be helpful or necessary in conducting such analysis. Since any opinion, if obtained, would merely state that the fair market value meets the 80% test, unless such opinion includes material information regarding the valuation of a target business or the consideration to be provided, it is not anticipated that copies of such opinion would be distributed to our shareholders. However, if required under applicable law, any proxy statement that we deliver to shareholders and file with the SEC in connection with a proposed transaction will include such opinion. +4 +Table of Contents +We anticipate structuring our initial Business Combination so that the post-transaction company in which our public shareholders own shares will own or acquire 100% of the equity interests or assets of the target business or businesses. We may, however, structure our initial Business Combination such that the post-transaction company owns or acquires less than 100% of such interests or assets of the target business in order to meet certain objectives of the target management team or shareholders or for other reasons, but we will only complete such Business Combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act. Even if the post-transaction company owns or acquires 50% or more of the voting securities of the target, our shareholders prior to the Business Combination may collectively own a minority interest in the post-transaction company, depending on valuations ascribed to the target and us in the Business Combination transaction. For example, we could pursue a transaction in which we issue a substantial number of new shares in exchange for all of the outstanding capital stock of a target. In this case, we would acquire a 100% controlling interest in the target. However, as a result of the issuance of a substantial number of new shares, our shareholders immediately prior to our initial Business Combination could own less than a majority of our outstanding shares subsequent to our initial Business Combination. If less than 100% of the equity interests or assets of a target business or businesses are owned or acquired by the post-transaction company, the portion of such business or businesses that is owned or acquired is what will be taken into account for purposes of the NYSE American’s 80% test. If the Business Combination involves more than one target business, the 80% test will be based on the aggregate value of all of the target businesses. +Our Business Combination Process +We believe our management team’s significant operating and transactional experience and relationships provide us with access to a substantial number of potential initial Business Combination targets. Over the course of their careers, the members of our management team have developed a broad network of contacts and relationships with private companies, investment bankers, private equity and debt investors, high net worth families and their advisors, commercial bankers, attorneys, management consultants, accountants and other transaction intermediaries, as well as corporate sector executives and board members around the world. This network has grown through the activities of our management team sourcing, acquiring and financing businesses, the reputation of our management team for integrity and fair dealing with sellers, financing sources and target management teams and the experience of our management team in executing transactions, especially special purpose acquisition company transactions, under varying economic and financial market conditions. +In addition, we anticipate that target Business Combination candidates will be brought to our attention from various unaffiliated sources, including investment bankers, private equity funds and large business enterprises seeking to divest non-core assets or divisions. +In evaluating a prospective target business, we expect to conduct a due diligence review which may encompass, among other things, meetings with incumbent management and employees, document reviews, interviews of customers and suppliers, inspections of facilities, as well as reviewing financial and other information made available to us and other reviews as we deem appropriate. We may also retain consultants with expertise relating to a prospective target business. +We are not prohibited from pursuing an initial Business Combination with a company that is affiliated with our Sponsor, executive officers or directors, or completing an initial Business Combination through a joint venture or other form of shared ownership with our Sponsor, executive officers or directors. In the event we seek to complete an initial Business Combination with a target that is affiliated (as defined in our amended and restated memorandum and articles of association) with our Sponsor, executive officers or directors, we, or a committee of independent directors, would obtain an opinion from an independent investment banking firm which is a member of FINRA or another independent entity that commonly renders valuation opinions stating that the consideration to be paid by us in such an initial Business Combination is fair to our company from a financial point of view. We are not required to obtain such an opinion in any other context. +5 +Table of Contents +Members of our management team and our independent directors directly or indirectly own Founder Shares and/or Private Placement Warrants and, accordingly, may have a conflict of interest in determining whether a particular target business is an appropriate business with which to effectuate our initial Business Combination. In addition, certain of our officers and directors are members of our Sponsor and own membership interests of our Sponsor. The remaining membership interests are held by third party investors that are not affiliated with members of our management. The low price that our Sponsor, executive officers and directors (directly or indirectly) paid for the Founder Shares creates an incentive whereby our officers and directors could potentially make a substantial profit even if we select an acquisition target that subsequently declines in value and is unprofitable for public shareholders. If we are unable to complete our initial Business Combination within the Completion Window, the Founder Shares and Private Placement Warrants may expire, except to the extent they receive liquidating distributions from assets outside the Trust Account, which could create an incentive for our Sponsor, executive officers and directors to complete a transaction even if we select an acquisition target that subsequently declines in value and is unprofitable for public shareholders. Further, each of the members of our management team may have a conflict of interest with respect to evaluating a particular Business Combination if the retention or resignation of any such person was included by a target business as a condition to any agreement with respect to our initial Business Combination. +Our officers and directors presently and in the future may have additional, fiduciary or contractual obligations to other entities pursuant to which such officer or director is or will be required to present a Business Combination opportunity. Accordingly, if any of our officers or directors becomes aware of a Business Combination opportunity which is suitable for an entity to which he or she has then-current fiduciary or contractual obligations, he or she will honor his or her fiduciary or contractual obligations to present such opportunity to such other entity, subject to their fiduciary duties under Cayman Islands law. We do not believe, however, that the fiduciary duties or contractual obligations of our officers or directors will materially affect our ability to complete our Business Combination. +In addition, our Sponsor and our officers and directors or any of their affiliates may sponsor or form other special purpose acquisition companies similar to ours or may pursue other business or investment ventures during the period in which we are seeking an initial Business Combination. Any such companies, businesses or investments may present additional conflicts of interest in pursuing an initial Business Combination. However, we do not believe that such duties or obligations will materially affect our ability to complete our initial Business Combination. +Our amended and restated memorandum and articles of association provide that, to the fullest extent permitted by applicable law: (i) no individual serving as a director or an officer shall have any duty, except and to the extent expressly assumed by contract, to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as us, and (ii) we renounce any interest or expectancy in, or in being offered an opportunity to participate in, any potential transaction or matter which may be a corporate opportunity for any director or officer, on the one hand, and us, on the other. The purpose for the surrender of corporate opportunities is to allow officers, directors or other representatives with multiple business affiliations to continue to serve as an officer of our company or on our board of directors. Our officers and directors may from time to time be presented with opportunities that could benefit both another business affiliation and us. In the absence of the “corporate opportunity” waiver in our charter, certain candidates would not be able to serve as an officer or director. We believe we substantially benefit from having representatives who bring significant, relevant and valuable experience to our management, and, as a result, the inclusion of the “corporate opportunity” waiver in our amended and restated memorandum and articles of association provide us with greater flexibility to attract and retain the officers and directors that we feel are the best candidates. We do not believe, however, that the fiduciary duties or contractual obligations of our officers or directors will materially affect our ability to complete our initial business. +Financial Position +With funds available for a Business Combination initially in the amount of $230,000,000, we offer a target business a variety of options such as creating a liquidity event for its owners, providing capital for the potential growth and expansion of its operations or strengthening its balance sheet by reducing its debt ratio. Because we are able to complete our initial Business Combination using our cash, debt or equity securities, or a combination of the foregoing, we have the flexibility to use the most efficient combination that will allow us to tailor the consideration to be paid to the target business to fit its needs and desires. However, we have not taken any steps to secure third party financing and there can be no assurance it will be available to us. +6 +Table of Contents +Lack of Business Diversification +For an indefinite period of time after the completion of our initial Business Combination, the prospects for our success may depend entirely on the future performance of a single business. Unlike other entities that have the resources to complete Business Combinations with multiple entities in one or several industries, it is probable that we will not have the resources to diversify our operations and mitigate the risks of being in a single line of business in a single industry. By completing our initial Business Combination with only a single entity, our lack of diversification may: +● subject us to negative economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact on the particular industry in which we operate after our initial Business Combination; and +● cause us to depend on the marketing and sale of a single product or limited number of products or services. +Limited Ability to Evaluate the Target’s Management Team +Although we intend to closely scrutinize the management of a prospective target business when evaluating the desirability of effecting our initial Business Combination with that business, our assessment of the target business’ management may not prove to be correct. In addition, the future management may not have the necessary skills, qualifications or abilities to manage a public company. Furthermore, the future role of members of our management team, if any, in the target business cannot presently be stated with any certainty. The determination as to whether any of the members of our management team will remain with the combined company will be made at the time of our initial Business Combination. While it is possible that one or more of our directors will remain associated in some capacity with us following our initial Business Combination, it is unlikely that any of them will devote their full efforts to our affairs subsequent to our initial Business Combination. Moreover, we cannot assure you that members of our management team will have significant experience or knowledge relating to the operations of the particular target business. +We cannot assure you that any of our key personnel will remain in senior management or advisory positions with the combined company. The determination as to whether any of our key personnel will remain with the combined company will be made at the time of our initial Business Combination. +Following a Business Combination, we may seek to recruit additional personnel to supplement the incumbent management of the target business. We cannot assure you that we will have the ability to recruit additional people, or that the individuals that we do recruit will have the requisite skills, knowledge or experience necessary to enhance the incumbent management. +Shareholders May Not Have the Ability to Approve our Initial Business Combination +We may conduct redemptions without a shareholder vote pursuant to the tender offer rules of the SEC subject to the provisions of our amended and restated memorandum and articles of association. However, we will seek shareholder approval if it is required by law or applicable stock exchange rule, or we may decide to seek shareholder approval for business or other legal reasons. +Under the NYSE American’s listing rules, shareholder approval would be required for our initial Business Combination if, for example: +● we issue ordinary shares, or securities convertible into ordinary shares, that will be equal to or in excess of 20% of the number of our ordinary shares then issued and outstanding (other than in a public offering); +● any of our directors, officers or substantial shareholders (as defined by NYSE American rules) has a 5% or greater interest (or such persons collectively have a 10% or greater interest), directly or indirectly, in the target business or assets to be acquired or otherwise and the present or potential issuance of ordinary shares, or securities convertible into ordinary shares, could result in an increase in outstanding ordinary shares of 5% or more; or +● the issuance or potential issuance of ordinary shares will result in our undergoing a change of control. +7 +Table of Contents +The decision as to whether we will seek shareholder approval of a proposed Business Combination in those instances in which shareholder approval is not required by applicable law or stock exchange listing requirements will be made by us, solely in our discretion, and will be based on business and legal reasons, which include a variety of factors, including, but not limited to: (i) the timing of the transaction, including in the event we determine shareholder approval would require additional time and there is either not enough time to seek shareholder approval or doing so would place the company at a disadvantage in the transaction or result in other additional burdens on the company; (ii) the expected cost of holding a shareholder vote; (ii) the risk that the shareholders would fail to approve the proposed Business Combination; (iv) other time and budget constraints of the company; and (v) additional legal complexities of a proposed Business Combination that would be time-consuming and burdensome to present to shareholders. +Permitted Purchases of our Securities +If we seek shareholder approval of our initial Business Combination and we do not conduct redemptions in connection with our initial Business Combination pursuant to the tender offer rules, our Sponsor, initial shareholders, directors, executive officers, advisors or their affiliates may purchase Public Shares or Public Warrants in privately negotiated transactions or in the open market either prior to or following the completion of our initial Business Combination, although they are under no obligation or duty to do so. With respect to purchases of our Public Shares, any such price per share may be different than the amount per share a public shareholder would receive if it elected to redeem its shares in connection with our initial Business Combination. Such a purchase of our Public Shares may include a contractual acknowledgment that such shareholder, although still the record holder of our shares is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that our Sponsor, initial shareholders, directors, officers, advisors or their affiliates purchase Public Shares in privately negotiated transactions from public shareholders who have already elected to exercise their redemption rights, such selling shareholders would be required to revoke their prior elections to redeem their shares. It is intended that, if Rule 10b - 18 would apply to purchases by Sponsor, initial shareholders, directors, officers, advisors and their affiliates, then such purchases will comply with Rule 10b - 18 under the Exchange Act, to the extent it applies, which provides a safe harbor for purchases made under certain conditions, including with respect to timing, pricing and volume of purchases. +Additionally, at any time at or prior to our initial Business Combination, subject to applicable securities laws (including with respect to material nonpublic information), our Sponsor, initial shareholders, directors, officers, advisors and their affiliates may enter into transactions with investors and others to provide them with incentives to acquire Public Shares, vote their Public Shares in favor of our initial Business Combination or not redeem their Public Shares. However, they have no current commitments, plans or intentions to engage in such transactions and have not formulated any terms or conditions for any such transactions. None of the funds in the Trust Account will be used to purchase Public Shares or Public Warrants in such transactions . +The purpose of any such transaction could be to (i) increase the likelihood of obtaining shareholder approval of the Business Combination, (ii) reduce the number of Public Warrants outstanding and/or increase the likelihood of approval on any matters submitted to Public Warrant holders for approval in connection with our initial Business Combination or (iii) to satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain amount of cash at the closing of our initial Business Combination, where it appears that such requirement would otherwise not be met. Any such purchases of our securities may result in the completion of our initial business combination that may not otherwise have been possible. +In addition, if such purchases are made, the public “float” of our Class A Ordinary Shares or Public Warrants may be reduced and the number of beneficial holders of our securities may be reduced, which may make it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities exchange. +Our Sponsor, initial shareholders, officers, directors and/or their affiliates anticipate that they may identify the shareholders with whom our initial shareholders, officers, directors or their affiliates may pursue privately negotiated purchases by either the shareholders contacting us directly or by our receipt of redemption requests submitted by shareholders (in the case of Class A Ordinary Shares) following our mailing of proxy materials in connection with our initial Business Combination. To the extent that our Sponsor, officers, directors, advisors or their affiliates enter into a private purchase, they would identify and contact only potential selling shareholders who have expressed their election to redeem their shares for a pro rata share of the Trust Account or vote against our initial Business Combination, whether or not such shareholder has already submitted a proxy with respect to our initial Business Combination but only if such shares have not already been voted at the shareholder meeting related to our initial Business Combination. Our Sponsor, executive officers, directors, advisors or any of their affiliates will select which shareholders to purchase shares from based on a negotiated price and number of shares and any other factors that they may deem relevant and will only purchase shares if such purchases comply with Regulation M under the Exchange Act and the other federal securities laws. Our Sponsor, officers, directors and/or their affiliates will be restricted from making purchases of shares if the purchases would violate Section 9(a)(2) or Rule 10b-5 of the Exchange Act. We expect any such purchases will be reported pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchases are subject to such reporting requirements. +8 +Table of Contents +Our Sponsor, initial shareholders, directors, officers and their affiliates will be restricted from making purchases of shares if the purchases would violate Section 9(a)(2) or Rule 10b-5 of the Exchange Act. Any such purchases will be reported pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchasers are subject to such reporting requirements. Additionally, in the event our Sponsor, initial shareholders, directors, officers and their affiliates were to purchase Public Shares or Public Warrants from public shareholders, such purchases would be structured in compliance with the requirements of Rule 14e-5 under the Exchange Act including, in pertinent part, through adherence to the following: +● our registration statement/proxy statement filed for our Business Combination transaction would disclose the possibility that our Sponsor, initial shareholders, directors, officers and their affiliates may purchase Public Shares or Public Warrants from public shareholders outside the redemption process, along with the purpose of such purchases; +● if our Sponsor, initial shareholders, directors, officers and their affiliates were to purchase Public Shares or Public Warrants from public shareholders, they would do so at a price no higher than the price offered through our redemption process; +● our registration statement/proxy statement filed for our Business Combination transaction would include a representation that any of our securities purchased by our Sponsor, initial shareholders, directors, officers and their affiliates would not be voted in favor of approving the Business Combination transaction; +● our Sponsor, initial shareholders, directors, officers and their affiliates would not possess any redemption rights with respect to our securities or, if they do acquire and possess redemption rights, they would waive such rights; and +● we would disclose in a Form 8-K, before our security holder meeting to approve the Business Combination transaction, the following material items: +o the amount of our securities purchased outside of the redemption offer by our Sponsor, initial shareholders, directors, officers and their affiliates, along with the purchase price; +o the purpose of the purchases by our Sponsor, initial shareholders, directors, officers and their affiliates; +o the impact, if any, of the purchases by our Sponsor, initial shareholders, directors, officers and their affiliates on the likelihood that the Business Combination transaction will be approved; +o the identities of our security holders who sold to our Sponsor, initial shareholders, directors, officers and their affiliates (if not purchased on the open market) or the nature of our security holders (e.g., 5% security holders) who sold to our Sponsor, initial shareholders, directors, officers and their affiliates; and +o the number of our securities for which we have received redemption requests pursuant to our redemption offer. +Please see “ Risk Factors — If we seek shareholder approval of our initial Business Combination, our Sponsor, initial shareholders, directors, officers and their affiliates may elect to purchase Public Shares or Public Warrants from public shareholders, which may influence a vote on a proposed Business Combination and reduce the public “float” of our securities. ” +Redemption Rights for Public Stockholders upon Completion of our Initial Business Combination +We will provide our public shareholders with the opportunity to redeem all or a portion of their Class A Ordinary Shares upon the completion of our initial Business Combination at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account calculated as of two business days prior to the consummation of the initial Business Combination, including interest earned on the funds held in the Trust Account (which interest shall be net of taxes payable), divided by the number of then outstanding Public Shares, subject to the limitations and on the conditions described herein. The amount in the Trust Account is initially anticipated to be $10.00 per public share. The per share amount we will distribute to investors who properly redeem their shares will not be reduced by the deferred underwriting commissions we will pay to the underwriters. Our initial shareholders, Sponsor, officers and directors have entered into a letter agreement with us (the “Insider Letter”), pursuant to which they have agreed to waive their redemption rights with respect to any Founder Shares and Public Shares they may hold in connection with the completion of our initial Business Combination. +9 +Table of Contents +Limitations on Redemptions +Our proposed initial Business Combination may impose a minimum cash requirement for: (i) cash consideration to be paid to the target or its owners, (ii) cash for working capital or other general corporate purposes or (iii) the retention of cash to satisfy other conditions. In the event the aggregate cash consideration we would be required to pay for all Class A Ordinary Shares that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the proposed initial Business Combination exceed the aggregate amount of cash available to us, we will not complete the initial Business Combination or redeem any shares in connection with such initial Business Combination, and all Class A Ordinary Shares submitted for redemption will be returned to the holders thereof. We may, however, raise funds through the issuance of equity-linked securities or through loans, advances or other indebtedness in connection with our initial Business Combination, including pursuant to forward purchase agreements or backstop arrangements we may enter into, in order to, among other reasons, satisfy such net tangible assets or minimum cash requirements. +Manner of Conducting Redemptions +We will provide our public shareholders with the opportunity to redeem all or a portion of their Public Shares upon the completion of our initial Business Combination either (i) in connection with a shareholder meeting called to approve the initial Business Combination or (ii) without a shareholder vote by means of a tender offer. The decision as to whether we will seek shareholder approval of a proposed initial Business Combination or conduct a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would require us to seek shareholder approval under applicable law or stock exchange listing requirements. Asset acquisitions and share purchases would not typically require shareholder approval while direct mergers with our company where we do not survive and any transactions where we issue more than 20% of our outstanding ordinary shares or seek to amend our amended and restated memorandum and articles of association would require shareholder approval. So long as we obtain and maintain a listing for our securities on the NYSE American, we will be required to comply with the NYSE American’s shareholder approval rules. +The requirement that we provide our public shareholders with the opportunity to redeem their Public Shares by one of the two methods listed above are contained in provisions of our amended and restated memorandum and articles of association and apply whether or not we maintain our registration under the Exchange Act or our listing on the NYSE American. Such provisions may be amended if approved by a special resolution passed by the affirmative vote of at least two-thirds of our ordinary shares which are represented in person or by proxy and are voted at a general meeting of the company, so long as we offer redemption in connection with such amendment. +If we provide our public shareholders with the opportunity to redeem their Public Shares in connection with a shareholder meeting, we will: +● conduct the redemptions in conjunction with a proxy solicitation pursuant to Regulation 14A of the Exchange Act, which regulates the solicitation of proxies, and not pursuant to the tender offer rules; and +● file proxy materials with the SEC. +In the event that we seek shareholder approval of our initial Business Combination, we will distribute proxy materials and, in connection therewith, provide our public shareholders with the redemption rights described above upon completion of the initial Business Combination. +10 +Table of Contents +If we seek shareholder approval, we will complete our initial Business Combination only if we receive the approval of an ordinary resolution under Cayman Islands law, passed by the affirmative vote of at least a majority of the votes cast by the shareholders of the issued shares represented in person or represented by proxy and entitled to vote on such matter at a general meeting of the company and are voted at a general meeting of the company. In accordance with our amended and restated memorandum and articles of association, a quorum for such meeting will be present if the holders of one third of issued and outstanding shares entitled to vote at the meeting are represented in person or by proxy. Our initial shareholders will count towards this quorum and, pursuant to the Insider Letter, our Sponsor, officers and directors have agreed to vote any Founder Shares they hold and any Public Shares purchased during our initial public offering or thereafter (including in open market and privately-negotiated transactions) in favor of our initial Business Combination. For purposes of seeking approval of an ordinary resolution, non- votes will have no effect on the approval of our initial Business Combination once a quorum is obtained. As a result, in addition to our initial shareholders’ Founder Shares, we would need 8,625,001 or 37.5% of the 23,000,000 Public Shares sold in our initial public offering to be voted in favor of an initial Business Combination in order to have our initial Business Combination approved (assuming all outstanding shares are voted). Assuming that only the holders of one-third of our issued and outstanding ordinary shares, representing a quorum under our amended and restated memorandum and articles of association, vote their ordinary shares at a general meeting of the company, we will not need any Public Shares in addition to our Founder Shares to be voted in favor of an initial Business Combination in order to approve an initial Business Combination. However, if our initial Business Combination is structured as a statutory merger or consolidation with another company under Cayman Islands law, the approval of our initial Business Combination will require a special resolution passed by the affirmative vote of at least two-thirds of our ordinary shares which are represented in person or by proxy and are voted at a general meeting of the company. These quorum and voting thresholds, and the voting agreements of our initial shareholders, may make it more likely that we will consummate our initial Business Combination. Each public shareholder may elect to redeem its Public Shares irrespective of whether they vote for or against the proposed transaction, or whether they do not vote or abstain from voting on the proposed transaction, or whether they were a shareholder on the record date for the shareholder meeting held to approve the proposed transaction. +If a shareholder vote is not required and we do not decide to hold a shareholder vote for business or other legal reasons, we will: +● conduct the redemptions pursuant to Rule 13e-4 and Regulation 14E of the Exchange Act, which regulate issuer tender offers, and +● file tender offer documents with the SEC prior to completing our initial Business Combination, which contain substantially the same financial and other information about the initial Business Combination and the redemption rights as is required under Regulation 14A of the Exchange Act, which regulates the solicitation of proxies. +In the event we conduct redemptions pursuant to the tender offer rules, our offer to redeem will remain open for at least 20 business days, in accordance with Rule 14e-1(a) under the Exchange Act, and we will not be permitted to complete our initial Business Combination until the expiration of the tender offer period. +Upon the public announcement of our initial Business Combination, if we elect to conduct redemptions pursuant to the tender offer rules, we or our Sponsor will terminate any plan established in accordance with Rule 10b5-1 to purchase our Class A Ordinary Shares in the open market, in order to comply with Rule 14e-5 under the Exchange Act. +We intend to require our public shareholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” to, at the holder’s option, either deliver their share certificates to our transfer agent or deliver their shares to our transfer agent electronically using The Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) system, prior to the date set forth in the proxy materials or tender offer documents, as applicable. In the case of proxy materials, this date may be up to two business days prior to the scheduled vote on the proposal to approve the initial Business Combination. In addition, if we conduct redemptions in connection with a shareholder vote, we intend to require a public shareholder seeking redemption of its Public Shares to also submit a written request for redemption to our transfer agent two business days prior to the scheduled vote in which the name of the beneficial owner of such shares is included. The proxy materials or tender offer documents, as applicable, that we will furnish to holders of our Public Shares in connection with our initial Business Combination will indicate whether we are requiring public shareholders to satisfy such delivery requirements. We believe that this will allow our transfer agent to efficiently process any redemptions without the need for further communication or action from the redeeming public shareholders, which could delay redemptions and result in additional administrative cost. If the proposed initial Business Combination is not approved and we continue to search for a target company, we will promptly return any certificates or shares delivered by public shareholders who elected to redeem their shares. +11 +Table of Contents +Our proposed initial Business Combination may impose a minimum cash requirement for: (i) cash consideration to be paid to the target or its owners, (ii) cash for working capital or other general corporate purposes or (iii) the retention of cash to satisfy other conditions. In the event the aggregate cash consideration we would be required to pay for all Class A Ordinary Shares that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the proposed initial Business Combination exceed the aggregate amount of cash available to us, we will not complete the initial Business Combination or redeem any shares in connection with such initial Business Combination, and all Class A Ordinary Shares submitted for redemption will be returned to the holders thereof. We may, however, raise funds through the issuance of equity-linked securities or through loans, advances or other indebtedness in connection with our initial Business Combination, including pursuant to forward purchase agreements or backstop arrangements, in order to, among other reasons, satisfy such net tangible assets or minimum cash requirements. +Limitation on Redemption Upon Completion of our Initial Business Combination if We Seek Shareholder Approval +If we seek shareholder approval of our initial Business Combination and we do not conduct redemptions in connection with our initial Business Combination pursuant to the tender offer rules, our amended and restated memorandum and articles of association provide that a public shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from seeking redemption rights with respect to more than an aggregate of 15% of the shares sold in the initial public offering without our prior consent, which we refer to as the “Excess Shares.” +We believe this restriction will discourage shareholders from accumulating large blocks of shares, and subsequent attempts by such holders to use their ability to exercise their redemption rights against a proposed Business Combination as a means to force us or our management to purchase their shares at a significant premium to the then-current market price or on other undesirable terms. Absent this provision, a public shareholder holding more than an aggregate of 15% of the shares sold in our initial public offering could threaten to exercise its redemption rights if such holder’s shares are not purchased by us, our Sponsor or our management at a premium to the then-current market price or on other undesirable terms. By limiting our shareholders’ ability to redeem no more than 15% of the shares sold in our initial public offering without our prior consent, we believe we will limit the ability of a small group of shareholders to unreasonably attempt to block our ability to complete our initial Business Combination, particularly in connection with a Business Combination with a target that requires as a closing condition that we have a minimum net worth or a certain amount of cash. +However, we would not be restricting our shareholders’ ability to vote all of their shares (including Excess Shares) for or against our initial Business Combination. +Delivering Share Certificates in Connection with the Exercise of Redemption Rights +As described above, we intend to require our public shareholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” to, at the holder’s option, either deliver their share certificates to our transfer agent or deliver their shares to our transfer agent electronically using The Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) system, prior to the date set forth in the proxy materials or tender offer documents, as applicable. In the case of proxy materials, this date may be up to two business days prior to the scheduled vote on the proposal to approve the initial Business Combination. In addition, if we conduct redemptions in connection with a shareholder vote, we intend to require a public shareholder seeking redemption of its Public Shares to also submit a written request for redemption to our transfer agent two business days prior to the scheduled vote in which the name of the beneficial owner of such shares is included. The proxy materials or tender offer documents, as applicable, that we will furnish to holders of our Public Shares in connection with our initial Business Combination will indicate whether we are requiring public shareholders to satisfy such delivery requirements. Accordingly, a public shareholder would have up to two business days prior to the scheduled vote on the initial Business Combination if we distribute proxy materials, or from the time we send out our tender offer materials until the close of the tender offer period, as applicable, to submit or tender its shares if it wishes to seek to exercise its redemption rights. In the event that a shareholder fails to comply with these or any other procedures disclosed in the proxy or tender offer materials, as applicable, its shares may not be redeemed. Given the relatively short exercise period, it is advisable for shareholders to use electronic delivery of their Public Shares. +There is a nominal cost associated with the above-referenced process and the act of certificating the shares or delivering them through the DWAC system. The transfer agent will typically charge the broker submitting or tendering shares a fee of approximately $100 and it would be up to the broker whether or not to pass this cost on to the redeeming holder. However, this fee would be incurred regardless of whether or not we require holders seeking to exercise redemption rights to submit or tender their shares. The need to deliver shares is a requirement of exercising redemption rights regardless of the timing of when such delivery must be effectuated. +12 +Table of Contents +Any request to redeem such shares, once made, may be withdrawn at any time up to the date set forth in the proxy materials or tender offer documents, as applicable. Furthermore, if a holder of a public share delivered its certificate in connection with an election of redemption rights and subsequently decides prior to the applicable date not to elect to exercise such rights, such holder may simply request that the transfer agent return the certificate (physically or electronically). It is anticipated that the funds to be distributed to holders of our Public Shares electing to redeem their shares will be distributed promptly after the completion of our initial Business Combination. +If our initial Business Combination is not approved or completed for any reason, then our public shareholders who elected to exercise their redemption rights would not be entitled to redeem their shares for the applicable pro rata share of the Trust Account. In such case, we will promptly return any certificates delivered by public holders who elected to redeem their shares. +If our initial proposed initial Business Combination is not completed, we may continue to try to complete an initial Business Combination with a different target until the end of the Completion Window. +Redemption of Public Shares and Liquidation if No Initial Business Combination +Our amended and restated memorandum and articles of association provide that we have only the duration of the Completion Window to complete our initial Business Combination. If we are unable to complete our initial Business Combination within such 24 -month period, we will, as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account (which interest shall be net of taxes payable and up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will constitute full and complete payment for the Public Shares and completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidating or other distributions, if any). +Our initial shareholders, Sponsor, officers and directors have entered into an Insider Letter with us, pursuant to which they have waived their rights to liquidating distributions from the Trust Account with respect to any Founder Shares they hold if we fail to complete our initial Business Combination within the Completion Window, although they will be entitled to liquidating distributions from assets outside the Trust Account. However, if our initial shareholders, Sponsor or management team acquire Public Shares, they will be entitled to liquidating distributions from the Trust Account and liquidating distributions from assets outside the Trust Account with respect to such Public Shares if we fail to complete our initial Business Combination within the allotted 24- month time period. +Our initial shareholders, Sponsor, officers and directors have agreed, pursuant to the Insider Letter, that they will not propose any amendment to our amended and restated memorandum and articles of association (A) to modify the substance or timing of our obligation to redeem 100% of our Public Shares if we do not complete our initial Business Combination within the Completion Window or (B) with respect to any other material provisions relating to shareholders’ rights or pre-initial Business Combination activity, unless we provide our public shareholders with the opportunity to redeem their Public Shares upon approval of any such amendment at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account (which interest shall be net of taxes payable), divided by the number of then outstanding Public Shares. +We expect that all costs and expenses associated with implementing our plan of dissolution, as well as payments to any creditors, will be funded from amounts remaining out of the approximately $1,250,000 of initial public offering proceeds held outside the Trust Account, although we cannot assure you that there will be sufficient funds for such purpose. However, if those funds are not sufficient to cover the costs and expenses associated with implementing our plan of dissolution, to the extent that there is any interest accrued in the Trust Account not required to pay taxes, we may request the trustee to release to us an additional amount of up to $100,000 of such accrued interest to pay those costs and expenses. +If we were to expend all of the net proceeds of our initial public offering and the sale of the Private Placement Warrants, other than the proceeds deposited in the Trust Account, and without taking into account interest, if any, earned on the Trust Account and any tax payments or expenses for the dissolution of the trust, the per-share redemption amount received by shareholders upon our dissolution would be approximately $10.00. +13 +Table of Contents +The proceeds deposited in the Trust Account could, however, become subject to the claims of our creditors which would have higher priority than the claims of our public shareholders. We cannot assure you that the actual per-share redemption amount received by shareholders will not be substantially less than $10.00. While we intend to pay such amounts, if any, we cannot assure you that we will have funds sufficient to pay or provide for all creditors’ claims. +Although we will seek to have all vendors, service providers (other than the underwriters of our initial public offering and our independent registered public accounting firm), prospective target businesses and other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the Trust Account for the benefit of our public shareholders, there is no guarantee that they will execute such agreements or even if they execute such agreements that they would be prevented from bringing claims against the Trust Account including but not limited to fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain an advantage with respect to a claim against our assets, including the funds held in the Trust Account. If any third party refuses to execute an agreement waiving such claims to the monies held in the Trust Account, our management will consider whether competitive alternatives are reasonably available to us and will only enter into an agreement with such third party if management believes that such third party’s engagement would be in the best interests of the company under the circumstances. Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. The underwriters of our initial public offering and our independent registered public accounting firm will not execute agreements with us waiving such claims to the monies held in the Trust Account. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the Trust Account for any reason. In order to protect the amounts held in the Trust Account, our Sponsor has agreed that it will be liable to us if and to the extent any claims by a third party for services rendered or products sold to us (except for the company’s independent auditors), or a prospective target business with which we have entered into a written letter of intent, confidentiality or other similar agreement or Business Combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.00 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.00 per public share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to the monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under our indemnity of the underwriters of our initial public offering against certain liabilities, including liabilities under the Securities Act. However, we have not asked our Sponsor to reserve for such indemnification obligations, nor have we independently verified whether our Sponsor has sufficient funds to satisfy its indemnity obligations and we believe that our Sponsor’s only assets are securities of our company. Therefore, we cannot assure you that our Sponsor would be able to satisfy those obligations. As a result, if any such claims were successfully made against the Trust Account, the funds available for our initial Business Combination and redemptions could be reduced to less than $10.00 per public share. In such event, we may not be able to complete our initial Business Combination, and you would receive such lesser amount per share in connection with any redemption of your Public Shares. None of our officers or directors will indemnify us for claims by third parties including, without limitation, claims by vendors and prospective target businesses. +In the event that the proceeds in the Trust Account are reduced below the lesser of (i) $10.00 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account if less than $10.00 per share due to reductions in the value of the trust assets, in each case less taxes payable, and our Sponsor asserts that it is unable to satisfy its indemnification obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against our Sponsor to enforce its indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against our Sponsor to enforce its indemnification obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so in any particular instance. Accordingly, we cannot assure you that due to claims of creditors the actual value of the per-share redemption price will not be less than $10.00 per share. +14 +Table of Contents +We will seek to reduce the possibility that our Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers, prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account. Our Sponsor will also not be liable as to any claims under our indemnity of the underwriters of our initial public offering against certain liabilities, including liabilities under the Securities Act. We will have access to up to approximately $1,250,000 from the proceeds of our initial public offering with which to pay any such potential claims (including costs and expenses incurred in connection with our liquidation, currently estimated to be no more than approximately $100,000). In the event that we liquidate and it is subsequently determined that the reserve for claims and liabilities is insufficient, shareholders who received funds from our Trust Account could be liable for claims made by creditors. In the event that our offering expenses exceed our estimate of $750,000, we may fund such excess with funds from the funds not to be held in the Trust Account. In such case, the amount of funds we intend to be held outside the Trust Account would decrease by a corresponding amount. Conversely, in the event that the offering expenses are less than our estimate of $750,000, the amount of funds we intend to be held outside the Trust Account would increase by a corresponding amount. +If we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy or insolvency law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our shareholders. To the extent any bankruptcy claims deplete the Trust Account, we cannot assure you we will be able to return $10.00 per share to our public shareholders. Additionally, if we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, any distributions received by shareholders could be viewed under applicable debtor/creditor and/ or bankruptcy or insolvency laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy or insolvency court could seek to recover some or all amounts received by our shareholders. Furthermore, our board of directors may be viewed as having breached its fiduciary duty to our creditors and/or may have acted in bad faith, and thereby exposing itself and our company to claims of punitive damages, by paying public shareholders from the Trust Account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons. +Our public shareholders will be entitled to receive funds from the Trust Account only (i) in the event of the redemption of our Public Shares if we do not complete our initial Business Combination within the Completion Window, (ii) in connection with a shareholder vote to amend our amended and restated memorandum and articles of association (A) to modify the substance or timing of our obligation to redeem 100% of our Public Shares if we do not complete our initial Business Combination within the Completion Window or (B) with respect to any other material provisions relating to shareholders’ rights or pre- initial Business Combination activity or (iii) if they redeem their respective shares for cash upon the completion of our initial Business Combination. In no other circumstances will a shareholder have any right or interest of any kind to or in the Trust Account. In the event we seek shareholder approval in connection with our initial Business Combination, a shareholder’s voting in connection with the Business Combination alone will not result in a shareholder’s redeeming its shares to us for an applicable pro rata share of the Trust Account. Such shareholder must have also exercised its redemption rights described above. These provisions of our amended and restated memorandum and articles of association, like all provisions of our amended and restated memorandum and articles of association, may be amended with a shareholder vote. +Competition +In identifying, evaluating and selecting a target business for our initial Business Combination, we may encounter competition from other entities having a business objective similar to ours, including other special purpose acquisition companies, private equity groups and leveraged buyout funds, public companies and operating businesses seeking strategic acquisitions. Many of these entities are well established and have extensive experience identifying and effecting Business Combinations directly or through affiliates. Moreover, many of these competitors possess similar or greater financial, technical, human and other resources than us. Our ability to acquire larger target businesses will be limited by our available financial resources. This inherent limitation gives others an advantage in pursuing the acquisition of a target business. Furthermore, our obligation to pay cash in connection with our public shareholders who exercise their redemption rights may reduce the resources available to us for our initial Business Combination and our outstanding warrants, and the future dilution they potentially represent, may not be viewed favorably by certain target businesses. Either of these factors may place us at a competitive disadvantage in successfully negotiating an initial Business Combination. +15 +Table of Contents +Facilities +We currently utilize office space at 1790 Hughes Landing Blvd., Suite 400, The Woodlands, Texas 77380 from our Sponsor. We consider our current office space adequate for our current operations. We will pay our Sponsor (and/or its affiliates or designees) an aggregate of up to $20,000 per month for office space, secretarial, administrative and support services provided to us and members of our management team. For the years ended December 31, 2025 and 2024, we incurred administrative support services fees of $240,000 and $124,000, respectively. We paid $120,000 and $124,000 during the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025 and 2024, we had outstanding accrued administrative support services fees of $120,000 and $0, respectively, which are included in accrued expenses in the accompanying balance sheets. Upon completion of our initial Business Combination or our liquidation, we will cease paying these monthly fees. +Employees +We currently have one executive officer: James A. Graf, our Chief Executive Officer and Chief Financial Officer. Mr. Graf is not obligated to devote any specific number of hours to our matters but he intends to devote as much of his time as he deems necessary to our affairs until we have completed our initial Business Combination. The amount of time Mr. Graf will devote in any time period will vary based on whether a target business has been selected for our initial Business Combination and the stage of the Business Combination process we are in. We do not intend to have any full time employees prior to the completion of our initial Business Combination. +Available Information +We are required to file Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q with the SEC on a regular basis, and are required to disclose certain material events (e.g., changes in corporate control, acquisitions or dispositions of a significant amount of assets other than in the ordinary course of business and bankruptcy) in a Current Report on Form 8-K. The SEC maintains an internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The SEC’s internet website is located at http://www.sec.gov . In addition, we will provide copies of these documents without charge upon request from us in writing at 1790 Hughes Landing Blvd., Suite 400, The Woodlands, Texas 77380 or by telephone at (310) 745-8669. +Emerging Growth Company and Smaller Reporting Company +We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes- Oxley Act reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile. +In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period. +We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our initial public offering, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Class A Ordinary Shares that are held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. +Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our ordinary shares held by non-affiliates is equal to or exceeds $250 million as of the prior June 30th, or (2) our annual revenues equaled to or exceeded $100 million during such completed fiscal year and the market value of our ordinary shares held by non-affiliates is equal to or exceeds $700 million as of the prior June 30th. +16 +Table of Contents +Item 1A. Risk Factors +An investment in our securities involves a high degree of risk. You should consider carefully all of the risks described below, together with the other information contained in this Form 10-K. If any of the following events occur, our business, financial condition and operating results may be materially adversely affected. In that event, the trading price of our securities could decline, and you could lose all or part of your investment . +Risks Relating to our Search for, Consummation of, or Inability to Consummate, a Business Combination +Our shareholders may not be afforded an opportunity to vote on our proposed initial Business Combination, and even if we hold a vote, holders of our Founder Shares will participate in such vote, which means we may complete our initial Business Combination even though a majority of our public shareholders do not support such a combination. +We may choose not to hold a shareholder vote to approve our initial Business Combination if the Business Combination would not require shareholder approval under applicable law or stock exchange listing requirement. Except as required by applicable law or stock exchange requirement, the decision as to whether we will seek shareholder approval of a proposed Business Combination or will allow shareholders to sell their shares to us in a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors, such as the timing of the transaction and whether the terms of the transaction would otherwise require us to seek shareholder approval. Even if we seek shareholder approval, the holders of our Founder Shares will participate in the vote on such approval. Accordingly, we may complete our initial Business Combination even if a majority of our public shareholders do not approve of the Business Combination we complete. Please see the section entitled “ Business - Shareholders May Not Have the Ability to Approve our Initial Business Combination ” for additional information. +If we seek shareholder approval of our initial Business Combination, our initial shareholders and management team have agreed to vote in favor of such initial Business Combination, regardless of how our public shareholders vote. +Our initial shareholders own 20% of our outstanding ordinary shares. Our initial shareholders and management team also may from time-to-time purchase Class A Ordinary Shares prior to our initial Business Combination. Our amended and restated memorandum and articles of association provides that, if we seek shareholder approval of an initial Business Combination, such initial Business Combination will be approved if we receive an ordinary resolution under Cayman Islands law, passed by the affirmative vote of at least a majority of the votes cast by the shareholders of the issued shares represented in person or represented by proxy and entitled to vote on such matter at a general meeting of the company and are voted at a general meeting of the Company. As a result, in addition to our initial shareholders’ Founder Shares, we would need 8,625,001 or 37.5% of the 23,000,000 Public Shares sold in our initial public offering to be voted in favor of an initial Business Combination in order to have our initial Business Combination approved (assuming all outstanding shares are voted). Assuming that only the holders of one-third of our issued and outstanding ordinary shares, representing a quorum under our amended and restated memorandum and articles of association, vote their ordinary shares at a general meeting of the company, we will not need any Public Shares in addition to our Founder Shares to be voted in favor of an initial Business Combination in order to approve an initial Business Combination. However, if our initial Business Combination is structured as a statutory merger or consolidation with another company under Cayman Islands law, the approval of our initial Business Combination requires a special resolution passed by the affirmative vote of at least two-thirds of our ordinary shares which are represented in person or by proxy and are voted at a general meeting of the Company. Accordingly, if we seek shareholder approval of our initial Business Combination, the agreement by our initial shareholders and management team to vote in favor of our initial Business Combination will increase the likelihood that we will receive the requisite shareholder approval for such initial Business Combination. +Your only opportunity to effect your investment decision regarding a potential Business Combination may be limited to the exercise of your right to redeem your shares from us for cash. +At the time of your investment in us, you will not be provided with an opportunity to evaluate the specific merits or risks of our initial Business Combination. Since our board of directors may complete a Business Combination without seeking shareholder approval, public shareholders may not have the right or opportunity to vote on the Business Combination, unless we seek such shareholder vote. Accordingly, your only opportunity to effect your investment decision regarding our initial Business Combination may be limited to exercising your redemption rights within the period of time (which will be at least 20 business days) set forth in our tender offer documents mailed to our public shareholders in which we describe our initial Business Combination. The amount of the deferred underwriting commissions payable to the underwriters is not currently required to be adjusted for any shares that are redeemed in connection with an initial Business Combination. The per share amount we will distribute to shareholders who properly exercise their redemption rights will not be reduced by the deferred underwriting commission and after such redemptions, the per-share value of shares held by non-redeeming shareholders will reflect our obligation to pay the deferred underwriting commission. +17 +Table of Contents +The ability of our public shareholders to redeem their shares for cash may make our financial condition unattractive to potential Business Combination targets, which may make it difficult for us to enter into a Business Combination with a target. +We may seek to enter into a Business Combination transaction agreement with minimum cash requirement for (i) cash consideration to be paid to the target or its owners, (ii) cash for working capital or other general corporate purposes or (iii) the retention of cash to satisfy other conditions. If too many public shareholders exercise their redemption rights, we would not be able to meet such closing condition and, as a result, would not be able to proceed with the Business Combination. +Consequently, if accepting all properly submitted redemption requests would not allow us to satisfy a closing condition as described above, we would not proceed with such redemption and the related Business Combination and may instead search for an alternate Business Combination. Prospective targets will be aware of these risks and, thus, may be reluctant to enter into a Business Combination transaction with us. +The ability of our public shareholders to exercise redemption rights with respect to a large number of our shares and the amount of deferred underwriting compensation may not allow us to complete the most desirable Business Combination or optimize our capital structure, and may substantially dilute your investment in us. +At the time we enter into an agreement for our initial Business Combination, we will not know how many shareholders may exercise their redemption rights, and therefore will need to structure the transaction based on our expectations as to the number of shares that will be submitted for redemption. If our initial Business Combination agreement requires us to use a portion of the cash in the Trust Account to pay the purchase price, or requires us to have a minimum amount of cash at closing, we will need to reserve a portion of the cash in the Trust Account to meet such requirements, or arrange for third party financing. In addition, if a larger number of shares is submitted for redemption than we initially expected, we may need to restructure the transaction to reserve a greater portion of the cash in the Trust Account or arrange for third party financing. Raising additional third-party financing may involve dilutive equity issuances or the incurrence of indebtedness at higher than desirable levels. Furthermore, this dilution would increase to the extent that the anti-dilution provision of the Class B Ordinary Shares results in the issuance of Class A Ordinary Shares on a greater than one-to-one basis upon conversion of the Class B Ordinary Shares at the time of our initial Business Combination. In addition, the amount of the deferred underwriting commissions payable to the underwriters will not be adjusted for any shares that are redeemed in connection with an initial Business Combination. The per share amount we will distribute to shareholders who properly exercise their redemption rights will not be reduced by the deferred underwriting commission and after such redemptions, the amount held in trust will continue to reflect our obligation to pay the entire deferred underwriting commissions. The above considerations may limit our ability to complete the most desirable Business Combination available to us or optimize our capital structure. As a result, our obligations to redeem Public Shares for which redemption is requested and to pay the deferred underwriting commissions may not allow us to complete the most desirable Business Combination or optimize our capital structure. +In addition, raising additional third-party financing may involve dilutive equity issuances or the incurrence of indebtedness at higher than desirable levels. Furthermore, this dilution would increase to the extent that the anti-dilution provisions of the Class B Ordinary Shares result in the issuance of Class A Ordinary Shares on a greater than one-to-one basis upon conversion of the Class B Ordinary Shares at the time of our Business Combination. The above considerations may limit our ability to complete the most desirable Business Combination available to us or optimize our capital structure and may result in substantial dilution from your purchase of our Class A Ordinary Shares. The effect of this dilution will be greater for shareholders who do not redeem. The amount of the deferred underwriting compensation payable to the underwriters will not be adjusted for any shares that are redeemed in connection with an initial Business Combination, which may further dilute your investment. The per-share amount we will distribute to stockholders who properly exercise their redemption rights will not be reduced by the deferred underwriting compensation and after such redemptions, the per-share value of shares held by non-redeeming shareholders will reflect our obligation to pay the deferred underwriting compensation. We may not be able to generate sufficient value from the completion of our initial Business Combination in order to overcome the dilutive impact of these and other factors, and, accordingly, you may incur a net loss on your investment. Please see “- Risks Relating to Our Securities  -  The nominal purchase price paid by our Sponsor for the Founder Shares may result in significant dilution to the implied value of your Public Shares upon the consummation of our initial Business Combination ” and “- Risks Relating to Our Securities  -  The value of the Founder Shares following completion of our initial Business Combination is likely to be substantially higher than the nominal price paid for them, even if the trading price of our ordinary at such time is substantially less than $10.00 per share. ” +18 +Table of Contents +The ability of our public shareholders to exercise redemption rights with respect to a large number of our shares could increase the probability that our initial Business Combination would be unsuccessful and that you would have to wait for liquidation in order to redeem your shares. +If our initial Business Combination agreement requires us to use a portion of the cash in the Trust Account to pay the purchase price, or requires us to have a minimum amount of cash at closing, the probability that our initial Business Combination would be unsuccessful is increased. If our initial Business Combination is unsuccessful, you would not receive your pro rata portion of the funds in the Trust Account until we liquidate the Trust Account. If you are in need of immediate liquidity, you could attempt to sell your shares in the open market; however, at such time our shares may trade at a discount to the pro rata amount per share in the Trust Account. In either situation, you may suffer a material loss on your investment or lose the benefit of funds expected in connection with your exercise of redemption rights until we liquidate or you are able to sell your shares in the open market. +The requirement that we complete our initial Business Combination within the Completion Window may give potential target businesses leverage over us in negotiating a Business Combination and may limit the time we have in which to conduct due diligence on potential Business Combination targets, in particular as we approach our dissolution deadline, which could undermine our ability to complete our initial Business Combination on terms that would produce value for our shareholders. +Any potential target business with which we enter into negotiations concerning a Business Combination will be aware that we must complete our initial Business Combination within the Completion Window. Consequently, such target business may obtain leverage over us in negotiating a Business Combination, knowing that if we do not complete our initial Business Combination with that particular target business, we may be unable to complete our initial Business Combination with any target business. This risk will increase as we get closer to the timeframe described above. In addition, we may have limited time to conduct due diligence and may enter into our initial Business Combination on terms that we would have rejected upon a more comprehensive investigation. The length of time it may take us to complete our diligence and negotiate a Business Combination may reduce the amount of time available for us to ultimately complete an initial Business Combination should such diligence or negotiations not lead to a consummated initial Business Combination. +Our search for a Business Combination, and any target business with which we ultimately consummate a Business Combination, may be materially adversely affected by events that are outside of our control, such as increased geopolitical unrest, pandemic outbreaks (such as COVID-19), and volatility in the debt and equity markets. +Our ability to find a potential target business and the business of any potential target business with which we may consummate a business combination could be materially and adversely affected by events that are outside of our control. For example, geopolitical unrest (such as the ongoing military conflict between Russia and Ukraine, the ongoing conflicts in the Middle East, including hostilities with Iran, and other current or future conflicts), including war, terrorist activity and acts of civil or international hostility are increasing. In particular, although the length, impact and outcome of the ongoing military conflict in Ukraine and the recent conflicts in the Middle East is highly unpredictable, these conflicts could lead to significant market and other disruptions, including significant volatility in commodity prices and supply of energy resources, instability in financial markets, supply chain interruptions, political and social instability, changes in consumer or purchaser preferences as well as increase in cyberattacks and espionage. Furthermore, political or economic conflicts between various global actors, and responsive measures that have been taken and could be taken in the future, have created and can further create significant global economic uncertainty that could prolong or expand such conflicts, which could have a lasting impact on regional and global economies and harm our business and operating results. +Similarly, other events outside of our control, including natural disasters, climate-related events pandemic or health crises (such as the COVID-19 pandemic), or government shut-downs, may arise from time to time, any such events may cause significant volatility and declines in the global markets, disproportionate impacts to certain industries or sectors, disruptions to commerce (including to economic activity, travel and supply chain), loss of life and property damage, and may adversely affect the global economy or capital markets, and the business of any potential target business with which we may consummate a Business Combination and could be materially adversely affected. In addition, our ability to consummate a transaction may be dependent on the ability to raise equity and debt financing which may be impacted by these and other events, including as a result of increased market volatility, decreased market liquidity in third-party financing being unavailable on terms acceptable or at all. +19 +Table of Contents +Recent increases in inflation in the United States and elsewhere could make it more difficult for us to consummate a business combination. +Recent increases in inflation in the United States and elsewhere may lead to increased price volatility for publicly traded securities, including ours, and may lead to other national, regional and international economic disruptions, any of which could make it more difficult for us to consummate an initial Business Combination. +We may not be able to complete our initial Business Combination within the Completion Window, in which case we would cease all operations except for the purpose of winding up and we would redeem our Public Shares and liquidate. +We may not be able to find a suitable target business and complete our initial Business Combination within the Completion Window. Our ability to complete our initial Business Combination may be negatively impacted by general market conditions, volatility in the capital and debt markets and the other risks described herein. If we have not completed our initial Business Combination within such time period, we will: as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account (which interest shall be net of taxes payable and up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will constitute full and complete payment and completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidating distributions or other distributions, if any), subject to our obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. +We may decide not to extend the term we have to consummate our initial Business Combination, in which case we would redeem our Public Shares and liquidate, and the warrants would expire. +We have until the end of the Completion Window to consummate our initial Business Combination. If we anticipate that we may be unable to consummate our initial Business Combination within such period, we may seek shareholder approval to amend our amended and restated memorandum and articles of association to extend the date by which we must consummate our initial Business Combination. However, we may decide not to seek to extend the date by which we must consummate our initial Business Combination. If we do not seek to extend the date by which we must consummate our initial Business Combination, and we are unable to consummate our initial Business Combination within the applicable time period, we will, as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares for a pro rata portion of the funds held in the Trust Account, subject to our obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. Upon our liquidation, our warrants will expire. +If we seek shareholder approval of our initial Business Combination, our Sponsor, initial shareholders, directors, executive officers, advisors and their affiliates may elect to purchase Public Shares or Public Warrants from public shareholders, which may influence a vote on a proposed Business Combination and reduce the public “float” of our securities. +If we seek shareholder approval of our initial Business Combination and we do not conduct redemptions in connection with our initial Business Combination pursuant to the tender offer rules, our Sponsor, initial shareholders, directors, executive officers, advisors or their affiliates may purchase Public Shares or Public Warrants in privately negotiated transactions or in the open market either prior to or following the completion of our initial Business Combination, although they are under no obligation to do so. With respect to purchases of our Public Shares, any such price per share may be different than the amount per share a public shareholder would receive if it elected to redeem its shares in connection with our initial Business Combination. Such a purchase of Public Shares may include a contractual acknowledgment that such shareholder, although still the record holder of our shares, is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that our Sponsor, initial shareholders, directors, executive officers, advisors or their affiliates purchase Public Shares in privately negotiated transactions from public shareholders who have already elected to exercise their redemption rights, such selling shareholders would be required to revoke their prior elections to redeem their shares. It is intended that, if Rule 10b-18 would apply to purchases by Sponsor, initial shareholders, directors, officers, advisors and their affiliates, then such purchases will comply with Rule 10b-18 under the Exchange Act, to the extent it applies, which provides a safe harbor for purchases made under certain conditions, including with respect to timing, pricing and volume of purchases. +20 +Table of Contents +Additionally, at any time at or prior to our initial Business Combination, subject to applicable securities laws (including with respect to material nonpublic information), our Sponsor, initial shareholders, directors, officers, advisors and their affiliates may enter into transactions with investors and others to provide them with incentives to acquire Public Shares or Public Warrants, vote their Public Shares or Public Warrants in favor of our initial Business Combination or not redeem their Public Shares. However, they have no current commitments, plans or intentions to engage in such transactions and have not formulated any terms or conditions for any such transactions. None of the funds in the Trust Account will be used to purchase Public Shares or Public Warrants in such transactions. +The purpose of any such transactions could be to (i) increase the likelihood of obtaining shareholder approval of the Business Combination, (ii) reduce the number of Public Warrants outstanding and/or increase the likelihood of approval on any matters submitted to the public warrant holders for approval in connection with our initial Business Combination or (iii) satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain amount of cash at the closing of our initial Business Combination, where it appears that such requirement would otherwise not be met. Any such purchases of our securities may result in the completion of our Business Combination that may not otherwise have been possible. +In addition, if such purchases are made, the public “float” of our securities may be reduced and the number of beneficial holders of our securities may be reduced, which may make it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities exchange. Any such purchases will be reported pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchasers are subject to such reporting requirements. Additionally, in the event our Sponsor, initial shareholders, directors, officers, advisors and their affiliates were to purchase Public Shares or Public Warrants from public shareholders, such purchases would be structured in compliance with the requirements of Rule 14e-5 under the Exchange Act including, in pertinent part, through adherence to the following: +● our registration statement/proxy statement filed for our Business Combination transaction would disclose the possibility that our Sponsor, initial shareholders, directors, officers, advisors and their affiliates may purchase Public Shares or warrants from public shareholders outside the redemption process, along with the purpose of such purchases; +● if our Sponsor, initial shareholders, directors, officers, advisors and their affiliates were to purchase Public Shares or warrants from public shareholders, they would do so at a price no higher than the price offered through our redemption process; +● our registration statement/proxy statement filed for our Business Combination transaction would include a representation that any of our securities purchased by our Sponsor, initial shareholders, directors, officers, advisors and their affiliates would not be voted in favor of approving the Business Combination transaction; +● our Sponsor, initial shareholders, directors, officers, advisors and their affiliates would not possess any redemption rights with respect to our securities or, if they do acquire and possess redemption rights, they would waive such rights; and +● we would disclose in a Form 8-K, before our security holder meeting to approve the Business Combination transaction, the following material items: +o the amount of our securities purchased outside of the redemption offer by our Sponsor, initial shareholders, directors, officers, advisors and their affiliates, along with the purchase price; +o the purpose of the purchases by our Sponsor, initial shareholders, directors, officers, advisors and their affiliates; +o the impact, if any, of the purchases by our Sponsor, initial shareholders, directors, officers, advisors and their affiliates on the likelihood that the Business Combination transaction will be approved; +o the identities of our security holders who sold to our Sponsor, initial shareholders, directors, officers, advisors and their affiliates (if not purchased on the open market) or the nature of our security holders (e.g., 5% security holders) who sold to our Sponsor, initial shareholders, directors, officers, advisors and their affiliates; and +o the number of our securities for which we have received redemption requests pursuant to our redemption offer. +Please see “ Business - Permitted Purchases of Our Securities ” for a description of how such persons will determine from which shareholders to seek to acquire securities. +21 +Table of Contents +If a shareholder fails to receive notice of our offer to redeem our Public Shares in connection with our initial Business Combination, or fails to comply with the procedures for tendering its shares, such shares may not be redeemed. +We will comply with the proxy rules or tender offer rules, as applicable, when conducting redemptions in connection with our initial Business Combination. Despite our compliance with these rules, if a shareholder fails to receive our proxy materials or tender offer documents, as applicable, such shareholder may not become aware of the opportunity to redeem its shares. In addition, proxy materials or tender offer documents, as applicable, that we will furnish to holders of our Public Shares in connection with our initial Business Combination will describe the various procedures that must be complied with in order to validly tender or submit Public Shares for redemption. For example, we intend to require our public shareholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” to, at the holder’s option, either deliver their share certificates to our transfer agent, or to deliver their shares to our transfer agent electronically prior to the date set forth in the proxy materials or tender offer documents, as applicable. In the case of proxy materials, this date may be up to two business days prior to the scheduled vote on the proposal to approve the initial Business Combination. In addition, if we conduct redemptions in connection with a shareholder vote, we intend to require a public shareholder seeking redemption of its Public Shares to also submit a written request for redemption to our transfer agent two business days prior to the scheduled vote in which the name of the beneficial owner of such shares is included. In the event that a shareholder fails to comply with these or any other procedures disclosed in the proxy or tender offer materials, as applicable, its shares may not be redeemed. See the section of this Form 10-K entitled “ Business – Manner of Conducting Redemptions .” +You will not be entitled to protections normally afforded to investors of other blank check companies subject to Rule 419 of the Securities Act. +Since the net proceeds of the initial public offering and the sale of the Private Placement Warrants are intended to be used to complete one or more initial Business Combinations with a target business or businesses that have not been selected, we may be deemed to be a “blank check” company under the United States securities laws. However, we are exempt from rules promulgated by the SEC to protect investors in blank check companies, such as Rule 419. Accordingly, investors will not be afforded the benefits or protections of those rules. Among other things, this means we will have a longer period of time to complete our initial Business Combinations than do companies subject to Rule 419. Moreover, if the initial public offering had been subject to Rule 419, that rule would prohibit the release of any interest earned on funds held in the Trust Account to us unless and until the funds in the Trust Account were released to us or in connection with our completion of an initial Business Combination. +If we seek shareholder approval of our initial Business Combination and we do not conduct redemptions pursuant to the tender offer rules, and if you or a “group” of shareholders are deemed to hold in excess of 15% of our Class A Ordinary Shares, you may lose the ability to redeem all such shares in excess of 15% of our Class A Ordinary Shares. +If we seek shareholder approval of our initial Business Combination and we do not conduct redemptions in connection with our initial Business Combination pursuant to the tender offer rules, our amended and restated memorandum and articles of association provide that a public shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from seeking redemption rights with respect to more than an aggregate of 15% of the shares sold in the initial public offering without our prior consent, which we refer to as the “Excess Shares.” However, we would not be restricting our shareholders’ ability to vote all of their shares (including Excess Shares) for or against our initial Business Combination. +Your inability to redeem the Excess Shares will reduce your influence over our ability to complete our initial Business Combination and you could suffer a material loss on your investment in us if you sell Excess Shares in open market transactions. Additionally, you will not receive redemption distributions with respect to the Excess Shares if we complete our initial Business Combination. And as a result, you will continue to hold that number of shares exceeding 15% and, in order to dispose of such shares, would be required to sell your shares in open market transactions, potentially at a loss. +22 +Table of Contents +Because of our limited resources and the significant competition for Business Combination opportunities, it may be more difficult for us to complete our initial Business Combination. If we are unable to complete our initial Business Combination, our public shareholders may receive only their pro rata portion of the funds in the Trust Account that are available for distribution to public shareholders, and our warrants will expire. +We expect to encounter competition from other entities having a business objective similar to ours, including private investors (which may be individuals or investment partnerships), other blank check companies and other entities, domestic and international, competing for the types of businesses we intend to acquire. Many of these individuals and entities are well-established and have extensive experience in identifying and effecting, directly or indirectly, acquisitions of companies operating in or providing services to various industries. Many of these competitors possess similar or greater technical, human and other resources to ours or more local industry knowledge than we do and our financial resources are relatively limited when contrasted with those of many of these competitors. While we believe there are numerous target businesses we could potentially acquire with the net proceeds of the initial public offering and the sale of the Private Placement Warrants, our ability to compete with respect to the acquisition of certain target businesses that are sizable will be limited by our available financial resources. This inherent competitive limitation gives others an advantage in pursuing the acquisition of certain target businesses. Furthermore, we are obligated to offer holders of our Public Shares the right to redeem their shares for cash at the time of our initial Business Combination in conjunction with a shareholder vote or via a tender offer. Target companies will be aware that this may reduce the resources available to us for our initial Business Combination. Any of these obligations may place us at a competitive disadvantage in successfully negotiating a Business Combination. If we are unable to complete our initial Business Combination, our public shareholders may receive only their pro rata portion of the funds in the Trust Account that are available for distribution to public shareholders. Upon our liquidation, our warrants will expire. +As the number of special purpose acquisition companies evaluating targets increases, attractive targets may become scarcer and there may be more competition for attractive targets. This could increase the cost of our initial Business Combination and could even result in our inability to find a target or to consummate an initial Business Combination. +In recent years, the number of special purpose acquisition companies that have been formed has increased substantially. Many potential targets for special purpose acquisition companies have already entered into an initial Business Combination, and there are still many special purpose acquisition companies preparing for an initial public offering, as well as many such companies currently in registration. As a result, at times, fewer attractive targets may be available to consummate an initial Business Combination. +In addition, because there are more special purpose acquisition companies seeking to enter into an initial Business Combination with available targets, the competition for available targets with attractive fundamentals or business models may increase, which could cause targets companies to demand improved financial terms. Attractive deals could also become scarcer for other reasons, such as economic or industry sector downturns, geopolitical tensions, or increases in the cost of additional capital needed to close Business Combinations or operate targets post-Business Combination. This could increase the cost of, delay or otherwise complicate or frustrate our ability to find and consummate an initial Business Combination, and may result in our inability to consummate an initial Business Combination on terms favorable to our investors altogether. +The amount of deferred underwriting commissions we must pay upon completion of our initial Business Combination is greater than the amount owed by other special purpose acquisition companies. This could make our company less attractive to potential target businesses, which may frustrate, delay or prevent our ability to complete an initial Business Combination. +Upon the completion of our initial Business Combination, we are required to pay $9,800,000 of deferred underwriting commissions to the underwriters of our initial public offering. This amount is greater than the amount of deferred underwriting commissions owed by other special purpose acquisition companies. Further, the amount of the deferred underwriting commissions payable by us to the underwriters is not currently required to be adjusted for any shares that are redeemed in connection with an initial Business Combination. This could make our company less attractive to target businesses, which could delay or otherwise complicate or frustrate our ability to find and consummate an initial Business Combination, and may result in our inability to consummate an initial Business Combination altogether. +23 +Table of Contents +If the net proceeds of the initial public offering not being held in the Trust Account are insufficient to allow us to operate for at least the duration of the Completion Window, it could limit the amount available to fund our search for a target business or businesses and complete our initial Business Combination, and we will depend on loans from our Sponsor or management team to fund our search and to complete our initial Business Combination. +As of December 31, 2025, we had $699 available to us outside of the Trust Account to fund our working capital requirements. In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, the Sponsor, or certain of our officers and directors or their affiliates may, but are not obligated to, loan us funds as may be required. Any such advances would be repaid only from funds held outside the Trust Account or from funds released to us upon completion of our initial Business Combination. Up to $1,500,000 of such loans may be convertible into Private Placement Warrants at a price of $1.00 per warrant, at the option of the lender. The warrants would be identical to the Private Placement Warrants, including as to exercisability and exercise price. Prior to the completion of our initial Business Combination, we do not expect to seek loans from parties other than our Sponsor or an affiliate of our Sponsor, as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our Trust Account. If we are unable to complete our initial Business Combination because we do not have sufficient funds available to us, we will be forced to liquidate the Trust Account. Consequently, our public shareholders may only receive an estimated $10.00 per share, or possibly less, on our redemption of our Public Shares. Upon our liquidation, our warrants will expire. +If third parties bring claims against us, the proceeds held in the Trust Account could be reduced and the per- share redemption amount received by shareholders may be less than $10.00 per share. +Our placing of funds in the Trust Account may not protect those funds from third party claims against us. Although we will seek to have all vendors, service providers (except for our independent registered public accounting firm), prospective target businesses and other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the Trust Account for the benefit of our public shareholders, such parties may not execute such agreements, or even if they execute such agreements they may not be prevented from bringing claims against the Trust Account, including, but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain advantage with respect to a claim against our assets, including the funds held in the Trust Account. If any third party refuses to execute an agreement waiving such claims to the monies held in the Trust Account, our management will consider whether competitive alternatives are reasonably available to us and will only enter into an agreement with such third party if management believes that such third party’s engagement would be in the best interests of the company under the circumstances. The underwriters of the initial public as well as our registered independent public accounting firm will not execute agreements with us waiving such claims to the monies held in the Trust Account. +Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the Trust Account for any reason. Upon redemption of our Public Shares, if we are unable to complete our initial Business Combination within the prescribed timeframe, or upon the exercise of a redemption right in connection with our initial Business Combination, we will be required to provide for payment of claims of creditors that were not waived that may be brought against us within the 10 years following redemption. +24 +Table of Contents +Accordingly, the per-share redemption amount received by public shareholders could be less than the $10.00 per public share initially held in the Trust Account, due to claims of such creditors. Pursuant to the Insider Letter, our Sponsor has agreed that it will be liable to us if and to the extent any claims by a third party for services rendered or products sold to us (except for the Company’s independent auditors), or a prospective target business with which we have entered into a written letter of intent, confidentiality or other similar agreement or Business Combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.00 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.00 per public share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to the monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under our indemnity of the underwriters of the initial public offering against certain liabilities, including liabilities under the Securities Act. However, we have not asked our Sponsor to reserve for such indemnification obligations, nor have we independently verified whether our Sponsor has sufficient funds to satisfy its indemnity obligations and we believe that our Sponsor’s only assets are securities of our company. Therefore, we cannot assure you that our Sponsor would be able to satisfy those obligations. As a result, if any such claims were successfully made against the Trust Account, the funds available for our initial Business Combination and redemptions could be reduced to less than $10.00 per public share. In such event, we may not be able to complete our initial Business Combination, and you would receive such lesser amount per share in connection with any redemption of your Public Shares. None of our officers or directors will indemnify us for claims by third parties including, without limitation, claims by vendors and prospective target businesses. +Our directors may decide not to enforce the indemnification obligations of our Sponsor, resulting in a reduction in the amount of funds in the Trust Account available for distribution to our public shareholders. +In the event that the proceeds in the Trust Account are reduced below the lesser of (i) $10.00 per share and the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account if less than $10.00 per public share due to reductions in the value of the trust assets, in each case less taxes payable, and our Sponsor asserts that it is unable to satisfy its obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against our Sponsor to enforce its indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against our Sponsor to enforce its indemnification obligations to us, it is possible that our independent directors in exercising their business judgment and subject to their fiduciary duties may choose not to do so in any particular instance. If our independent directors choose not to enforce these indemnification obligations, the amount of funds in the Trust Account available for distribution to our public shareholders may be reduced below $10.00 per share. +If, after we distribute the proceeds in the Trust Account to our public shareholders, we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding up petition is filed against us that is not dismissed, a bankruptcy or insolvency court may seek to recover such proceeds, and the members of our board of directors may be viewed as having breached their fiduciary duties to our creditors, thereby exposing the members of our board of directors and us to claims of punitive damages. +If, after we distribute the proceeds in the Trust Account to our public shareholders, we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding up petition is filed against us that is not dismissed, any distributions received by shareholders could be viewed under applicable debtor/creditor and/or bankruptcy or insolvency laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy or insolvency court could seek to recover some or all amounts received by our shareholders. In addition, our board of directors may be viewed as having breached its fiduciary duty to our creditors and/or having acted in bad faith, by paying public shareholders from the Trust Account prior to addressing the claims of creditors, thereby exposing itself and us to claims of punitive damages. +If, before distributing the proceeds in the Trust Account to our public shareholders, we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding up petition is filed against us that is not dismissed, the claims of creditors in such proceeding may have priority over the claims of our shareholders and the per-share amount that would otherwise be received by our shareholders in connection with our liquidation may be reduced. +If, before distributing the proceeds in the Trust Account to our public shareholders, we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding up petition is filed against us that is not dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy or insolvency law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our shareholders. To the extent any bankruptcy claims deplete the Trust Account, the per-share amount that would otherwise be received by our shareholders in connection with our liquidation may be reduced. +25 +Table of Contents +If we are deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete our initial Business Combination or force us to abandon our efforts to complete an initial Business Combination. +If we are deemed to be an investment company under the Investment Company Act, our activities may be restricted, including: +● restrictions on the nature of our investments; and +● restrictions on the issuance of securities, each of which may make it difficult for us to complete our initial Business Combination. In addition, we may have imposed upon us burdensome requirements, including: +● registration as an investment company; +● adoption of a specific form of corporate structure; and +● reporting, record keeping, voting, proxy and disclosure requirements and other rules and regulations. +In order not to be regulated as an investment company under the Investment Company Act, unless it can qualify for an exclusion, a company must ensure that it is engaged primarily in a business other than investing, reinvesting or trading of securities and that its activities do not include investing, reinvesting, owning, holding or trading “investment securities” constituting more than 40% of our assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. +The SEC recently provided guidance that the determination of whether a special purpose acquisition company, like us, is an “investment company” under the Investment Company Act is a facts and circumstances determination requiring individualized analysis and depends on a variety of factors, including a SPAC’s duration, asset composition, business purpose and activities, and “is a question of facts and circumstances” requiring individualized analysis. When applying these factors to us we do not believe that our principal activities will subject us to the Investment Company Act. To this end, the Company was formed for the purpose of completing an initial Business Combination with one or more businesses. Our business is focused on identifying and completing an initial Business Combination, and thereafter, operating the post-transaction business or assets for the long term. Further, we do not plan to buy businesses or assets with a view to resale or profit from their resale and we do not plan to buy unrelated businesses or assets or to be a passive investor. In addition, the proceeds held in the Trust Account will only be held as cash or invested in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act which invest only in direct U.S. government treasury obligations. However, to mitigate the risk of us being deemed to have been operating as an unregistered investment company (including under the subjective test of Section 3(a)(1)(A) of the Investment Company Act), we may, in our own discretion, instruct Continental Stock Transfer & Trust Company, the trustee with respect to the Trust Account, to liquidate the U.S. government securities or money market funds held in the Trust Account and thereafter, until the earlier of consummation of our initial Business Combination or liquidation, to hold all funds in the Trust Account in an interest bearing bank demand deposit account, which may earn less interest than we otherwise would have if the Trust Account had remained invested in U.S. government securities or money market funds. This may mean that the amount of funds available for redemption would not increase, or would only minimally increase, thereby reducing the dollar amount our public shareholders would receive upon any redemption or liquidation of the Company. Pursuant to the investment management trust agreement, the trustee will not be permitted to invest in other securities or assets. By restricting the investment of the proceeds in this manner, and by focusing our directors’ and officers’ time toward, and operating our business for the purpose of, acquiring and growing businesses for the long term (rather than buying and selling businesses in the manner of a merchant bank or private equity fund or investing in assets for the purpose of achieving investment returns on such assets), we intend to avoid being deemed an “investment company” within the meaning of the Investment Company Act. Further, investing in our securities is not intended for persons who are seeking a return on investments in government securities or investment securities. Instead, the Trust Account is intended as a holding place for funds pending the earliest to occur of either: (i) the completion of our initial Business Combination; (ii) the redemption of any Public Shares properly submitted in connection with a shareholder vote to amend our amended and restated memorandum and articles of association (A) to modify the substance or timing of our obligation to allow redemption in connection with our initial Business Combination or to redeem 100% of our Public Shares if we do not complete our initial Business Combination within the Completion Window or (B) with respect to any other material provisions relating to shareholders’ rights or pre-initial Business Combination activity; or (iii) absent an initial Business Combination within the Completion Window, our return of the funds held in the Trust Account to our public shareholders as part of our redemption of the Public Shares. If we do not invest the proceeds as described above, we may be deemed to be subject to the Investment Company Act. Notwithstanding the fact that we have limited our activities as described above, we could nevertheless be considered to be operating as an unregistered investment company. In addition, notwithstanding the investment of the proceeds of our initial public offering and concurrent private placement as described elsewhere herein, we may be considered to be operating as an unregistered investment company. If our facts and circumstances change over time, we will update our disclosure in future filings with the SEC to reflect how those changes impact the risk that we may be considered to be operating as an unregistered investment company. +26 +Table of Contents +If we were deemed to be an investment company for purposes of the Investment Company Act, we would need to register as such under the Investment Company Act and compliance with these additional regulatory burdens would require additional expenses for which we have not allotted funds and may hinder our ability to complete a Business Combination. We may also be forced to abandon our efforts to complete an initial Business Combination, and instead be required to liquidate the Trust Account and may be required to change our operations or wind down our operations. In which case, our investors would not be able to realize the benefits of owning shares in a successor operating business, including the potential appreciation in the value of our securities following such a transaction. Upon our liquidation, our warrants will expire. +If we were deemed to be an investment company for purposes of the Investment Company Act, compliance with these additional regulatory burdens would require additional expenses for which we have not allotted funds and may hinder our ability to complete a Business Combination. We may also be forced to abandon our efforts to complete an initial Business Combination and instead be required to liquidate the Trust Account. If we are required to liquidate the Trust Account, our investors would not be able to realize the benefits of owning shares in a successor operating business, including the potential appreciation in the value of our securities following such a transaction. On the liquidation of our Trust Account, our public shareholders may receive only approximately $10.00, or less in certain circumstances, and upon our liquidation, our warrants will expire. Changes in laws or regulations or in how such laws or regulations are interpreted or applied, or a failure to comply with any laws and regulations, may adversely affect our business, including our ability to negotiate and complete our initial Business Combination, and results of operations. +We are subject to rules and regulations enacted by various national, regional and local governing bodies, including for example, the SEC, and to new and evolving regulatory measures under applicable law. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly and our efforts to comply with such new and evolving laws and regulations have resulted in and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention, In addition, these changes could have a material adverse effect on our business, investments and results of operations. +Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. For example, on January 24, 2024, the SEC issued final rules and guidance relating to initial public offerings and Business Combination transactions of special purpose acquisition companies, like us, which, among other things, created new rules and guidance. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. A failure to comply with applicable laws or regulations and any subsequent changes, as interpreted and applied, could have a material adverse effect on our business, including our ability to negotiate and complete our initial Business Combination, and results of operations. +Our shareholders may be held liable for claims by third parties against us to the extent of distributions received by them upon redemption of their shares. +If we are forced to enter into an insolvent liquidation, any distributions received by shareholders could be viewed as an unlawful payment if it was proved that immediately following the date on which the distribution was made, we were unable to pay our debts as they fall due in the ordinary course of business. As a result, a liquidator could seek to recover some or all amounts received by our shareholders. Furthermore, our directors may be viewed as having breached their fiduciary duties to us or our creditors and/or may have acted in bad faith, thereby exposing themselves and our company to claims, by paying public shareholders from the Trust Account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons. We and our directors and officers who knowingly and willfully authorized or permitted any distribution to be paid out of our share premium account while we were unable to pay our debts as they fall due in the ordinary course of business would be guilty of an offence and may be liable to a fine of approximately $18,293 and to imprisonment for five years in the Cayman Islands. +We may not hold an annual general meeting until after the consummation of our initial Business Combination, which could delay the opportunity for our shareholders to appoint directors. +In accordance with the NYSE American’s corporate governance requirements, we are not required to hold an annual general meeting until one year after our first fiscal year end following our listing on the NYSE American. There is no requirement under the Companies Act for us to hold annual or extraordinary general meetings to appoint directors. Until we hold an annual general meeting, public shareholders may not be afforded the opportunity to appoint directors and to discuss company affairs with management. Our board of directors is divided into three classes with only one class of directors being elected in each year and each class (except for those directors appointed prior to our first annual general meeting) serving a three-year term. In addition, as holders of our Class A Ordinary Shares, our public shareholders will not have the right to vote on the election of directors until after the consummation of our initial Business Combination. +27 +Table of Contents +Because we are neither limited to evaluating a target business in a particular industry sector nor have we selected any specific target businesses with which to pursue our initial Business Combination, you will be unable to ascertain the merits or risks of any particular target business’s operations. +Our efforts to identify a prospective initial Business Combination target will not be limited to a particular industry, sector or geographic region. Our amended and restated memorandum and articles of association prohibit us from effectuating a Business Combination solely with another blank check company or similar company with nominal operations. Because we have not yet selected any specific target business with respect to a Business Combination, there is no basis to evaluate the possible merits or risks of any particular target business’s operations, results of operations, cash flows, liquidity, financial condition or prospects. +To the extent we complete our initial Business Combination, we may be affected by numerous risks inherent in the business operations with which we combine. For example, if we combine with a financially unstable business or an entity lacking an established record of sales or earnings, we may be affected by the risks inherent in the business and operations of a financially unstable or a development stage entity. In recent years, a number of target businesses have underperformed financially post-Business Combination, There are no assurances that the target business with which we consummate our initial Business Combination will perform as anticipated. Although our officers and directors will endeavor to evaluate the risks inherent in a particular target business, we cannot assure you that we will properly ascertain or assess all of the significant risk factors or that we will have adequate time to complete due diligence. Furthermore, some of these risks may be outside of our control and leave us with no ability to control or reduce the chances that those risks will adversely impact a target business. We also cannot assure you that an investment in our securities will ultimately prove to be more favorable to investors than a direct investment, if such opportunity were available, in a Business Combination target. +Accordingly, any shareholders or warrant holders who choose to remain shareholders or warrant holders following the Business Combination could suffer a reduction in the value of their securities. Such shareholders or warrant holders are unlikely to have a remedy for such reduction in value unless they are able to successfully claim that the reduction was due to the breach by our officers or directors of a duty of care or other fiduciary duty owed to them, or if they are able to successfully bring a private claim under securities laws that the proxy materials or tender offer documents, as applicable, relating to the Business Combination contained an actionable material misstatement or material omission. +Although we have identified general criteria and guidelines that we believe are important in evaluating prospective target businesses, we may enter into our initial Business Combination with a target that does not meet such criteria and guidelines, and as a result, the target business with which we enter into our initial Business Combination may not have attributes entirely consistent with our general criteria and guidelines. +Although we have identified general criteria and guidelines for evaluating prospective target businesses, it is possible that a target business with which we enter into our initial Business Combination will not have all of these positive attributes. If we complete our initial Business Combination with a target that does not meet some or all of these guidelines, such combination may not be as successful as a combination with a business that does meet all of our general criteria and guidelines. In addition, if we announce a prospective Business Combination with a target that does not meet our general criteria and guidelines, a greater number of shareholders may exercise their redemption rights, which may make it difficult for us to meet any closing condition with a target business that requires us to have a minimum net worth or a certain amount of cash. In addition, if shareholder approval of the transaction is required by law, or we decide to obtain shareholder approval for business or other legal reasons, it may be more difficult for us to attain shareholder approval of our initial Business Combination if the target business does not meet our general criteria and guidelines. If we are unable to complete our initial Business Combination, our public shareholders may only receive their pro rata portion of the funds in the Trust Account that are available for distribution to public shareholders. Upon our liquidation, our warrants will expire. +We may not be required to obtain an opinion from an independent investment banking firm or from a valuation or appraisal firm, and consequently, you may have no assurance from an independent source that the consideration we are paying for the business is fair to our company from a financial point of view. +Unless we complete our initial Business Combination with an affiliated (as defined in our amended and restated memorandum and articles of association) entity or our board of directors cannot independently determine the fair market value of the target business or businesses (including with the assistance of financial advisors), we are not required to obtain an opinion from an independent investment banking firm which is a member of FINRA or from another independent entity that commonly renders valuation opinions that the consideration we are paying is fair to our company from a financial point of view. If no opinion is obtained, our shareholders will be relying on the judgment of our board of directors, who will determine fair market value based on standards generally accepted by the financial community. Such standards used will be disclosed in our proxy materials or tender offer documents, as applicable, related to our initial Business Combination. +28 +Table of Contents +We may issue notes or other debt securities, or otherwise incur substantial debt, to complete a Business Combination, which may adversely affect our leverage and financial condition and thus negatively impact the value of our shareholders’ investment in us. +Although we have no commitments as of the date of this Form 10-K to issue any notes or other debt securities, or to otherwise incur outstanding debt, we may choose to incur substantial debt to complete our initial Business Combination. We and our officers have agreed that we will not incur any indebtedness unless we have obtained from the lender a waiver of any right, title, interest or claim of any kind in or to the monies held in the Trust Account. As such, no issuance of debt will affect the per share amount available for redemption from the Trust Account. Nevertheless, the incurrence of debt could have a variety of negative effects, including: +● default and foreclosure on our assets if our operating revenues after an initial Business Combination are insufficient to repay our debt obligations; +● acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant; +● our immediate payment of all principal and accrued interest, if any, if the debt is payable on demand; +● our inability to obtain necessary additional financing if the debt contains covenants restricting our ability to obtain such financing while the debt is outstanding; +● our inability to pay dividends on our Class A Ordinary Shares; +● using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our Class A Ordinary Shares if declared, expenses, capital expenditures, acquisitions and other general corporate purposes; +● limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate; +● increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and +● limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt. +We may only be able to complete one Business Combination with the proceeds of the initial public offering and the sale of the Private Placement Warrants, which will cause us to be solely dependent on a single business which may have a limited number of products or services. This lack of diversification may negatively impact our operations and profitability. +We may effectuate our initial Business Combination with a single target business or multiple target businesses simultaneously or within a short period of time. However, we may not be able to effectuate our initial Business Combination with more than one target business because of various factors, including the existence of complex accounting issues and the requirement that we prepare and file pro forma financial statements with the SEC that present operating results and the financial condition of several target businesses as if they had been operated on a combined basis. By completing our initial Business Combination with only a single entity, our lack of diversification may subject us to numerous economic, competitive and regulatory developments. Further, we would not be able to diversify our operations or benefit from the possible spreading of risks or offsetting of losses, unlike other entities which may have the resources to complete several Business Combinations in different industries or different areas of a single industry. Accordingly, the prospects for our success may be: +● solely dependent upon the performance of a single business, property or asset, or +● dependent upon the development or market acceptance of a single or limited number of products, processes or services. +This lack of diversification may subject us to numerous economic, competitive and regulatory risks, any or all of which may have a substantial adverse impact upon the particular industry in which we may operate subsequent to our initial Business Combination. +29 +Table of Contents +We may attempt to simultaneously complete Business Combinations with multiple prospective targets, which may hinder our ability to complete our initial Business Combination and give rise to increased costs and risks that could negatively impact our operations and profitability. +If we determine to simultaneously acquire several businesses that are owned by different sellers, we will need for each of such sellers to agree that our purchase of its business is contingent on the simultaneous closings of the other Business Combinations, which may make it more difficult for us, and delay our ability, to complete our initial Business Combination. With multiple Business Combinations, we could also face additional risks, including additional burdens and costs with respect to possible multiple negotiations and due diligence investigations (if there are multiple sellers) and the additional risks associated with the subsequent assimilation of the operations and services or products of the acquired companies in a single operating business. If we are unable to adequately address these risks, it could negatively impact our profitability and results of operations. +We may attempt to complete our initial Business Combination with a private company about which little information is available, which may result in a Business Combination with a company that is not as profitable as we suspected, if at all. +In pursuing our Business Combination strategy, we may seek to effectuate our initial Business Combination with a privately held company. Very little public information generally exists about private companies, and we could be required to make our decision on whether to pursue a potential initial Business Combination on the basis of limited information, which may result in a Business Combination with a company that is not as profitable as we suspected, if at all. +We do not have a specified maximum redemption threshold. The absence of such a redemption threshold may make it possible for us to complete our initial Business Combination with which a substantial majority of our shareholders do not agree. +Our amended and restated memorandum and articles of association do not provide a specified maximum redemption threshold. In addition, our proposed initial Business Combination may impose a minimum cash requirement for: (i) cash consideration to be paid to the target or its owners, (ii) cash for working capital or other general corporate purposes or (iii) the retention of cash to satisfy other conditions. As a result, we may be able to complete our initial Business Combination even though a substantial majority of our public shareholders do not agree with the transaction and have redeemed their shares or, if we seek shareholder approval of our initial Business Combination and do not conduct redemptions in connection with our initial Business Combination pursuant to the tender offer rules, have entered into privately negotiated agreements to sell their shares to our Sponsor, officers, directors, advisors or any of their affiliates. In the event the aggregate cash consideration we would be required to pay for all Class A Ordinary Shares that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the proposed Business Combination exceed the aggregate amount of cash available to us, we will not complete the Business Combination or redeem any shares in connection with such initial Business Combination, all Class A Ordinary Shares submitted for redemption will be returned to the holders thereof, and we instead may search for an alternate Business Combination. +In order to effectuate an initial Business Combination, special purpose acquisition companies have, in the recent past, amended various provisions of their charters and other governing instruments, including their warrant agreements. We cannot assure you that we will not seek to amend our amended and restated memorandum and articles of association or governing instruments in a manner that will make it easier for us to complete our initial Business Combination that our shareholders may not support. +In order to effectuate a Business Combination, special purpose acquisition companies have, in the recent past, amended various provisions of their charters and governing instruments, including their warrant agreements. For example, special purpose acquisition companies have amended the definition of Business Combination, increased redemption thresholds and extended the time to consummate an initial Business Combination and, with respect to their warrants, amended their warrant agreements to require the warrants to be exchanged for cash and/or other securities. Certain amendments to our amended and restated memorandum and articles of association requires a special resolution under Cayman Islands law, which requires the affirmative vote of at least two-thirds of our ordinary shares which are represented in person or by proxy and are voted at a general meeting of the company, and amending our warrant agreement requires a vote of holders of at least 50% of the Public Warrants and, solely with respect to any amendment to the terms of the Private Placement Warrants or any provision of the warrant agreement with respect to the Private Placement Warrants, 50% of the number of the then outstanding Private Placement Warrants (including the vote or written consent of Cantor). In addition, our amended and restated memorandum and articles of association require us to provide our public shareholders with the opportunity to redeem their Public Shares for cash if we propose an amendment to our amended and restated memorandum and articles of association (A) to modify the substance or timing of our obligation to redeem 100% of our Public Shares if we do not complete an initial Business Combination within the Completion Window or (B) with respect to any other material provisions relating to shareholders’ rights or pre-initial Business Combination activity. To the extent any of such amendments would be deemed to fundamentally change the nature of the securities offered through the registration statement filed in connection with our initial public offering, we would register, or seek an exemption from registration for, the affected securities. We cannot assure you that we will not seek to amend our charter or governing instruments or extend the time to consummate an initial Business Combination in order to effectuate our initial Business Combination. +30 +Table of Contents +The provisions of our amended and restated memorandum and articles of association that relate to our pre- Business Combination activity (and corresponding provisions of the agreement governing the release of funds from our Trust Account) may be amended with the approval of holders of not less than two-thirds of our ordinary shares which are represented in person or by proxy and are voted at a general meeting of the company, which is a lower amendment threshold than that of some other special purpose acquisition companies. It may be easier for us, therefore, to amend our amended and restated memorandum and articles of association to facilitate the completion of an initial Business Combination that some of our shareholders may not support. +Our amended and restated memorandum and articles of association provide that any of its provisions related to pre-Business Combination activity (including the requirement to deposit proceeds of the initial public offering and the private placement of warrants into the Trust Account and not release such amounts except in specified circumstances, and to provide redemption rights to public shareholders as described herein) and corresponding provisions of the trust agreement governing the release of funds from our Trust Account may be amended if approved by special resolution, under Cayman Islands law passed by the affirmative vote of at least two-thirds of our ordinary shares which are represented in person or represented by proxy and are voted at a general meeting of the company. Our initial shareholders, who collectively beneficially own 20% of our ordinary shares, will participate in any vote to amend our amended and restated memorandum and articles of association and/or trust agreement and will have the discretion to vote in any manner they choose. As a result, we may be able to amend the provisions of our amended and restated memorandum and articles of association which govern our pre-Business Combination behavior more easily than some other special purpose acquisition companies, and this may increase our ability to complete a Business Combination with which you do not agree. Our shareholders may pursue remedies against us for any breach of our amended and restated memorandum and articles of association. +Our Sponsor, officers and directors have agreed, pursuant to a written agreement with us, that they will not propose any amendment to our amended and restated memorandum and articles of association (A) to modify the substance or timing of our obligation to allow redemption in connection with our initial Business Combination or to redeem 100% of our Public Shares if we do not complete our initial Business Combination within the Completion Window or (B) with respect to any other material provisions relating to shareholders’ rights or pre-initial Business Combination activity, unless we provide our public shareholders with the opportunity to redeem their Class A Ordinary Shares upon approval of any such amendment at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account (which interest shall be net of taxes payable), divided by the number of then outstanding Public Shares. Our shareholders are not parties to, or third-party beneficiaries of, these agreements and, as a result, will not have the ability to pursue remedies against our Sponsor, officers or directors for any breach of these agreements. As a result, in the event of a breach, our shareholders would need to pursue a shareholder derivative action, subject to applicable law. +Certain agreements entered into at the time of our initial public offering may be amended without shareholder approval. +Each of the agreements we entered into at the time of our initial public offering, other than the warrant agreement and the investment management trust agreement, may be amended without shareholder approval. Such agreements are: the underwriting agreement; the Insider Letter among us and our initial shareholders, Sponsor, officers and directors; the registration rights agreement among us and our initial shareholders; the Private Placement Warrants purchase agreement between us and our Sponsor; and the administrative services agreement among us, our Sponsor and an affiliate of our Sponsor. These agreements contain various provisions that our public shareholders might deem to be material. For example, the Insider Letter and the underwriting agreement contain certain lock-up provisions with respect to the Founder Shares, Private Placement Warrants and other securities held by our initial shareholders, Sponsor, officers and directors. Amendments to such agreements would require the consent of the applicable parties thereto and would need to be approved by our board of directors, which may do so for a variety of reasons, including to facilitate our initial Business Combination. While we do not expect our board of directors to approve any amendment to any of these agreements prior to our initial Business Combination, it may be possible that our board of directors, in exercising its business judgment and subject to its fiduciary duties, chooses to approve one or more amendments to any such agreement. Any amendment entered into in connection with the consummation of our initial Business Combination will be disclosed in our proxy materials or tender offer documents, as applicable, related to such initial Business Combination, and any other material amendment to any of our material agreements will be disclosed in a filing with the SEC. Any such amendments would not require approval from our shareholders, may result in the completion of our initial Business Combination that may not otherwise have been possible, and may have an adverse effect on the value of an investment in our securities. For example, amendments to the lock-up provision discussed above may result in our initial shareholders selling their securities earlier than they would otherwise be permitted, which may have an adverse effect on the price of our securities. +31 +Table of Contents +We may be unable to obtain additional financing to complete our initial Business Combination or to fund the operations and growth of a target business, which could compel us to restructure or abandon a particular Business Combination. +We have not selected any specific Business Combination target but intend to target businesses with enterprise values that are greater than we could acquire with the net proceeds of the initial public offering and the sale of the Private Placement Warrants. As a result, if the cash portion of the purchase price exceeds the amount available from the Trust Account, net of amounts needed to satisfy any redemption by public shareholders, we may be required to seek additional financing to complete such proposed initial Business Combination. We cannot assure you that such financing will be available on acceptable terms, if at all. To the extent that additional financing proves to be unavailable when needed to complete our initial Business Combination, we would be compelled to either restructure the transaction or abandon that particular Business Combination and seek an alternative target business candidate. Further, we may be required to obtain additional financing in connection with the closing of our initial Business Combination for general corporate purposes, including for maintenance or expansion of operations of the post-transaction businesses, the payment of principal or interest due on indebtedness incurred in completing our initial Business Combination, or to fund the purchase of other companies. If we are unable to complete our initial Business Combination, our public shareholders may only receive their pro rata portion of the funds in the Trust Account that are available for distribution to public shareholders. Upon our liquidation, our warrants will expire. In addition, even if we do not need additional financing to complete our initial Business Combination, we may require such financing to fund the operations or growth of the target business. The failure to secure additional financing could have a material adverse effect on the continued development or growth of the target business. None of our officers, directors or shareholders is required to provide any financing to us in connection with or after our initial Business Combination. +Our initial shareholders control a substantial interest in us and thus may exert a substantial influence on actions requiring a shareholder vote, potentially in a manner that you do not support. +Our initial shareholders own 20% of our issued and outstanding ordinary. Accordingly, they may exert a substantial influence on actions requiring a shareholder vote, potentially in a manner that you do not support, including amendments to our amended and restated memorandum and articles of association. In addition, prior to the closing of our initial Business Combination, only holders of our Founder Shares will have the right to vote to continue the company in a jurisdiction outside the Cayman Islands. This provision of our amended and restated memorandum and articles of association may only be amended by a special resolution passed by not less than 90% of our ordinary shares which are represented in person or by proxy and are voted at our general meeting. As a result, you will not have any influence over our continuation in a jurisdiction outside the Cayman Islands prior to our initial Business Combination. +If our initial shareholders purchase any additional Class A Ordinary Shares in the aftermarket or in privately negotiated transactions, this would increase their control. Neither our initial shareholders nor, to our knowledge, any of our officers or directors, have any current intention to purchase additional securities, other than as disclosed in this Form 10-K. +Factors that would be considered in making such additional purchases would include consideration of the current trading price of our Class A Ordinary Shares. In addition, our board of directors, whose members were appointed by our Sponsor, is and will be divided into three classes, each of which will generally serve for a term for three years with only one class of directors being appointed in each year. We may not hold an annual or extraordinary general meeting to appoint new directors prior to the completion of our initial Business Combination, in which case all of the current directors will continue in office until at least the completion of the Business Combination. If there is an annual general meeting, as a consequence of our “staggered” board of directors, only a minority of the board of directors will be considered for appointment and our initial shareholders, because of their ownership position, will have considerable influence regarding the outcome. Accordingly, our initial shareholders will continue to exert control at least until the completion of our initial Business Combination. +32 +Table of Contents +We may not be able to complete an initial Business Combination since such initial Business Combination may be subject to regulatory review and approval requirement, including foreign investment regulations and review by government entities such as the Committee on Foreign Investment in the United States (“CFIUS”), or may be ultimately prohibited. +Our initial Business Combination may be subject to regulatory review and approval requirements by governmental entities, or ultimately prohibited. For example, CFIUS has authority to review direct or indirect foreign investments in U.S. companies. Among other things, CFIUS is empowered to require certain foreign investors to make mandatory filings, to charge filing fees related to such filings, and to self-initiate national security reviews of foreign direct and indirect investments in U.S. companies if the parties to that investment choose not to file voluntarily. In the case that CFIUS determines an investment to be a threat to national security, CFIUS has the power to unwind or place restrictions on the investment. Whether CFIUS has jurisdiction to review an acquisition or investment transaction depends on - among other factors - the nature and structure of the transaction, including the level of beneficial ownership interest and the nature of any information or governance rights involved. For example, investments that result in “control” of a U.S. business by a foreign person always are subject to CFIUS jurisdiction. CFIUS’s expanded jurisdiction under the Foreign Investment Risk Review Modernization Act of 2018 and implementing regulations that became effective on February 13, 2020 further includes investments that do not result in control of a U.S. business by a foreign person but afford certain foreign investors certain information or governance rights in a U.S. business that has a nexus to “critical technologies,” “critical infrastructure” and/or “sensitive personal data.” +Our Sponsor owns approximately 20.0% of our issued and outstanding ordinary shares. Our Sponsor is exclusively “controlled” for CFIUS purposes by Mr. Graf, who is a U.S. citizen, and thus we do not believe that our Sponsor is a “foreign person” as defined in the CFIUS regulations. However, it is possible that non-U.S. persons could be involved in our initial Business Combination (e.g., as existing shareholders of a target company or as PIPE investors), which may increase the risk that our initial Business Combination becomes subject to regulatory review, including review by CFIUS. As such, an initial Business Combination with a U.S. business or foreign business with U.S. subsidiaries that we may wish to pursue may be subject to CFIUS review. If a particular proposed initial Business Combination with a U.S. business falls within CFIUS’s jurisdiction, we may determine that we are required to make a mandatory filing or that we will submit to CFIUS review on a voluntary basis, or to proceed with the transaction without submitting to CFIUS and risk CFIUS intervention, before or after closing the transaction. CFIUS may decide to block or delay our proposed initial Business Combination, impose conditions with respect to such initial Business Combination or request the President of the United States to order us to divest all or a portion of the U.S. target business of our initial Business Combination that we acquired without first obtaining CFIUS approval, which may limit the attractiveness of, delay or prevent us from pursuing certain target companies that we believe would otherwise be beneficial to us and our shareholders. As a result, the pool of potential targets with which we could complete an initial Business Combination may be limited and we may be adversely affected in terms of competing with other special purpose acquisition companies which do not have any foreign ownership issues. In addition, certain federally licensed businesses may be subject to rules or regulations that limit foreign ownership. The process of government review, whether by CFIUS or otherwise, could be lengthy. Because we have only a limited time to complete our initial Business Combination, our failure to obtain any required approvals within the requisite time period may require us to liquidate. If we are unable to consummate our initial Business Combination within the applicable time period required under our amended and restated memorandum and articles of association, including as a result of extended regulatory review of a potential initial Business Combination, we will, as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares for a pro rata portion of the funds held in the Trust Account, subject to our obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. In such event, our shareholders will miss the opportunity to benefit from an investment in a target company and the appreciation in value of such investment. Additionally, upon our liquidation, our warrants will expire. +Because we must furnish our shareholders with target business financial statements, we may lose the ability to complete an otherwise advantageous initial Business Combination with some prospective target businesses. +The federal proxy rules require that the proxy statement with respect to the vote on an initial Business Combination include historical and pro forma financial statement disclosure. We will include the same financial statement disclosure in connection with our tender offer documents, whether or not they are required under the tender offer rules. These financial statements may be required to be prepared in accordance with, or be reconciled to, accounting principles generally accepted in the United States of America (“GAAP”), or international financial reporting standards as issued by the International Accounting Standards Board (“IFRS”), depending on the circumstances and the historical financial statements may be required to be audited in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”). These financial statement requirements may limit the pool of potential target businesses we may acquire because some targets may be unable to provide such financial statements in time for us to disclose such statements in accordance with federal proxy rules and complete our initial Business Combination within the prescribed time frame. +33 +Table of Contents +Compliance obligations under the Sarbanes-Oxley Act may make it more difficult for us to effectuate our initial Business Combination, require substantial financial and management resources, and increase the time and costs of completing an initial Business Combination. +Section 404 of the Sarbanes-Oxley Act requires that we evaluate and report on our system of internal controls beginning with our Annual Report on Form 10-K for the year ending December 31, 2025. Only in the event we are deemed to be a large accelerated filer or an accelerated filer, and no longer qualify as an emerging growth company, will we be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting. Further, for as long as we remain an emerging growth company, we will not be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting. The fact that we are a blank check company makes compliance with the requirements of the Sarbanes-Oxley Act particularly burdensome on us as compared to other public companies because a target business with which we seek to complete our initial Business Combination may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy of its internal controls. The development of the internal control of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such Business Combination. +We may seek Business Combination opportunities with a high degree of complexity that require significant operational improvements, which could delay or prevent us from achieving our desired results. +We may seek Business Combination opportunities with large, highly complex companies that we believe would benefit from operational improvements. While we intend to implement such improvements, to the extent that our efforts are delayed or we are unable to achieve the desired improvements, the Business Combination may not be as successful as we anticipate. +To the extent we complete our initial Business Combination with a large complex business or entity with a complex operating structure, we may also be affected by numerous risks inherent in the operations of the business with which we combine, which could delay or prevent us from implementing our strategy. Although our management team will endeavor to evaluate the risks inherent in a particular target business and its operations, we may not be able to properly ascertain or assess all of the significant risk factors until we complete our Business Combination. If we are not able to achieve our desired operational improvements, or the improvements take longer to implement than anticipated, we may not achieve the gains that we anticipate. Furthermore, some of these risks and complexities may be outside of our control and leave us with no ability to control or reduce the chances that those risks and complexities will adversely impact a target business. Such combination may not be as successful as a combination with a smaller, less complex organization. +Our initial Business Combination and our structure thereafter may not be tax-efficient to our shareholders and warrant holders. As a result of our Business Combination, our tax obligations may be more complex, burdensome and uncertain. +Although we will attempt to structure our initial Business Combination in a tax-efficient manner, tax structuring considerations are complex, the relevant facts and law are uncertain and may change, and we may prioritize commercial and other considerations over tax considerations. For example, in connection with our initial Business Combination and subject to any requisite shareholder approval, we may structure our Business Combination in a manner that requires shareholders and/or warrant holders to recognize gain or income for tax purposes, effect a Business Combination with a target company in another jurisdiction, or reincorporate in a different jurisdiction (including, but not limited to, the jurisdiction in which the target company or business is located). We do not intend to make any cash distributions to shareholders or warrant holders to pay taxes in connection with our Business Combination or thereafter. Accordingly, a shareholder or a warrant holder may need to satisfy any liability resulting from our initial Business Combination with cash from its own funds or by selling all or a portion of the shares or warrants received. In addition, shareholders and warrant holders may also be subject to additional income, withholding or other taxes with respect to their ownership of us after our initial Business Combination. +In addition, we may effect a Business Combination with a target company that has business operations outside of the United States, and possibly, business operations in multiple jurisdictions. If we effect such a Business Combination, we could be subject to significant income, withholding and other tax obligations in a number of jurisdictions with respect to income, operations and subsidiaries related to those jurisdictions. +Due to the complexity of tax obligations and filings in other jurisdictions, we may have a heightened risk related to audits or examinations by U.S. federal, state, local and non-U.S. taxing authorities. This additional complexity and risk could have an adverse effect on our after-tax profitability and financial condition. +34 +Table of Contents +Risks Relating to the Post-Business Combination Company +Subsequent to our completion of our initial Business Combination, we may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and the price of our securities, which could cause you to lose some or all of your investment. +Even if we conduct due diligence on a target business with which we combine, we cannot assure you that this diligence will identify all material issues that may be present with a particular target business, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of the target business and outside of our control will not later arise. As a result of these factors, we may be forced to later write-down or write-off assets, restructure our operations, or incur impairment or other charges that could result in our reporting losses. Even if our due diligence successfully identifies certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. Even though these charges may be non-cash items and not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us or our securities. In addition, charges of this nature may cause us to violate net worth or other covenants to which we may be subject as a result of assuming pre-existing debt held by a target business or by virtue of our obtaining debt financing to partially finance the initial Business Combination or thereafter. Accordingly, any shareholders or warrant holders who choose to remain shareholders or warrant holders following the Business Combination could suffer a reduction in the value of our securities. Such shareholders or warrant holders are unlikely to have a remedy for such reduction in value unless they are able to successfully claim that the reduction was due to the breach by our officers or directors of a duty of care or other fiduciary duty owed to them, or if they are able to successfully bring a private claim under securities laws that the proxy materials or tender offer documents, as applicable, relating to the Business Combination contained an actionable material misstatement or material omission. +The nominal purchase price paid by our Sponsor for the Founder Shares may result in significant dilution to the implied value of your Public Shares upon the consummation of our initial Business Combination. +Prior to our initial public offering, our Sponsor paid a nominal aggregate purchase price of $25,000 for the Founder Shares, or approximately $0.005 per share. As a result, the value of your Public Shares may be significantly diluted upon the consummation of our initial Business Combination, when the Founder Shares are converted into Class A Ordinary Shares. For example, the following table shows the dilutive effect of the Founder Shares on the implied value of the Public Shares upon the consummation of our initial Business Combination assuming that our equity value at that time is $245,609,352 (including interest earned on the Trust Account through December 31, 2025, and following payment of $9,800,000 of deferred underwriting commissions), which is the amount we would have for our initial Business Combination in the Trust Account assuming no Public Shares are redeemed in connection with our initial Business Combination, and without taking into account any other potential impacts on our valuation at such time, such as the trading price of our Public Shares, the Business Combination transaction costs, any equity issued or cash paid to the target’s sellers or other third parties, or the target’s business itself, including its assets, liabilities, management and prospects, as well as the value of our public and private warrants. At such valuation, each of our ordinary shares would have an implied value of $8.20 per share upon consummation of our initial Business Combination, which is an 18.0% decrease as compared to the initial implied value per public share (after taking into consideration the payment of the deferred underwriting commission) of $9.82 and a 20.0% decrease as compared to the implied value per public share (after taking into consideration interest earned on the Trust Account through December 31, 2025, and the payment of $9,800,000 of deferred underwriting commissions). +​ +​ +​ +​ +​ +Public Shares +​ ​ ​ +​ +23,000,000 +Founder Shares +​ +5,750,000 +Total shares +​ +28,750,000 +Total funds in trust available for initial Business Combination +​ +$ +245,609,352 +Initial implied value per public share +​ +$ +9.82 +Implied value per public share including interest earned on the Trust Account through December 31, 2025 +​ +$ +10.68 +Implied value per share upon consummation of initial Business Combination +​ +$ +8.20 +​ +35 +Table of Contents +The value of the Founder Shares following completion of our initial Business Combination is likely to be substantially higher than the nominal price paid for them, even if the trading price of our ordinary at such time is substantially less than $10.00 per share. +In connection with the initial public offering, our Sponsor has invested in us an aggregate of $4,025,000, comprised of the $25,000 purchase price for the Founder Shares and the $4,000,000 purchase price for the Private Placement Warrants. Assuming a trading price of $10.00 per share upon consummation of our initial Business Combination, the 5,000,000 Founder Shares would have an aggregate implied value of $50,000,000. Even if the trading price of our ordinary shares were as low as $0.81 per share, and the Private Placement Warrants are worthless, the value of the Founder Shares would be equal to the Sponsor’s initial investment in us. As a result, our Sponsor is likely to be able to make a substantial profit on its investment in us at a time when our Public Shares have lost significant value. Accordingly, our management team, which owns interests in our Sponsor, may be more willing to pursue a Business Combination with a riskier or less-established target business than would be the case if our Sponsor had paid the same per share price for the Founder Shares as our public shareholders paid for their Public Shares. +Resources could be wasted in researching Business Combinations that are not completed, which could materially adversely affect subsequent attempts to locate and acquire or merge with another business. If we are unable to complete our initial Business Combination, our public shareholders may only receive their pro rata portion of the funds in the Trust Account that are available for distribution to public shareholders, and upon our liquidation our warrants will expire. +We anticipate that the investigation of each specific target business and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial costs for accountants, attorneys and others. If we decide not to complete a specific initial Business Combination, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, if we reach an agreement relating to a specific target business, we may fail to complete our initial Business Combination for any number of reasons including those beyond our control. Any such event will result in a loss to us of the related costs incurred which could materially adversely affect subsequent attempts to locate and acquire or merge with another business. If we are unable to complete our initial Business Combination, our public shareholders may only receive their pro rata portion of the funds in the Trust Account that are available for distribution to public shareholders. Upon our liquidation, our warrants will expire. +Our ability to successfully effect our initial Business Combination and to be successful thereafter will be dependent upon the efforts of our key personnel, some of whom may join us following our initial Business Combination. The loss of key personnel could negatively impact the operations and profitability of our post- combination business. +Our ability to successfully effect our initial Business Combination is dependent upon the efforts of our key personnel. The role of our key personnel in the target business, however, cannot presently be ascertained. Although some of our key personnel may remain with the target business in senior management or advisory positions following our initial Business Combination, it is likely that some or all of the management of the target business will remain in place. While we intend to closely scrutinize any individuals we engage after our initial Business Combination, we cannot assure you that our assessment of these individuals will prove to be correct. These individuals may be unfamiliar with the requirements of operating a company regulated by the SEC, which could cause us to have to expend time and resources helping them become familiar with such requirements. +Our key personnel may negotiate employment or consulting agreements with a target business in connection with a particular Business Combination, and a particular Business Combination may be conditioned on the retention or resignation of such key personnel. These agreements may provide for them to receive compensation following our initial Business Combination and as a result, may cause them to have conflicts of interest in determining whether a particular Business Combination is the most advantageous. +Our key personnel may be able to remain with our company after the completion of our initial Business Combination only if they are able to negotiate employment or consulting agreements in connection with the Business Combination. Such negotiations would take place simultaneously with the negotiation of the Business Combination and could provide for such individuals to receive compensation in the form of cash payments and/or our securities for services they would render to us after the completion of the Business Combination. Such negotiations also could make such key personnel’s retention or resignation a condition to any such agreement. The personal and financial interests of such individuals may influence their motivation in identifying and selecting a target business, subject to their fiduciary duties under Cayman Islands law. +36 +Table of Contents +We may have a limited ability to assess the management of a prospective target business and, as a result, may effect our initial Business Combination with a target business whose management may not have the skills, qualifications or abilities to manage a public company. +When evaluating the desirability of effecting our initial Business Combination with a prospective target business, our ability to assess the target business’s management may be limited due to a lack of time, resources or information. Our assessment of the capabilities of the target business’s management, therefore, may prove to be incorrect and such management may lack the skills, qualifications or abilities we suspected. Should the target business’s management not possess the skills, qualifications or abilities necessary to manage a public company, the operations and profitability of the post-combination business may be negatively impacted. Accordingly, any shareholders or warrant holders who choose to remain shareholders or warrant holders following the Business Combination could suffer a reduction in the value of their securities. Such shareholders or warrant holders are unlikely to have a remedy for such reduction in value unless they are able to successfully claim that the reduction was due to the breach by our officers or directors of a duty of care or other fiduciary duty owed to them, or if they are able to successfully bring a private claim under securities laws that the proxy solicitation or tender offer materials, as applicable, relating to the Business Combination contained an actionable material misstatement or material omission. +The officers and directors of an acquisition candidate may resign upon completion of our initial Business Combination. The loss of a Business Combination target’s key personnel could negatively impact the operations and profitability of our post-combination business. +The role of an acquisition candidate’s key personnel upon the completion of our initial Business Combination cannot be ascertained at this time. Although we contemplate that certain members of an acquisition candidate’s management team will remain associated with the acquisition candidate following our initial Business Combination, it is possible that members of the management of an acquisition candidate will not wish to remain in place. +Our management may not be able to maintain control of a target business after our initial Business Combination. We cannot provide assurance that, upon loss of control of a target business, new management will possess the skills, qualifications or abilities necessary to profitably operate such business. +We may structure our initial Business Combination so that the post-transaction company in which our public shareholders own shares will own less than 100% of the equity interests or assets of a target business, but we will only complete such Business Combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for us not to be required to register as an investment company under the Investment Company Act. We will not consider any transaction that does not meet such criteria. Even if the post- transaction company owns 50% or more of the voting securities of the target, our shareholders prior to the Business Combination may collectively own a minority interest in the post Business Combination company, depending on valuations ascribed to the target and us in the Business Combination. For example, we could pursue a transaction in which we issue a substantial number of new Class A Ordinary Shares in exchange for all of the outstanding capital stock of a target. In this case, we would acquire a 100% interest in the target. +However, as a result of the issuance of a substantial number of new Class A Ordinary Shares, our shareholders immediately prior to such transaction could own less than a majority of our outstanding Class A Ordinary Shares subsequent to such transaction. In addition, other minority shareholders may subsequently combine their holdings resulting in a single person or group obtaining a larger share of the company’s shares than we initially acquired. Accordingly, this may make it more likely that our management will not be able to maintain control of the target business. +Risks Relating to Acquiring and Operating a Business in Foreign Countries +If we effect our initial Business Combination with a company located outside of the United States, we would be subject to a variety of additional risks that may adversely affect us. +If we pursue a target company with operations or opportunities outside of the United States for our initial Business Combination, we may face additional burdens in connection with investigating, agreeing to and completing such initial Business Combination, and if we effect such initial Business Combination, we would be subject to a variety of additional risks that may negatively impact our operations. +37 +Table of Contents +If we pursue a target a company with operations or opportunities outside of the United States for our initial Business Combination, we would be subject to risks associated with cross-border Business Combinations, including in connection with investigating, agreeing to and completing our initial Business Combination, conducting due diligence in a foreign jurisdiction, having such transaction approved by any local governments, regulators or agencies and changes in the purchase price based on fluctuations in foreign exchange rates. Additionally, management of the target business may not be familiar with United States securities laws, and may have to expend time and resources becoming familiar with such laws. This could be expensive and time-consuming and could lead to various regulatory issues which may adversely affect operations. +If we effect our initial Business Combination with such a company, we would be subject to any special considerations or risks associated with companies operating in an international setting, including any of the following: +● costs and difficulties inherent in managing cross-border business operations; +● rules and regulations regarding currency redemption; +● complex corporate withholding taxes on individuals; +● laws governing the manner in which future Business Combinations may be effected; +● exchange listing and/or delisting requirements; +● tariffs and trade barriers; +● regulations related to customs and import/export matters; +● local or regional economic policies and market conditions; +● unexpected changes in regulatory requirements; +● challenges in managing and staffing international operations; +● longer payment cycles; +● tax issues, such as tax law changes and variations in tax laws as compared to the United States; +● currency fluctuations and exchange controls; +● rates of inflation; +● challenges in collecting accounts receivable; +● cultural and language differences; +● employment regulations; +● underdeveloped or unpredictable legal or regulatory systems; +● corruption; +● protection of intellectual property; +● social unrest, crime, strikes, riots and civil disturbances; +● regime changes and political upheaval; +● terrorist attacks, natural disasters, widespread health emergencies and wars; and +● deterioration of political relations with the United States. +We may not be able to adequately address these additional risks. If we were unable to do so, we may be unable to complete such initial Business Combination, or, if we complete such initial Business Combination, our operations might suffer, either of which may adversely impact our business, financial condition and results of operations. +After our initial Business Combination, substantially all of our assets may be located in a foreign country and substantially all of our revenue may be derived from our operations in such country. Accordingly, our results of operations and prospects will be subject, to a significant extent, to the economic, political and legal policies, developments and conditions in the country in which we operate. +The economic, political and social conditions, as well as government policies, of the country in which our operations are located could affect our business. Economic growth could be uneven, both geographically and among various sectors of the economy and such growth may not be sustained in the future. If in the future such country’s economy experiences a downturn or grows at a slower rate than expected, there may be less demand for spending in certain industries. A decrease in demand for spending in certain industries could materially and adversely affect our ability to find an attractive target business with which to consummate our initial Business Combination and if we effect our initial Business Combination, the ability of that target business to become profitable. +38 +Table of Contents +After our initial Business Combination, it is possible that a majority of our directors and officers will live outside the United States and all of our assets will be located outside the United States; therefore, investors may not be able to enforce federal securities laws or their other legal rights. +It is possible that after our initial Business Combination, a majority of our directors and officers will reside outside of the United States and all of our assets will be located outside of the United States. As a result, it may be difficult, or in some cases not possible, for investors in the United States to enforce their legal rights, to effect service of process upon all of our directors or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties on our directors and officers under United States laws. +Exchange rate fluctuations and currency policies may cause a target business’ ability to succeed in the international markets to be diminished. +In the event we acquire a non-U.S. target, all revenues and income would likely be received in a foreign currency, and the dollar equivalent of our net assets and distributions, if any, could be adversely affected by reductions in the value of the local currency. The value of the currencies in our target regions fluctuate and are affected by, among other things, changes in political and economic conditions. Any change in the relative value of such currency against our reporting currency may affect the attractiveness of any target business or, following consummation of our initial Business Combination, our financial condition and results of operations. Additionally, if a currency appreciates in value against the dollar prior to the consummation of our initial Business Combination, the cost of a target business as measured in dollars will increase, which may make it less likely that we are able to consummate such transaction. +Risks Relating to our Management Team +We may not have sufficient funds to satisfy indemnification claims of our directors and executive officers. +We have agreed to indemnify our officers and directors to the fullest extent permitted by law. However, our officers and directors have agreed to waive any right, title, interest or claim of any kind in or to any monies in the Trust Account and to not seek recourse against the Trust Account for any reason whatsoever. Accordingly, any indemnification provided will be able to be satisfied by us only if (i) we have sufficient funds outside of the Trust Account or (ii) we consummate an initial Business Combination. Our obligation to indemnify our officers and directors may discourage shareholders from bringing a lawsuit against our officers or directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against our officers and directors, even though such an action, if successful, might otherwise benefit us and our shareholders. Furthermore, a shareholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against our officers and directors pursuant to these indemnification provisions. +Members of our management team and board of directors have significant experience as board members, officers or executives of other companies. As a result, certain of those persons have been, may be, or may become, involved in proceedings, investigations and litigation relating to the business affairs of the companies with which they were, are, or may in the future be, affiliated. This may have an adverse effect on us, which may impede our ability to consummate an initial Business Combination. +During the course of their careers, members of our management team and board of directors have had significant experience as board members, officers or executives of other companies. As a result of their involvement and positions in these companies, certain persons were, are now, or may in the future become, involved in litigation, investigations or other proceedings relating to the business affairs of such companies or transactions entered into by such companies. For example, directors and officers of GRAF I, including Mr. Graf in his capacity as Chief Executive Officer of GRAF I, as well as the GRAF I Sponsor (but not Mr. Graf in any personal capacity at the GRAF I Sponsor), were previously co-defendants in an ongoing class action in the Delaware Court of Chancery titled Berger v. Graf Acquisition LLC et al , Civ A. No. 2023-0873-LWW, in connection with the business combination between GRAF I and Velodyne. The class plaintiffs alleged that the defendants withheld material information in the definitive proxy statement and that they proffered inflated financial projections about Velodyne to convince GRAF I public stockholders to refrain from exercising their redemption rights. The defendants do not believe that such claims were meritorious; however, to avoid the time and expense of litigation, the matter was settled in October 2025 with no admission of fault. These and other claims, litigation, investigations or other proceedings may have diverted, or may divert, our management team’s and board’s attention and resources away from identifying and selecting a target business or businesses for our initial Business Combination and may negatively affect our reputation, which may impede our ability to complete an initial Business Combination. +39 +Table of Contents +Members of our management team and affiliated companies may have been, and may in the future be, involved in civil disputes or governmental investigations unrelated to our business. +Members of our management team have been (and intend to be) involved in a wide variety of businesses. Such involvement has, and may lead to, media coverage and public awareness. As a result, members of our management team and affiliated companies may have been, and may in the future be, involved in civil disputes or governmental investigations unrelated to our business. Any such claims or investigations may be detrimental to our reputation and could negatively affect our ability to identify and complete an initial Business Combination and may have an adverse effect on the price of our securities. +Past performance by our management team and their affiliates may not be indicative of future performance of an investment in us. +Information regarding performance by, or businesses associated with, our management team or businesses associated with them is presented for informational purposes only. Past performance by our management team is not a guarantee either (i) of success with respect to any Business Combination we may consummate or (ii) that we will be able to locate a suitable candidate for our initial Business Combination. You should not rely on the historical record of the performance of our management team’s or businesses associated with them as indicative of our future performance of an investment in us or the returns we will, or is likely to, generate going forward. +We may seek Business Combination opportunities in industries or sectors that may be outside of our management’s areas of expertise. +We will consider a Business Combination outside of our management’s areas of expertise if a Business Combination candidate is presented to us and we determine that such candidate offers an attractive Business Combination opportunity for our company. Although our management will endeavor to evaluate the risks inherent in any particular Business Combination candidate, we cannot assure you that we will adequately ascertain or assess all of the significant risk factors. We also cannot assure you that an investment in our securities will not ultimately prove to be less favorable to investors than a direct investment, if an opportunity were available, in a Business Combination candidate. In the event we elect to pursue a Business Combination outside of the areas of our management’s expertise, our management’s expertise may not be directly applicable to its evaluation or operation, and the information contained in this Form 10-K regarding the areas of our management’s expertise would not be relevant to an understanding of the business that we elect to acquire. As a result, our management may not be able to ascertain or assess adequately all of the relevant risk factors. Accordingly, any shareholders who choose to remain shareholders following our initial Business Combination could suffer a reduction in the value of their shares. Such shareholders are unlikely to have a remedy for such reduction in value. +We are dependent upon our executive officers and directors and their loss, or a reduction in the amount of time they can dedicate to our initial Business Combination, could adversely affect our ability to operate. +Our operations are dependent upon a relatively small group of individuals and, in particular, our executive officers and directors and the members of our advisory board. We believe that our success depends on the continued service of our officers, directors and members of our advisory board, at least until we have completed our initial Business Combination. In addition, our executive officers and directors are not required to commit any specified amount of time to our affairs and, accordingly, will have conflicts of interest in allocating their time among various business activities, including identifying potential Business Combinations and monitoring the related due diligence. We do not have an employment agreement with, or key-man insurance on the life of, any of our directors or executive officers. The unexpected loss of the services of one or more of our directors or executive officers could have a detrimental effect on us. +Our executive officers and directors will allocate their time to other businesses thereby causing conflicts of interest in their determination as to how much time to devote to our affairs. This conflict of interest could have a negative impact on our ability to complete our initial Business Combination. +Our executive officers and directors are not required to, and will not, commit their full time to our affairs, which may result in a conflict of interest in allocating their time between our operations and our search for a Business Combination and their other businesses. We do not intend to have any full-time employees prior to the completion of our initial Business Combination. If our executive officers’ and directors’ other business affairs require them to devote substantial amounts of time to such affairs in excess of their current commitment levels, it could limit their ability to devote time to our affairs which may have a negative impact on our ability to complete our initial Business Combination. Any such companies, businesses or investments may present additional conflicts of interest in pursuing an initial Business Combination target. However, we do not believe that any such potential conflicts would materially affect our ability to complete our initial Business Combination. For a complete discussion of our executive officers’ and directors’ other business affairs, please see “ Management - Officers and Directors .” +40 +Table of Contents +Our officers and directors presently have, and any of them in the future may have additional, fiduciary or contractual obligations to other entities, including blank check companies, and, accordingly, may have conflicts of interest in allocating their time and in determining to which entity a particular business opportunity should be presented. +Until we consummate our initial Business Combination, we intend to engage in the business of identifying and combining with one or more businesses. Our Sponsor and our officers and directors are, and in the future may become, affiliated with such entities (such as operating companies or investment vehicles) that are engaged in a similar business. We do not have employment contracts with our officers and directors that will limit their ability to work at other businesses. Our officers and directors presently and any in the future may have, additional fiduciary or contractual obligations to other entities pursuant to which such officer or director is or will be required to present a Business Combination opportunity to such entities. Accordingly, they may have conflicts of interest in determining to which entity a particular business opportunity should be presented. These conflicts may not be resolved in our favor and a potential target business may be presented to another entity prior to its presentation to us. +Our officers and directors presently and in the future may have additional, fiduciary or contractual obligations to other entities pursuant to which such officer or director is or will be required to present a Business Combination opportunity. Accordingly, if any of our officers or directors becomes aware of a Business Combination opportunity which is suitable for an entity to which he or she has then-current fiduciary or contractual obligations, he or she will honor his or her fiduciary or contractual obligations to present such opportunity to such entity. In addition, certain of our officers and directors are members of our Sponsor and own membership interests of our Sponsor. The remaining membership interests are held by third party investors that are not affiliated with members of our management. We do not believe, however, that the fiduciary duties or contractual obligations of our officers or directors will materially affect our ability to complete our Business Combination. Our amended and restated memorandum and articles of association provide that, to the fullest extent permitted by applicable law: (i) no individual serving as a director or an officer shall have any duty, except and to the extent expressly assumed by contract, to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as us, and (ii) we renounce any interest or expectancy in, or in being offered an opportunity to participate in, any potential transaction or matter which may be a corporate opportunity for any director or officer, on the one hand, and us, on the other. The purpose for the surrender of corporate opportunities is to allow officers, directors or other representatives with multiple business affiliations to continue to serve as an officer of our company or on our board of directors. Our officers and directors may from time to time be presented with opportunities that could benefit both another business affiliation and us. In the absence of the “corporate opportunity” waiver in our charter, certain candidates would not be able to serve as an officer or director. We believe we substantially benefit from having representatives who bring significant, relevant and valuable experience to our management, and, as a result, the inclusion of the “corporate opportunity” waiver in our amended and restated memorandum and articles of association provide us with greater flexibility to attract and retain the officers and directors that we feel are the best candidates. We do not believe, however, that the fiduciary duties or contractual obligations of our officers or directors will materially affect our ability to complete our initial business. +In addition, our Sponsor and our officers and directors may sponsor or form other special purpose acquisition companies with acquisition objectives that are similar to ours or may pursue other business or investment ventures during the period in which we are seeking an initial Business Combination. As a result, our Sponsor, officers and directors could have conflicts of interest in determining whether to present Business Combination to us or to any other special purpose acquisition company with which they may become involved. Any such companies, businesses or investments may present additional conflicts of interest in pursuing an initial Business Combination target. However, we do not believe any such potential conflict would materially affect our ability to complete our initial Business Combination. +Further, certain members of our management team may have similar responsibilities in, or serve as directors of, other SPACs. Any such companies may present additional conflicts of interest in pursuing an acquisition target. For a complete discussion of our executive officers’ and directors’ business affiliations and the potential conflicts of interest that you should be aware of, please see “ Management - Officers and Directors ,” “ Management - Conflicts of Interest ” and “ Certain Relationships and Related Party Transactions .” +41 +Table of Contents +Our executive officers, directors, security holders and their respective affiliates may have competitive pecuniary interests that conflict with our interests. +We have not adopted a policy that expressly prohibits our directors, officers, security holders or affiliates from having a direct or indirect pecuniary or financial interest in any investment to be acquired or disposed of by us or in any transaction to which we are a party or have an interest. In fact, we may enter into a Business Combination with a target business that is affiliated with our Sponsor, our directors or officers, although we do not intend to do so. Nor do we have a policy that expressly prohibits any such persons from engaging for their own account in business activities of the types conducted by us. Accordingly, such persons or entities may have a conflict between their interests and ours. Any such companies, businesses or investments may present additional conflicts of interest in pursuing an initial Business Combination target. However, we do not believe that any such potential conflicts would materially affect our ability to complete our initial Business Combination. +The personal and financial interests of our directors and officers may influence their motivation in timely identifying and selecting a target business and completing a Business Combination. Consequently, our directors’ and officers’ discretion in identifying and selecting a suitable target business may result in a conflict of interest when determining whether the terms, conditions and timing of a particular Business Combination are appropriate and in our shareholders’ best interest. If this were the case, it would be a breach of their fiduciary duties to us as a matter of Cayman Islands law and we or our shareholders might have a claim against such individuals for infringing on our shareholders’ rights. See the section titled “ Description of Securities-Certain Differences in Corporate Law-Shareholder Suits ” for further information on the ability to bring such claims. However, we might not ultimately be successful in any claim we may make against them for such reason. +We may engage in a Business Combination with one or more target businesses that have relationships with entities that may be affiliated with our Sponsor, executive officers, directors or existing holders which may raise potential conflicts of interest. +In light of the involvement of our Sponsor, executive officers and directors with other entities, we may decide to acquire one or more businesses affiliated with our Sponsor, executive officers, directors or existing holders. Our directors also serve as officers and board members for other entities, including, without limitation, those described under “ Management - Conflicts of Interest .” Such entities may compete with us for Business Combination opportunities. Our Sponsor, officers and directors are not currently aware of any specific opportunities for us to complete our initial Business Combination with any entities with which they are affiliated, and there have been no substantive discussions concerning a Business Combination with any such entity or entities. Although we will not be specifically focusing on, or targeting, any transaction with any affiliated entities, we would pursue such a transaction if we determined that such affiliated entity met our criteria for a Business Combination as set forth in “ Proposed Business - Business Combination Criteria ” and such transaction was approved by a majority of our independent and disinterested directors. Despite our agreement to obtain an opinion from an independent investment banking firm which is a member of FINRA or a valuation or appraisal firm regarding the fairness to our company from a financial point of view of a Business Combination with one or more domestic or international businesses affiliated with our Sponsor, executive officers, directors or existing holders, potential conflicts of interest still may exist and, as a result, the terms of the Business Combination may not be as advantageous to our public shareholders as they would be absent any conflicts of interest. +We may engage one or more of our underwriters or one of their respective affiliates to provide additional services to us, which may include acting as financial advisor in connection with an initial Business Combination or as placement agent in connection with a related financing transaction. Our underwriters are entitled to receive deferred commissions that will released from the trust only on a completion of an initial Business Combination. These financial incentives may cause them to have potential conflicts of interest in rendering any such additional services to us after our initial public offering, including, for example, in connection with the sourcing and consummation of an initial Business Combination. +We may engage one or more of our underwriters or one of their respective affiliates to provide additional services to us after our initial public offering, including, for example, identifying potential targets, providing financial advisory services, acting as a placement agent in a private offering or arranging debt financing. We may pay such underwriter or its affiliate fair and reasonable fees or other compensation that would be determined at that time in an arm’s length negotiation. The underwriters are also entitled to receive deferred commissions that are conditioned on the completion of an initial Business Combination. The underwriters’ or their respective affiliates’ financial interests tied to the consummation of a Business Combination transaction may give rise to potential conflicts of interest in providing any such additional services to us, including potential conflicts of interest in connection with the sourcing and consummation of an initial Business Combination. +42 +Table of Contents +Since our Sponsor, executive officers and directors will lose their entire investment in us if our initial Business Combination is not completed (other than with respect to Public Shares they have acquired, or may in the future acquire, if any), a conflict of interest may arise in determining whether a particular Business Combination target is appropriate for our initial Business Combination. +In November 2021, our Sponsor paid $25,000, or approximately $0.003 per share, to cover certain expenses on our behalf in consideration of 7,187,500 Founder Shares. On February 8, 2024, our Sponsor surrendered 1,437,500 Founder Shares for no consideration, resulting in our Sponsor holding 5,750,000 Founder Shares. On June 7, 2024, our Sponsor transferred 30,000 Founder Shares to each of the Company’s three independent directors (an aggregate of 90,000 Founder Shares), resulting in our Sponsor holding 5,660,000 Founder Shares. Prior to the initial investment in the company of $25,000 by the Sponsor, the company had no assets, tangible or intangible. The purchase price of the Founder Shares was determined by dividing the amount of cash paid to the Company by the number of Founder Shares issued. The number of Founder Shares outstanding was determined based on the expectation at the time that the total size of the initial public offering would be a maximum of 23,000,000 Units if the underwriters’ over-allotment option was exercised in full, and therefore that such Founder Shares would represent 20% of the outstanding shares after the initial public offering. +In addition, our Sponsor and Cantor purchased an aggregate of 6,000,000 Private Placement Warrants for an aggregate purchase price of $6,000,000, or $1.00 per warrant. Of those 6,000,000 Private Placement Warrants, our Sponsor purchased 4,000,000 Private Placement Warrants and Cantor purchased 2,000,000 Private Placement Warrants. The Private Placement Warrants will be worthless if we do not complete our initial Business Combination. +The personal and financial interests of our executive officers and directors may influence their motivation in identifying and selecting a target Business Combination, completing an initial Business Combination and influencing the operation of the business following the initial Business Combination. This risk may become more acute as the end of the Completion Window nears, which is the deadline for our completion of an initial Business Combination. +The non-managing Sponsor investors are not required to (i) hold any Units, Class A Ordinary Shares or Public Warrants they purchased in the initial public offering or thereafter for any amount of time, (ii) vote any Class A Ordinary Shares they may own at the applicable time in favor of our initial Business Combination or (iii) refrain from exercising their right to redeem their Public Shares at the time of our initial Business Combination. The non-managing Sponsor investors will have the same rights to the funds held in the Trust Account with respect to the Class A Ordinary Shares underlying the Units they may have purchased in the initial public offering as the rights afforded to our other public shareholders. +Risks Relating to our Securities +You will not have any rights or interests in funds from the Trust Account, except under certain limited circumstances. Therefore, to liquidate your investment, you may be forced to sell your Public Shares or warrants, potentially at a loss. +Our public shareholders will be entitled to receive funds from the Trust Account only upon the earlier to occur of: (i) our completion of an initial Business Combination, and then only in connection with those Class A Ordinary Shares that such shareholder properly elected to redeem, subject to the limitations described herein, (ii) the redemption of any Public Shares properly submitted in connection with a shareholder vote to amend our amended and restated memorandum and articles of association (A) to modify the substance or timing of our obligation to redeem 100% of our Public Shares if we do not complete our initial Business Combination within the Completion Window or (B) with respect to any other material provisions relating to shareholders’ rights or pre-initial Business Combination activity, and the redemption of our Public Shares if we are unable to complete an initial Business Combination within the Completion Window, subject to applicable law and as further described herein. In addition, if our plan to redeem our Public Shares if we are unable to complete an initial Business Combination within the Completion Window for any reason, compliance with Cayman Islands law may require that we submit a plan of dissolution to our then-existing shareholders for approval prior to the distribution of the proceeds held in our Trust Account. In that case, public shareholders may be forced to wait beyond the Completion Window before they receive funds from our Trust Account. In no other circumstances will a public shareholder have any right or interest of any kind in the Trust Account. Holders of warrants will not have any right to the proceeds held in the Trust Account with respect to the warrants. Accordingly, to liquidate your investment, you may be forced to sell your Public Shares or warrants, potentially at a loss. +43 +Table of Contents +NYSE American may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions. +Our Units, Class A Ordinary Shares, and Public Warrants are listed on the NYSE American. We cannot assure you that our securities will continue to be listed on the NYSE American in the future or prior to our initial Business Combination. In order to continue listing our securities on the NYSE American prior to our initial Business Combination, we must maintain certain financial, distribution and share price levels. Additionally, in connection with our initial Business Combination, we will be required to demonstrate compliance with the NYSE American’s initial listing requirements, which are more rigorous than the NYSE American’s continued listing requirements, in order to continue to maintain the listing of our securities on the NYSE American. We cannot assure you that we will be able to meet those initial listing requirements at that time. +On April 16, 2026, we received a notice from the NYSE Regulation staff of the NYSE American stating that we are not in compliance with Section 1007 of the NYSE American Company Guide (the “Rule”) because we had not timely filed our Annual Report with the SEC, and that we were automatically granted a period of six months from the due date of the Annual Report to cure the filing delinquency by filing the Annual Report. This Annual Report constitutes such filing and, accordingly, as of the date of the filing of this Annual Report we should regain compliance with the Rule. However, there can be no assurance that we will maintain such compliance or that we will not be delinquent in the future. Any such further delinquency could result in the delisting of our securities from the NYSE American exchange. +If the NYSE American delists our securities from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect our securities could be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including: +● a limited availability of market quotations for our securities; +● reduced liquidity for our securities; +● a determination that our Class A Ordinary Shares are a “penny stock” which will require brokers trading in our Class A Ordinary Shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; +● a limited amount of news and analyst coverage; and +● a decreased ability to issue additional securities or obtain additional financing in the future. +The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because our securities are listed on the NYSE American, our securities qualify as covered securities under the statute. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. While we are not aware of a state having used these powers to prohibit or restrict the sale of securities issued by blank check companies, other than the State of Idaho, certain state securities regulators view blank check companies unfavorably and might use these powers, or threaten to use these powers, to hinder the sale of securities of blank check companies in their states. Further, if we were no longer listed on the NYSE American, our securities would not qualify as covered securities under the statute and we would be subject to regulation in each state in which we offer our securities. +You will not be permitted to exercise your warrants unless we register and qualify the underlying Class A Ordinary Shares or certain exemptions are available. +If the issuance of the Class A Ordinary Shares upon exercise of the warrants is not registered, qualified or exempt from registration or qualification under the Securities Act and applicable state securities laws, holders of warrants will not be entitled to exercise such warrants and such warrants may have no value and expire worthless. In such event, holders who acquired their warrants as part of a purchase of Units will have paid the full unit purchase price solely for the Class A Ordinary Shares included in the Units. +We registered the Class A Ordinary Shares issuable upon exercise of the warrants in the registration statement for our initial public offering because the warrants will become exercisable 30 days after the completion of our initial Business Combination, which could have been within one year of the initial public offering. However, because the warrants will be exercisable until their expiration date of up to five years after the completion of our initial Business Combination, in order to comply with the requirements of Section 10(a)(3) of the Securities Act following the consummation of our initial Business Combination under the terms of the warrant agreement, we have agreed that, as soon as practicable, but in no event later than 15 business days, after the closing of our initial Business +44 +Table of Contents +Combination, we will use our best efforts to file with the SEC a post-effective amendment to the registration statement for our initial public offering, or a new registration statement covering the registration under the Securities Act of the Class A Ordinary Shares issuable upon exercise of the warrants and thereafter will use our best efforts to cause the same to become effective within 60 business days following our initial Business Combination and to maintain a current prospectus relating to the Class A Ordinary Shares issuable upon exercise of the warrants until the expiration of the warrants in accordance with the provisions of the warrant agreement. We cannot assure you that we will be able to do so if, for example, any facts or events arise which represent a fundamental change in the information set forth in the registration statement or prospectus, the financial statements contained or incorporated by reference therein are not current or correct or the SEC issues a stop order. +If the Class A Ordinary Shares issuable upon exercise of the warrants are not registered under the Securities Act, under the terms of the warrant agreement, holders of warrants who seek to exercise their warrants will not be permitted to do so for cash and, instead, will be required to do so on a cashless basis in accordance with Section 3(a)(9) of the Securities Act or another exemption. +In no event will warrants be exercisable for cash or on a cashless basis, and we will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, or an exemption from registration or qualification is available. +If our Class A Ordinary Shares are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition of “covered securities” under Section 18(b)(1) of the Securities Act, we may, at our option, not permit holders of warrants who seek to exercise their warrants to do so for cash and, instead, require them to do so on a cashless basis in accordance with Section 3(a)(9) of the Securities Act; in the event we so elect, we will not be required to file or maintain in effect a registration statement or register or qualify the shares underlying the warrants under applicable state securities laws, and in the event we do not so elect, we will use our commercially reasonable efforts to register or qualify the shares underlying the warrants under applicable state securities laws to the extent an exemption is not available. +In no event will we be required to net cash settle any warrant, or issue securities (other than upon a cashless exercise as described above) or other compensation in exchange for the warrants in the event that we are unable to register or qualify the shares underlying the warrants under the Securities Act or applicable state securities laws. +You may only be able to exercise your Public Warrants on a “cashless basis” under certain circumstances, and if you do so, you will receive fewer Class A Ordinary Shares from such exercise than if you were to exercise such warrants for cash. +The warrant agreement provides that in the following circumstances holders of warrants who seek to exercise their warrants will not be permitted to do for cash and will, instead, be required to do so on a cashless basis in accordance with Section 3(a)(9) of the Securities Act: (i) if the Class A Ordinary Shares issuable upon exercise of the warrants are not registered under the Securities Act in accordance with the terms of the warrant agreement; if we have so elected and the Class A Ordinary Shares are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition of “covered securities” under Section 18(b)(1) of the Securities Act; and (iii) if we have so elected and we call the Public Warrants for redemption. If you exercise your Public Warrants on a cashless basis, you would pay the warrant exercise price by surrendering the warrants for that number of Class A Ordinary Shares equal to the quotient obtained by dividing (x) the product of the number Class A Ordinary Shares underlying the warrants, multiplied by the excess of the “Fair Market Value” of our Class A Ordinary Shares (as defined in the next sentence) over the exercise price of the warrants by (y) the Fair Market Value. The “Fair Market Value” is the average reported closing price of the Class A Ordinary Shares for the 10 trading days ending on the third trading day prior to the date on which the notice of exercise is received by the warrant agent or on which the notice of redemption is sent to the holders of warrants, as applicable. As a result, you would receive fewer Class A Ordinary Shares from such exercise than if you were to exercise such warrants for cash. +The grant of registration rights to our initial shareholders and holders of our Private Placement Warrants may make it more difficult to complete our initial Business Combination, and the future exercise of such rights may adversely affect the market price of our Class A Ordinary Shares. +Pursuant to an agreement entered into concurrently with the issuance and sale of the securities in the initial public offering, our initial shareholders and their permitted transferees can demand that we register the Class A Ordinary Shares into which Founder Shares are convertible, holders of our Private Placement Warrants and their permitted transferees can demand that we register the Private Placement Warrants and the Class A Ordinary Shares issuable upon exercise of the Private Placement Warrants and holders of warrants that may be issued upon conversion of Working Capital Loans (as defined below in the section titled “ Certain Relationships and Related +45 +Table of Contents +Transactions, and Director Independence – Related Party Loans ”) may demand that we register such warrants or the Class A Ordinary Shares issuable upon conversion of such warrants. The registration rights will be exercisable with respect to the Founder Shares, the Private Placement Warrants and the Class A Ordinary Shares issuable upon exercise of such Private Placement Warrants. We will bear the cost of registering these securities. The registration and availability of such a significant number of securities for trading in the public market may have an adverse effect on the market price of our Class A Ordinary Shares. In addition, the existence of the registration rights may make our initial Business Combination more costly or difficult to conclude. This is because the shareholders of the target business may increase the equity stake they seek in the combined entity or ask for more cash consideration to offset the negative impact on the market price of our Class A Ordinary Shares that is expected when the ordinary shares owned by our initial shareholders, holders of our Private Placement Warrants or holders of our Working Capital Loans or their respective permitted transferees are registered. +We may issue additional Class A Ordinary Shares or preference shares to complete our initial Business Combination or under an employee incentive plan after completion of our initial Business Combination. We may also issue Class A Ordinary Shares upon the conversion of the Founder Shares at a ratio greater than one-to- one at the time of our initial Business Combination as a result of the anti-dilution provisions contained in our amended and restated memorandum and articles of association. Any such issuances would dilute the interest of our shareholders and likely present other risks. +Our amended and restated memorandum and articles of association authorize the issuance of up to 400,000,000 Class A Ordinary Shares, par value $0.0001 per share, 80,000,000 Class B Ordinary Shares, par value $0.0001 per share, and 1,000,000 preference shares, par value $0.0001 per share. As of the date of this Form 10-K, there are 23,000,000 Class A Ordinary Shares, 5,750,000 Class B Ordinary Shares, and 17,500,000 warrants outstanding. The Class B Ordinary Shares are automatically convertible into Class A Ordinary Shares concurrently with or immediately following the consummation of our initial Business Combination, or earlier at the option of the holders thereof, initially at a one-for-one ratio but subject to adjustment as set forth in our amended and restated memorandum and articles of association. The warrants will become exercisable for Class A Ordinary Shares at an initial exercise price of $11.50 per share beginning 30 days after the completion of our initial Business Combination. There are no preference shares issued and outstanding. +We may issue a substantial number of additional Class A Ordinary Shares or preference shares to complete our initial Business Combination or under an employee incentive plan after completion of our initial Business Combination. We may also issue Class A Ordinary Shares upon conversion of the Class B Ordinary Shares at a ratio greater than one-to-one at the time of our initial Business Combination as a result of the anti-dilution provisions as set forth in our amended and restated memorandum and articles of association. However, our amended and restated memorandum and articles of association provide, among other things, that prior to our initial Business Combination, we may not issue additional shares that would entitle the holders thereof to (i) receive funds from the Trust Account or (ii) vote as a class with our Public Shares on any initial Business Combination. These provisions of our amended and restated memorandum and articles of association, like all provisions of our amended and restated memorandum and articles of association, may be amended with a shareholder vote. The issuance of additional ordinary shares or preference shares: +● may significantly dilute the equity interest of investors in the initial public offering, which dilution would increase if the anti-dilution provisions in the Class B Ordinary Shares resulted in the issuance of Class A Ordinary Shares on a greater than one-to-one basis upon conversion of the Class B Ordinary Shares; +● may subordinate the rights of holders of Class A Ordinary Shares if preference shares are issued with rights senior to those afforded our Class A Ordinary Shares; +● may have the effect of delaying or preventing a change of control of us by diluting the share ownership or voting rights of a person seeking to obtain control of us; +● could cause a change in control if a substantial number of Class A Ordinary Shares are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors; +● may adversely affect prevailing market prices for our Units, Class A Ordinary Shares and/or warrants; and may not result in adjustment to the exercise price of our warrants. +46 +Table of Contents +We may amend the terms of the warrants in a manner that may be adverse to holders of Public Warrants with the approval by the holders of at least 50% of the then outstanding Public Warrants. As a result, the exercise price of your warrants could be increased, the exercise period could be shortened and the number of Class A Ordinary Shares purchasable upon exercise of a warrant could be decreased, all without your approval. +Our warrants were issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least 50% of the then outstanding Public Warrants to make any change that adversely affects the interests of the registered holders of Public Warrants. Accordingly, we may amend the terms of the Public Warrants in a manner adverse to a holder if holders of at least 50% of the then outstanding Public Warrants approve of such amendment. Although our ability to amend the terms of the Public Warrants with the consent of at least 50% of the then outstanding Public Warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the Public Warrants, convert the Public Warrants into cash or share (at a ratio different than initially provided), shorten the exercise period or decrease the number of Class A Ordinary Shares purchasable upon exercise of a public warrant. +A provision of our warrant agreement may make it more difficult for us to consummate an initial Business Combination. +If (i) we issue additional ordinary shares or equity-linked securities for capital raising purposes in connection with the closing of our initial Business Combination at an issue price or effective issue price of less than $9.20 per Class A ordinary share (with such issue price or effective issue price to be determined in good faith by our board of directors and, in the case of any such issuance to our initial shareholders or their affiliates, without taking into account any Founder Shares held by our initial shareholders or such affiliates prior to such issuance) (the “Newly Issued Price”), (ii) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of our initial Business Combination (net of redemptions), and (iii) the  volume weighted average trading price of the Ordinary Shares during the 20 trading day period starting on the trading day prior to the day on which the Company consummates the Business Combination (such price, the “Market Value”) of our Class A Ordinary Shares is below $9.20 per share, then the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price, and the $18.00 per share redemption trigger prices described in the registration statement for our initial public offering under “ Description of Securities  -  Warrants  -  Public Warrants  -  Redemption of warrants for cash ” will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price. This may make it more difficult for us to consummate an initial Business Combination with a target business. +We may redeem your unexpired warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless. +We have the ability to redeem all of the outstanding warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the closing price of our Class A Ordinary Shares equals or exceeds $18.00 per share (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like and for certain issuances of Class A Ordinary Shares and equity- linked securities for capital raising purposes in connection with the closing of our initial Business Combination as described elsewhere in this Form 10-K) for any 20 trading days within a 30 trading-day period ending on the third trading day prior to proper notice of such redemption provided that on the date we give notice of redemption. We will not redeem the warrants unless an effective registration statement under the Securities Act covering issuance of the Class A Ordinary Shares issuable upon exercise of the warrants is effective and a current prospectus relating to those Class A Ordinary Shares is available throughout the 30-day measurement period, except if the warrants may be exercised on a cashless basis and such cashless exercise is exempt from registration under the Securities Act. If and when the warrants become redeemable by us, we may not exercise our redemption right if the issuance of ordinary shares upon exercise of the warrants is not exempt from registration or qualification under applicable state blue sky laws or we are unable to effect such registration or qualification. We will use our commercially reasonable efforts to register or qualify such ordinary shares under the blue sky laws of the state of residence in those states in which warrants were offered by us in the initial public offering. Redemption of the outstanding warrants could force you to (1) exercise your warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) sell your warrants at the then-current market price when you might otherwise wish to hold your warrants or (iii) accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market value of your warrants. +47 +Table of Contents +Our warrants may have an adverse effect on the market price of our Class A Ordinary Shares and make it more difficult to effectuate our initial Business Combination. +We issued warrants to purchase 11,500,000 Class A Ordinary Shares in connection with the initial public offering and, simultaneously with the closing of the initial public offering, we issued in a private placement an aggregate of 6,000,000 Private Placement Warrants, at $1.00 per warrant. In addition, if our Sponsor or an affiliate of our Sponsor or certain of our officers and directors makes any Working Capital Loans, such lender may convert those loans into up to an additional 1,500,000 Private Placement Warrants, at the price of $1.00 per warrant. +To the extent we issue ordinary shares to effectuate a business transaction, the potential for the issuance of a substantial number of additional Class A Ordinary Shares upon exercise of these warrants could make us a less attractive acquisition vehicle to a target business. Such warrants, when exercised, will increase the number of issued and outstanding Class A Ordinary Shares and reduce the value of the Class A Ordinary Shares issued to complete the business transaction. Therefore, our warrants may make it more difficult to effectuate a business transaction or increase the cost of acquiring the target business. +Because each Unit contains one-half of one warrant and only a whole warrant may be exercised, the Units may be worth less than units of other special purpose acquisition companies. +Each Unit contains one-half of one warrant. Pursuant to the warrant agreement, no fractional warrants will be issued upon separation of the Units, and only whole warrants will trade. If, upon exercise of the warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round down to the nearest whole number the number of Class A Ordinary Shares to be issued to the warrant holder. This is different from other offerings similar to ours whose units include one ordinary share and one warrant to purchase one whole share. We have established the components of the Units in this way in order to reduce the dilutive effect of the warrants upon completion of a Business Combination since the warrants will be exercisable in the aggregate for one-half of the number of shares compared to units that each contain a whole warrant to purchase one share, thus making us, we believe, a more attractive merger partner for target businesses. Nevertheless, this unit structure may cause our Units to be worth less than if it included a warrant to purchase one whole share. +Our warrant agreement designates the courts of the State of New York or the United States District Court for the Southern District of New York as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of our warrants, which could limit the ability of warrant holders to obtain a favorable judicial forum for disputes with our company. +Our warrant agreement provides that, subject to applicable law, (i) any action, proceeding or claim against us arising out of or relating in any way to the warrant agreement, including under the Securities Act, will be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and (ii) that we irrevocably submit to such jurisdiction, which jurisdiction shall be the exclusive forum for any such action, proceeding or claim. We have waived any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. With respect to any complaint asserting a cause of action arising under the Securities Act or the rules and regulations promulgated thereunder, we note, however, that there is uncertainty as to whether a court would enforce this provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Section 22 of the Securities Act creates concurrent jurisdiction for state and federal courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. +Notwithstanding the foregoing, these provisions of the warrant agreement do not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal district courts of the United States of America are the sole and exclusive forum. Any person or entity purchasing or otherwise acquiring any interest in any of our warrants shall be deemed to have notice of and to have consented to the forum provisions in our warrant agreement. If any action, the subject matter of which is within the scope the forum provisions of the warrant agreement, is filed in a court other than a court of the State of New York or the United States District Court for the Southern District of New York (a “Foreign Action”) in the name of any holder of our warrants, such holder shall be deemed to have consented to: (x) the personal jurisdiction of the state and federal courts located in the State of New York in connection with any action brought in any such court to enforce the forum provisions (an “Enforcement Action”), and (y) having service of process made upon such warrant holder in any such Enforcement Action by service upon such warrant holder’s counsel in the Foreign Action as agent for such warrant holder. +This choice-of-forum provision may limit a warrant holder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with our company, which may discourage such lawsuits. Alternatively, if a court were to find this provision of our warrant +48 +Table of Contents +agreement inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations and result in a diversion of the time and resources of our management and board of directors. +An active trading market for our securities may not develop, which would adversely affect the liquidity and price of our securities. +An active trading market for our securities may never develop or, if developed, it may not be sustained. You may be unable to sell your securities unless a market can be established and sustained. +Because we are incorporated under the laws of the Cayman Islands, you may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited. +We are an exempted company incorporated under the laws of the Cayman Islands. As a result, it may be difficult for investors to effect service of process within the United States upon our directors or officers, or enforce judgments obtained in the United States courts against our directors or officers. +Our corporate affairs are governed by our amended and restated memorandum and articles of association, the Companies Act (as the same may be supplemented or amended from time to time) and the common law of the Cayman Islands. We will also be subject to the federal securities laws of the United States. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, the decisions of whose courts are of persuasive authority, but are not binding on a court in the Cayman Islands. +The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are different from what they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a different body of securities laws as compared to the United States, and certain states, such as Delaware, may have more fully developed and judicially interpreted bodies of corporate law. In addition, Cayman Islands companies may not have standing to initiate a shareholders derivative action in a Federal court of the United States. +We have been advised by Maples and Calder (Cayman) LLP, Cayman Islands legal counsel, that the courts of the Cayman Islands are unlikely (i) to recognize or enforce against us judgments of courts of the United States predicated upon the civil liability provisions of the federal securities laws of the United States or any state; and (ii) in original actions brought in the Cayman Islands, to impose liabilities against us predicated upon the civil liability provisions of the federal securities laws of the United States or any state, so far as the liabilities imposed by those provisions are penal in nature. In those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands Court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere. +As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a United States company. +General Risk Factors +We are a blank check company with no operating history and no revenues, and you have no basis on which to evaluate our ability to achieve our business objective. +We are a blank check company incorporated under the laws of the Cayman Islands with no operating results, and we did not commence operations until obtaining funding through the initial public offering. Because we lack an operating history, you have no +49 +Table of Contents +basis upon which to evaluate our ability to achieve our business objective of completing our initial Business Combination. We have no plans, arrangements or understandings with any prospective target business concerning a Business Combination and may be unable to complete our initial Business Combination. If we fail to complete our initial Business Combination, we will never generate any operating revenues. +Past performance by our management team, our advisors and their respective affiliates, including investments and transactions in which they have participated and businesses with which they have been associated, may not be indicative of future performance of an investment in the company. +Information regarding our management team, our advisors and their respective affiliates, including investments and transactions in which they have participated and businesses with which they have been associated, is presented for informational purposes only. Any past experience and performance by our management team, our advisors and their respective affiliates and the businesses with which they have been associated, is not a guarantee that we will be able to successfully identify a suitable candidate for our initial Business Combination, that we will be able to provide positive returns to our shareholders, or of any results with respect to any initial Business Combination we may consummate. You should not rely on the historical experiences of our management team, our advisors and their respective affiliates, including investments and transactions in which they have participated and businesses with which they have been associated, as indicative of the future performance of an investment in us or as indicative of every prior investment by each of the members of our management team, our advisors or their respective affiliates. The market price of our securities may be influenced by numerous factors, many of which are beyond our control, and our shareholders may experience losses on their investment in our securities. +Cyber incidents or attacks directed at us could result in information theft, data corruption, operational disruption and/or financial loss. +We depend on digital technologies, including information systems, infrastructure and cloud applications and services, including those of third parties with which we may deal. Sophisticated and deliberate attacks on, or security breaches in, our systems or infrastructure, or the systems or infrastructure of third parties or the cloud, could lead to corruption or misappropriation of our assets, proprietary information and sensitive or confidential data. As an early stage company without significant investments in data security protection, we may not be sufficiently protected against such occurrences. We may not have sufficient resources to adequately protect against, or to investigate and remediate any vulnerability to, cyber incidents. It is possible that any of these occurrences, or a combination of them, could have adverse consequences on our business and lead to financial loss. +We may be a passive foreign investment company, or “PFIC,” which could result in adverse United States federal income tax consequences to U.S. investors. +If we are a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. Holder (as defined in the section of the initial public offering registration statement captioned “ Taxation - United States Federal Income Tax Considerations - U.S. Holders ”) of our Class A Ordinary Shares or warrants, the U.S. Holder may be subject to adverse U.S. federal income tax consequences and may be subject to additional reporting requirements. Our PFIC status for our current and subsequent taxable years may depend on the status of an acquired company pursuant to a Business Combination and whether we qualify for the PFIC start-up exception (see the section of the initial public offering registration statement captioned “ Taxation - United States Federal Income Tax Considerations - U.S. Holders - Passive Foreign Investment Company Rules ”). Depending on the particular circumstances the application of the start-up exception may be subject to uncertainty, and there cannot be any assurance that we will qualify for the start-up exception. Accordingly, there can be no assurances with respect to our status as a PFIC for our current taxable year or any subsequent taxable year. Our actual PFIC status for any taxable year, however, will not be determinable until after the end of such taxable year. In addition, our U.S. counsel expresses no opinion with respect to our PFIC status for any taxable year. +Moreover, if we determine we are a PFIC for any taxable year, upon written request, we will endeavor to provide to a U.S. Holder such information as the Internal Revenue Service (“IRS”) may require, including a PFIC annual information statement, in order to enable the U.S. Holder to make and maintain a “qualified electing fund” election, but there can be no assurance that we will timely provide such required information, and such election would be unavailable with respect to our warrants in all cases. We urge U.S. investors to consult their own tax advisors regarding the possible application of the PFIC rules. For a more detailed explanation of the tax consequences of PFIC classification to U.S. Holders, see the section of the initial public offering registration statement captioned “ Taxation - United States Federal Income Tax Considerations - U.S. Holders - Passive Foreign Investment Company Rules .” +50 +Table of Contents +An investment our securities may result in uncertain U.S. federal income tax consequences. +An investment in our securities may result in uncertain U.S. federal income tax consequences. For instance, because there are no authorities that directly address instruments similar to the Units we issued in our initial public offering, the allocation an investor makes with respect to the purchase price of a Unit between the Class A ordinary share and the one-half of one warrant included in each Unit could be challenged by the IRS or courts. In addition, the U.S. federal income tax consequences of a cashless exercise of warrants included in the Units we issued in our initial public offering is unclear under current law. Finally, it is unclear whether the redemption rights with respect to our Class A Ordinary Shares suspend the running of a U.S. Holder’s (as defined in section of the initial public offering registration statement titled “ Taxation — United States Federal Income Tax Considerations — U.S. Holders ”) holding period for purposes of determining whether any gain or loss realized by such holder on the sale or exchange of Class A Ordinary Shares is long-term capital gain or loss and for determining whether any dividend we pay would be considered “qualified dividend income” for U.S. federal income tax purposes. See the section of our initial public offering registration statement titled “ Taxation — United States Federal Income Tax Considerations ” for a summary of the U.S. federal income tax considerations of an investment in our securities. Investors are urged to consult their own tax advisors with respect to these and other tax consequences when acquiring, owning or disposing of our securities. +We may reincorporate in or transfer by way of continuation to another jurisdiction which may result in taxes imposed on shareholders or warrant holders. +We may, in connection with our initial Business Combination or otherwise, subject to requisite shareholder approval by special resolution under the Companies Act (with respect to which only holders of Class B Ordinary Shares will have the right to vote), reincorporate in or transfer by way of continuation to the jurisdiction in which the target company or business is located or in another jurisdiction. The transaction may require a shareholder or warrant holder to recognize taxable income in the jurisdiction in which the shareholder or warrant holder is a tax resident or in which its members are resident if it is a tax transparent entity (or may otherwise result in adverse tax consequences). We do not intend to make any cash distributions to shareholders or warrant holders to pay such taxes. Shareholders or warrant holders may be subject to withholding taxes or other taxes with respect to their ownership of us after the reincorporation or continuance. +We are subject to changing law and regulations regarding regulatory matters, corporate governance and public disclosure that have increased both our costs and the risk of non-compliance. +We are subject to rules and regulations by various governing bodies, including, for example, the Securities and Exchange Commission, which are charged with the protection of investors and the oversight of companies whose securities are publicly traded, and to new and evolving regulatory measures under applicable law. Our efforts to comply with new and changing laws and regulations have resulted in and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue- generating activities to compliance activities. +Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. If we fail to address and comply with these regulations and any subsequent changes, we may be subject to penalty and our business may be harmed. +The 1% U.S. federal excise tax on stock buybacks could be imposed on redemptions of our Public Shares if we were to become a “covered corporation” in the future. +On August 16, 2022, the Inflation Reduction Act of 2022 (H.R. 5376) (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new 1% U.S. federal excise tax on certain repurchases (including certain redemptions) of stock by publicly traded domestic (i.e. U.S.) corporations and certain domestic subsidiaries of publicly traded foreign (i.e., non-U.S.) corporations (each, a “covered corporation”) occurring on or after January 1, 2023 (the “Excise Tax”). The Excise Tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the Excise Tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. For purposes of calculating the Excise Tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year, subject to certain exceptions. +51 +Table of Contents +The U.S. Department of Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the Excise Tax. On June 28, 2024, the Treasury issued final regulations addressing the procedural aspects of the Excise Tax reporting and payment, and on November 24, 2025, the Treasury issued final regulations that provide substantive operating rules and computation for the Excise Tax. Under the final Treasury regulations, the Excise Tax is expected to apply to redemptions that are treated as sales or exchanges for U.S. federal income tax purpose. Although the Treasury regulations clarify certain aspects of the Excise Tax, the interpretation and operation of certain other aspects of the Excise Tax remain unclear. +We are currently not a “covered corporation” for purposes of the Excise Tax. Accordingly, we generally would not be subject to the Excise Tax on a redemptions of our stock in connection with an extension of the date by which we must consummate our initial Business Combination or in connection with our liquidation if we fail to consummate our initial Business Combination by such date. If we were to become a “covered corporation” in the future, whether in connection with the consummation of our initial Business Combination with a U.S. company (including if we were to redomicile as a U.S. corporation in connection therewith) or otherwise, whether and to what extent we would be subject to the Excise Tax on a redemption of our stock would depend on a number of factors, including (i) the fair market value of the Class A Ordinary Shares redeemed, (ii) the extent such redemptions could be treated as dividends and not repurchases, (iii) the nature and amount of the equity issued, if any, by the Company within the same taxable year of the redemption treated as a repurchase of stock, and (iv) the content of any other guidance from the U.S. Department of the Treasury. As noted above, the Excise Tax is imposed on the repurchasing corporation itself, not the shareholders from which shares are repurchased. If we were to become a “covered corporation” in the future, the imposition of the Excise Tax could reduce the amount of cash available on hand to complete a Business Combination or to effect the redemptions of Class A Ordinary Shares and thus may affect our ability to complete an initial Business Combination. +We are an emerging growth company and a smaller reporting company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies or smaller reporting companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies. +We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor internal controls attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As a result, our shareholders may not have access to certain information they may deem important. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our Class A Ordinary Shares held by non-affiliates exceeds $700 million as of any June 30 before that time, in which case we would no longer be an emerging growth company as of the following December 31. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile. +Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. +52 +Table of Contents +Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our ordinary shares held by non-affiliates is equal to or exceeds $250 million as of the prior June 30 th , and (2) our annual revenues equaled or exceeded $100 million during such completed fiscal year and the market value of our ordinary shares held by non-affiliates equals to or exceeds $700 million as of the prior June 30 th . To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible. +Provisions in our amended and restated memorandum and articles of association may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our Class A Ordinary Shares and could entrench management. +Our amended and restated memorandum and articles of association contain provisions that may discourage unsolicited takeover proposals that shareholders may consider to be in their best interests. These provisions include a staggered board of directors and the ability of the board of directors to designate the terms of and issue new series of preference shares, which may make the removal of management more difficult and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities. +Our amended and restated memorandum and articles of association provide that the courts of the Cayman Islands will be the exclusive forum for certain disputes between us and our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum for complaints against us or our directors, officers or employees. +Our amended and restated memorandum and articles of association provide that unless we consent in writing to the selection of an alternative forum, the courts of the Cayman Islands shall have exclusive jurisdiction over any claim or dispute arising out of or in connection with our amended and restated memorandum and articles of association or otherwise related in any way to each shareholder’s shareholding in us, including but not limited to (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of any fiduciary or other duty owed by any of our current or former director, officer or other employee to us or our shareholders, (iii) any action asserting a claim arising pursuant to any provision of the Companies Act or our amended and restated memorandum and articles of association, or (iv) any action asserting a claim against us governed by the internal affairs doctrine (as such concept is recognized under the laws of the United States of America) and that each shareholder irrevocably submits to the exclusive jurisdiction of the courts of the Cayman Islands over all such claims or disputes. +The forum selection provision in our amended and restated memorandum and articles of association does not apply to actions or suits brought to enforce any liability or duty created by the Securities Act, Exchange Act or any claim for which the federal district courts of the United States of America are, as a matter of the laws of the United States of America, the sole and exclusive forum for determination of such a claim. +Our amended and restated memorandum and articles of association also provide that, without prejudice to any other rights or remedies that we may have, each of our shareholders acknowledges that damages alone would not be an adequate remedy for any breach of the selection of the courts of the Cayman Islands as exclusive forum and that accordingly we shall be entitled, without proof of special damages, to the remedies of injunction, specific performance or other equitable relief for any threatened or actual breach of the selection of the courts of the Cayman Islands as exclusive forum. +This choice of forum provision may increase a shareholder’s cost and limit the shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees. Any person or entity purchasing or otherwise acquiring any of our shares or other securities, whether by transfer, sale, operation of law or otherwise, shall be deemed to have notice of and have irrevocably agreed and consented to these provisions. There is uncertainty as to whether a court would enforce such provisions, and the enforceability of similar choice of forum provisions in other companies’ charter documents has been challenged in legal proceedings. It is possible that a court could find this type of provisions to be inapplicable or unenforceable, and if a court were to find this provision in our amended and restated memorandum and articles of association to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could have adverse effect on our business and financial performance. +Item 1B. Unresolved Staff Comments +None. +53 +Table of Contents +Item 1C. Cybersecurity +As a blank check company, we have no operations and therefore do not have any operations of our own that face cybersecurity threats . However, we do depend on the digital technologies of third parties , and as noted in “ Item 1A. Risk Factors ” of this Form 10-K, any sophisticated and deliberate attacks on, or security breaches in, systems or infrastructure or the cloud that we utilize, including those of third parties, could lead to corruption or misappropriation of our assets, proprietary information and sensitive or confidential data . Because of our reliance on the technologies of third parties, we also depend upon the personnel and the processes of third parties to protect against cybersecurity threats, and we have no personnel or processes of our own for this purpose . Our board of directors oversees risk for our Company, and prior to us making filings with the SEC, our board of directors reviews our risk factors, including the descriptions of the risks we face from cybersecurity threats , as described in “ Item 1A. Risk Factors ” of this Form 10-K. +Item 2. Properties +Our executive offices are located at 1790 Hughes Landing Blvd., The Woodlands, Texas 77380. Our executive offices are provided to us by an affiliate of our Sponsor, and we have agreed to pay such affiliate of our Sponsor up to $20,000 per month for office space, utilities and secretarial and administrative support. We consider our current office space adequate for our current operations. +Item 3. Legal Proceedings +There is no material litigation, arbitration or governmental proceeding currently pending against us or any members of our management team in their capacity as such. +Item 4. Mine Safety Disclosures +Not applicable. +PART II +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +Market Information +Our Units, Class A Ordinary Shares, and Public Warrants are listed on the NYSE American under the symbols “GRAF.U,” “GRAF” and “GRAF WS”, respectively. +Holders +As of May 11, 2026, there was 1 holder of record of our Units, 1 holder of record of our Class A Ordinary Shares, 4 holders of record of our Class B Ordinary Shares, and 3 holders of record of our warrants. +Dividends +We have not paid any cash dividends on our ordinary shares to date and do not intend to pay cash dividends prior to the completion of an initial Business Combination. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial conditions subsequent to completion of an initial Business Combination. The payment of any cash dividends subsequent to an initial Business Combination will be within the discretion of our board of directors at such time. Further, if we incur any indebtedness, our ability to declare dividends may be limited by restrictive covenants we may agree to in connection therewith. +Securities Authorized for Issuance under Equity Compensation Plans +None. +54 +Table of Contents +Recent Sales of Unregistered Securities and Use of Proceeds from Registered Offerings +Unregistered Sales +In November 2021, Graf Global Sponsor LLC, our Sponsor, purchased an aggregate of 7,187,500 of our Class B Ordinary Shares in exchange for a capital contribution of $25,000 at an average purchase price of approximately $0.003 per share. Such securities were issued in connection with our organization pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. On February 8, 2024, our Sponsor surrendered 1,437,500 Founder Shares for no consideration, resulting in our Sponsor holding 5,750,000 Founder Shares. All share and per-share amounts have been retroactively restated to reflect the share capitalization. The number of Founder Shares outstanding was determined based on the expectation that the total size of the initial public offering would be a maximum of 23,000,000 Units if the underwriters’ over-allotment option was exercised in full and therefore that such Founder Shares would represent 20% of the outstanding shares after the initial public offering. +Our Sponsor is an accredited investor for purposes of Rule 501 of Regulation D. Each of the equity holders in our Sponsor is an accredited investor under Rule 501 of Regulation D. The sole business of our Sponsor is to act as the company’s Sponsor in connection with the initial public offering. The limited liability company agreement of our Sponsor provides that its membership interests may only be transferred to our officers or directors or other persons affiliated with our Sponsor, or in connection with estate planning transfers. +Our Sponsor and Cantor have purchased an aggregate of 6,000,000 Private Placement Warrants for an aggregate purchase price of $6,000,000 or $1.00 per warrant. Of those 6,000,000 Private Placement Warrants, our Sponsor purchased 4,000,000 Private Placement Warrants and Cantor purchased 2,000,000 Private Placement Warrants. +This purchase took place on a private placement basis simultaneously with the completion of our initial public offering. This issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. +No underwriting discounts or commissions were paid with respect to such sales. +Use of Proceeds +On June 25, 2024, our registration statement on Form S-1 (File No. 333-279889) was declared effective by the SEC for our initial public offering in which we sold an aggregate of 23,000,000 Units at an offering price of $10.00 per Unit, including 3,000,000 Units as a result of the underwriters’ full exercise of its over-allotment option, generating gross proceeds of $230,000,000. +Transaction costs amounted to $14,455,519, consisting of $4,000,000 of cash underwriting fees, $9,800,000 of deferred underwriting fees payable upon the consummation of our initial Business Combination, and $655,519 of other offering costs. +Of the net proceeds from the initial public offering and simultaneous private placement, $230,000,000 was deposited into the Trust Account, and $1,160,185 was available for working capital. There has been no material change in the planned use of proceeds from our Public Offering as described in our final prospectus dated June 25, 2024, which was filed with the SEC. +As of December 31, 2025, after giving effect to our initial public offering and our operations subsequent thereto, approximately $245,609,352 was held in the Trust Account (including $15,609,352 of interest income). +Item 6. [Reserved] +​ +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with our audited financial statements and the notes related thereto which are included in “Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. Certain information contained in the discussion and analysis set forth below includes forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “Cautionary Note Regarding Forward-Looking Statements and Risk Factor Summary,” “Item 1A. Risk Factors” and elsewhere in this Annual Report on Form 10-K. +55 +Table of Contents +Overview +We are a blank check company incorporated in the Cayman Islands on November 17, 2021 formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. We intend to effectuate our Business Combination using cash derived from the proceeds of the Initial Public Offering and the sale of the Private Placement Warrants, our shares, debt or a combination of cash, shares and debt. +We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a Business Combination will be successful. +Results of Operations +We have neither engaged in any operations nor generated any revenues to date. Our only activities from November 17, 2021 (inception) through December 31, 2025 were organizational activities, those necessary to prepare for the Initial Public Offering, described below, and identifying a target company for a Business Combination. We do not expect to generate any operating revenues until after the completion of our Business Combination. We generate non-operating income in the form of interest income on cash and marketable securities held in the Trust Account. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses. +For the year ended December 31, 2025, we had a net income of $8,019,450, which consists of interest income on cash held in the Trust Account of $9,844,588, offset by general and administrative costs of $1,825,138. +For the year ended December 31, 2024, we had a net income of $5,233,485, which consists of interest income on cash held in the Trust Account of $5,764,764, offset by general and administrative costs of $531,279. +Liquidity, Capital Resources and Going Concern +On June 27, 2024, we consummated the Initial Public Offering of 23,000,000 Units, which includes the full exercise by the underwriters of their over-allotment option in the amount of 3,000,000 Units, at $10.00 per Unit, generating gross proceeds of $230,000,000. Simultaneously with the closing of the Initial Public Offering, we consummated the sale of an aggregate of 6,000,000 Private Placement Warrants at a price of $1.00 per Private Placement Warrant, in a private placement to the Company’s Sponsor, generating gross proceeds of $6,000,000. +Following the Initial Public Offering, the full exercise of the over-allotment option, and the sale of the Private Placement Warrants, a total of $230,000,000 was placed in the Trust Account. We incurred $14,455,519 of transaction expenses, consisting of $4,000,000 of cash underwriting fee, $9,800,000 of deferred underwriting fee (see additional discussion in Note 6), and $655,519 of other offering costs. +For the year ended December 31, 2025, cash used in operating activities was $393,929. Net income of $8,019,450 was affected by interest earned on cash held in the Trust Account of $9,844,588. Changes in operating assets and liabilities provided $1,431,209 of cash for operating activities. +For the year ended December 31, 2024, cash used in operating activities was $912,010. Net income of $5,233,485 was affected by payment of operation costs through promissory note of $32,151 and interest earned on cash held in the Trust Account of $5,764,764. Changes in operating assets and liabilities used $412,882 of cash for operating activities. +As of December 31, 2025, we had cash held in the Trust Account of $245,609,352 (including $15,609,352 of interest income). We may withdraw interest from the Trust Account to pay taxes, if any. We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less income taxes payable), to complete our Business Combination. To the extent that our share capital or debt is used, in whole or in part, as consideration to complete our Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies. +56 +Table of Contents +As of December 31, 2025 and 2024, we had cash of $699 and $479,628, respectively, and working capital deficit of $1,168,025 and working capital surplus of $547,403, respectively. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a Business Combination. +In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, the Sponsor, or certain of our officers and directors or their affiliates may, but are not obligated to, loan us funds as may be required. If we complete a Business Combination, we would repay such loaned amounts. In the event that a Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1.5 million of such working capital loans may be converted into warrants of the post-Business Combination entity at a price of $1.00 per warrant at the option of the lender. The warrants would be identical to the Private Placement Warrants. +In connection with our assessment of going concern considerations in accordance with ASC 205-40, “Going Concern,” as of December 31, 2025, we may need to raise additional capital through loans or additional investments from our Sponsor, stockholders, officers, directors, or third parties. Our officers, directors and Sponsor may, but are not obligated to, loan us funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet our working capital needs. Accordingly, we may not be able to obtain additional financing. If we are unable to raise additional capital, we may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses. We cannot provide any assurance that new financing will be available to us on commercially acceptable terms, if at all. +Management plans to address this uncertainty through a Business Combination. If a Business Combination is not consummated by the end of the Combination Period, currently June 27, 2026, there will be a mandatory liquidation and subsequent dissolution. Management has determined that the liquidity condition, the date of mandatory liquidation and subsequent dissolution raise substantial doubt about our ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should be required to liquidate after the Combination Period. We intend to complete the initial Business Combination before the end of the Combination Period. However, there can be no assurance that we will be able to consummate any Business Combination by the end of the Combination Period. +Off-Balance Sheet Arrangements +We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of December 31, 2025. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets. +Contractual Obligations +We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay an affiliate of the Sponsor $20,000 per month for office space, utilities and secretarial and administrative support services provided to members of the management team. We began incurring these fees on June 25, 2024 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and our liquidation. For the years ended December 31, 2025 and 2024, we incurred administrative support services fees of $240,000 and $124,000, respectively. We paid $120,000 and $124,000 during the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025 and 2024, we had outstanding accrued administrative support services fees of $120,000 and $0, respectively, which are included in accrued expenses in the accompanying balance sheets. Upon completion of our initial Business Combination or our liquidation, we will cease paying these monthly fees. +The underwriters were entitled to an underwriting discount of $0.20 per Unit on Units other than those sold pursuant to the underwriters’ option to purchase additional Units, or $4,000,000 in the aggregate, paid upon the closing of the Initial Public Offering. In addition, the underwriters are entitled to a deferred fee of $0.40 per Unit on Units other than those sold pursuant to the underwriters’ option to purchase additional Units, and $0.60 per Unit on Units sold pursuant to the underwriters’ over-allotment option or $9,800,000 in the aggregate. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement. +57 +Table of Contents +Critical Accounting Estimates +The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Making estimates requires management to exercise significant judgement. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management consider in formulating its estimated, could change in the near term due to one or more future confirming events. Accordingly, the actual results could materially differ from those estimates. As of December 31, 2025, we did not have any critical accounting estimates to be disclosed. +Net Income per Ordinary Share +The Company complies with accounting and disclosure requirements of Accounting Standards Codification 260, “Earnings Per Share.” The Company has two classes of shares, which are referred to as Class A Ordinary Shares and Class B Ordinary Shares. Income and losses are shared pro rata between the two classes of shares. Net income per ordinary share is calculated by dividing the net income by the weighted average ordinary shares outstanding for the respective period. Basic net income per share attributable to ordinary shareholders is adjusted for potentially dilutive impact of outstanding warrants to determine diluted net income per share attributable to ordinary shareholders. However, because the warrants are anti-dilutive, diluted income per ordinary share is the same as basic income per ordinary share for the periods presented. +Recent Accounting Standards +In November 2024, the FASB issued Accounting Standards Update (“ASU”) 2024 - 03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220 - 40): Disaggregation of Income Statement Expenses”, requiring public entities to disclose additional information about specific expense categories in the notes to the financial statements on an interim and annual basis. ASU 2024 - 03 is effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2024 - 03. +Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements. +Item 7A. Quantitative and Qualitative Disclosures about Market Risk +We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information otherwise required under this item. +Item 8. Financial Statements and Supplementary Data +This information appears following Item 16 of this Form 10-K and is included herein by reference. +Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +None. +Item 9A. Controls and Procedures. +Evaluation of Disclosure Controls and Procedures +Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. +58 +Table of Contents +As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2025. Based upon his evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective. Accordingly, management believes that the financial statements included in this Form 10-K present fairly in all material respects our financial position, results of operations, and cash flows for the period presented. +Management’s Report on Internal Controls Over Financial Reporting +As required by SEC rules and regulations implementing Section 404 of the Sarbanes-Oxley Act, our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that: +(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company, +(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and +(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. +Because of its inherent limitations, internal control over financial reporting may not prevent or detect errors or misstatements in our consolidated financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting at December 31, 2025. In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013). Based on our assessments and those criteria, management determined that we did maintain effective internal control over financial reporting as of December 31, 2025. +This Form 10-K does not include an attestation report of our independent registered public accounting firm due to our status as an emerging growth company under the JOBS Act. +Changes in Internal Control over Financial Reporting +There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. +Item 9B. Other Information +During the quarter ended December 31, 2025, no director or officer adopted or terminated any (i) “Rule 10b5-1 trading arrangement,” as defined in Item 408(a) of Regulation S-K intending to satisfy the affirmative defense conditions of Rule 10b5–1(c) or (ii) “non-Rule 10b5-1 trading arrangement,” as defined in Item 408(a) of Regulation S-K; and (ii) there was no information that was required to be disclosed on a Current Report on Form 8-K during such quarter that was not so disclosed. +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not applicable. +​ +59 +Table of Contents +PART III +Item 10. Directors, Executive Officers and Corporate Governance Officers and Directors +Our executive officers and directors are as follows: +​ +​ +​ +​ +​ +​ +NAME +​ ​ ​ +AGE +​ ​ ​ +POSITION +James A. Graf +61 +Chief Executive Officer, Chief Financial Officer and Director +Louis Bélanger-Martin +55 +Director +Kenneth Weinstein +63 +Director +Fred S. Zeidman +79 +Director +​ +James A. Graf has served as our Chief Executive Officer, Chief Financial Officer and Director since November 2021, and as Interim Chief Financial Officer of NKGen Biotech, Inc. since October 2023. Mr. Graf served as an independent director of Catcha Investment Corp, a blank check company, from February 2021 through the completion of its business combination with Crown LNG Holdings Limited in July 2024. Previously, Mr. Graf served as the Chief Executive Officer of GRAF IV, a blank check company, from its inception in January 2021 through the completion of its initial business combination with NKGen in September 2023. Mr. Graf served as the Chief Executive Officer and director of GRAF I, a blank check company, from June 2018 through the completion of its initial business combination with Velodyne in September 2020 and served as an independent director of Velodyne from September 2020 until February 2021. Mr. Graf also served as a non-independent director of Platinum Eagle from January 2018 through the completion of its business combination with Target Logistics Management, LLC and RL Signor Holdings, LLC in March 2019. Mr. Graf served as the Vice President, Chief Financial Officer and Treasurer of Double Eagle from its inception in June 2015 through its business combination with Williams Scotsman (KNA WillScot Mobile Mini Holdings Corp.) in November 2017. He served as Vice President, Chief Financial Officer, Treasurer and Secretary of Silver Eagle from its inception in April 2013 through Silver Eagle’s business combination with VDTH, and he served as Vice President, Chief Financial Officer, Treasurer and Secretary of Global Eagle from its inception in February 2011 to its business combination with Row 44 and AIA in January 2013. Subsequently, Mr. Graf served as Vice Chairman of Global Entertainment AG, the holding company for GEE’s publicly listed German subsidiary, AIA from 2013 to 2014 and Special Advisor to GEE in 2013. He served as a Special Advisor to VDTH from 2015 to 2016. From 2008 to 2011, Mr. Graf served as Managing Director of TC Capital Ltd., an investment bank in Singapore. From 2007 to 2008, Mr. Graf was engaged as a consultant to provide financial advisory services to Metro- Goldwyn-Mayer, Inc. In 2001, Mr. Graf founded and became the Chief Executive Officer of Praedea Solutions, Inc., an enterprise software company with operations in the United States, Malaysia and Ukraine. The assets of Praedea Solutions, Inc. were sold in 2006 to Mergent Inc., a wholly-owned subsidiary of Xinhua Finance Ltd. and renamed Mergent Data Technology, Inc., where Mr. Graf continued to serve as Chief Executive Officer from 2006 to 2007. Praedea Solutions Inc. was renamed PSI Capital Inc. and currently serves as an investment holding company for Mr. Graf’s private investments, where Mr. Graf continues to serve as the Chief Executive Officer. Prior to founding Praedea, Mr. Graf was a Managing Director at Merrill Lynch in Singapore from 1998 to 2000 and a consultant to Merrill Lynch in 2001. From 1996 to 1998, Mr. Graf served as a director and then Managing Director and President of Deutsche Bank’s investment banking entity in Hong Kong, Deutsche Morgan Grenfell (Hong Kong) Ltd. From 1993 to 1996, he was a Vice President at Smith Barney in Hong Kong and Los Angeles. From 1987 to 1993, Mr. Graf was an analyst and then associate at Morgan Stanley in New York, Los Angeles, Hong Kong and Singapore. Mr. Graf received a Bachelor of Arts degree from the University of Chicago in 1987. We believe that Mr. Graf’s extensive business background and SPAC experience qualifies him to serve on our board of directors. +60 +Table of Contents +Louis Bélanger-Martin, CPA, has served on our board of directors since June 25, 2024. Mr. Bélanger-Martin has over 30 years of management, financial and business development experience. Since 2020, he has been Chief Financial Officer of Smize & Dream, a fast-growing super-premium, all-natural ice cream business he founded together with Tyra Banks, with whom he also worked on the development of the ModelLand location-based entertainment concept in Santa Monica, CA. Since 1996, Mr. Bélanger-Martin has been Co-Founder and Partner of Group W Inc., a multi-industry private equity firm. Since January 2026, he was elected Chairman of the Supervisory Board of SkyFive, a Munich-based aerospace telecom company that provides air-to-ground broadband connectivity for airlines and other aircraft operators. It was founded in 2019 as a spin-off from Nokia. Mr. Bélanger-Martin was Vice Chairman of the board of Global Eagle Entertainment from 2013 to 2016 after completing the merger of AIA with Global Eagle Acquisition Corp., a special purpose acquisition company, in 2013. He served as AIA’s Chief Executive Officer from 2011 to 2013. From 1995 to 2010, Mr. Bélanger-Martin served as Chief Executive Officer of DTI Software, a provider of in-flight entertainment software and services, which he co-founded and which was sold to AIA in 2008. Mr. Bélanger-Martin has been a director of Sonifi Solutions, Inc. (formerly LodgeNet), a privately held interactive content and connectivity solutions provider, and Hybrid Paytech World Inc., a mobile credit, debit and ecouponing company that is publicly listed on The Canadian Securities Exchange. Other roles have included Strategic Advisor at the One Web constellation of low earth orbit satellites in 2019-2020 and board member of e2ip Technologies in 2016-2019. Mr. Bélanger-Martin is a certified management accountant and Canadian CPA. Mr. Bélanger-Martin received a BA in business administration from École des sciences de la gestion (ESG UQAM) in Montreal, a law certificate from University of Montreal in 1994, certification as a member of the Certified Management Accountants of Canada in 1996, and a Harvard Business School executive education program on effective corporate boards in 2013. We believe Mr. Bélanger-Martin is qualified to serve on our board of directors due to his extensive experience as a Chief Executive Officer, as someone who sold his company into a SPAC and as a certified management accountant. +Kenneth Weinstein, PhD, has served on our board of directors since June 25, 2024. Dr. Weinstein is currently the Japan Chair at the Hudson Institute and Founding Chair and CEO of the Indo-Pacific Forum, an organization he co-founded in 2022 with the late Japanese Prime Minister, Shinzo Abe, to promote concrete initiatives to enhance connectivity, resilience, security and prosperity in the free and open Indo-Pacific. He joined Hudson in 1991, was appointed Chief Executive Officer in June 2005, was named president and Chief Executive Officer in March 2011 and maintained those positions through 2020. Under his leadership, Hudson grew significantly in size, prominence, visibility and impact, recruiting top-flight talent and advising officials around the globe. From 2017 until 2020, Dr. Weinstein chaired the Broadcasting Board of Governors, the oversight body for US Agency for Global Media, and was Chair of Radio Free Europe/Radio Liberty, Radio Free Asia, Middle East Broadcasting and the Open Technology Fund. He previously was a member of the National Humanities Council, the governing body of the National Endowment for the Humanities. Dr. Weinstein served, from 2018 to 2023, on the Advisory Committee on Trade Policy and Negotiations, which provides counsel on trade agreements to the United States Trade Representative. In March 2020, he was nominated to serve as US ambassador to Japan. His nomination was reported unanimously out of the Senate Foreign Relations Committee in September 2020, but his nomination expired with the end of the 116 th Congress. Dr. Weinstein has written widely for publications in the United States, Europe and Asia. In 2006, he was decorated with a knighthood in arts and letters by the government of France. In September 2024, Dr. Weinstein was appointed as Ombudsman for CBS News, serving as an independent, internal advocate for journalistic integrity and transparency. Dr. Weinstein earned his BA in General Studies in the Humanities from the University of Chicago, DEA in Soviet and Eastern European studies from Institut d’Etudes Politiques de Paris and PhD in Government from Harvard University. We believe Dr. Weinstein is well qualified to serve on our board of directors due to his vast company leadership background and experience as chair and board member of various organizations. +Fred S. Zeidman has served on our board of directors since June 25, 2024. Mr. Zeidman served as Chairman of Good Works II Acquisition Corp. from February 2021 through March 2023. He served as Chief Executive Officer and Co-Chairman of Good Works Acquisition Corp. from June 2020 until the merger with Cipher Mining in August 2021. Mr. Zeidman served as Chairman of Gordian Group LLC, a U.S. investment bank specializing in board level advice in complex financial matters from December 2014 through February 2021 and is currently Chairman of WoodRock & Co. Over the course of his distinguished 50-year career, Mr. Zeidman has served in a number of high-profile executive roles. He is also a director of Bluejay Diagnostics, Inc. (NASDAQ: BJDX), Camber Energy, Inc. (NYSE American: CEI) and Prosperity Bank in Houston. His leadership roles have included: Chairman of the Board and Chief Executive Officer of Unibar Corporation, the largest domestic independent drilling fluids company, until its sale to Anchor Drilling Fluids in 1992, President and Chief Executive Officer of Crown Services (1992 until its sale to ARS in1994), President and Chief Executive Officer of Intersystems, President and Chief Executive Officer of Interpak Systems (March 2002 to December 2007), Chairman, Chief Executive Officer and President of Seitel, Inc. (June 2002 until the sale of the company in February 2007), a Houston-based onshore seismic data provider where he was instrumental in the successful turnaround of the Company, Chief Bankruptcy Trustee of AremisSoft Corp. (1999-2002), Chief Restructuring Officer of TransMeridian Exploration Inc. (August 2009 until the sale in November 2009), a Director of the REMA subsidiary of NRG Energy, Lead Director of Straight Path Communications (July 2013 until its sale to Verizon Corp. in May 2017), and CFO of the Texas Heart Institute where he led a complex financial restructuring and assisted +61 +Table of Contents +in the integration of St. Luke’s Episcopal Hospital System and Baylor College of Medicine into Catholic Health Initiatives. Mr. Zeidman was appointed Chairman of the US Holocaust Memorial Council by President George W. Bush in 2002, and served until 2010, and he was reappointed to the Council by President Donald Trump in 2019. He was Chairman of the University of Texas Health Science System Houston. Mr. Zeidman was a Director of the Texas Heart Institute. He is on the board of the Development Corp of Israel (Israel Bonds) and served on the Board and Executive Committee of the National World War II Museum. Mr. Zeidman holds a Bachelor’s degree from Washington University in St. Louis and a Master’s in Business Administration from New York University. We believe that Mr. Zeidman is well qualified to serve on our board of directors due to his extensive leadership, restructuring and corporate finance experience as well as his extensive relationships in the investing, investment banking and restructuring businesses. +Number and Terms of Office of Officers and Directors +Our board of directors consists of four members. Our board is divided into three classes, with only one class of directors being appointed in each year, and with each class (except for those directors appointed prior to our first annual meeting of shareholders) serving a three-year term. The term of office of the first class of directors, consisting of James Graf, will expire at our first annual meeting of shareholders. The term of office of the second class of directors, consisting of Fred Zeidman and Kenneth Weinstein, will expire at our second annual meeting of shareholders. The term of office of the third class of directors consisting of Louis Bélanger-Martin, will expire at our third annual meeting of shareholders. We may not hold an annual meeting of shareholders until after we consummate our initial Business Combination. Subject to any other special rights applicable to the shareholders, any vacancies on our board of directors may be filled by the affirmative vote of a majority of the directors present and voting at the meeting of our board, or by a majority of the holders of our ordinary shares. Our officers are appointed by the board of directors and serve at the discretion of the board of directors, rather than for specific terms of office. Our board of directors is authorized to appoint persons to the offices set forth in our bylaws as it deems appropriate. Our bylaws provide that our officers may consist of a Chairman of the Board, Chief Executive Officer, Chief Financial Officer, President, Vice Presidents, Secretary, Treasurer, Assistant Secretaries and such other offices as may be determined by the board of directors. +Committees of the Board of Directors +Our board of directors has three standing committees: an audit committee, a compensation committee and a nominating and corporate governance committee. Each of our audit committee, our compensation committee and our nominating and corporate governance committee are composed solely of independent directors. Subject to phase-in rules, the rules of the NYSE American and Rule 10A-3 of the Exchange Act require that the audit committee of a listed company be comprised solely of independent directors, and the rules of the NYSE American require that the compensation committee and the nominating and corporate governance committee of a listed company be comprised solely of independent directors. Each committee operates under a charter that was approved by our board and has the composition and responsibilities described below. The charter of each committee is available as an exhibit to this Form 10-K. +Audit Committee +The members of our audit committee are Louis Bélanger-Martin, Kenneth Weinstein and Fred Zeidman, each of whom meet the independent director standard under NYSE American listing standards and under Rule 10-A-3(b)(1) of the Exchange Act. Mr. Bélanger-Martin serves as chairperson of the audit committee. +Each member of the audit committee is financially literate and our board of directors has determined that each of Mr. Bélanger-Martin, Mr. Zeidman and Dr. Weinstein qualifies as an “audit committee financial expert” as defined in applicable SEC rules and has accounting or related financial management expertise. +We have adopted an audit committee charter, which details the principal functions of the audit committee, including: +● assisting board oversight of (1) the integrity of our financial statements, (2) our compliance with legal and regulatory requirements, (3) our independent auditor’s qualifications and independence, and (4) the performance of our internal audit function and independent auditors; the appointment, compensation, retention, replacement, and oversight of the work of the independent auditors and any other independent registered public accounting firm engaged by us; +62 +Table of Contents +● pre-approving all audit and non-audit services to be provided by the independent auditors or any other registered public accounting firm engaged by us, and establishing pre-approval policies and procedures; reviewing and discussing with the independent auditors all relationships the auditors have with us in order to evaluate their continued independence; +● setting clear policies for audit partner rotation in compliance with applicable laws and regulations; obtaining and reviewing a report, at least annually, from the independent auditors describing (1) the independent auditor’s internal quality-control procedures and (2) any material issues raised by the most recent internal quality-control review, or peer review, of the audit firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years respecting one or more independent audits carried out by the firm and any steps taken to deal with such issues; +● meeting to review and discuss our annual audited financial statements and quarterly financial statements with management and the independent auditor, including reviewing our specific disclosures under “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ”; reviewing and approving any related party transaction required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the SEC prior to us entering into such transaction; and +● reviewing with management, the independent auditors, and our legal advisors, as appropriate, any legal, regulatory or compliance matters, including any correspondence with regulators or government agencies and any employee complaints or published reports that raise material issues regarding our financial statements or accounting policies and any significant changes in accounting standards or rules promulgated by the Financial Accounting Standards Board, the SEC or other regulatory authorities. +Compensation Committee +The members of our compensation committee are Louis Bélanger-Martin, Kenneth Weinstein and Fred Zeidman. Under the NYSE American listing standards and applicable SEC rules, we are required to have at least two members of the compensation committee, all of whom must be independent. Mr. Bélanger-Martin, Dr. Weinstein and Mr. Zeidman are independent and Dr. Weinstein chairs the compensation committee. +We have adopted a compensation committee charter, which details the principal functions of the compensation committee, including: +● reviewing and approving on an annual basis the corporate goals and objectives relevant to our chief executive officer’s compensation, evaluating our chief executive officer’s performance in light of such goals and objectives and determining and approving the remuneration (if any) of our chief executive officer based on such evaluation; +● reviewing and making recommendations to our board of directors with respect to the compensation, and any incentive compensation and equity based plans that are subject to board approval of all of our other officers; +● reviewing our executive compensation policies and plans; +● implementing and administering our incentive compensation equity-based remuneration plans; +● assisting management in complying with our proxy statement and annual report disclosure requirements; +● approving all special perquisites, special cash payments and other special compensation and benefit arrangements for our officers and employees; +● producing a report on executive compensation to be included in our annual proxy statement; and +● reviewing, evaluating and recommending changes, if appropriate, to the remuneration for directors. +Notwithstanding the foregoing, other than the payment of $20,000 per month to our Sponsor for office space, utilities and secretarial and administrative support and reimbursement of expenses, no compensation of any kind, including finders, consulting or other similar fees, will be paid to any of our existing shareholders, officers, directors or any of their respective affiliates, prior to, or for any services they render in order to effectuate the consummation of an initial Business Combination. Accordingly, it is likely that prior to the consummation of an initial Business Combination, the compensation committee will only be responsible for the review and recommendation of any compensation arrangements to be entered into in connection with such initial Business Combination. +63 +Table of Contents +The compensation committee charter also provides that the compensation committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, independent legal counsel or other adviser and is directly responsible for the appointment, compensation and oversight of the work of any such adviser. +However, before engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the compensation committee will consider the independence of each such adviser, including the factors required by the NYSE American and the SEC. +Nominating and Corporate Governance Committee +The members of our nominating and corporate governance are Louis Bélanger-Martin, Kenneth Weinstein and Fred Zeidman and Mr. Zeidman serves as chair of the nominating and corporate governance committee. +We have adopted a nominating and corporate governance committee charter, which details the purpose and responsibilities of the nominating and corporate governance committee, including: +● identifying, screening and reviewing individuals qualified to serve as directors, consistent with criteria approved by the board, and recommending to the board of directors candidates for nomination for appointment at the annual general meeting of shareholders or to fill vacancies on the board of directors; +● developing and recommending to the board of directors and overseeing implementation of our corporate governance guidelines; +● coordinating and overseeing the annual self-evaluation of the board of directors, its committees, individual directors and management in the governance of the company; and +● reviewing on a regular basis our overall corporate governance and recommending improvements as and when necessary. +The nominating and corporate governance committee charter also provides that the nominating and corporate governance committee may, in its sole discretion, retain or obtain the advice of, and terminate, any search firm to be used to identify director candidates, and will be directly responsible for approving the search firm’s fees and other retention terms. +We have not formally established any specific, minimum qualifications that must be met or skills that are necessary for directors to possess. In general, in identifying and evaluating nominees for director, the board of directors considers educational background, diversity of professional experience, knowledge of our business, integrity, professional reputation, independence, wisdom, and the ability to represent the best interests of our shareholders. Prior to our initial Business Combination, holders of our Public Shares will not have the right to recommend director candidates for nomination to our board of directors. +Compensation Committee Interlocks and Insider Participation +None of our officers currently serves, or in the past year has served, as a member of the compensation committee of any entity that has one or more officers serving on our board of directors. +Code of Business Conduct and Ethics +We have adopted a Code of Ethics applicable to our directors, officers and employees. We have filed a copy of our Code of Ethics as an exhibit to the registration statement in connection with our initial public offering. You are able to review this document by accessing our public filings at the SEC’s web site at www.sec.gov . In addition, a copy of the Code of Ethics and the charters of the committees of our board of directors can be provided without charge upon request from us. If we make any amendments to our Code of Ethics other than technical, administrative or other non-substantive amendments, or grant any waiver, including any implicit waiver, from a provision of the Code of Ethics applicable to our principal executive officer, principal financial officer principal accounting officer or controller or persons performing similar functions requiring disclosure under applicable SEC or NYSE American rules, we will disclose the nature of such amendment or waiver in a Current Report on Form 8-K. +Insider Trading Policy +We have adopted insider trading policies and procedures governing the purchase, sale, and other dispositions of the Company’s securities by directors, officers and employees that are reasonably designed to promote compliance with insider trading laws, rules and +64 +Table of Contents +regulations (the “Insider Trading Policy”). It is also the policy of the Company to comply with all applicable securities laws when transacting in its own securities. A copy of our Insider Trading Policy is attached as Exhibit 19.1 to this Form 10-K. +Limitation on Liability and Indemnification of Officers and Directors +Cayman Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against willful default, fraud or the consequences of committing a crime. Our amended and restated memorandum and articles of association provide for indemnification of our officers and directors to the maximum extent permitted by law, including for any liability incurred in their capacities as such, except through their own actual fraud, willful default or willful neglect. We have purchased a policy of directors’ and officers’ liability insurance that insures our officers and directors against the cost of defense, settlement or payment of a judgment in some circumstances and insures us against our obligations to indemnify our officers and directors. +Our officers and directors have agreed to waive any right, title, interest or claim of any kind in or to any monies in the Trust Account, and have agreed to waive any right, title, interest or claim of any kind they may have in the future as a result of, or arising out of, any services provided to us and will not seek recourse against the Trust Account for any reason whatsoever. Accordingly, any indemnification provided will only be able to be satisfied by us if (i) we have sufficient funds outside of the Trust Account or (ii) we consummate an initial Business Combination. +Our indemnification obligations may discourage shareholders from bringing a lawsuit against our officers or directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against our officers and directors, even though such an action, if successful, might otherwise benefit us and our shareholders. Furthermore, a shareholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against our officers and directors pursuant to these indemnification provisions. +We believe that these provisions, the insurance and the indemnity agreements are necessary to attract and retain talented and experienced officers and directors. +Item 11. Executive Compensation. +None of our executive officers or directors has received any cash compensation for services rendered. We will reimburse our Sponsor, for office space, secretarial and administrative services provided to members of our management team in an amount not to exceed $20,000 per month in the event such space and/or services are utilized and we do not pay directly for such services. No compensation of any kind, including any finder’s fee, reimbursement, consulting fee or monies in respect of any payment of a loan, will be paid by us to our Sponsor, officers and directors, or any affiliate of theirs, for services rendered prior to, or for any services rendered in order to effectuate, the consummation of our initial Business Combination (regardless of the type of transaction that it is). However, these individuals will be entitled to certain payments including, but not limited to, reimbursement for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable Business Combinations. Additionally, these individuals will be eligible to receive a transfer or reallocation of Founder Shares for any extraordinary services rendered in order to identify or effectuate the consummation of our initial Business Combination. Our audit committee will review on a quarterly basis all payments that were made to our Sponsor, officers or directors, or our or their affiliates. Any such payments prior to an initial Business Combination will be made using funds held outside the Trust Account. Other than quarterly audit committee review of such payments, we do not expect to have any additional controls in place governing our reimbursement payments to our directors and executive officers for their out-of-pocket expenses incurred in connection with identifying and consummating an initial Business Combination. +After the completion of our initial Business Combination, directors or members of our management team who remain with us may be paid consulting or management fees from the combined company. All of these fees will be fully disclosed to stockholders, to the extent then known, in the tender offer materials or proxy solicitation materials furnished to our stockholders in connection with a proposed initial Business Combination. We have not established any limit on the amount of such fees that may be paid by the combined company to our directors or members of management. It is unlikely the amount of such compensation will be known at the time of the proposed initial Business Combination, because the directors of the post-combination business will be responsible for determining officer and director compensation. Any compensation to be paid to our officers will be determined, or recommended to the board of +65 +Table of Contents +directors for determination, either by a compensation committee constituted solely by independent directors or by a majority of the independent directors on our board of directors. +We do not intend to take any action to ensure that members of our management team maintain their positions with us after the consummation of our initial Business Combination, although it is possible that some or all of our officers and directors may negotiate employment or consulting arrangements to remain with us after our initial Business Combination. The existence or terms of any such employment or consulting arrangements to retain their positions with us may influence our management’s motivation in identifying or selecting a target business but we do not believe that the ability of our management to remain with us after the consummation of our initial Business Combination will be a determining factor in our decision to proceed with any potential Business Combination. We are not party to any agreements with our officers and directors that provide for benefits upon termination of employment. +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. +The following table sets forth information regarding the beneficial ownership of our ordinary shares as of May 11, 2026, by: +● each person known by us to be the beneficial owner of more than 5% of our outstanding ordinary shares; +● each of our officers and directors; and +● all our officers and directors as a group. +Unless otherwise indicated, we believe that all persons named in the table below have sole voting and investment power with respect to all ordinary shares beneficially owned by them. The following table does not reflect beneficial ownership of the Public Warrants or Private Placement Warrants as these warrants are not exercisable within 60 days of the date of this Form 10-K. +We have based our calculation of the percentage of beneficial ownership on 23,000,000 Class A Ordinary Shares and 5,750,000 Class B Ordinary Shares issued and outstanding as of May 11, 2026. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +NUMBER OF CLASS A +​ ​ ​ +​ +​ ​ ​ +NUMBER OF CLASS B +​ ​ ​ +​ +​ ​ ​ +​ +​ +​ +ORDINARY +​ +​ +​ +ORDINARY +​ +​ +​ +APPROXIMATE +​ +​ +SHARES +​ +​ +​ +SHARES +​ +​ +​ +PERCENTAGE OF +​ +​ +BENEFICIALLY +​ +PERCENTAGE +​ +BENEFICIALLY +​ +PERCENTAGE +​ +TOTAL VOTING +NAME AND ADDRESS OF BENEFICIAL OWNER(1) +​ +OWNED +​ +OF CLASS +​ +OWNED(2) +​ +OF CLASS +​ +POWER +Directors, Executive Officers and Founders +​ +​ +​ +​ +​ +​ +​ +​ +James A. Graf(3) +— +0.00 +% +5,660,000 +​ +98.43 +% +19.69 +% +Louis Bélanger-Martin +— +0.00 +% +30,000 +​ +98.43 +% +* +​ +Kenneth Weinstein +— +0.00 +% +30,000 +​ +* +​ +* +​ +Fred S. Zeidman +— +0.00 +% +30,000 +​ +* +​ +* +​ +All executive officers, directors and director as a group (4 individuals) +— +0.00 +% +5,750,000 +​ +100.00 +% +20.00 +% +Five Percent Holders +​ +​ +​ +​ +​ +​ +​ +​ +Graf Global Sponsor, LLC(3) +— +0.00 +% +5,660,000 +​ +98.43 +% +19.69 +% +Linden Capital L.P.(4) +1,500,000 +6.52 +% +— +​ +0.00 +% +5.22 +% +Highbridge Capital Management, LLC(5) +1,500,000 +6.52 +% +— +​ +0.00 +% +5.22 +% +Magnetar Financial LLC(6) +1,633,500 +7.10 +% +— +​ +0.00 +% +5.68 +% +First Trust Merger Arbitrage Fund(7) +2,098,916 +9.13 +% +— +​ +0.00 +% +7.30 +% +AQR Capital Management, LLC(8) +1,573,974 +6.84 +% +— +​ +0.00 +% +5.47 +% +*Less than 1% +(1) Unless otherwise noted, the business address of each of the following entities or individuals is c/o Graf Global Corp., 1790 Hughes Landing Blvd., Suite 400, The Woodlands, Texas 77380. +(2) Interests shown consist solely of Founder Shares, classified as Class B Ordinary Shares. Such shares will automatically convert into Class A Ordinary Shares concurrently with or immediately following the consummation of our initial Business Combination, or earlier at the option of the holders thereof, on a one-for-one basis, subject to adjustment. +66 +Table of Contents +(3) Graf Global Sponsor LLC is the record holder of the shares reported herein. James A. Graf is the sole managing member of Graf Global Sponsor LLC. James A. Graf has voting and investment discretion with respect to the ordinary shares held of record by Graf Global Sponsor LLC. +(4) According to a Schedule 13G filed with the SEC on July 8, 2024 on behalf of Linden Capital L.P. (“Linden Capital”), Linden GP LLC (“Linden GP”), Linden Advisors LP (“Linden Advisors”), and Siu Min (Joe) Wong (“Mr. Wong”) with respect to shares held for the account of Linden Capital and one or more separately managed accounts (the “Managed Accounts”). Linden GP is the general partner of Linden Capital and, in such capacity, may be deemed to beneficially own the shares held by Linden Capital. Linden Advisors is the investment manager of Linden Capital and trading advisor or investment advisor for the Managed Accounts. Mr. Wong is the principal owner and controlling person of Linden Advisors and Linden GP. In such capacities, Linden Advisors and Mr. Wong may each be deemed to beneficially own the shares held by each of Linden Capital and the Managed Accounts. The principal business address for Linden Capital is Victoria Place, 31 Victoria Street, Hamilton HM10, Bermuda. The principal business address for each of Linden Advisors, Linden GP and Mr. Wong is 590 Madison Avenue, 15th Floor, New York, New York 10022. +(5) According to a Schedule 13G filed with the SEC on October 25, 2024 by Highbridge Capital Management, LLC (“Highbridge”). Highbridge is the investment advisor to certain funds and accounts (the “Highbridge Funds”) which directly hold Class A Ordinary Shares, and accordingly may be deemed to beneficially own 1,500,000 of the Company’s Class A Ordinary Shares. The business address for Highbridge is 277 Park Avenue, 23 rd Floor, New York, New York 10172. +(6) According to a Schedule 13G filed with the SEC on November 6, 2024 by Magnetar Financial LLC (“Magnetar Financial”), Magnetar Capital Partners LP (“Magnetar Capital Partners”), Supernova Management LLC (“Supernova Management”) and David J. Snyderman (“Mr. Snyderman”) with respect to shares held for Magnetar Constellation Master Fund, Ltd (“Constellation Master Fund”) Magnetar Xing He Master Fund Ltd (“Xing He Master Fund”), Magnetar SC Fund Ltd (“SC Fund”), Purpose Alternative Credit Fund Ltd (“Purpose Credit Fund”), Magnetar Structured Credit Fund, LP (“Structured Credit Fund”), Magnetar Alpha Star Fund LLC (“Alpha Star Fund”), Magnetar Lake Credit Fund LLC (“Lake Credit Fund”), Purpose Alternative Credit Fund - T LLC (“Purpose Credit Fund – T”), collectively (the “Magnetar Funds”). Magnetar Financial serves as the investment adviser to the Magnetar Funds, and as such, Magnetar Financial exercises voting and investment power over the shares held for the Magnetar Funds’ accounts. Magnetar Capital Partners serves as the sole member and parent holding company of Magnetar Financial. Supernova Management is the general partner of Magnetar Capital Partners. The manager of Supernova Management is Mr. Snyderman. The address of the principal business office of each of Magnetar Financial, Magnetar Capital Partners, Supernova Management, and Mr. Snyderman is 1603 Orrington Avenue, 13 th Floor, Evanston, Illinois 60201. +(7) According to a Schedule 13G filed with the SEC on November 14, 2024 by First Trust Merger Arbitrage Fund (“VARBX”), First Trust Capital Management L.P. (“FTCM”), First Trust Capital Solutions L.P. (“FTCS”), and FTCS Sub GP LLC (“Sub GP”). FTCM, an investment adviser registered with the SEC that provides investment advisory services to, among others, (i) series of Investment Managers Series Trust II, an investment company registered under the Investment Company Act of 1940, specifically First Trust Multi-Strategy Fund and VARBX, (ii) First Trust Alternative Opportunities Fund, an investment company registered under the Investment Company Act of 1940, and (iii) Highland Capital Management Institutional Fund II, LLC, a Delaware limited liability company (collectively, the “Client Accounts”). As investment adviser to the Client Accounts, FTCM has the authority to invest the funds of the Client Accounts in securities (including ordinary shares of the Company) as well as the authority to purchase, vote and dispose of securities, and may thus be deemed the beneficial owner of any of the Company’s ordinary shares held in the Client Accounts. As of September 30, 2024, VARBX owned 1,876,481 ordinary shares, while FTCM, FTCS and Sub GP collectively owned 2,098,916 ordinary shares. FTCS and Sub GP may be deemed to control FTCM and therefore may be deemed to be beneficial owners of the ordinary shares reported thereby. No one individual controls FTCS or Sub GP. FTCS and Sub GP do not own any ordinary shares for their own accounts. The principal business address of FTCM, FTCS and Sub GP is 225 W. Wacker Drive, 21 st Floor, Chicago, IL 60606. The principal business address of VARBX is 235 West Galena Street, Milwaukee, WI 53212. +(8) According to a Schedule 13G filed with the SEC on November 14, 2024 on behalf of AQR Capital Management, LLC, AQR Capital Management Holdings, LLC, and AQR Arbitrage, LLC. AQR Capital Management, LLC is a wholly owned subsidiary +67 +Table of Contents +of AQR Capital Management Holdings, LLC. AQR Arbitrage, LLC is deemed to be controlled by AQR Capital Management, LLC. The principal business address of all three entities is One Greenwich Plaza, Greenwich, CT 06830. +​ +Item 13. Certain Relationships and Related Transactions, and Director Independence +Founder Shares +In November 2021, our Sponsor paid $25,000, or approximately $0.003 per share, to cover certain expenses on our behalf in consideration of 7,187,500 Founder Shares. On February 8, 2024, our Sponsor surrendered 1,437,500 Founder Shares for no consideration, resulting in our Sponsor holding 5,750,000 Founder Shares. On June 7, 2024, our Sponsor transferred 30,000 Founder Shares to each of the Company’s three independent directors (an aggregate of 90,000 Founder Shares), resulting in our Sponsor holding 5,660,000 Founder Shares. All share and per-share amounts have been retroactively restated to reflect the share capitalization. The number of Founder Shares outstanding was determined based on the expectation that the total size of the initial public offering would be a maximum of 23,000,000 Units if the underwriters’ over-allotment option was exercised in full, and therefore that such Founder Shares would represent 20% of the outstanding shares after the initial public offering. +Private Placement Warrants +Our Sponsor and Cantor purchased an aggregate of 6,000,000 Private Placement Warrants for an aggregate purchase price of $6,000,000, or $1.00 per warrant, in a private placement that occurred simultaneously with the closing of the initial public offering. Of those 6,000,000 Private Placement Warrants, our Sponsor purchased 4,000,000 Private Placement Warrants and Cantor purchased 2,000,000 Private Placement Warrants. The Private Placement Warrants are identical to the Public Warrants except that, so long as they are held by our Sponsor or its permitted transferees, (i) may not (including the underlying securities), subject to certain limited exceptions, be transferred, assigned or sold by the holders until 30 days after the completion of our initial Business Combination, (ii) and will be entitled to registration rights and (iii) with respect to Private Placement Warrants held by Cantor and/or its respective designees, will not be exercisable more than five years from the commencement of sales in the initial public offering in accordance with FINRA Rule 5110(g)(8). A portion of the purchase price of the Private Placement Warrants was added to the proceeds from the initial public offering to be held in the Trust Account such that $230,000,000 is held in the Trust Account. If we do not complete our initial Business Combination within the Completion Window, upon our liquidation, the Private Placement Warrants will expire. +Administrative Services Agreement +We currently utilize office space at 1790 Hughes Landing Blvd., Suite 400, The Woodlands, Texas 77380 from our Sponsor. We consider our current office space adequate for our current operations. We pay our Sponsor (and/or its affiliates or designees) an aggregate of up to $20,000 per month for office space, secretarial, administrative and support services provided to us and members of our management team. For the years ended December 31, 2025 and 2024, we incurred administrative support services fees of $240,000 and $124,000, respectively. We paid $120,000 and $124,000 during the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025 and 2024, we had outstanding accrued administrative support services fees of $120,000 and $0, respectively, which are included in accrued expenses in the accompanying balance sheets. Upon completion of our initial Business Combination or our liquidation, we will cease paying these monthly fees. +No compensation of any kind, including finder’s and consulting fees, will be paid by the company to our Sponsor, executive officers and directors, or any of their respective affiliates, for services rendered prior to or in connection with the completion of an initial Business Combination without shareholder approval. However, these individuals will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable Business Combinations. Our audit committee will review on a quarterly basis all payments that were made to our Sponsor, officers, directors or our or their affiliates. +Working Capital Loans +In addition, in order to finance transaction costs in connection with an intended initial Business Combination, our Sponsor or an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required on a non-interest basis. If we complete an initial Business Combination, we would repay such loaned amounts. In the event that the initial Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible +68 +Table of Contents +into Private Placement Warrants at a price of $1.00 per warrant, at the option of the lender. The warrants would be identical to the Private Placement Warrants, including as to exercisability and exercise price. Except as set forth above, the terms of such loans, if any, have not been determined and no written agreements exist with respect to such loans. Prior to the completion of our initial Business Combination, we do not expect to seek loans from parties other than our Sponsor or an affiliate of our Sponsor as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our Trust Account. +Any of the foregoing payments to our Sponsor, repayments of loans from our Sponsor or repayments of Working Capital Loans prior to our initial Business Combination will be made using funds held outside the Trust Account. +After our initial Business Combination, members of our management team who remain with us may be paid consulting, management or other fees from the combined company with any and all amounts being fully disclosed to our shareholders, to the extent then known, in the proxy solicitation or tender offer materials, as applicable, furnished to our shareholders. It is unlikely the amount of such compensation will be known at the time of distribution of such tender offer materials or at the time of a shareholder meeting held to consider our initial Business Combination, as applicable, as it will be up to the directors of the post- combination business to determine executive and director compensation. +Registration Rights Agreement +The holders of Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans (and any ordinary shares issuable upon the exercise of the Private Placement Warrants or warrants issued upon conversion of the Working Capital Loans), will be entitled to registration rights pursuant to a registration rights agreement signed upon the consummation of the Initial Public Offering. These holders will be entitled to certain demand and “piggyback” registration rights. We will bear the expenses incurred in connection with the filing of any such registration statements. +Related Party Loans and Advances +On November 20, 2021, as amended on February 9, 2024, the Sponsor agreed to loan the Company up to $300,000 pursuant to a promissory note (the “Note”). The Note is non-interest bearing, unsecured and due on the earlier of December 31, 2024 or the closing of the Initial Public Offering. The outstanding balance of $155,688 was repaid at the closing of the Initial Public Offering on June 27, 2024. +The Company’s Chief Executive Officer has also paid certain operating expenses on behalf of the Company. As of December 31, 2025, the outstanding balance related to these payments was $14,663. +In addition, in order to finance transaction costs in connection with a Business Combination, the Sponsor, members of the Company’s founding team or any of their affiliates may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. The Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1.5 million of such Working Capital Loans may be converted into warrants of the post Business Combination entity at a price of $1.00 per warrant. The warrants would be identical to the Private Placement Warrants. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. As of December 31, 2025 and 2024, the Company had no borrowings under the Working Capital Loans. +Item 14. Principal Accounting Fees and Services. +The firm of WithumSmith+Brown, PC (“Withum”) acts as our independent registered public accounting firm. The following is a summary of fees paid to Withum for services rendered. +Audit Fees . For the years ended December 31, 2025 and 2024, fees for our independent registered public accounting firm were approximately $102,400 and $122,200, respectively for the services Withum performed in connection with the audit of our December 31, 2025 and December 31, 2024 financial statements included in this Form 10-K. +69 +Table of Contents +Audit-Related Fees. For the years ended December 31, 2025 and 2024, our independent registered public accounting firm did not render assurance and related services related to the performance of the audit or review of financial statements, respectively. +Tax Fees . For the years ended December 31, 2025 and 2024, our independent registered public accounting firm did not render services to us for tax compliance, tax advice and tax planning, respectively. +All Other Fees . For the years ended December 31, 2025 and 2024, there were no fees billed for products and services provided by our independent registered public accounting firm other than those set forth above, respectively. +Pre-Approval Policy +Our audit committee was formed upon the consummation of our Initial Public Offering. As a result, the audit committee did not pre-approve all of the foregoing services, although any services rendered prior to the formation of our audit committee were approved by our board of directors. Since the formation of our audit committee, and on a going-forward basis, the audit committee has and will pre-approve all auditing services and permitted non-audit services to be performed for us by our auditors, including the fees and terms thereof (subject to the de minimis exceptions for non-audit services described in the Exchange Act which are approved by the audit committee prior to the completion of the audit). +​ +70 +Table of Contents +PART IV +Item 15. Exhibits, Financial Statement Schedules. +(a) +The following documents are filed as part of this Form 10-K: +​ +(1) +Financial Statements: +​ +Page +Report of Independent Registered Public Accounting Firm +​ +Balance Sheets +F-1 +Statements of Operations +F-2 +Statements of Changes in Shareholders’ Deficit +F-3 +Statements of Cash Flows +F-4 +Notes to Financial Statements +F-5 +​ +(2) +Financial Statement Schedules: +​ +None. +(3) +Exhibits +​ +The exhibits listed in the Exhibit Index below are filed or incorporated by reference as part of this Annual Report on Form 10-K. +Exhibit Index +Number +​ ​ ​ +Description +1.1 +​ +Underwriting Agreement, dated June 25, 2024, by and between the Company and Cantor Fitzgerald & Co., as representative of the underwriters (incorporated by reference to Exhibit 1.1 to the Registrant’s Current Report on Form 8-K (File No. 001-42142), filed with the SEC on June 28, 2024). +3.1 +​ +Amended and Restated Memorandum and Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-42142), filed with the SEC on June 28, 2024). +4.1 +​ +Specimen Unit Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Amended Registration Statement on Form S-1 (File No. 333-279889), filed with the SEC on June 20, 2024). +4.2 +​ +Specimen Class A Ordinary Shares Certificate (incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-279889), filed with the SEC on June 20, 2024). +4.3 +​ +Specimen Warrant Certificate (incorporated by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form S-1 (File No. 333-279889), filed with the SEC on June 20, 2024). +4.4 +​ +Warrant Agreement, dated June 25, 2024, by and between the Registrant and Continental Stock Transfer & Trust Company, as warrant agent (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File No. 001-42142), filed with the SEC on June 28, 2024). +4.5 +​ +Description of Securities (incorporated by reference to Exhibit 4.5 to the Registrant’s Annual Report on Form 10-K (File No. 001-42142), filed with the SEC on March 13, 2025). +10.1 +​ +Letter Agreement, dated June 25, 2024, by and among the Registrant, Graf Global Sponsor LLC and each of the executive officers and directors of Registrant (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-42142), filed with the SEC on June 28, 2024). +10.2 +​ +Investment Management Trust Agreement, dated June 25, 2024, by and between the Registrant and Continental Stock Transfer & Trust Company, as trustee (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-42142), filed with the SEC on June 28, 2024). +10.3 +​ +Registration Rights Agreement, dated June 25, 2024, by and among the Registrant, Graf Global Sponsor LLC and the other holders party thereto (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File No. 001-42142), filed with the SEC on June 28, 2024). +10.4 +​ +Securities Subscription Agreement, dated as of November 20, 2021, by and between the Registrant and Graf Global Sponsor LLC (incorporated by reference to Exhibit 10.8 to the Registrant’s Registration Statement on Form S-1 (File No. 333-279889), filed with the SEC on June 18, 2024). +71 +Table of Contents +10.5 +​ +Private Placement Warrants Purchase Agreement, dated June 25, 2024, by and between the Registrant and Graf Global Sponsor LLC (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K (File No. 001-42142), filed with the SEC on June 28, 2024). +10.6 +​ +Private Placement Warrants Purchase Agreement, dated June 25, 2024, by and between the Company and Cantor, Fitzgerald & Co. (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K (File No. 001-42142), filed with the SEC on June 28, 2024). +10.7 +​ +Form of Indemnity Agreement (incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form S-1 (File No. 333-279889), filed with the SEC on June 20, 2024). +10.8 +​ +Administrative Services Agreement, dated June 25, 2024, by and between the Company and Graf Global Sponsor LLC (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K (File No. 001-42142), filed with the SEC on June 28, 2024). +19.1 +​ +Insider Trading Policy (incorporated by reference to Exhibit 19.1 to the Registrant’s Annual Report on Form 10-K (File No. 001-42142), filed with the SEC on March 13, 2025). +24.1* +​ +Power of Attorney (included on the signature pages herein). +31.1* +​ +Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32.1** +​ +Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97.1 +​ +Policy relating to the recovery of erroneously awarded compensation (incorporated by reference to Exhibit 97.1 to the Registrant’s Annual Report on Form 10-K (File No. 001-42142), filed with the SEC on March 13, 2025). +99.1 +​ +Audit Committee Charter (incorporated by reference to Exhibit 99.1 to the Registrant’s Annual Report on Form 10-K (File No. 001-42142), filed with the SEC on March 13, 2025). +99.2 +​ +Compensation Committee Charter (incorporated by reference to Exhibit 99.2 to the Registrant’s Annual Report on Form 10-K (File No. 001-42142), filed with the SEC on March 13, 2025). +99.3 +​ +Nominating and Corporate Governance Committee Charter (incorporated by reference to Exhibit 99.3 to the Registrant’s Annual Report on Form 10-K (File No. 001-42142), filed with the SEC on March 13, 2025). +101.INS +​ +Inline XBRL Instance Document +101.SCH +​ +Inline XBRL Taxonomy Extension Schema Document +101.CAL +​ +Inline XBRL Taxonomy Extension Calculation Linkbase Document +101.DEF +​ +Inline XBRL Taxonomy Extension Definition Linkbase Document +101.LAB +​ +Inline XBRL Taxonomy Extension Label Linkbase Document +101.PRE +​ +Inline XBRL Taxonomy Extension Presentation Linkbase Document +104 +​ +Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit) +* +Filed herewith. +** +Furnished herewith. +Item 16. Form 10-K Summary. +​ +None. +​ +72 +Table of Contents +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. +​ +GRAF GLOBAL CORP. +​ +​ +​ +​ +By: +/s/ James A. Graf +​ +Name: +James A. Graf +​ +Title: +Chief Executive Officer and Chief Financial Officer +​ +(Principal executive officer and principal financial officer) +Dated: May 11, 2026 +​ +​ +POWER OF ATTORNEY +Each of the undersigned, whose signature appears below, hereby constitutes and appoints James A. Graf his or her true and lawful attorney-in-fact, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities to sign any and all amendments including post-effective amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the SEC, hereby ratifying and confirming all that said attorney-in-fact or his substitute, each acting alone, may lawfully do or cause to be done by virtue thereof. +Pursuant to the requirements of the Securities Act of 1933, as amended, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. +Name +​ ​ ​ +Title +​ ​ ​ +Date +/s/ James A. Graf +​ +Chief Executive Officer, Chief Financial Officer and Director +​ +May 11, 2026 +James A. Graf +​ +( Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer) +​ +​ +​ +​ +​ +​ +​ +/s/ Louis Bélanger-Martin +​ +Director +​ +May 11, 2026 +Louis Bélanger-Martin +​ +​ +​ +​ +​ +​ +​ +​ +​ +/s/ Kenneth Weinstein +​ +Director +​ +May 11, 2026 +Kenneth Weinstein +​ +​ +​ +​ +​ +​ +​ +​ +​ +/s/ Fred S. Zeidman +​ +Director +​ +May 11, 2026 +Fred S. Zeidman +​ +​ +​ +​ +​ +​ +​ +​ +73 +Table of Contents +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To the Shareholders and the Board of Directors of +Graf Global Corp.: +Opinion on the Financial Statements +We have audited the accompanying balance sheets of Graf Global Corp. (the “Company”) as of December 31, 2025 and 2024 and the related statements of operations, changes in shareholders’ deficit, and cash flow for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flow for the years then ended, in conformity with accounting principles generally accepted in the United States of America. +Going Concern +The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, if the Company is unable to raise additional funds to alleviate liquidity needs and complete a business combination by June 27, 2026, then the Company will cease all operations except for the purpose of liquidating. The liquidity condition, the date of mandatory liquidation and subsequent dissolution raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. +Basis for Opinion +These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ WithumSmith+Brown, PC +We have served as the Company's auditor since 2021. +New York, New York +May 11, 2026 +PCAOB ID Number 100 +​ +​ +​ +Table of Contents +GRAF GLOBAL CORP. +BALANCE SHEETS +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +December 31, 2025 +​ ​ ​ +December 31, 2024 +​ +​ +​ +​ +​ +​ +​ +Assets +​ +​ +​ +​ +​ +​ +Current assets +​ +​ +​ +​ +Cash +​ +$ +699 +​ +$ +479,628 +Prepaid expenses +​ +115,552 +​ +237,465 +Total current assets +​ +116,251 +​ +717,093 +Long-term prepaid insurance +​ +​ +— +​ +​ +109,710 +Cash held in Trust Account +​ +245,609,352 +​ +235,764,764 +Total Assets +​ +$ +245,725,603 +​ +$ +236,591,567 +​ +​ +​ +​ +​ +​ +​ +Liabilities, Class A Ordinary Shares Subject to Possible Redemption, and Shareholders’ Deficit +​ +​ +​ +​ +Current liabilities +​ +​ +​ +​ +Accrued offering costs +​ +$ +— +​ +$ +85,000 +Due to related party +​ +​ +14,663 +​ +​ +— +Accrued expenses +​ +1,269,613 +​ +84,690 +Total current liabilities +​ +1,284,276 +​ +169,690 +Deferred underwriting fee +​ +9,800,000 +​ +9,800,000 +Total Liabilities +​ +11,084,276 +​ +9,969,690 +​ +​ +​ +​ +​ +​ +​ +Commitments and Contingencies (Note 6) +​ +​ +​ +​ +Class A ordinary shares subject to possible redemption, 23,000,000 shares at redemption value of approximately $ 10.68 and $ 10.25 per share as of December 31, 2025 and 2024 +​ +245,609,352 +​ +235,764,764 +​ +​ +​ +​ +​ +​ +​ +Shareholders’ Deficit +​ +​ +​ +​ +Preference shares, $ 0.0001 par value; 1,000,000 shares authorized; none issued or outstanding as of December 31, 2025 and 2024 +​ +— +​ +— +Class A ordinary shares, $ 0.0001 par value; 400,000,000 shares authorized; none issued or outstanding (excluding 23,000,000 shares subject to possible redemption) as of December 31, 2025 and 2024 +​ +— +​ +— +Class B ordinary shares, $ 0.0001 par value; 80,000,000 shares authorized; 5,750,000 shares issued and outstanding as of December 31, 2025 and 2024 +​ +575 +​ +575 +Additional paid-in capital +​ +— +​ +— +Accumulated deficit +​ +( 10,968,600 ) +​ +( 9,143,462 ) +Total Shareholders’ Deficit +​ +( 10,968,025 ) +​ +( 9,142,887 ) +Total Liabilities, Class A Ordinary Shares Subject to Possible Redemption, and Shareholders’ Deficit +​ +$ +245,725,603 +​ +$ +236,591,567 +​ +The accompanying notes are an integral part of these financial statements. +​ +​ +F-1 +Table of Contents +GRAF GLOBAL CORP. +STATEMENTS OF OPERATIONS +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +For the Years Ended December 31, +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +General and administrative costs +​ +$ +1,825,138 +​ +$ +531,279 +Loss from operations +​ +( 1,825,138 ) +​ +( 531,279 ) +​ +​ +​ +​ +​ +​ +​ +Other income: +​ +​ +​ +​ +Interest earned on cash held in Trust Account +​ +9,844,588 +​ +5,764,764 +Total other income +​ +9,844,588 +​ +5,764,764 +​ +​ +​ +​ +​ +​ +​ +Net income +​ +$ +8,019,450 +​ +$ +5,233,485 +​ +​ +​ +​ +​ +​ +​ +Weighted average shares outstanding of Class A ordinary shares +​ +23,000,000 +​ +11,783,562 +Basic and diluted net income per ordinary share, Class A ordinary shares +​ +$ +0.28 +​ +$ +0.30 +​ +​ +​ +​ +​ +​ +​ +Weighted average shares outstanding of Class B ordinary shares +​ +5,750,000 +​ +5,384,247 +Basic and diluted net income per ordinary share, Class B ordinary shares +​ +$ +0.28 +​ +$ +0.30 +​ +The accompanying notes are an integral part of these financial statements. +​ +F-2 +Table of Contents +GRAF GLOBAL CORP. +STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT +​ +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Class A Ordinary Shares +​ ​ ​ +Class B Ordinary Shares +​ ​ ​ +Additional Paid-in +​ ​ ​ +Accumulated +​ ​ ​ +Total Shareholders’ +​ +​ ​ ​ +Shares +​ ​ ​ +Amount +​ ​ ​ +Shares +​ ​ ​ +Amount +​ ​ ​ +Capital +​ ​ ​ +Deficit +​ ​ ​ +Deficit +Balance — December 31, 2023 +― +​ +$ +― +5,750,000 +​ +$ +575 +​ +$ +24,425 +​ +$ +( 181,089 ) +​ +$ +( 156,089 ) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Sale of 6,000,000 Private Placement Warrants +― +​ +― +— +​ +— +​ +6,000,000 +​ +— +​ +6,000,000 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Fair value of Public Warrants at issuance +— +​ +— +― +​ +― +​ +920,000 +​ +— +​ +920,000 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Allocated value of transaction costs +― +​ +― +— +​ +— +​ +( 74,421 ) +​ +— +​ +( 74,421 ) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Accretion for Class A ordinary shares to redemption amount +― +​ +― +— +​ +— +​ +( 6,870,004 ) +​ +( 14,195,858 ) +​ +( 21,065,862 ) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Net income +— +​ +— +— +​ +— +​ +— +​ +5,233,485 +​ +5,233,485 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Balance — December 31, 2024 +​ +― +​ +​ +― +​ +5,750,000 +​ +​ +575 +​ +​ +― +​ +​ +( 9,143,462 ) +​ +​ +( 9,142,887 ) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Accretion for Class A ordinary shares to redemption amount +​ +― +​ +​ +― +​ +— +​ +​ +— +​ +​ +— +​ +​ +( 9,844,588 ) +​ +​ +( 9,844,588 ) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Net income +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +​ +— +​ +​ +8,019,450 +​ +​ +8,019,450 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Balance — December 31, 2025 +― +​ +$ +― +5,750,000 +​ +$ +575 +​ +$ +― +​ +$ +( 10,968,600 ) +​ +$ +( 10,968,025 ) +​ +The accompanying notes are an integral part of these financial statements. +​ +F-3 +Table of Contents +GRAF GLOBAL CORP. +STATEMENTS OF CASH FLOWS +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +For the Years Ended December 31, +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +Cash Flows from Operating Activities: +​ +​ +​ +​ +​ +​ +Net income +​ +$ +8,019,450 +​ +$ +5,233,485 +Adjustments to reconcile net income to net cash used in operating activities: +​ +​ +​ +​ +Payment of operation costs through promissory note +​ +— +​ +32,151 +Interest earned on cash held in Trust Account +​ +( 9,844,588 ) +​ +( 5,764,764 ) +Changes in operating assets and liabilities: +​ +​ +​ +​ +Prepaid expenses and other current assets +​ +121,913 +​ +( 237,465 ) +Long-term prepaid insurance +​ +​ +109,710 +​ +​ +( 109,710 ) +Due to related party +​ +​ +14,663 +​ +​ +— +Accrued expenses +​ +1,184,923 +​ +( 65,707 ) +Net cash used in operating activities +​ +( 393,929 ) +​ +( 912,010 ) +​ +​ +​ +​ +​ +​ +​ +Cash Flows from Investing Activities: +​ +​ +​ +​ +Investment of cash in Trust Account +​ +— +​ +( 230,000,000 ) +Net cash used in investing activities +​ +— +​ +( 230,000,000 ) +​ +​ +​ +​ +​ +​ +​ +Cash Flows from Financing Activities: +​ +​ +​ +​ +Proceeds from sale of Units, net of underwriting discounts paid +​ +— +​ +226,000,000 +Proceeds from sale of Private Placements Warrants +​ +— +​ +6,000,000 +Advances from related party +​ +— +​ +5,696 +Repayment of advances from related party +​ +— +​ +( 5,696 ) +Repayment of promissory note - related party +​ +— +​ +( 155,688 ) +Payment of offering costs +​ +( 85,000 ) +​ +( 452,674 ) +Net cash (used in) provided by financing activities +​ +​ +( 85,000 ) +​ +​ +231,391,638 +​ +​ +​ +​ +​ +Net Change in Cash +​ +( 478,929 ) +​ +479,628 +Cash – Beginning of period +​ +​ +479,628 +​ +​ +— +Cash – End of period +​ +$ +699 +​ +$ +479,628 +​ +​ +​ +​ +​ +Non-Cash investing and financing activities: +​ +​ +​ +​ +​ +​ +Offering costs included in accrued offering costs +​ +$ +— +​ +$ +85,000 +Deferred underwriting fee payable +​ +$ +— +​ +$ +9,800,000 +Deferred offering costs paid through promissory note – related party +​ +$ +— +​ +$ +117,845 +​ +The accompanying notes are an integral part of these financial statements. +​ +​ +F-4 +Table of Contents +GRAF GLOBAL CORP. +NOTES TO FINANCIAL STATEMENTS +DECEMBER 31, 2025 +NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS +Graf Global Corp. (the “Company”) is a blank check company incorporated as a Cayman Islands exempted company on November 17, 2021. The Company was incorporated for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (“Business Combination”). The Company may pursue an acquisition opportunity in any industry or geographic location. +As of December 31, 2025, the Company had not yet commenced operations. All activity for the period from November 17, 2021 (inception) through December 31, 2025 relates to the Company’s formation, the initial public offering (“Initial Public Offering”), which is described below, and subsequent to the Initial Public Offering, identifying a target company for a Business Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company generates non-operating income in the form of interest income on cash and cash equivalents from the proceeds derived from the Initial Public Offering. The Company has selected December 31 as its fiscal year end. +The registration statement for the Company’s Initial Public Offering was declared effective on June 25, 2024. On June 27, 2024, the Company consummated the Initial Public Offering of 23,000,000 units (the “Units” and, with respect to the Class A ordinary shares included in the Units being offered, the “Public Shares” or “Class A Ordinary Shares”), which includes the full exercise by the underwriters of their over-allotment option in the amount of 3,000,000 Units, at $ 10.00 per Unit, generating gross proceeds of $ 230,000,000 , which is described in Note 3. Each Unit consists of one Class A Ordinary Share and one-half of one redeemable warrant of the Company (the “Public Warrants”), with each whole warrant entitling the holder thereof to purchase one Class A Ordinary Share at $ 11.50 per share. +Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of an aggregate of 6,000,000 warrants (the “Private Placement Warrants”) at a price of $ 1.00 per Private Placement Warrant, in a private placement to the Company’s sponsor, Graf Global Sponsor LLC, a Delaware limited liability company (the “Sponsor”), and Cantor Fitzgerald & Co., the representative of the underwriters of the Initial Public Offering, generating gross proceeds of $ 6,000,000 , which is described in Note 4. +Transaction costs amounted to $ 14,455,519 , consisting of $ 4,000,000 of cash underwriting fee, $ 9,800,000 of deferred underwriting fee (see additional discussion in Note 6), and $ 655,519 of other offering costs. +The Company’s management has broad discretion with respect to the specific application of the net proceeds of its Initial Public Offering and the sale of Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination (less deferred underwriting commissions). +Pursuant to NYSE American listing rules, the Company must complete one or more business combinations having an aggregate fair market value of at least 80% of the value of the Trust Account (as defined below) (excluding any deferred underwriters’ fees and taxes payable on the income earned on the Trust Account) at the time the Company signs a definitive agreement to enter into an initial Business Combination. +However, the Company will only complete a Business Combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”). There is no assurance that the Company will be able to successfully effect a Business Combination. +Following the closing of the Initial Public Offering, on June 27, 2024, an amount of $ 230,000,000 ($ 10.00 per Unit) from the net proceeds of the sale of the Units and the sale of the Private Placement Warrants was placed in the trust account (the “Trust Account”), with Continental Stock Transfer & Trust Company acting as trustee and held as cash or invested only in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act, which invest only in direct U.S. government treasury obligations, until the earlier of (i) the completion of a Business Combination and (ii) the distribution of the Trust Account as described below. To mitigate the risk that might be deemed to be an investment company for purposes of the Investment Company Act, which risk increases the longer that the Company holds +F-5 +Table of Contents +investments in the Trust Account, the Company may, at any time in its own discretion, instruct the trustee to liquidate the investments held in the Trust Account and instead to hold the funds in the Trust Account in an interest bearing bank demand deposit account. +The Company will provide its holders of the Public Shares (the “Public Shareholders”) with the opportunity to redeem, regardless of whether they abstain, vote for, or against, a Business Combination, all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a shareholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek shareholder approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The Public Shareholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account (initially anticipated to be $10.00 per share, plus any pro rata interest earned on the funds held in the Trust Account (which interest shall be net of taxes payable). The per-share amount to be distributed to Public Shareholders who redeem their Public Shares will not be reduced by the deferred underwriting commissions the Company will pay to the underwriters of the Initial Public Offering (as discussed in Note 6). +All of the Public Shares contain a redemption feature which allows for the redemption of such Public Shares in connection with the liquidation, if there is a shareholder vote or tender offer in connection with the initial Business Combination and in connection with certain amendments to the Company’s Amended and Restated Memorandum and Articles of Association (the “Amended and Restated Memorandum and Articles of Association”). In accordance with U.S. Securities and Exchange Commission (“SEC”) and its guidance on redeemable equity instruments, which has been codified in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 480, “Distinguishing Liabilities from Equity” (“ASC 480”), paragraph 10-S99, redemption provisions not solely within the control of a company require ordinary shares subject to redemption to be classified outside of permanent equity. Accordingly, all of the Public Shares were presented as temporary equity, outside of the shareholders’ deficit section of the Company’s balance sheets. Given that the Public Shares were issued with other freestanding instruments (i.e., Public Warrants), the initial carrying value of Class A Ordinary Shares classified as temporary equity were the allocated proceeds determined in accordance with FASB ASC Topic 470-20, “Debt with Conversion and Other Options.” The resulting discount to the initial carrying value of temporary equity was accreted upon closing the Initial Public Offering such that the carrying value equals the redemption value on such date. The accretion or remeasurement is recognized as a reduction to retained earnings, or in absence of retained earnings, additional paid-in capital. Accretion associated with the redeemable Class A Ordinary Shares is excluded from earnings per share as the redemption value approximates fair value. The Public Shares are redeemable and were classified as such on the balance sheets until such date that a redemption event takes place. +Additionally, each Public Shareholder may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction. If the Company seeks shareholder approval in connection with a Business Combination, the holders of the Founder Shares (as defined in Note 5) prior to Initial Public Offering (the “Initial Shareholders”) have agreed to vote their Founder Shares and any Public Shares purchased during or after the Initial Public Offering in favor of a Business Combination. In addition, the Initial Shareholders have agreed to waive their redemption rights with respect to their Founder Shares and Public Shares in connection with the completion of a Business Combination. +Notwithstanding the foregoing, the Amended and Restated Memorandum and Articles of Association provide that a Public Shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), will be restricted from redeeming its shares with respect to more than an aggregate of 15 % or more of the Public Shares without the prior consent of the Company. +The Company’s Sponsor, executive officers and directors will agree not to propose an amendment to the Company’s Amended and Restated Memorandum and Articles of Association that would affect the substance or timing of the Company’s obligation to provide for the redemption of its Public Shares in connection with a Business Combination or to redeem 100 % of its Public Shares if the Company does not complete a Business Combination, unless the Company provides the Public Shareholders with the opportunity to redeem their Class A Ordinary Shares in conjunction with any such amendment. +If the Company is unable to complete a Business Combination within 24 months from the closing of the Initial Public Offering or during any extended time that the Company has to consummate a Business Combination beyond 24 months as a result of a shareholder vote to amend the Amended and Restated Memorandum and Articles of Association (the “Combination Period”), the Company will but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account (which interest shall be net of taxes payable and up to $ 100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish Public Shareholders’ rights as shareholders (including the right to receive further +F-6 +Table of Contents +liquidating distributions, if any) subject to the Company’s obligations under Cayman Islands law to provide for claims of creditors and in all cases subject to the other requirements of applicable law. In such event, the warrants will expire and be worthless. +In connection with the redemption of 100% of the Company’s outstanding Public Shares for a portion of the funds held in the Trust Account, each holder will receive a full pro rata portion of the amount then in the Trust Account, plus any pro rata interest earned on the fund held in the Trust Account (which interest shall be net of taxes payable and up to $ 100,000 of interest to pay dissolution expenses). +The Initial Shareholders have agreed to waive their liquidation rights with respect to the Founder Shares if the Company fails to complete a Business Combination within the Combination Period. However, if the Initial Shareholders should acquire Public Shares in or after the Initial Public Offering, they will be entitled to liquidating distributions from the Trust Account with respect to such Public Shares if the Company fails to complete a Business Combination within the Combination Period. The underwriters have agreed to waive their rights to their deferred underwriting commission (see Note 6) held in the Trust Account in the event the Company does not complete a Business Combination within the Combination Period and, in such event, such amounts will be included with the funds held in the Trust Account that will be available to fund the redemption of the Company’s Public Shares. In the event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be only $10.00 per share initially held in the Trust Account. In order to protect the amounts held in the Trust Account, the Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has entered into a written letter of intent, confidentiality or other similar agreement or Business Combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.00 per Public Share and (ii) the actual amount per Public Share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.00 per share due to reductions in the value of the trust assets, less taxes payable; provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to the monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under the Company’s indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). +Liquidity and Going Concern +As of December 31, 2025, the Company had $ 699 in its operating bank account and working capital deficit of $ 1,168,025 . +The Company initially has until June 27, 2026 to consummate the initial Business Combination (assuming no shareholder-approved extensions to the Combination Period). If the Company does not complete a Business Combination, the Company will trigger an automatic winding up, dissolution and liquidation pursuant to the terms of the Amended and Restated Memorandum and Articles of Association. Notwithstanding management’s belief that the Company would have sufficient funds to execute its business strategy, there is a possibility that Business Combination might not happen within the 24-month period from the date of the Initial Public Offering. +In connection with the Company’s assessment of going concern considerations in accordance with ASC 205-40, “Going Concern,” as of December 31, 2025, the Company may need to raise additional capital through loans or additional investments from its Sponsor, shareholders, officers, directors, or third parties. The Company’s officers, directors and Sponsor may, but are not obligated to, loan the Company funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet the Company’s working capital needs. Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. +Management plans to address this uncertainty through a Business Combination. If a Business Combination is not consummated by the end of the Combination Period, currently June 27, 2026, there will be a mandatory liquidation and subsequent dissolution of the Company. Management has determined that the liquidity condition, the date of mandatory liquidation and subsequent dissolution raise substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after the Combination Period. The Company intends to complete the initial Business Combination before the end of the Combination Period. However, there can be no assurance that the Company will be able to consummate any Business Combination by the end of the Combination Period. +F-7 +Table of Contents +NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Basis of Presentation +The accompanying financial statements are presented in U.S. dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the accounting and disclosure rules and regulations of the Securities and Exchange Commission (the “SEC”). +Emerging Growth Company +The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. +Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. +Use of Estimates +The preparation of the financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. +Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates. +Cash and Cash Equivalents +The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company had $ 699 and $ 479,628 in cash and no cash equivalents as of December 31, 2025 and 2024, respectively. +Cash Held in Trust Account +As of December 31, 2025 and 2024, the assets held in the Trust Account were in an interest bearing demand deposit account at a bank, amounting to $ 245,609,352 and $ 235,764,764 , respectively. +Derivative Financial Instruments +The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480, “Distinguishing Liabilities from Equity”, and ASC 815-15, +F-8 +Table of Contents +“Derivatives and Hedging”. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. In accordance with ASC 825-10, “Financial Instruments”, offering costs attributable to the issuance of the derivative warrant liabilities are allocated based on their relative fair value of total proceeds and are recognized in the statements of operations as incurred. +The Company accounted for the 17,500,000 warrants issued in connection with the Initial Public Offering (including the 11,500,000 Public Warrants included in the Units and the 6,000,000 Private Placement Warrants) in accordance with the guidance contained in ASC 815-40. Such guidance provides that the warrants described above were not precluded from equity classification. Equity-classified contracts are initially measured at fair value (or allocated value). Subsequent changes in fair value are not recognized as long as the contracts continue to be classified in equity in accordance with ASC 480 and ASC 815. +Offering Costs +The Company complies with the requirements of the ASC 340-10-S99 and SEC Staff Accounting Bulletin Topic 5A, “Expenses of Offering.” Offering costs consist principally of professional and registration fees that are related to the Initial Public Offering. FASB ASC 470-20, “Debt with Conversion and Other Options,” addresses the allocation of proceeds from the issuance of convertible debt into its equity and debt components. The Company applies this guidance to allocate Initial Public Offering proceeds from the Units between Class A Ordinary Shares and warrants, using the residual method by allocating Initial Public Offering proceeds first to assigned value of the warrants and then to the Class A Ordinary Shares. Offering costs allocated to the Class A Ordinary Shares were charged to temporary equity and offering costs allocated to the Public Warrants and Private Placement Warrants were charged to shareholders’ deficit as Public Warrants and Private Placement Warrants after management’s evaluation were accounted for under equity treatment. +Class A Ordinary Shares Subject to Possible Redemption +The Public Shares contain a redemption feature which allows for the redemption of such Public Shares in connection with the Company’s liquidation, or if there is a shareholder vote or tender offer in connection with the Company’s initial Business Combination. In accordance with ASC 480-10-S99, the Company classifies Public Shares subject to redemption outside of permanent equity as the redemption provisions are not solely within the control of the Company. The Company recognizes changes in redemption value immediately as they occur and will adjust the carrying value of redeemable shares to equal the redemption value at the end of each reporting period. Immediately upon the closing of the Initial Public Offering, the Company recognized the accretion from initial book value to redemption amount value. The change in the carrying value of redeemable shares will result in charges against additional paid-in capital (to the extent available) and accumulated deficit. Accordingly, as of December 31, 2025 and 2024, Class A Ordinary Shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders’ deficit section of the Company’s balance sheets. At December 31, 2025 and 2024, the Class A Ordinary Shares subject to redemption reflected in the balance sheets are reconciled in the following table: +​ +​ +​ +​ +​ +Gross proceeds +​ ​ ​ +$ +230,000,000 +Less: +​ +​ +Proceeds allocated to Public Warrants +​ +( 920,000 ) +Class A ordinary shares issuance costs +​ +( 14,381,098 ) +Plus: +​ +​ +Remeasurement of carrying value to redemption value +​ +21,065,862 +Class A ordinary shares subject to possible redemption, December 31, 2024 +​ +​ +235,764,764 +Plus: +​ +​ +​ +Remeasurement of carrying value to redemption value +​ +​ +9,844,588 +Class A ordinary shares subject to possible redemption, December 31, 2025 +​ +$ +245,609,352 +​ +Income Taxes +The Company complies with the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” which prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company’s management determined that the Cayman Islands is the Company’s only major tax jurisdiction. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of December 31, 2025 and 2024. The Company +F-9 +Table of Contents +is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. +There is currently no taxation imposed on income by the government of the Cayman Islands. In accordance with Cayman Islands federal income tax regulations, income taxes are not levied on the Company. Consequently, income taxes are not reflected in the Company’s financial statements. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months. +Net Income per Ordinary Share +The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” The Company has two classes of shares, (i) Class A Ordinary Shares and non-redeemable Class A Ordinary Shares and (ii) Class B ordinary shares, par value of $ 0.0001 per share (the “Class B Ordinary Shares,” and together with the Class A Ordinary Shares, the “Ordinary Shares”). Income and losses are shared pro rata between the two classes of shares. Net income per Ordinary Share is calculated by dividing the net income by the weighted average shares of Ordinary Shares outstanding for the respective period. +The calculation of diluted net income does not consider the effect of the Public Warrants underlying the Units sold in the Initial Public Offering (including the consummation of the over-allotment) and the Private Placement Warrants to purchase an aggregate of 6,000,000 shares of Class A Ordinary Shares in the calculation of diluted income per ordinary share, because their exercise is contingent upon future events. As a result, diluted net income per Ordinary Share is the same as basic net income per Ordinary Share for the year ended December 31, 2025 and 2024. Accretion associated with the redeemable Class A Ordinary Shares is excluded from earnings per share as the redemption value approximates fair value. +The following table reflects the calculation of basic and diluted net income per Ordinary Share (in dollars, except per share amounts): +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +For the Years Ended December 31, +​ +​ +2025 +​ +2024 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Class A +​ ​ +Class B +​ ​ ​ +Class A +​ ​ ​ +Class B +Basic and diluted net income per ordinary share +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Numerator: +​ +​ +​ +​ +​ +​ +​ +​ +​ +Allocation of net income, as adjusted +​ +$ +6,415,560 +​ +$ +1,603,890 +​ +$ +3,592,135 +​ +$ +1,641,350 +Denominator: +​ +​ +​ +​ +​ +​ +​ +​ +Basic weighted average shares outstanding +​ +23,000,000 +​ +5,750,000 +​ +11,783,562 +​ +5,384,247 +Basic net income per ordinary share +​ +$ +0.28 +​ +$ +0.28 +​ +$ +0.30 +​ +$ +0.30 +​ +Concentration of Credit Risk +Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal Deposit Insurance Corporation coverage limit of $250,000. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company’s financial condition, results of operations, and cash flows. +Fair Value of Financial Instruments +The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC 820, “Fair Value Measurements,” approximates the carrying amounts represented in the balance sheets, primarily due to their short-term nature. +Warrant Instruments +The Company accounts for the Public Warrants and Private Placement Warrants issued in connection with the Initial Public Offering and the private placement in accordance with the guidance contained in FASB ASC Topic 815, “Derivatives and Hedging”. Accordingly, the Company evaluated and classified the warrant instruments under equity treatment at their assigned values. +​ +F-10 +Table of Contents +Recent Accounting Standards +In November 2024, the FASB issued Accounting Standards Update (“ASU”) 2024-03, “Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses”, requiring public entities to disclose additional information about specific expense categories in the notes to the financial statements on an interim and annual basis. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2024-03. +Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements. +NOTE 3. INITIAL PUBLIC OFFERING +Pursuant to the Initial Public Offering, the Company sold 23,000,000 Units, which includes the full exercise by the underwriters of their over-allotment option in the amount of 3,000,000 Units, at a price of $ 10.00 per Unit. Each Unit consists of one Class A ordinary share and one -half of one redeemable Public Warrant. Each Public Warrant entitles the holder to purchase one Class A ordinary share at a price of $ 11.50 per share, subject to adjustment (see Note 7). +NOTE 4. PRIVATE PLACEMENT +Simultaneously with the closing of the Initial Public Offering, the Sponsor and Cantor Fitzgerald & Co. purchased an aggregate of 6,000,000 Private Placement Warrants, at a price of $ 1.00 per Private Placement Warrant, or $ 6,000,000 in the aggregate, in a private placement. Of those 6,000,000 Private Placement Warrants, the Sponsor purchased 4,000,000 Private Placement Warrants and Cantor Fitzgerald & Co. purchased 2,000,000 Private Placement Warrants. +Each whole Private Placement Warrant is exercisable for one whole Class A Ordinary Share at a price of $ 11.50 per share. A portion of the proceeds from the sale of the Private Placement Warrants was added to the proceeds from the Initial Public Offering to be held in the Trust Account. If the Company does not complete a Business Combination within the Combination Period, the Private Placement Warrants will expire worthless. +The Sponsor and the Company’s officers and directors have agreed, subject to limited exceptions, not to transfer, assign or sell any of their Private Placement Warrants until 30 days after the completion of the initial Business Combination. +NOTE 5. RELATED PARTY TRANSACTIONS +Founder Shares +On November 24, 2021, the Sponsor paid $ 25,000 to cover for certain expenses on behalf of the Company in exchange for issuance of 7,187,500 Class B Ordinary Shares, par value $ 0.0001 per share (the “Founder Shares”). On February 8, 2024, the Sponsor surrendered 1,437,500 Founder Shares for no consideration, resulting in the Sponsor holding 5,750,000 Founder Shares. All share and per-share amounts have been retroactively restated to reflect the share capitalization. The holders of the Founder Shares agreed to forfeit and cancel up to an aggregate of 750,000 Founder Shares, on a pro rata basis, to the extent that the option to purchase additional Units was not exercised in full by the underwriters. The forfeiture would be adjusted to the extent that the option to purchase additional Units was not exercised in full by the underwriters so that the Founder Shares would represent approximately 20 % of the Company’s issued and outstanding shares after the Initial Public Offering. On June 27, 2024, the underwriters exercised their over-allotment option in full as part of the closing of the Initial Public Offering. As such, the 750,000 Founder Shares are no longer subject to forfeiture. +On June 7, 2024, the Sponsor transferred 30,000 Founder Shares to each of the Company’s three independent directors, Louis Bélanger-Martin, Kenneth Weinstein, and Fred Zeidman, for an aggregate of 90,000 Founder Shares, at a price of $ 0.003 per share. Each independent director paid $ 90 or an aggregate purchase price of $ 270 in consideration of the assignment of shares. The sale of the Founder Shares to each of the Company’s three independent directors is in the scope of FASB ASC Topic 718, “Compensation-Stock Compensation” (“ASC 718”). Under ASC 718, stock-based compensation associated with equity-classified awards is measured at fair value upon the grant date. The fair value of the 90,000 shares granted to the Company’s three independent directors was $ 107,100 or $ 1.19 per share. The Founder Shares were granted subject to a performance condition (i.e., the occurrence of a Business Combination). Compensation expense related to the Founder Shares is recognized only when the performance condition is probable of occurrence +F-11 +Table of Contents +under the applicable accounting literature in this circumstance. As of December 31, 2025 and 2024, the Company determined that a Business Combination is not considered probable, and, therefore, no stock-based compensation expense has been recognized. Stock-based compensation would be recognized at the date a Business Combination is considered probable (i.e., upon consummation of a Business Combination) in an amount equal to the number of Founder Shares times the grant date fair value per share (unless subsequently modified) less the amount initially received for the purchase of the Founder Shares. +With certain limited exceptions, the Founder Shares are not transferable, assignable or salable (except to the Company’s officers and directors and other persons or entities affiliated with the Sponsor, each of whom will be subject to the same transfer restrictions) until the earlier to occur of (i) one year after the completion of the initial Business Combination or (ii) the date on which the Company completes a liquidation, merger, share exchange or other similar transaction after the initial Business Combination that results in all of the shareholders having the right to exchange their Class A Ordinary Shares for cash, securities or other property; except to certain permitted transferees and under certain circumstances as described herein. Any permitted transferees will be subject to the same restrictions and other agreements of the Initial Shareholders with respect to any Founder Shares. Notwithstanding the foregoing, if (1) the closing price of the Class A Ordinary Shares equals or exceeds $ 12.00 per share (as adjusted for share subdivisions, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within any 30 -trading day period commencing at least 150 days after the initial Business Combination or (2) if the Company consummates a transaction after the initial Business Combination which results in the shareholders having the right to exchange their shares for cash, securities or other property, the Founder Shares will be released from the lock-up. +Administrative Services Agreement +The Company entered into an agreement, commencing on June 25, 2024, through the earlier of consummation of the initial Business Combination and the liquidation, to pay an affiliate of the Sponsor $ 20,000 per month for office space, utilities and secretarial and administrative support services provided to members of the management team. For the years ended December 31, 2025 and 2024, the Company incurred administrative support services fees of $ 240,000 and $ 124,000 , respectively. The Company paid $ 120,000 and $ 124,000 during the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025 and 2024, the Company had outstanding accrued administrative support services fees of $ 120,000 and $ 0 , respectively, which are included in accrued expenses in the accompanying balance sheets. +In addition, the Sponsor, officers and directors, or their respective affiliates will be reimbursed for any out-of-pocket expenses incurred in connection with activities on the Company’s behalf such as identifying potential target businesses and performing due diligence on suitable Business Combinations. The Company’s audit committee will review on a quarterly basis all payments that were made by the Company to the Sponsor, executive officers or directors, or their affiliates. Any such payments prior to an initial Business Combination will be made using funds held outside the Trust Account. For the year ended December 31, 2025, the Company incurred $ 40,106 such expenses. For the year ended December 31, 2024, the Company did no t have any reimbursements. +Due from Sponsor +The Company paid the Sponsor $ 9,544 in excess of the outstanding promissory note balance at the closing of the Initial Public Offering. The excess payment was repaid by the Company as of December 31, 2024. There was no outstanding amount due from Sponsor as of December 31, 2024. +On June 28, 2024, the Sponsor paid $ 15,000 to a vendor to pay for certain accrued transaction expenses on behalf of the Company. Such payment cleared the amount due from Sponsor to the Company and created a net payable from the Company to the Sponsor in the amount of $ 5,696 . +On July 2, 2024, the Company paid the Sponsor an amount of $ 5,696 to clear all outstanding related party payables between the Company and the Sponsor. +On March 31, 2025, the Company paid an expense for the Sponsor an amount of $ 141 inadvertently. This was repaid in April 2025. +F-12 +Table of Contents +Due to Related Party +The Company’s Chief Executive Officer paid certain operating expenses on behalf of the Company. These amounts are payable and have been recorded as due to related party in the accompanying balance sheets. As of December 31, 2025, the outstanding balance related to these payments was $ 14,663 . +Related Party Loans +On November 20, 2021, as amended on February 9, 2024, the Sponsor agreed to loan the Company up to $ 300,000 pursuant to a promissory note (the “Note”). The Note is non-interest bearing, unsecured and due on the earlier of December 31, 2024 or the closing of the Initial Public Offering. The outstanding balance of $ 155,688 was repaid at the closing of the Initial Public Offering on June 27, 2024, and borrowings under the Note are no longer available. +In addition, in order to finance transaction costs in connection with a Business Combination, the Sponsor, members of the Company’s founding team or any of their affiliates may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. The Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $ 1.5 million of such Working Capital Loans may be converted into warrants of the post-Business Combination entity at a price of $ 1.00 per warrant. The warrants would be identical to the Private Placement Warrants. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. As of December 31, 2025 and 2024, the Company had no borrowings under the Working Capital Loans. +NOTE 6. COMMITMENTS AND CONTINGENCIES +Risks and Uncertainties +The United States and global markets are experiencing volatility and disruption following the geopolitical instability resulting from the ongoing Russia-Ukraine conflict, the recent escalation of the Israel-Hamas conflict, and continuing tensions between Israel and the U.S. with Iran. In response to the ongoing Russia-Ukraine conflict, the North Atlantic Treaty Organization (“NATO”) deployed additional military forces to eastern Europe, and the United States, the United Kingdom, the European Union and other countries have announced various sanctions and restrictive actions against Russia, Belarus and related individuals and entities, including the removal of certain financial institutions from the Society for Worldwide Interbank Financial Telecommunication payment system. Certain countries, including the United States, have also provided and may continue to provide military aid or other assistance to Ukraine and to Israel, increasing geopolitical tensions among a number of nations. The invasion of Ukraine by Russia, the escalation of the Israel-Hamas conflict, continuing tensions between Israel and the U.S. with Iran, and the resulting measures that have been taken, and could be taken in the future, by NATO, the United States, the United Kingdom, the European Union, Israel and its neighboring states and other countries have created global security concerns that could have a lasting impact on regional and global economies. Although the length and impact of the ongoing conflicts are highly unpredictable, they could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions and increased cyberattacks against U.S. companies. Additionally, any resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets. +Any of the above mentioned factors, or any other negative impact on the global economy, capital markets or other geopolitical conditions resulting from the Russian invasion of Ukraine, the escalation of the Israel-Hamas conflict, continuing tensions between Israel and the U.S. with Iran, and subsequent sanctions or related actions, could adversely affect the Company’s search for an initial Business Combination and any target business with which the Company may ultimately consummate an initial Business Combination. +Registration and Shareholder Rights +Commencing on June 25, 2024, the holders of the Founder Shares, Private Placement Warrants, and warrants that may be issued upon conversion of Working Capital Loans (and any Class A Ordinary Shares issuable upon the exercise of the Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans and upon conversion of the Founder Shares) are entitled to +F-13 +Table of Contents +registration rights pursuant to a registration and shareholder rights agreement requiring the Company to register a sale of any of the Company’s securities held by them prior to the consummation of the initial Business Combination. The holders of these securities are entitled to make up to three demands, excluding short form demands, that the Company registers such securities. In addition, the holders have certain piggyback registration rights with respect to registration statements filed subsequent to the completion of the initial Business Combination. The Company will bear the expenses incurred in connection with the filing of any such registration statements. +Underwriting Agreement +The Company granted the underwriters a 45 -day option from the date of the Initial Public Offering to purchase up to 3,000,000 additional Units to cover over-allotments, if any. On June 27, 2024, simultaneously with the closing of the Initial Public Offering, the underwriters elected to fully exercise the over-allotment option to purchase the additional 3,000,000 Units at a price of $ 10.00 per Unit. +The underwriters were entitled to an underwriting discount of $ 0.20 per Unit on Units other than those sold pursuant to the underwriters’ option to purchase additional Units, or $ 4,000,000 in the aggregate, paid upon the closing of the Initial Public Offering. In addition, the underwriters are entitled to a deferred fee of $ 0.40 per Unit on Units other than those sold pursuant to the underwriters’ option to purchase additional Units, and $ 0.60 per Unit on Units sold pursuant to the underwriters’ over-allotment option or $ 9,800,000 in the aggregate. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement. +NOTE 7. SHAREHOLDERS’ DEFICIT +Preference Shares — The Company is authorized to issue 1,000,000 preference shares with a par value of $ 0.0001 per share. As of December 31, 2025 and 2024, there were no preference shares issued or outstanding. +Class A Ordinary Shares — The Company is authorized to issue 400,000,000 Class A Ordinary Shares with a par value of $ 0.0001 per share. Holders of the Company’s Class A Ordinary Shares are entitled to one vote for each share. As of December 31, 2025 and 2024, there were no Class A Ordinary Shares issued or outstanding, excluding 23,000,000 Class A Ordinary Shares subject to possible redemption. +Class B Ordinary Shares — The Company is authorized to issue 80,000,000 Class B Ordinary Shares with a par value of $ 0.0001 per share. As of December 31, 2025 and 2024, there were 5,750,000 Class B Ordinary Shares issued and outstanding. Ordinary shareholders of record are entitled to one vote for each share held on all matters to be voted on by shareholders. Holders of Class A Ordinary Shares and holders of Class B Ordinary Shares will vote together as a single class on all matters submitted to a vote of the shareholders except as required by law. +The Class B Ordinary Shares will automatically convert into Class A Ordinary Shares concurrently with or immediately following the consummation of the initial Business Combination on a one -for-one basis, subject to adjustment for share subdivisions, share capitalizations, reorganizations, recapitalizations and the like, and subject to further adjustment as provided herein. In the case that additional Class A Ordinary Shares or equity-linked securities are issued or deemed issued in connection with the initial Business Combination, the number of Class A Ordinary Shares issuable upon conversion of all Founder Shares will equal, in the aggregate, 20 % of the total number of Class A Ordinary Shares outstanding after such conversion (after giving effect to any redemptions of Class A Ordinary Shares by Public Shareholders and not including the Class A Ordinary Shares underlying the Private Placement Warrants), including the total number of Class A Ordinary Shares issued, or deemed issued or issuable upon conversion or exercise of any equity-linked securities or rights issued or deemed issued, by the Company in connection with or in relation to the consummation of the initial Business Combination, excluding any Class A Ordinary Shares or equity-linked securities or rights exercisable for or convertible into Class A Ordinary Shares issued, or to be issued, to any seller in the initial Business Combination and any Private Placement Warrants issued to the Sponsor, officers or directors upon conversion of Working Capital Loans, provided that such conversion of Founder Shares will never occur on a less than one-for-one basis. +Warrants — As of December 31, 2025, there were 17,500,000 warrants outstanding, including 11,500,000 Public Warrants and 6,000,000 Private Placement Warrants. Public Warrants may only be exercised for a whole number of shares. No fractional Public Warrants will be issued upon separation of the Units and only whole Public Warrants will trade. The Public Warrants will become exercisable 30 days after the completion of a Business Combination; provided that the Company has an effective registration statement under the Securities Act covering the Class A Ordinary Shares issuable upon exercise of the Public Warrants and a current prospectus relating to them is available (or the Company permit holders to exercise their warrants on a cashless basis under certain circumstances). +F-14 +Table of Contents +The Company has agreed that as soon as practicable, but in no event later than 20 business days after the closing of the initial Business Combination, the Company will use commercially reasonable efforts to file with the SEC and have an effective registration statement covering the Class A Ordinary Shares issuable upon exercise of the warrants and to maintain a current prospectus relating to those Class A Ordinary Shares until the warrants expire or are redeemed, as specified in the warrant agreement. If a registration statement covering the Class A Ordinary Shares issuable upon exercise of the warrants is not effective by the 60th day after the closing of the initial Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding the above, if the Class A Ordinary Shares are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis” and, in the event the Company so elects, the Company will not be required to file or maintain in effect a registration statement, and in the event the Company does not so elect, it will use commercially reasonable efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. +The warrants have an exercise price of $ 11.50 per share, subject to adjustments, and will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation. In addition, if (x) the Company issues additional Class A Ordinary Shares or equity-linked securities for capital raising purposes in connection with the closing of the initial Business Combination at an issue price or effective issue price of less than $ 9.20 per Class A ordinary share (with such issue price or effective issue price to be determined in good faith by the board of directors and, in the case of any such issuance to the Initial Shareholders or their affiliates, without taking into account any Founder Shares held by the Initial Shareholders or such affiliates prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60 % of the total equity proceeds, and interest thereon, available for the funding of the initial Business Combination on the date of the consummation of the initial Business Combination (net of redemptions), and (z) the volume weighted average trading price of the Class A Ordinary Shares during the 20 trading day period starting on the trading day after the day on which the Company consummates the initial Business Combination (such price, the “Market Value”) is below $ 9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115 % of the higher of the Market Value and the Newly Issued Price, and the $ 18.00 per share redemption trigger price described under “Redemption of warrants for cash” will be adjusted (to the nearest cent) to be equal to 180 % of the higher of the Market Value and the Newly Issued Price. +The Private Placement Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Private Placement Warrants may not, subject to certain limited exceptions, be transferred, assigned or sold by the holders until 30 days after the completion of the Company’s initial Business Combination and will be entitled to registration rights. +Redemption of warrants for cash : Once the warrants become exercisable, the Company may redeem the outstanding warrants for cash: +● In whole and not in part; +● At a price of $ 0.01 per Public Warrant; +● Upon a minimum of 30 days ’ prior written notice of redemption; and +● If, and only if, the closing price of Class A Ordinary Shares equals or exceeds $ 18.00 per share (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like and for certain issuances of Class A Ordinary Shares and equity-linked securities for capital raising purposes in connection with the closing of the initial Business Combination) for any 20 trading days within a 30 - trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders. +​ +The Company will not redeem the warrants for cash unless a registration statement under the Securities Act covering the Class A Ordinary Shares issuable upon exercise of the warrants is then effective and a current prospectus relating to those Class A Ordinary Shares is available throughout the 30 -day redemption period. +If the Company calls the warrants for redemption for cash, as described above, the management will have the option to require all holders that wish to exercise the warrants to do so on a “cashless basis.” +If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless. +F-15 +Table of Contents +NOTE 8. FAIR VALUE MEASUREMENTS +The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities: +Level 1: +Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. +Level 2: +Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. +Level 3: +Unobservable inputs based on assessment of the assumptions that market participants would use in pricing the asset or liability. +At issuance, the fair value of Public Warrants was determined using Monte Carlo Simulation Model. The Public Warrants have been classified within shareholders’ deficit and will not require remeasurement after issuance. The following table presents the quantitative information regarding market assumptions used in the valuation of the Public Warrants: +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +June 27, 2024 +Calculated Share Price +​ +$ +9.97 +​ +Weighted-Average Expected Life of Warrants in Years +​ +2.71 +​ +Risk-free rate +​ +4.55 +% +Pre-Business Combination Annual Volatility +​ +3.0 +% +Post-Business Combination Annual Volatility +​ +32.0 +% +Market Pricing Adjustment +​ +14.0 +% +​ +At December 31, 2025 and 2024, assets held in the Trust Account were comprised of $ 245,609,352 and $ 235,764,764 in interest-bearing demand deposit at a bank. As of December 31, 2025 and 2024, the Company did not withdraw any amount of interest earned on the Trust Account. +​ +NOTE 9. SEGMENT INFORMATION +ASC Topic 280, “Segment Reporting,” establishes standards for companies to report in their financial statement information about operating segments, products, services, geographic areas, and major customers. Operating segments are defined as components of an enterprise for which separate financial information is available that is regularly evaluated by the Company’s chief operating decision maker (“CODM”), or group, in deciding how to allocate resources and assess performance. +The Company’s CODM has been identified as the Chief Financial Officer, who reviews the operating results for the Company as a whole to make decisions about allocating resources and assessing financial performance. Accordingly, management has determined that the Company only has one reportable segment. +The CODM assesses performance for the single segment and decides how to allocate resources based on net income that also is reported on the statements of operations as net income. The measure of segment assets is reported on the balance sheets as total assets. When evaluating the Company’s performance and making key decisions regarding resource allocation the CODM reviews several key metrics, which include the following: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +December 31, 2025 +​ ​ ​ +December 31, 2024 +Cash held in Trust Account +​ +$ +245,609,352 +​ +$ +235,764,764 +Cash +​ +$ +699 +​ +$ +479,628 +​ +F-16 +Table of Contents +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +For the Years Ended December 31, +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +General and administrative costs +​ +$ +1,825,138 +​ +$ +531,279 +Interest earned on cash held in Trust Account +​ +$ +9,844,588 +​ +$ +5,764,764 +​ +The CODM reviews interest earned on the Trust Account to measure and monitor shareholder value and determine the most effective strategy of investment with the Trust Account funds while maintaining compliance with the Investment Management Trust Agreement, dated June 25, 2024, by and between the Company and Continental Stock Transfer & Trust Company, as trustee. +General and administrative expenses are reviewed and monitored by the CODM to manage and forecast cash to ensure enough capital is available to complete a Business Combination or similar transaction within the Combination Period. The CODM also reviews general and administrative costs to manage, maintain and enforce all contractual agreements to ensure costs are aligned with all agreements and budget. general and administrative expenses, as reported on the statements of operations, are the significant segment expenses provided to the CODM on a regular basis. +All other segment items included in net income are reported on the statements of operations and described within their respective disclosures. +The accounting policies used to measure the profit and loss of the segment are the same as those described in the summary of significant accounting policies. +​ +NOTE 10. SUBSEQUENT EVENTS +The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements. +​ +​ +F-17 \ No newline at end of file diff --git a/raw/filings/0001897463/2025/0001104659-26-058645/filing_metadata.csv b/raw/filings/0001897463/2025/0001104659-26-058645/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..27dcbc5614f0ad19b45b5b16eb5d9280adf55fa6 --- /dev/null +++ b/raw/filings/0001897463/2025/0001104659-26-058645/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001897463,GRAF-WT,Graf Global Corp.,2025,10-K,2026-05-11,2025-12-31,2026-05-11T20:07:22.000Z,0001104659-26-058645,tmb-20251231x10k.htm,10-K,5136886,1,1,https://www.sec.gov/Archives/edgar/data/1897463/000110465926058645/tmb-20251231x10k.htm,https://www.sec.gov/Archives/edgar/data/1897463/000110465926058645/ diff --git a/raw/filings/0001897463/2025/0001104659-26-058645/item1.txt b/raw/filings/0001897463/2025/0001104659-26-058645/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..d8a98bc363bb3ad59ada0316c305e59e9e73ebfa --- /dev/null +++ b/raw/filings/0001897463/2025/0001104659-26-058645/item1.txt @@ -0,0 +1,166 @@ +Item 1. Business +References in this Form 10-K to “we,” “us,” “our” or the “Company” refer to Graf Global Corp. References to our “management” or our “management team” refer to our officers and directors. +Introduction +We are a blank check company incorporated on November 17, 2021 as a Cayman Islands exempted company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”). We have 24 months from the closing of our initial public offering, or until such earlier liquidation date as our board of directors may approve (the “Completion Window”) to complete our initial Business Combination. +We have reviewed, and continue to review, a number of opportunities to enter into a Business Combination, but we are not able to determine at this time whether we will complete a Business Combination with any of the target businesses that we have reviewed or with any other target business. We may pursue an acquisition opportunity in any industry or geographic location. We also have neither engaged in any operations nor generated any revenue to date. Based on our business activities, the Company is a “shell company” as defined under the Exchange Act of 1934 (the “Exchange Act”) because we have no operations and nominal assets consisting almost entirely of cash. +The registration statement for our initial public offering was declared effective on June 25, 2024. On June 27, 2024, we consummated the initial public offering of 23,000,000 units (the “Units” and, with respect to the Class A ordinary shares, par value $0.0001 per share, included in the Units being offered, the “Public Shares” or “Class A Ordinary Shares”), which includes the full exercise by the underwriters of their over-allotment option in the amount of 3,000,000 Units, at $10.00 per Unit, generating gross proceeds of $230,000,000. Each Unit consists of one Class A Ordinary Share and one-half of one redeemable warrant of the Company (the “Public Warrants”), with each whole warrant entitling the holder thereof to purchase one Class A Ordinary Share at $11.50 per share. +Simultaneously with the closing of our initial public offering, we consummated the sale of an aggregate of 6,000,000 warrants (the “Private Placement Warrants”) at a price of $1.00 per Private Placement Warrant, in a private placement to the Company’s sponsor, Graf Global Sponsor LLC, a Delaware limited liability company (the “Sponsor”), and Cantor Fitzgerald & Co. (“Cantor”), the representative of the underwriters of the initial public offering, generating gross proceeds of $6,000,000. +Prior to the consummation of our initial public offering, on November 24, 2021, our Sponsor paid an aggregate of $25,000 for certain expenses on our behalf in exchange for the issuance of 7,187,500 Class B ordinary shares, par value $0.0001 per share (the “Founder Shares” or “Class B Ordinary Shares”). On February 8, 2024, the Sponsor surrendered 1,437,500 Founder Shares for no consideration, resulting in the Sponsor holding 5,750,000 Founder Shares. The number of Founder Shares issued was determined based on the expectation that such Founder Shares would represent 20% of the outstanding shares after the initial public offering. +Following the closing of the initial public offering, on June 27, 2024, an amount of $230,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units and the sale of the Private Placement Warrants was placed in the trust account (the “Trust Account”), with Continental Stock Transfer & Trust Company acting as trustee, to be held as cash or invested only in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended (the “Investment Company Act”), which invest only in direct U.S. government treasury obligations, until the earlier of (i) the completion of a Business Combination and (ii) the distribution of the Trust Account as described below. To mitigate the risk that we might be deemed to be an investment company for purposes of the Investment Company Act, which risk increases the longer that the Company holds investments in the Trust Account, the Company may, at any time in its own discretion, instruct the trustee to liquidate the investments held in the Trust Account and instead to hold the funds in the Trust Account in an interest bearing bank demand deposit account. +1 +Table of Contents +Effecting our Initial Business Combination +General +We are not presently engaged in, and we will not engage in, any operations for an indefinite period of time. We intend to effectuate our initial Business Combination using cash from the proceeds of our initial public offering, the sale of the Private Placement Warrants, the proceeds of the sale of our shares in connection with our initial Business Combination (including pursuant to forward purchase agreements or backstop agreements we may enter into following the consummation of the initial public offering or otherwise), shares issued to the owners of the target, debt issued to bank or other lenders or the owners of the target, or a combination of the foregoing. We may seek to complete our initial Business Combination with a company or business that may be financially unstable or in its early stages of development or growth, which would subject us to the numerous risks inherent in such companies and businesses. +Business Strategy +Our strategy is to leverage our team’s extensive track record in SPAC-related mergers and acquisitions and capital markets to identify and complete an initial Business Combination. We may pursue an acquisition opportunity in any industry or geographic location. +We intend to distinguish ourselves from other SPAC sponsor teams through four key dimensions of experience: +● Our ability to leverage an extensive global network of relationships to create a pipeline of initial Business Combination opportunities, as well as being a priority contact for bankers and other advisors seeking SPAC partners for their clients. Prior to our initial public offering, we had not, nor had anyone on our behalf, engaged in any substantive discussions, directly or indirectly, with any Business Combination target with respect to an initial Business Combination with us. However, members of our management team had been actively in discussions with potential Business Combination partners in their capacity as officers and directors of Graf Industrial Corp. (“GRAF I”) (which consummated its initial business combination on September 29, 2020) and Graf Acquisition Corp. IV (“GRAF IV” and, together with GRAF I, the “GRAF SPACs”) (which consummated its initial business combination on October 2, 2023), and we may pursue Business Combination partners that had previously been in discussions with the management teams of the GRAF SPACs; +● Unique capabilities and rigor to the process of identifying, executing and consummating an initial Business Combination that will be well-received in the public markets, with the ability to provide ongoing support thereafter; +● Our understanding of global financial markets and events, financing and overall corporate strategy options; and +● Our background as business founders, investors and managers. +Business Combination Criteria +Based on our management’s experience, including with prior special purpose acquisition companies, we have developed the following non-exclusive investment criteria that we intend to use to screen for and evaluate prospective target businesses. +● Leading Industry Position with Supportive Long-Term Dynamics and Competitive Market Advantage . We intend to target businesses that hold, or have the potential to hold, a leading position in an industry sector with attractive macro-characteristics. We intend to target businesses that have, or have the potential to have, sustainable competitive advantages that would be challenging for a competitor to replicate. Factors contributing to sustainable competitive advantages may include: (iii) proprietary or superior technology or trade secrets; (ii) broad distribution networks; (iii) well- established brand names; (iv) territorial exclusivity or a well-defined market; (v) diverse and stable customer and supplier base; (vi) low-cost production capability; (vii) customer habit/ share of mind; (viii) a lack of available substitutes and/or high search or switching costs; (ix) network effects; and/or (x) limited exposure to technological obsolescence and cyclicality. Our management team expects to target businesses that have clearly demonstrated an ability to defend and grow their market positions over time as a result of one or more of these sustainable competitive advantages, or have demonstrable potential to do so. We intend to seek opportunities that will benefit from secular growth and are able to differentiate their market position to create value for our shareholders over time. +2 +Table of Contents +● Stable Free Cash Flow, Prudent Debt and Financial Visibility . We will seek to acquire a business that has historically generated or has the potential to generate not only current revenues, but strong and sustainable free cash flow. Additionally, our prospective Business Combination criteria includes prudent balance sheet management and, as such, we would seek to limit leverage ratios of a combined company immediately following an initial Business Combination. To provide reliable guidance, we would also seek to acquire a business that has reasonable visibility on forward financial performance and straightforward operating metrics, and a business that is not extremely sensitive to macro- economic conditions or industry cycles. Specifically, we would prioritize businesses that may be evaluated and priced by the market using financial metrics or other key milestones not more than one year forward. +● Benefit Uniquely from a Business Combination with a Special Purpose Acquisition Company . We will seek to acquire a business that has a clear use of proceeds and a clear catalyst or inflection point resulting from our capital, team, public listing, roll-up synergies, deleveraging and/or re-rating milestones expected to propel the business through our structural dilution in the near term with enhanced financial results, margins, market position and shareholder value. +● Would Benefit Uniquely from our Capabilities . We will seek to acquire a business where the collective capabilities of our management team, board of directors and Sponsor, and any operating partners we involve, can be leveraged to tangibly improve the operations and market position of the target. +● Proprietary and/or Optimally Positioned Transactions . We intend to leverage our extensive business network to source our initial Business Combination on a proprietary basis if possible. Notwithstanding the foregoing, we would utilize our collective experience and insight to strategically consider participating in formal processes focused primarily on narrowing a pool of SPACs to a single winning bidder to instances where we believe we are optimally positioned to win such processes. +● Committed and Capable Management Team . We will seek to acquire a business with a management team whose interests are aligned with those of our shareholders and who can clearly and confidently articulate the business plan and market opportunities to public market investors. Where necessary, we may also look to complement and enhance the capabilities of the target business’s management team and their board of directors by recruiting additional talent through our network of contacts or otherwise. This may include recruiting experienced industry professionals, or operating partners, to assist in our evaluation of the opportunity and marketing of the Business Combination prior to its completion, who may assume an ongoing role with the business or board thereafter. While not a requirement, we would view favorably opportunities where the target’s chief financial officer has experience as a public company chief financial officer or other substantive public market experience, and ideally where other members of senior management have public market experience as well. +● Potential to Grow, Including Through Further Acquisition Opportunities . We will seek to acquire a business that has the potential to grow both organically and inorganically through acquisitions, with management having identified a pipeline of potentially actionable accretive acquisition targets. We expect to work with the ongoing management team to develop the business strategy around geographic expansion, new products, high-return capital expenditure projects and acquisitions, as well as creating and maintaining the optimal capital structure for growth. +● Preparedness for the Process and Public Markets . We will seek to acquire a business that has or can put in place prior to the closing of a Business Combination, the material governance, financial systems and controls required in the public markets. Specifically, we will seek to avoid situations where extensive accounting or restructuring work is required with an uncertain timetable or outcome before a transaction can be completed. +These criteria are not intended to be exhaustive or exclusive. Any evaluation relating to the merits of a particular initial Business Combination may be based, to the extent relevant, on these general guidelines as well as other considerations, factors and criteria that our management may deem relevant. In the event that we decide to enter into our initial Business Combination with a target business that does not meet the above criteria and guidelines, we intend to disclose that the target business does not meet the above criteria in our shareholder communications related to our initial Business Combination, which would be in the form of proxy solicitation materials or tender offer documents that we would file with the SEC. +3 +Table of Contents +Selection of a Target Business and Structuring of our Initial Business Combination +We will provide our public shareholders with the opportunity to redeem all or a portion of their Class A Ordinary Shares upon the completion of our initial Business Combination either (i) in connection with a general meeting called to approve the Business Combination or (ii) without a shareholder vote by means of a tender offer. Each public shareholder may elect to redeem their Public Shares irrespective of whether they vote for or against an initial Business Combination, or whether they do not vote or abstain from voting on the initial Business Combination. If we seek shareholder approval, we will complete our initial Business Combination only if we receive an ordinary resolution under Cayman Islands law, passed by the affirmative vote of at least a majority of the votes cast by the shareholders of the issued shares represented in person or represented by proxy and entitled to vote on such matter at a general meeting of the company and are voted at a general meeting of the Company. The decision as to whether we will seek shareholder approval of a proposed Business Combination or conduct a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would require us to seek shareholder approval under applicable law or stock exchange listing requirement. +We have until the end of the Completion Window to consummate our initial Business Combination. If we anticipate that we may be unable to consummate our initial Business Combination within such 24-month period, we may seek shareholder approval to amend our amended and restated memorandum and articles of association to extend the date by which we must consummate our initial Business Combination. If we seek shareholder approval for an extension, holders of Class A Ordinary Shares will be offered an opportunity to redeem their shares at a per share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned thereon (less taxes payable), divided by the number of then issued and outstanding Class A Ordinary Shares, subject to applicable law. +If we are unable to complete our initial Business Combination within the Completion Window, we will redeem 100% of the Public Shares at a per share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned thereon (which interest shall be net of taxes payable and up to $100,000 of interest income to pay liquidation expenses), divided by the number of then issued and outstanding Class A Ordinary Shares, subject to applicable law and certain conditions as further described herein. We expect the pro rata redemption price to be approximately $10.00 per public share, without taking into account any interest or other income earned on such funds. However, we cannot assure you that we will in fact be able to distribute such amounts as a result of claims of creditors, which may take priority over the claims of our public shareholders. +NYSE American rules require that we must consummate one or more business combinations having a fair market value equal to at least 80% of the value of the Trust Account (excluding the amount of any deferred underwriting commissions and taxes payable on the income earned on the Trust Account) at the time of our signing a definitive agreement in connection with our initial Business Combination. Our board of directors will make the determination as to the fair market value of our initial Business Combination. If our board of directors is not able to independently determine the fair market value of our initial Business Combination, we will obtain an opinion from an independent investment banking firm or another independent valuation or appraisal firm that regularly provides fairness opinions solely with respect to the satisfaction of such criteria. While we consider it unlikely that our board will not be able to make such independent determination of fair market value, it may be unable to do so if the board is less familiar or experienced with the target company’s business, there is a significant amount of uncertainty as to the value of the company’s assets or prospects, including if such company is at an early stage of development, operations or growth, or if the anticipated transaction involves a complex financial analysis or other specialized skills and the board determines that outside expertise would be helpful or necessary in conducting such analysis. Since any opinion, if obtained, would merely state that the fair market value meets the 80% test, unless such opinion includes material information regarding the valuation of a target business or the consideration to be provided, it is not anticipated that copies of such opinion would be distributed to our shareholders. However, if required under applicable law, any proxy statement that we deliver to shareholders and file with the SEC in connection with a proposed transaction will include such opinion. +4 +Table of Contents +We anticipate structuring our initial Business Combination so that the post-transaction company in which our public shareholders own shares will own or acquire 100% of the equity interests or assets of the target business or businesses. We may, however, structure our initial Business Combination such that the post-transaction company owns or acquires less than 100% of such interests or assets of the target business in order to meet certain objectives of the target management team or shareholders or for other reasons, but we will only complete such Business Combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act. Even if the post-transaction company owns or acquires 50% or more of the voting securities of the target, our shareholders prior to the Business Combination may collectively own a minority interest in the post-transaction company, depending on valuations ascribed to the target and us in the Business Combination transaction. For example, we could pursue a transaction in which we issue a substantial number of new shares in exchange for all of the outstanding capital stock of a target. In this case, we would acquire a 100% controlling interest in the target. However, as a result of the issuance of a substantial number of new shares, our shareholders immediately prior to our initial Business Combination could own less than a majority of our outstanding shares subsequent to our initial Business Combination. If less than 100% of the equity interests or assets of a target business or businesses are owned or acquired by the post-transaction company, the portion of such business or businesses that is owned or acquired is what will be taken into account for purposes of the NYSE American’s 80% test. If the Business Combination involves more than one target business, the 80% test will be based on the aggregate value of all of the target businesses. +Our Business Combination Process +We believe our management team’s significant operating and transactional experience and relationships provide us with access to a substantial number of potential initial Business Combination targets. Over the course of their careers, the members of our management team have developed a broad network of contacts and relationships with private companies, investment bankers, private equity and debt investors, high net worth families and their advisors, commercial bankers, attorneys, management consultants, accountants and other transaction intermediaries, as well as corporate sector executives and board members around the world. This network has grown through the activities of our management team sourcing, acquiring and financing businesses, the reputation of our management team for integrity and fair dealing with sellers, financing sources and target management teams and the experience of our management team in executing transactions, especially special purpose acquisition company transactions, under varying economic and financial market conditions. +In addition, we anticipate that target Business Combination candidates will be brought to our attention from various unaffiliated sources, including investment bankers, private equity funds and large business enterprises seeking to divest non-core assets or divisions. +In evaluating a prospective target business, we expect to conduct a due diligence review which may encompass, among other things, meetings with incumbent management and employees, document reviews, interviews of customers and suppliers, inspections of facilities, as well as reviewing financial and other information made available to us and other reviews as we deem appropriate. We may also retain consultants with expertise relating to a prospective target business. +We are not prohibited from pursuing an initial Business Combination with a company that is affiliated with our Sponsor, executive officers or directors, or completing an initial Business Combination through a joint venture or other form of shared ownership with our Sponsor, executive officers or directors. In the event we seek to complete an initial Business Combination with a target that is affiliated (as defined in our amended and restated memorandum and articles of association) with our Sponsor, executive officers or directors, we, or a committee of independent directors, would obtain an opinion from an independent investment banking firm which is a member of FINRA or another independent entity that commonly renders valuation opinions stating that the consideration to be paid by us in such an initial Business Combination is fair to our company from a financial point of view. We are not required to obtain such an opinion in any other context. +5 +Table of Contents +Members of our management team and our independent directors directly or indirectly own Founder Shares and/or Private Placement Warrants and, accordingly, may have a conflict of interest in determining whether a particular target business is an appropriate business with which to effectuate our initial Business Combination. In addition, certain of our officers and directors are members of our Sponsor and own membership interests of our Sponsor. The remaining membership interests are held by third party investors that are not affiliated with members of our management. The low price that our Sponsor, executive officers and directors (directly or indirectly) paid for the Founder Shares creates an incentive whereby our officers and directors could potentially make a substantial profit even if we select an acquisition target that subsequently declines in value and is unprofitable for public shareholders. If we are unable to complete our initial Business Combination within the Completion Window, the Founder Shares and Private Placement Warrants may expire, except to the extent they receive liquidating distributions from assets outside the Trust Account, which could create an incentive for our Sponsor, executive officers and directors to complete a transaction even if we select an acquisition target that subsequently declines in value and is unprofitable for public shareholders. Further, each of the members of our management team may have a conflict of interest with respect to evaluating a particular Business Combination if the retention or resignation of any such person was included by a target business as a condition to any agreement with respect to our initial Business Combination. +Our officers and directors presently and in the future may have additional, fiduciary or contractual obligations to other entities pursuant to which such officer or director is or will be required to present a Business Combination opportunity. Accordingly, if any of our officers or directors becomes aware of a Business Combination opportunity which is suitable for an entity to which he or she has then-current fiduciary or contractual obligations, he or she will honor his or her fiduciary or contractual obligations to present such opportunity to such other entity, subject to their fiduciary duties under Cayman Islands law. We do not believe, however, that the fiduciary duties or contractual obligations of our officers or directors will materially affect our ability to complete our Business Combination. +In addition, our Sponsor and our officers and directors or any of their affiliates may sponsor or form other special purpose acquisition companies similar to ours or may pursue other business or investment ventures during the period in which we are seeking an initial Business Combination. Any such companies, businesses or investments may present additional conflicts of interest in pursuing an initial Business Combination. However, we do not believe that such duties or obligations will materially affect our ability to complete our initial Business Combination. +Our amended and restated memorandum and articles of association provide that, to the fullest extent permitted by applicable law: (i) no individual serving as a director or an officer shall have any duty, except and to the extent expressly assumed by contract, to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as us, and (ii) we renounce any interest or expectancy in, or in being offered an opportunity to participate in, any potential transaction or matter which may be a corporate opportunity for any director or officer, on the one hand, and us, on the other. The purpose for the surrender of corporate opportunities is to allow officers, directors or other representatives with multiple business affiliations to continue to serve as an officer of our company or on our board of directors. Our officers and directors may from time to time be presented with opportunities that could benefit both another business affiliation and us. In the absence of the “corporate opportunity” waiver in our charter, certain candidates would not be able to serve as an officer or director. We believe we substantially benefit from having representatives who bring significant, relevant and valuable experience to our management, and, as a result, the inclusion of the “corporate opportunity” waiver in our amended and restated memorandum and articles of association provide us with greater flexibility to attract and retain the officers and directors that we feel are the best candidates. We do not believe, however, that the fiduciary duties or contractual obligations of our officers or directors will materially affect our ability to complete our initial business. +Financial Position +With funds available for a Business Combination initially in the amount of $230,000,000, we offer a target business a variety of options such as creating a liquidity event for its owners, providing capital for the potential growth and expansion of its operations or strengthening its balance sheet by reducing its debt ratio. Because we are able to complete our initial Business Combination using our cash, debt or equity securities, or a combination of the foregoing, we have the flexibility to use the most efficient combination that will allow us to tailor the consideration to be paid to the target business to fit its needs and desires. However, we have not taken any steps to secure third party financing and there can be no assurance it will be available to us. +6 +Table of Contents +Lack of Business Diversification +For an indefinite period of time after the completion of our initial Business Combination, the prospects for our success may depend entirely on the future performance of a single business. Unlike other entities that have the resources to complete Business Combinations with multiple entities in one or several industries, it is probable that we will not have the resources to diversify our operations and mitigate the risks of being in a single line of business in a single industry. By completing our initial Business Combination with only a single entity, our lack of diversification may: +● subject us to negative economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact on the particular industry in which we operate after our initial Business Combination; and +● cause us to depend on the marketing and sale of a single product or limited number of products or services. +Limited Ability to Evaluate the Target’s Management Team +Although we intend to closely scrutinize the management of a prospective target business when evaluating the desirability of effecting our initial Business Combination with that business, our assessment of the target business’ management may not prove to be correct. In addition, the future management may not have the necessary skills, qualifications or abilities to manage a public company. Furthermore, the future role of members of our management team, if any, in the target business cannot presently be stated with any certainty. The determination as to whether any of the members of our management team will remain with the combined company will be made at the time of our initial Business Combination. While it is possible that one or more of our directors will remain associated in some capacity with us following our initial Business Combination, it is unlikely that any of them will devote their full efforts to our affairs subsequent to our initial Business Combination. Moreover, we cannot assure you that members of our management team will have significant experience or knowledge relating to the operations of the particular target business. +We cannot assure you that any of our key personnel will remain in senior management or advisory positions with the combined company. The determination as to whether any of our key personnel will remain with the combined company will be made at the time of our initial Business Combination. +Following a Business Combination, we may seek to recruit additional personnel to supplement the incumbent management of the target business. We cannot assure you that we will have the ability to recruit additional people, or that the individuals that we do recruit will have the requisite skills, knowledge or experience necessary to enhance the incumbent management. +Shareholders May Not Have the Ability to Approve our Initial Business Combination +We may conduct redemptions without a shareholder vote pursuant to the tender offer rules of the SEC subject to the provisions of our amended and restated memorandum and articles of association. However, we will seek shareholder approval if it is required by law or applicable stock exchange rule, or we may decide to seek shareholder approval for business or other legal reasons. +Under the NYSE American’s listing rules, shareholder approval would be required for our initial Business Combination if, for example: +● we issue ordinary shares, or securities convertible into ordinary shares, that will be equal to or in excess of 20% of the number of our ordinary shares then issued and outstanding (other than in a public offering); +● any of our directors, officers or substantial shareholders (as defined by NYSE American rules) has a 5% or greater interest (or such persons collectively have a 10% or greater interest), directly or indirectly, in the target business or assets to be acquired or otherwise and the present or potential issuance of ordinary shares, or securities convertible into ordinary shares, could result in an increase in outstanding ordinary shares of 5% or more; or +● the issuance or potential issuance of ordinary shares will result in our undergoing a change of control. +7 +Table of Contents +The decision as to whether we will seek shareholder approval of a proposed Business Combination in those instances in which shareholder approval is not required by applicable law or stock exchange listing requirements will be made by us, solely in our discretion, and will be based on business and legal reasons, which include a variety of factors, including, but not limited to: (i) the timing of the transaction, including in the event we determine shareholder approval would require additional time and there is either not enough time to seek shareholder approval or doing so would place the company at a disadvantage in the transaction or result in other additional burdens on the company; (ii) the expected cost of holding a shareholder vote; (ii) the risk that the shareholders would fail to approve the proposed Business Combination; (iv) other time and budget constraints of the company; and (v) additional legal complexities of a proposed Business Combination that would be time-consuming and burdensome to present to shareholders. +Permitted Purchases of our Securities +If we seek shareholder approval of our initial Business Combination and we do not conduct redemptions in connection with our initial Business Combination pursuant to the tender offer rules, our Sponsor, initial shareholders, directors, executive officers, advisors or their affiliates may purchase Public Shares or Public Warrants in privately negotiated transactions or in the open market either prior to or following the completion of our initial Business Combination, although they are under no obligation or duty to do so. With respect to purchases of our Public Shares, any such price per share may be different than the amount per share a public shareholder would receive if it elected to redeem its shares in connection with our initial Business Combination. Such a purchase of our Public Shares may include a contractual acknowledgment that such shareholder, although still the record holder of our shares is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that our Sponsor, initial shareholders, directors, officers, advisors or their affiliates purchase Public Shares in privately negotiated transactions from public shareholders who have already elected to exercise their redemption rights, such selling shareholders would be required to revoke their prior elections to redeem their shares. It is intended that, if Rule 10b - 18 would apply to purchases by Sponsor, initial shareholders, directors, officers, advisors and their affiliates, then such purchases will comply with Rule 10b - 18 under the Exchange Act, to the extent it applies, which provides a safe harbor for purchases made under certain conditions, including with respect to timing, pricing and volume of purchases. +Additionally, at any time at or prior to our initial Business Combination, subject to applicable securities laws (including with respect to material nonpublic information), our Sponsor, initial shareholders, directors, officers, advisors and their affiliates may enter into transactions with investors and others to provide them with incentives to acquire Public Shares, vote their Public Shares in favor of our initial Business Combination or not redeem their Public Shares. However, they have no current commitments, plans or intentions to engage in such transactions and have not formulated any terms or conditions for any such transactions. None of the funds in the Trust Account will be used to purchase Public Shares or Public Warrants in such transactions . +The purpose of any such transaction could be to (i) increase the likelihood of obtaining shareholder approval of the Business Combination, (ii) reduce the number of Public Warrants outstanding and/or increase the likelihood of approval on any matters submitted to Public Warrant holders for approval in connection with our initial Business Combination or (iii) to satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain amount of cash at the closing of our initial Business Combination, where it appears that such requirement would otherwise not be met. Any such purchases of our securities may result in the completion of our initial business combination that may not otherwise have been possible. +In addition, if such purchases are made, the public “float” of our Class A Ordinary Shares or Public Warrants may be reduced and the number of beneficial holders of our securities may be reduced, which may make it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities exchange. +Our Sponsor, initial shareholders, officers, directors and/or their affiliates anticipate that they may identify the shareholders with whom our initial shareholders, officers, directors or their affiliates may pursue privately negotiated purchases by either the shareholders contacting us directly or by our receipt of redemption requests submitted by shareholders (in the case of Class A Ordinary Shares) following our mailing of proxy materials in connection with our initial Business Combination. To the extent that our Sponsor, officers, directors, advisors or their affiliates enter into a private purchase, they would identify and contact only potential selling shareholders who have expressed their election to redeem their shares for a pro rata share of the Trust Account or vote against our initial Business Combination, whether or not such shareholder has already submitted a proxy with respect to our initial Business Combination but only if such shares have not already been voted at the shareholder meeting related to our initial Business Combination. Our Sponsor, executive officers, directors, advisors or any of their affiliates will select which shareholders to purchase shares from based on a negotiated price and number of shares and any other factors that they may deem relevant and will only purchase shares if such purchases comply with Regulation M under the Exchange Act and the other federal securities laws. Our Sponsor, officers, directors and/or their affiliates will be restricted from making purchases of shares if the purchases would violate Section 9(a)(2) or Rule 10b-5 of the Exchange Act. We expect any such purchases will be reported pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchases are subject to such reporting requirements. +8 +Table of Contents +Our Sponsor, initial shareholders, directors, officers and their affiliates will be restricted from making purchases of shares if the purchases would violate Section 9(a)(2) or Rule 10b-5 of the Exchange Act. Any such purchases will be reported pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchasers are subject to such reporting requirements. Additionally, in the event our Sponsor, initial shareholders, directors, officers and their affiliates were to purchase Public Shares or Public Warrants from public shareholders, such purchases would be structured in compliance with the requirements of Rule 14e-5 under the Exchange Act including, in pertinent part, through adherence to the following: +● our registration statement/proxy statement filed for our Business Combination transaction would disclose the possibility that our Sponsor, initial shareholders, directors, officers and their affiliates may purchase Public Shares or Public Warrants from public shareholders outside the redemption process, along with the purpose of such purchases; +● if our Sponsor, initial shareholders, directors, officers and their affiliates were to purchase Public Shares or Public Warrants from public shareholders, they would do so at a price no higher than the price offered through our redemption process; +● our registration statement/proxy statement filed for our Business Combination transaction would include a representation that any of our securities purchased by our Sponsor, initial shareholders, directors, officers and their affiliates would not be voted in favor of approving the Business Combination transaction; +● our Sponsor, initial shareholders, directors, officers and their affiliates would not possess any redemption rights with respect to our securities or, if they do acquire and possess redemption rights, they would waive such rights; and +● we would disclose in a Form 8-K, before our security holder meeting to approve the Business Combination transaction, the following material items: +o the amount of our securities purchased outside of the redemption offer by our Sponsor, initial shareholders, directors, officers and their affiliates, along with the purchase price; +o the purpose of the purchases by our Sponsor, initial shareholders, directors, officers and their affiliates; +o the impact, if any, of the purchases by our Sponsor, initial shareholders, directors, officers and their affiliates on the likelihood that the Business Combination transaction will be approved; +o the identities of our security holders who sold to our Sponsor, initial shareholders, directors, officers and their affiliates (if not purchased on the open market) or the nature of our security holders (e.g., 5% security holders) who sold to our Sponsor, initial shareholders, directors, officers and their affiliates; and +o the number of our securities for which we have received redemption requests pursuant to our redemption offer. +Please see “ Risk Factors — If we seek shareholder approval of our initial Business Combination, our Sponsor, initial shareholders, directors, officers and their affiliates may elect to purchase Public Shares or Public Warrants from public shareholders, which may influence a vote on a proposed Business Combination and reduce the public “float” of our securities. ” +Redemption Rights for Public Stockholders upon Completion of our Initial Business Combination +We will provide our public shareholders with the opportunity to redeem all or a portion of their Class A Ordinary Shares upon the completion of our initial Business Combination at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account calculated as of two business days prior to the consummation of the initial Business Combination, including interest earned on the funds held in the Trust Account (which interest shall be net of taxes payable), divided by the number of then outstanding Public Shares, subject to the limitations and on the conditions described herein. The amount in the Trust Account is initially anticipated to be $10.00 per public share. The per share amount we will distribute to investors who properly redeem their shares will not be reduced by the deferred underwriting commissions we will pay to the underwriters. Our initial shareholders, Sponsor, officers and directors have entered into a letter agreement with us (the “Insider Letter”), pursuant to which they have agreed to waive their redemption rights with respect to any Founder Shares and Public Shares they may hold in connection with the completion of our initial Business Combination. +9 +Table of Contents +Limitations on Redemptions +Our proposed initial Business Combination may impose a minimum cash requirement for: (i) cash consideration to be paid to the target or its owners, (ii) cash for working capital or other general corporate purposes or (iii) the retention of cash to satisfy other conditions. In the event the aggregate cash consideration we would be required to pay for all Class A Ordinary Shares that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the proposed initial Business Combination exceed the aggregate amount of cash available to us, we will not complete the initial Business Combination or redeem any shares in connection with such initial Business Combination, and all Class A Ordinary Shares submitted for redemption will be returned to the holders thereof. We may, however, raise funds through the issuance of equity-linked securities or through loans, advances or other indebtedness in connection with our initial Business Combination, including pursuant to forward purchase agreements or backstop arrangements we may enter into, in order to, among other reasons, satisfy such net tangible assets or minimum cash requirements. +Manner of Conducting Redemptions +We will provide our public shareholders with the opportunity to redeem all or a portion of their Public Shares upon the completion of our initial Business Combination either (i) in connection with a shareholder meeting called to approve the initial Business Combination or (ii) without a shareholder vote by means of a tender offer. The decision as to whether we will seek shareholder approval of a proposed initial Business Combination or conduct a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would require us to seek shareholder approval under applicable law or stock exchange listing requirements. Asset acquisitions and share purchases would not typically require shareholder approval while direct mergers with our company where we do not survive and any transactions where we issue more than 20% of our outstanding ordinary shares or seek to amend our amended and restated memorandum and articles of association would require shareholder approval. So long as we obtain and maintain a listing for our securities on the NYSE American, we will be required to comply with the NYSE American’s shareholder approval rules. +The requirement that we provide our public shareholders with the opportunity to redeem their Public Shares by one of the two methods listed above are contained in provisions of our amended and restated memorandum and articles of association and apply whether or not we maintain our registration under the Exchange Act or our listing on the NYSE American. Such provisions may be amended if approved by a special resolution passed by the affirmative vote of at least two-thirds of our ordinary shares which are represented in person or by proxy and are voted at a general meeting of the company, so long as we offer redemption in connection with such amendment. +If we provide our public shareholders with the opportunity to redeem their Public Shares in connection with a shareholder meeting, we will: +● conduct the redemptions in conjunction with a proxy solicitation pursuant to Regulation 14A of the Exchange Act, which regulates the solicitation of proxies, and not pursuant to the tender offer rules; and +● file proxy materials with the SEC. +In the event that we seek shareholder approval of our initial Business Combination, we will distribute proxy materials and, in connection therewith, provide our public shareholders with the redemption rights described above upon completion of the initial Business Combination. +10 +Table of Contents +If we seek shareholder approval, we will complete our initial Business Combination only if we receive the approval of an ordinary resolution under Cayman Islands law, passed by the affirmative vote of at least a majority of the votes cast by the shareholders of the issued shares represented in person or represented by proxy and entitled to vote on such matter at a general meeting of the company and are voted at a general meeting of the company. In accordance with our amended and restated memorandum and articles of association, a quorum for such meeting will be present if the holders of one third of issued and outstanding shares entitled to vote at the meeting are represented in person or by proxy. Our initial shareholders will count towards this quorum and, pursuant to the Insider Letter, our Sponsor, officers and directors have agreed to vote any Founder Shares they hold and any Public Shares purchased during our initial public offering or thereafter (including in open market and privately-negotiated transactions) in favor of our initial Business Combination. For purposes of seeking approval of an ordinary resolution, non- votes will have no effect on the approval of our initial Business Combination once a quorum is obtained. As a result, in addition to our initial shareholders’ Founder Shares, we would need 8,625,001 or 37.5% of the 23,000,000 Public Shares sold in our initial public offering to be voted in favor of an initial Business Combination in order to have our initial Business Combination approved (assuming all outstanding shares are voted). Assuming that only the holders of one-third of our issued and outstanding ordinary shares, representing a quorum under our amended and restated memorandum and articles of association, vote their ordinary shares at a general meeting of the company, we will not need any Public Shares in addition to our Founder Shares to be voted in favor of an initial Business Combination in order to approve an initial Business Combination. However, if our initial Business Combination is structured as a statutory merger or consolidation with another company under Cayman Islands law, the approval of our initial Business Combination will require a special resolution passed by the affirmative vote of at least two-thirds of our ordinary shares which are represented in person or by proxy and are voted at a general meeting of the company. These quorum and voting thresholds, and the voting agreements of our initial shareholders, may make it more likely that we will consummate our initial Business Combination. Each public shareholder may elect to redeem its Public Shares irrespective of whether they vote for or against the proposed transaction, or whether they do not vote or abstain from voting on the proposed transaction, or whether they were a shareholder on the record date for the shareholder meeting held to approve the proposed transaction. +If a shareholder vote is not required and we do not decide to hold a shareholder vote for business or other legal reasons, we will: +● conduct the redemptions pursuant to Rule 13e-4 and Regulation 14E of the Exchange Act, which regulate issuer tender offers, and +● file tender offer documents with the SEC prior to completing our initial Business Combination, which contain substantially the same financial and other information about the initial Business Combination and the redemption rights as is required under Regulation 14A of the Exchange Act, which regulates the solicitation of proxies. +In the event we conduct redemptions pursuant to the tender offer rules, our offer to redeem will remain open for at least 20 business days, in accordance with Rule 14e-1(a) under the Exchange Act, and we will not be permitted to complete our initial Business Combination until the expiration of the tender offer period. +Upon the public announcement of our initial Business Combination, if we elect to conduct redemptions pursuant to the tender offer rules, we or our Sponsor will terminate any plan established in accordance with Rule 10b5-1 to purchase our Class A Ordinary Shares in the open market, in order to comply with Rule 14e-5 under the Exchange Act. +We intend to require our public shareholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” to, at the holder’s option, either deliver their share certificates to our transfer agent or deliver their shares to our transfer agent electronically using The Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) system, prior to the date set forth in the proxy materials or tender offer documents, as applicable. In the case of proxy materials, this date may be up to two business days prior to the scheduled vote on the proposal to approve the initial Business Combination. In addition, if we conduct redemptions in connection with a shareholder vote, we intend to require a public shareholder seeking redemption of its Public Shares to also submit a written request for redemption to our transfer agent two business days prior to the scheduled vote in which the name of the beneficial owner of such shares is included. The proxy materials or tender offer documents, as applicable, that we will furnish to holders of our Public Shares in connection with our initial Business Combination will indicate whether we are requiring public shareholders to satisfy such delivery requirements. We believe that this will allow our transfer agent to efficiently process any redemptions without the need for further communication or action from the redeeming public shareholders, which could delay redemptions and result in additional administrative cost. If the proposed initial Business Combination is not approved and we continue to search for a target company, we will promptly return any certificates or shares delivered by public shareholders who elected to redeem their shares. +11 +Table of Contents +Our proposed initial Business Combination may impose a minimum cash requirement for: (i) cash consideration to be paid to the target or its owners, (ii) cash for working capital or other general corporate purposes or (iii) the retention of cash to satisfy other conditions. In the event the aggregate cash consideration we would be required to pay for all Class A Ordinary Shares that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the proposed initial Business Combination exceed the aggregate amount of cash available to us, we will not complete the initial Business Combination or redeem any shares in connection with such initial Business Combination, and all Class A Ordinary Shares submitted for redemption will be returned to the holders thereof. We may, however, raise funds through the issuance of equity-linked securities or through loans, advances or other indebtedness in connection with our initial Business Combination, including pursuant to forward purchase agreements or backstop arrangements, in order to, among other reasons, satisfy such net tangible assets or minimum cash requirements. +Limitation on Redemption Upon Completion of our Initial Business Combination if We Seek Shareholder Approval +If we seek shareholder approval of our initial Business Combination and we do not conduct redemptions in connection with our initial Business Combination pursuant to the tender offer rules, our amended and restated memorandum and articles of association provide that a public shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from seeking redemption rights with respect to more than an aggregate of 15% of the shares sold in the initial public offering without our prior consent, which we refer to as the “Excess Shares.” +We believe this restriction will discourage shareholders from accumulating large blocks of shares, and subsequent attempts by such holders to use their ability to exercise their redemption rights against a proposed Business Combination as a means to force us or our management to purchase their shares at a significant premium to the then-current market price or on other undesirable terms. Absent this provision, a public shareholder holding more than an aggregate of 15% of the shares sold in our initial public offering could threaten to exercise its redemption rights if such holder’s shares are not purchased by us, our Sponsor or our management at a premium to the then-current market price or on other undesirable terms. By limiting our shareholders’ ability to redeem no more than 15% of the shares sold in our initial public offering without our prior consent, we believe we will limit the ability of a small group of shareholders to unreasonably attempt to block our ability to complete our initial Business Combination, particularly in connection with a Business Combination with a target that requires as a closing condition that we have a minimum net worth or a certain amount of cash. +However, we would not be restricting our shareholders’ ability to vote all of their shares (including Excess Shares) for or against our initial Business Combination. +Delivering Share Certificates in Connection with the Exercise of Redemption Rights +As described above, we intend to require our public shareholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” to, at the holder’s option, either deliver their share certificates to our transfer agent or deliver their shares to our transfer agent electronically using The Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) system, prior to the date set forth in the proxy materials or tender offer documents, as applicable. In the case of proxy materials, this date may be up to two business days prior to the scheduled vote on the proposal to approve the initial Business Combination. In addition, if we conduct redemptions in connection with a shareholder vote, we intend to require a public shareholder seeking redemption of its Public Shares to also submit a written request for redemption to our transfer agent two business days prior to the scheduled vote in which the name of the beneficial owner of such shares is included. The proxy materials or tender offer documents, as applicable, that we will furnish to holders of our Public Shares in connection with our initial Business Combination will indicate whether we are requiring public shareholders to satisfy such delivery requirements. Accordingly, a public shareholder would have up to two business days prior to the scheduled vote on the initial Business Combination if we distribute proxy materials, or from the time we send out our tender offer materials until the close of the tender offer period, as applicable, to submit or tender its shares if it wishes to seek to exercise its redemption rights. In the event that a shareholder fails to comply with these or any other procedures disclosed in the proxy or tender offer materials, as applicable, its shares may not be redeemed. Given the relatively short exercise period, it is advisable for shareholders to use electronic delivery of their Public Shares. +There is a nominal cost associated with the above-referenced process and the act of certificating the shares or delivering them through the DWAC system. The transfer agent will typically charge the broker submitting or tendering shares a fee of approximately $100 and it would be up to the broker whether or not to pass this cost on to the redeeming holder. However, this fee would be incurred regardless of whether or not we require holders seeking to exercise redemption rights to submit or tender their shares. The need to deliver shares is a requirement of exercising redemption rights regardless of the timing of when such delivery must be effectuated. +12 +Table of Contents +Any request to redeem such shares, once made, may be withdrawn at any time up to the date set forth in the proxy materials or tender offer documents, as applicable. Furthermore, if a holder of a public share delivered its certificate in connection with an election of redemption rights and subsequently decides prior to the applicable date not to elect to exercise such rights, such holder may simply request that the transfer agent return the certificate (physically or electronically). It is anticipated that the funds to be distributed to holders of our Public Shares electing to redeem their shares will be distributed promptly after the completion of our initial Business Combination. +If our initial Business Combination is not approved or completed for any reason, then our public shareholders who elected to exercise their redemption rights would not be entitled to redeem their shares for the applicable pro rata share of the Trust Account. In such case, we will promptly return any certificates delivered by public holders who elected to redeem their shares. +If our initial proposed initial Business Combination is not completed, we may continue to try to complete an initial Business Combination with a different target until the end of the Completion Window. +Redemption of Public Shares and Liquidation if No Initial Business Combination +Our amended and restated memorandum and articles of association provide that we have only the duration of the Completion Window to complete our initial Business Combination. If we are unable to complete our initial Business Combination within such 24 -month period, we will, as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account (which interest shall be net of taxes payable and up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will constitute full and complete payment for the Public Shares and completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidating or other distributions, if any). +Our initial shareholders, Sponsor, officers and directors have entered into an Insider Letter with us, pursuant to which they have waived their rights to liquidating distributions from the Trust Account with respect to any Founder Shares they hold if we fail to complete our initial Business Combination within the Completion Window, although they will be entitled to liquidating distributions from assets outside the Trust Account. However, if our initial shareholders, Sponsor or management team acquire Public Shares, they will be entitled to liquidating distributions from the Trust Account and liquidating distributions from assets outside the Trust Account with respect to such Public Shares if we fail to complete our initial Business Combination within the allotted 24- month time period. +Our initial shareholders, Sponsor, officers and directors have agreed, pursuant to the Insider Letter, that they will not propose any amendment to our amended and restated memorandum and articles of association (A) to modify the substance or timing of our obligation to redeem 100% of our Public Shares if we do not complete our initial Business Combination within the Completion Window or (B) with respect to any other material provisions relating to shareholders’ rights or pre-initial Business Combination activity, unless we provide our public shareholders with the opportunity to redeem their Public Shares upon approval of any such amendment at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account (which interest shall be net of taxes payable), divided by the number of then outstanding Public Shares. +We expect that all costs and expenses associated with implementing our plan of dissolution, as well as payments to any creditors, will be funded from amounts remaining out of the approximately $1,250,000 of initial public offering proceeds held outside the Trust Account, although we cannot assure you that there will be sufficient funds for such purpose. However, if those funds are not sufficient to cover the costs and expenses associated with implementing our plan of dissolution, to the extent that there is any interest accrued in the Trust Account not required to pay taxes, we may request the trustee to release to us an additional amount of up to $100,000 of such accrued interest to pay those costs and expenses. +If we were to expend all of the net proceeds of our initial public offering and the sale of the Private Placement Warrants, other than the proceeds deposited in the Trust Account, and without taking into account interest, if any, earned on the Trust Account and any tax payments or expenses for the dissolution of the trust, the per-share redemption amount received by shareholders upon our dissolution would be approximately $10.00. +13 +Table of Contents +The proceeds deposited in the Trust Account could, however, become subject to the claims of our creditors which would have higher priority than the claims of our public shareholders. We cannot assure you that the actual per-share redemption amount received by shareholders will not be substantially less than $10.00. While we intend to pay such amounts, if any, we cannot assure you that we will have funds sufficient to pay or provide for all creditors’ claims. +Although we will seek to have all vendors, service providers (other than the underwriters of our initial public offering and our independent registered public accounting firm), prospective target businesses and other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the Trust Account for the benefit of our public shareholders, there is no guarantee that they will execute such agreements or even if they execute such agreements that they would be prevented from bringing claims against the Trust Account including but not limited to fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain an advantage with respect to a claim against our assets, including the funds held in the Trust Account. If any third party refuses to execute an agreement waiving such claims to the monies held in the Trust Account, our management will consider whether competitive alternatives are reasonably available to us and will only enter into an agreement with such third party if management believes that such third party’s engagement would be in the best interests of the company under the circumstances. Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. The underwriters of our initial public offering and our independent registered public accounting firm will not execute agreements with us waiving such claims to the monies held in the Trust Account. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the Trust Account for any reason. In order to protect the amounts held in the Trust Account, our Sponsor has agreed that it will be liable to us if and to the extent any claims by a third party for services rendered or products sold to us (except for the company’s independent auditors), or a prospective target business with which we have entered into a written letter of intent, confidentiality or other similar agreement or Business Combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.00 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.00 per public share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to the monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under our indemnity of the underwriters of our initial public offering against certain liabilities, including liabilities under the Securities Act. However, we have not asked our Sponsor to reserve for such indemnification obligations, nor have we independently verified whether our Sponsor has sufficient funds to satisfy its indemnity obligations and we believe that our Sponsor’s only assets are securities of our company. Therefore, we cannot assure you that our Sponsor would be able to satisfy those obligations. As a result, if any such claims were successfully made against the Trust Account, the funds available for our initial Business Combination and redemptions could be reduced to less than $10.00 per public share. In such event, we may not be able to complete our initial Business Combination, and you would receive such lesser amount per share in connection with any redemption of your Public Shares. None of our officers or directors will indemnify us for claims by third parties including, without limitation, claims by vendors and prospective target businesses. +In the event that the proceeds in the Trust Account are reduced below the lesser of (i) $10.00 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account if less than $10.00 per share due to reductions in the value of the trust assets, in each case less taxes payable, and our Sponsor asserts that it is unable to satisfy its indemnification obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against our Sponsor to enforce its indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against our Sponsor to enforce its indemnification obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so in any particular instance. Accordingly, we cannot assure you that due to claims of creditors the actual value of the per-share redemption price will not be less than $10.00 per share. +14 +Table of Contents +We will seek to reduce the possibility that our Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers, prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account. Our Sponsor will also not be liable as to any claims under our indemnity of the underwriters of our initial public offering against certain liabilities, including liabilities under the Securities Act. We will have access to up to approximately $1,250,000 from the proceeds of our initial public offering with which to pay any such potential claims (including costs and expenses incurred in connection with our liquidation, currently estimated to be no more than approximately $100,000). In the event that we liquidate and it is subsequently determined that the reserve for claims and liabilities is insufficient, shareholders who received funds from our Trust Account could be liable for claims made by creditors. In the event that our offering expenses exceed our estimate of $750,000, we may fund such excess with funds from the funds not to be held in the Trust Account. In such case, the amount of funds we intend to be held outside the Trust Account would decrease by a corresponding amount. Conversely, in the event that the offering expenses are less than our estimate of $750,000, the amount of funds we intend to be held outside the Trust Account would increase by a corresponding amount. +If we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy or insolvency law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our shareholders. To the extent any bankruptcy claims deplete the Trust Account, we cannot assure you we will be able to return $10.00 per share to our public shareholders. Additionally, if we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, any distributions received by shareholders could be viewed under applicable debtor/creditor and/ or bankruptcy or insolvency laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy or insolvency court could seek to recover some or all amounts received by our shareholders. Furthermore, our board of directors may be viewed as having breached its fiduciary duty to our creditors and/or may have acted in bad faith, and thereby exposing itself and our company to claims of punitive damages, by paying public shareholders from the Trust Account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons. +Our public shareholders will be entitled to receive funds from the Trust Account only (i) in the event of the redemption of our Public Shares if we do not complete our initial Business Combination within the Completion Window, (ii) in connection with a shareholder vote to amend our amended and restated memorandum and articles of association (A) to modify the substance or timing of our obligation to redeem 100% of our Public Shares if we do not complete our initial Business Combination within the Completion Window or (B) with respect to any other material provisions relating to shareholders’ rights or pre- initial Business Combination activity or (iii) if they redeem their respective shares for cash upon the completion of our initial Business Combination. In no other circumstances will a shareholder have any right or interest of any kind to or in the Trust Account. In the event we seek shareholder approval in connection with our initial Business Combination, a shareholder’s voting in connection with the Business Combination alone will not result in a shareholder’s redeeming its shares to us for an applicable pro rata share of the Trust Account. Such shareholder must have also exercised its redemption rights described above. These provisions of our amended and restated memorandum and articles of association, like all provisions of our amended and restated memorandum and articles of association, may be amended with a shareholder vote. +Competition +In identifying, evaluating and selecting a target business for our initial Business Combination, we may encounter competition from other entities having a business objective similar to ours, including other special purpose acquisition companies, private equity groups and leveraged buyout funds, public companies and operating businesses seeking strategic acquisitions. Many of these entities are well established and have extensive experience identifying and effecting Business Combinations directly or through affiliates. Moreover, many of these competitors possess similar or greater financial, technical, human and other resources than us. Our ability to acquire larger target businesses will be limited by our available financial resources. This inherent limitation gives others an advantage in pursuing the acquisition of a target business. Furthermore, our obligation to pay cash in connection with our public shareholders who exercise their redemption rights may reduce the resources available to us for our initial Business Combination and our outstanding warrants, and the future dilution they potentially represent, may not be viewed favorably by certain target businesses. Either of these factors may place us at a competitive disadvantage in successfully negotiating an initial Business Combination. +15 +Table of Contents +Facilities +We currently utilize office space at 1790 Hughes Landing Blvd., Suite 400, The Woodlands, Texas 77380 from our Sponsor. We consider our current office space adequate for our current operations. We will pay our Sponsor (and/or its affiliates or designees) an aggregate of up to $20,000 per month for office space, secretarial, administrative and support services provided to us and members of our management team. For the years ended December 31, 2025 and 2024, we incurred administrative support services fees of $240,000 and $124,000, respectively. We paid $120,000 and $124,000 during the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025 and 2024, we had outstanding accrued administrative support services fees of $120,000 and $0, respectively, which are included in accrued expenses in the accompanying balance sheets. Upon completion of our initial Business Combination or our liquidation, we will cease paying these monthly fees. +Employees +We currently have one executive officer: James A. Graf, our Chief Executive Officer and Chief Financial Officer. Mr. Graf is not obligated to devote any specific number of hours to our matters but he intends to devote as much of his time as he deems necessary to our affairs until we have completed our initial Business Combination. The amount of time Mr. Graf will devote in any time period will vary based on whether a target business has been selected for our initial Business Combination and the stage of the Business Combination process we are in. We do not intend to have any full time employees prior to the completion of our initial Business Combination. +Available Information +We are required to file Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q with the SEC on a regular basis, and are required to disclose certain material events (e.g., changes in corporate control, acquisitions or dispositions of a significant amount of assets other than in the ordinary course of business and bankruptcy) in a Current Report on Form 8-K. The SEC maintains an internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The SEC’s internet website is located at http://www.sec.gov . In addition, we will provide copies of these documents without charge upon request from us in writing at 1790 Hughes Landing Blvd., Suite 400, The Woodlands, Texas 77380 or by telephone at (310) 745-8669. +Emerging Growth Company and Smaller Reporting Company +We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes- Oxley Act reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile. +In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period. +We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our initial public offering, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Class A Ordinary Shares that are held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. +Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our ordinary shares held by non-affiliates is equal to or exceeds $250 million as of the prior June 30th, or (2) our annual revenues equaled to or exceeded $100 million during such completed fiscal year and the market value of our ordinary shares held by non-affiliates is equal to or exceeds $700 million as of the prior June 30th. +16 +Table of Contents \ No newline at end of file diff --git a/raw/filings/0001897463/2025/0001104659-26-058645/item13.txt b/raw/filings/0001897463/2025/0001104659-26-058645/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..28fdacbd56bcf3fa347036f75a6a71948d79e451 --- /dev/null +++ b/raw/filings/0001897463/2025/0001104659-26-058645/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions, and Director Independence +68 \ No newline at end of file diff --git a/raw/filings/0001897762/2024/0001628280-25-010298/filing.txt b/raw/filings/0001897762/2024/0001628280-25-010298/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..44e716f805a61d6246b9b6b5e1200721fac4ae77 --- /dev/null +++ b/raw/filings/0001897762/2024/0001628280-25-010298/filing.txt @@ -0,0 +1,3373 @@ +ingm-20241228 +0001897762 2024 FY FALSE P3Y http://fasb.org/us-gaap/2024#AccountsPayableCurrent http://fasb.org/us-gaap/2024#AccountsPayableCurrent iso4217:USD xbrli:shares iso4217:USD xbrli:shares xbrli:pure utr:Rate iso4217:EUR ingm:employee iso4217:BRL iso4217:SAR 0001897762 2023-12-31 2024-12-28 0001897762 2024-06-29 0001897762 2025-02-25 0001897762 2024-12-28 0001897762 2023-12-30 0001897762 us-gaap:CommonClassAMember 2024-12-28 0001897762 us-gaap:CommonClassAMember 2023-12-30 0001897762 us-gaap:CommonClassBMember 2023-12-30 0001897762 us-gaap:CommonClassBMember 2024-12-28 0001897762 us-gaap:CommonStockMember 2023-12-30 0001897762 us-gaap:CommonStockMember 2024-12-28 0001897762 2023-01-01 2023-12-30 0001897762 2022-01-02 2022-12-31 0001897762 us-gaap:CommonStockMember us-gaap:CommonClassAMember 2022-01-01 0001897762 us-gaap:CommonStockMember us-gaap:CommonClassBMember 2022-01-01 0001897762 us-gaap:CommonStockMember 2022-01-01 0001897762 us-gaap:AdditionalPaidInCapitalMember 2022-01-01 0001897762 us-gaap:RetainedEarningsMember 2022-01-01 0001897762 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-01-01 0001897762 2022-01-01 0001897762 us-gaap:RetainedEarningsMember 2022-01-02 2022-12-31 0001897762 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-01-02 2022-12-31 0001897762 us-gaap:CommonStockMember us-gaap:CommonClassAMember 2022-01-02 2022-12-31 0001897762 us-gaap:CommonStockMember us-gaap:CommonClassAMember 2022-12-31 0001897762 us-gaap:CommonStockMember us-gaap:CommonClassBMember 2022-12-31 0001897762 us-gaap:CommonStockMember 2022-12-31 0001897762 us-gaap:AdditionalPaidInCapitalMember 2022-12-31 0001897762 us-gaap:RetainedEarningsMember 2022-12-31 0001897762 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-12-31 0001897762 2022-12-31 0001897762 us-gaap:RetainedEarningsMember 2023-01-01 2023-12-30 0001897762 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-01-01 2023-12-30 0001897762 us-gaap:CommonStockMember us-gaap:CommonClassAMember 2023-12-30 0001897762 us-gaap:CommonStockMember us-gaap:CommonClassBMember 2023-12-30 0001897762 us-gaap:CommonStockMember 2023-12-30 0001897762 us-gaap:AdditionalPaidInCapitalMember 2023-12-30 0001897762 us-gaap:RetainedEarningsMember 2023-12-30 0001897762 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-12-30 0001897762 us-gaap:RetainedEarningsMember 2023-12-31 2024-12-28 0001897762 us-gaap:CommonStockMember us-gaap:CommonClassAMember 2023-12-31 2024-12-28 0001897762 us-gaap:CommonStockMember us-gaap:CommonClassBMember 2023-12-31 2024-12-28 0001897762 us-gaap:CommonStockMember 2023-12-31 2024-12-28 0001897762 us-gaap:AdditionalPaidInCapitalMember 2023-12-31 2024-12-28 0001897762 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-12-31 2024-12-28 0001897762 us-gaap:CommonStockMember us-gaap:CommonClassAMember 2024-12-28 0001897762 us-gaap:CommonStockMember us-gaap:CommonClassBMember 2024-12-28 0001897762 us-gaap:CommonStockMember 2024-12-28 0001897762 us-gaap:AdditionalPaidInCapitalMember 2024-12-28 0001897762 us-gaap:RetainedEarningsMember 2024-12-28 0001897762 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-12-28 0001897762 ingm:HNATechnologyCoLtdMember 2021-07-02 0001897762 us-gaap:CommonClassAMember 2024-10-23 0001897762 us-gaap:CommonClassBMember 2024-10-23 0001897762 2024-10-23 2024-10-23 0001897762 us-gaap:IPOMember 2024-10-01 2024-10-31 0001897762 us-gaap:IPOMember ingm:ImolaJVHoldingsL.P.Member 2024-10-01 2024-10-31 0001897762 us-gaap:IPOMember 2024-10-31 0001897762 ingm:TermLoanCreditFacilityMember 2024-10-01 2024-10-31 0001897762 us-gaap:OverAllotmentOptionMember 2024-11-04 2024-11-04 0001897762 ingm:AppleIncMember us-gaap:SupplierConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-12-31 2024-12-28 0001897762 ingm:AppleIncMember us-gaap:SupplierConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-30 0001897762 ingm:AppleIncMember us-gaap:SupplierConcentrationRiskMember us-gaap:SalesRevenueNetMember 2022-01-02 2022-12-31 0001897762 ingm:HPInc.Member us-gaap:SupplierConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-30 0001897762 ingm:HPInc.Member us-gaap:SupplierConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-12-31 2024-12-28 0001897762 ingm:HPInc.Member us-gaap:SupplierConcentrationRiskMember us-gaap:SalesRevenueNetMember 2022-01-02 2022-12-31 0001897762 srt:MinimumMember us-gaap:BuildingMember 2024-12-28 0001897762 srt:MaximumMember us-gaap:BuildingMember 2024-12-28 0001897762 srt:MinimumMember us-gaap:LeaseholdImprovementsMember 2024-12-28 0001897762 srt:MaximumMember us-gaap:LeaseholdImprovementsMember 2024-12-28 0001897762 srt:MinimumMember us-gaap:MachineryAndEquipmentMember 2024-12-28 0001897762 srt:MaximumMember us-gaap:MachineryAndEquipmentMember 2024-12-28 0001897762 srt:MinimumMember ingm:ComputerEquipmentAndSoftwareMember 2024-12-28 0001897762 srt:MaximumMember ingm:ComputerEquipmentAndSoftwareMember 2024-12-28 0001897762 us-gaap:CustomerRelationshipsMember 2024-12-28 0001897762 us-gaap:CustomerRelationshipsMember 2023-12-30 0001897762 us-gaap:TrademarksAndTradeNamesMember 2024-12-28 0001897762 us-gaap:TrademarksAndTradeNamesMember 2023-12-30 0001897762 us-gaap:DevelopedTechnologyRightsMember 2024-12-28 0001897762 us-gaap:DevelopedTechnologyRightsMember 2023-12-30 0001897762 us-gaap:OtherIntangibleAssetsMember 2024-12-28 0001897762 us-gaap:OtherIntangibleAssetsMember 2023-12-30 0001897762 srt:NorthAmericaMember 2022-12-31 0001897762 us-gaap:EMEAMember 2022-12-31 0001897762 srt:AsiaPacificMember 2022-12-31 0001897762 srt:LatinAmericaMember 2022-12-31 0001897762 srt:NorthAmericaMember 2023-01-01 2023-12-30 0001897762 us-gaap:EMEAMember 2023-01-01 2023-12-30 0001897762 srt:AsiaPacificMember 2023-01-01 2023-12-30 0001897762 srt:LatinAmericaMember 2023-01-01 2023-12-30 0001897762 srt:NorthAmericaMember 2023-12-30 0001897762 us-gaap:EMEAMember 2023-12-30 0001897762 srt:AsiaPacificMember 2023-12-30 0001897762 srt:LatinAmericaMember 2023-12-30 0001897762 srt:NorthAmericaMember 2023-12-31 2024-12-28 0001897762 us-gaap:EMEAMember 2023-12-31 2024-12-28 0001897762 srt:AsiaPacificMember 2023-12-31 2024-12-28 0001897762 srt:LatinAmericaMember 2023-12-31 2024-12-28 0001897762 srt:NorthAmericaMember 2024-12-28 0001897762 us-gaap:EMEAMember 2024-12-28 0001897762 srt:AsiaPacificMember 2024-12-28 0001897762 srt:LatinAmericaMember 2024-12-28 0001897762 ingm:EarnOutLiabilitiesMember 2021-07-02 0001897762 ingm:EarnOutLiabilitiesMember 2022-04-11 0001897762 ingm:EmployeeCashAwardsTimeVestedMember 2023-12-31 2024-12-28 0001897762 ingm:EmployeeCashAwardsPerformanceVestedMember 2023-12-31 2024-12-28 0001897762 ingm:EmployeeCashAwardsMember 2023-12-31 2024-12-28 0001897762 ingm:RestrictedStockUnitsRSUsTimeVestingMember 2024-09-29 2024-12-28 0001897762 us-gaap:PerformanceSharesMember 2024-09-29 2024-12-28 0001897762 ingm:RestrictedStockUnitsRSUsTimeVestingMember us-gaap:ShareBasedCompensationAwardTrancheOneMember 2024-09-29 2024-12-28 0001897762 ingm:RestrictedStockUnitsRSUsTimeVestingMember us-gaap:ShareBasedCompensationAwardTrancheTwoMember 2024-09-29 2024-12-28 0001897762 ingm:KeyEmployeesAwardsMember 2023-12-31 2024-12-28 0001897762 ingm:PerformanceUnitsMember 2021-07-03 2022-01-01 0001897762 us-gaap:DiscontinuedOperationsDisposedOfBySaleMember ingm:CommerceLifecycleServicesCLSBusinessMember 2021-12-06 0001897762 us-gaap:DiscontinuedOperationsDisposedOfBySaleMember ingm:CommerceLifecycleServicesCLSBusinessMember 2022-01-02 2022-12-31 0001897762 2022-04-03 2022-07-02 0001897762 ingm:RevisionOfPriorPeriodErrorCorrectionAdjustmentOneMember 2023-12-31 2024-12-28 0001897762 ingm:RevisionOfPriorPeriodErrorCorrectionAdjustmentTwoMember 2023-12-31 2024-12-28 0001897762 srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember 2023-12-31 2024-12-28 0001897762 ingm:ColsofMember 2024-09-28 0001897762 ingm:ColsofMember 2024-06-30 2024-09-28 0001897762 ingm:EarnOutLiabilitiesMember 2023-12-31 2024-12-28 0001897762 ingm:EarnOutLiabilitiesMember 2024-12-28 0001897762 ingm:EarnOutLiabilitiesMember 2023-01-01 2023-12-30 0001897762 ingm:EarnOutLiabilitiesMember 2023-12-30 0001897762 ingm:HoldbackLiabilitiesMember 2023-12-31 2024-12-28 0001897762 ingm:HoldbackLiabilitiesMember 2024-12-28 0001897762 ingm:HoldbackLiabilitiesMember 2023-01-01 2023-12-30 0001897762 ingm:HoldbackLiabilitiesMember 2023-12-30 0001897762 us-gaap:LandMember 2024-12-28 0001897762 us-gaap:LandMember 2023-12-30 0001897762 ingm:BuildingAndLeaseholdImprovementsMember 2024-12-28 0001897762 ingm:BuildingAndLeaseholdImprovementsMember 2023-12-30 0001897762 us-gaap:MachineryAndEquipmentMember 2024-12-28 0001897762 us-gaap:MachineryAndEquipmentMember 2023-12-30 0001897762 ingm:ComputerEquipmentAndSoftwareMember 2024-12-28 0001897762 ingm:ComputerEquipmentAndSoftwareMember 2023-12-30 0001897762 ingm:DepreciablePropertyPlantAndEquipmentMember 2024-12-28 0001897762 ingm:DepreciablePropertyPlantAndEquipmentMember 2023-12-30 0001897762 us-gaap:ConstructionInProgressMember 2024-12-28 0001897762 us-gaap:ConstructionInProgressMember 2023-12-30 0001897762 ingm:SeniorSecuredNotesDue2029Member us-gaap:SeniorNotesMember 2024-12-28 0001897762 ingm:SeniorSecuredNotesDue2029Member us-gaap:SeniorNotesMember 2023-12-30 0001897762 ingm:TermLoanCreditFacilityMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2024-12-28 0001897762 ingm:TermLoanCreditFacilityMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2023-12-30 0001897762 ingm:ABLRevolvingCreditFacilityMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2024-12-28 0001897762 ingm:ABLRevolvingCreditFacilityMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2023-12-30 0001897762 ingm:RevolvingTradeAccountsReceivableBackedFinancingProgramsMember 2024-12-28 0001897762 ingm:RevolvingTradeAccountsReceivableBackedFinancingProgramsMember 2023-12-30 0001897762 ingm:LinesOfCreditAndOtherDebtMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2024-12-28 0001897762 ingm:LinesOfCreditAndOtherDebtMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2023-12-30 0001897762 ingm:SeniorSecuredNotesDue2029Member us-gaap:SeniorNotesMember 2021-04-22 0001897762 ingm:SeniorSecuredNotesDue2029Member us-gaap:SeniorNotesMember 2021-07-02 2021-07-02 0001897762 us-gaap:SeniorNotesMember 2021-07-02 0001897762 ingm:SeniorSecuredNotesDue2029Member us-gaap:SeniorNotesMember 2021-07-02 0001897762 ingm:TermLoanCreditFacilityMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2021-07-02 0001897762 us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2021-07-02 0001897762 ingm:TermLoanCreditFacilityMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2023-06-01 2023-06-30 0001897762 ingm:TermLoanCreditFacilityMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2024-09-01 2024-09-30 0001897762 ingm:TermLoanCreditFacilityMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2023-09-01 2023-09-30 0001897762 ingm:TermLoanCreditFacilityMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember us-gaap:BaseRateMember 2024-09-01 2024-09-30 0001897762 ingm:TermLoanCreditFacilityMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember ingm:OneMonthSOFRRateMember srt:MinimumMember 2024-09-01 2024-09-30 0001897762 ingm:TermLoanCreditFacilityMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember ingm:OneMonthSOFRRateMember srt:MaximumMember 2024-09-01 2024-09-30 0001897762 ingm:TermLoanCreditFacilityMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember us-gaap:SecuredOvernightFinancingRateSofrMember 2024-09-01 2024-09-30 0001897762 ingm:TermLoanCreditFacilityMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2024-06-01 2024-06-29 0001897762 ingm:TermLoanCreditFacilityMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2024-10-25 2024-10-25 0001897762 ingm:ABLRevolvingCreditFacilityMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2021-07-02 0001897762 ingm:ABLRevolvingCreditFacilityMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember us-gaap:BaseRateMember srt:MinimumMember 2021-07-02 2021-07-02 0001897762 ingm:ABLRevolvingCreditFacilityMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember us-gaap:BaseRateMember srt:MaximumMember 2021-07-02 2021-07-02 0001897762 ingm:ABLRevolvingCreditFacilityMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember us-gaap:SecuredOvernightFinancingRateSofrMember 2021-07-02 2021-07-02 0001897762 ingm:ABLRevolvingCreditFacilityMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember us-gaap:SecuredOvernightFinancingRateSofrMember srt:MinimumMember 2021-07-02 2021-07-02 0001897762 ingm:ABLRevolvingCreditFacilityMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember us-gaap:SecuredOvernightFinancingRateSofrMember srt:MaximumMember 2021-07-02 2021-07-02 0001897762 ingm:ABLRevolvingCreditFacilityMember us-gaap:RevolvingCreditFacilityMember 2024-12-28 0001897762 ingm:ABLRevolvingCreditFacilityMember us-gaap:RevolvingCreditFacilityMember 2023-12-30 0001897762 ingm:ABSFacilityMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2024-12-28 0001897762 ingm:ABSFacilityMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2023-12-30 0001897762 ingm:OtherCreditFacilitiesMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2024-12-28 0001897762 ingm:OtherCreditFacilitiesMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2023-12-30 0001897762 ingm:OperatingLossCarryforwardsNotSubjectToExpirationMember 2024-12-28 0001897762 country:LU ingm:OperatingLossCarryforwardsNotSubjectToExpirationMember 2024-12-28 0001897762 country:BE ingm:OperatingLossCarryforwardsNotSubjectToExpirationMember 2024-12-28 0001897762 ingm:OtherMember ingm:OperatingLossCarryforwardsNotSubjectToExpirationMember 2024-12-28 0001897762 ingm:OperatingLossCarryforwardsSubjectToExpirationMember 2024-12-28 0001897762 country:LU ingm:OperatingLossCarryforwardsSubjectToExpirationMember 2024-12-28 0001897762 ingm:OtherMember ingm:OperatingLossCarryforwardsSubjectToExpirationMember 2024-12-28 0001897762 us-gaap:ForeignCountryMember 2024-12-28 0001897762 us-gaap:DomesticCountryMember 2024-12-28 0001897762 us-gaap:OneTimeTerminationBenefitsMember 2022-07-03 2022-10-01 0001897762 us-gaap:FacilityClosingMember 2022-07-03 2022-10-01 0001897762 us-gaap:EmployeeRelocationMember 2022-07-03 2022-10-01 0001897762 us-gaap:SellingGeneralAndAdministrativeExpensesMember us-gaap:FacilityClosingMember 2023-07-02 2023-09-30 0001897762 srt:MinimumMember 2024-12-28 0001897762 srt:MaximumMember 2024-12-28 0001897762 srt:NorthAmericaMember us-gaap:EmployeeSeveranceMember 2023-12-31 2024-12-28 0001897762 srt:NorthAmericaMember us-gaap:FacilityClosingMember 2023-12-31 2024-12-28 0001897762 us-gaap:EMEAMember us-gaap:EmployeeSeveranceMember 2023-12-31 2024-12-28 0001897762 us-gaap:EMEAMember us-gaap:FacilityClosingMember 2023-12-31 2024-12-28 0001897762 srt:AsiaPacificMember us-gaap:EmployeeSeveranceMember 2023-12-31 2024-12-28 0001897762 srt:AsiaPacificMember us-gaap:FacilityClosingMember 2023-12-31 2024-12-28 0001897762 srt:LatinAmericaMember us-gaap:EmployeeSeveranceMember 2023-12-31 2024-12-28 0001897762 srt:LatinAmericaMember us-gaap:FacilityClosingMember 2023-12-31 2024-12-28 0001897762 us-gaap:EmployeeSeveranceMember 2023-12-31 2024-12-28 0001897762 us-gaap:FacilityClosingMember 2023-12-31 2024-12-28 0001897762 srt:NorthAmericaMember us-gaap:EmployeeSeveranceMember 2023-01-01 2023-12-30 0001897762 srt:NorthAmericaMember us-gaap:FacilityClosingMember 2023-01-01 2023-12-30 0001897762 us-gaap:EMEAMember us-gaap:EmployeeSeveranceMember 2023-01-01 2023-12-30 0001897762 us-gaap:EMEAMember us-gaap:FacilityClosingMember 2023-01-01 2023-12-30 0001897762 srt:AsiaPacificMember us-gaap:EmployeeSeveranceMember 2023-01-01 2023-12-30 0001897762 srt:AsiaPacificMember us-gaap:FacilityClosingMember 2023-01-01 2023-12-30 0001897762 srt:LatinAmericaMember us-gaap:EmployeeSeveranceMember 2023-01-01 2023-12-30 0001897762 srt:LatinAmericaMember us-gaap:FacilityClosingMember 2023-01-01 2023-12-30 0001897762 us-gaap:EmployeeSeveranceMember 2023-01-01 2023-12-30 0001897762 us-gaap:FacilityClosingMember 2023-01-01 2023-12-30 0001897762 us-gaap:EmployeeSeveranceMember 2023-12-30 0001897762 us-gaap:EmployeeSeveranceMember 2024-12-28 0001897762 us-gaap:FacilityClosingMember 2023-12-30 0001897762 us-gaap:FacilityClosingMember 2024-12-28 0001897762 us-gaap:EmployeeSeveranceMember 2022-12-31 0001897762 us-gaap:FacilityClosingMember 2022-12-31 0001897762 ingm:BrazilianTaxAssesmentsMember 2024-12-28 0001897762 ingm:FCAAnticompetitivePracticesInVolumeAllocationMember 2020-03-31 0001897762 ingm:FCAAnticompetitivePracticesInVolumeAllocationMember 2022-10-06 0001897762 ingm:FCAAnticompetitivePracticesInVolumeAllocationMember 2022-07-03 2022-10-01 0001897762 ingm:FCAAnticompetitivePracticesInVolumeAllocationMember 2022-11-04 2022-11-04 0001897762 ingm:CivilClaimInParisCommercialCourtMember us-gaap:PendingLitigationMember 2021-06-03 2021-06-03 0001897762 ingm:CivilClaimInParisCommercialCourtMember us-gaap:PendingLitigationMember 2024-12-28 2024-12-28 0001897762 ingm:SaudiArabiaTaxAssesmentsMember 2021-09-30 0001897762 ingm:SaudiArabiaTaxAssesmentsMember 2024-12-28 0001897762 ingm:SaudiArabiaTaxAssesmentsMember ingm:From2015Through2020Member 2021-09-30 0001897762 ingm:SaudiArabiaTaxAssesmentsMember ingm:From2015Through2020Member 2024-12-28 0001897762 ingm:SaudiArabiaTaxAssesmentsMember ingm:A2021ThroughQ32024Member 2021-09-30 0001897762 ingm:SaudiArabiaTaxAssesmentsMember ingm:A2021ThroughQ32024Member 2024-12-28 0001897762 ingm:SaudiArabiaTaxAssesmentsMember 2024-05-01 2024-05-31 0001897762 ingm:EmployeeCashAwardsMember 2022-01-01 0001897762 ingm:EmployeeCashAwardsMember 2022-01-02 2022-12-31 0001897762 ingm:EmployeeCashAwardsMember 2022-12-31 0001897762 ingm:EmployeeCashAwardsMember 2023-01-01 2023-12-30 0001897762 ingm:EmployeeCashAwardsMember 2023-12-30 0001897762 ingm:EmployeeCashAwardsMember 2024-12-28 0001897762 us-gaap:RestrictedStockUnitsRSUMember 2023-12-30 0001897762 us-gaap:RestrictedStockUnitsRSUMember 2023-12-31 2024-12-28 0001897762 us-gaap:RestrictedStockUnitsRSUMember 2024-12-28 0001897762 us-gaap:PerformanceSharesMember 2023-12-30 0001897762 us-gaap:PerformanceSharesMember 2023-12-31 2024-12-28 0001897762 us-gaap:PerformanceSharesMember 2024-12-28 0001897762 ingm:KeyEmployeesAwardsMember 2022-01-01 0001897762 ingm:KeyEmployeesAwardsMember 2022-01-02 2022-12-31 0001897762 ingm:KeyEmployeesAwardsMember 2022-12-31 0001897762 ingm:KeyEmployeesAwardsMember 2023-01-01 2023-12-30 0001897762 ingm:KeyEmployeesAwardsMember 2023-12-30 0001897762 ingm:KeyEmployeesAwardsMember 2024-12-28 0001897762 srt:NorthAmericaMember us-gaap:OperatingSegmentsMember 2023-12-31 2024-12-28 0001897762 srt:NorthAmericaMember us-gaap:OperatingSegmentsMember 2023-01-01 2023-12-30 0001897762 srt:NorthAmericaMember us-gaap:OperatingSegmentsMember 2022-01-02 2022-12-31 0001897762 us-gaap:EMEAMember us-gaap:OperatingSegmentsMember 2023-12-31 2024-12-28 0001897762 us-gaap:EMEAMember us-gaap:OperatingSegmentsMember 2023-01-01 2023-12-30 0001897762 us-gaap:EMEAMember us-gaap:OperatingSegmentsMember 2022-01-02 2022-12-31 0001897762 srt:AsiaPacificMember us-gaap:OperatingSegmentsMember 2023-12-31 2024-12-28 0001897762 srt:AsiaPacificMember us-gaap:OperatingSegmentsMember 2023-01-01 2023-12-30 0001897762 srt:AsiaPacificMember us-gaap:OperatingSegmentsMember 2022-01-02 2022-12-31 0001897762 srt:LatinAmericaMember us-gaap:OperatingSegmentsMember 2023-12-31 2024-12-28 0001897762 srt:LatinAmericaMember us-gaap:OperatingSegmentsMember 2023-01-01 2023-12-30 0001897762 srt:LatinAmericaMember us-gaap:OperatingSegmentsMember 2022-01-02 2022-12-31 0001897762 us-gaap:OperatingSegmentsMember 2023-12-31 2024-12-28 0001897762 us-gaap:OperatingSegmentsMember 2023-01-01 2023-12-30 0001897762 us-gaap:OperatingSegmentsMember 2022-01-02 2022-12-31 0001897762 us-gaap:MaterialReconcilingItemsMember 2023-12-31 2024-12-28 0001897762 us-gaap:MaterialReconcilingItemsMember 2023-01-01 2023-12-30 0001897762 us-gaap:MaterialReconcilingItemsMember 2022-01-02 2022-12-31 0001897762 us-gaap:CorporateNonSegmentMember 2023-12-31 2024-12-28 0001897762 us-gaap:CorporateNonSegmentMember 2023-01-01 2023-12-30 0001897762 us-gaap:CorporateNonSegmentMember 2022-01-02 2022-12-31 0001897762 country:US 2023-12-31 2024-12-28 0001897762 country:US us-gaap:GeographicConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-12-31 2024-12-28 0001897762 country:US 2023-01-01 2023-12-30 0001897762 country:US us-gaap:GeographicConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-30 0001897762 country:US 2022-01-02 2022-12-31 0001897762 country:US us-gaap:GeographicConcentrationRiskMember us-gaap:SalesRevenueNetMember 2022-01-02 2022-12-31 0001897762 country:IN 2023-12-31 2024-12-28 0001897762 country:IN us-gaap:GeographicConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-12-31 2024-12-28 0001897762 country:IN 2023-01-01 2023-12-30 0001897762 country:IN us-gaap:GeographicConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-30 0001897762 country:IN 2022-01-02 2022-12-31 0001897762 country:IN us-gaap:GeographicConcentrationRiskMember us-gaap:SalesRevenueNetMember 2022-01-02 2022-12-31 0001897762 ingm:NonUSAndIndiaMember 2023-12-31 2024-12-28 0001897762 ingm:NonUSAndIndiaMember us-gaap:GeographicConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-12-31 2024-12-28 0001897762 ingm:NonUSAndIndiaMember 2023-01-01 2023-12-30 0001897762 ingm:NonUSAndIndiaMember us-gaap:GeographicConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-30 0001897762 ingm:NonUSAndIndiaMember 2022-01-02 2022-12-31 0001897762 ingm:NonUSAndIndiaMember us-gaap:GeographicConcentrationRiskMember us-gaap:SalesRevenueNetMember 2022-01-02 2022-12-31 0001897762 us-gaap:GeographicConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-12-31 2024-12-28 0001897762 us-gaap:GeographicConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-30 0001897762 us-gaap:GeographicConcentrationRiskMember us-gaap:SalesRevenueNetMember 2022-01-02 2022-12-31 0001897762 country:US 2024-12-28 0001897762 country:US 2023-12-30 0001897762 country:US us-gaap:GeographicConcentrationRiskMember us-gaap:AssetsTotalMember 2023-12-31 2024-12-28 0001897762 country:US us-gaap:GeographicConcentrationRiskMember us-gaap:AssetsTotalMember 2023-01-01 2023-12-30 0001897762 us-gaap:NonUsMember 2024-12-28 0001897762 us-gaap:NonUsMember 2023-12-30 0001897762 us-gaap:NonUsMember us-gaap:GeographicConcentrationRiskMember us-gaap:AssetsTotalMember 2023-12-31 2024-12-28 0001897762 us-gaap:NonUsMember us-gaap:GeographicConcentrationRiskMember us-gaap:AssetsTotalMember 2023-01-01 2023-12-30 0001897762 us-gaap:GeographicConcentrationRiskMember us-gaap:AssetsTotalMember 2023-12-31 2024-12-28 0001897762 us-gaap:GeographicConcentrationRiskMember us-gaap:AssetsTotalMember 2023-01-01 2023-12-30 0001897762 country:IN 2024-12-28 0001897762 country:IN 2023-12-30 0001897762 ingm:ClientAndEndpointSolutionsMember 2023-12-31 2024-12-28 0001897762 us-gaap:ProductConcentrationRiskMember ingm:ClientAndEndpointSolutionsMember us-gaap:SalesRevenueNetMember 2023-12-31 2024-12-28 0001897762 ingm:ClientAndEndpointSolutionsMember 2023-01-01 2023-12-30 0001897762 us-gaap:ProductConcentrationRiskMember ingm:ClientAndEndpointSolutionsMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-30 0001897762 ingm:ClientAndEndpointSolutionsMember 2022-01-02 2022-12-31 0001897762 us-gaap:ProductConcentrationRiskMember ingm:ClientAndEndpointSolutionsMember us-gaap:SalesRevenueNetMember 2022-01-02 2022-12-31 0001897762 ingm:AdvancedSolutionsMember 2023-12-31 2024-12-28 0001897762 us-gaap:ProductConcentrationRiskMember ingm:AdvancedSolutionsMember us-gaap:SalesRevenueNetMember 2023-12-31 2024-12-28 0001897762 ingm:AdvancedSolutionsMember 2023-01-01 2023-12-30 0001897762 us-gaap:ProductConcentrationRiskMember ingm:AdvancedSolutionsMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-30 0001897762 ingm:AdvancedSolutionsMember 2022-01-02 2022-12-31 0001897762 us-gaap:ProductConcentrationRiskMember ingm:AdvancedSolutionsMember us-gaap:SalesRevenueNetMember 2022-01-02 2022-12-31 0001897762 ingm:CloudBasedSolutionsMember 2023-12-31 2024-12-28 0001897762 us-gaap:ProductConcentrationRiskMember ingm:CloudBasedSolutionsMember us-gaap:SalesRevenueNetMember 2023-12-31 2024-12-28 0001897762 ingm:CloudBasedSolutionsMember 2023-01-01 2023-12-30 0001897762 us-gaap:ProductConcentrationRiskMember ingm:CloudBasedSolutionsMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-30 0001897762 ingm:CloudBasedSolutionsMember 2022-01-02 2022-12-31 0001897762 us-gaap:ProductConcentrationRiskMember ingm:CloudBasedSolutionsMember us-gaap:SalesRevenueNetMember 2022-01-02 2022-12-31 0001897762 ingm:OtherSalesMember 2023-12-31 2024-12-28 0001897762 us-gaap:ProductConcentrationRiskMember ingm:OtherSalesMember us-gaap:SalesRevenueNetMember 2023-12-31 2024-12-28 0001897762 ingm:OtherSalesMember 2023-01-01 2023-12-30 0001897762 us-gaap:ProductConcentrationRiskMember ingm:OtherSalesMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-30 0001897762 ingm:OtherSalesMember 2022-01-02 2022-12-31 0001897762 us-gaap:ProductConcentrationRiskMember ingm:OtherSalesMember us-gaap:SalesRevenueNetMember 2022-01-02 2022-12-31 0001897762 us-gaap:ProductConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-12-31 2024-12-28 0001897762 us-gaap:ProductConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-30 0001897762 us-gaap:ProductConcentrationRiskMember us-gaap:SalesRevenueNetMember 2022-01-02 2022-12-31 0001897762 ingm:TermLoanCreditFacilityMember ingm:LondonInterbankOfferedRateMember srt:MaximumMember 2023-01-01 2023-04-01 0001897762 ingm:TermLoanCreditFacilityMember us-gaap:SecuredOvernightFinancingRateSofrMember srt:MaximumMember 2023-04-02 2023-07-01 0001897762 us-gaap:ForeignExchangeContractMember us-gaap:NondesignatedMember 2024-12-28 0001897762 us-gaap:ForeignExchangeContractMember us-gaap:NondesignatedMember 2023-12-30 0001897762 us-gaap:InterestRateCapMember us-gaap:NondesignatedMember us-gaap:OtherCurrentAssetsMember 2024-12-28 0001897762 us-gaap:InterestRateCapMember us-gaap:NondesignatedMember us-gaap:OtherCurrentAssetsMember 2023-12-30 0001897762 us-gaap:OtherContractMember us-gaap:NondesignatedMember 2024-12-28 0001897762 us-gaap:OtherContractMember us-gaap:NondesignatedMember 2023-12-30 0001897762 us-gaap:InterestRateCapMember us-gaap:NondesignatedMember us-gaap:OtherAssetsMember 2024-12-28 0001897762 us-gaap:InterestRateCapMember us-gaap:NondesignatedMember us-gaap:OtherAssetsMember 2023-12-30 0001897762 us-gaap:NondesignatedMember 2024-12-28 0001897762 us-gaap:NondesignatedMember 2023-12-30 0001897762 us-gaap:ForeignCurrencyGainLossMember 2023-12-31 2024-12-28 0001897762 us-gaap:ForeignCurrencyGainLossMember 2023-01-01 2023-12-30 0001897762 us-gaap:ForeignCurrencyGainLossMember 2022-01-02 2022-12-31 0001897762 us-gaap:InterestExpenseMember 2023-12-31 2024-12-28 0001897762 us-gaap:InterestExpenseMember 2023-01-01 2023-12-30 0001897762 us-gaap:InterestExpenseMember 2022-01-02 2022-12-31 0001897762 us-gaap:FairValueMeasurementsRecurringMember 2024-12-28 0001897762 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2024-12-28 0001897762 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2024-12-28 0001897762 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2024-12-28 0001897762 us-gaap:FairValueMeasurementsRecurringMember 2023-12-30 0001897762 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2023-12-30 0001897762 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2023-12-30 0001897762 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2023-12-30 0001897762 ingm:SeniorUnsecuredNotesDueTwoThousandTwentyNineMember us-gaap:SeniorNotesMember 2024-12-28 0001897762 ingm:SeniorUnsecuredNotesDueTwoThousandTwentyNineMember us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:SeniorNotesMember 2024-12-28 0001897762 us-gaap:FairValueInputsLevel1Member ingm:SeniorUnsecuredNotesDueTwoThousandTwentyNineMember us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:SeniorNotesMember 2024-12-28 0001897762 us-gaap:FairValueInputsLevel2Member ingm:SeniorUnsecuredNotesDueTwoThousandTwentyNineMember us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:SeniorNotesMember 2024-12-28 0001897762 us-gaap:FairValueInputsLevel3Member ingm:SeniorUnsecuredNotesDueTwoThousandTwentyNineMember us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:SeniorNotesMember 2024-12-28 0001897762 ingm:SeniorUnsecuredNotesDueTwoThousandTwentyNineMember us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:SeniorNotesMember 2024-12-28 0001897762 ingm:TermLoanCreditFacilityMember us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:SecuredDebtMember 2024-12-28 0001897762 us-gaap:FairValueInputsLevel1Member ingm:TermLoanCreditFacilityMember us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:SecuredDebtMember 2024-12-28 0001897762 us-gaap:FairValueInputsLevel2Member ingm:TermLoanCreditFacilityMember us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:SecuredDebtMember 2024-12-28 0001897762 us-gaap:FairValueInputsLevel3Member ingm:TermLoanCreditFacilityMember us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:SecuredDebtMember 2024-12-28 0001897762 ingm:TermLoanCreditFacilityMember us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:SecuredDebtMember 2024-12-28 0001897762 us-gaap:EstimateOfFairValueFairValueDisclosureMember 2024-12-28 0001897762 us-gaap:FairValueInputsLevel1Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2024-12-28 0001897762 us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2024-12-28 0001897762 us-gaap:FairValueInputsLevel3Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2024-12-28 0001897762 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2024-12-28 0001897762 ingm:SeniorUnsecuredNotesDueTwoThousandTwentyNineMember us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:SeniorNotesMember 2023-12-30 0001897762 us-gaap:FairValueInputsLevel1Member ingm:SeniorUnsecuredNotesDueTwoThousandTwentyNineMember us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:SeniorNotesMember 2023-12-30 0001897762 us-gaap:FairValueInputsLevel2Member ingm:SeniorUnsecuredNotesDueTwoThousandTwentyNineMember us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:SeniorNotesMember 2023-12-30 0001897762 us-gaap:FairValueInputsLevel3Member ingm:SeniorUnsecuredNotesDueTwoThousandTwentyNineMember us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:SeniorNotesMember 2023-12-30 0001897762 ingm:SeniorUnsecuredNotesDueTwoThousandTwentyNineMember us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:SeniorNotesMember 2023-12-30 0001897762 ingm:TermLoanCreditFacilityMember us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:SecuredDebtMember 2023-12-30 0001897762 us-gaap:FairValueInputsLevel1Member ingm:TermLoanCreditFacilityMember us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:SecuredDebtMember 2023-12-30 0001897762 us-gaap:FairValueInputsLevel2Member ingm:TermLoanCreditFacilityMember us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:SecuredDebtMember 2023-12-30 0001897762 us-gaap:FairValueInputsLevel3Member ingm:TermLoanCreditFacilityMember us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:SecuredDebtMember 2023-12-30 0001897762 ingm:TermLoanCreditFacilityMember us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:SecuredDebtMember 2023-12-30 0001897762 us-gaap:EstimateOfFairValueFairValueDisclosureMember 2023-12-30 0001897762 us-gaap:FairValueInputsLevel1Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2023-12-30 0001897762 us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2023-12-30 0001897762 us-gaap:FairValueInputsLevel3Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2023-12-30 0001897762 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2023-12-30 0001897762 ingm:AptecSaudiMember 2023-12-31 2024-12-28 0001897762 ingm:AptecSaudiMember 2023-01-01 2023-12-30 0001897762 ingm:AptecTurkeyMember 2023-01-01 2023-12-30 0001897762 us-gaap:RelatedPartyMember ingm:CASAMember 2023-12-31 2024-12-28 0001897762 us-gaap:RelatedPartyMember ingm:CASAMember 2023-01-01 2023-12-30 0001897762 srt:ScenarioPreviouslyReportedMember 2024-03-30 0001897762 srt:RestatementAdjustmentMember 2024-03-30 0001897762 2024-03-30 0001897762 ingm:RevisionOfPriorPeriodAdjustmentOneMember 2024-03-30 0001897762 ingm:RevisionOfPriorPeriodAdjustmentTwoMember 2024-03-30 0001897762 srt:ScenarioPreviouslyReportedMember 2023-12-31 2024-03-30 0001897762 srt:RestatementAdjustmentMember 2023-12-31 2024-03-30 0001897762 2023-12-31 2024-03-30 0001897762 srt:ScenarioPreviouslyReportedMember us-gaap:RetainedEarningsMember 2023-12-30 0001897762 srt:RestatementAdjustmentMember us-gaap:RetainedEarningsMember 2023-12-30 0001897762 srt:ScenarioPreviouslyReportedMember 2023-12-30 0001897762 srt:RestatementAdjustmentMember 2023-12-30 0001897762 srt:ScenarioPreviouslyReportedMember us-gaap:RetainedEarningsMember 2023-12-31 2024-03-30 0001897762 srt:RestatementAdjustmentMember us-gaap:RetainedEarningsMember 2023-12-31 2024-03-30 0001897762 us-gaap:RetainedEarningsMember 2023-12-31 2024-03-30 0001897762 srt:ScenarioPreviouslyReportedMember us-gaap:RetainedEarningsMember 2024-03-30 0001897762 srt:RestatementAdjustmentMember us-gaap:RetainedEarningsMember 2024-03-30 0001897762 us-gaap:RetainedEarningsMember 2024-03-30 0001897762 ingm:RevisionOfPriorPeriodAdjustmentOneMember 2023-12-31 2024-03-30 0001897762 ingm:RevisionOfPriorPeriodAdjustmentTwoMember 2023-12-31 2024-03-30 0001897762 2024-03-31 2024-06-29 0001897762 2024-06-30 2024-09-28 0001897762 2024-09-29 2024-12-28 0001897762 2023-01-01 2023-04-01 0001897762 2023-04-02 2023-07-01 0001897762 2023-07-02 2023-09-30 0001897762 2023-10-01 2023-12-30 0001897762 us-gaap:SubsequentEventMember 2025-03-04 2025-03-04 0001897762 us-gaap:AllowanceForCreditLossMember 2023-12-30 0001897762 us-gaap:AllowanceForCreditLossMember 2023-12-31 2024-12-28 0001897762 us-gaap:AllowanceForCreditLossMember 2024-12-28 0001897762 us-gaap:AllowanceForCreditLossMember 2022-12-31 0001897762 us-gaap:AllowanceForCreditLossMember 2023-01-01 2023-12-30 0001897762 us-gaap:AllowanceForCreditLossMember 2022-01-01 0001897762 us-gaap:AllowanceForCreditLossMember 2022-01-02 2022-12-31 0001897762 ingm:SECSchedule1209AllowanceSalesReturnsMember 2023-12-30 0001897762 ingm:SECSchedule1209AllowanceSalesReturnsMember 2023-12-31 2024-12-28 0001897762 ingm:SECSchedule1209AllowanceSalesReturnsMember 2024-12-28 0001897762 ingm:SECSchedule1209AllowanceSalesReturnsMember 2022-12-31 0001897762 ingm:SECSchedule1209AllowanceSalesReturnsMember 2023-01-01 2023-12-30 0001897762 ingm:SECSchedule1209AllowanceSalesReturnsMember 2022-01-01 0001897762 ingm:SECSchedule1209AllowanceSalesReturnsMember 2022-01-02 2022-12-31 0001897762 srt:ScenarioPreviouslyReportedMember ingm:SECSchedule1209AllowanceSalesReturnsMember 2023-01-01 2023-12-30 0001897762 srt:ScenarioPreviouslyReportedMember ingm:SECSchedule1209AllowanceSalesReturnsMember 2022-01-02 2022-12-31 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +____________________________________ +FORM 10-K +____________________________________ +(Mark One) +x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 28 , 2024 +OR +o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from ________ to ________ +Commission file number 001-42384 +____________________________________ +INGRAM MICRO HOLDING CORP ORATION +(Exact name of registrant as specified in its charter) +Delaware +86-2249729 +(State or other jurisdiction of incorporation or organization) +(I.R.S. Employer Identification No.) +3351 Michelson Drive , Suite 100 +Irvine , CA +92612 +(Address of Principal Executive Offices) +(Zip Code) +( 714 ) 566-1000 +Registrant’s telephone number, including area code +Securities registered pursuant to Section 12(b) of the Act: +Title of each class Trading Symbol(s) Name of each exchange on which registered +Common Stock INGM New York Stock Exchange +Securities registered pursuant to section 12(g) of the Act: None +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. +Yes o No x +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. +Yes o No x +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. +Yes x No o +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). +Yes x No o +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”and "emerging growth company" in Rule 12b-2 of the Exchange Act. +Large accelerated filer o Accelerated filer o +Non-accelerated filer x Smaller reporting company o +Emerging growth company o +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. +o +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. +o +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. +x +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). +o +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). +Yes o No x +The registrant was not a public company as of June 29, 2024, the last business day of its most recently computed second fiscal quarter, and therefore cannot calculate the aggregate market value of the voting and non-voting common equity held by non-affiliates as of such date. The registrant’s common stock began trading on the New York Stock Exchange on October 24, 2024. +Number of shares of registrant’s common shares outstanding as of February 25, 2025 was 234,825,581 . +DOCUMENTS INCORPORATED BY REFERENCE +None. +. +Table of Contents +Page +Part I +5 +Item 1. Business +5 +Item 1A. Risk Factors +12 +Item 1B. Unresolved Staff Comments +47 +Item 2. Properties +49 +Item 3. Legal Proceedings +49 +Item 4. Mine Safety Disclosures +49 +Part II +50 +Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +50 +Item 6. [ Reserved ] +51 +Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations +52 +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +68 +Item 8. Financial Statements and Supplementary Data +70 +Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures +114 +Item 9A. Controls and Procedures +114 +Item 9B. Other Information +115 +Item 9C. Disclosure Regarding Foreign Jurisdiction that Prevent Inspections. +115 +Part III +116 +Item 10. Directors, Executive Officers and Corporate Governance +116 +Item 11. Executive Compensation +126 +Item 12. Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters +147 +Item 13. Certain Relationships and Related Transactions, and Director Independence +149 +Item 14. Principal Accounting Fees and Services +151 +Part IV +152 +Item 15. Exhibits, Financial Statement Schedules +152 +Item 16. Form 10-K Summary +155 +2 +Cautionary Note Regarding Forward-Looking Statements +This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements may contain words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “estimates,” or “anticipates,” or similar expressions which concern our strategy, plans, projections or intentions, but such words are not the exclusive means of identifying forward-looking statements in this report. These forward-looking statements are included throughout this Annual Report on Form 10-K, including in the sections entitled “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and relate to matters such as our industry, growth strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. By their nature, forward-looking statements: speak only as of the date they are made; are not statements of historical fact or guarantees of future performance; and are subject to risks, uncertainties, assumptions or changes in circumstances that are difficult to predict or quantify. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs and projections will result or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable securities laws. +There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from the forward-looking statements contained in this Annual Report on Form 10-K. Such risks, uncertainties and other important factors include, among others, the risks, uncertainties and factors set forth below under the heading “Risk Factors” included in this Annual Report on Form 10-K and the following: +• general economic conditions; +• our estimates of the size of the markets for our products and services; +• our ability to identify and integrate acquisitions and technologies into our platform; +• our plans to continue to expand; +• the provision of transition services to the buyer in the sale of a substantial portion of our Commerce & Lifecycle Services business (“CLS Sale”) and our ability to adjust our cost base as those transition service agreements expire; +• our ability to continue to successfully develop and deploy Ingram Micro Xvantage; +• the effect of the COVID-19 pandemic on our business; +• our ability to retain and recruit key personnel; +• the competition our products and services face and our ability to adapt to industry changes, including supply constraints for many categories of technology; +• current and potential litigation involving us; +• the global nature of our business, including the various laws and regulations applicable to us; +• the effect of various political, geopolitical and economic issues, including tariffs, and our ability to comply with laws and regulations we are subject to, both in the United States and internationally; +• our financing efforts; +• our relationships with our customers, OEMs and suppliers; +• our ability to maintain and protect our intellectual property; +• the performance and security of our services, including information processing and cybersecurity provided by third parties; +• our ownership structure; +• our dependence upon Ingram Micro Inc. and its controlled subsidiaries for our results of operations, cash flows and distributions; and +• our status as a “controlled company” and the extent to which the interests of Platinum Equity, LLC together with its affiliated investment vehicles (“Platinum”) conflict with our interests or the interests of our stockholders. +3 +Part I +Item 1. Business +Overview +Ingram Micro is a leading solutions provider by revenue and/or by global footprint for the global information technology (“IT”) ecosystem helping power the world’s leading technology brands. With our vast infrastructure and focus on client and endpoint solutions, advanced solutions offerings, cloud-based and other solutions, we enable our business partners to scale and operate more efficiently in the markets they serve. We are at the center of the technology ecosystem and deliver customized solutions to our vendor and reseller partners, enabling them to provide excellent business outcomes to the end-user companies and consumers we serve. Through our global reach, our industry-leading business-to-business (“B2B”) platform, and our broad portfolio of products, professional services offerings and software, cloud and digital solutions, we remove complexity and maximize the value of the technology products our partners make, sell or use, providing the world more ways to realize the promise of technology. In the face of significant economic uncertainty and volatility in commercial markets globally, our business remains well-positioned to benefit from technology megatrends, including cloud migration, enhanced security needs, Internet-of-Things (“IoT”), hybrid work, artificial intelligence (“AI”), machine learning (“ML”), and 5G. Our business is organized into four reportable segments based on the different geographic regions in which we operate: North America; Europe, Middle East and Africa (“EMEA”); Asia-Pacific; and Latin America. +In October 2024 we completed an initial public offering (“IPO”), in which we issued and sold 11,600,000 shares of our Common Stock, and Imola JV Holdings, L.P. agreed to offer and sold 7,000,000 shares of their Common Stock at a public offering price of $22.00 per share. The underwriters were granted a 30-day option to purchase up to an additional 2,790,000 shares of Common Stock from Imola JV Holdings, L.P., the selling stockholder, which was exercised in full and closed on November 4, 2024. +Our Fiscal Year is a 52- or 53-week period ending on the Saturday nearest to December 31. All references herein to “Fiscal Year 2024”, “Fiscal Year 2023”, and “Fiscal Year 2022” represent the fiscal years ended December 28, 2024 (52 weeks), December 30, 2023 (52 weeks) and December 31, 2022 (52 weeks), respectively. +Our Strategic Priorities +We are a technology-focused company and have invested heavily in developing and acquiring technology, including intellectual property, to enable our partners’ success. We expect our continued investment in robotics and automation within our advanced logistics centers will augment our efficient, customer-centric delivery capabilities and that our continued investment in our digital capabilities, including in the integration of more than 20 proprietary AI-driven engines within Ingram Micro Xvantage, will enhance the experience of our customers and vendors. We have a proven track record of profitable growth which has enabled us to achieve a position of great competitive strength and remain focused on continuing to deliver strong future growth. We recognize the market’s need for sophisticated IT solutions and our strategies are developed with this in mind. Our overall objective is to continue to expand our business and our profitability by delivering innovative and thoughtful solutions to enable business partners to scale and operate more efficiently and successfully in the markets they serve. +Our strategic priorities are aligned to achieve this objective and focus on: +• Adding digital tools and services to deepen engagement with customers and vendors and continuing to develop a transformative, fully digital platform to further simplify, automate, digitize and scale the delivery of our products and solutions portfolio. Through our Xvantage platform, we deliver a singular business-to-consumer-like experience to our vendor and customer partners in the B2B market to interact, learn, partner, plan and consume technology via seamless and autonomous engines. +• Growing our emerging technologies practices, including cybersecurity and AI, and further extending our technology portfolio to build out additional higher value, more complex product and services offerings. +• Enhancing profitability through operational improvement initiatives, digitization and automation. +5 +Our Products and Solutions +We provide a broad line of technology, services and solutions from more than 1,500 vendor partners, enabling us to offer comprehensive solutions to our reseller customers. Our suppliers are the world’s most trusted technology leaders, along with emerging technology brands, which include the industry’s premier computer hardware suppliers, mobility hardware suppliers, networking equipment suppliers and software publishers such as Advanced Micro Devices, Apple, Cisco, Dell Technologies, Hewlett Packard Enterprise, HP Inc., Lenovo, Microsoft, NVIDIA and Super Micro Computer. +We also work with suppliers of computer peripherals, consumer electronics, cloud-based solutions, unified communication and collaboration, data capture/point-of-sale (“DC / POS”) and physical security products. Our cloud portfolio comprises third-party services and subscriptions spanning a breadth of products from solution software to infrastructure-as-a-service. Our Ingram Micro Cloud Marketplace service portfolio consists of third-party cloud-based services or subscription offerings sold through our own platform. Vendors on the platform include Adobe, Amazon Web Services, Cisco, Microsoft, and Proofpoint. We sell products purchased from many vendors, but generated approximately 19%, 16% and 15% of our consolidated net sales in Fiscal Year 2024, Fiscal Year 2023 and Fiscal Year 2022, respectively, from products purchased from Apple Inc. Additionally, we generated approximately 10% of our consolidated net sales in Fiscal Year 2024, Fiscal Year 2023 and Fiscal Year 2022, from products purchased from HP Inc. +Our cloud marketplace, which in certain key jurisdictions has already been integrated into one unified Ingram Micro Xvantage platform, connects partners with what we believe to be the world’s largest cloud ecosystem, enabling them to generate demand more efficiently and provide third-party cloud-based services and subscription offerings through a digital platform for the consumption of cloud solutions in an ever-increasing cloud-centric world. We support more than 200 cloud solutions and manage over 36 million seats through our cloud marketplace. Our CloudBlue platform also provides services to many of the world’s leading telecommunication companies, as well as to managed service providers, technology distributors and value-added resellers, and manages over 52 million seats. Our professional services offerings add value to our partners and customers by providing data-driven business and market insights, pre-sales engineering, post-sale integration, technical support, trade credit, and financing solutions to further grow their businesses. In addition, our IT Asset Disposition (“ITAD”) and Reverse Logistics and Repairs businesses play an important role in advancing environmental sustainability and bridging the digital divide through electronic device reverse logistics, refurbishment, recycling, reuse and resale for organizations, including the world’s largest mobile telecommunication providers. By helping to enable a circular economy, we help our customers in achieving their sustainability goals and enable consumers to access high-quality, affordable smartphones, computers and other devices. +We categorize our product and service offerings into the following categories, each of which is offered in each of our four geographic segments: +Technology Solutions: +• Client and Endpoint Solutions. We offer a variety of higher-volume products targeted for corporate and individual end users, including desktop personal computers, notebooks, tablets, printers, components (including hard drives, motherboards, video cards, etc.), application software, peripherals, and accessories. We also offer a variety of products that enable mobile computing and productivity, including phones, phone tablets (including two-in-one “notebook/tablet” devices), smartphones, feature phones, mobile phone accessories, wearables and mobility software. +• Advanced Solutions . We offer enterprise-grade hardware and software products aimed at corporate and enterprise users and generally characterized by specific projects, which account for lower volumes than Client and Endpoint Solutions but higher-margin products individually and collectively in the form of solutions and related services. And while Advanced Solutions requires higher operational expenditures, primarily in the form of technical capabilities to serve the market, the operating margin delivered by this business is also generally stronger than Client and Endpoint Solutions. Within this product category, we offer servers, storage, networking, hybrid and software-defined solutions, cyber security, power and cooling and virtualization (software and hardware) solutions. This category also includes training, professional services and financing solutions related to these product sets. We also offer customers DC / POS, physical security, audio visual & digital signage, Unified Communications and Collaboration ( “ UCC ” ) and Telephony, IoT (smart office/home automation) and AI products. +6 +Cloud: +• Comprised of Cloud-based Solutions, including third-party services and subscriptions spanning a breadth of products from solution software through infrastructure-as-a-service. As technology consumption increasingly moves to anything-as-a-service, we have expanded our cloud solutions to more than 200 third-party cloud-based services or subscription offerings, including business applications, security, communications and collaboration, cloud enablement solutions and infrastructure-as-a-service. Also included here are the offerings of our CloudBlue business, which provides customers with multichannel and multi-tier catalog management, subscription management, billing and orchestration capabilities through a software-as-a-service model. +Other: +• We provide customers with ITAD, reverse logistics and repair and other related solutions. These offerings repres ent less than 5% of net sales fo r all periods presented herein. +Our Customers +We distribute IT and mobility solutions to more than 161,000 reseller customers, including most of the leading resellers of IT products and services around the world and with many of the world’s leading mobility companies. We serve a customer base that includes value-added resellers, corporate resellers, retailers, custom installers, systems integrators, mobile network operators, mobile virtual network operators, direct marketers, internet-based resellers, independent dealers, product category specialists, reseller purchasing associations, managed service providers, cloud services providers, PC assemblers, independent agents and dealers, IT and mobile device manufacturers and other distributors. Many of our customers are heavily dependent on partners with the necessary systems, capital, inventory availability, logistics capabilities and distribution and repair facilities in place to provide fulfillment and other services. We benefit from a broad geographic presence in 57 countries that in turn can service more than 90% of the world’s population across more than 200 countries globally and are trusted by many of the world’s leading telecommunications companies, mobile operators and retail and consumer brands. We aim to reduce our exposure to the impact of business fluctuations by maintaining a balance in the customer categories we serve. No single customer accounted for more than 10% of our total net sales in any of the periods presented herein. +Sales & Marketing +Our global, customer-facing sales and marketing team, enabled by our Xvantage platform, drives our go-to-market model centered on a deep understanding of our customer needs, and a goal to provide the industry’s broadest solutions offering to meet evolving customer demand and increasing technology complexity. We have operations in 57 countries, spanning all global regions, while also serving many additional geographies through various export sales offices, including general telesales operations into numerous markets. Our sales teams work closely with our marketing organization to actively pursue leads generated from marketing programs and guide prospective customers through the sales process. +Our marketing effort is focused on generating awareness of Ingram Micro’s solutions offering, creating sales leads, establishing and promoting our brand and our vendor partners’ products. Additionally, we offer a wide range of training, professional services, education and support offerings to enable our customers to rapidly onboard, adopt and ultimately realize value from our solutions. +Our sales and marketing organization includes sales development, sales operations, field sales and marketing personnel. As of December 28, 2024, we had approximately 10,200 associates in our sales and marketing organizations spanning all global regions. +International Operations +Approximately 66%, 64% and 62% of our consolidated net sales for Fiscal Year 2024, Fiscal Year 2023 and Fiscal Year 2022, respectively, were generated by our international operations. As our international operations constitute a significant portion of our consolidated net sales, they are subject to fluctuations in the U.S. dollar against foreign currencies. +7 +Seasonality +We experience some seasonal fluctuations in demand in our business. For instance, we typically see lower demand, particularly in Europe, during the summer months. Additionally, we also experience an increase in demand in the fourth quarter, driven primarily by typical enterprise budgeting cycles across our geographies and business categories and the pre-holiday stocking and associated higher logistics-based fulfillment fees, which tends to have greater seasonal impact on our Client and Endpoint Solutions and Other categories. These seasonal fluctuations have historically impacted our revenue and working capital including receivables, payables and inventory. Our extensive experience combined with a flexible workforce allows us to modulate our operations and workforce demand fluctuations throughout the year. +Competition +We operate in a competitive environment globally. Competition in our business is based primarily on factors such as level of service, products and solutions breadth and availability, subscription management capabilities, credit terms and availability, price, financing solutions, speed of delivery, effectiveness of sales and marketing programs, real-time analytic offerings and e-commerce tools. We compete with other high-volume and value-added international distributors, as well as numerous other smaller, specialized local and regional competitors who generally focus on narrower markets, products, or particular sectors. We also face competition from our vendors that sell directly to resellers, retailers and end-users. Our top competitors include global companies such as TD Synnex, Arrow Electronics, Inc., Scansource, Inc., Westcon-Comstor, Synnex Technology International and Anixter International, and local and regional distributors such as Also Holding, Esprinet, Redington, Exclusive Networks, Intcomex, D&H, Carahsoft, AppDirect and Pax8, along with a number of other smaller local distributors. We believe that we are well-equipped to outperform our competitors in all areas due to our comprehensive product and service offerings, broad global reach, highly skilled workforce and global distribution network. +Government Regulation +We are subject to a number of U.S. federal, U.S. state and foreign laws and regulations, covering tax, environmental (relating to product stewardship, including the European Union Waste Electrical and Electronic Equipment Directive), labor and employment, workplace safety advertising, intellectual property, federal securities, trade protection, anti-money-laundering, anti-corruption and anti-bribery, anti-competition, antitrust, internet and e-commerce, network security, encryption, payments and consumer protection relating to the promotion and sale of merchandise and the operation of fulfillment centers. The products we sell may be subject to tariffs, treaties and various trade agreements, as well as foreign and domestic laws and regulations affecting the import and export of IT products. For more information on the risks associated with complying with applicable laws, please see “Risk Factors—Risks Related to the Macroeconomic and Regulatory Environment—We operate a global business that exposes us to risks associated with conducting business in multiple jurisdictions” and “Risk Factors—Risks Related to the Macroeconomic and Regulatory Environment—Our failure to comply with the requirements of environmental, health and safety regulations or other laws and regulations applicable to a distributor of consumer products could adversely affect our business.” +We are also subject to data privacy, data security and data protection laws and regulations that impose restrictions on the collection, processing and use of personal data in the jurisdictions in which we operate. For instance, we are subject to the California Consumer Privacy Act and other U.S. state comprehensive privacy laws; the General Data Protection Regulation (“GDPR”) and European Economic Area (“EEA”) member state implementing laws, including as retained in UK law; other similar laws in Brazil and elsewhere; restrictions related to e-marketing, including the ePrivacy Directive in the EEA and the Privacy and Electronic Communications Regulation in the UK; and data localization requirements in China and Russia. The legal and regulatory environment in this space is constantly developing, with an expanding number of jurisdictions considering or enacting new privacy or data security laws, which may not correspond with previously enacted requirements. Ensuring our ongoing compliance with any new requirements may generate additional or unanticipated costs, or otherwise impact our financial condition. For more information on risks related to the development of these laws, see “Risk Factors—Risks Related to Information Technology, Data Privacy and Intellectual Property—Changes in the regulatory environment regarding privacy and data protection regulations could have a material adverse effect on our results of operations.” +We monitor changes in the laws and regulations to which we are subject. Our legal and compliance team and our information security team oversee our data protection strategy and monitor our compliance with laws and regulations generally. These teams manage, implement and oversee internal privacy policies and security measures, including regular monitoring and testing of systems and equipment. +8 +We believe that we are in material compliance with applicable laws and regulations, and we are not aware of any laws or regulations that are likely to materially impact our net sales, cash flow or competitive positions or result in any material expenditures. However, many of the laws and regulations to which we are subject continue to develop and could be interpreted, applied or amended in ways that are unfavorable to our business. +Our Trademarks and Service Marks +We own or license various trademarks and service marks, including, among others, “Ingram Micro,” the Ingram Micro logo, “CloudBlue,” “Aptec,” “Xvantage” and “Trust X Alliance.” Certain of these marks are registered, or are in the process of being registered, in the United States and various other countries. Even though our marks are not registered in every country where we conduct business, in many cases we have acquired rights in those marks because of our continued use of them. +Human Capital Resources +As of December 28, 2024, we had approximately 23,500 full-time associates. Additionally, as of December 28, 2024 we utilized the services of approximately 5,250 full-time equivalent temporary or contract workers at peak, who provide us with the workforce agility we require. Works councils or unions represent some of our associates in certain countries, almost exclusively where required by local regulations or brought in through acquisitions; our U.S. associates are not represented by a labor union, nor are they covered by a collective bargaining agreement. +Ethical Conduct +We believe our culture of ethics and integrity is built on a foundation of strong corporate governance, encapsulated in our Code of Conduct. Fair business practices are fundamental to our ability to establish trust with our partners, our associates and the communities in which we operate as well as maintain our reputation. Our ethical compliance program, which is overseen by the audit committee of our board of directors, covers areas such as anti-corruption, anti-bribery, anti-money laundering and harassment and whistleblower compliance. The program spans all our entities, across all operating regions and markets in which we have a presence. We are also a member of the Global Technology Distribution Council, which comprises the technology industry’s top wholesale distributors who drive more than $150 billion in annual worldwide sales, allowing us to participate in the development of an industry approach to address corruption. +Total Rewards +We believe people should be paid for what they do and how they do it, regardless of their personal characteristics. To deliver on that commitment, we benchmark and set pay ranges based on market data and consider factors such as an associate’s role and experience, the location of their job and their performance. We also review our compensation practices, both in terms of our overall workforce and individual associates, to ensure our pay is fair and equitable. We have reviewed the compensation of associates to ensure consistent pay practices by conducting annual rewards equity reviews. +We offer total rewards that are market-competitive and performance-based, driving innovation and operational excellence. Our compensation programs, practices and policies reflect our commitment to reward short- and long-term performance that aligns with, and drives, value for our owners. Total direct compensation is generally positioned within a competitive range of the market median, with differentiation based on tenure, skills, proficiency and performance to attract and retain key talent. +Associate Engagement +We regularly collect feedback to better understand and improve the associate experience and identify opportunities to continually strengthen our culture. We want to know what is working well, what we can do better and how well our associates understand our priorities and live by the Tenets of Our Success. In 2023, 84% of respondents who received our full associate survey participated. Our results equaled or exceeded our survey provider’s High Performance Benchmark in eight of thirteen categories and equaled or increased our favorable results in eleven of thirteen categories since our last full survey in 2021. +We help our associates and communities thrive through career development programs, embracing inclusivity and diversity while promoting service and our continued focus on health and safety. We are proud to support the philanthropic interests of our associates through volunteerism and giving programs. +9 +Training and Development +People development is foundational to our success. We continually invest in our associates’ career growth and provide a wide range of development opportunities. In 2024, approximately 77% of our executive positions were filled with internal candidates. We also deployed a new career development framework to further accelerate the development of our colleagues at all levels and areas of the business. +Health, Safety and Wellness +The physical health, financial well-being, life balance and mental health of our associates is vital to our success. Throughout the year, we encourage healthy behaviors through regular communications, educational sessions, voluntary progress tracking, wellness challenges and other incentives. In January 2021, we implemented a global employee assistance program to ensure that all associates and their immediate families have access to many tools and sources of support that address their financial, physical and mental well-being. Our warehouse and integration facilities continue to represent our most significant health and safety risks. Our global health and safety leadership team uses our global injury and illness reporting system to assess trends regionally and worldwide as part of quarterly reviews. Managing and reducing risks at these facilities remains a focus, and injury rates continue to be low. +Sustainable Impact +Our sustainable impact program is overseen by an executive steering committee consisting of our: +• Chief Executive Officer, +• Executive Vice President and Chief Financial Officer, +• Executive Vice President, Secretary and General Counsel, +• Executive Vice President, Human Resources, and +• Executive Vice President, Global Operations and Engineering. +This executive steering committee receives periodic briefings from our global sustainability team and individual program owners. Responsibility is one of the Tenets of Our Success as a company, and environmental stewardship is one area in which we demonstrate our responsibility. We have established targets for reducing greenhouse gas (“GHG”) emissions and waste in our operations. In December 2024, Ingram Micro received approval from the Science Based Targets initiative for its near-term climate targets, including its goal to reduce absolute Scope 1 and 2 GHG emissions by 90% by 2030, using a 2022 base year. +To support a circular economy, our ITAD business focuses on the reuse and recycling of electronics, and, as of December 28, 2024, a total of five of our ITAD processing facilities held e-Stewards certifications, four of which were in North America. Since 2019, we have been a registered SmartWay Shipper Partner in the Environmental Protection Agency’s SmartW ay Program, which allows us to benchmark our performance and assess the environmental impact of our transportation in the United States, as well as measure the fuel efficiency of our carrier partners, helping us address the carbon impacts of goods movement within our value chain. +In early 2024, the Company’s broad-based sustainability efforts were recognized by EcoVadis, a well-known third-party provider of evidence-based business sustainability assessments, who gave Ingram Micro a Platinum medal rating, reserved for the top one percent of the more than 125,000 companies on its platform. We believe this recognition signifies a substantial validation of our company’s commitment and leadership in sustainable and responsible business operations. +Available Information +Our website is http://www.ingrammicro.com. We make available free of charge, on or through our website, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, if any, or other filings filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after electronically filing or furnishing these reports with the Securities and Exchange Commission ("SEC"). We also make available free of charge on our investor relations website at ir.ingrammicro.com our Audit Committee Charter, Compensation Committee Charter, Nominating and Corporate Governance Committee Charter, Code of Conduct, Corporate Governance Guidelines, Insider Trading Policy, Board Communications with Stockholders Policy, Anti-Bribery policy, and Non-Retaliation Policies. +10 +The SEC maintains an Internet site at http://www.sec.gov that contains our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, if any, or other filings filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, and our proxy and information statements. Unless expressly noted, the information on our website, including our investor relations website, or any other website is not incorporated by reference in this Annual Report on Form 10-K and should not be considered part of this Annual Report on Form 10-K or any other filing we make with the SEC. +11 +Item 1A. Risk Factors +An investment in our Common Stock involves a high degree of risk. A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider the risks described below as well as the other information in this Annual Report on Form 10-K, including our consolidated financial statements and the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The occurrence of any of the events or developments described below could adversely affect our business, results of operations, financial condition, cash flows, reputation, or growth prospects, which could, in turn, adversely affect our stock price. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial could also present significant risks to our business. Investors should carefully consider all relevant risks before investing in our common stock. +Summary of Risk Factors +The following summary provides an overview of the material risks to which we are exposed, as set forth in greater detail further below. These risks include, but are not limited to, the following: +• our ability to predict our results of operations, which may fluctuate significantly; +• our ability to continue to successfully develop, deploy, and operationalize Ingram Micro Xvantage; +• industry and market conditions, inflation, volatility, and developments, including supply constraints across many elements of technology; +• the level of success of our acquisition and investment strategies; +• t he effect of the COVID-19 pandemic or other public health issues on our business; +• our ability to pay cash dividends and our ability to generate the funds necessary to meet our outstanding debt services and other obligations as our sole material asset is our direct interest in Ingram Micro Inc.; +• our ability to retain and recruit key personnel; +• the high level of competition in our industry; +• the effect of various political, geopolitical, and economic issues, including tariffs, and our ability to comply with laws and regulations we are subject to, both in the United States and internationally; +• our ability to adjust to developments in the economic or regulatory environment; +• our financial leverage, which could adversely affect our ability to raise additional capital to fund our operations, and other risks related to indebtedness; +• our reliance on third-party service providers to facilitate the sale of our products and solutions; +• our ability to maintain existing vendors and customers and accurately forecast customer demand; +• our ability to maintain, upgrade, and protect our information systems, including Xvantage; +• Platinum’s significant influence over us and our status as a “controlled company” under the rules of the New York Stock Exchange (“NYSE”); +• our ability to prevent fraud and maintain an appropriate control environment; +• the adverse effects of the material weaknesses in our internal control over financial reporting on investor confidence and the price of our Common Stock, or on our ability to comply with applicable laws and regulations; and +• the volatility of our stock price which may result in stockholders’ inability to sell shares at or above the price paid. +12 +Risks Related to Our Business and Our Industry +Our quarterly results have fluctuated significantly. +Our quarterly operating results have fluctuated significantly in the past and will likely continue to do so in the future as a result of: +• general changes in economic or geopolitical conditions, including changes in legislation or regulatory environments in which we operate and changes in import and export regulations, tariffs, or taxes and duties; +• competitive conditions in our industry, which may impact the prices charged and terms and conditions imposed by our vendors and/or competitors and the prices we charge our customers, which in turn may negatively impact our revenues and/or gross margins; +• variations in purchase discounts and rebates from vendors based on various factors, including changes to sales or purchase volume, changes to objectives set by the vendors, and changes in timing of receipt of discounts and rebates; +• seasonal variations in the demand for our products and services, which historically have included lower demand in Europe during the summer months, worldwide pre-holiday stocking in the retail and e-tail channels during the September-to-December period, and the seasonal increase in demand for our fulfillment services in the fourth quarter, driven by end-of-year purchasing cycles, affecting our operating expenses and gross margins; +• changes in businesses’ and consumers’ purchasing behaviors, including the rates at which they replace or upgrade technology solutions, and the impacts that fluctuating demand across different product categories, which also carry varying profitability and working capital profiles, can have on our overall results; +• changes in product mix, including entry or expansion into new markets, new product offerings, and the exit or retraction of certain business; +• the impact of and possible disruption caused by integration and reorganization of our businesses and efforts to improve our IT capabilities, as well as the related expenses and/or charges; +• currency fluctuations in countries in which we operate; +• variations in our levels of excess inventory and doubtful accounts, and changes in the terms of vendor-sponsored programs such as price protection and return rights; +• changes in the level of our operating expenses; +• the impact of acquisitions and divestitures; +• variations in the mix of profits between multiple tax jurisdictions, including losses in certain tax jurisdictions in which we are not able to record a tax benefit, as well as changes in assessments of uncertain tax positions or changes in the valuation allowances on our deferred tax assets, which could affect our provision for taxes and effective tax rate; +• the occurrence of unexpected events or the resolution of existing uncertainties, including, but not limited to, litigation or regulatory matters; +• the loss or consolidation of one or more of our major vendors or customers; +• product supply constraints; and +• inflation, interest rate fluctuations and/or credit market volatility, which may increase our borrowing costs and may influence the willingness or ability of customers and end users to purchase products and services. +These historical variations in our business may not be indicative of future trends in the near term. We believe that investors should not rely on period-to-period comparisons of our operating results as an indication of future performance. In addition, the results of any quarterly period are not indicative of results to be expected for a full fiscal year. +13 +We have invested, and will continue to invest, significant resources in the development and deployment of Ingram Micro Xvantage, and if Ingram Micro Xvantage is not successful, our business, results of operations, financial condition, and cash flows could be adversely impacted. +We have made, and expect to continue to make, substantial investments to develop a transformative digital platform to provide a singular experience for our associates, vendors, and customers to facilitate the consumption of technology and accelerate the benefits innovative technology brings to our customers. However, we may not be able to continue to successfully develop or effectively implement Ingram Micro Xvantage in a timely, cost-effective, compliant, secure, and responsible manner. Any difficulties in implementing or integrating Ingram Micro Xvantage, or failures in including appropriate cybersecurity and data privacy protections within the platform, could have an adverse effect on our business, results of operations, financial condition, and cash flows. +Further, if our competitors develop and introduce similar services in the future, our future success will depend, in part, on our ability to develop and provide competitive technologies, and we may not be able to do so timely, effectively or at all. As AI and other technologies improve in the future, we may be required to make significant capital expenditures to remain competitive, which may have an adverse effect on our results of operations, and our failure to do so in a timely, cost-effective, compliant, secure, and responsible manner may adversely impact our growth, revenue, and profit. There is also no guarantee that such investment in Ingram Micro Xvantage, AI, or future technologies will create additional efficiencies in our operations. +Our acquisition and investment strategies may not produce the expected benefits, which may adversely affect our results of operations. +We have made, and expect to continue to make, acquisitions or investments in companies around the world to further our strategic objectives and support key business initiatives. Significant risks and uncertainties related to our acquisition and investment strategies that may differ from those historically associated with our operations and that could materially and adversely affect our financial performance include the following: +• acquisitions that do not strategically align with our goals and growth initiatives; +• valuation methodologies that result in overpayment for an asset; +• failure to identify risks during due diligence processes or to accurately quantify the probability, severity and potential impact of the risks on our business; +• exposure to new regulations, such as those relating to U.S. federal government procurement regulations, those in new geographies or those applicable to new products or services; +• inability to successfully integrate the acquired businesses, which may be more difficult, costly or time-consuming than anticipated, including inability to retain key management associates and other personnel who could be critical to the acquisition strategy, current business operations and growth potential of the acquired operations; difficulties realizing revenue and cost savings synergies, which could hamper the growth and profitability of the core business operations and lead to distraction of management; difficulties with integrating different business systems and technology platforms and consolidating corporate, administrative, technological and operational infrastructures; +• distraction of management’s attention away from existing business operations while coordinating and integrating new and sometimes geographically dispersed organizations; +• insufficient profit generation to offset liabilities assumed and expenses associated with the investment strategy; +• inability to preserve our and the acquired company’s customer, supplier and other important relationships; +• inability to successfully protect and defend acquired intellectual property rights; +• inability to adapt to challenges of new markets, including geographies, products and services, or to identify new profitable business opportunities from expansion of existing products or services; +• inability to adequately bridge possible differences in cultures, business practices and management philosophies; +• inability to successfully operate in a new line of business; +• substantial increases in our debt; and +14 +• issues not discovered in our due diligence process. +In addition, we may divest business units that do not meet our strategic, financial and/or risk tolerance objectives. No assurance can be given that we will be able to dispose of business units on favorable terms or without significant costs. +We have been, and may continue to be, affected by the COVID-19 pandemic or other public health issues, and such effects could have an adverse effect on our business operations, results of operations, cash flows and financial condition. +We experienced disruptions to our business from the COVID-19 pandemic, and the potential for future disruptions related to COVID-19 or other public health issues is unpredictable. Due to lockdowns, our operations in certain countries, including China, Peru, Malaysia, Lebanon, Germany, the United Kingdom, Colombia, India and Dubai, were closed for periods of time with limited or no ability to operate. Specifically, the lockdown in India halted our operations for approximately two months in 2020. In addition, our operations and business in China were negatively impacted by the widespread lockdowns in 2022. In part as a result of the COVID-19 pandemic, we also encountered industry-wide supply chain challenges, including shipping and logistics challenges and significant limits on component supplies, which have adversely impacted (primarily in 2021 and 2022), and may continue to impact, our ability to meet demand, resulting in additional costs or otherwise adversely impacting our business, financial condition and results of operations. Additionally, in many countries in which we operate, a number of our associates have been infected with COVID-19, which has, at times, limited our available workforce. In the United States, the cost of labor and attrition increased in 2021 and 2022, making the labor market increasingly competitive. While many of these impacts of the COVID-19 pandemic had eased considerably by 2023, in the future we may again experience restrictions on high-volume shipping, supply chain volatility and product constraints, an increasingly competitive temporary labor workforce market and negative impact on the health and safety of our workforce, which could materially and adversely affect our business, results of operations, financial condition and cash flows. +Our management has taken measures, when appropriate, both voluntarily and as a result of government directives and guidance, to mitigate the effects of the COVID-19 pandemic on us and others. These measures have included, among others, the ability of certain associates to work remotely, which has placed a burden on our IT systems, created declines in productivity, and exposed us to increased vulnerability to cyberattack and other cyber disruption, impacts which we may not be able to fully mitigate. Because certain of our associates transitioned to working remotely on a mandatory or voluntary basis for a prolonged period of time, our return-to-office plans have, in some cases, led to associate attrition. Pandemic-related and post-pandemic-related changes in workforce patterns have resulted, and may continue to result, in additional attrition, difficulty in hiring and reduced productivity. See “Failure to retain and recruit key personnel would harm our ability to meet key objectives.” Many of these measures resulted in, and may in the future result in, incremental costs to us, and such costs may not be recoverable or adequately covered by our insurance. +In addition, we cannot fully predict the impact that public health issues will have on our customers, associates, vendors, suppliers, end users, strategic partners and other business partners and each of their financial conditions; however, any material effect on these parties could materially and adversely impact us. The impact of public health issues may also include possible impairment or other charges and may exacerbate other risks described below, any of which could have a material effect on us. +15 +We are a holding company with no direct operations. Our sole material asset is our indirect equity interest in Ingram Micro Inc. and, as such, we will depend on our subsidiaries for cash to fund all of our expenses. +We are a holding company with no direct operations, and have no material assets other than our indirect ownership of the stock of Ingram Micro Inc. and the direct and indirect ownership of its subsidiaries, which are the key operating subsidiaries. Our ability to pay cash dividends and our ability to generate the funds necessary to meet our outstanding debt service and other obligations will depend on the payment of distributions by our current and future subsidiaries, including, without limitation, Ingram Micro Inc., and such distributions may be restricted by law, taxes, or repatriation or the instruments governing our indebtedness, including the indenture that governs the 2029 Notes (as defined below), dated as of April 22, 2021, by and between Imola Merger Corporation and the Bank of New York Mellon Trust Company, N.A., as trustee and notes collateral agent, as supplemented by that certain supplemental indenture, by and among Ingram Micro Inc., as issuer, the Guarantors (as defined therein) party thereto from time to time, and the Bank of New York Mellon Trust Company, N.A., as trustee and notes collateral agent (the “Indenture”), the credit agreement that governs the ABL Revolving Credit Facility (as defined below) and the ABL Term Loan Facility (as defined below), dated as of July 2, 2021, by and among Imola Acquisition Corporation, Ingram Micro Inc., the borrowers therein, various lenders and issuing banks, and JP Morgan Chase Bank, N.A., as amended from time to time (the “ABL Credit Agreement”) and the term loan credit agreement that governs the Term Loan Credit Facility (as defined below), dated as of July 2, 2021, by and among Imola Acquisition Corporation, Ingram Micro Inc., JP Morgan Chase Bank, N.A., and the lenders, agents and other parties thereto, as amended from time to time, (the “Term Loan Credit Agreement”, and together with the ABL Credit Agreement, the “Credit Agreements”), or other agreements of our subsidiaries. Our subsidiaries may not generate sufficient cash from operations to enable us to make principal and interest payments on our indebtedness. +Failure to retain and recruit key personnel would harm our ability to meet key objectives. +Because of the complex and diverse nature of our business, which includes a high volume of transactions, business complexity, wide geographical coverage and a broad scope of products, vendors, suppliers and customers, we are highly dependent on our ability to retain the services of our key management, sales, IT, operations and finance personnel. Our continued success is also dependent upon our ability to retain and recruit other qualified associates, including highly skilled technical, managerial and marketing personnel and to provide growth and development opportunities and reward incentives that drive above-market performance. Competition for qualified personnel is intense and the costs of qualified talent are increasing. We may not be successful in attracting and retaining the personnel we require, which could have a material adverse effect on our business. In addition, our entry into new markets requires us to hire qualified personnel with new capabilities, and our increasing global footprint requires us to recruit talent in new geographies. We constantly review market conditions and other factors; however, we may fail to make staffing adjustments based on current and forecasted conditions. While these adjustments are generally small, there are occasions where we have reduced headcount in various geographies and functions through restructuring and outsourcing activities. The restructuring plans we have implemented, and any similar actions taken in the future, could negatively impact our relationships with vendors and customers, the morale of our workforce and our ability to attract, retain and motivate associates. In addition, failure to meet our performance targets may result in reduced levels of incentive compensation, which could affect our ability to adequately reward key personnel and potentially negatively impact retention. Changes in our workforce, including those resulting from acquisitions, and our failure to leverage shared services, could disrupt our operations or increase our operating cost structure. Government regulations, collective bargaining agreements and the unavailability of qualified personnel could also negatively impact operations and our costs. +In addition, we believe that our corporate culture is a critical component of our success. Remote work resulting from the COVID-19 pandemic has required us to make substantial changes to the way that many of our associates work. Remote work and geographically dispersed teams could negatively impact associate morale, the cohesiveness of and collaboration among our teams, as well as our ability to continue to innovate and maintain our culture. Any failure to preserve our culture and maintain associate morale could negatively affect our ability to retain and recruit personnel. Further, as we have required associates to return to our office sites at least three days per week, we may not be able to retain associates or attract new associates who prefer to work from home on a full-time basis. The failure to attract and retain such personnel could adversely affect our business. Finally, as we continue to evolve various work-from-home policies and other hybrid workforce arrangements, we may not be able to adopt or implement such policies in a timely manner or efficiently adapt to requisite changes once such policies are in place. +16 +Increases in wage and benefit costs, collective bargaining agreements, changes in laws and other labor regulations, or labor disruptions could impact our financial condition and cash flows. +Our expenses relating to employee labor, including employee health benefits, are significant. Our ability to control our employee and related labor costs is generally subject to numerous external factors, including prevailing wage rates, availability of labor, recent legislative and private sector initiatives regarding healthcare reform, and adoption of new or revised employment and labor laws and regulations; for example, recently, various legislative movements have sought to increase the federal minimum wage in the United States and the minimum wage in a number of individual states, some of which have been successful at the state level. Several employers in the private sector with whom we compete for permanent and seasonal labor have initiated wage increases and provided special benefits and incentives that may go beyond the minimum required by law. As minimum and market wage rates increase, we may need to increase not only the wage rates of our minimum wage associates, but also the wages paid to our other associates as well. A number of factors may adversely affect the labor force available to us, including high employment levels, federal and state unemployment subsidies, and other government regulations. In certain markets, such as the United States and Europe, labor shortages remain a challenge. Such shortages have led, and are likely to continue to lead, to higher wages for associates in order for us to provide competitive compensation. Should we fail to increase our wages competitively in response to increasing wage rates or labor shortages, the quality of our workforce could decline, adversely affecting our customer service and our overall business operations. Additionally, any increase in the cost of our labor could have an adverse and material effect on our operating costs, financial condition, and results of operations. +In addition, while we do not have unions in the United States, some of our associates are covered by collective bargaining agreements and works council arrangements in a number of the countries in which we operate including Australia, Brazil, Chile, Costa Rica, France, Germany, Mexico, the Netherlands, Poland, Spain, Sweden and the United Kingdom. Future negotiations prior to the expiration of our collective agreements may result in labor unrest for which a strike or work stoppage is possible. Strikes and/or work stoppages could negatively affect our operational and financial results and may increase operating expenses. In addition, any future unionization efforts would require us to incur additional costs related to wages and benefits, inefficiencies in operations, unanticipated costs in sourcing temporary or third-party labor, legal fees and interference with customer relationships. If a significant number of our associates were to become unionized and collective bargaining agreement terms were significantly different from our current arrangements, we may experience a material adverse effect on our business, results of operations, financial condition and cash flows. In addition, a labor dispute involving some of our associates may harm our reputation, disrupt our operations and reduce our revenue, and resolution of disputes may increase our costs. +We are also required to comply with laws and regulations in the countries in which we have associates that may differ substantially from country to country, requiring significant management attention and cost. +While we have not experienced any material work stoppages at any of our facilities, any stoppage or slowdown could cause material interruptions in our business, and we cannot assure investors that alternate qualified personnel would be available on a timely basis, or at all. +Our failure to adequately adapt to industry changes could negatively impact our future operating results. +The technology and IT services industry is subject to rapid and disruptive technological change, new and enhanced product specification requirements, evolving industry standards, and changes in the way technology products are distributed, managed or consumed. We have been, and will continue to be, dependent on innovations in hardware, software, and services offerings, as well as the acceptance of those innovations by customers and consumers. Our failure to add new products and vendors, a decrease in the rate of innovation, or the lack of acceptance of innovations by customers, could have a material adverse effect on our business, results of operations, financial condition, and cash flows. Vendors may also give us limited or no access to new products being introduced. +Changes in technology may cause the value of our inventory on hand to substantially decline or become obsolete, regardless of the general economic environment. Although it is the policy of many of our vendors to offer limited protection from the loss in value of inventory due to technological change or due to the vendors’ price reductions (“price protections”), such policies are often subject to time restrictions and do not protect us in all cases of declines in inventory value. If our major vendors decrease or eliminate our price protection, such a change in policy could lower our gross margins on products we sell or cause us to record inventory write-downs. In addition, vendors could become insolvent and unable to fulfill their protection obligations to us. We offer no assurance that inventory rotation or price protection rights will continue, that unforeseen new product developments will not adversely affect us, or that we will successfully manage our existing and future inventories. +17 +Significant changes in vendor terms, such as higher thresholds on sales volume before the application of discounts and/or rebates, the overall reduction in incentives, reduction or termination of price protection, return levels or other inventory management programs, or reductions in trade credit or vendor-supported credit programs, may adversely impact our results of operations or financial condition. +The advent of cloud-based and consumption-based services creates business opportunities and risks, including that our customer base may lack the expertise and capital required to support and enable the migration to the cloud and, as a result, end users may seek to source their solutions directly from software developers. Further, our experience platform requires significant engineering expertise and investments to be able to evolve along with the offerings of our software partners. We may not invest enough or be able to attract talent to advance our proprietary technology. +Further, some of our established vendors are transitioning to as-a-service companies, providing their entire portfolio through a range of subscription-based, pay-per-use and as-a-service offerings. Many of our vendors also continue to provide hardware and software in a capital expenditure and license-based model, ultimately giving end users a choice in consuming products and services in a traditional or as-a-service offering. While we are seeking to participate in both the on-premises and cloud-based markets, such business model changes entail significant risks and uncertainties, and our vendors, resellers and we may be unable to complete the transition to a subscription-based business model or manage the transition successfully. Additionally, we may not realize all of the anticipated benefits of the transition to the new consumption model, even if it is successfully completed. The transition also means that our historical results, especially those achieved before the transition, may not be indicative of our future results. Further, as customer demand for our consumption model offerings increases, we may experience differences in the timing of revenue recognition between our traditional offerings (for which revenue is generally recognized at the time of delivery) and our as-a-service offerings (for which revenue is generally recognized ratably over the term of the arrangement), which could have an adverse effect on our business, results of operations, financial condition, and cash flows. +We continually experience intense competition across all markets for our products and services. +Our competitors include local, regional, national, and international distributors, service providers and e-retailers, as well as suppliers that employ a direct-sales model. As a result of intense price competition in the technology and IT services industries, our gross margins have historically been narrow, and we expect them to continue to be narrow in the future, which magnifies the impact of variations in revenue, operating costs, obsolescence, foreign exchange, and bad debt on our operating results. In addition, when there is overcapacity in our industry, our competitors may respond by reducing their prices, and our vendors may reduce the number of authorized distributors, potentially limiting our ability to distribute certain products and services. +The competitive landscape has also experienced a consolidation among vendors, suppliers, and customers and this trend is expected to continue, which could result in a reduction or elimination of promotional activities by the remaining vendors, suppliers, and customers as they seek to reduce their expenses, which could, in turn, result in decreased demand from end users and our reseller customers for our products or services. Additionally, the trend toward consolidation within the mobile operator community is expected to continue, which could result in a reduction or elimination of promotional activities by the remaining mobile operators as they seek to reduce their expenses, which could, in turn, result in decreased demand for our products or services. Moreover, consolidation of mobile operators reduces the number of potential contracts available to us and other providers of logistics services. We could also lose business if mobile operators that are our customers are acquired by other mobile operators that are customers of our competitors, or we could face price pressures if our mobile operator customers are acquired by other mobile operators that are our customers. +We offer no assurance that we will not lose market share, or that we will not be forced in the future to reduce our prices in response to the actions of our competitors, which may put pressure on our gross margins. Furthermore, to remain competitive we may be forced to offer more credit or extended payment terms to our customers. This could increase our required capital, financing costs, and the amount of our bad debt expenses. Customers, suppliers, and lenders may also seek commitments from us related to sustainability and environmental impacts, and meeting these commitments may increase our cost of operations or preclude some customers from doing business with us if we cannot meet their standards. +We have also initiated, and expect to continue to initiate, other business activities and may face competition from companies with more experience and/or from new entrants in those markets. As we enter new areas of business or geographies or as we expand our offerings of new products or vendors, we may encounter increased competition from current competitors and/or from new competitors, some of which may be our current customers or suppliers, which may negatively impact our sales or profitability. +18 +We have operations in countries spanning all global regions, and we sell our products and services to a global customer base. We are subject to anti-competition regulations in the markets we serve, and our market share may adversely impact our ability to further expand our business, as well as increase the number of compliance requirements to which we are subject and the costs associated with such compliance. +The merger of two of our competitors, Synnex and Tech Data Corporation, in September 2021 to become TD Synnex, the industry’s largest IT distributor in the United States, as well as further consolidation in our industry may be disruptive to our business in a number of ways, including, but not limited to, by affecting the availability and pricing of credit lines extended by our vendors and other capital suppliers to us, any reduction of price protection, stock rotation, or similar vendor incentives, heightening pricing pressures and competition for customers and impacting our attractiveness to top talent. +Our goodwill and identifiable intangible assets could become impaired, which could reduce the value of our assets and reduce our net income in the year in which the write-off occurs. +Goodwill represents the excess of the cost of an acquisition over the fair value of the assets acquired. We also ascribe value to certain identifiable intangible assets, which consist primarily of intellectual property, customer relationships, and trade names, among others, as a result of acquisitions. We may incur impairment charges on goodwill or identifiable intangible assets if we determine that the fair values of the goodwill or identifiable intangible assets are less than their current carrying values. We evaluate, at least annually, whether events or circumstances have occurred that indicate all, or a portion, of the fair value of a reporting unit is less than its carrying amount, in which case an impairment charge to earnings would become necessary. +A decline in general economic conditions or global equity valuations could impact our judgments and assumptions about the fair value of our businesses and we could be required to record impairment charges on our goodwill or other identifiable intangible assets in the future. +We have incurred and will incur additional amortization expense over the useful lives of certain assets acquired in connection with business combinations, and to the extent that the value of goodwill or intangible assets with indefinite lives acquired in connection with a business combination and investment transaction become impaired, we may be required to incur material charges relating to the impairment of those assets. If our future results of operations for these acquired businesses do not perform as expected or are negatively impacted by any of the risk factors noted herein or other unforeseen events, we may have to recognize impairment charges which would adversely affect our results of operations. +Changes in our credit rating or other market factors, such as adverse capital and credit market conditions or reductions in cash flow from operations, may affect our ability to meet liquidity needs, reduce access to capital, and/or increase our costs of borrowing. +Our business requires significant levels of capital to finance accounts receivable and product inventory that is not financed by our trade credit with our vendors. This is especially true when our business is expanding, including through acquisitions, but we may still have substantial demand for capital even during periods of stagnant or declining net sales. In order to continue operating our business, we will continue to need access to capital, including debt financing and inbound and outbound flooring. In addition, changes in payment terms with either suppliers or customers could increase our capital requirements. Our ability to repay current or future indebtedness when due, or have adequate sources of liquidity to meet our business needs, may be affected by changes to the cash flows of our subsidiaries. A reduction of cash flow generated by our subsidiaries may have an adverse effect on our liquidity. Under certain circumstances, legal, tax, or contractual restrictions may limit our ability or make it more costly to redistribute cash between subsidiaries to meet our overall operational or strategic investment needs, or for repayment of indebtedness requirements. +19 +We believe that our existing sources of liquidity, including cash resources and cash provided by operating activities, supplemented as necessary with funds available under our credit arrangements, will provide sufficient resources to meet our working capital and cash requirements for at least the next 12 months. However, volatility and disruption in the capital and credit markets, including increasingly complex regulatory constraints on these markets and changes in existing and expected interest rates, may increase our costs for accessing the capital and credit markets. In addition, our credit ratings reflect each rating organization’s opinion of our financial strength, operating performance, and ability to meet our debt obligations, and there can be no assurance that we will achieve a particular rating or maintain a particular rating in the future. An inability to obtain or maintain a particular rating could increase the cost and impact the availability of future borrowings. These and other adverse capital and credit market conditions, including the inability of our finance partners to meet their commitments to us, may also limit our ability to replace maturing credit arrangements in a timely manner and affect our ability to access committed capacities or the capital we require on terms acceptable to us, or at all. See “—Risks Related to Our Indebtedness—Our substantial indebtedness could materially and adversely affect our financial condition, limit our ability to raise additional capital to fund our operations, limit our ability to increase or maintain existing levels of trade credit supplied from our suppliers, and prevent us from fulfilling our obligations under our indebtedness.” Furthermore, any failure to comply with the various covenant requirements of our corporate finance programs, including cross-default threshold provisions, could result in an event of default, which, if not cured or waived, could accelerate our repayment obligations and could affect our ability to access the majority of our credit programs with our finance partners. The acceleration of our repayment obligations or the lack of availability of such funding could materially harm our ability to operate or expand our business. +In addition, our cash and cash equivalents (including trade receivables collected and/or monies set aside for payment to creditors) are deposited and/or invested with various financial institutions located in the various countries in which we operate. We endeavor to monitor these financial institutions regularly for credit quality; however, we are exposed to risk of loss on such funds or we may experience significant disruptions in our liquidity needs if one or more of these financial institutions were to suffer bankruptcy or similar restructuring. +We cannot predict the outcome of litigation matters and other contingencies with which we may be involved from time to time. +We are involved, and in the future may become involved, in various claims, disputes, lawsuits, and actions. Other than as discussed in Note 9, “Commitments and Contingencies,” to our audited consolidated financial statements, we do not believe that the ultimate resolution of matters currently pending will have a material adverse effect on our business, results of operations, financial condition, and cash flows. We can make no assurances that we will ultimately be successful in our defense or prosecution of any of these matters or of any future matters. In addition, from time to time, we are, and may become, the subject of inquiries, requests for information, or investigations by government and regulatory agencies regarding our business. Any such matters, regardless of their merit or resolution, could be costly and divert the efforts and attention of our management and other associates, damage our reputation, or otherwise adversely affect our business. For more information regarding our current litigation matters, see Note 9, “Commitments and Contingencies,” to our audited consolidated financial statements. +Risks Related to the Macroeconomic and Regulatory Environment +We operate a global business that exposes us to risks associated with conducting business in multiple jurisdictions. +Sales outside the United States typically make up approximately two-thirds of our net sales. In addition, a significant portion of our business activity or key processes are being conducted in emerging markets, including, but not limited to, China, India, Brazil, Mexico, Peru, Colombia, Saudi Arabia, Indonesia, Malaysia, Thailand, the Philippines, Egypt, Pakistan, Morocco, Lebanon, and Serbia, and includes business with customers and end users that are state-owned or public sector entities. As such, a number of our subsidiaries are based outside of the United States. As a result, our future operating results and financial condition could be significantly affected by risks associated with conducting business in multiple jurisdictions, including misappropriation, fraud, and increasingly complex regulations that vary from jurisdiction to jurisdiction, the violation of which can lead to serious consequences, including, but not limited to, the following: +• trade protection laws, policies, and measures; +• import and export duties, customs levies, and value-added taxes; +20 +• compliance with foreign and domestic import and export controls, economic sanctions, and anti-money laundering and anti-corruption laws and regulations, including the U.S. Export Administration Regulations, various economic sanctions administered by the U.S. Treasury Department’s Office of Foreign Assets Control and the U.S. Department of Commerce, the U.S. Foreign Corrupt Practices Act, and similar laws and regulations of other jurisdictions for our business activities outside the United States, the violation of which could result in severe penalties including monetary fines, criminal proceedings, and suspension of export privileges; +• laws and regulations regarding consumer and data protection, privacy, AI, network security, encryption, and payments, including the Export Administration Regulations; +• managing compliance with legal and regulatory requirements and prohibitions, including compliance with local laws and regulations that differ or are conflicting among jurisdictions; +• anti-competition regulations and compliance requirements, including any new antitrust legislation that may be passed in the United States; +• environmental laws and regulations, such as those relating to climate change and waste disposal; +• differing employment practices and labor issues; +• political instability, terrorism, and potential or actual military conflicts or civil unrest; +• economic instability in a specific country or region; +• earthquakes, power shortages, telecommunications failures, water shortages, tsunamis, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics or pandemics, and other natural or man-made disasters or business interruptions in a region or specific country; +• complex and changing tax laws and regulations in various jurisdictions; +• potential restrictions on our ability to repatriate funds from our foreign subsidiaries; and +• difficulties in staffing and managing international operations. +The potential criminal penalties for violations of import/export controls, economic sanctions, anti-corruption, and anti-competition laws, particularly the U.S. Foreign Corrupt Practices Act and similar statutes outside the United States, data privacy and protection laws, and environmental laws and regulations in many non-U.S. jurisdictions create heightened risks for our international operations. In the event that a governing regulatory body determined that we have violated any laws, including applicable import/export controls, economic sanctions, or anti-corruption laws, we could be fined significant sums, incur sizable legal defense costs, be subject to debarment, and/or our import/export capabilities could be restricted, which could have a material and adverse effect on our business and reputation. +Additionally, unethical or fraudulent activities perpetrated by our directors, officers, senior management, associates, third-party suppliers and partners, including third-party shipping and freight forwarding companies, strategic partners, and resellers, have exposed us in the past and in the future could continue to expose us to fraud, misappropriation, liability, and reputational damag e. For example, see Section “Out of Period Correction” within Note 2, “Significant Accounting Policies” and Note 17, “Quarterly Information (Unaudited)” to our audited consolidated financial statements. Such fraud, misappropriation, liability, and/or damage to our reputation for these or any other reasons could have a material adverse effect on our business, results of operations, financial condition, and cash flows, particularly when accompanied by a breakdown in our internal controls, accounting processes, or governance oversight, and could require additional resources to rebuild our reputation. Further, failure to comply with applicable laws and regulations and failure to maintain an effective system of internal controls may subject us to fines or sanctions and incurrence of substantial legal fees and costs. While we have established policies, procedures, and internal controls designed to ensure accurate financial reporting and compliance with accounting standards, these controls may be circumvented, overridden, or rendered ineffective due to fraud, human error, or inadequate oversight. Our operating expenses could increase due to implementation of and compliance with existing and future laws and regulations or remediation measures that may be required if we are found to be noncompliant with any existing or future laws or regulations. +21 +We are subject to risks and uncertainties associated with the impact of trade discussions between the United States and China and related U.S. security risks and export controls. The U.S. government has imposed various measures impacting trade with China, including levying various tariffs on imports from China, and may impose additional measures in the future with China, Mexico, Canada, and the EU, among others. For example, on May 15, 2019, the President of the United States issued Executive Order 13873, which authorizes export controls on entities determined to (among other things) be a U.S. security threat. The next day, the U.S. Commerce Department placed Huawei Technologies Co., Ltd. and 68 of its non-U.S. affiliates on the U.S. Entity List, generally imposing a license requirement for export to those entities of items subject to the Export Administration Regulations and a license review policy of presumption of denial for all exports to the entities added to the Entity List. In addition, in interim rulemaking issued in January 2021, and final rule making issued in June 2023, the U.S. Commerce Department issued regulations implementing Executive Order 13873, which governs information and communications technology and services transactions involving certain “foreign adversaries,” such as China and Russia (among other countries). On June 9, 2021, the President of the United States issued an Executive Order on Protecting Americans’ Sensitive Data from Foreign Adversaries, to elaborate upon measures to address the national emergency with respect to the information and communications technology and services supply chain that was declared in Executive Order 13873. As an additional example, the U.S. Commerce Department issued new rules in October 2022, supplemented by additional rules in October 2023, December 2024, and January 2025, that further restrict the export of certain controlled items, in particular, advanced semiconductors and related production equipment, to companies based in China and certain other enumerated countries. We continue to assess the impact of these regulations on our business. While our sales in China have been affected, we do not currently believe that the new regulations will have a material effect on our overall business or financial condition, as the primary vendor impacted by the regulations has demonstrated the ability to develop new products specifically for China that are not subject to export restrictions. Additionally, any future expansion of such regulations or change in interpretation of such regulations could, depending on how much advance notice we receive, result in us having a significant inventory position of items subject to such restrictions that we might not be able to sell or return to the vendor or obtain payment for from our customers. Our global operations, including in China, could be impacted by these trade restrictions and the overall uncertainty regarding trade between the United States and China. For example, in response to these and other U.S. actions, beginning in July 2023 the Chinese government has imposed export restrictions on certain minerals and semiconductor inputs, and in the future China could take additional countermeasures against U.S. companies doing business in or with China. We cannot predict whether China or any of the countries in which we operate could become the subject of new or additional trade restrictions. Import/export controls, tariffs, countermeasures or other trade measures involving our customers’ products could harm sales of such products or result in the loss of non-U.S. customers, which could harm our business. +We historically had an office in Russia that employed engineering and coding resources supporting the operation and maintenance of our cloud marketplace. Following an executive order by President of the United States in 2022, and due to escalating trade sanctions, countermeasures, and operational challenges for non-Russian companies, we ceased all operations in Russia, and as of 2023, we no longer maintained a corporate entity in Russia and we no longer employed any associates in Russia. +Further, regional instability caused by, and any sanctions imposed in response to, geopolitical conflicts, including but not limited to the conflict between Russia and Ukraine and the conflicts in the Middle East, could lead to disruption and volatility in global markets that could adversely impact our business and supply chain, or that of our vendors or customers. At this stage, we are uncertain of the extent to which measures taken in response to the conflict could impact our business, results of operations, financial condition, or cash flows. +Additionally, we have been and expect to continue to be subject to new and increasingly complex U.S. and non-U.S. government regulations that affect our operations in the United States and globally. Complying with such regulations may be time-consuming and costly, and compliance could result in the delay or loss of business opportunities. While we have implemented, and will continue to implement and maintain, measures designed to promote compliance with these laws, we cannot assure investors that such measures will be adequate or that our business will not be materially and adversely impacted in the event of an alleged violation. +We are also exposed to market risks related to foreign currency and interest rate fluctuations, particularly changes in the value of the U.S. dollar against local currencies, which can significantly impact our financial results as more than half of our sales originate outside the United States. Currency variations, often driven by inflation, may affect sales, margins, profitability, and may positively or negatively impact our financial statements, which are reported in U.S. dollars. While we use a variety of financial instruments to manage these risks and monitor counterparty creditworthiness, our hedging activities may not fully mitigate the financial impact of adverse currency fluctuations. +22 +Our businesses operate in various international markets, including certain emerging markets that are subject to greater political, economic, and social uncertainties than developed countries. +We are monitoring the effects of Russia’s invasion of Ukraine. While such conflict has not yet materially impacted our business, geopolitical instability arising from such conflict, the imposition of sanctions, taxes and/or tariffs against Russia or commercial decisions to abstain from doing business with Russian-owned or Russian-managed vendors, and Russia’s response to such sanctions (including retaliatory acts), could adversely affect the global economic or specific international, regional, and domestic markets, which could adversely impact our business. We are also monitoring the effects of the recent conflicts in the Middle East, which have not yet materially impacted our business but could likewise adversely affect the global economic or specific international, regional, and domestic markets, which could adversely impact our business. Additionally, we operate internationally and to the extent future sanctions, laws, regulations, or orders imposed by the United States, the European Union, the United Kingdom, and other countries or private sector actors in response to the conflict differ between jurisdictions, we may experience regulatory and business uncertainty. +Changes in macroeconomic and geopolitical conditions can affect our business and results of operations. +Our revenues, profitability, financial position, and cash flows are highly dependent on the broader movements of the macroeconomic environment. The volatility in the global economy has trickle-down effects on the overall IT market as consumers of IT products and services plan their capital expenditures in the face of economic uncertainty, which has resulted, and may continue to result, in fluctuating revenue, margins and earnings, difficulty forecasting inventory levels to achieve optimum order fill rates, difficulty collecting customer receivables, decreased availability of trade credit from suppliers and/or their credit insurance underwriters, or decreased capital availability through debt and similar financing from external parties. +Further, an increase in inflation, as well as changes in existing and expected rates of inflation, could result in higher operating and labor costs, financing costs, and supplier costs, which could have an adverse effect on our results of operations if we are unable to pass along such higher costs to customers. Inflation may also impact our customers’ ability to obtain financing, cash flows, and profitability, which could adversely impact their ability to purchase our products and our ability to offer credit and collect receivables. +In addition, default by one of the several large financial institutions that are dependent on one another to meet their liquidity or operational needs or are perceived by the market to have similar financial weaknesses, so that a default by one institution causes a series of defaults by or runs on other institutions (sometimes referred to as a “systemic risk”) or a downgrade of U.S. or non-U.S. government securities by credit rating agencies, may expose us to investment losses, business disruption, and liquidity constraints. There has been significant volatility and instability among banks and financial institutions. For example, in 2023, the Federal Deposit Insurance Corporation (“FDIC”) took control and was appointed receiver of Silicon Valley Bank (“SVB”), due primarily to liquidity concerns. Other domestic and foreign institutions have subsequently experienced similar liquidity issues. While our exposure to, and deposits with, these institutions were not, and are not currently, material, any future failure of financial institutions at which we maintain funds, or events involving limited liquidity, defaults, non-performance, or other adverse conditions in the financial or credit markets impacting these institutions, or concerns or rumors about such events, may lead to disruptions in our ability to access our bank deposits or otherwise adversely impact our liquidity and financial performance. Such incidents have exposed, and in the future may impose, strains on the banking sector as a whole and demonstrate a heightened risk of systemic failures throughout the financial industry. We maintain cash balances at financial institutions in excess of the FDIC insurance limit, and if one or more of the financial institutions at which we maintain funds were to fail, there is no guarantee regarding the amount or timing of any recovery of the funds deposited, whether through the FDIC or otherwise. Additionally, we continue to monitor the risk that one or more of our vendors, suppliers, strategic partners, resellers, other business partners, and financial institutions, could be impacted by such instability, which could adversely affect our business, results of operations, financial condition, and cash flows. +Our business may also be impacted by sustained uncertainty about global economic conditions; continued negative economic trends or instability; heightened trade, and geopolitical tension among the United States, China, Taiwan, Russia, Middle Eastern countries, or other countries in which we operate or from which we procure products; civil unrest; political instability; global public health issues; a global recession or economic downturn in the countries in which we do business, leading to: +• reduced demand for products in general; +• shifts in consumer demand for products and services, which may lead to loss of sales and/or market share; +• difficulty in forecasting demand, including the seasonality of demand; +23 +• more intense competition, which may lead to loss of sales and/or market share; +• reduced prices and lower gross margin; +• loss of vendor rebates and other incentives; +• extended payment terms with customers; +• increased bad debt risks; +• shorter payment terms with vendors; +• reduced access to liquidity and higher financing and interest costs; +• increased currency volatility making hedging more expensive and more difficult to obtain; +• reduced availability of credit insurance capacity or acceptable terms to mitigate risk; and +• increased inventory losses related to obsolescence and/or excess quantities and/or theft/misappropriation. +Each of these factors, individually or in the aggregate, could adversely and materially affect our results of operations, financial condition, and cash flows. We may not be able to adequately adjust our cost structure in a timely fashion to remain competitive, which may cause our profitability to suffer. +Tariffs may result in increased prices and could adversely affect our business, results of operations, financial conditions, and cash flows. +The U.S. government has imposed tariffs on certain products imported into the United States, and the Chinese government has imposed tariffs on certain products imported into China, which have increased the prices of many of the products that we purchase from our vendors. The tariffs, along with any additional tariffs or trade restrictions that may be implemented by the United States, China, Mexico, Canada, or other countries, could result in further increased prices or challenges in procuring product for resale. While we intend to pass price increases on to our customers, the effect of tariffs on prices may impact demand, sales, and results of operations. Retaliatory tariffs imposed by other countries on U.S. goods have not yet had a significant impact, but we cannot predict further developments. The tariffs and the additional operational costs incurred in minimizing the number of products subject to the tariffs could adversely affect the operating profits for certain of our businesses and customer demand for certain products, which could have an adverse effect on our business, results of operations, financial condition, and cash flows. +In addition, in the event that we pay tariffs for products we import from China which are then re-exported to other locations outside of the United States, we may be eligible for refunds of certain tariffs. In order to qualify for these tariff drawbacks, we must provide data and documentation to the U.S. government that we must obtain from third-party sources, such as our suppliers. There is no guarantee we will be able to obtain this additional data and documentation from those other sources, which could result in the U.S. government rejecting the drawback requests. Further, there are additional administrative costs expended by us in furtherance of these efforts. Finally, due to the backlog of drawback applications, the U.S. government has been slow in issuing the associated drawback refunds. Our inability to obtain the drawback refunds or significant delays in receiving them could result in a material adverse effect on our business. +U.S.-China tensions around technology, national security, and human rights could adversely affect our business. +Our business within China consists predominantly of distributing Western products in China. The evolving regulatory landscape in both the United States and China regarding technology and national security remains uncertain. Enactment by China of laws, regulations, and/or practices that favor Chinese technology vendors over the Western ones that comprise our business could materially and adversely impact our business in China. Actions taken by the U.S. government to prohibit or restrict exports of key technology by U.S. vendors to Chinese end-customers, whether located in China or in other regions such as Europe, could also adversely affect our business. Net sales in China for Fiscal Year 2024 were $4.0 billion. In addition, countermeasures imposed by China, such as export restrictions, could impact the supply of critical components to our vendors and their suppliers, which could adversely affect our business on a global basis. +To a lesser extent, we also distribute products in the United States made by Chinese vendors. Risks associated with doing business with these Chinese vendors, in particular actual or perceived cybersecurity risks of their products, could also adversely affect our business. +24 +In addition, changes in the relationship between China and Taiwan could disrupt the operations of several companies in Taiwan that are our vendors or are in our vendors’ supply chains. Disruption of certain critical operations in Taiwan may have a material adverse effect on key sectors within the global technology industry. Furthermore, scrutiny by the U.S. government on human rights practices in China, as well as on the transparency of companies with business operations in China, may likewise have an adverse effect on key sectors within the global technology industry. +Increasing attention (both positive and negative) on environmental, social, and governance (“ESG”) matters may impact our business, subject us to unforeseen liability or cause harm to our reputation. +Recently, various stakeholders, including lenders, customers, vendors, local communities, regulators, public interest groups, and consumers, are placing an increased focus on ESG matters, such as diversity, equity, and inclusion (“DEI”), environmental protection, and social responsibility, while other stakeholders are challenging certain ESG initiatives, especially in DEI-related areas. ESG standards and expectations are evolving in different ways within the many jurisdictions in which we do business, and if we are perceived, due to unfavorable ESG ratings or otherwise, to have not responded appropriately to those standards, regardless of whether there is a legal requirement to do so, such perception could have a negative impact on our reputation, which could, in turn, have a negative impact on our business, including as it relates to associate retention, consumer sales, or investor interest. There are certain organizations that provide information to investors and other stakeholders on ESG matters that have developed ratings processes for evaluating companies on their approach to such ESG matters with no universal standard applied for these ratings. While some investors may use these ESG ratings to inform their investment and voting decisions, such ratings may result in misplaced focus on certain factors over others. +We have publicly communicated, and from time to time will continue to publicly communicate, certain initiatives and goals regarding ESG matters. There is no guarantee that we will be able to achieve these initiatives or goals. Our ability to successfully execute these initiatives and accurately report our progress presents numerous operational, financial, legal, reputational, and other risks, many of which are outside of our control, and which could have a material negative impact on our business and reputation. Additionally, the implementation of these initiatives imposes additional costs and other administrative burdens on us. Our failure, or perceived failure, to pursue or fulfill our goals, targets, and objectives or to satisfy various reporting standards on the time frames we announce could have negative impacts on our business, financial condition, and results of operations and expose us to liability, including litigation. Our ability to meet the standards imposed on us or that we choose or aspire to achieve may impact the perceptions held by our various stakeholders or the communities in which we do business. Further, different stakeholders may assess our achievement of these standards inconsistently, which could result in a negative perception or misrepresentation of our policies and practices. +A number of our customers may also adopt, or have already adopted, policies that impose standards on suppliers, such as environmental testing requirements or social responsibility standards. Likewise, some of our vendors have adopted such policies and standards with respect to their customers. The failure to meet our customers’ or vendors’ requirements could have an adverse effect on our business, including our ability to retain such customers or vendors. In addition, any ESG issues in our own supply chain, such as human rights, safety or environmental issues, could have an adverse effect on our business, including harm to our reputation. +Our failure to comply with the requirements of environmental, health and safety regulations, or other laws and regulations applicable to a distributor of consumer products could adversely affect our business. +Our business, facilities and operations are subject to various federal, state, local, and foreign laws, rules and regulations addressing matters such as: +• labor and employment; +• product safety and product stewardship, including regulations enforced by the United States Consumer Products Safety Commission; +• import and export activities; +• the internet and e-commerce; +• antitrust issues; +• taxes; and +25 +• environmental, health, safety, and other impacts, including as it relates to chemical usage, carbon and air emissions, worker health and safety, wastewater and storm water discharges, recycling of products at the end of their useful life, and the generation, handling, storage, transportation, treatment, and disposal of waste and other materials, including hazardous materials. +These laws include the European Union Waste Electrical and Electronic Equipment Directive as enacted by individual European Union countries and other similar legislation adopted in North America, which make producers of electrical goods, including computers and printers, responsible for collection, recycling, treatment, and disposal of recovered products. Failure to comply or allegations of noncompliance with these laws, rules, and regulations could result in substantial costs, fines, and civil or criminal sanctions, as well as third-party claims for property damage or personal injury. Further, environmental health and safety laws and the enforcement of such laws (including relating to climate change) may change, becoming more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with violations. +In many countries, governmental bodies are enacting new or additional legislation and regulations to reduce or mitigate the potential impacts of climate change. If we, our suppliers, or our vendors are required to comply with these laws and regulations, or if we choose to take voluntary steps to reduce or mitigate our impact on climate change, we may experience increased costs for energy and transportation, increased capital expenditures, increased insurance premiums and deductibles, or other unforeseen costs or business disruptions, which could adversely impact our operations. Inconsistency of legislation and regulations among jurisdictions may also affect the costs of compliance with such laws and regulations. Any assessment of the potential impact of future climate change legislation, regulations, or industry standards, as well as any international treaties and accords, is uncertain given the wide scope of potential regulatory change in the countries in which we operate. +We may also be subject to liability for the remediation of contaminated soil or groundwater, including at sites currently or formerly owned or operated by us or our predecessors in interest or in connection with third-party contaminated sites where have sent waste for treatment or disposal. While we take actions designed to ensure that we are in compliance with all applicable regulations, certain of these regulations, including those relating to the remediation of soil and groundwater, may impose strict liability and liability may be joint or several. +Although we believe that we are in substantial compliance with all applicable laws and regulations, because legal requirements frequently change and are subject to interpretation, we are unable to predict the ultimate cost of compliance or the consequences of non-compliance with these requirements, or the effect on our operations, any of which may be significant. We routinely incur costs in complying with these regulations and, if we fail to comply, we could incur significant penalties, such as criminal sanctions or civil remedies, including fines, penalties, injunctions, or prohibitions on importing or exporting, and our operations may be shut down. A failure to comply with applicable laws and regulations, or concerns about product safety, also may lead to a recall or post-manufacture repair of selected products, resulting in the rejection of our products by our customers and end users, lost sales, increased customer service and support costs, and costly litigation. In addition, failure to comply with environmental, health, and safety requirements could require us to shut down one or more of our facilities. There is a risk that any claims or liabilities, including product liability claims, relating to such noncompliance may exceed, or fall outside the scope of, our insurance coverage. Any changes in regulations, the imposition of additional regulations or the enactment of any new governmental legislation that impacts employment/labor, trade, healthcare, tax, environmental, or other business issues could have a material adverse impact on our business, results of operations, financial condition, and cash flows. +Changes in accounting rules could adversely affect our reported operating results. +Our consolidated financial statements are prepared in accordance with U.S. GAAP. These principles are subject to interpretation by various governing bodies, including the Financial Accounting Standards Board, which create and interpret appropriate accounting standards. Future periodic assessments required by current or new accounting standards may result in additional noncash charges and/or changes in presentation or disclosure. A change from current accounting standards could have a significant adverse effect on our reported financial position or results of operations. +26 +Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our results of operations and financial condition. +Together with our subsidiaries, we are subject to taxation in many jurisdictions worldwide. The future effective tax rates applicable to us and our subsidiaries as a group could be subject to volatility or adversely affected by a number of factors, including changes in the valuation of our deferred tax assets and liabilities, limitations on the tax deductibility of interest expense, tax effects of stock-based compensation and other executive compensation programs, or changes in tax laws, regulations or interpretations thereof. In addition, we and our subsidiaries may be subject to audits of our income, sales, and other taxes by U.S. federal, state, local, and non-U.S. taxing authorities. Outcomes from these audits could have an adverse effect on our business, results of operations, financial condition, and cash flows. +Changes in, or interpretations of, tax rules and regulations, changes in the mix of our business among different tax jurisdictions, and deterioration of the performance of our business may adversely affect our effective income tax rates or operating margins, and we may be required to pay additional taxes and/or tax assessments, as well as record valuation allowances relating to our deferred tax assets. +In addition to payroll taxes, we are subject to both income and transaction-based taxes in substantially all countries and jurisdictions in which we operate, which are complex. Changes to tax laws or regulations or to their interpretation or application by governments could adversely affect our future earnings and cash flows. For example, in light of continuing global fiscal challenges, various levels of government and international organizations such as the Organisation for Economic Co-operation and Development (“OECD”) and the European Union are increasingly focused on tax reform and other legislative or regulatory action to increase tax revenue. These tax reform efforts, such as the OECD’s Base Erosion and Profit Shifting Project, are designed to ensure that corporate entities are taxed on a larger percentage of their earnings. Tax reform efforts include proposals that may change various aspects of the existing framework under which our tax obligations are determined in many of the countries in which we do business and increase the complexity, burden, and cost of tax compliance. For example, the OECD/G20 Inclusive Framework released a statement on a two-pillar solution to address the tax challenges arising from the digital economy in October 2021, which includes proposals to reallocate profits among taxing jurisdictions based on a market-based concept rather than historical “permanent establishment” concepts and subject multinational enterprises to a global minimum corporate tax rate of 15%. These proposals have been agreed to in principle by 145 OECD member jurisdictions. In August 2022, the U.S. government enacted the Inflation Reduction Act, which imposes a corporate alternative minimum tax of 15% on adjusted financial statement income for certain corporations. To date, we have not experienced a material impact from this legislation. Our effective income tax rate in the future could be adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, limitations on the tax deductibility of interest expense, tax effects of stock based compensation and other executive compensation programs, changes to our operating structure, changes in tax laws, regulations or interpretation thereof, and the discovery of new information in the course of our tax return preparation process. +Likewise, changes to our transaction tax liabilities could adversely and materially affect our future results of operations, cash flows, and our competitive position. We engage in a high volume of transactions where multiple types of consumption, commercial, and service taxes are potentially applicable. An inability to appropriately identify, charge, remit, and document such taxes, along with an inconsistency in the application of these taxes by the applicable taxing authorities, may negatively impact our gross and operating margins, financial position, or cash flows. +We are subject to the continuous examination of both our income and transaction tax returns by the U.S. Internal Revenue Service and other domestic and foreign tax authorities. While we regularly evaluate our tax contingencies and uncertain tax positions to determine the adequacy of our provision for income and other taxes based on the technical merits and the likelihood of success resulting from tax examinations, any adverse outcome from these continuous examinations may have an adverse effect on our operating results and financial position. +27 +Risks Related to Our Indebtedness +Our substantial indebtedness could materially and adversely affect our financial condition, limit our ability to raise additional capital to fund our operations, limit our ability to increase or maintain existing levels of trade credit supplied from our suppliers, and prevent us from fulfilling our obligations under our indebtedness. +We have a significant amount of indebtedness. As a result of our substantial indebtedness incurred in connection with the Imola Mergers, a significant amount of our cash flows is required to pay interest and principal on our outstanding indebtedness, and we may not generate sufficient cash flows from operations, or have future borrowings available under the ABL Revolving Credit Facility, to enable us to repay our indebtedness or to fund our other liquidity needs. +Subject to the limits contained in the ABL Credit Agreement and the Term Loan Credit Agreement, the Indenture, and our other debt instruments, we may incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our high level of debt would further increase. Specifically, our high level of debt could have important consequences, including: +• making it more difficult for us to satisfy our obligations with respect to our debt; +• limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions, or other general corporate requirements; +• requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions, and other general corporate purposes; +• increasing our vulnerability to general adverse economic and market conditions; +• exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings under the ABL Revolving Credit Facility and the Term Loan Credit Facility (the “Credit Facilities”), are at variable rates of interest; +• limiting our flexibility in planning for and reacting to changes in the markets in which we compete and to changing business and economic conditions; +• restricting us from making strategic acquisitions or causing us to make non-strategic divestitures in order to generate cash proceeds necessary to satisfy our debt obligations; +• impairing our ability to obtain additional financing in the future; +• placing us at a disadvantage compared to other, less leveraged competitors and affecting our ability to compete; +• limiting our ability to retain or increase levels of trade credit and financing provided by our suppliers, or generating less advantageous pricing or rebate structures from our suppliers; and +• increasing our cost of borrowing. +We are also party to certain additional lines of credit, short-term overdraft facilities, and other credit facilities with approximately $182.7 million outstanding under these facilities as of December 28, 2024. See Note 6, “Debt” to our audited consolidated financial statements. +28 +We may not be able to generate sufficient cash flows from operations to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful. +Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to financial, business, legislative, regulatory, and other factors beyond our control. We might not be able to maintain a level of cash flows from operations sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. +If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital, or restructure or refinance our indebtedness. Additionally, we may not be able to obtain loans or other debt financings on commercially reasonable terms or at all. Even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. The Credit Agreements and the Indenture restrict, and the agreements governing our indebtedness in the future may restrict, our ability to dispose of certain assets and use the proceeds from such dispositions and may also restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. Because of these restrictions, we may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due. +Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our business, results of operations, financial condition, and cash flows as well as our ability to satisfy our obligations under our indebtedness. +Additionally, any inability to generate sufficient cash flows to satisfy our debt obligations or to refinance our indebtedness on commercially reasonable terms or at all could result in a material adverse effect on our business, results of operations, financial condition, and cash flows, and could negatively impact our ability to satisfy our obligations under our indebtedness, which in turn could negatively impact investments in our Common Stock. If we cannot make scheduled payments on our indebtedness, we will be in default and holders of our indebtedness could declare all outstanding principal and interest to be due and payable, the lenders under the ABL Revolving Credit Facility could terminate their commitments to loan additional money to us, the lenders could foreclose against the assets securing their borrowings, and we could be forced into bankruptcy or liquidation. Any or all of these events could result in investors losing all or a part of their investments in our Common Stock. +The Indenture and the Credit Agreements contain a number of restrictive covenants that impose significant operating and financial restrictions on us and limit our ability to engage in acts that may be in our long-term best interest, including restrictions on our ability and the ability of our subsidiaries to: +• incur additional indebtedness and guarantee indebtedness; +• pay dividends or make other distributions in respect of, repurchase or redeem, capital stock; +• prepay, redeem or repurchase certain debt; +• issue certain preferred stock or similar equity securities; +• make loans and investments; +• sell assets; +• incur liens; +• enter into agreements containing prohibitions affecting our subsidiaries’ ability to pay dividends; +• enter into transactions with affiliates; and +• consolidate, merge, or sell all or substantially all of our assets. +As a result of all of these restrictions, we may be: +• limited in how we conduct our business; +• unable to raise additional debt or equity financing to operate during general economic or business downturns; or +• unable to compete effectively or to take advantage of new business opportunities. +29 +These restrictions might hinder our ability to grow in accordance with our strategies. With respect to the ABL Revolving Credit Facility, we will also be required by a springing financial covenant to, on any date when Adjusted Availability (as such term is defined in the ABL Credit Agreement) is less than the greater of (i) 10% of the lesser of the Line Cap (as such term is defined in the ABL Credit Agreement) and (ii) $300 million, maintain a minimum fixed charge coverage ratio of 1.00 to 1.00, tested for the four fiscal quarter periods ending on the last day of the most recently ended fiscal quarter for which financials have been delivered, and at the end of each succeeding fiscal quarter thereafter until the date on which Adjusted Availability has exceeded the greater of (x) 10% of the Line Cap and (y) $300 million for 30 consecutive calendar days. Our ability to meet the financial covenant could be affected by events beyond our control. While we anticipate that we will continue to be able to maintain compliance with this covenant, we cannot assure investors that we will not breach this covenant or other covenants in our Credit Facilities in the future, or other covenants in our future credit facilities. +A breach of the restrictive, reporting and other covenants under the Indenture or under the Credit Agreements could result in an event of default under the applicable indebtedness. Such a default, if not cured or waived, may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt that is subject to an applicable cross-acceleration or cross-default provision. In addition, an event of default under the Credit Agreements would permit the lenders under the ABL Revolving Credit Facility to terminate all commitments to extend further credit thereunder. Furthermore, if we were unable to repay the amounts due and payable under the Credit Facilities, those lenders could proceed against the collateral securing such indebtedness. In the event our lenders or holders of the Company’s $2 billion aggregate principal amount 4.750% notes due 2029 (the “2029 Notes”) accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness. +Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly. +Borrowings under the Credit Facilities are, and borrowings under the agreements governing our future indebtedness may be, subject to variable rates of interest, exposing us to interest rate risk. As interest rates increase, our debt service obligations on the variable rate indebtedness will increase even though the amount borrowed may remain the same, and our profit and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. Assuming that our ABL Revolving Credit Facility was fully drawn as of December 28, 2024, each one-eighth percentage point change in interest rates would result in a change of approximately $5.53 million in annual interest expense on the indebtedness under our Credit Facilities. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 7A, “Quantitative and Qualitative Disclosures About Market Risk—Interest Rate Risk.” To mitigate the Company’s exposure to interest rate risk arising from the Company’s long-term debt, the Company entered into certain agreements during the first quarter of 2023 (and which are scheduled to expire on March 31, 2025) to establish a 5.5% upper limit on the LIBOR interest rate applicable to a substantial portion of the borrowings under the Term Loan Credit Facility. During the second quarter of 2023, we amended the ABL Revolving Credit Facility and the Term Loan Credit Facility to transition from LIBOR to the Secured Overnight Financing Rate (“SOFR”) as the interest reference rate, and we amended the interest rate cap agreements to establish a 5.317% upper limit on the SOFR interest rate. These interest rate cap agreements transitioned from LIBOR to SOFR as the interest reference rate during the third quarter of 2023. +These transitions may result in increased interest expense to us and may affect our ability in the future to incur debt on terms acceptable to us, which could adversely affect our business, results of operations, financial condition, and cash flows. In the future, we may enter into other interest rate swaps that involve the exchange of floating for fixed rate interest payments in order to reduce interest rate volatility. However, it is possible that we will not maintain interest rate swaps with respect to any of our variable rate indebtedness. Alternatively, any swaps we enter into may not fully or effectively mitigate our interest rate risk. +30 +The Indenture governing the 2029 Notes and the Credit Agreements governing the Credit Facilities contain cross-default or cross-acceleration provisions that may result in all of the debt issued under the Indenture and the Credit Agreements to become immediately due and payable because of a default under an unrelated debt instrument. +Our failure to comply with the obligations contained in the agreements governing any of our debt instruments could result in an event of default under such instruments, which could result in the 2029 Notes and the Credit Facilities (together with accrued and unpaid interest and other fees) becoming immediately due and payable. In such event, we would need to raise funds from alternative sources, which funds may not be available to us on favorable terms, on a timely basis or at all. Alternatively, such a default could require us to sell certain of our assets and otherwise curtail our operations in order to pay our creditors. These alternative measures could have a material adverse effect on our business, results of operations, financial condition, and cash flows, which could cause us to become bankrupt or insolvent or otherwise impair our ability to make cash available by dividend, debt repayment, or otherwise to enable us to make payments in respect of our indebtedness. +Risks Related to Our Reliance on Third Parties +We face a variety of risks in our reliance on third-party service companies, including shipping companies and a cloud service provider, for the delivery of our products and outsourcing arrangements. +We rely almost entirely on arrangements with third-party shipping and freight forwarding companies for the delivery of our products. Freight and shipping charges may increase due to rising fuel cost, inflation, labor disputes, tariffs, or general price increases. For example, in 2021, one of our key transportation suppliers notified us of a significant rate increase in our transportation cost base. Any such increases have an immediate adverse effect on our margins unless we are able to pass the increased charges to our customers or renegotiate terms with our suppliers. Additionally, the termination of our arrangements with one or more of these third-party shipping companies, or the failure or inability of one or more of these third-party shipping companies to deliver products from vendors to us or products from us to our customers, even temporarily, could materially disrupt our business and harm our reputation and operating results, and we and our vendors and customers may be unable to mitigate such disruptions by securing alternate shipping arrangements. +Ingram Micro Xvantage utilizes the cloud infrastructure of the Google Cloud Platform and relies on AI-based tools associated with the Google Cloud Platform for the day-to-day functioning of some of the AI capabilities within the Xvantage platform, such as providing recommendations to users. If the Google Cloud Platform experiences technical issues, such as server outages, network disruptions, or performance degradation, it could directly and adversely impact the availability and performance of the Xvantage platform. Users may be unable to access the platform, experience lag or disconnections, or encounter other technical problems, leading to frustration and potential churn. Reliance on a single cloud provider or third-party service could also leave us vulnerable to vendor lock-in and price increases. We may not be able to easily switch Google Cloud operations to another cloud service provider or to our on-premise infrastructure if there are disruptions or interference with our use of Google Cloud. +In addition, we have outsourced various transaction-oriented service and support functions to business process outsource providers, including third-party customer service platforms that utilize AI in their provided services (subject to relevant terms of use governing Ingram Micro’s use of such products). We have also outsourced a significant portion of our IT infrastructure function and certain IT application development functions to third-party providers. We may outsource additional functions to third-party providers. Our reliance on third-party providers to provide services to us, our customers, and suppliers could result in significant disruptions and costs to our operations, including damaging our relationships with our suppliers and customers, if these third-party providers do not meet their obligations to adequately maintain an appropriate level of service for the outsourced functions or fail to adequately support our IT requirements. As a result of our outsourcing activities, it may also be more difficult to recruit and retain qualified associates for our business needs. +31 +We or our vendors, suppliers, or customers may experience damage to or disruptions at our respective facilities caused by natural disasters and other factors, such as climate change, which may result in our business, financial condition, and results of operations being adversely affected. +Several of our facilities or those of our vendors, suppliers, and customers could be subject to a catastrophic loss or business interruptions due to extreme weather events, including as a result of climate change (such as drought, wildfires, increased storm severity and frequency, and sea level rise), earthquakes, tornadoes, floods, hurricanes, fire, power loss, telecommunication and information systems failure, inclement weather, failure of the power grid, or other similar events. We maintain disaster recovery and business continuity plans that would be implemented in the event of incidents such as severe weather events; however, we cannot be certain that our plans will protect us or our vendors, suppliers, or customers from all such events. While we maintain insurance coverage to mitigate business continuity risks, among other risks, such coverage may be insufficient to recover all such losses, or we may not be able to reestablish our operations and, as a result, our customers or suppliers may experience material disruptions in their operations as a result of such events, which could materially and adversely affect our business, results of operations, financial condition, and cash flows. +Termination of a key supply or services agreement or a significant change in vendor terms or conditions of sale could negatively affect our operating margins, revenue, or the level of capital required to fund our operations. +Our agreements with most of our key vendors are terminable upon short notice and for any reason. Additionally, under most of our agreements, our vendors are not required to accept the purchase orders we regularly place. Should our contractual relationships with vendors be terminated or, even if not terminated, should vendors decide to reject our purchase orders, our business may be materially and adversely impacted. +A significant percentage of our net sales relates to products sold to us by relatively few vendors. As a result of such concentration, terminations of supply or services agreements, a significant change in the terms or conditions of sale from one or more of our significant vendors or the bankruptcy or closure of business by one or more of our key vendors could negatively affect our operating margins, revenues, and/or the level of capital required to fund our operations. Our vendors have the ability to make, and in the past have made, rapid and significantly adverse changes in their sales terms and conditions, such as reducing the amount of price protection and return rights offered to us, as well as reducing the level of purchase discounts and rebates they make available to us. In most cases, we have no guaranteed price or delivery agreements with vendors. In certain product categories, such as systems, limited price protection, or return rights offered by vendors may have a bearing on the amount of product we may be willing to purchase for stock. We expect restrictive vendor terms and conditions to continue for the foreseeable future. Our inability to pass through to our customers the impact of these changes, as well as our failure to develop systems to manage ongoing vendor programs, could cause us to record inventory write-downs or other losses and could have a negative impact on our gross margins. +We receive purchase discounts and rebates from vendors based on various factors, including sales or purchase volume, breadth of customers, and achievement of other quantitative and qualitative goals set by the vendors. These purchase discounts and rebates may affect gross margins and ultimately, profitability. Many purchase discounts from vendors are based on percentage increases in sales of products. Our operating results could be negatively impacted if these rebates or discounts are reduced or eliminated or if our vendors significantly increase the complexity of the process and costs for us to receive such rebates. +Our ability to obtain particular products or product lines in the required quantities to fulfill customer orders on a timely basis is critical to our success. The technology industry experiences significant product supply shortages and customer order backlogs from time to time due to the inability of certain vendors to supply certain products on a timely basis. As a result, we have experienced, and may continue to experience, shortages of specific products that may last for an indefinite period of time, which can significantly impact pricing of such products. Vendors have, from time to time, made efforts to reduce the number of distributors with whom they do business. This could result in more intense competition as distributors strive to secure distribution rights with these vendors, which could have an adverse effect on our operating results. If vendors are not able to provide us with an adequate supply of products to fulfill our customer orders on a timely basis or we cannot otherwise obtain particular products or a product line, or vendors substantially increase their existing distribution through other distributors, their own dealer networks or directly to resellers, our reputation, sales, and profitability may materially suffer. +32 +Our business may be adversely affected by some vendors’ strategies to consolidate business or increase their direct sales, which in turn could cause our business and operating results to suffer. +Our business is significantly impacted by the strategies and decisions of our vendors, including original equipment manufacturers (“OEMs”), regarding product distribution and sales channels. Consolidation among vendors and their increased focus on direct sales to reseller, retail customers, or end users could adversely affect our business, financial condition, and operating results. For example, Broadcom acquired VMware in November 2023 and subsequently, effective as of early 2025, discontinued the longstanding relationship under which we have distributed VMware products, which could negatively impact our net sales and our relationships with resellers and other customers that historically procured VMware solutions through Ingram Micro. +Vendor consolidation has led to fewer sources for some of the products and services that we distribute, while simultaneously creating larger vendors with significant bargaining power and financial resources. These vendors may pursue aggressive business terms, streamline product offerings, or adjust sales strategies, including increasing reliance on direct sales. For example, in January 2024, HPE, one of our longstanding vendor partners, announced its intention to acquire Juniper Networks, another one of our longstanding vendor partners, and changes in those vendors’ sales practices or strategies in the event of the acquisition closing and the subsequent integration of the businesses could result in a reduction in our aggregate revenues with respect to such accounts. Similarly, in March 2024, Cisco acquired Splunk, and any changes in our relationship with either company—both of which are key vendor partners—could negatively impact our ability to distribute their products and services, alter pricing structures, or affect demand from our resellers and other customers. +Additionally, vendor strategies to reduce or eliminate promotional activities and rebates to manage their expenses can negatively impact the incentives available to us, our customers, and end users. These changes could lead to decreased demand for their products through our channels and further diminish our competitiveness. Moreover, some OEMs and other vendors bypass the distribution channel altogether, reducing our addressable market and eroding our revenue opportunities. If our primary vendors expand their direct-to-customer sales efforts, rather than using us as the distributor of their products and services, our sales volumes, profitability, and operating results will materially suffer. Our reliance on vendors to maintain robust distribution partnerships, consistent sales strategies, and competitive incentive programs is critical to our success. If vendor consolidation, changes in strategy, or direct sales trends continue or intensify, our business, financial condition, and operating results could be significantly and adversely affected. +Credit risks from customers, including substantial defaults or loss of significant customers, could negatively impact our business, results of operations, financial condition, or liquidity. +As is customary in many industries, we extend credit to our customers for a significant portion of our net sales, generally allowing a period of time, typically 30 days after the invoice date, for payment. However, the extension of credit involves inherent risks, particularly when economic or industry-specific conditions deteriorate or when doing business in international markets where credit cycles are longer, and legal recourse may be more complex. +We are subject to the risk that our customers may default on their payment obligations, which could lead to significant financial losses. For example, in 2022, one of our customers in the United States went into receivership and we experienced a loss of less than $10 million for which we did not have insurance coverage. The risk of default may increase if our customers experience reduced demand for their products and services, become financially unstable due to adverse economic conditions, or face disruptions in their own supply chains. In such cases, our ability to collect receivables could be significantly impaired. Furthermore, if we are unable to secure credit insurance at reasonable rates or collect under existing insurance policies, our exposure to bad debt could grow, negatively impacting our earnings, cash flows, and ability to utilize receivable-based financing. +International customers, particularly in emerging markets, often pose greater credit risks due to factors such as longer payment cycles, currency volatility, regulatory complexities, and limited availability of credit insurance or collection resources. Credit risks may also be magnified in international markets where legal and cultural differences, weaker enforcement of contract rights, and currency fluctuations can complicate our risk management efforts. If we fail to adequately mitigate these risks, such as through diversification of our customer base, enhanced credit monitoring, or proactive collections management, our business, results of operations, and liquidity could be materially and adversely affected. +33 +In addition to default risks, our customers are not obligated to make purchases from us. The loss of a significant customer, whether due to competitive pressures, acquisition by another company, or changes in their purchasing patterns, could significantly reduce our net sales. This could also impair our ability to access rebates or reduced pricing from product suppliers or vendors tied to volume purchases, further negatively impacting our margins, financial performance, and results of operations. +We do not have guaranteed future sales of the products we sell and when we enter into contracts with our customers, we generally take the risk of certain cost increases, and our business, financial condition, results of operations, and operating margins may be negatively affected if we purchase more products than our customers require, product costs increase unexpectedly, we experience high start-up costs on new contracts, or our contracts are terminated. +Certain of our contracts are long-term, fixed-price agreements with no guarantee of future sales volumes, and may be terminated for convenience on short notice by our customers, often without meaningful penalties, and often provide that we are reimbursed for the cost of any inventory specifically procured for the customer or inventory that is not commonly sold to our other customers. In addition, we purchase inventory based on our forecasts of anticipated future customer demand. As a result, we have taken, and will continue to take, the risk of holding excess inventory if our customers do not place orders consistent with our forecasts, particularly with respect to inventory that has a more limited shelf life. Also, even though we may sometimes enter into long-term pricing agreements with our vendors, we run the risk of not being able to pass along to our customers, or otherwise recover, unexpected increases in our product costs, including as a result of changing environmental laws and regulations, the effects of climate change on pricing and sourcing, transportation, and commodity price increases and tariffs, which may increase above our established prices at the time we entered into the contract and established prices for products we provide. When we are awarded new contracts, particularly just-in-time contracts, we may incur high costs, including salary and overtime costs, to hire and train on-site personnel, in the start-up phase of our performance. In the event that we purchase more products than our customers require, product costs increase unexpectedly, we experience high start-up costs on new contracts, or our contracts are terminated, our business, financial condition, results of operations and operating margins could be negatively affected. +Risks Related to Information Technology, Data Privacy, and Intellectual Property +Our dependence on a variety of information systems to operate our business could, if such systems are not properly functioning, maintained, and available, result in disruptions to our business and harm our reputation and net sales. +We depend on a variety of information systems for our operations, many of which are proprietary, including one of our legacy mainframe enterprise resource planning (“ERP”) systems, which have historically supported many of our material business operations such as inventory and order management, shipping, receiving, and accounting. Because a significant number of our information systems are internally developed systems and applications in the legacy programming language COBOL, it can be more difficult to upgrade or adapt them compared to commercially available software solutions and they require significant engineering expertise to maintain. We may not invest sufficient resources in, or be able to attract necessary talent to successfully maintain, our information systems. +More than a decade ago, we began our program to deploy a new global ERP system developed by SAP SE. Since then, our business has significantly diversified, and new technologies allow legacy systems and diverse applications to easily be connected in a modular way, which allows these legacy systems to be part of a flexible, powerful and efficient solution. Today, however, the majority of our distribution business still runs on our legacy mainframe ERP system. We can make no assurances as to whether the modularity of our system construct will continue to operate efficiently or as expected, which could in turn impact our ability to operate or for our customers or vendors to transact with us normally. In addition, maintaining and supporting disparate ERPs, including the failure of any portion or module thereof, may pose risks to our ability to operate successfully and efficiently within an effective system of internal controls (including appropriate controls over financial reporting), as well as our ability to assess the adequacy of such internal controls. +34 +We can make no assurances that the combined systems strategy will be successful or that we will not have additional disruptions, delays, and/or negative business impacts from future deployments. +Disruptions, delays or deficiencies in the design, implementation, performance and maintenance of our various IT systems could adversely and materially affect our ability to effectively run and manage our business, including by potentially limiting our customers’ ability to access our price and product availability information or place orders. Portions of our IT infrastructure also may experience interruptions, delays, or cessations of service or may produce errors in connection with systems integration or migration work that takes place from time to time. We may not be successful in implementing new systems and transitioning data, which could cause business disruptions and be more expensive, time consuming, disruptive, and resource-intensive than anticipated. Such disruptions could adversely impact our ability to fulfill orders or to attract and retain customers, and could interrupt other business processes. Moreover, the expenses associated with these initiatives can be difficult to predict, and we may incur substantial additional expenses in excess of what is currently expected, particularly if any of these initiatives is unsuccessful or proves unsustainable, which may require us to incur additional costs. We may also be limited in our ability to integrate any new business that we may acquire into our information systems. If our information systems do not allow us to transmit accurate information, even for a short period of time, to key decision makers, the ability to manage our business could be disrupted and the results of operations and our financial condition could be materially and adversely affected. Failure to properly or adequately address these issues could impact our ability to perform necessary business operations, which could materially and adversely affect our reputation, competitive position, business, results of operations, and financial condition. +We may not be able to prevent or timely detect breaches of, or attacks on, our information technology systems. +We rely on the internet for our orders and information exchanges with our suppliers, vendors, and customers. The internet in general, and individual websites in particular, have experienced a number of disruptions, slowdowns, and security breaches, some of which were caused by organized attacks. If we were to experience a security breakdown, disruption, or breach that compromised sensitive information, including personal information, this could materially harm our relationships with our customers, suppliers, or associates; impair our order processing; damage our reputation in the industry and with our customers; open us to potential litigation, regulatory inquiry or investigation, enforcement action, and associated costs or other liabilities; or more generally prevent our customers and suppliers from accessing information, which could cause us to lose business. Computer programmers, state and non-state actors, and hackers may be able to penetrate our network security and misappropriate or compromise our confidential information or that of third parties stored on our systems, create system disruptions, or cause shutdowns. For example, some of our associates have mistakenly clicked on a ‘phishing’ email that resulted in compromised network credentials or other stolen information. None of these incidents has been material, and as described below, we employ defenses designed to mitigate the risk of these types of events, but we cannot guarantee that these defenses will succeed given the changing tactics and sophistication of tools deployed by threat actors around the world. In addition, “ransomware” attacks or other forms of cyber extortion present a significant concern as such attacks may impose costs in the form of remediation, post-attack notification obligations or other legal or regulatory requirements, and operational delays and other interruptions to normal business activities. In addition, sophisticated hardware and operating system software and applications that we procure from third parties may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the operation of the system. For instance, in 2019 and 2020, one of our suppliers, SolarWinds, fell victim to one of the largest and most sophisticated supply chain attacks in recent history. This attack, reportedly perpetrated by nation-state actors, infected SolarWinds software that was eventually distributed to more than 30,000 SolarWinds customers, including us. This third-party security incident necessitated us taking additional steps to secure our systems, including conducting a forensic investigation and patching relevant software. Though we uncovered no evidence that the SolarWinds attack resulted in any actual compromise of our systems or data, incidents such as this impose costs and may adversely affect our operations. +35 +Cyberattacks, including by state-sponsored actors, continue to become more sophisticated and persistent, and any such attacks which result in a security breach and/or personal data breach may adversely impact our business, or result in regulatory investigation, litigation, or other liability. +We deploy data security measures, including physical, technical, and administrative safeguards, and contingency plans reasonably designed to mitigate these risks and to satisfy regulatory, contractual and other legal requirements in the United States and other countries as required by our global footprint; however, we cannot assure investors that a breakdown, disruption, or breach will not occur in the future. In particular, we have taken steps to address the potential risk presented by ransomware attacks, for instance, by standardizing our disaster recovery program and by conducting backup and recovery exercises. Additionally, we conduct industry-standard audits of our data security program and maintain active programmatic data security certifications. The costs of eliminating or alleviating cyberattacks or other information security vulnerabilities, including bugs, viruses, worms, and malicious software programs could be significant, and our efforts to address or anticipate these problems may not be successful and could result in interruptions, delays, cessation of service, and loss of existing or potential customers and may impede our sales, distribution, or other critical functions. +We manage and store proprietary information and sensitive or confidential data relating to our business. In addition, we routinely process, store, and transmit large amounts of data for our partners, which may include sensitive information and personal information. Confidential information may also inadvertently be disclosed in connection with our repair and refurbishment and/or our electronic waste disposal services. Breaches of our security measures or the accidental loss, inadvertent disclosure, or unapproved dissemination of proprietary information or sensitive or confidential data about us or our customers or vendors, including the potential loss or disclosure of such information or data as a result of fraud, trickery, or other forms of deception, could expose us, our customers or vendors, or affected individuals to loss or misuse of this information, result in litigation, regulatory scrutiny and potential liability for us, damage our brand and reputation, or otherwise materially harm our business. In addition, the cost and operational consequences of implementing further data protection measures could be significant. Such breaches, costs, and consequences could materially and adversely affect our business, results of operations, financial condition, and cash flows. +Changes in the regulatory environment regarding privacy and data protection regulations could have a material adverse effect on our results of operations. +We may process personal data (i.e., data relating to a reasonably identifiable natural individual) in relation to our associates, customers, business partners, vendors, suppliers, and other third parties, and the collection, use, sharing, and protection of personal data is highly regulated in many jurisdictions in which we operate. For example, in the EEA, the GDPR imposes restrictions and burdens that are applicable to our business. GDPR is directly applicable in each EU and EEA member state; however, it provides that EU and EEA member states may establish further conditions, limitations, and regulations, and these could further limit our ability to collect, process, share, disclose, and otherwise use personal data and/or could cause our compliance costs to increase, ultimately having an adverse effect on our business. +GDPR limits the circumstances under which personal data may be transferred out of the EU and EEA to third countries, which may affect our ability to operate with respect to such cross-border transfers. Specifically, under GDPR, personal data may only be transferred out of the EU/EEA to countries that have “adequate” protections in place, as determined by the European Commission (“EC”), or subject to a lawful data transfer mechanism, such as the EC-approved Standard Contractual Clauses (“SCCs”). Where we transfer personal data out of the EU or EEA to countries without an EC adequacy decision, we seek to comply with the relevant EU data export requirements, including by entering into SCCs. Further, these cross-border data transfer rules and the mechanisms used by companies such as ours are under scrutiny and the ongoing legality of such transfer mechanisms is not certain. That uncertainty increases our compliance costs. For example, despite the adoption of the EU-U.S. Data Privacy Framework to legitimize EU-to-U.S. personal data transfers, there is ongoing litigation challenging both the U.S. adequacy decision and the use of the SCCs to legitimize transfers of personal data to the United States. If the use of SCCs in such circumstances is invalidated by the European courts, we may need to renegotiate certain contracts or change certain data processing operations to remain in compliance with GDPR. In the United Kingdom, regulators have implemented their own United Kingdom-specific requirements, such as by requiring parties to use an International Data Transfer Agreement or otherwise amend the EU SCCs when transferring data to countries without adequate protections in place. Switzerland similarly has its own Swiss-specific requirements. These additional requirements increase the costs of negotiating and executing contracts with suppliers, vendors, and customers located in, or related to the processing of personal data of individuals in, the United Kingdom, Switzerland, or the EU. +36 +We depend on a number of third parties in relation to the operation of our business, a number of which process personal data on our behalf. With each such provider we attempt to mitigate the associated risks of using third parties by entering into contractual arrangements, including data processing agreements, to ensure that providers only process personal data according to our instructions and that they have sufficient technical and organizational security measures in place to protect such data. Where we transfer personal data outside the EEA to such third parties, we do so in compliance with the relevant data export requirements, as described above. However, there is no assurance that these contractual measures and our own privacy and security-related safeguards will protect us from all risks associated with the third-party processing, storage, and transmission of such information. Any violation of data privacy or security laws by our third-party processors could have a material adverse effect on our business and result in the fines and penalties outlined below. +We are subject to the supervision of local data protection authorities in those EU and EEA jurisdictions where we are established or otherwise subject to the GDPR. Fines for violation of the GDPR may be significant: up to the greater of 20 million Euros or 4% of total global annual turnover. In addition to the foregoing, a breach of the GDPR could result in regulatory investigations, reputational damage, orders to cease, change our processing of our data, enforcement notices, assessment notices (for a compulsory audit), as well as potential civil claims including class-action type litigation where individuals suffer harm. +We are also subject to evolving EU privacy laws on cookies and e-marketing. Regulators have interpreted GDPR to require opt-in for marketing and the use of cookies, web beacons, and similar technologies that are not strictly necessary for the proper functioning of a website or online application. Violations of these requirements are potentially subject to fines at the same levels as the GDPR generally (i.e., the greater of 20 million Euros or 4% of total global annual turnover). We are likely to be required to expend further capital and other resources to ensure compliance as expectations, precedent, and guidance from regulators continue to evolve around issues related to tracking technologies and e-marketing. +Other jurisdictions outside the EU and EEA, including several states in the United States and a number of countries around the world, have enacted or are considering enacting comprehensive data privacy and data protection laws, including laws that borrow various concepts from the GDPR. For example, in 2020 and 2021, laws went into effect in California, Brazil and China regulating the collection, use, and sharing of personal data in those jurisdictions, and new data privacy laws in various states, as well as updates to states’ existing laws, have since come into effect or will come into effect in the future. These laws, such as the California Consumer Privacy Act, as amended (“CCPA”), allow for substantial penalties for non-compliance. For example, under the CCPA, in addition to fines that may be imposed by the State Attorney General and/or the California Privacy Protection Agency, consumers themselves have a private right of action against a company for failure to utilize “reasonable security procedures” that leads to a data breach. In addition, numerous countries, such as China and Russia, have enacted data localization laws that require certain data to stay within their borders and impose significant penalties for failure to comply. As laws in the jurisdictions in which we operate continue to change, we face additional costs to update our compliance efforts and additional risks related to potential complaints and associated penalties, fines, reputational damage, and other costs. +Further, many jurisdictions are considering or have adopted cybersecurity requirements that may apply to our business. For example, in July 2023, the SEC adopted new cybersecurity rules for public companies that are subject to the reporting requirements of the Exchange Act. Under these new rules, registered companies must disclose a material cybersecurity incident within four business days of management’s determination that the incident is material. Companies also must include updated cybersecurity risk management, strategy, and governance disclosures, including disclosures regarding management’s role in assessing and managing risks from cybersecurity threats. These new rules became effective for companies other than smaller reporting companies on December 18, 2023. Outside the United States, China has implemented, and other jurisdictions may implement, laws that require companies’ information technology security environments to be certified against certain standards. Such laws may be complex, ambiguous, and subject to varying interpretation, which may create uncertainty regarding compliance. +Finally, we may also face audits or investigations by one or more government agencies and/or customers, business partners, and vendors relating to our compliance with these regulations that could result in the imposition of penalties or fines and/or impact our business relationships. We have implemented a compliance program with input from external advisors designed to ensure our compliance with these privacy and data protection obligations; however, we cannot assure that our program will address or mitigate all potential risks of noncompliance. Moreover, the costs of compliance with, and other burdens imposed by, such laws, regulations, and policies that are applicable to us may limit the use and adoption of our products and solutions and could have a material adverse effect on our business and results of operations. +37 +Issues in the development and use of AI and ML, combined with an uncertain regulatory environment, may result in reputational harm, liability, risks to our confidential information, proprietary information, and personal data, or an adverse effect on our business, results of operations, financial condition, and cash flows. +We currently incorporate AI and ML capabilities into our Ingram Micro Xvantage platform, and our goal is to further enhance our competitive position and the experience of our customers and vendors through the use or development of such tools. The complex and rapidly evolving legal and regulatory landscape, including in the countries in which we currently offer Ingram Micro Xvantage – the United States, Germany, Canada, the United Kingdom, Mexico, Colombia, Austria, France, Italy, Belgium, the Netherlands, Spain, India and Australia – as well as the expectations of consumers, the nature of the AI tools currently in the market, and their use and deployment by our vendors, competitors, and other third parties, each present potential risks and challenges. +For instance: +• Legislators and regulators in the U.S. and elsewhere are increasingly interested in the development, deployment, use, and safety of AI systems. Several jurisdictions have enacted, or are considering enacting, legislation and regulations regarding transparency, oversight, safety, and governance related to AI. The introduction of AI into new or existing products may result in increased governmental or regulatory scrutiny, and adapting to or complying with new legal requirements may adversely impact our operations or market position; +• If we, our vendors, or our third-party partners experience an actual or perceived personal data breach or security incident because of the use of AI, we may lose confidential, sensitive, and/or proprietary information, see “–We may not be able to prevent or timely detect breaches of, or attacks on, our information technology systems”; +• The intellectual property ownership and license rights, including copyright, as applied to AI technologies has not been fully addressed by U.S. courts or other federal or state laws or regulations, and the use or adoption of third-party AI technologies into our products and services may result in exposure to claims of copyright infringement or other intellectual property misappropriation; +• While we aim to use AI ethically and attempt to identify and mitigate ethical issues presented by its use, we may be unsuccessful in identifying or resolving issues before they arise, or the output result may not align with our expectations, or that of our customers, impacting our relationships with customers, partners, and suppliers or other unintended results; and +• We face significant competition from other companies. If we are unable to incorporate AI capabilities that enhance the functionality and reliability of our products, we may lose market share or be unable to attract or retain customers. +Any of these outcomes could damage our reputation, result in the loss of valuable property and information, and adversely impact our business, results of operations, financial condition, and cash flows. +38 +We may become involved in intellectual property disputes that could cause us to incur substantial costs, divert the efforts of management, or require us to pay substantial damages or licensing fees. +As a distributor of products and as a service provider, including of our cloud marketplace technology, from time to time we receive notifications from third parties alleging infringements of intellectual property rights allegedly held by others relating to the products or services we sell. As we continue to expand the products and services we offer and the geographies and channels in which we participate, our potential exposure to disputes related to intellectual property rights infringement increases. Litigation with respect to patents or other intellectual property matters could result in substantial costs and diversion of management and other resources and could have an adverse effect on our operations. Further, we may be obligated to indemnify and defend our customers if the products or services we sell are alleged to infringe any third party’s intellectual property rights. While we may be able to seek indemnification and defense from our vendors and suppliers to protect our customers and our company against such claims, there is no assurance that we will be successful in obtaining such indemnification or defense or that we will be fully protected against such claims or that such indemnification and defense rights will be sufficient. We also may be unable to insure against such claims. We may also be prohibited from marketing products or services, be forced to market products or services without desirable features, be forced to pay additional licensing fees to continue to distribute certain products or perform certain services, or incur substantial costs to defend legal actions, including when third parties claim that we or vendors who may or may not have indemnified us are infringing upon their intellectual property rights. The validity, subsistence, and enforceability of the intellectual property rights portfolio that we currently hold, develop, or acquire may be challenged. We may receive such a challenge from individuals and groups who purchase intellectual property assets for the sole purpose of asserting claims of infringement and attempting to extract settlements from target companies. Even if we believe that such infringement claims are without merit, the claims may be time-consuming and costly to defend and may divert management’s attention and resources away from our business. Claims of intellectual property infringement may require us to enter into costly settlements or pay costly damage awards, or face a temporary or permanent injunction prohibiting us from marketing or selling certain products or services, which could affect our ability to compete effectively. If an infringement claim is successful, we may be required to pay damages or seek royalty or license arrangements, which may not be available on commercially reasonable terms. +Risks Related to Our Relationship with Platinum and Being a “Controlled Company” +Platinum controls us, and its interests may conflict with ours or other stockholders’ in the future. +Platinum controls approximately 90% of the voting power of our outstanding Common Stock, and thus holds more than a majority of the voting power of our outstanding Common Stock entitled to vote generally in the election of directors. Platinum is able to control the election and removal of our directors and thereby control our policies and operations, including the appointment of management, future issuances of our Common Stock or other securities, payment of dividends, if any, on our Common Stock, the incurrence or modification of indebtedness by us, amendment of our amended and restated certificate of incorporation and amended and restated bylaws, and the entering into of extraordinary transactions, and their interests may not in all cases be aligned with the interests of our other stockholders. This concentration of voting control could deprive stockholders of an opportunity to receive a premium for their shares of Common Stock as part of a sale of our company and ultimately might affect the market price of our Common Stock. This concentration of ownership may also adversely affect our share price. +Moreover, in accordance with our amended and restated certificate of incorporation and the Investor Rights Agreement, dated as of October 23, 2024 by and between the Company and Imola JV Holdings, L.P. (the “Investor Rights Agreement”), Platinum has the right to nominate for election to our board of directors a number of individuals designated by Platinum constituting a majority thereof for so long as it beneficially owns at least 50% of the voting power of all shares of our outstanding stock entitled to vote generally in the election of our directors. In the event that Platinum ceases to own shares of our stock representing a majority of the total voting power, for so long as Platinum continues to own a significant percentage of our stock, it will still be able to significantly influence or effectively control the composition of our board of directors and the approval of actions requiring stockholder approval through its voting power. Accordingly, for such period of time, Platinum will have significant influence with respect to our management, business plans, and policies, including the appointment and removal of our officers. +39 +Platinum is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us or whose interests are otherwise not aligned with ours. Our amended and restated certificate of incorporation provides that neither Platinum nor any of its affiliates or any director who is not employed by us or his or her affiliates has any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. Platinum and its affiliates also may pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. +We are a “controlled company” within the meaning of the NYSE rules and, as a result, we qualify for, and rely on, exemptions from certain corporate governance requirements. Our stockholders do not have the same protections afforded to stockholders of other companies that are subject to such requirements. +Because Platinum continues to hold more than a majority of the voting power of our outstanding Common Stock entitled to vote generally in the election of directors, we are a “controlled company” within the meaning of the corporate governance standards of the NYSE and have elected, in accordance with applicable NYSE exemptions, not to comply with certain corporate governance requirements. For example, we do not have a majority of independent directors, our compensation and nominating and corporate governance committees are not composed entirely of independent directors, and we may not perform annual performance evaluations with respect to such committees. The independence standards are intended to ensure that directors who meet those standards are free of any conflicting interest that could influence their actions as directors. Accordingly, our stockholders do not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE. In the event that we cease to be a “controlled company,” we will be required to comply with the above referenced requirements within one year. +Anti-takeover provisions in our organizational documents could delay or prevent a change of control. +Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws may have an anti-takeover effect and may delay, defer or prevent a merger, acquisition, tender offer, takeover attempt or other change of control transaction that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by our stockholders. +Among other things, these provisions: +• grant Platinum the right to nominate for election to our board of directors no fewer than that number of directors that would constitute: (a) a majority of the total number of directors so long as the Platinum Stockholder and Platinum collectively beneficially own at least 50% of the then-outstanding capital stock of the Company; (b) 40% of the total number of directors so long as the Platinum Stockholder and Platinum collectively beneficially own at least 40% but less than 50% of the then-outstanding capital stock of the Company; (c) 30% of the total number of directors so long as the Platinum Stockholder and Platinum collectively beneficially own at least 30% but less than 40% of the then-outstanding capital stock of the Company; (d) 20% of the total number of directors so long as the Platinum Stockholder and Platinum collectively beneficially own at least 20% but less than 30% of the then-outstanding capital stock of the Company; and (e) 10% of the total number of directors so long as the Platinum Stockholder and Platinum collectively beneficially own at least 5% but less than 20% of the then-outstanding capital stock of the Company; +• permit our board of directors to establish the number of directors and fill vacancies and newly created directorships, subject to the rights granted to Platinum pursuant to our amended and restated certificate of incorporation and the Investor Rights Agreement; +• establish a classified board of directors, as a result of which our board of directors is divided into three classes, with each class serving for staggered three-year terms; +• provide for the removal of directors only for cause and only upon the affirmative vote of the holders of at least 66 and 2/3% of the shares of Common Stock entitled to vote generally in the election of directors if Platinum and its affiliates cease to beneficially own at least 50% of shares of Common Stock entitled to vote generally in the election of directors; +• provide that at all meetings of our board of directors prior to the date when Platinum ceases to beneficially own at least 30% of the total voting power of all then-outstanding shares of our stock entitled to vote generally in the election of directors, a quorum for the transaction of business shall include at least one director nominated by Platinum; +40 +• provide for the ability of our board of directors to issue one or more series of preferred stock, including “blank check” preferred stock; +• designate Delaware as the sole forum for certain litigation against us; +• provide for advance notice requirements for nominations of directors by stockholders and for stockholders to include matters to be considered at our annual stockholder meetings; +• provide certain limitations on convening special stockholder meetings in the event Platinum beneficially owns less than 50% of the voting power of all outstanding shares of our stock entitled to vote generally in the election of directors; +• prohibit cumulative voting in the election of directors; +• provide that actions by our stockholders be taken only at an annual or special meeting of our stockholders, and not by written consent, in the event Platinum beneficially owns less than 50% of the voting power of all outstanding shares of our stock entitled to vote generally in the election of directors; +• provide (i) that the board of directors is expressly authorized to alter or repeal our amended and restated bylaws and (ii) that our stockholders may only amend our amended and restated bylaws with the approval of 66 and 2/3% or more of all of the outstanding shares of our stock entitled to vote, in the event Platinum beneficially owns less than 50% of the total voting power of all then-outstanding shares of our stock entitled to vote generally in the election of directors; and +• provide that certain provisions of our amended and restated certificate of incorporation may be amended only by the affirmative vote of the holders of at least 66 and 2/3% in voting power of the outstanding shares of our stock entitled to vote, in the event Platinum beneficially owns less than 50% of the total voting power of all then-outstanding shares of our stock entitled to vote generally in the election of directors; provided, however, that any such alteration or amendment which would adversely affect the rights of Platinum shall require the prior written consent of Platinum. +Any provision of our amended and restated certificate of incorporation, amended and restated bylaws or Delaware law that has the effect of delaying, preventing or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Common Stock and could also affect the price that some investors are willing to pay for our Common Stock. In addition, our stockholders may be limited in their ability to obtain a premium for their shares. +Risks Related to Ownership of Our Common Stock +As a publicly traded company, we are required to design and maintain adequate internal control over financial reporting. Failure to comply with requirements to design, implement, and maintain effective internal control over financial reporting and/or failure to effectively remediate material weaknesses could have a material adverse effect on our business and the price of our Common Stock, and could result in our financial statements becoming unreliable. +As a privately held company prior to our IPO, we were not required to evaluate the effectiveness of our internal control over financial reporting in a manner that meets the standards of publicly traded companies required by the rules and regulations of the SEC regarding compliance with Section 404 of the Sarbanes-Oxley Act (“Section 404”). As a publicly traded company, we are now subject to the rules and regulations established from time to time by the SEC and the NYSE. These rules and regulations require, among other things, that we establish and periodically evaluate the design and operating effectiveness of our internal control over financial reporting. +Reporting obligations as a publicly traded company place a considerable strain on our financial and management systems, processes and controls, as well as on our personnel for the foreseeable future. In addition, as a publicly traded company, we are required to document and test our internal control over financial reporting pursuant to the rules and regulations of the SEC so that our management can report as to the effectiveness of our internal control over financial reporting. Testing and maintaining internal controls may divert our management’s attention from other matters that are important to the operation of our business. In addition, when our independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting, the cost of our compliance with the rules and regulations of the SEC over Section 404 will correspondingly increase. Our compliance with applicable provisions of Section 404 requires that we incur substantial accounting expense and expend significant management time on compliance-related issues as we implement additional corporate governance practices and comply with reporting requirements. +41 +Section 404(a) requires that, beginning with our second annual report filed on Form 10-K following our IPO, management assess and report annually on the effectiveness of our internal control over financial reporting and disclose any material weaknesses in our internal control over financial reporting. Section 404(b) requires our independent registered public accounting firm to issue a report that attests to the effectiveness of our internal control over financial reporting as of the end of the fiscal year. We expect our first Section 404(a) assessment will take place for our annual report for the year ending December 27, 2025. We are in the process of evaluating our internal controls to allow management to report on the effectiveness of our internal control over financial reporting. Upon completion of this process, we may identify control deficiencies of varying degrees of severity under applicable SEC rules and regulations that require remediation. As a publicly traded company, we are required to report, among other things, control deficiencies that constitute a “material weakness” and changes in internal control over financial reporting that, or that are reasonably likely to, materially affect internal control over financial reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. To comply with the requirements of being a publicly traded company, we have undertaken various actions, and may need to take additional actions, such as implementing and enhancing our internal controls and procedures and hiring additional accounting or internal audit staff. Further, because there are inherent limitations in all control systems, even our remediated and effective internal control over financial reporting may not prevent or detect all material misstatements. Additionally, any projection or the result of any evaluation of effectiveness of these measures in future periods remain subject to the risk that our internal control over financial reporting may become inadequate because of changes in our business condition, changes in accounting rules and regulations, or to the degree our compliance with our internal policies or procedures may deteriorate. If we fail to timely design and maintain the effectiveness of our internal control over financial reporting, we may not be able to produce reliable financial reports and will be less able to detect and prevent material misstatements due to error or fraud. +Additionally, as described in the risk factor directly below, we have identified material weaknesses in our internal control over financial reporting. As we have become subject to Section 404, we may identify additional material weaknesses. +We have identified material weaknesses in our internal control over financial reporting, which have resulted in restatements and revisions of certain of our consolidated financial statements, which has created additional risks and uncertainties that may have a material adverse effect on our business, financial position and results of operations. If we are unable to remediate these material weaknesses, or if we identify additional material weaknesses in the future or otherwise fail to design and maintain effective internal control over financial reporting, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence and the price of our Common Stock, or impair our ability to comply with applicable laws and regulations. +During the course of preparing to become a publicly traded company, we identified a material weakness consisting of not designing and maintaining an effective risk assessment process at a precise enough level to identify risks of material misstatement in the consolidated financial statements related to evolving and growing areas of the business. This material weakness contributed to an additional material weakness around the design and maintenance of effective controls over the identification of and accounting for multi-period software license agreements. +These material weaknesses resulted in immaterial misstatements to the interim and annual consolidated financial statements between 2021 and 2023 and the revision of the 2022 annual consolidated financial statements (balance sheet and the statement of cash flows) and 2023 interim condensed consolidated financial statements (balance sheet and the statement of cash flows) and the restatement of certain interim and annual consolidated financial statements between 2020 and 2023, as a result of errors in the consolidated balance sheets and consolidated statements of cash flows. +Additionally, these material weaknesses could result in further misstatements of the aforementioned accounts and disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. As a result of these material weaknesses and errors, we have become subject to a number of additional risks and uncertainties and unanticipated costs for accounting, legal, and other fees and expenses. We may become subject to legal proceedings as a result of the material weaknesses and errors, which could result in reputational harm, the loss of key employees, additional defense, and other costs. Any of the foregoing impacts, individually or in the aggregate, may have a material adverse effect on our business, financial position and results of operations. +42 +We are taking a number of steps to remediate these material weaknesses and to strengthen our internal control over financial reporting. These remediation measures are ongoing, and include strengthening the regional controllership function, revising policies and procedures, and implementing additional training to support an effective risk assessment process over evolving and growing areas of the business. The implementation of these remediation measures is in progress and will require validation and testing of design and operating effectiveness of internal controls over multiple financial reporting cycles. Implementing the necessary changes to internal controls may involve substantial costs and divert our management’s attention from other matters that are important to the operation of our business. At this time, we cannot provide an estimate of costs expected to be incurred in connection with implementing our remediation plan; however, the remediation measures will be time consuming, will result in us incurring significant costs, and will place significant demands on our financial and operational resources. +While we expect to remediate the material weaknesses, we cannot assure investors that these measures will significantly improve or remediate the material weaknesses described above or that we will be able to do so in a timely manner. If the steps we take do not remediate these material weaknesses, or future material weaknesses, in a timely manner, if we identify additional material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of the rules and regulations of the SEC over Section 404 in a timely manner, if we are unable to assert that our internal control over financial reporting is effective, that may result in a material misstatement of our annual or interim financial statements that would not be prevented or detected on a timely basis, which, in turn, could jeopardize our ability to comply with our reporting obligations, including those under the Indenture and Credit Agreements which may give rise to a default thereunder restrict our access to the capital markets, cause investors to lose confidence in the accuracy, completeness or reliability of our financial reports and adversely impact the price of our Common Stock. As a result of such failures, we could also become subject to investigations or sanctions by the NYSE, the SEC, or other regulatory authorities, and become subject to litigation from investors and stockholders, which could harm our reputation, financial condition or divert financial and management resources from our core business, and would have a material adverse effect on our business, financial condition and results of operations. +Our stock price may change significantly, and stockholders may not be able to resell shares of our Common Stock at or above the price paid or at all and could lose all or part of their investment as a result. +The price of our Common Stock has been and may continue to be volatile due to a number of factors such as those listed in “—Risks Related to Our Business and Our Industry” and the following: +• results of operations that vary from the expectations of securities analysts and investors; +• results of operations that vary from those of our competitors compared to market expectations; +• changes in expectations as to our future financial performance, including financial estimates and investment recommendations by securities analysts and investors; +• changes in market valuations of, or earnings and other announcements by, companies in our industry; +• declines in the market prices of stocks generally, particularly those of information technology companies; +• departures of key management personnel or members of our board of directors; +• strategic actions by us or our competitors; +• announcements by us, our competitors or our vendors of significant contracts, price reductions, new products or technologies, acquisitions, joint marketing relationships, joint ventures, other strategic relationships or capital commitments; +• changes in preference of our customers; +• changes in general economic or market conditions or trends in our industry or the economy as a whole and, in particular, in the consumer spending environment; +• changes in business or regulatory conditions which adversely affect our industry or us; +• future issuances, exchanges or sales, or expected issuances, exchanges or sales of our Common Stock or other securities; +• investor perceptions of or the investment opportunity associated with our Common Stock relative to other investment alternatives; +• investors’ responses to press releases or other public announcements by us or third parties, including our filings with the SEC; +43 +• adverse resolutions relating to new or pending litigation or governmental investigations; +• guidance, if any, that we provide to the public, any changes in this guidance, or our failure to meet this guidance; +• limited liquidity of our stock, including the potential impact of a small public float; +• the development and sustainability of an active trading market for our stock; +• changes in accounting principles; and +• other events or factors, including those resulting from informational technology system failures and disruptions, natural disasters, war, acts of terrorism or responses to these events. +Furthermore, the stock market may experience extreme volatility that, in some cases, may be unrelated or disproportionate to the operating performance of particular companies. Broader market volatility, especially in the technology sector, may also adversely affect our stock price, regardless of our actual performance. Additionally, low public float or trading volume could amplify price fluctuations. Stockholders may not be able to sell their shares at or above the price paid and could lose all or part of their investment. Periods of volatility may also increase the risk of securities litigation, which could be costly and distract management from our operations. +We may change our dividend policy at any time, and, in the event we determine not to pay any cash dividends on our Common Stock in the future, stockholders may not receive any return on investment unless they sell their Common Stock for a price greater than that which they paid for it. +As noted in Item 5, “ Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities,” our board of directors has declared the first quarterly cash dividend on our Common Stock of $0.074 per share to be paid on March 25, 2025. Although we anticipate continuing to pay such a quarterly cash dividend on our Common Stock, we have no obligation to pay any dividend, and our board of directors may decide to change the dividend policy at any time without notice to the stockholders. Any decision to declare and pay dividends in the future will be, subject to our compliance with applicable law, made at the sole discretion of our board of directors and will depend on, among other things, general and economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual and tax implications on the payment of dividends by us to our stockholders or by our subsidiaries to us, including restrictions and subject to the covenants under our Credit Facilities, the Indenture, and any other future indebtedness or preferred securities we may incur or issue, and such other factors as our board of directors may deem relevant. Future dividends may also be affected by factors that our board of directors deems relevant, including our potential future capital requirements for investments, legal risks, changes in federal and state income tax laws or corporate laws, and contractual restrictions such as financial or operating covenants in our debt arrangements. As a result, there can be no assurance that we will pay any future dividends, and it is possible that we may need to reduce or eliminate the payment of dividends on our Common Stock in the future. If we decide to not pay future dividends, then stockholders may not receive any return on an investment in our Common Stock unless they sell our Common Stock for a price greater than the purchase price, which may not occur. +If securities or industry analysts do not publish research or reports about our business or if they downgrade our stock or our sector, our stock price and trading volume could decline. +The trading market for our Common Stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. Furthermore, if one or more of the analysts who do cover us downgrade our stock or our industry, or the stock of any of our competitors, or publish inaccurate or unfavorable research about our business, the price of our stock could decline. If one or more of these analysts stop covering us or fail to publish reports on us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline. +44 +We have incurred and will continue to incur significantly increased costs and are subject to additional regulations and requirements as a result of becoming a publicly traded company, and our management will be required to devote substantial time to new compliance matters, which could lower our profits or make it more difficult to run our business. +As a result of recently becoming a publicly traded company, we have incurred and will continue to incur significant legal, regulatory, finance, accounting, investor relations, and other expenses that we did not previously incur as a privately held company, including costs associated with applicable reporting requirements. As a result of having publicly traded Common Stock, we are also required to comply with, and incur costs associated with such compliance with, the Sarbanes-Oxley Act and the Dodd-Frank Act, the PCAOB, as well as rules and regulations implemented by the SEC and the NYSE. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to continue to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We anticipate that these costs will materially increase our general and administrative expenses. Our management will need to devote a substantial amount of time to ensure that we comply with all of these requirements, including expanded corporate governance standards, diverting the attention of management away from revenue-producing activities. +In addition, these laws and regulations also could make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees, or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a publicly traded company, we could be subject to delisting of our Common Stock, fines, sanctions and other regulatory action, and potentially civil litigation. +If we or Platinum sell shares of our Common Stock or are perceived by the public markets as intending to sell them, the market price of our Common Stock could decline. +The sale of substantial amounts of shares of our Common Stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our Common Stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell shares of our Common Stock in the future at a time and at a price that we deem appropriate. +We, all of our directors, executive officers, and Platinum have entered into lock-up agreements with the underwriters of the IPO, pursuant to which, all such parties have agreed, subject to certain exceptions, not to sell, dispose of or hedge any shares of our Common Stock or securities convertible into or exchangeable for shares of our Common Stock for 180 days from the date of the final prospectus for the IPO (the “Lock-Up Period”), except with the prior written consent of any two of Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC on behalf of the underwriters. As a result of the foregoing, a substantial portion of our outstanding Common Stock is subject to lock-up agreements during the Lock-Up Period. +Upon the expiration of the lock-up agreements at the end of the Lock-Up Period as described above, all of such shares will be eligible for resale in the public market, subject in the case of shares held by our affiliates, to volume, manner of sale and other limitations under Rule 144 of the Securities Act (“Rule 144”). We expect that Platinum will continue to be considered an affiliate following the expiration of the Lock-Up Period based on its expected shares of ownership and its board nomination rights. Certain other of our stockholders may also be considered affiliates at that time. However, subject to the expiration or waiver of the Lock-Up Period, certain of the holders of these shares of Common Stock will have the right, subject to certain exceptions and conditions, to require us to register their shares of Common Stock under the Securities Act, and they will have the right to participate in future registrations of securities by us. Registration of any of these outstanding shares of Common Stock would result in such shares becoming freely tradable without compliance with Rule 144 upon effectiveness of the applicable registration statement. +45 +Our board of directors is authorized to issue and designate shares of our preferred stock in additional series without stockholder approval. +Our amended and restated certificate of incorporation authorizes our board of directors, without the approval of our stockholders, to issue 100,000,000 shares of our preferred stock, subject to limitations prescribed by applicable law, rules and regulations, and the provisions of our amended and restated certificate of incorporation, as shares of preferred stock in series, to establish from time to time the number of shares to be included in each such series and to fix the designation, powers, preferences, and rights of the shares of each such series and the qualifications, limitations, or restrictions thereof. The powers, preferences, and rights of these additional series of preferred stock may be senior to or on parity with our Common Stock, which may reduce its value. +Claims for indemnification by our directors, officers, or Platinum Advisors may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us. +Our amended and restated certificate of incorporation and amended and restated bylaws provides that we will indemnify our directors and officers, in each case to the fullest extent permitted by the Delaware General Corporation Law (the “DGCL”). +In addition, as permitted by Section 145 of the DGCL, our amended and restated bylaws and our indemnification agreements with our directors and officers provide that: +• we will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by the DGCL, which provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to our best interests and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful; +• we may, in our discretion, indemnify associates and agents in those circumstances where indemnification is permitted by applicable law; +• we are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that any such person is not entitled to indemnification; +• we are not obligated pursuant to our amended and restated bylaws to indemnify a person with respect to proceedings initiated by that person against us or our other indemnitees, except with respect to proceedings authorized by our board of directors or brought to enforce a right to indemnification; +• the rights conferred in our amended and restated bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, associates and agents and to obtain insurance to indemnify such persons; and +• we may not retroactively amend our amended and restated bylaws provisions to reduce our indemnification obligations to directors, officers, associates and agents. +In addition, the Investor Rights Agreement provides that if we retain Platinum Advisors to provide corporate and advisory services to us, then we will reimburse Platinum Advisors for all third party costs incurred in rendering such services and indemnify Platinum Advisors and its officers, directors, managers, employees, affiliates, agents, and other representatives, to the fullest extent permitted by law, against all liabilities, costs, and expenses incurred in connection with such services other than if and to the extent that such liabilities, costs, and expenses arise as a result of the gross negligence, bad faith, fraud, or willful misconduct of Platinum Advisors. +46 +Our amended and restated certificate of incorporation contains exclusive forum provisions for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, associates, or stockholders. +Our amended and restated certificate of incorporation provides, subject to limited exceptions, that unless we consent to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of any fiduciary duty owed by, or other wrongdoing by, any of our current or former directors, officers, or other associates to us or our stockholders, creditors, or other constituents, or a claim of aiding and abetting any such breach of fiduciary duty, (3) any action asserting a claim against us or any of our directors, officers, or employees arising pursuant to any provision of the DGCL or our amended and restated certificate of incorporation or our amended and restated bylaws, (4) any action to interpret, apply, enforce, or determine the validity of the amended and restated certificate of incorporation, (5) any other action asserting a claim that is governed by the internal affairs doctrine of the State of Delaware, or (6) any other action asserting an “internal corporate claim,” as defined in Section 115 of the DGCL. As described below, this provision does not apply to suits brought to enforce any duty or liability created by the Securities Act or Exchange Act, or rules and regulations thereunder. +To the extent that any such claims may be based upon federal law claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Neither the exclusive forum provision nor the federal forum provision of our amended and restated certificate of incorporation applies to suits brought to enforce any duty or liability created by the Exchange Act. Accordingly, actions by our stockholders to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder must be brought in federal court. +Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. However, our amended and restated certificate of incorporation contains a federal forum provision which provides that unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Our decision to adopt such a federal forum provision followed a decision by the Supreme Court of the State of Delaware holding that such provisions are facially valid under the DGCL. While there can be no assurances that federal or state courts will follow the holding of the Delaware Supreme Court or determine that our federal forum provision should be enforced in a particular case, application of our federal forum provision means that suits brought by our stockholders to enforce any duty or liability created by the Securities Act must be brought in federal court and cannot be brought in state court. +Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have had notice of and consented to the forum provisions in our amended and restated certificate of incorporation, including the federal forum provision. Additionally, our stockholders cannot waive compliance with the federal securities laws and rules and regulations thereunder. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other associates, or stockholders which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results, and financial condition. +Item 1B. Unresolved Staff Comments +None. +47 +Item 1C. Cybersecurity +Risk Management and Strategy +Our business operations rely on the secure processing, storage, integrity, and transmission of business-critical information, including transaction information as well as personal and other sensitive data, through digital and interconnected systems, including those of our service providers and other third parties. In order to identify, prevent, respond to, and mitigate cybersecurity risks, we maintain a formal data protection program with physical, technical, and administrative safeguards (the “Program”), which is integrated into our overall risk management processes. As part of the Program: +• We have implemented and maintain documented policies and comprehensive technical controls (including multifactor authentication and end-to-end encryption) designed using the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework and mapped to the specifications of International Organization for Standardization (“ISO”) 27001. The Program is regularly reviewed and updated on an annual basis, with a comprehensive annual review cycle. +• We maintain a dedicated cybersecurity team under the joint direction of our Executive Vice President and President – Global Platforms Group, and our Chief Information Security Officer (“CISO”). Our cybersecurity team operates a 24/7 Security Operations Center that employs threat detection and response technologies, including AI and ML capabilities. In addition, we maintain the Ingram Micro Trust Center, a centralized hub for stakeholders and the public to access key information about our cybersecurity and privacy programs. +• We regularly test our internal IT controls through a combination of automated and manual testing procedures, including continuous automated vulnerability scanning and periodic penetration tests, and we regularly test our disaster recovery and other back-up plans. Our Program also undergoes annual external audits by independent auditors as part of our ISO 27001 certification process. Critical vulnerabilities identified through these processes are remediated according to defined timelines based on severity and other relevant factors. +• We maintain, and we require our third-party service providers to maintain reasonable security controls designed to protect the confidentiality, integrity, and availability of our information systems and the sensitive data we process or that is processed on our behalf. We address potential risks posed by the use of such third-party service providers via established vendor risk assessments, due diligence, and contract review by our cybersecurity team. +• We require our employees to complete security awareness training upon hiring and on a regular basis, with modules covering applicable Company policies and emerging threats. Our training program includes practical exercises such as simulated phishing campaigns. +We also work with third-party cybersecurity and data privacy professionals as part of the design and implementation of our program, including accountants, independent assessors, external legal counsel, and other consultants. +Our incident reporting and escalation process is designed to detect and analyze cyber incidents in real time, to assess their impact, to escalate the incident to our CISO and the Company’s Information Security Management Committee (which consists of our CEO, CFO, General Counsel, CISO, and EVP and President – Global Platform Group), as appropriate and consistent with our Incident Response Plan, and to determine and effectuate the appropriate response and reporting actions, including evaluating the impact and materiality of such incidents to our financial condition and operations. +All cybersecurity threats are documented by our Security Incident Response Team, with incidents exceeding a certain threshold escalated to our CISO. Critical incidents involving confirmed data breaches, ransomware, or system-wide outages trigger immediate Security Management Committee involvement and require the board of directors to be informed of significant or material cybersecurity incidents within 24 hours. +While we, along with our customers, vendors, suppliers, and service providers, are regularly exposed to malicious technology-related events and threats, none of these threats or incidents, either individually or in the aggregate, has materially affected the Company during the periods covered by this report. See Item 1A, “Risk Factors”, for more information on the cybersecurity threats facing our Company. +48 +Governance +Our board of directors maintains active oversight of cybersecurity risks through a structured governance framework: +• The full boar d of directors receives comprehensive cybersecurity briefings at least annually, supplemented by sessions focused on emerging threats and program strategy. +• The Audit Committee receives regular updates (typically quarterly) that cover, among other topics, performance against operational metrics and results of recent audits and assessments. +• Our CISO, under the direction of our Executive Vice President and President – Global Platform Group, leads our Program, working with key stakeholders and resource groups, including industry groups, peer institutions, internal committees (the Information Security Management Committee), and law enforcement, as needed, to understand, identify, and address cybersecurity risks. Our CISO maintains direct reporting access to the board of directors, ensuring that time-sensitive matters may be escalated as needed. +• Our internal audit team is responsible for testing key IT controls, while leaders from our legal, finance, communications, and risk management teams participate in incident response training, including annual tabletop exercises, to ensure swift and effective responses to cybersecurity incidents. +Our cybersecurity leadership team brings extensive qualifications and expertise: +• Our CISO has over 15 years of experience in information security, including leadership roles at Nissan Motors and Ingram Micro. He has performed investigations in the public sector as a deputized high-tech crimes investigator with a digital forensic certification. He serves on numerous cyber industry organization boards and lends his expertise as a leader and practitioner. He speaks at numerous events annually on various cyber topics. +• Members of the broader security team maintain various professional certifications including CISSP, CISM, CEH, and SANS certifications. We maintain partnerships with leading universities to support continuing education and stay current with emerging threats and technologies. +Item 2. Properties +Facilities +We occupy 281 facilities covering approximately 12.6 million square feet of warehouse and office space. We own 9 sites making up approximately 800 thousand square feet and lease the remainder. Our facilities are located throughout our geographic regions: North America (35), EMEA (98), Asia-Pacific (116) and Latin America (32). +Our headquarters is in Irvine, California and consists of approximately 179,000 rentable square feet of space pursuant to a lease that expires on July 31, 2033. +We believe that our existing facilities are adequate to meet our current and near-term future operating needs. Upon the expiration or termination of any of our leased facilities, we believe we could obtain comparable office space. +Item 3. Legal Proceedings +From time to time we are involved in legal proceedings and subject to investigations, inspections, audits, inquiries and similar actions by government authorities, arising in the normal course of our business. Other than as discussed in Note 9, “Commitments and Contingencies,” to our audited consolidated financial statements, we do not believe that the currently pending proceedings will have a material adverse effect on our results of operations or financial condition. +Item 4. Mine Safety Disclosures +Not applicable. +49 +Part II +Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +Information with Respect to our Common Shares +Our common stock, par value $0.01, is traded on the NYSE under the symbol “INGM.” +As of February 25, 2025, our common stock was held by approximately 16 stockholders of record. Because many of the shares of our common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial owners represented by these stockholders of record. +Stock Price Performance Graph +Set forth below is information comparing the cumulative total shareholder return and share price appreciation plus dividends on our common shares with the cumulative total return of the S&P Midcap 400 Index and a market-weighted index of publicly-traded peers beginning on October 24, 2024, the day our stock began trading on the NYSE. The peer group consists of Arrow Electronics, Avnet, CDW Corporation, Climb Global Solutions, ePlus, Insight Enterprises, PC Connection, ScanSource, TD Synnex, and Dell Technologies. The graph assumes that $100 is invested in each of our common shares, the S&P Midcap 400 Index, and the index of publicly-traded peers on October 24, 2024 and that all dividends were reinvested. The comparisons are based on historical data and are not indicative of, nor intended to forecast, the future performance of our Common Stock. +October 24, 2024 October 26, 2024 November 23, 2024 December 28, 2024 +Ingram Micro Holding Corporation $ 100.00 $ 98.58 $ 89.43 $ 79.63 +S&P Midcap 400 Index $ 100.00 $ 99.36 $ 106.97 $ 100.63 +Peer Group Index $ 100.00 $ 100.17 $ 99.69 $ 89.78 +Securities Authorized for Issuance under Equity Compensation Plans +For information regarding the Securities Authorized for Issuance under Equity Compensation Plans, see Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder matters” of this report. +Information with Respect to Dividends +On March 4, 2025, the Company announced that the board of directors had declared a cash dividend of $0.074 per share of common stock, payable on March 25, 2025, to stockholders of record as of March 11, 2025. We pay, and intend to continue to pay, quarterly dividends subject to capital availability and periodic determinations made by our board of directors that cash dividends are in the best interests of our stockholders. +50 +Information with Respect to Purchases of Equity Securities by the Issuer +We did not repurchase any of our Common Stock during the Thirteen Weeks Ended December 28, 2024. +Unregistered Sales of Securities +None. +Use of Proceeds from Public Offering of Common Stock +In October 2024 we completed an IPO, in which we issued and sold 11,600,000 shares of our Common Stock, and Imola JV Holdings, L.P. agreed to offer and sold 7,000,000 shares of their Common Stock at a public offering price of $22.00 per share. The offer and sale was pursuant to the registration statement on Form S-1 (File No. 333-282404), as amended, which was declared effective by the SEC on October 23, 2024. We received approximately $233,110,000 in net proceeds after deducting $14,036,000 of underwriting discounts and approximately $8,054,000 in estimated offering costs. Upon the closing of the IPO, we used the net proceeds from the offering to repay $233,100,000 of debt outstanding under our Term Loan Credit Facility. The underwriters were granted a 30-day option to purchase up to an additional 2,790,000 shares of Common Stock from Imola JV Holdings, L.P., the selling stockholder, which was exercised in full and closed on November 4, 2024. +Item 6. [Reserved] +51 +Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations +The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve significant risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” +Our Fiscal Year is a 52- or 53-week period ending on the Saturday nearest to December 31. All references herein to “Fiscal Year 2024”, “Fiscal Year 2023”, and “Fiscal Year 2022” represent the fiscal years ended December 28, 2024 (52 weeks), December 30, 2023 (52 weeks), and December 31, 2022 (52 weeks), respectively. This section of this Annual Report on Form 10-K generally discusses fiscal years 2024 and 2023 items and year-over-year comparisons between fiscal years 2024 and 2023. Discussions of Fiscal Year 2022 items and year-over-year comparisons between Fiscal Year 2023 and Fiscal Year 2022 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our final prospectus filed with the SEC on October 24, 2024. All financial data included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations section are in thousands, except as otherwise indicated. +Unless otherwise noted in this Annual Report on Form 10-K, the use of the terms “Ingram Micro,” “we,” “us,” “our” and the “Company” refers to Ingram Micro Holding Corporation and its subsidiaries. The use of the term “Platinum” means Platinum Equity, LLC together with its affiliated investment vehicles. +Overview +Ingram Micro Holding Corporation and its subsidiaries are primarily engaged in the distribution of information technology (“IT”) products, cloud and other services worldwide. Our business is organized into four reportable segments based on the different geographic regions in which we operate: North America; EMEA; Asia-Pacific; and Latin America. +Key Factors and Trends Affecting Our Operating Results +Global Demand for IT Products and Value Added Services +We are dependent on global IT spend, which is influenced by broader economic trends and their impacts on enterprise spending, as well as new product introductions and product transitions by technology vendors. Driven by the rapid evolution of the technology industry, frequent fluctuations in market demand, and the increasing complexity of solutions, which often integrate offerings from multiple vendors and service providers, vendors increasingly rely on distributors to bring their products to market more efficiently along with providing value-added services. We have diverse relationships with many global vendors and offer a full end-to-end solution including comprehensive services, positioning us well to capture demand in key technology sectors. We expect to continue investing in our services offerings, as well as our relationships with existing and emerging vendors with the goal of expanding the breadth and depth of what we already believe to be the industry’s most comprehensive offering. +Market Adoption of Cloud Solutions and XaaS +The accelerating transition from on-premises software solutions to cloud-based solutions can drive a revenue mix shift to our higher margin cloud offerings. Because of our advanced capabilities and offerings, we believe this industry shift is a net positive for our business, and it demonstrates the comprehensive value of our business model. To capture this opportunity, we plan to continue investing in development and go-to-market support for our cloud offerings and marketplaces, including those already integrated into Ingram Micro Xvantage. +Our product, service and solution offerings consist of Client and Endpoint Solutions, Advanced Solutions, Cloud-based Solutions and Other, which include the product and service categories further described below. Our results are impacted by changes in demand levels and related product mix, including entry or expansion into new markets, new product offerings and the exit or retraction of certain business. Furthermore, we have invested most heavily in recent years into Advanced Solutions and Cloud-based Solutions and capabilities globally, for which an increased need for more complex solutions coupled with more products being consumed on an as-a-service basis is driving a more rapid shift towards these offerings. Advanced Solutions and Cloud sales now collectively comprise more than one-third of our net sales and more than half of our gross profit. +52 +As part of our global presence in each of our four geographic regions, we offer customers a full spectrum of hardware and software, cloud services and logistics expertise through three main lines of business: Technology Solutions, Cloud and Other. In each of our geographic segments we offer customers the product categories listed below broken down under the respective line of business. In 2024, we began to refer to our Commercial & Consumer category as Client and Endpoint Solutions as a better reflection of the nature of the products and services within that category. +Product, Line of Business and Global Presence +Technology Solutions: +• Client and Endpoint Solutions. We offer a variety of higher-volume products targeted for corporate and individual end users, including desktop personal computers, notebooks, tablets, printers, components (including hard drives, motherboards, video cards, etc.), application software, peripherals and accessories. We also offer a variety of products that enable mobile computing and productivity, including phones, phone tablets (including two-in-one “notebook/tablet” devices), smartphones, feature phones, mobile phone accessories, wearables and mobility software. +• Advanced Solutions . We offer enterprise-grade hardware and software products aimed at corporate and enterprise users and generally characterized by specific projects, which account for lower volumes than Client and Endpoint Solutions but higher-margins individually and collectively in the form of solutions and related services. And while Advanced Solutions requires higher operational expenditures, primarily in the form of technical capabilities to serve the market, the operating margin delivered by this business is also generally stronger than Client and Endpoint Solutions. Within this product category, we offer servers, storage, networking, hybrid and software-defined solutions, cyber security, power and cooling and virtualization (software and hardware) solutions. This category also includes training, professional services and financing solutions related to these product sets. We also offer customers DC / POS, physical security, audio visual & digital signage, UCC and Telephony, IoT (smart office/home automation) and AI products. +Cloud: +• Cloud-based Solutions. Our cloud portfolio is comprised of third-party services and subscriptions spanning a breadth of products from solution software through infrastructure-as-a-service. As technology consumption increasingly moves to anything-as-a-service, we have expanded our cloud solutions to more than 200 third-party cloud-based services or subscription offerings, including business applications, security, communications and collaboration, cloud enablement solutions and infrastructure-as-a-service. Also included here are the offerings of our CloudBlue business, which provides customers with multichannel and multi-tier catalog management, subscription management, billing and orchestration capabilities through a software-as-a-service model. +Other: +• We provide customers with ITAD, reverse logistics and repair and other related solutions. These offerings represent less than 5% of net sales for all periods presented herein. +Presentation +Net Sales +End-market demand across IT products in each of the geographic regions in which we operate affects the relative mix of our revenues and may lead to fluctuations in our overall profitability. Vendors are increasingly focused on their global presence and we are consistently growing our share of the total addressable market with global vendors. Exposure to emerging markets, especially Asia-Pacific and Latin America, is driving higher growth and operating margin. Emerging markets typically require lower capital investment given less automation, and we typically experience higher operating margins in these markets due to their lower average labor costs. +53 +Vendor Relationships +Our vendors include many of the largest tech companies, including Advanced Micro Devices, Apple, Amazon Web Services (AWS), Cisco, Dell Technologies, Hewlett Packard Enterprise, HP Inc., Lenovo, Microsoft, NVIDIA and Super Micro Computer. Ingram Micro’s access to products, especially when supply constraints exist, is enhanced by the strength of our long-standing relationships with vendors. Vendors typically select distributors based on global reach, scale, contract terms, the strength of partnerships and service capabilities offered. +The value of our inventory is subject to risks of obsolescence and price reductions driven by vendors and by market conditions. To mitigate such risks, our vendors typically offer price protection, return rights and stock rotation privileges. We closely monitor our inventory levels and attempt to time our purchases to address demand levels while maximizing contractual protections provided by our vendors. We monitor both our inventory levels and customer demand patterns at each of our facilities and are able to stock products next to our vendors and resellers, which effectively minimizes our shipping costs. +Liquidity and Access to Capital and Credit +Our business requires investment in working capital to meet movements in demand and seasonality. Our working capital needs depend on terms and conditions established with vendors and resellers, as well as our customers’ ability to pay us on time, and cash conversion rates affect our overall liquidity and cash flow. +Our resellers might fail to pay their obligations in a timely manner, which could adversely affect our operations and profitability. We protect ourselves from such risks by purchasing credit insurance in many markets, as well as by only doing business with customers we believe are creditworthy. We are able to act quickly in case of failure of timely payments, such as escalating communications and credit holds. +Substantial trade credit and similar offerings from our vendors, coupled with access to our borrowing facilities and ongoing cash flows from our business, are key to financing the necessary investment in inventory and trade credit that we offer to our customers. +The cash flow profile of our business is countercyclical. In times of elevated demand, more working capital investment may be required while overall working capital investment tends to reduce in times of decreasing demand. +Mergers and acquisitions are a core part of our business strategy, leading to elevated leverage from time to time. However, given our consistent and predictable cash flow generation, we are able to adequately manage our leverage profile. We are dependent on external sources of capital to fund our business, including the payment of a quarterly cash dividend, but also use internally generated cash flow as a significant source of funding. +As of December 28, 2024, we had $3,500 million available under our $3,500 million ABL Revolving Credit Facility, which, if borrowed, can be used to fund any such working capital needs or to fund any of our business strategies. +Supply Constraints +Our future success is dependent on the resilience and adaptability of our global supply chain. We have a large presence across North America, Europe and the Middle East, Asia-Pacific and Latin America, and any supply constraints can disrupt our global operations. Disruptions in local or international supply chains can cause significant delays, impacting inventory levels across our facilities. Supply chain constraints can also cause product prices and related fulfillment expenses to increase as well as prices we charge our customers. +We are one of the largest distributors of technology hardware, software and services worldwide, including a leading global presence in cloud, based on revenues. We offer a broad range of IT products and services to help generate demand and create efficiencies for our customers and suppliers around the world. We serve as an integral link in the global technology value chain, driving sales and profitability for the world’s leading technology companies, resellers, mobile network operators and other customers. Our results of operations have been, and will continue to be, directly affected by the conditions in the economy in general. +54 +Impact of Labor, Warehousing, Transportation and Other Fulfillment Costs +Our business is impacted by increases in labor, warehousing, transportation and other fulfillment costs. In periods of labor shortages, our operating costs typically increase. While increasing costs associated with labor shortages can impact profitability, we have developed a number of initiatives to mitigate the impact on our profitability. Our flexible workforce structure comprising a mix of temporary and permanent associates, allows us to modulate our local workforces based on demand, including typical seasonality. Furthermore, our extensive operating history, as well as our global scale provide us with access to local and international carriers to secure critical volume discounts that help offset the impact of increasing transportation costs. +Seasonality +We experience some seasonal fluctuations in demand in our business. For instance, we typically see lower demand, particularly in Europe, during the summer months. Additionally, we also experience an increase in demand in the fourth quarter, driven primarily by typical enterprise budgeting cycles in our client and endpoint solutions business and the pre-holiday impacts of stocking in the retail channel and associated higher logistics-based fulfillment fees. These seasonal fluctuations have historically impacted our revenue and working capital including receivables, payables and inventory. Our extensive experience combined with a flexible workforce allows us to modulate our operations and workforce demand fluctuations throughout the year. +Foreign Currency Fluctuations +We are exposed to the impact of foreign currency fluctuations and interest rate changes due to our international sales and global funding. In the normal course of business, we employ established policies and procedures to manage our exposure to fluctuations in the value of foreign currencies using a variety of financial instruments. It is our policy to utilize financial instruments to reduce risks where internal netting cannot be effectively employed and not to enter into foreign currency or interest rate transactions for speculative purposes. +As our international operations constitute a significant portion of our consolidated net sales, they are subject to fluctuations in the U.S. dollar against foreign currencies. In order to provide a framework for assessing our financial performance we exclude the effect of foreign currency fluctuations for certain periods by comparing the percent change in net sales and other key metrics on a constant currency basis. These key metrics on a constant currency basis are not accounting principles generally accepted in the United States of America (“U.S. GAAP”) financial measures. Amounts presented on a constant currency basis remove the impact of changes in exchange rates between the U.S. dollar and the local currencies of our foreign subsidiaries by translating the current period amounts into U.S. dollars using the same foreign currency exchange rates that were used to translate the amounts for the previous comparable period. +Our foreign currency risk management objective is to protect our earnings and cash flows resulting from sales, purchases and other transactions from the adverse impact of exchange rate movements. Foreign exchange risk is managed by using forward contracts to offset exchange risk associated with receivables and payables. We generally maintain hedge coverage between minimum and maximum percentages. +55 +Gross Margin +The technology distribution industry in which we operate is characterized by narrow gross profit as a percentage of net sales, or gross margin. Historically, our margins have also been impacted by pressures from price competition and declining average selling prices, as well as changes in vendor terms and conditions, including, but not limited to, variations in vendor rebates and incentives, our ability to return inventory to vendors and time periods qualifying for price protection. We expect competitive pricing pressures and restrictive vendor terms and conditions to continue in the foresee able future. In addition, our margins have been and may continue to be impacted by our inventory levels which are based on projections of future demand, product availability, product acceptance and marketability and market conditions. Any sudden decline in demand and/or rapid technological changes in products could cause us to have a charge for excess an d/or obsolete inventory. Likewise, in times of heavy demand or when supply constraints become significant, prices for certain technology products will tend to increase. To manage our profitability, we have implemented changes to and continue to refine our pricing strategies, inventory management processes and vendor engagement programs. In addition, we continuously monitor and work to change, as appropriate, certain terms, conditions and credit offered to our customers to reflect those being imposed by our vendors, to recover costs and/or to facilitate sales opportunities. We have also strived to improve our profitability through diversification of prod uct offerings, including our presence in adjacent product categories, such as enterprise computing, data center and automatic identification and DC / POS. Additionally, we continue to expand our capabilities in what we believe are faster growing and higher margin service-oriented businesses, including cloud and hybrid cloud/on-premise solutions. +Selling, General and Administrative (“SG&A”) Expenses +Another key area for our overall profitability management is the monitoring and control of our level of SG&A expenses. On an ongoing basis, we regularly look to optimize and drive efficiencies throughout our operations, which includes the use of temporary workforce to address staffing needs particularly in our warehouse operations where demand levels are more impactful on workloads. SG&A expenses also include the cost of investment in certain initiatives to accelerate growth and profitability and optimize our operations. We continue to increase our presence in cloud which generally has higher gross margins but also requires higher automation and investment in commerce and other platforms to address its respective end markets. +Restructuring Costs +We have instituted a number of cost reduction and profit enhancement programs over the years, which in certain years included reorganization actions across various parts of our business to respond to changes in the economy and to further enhance productivity and profitability. These actions have included the rationalization and re-engineering of certain roles and processes, resulting in the reduction of headcount and consolidation of certain facilities. +Foreign Currency Translation +The financial statements of our foreign subsidiaries for which the functional currency is the local currency, are translated into U.S. dollars using (i) the exchange rate at each balance sheet date for assets and liabilities and (ii) an average exchange rate for each period for statement of income items. Translation adjustments are recorded in accumulated other comprehensive income, a component of stockholders’ equity. The functional currency of a small number of operations within our EMEA, Asia-Pacific and Latin America regions is the U.S. dollar; accordingly, the monetary assets and liabilities of these subsidiaries are remeasured into U.S. dollars at the exchange rate in effect at the applicable balance sheet date. Revenues, expenses, gains or losses are remeasured at the average exchange rate for the period, and nonmonetary assets and liabilities are remeasured at historical rates. The resultant remeasurement gains and losses of these operations as well as gains and losses from foreign currency transactions are included in the Consolidated Statements of Income. +56 +Working Capital and Debt +Our business requires significant levels of working capital, primarily trade accounts receivable and inventory, which is partially financed by vendor trade accounts payable. For our working capital needs, we rely heavily on trade credit from vendors, and also on trade accounts receivable financing programs and proceeds from debt facilities. We maintain a strong focus on management of working capital in order to maximize returns on investment, cash provided by operations, and our debt and cash levels. However, our debt and/or cash levels may fluctuate significantly on a day-to-day basis due to the timing of customer receipts, inventory stocking levels and periodic payments to vendors. A higher concentration of payments received from customers toward the end of each month, combined with the timing of payments we make to our vendors, typically yields lower debt balances and higher cash balances at our quarter-ends than is the case throughout the quarter or year. Our future debt requirements may increase and/or our cash levels may decrease to support growth in our overall level of business, changes in our required working capital profile, or to fund acquisitions or other investments in the business. +Results of Operations for Fiscal Year 2024 and Fiscal Year 2023: +We do not allocate stock-based compensation expense or cash-based compensation expense (see Note 10, “Employee Awards,” to our audited consolidated financial statements), or certain Corporate costs, including merger-related costs, to our operating segments; therefore, we are reporting these amounts separately. +The following tables set forth our net sales by reportable segment and the percentage of total net sales represented thereby, as well as income from operations and income from operations margin by reportable segment for each of the periods indicated: +Fiscal Year Fiscal Year Change +Increase (Decrease) +Net sales by reportable segment +2024 2023 Amount Percentage +North America $ 17,373,047 36 % $ 18,195,652 38 % $ (822,605) (4.5) % +EMEA +14,260,257 30 14,481,069 30 (220,812) (1.5) +Asia-Pacific +12,756,802 27 11,573,489 24 1,183,313 10.2 +Latin America +3,593,565 7 3,790,154 8 (196,589) (5.2) +Total +$ 47,983,671 100 % $ 48,040,364 100 % $ (56,693) (0.1) % +Fiscal Year Fiscal Year +2024 2023 Amount Percentage +Income from operations and operating margin +percentage by reportable segment +Income from +Operations Income from +Operations +Margin Income from +Operations Income from +Operations +Margin Income from +Operations Income from +Operations +Margin +North America $ 322,159 1.85 % $ 350,850 1.93 % $ (28,691) (0.08) % +EMEA 259,420 1.82 317,199 2.19 (57,779) (0.37) +Asia-Pacific 223,449 1.75 247,143 2.14 (23,694) (0.39) +Latin America 119,584 3.33 93,515 2.47 26,069 0.86 +Corporate (47,996) — (33,320) — (14,676) — +Cash-based compensation expense (24,626) — (31,040) — 6,414 — +Stock-based compensation expense (34,067) — — — (34,067) — +Total +$ 817,923 1.70 % $ 944,347 1.97 % $ (126,424) (0.27) % +57 +Fiscal Year Fiscal Year +2024 2023 +Net sales +100.00 % 100.00 % +Cost of sales +92.82 92.62 +Gross profit +7.18 7.38 +Operating expenses: +Selling, general and administrative +5.40 5.38 +Restructuring costs +0.08 0.04 +Income from operations +1.70 1.97 +Total other (income) expense +0.78 0.88 +Income before income taxes +0.92 1.09 +Provision for income taxes +0.37 0.35 +Net income +0.55 % 0.73 % +Consolidated net sales were $47,983,671 for Fiscal Year 2024 compared to $48,040,364 for Fiscal Year 2023. The 0.1% decrease in our consolidated net sales for Fiscal Year 2024 compared to Fiscal Year 2023 includes the negative translation impact of foreign currencies relative to the U.S. dollar of approximately 0.4%. Net sales were lower in our North American, EMEA, and Latin America regions, partially offset by growth in our Asia-Pacific region. Fiscal Year 2024 saw lower volume compared to Fiscal Year 2023, particularly in advanced solutions offerings resulting from the fulfillment of significant product backlogs that benefited net sales in the prior year period. Advanced solutions offerings declined by 6% globally. This decline was partially offset by growth of 3% globally in net sales of client and endpoint solutions, growth of 21% in net sales of our cloud-based solutions, as well as growth of 10% in net sales of Other services. +The $822,605, or 4.5%, decrease in our North American net sales for Fiscal Year 2024 compared to Fiscal Year 2023, was primarily driven by a decline of 8% in net sales of advanced solutions offerings, attributed mainly to declines in networking solutions in the United States and Canada, which includes a challenging prior year comparison due to heavy backlog fulfillment in the prior year as noted above, as well as declines in net sales of DC / POS and audio visual and digital signage in the United States. Net sales of client and endpoint solutions also declined by 3% attributed to declines in mobility distribution, particularly in smartphones in the United States. These factors were partially offset by growth of 25% in net sales of cloud-based solutions, as well as growth of 26% in net sales of Other services in Fiscal Year 2024 compared to Fiscal Year 2023. +The $220,812, or 1.5%, decrease in EMEA net sales for Fiscal Year 2024 compared to Fiscal Year 2023 was primarily driven by a 7% decline in net sales of advanced solutions offerings due to declines in networking and storage particularly in Germany and the United Kingdom. Specialty offerings also declined in the region, attributed to DC / POS declines in Germany and the United Kingdom. Additionally, net sales of Other services declined by 2% in Fiscal Year 2024 compared to Fiscal Year 2023. These results were partially offset by growth of 2% in net sales of client and endpoint solutions in Fiscal Year 2024 compared to Fiscal Year 2023, driven by growth in notebooks in the Netherlands, the United Kingdom, Turkey and Sweden, as well as growth in mobility distribution, particularly smartphones in the United Kingdom, as well as tablets in Italy and Germany. Additionally, net sales of cloud-based solutions increased by 8% year-over-year in the region. The translation impact of foreign currencies relative to the U.S. dollar had a positive impact of approximately 1% on the year-over-year comparison of the region’s net sales. On a constant currency basis, net sales for advanced solutions offerings declined by 7%, Other services declined by 5% while client and endpoint solutions increased by 1% and cloud-based solutions increased by 7%. +The $1,183,313, or 10.2%, increase in Asia-Pacific net sales for Fiscal Year 2024 compared to Fiscal Year 2023 was primarily driven by a 13% increase in net sales of client and endpoint solutions due to growth in mobility distribution, particularly smartphones in China and India. Net sales of advanced solutions offerings increased by 3% in Fiscal Year 2024 compared to Fiscal Year 2023, driven by growth in server net sales in India and Singapore, as well as strong networking results in China. Additionally, net sales of cloud-based solutions increased by 8% year-over-year, led by growth in Australia and Singapore. These results were slightly offset by a 15% decline in net sales of Other services. The translation impact of foreign currencies relative to the U.S. dollar had a negative impact of approximately 1% on the year-over-year comparison of the region’s net sales. On a constant currency basis, net sales for client and endpoint solutions increased by 14%, advanced solutions offerings increased by 4%, and cloud-based solutions increased by 9%, while Other services declined by 13%. +58 +The $196,589, or 5.2%, decrease in Latin American net sales for Fiscal Year 2024 compared to Fiscal Year 2023 was primarily driven by a 4% decrease in net sales of client and endpoint solutions, which was driven by declines in desktops in Brazil and Peru as well as peripherals in Mexico. Mobility distribution also declined, primarily due to smartphones in Miami Export and Mexico. Additionally, net sales of advanced solutions offerings declined by 9% year-over-year in the region as a result of declines in networking in Mexico, Brazil and Chile, a portion of which results from the challenging prior year comparisons driven by backlog fulfillment as discussed above. These results were partially offset by growth of 23% in net sales of cloud-based solutions, driven by strong results in Brazil. The translation impact of foreign currencies relative to the U.S. dollar had a negative impact of approximately 3% on the year-over-year comparison of the region’s net sales. On a constant currency basis, net sales for client and endpoint solutions declined by 1%, advanced solutions offerings declined by 6%, while cloud-based solutions increased by 31%. +Gross profit was $3,444,945 for Fiscal Year 2024, compared to $3,547,137 for Fiscal Year 2023. Gross margin decreased by 20 basis points in Fiscal Year 2024 compared to Fiscal Year 2023. The decrease in gross profit dollars was primarily attributable to the previously described declines in our net sales. The 20 basis point decrease in gross margin was driven primarily by a shift in sales mix away from our higher-margin advanced solutions offerings to lower-margin client and endpoint solutions in North America and EMEA, as well as an overall shift in net sales mix towards our lower gross margin, but lower cost-to-serve, Asia Pacific region during Fiscal Year 2024 compared to Fiscal Year 2023. Gross margin was also negatively impacted by a 2 basis point increase in write-offs of excess and obsolete inventory during Fiscal Year 2024 compared to Fiscal Year 2023. The translation impact of foreign currencies relative to the U.S. dollar had no impact on the year-over-year comparison of gross margin. +Total SG&A expenses decreased $4,675 in Fiscal Year 2024 compared to Fiscal Year 2023. The decrease in SG&A dollars is driven by decreases in compensation and headcount expenses of $19,963, primarily due to the efforts taken under our global restructuring plans further described below. Additionally, bad debt expense decreased $14,350, which included the recovery of aged receivable balances related to a single project in the Latin American region and integration and transition costs decreased $11,584. These decreases were partially offset by increases in stock-based compensation expense of $34,067 due primarily to the immediate vesting of time-vesting restricted stock units that were granted to certain key employees in connection with the IPO, corporate costs of $14,676, and software-related costs of $7,276. The translation impact of foreign currencies relative to the U.S. dollar had a positive impact of 1 basis point on the year-over-year comparison of SG&A as a percentage of net sales. +During Fiscal Year 2024, we recorded restructuring costs of $38,354, or 8 basis points of net sales. Such costs represented efforts that began in the fourth quarter of 2024 to enhance organizational efficiency and strengthen customer service capabilities to better position the Company for long-term, sustainable growth, as well as efforts from previous programs taken in the first quarter of 2024 under the global restructuring plan initiated in July 2023. These charges included organizational and staffing changes as well as headcount reductions during Fiscal Year 2024. Collectively, the restructuring initiatives are expected to deliver annualized cost reductions in the range of $85 million and $95 million, although the impact of actions taken in the first quarter of 2024 were largely already being achieved by the third quarter of Fiscal Year 2024. The charges in Fiscal Year 2023 represented organizational and staffing changes, including a headcount reduction, primarily in our North American operation. See Note 8, “Restructuring Costs” to our audited consolidated financial statements for further information regarding the restructuring activities during Fiscal Year 2024 and Fiscal Year 2023. +Income from operations was $817,923, or 1.70% of net sales in Fiscal Year 2024, compared to $944,347, or 1.97% of net sales, in Fiscal Year 2023. The 27 basis point year-over-year decrease in income from operations margin was primarily due to the decrease in gross margin described above, as well as a 4 basis point increase in restructuring costs in Fiscal Year 2024, compared to Fiscal Year 2023. The translation impact of foreign currencies relative to the U.S. dollar had a negative impact of 2 basis point on the year-over-year comparison of our consolidated income from operations margin. +Our North American income from operations margin decreased 8 basis points in Fiscal Year 2024 compared to Fiscal Year 2023 primarily due to a decrease in gross margin of 9 basis points in the region, driven by a shift in sales mix away from our higher-margin advanced solutions offerings to lower-margin client and endpoint solutions during Fiscal Year 2024, as well as lower margin achievement on net sales of advanced solutions offerings and client endpoint solutions. This was slightly offset by a reduction in SG&A expenses as a percentage of net sales in the region during Fiscal Year 2024, driven most notably by a 5 basis point decrease in integration and transition costs. +59 +Our EMEA income from operations margin decreased 37 basis points in Fiscal Year 2024 compared to Fiscal Year 2023, primarily due to an increase in SG&A expenses as a percentage of the lower net sales in the region as described above. Most notably, restructuring costs increased by 10 basis points of net sales, compensation and headcount expenses increased by 6 basis points, and rental and occupancy costs increased by 2 basis points. Additionally, the region’s gross margin declined 14 basis points primarily as a result of a shift in sales mix away from our higher-margin advanced solutions offerings to lower-margin client and endpoint solutions during Fiscal Year 2024 compared to Fiscal Year 2023. The EMEA region also benefited from strong margin performance and vendor programs on product categories for which there was significant backlog fulfillment occurring in the prior year, as supply constraints eased. The translation impact of foreign currencies relative to the U.S. dollar had a positive impact of 1 basis point on the year-over-year comparison of the region’s income from operations margin. +Our Asia-Pacific income from operations margin decreased 39 basis points in Fiscal Year 2024 compared to Fiscal Year 2023, primarily as a result of lower gross margin achievement for client and endpoint solutions and advanced solutions net sales, a part of which is driven by geographic mix of sales growth within the region falling more predominantly in lower margin and lower cost-to-serve territories, as well as a shift towards sales of lower-margin mobility devices in Fiscal Year 2024. Additionally, the region was negatively impacted by charges related to inventory write-offs in India, which had a 14 basis point negative impact to income from operations margin. These factors contributed to a 49 basis point negative impact on income from operations margin. Additionally, the region was negatively impacted by a goods and services tax and other charges in India during Fiscal Year 2024 which resulted in a 9 basis point negative impact to income from operations margin. This was partially offset by lower compensation and headcount expenses of 20 basis points of net sales. The translation impact of foreign currencies relative to the U.S. dollar had no impact on the year-over-year comparison of the region’s income from operations margin. +Our Latin American income from operations margin increased 86 basis points in Fiscal Year 2024 compared to Fiscal Year 2023. This improvement was primarily driven by higher gross margin achievement across most product categories. The higher gross margins contributed to a positive impact to income from operations margin of 95 basis points of net sales. The region’s income from operations margin further benefited from a reduction in SG&A expenses as a percentage of sales in the current year. Bad debt expense decreased by 47 basis points as the previous year was impacted by higher bad debt charges related to a single project, the reserves for which were reversed in Fiscal Year 2024 as the delinquent receivables were collected. Additionally, integration and transition costs decreased by 16 basis points. The translation impact of foreign currencies relative to the U.S. dollar had a negative impact of 13 basis points on the year-over- year comparison of the region’s income from operations margin. +In Fiscal Year 2024, Corporate included $20,380 of advisory fees paid to Platinum Advisors, which we will no longer incur as a result of the IPO, $17,269 related to investments in certain initiatives to accelerate our growth and profitability and optimize our operations, as well as $9,945 of stranded costs resulting from the termination of certain operations and IT services under the transition services agreement with CMA CGM Group as part of the CLS Sale, which were fully transitioned and completed at the end of 2024. In Fiscal Year 2023, Corporate included $25,000 of advisory fees paid to Platinum Advisors and $7,218 related to investments in certain initiatives to accelerate our growth and profitability and optimize our operations. +Cash-based compensation expense decreased by $6,414 in Fiscal Year 2024 compared to Fiscal Year 2023 primarily due to over-achievement of performance targets in Fiscal Year 2023. +Stock-based compensation expense increased by $34,067 in Fiscal Year 2024 compared to Fiscal Year 2023 primarily due to the immediate vesting of time-vesting restricted stock units that were granted to certain key employees in connection with the IPO (see Note 10, “Employee Awards,” to our audited consolidated financial statements). +Total other (income) expense consists primarily of interest income, interest expense, foreign currency exchange gains and losses, and other non-operating gains and losses. We incurred total other (income) expense of $372,057 in Fiscal Year 2024 compared to $421,846 in Fiscal Year 2023. The decrease is largely driven by lower interest expense of $41,833 primarily as a result of lower average debt outstanding in the current year period, due in particular to $1,038,100 in voluntary principal payments on our Term Loan Credit Facility made since June 2023. The decrease was also driven by a decrease of $19,169 in net foreign currency exchange loss. These factors were partially offset by an increase of $17,936 in draft discount expenses in Fiscal Year 2024 compared to Fiscal Year 2023. +60 +We recorded an income tax provision of $181,644, or an effective tax rate of 40.7% , in Fiscal Year 2024, compared to $169,789 or an effective tax rate of 32.5% in Fiscal Year 2023. The tax provision for Fiscal Year 2024 included $25,995 of tax expense, or 5.8 percentage points of the effective tax rate, which is associated with withholding tax expense from our business operations in the Latin America region, primarily from our Miami Export business. In addition, upon becoming a publicly traded company in Fiscal Year 2024, we became subject to limitations on the tax deductibility of officers’ compensation under Internal Revenue Code Section 162(m) resulting in $9,587 of tax expense, or 2.2 percentage points of the effective tax rate, primarily associated with stock-based compensation and a one-time adjustment to certain deferred tax assets. The tax provision for Fiscal Year 2024 also included $2,323 of tax expense, or 0.5 percentage points of the effective tax rate, due to a statutory tax rate change which resulted in a reduction to our Luxembourg subsidiaries’ deferred tax assets. The tax provision for Fiscal Year 2023 included $21,123 of tax expense, or 4.0 percentage points of the effective tax rate, which is associated with withholding tax expense from our business operations in the Latin America region, primarily from our Miami Export business. In addition, the tax provision for 2023 also included $7,378 of tax expense, or 1.4 percentage points of the effective tax rate, due to a reduction in U.S. foreign tax credit utilization in 2023 as the result of an overall domestic loss for the United States tax purposes and $4,000 of withholding tax expense, or 0.8 percentage points of the effective rate, due to an expected dividend from our Chinese subsidiary, which is largely offset by $8,311 of tax benefit, or 1.6 percentage points of the effective tax rate, due to an increase in actual 2022 U.S. foreign tax credit utilization as compared to our previous estimate. +61 +Liquidity and Capital Resources +Cash Flows +Our cash and cash equivalents totaled $918,401 and $948,490 at December 28, 2024 and December 30, 2023, respectively. We finance our working capital needs and investments in the business largely through net income before noncash items, available cash, trade and supplier credit and various financing facilities. As a distributor, our business requires significant investment in working capital, particularly trade accounts receivable and inventory, which is partially financed by vendor trade accounts payable. As a general rule, when sales volumes are increasing, our net investment in working capital dollars typically increases, which generally results in decreased cash flow generated from operating activities. Conversely, when sales volume decreases, our net investment in working capital decreases, which generally results in increases in cash flows generated from operating activities. Working capital dollars are calculated at any point in time by adding the trade accounts receivable and inventory less the trade accounts payable balance at that point in time. Our working capital dollars were $4,142,013 and $4,417,984 at December 28, 2024 and December 30, 2023, respectively. +Fiscal Year Fiscal Year +2024 2023 +Cash provided by (used in): +Operating activities 333,839 58,824 +Investing activities 105,541 (17,714) +Financing activities (391,299) (477,940) +Operating activities provided net cash of $333,839 during Fiscal Year 2024 and $58,824 during Fiscal Year 2023. The higher net cash provided during Fiscal Year Ended 2024 was primarily driven by f avorable extension of payments to vendors compared to Fiscal Year 2023 partially offset by the prior year benefiting from a significant reduction in inventory as we worked through significant product backlogs and supply constraints through the end of 2023 and higher receivable balances in Fiscal Year 2024 driven primarily by the impacts of timing of mix of business and our fiscal year end on our collections to close the year. +Investing activities provided net cash of $105,541 and used net cash of $17,714 during Fiscal Year 2024 and Fiscal Year 2023, respectively. The net cash provided during Fiscal Year 2024 was driven by proceeds from deferred purchase price of factored receivables of $252,199 and proceeds from notes receivables from certain customers of $38,291, partially offset by capital expenditures for $142,703 and issuance of notes receivable to certain customers for $57,117. The net cash used during Fiscal Year 2023 was driven by capital expenditures of $201,535, partially offset by proceeds from deferred purchase price of factored receivables of $162,622 and proceeds from the CLS Sale of $23,977. +Financing activities used net cash of $391,299 and $477,940 during Fiscal Year 2024 and Fiscal Year 2023, respectively. The net cash used during Fiscal Year 2024 was primarily driven by repayments of our term loan totaling $483,100, gross repayment of other debt for $118,331, and net repayments of our revolving and other credit facilities of $66,998, partially offset by proceeds from issuance of common stock in our IPO, net of underwriting discounts, of $241,164 and gross proceeds from other debt of $101,779. The net cash used during Fiscal Year 2023 was primarily driven by repayments on our term loan totaling $560,000 and gross repayments of other debt of $92,417, partially offset by net proceeds from revolving and other credit facilities of $131,467 and gross proceeds of other debt of $72,351. +62 +Capital Resources +We have a range of financing facilities which are diversified by type, maturity and geographic region with various financial institutions worldwide with a total capacity of approximately $7,576,193, of which $3,350,993 was outstanding, at December 28, 2024. These facilities have staggered maturities through 2031. Our cash and cash equivalents totaled $918,401 and $948,490 at December 28, 2024 and December 30, 2023, respectively, of which $856,051 and $874,890, respectively, resided in operations outside of the United States. Cash and cash equivalents located in China were approximately 10% and 20% of our total cash and cash equivalents at December 28, 2024 and December 30, 2023, respectively, along with lesser amounts in Brazil, Luxembourg, Malaysia, Mexico, India, Canada, and Australia. Cash held by foreign subsidiaries, including China, can generally be used to finance local operations and cannot, under the current legal and regulatory environment, be transferred to finance other foreign subsidiaries’ operations. Additionally, our ability to repatriate these funds to the U.S. in an economical manner may be limited. Our cash balances are deposited and/or invested with various financial institutions globally that we endeavor to monitor regularly for credit quality. However, we are exposed to risk of loss on funds deposited with the various financial institutions and money market mutual funds, and we may experience significant disruptions in our liquidity needs if one or more of these financial institutions were to suffer bankruptcy or similar restructuring. As of December 28, 2024 and December 30, 2023, we had book overdrafts of $544,029 and $409,420, respectively, representing checks issued on disbursement bank accounts but not yet paid by such banks. These amounts are classified as accounts payable in our Consolidated Balance Sheets and are typically paid by the banks in a relatively short period of time. +We believe that our existing sources of liquidity provide sufficient resources to meet our capital requirements, including the potential need to post cash collateral for identified contingencies, for at least the next twelve months. We currently anticipate that the cash used for debt repayments will primarily come from our domestic cash, cash generated from on-going U.S. operating activities and from borrowings. Nevertheless, depending on capital and credit market conditions, we may from time to time seek to increase or decrease our available capital resources through changes in our debt or other financing facilities. Finally, since the capital and credit markets can be volatile, we may be limited in our ability to replace maturing credit facilities and other indebtedness in a timely manner on terms acceptable to us, or at all, or to access committed capacities due to the inability of our finance partners to meet their commitments to us. +Our current portfolio of utilized committed debt is almost evenly distributed between fixed and floating interest rate facilities. Our ABL Revolving Credit Facility, Term Loan Credit Facility and a revolving trade accounts receivable-backed financing program in Europe (the “European ABS Facility”) reprice periodically, and we plan to service any increase in interest expense with cash provided by operations. We do not have any expectation at this time to draw down on any of our other sources of liqui dity, outside of normal operations. We continue to monitor our cash flows and manage our operations with the purpose of optimizing our leverage and value. To mitigate our exposure to interest rate risk, during the first quarter of 2023, we entered into certain agreements to establish a 5. 5% upper limit on the London Interbank Offered Rate (“LIBOR”) interest rate applicable to a substantial portion of our borrowings under the Term Loan Credit Facility further discussed below. Due to the cessation of the LIBOR interest rate on June 30, 2023, we amended the interest rate cap agreements to establish a 5.317% upper limit on the Secured Overnight Financing Rate (“SOFR”) interest rate in order to align with the conversion to a SOFR-based rate for the underlying Term Loan Credit Facility as further discussed herein. During the second quarter of 2023, the Term Loan Credit Facility and the ABL Revolving Credit Facility were amended pursuant to their transition provisions to replace LIBOR-based benchmark rates with SOFR-based benchmark rates. During the third quarter of 2023, the interest rate cap agreements transitioned from LIBOR to SOFR as the interest reference rate. +The following is a detailed discussion of our various financing facilities. +On April 22, 2021, in anticipation of the acquisition of Ingram Micro by Platinum, Imola Merger Corporation (“Escrow Issuer”) offered $2,000,000 Senior Secured Notes due May 2029 (“2029 Notes”). Prior to the acquisition, the 2029 Notes were the sole obligation of the Escrow Issuer. Upon consummation of the acquisition on July 2, 2021, the proceeds from the notes were used, in part, to finance the acquisition and repay existing indebtedness. The notes bear interest at a rate of 4.750% per annum, which is payable semi-annually on May 15 and November 15 of each year, beginning on November 15, 2021. On July 2, 2021, we recognized $1,945,205, net of debt issuance costs of $54,795, associated with the 2029 Notes. +63 +On July 2, 2021, we entered into the Term Loan Credit Facility for $2,000,000, the proceeds of which were also used to, among other things, finance a portion of the acquisition of Ingram Micro by Platinum and repay certain of our existing indebtedness. We recognized $1,920,761, net of debt issuance costs and discount of $59,239 and $20,000, respectively, related to this facility. The Term Loan Credit Facility had an original maturity of July 2, 2028 and amortizes in equal quarterly installments aggregating to 1.00% per annum. In June 2023, we voluntarily prepaid $500,000 of our Term Loan Credit Facility over and above normal quarterly installments, which, as a result of this prepayment, are no longer mandatory. In September 2023, we refinanced our Term Loan Credit Facility, reducing the interest rate spread over SOFR by 50 basis points. We also amended the aforementioned interest rate cap agreements to reflect the updated notional amount of the Term Loan Credit Facility, with the 5.317% upper limit on the SOFR interest rate remaining unchanged under the amended interest rate cap agreements. In September 2024, we refinanced our Term Loan Credit Facility again, reducing the interest rate spread over SOFR by an additional 25 basis points, eliminating the credit-spread adjustments and extending the maturity date to September 19, 2031 (see Note 6, “Debt”, to our audited consolidated financial statements). Borrowings under the Term Loan Credit Facility bear interest at a rate per annum equal to, at our option, either (1) the base rate (which is the highest of (a) the then-current federal funds rate set by the Federal Reserve Bank of New York, plus 0.50%, (b) the prime rate on such day and (c) the one-month SOFR rate published on such date plus 1.00% and is subject to a 1.50% floor) plus a margin of 1.75% or (2) one-, three- or six-month SOFR (subject to a 0.50% floor) plus a margin of 2.75%. In connection with these refinancings, we repaid an incremental $50,000 and $100,000 in September 2023 and September 2024, respectively, of our Term Loan Credit Facility and in June 2024, we voluntarily repaid an incremental $150,000 of our Term Loan Credit Facility. Upon the closing of the IPO, we used the net proceeds from the offering to repay an additional $233,100 of our Term Loan Credit Facility. As of December 28, 2024 and December 30, 2023, $885,882 and $1,362,487, respectively, remained outstanding under the Term Loan Credit Facility. +On July 2, 2021, we entered into new ABL Credit Facilities providing for senior secured asset-based, multi-currency revolving loans and letter of credit availability in an aggregate amount of up to $3,500,000 (the “ABL Revolving Credit Facility”) and a senior secured asset-based term loan facility of $500,000 (the “ABL Term Loan Facility”), both of which had contractual maturity dates in July 2026. The ABL Term Loan Facility was repaid fully in April 2022. We may borrow under the ABL Revolving Credit Facility only up to our available borrowing base capacity. Borrowings under the ABL Revolving Credit Facility bear interest at a rate per annum equal to, at our option, either (1) the base rate plus a margin ranging (based on the availability under the ABL Revolving Credit Facility) from 0.25% to 0.75% or (2) SOFR (subject to a 0% floor) plus a margin ranging (based on the availability under the ABL Revolving Credit Facility) from 1.25% to 1.75%. In September 2024, we amended the ABL Credit Agreement, to amend the ABL Revolving Credit Facility to, among other things, extend the maturity date to September 20, 2029. As of December 28, 2024 and December 30, 2023, we had borrowings of $0 and $30,000, respectively, under our ABL Revolving Credit Facility. The weighted-average interest rate on the outstanding borrowings under the ABL Revolving Credit Facility, as amended, was 6.7% and 8.1% per annum at December 28, 2024 and December 30, 2023, respectively. +Additionally, our European ABS Facility provides for a borrowing capacity of up to €375,000, or approximately $390,788, at December 28, 2024 exchange rates. This program, which matures in October 2026, requires certain commitment fees and borrowings incur financing costs based on the local short-term bank indicator rate for the currency in which the drawing is made plus a predetermined margin. At December 28, 2024 and December 30, 2023, we had borrowings of $312,630 and $331,920, respectively, under the European ABS Facility. The weighted-average interest rate on the outstanding borrowings under the European ABS Facility, as amended, was 4.9% and 4.4% per annum at December 28, 2024 and December 30, 2023, respectively. +At December 28, 2024, our actual aggregate capacity under our ABL Revolving Credit Facility and other receivable-backed programs was approximately $3,870,281, of which $312,630 was used. Even if we do not borrow or choose not to borrow to the full available capacity of certain programs, most of our trade accounts receivable-backed financing programs are subject to certain restrictions outlined in our ABL Revolving Credit Facility. These restrictions generally prohibit us from assigning or transferring the underlying eligible receivables as collateral for other financing programs, unless the underlying eligible receivables are sold in conjunction with a dedicated, non-recourse facility. +We also have additional lines of credit, short-term overdraft facilities and other credit facilities with various financial institutions worldwide, which provide for borrowing capacity aggregating to $850,262 at December 28, 2024. Most of these arrangements are on an uncommitted basis and are reviewed periodically for renewal. At December 28, 2024 and December 30, 2023, we had $182,713 and $217,463, respectively, outstanding under these facilities. The weighted-average interest rate on the outstanding borrowings under these facilities, which may fluctuate depending on geographic mix, was 6.9% and 7.9% per annum at December 28, 2024 and December 30, 2023, respectively. At December 28, 2024 and December 30, 2023, letters of credit totaling $166,613 and $108,690, respectively, were issued to various customs agencies and landlords to support our subsidiaries. The issuance of these letters of credit reduces our available capacity under the corresponding agreements by the same amount. +64 +Covenant Compliance +We are subject to certain customary affirmative covenants, including reporting and cash management requirements, and certain customary negative covenants that limit our and our subsidiaries’ ability to incur additional indebtedness or liens, to dispose of assets, to make certain fundamental changes, to enter into restrictive agreements, to make certain investments, loans, advances, guarantees and acquisitions, to prepay certain indebtedness, to pay dividends or other distributions in respect of our and our subsidiaries’ equity interests and to engage in transactions with affiliates. At December 28, 2024 and December 30, 2023, we were in compliance with all covenants or other requirements in all of our debt arrangements. +Trade Accounts Receivable Factoring Programs +We have several uncommitted factoring programs under which trade accounts receivable of several customers may be sold, without recourse, to financial institutions. Available capacity under these programs is dependent on the level of our trade accounts receivable eligible to be sold into these programs and the financial institutions’ willingness to purchase such receivables. At December 28, 2024 and December 30, 2023, we had a total of $737,302 and $738,714, respectively, of trade accounts receivable sold to and held by the financial institutions under these programs. +Contractual Obligations and Off-Balance Sheet Arrangements +We have guarantees to third parties that provide financing to a limited number of our customers. Net sales under these arrangements accounted for less than one percent of our consolidated net sales for each of the periods presented. The guarantees require us to reimburse the third party for defaults by these customers up to an aggregate of $6,591. The fair value of these guarantees has been recognized as cost of sales on the Consolidated Statements of Income to these customers and is included in accrued expenses and other on the Consolidated Balance Sheets. +In connection with the acquisition of businesses in recent years, we entered into acquisition agreements which include provisions to make additional contingent consideration payments. As of December 28, 2024 and December 30, 2023, the accrual for potential contingent consideration payments under these agreements is $2,888 and $4,391, respectively. +For a further discussion on our debt and operating lease commitments as of December 28, 2024 and December 30, 2023, see Note 6, “Debt,” and Note 5, “Leases,” respectively, to our audited consolidated financial statements. +New Accounting Standards +See Note 2, “Significant Accounting Policies,” to our audited consolidated financial statements for the discussion of new accounting standards. +Critical Accounting Estimates +Our audited consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. We review our estimates and assumptions on an on-going basis. Significant estimates primarily relate to the realizable value of accounts receivable, vendor programs, inventory, goodwill, intangible and other long-lived assets, income taxes and contingencies and litigation. Actual results could differ from these estimates. +We believe the following critical accounting policies involve the more significant judgments and estimates used in the preparation of our audited consolidated financial statements: +65 +Revenue Recognition +Revenue Streams +In our distribution services model, we buy, hold title to and sell technology products and provide services to resellers, referred to subsequently as our customer, while also providing resellers with multi-vendor solutions, integration services, electronic commerce tools, marketing, financing, training and enablement, technical support and inventory management. In both Technology Solutions, which consists of Client and Endpoint Solutions and Advanced Solutions, and Cloud, we generally sell products and services to our customers (resellers) based on purchase orders instead of long-term contracts. Our agreements are generally not subject to minimum purchase requirements. Our customers place purchase orders with us for each transaction. Generally, our customers may cancel, delay or modify their purchase orders. In order to set up an account to trade with us, our customers generally have to accept our terms and conditions of sale which, together with the purchase order, form a binding contract on each individual order to which the purchase order applies. Our pricing varies greatly and depends on many factors including costs, competitive pressure, availability of inventory, seasonality and vendor promotional programs, among others. We may offer early payment discounts or volume incentive rebates to our customers. The customer contracts relating to our Other services generally provide for an initial term of three to five years, subject to extension by the mutual agreement of the parties, allow for termination for convenience by either party generally after the second year and the pricing is fixed by discrete type of service and typically varies depending on the volume of the relevant services. We do not believe any contract related to our Other services has a material impact on our business or financial condition. Products are delivered via shipment from our facilities, drop-shipment directly from the vendor or by electronic delivery of keys for software products. +We recognize revenue when the control of products is transferred to our customers, which generally happens at the point of shipment or point of delivery. We account for shipping and handling activities that occur after the customer has obtained control of a good as fulfillment activities rather than a promised service. Accordingly, we accrue all fulfillment costs related to the shipping and handling of goods at the time of shipment. Additionally, we exclude the amount of certain taxes collected concurrent with revenue-producing activities from revenue. +Any supplemental distribution services we provide are typically recognized over time as the services are performed. Service contracts may be based on a fixed price or on a fixed unit-price per transaction or other objective measure of output. Additionally, we offer services related to our supply chain management and CloudBlue platform. Our fee-based commerce and supply chain services are billed and recognized on a per-item service fee arrangement at the point when the service is provided. Our CloudBlue platform generates revenue through licensing the right to use the intellectual property (on-premise license), which is recognized at a point in time, providing the right to access (platform as a service), which is recognized over time across the term of the contract, or through our c loud marketplace, which is recognized in the amount of the net fee associated with serving as an agent when the services are provided. Service revenues represented less than 10% of total net sales for Fiscal Year 2024, Fiscal Year 2023, and Fiscal Year 2022. Related contract liabilities were not material for the periods presented. +Agency Services +We have contracts with certain customers where our performance obligation is to arrange for the products or services to be provided by another party. In these arrangements, as we assume an agency relationship in the transaction, revenue is recognized in the amount of the net fee associated with serving as an agent when the services are completed. These arrangements primarily relate to certain fulfillment contracts, as well as sales of certain software products, and extended vendor services, such as vendor warranties. +Variable Consideration +We, under specific conditions, permit our customers to return or exchange products. The provision for estimated sales returns is recorded concurrently with the recognition of revenue. A liability is recorded within accrued expenses and other on the consolidated balance sheets for estimated product returns based upon historical experience and an asset is recorded within Inventory on the consolidated balance sheets for the amount expected to be recorded for inventory upon product return. +We also provide volume discounts, early payment discounts and other discounts to certain customers which are considered variable consideration. A provision for such discounts is recorded as a reduction of revenue at the time of sale based on an evaluation of the contract terms and historical experience. +66 +Inventory +Our inventory consists of finished goods purchased from various vendors for resale. We value our inventory at the lower of its cost or net realizable value, cost being determined on a moving average cost basis, which approximates the first-in, first out method. We write down our inventory for estimated excess or obsolescence equal to the difference between the cost of inventory and the net realizable value based upon an aging analysis of the inventory on hand, specifically known inventory-related risks (such as technological obsolescence and the nature of vendor terms regarding price protection and product returns), foreign currency fluctuations for foreign-sourced products and assumptions about future demand. Market conditions or changes in terms and conditions by our vendors that are less favorable than those projected by management may require additional inventory write-downs, which could have an adverse effect on our consolidated financial results. Inventory is determined from the price we pay vendors, including freight and duties; we do not include labor, overhead or other general or administrative costs in our inventory. +Business Combinations +We allocate the fair value of purchase consideration to the assets acquired and liabilities assumed in the acquiree based on their fair values on the acquisition date. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill. We engage the assistance of valuation specialists in concluding on fair value measurements in connection with determining fair values of assets acquired and liabilities assumed in a business combination. When determining the fair values of assets acquired and liabilities assumed we are required to make significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing intangible assets include, but are not limited to, expected future cash flows, which includes consideration of future revenue growth rates and margins, attrition rates, royalty rates and discount rates. Fair value estimates are based on the assumptions we believe a market participant would use in pricing the asset or liability. Amounts recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available. +Long-Lived and Intangible Assets +We assess potential impairments to our long-lived and intangible assets when events or changes in circumstances indicate that the carrying amount may not be fully recoverable. If required, an impairment loss is recognized as the difference between the carrying value and the fair value of the assets. +Goodwill +Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired in an acquisition and is reviewed annually for potential impairment, or when circumstances warrant. Goodwill is required to be tested for impairment at least annually or sooner whenever events or changes in circumstances indicate that goodwill may be impaired. Goodwill impairment tests require judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units and determination of the fair value of each reporting unit. We perform our annual goodwill impairment assessment during our fiscal fourth quarter. We have the option of first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Such review includes an evaluation of whether events and circumstances have occurred that may indicate a potential change in recoverability of goodwill, including the impacts of a deterioration in general economic conditions, an increased competitive environment, a change in management, key personnel, strategy, vendors or customers, negative or declining cash flows, or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods. +If, based on a review of qualitative factors, it is more likely than not that the fair value of a reporting unit is less than its carrying value, we perform a quantitative analysis by comparing the fair value of a reporting unit with its carrying amount. If the carrying value exceeds the fair value, we measure the amount of impairment loss, if any, by comparing the fair value of the reporting unit goodwill to its carrying amount. +We performed a quantitative impairment analysis of goodwill in Fiscal Year 2024 and Fiscal Year 2023 for our North America and EMEA regions. In determining the fair value of our reporting units, we assessed general economic conditions, industry and market considerations, the impact of recent events to financial performance and other relevant events. Based on the valuations prepared, we determined that the estimated fair values of our reporting units were greater than their carrying values and no impairment of goodwill was identified in either period. In Fiscal Year 2024 and Fiscal Year 2023 we performed a qualitative analysis of goodwill for our Asia-Pacific and Latin America regions. No goodwill impairment was recorded during Fiscal Year 2024 and Fiscal Year 2023 based on the results of the procedures performed. +67 +Income Taxes +We estimate income taxes in each of the taxing jurisdictions in which we operate. This process involves estimating our actual current tax expense together with assessing the future tax impact of any differences resulting from the different treatment of certain items, such as the timing for recognizing revenues and expenses for tax versus financial reporting purposes. These differences may result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. We are required to assess the likelihood that our deferred tax assets, which include net operating loss carryforwards, tax credits and temporary differences that are expected to be deductible in future years, will be recoverable from future taxable income. In making that assessment, we consider the nature of the deferred tax assets and related statutory limits on utilization, recent operating results, future market growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we operate and prudent and feasible tax planning strategies. If, based upon available evidence, recovery of the full amount of the deferred tax assets is not likely, we provide a valuation allowance on any amount not likely to be realized. +Our effective tax rate includes the impact of not providing taxes on undistributed foreign earnings considered indefinitely reinvested. Material changes in our estimates of cash, working capital and long-term investment requirements in the various jurisdictions in which we do business could impact our effective tax rate if we no longer consider our foreign earnings to be indefinitely reinvested. +The provision for tax liabilities and recognition of tax benefits involves evaluations and judgments of uncertainties in the interpretation of complex tax regulations by various taxing authorities. In situations involving uncertain tax positions related to income tax matters, we do not recognize benefits unless their sustainability is deemed more likely than not. As additional information becomes available, or these uncertainties are resolved with the taxing authorities, revisions to these liabilities or benefits may be required, resulting in additional provision for or benefit from income taxes reflected in our consolidated statements of income. +The Organization for Economic Co-operation and Development (“OECD”) has announced a framework to implement a global minimum tax of 15%, referred to as Pillar Two. Certain countries have implemented or are in the process of implementing the Pillar Two legislation, which applied to us beginning in Fiscal Year 2024. While the implementation of this legislation did not materially impact our consolidated financial statements in Fiscal Year 2024 and we do not currently expect a material impact in the future, we continue to monitor the impact as countries implement legislation and the OECD provides additional guidance. +Contingencies +We accrue for contingent obligations, including estimated legal costs, when the obligation is probable and the amount is reasonably estimable. As facts concerning contingencies become known, we reassess our position and make appropriate adjustments to the financial statements. Estimates that are particularly sensitive to future changes include those related to tax, legal and other regulatory matters such as imports and exports, the imposition of international governmental controls, changes in the interpretation and enforcement of international laws (in particular related to items such as duty and taxation) and the impact of local economic conditions and practices, which are all subject to change as events evolve and as additional information becomes available during the administrative and litigation process. +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +Foreign Currency Exchange Risk +We are exposed to the impact of foreign currency fluctuations and interest rate changes due to our international sales and global funding. In the normal course of business, we employ established policies and procedures to manage our exposure to fluctuations in the value of foreign currencies using a variety of financial instruments. It is our policy to utilize financial instruments to reduce risks where internal netting cannot be effectively employed and not to enter into foreign currency or interest rate transactions for speculative purposes. +Our foreign currency risk management objective is to protect our earnings and cash flows resulting from sales, purchases and other transactions from the adverse impact of exchange rate movements. Foreign exchange risk is managed by using forward contracts to offset exchange risk associated with receivables and payables. We generally maintain hedge coverage between minimum and maximum percentages. During 2024, hedged transactions were denominated in U.S. dollars, Canadian dollars, euros, British pounds, Danish krone, Hungarian forint, Israeli shekel, Norwegian kroner, Swedish krona, Swiss francs, Polish zloty, South African rand, Australian dollars, Japanese yen, New Zealand dollars, Singapore dollars, Bulgarian lev, Czech koruna, Hong Kong dollars, Romanian leu, Brazilian real, Colombian pesos, Chilean pesos, Indian rupee, Chinese yuan, Turkish lira, Moroccan dirham, Thai baht, Malaysian ringgit and Indonesian rupiah. +68 +We monitor our foreign exchange risk using a Value-at-Risk model (the “VaR model”). The VaR model determines the maximum potential loss in the fair value of our forward contracts and those assets and liabilities denominated in foreign currencies that the forward contracts are intended to hedge assuming a one-day holding period. The VaR model estimates were made assuming normal market conditions and a 95% confidence level. The estimated maximum potential one-day loss in fair value, calculated using the VaR model would be $551 and $1,799 as of December 28, 2024 and December 30, 2023, respectively. +Interest Rate Risk +We are exposed to changes in interest rates on a portion of our long-term debt, which is subject to changes in major interest rate benchmarks, used to maintain liquidity and finance working capital, capital expenditures and business expansion. For additional information, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Capital Resources.” If interest rates, however, were to increase or decrease by 1%, and our borrowing amounts stayed constant on our Term Loan Credit Facility and our ABL Revolving Credit Facility at the levels of such borrowing amounts as of December 28, 2024, our annual interest would increase by approximately $9,107, or decrease by $9,269, respectively. Assuming that our ABL Revolving Credit Facility was fully drawn as of December 28, 2024, each one-eighth percentage point change in interest rates would result in a change of approximately $5,534 in annual interest expense on the indebtedness under our Term Loan Credit Facility and our ABL Revolving Credit Facility. Rising interest rates do not materially impact the Company’s balance sheet items relating to inventory, accounts payable or accrued expense balances. +Our management objective is to finance our business at interest rates that are competitive in the marketplace while moderating our exposure to volatility in interest costs. To achieve our objectives, we may utilize both variable- and fixed-rate debt with a portion of our variable interest rate exposure from time to time mitigated through interest rate swaps or other derivative instruments. To mitigate the Company’s exposure to interest rate risk arising from the Company’s long-term debt, the Company entered into certain agreements during the first quarter of 2023 to establish a 5.5% upper limit on the LIBOR interest rate applicable to a substantial portion of the borrowings under the Term Loan Credit Facility. Due to the cessation of the LIBOR interest rate on June 30, 2023, we amended the interest rate cap agreements to establish a 5.317% upper limit on the SOFR interest rate. These interest rate cap agreements transitioned from LIBOR to SOFR as the interest reference rate during the third quarter of 2023. The Company has funded, and to the extent applicable expects to continue to fund, increases in the Company’s interest expense resulting from rising interest rates through cash flows from operations. +69 +Item 8. Financial Statements and Supplementary Data +INDEX TO FINANCIAL STATEMENTS +Page +Audited Consolidated Financial Statements +Report of Independent Registered Public Accounting Firm (PCAOB ID: 238 ) +71 +Consolidated Balance Sheets as of December 28, 2024 and December 30, 2023 +73 +Consolidated Statements of Income for Fiscal Year ended December 28, 2024, Fiscal Year ended December 30, 2023, and Fiscal Year ended December 31, 2022 +74 +Consolidated Statements of Comprehensive (Loss) Income for Fiscal Year ended December 28, 2024, Fiscal Year ended December 30, 2023, and Fiscal Year ended December 31, 2022 +75 +Consolidated Statements of Stockholders’ Equity for Fiscal Year ended December 28, 2024, Fiscal Year ended December 30, 2023, and Fiscal Year ended December 31, 2022 +76 +Consolidated Statements of Cash Flows for Fiscal Year ended December 28, 2024, Fiscal Year ended December 30, 2023, and Fiscal Year ended December 31, 2022 +77 +Notes to Consolidated Financial Statements +79 +Schedules to the Audited Consolidated Financial Statements +Schedule II – Valuation and Qualifying Accounts +113 +70 +Report of Independent Registered Public Accounting Firm +To the Board of Directors and Stockholders of Ingram Micro Holding Corporation +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheets of Ingram Micro Holding Corporation and its subsidiaries (the "Company") as of December 28, 2024 and December 30, 2023, and the related consolidated statements of income, of comprehensive (loss) income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 28, 2024, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 28, 2024, appearing under Item 8 (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 28, 2024 and December 30, 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 28, 2024 in conformity with accounting principles generally accepted in the United States of America. +Basis for Opinion +These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. +Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. +Critical Audit Matters +The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. +Distribution Services Revenue Recognition +As described in Note 2 to the consolidated financial statements, the Company’s net sales was $47,984 million for the year ended December 28, 2024, of which a significant portion relates to distribution services revenue. In a distribution services model, the Company buys, holds title to, and sells technology products and provides services to resellers, referred to subsequently as customers, while also providing resellers with multi-vendor solutions, integration services, electronic commerce tools, marketing, financing, training and enablement, technical support, and inventory management. Revenue is recognized when the control of products is transferred to customers, which generally happens at the point of shipment or point of delivery. +The principal consideration for our determination that performing procedures relating to distribution services revenue recognition is a critical audit matter is a high degree of auditor effort in performing procedures related to distribution services revenue recognition. +71 +Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process of distribution services revenue. These procedures also included, among others, evaluating, on a test basis, revenue recognized for distribution services transactions by obtaining and inspecting customer contracts, invoices, purchase orders, shipping documentation, cash receipts, and trade accounts receivable confirmations from customers, where applicable. +/s/ PricewaterhouseCoopers LLP +Irvine, California +March 5, 2025 +We have served as the Company’s auditor since at least 1994. We have not been able to determine the specific year we began serving as auditor of the Company. +72 +INGRAM MICRO HOLDING CORPORATION +CONSOLIDATED BALANCE SHEETS +(Amounts in thousands, except par value and share data) +December 28, 2024 December 30, 2023 +ASSETS +Current assets: +Cash and cash equivalents $ 918,401 $ 948,490 +Trade accounts receivable (less allowances of $ 146,999 and $ 163,727 , respectively) +9,448,354 8,988,799 +Inventory 4,699,483 4,659,624 +Other current assets 734,939 757,404 +Total current assets 15,801,177 15,354,317 +Property and equipment, net 482,503 452,613 +Operating lease right-of-use assets 412,662 430,705 +Goodwill 833,662 851,780 +Intangible assets, net 772,571 880,433 +Other assets 477,115 450,466 +Total assets $ 18,779,690 $ 18,420,314 +LIABILITIES AND STOCKHOLDERS’ EQUITY +Current liabilities: +Accounts payable $ 10,005,824 $ 9,230,439 +Accrued expenses and other 1,021,958 1,061,409 +Short-term debt and current maturities of long-term debt 184,860 265,719 +Short-term operating lease liabilities 93,889 105,564 +Total current liabilities 11,306,531 10,663,131 +Long-term debt, less current maturities 3,168,280 3,657,889 +Long-term operating lease liabilities, net of current portion 369,493 366,139 +Other liabilities 201,511 226,866 +Total liabilities 15,045,815 14,914,025 +Commitments and contingencies (Note 9) +Stockholders’ equity: +Class A Common Stock, par value $ 0.01 , no shares authorized, issued and outstanding at December 28, 2024; and 251,015,810 shares authorized and 220,742,854 shares issued and outstanding at December 30, 2023 +— 2,207 +Class B Common Stock, par value $ 0.01 , no shares authorized, issued and outstanding at December 28, 2024; 2,510,158 shares authorized and 1,657,146 shares issued and outstanding at December 30, 2023 +— 17 +Common Stock, par value $ 0.01 , 2,000,000,000 shares authorized and 234,825,581 issued and outstanding at December 28, 2024; and no shares authorized, issued and outstanding at December 30, 2023 +2,348 — +Additional paid-in capital 2,903,842 2,655,776 +Retained earnings 1,337,399 1,079,776 +Accumulated other comprehensive loss ( 509,714 ) ( 231,487 ) +Total stockholders’ equity 3,733,875 3,506,289 +Total liabilities and stockholders’ equity $ 18,779,690 $ 18,420,314 +See accompanying notes to these consolidated financial statements. +73 +INGRAM MICRO HOLDING CORPORATION +CONSOLIDATED STATEMENTS OF INCOME +(Amounts in thousands, except per share data) +Fiscal Year Fiscal Year Fiscal Year +2024 2023 2022 +Net sales $ 47,983,671 $ 48,040,364 $ 50,824,490 +Cost of sales 44,538,726 44,493,227 47,131,098 +Gross profit 3,444,945 3,547,137 3,693,392 +Operating expenses (income): +Selling, general and administrative 2,588,668 2,583,993 2,716,234 +Merger-related costs — — 1,910 +Restructuring costs 38,354 18,797 10,138 +Gain on CLS Sale — — ( 2,283,820 ) +Total operating expenses 2,627,022 2,602,790 444,462 +Income from operations 817,923 944,347 3,248,930 +Other (income) expense: +Interest income ( 45,335 ) ( 34,977 ) ( 22,911 ) +Interest expense 338,358 380,191 320,230 +Net foreign currency exchange loss 22,901 42,070 69,597 +Other expense 56,133 34,562 67,473 +Total other (income) expense 372,057 421,846 434,389 +Income before income taxes 445,866 522,501 2,814,541 +Provision for income taxes 181,644 169,789 420,052 +Net income $ 264,222 $ 352,712 $ 2,394,489 +Basic earnings per share $ 1.18 $ 1.59 $ 10.77 +Diluted earnings per share $ 1.18 $ 1.59 $ 10.77 +See accompanying notes to these consolidated financial statements. +74 +INGRAM MICRO HOLDING CORPORATION +CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME +(Amounts in thousands) +Fiscal Year Fiscal Year Fiscal Year +2024 2023 2022 +Net income $ 264,222 $ 352,712 $ 2,394,489 +Other comprehensive (loss) income, net of tax +Foreign currency translation adjustment ( 277,541 ) 103,596 ( 270,685 ) +Other ( 686 ) 2,375 ( 5,468 ) +Other comprehensive (loss) income, net of tax ( 278,227 ) 105,971 ( 276,153 ) +Comprehensive (loss) income $ ( 14,005 ) $ 458,683 $ 2,118,336 +See accompanying notes to these consolidated financial statements. +75 +INGRAM MICRO HOLDING CORPORATION +CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY +(Amounts in thousands, except share data) +Class A +Common Stock Class B +Common Stock Common Stock +Additional +Paid-in +Capital +Retained +Earnings +Accumulated +Other +Comprehensive +Loss +Total +Shares Amount Shares Amount Shares Amount +Balance at January 1, 2022 220,726,568 $ 2,207 1,657,146 $ 17 — $ 2,655,776 $ 96,734 $ ( 61,305 ) $ 2,693,429 +Dividends declared — — — — — — — ( 1,753,697 ) — ( 1,753,697 ) +Net income +— — — — — — — 2,394,489 — 2,394,489 +Foreign currency translation adjustment — — — — — — — — ( 270,685 ) ( 270,685 ) +Issuance of Class A Shares 16,286 — — — — — — — — — +Other — — — — — — — — ( 5,468 ) ( 5,468 ) +Balance at December 31, 2022 220,742,854 2,207 1,657,146 17 — — 2,655,776 737,526 ( 337,458 ) 3,058,068 +Dividends declared — — — — — — — ( 10,462 ) — ( 10,462 ) +Net income +— — — — — — — 352,712 — 352,712 +Foreign currency translation adjustment — — — — — — — — 103,596 103,596 +Other +— — — — — — 2,375 2,375 +Balance at December 30, 2023 220,742,854 2,207 1,657,146 17 — — 2,655,776 1,079,776 ( 231,487 ) 3,506,289 +Dividends declared — — — — — — — ( 6,599 ) — ( 6,599 ) +Net income +— — — — — — — 264,222 — 264,222 +Conversion of Class A and Class B Common Stock to Common Stock ( 220,742,854 ) ( 2,207 ) ( 1,657,146 ) ( 17 ) 222,400,000 2,224 — — — — +Issuance of Common Stock in initial public offering — — — — 11,600,000 116 241,048 — — 241,164 +Stock-based compensation expense — — — — — — 34,067 — — 34,067 +Issuance of Common Stock on vesting of restricted stock units, net of shares withheld for employee taxes — — — — 825,581 8 ( 14,305 ) — — ( 14,297 ) +Foreign currency translation adjustment — — — — — — — — ( 277,541 ) ( 277,541 ) +Other +— — — — — — ( 12,744 ) — ( 686 ) ( 13,430 ) +Balance at December 28, 2024 — $ — — $ — 234,825,581 $ 2,348 $ 2,903,842 $ 1,337,399 $ ( 509,714 ) $ 3,733,875 +See accompanying notes to these consolidated financial statements. +76 +INGRAM MICRO HOLDING CORPORATION +CONSOLIDATED STATEMENTS OF CASH FLOWS +(Amounts in thousands) +Fiscal Year Fiscal Year Fiscal Year +2024 2023 2022 +Cash flows from operating activities: +Net income $ 264,222 $ 352,712 $ 2,394,489 +Adjustments to reconcile net income to cash provided by (used in) operating activities: +Depreciation and amortization 189,331 184,148 197,111 +Stock based compensation 34,067 — — +(Gain) loss on marketable securities, net ( 12,233 ) ( 10,941 ) 14,340 +Gain on CLS Sale — — ( 2,283,820 ) +Gain on sale leaseback of German warehouse — — ( 7,050 ) +Noncash charges for interest and bond discount amortization 26,374 31,424 33,419 +Loss on repayment of term loans 1,927 4,872 10,724 +Amortization of operating lease asset 128,935 108,644 101,263 +Deferred income taxes ( 14,984 ) ( 55,164 ) 16,573 +(Gain) loss on foreign exchange ( 130 ) 1,989 ( 143,335 ) +Other ( 1,164 ) 4,805 6,973 +Changes in operating assets and liabilities, net of effects of acquisitions: +Trade accounts receivable ( 1,060,810 ) ( 299,833 ) ( 590,576 ) +Inventory ( 225,831 ) 772,396 ( 210,215 ) +Other assets ( 18,917 ) ( 75,597 ) ( 30,322 ) +Accounts payable 976,171 ( 738,389 ) 349,744 +Change in book overdrafts 134,652 ( 34,367 ) 10,411 +Operating lease liabilities ( 118,975 ) ( 104,897 ) ( 63,799 ) +Accrued expenses and other 31,204 ( 82,978 ) ( 167,039 ) +Cash provided by (used in) operating activities 333,839 58,824 ( 361,109 ) +Cash flows from investing activities: +Capital expenditures ( 142,703 ) ( 201,535 ) ( 135,785 ) +Proceeds from deferred purchase price of factored receivables 252,199 162,622 145,003 +Issuance of notes receivable ( 57,117 ) — — +Proceeds from note receivables 38,291 — — +Proceeds from CLS sale, net of cash sold — 23,977 2,977,825 +Proceeds from sale leaseback of German warehouse — — 43,691 +Other 14,871 ( 2,778 ) ( 1,966 ) +Cash provided by (used in) investing activities 105,541 ( 17,714 ) 3,028,768 +Cash flows from financing activities: +Payment of contingent consideration related to Imola Mergers — — ( 250,000 ) +Dividends paid to shareholders ( 6,174 ) ( 10,462 ) ( 1,753,697 ) +77 +Fiscal Year Fiscal Year Fiscal Year +2024 2023 2022 +Change in unremitted cash collections from servicing factored receivables ( 11,315 ) ( 18,413 ) 17,831 +Proceeds from issuance of common stock in initial public offering, net of underwriting discounts 241,164 — — +Repayment of term loans ( 483,100 ) ( 560,000 ) ( 517,500 ) +Gross proceeds from other debt 101,779 72,351 50,116 +Gross repayments of other debt ( 118,331 ) ( 92,417 ) ( 94,300 ) +Net (repayments of) proceeds from revolving and other credit facilities ( 66,998 ) 131,467 89,285 +Repurchase of common stock for tax withholdings on equity awards ( 14,164 ) — — +Purchase of Colsof shares ( 22,621 ) — — +Other ( 11,539 ) ( 466 ) ( 7,048 ) +Cash used in financing activities ( 391,299 ) ( 477,940 ) ( 2,465,313 ) +Effect of exchange rate changes on cash and cash equivalents ( 78,170 ) 65,183 ( 133,817 ) +Cash and cash equivalents classified within held for sale — — 23,729 +(Decrease) increase in cash and cash equivalents ( 30,089 ) ( 371,647 ) 92,258 +Cash and cash equivalents, beginning of year 948,490 1,320,137 1,227,879 +Cash and cash equivalents, end of year $ 918,401 $ 948,490 $ 1,320,137 +Supplemental disclosures of cash flow information: +Cash payments during the year: +Interest $ 336,431 $ 378,554 $ 320,025 +Income taxes $ 252,219 $ 271,541 $ 442,564 +Supplemental disclosure of non-cash investing and financing information: +Proceeds not yet received from CLS sale $ — $ — $ 23,997 +Amounts obtained as a beneficial interest in exchange for transferring trade receivables in factoring arrangements $ 261,667 $ 171,114 $ 147,882 +See accompanying notes to these consolidated financial statements. +78 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Note 1 — Organization and Basis of Presentation +Ingram Micro Holding Corporation and its subsidiaries (“Ingram Micro”) are primarily engaged in the distribution of information technology (“IT”) products, cloud and other services worldwide. Ingram Micro operates in North America; Europe, Middle East and Africa (“EMEA”); Asia-Pacific; and Latin America. Ingram Micro Holding Corporation is a holding company with no material assets other than the indirect ownership of the stock of Ingram Micro Inc., and its operations are conducted through its wholly owned subsidiaries. Unless the context otherwise requires, the use of the terms “Ingram Micro,” “we,” “us,” “our” and the “Company” in these notes to the consolidated financial statements refers to Ingram Micro Holding Corporation together with its consolidated subsidiaries. The use of the term “Platinum” means Platinum Equity, LLC together with its affiliated investment vehicles. +Platinum formed Ingram Micro Holding Corporation on September 28, 2020, and on December 9, 2020, Imola Acquisition Corporation, an investment vehicle of certain private investment funds sponsored and ultimately controlled by Platinum, entered into a definitive agreement with HNA Technology Co., Ltd. (“HNA Tech”) to acquire 100 % of the share capital of Ingram Micro Inc. The acquisition was consummated on July 2, 2021. As part of the acquisition, Imola Merger Corporation (“Escrow Issuer”) merged with and into GCL Investment Management Inc., an affiliate of HNA Tech, which immediately thereafter merged with and into GCL Investment Holdings, Inc., which subsequently and immediately then merged with and into Ingram Micro Inc., with Ingram Micro Inc. as the surviving entity (collectively, the “Imola Mergers”). +Note 2 — Significant Accounting Policies +Basis of Consolidation +The consolidated financial statements include the accounts of Ingram Micro Holding Corporation and its subsidiaries and have been prepared by us pursuant to accounting principles generally accepted in the United States of America (“U.S. GAAP”). All significant intercompany accounts and transactions have been eliminated in consolidation. +Fiscal Year +Our fiscal year is a 52- or 53-week period ending on the Saturday nearest to December 31. All references herein to “Fiscal Year 2024”, “Fiscal Year 2023” and “Fiscal Year 2022” represent the fiscal years ended December 28, 2024 (52 weeks), December 30, 2023 (52 weeks) and December 31, 2022 (52 weeks), respectively. +Stock Conversion and Stock Split +In connection with our initial public offering (the “IPO”), on October 23 , 2024, we converted our Class A voting common stock and Class B non-voting common stock into Common Stock, par value $ 0.01 per share ( “Common Stock”), on a 1-for-1 basis and effected a 8367.19365 -for- 1 stock split with respect to our Common Stock. All figures have been presented on the basis of this stock split wherever applicable for the periods presented w ithin these consolidated financial statements. +Initial Public Offering +In October 2024, we completed an IPO, in which we issued and sold 11,600,000 shares of our Common Stock, and Imola JV Holdings, L.P. agreed to offer and sold 7,000,000 shares of their Common Stock at a public offering price of $ 22.00 per share. We received approximately $ 233,110 in net proceeds after deducting $ 14,036 of underwriting discounts and approximately $ 8,054 in estimated offering costs. Upon the closing of the IPO, we used the net proceeds from the offering to repay $ 233,100 of debt outstanding under our Term Loan Credit Facility (as defined herein). The underwriters were granted a 30-day option to purchase up to an additional 2,790,000 shares of Common Stock from Imola JV Holdings, L.P., the selling stockholder, which was exercised in full and closed on November 4, 2024. +79 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Use of Estimates +The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the financial statement date, and reported amounts of revenue and expenses during the reporting period. We review our estimates and assumptions on an on-going basis. Significant estimates primarily relate to the realizable value of accounts receivable, vendor programs, inventory, goodwill, intangible and other long-lived assets, income taxes, and contingencies and litigation. Actual results could differ significantly from these estimates. +Revenue Recognition +Revenue Streams +In our distribution services model, we buy, hold title to, and sell technology products and provide services to resellers, referred to subsequently as our customer, while also providing resellers with multi-vendor solutions, integration services, electronic commerce tools, marketing, financing, training and enablement, technical support, and inventory management. In both Technology Solutions, which consists of Client and Endpoint Solutions and Advanced Solutions, and Cloud, we generally sell products and services to our customers (resellers) based on purchase orders instead of long-term contracts. Our agreements are generally not subject to minimum purchase requirements. Our customers place purchase orders with us for each transaction. Generally, our customers may cancel, delay or modify their purchase orders. In order to set up an account to trade with us, our customers generally have to accept our terms and conditions of sale which, together with the purchase order, form a binding contract on each individual order to which the purchase order applies. Our pricing varies and depends on many factors including costs, competitive pressure, availability of inventory, seasonality and vendor promotional programs, among others. We may offer early payment discounts or volume incentive rebates to our customers. The customer contracts relating to our Other services generally provide for an initial term of three to five years , subject to extension by the mutual agreement of the parties, allow for termination for convenience by either party after the second year and the pricing is fixed by discrete type of service and typically varies depending on the volume of the relevant services. We do not believe any contract related to our Other services has a material impact on our business or financial condition. Products are delivered via shipment from our facilities, drop-shipment directly from the vendor, or by electronic delivery of keys for software products. We recognize revenue when the control of products is transferred to our customers, which generally happens at the point of shipment or point of delivery. +Any supplemental distribution services we provide are typically recognized over time as the services are performed. Service contracts may be based on a fixed price or on a fixed unit-price per transaction or other objective measure of output. Additionally, we offer services related to our supply chain management and CloudBlue platform. Our fee-based commerce and supply chain services are billed and recognized on a per-item service fee arrangement at the point when the service is provided. Our CloudBlue platform generates revenue through licensing the right to use the intellectual property (on-premise license), which is recognized at a point in time, providing the right to access (platform as a service), which is recognized over time across the term of the contract, or through our cloud marketplace, which is recognized in the amount of the net fee associated with serving as an agent when the services are provided. Service revenues represented less than 10% of total net sales for Fiscal Year 2024, Fiscal Year 2023, and Fiscal Year 2022. Related contract liabilities were not material for the periods presented. +Agency Services +We have contracts with certain customers where our performance obligation is to arrange for the products or services to be provided by another party. In these arrangements, as we assume an agency relationship in the transaction, revenue is recognized in the amount of the net fee associated with serving as an agent when the services are completed. These arrangements primarily relate to certain fulfillment and cloud-related contracts, as well as sales of certain software products, and extended vendor services, such as vendor warranties. +Variable Consideration +We, under specific conditions, permit our customers to return or exchange products. The provision for estimated sales returns is recorded concurrently with the recognition of revenue. A liability is recorded within accrued expenses and other on the Consolidated Balance Sheets for estimated product returns based upon historical experience and an asset is recorded within Inventory on the Consolidated Balance Sheets for the amount expected to be recorded for inventory upon product return. Amounts recorded within inventory are $ 131,298 and $ 127,143 as of December 28, 2024 and December 30, 2023, respectively. +80 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +We also provide volume discounts, early payment discounts, and other discounts to certain customers which are considered variable consideration. A provision for such discounts is recorded as a reduction of revenue at the time of sale based on an evaluation of the contract terms and historical experience. +Practical Expedients +We account for shipping and handling activities that occur after the customer has obtained control of a good as fulfillment activities rather than a promised service. Accordingly, we accrue all fulfillment costs related to the shipping and handling of goods at the time of shipment. Additionally, we exclude the amount of certain taxes collected concurrent with revenue-producing activities from revenue. +We disaggregate revenue by geography, which we believe provides a meaningful depiction of the nature of our revenue (see Note 11, “Segment Information”). +Vendor Programs +Funds received from vendors for price protection, product rebates, promotions and marketing, infrastructure reimbursement and meet-competition programs are recorded as adjustments to product costs, revenue, or selling, general and administrative (“SG&A”) expenses, according to the nature of the program. Some of these programs may extend over multiple reporting periods. We accrue rebates or other vendor incentives as earned based on sales of qualifying products or as services are provided in accordance with the terms of the related program. +We sell products purchased from many vendors, but generated approximately 19 %, 16 %, and 15 % of our consolidated net sales in Fiscal Year 2024, Fiscal Year 2023, and Fiscal Year 2022, respectively, from products purchased from Apple Inc. Additionally, we generated approximately 10 % of our consolidated net sales in Fiscal Year 2024, Fiscal Year 2023, and Fiscal Year 2022 from products purchased from HP Inc. There were no other vendors whose products represented 10% or more of our net sales for the aforementioned periods. +Warranties +Our suppliers generally warrant the products distributed by us and allow returns of defective products, including those that have been returned to us by our customers. We generally do not independently warrant the products we distribute; however, local laws might impose warranty obligations upon distributors (such as in the case of supplier liquidation). We are obligated to provide warranty protection for sales of certain IT products within the European Union (“EU”) for up to two years as required under the EU directive where vendors have not affirmatively agreed to provide pass-through protection. In addition, we warrant the services we provide and products that we build-to-order from components purchased from other sources. Provision for estimated warranty costs is recorded at the time of sale and periodically adjusted to reflect actual experience. Warranty expense and the related obligations are not material to our consolidated financial statements. +Foreign Currency Translation and Remeasurement +Financial statements of our foreign subsidiaries, for which the functional currency is the local currency, are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and an average exchange rate for each period for statement of income items. Translation adjustments are recorded in accumulated other comprehensive loss, a component of stockholders’ equity. The functional currency of certain operations within our EMEA, Asia-Pacific, and Latin America regions is the U.S. dollar; accordingly, the monetary assets and liabilities of these subsidiaries are remeasured into U.S. dollars at the exchange rate in effect at the balance sheet date. Revenues, expenses, gains or losses are remeasured at the average exchange rate for the period. The remeasurement gains and losses of these operations as well as gains and losses from foreign currency transactions are included in the Consolidated Statements of Income. +Cash and Cash Equivalents +We consider all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. We had $ 19,377 and $ 11,971 of cash equivalents as of December 28, 2024 and December 30, 2023, respectively. +81 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Book overdrafts of $ 544,029 and $ 409,420 as of December 28, 2024 and December 30, 2023, respectively, represent checks issued on disbursement bank accounts but not yet paid by such banks. These amounts are classified as accounts payable in our Consolidated Balance Sheets. We typically fund these overdrafts through normal collections of funds or transfers from other bank balances at other financial institutions. Under the terms of our facilities with the banks, the respective financial institutions are not legally obligated to honor the book overdraft balances as of December 28, 2024 and December 30, 2023, nor any balance on any given date. +Trade Accounts Receivable +We maintain an allowance for doubtful accounts receivable for expected losses in accordance with Accounting Standards Codification (“ASC”) 326, Financial Instruments — Credit Losses. In estimating the required allowance, we take into consideration the overall quality and aging of the receivable portfolio, the large number of customers and their dispersion across wide geographic areas, the existence of credit insurance where applicable, specifically identified customer risks, historical write-off experience and the current economic environment, reasonable and supportable forecasts of future economic conditions, and other factors that may affect our ability to collect from customers. +Notes Receivable +From time to time, we may provide loans to our customers to meet certain strategic objectives. These amounts are presented within “other current assets” and “other assets” on our Consolidated Balance Sheets with the associated cash flows presented within investing activities on our Consolidated Statements of Cash Flows. +Factoring Programs +We have several uncommitted factoring programs under which trade accounts receivable of several customers may be sold, without recourse, to financial institutions. Available capacity under these programs is dependent on the level of our trade accounts receivable eligible to be sold into these programs and the financial institutions’ willingness to purchase such receivables. The receivables under these factoring programs are sold at face value and are excluded from our Consolidated Balance Sheets. We account for these transactions as sales of receivables because control of the underlying asset is transferred and subsequent to the date of transfer, we typically do not have any continuing involvement in the transferred asset, except as discussed below. +For certain of our factoring programs in EMEA, there is a deferred purchase price (“DPP”) which is paid to us at a later time once the customer pays the factored invoices. Subsequent to the sale, the DPP represents a beneficial interest in the transferred trade accounts receivable and is disclosed as a non-cash investing activity in our Consolidated Statements of Cash Flows. Accordingly, cash proceeds from the payments of DPPs are presented as investing activities in our Consolidated Statements of Cash Flows. At December 28, 2024 and December 30, 2023, there were $ 54,912 and $ 48,532 , respectively, of DPP within other current assets on our Consolidated Balance Sheets. In arrangements where we collect the customer payments on behalf of the factor, the net cash flows related to these collections are reported as financing activities in the Consolidated Statements of Cash Flows. At December 28, 2024 and December 30, 2023, we recorded unremitted cash within accrued expenses and other of $ 4,497 and $ 16,066 , respectively. +At December 28, 2024 and December 30, 2023, we had a total of $ 737,302 and $ 738,714 , respectively, of trade accounts receivable sold to and held by financial institutions under these programs. Factoring fees of $ 38,619 , $ 27,292 , and $ 16,075 were incurred in Fiscal Year 2024, Fiscal Year 2023, and Fiscal Year 2022, respectively, related to the sale of trade accounts receivable under the facilities and are included in “other expense” in the other (income) expense section of our Consolidated Statements of Income. +82 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Supplier Finance Programs +As part of our ongoing efforts to manage our working capital, we have worked with our vendors to optimize our terms and conditions, which include the terms of payment to the vendor. We are party to agreements, initiated either by the vendor or us, which allow vendors, at their discretion, to determine invoices that they want to sell to participating financial institutions. We are not a party to the agreements between the participating financial institutions and the vendors in connection with these programs, and the financial institutions do not provide us with incentives such as rebates. There are no assets pledged under these agreements and no interest is charged by the financial institutions as balances are typically paid when they are due. Certain agreements may require a parent guarantee, although parent guarantees are also required in certain vendor agreements that do not involve financial institutions. The payment terms under these arrangements typically range from 30 to 90 days. Certain programs provide for extended payment terms, which are within standard industry practice and consistent with the range of payment terms we negotiate with our vendors, regardless of whether they have an agreement with a financial institution. +The following table is a rollforward of our outstanding obligations under our supplier finance programs: +Fiscal Year 2024 +Obligations outstanding at the beginning of the year $ 2,373,913 +Confirmed invoices added during the year 11,210,979 +Confirmed invoices paid during the year ( 11,083,805 ) +Effect of foreign currency fluctuations ( 108,332 ) +Obligations outstanding at the end of the year $ 2,392,755 +In situations where amounts are not paid within the specified payment terms and interest is incurred, we reclassify the amount from accounts payable to debt. There were no outstanding payment obligations under these programs included in short-term debt and current maturities of long-term debt in the Consolidated Balance Sheets as of December 28, 2024 and December 30, 2023. +Inventory +Our inventory consists of finished goods purchased from various vendors for resale. We value our inventory at the lower of its cost or net realizable value, cost being determined on a moving average cost basis, which approximates the first-in, first out method. We write down our inventory for estimated excess or obsolescence equal to the difference between the cost of inventory and the net realizable value based upon an aging analysis of the inventory on hand, specifically known inventory-related risks (such as technological obsolescence and the nature of vendor terms regarding price protection and product returns), foreign currency fluctuations for foreign-sourced products, and assumptions about future demand. Market conditions or changes in terms and conditions by our vendors that are less favorable than those projected by management may require additional inventory write-downs, which could have an adverse effect on our consolidated financial results. Inventory is determined from the price we pay vendors, including freight and duties; we do not include labor, overhead, or other general or administrative costs in our inventory. +Property and Equipment +Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives noted below. We also capitalize computer software costs that meet both the definition of internal-use software and defined criteria for capitalization. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life. +Depreciable lives of property and equipment are as follows: +Buildings +30 - 40 years +Leasehold improvements +Shorter of the lease term or 3 - 17 years +Distribution equipment +5 - 10 years +Computer equipment and software +4 - 10 years +Maintenance, repairs, and minor renewals are charged to expense as incurred. Additions, major renewals, and betterments to property and equipment are capitalized. +83 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Operating Leases +Our leased physical properties are operating leases and we recognize rent expense on a straight-line basis. We recognize a right-of-use asset and lease liability within our Consolidated Balance Sheets for operating leases with terms greater than twelve months. The initial measurement of the lease liability is measured at the present value of lease payments not yet paid discounted using our incremental borrowing rate at the lease commencement date. Leases with an initial term of twelve months or less are not recorded on our Consolidated Balance Sheets, and we do not separate nonlease components from lease components. +Long-Lived and Intangible Assets +We assess potential impairments to our long-lived and intangible assets when events or changes in circumstances indicate that the carrying amount may not be fully recoverable. If required, an impairment loss is recognized to the extent the carrying value exceeds the fair value of the assets. Amortization expense was $ 86,878 , $ 87,003 , and $ 91,039 for Fiscal Year 2024, Fiscal Year 2023, and Fiscal Year 2022, respectively. +Intangible assets consist of the following: +December 28, 2024 December 30, 2023 +Gross +Amounts Accumulated Amortization Net +Amounts Gross +Amounts Accumulated Amortization Net +Amounts +Customer and vendor relationships $ 583,980 $ ( 170,831 ) $ 413,149 $ 599,237 $ ( 125,157 ) $ 474,080 +Tradename and trademarks 417,532 ( 97,485 ) 320,047 429,924 ( 71,696 ) 358,228 +Software and developed technology 70,000 ( 30,625 ) 39,375 70,000 ( 21,875 ) 48,125 +Others 7,330 ( 7,330 ) — 7,590 ( 7,590 ) — +$ 1,078,842 $ ( 306,271 ) $ 772,571 $ 1,106,751 $ ( 226,318 ) $ 880,433 +The remaining useful lives of intangible assets are as follows: +Customer and vendor relationships +9 years +Tradename and trademarks +12 years +Software and developed technology +5 years +Future minimum amortization expense of finite-lived identifiable intangible assets that we expect to recognize over the next five years and thereafter are as follows: +2025 $ 85,525 +2026 85,447 +2027 85,437 +2028 85,437 +2029 81,017 +Thereafter 349,708 +$ 772,571 +There were no material impairments to our long-lived and intangible assets in any of the periods presented herein. +Goodwill +Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired in an acquisition and is reviewed annually for potential impairment, or when circumstances warrant. Goodwill at December 28, 2024 primarily represents the excess of the consideration paid over the fair value of net assets acquired in connection with the Imola Mergers. +84 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Goodwill is required to be tested for impairment at least annually or sooner whenever events or changes in circumstances indicate that goodwill may be impaired. Goodwill impairment tests require judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. We perform our annual goodwill impairment assessment during our fiscal fourth quarter as of the date of our November month end. We have the option of first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Such review includes an evaluation of whether events and circumstances have occurred that may indicate a potential change in recoverability of goodwill, including the impacts of a deterioration in general economic conditions, an increased competitive environment, a change in management, key personnel, strategy, vendors, or customers, negative or declining cash flows, or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods. +If, based on a review of qualitative factors, it is more likely than not that the fair value of a reporting unit is less than its carrying value, we perform a quantitative analysis by comparing the fair value of a reporting unit with its carrying amount. If the carrying value exceeds the fair value, we measure the amount of impairment loss, if any, by comparing the fair value of the reporting unit goodwill to its carrying amount. +We performed a quantitative impairment analysis of goodwill in Fiscal Year 2024 and Fiscal Year 2023 for our North America and EMEA regions. In determining the fair value of our reporting units, we assessed general economic conditions, industry and market considerations, the impact of recent events to financial performance and other relevant events. Based on the valuations prepared, we determined that the estimated fair values of our reporting units were greater than their carrying values and no impairment of goodwill was identified in either period. In Fiscal Year 2024 and Fiscal Year 2023 we performed a qualitative analysis of goodwill for our Asia-Pacific and Latin America regions. No goodwill impairment was recorded during any of the periods presented herein based on the result of the procedures performed. +The changes in the carrying amount of goodwill are as follows: +North America EMEA Asia-Pacific Latin America Total +Balance at December 31, 2022 $ 423,800 $ 230,360 $ 147,252 $ 43,324 $ 844,736 +Adjustments /reclassifications /foreign currency exchange 1,365 4,389 ( 1,538 ) 2,828 7,044 +Balance at December 30, 2023 $ 425,165 $ 234,749 $ 145,714 $ 46,152 $ 851,780 +Adjustments /reclassifications /foreign currency exchange ( 2,852 ) ( 6,705 ) ( 3,962 ) ( 4,599 ) ( 18,118 ) +Balance at December 28, 2024 $ 422,313 $ 228,044 $ 141,752 $ 41,553 $ 833,662 +Earn-outs and Holdbacks +We may be required to make earn-out payments upon the achievement of certain predefined targets attributable to acquisitions completed in recent years. At the acquisition date, the value of any earn-out is estimated using various valuation methodologies which include projections of future earnings as defined in each acquisition purchase agreement. Such projections are then discounted to reflect the risk in achieving the projected earnings, as well as the passage of time and time value of money. The fair value measurement of the earn-out is based primarily on significant inputs not observable in an active market and thus represents a Level 3 measurement as defined under U.S. GAAP. Changes in the fair value of the earn-out primarily reflect adjustments to the timing and amount of payments as well as the related accretion driven by the time value of money. These adjustments are recorded within SG&A expenses within the Consolidated Statements of Income, as applicable. The fair value of earn-out contingent consideration is presented within accrued expenses and other in our Consolidated Balance Sheets. For amounts currently recorded on the Consolidated Balance Sheets, see Note 13, “Fair Value Measurements”. +In connection with the acquisition by Platinum, part of the consideration for the share capital of Ingram Micro included additional payments, not to exceed $ 325,000 in the aggregate, on the achievement by Ingram Micro and its subsidiaries of certain adjusted EBITDA targets for Fiscal Years 2021, 2022, and 2023. Based upon adjusted EBITDA achieved following the Imola Mergers through January 1, 2022, this contingent consideration of $ 325,000 was fully earned in its entirety and was paid to HNA Tech on April 11, 2022. +85 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +In addition to earn-outs, we may be required to make additional payments associated with holdbacks in accordance with the applicable acquisition purchase agreement. Holdbacks are accrued for at the time of acquisition and cash outflows are recorded as additional purchase price at the time of payment. +Concentration of Credit Risk +Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents, trade accounts receivable from customers and vendors, borrowings, and derivative financial instruments. Our cash and cash equivalents are deposited and/or invested with various financial institutions globally that are monitored by us regularly for credit quality. We are exposed to credit risk in the event of default by financial institutions to the extent that cash balances with financial institutions are in excess of amounts that are insured. We have not experienced any material credit losses on such deposits for the periods presented. Our trade accounts receivable reflect a large number of customers dispersed across wide geographic areas, none of which has accounted for 10% or more of our consolidated net sales in any of the periods presented herein and no customer accounts receivable balance was greater than 10% of our total trade accounts receivable at December 28, 2024 or December 30, 2023. We perform ongoing credit evaluations of our customers’ financial conditions, obtain credit insurance in many locations, and require collateral in certain circumstances. We maintain an allowance for estimated credit losses. +Derivative Financial Instruments +We operate in various locations around the world. We reduce our exposure to fluctuations in foreign exchange rates by creating offsetting positions through the use of derivative financial instruments in situations where there are significant exposures and there are not offsetting balances that create a natural hedge. The market risk related to the foreign exchange agreements is offset by changes in the valuation of the underlying items being hedged. In accordance with our policy, we do not use derivative financial instruments for trading or speculative purposes, nor are we a party to leveraged derivatives. +Foreign exchange risk is managed primarily by using forward contracts and spot transactions to hedge foreign currency-denominated receivables, payables, and intercompany loans and expenses. Interest rate swaps and forward contracts may be used to hedge foreign currency-denominated principal and interest payments related to intercompany loans. +All derivatives are recorded in our Consolidated Balance Sheets at fair value. The estimated fair value of derivative financial instruments represents the amount required to enter into similar offsetting contracts with similar remaining maturities based on market-derived prices. Changes in the fair value of derivatives not designated as hedging instruments are recorded in current earnings. Changes in the fair value of derivatives designated as hedging instruments are reflected in accumulated other comprehensive loss in our Consolidated Balance Sheets. +The notional amount of forward exchange contracts is the amount of foreign currency bought or sold at maturity. The notional amount of interest rate swaps is the underlying principal amount used in determining the interest payments exchanged over the life of the swap. Notional amounts are indicative of the extent of our involvement in the various types and uses of derivative financial instruments but are not a measure of our exposure to credit or market risks through our use of derivatives. +Credit exposure for derivative financial instruments is limited to the amounts, if any, by which the counterparties’ obligations under the contracts exceed our obligations to the counterparties. We manage the potential risk of credit losses through careful evaluation of counterparty credit standing, selection of counterparties from a limited group of financial institutions, and other contract provisions. +Comprehensive Income +Comprehensive income consists primarily of our net income and foreign currency translation adjustments, net of tax. +Earnings Per Share +Basic Earnings Per Share (“Basic EPS”) excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding during the reported period. Diluted Earnings Per Share (“Diluted EPS”) is computed by dividing net income by the weighted average number of common shares outstanding, inclusive of the dilutive effect of restricted stock units, during the reported period. +86 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +The computation of Basic and Diluted EPS is as follows: +Fiscal Year +2024 2023 2022 +Basic earnings per share: +Net income attributable to common stockholders $ 264,222 $ 352,712 $ 2,394,489 +Weighted-average number of common shares - basic 224,646,462 222,400,000 222,400,000 +Basic earnings per common share $ 1.18 $ 1.59 $ 10.77 +Diluted earnings per common share: +Net income attributable to common stockholders $ 264,222 $ 352,712 $ 2,394,489 +Weighted-average number of common shares - basic 224,646,462 222,400,000 222,400,000 +Effect of dilutive securities +Restricted stock units 72,043 — — +Weighted-average number of common shares - diluted 224,718,505 222,400,000 222,400,000 +Diluted earnings per common share $ 1.18 $ 1.59 $ 10.77 +There were no anti-dilutive securities for Fiscal Year 2024, Fiscal Year 2023, and Fiscal Year 2022. +Income Taxes +We estimate income taxes in each of the taxing jurisdictions in which we operate. This process involves estimating our actual current tax expense together with assessing the future tax impact of any differences resulting from the different treatment of certain items, such as the timing for recognizing revenues and expenses for tax versus financial reporting purposes. These differences may result in deferred tax assets and liabilities, which are included in our Consolidated Balance Sheets. We are required to assess the likelihood that our deferred tax assets, which include net operating loss carryforwards, tax credits and temporary differences that are expected to be deductible in future years, will be recoverable from future taxable income. In making that assessment, we consider the nature of the deferred tax assets and related statutory limits on utilization, recent operating results, future market growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we operate and prudent and feasible tax planning strategies. If, based upon available evidence, recovery of the full amount of the deferred tax assets is not likely; we provide a valuation allowance on any amount not likely to be realized. +Our effective tax rate includes the impact of not providing taxes on undistributed foreign earnings considered indefinitely reinvested. Material changes in our estimates of cash, working capital and long-term investment requirements in the various jurisdictions in which we do business could impact our effective tax rate if we no longer consider our foreign earnings to be indefinitely reinvested. +The provision for tax liabilities and recognition of tax benefits involves evaluations and judgments of uncertainties in the interpretation of complex tax regulations by various taxing authorities. In situations involving uncertain tax positions related to income tax matters, we do not recognize benefits unless their sustainability is deemed more likely than not. As additional information becomes available, or these uncertainties are resolved with the taxing authorities, revisions to these liabilities or benefits may be required, resulting in additional provision for or benefit from income taxes reflected in our Consolidated Statements of Income. +87 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Accounting for Employee Awards +Cash-based Compensation +We issue cash awards to certain employees, which include both time-vested and performance-vested awards. The time-vested cash awards vest over a time period of three years , and the performance-vested cash awards vest upon the achievement of certain performance targets measured after a time period of three years . The performance condition for the cash awards for grants to management is based on earnings growth. Cumulative compensation expense for cash awards is recognized as a liability. Each cash award has a fixed fair value of $ 1.00 . We recognize these compensation costs, net of an estimated forfeiture rate, over the requisite service period of the award, which is the vesting term of the outstanding cash award. We estimate the forfeiture rate based on our historical experience. +Stock-based Compensation +In connection with the IPO, our board of directors adopted, and our stockholders approved, the 2024 Stock Incentive Plan (the “2024 Plan”). The purpose of the 2024 Plan is to assist the Company in attracting, retaining, motivating, and rewarding certain employees, officers, and directors of the Company and its affiliates and promoting the creation of long-term value for stockholders of the Company by closely aligning the interests of such individuals with those of the stockholders. +The total number of shares of our common stock available for issuance pursuant to awards under the 2024 Plan is 20,347,826 , subject to adjustment as provided in the plan. The 2024 Plan provides for the grant of non-qualified stock options, restricted stock, restricted stock units, other stock-based awards, or any combination thereof to any of our employees and directors of our subsidiaries or affiliates. +During the fourth quarter of 2024, in connection with the IPO, we issued 2,607,713 time vesting restricted stock units with an average grant date fair value of $ 22.01 per share to certain key employees and directors, of which 1,473,720 restricted stock units vested immediately upon grant resulting in an expense of $ 32,422 that was recorded within SG&A in the fourth quarter. We also issued 2,467,775 of performance vesting restricted stock units, 50 % of which will vest upon the achievement of a qualifying event, whereby the returns on invested capital by Platinum is 2.0 times the total of all capital or other contributions made by Platinum and the remaining 50 % will vest upon the achievement of a qualifying event, whereby the returns on invested capital by Platinum is 2.5 times the total of all capital or other contributions made by Platinum, in each case, except in certain circumstance s as specified in the award agreement, subject to the grantee ’ s continuous service with us through such qualifying event. The weighted-average grant date fair value of these awards, which was calculated using a Monte Carlo valuation model, was $ 17.42 per share . The assumptions used to value our performance vesting restricted stock units were a risk-free interest rate of 3.98 %, an expected volatility of 52.88 %, and a dividend yield of 0.00 %. +Participation Plan for Certain Key Employees +In July 2021, we adopted the 2021 Participation Plan (the “Plan”) to provide incentive compensation to certain key management. Under the Plan, participants are granted units, the value of which are related to our financial performance. Half of the units vest over a period of time specified in the applicable award agreement, typically in annual tranches over five years . Once vested, certain qualifying events are required for any payment related to these units, with accelerated vesting in the event of certain change in control or public offering events, in each case subject to the participant’s continued employment through the applicable vesting date. The other half are payable to participants only upon the occurrence of certain qualifying events. Any payment to a participant under the time-based or performance-based units is conditioned on our reaching a minimum valuation at the time of a qualifying event or through a series of qualifying events. A qualifying event may be either a sale of some or all of our capital stock or a sale of all or substantially all of our assets. Upon the Plan’s inception, we issued 216,874,665 performance units with an initial grant date value of $ 1.00 to key management of which none are vested. I mmediately prior to the IPO, the Plan was terminated, all participation units were cancelled, and no amounts were paid under the Plan. +88 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Sale of a Substantial Portion of our Commerce & Lifecycle Services ( “ CLS ” ) Business +On December 6, 2021, we entered into a Purchase Agreement with CMA CGM Group to sell a substantial portion of our CLS businesses (“CLS Sale”), which comprises our other services offerings defined as “Other” herein. The sale included Shipwire and our e-commerce and other forward logistics businesses in North America, Europe, Latin America and Asia-Pacific at an initial cash purchase price of $ 3,000,000 subject to certain adjustments. On April 4, 2022, we completed the main closing of the sale of most of our CLS business in Europe, U.S., Canada, Peru, Colombia, Chile, and Argentina. We also closed the sale of our CLS businesses in Australia, India, Mexico and Costa Rica at the end of April 2022, New Zealand at the end of June 2022, and China in November 2022. These deferred closings of the CLS Sale were all completed between the primary closing date and November 16, 2022. As a result of the CLS Sale, we recorded a gain of $ 2,283,820 during Fiscal Year 2022, which had an income tax provision of $ 246,450 , or an effective tax rate of 10.8 percentage points. The CLS Sale effective tax rate is lower than statutory rates primarily due to the gain on sale of European subsidiaries being tax exempt due to the participation exemption in Europe. +Sale Leaseback of German Warehouse +In the second quarter of 2022, we sold one of our warehouses in Germany and leased it back from the buyer for an initial lease term of ten years . The net proceeds of the sale-leaseback transaction were $ 43,691 and it resulted in a gain of $ 7,050 which is included within SG&A expenses on the Consolidated Statements of Income for Fiscal Year 2022. +Out of Period Correction +As previously disclosed in the second quarter of 2024, we identified fraudulent activity within our India Professional Services business. In the fourth quarter of 2024, we continued our investigation into the fraudulent activity involving certain of our then-current employees (who have since been terminated or resigned) and a relatively small number of customers of our subsidiary in India. As a result of our continued investigation, we became aware that certain purchases of professional services were fraudulent due to a lack of evidence confirming delivery of service or any contractual obligation to provide those services and now date back to as early as 2022. As a result, certain additional amounts were misstated on our Consolidated Statements of Income and on our Consolidated Balance Sheets. +Management has determined that these misstatements were not material to the previously issued consolidated financial statements and the financial statements as of and for Fiscal Year 2024, and therefore, has determined to correct for these additional misstatements in addition to other identified immaterial errors, out of period in the fourth quarter of Fiscal Year 2024. The incremental misstatements related to the fraudulent activity in India decreased operating income by $ 8,335 , income before income taxes by $ 9,554 , and net income by $ 7,476 and the other identified immaterial errors decreased operating income and income before taxes by $ 4,039 and net income by $ 3,022 resulting in combined decreases to operating income of $ 12,374 , income before income taxes of $ 13,593 , and net income of $ 10,498 . +Recently Adopted Accounting Standards +In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures”, which requires public entities to disclose information about their reportable segments’ significant expenses on an interim and annual basis. This update is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. The adoption of this guidance resulted in additional reportable segment disclosures (see Note 11, “Segment Information”) and did not have a material financial impact on our results of operations, financial position, or liquidity. +New Accounting Standards +In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740) Improvements to Income Tax Disclosures”, which requires public entities to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold on an annual basis in order to enhance the transparency and decision usefulness of income tax disclosures. This update is effective for annual periods beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the adoption impact that this ASU will have on our income tax disclosures in the notes to our consolidated financial statements. +89 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses”, which requires disclosure in the notes to the financial statements of specified information about certain costs and expenses. The amendments are effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments should be applied either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the financial statements. We are currently evaluating the adoption impact that this ASU will have on our consolidated financial statements and related disclosures. +Note 3 — Acquisitions, Goodwill and Intangible Assets +Acquisitions +In the third quarter of 2024, we exercised our option to acquire the remaining 49 % of shares of Colsof, a cloud services provider in Latin America, of which we now own 100 %, and paid cash of $ 22,621 . This acquisition has been included in our consolidated results of operations since the acquisition date and pro forma results of operations have not been presented to reflect this acquisition as it was not material to our consolidated financial statements. +There were no material acquisitions during Fiscal Year Ended 2023 and Fiscal Year Ended 2022. +Earn-outs and Holdbacks +Earn-out liabilities for Fiscal Year 2024 and Fiscal Year 2023 decreased by $ 1,503 to $ 2,888 and increased by $ 84 to $ 4,391 , respectively. Holdback liabilities for Fiscal Year Ended 2024 and Fiscal Year Ended 2023 decreased by $ 111 to $ 0 and $ 988 to $ 111 , respectively. +Note 4 — Property and Equipment +Property and equipment consist of the following: +December 28, 2024 December 30, 2023 +Land $ 3,999 $ 4,251 +Buildings and leasehold improvements 97,804 87,088 +Distribution equipment 200,514 161,424 +Computer equipment and software 478,361 357,630 +780,678 610,393 +Accumulated depreciation ( 337,045 ) ( 247,596 ) +Construction-in-progress 38,870 89,816 +Property and equipment, net $ 482,503 $ 452,613 +Depreciation expense was $ 102,453 , $ 97,145 , and $ 106,072 for Fiscal Year 2024, Fiscal Year 2023, and Fiscal Year 2022, respectively. +Note 5 — Leases +Our leasing portfolio includes lease arrangements for our warehouses, distribution centers, corporate offices and equipment. We lease substantially all our facilities on varying terms which often include one or more options to renew. We include options to extend in the lease term if they are reasonably certain of being exercised. We do not have residual value guarantees associated with our leases. +90 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +The following table includes the components of our rent expense recorded in SG&A expense: +Fiscal Year Fiscal Year +2024 2023 +Operating lease cost $ 128,935 $ 108,644 +Variable lease cost 39,894 42,110 +Short-term lease cost 6,823 5,640 +Total $ 175,652 $ 156,394 +Certain leases contain variable payments, which are expensed as incurred and not included in our operating lease right-of-use assets and operating lease liabilities. These amounts primarily include payments for maintenance, utilities, taxes, and insurance on our office and fulfillment center leases. Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of future minimum lease payments at lease commencement. Certain adjustments to our operating lease right-of-use assets may be required for items such as initial direct costs paid or incentives received. We calculate the present value of our leases using an estimated incremental borrowing rate, which requires judgment. Our incremental borrowing rate is based upon an estimate of our regional secured borrowing rates. The estimated secured borrowing rates used at the date of adoption for each lease varies in accordance with the term as well as geographical region of the lease. +As of December 28, 2024, annual scheduled lease payments were as follows: +2025 $ 111,953 +2026 112,859 +2027 88,725 +2028 64,071 +2029 52,917 +Thereafter 129,532 +Total lease payments 560,057 +Less: imputed interest ( 96,675 ) +Present value of lease liabilities $ 463,382 +The weighted average remaining term for our leases as of December 28, 2024 and December 30, 2023 was 5.9 years and 6.0 years, respectively. The weighted average discount rate for our leases as of December 28, 2024 and December 30, 2023 was 6.3 % and 6.1 % , respectively. +Supplemental cash flow information related to our leases is as follows: +Fiscal Year Fiscal Year Fiscal Year +2024 2023 2022 +Cash paid for amounts included in the measurement of operating lease liabilities $ 128,936 $ 115,933 $ 108,728 +Operating lease right-of-use assets obtained in exchange for operating lease liabilities $ 113,381 $ 154,925 $ 145,854 +91 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Note 6 — Debt +The carrying value of our outstanding debt consists of the following: +December 28, +2024 December 30, +2023 +Senior secured notes, 4.75 % due 2029, net of unamortized deferred financing costs of $ 30,232 and $ 37,250 , respectively +$ 1,969,768 $ 1,962,750 +Term loan credit facility, net of unamortized discount of $ 12,020 and $ 11,733 , respectively, and unamortized deferred financing costs of $ 28,998 and $ 35,780 , respectively +885,882 1,362,487 +ABL revolving credit facility — 30,000 +Revolving trade accounts receivable-backed financing programs 312,630 331,920 +Lines of credit and other debt 184,860 236,451 +Total debt 3,353,140 3,923,608 +Short-term debt and current maturities of long-term debt ( 184,860 ) ( 265,719 ) +Total long-term debt $ 3,168,280 $ 3,657,889 +On April 22, 2021, in anticipation of the acquisition of Ingram Micro by Platinum, Escrow Issuer offered $ 2,000,000 Senior Secured Notes due May 2029 (“2029 Notes”). Prior to the acquisition, the 2029 Notes were the sole obligation of the Escrow Issuer. Upon consummation of the acquisition on July 2, 2021, the proceeds from the notes were used, in part, to finance the acquisition and repay existing indebtedness. The notes bear interest at a rate of 4.750 % per annum, which is payable semi-annually on May 15 and November 15 of each year, beginning on November 15, 2021. On July 2, 2021, we recognized $ 1,945,205 net of debt issuance costs of $ 54,795 , associated with the 2029 Notes. +On July 2, 2021, we entered into the Term Loan Credit Facility for $ 2,000,000 , the proceeds of which were also used to, among other things, finance a portion of the acquisition of Ingram Micro by Platinum and repay certain of our existing indebtedness. We recognized $ 1,920,761 , net of debt issuance costs and discount of $ 59,239 and $ 20,000 , respectively, related to this facility. The Term Loan Credit Facility had an original maturity of July 2, 2028 and amortizes in equal quarterly installments aggregating to 1.00 % per annum. In June 2023, we voluntarily prepaid $ 500,000 of our Term Loan Credit Facility over and above normal quarterly installments, which, as a result of this prepayment, are no longer mandatory. In September 2023, we refinanced our Term Loan Credit Facility, reducing the interest rate spread over SOFR by 50 basis points. We also amended the aforementioned interest rate cap agreements to reflect the updated notional amount of the Term Loan Credit Facility, with the 5.317 % upper limit on the SOFR interest rate remaining unchanged under the amended interest rate cap agreements. In September 2024, we refinanced our Term Loan Credit Facility again, reducing the interest rate spread over SOFR by an additional 25 basis points, eliminating the credit-spread adjustments and extending the maturity date to September 19, 2031. Borrowings under the Term Loan Credit Facility bear interest at a rate per annum equal to, at our option, either (1) the base rate (which is the highest of (a) the then-current federal funds rate set by the Federal Reserve Bank of New York, plus 0.50 %, (b) the prime rate on such day and (c) the one-month SOFR rate published on such date plus 1.00 % and is subject to a 1.50 % floor) plus a margin of 1.75 % or (2) one-, three- or six-month SOFR (subject to a 0.50 % floor) plus a margin of 2.75 %. In connection with these refinancings, we repaid an incremental $ 50,000 and $ 100,000 in September 2023 and September 2024, respectively, of our Term Loan Credit Facility and in June 2024, we voluntarily repaid an incremental $ 150,000 of our Term Loan Credit Facility. Upon the closing of the IPO, we used the net proceeds from the offering to repay an additional $ 233,100 of our Term Loan Credit Facility. As of December 28, 2024 and December 30, 2023, $ 885,882 and $ 1,362,487 , respectively, remained outstanding under the Term Loan Credit Facility. +92 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +On July 2, 2021, we entered into new ABL Credit Facilities providing for senior secured asset-based, multi-currency revolving loans and letter of credit availability in an aggregate amount of up to $ 3,500,000 (the “ABL Revolving Credit Facility”) and a senior secured asset-based term loan facility of $ 500,000 (the “ABL Term Loan Facility”), both of which had contractual maturity dates in July 2026. The ABL Term Loan Facility was repaid fully in April 2022. We may borrow under the ABL Revolving Credit Facility only up to our available borrowing base capacity. Borrowings under the ABL Revolving Credit Facility bear interest at a rate per annum equal to, at our option, either (1) the base rate plus a margin ranging (based on the availability under the ABL Revolving Credit Facility) from 0.25 % to 0.75 % or (2) SOFR (subject to a 0 % floor) plus a margin ranging (based on the availability under the ABL Revolving Credit Facility) from 1.25 % to 1.75 %. In September 2024, we amended the ABL Credit Agreement, to amend the ABL Revolving Credit Facility to, among other things, extend the maturity date to September 20, 2029. As of December 28, 2024 and December 30, 2023, we had borrowings of $ 0 and $ 30,000 , respectively, under our ABL Revolving Credit Facility. The weighted-average interest rate on the outstanding borrowings under the ABL Revolving Credit Facility, as amended, was 6.7 % and 8.1 % per annum at December 28, 2024 and December 30, 2023, respectively. +We have a revolving trade accounts receivable-backed financing program in Europe (the “European ABS facility”), which provides for a borrowing capacity of up to € 375,000 , or approximately $ 390,788 at December 28, 2024 exchange rates. This program, which matures in October 2026, requires certain commitment fees and borrowings incur financing costs based on the local short-term bank indicator rate for the currency in which the drawing is made plus a predetermined margin. At December 28, 2024 and December 30, 2023, we had borrowings of $ 312,630 and $ 331,920 , respectively, under the European ABS Facility. The weighted-average interest rate on the outstanding borrowings under the European ABS Facility, as amended, was 4.9 % and 4.4 % per annum at December 28, 2024 and December 30, 2023, respectively. +At December 28, 2024, our actual aggregate capacity under our ABL Revolving Credit Facility and other receivable-backed programs was approximately $ 3,870,281 , of which $ 312,630 was used. Even if we do not borrow or choose not to borrow to the full available capacity of certain programs, most of our trade accounts receivable-backed financing programs are subject to certain restrictions outlined in our ABL Revolving Credit Facility. These restrictions generally prohibit us from assigning or transferring the underlying eligible receivables as collateral for other financing programs, unless the underlying eligible receivables are sold in conjunction with a dedicated, non-recourse facility. +We also have additional lines of credit, short-term overdraft facilities and other credit facilities with various financial institutions worldwide, which provide for borrowing capacity aggregating to $ 850,262 at December 28, 2024. Most of these arrangements are on an uncommitted basis and are reviewed periodically for renewal. At December 28, 2024 and December 30, 2023, we had $ 182,713 and $ 217,463 , respectively, outstanding under these facilities. The weighted-average interest rate on the outstanding borrowings under these facilities, which may fluctuate depending on geographic mix, was 6.9 % and 7.9 % per annum at December 28, 2024 and December 30, 2023, respectively. At December 28, 2024 and December 30, 2023, letters of credit totaling $ 166,613 and $ 108,690 , respectively, were issued to various customs agencies and landlords to support our subsidiaries. The issuance of these letters of credit reduces our available capacity under the corresponding agreements by the same amount. +We are subject to certain customary affirmative covenants, including reporting and cash management requirements, and certain customary negative covenants that limit our and our subsidiaries’ ability to incur additional indebtedness or liens, to dispose of assets, to make certain fundamental changes, to enter into restrictive agreements, to make certain investments, loans, advances, guarantees and acquisitions, to prepay certain indebtedness, to pay dividends or other distributions in respect of our and our subsidiaries’ equity interests and to engage in transactions with affiliates. At December 28, 2024 and December 30, 2023 we were in compliance with all covenants and other requirements in all of our debt arrangements. +Note 7 — Income Taxes +We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. We record adjustments based on filed returns as such returns are finalized and resultant adjustments are identified. The Company has made an accounting policy election to treat Global Intangible Low Tax Income (“GILTI”) as a current year tax expense in the period in which it is incurred. +93 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +The components of income before income taxes consist of the following: +Fiscal Year Fiscal Year Fiscal Year +2024 2023 2022 +United States $ ( 182,583 ) $ ( 205,969 ) $ 651,446 +Foreign 628,449 728,470 2,163,095 +Total $ 445,866 $ 522,501 $ 2,814,541 +The provision for income taxes consists of the following: +Fiscal Year Fiscal Year Fiscal Year +2024 2023 2022 +Current: +Federal $ 52 $ ( 8,220 ) $ 133,866 +State 524 2,828 25,242 +Foreign 194,337 233,705 243,688 +$ 194,913 $ 228,313 $ 402,796 +Deferred: +Federal $ ( 18,368 ) $ ( 29,113 ) $ 10,380 +State ( 2,826 ) ( 9,818 ) 13,371 +Foreign 7,925 ( 19,593 ) ( 6,495 ) +( 13,269 ) ( 58,524 ) 17,256 +Provision for income taxes $ 181,644 $ 169,789 $ 420,052 +The reconciliation of the statutory U.S. federal income tax rate to our effective tax rate is as follows: +Fiscal Year Fiscal Year Fiscal Year +2024 2023 2022 +U.S. statutory rate 21.0 % 21.0 % 21.0 % +State income taxes, net of federal income tax benefit ( 0.5 ) ( 1.3 ) — +U.S. tax on foreign earnings, net of foreign tax credits 1.8 1.4 — +Effect of international operations 8.0 5.7 1.0 +Effect of change in valuation allowances 0.7 1.2 0.4 +Effect of the CLS Sale — — ( 8.3 ) +Withholding tax 7.1 4.8 0.9 +Other 2.6 ( 0.3 ) ( 0.1 ) +Effective tax rate 40.7 % 32.5 % 14.9 % +The Organization for Economic Co-operation and Development (“OECD”) has announced a framework to implement a global minimum tax of 15%, referred to as Pillar Two. Certain countries have implemented or are in the process of implementing the Pillar Two legislation, which applied to us beginning in Fiscal Year 2024. While the implementation of this legislation did not materially impact our consolidated financial statements in Fiscal Year 2024 and we do not currently expect a material impact in the future, we continue to monitor the impact as countries implement legislation and the OECD provides additional guidance. +Deferred income taxes reflect the tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Net deferred tax assets and liabilities are classified as non-current in the Consolidated Balance Sheets. +94 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Significant components of our net deferred tax assets and liabilities are as follows: +December 28, 2024 December 30, 2023 +Deferred tax assets: +Net operating loss carryforwards $ 118,632 $ 140,981 +Tax credit carryforwards 89,158 52,653 +Interest expense carryforwards 48,760 32,732 +Employee benefits 50,740 57,735 +Inventory 26,087 30,958 +Depreciation and amortization 23,387 25,998 +Operating lease liabilities 119,354 121,195 +Sales return reserve 35,879 35,320 +Allowance on trade accounts receivable 31,807 37,580 +Reserves and accruals not currently deductible for income tax purposes 20,849 29,601 +Other 33,846 44,059 +Total deferred tax assets 598,499 608,812 +Valuation allowance ( 129,206 ) ( 106,379 ) +Subtotal 469,293 502,433 +Deferred tax liabilities: +Depreciation and amortization ( 209,616 ) ( 237,963 ) +Operating lease assets ( 113,782 ) ( 117,304 ) +Inventory rights ( 31,878 ) ( 30,651 ) +Other ( 37,698 ) ( 48,127 ) +Total deferred tax liabilities ( 392,974 ) ( 434,045 ) +Net deferred tax assets $ 76,319 $ 68,388 +We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including the nature of the deferred tax assets and related statutory limits on utilization, recent operating results, future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of or less than the net recorded amount, we would make an adjustment to the valuation allowance which would reduce or increase the provision for income taxes. +At December 28, 2024, we had deferred tax assets related to NOL carryforwards of $ 118,632 along with a valuation allowance of $ 34,330 . $ 47,677 of the remaining $ 84,302 of net deferred tax assets associated with NOL carryforwards have no expiration date. The NOL carryforwards with no expiration date are comprised of $ 33,554 in Luxembourg, $ 5,982 in Belgium and $ 8,141 in a number of other jurisdictions worldwide. The $ 36,625 of net deferred tax assets associated with NOL carryforwards that have an expiration date are comprised of $ 16,375 in Luxembourg with expirations beginning in 2035 and $ 20,250 in a number of different jurisdictions with various expiration dates. We monitor our other deferred tax assets for realizability in a similar manner to those described above and will record or release valuation allowances as required to reflect the amount more likely than not to be realized. +At December 28, 2024, our tax credit carryforwards for income tax purposes were $ 89,158 . Foreign tax credit carryforwards in the U.S. represent $ 81,232 of that amount, and our total valuation allowance related to such credit carryforwards was $ 81,232 . A number of different federal and state credits with various expiration dates comprised the remaining $ 7,926 of tax credit carryforwards. +95 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +As of December 28, 2024, the valuation allowance increased by a net of $ 22,827 as compared to December 30, 2023, which was driven primarily by an increase in both U.S. foreign tax credits and associated valuation allowances. The remaining change relates primarily to book operating losses in certain subsidiaries that are currently not expected to be realized through future taxable income in these entities, partially offset by previously reserved amounts that became realizable based on taxable income generated in the current year. +As of December 30, 2023, the valuation allowance increased by a net of $ 28,527 as compared to December 31, 2022, which was driven primarily by an increase in both U.S. foreign tax credits and associated valuation allowances. The remaining change relates primarily to book operating losses in certain subsidiaries that are currently not expected to be realized through future taxable income in these entities, partially offset by previously reserved amounts that became realizable based on taxable income generated in the current year. +As of December 31, 2022, the valuation allowance increased by a net of $ 24,501 as compared to January 1, 2022, which was driven primarily by an increase in both U.S. foreign tax credits and associated valuation allowances. The remaining change relates primarily to book operating losses in certain subsidiaries that are currently not expected to be realized through future taxable income in these entities, partially offset by previously reserved amounts that became realizable based on taxable income generated in the current year. +We have not provided tax on undistributed foreign earnings of approximately $ 3,500,000 and $ 3,400,000 as of December 28, 2024, and December 30, 2023, respectively, because such earnings are considered to be indefinitely reinvested. A determination of the deferred tax liability on such earnings is not practical due to the complexity of the hypothetical calculation. +A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows: +Fiscal Year Fiscal Year Fiscal Year +2024 2023 2022 +Gross unrecognized tax benefits at beginning of the year $ 16,785 $ 14,339 $ 18,978 +Increases in tax positions for prior years 172 1,048 465 +Decreases in tax positions for prior years ( 1,523 ) ( 102 ) ( 315 ) +Increases in tax positions for current year 2,203 1,870 1,291 +Settlements ( 1,380 ) — ( 935 ) +Lapse in statute of limitations ( 591 ) ( 370 ) ( 5,145 ) +Gross unrecognized tax benefits at end of the year $ 15,666 $ 16,785 $ 14,339 +The total amount of gross unrecognized tax benefits is $ 15,666 as of December 28, 2024, substantially all of which would impact the effective tax rate if recognized. +We recognize interest and penalties related to unrecognized tax benefits in income tax expense. Total accruals for interest and penalties on our unrecognized tax benefits were $ 8,985 and $ 9,282 as of December 28, 2024, and December 30, 2023, respectively. +We conduct business globally and, as a result, we and/or one or more of our subsidiaries file income tax returns in the U.S. federal and various state jurisdictions and in over fifty foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities in many of the jurisdictions in which we operate. In our material tax jurisdictions, the statute of limitations is open, in general, for three to five years. +In the U.S., our federal tax returns for the 2019 through 2022 tax years are under audit by the IRS. It is possible that within the next twelve months, (1) ongoing tax examinations of our U.S. federal tax returns, individual states, and several of our foreign jurisdictions may be resolved, (2) new tax exams may commence, and (3) other issues may be effectively settled. However, we do not expect our assessment of unrecognized tax benefits to change significantly over that time. +96 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Note 8 – Restructuring Costs +In the third quarter of 2022, we elected to discontinue our operations in Russia, where we had an office that employed engineering and coding resources that supported the operation and maintenance of the Ingram Micro Cloud Marketplace. As a result, we incurred one-time termination costs of $ 11,377 during Fiscal Year 2022, of which $ 7,141 was recognized within restructuring costs and $ 4,236 was recognized within SG&A expenses on the Consolidated Statements of Income. In the third quarter of 2023, we sold our Russian subsidiary, recognizing a loss of $ 3,068 within SG&A expenses and leaving us with no remaining presence in Russia. +In Fiscal Year 2023, as a result of changing global and local market conditions, we initiated a global restructuring plan which resulted in organizational and staffing changes, including a headcount reduction of 628 employees, primarily in our North American segment. We took further actions in the first quarter of 2024. Further, in the fourth quarter of 2024, we took actions to enhance organizational efficiency and strengthen customer service capabilities to better position us for long-term, sustainable growth, which included organizational and staffing changes as well as headcount reductions of 1,056 employees, inclusive of the actions taken in the first quarter of 2024. We anticipate additional charges in the range of $ 4 million and $ 7 million in the first quarter of 2025 in connection with the continuance of this restructuring plan. +A summary of the restructuring costs incurred in Fiscal Year 2024 and Fiscal Year 2023, are as follows: +Restructuring Costs +Headcount +Reduction +(Number of +Employees) Employee +Termination +Benefits Facility and +Other +Costs Total +Restructuring +Costs +Fiscal Year 2024 +North America $ 15,004 $ 231 $ 15,235 +EMEA 15,762 1 15,763 +Asia-Pacific 7,029 — 7,029 +Latin America 268 59 327 +Total 1,056 $ 38,063 $ 291 $ 38,354 +Restructuring Costs +Headcount +Reduction +(Number of +Employees) Employee +Termination +Benefits Facility and +Other +Costs Total +Restructuring +Costs +Fiscal Year 2023 +North America $ 12,050 $ 3,401 $ 15,451 +EMEA 1,878 18 1,896 +Asia-Pacific 1,341 — 1,341 +Latin America 109 — 109 +Total 628 $ 15,378 $ 3,419 $ 18,797 +The remaining liabilities, which are recorded within accrued expenses and other on our Consolidated Balance Sheets, and activities associated with the aforementioned actions for Fiscal Year 2024 are summarized in the tables below: +Restructuring Liability +Beginning +Liability Expenses, +Net Amounts Paid +and Charged +Against the +Liability Foreign +Currency +Translation Remaining +Liability as of +December 28, +2024 +Fiscal Year 2024 +Employee termination benefits $ 2,060 $ 38,063 $ ( 27,678 ) $ ( 259 ) $ 12,186 +Facility and other costs — 291 ( 291 ) — — +Total $ 2,060 $ 38,354 $ ( 27,969 ) $ ( 259 ) $ 12,186 +97 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Restructuring Liability +Beginning +Liability Expenses, +Net Amounts Paid +and Charged +Against the +Liability Foreign +Currency +Translation Remaining Liability as of December 30, 2023 +Fiscal Year 2023 +Employee termination benefits $ 1,144 $ 15,378 $ ( 14,549 ) $ 87 $ 2,060 +Facility and other costs 10 3,419 ( 3,429 ) — — +Total $ 1,154 $ 18,797 $ ( 17,978 ) $ 87 $ 2,060 +The remaining liability of $ 12,186 will be substantially paid by the first half of 2025. +Note 9 — Commitments and Contingencies +As a company with a substantial employee population and with operations in a large number of countries, Ingram Micro is involved, either as a plaintiff or defendant, in a variety of ongoing claims, demands, suits, investigations, tax matters and proceedings that arise from time to time in the ordinary course of its business. The Company records a provision with respect to a claim, suit, investigation, or proceeding when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. If there is at least a reasonable possibility that a material loss may have been incurred associated with pending legal claims, or when assertion of unasserted material claims is considered probable, we disclose such fact, and if reasonably estimable, we provide an estimate of the possible loss or range of possible loss. We record our best estimate of a loss related to pending legal and regulatory proceedings when the loss is considered probable and the amount can be reasonably estimated. Where a range of loss can be reasonably estimated with no best estimate in the range, we record the minimum estimated liability. As additional information becomes available, we assess the potential liability related to pending legal and regulatory proceedings and revise our estimates and update our disclosures accordingly. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. Our legal costs associated with legal matters are recorded to expense as incurred. +The Company reviews claims, suits, investigations and proceedings at least quarterly, and decisions are made with respect to recording or adjusting provisions and disclosing reasonably possible losses or range of losses (individually or in the aggregate). Whether any losses, damages, or remedies finally determined in any claim, suit, investigation or proceeding could reasonably have a material effect on the Company’s business, financial condition, results of operations or cash flows will depend on a number of variables, including: the timing and amount of such losses or damages; the structure and type of any such remedies; the significance of the impact of such losses, damages or remedies may have in the consolidated financial statements; and the unique facts and circumstances of the particular matter that may give rise to additional factors. +Our Brazilian subsidiary has received a number of tax assessments primarily related to tax reporting compliance topics as well as transaction-tax related matters largely involving applicability of tax and categorization of products and services. The total amount related to these assessments and similar tax exposures that are not yet assessed that give rise to a probable risk where a reserve has been established is Brazilian Reais 21,711 ($ 3,502 at December 28, 2024 exchange rates) in principal and associated penalties, interest and fines. The total amount related to these assessments and similar tax exposures that are not yet assessed that we believe give rise to a reasonably possible loss is Brazilian Reais 843,008 ($ 135,986 at December 28, 2024 exchange rates) in principal and associated penalties, interest and fines. +98 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +In June 2013, the French Competition Authority (“FCA”) launched an investigation of our subsidiary in France (“Ingram Micro France”), one of our competitors and one of our vendors in relation to alleged anticompetitive practices. In October 2018, the investigation services of the FCA filed a Statement of Objections against Ingram Micro France, as primary infringer, and Ingram Micro Europe BVBA and Ingram Micro, as parent companies (“Ingram”). In March 2020, the Board of the FCA issued its decision imposing a fine of € 62,900 on Ingram regarding volume allocations of Apple products. In July 2020, we appealed the decision of the Board of the FCA to the Paris Court of Appeals. On October 6, 2022, the Paris Court of Appeals issued a decision maintaining the infraction of volume allocation and reducing the fine to € 19,500 . In November 2022 the Company further appealed this matter to the “Cour de Cassation.” As the appeal to the “Cour de Cassation” did not suspend the obligation to pay the fine, in the third quarter of 2022, we recorded a contingent liability at that time within our Condensed Consolidated Balance Sheets. Under the payment plan agreed with the French Treasury, Ingram Micro France had already paid approximately $ 11,000 . On November 4, 2022, Ingram Micro France made an additional payment of approximately $ 9,000 to complete the total amount of the fine and the French Treasury released the third-party surety bond. As a result of the appeals court ruling, the Company determined that the best estimate of probable loss related to this matter is limited to the amounts already paid to date. On June 3, 2021, the reseller whose complaint to the FCA gave rise to the investigation filed a follow-on civil claim in the Paris Commercial Court seeking approximately € 95,000 ($ 99,000 at December 28, 2024 exchange rates) in damages from Ingram, one of our competitors and one of our vendors. On May 30, 2022, the Paris Commercial Court postponed the hearing on this reseller claim pending resolution of the appeal on the main case. On October 24, 2022, the reseller requested the re-opening of the proceedings and we petitioned the Paris Commercial Court to stay the proceedings until the main case is decided by the “Cour de Cassation.” On May 15, 2023, the Paris Commercial Court did not accept the request to suspend the case and set a calendar for a final hearing, which took place in June 2024. On November 25, 2024, the Paris Commercial Court issued a decision rejecting the follow-on damages claim in its entirety due to lack of causation, and the plaintiff appealed the decision on December 23, 2024. We are currently evaluating this matter and we do not believe any loss amount is estimable or probable at this time. +In January 2021, we first learned through external sources that in June 2019, the Court of Additional Chief Metropolitan Magistrate (Special Acts), Central District, Tis Hazari in New Delhi (the “New Delhi Court”) issued a summoning order naming Ingram Micro India Ltd. (“IMIL”) as one of 40 legal entity defendants in a criminal complaint. IMIL is accused by the Serious Fraud Office of cheating and criminal conspiracy based on four payments it made over 16 years ago at the request of a certain vendor. In February 2021, outside legal counsel appeared on IMIL’s behalf at the New Delhi Court and requested relevant documentation pertaining to these charges to assess IMIL’s legal position. IMIL has vigorously contested the charges as we believe the charges to be meritless and in December 2021 filed a motion to dismiss. +In September 2021, the Company’s subsidiary in Saudi Arabia received a tax assessment for Saudi Riyal 238,152 ($ 63,420 at December 28, 2024 exchange rates) in tax and associated penalties issued by ZATCA (tax and customs authority) asserting that withholding tax was due on payments to non-resident vendors for software distributed to resellers from 2015 through 2020. We believe the tax assessment gives rise to a reasonably possible loss of Saudi Riyal 159,985 ($ 42,604 at December 28, 2024 exchange rates) in tax and a probable risk of Saudi Riyal 5,466 ($ 1,456 at December 28, 2024 exchange rates) in tax. In addition, we believe it is possible the tax authorities will assess us for payments to non-resident vendors for software distributed to resellers for the years 2021 through 2024, which gives rise to a reasonably possible loss of Saudi Riyal 395,505 ($ 105,323 at December 28, 2024 exchange rates) in tax and a probable risk of Saudi Riyal 1,632 ($ 435 at December 28, 2024 exchange rates) in tax. Associated penalties have a remote risk due to the assessments being based on a difference in interpretation of Saudi tax law. In February 2024 and early April 2024, ZATCA issued new guidelines on taxation of payments for software, which largely appear to no longer assert that withholding tax is due on payments to non-resident vendors for software distributed to resellers. While we continue to analyze the guidelines it is unclear how ZATCA will utilize the guidelines with respect to the pre-guidelines periods since they are only applicable on a prospective basis; however, we believe there has been positive development as the new guidelines appear to be largely consistent with the interpretation before the assessments were made. In May 2024, at our request, the court granted a third 6-month suspension of the case. In September 2024, we submitted a resolution proposal for the years 2015 through 2020 for Saudi Riyal 5,466 ($ 1,456 at December 28, 2024 exchange rates), which is in alignment with the probable risk listed above. The proposal creates an indefinite suspension of the case for the duration of the resolution procedure. We strongly believe that we have administered taxes correctly, that these payments to non-resident vendors for software distributed to resellers are not subject to withholding tax and that we will ultimately prevail in this matter. +Related to the matter discussed in section "Out of Period Correction" within Note 2, "Significant Accounting Policies", we have made voluntary disclosure to the Indian tax authorities, which we and our local advisors believe has mitigated the risk of any potential income tax penalties. +99 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +We may be subject to non-income based tax unasserted claims related to transactions with certain non-U.S. affiliates and indirect tax related matters. As of December 28, 2024, the Company is unable to reasonably estimate the possible losses or range of losses, if any, arising from unasserted claims due to a number of factors, including the presence of complex or novel legal theories and the ongoing discovery and development of information important to potential unasserted claims. Claims, suits, investigations and proceedings are inherently uncertain, and it is not possible to predict the ultimate outcome of unasserted claims. It is possible that the Company’s business, financial condition, results of operations or cash flows could be materially affected in any particular period by the resolution of potential claims. +As is customary in the IT distribution industry, we have arrangements with certain finance companies that provide inventory-financing facilities for our customers. In conjunction with certain of these arrangements, we have agreements with the finance companies that would require us to repurchase certain inventory that might be repossessed from the customers by the finance companies. Due to various reasons, including among other items, the lack of information regarding the amount of salable inventory purchased from us that is still on hand with the customer at any point in time, repurchase obligations relating to inventory cannot be reasonably estimated. Repurchases of inventory by us under these arrangements have been insignificant to date. +We have guarantees to third parties that provide financing to a limited number of our customers. Net sales under these arrangements accounted for less than one percent of our consolidated net sales for each of the periods presented. The guarantees require us to reimburse the third party for defaults by these customers up to an aggregate of $ 6,591 . The fair value of these guarantees has been recognized as cost of sales on the Consolidated Statements of Income to these customers and is included in accrued expenses and other on the Consolidated Balance Sheets. +Note 10 — Employee Awards +Cash-based Compensation +Activity related to the cash awards was as follows: +Number of Cash +Awards +(in thousands) +Non-vested at January 1, 2021 93,325 +Granted 45,501 +Vested ( 45,870 ) +Forfeited ( 16,234 ) +Non-vested at December 31, 2022 76,722 +Granted 44,885 +Vested ( 46,690 ) +Forfeited ( 7,319 ) +Non-vested at December 30, 2023 67,598 +Granted 35,186 +Vested ( 22,909 ) +Forfeited ( 7,229 ) +Non-vested at December 28, 2024 72,646 +Fiscal Year Fiscal Year Fiscal Year +2024 2023 2022 +Compensation expense - cash awards $ 24,626 $ 31,040 $ 35,418 +Related income tax benefit $ 6,156 $ 7,760 $ 8,854 +As of December 28, 2024, the unrecognized compensation costs related to the cash awards was $ 34,736 . We expect this cost to be recognized over a remaining weighted-average period of approximately 1.3 years. +100 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Stock-based Compensation +Activity related to the time vesting restricted stock units granted under the 2024 Plan was as follows: +Number of +Awards +(in thousands) Weighted-Average Grant Date Fair Value +Non-vested at December 30, 2023 — $ — +Granted 2,608 22.01 +Vested ( 1,474 ) 22.00 +Non-vested at December 28, 2024 1,134 $ 22.01 +Fiscal Year +2024 +Compensation expense $ 34,067 +Related income tax benefit $ 3,731 +We account for forfeitures as they occur. During Fiscal Year 2024, there were no forfeitures of awards granted under the 2024 plan. As of December 28, 2024, the unrecognized compensation costs related to the time vesting restricted stock units was $ 23,319 . We expect this cost to be recognized over a remaining weighted-average period of approximately 1.9 years. +Activity related to the performance vesting restricted stock units granted under the 2024 Plan was as follows: +Number of +Awards +(in thousands) Weighted-Average Grant Date Fair Value +Non-vested at December 30, 2023 — $ — +Granted 2,468 17.42 +Non-vested at December 28, 2024 2,468 $ 17.42 +We have not recognized any compensation costs related to the performance vesting restricted stock units as the performance condition depends on the occurrence of a qualifying event, which is not deemed probable until it occurs (see section “Stock-based Compensation” within Note 2, “Significant Accounting Policies”). +We account for forfeitures as they occur. During Fiscal Year 2024, there were no forfeitures of time vesting or performance vesting restricted stock units granted under the 2024 plan. +101 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Participation Plan for Certain Key Employees +Activity related to the awards granted in the Participation Plan was as follows: +Number of Units +(in thousands) +Non-vested at January 1, 2021 216,875 +Granted 11,039 +Forfeited ( 36,200 ) +Non-vested at December 31, 2022 191,714 +Granted 4,306 +Forfeited ( 1,420 ) +Non-vested at December 30, 2023 194,600 +Granted 14,580 +Forfeited ( 209,180 ) +Non-vested at December 28, 2024 — +As a result of the IPO, the Plan was cancelled in the fourth quarter of 2024. There was no compensation cost recognized for these awards during any periods presented. +Note 11 — Segment Information +ASC 280, Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. Our CODM is our Chief Executive Officer. Our reportable segments coincide with the geographic operating segments which include North America, EMEA, Asia-Pacific, and Latin America. The measure of segment profit is income from operations. Our CODM utilizes income from operations to analyze and compare year-over-year and budget-to-actual segment-level operational performance and profitability before non-operational items, ensure optimal alignment with our strategic priorities and make strategic decisions concerning resource allocation across our operating segments. +Geographic areas in which we operated our reportable segments during 2024 include North America (the United States and Canada), EMEA (Austria, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Denmark, Egypt, Finland, France, Germany, Hungary, Ireland, Israel, Italy, Kosovo, Lebanon, Luxembourg, Macedonia, Morocco, Netherlands, Norway, Oman, Pakistan, Poland, Portugal, Qatar, Romania, Saudi Arabia, Serbia, Slovenia, Spain, Sweden, Switzerland, Turkey, United Arab Emirates and the United Kingdom), Asia-Pacific (Australia, Bangladesh, the People’s Republic of China including Hong Kong, India, Indonesia, Malaysia, New Zealand, Philippines, Singapore, Sri Lanka, and Thailand), and Latin America (Brazil, Chile, Colombia, Costa Rica, Mexico, Peru, Uruguay and our Latin American export operations in Miami). +We do not allocate stock-based compensation expense or time-vested and performance-vested cash-based compensation recognized to our reportable segments (see Note 10, “Employee Awards”), certain Corporate costs, and the gain from the CLS Sale; therefore, we are reporting these amounts separately. Assets by reportable segment are not presented below as our CODM does not review assets by reportable segment. +Financial information by reportable segment is as follows: +102 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Fiscal Year Fiscal Year Fiscal Year +2024 2023 2022 +Net sales +North America $ 17,373,047 $ 18,195,652 $ 20,908,493 +EMEA 14,260,257 14,481,069 15,052,242 +Asia-Pacific 12,756,802 11,573,489 11,184,575 +Latin America 3,593,565 3,790,154 3,679,180 +Total $ 47,983,671 $ 48,040,364 $ 50,824,490 +Significant segment expenses +Cost of sales +North America $ 15,973,155 $ 16,712,010 $ 19,231,758 +EMEA 13,183,955 13,367,664 13,942,955 +Asia-Pacific 12,132,315 10,950,647 10,585,158 +Latin America 3,249,301 3,462,906 3,371,227 +Total $ 44,538,726 $ 44,493,227 $ 47,131,098 +Compensation +North America $ 840,696 $ 865,403 $ 972,994 +EMEA 504,847 503,676 594,098 +Asia-Pacific 204,894 209,448 219,963 +Latin America 129,799 121,672 113,850 +Total $ 1,680,236 $ 1,700,199 $ 1,900,905 +Depreciation costs +North America $ 74,939 $ 66,153 $ 72,991 +EMEA 15,249 17,056 18,016 +Asia-Pacific 6,648 7,834 8,669 +Latin America 5,617 6,102 6,396 +Total $ 102,453 $ 97,145 $ 106,072 +Intangible asset amortization +North America $ 42,148 $ 42,175 $ 42,253 +EMEA 23,958 23,782 25,126 +Asia-Pacific 17,441 17,594 20,308 +Latin America 3,331 3,452 3,352 +Total $ 86,878 $ 87,003 $ 91,039 +Other departmental operating expenses (a) +North America $ 193,057 $ 223,792 $ 249,633 +EMEA 170,552 158,026 52,699 +Asia-Pacific 91,503 73,192 58,233 +Latin America 55,044 51,320 40,844 +Total $ 510,156 $ 506,330 $ 401,409 +Integration and transition costs (b) +North America $ 5,659 $ 15,745 $ ( 2,334 ) +EMEA 2,839 ( 31 ) 16,497 +Asia-Pacific 1,656 ( 8 ) 6,864 +Latin America ( 1,644 ) 4,388 2,428 +Total $ 8,510 $ 20,094 $ 23,455 +103 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Fiscal Year Fiscal Year Fiscal Year +2024 2023 2022 +Other segment items (c) +North America $ ( 78,766 ) $ ( 80,476 ) $ ( 72,930 ) +EMEA 99,437 93,697 88,028 +Asia-Pacific 78,896 67,639 54,886 +Latin America 32,533 46,799 27,610 +Total $ 132,100 $ 127,659 $ 97,594 +Total segment expenses $ 47,059,059 $ 47,031,657 $ 49,751,572 +Income from operations +North America $ 322,159 $ 350,850 $ 414,128 +EMEA 259,420 317,199 314,823 +Asia-Pacific 223,449 247,143 230,494 +Latin America 119,584 93,515 113,473 +Segment profit $ 924,612 $ 1,008,707 $ 1,072,918 +Reconciliation of segment profit to income before income taxes +Gain on CLS Sale $ — $ — $ 2,283,820 +Corporate ( 47,996 ) ( 33,320 ) ( 72,390 ) +Cash-based compensation ( 24,626 ) ( 31,040 ) ( 35,418 ) +Stock-based compensation ( 34,067 ) — — +Other (income) expense +Interest income $ ( 45,335 ) $ ( 34,977 ) $ ( 22,911 ) +Interest expense 338,358 380,191 320,230 +Net foreign currency exchange loss 22,901 42,070 69,597 +Other expense 56,133 34,562 67,473 +Income before income taxes $ 445,866 $ 522,501 $ 2,814,541 +(a) Other Departmental Operating Expenses consist primarily of professional and outside service costs, lease rental and occupancy costs, repair and maintenance costs as well as other miscellaneous operating expenses. +(b) Costs are primarily related to (i) professional, consulting and integration costs associated with our acquisitions, (ii) consulting, retention and transition costs associated with our reorganization programs charged to selling, general and administrative, or SG&A, expenses. +(c) Other segment items consist primarily of management fees and direct management costs which represent costs that are incurred by the North American segment and allocated to the other segments, as well as bad debt/credit/flooring costs, credit card fees and restructuring costs. +104 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Net sales are attributed to countries based on the location of the originating entity’s registered domicile. Except for the United States, which is our country of domicile, and India, no other country accounted for 10% or more of net sales for the periods presented. +Fiscal Year Fiscal Year Fiscal Year +2024 2023 2022 +Net sales: +United States $ 16,369,823 34 % $ 17,300,808 36 % $ 19,464,781 38 % +India 4,903,734 10 4,571,294 10 4,311,474 8 +Outside of the United States and India 26,710,114 56 26,168,262 54 27,048,235 54 +Total $ 47,983,671 100 % $ 48,040,364 100 % $ 50,824,490 100 % +Except for the United States, no other country accounted for 10% or more of long-lived assets for the periods presented. +December 28, 2024 December 30, 2023 December 28, 2024 December 30, 2023 +Long-lived assets: +United States $ 869,921 $ 858,364 52 % 49 % +Outside of the United States 797,815 905,387 48 51 +Total (1) +$ 1,667,736 $ 1,763,751 100 % 100 % +(1) Includes $ 772,571 and $ 880,433 of intangible assets, net of which $ 325,444 and $ 362,572 are located within the United States as of December 28, 2024 and December 30, 2023, respectively. +The following table summarizes additional entity-wide disclosure of net sales by product category for the following periods: +Fiscal Year Fiscal Year Fiscal Year +2024 2023 2022 +Net sales: +Client and Endpoint Solutions $ 29,974,140 63 % $ 29,149,776 61 % $ 31,994,972 63 % +Advanced Solutions 16,859,551 35 17,883,252 37 17,353,836 34 +Cloud-based Solutions 462,127 1 383,329 1 325,981 1 +Other (1) +687,853 1 624,007 1 1,149,701 2 +Total $ 47,983,671 100 % $ 48,040,364 100 % $ 50,824,490 100 % +(1) Other net sales consists mainly of revenues associated with our Commerce & Lifecycle Services business, the majority of which was disposed of and sold effective April 4, 2022. +Note 12 — Derivative Financial Instruments +We use foreign currency forward contracts primarily to manage currency risk associated with foreign currency-denominated trade accounts receivable, accounts payable and intercompany loans. At December 28, 2024 and December 30, 2023, we had no derivatives that were designated as hedging instruments. +105 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +In the first quarter of 2023, we entered into agreements to purchase interest rate caps, which established a 5.5 % upper limit on the LIBOR interest rate applicable to a substantial portion of the borrowings under the Term Loan Credit Facility through the first quarter of 2025. These interest rate cap agreements qualify for hedge accounting treatment and, accordingly, we recorded the fair value of the agreements as an asset and the change in fair value within accumulated other comprehensive loss during the period in which the change occurs. Due to the cessation of the LIBOR interest rate on June 30, 2023, we amended the interest rate cap agreements during the second quarter of 2023 to establish a 5.317 % upper limit on the SOFR interest rate in order to align with the conversion to a SOFR-based rate for the underlying Term Loan Credit Facility. We elected to apply the practical expedient under ASU 2020-04 and continued to apply hedge accounting treatment until September 2023, when we dedesignated the interest rate cap in connection with the refinancing of our Term Loan Credit Facility (See Note 6, “Debt”), the impact of which was immaterial. +The notional amounts and fair values of derivative instruments in our Consolidated Balance Sheets are as follows: +Notional Amounts (1) +Fair Value +December 28, 2024 December 30, 2023 December 28, 2024 December 30, 2023 +Derivatives not receiving hedge accounting treatment recorded in: +Other current assets: +Foreign exchange contracts $ 472,324 $ 515,691 $ 12,510 $ 1,805 +Interest rate cap 1,375,000 1,099,807 — 707 +Other (2) +1,265 1,265 9,616 8,758 +Other assets: +Interest rate cap — 275,193 — 177 +Accrued expenses and other: +Foreign exchange contracts 189,044 1,162,669 ( 780 ) ( 11,416 ) +Total $ 2,037,633 $ 3,054,625 $ 21,346 $ 31 +(1) Notional amounts represent the gross amount of foreign currency bought or sold at maturity for foreign exchange contracts. +(2) Related to a convertible note receivable derivative. +The amount recognized in earnings from our derivative instruments not receiving hedge accounting treatment, including ineffectiveness, is recorded in net foreign currency exchange (gain) loss as follows and is largely offset by the change in fair value of the underlying hedged assets or liabilities: +Fiscal Year Fiscal Year Fiscal Year +Location of (gain) loss in income 2024 2023 2022 +Derivative instruments not qualifying as cash flow hedges: +Net loss (gain) recognized in earnings +Net foreign currency exchange loss +$ 2,884 $ 43,096 $ 30,310 +Interest expense 884 5,211 — +Derivative instruments qualifying as hedging instruments: +Gain recognized in accumulated other comprehensive income $ — $ ( 1,188 ) $ — +Gain reclassified from accumulated other comprehensive income to interest expense +Interest expense +( 686 ) ( 349 ) — +106 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +There were no material gain or loss amounts excluded from the assessment of effectiveness. We report our derivatives at fair value as either assets or liabilities within our Consolidated Balance Sheets. See Note 13, “Fair Value Measurements”, for information on derivative fair values recorded on our Consolidated Balance Sheets for the periods presented. +Note 13 — Fair Value Measurements +Our assets and liabilities carried at fair value are classified and disclosed in one of the following three categories: Level 1 — quoted market prices in active markets for identical assets and liabilities; Level 2 — observable market-based inputs or unobservable inputs that are corroborated by market data; and Level 3 — unobservable inputs that are not corroborated by market data. +As of December 28, 2024, our assets and liabilities measured at fair value on a recurring basis are categorized in the table below: +December 28, 2024 +Total Level 1 Level 2 Level 3 +Assets: +Derivative assets $ 22,126 $ — $ 22,126 $ — +Investments held in Rabbi Trust 93,770 93,770 — — +Total assets at fair value $ 115,896 $ 93,770 $ 22,126 $ — +Liabilities: +Derivative liabilities $ 780 $ — $ 780 $ — +Contingent consideration 2,888 — — 2,888 +Total liabilities at fair value $ 3,668 $ — $ 780 $ 2,888 +As of December 30, 2023, our assets and liabilities measured at fair value on a recurring basis are categorized in the table below: +December 30, 2023 +Total Level 1 Level 2 Level 3 +Assets: +Derivative assets $ 10,563 $ — $ 10,563 $ — +Interest rate cap 884 — 884 — +Investments held in Rabbi Trust 82,498 82,498 — — +Total assets at fair value $ 93,945 $ 82,498 $ 11,447 $ — +Liabilities: +Derivative liabilities $ 11,416 $ — $ 11,416 $ — +Contingent consideration 4,391 — — 4,391 +Total liabilities at fair value $ 15,807 $ — $ 11,416 $ 4,391 +The fair value of the cash equivalents approximated its carrying value and the gain or loss on the marketable trading securities was recognized in the Consolidated Statements of Income to reflect these investments at fair value. +107 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Our senior secured notes due in 2029 and Term Loan Credit Facility are stated at amortized cost, and their respective fair values were determined based on Level 2 criteria. The fair values and carrying values of these notes are shown in the tables below: +December 28, 2024 +Fair Value +Total Level 1 Level 2 Level 3 Carrying +Value +Senior secured notes, 4.75 % due 2029 +$ 1,885,000 $ — $ 1,885,000 $ — $ 1,969,768 +Term loan credit facility 931,535 — 931,535 — 885,882 +$ 2,816,535 $ — $ 2,816,535 $ — $ 2,855,650 +December 30, 2023 +Fair Value +Total Level 1 Level 2 Level 3 Carrying +Value +Senior secured notes, 4.75 % due 2029 +$ 1,875,000 $ — $ 1,875,000 $ — $ 1,962,750 +Term loan credit facility 1,402,950 — 1,402,950 — 1,362,487 +$ 3,277,950 $ — $ 3,277,950 $ — $ 3,325,237 +The carrying amounts of our trade accounts receivable, accounts payable and accrued expenses and other approximate fair value because of the short maturity of these items. Our ABL Revolving Credit Facility and European revolving trade accounts receivable-backed financing program bear interest at variable rates based on designated local reference rates and commercial paper rates, respectively, plus a predetermined fixed margin. The interest rates of our revolving unsecured credit facilities and other debt are dependent upon the local short-term bank indicator rate for a particular currency, which also resets regularly. The carrying amounts of all these facilities approximate their fair value because of the revolving nature of the borrowings and because the all-in rate (consisting of variable rates and fixed margin) adjusts regularly to reflect current market rates with appropriate consideration for our credit profile. +Note 14 — Employee Benefit Plans +Our U.S.-based employee savings benefit plans permit eligible employees to make contributions up to certain limits, which are matched by us at stipulated percentages. Our contributions charged to expense were $ 11,235 , $ 11,589 , and $ 12,901 in Fiscal Year 2024, Fiscal Year 2023, and Fiscal Year 2022, respectively. +Deferred Compensation Plan +We have a non-qualified deferred compensation plan (“NQDC”) that provides certain key officers and employees the ability to defer a portion of their compensation until a later date. The assets are held in a “Rabbi Trust” which invests in various mutual funds as directed by the plan participants. The Rabbi Trust is intended to be used as a source of funds to match respective funding obligations to participants. The assets of the trust are subject to the claims of our creditors in the event that we become insolvent. The assets and liabilities of the plan are recorded within other assets and other liabilities, respectively, in the Consolidated Balance Sheets. Changes in the deferred compensation balance are recorded to compensation expense and reflected within SG&A expenses of our Consolidated Statements of Income. Changes in the fair value of assets of the plan are recorded within other expense in our Consolidated Statements of Income. For amounts currently held on the Consolidated Balance Sheets, see Note 13, “Fair Value Measurements”. +Self-Insurance +We self-insure coverage for certain U.S. employee medical claims. Amounts accrued for such medical insurance coverage aggre gates to $ 6,922 and $ 7,051 as of December 28, 2024 and December 30, 2023, respectively, and are classified within accrued expenses and other on the Consolidated Balance Sheet. +108 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Note 15 — Stockholders’ Equity +Following our IPO and stock conversion and stock split, our certificate of incorporation authorizes us to issue 2,000,000,000 shares of Common Stock, of which 234,825,581 were issued and outstanding as of December 28, 2024. +Dividends Paid to Minority Interest Stockholders +In Fiscal Year 2024, we paid $ 6,174 to the Aptec Saudi minority interest stockholders of record. In Fiscal Year 2023, we paid $ 9,909 to the Aptec Saudi minority interest stockholders of record, as well as $ 553 to the Aptec Turkey minority interest stockholders of record. +Note 16 — Related Party Transactions +In connection with the Imola Mergers, we entered into a Corporate Advisory Services Agreement (the “CASA”) with Platinum Equity Advisors, LLC (“Platinum Advisors”), an entity affiliated with Platinum, pursuant to which Platinum Advisors provides corporate and advisory services to us. Prior to the IPO, we incurred an annual fee of $ 25,000 , plus expenses incurred by Platinum Advisors in rendering such services. For Fiscal Year 2024, Fiscal Year 2023, and Fiscal Year 2022, we incurred fees and expenses of $ 20,679 , $ 26,927 , and $51,767, respectively, under the CASA. These amounts have been included within SG&A expenses within the Consolidated Statements of Income. Upon completion of the IPO, the CASA was terminated. +Note 17 — Quarterly Information (Unaudited) +In the second quarter of 2024, we identified fraudulent activity within our India Professional Services business involving certain of our then-current employees (which employees were subsequently terminated or resigned) and a relatively small number of customers of our subsidiary in India dating back to 2023. As part of these activities and the collusion of these former employees and customers, our India Professional Services business hired providers and paid for professional services that were never performed and recognized revenue for the sale of professional services that were never provided by our customers to the end users. As a result, our net sales and cost of sales, selling, general and administrative expenses, and provision for income taxes were misstated on our Condensed Consolidated Statements of Income, and our accounts receivable, inventory, other assets, accounts payable, and accrued expenses and other were misstated on our Condensed Consolidated Balance Sheets. We are working to recover amounts paid to such customers and we intend to vigorously pursue all legal remedies available to us. We will record a benefit when and if any such amounts are deemed probable of recovery. +Management has determined that these misstatements were not material to the previously issued consolidated financial statements as of and for the Thirteen Weeks Ended March 30, 2024. However, in order to appropriately reflect the impacts of the identified misstatements in the appropriate period, management has determined to revise the financial statements as of and for the Thirteen Weeks Ended March 30, 2024 the next time such financial statements are filed. All misstatements related to the India Professional Services business are identified as (1) in the tables below. Additionally, other identified immaterial errors that have been corrected and revised are footnoted with a (2) in the tables below. +The following tables present a summary of the impact of the corrections by financial statement line item: +109 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +March 30, 2024 +As Reported Adjustment As Revised +Condensed Consolidated Balance Sheet: +Trade accounts receivable (1) (2) $ 8,297,613 $ ( 15,301 ) $ 8,282,312 +( 18,896 ) (1) +3,595 (2) +Inventory (1) 4,679,975 ( 3,382 ) 4,676,593 +Other current assets (1) 735,795 404 736,199 +Total current assets 14,570,960 ( 18,279 ) 14,552,681 +Other assets (1) 483,334 4,076 487,410 +Total assets $ 17,651,495 $ ( 14,203 ) $ 17,637,292 +Accounts payable (1) $ 8,518,159 $ ( 2,504 ) $ 8,515,655 +Accrued expenses and other (1) 1,009,487 ( 3,582 ) 1,005,905 +Short-term debt and current maturities of long-term debt (2) 351,591 3,595 355,186 +Total current liabilities 9,984,654 ( 2,491 ) 9,982,163 +Total liabilities 14,618,012 ( 2,491 ) 14,615,521 +Retained earnings (1) 1,141,040 ( 11,712 ) 1,129,328 +Total stockholder's equity 3,483,483 ( 11,712 ) 3,471,771 +Total liabilities and stockholders' equity $ 17,651,495 $ ( 14,203 ) $ 17,637,292 +Thirteen Weeks Ended March 30, 2024 +As Reported Adjustment As Revised +Condensed Consolidated Statement of Income +Net sales (1) $ 11,345,520 $ ( 10,586 ) $ 11,334,934 +Cost of sales (1) 10,506,173 ( 6,177 ) 10,499,996 +Gross profit 839,347 ( 4,409 ) 834,938 +Selling, general and administrative expenses (1) 640,175 1,977 642,152 +Total operating expenses 662,840 1,977 664,817 +Income from operations 176,507 ( 6,386 ) 170,121 +Income before income taxes 83,067 ( 6,386 ) 76,681 +Provision for income taxes (1) 29,140 ( 2,011 ) 27,129 +Net income $ 53,927 $ ( 4,375 ) $ 49,552 +Basic and diluted earnings per share (3) +$ 0.24 $ ( 0.02 ) $ 0.22 +(3) Basic and diluted earnings per share reflects the stock conversion and stock split in connection with the IPO (see section “Stock Conversion and Stock Split” within Note 2, “Significant Accounting Policies”) . +Thirteen Weeks Ended March 30, 2024 +As Reported Adjustment As Revised +Condensed Consolidated Statement of Comprehensive Income +Net income (1) $ 53,927 $ ( 4,375 ) $ 49,552 +Comprehensive income $ ( 30,143 ) $ ( 4,375 ) $ ( 34,518 ) +110 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Thirteen Weeks Ended March 30, 2024 +As Reported Adjustment As Revised As Reported Adjustment As Revised +Retained Earnings Total +Condensed Consolidated Statement of Stockholders ’ Equity: +Balance at December 30, 2023 (1) $ 1,087,113 $ ( 7,337 ) $ 1,079,776 $ 3,513,626 $ ( 7,337 ) $ 3,506,289 +Net income (1) 53,927 ( 4,375 ) 49,552 53,927 ( 4,375 ) 49,552 +Balance at March 30, 2024 $ 1,141,040 $ ( 11,712 ) $ 1,129,328 $ 3,483,483 $ ( 11,712 ) $ 3,471,771 +Thirteen Weeks Ended March 30, 2024 +As Reported Adjustment As Revised +Condensed Consolidated Statement of Cash Flow +Cash flows used in operating activities: +Net income (1) $ 53,927 $ ( 4,375 ) $ 49,552 +Changes in operating assets and liabilities, net of effects of acquisitions: +Trade accounts receivable (1) (2) 536,150 7,144 543,294 +7,159 (1) +( 15 ) (2) +Inventory (1) ( 78,254 ) 2,876 ( 75,378 ) +Other assets (1) ( 4,588 ) ( 2,011 ) ( 6,599 ) +Accounts payable (1) ( 577,588 ) ( 2,258 ) ( 579,846 ) +Accrued expenses and other (1) ( 25,433 ) ( 1,391 ) ( 26,824 ) +Cash used in operating activities $ ( 100,251 ) $ ( 15 ) $ ( 100,266 ) +Cash flows from financing activities: +Net proceeds from revolving and other credit facilities (2) 22,475 15 22,490 +Cash provided by financing activities $ 3,501 $ 15 $ 3,516 +The following selected quarterly financial data is being provided in consideration of our 8367.19365 -for- 1 stock split as a result of our IPO as described in the “Initial Public Offering” section presented within Note 2, “Significant Accounting Policies”: +Fiscal Year 2024 +Thirteen Weeks Ended March 30, 2024 Thirteen Weeks Ended June 29, 2024 Thirteen Weeks Ended September 28, 2024 Thirteen Weeks Ended December 28, 2024 +Net sales $ 11,334,934 $ 11,541,439 $ 11,762,628 $ 13,344,670 +Income from operations $ 170,121 $ 181,128 $ 218,174 $ 248,500 +Net income $ 49,552 $ 54,585 $ 76,969 $ 83,116 +Basic and diluted earnings per share $ 0.22 $ 0.25 $ 0.35 $ 0.36 +Fiscal Year 2023 +Thirteen Weeks Ended April 1, 2023 Thirteen Weeks Ended July 1, 2023 Thirteen Weeks Ended September 30, 2023 Thirteen Weeks Ended December 30, 2023 +Net sales $ 11,569,161 $ 11,526,329 $ 11,925,373 $ 13,019,501 +Income from operations $ 194,150 $ 206,860 $ 212,402 $ 330,935 +Net income $ 62,551 $ 66,854 $ 86,783 $ 136,524 +Basic and diluted earnings per share $ 0.28 $ 0.30 $ 0.39 $ 0.61 +111 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Note 18 — Subsequent Events +On March 4, 2025, the Company announced that its board of directors had declared a cash dividend on the Company’s common stock of $ 0.074 per share, payable on March 25, 2025, to stockholders of record as of March 11, 2025. +112 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS +(In 000s) +Description Beginning Balance Charged to +Costs and +Expenses Deductions Other(*) Ending Balance +Allowance for doubtful accounts: +Fiscal Year 2024 $ 163,727 $ 30,534 $ ( 49,714 ) $ 2,452 $ 146,999 +Fiscal Year 2023 $ 140,328 $ 58,197 $ ( 31,591 ) $ ( 3,207 ) $ 163,727 +Fiscal Year 2022 $ 143,311 $ 26,804 $ ( 27,706 ) $ ( 2,081 ) $ 140,328 +Allowance for sales returns(**): +Fiscal Year 2024 $ 18,916 $ 186,646 $ ( 189,015 ) $ ( 308 ) $ 16,239 +Fiscal Year 2023 $ 23,424 $ 272,933 $ ( 276,046 ) $ ( 1,395 ) $ 18,916 +Fiscal Year 2022 $ 20,753 $ 274,860 $ ( 271,547 ) $ ( 642 ) $ 23,424 +(*) “Other” includes recoveries, acquisitions, and the effect of fluctuations in foreign currencies. +(**) The allowance for sales returns liability is shown net of the estimated product returns recorded within inventory, both of which are presented gross on the Consolidated Balance Sheets. +For Fiscal Year 2023 and Fiscal Year 2022, as it relates to the Allowance for sales returns activity, we did not properly present the changes in the account activity for the Charged to Costs and Expenses, Deductions and Other amounts. For Fiscal Year 2023, the amoun ts related to Charged to Costs and Expenses, Deductions, and Other were previously $ 6,106 , $( 11,073 ) and $ 459 , respectively, and were corrected to $ 272,933 , $( 276,046 ) and $( 1,395 ) , respectively. For Fiscal Year 2022, the amounts related to Charged to Costs and Expenses, Deductions and Other were previously $ 52,407 , $( 50,117 ) and $ 381 , respectively, and were corrected to $ 274,860 , $( 271,547 ) and $( 642 ) , respectively. The corrected amounts did not result in a change to the Allowance for sales returns balance for Fiscal Year 2023 or Fiscal Year 2022 and accordingly, management concluded the impact of the correction was not material to the previously issued financial statements or the schedule of valuation and qualifying accounts. +113 +Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures +None. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +Our management, with the participation and supervision of our principal executive officer and our principal financial officer, evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act), as of the end of the period covered by this Annual Report on Form 10-K. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based on this evaluation, our principal executive officer and our principal financial officer concluded that as a result of the material weaknesses in our internal control over financial reporting described below as of December 28, 2024, the end of the period covered by this Annual Report on Form 10-K, our disclosure controls and procedures were not effective. However, our management, including our principal executive officer and our principal financial officer, has concluded that, notwithstanding the identified material weaknesses in our internal control over financial reporting, the consolidated financial statements in this Annual Report on Form 10-K fairly presented, in all material respects, our financial position, results of operations, and cash flows for the periods presented in conformity with U.S. GAAP. +Management’s Report on Internal Control over Financial Reporting +This annual report does not include a report of management's assessment regarding internal control over financial reporting or an attestation report of the Company's registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies. +Material Weaknesses in Internal Control Over Financial Reporting +A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis. +We identified material weaknesses in our internal control over financial reporting as of December 28, 2024. We did not design and maintain an effective risk assessment process at a precise enough level to identify risks of material misstatement in the consolidated financial statements related to evolving and growing areas of the business. This material weakness contributed to an additional material weakness around the design and maintenance of effective controls over the identification of and accounting for multi-period software license agreements. These material weaknesses resulted in immaterial misstatements to the interim and annual consolidated financial statements between 2021 and 2023 and the revision of the 2022 annual consolidated financial statements (balance sheet and the statement of cash flows) and 2023 interim condensed consolidated financial statements (balance sheet and the statement of cash flows) and the restatement of certain interim and annual consolidated financial statements between 2020 and 2023 as a result of errors in the consolidated balance sheets and consolidated statements of cash flows. +Additionally, these material weaknesses could result in further misstatements of the aforementioned account balances and disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. +Remediation Plan for Material Weaknesses +We are taking a number of steps to remediate these material weaknesses and to strengthen our internal control over financial reporting. These remediation measures are ongoing and include revising policies and procedures and implementing additional training to support an effective risk assessment process over evolving and growing areas of the business. The implementation of these remediation measures is in progress and will require validation and testing of design and operating effectiveness of internal controls over multiple financial reporting cycles. +Changes in Internal Control Over Financial Reporting +There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the most recently completed fiscal quarter ended December 28, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. +114 +Item 9B. Other Information +None . +Item 9C. Disclosure Regarding Foreign Jurisdiction that Prevent Inspections +Not applicable. +115 +Part III +Item 10. Directors, Executive Officers and Corporate Governance +Our Executive Officers and Directors +Below are the names, ages (as of December 28, 2024), positions, and a brief account of the business and experience those individuals who served as our executive officers and directors as of December 28, 2024. +Name +Age +Director Since +Position +Executive Officers: +Paul Bay +54 +2024 +Chief Executive Officer and Director +Michael Zilis +54 +Executive Vice President and Chief Financial Officer +Scott Sherman +58 +Executive Vice President, Human Resources +Augusto Aragone +52 +Executive Vice President, Secretary and General Counsel +Directors: +Alain Monié +73 +2024 +Chairperson of the Board of Directors (Retired Executive Chairman) +Felicia Alvaro +63 +2024 +Director +Craig Ashmore +62 +2024 +Director +Christian Cook +54 +2024 +Director +Jakki Haussler +67 +2024 +Director +Leslie Heisz +63 +2024 +Director +Bryan Kelln +58 +2024 +Director +Jacob Kotzubei +56 +2024 +Director +Matthew Louie +47 +2024 +Director +Mary Ann Sigler +70 +2021 +Director +Sharon Wienbar +62 +2024 +Director +Eric Worley +53 +2024 +Director +Executive Officers +Paul Bay (see further below) +Michael Zilis has served as Ingram Micro’s Executive Vice President and Chief Financial Officer since January 2020. Prior to that, he served as Ingram Micro’s Executive Vice President of Asia-Pacific from August 2016 to December 2019, and has served in various other operational and finance roles since joining Ingram Micro in 2006. As Executive Vice President and Chief Financial Officer, Mr. Zilis is responsible for Ingram Micro’s global finance organization, including financial planning and analysis, mergers and acquisitions, treasury and risk management, financial operations, accounting and reporting, investor relations, and internal audit, tax and global business processes. Prior to joining Ingram Micro, Mr. Zilis held roles at Avnet, Inc. and Arthur Andersen LLP. Currently, Mr. Zilis serves as a director of Veritone, Inc. (Nasdaq: VERI). Mr. Zilis received his Bachelor of Science degree in Finance and Accounting from Boston College. +116 +Scott Sherman has served as Ingram Micro’s Executive Vice President of Human Resources since May 2015. As Executive Vice President of Human Resources, Mr. Sherman is responsible for the identification, development and implementation of the company’s human resources strategies in support of the organization’s global objectives. Mr. Sherman oversees all aspects of human resources worldwide, including organization development and talent management, compensation and benefits, payroll, learning and development. Prior to joining Ingram Micro, Mr. Sherman served as Executive Vice President of Human Resources and a member of the Executive Committee at Allergan from September 2010 to March 2015. Mr. Sherman also held human resources roles at Medtronic, and human resources and territory management roles at Exxon. Mr. Sherman received his Bachelor of Arts degree in International Affairs from the George Washington University and holds a Master of Industrial and Labor Relations from Cornell University’s School of Industrial and Labor Relations. +Augusto Aragone has served as Ingram Micro’s Executive Vice President, Secretary and General Counsel since December 2016. Prior to that, Mr. Aragone served a variety of legal leadership roles with the company, especially in the areas of mergers and acquisitions and finance transactions, originally joining as regional counsel for Latin America in 2008. As Executive Vice President, Secretary and General Counsel, Mr. Aragone oversees all aspects of Ingram Micro’s worldwide legal department, including managing Ingram Micro’s team of legal professionals, preventing and resolving disputes, promoting Ingram Micro’s contractual rights and safeguarding Ingram Micro’s assets. Prior to joining Ingram Micro, Mr. Aragone served as legal director for Latin America for DHL and held several business roles across the international logistics industry in Latin America. Mr. Aragone holds a Juris Doctor degree from Universidad de la Republica (UDELAR - Uruguay), a Master’s degree from Bologna University in Italy and a Master of Laws degree from the University of Miami. He is admitted to the New York bar. +Directors +Alain Monié +Class I Director +Mr. Monié became a director and Chairperson of the board of directors in connection with the Company’s IPO in October 2024, at which time he retired as Executive Chairman of the Company, a capacity in which he had served since January 2022. Mr. Monié previously served as Ingram Micro’s Chief Executive Officer from January 2012 until January 2022. Mr. Monié initially joined Ingram Micro in February 2003 as Executive Vice President, and served in that role and as President of Ingram Micro Asia-Pacific from 2004 to 2007, and then as President and Chief Operating Officer from 2007 to 2010. Prior to rejoining Ingram Micro as President and Chief Operating Officer in November 2011, he served as Chief Executive Officer of APRIL Management Pte., a multinational industrial company based in Singapore. Earlier in his career, Mr. Monié held a series of positions of increasing responsibility, across three continents, within Allied Signal Inc. and Honeywell International. Mr. Monié earned a Master’s degree in business administration from the Institut Supérieur des Affaires, France (now part of the HEC Group). He received high honors in automation engineering studies at the École Nationale Supérieure d’Arts et Métiers (ENSAM) France. +As a seasoned executive and former Chief Executive Officer of Ingram Micro, Mr. Monié was selected to serve on our board of directors due to his in-depth knowledge of Ingram Micro’s business operations and strategy that is important to the board of directors’ oversight of strategy, succession planning, enterprise risk management, compensation and implementation of sound corporate governance practices. +Committee(s): None +Other Public Company Boards: +Current: +• AES Corporation +Past 5 Years: +• Expeditors International of Washington, Inc. (until 2020) +117 +Paul Bay +Class III Director +Mr. Bay became a director in connection with the Company’s IPO in October 2024. He assumed the role of Chief Executive Officer of Ingram Micro on January 1, 2022. Mr. Bay had served as Ingram Micro’s Executive Vice President and President of Global Technology Solutions since January 2020. Prior to that, he served as Ingram Micro’s Executive Vice President and Group President of the Americas from August 2018 to December 2019, Executive Vice President and Chief Executive of Ingram Micro U.S. and Miami Export from 2015 to August 2018, and Sr. Executive Vice President and President of Ingram Micro North America from 2013 to 2014. Mr. Bay first joined Ingram Micro in 1995 and served in various roles of increasing responsibility until 2006. Mr. Bay then served as CEO of Punch! from 2006 to 2010 and rejoined Ingram Micro in 2010. Mr. Bay holds a Bachelor’s degree in speech communication from California State University, Northridge. +Mr. Bay was selected to serve on our board of directors due to his extensive executive management expertise and a deep understanding of the technology sector and distribution industry, developed over decades of leadership experience within the company. +Committee(s): None +Other Public Company Boards: +Current: +• None +Past 5 Years: +• None +Felicia Alvaro +Class III Director +Ms. Alvaro became a director in connection with the Company’s initial public offering in October 2024. She previously served as Chief Financial Officer, EVP and Treasurer for Ultimate Software from 2018 until her retirement in 2020, a period during which she oversaw the company’s transition in 2019 from a publicly traded company to a privately held company. Ms. Alvaro joined Ultimate Software as Vice President of Finance in 1998, shortly after the company’s IPO. During her 22-year tenure at Ultimate Software, she was responsible for the company’s accounting, finance, privacy, risk and compliance, financial planning, tax, treasury and financial systems teams. Previously, Ms. Alvaro spent 11 years in finance and accounting positions at Precision Response Corporation, Pueblo Xtra International and KPMG. Ms. Alvaro holds a Bachelor of Science in Accounting from Southeastern Louisiana University and is a Certified Public Accountant in Georgia. +Ms. Alvaro was selected to serve on our board of directors due to her decades of senior executive leadership experience and expertise in accounting, auditing, financial reporting, financial planning and analysis, risk oversight and general compliance. +Committee(s): Audit (Chair) +Other Public Company Boards: +Current: +• None +Past 5 Years: +• Cornerstone OnDemand (until 2021) +Craig Ashmore +Class I Director +Mr. Ashmore became a director in connection with the Company’s IPO in October 2024. He joined Platinum Advisors in 2014. Mr. Ashmore is currently a Managing Director at the firm and is responsible for senior level business development activities focused on identifying new acquisition opportunities. Prior to joining Platinum Advisors, Mr. Ashmore was Executive Vice President of Planning and Development at Emerson (NYSE: EMR), where he had responsibility for Emerson’s mergers and acquisitions, strategic planning and corporate technology functions as well as Emerson Network Power’s connectivity solutions business. He was a member of Emerson’s Office of the Chief Executive. Mr. Ashmore holds a Bachelor’s degree in Mechanical and Civil Engineering from the University of Connecticut and a Master’s degree in Business Administration from the Harvard Business School. +Mr. Ashmore was selected to serve on our board of directors due to his experience related to private equity, transactional matters and operational expertise. +Committee(s): None +Other Public Company Boards: +Current: +• None +Past 5 Years: +• None +118 +Christian Cook +Class I Director +Mr. Cook became a director in connection with the Company’s IPO in October 2024. He is currently a Managing Director at Platinum Advisors with responsibility for managing the transition of newly acquired companies into Platinum’s portfolio. Post-transition, he also has responsibility for strategy, value creation and operational performance at select global portfolio companies. Since his joining Platinum Advisors in 2013, Mr. Cook has served as an officer of a number of Platinum’s portfolio companies, notably Vertiv Holdings Co (NYSE: VRT), a manufacturer of technology and data center infrastructure equipment. Prior to joining Platinum Advisors, Mr. Cook was with AlixPartners where he focused on the operational improvements and cost reduction opportunities during high urgency situations, often serving interim C-suite roles such as CEO and COO. Mr. Cook holds a Bachelor of Mechanical Engineering degree from the Georgia Institute of Technology and holds a Master of International Business Studies degree from the University of South Carolina. +Mr. Cook was selected to serve on our board of directors due to his experience related to private equity, transactional matters and operational performance on a global scale. +Committee(s): Nominating and Corporate Governance +Other Public Company Boards: +Current: +• None +Past 5 Years: +• None +Jakki Haussler +Class III Director +Ms. Haussler became a director in connection with the Company’s IPO in October 2024. She serves as the Non-Executive Chairman of Opus Capital Management LLC, an investment advisory firm she co-founded in 1996 and where she served as Chief Executive Officer from 1996 to 2019. She also served as managing director of Capvest Venture Fund LP from 2000 to 2011 and as a partner at Adena Ventures LP from 1999 to 2010. Ms. Haussler, a former certified public accountant (CPA), holds a Bachelor of Business Administration degree in Accounting from the University of Cincinnati and a Juris Doctor degree from the Salmon P. Chase College of Law at Northern Kentucky University. +Ms. Haussler was selected to serve on our board of directors due to her experience on several public company boards and her expertise in finance, accounting, portfolio management and business development. +Committee(s): Nominating and Corporate Governance +Other Public Company Boards: +Current: +• Service Corporation International +• Vertiv Holdings Co. +• Morgan Stanley Funds +Past 5 Years: +• Barnes Group Inc. (until 2025) +• Cincinnati Bell (until 2021) +119 +Leslie Heisz +Class I Director +Ms. Heisz became a director in connection with the Company’s IPO in October 2024. She served as managing director of Lazard Frères, a financial advisory firm and independent investment bank, from 2004 until her retirement in 2010, providing strategic financial advisory services for clients in a variety of industries. An experienced investment banking and corporate finance executive, Ms. Heisz previously held positions with Dresdner Kleinwort Wasserstein, Solomon Brothers, and PricewaterhouseCoopers. Ms. Heisz holds a Bachelor of Science degree in Economics-Systems Science from UCLA and a Master of Business Administration degree from the UCLA Anderson School of Management. +Ms. Heisz was selected to serve on our board of directors due to her extensive experience as a public company director and audit committee member, her in-depth knowledge of capital markets, and her expertise in enterprise risk management, mergers and acquisitions, and numerous other finance and governance matters. +Committee(s): Audit; Compensation +Other Public Company Boards: +Current: +• Edwards Lifesciences Corporation +• Capital Group Funds +Past 5 Years: +• Public Storage (until 2024) +Bryan Kelln +Class II Director +Mr. Kelln became a director in connection with the Company’s IPO in October 2024. He joined Platinum Advisors in 2008 and is a Partner and President of Portfolio Operations at the firm and is a member of the firm’s Investment Committee. Mr. Kelln is responsible for all aspects of business strategy and operations at the firm’s portfolio companies and is involved in evaluating buy- and sell-side opportunities across the firm. Mr. Kelln works closely with the firm’s operations team as well as portfolio company executive management to drive strategic initiatives and to deploy operational resources. Prior to joining Platinum Advisors, Mr. Kelln was Senior Vice President and Chief Operating Officer at Nortek, Inc. Previously Mr. Kelln was a senior executive at Jacuzzi Brands, Inc. where he served as President of Jacuzzi, Inc. and an Operating Executive with the Jordan Company, a private investment firm where he was involved in acquisitions, divestitures and operations for the firm and served as a board member of portfolio companies. Additionally, Mr. Kelln has also served as President and CEO of RockShox, Inc., Senior Vice President at General Cable Corporation and as a Partner in the Supply Chain Management Practice of Mercer Management Consulting. Mr. Kelln holds a Bachelor’s degree from Washington State University and a Master of Business Administration from The Ohio State University, Fisher College of Business. +Mr. Kelln was selected to serve on our board of directors due to his experience related to private equity, transactional matters and post-acquisition monitoring and oversight of operational performance at portfolio companies. +Committee(s): Compensation +Other Public Company Boards: +Current: +• None +Past 5 Years: +• Custom Truck One Source (until 2023) +• Verra Mobility (until 2021) +• Key Energy (until 2020) +120 +Jacob Kotzubei +Class III Director +Mr. Kotzubei became a director in connection with the Company’s IPO in October 2024. He joined Platinum Advisors in 2002 and is a Partner and co-President at the firm. Prior to joining Platinum Advisors in 2002, Mr. Kotzubei was a Vice President of the Goldman Sachs Investment Banking Division – High Tech Group in New York City, and the head of the East Coast Semiconductor Group. Previously, he was an attorney at Sullivan & Cromwell LLP in New York City, specializing in mergers and acquisitions. Mr. Kotzubei received a Bachelor of Arts degree from Wesleyan University and holds a Juris Doctor from Columbia University School of Law. +Mr. Kotzubei was selected to serve on our board of directors due to his experience in executive management oversight, private equity, capital markets, mergers and acquisitions and other transactional matters. +Committee(s): Compensation (Chair) +Other Public Company Boards: +Current: +• Ryerson Holding Corporation +• Vertiv Holdings Co. +Past 5 Years: +• Key Energy (until 2022) +• Verra Mobility (until 2021) +• KEMET (until 2020) +Matthew Louie +Class III Director +Mr. Louie became a director in connection with the Company’s IPO in October 2024. He joined Platinum Advisors in 2008. Mr. Louie is a Managing Director at the firm and is responsible for the structuring and execution of acquisition and divestiture transactions. Prior to joining Platinum Advisors in 2008, Mr. Louie was an investment professional at American Capital Strategies, a middle-market focused private equity firm. Prior to American Capital, Mr. Louie worked in venture capital and growth equity at both Canaan Partners and Agilent Technologies, and in investment banking at Donaldson, Lufkin & Jenrette. Mr. Louie holds undergraduate degrees in both Economics and Political Science from Stanford University. He also holds a Master’s degree in Business Administration from Harvard Business School. Mr. Louie serves as a manager of a number of Platinum’s portfolio companies. +Mr. Louie was selected to serve on our board of directors due to his experience related to private equity, capital markets, transactional matters and post-acquisition monitoring and oversight of operational performance at portfolio companies. +Committee(s): Nominating and Corporate Governance (Chair) +Other Public Company Boards: +Current: +• Vertiv Holdings Co. +Past 5 Years: +• None +Mary Ann Sigler +Class II Director +Ms. Sigler has served as a director of Ingram Micro since the acquisition of the company by Platinum in July of 2021. Ms. Sigler is Executive Vice President, Chief Financial Officer and Treasurer of Platinum Advisors. She joined Platinum Advisors in 2004 and is responsible for overall accounting, tax and financial reporting, as well as managing strategic planning projects for the firm. Prior to joining Platinum Advisors, Ms. Sigler was with Ernst & Young LLP for 25 years where she was a partner. Ms. Sigler holds a Bachelor of Arts degree in Accounting from California State University at Fullerton and a Master’s degree in Business Taxation from the University of Southern California. Ms. Sigler is a Certified Public Accountant in California, as well as a member of the American Institute of Certified Public Accountants and the California Society of Certified Public Accountants. +Ms. Sigler was selected to serve on our board of directors due to her extensive and significant business, financial and investment experience and prior involvement with Platinum’s investment in Ingram Micro. +Committee(s): Compensation +Other Public Company Boards: +Current: +• None +Past 5 Years: +• Ryerson Holding Corporation (until 2024) +121 +Sharon Wienbar +Class II Director +Ms. Wienbar became a director in connection with the Company’s IPO in October 2024. She served as a partner of Scale Venture Partners, a venture capital firm investing in early-stage technology companies, from 2001 until her retirement in 2018. She also served as Chief Executive Officer of Hackbright Academy, a leading software development program for women, from 2015 until its acquisition in 2016. Ms. Wienbar holds Bachelor of Science and Master of Science degrees in Engineering from Harvard University, as well as a Master of Business Administration degree from Stanford University. +Ms. Wienbar was selected to serve on our board of directors due to her service as a director for multiple public companies and her vast experience investing in technology companies and advising them on corporate strategy. +Committee(s): Audit; Compensation +Other Public Company Boards: +Current: +• Enovis Corporation +• Resideo Technologies, Inc. +Past 5 Years: +• Covetrus (until 2022) +Eric Worley +Class II Director +Mr. Worley became a director in connection with the Company’s IPO in October 2024. He joined Platinum Advisors in 2001. Mr. Worley is currently a Managing Director at the firm and is responsible for financial due diligence and supporting the structuring and execution of acquisition and divestiture transactions. Post-acquisition, he also has responsibilities related to monitoring and oversight of financial performance at select portfolio companies. Since joining Platinum Advisors, Mr. Worley has served as an officer, director and member of the operating council for a number of Platinum’s privately held portfolio companies. Prior to joining Platinum Advisors, Mr. Worley was with Ernst & Young in its Transaction Support and Audit practices in Los Angeles and London. Mr. Worley holds a Bachelor’s Degree in Accounting from Michigan State University and is a former CPA in the State of California. +Mr. Worley was selected to serve on our board of directors due to his experience related to private equity, transactional matters and post-acquisition monitoring and oversight of financial performance on a global scale. +Committee(s): Nominating and Corporate Governance +Other Public Company Boards: +Current: +• None +Past 5 Years: +• None +Board Governance +Board of Director Meetings +Our board of directors held one meeting during Fiscal Year 2024 after the IPO. Each director serving during our Fiscal Year 2024 attended 100% of the meetings held by the board of directors and the committees on which they serve. The Company expects that each director will attend our Annual Meeting. +Director Independence +As a “controlled company” within the meaning of the NYSE’s governance standards, we qualify for, and rely on, exemptions from certain corporate governance requirements, including the requirement that a majority of our board of directors consist of “independent” directors. +Our board of directors has affirmatively determined that Felicia Alvaro, Jakki Haussler, Leslie Heisz and Sharon Wienbar do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the applicable rules and regulations of the SEC and the listing standards of the NYSE. In making these determinations, our board of directors considered the current and prior relationships that each such director has with our Company, Platinum and all other facts and circumstances our board of directors deemed relevant in determining their independence. +Board Leadership Structure +Our amended and restated bylaws and corporate governance guidelines provide our board of directors with the authority to separate or combine the positions of the Chairperson and Chief Executive Officer. At this time, the board of directors has determined that it is in the best interests of the Company and its stockholders to separate the roles, with Alain Monié serving as Non-Executive Chairperson and Paul Bay serving as Chief Executive Officer. +122 +Additional Board Service +Serving on the board of directors requires significant time and attention. Directors are expected to ensure that their other commitments do not materially interfere with their duties to the Company. Except as otherwise approved by the board of directors: +• a director serving on the Company’s board of directors may not serve on the boards of more than five public companies (including the Company); +• an executive officer serving as a director on the Company’s board of directors may not serve on the boards of more than two public companies (including the Company); and +• a member of the Audit Committee may not serve on the audit committees of the boards of more than three public companies (including the Company). +Committees of the Board of Directors +The board of directors has established three standing committees: an audit committee, compensation committee, and nominating and corporate governance committee. Additionally, the board of directors may form temporary committees as needed to address specific issues that arise between regular meetings or matters that do not fall under the purview of the standing committees. +Our Audit Committee meets the independence requirements set forth under NYSE listing standards. Platinum holds more than a majority of the voting power of our outstanding Common Stock entitled to vote generally in the election of our directors. As a result, we are a “controlled company” under the NYSE’s listing standards, and we qualify for, and rely on, exemptions from certain corporate governance requirements, including the requirements that our Compensation Committee and Nominating and Corporate Governance Committee be composed entirely of independent directors. +Each of the standing committees operates under a charter approved by the board of directors, copies of which can be found under the “Governance Documents” sub-link on our investor relations website, https://ir.ingrammicro.com/. +Audit Committee +The primary purpose of the Audit Committee is to prepare the committee report required by the rules of the SEC and to assist the board of directors with its oversight of the Company’s risk management policies and procedures, the audits and integrity of the Company’s financial statements, the effectiveness of the Company’s internal controls over financial reporting, the Company’s compliance with legal and regulatory requirements, the qualifications, performance, and independence of the Company’s Independent Auditor (as defined below), and the performance of the Company’s internal audit function. +The Audit Committee consists of the following individuals, each of whom the board of directors has determined is “independent” within the meaning of the NYSE listing rules: Felicia Alvaro (Chair), Leslie Heisz, and Sharon Wienbar. The board of directors has further determined that each of Felicia Alvaro and Leslie Heisz of the Audit Committee qualifies as an “audit committee financial expert” as such term is defined in Item 407(d)(5) of Regulation S-K. Furthermore, each Audit Committee member is financially literate, as such qualification is interpreted by the board of directors in its business judgment. +The Audit Committee met two times during Fiscal Year 2024 after the IPO. +Compensation Committee +The primary purposes of the Compensation Committee are to review and approve corporate goals and objectives relevant to the compensation of the CEO and the other senior executives of the Company, to evaluate the performance of the CEO and the other senior executives in light of such goals and objectives, to determine and approve the compensation of the CEO and the other senior executives, to make recommendations to the full board of directors with respect to incentive-based and equity-based compensation plans that are subject to board of directors approval, to prepare the disclosure required by the rules of the SEC, to review and report to the board of directors on the Company’s key strategic and human resource management issues, and to oversee the Company’s overall compensation structure, policies, and programs. +The Compensation Committee consists of the following members: Jacob Kotzubei (Chair), Leslie Heisz, Bryan Kelln, Mary Ann Sigler, and Sharon Wienbar. According to the exemptions for a “controlled company” set by the NYSE, the Compensation Committee is not required to consist solely of independent directors. +123 +The Compensation Committee met one time during the Fiscal Year 2024 after the IPO. +Nominating and Corporate Governance Committee +The primary purposes of the Nominating and Corporate Governance Committee are to review and make recommendations to the full board of directors regarding the structure and composition of the board of directors and its committees, including identifying qualified director nominees consistent with criteria approved by the board of directors, to develop and recommend to the full board of directors corporate governance guidelines applicable to the Company, and to oversee the evaluation of the board of directors, its committees, and the Company’s management team. +The Nominating and Corporate Governance Committee consists of the following members: Matthew Louie (Chair), Christian Cook, Jakki Haussler, and Eric Worley. According to the exemptions for a “controlled company” set by the NYSE, the Nominating and Corporate Governance Committee is not required to consist solely of independent directors. +The Nominating and Corporate Governance Committee met one time during the Fiscal Year 2024 after the IPO. +Director Nomination Procedures +The Nominating and Corporate Governance Committee is responsible for reviewing the board of directors composition and ensuring that the board of directors is comprised of individuals who have distinguished records of leadership and success in their area of activity and who will make substantial contributions to the board of directors. In making this assessment, the Nominating and Corporate Governance Committee considers a variety of skills and characteristics of board of directors candidates including, but not limited to, relevant industry experiences, general business experience, and relevant financial experiences. +Specific consideration is given to: +• Roles and contributions valuable to the business community; +• Personal qualities of leadership, character, and judgement, and reputation in the community at large of integrity, trust, respect, competence and adherence to the highest ethical standards; +• Relevant knowledge and experience in such things as business, technology, finance and accounting, marketing, international business, government, and other disciplines relevant to the success of a large publicly traded company; +• Ability to contribute to the diversity of skills, viewpoints, experiences, backgrounds, and demographic characteristics; and +• Whether the candidate is free of conflicts and has the time required for preparation, participation and attendance at all meetings. +Stockholder Nominees for Directors +Stockholders may recommend a director nominee to the Nominating and Corporate Governance Committee for election at the 2025 Annual Meeting. +Stockholders may nominate director candidates in writing by following the notice procedures and providing the information required by our amended and restated bylaws, which includes delivering a notice to the Secretary of the Company at 3351 Michelson Drive, Suite 100 Irvine, CA, not earlier than the close of business on the 120th day prior to the first anniversary of the date of the preceding year’s annual meeting of stockholders nor later than the close of business on the 90th day prior to the first anniversary of the date of the preceding year’s annual meeting of stockholders (which date shall, for purposes of the Company’s first annual meeting of stockholders, be deemed to have occurred on June 12, 2024). If the date of the annual meeting is more than 30 days before or more than 70 days after such anniversary date, or if no annual meeting was held in the preceding year (other than for purposes of the Company’s first annual meeting) such stockholder’s notice to be timely must be so delivered not earlier than the close of business on the 120th day prior to the date of such annual meeting and not later than the close of business on the later of (i) the 10th day following the day the public announcement of the annual meeting is first made or (ii) the 90th day prior to the date of the annual meeting. +Such notice shall include the information required by our amended and restated bylaws as well as the following information for each nominee: +• Name, age, business address and residence address; +• Principal occupation or employment (present and for the past five years); +124 +• Stock ownership information for such person and any member of the immediate family of such person, or any affiliate or associate of such person; +• Complete and accurate description of all direct and indirect compensation and other material monetary agreements, arrangements, and understandings between or among the nominating stockholders and each proposed nominee; and +• Any other information that must be disclosed about director nominees in proxy solicitations under Regulation 14A of the Exchange Act. +The Nominating and Corporate Governance Committee will evaluate each director nominee in accordance with the same processes regardless of the source of the nomination and if appropriate, make recommendations to the board of the director nominees for selection. +Insider Trading Policy +With respect to Item 408(b) of Regulation S-K, the Company has also adopted an insider trading policy governing the purchase, sale and other dispositions of Company or third-party securities by the directors, officers and employees of the Company while in possession of material non-public information relating to the Company. It is the policy of the Company that the Company will not engage in transactions in the Company’s securities while aware of material nonpublic information relating to the Company or the Company’s securities. The Company believes that its insider trading policy is reasonably designed to promote compliance with insider trading laws, rules and regulations and any listing standards applicable to the Company. A copy of the Company’s insider trading policy is filed as Exhibit 19.1 to this Form 10-K. +Code of Ethics +With respect to Item 406 of Regulation S-K, we have adopted a Code of Conduct (“Code of Conduct”) that applies to all of our directors, officers and team members, including our CEO and chief financial and accounting officer, and a Code of Ethics for Principal Financial Officers that applies to our CEO, chief financial officer, chief accounting officer, controller, treasurer, and other individuals performing similar functions (“PFO Code of Conduct”). Our Code of Conduct and PFO Code of Conduct are each available on our website, and they constitute a “code of ethics” as defined in Item 406(b) of Regulation S-K. We will make any legally required disclosures regarding amendments to, or waivers of, provisions thereof on our website. +125 +Item 11. Executive Compensation +Compensation Discussion and Analysis +This Compensation Discussion and Analysis reviews the compensation provided to our Chief Executive Officer, our Chief Financial Officer and our three other most highly compensated officers who served as executive officers during Fiscal Year 2024 (collectively, the named executive officers, or “NEOs”), as determined under the rules of the SEC and set forth in the Summary Compensation Table. +Our NEOs for Fiscal Year 2024 were: +Executive Officer +Position as of December 28, 2024 +Paul Bay Chief Executive Officer (“CEO”) +Michael Zilis Chief Financial Officer (“CFO”) +Scott Sherman Executive Vice President, Human Resources (“EVP HR”) +Augusto Aragone Executive Vice President, Secretary & General Counsel +Alain Monié Former Executive Chairman (Retired on October 24, 2024) +Executive Summary +Decisions Regarding Material Elements of Compensation +Following our IPO in October 2024 and our concurrent establishment of a compensation committee (the “Compensation Committee”) of our board of directors, all decisions regarding compensation to be paid to the CEO and each of the other NEOs have been made, and will continue to be made, by the Compensation Committee. Prior to our IPO in October 2024, all determinations relating to the components and amounts of compensation paid to our CEO and Executive Chairman for Fiscal Year 2024 were approved by the board of directors, and all recommendations relating to the components and amounts of compensation paid to our other NEOs for Fiscal Year 2024 were made by the CEO and approved by the board of directors. +The following summarizes the decisions made in Fiscal Year 2024 regarding the material elements of 2024 compensation. +• Review of Base Salary . Salaries are reviewed annually by the CEO and EVP HR to ensure they are externally competitive, reflect individual performance, and are internally equitable relative to our other executives. Following the CEO’s and EVP HR’s discussion with the board of directors, and consideration of market conditions and other factors, no adjustments were made to base salary for any NEO in 2024. +• Establishing Challenging Targets to Differentiate Payments Under Our Annual Executive Incentive Program (“EIP”) . The EIP is a short-term incentive plan under which participants can earn annual cash payments based on annual company, business unit and/or functional performance, as well as individual performance. The Company’s 2024 non-GAAP EBITDAR performance, $1,300.8 million, was above the non-GAAP EBITDAR threshold, $1,198.5 million, and below the non-GAAP EBITDAR target, $1,410.0 million, which resulted in the funding of the pool for the Fiscal Year 2024 EIP (the “EIP Pool”) at 74.19%. The EIP Pool was further distributed to plan participants, including each participating NEO, individually taking into consideration their contribution to the strategic plan, as well as achievement of annual goals and individual performance considerations. The individual payments to our CEO and the other NEOs (other than Mr. Monié who was not eligible for the EIP with respect to Fiscal Year 2024) are discussed further below and were each approximately 76% of the respective NEO’s target annual EIP incentive (including the MBO portion). +• Equity Awards and Prior Participation Plan. At the time of our IPO, our NEOs were granted restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”) under our 2024 Stock Incentive Plan (the “2024 Plan”). Prior to our adoption of the 2024 Plan, the Ingram Micro Holding Corporation (formerly Imola Holding Corporation) 2021 Participation Plan (the “Participation Plan”) was the long-term incentive program used to incentivize key associates, including our NEOs (other than Mr. Monié), from 2021 until the IPO in October 2024. Prior to the IPO, the Participation Plan was terminated by the board of directors, and our NEOs were granted the RSUs and PSUs. The granted PSUs have the same performance vesting conditions as the performance-vested units under the terminated Participation Plan. +• Transition Agreement with Mr. Monié . In connection with his transition from CEO to Executive Chairman as of January 1, 2022, and his subsequent retirement as of October 24, 2024, Mr. Monié received an RSU grant worth $2 million that immediately vested at the time of the IPO. A summary of his transition agreement, which was amended three times since it was first entered into on October 2, 2021, is included in “ Mr. Monié Transition Agreement ” found later in this “ Compensation Discussion and Analysis .” +126 +Focus on Long-Term Value Creation +At executive management levels, compensation focuses on long-term shareholder value creation, reflecting our NEOs’ responsibility for setting and achieving long-term strategic goals. In support of this responsibility, compensation is heavily weighted toward variable compensation with a focus on long-term incentives. The units granted under our Participation Plan in July 2021 represented a significant portion of long-term compensation payable to our NEOs (other than Mr. Monié) upon achieving certain performance requirements. At the time of the IPO, such performance requirements under the Participation Plan had not been satisfied, and the Participation Plan was canceled, contingent upon the completion of the IPO. The RSUs and PSUs granted under the 2024 Plan in connection with the IPO are subject to, with respect to the RSUs, multi-year vesting conditions and, with respect to the PSUs, the achievement of certain financial targets to align our NEOs’ interests with those of Platinum. A portion of the RSUs granted to our NEOs vested immediately upon the IPO in recognition of our NEOs’ efforts in completing the IPO, a significant milestone for the Company. +Pay-for-Performance and CEO Compensation +We emphasize pay-for-performance with performance-based compensation, including annual EIP awards, PSUs granted under the 2024 Plan, and the prior 2021 Participation Plan awards. At the time Fiscal Year 2024 compensation decisions were made in early 2024, the Participation Plan had been in place for three years and progress had been made toward achieving the requisite performance thresholds. Because no new long-term incentive compensation awards were granted, performance-based compensation for Fiscal Year 2024 was intended to be limited to the EIP, which constituted 71% of our CEO’s total target annual cash compensation and 46% to 55% of each of our other NEO’s total target annual cash compensation for 2024, excluding Mr. Monié who was not eligible to participate in the EIP in 2024. In connection with the IPO, later in the year, the RSU and PSU grants were made to the NEOs, excluding Mr. Monié, after the Participation Plan and the awards thereunder had been canceled. +Focus on Best Practices +Our leadership team and board of directors, and our board of directors and Compensation Committee following our IPO, periodically examine our executive compensation practices in an effort to align them with best practices and evolving trends. For example (and as described further below): +• We maintain clawback policies that provide for the repayment of incentive and/or severance compensation in appropriate circumstances, including a clawback policy as required by the final Dodd-Frank Rules and the applicable SEC and NYSE exchange listing requirements; +• Awards under our short-term and long-term incentive plans are capped to limit “windfalls”; +• None of the NEOs has an employment agreement; however, Mr. Monié was party to a transition agreement as further discussed in “ Mr. Monié Transition Agreement ” below; +• Benefits and perquisites are generally not provided to NEOs beyond the level provided to all other levels of management; +• The CIC Plan (as defined below) does not automatically accelerate vesting, requires a “double trigger” before benefits are paid, and does not have any provision for tax gross ups; +• The board of directors (and/or the Compensation Committee, as applicable) has retained and will consult with its independent outside compensation consultants on a regular basis and has sole discretion to engage or terminate its compensation consultants and other advisors; +• NEOs are subject to significant stock ownership guidelines; +• The Company’s insider trading policy prohibits its associates (including our executive officers and directors) from using Company stock in hedging transactions, engaging in short sales of Company securities, holding Company securities in a margin account, or having Company securities pledged as collateral for a loan; and +• Repricing of options is not permitted without the consent of stockholders. +127 +Overall Design and Rewards of the Executive Compensation Program +Design Elements +The broad objectives and key features of each element of the 2024 executive compensation program were as follows: +Compensation Element Objectives Key Features +Base Salary Links performance and pay by providing competitive levels of base salary for each NEO based on the NEO’s role and responsibilities. Used to attract and retain executive talent in a very competitive marketplace. +Reflects: +• Peer market median range for positions with similar responsibilities and business size, and +• An NEO’s responsibilities and performance, as demonstrated over time. +Salaries are reviewed annually to ensure they are externally competitive, reflect individual performance and are internally equitable relative to our other executives. +Annual Executive Incentive Program (“EIP”), including the Strategic Objectives thereunder +Provides incentives to focus our NEOs on the actions necessary to achieve the approved annual business plan. +Identifies what is expected for the year from the standpoint of corporate, business unit, regional and country results. Additionally, specific individual objectives and other strategic management-by-objective (“MBO”) goals provide focus on strategic projects that often deliver positive results over future years. +Links reward to accomplishment of goals within executives’ control and encourages both profitable growth and operating efficiency. +Establishes incentive targets as a percentage of each NEO’s base salary that approximate the median market practice of comparable positions at comparator peer group companies. Each participating NEO has an individual MBO target that is 20% of the NEO’s EIP target. Achievement against the MBO component is capped at 100% of the MBO target. +EIP payouts depend on meeting certain performance targets and specified strategic objectives over the course of a one-year performance period. Achievement against the EIP target is capped at 200% of the EIP target. +Performance targets and results vary among our NEOs to reflect appropriate differences in their responsibilities, as well as their individual performance. +Equity-Based Long-Term Incentive Award Program +Performance metrics align the performance goals of our NEOs with those of our stockholders to increase value. +Rewards stock price appreciation and ties wealth accumulation to performance. +RSU and PSU grants upon the IPO were made in part to reward our NEOs for consummation of the IPO and to further incentivize shareholder value creation. +Participation Plan +Tie NEO long-term incentive compensation solely to Platinum’s achievement of certain multiples of invested capital. +The Participation Plan and all awards under the plan were terminated prior to the IPO. +No grants were made under this program to any NEO since the initial awards in 2021. This was a long-term incentive program using time-vested and performance-based units, with performance-vested awards subject to achievement of shareholder profit and multiple of invested capital gains. +Benefits and Perquisites Provide market competitive benefits to all associates, with limited special perquisites to NEOs. NEOs participate in our broad-based health and welfare, life insurance, disability and retirement programs for management associates. We provide officers and other executive leadership in the U.S. (including our NEOs) with executive physical examinations. +128 +Design Principles +We believe a significant portion of NEO compensation should be at risk and subject to our financial performance. The only non- performance-based elements of our NEO compensation are base salaries, our employee benefit programs that are generally available to all management associates, and the RSUs that were awarded in connection with the IPO, a significant milestone for the Company. The remainder of compensation must be earned through the attainment of predetermined financial or strategic performance objectives. Compensation programs are designed to align the financial interests of our NEOs with those of our owners by providing appropriate short-and long-term financial incentives that reward executives for achieving objectives that enhance shareholder value. Our key design principles include: +1. Target executive compensation with reference to the market median (50th percentile) for each element of pay and in total to be competitive with other employment opportunities . +• A competitive compensation program is critical in attracting, retaining, and motivating our senior leadership in order to achieve our long-term business and financial objectives. +• In late 2023, our board of directors engaged Compensia, an outside executive compensation consultant, to review the comparator peer group they had previously assisted us in selecting and to confirm whether any modifications were necessary or advisable for Fiscal Year 2024. The peer group consisted of the following group of 17 publicly traded companies, with one company, GXO Logistics, being removed from the prior peer group due to the Company’s divestiture of the business that had competed with GXO Logistics. +Technology Distributors Other Distributors Broader Tech Ecosystem +• Arrow Electronics, Inc. +• Avnet, Inc. +• CDW +• Insight Enterprises, Inc. +• TD Synnex Corporation +• Archer-Daniels-Midland +• Bunge +• Cardinal Health +• Cencora, Inc. +• McKesson Corporation +• Performance Food Group +• Sysco +• United Natural Foods +• W.W. Grainger, Inc. +• WESCO International, Inc. +• Best Buy +• DXC Tech +• Compensia was also engaged in late 2023 to benchmark NEO compensation against SEC filings of the peer group and the Radford Global Compensation Database including public and private U.S. companies with annual revenues between $12.5 billion and $50 billion. +• The management analysis and compensation report prepared by Compensia examined the competitiveness of our executive compensation programs in total and by each element of compensation (base salary, annual incentives and long-term incentives). In doing so, the value of each NEO’s compensation elements was compared to median information available from the survey sources and defined comparator group. Benefits and perquisites were not included in the 2023 report as they represent a small portion of our NEOs’ total remuneration. +2. Importance of Internal Pay Equity. Balancing competitiveness with internal equity helps support management development and movement of talent worldwide throughout the Company. Differences in actual compensation among associates in similar positions will reflect individual performance, future potential and business results. This effort also helps us promote talented leaders to positions with increased responsibilities and provides meaningful developmental opportunities. +3. Pay-for-Performance. We emphasize pay-for-performance, as indicated above under “Focus on Long-Term Value Creation.” With the introduction of the Participation Plan awards in 2021, we ceased granting new awards to the NEOs under the then-existing cash-based long-term incentive programs. At the time Fiscal Year 2024 compensation decisions were made, new performance-based compensation awards were limited to the EIP for Fiscal Year 2024 and constituted 71% of our CEO’s total target annual cash compensation and 46% to 55% of each of our other NEO’s 2024 total target annual cash compensation, excluding Mr. Monié who was not eligible for the EIP for Fiscal Year 2024. This performance-based compensation did not include the potential value of units granted under the terminated Participation Plan in 2021 or the RSUs and PSUs granted to our NEOs in connection with the IPO. The valuation of the RSUs and PSUs granted in connection with the IPO in October 2024 is explained in further detail later in this “ Compensation Discussion and Analysis .” +129 +What is Rewarded +Executive compensation is designed to reward achievement of targeted financial results and individual performance. Our performance metrics are generally based on financial results, excluding restructuring charges, integration and transition costs directly related to acquisitions and implementation of cost-reduction programs and the impacts of any unplanned acquisitions. These metrics are regularly used by our management internally to understand, manage and evaluate our business and make operating decisions. The following table defines each performance metric used in 2024 as an executive incentive measure and states why the metric was selected and the compensation programs which use that metric. The Compensation Committee will identify, review, and approve the financial metrics to be used in the future for each of our performance-based components of compensation. +Metric Definition Why Selected Pay Programs +Non-GAAP EBITDAR +Non-GAAP foreign exchange neutral (FXN) earnings before interest, taxes, depreciation, amortization and restructuring or other similar costs as defined by management and approved by the board of directors. +Performance metrics align the long-term goals of our executives with those of our owners to increase value. Annual Executive Incentive Program +Multiple of Invested Capital (“MOIC”) MOIC measures the total of the return on invested capital achieved by Platinum relative to the total of all capital or other contributions made by Platinum upon a “Qualifying Event”. Ties NEO long-term incentive compensation to the achievement of certain returns for Platinum, incentivizing shareholder value creation. +PSUs under the 2024 Plan +Terminated Participation Plan Awards +Individual performance is assessed via the Performance Management Process (“PMP”) PMP is designed to establish specific objectives for associates related to overall company goals and help them understand their role in meeting these objectives. Objectives are established for specific initiatives, major responsibilities key to their position, critical competencies and individual developmental requirements. PMP is an effective tool in assessing performance against individual goals. Once our objectives are established, salaried associates (including NEOs) set individual objectives aligned with our strategic direction. At year end, salaried associate performance is assessed against established goals and executive competencies and behaviors. +Base Salary +Annual Executive Incentive Program +Exclusion of any items from the calculation of any of these measures must be preapproved by the board of directors. +Elements of Compensation +The elements of NEO compensation (other than with respect to Mr. Monié) are annual base salary, annual bonus, equity-based long-term incentive awards (granted in connection with the IPO), Participation Plan grants (granted in 2021 and canceled prior to the IPO), and benefits. The mix and proportion of these elements to total compensation are benchmarked annually against the survey and peer group data for each NEO. The CEO, following consultation with outside executive compensation advisors and with approval from the board of directors, may make changes to the mix or relative weighting of each compensation element after taking into consideration the impact a change in one element may have on other elements and total compensation. A summary of each element of compensation and how the amount and formula are determined is presented below. +130 +Base Salary +Each NEO’s salary is reviewed on an annual basis to ensure that the base salaries of our NEOs are externally competitive, reflect individual performance and are internally equitable relative to our other executives. The Compensation Committee is expected to request, and prior to the IPO, the board of directors requested, that the Company engage an outside compensation consultant to review all components of pay for the NEOs each year and to compare each NEO’s pay to the pay of similar roles at our peer group companies. The CEO and EVP HR, along with the outside compensation consultant, review the report with the Compensation Committee (and prior to the IPO reviewed the report with the board of directors) along with each NEO’s scope of responsibilities within the organization, the CEO’s personal assessment of the NEO’s performance and overall contribution to the achievement of our short-term and long-term objectives, the NEO’s performance in relation to individual performance objectives established during the PMP, the NEO’s experience, pay history, current salary versus market information, internal equity considerations and our overall company performance in making any decisions or recommendations, as applicable, regarding any changes to base salaries of the NEOs. There is no set formula or weighting assigned to these factors. In March 2024, the board of directors reviewed compensation market data provided by Compensia, the current economic conditions, the Company’s financial performance, and individual performance in order to evaluate any appropriate base salary changes for the NEOs as well as other direct reports to the CEO. Based on the CEO’s recommendation, the board of directors decided to delay changes to components of compensation for the CEO as well as other NEOs until market conditions improved. No changes to NEO base salaries were subsequently made by the board of directors for Fiscal Year 2024. +Our CEO’s salary is determined by the board of directors based on a review of his overall performance, market data on competitive compensation levels for CEOs prepared by our outside compensation consultant, proxy information for direct competitors, as well as our overall performance. Like with our other NEOs, there is no set formula or weighting assigned to these factors. The board of directors approved no change to our CEO’s base salary in 2024. +The following chart shows the base salaries for 2024. +Name 2023 Base Salary +(as of 12/30/23) ($) 2024 Base Salary +(as of 12/28/24) ($) +Paul Bay +918,000 918,000 +Michael Zilis +830,180 830,180 +Scott Sherman +618,000 618,000 +Augusto Aragone +618,000 618,000 +Alain Monié (1) +200,000 — +(1) On December 30, 2023, Mr. Monié’s annual base salary was reduced to $200,000 under the terms of the “ Third Amended and Restated Monié Transition Agreement ,” as described under “ Mr. Monié Transition Agreement ” below. His annual base salary remained at this level until his retirement on October 24, 2024. +2024 Annual Executive Incentive Program (EIP) +We set financial performance targets under the EIP each year with the primary objective of aligning executive compensation with total company performance. For 2024, each NEO (other than Mr. Monié) had a cash incentive target, as a percentage of base salary, that was approved by the board of directors, as set forth in the table below. The percentage approximates the median market practice of comparable positions based on the data from our comparator peer group (see “Design Principles” above). +Target EIP as % of +Annual Base Salary +Target MBO as % of +Annual Base Salary +Total +Target Annual Incentive as % of +Annual Base Salary +2024 2024 2024 +Paul Bay +200% 40% 240% +Michael Zilis +100% 20% 120% +Scott Sherman +70% 14% 84% +Augusto Aragone +70% 14% 84% +Alain Monié (1) +—% —% —% +(1) In connection with his appointment to Executive Chairman on January 1, 2022, Mr. Monié agreed that he would no longer be eligible for the EIP or MBO program. +131 +The CEO, in consultation with the CFO, recommended to the board of directors that non-GAAP EBITDAR be utilized to determine the level of funding of the EIP Pool for Fiscal Year 2024 under the EIP. The board of directors approved the selected metric and the specific non-GAAP EBITDAR values to fund the EIP Pool at threshold, target and maximum (with straight line interpolation for performance between threshold and target, and between target and maximum performance) as shown below. Awards to our CEO, other NEOs, and other EIP-eligible executives would be paid from the EIP Pool only upon achievement of actual non-GAAP EBITDAR equal to at least 85% of the expected non-GAAP EBITDAR set forth in the Fiscal Year 2024 annual operating plan (the “2024 AOP”), with threshold funding at 50% of target upon achievement of such threshold non-GAAP EBITDAR performance. The EIP Pool would fund at target if the company were to achieve the target non-GAAP EBITDAR of $1,410.0 million set forth in the 2024 AOP. Maximum funding of the EIP Pool (at 200%) would be achieved if actual non-GAAP EBITDAR were to exceed the 2024 AOP’s non-GAAP EBITDAR target by 25%. +The MBO component of the annual incentive was capped at the target percentage and the subjective achievement between 0% and 100% was based on individual performance against pre-established personal objectives and the CEO’s discretion for the NEOs other than for himself, and discretion of the Compensation Committee for the CEO. The actual non-GAAP EBITDAR for Fiscal Year 2024 was $1,300.8 million, which resulted in 74.19% funding of the EIP Pool for the EIP in 2024. +2024 Achievement Against Established Financial Targets +Funding Percentage (1) +Operating Objective Minimum +(50% funding) Target +(100% funding) Maximum +(200%) funding Actual +(74.19%) funding +Non-GAAP EBITDAR +(in millions) +$  1,198.5 +$   1,410.0 +$   1,762.5 +$ 1,300.8 +(1) Performance achievement between the specified levels was interpolated on a straight-line basis; provided that the funding percentage was zero if actual performance was below 85% of target and was capped at 200% if actual performance was equal to or greater than 125% of target. +The CEO reviewed additional financial performance against pre-established factors (although none are assessed on a formulaic basis), such as completion of the IPO, as well as the NEO’s individual performance against pre-established personal objectives, that were subjective in nature, to determine each NEO’s share of the established EIP Pool. Individual payments are capped at 200% of their target incentive and may be zero in the event that threshold performance objectives are not achieved. +The Compensation Committee reviewed and approved the CEO’s individual performance against pre-established objectives to determine his share of the EIP Pool. Following the CEO’s recommendation, the Compensation Committee also approved award payments for each of the other NEOs, other than Mr. Monié. Although the global EIP Pool was funded at 74.19% of the target amount, following the recommendation of the CEO, CFO, and EVP HR, the Compensation Committee reduced the actual target payout to NEOs to 72% to allow for a greater allocation of the global pool to certain geographic regions. The applicable awards approved under the EIP for Fiscal Year 2024 are as follows: +Target EIP + MBO Award ($) +EIP Achievement % +Individual MBO Achievement (0-100%) +Actual EIP + MBO Award ($) +Paul Bay (1) +2,203,200 +72% 95% 1,670,760 +Michael Zilis (2) +996,216 +72% 96% 757,125 +Scott Sherman (2) +519,120 +72% 96% 394,532 +Augusto Aragone (2) +519,120 +72% 96% 394,532 +(1) Mr. Bay’s EIP payment for Fiscal Year 2024 took into consideration our overall financial performance, the significant contributions to our growth including the completion of the IPO, and his execution on the following strategic objectives: the launch and development of Xvantage in key countries, the integration of multiple channel sales organizations into a single unified channel team in each market, and other organizational improvement initiatives. +(2) The EIP payments for Fiscal Year 2024 to Mr. Zilis, Mr. Sherman, and Mr. Aragone took into consideration our overall financial performance, each such officer’s significant contributions to our performance including the completion of the IPO, support of channel integration, Xvantage development, and other organizational improvement initiatives. +132 +RSU and PSU Grants Under the 2024 Stock Incentive Plan +In connection with the IPO, the board of directors adopted, and our stockholders approved, the 2024 Plan. The purpose of the 2024 Plan is to assist the Company in attracting, retaining, motivating, and rewarding certain employees, officers, and directors of the Company and its affiliates and promoting the creation of long-term value for stockholders of the Company by closely aligning the interests of such individuals with those of the stockholders. +In connection with the IPO, the board of directors made RSU and PSU awards to the NEOs under the 2024 Plan. These RSU and PSU awards were intended to incentivize the NEOs to achieve performance goals identical to those under which they would have received payouts under the Participation Plan, if it had not been canceled. +• RSUs : A grant of RSUs was made to each of the NEOs, with the exception of Mr. Monié, on October 23, 2024. A portion of the RSUs granted to our NEOs (approximately 60% of the total number of shares subject to the RSU award) vested on the first trading day of our common stock on the New York Stock Exchange and the remaining RSUs will vest over a three (3) year period subject to the executive’s continuous service with us, or, if earlier, upon a “qualifying event,” whereby the MOIC (as defined above, the return on invested capital achieved by Platinum as compared with the total of all capital or other contributions made by Platinum) is two and one-half times. +• PSUs : A grant of PSUs was made to each of the NEOs, with the exception of Mr. Monié, on October 23, 2024. One-half of the PSUs will vest upon a “qualifying event,” whereby the MOIC is two times, and the remaining one-half will vest upon a “qualifying event” whereby the MOIC is two and one-half times, in each case, except in certain circumstances as specified in the award agreement, subject to the executive’s continuous service with us through such qualifying event. For purposes of the PSUs and the applicable RSUs, a “qualifying event” means either: (1) a “Qualifying Sale Event,” which is generally defined as a sale of (a) some or all of the stock of the Company by Platinum, including in connection with an IPO (but excluding a sale of stock by the Company), or (b) all or substantially all of the assets of the Company, the proceeds of which sale are distributed to our stockholders (including Platinum) in a Qualifying Distribution Event (as defined below), and (2) a “Qualifying Distribution Event,” which is generally defined as a cash dividend to our stockholders. +• Timing of Grants : The Compensation Committee does not grant equity awards in anticipation of the release of material nonpublic information and the Company does not time the release of material nonpublic information based on equity award grant dates, vesting events, or sale events. Other than the RSUs and PSUs, no equity awards were granted to our NEOs during Fiscal Year 2024. Consequently, the Company does not have a policy or practice regarding the timing of stock option grants. +Separately, in accordance with his transition agreement, Mr. Monié received a grant of RSUs on October 23, 2024, as described in additional detail in the footnotes to the “ Summary Compensation Table ” and the “ Grants of Plan-Based Awards Table ” below. +One-Time Cash Award +In February 2025, the Compensation Committee approved the award of a one-time cash bonus to each of our executive officers in recognition of their efforts in fiscal year 2024 related to the successful completion of the IPO. The cash bonus will be effective as of March 3, 2025, and paid no later than April 2025, subject to each executive officer’s execution of an agreement that requires repayment of the bonus in the event of a voluntary termination of employment or termination by the Company for cause, on or prior to March 3, 2026, the one-year anniversary of the effective date of the award. The amounts of the bonuses are reflected in the “ Summary Compensation Table ” below. +Benefits +We do not use benefit programs or perquisites as a primary compensatory element or as an enhancement to executive officer compensation. In general, our executive officers participate in our broad-based health and welfare, life insurance, disability and retirement programs on the same basis as our management associates. In addition, in 2024, the costs associated with NEOs’ spouses’ travel and required attendance at certain business events were covered by the Company and disclosed where required in the Summary Compensation Table. +We offer participation in the Ingram Micro 401(k) Plan (the “401(k) Plan”) with Company matching contributions as the only qualified retirement program in the United States. In addition, we offer certain U.S. highly compensated associates, including each of the NEOs, an opportunity to participate on a voluntary basis in our Supplemental Investment Savings Plan (the “Supplemental Plan”), a nonqualified deferred compensation arrangement. In general, the Supplemental Plan operates to restore 401(k) Plan benefits, including Company matching contributions, which were reduced or limited by the Internal Revenue Code of 1986, as amended (the “Code”). Participants in both the 401(k) Plan and the Supplemental Plan may elect to defer a total of up to 50% of their base salary and annual bonus. In 2024, our matching contribution was equal to 50% of the first 5% of eligible compensation deferred under the 401(k) Plan and the Supplemental Plan. +133 +Mr. Monié Transition Agreement +In connection with the transition of Mr. Monié from CEO of Ingram Micro to Executive Chairman of Ingram Micro as of January 1, 2022, and his expected retirement following the completion of an initial public offering or certain similar transactions, Mr. Monié and Ingram Micro entered into a transition agreement which was thereafter amended and restated three times, as described below. +The agreement, entered into on October 2, 2021 (the “Original Monié Transition Agreement”), generally set forth the terms and conditions of his transition and retirement. The agreement was later amended three times, on June 24, 2022, June 30, 2023, and on December 20, 2023 (as most recently amended, the “Third Amended and Restated Monié Transition Agreement”). Under the terms of the Original Monié Transition Agreement, as subsequently amended and restated, while employed as Executive Chairman, Mr. Monié would continue to receive a base salary ($200,000 in 2024) and the same benefits as he received as CEO, provided that following his transition he (i) would no longer be eligible to receive any payments under our EIP and MBO programs or any other cash incentive programs of the Company in respect of any calendar year after 2021, and (ii) waived any rights under the CIC Plan (as defined below). The Third Amended and Restated Monié Transition Agreement provided that Mr. Monié’s expected retirement date would be December 31, 2024, or, if earlier, on the day after the grant date of a grant of vested shares of common stock of Ingram Micro, its parent entity or its successor having a value equal to approximately $2,000,000, in the event an initial public offering or similar transaction were to occur prior to Mr. Monié’s retirement date. +In accordance with the terms of the Third Amended and Restated Monié Transition Agreement, Mr. Monié retired as an executive officer and employee of the Company effective October 24, 2024, in connection with the IPO. Any payments made to Mr. Monié pursuant to the Original Monié Transition Agreement, the Amended and Restated Monié Transition Agreement, the Second Amended and Restated Monié Transition Agreement, and the Third Amended and Restated Monié Transition Agreement during Fiscal Year 2023 or Fiscal Year 2024 are included in the Summary Compensation Table for the applicable year. +Compensation Recovery Policies +In connection with the IPO, we adopted the Policy for the Recovery of Erroneously Award Compensation (the “Required Clawback Policy”), a policy intended to comply with the applicable SEC and NYSE rules relating to the recoupment of incentive compensation. The Required Clawback Policy describes the circumstances in which current and former executive officers of the Company will be required to repay or return to the Company erroneously awarded compensation. In general, as provided in the policy, such circumstances include an accounting restatement that results in an executive officer having received more incentive compensation during the three completed fiscal years preceding the date of the accounting restatement than would have been received had such compensation been determined based on the restated amounts. +In addition to the Required Clawback Policy, we continue to maintain the Compensation Recovery Policy (the “Discretionary Clawback Policy”), last revised in 2017, that is applicable to our NEOs as well as other key executives (each, a “Covered Employee”). The Discretionary Clawback Policy authorizes the board of directors, in its sole discretion, to recover incentive compensation earned and received or realized in the 36 months preceding the date that a “recoverable event” (as defined in the policy to include a Covered Employee’s engagement in certain conduct that is detrimental to us or the calculation, grant, vesting and/or payment of any incentive compensation that is based on materially inaccurate financial results or performance metric criteria) is determined to have occurred. +The board of directors believes that it is in the best interests of the Company and its stockholders to maintain the Discretionary Clawback Policy in addition to the Required Clawback Policy. +Change in Control and Termination of Employment Arrangements +Change in Control Plan +We maintain an Executive Change in Control Severance Plan (“CIC Plan”). We have determined that this plan will assist us in motivating and retaining our key executives. The CIC Plan, which provides “double-trigger” severance benefits, endeavors to continue providing our eligible officers with reasonable financial security in their employment and position with us, without distraction from uncertainties regarding their employment created by the possibility of a potential or actual change in control. Each of our CEO and the other NEOs (excluding Mr. Monié) participates in the CIC Plan. +In the event the participant’s employment is terminated by us without “cause” or by the participant for “good reason,” (each, as defined in the CIC Plan) in each case within six months prior to or 24 months following our change in control, subject to the participant’s execution of a release and restrictive covenant agreement satisfactory to us, the CIC Plan provides for certain severance benefits. Specifically, the participant will be eligible for the following: a lump-sum cash payment of a specified multiple (2.5 times for our CEO and 2.0 times for all other participants) multiplied by the sum of the participant’s base salary and target annual bonus; a prorated target annual bonus for the year in which the qualifying termination occurs; immediate vesting and payment of outstanding time-based long-term incentive awards, with outstanding performance-based long-term incentive awards vesting at the target value; a lump-sum payment equal to the annualized cost of the premiums required for the continuation of employer-sponsored medical, dental and vision insurance benefits for 12 months; and outplacement benefits of up to $50,000. +134 +A summary of the terms and conditions of the CIC Plan, including a detailed description of the severance benefits and estimated values of these benefits, is set forth under “Potential Payments Upon Termination or Change in Control” below. The CIC Plan does not provide for any tax gross-up to participants. +For the avoidance of doubt, Platinum’s sale of shares in the IPO or in subsequent public securities offerings is not expected to qualify as a change in control, for purposes of the CIC Plan. +Executive Officer Severance Policy +We also maintain an Executive Officer Severance Policy (the “Severance Policy”), which applies to our CEO and certain other executive officers elected by the board of directors (which includes all of the NEOs other than Mr. Monié) and which endeavors to continue providing our eligible officers with reasonable financial security in their employment and position with us, without distraction from uncertainties regarding their employment created by the possibility of a termination of employment without “cause.” Under the terms of the Severance Policy, eligible executive officers are entitled to severance benefits if their employment is terminated by us without “cause” (as defined in the Severance Policy) outside of the change-in-control context and if certain other conditions are satisfied. In such cases, subject to the execution of a release and restrictive covenant agreement satisfactory to us, eligible executive officers will be entitled to the severance benefits described in “Potential Payments on Termination or Change in Control” below. Pursuant to the Severance Policy, if an executive officer receives any severance payments or other benefits under the Severance Policy and we subsequently determine that the executive officer had engaged in conduct which constituted “cause” for the termination of such executive officer’s employment by us, the executive officer is obligated to reimburse us for all payments and the value of all benefits received by the executive officer which would not have been received if the executive officer’s employment had been terminated by us for “cause,” including interest. +Management periodically reviews both the Severance Policy and the CIC Plan to ensure they are providing appropriate protections compared to the estimated costs. The Compensation Committee anticipates reviewing these policies in 2025. +Executive Officer Stock Ownership Requirements +We have adopted mandatory stock ownership guidelines with the objective of more closely aligning the interests of our executive officers with those of our stockholders. The minimum number of shares of the Company’s common stock that the stock ownership guidelines require executive officers to hold is their then-current annualized base salary multiplied by five (5), in the case of the CEO, and by two (2) in the case of the other executive officers, divided by the fair market value of the Company’s common stock. For purposes of the stock ownership guidelines, the fair market value of the Company’s common stock is the average closing price per share of the Company’s common stock as reported on the New York Stock Exchange (or such other applicable stock exchange on which the common stock may then be traded) for the most recent sixty-three (63) trading days ending with the determination date. During the period of time between an executive officer becoming subject to the stock ownership guidelines and his or her satisfaction of the then-applicable stock ownership requirement, such executive officer is required to retain 50% of the net shares resulting from the vesting of any equity incentive awards (with “net shares” deemed to be those shares that remain after the deduction of a fixed estimated tax rate of 50%). Each of the NEOs has met the stock ownership guidelines as of the date hereof. +Internal Revenue Code Section 162(m) Policy +Under Code Section 162(m), a publicly held corporation cannot take a federal income tax deduction for compensation exceeding $1 million per person in any taxable year for its chief executive officer, chief financial officer and other three most highly compensated executive officers (each, a “Covered Person”). In addition, once an individual becomes a Covered Person for any taxable year, that individual will remain a Covered Person for all future years, including following any termination of employment. +While our Compensation Committee will consider the anticipated tax treatment to us and our executive officers as one factor when reviewing our executive compensation and other compensation programs, the Compensation Committee will also look at other factors in making its decisions, as noted above, and retains full authority to approve compensation arrangements for our executive officers that are not fully deductible under Section 162(m) when it believes that other considerations outweigh the tax deductibility of the compensation. +135 +Compensation Committee Report +The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with the management of the Company. Based on this review and these discussions, the Compensation Committee has recommended to the board of directors that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K for the year ended December 28, 2024. +Jacob Kotzubei, Chair +Leslie Heisz +Bryan Kelln +Mary Ann Sigler +Sharon Wienbar +136 +Compensation Tables for Named Executive Officers +Summary Compensation Table +The following table sets forth information concerning the total compensation earned or paid to our NEOs for services rendered to us during Fiscal Year 2023 and 2024. +Name and Principal Position +Year +Salary +($) +Bonus ($) (2) +Stock Awards +($) (3) +Non-Equity Incentive Plan Compensation +($) (4) +All Other Compensation +($) (5) +Total +($) +Paul Bay +2024 +918,000 +900,000 +13,929,018 +1,670,760 45,225 17,463,003 +Chief Executive Officer +2023 +913,562 +— +— +2,099,914 +39,267 +3,052,743 +Michael Zilis +2024 +830,180 +168,750 +10,454,302 +757,125 25,468 12,235,825 +Chief Financial Officer +2023 +824,218 +— +— +942,329 +39,519 +1,806,065 +Scott Sherman +2024 +618,000 +112,500 +7,542,780 +394,532 20,123 8,687,935 +Executive Vice President, Human Resources +2023 +613,562 +— +— +491,040 +20,838 +1,125,440 +Augusto Aragone +2024 +618,000 +112,500 +6,788,479 +394,532 20,747 7,934,258 +Executive Vice President, Secretary & General Counsel +2023 +613,562 +— +— +491,040 +21,271 +1,125,873 +Alain Monié (1) +2024 +189,615 +— +2,184,996 +— +2,548 2,377,159 +Former Executive Chairman +2023 +811,500 +— +1,800,000 +— +20,779 +2,632,279 +(1) Mr. Monié, who retired as an executive officer and employee of the Company effective October 24, 2024, in connection with the IPO, thereafter began receiving compensation as a non-employee director. In accordance with Item 402(c) of Regulation S-K, this table includes compensation received by Mr. Monié during Fiscal Year 2024 as a non-employee director, in addition to the compensation he received during Fiscal Year 2024 as an employee of the Company. The “Salary” amount for Fiscal Year 2024 includes retainer fees of $25,000 which Mr. Monié received as a non-employee director following his retirement. The “Stock Awards” amount for Fiscal Year 2024 includes the grant date fair value of 90,909 RSUs, which Mr. Monié received in connection with the IPO pursuant to his transition agreement, and 8,409 RSUs which he received as a non-employee director at the time of the IPO, as described in footnotes 4 and 5 of the “ Grants of Plan-Based Awards Table ” below. +(2) This column represents one-time cash bonuses made in recognition of the executive officers’ efforts related to the successful completion of the IPO. Payment of the cash bonus is subject to each executive officer’s execution of an agreement that requires repayment of the bonus in the event of a voluntary termination of employment or termination by the Company for cause, on or prior to March 3, 2026. +(3) The amounts in the Stock Awards column reflect the aggregate grant date fair values, calculated in accordance with FASB ASC 718, of PSUs and RSUs granted on October 23, 2024, without regard to estimated forfeiture rates. Awards granted during Fiscal Year 2024 include RSUs, which are subject to time-based vesting conditions, and for all NEOs except Mr. Mr. Monié, PSUs, which are subject to time-based and market-based vesting conditions. For RSUs, the grant date fair value is calculated by multiplying the Company’s stock price on the date of grant by the number of shares underlying the RSU award. For PSUs, the grant date fair value is calculated assuming the probable outcome of the market conditions on the date of grant (which is also the highest level of performance) and using a Monte Carlo simulation model. For additional information regarding the valuation assumptions and methodology used to determine such amounts, please see Note 2, “Significant Accounting Policies,” and Note 10, “Employee Awards,” to our audited consolidated financial statements. +(4) This column represents the payment of the EIP for the applicable fiscal year (including the MBO portion). +137 +(5) The amounts in this column for Fiscal Year 2024 are itemized in the following “All Other Compensation Table – Fiscal Year 2024”: +All Other Compensation Table – Fiscal Year 2024 +Employer Contributions to the 401(k) Plan +($) +Employer Contributions to the Supplemental Plan +($) +Other +($) (A) +Total (as disclosed in the All Other Compensation column) +($) +Paul Bay +8,625 +17,389 +19,211 +45,225 +Michael Zilis +8,625 +16,843 +— +25,468 +Scott Sherman +8,625 +11,498 +— +20,123 +Augusto Aragone +8,625 +12,122 +— +20,747 +Alain Monié +2,548 +— +— +2,548 +(A) Represents executive perquisites and benefits exceeding $10,000 in the aggregate, which for Mr. Bay consisted of (i) the incremental cost to the company of the executive’s spouse’s travel to and required attendance at business events ($16,161), (ii) an executive physical examination ($2,700), and (iii) long-term disability insurance premiums ($350). +Grants of Plan-Based Awards Table +The following table summarizes all plan-based awards granted to the NEOs during Fiscal Year 2024. +Estimated Future +Payouts Under +Non-Equity Incentive +Plan Awards (1) Estimated Future +Payouts Under +Equity Incentive +Plan Awards (2) +All Other Stock Awards: +Number of Shares of Stock Or Units +(#) +Grant Date Fair Value of Stock Awards +($) +Name Grant Date Threshold +($) Target +($) Maximum +($) Threshold +(#) Target +(#) Maximum +(#) +Paul Bay +918,000 +2,203,200 +4,039,200 +10/23/2024 +176,674 +— +353,349 +6,155,340 +10/23/2024 (3) +353,349 +7,773,678 +Michael Zilis +415,090 +996,216 +1,826,396 +10/23/2024 +132,601 +— +265,203 +4,619,836 +10/23/2024 (3) +265,203 +5,834,466 +Scott Sherman +216,300 +519,120 +951,720 +10/23/2024 +95,672 +— +191,344 +3,333,212 +10/23/2024 (3) +191,344 +4,209,568 +Augusto Aragone +216,300 +519,120 +951,720 +10/23/2024 +86,104 +— +172,209 +2,999,881 +10/23/2024 (3) +172,209 +3,788,598 +Alain Monié +10/23/2024 (4) +90,909 +1,999,998 +10/23/2024 (5) +8,409 +184,998 +(1) Represents incentive awards under the EIP for Fiscal Year 2024. The actual 2024 incentive awards earned by Mr. Bay, Mr. Zilis, Mr. Sherman, and Mr. Aragone are disclosed in the “Summary Compensation Table” under the “Non-Equity Incentive Plan Compensation” column. See the discussion above under “ Compensation Discussion and Analysis—Elements of Compensation—2024 Annual Executive Incentive Program .” +138 +(2) Represents the PSUs granted under the 2024 Plan on October 23, 2024. Since 50% of the award vests upon achievement of one metric and the remainder vests if the other metric is met or exceeded, there are no units listed under the “target” column. The average grant date fair value for these awards, calculated in accordance with FASB ASC 718, is $17.42 per unit. The PSUs will vest upon the achievement of specified returns on invested capital by Platinum, as set forth in footnote 3 of the “ Outstanding Equity Awards at Fiscal Year End Table ” below. +(3) Represents RSUs granted under the 2024 Plan on October 23, 2024, with a grant date fair value, calculated in accordance with FASB ASC 718, of $22.00 per unit. A portion of the RSUs vested on the first trading day of our common stock on the New York Stock Exchange (Mr. Bay: 212,009 shares; Mr. Zilis: 159,121 shares; Mr. Sherman: 114,806 shares; Mr. Aragone: 103,325 shares). The remaining RSUs will vest over a three (3) year period (or, if earlier, upon the achievement of specified returns on invested capital by Platinum), as set forth in footnote 2 of the “ Outstanding Equity Awards at Fiscal Year End Table ” below. +(4) Represents RSUs granted to Mr. Monié, pursuant to his transition agreement, under the 2024 Plan on October 23, 2024, with a grant date fair value, calculated in accordance with FASB ASC 718, of $22.00 per unit. These RSUs vested in full on the first trading day of our common stock on the New York Stock Exchange. +(5) Represents RSUs granted to Mr. Monié as a non-employee director under the 2024 Plan on October 23, 2024, with a grant date fair value, calculated in accordance with FASB ASC 718, of $22.00 per unit. The RSUs will vest in full on October 23, 2025, the first anniversary of the grant date. +Narrative Disclosure Relating to Summary Compensation Table and Grants of Plan Based Awards Table +The material terms of the agreements and arrangements relating to the information disclosed in the Summary Compensation table and the Grant of Plan Based Awards table are included in our Compensation Discussion and Analysis above. +Outstanding Equity Awards at Fiscal Year End Table +The following table summarizes the outstanding unvested equity awards held by the NEOs as of the end of Fiscal Year 2024. +Stock Awards +Name Number of Shares or Units of Stock That Have Not Vested (#) +Market Value of Shares or Units of Stock That Have Not Vested ($) (1) +Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) +Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (1) +Paul Bay (2) 141,340 2,768,851 +(3) 176,674 3,461,044 +Michael Zilis (2) 106,082 2,078,146 +(3) 132,601 2,597,654 +Scott Sherman (2) 76,538 1,499,379 +(3) 95,672 1,874,214 +Augusto Aragone (2) 68,884 1,349,438 +(3) 86,104 1,686,777 +Alain Monié (4) 8,409 164,732 +(1) All values are based on a price $19.59 per share, which was the closing sale price of the Company’s common stock on the New York Stock Exchange on December 27, 2024, the last trading day of Fiscal Year 2024. +(2) Represents shares issuable under an RSU award granted on October 23, 2024, under the 2024 Plan. The RSU award vests in three equal installments on each anniversary of the grant date through October 23, 2027, subject to accelerated vesting in the event that the return on invested capital achieved by Platinum is two and one-half times the total of all capital or other contributions made by Platinum, as described further above in “Compensation Discussion and Analysis — RSU and PSU Grants Under the 2024 Stock Incentive Plan . ” +139 +(3) Represents shares issuable under a PSU award granted on October 23, 2024, under the 2024 Plan, assuming achievement at the “threshold” level of performance. As described above in “Compensation Discussion and Analysis — RSU and PSU Grants Under the 2024 Stock Incentive Plan , ” 50% of the PSU award will vest in the event that the return on invested capital achieved by Platinum is two times the total of all capital or other contributions made by Platinum and the remainder of the PSU award will vest in the event that the return on invested capital achieved by Platinum is two and one-half times the total of all capital or other contributions made by Platinum. +(4) Represents shares issuable under an RSU award granted on October 23, 2024, under the 2024 Plan. The RSU award vests in full on October 23, 2025, the first anniversary of the grant date. +Stock Vested Table +The following table summarizes the NEOs’ stock award vesting activity during Fiscal Year 2024. +Stock Awards +Name Number of Shares or Units of Stock Acquired on Vesting (#) +Market Value Realized on Vesting ($) (1) +Paul Bay 212,009 4,664,198 +Michael Zilis 159,121 3,500,662 +Scott Sherman 114,806 2,525,732 +Augusto Aragone 103,325 2,273,150 +Alain Monié 90,909 1,999,998 +(1) Each of these units vested in full on the first trading day of our common stock on the New York Stock Exchange. The value realized upon vesting is determined by multiplying the number of shares underlying the stock awards that vested by $22.00, the IPO price. +Nonqualified Deferred Compensation Table +The following table provides information relating to nonqualified deferred compensation balances and contributions by the NEOs for the period indicated. +Name +Name of Plan +Executive Contributions in Fiscal Year 2024 ($) +Registrant Contributions in Fiscal Year 2024 ($) (1) +Aggregate Earnings in Fiscal Year 2024 ($) +Aggregate Withdrawals/ +Distributions in Fiscal Year 2024 ($) (2) +Aggregate Balance at End of Fiscal Year +2024 ($) +Paul Bay +Supplemental Plan +196,796 +17,389 +612,491 +— +3,524,784 +Michael Zilis +Supplemental Plan +720,219 +16,843 +923,363 +— +7,860,409 +Scott Sherman +Supplemental Plan +30,900 +11,498 +40,147 +61,653 +265,393 +Augusto Aragone +Supplemental Plan +246,360 +12,122 +153,164 +1,413 +1,777,508 +Alain Monié +Supplemental Plan +— +— +1,728,403 +— +13,453,032 +140 +(1) Executive officers who are paid on the U.S. payroll may voluntarily participate in the Supplemental Plan. The Supplemental Plan, in general, allows executives to reduce their taxable compensation in the year earned and operates to restore 401(k) Plan benefits, including Company matching contributions, which were reduced or limited by the Code. Under the terms of the Supplemental Plan, participants may elect to defer up to a combined 50% of their base salary and annual bonus between the Supplemental Plan and the 401(k) Plan. In conformance with Section 409A of the Code, deferral and distribution elections are made by each participant prior to the beginning of each calendar year for deferrals from base salary earned and paid during such calendar year and deferrals from bonus amounts earned during such calendar year but paid in the following calendar year. Executive contributions for 2024 include deferrals from base salary in respect of Fiscal Year 2024 (reported in the Salary column of the Summary Compensation Table) and may also include bonus amounts earned in 2023 but paid in 2024 (reported in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table for Fiscal Year 2023). We typically provide an employer match on behalf of the participants who make Supplemental Plan deferrals for the applicable year and remain employed through the last day of the year to restore the company match the Code limits in the 401(k) Plan. For the 2024 plan year, we made an employer match in the first quarter of 2025 equal to 50% of the deferrals up to 5% of eligible compensation, reduced by the 2024 employer matching contributions to the 401(k) Plan (such amounts reported in the “All Other Compensation” column of the Summary Compensation Table). Participants have earnings or losses credited to their Supplemental Plan account as a result of their selection from the various investment options available to them in this plan. Participants may redirect their investment in the various investment fund options on a daily basis. Account balances are disbursed to participants upon their termination of employment or such other fixed date as elected by the participant, based on the participant’s election prior to the year of deferral. Participants may elect to receive their account balance as a lump-sum cash payment or in installment payments over 5, 10, or 15 years. Executive contributions are not separately shown in the “Summary Compensation Table” but instead are deferrals from individuals’ salary and/or bonus amount shown in the “Summary Compensation Table.” +(2) During 2024, under the Supplemental Plan, Mr. Sherman and Mr. Aragone received lump sum distributions as noted in the table based on their initial deferral elections which provided for an in-service distribution. +Potential Payments Upon Termination or Change in Control +We maintain incentive programs, including award agreements, the Severance Policy and the CIC Plan which require that we provide payments and benefits to the NEOs (other than Mr. Monié) in the event of a qualifying termination of employment and/or a change in control. +The chart below describes the termination provisions of each incentive program and the award agreements, as well as any payments and benefits under the Severance Policy and the CIC Plan assuming the last date of employment for the NEO was the last business day of our fiscal year, December 28, 2024 (and therefore the cash incentive award would be considered “earned”) and/or that the change in control occurred on December 28, 2024, as applicable. +Short-Term Incentive — Cash (1) +2024 Plan and Outstanding +RSU and PSU Grants (2) +Severance Pay and Benefits (Under Severance Policy or CIC Plan) (3) +Change in Control (“CIC”) (No Termination) None A CIC is a “Qualifying Event” under the terms of the IPO grant. Outstanding RSUs will become fully vested. Outstanding PSUs will vest, if at all, according to the performance valuation calculation. All PSUs that do not vest upon a CIC are forfeited upon the occurrence of a CIC. None +141 +Short-Term Incentive — Cash (1) +2024 Plan and Outstanding +RSU and PSU Grants (2) +Severance Pay and Benefits (Under Severance Policy or CIC Plan) (3) +Qualifying Termination in Connection with a CIC None; see treatment under Severance Pay and Benefits (Under Severance Policy or CIC Plan) column. None; see treatment under CIC row above. We will pay or provide (A) a lump sum payment equal to 2.5 times for the CEO (or 2 times for the other NEOs and EVPs (except Mr. Monié): the sum of (i) the participant’s annual base salary and (ii) target annual bonus, (B) a lump sum payment equal to the prorated target annual bonus for the year of termination, (C) a lump sum payment equal to 12 months of 100% of the premium costs for employer- sponsored medical, dental and vision insurance benefits in effect on the date of termination, and (D) participation in an outplacement program until the earlier of (i) the end of the year following the year of termination and (ii) the participant’s subsequent full-time employment, subject to a maximum cost of $50,000. +Termination for Cause None None None +Voluntary Termination Any earned payment based on actual 2024 performance under the terms of the EIP. RSUs and PSUs that have matured and met any required performance conditions on or prior to the termination date will vest. All unvested RSUs and PSUs will automatically be forfeited. None +Involuntary “Not for Cause” +Termination (not under CIC) +None; see treatment under Severance Pay and Benefits (Under Severance Policy or CIC Plan) column. RSUs and PSUs remain outstanding for a 6 month period following such termination and eligible to vest if a “Qualifying Event” occurs during such period during which the applicable performance metrics are achieved. We will pay or provide (A) a lump sum payment equal to the prorated annual bonus for the year of termination based on actual company performance, (B) a lump sum payment equal to the sum of the participant’s monthly annual base salary and target monthly bonus in effect on the termination date multiplied by total number of years of continuous service (with a minimum of 12 and capped at 24 for the CEO and 18 for all other NEOs), (C) a lump sum payment equal to total number of years of continuous service (with a minimum of 12 months and capped at 18 months) of 100% of the premium costs for employer- sponsored medical, dental and vision insurance benefits in effect on the termination date, and (D) participation in an outplacement program until the earlier of the participant’s subsequent full-time employment or 12 months following the termination date, subject to a maximum cost of $20,000. +142 +Short-Term Incentive — Cash (1) +2024 Plan and Outstanding +RSU and PSU Grants (2) +Severance Pay and Benefits (Under Severance Policy or CIC Plan) (3) +Death or Disability Any earned payment based on actual 2024 performance under the terms of the EIP. RSUs will immediately vest. RSUs and PSUs remain outstanding for a 6-month period following such termination and eligible to vest if a “Qualifying Event” occurs during such period during which the applicable performance metrics are achieved. None +Voluntary Termination for Good Reason (not under CIC) Any earned payment based on actual 2024 performance under the terms of the EIP. RSUs and PSUs remain outstanding for a 6-month period following such termination and eligible to vest if a “Qualifying Event” occurs during such period during which the applicable performance metrics are achieved. None +(1) Payment to be calculated and paid on the same basis and at the same time as the annual bonus payments to actively employed executives under the EIP. Our EIP generally provides that if a participant remains employed through the last date of the program year (which ended on December 27, 2024, the business day preceding the last day of our Fiscal Year 2024) and experiences a termination of employment following the expiration of the program year but before the payment date of the bonus for such period, other than in the event of a termination of employment by the company for “cause,” the participant will remain eligible to receive the bonus for the completed program year based on actual performance. In addition, the NEOs are eligible for benefits under the Severance Policy and CIC Plan, as applicable, which likewise provide for the payment of prorated bonuses for the year in which termination occurs, as reflected in the table above. Both the Severance Policy and CIC Plan note that in no event will such policy or plan result in the duplication of payments or benefits provided to an NEO. Accordingly, the table above reflects that upon any termination “without cause,” the annual bonuses payable to our NEOs for the year in which such termination occurs would be paid pursuant to the terms of the Severance Policy or CIC Plan, as applicable. +(2) Payments made under the 2024 Plan and respective RSU and PSU grant documents for the grants received in connection with our IPO related to a termination of employment are subject to the participant’s execution of a release of claims. +(3) Severance benefits provided under the Severance Policy and the CIC Plan are subject to the participant’s execution of a release of claims and restrictive covenant agreement and are payable in a lump sum cash payment. +The following table summarizes the payments and benefits that would be made to the NEOs, with the exception of Mr. Monié, as of December 28, 2024, in the applicable circumstances noted in the table. For purposes of this analysis, we assumed: +a. the last date of employment for the NEO is the last business day of our last fiscal year, December 28, 2024; +b. annual base salary at termination is equal to the applicable NEO’s salary as of December 28, 2024; and +c. annual target incentive at the time of the NEO’s termination of employment is equal to the NEO’s target incentive as of December 28, 2024. +Mr. Monié entered into a transition agreement, the material terms of which have been summarized above under “ Compensation Discussion and Analysis —Mr. Monié Transition Agreement ”. Mr. Monié’s employment terminated on October 24, 2024. With the exception of the RSU grant on October 23, 2024, as described in additional detail in the footnotes to the “ Summary Compensation Table ” and the “ Grants of Plan-Based Awards Table ,” Mr. Monié was not eligible for any payments of compensation or benefits upon his termination of employment, pursuant to his transition agreement. As a result, he is not reflected in the table below. In addition, the vesting of one hundred percent of the RSUs that Mr. Monié received in connection with his appointment to our board of directors will accelerate if his engagement on our board of directors is terminated due to a death or disability or if there is a change in control, merger, or other transaction in connection with which the RSU is not assumed or substituted with an equivalent award by the successor. The value of the RSUs as of December 28, 2024, was equal to $164,732. +143 +Short-Term Incentive ($) (1) +Accelerated Equity-Based Awards ($) (2) +Severance Pay ($) +Health Premiums ($) +Outplacement ($) +Total ($) +Paul Bay +CIC (Without Termination) +— +2,768,851 +— +— +— +2,768,851 +CIC Termination +2,203,200 +2,768,851 +7,803,000 +19,379 +50,000 +12,844,430 +Voluntary Termination (with or +without Good Reason) +1,670,760 +— +— +— +— +1,670,760 +Involuntary Not for Cause Termination +1,670,760 +— +3,641,400 +22,609 +20,000 +5,354,769 +Death/Disability +1,670,760 +2,768,851 +— +— +— +4,439,611 +Michael Zilis +CIC (Without Termination) +— +2,078,146 +— +— +— +2,078,146 +CIC Termination +996,216 +2,078,146 +3,652,792 +15,786 +50,000 +6,792,940 +Voluntary Termination (with or +without Good Reason) +757,125 +— +— +— +— +757,125 +Involuntary Not for Cause Termination +757,125 +— +2,739,594 +23,678 +20,000 +3,540,397 +Death/Disability +757,125 +2,078,146 +— +— +— +2,835,271 +Scott Sherman +CIC (Without Termination) +— +1,499,379 +— +— +— +1,499,379 +CIC Termination +519,120 +1,499,379 +2,274,240 +16,402 +50,000 +4,359,141 +Voluntary Termination (with or +without Good Reason) +394,532 +— +— +— +— +394,532 +Involuntary Not for Cause Termination +394,532 +— +1,137,120 +16,402 +20,000 +1,568,054 +Death/Disability +394,532 +1,499,379 +— +— +— +1,893,911 +Augusto Aragone +CIC (Without Termination) +— +1,349,438 +— +— +— +1,349,438 +CIC Termination +519,120 +1,349,438 +2,274,240 +27,516 +50,000 +4,220,314 +Voluntary Termination (with or +without Good Reason) +394,532 +— +— +— +— +394,532 +Involuntary Not for Cause Termination +394,532 +— +1,516,160 +36,688 +20,000 +1,967,380 +Death/Disability +394,532 +1,349,438 +— +— +— +1,743,970 +(1) All scenarios show the actual EIP payment amounts for Fiscal Year 2024, except that CIC Terminations show the target EIP amounts calculated using each applicable participant’s annual base salary immediately preceding the date of termination. +(2) Represents the value of outstanding unvested RSUs that would accelerate and vest in the applicable scenario. PSUs granted pursuant to our 2024 Plan under the terms of the IPO grant agreement did not meet performance requirements to vest as of December 28, 2024, and therefore are presumed to be canceled by the Compensation Committee for no consideration in any of the applicable scenarios set forth in the table. +Director Compensation +Our board of directors sets the compensation for the Company’s non-employee directors. In connection with the IPO in October 2024, our board of directors approved a new non-employee director compensation policy that applies to all of our non-employee directors (other than any member of the board of directors affiliated with Platinum). This compensation policy provides that each such non-employee director receives the following compensation for service on our board of directors: +• Annual cash retainer of $100,000 for each non-employee director, paid in quarterly installments; +• Additional cash retainer for the Chair of the audit committee of $35,000 for service as chairperson of the audit committee, paid in quarterly installments; +144 +• An annual restricted stock unit award to be granted on the date of the Company’s annual meeting of stockholders with a grant date value of  $185,000, with all of the shares of our common stock subject to the award vesting on the earlier of either the date of the Company’s next annual meeting of stockholders or the one-year anniversary of the date of the grant. +We will also reimburse our directors for reasonable and necessary out-of-pocket expenses incurred in attending board and committee meetings or performing other services for us in their capacities as directors. +RSU Awards in Connection with IPO +In connection with the IPO and pursuant to the non-employee director compensation policy, each of our non-employee directors (other than any member of the board of directors affiliated with Platinum), including Mr. Monié (who retired from his employment as Executive Chairman and assumed the role of Non-Executive Chairperson of the board of directors in connection with the IPO), received a grant of 8,409 RSUs that vest on the first anniversary of the grant date. The grant was calculated based on a target grant value of $185,000 divided by $22.00, the IPO price, rounded down to the nearest whole number. +In addition, Ms. Alvaro received a one-time RSU grant (the “Sign-On Grant”), pursuant to an agreement entered into with the Company in May 2023, soon after her identification as a director nominee. Such agreement specified that details regarding director compensation and the terms of the nominee’s formal appointment to the board of directors would be provided at a later date. The agreement also provided that, subject to Ms. Alvaro’s future appointment to the board of directors, she would receive a Sign-On Grant with a fair market value equal to the product of (x) $10,000 times (y) the number of full months between May 1, 2023, and the IPO, that would vest on the six (6) month anniversary of the Delivery Date (as defined below). The Sign-On Grant was be delivered on the tenth business day following the IPO (the “Delivery Date”) in the form of 6,984 RSUs, which was calculated based on a target grant value of $170,000 divided by $24.34, the closing price of the Company’s stock price on the New York Stock Exchange on the Delivery Date, rounded down to the nearest whole number. +Director Compensation Table +The following table summarizes the compensation paid to the Company’s non-employee directors for Fiscal Year 2024. The compensation paid to Mr. Monié, who retired as an employee of the Company in connection with the IPO, and thereafter began receiving compensation as a non-employee director, is included above in the “Summary Compensation Table,” as required by Item 402(c) of Regulation S-K. +Name +Fees Earned or Paid in Cash ($) +Stock Awards ($) (1) (2) +Total ($) +Felicia Alvaro +33,750 +354,989 +388,739 +Jakki Haussler +25,000 +184,998 +209,998 +Leslie Heisz +25,000 +184,998 +209,998 +Sharon Wienbar +25,000 +184,998 +209,998 +(1) The non-employee directors listed in the table above held the following aggregate number of unvested RSUs as of the end of Fiscal Year 2024: +Name +Number of Shares Subject to Unvested RSUs (#) +Felicia Alvaro +15,393 +Jakki Haussler +8,409 +Leslie Heisz +8,409 +Sharon Wienbar +8,409 +(2) Represents 8,409 RSUs granted under the 2024 Plan on October 23, 2024, with a grant date fair value of $22.00 per unit. With respect to Ms. Alvaro, also represents 6,984 RSUs granted under the 2024 Plan on November 6, 2024, with a grant date fair value of $24.34 per unit. +145 +Director Stock Ownership Requirements +We have adopted director stock ownership guidelines with the objective of more closely aligning the interests of our directors with those of our stockholders. The minimum number of shares of the Company’s common stock that the director stock ownership guidelines require non-employee directors (excluding any member of the board of directors affiliated with Platinum) to hold while serving in their capacity as directors is the director base compensation (currently $100,000) multiplied by five (5), divided by the fair market value of the Company’s common stock. For purposes of the director stock ownership guidelines, the fair market value of the Company’s common stock is the average closing price per share of the Company’s common stock as reported on the New York Stock Exchange (or such other applicable stock exchange on which the common stock may then be traded) for the most recent sixty-three (63) trading days ending with the determination date. During the period of time between a non-employee director becoming subject to the stock ownership guidelines and his or her satisfaction of the then-applicable stock ownership requirement, such non-employee is required to retain 50% of the net shares resulting from the vesting of any equity incentive awards (with “net shares” deemed to be those shares that remain after the deduction of a fixed estimated tax rate of 50%). With the exception of Mr. Monié, none of our non-employee directors has met the stock ownership guidelines as of the date hereof. +Compensation Committee Interlocks and Insider Participation +The Compensation Committee of the board of directors currently consists of, and at all times during Fiscal Year 2024 following the Compensation Committee’s creation in connection with the IPO consisted of, Mr. Kotzubei (Chair), Ms. Heisz, Mr. Kelln, Ms. Sigler, and Ms. Wienbar. No member of this committee was at any time during Fiscal Year 2024 an officer or employee of the Company, was formerly an officer of the Company or any of its subsidiaries, or had any employment relationship with the Company or any of its subsidiaries, except for Ms. Sigler who ceased to serve as the President and Treasurer of the Company upon the completion of the IPO. No executive officer of the Company has served as a director or member of the compensation committee (or other committee serving an equivalent function) of any other entity, where one of such entity’s executive officers served as a director of the Company or a member of the Compensation Committee. +146 +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +Security Ownership of Certain Beneficial Owners and Management +The following table sets forth, as of February 25, 2025, information regarding beneficial ownership of our capital stock by the following individuals or entities: +• each person, entity or group of affiliated persons, known by us to beneficially own more than 5% of our voting securities; +• each of our NEOs (as defined above in Item 11, “Executive Compensation”); +• each of our directors; and +• all of our executive officers and directors as a group. +To our knowledge, each person named in the table has sole voting and investment power with respect to all of the securities shown as beneficially owned by such person, except as otherwise set forth in the notes to the table. The number of securities shown represents the number of securities the person “beneficially owns,” as determined by the rules of the SEC. The SEC has defined “beneficial” ownership of a security to mean the possession, directly or indirectly, of voting power and/or investment power. A security holder is also deemed to be, as of any date, the beneficial owner of all securities that such security holder has the right to acquire within 60 days after that date through (1) the exercise of any option, warrant or right, (2) the conversion of a security, (3) the power to revoke a trust, discretionary account or similar arrangement or (4) the automatic termination of a trust, discretionary account or similar arrangement. As of February 25, 2025, there were 234,825,581 shares of the Company’s common stock outstanding. +Unless otherwise noted below, the address for each of the stockholders in the table below is c/o Ingram Micro Holding Corporation, 3351 Michelson Drive, Suite 100, Irvine, CA 92612. +Beneficial owner +Number of Shares Beneficially Owned (2) +Percentage of Class +5% Stockholders: +Investment vehicles affiliated with Platinum Equity, LLC (1) . . . . . . . . +210,952,854 89.8 % +Named Executive Officers and Directors: +Felicia Alvaro . . . . . . . . . . . — (*) +Augusto Aragone . . . . . . . . 102,936 (*) +Craig Ashmore . . . . . . . — (*) +Paul Bay . . . . . . . . . . . . . . . 268,423 (*) +Christian Cook . . . . . . . . . . 49,000 (*) +Jakki Haussler . . . . . . . . . . . — (*) +Leslie Heisz . . . . . . . . . . . . . — (*) +Bryan Kelln . . . . . . . . . . . . . — (*) +Jacob Kotzubei . . . . . . . . . . — (*) +Matthew Louie . . . . . . . . . . — (*) +Alain Monié . . . . . . . . . . . . 1,327,384 (*) +Scott Sherman . . . . . . . . . . . 130,483 (*) +Mary Ann Sigler . . . . . . . . . 7,500 (*) +Sharon Wienbar . . . . . . . . . — (*) +Eric Worley . . . . . . . . . . . . . — (*) +Michael Zilis . . . . . . . . . . . . 160,229 (*) +Executive Officers and Directors as a group (16 persons) 2,045,955 (*) +* Less than 1% +147 +(1) Imola JV Holdings, L.P. (the “Platinum Stockholder”) is the record holder of 210,952,854 shares of our Common Stock. Tom Gores is the manager of Platinum Equity, LLC, which is the sole member of Platinum Equity Investment Holdings, LLC, which is the sole member of Platinum Equity Investment Holdings IC (Cayman), LLC which is the general partner of Platinum Equity InvestCo, L.P., which is the sole member of Platinum Equity Investment Holdings V, LLC, which is the sole member of Platinum Equity Partners V, LLC, which is the general partner of Platinum Equity Partners V, L.P., which is the general partner of the Platinum Stockholder. By virtue of these relationships, each of these entities and Mr. Gores may be deemed to share beneficial ownership of the securities held of record by the Platinum Stockholder. The business address of each of the entities named herein and Mr. Gores is 360 North Crescent Drive, South Building, Beverly Hills, CA 90210. +(2) The table does not reflect the number of shares of common stock to be issued pursuant to unvested restricted stock units (the “Unvested RSUs”) that are not scheduled to vest within sixty (60) days of February 25, 2025, as follows: Ms. Alvaro—15,393 shares under Unvested RSUs; Mr. Aragone—68,884 shares under Unvested RSUs; Mr. Bay—141,340 shares under Unvested RSUs; Ms. Haussler—8,409 shares under Unvested RSUs; Ms. Heisz—8,409 shares under Unvested RSUs; Mr. Monié—8,409 shares under Unvested RSUs; Mr. Sherman—76,538 shares under Unvested RSUs; Ms. Wienbar—8,409 shares under Unvested RSUs; Mr. Zilis—106,082 shares under Unvested RSUs; current directors and executive officers as a group (16 persons)—441,873 shares under Unvested RSUs. +Equity Compensation Plan Information +As of December 28, 2024, the Company maintained only one equity compensation plan, the 2024 Stock Incentive Plan, under which its equity securities were authorized for issuance to its officers, employees, and directors. The 2024 Stock Incentive Plan was approved by the Company’s stockholders. The number of shares to be issued upon exercise or vesting of grants issued under, and the number of shares remaining available for future issuance under, our 2024 Stock Incentive Plan as of December 28, 2024, were as follows: +Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (1) +Weighted Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding securities reflected in column (a)) +Plan category (a) (b) (c) +Equity compensation plans approved by security holders 3,601,768 $ — 15,920,477 +Equity compensation plans not approved by security holders — $ — — +Total 3,601,768 $ — 15,920,477 +(1) Includes performance restricted stock units and time-vesting restricted stock units. +148 +Item 13. Certain Relationships and Related Transactions, and Director Independence +Investor Rights Agreement +In connection with the IPO, we entered into the Investor Rights Agreement with Platinum and we amended and restated our certificate of incorporation. At each annual meeting of our stockholders (and in connection with any election by written consent or special meeting for the election of directors) for which Platinum has nominated an individual for election to our board of directors, (i) we will include each such nominee as a nominee for election as a director, (ii) we will use all reasonable best efforts to cause the election as a director of each such nominee including, to the fullest extent permitted by applicable law, soliciting proxies in favor of the election of such nominee and (iii) we will take all action within our power to cause each such nominee to be included as a nominee recommended by our board of directors to our stockholders for election as a director, unless our board of directors determines that making such recommendation would be inconsistent with the directors’ fiduciary duties under applicable law. The Investor Rights Agreement and our amended and restated certificate of incorporation grant Imola JV Holdings, L.P. (the “Platinum Stockholder”) the right to nominate for election to our board of directors no fewer than that number of directors that would constitute: (i) a majority of the total number of directors so long as the Platinum Stockholder and Platinum collectively beneficially own at least 50% of the then-outstanding capital stock of the Company; (ii) 40% of the total number of directors so long as the Platinum Stockholder and Platinum collectively beneficially own at least 40% but less than 50% of the then-outstanding capital stock of the Company; (iii) 30% of the total number of directors so long as the Platinum Stockholder and Platinum collectively beneficially own at least 30% but less than 40% of the then-outstanding capital stock of the Company; (iv) 20% of the total number of directors so long as the Platinum Stockholder and Platinum collectively beneficially own at least 20% but less than 30% of the then-outstanding capital stock of the Company; and (v) 10% of the total number of directors so long as the Platinum Stockholder and Platinum collectively beneficially own at least 5% but less than 20% of the then-outstanding capital stock of the Company. For purposes of calculating the number of directors that the Platinum Stockholder will be entitled to nominate pursuant to the formula outlined above, any fractional amounts shall automatically be rounded up to the nearest whole number. Unless otherwise agreed by the Platinum Stockholder, for so long as the Platinum Stockholder retains the right to nominate a person to our board of directors, each committee of the board of directors will include at least one of the director candidates designated by the Platinum Stockholder, except to the extent such membership would violate applicable securities laws or stock exchange or stock market rules or where the sole purpose of such committee is to address actual or potential conflicts of interest between us and Platinum. In the event that (i) a vacancy is created at any time by the death, resignation, removal (with or without cause) or by any other cause of a Platinum Stockholder nominee and (ii) the number of directors nominated by the Platinum Stockholder is less than the number that the Platinum Stockholder is entitled to nominate under our amended and restated certificate of incorporation or the Investor Rights Agreement, then such vacancy may be filled only by the Platinum Stockholder unless otherwise agreed by the Platinum Stockholder. +The Investor Rights Agreement grants Platinum certain customary demand registration rights, as well as “piggyback” registration rights, with respect to shares of our Common Stock. In addition, the Investor Rights Agreement provides that if we retain Platinum Advisors to provide corporate and advisory services to us, then we will reimburse Platinum Advisors for all third party costs incurred in rendering such services and indemnify Platinum Advisors and its officers, directors, managers, employees, affiliates, agents and other representatives, to the fullest extent permitted by law, against all liabilities, costs and expenses incurred in connection with such services other than if and to the extent that such liabilities, costs and expenses arise as a result of the gross negligence, bad faith, fraud or willful misconduct of Platinum Advisors. +Advisory Agreement +Following the consummation of the Imola Mergers, the Company (and/or one of its affiliates) and Platinum Equity Advisors, LLC (“Platinum Advisors”), an entity affiliated with Platinum entered into the Corporate Advisory Services Agreement, dated as of July 2, 2021 (the “Advisory Agreement”), pursuant to which the Company engaged Platinum Advisors as a financial, transactional and management consultant. Under the Advisory Agreement, the Company had agreed to pay Platinum Advisors an annual management fee in an amount to be mutually agreed between the parties and to reimburse Platinum Advisors for its out-of-pocket costs and expenses incurred in connection with its services under the agreement. In 2024, the aggregate management fee was $20.4 million. The Advisory Agreement contained customary indemnification provisions in favor of Platinum Advisors and its affiliates, including Platinum. The Advisory Agreement was terminated upon the consummation of the IPO. +149 +Mr. Monié Transition Agreement +In connection with the transition of Mr. Monié from CEO of Ingram Micro to Executive Chairman of Ingram Micro, Mr. Monié and Ingram Micro entered into a transition agreement, on October 2, 2021 (which has since been amended and restated three times, most recently effective as of December 30, 2023), which generally set forth the terms and conditions of his transition and retirement. In accordance with the terms of the transition agreement, Mr. Monié retired as an executive officer and employee of the Company effective October 24, 2024, in connection with the IPO. See Item 11, “Executive Compensation—Compensation Discussion and Analysis—Mr. Monié Transition Agreement.” +Dividends +On April 29, 2022, the Company declared and paid a dividend to our then-current stockholders, including Imola JV Holdings, L.P., the entity through which Platinum holds its investment in the Company, of approximately $1.75 billion, with proceeds from the primary closing of the CLS Sale, which occurred on April 4, 2022. Each of our executive officers who held shares of common stock participated in their pro-rata share of the dividend declared in connection with the CLS Sale. +On March 4, 2025, the Company announced that the board of directors had declared a cash dividend of $0.074 per share of common stock, payable on March 25, 2025, to stockholders of record as of March 11, 2025, which includes Platinum. We pay, and intend to continue to pay, quarterly cash dividends subject to capital availability and periodic determinations made by our board of directors that cash dividends are in the best interests of our stockholders. +Certain Relationships with Platinum +From time to time, Platinum and/or its affiliates have entered into, and may continue to enter into, arrangements with us to use our products and services. We believe that all such arrangements have been entered into in the ordinary course of business and have been negotiated on commercially reasonable terms. +Indemnification Agreements +In connection with the IPO, we entered into indemnification agreements with each of our directors and officers. These agreements require us to indemnify these individuals and, in certain cases, affiliates of such individuals, to the fullest extent permissible under Delaware law against liabilities that may arise by reason of their service to us or at our direction, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, we have been informed that in the opinion of the SEC such indemnification is against public policy and is therefore unenforceable. +Reserved Share Program +At our request, the underwriters in the IPO reserved for sale, at the initial public offering price, up to 5% of the shares of Common Stock offered in the IPO for sale to some of our directors, officers and employees, as well as to certain employees of Platinum and/or Platinum Advisors. In our IPO, 650,550 shares were purchased by such persons. +Related Party Transactions Policy +We have adopted a written policy with respect to the review, approval and ratification of related person transactions to assist our board of directors in reviewing and taking appropriate action concerning related person transactions and assist us in preparing the disclosure that the SEC rules require to be included in our applicable filings as required by the Securities Act and the Exchange Act and their related rules. This policy is intended to supplement, and not to supersede, our other policies that may be applicable to or involve transactions with related persons, such as our policies for determining director independence and our code of conduct and conflicts of interests policies. The policy covers any financial transaction, arrangement or relationship or any series of similar transactions, arrangements or relationships (including indebtedness and guarantees of indebtedness and transactions involving employment and similar relationships) involving the Company and any director, nominee or executive officer, or any immediate family member thereof, or any greater than 5% beneficial owner of our voting securities, in each case, having a direct or indirect material interest in such transaction. Any such transaction must be approved or ratified by our audit committee unless our board of directors in its discretion designates another independent body consisting solely of independent directors. The audit committee may only approve those transactions that are in, or are not inconsistent with, our best interests and those of our stockholders, as the audit committee determines in good faith. +Director Independence +For information related to the independence of our directors, see Item 10, “Directors, Executive Officers and Corporate Governance,” which is incorporated herein by reference. +150 +Item 14. Principal Accounting Fees and Services +Audit and Non-Audit Fees +The following table presents the aggregate fees for professional services rendered for us by PricewaterhouseCoopers LLP for the fiscal years ended December 28, 2024 and December 30, 2023: +Services provided 2024 2023 +Audit $ 15,305,635 $ 9,539,540 +Audit related 250,000 143,505 +Tax 1,246,644 1,381,428 +Total $ 16,802,279 $ 11,064,473 +Audit Fees: The aggregate fees billed for the fiscal years ended December 28, 2024 and December 30, 2023, were for professional services rendered for the audits of our consolidated financial statements, registration statements and comfort letters, statutory audits of our subsidiaries, reviews of our interim consolidated financial statements, and services provided in connection with statutory and regulatory filings. +Audit Related Fees: The aggregate fees billed for the fiscal year ended December 28, 2024 and December 30, 2023 were for assurance and related services that were reasonably related to the performance of the audit or review of the Company’s consolidated financial statements and which are not reported as audit fees. +Tax Fees : The aggregate fees billed for the fiscal years ended December 28, 2024 and December 30, 2023 were primarily for professional services rendered relating to domestic and foreign tax compliance and consulting services. +All Other Fees : Not applicable +Audit Committee Pre-Approval Policies and Procedures +The Audit Committee has established policies and procedures for preapproving audit and non-audit services. Under these procedures, the Audit Committee preapproves the type and scope of services to be provided by our registered public accounting firm, PricewaterhouseCoopers LLP, as well as the estimated associated fees related to such services. All services listed in the table above were approved in accordance with these established policies and procedures. When granting preapproval, the Audit Committee evaluates how the nature of the services and related costs may affect the independence of the registered public accounting firm. To ensure compliance with SEC rules and regulations, the Audit Committee confirms, prior to preapproving services, that such services and fees are aligned with maintaining the independence of the registered public accounting firm. +151 +Part IV +Item 15. Exhibits and Financial Statement Schedules. +(a) Documents filed as part of this report: +(1) Financial Statements +See Index under Item 8. +(2) Financial Statements Schedule +See Index under Item 8. +(3) Exhibits +See Item 15(b) below. +(b) Exhibits. +See the Exhibit Index immediately preceding the signature pages hereto, which is incorporated by reference as if fully set forth herein. +152 +EXHIBIT INDEX +Incorporated by Reference +Exhibit No. Exhibit Description Filed Herewith Form Period Ending Exhibit Filing Date +3.1 +Second Amended and Restated Certificate of Incorporation of Ingram Micro Holding Corporation. +8-K 3.1 10/25/2024 +3.2 +Amended and Restated Bylaws of Ingram Micro Holding Corporation. +8-K 3.2 10/25/2024 +4.1 +Investor Rights Agreement, effective October 23, 2024. +8-K 4.1 10/25/2024 +4.2** +Indenture, dated as of April 22, 2021, by and between Imola Merger Corporation, the Guarantors (as such term is defined therein), and the Bank of New York Mellon Trust Company, N.A., as trustee and notes collateral agent, together with the form of senior secured note. +S-1 4.1 9/30/2024 +4.3 +First Supplemental Indenture, dated as of July 2, 2021, by and among Ingram Micro Inc., Imola Acquisition Corporation, and the other Guarantors party thereto from time to time and The Bank of New York Mellon Trust Company, N.A. +S-1 4.2 9/30/2024 +4.4 +Description of Securities +X +10.1** +ABL Credit Agreement, dated as of July 2, 2021, by and among Imola Acquisition Corporation, Ingram Micro Inc., the borrowers therein, various lenders and issuing banks, and JP Morgan Chase Bank, N.A. +S-1 10.2 9/30/2024 +10.1.1 +Amendment No. 1 to the ABL Credit Agreement, dated as of August 12, 2021, by and among Imola Acquisition Corporation, Ingram Micro Inc., the borrowers therein, and JP Morgan Chase Bank, N.A. +S-1 10.2.1 9/30/2024 +10.1.2 +Amendment No. 2 to the ABL Credit Agreement, dated as of May 30, 2023, by and among Imola Acquisition Corporation, Ingram Micro Inc., the other credit parties party thereto, lenders and issuing banks party thereto, and JPMorgan Chase Bank, N.A. +S-1 10.2.2 9/30/2024 +10.1.3 +Amendment No. 3 to the ABL Credit Agreement, dated as of June 17, 2024, by and among Ingram Micro Inc. and JPMorgan Chase Bank, N.A. +S-1 10.2.3 9/30/2024 +10.1.4 +Amendment No. 4 to the ABL Credit Agreement, dated as of September 20, 2024, by and among Imola Acquisition Corporation, Ingram Micro Inc., the other credit parties and non-credit parties thereto, the lenders and issuing banks party thereto, and JPMorgan Chase Bank, N.A. +S-1 10.2.4 9/30/2024 +10.2** +Term Loan Credit Agreement, dated as of July 2, 2021, by and among Imola Acquisition Corporation, Ingram Micro Inc., JP Morgan Chase Bank, N.A., and the lenders, agents and other parties thereto. +S-1 10.3 9/30/2024 +10.2.1 +Amendment No. 1 to the Term Loan Credit Agreement, dated as of June 23, 2023, by JPMorgan Chase Bank, N.A. +S-1 10.3.1 9/30/2024 +10.2.2 +Amendment No. 2 to the Term Loan Credit Agreement, dated as of September 27, 2023, by JPMorgan Chase Bank, N.A. +S-1 10.3.2 9/30/2024 +10.2.3 +Amendment No. 3 to the Term Loan Credit Agreement, dated as of September 20, 2024, by and among Imola Acquisition Corporation, Ingram Micro Inc., JPMorgan Chase Bank, N.A., and the lenders party thereto. +S-1 10.3.3 9/30/2024 +10.3 +Form of Indemnification Agreement for Officers and Directors. +S-1 10.4 9/30/2024 +153 +Incorporated by Reference +Exhibit No. Exhibit Description Filed Herewith Form Period Ending Exhibit Filing Date +10.4† +2024 Stock Incentive Plan. +S-8 99.1 10/23/2024 +10.4.1† +2024 Stock Incentive Plan, form of Restricted Stock Unit Grant Notice and Agreement (Non-Employee Directors). +S-1 10.5.1 9/30/2024 +10.4.2† +2024 Stock Incentive Plan, form of Restricted Stock Unit Grant Notice and Agreement (IPO Grants). +S-1 10.5.2 9/30/2024 +10.4.3† +2024 Stock Incentive Plan, form of Performance Restricted Stock Unit Grant Notice and Agreement (IPO Grants). +S-1 10.5.3 9/30/2024 +10.4.4† +2024 Stock Incentive Plan, form of Restricted Stock Unit Grant Notice and Agreement. +X +10.4.5† +2024 Stock Incentive Plan, form of Performance Restricted Stock Unit Grant Notice and Agreement. +X +10.5† +Third Amended and Restated Transition Agreement, effective as of December 30, 2023, by and between Alain Monié and Ingram Micro Inc. +S-1 10.6 9/30/2024 +10.6† +Letter agreement with Paul Bay, dated December 22, 2021. +S-1 10.7 9/30/2024 +10.7† +Supplemental Investment Savings Plan (conformed copy incorporating all amendments through January 1, 2019). +S-1 10.8 9/30/2024 +10.8† +Executive Change in Control Severance Plan. +S-1 10.9 9/30/2024 +10.9† +Executive Officer Severance Policy. +S-1 10.10 9/30/2024 +10.10† +Executive Incentive Program. +S-1 10.11 9/30/2024 +10.11† +Retention Bonus Letter Agreement +X +19.1 +Insider Trading Policy +X +21.1 +Subsidiaries of the Company. +X +23.1 +Consent of Price w aterhouseCoopers LLP, Independent Registered Public Accounting Firm. +X +24.1 Power of Attorney (see signature page of this report). X +31.1 +Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002. +X +31.2 +Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002. +X +32.1 +Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002. +X +97.1 +Policy for the Recovery of Erroneously Awarded Compensation +X +101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. X +101.SCH Inline XBRL Taxonomy Extension Schema Document X +101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X +101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X +101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X +154 +Incorporated by Reference +Exhibit No. Exhibit Description Filed Herewith Form Period Ending Exhibit Filing Date +101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X +104 Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101). X +** Certain schedules and/or exhibits have been omitted. The Company agrees to furnish a supplemental copy of any omitted schedule or attachment to the SEC upon request. +† Indicates management contract or compensatory plan, contract or arrangement. +Item 16. Form 10-K Summary +None. +155 +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +INGRAM MICRO HOLDING CORPORATION +By: /s/ Paul Bay +Name: Paul Bay +Title: Chief Executive Officer +Date: March 5, 2025 +POWER OF ATTORNEY +Each person whose signature appears below constitutes and appoints each of Paul Bay, Michael Zilis, and Augusto Aragone, acting alone or together with another attorney-in-fact, as his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for such person and in his or her name, place, and stead, in any and all capacities, to sign any or all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Signatures Title Date +/s/ Paul Bay +Chief Executive Officer +(principal executive officer) +March 5, 2025 +Paul Bay +/s/ Michael Zilis +Executive Vice President and Chief Financial Officer +(principal financial officer) March 5, 2025 +Michael Zilis +/s/ Cari Hornstein +Senior Vice President, Controller and Chief Accounting Officer (principal +accounting officer) March 5, 2025 +Cari Hornstein +/s/ Felicia Alvaro +Director March 5, 2025 +Felicia Alvaro +/s/ Craig Ashmore +Director March 5, 2025 +Craig Ashmore +/s/ Christian Cook +Director March 5, 2025 +Christian Cook +/s/ Jakki Haussler +Director March 5, 2025 +Jakki Haussler +/s/ Leslie Heisz +Director March 5, 2025 +Leslie Heisz +156 +/s/ Bryan Kelln +Director March 5, 2025 +Bryan Kelln +/s/ Jacob Kotzubei +Director March 5, 2025 +Jacob Kotzubei +/s/ Matthew Louie +Director March 5, 2025 +Matthew Louie +/s/ Alain Monié +Director March 5, 2025 +Alain Monié +/s/ Mary Ann Sigler +Director March 5, 2025 +Mary Ann Sigler +/s/ Sharon Wienbar +Director March 5, 2025 +Sharon Wienbar +/s/ Eric Worley +Director March 5, 2025 +Eric Worley +157 \ No newline at end of file diff --git a/raw/filings/0001897762/2024/0001628280-25-010298/filing_metadata.csv b/raw/filings/0001897762/2024/0001628280-25-010298/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..8cd2077d58e426abb0f5b9b702b3ba4a1c1d7dbf --- /dev/null +++ b/raw/filings/0001897762/2024/0001628280-25-010298/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001897762,INGM,Ingram Micro Holding Corp,2024,10-K,2025-03-05,2024-12-28,2025-03-05T16:10:04.000Z,0001628280-25-010298,ingm-20241228.htm,10-K,14959165,1,1,https://www.sec.gov/Archives/edgar/data/1897762/000162828025010298/ingm-20241228.htm,https://www.sec.gov/Archives/edgar/data/1897762/000162828025010298/ diff --git a/raw/filings/0001897762/2024/0001628280-25-010298/item1.txt b/raw/filings/0001897762/2024/0001628280-25-010298/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..fdda1b86c51e8318ee2a3d903e86f59535b54c7e --- /dev/null +++ b/raw/filings/0001897762/2024/0001628280-25-010298/item1.txt @@ -0,0 +1,76 @@ +Item 1. Business +Overview +Ingram Micro is a leading solutions provider by revenue and/or by global footprint for the global information technology (“IT”) ecosystem helping power the world’s leading technology brands. With our vast infrastructure and focus on client and endpoint solutions, advanced solutions offerings, cloud-based and other solutions, we enable our business partners to scale and operate more efficiently in the markets they serve. We are at the center of the technology ecosystem and deliver customized solutions to our vendor and reseller partners, enabling them to provide excellent business outcomes to the end-user companies and consumers we serve. Through our global reach, our industry-leading business-to-business (“B2B”) platform, and our broad portfolio of products, professional services offerings and software, cloud and digital solutions, we remove complexity and maximize the value of the technology products our partners make, sell or use, providing the world more ways to realize the promise of technology. In the face of significant economic uncertainty and volatility in commercial markets globally, our business remains well-positioned to benefit from technology megatrends, including cloud migration, enhanced security needs, Internet-of-Things (“IoT”), hybrid work, artificial intelligence (“AI”), machine learning (“ML”), and 5G. Our business is organized into four reportable segments based on the different geographic regions in which we operate: North America; Europe, Middle East and Africa (“EMEA”); Asia-Pacific; and Latin America. +In October 2024 we completed an initial public offering (“IPO”), in which we issued and sold 11,600,000 shares of our Common Stock, and Imola JV Holdings, L.P. agreed to offer and sold 7,000,000 shares of their Common Stock at a public offering price of $22.00 per share. The underwriters were granted a 30-day option to purchase up to an additional 2,790,000 shares of Common Stock from Imola JV Holdings, L.P., the selling stockholder, which was exercised in full and closed on November 4, 2024. +Our Fiscal Year is a 52- or 53-week period ending on the Saturday nearest to December 31. All references herein to “Fiscal Year 2024”, “Fiscal Year 2023”, and “Fiscal Year 2022” represent the fiscal years ended December 28, 2024 (52 weeks), December 30, 2023 (52 weeks) and December 31, 2022 (52 weeks), respectively. +Our Strategic Priorities +We are a technology-focused company and have invested heavily in developing and acquiring technology, including intellectual property, to enable our partners’ success. We expect our continued investment in robotics and automation within our advanced logistics centers will augment our efficient, customer-centric delivery capabilities and that our continued investment in our digital capabilities, including in the integration of more than 20 proprietary AI-driven engines within Ingram Micro Xvantage, will enhance the experience of our customers and vendors. We have a proven track record of profitable growth which has enabled us to achieve a position of great competitive strength and remain focused on continuing to deliver strong future growth. We recognize the market’s need for sophisticated IT solutions and our strategies are developed with this in mind. Our overall objective is to continue to expand our business and our profitability by delivering innovative and thoughtful solutions to enable business partners to scale and operate more efficiently and successfully in the markets they serve. +Our strategic priorities are aligned to achieve this objective and focus on: +• Adding digital tools and services to deepen engagement with customers and vendors and continuing to develop a transformative, fully digital platform to further simplify, automate, digitize and scale the delivery of our products and solutions portfolio. Through our Xvantage platform, we deliver a singular business-to-consumer-like experience to our vendor and customer partners in the B2B market to interact, learn, partner, plan and consume technology via seamless and autonomous engines. +• Growing our emerging technologies practices, including cybersecurity and AI, and further extending our technology portfolio to build out additional higher value, more complex product and services offerings. +• Enhancing profitability through operational improvement initiatives, digitization and automation. +5 +Our Products and Solutions +We provide a broad line of technology, services and solutions from more than 1,500 vendor partners, enabling us to offer comprehensive solutions to our reseller customers. Our suppliers are the world’s most trusted technology leaders, along with emerging technology brands, which include the industry’s premier computer hardware suppliers, mobility hardware suppliers, networking equipment suppliers and software publishers such as Advanced Micro Devices, Apple, Cisco, Dell Technologies, Hewlett Packard Enterprise, HP Inc., Lenovo, Microsoft, NVIDIA and Super Micro Computer. +We also work with suppliers of computer peripherals, consumer electronics, cloud-based solutions, unified communication and collaboration, data capture/point-of-sale (“DC / POS”) and physical security products. Our cloud portfolio comprises third-party services and subscriptions spanning a breadth of products from solution software to infrastructure-as-a-service. Our Ingram Micro Cloud Marketplace service portfolio consists of third-party cloud-based services or subscription offerings sold through our own platform. Vendors on the platform include Adobe, Amazon Web Services, Cisco, Microsoft, and Proofpoint. We sell products purchased from many vendors, but generated approximately 19%, 16% and 15% of our consolidated net sales in Fiscal Year 2024, Fiscal Year 2023 and Fiscal Year 2022, respectively, from products purchased from Apple Inc. Additionally, we generated approximately 10% of our consolidated net sales in Fiscal Year 2024, Fiscal Year 2023 and Fiscal Year 2022, from products purchased from HP Inc. +Our cloud marketplace, which in certain key jurisdictions has already been integrated into one unified Ingram Micro Xvantage platform, connects partners with what we believe to be the world’s largest cloud ecosystem, enabling them to generate demand more efficiently and provide third-party cloud-based services and subscription offerings through a digital platform for the consumption of cloud solutions in an ever-increasing cloud-centric world. We support more than 200 cloud solutions and manage over 36 million seats through our cloud marketplace. Our CloudBlue platform also provides services to many of the world’s leading telecommunication companies, as well as to managed service providers, technology distributors and value-added resellers, and manages over 52 million seats. Our professional services offerings add value to our partners and customers by providing data-driven business and market insights, pre-sales engineering, post-sale integration, technical support, trade credit, and financing solutions to further grow their businesses. In addition, our IT Asset Disposition (“ITAD”) and Reverse Logistics and Repairs businesses play an important role in advancing environmental sustainability and bridging the digital divide through electronic device reverse logistics, refurbishment, recycling, reuse and resale for organizations, including the world’s largest mobile telecommunication providers. By helping to enable a circular economy, we help our customers in achieving their sustainability goals and enable consumers to access high-quality, affordable smartphones, computers and other devices. +We categorize our product and service offerings into the following categories, each of which is offered in each of our four geographic segments: +Technology Solutions: +• Client and Endpoint Solutions. We offer a variety of higher-volume products targeted for corporate and individual end users, including desktop personal computers, notebooks, tablets, printers, components (including hard drives, motherboards, video cards, etc.), application software, peripherals, and accessories. We also offer a variety of products that enable mobile computing and productivity, including phones, phone tablets (including two-in-one “notebook/tablet” devices), smartphones, feature phones, mobile phone accessories, wearables and mobility software. +• Advanced Solutions . We offer enterprise-grade hardware and software products aimed at corporate and enterprise users and generally characterized by specific projects, which account for lower volumes than Client and Endpoint Solutions but higher-margin products individually and collectively in the form of solutions and related services. And while Advanced Solutions requires higher operational expenditures, primarily in the form of technical capabilities to serve the market, the operating margin delivered by this business is also generally stronger than Client and Endpoint Solutions. Within this product category, we offer servers, storage, networking, hybrid and software-defined solutions, cyber security, power and cooling and virtualization (software and hardware) solutions. This category also includes training, professional services and financing solutions related to these product sets. We also offer customers DC / POS, physical security, audio visual & digital signage, Unified Communications and Collaboration ( “ UCC ” ) and Telephony, IoT (smart office/home automation) and AI products. +6 +Cloud: +• Comprised of Cloud-based Solutions, including third-party services and subscriptions spanning a breadth of products from solution software through infrastructure-as-a-service. As technology consumption increasingly moves to anything-as-a-service, we have expanded our cloud solutions to more than 200 third-party cloud-based services or subscription offerings, including business applications, security, communications and collaboration, cloud enablement solutions and infrastructure-as-a-service. Also included here are the offerings of our CloudBlue business, which provides customers with multichannel and multi-tier catalog management, subscription management, billing and orchestration capabilities through a software-as-a-service model. +Other: +• We provide customers with ITAD, reverse logistics and repair and other related solutions. These offerings repres ent less than 5% of net sales fo r all periods presented herein. +Our Customers +We distribute IT and mobility solutions to more than 161,000 reseller customers, including most of the leading resellers of IT products and services around the world and with many of the world’s leading mobility companies. We serve a customer base that includes value-added resellers, corporate resellers, retailers, custom installers, systems integrators, mobile network operators, mobile virtual network operators, direct marketers, internet-based resellers, independent dealers, product category specialists, reseller purchasing associations, managed service providers, cloud services providers, PC assemblers, independent agents and dealers, IT and mobile device manufacturers and other distributors. Many of our customers are heavily dependent on partners with the necessary systems, capital, inventory availability, logistics capabilities and distribution and repair facilities in place to provide fulfillment and other services. We benefit from a broad geographic presence in 57 countries that in turn can service more than 90% of the world’s population across more than 200 countries globally and are trusted by many of the world’s leading telecommunications companies, mobile operators and retail and consumer brands. We aim to reduce our exposure to the impact of business fluctuations by maintaining a balance in the customer categories we serve. No single customer accounted for more than 10% of our total net sales in any of the periods presented herein. +Sales & Marketing +Our global, customer-facing sales and marketing team, enabled by our Xvantage platform, drives our go-to-market model centered on a deep understanding of our customer needs, and a goal to provide the industry’s broadest solutions offering to meet evolving customer demand and increasing technology complexity. We have operations in 57 countries, spanning all global regions, while also serving many additional geographies through various export sales offices, including general telesales operations into numerous markets. Our sales teams work closely with our marketing organization to actively pursue leads generated from marketing programs and guide prospective customers through the sales process. +Our marketing effort is focused on generating awareness of Ingram Micro’s solutions offering, creating sales leads, establishing and promoting our brand and our vendor partners’ products. Additionally, we offer a wide range of training, professional services, education and support offerings to enable our customers to rapidly onboard, adopt and ultimately realize value from our solutions. +Our sales and marketing organization includes sales development, sales operations, field sales and marketing personnel. As of December 28, 2024, we had approximately 10,200 associates in our sales and marketing organizations spanning all global regions. +International Operations +Approximately 66%, 64% and 62% of our consolidated net sales for Fiscal Year 2024, Fiscal Year 2023 and Fiscal Year 2022, respectively, were generated by our international operations. As our international operations constitute a significant portion of our consolidated net sales, they are subject to fluctuations in the U.S. dollar against foreign currencies. +7 +Seasonality +We experience some seasonal fluctuations in demand in our business. For instance, we typically see lower demand, particularly in Europe, during the summer months. Additionally, we also experience an increase in demand in the fourth quarter, driven primarily by typical enterprise budgeting cycles across our geographies and business categories and the pre-holiday stocking and associated higher logistics-based fulfillment fees, which tends to have greater seasonal impact on our Client and Endpoint Solutions and Other categories. These seasonal fluctuations have historically impacted our revenue and working capital including receivables, payables and inventory. Our extensive experience combined with a flexible workforce allows us to modulate our operations and workforce demand fluctuations throughout the year. +Competition +We operate in a competitive environment globally. Competition in our business is based primarily on factors such as level of service, products and solutions breadth and availability, subscription management capabilities, credit terms and availability, price, financing solutions, speed of delivery, effectiveness of sales and marketing programs, real-time analytic offerings and e-commerce tools. We compete with other high-volume and value-added international distributors, as well as numerous other smaller, specialized local and regional competitors who generally focus on narrower markets, products, or particular sectors. We also face competition from our vendors that sell directly to resellers, retailers and end-users. Our top competitors include global companies such as TD Synnex, Arrow Electronics, Inc., Scansource, Inc., Westcon-Comstor, Synnex Technology International and Anixter International, and local and regional distributors such as Also Holding, Esprinet, Redington, Exclusive Networks, Intcomex, D&H, Carahsoft, AppDirect and Pax8, along with a number of other smaller local distributors. We believe that we are well-equipped to outperform our competitors in all areas due to our comprehensive product and service offerings, broad global reach, highly skilled workforce and global distribution network. +Government Regulation +We are subject to a number of U.S. federal, U.S. state and foreign laws and regulations, covering tax, environmental (relating to product stewardship, including the European Union Waste Electrical and Electronic Equipment Directive), labor and employment, workplace safety advertising, intellectual property, federal securities, trade protection, anti-money-laundering, anti-corruption and anti-bribery, anti-competition, antitrust, internet and e-commerce, network security, encryption, payments and consumer protection relating to the promotion and sale of merchandise and the operation of fulfillment centers. The products we sell may be subject to tariffs, treaties and various trade agreements, as well as foreign and domestic laws and regulations affecting the import and export of IT products. For more information on the risks associated with complying with applicable laws, please see “Risk Factors—Risks Related to the Macroeconomic and Regulatory Environment—We operate a global business that exposes us to risks associated with conducting business in multiple jurisdictions” and “Risk Factors—Risks Related to the Macroeconomic and Regulatory Environment—Our failure to comply with the requirements of environmental, health and safety regulations or other laws and regulations applicable to a distributor of consumer products could adversely affect our business.” +We are also subject to data privacy, data security and data protection laws and regulations that impose restrictions on the collection, processing and use of personal data in the jurisdictions in which we operate. For instance, we are subject to the California Consumer Privacy Act and other U.S. state comprehensive privacy laws; the General Data Protection Regulation (“GDPR”) and European Economic Area (“EEA”) member state implementing laws, including as retained in UK law; other similar laws in Brazil and elsewhere; restrictions related to e-marketing, including the ePrivacy Directive in the EEA and the Privacy and Electronic Communications Regulation in the UK; and data localization requirements in China and Russia. The legal and regulatory environment in this space is constantly developing, with an expanding number of jurisdictions considering or enacting new privacy or data security laws, which may not correspond with previously enacted requirements. Ensuring our ongoing compliance with any new requirements may generate additional or unanticipated costs, or otherwise impact our financial condition. For more information on risks related to the development of these laws, see “Risk Factors—Risks Related to Information Technology, Data Privacy and Intellectual Property—Changes in the regulatory environment regarding privacy and data protection regulations could have a material adverse effect on our results of operations.” +We monitor changes in the laws and regulations to which we are subject. Our legal and compliance team and our information security team oversee our data protection strategy and monitor our compliance with laws and regulations generally. These teams manage, implement and oversee internal privacy policies and security measures, including regular monitoring and testing of systems and equipment. +8 +We believe that we are in material compliance with applicable laws and regulations, and we are not aware of any laws or regulations that are likely to materially impact our net sales, cash flow or competitive positions or result in any material expenditures. However, many of the laws and regulations to which we are subject continue to develop and could be interpreted, applied or amended in ways that are unfavorable to our business. +Our Trademarks and Service Marks +We own or license various trademarks and service marks, including, among others, “Ingram Micro,” the Ingram Micro logo, “CloudBlue,” “Aptec,” “Xvantage” and “Trust X Alliance.” Certain of these marks are registered, or are in the process of being registered, in the United States and various other countries. Even though our marks are not registered in every country where we conduct business, in many cases we have acquired rights in those marks because of our continued use of them. +Human Capital Resources +As of December 28, 2024, we had approximately 23,500 full-time associates. Additionally, as of December 28, 2024 we utilized the services of approximately 5,250 full-time equivalent temporary or contract workers at peak, who provide us with the workforce agility we require. Works councils or unions represent some of our associates in certain countries, almost exclusively where required by local regulations or brought in through acquisitions; our U.S. associates are not represented by a labor union, nor are they covered by a collective bargaining agreement. +Ethical Conduct +We believe our culture of ethics and integrity is built on a foundation of strong corporate governance, encapsulated in our Code of Conduct. Fair business practices are fundamental to our ability to establish trust with our partners, our associates and the communities in which we operate as well as maintain our reputation. Our ethical compliance program, which is overseen by the audit committee of our board of directors, covers areas such as anti-corruption, anti-bribery, anti-money laundering and harassment and whistleblower compliance. The program spans all our entities, across all operating regions and markets in which we have a presence. We are also a member of the Global Technology Distribution Council, which comprises the technology industry’s top wholesale distributors who drive more than $150 billion in annual worldwide sales, allowing us to participate in the development of an industry approach to address corruption. +Total Rewards +We believe people should be paid for what they do and how they do it, regardless of their personal characteristics. To deliver on that commitment, we benchmark and set pay ranges based on market data and consider factors such as an associate’s role and experience, the location of their job and their performance. We also review our compensation practices, both in terms of our overall workforce and individual associates, to ensure our pay is fair and equitable. We have reviewed the compensation of associates to ensure consistent pay practices by conducting annual rewards equity reviews. +We offer total rewards that are market-competitive and performance-based, driving innovation and operational excellence. Our compensation programs, practices and policies reflect our commitment to reward short- and long-term performance that aligns with, and drives, value for our owners. Total direct compensation is generally positioned within a competitive range of the market median, with differentiation based on tenure, skills, proficiency and performance to attract and retain key talent. +Associate Engagement +We regularly collect feedback to better understand and improve the associate experience and identify opportunities to continually strengthen our culture. We want to know what is working well, what we can do better and how well our associates understand our priorities and live by the Tenets of Our Success. In 2023, 84% of respondents who received our full associate survey participated. Our results equaled or exceeded our survey provider’s High Performance Benchmark in eight of thirteen categories and equaled or increased our favorable results in eleven of thirteen categories since our last full survey in 2021. +We help our associates and communities thrive through career development programs, embracing inclusivity and diversity while promoting service and our continued focus on health and safety. We are proud to support the philanthropic interests of our associates through volunteerism and giving programs. +9 +Training and Development +People development is foundational to our success. We continually invest in our associates’ career growth and provide a wide range of development opportunities. In 2024, approximately 77% of our executive positions were filled with internal candidates. We also deployed a new career development framework to further accelerate the development of our colleagues at all levels and areas of the business. +Health, Safety and Wellness +The physical health, financial well-being, life balance and mental health of our associates is vital to our success. Throughout the year, we encourage healthy behaviors through regular communications, educational sessions, voluntary progress tracking, wellness challenges and other incentives. In January 2021, we implemented a global employee assistance program to ensure that all associates and their immediate families have access to many tools and sources of support that address their financial, physical and mental well-being. Our warehouse and integration facilities continue to represent our most significant health and safety risks. Our global health and safety leadership team uses our global injury and illness reporting system to assess trends regionally and worldwide as part of quarterly reviews. Managing and reducing risks at these facilities remains a focus, and injury rates continue to be low. +Sustainable Impact +Our sustainable impact program is overseen by an executive steering committee consisting of our: +• Chief Executive Officer, +• Executive Vice President and Chief Financial Officer, +• Executive Vice President, Secretary and General Counsel, +• Executive Vice President, Human Resources, and +• Executive Vice President, Global Operations and Engineering. +This executive steering committee receives periodic briefings from our global sustainability team and individual program owners. Responsibility is one of the Tenets of Our Success as a company, and environmental stewardship is one area in which we demonstrate our responsibility. We have established targets for reducing greenhouse gas (“GHG”) emissions and waste in our operations. In December 2024, Ingram Micro received approval from the Science Based Targets initiative for its near-term climate targets, including its goal to reduce absolute Scope 1 and 2 GHG emissions by 90% by 2030, using a 2022 base year. +To support a circular economy, our ITAD business focuses on the reuse and recycling of electronics, and, as of December 28, 2024, a total of five of our ITAD processing facilities held e-Stewards certifications, four of which were in North America. Since 2019, we have been a registered SmartWay Shipper Partner in the Environmental Protection Agency’s SmartW ay Program, which allows us to benchmark our performance and assess the environmental impact of our transportation in the United States, as well as measure the fuel efficiency of our carrier partners, helping us address the carbon impacts of goods movement within our value chain. +In early 2024, the Company’s broad-based sustainability efforts were recognized by EcoVadis, a well-known third-party provider of evidence-based business sustainability assessments, who gave Ingram Micro a Platinum medal rating, reserved for the top one percent of the more than 125,000 companies on its platform. We believe this recognition signifies a substantial validation of our company’s commitment and leadership in sustainable and responsible business operations. +Available Information +Our website is http://www.ingrammicro.com. We make available free of charge, on or through our website, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, if any, or other filings filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after electronically filing or furnishing these reports with the Securities and Exchange Commission ("SEC"). We also make available free of charge on our investor relations website at ir.ingrammicro.com our Audit Committee Charter, Compensation Committee Charter, Nominating and Corporate Governance Committee Charter, Code of Conduct, Corporate Governance Guidelines, Insider Trading Policy, Board Communications with Stockholders Policy, Anti-Bribery policy, and Non-Retaliation Policies. +10 +The SEC maintains an Internet site at http://www.sec.gov that contains our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, if any, or other filings filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, and our proxy and information statements. Unless expressly noted, the information on our website, including our investor relations website, or any other website is not incorporated by reference in this Annual Report on Form 10-K and should not be considered part of this Annual Report on Form 10-K or any other filing we make with the SEC. +11 \ No newline at end of file diff --git a/raw/filings/0001897762/2024/0001628280-25-010298/item13.txt b/raw/filings/0001897762/2024/0001628280-25-010298/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..b286d2aea7163998e42d94cf55c9cdaad05acae4 --- /dev/null +++ b/raw/filings/0001897762/2024/0001628280-25-010298/item13.txt @@ -0,0 +1,2 @@ +Item 13. Certain Relationships and Related Transactions, and Director Independence +149 \ No newline at end of file diff --git a/raw/filings/0001897762/2025/0001628280-26-013588/filing.txt b/raw/filings/0001897762/2025/0001628280-26-013588/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..878d98ff8f4a64738b185bfa7451374f58836fb3 --- /dev/null +++ b/raw/filings/0001897762/2025/0001628280-26-013588/filing.txt @@ -0,0 +1,2215 @@ +ingm-20251227 +0001897762 2025 FY FALSE P3Y http://fasb.org/us-gaap/2025#AccountsPayableCurrent http://fasb.org/us-gaap/2025#AccountsPayableCurrent iso4217:USD xbrli:shares iso4217:USD xbrli:shares xbrli:pure utr:Rate iso4217:EUR ingm:employee iso4217:BRL iso4217:SAR 0001897762 2024-12-29 2025-12-27 0001897762 2025-06-28 0001897762 2026-02-23 0001897762 2025-12-27 0001897762 2024-12-28 0001897762 2023-12-31 2024-12-28 0001897762 2023-01-01 2023-12-30 0001897762 us-gaap:CommonClassAMember us-gaap:CommonStockMember 2022-12-31 0001897762 us-gaap:CommonClassBMember us-gaap:CommonStockMember 2022-12-31 0001897762 us-gaap:CommonStockMember 2022-12-31 0001897762 us-gaap:AdditionalPaidInCapitalMember 2022-12-31 0001897762 us-gaap:RetainedEarningsMember 2022-12-31 0001897762 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-12-31 0001897762 2022-12-31 0001897762 us-gaap:RetainedEarningsMember 2023-01-01 2023-12-30 0001897762 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-01-01 2023-12-30 0001897762 us-gaap:CommonClassAMember us-gaap:CommonStockMember 2023-12-30 0001897762 us-gaap:CommonClassBMember us-gaap:CommonStockMember 2023-12-30 0001897762 us-gaap:CommonStockMember 2023-12-30 0001897762 us-gaap:AdditionalPaidInCapitalMember 2023-12-30 0001897762 us-gaap:RetainedEarningsMember 2023-12-30 0001897762 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-12-30 0001897762 2023-12-30 0001897762 us-gaap:RetainedEarningsMember 2023-12-31 2024-12-28 0001897762 us-gaap:CommonClassAMember us-gaap:CommonStockMember 2023-12-31 2024-12-28 0001897762 us-gaap:CommonClassBMember us-gaap:CommonStockMember 2023-12-31 2024-12-28 0001897762 us-gaap:CommonStockMember 2023-12-31 2024-12-28 0001897762 us-gaap:AdditionalPaidInCapitalMember 2023-12-31 2024-12-28 0001897762 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-12-31 2024-12-28 0001897762 us-gaap:CommonClassAMember us-gaap:CommonStockMember 2024-12-28 0001897762 us-gaap:CommonClassBMember us-gaap:CommonStockMember 2024-12-28 0001897762 us-gaap:CommonStockMember 2024-12-28 0001897762 us-gaap:AdditionalPaidInCapitalMember 2024-12-28 0001897762 us-gaap:RetainedEarningsMember 2024-12-28 0001897762 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-12-28 0001897762 us-gaap:RetainedEarningsMember 2024-12-29 2025-12-27 0001897762 us-gaap:AdditionalPaidInCapitalMember 2024-12-29 2025-12-27 0001897762 us-gaap:CommonStockMember 2024-12-29 2025-12-27 0001897762 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-12-29 2025-12-27 0001897762 us-gaap:CommonClassAMember us-gaap:CommonStockMember 2025-12-27 0001897762 us-gaap:CommonClassBMember us-gaap:CommonStockMember 2025-12-27 0001897762 us-gaap:CommonStockMember 2025-12-27 0001897762 us-gaap:AdditionalPaidInCapitalMember 2025-12-27 0001897762 us-gaap:RetainedEarningsMember 2025-12-27 0001897762 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2025-12-27 0001897762 us-gaap:CommonClassBMember 2024-10-23 0001897762 us-gaap:CommonClassAMember 2024-10-23 0001897762 2024-10-23 2024-10-23 0001897762 us-gaap:IPOMember 2024-10-01 2024-10-31 0001897762 ingm:ImolaJVHoldingsL.P.Member us-gaap:IPOMember 2024-10-01 2024-10-31 0001897762 us-gaap:IPOMember 2024-10-31 0001897762 ingm:TermLoanCreditFacilityMember 2024-10-01 2024-10-31 0001897762 us-gaap:OverAllotmentOptionMember 2024-11-04 2024-11-04 0001897762 ingm:AppleIncMember us-gaap:SupplierConcentrationRiskMember us-gaap:SalesRevenueNetMember 2024-12-29 2025-12-27 0001897762 ingm:AppleIncMember us-gaap:SupplierConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-12-31 2024-12-28 0001897762 ingm:AppleIncMember us-gaap:SupplierConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-30 0001897762 ingm:HPInc.Member us-gaap:SupplierConcentrationRiskMember us-gaap:SalesRevenueNetMember 2024-12-29 2025-12-27 0001897762 ingm:HPInc.Member us-gaap:SupplierConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-12-31 2024-12-28 0001897762 ingm:HPInc.Member us-gaap:SupplierConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-30 0001897762 ingm:LenovoMember us-gaap:SupplierConcentrationRiskMember us-gaap:SalesRevenueNetMember 2024-12-29 2025-12-27 0001897762 ingm:LenovoMember us-gaap:SupplierConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-12-31 2024-12-28 0001897762 ingm:LenovoMember us-gaap:SupplierConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-30 0001897762 srt:MinimumMember 2025-12-27 0001897762 srt:MaximumMember 2025-12-27 0001897762 srt:MinimumMember us-gaap:BuildingMember 2025-12-27 0001897762 srt:MaximumMember us-gaap:BuildingMember 2025-12-27 0001897762 srt:MinimumMember us-gaap:LeaseholdImprovementsMember 2025-12-27 0001897762 srt:MaximumMember us-gaap:LeaseholdImprovementsMember 2025-12-27 0001897762 srt:MinimumMember us-gaap:MachineryAndEquipmentMember 2025-12-27 0001897762 srt:MaximumMember us-gaap:MachineryAndEquipmentMember 2025-12-27 0001897762 srt:MinimumMember ingm:ComputerEquipmentAndSoftwareMember 2025-12-27 0001897762 srt:MaximumMember ingm:ComputerEquipmentAndSoftwareMember 2025-12-27 0001897762 us-gaap:CustomerRelationshipsMember 2025-12-27 0001897762 us-gaap:CustomerRelationshipsMember 2024-12-28 0001897762 us-gaap:TrademarksAndTradeNamesMember 2025-12-27 0001897762 us-gaap:TrademarksAndTradeNamesMember 2024-12-28 0001897762 us-gaap:DevelopedTechnologyRightsMember 2025-12-27 0001897762 us-gaap:DevelopedTechnologyRightsMember 2024-12-28 0001897762 us-gaap:OtherIntangibleAssetsMember 2025-12-27 0001897762 us-gaap:OtherIntangibleAssetsMember 2024-12-28 0001897762 srt:NorthAmericaMember 2023-12-30 0001897762 us-gaap:EMEAMember 2023-12-30 0001897762 srt:AsiaPacificMember 2023-12-30 0001897762 srt:LatinAmericaMember 2023-12-30 0001897762 srt:NorthAmericaMember 2023-12-31 2024-12-28 0001897762 us-gaap:EMEAMember 2023-12-31 2024-12-28 0001897762 srt:AsiaPacificMember 2023-12-31 2024-12-28 0001897762 srt:LatinAmericaMember 2023-12-31 2024-12-28 0001897762 srt:NorthAmericaMember 2024-12-28 0001897762 us-gaap:EMEAMember 2024-12-28 0001897762 srt:AsiaPacificMember 2024-12-28 0001897762 srt:LatinAmericaMember 2024-12-28 0001897762 srt:NorthAmericaMember 2024-12-29 2025-12-27 0001897762 us-gaap:EMEAMember 2024-12-29 2025-12-27 0001897762 srt:AsiaPacificMember 2024-12-29 2025-12-27 0001897762 srt:LatinAmericaMember 2024-12-29 2025-12-27 0001897762 srt:NorthAmericaMember 2025-12-27 0001897762 us-gaap:EMEAMember 2025-12-27 0001897762 srt:AsiaPacificMember 2025-12-27 0001897762 srt:LatinAmericaMember 2025-12-27 0001897762 ingm:EmployeeCashAwardsTimeVestedMember 2024-12-29 2025-12-27 0001897762 ingm:EmployeeCashAwardsPerformanceVestedMember 2024-12-29 2025-12-27 0001897762 ingm:EmployeeCashAwardsMember 2024-12-29 2025-12-27 0001897762 ingm:RestrictedStockUnitsRSUsTimeVestingMember 2024-09-29 2024-12-28 0001897762 us-gaap:PerformanceSharesMember 2024-09-29 2024-12-28 0001897762 ingm:RestrictedStockUnitsRSUsTimeVestingMember us-gaap:ShareBasedCompensationAwardTrancheOneMember 2024-09-29 2024-12-28 0001897762 ingm:RestrictedStockUnitsRSUsTimeVestingMember us-gaap:ShareBasedCompensationAwardTrancheTwoMember 2024-09-29 2024-12-28 0001897762 ingm:KeyEmployeesAwardsMember 2024-12-29 2025-12-27 0001897762 ingm:PerformanceUnitsMember 2021-07-03 2022-01-01 0001897762 us-gaap:FacilityClosingMember us-gaap:SellingGeneralAndAdministrativeExpensesMember 2023-07-02 2023-09-30 0001897762 us-gaap:DiscontinuedOperationsHeldforsaleMember ingm:CloudBlueOperationsMember 2025-03-30 2025-06-28 0001897762 us-gaap:DiscontinuedOperationsHeldforsaleMember ingm:CloudBlueOperationsMember us-gaap:SellingGeneralAndAdministrativeExpensesMember 2025-03-30 2025-06-28 0001897762 us-gaap:DiscontinuedOperationsHeldforsaleMember ingm:CloudBlueOperationsMember us-gaap:CostOfSalesMember 2025-03-30 2025-06-28 0001897762 us-gaap:DiscontinuedOperationsHeldforsaleMember ingm:CloudBlueOperationsMember 2025-06-29 2025-09-27 0001897762 ingm:RevisionOfPriorPeriodErrorCorrectionAdjustmentOneMember 2023-12-31 2024-12-28 0001897762 ingm:RevisionOfPriorPeriodErrorCorrectionAdjustmentTwoMember 2023-12-31 2024-12-28 0001897762 srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember 2023-12-31 2024-12-28 0001897762 ingm:ColsofMember 2024-09-28 0001897762 ingm:ColsofMember 2024-06-30 2024-09-28 0001897762 ingm:EarnOutLiabilitiesMember 2024-12-29 2025-12-27 0001897762 ingm:EarnOutLiabilitiesMember 2025-12-27 0001897762 ingm:EarnOutLiabilitiesMember 2023-12-31 2024-12-28 0001897762 ingm:EarnOutLiabilitiesMember 2024-12-28 0001897762 us-gaap:LandMember 2025-12-27 0001897762 us-gaap:LandMember 2024-12-28 0001897762 ingm:BuildingAndLeaseholdImprovementsMember 2025-12-27 0001897762 ingm:BuildingAndLeaseholdImprovementsMember 2024-12-28 0001897762 us-gaap:MachineryAndEquipmentMember 2025-12-27 0001897762 us-gaap:MachineryAndEquipmentMember 2024-12-28 0001897762 ingm:ComputerEquipmentAndSoftwareMember 2025-12-27 0001897762 ingm:ComputerEquipmentAndSoftwareMember 2024-12-28 0001897762 ingm:DepreciablePropertyPlantAndEquipmentMember 2025-12-27 0001897762 ingm:DepreciablePropertyPlantAndEquipmentMember 2024-12-28 0001897762 us-gaap:ConstructionInProgressMember 2025-12-27 0001897762 us-gaap:ConstructionInProgressMember 2024-12-28 0001897762 ingm:SeniorSecuredNotesDue2029Member us-gaap:SeniorNotesMember 2025-12-27 0001897762 ingm:SeniorSecuredNotesDue2029Member us-gaap:SeniorNotesMember 2024-12-28 0001897762 us-gaap:RevolvingCreditFacilityMember ingm:TermLoanCreditFacilityMember us-gaap:LineOfCreditMember 2025-12-27 0001897762 us-gaap:RevolvingCreditFacilityMember ingm:TermLoanCreditFacilityMember us-gaap:LineOfCreditMember 2024-12-28 0001897762 ingm:RevolvingTradeAccountsReceivableBackedFinancingProgramsMember 2025-12-27 0001897762 ingm:RevolvingTradeAccountsReceivableBackedFinancingProgramsMember 2024-12-28 0001897762 us-gaap:RevolvingCreditFacilityMember ingm:LinesOfCreditAndOtherDebtMember us-gaap:LineOfCreditMember 2025-12-27 0001897762 us-gaap:RevolvingCreditFacilityMember ingm:LinesOfCreditAndOtherDebtMember us-gaap:LineOfCreditMember 2024-12-28 0001897762 ingm:SeniorSecuredNotesDue2029Member us-gaap:SeniorNotesMember 2021-04-22 0001897762 ingm:SeniorSecuredNotesDue2029Member us-gaap:SeniorNotesMember 2021-07-02 2021-07-02 0001897762 us-gaap:SeniorNotesMember 2021-07-02 0001897762 ingm:SeniorSecuredNotesDue2029Member us-gaap:SeniorNotesMember 2021-07-02 0001897762 us-gaap:RevolvingCreditFacilityMember ingm:TermLoanCreditFacilityMember us-gaap:LineOfCreditMember 2021-07-02 0001897762 us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2021-07-02 0001897762 us-gaap:RevolvingCreditFacilityMember ingm:TermLoanCreditFacilityMember us-gaap:LineOfCreditMember 2023-06-01 2023-06-30 0001897762 us-gaap:RevolvingCreditFacilityMember ingm:TermLoanCreditFacilityMember us-gaap:LineOfCreditMember 2023-09-01 2023-09-30 0001897762 us-gaap:RevolvingCreditFacilityMember ingm:TermLoanCreditFacilityMember us-gaap:LineOfCreditMember 2024-09-01 2024-09-30 0001897762 us-gaap:RevolvingCreditFacilityMember ingm:TermLoanCreditFacilityMember us-gaap:LineOfCreditMember 2025-06-01 2025-06-30 0001897762 us-gaap:RevolvingCreditFacilityMember us-gaap:BaseRateMember ingm:TermLoanCreditFacilityMember us-gaap:LineOfCreditMember 2024-09-01 2024-09-30 0001897762 us-gaap:RevolvingCreditFacilityMember ingm:OneMonthSOFRRateMember ingm:TermLoanCreditFacilityMember srt:MinimumMember us-gaap:LineOfCreditMember 2024-09-01 2024-09-30 0001897762 us-gaap:RevolvingCreditFacilityMember ingm:OneMonthSOFRRateMember ingm:TermLoanCreditFacilityMember srt:MaximumMember us-gaap:LineOfCreditMember 2024-09-01 2024-09-30 0001897762 us-gaap:RevolvingCreditFacilityMember us-gaap:SecuredOvernightFinancingRateSofrMember ingm:TermLoanCreditFacilityMember us-gaap:LineOfCreditMember 2024-09-01 2024-09-30 0001897762 us-gaap:RevolvingCreditFacilityMember ingm:TermLoanCreditFacilityMember us-gaap:LineOfCreditMember 2024-06-01 2024-06-29 0001897762 us-gaap:RevolvingCreditFacilityMember ingm:TermLoanCreditFacilityMember us-gaap:LineOfCreditMember 2024-10-25 2024-10-25 0001897762 us-gaap:RevolvingCreditFacilityMember ingm:TermLoanCreditFacilityMember us-gaap:LineOfCreditMember 2025-03-01 2025-03-31 0001897762 us-gaap:RevolvingCreditFacilityMember ingm:ABLRevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2021-07-02 0001897762 us-gaap:RevolvingCreditFacilityMember us-gaap:BaseRateMember ingm:ABLRevolvingCreditFacilityMember srt:MinimumMember us-gaap:LineOfCreditMember 2021-07-02 2021-07-02 0001897762 us-gaap:RevolvingCreditFacilityMember us-gaap:BaseRateMember ingm:ABLRevolvingCreditFacilityMember srt:MaximumMember us-gaap:LineOfCreditMember 2021-07-02 2021-07-02 0001897762 us-gaap:RevolvingCreditFacilityMember us-gaap:SecuredOvernightFinancingRateSofrMember ingm:ABLRevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2021-07-02 2021-07-02 0001897762 us-gaap:RevolvingCreditFacilityMember us-gaap:SecuredOvernightFinancingRateSofrMember ingm:ABLRevolvingCreditFacilityMember srt:MinimumMember us-gaap:LineOfCreditMember 2021-07-02 2021-07-02 0001897762 us-gaap:RevolvingCreditFacilityMember us-gaap:SecuredOvernightFinancingRateSofrMember ingm:ABLRevolvingCreditFacilityMember srt:MaximumMember us-gaap:LineOfCreditMember 2021-07-02 2021-07-02 0001897762 us-gaap:RevolvingCreditFacilityMember ingm:ABLRevolvingCreditFacilityMember 2025-12-27 0001897762 us-gaap:RevolvingCreditFacilityMember ingm:ABLRevolvingCreditFacilityMember 2024-12-28 0001897762 us-gaap:RevolvingCreditFacilityMember ingm:ABSFacilityMember us-gaap:LineOfCreditMember 2025-12-27 0001897762 us-gaap:RevolvingCreditFacilityMember ingm:ABSFacilityMember us-gaap:LineOfCreditMember 2024-12-28 0001897762 us-gaap:RevolvingCreditFacilityMember ingm:OtherCreditFacilitiesMember us-gaap:LineOfCreditMember 2025-12-27 0001897762 us-gaap:RevolvingCreditFacilityMember ingm:OtherCreditFacilitiesMember us-gaap:LineOfCreditMember 2024-12-28 0001897762 country:CO 2024-12-29 2025-12-27 0001897762 country:BR 2024-12-29 2025-12-27 0001897762 country:IN 2024-12-29 2025-12-27 0001897762 us-gaap:ForeignTaxJurisdictionOtherMember 2024-12-29 2025-12-27 0001897762 country:US 2024-12-29 2025-12-27 0001897762 ingm:OperatingLossCarryforwardsNotSubjectToExpirationMember 2025-12-27 0001897762 country:LU ingm:OperatingLossCarryforwardsNotSubjectToExpirationMember 2025-12-27 0001897762 country:BE ingm:OperatingLossCarryforwardsNotSubjectToExpirationMember 2025-12-27 0001897762 ingm:OtherMember ingm:OperatingLossCarryforwardsNotSubjectToExpirationMember 2025-12-27 0001897762 ingm:OperatingLossCarryforwardsSubjectToExpirationMember 2025-12-27 0001897762 country:LU ingm:OperatingLossCarryforwardsSubjectToExpirationMember 2025-12-27 0001897762 ingm:OtherMember ingm:OperatingLossCarryforwardsSubjectToExpirationMember 2025-12-27 0001897762 us-gaap:ForeignCountryMember 2025-12-27 0001897762 us-gaap:DomesticCountryMember 2025-12-27 0001897762 country:AU 2024-12-29 2025-12-27 0001897762 country:GB 2024-12-29 2025-12-27 0001897762 country:NL 2024-12-29 2025-12-27 0001897762 country:PE 2024-12-29 2025-12-27 0001897762 srt:NorthAmericaMember us-gaap:EmployeeSeveranceMember 2024-12-29 2025-12-27 0001897762 srt:NorthAmericaMember us-gaap:FacilityClosingMember 2024-12-29 2025-12-27 0001897762 us-gaap:EMEAMember us-gaap:EmployeeSeveranceMember 2024-12-29 2025-12-27 0001897762 us-gaap:EMEAMember us-gaap:FacilityClosingMember 2024-12-29 2025-12-27 0001897762 srt:AsiaPacificMember us-gaap:EmployeeSeveranceMember 2024-12-29 2025-12-27 0001897762 srt:AsiaPacificMember us-gaap:FacilityClosingMember 2024-12-29 2025-12-27 0001897762 srt:LatinAmericaMember us-gaap:EmployeeSeveranceMember 2024-12-29 2025-12-27 0001897762 srt:LatinAmericaMember us-gaap:FacilityClosingMember 2024-12-29 2025-12-27 0001897762 us-gaap:EmployeeSeveranceMember 2024-12-29 2025-12-27 0001897762 us-gaap:FacilityClosingMember 2024-12-29 2025-12-27 0001897762 srt:NorthAmericaMember us-gaap:EmployeeSeveranceMember 2023-12-31 2024-12-28 0001897762 srt:NorthAmericaMember us-gaap:FacilityClosingMember 2023-12-31 2024-12-28 0001897762 us-gaap:EMEAMember us-gaap:EmployeeSeveranceMember 2023-12-31 2024-12-28 0001897762 us-gaap:EMEAMember us-gaap:FacilityClosingMember 2023-12-31 2024-12-28 0001897762 srt:AsiaPacificMember us-gaap:EmployeeSeveranceMember 2023-12-31 2024-12-28 0001897762 srt:AsiaPacificMember us-gaap:FacilityClosingMember 2023-12-31 2024-12-28 0001897762 srt:LatinAmericaMember us-gaap:EmployeeSeveranceMember 2023-12-31 2024-12-28 0001897762 srt:LatinAmericaMember us-gaap:FacilityClosingMember 2023-12-31 2024-12-28 0001897762 us-gaap:EmployeeSeveranceMember 2023-12-31 2024-12-28 0001897762 us-gaap:FacilityClosingMember 2023-12-31 2024-12-28 0001897762 srt:NorthAmericaMember us-gaap:EmployeeSeveranceMember 2023-01-01 2023-12-30 0001897762 srt:NorthAmericaMember us-gaap:FacilityClosingMember 2023-01-01 2023-12-30 0001897762 srt:NorthAmericaMember 2023-01-01 2023-12-30 0001897762 us-gaap:EMEAMember us-gaap:EmployeeSeveranceMember 2023-01-01 2023-12-30 0001897762 us-gaap:EMEAMember us-gaap:FacilityClosingMember 2023-01-01 2023-12-30 0001897762 us-gaap:EMEAMember 2023-01-01 2023-12-30 0001897762 srt:AsiaPacificMember us-gaap:EmployeeSeveranceMember 2023-01-01 2023-12-30 0001897762 srt:AsiaPacificMember us-gaap:FacilityClosingMember 2023-01-01 2023-12-30 0001897762 srt:AsiaPacificMember 2023-01-01 2023-12-30 0001897762 srt:LatinAmericaMember us-gaap:EmployeeSeveranceMember 2023-01-01 2023-12-30 0001897762 srt:LatinAmericaMember us-gaap:FacilityClosingMember 2023-01-01 2023-12-30 0001897762 srt:LatinAmericaMember 2023-01-01 2023-12-30 0001897762 us-gaap:EmployeeSeveranceMember 2023-01-01 2023-12-30 0001897762 us-gaap:FacilityClosingMember 2023-01-01 2023-12-30 0001897762 us-gaap:EmployeeSeveranceMember 2024-12-28 0001897762 us-gaap:EmployeeSeveranceMember 2025-12-27 0001897762 us-gaap:FacilityClosingMember 2024-12-28 0001897762 us-gaap:FacilityClosingMember 2025-12-27 0001897762 us-gaap:EmployeeSeveranceMember 2023-12-30 0001897762 us-gaap:FacilityClosingMember 2023-12-30 0001897762 ingm:BrazilianTaxAssesmentsMember 2025-12-27 0001897762 ingm:FCAAnticompetitivePracticesInVolumeAllocationMember 2020-03-31 0001897762 ingm:FCAAnticompetitivePracticesInVolumeAllocationMember 2022-10-06 0001897762 ingm:FCAAnticompetitivePracticesInVolumeAllocationMember 2022-07-03 2022-10-01 0001897762 ingm:FCAAnticompetitivePracticesInVolumeAllocationMember 2022-11-04 2022-11-04 0001897762 us-gaap:PendingLitigationMember ingm:CivilClaimInParisCommercialCourtMember 2021-06-03 2021-06-03 0001897762 us-gaap:PendingLitigationMember ingm:CivilClaimInParisCommercialCourtMember 2025-12-27 2025-12-27 0001897762 ingm:SaudiArabiaTaxAssesmentsMember 2021-09-30 0001897762 ingm:SaudiArabiaTaxAssesmentsMember 2025-12-27 0001897762 ingm:From2015Through2020Member ingm:SaudiArabiaTaxAssesmentsMember 2025-12-27 0001897762 ingm:EmployeeCashAwardsMember 2022-12-31 0001897762 ingm:EmployeeCashAwardsMember 2023-01-01 2023-12-30 0001897762 ingm:EmployeeCashAwardsMember 2023-12-30 0001897762 ingm:EmployeeCashAwardsMember 2023-12-31 2024-12-28 0001897762 ingm:EmployeeCashAwardsMember 2024-12-28 0001897762 ingm:EmployeeCashAwardsMember 2025-12-27 0001897762 us-gaap:RestrictedStockUnitsRSUMember 2023-12-30 0001897762 us-gaap:RestrictedStockUnitsRSUMember 2023-12-31 2024-12-28 0001897762 us-gaap:RestrictedStockUnitsRSUMember 2024-12-28 0001897762 us-gaap:RestrictedStockUnitsRSUMember 2024-12-29 2025-12-27 0001897762 us-gaap:RestrictedStockUnitsRSUMember 2025-12-27 0001897762 us-gaap:PerformanceSharesMember 2023-12-30 0001897762 us-gaap:PerformanceSharesMember 2023-12-31 2024-12-28 0001897762 us-gaap:PerformanceSharesMember 2024-12-28 0001897762 us-gaap:PerformanceSharesMember 2024-12-29 2025-12-27 0001897762 us-gaap:PerformanceSharesMember 2025-12-27 0001897762 ingm:KeyEmployeesAwardsMember 2022-12-31 0001897762 ingm:KeyEmployeesAwardsMember 2023-01-01 2023-12-30 0001897762 ingm:KeyEmployeesAwardsMember 2023-12-30 0001897762 ingm:KeyEmployeesAwardsMember 2023-12-31 2024-12-28 0001897762 ingm:KeyEmployeesAwardsMember 2024-12-28 0001897762 us-gaap:OperatingSegmentsMember srt:NorthAmericaMember 2024-12-29 2025-12-27 0001897762 us-gaap:OperatingSegmentsMember srt:NorthAmericaMember 2023-12-31 2024-12-28 0001897762 us-gaap:OperatingSegmentsMember srt:NorthAmericaMember 2023-01-01 2023-12-30 0001897762 us-gaap:OperatingSegmentsMember us-gaap:EMEAMember 2024-12-29 2025-12-27 0001897762 us-gaap:OperatingSegmentsMember us-gaap:EMEAMember 2023-12-31 2024-12-28 0001897762 us-gaap:OperatingSegmentsMember us-gaap:EMEAMember 2023-01-01 2023-12-30 0001897762 us-gaap:OperatingSegmentsMember srt:AsiaPacificMember 2024-12-29 2025-12-27 0001897762 us-gaap:OperatingSegmentsMember srt:AsiaPacificMember 2023-12-31 2024-12-28 0001897762 us-gaap:OperatingSegmentsMember srt:AsiaPacificMember 2023-01-01 2023-12-30 0001897762 us-gaap:OperatingSegmentsMember srt:LatinAmericaMember 2024-12-29 2025-12-27 0001897762 us-gaap:OperatingSegmentsMember srt:LatinAmericaMember 2023-12-31 2024-12-28 0001897762 us-gaap:OperatingSegmentsMember srt:LatinAmericaMember 2023-01-01 2023-12-30 0001897762 us-gaap:OperatingSegmentsMember 2024-12-29 2025-12-27 0001897762 us-gaap:OperatingSegmentsMember 2023-12-31 2024-12-28 0001897762 us-gaap:OperatingSegmentsMember 2023-01-01 2023-12-30 0001897762 us-gaap:CorporateNonSegmentMember 2024-12-29 2025-12-27 0001897762 us-gaap:CorporateNonSegmentMember 2023-12-31 2024-12-28 0001897762 us-gaap:CorporateNonSegmentMember 2023-01-01 2023-12-30 0001897762 us-gaap:MaterialReconcilingItemsMember 2024-12-29 2025-12-27 0001897762 us-gaap:MaterialReconcilingItemsMember 2023-12-31 2024-12-28 0001897762 us-gaap:MaterialReconcilingItemsMember 2023-01-01 2023-12-30 0001897762 country:US 2024-12-29 2025-12-27 0001897762 country:US us-gaap:GeographicConcentrationRiskMember us-gaap:SalesRevenueNetMember 2024-12-29 2025-12-27 0001897762 country:US 2023-12-31 2024-12-28 0001897762 country:US us-gaap:GeographicConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-12-31 2024-12-28 0001897762 country:US 2023-01-01 2023-12-30 0001897762 country:US us-gaap:GeographicConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-30 0001897762 country:CN 2024-12-29 2025-12-27 0001897762 country:CN us-gaap:GeographicConcentrationRiskMember us-gaap:SalesRevenueNetMember 2024-12-29 2025-12-27 0001897762 country:CN 2023-12-31 2024-12-28 0001897762 country:CN us-gaap:GeographicConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-12-31 2024-12-28 0001897762 country:CN 2023-01-01 2023-12-30 0001897762 country:CN us-gaap:GeographicConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-30 0001897762 country:IN 2024-12-29 2025-12-27 0001897762 country:IN us-gaap:GeographicConcentrationRiskMember us-gaap:SalesRevenueNetMember 2024-12-29 2025-12-27 0001897762 country:IN 2023-12-31 2024-12-28 0001897762 country:IN us-gaap:GeographicConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-12-31 2024-12-28 0001897762 country:IN 2023-01-01 2023-12-30 0001897762 country:IN us-gaap:GeographicConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-30 0001897762 ingm:NonUSAndChinaAndIndiaMember 2024-12-29 2025-12-27 0001897762 ingm:NonUSAndChinaAndIndiaMember us-gaap:GeographicConcentrationRiskMember us-gaap:SalesRevenueNetMember 2024-12-29 2025-12-27 0001897762 ingm:NonUSAndChinaAndIndiaMember 2023-12-31 2024-12-28 0001897762 ingm:NonUSAndChinaAndIndiaMember us-gaap:GeographicConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-12-31 2024-12-28 0001897762 ingm:NonUSAndChinaAndIndiaMember 2023-01-01 2023-12-30 0001897762 ingm:NonUSAndChinaAndIndiaMember us-gaap:GeographicConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-30 0001897762 us-gaap:GeographicConcentrationRiskMember us-gaap:SalesRevenueNetMember 2024-12-29 2025-12-27 0001897762 us-gaap:GeographicConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-12-31 2024-12-28 0001897762 us-gaap:GeographicConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-30 0001897762 country:US 2025-12-27 0001897762 country:US 2024-12-28 0001897762 country:US us-gaap:GeographicConcentrationRiskMember us-gaap:AssetsTotalMember 2024-12-29 2025-12-27 0001897762 country:US us-gaap:GeographicConcentrationRiskMember us-gaap:AssetsTotalMember 2023-12-31 2024-12-28 0001897762 us-gaap:NonUsMember 2025-12-27 0001897762 us-gaap:NonUsMember 2024-12-28 0001897762 us-gaap:NonUsMember us-gaap:GeographicConcentrationRiskMember us-gaap:AssetsTotalMember 2024-12-29 2025-12-27 0001897762 us-gaap:NonUsMember us-gaap:GeographicConcentrationRiskMember us-gaap:AssetsTotalMember 2023-12-31 2024-12-28 0001897762 us-gaap:GeographicConcentrationRiskMember us-gaap:AssetsTotalMember 2024-12-29 2025-12-27 0001897762 us-gaap:GeographicConcentrationRiskMember us-gaap:AssetsTotalMember 2023-12-31 2024-12-28 0001897762 country:IN 2025-12-27 0001897762 country:IN 2024-12-28 0001897762 ingm:ClientAndEndpointSolutionsMember 2024-12-29 2025-12-27 0001897762 ingm:ClientAndEndpointSolutionsMember us-gaap:ProductConcentrationRiskMember us-gaap:SalesRevenueNetMember 2024-12-29 2025-12-27 0001897762 ingm:ClientAndEndpointSolutionsMember 2023-12-31 2024-12-28 0001897762 ingm:ClientAndEndpointSolutionsMember us-gaap:ProductConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-12-31 2024-12-28 0001897762 ingm:ClientAndEndpointSolutionsMember 2023-01-01 2023-12-30 0001897762 ingm:ClientAndEndpointSolutionsMember us-gaap:ProductConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-30 0001897762 ingm:AdvancedSolutionsMember 2024-12-29 2025-12-27 0001897762 ingm:AdvancedSolutionsMember us-gaap:ProductConcentrationRiskMember us-gaap:SalesRevenueNetMember 2024-12-29 2025-12-27 0001897762 ingm:AdvancedSolutionsMember 2023-12-31 2024-12-28 0001897762 ingm:AdvancedSolutionsMember us-gaap:ProductConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-12-31 2024-12-28 0001897762 ingm:AdvancedSolutionsMember 2023-01-01 2023-12-30 0001897762 ingm:AdvancedSolutionsMember us-gaap:ProductConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-30 0001897762 ingm:CloudBasedSolutionsMember 2024-12-29 2025-12-27 0001897762 ingm:CloudBasedSolutionsMember us-gaap:ProductConcentrationRiskMember us-gaap:SalesRevenueNetMember 2024-12-29 2025-12-27 0001897762 ingm:CloudBasedSolutionsMember 2023-12-31 2024-12-28 0001897762 ingm:CloudBasedSolutionsMember us-gaap:ProductConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-12-31 2024-12-28 0001897762 ingm:CloudBasedSolutionsMember 2023-01-01 2023-12-30 0001897762 ingm:CloudBasedSolutionsMember us-gaap:ProductConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-30 0001897762 ingm:OtherSalesMember 2024-12-29 2025-12-27 0001897762 ingm:OtherSalesMember us-gaap:ProductConcentrationRiskMember us-gaap:SalesRevenueNetMember 2024-12-29 2025-12-27 0001897762 ingm:OtherSalesMember 2023-12-31 2024-12-28 0001897762 ingm:OtherSalesMember us-gaap:ProductConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-12-31 2024-12-28 0001897762 ingm:OtherSalesMember 2023-01-01 2023-12-30 0001897762 ingm:OtherSalesMember us-gaap:ProductConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-30 0001897762 us-gaap:ProductConcentrationRiskMember us-gaap:SalesRevenueNetMember 2024-12-29 2025-12-27 0001897762 us-gaap:ProductConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-12-31 2024-12-28 0001897762 us-gaap:ProductConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-30 0001897762 ingm:TermLoanCreditFacilityMember srt:MaximumMember 2023-04-02 2023-07-01 0001897762 us-gaap:ForeignExchangeContractMember us-gaap:NondesignatedMember 2025-12-27 0001897762 us-gaap:ForeignExchangeContractMember us-gaap:NondesignatedMember 2024-12-28 0001897762 us-gaap:InterestRateCapMember us-gaap:NondesignatedMember 2025-12-27 0001897762 us-gaap:InterestRateCapMember us-gaap:NondesignatedMember 2024-12-28 0001897762 us-gaap:OtherContractMember us-gaap:NondesignatedMember 2025-12-27 0001897762 us-gaap:OtherContractMember us-gaap:NondesignatedMember 2024-12-28 0001897762 us-gaap:NondesignatedMember 2025-12-27 0001897762 us-gaap:NondesignatedMember 2024-12-28 0001897762 us-gaap:ForeignCurrencyGainLossMember 2024-12-29 2025-12-27 0001897762 us-gaap:ForeignCurrencyGainLossMember 2023-12-31 2024-12-28 0001897762 us-gaap:ForeignCurrencyGainLossMember 2023-01-01 2023-12-30 0001897762 us-gaap:InterestExpenseMember 2024-12-29 2025-12-27 0001897762 us-gaap:InterestExpenseMember 2023-12-31 2024-12-28 0001897762 us-gaap:InterestExpenseMember 2023-01-01 2023-12-30 0001897762 us-gaap:FairValueInputsLevel1Member 2025-12-27 0001897762 us-gaap:FairValueInputsLevel2Member 2025-12-27 0001897762 us-gaap:FairValueInputsLevel3Member 2025-12-27 0001897762 us-gaap:FairValueInputsLevel1Member 2024-12-28 0001897762 us-gaap:FairValueInputsLevel2Member 2024-12-28 0001897762 us-gaap:FairValueInputsLevel3Member 2024-12-28 0001897762 ingm:SeniorUnsecuredNotesDueTwoThousandTwentyNineMember us-gaap:SeniorNotesMember 2025-12-27 0001897762 us-gaap:EstimateOfFairValueFairValueDisclosureMember ingm:SeniorUnsecuredNotesDueTwoThousandTwentyNineMember us-gaap:SeniorNotesMember 2025-12-27 0001897762 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueInputsLevel1Member ingm:SeniorUnsecuredNotesDueTwoThousandTwentyNineMember us-gaap:SeniorNotesMember 2025-12-27 0001897762 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueInputsLevel2Member ingm:SeniorUnsecuredNotesDueTwoThousandTwentyNineMember us-gaap:SeniorNotesMember 2025-12-27 0001897762 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueInputsLevel3Member ingm:SeniorUnsecuredNotesDueTwoThousandTwentyNineMember us-gaap:SeniorNotesMember 2025-12-27 0001897762 us-gaap:CarryingReportedAmountFairValueDisclosureMember ingm:SeniorUnsecuredNotesDueTwoThousandTwentyNineMember us-gaap:SeniorNotesMember 2025-12-27 0001897762 us-gaap:EstimateOfFairValueFairValueDisclosureMember ingm:TermLoanCreditFacilityMember us-gaap:SecuredDebtMember 2025-12-27 0001897762 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueInputsLevel1Member ingm:TermLoanCreditFacilityMember us-gaap:SecuredDebtMember 2025-12-27 0001897762 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueInputsLevel2Member ingm:TermLoanCreditFacilityMember us-gaap:SecuredDebtMember 2025-12-27 0001897762 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueInputsLevel3Member ingm:TermLoanCreditFacilityMember us-gaap:SecuredDebtMember 2025-12-27 0001897762 us-gaap:CarryingReportedAmountFairValueDisclosureMember ingm:TermLoanCreditFacilityMember us-gaap:SecuredDebtMember 2025-12-27 0001897762 us-gaap:EstimateOfFairValueFairValueDisclosureMember 2025-12-27 0001897762 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueInputsLevel1Member 2025-12-27 0001897762 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueInputsLevel2Member 2025-12-27 0001897762 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueInputsLevel3Member 2025-12-27 0001897762 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2025-12-27 0001897762 us-gaap:EstimateOfFairValueFairValueDisclosureMember ingm:SeniorUnsecuredNotesDueTwoThousandTwentyNineMember us-gaap:SeniorNotesMember 2024-12-28 0001897762 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueInputsLevel1Member ingm:SeniorUnsecuredNotesDueTwoThousandTwentyNineMember us-gaap:SeniorNotesMember 2024-12-28 0001897762 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueInputsLevel2Member ingm:SeniorUnsecuredNotesDueTwoThousandTwentyNineMember us-gaap:SeniorNotesMember 2024-12-28 0001897762 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueInputsLevel3Member ingm:SeniorUnsecuredNotesDueTwoThousandTwentyNineMember us-gaap:SeniorNotesMember 2024-12-28 0001897762 us-gaap:CarryingReportedAmountFairValueDisclosureMember ingm:SeniorUnsecuredNotesDueTwoThousandTwentyNineMember us-gaap:SeniorNotesMember 2024-12-28 0001897762 us-gaap:EstimateOfFairValueFairValueDisclosureMember ingm:TermLoanCreditFacilityMember us-gaap:SecuredDebtMember 2024-12-28 0001897762 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueInputsLevel1Member ingm:TermLoanCreditFacilityMember us-gaap:SecuredDebtMember 2024-12-28 0001897762 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueInputsLevel2Member ingm:TermLoanCreditFacilityMember us-gaap:SecuredDebtMember 2024-12-28 0001897762 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueInputsLevel3Member ingm:TermLoanCreditFacilityMember us-gaap:SecuredDebtMember 2024-12-28 0001897762 us-gaap:CarryingReportedAmountFairValueDisclosureMember ingm:TermLoanCreditFacilityMember us-gaap:SecuredDebtMember 2024-12-28 0001897762 us-gaap:EstimateOfFairValueFairValueDisclosureMember 2024-12-28 0001897762 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueInputsLevel1Member 2024-12-28 0001897762 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueInputsLevel2Member 2024-12-28 0001897762 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueInputsLevel3Member 2024-12-28 0001897762 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2024-12-28 0001897762 2024-10-31 0001897762 2024-12-29 2025-03-29 0001897762 2025-03-30 2025-06-28 0001897762 2025-06-29 2025-09-27 0001897762 2025-09-28 2025-12-27 0001897762 ingm:AptecSaudiMember 2024-12-29 2025-12-27 0001897762 ingm:AptecSaudiMember 2023-12-31 2024-12-28 0001897762 ingm:CASAMember us-gaap:RelatedPartyMember 2024-12-29 2025-12-27 0001897762 ingm:CASAMember us-gaap:RelatedPartyMember 2023-12-31 2024-12-28 0001897762 ingm:CASAMember us-gaap:RelatedPartyMember 2023-01-01 2023-12-30 0001897762 us-gaap:RevolvingCreditFacilityMember ingm:TermLoanCreditFacilityMember us-gaap:LineOfCreditMember us-gaap:SubsequentEventMember 2026-02-20 2026-02-20 0001897762 us-gaap:SubsequentEventMember 2026-03-02 2026-03-02 0001897762 us-gaap:AllowanceForCreditLossMember 2024-12-28 0001897762 us-gaap:AllowanceForCreditLossMember 2024-12-29 2025-12-27 0001897762 us-gaap:AllowanceForCreditLossMember 2025-12-27 0001897762 us-gaap:AllowanceForCreditLossMember 2023-12-30 0001897762 us-gaap:AllowanceForCreditLossMember 2023-12-31 2024-12-28 0001897762 us-gaap:AllowanceForCreditLossMember 2022-12-31 0001897762 us-gaap:AllowanceForCreditLossMember 2023-01-01 2023-12-30 0001897762 ingm:SECSchedule1209AllowanceSalesReturnsMember 2024-12-28 0001897762 ingm:SECSchedule1209AllowanceSalesReturnsMember 2024-12-29 2025-12-27 0001897762 ingm:SECSchedule1209AllowanceSalesReturnsMember 2025-12-27 0001897762 ingm:SECSchedule1209AllowanceSalesReturnsMember 2023-12-30 0001897762 ingm:SECSchedule1209AllowanceSalesReturnsMember 2023-12-31 2024-12-28 0001897762 ingm:SECSchedule1209AllowanceSalesReturnsMember 2022-12-31 0001897762 ingm:SECSchedule1209AllowanceSalesReturnsMember 2023-01-01 2023-12-30 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +____________________________________ +FORM 10-K +____________________________________ +(Mark One) +x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 27 , 2025 +OR +o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from ________ to ________ +Commission file number 001-42384 +____________________________________ +INGRAM MICRO HOLDING CORP ORATION +(Exact name of registrant as specified in its charter) +Delaware +86-2249729 +(State or other jurisdiction of incorporation or organization) +(I.R.S. Employer Identification No.) +3351 Michelson Drive , Suite 100 +Irvine , CA +92612 +(Address of Principal Executive Offices) +(Zip Code) +( 714 ) 566-1000 +Registrant’s telephone number, including area code +Securities registered pursuant to Section 12(b) of the Act: +Title of each class Trading Symbol(s) Name of each exchange on which registered +Common Stock INGM New York Stock Exchange +Securities registered pursuant to section 12(g) of the Act: None +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. +Yes o No x +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. +Yes o No x +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. +Yes x No o +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). +Yes x No o +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”and "emerging growth company" in Rule 12b-2 of the Exchange Act. +Large accelerated filer o Accelerated filer x +Non-accelerated filer o Smaller reporting company o +Emerging growth company o +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. +o +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. +x +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. +o +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). +o +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). +Yes o No x +The aggregate market value of common stock par value $0.01 per share (“Common Stock”) held by non-affiliates of the registrant (based upon the closing price on the New York Stock Exchange as June 28, 2025, the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $ 478 million. Shares held by each executive officer, director and by each person who owns 10% or more of the outstanding Common Stock have been excluded in that such person may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. +Number of shares of registrant’s common stock outstanding as o f February 23, 2026 was 235,074,694 . +DOCUMENTS INCORPORATED BY REFERENCE +Part III of this Form 10-K incorporates by reference certain information from the registrant’s definitive proxy statement for the Annual Meeting of Shareholders to be held on May 13, 2026, to be filed by the registrant with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the year ended December 27 , 2025 . +Table of Contents +Page +Part I +5 +Item 1. Business +5 +Item 1A. Risk Factors +12 +Item 1B. Unresolved Staff Comments +44 +I tem 1C . Cybersecurity +45 +Item 2. Properties +46 +Item 3. Legal Proceedings +46 +Item 4. Mine Safety Disclosures +46 +Part II +47 +Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +47 +Item 6. [ Reserved ] +48 +Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations +49 +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +65 +Item 8. Financial Statements and Supplementary Data +67 +Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures +110 +Item 9A. Controls and Procedures +110 +Item 9B. Other Information +111 +Item 9C. Disclosure Regarding Foreign Jurisdiction that Prevent Inspections. +111 +Part III +112 +Item 10. Directors, Executive Officers and Corporate Governance +112 +Item 11. Executive Compensation +112 +Item 12. Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters +112 +Item 13. Certain Relationships and Related Transactions, and Director Independence +114 +Item 14. Principal Accounting Fees and Services +114 +Part IV +115 +Item 15. Exhibits, Financial Statement Schedules +115 +Item 16. Form 10-K Summary +118 +2 +Cautionary Note Regarding Forward-Looking Statements +This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. Forward-looking statements may contain words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “estimates,” or “anticipates,” or similar expressions, which concern our strategy, plans, projections or intentions, but such words are not the exclusive means of identifying forward-looking statements in this report. These forward-looking statements are included throughout this Annual Report on Form 10-K, including in the sections entitled “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and relate to matters such as our industry, growth strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. By their nature, forward-looking statements: speak only as of the date they are made; are not statements of historical fact or guarantees of future performance; and are subject to risks, uncertainties, assumptions or changes in circumstances that are difficult to predict or quantify. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs and projections will result or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements. Certain important factors that involve risks and uncertainties and that could cause actual results to differ, possibly materially, from our expectations, beliefs and projections reflected in such forward-looking statements can be found in the “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” sections included in this Annual Report on Form 10-K.We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable securities laws. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. +There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from the forward-looking statements contained in this Annual Report on Form 10-K. Such risks, uncertainties and other important factors include, among others, the risks, uncertainties and factors set forth below under the heading “Risk Factors” included in this Annual Report on Form 10-K and the following: +• general economic conditions; +• our estimates of the size of the markets for our products and services; +• our ability to identify and integrate acquisitions and technologies into our platform; +• our plans to continue to expand; +• our ability to continue to successfully develop and deploy Ingram Micro Xvantage TM ; +• our ability to retain and recruit key personnel; +• the competition our products and services face and our ability to adapt to industry changes and market conditions, including inflation, market volatility and supply constraints for many categories of technology; +• current and potential litigation involving us; +• the global nature of our business, including the various laws and regulations applicable to us now or in the future; +• the effect of various political, geopolitical and macroeconomic issues and developments, including changes in tariffs or global trade policies and the related uncertainties associated with such developments, import/export and licensing restrictions, and our ability to comply with laws and regulations we are subject to, both in the United States and internationally; +• our financing efforts; +• our relationships with our customers, original equipment manufacturers and suppliers; +• our ability to maintain and protect our intellectual property; +• the performance and security of our services, including information processing and cybersecurity provided by third parties; +• our ownership structure; +• our dependence upon Ingram Micro Inc. and its controlled subsidiaries for our results of operations, cash flows and distributions; and +3 +• our status as a “controlled company” and the extent to which the interests of Platinum Equity, LLC together with its affiliated investment vehicles (“Platinum”) conflict with our interests or the interests of our stockholders. +4 +Part I +Item 1. Business +Overview +Ingram Micro is a leading solutions provider by revenue and/or by global footprint for the global information technology (“IT”) ecosystem helping power the world’s leading technology brands. With our vast infrastructure and focus on client and endpoint solutions, advanced solutions offerings, cloud-based and other solutions, we enable our business partners to scale and operate more efficiently in the markets they serve. We are at the center of the technology ecosystem and deliver customized solutions to our vendor and reseller partners, enabling them to provide excellent business outcomes to the end-user companies and consumers they serve. Through our global reach, our industry-leading business-to-business (“B2B”) platform, and our broad portfolio of products, professional services offerings and software, cloud and digital solutions, we remove complexity and maximize the value of the technology products our partners make, sell or use, providing the world more ways to realize the promise of technology. While many commercial markets remain economically volatile around the globe, our business remains well-positioned to benefit from technology megatrends, including cloud migration, enhanced security needs, automation and robotics, artificial intelligence (“AI”) and machine learning (“ML”) enabling Agentic AI, hyperconnected ecosystems, hybrid work and Internet-of-Things (“IoT”). Our business is organized into four reportable segments based on the different geographic regions in which we operate: North America; Europe, Middle East and Africa (“EMEA”); Asia-Pacific; and Latin America. +Our Fiscal Year is a 52- or 53-week period ending on the Saturday nearest to December 31. All references herein to “Fiscal Year 2025”, “Fiscal Year 2024” and “Fiscal Year 2023” represent the fiscal years ended December 27, 2025 (52 weeks), December 28, 2024 (52 weeks) and December 30, 2023 (52 weeks), respectively. +Our Strategic Priorities +We are a technology-focused company and have invested heavily in developing and acquiring technology, including intellectual property, to enable our partners’ success. We expect our continued investment in robotics and automation within our advanced logistics centers will augment our efficient, customer-centric delivery capabilities and that our continued investment in our digital capabilities, including the integration of more than 42 million lines of code and 400 AI and ML models within Ingram Micro Xvantage, which is enhancing and will continue to enrich the experience of our customers and vendors. We have a proven track record of profitable growth which has enabled us to achieve a position of great competitive strength and remain focused on continuing to deliver strong future growth. We recognize the market’s need for sophisticated IT solutions and our strategies are developed with this in mind. Our overall objective is to continue to expand our business and our profitability by delivering innovative and thoughtful solutions to enable business partners to scale and operate more efficiently and successfully in the markets they serve through the ecosystem created by our end-to-end Xvantage platform. +Our strategic priorities are aligned to achieve this objective and focus on: +• Adding digital tools and services to deepen engagement with customers and vendors and continuing to develop a transformative, fully digital platform to further simplify, automate, digitize and scale the delivery of our products and solutions portfolio. Through our Xvantage platform, we deliver a singular business-to-consumer-like experience to our vendor and customer partners in the B2B market to interact, learn, partner, plan and consume technology via seamless and autonomous engines. +• Growing our emerging technologies practices, including cybersecurity and AI, and further extending our technology portfolio to build out additional higher value, more complex product and services offerings. +• Enhancing profitability through operational improvement initiatives, digitization and automation. +Our Products and Solutions +We provide a broad line of technology, services and solutions from approximately 1,500 vendor partners, enabling us to offer comprehensive solutions to our reseller customers. Our suppliers are the world’s most trusted technology leaders, along with emerging technology brands, which include the industry’s premier hyperscalers, computer hardware suppliers, mobility hardware suppliers, networking equipment suppliers and software publishers such as Microsoft, Amazon Web Services, Google Cloud, NVIDIA, Advanced Micro Devices, Apple, Cisco, Dell Technologies, Hewlett Packard Enterprise, HP Inc., Lenovo, and Super Micro Computer. +5 +We also work with suppliers of computer peripherals, consumer electronics, cloud-based solutions, unified communication and collaboration, data capture/point-of-sale (“DC / POS”), cybersecurity, and physical security products. Our cloud portfolio comprises third-party services and subscriptions spanning a breadth of products from solution software to infrastructure-as-a-service. Our Ingram Micro Cloud Marketplace service portfolio consists of third-party cloud-based services or subscription offerings sold through our own platform. Vendors on the platform include Proofpoint, Amazon Web Services, Microsoft, Cisco and Adobe. We sell products purchased from many vendors, but generated approximately 21%, 19% and 16% of our consolidated net sales in Fiscal Year 2025, Fiscal Year 2024 and Fiscal Year 2023, respectively, from products purchased from Apple Inc. Additionally, we generated approximately 9%, 10%, and 10% of our consolidated net sales in Fiscal Year 2025, Fiscal Year 2024, and Fiscal Year 2023, respectively, from products purchased from HP Inc. We also generated approximately 10%, 7%, and 7% of our consolidated net sales during the Fiscal Year 2025, Fiscal Year 2024 and Fiscal Year 2023, respectively, from products purchased from Lenovo. +Our cloud marketplace, which in many key markets has already been integrated into one unified Ingram Micro Xvantage platform, connects partners with what we believe to be the world’s largest cloud ecosystem, enabling them to generate demand more efficiently and provide third-party cloud-based services and subscription offerings through a digital platform for the consumption of cloud solutions in an ever-increasing cloud-centric world. We support more than 200 cloud solutions and manage over 40 million seats through our cloud marketplace. Our professional services offerings add value to our partners and customers by providing data-driven business and market insights, pre-sales engineering, post-sale integration, technical support, trade credit, and financing solutions to further grow their businesses. In addition, our IT Asset Disposition (“ITAD”) and Reverse Logistics and Repairs businesses play an important role in advancing environmental sustainability and bridging the digital divide through electronic device reverse logistics, refurbishment, recycling, reuse and resale for organizations, including the world’s largest mobile telecommunication providers. By helping to enable a circular economy, we help our customers in achieving their sustainability goals and enable consumers to access high-quality, affordable smartphones, computers and other devices. +We categorize our product and service offerings into the following categories, each of which is offered in each of our four geographic segments: +• Client and Endpoint Solutions. We offer a variety of higher-volume products targeted for corporate and individual end users, including desktop personal computers, notebooks, tablets, printers, components (including hard drives, motherboards, video cards, etc.), application software, peripherals, and accessories. We also offer a variety of products that enable mobile computing and productivity, including phones, phone tablets (including two-in-one “notebook/tablet” devices), smartphones, feature phones, mobile phone accessories, wearables and mobility software. +• Advanced Solutions . We offer enterprise-grade hardware and software products aimed at corporate and enterprise users and generally characterized by specific projects, which generally account for lower volumes than Client and Endpoint Solutions but higher margins individually and collectively in the form of solutions and related services. And while Advanced Solutions offerings often require higher operational expenditures, primarily in the form of technical capabilities to serve the market, the operating margin delivered by this business is also generally stronger than Client and Endpoint Solutions. Within this product category, we offer servers, storage, networking, hybrid and software-defined solutions, cybersecurity, and power and cooling solutions. This category also includes training, professional services and financing solutions related to these product sets. We also offer customers AI-related products and offerings, DC / POS, physical security, audio visual & digital signage, Unified Communications and Collaboration ( “ UCC ” ), and IoT (smart office/home automation) products. +6 +• Cloud-based Solutions : Our cloud portfolio comprises third-party services and subscriptions spanning a breadth of products from solution software through infrastructure-as-a-service. As technology consumption increasingly moves to anything-as-a-service, we have expanded our cloud solutio ns to more than 200 thir d-party cloud-based services or subscription offerings, including business applications, security, communications and collaboration, cloud enablement solutions and infrastructure-as-a-service. Also included here have been the offerings of our CloudBlue business, which provided customers with multichannel and multi-tier catalog management, subscription management, billing and orchestration capabilities through a software-as-a-service model. Our CloudBlue operations were sold during the third quarter of 2025. +• Other: We provide customers with ITAD, reverse logistics and repair and other related solutions. These offerings repre sent less than 5% of net sales fo r all periods presented herein. +Our Customers +We distribute IT and mobility solutions to more than 165,000 reseller customers, including most of the leading resellers of IT products and services around the world and with many of the world’s leading mobility companies. We serve a customer base that includes value-added resellers, corporate resellers, retailers, custom installers, systems integrators, mobile network operators, mobile virtual network operators, direct marketers, internet-based resellers, independent dealers, product category specialists, reseller purchasing associations, managed service providers, cloud services providers, PC assemblers, independent agents and dealers, IT and mobile device manufacturers and other distributors. Our customers serve an end-user base from large enterprise to small- and medium-sized businesses, including public sector and retail/e-tail. Many of our customers are heavily dependent on partners with the necessary systems, capital, inventory availability, logistics capabilities and distribution and repair facilities in place to provide fulfillment and other services. We benefit from a broad geographic presence in 57 countries that in turn can service more than 90% of the world’s population across more than 200 countries globally and are trusted by many of the world’s leading telecommunications companies, mobile operators and retail and consumer brands. We aim to reduce our exposure to the impact of business fluctuations by maintaining a balance in the customer categories we serve. No single customer accounted for more than 10% of our total net sales in any of the periods presented herein. +Sales & Marketing +Our global, customer-facing sales and marketing team, enabled by our Xvantage platform, drives our go-to-market model centered on a deep understanding of our customer needs, and a goal to provide the industry’s broadest solutions offering to meet evolving customer demand and the increasing complexity of technology. We have operations in 57 countries, spanning all global regions, while also serving many additional geographies through various export sales offices, including general telesales operations into numerous markets. Our sales teams work closely with our marketing organization to actively pursue leads generated from marketing programs and guide prospective customers through the sales process. +Our marketing effort is focused on generating awareness of Ingram Micro’s solutions offerings, creating sales leads, establishing and promoting our brand and our vendor partners’ products. Additionally, we offer a wide range of training, professional services, education and support offerings to enable our customers to rapidly onboard, adopt and ultimately realize value from our solutions. +Our sales and marketing organization includes sales development, sales operations, field sales and marketing personnel. As of December 27, 2025, we had approximately 9,800 associates in our sales and marketing organizations spanning all global regions. +International Operations +Approximately 66%, 66% and 64% of our consolidated net sales for Fiscal Year 2025, Fiscal Year 2024 and Fiscal Year 2023, respectively, were generated by our international operations. As our international operations constitute a significant portion of our consolidated net sales, they are subject to fluctuations in the U.S. dollar against foreign currencies. +7 +Seasonality +We experience some seasonal fluctuations in demand in our business. For instance, we typically see lower demand, particularly in Europe, during the summer months. Additionally, we also experience an increase in demand in the fourth quarter, driven primarily by typical enterprise budgeting cycles across our geographies and business categories and the pre-holiday stocking and associated higher logistics-based fulfillment fees, which tends to have greater seasonal impact on our Client and Endpoint Solutions and Other categories. These seasonal fluctuations have historically impacted our revenue and working capital including receivables, payables and inventory. Our extensive experience combined with a flexible workforce allows us to modulate our operations and workforce demand fluctuations throughout the year. +Competition +We operate in a competitive environment globally. Competition in our business is based primarily on factors such as level of service, the breadth and availability of products and solutions, subscription management capabilities, credit terms and availability, price, financing solutions, speed of delivery, effectiveness of sales and marketing programs, real-time analytic offerings and the platform and tools we use to provide these offerings. We compete with other high-volume and value-added international distributors, as well as numerous other smaller, specialized local and regional competitors who generally focus on narrower markets, products, or particular sectors. We also face competition from our vendors that sell directly to resellers, retailers and end-users. Our top competitors include global companies such as TD Synnex, Arrow Electronics, Inc., Scansource, Inc., Westcon-Comstor, and Synnex Technology International, and local and regional distributors such as Also Holding, Esprinet, Redington, Exclusive Networks, Intcomex, D&H, Carahsoft, AppDirect and Pax8, along with a number of other smaller local distributors. We believe that we are well-equipped to outperform our competitors in all areas due to our comprehensive product and service offerings, broad global reach, highly skilled workforce and global distribution network. +Government Regulation +We are subject to a number of U.S. federal, U.S. state and foreign laws and regulations, covering tax, environmental (relating to product stewardship, including the European Union Waste Electrical and Electronic Equipment Directive), labor and employment, workplace safety advertising, intellectual property, federal securities, trade protection, anti-money-laundering, anti-corruption and anti-bribery, anti-competition, antitrust, internet and e-commerce, network security, encryption, payments and consumer protection relating to the promotion and sale of merchandise and the operation of fulfillment centers. The products we sell may be subject to tariffs, treaties and various trade agreements, as well as foreign and domestic laws and regulations affecting the import and export of IT products. For more information on the risks associated with complying with applicable laws, please see “Risk Factors—Risks Related to the Macroeconomic and Regulatory Environment—We operate a global business that exposes us to risks associated with conducting business in multiple jurisdictions” and “Risk Factors—Risks Related to the Macroeconomic and Regulatory Environment—Our failure to comply with the requirements of environmental, health and safety regulations or other laws and regulations applicable to a distributor of consumer products could adversely affect our business.” +We are also subject to data privacy, data security and data protection laws and regulations that impose restrictions on the collection, processing and use of personal data in the jurisdictions in which we operate. For instance, we are subject to the California Consumer Privacy Act, as amended (“CCPA”) and other U.S. state comprehensive privacy laws; the General Data Protection Regulation (“GDPR”) and European Economic Area (“EEA”) member state implementing laws, including as retained in U.K. law; other similar laws in Brazil and elsewhere; restrictions related to e-marketing, including the ePrivacy Directive in the EEA and the Privacy and Electronic Communications Regulation in the United Kingdom; and data localization requirements in China. The legal and regulatory environment in this space is constantly developing, with an expanding number of jurisdictions considering or enacting new privacy or data security laws, which may not correspond with previously enacted requirements. Ensuring our ongoing compliance with any new requirements may generate additional or unanticipated costs, or otherwise impact our financial condition. For more information on risks related to the development of these laws, see “Risk Factors—Risks Related to Information Technology, Data Privacy and Intellectual Property—Changes in the regulatory environment regarding privacy and data protection regulations could have a material adverse effect on our results of operations.” +We monitor changes in the laws and regulations to which we are subject. Our legal and compliance team and our information security team oversee our data protection strategy and monitor our compliance with laws and regulations generally. These teams manage, implement and oversee internal privacy policies and security measures, including regular monitoring and testing of systems and equipment. +8 +We believe that we are in material compliance with applicable laws and regulations, and we are not aware of any laws or regulations that are likely to materially impact our net sales, cash flow or competitive positions or result in any material expenditures. However, many of the laws and regulations to which we are subject continue to develop and could be interpreted, applied or amended in ways that are unfavorable to our business. +Our Trademarks and Service Marks +We own or license various trademarks and service marks, including, among others, “Ingram Micro,” the Ingram Micro logo, “Aptec,” “Xvantage” and “Trust X Alliance.” as well as patents related to proprietary technology supporting our Xvantage platform. Certain of these marks are registered, or are in the process of being registered, in the United States and various other countries. Even though our marks are not registered in every country where we conduct business, in many cases we have acquired rights in those marks because of our continued use of them. +Human Capital Resources +As of December 27, 2025, we had approximately 22,200 full-time associates. Additionally, as of December 27, 2025 we utilized the services of approximately 5,800 full-time equivalent temporary or contract workers at peak, who provide us with the workforce agility we require. Works councils or unions represent some of our associates in certain countries, almost exclusively where required by local regulations or brought in through acquisitions; our U.S. associates are not represented by a labor union, nor are they covered by a collective bargaining agreement. +Ethical Conduct +We believe our culture of ethics and integrity is built on a foundation of strong corporate governance, encapsulated in our Code of Conduct. Fair business practices are fundamental to our ability to establish trust with our partners, our associates and the communities in which we operate as well as maintain our reputation. Our ethical compliance program, which is overseen by the audit committee of our board of directors, covers areas such as anti-corruption, anti-bribery, anti-money laundering and harassment and whistleblower compliance. The program spans all our entities, across all operating regions and markets in which we have a presence. We are also a member of the Global Technology Distribution Council, which comprises the technology industry’s top wholesale distributors who drive more than $150 billion in annual worldwide sales, allowing us to participate in the development of an industry approach to address corruption. +Total Rewards +We believe people should be paid for what they do and how they do it, regardless of their personal characteristics. To deliver on that commitment, we benchmark and set pay ranges based on market data and consider factors such as an associate’s role and experience, the location of their job and their performance. We also review our compensation practices, both in terms of our overall workforce and individual associates, to ensure our pay is fair and equitable. We have reviewed the compensation of associates to ensure consistent pay practices by conducting annual rewards equity reviews. +We offer total rewards that are market-competitive and performance-based, driving innovation and operational excellence. Our compensation programs, practices and policies reflect our commitment to reward short- and long-term performance that aligns with, and drives, value for our owners. Total direct compensation is generally positioned within a competitive range of the market median, with differentiation based on tenure, skills, proficiency and performance to attract and retain key talent. +Associate Engagement +We regularly collect feedback to better understand and improve the associate experience and identify opportunities to continually strengthen our culture. We want to know what is working well, what we can do better and how well our associates understand our priorities and live by the Tenets of Our Success. In 2025, 83% of respondents who received our full associate survey participated. Our results approximated or exceeded our survey provider’s High Performance Benchmark in six of thirteen categories, and equaled or increased our favorable results in five of six categories compared with our October 2024 pulse survey. +We help our associates and communities thrive through career development programs, embracing inclusivity and diversity while promoting service and our continued focus on health and safety. We are proud to support the philanthropic interests of our associates through volunteerism and giving programs. +9 +Training and Development +People development is foundational to our success. We continually invest in our associates’ career growth and provide a wide range of development opportunities. In 2025, approximately 64% of our executive positions were filled with internal candidates. We also deployed a new career development framework to further accelerate the development of our colleagues at all levels and areas of the business. +Health, Safety and Wellness +The physical health, financial well-being, life balance and mental health of our associates is vital to our success. Throughout the year, we encourage healthy behaviors through regular communications, educational sessions, voluntary progress tracking, wellness challenges and other incentives. We offer a global employee assistance program to ensure that all associates and their immediate families have access to many tools and sources of support that address their financial, physical and mental well-being. Our warehouse and integration facilities continue to represent our most significant health and safety risks. Our global health and safety leadership team uses our global injury and illness reporting system to assess trends regionally and worldwide as part of quarterly reviews. Managing and reducing risks at these facilities remains a focus, and injury rates continue to be low. +Sustainable Impact +Our Sustainable Impact program is overseen by an executive steering committee consisting of our: +• Chief Executive Officer, +• Executive Vice President and Chief Financial Officer, +• Executive Vice President, Secretary and General Counsel, +• Executive Vice President, Human Resources, and +• Executive Vice President, Global Operations and Engineering. +This executive steering committee receives periodic briefings from our Sustainable Impact team and individual program owners. Responsibility is one of the Tenets of Our Success as a company, and environmental stewardship is one area in which we demonstrate our responsibility. We have established targets for greenhouse gas (“GHG”) emissions and waste in our operations. In December 2024, Ingram Micro received approval from the Science Based Targets initiative for its near-term climate targets, including its goal to reduce absolute Scope 1 and 2 GHG emissions by 90% by 2030, using a 2022 base year. +To support a circular economy, our ITAD business focuses on the reuse and recycling of electronics, and, as of December 27, 2025, four of our ITAD processing facilities held e-Stewards certifications, three of which were in North America. Since 2019, we have been a registered SmartWay Shipper Partner in the Environmental Protection Agency’s SmartW ay Program, which allows us to benchmark our performance and assess the environmental impact of our transportation in the United States, as well as measure the fuel efficiency of our carrier partners, helping us address the carbon impacts of goods movement within our value chain. +In late 2025, the Company’s broad-based sustainability efforts were recognized by EcoVadis, a well-known third-party provider of evidence-based business sustainability assessments, who gave Ingram Micro a Gold medal rating, reserved for the top five percent of the rated companies on its platform. We believe this recognition signifies a substantial validation of our company’s commitment and leadership in sustainable and responsible business operations. +Ingram Micro reports climate change-related data and information annually through the Carbon Disclosure Project (“CDP”). In 2025, Ingram Micro achieved a CDP Climate Change score of ‘B’, which is the Management level under CDP's scoring methodology. This score reflects evidence of implementing actions, policies, and processes to manage climate change-related risks and opportunities. +10 +Available Information +Our website is http://www.ingrammicro.com. We make available free of charge, on or through our website, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, if any, or other filings filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after electronically filing or furnishing these reports with the Securities and Exchange Commission ("SEC"). We also make available free of charge on our investor relations website at ir.ingrammicro.com our Audit Committee Charter, Compensation Committee Charter, Nominating and Corporate Governance Committee Charter, Code of Conduct, Corporate Governance Guidelines, Insider Trading Policy, Board Communications with Stockholders Policy, Anti-Bribery policy, and Non-Retaliation Policies. +The SEC maintains an Internet site at http://www.sec.gov that contains our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, if any, or other filings filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, and our proxy and information statements. Unless expressly noted, the information on our website, including our investor relations website, or any other website is not incorporated by reference in this Annual Report on Form 10-K and should not be considered part of this Annual Report on Form 10-K or any other filing we make with the SEC. +11 +Item 1A. Risk Factors +An investment in our Common Stock involves a high degree of risk. A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider the risks described below as well as the other information in this Annual Report on Form 10-K, including our consolidated financial statements and the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The occurrence of any of the events or developments described below could adversely affect our business, results of operations, financial condition, cash flows, reputation, or growth prospects, which could, in turn, adversely affect our stock price. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial could also present significant risks to our business. Investors should carefully consider all relevant risks before investing in our common stock. +Summary of Risk Factors +The following summary provides an overview of the material risks to which we are exposed, as set forth in greater detail further below. These risks include, but are not limited to, the following: +• our ability to predict our results of operations, which may fluctuate significantly; +• our ability to continue to successfully develop, deploy, and operationalize Ingram Micro Xvantage; +• inflation and industry and market conditions, development, and volatility, including supply constraints across many elements of technology; +• the level of success of our acquisition and investment strategies; +• our ability to pay cash dividends and our ability to generate the funds necessary to meet our outstanding debt services and other obligations, as our sole material asset is our direct interest in Ingram Micro Inc.; +• our ability to retain and recruit key personnel; +• the high level of competition in our industry; +• the effect of various political, geopolitical and macroeconomic issues and developments, including changes in tariffs or global trade policies and the related uncertainties associated with such developments, import/export and licensing restrictions, and our ability to comply with laws and regulations we are subject to, both in the United States and internationally; +• our ability to adjust to developments in the economic or regulatory environment; +• our financial leverage, which could adversely affect our ability to raise additional capital to fund our operations, and other risks related to indebtedness; +• our reliance on third-party service providers to operate our business and facilitate the sale of our products and solutions; +• our ability to maintain existing vendors and customers and accurately forecast customer demand; +• our ability to maintain, upgrade, and protect our information systems, including Xvantage; +• Platinum’s significant influence over us and our status as a “controlled company” under the rules of the New York Stock Exchange (“NYSE”); +• our ability to prevent fraud and maintain an appropriate control environment; +• the adverse effects of the material weaknesses in our internal control over financial reporting on investor confidence and the price of our Common Stock, or on our ability to comply with applicable laws and regulations; and +• the volatility of our stock price, which may result in stockholders’ inability to sell shares at or above the price paid. +12 +Risks Related to Our Business and Our Industry +Our quarterly results have fluctuated significantly. +Our quarterly operating results have fluctuated significantly in the past and will likely continue to do so in the future as a result of: +• general changes in economic or geopolitical conditions, including changes in legislation or regulatory environments in which we operate and changes in global trade, import and export regulations, tariffs, or taxes and duties; +• competitive conditions in our industry, which may impact the prices charged and terms and conditions imposed by our vendors and/or competitors and the prices we charge our customers, which in turn may negatively impact our revenues and/or gross margins; +• variations in purchase discounts and rebates from vendors based on various factors, including changes to sales or purchase volume, changes to objectives set by the vendors, and changes in timing of receipt of discounts and rebates; +• seasonal variations in the demand for our products and services, which historically have included lower demand in Europe during the summer months, worldwide pre-holiday stocking in the retail and e-tail channels during the September-to-December period, and the seasonal increase in demand for our fulfillment services in the fourth quarter, driven by end-of-year purchasing cycles, affecting our operating expenses and gross margins; +• changes in businesses’ and consumers’ purchasing behaviors, including the rates at which they replace or upgrade technology solutions, and the impacts that fluctuating demand across different product categories, which also carry varying profitability and working capital profiles, can have on our overall results; +• changes in product mix, including entry or expansion into new markets, new product offerings, and the exit or retraction of certain business; +• the impact of and possible disruption caused by integration and reorganization of our businesses and efforts to improve our IT infrastructure and capabilities, as well as the related expenses and/or charges; +• currency fluctuations in countries in which we operate; +• variations in our levels of excess inventory and doubtful accounts, and changes in the terms of vendor-sponsored programs such as price protection and return rights; +• changes in the level of our operating expenses; +• the impact of acquisitions and divestitures; +• variations in the mix of profits between multiple tax jurisdictions, including losses in certain tax jurisdictions in which we are not able to record a tax benefit, as well as changes in assessments of uncertain tax positions or changes in the valuation allowances on our deferred tax assets, which could affect our provision for taxes and effective tax rate; +• the occurrence of unexpected events or the resolution of existing uncertainties, including, but not limited to, litigation or regulatory matters; +• the loss or consolidation of one or more of our major vendors or customers; +• product supply constraints; and +• inflation, interest rate fluctuations and/or credit market volatility, which may increase our borrowing costs and may influence the willingness or ability of customers and end users to purchase products and services. +Because of the variations in our results, we believe that investors should not rely on period-to-period comparisons of our operating results as an indication of future performance. In addition, the results of any quarterly period are not indicative of results to be expected for a full fiscal year. +13 +We have invested, and will continue to invest, significant resources in the development and deployment of Ingram Micro Xvantage. If Ingram Micro Xvantage is not successful, our business, results of operations, financial condition, and cash flows would be adversely impacted. +We have made, and expect to continue to make, substantial investments to develop a transformative digital platform to provide a singular experience for our associates, vendors, and customers, facilitating the consumption of technology and accelerating the benefits innovative technology brings to our customers. However, we may not be able to continue to successfully develop or effectively implement Ingram Micro Xvantage in a timely, cost-effective, compliant, secure, and responsible manner. Any difficulties in implementing or integrating Ingram Micro Xvantage, or failures in including appropriate cybersecurity and data privacy protections within the platform, could have an adverse effect on our business, results of operations, financial condition, and cash flows. +Further, if our competitors develop and introduce similar services in the future, our future success will depend, in part, on our ability to develop and provide competitive technologies. We may not be able to do so timely, effectively or at all. As AI and other technologies improve in the future, we may be required to make significant capital expenditures to remain competitive, which may have an adverse effect on our results of operations. Our failure to do so in a timely, cost-effective, compliant, secure, and responsible manner may adversely impact our growth, revenue, and profit. There is also no guarantee that our investments in Ingram Micro Xvantage, AI, or future technologies will create additional efficiencies in our operations. +Our acquisition and investment strategies may not produce the expected benefits, which may adversely affect our results of operations. +We have made, and expect to continue to make, acquisitions or investments in companies around the world to further our strategic objectives and support key business initiatives. Acquisitions and investments involve risks and uncertainties, some of which may differ from those historically associated with our operations. These risks include, but are not limited to, challenges in integrating acquired businesses, retaining key personnel, realizing expected synergies, preserving customer and vendor relationships, distracting management’s attention away from existing business operations, and adapting to new markets or regulations. Additionally, acquisitions may lead to increased debt, overpayment, or unforeseen liabilities or other issues not identified during our due diligence process. Divestitures of non-core business units may also result in unfavorable terms or significant costs. If we are unable to successfully execute our acquisition, investment, and divestiture strategies, our business and results of operations could be materially and adversely impacted. +We are a holding company with no direct operations. Our sole material asset is our indirect equity interest in Ingram Micro Inc. and, as such, we will depend on our subsidiaries for cash to fund all of our expenses. +We are a holding company with no direct operations. We have no material assets other than our indirect ownership of the stock of Ingram Micro Inc. and the direct and indirect ownership of its subsidiaries, which are the key operating subsidiaries. Our ability to pay cash dividends and our ability to generate the funds necessary to meet our outstanding debt service and other obligations will depend on the payment of distributions by our current and future subsidiaries, including, without limitation, Ingram Micro Inc. Such distributions may be restricted by law, taxes, or repatriation or the instruments governing our indebtedness, including the indenture that governs the 2029 Notes (as defined below), dated as of April 22, 2021, by and between Imola Merger Corporation and the Bank of New York Mellon Trust Company, N.A., as trustee and notes collateral agent, as supplemented by that certain supplemental indenture, by and among Ingram Micro Inc., as issuer, the Guarantors (as defined therein) party thereto from time to time, and the Bank of New York Mellon Trust Company, N.A., as trustee and notes collateral agent (the “Indenture”), the credit agreement that governs the ABL Revolving Credit Facility (as defined below) and the ABL Term Loan Facility (as defined below), dated as of July 2, 2021, by and among Imola Acquisition Corporation, Ingram Micro Inc., the borrowers therein, various lenders and issuing banks, and JP Morgan Chase Bank, N.A., as amended from time to time (the “ABL Credit Agreement”) and the term loan credit agreement that governs the Term Loan Credit Facility (as defined below), dated as of July 2, 2021, by and among Imola Acquisition Corporation, Ingram Micro Inc., JP Morgan Chase Bank, N.A., and the lenders, agents and other parties thereto, as amended from time to time, (the “Term Loan Credit Agreement”, and together with the ABL Credit Agreement, the “Credit Agreements”), or other agreements of our subsidiaries. Our subsidiaries may not generate sufficient cash from operations to enable us to make principal and interest payments on our indebtedness. +14 +Failure to retain and recruit key personnel would harm our ability to meet key objectives. +Because of the complex and diverse nature of our business, which includes a high volume of transactions, business complexity, wide geographical coverage, and a broad scope of products, vendors, suppliers, and customers, we are highly dependent on our ability to retain and recruit qualified personnel across management, sales, IT, operations, finance, marketing, and other critical functions. +Competition for talent is intense, and rising labor costs may impact our ability to attract and retain the skilled workforce required to meet our business objectives. We constantly review market conditions and other factors; however, we may fail to make staffing adjustments based on current and forecasted conditions. Headcount reductions and other workforce restructuring plans have in certain cases negatively impacted, and could continue to negatively impact, our relationships with vendors and customers as well as associate morale and retention. Furthermore, remote work arrangements, return-to-office expectations, changes in incentive programs, and our failure to meet performance targets have affected, and will continue to affect, our workforce culture and levels of associate engagement. Failure to effectively manage recruiting and retention challenges could disrupt our operations, increase costs, and harm our ability to achieve strategic goals. +Increases in wage and benefit costs, collective bargaining agreements, changes in laws and other labor regulations, or labor disruptions could impact our financial condition and cash flows. +Our expenses relating to employee labor, including employee health benefits, are significant. Our ability to control our employee and related labor costs is generally subject to numerous external factors, including prevailing wage rates, availability of labor, recent legislative and private sector initiatives regarding healthcare reform, and adoption of new or revised employment and labor laws and regulations; for example, recently, various legislative movements have sought to increase the federal minimum wage in the United States and the minimum wage in a number of individual states, some of which have been successful at the state level. Several employers in the private sector with whom we compete for permanent and seasonal labor have initiated wage increases and provided special benefits and incentives that may go beyond the minimum required by law. As minimum and market wage rates increase, we may need to increase not only the wage rates of our minimum wage associates, but also the wages paid to our other associates as well. A number of factors may adversely affect the labor force available to us, including high employment levels, federal and state unemployment subsidies, and other government regulations. In certain markets, such as the United States and Europe, labor shortages remain a challenge. Such shortages have led, and are likely to continue to lead, to higher wages for associates in order for us to provide competitive compensation. Should we fail to increase our wages competitively in response to increasing wage rates or labor shortages, the quality of our workforce could decline, adversely affecting our customer service and our overall business operations. Additionally, any increase in the cost of our labor could have an adverse and material effect on our operating costs, financial condition, and results of operations. +In addition, while we do not have unions in the United States, some of our associates are covered by collective bargaining agreements and works council arrangements in a number of the countries in which we operate including Australia, Brazil, Chile, Costa Rica, France, Germany, Mexico, the Netherlands, Poland, Spain, Sweden and the United Kingdom. Future negotiations prior to the expiration of our collective agreements may result in labor unrest for which a strike or work stoppage is possible. Strikes and/or work stoppages could negatively affect our operational and financial results and may increase operating expenses. In addition, any future unionization efforts would require us to incur additional costs related to wages and benefits, inefficiencies in operations, unanticipated costs in sourcing temporary or third-party labor, legal fees and interference with customer relationships. If a significant number of our associates were to become unionized and collective bargaining agreement terms were significantly different from our current arrangements, we may experience a material adverse effect on our business, results of operations, financial condition and cash flows. In addition, a labor dispute involving some of our associates may harm our reputation, disrupt our operations and reduce our revenue, and resolution of disputes may increase our costs. +We are also required to comply with laws and regulations in the countries in which we have associates that may differ substantially from country to country, requiring significant management attention and cost. +While we have not experienced any material work stoppages at any of our facilities, any stoppage or slowdown could cause material interruptions in our business, and we cannot assure investors that alternate qualified personnel would be available on a timely basis, or at all. +15 +Our failure to adequately adapt to industry changes could negatively impact our future operating results. +The technology and IT services industry is subject to rapid and disruptive technological change, new and enhanced product specification requirements, evolving industry standards, and changes in the way technology products are distributed, managed or consumed. We have been, and will continue to be, dependent on innovations in hardware, software, and services offerings, as well as the acceptance of those innovations by customers and consumers. Our failure to add new products and vendors, a decrease in the rate of innovation, or the lack of acceptance of innovations by customers, could have a material adverse effect on our business, results of operations, financial condition, and cash flows. Vendors may also give us limited or no access to new products being introduced. +Changes in technology may cause our inventory to become obsolete and cause the value of our inventory on hand to substantially decline, regardless of the general economic environment. Although it is the policy of many of our vendors to offer limited protection from the loss in value of inventory due to technological change or due to the vendors’ price reductions (“price protections”), such policies are often subject to time restrictions and do not protect us in all cases of declines in inventory value. If our major vendors decrease or eliminate our price protection, such a change in policy could lower our gross margins on products we sell or require us to record inventory write-downs. In addition, vendors could become insolvent and unable to fulfill their price protection obligations to us. We offer no assurance that inventory rotation or price protection rights will continue, that unforeseen new product developments will not adversely affect us, or that we will successfully manage our existing and future inventories. +Significant changes in vendor terms, such as higher thresholds on sales volume before the application of discounts and/or rebates, the overall reduction in incentives, reduction or termination of price protection, return levels or other inventory management programs, or reductions in trade credit or vendor-supported credit programs, may adversely impact our results of operations or financial condition. +The advent of cloud-based and consumption-based services creates business opportunities and risks, including that our customer base may lack the expertise and capital required to support and enable the migration to the cloud. As a result, end users may seek to source their solutions directly from software developers. Further, our experience platform requires significant engineering expertise and investments to be able to evolve along with the offerings of our software partners. We may not invest enough or be able to attract talent to advance our proprietary technology. +Further, some of our established vendors are transitioning to as-a-service companies, providing their entire portfolio through a range of subscription-based, pay-per-use and as-a-service offerings. Many of our vendors also continue to provide hardware and software in a capital expenditure and license-based model, ultimately giving end users a choice in consuming products and services in a traditional or as-a-service offering. While we are seeking to participate in both the on-premises and cloud-based markets, such business model changes entail significant risks and uncertainties, and our vendors, resellers and we may be unable to complete the transition to a subscription-based business model or manage the transition successfully. Additionally, we may not realize all of the anticipated benefits of the transition to the new consumption model, even if it is successfully completed. The transition also means that our historical results, especially those achieved before the transition, may not be indicative of our future results. Further, as customer demand for our consumption model offerings increases, we may experience differences in the timing of revenue recognition between our traditional offerings (for which revenue is generally recognized at the time of delivery) and our as-a-service offerings (for which revenue is generally recognized ratably over the term of the arrangement), which could have an adverse effect on our business, results of operations, financial condition, and cash flows. +We continually experience intense competition across all markets for our products and services. +Our competitors include local, regional, national, and international distributors, service providers and e-retailers, as well as suppliers that employ a direct-sales model. As a result of intense price competition in the technology and IT services industries, our gross margins have historically been narrow. We expect them to continue to be narrow in the future, which magnifies the impact of variations in revenue, operating costs, obsolescence, foreign exchange, and bad debt on our operating results. In addition, when there is overcapacity in our industry, our competitors may respond by reducing their prices, and our vendors may reduce the number of authorized distributors, potentially limiting our ability to distribute certain products and services. +16 +The competitive landscape has also experienced consolidation among vendors, suppliers, customers, and mobile operators, and this trend is expected to continue. Consolidation may reduce or eliminate promotional activities, decrease demand from end users and reseller customers. Additionally, the trend toward consolidation within the mobile operator community is expected to continue, which could result in a reduction or elimination of promotional activities by the remaining mobile operators as they seek to reduce their expenses, which could, in turn, result in decreased demand for our products or services. Moreover, consolidation of mobile operators reduces the number of potential contracts available to us and other providers of logistics services. We could also lose business if mobile operators that are our customers are acquired by other mobile operators that are customers of our competitors, or we could face price pressures if our mobile operator customers are acquired by other mobile operators that are our customers. +We offer no assurance that we will not lose market share, or that we will not be forced in the future to reduce our prices in response to the actions of our competitors, which may put pressure on our gross margins. Furthermore, to remain competitive, we may be forced to reduce prices or offer more credit or extended payment terms to customers, which could increase our required capital, financing costs, and bad-debt expenses. Customers, suppliers, and lenders may also seek commitments from us related to sustainability and environmental impacts, and meeting these commitments may increase our cost of operations or preclude some customers from doing business with us. +As we initiate or expand business activities, enter new geographies, or offer new products or vendors, we may face competition from current competitors or new entrants, including our own customers or suppliers, which may negatively impact our sales or profitability. +Our goodwill and identifiable intangible assets could become impaired, which could reduce the value of our assets and reduce our net income in the year in which the write-off occurs. +Goodwill represents the excess of the cost of an acquisition over the fair value of the assets acquired. We also ascribe value to certain identifiable intangible assets, which consist primarily of intellectual property, customer relationships, and trade names, among others, as a result of acquisitions. We may incur impairment charges on goodwill or identifiable intangible assets if we determine that the fair values of the goodwill or identifiable intangible assets are less than their current carrying values. We evaluate, at least annually, whether events or circumstances have occurred that indicate all, or a portion, of the fair value of a reporting unit is less than its carrying amount, in which case an impairment charge to earnings would become necessary. +A decline in general economic conditions or global equity valuations could impact our judgments and assumptions about the fair value of our businesses and we could be required to record impairment charges on our goodwill or other identifiable intangible assets in the future. +We have incurred and will incur additional amortization expense over the useful lives of certain assets acquired in connection with business combinations. To the extent that the value of goodwill or intangible assets with indefinite lives acquired in connection with a business combination and investment transaction become impaired, we may be required to incur material charges relating to the impairment of those assets. If our future results of operations for these acquired businesses are not as expected or are negatively impacted by any of the risk factors noted herein or other unforeseen events, we may have to recognize impairment charges, which would adversely affect our results of operations. +Changes in our credit rating or other market factors, such as adverse capital and credit market conditions or reductions in cash flow from operations, may affect our ability to meet liquidity needs, reduce access to capital, and/or increase our costs of borrowing. +Our business requires significant levels of capital to finance accounts receivable and product inventory that is not financed by our trade credit with our vendors. This is especially true when our business is expanding, including through acquisitions, but we may still have substantial demand for capital even during periods of stagnant or declining net sales. In order to continue operating our business, we will continue to need access to capital, including debt financing and inbound and outbound flooring. In addition, changes in payment terms with either suppliers or customers could increase our capital requirements. Our ability to repay current or future indebtedness when due, or to have adequate sources of liquidity to meet our business needs, may be affected by changes to the cash flows of our subsidiaries. A reduction in cash flow generated by our subsidiaries may have an adverse effect on our liquidity. Under certain circumstances, legal, tax, or contractual restrictions may limit our ability or make it more costly to redistribute cash between subsidiaries to meet our overall operational or strategic investment needs, or for repayment of indebtedness requirements. +17 +We believe that our existing sources of liquidity, including cash resources and cash provided by operating activities, supplemented as necessary with funds available under our credit arrangements, will provide sufficient resources to meet our working capital and cash requirements for at least the next 12 months. However, volatility and disruption in the capital and credit markets, including increasingly complex regulatory constraints on these markets and changes in existing and expected interest rates, may increase our costs for accessing the capital and credit markets. In addition, our credit ratings reflect each rating organization’s opinion of our financial strength, operating performance, and ability to meet our debt obligations. There can be no assurance that we will achieve a particular rating or maintain a particular rating in the future. An inability to obtain or maintain a particular rating could increase the cost, and impact the availability, of future borrowings. These and other adverse capital and credit market conditions, including the inability of our finance partners to meet their commitments to us, may also limit our ability to replace maturing credit arrangements in a timely manner and affect our ability to access committed capacities or the capital we require on terms acceptable to us, or at all. See “ —Risks Related to Our Indebtedness—Our substantial indebtedness could materially and adversely affect our financial condition, limit our ability to raise additional capital to fund our operations, limit our ability to increase or maintain existing levels of trade credit supplied from our suppliers, and prevent us from fulfilling our obligations under our indebtedness. ” Furthermore, any failure to comply with the various covenant requirements of our corporate finance programs, including cross-default threshold provisions, could result in an event of default, which, if not cured or waived, could accelerate our repayment obligations and could affect our ability to access the majority of our credit programs with our finance partners. The acceleration of our repayment obligations or the lack of availability of such funding could materially harm our ability to operate or expand our business. +In addition, our cash and cash equivalents (including trade receivables collected and/or monies set aside for payment to creditors) are deposited and/or invested with various financial institutions located in the various countries in which we operate. We endeavor to monitor these financial institutions regularly for credit quality; however, we are exposed to risk of loss on such funds or we may experience significant disruptions in our liquidity needs if one or more of these financial institutions were to suffer bankruptcy or similar restructuring. +We cannot predict the outcome of litigation matters and other contingencies with which we may be involved from time to time. +We are involved, and in the future may become involved, in various claims, disputes, lawsuits, and actions. Other than as discussed in Note 9, “Commitments and Contingencies,” to our audited consolidated financial statements included elsewhere in this report, we do not believe that the ultimate resolution of matters currently pending will have a material adverse effect on our business, results of operations, financial condition, and cash flows. We can make no assurances that we will ultimately be successful in our defense or prosecution of any of these matters or of any future matters. In addition, from time to time, we are, and may become, the subject of inquiries, requests for information, or investigations by government and regulatory agencies regarding our business. Any such matters, regardless of their merit or resolution, could be costly and divert the efforts and attention of our management and other associates, damage our reputation, or otherwise adversely affect our business. For more information regarding our current litigation matters, see Note 9, “Commitments and Contingencies,” to our audited consolidated financial statements. +We have been, and may continue to be, affected by public health issues. +Pandemics and other public health crises have disrupted, and may continue to disrupt, our business operations, supply chains, and workforce. These disruptions have included temporary facility closures, supply chain challenges, increased labor costs, and workforce attrition. Future pandemics or similar events could negatively affect our operations, financial condition, and cash flows. The extent of these impacts depends on factors beyond our control, including the emergence of new viruses or variants of existing viruses, government restrictions, and the financial condition of our customers, vendors, and partners. Any material effects on these stakeholders could adversely affect our business. +18 +Risks Related to the Macroeconomic and Regulatory Environment +We operate a global business that exposes us to risks associated with conducting business in multiple jurisdictions. +Sales outside the United States typically make up approximately two-thirds of our net sales. In addition, a significant portion of our business activity or key processes are being conducted in emerging markets, including, but not limited to, China, India, Brazil, Mexico, Peru, Colombia, Saudi Arabia, Indonesia, Malaysia, Thailand, the Philippines, Egypt, Pakistan, Morocco, Lebanon, and Serbia. We also conduct business with customers and end users that are state-owned or public sector entities. As such, a number of our subsidiaries are based outside of the United States. As a result, our future operating results and financial condition could be significantly affected by risks associated with conducting business in multiple jurisdictions, including misappropriation, fraud, and increasingly complex regulations that vary from jurisdiction to jurisdiction, the violation of which can lead to serious consequences, including, but not limited to, the following: +• trade protection laws, policies, and measures; +• import and export duties, customs levies, and value-added taxes; +• compliance with foreign and domestic import and export controls, economic sanctions, and anti-money laundering and anti-corruption laws and regulations, including the U.S. Export Administration Regulations, various economic sanctions administered by the U.S. Treasury Department’s Office of Foreign Assets Control and the U.S. Department of Commerce, the U.S. Foreign Corrupt Practices Act, and similar laws and regulations of other jurisdictions for our business activities outside the United States, the violation of which could result in severe penalties including monetary fines, criminal proceedings, and suspension of export privileges; +• laws and regulations regarding consumer and data protection, privacy, AI, network security, encryption, and payments, including the Export Administration Regulations; +• managing compliance with legal and regulatory requirements and prohibitions, including compliance with local laws and regulations that differ or are conflicting among jurisdictions; +• anti-competition regulations and compliance requirements, including any new antitrust legislation that may be passed in the United States; +• environmental laws and regulations, such as those relating to climate change, waste disposal, and disclosure obligations, such as the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive in the European Union (“EU”); +• differing employment practices and labor issues; +• political instability, terrorism, and potential or actual military conflicts or civil unrest; +• economic instability in a specific country or region; +• industrywide shifts toward AI‑focused manufacturing, resulting in memory and storage shortages, higher component costs, and constrained hardware availability industrywide shifts toward AI‑focused manufacturing, resulting in memory and storage shortages, higher component costs, and constrained hardware availability; +• earthquakes, power shortages, telecommunications failures, water shortages, tsunamis, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics or pandemics, and other natural or man-made disasters or business interruptions in a region or specific country; +• complex and changing tax laws and regulations in various jurisdictions; +• potential restrictions on our ability to repatriate funds from our foreign subsidiaries; and +• difficulties in staffing and managing international operations. +The potential criminal penalties for violations of import/export controls, economic sanctions, anti-corruption, and anti-competition laws, particularly the U.S. Foreign Corrupt Practices Act and similar statutes outside the United States, data privacy and protection laws, and environmental laws and regulations in many non-U.S. jurisdictions create heightened risks for our international operations. In the event that a governing regulatory body determined that we have violated any laws, including applicable import/export controls, economic sanctions, or anti-corruption laws, we could be fined significant sums, incur sizable legal defense costs, be subject to debarment, and/or our import/export capabilities could be restricted, which could have a material and adverse effect on our business and reputation. +19 +Additionally, unethical or fraudulent activities perpetrated by our directors, officers, senior management, associates, third-party suppliers and partners, including third-party shipping and freight forwarding companies, strategic partners, suppliers, and resellers, have exposed us in the past and in the future could continue to expose us to fraud, misappropriation, liability, and reputational damag e. Such fraud, misappropriation, liability, and/or damage to our reputation for these or any other reasons could have a material adverse effect on our business, results of operations, financial condition, and cash flows, particularly when accompanied by a breakdown in our internal controls, accounting processes, or governance oversight. These occurrences could require additional resources to rebuild our reputation. Further, failure to comply with applicable laws and regulations and failure to maintain an effective system of internal controls may subject us to fines or sanctions and incurrence of substantial legal fees and costs. While we have established policies, procedures, and internal controls designed to ensure accurate financial reporting and compliance with accounting standards, these controls may be circumvented, overridden, or rendered ineffective due to fraud, human error, or inadequate oversight. Our operating expenses could increase due to implementation of and compliance with existing and future laws and regulations or remediation measures that may be required if we are found to be noncompliant with any existing or future laws or regulations. +We are subject to risks and uncertainties associated with the impact of trade discussions between the United States and China and related U.S. security risks and export controls. The U.S. government has imposed various measures impacting trade with China, including restricting the export to China of certain items (including advanced semiconductors and related production equipment) and levying various tariffs on imports from China. The United States and other governments may impose additional measures in the future, and China may impose restrictions on both imports and exports (such as with respect to critical minerals as discussed below) in response. We continue to assess the impact of these actions. Our global operations, including in China, could be impacted by these trade restrictions and the overall uncertainty regarding trade between the United States and China. We cannot predict whether China or any of the countries in which we operate could become the subject of new or additional trade restrictions. Import/export controls, tariffs, countermeasures or other trade measures involving our customers’ products could harm sales of such products or result in the loss of non-U.S. customers, which could harm our business. +We historically had an office in Russia that employed engineering and coding resources supporting the operation and maintenance of our cloud marketplace. Following an executive order by President of the United States in 2022, and due to escalating trade sanctions, countermeasures, and operational challenges for non-Russian companies, we ceased all operations in Russia, and as of 2023, we no longer maintained a corporate entity in Russia and we no longer employed any associates in Russia. +Further, regional instability caused by, and any sanctions imposed in response to, geopolitical conflicts, including but not limited to the conflicts between Russia and Ukraine, between the United States and Venezuela, and the conflicts in the Middle East, could lead to disruption and volatility in global markets that could adversely impact our business and supply chain, or that of our vendors or customers. At this stage, we are uncertain of the extent to which measures taken by various governments in response to these conflicts could impact our business, results of operations, financial condition, or cash flows. +Additionally, we have been and expect to continue to be subject to new and increasingly complex U.S. and non-U.S. government regulations that affect our operations in the United States and globally. Complying with such regulations may be time-consuming and costly, and compliance could result in the delay or loss of business opportunities. While we have implemented, and will continue to implement and maintain, measures designed to promote compliance with these laws, we cannot assure investors that such measures will be adequate or that our business will not be materially and adversely impacted in the event of an alleged violation. +We are also exposed to market risks related to foreign currency and interest rate fluctuations, particularly changes in the value of the U.S. dollar against local currencies, which can significantly impact our financial results because more than half of our sales originate outside the United States. Currency variations, often driven by inflation, may affect sales, margins, and profitability, and they may positively or negatively impact our financial statements, which are reported in U.S. dollars. While we use a variety of financial instruments to manage these risks and monitor counterparty creditworthiness, our hedging activities may not fully mitigate the financial impact of adverse currency fluctuations. +20 +Our businesses operate in various international markets, including certain emerging markets that are subject to greater political, economic, and social uncertainties than developed countries. +We are monitoring the effects of Russia’s invasion of Ukraine. While such conflict has not yet materially impacted our business, geopolitical instability arising from such conflict, the imposition of sanctions, taxes and/or tariffs against Russia or commercial decisions to abstain from doing business with Russian-owned or Russian-managed vendors, and Russia’s response to such sanctions (including retaliatory acts), could adversely affect the global economic or specific international, regional, and domestic markets, which could adversely impact our business. We are also monitoring the effects of the recent conflicts in the Middle East, which have not yet materially impacted our business but could likewise adversely affect the global economic or specific international, regional, and domestic markets, which could adversely impact our business. Additionally, we operate internationally and to the extent future sanctions, laws, regulations, or orders imposed by the United States, the EU, the United Kingdom, and other countries or private sector actors in response to the conflict differ between jurisdictions, we may experience regulatory and business uncertainty. +Changes in macroeconomic and geopolitical conditions can affect our business and results of operations. +Our revenues, profitability, financial position, and cash flows are highly dependent on broader macroeconomic and geopolitical conditions. Volatility in the global economy has trickle-down effects on the IT market as customers plan capital expenditures in the face of economic uncertainty, which has resulted, and may continue to result, in fluctuating revenue, margins, and earnings, difficulty forecasting demand and inventory levels, challenges in collecting customer receivables, reduced availability or higher cost of trade credit, and constrained access to capital. Inflation and changes in existing or expected inflation rates may increase operating, labor, supplier, and financing costs, and could adversely affect our results of operations if we are unable to pass such increases on to customers, while also impacting our customers’ liquidity, financing access, and ability to purchase our products. +In addition, default by one of the several large financial institutions that are dependent on one another to meet their liquidity or operational needs or are perceived by the market to have similar financial weaknesses, so that a default by one institution causes a series of defaults by or runs on other institutions (sometimes referred to as a “systemic risk”) or a downgrade of U.S. or non-U.S. government securities by credit rating agencies, may expose us to investment losses, business disruption, and liquidity constraints. There has been significant volatility and instability among banks and financial institutions. We maintain cash balances at financial institutions in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit, and if one or more of the financial institutions at which we maintain funds were to fail, there is no guarantee regarding the amount or timing of any recovery of the funds deposited, whether through the FDIC or otherwise. Additionally, we continue to monitor the risk that one or more of our vendors, suppliers, strategic partners, resellers, other business partners, and financial institutions, could be impacted by such instability, which could adversely affect our business, results of operations, financial condition, and cash flows. +Our business may also be adversely affected by heightened trade and geopolitical tensions, including recent U.S. tariff actions and related uncertainty, disruptions to global shipping routes such as those in the Red Sea region, and ongoing conflicts or instability involving the United States, China, Taiwan, Russia, the Middle East, Venezuela or other regions in which we operate or source products. These conditions may reduce demand for IT products, shift purchasing behavior, increase competition, pressure pricing and gross margins, reduce vendor incentives, extend customer payment terms, increase bad debt risk, shorten vendor payment terms, increase currency volatility and hedging costs, reduce the availability or increase the cost of credit insurance, and result in inventory losses due to obsolescence, excess quantities, or theft or misappropriation. We may not be able to adjust our cost structure or operating model in a timely manner in response to these conditions. Any of these factors, individually or in the aggregate, could materially and adversely affect our business, results of operations, financial condition, and cash flows. +21 +Tariffs, trade and non-trade restrictions may increase prices and could adversely affect our business, results of operations, financial condition, and cash flows. +The U.S. government has imposed tariffs on certain products imported into the United States, including pursuant to Section 301 of the Trade Act of 1974 as well as the International Emergency Economic Powers Act (“IEEPA”). In May 2024, the United States announced additional Section 301 actions affecting certain imports from China. China, and other countries have imposed tariffs on certain products imported from the United States. Throughout 2025, the United States announced the implementation of tariffs against a broad cross-section of countries pursuant to IEEPA, and other countries (including major U.S. trading partners such as China, the EU, and Brazil) responded in-kind with their own trade barriers. The IEEPA-based tariffs, while currently in effect, are the subject of litigation that calls their authorization into question and adds uncertainty to forward-looking projections. Additional tariffs or other trade restrictions may be implemented by the United States, China, Mexico, Canada, or other countries. The scope, timing, and ultimate impact of these actions remain uncertain. +These tariffs have increased, and may continue to increase, the prices of certain products that we purchase from our vendors and could create challenges in procuring products for resale. While we may seek to pass price increases on to our customers, the effect of tariffs on prices may impact demand, sales, and results of operations. Retaliatory tariffs or other countermeasures imposed by other countries could further increase costs or disrupt supply chains. In addition, the tariffs and the additional operational and administrative costs incurred in minimizing the number of products subject to tariffs could adversely affect operating profits for certain of our businesses and customer demand for certain products. +In certain circumstances, when products imported from China into the United States are subsequently re-exported to other locations, we may be eligible to seek refunds of certain tariffs through drawback or similar programs. To qualify for these refunds, we must obtain and submit data and documentation from third-party sources, such as our suppliers, and there can be no assurance that such information will be available or that refund claims will be approved or timely processed. Delays in receiving, or an inability to obtain, such refunds, together with the associated administrative costs, could adversely affect our business, results of operations, financial condition, and cash flows. +U.S.-China tensions around technology, critical minerals, national security, and human rights continue to evolve and could adversely affect our business. +Our business within China consists predominantly of distributing Western products in China. The regulatory landscape in both the United States and China regarding advanced computing, semiconductors, critical minerals, cybersecurity, data governance, and national security remains uncertain and continues to change. Enactment by China of laws, regulations, industrial policies, or procurement practices that favor Chinese technology vendors over the Western companies whose products we distribute could materially and adversely impact our business in China. +Notwithstanding a loosening of certain licensing requirements in 2026, actions by the U.S. government to tighten export controls on advanced computing, AI-related chips, chipsets, accelerators, and associated design software or tools, including rules issued in 2023, 2024, and 2025 expanding restrictions based on performance thresholds, datacenter deployment, cloud access, or end-use, remain in effect and could also adversely affect our business. These measures may limit the ability of certain U.S. vendors to sell products to Chinese end-customers directly or indirectly, including end-customers located outside China who serve Chinese users. Likewise, increases in U.S. or Chinese tariffs, or the imposition of new tariff categories on technology products, components, or subassemblies, could raise costs for us or our vendors and reduce demand for the products we distribute. Net sales in China for Fiscal Year 2025 were $5.9 billion, and any further escalation in export controls or tariffs could adversely affect these results. +China has adopted and may continue to adopt countermeasures, including export restrictions on critical materials, components, or manufacturing inputs used by our vendors or their suppliers. Such countermeasures—along with China’s evolving cybersecurity, data localization, and anti-espionage laws—could disrupt supply chains, limit product availability, increase compliance obligations, or reduce our ability to operate effectively in China or support global customers that rely on China-based manufacturing. +To a lesser extent, we also distribute products in the United States made by Chinese vendors. Risks associated with those vendors—including actual or perceived cybersecurity risks, restrictions on federal or state procurement involving certain Chinese-origin technologies, or changes in U.S. national-security–related rules—could adversely affect our business. +22 +In addition, changes in the relationship between China and Taiwan could disrupt the operations of companies in Taiwan that are our vendors or supply critical components to our vendors’ manufacturing ecosystems. Disruption of semiconductor fabrication, foundry operations, or other essential technology manufacturing in Taiwan could have a material adverse effect on key sectors within the global technology industry. Furthermore, scrutiny by the U.S. government of human-rights practices in China, supply-chain transparency, and compliance with disclosure requirements for companies with operations in China may likewise adversely affect key technology sectors and our business. +Increasing attention to environmental, social, and governance (“ESG”) matters, including evolving and sometimes conflicting expectations and regulatory requirements, may subject us to unforeseen liability or cause harm to our reputation. +Various stakeholders, including lenders, customers, vendors, regulators, investors, employees, and public interest groups, have placed increased focus on ESG matters, such as diversity, equity, and inclusion (“DEI”), environmental protection, and social responsibility, while other stakeholders have increasingly challenged certain ESG initiatives, particularly in DEI-related areas. ESG standards, expectations, and regulatory requirements are evolving and differ across jurisdictions in which we operate. If we are perceived—due to unfavorable ESG ratings or otherwise—to have not responded appropriately to these expectations, regardless of whether legally required, our reputation could be harmed. This could negatively affect our business, including associate retention, customer relationships, or investor interest. In addition, ESG ratings and assessments are produced by third parties using differing and sometimes inconsistent methodologies, with no universal standards, which may result in a misleading or incomplete assessment of our ESG practices. +We have publicly communicated, and may continue to publicly communicate, initiatives, goals, or targets related to ESG matters. There can be no assurance that we will achieve these initiatives or goals, or that they will be met within announced timeframes. Executing and reporting on ESG initiatives involves operational, financial, legal, and reputational risks, many of which are outside of our control, and such activities may require additional costs, management time, and administrative resources. Our failure, or perceived failure, to meet publicly-stated ESG goals or evolving reporting standards—including emerging climate- and sustainability-related disclosure regimes in the United States, the EU (such as the Corporate Sustainability Reporting Directive), or other jurisdictions—could negatively affect our reputation, expose us to liability or litigation, or adversely impact our business, financial condition, and results of operations. +In addition, certain customers and vendors have adopted, or may adopt, ESG-related requirements applicable to their suppliers or business partners, including environmental, social responsibility, or human rights standards. Our inability to meet these requirements, or the occurrence of ESG-related issues within our supply chain, could adversely affect our ability to retain customers or vendors and could harm our reputation. +Our failure to comply with environmental, health and safety regulations or other applicable laws could adversely affect our business. +Our business, facilities, and operations are subject to a wide range of federal, state, local, and foreign laws and regulations, including those relating to labor and employment, product safety, import and export activities, e-commerce, antitrust, taxation, and environmental, health, and safety matters. These requirements include regulations governing chemical usage, pollutant emissions, worker health and safety, wastewater and stormwater discharges, waste generation and disposal, and product recycling and stewardship obligations, such as those imposed under the EU Waste Electrical and Electronic Equipment Directive and similar laws in North America. +Failure to comply, or allegations of noncompliance, with applicable laws and regulations could result in substantial costs, fines, penalties, civil or criminal sanctions, product recalls, operational disruptions, or third-party claims for property damage or personal injury. Environmental, health, and safety laws, including those relating to climate change, may become more stringent over time, increasing compliance costs and the risks associated with violations. In addition, governmental bodies in many jurisdictions are adopting new or expanded climate-related laws and regulations, and differences among jurisdictions may further increase the complexity and cost of compliance in the countries in which we operate. +We may also incur liability for the remediation of contaminated soil or groundwater at sites currently or formerly owned or operated by us, or at third-party sites where waste generated by us or our predecessors in interest or in connection with third-party contaminated sites where have sent waste for treatment or disposal. While we take actions designed to ensure that we are in compliance with all applicable regulations, certain of these regulations, including those relating to the remediation of soil and groundwater, impose strict liability and, in some cases, joint and several liability, regardless of fault. +23 +Although we believe we are in substantial compliance with applicable laws and regulations, legal requirements frequently change and are subject to varying interpretation and application. As a result, we cannot predict the ultimate cost of compliance or the consequences of noncompliance, which could be significant. Any failure to comply with applicable laws or regulations, or changes in regulatory requirements affecting environmental, health and safety, trade, tax, labor, or other business matters, could materially and adversely affect our business, results of operations, financial condition, and cash flows. Claims or liabilities arising from such matters may also exceed, or fall outside the scope of, our insurance coverage. +Changes in accounting rules could adversely affect our reported operating results. +Our consolidated financial statements are prepared in accordance with U.S. GAAP. These principles are subject to interpretation by various governing bodies, including the Financial Accounting Standards Board, which create and interpret appropriate accounting standards. Future periodic assessments required by current or new accounting standards may result in additional noncash charges and/or changes in presentation or disclosure. A change from current accounting standards could have a significant adverse effect on our reported financial position or results of operations. +Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our results of operations and financial condition. +Together with our subsidiaries, we are subject to taxation in many jurisdictions worldwide. The future effective tax rates applicable to us and our subsidiaries as a group could be subject to volatility or adversely affected by a number of factors, including changes in the valuation of our deferred tax assets and liabilities, limitations on the tax deductibility of interest expense, tax effects of stock-based compensation and other executive compensation programs, or changes in tax laws, regulations or interpretations thereof. In addition, we and our subsidiaries may be subject to audits of our income, sales, and other taxes by U.S. federal, state, local, and non-U.S. taxing authorities. Outcomes from these audits could have an adverse effect on our business, results of operations, financial condition, and cash flows. +Changes in, or interpretations of, tax rules and regulations, changes in the mix of our business among different tax jurisdictions, and deterioration of the performance of our business may adversely affect our effective income tax rates or operating margins. We may be required to pay additional taxes and/or tax assessments, as well as record valuation allowances relating to our deferred tax assets. +In addition to payroll taxes, we are subject to both income and transaction-based taxes in substantially all countries and jurisdictions in which we operate, which are complex. Changes to tax laws or regulations or to their interpretation or application by governments could adversely affect our future earnings and cash flows. For example, in light of continuing global fiscal challenges, various levels of government and international organizations such as the Organization for Economic Co-operation and Development (“OECD”) and the EU are increasingly focused on tax reform and other legislative or regulatory action to increase tax revenue. These tax reform efforts, such as the OECD’s Base Erosion and Profit Shifting Project, are designed to ensure that corporate entities are taxed on a larger percentage of their earnings. Tax reform efforts include proposals that may change various aspects of the existing framework under which our tax obligations are determined in many of the countries in which we do business and increase the complexity, burden, and cost of tax compliance. For example, in October 2021, the OECD/G20 Inclusive Framework released a statement on a two-pillar solution to address the tax challenges arising from the digital economy, which includes proposals to reallocate profits among taxing jurisdictions based on a market-based concept rather than historical “permanent establishment” concepts and subject multinational enterprises to a global minimum corporate tax rate of 15%. These proposals have been agreed to in principle by 145 OECD member jurisdictions. In August 2022, the U.S. government enacted the Inflation Reduction Act, which imposes a corporate alternative minimum tax of 15% on adjusted financial statement income for certain corporations. To date, we have not experienced a material impact from this legislation. Our effective income tax rate in the future could be adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, limitations on the tax deductibility of interest expense, tax effects of stock based compensation and other executive compensation programs, changes to our operating structure, changes in tax laws, regulations or interpretation thereof, and the discovery of new information in the course of our tax return preparation process. +Likewise, changes to our transaction tax liabilities could adversely and materially affect our future results of operations and cash flows, and our competitive position. We engage in a high volume of transactions where multiple types of consumption, commercial, and service taxes are potentially applicable. An inability to appropriately identify, charge, remit, and document such taxes, along with an inconsistency in the application of these taxes by the applicable taxing authorities, may negatively impact our gross and operating margins, financial position, or cash flows. +24 +We are subject to the continuous examination of both our income and transaction tax returns by the U.S. Internal Revenue Service and other domestic and foreign tax authorities. While we regularly evaluate our tax contingencies and uncertain tax positions to determine the adequacy of our provision for income and other taxes based on the technical merits and the likelihood of success resulting from tax examinations, any adverse outcome from these continuous examinations may have an adverse effect on our operating results and financial position. +Risks Related to Our Indebtedness +Our substantial indebtedness could materially and adversely affect our financial condition, limit our ability to raise additional capital to fund our operations, limit our ability to increase or maintain existing levels of trade credit provided by our suppliers, and prevent us from fulfilling our obligations under our indebtedness. +We have a significant amount of indebtedness. As a result of our substantial indebtedness incurred in connection with the Imola Mergers, (see Note 6, “Debt”, to our audited consolidated financial statements), a significant amount of our cash flows is required to pay interest and principal on our outstanding indebtedness, and we may not generate sufficient cash flows from operations, or have future borrowings available under the ABL Revolving Credit Facility, to enable us to repay our indebtedness or to fund our other liquidity needs. +Subject to the limits contained in the ABL Credit Agreement and the Term Loan Credit Agreement, the Indenture, and our other debt instruments (see Note 6, “Debt”, to our audited consolidated financial statements), we may incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our high level of debt would further increase. Specifically, our high level of debt could have important consequences, including: +• making it more difficult for us to satisfy our obligations with respect to our debt; +• limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions, or other general corporate requirements; +• requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions, and other general corporate purposes; +• increasing our vulnerability to general adverse economic and market conditions; +• exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings under the ABL Revolving Credit Facility and the Term Loan Credit Facility (the “Credit Facilities”), are at variable rates of interest; +• limiting our flexibility in planning for and reacting to changes in the markets in which we compete and to changing business and economic conditions; +• restricting us from making strategic acquisitions or causing us to make non-strategic divestitures in order to generate cash proceeds necessary to satisfy our debt obligations; +• impairing our ability to obtain additional financing in the future; +• placing us at a disadvantage compared to other, less leveraged competitors and affecting our ability to compete; +• limiting our ability to retain or increase levels of trade credit and financing provided by our suppliers, or generating less advantageous pricing or rebate structures from our suppliers; and +• increasing our cost of borrowing. +We are also party to certain additional lines of credit, short-term overdraft facilities, and other credit facilities with approximately $102.8 million outstanding under these facilities as of December 27, 2025. See Note 6, “Debt”, to our audited consolidated financial statements. +25 +We may not be able to generate sufficient cash flows from operations to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful. +Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to financial, business, legislative, regulatory, and other factors beyond our control. We might not be able to maintain a level of cash flows from operations sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. +If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital, or restructure or refinance our indebtedness. Additionally, we may not be able to obtain loans or other debt financings on commercially reasonable terms or at all. Even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. The Credit Agreements and the Indenture restrict, and the agreements governing our indebtedness in the future, may restrict, our ability to dispose of certain assets and use the proceeds from such dispositions and may also restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. Because of these restrictions, we may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due. +Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our business, results of operations, financial condition, and cash flows, as well as our ability to satisfy our obligations under our indebtedness. +This could in turn could negatively impact investments in our Common Stock. If we cannot make scheduled payments on our indebtedness, we will be in default and holders of our indebtedness could declare all outstanding principal and interest to be due and payable, the lenders under the ABL Revolving Credit Facility could terminate their commitments to loan additional money to us, the lenders could foreclose against the assets securing their borrowings, and we could be forced into bankruptcy or liquidation. Any or all of these events could result in investors losing all or a part of their investments in our Common Stock. +The Indenture and the Credit Agreements contain a number of restrictive covenants that impose significant operating and financial restrictions on us and limit our ability to engage in acts that may be in our long-term best interest, including restrictions on our ability and the ability of our subsidiaries to: +• incur additional indebtedness and guarantee indebtedness; +• pay dividends or make other distributions in respect of, repurchase or redeem, capital stock; +• prepay, redeem or repurchase certain debt; +• issue certain preferred stock or similar equity securities; +• make loans and investments; +• sell assets; +• incur liens; +• enter into agreements containing prohibitions affecting our subsidiaries’ ability to pay dividends; +• enter into transactions with affiliates; and +• consolidate, merge, or sell all or substantially all of our assets. +As a result of all of these restrictions, we may be: +• limited in how we conduct our business; +• unable to raise additional debt or equity financing to operate during general economic or business downturns; or +• unable to compete effectively or to take advantage of new business opportunities. +26 +These restrictions might hinder our ability to grow in accordance with our strategies. With respect to the ABL Revolving Credit Facility (see Note 6, “Debt”, to our audited consolidated financial statements), we will also be required by a springing financial covenant to, on any date when Adjusted Availability (as such term is defined in the ABL Credit Agreement) is less than the greater of (i) 10% of the lesser of the Line Cap (as such term is defined in the ABL Credit Agreement) and (ii) $300 million, maintain a minimum fixed charge coverage ratio of 1.00 to 1.00, tested for the four fiscal quarter periods ending on the last day of the most recently ended fiscal quarter for which financials have been delivered, and at the end of each succeeding fiscal quarter thereafter until the date on which Adjusted Availability has exceeded the greater of (x) 10% of the Line Cap and (y) $300 million for 30 consecutive calendar days. Our ability to meet the financial covenant could be affected by events beyond our control. While we anticipate that we will continue to be able to maintain compliance with this covenant, we cannot assure investors that we will not breach this covenant or other covenants in our Credit Facilities in the future, or other covenants in our future credit facilities. +A breach of the restrictive, reporting and other covenants under the Indenture or under the Credit Agreements could result in an event of default under the applicable indebtedness. Such a default, if not cured or waived, may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt that is subject to an applicable cross-acceleration or cross-default provision. In addition, an event of default under the Credit Agreements would permit the lenders under the ABL Revolving Credit Facility to terminate all commitments to extend further credit thereunder. Furthermore, if we were unable to repay the amounts due and payable under the Credit Facilities, those lenders could proceed against the collateral securing such indebtedness. In the event our lenders or holders of the Company’s $2 billion aggregate principal amount 4.750% notes due 2029 (the “2029 Notes”) accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness. +Our variable-rate indebtedness exposes us to interest rate risk, which could increase our debt service obligations and adversely affect our results of operations and cash flows. +Borrowings under our Credit Facilities are, subject to variable rates of interest, and borrowings under any future indebtedness may also bear interest at variable rates, exposing us to interest rate risk. Increases in interest rates could result in higher interest expense on our outstanding indebtedness, even if the principal amount remains unchanged, which could reduce our profitability and cash flows, including cash available to service our debt. Assuming that our ABL Revolving Credit Facility was fully drawn as of December 27, 2025, each one-eighth percentage point change in interest rates would result in a change of approximately $5.38 million in annual interest expense on the indebtedness under our Credit Facilities. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Item 7A, “Quantitative and Qualitative Disclosures About Market Risk—Interest Rate Risk.” +The extent of our exposure to interest rate risk depends on market interest rates and the amount of our variable-rate indebtedness outstanding from time to time. Although we may seek to manage a portion of this risk through various strategies, including entering into interest rate hedging arrangements, we are not required to do so, and any such arrangements may not fully or effectively mitigate our exposure to rising interest rates. As a result, fluctuations in interest rates could materially and adversely affect our business, results of operations, financial condition, and cash flows. +The Indenture governing the 2029 Notes and the Credit Agreements governing the Credit Facilities contain cross-default or cross-acceleration provisions that may result in all of the debt issued under the Indenture and the Credit Agreements to become immediately due and payable because of a default under an unrelated debt instrument. +Our failure to comply with the obligations contained in the agreements governing any of our debt instruments could result in an event of default under such instruments, which could result in the 2029 Notes and the Credit Facilities (together with accrued and unpaid interest and other fees) becoming immediately due and payable. In such event, we would need to raise funds from alternative sources, which funds may not be available to us on favorable terms, on a timely basis or at all. Alternatively, such a default could require us to sell certain of our assets and otherwise curtail our operations in order to pay our creditors. These alternative measures could have a material adverse effect on our business, results of operations, financial condition, and cash flows, which could cause us to become bankrupt or insolvent or otherwise impair our ability to make cash available by dividend, debt repayment, or otherwise to enable us to make payments in respect of our indebtedness. +27 +Risks Related to Our Reliance on Third Parties +We face a variety of risks in our reliance on third-party service companies, including shipping companies and a cloud service provider, for the delivery of our products and outsourcing arrangements. +We rely almost entirely on arrangements with third-party shipping and freight forwarding companies for the delivery of our products. Freight and shipping charges may increase due to rising fuel cost, inflation, labor disputes, tariffs, geopolitical instability, disruptions to global trade routes (including recent disruptions in the Red Sea region), or general price and rate increases. Any such increases have an immediate adverse effect on our margins unless we are able to pass the increased charges to our customers or renegotiate terms with our suppliers. Additionally, the termination of our arrangements with one or more of these third-party shipping companies, or the failure or inability of one or more of these third-party shipping companies to deliver products from vendors to us or products from us to our customers, even temporarily, could materially disrupt our business and harm our reputation and operating results. We and our vendors and customers may be unable to mitigate such disruptions by securing alternate shipping arrangements. +Ingram Micro Xvantage utilizes the cloud infrastructure of the Google Cloud Platform and relies on AI-based tools associated with the Google Cloud Platform for the day-to-day functioning of some of the AI capabilities within the Xvantage platform, such as providing recommendations to users. If the Google Cloud Platform experiences technical issues, such as server outages, network disruptions, or performance degradation, it could directly and adversely impact the availability and performance of the Xvantage platform. Users may be unable to access the platform, experience lag or disconnections, or encounter other technical problems, leading to frustration and potential loss of users. Reliance on a single cloud provider or third-party service could also leave us vulnerable to vendor lock-in and price increases. We may not be able to easily switch Google Cloud operations to another cloud service provider or to our on-premise infrastructure if there are disruptions or interference with our use of Google Cloud. +In addition, we have outsourced various transaction-oriented service and support functions to business process outsource providers, including third-party customer service platforms that utilize AI in their provided services (subject to relevant terms of use governing Ingram Micro’s use of such products). We have also outsourced a significant portion of our IT infrastructure function and our transactional finance function, as well as certain IT application development functions, to third-party providers. We may outsource additional functions to third-party providers. Our reliance on third-party providers to provide services to us, our customers, and suppliers could result in significant disruptions and costs to our operations, including damaging our relationships with our suppliers and customers, if these third-party providers do not meet their obligations to adequately maintain an appropriate level of service for the outsourced functions or fail to adequately support our IT requirements. As a result of our outsourcing activities, it may also be more difficult to recruit and retain qualified associates for our business needs. +We or our vendors, suppliers, or customers may experience damage to or disruptions at our respective facilities caused by natural disasters and other factors, such as climate change, which may result in our business, financial condition, and results of operations being adversely affected. +Several of our facilities or those of our vendors, suppliers, and customers could be subject to a catastrophic loss or business interruptions due to extreme weather events, including as a result of climate change (such as drought, wildfires, increased storm severity and frequency, and sea level rise), earthquakes, tornadoes, floods, hurricanes, fire, power loss, telecommunication and information systems failure, inclement weather, failure of the power grid or other critical infrastructure, or other similar events. We maintain disaster recovery and business continuity plans that would be implemented in the event of incidents such as severe weather events; however, we cannot be certain that our plans will protect us or our vendors, suppliers, or customers from all such events. While we maintain insurance coverage to mitigate business continuity risks, among other risks, such coverage may be insufficient to recover all such losses, or we may not be able to reestablish our operations. As a result, our customers or suppliers may experience material disruptions in their operations as a result of such events, which could materially and adversely affect our business, results of operations, financial condition, and cash flows. +Termination of a key supply or services agreement or a significant change in vendor terms or conditions of sale could negatively affect our operating margins, revenue, or the level of capital required to fund our operations. +Our agreements with most of our key vendors are terminable upon short notice and for any reason. Additionally, under most of our agreements, our vendors are not required to accept the purchase orders we regularly place. Should our contractual relationships with vendors be terminated or, even if not terminated, should vendors decide to reject our purchase orders, our business may be materially and adversely impacted. +28 +A significant percentage of our net sales relates to products sold to us by relatively few vendors. As a result of such concentration, terminations of supply or services agreements, a significant change in the terms or conditions of sale from one or more of our significant vendors or the bankruptcy or closure of business by one or more of our key vendors could negatively affect our operating margins, revenues, and/or the level of capital required to fund our operations. Our vendors have the ability to make, and in the past have made, rapid and significantly adverse changes in their sales terms and conditions, such as reducing the amount of price protection and return rights offered to us, as well as reducing the level of purchase discounts and rebates they make available to us. In most cases, we have no guaranteed price or delivery agreements with vendors. In certain product categories, such as systems, limited price protection, or return rights offered by vendors may have a bearing on the amount of product we may be willing to purchase for stock. We expect restrictive vendor terms and conditions to continue for the foreseeable future. Our inability to pass through to our customers the cost of these changes, as well as our failure to develop systems to manage ongoing vendor programs, could cause us to record inventory write-downs or other losses and could have a negative impact on our gross margins. +We receive purchase discounts and rebates from vendors based on various factors, including sales or purchase volume, breadth of customers, and achievement of other quantitative and qualitative goals set by the vendors. These purchase discounts and rebates may affect gross margins and ultimately, profitability. Many purchase discounts from vendors are based on percentage increases in sales of products. Our operating results could be negatively impacted if these rebates or discounts are reduced or eliminated or if our vendors significantly increase the complexity of the process and costs for us to receive such rebates. +Our ability to obtain particular products or product lines in the required quantities to fulfill customer orders on a timely basis is critical to our success. The technology industry experiences significant product supply shortages and customer order backlogs from time to time due to the inability of certain vendors to supply certain products on a timely basis. As a result, we have experienced, and may continue to experience, shortages of specific products that may last for an indefinite period of time, which can significantly impact pricing of such products. Vendors have, from time to time, made efforts to reduce the number of distributors with whom they do business. This could result in more intense competition as distributors strive to secure distribution rights with these vendors, which could have an adverse effect on our operating results. If vendors are not able to provide us with an adequate supply of products to fulfill our customer orders on a timely basis or we cannot otherwise obtain particular products or a product line, or vendors substantially increase their existing distribution through other distributors, their own dealer networks or directly to resellers, our reputation, sales, and profitability may materially suffer. +Our business may be adversely affected by vendors’ consolidation and increased direct sales, which could reduce our volumes, margins, or incentives. +Our business is significantly impacted by the strategies and decisions of our vendors, including original equipment manufacturers (“OEMs”), regarding product distribution and sales channels. Consolidation among vendors and their increased focus on direct sales to reseller, retail customers, or end users could adversely affect our business, financial condition, and operating results. +Vendor consolidation has led to fewer sources for some of the products and services that we distribute, while simultaneously creating larger vendors with significant bargaining power and financial resources. These vendors may pursue aggressive business terms, streamline product offerings, or adjust sales strategies, including increasing reliance on direct sales. For example, in January 2024, HPE, one of our longstanding vendor partners, announced its intention to acquire Juniper Networks, another one of our longstanding vendor partners. Changes in those vendors’ sales practices or strategies in the event of the acquisition closing and the subsequent integration of the businesses could result in a reduction in our aggregate revenues with respect to such accounts. Similarly, in March 2024, Cisco acquired Splunk, and any changes in our relationship with either company—both of which are key vendor partners—could negatively impact our ability to distribute their products and services, alter pricing structure, or affect demand from our resellers and other customers. We are currently evaluating the impact of these acquisitions. +29 +Additionally, vendor strategies to reduce or eliminate promotional activities and rebates to manage their expenses can negatively impact the incentives available to us, our customers, and end users. These changes could lead to decreased demand for their products through our channels and further diminish our competitiveness. Moreover, some OEMs and other vendors bypass the distribution channel altogether, reducing our addressable market and eroding our revenue opportunities. If our primary vendors expand their direct-to-customer sales efforts, rather than using us as the distributor of their products and services, our sales volumes, profitability, and operating results will materially suffer. Our reliance on vendors to maintain robust distribution partnerships, consistent sales strategies, and competitive incentive programs is critical to our success. If vendor consolidation, changes in strategy, or direct sales trends continue or intensify, our business, financial condition, and operating results could be significantly and adversely affected. +Credit risks from customers, including substantial defaults or loss of significant customers, could negatively impact our business, results of operations, financial condition, or liquidity. +As is customary in many industries, we extend credit to our customers for a significant portion of our net sales, generally allowing a period of time, typically 30 days after the invoice date, for payment. However, the extension of credit involves inherent risks, particularly when economic or industry-specific conditions deteriorate or when doing business in international markets where credit cycles are longer, and legal recourse for non-payment may be more complex. +We are subject to the risk that our customers may default on their payment obligations, which could lead to significant financial losses. For example, in 2022, one of our customers in the United States went into receivership and we experienced a loss of less than $10 million for which we did not have insurance coverage. The risk of default may increase if our customers experience reduced demand for their products and services, become financially unstable due to adverse economic conditions, or face disruptions in their own supply chains. In such cases, our ability to collect receivables could be significantly impaired. Furthermore, if we are unable to secure credit insurance at reasonable rates or collect under existing insurance policies, our exposure to bad debt could grow, negatively impacting our earnings, cash flows, and ability to utilize receivable-based financing. +International customers, particularly in emerging markets, often pose greater credit risks due to factors such as longer payment cycles, currency volatility, regulatory complexities, and limited availability of credit insurance or collection resources. Credit risks may also be magnified in international markets where legal and cultural differences, weaker enforcement of contract rights, and currency fluctuations can complicate our risk management efforts. If we fail to adequately mitigate these risks, such as through diversification of our customer base, enhanced credit monitoring, or proactive collections management, our business, results of operations, and liquidity could be materially and adversely affected. +In addition to default risks, our customers are not obligated to make purchases from us. The loss of a significant customer, whether due to competitive pressures, acquisition by another company, or changes in their purchasing patterns, could significantly reduce our net sales. This could also impair our ability to access rebates or reduced pricing from product suppliers or vendors tied to volume purchases, further negatively impacting our margins, financial performance, and results of operations. +30 +We do not have guaranteed future sales of the products we sell and when we enter into contracts with our customers, we generally take the risk of certain cost increases, and our business, financial condition, results of operations, and operating margins may be negatively affected if we purchase more products than our customers require, product costs increase unexpectedly, we experience high start-up costs on new contracts, or our contracts are terminated. +Certain of our contracts are long-term, fixed-price agreements with no guarantee of future sales volumes. They may be terminated for convenience on short notice by our customers, often without meaningful penalties, and they often provide that we are reimbursed for the cost of any inventory specifically procured for the customer or inventory that is not commonly sold to our other customers. In addition, we purchase inventory based on our forecasts of anticipated future customer demand. As a result, we have taken, and will continue to take, the risk of holding excess inventory if our customers do not place orders consistent with our forecasts, particularly with respect to inventory that has a more limited shelf life. Also, even though we may sometimes enter into long-term pricing agreements with our vendors, we run the risk of not being able to pass along to our customers, or otherwise recover, unexpected increases in our product costs, including as a result of changing environmental laws and regulations, the effects of climate change on pricing and sourcing, transportation, and commodity price increases and tariffs. This may increase above our established prices at the time we entered into the contract and established prices for products we provide. When we are awarded new contracts, particularly just-in-time contracts, we may incur high costs, including salary and overtime costs, to hire and train on-site personnel, in the start-up phase of our performance. If we purchase more products than our customers require, product costs increase unexpectedly, we experience high start-up costs on new contracts, or our contracts are terminated, our business, financial condition, results of operations, and operating margins could be negatively affected. +Risks Related to Information Technology, Data Privacy, and Intellectual Property +Our dependence on a variety of information systems to operate our business could, if such systems are not properly functioning, maintained, and available, result in disruptions to our business and harm our reputation and net sales. +We depend on a variety of information systems for our operations, many of which are proprietary, including one of our legacy mainframe enterprise resource planning (“ERP”) systems. These systems have historically supported many of our material business operations such as inventory and order management, shipping, receiving, and accounting. Because a significant number of our information systems are internally developed systems and applications in the legacy programming language COBOL, it can be more difficult to upgrade or adapt them compared to commercially available software solutions and they require significant engineering expertise to maintain. We may not invest sufficient resources in, or be able to attract necessary talent to successfully maintain, our information systems. +More than a decade ago, we began our program to deploy a new global ERP system developed by SAP SE. Since then, our business has significantly diversified. New technologies allow legacy systems and diverse applications to easily be connected in a modular way, which allows these legacy systems to be part of a flexible, powerful and efficient solution. Today, however, the majority of our distribution business still runs on our legacy mainframe ERP system. We can make no assurances as to whether the modularity of our system construct will continue to operate efficiently or as expected, or whether updates or patches will continue to be available for any third party components thereof, which could in turn impact our ability to operate or for our customers or vendors to transact with us normally, or to ensure appropriate levels of security of our distribution systems. In addition, maintaining and supporting disparate ERPs, including the failure of any portion or module thereof, may pose risks to our ability to operate successfully and efficiently within an effective system of internal controls (including appropriate controls over financial reporting), as well as our ability to assess the adequacy of such internal controls. +31 +We can make no assurances that the combined IT systems strategy will be successful or that we will not have additional disruptions, delays, and/or negative business impacts from future deployments. +Disruptions, delays or deficiencies in the design, implementation, performance and maintenance of our various IT systems could adversely and materially affect our ability to effectively run and manage our business, including by potentially limiting our customers’ ability to access our price and product availability information or place orders. Portions of our IT infrastructure, whether outsourced or in-house, may also experience interruptions, delays, or cessations of service or may produce errors in connection with systems integration or migration work that takes place from time to time. We may not be successful in implementing new systems and transitioning data, which could cause business disruptions and be more expensive, time-consuming, disruptive, and resource-intensive than anticipated. Such disruptions could adversely impact our ability to fulfill orders or to attract and retain customers, and they could interrupt other business processes. Moreover, the expenses associated with these initiatives can be difficult to predict, and we may incur substantial additional expenses in excess of what is currently expected, particularly if any of these initiatives is unsuccessful or proves unsustainable, which may require us to incur additional costs. We may also be limited in our ability to integrate any new business that we may acquire into our information systems. If our information systems do not allow us to transmit accurate information, to key decision makers, even for a short period of time, the ability to manage our business could be disrupted and the results of operations and our financial condition could be materially and adversely affected. Failure to properly or adequately address these issues could impact our ability to perform necessary business operations, which could materially and adversely affect our reputation, competitive position, business, results of operations, and financial condition. +We may not be able to prevent or timely detect breaches of, or attacks on, our IT systems. +We rely on the internet for our orders and information exchanges with our suppliers, vendors, and customers. The internet in general, and individual websites in particular, have experienced a number of disruptions, slowdowns, and security breaches, some of which were caused by organized attacks. If we were to experience a security breakdown, disruption, or breach that compromised sensitive information, including personal information, this could materially harm our relationships with our customers, suppliers, or associates; impair our order processing; damage our reputation in the industry and with our customers; open us to potential litigation, regulatory inquiry or investigation, enforcement action, and associated costs or other liabilities; or more generally prevent our customers and suppliers from accessing information, which could cause us to lose business. Computer programmers, state and non-state actors, and hackers may be able to penetrate our network security and misappropriate or compromise our confidential information or that of third parties stored on our systems, create system disruptions, or cause shutdowns. For example, some of our associates have mistakenly clicked on ‘phishing’ emails, which resulted in compromised network credentials and other stolen information. None of these incidents has been material, and as described below, we employ defenses designed to mitigate the risk of these types of events; however, we cannot guarantee that these defenses will succeed given the changing tactics and sophistication of tools deployed by threat actors around the world. In addition, “ransomware” attacks or other forms of cyber extortion present a significant concern, as such attacks may impose costs in the form of remediation, post-attack notification obligations or other legal or regulatory requirements, and operational delays and other interruptions to normal business activities. In addition, sophisticated hardware and operating system software and applications that we procure from third parties may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the operation of the system. +Cyberattacks, including by state-sponsored actors, continue to become more sophisticated and persistent, and any such attacks which result in a security breach and/or personal data breach may adversely impact our business, or result in regulatory investigation, litigation, or other liability. +We deploy data security measures, including physical, technical, and administrative safeguards, and contingency plans reasonably designed to mitigate these risks and to satisfy regulatory, contractual and other legal requirements in the United States and other countries as required by our global footprint; however, we cannot assure investors that a breakdown, disruption, or breach will not occur in the future. +32 +In July 2025, we experienced a ransomware incident that affected certain systems within our global environment. We activated our incident response and business continuity protocols, took steps to contain and remediate the issue, and restored impacted systems using backups. We also notified appropriate governmental authorities and certain customers and partners, and we incurred costs related to investigation, remediation, system restoration, and enhancements to our cybersecurity program. Although this incident did not cause a material interruption of our operations, or otherwise materially and adversely affect our business, financial condition or reputation, the incident underscored the evolving nature of these threats, and additional costs or risks could arise from related claims, regulatory inquiries, or future similar events. There can be no assurance that our response efforts or other ongoing steps to enhance our security controls will be successful in preventing future incidents or mitigating their impacts. +We have continued to take steps to address the risks presented by ransomware attacks, including standardizing our disaster recovery program, conducting penetration, backup and recovery tests, performing industry-standard audits of our data security program, and maintaining active programmatic data security certifications. Nevertheless, the costs of eliminating or alleviating cyberattacks or other information security vulnerabilities—including bugs, viruses, worms, and malicious software— could be significant, and our efforts to address or anticipate these problems may not be successful. Actual or attempted cyberattacks could result in interruptions, delays, cessation of service, loss of existing or potential customers, and impairment of our ability to conduct sales, distribution, or other critical functions. +We manage and store proprietary information and sensitive or confidential data relating to our business. In addition, we routinely process, store, and transmit large amounts of data for our partners, which may include sensitive information and personal information. Confidential information may also inadvertently be disclosed in connection with our repair and refurbishment and/or our electronic waste disposal services. Breaches of our security measures, failure of our employees to abide to applicable security policies and cyber best practices, or the accidental loss, inadvertent disclosure, or unapproved dissemination of proprietary information or sensitive or confidential data about us or our customers or vendors, including the potential loss or disclosure of such information or data as a result of fraud, trickery, or other forms of deception, could expose us, our customers or vendors, or affected individuals to loss or misuse of this information. It could also result in litigation, regulatory scrutiny and potential liability for us, damage our brand and reputation, or otherwise materially harm our business. In addition, the cost and operational consequences of implementing further data protection measures could be significant. Any such breaches, costs, or consequences—including those of incidents similar to or more severe than the ransomware attack we experienced in July 2025—could materially and adversely affect our business, results of operations, financial condition, and cash flows. +33 +Changes in the regulatory environment regarding privacy and data protection regulations could have a material adverse effect on our results of operations. +We may process personal data (i.e., data relating to a reasonably identifiable natural individual) in relation to our associates, customers, business partners, vendors, suppliers, and other third parties. The collection, use, sharing, and protection of personal data is highly regulated in many jurisdictions in which we operate. For example, in the EU and the EEA, the GDPR imposes restrictions that, in many respects, are more stringent, and impose more significant burdens on businesses, than many privacy laws, including those in the United States, that are applicable to our business. GDPR is directly applicable in each EU and EEA member state; however, it provides that EU and EEA member states may establish further conditions, limitations, and regulations, and these could further limit our ability to collect, process, share, disclose, and otherwise use personal data and/or could cause our compliance costs to increase, ultimately having an adverse effect on our business. Post-Brexit, the United Kingdom assimilated the GDPR into the laws of the United Kingdom. +GDPR limits the circumstances under which personal data may be transferred out of the EU, EEA and United Kingdom to third countries, which may affect our ability to operate with respect to such cross-border transfers. Specifically, under GDPR, personal data may only be transferred out of the EU/EEA to countries that have “adequate” protections in place, as determined by the European Commission (“EC”), or subject to a lawful data transfer mechanism, such as the EC-approved Standard Contractual Clauses (“SCCs”). The U.K. Information Commissioner’s Office (“ICO”) has promulgated similar mechanisms, in the form of an addendum to the SCC’s and Information Data Transfer Agreement (“IDTA”), to legitimize cross-border transfers of U.K. personal data. Where we transfer personal data out of the EU, EEA or United Kingdom to countries without an EC or ICO adequacy decision, as applicable, we seek to comply with the relevant EU data export requirements, including by entering into SCCs. Further, these cross-border data transfer rules and the mechanisms used by companies such as ours are under scrutiny and the ongoing legality of such transfer mechanisms is not certain. That uncertainty increases our compliance costs. For example, despite the adoption of the EU-U.S. Data Privacy Framework to legitimize EU-to-U.S. personal data transfers, there is ongoing litigation challenging both the U.S. adequacy decision and the use of the SCCs to legitimize transfers of personal data to the United States. If the use of SCCs in such circumstances is invalidated by the European courts, we may need to renegotiate certain contracts or change certain data processing operations to remain in compliance with GDPR. In the United Kingdom, regulators have implemented their own United Kingdom-specific requirements, such as by requiring parties to use an IDTA or otherwise amend the EU SCCs when transferring data to countries without adequate protections in place. Switzerland similarly has its own Swiss-specific requirements. These additional requirements increase the costs of negotiating and executing contracts with suppliers, vendors, and customers located in, or related to the processing of personal data of individuals in, the United Kingdom, Switzerland, or the EU. +We depend on a number of third parties in relation to the operation of our business, some of which process personal data on our behalf. With each such provider we attempt to mitigate the associated risks of using third parties by entering into contractual arrangements, including data processing agreements, to ensure that providers only process personal data according to our instructions and that they have sufficient technical and organizational security measures in place to protect such data. Where we transfer personal data outside the EU, EEA or United Kingdom to such third parties, we do so in compliance with the relevant data export requirements, as described above. However, there is no assurance that these contractual measures and our own privacy and security-related safeguards will protect us from all risks associated with the third-party processing, storage, and transmission of such information. Any violation of data privacy or security laws by our third-party processors could have a material adverse effect on our business and result in the fines and penalties outlined below. +We are subject to the supervision of local data protection authorities in those EU and EEA jurisdictions where we are established or otherwise subject to the GDPR. Fines for violation of the GDPR may be significant: up to the greater of 20 million Euros or 4% of total global annual turnover. In addition to the foregoing, a breach of the GDPR could result in regulatory investigations, reputational damage, orders to cease, change our processing of our data, enforcement notices, assessment notices (for a compulsory audit), as well as potential civil claims including class-action type litigation where individuals suffer harm. +We are also subject to evolving EU privacy laws on cookies and e-marketing. Regulators have interpreted GDPR to require opt-in for marketing and the use of cookies, web beacons, and similar technologies that are not strictly necessary for the proper functioning of a website or online application. Violations of these requirements are potentially subject to fines at the same levels as the GDPR generally (i.e., the greater of 20 million Euros or 4% of total global annual turnover). We are likely to be required to expend further capital and other resources to ensure compliance, as expectations, precedent, and guidance from regulators continue to evolve around issues related to tracking technologies and e-marketing. +34 +Other jurisdictions outside the EU and EEA, including several states in the United States and a number of countries around the world, have enacted or are considering enacting comprehensive data privacy and data protection laws, including laws that borrow various concepts from the GDPR. For example, in 2020 and 2021, laws went into effect in California, Brazil and China regulating the collection, use, and sharing of personal data in those jurisdictions. New data privacy laws in various states, as well as updates to states’ existing laws, have since come into effect or will come into effect in the future. These laws, such as the CCPA, allow for substantial penalties for non-compliance. For example, under the CCPA, in addition to fines that may be imposed by the State Attorney General and/or the California Privacy Protection Agency, consumers themselves have a private right of action against a company for failure to utilize “reasonable security procedures” to prevent a data breach. In addition, numerous countries, such as China and Russia, have enacted data localization laws that require certain data to stay within their borders and impose significant penalties for failure to comply. As laws in the jurisdictions in which we operate continue to change, we face additional costs to update our compliance efforts and additional risks related to potential complaints and associated penalties, fines, reputational damage, and other costs. +Further, many jurisdictions are considering or have adopted cybersecurity requirements that may apply to our business. For example, in July 2023, the SEC adopted new cybersecurity rules for public companies that are subject to the reporting requirements of the Exchange Act. Under these new rules, reporting companies must disclose a material cybersecurity incident within four business days of management’s determination that the incident is material. Companies also must include updated cybersecurity risk management, strategy, and governance disclosures, including disclosures regarding management’s role in assessing and managing risks from cybersecurity threats, and the board of directors’ oversight of the same. These new rules became effective for companies other than smaller reporting companies on December 18, 2023. Outside the United States, China has implemented, and other jurisdictions may implement, laws that require companies’ IT security environments to be certified against certain standards. Such laws may be complex, ambiguous, and subject to varying interpretation, which may create uncertainty regarding compliance. +Finally, we may also face audits or investigations by one or more government agencies and/or customers, business partners, and vendors relating to our compliance with these regulations that could result in the imposition of penalties or fines and/or impact our business relationships. We have implemented a compliance program with input from external advisors designed to ensure our compliance with these privacy and data protection obligations; however, we cannot assure that our program will address or mitigate all potential risks of noncompliance. Moreover, the costs of compliance with, and other burdens imposed by, such laws, regulations, and policies that are applicable to us may limit the use and adoption of our products and solutions and could have a material adverse effect on our business and results of operations. +Issues in the development and use of AI and ML together with an evolving and uncertain regulatory environment, may result in reputational harm, liability, risks to our confidential information, proprietary information, and personal data, or otherwise adversely affect our business, results of operations, financial condition, and cash flows. +We currently incorporate AI and ML capabilities into our Ingram Micro Xvantage platform and intend to further enhance our competitive position and the experience of our customers and vendors through the use and development of such tools. However, the legal and regulatory landscape governing AI is complex, rapidly evolving, and uncertain, including in the jurisdictions in which we currently offer Ingram Micro Xvantage. In addition, customer expectations, the nature of AI tools currently in the market, and the manner in which such tools are developed, deployed, and used by our vendors, competitors, and other third parties present additional risks and challenges. +For instance: +• Legislators and regulators in the United States, the EU, and elsewhere are increasingly focused on the development, deployment, use, and safety of AI systems. Several jurisdictions have enacted, or are considering enacting, legislation and regulations relating to transparency, oversight, safety, and governance of AI, including the EU’s Artificial Intelligence Act. The introduction or expansion of AI-enabled products or services may result in increased regulatory scrutiny, compliance costs, or operational constraints, and adapting to new legal requirements may adversely impact our operations or market position; +• If we, our vendors, or our third-party partners experience an actual or perceived personal data breach or security incident related to the use of AI, we may lose confidential, sensitive, or proprietary information and suffer reputational harm (see “—We may not be able to prevent or timely detect breaches of, or attacks on, our IT systems”); +35 +• The intellectual property ownership and license rights, including copyright, applicable to AI technologies remain unsettled, and the use or adoption of third-party AI technologies into our products and services may expose us to claims of copyright infringement or other intellectual property misappropriation, as well as uncertainty regarding the patentability AI-generated inventions and our ability to obtain or enforce patent protection; +• While we seek to use AI ethically and attempt to identify and mitigate ethical, operational, or performance issues, we may be unsuccessful in identifying or resolving issues before they arise, and AI-generated outputs may not align with our expectations or those of our customers, which could adversely affect our relationships with customers, partners, and suppliers or result in other unintended outcomes; and +• We face significant competition from other companies that are also investing in AI. If we are unable to incorporate AI capabilities that enhance the functionality and reliability of our platforms and services, or if our competitors adopt AI capabilities more effectively or efficiently than we do, we may lose market share or be unable to attract or retain customers. +Any of these risks, individually or in the aggregate, could damage our reputation, result in the loss of valuable information or intellectual property, and adversely affect our business, results of operations, financial condition, and cash flows. +We may become involved in intellectual property disputes that could cause us to incur substantial costs, divert the efforts of management, or require us to pay substantial damages or licensing fees. +As a distributor of products and as a service provider, including of our cloud marketplace technology, from time to time we receive notifications from third parties alleging infringements of intellectual property rights held by others relating to the products or services we sell. As we continue to expand the products and services we offer and the geographies and channels in which we participate, our potential exposure to disputes related to intellectual property rights infringement increases. Litigation with respect to patents or other intellectual property matters could result in substantial costs and diversion of management and other resources and could have an adverse effect on our operations. Further, we may be obligated to indemnify and defend our customers if the products or services we sell are alleged to infringe any third party’s intellectual property rights. While we may be able to seek indemnification and defense from our vendors and suppliers to protect our customers and our company against such claims, there is no assurance that we will be successful in obtaining such indemnification or defense or that we will be fully protected against such claims or that such indemnification and defense rights will be sufficient. We also may be unable to insure against such claims. We may also be prohibited from marketing products or services, be forced to market products or services without desirable features, be forced to pay additional licensing fees to continue to distribute certain products or perform certain services, or incur substantial costs to defend legal actions, including when third parties claim that we or vendors who may or may not have indemnified us are infringing upon their intellectual property rights. The validity, subsistence, and enforceability of the intellectual property rights portfolio that we currently hold, develop, or acquire may be challenged. We may receive such a challenge from individuals and groups who purchase intellectual property assets for the sole purpose of asserting claims of infringement and attempting to extract settlements from target companies. Even if we believe that such infringement claims are without merit, the claims may be time-consuming and costly to defend and may divert management’s attention and resources away from our business. Claims of intellectual property infringement may require us to enter into costly settlements or pay costly damage awards, or face a temporary or permanent injunction prohibiting us from marketing or selling certain products or services, which could affect our ability to compete effectively. If an infringement claim is successful, we may be required to pay damages or seek royalty or license arrangements, which may not be available on commercially reasonable terms. +36 +Risks Related to Our Relationship with Platinum and Being a “Controlled Company” +Platinum controls us, and its interests may conflict, or be inconsistent, with ours interests or the interests of other stockholders. +Platinum controls approximately 90% of the voting power of our outstanding Common Stock, and thus holds more than a majority of the voting power of our outstanding Common Stock entitled to vote generally in the election of directors. Platinum is able to control the election and removal of our directors and thereby control our policies and operations, including the appointment of management, future issuances of our Common Stock or other securities, payment of dividends, if any, on our Common Stock, the incurrence or modification of indebtedness by us, amendment of our amended and restated certificate of incorporation and amended and restated bylaws, and the entering into of extraordinary transactions. Their interests may not in all cases be aligned with the interests of our other stockholders. This concentration of voting control could deprive stockholders of an opportunity to receive a premium for their shares of Common Stock as part of a sale of our company and ultimately might affect the market price of our Common Stock. This concentration of ownership may also adversely affect our share price. +Moreover, in accordance with our amended and restated certificate of incorporation and the Investor Rights Agreement, dated as of October 23, 2024 by and between the Company and Imola JV Holdings, L.P. (the “Investor Rights Agreement”), Platinum has the right to nominate for election to our board of directors a number of individuals designated by Platinum constituting a majority thereof, for so long as it beneficially owns at least 50% of the voting power of all shares of our outstanding stock entitled to vote generally in the election of our directors. Even if Platinum ceases to own shares of our stock representing a majority of the total voting power, for so long as Platinum continues to own a significant percentage of our stock, it will still be able to significantly influence or effectively control the composition of our board of directors and the approval of actions requiring stockholder approval through its voting power. Accordingly, for such period of time, Platinum will have significant influence with respect to our management, business plans, and policies, including the appointment and removal of our officers. +Platinum is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us or whose interests are otherwise not aligned with ours. Our amended and restated certificate of incorporation provides that neither Platinum nor any of its affiliates or any director who is not employed by us or his or her affiliates has any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. Platinum and its affiliates also may pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. +We are a “controlled company” within the meaning of the NYSE rules and, as a result, we qualify for, and rely on, exemptions from certain corporate governance requirements. Our stockholders do not have the same protections afforded to stockholders of other companies that are subject to such requirements. +Because Platinum continues to hold more than a majority of the voting power of our outstanding Common Stock entitled to vote generally in the election of directors, we are a “controlled company” within the meaning of the corporate governance standards of the NYSE and have elected, in accordance with applicable NYSE exemptions, not to comply with certain corporate governance requirements. For example, we do not have a majority of independent directors, our compensation and nominating and corporate governance committees are not composed entirely of independent directors, and we are not required to perform annual performance evaluations with respect to such committees. The independence standards are intended to ensure that directors who meet those standards are free of any conflicting interest that could influence their actions as directors. Accordingly, our stockholders do not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE. If we cease to be a “controlled company,” we will be required to comply with the above referenced requirements within one year. +Anti-takeover provisions in our organizational documents could delay or prevent a change of control. +Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws may have an anti-takeover effect and may delay, defer or prevent a merger, acquisition, tender offer, takeover attempt or other change of control transaction that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by our stockholders. +37 +Among other things, these provisions: +• grant Platinum the right to nominate for election to our board of directors no fewer than that number of directors that would constitute: (a) a majority of the total number of directors so long as the Platinum Stockholder and Platinum collectively beneficially own at least 50% of the then-outstanding capital stock of the Company; (b) 40% of the total number of directors so long as the Platinum Stockholder and Platinum collectively beneficially own at least 40% but less than 50% of the then-outstanding capital stock of the Company; (c) 30% of the total number of directors so long as the Platinum Stockholder and Platinum collectively beneficially own at least 30% but less than 40% of the then-outstanding capital stock of the Company; (d) 20% of the total number of directors so long as the Platinum Stockholder and Platinum collectively beneficially own at least 20% but less than 30% of the then-outstanding capital stock of the Company; and (e) 10% of the total number of directors so long as the Platinum Stockholder and Platinum collectively beneficially own at least 5% but less than 20% of the then-outstanding capital stock of the Company; +• permit our board of directors to establish the number of directors and fill vacancies and newly created directorships, subject to the rights granted to Platinum pursuant to our amended and restated certificate of incorporation and the Investor Rights Agreement; +• establish a classified board of directors, as a result of which our board of directors is divided into three classes, with each class serving for staggered three-year terms; +• provide for the removal of directors only for cause and only upon the affirmative vote of the holders of at least 66 and 2/3% of the shares of Common Stock entitled to vote generally in the election of directors if Platinum and its affiliates cease to beneficially own at least 50% of shares of Common Stock entitled to vote generally in the election of directors; +• provide that at all meetings of our board of directors prior to the date when Platinum ceases to beneficially own at least 30% of the total voting power of all then-outstanding shares of our stock entitled to vote generally in the election of directors, a quorum for the transaction of business shall include at least one director nominated by Platinum; +• provide for the ability of our board of directors to issue one or more series of preferred stock, including “blank check” preferred stock; +• designate Delaware as the sole forum for certain litigation against us; +• provide for advance notice requirements for nominations of directors by stockholders and for stockholders to include matters to be considered at our annual stockholder meetings; +• provide certain limitations on convening special stockholder meetings in the event Platinum beneficially owns less than 50% of the voting power of all outstanding shares of our stock entitled to vote generally in the election of directors; +• prohibit cumulative voting in the election of directors; +• provide that actions by our stockholders be taken only at an annual or special meeting of our stockholders, and not by written consent, in the event Platinum beneficially owns less than 50% of the voting power of all outstanding shares of our stock entitled to vote generally in the election of directors; +• provide (i) that the board of directors is expressly authorized to alter or repeal our amended and restated bylaws and (ii) that our stockholders may only amend our amended and restated bylaws with the approval of 66 and 2/3% or more of all of the outstanding shares of our stock entitled to vote, in the event Platinum beneficially owns less than 50% of the total voting power of all then-outstanding shares of our stock entitled to vote generally in the election of directors; and +• provide that certain provisions of our amended and restated certificate of incorporation may be amended only by the affirmative vote of the holders of at least 66 and 2/3% in voting power of the outstanding shares of our stock entitled to vote, in the event Platinum beneficially owns less than 50% of the total voting power of all then-outstanding shares of our stock entitled to vote generally in the election of directors; provided, however, that any such alteration or amendment which would adversely affect the rights of Platinum shall require the prior written consent of Platinum. +38 +Any provision of our amended and restated certificate of incorporation, amended and restated bylaws or Delaware law that has the effect of delaying, preventing or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Common Stock and could also affect the price that some investors are willing to pay for our Common Stock. In addition, our stockholders may be limited in their ability to obtain a premium for their shares. +Risks Related to Ownership of Our Common Stock +As a publicly traded company, we are required to design and maintain adequate internal control over financial reporting. Failure to comply with requirements to design, implement, and maintain effective internal control over financial reporting and/or failure to effectively remediate material weaknesses could have a material adverse effect on our business and the price of our Common Stock, and could result in our financial statements becoming unreliable. +As a privately held company prior to our initial public offering (the “IPO”) in October 2024, we were not required to evaluate the effectiveness of our internal control over financial reporting in a manner that meets the standards of publicly traded companies required by the rules and regulations of the SEC regarding compliance with Section 404 of the Sarbanes-Oxley Act (“Section 404”). As a publicly traded company, we are now subject to the rules and regulations established from time to time by the SEC and the NYSE. These rules and regulations require us, among other things , to furnish a report by management on the effectiveness of our internal control over financial reporting as of the end of each fiscal year. This assessment includes disclosure of any material weaknesses in our internal control over financial reporting identified by our management. +In addition, beginning with this annual report filed on Form 10-K, our independent registered public accounting firm is required to attest to the effectiveness of our internal control over financial reporting. Our compliance with Section 404 requires that we incur substantial expenses and expend significant management efforts. To comply with the requirements of being a publicly traded company, we have undertaken various actions, and may need to take additional actions, such as implementing and enhancing our internal controls and procedures and hiring additional accounting or internal audit staff. Further, because there are inherent limitations in all control systems, even our remediated and effective internal control over financial reporting may not prevent or detect all material misstatements. Additionally, any projection or the result of any evaluation of effectiveness of these measures in future periods remain subject to the risk that our internal control over financial reporting may become inadequate because of changes in our business condition, changes in accounting rules and regulations, or to the degree our compliance with our internal policies or procedures may deteriorate. If we fail to timely design and maintain the effectiveness of our internal control over financial reporting, we may not be able to produce reliable financial reports and will be less able to detect and prevent material misstatements due to error or fraud. +During Fiscal Year 2025, we identified a material weakness in our internal control over financial reporting as we did not design and maintain effective controls over segregation of duties related to manual journal entries for certain entities within one of the financial systems relevant to the preparation of our financial statements. Specifically, certain personnel have the ability to create and post manual journal entries that are not identified to be reviewed by separate individuals. The material weakness did not result in a misstatement (or adjustment) to the consolidated financial statements. However, the material weakness could result in misstatements of the consolidated financial statements or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Additionally, as described in the risk factor directly below, we have previously identified material weaknesses in our internal control over financial reporting. We may identify additional material weaknesses in the future. +39 +We have previously identified material weaknesses in our internal control over financial reporting, which have since been remediated, which resulted in restatements and revisions of certain of our consolidated financial statements. During Fiscal Year 2025, we identified a material weakness in our internal control over financial reporting as we did not design and maintain effective controls over segregation of duties related to manual journal entries for certain entities within one of the financial systems relevant to the preparation of our financial statements. These material weaknesses have created additional risks and uncertainties that may have a material adverse effect on our business, financial position and results of operations. If we fail to timely remediate the material weakness identified during Fiscal Year 2025, or if we identify additional material weaknesses in the future or otherwise fail to design and maintain effective internal control over financial reporting, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence and the price of our Common Stock, or impair our ability to comply with applicable laws and regulations. +During the course of preparing to become a publicly traded company, we identified a material weakness in our internal control over financial reporting. The weakness consisted of not designing and maintaining an effective risk assessment process at a precise enough level to identify risks of material misstatement in the consolidated financial statements related to evolving and growing areas of the business. This material weakness contributed to an additional material weakness around the design and maintenance of effective controls over the identification of and accounting for multi-period software license agreements. +These material weaknesses resulted in immaterial misstatements to the interim and annual consolidated financial statements between 2021 and 2023 and the revision of the 2022 annual consolidated financial statements (balance sheet and the statement of cash flows) and 2023 interim condensed consolidated financial statements (balance sheet and the statement of cash flows) and the restatement of certain interim and annual consolidated financial statements between 2020 and 2023, as a result of errors in the consolidated balance sheets and consolidated statements of cash flows. +Additionally, these material weaknesses could result in further misstatements of the aforementioned financial statements and disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. As a result of these material weaknesses and errors, we have become subject to a number of additional risks and uncertainties and unanticipated costs for accounting, legal, and other fees and expenses. We may become subject to legal proceedings as a result of the material weaknesses and errors, which could result in reputational harm, the loss of key employees, additional defense, and other costs. Any of the foregoing impacts, individually or in the aggregate, may have a material adverse effect on our business, financial position, and results of operations. +We took a number of steps to remediate these material weaknesses and to strengthen our internal control over financial reporting. These remediation measures included strengthening the regional controllership function, revising policies and procedures, and implementing additional training to support an effective risk assessment process over evolving and growing areas of the business. We have concluded that these material weaknesses have been remediated as of December 27, 2025. As discussed above, we have identified a material weakness in our internal control over financial reporting as we did not design and maintain effective controls over segregation of duties related to manual journal entries for certain entities within one of the financial systems relevant to the preparation of our financial statements . See Item 9A, “Controls and Procedures”, for more information on the remediation of previously reported material weaknesses in internal control over financial reporting. +However, if we fail to timely remediate the material weakness identified during Fiscal Year 2025, if we identify additional material weaknesses in our internal control over financial reporting, if the steps that we take do not remediate future material weaknesses in a timely manner, if we are unable to comply with the requirements of the rules and regulations of the SEC over Section 404 in a timely manner, or if we are unable to assert that our internal control over financial reporting is effective, that may result in a material misstatement of our annual or interim financial statements that would not be prevented or detected on a timely basis. This, in turn, could jeopardize our ability to comply with our reporting obligations, including those under the Indenture and Credit Agreements. This may give rise to a default thereunder, restrict our access to the capital markets, cause investors to lose confidence in the accuracy, completeness or reliability of our financial reports, and adversely impact the price of our Common Stock. As a result of such failures, we could also become subject to investigations or sanctions by the NYSE, the SEC, or other regulatory authorities, and we could become subject to litigation from investors and stockholders. This could harm our reputation, financial condition or divert financial and management resources from our core business, and it would have a material adverse effect on our business, financial condition and results of operations. +40 +Our stock price may change significantly, and stockholders may not be able to resell shares of our Common Stock at or above the price paid or at all or could lose all or part of their investment as a result. +The price of our Common Stock has been and may continue to be volatile due to a number of factors such as those listed in “—Risks Related to Our Business and Our Industry” and the following: +• results of operations that vary from the expectations of securities analysts and investors; +• results of operations that vary from those of our competitors compared to market expectations; +• changes in expectations as to our future financial performance, including financial estimates and investment recommendations by securities analysts and investors; +• changes in market valuations of, or earnings and other announcements by, companies in our industry; +• declines in the market prices of stocks generally, particularly those of IT companies; +• departures of key management personnel or members of our board of directors; +• strategic actions by us or our competitors; +• announcements by us, our competitors or our vendors of significant contracts, price reductions, new products or technologies, acquisitions, joint marketing relationships, joint ventures, other strategic relationships or capital commitments; +• changes in preference of our customers; +• changes in general economic or market conditions or trends in our industry or the economy as a whole and, in particular, in the consumer spending environment; +• changes in business or regulatory conditions which adversely affect our industry or us; +• future issuances, exchanges or sales, or expected issuances, exchanges or sales of our Common Stock or other securities; +• investor perceptions of or the investment opportunity associated with our Common Stock relative to other investment alternatives; +• investors’ responses to press releases or other public announcements by us or third parties, including our filings with the SEC; +• adverse resolutions relating to new or pending litigation or governmental investigations; +• guidance, if any, that we provide to the public, any changes in this guidance, or our failure to meet this guidance; +• limited liquidity of our stock, including the potential impact of a small public float; +• the development and sustainability of an active trading market for our stock; +• changes in accounting principles; and +• other events or factors, including those resulting from informational technology system failures and disruptions, data breaches, natural disasters, war, acts of terrorism or responses to these events. +Furthermore, the stock market may experience extreme volatility that, in some cases, may be unrelated or disproportionate to the operating performance of particular companies. Broader market volatility, especially in the technology sector, may also adversely affect our stock price, regardless of our actual performance. Additionally, low public float or trading volume could amplify price fluctuations. Stockholders may not be able to sell their shares at or above the price paid and could lose all or part of their investment. Periods of volatility may also increase the risk of securities litigation, which could be costly and distract management from our operations. +41 +We may change our dividend policy at any time, and, if we determine not to pay any cash dividends on our Common Stock in the future, stockholders may not receive any return on investment unless they sell their Common Stock for a price greater than that which they paid for it. +Since the first quarterly cash dividend declared in the first quarter of 2025, our board of directors has increased the dividend each quarter. Notwithstanding this history, we have no obligation to pay or increase dividends, and our board of directors may determine not to increase the dividend, or to reduce or eliminate dividends altogether, at any time, with or without notice to stockholders. Any decision to declare, increase, or pay dividends in the future will be made at the sole discretion of our board of directors, subject to compliance with applicable law, and will depend on a number of factors, including general economic and business conditions, our financial condition and results of operations, available cash and anticipated cash needs, capital requirements, legal and tax considerations, and contractual restrictions, including covenants under our Credit Facilities, the Indenture, and any other existing or future indebtedness or preferred securities. Our board of directors may also consider potential future investments, legal risks, and changes in applicable tax or corporate laws. As a result, there can be no assurance that we will continue to increase dividends, pay dividends at current levels, or pay dividends at all. If we determine not to pay cash dividends on our Common Stock in the future, stockholders may not receive any return on their investment unless they are able to sell their shares at a price greater than the price they paid, which may not occur. +If securities or industry analysts do not publish research or reports about our business or if they downgrade our stock or our sector, our stock price and trading volume could decline. +The trading market for our Common Stock relies in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. Furthermore, if one or more of the analysts who do cover us downgrade our stock or our industry, or the stock of any of our competitors, or publish inaccurate or unfavorable research about our business, the price of our stock could decline. If one or more of these analysts stop covering us or fail to publish reports on us regularly, we could lose visibility in the market, which in turn could cause our stock price and/or trading volume to decline. +We have incurred and will continue to incur significantly increased costs and are subject to additional regulations and requirements as a result of becoming a publicly traded company. Our management is required to devote substantial time to new compliance matters, which could lower our profits or make it more difficult to run our business. +As a result of recently becoming a publicly traded company, we have incurred and will continue to incur significant legal, regulatory, finance, accounting, investor relations, and other expenses that we did not previously incur as a privately held company, including costs associated with applicable reporting requirements. As a result of having publicly traded Common Stock, we are also required to comply with, and incur costs associated with such compliance with, the Sarbanes-Oxley Act and the Dodd-Frank Act, as well as rules and regulations implemented by the SEC, the NYSE, and the PCAOB. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to continue to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We anticipate that these costs will materially increase our general and administrative expenses. Our management must devote a substantial amount of time to ensure that we comply with all of these requirements, including expanded corporate governance standards, diverting the attention of management away from revenue-producing activities. +In addition, these laws and regulations make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance; we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees, or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a publicly traded company, we could be subject to delisting of our Common Stock, fines, sanctions and other regulatory action, and potentially civil litigation. +42 +If we or Platinum sell shares of our Common Stock or are perceived by the public markets as intending to sell them, the market price of our Common Stock could decline. +The sale of substantial amounts of shares of our Common Stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our Common Stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell shares of our Common Stock in the future at a time and at a price that we deem appropriate. In addition, Platinum has pledged 191,326,531 shares of the Company’s Common Stock, representing 81.4% of the Company’s total outstanding shares of Common Stock, pursuant to a margin loan agreement, and any foreclosure upon those shares could result in sales of a substantial number of shares of our Common Stock in the public market, which could substantially decrease the market price of our Common Stock. +As of December 27, 2025, we had a total of 235,073,327 shares of our Common Stock outstanding. All of such shares are eligible for resale in the public market under Rule 144 of the Securities Act (“Rule 144”), subject in the case of shares held by our affiliates, to volume, manner of sale and other limitations under Rule 144. In addition, Platinum has the right, subject to certain exceptions and conditions, to require us to register its shares of Common Stock under the Securities Act, and they will have the right to participate in future registrations of securities by us. Registration of any of these outstanding shares of Common Stock would result in such shares becoming freely tradable without compliance with Rule 144 upon effectiveness of the applicable registration statement. As restrictions on resale end or if Platinum exercises its registration rights with respect to our Common Stock, the market price of our Common Stock could decline if Platinum sells such shares or is perceived by the market as intending to sell them. +Our board of directors is authorized to issue and designate shares of our preferred stock in additional series without stockholder approval. +Our amended and restated certificate of incorporation authorizes our board of directors, without the approval of our stockholders, to issue 100,000,000 shares of our preferred stock, subject to limitations prescribed by applicable law, rules and regulations, and the provisions of our amended and restated certificate of incorporation. The board is also authorized to designate shares of preferred stock in series, to establish from time to time the number of shares to be included in each such series and to fix the designation, powers, preferences, and rights of the shares of each such series and the qualifications, limitations, or restrictions thereof. The powers, preferences, and rights of these additional series of preferred stock may be senior to or on parity with our Common Stock, which may reduce the value of the Common Stock. +Claims for indemnification by our directors, officers, or Platinum Equity Advisors, LLC (“Platinum Advisors”) may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us. +Our amended and restated certificate of incorporation and amended and restated bylaws provides that we will indemnify our directors and officers, in each case to the fullest extent permitted by the Delaware General Corporation Law (the “DGCL”). +In addition, as permitted by Section 145 of the DGCL, our amended and restated bylaws and our indemnification agreements with our directors and officers provide that: +• we will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by the DGCL, which provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to our best interests and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful; +• we may, in our discretion, indemnify associates and agents in those circumstances where indemnification is permitted by applicable law; +• we are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that any such person is not entitled to indemnification; +• we are not obligated pursuant to our amended and restated bylaws to indemnify a person with respect to proceedings initiated by that person against us or our other indemnitees, except with respect to proceedings authorized by our board of directors or brought to enforce a right to indemnification; +43 +• the rights conferred in our amended and restated bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, associates and agents and to obtain insurance to indemnify such persons; and +• we may not retroactively amend our amended and restated bylaws provisions to reduce our indemnification obligations to directors, officers, associates and agents. +In addition, the Investor Rights Agreement provides that if we retain Platinum Advisors to provide corporate and advisory services to us, then we will reimburse Platinum Advisors for all third party costs incurred in rendering such services and indemnify Platinum Advisors and its officers, directors, managers, employees, affiliates, agents, and other representatives, to the fullest extent permitted by law, against all liabilities, costs, and expenses incurred in connection with such services other than if and to the extent that such liabilities, costs, and expenses arise as a result of the gross negligence, bad faith, fraud, or willful misconduct of Platinum Advisors. +Our amended and restated certificate of incorporation contains exclusive forum provisions that could limit our stockholders’ ability to pursue certain claims in a preferred judicial forum. +Our amended and restated certificate of incorporation includes exclusive forum provisions that generally require certain stockholder actions, including derivative suits, fiduciary duty claims, and other internal corporate matters, to be brought in the Delaware Court of Chancery, and Securities Act claims to be brought in U.S. federal courts. These provisions may limit a stockholder’s ability to select a preferred forum and could discourage litigation. If a court finds these provisions unenforceable, we may incur additional costs litigating in multiple jurisdictions, which could adversely affect our business, financial condition, and results of operations. +Because our executive officers hold, or in the future may hold, long-term incentive awards that will vest upon a change of control, these officers may have interests in us that conflict with those of our stockholders. +Our executive officers hold, or in the future may hold, long-term incentive awards that would automatically vest upon a change of control. As a result, these officers may view certain change of control transactions more favorably than other stockholders due to the vesting opportunities available to them and, as a result, may have an economic incentive to support a transaction that may not be viewed as favorable by other stockholders +Item 1B. Unresolved Staff Comments +None. +44 +Item 1C. Cybersecurity +Risk Management and Strategy +Our business operations rely on the secure processing, storage, integrity, and transmission of business-critical information, including transaction information as well as personal and other sensitive data, through digital and interconnected systems, including those of our service providers and other third parties. In order to identify, prevent, respond to, and mitigate cybersecurity risks, we maintain a formal data protection program with physical, technical, and administrative safeguards (the “Program”), which is integrated into our overall risk management processes. As part of the Program: +• We have implemented and maintain documented policies and comprehensive technical controls (including multifactor authentication and end-to-end encryption) designed using the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework and mapped to the specifications of the International Organization for Standardization (“ISO”) 27001 information security standard. The Program is regularly reviewed and updated on an annual basis, with a comprehensive annual review cycle. +• We maintain a dedicated cybersecurity team under the joint direction of our Executive Vice President and President – Global Platforms Group, and our Chief Information Security Officer (“CISO”). Our cybersecurity team operates a 24/7 Security Operations Center that employs threat detection and response technologies, including AI and ML capabilities. In addition, we maintain the Ingram Micro Trust Center, a centralized hub for stakeholders and the public to access key information about our cybersecurity and privacy programs. +• We regularly test our internal IT controls through a combination of automated and manual testing procedures, including continuous automated vulnerability scanning and periodic penetration tests, and we regularly test our disaster recovery and other back-up plans. Our Program also undergoes annual external audits by independent auditors as part of our ISO 27001 certification process. Vulnerabilities identified through these processes are remediated according to defined timelines based on the severity of the risk and other relevant factors. +• We maintain, and we require our third-party service providers to maintain reasonable security controls designed to protect the confidentiality, integrity, and availability of our information systems and the sensitive data we process or that is processed on our behalf. We address potential risks posed by the use of such third-party service providers via established vendor risk assessments, due diligence, and contract review by our cybersecurity team. +• We require our employees to complete security awareness training upon hiring and on a regular basis thereafter, with modules covering applicable Company policies and emerging threats. Our training program also includes practical exercises such as simulated phishing campaigns. +We also work with third-party cybersecurity and data privacy professionals as part of the design and implementation of our program, including accountants, independent assessors, external legal counsel, and other consultants. +Our incident reporting and escalation process is designed to detect and analyze cyber incidents in real time, to (i) assess their impact, (ii) escalate the incident to our CISO and the Company’s Information Security Management Committee (which consists of our CEO, CFO, General Counsel, CISO, and EVP and President – Global Platform Group), as appropriate and consistent with our written Incident Response Plan, and (iii) determine and effectuate the appropriate response and reporting actions, including evaluating the impact and materiality of such incidents to our financial condition and operations. +All cybersecurity threats are documented by our Security Incident Response Team, with incidents exceeding a certain threshold escalated to our CISO. Critical incidents involving confirmed data breaches, ransomware, or system-wide outages trigger immediate Security Management Committee involvement and require the board of directors to be informed of significant or material cybersecurity incidents within 24 hours. +While we, along with our customers, vendors, suppliers, and service providers, are regularly exposed to malicious technology-related events and threats, none of these threats or incidents, either individually or in the aggregate, has materially affected the Company during the periods covered by this report. See Item 1A, “Risk Factors”, for more information on the cybersecurity threats facing our Company. +45 +Governance +Our board of directors maintains active oversight of cybersecurity risks through a structured governance framework: +• The full board of directors receives comprehensive cybersecurity briefings at least annually, supplemented by sessions focused on emerging threats and Program strategy. +• The Audit Committee receives regular updates (typically quarterly) that cover, among other topics, performance against operational metrics and results of recent audits and assessments. +• Our CISO, under the direction of our Executive Vice President and President – Global Platform Group, leads our Program, working with key stakeholders and resource groups, including industry groups, peer institutions, internal committees (the Information Security Management Committee), and law enforcement, as needed, to understand, identify, and address cybersecurity risks. Our CISO maintains direct reporting access to the board of directors, ensuring that time-sensitive matters may be escalated as needed. +• Our internal audit team is responsible for testing key IT controls, while leaders from our legal, finance, communications, and risk management teams participate in incident response training, including annual tabletop exercises to ensure swift and effective responses to cybersecurity incidents. +Our cybersecurity leadership team brings extensive qualifications and expertise: +• Our CISO has over 15 years of experience in information security, including leadership roles at Nissan Motors and Ingram Micro. He has performed investigations in the public sector as a deputized high-tech crimes investigator with a digital forensic certification. He serves on numerous cyber industry organization boards and lends his expertise as a leader and practitioner. He speaks at numerous events annually on various cyber topics. +• Members of the broader security team maintain various professional certifications including CISSP, CISM, CEH, and SANS certifications. We maintain partnerships with leading universities to support continuing education and stay current with emerging threats and technologies. +Item 2. Properties +Facilities +We occupy 252 facilities covering approximately 12 million square feet of warehouse and office space. We own 7 sites making up approximately 400 thousand square feet and lease the remainder. Our facilities are located throughout our geographic regions: North America (27), EMEA (91), Asia-Pacific (103) and Latin America (31). +Our headquarters is in Irvine, California and consists of approximately 179,000 rentable square feet of space pursuant to a lease that expires on July 31, 2033. +We believe that our existing facilities are adequate to meet our current and near-term future operating needs. Upon the expiration or termination of any of our leased facilities, we believe we could obtain comparable office space. +Item 3. Legal Proceedings +From time to time we are involved in legal proceedings and subject to investigations, inspections, audits, inquiries and similar actions by government authorities, arising in the normal course of our business. Other than as discussed in Note 9, “Commitments and Contingencies,” to our audited consolidated financial statements, we do not believe that the currently pending proceedings will have a material adverse effect on our results of operations or financial condition. +Item 4. Mine Safety Disclosures +Not applicable. +46 +Part II +Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +Information with Respect to our Common Shares +Our common stock, par value $0.01, is traded on the NYSE under the symbol “INGM.” +As o f February 23, 2026, our common stock was held by approximately 16 stockholders of record. Because many of the shares of our com mon stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial owners represented by these stockholders of record. +Stock Price Performance Graph +Set forth below is information comparing the cumulative total shareholder return and share price appreciation plus dividends on our common shares with the cumulative total return of the S&P Midcap 400 Index and a market-weighted index of publicly-traded peers beginning on October 24, 2024, the day our stock began trading on the NYSE. The peer group consists of Arrow Electronics, Avnet, CDW Corporation, Climb Global Solutions, ePlus, Insight Enterprises, PC Connection, ScanSource, TD Synnex, and Dell Technologies. The graph assumes that $100 is invested in each of our common shares, the S&P Midcap 400 Index, and the index of publicly-traded peers on October 24, 2024 and that all dividends were reinvested. The comparisons are based on historical data and are not indicative of, nor intended to forecast, the future performance of our Common Stock. +October 24, 2024 December 28, 2024 March 29, 2025 June 28, 2025 September 27, 2025 December 27, 2025 +Ingram Micro Holding Corporation $ 100.00 $ 79.63 $ 72.79 $ 83.85 $ 84.87 $ 90.30 +S&P Midcap 400 Index $ 100.00 $ 100.63 $ 93.82 $ 100.26 $ 105.97 $ 109.78 +Peer Group Index $ 100.00 $ 89.78 $ 76.78 $ 93.26 $ 95.17 $ 89.49 +Securities Authorized for Issuance under Equity Compensation Plans +For information regarding the Securities Authorized for Issuance under Equity Compensation Plans, see Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this report. +47 +Information with Respect to Dividends +On March 2, 2026, the Company announced that the board of directors had declared a cash dividend of $0.082 per share of common stock, payable on March 24, 2026, to stockholders of record as of March 10, 2026. We pay, and intend to continue to pay, quarterly dividends subject to capital availability and periodic determinations made by our board of directors that cash dividends are in the best interests of our stockholders. +Information with Respect to Purchases of Equity Securities by the Issuer +We did not repurchase any of our Common Stock during the Thirteen Weeks Ended December 27, 2025. +Unregistered Sales of Securities +None. +Item 6. [Reserved] +48 +Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations +The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve significant risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” +Our Fiscal Year is a 52- or 53-week period ending on the Saturday nearest to December 31. All references herein to “Fiscal Year 2025”, “Fiscal Year 2024”, and “Fiscal Year 2023” represent the fiscal years ended December 27, 2025 (52 weeks), December 28, 2024 (52 weeks), and December 30, 2023 (52 weeks), respectively. This section of this Annual Report on Form 10-K generally discusses fiscal years 2025 and 2024 items and year-over-year comparisons between fiscal years 2025 and 2024. Discussions of Fiscal Year 2023 items and year-over-year comparisons between Fiscal Year 2024 and Fiscal Year 2023 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K filed with the SEC on March 5, 2025. All financial data included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations section are in thousands, except as otherwise indicated. +Unless otherwise noted in this Annual Report on Form 10-K, the use of the terms “Ingram Micro,” “we,” “us,” “our” and the “Company” refers to Ingram Micro Holding Corporation and its subsidiaries. The use of the term “Platinum” means Platinum Equity, LLC together with its affiliated investment vehicles. +Overview +Ingram Micro Holding Corporation and its subsidiaries are primarily engaged in the distribution of IT products, cloud and other services worldwide. Our business is organized into four reportable segments based on the different geographic regions in which we operate: North America; EMEA; Asia-Pacific; and Latin America. +Key Factors and Trends Affecting Our Operating Results +Global Demand for IT Products and Value Added Services +We are dependent on global IT spend, which is influenced by broader economic trends and their impacts on enterprise spending, as well as new product introductions and product transitions by technology vendors. Driven by the rapid evolution of the technology industry, frequent fluctuations in market demand, and the increasing complexity of solutions, which often integrate offerings from multiple vendors and service providers, vendors increasingly rely on distributors to bring their products to market more efficiently along with providing value-added services. We have diverse relationships with many global vendors and offer a full suite of end-to-end solutions including comprehensive services, positioning us well to capture demand in key technology sectors. We expect to continue investing in our services offerings, as well as our relationships with existing and emerging vendors with the goal of expanding the breadth and depth of what we already believe to be the industry’s most comprehensive offering. +Market Adoption of Cloud Solutions and XaaS +The accelerating transition from on-premises software solutions to cloud-based solutions can drive a revenue mix shift to our higher margin cloud offerings. Because of our advanced capabilities and offerings, we believe this industry shift is a net positive for our business, and it demonstrates the comprehensive value of our business model. To capture this opportunity, we plan to continue investing in development and go-to-market support for our cloud offerings and marketplaces, including those already integrated into Ingram Micro Xvantage. +Our product, service and solution offerings consist of Client and Endpoint Solutions, Advanced Solutions, Cloud-based Solutions and Other, which include the product and service categories further described below. Our results are impacted by changes in demand levels and related product mix, including entry or expansion into new markets, new product offerings and the exit or retraction of certain business. Furthermore, we have invested most heavily in recent years into Advanced Solutions and Cloud-based Solutions and capabilities globally, for which an increased need for more complex solutions coupled with more products being consumed on an as-a-service basis is driving a more rapid shift towards these offerings. Advanced Solutions and Cloud sales now collectively comprise more than one-third of our net sales and more than half of our gross profit. +49 +As part of our global presence in each of our four geographic regions, we offer customers a full spectrum of hardware and software, cloud-based solutions, services and logistics expertise through four main lines of business: Client and Endpoint Solutions, Advanced Solutions, Cloud-based Solutions and Other. In each of our geographic segments we offer customers the product categories listed below broken down under the respective line of business. +Product, Line of Business and Global Presence +• Client and Endpoint Solutions. We offer a variety of higher-volume products targeted for corporate and individual end users, including desktop personal computers, notebooks, tablets, printers, components (including hard drives, motherboards, video cards, etc.), application software, peripherals, and accessories. We also offer a variety of products that enable mobile computing and productivity, including phones, phone tablets (including two-in-one “notebook/tablet” devices), smartphones, feature phones, mobile phone accessories, wearables and mobility software. +• Advanced Solutions . We offer enterprise-grade hardware and software products aimed at corporate and enterprise users and generally characterized by specific projects, which generally account for lower volumes than Client and Endpoint Solutions but higher margins individually and collectively in the form of solutions and related services. And while Advanced Solutions offerings often require higher operational expenditures, primarily in the form of technical capabilities to serve the market, the operating margin delivered by this business is also generally stronger than Client and Endpoint Solutions. Within this product category, we offer servers, storage, networking, hybrid and software-defined solutions, cybersecurity, and power and cooling solutions. This category also includes training, professional services and financing solutions related to these product sets. We also offer customers AI-related products and offerings, DC / POS, physical security, audio visual & digital signage, UCC, and IoT (smart office/home automation) products. +• Cloud-based Solutions . Our cloud portfolio comprises third-party services and subscriptions spanning a breadth of products from solution software through infrastructure-as-a-service. As technology consumption increasingly moves to anything-as-a-service, we have expanded our cloud solutions to more than 200 third-party cloud-based services or subscription offerings, including business applications, security, communications and collaboration, cloud enablement solutions and infrastructure-as-a-service. Also included here have been the offerings of our CloudBlue business, which provided customers with multichannel and multi-tier catalog management, subscription management, billing and orchestration capabilities through a software-as-a-service model. Our CloudBlue operations were sold during the third quarter of 2025. +• Other. We provide customers with ITAD, reverse logistics and repair and other related solutions. These offerings repr esent less than 5% of net sales for all periods presented herein. +Presentation +Net Sales +End-market demand across IT products in each of the geographic regions in which we operate affects the relative mix of our revenues and may lead to fluctuations in our overall profitability. Vendors are increasingly focused on their global presence and we are consistently growing our share of the total addressable market with global vendors. Exposure to emerging markets, especially Asia-Pacific and Latin America, is driving higher growth and operating margin. Emerging markets typically require lower capital investment given less automation, and we typically experience higher operating margins in these markets due to their lower average labor costs. +50 +Vendor Relationships +Our vendors include many of the largest tech companies, including Advanced Micro Devices, Apple, Amazon Web Services (AWS), Cisco, Dell Technologies, Hewlett Packard Enterprise, HP Inc., Lenovo, Microsoft, NVIDIA and Super Micro Computer. Ingram Micro’s access to products, especially when supply constraints exist, is enhanced by the strength of our long-standing relationships with vendors. Vendors typically select distributors based on global reach, scale, contract terms, the strength of partnerships and service capabilities offered. +The value of our inventory is subject to risks of obsolescence and price reductions driven by vendors and by market conditions. To mitigate such risks, our vendors typically offer price protection, return rights and stock rotation privileges. We closely monitor our inventory levels and attempt to time our purchases to address demand levels while maximizing contractual protections provided by our vendors. We monitor both our inventory levels and customer demand patterns at each of our facilities and are able to stock products next to our vendors and resellers, which effectively minimizes our shipping costs. +Liquidity and Access to Capital and Credit +Our business requires investment in working capital to meet movements in demand and seasonality. Our working capital needs depend on terms and conditions established with vendors and resellers, as well as our customers’ ability to pay us on time, and cash conversion rates affect our overall liquidity and cash flow. +Our resellers might fail to pay their obligations in a timely manner, which could adversely affect our operations and profitability. We protect ourselves from such risks by purchasing credit insurance in many markets, as well as by only doing business with customers we believe are creditworthy. We are able to act quickly in case of failure of timely payments, such as escalating communications and credit holds. +Substantial trade credit and similar offerings from our vendors, coupled with access to our borrowing facilities and ongoing cash flows from our business, are key to financing the necessary investment in inventory and trade credit that we offer to our customers. +The cash flow profile of our business is countercyclical. In times of elevated demand, more working capital investment may be required while overall working capital investment tends to reduce in times of decreasing demand. +Mergers and acquisitions are a core part of our business strategy, leading to elevated leverage from time to time. However, given our consistent and predictable cash flow generation, we are able to adequately manage our leverage profile. We are dependent on external sources of capital to fund our business, including the payment of a quarterly cash dividend, but also use internally generated cash flow as a significant source of funding. +As of December 27, 2025, we had $3,499 million available under our $3,500 million ABL Revolving Credit Facility, which, if borrowed, can be used to fund any such working capital needs or to fund any of our business strategies. +Supply Constraints +Our future success is dependent on the resilience and adaptability of our global supply chain. We have a large presence across North America, Europe and the Middle East, Asia-Pacific and Latin America, and any supply constraints can disrupt our global operations. Disruptions in local or international supply chains can cause significant delays, impacting inventory levels across our facilities. Supply chain constraints can also cause product prices and related fulfillment expenses to increase as well as prices we charge our customers. +We are one of the largest distributors of technology hardware, software and services worldwide, including a leading global presence in cloud, based on revenues. We offer a broad range of IT products and services to help generate demand and create efficiencies for our customers and suppliers around the world. We serve as an integral link in the global technology value chain, driving sales and profitability for the world’s leading technology companies, resellers, mobile network operators and other customers. Our results of operations have been, and will continue to be, directly affected by the conditions in the economy in general. +51 +Impact of Labor, Warehousing, Transportation and Other Fulfillment Costs +Our business is impacted by increases in labor, warehousing, transportation and other fulfillment costs. In periods of labor shortages, our operating costs typically increase. While increasing costs associated with labor shortages can impact profitability, we have developed a number of initiatives to mitigate the impact on our profitability. Our flexible workforce structure comprising a mix of temporary and permanent associates, allows us to modulate our local workforces based on demand, including typical seasonality. Furthermore, our extensive operating history, as well as our global scale provide us with access to local and international carriers to secure critical volume discounts that help offset the impact of increasing transportation costs. +Seasonality +We experience some seasonal fluctuations in demand in our business. For instance, we typically see lower demand, particularly in Europe, during the summer months. Additionally, we also experience an increase in demand in the fourth quarter, driven primarily by typical enterprise budgeting cycles in our client and endpoint solutions business and the pre-holiday impacts of stocking in the retail channel and associated higher logistics-based fulfillment fees. These seasonal fluctuations have historically impacted our revenue and working capital including receivables, payables and inventory. Our extensive experience combined with a flexible workforce allows us to modulate our operations and workforce demand fluctuations throughout the year. +Foreign Currency Fluctuations +We are exposed to the impact of foreign currency fluctuations and interest rate changes due to our international sales and global funding. In the normal course of business, we employ established policies and procedures to manage our exposure to fluctuations in the value of foreign currencies using a variety of financial instruments. It is our policy to utilize financial instruments to reduce risks where internal netting cannot be effectively employed and not to enter into foreign currency or interest rate transactions for speculative purposes. +As our international operations constitute a significant portion of our consolidated net sales, they are subject to fluctuations in the U.S. dollar against foreign currencies. In order to provide a framework for assessing our financial performance we exclude the effect of foreign currency fluctuations for certain periods by comparing the percent change to the prior period in net sales and other key metrics on a constant currency basis. These key metrics on a constant currency basis are not accounting principles generally accepted in the United States of America (“U.S. GAAP”) financial measures. Amounts presented on a constant currency basis remove the impact of changes in exchange rates between the U.S. dollar and the local currencies of our foreign subsidiaries by translating the current period amounts into U.S. dollars using the same foreign currency exchange rates that were used to translate the amounts for the previous comparable period. +Our foreign currency risk management objective is to protect our earnings and cash flows resulting from sales, purchases and other transactions from the adverse impact of exchange rate movements. Foreign exchange risk is managed by using forward contracts to offset exchange risk associated with receivables and payables. We generally maintain hedge coverage between minimum and maximum percentages. +52 +Gross Margin +The technology distribution industry in which we operate is characterized by narrow gross profit as a percentage of net sales, or gross margin. Historically, our margins have also been impacted by pressures from price competition and declining average selling prices, as well as changes in vendor terms and conditions, including, but not limited to, variations in vendor rebates and incentives, our ability to return inventory to vendors and time periods qualifying for price protection. Tariffs, customs/duties and other similar charges on products are typically passed through in our pricing upon sale. We expect competitive pricing pressures and restrictive vendor terms and conditions to continue in the foresee able future. In addition, our margins have been and may continue to be impacted by our inventory levels which are based on projections of future demand, product availability, product acceptance and marketability and market conditions. Any sudden decline in demand and/or rapid technological changes in products could cause us to have a charge for excess an d/or obsolete inventory. Likewise, in times of heavy demand or when supply constraints become significant, prices for certain technology products will tend to increase. To manage our profitability, we have implemented changes to and continue to refine our pricing strategies, inventory management processes and vendor engagement programs. In addition, we continuously monitor and work to change, as appropriate, certain terms, conditions and credit offered to our customers to reflect those being imposed by our vendors, to recover costs and/or to facilitate sales opportunities. We have also strived to improve our profitability through diversification of prod uct offerings, including our presence in adjacent product categories, such as enterprise computing, data center and automatic identification and DC / POS. Additionally, we continue to expand our capabilities in what we believe are faster growing and higher margin service-oriented businesses, including cloud and hybrid cloud/on-premise solutions. +Selling, General and Administrative (“SG&A”) Expenses +Another key area for our overall profitability management is the monitoring and control of our level of SG&A expenses. On an ongoing basis, we regularly look to optimize and drive efficiencies throughout our operations, which includes the use of temporary workforce to address staffing needs particularly in our warehouse operations where demand levels are more impactful on workloads. SG&A expenses also include the cost of investment in certain initiatives to accelerate growth and profitability and optimize our operations. We continue to increase our presence in cloud which generally has higher gross margins but also requires higher automation and investment in technology. We are likewise investing in the development and deployment of our Ingram Micro Xvantage platform to address our market opportunities and partner experience in a more automated and efficient manner. +Restructuring Costs +We have instituted a number of cost reduction and profit enhancement programs over the years, which in certain years included restructuring actions across various parts of our business to respond to changes in the economy and to further enhance productivity and profitability. These actions have included the rationalization and re-engineering of certain roles and processes, resulting in the reduction of headcount and consolidation of certain facilities. +Foreign Currency Translation +The financial statements of our foreign subsidiaries for which the functional currency is the local currency, are translated into U.S. dollars using (i) the exchange rate at each balance sheet date for assets and liabilities and (ii) an average exchange rate for each period for statement of income items. Translation adjustments are recorded in accumulated other comprehensive income, a component of stockholders’ equity. The functional currency of a small number of operations within our EMEA, Asia-Pacific and Latin America regions is the U.S. dollar; accordingly, the monetary assets and liabilities of these subsidiaries are remeasured into U.S. dollars at the exchange rate in effect at the applicable balance sheet date. Revenues, expenses, gains or losses are remeasured at the average exchange rate for the period, and nonmonetary assets and liabilities are remeasured at historical rates. The resultant remeasurement gains and losses of these operations as well as gains and losses from foreign currency transactions are included in the Consolidated Statements of Income. +53 +Working Capital and Debt +Our business requires significant levels of working capital, primarily trade accounts receivable and inventory, which is partially financed by vendor trade accounts payable. For our working capital needs, we rely heavily on trade credit from vendors, and also on trade accounts receivable financing programs and proceeds from debt facilities. We maintain a strong focus on management of working capital in order to maximize returns on investment, cash provided by operations, and our debt and cash levels. However, our debt and/or cash levels may fluctuate significantly on a day-to-day basis due to the timing of customer receipts, inventory stocking levels and periodic payments to vendors. A higher concentration of payments received from customers toward the end of each month, combined with the timing of payments we make to our vendors, typically yields lower debt balances and higher cash balances at our quarter-ends than is the case throughout the quarter or year. Our future debt requirements may increase and/or our cash levels may decrease to support growth in our overall level of business, changes in our required working capital profile, or to fund acquisitions or other investments in the business. +Results of Operations for Fiscal Year 2025 and Fiscal Year 2024: +We do not allocate stock-based compensation expense or cash-based compensation expense (see Note 10, “Employee Awards,” to our audited consolidated financial statements), or certain Corporate costs to our operating segments; therefore, we are reporting these amounts separately. +The following tables set forth our net sales by reportable segment and the percentage of total net sales represented thereby, as well as income from operations and income from operations margin by reportable segment for each of the periods indicated: +Fiscal Year Fiscal Year Change +Increase (Decrease) +Net sales by reportable segment +2025 2024 Amount Percentage +North America $ 18,947,951 36 % $ 17,373,047 36 % $ 1,574,904 9.1 % +EMEA 15,197,089 29 14,260,257 30 936,832 6.6 +Asia-Pacific 14,706,981 28 12,756,802 27 1,950,179 15.3 +Latin America 3,704,242 7 3,593,565 7 110,677 3.1 +Total +$ 52,556,263 100 % $ 47,983,671 100 % $ 4,572,592 9.5 % +Fiscal Year Fiscal Year Change +Increase (Decrease) +2025 2024 Amount Percentage +Income from operations and operating margin +percentage by reportable segment +Income from +Operations Income from +Operations +Margin Income from +Operations Income from +Operations +Margin Income from +Operations Income from +Operations +Margin +North America $ 246,962 1.30 % $ 322,159 1.85 % $ (75,197) (0.55) % +EMEA 290,343 1.91 259,420 1.82 30,923 0.09 +Asia-Pacific 272,153 1.85 223,449 1.75 48,704 0.10 +Latin America 123,155 3.32 119,584 3.33 3,571 (0.01) +Corporate (16,736) — (47,996) — 31,260 — +Cash-based compensation expense (17,832) — (24,626) — 6,794 — +Stock-based compensation expense (21,117) — (34,067) — 12,950 — +Total +$ 876,928 1.67 % $ 817,923 1.70 % $ 59,005 (0.03) % +54 +Fiscal Year Fiscal Year +2025 2024 +Net sales +100.00 % 100.00 % +Cost of sales +93.33 92.82 +Gross profit +6.67 7.18 +Operating expenses: +Selling, general and administrative +4.97 5.40 +Restructuring costs +0.03 0.08 +Income from operations +1.67 1.70 +Total other (income) expense +0.66 0.78 +Income before income taxes +1.01 0.92 +Provision for income taxes +0.39 0.37 +Net income +0.62 % 0.55 % +Consolidated net sales were $52,556,263 for Fiscal Year 2025 compared to $47,983,671 for Fiscal Year 2024. The 9.5% increase was the result of year-over-year increases in net sales across each of our geographic segments. Globally, client and endpoint solutions increased by 13%, advanced solutions offerings increased by 4%, and cloud-based solutions increased by 3%. The divestiture of CloudBlue in the third quarter of 2025 had a negative 5% impact on the year-over-year comparison of net sales of cloud-based solutions. This growth was partially offset by a 7% decline in Other services. The translation impact of foreign currencies relative to the U.S. dollar positively impacted the comparison of our global net sales year-over-year by 0.5%. On a constant currency basis, net sales of client and endpoint solutions increased by 12%, advanced solutions offerings increased by 4%, cloud-based solutions increased by 3%, and Other services declined by 8%. +The $1,574,904, or 9.1%, increase in our North American net sales for Fiscal Year 2025 compared to Fiscal Year 2024, was primarily driven by a 10% increase in net sales of client and endpoint solutions, namely desktops and notebooks in the United States. Additionally, net sales of advanced solutions offerings increased by 10%, driven by growth in server and storage net sales in the United States, which includes strong growth in lower margin, lower cost-to-serve AI-enablement product sets. These results were partially offset by a decrease of 29% in net sales of our Other services, driven by declines in our U.S. Reverse Logistics and Repair business, as well as a decrease of 5% in cloud-based solutions driven by a higher mix of sales of cloud-based products for which sales are recorded on a net basis. Excluding the impact of our CloudBlue divestiture, net sales of cloud-based solutions were up by 1.4% year-over-year. +The $936,832, or 6.6%, increase in EMEA net sales for Fiscal Year 2025 compared to Fiscal Year 2024 was primarily driven by a 9% increase in net sales of client and endpoint solutions driven largely by growth in notebooks in the United Kingdom, Germany and Poland, and growth in desktops in the United Kingdom, Germany and Switzerland. Other services net sales increased by 16% driven primarily by growth in our Reverse Logistics and Repair business in the United Kingdom. Net sales of advanced solutions offerings increased by 1%, driven by growth in server net sales in Germany and DC / POS net sales in Germany, Saudi Arabia, the Netherlands, and Spain. Additionally, net sales of cloud-based solutions increased by 38%. The translation impact of foreign currencies relative to the U.S. dollar had a positive impact of 4% on the year-over-year comparison of the region’s net sales. On a constant currency basis, net sales of client and endpoint solutions increased by 4%, Other services increased by 12% and cloud-based solutions increased by 33%, while advanced solutions offerings decreased by 2%. +The $1,950,179, or 15.3%, increase in Asia-Pacific net sales for Fiscal Year 2025 compared to Fiscal Year 2024 was primarily driven by a 20% increase in net sales of client and endpoint solutions, due to growth in mobility distribution, particularly smartphones in China and India. Growth in components, tablets and desktops in China, notebooks in Australia, and consumer electronics in Australia and India also contributed to the growth in client and endpoint solutions net sales in the region. Net sales of advanced solutions offerings grew by 1% driven by networking in China as well as server and networking in Australia. Net sales of cloud-based solutions grew by 15% driven by growth in India and Malaysia. These results were partially offset by a 14% decrease in net sales of Other services driven by a decline in our ITAD business. The translation impact of foreign currencies relative to the U.S. dollar had a negative impact of 2% on the year-over-year comparison of the region’s net sales. On a constant currency basis, net sales of client and endpoint solutions increased by 23%, advanced solutions offerings increased by 3%, and cloud-based solutions increased by 16%, while Other services decreased by 13%. +55 +The $110,677, or 3.1%, increase in Latin American net sales for Fiscal Year 2025 compared to Fiscal Year 2024 was primarily driven by a 7% increase in net sales of client and endpoint solutions driven by growth in mobility distribution, specifically smartphones in Peru, Chile, and Mexico, notebooks in Mexico, Colombia, Peru and Chile, as well as tablets in Miami Export. Cloud-based solutions net sales also increased by 2% year-over-year. These results were partially offset by an 8% decrease in net sales of advanced solutions offerings due to declines in server and networking products in Mexico and cybersecurity products in Brazil. Additionally, net sales of Other services decreased 31% year-over-year driven by a decline in our ITAD business. The translation impact of foreign currencies relative to the U.S. dollar had a negative impact of 2% on the year-over-year comparison of the region’s net sales. On a constant currency basis, net sales of client and endpoint solutions increased by 9%, cloud-based solutions increased by 7%, while advanced solutions decreased by 6% and Other services decreased by 28%. +Gross profit was $3,503,971 for Fiscal Year 2025, compared to $3,444,945 for Fiscal Year 2024. Gross margin decreased by 51 basis points in Fiscal Year 2025 compared to Fiscal Year 2024. The increase in gross profit dollars was primarily attributable to the previously described increases in our net sales. The 51 basis point decrease in gross margin was driven by a shift in sales mix towards our lower-margin client and endpoint solutions across all of our geographic segments, as well as a decline in gross margin in advanced solutions driven by a mix shift more towards lower-margin servers and AI-enablement products during Fiscal Year 2025 compared to Fiscal Year 2024. The customer mix has also skewed more heavily towards large enterprise customers, and geographic mix towards our Asia-Pacific region in the current year, both of which are lower margin, but also lower cost-to-serve. Gross margin was also negatively impacted by a 4 basis point increase in write-offs of excess and obsolete inventory during Fiscal Year 2025 compared to Fiscal Year 2024. The decrease in gross margin also includes the impact of $10,480 recorded in cost of sales, or 2 basis points of net sales, relating to the loss on sale of non-core operations in the North America region. The translation impact of foreign currencies relative to the U.S. dollar had a positive impact of 2 basis points on the year-over-year comparison of gross margin. +Total SG&A expenses increased $22,943, but total SG&A expenses as a percentage of net sales decreased by 43 basis points in Fiscal Year 2025 compared to Fiscal Year 2024. The increase in SG&A dollars was driv en by an increase in compensation and headcount expenses of $45,737, an increase in bad debt expense of $18,607 and an increase in software-related costs of $13,765. The increase in SG&A dollars also includes the impact of a loss of $38,248, or 7 basis points of net sales, related to the sale of our CloudBlue operations and other non-core operations in our North America region in Fiscal Year 2025. These factors were partially offset by a positive recovery via insurance proceeds that we expect to receive related to a previously disclosed matter, which helped to offset professional fees, reserves and temporary loss of business associated with the matter. The decrease in SG&A expenses as a percentage of net sales is a function of the improved leverage on operating expenses as net sales increased from the prior year, reflective also of our cost actions we have taken as recently as the end of our fiscal year ended December 28, 2024, and a mix of business generally favoring lower cost-to-serve categories. The translation impact of foreign currencies relative to the U.S. dollar had a negative impact of 3 basis points on the year-over-year comparison of SG&A expenses as a percentage of net sales. +During Fiscal Year 2025, we recorded restructuring costs of $15,432, or 3 basis points of net sales, which relate to efforts that began in the fourth quarter of 2024 to enhance organizational efficiency and strengthen customer service capabilities to better position the Company for long-term, sustainable growth. Additionally, in the third quarter of 2025, we took targeted restructuring actions across certain parts of our North America and EMEA businesses. In the fourth quarter, we continued our targeted efforts to improve the effectiveness of our organization, primarily focusing on our repair operations in the United States, and in our global finance and IT organizations. These charges included organizational and staffing changes as well as headcount reductions. Collectively, the restructuring initiatives are expected to deliver annualized cost reductions in the range of $8 and $10 million. During Fiscal Year 2024, we recognized $38,354 of restructuring costs, or 8 basis points of net sales, which represented further actions taken under our global restructuring plan originally announced in July 2023 (see Note 8, “Restructuring Costs” to our audited consolidated financial statements for further information regarding the restructuring activities during Fiscal Year 2025 and Fiscal Year 2024). +Income from operations was $876,928, or 1.67% of net sales, in Fiscal Year 2025, compared to $817,923, or 1.70% of net sales, in Fiscal Year 2024. The 3 basis point year-over-year decrease in income from operations margin was primarily due to the decrease in gross margin largely offset by operating expense effectiveness as described above. The translation impact of foreign currencies relative to the U.S. dollar had a positive impact of 1 basis point on the year-over-year comparison of our consolidated income from operations margin. +56 +Our North American income from operations margin decreased 55 basis points in Fiscal Year 2025 compared to Fiscal Year 2024. The decrease is largely driven by a decrease in gross margin due to the shift in sales mix factors described above, as well as an increase in inventory write-offs, which had a combined negative impact of 64 basis points on the region’s income from operations margin. The region’s income from operations margin also reflects the impact of $48,728, or 26 basis points of North American net sales, relating to the loss on sale of two non-core businesses described above. These factors were partially offset by a reduction in SG&A expenses as a percentage of net sales in the region during Fiscal Year 2025, driven most notably by compensation and headcount expenses which decreased by 43 basis points, largely as a result of the restructuring initiatives taken in the prior year. +Our EMEA income from operations margin increased 9 basis points in Fiscal Year 2025 compared to Fiscal Year 2024. This was driven by reductions in SG&A expenses as a percentage of net sales. Most notably, restructuring costs decreased by 8 basis points. These factors more than offset a decrease in gross margin due to the shift in sales mix factors described above as well as some write-offs related to inventory. The translation impact of foreign currencies relative to the U.S. dollar had a positive impact of 1 basis point on the year-over-year comparison of the region’s income from operations margin. +Our Asia-Pacific income from operations margin increased 10 basis points in Fiscal Year 2025 compared to Fiscal Year 2024, primarily as a result of a reduction in SG&A expense as a percentage of net sales. The region benefited from a non-recurring loss recovery related to the previously noted insurance proceeds that we expect to receive, which helped to offset the specific costs and temporary loss of business impacts associated with the matter. The region also saw a 15 basis point decrease in compensation and headcount expenses primarily due to improved leverage of operating expenses across increased net sales. These factors more than offset a decrease in gross margin due to the geographic and sales mix factors described above, as well as a 5 basis point increase in inventory write-offs. The translation impact of foreign currencies relative to the U.S. dollar had a positive impact of 1 basis point on the year-over-year comparison of the region’s income from operations margin. +Our Latin American income from operations margin decreased 1 basis point in Fiscal Year 2025 compared to Fiscal Year 2024, primarily as a result of an increase in SG&A expenses as a percentage of net sales. Most notably, bad debt expense increased by 26 basis points, as Fiscal Year 2024 was positively impacted by the reversal of a reserve related to a single project when the delinquent receivables were collected. These factors more than offset an increase in gross margin due to higher achievement on advanced solutions net sales as well as the favorable impact of a decline in inventory write-offs in Fiscal Year 2025 compared to Fiscal Year 2024. The translation impact of foreign currencies relative to the U.S. dollar had no impact on the year-over-year comparison of the region’s income from operations margin. +In Fiscal Year 2025, Corporate included $6,168 of costs incurred for external services and other expenses in response to the July 2025 ransomware incident, $3,676 of costs associated with retention bonuses related primarily to the sale of our CloudBlue operation and $1,408 related to investments in certain initiatives to accelerate our growth and profitability and optimize our operations. In Fiscal Year 2024, Corporate included $20,380 of advisory fees paid to Platinum Advisors, which we no longer incur subsequent to the IPO, $17,269 related to investments in certain initiatives to accelerate our growth and profitability and optimize our operations, as well as $9,945 of stranded costs resulting from the termination of certain operations and IT services under the transition services agreement with CMA CGM Group as part of the CLS Sale, which were fully transitioned and completed at the end of 2024. +Cash-based compensation expense decreased by $6,794 in Fiscal Year 2025 compared to Fiscal Year 2024 due to the transition to stock-based compensation for certain employees subsequent to our IPO. +Stock-based compensation expense decreased by $12,950 in Fiscal Year 2025 compared to Fiscal Year 2024 as the prior year included the impact of the immediate vesting of time-vesting restricted stock units that were granted to key employees in connection with the IPO (see Note 10, “Employee Awards,” to our audited consolidated financial statements). +Total other (income) expense consists primarily of interest income, interest expense, foreign currency exchange gains and losses, and other non-operating gains and losses. We incurred total other (income) expense of $346,174 in Fiscal Year 2025 compared to $372,057 in Fiscal Year 2024. The decrease is largely driven by interest expense decreasing by $35,788 primarily as a result of lower average debt outstanding in the current year period, due in particular to voluntary principal payments of $483,100 on our Term Loan Credit Facility made in Fiscal Year 2024. Additionally, we voluntarily repaid an incremental $125,000 on our Term Loan Credit Facility in late March 2025. The decrease was also driven by other expense decreasing by $9,140 as a result of a higher equity fair value gain of $8,240 in 2025. These factors were partially offset by an increase of $19,441 in net foreign currency exchange loss. +57 +We recorded an income tax provision of $202,872, or an effective tax rate of 38.2%, in Fiscal Year 2025, compared to $181,644, or an effective tax rate of 40.7% in Fiscal Year 2024. The tax provision for Fiscal Year 2025 included $30,244 of tax expense, or 5.7 percentage points of the effective tax rate, which is associated with withholding tax expense from our business operations in the Latin America region, primarily from our Miami Export business, while in the Fiscal Year 2024, this same withholding tax impact was $25,995 of tax expense, or 5.8 percentage points of the effective tax rate. The tax provision for Fiscal Year 2025 also included $14,598 of tax expense, or 2.7 percentage points of the effective tax rate, due to establishing the full valuation allowance against a foreign subsidiary’s deferred tax assets which are primarily net operating losses arising from foreign exchange losses. In Fiscal Year 2024, upon becoming a publicly traded company, we became subject to limitations on the tax deductibility of officers’ compensation under Internal Revenue Code Section 162(m) resulting in $9,587 of tax expense, or 2.2 percentage points of the effective tax rate, primarily associated with stock-based compensation and a one-time adjustment to certain deferred tax assets. The tax provision for Fiscal Year 2024 also included $2,323 of tax expense, or 0.5 percentage points of the effective tax rate, due to a statutory tax rate change which resulted in a reduction to our Luxembourg subsidiaries’ deferred tax assets. +58 +Liquidity and Capital Resources +Cash Flows +Our cash and cash equivalents totaled $1,864,724 and $918,401 at December 27, 2025 and December 28, 2024, respectively. We finance our working capital needs and investments in the business largely through net income before noncash items, available cash, trade and supplier credit and various financing facilities. As a distributor, our business requires significant investment in working capital, particularly trade accounts receivable and inventory, which is partially financed by vendor trade accounts payable. As a general rule, when sales volumes are increasing, our net investment in working capital dollars typically increases, which generally results in decreased cash flow generated from operating activities. Conversely, when sales volume decreases, our net investment in working capital decreases, which generally results in increases in cash flows generated from operating activities. Working capital dollars are calculated at any point in time by adding the trade accounts receivable and inventory less the trade accounts payable balance at that point in time. Our working capital dollars were $3,553,339 and $4,142,013 at December 27, 2025 and December 28, 2024, respectively. +Fiscal Year Fiscal Year +2025 2024 +Cash provided by (used in): +Operating activities 916,127 333,839 +Investing activities 267,642 105,541 +Financing activities (306,222) (391,299) +Operating activiti es provided net cash of $916,127 during Fiscal Year 2025 and $333,839 during Fiscal Year 2024. The higher net cash provided during Fiscal Year Ended 2025 was primarily driven by higher net income as well as favorable management of payments to vendors and faster turnover of inventory compared to Fiscal Year 2024, partially offset by higher receivable balances in Fiscal Year 2025 driven primarily by the impacts of mix of business and timing of our fiscal year end on our collections to close the year. +Investing activities provided net cash of $267,642 and $105,541 during Fiscal Year 2025 and Fiscal Year 2024, respectively. The net cash provided during Fiscal Year 2025 was driven by proceeds from deferred purchase price of factored receivables of $313,206, proceeds from notes receivables from certain customers of $44,612, proceeds from sale of equity investments of $20,805 and proceeds from sale of subsidiaries of $20,000, partially offset by capital expenditures for $130,754 and issuance of notes receivable to certain customers for $12,501. The net cash provided during Fiscal Year 2024 was driven by proceeds from deferred purchase price of factored receivables of $252,199 and proceeds from notes receivables from certain customers of $38,291, partially offset by capital expenditures of $142,703 and issuance of notes receivable to certain customers for $57,117. +Financing activities used net cash of $306,222 and $391,299 during Fiscal Year 2025 and Fiscal Year 2024, respectively. The net cash used during Fiscal Year 2025 was primarily driven by repayments of our Term Loan Credit Facility totaling $125,000, net repayments of our revolving and other credit facilities of $101,758, gross repayment of other debt for $89,851 and dividends paid of $78,376, partially offset by gross proceeds from other debt of $107,014. The net cash used during Fiscal Year 2024 was primarily driven by repayments of our Term Loan Credit Facility totaling $483,100, gross repayment of other debt for $118,331, and net repayments of our revolving and other credit facilities of $66,998, partially offset by proceeds from issuance of common stock in our IPO, net of underwriting discounts, of $241,164 and gross proceeds from other debt of $101,779. +59 +Capital Resources +We have a range of financing facilities which are diversified by type, maturity and geographic region with various financial institutions worldwide with a total capacity of approximately $7,588,148, of which $3,197,571 was outstanding, at December 27, 2025. These facilities have staggered maturities through 2031. Our cash and cash equivalents totaled $1,864,724 and $918,401 at December 27, 2025 and December 28, 2024, respectively, of which $1,074,301 and $856,051, respectively, resided in operations outside of the United States. Cash and cash equivalents located in China were approximately 10% of our total cash and cash equivalents at December 27, 2025 and December 28, 2024, along with lesser amounts in Brazil, Luxembourg, Malaysia, Mexico, India, Canada, and Australia. Cash held by foreign subsidiaries, including China, can generally be used to finance local operations and cannot, under the current legal and regulatory environment, be transferred to finance other foreign subsidiaries’ operations. Additionally, our ability to repatriate these funds to the United States in an economical manner may be limited. Our cash balances are deposited and/or invested with various financial institutions globally that we endeavor to monitor regularly for credit quality. However, we are exposed to risk of loss on funds deposited with the various financial institutions and money market mutual funds, and we may experience significant disruptions in our liquidity needs if one or more of these financial institutions were to suffer bankruptcy or similar restructuring. As of December 27, 2025 and December 28, 2024, we had book overdrafts of $416,799 and $544,029, respectively, representing checks issued on disbursement bank accounts but not yet paid by such banks. These amounts are classified as accounts payable in our Consolidated Balance Sheets and are typically paid by the banks in a relatively short period of time. +We believe that our existing sources of liquidity provide sufficient resources to meet our capital requirements, including the potential need to post cash collateral for identified contingencies, for at least the next twelve months. We currently anticipate that the cash used for debt repayments will primarily come from our domestic cash, cash generated from ongoing U.S. operating activities and from borrowings. Nevertheless, depending on capital and credit market conditions, we may from time to time seek to increase or decrease our available capital resources through changes in our debt or other financing facilities. Finally, since the capital and credit markets can be volatile, we may be limited in our ability to replace maturing credit facilities and other indebtedness in a timely manner on terms acceptable to us, or at all, or to access committed capacities due to the inability of our finance partners to meet their commitments to us. +Our current portfolio of utilized committed debt is almost evenly distributed between fixed and floating interest rate facilities. Our ABL Revolving Credit Facility, Term Loan Credit Facility and a revolving trade accounts receivable-backed financing program in Europe (the “European ABS Facility”) reprice periodically, and we plan to service any increase in interest expense with cash provided by operations. We do not have any expectation at this time to draw down on any of our other sources of liquidity, outside of normal operations. We continue to monitor our cash flows and manage our operations with the purpose of optimizing our leverage and value. +The following is a detailed discussion of our various financing facilities. +On April 22, 2021, in anticipation of the acquisition of Ingram Micro by Platinum, Imola Merger Corporation (“Escrow Issuer”) offered $2,000,000 Senior Secured Notes due May 2029 (“2029 Notes”). Prior to the acquisition, the 2029 Notes were the sole obligation of the Escrow Issuer. Upon consummation of the acquisition on July 2, 2021, the proceeds from the notes were used, in part, to finance the acquisition and repay existing indebtedness. The notes bear interest at a rate of 4.75% per annum, which is payable semi-annually on May 15 and November 15 of each year, beginning on November 15, 2021. On July 2, 2021, we recognized $1,945,205, net of debt issuance costs of $54,795, associated with the 2029 Notes. +60 +On July 2, 2021, we entered into the Term Loan Credit Facility for $2,000,000, the proceeds of which were also used to, among other things, finance a portion of the acquisition of Ingram Micro by Platinum and repay certain of our existing indebtedness. We recognized $1,920,761, net of debt issuance costs and discount of $59,239 and $20,000, respectively, related to this facility. The Term Loan Credit Facility had an original maturity of July 2, 2028 and amortized in equal quarterly installments aggregating to 1.00% per annum. In June 2023, we voluntarily prepaid $500,000 on our Term Loan Credit Facility over and above normal quarterly installments, which, as a result of this prepayment, are no longer mandatory. In September 2023, we refinanced our Term Loan Credit Facility, reducing the interest rate spread over Secured Overnight Financing Rate (“SOFR”) by 50 basis points. In September 2024, we refinanced our Term Loan Credit Facility, reducing the interest rate spread over SOFR by 25 basis points, eliminating the credit-spread adjustments and extending the maturity date to September 19, 2031 (see Note 6, “Debt”, to our audited consolidated financial statements). In June 2025, we again amended the Term Loan Credit Facility to reduce the interest rate by 50 basis points. Borrowings under the Term Loan Credit Facility now bear interest at a rate per annum equal to, at our option, either (1) the base rate (which is the highest of (a) the then-current federal funds rate set by the Federal Reserve Bank of New York, plus 0.50%, (b) the prime rate on such day and (c) the one-month SOFR rate published on such date plus 1.00% and is subject to a 1.50% floor) plus a margin of 1.25% or (2) one-, three- or six-month SOFR (subject to a 0.50% floor) plus a margin of 2.25%. In connection with these refinancings, we repaid an incremental $50,000 and $100,000 in September 2023 and September 2024, respectively, of our Term Loan Credit Facility and in June 2024 we voluntarily repaid an incremental $150,000. Upon the closing of the IPO, we used the net proceeds from the offering to repay $233,100 of debt outstanding under our Term Loan Credit Facility and in March 2025, we voluntarily repaid an incremental $125,000. As of December 27, 2025 and December 28, 2024, $764,849 and $885,882, respectively, remained outstanding under the Term Loan Credit Facility. +On July 2, 2021, we entered into new ABL Credit Facilities (as defined below) providing for senior secured asset-based, multi-currency revolving loans and letter of credit availability in an aggregate amount of up to $3,500,000 (the “ABL Revolving Credit Facility”) and a senior secured asset-based term loan facility of $500,000 (the “ABL Term Loan Facility”), together with the ABL Revolving Credit Facility, the (“ABL Credit Facilities”), both of which had contractual maturity dates in July 2026. The ABL Term Loan Facility was repaid fully in April 2022. We may borrow under the ABL Revolving Credit Facility only up to our available borrowing base capacity. Borrowings under the ABL Revolving Credit Facility bear interest at a rate per annum equal to, at our option, either (1) the base rate plus a margin ranging (based on the availability under the ABL Revolving Credit Facility) from 0.25% to 0.75% or (2) SOFR (subject to a 0% floor) plus a margin ranging (based on the availability under the ABL Revolving Credit Facility) from 1.25% to 1.75%. In September 2024, we amended the ABL Revolving Credit Facility to, among other things, extend the maturity date to September 20, 2029. As of December 27, 2025 and December 28, 2024, we had no borrowings under this facility. The weighted-average interest rate on the outstanding borrowings under the ABL Revolving Credit Facility, as amended, was 6.2% and 6.7% per annum at December 27, 2025 and December 28, 2024, respectively. +Additionally, our European ABS Facility provides for a borrowing capacity of up to €375,000, or approximately $441,375, at December 27, 2025 exchange rates. This program, which matures in October 2026, requires certain commitment fees and borrowings incur financing costs based on the local short-term bank indicator rate for the currency in which the drawing is made plus a predetermined margin. At December 27, 2025 and December 28, 2024, we had borrowings of $353,100 and $312,630, respectively, under this financing program in Europe. The weighted-average interest rate on the outstanding borrowings under this facility, as amended, was 3.5% and 4.9% per annum at December 27, 2025 and December 28, 2024, respectively. +At December 27, 2025, our actual aggregate capacity under our ABL Revolving Credit Facility and other receivable-backed programs was approximately $3,940,601, of which $353,100 was used. Even if we do not borrow or choose not to borrow to the full available capacity of certain programs, most of our trade accounts receivable-backed financing programs are subject to certain restrictions outlined in our ABL Credit Facilities. These restrictions generally prohibit us from assigning or transferring the underlying eligible receivables as collateral for other financing programs, unless the underlying eligible receivables are sold in conjunction with a dedicated, non-recourse facility. +We also have additional lines of credit, short-term overdraft facilities and other credit facilities with various financial institutions worldwide, which provide for borrowing capacity aggregating to $905,911 at December 27, 2025. Most of these arrangements are on an uncommitted basis and are reviewed periodically for renewal. At December 27, 2025 and December 28, 2024, we had $102,836 and $182,713, respectively, outstanding under these facilities. The weighted-average interest rate on the outstanding borrowings under these facilities, which may fluctuate depending on geographic mix, was 7.3% and 6.9% per annum at December 27, 2025 and December 28, 2024, respectively. At December 27, 2025 and December 28, 2024, letters of credit totaling $168,254 and $166,613, respectively, were issued to various customs agencies and landlords to support our subsidiaries. The issuance of these letters of credit reduces our available capacity under the corresponding agreements by the same amount. +61 +Covenant Compliance +We are subject to certain customary affirmative covenants, including reporting and cash management requirements, and certain customary negative covenants that limit our and our subsidiaries’ ability to incur additional indebtedness or liens, to dispose of assets, to make certain fundamental changes, to enter into restrictive agreements, to make certain investments, loans, advances, guarantees and acquisitions, to prepay certain indebtedness, to pay dividends or other distributions in respect of our and our subsidiaries’ equity interests and to engage in transactions with affiliates. At December 27, 2025 and December 28, 2024, we were in compliance with all covenants or other requirements in all of our debt arrangements. +Trade Accounts Receivable Factoring Programs +We have several uncommitted factoring programs under which trade accounts receivable of several customers may be sold, without recourse, to financial institutions. Available capacity under these programs is dependent on the level of our trade accounts receivable eligible to be sold into these programs and the financial institutions’ willingness to purchase such receivables. At December 27, 2025 and December 28, 2024, we had a total of $936,934 and $737,302, respectively, of trade accounts receivable sold to and held by the financial institutions under these programs. +Contractual Obligations and Off-Balance Sheet Arrangements +We have guarantees to third parties that provide financing to a limited number of our customers. Net sales under these arrangements accounted for less than one percent of our consolidated net sales for each of the periods presented. The guarantees require us to reimburse the third party for defaults by these customers up to an aggregate of $1,870. The fair value of these guarantees has been recognized as cost of sales on the Consolidated Statements of Income to these customers and is included in accrued expenses and other on the Consolidated Balance Sheets. +For a further discussion on our debt and operating lease commitments as of December 27, 2025 and December 28, 2024, see Note 6, “Debt,” and Note 5, “Leases,” respectively, to our audited consolidated financial statements. +New Accounting Standards +See Note 2, “Significant Accounting Policies,” to our audited consolidated financial statements for the discussion of new accounting standards. +Critical Accounting Estimates +Our audited consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. We review our estimates and assumptions on an on-going basis. Significant estimates primarily relate to the realizable value of accounts receivable, vendor programs, inventory, goodwill, intangible and other long-lived assets, income taxes and contingencies and litigation. Actual results could differ from these estimates. +We believe the following critical accounting policies involve the more significant judgments and estimates used in the preparation of our audited consolidated financial statements: +62 +Revenue Recognition +Revenue Streams +In our distribution services model, we buy, hold title to, and sell technology products and provide services to resellers, referred to subsequently as our customer, while also providing resellers with multi-vendor solutions, integration services, electronic commerce tools, marketing, financing, training and enablement, technical support, and inventory management. In client and endpoint solutions, advanced solutions, and cloud-based solutions, we generally sell products and services to our customers (resellers) based on purchase orders instead of long-term contracts. Our agreements are generally not subject to minimum purchase requirements. Our customers place purchase orders with us for each transaction. Generally, our customers may cancel, delay or modify their purchase orders. In order to set up an account to trade with us, our customers generally have to accept our standard terms and conditions of sale which, together with the purchase order, form a binding contract on each individual order to which the purchase order applies. Our pricing varies greatly and depends on many factors including costs, competitive pressure, availability of inventory, seasonality and vendor promotional programs, among others. We may offer early payment discounts or volume incentive rebates to our customers. The customer contracts relating to our Other services generally provide for an initial term of three to five years, subject to extension by the mutual agreement of the parties, allow for termination for convenience by either party generally after the second year and the pricing is fixed by discrete type of service and typically varies depending on the volume of the relevant services. We do not believe any contract related to our Other services has a material impact on our business or financial condition. Products are delivered via shipment from our facilities, drop-shipment directly from our vendors, or by electronic delivery of keys for software products. +We recognize revenue when the control of products is transferred to our customers, which generally happens at the point of shipment or point of delivery. We account for shipping and handling activities that occur after the customer has obtained control of a good as fulfillment activities rather than a promised service. Accordingly, we accrue all fulfillment costs related to the shipping and handling of goods at the time of shipment. Additionally, we exclude the amount of certain taxes collected concurrent with revenue-producing activities from revenue. +Any supplemental distribution services we provide are typically recognized over time as the services are performed. Service contracts may be based on a fixed price or on a fixed unit-price per transaction or other objective measure of output. Additionally, we offer services related to our supply chain management and platform-as-a-service offerings. Our fee-based commerce and supply chain services are billed and recognized on a per-item service fee arrangement at the point when the service is provided. Our platform-as-a-service offering generates revenue through licensing the right to use the intellectual property (on-premise license), which is recognized at a point in time, providing the right to access, which is recognized over time across the term of the contract, or through our cloud marketplace, which is recognized in the amount of the net fee associated with serving as an agent when the services are provided . Service revenues represented less than 10% of total net sales for the periods presented. Related contract liabilities were not material for the periods presented. +Agency Services +We have contracts with certain customers where our performance obligation is to arrange for the products or services to be provided by another party. In these arrangements, as we assume an agency relationship in the transaction, revenue is recognized in the amount of the net fee associated with serving as an agent when the services are completed. These arrangements primarily relate to certain fulfillment contracts, as well as sales of certain software products, and extended vendor services, such as vendor warranties. +Variable Consideration +We, under specific conditions, permit our customers to return or exchange products. The provision for estimated sales returns is recorded concurrently with the recognition of revenue. A liability is recorded within accrued expenses and other on the consolidated balance sheets for estimated product returns based upon historical experience and an asset is recorded within Inventory on the consolidated balance sheets for the amount expected to be recorded for inventory upon product return. Amounts recorded within inventory are $116,780 and $131,298 as of December 27, 2025 and December 28, 2024, respectively. +We also provide volume discounts, early payment discounts and other discounts to certain customers which are considered variable consideration. A provision for such discounts is recorded as a reduction of revenue at the time of sale based on an evaluation of the contract terms and historical experience. +63 +Inventory +Our inventory consists of finished goods purchased from various vendors for resale. We value our inventory at the lower of its cost or net realizable value, cost being determined on a moving average cost basis, which approximates the first-in, first out method. We write down our inventory for estimated excess or obsolescence equal to the difference between the cost of inventory and the net realizable value based upon an aging analysis of the inventory on hand, specifically known inventory-related risks (such as technological obsolescence and the nature of vendor terms regarding price protection and product returns), foreign currency fluctuations for foreign-sourced products and assumptions about future demand. Market conditions or changes in terms and conditions by our vendors that are less favorable than those projected by management may require additional inventory write-downs, which could have an adverse effect on our consolidated financial results. Inventory is determined from the price we pay vendors, including freight and duties; we do not include labor, overhead or other general or administrative costs in our inventory. +Long-Lived and Intangible Assets +We assess potential impairments to our long-lived and intangible assets when events or changes in circumstances indicate that the carrying amount may not be fully recoverable. If required, an impairment loss is recognized as the difference between the carrying value and the fair value of the assets. +Goodwill +Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired in an acquisition and is reviewed annually for potential impairment, or when circumstances warrant. Goodwill is required to be tested for impairment at least annually or sooner whenever events or changes in circumstances indicate that goodwill may be impaired. Goodwill impairment tests require judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units and determination of the fair value of each reporting unit. We perform our annual goodwill impairment assessment during our fiscal fourth quarter. We have the option of first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Such review includes an evaluation of whether events and circumstances have occurred that may indicate a potential change in recoverability of goodwill, including the impacts of a deterioration in general economic conditions, an increased competitive environment, a change in management, key personnel, strategy, vendors or customers, negative or declining cash flows, or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods. +If, based on a review of qualitative factors, it is more likely than not that the fair value of a reporting unit is less than its carrying value, we perform a quantitative analysis by comparing the fair value of a reporting unit with its carrying amount. If the carrying value exceeds the fair value, we measure the amount of impairment loss, if any, by comparing the fair value of the reporting unit goodwill to its carrying amount. +We performed a quantitative impairment analysis of goodwill in Fiscal Year 2024 and Fiscal Year 2023 for our North America and EMEA regions. In determining the fair value of our reporting units, we assessed general economic conditions, industry and market considerations, the impact of recent events to financial performance and other relevant events. Based on the valuations prepared, we determined that the estimated fair values of our reporting units were greater than their carrying values and no impairment of goodwill was identified in either period. In Fiscal Year 2024 and Fiscal Year 2023 , we performed a qualitative analysis of goodwill for our Asia-Pacific and Latin America regions and in Fiscal Year 2025 we performed a qualitative analysis for all of our regions . No goodwill impairment was recorded during Fiscal Year 2025, Fiscal Year 2024 or Fiscal Year 2023 based on the results of the procedures performed. +Income Taxes +We estimate income taxes in each of the taxing jurisdictions in which we operate. This process involves estimating our actual current tax expense together with assessing the future tax impact of any differences resulting from the different treatment of certain items, such as the timing for recognizing revenues and expenses for tax versus financial reporting purposes. These differences may result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. We are required to assess the likelihood that our deferred tax assets, which include net operating loss carryforwards, tax credits and temporary differences that are expected to be deductible in future years, will be recoverable from future taxable income. In making that assessment, we consider the nature of the deferred tax assets and related statutory limits on utilization, recent operating results, future market growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we operate and prudent and feasible tax planning strategies. If, based upon available evidence, recovery of the full amount of the deferred tax assets is not likely, we provide a valuation allowance on any amount not likely to be realized. +64 +Our effective tax rate includes the impact of not providing taxes on undistributed foreign earnings considered indefinitely reinvested. Material changes in our estimates of cash, working capital and long-term investment requirements in the various jurisdictions in which we do business could impact our effective tax rate if we no longer consider our foreign earnings to be indefinitely reinvested. +The provision for tax liabilities and recognition of tax benefits involves evaluations and judgments of uncertainties in the interpretation of complex tax regulations by various taxing authorities. In situations involving uncertain tax positions related to income tax matters, we do not recognize benefits unless their sustainability is deemed more likely than not. As additional information becomes available, or these uncertainties are resolved with the taxing authorities, revisions to these liabilities or benefits may be required, resulting in additional provision for or benefit from income taxes reflected in our consolidated statements of income. +Many countries have enacted the OECD’s 15% global minimum tax regime effective for us starting in Fiscal Year 2024 . The legislation did not have a material impact on our Fiscal Years 2024 and 2025 effective rates for income taxes or for cash taxes paid, however we continue to monitor developments and evaluate impacts, if any, of these rules on our results of operations and cash flows. +Contingencies +We accrue for contingent obligations, including estimated legal costs, when the obligation is probable and the amount is reasonably estimable. As facts concerning contingencies become known, we reassess our position and make appropriate adjustments to the financial statements. Estimates that are particularly sensitive to future changes include those related to tax, legal and other regulatory matters such as imports and exports, the imposition of international governmental controls, changes in the interpretation and enforcement of international laws (in particular related to items such as duty and taxation) and the impact of local economic conditions and practices, which are all subject to change as events evolve and as additional information becomes available during the administrative and litigation process. +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +Foreign Currency Exchange Risk +We are exposed to the impact of foreign currency fluctuations and interest rate changes due to our international sales and global funding. In the normal course of business, we employ established policies and procedures to manage our exposure to fluctuations in the value of foreign currencies using a variety of financial instruments. It is our policy to utilize financial instruments to reduce risks where internal netting cannot be effectively employed and not to enter into foreign currency or interest rate transactions for speculative purposes. +Our foreign currency risk management objective is to protect our earnings and cash flows resulting from sales, purchases and other transactions from the adverse impact of exchange rate movements. Foreign exchange risk is managed by using forward contracts to offset exchange risk associated with receivables and payables. We generally maintain hedge coverage between minimum and maximum percentages. Historically, we have hedged transactions that were denominated in the following currencies: U.S. dollars, Canadian dollars, euros, British pounds, Danish krone, Hungarian forint, Israeli shekel, Norwegian kroner, Swedish krona, Swiss francs, Polish zloty, Australian dollars, New Zealand dollars, Singapore dollars, Czech koruna, Hong Kong dollars, Romanian leu, Brazilian real, Colombian pesos, Chilean pesos, Mexican pesos, Peruvian sol, Indian rupee, Chinese yuan, Turkish lira, Moroccan dirham, Thai baht, Malaysian ringgit and Indonesian rupiah. +We monitor our foreign exchange risk using a Value-at-Risk model (the “VaR model”). The VaR model determines the maximum potential loss in the fair value of our forward contracts and those assets and liabilities denominated in foreign currencies that the forward contracts are intended to hedge assuming a one-day holding period. The VaR model estimates were made assuming normal market conditions and a 95% confidence level. The estimated maximum potential one-day loss in fair value, calculated using the VaR model would be $1,942 and $551 as of December 27, 2025 and December 28, 2024, respectively. +65 +Interest Rate Risk +We are exposed to changes in interest rates on a portion of our long-term debt, which is subject to changes in major interest rate benchmarks, used to maintain liquidity and finance working capital, capital expenditures and business expansion. For additional information, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Capital Resources.” If interest rates, however, were to increase or decrease by 1%, and our borrowing amounts stayed constant on our Term Loan Credit Facility and our ABL Revolving Credit Facility at the levels of such borrowing amounts as of December 27, 2025, our annual interest would change by approximately $8,019. Assuming that our ABL Revolving Credit Facility was fully drawn as of December 27, 2025, each one-eighth percentage point change in interest rates would result in a change of approximately $5,377 in annual interest expense on the indebtedness under our Term Loan Credit Facility and our ABL Revolving Credit Facility. Rising interest rates do not materially impact the Company’s balance sheet items relating to inventory, accounts payable or accrued expense balances. +Our management objective is to finance our business at interest rates that are competitive in the marketplace while moderating our exposure to volatility in interest costs. To achieve our objectives, we may utilize both variable- and fixed-rate debt with a portion of our variable interest rate exposure from time to time mitigated through interest rate swaps or other derivative instruments. The Company has funded, and to the extent applicable expects to continue to fund, increases in the Company’s interest expense resulting from rising interest rates through cash flows from operations. +66 +Item 8. Financial Statements and Supplementary Data +INDEX TO FINANCIAL STATEMENTS +Page +Audited Consolidated Financial Statements +Report of Independent Registered Public Accounting Firm (PCAOB ID: 238 ) +68 +Consolidated Balance Sheets as of December 2 7 , 202 5 and December 28 , 202 4 +70 +Consolidated Statements of Income for Fiscal Year ended December 2 7 , 202 5 , Fiscal Year ended December 28, 2024 , and Fiscal Year ended December 30, 2023 +71 +Consolidated Statements of Comprehensive Income (Loss) for Fiscal Year ended December 27, 2025, Fiscal Year ended December 28, 2024, and Fiscal Year ended December 30, 2023 +72 +Consolidated Statements of Stockholders’ Equity for Fiscal Year ended December 2 7 , 202 5 , Fiscal Year ended December 28, 2024 , and Fiscal Year ended December 30, 2023 +73 +Consolidated Statements of Cash Flows for Fiscal Year ended December 2 7 , 202 5 , Fiscal Year ended December 28, 2024 , and Fiscal Year ended December 30, 2023 +74 +Notes to Consolidated Financial Statements +76 +Schedules to the Audited Consolidated Financial Statements +Schedule II – Valuation and Qualifying Accounts +109 +67 +Report of Independent Registered Public Accounting Firm +To the Board of Directors and Stockholders of Ingram Micro Holding Corporation +Opinions on the Financial Statements and Internal Control over Financial Reporting +We have audited the accompanying consolidated balance sheets of Ingram Micro Holding Corporation and its subsidiaries (the "Company") as of December 27, 2025 and December 28, 2024, and the related consolidated statements of income, of comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended December 27, 2025, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 27, 2025 listed in the accompanying index (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 27, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). +In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 27, 2025 and December 28, 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 27, 2025 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 27, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because a material weakness in internal control over financial reporting existed as of that date related to the Company not designing and maintaining effective controls over segregation of duties related to manual journal entries for certain entities within one of the financial systems relevant to the preparation of the Company's financial statements. +A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2025 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements. +Basis for Opinions +The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in management's report referred to above. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. +Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. +68 +Definition and Limitations of Internal Control over Financial Reporting +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. +Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +Critical Audit Matters +The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. +Distribution Services Revenue Recognition +As described in Note 2 to the consolidated financial statements, the Company’s net sales was $52,556 million for the year ended December 27, 2025, of which a significant portion relates to distribution services revenue. In a distribution services model, the Company buys, holds title to, and sells technology products and provides services to resellers, referred to subsequently as customers, while also providing resellers with multi-vendor solutions, integration services, electronic commerce tools, marketing, financing, training and enablement, technical support, and inventory management. Revenue is recognized when the control of products is transferred to customers, which generally happens at the point of shipment or point of delivery. +The principal consideration for our determination that performing procedures relating to distribution services revenue recognition is a critical audit matter is a high degree of auditor effort in performing procedures related to distribution services revenue recognition. +Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process of distribution services revenue. These procedures also included, among others, evaluating, on a test basis, revenue recognized for distribution services transactions by obtaining and inspecting customer contracts, invoices, purchase orders, shipping documentation, cash receipts, and trade accounts receivable confirmations from customers, where applicable. +/s/ PricewaterhouseCoopers LLP +Irvine, California +March 3, 2026 +We have served as the Company’s auditor since at least 1994. We have not been able to determine the specific year we began serving as auditor of the Company. +69 +INGRAM MICRO HOLDING CORPORATION +CONSOLIDATED BALANCE SHEETS +(Amounts in thousands, except par value and share data) +December 27, 2025 December 28, 2024 +ASSETS +Current assets: +Cash and cash equivalents $ 1,864,724 $ 918,401 +Trade accounts receivable (less allowances of $ 169,165 and $ 146,999 , respectively) +10,546,550 9,448,354 +Inventory 4,970,113 4,699,483 +Other current assets 859,252 734,939 +Total current assets 18,240,639 15,801,177 +Property and equipment, net 531,896 482,503 +Operating lease right-of-use assets 403,224 412,662 +Goodwill 854,749 833,662 +Intangible assets, net 711,809 772,571 +Other assets 502,067 477,115 +Total assets $ 21,244,384 $ 18,779,690 +LIABILITIES AND STOCKHOLDERS’ EQUITY +Current liabilities: +Accounts payable $ 11,963,324 $ 10,005,824 +Accrued expenses and other 1,163,587 1,021,958 +Short-term debt and current maturities of long-term debt 449,583 184,860 +Short-term operating lease liabilities 104,468 93,889 +Total current liabilities 13,680,962 11,306,531 +Long-term debt, less current maturities 2,749,781 3,168,280 +Long-term operating lease liabilities, net of current portion 354,894 369,493 +Other liabilities 210,329 201,511 +Total liabilities 16,995,966 15,045,815 +Commitments and contingencies (Note 9) +Stockholders’ equity: +Common Stock, par value $ 0.01 , 2,000,000,000 shares authorized at December 27, 2025 and December 28, 2024, and 235,073,327 and 234,825,581 shares issued and outstanding at December 27, 2025 and December 28, 2024, respectively +2,351 2,348 +Additional paid-in capital 2,921,952 2,903,842 +Retained earnings 1,587,330 1,337,399 +Accumulated other comprehensive loss ( 263,215 ) ( 509,714 ) +Total stockholders’ equity 4,248,418 3,733,875 +Total liabilities and stockholders’ equity $ 21,244,384 $ 18,779,690 +See accompanying notes to these consolidated financial statements. +70 +INGRAM MICRO HOLDING CORPORATION +CONSOLIDATED STATEMENTS OF INCOME +(Amounts in thousands, except per share data) +Fiscal Year Fiscal Year Fiscal Year +2025 2024 2023 +Net sales $ 52,556,263 $ 47,983,671 $ 48,040,364 +Cost of sales 49,052,292 44,538,726 44,493,227 +Gross profit 3,503,971 3,444,945 3,547,137 +Operating expenses: +Selling, general and administrative 2,611,611 2,588,668 2,583,993 +Restructuring costs 15,432 38,354 18,797 +Total operating expenses 2,627,043 2,627,022 2,602,790 +Income from operations 876,928 817,923 944,347 +Other (income) expense: +Interest income ( 45,731 ) ( 45,335 ) ( 34,977 ) +Interest expense 302,570 338,358 380,191 +Net foreign currency exchange loss 42,342 22,901 42,070 +Other expense 46,993 56,133 34,562 +Total other (income) expense 346,174 372,057 421,846 +Income before income taxes 530,754 445,866 522,501 +Provision for income taxes 202,872 181,644 169,789 +Net income $ 327,882 $ 264,222 $ 352,712 +Basic earnings per share $ 1.40 $ 1.18 $ 1.59 +Diluted earnings per share $ 1.39 $ 1.18 $ 1.59 +See accompanying notes to these consolidated financial statements. +71 +INGRAM MICRO HOLDING CORPORATION +CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) +(Amounts in thousands) +Fiscal Year Fiscal Year Fiscal Year +2025 2024 2023 +Net income $ 327,882 $ 264,222 $ 352,712 +Other comprehensive income (loss), net of tax +Foreign currency translation adjustment 246,499 ( 277,541 ) 103,596 +Other — ( 686 ) 2,375 +Other comprehensive income (loss), net of tax 246,499 ( 278,227 ) 105,971 +Comprehensive income (loss) $ 574,381 $ ( 14,005 ) $ 458,683 +See accompanying notes to these consolidated financial statements. +72 +INGRAM MICRO HOLDING CORPORATION +CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY +(Amounts in thousands, except share data) +Class A +Common Stock Class B +Common Stock Common Stock +Additional +Paid-in +Capital +Retained +Earnings +Accumulated +Other +Comprehensive +Loss +Total +Shares Amount Shares Amount Shares Amount +Balance at December 31, 2022 220,742,854 $ 2,207 1,657,146 $ 17 — $ — $ 2,655,776 $ 737,526 $ ( 337,458 ) $ 3,058,068 +Dividends declared — — — — — — — ( 10,462 ) — ( 10,462 ) +Net income +— — — — — — — 352,712 — 352,712 +Foreign currency translation adjustment — — — — — — — — 103,596 103,596 +Other — — — — — — — — 2,375 2,375 +Balance at December 30, 2023 220,742,854 2,207 1,657,146 17 — — 2,655,776 1,079,776 ( 231,487 ) 3,506,289 +Dividends declared — — — — — — — ( 6,599 ) — ( 6,599 ) +Net income +— — — — — — — 264,222 — 264,222 +Conversion of Class A and Class B Common Stock to Common Stock ( 220,742,854 ) ( 2,207 ) ( 1,657,146 ) ( 17 ) 222,400,000 2,224 — — — — +Issuance of Common Stock in initial public offering — — — — 11,600,000 116 241,048 — — 241,164 +Stock-based compensation expense — — — — — — 34,067 — — 34,067 +Issuance of Common Stock on vesting of restricted stock units, net of shares withheld for employee taxes — — — — 825,581 8 ( 14,305 ) — — ( 14,297 ) +Foreign currency translation adjustment — — — — — — — — ( 277,541 ) ( 277,541 ) +Other +— — — — — ( 12,744 ) — ( 686 ) ( 13,430 ) +Balance at December 28, 2024 — — — — 234,825,581 2,348 2,903,842 1,337,399 ( 509,714 ) 3,733,875 +Dividends declared — — — — — — — ( 77,951 ) — ( 77,951 ) +Net income +— — — — — — — 327,882 — 327,882 +Stock-based compensation expense — — — — — — 21,117 — — 21,117 +Issuance of Common Stock on vesting of restricted stock units, net of shares withheld for employee taxes — — — — 247,746 3 ( 3,007 ) — — ( 3,004 ) +Foreign currency translation adjustment — — — — — — — — 246,499 246,499 +Balance at December 27, 2025 — $ — — $ — 235,073,327 $ 2,351 $ 2,921,952 $ 1,587,330 $ ( 263,215 ) $ 4,248,418 +See accompanying notes to these consolidated financial statements. +73 +INGRAM MICRO HOLDING CORPORATION +CONSOLIDATED STATEMENTS OF CASH FLOWS +(Amounts in thousands) +Fiscal Year Fiscal Year Fiscal Year +2025 2024 2023 +Cash flows from operating activities: +Net income $ 327,882 $ 264,222 $ 352,712 +Adjustments to reconcile net income to cash provided by operating activities: +Depreciation and amortization 197,186 189,331 184,148 +Stock based compensation 21,117 34,067 — +Gain on marketable securities, net ( 11,713 ) ( 12,233 ) ( 10,941 ) +Noncash charges for interest and bond discount amortization 18,852 26,374 31,424 +Amortization of lease right-of-use asset 129,031 128,935 108,644 +Deferred income taxes ( 28,067 ) ( 14,984 ) ( 55,164 ) +Loss (gain) on foreign exchange 35,568 ( 130 ) 1,989 +Loss on sale of subsidiaries 38,248 — 3,068 +Other 2,357 763 6,609 +Changes in operating assets and liabilities, net of effects of acquisitions: +Trade accounts receivable ( 1,105,968 ) ( 1,060,810 ) ( 299,833 ) +Inventory ( 88,216 ) ( 225,831 ) 772,396 +Other assets ( 167,313 ) ( 18,917 ) ( 75,597 ) +Accounts payable 1,709,170 976,171 ( 738,389 ) +Change in book overdrafts ( 127,264 ) 134,652 ( 34,367 ) +Operating lease liabilities ( 115,299 ) ( 118,975 ) ( 104,897 ) +Accrued expenses and other 80,556 31,204 ( 82,978 ) +Cash provided by operating activities 916,127 333,839 58,824 +Cash flows from investing activities: +Capital expenditures ( 130,754 ) ( 142,703 ) ( 201,535 ) +Proceeds from deferred purchase price of factored receivables 313,206 252,199 162,622 +Sale (purchase) of marketable securities, net 12,482 955 ( 1,126 ) +Issuance of notes receivable ( 12,501 ) ( 57,117 ) — +Proceeds from note receivables 44,612 38,291 — +Proceeds from sale of subsidiaries 20,000 — 23,977 +Proceeds from sale of equity investments 20,805 12,012 — +Other ( 208 ) 1,904 ( 1,652 ) +Cash provided by (used in) investing activities 267,642 105,541 ( 17,714 ) +Cash flows from financing activities: +Dividends paid to shareholders ( 78,376 ) ( 6,174 ) ( 10,462 ) +Change in unremitted cash collections from servicing factored receivables 1,592 ( 11,315 ) ( 18,413 ) +Proceeds from issuance of common stock in initial public offering, net of underwriting discounts — 241,164 — +74 +Fiscal Year Fiscal Year Fiscal Year +2025 2024 2023 +Repayment of term loans ( 125,000 ) ( 483,100 ) ( 560,000 ) +Gross proceeds from other debt 107,014 101,779 72,351 +Gross repayments of other debt ( 89,851 ) ( 118,331 ) ( 92,417 ) +Net (repayments of) proceeds from revolving and other credit facilities ( 101,758 ) ( 66,998 ) 131,467 +Repurchase of common stock for tax withholdings on equity awards ( 3,093 ) ( 14,164 ) — +Purchase of Colsof shares — ( 22,621 ) — +Other ( 16,750 ) ( 11,539 ) ( 466 ) +Cash used in financing activities ( 306,222 ) ( 391,299 ) ( 477,940 ) +Effect of exchange rate changes on cash and cash equivalents 68,776 ( 78,170 ) 65,183 +Increase (decrease) in cash and cash equivalents 946,323 ( 30,089 ) ( 371,647 ) +Cash and cash equivalents, beginning of year 918,401 948,490 1,320,137 +Cash and cash equivalents, end of year $ 1,864,724 $ 918,401 $ 948,490 +Supplemental disclosures of cash flow information: +Cash payments during the year: +Interest $ 301,231 $ 336,431 $ 378,554 +Income taxes $ 181,790 $ 252,219 $ 271,541 +Supplemental disclosure of non-cash investing and financing information: +Amounts obtained as a beneficial interest in exchange for transferring trade receivables in factoring arrangements $ 291,385 $ 261,667 $ 171,114 +See accompanying notes to these consolidated financial statements. +75 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Note 1 — Organization and Basis of Presentation +Ingram Micro Holding Corporation and its subsidiaries (“Ingram Micro”) are primarily engaged in the distribution of information technology (“IT”) products, cloud and other services worldwide. Ingram Micro operates in North America; Europe, Middle East and Africa (“EMEA”); Asia-Pacific; and Latin America. Ingram Micro Holding Corporation is a holding company with no material assets other than the indirect ownership of the stock of Ingram Micro Inc., and its operations are conducted through its wholly owned subsidiaries. Unless the context otherwise requires, the use of the terms “Ingram Micro,” “we,” “us,” “our” and the “Company” in these notes to the consolidated financial statements refers to Ingram Micro Holding Corporation together with its consolidated subsidiaries. The use of the term “Platinum” means Platinum Equity, LLC together with its affiliated investment vehicles. +Note 2 — Significant Accounting Policies +Basis of Consolidation +The consolidated financial statements include the accounts of Ingram Micro Holding Corporation and its subsidiaries and have been prepared by us pursuant to accounting principles generally accepted in the United States of America (“U.S. GAAP”). All significant intercompany accounts and transactions have been eliminated in consolidation. +Fiscal Year +Our fiscal year is a 52- or 53-week period ending on the Saturday nearest to December 31. All references herein to “Fiscal Year 2025”, “Fiscal Year 2024” and “Fiscal Year 2023” represent the fiscal years ended December 27, 2025 (52 weeks), December 28, 2024 (52 weeks) and December 30, 2023 (52 weeks), respectively. +Stock Conversion and Stock Split +In connection with our initial public offering (the “IPO”), on October 23 , 2024, we converted our Class A voting common stock and Class B non-voting common stock into Common Stock, par value $ 0.01 per share ( “Common Stock”), on a 1-for-1 basis and effected a 8367.19365 -for- 1 stock split with respect to our Common Stock. All figures have been presented on the basis of this stock split wherever applicable for the periods presented w ithin these consolidated financial statements. +Initial Public Offering +In October 2024, we completed an IPO, in which we issued and sold 11,600,000 shares of our Common Stock, and Imola JV Holdings, L.P. agreed to offer and sold 7,000,000 shares of their Common Stock at a public offering price of $ 22.00 per share. We received approximately $ 233,110 in net proceeds after deducting $ 14,036 of underwriting discounts and approximately $ 8,054 in estimated offering costs. Upon the closing of the IPO, we used the net proceeds from the offering to repay $ 233,100 of debt outstanding under our Term Loan Credit Facility (as defined herein). The underwriters were granted a 30-day option to purchase up to an additional 2,790,000 shares of Common Stock from Imola JV Holdings, L.P., the selling stockholder, which was exercised in full and closed on November 4, 2024. +Use of Estimates +The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the financial statement date, and reported amounts of revenue and expenses during the reporting period. We review our estimates and assumptions on an on-going basis. Significant estimates primarily relate to the realizable value of accounts receivable, vendor programs, inventory, goodwill, intangible and other long-lived assets, income taxes, and contingencies and litigation. Actual results could differ significantly from these estimates. +76 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Revenue Recognition +Revenue Streams +In our distribution services model, we buy, hold title to, and sell technology products and provide services to resellers, referred to subsequently as our customer, while also providing resellers with multi-vendor solutions, integration services, electronic commerce tools, marketing, financing, training and enablement, technical support, and inventory management. In client and endpoint solutions, advanced solutions, and cloud-based solutions, we generally sell products and services to our customers (resellers) based on purchase orders instead of long-term contracts. Our agreements are generally not subject to minimum purchase requirements. Our customers place purchase orders with us for each transaction. Generally, our customers may cancel, delay or modify their purchase orders. In order to set up an account to trade with us, our customers generally have to accept our standard terms and conditions of sale which, together with the purchase order, form a binding contract on each individual order to which the purchase order applies. Our pricing varies greatly and depends on many factors including costs, competitive pressure, availability of inventory, seasonality and vendor promotional programs, among others. We may offer early payment discounts or volume incentive rebates to our customers. The customer contracts relating to our Other services generally provide for an initial term of three to five years , subject to extension by the mutual agreement of the parties, allow for termination for convenience by either party generally after the second year and the pricing is fixed by discrete type of service and typically varies depending on the volume of the relevant services. We do not believe any contract related to our Other services has a material impact on our business or financial condition. Products are delivered via shipment from our facilities, drop-shipment directly from our vendors, or by electronic delivery of keys for software products. We recognize revenue when the control of products is transferred to our customers, which generally happens at the point of shipment or point of delivery. +Any supplemental distribution services we provide are typically recognized over time as the services are performed. Service contracts may be based on a fixed price or on a fixed unit-price per transaction or other objective measure of output. Additionally, we offer services related to our supply chain management and platform-as-a-service offerings. Our fee-based commerce and supply chain services are billed and recognized on a per-item service fee arrangement at the point when the service is provided. Our platform-as-a-service offering generates revenue through licensing the right to use the intellectual property (on-premise license), which is recognized at a point in time, providing the right to access, which is recognized over time across the term of the contract, or through our cloud marketplace, which is recognized in the amount of the net fee associated with serving as an agent when the services are provided. Service revenues represented less than 10% of total net sales for the periods presented. Related contract liabilities were not material for the periods presented. +Agency Services +We have contracts with certain customers where our performance obligation is to arrange for the products or services to be provided by another party. In these arrangements, as we assume an agency relationship in the transaction, revenue is recognized in the amount of the net fee associated with serving as an agent when the services are completed. These arrangements primarily relate to certain fulfillment and cloud-related contracts, as well as sales of certain software products, and extended vendor services, such as vendor warranties. +Variable Consideration +We, under specific conditions, permit our customers to return or exchange products. The provision for estimated sales returns is recorded concurrently with the recognition of revenue. A liability is recorded within accrued expenses and other on the Consolidated Balance Sheets for estimated product returns based upon historical experience and an asset is recorded within inventory on the Consolidated Balance Sheets for the amount expected to be recorded for inventory upon product return. Amounts recorded within inventory are $ 116,780 and $ 131,298 as of December 27, 2025 and December 28, 2024, respectively. +We also provide volume discounts, early payment discounts, and other discounts to certain customers which are considered variable consideration. A provision for such discounts is recorded as a reduction of revenue at the time of sale based on an evaluation of the contract terms and historical experience. +77 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Practical Expedients +We account for shipping and handling activities that occur after the customer has obtained control of a good as fulfillment activities rather than a promised service. Accordingly, we accrue all fulfillment costs related to the shipping and handling of goods at the time of shipment. Additionally, we exclude the amount of certain taxes collected concurrent with revenue-producing activities from revenue. +We disaggregate revenue by geography, which we believe provides a meaningful depiction of the nature of our revenue (see Note 11, “Segment Information”). +Vendor Programs +Funds received from vendors for price protection, product rebates, promotions and marketing, infrastructure reimbursement and meet-competition programs are recorded as adjustments to product costs, revenue, or selling, general and administrative (“SG&A”) expenses, according to the nature of the program. Some of these programs may extend over multiple reporting periods. We accrue rebates or other vendor incentives as earned based on sales of qualifying products or as services are provided in accordance with the terms of the related program. +We sell products purchased from many vendors, but generated approximately 21 %, 19 %, and 16 % of our consolidated net sales in Fiscal Year 2025, Fiscal Year 2024, and Fiscal Year 2023, respectively, from products purchased from Apple Inc. Additionally, we generated approximately 9 %, 10 %, and 10 % of our consolidated net sales in Fiscal Year 2025, Fiscal Year 2024, and Fiscal Year 2023, respectively, from products purchased from HP Inc. We also generated approximately 10 %, 7 %, and 7 % of our consolidated net sales during the Fiscal Year 2025, Fiscal Year 2024 and Fiscal Year 2023, respectively, from products purchased from Lenovo. There were no other vendors whose products represented 10% or more of our net sales for the aforementioned periods. +Warranties +Our suppliers generally warrant the products distributed by us and allow returns of defective products, including those that have been returned to us by our customers. We generally do not independently warrant the products we distribute; however, local laws might impose warranty obligations upon distributors (such as in the case of supplier liquidation). We are obligated to provide warranty protection for sales of certain IT products within the European Union (“EU”) for up to two years as required under the EU directive where vendors have not affirmatively agreed to provide pass-through protection. In addition, we warrant the services we provide and products that we build-to-order from components purchased from other sources. Provision for estimated warranty costs is recorded at the time of sale and periodically adjusted to reflect actual experience. Warranty expense and the related obligations are not material to our consolidated financial statements. +Foreign Currency Translation and Remeasurement +Financial statements of our foreign subsidiaries, for which the functional currency is the local currency, are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and an average exchange rate for each period for statement of income items. Translation adjustments are recorded in accumulated other comprehensive loss, a component of stockholders’ equity. The functional currency of certain operations within our EMEA, Asia-Pacific, and Latin America regions is the U.S. dollar; accordingly, the monetary assets and liabilities of these subsidiaries are remeasured into U.S. dollars at the exchange rate in effect at the balance sheet date. Revenues, expenses, gains or losses are remeasured at the average exchange rate for the period. The remeasurement gains and losses of these operations as well as gains and losses from foreign currency transactions are included in the Consolidated Statements of Income. +Cash and Cash Equivalents +We consider all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. We had $ 32,190 and $ 19,377 of cash equivalents as of December 27, 2025 and December 28, 2024, respectively. +78 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Book Overdrafts +Book overdrafts of $ 416,799 and $ 544,029 as of December 27, 2025 and December 28, 2024, respectively, represent checks issued on disbursement bank accounts but not yet paid by such banks. These amounts are classified as accounts payable in our Consolidated Balance Sheets. We typically fund these overdrafts through normal collections of funds or transfers from other bank balances at other financial institutions. Under the terms of our facilities with the banks, the respective financial institutions are not legally obligated to honor the book overdraft balances as of December 27, 2025 and December 28, 2024, nor any balance on any given date. +Trade Accounts Receivable +We maintain an allowance for doubtful accounts receivable for expected losses in accordance with Accounting Standards Codification (“ASC”) 326, Financial Instruments — Credit Losses. In estimating the required allowance, we take into consideration the overall quality and aging of the receivable portfolio, the large number of customers and their dispersion across wide geographic areas, the existence of credit insurance where applicable, specifically identified customer risks, historical write-off experience and the current economic environment, reasonable and supportable forecasts of future economic conditions, and other factors that may affect our ability to collect from customers. +Notes Receivable +From time to time, we may provide loans to our customers to meet certain strategic objectives. These amounts are presented within “other current assets” and “other assets” on our Consolidated Balance Sheets with the associated cash flows presented within investing activities on our Consolidated Statements of Cash Flows. +Factoring Programs +We have several uncommitted factoring programs under which trade accounts receivable of several customers may be sold, without recourse, to financial institutions. Available capacity under these programs is dependent on the level of our trade accounts receivable eligible to be sold into these programs and the financial institutions’ willingness to purchase such receivables. The receivables under these factoring programs are sold at face value and are excluded from our Consolidated Balance Sheets. We account for these transactions as sales of receivables because control of the underlying asset is transferred and subsequent to the date of transfer, we typically do not have any continuing involvement in the transferred asset, except as discussed below. +For certain of our factoring programs in EMEA, there is a deferred purchase price (“DPP”) which is paid to us at a later time once the customer pays the factored invoices. Subsequent to the sale, the DPP represents a beneficial interest in the transferred trade accounts receivable and is disclosed as a non-cash investing activity in our Consolidated Statements of Cash Flows. Accordingly, cash proceeds from the payments of DPPs are presented as investing activities in our Consolidated Statements of Cash Flows. At December 27, 2025 and December 28, 2024, there were $ 40,038 and $ 54,912 , respectively, of DPP within other current assets on our Consolidated Balance Sheets. In arrangements where we collect the customer payments on behalf of the factor, the net cash flows related to these collections are reported as financing activities in the Consolidated Statements of Cash Flows. At December 27, 2025 and December 28, 2024, we recorded unremitted cash within accrued expenses and other of $ 6,618 and $ 4,497 , respectively. In December 2025, we amended certain factoring programs in EMEA to remove the DPP on receivables sold in the future. +At December 27, 2025 and December 28, 2024, we had a total of $ 936,934 and $ 737,302 , respectively, of trade accounts receivable sold to and held by financial institutions under these programs. Factoring fees of $ 37,620 , $ 38,619 , and $ 27,292 were incurred in Fiscal Year 2025, Fiscal Year 2024, and Fiscal Year 2023, respectively, related to the sale of trade accounts receivable under the facilities and are included in “other expense” in the other (income) expense section of our Consolidated Statements of Income. +79 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Supplier Finance Programs +As part of our ongoing efforts to manage our working capital, we have worked with our vendors to optimize our terms and conditions, which include the terms of payment to the vendor. We are party to agreements, initiated either by the vendor or us, which allow vendors, at their discretion, to determine invoices that they want to sell to participating financial institutions. We are not a party to the agreements between the participating financial institutions and the vendors in connection with these programs, and the financial institutions do not provide us with incentives such as rebates. There are no assets pledged under these agreements and no interest is charged by the financial institutions as balances are typically paid when they are due. Certain agreements may require a parent guarantee, although parent guarantees are also required in certain vendor agreements that do not involve financial institutions. The payment terms under these arrangements typically range from 30 to 90 days. Certain programs provide for extended payment terms, which are within standard industry practice and consistent with the range of payment terms we negotiate with our vendors, regardless of whether they have an agreement with a financial institution. +The following table is a rollforward of our outstanding obligations under our supplier finance programs: +Fiscal Year 2025 Fiscal Year 2024 +Obligations outstanding at the beginning of the year $ 2,392,755 $ 2,373,913 +Confirmed invoices added during the year 12,378,058 11,210,979 +Confirmed invoices paid during the year ( 11,889,671 ) ( 11,083,805 ) +Effect of foreign currency fluctuations 192,183 ( 108,332 ) +Obligations outstanding at the end of the year $ 3,073,325 $ 2,392,755 +In situations where amounts are not paid within the specified payment terms and interest is incurred, we reclassify the amount from accounts payable to debt. There were no outstanding payment obligations under these programs included in short-term debt and current maturities of long-term debt in the Consolidated Balance Sheets as of December 27, 2025 and December 28, 2024. +Inventory +Our inventory consists of finished goods purchased from various vendors for resale. We value our inventory at the lower of its cost or net realizable value, cost being determined on a moving average cost basis, which approximates the first-in, first out method. We write down our inventory for estimated excess or obsolescence equal to the difference between the cost of inventory and the net realizable value based upon an aging analysis of the inventory on hand, specifically known inventory-related risks (such as technological obsolescence and the nature of vendor terms regarding price protection and product returns), foreign currency fluctuations for foreign-sourced products, and assumptions about future demand. Market conditions or changes in terms and conditions by our vendors that are less favorable than those projected by management may require additional inventory write-downs, which could have an adverse effect on our consolidated financial results. Inventory is determined from the price we pay vendors, including freight and duties; we do not include labor, overhead, or other general or administrative costs in our inventory. +Property and Equipment +Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives noted below. We also capitalize computer software costs that meet both the definition of internal-use software and defined criteria for capitalization. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life. +Depreciable lives of property and equipment are as follows: +Buildings +30 - 40 years +Leasehold improvements +Shorter of the lease term or 3 - 17 years +Distribution equipment +5 - 10 years +Computer equipment and software +4 - 10 years +Maintenance, repairs, and minor renewals are charged to expense as incurred. Additions, major renewals, and betterments to property and equipment are capitalized. +80 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Operating Leases +Our leased physical properties are operating leases and we recognize rent expense on a straight-line basis. We recognize a right-of-use asset and lease liability within our Consolidated Balance Sheets for operating leases with terms greater than twelve months. The initial measurement of the lease liability is measured at the present value of lease payments not yet paid discounted using our incremental borrowing rate at the lease commencement date. Leases with an initial term of twelve months or less are not recorded on our Consolidated Balance Sheets, and we do not separate nonlease components from lease components. +Long-Lived and Intangible Assets +We assess potential impairments to our long-lived and intangible assets when events or changes in circumstances indicate that the carrying amount may not be fully recoverable. If required, an impairment loss is recognized to the extent the carrying value exceeds the fair value of the assets. Amortization expense was $ 84,592 , $ 86,878 , and $ 87,003 for Fiscal Year 2025, Fiscal Year 2024, and Fiscal Year 2023, respectively. +Intangible assets consist of the following: +December 27, 2025 December 28, 2024 +Gross +Amounts Accumulated Amortization Net +Amounts Gross +Amounts Accumulated Amortization Net +Amounts +Customer and vendor relationships $ 605,517 $ ( 227,275 ) $ 378,242 $ 583,980 $ ( 170,831 ) $ 413,149 +Tradename and trademarks 429,186 ( 128,852 ) 300,334 417,532 ( 97,485 ) 320,047 +Software and developed technology 4,118 ( 1,630 ) 2,488 70,000 ( 30,625 ) 39,375 +Other 40,510 ( 9,765 ) 30,745 7,330 ( 7,330 ) — +$ 1,079,331 $ ( 367,522 ) $ 711,809 $ 1,078,842 $ ( 306,271 ) $ 772,571 +The remaining useful lives of intangible assets are as follows: +Customer and vendor relationships +8 years +Tradename and trademarks +11 years +Software and developed technology +5 years +Other +5 years +Future minimum amortization expense of finite-lived identifiable intangible assets that we expect to recognize over the next five years and thereafter are as follows: +2026 $ 86,692 +2027 86,680 +2028 86,606 +2029 86,343 +2030 83,502 +Thereafter 281,986 +$ 711,809 +There were no material impairments to our long-lived and intangible assets in any of the periods presented herein. +Goodwill +Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired in an acquisition and is reviewed annually for potential impairment, or when circumstances warrant. Goodwill at December 27, 2025 primarily represents the excess of the consideration paid over the fair value of net assets acquired in connection with Platinum’s acquisition of the Company. +81 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Goodwill is required to be tested for impairment at least annually or sooner whenever events or changes in circumstances indicate that goodwill may be impaired. Goodwill impairment tests require judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. We perform our annual goodwill impairment assessment during our fiscal fourth quarter as of the date of our November month end. We have the option of first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Such review includes an evaluation of whether events and circumstances have occurred that may indicate a potential change in recoverability of goodwill, including the impacts of a deterioration in general economic conditions, an increased competitive environment, a change in management, key personnel, strategy, vendors, or customers, negative or declining cash flows, or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods. +If, based on a review of qualitative factors, it is more likely than not that the fair value of a reporting unit is less than its carrying value, we perform a quantitative analysis by comparing the fair value of a reporting unit with its carrying amount. If the carrying value exceeds the fair value, we measure the amount of impairment loss, if any, by comparing the fair value of the reporting unit goodwill to its carrying amount. +We performed a quantitative impairment analysis of goodwill in Fiscal Year 2024 and Fiscal Year 2023 for our North America and EMEA regions. In determining the fair value of our reporting units, we assessed general economic conditions, industry and market considerations, the impact of recent events to financial performance and other relevant events. Based on the valuations prepared, we determined that the estimated fair values of our reporting units were greater than their carrying values and no impairment of goodwill was identified in either period. In Fiscal Year 2024 and Fiscal Year 2023 , we performed a qualitative analysis of goodwill for our Asia-Pacific and Latin America regions and in Fiscal Year 2025 we performed a qualitative analysis for all of our regions . No goodwill impairment was recorded during Fiscal Year 2025, Fiscal Year 2024 or Fiscal Year 2023 based on the results of the procedures performed. +The changes in the carrying amount of goodwill are as follows: +North America EMEA Asia-Pacific Latin America Total +Balance at December 30, 2023 $ 425,165 $ 234,749 $ 145,714 $ 46,152 $ 851,780 +Adjustments /reclassifications /foreign currency exchange ( 2,852 ) ( 6,705 ) ( 3,962 ) ( 4,599 ) ( 18,118 ) +Balance at December 28, 2024 $ 422,313 $ 228,044 $ 141,752 $ 41,553 $ 833,662 +Adjustments /reclassifications /foreign currency exchange 2,089 14,723 1,584 2,691 21,087 +Balance at December 27, 2025 $ 424,402 $ 242,767 $ 143,336 $ 44,244 $ 854,749 +Earn-outs and Holdbacks +We may be required to make earn-out payments upon the achievement of certain predefined targets attributable to acquisitions completed in recent years. At the acquisition date, the value of any earn-out is estimated using various valuation methodologies which include projections of future earnings as defined in each acquisition purchase agreement. Such projections are then discounted to reflect the risk in achieving the projected earnings, as well as the passage of time and time value of money. The fair value measurement of the earn-out is based primarily on significant inputs not observable in an active market and thus represents a Level 3 measurement as defined under U.S. GAAP. Changes in the fair value of the earn-out primarily reflect adjustments to the timing and amount of payments as well as the related accretion driven by the time value of money. These adjustments are recorded within SG&A expenses within the Consolidated Statements of Income, as applicable. The fair value of earn-out contingent consideration is presented within accrued expenses and other in our Consolidated Balance Sheets. For amounts currently recorded on the Consolidated Balance Sheets, see Note 13, “Fair Value Measurements”. +In addition to earn-outs, we may be required to make additional payments associated with holdbacks in accordance with the applicable acquisition purchase agreement. Holdbacks are accrued for at the time of acquisition and cash outflows are recorded as additional purchase price at the time of payment. +82 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Concentration of Credit Risk +Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents, trade accounts receivable from customers and vendors, borrowings, and derivative financial instruments. Our cash and cash equivalents are deposited and/or invested with various financial institutions globally that are monitored by us regularly for credit quality. We are exposed to credit risk in the event of default by financial institutions to the extent that cash balances with financial institutions are in excess of amounts that are insured. We have not experienced any material credit losses on such deposits for the periods presented. Our trade accounts receivable reflect a large number of customers dispersed across wide geographic areas, none of which has accounted for 10% or more of our consolidated net sales in any of the periods presented herein and no customer accounts receivable balance was greater than 10% of our total trade accounts receivable at December 27, 2025 or December 28, 2024. We perform ongoing credit evaluations of our customers’ financial conditions, obtain credit insurance in many locations, and require collateral in certain circumstances. We maintain an allowance for estimated credit losses. +Derivative Financial Instruments +We operate in various locations around the world. We reduce our exposure to fluctuations in foreign exchange rates by creating offsetting positions through the use of derivative financial instruments in situations where there are significant exposures and there are not offsetting balances that create a natural hedge. The market risk related to the foreign exchange agreements is offset by changes in the valuation of the underlying items being hedged. In accordance with our policy, we do not use derivative financial instruments for trading or speculative purposes, nor are we a party to leveraged derivatives. +Foreign exchange risk is managed primarily by using forward contracts and spot transactions to hedge foreign currency-denominated receivables, payables, and intercompany loans and expenses. Interest rate swaps and forward contracts may be used to hedge foreign currency-denominated principal and interest payments related to intercompany loans. +All derivatives are recorded in our Consolidated Balance Sheets at fair value. The estimated fair value of derivative financial instruments represents the amount required to enter into similar offsetting contracts with similar remaining maturities based on market-derived prices. Changes in the fair value of derivatives not designated as hedging instruments are recorded in current earnings. Changes in the fair value of derivatives designated as hedging instruments are reflected in accumulated other comprehensive loss in our Consolidated Balance Sheets. +The notional amount of forward exchange contracts is the amount of foreign currency bought or sold at maturity. The notional amount of interest rate swaps is the underlying principal amount used in determining the interest payments exchanged over the life of the swap. Notional amounts are indicative of the extent of our involvement in the various types and uses of derivative financial instruments but are not a measure of our exposure to credit or market risks through our use of derivatives. +Credit exposure for derivative financial instruments is limited to the amounts, if any, by which the counterparties’ obligations under the contracts exceed our obligations to the counterparties. We manage the potential risk of credit losses through careful evaluation of counterparty credit standing, selection of counterparties from a limited group of financial institutions, and other contract provisions. +Comprehensive Income +Comprehensive income consists primarily of our net income and foreign currency translation adjustments, net of tax. +Earnings Per Share +Basic Earnings Per Share (“Basic EPS”) excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding during the reported period. Diluted Earnings Per Share (“Diluted EPS”) is computed by dividing net income by the weighted average number of common shares outstanding, inclusive of the dilutive effect of restricted stock units, during the reported period. +83 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +The computation of Basic and Diluted EPS is as follows: +Fiscal Year +2025 2024 2023 +Basic earnings per share: +Net income attributable to common stockholders $ 327,882 $ 264,222 $ 352,712 +Weighted-average number of common shares - basic 234,879,454 224,646,462 222,400,000 +Basic earnings per common share $ 1.40 $ 1.18 $ 1.59 +Diluted earnings per common share: +Net income attributable to common stockholders $ 327,882 $ 264,222 $ 352,712 +Weighted-average number of common shares - basic 234,879,454 224,646,462 222,400,000 +Effect of dilutive securities +Restricted stock units 470,814 72,043 — +Weighted-average number of common shares - diluted 235,350,268 224,718,505 222,400,000 +Diluted earnings per common share $ 1.39 $ 1.18 $ 1.59 +Anti-dilutive shares excluded from diluted earnings per share calculation 133,935 — — +Income Taxes +We estimate income taxes in each of the taxing jurisdictions in which we operate. This process involves estimating our actual current tax expense together with assessing the future tax impact of any differences resulting from the different treatment of certain items, such as the timing for recognizing revenues and expenses for tax versus financial reporting purposes. These differences may result in deferred tax assets and liabilities, which are included in our Consolidated Balance Sheets. We are required to assess the likelihood that our deferred tax assets, which include net operating loss carryforwards, tax credits and temporary differences that are expected to be deductible in future years, will be recoverable from future taxable income. In making that assessment, we consider the nature of the deferred tax assets and related statutory limits on utilization, recent operating results, future market growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we operate and prudent and feasible tax planning strategies. If, based upon available evidence, recovery of the full amount of the deferred tax assets is not likely; we provide a valuation allowance on any amount not likely to be realized. +Our effective tax rate includes the impact of not providing taxes on undistributed foreign earnings considered indefinitely reinvested. Material changes in our estimates of cash, working capital and long-term investment requirements in the various jurisdictions in which we do business could impact our effective tax rate if we no longer consider our foreign earnings to be indefinitely reinvested. +The provision for tax liabilities and recognition of tax benefits involves evaluations and judgments of uncertainties in the interpretation of complex tax regulations by various taxing authorities. In situations involving uncertain tax positions related to income tax matters, we do not recognize benefits unless their sustainability is deemed more likely than not. As additional information becomes available, or these uncertainties are resolved with the taxing authorities, revisions to these liabilities or benefits may be required, resulting in additional provision for or benefit from income taxes reflected in our Consolidated Statements of Income. +84 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Accounting for Employee Awards +Cash-based Compensation +Prior to the IPO, we issued cash awards to certain employees, which included both time-vested and performance-vested awards. The time-vested cash awards vest over three years , and the performance-vested cash awards vest upon the achievement of certain performance targets measured after a time period of three years . The performance condition for the cash awards for grants to management is based on earnings growth. Cumulative compensation expense for cash awards is recognized as a liability. Each cash award has a fixed fair value of $ 1.00 . We recognize these compensation costs, net of an estimated forfeiture rate, over the requisite service period of the award, which is the vesting term of the outstanding cash award. We estimate the forfeiture rate based on our historical experience. +Stock-based Compensation +In connection with the IPO, our board of directors adopted, and our stockholders approved, the 2024 Stock Incentive Plan (the “2024 Plan”). The purpose of the 2024 Plan is to assist the Company in attracting, retaining, motivating, and rewarding certain employees, officers, and directors of the Company and its affiliates and promoting the creation of long-term value for stockholders of the Company by closely aligning the interests of such individuals with those of the stockholders. +The total number of shares of our common stock available for issuance pursuant to awards under the 2024 Plan is 20,347,826 , subject to adjustment as provided in the plan. The 2024 Plan provides for the grant of non-qualified stock options, restricted stock, restricted stock units, other stock-based awards, or any combination thereof to any of our employees and directors of our subsidiaries or affiliates. +During the fourth quarter of 2024, in connection with the IPO, we issued 2,607,713 time vesting restricted stock units with an average grant date fair value of $ 22.01 per share to certain key employees and directors, of which 1,473,720 restricted stock units vested immediately upon grant resulting in an expense of $ 32,422 that was recorded within SG&A in the fourth quarter. We also issued 2,467,775 of performance vesting restricted stock units, 50 % of which will vest upon the achievement of a qualifying event, whereby the returns on invested capital by Platinum is 2.0 times the total of all capital or other contributions made by Platinum and the remaining 50 % will vest upon the achievement of a qualifying event, whereby the returns on invested capital by Platinum is 2.5 times the total of all capital or other contributions made by Platinum, in each case, except in certain circumstance s as specified in the award agreement, subject to the grantee ’ s continuous service with us through such qualifying event. The weighted-average grant date fair value of these awards, which was calculated using a Monte Carlo valuation model, was $ 17.42 per share . The assumptions used to value our performance vesting restricted stock units were a risk-free interest rate of 3.98 %, an expected volatility of 52.88 %, and a dividend yield of 0.00 %. +Subsequent to the IPO, we began granting equity awards to certain executive employees in lieu of cash-based awards. E quity awards granted under the 2024 Plan consist of time-vesting restricted stock units and performance-vesting restricted stock units. The time-vesting restricted stock units vest over three years , and the performance-vesting restricted stock units vest upon the achievement of certain performance targets measured after a time period of three years . The fair value of each award is determined based on the closing stock price at the date of grant, reduced by the present value of estimated dividends over the vesting period. We recognize the compensation costs over the requisite service period of the award, which is the vesting term of the outstanding award and we account for forfeitures as they occur. +85 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Participation Plan for Certain Key Employees +In July 2021, we adopted the 2021 Participation Plan (the “Plan”) to provide incentive compensation to certain key management. Under the Plan, participants are granted units, the value of which are related to our financial performance. Half of the units vest over a period of time specified in the applicable award agreement, typically in annual tranches over five years . Once vested, certain qualifying events are required for any payment related to these units, with accelerated vesting in the event of certain change in control or public offering events, in each case subject to the participant’s continued employment through the applicable vesting date. The other half are payable to participants only upon the occurrence of certain qualifying events. Any payment to a participant under the time-based or performance-based units is conditioned on our reaching a minimum valuation at the time of a qualifying event or through a series of qualifying events. A qualifying event may be either a sale of some or all of our capital stock or a sale of all or substantially all of our assets. Upon the Plan’s inception, we issued 216,874,665 performance units with an initial grant date value of $ 1.00 to key management of which none are vested. I mmediately prior to the IPO, the Plan was terminated, all participation units were cancelled, and no amounts were paid under the Plan. +Loss on Sale of Subsidiaries +In the third quarter of 2023, we sold our Russian subsidiary, recognizing a loss of $ 3,068 within SG&A expenses and leaving us with no remaining presence in Russia. +During the second quarter of 2025, we committed to plans to sell a group of assets related to our CloudBlue operations and a group of assets related to another non-strategic business in our North American region. In the second quarter of 2025, as the disposal groups met the criteria to be classified as held for sale in accordance with Accounting Standards Codification (“ASC”) 360 we recognized a write-down loss of $ 43,237 , of which $ 32,757 was recognized within selling, general, and administrative (“SG&A”) expenses and $ 10,480 within cost of sales. In the third quarter of 2025, we completed the sales and recognized an additional loss of $ 5,491 within SG&A. +Out of Period Correction +As previously disclosed in our Annual Report on Form 10-K for Fiscal Year 2024, we identified fraudulent activity within our India Professional Services business which resulted in misstatements on our Consolidated Statements of Income and on our Consolidated Balance Sheets. Management determined that these misstatements were not material to the previously issued consolidated financial statements and the financial statements as of and for Fiscal Year 2024, and therefore, corrected for these misstatements in addition to other identified immaterial errors, out of period in the fourth quarter of Fiscal Year 2024. The misstatements related to the fraudulent activity in India decreased operating income by $ 8,335 , income before income taxes by $ 9,554 , and net income by $ 7,476 and the other identified immaterial errors decreased operating income and income before taxes by $ 4,039 and net income by $ 3,022 resulting in combined decreases to operating income of $ 12,374 , income before income taxes of $ 13,593 , and net income of $ 10,498 . +Reclassifications +Certain reclassifications have been made to prior period amounts in the Consolidated Statements of Cash Flows to conform to the current period presentation. These reclassifications did not have a material impact on previously reported amounts. +Recently Adopted Accounting Standards +In December 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-09, “Income Taxes (Topic 740) Improvements to Income Tax Disclosures”, which requires public entities to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold on an annual basis in order to enhance the transparency and decision usefulness of income tax disclosures. This update is effective for annual periods beginning after December 15, 2024. The adoption of this guidance on a prospective basis resulted in additional tax disclosures (see Note 7, “Income Taxes”) and did not have a material financial impact on our results of operations, financial position, or liquidity. +86 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +New Accounting Standards +In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses”, which requires disclosure in the notes to the financial statements of specified information about certain costs and expenses. The amendments are effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments should be applied either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the financial statements. We are currently evaluating the adoption impact that this ASU will have on our consolidated financial statements and related disclosures. +In July 2025, the FASB issued ASU 2025-05, “Financial Instruments - Credit Losses (Topic 326)”, which provides a practical expedient in developing reasonable and supportable forecasts where they can assume that current conditions as of the balance sheet date do not change for the remaining life of the asset. The am endments are effective for fiscal years beginning after December 15, 2025, and for interim periods within those annual reporting periods. Early adoption is permitted. The amendments should be applied prospectively to financial statements issued for reporting periods after the effective date of this ASU. The adoption of this ASU will not have a material impact on our consolidated financial statements and related disclosures. +In September 2025, the FASB issued ASU 2025-06, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40)” which amends guidance related to the accounting for internal-use software development costs. The amendments are intended to modernize the recognition and capitalization framework to reflect current software development practices, including iterative and agile methodologies, by removing references to "development stages". It also clarifies the criteria for capitalization, which begins when both of the following occur: (1) management has authorized and committed to funding the software project and (2) it is probable that the project will be completed and the software will be used to perform its intended function. The amendments in ASU 2025-06 are effective for annual periods beginning after December 15, 2027, and interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual reporting period. ASU 2025-06 allows companies to elect one of the following adoption methods to apply its amendments: a prospective transition approach, a retrospective transition approach, or a modified transition approach that is based on the status of the project and whether software costs were capitalized before the date of adoption. We are currently evaluating the adoption impact that this ASU will have on our consolidated financial statements and related disclosures. +Note 3 — Acquisitions, Goodwill and Intangible Assets +Acquisitions +In the third quarter of 2024, we exercised our option to acquire the remaining 49 % of shares of Colsof, a cloud services provider in Latin America, of which we now own 100 %, and paid cash of $ 22,621 . This acquisition has been included in our consolidated results of operations since the acquisition date and pro forma results of operations have not been presented to reflect this acquisition as it was not material to our consolidated financial statements. +There were no material acquisitions during Fiscal Year Ended 2025 and Fiscal Year Ended 2023. +Earn-outs and Holdbacks +Earn-out liabilities for Fiscal Year 2025 and Fiscal Year 2024 decreased by $ 2,888 to $ 0 and decreased by $ 1,503 to $ 2,888 , respectively. There are no holdback liabilities for the periods presented. +87 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Note 4 — Property and Equipment +Property and equipment consist of the following: +December 27, 2025 December 28, 2024 +Land $ 4,429 $ 3,999 +Buildings and leasehold improvements 96,759 97,804 +Distribution equipment 218,109 200,514 +Computer equipment and software 617,502 478,361 +936,799 780,678 +Accumulated depreciation and amortization ( 450,078 ) ( 337,045 ) +Construction-in-progress 45,175 38,870 +Property and equipment, net $ 531,896 $ 482,503 +Included in property and equipment are right-of use assets related to finance leases. Depreciation expense was $ 112,594 , $ 102,453 , and $ 97,145 for Fiscal Year 2025, Fiscal Year 2024, and Fiscal Year 2023, respectively. Amortization expense on finance leases was $ 5,542 for Fiscal Year 2025. +Note 5 — Leases +Our leasing portfolio includes lease arrangements for our warehouses, distribution centers, corporate offices and equipment. We lease substantially all our facilities on varying terms which often include one or more options to renew. We include options to extend in the lease term if they are reasonably certain of being exercised. We do not have residual value guarantees associated with our leases. +The following table includes the components of our rent expense recorded in SG&A expense: +Fiscal Year Fiscal Year Fiscal Year +2025 2024 2023 +Operating lease cost $ 129,031 $ 128,935 $ 108,644 +Variable lease cost 40,243 39,894 42,110 +Short-term lease cost 7,278 6,823 5,640 +Total $ 176,552 $ 175,652 $ 156,394 +Certain leases contain variable payments, which are expensed as incurred and not included in our operating lease right-of-use assets and operating lease liabilities. These amounts primarily include payments for maintenance, utilities, taxes, and insurance on our office and fulfillment center leases. Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of future minimum lease payments at lease commencement. Certain adjustments to our operating lease right-of-use assets may be required for items such as initial direct costs paid or incentives received. We calculate the present value of our leases using an estimated incremental borrowing rate, which requires judgment. Our incremental borrowing rate is based upon an estimate of our regional secured borrowing rates. The estimated secured borrowing rates used at the date of adoption for each lease varies in accordance with the term as well as geographical region of the lease. +88 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +As of December 27, 2025, annual scheduled lease payments included in the measurement of operating lease obligations were as follows: +2026 $ 132,266 +2027 105,067 +2028 80,099 +2029 66,219 +2030 48,942 +Thereafter 114,161 +Total lease payments 546,754 +Less: imputed interest ( 87,392 ) +Present value of lease liabilities $ 459,362 +Finance lease liabilities are recorded as accrued expenses and other current liabilities and other long-term liabilities on the Consolidated Balance Sheets. The gross amount of the balances recorded related to finance leases is immaterial to the financial statements for the periods presented. +The weighted average remaining term for our leases as of December 27, 2025 and December 28, 2024 was 5.5 years and 5.9 years, respectively. The weighted average discount rate for our leases was 6.3 % as of December 27, 2025 and December 28, 2024. +Supplemental cash flow information related to our leases is as follows: +Fiscal Year Fiscal Year Fiscal Year +2025 2024 2023 +Cash paid for amounts included in the measurement of operating lease liabilities $ 129,190 $ 128,936 $ 115,933 +Operating lease right-of-use assets obtained in exchange for operating lease liabilities $ 78,817 $ 113,381 $ 154,925 +Note 6 — Debt +The carrying value of our outstanding debt consists of the following: +December 27, +2025 December 28, +2024 +Senior secured notes, 4.75 % due 2029, net of unamortized deferred financing costs of $ 23,214 and $ 30,232 , respectively +$ 1,976,786 $ 1,969,768 +Term loan credit facility, net of unamortized discount of $ 10,592 and $ 12,020 , respectively, and unamortized deferred financing costs of $ 26,459 and $ 28,998 , respectively +764,849 885,882 +Revolving trade accounts receivable-backed financing programs 353,100 312,630 +Lines of credit and other debt 104,629 184,860 +Total debt 3,199,364 3,353,140 +Short-term debt and current maturities of long-term debt ( 449,583 ) ( 184,860 ) +Total long-term debt $ 2,749,781 $ 3,168,280 +On April 22, 2021, in anticipation of the acquisition of Ingram Micro by Platinum, Imola Merger Corporation (“Escrow Issuer”) offered $ 2,000,000 Senior Secured Notes due May 2029 (“2029 Notes”). Prior to the acquisition, the 2029 Notes were the sole obligation of the Escrow Issuer. Upon consummation of the acquisition on July 2, 2021, the proceeds from the notes were used, in part, to finance the acquisition and repay existing indebtedness. The notes bear interest at a rate of 4.75 % per annum, which is payable semi-annually on May 15 and November 15 of each year, beginning on November 15, 2021. On July 2, 2021, we recognized $ 1,945,205 net of debt issuance costs of $ 54,795 , associated with the 2029 Notes. +89 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +On July 2, 2021, we entered into the Term Loan Credit Facility for $ 2,000,000 , the proceeds of which were also used to, among other things, finance a portion of the acquisition of Ingram Micro by Platinum and repay certain of our existing indebtedness. We recognized $ 1,920,761 , net of debt issuance costs and discount of $ 59,239 and $ 20,000 , respectively, related to this facility. The Term Loan Credit Facility had an original maturity of July 2, 2028 and amortized in equal quarterly installments aggregating to 1.00 % per annum. In June 2023, we voluntarily prepaid $ 500,000 on our Term Loan Credit Facility over and above normal quarterly installments, which, as a result of this prepayment, are no longer mandatory. In September 2023, we refinanced our Term Loan Credit Facility, reducing the interest rate spread over Secured Overnight Financing Rate (“SOFR”) by 50 basis points. In September 2024, we refinanced our Term Loan Credit Facility, reducing the interest rate spread over SOFR by 25 basis points, eliminating the credit-spread adjustments and extending the maturity date to September 19, 2031. In June 2025, we again amended the Term Loan Credit Facility to reduce the interest rate by 50 basis points. Borrowings under the Term Loan Credit Facility now bear interest at a rate per annum equal to, at our option, either (1) the base rate (which is the highest of (a) the then-current federal funds rate set by the Federal Reserve Bank of New York, plus 0.50 %, (b) the prime rate on such day and (c) the one-month SOFR rate published on such date plus 1.00 % and is subject to a 1.50 % floor) plus a margin of 1.25 % or (2) one-, three- or six-month SOFR (subject to a 0.50 % floor) plus a margin of 2.25 %. In connection with these refinancings, we repaid an incremental $ 50,000 and $ 100,000 in September 2023 and September 2024, respectively, of our Term Loan Credit Facility and in June 2024 we voluntarily repaid an incremental $ 150,000 . Upon the closing of the IPO, we used the net proceeds from the offering to repay $ 233,100 of debt outstanding under our Term Loan Credit Facility and in March 2025, we voluntarily repaid an incremental $ 125,000 . As of December 27, 2025 and December 28, 2024, $ 764,849 and $ 885,882 , respectively, remained outstanding under the Term Loan Credit Facility. +On July 2, 2021, we entered into new ABL Credit Facilities (as defined below) providing for senior secured asset-based, multi-currency revolving loans and letter of credit availability in an aggregate amount of up to $ 3,500,000 (the “ABL Revolving Credit Facility”) and a senior secured asset-based term loan facility of $ 500,000 (the “ABL Term Loan Facility”), together with the ABL Revolving Credit Facility, the (“ABL Credit Facilities”), both of which had contractual maturity dates in July 2026. The ABL Term Loan Facility was repaid fully in April 2022. We may borrow under the ABL Revolving Credit Facility only up to our available borrowing base capacity. Borrowings under the ABL Revolving Credit Facility bear interest at a rate per annum equal to, at our option, either (1) the base rate plus a margin ranging (based on the availability under the ABL Revolving Credit Facility) from 0.25 % to 0.75 % or (2) SOFR (subject to a 0 % floor) plus a margin ranging (based on the availability under the ABL Revolving Credit Facility) from 1.25 % to 1.75 %. In September 2024, we amended the ABL Revolving Credit Facility to, among other things, extend the maturity date to September 20, 2029. As of December 27, 2025 and December 28, 2024, we had no borrowings under this facility. The weighted-average interest rate on the outstanding borrowings under the ABL Revolving Credit Facility, as amended, was 6.2 % and 6.7 % per annum at December 27, 2025 and December 28, 2024, respectively. +We have a revolving trade accounts receivable-backed financing program in Europe (the “European ABS Facility”), which provides for a borrowing capacity of up to € 375,000 , or approximately $ 441,375 , at December 27, 2025 exchange rates. This program, which matures in October 2026, requires certain commitment fees and borrowings incur financing costs based on the local short-term bank indicator rate for the currency in which the drawing is made plus a predetermined margin. At December 27, 2025 and December 28, 2024, we had borrowings of $ 353,100 and $ 312,630 , respectively, under this financing program in Europe. The weighted-average interest rate on the outstanding borrowings under this facility, as amended, was 3.5 % and 4.9 % per annum at December 27, 2025 and December 28, 2024, respectively. +At December 27, 2025, our actual aggregate capacity under our ABL Revolving Credit Facility and other receivable-backed programs was approximately $ 3,940,601 , of which $ 353,100 was used. Even if we do not borrow or choose not to borrow to the full available capacity of certain programs, most of our trade accounts receivable-backed financing programs are subject to certain restrictions outlined in our ABL Credit Facilities. These restrictions generally prohibit us from assigning or transferring the underlying eligible receivables as collateral for other financing programs, unless the underlying eligible receivables are sold in conjunction with a dedicated, non-recourse facility. +90 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +We also have additional lines of credit, short-term overdraft facilities and other credit facilities with various financial institutions worldwide, which provide for borrowing capacity aggregating to $ 905,911 at December 27, 2025. Most of these arrangements are on an uncommitted basis and are reviewed periodically for renewal. At December 27, 2025 and December 28, 2024, we had $ 102,836 and $ 182,713 , respectively, outstanding under these facilities. The weighted-average interest rate on the outstanding borrowings under these facilities, which may fluctuate depending on geographic mix, was 7.3 % and 6.9 % per annum at December 27, 2025 and December 28, 2024, respectively. At December 27, 2025 and December 28, 2024, letters of credit totaling $ 168,254 and $ 166,613 , respectively, were issued to various customs agencies and landlords to support our subsidiaries. The issuance of these letters of credit reduces our available capacity under the corresponding agreements by the same amount. +We are subject to certain customary affirmative covenants, including reporting and cash management requirements, and certain customary negative covenants that limit our and our subsidiaries’ ability to incur additional indebtedness or liens, to dispose of assets, to make certain fundamental changes, to enter into restrictive agreements, to make certain investments, loans, advances, guarantees and acquisitions, to prepay certain indebtedness, to pay dividends or other distributions in res pect of our and our subsidiaries’ equity interests and to engage in transactions with affiliates. At December 27, 2025 and December 28, 2024, we were in compliance with all covenants or other requirements in all of our debt arrangements . +Note 7 — Income Taxes +We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. We record adjustments based on filed returns as such returns are finalized and resultant adjustments are identified. The Company has made an accounting policy election to treat Global Intangible Low Tax Income (“GILTI”) as a current year tax expense in the period in which it is incurred. +The components of income before income taxes consist of the following: +Fiscal Year Fiscal Year Fiscal Year +2025 2024 2023 +United States $ ( 72,228 ) $ ( 182,583 ) $ ( 205,969 ) +Foreign 602,982 628,449 728,470 +Total $ 530,754 $ 445,866 $ 522,501 +The provision for income taxes consists of the following: +Fiscal Year Fiscal Year Fiscal Year +2025 2024 2023 +Current: +Federal $ ( 1,786 ) $ 52 $ ( 8,220 ) +State 750 524 2,828 +Foreign 231,898 194,337 233,705 +$ 230,862 $ 194,913 $ 228,313 +Deferred: +Federal $ ( 6,974 ) $ ( 18,368 ) $ ( 29,113 ) +State ( 1,381 ) ( 2,826 ) ( 9,818 ) +Foreign ( 19,635 ) 7,925 ( 19,593 ) +( 27,990 ) ( 13,269 ) ( 58,524 ) +Provision for income taxes $ 202,872 $ 181,644 $ 169,789 +91 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +We adopted ASU 2023-09 "Income Taxes (Topic 740): Improvements To Income Tax Disclosures" on a prospective basis beginning with Fiscal Year 2025. The following table presents required disclosure pursuant to ASU 2023-09 and reconciles the U.S. federal statutory tax expense and tax rate to our actual global tax expense and effective tax rate for Fiscal Year 2025: +Fiscal Year +2025 +Amount Percentage +U.S. federal statutory tax $ 111,458 21.0 % +State and local income tax, net of federal income tax effect (1) 196 0.0 % +Foreign tax effects: +Colombia +Changes in valuation allowances 14,598 2.7 % +Other 4,010 0.7 % +Brazil +Withholding tax 6,850 1.3 % +Other 5,328 1.0 % +India 6,218 1.2 % +Other foreign jurisdictions 45,109 8.5 % +Effects of cross-border tax laws: +Global intangible low-taxed income (GILTI) 11,520 2.2 % +Subpart F ( 6,073 ) ( 1.1 ) % +Other ( 462 ) ( 0.1 ) % +Tax credits: +Research and development tax credits ( 3,261 ) ( 0.6 ) % +Foreign tax credits ( 28,203 ) ( 5.3 ) % +Changes in valuation allowances 28,203 5.3 % +Nontaxable or nondeductible items 6,030 1.1 % +Changes in unrecognized tax benefits 1,351 0.3 % +Income Tax Expense and Effective Tax Rate $ 202,872 38.2 % +(1) The states and local jurisdictions that contribute to the majority (greater than 50%) of the tax effect in this category include California, Illinois, New Jersey, and New York. +On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the United States. The OBBBA includes significant tax-related provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The OBBBA did not have a material impact on our annual effective tax rate in 2025, and we are currently evaluating its potential impact on our consolidated financial statements for future periods. +92 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +The reconciliation of the statutory U.S. federal income tax rate to our effective tax rate for years prior to the adoption of ASU 2023-09 is as follows: +Fiscal Year Fiscal Year +2024 2023 +U.S. statutory rate 21.0 % 21.0 % +State income taxes, net of federal income tax benefit ( 0.5 ) ( 1.3 ) +U.S. tax on foreign earnings, net of foreign tax credits 1.8 1.4 +Effect of international operations 8.0 5.7 +Effect of change in valuation allowances 0.7 1.2 +Withholding tax 7.1 4.8 +Other 2.6 ( 0.3 ) +Effective tax rate 40.7 % 32.5 % +Many countries have enacted the Organization for Economic Co-operation and Development’s 15% global minimum tax regime effective for us starting in Fiscal Year 2024. The legislation did not have a material impact on our Fiscal Years 2024 and 2025 effective rates for income taxes or for cash taxes paid, however we continue to monitor developments and evaluate impacts, if any, of these rules on our consolidated financial statements. +Deferred income taxes reflect the tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Net deferred tax assets and liabilities are classified as non-current in the Consolidated Balance Sheets. +Significant components of our net deferred tax assets and liabilities are as follows: +December 27, 2025 December 28, 2024 +Deferred tax assets: +Net operating loss carryforwards $ 116,746 $ 118,632 +Tax credit carryforwards 121,542 89,158 +Interest expense carryforwards 49,471 48,760 +Employee benefits 56,618 50,740 +Inventory 23,336 26,087 +Depreciation and amortization 22,170 23,387 +Operating lease liabilities 115,717 119,354 +Sales return reserve 31,785 35,879 +Allowance on trade accounts receivable 37,768 31,807 +Reserves and accruals not currently deductible for income tax purposes 31,859 20,849 +Other 67,675 33,846 +Total deferred tax assets 674,687 598,499 +Valuation allowance ( 169,117 ) ( 129,206 ) +Subtotal 505,570 469,293 +Deferred tax liabilities: +Depreciation and amortization ( 209,000 ) ( 209,616 ) +Operating lease assets ( 110,105 ) ( 113,782 ) +Inventory rights ( 28,203 ) ( 31,878 ) +Other ( 45,301 ) ( 37,698 ) +Total deferred tax liabilities ( 392,609 ) ( 392,974 ) +Net deferred tax assets $ 112,961 $ 76,319 +93 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including the nature of the deferred tax assets and related statutory limits on utilization, recent operating results, future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of or less than the net recorded amount, we would make an adjustment to the valuation allowance which would reduce or increase the provision for income taxes. +At December 27, 2025, we had deferred tax assets related to NOL carryforwards of $ 116,746 along with a valuation allowance of $ 42,482 . $ 44,805 of the remaining $ 74,264 of net deferred tax assets associated with NOL carryforwards have no expiration date. The NOL carryforwards with no expiration date are comprised of $ 29,081 in Luxembourg, $ 6,951 in Belgium and $ 8,773 in a number of other jurisdictions worldwide. The $ 29,459 of net deferred tax assets associated with NOL carryforwards that have an expiration date are comprised of $ 18,494 in Luxembourg with expirations beginning in 2035 and $ 10,965 in a number of different jurisdictions with various expiration dates. We monitor our other deferred tax assets for realizability in a similar manner to those described above and will record or release valuation allowances as required to reflect the amount more likely than not to be realized. +At December 27, 2025, our tax credit carryforwards for income tax purposes were $ 121,542 . Foreign tax credit carryforwards in the U.S. represent $ 109,435 of that amount, and our total valuation allowance related to such credit carryforwards was $ 109,435 . A number of different federal and state credits with various expiration dates comprised the remaining $ 12,107 of tax credit carryforwards. +As of December 27, 2025, the valuation allowance increased by a net of $ 39,911 as compared to December 28, 2024, which was driven primarily by an increase in both U.S. foreign tax credits and associated valuation allowances. The remaining change relates primarily to book operating losses in certain subsidiaries that are currently not expected to be realized through future taxable income in these entities, partially offset by previously reserved amounts that became realizable based on taxable income generated in the current year. +As of December 28, 2024, the valuation allowance increased by a net of $ 22,827 as compared to December 30, 2023, which was driven primarily by an increase in both U.S. foreign tax credits and associated valuation allowances. The remaining change relates primarily to book operating losses in certain subsidiaries that are currently not expected to be realized through future taxable income in these entities, partially offset by previously reserved amounts that became realizable based on taxable income generated in the current year. +As of December 30, 2023, the valuation allowance increased by a net of $ 28,527 as compared to December 31, 2022, which was driven primarily by an increase in both U.S. foreign tax credits and associated valuation allowances. The remaining change relates primarily to book operating losses in certain subsidiaries that are currently not expected to be realized through future taxable income in these entities, partially offset by previously reserved amounts that became realizable based on taxable income generated in the current year. +We have not provided tax on undistributed foreign earnings of approximately $ 3,400,000 and $ 3,500,000 as of December 27, 2025, and December 28, 2024, respectively, because such earnings are considered to be indefinitely reinvested. A determination of the deferred tax liability on such earnings is not practical due to the complexity of the hypothetical calculation. +A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows: +Fiscal Year Fiscal Year Fiscal Year +2025 2024 2023 +Gross unrecognized tax benefits at beginning of the year $ 15,666 $ 16,785 $ 14,339 +Increases in tax positions for prior years 2,537 172 1,048 +Decreases in tax positions for prior years ( 3,199 ) ( 1,523 ) ( 102 ) +Increases in tax positions for current year 1,632 2,203 1,870 +Settlements — ( 1,380 ) — +Lapse in statute of limitations ( 114 ) ( 591 ) ( 370 ) +Gross unrecognized tax benefits at end of the year $ 16,522 $ 15,666 $ 16,785 +94 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +The total amount of gross unrecognized tax benefits is $ 16,522 as of December 27, 2025, substantially all of which would impact the effective tax rate if recognized. +We recognize interest and penalties related to unrecognized tax benefits in income tax expense. Total accruals for interest and penalties on our unrecognized tax benefits were $ 9,942 and $ 8,985 as of December 27, 2025, and December 28, 2024, respectively. +We conduct business globally and, as a result, we and/or one or more of our subsidiaries file income tax returns in the U.S. federal and various state jurisdictions and in over fifty foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities in many of the jurisdictions in which we operate. In our material tax jurisdictions, the statute of limitations is open, in general, for three to five years. +In the U.S., we are no longer subject to federal tax examinations for years prior to 2023. It is possible that within the next twelve months, (1) ongoing tax examinations of several of our states and foreign jurisdictions may be resolved, (2) new tax exams may commence, and (3) other issues may be effectively settled. However, we do not expect our assessment of unrecognized tax benefits to change significantly over that time. +We adopted ASU 2023-09 on a prospective basis for Fiscal Year 2025 and have included the amounts of income taxes paid below as the result of our adoption: +Fiscal Year +2025 +Federal taxes $ 3,125 +State and local taxes ( 260 ) +Foreign taxes: +Brazil 28,781 +India 15,366 +Australia 12,137 +United Kingdom 12,014 +Netherland 9,904 +Peru 9,326 +Other foreign taxes 91,397 +Total income taxes paid $ 181,790 +95 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Note 8 – Restructuring Costs +In Fiscal Year 2023, as a result of changing global and local market conditions, we initiated a global restructuring plan which resulted in organizational and staffing changes, including a headcount reduction of 628 employees, primarily in our North American segment. As a result of these actions, we incurred restructuring charges of $ 18,797 in Fiscal Year 2023. We took further actions in the first quarter of 2024. +In Fiscal Year 2024, we incurred restructuring charges of $ 38,354 , primarily related to the implementation of further initiatives to enhance organizational efficiency and strengthen customer service capabilities to better position us for long-term, sustainable growth, which included organizational and staffing changes as well as headcount reductions of 1,056 . Completion of these actions continued into the first half of 2025. +In Fiscal Year 2025, we incurred restructuring costs of $ 15,432 , which included organizational and staffing changes as well as headcount reductions of 375 . These charges related to our targeted efforts to improve the effectiveness of our organization, primarily focusing on our repair operations in the United States, and in our global finance and IT organizations as well as efforts that began in the fourth quarter of 2024. These charges also include targeted restructuring actions across certain parts of our North America and EMEA businesses in the third quarter of 2025. We anticipate additional charges in the range of $ 10 million and $ 16 million in Fiscal Year 2026 in connection with the continuance of these restructuring initiatives. +A summary of the restructuring costs incurred in Fiscal Year 2025, Fiscal Year 2024 and Fiscal Year 2023, are as follows: +Restructuring Costs +Headcount +Reduction +(Number of +Employees) Employee +Termination +Benefits Facility and +Other +Costs Total +Restructuring +Costs +Fiscal Year 2025 +North America +$ 6,075 $ 1,091 $ 7,166 +EMEA +4,382 611 4,993 +Asia-Pacific +2,134 — 2,134 +Latin America +1,139 — 1,139 +Total +375 $ 13,730 $ 1,702 $ 15,432 +Fiscal Year 2024 +North America $ 15,004 $ 231 $ 15,235 +EMEA 15,762 1 15,763 +Asia-Pacific 7,029 — 7,029 +Latin America 268 59 327 +Total 1,056 $ 38,063 $ 291 $ 38,354 +Fiscal Year 2023 +North America +$ 12,050 $ 3,401 $ 15,451 +EMEA +1,878 18 1,896 +Asia-Pacific +1,341 — 1,341 +Latin America +109 — 109 +Total +628 $ 15,378 $ 3,419 $ 18,797 +96 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +The remaining liabilities, which are recorded within accrued expenses and other on our Consolidated Balance Sheets, and activities associated with the aforementioned actions for Fiscal Year 2025 and Fiscal Year 2024 are summarized in the tables below: +Restructuring Liability +Beginning +Liability Expenses, +Net Amounts Paid +and Charged +Against the +Liability Foreign +Currency +Translation Remaining +Liability as of +December 27, +2025 +Fiscal Year 2025 +Employee termination benefits $ 12,186 $ 13,730 $ ( 20,606 ) $ 681 $ 5,991 +Facility and other costs — 1,702 ( 1,634 ) 3 71 +Total $ 12,186 $ 15,432 $ ( 22,240 ) $ 684 $ 6,062 +Restructuring Liability +Beginning +Liability Expenses, +Net Amounts Paid +and Charged +Against the +Liability Foreign +Currency +Translation Remaining Liability as of December 28, 2024 +Fiscal Year 2024 +Employee termination benefits $ 2,060 $ 38,063 $ ( 27,678 ) $ ( 259 ) $ 12,186 +Facility and other costs — 291 ( 291 ) — — +Total $ 2,060 $ 38,354 $ ( 27,969 ) $ ( 259 ) $ 12,186 +The remaining liability of $ 6,062 will be substantially paid by the end of 2026. +Note 9 — Commitments and Contingencies +As a company with a substantial employee population and with operations in a large number of countries, Ingram Micro is involved, either as a plaintiff or defendant, in a variety of ongoing claims, demands, suits, investigations, tax matters and proceedings that arise from time to time in the ordinary course of its business. The Company records a provision with respect to a claim, suit, investigation, or proceeding when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. If there is at least a reasonable possibility that a material loss may have been incurred associated with pending legal claims, or when assertion of unasserted material claims is considered probable, we disclose such fact, and if reasonably estimable, we provide an estimate of the possible loss or range of possible loss. We record our best estimate of a loss related to pending legal and regulatory proceedings when the loss is considered probable and the amount can be reasonably estimated. Where a range of loss can be reasonably estimated with no best estimate in the range, we record the minimum estimated liability. As additional information becomes available, we assess the potential liability related to pending legal and regulatory proceedings and revise our estimates and update our disclosures accordingly. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. Our legal costs associated with legal matters are recorded to expense as incurred. +The Company reviews claims, suits, investigations and proceedings at least quarterly, and decisions are made with respect to recording or adjusting provisions and disclosing reasonably possible losses or range of losses (individually or in the aggregate). Whether any losses, damages, or remedies finally determined in any claim, suit, investigation or proceeding could reasonably have a material effect on the Company’s business, financial condition, results of operations or cash flows will depend on a number of variables, including: the timing and amount of such losses or damages; the structure and type of any such remedies; the significance of the impact of such losses, damages or remedies may have in the consolidated financial statements; and the unique facts and circumstances of the particular matter that may give rise to additional factors. +Our Brazilian subsidiary has received a number of tax assessments primarily related to tax reporting compliance topics as well as transaction-tax related matters largely involving applicability of tax and categorization of products and services. The total amount related to these assessments and similar tax exposures that are not yet assessed that give rise to a probable risk where a reserve has been established is Brazilian Reais 55,942 ($ 10,095 at December 27, 2025 exchange rates) in principal and associated penalties, interest and fines. The total amount related to these assessments and similar tax exposures that are not yet assessed that we believe gives rise to a reasonably possible loss is Brazilian Reais 781,691 ($ 141,064 at December 27, 2025 exchange rates) in principal and associated penalties, interest and fines. +97 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +In June 2013, the French Competition Authority (“FCA”) launched an investigation of our subsidiary in France (“Ingram Micro France”), one of our competitors and one of our vendors in relation to alleged anticompetitive practices. In October 2018, the investigation services of the FCA filed a Statement of Objections against Ingram Micro France, as primary infringer, and Ingram Micro Europe BVBA and Ingram Micro, as parent companies (“Ingram”). In March 2020, the Board of the FCA issued its decision imposing a fine of € 62,900 on Ingram regarding volume allocations of Apple products. In July 2020, we appealed the decision of the Board of the FCA to the Paris Court of Appeals. On October 6, 2022, the Paris Court of Appeals issued a decision maintaining the infraction of volume allocation and reducing the fine to € 19,500 . In November 2022, the Company further appealed this matter to the “Cour de Cassation.” As the appeal to the “Cour de Cassation” did not suspend the obligation to pay the fine, in the third quarter of 2022, we recorded a contingent liability at that time within our Condensed Consolidated Balance Sheets. Under the payment plan agreed with the French Treasury, Ingram Micro France had already paid approximately $ 11,000 . On November 4, 2022, Ingram Micro France made an additional payment of approximately $ 9,000 to complete the total amount of the fine and the French Treasury released the third-party surety bond. As a result of the appeals court ruling, the Company determined that the best estimate of probable loss related to this matter is limited to the amounts already paid to date. On June 3, 2021, the reseller whose complaint to the FCA gave rise to the investigation filed a follow-on civil claim in the Paris Commercial Court seeking approximately € 95,000 ($ 111,815 at December 27, 2025 exchange rates) in damages from Ingram, one of our competitors and one of our vendors. On May 30, 2022, the Paris Commercial Court postponed the hearing on this reseller claim pending resolution of the appeal on the main case. On October 24, 2022, the reseller requested the re-opening of the proceedings and we petitioned the Paris Commercial Court to stay the proceedings until the main case is decided by the “Cour de Cassation.” On May 15, 2023, the Paris Commercial Court did not accept the request to suspend the case and set a calendar for a final hearing, which took place in June 2024. On November 25, 2024, the Paris Commercial Court issued a decision rejecting the follow-on damages claim in its entirety due to lack of causation and the plaintiff appealed the decision on December 23, 2024. We are currently evaluating this matter and cannot currently estimate the probability or amount of any potential loss. +In January 2021, we first learned through external sources that in June 2019, the Court of Additional Chief Metropolitan Magistrate (Special Acts), Central District, Tis Hazari in New Delhi (the “New Delhi Court”) issued a summoning order naming Ingram Micro India Ltd. (“IMIL”) as one of 40 legal entity defendants in a criminal complaint. IMIL is accused by the Serious Fraud Office of cheating and criminal conspiracy based on four payments it made over 16 years ago at the request of a certain vendor. In February 2021, outside legal counsel appeared on IMIL’s behalf at the New Delhi Court and requested relevant documentation pertaining to these charges to assess IMIL’s legal position. IMIL has vigorously contested the charges as we believe the charges to be meritless and in December 2021 filed a motion to dismiss. +In September 2021, the Company’s subsidiary in Saudi Arabia received a tax assessment for Saudi Riyal 238,152 ($ 63,491 at December 27, 2025 exchange rates) in tax and associated penalties issued by ZATCA (tax and customs authority) asserting that withholding tax was due on payments to non-resident vendors for software distributed to resellers from 2015 through 2020. In July 2025, we reached a settlement agreement with ZATCA related to the 2015 through 2020 tax assessments for approximately $ 1,700 , which we have paid to conclude the matter. +We may be subject to unasserted claims related to non-income based tax and indirect tax related matters. As of December 27, 2025, the Company is unable to reasonably estimate the possible losses or range of losses, if any, arising from unasserted claims due to a number of factors, including the presence of complex or novel legal theories and the ongoing discovery and development of information important to potential unasserted claims. Claims, suits, investigations and proceedings are inherently uncertain, and it is not possible to predict the ultimate outcome of unasserted claims. It is possible that the Company’s business, financial condition, results of operations or cash flows could be materially affected in any particular period by the resolution of potential claims. +We have guarantees to third parties that provide financing to a limited number of our customers. Net sales under these arrangements accounted for less than one percent of our consolidated net sales for each of the periods presented. The guarantees require us to reimburse the third party for defaults by these customers up to an aggregate of $ 1,870 . The fair value of these guarantees has been recognized as cost of sales on the Consolidated Statements of Income to these customers and is included in accrued expenses and other on the Consolidated Balance Sheets. +98 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Note 10 — Employee Awards +Prior to our IPO, we issued time-vested and performance-vested cash awards to certain employees. In connection with our IPO, our board of directors adopted, and our stockholders approved, the “2024 Plan” replacing cash awards with equity-based awards. See section “Accounting for Employee Awards” within Note 2, “Significant Accounting Policies”. +Cash-based Compensation +Activity related to the cash awards was as follows: +Number of Cash +Awards +Non-vested at December 31, 2022 76,721,588 +Granted 44,884,625 +Vested ( 46,689,276 ) +Forfeited ( 7,319,277 ) +Non-vested at December 30, 2023 67,597,660 +Granted 35,185,988 +Vested ( 22,909,486 ) +Forfeited ( 7,228,186 ) +Non-vested at December 28, 2024 72,645,976 +Granted 280,000 +Vested ( 20,959,951 ) +Forfeited ( 11,697,253 ) +Non-vested at December 27, 2025 40,268,772 +Fiscal Year Fiscal Year Fiscal Year +2025 2024 2023 +Compensation expense - cash awards $ 17,832 $ 24,626 $ 31,040 +Related income tax benefit $ 4,458 $ 6,156 $ 7,760 +As of December 27, 2025, the unrecognized compensation costs related to the cash awards was $ 17,396 . We expect this cost to be recognized over a remaining weighted-average period of approximately 0.9 years. +Stock-based Compensation +Activity related to the time vesting restricted stock units granted under the 2024 Plan was as follows: +Number of +Awards Weighted-Average Grant Date Fair Value +Non-vested at December 30, 2023 — $ — +Granted 2,607,713 22.01 +Vested ( 1,473,720 ) 22.00 +Non-vested at December 28, 2024 1,133,993 22.01 +Granted 1,428,244 19.03 +Vested ( 388,529 ) 22.03 +Forfeited +( 83,400 ) 20.44 +Non-vested at December 27, 2025 2,090,308 $ 20.03 +99 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Fiscal Year Fiscal Year +2025 2024 +Compensation expense $ 15,673 $ 34,067 +Related income tax benefit $ 2,305 $ 3,731 +As of December 27, 2025, the unrecognized compensation costs related to the time vesting restricted stock units was $ 33,113 . We expect this cost to be recognized over a remaining weighted-average period of approximately 1.4 years. +Activity related to the performance vesting restricted stock units granted under the 2024 Plan was as follows: +Number of +Awards Weighted-Average Grant Date Fair Value +Non-vested at December 30, 2023 — $ — +Granted 2,467,775 17.42 +Non-vested at December 28, 2024 2,467,775 17.42 +Granted 1,323,874 18.85 +Forfeited ( 124,669 ) 17.61 +Non-vested at December 27, 2025 3,666,980 $ 17.93 +Fiscal Year Fiscal Year +2025 2024 +Compensation expense +$ 5,444 $ — +Related income tax benefit +$ 630 $ — +As of December 27, 2025, the unrecognized compensation costs related to the performance vesting restricted stock units was $ 18,847 . We expect this cost to be recognized over a remaining weighted-average period of approximately 2.3 years. We have not recognized any compensation costs related to the performance-vesting restricted stock units issued in connection with the IPO as the performance condition depends on the occurrence of a qualifying event, w hich is not deemed probable until it occurs (see section “Stock-based Compensation” within Note 2, “Significant Accounting Policies”). +Participation Plan for Certain Key Employees +Activity related to the awards granted in the Participation Plan was as follows: +Number of Units +Non-vested at December 31, 2022 191,713,659 +Granted 4,305,960 +Forfeited ( 1,420,010 ) +Non-vested at December 30, 2023 194,599,609 +Granted 14,580,585 +Forfeited ( 209,180,194 ) +Non-vested at December 28, 2024 — +As a result of the IPO, the Plan was cancelled in the fourth quarter of 2024. There was no compensation cost recognized for these awards during any periods presented. +100 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Note 11 — Segment Information +ASC 280, Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. Our CODM is our Chief Executive Officer. Our reportable segments coincide with the geographic operating segments which include North America, EMEA, Asia-Pacific, and Latin America. The measure of segment profit is income from operations. Our CODM utilizes income from operations to analyze and compare year-over-year and budget-to-actual segment-level operational performance and profitability before non-operational items, ensure optimal alignment with our strategic priorities and make strategic decisions concerning resource allocation across our operating segments. +Geographic areas in which we operated our reportable segments during the periods presented include North America (the United States and Canada), EMEA (Austria, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Denmark, Egypt, Finland, France, Germany, Hungary, Ireland, Israel, Italy, Kosovo, Lebanon, Luxembourg, Macedonia, Morocco, Netherlands, Norway, Oman, Pakistan, Poland, Portugal, Qatar, Romania, Saudi Arabia, Serbia, Slovenia, Spain, Sweden, Switzerland, Turkey, United Arab Emirates and the United Kingdom), Asia-Pacific (Australia, Bangladesh, the People’s Republic of China including Hong Kong and Taiwan, India, Indonesia, Malaysia, New Zealand, Philippines, Singapore, Sri Lanka, and Thailand) and Latin America (Brazil, Chile, Colombia, Costa Rica, Mexico, Peru, Uruguay and our Latin American export operations in Miami). +We do not allocate stock-based compensation expense or time-vested and performance-vested cash-based compensation recognized to our reportable segments (see Note 10, “Employee Awards”) and certain Corporate costs; therefore, we are reporting these amounts separately. Assets by reportable segment are not presented below as our CODM does not review assets by reportable segment. +101 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Financial information by reportable segment is as follows: +Fiscal Year Fiscal Year Fiscal Year +2025 2024 2023 +Net sales +North America $ 18,947,951 $ 17,373,047 $ 18,195,652 +EMEA 15,197,089 14,260,257 14,481,069 +Asia-Pacific 14,706,981 12,756,802 11,573,489 +Latin America 3,704,242 3,593,565 3,790,154 +Total $ 52,556,263 $ 47,983,671 $ 48,040,364 +Significant segment expenses +Cost of sales +North America $ 17,542,063 $ 15,973,155 $ 16,712,010 +EMEA 14,064,450 13,183,955 13,367,664 +Asia-Pacific 14,103,471 12,132,315 10,950,647 +Latin America 3,342,308 3,249,301 3,462,906 +Total $ 49,052,292 $ 44,538,726 $ 44,493,227 +Compensation +North America $ 836,092 $ 840,696 $ 865,403 +EMEA 540,980 504,847 503,676 +Asia-Pacific 213,792 204,894 209,448 +Latin America 135,109 129,799 121,672 +Total $ 1,725,973 $ 1,680,236 $ 1,700,199 +Depreciation costs +North America $ 86,599 $ 74,939 $ 66,153 +EMEA 14,554 15,249 17,056 +Asia-Pacific 5,696 6,648 7,834 +Latin America 5,745 5,617 6,102 +Total $ 112,594 $ 102,453 $ 97,145 +Intangible asset amortization +North America $ 39,301 $ 42,148 $ 42,175 +EMEA 24,891 23,958 23,782 +Asia-Pacific 17,177 17,441 17,594 +Latin America 3,223 3,331 3,452 +Total $ 84,592 $ 86,878 $ 87,003 +Other departmental operating expenses (a) +North America $ 221,646 $ 193,057 $ 223,792 +EMEA 175,123 170,552 158,026 +Asia-Pacific 19,858 91,503 73,192 +Latin America 55,847 55,044 51,320 +Total $ 472,474 $ 510,156 $ 506,330 +Integration and transition costs (b) +North America $ 41,780 $ 5,659 $ 15,745 +EMEA 4,041 2,839 ( 31 ) +Asia-Pacific 353 1,656 ( 8 ) +Latin America ( 1,876 ) ( 1,644 ) 4,388 +Total $ 44,298 $ 8,510 $ 20,094 +102 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Fiscal Year Fiscal Year Fiscal Year +2025 2024 2023 +Other segment items (c) +North America $ ( 66,492 ) $ ( 78,766 ) $ ( 80,476 ) +EMEA 82,707 99,437 93,697 +Asia-Pacific 74,481 78,896 67,639 +Latin America 40,731 32,533 46,799 +Total $ 131,427 $ 132,100 $ 127,659 +Total segment expenses $ 51,623,650 $ 47,059,059 $ 47,031,657 +Income from operations +North America $ 246,962 $ 322,159 $ 350,850 +EMEA 290,343 259,420 317,199 +Asia-Pacific 272,153 223,449 247,143 +Latin America 123,155 119,584 93,515 +Segment profit $ 932,613 $ 924,612 $ 1,008,707 +Reconciliation of segment profit to income before income taxes +Corporate $ ( 16,736 ) $ ( 47,996 ) $ ( 33,320 ) +Cash-based compensation ( 17,832 ) ( 24,626 ) ( 31,040 ) +Stock-based compensation ( 21,117 ) ( 34,067 ) — +Other (income) expense +Interest income $ ( 45,731 ) $ ( 45,335 ) $ ( 34,977 ) +Interest expense 302,570 338,358 380,191 +Net foreign currency exchange loss 42,342 22,901 42,070 +Other expense 46,993 56,133 34,562 +Income before income taxes $ 530,754 $ 445,866 $ 522,501 +(a) Other Departmental Operating Expenses consist primarily of professional and outside service costs, lease rental and occupancy costs, repair and maintenance costs as well as other miscellaneous operating expenses. +(b) Costs are primarily related to (i) the loss on sale of CloudBlue and another non-strategic business in our North American region during the Fiscal Year 2025, (ii) professional, consulting and integration costs associated with our acquisitions, and (iii) consulting, retention and transition costs associated with our restructuring programs charged to selling, general and administrative, or SG&A, expenses. +(c) Other segment items consist primarily of management fees and direct management costs which represent costs that are incurred by the North American segment and allocated to the other segments, as well as bad debt/credit/flooring costs, credit card fees and restructuring costs. +103 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Net sales are attributed to countries based on the location of the originating entity’s registered domicile. Except for the United States, which is our country of domicile, China, and India, no other country accounted for 10% or more of net sales for the periods presented. +Fiscal Year Fiscal Year Fiscal Year +2025 2024 2023 +Net sales: +United States $ 18,026,433 34 % $ 16,369,823 34 % $ 17,300,808 36 % +China +5,908,770 11 4,297,138 9 3,521,373 7 +India 5,047,641 10 4,903,734 10 4,571,294 10 +Outside of the United States, China, and India 23,573,419 45 22,412,976 47 22,646,889 47 +Total $ 52,556,263 100 % $ 47,983,671 100 % $ 48,040,364 100 % +Except for the United States, no other country accounted for 10% or more of long-lived assets for the periods presented. +December 27, 2025 December 28, 2024 December 27, 2025 December 28, 2024 +Long-lived assets: +United States $ 847,800 $ 869,921 51 % 52 % +Outside of the United States 799,129 797,815 49 48 +Total (1) +$ 1,646,929 $ 1,667,736 100 % 100 % +(1) Includes $ 711,809 and $ 772,571 of intangible assets, net of which $ 284,476 and $ 325,444 are located within the United States as of December 27, 2025 and December 28, 2024, respectively. +The following table summarizes additional entity-wide disclosure of net sales by product category for the following periods: +Fiscal Year Fiscal Year Fiscal Year +2025 2024 2023 +Net sales: +Client and Endpoint Solutions $ 33,838,940 64 % $ 29,974,140 63 % $ 29,149,776 61 % +Advanced Solutions 17,597,016 34 16,859,551 35 17,883,252 37 +Cloud-based Solutions 477,589 1 462,127 1 383,329 1 +Other 642,718 1 687,853 1 624,007 1 +Total $ 52,556,263 100 % $ 47,983,671 100 % $ 48,040,364 100 % +Note 12 — Derivative Financial Instruments +We use foreign currency forward contracts primarily to manage currency risk associated with foreign currency-denominated trade accounts receivable, accounts payable and intercompany loans. At December 27, 2025 and December 28, 2024, we had no derivatives that were designated as hedging instruments. +In the first quarter of 2023, we entered into agreements to purchase interest rate caps, which subsequent to the cessation of the London Interbank Offered Rate (“LIBOR”) interest rate on June 30, 2023, established a 5.317 % upper limit on the SOFR interest rate applicable to a substantial portion of the borrowings under our Term Loan Credit Facility through the first quarter of 2025. These interest rate caps had previously qualified for hedge accounting treatment; however, in September 2023, we de-designated the interest rate cap in connection with the refinancing of our Term Loan Credit Facility (See Note 6, “Debt”), the impact of which was immaterial. +104 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +The notional amounts and fair values of derivative instruments in our Consolidated Balance Sheets are as follows: +Notional Amounts (1) +Fair Value +December 27, 2025 December 28, 2024 December 27, 2025 December 28, 2024 +Derivatives not receiving hedge accounting treatment recorded in: +Other current assets: +Foreign exchange contracts $ 114,908 $ 472,324 $ 1,245 $ 12,510 +Interest rate cap — 1,375,000 — — +Other (2) +1,265 1,265 12,938 9,616 +Accrued expenses and other: +Foreign exchange contracts 652,428 189,044 ( 6,692 ) ( 780 ) +Total $ 768,601 $ 2,037,633 $ 7,491 $ 21,346 +(1) Notional amounts represent the gross amount of foreign currency bought or sold at maturity for foreign exchange contracts. +(2) Related to a convertible note receivable derivative. +The amount recognized in earnings from our derivative instruments not receiving hedge accounting treatment, including ineffectiveness, is recorded in net foreign currency exchange (gain) loss as follows and is largely offset by the change in fair value of the underlying hedged assets or liabilities: +Fiscal Year Fiscal Year Fiscal Year +Location of (gain) loss in income 2025 2024 2023 +Derivative instruments not qualifying as cash flow hedges: +Net (gain) loss recognized in earnings +Net foreign currency exchange (gain) loss +$ ( 34,664 ) $ 2,884 $ 43,096 +Interest expense +— 884 5,211 +Derivative instruments qualifying as hedging instruments: +Gain recognized in accumulated other comprehensive income $ — $ — $ ( 1,188 ) +Gain reclassified from accumulated other comprehensive income to interest expense Interest expense ( 171 ) ( 686 ) ( 349 ) +There were no material gain or loss amounts excluded from the assessment of effectiveness. We report our derivatives at fair value as either assets or liabilities within our Consolidated Balance Sheets. See Note 13, “Fair Value Measurements”, for information on derivative fair values recorded on our Consolidated Balance Sheets for the periods presented. +Note 13 — Fair Value Measurements +Our assets and liabilities carried at fair value are classified and disclosed in one of the following three categories: Level 1 — quoted market prices in active markets for identical assets and liabilities; Level 2 — observable market-based inputs or unobservable inputs that are corroborated by market data; and Level 3 — unobservable inputs that are not corroborated by market data. +105 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +As of December 27, 2025, our assets and liabilities measured at fair value on a recurring basis are categorized in the table below: +December 27, 2025 +Total Level 1 Level 2 Level 3 +Assets: +Derivative assets $ 14,183 $ — $ 14,183 $ — +Investments held in Rabbi Trust 93,001 93,001 — — +Total assets at fair value $ 107,184 $ 93,001 $ 14,183 $ — +Liabilities: +Derivative liabilities $ 6,692 $ — $ 6,692 $ — +Total liabilities at fair value $ 6,692 $ — $ 6,692 $ — +As of December 28, 2024, our assets and liabilities measured at fair value on a recurring basis are categorized in the table below: +December 28, 2024 +Total Level 1 Level 2 Level 3 +Assets: +Derivative assets $ 22,126 $ — $ 22,126 $ — +Investments held in Rabbi Trust 93,770 93,770 — — +Total assets at fair value $ 115,896 $ 93,770 $ 22,126 $ — +Liabilities: +Derivative liabilities $ 780 $ — $ 780 $ — +Contingent consideration 2,888 — — 2,888 +Total liabilities at fair value $ 3,668 $ — $ 780 $ 2,888 +The fair value of the cash equivalents approximated its carrying value and the gain or loss on the marketable trading securities was recognized in the Consolidated Statements of Income to reflect these investments at fair value. +Our senior secured notes due in 2029 and Term Loan Credit Facility are stated at amortized cost, and their respective fair values were determined based on Level 2 criteria. The fair values and carrying values of these notes are shown in the tables below: +December 27, 2025 +Fair Value +Total Level 1 Level 2 Level 3 Carrying +Value +Senior secured notes, 4.75 % due 2029 +$ 1,962,500 $ — $ 1,962,500 $ — $ 1,976,786 +Term loan credit facility 805,910 — 805,910 — 764,849 +$ 2,768,410 $ — $ 2,768,410 $ — $ 2,741,635 +December 28, 2024 +Fair Value +Total Level 1 Level 2 Level 3 Carrying +Value +Senior secured notes, 4.75 % due 2029 +$ 1,885,000 $ — $ 1,885,000 $ — $ 1,969,768 +Term loan credit facility 931,535 — 931,535 — 885,882 +$ 2,816,535 $ — $ 2,816,535 $ — $ 2,855,650 +106 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +The carrying amounts of our trade accounts receivable, accounts payable and accrued expenses and other approximate fair value because of the short maturity of these items. Our ABL Revolving Credit Facility and European revolving trade accounts receivable-backed financing program bear interest at variable rates based on designated local reference rates and commercial paper rates, respectively, plus a predetermined fixed margin. The interest rates of our revolving unsecured credit facilities and other debt are dependent upon the local short-term bank indicator rate for a particular currency, which also resets regularly. The carrying amounts of all these facilities approximate their fair value because of the revolving nature of the borrowings and because the all-in rate (consisting of variable rates and fixed margin) adjusts regularly to reflect current market rates with appropriate consideration for our credit profile. +Note 14 — Employee Benefit Plans +Our U.S.-based employee savings benefit plans permit eligible employees to make contributions up to certain limits, which are matched by us at stipulated percentages. Our contributions charged to expense were $ 10,633 , $ 11,235 , and $ 11,589 in Fiscal Year 2025, Fiscal Year 2024, and Fiscal Year 2023, respectively. +Deferred Compensation Plan +We have a non-qualified deferred compensation plan (“NQDC”) that provides certain key officers and employees the ability to defer a portion of their compensation until a later date. The assets are held in a “Rabbi Trust” which invests in various mutual funds as directed by the plan participants. The Rabbi Trust is intended to be used as a source of funds to match respective funding obligations to participants. The assets of the trust are subject to the claims of our creditors in the event that we become insolvent. The assets and liabilities of the plan are recorded within other assets and other liabilities, respectively, in the Consolidated Balance Sheets. Changes in the deferred compensation balance are recorded to compensation expense and reflected within SG&A expenses of our Consolidated Statements of Income. Changes in the fair value of assets of the plan are recorded within other expense in our Consolidated Statements of Income. For amounts currently held on the Consolidated Balance Sheets, see Note 13, “Fair Value Measurements”. +Self-Insurance +We self-insure coverage for certain U.S. employee medical claims. Amounts accrued for such medical insurance coverage aggre gates to $ 7,908 and $ 6,922 as of December 27, 2025 and December 28, 2024, respectively, and are classified within accrued expenses and other on the Consolidated Balance Sheet. +Note 15 — Stockholders’ Equity +Following our IPO and stock conversion and stock split, our certificate of incorporation authorizes us to issue 2,000,000,000 shares of Common Stock, of which 235,073,327 and 234,825,581 were issued and outstanding as of December 27, 2025 and December 28, 2024, respectively . +Dividends Paid to Stockholders +The following table presents the dividends paid to stockholders for the Thirteen Weeks Ended March 29, 2025, Thirteen Weeks Ended June 28, 2025, Thirteen Weeks Ended September 27, 2025, Thirteen Weeks Ended December 27, 2025 and Fiscal Year 2025, on the Company’s Common Stock, par value $ 0.01 per share ( “Common Stock”): +Period Dividend per Share Dividends Paid +Thirteen Weeks Ended March 29, 2025 $ 0.074 $ 17,377 +Thirteen Weeks Ended June 28, 2025 0.076 17,848 +Thirteen Weeks Ended September 27, 2025 0.078 18,318 +Thirteen Weeks Ended December 27, 2025 0.080 18,806 +Fiscal Year 2025 $ 0.308 $ 72,349 +We also paid cash dividends of $ 6,027 and $ 6,174 to the Aptec Saudi minority interest stockholders of record in the Fiscal Year 2025 and Fiscal Year 2024, respectively. +107 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +Note 16 — Related Party Transactions +In connection with Platinum’s acquisition of the Company, we entered into a Corporate Advisory Services Agreement (the “CASA”) with Platinum Equity Advisors, LLC (“Platinum Advisors”), an entity affiliated with Platinum, pursuant to which Platinum Advisors provides corporate and advisory services to us. Prior to the IPO, we incurred an annual fee of $ 25,000 , plus expenses incurred by Platinum Advisors in rendering such services. For Fiscal Year 2024, and Fiscal Year 2023, we incurred fees and expenses of $ 20,679 , and $ 26,927 , respectively, under the CASA. These amounts have been included within SG&A expenses within the Consolidated Statements of Income. Upon completion of the IPO, the CASA was terminated. +Note 17 — Subsequent Events +On February 20, 2026, we voluntarily repaid an incremental $ 200,000 of the principal balance of our Term Loan Credit Facility. +On March 2, 2026, we announced that our board of directors had declared a cash dividend on our common stock of $ 0.082 per share, payable on March 24, 2026, to stockholders of record as of March 10, 2026. +108 +INGRAM MICRO HOLDING CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share, unit and per share data) +SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS +(In 000s) +Description Beginning Balance Charged to +Costs and +Expenses Deductions Other(*) Ending Balance +Allowance for doubtful accounts: +Fiscal Year 2025 $ 146,999 $ 46,297 $ ( 41,716 ) $ 17,585 $ 169,165 +Fiscal Year 2024 $ 163,727 $ 30,534 $ ( 49,714 ) $ 2,452 $ 146,999 +Fiscal Year 2023 $ 140,328 $ 58,197 $ ( 31,591 ) $ ( 3,207 ) $ 163,727 +Allowance for sales returns(**): +Fiscal Year 2025 $ 16,239 $ 158,935 $ ( 160,757 ) $ 140 $ 14,557 +Fiscal Year 2024 $ 18,916 $ 186,646 $ ( 189,015 ) $ ( 308 ) $ 16,239 +Fiscal Year 2023 $ 23,424 $ 272,933 $ ( 276,046 ) $ ( 1,395 ) $ 18,916 +(*) “Other” includes recoveries, sale of subsidiaries, and the effect of fluctuations in foreign currencies. +(**) The allowance for sales returns liability is shown net of the estimated product returns recorded within inventory, both of which are presented gross on the Consolidated Balance Sheets. +109 +Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures +None. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +Our management, with the participation and supervision of our principal executive officer and our principal financial officer, evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act), as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were not effective as of December 27, 2025, due to the material weakness in our internal control over financial reporting described below. However, our management, including our principal executive officer and our principal financial officer, has concluded that, notwithstanding the identified material weakness in our internal control over financial reporting, the consolidated financial statements in this Annual Report on Form 10-K fairly presents, in all material respects, our financial position, results of operations, and cash flows for the periods presented in conformity with U.S. GAAP. +Management’s Report on Internal Control over Financial Reporting +Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. +Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. +Our management carried out an evaluation, under the supervision and with the participation of our principal executive officer and our principal financial officer, of the effectiveness of our internal control over financial reporting as of December 27, 2025 based on the criteria established in “Internal Control — Integrated Framework” (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based upon this evaluation, our management concluded that our internal control over financial reporting was not effective as of December 27, 2025 due to the material weakness described below. +A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis. +We identified a material weakness in our internal control over financial reporting as we did not design and maintain effective controls over segregation of duties related to manual journal entries for certain entities within one of the financial systems relevant to the preparation of our financial statements. Specifically, certain personnel have the ability to create and post manual journal entries that are not identified to be reviewed by separate individuals. The material weakness did not result in a misstatement (or adjustment) to the consolidated financial statements. However, the material weakness could result in misstatements of the consolidated financial statements or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. +The effectiveness of our internal control over financial reporting as of December 27, 2025 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report set forth above in Part II, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. +Remediation of Previously Reported Material Weaknesses in Internal Control Over Financial Reporting +As previously reported in our Annual Report on Form 10-K for the fiscal year ended December 28, 2024, we identified material weaknesses in our internal control over financial reporting. We did not design and maintain an effective risk assessment process at a precise enough level to identify risks of material misstatement in the consolidated financial statements related to evolving and growing areas of the business. This material weakness contributed to an additional material weakness around the design and maintenance of effective controls over the identification of and accounting for multi-period software license agreements. +110 +To address the material weakness related to the identification of and accounting for multi-period software license agreements, we designed and implemented internal controls over the accuracy and completeness of revenue recognition related to multi-period software license agreements. During the third and fourth quarters of Fiscal Year 2025, we completed our testing of the design and operating effectiveness of the implemented controls and found them to be effective. As a result, we have concluded that this material weakness has been remediated as of December 27, 2025. +To address the material weakness related to a risk assessment process over evolving and growing areas of the business, we established a formal process and designed internal controls to ensure the timely identification and evaluation of evolving and growing areas of the business that could have a material impact on our consolidated financial statements. During the third and fourth quarters of Fiscal Year 2025, we completed our testing of the design and operating effectiveness of the implemented controls and found them to be effective. Accordingly, we have concluded that this material weakness has been remediated as of December 27, 2025. +Changes in Internal Control Over Financial Reporting +There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) during the fiscal quarter ended December 27, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. +Item 9B. Other Information +During the three months ended December 27, 2025, none of our Section 16 officers or directors (as defined in Rule 16a-1(f) of the Exchange Act) adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act or any “non-Rule 10b5-1 trading arrangement” (as defined in Section 408(c) of Regulation S-K). +Item 9C. Disclosure Regarding Foreign Jurisdiction that Prevent Inspections +Not applicable. +111 +Part III +Item 10. Directors, Executive Officers and Corporate Governance +The information required under this Item is incorporated herein by reference to the following sections in our definitive proxy statement to be filed with the SEC no later than 120 days after the close of our fiscal year ended December 27, 2025 (the “2026 Proxy Statement”): +• “Proposal 1: Election of Directors;” +• “Board Composition” and +• “Corporate Governance.” +With respect to Item 408(b) of Regulation S-K, the Company has also adopted an insider trading policy governing the purchase, sale and other dispositions of Company or third-party securities by the directors, officers and employees of the Company while in possession of material non-public information relating to the Company. It is the policy of the Company that the Company will not engage in transactions in the Company’s securities while aware of material nonpublic information relating to the Company or the Company’s securities. The Company believes that its insider trading policy is reasonably designed to promote compliance with insider trading laws, rules and regulations and any listing standards applicable to the Company. A copy of the Company’s insider trading policy is filed as Exhibit 19.1 to this Form 10-K. +Item 11. Executive Compensation +The information required under this Item is incorporated herein by reference to the section entitled “Executive and Director Compensation” in our 2026 Proxy Statement. +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The following table sets forth, as of February 23, 2026, information regarding beneficial ownership of our capital stock by the following individuals or entities: +• each person, entity or group of affiliated persons, known by us to beneficially own more than 5% of our voting securities; +• each of our NEOs; +• each of our directors; and +• all of our executive officers and directors as a group. +To our knowledge, each person named in the table has sole voting and investment power with respect to all of the securities shown as beneficially owned by such person, except as otherwise set forth in the notes to the table. The number of securities shown represents the number of securities the person “beneficially owns,” as determined by the rules of the SEC. The SEC has defined “beneficial” ownership of a security to mean the possession, directly or indirectly, of voting power and/or investment power. A security holder is also deemed to be, as of any date, the beneficial owner of all securities that such security holder has the right to acquire within 60 days after that date through (1) the exercise of any option, warrant or right, (2) the conversion of a security, (3) the power to revoke a trust, discretionary account or similar arrangement or (4) the automatic termination of a trust, discretionary account or similar arrangement. As of February 23, 2026, there were 235,074,694 s hares of the Company’s Common Stock outstanding. +Unless otherwise noted below, the address for each of the stockholders in the table below is c/o Ingram Micro Holding Corporation, 3351 Michelson Drive, Suite 100, Irvine, CA 92612. +112 +Beneficial owner +Number of Shares Beneficially Owned (2) +Percentage of Class +5% Stockholders: +Investment vehicles affiliated with Platinum Equity, LLC (1) . . . . . . . . +210,952,854 89.7 % +Named Executive Officers and Directors: +Felicia Alvaro . . . . . . . . . . . 15,393 (*) +Augusto Aragone . . . . . . . . 121,079 (*) +Craig Ashmore . . . . . . . — (*) +Paul Bay . . . . . . . . . . . . . . . 330,257 (*) +Christian Cook . . . . . . . . . . 46,000 (*) +Jakki Haussler . . . . . . . . . . . 8,409 (*) +Leslie Heisz . . . . . . . . . . . . . 8,409 (*) +Bryan Kelln . . . . . . . . . . . . . — (*) +Jacob Kotzubei . . . . . . . . . . — (*) +Matthew Louie . . . . . . . . . . — (*) +Alain Monié . . . . . . . . . . . . 1,335,793 (*) +Scott Sherman . . . . . . . . . . . 147,867 (*) +Mary Ann Sigler . . . . . . . . . 7,500 (*) +Sharon Wienbar . . . . . . . . . 8,409 (*) +Eric Worley . . . . . . . . . . . . . — (*) +Michael Zilis . . . . . . . . . . . . 184,862 (*) +Executive Officers and Directors as a group (16 persons) 2,213,978 (*) +* Less than 1%. +(1) Ingram Holdco, LLC is the record holder of 191,326,531 shares of our Common Stock. Imola JV Holdings,L.P., which is the sole member of Ingram Holdco, LLC, is the record holder of 19,626,323 shares of our Common Stock. Tom Gores is the manager of Platinum Equity, LLC, which is the sole member of Platinum Equity Investment Holdings, LLC, which is the sole member of Platinum Equity Investment Holdings IC (Cayman), LLC which is the general partner of Platinum Equity InvestCo, L.P., which is the sole member of Platinum Equity Investment Holdings V, LLC, which is the sole member of Platinum Equity Partners V, LLC, which is the general partner of Platinum Equity Partners V, L.P., which is the general partner of Imola JV Holdings, L.P. By virtue of these relationships, each of these entities and Mr. Gores may be deemed to share beneficial ownership of the securities held of record by Imola JV Holdings, L.P. and Ingram Holdco, LLC. The business address of each of the entities named herein and Mr. Gores is 360 North Crescent Drive, South Building, Beverly Hills, CA 90210. Based on information provided to us, as of the date of this Annual Report on Form 10-K, Ingram Holdco, LLC has pledged 191,326,531 shares of our Common Stock pursuant to a margin loan agreement and related documentation on a non-recourse basis. Ingram Holdco, LLC has informed the Company that the margin loan agreement contains customary default provisions and that in the event of a default under the margin loan agreement the secured parties may foreclose upon any and all shares of our Common Stock pledged to them. See “Risk Factors—Risks Related to Ownership of Our Common Stock — If we or Platinum sell shares of our Common Stock or are perceived by the public markets as intending to sell them, the market price of our Common Stock could decline.” +113 +(2) The table includes the number of shares of Company Common Stock to be issued upon the vesting of RSUs within sixty (60) days of February 23, 2026 (the “Vesting RSUs”), as follows: Mr. Aragone—4,832 shares under Vesting RSUs; Mr. Bay—38,659 shares under Vesting RSUs; Mr. Sherman—4,832 shares under Vesting RSUs; Mr. Zilis—7,248 shares under Vesting RSUs; current directors and executive officers as a group (16 persons)—55,571 shares under Vesting RSUs. The table does not reflect the number of shares of Common Stock to be issued pursuant to unvested RSUs (the “Unvested RSUs”) that are not scheduled to vest within sixty (60) days of February 23, 2026, as follows: Ms. Alvaro—9,615 shares under Unvested RSUs; Mr. Aragone—55,588 shares under Unvested RSUs; Mr. Bay—171,547 shares under Unvested RSUs; Ms. Haussler—9,615 shares under Unvested RSUs; Ms. Heisz—9,615 shares under Unvested RSUs; Mr. Monié—9,615 shares under Unvested RSUs; Mr. Sherman—60,691 shares under Unvested RSUs; Ms. Wienbar—9,615 shares under Unvested RSUs; Mr. Zilis—85,220 shares under Unvested RSUs; current directors and executive officers as a group (16 persons)—421,121 shares under Unvested RSUs. +The information required under this Item is incorporated herein by reference to the section entitled “Security Ownership” in our 2026 Proxy Statement. +Item 13. Certain Relationships and Related Transactions, and Director Independence +The information required under this Item is incorporated herein by reference to the following sections of our 2026 Proxy Statement: +• “Certain Relationships and Related Person Transactions”; and +• “Corporate Governance.” +Item 14. Principal Accounting Fees and Services +The information required under this Item is incorporated herein by reference the section entitled “Proposal 4: Ratification of Independent Registered Public Accounting Firm for Fiscal Year 2026” in our 2026 Proxy Statement. +114 +Part IV +Item 15. Exhibits and Financial Statement Schedules. +(a) Documents filed as part of this report: +(1) Financial Statements +See Index under Item 8. +(2) Financial Statements Schedule +See Index under Item 8. +(3) Exhibits +See Item 15(b) below. +(b) Exhibits. +See the Exhibit Index immediately preceding the signature pages hereto, which is incorporated by reference as if fully set forth herein. +115 +EXHIBIT INDEX +Incorporated by Reference +Exhibit No. Exhibit Description Filed Herewith Form Period Ending Exhibit Filing Date +3.1 +Second Amended and Restated Certificate of Incorporation of Ingram Micro Holding Corporation. +8-K 3.1 10/25/2024 +3.2 +Amended and Restated Bylaws of Ingram Micro Holding Corporation. +8-K 3.2 10/25/2024 +4.1 +Investor Rights Agreement, effective October 23, 2024. +8-K 4.1 10/25/2024 +4.2** +Indenture, dated as of April 22, 2021, by and between Imola Merger Corporation, the Guarantors (as such term is defined therein), and the Bank of New York Mellon Trust Company, N.A., as trustee and notes collateral agent, together with the form of senior secured note. +S-1 4.1 9/30/2024 +4.3 +First Supplemental Indenture, dated as of July 2, 2021, by and among Ingram Micro Inc., Imola Acquisition Corporation, and the other Guarantors party thereto from time to time and The Bank of New York Mellon Trust Company, N.A. +S-1 4.2 9/30/2024 +4.4 +Description of Securities +10-K 12/28/2024 4.4 3/5/2025 +10.1** +ABL Credit Agreement, dated as of July 2, 2021, by and among Imola Acquisition Corporation, Ingram Micro Inc., the borrowers therein, various lenders and issuing banks, and JP Morgan Chase Bank, N.A. +S-1 10.2 9/30/2024 +10.1.1 +Amendment No. 1 to the ABL Credit Agreement, dated as of August 12, 2021, by and among Imola Acquisition Corporation, Ingram Micro Inc., the borrowers therein, and JP Morgan Chase Bank, N.A. +S-1 10.2.1 9/30/2024 +10.1.2 +Amendment No. 2 to the ABL Credit Agreement, dated as of May 30, 2023, by and among Imola Acquisition Corporation, Ingram Micro Inc., the other credit parties party thereto, lenders and issuing banks party thereto, and JPMorgan Chase Bank, N.A. +S-1 10.2.2 9/30/2024 +10.1.3 +Amendment No. 3 to the ABL Credit Agreement, dated as of June 17, 2024, by and among Ingram Micro Inc. and JPMorgan Chase Bank, N.A. +S-1 10.2.3 9/30/2024 +10.1.4 +Amendment No. 4 to the ABL Credit Agreement, dated as of September 20, 2024, by and among Imola Acquisition Corporation, Ingram Micro Inc., the other credit parties and non-credit parties thereto, the lenders and issuing banks party thereto, and JPMorgan Chase Bank, N.A. +S-1 10.2.4 9/30/2024 +10.2** +Term Loan Credit Agreement, dated as of July 2, 2021, by and among Imola Acquisition Corporation, Ingram Micro Inc., JP Morgan Chase Bank, N.A., and the lenders, agents and other parties thereto. +S-1 10.3 9/30/2024 +10.2.1 +Amendment No. 1 to the Term Loan Credit Agreement, dated as of June 23, 2023, by JPMorgan Chase Bank, N.A. +S-1 10.3.1 9/30/2024 +10.2.2 +Amendment No. 2 to the Term Loan Credit Agreement, dated as of September 27, 2023, by JPMorgan Chase Bank, N.A. +S-1 10.3.2 9/30/2024 +10.2.3 +Amendment No. 3 to the Term Loan Credit Agreement, dated as of September 20, 2024, by and among Imola Acquisition Corporation, Ingram Micro Inc., JPMorgan Chase Bank, N.A., and the lenders party thereto. +S-1 10.3.3 9/30/2024 +116 +Incorporated by Reference +Exhibit No. Exhibit Description Filed Herewith Form Period Ending Exhibit Filing Date +10.2.4 +Amendment No. 4 to the Term Loan Credit Agreement dated as of June 17, 2025, by and among Imola Acquisition Corporation, Ingram Micro Inc., JPMorgan Chase Bank, N.A., and the lenders party thereto +10-Q 6/28/2025 10.1 8/6/2025 +10.3 +Form of Indemnification Agreement for Officers and Directors. +S-1 10.4 9/30/2024 +10.4† +2024 Stock Incentive Plan. +S-8 99.1 10/23/2024 +10.4.1† +2024 Stock Incentive Plan, form of Restricted Stock Unit Grant Notice and Agreement (Non-Employee Directors). +S-1 10.5.1 9/30/2024 +10.4.2† +2024 Stock Incentive Plan, form of Restricted Stock Unit Grant Notice and Agreement (IPO Grants). +S-1 10.5.2 9/30/2024 +10.4.3† +2024 Stock Incentive Plan, form of Performance Restricted Stock Unit Grant Notice and Agreement (IPO Grants). +S-1 10.5.3 9/30/2024 +10.4.4† +2024 Stock Incentive Plan, form of Restricted Stock Unit Grant Notice and Agreement. +10-K 12/28/2024 10.4.4 3/5/2025 +10.4.5† +2024 Stock Incentive Plan, form of Performance Restricted Stock Unit Grant Notice and Agreement. +10-K 12/28/2024 10.4.5 3/5/2025 +10.6† +Letter agreement with Paul Bay, dated December 22, 2021. +S-1 10.7 9/30/2024 +10.7† +Supplemental Investment Savings Plan (conformed copy incorporating all amendments through January 1, 2019). +S-1 10.8 9/30/2024 +10.8† +Executive Change in Control Severance Plan. +S-1 10.9 9/30/2024 +10.9† +Executive Officer Severance Policy. +S-1 10.10 9/30/2024 +10.10† +Executive Incentive Program. +S-1 10.11 9/30/2024 +10.11† +Retention Bonus Letter Agreement +10-K 12/28/2024 10.11 3/5/2025 +19.1 +Insider Trading Policy +10-K 12/28/2024 19.1 3/5/2025 +21.1 +Subsidiaries of the Company. +X +23.1 +Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. +X +24.1 Power of Attorney (see signature page of this report). X +31.1 +Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002. +X +31.2 +Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002. +X +32.1 +Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002. +X +97.1 +Policy for the Recovery of Erroneously Awarded Compensation +10-K 12/28/2024 97.1 3/5/2025 +101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. X +101.SCH Inline XBRL Taxonomy Extension Schema Document X +101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X +101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X +101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X +117 +Incorporated by Reference +Exhibit No. Exhibit Description Filed Herewith Form Period Ending Exhibit Filing Date +101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X +104 Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101). X +** Certain schedules and/or exhibits have been omitted. The Company agrees to furnish a supplemental copy of any omitted schedule or attachment to the SEC upon request. +† Indicates management contract or compensatory plan, contract or arrangement. +Item 16. Form 10-K Summary +None. +118 +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +INGRAM MICRO HOLDING CORPORATION +By: /s/ Paul Bay +Name: Paul Bay +Title: Chief Executive Officer +Date: March 3, 2026 +POWER OF ATTORNEY +Each person whose signature appears below constitutes and appoints each of Paul Bay, Michael Zilis, and Augusto Aragone, acting alone or together with another attorney-in-fact, as his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for such person and in his or her name, place, and stead, in any and all capacities, to sign any or all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +119 +Signatures Title Date +/s/ Paul Bay +Chief Executive Officer +(principal executive officer) +March 3, 2026 +Paul Bay +/s/ Michael Zilis +Executive Vice President and Chief Financial Officer +(principal financial officer) March 3, 2026 +Michael Zilis +/s/ Cari Hornstein +Senior Vice President, Controller and Chief Accounting Officer (principal +accounting officer) March 3, 2026 +Cari Hornstein +/s/ Felicia Alvaro +Director March 3, 2026 +Felicia Alvaro +/s/ Craig Ashmore +Director March 3, 2026 +Craig Ashmore +/s/ Christian Cook +Director March 3, 2026 +Christian Cook +/s/ Jakki Haussler +Director March 3, 2026 +Jakki Haussler +/s/ Leslie Heisz +Director March 3, 2026 +Leslie Heisz +/s/ Bryan Kelln +Director March 3, 2026 +Bryan Kelln +/s/ Jacob Kotzubei +Director March 3, 2026 +Jacob Kotzubei +/s/ Matthew Louie +Director March 3, 2026 +Matthew Louie +/s/ Alain Monié +Director March 3, 2026 +Alain Monié +/s/ Mary Ann Sigler +Director March 3, 2026 +Mary Ann Sigler +/s/ Sharon Wienbar +Director March 3, 2026 +Sharon Wienbar +/s/ Eric Worley +Director March 3, 2026 +Eric Worley +120 \ No newline at end of file diff --git a/raw/filings/0001897762/2025/0001628280-26-013588/filing_metadata.csv b/raw/filings/0001897762/2025/0001628280-26-013588/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..94a3ca5253f1e07d929c263a56f8210ba0d85cd4 --- /dev/null +++ b/raw/filings/0001897762/2025/0001628280-26-013588/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001897762,INGM,Ingram Micro Holding Corp,2025,10-K,2026-03-03,2025-12-27,2026-03-03T14:10:01.000Z,0001628280-26-013588,ingm-20251227.htm,10-K,13162388,1,1,https://www.sec.gov/Archives/edgar/data/1897762/000162828026013588/ingm-20251227.htm,https://www.sec.gov/Archives/edgar/data/1897762/000162828026013588/ diff --git a/raw/filings/0001897762/2025/0001628280-26-013588/item1.txt b/raw/filings/0001897762/2025/0001628280-26-013588/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..eca52c281dd1ed71c293a7fa1c73fa73438fdc77 --- /dev/null +++ b/raw/filings/0001897762/2025/0001628280-26-013588/item1.txt @@ -0,0 +1,73 @@ +Item 1. Business +Overview +Ingram Micro is a leading solutions provider by revenue and/or by global footprint for the global information technology (“IT”) ecosystem helping power the world’s leading technology brands. With our vast infrastructure and focus on client and endpoint solutions, advanced solutions offerings, cloud-based and other solutions, we enable our business partners to scale and operate more efficiently in the markets they serve. We are at the center of the technology ecosystem and deliver customized solutions to our vendor and reseller partners, enabling them to provide excellent business outcomes to the end-user companies and consumers they serve. Through our global reach, our industry-leading business-to-business (“B2B”) platform, and our broad portfolio of products, professional services offerings and software, cloud and digital solutions, we remove complexity and maximize the value of the technology products our partners make, sell or use, providing the world more ways to realize the promise of technology. While many commercial markets remain economically volatile around the globe, our business remains well-positioned to benefit from technology megatrends, including cloud migration, enhanced security needs, automation and robotics, artificial intelligence (“AI”) and machine learning (“ML”) enabling Agentic AI, hyperconnected ecosystems, hybrid work and Internet-of-Things (“IoT”). Our business is organized into four reportable segments based on the different geographic regions in which we operate: North America; Europe, Middle East and Africa (“EMEA”); Asia-Pacific; and Latin America. +Our Fiscal Year is a 52- or 53-week period ending on the Saturday nearest to December 31. All references herein to “Fiscal Year 2025”, “Fiscal Year 2024” and “Fiscal Year 2023” represent the fiscal years ended December 27, 2025 (52 weeks), December 28, 2024 (52 weeks) and December 30, 2023 (52 weeks), respectively. +Our Strategic Priorities +We are a technology-focused company and have invested heavily in developing and acquiring technology, including intellectual property, to enable our partners’ success. We expect our continued investment in robotics and automation within our advanced logistics centers will augment our efficient, customer-centric delivery capabilities and that our continued investment in our digital capabilities, including the integration of more than 42 million lines of code and 400 AI and ML models within Ingram Micro Xvantage, which is enhancing and will continue to enrich the experience of our customers and vendors. We have a proven track record of profitable growth which has enabled us to achieve a position of great competitive strength and remain focused on continuing to deliver strong future growth. We recognize the market’s need for sophisticated IT solutions and our strategies are developed with this in mind. Our overall objective is to continue to expand our business and our profitability by delivering innovative and thoughtful solutions to enable business partners to scale and operate more efficiently and successfully in the markets they serve through the ecosystem created by our end-to-end Xvantage platform. +Our strategic priorities are aligned to achieve this objective and focus on: +• Adding digital tools and services to deepen engagement with customers and vendors and continuing to develop a transformative, fully digital platform to further simplify, automate, digitize and scale the delivery of our products and solutions portfolio. Through our Xvantage platform, we deliver a singular business-to-consumer-like experience to our vendor and customer partners in the B2B market to interact, learn, partner, plan and consume technology via seamless and autonomous engines. +• Growing our emerging technologies practices, including cybersecurity and AI, and further extending our technology portfolio to build out additional higher value, more complex product and services offerings. +• Enhancing profitability through operational improvement initiatives, digitization and automation. +Our Products and Solutions +We provide a broad line of technology, services and solutions from approximately 1,500 vendor partners, enabling us to offer comprehensive solutions to our reseller customers. Our suppliers are the world’s most trusted technology leaders, along with emerging technology brands, which include the industry’s premier hyperscalers, computer hardware suppliers, mobility hardware suppliers, networking equipment suppliers and software publishers such as Microsoft, Amazon Web Services, Google Cloud, NVIDIA, Advanced Micro Devices, Apple, Cisco, Dell Technologies, Hewlett Packard Enterprise, HP Inc., Lenovo, and Super Micro Computer. +5 +We also work with suppliers of computer peripherals, consumer electronics, cloud-based solutions, unified communication and collaboration, data capture/point-of-sale (“DC / POS”), cybersecurity, and physical security products. Our cloud portfolio comprises third-party services and subscriptions spanning a breadth of products from solution software to infrastructure-as-a-service. Our Ingram Micro Cloud Marketplace service portfolio consists of third-party cloud-based services or subscription offerings sold through our own platform. Vendors on the platform include Proofpoint, Amazon Web Services, Microsoft, Cisco and Adobe. We sell products purchased from many vendors, but generated approximately 21%, 19% and 16% of our consolidated net sales in Fiscal Year 2025, Fiscal Year 2024 and Fiscal Year 2023, respectively, from products purchased from Apple Inc. Additionally, we generated approximately 9%, 10%, and 10% of our consolidated net sales in Fiscal Year 2025, Fiscal Year 2024, and Fiscal Year 2023, respectively, from products purchased from HP Inc. We also generated approximately 10%, 7%, and 7% of our consolidated net sales during the Fiscal Year 2025, Fiscal Year 2024 and Fiscal Year 2023, respectively, from products purchased from Lenovo. +Our cloud marketplace, which in many key markets has already been integrated into one unified Ingram Micro Xvantage platform, connects partners with what we believe to be the world’s largest cloud ecosystem, enabling them to generate demand more efficiently and provide third-party cloud-based services and subscription offerings through a digital platform for the consumption of cloud solutions in an ever-increasing cloud-centric world. We support more than 200 cloud solutions and manage over 40 million seats through our cloud marketplace. Our professional services offerings add value to our partners and customers by providing data-driven business and market insights, pre-sales engineering, post-sale integration, technical support, trade credit, and financing solutions to further grow their businesses. In addition, our IT Asset Disposition (“ITAD”) and Reverse Logistics and Repairs businesses play an important role in advancing environmental sustainability and bridging the digital divide through electronic device reverse logistics, refurbishment, recycling, reuse and resale for organizations, including the world’s largest mobile telecommunication providers. By helping to enable a circular economy, we help our customers in achieving their sustainability goals and enable consumers to access high-quality, affordable smartphones, computers and other devices. +We categorize our product and service offerings into the following categories, each of which is offered in each of our four geographic segments: +• Client and Endpoint Solutions. We offer a variety of higher-volume products targeted for corporate and individual end users, including desktop personal computers, notebooks, tablets, printers, components (including hard drives, motherboards, video cards, etc.), application software, peripherals, and accessories. We also offer a variety of products that enable mobile computing and productivity, including phones, phone tablets (including two-in-one “notebook/tablet” devices), smartphones, feature phones, mobile phone accessories, wearables and mobility software. +• Advanced Solutions . We offer enterprise-grade hardware and software products aimed at corporate and enterprise users and generally characterized by specific projects, which generally account for lower volumes than Client and Endpoint Solutions but higher margins individually and collectively in the form of solutions and related services. And while Advanced Solutions offerings often require higher operational expenditures, primarily in the form of technical capabilities to serve the market, the operating margin delivered by this business is also generally stronger than Client and Endpoint Solutions. Within this product category, we offer servers, storage, networking, hybrid and software-defined solutions, cybersecurity, and power and cooling solutions. This category also includes training, professional services and financing solutions related to these product sets. We also offer customers AI-related products and offerings, DC / POS, physical security, audio visual & digital signage, Unified Communications and Collaboration ( “ UCC ” ), and IoT (smart office/home automation) products. +6 +• Cloud-based Solutions : Our cloud portfolio comprises third-party services and subscriptions spanning a breadth of products from solution software through infrastructure-as-a-service. As technology consumption increasingly moves to anything-as-a-service, we have expanded our cloud solutio ns to more than 200 thir d-party cloud-based services or subscription offerings, including business applications, security, communications and collaboration, cloud enablement solutions and infrastructure-as-a-service. Also included here have been the offerings of our CloudBlue business, which provided customers with multichannel and multi-tier catalog management, subscription management, billing and orchestration capabilities through a software-as-a-service model. Our CloudBlue operations were sold during the third quarter of 2025. +• Other: We provide customers with ITAD, reverse logistics and repair and other related solutions. These offerings repre sent less than 5% of net sales fo r all periods presented herein. +Our Customers +We distribute IT and mobility solutions to more than 165,000 reseller customers, including most of the leading resellers of IT products and services around the world and with many of the world’s leading mobility companies. We serve a customer base that includes value-added resellers, corporate resellers, retailers, custom installers, systems integrators, mobile network operators, mobile virtual network operators, direct marketers, internet-based resellers, independent dealers, product category specialists, reseller purchasing associations, managed service providers, cloud services providers, PC assemblers, independent agents and dealers, IT and mobile device manufacturers and other distributors. Our customers serve an end-user base from large enterprise to small- and medium-sized businesses, including public sector and retail/e-tail. Many of our customers are heavily dependent on partners with the necessary systems, capital, inventory availability, logistics capabilities and distribution and repair facilities in place to provide fulfillment and other services. We benefit from a broad geographic presence in 57 countries that in turn can service more than 90% of the world’s population across more than 200 countries globally and are trusted by many of the world’s leading telecommunications companies, mobile operators and retail and consumer brands. We aim to reduce our exposure to the impact of business fluctuations by maintaining a balance in the customer categories we serve. No single customer accounted for more than 10% of our total net sales in any of the periods presented herein. +Sales & Marketing +Our global, customer-facing sales and marketing team, enabled by our Xvantage platform, drives our go-to-market model centered on a deep understanding of our customer needs, and a goal to provide the industry’s broadest solutions offering to meet evolving customer demand and the increasing complexity of technology. We have operations in 57 countries, spanning all global regions, while also serving many additional geographies through various export sales offices, including general telesales operations into numerous markets. Our sales teams work closely with our marketing organization to actively pursue leads generated from marketing programs and guide prospective customers through the sales process. +Our marketing effort is focused on generating awareness of Ingram Micro’s solutions offerings, creating sales leads, establishing and promoting our brand and our vendor partners’ products. Additionally, we offer a wide range of training, professional services, education and support offerings to enable our customers to rapidly onboard, adopt and ultimately realize value from our solutions. +Our sales and marketing organization includes sales development, sales operations, field sales and marketing personnel. As of December 27, 2025, we had approximately 9,800 associates in our sales and marketing organizations spanning all global regions. +International Operations +Approximately 66%, 66% and 64% of our consolidated net sales for Fiscal Year 2025, Fiscal Year 2024 and Fiscal Year 2023, respectively, were generated by our international operations. As our international operations constitute a significant portion of our consolidated net sales, they are subject to fluctuations in the U.S. dollar against foreign currencies. +7 +Seasonality +We experience some seasonal fluctuations in demand in our business. For instance, we typically see lower demand, particularly in Europe, during the summer months. Additionally, we also experience an increase in demand in the fourth quarter, driven primarily by typical enterprise budgeting cycles across our geographies and business categories and the pre-holiday stocking and associated higher logistics-based fulfillment fees, which tends to have greater seasonal impact on our Client and Endpoint Solutions and Other categories. These seasonal fluctuations have historically impacted our revenue and working capital including receivables, payables and inventory. Our extensive experience combined with a flexible workforce allows us to modulate our operations and workforce demand fluctuations throughout the year. +Competition +We operate in a competitive environment globally. Competition in our business is based primarily on factors such as level of service, the breadth and availability of products and solutions, subscription management capabilities, credit terms and availability, price, financing solutions, speed of delivery, effectiveness of sales and marketing programs, real-time analytic offerings and the platform and tools we use to provide these offerings. We compete with other high-volume and value-added international distributors, as well as numerous other smaller, specialized local and regional competitors who generally focus on narrower markets, products, or particular sectors. We also face competition from our vendors that sell directly to resellers, retailers and end-users. Our top competitors include global companies such as TD Synnex, Arrow Electronics, Inc., Scansource, Inc., Westcon-Comstor, and Synnex Technology International, and local and regional distributors such as Also Holding, Esprinet, Redington, Exclusive Networks, Intcomex, D&H, Carahsoft, AppDirect and Pax8, along with a number of other smaller local distributors. We believe that we are well-equipped to outperform our competitors in all areas due to our comprehensive product and service offerings, broad global reach, highly skilled workforce and global distribution network. +Government Regulation +We are subject to a number of U.S. federal, U.S. state and foreign laws and regulations, covering tax, environmental (relating to product stewardship, including the European Union Waste Electrical and Electronic Equipment Directive), labor and employment, workplace safety advertising, intellectual property, federal securities, trade protection, anti-money-laundering, anti-corruption and anti-bribery, anti-competition, antitrust, internet and e-commerce, network security, encryption, payments and consumer protection relating to the promotion and sale of merchandise and the operation of fulfillment centers. The products we sell may be subject to tariffs, treaties and various trade agreements, as well as foreign and domestic laws and regulations affecting the import and export of IT products. For more information on the risks associated with complying with applicable laws, please see “Risk Factors—Risks Related to the Macroeconomic and Regulatory Environment—We operate a global business that exposes us to risks associated with conducting business in multiple jurisdictions” and “Risk Factors—Risks Related to the Macroeconomic and Regulatory Environment—Our failure to comply with the requirements of environmental, health and safety regulations or other laws and regulations applicable to a distributor of consumer products could adversely affect our business.” +We are also subject to data privacy, data security and data protection laws and regulations that impose restrictions on the collection, processing and use of personal data in the jurisdictions in which we operate. For instance, we are subject to the California Consumer Privacy Act, as amended (“CCPA”) and other U.S. state comprehensive privacy laws; the General Data Protection Regulation (“GDPR”) and European Economic Area (“EEA”) member state implementing laws, including as retained in U.K. law; other similar laws in Brazil and elsewhere; restrictions related to e-marketing, including the ePrivacy Directive in the EEA and the Privacy and Electronic Communications Regulation in the United Kingdom; and data localization requirements in China. The legal and regulatory environment in this space is constantly developing, with an expanding number of jurisdictions considering or enacting new privacy or data security laws, which may not correspond with previously enacted requirements. Ensuring our ongoing compliance with any new requirements may generate additional or unanticipated costs, or otherwise impact our financial condition. For more information on risks related to the development of these laws, see “Risk Factors—Risks Related to Information Technology, Data Privacy and Intellectual Property—Changes in the regulatory environment regarding privacy and data protection regulations could have a material adverse effect on our results of operations.” +We monitor changes in the laws and regulations to which we are subject. Our legal and compliance team and our information security team oversee our data protection strategy and monitor our compliance with laws and regulations generally. These teams manage, implement and oversee internal privacy policies and security measures, including regular monitoring and testing of systems and equipment. +8 +We believe that we are in material compliance with applicable laws and regulations, and we are not aware of any laws or regulations that are likely to materially impact our net sales, cash flow or competitive positions or result in any material expenditures. However, many of the laws and regulations to which we are subject continue to develop and could be interpreted, applied or amended in ways that are unfavorable to our business. +Our Trademarks and Service Marks +We own or license various trademarks and service marks, including, among others, “Ingram Micro,” the Ingram Micro logo, “Aptec,” “Xvantage” and “Trust X Alliance.” as well as patents related to proprietary technology supporting our Xvantage platform. Certain of these marks are registered, or are in the process of being registered, in the United States and various other countries. Even though our marks are not registered in every country where we conduct business, in many cases we have acquired rights in those marks because of our continued use of them. +Human Capital Resources +As of December 27, 2025, we had approximately 22,200 full-time associates. Additionally, as of December 27, 2025 we utilized the services of approximately 5,800 full-time equivalent temporary or contract workers at peak, who provide us with the workforce agility we require. Works councils or unions represent some of our associates in certain countries, almost exclusively where required by local regulations or brought in through acquisitions; our U.S. associates are not represented by a labor union, nor are they covered by a collective bargaining agreement. +Ethical Conduct +We believe our culture of ethics and integrity is built on a foundation of strong corporate governance, encapsulated in our Code of Conduct. Fair business practices are fundamental to our ability to establish trust with our partners, our associates and the communities in which we operate as well as maintain our reputation. Our ethical compliance program, which is overseen by the audit committee of our board of directors, covers areas such as anti-corruption, anti-bribery, anti-money laundering and harassment and whistleblower compliance. The program spans all our entities, across all operating regions and markets in which we have a presence. We are also a member of the Global Technology Distribution Council, which comprises the technology industry’s top wholesale distributors who drive more than $150 billion in annual worldwide sales, allowing us to participate in the development of an industry approach to address corruption. +Total Rewards +We believe people should be paid for what they do and how they do it, regardless of their personal characteristics. To deliver on that commitment, we benchmark and set pay ranges based on market data and consider factors such as an associate’s role and experience, the location of their job and their performance. We also review our compensation practices, both in terms of our overall workforce and individual associates, to ensure our pay is fair and equitable. We have reviewed the compensation of associates to ensure consistent pay practices by conducting annual rewards equity reviews. +We offer total rewards that are market-competitive and performance-based, driving innovation and operational excellence. Our compensation programs, practices and policies reflect our commitment to reward short- and long-term performance that aligns with, and drives, value for our owners. Total direct compensation is generally positioned within a competitive range of the market median, with differentiation based on tenure, skills, proficiency and performance to attract and retain key talent. +Associate Engagement +We regularly collect feedback to better understand and improve the associate experience and identify opportunities to continually strengthen our culture. We want to know what is working well, what we can do better and how well our associates understand our priorities and live by the Tenets of Our Success. In 2025, 83% of respondents who received our full associate survey participated. Our results approximated or exceeded our survey provider’s High Performance Benchmark in six of thirteen categories, and equaled or increased our favorable results in five of six categories compared with our October 2024 pulse survey. +We help our associates and communities thrive through career development programs, embracing inclusivity and diversity while promoting service and our continued focus on health and safety. We are proud to support the philanthropic interests of our associates through volunteerism and giving programs. +9 +Training and Development +People development is foundational to our success. We continually invest in our associates’ career growth and provide a wide range of development opportunities. In 2025, approximately 64% of our executive positions were filled with internal candidates. We also deployed a new career development framework to further accelerate the development of our colleagues at all levels and areas of the business. +Health, Safety and Wellness +The physical health, financial well-being, life balance and mental health of our associates is vital to our success. Throughout the year, we encourage healthy behaviors through regular communications, educational sessions, voluntary progress tracking, wellness challenges and other incentives. We offer a global employee assistance program to ensure that all associates and their immediate families have access to many tools and sources of support that address their financial, physical and mental well-being. Our warehouse and integration facilities continue to represent our most significant health and safety risks. Our global health and safety leadership team uses our global injury and illness reporting system to assess trends regionally and worldwide as part of quarterly reviews. Managing and reducing risks at these facilities remains a focus, and injury rates continue to be low. +Sustainable Impact +Our Sustainable Impact program is overseen by an executive steering committee consisting of our: +• Chief Executive Officer, +• Executive Vice President and Chief Financial Officer, +• Executive Vice President, Secretary and General Counsel, +• Executive Vice President, Human Resources, and +• Executive Vice President, Global Operations and Engineering. +This executive steering committee receives periodic briefings from our Sustainable Impact team and individual program owners. Responsibility is one of the Tenets of Our Success as a company, and environmental stewardship is one area in which we demonstrate our responsibility. We have established targets for greenhouse gas (“GHG”) emissions and waste in our operations. In December 2024, Ingram Micro received approval from the Science Based Targets initiative for its near-term climate targets, including its goal to reduce absolute Scope 1 and 2 GHG emissions by 90% by 2030, using a 2022 base year. +To support a circular economy, our ITAD business focuses on the reuse and recycling of electronics, and, as of December 27, 2025, four of our ITAD processing facilities held e-Stewards certifications, three of which were in North America. Since 2019, we have been a registered SmartWay Shipper Partner in the Environmental Protection Agency’s SmartW ay Program, which allows us to benchmark our performance and assess the environmental impact of our transportation in the United States, as well as measure the fuel efficiency of our carrier partners, helping us address the carbon impacts of goods movement within our value chain. +In late 2025, the Company’s broad-based sustainability efforts were recognized by EcoVadis, a well-known third-party provider of evidence-based business sustainability assessments, who gave Ingram Micro a Gold medal rating, reserved for the top five percent of the rated companies on its platform. We believe this recognition signifies a substantial validation of our company’s commitment and leadership in sustainable and responsible business operations. +Ingram Micro reports climate change-related data and information annually through the Carbon Disclosure Project (“CDP”). In 2025, Ingram Micro achieved a CDP Climate Change score of ‘B’, which is the Management level under CDP's scoring methodology. This score reflects evidence of implementing actions, policies, and processes to manage climate change-related risks and opportunities. +10 +Available Information +Our website is http://www.ingrammicro.com. We make available free of charge, on or through our website, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, if any, or other filings filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after electronically filing or furnishing these reports with the Securities and Exchange Commission ("SEC"). We also make available free of charge on our investor relations website at ir.ingrammicro.com our Audit Committee Charter, Compensation Committee Charter, Nominating and Corporate Governance Committee Charter, Code of Conduct, Corporate Governance Guidelines, Insider Trading Policy, Board Communications with Stockholders Policy, Anti-Bribery policy, and Non-Retaliation Policies. +The SEC maintains an Internet site at http://www.sec.gov that contains our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, if any, or other filings filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, and our proxy and information statements. Unless expressly noted, the information on our website, including our investor relations website, or any other website is not incorporated by reference in this Annual Report on Form 10-K and should not be considered part of this Annual Report on Form 10-K or any other filing we make with the SEC. +11 \ No newline at end of file diff --git a/raw/filings/0001897762/2025/0001628280-26-013588/item13.txt b/raw/filings/0001897762/2025/0001628280-26-013588/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..f7c4a939ec6d8c9c683e1e5c5c1d3234af241bc2 --- /dev/null +++ b/raw/filings/0001897762/2025/0001628280-26-013588/item13.txt @@ -0,0 +1,2 @@ +Item 13. Certain Relationships and Related Transactions, and Director Independence +114 \ No newline at end of file diff --git a/raw/filings/0001898496/2024/0001628280-25-013103/filing.txt b/raw/filings/0001898496/2024/0001628280-25-013103/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..9ccd54be74ca21e6a5128fde4a05cbc8efb4eb42 --- /dev/null +++ b/raw/filings/0001898496/2024/0001628280-25-013103/filing.txt @@ -0,0 +1,3107 @@ +gety-20241231 +0001898496 2024 FY false http://fasb.org/us-gaap/2024#AccountingStandardsUpdate201912Member http://fasb.org/us-gaap/2024#AccruedLiabilitiesCurrent http://fasb.org/us-gaap/2024#AccruedLiabilitiesCurrent P3Y0M0D iso4217:USD xbrli:shares iso4217:USD xbrli:shares gety:language xbrli:pure gety:segment gety:tranche gety:derivativeInstrument iso4217:EUR gety:lawsuit gety:image gety:product gety:staffMember gety:vote gety:plan 0001898496 2024-01-01 2024-12-31 0001898496 2024-06-30 0001898496 2025-03-12 0001898496 2024-10-01 2024-12-31 0001898496 gety:LizanneVaughanMember 2024-10-01 2024-12-31 0001898496 gety:LizanneVaughanMember 2024-10-01 2024-12-31 0001898496 gety:LizanneVaughanMember 2024-12-31 0001898496 2024-12-31 0001898496 2023-12-31 0001898496 us-gaap:CommonClassAMember 2023-12-31 0001898496 us-gaap:CommonClassAMember 2024-12-31 0001898496 us-gaap:CommonClassBMember 2024-12-31 0001898496 us-gaap:CommonClassBMember 2023-12-31 0001898496 2023-01-01 2023-12-31 0001898496 2022-01-01 2022-12-31 0001898496 srt:ScenarioPreviouslyReportedMember us-gaap:RedeemablePreferredStockMember 2021-12-31 0001898496 srt:ScenarioPreviouslyReportedMember us-gaap:CommonStockMember us-gaap:CommonClassAMember 2021-12-31 0001898496 srt:ScenarioPreviouslyReportedMember us-gaap:CommonStockMember us-gaap:CommonClassBMember 2021-12-31 0001898496 srt:ScenarioPreviouslyReportedMember us-gaap:AdditionalPaidInCapitalMember 2021-12-31 0001898496 srt:ScenarioPreviouslyReportedMember us-gaap:RetainedEarningsMember 2021-12-31 0001898496 srt:ScenarioPreviouslyReportedMember us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-12-31 0001898496 srt:ScenarioPreviouslyReportedMember us-gaap:ParentMember 2021-12-31 0001898496 srt:ScenarioPreviouslyReportedMember us-gaap:NoncontrollingInterestMember 2021-12-31 0001898496 srt:ScenarioPreviouslyReportedMember 2021-12-31 0001898496 srt:RevisionOfPriorPeriodReclassificationAdjustmentMember us-gaap:CommonStockMember us-gaap:CommonClassAMember 2021-12-31 0001898496 srt:RevisionOfPriorPeriodReclassificationAdjustmentMember us-gaap:AdditionalPaidInCapitalMember 2021-12-31 0001898496 srt:RevisionOfPriorPeriodReclassificationAdjustmentMember 2021-12-31 0001898496 us-gaap:RedeemablePreferredStockMember 2021-12-31 0001898496 us-gaap:CommonStockMember us-gaap:CommonClassAMember 2021-12-31 0001898496 us-gaap:CommonStockMember us-gaap:CommonClassBMember 2021-12-31 0001898496 us-gaap:AdditionalPaidInCapitalMember 2021-12-31 0001898496 us-gaap:RetainedEarningsMember 2021-12-31 0001898496 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-12-31 0001898496 us-gaap:ParentMember 2021-12-31 0001898496 us-gaap:NoncontrollingInterestMember 2021-12-31 0001898496 2021-12-31 0001898496 us-gaap:RetainedEarningsMember 2022-01-01 2022-12-31 0001898496 us-gaap:ParentMember 2022-01-01 2022-12-31 0001898496 us-gaap:NoncontrollingInterestMember 2022-01-01 2022-12-31 0001898496 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-01-01 2022-12-31 0001898496 srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember us-gaap:RetainedEarningsMember 2022-12-31 0001898496 srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember us-gaap:ParentMember 2022-12-31 0001898496 srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember 2022-12-31 0001898496 us-gaap:CommonStockMember us-gaap:CommonClassAMember 2022-01-01 2022-12-31 0001898496 us-gaap:AdditionalPaidInCapitalMember 2022-01-01 2022-12-31 0001898496 us-gaap:RedeemablePreferredStockMember 2022-01-01 2022-12-31 0001898496 us-gaap:CommonStockMember us-gaap:CommonClassBMember 2022-01-01 2022-12-31 0001898496 gety:PrivatePlacementWarrantsMember us-gaap:CommonStockMember us-gaap:CommonClassAMember 2022-01-01 2022-12-31 0001898496 gety:PrivatePlacementWarrantsMember us-gaap:AdditionalPaidInCapitalMember 2022-01-01 2022-12-31 0001898496 gety:PrivatePlacementWarrantsMember us-gaap:ParentMember 2022-01-01 2022-12-31 0001898496 gety:PrivatePlacementWarrantsMember 2022-01-01 2022-12-31 0001898496 gety:PublicWarrantsMember us-gaap:CommonStockMember us-gaap:CommonClassAMember 2022-01-01 2022-12-31 0001898496 gety:PublicWarrantsMember us-gaap:AdditionalPaidInCapitalMember 2022-01-01 2022-12-31 0001898496 gety:PublicWarrantsMember us-gaap:ParentMember 2022-01-01 2022-12-31 0001898496 gety:PublicWarrantsMember 2022-01-01 2022-12-31 0001898496 us-gaap:RedeemablePreferredStockMember 2022-12-31 0001898496 us-gaap:CommonStockMember us-gaap:CommonClassAMember 2022-12-31 0001898496 us-gaap:CommonStockMember us-gaap:CommonClassBMember 2022-12-31 0001898496 us-gaap:AdditionalPaidInCapitalMember 2022-12-31 0001898496 us-gaap:RetainedEarningsMember 2022-12-31 0001898496 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-12-31 0001898496 us-gaap:ParentMember 2022-12-31 0001898496 us-gaap:NoncontrollingInterestMember 2022-12-31 0001898496 2022-12-31 0001898496 us-gaap:RetainedEarningsMember 2023-01-01 2023-12-31 0001898496 us-gaap:ParentMember 2023-01-01 2023-12-31 0001898496 us-gaap:NoncontrollingInterestMember 2023-01-01 2023-12-31 0001898496 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-01-01 2023-12-31 0001898496 us-gaap:CommonStockMember us-gaap:CommonClassAMember 2023-01-01 2023-12-31 0001898496 us-gaap:AdditionalPaidInCapitalMember 2023-01-01 2023-12-31 0001898496 us-gaap:RedeemablePreferredStockMember 2023-12-31 0001898496 us-gaap:CommonStockMember us-gaap:CommonClassAMember 2023-12-31 0001898496 us-gaap:CommonStockMember us-gaap:CommonClassBMember 2023-12-31 0001898496 us-gaap:AdditionalPaidInCapitalMember 2023-12-31 0001898496 us-gaap:RetainedEarningsMember 2023-12-31 0001898496 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-12-31 0001898496 us-gaap:ParentMember 2023-12-31 0001898496 us-gaap:NoncontrollingInterestMember 2023-12-31 0001898496 us-gaap:RetainedEarningsMember 2024-01-01 2024-12-31 0001898496 us-gaap:ParentMember 2024-01-01 2024-12-31 0001898496 us-gaap:NoncontrollingInterestMember 2024-01-01 2024-12-31 0001898496 us-gaap:CommonStockMember us-gaap:CommonClassAMember 2024-01-01 2024-12-31 0001898496 us-gaap:AdditionalPaidInCapitalMember 2024-01-01 2024-12-31 0001898496 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-01-01 2024-12-31 0001898496 us-gaap:RedeemablePreferredStockMember 2024-12-31 0001898496 us-gaap:CommonStockMember us-gaap:CommonClassAMember 2024-12-31 0001898496 us-gaap:CommonStockMember us-gaap:CommonClassBMember 2024-12-31 0001898496 us-gaap:AdditionalPaidInCapitalMember 2024-12-31 0001898496 us-gaap:RetainedEarningsMember 2024-12-31 0001898496 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-12-31 0001898496 us-gaap:ParentMember 2024-12-31 0001898496 us-gaap:NoncontrollingInterestMember 2024-12-31 0001898496 gety:GettyImagesHoldingsIncMember 2024-12-31 0001898496 gety:GettyImagesSeaHoldingsCo.LimitedMember 2024-12-31 0001898496 us-gaap:RelatedPartyMember 2016-06-15 0001898496 gety:DelegatesConcentrationRiskMember gety:ThirdPartyDelegatesMember us-gaap:RevenueFromContractWithCustomerMember 2023-01-01 2023-12-31 0001898496 gety:DelegatesConcentrationRiskMember gety:ThirdPartyDelegatesMember us-gaap:RevenueFromContractWithCustomerMember 2024-01-01 2024-12-31 0001898496 gety:DelegatesConcentrationRiskMember gety:ThirdPartyDelegatesMember us-gaap:RevenueFromContractWithCustomerMember 2022-01-01 2022-12-31 0001898496 us-gaap:RevenueFromRightsConcentrationRiskMember srt:MinimumMember us-gaap:LicenseMember 2024-01-01 2024-12-31 0001898496 us-gaap:RevenueFromRightsConcentrationRiskMember srt:MaximumMember us-gaap:LicenseMember 2024-01-01 2024-12-31 0001898496 srt:MaximumMember 2024-01-01 2024-12-31 0001898496 srt:MinimumMember 2024-01-01 2024-12-31 0001898496 us-gaap:SupplierConcentrationRiskMember srt:MinimumMember us-gaap:CostOfGoodsProductLineMember 2024-01-01 2024-12-31 0001898496 us-gaap:SupplierConcentrationRiskMember srt:MaximumMember us-gaap:CostOfGoodsProductLineMember 2024-01-01 2024-12-31 0001898496 gety:PublicWarrantsMember 2022-07-22 2022-07-22 0001898496 gety:PrivatePlacementWarrantsMember 2022-07-22 2022-07-22 0001898496 gety:ForwardPurchaseWarrantsMember 2022-07-22 2022-07-22 0001898496 gety:ForwardPurchaseWarrantsMember 2022-07-22 0001898496 gety:LegacyGettyImagesMember gety:CommonStockHoldersMember 2022-07-22 0001898496 gety:LegacyGettyImagesMember us-gaap:CommonClassAMember gety:CommonStockHoldersMember 2022-07-22 2022-07-22 0001898496 gety:LegacyGettyImagesMember gety:RedeemablePreferredStockHoldersMember 2022-07-22 2022-07-22 0001898496 gety:LegacyGettyImagesMember us-gaap:CommonClassAMember gety:RedeemablePreferredStockHoldersMember 2022-07-22 2022-07-22 0001898496 gety:LegacyGettyImagesMember gety:BusinessCombinationAgreementMember 2022-07-22 2022-07-22 0001898496 gety:LegacyGettyImagesMember gety:BusinessCombinationAgreementMember 2022-07-22 0001898496 gety:LegacyGettyImagesMember 2022-07-22 2022-07-22 0001898496 gety:LegacyGettyImagesMember gety:EarnOutTrancheIMember gety:BusinessCombinationAgreementMember 2022-07-22 2022-07-22 0001898496 gety:LegacyGettyImagesMember gety:EarnOutTrancheIiMember gety:BusinessCombinationAgreementMember 2022-07-22 2022-07-22 0001898496 gety:LegacyGettyImagesMember gety:EarnOutTrancheIiiMember gety:BusinessCombinationAgreementMember 2022-07-22 2022-07-22 0001898496 gety:LegacyGettyImagesMember us-gaap:CommonClassAMember gety:EarnOutTrancheIMember gety:CommonStockHoldersMember gety:BusinessCombinationAgreementMember 2022-07-22 2022-07-22 0001898496 gety:LegacyGettyImagesMember us-gaap:CommonClassAMember gety:EarnOutTrancheIiMember gety:CommonStockHoldersMember gety:BusinessCombinationAgreementMember 2022-07-22 2022-07-22 0001898496 gety:LegacyGettyImagesMember us-gaap:CommonClassAMember gety:EarnOutTrancheIiiMember gety:CommonStockHoldersMember gety:BusinessCombinationAgreementMember 2022-07-22 2022-07-22 0001898496 gety:SponsorSideLetterMember 2022-07-22 0001898496 gety:SeriesB1CommonStockMember gety:SponsorSideLetterMember 2022-07-22 0001898496 gety:SeriesB2CommonStockMember gety:SponsorSideLetterMember 2022-07-22 0001898496 gety:SponsorSideLetterMember 2022-07-22 2022-07-22 0001898496 gety:SeriesB1CommonStockMember gety:SponsorSideLetterMember 2022-07-22 2022-07-22 0001898496 gety:SeriesB2CommonStockMember gety:SponsorSideLetterMember 2022-07-22 2022-07-22 0001898496 gety:SeriesB1CommonStockMember gety:CommonStockHoldersMember gety:SponsorSideLetterMember 2022-07-22 2022-07-22 0001898496 gety:SeriesB2CommonStockMember gety:CommonStockHoldersMember gety:SponsorSideLetterMember 2022-07-22 2022-07-22 0001898496 us-gaap:CommonClassAMember gety:PipeSubscriptionAgreementsMember 2022-07-22 2022-07-22 0001898496 us-gaap:CommonClassAMember gety:PipeSubscriptionAgreementsMember 2022-07-22 0001898496 us-gaap:CommonClassAMember gety:ForwardPurchaseAgreementMember 2022-07-22 2022-07-22 0001898496 gety:ForwardPurchaseAgreementMember 2022-07-22 2022-07-22 0001898496 us-gaap:CommonClassAMember gety:BackstopFacilityAgreementMember 2022-07-22 2022-07-22 0001898496 us-gaap:CommonClassAMember gety:BackstopFacilityAgreementMember 2022-07-22 0001898496 2022-07-22 0001898496 2022-07-22 2022-07-22 0001898496 us-gaap:CommonClassAMember 2022-07-22 0001898496 us-gaap:CommonClassBMember 2022-07-22 0001898496 gety:CcNeubergerPrincipalHoldingsIiMember 2022-07-22 0001898496 gety:CcNeubergerPrincipalHoldingsIiMember 2022-01-01 2022-12-31 0001898496 gety:CcNeubergerPrincipalHoldingsIiMember gety:PipeSubscriptionAgreementsMember 2022-01-01 2022-12-31 0001898496 gety:CcNeubergerPrincipalHoldingsIiMember gety:ForwardPurchaseAgreementMember 2022-01-01 2022-12-31 0001898496 gety:CcNeubergerPrincipalHoldingsIiMember gety:BackstopFacilityAgreementMember 2022-01-01 2022-12-31 0001898496 gety:PipeSubscriptionAgreementsMember 2022-07-22 2022-07-22 0001898496 gety:BackstopFacilityAgreementMember 2022-07-22 2022-07-22 0001898496 gety:LegacyGettyImagesMember gety:CommonStockHoldersMember 2022-07-22 2022-07-22 0001898496 gety:MotorsportImagesLLCAndMotorsport.comInc.Member 2024-04-01 0001898496 gety:MotorsportImagesLLCAndMotorsport.comInc.Member 2024-04-01 2024-04-01 0001898496 gety:MotorsportImagesLLCAndMotorsport.comInc.Member 2024-01-01 2024-12-31 0001898496 gety:PublicWarrantsMember us-gaap:CommonClassAMember 2022-07-22 0001898496 gety:PublicWarrantsMember 2022-07-22 0001898496 gety:PrivatePlacementWarrantsMember us-gaap:CommonClassAMember 2022-07-22 0001898496 gety:PrivatePlacementWarrantsMember us-gaap:CommonClassAMember 2022-08-01 2022-08-31 0001898496 gety:PrivatePlacementWarrantsMember 2022-08-01 2022-08-31 0001898496 gety:PublicWarrantsAndForwardPurchaseWarrantsMember 2022-07-22 2022-07-22 0001898496 gety:PublicWarrantsAndForwardPurchaseWarrantsMember 2022-10-19 2022-10-19 0001898496 gety:PublicWarrantsMember 2022-10-19 2022-10-19 0001898496 gety:ForwardPurchaseWarrantsMember 2022-12-31 0001898496 gety:ForwardPurchaseWarrantsMember 2024-12-31 0001898496 gety:PublicWarrantsMember 2022-12-31 0001898496 gety:PublicWarrantsMember 2023-12-31 0001898496 gety:ForwardPurchaseWarrantsMember 2023-12-31 0001898496 gety:PrivatePlacementWarrantsMember 2024-12-31 0001898496 gety:PublicWarrantsMember 2024-12-31 0001898496 gety:PrivatePlacementWarrantsMember 2022-12-31 0001898496 gety:PrivatePlacementWarrantsMember 2023-12-31 0001898496 us-gaap:ForeignExchangeOptionMember us-gaap:NondesignatedMember 2023-12-31 0001898496 us-gaap:ForeignExchangeOptionMember us-gaap:NondesignatedMember 2024-12-31 0001898496 us-gaap:ForeignExchangeOptionMember us-gaap:NondesignatedMember 2022-01-01 2022-12-31 0001898496 us-gaap:ForeignExchangeOptionMember us-gaap:NondesignatedMember 2024-01-01 2024-12-31 0001898496 us-gaap:ForeignExchangeOptionMember us-gaap:NondesignatedMember 2023-01-01 2023-12-31 0001898496 us-gaap:InterestRateSwapMember us-gaap:NondesignatedMember 2019-02-01 2019-02-28 0001898496 gety:InterestRateSwapOneMember us-gaap:NondesignatedMember 2019-02-28 0001898496 gety:InterestRateSwapTwoMember us-gaap:NondesignatedMember 2019-02-28 0001898496 us-gaap:InterestRateSwapMember us-gaap:NondesignatedMember 2024-12-31 0001898496 us-gaap:InterestRateSwapMember us-gaap:NondesignatedMember 2023-06-30 0001898496 us-gaap:InterestRateSwapMember us-gaap:NondesignatedMember 2024-01-01 2024-12-31 0001898496 us-gaap:InterestRateSwapMember us-gaap:NondesignatedMember 2023-01-01 2023-12-31 0001898496 us-gaap:InterestRateSwapMember us-gaap:NondesignatedMember 2022-01-01 2022-12-31 0001898496 us-gaap:InterestRateSwapMember us-gaap:NondesignatedMember 2023-12-31 0001898496 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2024-12-31 0001898496 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2024-12-31 0001898496 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2024-12-31 0001898496 us-gaap:FairValueMeasurementsRecurringMember 2024-12-31 0001898496 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsNonrecurringMember 2024-12-31 0001898496 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsNonrecurringMember 2024-12-31 0001898496 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsNonrecurringMember 2024-12-31 0001898496 us-gaap:FairValueMeasurementsNonrecurringMember 2024-12-31 0001898496 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2023-12-31 0001898496 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2023-12-31 0001898496 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2023-12-31 0001898496 us-gaap:FairValueMeasurementsRecurringMember 2023-12-31 0001898496 us-gaap:FairValueInputsLevel1Member us-gaap:InterestRateSwapMember us-gaap:FairValueMeasurementsRecurringMember 2023-12-31 0001898496 us-gaap:FairValueInputsLevel2Member us-gaap:InterestRateSwapMember us-gaap:FairValueMeasurementsRecurringMember 2023-12-31 0001898496 us-gaap:FairValueInputsLevel3Member us-gaap:InterestRateSwapMember us-gaap:FairValueMeasurementsRecurringMember 2023-12-31 0001898496 us-gaap:FairValueMeasurementsRecurringMember us-gaap:InterestRateSwapMember 2023-12-31 0001898496 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsNonrecurringMember 2023-12-31 0001898496 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsNonrecurringMember 2023-12-31 0001898496 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsNonrecurringMember 2023-12-31 0001898496 us-gaap:FairValueMeasurementsNonrecurringMember 2023-12-31 0001898496 gety:ContemporaryImageryMember 2024-12-31 0001898496 gety:ContemporaryImageryMember 2023-12-31 0001898496 us-gaap:ComputerEquipmentMember 2024-12-31 0001898496 us-gaap:ComputerEquipmentMember 2023-12-31 0001898496 us-gaap:SoftwareDevelopmentMember 2024-12-31 0001898496 us-gaap:SoftwareDevelopmentMember 2023-12-31 0001898496 srt:MinimumMember us-gaap:LeaseholdImprovementsMember 2024-12-31 0001898496 srt:MaximumMember us-gaap:LeaseholdImprovementsMember 2024-12-31 0001898496 us-gaap:LeaseholdImprovementsMember 2024-12-31 0001898496 us-gaap:LeaseholdImprovementsMember 2023-12-31 0001898496 us-gaap:FurnitureAndFixturesMember 2024-12-31 0001898496 us-gaap:FurnitureAndFixturesMember 2023-12-31 0001898496 us-gaap:CollectionsIncludingWorkOfArtAndHistoricalTreasureMember 2024-12-31 0001898496 us-gaap:CollectionsIncludingWorkOfArtAndHistoricalTreasureMember 2023-12-31 0001898496 srt:MinimumMember us-gaap:OtherCapitalizedPropertyPlantAndEquipmentMember 2024-12-31 0001898496 srt:MaximumMember us-gaap:OtherCapitalizedPropertyPlantAndEquipmentMember 2024-12-31 0001898496 us-gaap:OtherCapitalizedPropertyPlantAndEquipmentMember 2024-12-31 0001898496 us-gaap:OtherCapitalizedPropertyPlantAndEquipmentMember 2023-12-31 0001898496 us-gaap:CollectionsIncludingWorkOfArtAndHistoricalTreasureMember 2024-01-01 2024-12-31 0001898496 us-gaap:CollectionsIncludingWorkOfArtAndHistoricalTreasureMember 2023-01-01 2023-12-31 0001898496 us-gaap:TradeNamesMember 2024-12-31 0001898496 us-gaap:TradeNamesMember 2023-12-31 0001898496 us-gaap:TrademarksAndTradeNamesMember srt:MinimumMember 2024-12-31 0001898496 us-gaap:TrademarksAndTradeNamesMember srt:MaximumMember 2024-12-31 0001898496 us-gaap:TrademarksAndTradeNamesMember 2024-12-31 0001898496 us-gaap:TrademarksAndTradeNamesMember 2023-12-31 0001898496 us-gaap:IntellectualPropertyMember srt:MinimumMember 2024-12-31 0001898496 us-gaap:IntellectualPropertyMember srt:MaximumMember 2024-12-31 0001898496 us-gaap:IntellectualPropertyMember 2024-12-31 0001898496 us-gaap:IntellectualPropertyMember 2023-12-31 0001898496 us-gaap:CustomerRelatedIntangibleAssetsMember srt:MinimumMember 2024-12-31 0001898496 us-gaap:CustomerRelatedIntangibleAssetsMember srt:MaximumMember 2024-12-31 0001898496 us-gaap:CustomerRelatedIntangibleAssetsMember 2024-12-31 0001898496 us-gaap:CustomerRelatedIntangibleAssetsMember 2023-12-31 0001898496 us-gaap:NoncompeteAgreementsMember 2024-12-31 0001898496 us-gaap:NoncompeteAgreementsMember 2023-12-31 0001898496 us-gaap:OtherIntangibleAssetsMember srt:MinimumMember 2024-12-31 0001898496 us-gaap:OtherIntangibleAssetsMember srt:MaximumMember 2024-12-31 0001898496 us-gaap:OtherIntangibleAssetsMember 2024-12-31 0001898496 us-gaap:OtherIntangibleAssetsMember 2023-12-31 0001898496 us-gaap:SeniorNotesMember 2024-12-31 0001898496 us-gaap:SeniorNotesMember 2023-12-31 0001898496 gety:UsdTermLoansMember 2024-12-31 0001898496 gety:UsdTermLoansMember 2023-12-31 0001898496 gety:EurTermLoansMember 2024-12-31 0001898496 gety:EurTermLoansMember 2023-12-31 0001898496 us-gaap:SeniorNotesMember 2019-02-28 0001898496 gety:UsdTermLoansMember 2019-02-28 0001898496 gety:EurTermLoansMember 2019-02-28 0001898496 us-gaap:RevolvingCreditFacilityMember 2019-02-28 0001898496 us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2023-05-03 0001898496 us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2023-05-04 0001898496 us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2023-05-04 2023-05-04 0001898496 gety:UsdTermLoansMember 2024-01-01 2024-12-31 0001898496 gety:UsdTermLoansMember 2022-08-01 2022-08-31 0001898496 gety:UsdTermLoansMember 2022-01-01 2022-12-31 0001898496 gety:BaseRateLoansUsdTermLoansMember 2024-12-31 0001898496 gety:BaseRateLoansUsdTermLoansMember gety:NyfrbRateMember 2024-01-01 2024-12-31 0001898496 gety:BaseRateLoansUsdTermLoansMember gety:AdjustedTermSecuredOvernightFinancingRateSOFRMember 2024-01-01 2024-12-31 0001898496 gety:EurodollarLoansUsdTermLoansMember gety:AdjustedTermSecuredOvernightFinancingRateSOFRMember 2024-12-31 0001898496 gety:TermLoansMember us-gaap:SecuredDebtMember us-gaap:SecuredOvernightFinancingRateSofrMember 2024-01-01 2024-12-31 0001898496 gety:TermLoansMember us-gaap:SecuredDebtMember gety:AdjustedTermSecuredOvernightFinancingRateSOFRMember 2024-12-31 0001898496 gety:EurTermLoansMember gety:AdjustedEurodollarRateMember 2024-12-31 0001898496 gety:UsdTermLoansMember 2022-12-31 0001898496 gety:EurTermLoansMember 2022-12-31 0001898496 gety:UsdTermLoansAndEurTermLoansMember 2024-12-31 0001898496 gety:EurTermLoans2024Member 2024-12-31 0001898496 gety:EurTermLoans2025Member 2024-12-31 0001898496 gety:UsdTermLoans2024Member 2024-12-31 0001898496 gety:UsdTermLoans2025Member 2024-12-31 0001898496 gety:PublicWarrantsMember 2020-08-04 2020-08-04 0001898496 gety:UnitedStatesDistrictCourtForTheSouthernDistrictOfNetYorkAltaPartnersLLCAndCRCMInstitutionalMasterFundBVILTDEtAl.V.GettyImagesHoldingsInc.CasesMember 2024-12-31 0001898496 gety:UnitedStatesDistrictCourtForTheSouthernDistrictOfNewYorkAltaPartnersLLCVGettyImagesHoldingsIncCaseMember 2023-10-27 2023-10-27 0001898496 gety:UnitedStatesDistrictCourtForTheSouthernDistrictOfNewYorkAltaPartnersGettyImagesHoldingsIncCaseMember gety:PublicWarrantsMember 2020-08-04 0001898496 gety:CRCMInstitutionalMasterFundBVILTDEtAlVGettyImagesHoldingsIncCaseMember 2023-10-27 2023-10-27 0001898496 gety:CRCMInstitutionalMasterFundBVILTDEtAlVGettyImagesHoldingsIncCaseMember gety:PublicWarrantsMember 2020-08-04 0001898496 gety:UnitedStatesDistrictCourtForTheSouthernDistrictOfNewYorkAltaPartnersLLCVGettyImagesHoldingsIncCaseMember 2023-10-27 0001898496 gety:UnitedStatesDistrictCourtForTheSouthernDistrictOfNewYorkAltaPartnersLLCVGettyImagesHoldingsIncCaseMember gety:PublicWarrantsMember 2020-08-04 0001898496 gety:UnitedStatesDistrictCourtForTheSouthernDistrictOfNewYorkBernerAndLappCasesAndNewYorkStateSupremeCourtCasesMember 2024-12-31 0001898496 gety:UnitedStatesDistrictCourtForTheSouthernDistrictOfNewYorkBernerAndLappCasesAndNewYorkStateSupremeCourtCasesMember gety:PublicWarrantsMember 2024-12-31 0001898496 gety:LawsuitsFiledInNewYorkStateSupremeCourtNewYorkCountyV.GettyImagesHoldingsInc.Member 2024-12-31 0001898496 2023-02-03 0001898496 gety:TaxAssessmentCanadaRevenueAgencyMember 2024-01-01 2024-12-31 0001898496 gety:TaxAssessmentCanadaRevenueAgencyMember srt:MaximumMember 2024-01-01 2024-12-31 0001898496 gety:CreativeMember 2024-01-01 2024-12-31 0001898496 gety:CreativeMember 2023-01-01 2023-12-31 0001898496 gety:CreativeMember 2022-01-01 2022-12-31 0001898496 gety:EditorialMember 2024-01-01 2024-12-31 0001898496 gety:EditorialMember 2023-01-01 2023-12-31 0001898496 gety:EditorialMember 2022-01-01 2022-12-31 0001898496 gety:OtherMember 2024-01-01 2024-12-31 0001898496 gety:OtherMember 2023-01-01 2023-12-31 0001898496 gety:OtherMember 2022-01-01 2022-12-31 0001898496 us-gaap:CommonClassAMember gety:GettyImagesHoldingsIncMember 2022-07-22 2022-07-22 0001898496 us-gaap:CommonClassAMember 2022-07-22 2022-07-22 0001898496 us-gaap:CommonClassBMember 2022-07-22 2022-07-22 0001898496 us-gaap:CommonClassAMember 2022-08-31 0001898496 us-gaap:CommonClassAMember 2022-08-01 2022-08-31 0001898496 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2024-01-01 2024-12-31 0001898496 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2023-01-01 2023-12-31 0001898496 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2022-01-01 2022-12-31 0001898496 gety:EquityIncentivePlan2022Member srt:MinimumMember 2024-01-01 2024-12-31 0001898496 gety:EquityIncentivePlan2022Member srt:MaximumMember 2024-01-01 2024-12-31 0001898496 gety:EquityIncentivePlan2022Member 2024-12-31 0001898496 us-gaap:RestrictedStockUnitsRSUMember 2023-12-31 0001898496 us-gaap:RestrictedStockUnitsRSUMember 2024-01-01 2024-12-31 0001898496 us-gaap:RestrictedStockUnitsRSUMember 2024-12-31 0001898496 us-gaap:PerformanceSharesMember 2023-12-31 0001898496 us-gaap:PerformanceSharesMember 2024-01-01 2024-12-31 0001898496 us-gaap:PerformanceSharesMember 2024-12-31 0001898496 gety:EarnOutPlanMember 2024-12-31 0001898496 us-gaap:RestrictedStockUnitsRSUMember gety:EarnOutPlanMember 2023-12-31 0001898496 us-gaap:RestrictedStockUnitsRSUMember gety:EarnOutPlanMember 2024-01-01 2024-12-31 0001898496 us-gaap:RestrictedStockUnitsRSUMember gety:EarnOutPlanMember 2024-12-31 0001898496 us-gaap:EmployeeStockMember gety:A2022EmployeeStockPurchasePlanMember 2024-01-01 2024-12-31 0001898496 us-gaap:EmployeeStockMember gety:A2022EmployeeStockPurchasePlanMember 2024-12-31 0001898496 country:US 2024-12-31 0001898496 country:US 2024-01-01 2024-12-31 0001898496 country:GB 2024-12-31 0001898496 country:GB 2024-01-01 2024-12-31 0001898496 country:CA 2024-01-01 2024-12-31 0001898496 country:US 2024-12-31 0001898496 country:US 2023-12-31 0001898496 us-gaap:DomesticCountryMember 2024-12-31 0001898496 us-gaap:ForeignCountryMember 2024-12-31 0001898496 gety:ReportableSegmentMember 2024-01-01 2024-12-31 0001898496 gety:ReportableSegmentMember 2023-01-01 2023-12-31 0001898496 gety:ReportableSegmentMember 2022-01-01 2022-12-31 0001898496 srt:AmericasMember 2024-01-01 2024-12-31 0001898496 srt:AmericasMember 2023-01-01 2023-12-31 0001898496 srt:AmericasMember 2022-01-01 2022-12-31 0001898496 us-gaap:EMEAMember 2024-01-01 2024-12-31 0001898496 us-gaap:EMEAMember 2023-01-01 2023-12-31 0001898496 us-gaap:EMEAMember 2022-01-01 2022-12-31 0001898496 srt:AsiaPacificMember 2024-01-01 2024-12-31 0001898496 srt:AsiaPacificMember 2023-01-01 2023-12-31 0001898496 srt:AsiaPacificMember 2022-01-01 2022-12-31 0001898496 country:US us-gaap:GeographicConcentrationRiskMember us-gaap:RevenueFromContractWithCustomerMember 2024-01-01 2024-12-31 0001898496 country:US us-gaap:GeographicConcentrationRiskMember us-gaap:RevenueFromContractWithCustomerMember 2023-01-01 2023-12-31 0001898496 country:US us-gaap:GeographicConcentrationRiskMember us-gaap:RevenueFromContractWithCustomerMember 2022-01-01 2022-12-31 0001898496 country:GB us-gaap:GeographicConcentrationRiskMember us-gaap:RevenueFromContractWithCustomerMember 2024-01-01 2024-12-31 0001898496 country:GB us-gaap:GeographicConcentrationRiskMember us-gaap:RevenueFromContractWithCustomerMember 2023-01-01 2023-12-31 0001898496 country:GB us-gaap:GeographicConcentrationRiskMember us-gaap:RevenueFromContractWithCustomerMember 2022-01-01 2022-12-31 0001898496 srt:AmericasMember 2024-12-31 0001898496 srt:AmericasMember 2023-12-31 0001898496 us-gaap:EMEAMember 2024-12-31 0001898496 us-gaap:EMEAMember 2023-12-31 0001898496 srt:AsiaPacificMember 2024-12-31 0001898496 srt:AsiaPacificMember 2023-12-31 0001898496 country:US us-gaap:GeographicConcentrationRiskMember us-gaap:AssetsTotalMember 2024-01-01 2024-12-31 0001898496 country:US us-gaap:GeographicConcentrationRiskMember us-gaap:AssetsTotalMember 2023-01-01 2023-12-31 0001898496 country:IE us-gaap:GeographicConcentrationRiskMember us-gaap:AssetsTotalMember 2024-01-01 2024-12-31 0001898496 country:IE us-gaap:GeographicConcentrationRiskMember us-gaap:AssetsTotalMember 2023-01-01 2023-12-31 0001898496 us-gaap:EmployeeStockOptionMember 2024-01-01 2024-12-31 0001898496 us-gaap:EmployeeStockOptionMember 2023-01-01 2023-12-31 0001898496 us-gaap:EmployeeStockOptionMember 2022-01-01 2022-12-31 0001898496 us-gaap:RestrictedStockUnitsRSUMember 2024-01-01 2024-12-31 0001898496 us-gaap:RestrictedStockUnitsRSUMember 2023-01-01 2023-12-31 0001898496 us-gaap:RestrictedStockUnitsRSUMember 2022-01-01 2022-12-31 0001898496 gety:ShutterstockMember srt:ScenarioForecastMember 2025-01-06 2025-01-06 0001898496 gety:ShutterstockMember us-gaap:SubsequentEventMember srt:ScenarioForecastMember 2025-01-06 2025-01-06 0001898496 gety:ShutterstockMember us-gaap:SubsequentEventMember srt:ScenarioForecastMember 2025-01-06 0001898496 gety:ShutterstockMember gety:ShutterstockMember us-gaap:SubsequentEventMember srt:ScenarioForecastMember 2025-01-06 0001898496 gety:ShutterstockMember 2024-01-01 2024-12-31 0001898496 gety:UsdTermLoansMember us-gaap:SubsequentEventMember 2025-02-21 0001898496 gety:EurTermLoansMember us-gaap:SubsequentEventMember 2025-02-21 0001898496 us-gaap:SeniorNotesMember us-gaap:SubsequentEventMember 2025-02-21 0001898496 gety:UsdTermLoansMember us-gaap:SubsequentEventMember 2025-02-21 2025-02-21 0001898496 gety:EurTermLoansMember us-gaap:SubsequentEventMember 2025-02-21 2025-02-21 0001898496 gety:UsdTermLoansMember us-gaap:SubsequentEventMember srt:ScenarioForecastMember 2025-05-14 0001898496 gety:UsdTermLoansMember us-gaap:SubsequentEventMember srt:ScenarioForecastMember 2025-08-14 0001898496 gety:UsdTermLoansMember us-gaap:DebtInstrumentRedemptionPeriodOneMember us-gaap:SubsequentEventMember 2025-02-21 2025-02-21 0001898496 gety:UsdTermLoansMember us-gaap:DebtInstrumentRedemptionPeriodTwoMember us-gaap:SubsequentEventMember 2025-02-21 2025-02-21 +Table of Conten ts +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +(Mark One) +x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , 2024 +Or +o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from to . +Commission file number: 001-41453 +GETTY IMAGES HOLDINGS, INC. +(Exact name of registrant as specified in its charter) +Delaware +87-3764229 +State or other jurisdiction of incorporation or organization (I.R.S. Employer Identification No.) +605 5th Ave. S. Suite 400 +Seattle , WA 98104 +_________________________________________________ +(Address of principal executive offices) (zip code) +( 206 ) 925-5000 +_________________________________________________ +Registrant’s telephone number, including area code +Securities registered pursuant to Section 12(b) of the Act: +Title of each class Trading Symbol(s) Name of each exchange on which registered +Class A Common Stock GETY New York Stock Exchange +Securities registered pursuant to section 12(g) of the Act: None +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer o Accelerated filer þ +Non-accelerated filer o Smaller reporting company þ +Emerging growth company þ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. o +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ +The aggregate market value of voting stock held by non-affiliates of Getty Images Holdings, Inc. on June 30, 2024, based on the closing price of $3.26 for shares of Class A common stock of Getty Images Holdings, Inc. as reported by the New York Stock Exchange on June 30, 2024, was approximately $ 134,883,569.28 . For purposes of this calculation, shares of Class A common stock beneficially owned by each executive officer, director, and holders of 5% or more of our Class A common stock have been excluded since those persons may under certain circumstances be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. +As of March 12, 2025 , 412,567,845 shares of Class A common stock, par value $0.0001 per share of Getty Images Holdings, Inc. were issued and outstanding. +Table of Conten ts +GETTY IMAGES HOLDINGS, INC. +Form 10-K +Table of Contents +Page No. +Cautionary Note Regarding Forward-Looking Statements +1 +PART I +3 +Item 1. +Business +3 +Item 1A. +Risk Factors +14 +Item 1B. +Unresolved Staff Comments +44 +Item 1C. +Cybersecurity +44 +Item 2. +Properties +45 +Item 3. +Legal Proceedings +46 +Item 4. +Mine Safety Disclosures +48 +PART II +49 +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +49 +Item 6. +Reserved +50 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +51 +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +73 +Item 8. +Financial Statements and Supplementary Data +74 +Item 9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosures +74 +Item 9A. +Controls and Procedures +74 +Item 9B. +Other Information +75 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +75 +PART III +76 +Item 10. +Directors, Executive Officers and Corporate Governance +76 +Item 11. +Executive Compensation +87 +Item 12. +Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters +96 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +98 +Item 14. +Principal Accounting Fees and Services +102 +PART IV +103 +Item 15. +Exhibits, Financial Statement Schedules +103 +Item 16. +Form 10-K Summary +105 +Table of Conten ts +Cautionary Note Regarding Forward-Looking Statements +Certain statements included in this Annual Report on Form 10-K (the “Annual Report”) that are not historical facts are forward-looking statements for purposes of the safe harbor provisions under the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of the words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “should,” “would,” “plan,” “project,” “forecast,” “predict,” “potential,” “seem,” “seek,” “future,” “outlook,” “target” or similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These forward-looking statements include, but are not limited to, statements regarding estimates and forecasts of other financial and performance metrics and projections of market opportunity. These statements are based on various assumptions, whether or not identified in this report, and on the current expectations of our management and are not predictions of actual performance. These forward-looking statements are provided for illustrative purposes only and are not intended to serve as, and must not be relied on by any investor as, a guarantee, an assurance, a prediction or a definitive statement of fact or probability. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. Many actual events and circumstances are beyond our control. +These forward-looking statements are subject to a number of risks and uncertainties, including: +• our inability to continue to license third-party content and offer relevant quality and diversity of content to satisfy customer needs; +• our ability to attract new customers and retain and motivate an increase in spending by our existing customers; +• our ability to grow our subscriptions business; +• the user experience of our customers on our websites; +• the extent to which we are able to maintain and expand the breadth and quality of our content library through content licensed from third-party suppliers, content acquisitions and imagery captured by our staff of in-house photographers; +• the mix of and basis upon which we license our content, including the price-points at, and the license models and purchase options through, which we license our content; +• the risk that we operate in a highly competitive market; +• the risk that we are unable to successfully execute our business strategy or effectively manage costs; +• our inability to effectively manage our growth; +• our inability to maintain an effective system of internal controls and financial reporting; +• the risk that we may lose the right to use “Getty Images” trademarks; +• our inability to evaluate our future prospects and challenges due to evolving markets and customers’ industries; +• the legal, social and ethical issues relating to the use of new and evolving technologies, such as Artificial Intelligence and machine learning (collectively, “AI”), including statements regarding AI and innovation momentum; +• the increased use of AI applications such as generative AI technologies that may result in harm to our brand, reputation, business, or intellectual property; +• the risk that our operations in and continued expansion into international markets bring additional business, political, regulatory, operational, financial and economic risks; +• our inability to adequately adapt our technology systems to ingest and deliver sufficient new content; +• the risk of technological interruptions or cybersecurity breaches, incidents, and vulnerabilities; +• the risk that any prolonged strike by, or lockout of, one or more of the unions that provide personnel essential to the production of films or television programs, such as the 2023 strike by the writers’ union and the actors’ unions and including its lingering effects, could further impact our entertainment business; +• the inability to expand our operations into new products, services and technologies and to increase customer and supplier awareness of our new and emerging products and services, including with respect to our AI initiatives; +• the loss of and inability to attract and retain key personnel that could negatively impact our business growth; +• the inability to protect the proprietary information of customers and networks against security breaches and protect and enforce intellectual property rights; +• our reliance on third parties; +• the risks related to our use of independent contractors; +• the risk that an increase in government regulation of the industries and markets in which we operate could negatively impact our business; +1 +Table of Conten ts +• the impact of worldwide and regional political, military or economic conditions, including declines in foreign currencies in relation to the value of the U.S. dollar, hyperinflation, higher interest rates, trade wars and restrictions, devaluation, the impact of recent bank failures on the marketplace and the ability to access credit and significant political or civil disturbances in international markets where we conduct business; +• the risk that claims, judgements, lawsuits and other proceedings that have been, or may be, instituted against us or our predecessors, including pending lawsuits brought against us by former warrant holders, could adversely affect our business; +• the inability to maintain the listing of our Class A common stock on the New York Stock Exchange; +• volatility in our stock price and in the liquidity of the trading market for our Class A common stock; +• the impact of any widespread outbreak of an illness, pandemic or other local or global health issue, natural disasters, or climate change; +• changes in applicable laws or regulations; +• the risks associated with evolving corporate governance and public disclosure requirements; +• the risk of greater than anticipated tax liabilities; +• the risks associated with the storage and use of personally identifiable information; +• earnings-related risks such as those associated with late payments, goodwill or other intangible assets; +• our ability to obtain additional capital on commercially reasonable terms; +• the risks associated with being an “emerging growth company” and “smaller reporting company” within the meaning of the U.S. securities laws; +• risks associated with our reliance on information technology in critical areas of our operations; +• our inability to pay dividends for the foreseeable future; +• the risks associated with additional issuances of Class A common stock without stockholder approval; +• risks related to our proposed merger with Shutterstock, Inc. (“Shutterstock”); +• costs related to operating as a public company; and +• other risks and uncertainties identified in “ Item 1A. Risk Factors ” of this Annual Report. +If any of these risks materialize or our assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements. +These and other factors that could cause actual results to differ from those implied by the forward-looking statements in this Annual Report are more fully described under the heading “ Item 1A. Risk Factors ”. The risks described under the heading “ Item 1A. Risk Factors ” in this Annual Report are not exhaustive. New risk factors emerge from time to time and it is not possible to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. We undertake no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. +In addition, the statements of belief and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us, as applicable, as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements. +2 +Table of Conten ts +PART I +Item 1. Business. +The Company +Getty Images Holdings, Inc. is a Delaware corporation with its corporate headquarters located at 605 5th Ave S., Suite 400, Seattle, Washington 98104, telephone number (206) 925-5000, internet website address www.gettyimages.com. Our internet website and content contained therein or connected thereto are not incorporated by reference into this Annual Report. References to “Getty Images,” the “Company,” “we,” “our” and “us” and similar terms mean Getty Images Holdings, Inc. and its subsidiaries following the completion of the Business Combination (as defined below), unless the context otherwise requires. +The Business Combination +On July 22, 2022 (the “Closing Date”), the Company consummated the transactions in the Business Combination Agreement, dated December 9, 2021 (the “Business Combination Agreement” and the consummation of such transactions, the “Closing”), by and among CC Neuberger Principal Holdings II, a Cayman Islands exempted company (“CCNB”), the Company (at such time, named Vector Holding, LLC, a Delaware limited liability company and wholly-owned subsidiary of CCNB), Vector Domestication Merger Sub, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (“Domestication Merger Sub”), Vector Merger Sub 1, LLC, a Delaware limited liability company and a wholly-owned subsidiary of CCNB (“G Merger Sub 1”), Vector Merger Sub 2, LLC, a Delaware limited liability company and a wholly-owned subsidiary of CCNB (“G Merger Sub 2”), Griffey Global Holdings, Inc., a Delaware corporation (“Legacy Getty”), and Griffey Investors, L.P., a Delaware limited partnership (the “Partnership”). On the day prior to the Closing Date, the Company statutorily converted from a Delaware limited liability company to a Delaware corporation (the “Statutory Conversion”). On the Closing Date, CCNB merged with and into Domestication Merger Sub, with Domestication Merger Sub surviving the merger as a wholly-owned direct subsidiary of the Company (the “Domestication Merger”). Following the Domestication Merger on the Closing Date, G Merger Sub 1 merged with and into Legacy Getty, with Legacy Getty surviving the merger as an indirect wholly-owned subsidiary of the Company (the “First Getty Merger”). Immediately after the First Getty Merger, Legacy Getty merged with and into G Merger Sub 2 with G Merger Sub 2 surviving the merger as an indirect wholly-owned subsidiary of the Company (the “Second Getty Merger” and together with the First Getty Merger, the “Getty Mergers” and, together with the Statutory Conversion and the Domestication Merger, the “Business Combination”). See “ Note 3 — Business Combination ” for further details. +Legacy Getty was incorporated in Delaware on September 25, 2012, and in October of the same year, indirectly acquired Getty Images, Inc. +Business Overview +Getty Images was founded in 1995, with the core mission of bringing the world’s best creative and editorial visual content solutions to our customers to engage their audiences. We have developed market enhancements across e-commerce, content subscriptions, user-generated content, diverse and inclusive content, and proprietary research alongside investment in our technology platform (which includes generative AI-services designed to be commercially safe, natural language processing, and AI based integrated APIs) to become a global, trusted industry leader in the visual content space. On January 6, 2025, Getty Images entered into an Agreement and Plan of Merger to combine in a merger-of-equals transaction with Shutterstock. See “ Item 7 – Management’s Discussion and Analysis of Financial and Results of Operations – Merger Agreement with Shutterstock ”. +3 +Table of Conten ts +Product Offerings +Our comprehensive product offering is designed to address the full spectrum of customers’ visual content needs. +Target Customer Enterprises SMBs SMBs, Prosumers, Pro & Semipro Content Creators +Asset Type Premium Creative & Editorial +(Stills, Music, Video, and Generative AI) Budget-Conscious Stills, Video, and Generative AI Free & Low-Cost Creative Stills +Asset Rights Uncapped Indemnification and Rights Customized to Customer Needs Capped Indemnification With Option for More Protection Capped / No Indemnification +Go-to-Market Premium Account Management & Dedicated Support Primarily E-Commerce and Online Service Primarily E-Commerce and Online Service +Plans and Pricing A La Carte, Subscriptions and Custom Assignments A La Carte and Subscriptions Free (Ads), Subscriptions, Ad-supported and Paid API Integrations +• Getty Images is our premium offering focused on corporate, agency, and media customers, serving the full breadth of our customers’ content needs by combining the highest quality content with premium support and customized rights and protections. Customers can purchase on an a la carte basis and through subscriptions, including our “Premium Access” product, where we enable customers to access our complete library of creative and editorial images and video and music, via one website and one set of terms. Our assignment capabilities along with our Custom Content offering, a subscription product that leverages Getty Images’ global network of photographers and videographers to create customized and exclusive project-specific content, enables Getty Images to produce cost-effective content to meet the specific needs of customers. In the fall of 2023, we launched Generative AI by Getty Images in partnership with NVIDIA Corporation (“NVIDIA”), which is designed to be a commercially safe AI image generation service that is trained exclusively with Getty Images creative content. +4 +Table of Conten ts +• iStock is our value offering of creative stills and videos, which provides a significant volume of exclusive image and video content to small to medium sized businesses, furnishing them with a powerful and cost-efficient means to produce and maintain their visual narrative. Customers can purchase on an a la carte basis and through a range of monthly and annual subscription options. Customers can also use Generative AI by iStock to create, ready to use AI generated content that is designed to be commercially safe and is trained exclusively with Getty Images creative content. +• Unsplash is a widely accessed, creative stills offering serving the fast-growing and broad-based creator economy ranging from prosumers and semi-professional creators to full time creative professionals working at corporations and agencies. Customers can purchase an unlimited subscription, which includes premium content that has specific legal protections, or download from the millions of free images. +• In addition to our websites, customers and partners can access and integrate our content, metadata, and search capabilities into their workflows via our APIs, such as through Canva, and through a range of mobile apps and plugins, including Adobe Creative Cloud, WordPress, and other publishing and workflow platforms. +• In recent years, we have shifted revenues toward subscription products including annual subscription products to drive revenue growth and durability. As of December 31, 2024, annual subscriptions represented more than half of total revenue. We offer a complete range of subscription products on our Getty Images, iStock and Unsplash websites. Our Premium Access subscription offers all of Getty Images’ Creative and Editorial image and video content and music in one subscription. We similarly continue to see more subscription adoption in e-commerce through our iStock subscription, which includes images video and music, and Unsplash+, which is an unlimited image-only subscription. In all cases, our annual subscriptions provide greater customer and revenue visibility and upside through expanded consumption and ongoing cross-sell and upsell opportunities via our dedicated Customer Success team. +Content & Services +While we go to market through our Getty Images, iStock, and Unsplash brands, we categorize our content and services into three categories — Creative, Editorial and Other. +• Creative : Creative is comprised of royalty-free (“RF”) photos, illustrations, vectors, videos, and generative AI-services that are released for commercial use and cover a wide variety of commercial, conceptual, and contemporary subjects, including lifestyle, business, science, health, wellness, beauty, sports, transportation and travel. This content is available for immediate use by a wide range of customers with depth, breadth, and quality, allowing our customers to produce impactful websites, digital media, social media, marketing campaigns, corporate collateral, textbooks, movies, television and online video content relevant to their target geographies and audiences. We primarily source Creative content from a broad network of professional, semi-professional, and amateur creators, many exclusive to Getty Images. We have a global creative insights team dedicated to providing briefi ng and art direction to our exclusive contributor community. Creative represents 58.9% , 63.1% and 63.2% of our revenue of which 56.0%, 52.2% 1 and 46.5% 1 is generated through our annual subscription products, for the years ended December 31, 2024, 2023 and 2022, respectively. Annual Subscription products include products and subscriptions with a duration of 12 months or longer, Unsplash API, and Custom Content. +• Editorial : Editorial is comprised of photos and videos covering the world of entertainment, sports and news. We combine contemporary coverage of events around the globe with one of the largest privately held archives globally with access to images spanning all the way back to the beginning of photography. We invest in a dedicated editorial team which includes 110 staff photographers and videographers to generate our own coverage in addition to coverage from our network of content partners. Editorial represents 36.8%, 35.0% and 35.2% of our revenue, of whic h 53.7% , 53.3% and 52.1% is generated through our annual subscription products, for the years ended December 31, 2024, 2023 and 2022, respectively. Annual Subscription products include subscriptions with a duration of 12 months or longer. +• Other : Other represents 4.3%, 1.9%, and 1.6% of our revenue for the years ended December 31, 2024, 2023, and 2022, respectively. This includes music licensing, digital asset management, distribution services, print sales, and data access and/or licensing. +1 Prior year percentage has been restated to conform to the current year presentation. +5 +Table of Conten ts +With a consistently differentiated, authentic and high-quality content offering at our core, we have a rich history of embracing disruption and innovation with regard to how that content is packaged, accessed, licensed, created and distributed to an evolving universe of customers. +Comprehensive Premium Product Offering +Our differentiated, authentic and high-quality content offering is generated through: +• A growing base of more tha n 583,000 contributors, of which over 81,000 are exclusive to Getty Images. +• Over 75 exclusive editorial content partners, such as AFP, Disney, Glo bo, ITN, Bloomberg, BBC Studios, CBS, The Boston Globe, Fairfax Media, NBC News Archives and Sky News, who rely upon Getty Images to manage and license their content and Formula One, NBA, NHL, MLB, NASCAR, FIFA and International Olympic Committee, who, in addition to distributing content from their events through Getty Images, grant us unique commercial rights with event and content access. +• Nearly 400 dedicated staff content experts across creative and editorial who guide and contribute to the creation of over 11 million new visual assets per quarter and have been recognized with more than 1,500 major industry awards including the 2022 Pulitzer Prize for Breaking News Photography, World Press Photo, Picture of the Year International, Sony World Photography Awards, White House Photographer of the Year, The Lucie Awards, Visa d’Or, Ville de Perpignan Remi Ochlik, UK Picture Guild Awards, Press Photographer of the Year, Sports Photographer of the Year and Creative Review Photography Annual. +• A unique comprehensive visual archival collection covering a broad range of geographies, time periods and content categories such as news, sport, celebrity, music and fashion. +Collectively, these represent a growing library of over 604 million total assets that delivers unmatched depth, breadth, and quality to meet the expanding needs of our growing customer base. For more information, see “ —Our Content Contributors ” below. +Customers +Our customers are in the categories of corporate, agency and media. For the year ended December 31, 2024, corporations, media, and agency customers contributed approximately 56%, 29%, and 15%, of revenue, respectively. Through our brands Getty Images, iStock and Unsplash, we reach customers from the largest enterprises to the smallest businesses and individual creators. In addition, we maintain deep integrations with internet platforms, ensuring broad access to our content across the creative economy. +Getty Images is privileged to work with the world’s leading companies every day. In 2024 and 2023, over 80% of our booked revenues were from customers that have a tenure of 10 years or more. In addition to maintaining strong revenue from highly tenured customers, we added more tha n 385,000 new customers during the year ended December 31, 2024. +We al so have strong revenue diversification. For the year ended December 31, 2024, our top ten customers contributed less than 7% of our booked revenue. +Proprietary Platform & Infrastructure +The Getty Images and iStock websites and related systems are on a unified, global, cloud-based platform. We source and store our content on a common, scalable, and proprietary rights and content management system that supports all content types and categories. This platform enables customers to search, select, license, and download content from our websites and supports our centralized sales order processing, customer database management, finance, and accounting. We believe that our unified platform allows for resource efficiency and its scalability, reliability and flexibility allow us to service customers in any geography, handle a variety of visual content and address changing customer demands. From this unified platform, we benefit from a comprehensive view into customer behavior and needs, which allows us to effectively evolve our content offering, services and proprietary search algorithms to deliver the unique insights to our customers. We operate multiple websites which are available on a global basis, maintained in 23 different languages, localized for their respective markets, and which provide for e-commerce transactions in 34 local currencies. +6 +Table of Conten ts +Back-end integration across the Getty Images and iStock websites and brands allows for efficiency of use by customers, enabled by natural language processing and machine learning to understand the context and meaning behind a user’s search query, along with additional search capabilities that are enabled by patented search technology that attaches metadata such as captions, keywords, and tags to our content. Our metadata is translated by proprietary and patented controlled vocabularies into multiple languages. Dynamic image placement algorithms present the most relevant content to customers based on features such as customer location, search and license history, and the businesses type. We continuously invest in our digital platform to improve our customer experience and functionality through improvements in search engine optimization and marketing analytics, dynamic image placement algorithms, customer support and partner/API access, use of image recognition technologies, and development license models that adapt to customer needs and behaviors. +In 2023, we partnered with NVIDIA to train and deliver a monetizable, generative AI image tool, enhancing our offerings to our customers. It is trained exclusively on Getty Images creative content and data and provides customers with images designed to be commercially safe, while compensating contributors for the use of their copyrighted works as training data. +Marketing +Since 2019, we have improved our marketing efficiency, which has driven acceleration in our new customer growth, with new customers per million Dollars of digital marketing spend increasing b y more than 30% in 2024 when compared to 2019, driven by marketing efficiency which helps drive new customer acquisition. We shifted our marketing mix to take advantage of free website traffic through affiliate partnerships, expanded our geographic investment, invested in search engine optimization, and implemented a rigorous data-driven e-commerce business. These steps have improved our marketing returns, resulting in decreased customer acquisition cost (since 2019 down b y over 20% to $133 in 2024) and improved revenue opportunity and customer lifetime value. +Our Business Transformation +Over the past several years, we have reoriented our strategy and made significant business investments. Key initiatives implemented include: +• Unification and migration of our end-to-end platform to the cloud. +• Investment in best-in-class customer relationship management tools and technologies such as Salesforce.com. +• Transition of a significant share of our business to a differentiated subscription offering with strong retention characteristics. +• Successfully exited legacy declining products (Creative Rights Managed, Unauthorized Use and Thinkstock) to simplify our offering, reduce customer friction, and to better focus our resources. +• Invested in search engine optimization and altered our digital marketing deployment to accelerate new customer growth through our iStock brand. +• Launched our Custom Content offering to allow customers to efficiently secure brand and product- specific imagery through our global contributor network. +• Restructured our Sales, Customer Success Management, and Customer Service functions to take advantage of our global scale to reduce costs and improve service levels. +• Acquired Unsplash, monetized API offerings on Unsplash and launched Unsplash+, the unlimited subscription model, all of which allows us to tap into the growth of the creator economy long tail. +• Partnership with leading technology companies, including NVIDIA, Bria AI and Runway, to develop image and video generative AI models and services designed to be commercially safe that compensate creators on a recurring basis for the use of their content as training data. +• Extended search experience to accept natural language queries, allowing customers to be more expressive in their searches and, in turn, we better understand their intent and serve content that meets their needs. +• Continued to deleverage our balance sheet, including the principal payment in August 2022 of $300 million and further voluntary payments totaling $57.8 million in 2024 under our Credit Facility, and recently refinanced our Term Loans in the first quarter of 2025. Please refer to “ Note 23 — Subsequent Events ” in our consolidated financial statements for more discussion on our debt refinance. +We believe that our transformation and investments, together with the changes driving industry growth, set the stage for our next phase of growth. +7 +Table of Conten ts +Growth Strategies +We believe we are well-positioned to continue generating revenue and strong cash flow by capitalizing on the increasing demand for visual content driven by long-term trends through our differentiated end-to-end content offering, our established brands and corresponding market coverage, and our strong value proposition to customers and content providers. We anticipate our future growth to be driven by the following strategies: +Capturing growth within the Corporate Market : The corporate market has been a clear and steady source of growth over the last several years and we believe a large corporate market opportunity still exists. To capture this opportunity, we realigned our sales force and their incentives to target further penetration and upsell of the corporate market. Furthermore, we increased our customer service capabilities and resources against the segment and launched new and upgraded products to better meet corporate needs. Through our Custom Content product, we are able to leverage our contributor network to deliver budget-friendly custom photos, illustrations and videos to customers. Through continued investment and focus, our management believes that it can further accelerate growth across the corporate segment. +Accelerate our penetration across high-growth geographies : We are focused on deepening our international reach by investing in digital marketing, search engine optimization and further localization of our services, offerings and content in geographies where we are unde rpenetrated. We believe we are well-positioned from a brand, content, and product perspective across 23 languages and 34 currencies to capture an increased share of these attractive, underpenetrated market opportunities. +Continued emphasis on subscription offerings : Annual subscription revenues now comprise more than half our total revenue, and we expect to further increase penetration over time through an emphasis on our e-commerce offerings and continued growth of our larger subscription offerings. +Annual Subscription Revenue 1 +1 Represents annual subscription product revenue as a percentage of total revenue (excluding certain retired products). +Continue to grow video consumption : The video attachment rate, a measure of the percentage of total paid customer downloaders who are video downloaders, increased to 16.5% for the year ended December 31, 2024 from 14.1% for the year ended December 31, 2023. However, a pproximately 30% of Getty Images and 14% of iStock customers +8 +Table of Conten ts +purchase video. We expect more customers to use video in the future, which we believe creates a stickier customer that potentially consumes and spends more on our platform. +Video Attachment Rate 1 +1 Attachment is calculated as % of downloaders who downloaded video from all offerings (inclusion of subscription and non-subscription products). +Increase wallet share within existing customer base : We expect to increase wallet share with existing customers by upselling into larger subscription products with increased download caps and including video. Additionally, we can cross sell into products such as Generative AI, Custom Content, music, and Media Manager, our digital asset management product. These offerings drive significant increases in Average Annual Revenue per User (“ARPU”) from our customers and can drive high customer retention. +Monetize and expand reach into growing long-tail creator economy : We believe our acquisition of Unsplash has strengthened our position in the rapidly growing “creative long-tail” economy. Unsplash attracts more than 16 mi llion visitors per month and has ove r 27,000 API integrations. Traffic has grown significantly in the last three years, with monthly image downloads averaging more than 96 million, which we believe reflects the significant opportunity across the “long tail” creator economy. In addition to growing the existing advertising revenue streams, we are monetizing existing API integrations through licensing fees and Unsplash+, an unlimited subscription that launched October 2022, that includes premium content (with corresponding license protections) to Unsplash users. +Opportunities for AI, data and insights : We have partnered with leading AI innovators such as NVIDIA, Bria AI and Runway, to develop generative AI models that are designed to deliver commercially safe image and video generation and editing services. As part of these efforts, in 2023 we launched Generative AI by Getty Images and in early 2024 Generative AI by iStock, which are designed to be commercially-safe AI text to image generation services, available on gettyimages.com and istock.com. We have and will continue to leverage Artificial Intelligence and Machine Learning capabilities to improve the relevance and effectiveness of our imagery, our search efficiency and enable image editing. We are continuously investing to bring unique capabilities and insights to increase customer stickiness and to drive new revenue streams. Getty Images also licenses the use of its visual assets and associated metadata to customers in connection with the development of artificial intelligence and machine learning tools. +Pursue accretive and strategic acquisitions : We have a successful track record of executing and integrating acquisitions. We have been able to leverage our content, brands, and large customer base to enter related, but adjacent markets to achieve efficiencies and accelerate growth. +Our Content Contributors +The content we license to our customers is sourced from more than 583,000 photographers, videographers, illustrators, and image partners from almost every country in the world. We do not rely on any single individual or group of suppliers to meet our content supply needs. Content sourced from any single content supplier accounted for no more than 3% of revenue in the year ended December 31, 2024. As of December 31, 2024, we owned or licensed more than 604 million images and videos. +9 +Table of Conten ts +We have 110 staff photographers and videographers and ov er 81,000 exclusive contributors, which includes premium content partners. These exclusive relationships allow for transparent information and the sharing of research and insights with contributors. Nearly 70% of our revenue was generated from exclusive content during 2024 highlighting customer demand for high quality, differentiated content in a world with nearly infinite visual content. For the year ended December 31, 2024, we paid nearly 220 million in royalties to our content contributors, which includes content partners. +Independent contributors +Independent contributors typically fund their own production costs and retain copyright ownership of their content but enter contracts with Getty Images granting global distribution and pricing rights, often on an exclusive basis. These content sourcing agreements also provide representations and warranties by content suppliers as to the copyrights and other intellectual property rights in the content, including representations as to the released nature of the content, if relevant. +Image Partners +Image partners are third-party companies that license their collection of content through us. We generally act as our image partners’ primary or exclusive distribution channel, enabling us to commercialize their editorial coverage of news, entertainment and sporting events and their fully released creative content. Image Partners provide both their wholly-owned and third-party contributor content to us for license through our extensive global network. +Staff and Freelance photographers/videographers +We have 110 full-time staff photographers and videographers, who supply Editorial photos and video content across news, sports, and entertainment. These staff professionals are award-winning experts in their fields and are employed by Getty Images. For most staff-produced content, we pay very limited, if any, royalties. We also utilize our global network of freelance photographers to cover events. In many cases, we own the resulting copyright and pay no royalties as these photographers are paid a set rate to shoot the event. +Archive +Getty Images maintains one of the largest and best privately-owned photographic archives in the world with over 150 million images across geographies, time periods and verticals. Additionally, we exclusively represent and maintain unique archives such as Hulton, Bettman, Sygma and Gamma. These key collections often hold historical significance and are irreplaceable. We believe they are a key differentiator versus competitors. +Competition +The market for digital content and related services is highly competitive and rapidly evolving. Our current and potential domestic and international competitors range from large established companies to emerging start-ups across different industries. Our competitors include: online marketplaces and traditional stock content suppliers of current and archival creative and editorial imagery and stock video; specialized visual content companies in specific geographic regions; providers of free images, music and video and related tools; websites specializing in image search, recognition, discovery and consumption; websites that host and store images, art and other related products; those providers of visual content creation and editing tools that include integrated stock content in their product or software as a service offering; providers of cloud-based digital asset management tools; social networking and social media services; generative AI-services; and freelancers, commissioned photographers and photography agencies. There are also a very large number of small stock photography and video agencies, image content aggregators and individual photographers throughout the world with whom we compete. We also compete for content contributors on the basis of several similar factors including ease and speed of the upload and content review process; the volume of customers who license their submitted content; contributor commission models and practices; the degree to which contributors are protected from legal risk; brand recognition and reputation; the effective use of technology; the global nature of our interfaces; and customer service. Additionally, we compete with in-house or self-created content. We believe our principal competitors for creative content include bundled offerings (e.g., Canva, Adobe), pre-shot digital content providers (e.g., Shutterstock, 123RF, Dreamstime and AdobeStock), freelancer networks (e.g., Fiverr) and GenAI (e.g. Midjourney, Dall-E, Stable Diffusion) and our principal competitors for editorial content include the Associated Press and Reuters. +10 +Table of Conten ts +Intellectual Property +A significant portion of the content that we distribute is licensed to us from individual photographers and videographers and image partners. Content suppliers typically prefer to retain copyright ownership of their work and, as a result, copyright to content remains with the artists in most cases, even while we maintain the right to market, display, distribute and license the imagery, illustration or video on their behalf, globally. We own the copyrights to imagery and video produced by staff photographers as well as any created on a work-for-hire basis, and to imagery and video acquired from third parties. We also own numerous trademarks and have the rights to corresponding internet domain names such as Getty Images (www.gettyimages.com), iStock (www.istock.com) and Unsplash (www.unsplash.com), which are important to the business and have significant value. Depending on the jurisdiction, trademarks are valid as long as they are in use and/or their registrations are properly maintained, and they have not been found to have become generic. We have successfully recovered domain names that include infringing trademarks in the past and intend to continue to enforce our rights in the future. Although we own the Getty Trademarks, in certain specified scenarios, Getty Investments LLC (“Getty Investments”) has the option to acquire, for a nominal sum, all rights to the Getty Trademarks. See “ Item 1A. Risk factors—Operational risks relating to our business—We may lose the right to use “Getty Images” trademarks in the event we experience a change of control. ” We also own copyrights, including certain content on our web properties, publications and designs, as well as patents, including with respect to our display systems and search capabilities. These intellectual property rights are important to our business and marketing efforts. The duration of the protection afforded to our intellectual property depends on the type of property in question, the laws and regulations of the relevant jurisdiction and the terms of our license agreements with others. We protect our intellectual property rights by relying on federal, state, and common law rights, including registration, in the United States and applicable foreign jurisdictions, as well as contractual restrictions. We enforce and protect our intellectual property rights through litigation from time to time, and by controlling access to our intellectual property and proprietary technology, in part, by entering into confidentiality and proprietary rights agreements with our employees, consultants, contractors, and vendors. In this way, we have historically chosen to protect our software and other technological intellectual property as trade secrets. We further control the use of our proprietary technology and intellectual property through provisions in our websites’ terms of use and license agreements. +Human Capital +Our Culture and Values +At the core of our business is a mission to move the world. We pursue our mission through our images, videos, and illustrations, which seek to inform, drive debate, entertain, inspire, and challenge biases. +By capturing powerful imagery, we strive to make an impact for today and for posterity. Our imagery moves hearts and minds across the globe, shifting perceptions and powering commerce and ideas at the same time. +Beyond our mission, we also hold ourselves accountable to a shared culture which is customer-focused, results-driven, team-oriented and which maximizes the contribution of our employees toward our shared goals (our “Leadership Principles”): +• We are trustworthy, transparent and honest. +• We always raise the bar. +• We collectively bring solutions. +• We care, are kind, courteous and respectful. +• We are inclusive of different voices, perspectives and experiences. +• We are one Getty Images with no silos. +• We deliver on our commitments and commercial goals. +• We put the customer at the heart of everything we do. +• We reject biased behavior and discrimination. +Employees +As of December 31, 2024, we had almost 1,700 employees, of which approximately 61% were located in the Americas region, approximately 31% in the Europe, Middle East and Africa ( “ EMEA ” ) region, and the remainder in the Asia-Pacific region. Some of our employees in Brazil, Germany, France and Spain are subject to collective bargaining agreements that set minimum salaries, benefits, working conditions and/or termination requirements. We consider our employee relations to be good. See “ Item 1A. Risk Factors—The loss of key personnel, an inability to attract and retain +11 +Table of Conten ts +additional personnel or difficulties in the integration of new members of our management team into our Company could affect our ability to successfully grow our business .” +Diversity and Inclusion +Our vision for our culture is one that enables individuals to come to work as themselves, be treated with respect and be given equal opportunities, and will ensure their perspectives and experiences are included in our decision making. +We are committed to building a community and environment in which all can thrive. How we hire, develop, and compensate at all levels and in all departments, including our global network of content creators, must be free from bias. +We are committed to supporting our employees, where all experiences and backgrounds are respected and where everyone comes together to produce amazing imagery, support our customers and impact the world. We are committed to eradicating and dismantling barriers that prevent individuals from being seen, heard, valued and respected for their full authentic selves. +We are committed to a work environment that is a safe and inclusive space for all individuals. We are committed to open dialogue and provide resources and training in support of our collective learning journey. We are committed to providing authentic and positive depiction across all communities. +Employee Opportunity +Our more tha n 1,700 employees come from more than 32 countries, and include working parents, military spouses and veterans. They bring a wide berth of perspectives and experienc es to drive our mission. +We seek to ensure our employees are recognized and rewarded, feel empowered and inspired as they live out our Leadership Principles every day. We foster an environment of transparency, always seeking to learn and improve our employee experience. We do this by engaging with employees in regular feedback loops, including live discussions and a bi-annual engagement survey, and that feedback then provides insights that fuel our employee programming from learning and development to our total rewards approaches and everything in between. Internationally, we customize our compensation and benefits to remain competitive and responsive to our employees’ needs, including global mental health and well-being programs. +We provide many opportunities for learning and growth, cultivating a culture of curiosity. These include formal and informal mentoring opportunities, high potential programming, leadership learning, content development hours to inform on our product offerings, and tailored learning across all functions. We believe in providing learning across various platforms and media as well, recognizing the learning differences of our employees. +We are defining a future of work that is more flexible, digital, and purposeful. Our approach aims to empower employees to do their best work in the setting that works for them, supporting employee flexibility while balancing business needs. +Government Regulation +The legal environment of the internet is evolving rapidly throughout the world. Numerous laws and regulations have been adopted at the national and state level in the United States and across the globe that could have an impact on our business. These laws and regulations include, but are not limited to, the following: +• The Digital Millennium Copyright Act, which regulates digital material and created updated copyright laws to address the unique challenges of regulating the use of digital content. +• The Directive on Copyright in the Digital Single Market, which regulates a marketplace for copyright in the European Union. +• The Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 and similar laws adopted by a number of states, which regulate the format, functionality and distribution of commercial solicitation e-mails, create criminal penalties for unmarked sexually-oriented material, and control other online marketing practices. +• The Children’s Online Privacy Protection Act and the Prosecutorial Remedies and Other Tools to End Exploitation of Children Today Act of 2003, which regulate the collection or use of information, and restrict +12 +Table of Conten ts +the distribution of certain materials, as related to certain protected age groups. In addition, the Protection of Children from Sexual Predators Act of 1998 provides for reporting and other obligations by online service providers in the area of child pornography. +• The Federal Trade Commission Act and numerous state “mini-FTC” acts, which bar “deceptive” and “unfair” trade practices, including in the contexts of online advertising and representations made in privacy policies and other online representations. +• The European Union General Data Protection Regulation and UK Data Protection Act, which regulate how we can collect and process the personal data of, primarily, European Union and UK residents. +• The California Consumer Privacy Act (as amended by the California Privacy Rights Act, together the “CCPA”) which regulates how we can collect and process the personal data of California residents. +• The Colorado Privacy Act (“CPA”), which regulates how we can collect and process the personal data of Colorado residents. +• The Connecticut Data Privacy Act (“CTDPA”), which regulates how we can collect and process the personal data of Connecticut residents. +• The Florida Digital Bill of Rights (“FDBR”), which regulates how we can collect and process the personal data of Florida residents. +• The Montana Consumer Data Privacy Act (“MTCDPA”), which regulates how we can collect and process the personal data of Montana residents. +• The Oregon Consumer Privacy Act (“OCPA”), which regulates how we can collect and process the personal data of Oregon residents. +• The Texas Data Privacy and Security Act (“TDPSA”), which regulates how we can collect and process the personal data of Texas residents. +• The Utah Consumer Privacy Act (“UCPA”), which regulates how we can collect and process the personal data of Utah residents. +• The Virginia Consumer Data Protection Act (“VACDPA”), which regulates how we can collect and process the personal data of Virginia residents. +• The Illinois Biometric Information Privacy Act (“BIPA”), which regulates how we can collect and process biometric identifiers of Illinois residents. +• The Texas Capture or Use of Biometric Identifier Act (“CUBI”), which regulates how we can collect and process biometric identifiers of Texas residents. +• The Washington Biometric Privacy Law (“H.B. 1493”), which regulates how we can collect and process biometric identifiers of Washington residents. +• The E.U. AI Act, and the laws, rules and regulations directly relating to the use of AI or extending the application of existing laws, rules and regulations to AI systems and outputs adopted by U.S. states, including Colorado and California. +In particular, we are subject to U.S. federal and state, and foreign laws and regulations regarding privacy and data protection as well as foreign, federal and state regulation. In certain instances, we may also have obligations under several U.S. state data breach or breach notification laws. Foreign data protection, privacy, content regulation, consumer protection, and other laws and regulations can be more restrictive than those in the United States and often have extraterritorial application, and the interpretation and application of these laws are continuously evolving and remain in flux. See “ Item 1A. Risk Factors—We collect, store, process, transmit and use personal information, which subjects us to governmental regulation and other legal obligations related to privacy, information security and data protection in many jurisdictions. Any cybersecurity breaches or our actual or perceived failure to comply with such legal obligations by us, or by our third-party service providers or partners, could harm our business. ” +In addition, from a taxation perspective, there are applicable and potential government regulatory matters that may impact us. In particular, certain provisions of the Tax Cuts and Jobs Act of 2017 (the “TCJA”) have had and will continue to have a significant impact on our financial position and results of operations. The TCJA continues to be subject to further regulatory interpretation and technical corrections by the U.S. Treasury Department and the I.R.S. and therefore, the full impact of the TCJA on our tax provision may continue to evolve. Further, we continue to remain subject to uncertainty related to foreign jurisdictions’ potential reactions to the TCJA, as well as evolving regulatory views and legislation regarding taxation of e-commerce businesses such as the Organization for Economic Cooperation and Development’s Base Erosion and Profit Shifting proposals and other country specific digital tax initiatives. As these and other tax laws and related regulations continue to evolve, our financial results could prospectively be materially impacted. See “ Item 1A. Risk Factors—Our operations may expose us to greater than anticipated income and transaction tax liabilities that could harm our financial condition and results of operations. ” +13 +Table of Conten ts +Seasonality +Our operating results may fluctuate from quarter to quarter and year to year as a result of a variety of factors, including as a result of major sporting events, world events or otherwise. Our quarterly and annual results may also reflect the effects of intra-period trends in customer behavior. Because a significant portion of our revenue is derived from repeat customers who have purchased subscription plans, our revenues have historically been less susceptible to quarterly seasonality. +In addition, expenditures on content by customers tend to be discretionary in nature, reflecting overall economic conditions, the economic prospects of specific industries, budgeting constraints, buying patterns and a variety of other factors, many of which are outside our control. As a result of these and other factors, the results of any prior quarterly or annual periods should not be relied upon as indicators of our future operating performance. +Available Information +Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as well as proxy and information statements and other information that we file, are available free of charge through our internet website as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the United States Securities and Exchange Commission (“SEC”). Our internet website and the content contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K. The SEC maintains an internet website at www.sec.gov, which also contains reports, proxy and information statements and other information that we file electronically with the SEC. We routinely post important information on our website, www.gettyimages.com. We also may use our website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor our website, in addition to following our press releases, SEC filings, public conference calls, presentations and webcasts. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this document. +Copies of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 may also be obtained by stockholders without charge upon written request to: Getty Images Holdings, Inc., 605 5th Ave S., Suite 400, Seattle, Washington 98104, ATTN: Investor Relations. +Item 1A. Risk Factors. +In addition to the other information contained in this Annual Report, including the matters addressed under the heading “ Cautionary Note Regarding Forward-Looking Statements, ” you should carefully consider the following risk factors in this Form 10-K before investing in our securities. The risk factors described below disclose both material and other risks, and are not intended to be exhaustive and are not the only risks facing us. Additional risks not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, results of operations and cash flows in future periods or are not identified because they are generally common to businesses. +Summary Risk Factors +• Operational Risks Related to Our Business +◦ Our inability to attract new and retain existing and repeat customers; +◦ Our inability to offer relevant, quality and diversity of content to satisfy customer needs; +◦ The intense competition we face could reduce our revenues, margins and operating results; +◦ Our inability to successfully execute our business strategy; +◦ Risks resulting from increased costs incurred in implementing our business strategy; +◦ Our inability to maintain an effective system of internal control over financial reporting; +◦ Losing the right to use the “Getty Images” trademark; +◦ Our inability to adapt to industry change; +◦ The increasing use of AI applications such as generative AI technologies that may result in harm to our brand, reputation, business, or intellectual property; +14 +Table of Conten ts +◦ Failure to develop, market, sell or enhance new or existing products and services; +◦ Our failure to successfully expand into new international markets; +◦ Risks resulting from actions by governments to restrict access to our services; +◦ Negative impacts of currency fluctuations; +◦ Our inability to adequately maintain, adapt and upgrade our websites and technology systems to ingest and deliver higher quantities of new content; +◦ Technological interruptions that impair access to our websites or the efficiency of our websites and technology systems damaging our reputation and brand; +◦ Our failure to protect the proprietary information of our customers and our networks against cybersecurity breaches; +◦ Our inability to acquire or integrate new content and product lines; +◦ Potential for goodwill or other intangible asset impairment charges; +◦ Our inability to obtain additional capital on commercially reasonable terms; +◦ Our incurrence of debt, including related interest rate volatility and rising interest costs, which could have a negative impact on our financing options and liquidity position; +◦ The impact of worldwide economic, political and social conditions on our business; +• Risks Related to Personnel +◦ The loss of key personnel, an inability to attract and retain additional personnel or difficulties in the integration of new members of our management team into our business; +◦ Risks related to our use of independent contractors; +◦ Our inability to protect and enforce our intellectual property rights; +• Risks Related to Our Intellectual Property and Confidential Information +◦ Infringement on intellectual property rights of third parties; +◦ Risks associated with the use of “open source” software; +◦ Risks associated with scraping our content for use in training AI models and services; +• Risks Related to Legal and Regulatory Matters +◦ An increase in government regulation of the industries and markets in which we operate, including with respect to the internet, e-commerce and AI; +◦ Risks associated with public disclosure regulations and expectations, including with respect to environmental, social and governance matters; +◦ Exposure to greater than anticipated income and transaction tax liabilities; +◦ Our inability to comply with privacy, information security and data protection regulations and legal obligations; +◦ Payment-related risks that may result in higher operating costs or the inability to process payments; +◦ Complaints, judgments or litigation that may adversely affect our business and reputation; +• Risks Related to Our Class A Common Stock +◦ Risks related to our status as an “emerging growth company” and “smaller reporting company”; +◦ Class A common stock price volatility; +◦ Lack of an active trading market for our Class A common stock; +◦ Future sales of shares by existing stockholders could cause our stock price to decline; +◦ Delaware law and provisions of our organizational documents that make a merger, tender offer, or proxy contest difficult, thereby depressing the trading price of our Class A common stock; +◦ Forum selection provisions in our Amended and Restated Certificate of Incorporation; +◦ Our inability to pay dividends for the foreseeable future; +◦ Additional issuances of shares of Class A common stock or other equity securities without shareholder approval; +• Risks Related to the Proposed Merger (the “Merger”) with Shutterstock +◦ Our inability to complete the Merger, or to complete the Merger in a timely manner, including as a result of the failure to obtain required regulatory approvals or the failure to satisfy the other conditions to the +15 +Table of Conten ts +consummation of the Merger could negatively affect our business, financial condition and results of operations; +◦ Failure to complete the Merger could trigger the payment of a termination fee, and, whether or not the Merger is consummated, we have incurred and will continue to incur significant costs, fees and expenses relating to professional services and transaction fees; +◦ Uncertainties associated with the Merger may cause us to lose key customers or suppliers and make it more difficult to retain and hire key personnel, and the Merger may disrupt our current plans and operations or divert management’s attention from our ongoing business; +◦ We will be subject to business uncertainties and contractual restrictions while the Merger is pending. +◦ The proposed Merger and the integration of both companies may be more difficult, costly or time-consuming than expected, and we may fail to realize the anticipated benefits of the Merger; +◦ The market price of the combined company's common stock following the anticipated closing of the Merger may be affected by factors different from those that historically have affected or currently affect our common stock; +◦ We may be unable to retain personnel successfully while the Merger is pending or after the Merger is completed; +◦ We may become subject to lawsuits relating to the Merger, which could adversely affect our business, financial condition and operating results; +◦ Because the exchange ratio in the Merger Agreement is fixed and because the market price of Shutterstock and our Class A common stock will fluctuate prior to the completion of the Merger, we cannot be sure of the market value of our Class A common stock that will be paid to Shutterstock stockholders as consideration in the Merger; and +◦ Our stockholders will have a reduced ownership and voting interest in Getty Images following the merger as compared to their ownership and voting interest in us and will exercise less influence over management. +Operational Risks Related to Our Business +Our business depends in large part on our ability to attract new and retain existing and repeat customers. +More than a majority of our revenue is derived from customers who have licensed content from us in the past. We are also increasingly seeing the mix of revenue shift to committed revenues from annual subscription products. We must ensure that existing customers remain active customers and that we are successful in renewing our committed content agreements, including Premium Access agreements and iStock annual subscriptions. Our future performance largely depends on our ability to attract new and retain existing customers. We employ various customer experience, content, marketing and pricing strategies to incentivize customers to seek and use our content. Our customer experience strategies may be unsuccessful, due to lack of available and desirable content, the depth and breadth of our current and future product offerings, lack of differentiated content, a decline or failure in the quality and accuracy of our search algorithms, the features and functionality of our websites, payment systems and effectiveness of our sales support. As new and emerging platforms and content distribution systems emerge, including but not limited to generative AI generated content and services powered by generative AI, including open-source generative AI, our customers may no longer want to source content from distributors such as us. In addition, our marketing strategies may not attract new customers, our content strategies may not attract relevant content from a suitably diverse network of suppliers and our pricing strategies may discourage purchases. To the extent that we are unable to attract new customers, our costs to acquire and retain customers increase, or our existing customers do not continue to license content from us for these or any other reasons, our results of operations and financial condition could be materially and adversely affected. +We may be unable to offer relevant quality and diversity of content to satisfy customer needs, including due to an inability to license content owned by third parties, which may become unavailable to us on commercially reasonable terms or may not be available at all. +We generate a significant majority of our revenue from content that we source from third parties. We typically acquire rights in such content from suppliers through licenses, either on an exclusive or non-exclusive basis, with the +16 +Table of Conten ts +ability to grant sublicenses. If we are unable to renew our supply agreements with third-party suppliers or if such suppliers otherwise fail to continue to provide us with relevant content or cease providing content that we currently or may in the future license, we may be unable to offer our customers the depth and breadth of content they may demand. In addition, other digital content distributors who currently or in the future may offer competing content and services may offer content suppliers higher royalties, easier submission workflows and platforms, less rigorous ingestion practices, and/or exclusivity incentives, and/or take other actions that could make it more difficult or impossible for us to license existing or new content from third party suppliers. Such third party suppliers may choose to stop distributing new content with us or remove their existing content from our collection. If we are unable to continue to offer a wide variety of content at reasonable prices with acceptable license rights, our financial condition and results of operations could be materially and adversely affected and future growth prospects limited. +Our business is highly competitive, and we face intense competition from a number of companies and technologies, which could reduce our revenues, margins and results of operations. +The digital media content industry is fragmented and intensely competitive, and competition may intensify in the future. Increased competition may result in our loss of market share, pricing pressure and reduced profit margins, any of which could materially and adversely affect our business and results of operations. +We compete with a wide array of entities, including large media companies, individual content creators and generative AI technologies. These competitors include: +• traditional stock content providers; +• other online platforms from which imagery may be sourced that provide both paid and no-cost licenses, including content created on demand or through generative AI models; +• other specialized editorial and video content providers that are established in local, content or product-specific market segments; +• independent photographers, filmmakers, musicians and related agencies; +• crowd-sourced distribution platforms, social networking and image hosting services; +• freelancers; +• creative agencies; +• software as a service solutions that package visual content into creative and design services; and +• products and services powered by generative AI, including open-source generative AI. +Many of our competitors have or may obtain significantly greater financial, marketing or other resources or greater brand awareness than we have. Some of these competitors may be able to respond more quickly to new or expanding technology, such as generative AI technologies, and devote more resources to product development, marketing or content acquisition than we can. Industry consolidation could result in stronger competitors that are better able to compete for customers. This could lead to more variability in results of operations as we compete with larger competitors and could have a material adverse effect on our business, results of operations, and financial condition. +In addition, new competitors may enter our market, including those that rely on generative AI technologies. They and existing competitors could focus investment in creating, sourcing, archiving, indexing, reviewing, searching, purchasing or delivering content more easily or more affordably. The barriers to creating a website platform that allows for the license of digital content are low, especially when considering open-source generative AI that requires minimal resources to produce, which could result in greater competition. New entrants, as well as existing competitors, may raise significant amounts of capital (or leverage relationships with other competitors or investors) and they may choose to prioritize increasing their market share and brand awareness over profitability, including, for example, by investing more in content offerings, marketing or pricing strategies such as delivering AI generated content, offering higher royalties for exclusivity or lowering content prices. Some of these new competitors may also invest in other existing competitors, increasing market pressure on our offerings. +Competitors could develop products or services that render ours less desirable or obsolete. External factors such as our competitors’ pricing and marketing strategies could impede our ability to meet customer expectations. Our competitors may be able to attract talented staff from us and others to devote greater resources to research and development of products and technologies. Increased competition and pricing pressures may result in reduced sales, lower margins, losses or the failure of our product and services to maintain and grow their current market share, any of which could harm our business. If we are unable to compete successfully against competitors and adapt to emerging technologies, our financial condition, growth prospects and results of operations could be materially and adversely affected. +17 +Table of Conten ts +We may be unsuccessful in executing our business strategy. +The success of our business and our future growth prospects relies on our ability to execute our business strategies in making available desired content and expanding our global customer base. There can be no assurance that we will be able to continue to execute any or all of our strategies, including our ability to provide a proprietary platform and infrastructure as well as our acquisition strategy. Failure to execute these strategies on a timely and cost-effective basis could have a material and adverse effect on our financial condition and results of operations and could limit our growth prospects. +We have incurred and expect to continue to incur increased costs and our management will continue to face increased demands as a result of continuously improving our operations as a public company. +We have incurred and expect to continue to incur significant legal, tax, insurance, accounting and other expenses as a result of conducting our operations as a public company. Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and related regulations implemented by the SEC and the stock exchanges increase legal and financial compliance costs and making some activities more time-consuming. We are currently evaluating and monitoring developments with respect to new and proposed rules and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. Further, there may be uncertainty regarding the implementation of these laws due to changes in the political climate and other factors. Our compliance with Section 404 of the Sarbanes-Oxley Act requires that we incur substantial accounting expense and expend significant management efforts. We have incurred and expect to continue to incur costs to obtain directors’ and officers’ insurance as a result of operating as a public company, as well as additional costs necessitated by compliance matters and ongoing revisions to disclosure and governance standards. +These and other increased costs associated with operating as a public company may decrease our net income or increase our net loss and may cause us to reduce costs in other areas of our business or increase the prices of our products or services to offset the effect of such increased costs. Although we continue to evaluate and manage our costs, the ability to effectively manage such costs is subject to risks and uncertainties, and we cannot be sure that these activities, or any other activities that we may undertake in the future, will achieve the desired cost management or efficiencies. Failure to effectively manage our costs, whether as a result of being a public company or otherwise, could adversely affect our results of operations and financial condition and curtail investment in growth opportunities +If we fail to maintain an effective system of internal control over financial reporting, we may not be able to report our financial results accurately or in a timely fashion, and we may not be able to prevent fraud; in such case, our stockholders could lose confidence in our financial reporting, which would harm our business and could negatively impact the price of our stock. +As a public company, we are required by the Sarbanes-Oxley Act to establish and maintain corporate oversight and adequate internal control over financial reporting and disclosure controls and procedures. Effective internal control is necessary for us to provide reliable, timely financial reports and prevent fraud. +Our testing of our internal controls, or the testing by our independent registered public accounting firm, may reveal deficiencies in our internal control over financial reporting that we would be required to remediate in a timely manner to be able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act each year. If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner each year, we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources and could adversely affect the market price of our shares of Class A common stock. Furthermore, if we cannot provide reliable financial reports or prevent fraud, our business and results of operations could be harmed and investors could lose confidence in our reported financial information. +We may lose the right to use “Getty Images” trademarks in the event we experience a change of control or otherwise exceed the permitted usage of this trademark. +We own trademark registrations and applications for the name “Getty Images.” We use “Getty Images” as a corporate identity, as do certain of our subsidiaries. We refer to these trademark registrations and trademark applications as +18 +Table of Conten ts +the “Getty Images Trademarks.” Pursuant to the Restated Option Agreement (as defined below) and the Fourth Amendment to the Restated Option Agreement, in the event that one or more third parties not affiliated with Getty Investments acquire a controlling interest in us, for so long as Getty Investments, Mark Getty, The October 1993 Trust and The Options Settlement (collectively, the “Getty Family Stockholders”) (together with their respective successors and any permitted transferees) beneficially own more than 27,500,000 shares of Class A common stock (the “Ownership Threshold”), Getty Investments has the option to acquire, for a nominal sum, all rights to the Getty Images Trademarks. +If the Getty Family Stockholders (together with their respective successors and any permitted transferees) fall below the Ownership Threshold, their option referred to herein will terminate. After an exercise of the option, we would be permitted to continue to use the Getty Images Trademarks for 24 months, and thereafter we would have to cease such use. Getty Investments may also exercise the option if we cease all use of the Getty Images Trademarks. We may not sell, transfer or encumber the Getty Images Trademarks, or any interest therein, without the prior written consent of Getty Investments. In addition, we may not use the Getty Images Trademarks for any direct-to-consumer sales beyond an incidental and limited level. The loss of rights to the Getty Images Trademarks could have a material adverse effect on our business, results of operations and financial condition. +We operate in new and rapidly changing markets, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful. +The market for commercial digital imagery and other content is a rapidly changing market, characterized by changing technologies, intense price competition, the introduction of new competitors, evolving industry standards, changing and diverse regulatory environments, frequent new service announcements and changing consumer demands and behaviors. Our inability to anticipate these changes and adapt our business, platform, and offerings could undermine our business strategy. Our business strategy and projections, including those related to our revenue growth and profitability, rely on a number of assumptions about the market for commercial digital content, including the s ize and projected growth of the imagery and video markets over the next several years. Some or all of these assumptions may be incorrect. In particular, our growth is highly dependent upon the continued demand for commercial digital content. To the extent that demand for commercial digital content does not continue to grow as expected or decreases, our revenue growth and profitability may be materially and adversely affected. Our growth strategy is dependent, in part, on our ability to ti mely and effectively launch new products and services, the development of which are uncertain, complex and costly. In addition, we may be unable successfully and efficiently to address advancements in distribution technology, marketing and pricing strategies and content breadth and availability in certain or all of these markets, which could materially and adversely affect our growth prospects and results of operations. +The limited history of some of the markets in which we operate makes it difficult to effectively assess our future prospects, and our business and prospects should be considered in light of the risks and difficulties we may encounter in these evolving markets. We cannot accurately predict whether our products and services will achieve significant acceptance by potential customers in significantly larger numbers or at the same or higher price points than at present. Our historic growth rates should therefore not be relied upon as an indication of future growth, financial condition or results of operations. +The increasing use of AI applications such as generative AI technologies may result in harm to our brand, reputation, business, or intellectual property, and could otherwise adversely affect our results of operations. +Uncertainty around new and emerging AI applications such as generative AI content creation may require additional investment in the development of proprietary datasets and machine learning models, development of new approaches and processes to provide attribution or remuneration to content creators and building systems that enable creatives to have greater control over the use of their work in the development of AI, which may be costly and could impact our profit margin. Developing, testing, and deploying AI systems may also increase the cost profile of our offerings due to the nature of the computing costs involved in such systems. +Further, generative AI technology may negatively impact our ability to attract, engage, and retain customers; protect and monetize our intellectual property; maintain and grow other revenue streams; and retain customers and grow trust in our brand. The rapid advancement and adoption of generative AI technologies poses risks to our business operations, particularly in the licensing of creative images and videos. Generative AI presents a dual-threat scenario: the unauthorized use of our intellectual property to train AI models and the potential for these models to create competitive or substitutive content. Recent advances and continued rapid development in generative AI technology may alter the market for our products and services. +19 +Table of Conten ts +Generative AI tools powered by models that have been trained on our content, or that are able to display and produce output that contains, is similar to, or is based on, our content, without permission, fair compensation, or proper attribution, may reduce our online traffic, decrease customer demand, infringe our intellectual property rights, impair our ability to attract new customers, harm existing and potential revenue streams, and adversely affect our business, revenues and results of operations. Generative AI technologies also have the potential to create images and videos that directly compete with or substitute for our licensed content. As these technologies become more accessible and capable, customers may opt for AI generated content that bypasses traditional licensing models, impacting our revenue and market position. The evolving nature of AI generated content also raises questions about copyright and originality, potentially disrupting the legal frameworks that protect our assets. +Third parties do and may continue to engage in the scraping of our intellectual property without consent, utilizing this content to train their generative AI models. Such unauthorized use infringes on our intellectual property rights and undermines the value proposition of our licensing business. Despite our efforts to monitor and enforce these rights, the volume of digital content and the sophistication of scraping technologies may limit our ability to fully prevent unauthorized use. We are actively monitoring these developments and exploring strategies to mitigate their impact, including technological solutions to prevent unauthorized scraping and participating in industry and legislative efforts to address the challenges posed by generative AI. However, there is no guarantee that these measures will be fully effective in protecting our interests, and our failure to adapt to these changes could adversely affect our business, financial condition, and operational results. +The legal landscape for generative AI remains uncertain, including with respect to intellectual property rights, and the development of the law in this area could impact our ability to protect our intellectual property from infringing and competitive uses. See “ Item 3—Legal Proceedin gs” for background on our suit against Stability AI, Inc. et al. There can be no assurance that we will be successful in these cases, or in preventing other generative AI developers or technologies from using our content without authorization or fair compensation. Our business, brand, financial condition and results of operations may suffer as a result. +We are also using and may continue to use certain generative AI tools in our business. If the recommendations that these tools assist in producing are or are alleged to be deficient, inaccurate, biased or otherwise problematic, our reputation may be adversely affected. In addition, the introduction of generative AI tools into our business may negatively impact our workplace culture and ability to attract and retain employees if generative AI tools are viewed as displacing workers. Accordingly, our use of, or perceptions of the way that we use, generative AI could adversely affect our business, brand, financial condition or results of operations. +If we cannot continue to innovate technologically or develop, market and sell new products and services, or enhance existing technology and products and services to meet customer requirements, our ability to grow our revenue could be impaired. +Our growth largely depends on our ability to innovate and add value to our existing creative platform and to provide our customers and contributors with a scalable, high-performing technology infrastructure that can efficiently and reliably handle increased customer and contributor usage globally, as well as the deployment of new features. For example, AI and products, including but not limited to generative AI, require additional capital and resources. Without improvements to our technology and infrastructure, our operations might suffer from unanticipated system disruptions, slow performance or unreliable service levels, any of which could negatively affect our reputation and ability to attract and retain customers and contributors. We are currently making, and plan to continue making, significant investments to maintain and enhance the technology and infrastructure and to evolve our information processes and computer systems in order to run our business more efficiently and remain competitive. We may not achieve the anticipated benefits, significant growth or increased market share from these investments for several years, if at all. If we are unable to manage our investments successfully or in a cost-efficient manner, our business and results of operations may be adversely affected. +Our growth also depends, in part, on our ability to identify and develop new products and services and enhance existing products and services. The process of developing new products and services and enhancing existing products and services and bringing products or enhancements to market in a timely manner is complex, costly and uncertain and we may not execute successfully on our vision or strategy because of challenges such as product planning and timing, technical hurdles, or a lack of resources. The success of our products depends on several factors, including our ability to: +• anticipate customers’ and contributors’ changing needs or emerging technological trends; +• timely develop, complete and introduce innovative new products and enhancements; +20 +Table of Conten ts +• differentiate our products from those of our competitors; +• effectively market our products and gain market acceptance; +• adopt new technologies without alienating our current contributors; +• price our products competitively; and +• provide timely, effective and accurate support to our customers and contributors. +We may be unable to successfully identify new product opportunities or enhancements, develop and bring new products to market in a timely manner, or achieve market acceptance of our products. There can be no assurance that products and technologies developed by others will not render our products or technologies obsolete or less competitive. If we are unsuccessful in innovating our technology or in identifying new or enhancing our existing product offerings, our ability to compete in the marketplace, to attract and retain customers and contributors and to grow our revenue could be impaired. +Further, our customer base is diverse, but trends in their industries present risks to our business. In recent years, traditional outlets for media and advertising, such as newspapers, magazines, book publishing and television, have experienced consolidation and undergone other significant changes, and, in many cases, also experienced diminishing readership and viewership, as applicable, and ultimately periodic declines in revenues and profitability. Corporate in-house content users have experienced reduced budgets and shifts in use patterns that have changed the way they acquire and use our content, including an increase in reliance on in-house creative and marketing capabilities instead of outsourcing this work to agencies. We have also seen an increasing shift away from print media to digital and online media use. Content used online has historically been characterized by lower resolutions and lower price points but potentially significantly higher volumes than print-based applications. If we are unable to adapt our content offerings and distribution technology to address any current or future changes to customer industries, our future growth prospects and results of operation could be materially and adversely affected. +We rely on third parties to drive traffic to our website, and these providers may change their search engine algorithms or pricing in ways that could negatively affect our business, results of operations, financial condition and prospects. +Our success depends on our ability to attract customers in a cost-effective manner. With respect to our marketing channels, we rely heavily on relationships with providers of online services, search engines, social media, and affiliate websites and e-commerce businesses to provide content, advertising banners and other links that direct customers to our websites. We rely on these relationships to provide significant sources of traffic to our website. In particular, we rely on search engines as important marketing channels. Search engine companies change their natural search engine algorithms periodically, and our ranking in natural searches have been in the past, and may be in the future, adversely affected by such changes. Search engine companies may also determine that we are not in compliance with their guidelines and consequently penalize us in their algorithms as a result. If search engines change or penalize us with their algorithms, terms of service, display and featuring of search results, or if competition increases for advertisements, we may be unable to cost-effectively drive consumers to our websites. +Our relationships with our affiliate websites are not long term in nature and often do not require any specific performance commitments. As competition for online advertising has increased, the cost for some of these services has also increased. A significant increase in the cost of the affiliate websites could adversely impact our ability to attract customers cost effectively and harm our business, results of operations, financial condition and prospects. +Our operation in and continued expansion into international markets is important for our business. As we continue to expand internationally, we face additional business, political, regulatory, operational, financial and economic risks, any of which could increase our costs or otherwise limit our growth. +Operating internationally and continuing to expand our business to attract new customers and content suppliers in geographies other than North America and Western Europe is important to our continued success and growth. For each of the years ended December 31, 2024, 2023 and 2022, approximately 50% of our revenue was derived from customers located outside of the United States. We expect to continue to devote resources to international expansion through exploring acquisition and foreign distributor partnership opportunities, as well as through expanding our foreign language marketing of offerings and further localizing our content library and user experience for foreign markets. Our ability to expand our business and to attract talented employees, customers and content suppliers in an increasing number of international markets requires considerable management attention and resources and is subject to the particular challenges of supporting a growing business in an environment of multiple languages, cultures, customs, political regimes, legal systems, alternative dispute systems, regulatory systems and commercial infrastructures. Moreover, as the wars in the +21 +Table of Conten ts +Ukraine and the Middle East continue, there can be no certainty regarding whether such governments or other governments will impose additional sanctions or other economic or military measures against Russia, Hamas or others. We cannot provide assurance that current sanctions or potential future changes in sanctions will not have an adverse impact on our operations. Expanding our international focus may subject us to risks that we have not faced before or increase risks that we currently face, certain of which are described elsewhere in these “ Item 1A. Risk factors ,” including risks associated with: +• modifying and customizing our content, technology, pricing and marketing efforts to appeal to foreign customers and attract foreign content suppliers; +• changes to domestic and international intellectual property, privacy and rights of publicity laws; +• higher costs associated with doing business internationally, including increased taxes and foreign currency fluctuations; +• legal, political or systemic restrictions on the ability of U.S. companies to do business in foreign countries, including, among others, restrictions imposed by the U.S. Office of Foreign Assets Control (“OFAC”) on the ability of U.S. companies to do business in certain specified foreign countries or with certain specified organizations and individuals; +• difficulty in staffing and strains on our systems and staff in managing widespread operations and ensuring compliance with foreign laws and regulations, including local laws, the U.S. Foreign Corrupt Practices Act, the U.K. Anti-Bribery Act, the U.K. Modern Slavery Act, or other anti-corruption or anti-money laundering laws, tax regulations, disclosure requirements, privacy laws, biometric, data protection, rights of publicity, human rights, employment, technology laws and laws relating to content; +• government regulation of e-commerce and restrictions on communications, distribution of content and media, including censorship; +• disruption in the political, economic or military stability of markets in which we operate; +• providing for the health and safety of our photographers and other employees around the world; +• potential legal, political or social uncertainty and volatility or catastrophic events, including wars and terrorist events, that could restrict our photographers’ travel or otherwise adversely impact our operations and business and/or those of the companies with which we do business; +• currency restrictions that may limit our ability to repatriate profits; +• differences in payment cycles, increased credit risks and increased payment fraud levels; +• lack of adoption by certain jurisdictions of e-commerce and internet payment platforms and adoption of different platforms by different jurisdictions; +• reduced and more costly protection of our intellectual property; +• currency exchange fluctuations, hyperinflation and deflation fluctuations; +• potential adverse tax consequences of doing business in certain jurisdictions; +• recruiting and retaining talented and capable management and employees in foreign countries; and +• difficulties of establishing, adapting and maintaining the systems and operations for compliance with and management of these risks. +These risks may make it impossible or prohibitively expensive to effectively maintain operations in or expand to new international markets, or delay entry into such markets, which could materially and adversely affect our ability to grow our business. Additionally, the entry of local competitors in certain markets may impede our ability to grow our business in those markets. +Actions by governments to restrict access to, or operation of, our services or the content we distribute in their countries could substantially harm our reputation, business and financial results. +Foreign governments, or internet service providers acting pursuant to foreign government policies or orders, of one or more countries may seek to limit content available through our e-commerce platform in their country, restrict access to our products and services from their country entirely, or impose other restrictions that may affect the accessibility of our services in their country for an extended period of time or indefinitely if our services, or the content we distribute, are deemed to be in violation of their local laws and regulations. For example, domestic internet service providers have previously blocked access to certain content in China and other countries, such as Russia, have previously restricted access to specific content. If access to our services is restricted, in whole or in part, in one or more countries or our competitors can successfully penetrate geographic markets that we cannot access, our reputation among our customers, contributors and employees may be negatively impacted, our ability to retain or increase our contributor and customer base may be adversely affected, we may not be able to maintain or grow our revenue as anticipated, and our financial results could be adversely affected. +22 +Table of Conten ts +The impact of currency fluctuations could adversely and materially affect our business and results of operations. +Our foreign operations are exposed to foreign exchange rate fluctuations as our financial results are translated from the local currency into U.S. Dollars upon consolidation. If the U.S. Dollar weakens against foreign currencies, the translation of these foreign currency denominated transactions will result in increased revenue, operating expenses and net income. Similarly, if the U.S. Dollar strengthens against foreign currencies (which occurred in 2022), the translation of these foreign currency denominated transactions will result in decreased revenue, operating expenses and net income. As exchange rates vary, sales and other results of operations, when translated, may differ materially from expectations. For the years ended December 31, 2024, 2023 and 2022, 44%, 45% and 44% of our revenue was denominated in foreign currencies, respectively. In addition, approximately 38%, 36% and 35% of our SG&A (as defined below) and capital expenditures for the years ended December 31, 2024, 2023 and 2022 were denominated in foreign currencies, respectively. +Because we report our financial results in U.S. Dollars, fluctuations in foreign currencies (including the British Pound, Australian and Canadian Dollars, Japanese Yen and Euro) have had and will continue to have a material effect on our financial performance. Volatility in foreign currency fluctuations may continue as a result of economic and political circumstances beyond our control. +A decline in value of any foreign currency against the U.S. Dollar will tend to have a negative effect on our financial performance, while an increase in value of these currencies against the U.S. Dollar will tend to have a positive impact on reported financial performance. This fluctuation risk increases as we expand into foreign markets. +We have previously and may in the future, enter into certain derivatives or other financial instruments to hedge against this foreign exchange risk. It is difficult to predict the impact hedging activities have on our results of operations and any actions we have and will take with respect to hedging our foreign currency exchange risk may be unsuccessful. +We may be unable to adequately maintain, adapt and upgrade our websites and technology systems to ingest and deliver higher quantities of new content and allow existing and new customers to successfully search for our content. +To remain competitive, we must continue to add substantial quantities of the most relevant content desired by our customers. Our ability to ingest such content is directly related to the ease of access, sophistication, protections and reliability of the technology relating to our ingestion tools. Our failure to address deficiencies could result in a decrease or inability to ingest enough new content, thereby causing customers to seek other sources, which could materially and adversely affect our results of operations and financial condition. +Even if we can ingest sufficient new content, we must also add new functionality and features to our websites to allow customers to search for the relevant content we offer. A significant component of our technology strategy is the improvement of the compatibility of our websites with third-party search engines that direct traffic to our site and, specifically, to content that reflects searched key words. The search algorithms developed by third-party search engines are typically not publicly known and are subject to unanticipated changes, which could significantly affect the number of new customers we attract to our sites. In addition, we continually seek to improve search functions within our site to enable customers to locate the most relevant and appropriate content for their particular use. If we do not address any current or future deficiencies with respect to potential or existing customers’ ability to search for content on the internet or on our websites, we may be unsuccessful in acquiring and retaining customers and ultimately licensing the most relevant content, which could materially and adversely affect our results of operations and financial condition. In addition, the expansion and improvement of our systems and websites may require us to commit substantial financial, operational and technical resources, with no assurance that our business will improve. +We may not be able to continue the growth of our business at rates reflective of our historical growth rates or at all. +We have experienced growth in terms of revenues, customers and content offerings, and we may not be able to maintain our historical rate of growth in certain product lines or replicate this growth with other product lines or across geographies. Our growth strategy may require us to commit substantial financial, operational and technical resources to current operations, which may divert such resources away from other potentially profitable ventures, without any guarantee of a similar return on any such investments. Further, even if we do achieve the desired growth, such growth could also strain our ability to maintain reliable operation of our websites or our relationships with customers and content suppliers and acquire relevant content. This in turn could negatively impact our ability to develop and improve our operational, financial and management controls and systems. If we fail to effectively manage or support future growth, or if we are +23 +Table of Conten ts +otherwise negatively impacted by our efforts to grow our product lines, our business, results of operations and financial condition may be materially and adversely affected. +Technological interruptions that impair access to our websites or the efficiency of our websites and technology systems could damage our reputation and brand and adversely affect our results of operations. +The digitization and satisfactory internet distribution of our content is a key component of the efficient functioning of our websites and our business. We will need to continue to invest in and improve our websites and systems, network infrastructure, content ingestion, and customer experience in order to ensure consistent performance, reliability, and accessibility, and to accommodate our expanding product offerings, anticipated increased site traffic, sales volume, and processing of the resulting information and transactions. If we experience significant disruptions or difficulties as a result of or during any such technology updates or upgrades, we may face system interruptions, poor website response times, inability to refresh or add content, diminished customer services, impaired quality and speed of order processing, and potential problems with our internal control over financial reporting. Substantial or repeated system disruptions or failures would reduce the attractiveness of our websites significantly and negatively impact our brand and reputation for both customers and content providers. Even a disruption as brief as a few minutes could have a negative impact on activities on our websites or systems and could therefore result in a loss of customers, revenue, partners, content providers or data. Because some of the causes of system interruptions may be outside of our control, we may not be able to remedy such interruptions in a timely manner, or at all. +Our ability to license content and offer other related services also depends on the maintenance of a reliable network backbone with the necessary speed, data capacity and security, as well as the timely development of complementary capabilities, to provide reliable website internet access and services. The internet has experienced, and is likely to continue to experience, significant growth in the number of users and bandwidth requirements. As a result, problems caused by viruses, worms, malware and similar programs could negatively impact internet infrastructure and cause it to be unable to support the user demand associated with such users and bandwidth requirements. The internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure, and it could face outages and delays in the future, which could reduce the level of internet usage generally as well as the level of usage of our services. In addition, if telecommunications providers lose service to their customers, our customers will not be able to access our websites. Our websites and systems have in the past experienced, and may in the future experience, temporary system interruptions for a variety of reasons, including cybersecurity breaches and other security incidents, viruses, telecommunication and other network failures, power failures, programming errors, data corruption, denial-of-service attacks or an overwhelming number of visitors trying to reach our websites during periods of strong demand. Even a brief disruption in service that causes portions of our websites to be unavailable to customers or prevents us from efficiently uploading content to our websites, or taking, processing or fulfilling orders could have a significant impact on our financial performance. System disruptions and difficulties, whether as a result of our internally developed systems or those of third-party providers, may inconvenience our customers and content providers and/or result in negative publicity, and may negatively affect our ability to provide services and the volume of content we license and deliver over the internet, thereby causing users to perceive our sites as not functioning properly and causing them to use another website or other methods to obtain the products or services we offer. +We rely upon third-party service providers, such as co-location and cloud service providers, for certain of our data centers and application hosting, and we are dependent on these third parties to provide continuous power, cooling, internet connectivity and technical, administrative and physical security for our servers. Occasionally, we migrate data among data centers and to third-party hosted environments. Certain of these third-party providers have in the past experienced, and may in the future experience, interruptions in operations that could harm our business. In such events, or in the event that we are unable to agree upon satisfactory terms for continued relationships, we could be forced to enter into relationships with other service providers or assume hosting responsibilities ourselves, potentially at a greater cost or on less favorable terms to us. Although our use of cloud services and multiple production data centers enables us to provide rapid content delivery to our customers and to support business continuity in the event of an emergency, a system disruption at an active data center or third-party hosting service provider could result in a noticeable disruption and/or performance degradation on our websites. +Additionally, some of the computer and communications hardware necessary to operate our corporate functions are located in metropolitan areas worldwide, which systems and operations could be damaged or interrupted by fire, flood, power loss, telecommunications failure, earthquake and similar events. We do not have redundancy for all of our systems, many of our critical applications reside in only one of our data centers or in the cloud, and our disaster recovery planning may not account for all eventualities. In addition, we may have inadequate insurance coverage to compensate for any +24 +Table of Conten ts +related loss. In addition, while the long-term effects of climate change are unclear, we recognize that there are inherent climate-related risks wherever business is conducted. Any of our locations may be vulnerable to the adverse effects of climate change. Climate-related events, including the increasing frequency of extreme weather events and their impact on critical infrastructure in the United States and elsewhere, have the potential to disrupt our business, our third-party service providers or partners, and/or the business of our customers, and may cause us to experience higher attrition, losses and additional costs to maintain and resume operations. +Disruptions to our websites or internal communications and operating systems for any of the foregoing reasons could negatively impact our reputation and the perceived or actual functionality of our operations, which could harm our business and reputation, and cause a material and adverse effect on our financial condition. +Our failure to protect the proprietary information of our customers and our networks against cyberattacks, security breaches or unauthorized access could adversely affect our business and results of operations, damage our reputation and expose us to liability. +An important component of our global business is the secure transmission of proprietary information and the transaction of commerce over the internet. We and our third-party service providers collect and maintain proprietary information and personal information in connection with servicing our customers and content suppliers and other related processes on our websites and systems, and, in particular, in connection with processing and remitting payments to and from our customers and content suppliers, and are therefore exposed to security and fraud-related risks, which are likely to become more challenging as we expand our operations and as technology evolves. In addition, we collect proprietary information and personal information of third-party vendors and distributors, as well as our employees. Although we maintain security features on our websites and systems, designed to detect, prevent and provide protections against compromises of our systems or data, and utilize security measures such as encryption and authentication technology, we are subject to cyberattacks and are the target of computer viruses, hackers, distributed denial of service attacks, malware infections, ransomware attacks, phishing and spear-phishing campaigns, and/or other external hazards, as well as improper or inadvertent workforce behavior which, could expose confidential company and personal data systems and information to security breaches. Our security measures may not detect or prevent all attempts to hack our systems, denial-of-service attacks, viruses, malicious software, break-ins, phishing attacks, social engineering, security breaches or other attacks and similar disruptions that may jeopardize the security of information stored in and transmitted by our websites and system. We rely on encryption and authentication technology licensed from third parties to provide the security and authentication to effectively secure transmission of the proprietary information that we process for our customers, employees, vendors, distributors and content suppliers, and such technology may fail to function properly or may be compromised or breached. Additionally, we use third-party co-location and cloud service vendors for our data centers and application hosting, and other third-party vendors for some of the software and services that we use to operate the business, and their security measures may not prevent security breaches and other disruptions that may jeopardize the security of information stored in and transmitted through their systems. Further, some of the software and services that we use to operate our business, including our internal e-mail and customer relationship management software, are hosted by third parties. It is possible that a breach of any of these systems could go undetected for an extended period of time. +We have experienced successful attacks, by various types of hacking groups, in which personal and commercially sensitive information, belonging to the Company or its clients, has been compromised. However, none of these cybersecurity incidents or attacks to our knowledge have been material to our business or financial results. +In the event of a security breach, our business operations could be disrupted, and could result in loss of revenues or market share, liability to customers or others including an obligation to notify individuals or regulatory authorities, the diversion of corporate resources, injury to our reputation or increased service and maintenance cost. An unauthorized party could misappropriate proprietary information and/or personal information, cause interruption in our operations, damage or misuse our websites or systems, distribute or delete content owned by our content suppliers, customers, vendors or employees, and misuse the information that they misappropriate. We may be required to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches. In addition, a significant cyber-security breach could result in major credit card associations’ payment networks and companies offering other payment methods prohibiting us from processing future transactions on their networks and systems. Security and fraud-related issues are likely to become more challenging as we expand our operations and the related prevention, maintenance and risks associated with them could have a material and adverse effect on our financial condition. +Although cybersecurity and the continued development and enhancement of the processes, practices and controls that are designed to protect our systems, computers, software, data and networks from attack, damage or unauthorized access are a high priority for us, our efforts may not be enough to prevent a party from circumventing our security measures, or the security measures of our third-party service providers, and accessing and misusing the proprietary +25 +Table of Conten ts +information of our employees, customers and contributors. Accounts created with weak or recycled passwords could allow cyber-attackers to gain access to confidential data. +Security researchers, criminal hackers and other third parties regularly develop new techniques to penetrate computer and network security measures and, certain parties have in the past managed to obtain limited unauthorized access to certain of our systems and misused some of our systems and software. Outside parties have in the past attempted and may in the future attempt to fraudulently induce our employees or users of our products or services to disclose proprietary information or sensitive, personal, or confidential information via illegal electronic spamming, phishing or other tactics. Unauthorized parties may also attempt to gain physical access to our facilities in order to infiltrate our information systems or attempt to gain logical access to our products, services, or information systems for the purpose of exfiltrating content and data. These actual and potential breaches of our security measures and the accidental loss, inadvertent disclosure or unauthorized dissemination of proprietary information or sensitive, personal or confidential data about us, our employees, our customers or their end users, including the potential loss or disclosure of such information or data as a result of hacking, fraud, trickery or other forms of deception, could expose us, our employees, our customers or the individuals affected to a risk of loss or misuse of this information. This may result in liability, compliance costs, governmental inquiry or a loss of customer confidence, any of which could harm our business or damage our brand and reputation. In addition, our failure to adequately control fraudulent credit card transactions could damage our reputation and brand. Any one of the foregoing occurrences could result in a material and adverse effect on our business and results of operations. +As the techniques used to obtain unauthorized access, attack, disable or degrade services, or sabotage systems, are constantly evolving in sophisticated ways, we may be unable to anticipate these techniques or implement adequate preventative measures. We may also be required to expend significant capital and other resources to protect against security breaches or to alleviate problems caused by such breaches. Any actual breach, the perceived threat of a breach or a perceived breach could cause our customers, contributors and other third parties to cease doing business with us, or subject us to lawsuits, regulatory fines and other action or liability, any of which could harm our reputation, business, financial condition and results of operations. +Any compromise of security may result in our being out of compliance with U.S. federal and state laws, and international laws and contractual commitments, and we may be subject to lawsuits, fines, criminal penalties, statutory damages, and other costs, including for provision of breach notices and credit monitoring to our customers. Any failure, or perceived failure, by us to comply with our posted or internal privacy and data protection policies or with any regulatory requirements or orders or other federal, state, or international privacy, security or consumer protection-related laws and regulations, could result in proceedings or actions against us by governmental entities or others, subject us to significant penalties and negative publicity, and adversely affect our results of operations. +We may not be successful in acquiring or integrating new content and product lines. +Our strategy to increase market share and enhance profitability is to leverage our existing expertise into what we believe are underserved product and geographic markets. As part of this strategy, we have in the past acquired and invested in, and may in the future seek to acquire or invest in new businesses, products, collections and product offerings, or technologies that could complement or expand our business. Acquisitions or new partnerships may require significant capital infusions or investments and may negatively impact our results of operations. Further, the evaluation and negotiation of potential acquisitions and partnerships, as well as the integration of acquired businesses or onboarding of new partners, may divert management time and other resources. Certain other risks related to such acquisitions and investments that may have a material effect on our business or prevent us from benefiting from such investments include: +• disruption of our ongoing business, including diverting management’s attention from existing businesses and operations; +• costs incurred in performing due diligence and professional fees relating to potential acquisitions and partnerships; +• use of cash resources or incurrence of debt to fund acquisitions and investments; +• assumption of actual or contingent liabilities, known and unknown; +• amortization expense related to acquired intangible assets, impairment of any goodwill acquired and other adverse accounting consequences; +• difficulties and expenses in integrating the sales, marketing, operations, products, services, technology and financial and information systems of an acquired company, particularly in emerging geographic markets; +• information security vulnerabilities; +26 +Table of Conten ts +• retention of key employees, customers, and suppliers of an acquired business; and +• an adverse review of an acquisition or potential acquisition, or limitations put on such acquisitions, by a regulatory body. +These risks may make it impossible or prohibitively expensive to execute our business and investment strategies or delay execution of such strategies, which would materially and adversely affect our growth prospects and financial condition. +If our goodwill or other intangible assets become impaired, we may be required to record a significant charge to earnings. +Under generally accepted accounting principles, we review our intangible assets for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. We are required to test goodwill and any other intangible asset with an indefinite life for possible impairment on the same date each year and on an interim basis if there are indicators of a possible impairment. We are also required to evaluate amortizable intangible assets and fixed assets for impairment if there are indicators of a possible impairment. There is significant judgment required in the analysis of a potential impairment of goodwill, identified intangible assets and fixed assets. If, as a result of a general economic slowdown, deterioration in one or more of the markets in which we operate or in our financial performance and/or future outlook, the estimated fair value of our long-lived assets decreases, we may determine that one or more of our long-lived assets is impaired. An impairment charge could have a material adverse effect on our results of operations and financial position. We may be required to record a significant charge to earnings in our financial statements during the period in which any impairment of our goodwill or other intangible assets is determined, thereby materially and adversely affecting our results of operations. +Our ability to obtain additional capital on commercially reasonable terms may be limited. +Although we believe our cash, cash equivalents and short-term investments, as well as future cash from operations and cash available, provide adequate resources to fund ongoing operating requirements for the foreseeable future, we may need to seek additional financing to compete effectively. +If we are unable to obtain capital on commercially reasonable terms, it could: +• reduce funds available to us for purposes such as working capital, capital expenditures, strategic acquisitions and investments and other general corporate purposes; +• restrict our ability to introduce new products or exploit business opportunities; +• increase our vulnerability to economic downturns and competitive pressures in the markets in which we operate; and +• place us at a competitive disadvantage. +We have incurred debt, which could have a negative impact on our financing options and liquidity position, which could in turn adversely affect our business, or which if not refinanced could result in termination of the Merger Agreement . +As of December 31, 2024, we had $1.314 billion in aggregate principal amount of total debt. Additionally, our Credit Facility has remaining borrowing capacity of $150.0 million as of December 31, 2024. Our overall leverage and the terms of our financing arrangements could: +• limit our ability to obtain additional financing in the future for working capital, capital expenditures or acquisitions, to fund growth or for general corporate purposes, even when necessary to maintain adequate liquidity; +• make it more difficult for us to satisfy the terms of our debt obligations; +• limit our ability to refinance our indebtedness on terms acceptable to us, or at all; +• limit our flexibility to plan for and to adjust to changing business and market conditions and increase our vulnerability to general adverse economic and industry conditions; +• require us to dedicate a substantial portion of our cash flow from operations to make interest and principal payments on our debt, thereby limiting the availability of our cash flow to fund future investments, capital expenditures, working capital, business activities and other general corporate requirements; and +• increase our vulnerability to adverse economic or industry conditions. +27 +Table of Conten ts +Our ability to meet expenses and debt service obligations, including related interest rate volatility and rising interest costs, will depend on our future performance, which could be affected by financial, business, economic and other factors. In addition, a breach of any of the covenants in our outstanding debt agreements or our inability to comply with the required financial ratios could result in a default under our debt instruments, including the Credit Facility (as amended). If an event of default occurs, our creditors could elect to declare all borrowings outstanding, together with accrued and unpaid interest, to be immediately due and payable and/or require us to apply all of our available cash to repay borrowings. If we are not able to pay our debt service obligations we may be required to refinance all or part of our debt, sell assets, borrow more money or raise additional equity capital. In addition, under the terms of the Merger Agreement, Shutterstock’s may terminate the Merger Agreement if we fail to amend or otherwise refinance our existing term loans and senior notes to extend the maturity of each to no earlier than February 19, 2028. +On February 21, 2025, subsidiaries of Getty Images entered into the Second Incremental Commitment Amendment and Third Amendment to Credit Agreement (the “Refinancing Amendment”), which amended their Existing Credit Agreement. ( See “ Item 7. Management’s Discussion and Analysis of Financial and Results of Operations – Refinancing Amendment ” ). The Refinancing Amendment refinanced only our existing term loans and not our senior notes and failure to refinance our senior notes on a timely basis, including as a result of future market conditions, could trigger Shutterstock’s termination right under the Merger Agreement. +Risks Related to Global Economic Conditions +The impact of worldwide economic, political, social and other conditions may adversely affect our business and results of operations. +Global economic, political and social conditions can affect the business of our customers and the markets they serve, as well as disrupt the business of our vendors, third-party resellers and strategic partners. Numerous external forces beyond our control, including generally weak or uncertain economic conditions, supply chain disruptions, rising interest rates, inflation, tariffs and trade restrictions, negative or uncertain political climates, changes in government, global health epidemics (such as COVID-19), natural disasters and the impact from climate change, geopolitical conflicts and wars such as the Russia-Ukraine and Israel-Hamas wars, government shutdowns and/or the financial stability of the banking industry could adversely affect our financial condition. Particularly, our financial condition is affected by worldwide economic conditions and their impact on content generation and marketing and advertising spending. Expenditures by our customers generally tend to reflect overall economic conditions, and to the extent that the economy stagnates as a result of macroeconomic conditions, companies may reduce their spending with us. To the extent that overall economic conditions reduce spending on digital content, our ability to retain current and obtain new customers could be hindered, which could reduce our revenue and negatively impact our business. +Further, economic, political and social macro developments in the United States, Europe, and Asia could negatively affect our ability to conduct business in those territories. Financial difficulties experienced by our customers, third-party resellers, vendors and strategic partners due to economic volatility, rising interest rates, supply chain disruptions, inflation, tariffs and trade restrictions or other unfavorable changes could result in these companies scaling back operations, exiting businesses, merging with other businesses or filing for bankruptcy protection and potentially ceasing operations, all of which could adversely affect our business, financial condition and results of operations. +In addition, while the long-term effects of climate change are unclear, we recognize that there are inherent climate-related risks wherever business is conducted. Any of our locations may be vulnerable to the adverse effects of climate change, natural disasters, pandemics, global health issues and other unforeseen environmental events. Climate-related events, natural disasters, pandemics, global health issues and other unforeseen environmental events, including the increasing frequency of extreme weather events and their impact on critical infrastructure in the United States and elsewhere, have the potential to disrupt our business, our third-party service providers or partners, and/or the business of our customers, and may cause us to experience higher attrition, losses and additional costs to maintain and resume operations. +Risks Related to Personnel +The loss of key personnel, an inability to attract and retain additional personnel or difficulties in the integration of new members of our management team into our Company could affect our ability to successfully grow our business. +28 +Table of Conten ts +Our future success depends in large part upon the continued service of the members of our executive management team and key employees. All members of our executive management team are subject to employment agreements. In addition, our success also depends on our ability to attract and retain qualified technical, sales and marketing, customer support, financial and accounting, legal and other managerial personnel, as well as high quality photographers for our product line covering entertainment, sports and news (“Editorial”). The competition for skilled personnel in the industries in which we operate is intense. Our personnel generally may terminate their employment at any time for any reason. We may incur significant costs to attract and retain highly skilled personnel, and we may lose new employees to our competitors before we realize the benefit of our investment in recruiting them. As we move into new geographies, we will need to attract and recruit skilled personnel across functional areas. Some of our employees in Brazil, Germany, France and Spain are subject to collective bargaining agreements and employees in other jurisdictions may unionize. If we fail to attract new personnel or if we suffer increases in costs or business operations interruptions as a result of a labor dispute, or fail to retain and motivate our current personnel, we might not be able to operate our businesses effectively or efficiently, serve our customers properly or maintain the quality of our content and services. +We may be exposed to risks related to our use of independent contractors. +We rely on independent third parties to provide certain services for our Company. The state of the law regarding independent contractor status varies from jurisdiction to jurisdiction and is subject to change based on court decisions and regulation. For example, on April 30, 2018, the California Supreme Court adopted a new standard for determining whether a company “employs” or is the “employer” for purposes of the California Wage Orders in its decision in the Dynamex Operations West, Inc. v. Superior Court case. This standard was expanded and codified in California via Assembly Bill 5, and became effective as of January 1, 2020. The Dynamex decision and Assembly Bill 5 altered the analysis of whether an individual, who is classified by a hiring entity as an independent contractor in California, has been properly classified as an independent contractor. Assembly Bill 5 was amended to include exclusions for photographers, videographers and editors where specific requirements are met. In addition, independent workers have been the subject of widespread national discussion and it is possible that other jurisdictions may enact laws similar to Assembly Bill 5 or that otherwise impact our business and our relationships with independent third parties. As a result, there is significant uncertainty regarding the future of the worker classification regulatory landscape. +From time to time, we may be involved in lawsuits and claims that assert that certain independent contractors should be classified as our employees. Adverse determinations regarding the status of any of our independent contractors could, among other things, entitle such individuals to the reimbursement of certain expenses and to the benefit of wage-and-hour laws, and could result in the Company being liable for income taxes, employment, social security, and withholding taxes and benefits for such individuals. Any such adverse determination could result in a material reduction of the number of subcontractors we can use for our business or significantly increase our costs to serve our customers, which could adversely affect our business, financial condition and results of operations. +Risks Related to Our Intellectual Property and Confidential Information +Our business and prospects would suffer if we are unable to protect and enforce our intellectual property rights and confidential information. +The success of our business depends on our ability to protect and enforce our patents, trade secrets, trademarks, copyrights and all of our other intellectual property rights and other confidential information, including our intellectual property rights underlying our owned content library, websites and search algorithms. Despite our efforts to protect our intellectual property rights, which may afford only limited legal protections, unauthorized parties have attempted, and may continue to, attempt to copy and use aspects of our intellectual property and other confidential information. Effective legal protection for our patents, trade secrets, trademarks, copyrights and other intellectual property assets may not be available or practical in every country in which we operate or intend to operate. Moreover, policing our intellectual property rights is difficult, costly and may not always be effective. We may commence legal proceedings to protect our IP rights, which may increase our operating expenses. We could be subject to countersuits as a result. To the extent any unauthorized parties, which may include our competitors, are successful in copying and using aspects of our intellectual property or confidential information, including our search algorithms and our trade secrets, our business could be harmed. +We or one of our affiliates have registered “Getty Images,” “iStock,” “Unsplash” and other marks and logos as trademarks in the United States and other jurisdictions. Nevertheless, competitors may adopt trademarks similar to ours, or purchase keywords in internet search engine marketing programs that are confusingly similar to our trademarks, thereby impeding our ability to build brand identity and possibly leading to confusion among existing and potential new customers. +29 +Table of Conten ts +In addition, there could be infringement claims by third parties regarding any of our trademarks or our use of other intellectual property that could damage our reputation and brand, prove costly to defend irrespective of their validity, and, if such claims are ultimately validated, materially and adversely affect our financial condition and results of operations. +We currently own the www.gettyimages.com, www.istock.com and www.unsplash.com internet domain names in addition to various other domain names. Domain names are generally regulated by internet regulatory bodies. If we lose the ability to use a domain name in a particular country, we would be forced either to incur significant additional expenses to market our products within that country or to elect not to sell products in that country. Either result could harm our business and results of operations. The regulation of domain names in the United States and in foreign countries is subject to change, including the establishment of additional top-level domains and domain name registrars or the modification of the requirements for holding domain names. As a result, we may not be able to acquire or maintain the domain names that utilize our brand names in the United States or other countries in which we conduct business or in which we may conduct business in the future. +In order to protect our trade secrets and other confidential information, we rely in part on confidentiality agreements with our employees, consultants and third parties with whom we have relationships. These agreements may not prevent disclosure of trade secrets and other confidential information and may not provide an adequate remedy in the event of misappropriation or any unauthorized disclosure or independent discovery of our trade secrets and confidential information. Costly and time-consuming litigation could be necessary to enforce or determine the scope of our trade secret rights and related confidentiality and nondisclosure provisions. Failure to adequately protect our trade secrets and other confidential information could adversely affect our competitive business position. +Litigation or proceedings before the U.S. Patent and Trademark Office, U.S. Copyright Office or other governmental authorities and administrative bodies in the United States and foreign countries may be necessary in the future to enforce and protect our patent rights, copyrights, trademarks, trade secrets, domain names and other intellectual property rights and to determine the validity, enforcement and scope of the intellectual property rights of others. Furthermore, the monitoring and protection of our intellectual property rights may become more difficult, costly and time consuming as we continue to expand internationally, particularly in those markets, such as China and certain other developing countries in Asia, in which legal protection of intellectual property rights is less robust than in the United States and in Europe. Our efforts to enforce or protect our intellectual property rights may be ineffective and could result in substantial costs and diversion of resources and management time, each of which could materially and adversely affect our results of operations. +We rely on intellectual property laws and contractual restrictions to protect the content in our library. Intellectual property laws and protections may change and such changes may impact our protections, adversely impacting our business and financial position. Certain countries do not prioritize the enforcement of intellectual property laws, and litigation in those countries may be costly and ineffective. Consequently, these intellectual property laws afford us only limited protection. Unauthorized parties have attempted, and may continue to attempt, to improperly use our content. We cannot guarantee that we will be able to prevent the unauthorized use of our content or that we will be successful in stopping such use once it is detected. +Advancements in technology, including advancements in generative AI technology, have made unauthorized copying and wide dissemination of unlicensed content easier. At the same time, detection of unauthorized use of our intellectual property and enforcement of our intellectual property rights have become more challenging, in part due to the increasing volume and sophistication of attempts at unauthorized use of our intellectual property, including from generative AI developers or technologies. As our business and the presence and impact of bad actors become more global in scope, we may not be able to protect our proprietary rights in a cost-effective manner in other jurisdictions. In addition, intellectual property protection may not be available in every country in which our products and services are distributed or made available through the internet. +If we are unable to protect and enforce our intellectual property rights, we may not succeed in realizing the full value of our assets, our business and profitability may suffer as a result of misuse of our intellectual property. In addition, we are currently engaged in litigation in the United States and England to enforce our intellectual property rights, and we may in the future be required to do so in the United States or elsewhere, and such litigation may be costly and time consuming. See “ Item 3—Legal Proceedings ” fo r additional information. +30 +Table of Conten ts +Our products and services may infringe on intellectual property rights of third parties, which could require us to incur substantial costs and distract our management. +Media, internet and technology companies are frequently the target of litigation based on allegations of infringement, misappropriation or other violations of intellectual property rights or rights related to their use of technology. Some internet, technology and media companies, including some of our competitors, own large numbers of patents, copyrights, trademarks, trade secrets and other intellectual property rights, which they may use as a basis to assert claims against us. We have developed proprietary technology and a robust infrastructure to power our products and services, and this technology is critical to our business. Third parties may in the future assert that the technology we have developed or the content that we display and distribute infringes, misappropriates or otherwise violates their intellectual property rights, and as we face increasing competition, the possibility of intellectual property rights claims against us grows. Such litigation may involve patent holding companies or other adverse patent owners who have no relevant product revenue, and therefore our own issued and pending patents may provide little or no deterrence to these patent owners in bringing intellectual property rights claims against us. Existing laws and regulations are evolving and subject to different interpretations, and various federal and state legislative or regulatory bodies may change current laws or regulations or enact new ones. We cannot guarantee that our technology is not infringing or violating any third-party intellectual property rights or rights related to the use of technology, or that it will not infringe or violate such rights in the future. +We license a significant majority of the content in our library from third parties, and we cannot guarantee that each supplier holds the rights or releases he or she claims or that such rights and releases are adequate. From time to time we receive notices from third parties claiming that certain content that we license infringes their intellectual property rights. In such circumstances, we may not be able to obtain licenses to use those rights on commercially reasonable terms or at all, we may have to stop selling such content, and we may have to pay damages or satisfy indemnification commitments to our customers, or we may incur significant expense to defend against claims of infringement. While we offer our customers indemnification for only certain specified amounts of legal costs and direct damages arising from the use of images, video or music licensed through us, our contractual liability limitations with respect to such indemnification obligations may not be enforceable in all jurisdictions. We maintain insurance policies to cover potential intellectual property disputes; however, such insurance does not cover all exposures, including the potential damages associated with any willful infringements. +We cannot predict whether assertions of third-party intellectual property rights or any infringement or misappropriation or other claims arising from such assertions will substantially harm our business or results of operations. If we are forced to defend against any infringement or misappropriation or other claims, whether they are with or without merit, are settled out of court, or are determined in our favor, we may be required to expend significant time and financial resources on the defense of such claims. +Furthermore, an adverse outcome of a dispute may require us to: pay damages, potentially including statutory damages and attorneys’ fees if we are found to have willfully infringed a party’s intellectual property rights; expend additional development resources to redesign our technology; enter into potentially unfavorable royalty or license agreements in order to obtain the right to use necessary technologies, content, or materials; and/or indemnify our partners and/or other third parties. Royalty or licensing agreements, if required or desirable, may be unavailable on terms acceptable to us, or at all, and may require significant royalty payments and other expenditures. In addition, any lawsuits regarding intellectual property rights, regardless of their success or merit, could be expensive to resolve, cause harm to our reputation, and would divert the time and attention of our management and technical personnel. +Although we have insurance to cover indemnification claims, we have incurred, and will continue to incur, legal fees and other expenses, as well as a diversion of management time and resources related to such claims and related settlements, which may increase over time, and adversely affect our financial condition and results of operations. +Much of the software and technologies used to provide our services incorporate, or have been developed with, “open source” software, which may restrict how we use or distribute our services or require that we publicly release certain portions of our source code. +Much of the software and technologies used to provide our services incorporate, or have been developed with, “open source” software. Such “open source” software may be subject to third-party licenses that impose restrictions on our software and services depending on how such software is used, including whether it is modified, distributed or made available. Under certain open source licenses, if certain conditions were met, we could be required to publicly release or license aspects of the source code of our software or to make our software available under open source licenses free of +31 +Table of Conten ts +charge. Few courts have interpreted open source licenses, and the way these licenses may be interpreted and enforced is therefore subject to some uncertainty. To avoid the public release of the affected portions of our source code, we could be required to expend substantial time and resources to re-engineer some or all of our software, which could reduce or eliminate the value of our services and technologies and materially and adversely affect our ability to sustain and grow our business. +If an author or other third-party that distributes open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from the sale of our services that contained the open source software and required to comply with the foregoing conditions, which could disrupt the distribution and sale of some of our services. In addition, use of open source software can lead to greater risks than use of third-party commercial software because open source licensors generally do not provide warranties or controls on the origin of the software. The use of open source software can also carry security risks arising from unknown vulnerabilities that can be exploited by malware in unanticipated ways, which can lead to disruption and/or harm to operations and protected data. Additionally, because any software source code we contribute to open source projects is publicly available, while we may benefit from the contributions of others, our ability to protect our intellectual property rights in such software source code may be limited or lost entirely, and we will be unable to prevent our competitors or others from using such contributed software source code. Similarly, we may be subject to third-party intellectual property claims as a user of or contributor to such open source software. Any of these risks could be difficult to eliminate or manage and, if not addressed, could adversely affect our business, financial performance, and growth. +Risks Related to Legal and Regulatory Matters +An increase in federal, state and foreign government regulation of the industries and markets in which we operate, including with respect to the internet and e-commerce, could have a negative impact on our business. +Existing or future laws and other regulations that may materially affect our business include, but are not limited to, those that govern or restrict: +• privacy and biometric issues and data collection, processing, retention and transmission; +• data and cybersecurity; +• subscriptions practices, including automatic contract or subscription renewal, billing and cancellation; +• credit card fraud and processing; +• consumer protection; +• advertising, marketing and sales of our content and services; +• pricing and taxation of goods and services offered over the internet; +• website content, or the manner in which products and services may be offered, paid for and/or marketed over the internet; +• sources of liability for companies involved in internet services or e-commerce; +• piracy and intellectual property rights; +• the development of generative AI models, including training data; +• use of AI generated content; +• internet neutrality and internet access; +• controls on overseas suppliers and other similar anti-terrorism controls, anti-bribery and anti-corruption conduct and policies; and +• outsourcing, contracting and employment. +For example, we are subject to numerous laws and regulations at the international and United States national and state level, including the following: +• The United States Foreign Corrupt Practices Act and the U.K. Anti-Bribery Act (and similar global legislation), which prohibits corporations and individuals from engaging in specified activities to obtain or retain business or to influence a person working in an official capacity. Under these acts, it is generally illegal to pay, offer to pay, or authorize the payment of anything of value to any foreign government official, government staff member, political party, or political candidate in an attempt to obtain or retain business, or to otherwise influence a person working in an official capacity. +• The U.K. Modern Slavery Act, which prohibits corporations and individuals from engaging in the trafficking of or facilitation of trafficking of humans. Under this Act, it is illegal to engage in or do business with any +32 +Table of Conten ts +individual or entity that engages in such trafficking and obligates companies and individuals to put in place appropriate controls to mitigate against such risks. +• OFAC regulations, under which all U.S. individuals and businesses are prohibited from engaging in transactions with countries subject to comprehensive trade embargoes (such as Cuba and Iran) unless a specific exemption from the regulations exists (such as those for information, all materials and people-to-people exchanges) or a license is obtained from OFAC. Transactions with persons, groups or entities designated as terrorists or as their supporters or associates are also prohibited. A list of Specially Designated Nationals consisting of “drug kingpins,” terrorists and others considered a danger to the United States, is maintained by the Treasury Department’s Office of Foreign Assets Control. Known as the “OFAC List,” it contains over 5,000 names and is updated often. No U.S. person, individual or business in the United States, or, in some instances, the foreign subsidiaries of U.S. companies, may conduct any kind of business with anyone on the OFAC List, and companies are expected to keep track of all changes to this list. Penalties for violations of these rules can be severe, including having the violator’s assets frozen or forfeited and up to $250,000 or twice the transaction value per violation in fines. +• The CCPA regulates the collection and processing of personal data of California residents, and grants residents certain rights in connection with such collection and processing. +• The CPA regulates the collection and processing of the personal data of Colorado residents, and grants residents certain rights in connection with such collection and processing. +• The CTDPA regulates the collection and processing of personal data of Connecticut residents, and grants residents certain rights in connection with such collection and processing. +• The FDBR regulates the collection and processing of personal data of Florida residents, and grants residents certain rights in connection with such collection and processing. +• The MTCDPA regulates the collection and processing of personal data of Montana residents, and grants residents certain rights in connection with such collection and processing. +• The OCPA regulates the collection and processing of personal data of Oregon residents, and grants residents certain rights in connection with such processing. +• The TDPSA regulates the collection and processing of personal data of Texas residents, and grants residents certain rights in connection with such processing. +• The UCPA regulates the collection and processing of personal data of Utah residents, and grants residents certain rights in connection with such collection and processing. +• The VACDPA regulates the collection and processing of personal data of Virginia residents, and grants residents certain rights in connection with such collection and processing. +• The BIPA regulates the collection, use, safeguarding, and storage of “biometric identifiers” by private entities. While the statute specifically excludes photographs from its scope to date there has been no dispositive judicial interpretations of that language. +• The H.B. 1493, which oversees the collection, use and storage of “biometric identifiers,” which include fingerprints, voiceprints, eye retinas, irises and other unique biological identifiers or characteristics used to identify a specific individual, while specifically excluding photographs from its scope. +• The CUBI regulates the capture, receipt, possession, sharing and retention of “biometric identifiers,” which include retina or iris scans, fingerprints, voiceprints, or records of hand or face geometry. +• Several foreign jurisdictions and U.S. states have adopted, and other jurisdictions are expected to enact, statutes that regulate the collection, use, transmission and storage of personal information and require reporting certain breaches of the security of personal information. +• Several jurisdictions, including the United Kingdom and the United States, are in the process of adopting or reforming or expected to adopt or reform legislation that impacts the content we distribute, including the E.U. Copyright Directive, the Copyright Act, the Digital Millennium Copyright Act, and various statutes and regulations impacting rights of publicity for those depicted in imagery. +• Several foreign jurisdictions and U.S. states have adopted, and other jurisdictions are expected to enact, statutes that purport to void or substantially limit automatic renewal provisions of certain free or discounted trial incentives. +• Several jurisdictions have adopted, and other jurisdictions are expected to enact legislation or regulation, that governs AI and the development and use of AI, including the E.U. adopting the E.U. AI Act and U.S. states, including Colorado and California, adopting laws, rules and regulations directly relating to the use of AI or extending the application of existing laws, rules and regulations to AI systems and outputs. +We currently license content to customers in virtually every country in the world, excluding Sanctioned Countries, and the different laws that apply in each of those foreign countries may be more or less restrictive than those that apply to +33 +Table of Conten ts +companies operating solely within the United States, creating tension in compliance obligations across borders. The adoption, modification or interpretation of laws or regulations in any of these countries relating to our business could adversely affect the manner in which we conduct our business or the overall popularity or growth in use of the internet. +Further, the current legislative and regulatory landscape regarding the regulation of the internet is subject to uncertainty. For example, in January 2018, the Federal Communications Commission (“FCC”) released an order that repealed the “open internet rules,” often known as “net neutrality,” which could affect the services used by us and our customers. In response to this decision California and a number of states implemented their own net neutrality rules which mirrored parts of the repealed federal regulations. In October 2023, the FCC voted to begin the process of reinstating substantially all of the net neutrality rules that had been in place prior to the 2018 repeal. We cannot predict the actions the FCC may take, whether any new FCC order or state initiatives regulating providers will be modified, overturned, or vacated by legal action, federal legislation, or the FCC itself, or the degree to which further regulatory action - or inaction - may adversely affect our business. Users who access our marketplace through devices such as smart phones, laptops, and tablet computers must have a high-speed internet connection, such as Wi-Fi, 3G, 4G, or 5G to use our services. Currently, this access is provided by telecommunications companies and internet access service providers that have significant and increasing market power in the broadband and internet access marketplace. If the repeal of net neutrality remains in effect, these providers could take measures that affect their customers’ ability to use our products and services, such as degrading the quality of the data packets we transmit over their lines, giving our packets low priority, giving other packets higher priority than ours, blocking our packets entirely, or attempting to charge their customers more for using our products and services. To the extent that internet service providers implement usage-based pricing, including meaningful bandwidth caps, or otherwise try to monetize access to their networks, we could incur greater operating expenses and customer acquisition and retention could be negatively impacted. Furthermore, to the extent network operators were to create tiers of internet access service and either charge us or their customers for availability of our services through these tiers, our business could be negatively impacted. +In addition, the rapid growth of the internet and the proliferation in the use of content therein has created tensions and instability in the application of traditional intellectual property law concepts to such uses. +Recently, the E.U. has introduced a new regulation applicable to certain types of AI and the data used to train, test and deploy AI (the “E.U. AI Act”). The E.U. AI Act entered into force in August 2024, and its requirements will become effective on a staggered basis, with the majority of its provisions being implemented by August 2, 2026. The E.U. AI Act will impose material requirements on both the providers and deployers of AI, with infringement punishable by sanctions of up to 7% of annual worldwide turnover or €35 million (whichever is higher) for the most serious breaches. +Compliance with new regulations or legislation or new interpretations of existing regulations or legislation could cause us to incur additional expenses, lose the ability to transact business in the way we have historically done or, make it more difficult to renew subscriptions automatically, make it more difficult to attract new customers or otherwise require us to alter our business model, or cause us to divert resources and funds to address government or private investigatory or adversarial proceedings. Any of these outcomes could have a material adverse effect on our business, financial condition or results of operations. +Our business is subject to evolving corporate governance and public disclosure regulations and expectations, including with respect to environmental, social and governance matters, which could expose us to numerous risks. +We are subject to changing rules and regulations promulgated by a number of governmental and self-regulatory organizations, including the SEC, NYSE and the Financial Accounting Standards Board. These rules and regulations continue to evolve in scope and complexity and many new requirements have been created in response to laws enacted by Congress, making compliance more difficult and uncertain. In addition, regulators, customers, investors, employees and other stakeholders have focused on environmental, social and governance (“ESG”) matters and related disclosures. These changing rules, regulations and stakeholder expectations have resulted in, and may continue to result in, increased general and administrative expenses and increased management time and attention spent complying with or meeting such regulations and expectations. For example, the collection, measurement and reporting of ESG-related information and metrics can be costly, difficult and time consuming and is subject to evolving reporting standards, both in the United States and internationally. We may also communicate certain initiatives and goals, regarding environmental matters, human capital, responsible sourcing and social investments and other ESG related matters, in our SEC filings or in other public disclosures. These ESG-related initiatives and goals could be difficult and expensive to implement, the technologies needed to implement them may not be cost effective and may not advance at a sufficient pace, and we could be criticized for the accuracy, adequacy or completeness of the disclosure. Further, statements about our ESG-related initiatives and goals, and +34 +Table of Conten ts +progress against those goals, may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. In addition, we could be criticized for the scope or nature of such initiatives or goals, or for any revisions to these goals. If our ESG-related data, processes and reporting are incomplete or inaccurate, or if we fail to achieve progress with respect to our goals within the scope of ESG on a timely basis, or at all, our reputation, business, financial performance and growth could be adversely affected. +Further, if our ESG practices do not meet evolving investor or other stakeholder expectations and standards, then our reputation, ability to attract or retain employees, and attractiveness as an investment, business partner, acquiror or service provider could be negatively impacted. For example, “anti-ESG” sentiment has gained momentum across the United States in recent years, with several states and policymakers having proposed or enacted anti-ESG policies, legislation or initiatives. These or other similar policies, legislation, initiatives, legal decisions and scrutiny could result in investigations, litigation or enforcement actions against us by governments, regulators or others. Responding to and resolving such actions may require significant time and resources, regardless of their merit, and may result in us sustaining reputational harm. +Our operations may expose us to greater than anticipated income and transaction tax liabilities that could harm our financial condition and results of operations. +We are subject to income and other taxes in the United States and numerous other jurisdictions. Significant judgment is required in determining our worldwide provision for taxes. For example, see a discussion of the tax assessments from the Canadian Revenue Agency (“CRA”) relating to a subsidiary of the Company asserting additional tax is due under the heading “ Item 7. Management’s Discussion and Analysis of Financial and Results of Operations—Liquidity and Capital Resources ”. In the ordinary course of our business, we are involved in many transactions where the ultimate tax determination may be uncertain. Although we believe our tax provisions are reasonable, the final determination of tax audits and any related litigation could be materially different from our historical income tax provisions and reserves for uncertain tax positions. We have created reserves with respect to such tax liabilities where we believe it to be appropriate. The final determination of such tax liabilities could have a material effect on our tax provision, net income, earnings per share, or cash flows in the period or periods for which that determination is made as well as subsequent periods. Furthermore, we have operations in various taxing jurisdictions in the United States and in other countries, and there is a risk that our tax liabilities in future taxable periods in one or more jurisdictions could exceed our estimated tax liabilities or our tax liabilities in prior taxable periods despite our plan to structure our activities in a manner so as to minimize our tax liabilities. +In addition, there are a number of applicable and potential government regulations that may impact the Company. +For example, the U.S. federal tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”), enacted in December 2017, resulted in fundamental changes to the Code, including, among many other things, a reduction to the federal corporate income tax rate, a partial limitation on the deductibility of business interest expense, a limitation on the deductibility of certain director and officer compensation expense, limitations on net operating loss carrybacks and carryovers and changes relating to the scope and timing of U.S. taxation on earnings from international business operations. The exact impact of the TCJA for future years is difficult to quantify, but these changes could materially affect our effective tax rate in future periods. In addition, we are subject to the Inflation Reduction Act, which imposes a 1% excise tax on certain stock repurchases and a 15% alternative minimum tax on certain adjusted financial statement income. Several other legislative proposals have been set forth that would, if enacted, make significant changes to U.S. tax laws. Congress may consider, and could include, some or all of these proposals in connection with tax reform that may be undertaken. It is unclear whether these or similar changes will be enacted and, if enacted, how soon any such changes could take effect. The passage of any legislation as a result of these proposals and other similar changes in U.S. federal income tax laws could have an adverse impact on our effective rate of tax in future periods. +We may have exposure to sales or other transaction taxes (including VAT) on our past and future transactions. A successful assertion by any jurisdiction that we failed to pay such sales or other transaction taxes, or the imposition of new laws requiring the payment of such taxes, could result in substantial tax liabilities related to past sales, create increased administrative burdens or costs, discourage customers from purchasing images from us, or otherwise materially and adversely affect our financial condition and results of operations. Further, we are currently subject to and in the future may become subject to additional compliance requirements for certain of these taxes. Where appropriate, we have made accruals for these taxes, which are reflected in our consolidated financial statements. +35 +Table of Conten ts +Due to the large and expanding scale of our international business activities, any changes in the U.S. taxation of such activities may increase our worldwide effective tax rate and harm our financial condition and results of operations. In addition, tax authorities in a number of U.S. states, as well as the U.S. Congress, are currently reviewing the appropriate tax treatment of companies engaged in online commerce, and new state tax regulations might subject us to additional state sales and other taxes. If one or more U.S. local, state or non-U.S. jurisdictions impose sales tax collection obligations on us, our sales into such state or jurisdiction might decrease because the effective cost of purchasing goods from us increases for those residing in these states or jurisdictions. We might also incur significant financial and organizational burdens in order to set up the infrastructure required to comply with these applicable new tax regulations. +We collect, store, process, transmit and use personal information, which subjects us to governmental regulation and other legal obligations in many jurisdictions related to privacy, information security and data protection. Our actual or perceived failure to comply with such legal obligations by us, or by our third-party service providers or partners, could harm our business. +It is not always clear how existing laws governing issues such as property ownership, sales and other taxes, and personal privacy apply to the internet and e-commerce, as the vast majority of these laws were adopted prior to the advent of the internet and do not contemplate or address the unique issues raised by the internet or e-commerce. Regulatory scrutiny of privacy, data collection, use of data and data protection continues to intensify globally. The personal information and other data we collect, store, process and use are increasingly subject to legislation and regulations in numerous jurisdictions around the world, especially in the U.K. and Europe. These laws often develop in ways we cannot predict and some laws may be in conflict with one another. This may significantly increase our cost of doing business, particularly as we expand our localization efforts. In addition, we may not be readily able to achieve compliance with the requirements of certain privacy and data security laws and regulations within the required periods for compliance. +For example, we are subject to the General Data Protection Regulation (the “GDPR”), which imposes stringent operational requirements for controllers and processors of personal information of individuals in the U.K. and European Economic Area (the “EEA”), and noncompliance can trigger fines of up to the greater of €20 million or 4% of global annual revenues. Further, following the U.K.’s formal exit from the E.U. in January 2020, we became subject to the GDPR as incorporated into U.K. law. In June 2021, the European Commission formally approved an adequacy decision for the U.K. on data protection in which they deemed the U.K.’s data protection regime sufficient to protect E.U. personal data, but the U.K. is considering changes to the Data Protection Act and there is no guarantee that the European Commission will continue to retain its adequacy decision, which is set to expire on June 27, 2025, with respect to U.K. data protection law in the future. Additionally, although we are making use of the E.U. Standard Contractual Clauses with regard to the transfer of certain personal data to countries outside the EEA, recent legal developments in Europe have created complexity and regulatory compliance uncertainty regarding certain transfers of personal information from the EEA to the United States. For example, on July 10, 2023, the European Commission adopted a new adequacy decision on the E.U.-U.S. Data Privacy Framework (“Data Privacy Framework”), following the invalidation of the E.U.-U.S. Data Privacy Shield by the Court of Justice of the European Union in July 2020. The Data Privacy Framework create new privacy obligations allowing personal information to be transferred from the E.U. to U.S. entities who have self-certified under the framework. We currently rely on a mixture of mechanisms to transfer personal data from our U.K. and E.U. businesses to the U.S. and we are an active participant in we are an active participant in the Data Privacy Framework (list available at https://www.dataprivacyframework.gov/). As supervisory authorities issue further guidance on personal information export mechanisms, including circumstances where the standard contractual clauses cannot be used and/or start taking enforcement action, we could suffer additional costs, complaints, and/or regulatory investigations or fines. Moreover, if we are otherwise unable to transfer personal information between and among countries and regions in which we operate, it could affect the manner in which we provide our services and could adversely affect our financial results. +Several other foreign jurisdictions have adopted or are considering adopting new or updated comprehensive privacy legislation to offer additional data privacy for individuals, such as: Brazil, where its General Data Protection Law that imposes detailed rules for the collection, use, processing and storage of personal data in Brazil took effect on September 18, 2020, and became enforceable on August 1, 2021; and India, where on August 9, 2023 the Digital Personal Data Protection Act was passed and came into effect in June 2024, which imposes rules regarding the collection, use, processing and storage of personal data in India. Additionally, data privacy laws have been enacted in a number of jurisdictions, including, but not limited to, the European Union and certain U.S. states such as Illinois, Texas and Washington (in addition to U.S. cities, such as New York City), which regulate the collection and use of certain biometric data regarding individuals, including their facial images, and the use of such data, including in facial recognition systems. Similar laws have also been introduced in several additional states, but have not yet been enacted. We have entered into certain contractual agreements that may implicate or make use of such technology. Such laws may have the effect of adversely impacting our ability to grow our business in that area. Although we are closely monitoring regulatory +36 +Table of Conten ts +developments in this area, any actual or perceived failure by us to comply with any regulatory requirements or orders or other domestic or international privacy or consumer protection-related laws and regulations could result in proceedings or actions against us by governmental entities or others (e.g., class action litigation), subject us to significant penalties and negative publicity, require us to change our business practices, increase our costs and/or adversely affect our business. +Data protection legislation is also becoming increasingly common in the United States at both the federal and state level. For example, in June 2018, the State of California enacted the California Consumer Privacy Act (“CCPA”), which came into effect on January 1, 2020. The CCPA requires, among other things, companies that collect personal information about California residents to make new disclosures to those residents about their data collection, use and sharing practices, allows residents to opt out of certain data sharing with third parties, and provides a new cause of action for data breaches. The California Privacy Rights Act (“CPRA”) came into effect on January 1, 2023 (with a look back to January 2022). It amends and expands the CCPA to add additional disclosure obligations (including an obligation to disclose retention periods or criteria for categories of personal information), grant consumers additional rights (including rights to correct their data, limit the use and disclosure of sensitive personal information, and opt out of the sharing of personal information for certain targeted behavioral advertising purposes), and establishes a privacy enforcement agency known as the California Privacy Protection Agency (“CPPA”). The CPPA will serve as California’s chief privacy regulator, which will likely result in greater regulatory activity and enforcement in the privacy area. +Further, the New York SHIELD Act became effective on March 21, 2020, the VACDPA became effective on January 1, 2023; the CPA and CTDPA both became effective on July 1, 2023; the UCPA became effective on December 31, 2023; the FDBR became effective on January 1, 2024; the OCPA and TDPSA both became effective on July 1, 2024, and the MTCDPA became effective on October 1, 2024 (MTCDPA, together with the CCPA, CPRA, VACDPA, CTDPA, FDBR, OCPA and TDPSA, the “U.S. State Privacy Laws”). The Delaware Personal Data Privacy Act, Iowa Consumer Data Protection Act, Maryland Online Data Privacy Act, Minnesota Consumer Data Privacy Act, Nebraska Data Privacy Act, New Hampshire Privacy Act, New Jersey Privacy Act, and Tennessee Information Protection Act are expected to become effective by the end of 2025. Each of these laws carry similar consumer rights to those provided under the GDPR and California’s privacy laws, and require companies to make detailed disclosures to residents of those states about their data collection, use and sharing practices. Other states have also considered or are considering similar privacy laws. Additionally, the Federal Trade Commission and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination and security of data. The scope and interpretation of data privacy and cybersecurity regulations continues to evolve, and we believe that the adoption of increasingly restrictive regulations in this area is likely in the near future within the U.S. at both state and federal levels. The burdens imposed by the U.S. State Privacy Laws and other similar laws that may be enacted at the federal and state level may require us to modify our data processing practices and policies and to incur substantial costs in order to comply with these laws and to investigate, and defend against potential private class-action litigation or litigation brought by regulatory authorities. +In the event of a security incident, we may also have obligations under foreign and U.S. breach notification laws, such as the New York SHIELD Act, which became effective on March 21, 2020. Our marketing and promotional activities may be subject to laws such as the Controlling the Assault of Non-Solicited Pornography And Marketing Act, the Telephone Consumer Protection Act and the Telemarketing Sales Rule. +Further, we may be or become subject to data localization laws mandating that data collected from a foreign country be processed and stored only within that country. For example, the Indian Parliament passed the Digital Personal Data Protection Act in 2023, which limits storage of certain personal data outside of India. Such data localization requirements may have cost implications for us, impact our ability to utilize the efficiencies and value of our global network, and affect our strategy. Further, if other countries in which we have customers were to adopt data localization laws, we could be required to expand our data storage facilities there or build new ones in order to comply with these laws. The expenditure this would require, as well as costs of ongoing compliance, could harm our financial condition. +We are subject to payments-related risks that may result in higher operating costs or the inability to process payments, either of which could harm our financial condition and results of operations. +Non-payment or late payments of amounts due to us by customers could significantly and negatively affect our business and financial performance. A portion of our customers typically purchase our products on payment terms, and therefore we assume a credit risk for non-payment in the ordinary course of business. We evaluate the credit-worthiness of new customers and perform ongoing financial condition evaluations of our existing customers; however, there can be no assurance that our allowances for uncollected accounts receivable balances will be sufficient . As of December 31, 2024, our allowance for doubtful accounts was $6.2 million. If the volume of sales to enterprise customers continues to grow, we +37 +Table of Conten ts +expect to increase our allowance for doubtful accounts primarily as the result of changes in the volume of sales to customers who pay on payment terms. +We accept payments using a variety of methods, including credit cards and debit cards, which are subject to additional regulations and compliance requirements and are susceptible to incidences of fraud. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs and lower profitability, and rely on third parties to provide processing services, who may be unwilling or unable to provide these services to us. We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. We may be required to provide cash deposits to our credit card processors. If we fail to comply with these rules or requirements, we could be subject to civil and criminal penalties or forced to cease our operations, fines and higher transaction fees or we could lose our ability to accept credit and debit card payments from consumers or facilitate other types of online payments. To date, we have experienced minimal losses from credit card fraud, but we continue to face the risk of significant losses from this type of fraud, which could adversely affect our financial condition and results of operations. +We are also subject to, or voluntarily comply with, several other laws and regulations relating to money laundering, international money transfers, privacy and information security and electronic fund transfers. If we were found to be in violation of applicable laws or regulations, we could be subject to civil and criminal penalties or forced to cease our operations. +We are, from time to time, subject to various litigation, the unfavorable outcomes of which might have a material adverse effect on our financial condition, results of operations and cash flow. +From time to time, we may become subject to various legal and regulatory proceedings relating to our business or otherwise. For example, see the discussion of lawsuits brought against us by former warrant holders of the Company and other litigation in “Item 3. Legal Proceedings,” “ Note 13 – Commitments and Contingencies ” of the notes to the financial statements and “ Item 7. Management’s Discussion and Analysis of Financial and Results of Operations – Liquidity and Capital Resources ”. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot determine with certainty the ultimate outcome of any such litigation or proceedings. If the final resolution of any such litigation or proceedings is unfavorable, our financial condition, results of operations and cash flows could be materially affected. +Risks Related to Our Class A Common Stock +We qualify as an “emerging growth company” and “smaller reporting company” within the meaning of the Securities Act and Exchange Act, and we take advantage of certain exemptions from disclosure requirements available to emerging growth companies and smaller reporting companies, which could make our securities less attractive to investors and may make it more difficult to compare our performance to the performance of other public companies. +We qualify as an “emerging growth company” and “smaller reporting company” under the Securities Act and Exchange Act. As such, we are eligible for and take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies and/or smaller reporting companies for as long as we continue to be an emerging growth company and/or smaller reporting company, including, but not limited to, (a) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, (b) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and (c) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, our stockholders may not have access to certain information they may deem important. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of June 30 of that fiscal year, (ii) the last day of the fiscal year in which we have total annual gross revenue of $1.235 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which we have issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) December 31, 2027, which is the last day of the fiscal year following the fifth anniversary of the date of the first sale of Class A common stock in connection with the Business Combination. We would cease to be a smaller reporting company if (i) the market value of our voting and non-voting common stock held by non-affiliates is more than $250 million measured on the last business day of our second fiscal quarter or (ii) our annual revenue is more than $100 million during the most recently completed fiscal year and the market value of our voting and non-voting common stock held by non-affiliates is more than $700 million measured on the last business day of our second fiscal quarter. We cannot predict whether investors will find our securities less attractive because we rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these +38 +Table of Conten ts +exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile. +Our stock price has been and will likely continue to be volatile and may decline regardless of our operating performance. +The market price of our Class A common stock has fluctuated significantly in response to numerous factors and may continue to fluctuate, causing our stockholders to lose all or part of their investment in our Class A common stock since they may sell their shares at or below the price for which they purchased such shares. The trading price of our Class A common stock depends on a number of factors, including those described in this “ Item 1A. Risk Factors ” section, many of which are beyond our control. +The market prices of securities of companies have experienced fluctuations that often have been unrelated or disproportionate to their operating results. In the past, stockholders have sometimes instituted securities class action litigation against companies following periods of volatility in the market price of their securities. Any similar litigation against us could result in substantial costs, divert management’s attention and resources, and harm our business, financial condition, and results of operations. +Our stock price may be exposed to additional risks because we became a public company through a “de-SPAC” transaction. There has been increased focus by government agencies on de-SPAC transactions in the last few years, and we expect that increased focus to continue, and we may be subject to increased scrutiny by the SEC and other government agencies and holders of our securities as a result, which could adversely affect the price of our Class A Common Stock. +Our stock price may also be exposed to additional risks because of uncertainties related to the pendency of the proposed merger with Shutterstock or our inability to complete the Merger, or to complete the Merger in a timely manner. +An active trading market for our Class A common stock may not be sustained. +Our Class A common stock is listed on the NYSE under the symbol “GETY” and trades on that market. We cannot assure you that an active trading market for our Class A common stock will be sustained. Accordingly, we cannot assure you of the liquidity of any trading market, your ability to sell your shares of our Class A common stock when desired or the prices that you may obtain for your shares. +Future sales of shares by existing stockholders could cause our stock price to decline. +The sale of substantial amounts of shares of our Class A common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our Class A Common Stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. +If our existing stockholders sell or indicate an intention to sell substantial amounts of our Class A common stock in the public market, the trading price of our Class A common stock could decline. For example, as of March 1, 2025, the Getty Family Stockholders and Koch Icon Investments, LLC (“Koch Icon”) held 46.9% and 19.8% of our Class A common stock, respectively. In addition, shares underlying any outstanding options and Restricted Stock Units will become eligible for sale if exercised or settled, as applicable, and to the extent permitted by the provisions of various vesting agreements and Rule 144 of the Securities Act (“Rule 144”). All the shares of Class A common stock subject to stock options outstanding and reserved for issuance under its equity incentive plans were registered under the Securities Act and such shares are eligible for sale in the public markets, subject to Rule 144 limitations applicable to affiliates. If these additional shares are sold, or if it is perceived that they will be sold in the public market, the trading price of our Class A common stock could decline. +As restrictions on resale have end and the registration statements are available for use, the market price of our Class A common stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our Class A common stock or other securities. +39 +Table of Conten ts +If securities or industry analysts either do not publish research about us or publish inaccurate or unfavorable research about us, our business, or its market, or if they change their recommendations regarding our Class A common stock adversely, the trading price or trading volume of our Class A common stock could decline. +The trading market for our Class A common stock is influenced in part by the research and reports that securities or industry analysts may publish about us, its business, our market, or our competitors. If one or more of the analysts initiate research with an unfavorable rating or downgrade our Class A Common Stock, provide a more favorable recommendation about our competitors, or publish inaccurate or unfavorable research about our business, the trading price of our Class A common stock would likely decline. In addition, we currently expect that securities research analysts will establish and publish their own periodic projections for our business. These projections may vary widely and may not accurately predict the results we actually achieve. Our stock price may decline if our actual results do not match the projections of these securities research analysts. While we expect research analyst coverage, if no analysts commence or maintain coverage of us, the trading price and volume for our Class A common stock could be adversely affected. If any analyst who may cover us were to cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the trading price or trading volume of our Class A common stock to decline. +Delaware law and anti-takeover provisions in our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws could make a merger, tender offer, or proxy contest difficult, thereby depressing the trading price of our Class A Common Stock. +Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws contain provisions that could depress the trading price of our Class A common stock by acting to discourage, delay, or prevent a change of control of us or changes in our management that our stockholders may deem advantageous. These provisions include the following: +• a classified Board of Directors so that not all members of our Board of Directors are elected at one time; +• the right of our Board of Directors to establish the number of directors and fill any vacancies and newly created directorships; +• director removal solely for cause; +• “blank check” preferred stock that our Board of Directors could use to implement a stockholder rights plan; +• the right of our Board of Directors to issue our authorized but unissued Class A common stock and preferred stock without stockholder approval; +• no ability of our stockholders to call special meetings of stockholders; +• no right of our stockholders to act by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; +• limitations on the liability of, and the provision of indemnification to, our director and officers; +• the right of our Board of Directors to make, alter, or repeal our Amended and Restated Bylaws; and +• advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings. +In addition, we will continue to be subject to Section 203 of the Delaware General Corporate Law (the “DGCL”). Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date such person becomes an interested stockholder, unless the business combination or the transaction in which such person becomes an interested stockholder is approved in a prescribed manner. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. Generally, an “interested stockholder” is a person that, together with affiliates and associates, owns, or within three years prior to the determination of interested stockholder status did own, 15% or more of a corporation’s voting stock. The existence of this provision may have an anti-takeover effect with respect to transactions not approved in advance by our Board of Directors and the anti-takeover effect includes discouraging attempts that might result in a premium over the market price for the shares of our Class A common stock. +Any provision of our Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock, and could also affect the price that some investors are willing to pay for our Class A common stock. +40 +Table of Conten ts +Our Amended and Restated Certificate of Incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees. +Our Amended and Restated Certificate of Incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the DGCL, our Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws or any action asserting a claim against us that is governed by the internal affairs doctrine. These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees and may discourage these types of lawsuits. This provision would not apply to claims brought to enforce a duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Our Amended and Restated Certificate of Incorporation provides further that, to the fullest extent permitted by law, the federal district courts of the United States will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. However, Section 22 of the Securities Act provides that federal and state courts have concurrent jurisdiction over lawsuits brought under the Securities Act or the rules and regulations thereunder. To the extent the exclusive forum provision restricts the courts in which claims arising under the Securities Act may be brought, there is uncertainty as to whether a court would enforce such a provision. We note that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Furthermore, the enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions, and there can be no assurance that such provisions will be enforced by a court in those other jurisdictions. If a court were to find the exclusive-forum provision contained in our Amended and Restated Certificate of Incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business. +We do not intend to pay dividends for the foreseeable future. +We currently intend to retain any future earnings to finance the operation and expansion of our business and we do not expect to declare or pay any dividends in the foreseeable future. As a result, stockholders must rely on sales of their Class A common stock after price appreciation as the only way to realize any future gains on their investment. +We may issue additional shares of Class A common stock or other equity securities without your approval, which would dilute shareholder ownership interests and may depress the market price of our Class A common stock. +As of December 31, 2024, we had outstanding options to purchase up to an aggregate of 25,599,000 shares of our Class A common stock, 5,427,000 outstanding Restricted Stock Units (“RSUs”) and 1,319,167 outstanding Performance Restricted Stock Units (“PSUs”) outstanding. We also have the ability to initially issue up to 51,104,577 shares of Class A common stock under the 2022 Equity Incentive Plan, 5,000,000 shares of Class A common stock under the ESPP, 6,000,000 shares of Class A common stock under the Earn Out Plan. Further, in connection with Shutterstock Merger Agreement, we will issue additional shares of Class A common stock. +We may issue additional shares of Class A common stock or other equity securities of equal or senior rank in the future in connection with, among other things, future acquisitions or repayment of outstanding indebtedness, without stockholder approval, in a number of circumstances. +Our issuance of additional shares of Class A common stock or other equity securities of equal or senior rank would have the following effects: +• Our existing stockholders’ proportionate ownership interest in us will decrease; +• the amount of cash available per share, including for payment of dividends (if any) in the future, may decrease; +• the relative voting strength of each previously outstanding share of Class A common stock may be diminished; and the market price of our shares of Class A common stock may decline. +Risks Related to the Proposed Merger with Shutterstock +41 +Table of Conten ts +Our inability to complete the Merger, or to complete the Merger in a timely manner, including as a result of the failure to obtain required regulatory approvals or the failure to satisfy the other conditions to the consummation of the Merger, could negatively affect our business, financial condition and results of operations. +The Merger is subject to various closing conditions, such as receipt of required regulatory approval and the approval of Shutterstock’s stockholders, among other customary closing conditions. It is possible that the regulators may prohibit, enjoin or refuse to grant approval for the consummation of the Merger. If any condition to the closing of the Merger is not satisfied or, if permissible, not waived, the Merger will not be completed. In addition, satisfying the conditions to the closing of the Merger may take longer than we expect. There can be no assurance that the remaining conditions to closing will be satisfied or waived or that other events will not intervene to delay or result in the failure to consummate the Merger. +If the Merger is not completed or is delayed for any reason, there may be adverse consequences, and we may experience negative reactions from investors, the financial markets, our customers, our vendors and/or our employees. For example, depending on the circumstances that would have caused the Merger not to be completed, the price of our Class A common stock may decline materially. If that were to occur, it is uncertain when, if ever, our Class A common stock would return to the price levels at which the shares currently trade. +Failure to complete the Merger could trigger the payment of a termination fee, and, whether or not the Merger is consummated, we have incurred and will continue to incur significant costs, fees and expenses relating to professional services and transaction fees. +Under the Merger Agreement, we may be required to pay a termination fee if the Merger Agreement is terminated under specified circumstances in an amount of $32.7 million or $40.0 million, depending on the circumstances surrounding such termination. There can be no assurance that the Merger Agreement will not be terminated under the circumstances triggering these termination fee obligations. Furthermore, whether or not the Merger is consummated, we have incurred, and will continue to incur, significant costs, fees and expenses relating to professional services and transaction fees in connection with the proposed Merger. Payment of these costs, fees and expenses could adversely affect our business, financial condition and results of operations. +Uncertainties associated with the Merger may cause us to lose key customers or suppliers and make it more difficult to retain and hire key personnel, and the Merger may disrupt our current plans and operations or divert management’s attention from our ongoing business. +As a result of the uncertainty surrounding the conduct of our business while the Merger is pending, our relationships with customers, suppliers and other parties may be adversely affected. Due to uncertainty about our future while the Merger is pending, we may lose customers or suppliers, or customers, suppliers and other parties may alter their business relationships with us. +In addition, our employees, including key personnel, may be uncertain about their future roles and relationships with us following the completion of the Merger, which may adversely affect our ability to retain and motivate them or to hire new employees. Moreover, while the Merger is pending, the potential disruption of plans or diversion of management’s attention from our ongoing business operations could adversely affect our business, financial condition and results of operations. +We will be subject to business uncertainties and contractual restrictions while the Merger is pending. +The Merger Agreement subjects us to restrictions on our business activities prior to the closing of the Merger. For example, the Merger Agreement obligates us to generally conduct our business in the ordinary course until the closing and to use our reasonable best efforts to (i) preserve intact our current business organizations, (ii) preserve our assets and properties in good repair and condition and (iii) keep available the services of our current officers and other key employees and preserve our relationships with those having business dealings with us. These restrictions could prevent us from pursuing certain business opportunities that arise prior to the closing and are outside the ordinary course of business. +The proposed Merger and the integration of both companies may be more difficult, costly or time-consuming than expected, and we may fail to realize the anticipated benefits of the Merger. +42 +Table of Conten ts +The success of the Merger will depend in part on our ability to realize anticipated revenue and cost synergies and on our ability to successfully integrate the businesses. If we are not able to successfully achieve these objectives, the anticipated benefits of the Merger may not be realized fully, or at all, or may take longer to realize than expected. In addition, our ability to achieve the goals for the proposed Merger may be affected by future prospects, execution of business strategies, and our ability to manage the various factors discussed within this Annual Report on Form 10-K, including within the forward-looking statements. The actual benefits of the proposed Merger also could be less than anticipated if, for example, completion of the Merger and/or integration of the businesses are more difficult, costly or time-consuming than we expect. +The market price of the combined company’s common stock following the anticipated closing of the Merger may be affected by factors different from those that historically have affected or currently affect our common stock. +Upon completion of the Merger, the combined company’s financial position may differ from our financial positions before the completion of the Merger, and the results of operations of the combined company may be affected by factors that are different from those currently affecting our results of operations. Accordingly, the market price and performance of the combined company’s common stock is likely to be different from the performance of our common stock prior to the closing of the Merger. +We may be unable to retain personnel successfully while the Merger is pending or after the Merger is completed. +The success of the Merger will depend in part on our ability to retain key employees while the Merger is pending or after the Merger is consummated. If we are unable to retain key employees, including management, who are critical to the successful completion, integration and future operation of the combined company, we could face disruption in our operations, loss of key information, expertise or know-how, or unanticipated recruiting costs, which may impact our ability to achieve our goals related to the transaction. +We may become subject to lawsuits relating to the Merger, which could adversely affect our business, financial condition and operating results. +We and/or our respective directors and officers may become subject to lawsuits relating to the Merger. Such litigation is very common in connection with acquisitions of public companies, regardless of the merits of the underlying acquisition. While we will evaluate and defend against any actions vigorously, the costs of the defense of such lawsuits and other effects of such litigation could have an adverse effect on our business, financial condition and operating results. +Because the exchange ratio in the Merger Agreement is fixed and because the market price of Shutterstock and our Class A common stock will fluctuate prior to the completion of the Merger, we cannot be sure of the market value of our Class A common stock that will be paid to Shutterstock stockholders as consideration in the Merger. +Under the terms of the Merger Agreement, if the Merger is completed, each holder of Shutterstock common stock immediately prior to the transaction close will have the option to receive, subject to proration, for each share of Shutterstock common stock held by such holder: +• Cash consideration of $9.50 and 9.17 shares of our Class A common stock; +• Cash consideration of $28.8487; or +• 13.67237 shares of our Class A common stock. +The exchange ratio of the Merger consideration is fixed, and under the Merger Agreement there will be no adjustment to the Merger consideration for changes in the market price of Shutterstock common stock or our common stock prior to the completion of the Merger. +The respective market values of Shutterstock’s common stock and our common stock have fluctuated and may continue to fluctuate during this period as a result of a variety of factors, including general market and economic conditions, changes in each company’s business, operations and prospects, commodity prices, regulatory considerations, and the market’s assessment of each company’s business and the Merger. Such factors are difficult to predict and in many cases may be beyond the control of Shutterstock and us. The actual value of the Merger consideration that will be paid to Shutterstock stockholders at the completion of the Merger will depend on the market value of our Class A common stock at +43 +Table of Conten ts +that time. This market value may differ, possibly materially, from the market value of our Class A common stock at the time the Merger Agreement was entered into or at any other time. +Our stockholders will have a reduced ownership and voting interest in Getty Images following the merger and will exercise less influence over management. +Currently, our stockholders have the right to vote in the election of our Board and the power to approve or reject any matters requiring stockholder approval under Delaware law and our certificate of incorporation and bylaws. Upon completion of the merger, each of our stockholders will have a percentage ownership of Getty Images that is smaller than the their current percentage ownership. It is expected that our stockholders will hold approximately 54.7%, and Shutterstock’s stockholders will hold approximately 45.3%, of the fully diluted shares of the combined company immediately after the merger. +Consequently, even if all of our stockholders voted together on all matters presented to Getty Images stockholders from time to time following the merger, our current stockholders would exercise significantly less influence over Getty Images after the completion of the merger relative to their influence prior to the completion of the merger, and thus would have a less significant impact on the approval or rejection of future Getty Images proposals submitted to a stockholder vote. +The Getty Family Stockholders currently have the right to nominate three directors to our Board of Directors, and Koch Icon currently has the right to nominate two directors to our Board of Directors. If the Merger is completed, the Getty Family Stockholders will have the right to nominate two directors to our Board of Directors and Koch Icon will have the right to nominate one director to our Board of Directors, subject to certain ownership thresholds. +Item 1B. Unresolved Staff Comments. +None. +Item 1C. Cybersecurity. +The Company’s management is responsible for the day-to-day management of risk, and our Board of Directors, including through its committees, is responsible for understanding and overseeing the various risks facing the Company. +Cybersecurity Risk Management and Strategy +Increased global cybersecurity vulnerabilities, threats and more sophisticated and targeted cyber-related attacks pose an ongoing risk to the security of our information systems and networks. Getty Images seeks to manage cybersecurity risks consistent with its general approach to enterprise risk management. +Getty Images engages third parties to conduct assessments to help it identify, categorize and manage cyber risks and to confirm compliance with applicable legal and regulatory requirements . Additionally, management and third parties conduct ongoing vulnerability scanning and performs penetration testing from time to time to help Getty Images identify and reduce the threat of known and emerging cybersecurity risks. +Board Oversight and Governance +Getty Images’ Board of Directors has delegated the oversight of cybersecurity risks to the Audit Committee. The Audit Committee assists Getty Images’ Board of Directors in its oversight of the policies and practices used by Getty Images to identify, assess and manage key risks facing Getty Images, including cybersecurity risks. Members of management, including the Company’s Chief Technology Officer (“CTO”) , provide the Audit Committee with updates on cybersecurity and information technology matters. In turn, the Audit Committee and management also provide updates to Getty Images’ B oard of Directors . In addition to reporting to the Audit Committee and Getty Images’ Board of Directors, the CTO provides periodic reports to our Chief Executive Officer and other members of our senior management as appropriate. The Audit Committee, or Getty Images’ Board of Directors, is notified of cybersecurity incidents, as appropriate, in accordance with the Company’s incident response processes. +Cybersecurity Oversight +Management plays an important role in assessing and managing Getty Images’ material risks from cybersecurity threats. The CTO is responsible for oversight of the design and implementation of the security program and strategy. Getty Images’ current CTO has served in various roles in technology for over 25 years, and has had had oversight of information technology and information security for both Getty Images (7+ years) and other organizations. +44 +Table of Conten ts +At the employee level, we maintain an experienced information technology team who is tasked with implementing our privacy and cybersecurity program and support the CTO in carrying out reporting, security, and mitigation functions. +As part of the Getty Images cybersecurity program, cross-functional teams throughout the Company address cybersecurity threats and respond to cybersecurity incidents. Through ongoing communications with these teams, the CTO and senior management are informed about and monitor the prevention, detection, mitigation and remediation of cybersecurity threats and incidents and escalate such threats and incidents as appropriate through the processes described in more detail below. +Management’s cybersecurity risk management strategy and processes focus on several key areas, including: +• Incident Response Planning: Getty Images has a global Information Security Incident Response Plan (the “Plan”) for identifying and managing cyber and data security threats. The Plan defines the roles and responsibilities of Company stakeholders involved in responding to cyber and data security events, severity levels and incident categories, and it outlines a process for incident management, including escalation and communication procedures. A cross-functional working group of security, privacy, and legal personnel review significant incidents to determine if further escalation is appropriate. If an incident could be deemed material, it is escalated to the CTO and other members of the executive team, and we consult with outside counsel during this assessment as appropriate. +• Technical Safeguards: Getty Images seeks to continuously improve technical safeguards that are designed to protect its information systems. Standards include controls for identity and access management, cyber threat and incident management, data security, encryption, human resource security, network and device security, secure asset management, secure system development, security operations and third-party security. While Getty Images seeks to maintain adequate cybersecurity controls, it may not always be effective. See “ Item 1A. Risk Factors—Our failure to protect the proprietary information of our customers and our networks against cyberattacks, security breaches or unauthorized access could adversely affect our business and results of operations, damage our reputation and expose us to liability ” and “ We collect, store, process, transmit and use personal information, which subjects us to governmental regulation and other legal obligations in many jurisdictions related to privacy, information security and data protection ” for more information as well as related risks. +• Education and Awareness: We require annual employee trainings on privacy and cybersecurity, records and information management, and generally seek to promote awareness of cybersecurity risk through communication and education of our employee population. +• Third-Party Risk Management: We rely on certain third-party computer systems and third-party service providers in connection with providing some of our services. We also depend upon various third parties to process payments for our transactions around the world. These third-party business partners, service providers, and consultants need to access our customer and other data and in some cases connect to our computer networks. We define expected security and privacy requirements through our contracting processes with third parties and we perform third-party cyber risk assessments to monitor the cyber risk management efforts of third parties as needed. +• Threat Intelligence: Our security teams engage in threat intelligence, predictive modeling, and penetration testing to understand the Company's threat landscape and reduce the risk and impact of cybersecurity incidents. +Material Effects of Cybersecurity Incidents +As of the date of this Annual Report, we have experienced cybersecurity incidents and threats, including malware, phishing, partner and customer account takeover attacks, and denial-of-service attacks on our systems. We do not believe these cybersecurity incidents have materially affected our business strategy, results of operations, or financial condition. However, there is no guarantee that a future cyber incident would not materially affect our business strategy, results of operations or financial condition. To learn more about risks from cybersecurity threats, review the risk factors included in “ Item 1A. Risk Factors ” in this Annual Report, as updated by Getty Images’ subsequent SEC filings. The risks described in such filings are not the only risks facing Getty Images. Additional risks and uncertainties not currently known or that may currently be deemed to be immaterial may materially adversely affect Getty Images’ business, financial condition, or results of operations. +Item 2. Properties. +Our major U.S. offices are located in New York and Seattle, and our major offices in the rest of the world are located in London, Dublin, and Calgary. In all, as of December 31, 2024, we have sta ff in 32 countries across the globe. We lease these offices and all of our other office spaces around the world. +45 +Table of Conten ts +For additional information regarding obligations under operating leases, see “Note 19 – Leases” of the Notes to the consolidated financial statements included in this Annual Report. +We believe that our facilities are adequate for our current needs. +Item 3. Legal Proceedings. +The Company previously issued 20,700,000 public warrants, which were governed by a Warrant Agreement, dated August 4, 2020 (the “Warrant Agreement”) and redeemed by the Company in October 2022. In late 2022 and early 2023, the Company was named as a defendant in two lawsuits filed by former public warrant holders in the United States District Court for the Southern District of New York, related to the Warrant Agreement: Alta Partners, LLC v. Getty Images Holdings, Inc., Case No. 1:22-cv-08916 (filed October 19, 2022), and CRCM Institutional Master Fund (BVI) LTD, et al. v. Getty Images Holdings, Inc., Case No. 1:23-cv-01074 (filed February 8, 2023) (together, the “Initial Warrant Litigation”). Alta Partners, LLC (“Alta”) and the CRCM Institutional Master Fund (BVI), LTD parties (“CRCM” and together with Alta, the “Plaintiffs”) generally alleged that the Company had breached the Warrant Agreement by purportedly refusing to permit warrant holders to exercise the public warrants beginning thirty days after the July 2022 business combination pursuant to which the Company became a public company closed and issue shares of the Company’s common stock in respect of the warrant exercises on the basis of the Company’s Form S-4 registration statement that had been filed and declared effective by the SEC in connection with the business combination, and alternative claims for violations of federal securities laws, including claims under the Securities Act of 1933 and/or the Securities Exchange Act of 1934. The Plaintiffs sought, among other things, an award of money damages measured by the difference between the market price of the Company’s common stock on the purported exercise date less the $11.50 exercise price of the warrant multiplied by the number of public warrants each Plaintiff purported to exercise, or would have sought to exercise, on the exercise date. On February 17, 2023, the Court consolidated the actions for purposes of discovery. The Company filed answers to the complaints, and discovery closed on August 28, 2023. On September 11, 2023, all parties filed cross-motions for summary judgment. On October 27, 2023, the Court issued its decision on the cross-motions for summary judgment and entered judgment in favor of Plaintiffs on their breach of contract claims and, in accordance with Plaintiffs’ calculations, awarded damages in the amount of $36.9 million for Alta with respect to 2,066,371 public warrants that it owned as of the purported exercise date and $51.0 million for CRCM with respect to 3,010,764 public warrants that they owned as of the purported exercise date, plus, in each case, pre-judgment interest of 9% per annum. The Court entered judgment in favor of the Company on all other claims asserted by Plaintiffs including a similar breach of contract claim by Alta with respect to 11,593,149 public warrants that Alta had purchased in the open market after the date on which it had purported to exercise warrants and before the warrants were redeemed by the Company, and for which Alta sought the same per warrant money damages. The Company has appealed the portion of the Court’s judgment in favor of Plaintiffs and intends to continue to defend itself vigorously. Alta has cross-appealed the portion of the Court’s judgment in favor of the Company with respect to the later-acquired public warrants. The appeals have been fully briefed and the United States Court of Appeals for the Second Circuit heard oral argument on January 22, 2025, and the appeal is sub judice. +The Company has been named as a defendant in fourteen additional lawsuits by purported former public warrant holders alleging to have owned approximately 4.2 million public warrants in the aggregate (collectively, the “Follow-On Warrant Litigation”). Two of these additional suits were filed in the United States District Court for the Southern District of New York, Daniel Berner v. Getty Images Holdings, Inc., Case No. 1:24-cv-04483-JSR (filed June 11, 2024), and James Lapp v. Getty Images Holdings, Inc., Case No. 1: 24-cv-05129-JSR (filed July 5, 2024) (the “Berner/Lapp Actions”) and were pending before the same Judge that decided the Initial Warrant Litigation. These complaints generally allege breaches of the Warrant Agreement, and Berner has plead an alternative claim for violation of federal securities laws. The Court entered an order dismissing Berner’s alternative claims for violation of federal securities laws, and the Company filed answers to the complaints with respect to plaintiffs’ contract claims. The Plaintiffs in the Berner/Lapp Actions have argued that these matters are substantially similar to the Initial Warrant Litigation, and that the decision (including the method for calculating damages, which the Company disputes) reached in the Initial Warrant Litigation should be binding on the Company in the Berner/Lapp Actions. The federal court has consolidated the Berner/Lapp Actions for all pretrial purposes and entered a schedule, which included a hearing on motions for summary judgment on December 20, 2024. Following the summary judgement hearing, on January 27, 2025, the Court issued a bottom-line order in the Berner/ Lapp Actions granting summary judgement to plaintiffs Berner and Lapp reciting that “[a]n Opinion explaining the reasons for this ruling will issue in due course, at which time judgment will be entered.” As of the date of this filing, no Opinion or judgment has been issued. If the Judge applies the same damages calculation as the Initial Warrant Litigation, the damages are expected to be approximately $6.2 million plus interest. The Company expects that it will appeal the Opinion and judgment. +The other twelve additional suits since the Initial Warrant Litigation have been filed in the New York State Supreme Court, New York County: CSS, LLC v. Getty Images Holdings, Inc., Index No. 653527/2024 (filed July 12, 2024); Walleye Manager Opportunities LLC et. al. v. Getty Images Holdings, Inc., Index No. 653528/2024 (filed July 12, +46 +Table of Conten ts +2024); Funicular Funds LP v. Getty Images Holdings, Inc., Index No. 653410/2024 (filed July 5, 2024); MPF Broadway Convexity Fund I, LP et. al. v. Getty Images Holdings, Inc., Index No. 653411/2024 (filed July 5, 2024), LMR Multi-Strategy Master Fund Limited et al. v. Getty Images Holdings, Inc., Index No. 654963/2024 (filed September 20, 2024); Jordan Flannery v. Getty Images Holdings, Inc., Index No. 654961/2024 (filed September 20, 2024); Bi-Directional Disequilibrium Fund, L.P. et al. v. Getty Images Holdings, Inc., Index No. 654960/2024 (filed September 20, 2024); Holland v. Getty Images Holdings, Inc., Index No. 655746/2024 (filed October 29, 2024); Hunsicker v. Getty Images Holdings, Inc., Index. No. 655911/2024 (filed November 7, 2024); Dasher, et al. v. Getty Images Holdings, Inc., Index No. 655913/2024 (filed November 7, 2024); Parker v. Getty Images Holdings, Inc., Index No. 659240/2024 (filed November 22, 2024); Highbridge Tactical Credit Master Fund L.P. et. al. v. Getty Images Holdings, Inc., Index No. 650402/2025 (filed January 21, 2025) (the “NY State Actions”). The NY State Actions generally allege breaches of the Warrant Agreement and seek an award of money damages, and the plaintiffs in these actions could seek, and the courts could award, money damages per warrant that are less than, equal to or greater than the per warrant money damages awarded in the Initial Warrant Litigation. The Company’s response to the complaints filed in the NY State Actions are not yet due. It is possible that additional purported former warrant holders of the Company could bring additional lawsuits against the Company, its directors or officers, alleging substantially similar claims, or new or different claims relating to the public warrants. The Company intends to defend itself vigorously in the Initial Warrant Litigation, the Follow-on Warrant Litigation and any future actions and is unable to estimate any potential additional loss or range of loss that may result from the ultimate resolution of these matters, which could be material to the Company’s business, financial condition, results of operations and cash flows. For additional information about availability of insurance proceeds to fund potential losses, s ee Liquidity and Capital Resources within Item 7. - Management’s Discussion and Analysis of Financial Condition Results of Operations . +Getty Images (US), Inc. is a plaintiff in a lawsuit filed in the United States District Court for the District of Delaware against Stability AI, Inc., Stability AI, Ltd. and Stability AI US Services Corp. The case, Getty Images (US), Inc. v. Stability AI, Inc., Case No. 1:23-cv-00135-JHL, arises out of the defendant’s alleged unauthorized reproduction of approximately 12.0 million in images from Getty Images’ websites, along with the accompanying captions and associated metadata, and use of the copied content in connection with various iterations of Stability AI’s generative artificial intelligence model known as Stable Diffusion. Getty Images (US), Inc. has asserted claims for copyright infringement; falsification of copyright management information; trademark infringement; unfair competition; trademark dilution; and deceptive trade practices. Getty Images (US), Inc. seeks, among other things, monetary damages and injunctive relief. The case was originally filed on February 3, 2023 against Stability AI, Inc., and an Amended Complaint adding Stability AI, Ltd. as a defendant was filed on March 29, 2023. On May 2, 2023, the defendants moved to dismiss or, in the alternative, to transfer the case to the Northern District of California. The defendants’ motion was premised on their contention that Stability AI, Ltd. is not subject to personal jurisdiction in Delaware. Getty Images served jurisdictional discovery requests on Defendants on May 12, 2023, and the parties agreed to extend Getty Images (US), Inc.’s time to respond to the motion to dismiss while the parties engage in discovery relating to the defendants’ activities within Delaware and other states in the U.S. On January 26, 2024, the court dismissed the defendants’ motion to dismiss without prejudice with leave to re-file upon the completion of jurisdictional discovery. Following substantial completion of jurisdictional discovery, Getty Images (US), Inc. filed an unopposed motion for leave to file a Second Amended Complaint, which was granted on July 8, 2024. The Second Amended Complaint added Stability AI US Services Corporation as a third defendant. On July 29, 2024, the defendants filed a renewed motion to dismiss premised on their contention that Stability AI, Ltd. is not subject to personal jurisdiction in Delaware and also filed a motion to transfer the case to the Northern District of California. The motion has been fully briefed and is still pending a decision by the Court. No case schedule has been set. +Arising out of similar alleged facts, Getty Images (US), Inc., Getty Images International U.C., Getty Images (UK) Limited, Getty Images Devco UK Limited and iStockphoto LP are Claimants in proceedings issued in the High Court of England & Wales against Stability AI Limited on January 16, 2023, claim number IL2023-000007, which, together with the Particulars of Claim (the Claimants’ statement of case) were served on the defendant on May 12, 2023. The Claimants assert claims for copyright infringement, infringement of database rights, trademark infringement and passing off and seeks, amongst other things, monetary damages, injunctive relief and legal costs. In June 2023, Stability filed a motion to strike certain portions of the claim and grant summary judgment on various claims made by Getty Images including the claim for secondary infringement of copyright. The court conducted a hearing on the issues in October 2023. +Following the hearing, the Judge gave judgment and issued an order denying Stability’s motion in its entirety and granted costs to Getty Images. The order became final and public in late January 2024. Stability requested permission to appeal against the decision not to grant summary judgment on the secondary infringement claim but that request was refused in July 2024. The case schedule was set in July 2024 for the next stages of the litigation, including exchange of the trial witness evidence, disclosure and amendments to the parties’ claims or defense. The parties have now substantially completed the evidence and disclosure phases and the next key phase will be the service of expert reports. The Court has +47 +Table of Conten ts +held several hearings to address procedural issues, which will be ongoing through late March 2025. A trial date has been set for early June 2025 in the High Court in London and is estimated to last about four weeks. +The Company has made certain litigation reserves in respect of the Initial and Follow-On Warrant Litigation in the Consolidated Statements of Operations. Although the Company cannot be certain of the outcome of any litigation or the disposition of any claims, or the amount of damages and exposure, if any, that the Company could incur, the Company does not currently believe that a material loss arising from the final disposition of existing matters is probable. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot determine with certainty the ultimate outcome of any such litigation or proceedings. If the final resolution of any such litigation or proceedings is unfavorable, our financial condition, results of operations and cash flows could be materially affected. Further, in the ordinary course of business, the Company is also subject to periodic threats of lawsuits, investigations and claims. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors. +The Company has open tax audits in various jurisdictions and some of these jurisdictions require taxpayers to pay assessed taxes in advance or at the time of appealing such assessments. One such jurisdiction is Canada, where one of the Company’s subsidiaries, iStockphoto ULC, received tax assessments from the Canada Revenue Agency (“CRA”) asserting additional tax is due. The position taken by the CRA is related to the transactions between iStockphoto ULC and other affiliates within the Getty Images group for the 2015 Canadian income tax return filed. The Company believes the CRA position lacks merit and intends to vigorously contest these assessments through the appeal process, including engaging with the U.S. Competent Authority. +As part of the appeal process in Canada, the Company may be required to pay a portion of the assessment amount, which the Company estimates could be up to $17.4 million. Such required payment is not an admission that the Company believes it is subject to such taxes. The Company believes it is more likely than not it will prevail on appeal, however, if the CRA were to be successful in the appeal process, the Company estimates the maximum potential outcome could be up to $25.3 million. +Item 4. Mine Safety Disclosures. +Not applicable. +48 +Table of Conten ts +PART II +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. +Market Information +Our Class A common stock is currently listed on the NYSE under the symbol “GETY”. As of March 12, 2025, there were 412,567,845 shares of Class A common stock issued and outstanding held of reco rd by 41 holders. Because many of our shares of Class A common stock are held by brokers and other institutions on behalf of sto ckholders, this number is not indicative of the total number of stockholders represented by these stockholders of record. +Dividends +We have not paid any cash dividends on our Class A common stock to date. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition. The payment of any cash dividends will be within the discretion of our Board at such time. In addition, we are not currently contemplating and do not anticipate declaring any cash dividends in the foreseeable future as it is currently expected that available cash resources will be utilized in connection with our ongoing operations. +Recent Sales of Unregistered Securities +All sales of unregistered securities during the fiscal year ended December 31, 2024 have been previously reported in our filings with the SEC. +Issuer Purchases of Equity Securities +We did not acquire any shares of Class A common stock during the three months ended December 31, 2024. +Stock Performance Graph +The following graph compares the cumulative total return to stockholders from the closing price on July 25, 2022 (the date our Class A common stock began trading on the NYSE following the Business Combination) through December 31, 2024, relative to the performance of the Russell 2000 Index and the S&P Composite 1500 Interactive Media & Services Index. The stock performance graph assumes $100 was invested in our Class A common stock and the common +49 +Table of Conten ts +stock of each of the companies listed on the Russell 2000 Index and the S&P Composite 1500 Interactive Media & Services Index on July 25, 2022. +7/25/2022 12/31/2022 06/30/2023 12/31/2023 06/30/2024 12/31/2024 +Getty Images Holdings, Inc. $ 100.00 $ 60.56 $ 53.33 $ 57.38 $ 35.63 $ 23.61 +Russell 2000 Index $ 100.00 $ 97.57 $ 105.44 $ 114.04 $ 116.01 $ 127.18 +S&P Composite 1500 Interactive Media & Services Index $ 100.00 $ 80.49 $ 126.27 $ 149.55 $ 200.33 $ 217.24 +Item 6. +[Reserved] +50 +Table of Conten ts +Item 7. Management’s Discussion and Analysis of Financial and Results of Operations +Condition and Results of Operations +The following discussion and analysis of the financial condition and results of operations of Getty Images should be read together with our consolidated financial statements and related notes included elsewhere in this Annual Report. The discussion should also be read together with the “Cautionary Note Regarding Forward-Looking Statements” above and the “Item 1A. Risk Factors” disclosure above for additional discussion of the risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Note the discussion below does not consider the impact of the planned merger, announced on January 7, 2025, between Getty Images Holdings, Inc. and Shutterstock, Inc. +Merger Agreement with Shutterstock +On January 6, 2025, Getty Images entered into an Agreement and Plan of Merger (the “Merger Agreement”) to combine in a merger-of-equals transaction with Shutterstock. Subject to terms and conditions in the Merger Agreement, the aggregate consideration to be paid by Getty Images in respect of the outstanding shares of common stock of Shutterstock will be: +• An amount in cash equal to the product of $9.50 multiplied by the number of shares of Shutterstock common stock outstanding immediately prior to the transaction close (including vested Shutterstock restricted stock units and performance stock units) (the “Total Cash Amount”); and +• A number of shares of our Class A common stock equal to the product of 9.17 multiplied by the number of shares of Shutterstock common stock outstanding immediately prior to the transaction close (including vested Shutterstock restricted stock units and performance stock units) (the “Total Stock Amount”). +Each of the Total Cash Amount and the Total Stock Amount will be fixed as of immediately prior to closing of the Merger. Therefore, cash elections will be subject to proration if cash elections are oversubscribed and stock elections will be subject to proration if stock elections are oversubscribed. +Each holder of Shutterstock common stock immediately prior to the transaction close will have the option to receive, subject to proration, for each share of Shutterstock common stock held by such holder: +• Cash consideration of $9.50 and 9.17 shares of our Class A common stock; +• Cash consideration of $28.8487; or +• 13.67237 shares of our Class A common stock. +Following the close of the transaction, Getty Images stockholders will own approximately 54.7% and Shutterstock stockholders will own approximately 45.3% of the combined company on a fully diluted basis. The transaction is subject to the satisfaction of customary closing conditions, including receipt of required regulatory approvals, the approval of Getty Images and Shutterstock stockholders and other customary closing conditions. +Through December 31, 2024, Getty Images has expensed $4.1 million of legal, accounting, and direct costs related to this proposed Merger in “ Other operating expenses (income) – net ” on the consolidated balance sheet. +On January 28, 2025, Getty Images filed its Premerger Notification and Report Form under the HSR Act (“HSR Filing”). On February 27, 2025 Getty Images withdrew its HSR Filing and refiled it on March 3, 2025. The waiting period under the HSR Act will expire at 11:59 pm on April 2, 2025, unless earlier terminated or otherwise extended. +The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, which is attached hereto as Exhibit 2.2 and incorporated herein by reference. +51 +Table of Conten ts +Refinancing Amendment +On February 21, 2025 (the “Amendment Effective Date”), Abe Investment Holdings, Inc., a Delaware corporation (the “Parent Borrower”), and Getty Images, Inc., a Delaware corporation (the “Getty Borrower”, and together with the Parent Borrower, the “Borrowers”), which are subsidiaries of Getty Images, entered into the Second Incremental Commitment Amendment and Third Amendment to Credit Agreement (the “Refinancing Amendment”), which amended their existing credit agreement, dated as of February 19, 2019 (as amended, restated, amended and restated, supplemented or otherwise modified prior to the Amendment Effective Date, the “Existing Credit Agreement” and as amended by the Refinancing Amendment, the “Amended Credit Agreement”). The Refinancing Amendment, among other things, provided for (i) a new tranche of senior secured fixed rate incremental term loans denominated in U.S. Dollars in an aggregate principal amount of $580.0 million (the “Dollar Fixed Rate Term B-1 Loans”) and (ii) a new tranche of senior secured term loans denominated in Euros in an aggregate principal amount of €440.0 million (the “Euro Term B-1 Loans” and together with the Dollar Fixed Rate Term B-1 Loans, the “Term B-1 Loans”). The proceeds of the Term B-1 Loans were used to refinance in full all outstanding term loans under the Existing Credit Agreement. The Term B-1 Loans will mature on February 21, 2030; provided that, if more than $25.0 million of the Borrowers’ existing senior unsecured notes or refinancing indebtedness in respect thereof remain outstanding with a maturity date earlier than the date that is 91 days after February 21, 2030, then the maturity of the Euro Term B-1 Loans shall spring to the date that is 91 days prior to the maturity of such senior unsecured notes or refinancing indebtedness in respect thereof. +The Dollar Fixed Rate Term B-1 Loans will accrue interest at an initial fixed rate of 11.25% per annum (the “Initial Fixed Rate”), which will step-up to 12.25% per annum on May 14, 2025 and 13.25% per annum (the “Maximum Fixed Rate”) on August 14, 2025; provided that, if the Borrowers (i) commence a Permitted Debt Exchange Offer (as defined in the Amended Credit Agreement) and (ii) either (x) consummate such Permitted Debt Exchange (as defined in the Amended Credit Agreement) or (y) if no lenders elect to exchange their Dollar Fixed Rate Term B-1 Loans, permit the full election period set forth in the definitive documentation for such Permitted Debt Exchange Offer to expire, in each case, with respect to the Dollar Fixed Term B-1 Loans on or before December 31, 2025, then the interest rate shall be the Initial Fixed Rate at all times thereafter; provided further that, if such first Permitted Debt Exchange is consummated after December 31, 2025, then the interest shall be the Maximum Fixed Rate at all times thereafter. The Dollar Fixed Rate Term B-1 Loans shall be due and payable at maturity. +The Euro Term B-1 Loans will accrue interest at the Adjusted Eurodollar Rate (as defined in the Amended Credit Agreement and based on EURIBOR) plus 6.00% per annum. The Euro Term B-1 Loans will amortize at 5.0% per annum, payable in equal quarterly installments beginning on June 30, 2025. +With respect to the Dollar Fixed Rate Term B-1 Loans, any optional prepayment or mandatory prepayment as a result of incurring refinancing debt on or prior to the fourth anniversary of the Amendment Effective Date will be subject to a prepayment premium equal to (i) if such prepayment is made prior to the second anniversary of the Amendment Effective Date, a make-whole amount constituting the applicable Initial Prepayment Premium (as defined in the Amended Credit Agreement), (ii) if such prepayment is made on or after the second anniversary of the Amendment Effective Date but prior to the third anniversary of the Amendment Effective Date, 5.625% of the principal amount of the Dollar Fixed Rate Term B-1 Loans prepaid and (iii) if such prepayment is made on or after the third anniversary of the Amendment Effective Date but prior to the fourth anniversary of the Amendment Effective Date, 2.813% of the principal amount of the Dollar Fixed Rate Term B-1 Loans prepaid. With respect to the Euro Term B-1 Loans, any optional prepayment or mandatory prepayment as a result of incurring refinancing debt on or prior to the second anniversary of the Amendment Effective Date will be subject to a prepayment premium equal to (i) if such prepayment is made prior to the first anniversary of the Amendment Effective Date, a make-whole amount constituting the applicable Initial Prepayment Premium and (ii) if such prepayment is made on or after the first anniversary of the Amendment Effective Date but prior to the second anniversary of the Amendment Effective Date, 1.00% of the principal amount of the Euro Term B-1 Loans prepaid. Any prepayment of Term B-1 Loans in connection with a Permitted Debt Exchange shall not be subject to any prepayment premium. +The foregoing description of the Refinancing Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the Refinancing Amendment, which is attached hereto as Exhibit 10.5 and incorporated herein by reference. +Business Overview and Recent Developments +In 1995, Mark Getty and Jonathan Klein co-founded the predecessor to Getty Images, Inc. in London. In September 1997, Getty Communications, as it was called at the time, merged with PhotoDisc, Inc. to form Getty Images, +52 +Table of Conten ts +Inc. Legacy Getty was incorporated in Delaware on September 25, 2012, and in October of the same year, indirectly acquired Getty Images, Inc. +On July 22, 2022 (the “Closing Date”), the Company consummated the transactions in the Business Combination Agreement, dated December 9, 2021 (the “Business Combination Agreement” and the consummation of such transactions, the “Closing”), by and among CC Neuberger Principal Holdings II, a Cayman Islands exempted company (“CCNB”), the Company (at such time, named Vector Holding, LLC, a Delaware limited liability company and wholly-owned subsidiary of CCNB), Vector Domestication Merger Sub, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (“Domestication Merger Sub”), Vector Merger Sub 1, LLC, a Delaware limited liability company and a wholly-owned subsidiary of CCNB (“G Merger Sub 1”), Vector Merger Sub 2, LLC, a Delaware limited liability company and a wholly-owned subsidiary of CCNB (“G Merger Sub 2”), Griffey Global Holdings, Inc., a Delaware corporation (“Legacy Getty”), and Griffey Investors, L.P., a Delaware limited partnership (the “Partnership”). On the day prior to the Closing Date, the Company statutorily converted from a Delaware limited liability company to a Delaware corporation (the “Statutory Conversion”). On the Closing Date, CCNB merged with and into Domestication Merger Sub, with Domestication Merger Sub surviving the merger as a wholly-owned direct subsidiary of the Company (the “Domestication Merger”). Following the Domestication Merger on the Closing Date, G Merger Sub 1 merged with and into Legacy Getty, with Legacy Getty surviving the merger as an indirect wholly-owned subsidiary of the Company (the “First Getty Merger”). Immediately after the First Getty Merger, Legacy Getty merged with and into G Merger Sub 2 with G Merger Sub 2 surviving the merger as an indirect wholly-owned subsidiary of the Company (the “Second Getty Merger” and together with the First Getty Merger, the “Getty Mergers” and, together with the Statutory Conversion and the Domestication Merger, the “Business Combination”). +Getty Images is a preeminent global visual content creator and marketplace, providing a diverse collection of high-quality photos, illustrations, videos, and music licensing to businesses, media organizations, and individuals worldwide. The Company is one of the largest and most respected providers of stock imagery and multimedia content. +For 30 years, Getty Images has embraced innovation, from analog to digital, from offline to e-commerce, from stills to video, from single image purchasing to subscriptions, from websites to application programming interfaces (“APIs”), from pre-shot content to AI generated content designed to be commercially safe. With quality content at the core of our offerings, we embrace innovation as a means to service our existing customers better and to reach new ones. +We offer comprehensive content solutions, including a la carte (“ALC”) and subscription access to our pre- shot content and coverage, generative AI-services, custom content and coverage solutions, digital asset management tools, data insights, research, and print offerings. +Through our content and coverage, Getty Images moves the world—whether the goal is commercial or philanthropic, revenue-generating or society-changing, market-disrupting or headline-driving. Through our staff, our exclusive contributors and partners, and our expertise, data, and research, Getty Images’ content grabs attention, sheds light, represents communities, and reminds us of our history. +Through Getty Images, iStock, and Unsplash, we off er a full range of content solutions to meet the needs of any customer—no matter their size—around the globe, with over 604 million visual assets available through its industry-leading sites. New content and coverage are added daily, with over 11 million new assets added each quarter and over 2.7 billion searches annually. The Company has over 716,000 purchasing customers, with customers from almost every country in the world with websites in 23 languages bringing the world’s best content to media outlets, advertising agencies, and corporations of all sizes and, increasingly, serving individual creators and prosumers. +In support of its content, Getty Images employs 110 staff photographers and videographers, and distributes the content of over 583,000 contributors and more than 350 premium content partners. Over 81,000 of our contributors are exclusive to the Company, creating content that cannot be found anywhere else. Each year, we cover more than 160,000 global events across news, s port, and entertainment, providing a depth and breadth of coverage that is unmatched. Getty Images also maintains one of the largest and best privately-owned photographic archives in the world, with over 150 million images across geographies, periods, and verticals. +We distribute content and services offerings through three primary product lines: +53 +Table of Conten ts +Creative +Creative is comprised of royalty-free (“RF”) photos, illustrations, vectors, videos, and generative AI-services that are released for commercial use and cover a wide variety of commercial, conceptual, and contemporary subjects, including lifestyle, business, science, health, wellness, beauty, sports, transportation and travel. This content is available for immediate use by a wide range of customers with depth, breadth, and quality, allowing our customers to produce impactful websites, digital media, social media, marketing campaigns, corporate collateral, textbooks, movies, television and online video content relevant to their target geographies and audiences. We primarily source Creative content from a broad network of professional, semi-professional, and amateur creators, many exclusive to Getty Images. We have a global creative insights team dedicated to providing briefi ng and art direction to our exclusive contributor community. Creative represents 58.9%, 63.1% and 63.2% of our revenue of which 56.0% , 52.2% 1 and 46.5% 1 is generated through our annual subscription products, for the years ended December 31, 2024, 2023 and 2022, respectively. Annual Subscription products include products and subscriptions with a duration of 12 months or longer, Unsplash API, and Custom Content. +Editorial +Editorial is comprised of photos and videos covering the world of entertainment, sports, and news. We combine contemporary coverage of events around the globe with one of the largest privately held archives globally with access to images from the beginning of photography. We invest in a dedicated editorial team that includes 110 staff photographers and videographers to generate our own coverage in addition to coverage from our network of content partners. Editorial represents 36.8%, 35.0% and 35.2% of our revenue, of whic h 53.7%, 53.3% and 52.1% is generated through our annual subscription products, for the years ended December 31, 2024, 2023 and 2022, respectively. Annual Subscription products include subscriptions with a duration of 12 months or longer. +Other +Other represents 4.3%, 1.9%, and 1.6% of our revenue for the years ended December 31, 2024, 2023, and 2022, respectively. This includes music licensing, digital asset management, distribution services, print sales, and data access and/or licensing. +We service a full range of customers through our industry-leading brands and websites: +Getty Images +Gettyimages.com offers premium creative content and editorial coverage, including video, with exclusive content, and customizable rights and protections. This site primarily serves more prominent enterprise agency, media and corporate customers with global customer support from our sales and service teams. Customers can purchase on an ALC basis or through our content subscriptions, including our “Premium Access” subscription, where we uniquely offer frictionless access across all of the Getty Images and iStock content in one solution. +iStock +iStock.com is our budget-conscious e-commerce offering our customers access to creative stills and video, which includes exclusive content. This site primarily serves small and medium-sized businesses, including the growing freelance market. Customers can purchase on an ALC basis or through a range of monthly and annual subscription options with access to an extensive amount of unique and exclusive content. +Unsplash +Unsplash.com is a platform offering free stock photo downloads and paid subscriptions targeted to the high-growth prosumer and semi-professional creator segments. The Unsplash website reaches a significant and geographically diverse audience with more than 96 million image downloads every month. On October 4, 2022, Unsplash launched Unsplash+, an unlimited paid subscription providing access to unique model released content with expanded legal protections. +In addition to our websites, customers and partners can access and integrate our content, metadata and search capabilities via our APIs and through a range of mobile apps and plugins. +1 Prior year percentage has been restated to conform to the current year presentation. +54 +Table of Conten ts +We are a critical intermediary between content suppliers and a broad set of customers. We compete against a broad range of stock licensing marketplaces, editorial news agencies, creative agencies, production companies, staff and freelance photographers and videographers, photo and video archives, freelance marketplaces and amateur content creators, creative tools and services and free sources. Getty Images’ unique offering and approach offers a strong value proposition to our customers and content contributors. +For customers: +• We offer a comprehensive suite of high quality, authentic content, purchase and licensing options and services to meet the needs of our customers, regardless of project requirements, needs or budgets. +• Our content sourcing and production, rights oversight, websites and content distribution are all supported by a unique, scalable cloud-based unified platform with powerful artificial intelligence/machine learning and data addressing all customers at scale. +• Customers have access to Generative AI by Getty Images and iStock which is designed to be a commercially-safe and responsible solution designed to help embrace AI, elevate creativity, and ideate or iterate on concepts and compositions. +• Customers can avoid the costly investment and environmental impact of producing content on their own. This can include costs incurred from staffing, travel and access, model and location, hardware and production, and editing. +• Customers do not have to wait for content to be produced and distributed and can avoid the difficulties and pitfalls of searching across the internet to locate and negotiate for rights to license or use specific content. Our best-in-class, scaled infrastructure offers customers a one-stop shop for instant content access and maneuverability. +• Customers licensing from Getty Images and iStock receive trusted copyright claim protections, model and property releases and the ability to secure the necessary clearances for their intended use of the content. +For content contributors: +• Access to a marketplace that reaches almost every country in the world, across all customer categories and sizes and generated annual royalties of nearly $220 million for the year ended December 31, 2024 . +• We maintain a dedicated and experienced creative insights team focused on understanding changes in customer demand, the visual landscape, the authentic portrayal of communities and cultures, and the evolution of core creative concepts. We work closely with leading organizations to augment our proprietary research and understanding of communities and cultures to provide content with authentic depiction. We convey this research to our exclusive contributors via actionable insights allowing them to invest in and create content that accurately caters to changing consumer demand and up to date market trends. +• Not only do we provide exclusive contributors with scaled access to end markets and proprietary information, but we also provide premium royalty rates. This allows our exclusive contributors and partners to confidently invest more into their productions with the potential to generate higher returns. +• Partnering with Getty Images allows contributors to focus on content creation and avoid time and financial investment in the marketing, sales, distribution and management of their content. +• Our Generative AI by Getty Images and iStock products compensates our world-class content creators for the use of their work in our AI models, allowing them to continue to create more high-quality pre-shot imagery. +Closing of the Business Combination +In connection with the Business Combination, on the Closing Date, Getty Images issued, (a) an aggregate of 66,000,000 shares of Class A common stock for aggregate gross proceeds of $660.0 million and (b) 20,000,000 shares of Class A common stock and 3,750,000 Forward Purchase Warrants (as defined in the notes to the consolidated financial statements included elsewhere in this Annual Report) for an aggregate purchase price of $200 million. The foregoing transactions resulted in aggregate gross proceeds to the Company of approximately $864.2 million. The Company used the proceeds, in addition to cash on hand, to repay a portion of its outstanding indebtedness and retire the Redeemable Preferred Stock of Legacy Getty. Each option to purchase shares of common stock of Legacy Getty (whether vested or unvested) was converted into a comparable option to purchase shares of Class A common stock of Getty Images. +See also “ Note 5 — Common Stock Warrants ” and “ Note 16 — Stockholders’ Equity ” in our consolidated financial statements included elsewhere in this Annual Report for information on additional transactio ns related to the Business Combination. +55 +Table of Conten ts +Components of Operating Results +Revenue +We generate revenue by licensing content to customers through multiple license models and purchase options, as well as by providing related services to our customers. The key image licensing model in the pre-shot market is RF. Content licensed on a RF basis is subject to a standard set of terms, allowing the customer to use the image for an unlimited duration and without limitation on the use or application. Within our video offering, we also offer a licensing model known as Rights-Ready. The Rights-Ready model offers a limited selection of broader usage categories, thus simplifying the purchase process. In September 2023 and January 2024, we launched Generative AI by Getty Images and Generative AI by iStock, respectively. They are generative AI text to image tools that were trained exclusively on Getty Images’ world‑class creative content and designed for commercial use. Customers that download visuals through the tool will receive the standard royalty‑free license. +In addition to licensing imagery and video, we generate revenue from custom content solutions, photo and video assignments, music content in some of our subscriptions, print sales, data access and/or licensing and licensing our digital asset management systems to help customers manage their owned and licensed digital content. +A significant portion of the business has transitioned to a subscription model with strong retention characteristics. Annual subscriptions now comprise approximately 54% of total revenue for the year ended December 31, 2024 , and we continue to focus on growing subscription revenue. +References to “reported revenue” in this discussion and analysis are to our revenue as reported in our historical audited consolidated financial statements for the relevant periods and reflect the effect of changes in foreign currency exchange rates. References to “currency neutral” (“ Currency Neutral ” or “ CN ”) revenue growth or decline (expressed as a percentage) in this section refer to our revenue growth (expressed as a percentage), excluding the effect of changes in foreign currency exchange rates. See “ Non-GAAP Financial Measures ” for additional information regarding Currency Neutral revenue growth or decline (expressed as a percentage). +Cost of revenue (exclusive of depreciation and amortization) +The ownership rights to the majority of the content we license are retained by the owners, and licensing rights are provided to us by a large network of content contributors and content partners. When we license content entrusted to us by content suppliers, we pay royalties to them at varying rates depending on the license model and the use of that content that our customers select. Suppliers who choose to work with us under contract typically receive royalties of 20% to 50% of the total license fee we charge customers, depending on the basis on which their content is licensed by our customers. Contributors will be compensated for any inclusion of their content in AI data training sets and, in certain cases, share in the revenue generated by AI tools and services trained with their content. We also own the copyright to certain content in our collections (“wholly-owned content”), including content produced by our staff photographers for our editorial product, for which we do not pay any third party royalties. Cost of revenue includes certain costs of our assignment photo shoots, but excludes amortization associated with creating or buying content. Cost of revenue consists primarily of royalties owed to content contributors, comprised of photographers, filmmakers, third-party companies that license their collection of content through us (“Content Partners”) and third party music content providers. +Going forward, we expect cost of revenue to trend higher in absolute dollars as we continue growing our revenue. We expect our cost of revenue as a percentage of revenue to vary modestly based on changes in revenue mix by product, as royalty rates vary depending on license model and use of content. +Selling, general, and administrative expenses +Selling, general, and administrative expenses (“SG&A”) primarily consist of staff costs, marketing expenses, occupancy costs, professional fees and other general operating charges. We expect our selling, general and administrative expenses to increase in absolute dollars but remain relatively constant as a percentage of revenue in the near term. Absolute dollar spending will increase as we continue to expand our operations and invest in our growth. Lastly, we expect our marketing to stay relatively constant as a percentage of revenue. However, the Company will continue to evaluate opportunities to incrementally invest in marketing as may be appropriate. +56 +Table of Conten ts +Depreciation +Depreciation expense consists of internally developed software, content and equipment depreciation. We record property and equipment at cost and reflect Balance Sheet balances net of accumulated depreciation. We record depreciation expense on a straight-line basis. We depreciate leasehold improvements over the shorter of the respective lives of the leases or the useful lives of the improvements. +We expect depreciation expense to remain stable as we continue to innovate and invest in the design, user experience and performance of our websites. +Amortization +Amortization expense consists of the amortization of intangible assets related to acquired customer relationships, trademarks and other intangible assets. The majority of our intangible assets have been fully amortized as of December 31, 2024. We expect amortization expense to be insignificant in the coming years. +Factors affecting results of operations +A shift in the product mix of our revenue may affect our overall cost of revenue as a percentage of revenue. Our revenues and profitability are also subject to fluctuations in foreign exchange rates. The weakening or strengthening of our reporting currency, the U.S. Dollar, during any given period as compared to currencies that we collect revenues in, most notably, the Euro and British pound, impacts our reported revenues. +Our future financial condition and results of operation will also be dependent upon various factors that generally affect the digital content industry, including the general trends affecting the media, marketing and advertising customer bases that we target, protection of intellectual property, and new and expanding technology such as generative AI technologies. In addition, our financial condition and results of operation will continue to be affected by factors that affect internet commerce companies and by general deterioration in macroeconomic factors that could continue to increase the risks of lower consumer spending, other business interruptions, the global and economic uncertainty caused by, among other things, any lingering effects of the Hollywood actors and writers strike and public health crisis, the military conflicts between Russia and Ukraine and in the Middle East, tariffs or trade restrictions imposed by the U.S. and other countries, changes in political climate, and high interest rates, currency fluctuations, high inflation and labor shortages. +Impact of Currency Fluctuations +Assets and liabilities for subsidiaries with functional currencies other than the U.S. Dollar are recorded in foreign currencies and translated at the exchange rate on the Balance Sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are charged or credited to “Other comprehensive income (loss)”, as a separate component of stockholder’s equity. The Company recognized net foreign currency translation adjustment losses of $36.7 million during the year ended December 31, 2024 and net foreign currency translation adjustment gains of $21.9 million during the year ended December 31, 2023. +Transaction gains and losses arising from transactions denominated in a currency other than the functional currency of the entity involved are included in “Foreign exchange gain (loss) – net” in the Consolidated Statements of Operations. For the year ended December 31, 2024 , the Company recognized net foreign currency transaction gains of $36.1 million. For the year ended December 31, 2023, the Company recognized net foreign currency transaction losses of $23.8 million. +57 +Table of Conten ts +Results of Operations +Comparison of the Years Ended December 31, 2024 and 2023 +The following table sets forth our consolidated results of operations for the periods indicated. +(In thousands, except percentages) Years Ended +December 31, increase (decrease) +2024 2023 $ change % change +Revenue $ 939,287 $ 916,555 $ 22,732 2.5 % +Cost of revenue (exclusive of depreciation and amortization) 253,068 250,249 2,819 1.1 % +Selling, general and administrative expenses 407,796 402,516 5,280 1.3 % +Depreciation 58,987 54,374 4,613 8.5 % +Amortization 2,306 24,069 (21,763) (90.4) % +Loss on litigation 20,491 116,051 (95,560) NM +Recovery of loss on litigation — (60,000) 60,000 NM +Other operating expenses (income) – net 15,834 1,624 14,210 NM +Total operating expenses 758,482 788,883 (30,401) (3.9) % +Income from operations 180,805 127,672 53,133 41.6 % +Interest expense (131,408) (126,884) (4,524) 3.6 % +(Loss) gain on fair value adjustment for swaps – net (1,459) (7,573) 6,114 (80.7) % +Foreign exchange gain (loss) – net 36,071 (23,772) 59,843 (251.7) % +Other non-operating income (expense) – net 2,946 3,652 (706) (19.3) % +Total other expense – net (93,850) (154,577) 60,727 (39.3) % +Income (loss) before income taxes 86,955 (26,905) 113,860 (423.2) % +Income tax (expense) benefit (47,483) 46,482 (93,965) (202.2) % +Net income (loss) $ 39,472 $ 19,577 $ 19,895 101.6 % +____________________ +NM - Not meaningful +Revenue by product +(In thousands) Years Ended +December 31, increase / (decrease) +2024 % of revenue 2023 % of revenue $ change % change CN % change +Creative 552,828 58.9 % 578,739 63.1 % (25,911) (4.5) % (4.4) % +Editorial 345,932 36.8 % 320,643 35.0 % 25,289 7.9 % 7.7 % +Other 40,527 4.3 % 17,173 1.9 % 23,354 136.0 % 136.4 % +Total revenue $ 939,287 100.0 % $ 916,555 100.0 % $ 22,732 2.5 % 2.5 % +Certain prior period amounts have been reclassified to conform to the current year presentation. +For the year ended December 31, 2024, reported revenue was $939.3 million as compared to reported revenue of $916.6 million for the year ended December 31, 2023. On a reported basis for the year ended December 31, 2024, revenue increased by 2.5% (2.5% CN) year over year. +Creative revenue decreased on a reported basis 4.5% (4.4% CN) f or the year ended December 31, 2024. The decrease for the year ended December 31, 2024 was driven by declines in our ALC credit sales and ultra packs, ALC Premium RF and iStock monthly subscriptions (decreased $33.6 million). These declines were largely driven by our continued focus on driving customers to our committed solutions, as well as reduced revenue from Agency customers, which are accounted for entirely within Creative revenue and purchase mainly on an ALC basis. Additionally, within our +58 +Table of Conten ts +Creative committed solutions, there were increases in our iStock annual subscriptions (increased $15.8 million) which were partially offset by decreases in our Premium Access subscriptions (decreased $11.6 million). Additional impacts to committed solutions resulted from subscriber download patterns, with major events during the year skewing downloads more toward Editorial than Creative. +Editorial revenue increased on a reported basis 7.9% (7.7% CN) for the year ended December 31, 2024. The increase was driven by editorial subscriptions (increased $14.8 million), editorial assignments (increased $6.4 million) and editorial ALC (increased $5.6 million). Overall, the increase was spurred by growth in Sport, driven by quadrennial UEFA European Championship soccer tournament and the Paris 2024 Olympics coverage; News, propelled by the U.S. political spend; and finally Entertainment, as the prior year was impacted by the Hollywood strikes. Additional impacts to committed solutions resulted from subscriber download patterns, with major events during the year skewing downloads more toward Editorial than Creative. +Other revenue includes music licensing, digital asset management and distribution services, print sales, and data access and licensing revenues. Revenue for the year ended December 31, 2024 from our Other products increased on a reported basis by 136.0% (136.4% CN). The increase of $23.4 million is primarily driven by data access and licensing agreements. +Revenue Recognition +The timing of our revenue recognition can be influenced by several factors, including the nature of the contract with the customer, and the Company’s estimates regarding unused content and customer download patterns. These factors can lead to variability in the timing and amount of revenue recognized in a given period. The weakening or strengthening of our reporting currency, the U.S. Dollar, during any given period compared to currencies we collect revenues in, most notably, the Euro and British pound, impacts our reported revenues. +Cost of revenue (exclusive of depreciation and amortization) +Cost of revenue for the year ended December 31, 2024 was $253.1 million (26.9% of revenue) compared to $250.2 million (27.3% of revenue) in the prior year. The change in cost of revenue as a percentage of revenue compared to the prior year was due primarily to revenue mix by product. Generally, cost of revenue rates vary modestly period over period based on changes in revenue mix by product, as royalty rates vary depending on the license model and use of content. +Selling, general and administrative expense +Reported SG&A expense increased by $5.3 million or 1.3% (1.2% CN) for the year ended December 31, 2024 as compared to the year ended December 31, 2023. SG&A fluctuations from the prior year include the following: +• increase of $4.3 million related to staff costs for the year ended December 31, 2024. The increase was driven by higher bonus and commission expense tied to Company performance, fringe benefits and salary and wages (increased $20.2 million), which were partially offset by a decrease in equity-based compensation (decreased $15.8 million). +• increase of $2.0 million related to travel and entertainment for the year ended December 31, 2024, primarily driven by higher travel expenses related to the Paris 2024 Olympics and the U.S. political coverage. +• decrease in marketing spend of 2.8% ($1.4 million) for the year ended December 31, 2024. For the year ended December 31, 2024, marketing spend as a percentage of revenue decreased to 5.0%, from the year ended December 31, 2023 ratio of 5.3%, which remains in line with historical trends. +Depreciation expense +For the year ended December 31, 2024, depreciation expense was $59.0 million, an increase of $4.6 million or 8.5%. The increase is due to capital investments made that are primarily related to internal software development as we continue to innovate and invest in the design, user experience and performance of our websites. +Amortization expense +59 +Table of Conten ts +For the year ended December 31, 2024, amortization expense was $2.3 million which was a decrease of $21.8 million or 90.4% compared to the prior year. The decline was attributed to several of the Company’s intangible assets becoming fully amortized in the prior year. +Loss on litigation +For the year ended December 31, 2024, the Company recognized loss on litigation of $20.5 million compared to $116.1 million in the year ended December 31, 2023 . The loss on litigation consists of the summary judgement amounts to lawsuits filed by former public warrant holders, interest on the summary judgment, legal fees, and amortization of fees related to appeal bond. The Company will continue to see these expenses as we navigate through the appeal of the judgment in the actions captioned by Alta Partners, LLC. V Getty Images Holdings, Inc., Case No. 1:22-cv-08916 and CRCM Institutional Master Fund (BVI) LTD. et al v. Getty Images Holdings, Inc., Case No. 1:23-cv-01074, and incur legal fees related to the additional warrant cases. +Recovery of loss on litigation +For the year ended December 31, 2023, the Company recognized recovery of loss on litigation of $60.0 million, which represented the limit of the Company’s third-party insurance coverage related to the lawsuits filed by former public warrant holders. There was no such recovery of loss on litigation for the year ended December 31, 2024. +Other operating expenses – net +Other operating expenses - net was $15.8 million for the year ended December 31, 2024, compared to $1.6 million in the year ended December 31, 2023. Impairment of a long-lived asset, acquisition costs, pre-acquisition Unsplash employment tax obligations and settlements of claims primarily drove the increase. We expect other operating expenses to fluctuate from period to period as this line item is heavily influenced by non-recurring events such as claims, settlements, and gains/losses on asset disposals. +Interest expense +We recognized interest expense of $131.4 million and $126.9 million for the year ended December 31, 2024 and December 31, 2023, respectively. Our interest expense primarily consisted of interest charges on our outstanding U.S. Dollar and Euro term loans (the “Term Loans”), Senior Unsecured Notes (the “Senior Notes”), and our revolving credit facility, which remained undrawn, as well as the amortization of original issue discount on our Term Loans and amortization of deferred debt financing fees. The increase in interest expense from the prior year was primarily due to the maturity of our interest rate swaps. +(Loss) gain on fair value adjustment for swaps – net +We recognized fair value adjustment net losses for our swaps of $1.5 million for the year ended December 31, 2024, as our interest rate swaps matured in February 2024. For the year ended December 31, 2023 we recognized net losses of $7.6 million for our swaps. The losses were driven by changes in interest rates relative to the rates in our derivatives. +While we have experienced volatility in the fair value adjustments on our derivative instruments, we believe hedging allows us to reduce our exposure to interest rate and foreign currency risks. We will continue to evaluate opportunities to utilize swaps, forwards, and other instruments to mitigate financial risks associated with our business. +Foreign exchange gain (loss) – net +We recognized foreign exchange gains, net of $36.1 million for the year ended December 31, 2024, compared to net losses of $23.8 million for the year ended December 31, 2023. These changes were driven by volatility in foreign exchange rates, including fluctuations in the EUR related to our EUR Term Loans. +We expect continued volatility in foreign exchange gains and losses each period based on fluctuations in exchange rates impacting our foreign currency exposures. +60 +Table of Conten ts +Other non-operating income – net +We recognized other non-operating income, net of $2.9 million and $3.7 million for the year ended December 31, 2024 and December 31, 2023, respectively. The increase was primarily due to higher interest income, driven by an increase in U.S. interest rates. We expect continued fluctuation in this line item based on market interest rates. +Income taxes +The Company’s income tax expense increased by $94.0 million to an expense of $47.5 million for the year ended December 31, 2024, as compared to a benefit of $46.5 million for the year ended December 31, 2023. The Company’s effective income tax rate for the year ended December 31, 2024 is 54.6%, compared to 172.8% for the year ended December 31, 2023. The increase in tax expense compared to the prior year is primarily due to changes in pre-tax income (loss) and a release of Ireland valuation allowance in the prior year. +Comparison of the Years Ended December 31, 2023 and 2022 +Consolidated Statements of Operations +(In thousands, except percentages) +(In thousands) Years Ended +December 31, increase (decrease) +2023 2022 $ change % change +Revenue $ 916,555 $ 926,244 $ (9,689) (1.0) % +Operating expenses: +Cost of revenue (exclusive of depreciation and amortization) 250,249 254,990 (4,741) (1.9) % +Selling, general and administrative expenses 402,516 375,582 26,934 7.2 % +Depreciation 54,374 49,574 4,800 9.7 % +Amortization 24,069 43,645 (19,576) (44.9) % +Loss on litigation 116,051 1,101 114,950 NM +Recovery of loss on litigation (60,000) — (60,000) NM +Other operating expenses (income) – net 1,624 (681) 2,305 NM +Total operating expenses 788,883 724,211 64,672 8.9 % +Income from operations 127,672 202,033 (74,361) (36.8) % +Other (expense) income, net: +Interest expense (126,884) (117,229) (9,655) 8.2 % +(Loss) gain on fair value adjustment for swaps – net (7,573) 23,508 (31,081) NM +Foreign exchange gain (loss) – net (23,772) 24,643 (48,415) NM +Loss on extinguishment of debt — (2,693) 2,693 NM +Net loss on fair value adjustment for warrant liabilities — (160,728) 160,728 NM +Other non-operating income (expense) – net 3,652 (3,051) 6,703 NM +Total other expense – net (154,577) (235,550) 80,973 (34.4) % +Income (loss) before income taxes (26,905) (33,517) 6,612 (19.7) % +Income tax benefit (expense) 46,482 (44,126) 90,608 NM +Net income (loss) $ 19,577 $ (77,643) $ 97,220 NM +____________________ +NM - Not meaningful +61 +Table of Conten ts +Revenue by product +(In thousands, except percentages) +Year ended +December 31, increase / (decrease) +2023 % of revenue 2022 % of revenue $ change % change CN % change +Creative 578,739 63.1 % 585,406 63.2 % (6,667) (1.1) % (0.6) % +Editorial 320,643 35.0 % 325,779 35.2 % (5,136) (1.6) % (1.2) % +Other 17,173 1.9 % 15,059 1.6 % 2,114 14.0 % 14.8 % +Total revenue $ 916,555 100.0 % $ 926,244 100.0 % $ (9,689) (1.0) % (0.5) % +Certain prior year amounts have been reclassified to conform to the current year presentation. +For the year ended December 31, 2023, reported revenue was $916.6 million as compared to reported revenue of $926.2 million for the year ended December 31, 2022. On a reported basis for the year ended December 31, 2023, revenue decreased by 1.0% (0.5% CN) year over year. Foreign exchange movements negatively impacted reported revenue growth for the year ended December 31, 2023 by 50 basis points, largely driven by the strengthening Dollar relative to the EUR and GBP. Additionally, starting in the second quarter of 2023, the Hollywood actors and writers strikes negatively impacted both our Creative and Editorial product lines. +Creative revenue decreased on a reported basis 1.1% (0.6% CN) for the year ended December 31, 2023. At the product level, decreases for the year included Getty Images Stills and Video (decreased $23.8 million) and iStock monthly subscriptions and ALC credit sales (decreased $11.3 million), which was in part due to our continued focus on driving customers to our committed solutions. Offsetting increases were led by our iStock annual subscriptions (increased $12.1 million) and Getty Images annual subscriptions (increased $17.2 million). Without the declines of our agency business, which sits entirely in Creative, the Creative business is growing. +Editorial revenue decreased on a reported basis 1.6% (1.2% CN) for the year ended December 31, 2023. The decrease was driven by editorial ALC (decreased $9.8 million), which is partially due to our continued focus on driving customers to our committed solutions. Also, comparative results were impacted by the US political midterm elections, Men’s World Cup and Winter Olympics all occurring in the prior year. Offsetting increases were seen across both assignments (increased by $3.4 million) and editorial subscriptions (increased $1.3 million). +Other revenue includes music licensing, digital asset management and distribution services, print sales, and data licensing revenues. Revenue for the year ended December 31, 2023 from our Other products increased on a reported basis by 14.0% (14.8% CN). The increase was driven by music licensing (increase of $1.2 million), digital asset management and distribution services (increase of $0.9 million) and data licensing (increase of $0.7 million), partially offset by print sales (decreased by $0.8 million). +Cost of revenue (exclusive of depreciation and amortization) +Cost of revenue for the year ended December 31, 2023 was $250.2 million (27.3% of revenue) compared to $255.0 million (27.5% of revenue) in the prior year. The decrease in cost of revenue as a percentage of revenue compared to the prior year was due primarily to revenue mix by product. Generally, cost of revenue rates vary modestly period over period based on changes in revenue mix by product, as royalty rates vary depending on the license model and use of content. +Selling, general and administrative expense +Reported SG&A expense increased by $26.9 million or 7.2% (7.5% CN) for the year ended December 31, 2023 as compared to the year ended December 31, 2022. SG&A fluctuations from the prior period include the following: +• increase of $31.2 million related to staff costs for the year ended December 31, 2023. The increase was largely driven by equity-based compensation (increased $28.4 million), resulting primarily from grants of restricted stock units. +• increase in professional fees of $5.7 million for the year ended December 31, 2023. The increase was primarily related to legal fees associated with ongoing litigation related to our intellectual property rights. Beginning in the third quarter of 2023, the Company reclassified historical legal fees associated with our warrant litigation from +62 +Table of Conten ts +“Selling, general and administrative expenses” to “Loss on litigation” within the Consolidated Statements of Operations. As a result, for the six months ended June 30, 2023, $6.4 million has been reclassified to Loss on litigation and for the year ended December 31, 2022, $1.1 million has been reclassified to Loss on litigation. +• decrease in marketing spend of 13.1% ($7.3 million) for the year ended December 31, 2023. For the year ended December 31, 2023, marketing spend as a percentage of sales decreased to 5.3% from the year ended December 31, 2022 ratio of 6.0%. The decrease was due primarily to decreased investment in digital marketing. +• decrease of $2.0 million related to occupancy costs (primarily rent expense), as we continue to evaluate our office space needs now and into the future. +Depreciation expense +For the year ended December 31, 2023, depreciation expense was $54.4 million which was in line with the prior year. +Amortization expense +For the year ended December 31, 2023, amortization expense was $24.1 million which was a decrease of $19.6 million compared to the prior year. The decrease was due to several of our intangible assets becoming fully amortized in the fourth quarter of 2022. +Loss on litigation +For the year ended December 31, 2023, the Company’s loss on litigation of $116.1 million was comprised of the summary judgment amounts related to two lawsuits filed by former public warrant holders, in addition to pre and post judgment interest and associated legal fees and other direct costs through December 31, 2023. Loss on Litigation will increase in the future to the extent we continue to incur costs associated with this litigation. +Recovery of loss on litigation +The Company has recognized recovery of loss on litigation of $60.0 million, which represents the limit of the Company’s third-party insurance coverage related to the lawsuits filed by former public warrant holders. +Other operating (income) expense – net +For the year ended December 31, 2023, the increase in other operating expense, net from the prior year was $2.3 million. This increase in net expense was due to the prior year change in fair value of the Contingent Consideration related to our Unsplash acquisition. For further details, see “Note 7 — Fair Value of Financial Instruments ” in our consolidated financial statements included elsewhere in this Annual Report. Additionally, the prior year income from the change in fair value of Contingent Consideration was partially offset by expenses associated with the abandonment of some of our office space in North America as we continue to evaluate our global office space needs. We recognized insignificant amounts of other operating expense, net for the year ended December 31, 2023. +Interest expense +We recognized interest expense of $126.9 million and $117.2 million for the year ended December 31, 2023 and December 31, 2022, respectively. Our interest expense primarily consists of interest charges on our outstanding Term Loans, Senior Notes, and our revolving credit facility as well as the amortization of original issue discount on our Term Loans and amortization of deferred debt financing fees. The increase in interest expense was due to the rise in interest rates in 2023 as compared to 2022. The increase was partially offset by the Company voluntarily prepaying a total of $50.4 million of outstanding indebtedness in 2023. +Fair value adjustment for swaps and foreign currency exchange contract - net +We recognized fair value adjustment loss for our swaps and foreign currency exchange contracts, net of $7.6 million for the year ended December 31, 2023, compared with net gains of $23.5 million for the year ended December 31, 2022. Gains and losses are driven by changes in interest and foreign exchange rates, relative to the rates in our derivatives. +63 +Table of Conten ts +Foreign exchange gain (loss) – net +We recognized foreign exchange losses, net of $23.8 million for the year ended December 31, 2023, compared with gains of $24.6 million for the year ended December 31, 2022. These changes were primarily driven by fluctuations in the EUR related to our EUR Term Loans. +Loss on extinguishment of debt +For the year ended December 31, 2022, the Company utilized proceeds from the Business Combination along with cash on hand to repay $300.0 million of outstanding indebtedness on its USD Term Loans. The loss on debt extinguishment represents the acceleration of the issuance costs and debt discount. There were no such costs in the year ended December 31, 2023. +Net loss on fair value adjustment of warrant liabilities +For the year ended December 31, 2022, there was a loss on fair value of our warrant liability of $160.7 million. There was no such warrant liability in the year ended December 31, 2023. +Other non-operating income (expense) – net +We recognized other non-operating income, net of $3.7 million and expense of $3.1 million for the year ended December 31, 2023 and December 31, 2022, respectively. For the year ended December 31, 2023, the income primarily related to interest income from our cash and cash equivalents. For the year ended December 31, 2022, the expense relates to the transaction costs that were allocated to the fair value of the warrant liability, which were expensed upon the Closing of the Business Combination. +Income taxes +The Company’s income tax expense decreased by $90.6 million to a benefit of ($46.5) million for the year ended December 31, 2023, as compared to an expense of $44.1 million for the year ended December 31, 2022. The Company’s effective income tax rate for the year ended December 31, 2023 is 172.8%, compared to (131.7%) for the year ended December 31, 2022. The decrease in tax expense compared to 2022 is primarily due to the release of the Ireland valuation allowance and a release of uncertain tax position reserves in 2023. +Liquidity and Capital Resources +Our sources of liquidity are our existing cash and cash equivalents, cash provided by operations and amounts available under our revolving credit facility. As of December 31, 2024, 2023 and 2022, we had cash and cash equivalents of $121.2 million, $136.6 million and $97.9 million, respectively, and availability under our revolving credit facility, which expires May 4, 2028. +For the year ended December 31, 2024, we used $57.8 million of cash to prepay a portion of our USD Term Loans. Our principal liquidity needs include debt service and capital expenditures, as well as those required to support working capital, internal growth, and strategic acquisitions and investments. Deferred revenue represents the majority of our current liabilities, which given its nature is not expected to require cash settlement. +We may also be subject to losses as a result of legal proceedings that may be in excess of amounts of insurance coverage available. In particular, we have insurance coverage of $60.0 million for losses in respect of the Initial Warrant Litigation, the Follow-on Warrant Litigation (each as defined in “ Note 13 — Commitments and Contingencies ”) and any additional litigation that is filed based on related facts or circumstances, including legal fees and expenses. As of December 31, 2024, we had a remaining insurance recovery receivable related thereto of approximately $45.0 million, with related litigation reserves of $111.0 million. The Company has posted an appeal bond in respect of the Initial Warrant Litigation and, to date, no portion of the judgments entered in the Initial Warrant Litigation, which are subject to appeal, has been paid. To the extent not reimbursed by insurance, we expect to fund any payments required for the resolution of pending legal proceedings with our sources of liquidity. See “ Note 13 — Commitments and Contingencies ” herein for additional discussions of the Initial Warrant Litigation and the Follow-On Warrant Litigation. +The Company has open tax audits in various jurisdictions and some of these jurisdictions require taxpayers to pay assessed taxes in advance or at the time of appealing such assessments. One such jurisdiction is Canada, where one of the +64 +Table of Conten ts +Company’s subsidiaries, iStockphoto ULC, received tax assessments from the Canada Revenue Agency (“CRA”) asserting additional tax is due. The position taken by the CRA is related to the transactions between iStockphoto ULC and other affiliates within the Getty Images group for the 2015 Canadian income tax return filed. The Company believes the CRA position lacks merit and intends to appeal and vigorously contest these assessments. +As part of the appeal process in Canada, the Company may be required to pay a portion of the assessment amount, which the Company estimates could be up to $17.4 million. Such required payment is not an admission that the Company believes it is subject to such taxes. The Company believes it is more likely than not it will prevail on appeal, however, if the CRA were to be successful in the appeal process, the Company estimates the maximum potential outcome could be up to $25.3 million. +Future cash needs +We expect to fund our ordinary course operating activities from existing cash and cash flows from operations and believe that these sources of liquidity will be sufficient to fund our ordinary course operations and other planned investing activities for at least the next 12 months and thereafter for the foreseeable future. From time to time, we may evaluate potential acquisitions, investments and other growth and strategic opportunities. While we believe we have sufficient liquidity to fund our ordinary course operations for the foreseeable future, our sources of liquidity could be affected by current and future difficult economic conditions, payment of certain restructuring costs, reliance on key personnel, international risks, intellectual property claims, the resolution of pending or future tax audits or other factors described herein under “Potential Liability and Insurance” below and “Item 7A. Quantitative and Qualitative Disclosures About Market Risk .” +We may, from time to time, incur or increase borrowings under the revolving credit facility or issue new debt securities, if market conditions are favorable, to meet our future cash needs or to reduce our borrowing costs. We or our affiliates from time to time consider potential transactions intended to rationalize our consolidated balance sheet. In connection with any such transactions, we may, among other things, seek to retire our outstanding notes or loans through cash purchases and/or exchanges for equity or other securities, in open market purchases, privately negotiated transactions, tenders or otherwise. Such repurchases, exchanges, or other transactions, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The Company became a public reporting company as a result of the closing of the Business Combination on July 22, 2022. The net proceeds from the Business Combination were primarily used to reduce debt of the Company and therefore reduce our borrowing costs starting in the second half of 2022. +The Business Combination resulted in aggregate gross proceeds to the Company of approximately $864.0 million. As a result of the Business Combination, the previously outstanding Redeemable Preferred Stock of Legacy Getty was redeemed in full through a combination of a cash payment of approximately $615.0 million and 15,000,000 shares of the Company’s Class A common stock with a fair value at issuance of $140.2 million. Additionally, the Company used $300.0 million of cash to repay a portion of its outstanding indebtedness related to the USD Term Loans, which when combined with the retirement of the preferred shares, resulted in a reduction of approximately $1.1 billion of balance sheet obligations. +Our liquidity may also be adversely affected by the resolution of pending or future tax audits and legal proceedings. See discussion above. We may be subject to tax liabilities in excess of amounts reserved for liabilities for uncertain tax positions on our consolidated balance sheets. In addition, certain jurisdictions in which we have current open tax audits require taxpayers to pay assessed taxes in advance of contesting, whether by way of litigation or appeal, an adverse determination or assessment by the relevant taxing authority. The amount of any such advance payment depends upon the amount in controversy and may be material, and payment of any such amount could adversely affect our liquidity. A jurisdiction that collects any such advance payment generally will repay such amounts if we ultimately prevail in the related litigation or appeal. See “ Note 13 — Commitments and Contingencies ” and “ Note 20 — Income Taxes ” in our consolidated financial statements included elsewhere in this report, for additional discussions of our pending tax audits and our uncertain tax positions and risks related thereto. +65 +Table of Conten ts +Cash Flows +Year Ended +December 31, increase (decrease) +(Dollars in thousands) 2024 2023 $ change % change +Net cash provided by operating activities $ 118,320 $ 132,716 $ (14,396) (10.8) % +Net cash used in investing activities $ (72,488) $ (56,999) $ (15,489) (27.2) % +Net cash used in financing activities $ (56,218) $ (45,350) $ (10,868) (24.0) % +Effects of exchange rate fluctuations $ (5,160) $ 8,089 $ (13,249) NM +____________________ +NM - Not meaningful +Operating Activities +Cash provided by operating activities is primarily comprised of net income, as adjusted for non-cash items, and changes in operating assets and liabilities. Non-cash adjustments consist primarily of depreciation, amortization, foreign currency gains and losses on our foreign denominated debt, and equity-based compensation. +For the year ended was December 31, 2024, cash provided by operating activities was $118.3 million as compared to cash provided by operating activities of $132.7 million for the year ended December 31, 2023. The decrease in cash provided by operating activities was primarily driven by an increase in cash paid for interest and taxes. +Investing Activities +The changes in cash flows from investing activities relate to purchases of property and equipment and internal software development as part of our ongoing efforts to innovate in the design, user experience, and performance of our websites. Additionally, on April 1, 2024, the Company acquired Motorsport Images LLC and Motorsport.com, Inc. +For the years ended December 31, 2024 and 2023, cash used in investing activities was $72.5 million and $57.0 million, respectively. The increase in cash used for investing activities was driven by the acquisition of Motorsport Images LLC and Motorsport.com, Inc. as we continue to expand our depth and breadth of content services. +Financing Activities +For the years ended December 31, 2024 and 2023, our financing activities used $56.2 million and $45.4 million of cash, respectively. Financing activities for the year ended December 31, 2024 included debt issuance costs, principal payments on our Term Loans and cash paid for settlement of employee tax related to equity-based awards, partially offset by the proceeds from common stock issuance. +Year Ended +December 31, increase (decrease) +(Dollars in thousands) 2023 2022 $ change % change +Net cash provided by operating activities $ 132,716 $ 163,117 $ (30,401) (18.6) % +Net cash used in investing activities $ (56,999) $ (61,291) $ 4,292 7.0 % +Net cash used in financing activities $ (45,350) $ (184,347) $ 138,997 75.4 % +Effects of exchange rate fluctuations $ 8,089 $ (6,614) $ 14,703 NM +____________________ +NM - Not meaningful +Cash provided by operating activities was $132.7 million for the year ended December 31, 2023, as compared to cash provided by operating activities of $163.1 million for the year ended December 31, 2022. The primary driver of our decrease in cash provided by operating activities of $30.4 million was an increase in our interest expense driven by the rise in interest rates from 2022 to 2023. We also saw an increase in the use of cash related to our ongoing intellectual property rights and warrant litigation. +66 +Table of Conten ts +Our investing activities used $57.0 million and $61.3 million in cash during the years ended December 31, 2023 and 2022, respectively, which was used to acquire property and equipment. The property and equipment was mainly related to internal software development as we continued to innovate and invest in the design, user experience and performance of our websites. +For the years ended December 31, 2023 and 2022, our financing activities used $45.4 million and $184.3 million of cash, respectively. Financing activities for the year ended December 31, 2023 primarily includes voluntary principal payments on our Term Loans and cash paid for settlement of employee taxes related to exercise of equity-based awards, partially offset by proceeds from common stock issuance related to employee options exercised. Financing activities for the year ended December 31, 2022 primarily related to the Business Combination, including cash contributions ($864.2 million) which were used to pay equity issuance costs ($106.9 million), retire our Redeemable Preferred Stock ($615.0 million) and prepay a portion of our USD Term Loans ($310.4 million). Additionally, during the six months ended June 30, 2022, the Unsplash Inc. Two-Year Earnout was achieved and was paid during the three months ended September 30, 2022 ($10.0 million). +Contractual obligations, guarantees and other potentially significant uses of cash +A summary of contractual cash obligations as of December 31, 2024 were as follows: +(Dollars in thousands) 2025-2026 2027-2028 2029 and +thereafter Total +Long-term indebtedness, including current portion and interest 1 +$ 1,167,055 $ 314,625 $ — $ 1,481,680 +Operating lease obligations 2 +22,000 13,041 17,573 52,614 +Minimum royalty guarantee payments to suppliers of content 3 +69,070 26,534 10,000 105,604 +IT Commitments 13,559 412 — 13,971 +Other commitments 4,348 — — 4,348 +Total $ 1,276,032 $ 354,612 $ 27,573 $ 1,658,217 +____________________ +1 Interest payments are estimated based on interest rate curves valued as of December 31, 2024, and do not include effects of debt refinanced in the first quarter of 2025. +2 Offsetting operating lease payments will be immaterial receipts for subleased facilities. +3 Offsetting the minimum royalty guarantee payments to content suppliers will be minimum guaranteed receipts from content suppliers. +Capital expenditures +We have historically had a predictable level of capital expenditures, a significant portion of which has been discretionary and growth-related. Our capital expenditures have generally consisted of costs related to imagery and other content creation, capitalized labor for development of software, purchased computer hardware, and leasehold improvements. Content creation capital expenditures include capitalized internal and external labor for ingesting and editing creative content, content acquisition, buying content collections from photographers or Content Partners, and cameras, lenses and miscellaneous imaging equipment primarily for our editorial operations. Software includes computer software developed for internal use and consists of internal and external costs incurred during the application development stage of software development and costs of upgrades or enhancements that result in additional software functionality. +Off-balance sheet arrangements +From time to time, we may issue small amounts of letters of credit to provide credit support for leases, guarantees, and contractual commitments. The fair values of the letters of credit reflect the amount of the underlying obligation and are subject to fees competitively determined in the marketplace. As of December 31, 2024, 2023 and 2022, we had no material letters of credit outstanding or other off-balance sheet arrangements except for operating leases entered into in the normal course of business. +Effects of inflation and changing prices +We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such +67 +Table of Conten ts +higher costs through price increases. Our inability or failure to do so could harm our business and adversely affect our financial condition and results of operations. +Potential Liability and Insurance +We indemnify certain customers from claims related to alleged infringements of the intellectual property rights of third parties or misappropriation of publicity or personality rights of third parties, such as claims arising from copyright infringement or failure to secure model and property releases for images we license if such a release is required. The standard terms of these indemnifications require us to defend those claims upon notice and pay related damages, if any. We typically mitigate this risk by requiring all uses of licenses to be within the scope of our licenses, and by securing necessary model and property releases for Creative Stills content and by contractually requiring contributing photographers and other content partners to do the same prior to submitting any content to us, and by limiting damages/liability in certain circumstances. Additionally, we require all contributors and Content Partners, as well as companies that are potential acquisition targets to warrant that the content licensed to or purchased by us does not and will not infringe upon or misappropriate the rights of third parties. We also require content providers, including contributing photographers, Content Partners and sellers of businesses or image collections that we have purchased to indemnify us in certain circumstances where a claim arises in relation to an image they have provided or sold to us. Content Partners are also typically required to carry insurance policies for losses related to such claims and individual contributors are encouraged to carry such policies and we have insurance policies to cover litigation costs for such claims. We will record liabilities for these indemnifications if and when such claims are probable and the range of possible payments and available recourse from content partners can be estimated, as applicable. Historically, the exposure to such claims has been immaterial, as were the recorded liabilities for intellectual property infringement at December 31, 2024, 2023 and 2022. As such, management believes the estimated fair value of these liabilities is minimal. +In the ordinary course of business, we also enter into certain types of agreements that contingently require us to indemnify counterparties against third-party claims. These may include: +• agreements with vendors and suppliers, under which we may indemnify them against claims arising from our use of their products or services; +• agreements with customers other than those licensing images, under which we may indemnify them against claims and uncollectible trade accounts receivable arising from their use of our products or services in their markets; +• agreements with agents, delegates and distributors, under which we may indemnify them against claims arising from their distribution of our products or services; +• real estate and equipment leases, under which we may indemnify lessors against third-party claims relating to use of their property; +• agreements with directors and officers, under which we indemnify them to the full extent allowed by Delaware law against claims relating to their service to us; and +• agreements with purchasers of businesses we have sold, under which we may indemnify the purchasers against claims arising from our operation of the businesses prior to sale. +The nature and terms of these indemnifications vary from contract to contract, and generally a maximum obligation is not stated. Because management does not believe a material liability is probable, no related liabilities were recorded at December 31, 2024, 2023 and 2022. We are subject to a variety of claims and suits that arise from time to time in the ordinary course of our business. Although management currently believes that resolving claims against us, individually or in aggregate, will not have a material adverse impact on our financial statements, these matters are subject to inherent uncertainties and management’s judgment about these matters may change in the future. Additionally, we hold insurance policies that mitigate potential losses arising from certain indemnifications, and historically, significant costs related to performance under these obligations have not been incurred. +Income taxes +We account for income taxes and accruals for uncertain tax positions using the asset and liability approach. Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management’s best assessment of current and future taxes to be paid. Our judgments, assumptions, and estimates relative to the current provision for income taxes take into account current tax laws, our interpretation of current tax laws and possible outcomes of future audits conducted by foreign and domestic tax authorities. Changes in tax law or our interpretation of tax laws and future tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements. +68 +Table of Conten ts +We conduct operations on a global basis and are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in evaluating and estimating our provision and accruals for these taxes. Our effective tax rate is subject to significant variation due to several factors, including variability in accurately predicting our taxable income and the geographical mix of our pre-tax earnings. In addition, we are subject to audit in various jurisdictions, and such jurisdictions may assess additional income tax liabilities. We record unrecognized tax benefits as liabilities in accordance with ASC 740, “Income Taxes” (“ASC 740”) and adjust these liabilities when our judgment changes as result of the evaluation of new information not previously available. Such amounts are based on management’s judgment and best estimate as to the ultimate outcome of tax audits. +Critical accounting policies and estimates +The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses reported during the period. Some of the estimates and assumptions that require the most difficult judgments are: +• the assumptions used to estimate unused capped subscription-based and credit-based products; +• the assumptions used to allocate transaction price to multiple performance obligations for uncapped subscription arrangements; +• the assumptions used to estimate accrued litigation reserves and insurance recoveries; and +• the appropriateness of the amount of accrued income taxes, including the potential outcome of future tax consequences of events that have been recognized in the consolidated financial statements as well as the deferred tax asset valuation allowances. +These judgments are inherently uncertain which directly impacts their valuation and accounting. Actual results and outcomes may differ from our estimates and assumptions. +Revenue recognition +Revenue is derived principally from licensing rights to use images, video footage and music that are delivered digitally. Digital content licenses are generally purchased on a monthly or annual subscription basis, whereby a customer either pays for a predetermined quantity of content or for access to our content library that may be downloaded over a specific period of time, or, on a transactional basis, whereby a customer pays for individual content licenses at the time of download. Also, a significant portion of revenue is generated through the sale and subsequent use of credits. Various amounts of credits are required to license digital content. +The Company recognizes revenue under the core principle to depict the transfer of control to our customers in an amount reflecting the consideration to which we expect to be entitled. In order to achieve that core principle, we apply the following five-step approach: (i) identify the contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when a performance obligation is satisfied. +The recognition and measurement of revenue requires the use of judgments. Specifically, judgment is used in identifying the performance obligation included in each contract. At contract inception, we assess the product offerings in our contracts to identify performance obligations that are distinct. A performance obligation is distinct when it is separately identifiable from other items and if a customer can benefit from it on its own or with other resources that are readily available to the customer. +For digital content licenses, we recognize revenue on capped subscription-based, credit-based sales and single image licenses when content is downloaded, at which time the license is provided. +Litigation reserves and insurance recoveries +The Company recognizes a charge for litigation reserves when a loss is probable, and the amount is material and reasonably determinable. The amount accrued represents the Company’s best estimate of the loss, including related interest if applicable or, if no best estimate within a range of outcomes exists, the minimum amount in the range is reserved and high end of the range is disclosed. If it is determined that a loss is only reasonably possible or that a loss is probable but the amount is not reasonably estimable, the Company discloses the nature of the possible loss and gives an estimate of the +69 +Table of Conten ts +possible range of loss. Our estimates and judgments could change based on new information, changes in laws or regulations, or the outcome of legal proceedings, settlements, or other factors. If different estimates and judgments were applied with respect to these matters, it is likely that reserves would be recorded for different amounts. The reserve for litigation is accrued in “Litigation Reserves” on the consolidated balance sheets and related legal and professional fees associated with the litigation are included in “Accounts Payable” or “Accrued Liabilities” on the consolidated balance sheets. +The Company also recognizes the benefit of recoveries of losses on litigation when it is probable that such recoveries will be received. These recoveries are typically receivable from our third-party insurance carriers for legal claims and related costs that are included in “Loss on Litigation” on the consolidated statement of operations. +Income taxes +The Company computes income taxes and accruals for uncertain tax positions under the asset and liability method in accordance with ASC 740 for accounting for income taxes and uncertain tax positions. Deferred income taxes are provided for the temporary differences between the consolidated financial statement carrying amounts and the tax basis of the Company’s assets and liabilities and operating loss and tax credit carryforwards. The Company establishes a valuation allowance for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize their benefits or future deductibility is uncertain. Periodically, the valuation allowance is reviewed and adjusted based on management’s assessments of realizable deferred tax assets. The Company accounts for the global intangible low-tax income (“GILTI”) earned by foreign subsidiaries included in gross U.S. taxable income in the period incurred. +Recent Accounting Pronouncements +Please refer to “ Note 2 — Summary of Significant Accounting Policies ” in our consolidated financial statements included elsewhere in this Annual Report. +Key Performance Indicators and Non-GAAP Financial Measures +In addition to evaluating the Company’s performance on a GAAP basis, we use the below key performance indicators (“KPIs”) and financial measures that are not calculated according to generally accepted accounting principles (“GAAP”). We believe the non-GAAP measures of Currency Neutral (“CN”) revenue growth (expressed as a percentage) and Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”), Adjusted EBITDA less capex and Adjusted EBITDA margin are useful in evaluating our operating performance. These KPIs and non-GAAP financial measures help us monitor and evaluate the effectiveness of our operations and evaluate period-to-period comparisons. Management believes that these KPIs and non-GAAP financial measures help illustrate underlying trends in our business. We use KPIs and non-GAAP financial measures to establish budgets and operational goals (communicated internally and externally), manage our business and evaluate our performance. We also believe that management and investors benefit from referring to our KPIs and non-GAAP financial measures as supplemental information in assessing our performance and when planning, forecasting, and analyzing future periods. We believe our KPIs and non-GAAP financial measures are useful to investors both because they allow for greater transparency with respect to financial measures used by management in their financial and operational decision-making and also because investors and the analyst community use them to help evaluate the health of our business. The non-GAAP financial information is presented for supplemental informational purposes only, and should not be considered a substitute for financial information presented. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most comparable GAAP financial measures. +Key Performance Indicators +Our KPIs outlined below are the metrics that provide management with the most immediate understanding of the drivers of business performance and our ability to deliver shareholder return, track to financial targets and prioritize customer satisfaction. Our KPIs are reported on a trailing, or last, 12-month basis (“LTM”). +70 +Table of Conten ts +Years Ended December 31, +2024 2023 2022 +LTM total purchasing customers (thousands) 1 +717 799 835 +LTM total active annual subscribers (thousands) 1 +314 236 129 +LTM paid download volume (millions) 1,2 +93 95 95 +LTM annual subscriber revenue retention rate 92.9 % 92.4 % 100.1 % +Image collection (millions) 1 +572 535 497 +Video collection (millions) 32 28 24 +LTM video attachment rate 1 +16.5 % 14.1 % 13.1 % +____________________ +1 The Company launched Unsplash+ during the three months ended December 31, 2022. This new Unsplash subscription is included within these KPIs from the launch date forward. +2 Excludes downloads from Editorial Subscriptions, Editorial feeds and certain API structured deals, including bulk unlimited deals. Excludes downloads related to an agreement signed with Amazon, as the magnitude of the potential download volume over the deal term could result in significant fluctuations in this metric without corresponding impact to revenue in the same period. +Total purchasing customers +Total purchasing customers is defined as the count of total customers who made a purchase within the reporting period based on billed revenue. This metric provides management and investors with an understanding of both how we are growing our purchasing customer base and combined with revenue, an understanding of our average revenue per purchasing customer. This metric differs from total customers, which is a count of all downloading customers, irrespective of whether they made a purchase in the period. +Total purchasing customers decreased to 717 thousand for the LTM ended December 31, 2024, compared to 799 thousand and 835 thousand for the LTM ended December 31, 2023 and 2022, respectively. This decrease can be attributed to lower ALC transaction volume primarily due to the ongoing shift of our customers to more committed annual subscription products. Importantly, the shift into more committed solutions continues to have a positive impact on annual revenue per purchasing customer, which grew by 14.2% to $1,310 for the LTM ended December 31, 2024 from $1,147 for the LTM ended December 31, 2023. +Total active annual subscribers +Total active annual subscribers is the count of customers who were on an annual subscription product during the LTM reporting period. This metric provides management and investors with visibility into the rate at which we are growing our annual subscriber base and is highly correlated to the percentage of our revenue that comes from annual subscription products. +Total active annual subscribers increased to 314 thousand for the LTM ended December 31, 2024 compared to 236 thousand and 129 thousand for the LTM ended December 31, 2023 and 2022, respectively. Expanded e-commerce subscriptions including iStock and Unsplash+ subscriptions primarily drove growth. This reflects our strategic focus on subscription offerings to provide comprehensive content solutions. A significant portion of the annual subscribers were new customers, with many coming from our growth expansion markets and a substantial number of new subscribers also coming from our core markets. We have a strong pipeline of new customers as demand for visual content remains strong, while also helping existing customers evolve with their expanding visual narratives. +Paid download volume +Paid download volume is a count of the number of paid downloads by our customers in the reported period. This metric informs both management and investors about the volumes at which customers are engaging with our content over time. +Paid download volume decreased slightly for the LTM ended December 31, 2024, as compared to the LTM ended December 31, 2023 and 2022. We believe that the steady demand in paid download volumes during the last twelve month period that had a myriad of macro-economic challenges, is a strong outcome and signals that our content continues to meet our customers evolving needs. +71 +Table of Conten ts +Annual subscriber revenue retention rate +The annual subscriber revenue retention rate calculates retention of total revenue for customers on annual subscription products, comparing the customer’s total booked revenue (inclusive of spend for annual subscription and non-annual subscription products) in the LTM period to the prior twelve month period. For example, LTM annual subscriber booked revenue (the amount of revenue invoiced to customers) for the period ended December 31, 2024 was 92.9% of revenue from these customers in the period ended December 31, 2023. Revenue retention rate informs management and investors on the degree to which we are maintaining or growing revenue from our annual subscriber base. As we continue to focus on growing subscriptions as percentage of total revenue, revenue retention for these customers is a key driver of the predictability of our financial model with respect to revenue. +The annual subscriber revenue retention rate increased for the LTM ended December 31, 2024, as compared to the LTM ended December 31, 2023 but down compared to the LTM ended December 31, 2022. Our strong revenue retention rates are a testament to the significant value that our subscription products deliver to our customers. This strong performance underscores the trust and satisfaction our customers have in our offerings, highlighting the effectiveness and enduring appeal of our solutions in meeting their needs over time. +Image and Video collection +Image and Video collection is a count of the total images and videos in our content library as of the reporting date. Management and investors can view growth in the size, both depth and breadth, of the content library as an indication of our ability to continue to expand our content offering with premium, high quality, contemporary content to meet the evolving needs of our customers. Image and video collections increased during the LTM ended December 31, 2024 as compared to LTM periods ending December 31, 2023 and 2022. Our image collection grew 7% to 572 images as of December 31, 2024 compared to 535 as of December 31, 2023. Our video collection grew 17% to 32 million videos over the same period. +Video attachment rate +Video attachment rate is a measure of the percentage of total paid customer downloaders who are video downloaders. Customer demand for video content continues to grow and represents a significant opportunity for revenue growth for Getty Images. The video attachment rate provides management and investors with an indication of our customers’ level of engagement with our video content offering. Our expansion of video across our subscription products is focused on further increasing the attachment rate over time. +The video attachment rate increased to 16.5% in the LTM ended December 31, 2024 from 14.1% and 13.1% as compared to the LTM ended December 31, 2023 and 2022, respectively. The video attachment rate provides management and investors with an indication of our customers’ level of engagement with our video content offering. Our expansion of video across our subscription products is focused on further increasing the attachment rate over time. The increase in the video attachment rate reflects increased customer awareness of our video offering, improved search and site prominence for video content, and upselling of video into subscriptions. +Non-GAAP Financial Measures +Currency Neutral Revenue +Currency Neutral revenue changes (expressed as a percentage) exclude the impact of fluctuating foreign currency values pegged to the U.S. Dollar between comparative periods by translating all local currencies using the current period exchange rates. We consistently apply this approach to revenue for all countries where the functional currency is not the U.S. Dollar. We believe that this presentation provides useful supplemental information regarding changes in our revenue not driven by fluctuations in the value of foreign currencies. +Reconciliation of Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted EBITDA less Capex +We define Adjusted EBITDA as net income before interest, taxes, depreciation, amortization, equity-based compensation, other operating expenses-net, and certain other expenses not directly related to the core operations of our +72 +Table of Conten ts +business. A reconciliation is provided below to the most comparable financial measure stated in accordance with U.S. GAAP. We define Adjusted EBITDA Margin as the ratio of Adjusted EBITDA to revenue. +(in thousands) Year Ended December 31, +2024 2023 2022 +Net income (loss) $ 39,472 $ 19,577 $ (77,643) +Add/(less) non-GAAP adjustments: +Depreciation and amortization 61,293 78,443 93,219 +Loss on litigation, net of recovery 1 +20,491 56,051 1,101 +Other operating expenses – net 15,834 1,624 (681) +Interest expense 131,408 126,884 117,229 +Fair value adjustments, foreign exchange and other non operating (expense) income — net 2 +(37,558) 27,693 (45,100) +Loss on extinguishment of debt — — 2,693 +Net loss on fair value adjustment for warrant liabilities — — 160,728 +Income tax expense (benefits) 47,483 (46,482) 44,126 +Equity-based compensation expense, net of capitalization 21,848 37,652 9,292 +Adjusted EBITDA $ 300,271 $ 301,442 $ 304,964 +Capex 57,450 56,998 59,291 +Adjusted EBITDA less capex 242,821 244,444 245,673 +Net income (loss) margin 4.2 % 2.1 % (8.4) % +Adjusted EBITDA Margin 32.0 % 32.9 % 32.9 % +____________________ +1 Beginning with the third quarter of 2023 reporting period, the Company reclassified historical legal fees associated with our warrant litigation from “Selling, general and administrative expenses” to “Loss on litigation” within the Consolidated Statements of Operations. The aggregate amount of these fees reported through June 30, 2023, totaled $7.5 million, with $1.1 million recognized for the three months ended December 31, 2022 and $6.4 million recognized for the six months ended June 30, 2023. This change in classification serves to increase our Adjusted EBITDA by $6.4 million for the year ended December 31, 2023 and $1.1 million for the year ended December 31, 2022, when compared to classification in prior periods. +2 Fair value adjustments for our swaps and foreign currency exchange contracts, foreign exchange gains (losses) and other insignificant non-operating related (expenses) income. +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +Interest rate market risk +For the year ended December 31, 2024, we were exposed to changes in Adjusted Term SOFR interest rates on the USD Term Loans of the senior secured credit facilities, subject to a minimum floor of 0.00%. As of December 31, 2024, the applicable Adjusted Term SOFR was above said floor. To offset our exposure to interest rate changes, Getty Images entered into interest rate swap agreements with notionals of $355.0 million. These swap arrangements also had an embedded floor of 0.00%. The interest rate swap agreement matured February 19, 2024. Based on $579.2 million of principal outstanding as of December 31, 2024 on our USD Term Loan of our senior secured credit facility, each one eighth percentage point increase in the Adjusted Term SOFR rate thereafter would have correspondingly increased our interest expense on the senior secured credit facilities by approximately $0.7 million per annum. We were also exposed to changes in EURIBOR interest rates on the EUR Term Loans, subject to a minimum floor of 0.00%. As of December 31, 2024, the principal outstanding of our EUR Term Loans of the senior secured term was €419.0 million. Based on the principal outstanding as of December 31, 2024, each one eighth percentage point increase in the EURIBOR rate would have correspondingly increased our interest expense on the senior secured credit facilities by approximately $0.6 million per annum. +On February 21, 2025, Getty Images amended the Existing Credit Agreement, pursuant to which, among other things, the Original USD Term Loans were repaid in full and the Dollar Fixed Rate Term B-1 Loans were incurred. The Dollar Fixed Rate Term B-1 Loans are subject to a fixed interest rate. As of the Amendment Effective Date, Getty Images is no longer exposed to fluctuation in Adjusted Term SOFR). Getty Images continues to be exposed to changes in +73 +Table of Conten ts +EURIBOR interest rates on the Euro Term B-1 Loans under the Amended Credit Agreement. Please refer to “ Note 23 — Subsequent Events ” in our consolidated financial statements for more discussion on the Refinancing Amendment. +Foreign currency market risk +We are exposed to foreign currency risk by virtue of our international operations. For each of the years ended December 31, 2024 and 2023, we derived approximately 43% of our revenue from operations outside the United States. Getty Images and its subsidiaries enter into transactions that are denominated in currencies other than Getty Images’ functional currency, including the Euro and British pounds. Some of these transactions result in foreign currency denominated assets and liabilities that are revalued each month. Upon revaluation, transaction gains and losses are generated, which, with the exception of those related to long-term intercompany balances, are reported as exchange gains and losses in our Consolidated Statements of Operations in the periods in which the exchange rates fluctuate. Transaction gains and losses on foreign currency denominated long-term intercompany balances for which settlement is not planned or anticipated in the foreseeable future, are reported in “ Accumulated other comprehensive loss ” in our consolidated balance sheets. +Transaction gains and losses arising from revaluation of assets and liabilities denominated in the same foreign currencies may offset each other, in part, acting as a natural hedge. Where our assets and liabilities are not naturally hedged, we may enter into non-exotic foreign currency exchange contracts to reduce our exposure to transaction gains and losses. These foreign exchange contracts are generally up to eighteen months in original maturity and primarily require the sale of either the Euro or British Pounds and the purchase of U.S. Dollars. The contracts during the current period have not been designated as hedges as defined by ASC 815, “Derivatives and Hedging,” and therefore gains and losses arising from revaluation of these forward contracts are recorded as “ Foreign exchange gain (loss) – net ” in our Consolidated Statements of Operations in the periods in which the exchange rates fluctuate. These gains and losses generally offset, at least in part, the gains and losses of the underlying exposures that are being hedged. +The statements of operations of foreign subsidiaries are translated into U.S. Dollars, our reporting currency, at the prior month’s average daily exchange rate. When these exchange rates change from period to period, they cause fluctuations in reported results of operations that are not necessarily indicative of fundamental company operating performance but instead may reflect the performance of foreign currencies. +Item 8. Financial Statements and Supplementary Data. +The information required by this item is incorporated by reference to the consolidated financial statements and accompanying notes set forth on pages F-2 throu gh F-43 of this Annual Report on Form 10-K. +Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. +None. +Item 9A. Controls and Procedures. +Evaluation of Disclosure Controls and Procedures +We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well-designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based upon our evaluation management concluded that, as of December 31, 2024, our disclosure controls and procedures were effective to accomplish their objectives at a reasonable assurance level. +Management’s Report on Internal Control over Financial Reporting +Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal controls over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with +74 +Table of Conten ts +generally accepted accounting principles. Because of its inherent limitations, internal controls over financial reporting may not prevent or detect all misstatements. No evaluation of controls can provide absolute assurance that misstatement due to error or fraud will not occur or that all control issues or instances of fraud have been detected. +Our management conducted an evaluation of the effectiveness of our internal controls over financial reporting based on the framework and criteria established in Internal Control – Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that, as of December 31, 2024, our internal controls over financial reporting were effective. +As we are an “emerging growth company” and “smaller reporting company,” we are exempt from the requirement to obtain an attestation report from our independent registered public accounting firm on the assessment of our internal controls pursuant to Sarbanes-Oxley Act of 2002, and this Annual Report does not include such attestation report. +Changes in Internal Control over Financial Reporting +There were no changes in our internal controls over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, that occurred during the period covered by this Annual Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. +Item 9B. Other Information. +Insider Trading Arrangements and Policies +Other than described in the table below, during the fiscal quarter ended December 31, 2024, none of our directors and officers (as defined in Section 16a-1(f) of the Securities Exchange Act of 1934, as amended) adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" as each term is defined in Item 408(a) of Regulation S-K). +Trading Arrangement +Name and Title Action Date Adopted/ Terminated Rule 10b5-1 Total Shares to be Sold Expiration Date +Lizanne Vaughan , Former Senior Vice President, Former Chief People Officer 1 +Terminate 11/14/2024 X 300,000 12/19/2025 +(1) Ms. Vaughan separated from the Company effective October 31, 2024. +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not Applicable. +75 +Table of Conten ts +PART III +Item 10. Directors, Executive Officers and Corporate Governance +Code of Conduct and Business Ethics for Employees, Executive Officers, and Directors +The Company has adopted a Code of Conduct and Business Ethics applicable to its directors, executive officers and employees, including its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions that complies with the rules and regulations of the NYSE. The Code of Conduct and Business Ethics codifies the business and ethical principles that govern all aspects of the Company’s business. A copy of the Code of Conduct and Business Ethics has been filed with the SEC and is provided on our website, gettyimages.com. The Company will disclose on its website all disclosures that are required by law or the NYSE listing standards concerning any amendments to or waivers of certain provisions of its Code of Conduct and Business Ethics. The information on any of our websites is deemed not to be incorporated in this Annual Report. +Executive Officers and Board of Directors +The following persons are the members of our Board of Directors and our executive officers as of the date of this Annual Report: +Name Age Position +Executive Officers +Craig Peters 55 Chief Executive Officer, Director (Class III) +Mikael Cho 38 Senior Vice President, CEO, Unsplash +Grant Farhall 49 Senior Vice President, Chief Product Officer +Gene Foca 59 Senior Vice President, Chief Marketing Officer +Nate Gandert 51 Senior Vice President, Chief Technology Officer +Chris Hoel 53 Vice President, Chief Accounting Officer +Kjelti Kellough 51 Senior Vice President, General Counsel +Jennifer Leyden 51 Senior Vice President, Chief Financial Officer +Ken Mainardis 53 Senior Vice President, Global Content +Peter Orlowsky 56 Senior Vice President, Strategic Development +Michael Teaster 58 Senior Vice President, Chief of Staff +Daine March Weston 37 Senior Vice President, Ecommerce +Non-Employee Directors +Mark Getty, self-employed, serving in various capacities including Trustee and director of various Getty family entities 64 Chair (Class II) +Patrick Maxwell, Private Equity Management 59 Director (Class I) +James Quella, self-employed 75 Director (Class I) +Jeffrey Titterton, Chief Marketing Officer, Stripe, Inc. 52 Director (Class I) +Chinh Chu, Senior Managing Director and Founder, CC Capital Partners, LLC 58 Director (Class II) +Brett Watson, President, Koch Equity Development LLC 44 Director (Class II) +Tracy Knox, self-employed 53 Director (Class II) +Michael Harris, Managing Director of Koch Equity Development LLC 45 Director (Class III) +Hilary Schneider, Strategic Advisor to the Board of Directors of Shutterfly 63 Director (Class III) +Executive Officers +All of our executive officers, other than Grant Farhall, Kjelti Kellough, Ken Mainardis and Daine Weston are located in the United States. For the biography of Craig Peters, our chief executive officer and director, see “ —Directors ” below. +76 +Table of Conten ts +Mikael Cho +Mr. Cho has served as Co-Founder and Chief Executive Officer for Unsplash, a subsidiary of the Company, since 2013 and is responsible for leading and operating Unsplash’s overall strategy and vision. In 2013, Mr. Cho founded Unsplash as a blog with ten photos and the mission to make world-class images accessible to enable everyone to create. Prior to founding Unsplash, Mr. Cho held co-founder and leadership roles at companies in the digital and creative sectors, including Crew, a marketplace for creative talent, Uber Foundry, a digital design studio, and WHYNOTBLUE Digital Agency. +Grant Farhall +Mr. Farhall has served as our Senior Vice President, Chief Product Officer since 2020, where he is responsible for our overall product strategy and vision. In his role, Mr. Farhall oversees our websites, user experiences, customer research and generative AI strategy, with the aim of making it easier for our customers to discover, license and share content to connect with their audiences, and drive impact for the business. His career at Getty Images spans more than a decade, including his prior role as Vice President of Ecommerce from 2019 until 2020 and his role as General Manager of iStock from 2017 until 2019. Prior to joining Getty Images, Mr. Farhall worked in broadcast journalism and managed several design and web development agencies. +Gene Foca +Mr. Foca has served as our Senior Vice President, Chief Marketing and Revenue Officer since 2017 and effective May 1, 2023, as Senior Vice President, Chief Marketing and Revenue Officer. As Chief Marketing and Revenue Officer, Mr. Foca is responsible for leading global marketing, sales, ecommerce and communications for Getty Images, overseeing our brand portfolio, strategy and execution for all marketing channels from digital to communications, marketing data science and operations and global sales, including outbound sales, customer success and customer service. He has a wealth of experience across ecommerce, product and digital marketing, bringing over 20 years’ experience as a strategic and data driven leader, launching and growing some of the world’s biggest content and ecommerce businesses. Mr. Foca joined Getty Images after nearly five years at Amazon in Seattle and New York from 2012 through 2016, working with Kindle and retail ecommerce, as well as a brief stint at Fresh Direct overseeing customer marketing. Prior to that, he served as SVP of Marketing for News Digital/News Corporation, where he focused on content app launches and subscription marketing from 2010 until 2011. He previously spent nearly 19 years at Time Warner in senior ecommerce and consumer marketing leadership roles, primarily with the Time Incorporated division from 1991 until 2010. +Nate Gandert +Mr. Gandert has served as our Senior Vice President, Chief Technology Officer since 2016. In his role as Chief Technology Officer, Mr. Gandert is responsible for leading our overall technology strategy and vision, as well as our data and insights capabilities. Mr. Gandert oversees all advancements, innovations and operations delivered by the technology and product functions, including our search architecture, application and software development, ecommerce platform and websites with the aim of enriching our product offering to better serve customers worldwide. His remit also includes the development of internal and customer value using data, AI and machine learning. +Mr. Gandert’s career at Getty Images spans over 13 years during which time he has served in various Vice President, Senior Director, Director and professional level roles. Prior to joining Getty Images, Mr. Gandert held vice president and leadership roles at other companies in the ecommerce and media sectors, holding more than 25 years of industry experience overall. +Chris Hoel +Mr. Hoel has served as Vice President, Finance and Chief Accounting Officer of Getty Images since April 2014. Mr. Hoel is responsible for Getty Images’ Accounting, External Financial Reporting, and Finance Operations functions, and has 30 years of accounting and finance experience. He joined Getty Images in 2009 as the Director, Finance, before being promoted to Senior. Director, Finance in 2011, and then Vice President, Finance in 2013 and to Vice President, Chief Accounting Officer in 2014. Mr. Hoel previously held the role of Corporate Controller for Fisher Communications, Inc. from July 2005 to March 2009, and Controller/Associate Director of SEC Reporting for Xcyte Therapies from February +77 +Table of Conten ts +2001 to July 2005. Prior to his career with Xcyte Therapies, Mr. Hoel held progressively more responsible financial/accounting positions in both public accounting and private industry. +Mr. Hoel earned his bachelor’s degree in Accounting from Central Washington University and has been a Certified Public Accountant since 1995. +Kjelti Kellough +Ms. Kellough has served as our General Counsel since 2019. In her role as General Counsel, Ms. Kellough leads our global Legal and Facilities functions and is responsible for overseeing its worldwide legal affairs, including corporate governance, compliance, governmental relations, litigation, intellectual property and corporate matters, and real estate and facilities matters. Prior to her role as our General Counsel, Ms. Kellough served as Vice President, Corporate Counsel from 2012 until 2019, overseeing corporate commercial legal matters for the Americas, as well as global legal support for our product and marketing functions. Ms. Kellough also held various Senior Director and Director roles with Getty Images. Ms. Kellough has more than 20 years of legal experience and prior to joining Getty Images in 2009, Ms. Kellough was a corporate finance partner at TingleMerrett LLP and an intellectual property and corporate associate at Blake, Cassels & Graydon LLP. +Jennifer Leyden +Ms. Leyden has served as our Senior Vice President, Chief Financial Officer since January 2022. As Chief Financial Officer, Ms. Leyden is responsible for our Global Finance and Accounting, Financial Reporting and Analysis, Business Intelligence, Tax, Treasury, and Investor Relations functions. Ms. Leyden has more than 25 years of financial, accounting and leadership experience. She joined Getty Images in 2016 as the Senior Director, Enterprise Reporting and Analysis, before being promoted to Vice President, Financial Planning and Analysis in February 2019, Senior Vice President of Investor Relations and Finance in 2021 and to CFO in 2022. Before joining Getty Images, Ms. Leyden held the role of CFO for six years at Physique 57, a global fitness brand. In this role, she led Physique 57 through a period of rapid expansion and topline growth, driving scalable cost base efficiencies while navigating the business through a period of dynamic and explosive growth in the broader health and wellness industry. Ms. Leyden also spent 10 years at Sony Music Entertainment in several progressively impactful financial roles, ending her tenure there as the Senior Director of Finance for Columbia Records, one of the largest and most iconic record labels in the world. She launched her career by becoming licensed as a Certified Public Accountant and spent four years in public accounting. +Ken Mainardis +Mr. Mainardis was appointed as our Senior Vice President, Editorial in October 2023, and he previously served as our Senior Vice President, Global Content. He oversees all of our content divisions across its editorial spectrum. From sport, entertainment, news, to archival product lines, Mr. Mainardis has responsibility for overseeing the production and licensing of photography, video, paid assignment solutions and associated services. Mr. Mainardis joined Getty Images in 2004 as Managing Editor, EMEA and a year later became Director of Editorial Photography with a focus on major editorial events. In April 2010, Mr. Mainardis took on the new role of Senior Director, Editorial Services and Events with a global brief responsible for editorial event operations and services. In February 2013, he was appointed Vice President, Sports Imagery and Operations, before being promoted to Senior Vice President of Editorial in 2017. Mr. Mainardis began his career in 1995 as an assignments editor for the Reuters News Agency in their London bureau, before taking on the role of Global Sports Editor for Reuters Pictures in 2000. Mr. Mainardis is also a board member of the News Media Coalition, a not-for-profit trade organization protecting the news media’s access to events of public interest. +Peter Orlowsky +Mr. Orlowsky has served as our Senior Vice President, Strategic Development since 2017. Mr. Orlowsky is responsible for evaluating and building key business strategies and partnerships, as well as for identifying and developing new business opportunities for Getty Images. In this role, Mr. Orlowsky drives global content licensing and distribution deals with leading technology, multimedia and service providers worldwide, as well as oversees our relationships with global partners. Mr. Orlowsky has been with Getty Images for over 20 years, serving several roles at various levels including Vice President and Senior Director, across Getty Images in business development and sales. +78 +Table of Conten ts +Michael Teaster +As our senior vice president, Chief of Staff, since September 2022, Mr. Teaser supports our Global Leadership Team and our Board of Directors with company planning, priority management, and delivery. Mr. Teaser has 30 years of industry-related experience and has served in several executive roles for Getty Images. Prior to his current role, Mr. Teaser served as Senior Vice President of Business Operations from 2017 to 2019, before which he also served as Senior Vice President of Global Sales from 2008 to 2017, among other executive roles. Previously, Mr. Teaser served as Vice President of Licensee Relations for The Image Bank, a company that was later acquired by Getty Images in 1999. +Daine Weston +Mr. Weston was appointed Senior Vice President, Ecommerce, in May 2023. As the Senior Vice President of Ecommerce, Daine Weston leads Getty Images’ efforts to enhance its online business by delivering exceptional customer experience across its ecommerce platform and websites, digital marketing initiatives, SEO strategy, and ecommerce operations. Based in New York, Mr. Weston sits on the company’s executive team, providing valuable insights and strategic direction to support the company’s growth. With over 15 years of experience in digital marketing, he has made significant contributions to Getty Images’ success. He was instrumental in developing a scalable global model for display and remarketing efforts across multiple brands and countries during his time in Calgary. As the head of Getty Images EMEA Digital Marketing team in London, Mr. Weston successfully drove growth in customer acquisition across all paid marketing channels. As Vice President of Digital Marketing & Demand Generation at Getty Images, he oversaw customer acquisition, paid marketing investments, and demand generation efforts globally. Prior to joining Getty Images in 2015, Mr. Weston was a key player at OMD Digital and OMD International, where he led efforts for major clients such as Vodafone, Sky Television, McDonald’s, Johnson & Johnson, Air New Zealand and Sony. Mr. Weston received a double major in advertising and marketing from AUT University in Auckland, New Zealand. +Directors +Mark Getty +Mr. Getty has served as the Chair of our Board of Directors since he co-founded Getty Images in March 1995 and was Executive Chair of Getty Images through 2005. From 2005 to 2018, he was a non-executive director on our Board of Directors and in 2018 resumed the role of Chair on a resumption of control of Getty Images by the Getty Family Stockholders. In the late 1980s, Mr. Getty began his professional career with Kidder Peabody in New York and then joined Hambros Bank Limited in London in 1991. +In his capacity as Trustee and Director of various Getty family entities, Mr. Getty oversees a diverse program of investments in all asset classes. In addition, he has been particularly involved in the family’s direct private equity investment activities, which have included: Wisden Crincinfo, a leading online publisher of cricket data; Hawk-Eye, a sports technology business that is a leader in ball tracking for officiating and broadcast enhancement in tennis, soccer and cricket; Hakluyt, a UK-based provider of commercial and strategic intelligence and research services to major corporate and financial institutions; 7digital, a leading B2B digital music platform in the UK; and &Beyond Group, a leading luxury adventure travel and lodging business in Africa. +Mr. Getty was a trustee of the National Gallery in London between 1999 and 2015, as well as its Chair between 2008 and 2015. He was appointed KBE in 2016 in recognition of his services to the Arts. In 2017, he became the Chair of Trustees of the British School in Rome. +Craig Peters +Craig Peters has served as our Chief Executive Officer and a director since 2019. As CEO, Mr. Peters has overarching responsibility for the organization across its Getty Images, iStock and Unsplash brands. Mr. Peters joined Getty Images in 2007 and prior to being appointed CEO in 2019, he served as Chief Operating Officer with previous leadership roles across Content, Product, Marketing, Technology and Business Development. +Prior to joining Getty Images, Mr. Peters held key leadership roles in media and technology within established and early stage organizations. These included WireImage (acquired by Getty Images), FOX Sports Interactive, the PGA TOUR, Homestead.com (acquired by Intuit) and positions with A. T. Kearney and Eastman Kodak Company. In 2005 while at the PGA TOUR, Craig accepted an Emmy by the National Television Academy for Outstanding Achievement in Advanced Media Technology for the Enhancement of Original Television Content. Mr. Peters holds an MBA from The Wharton School of Business and a BS in Finance from The Ohio State University. +79 +Table of Conten ts +Patrick Maxwell +Mr. Maxwell has served as a member of our Board of Directors since October 2012. Mr. Maxwell has followed a career in private equity investment management since 1991, initially working with the UK-based investment bank, Hambros. Amongst other deals he was involved with, Mr. Maxwell led Hambros’ co-investment alongside the Getty family in the founding of Getty Images. Mr. Maxwell also spent four years living and working in South Africa establishing an investment banking business for Hambros in that region. In May 2004, Mr. Maxwell began working with Mark Getty and the Getty family office, Sutton Place. Mr. Maxwell’s primary focus has been to build family wealth via long term business-building investments in the content-based media sector, including Getty Images, the Wisden Cricinfo group, 7 Digital, Hawk-Eye Innovations and Hakluyt & Co. Mr. Maxwell has also been involved in the oversight of Getty family interests in Wormsley Estate (the Getty family’s home and multi-activity rural estate in the UK) and in &Beyond (a South African-based luxury adventure travel and lodging business). +In addition to his board position at Getty Images, Mr. Maxwell has served on the Board of Directors of Getty Capital Limited since June 2018, &Beyond since July 2007, Tara Getty Foundation since April 2009, Sutton Place Foundation since May 2010 and The Africa Foundation Trust since November 2014. Mr. Maxwell also served as a Partner of Sutton Place Managers LLP from May 2004 to May 2019. Mr. Maxwell was a Trustee of the Royal Ballet School from 2000 to 2011, a Trustee and Investment Committee Chairman of the Henry Smith Charity, £1 billion endowment-based grant-making charity, from 2011 to 2019 and a Director of the UK Tennis & Rackets Association from 2013 to 2018. Mr. Maxwell is a graduate of Oxford University and qualified as a Chartered Accountant with PWC in 1990. +James Quella +Mr. Quella has served on our Board of Directors since July 2022, and also serves as a member of the Audit Committee. Mr. Quella previously served as a director of CCNB from August 2020 through the Closing Date of July 2022. Mr. Quella currently serves as a director and has served on the Compensation and Audit Committees of Dun & Bradstreet Corporation (NYSE: DUN) since April 2019. Mr. Quella has previously served as chairman of the board of Michaels Companies, Inc. (when it was listed on the Nasdaq Stock Market) from March 2019 to April 2021, having previously served as Lead Independent Director since November 2018 and as a Director of Fidelity & Guaranty Life Insurance Company from 2017 to 2020. Mr. Quella retired as a Senior Managing Director, Senior Operating Partner and Head of the Portfolio Operations Group at Blackstone, an investment business on behalf of pension funds, large institutions and individuals, in the Private Equity Group in June 2013, having served in these roles since February 2003. Mr. Quella was Managing Director in Private Equity and Senior Operating Partner and Head of the Portfolio Operations Group at DLJ Merchant Banking from 2000 to 2003. In the last 20 years, Mr. Quella has been a director of Advanstar, Allied Waste, Catalent Pharma Solutions, Inc., Columbia House, Celanese Corporation, Decrane Aerospace, DJO Global, Inc., Freescale Semiconductor, Inc., Graham Packaging Company, L.P., Houghton Mifflin Harcourt Company, Intelenet Global Services, Jostens, Lionbridge Technologies, Inc., The Nielsen Company, Vanguard Health Systems, Inc., and Von Hoffman. Mr. Quella received a B.A. in International Studies from The University of Wisconsin-Madison and an M.B.A. with Dean’s Honors from the University of Chicago Graduate School of Business. +Jeffrey Titterton +Mr. Titterton has served on our Board of Directors since November 2022, currently serves as the Chief Marketing Officer of Stripe, Inc., and served as the Chief Operating Officer of Zendesk Inc. from April 2021 until November 2022. He previously served as Zendesk Inc.’s Chief Marketing Officer from October 2018 until April 2021 and its Senior Vice President, Marketing from May 2017 to October 2018. From January 2017 to May 2017, Mr. Titterton served as the Head of Global Campaign and Engagement Marketing for Adobe Inc., a software company, and as Head of Engagement Marketing, Creative Cloud, from August 2013 to January 2017. Prior to that, Mr. Titterton served as the Chief Marketing Officer for 99designs, a graphic design marketplace, from August 2011 to August 2013. Mr. Titterton holds a B.A. in English with a concentration in economics from Cornell University. +Chinh Chu +Mr. Chu served as Chief Executive Officer and Director of CCNB from May 2020 through the Closing Date, and as a director on our Board of Directors since the Closing Date. Mr. Chu has over 30 years of investment and acquisition experience. Mr. Chu also served as Chief Executive Officer and Director of CCNB1 (NYSE: PCPL) from August 2020 until the consummation of the business combination with E2open Holdings, LLC in February 2021 (NYSE: ETWO). Mr. Chu now serves as the chairman of the Board of Directors of E2open (NYSE: ETWO) since February 2021. Mr. Chu +80 +Table of Conten ts +served as the Vice Chairman of Collier Creek Holdings (“Collier Creek”) (NYSE: CCH), a blank check company co-founded by him and formed for substantially similar purposes as CCNB. On August 28, 2020, Collier Creek consummated the acquisition of Utz Brands Holdings, LLC, the parent of Utz Quality Foods, LLC, a leading manufacturer of branded salty snacks, to form Utz Brands (NYSE: UTZ). In 2016, Mr. Chu co-founded CF Corporation for substantially similar purposes as CCNB. CF Corporation sold 69.0 million units in its IPO, generating gross proceeds of $690.0 million. On November 30, 2017, CF Corporation consummated the acquisition of Fidelity & Guaranty Life, a provider of annuities and life insurance products, for approximately $1.835 billion plus the assumption of $405 million of existing debt, and related transactions. In connection with the FGL business combination, the name of the company was changed from “CF Corporation” to “FGL Holdings” (NYSE: FG). Mr. Chu served as Co-Executive Chairman of FGL Holdings. +Mr. Chu is the founder and the Senior Managing Partner of CC Capital, a private investment firm which he founded in 2016. As Senior Managing Director of CC Capital, Mr. Chu led the effort to take Dun & Bradstreet private in a $7.2 billion deal that closed in February 2019. Before founding CC Capital, Mr. Chu worked at Blackstone from 1990 to December 2015, where Mr. Chu led numerous investments across multiple sectors, including technology, financial services, chemicals, specialty pharma and healthcare products, and packaging. Mr. Chu was a Senior Managing Director at Blackstone from 2000 until his departure in December 2015, where he served, at various points, as a member of Blackstone’s Executive Committee, the Co-Chair of Blackstone’s Private Equity Executive Committee and as a member of Blackstone Capital Partners’ Investment Committee. +Before joining Blackstone in 1990, Mr. Chu worked at Salomon Brothers in the Mergers & Acquisitions Department. In addition to Mr. Chu’s role as Chairman of E2open, he has served on the boards of directors of Dun & Bradstreet (NYSE: DNB) since 2019 and E2open Holdings, LLC (NYSE: ETWO) since 2020. Mr. Chu previously served on the Board of Directors of AVINTIV from 2011 to 2012, BankUnited Inc. from 2009 to 2014, Kronos Incorporated from 2014 to 2015, Biomet, Inc. from July 2007 to September 2007 and from 2013 to 2015, Freescale Semiconductor, Ltd. from 2011 to 2015, HealthMarkets, Inc. from 2006 to 2016 and NCR Corporation (NYSE: NCR) from 2015 to 2021. Mr. Chu also previously served on the Board of Directors of Stearns Mortgage, Alliant Insurance Services, Inc., AlliedBarton Security Services, Celanese Corporation, DJO Global, Inc., Graham Packaging, the London International Financial Futures and Options Exchange, Nalco Company, Nycomed, Stiefel Laboratories and SunGard Data Systems, Inc. Mr. Chu received a B.S. in Finance from the University of Buffalo. +Tracy Knox +Ms. Knox has served as a director on our Board of Directors since April 10, 2024, and she previously served as the Chief Financial Officer of Rover Group, the world’s largest online marketplace for pet care from 2017 through its public listing and SPAC merger in 2021, retiring at the end of 2022. Prior to that, Ms. Knox served as Chief Financial Officer of Rightside, a leading domain name service company from its public listing in 2014 until it’s sale in 2017, as Chief Financial Officer at A Place for Mom from 2013 until 2014, as Chief Financial Officer at UIEvolution from 2011 until 2013, and at drugstore.com from 2003, including as Chief Finance Officer from 2008 until 2011. +Ms. Knox also serves on the boards of Babylist since 2021 and Pet Partners since 2023. Ms. Knox holds a B.S. in Accounting from Indiana University and a M.B.A. with honors from University of Washington. +Brett Watson +Mr. Watson has served on our Board of Directors since February 2019. Mr. Watson has been the President of Koch Equity Development LLC since December of 2020. Before that, Mr. Watson was a Senior Managing Director of Koch Equity Development LLC. +In addition to his board position at Getty Images, Mr. Watson currently serves on the boards of directors of the parent companies of Infor, Hexagon AB, Transaction Network Services, and MI Windows and Doors. He formerly served on the boards of directors of ADT Inc., Solera Holdings Inc., Globus, and the Flint Group. Mr. Watson earned both his B.S. and M.B.A. degrees from Binghamton University. +Michael Harris +Mr. Harris has served on our Board of Directors since February 2019. Since 2019, Mr. Harris has also served as a Managing Director of Koch Equity Development, where he has been employed since October 2013. Mr. Harris is responsible for the origination, evaluation and execution of acquisitions and investments for Koch Industries, Inc. In this +81 +Table of Conten ts +capacity, he evaluates opportunities across industries with specific expertise in the software, technology, aerospace and defense, and industrial manufacturing sectors. Prior to joining Koch, Mr. Harris worked for Bank of America Merrill Lynch advising clients on mergers and acquisitions, capital deployment and structured equity capital alternatives from 2011 to 2013. He has also previously worked at Orbital Sciences Corporation as a mechanical engineer in their Launch Systems group from 2005 to 2011. +In addition to his board position at Getty Images, Mr. Harris has served as a board observer of Infor since 2017. He formerly served on the board of Truck-Lite, a leading manufacturer of lighting solutions for commercial and off-road vehicles from December 2015 to December 2019. Mr. Harris holds his B.S. and M.S. degrees in Mechanical Engineering from Brigham Young University. He also holds a M.B.A degree from Columbia Business School. +Hilary Schneider +Ms. Schneider has served on our Board of Directors since 2020 and is the former Chief Executive Officer and current Strategic Advisor to the Board of Directors of Shutterfly, a leading ecommerce and manufacturing platform for personalized products and custom design, since 2020. Ms. Schneider previously served as Chief Executive Officer of Wag!, the country’s largest on-demand mobile dog walking and dog care service, from 2018 to 2019. Prior to this role, Ms. Schneider served as President and CEO of LifeLock, the leader in identity theft protection, through its public listing and acquisition by Symantec, as well as serving in a series of executive positions at Yahoo! From 2006 to 2010 and in several senior leadership roles at Knight Ridder from 2002 to 2005. +In addition to her board position at Getty Images, Ms. Schneider also serves on the boards of Vail Resorts, Inc. (NYSE: MTN) and Digital Ocean since 2010, and water.org since 2011. Ms. Schneider holds a B.A. in economics from Brown University and an M.B.A. from Harvard Business School. +Corporate Governance +Board Composition +Our business and affairs are organized under the direction of our Board of Directors. Our Board of Directors currently consists of ten members. The primary responsibilities of our Board of Directors are to provide oversight, strategic guidance, counseling and direction to our management. Our Board of Directors meets on a regular basis and additionally as required. +In accordance with our Amended and Restated Certificate of Incorporation, our Board of Directors is divided into three classes, Class I, Class II and Class III, with members of each class serving staggered three-year terms. Currently, our Board of Directors is divided into the following classes: +• Class I, which consists of Patrick Maxwell, James Quella and Jeffrey Titterton, whose terms will expire at the 2027 Annual Meeting; +• Class II, which consists of Mark Getty, Chinh Chu, Tracy Knox and Brett Watson, whose terms will expire at the Company’s annual meeting of stockholders to be held in 2025; and +• Class III, which consists of Hilary Schneider, Michael Harris, and Craig Peters, whose terms will expire at the Company’s annual meeting of stockholders to be held in 2026. +At each annual meeting of stockholders, the successors to directors whose terms then expire will be elected to serve from the time of election and qualification until the third annual meeting following their election and until their successors are duly elected and qualified. This classification of our Board of Directors may have the effect of delaying or preventing changes in our control or management. +Further, in connection with the execution of the Business Combination Agreement, CC Neuberger Principal Holdings II Sponsor LLC (the “Sponsor”), the equityholders of the Sponsor, certain equityholders of Legacy Getty and certain other parties thereto entered into the Stockholders Agreement dated December 9, 2021 with Getty Images (then Vector Holding, LLC), pursuant to which, among other things, our Board of Directors consists of (i) three directors nominated by Getty Investments LLC (“Getty Investments”), (ii) two directors nominated by Koch Icon Investments, LLC (“Koch Icon”), (iii) one director nominated by CC Capital Partners, LLC (“CC Capital”), (iv) the chief executive officer of Getty Images and (v) a number of independent directors sufficient to comply with the requisite independence requirements of the NYSE and the rules and regulations of the SEC. The number of nominees that each of Getty Investments, Koch Icon and CC Capital will continue to be entitled to nominate pursuant to the Stockholders Agreement is subject to reduction based on the +82 +Table of Conten ts +aggregate number of shares of Class A common stock held by such stockholders (together with their successors and any permitted transferees), as follows: +• For so long as (i) the Getty Family Stockholders beneficially own, in the aggregate, at least 52,000,000 shares of Class A common stock, as adjusted for stock splits, stock combinations, and the like (the “Three Director Appointment Threshold”), Getty Investments shall be entitled to nominate three individuals to our Board of Directors, (ii) if the Getty Family Stockholders do not meet the Three Director Appointment Threshold, but the Getty Family Stockholders beneficially own, in the aggregate, at least 26,000,000 shares of Class A common stock, as adjusted for stock splits, stock combinations, and the like (the “Two Director Appointment Threshold”), Getty Investments shall be entitled to nominate two individuals to the our Board of Directors, and (iii) the Getty Family Stockholders beneficially own, in the aggregate, fewer than 26,000,000 shares of Class A common stock, as adjusted for stock splits, stock combinations, and the like, but greater than or equal to 5% of the total number of outstanding shares of Class A common stock (but less than a number of shares of Class A common stock that would meet the Two Director Appointment Threshold), Getty Investments shall be entitled to nominate one individual to our Board of Directors. In the event that the Getty Family Stockholders beneficially own, in the aggregate, less than 5% of the total number of outstanding shares of Class A common stock, Getty Investments will not be entitled to nominate any individual to our Board of Directors pursuant to the Stockholders Agreement. +• For so long as (i) Koch Icon beneficially owns, in the aggregate, at least 26,000,000 shares of Class A common stock, as adjusted for stock splits, stock combinations, and the like, Koch Icon shall be entitled to nominate two individuals to our Board of Directors and (ii) Koch Icon beneficially owns, in the aggregate, fewer than 26,000,000 shares of Class A common stock, as adjusted for stock splits, stock combinations, and the like, but greater than or equal to 5% of the total number of outstanding shares of Class A common stock, Koch Icon shall be entitled to nominate one individual to our Board of Directors. In the event that Koch Icon beneficially owns, in the aggregate, less than 5% of the total number of outstanding shares of Class A common stock, Koch Icon shall not be entitled to nominate any individual to our Board of Directors pursuant to the Stockholders Agreement. +• For so long as the Sponsor beneficially owns, in the aggregate, at least 5,116,000 shares of Class A common stock, as adjusted for stock splits, stock combinations, and the like, CC Capital shall be entitled to nominate one individual to our Board of Directors. In the event that the Sponsor beneficially owns, in the aggregate, fewer than 5,116,000 shares of Class A common stock, as adjusted for stock splits, stock combinations, and the like, CC Capital shall not be entitled to nominate any individual to our Board of Directors pursuant to the Stockholders Agreement. +Please see the Stockholders Agreement, which is attached as exhibit 10.3 to this Annual Report on Form 10-K, and “ Item 13. Certain Relationships and Related Transactions, and Director Independence — Stockholders Agreement. ” See also “ Item 13. Certain Relationships and Related Transactions, and Director Independence — Significant Stockholder Agreement ” for information on certain corporate governance matters entered into in connection with the Shutterstock Merger Agreement. +Director Independence +As required by the rules of the New York Stock Exchange (“NYSE”), a majority of our Board of Directors is independent. An “independent director” is generally defined under applicable NYSE rules as one who the Board of Directors affirmatively determines has no material relationship with the company, either directly or as an officer, partner or stockholder of a company that has a relationship with the company. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act, and the listing standards of NYSE. +Our Board of Directors has determined that each of the directors, other than Craig Peters and Mark Getty, qualifies as an “independent director” under applicable SEC and NYSE rules for purposes of serving on our Board of Directors and each committee on which they serve, as applicable. Our Board of Directors also previously determined that Jonathan D. Klein, a former director who served on our board until June 13, 2024, was an “independent director” under applicable SEC and NYSE rules for purposes of serving on our Board of Directors and the committee on which he served. In making these determinations, our Board of Directors reviewed and discussed information provided by the directors with regard to each director’s business and personal activities and relationships as they may relate to us and our management. +Role of Our Board of Director in Risk Oversight/Risk Committee +Our Board of Directors is involved in the oversight of risk management related to us and our business. Our Board of Directors accomplishes this oversight both directly and through its Audit Committee, which assists the board in overseeing a part of our overall risk management and regularly reports to the board. The Audit Committee represents the board by +83 +Table of Conten ts +periodically reviewing our accounting, reporting and financial practices, including the integrity of our financial statements, the oversight of administrative and financial controls, our compliance with legal and regulatory requirements, cybersecurity, our procedures for treatment of complaints regarding internal accounting controls or auditing matters, and our policies with respect to risk assessment and risk management. Through its regular meetings with management, including the finance, legal and internal audit functions, the Audit Committee reviews and discusses significant areas of our business and related risks and summarizes for the board areas of risk and any mitigating factors. In addition, our Board of Directors participates in regular briefings with management on a variety of topics, including cybersecurity and artificial intelligence, in which risk oversight is an inherent element. +Board Committees +Our Board of Directors has three standing committees—an audit committee, a compensation committee, and a nominating and corporate governance committee. We may from time to time establish other committees. Copies of the charters for each committee are available on our website. +Audit Committee +Our audit committee consists of Tracy Knox, Hilary Schneider and James Quella. Our Board of Directors has determined that each of the members of the audit committee satisfies the independence requirements of the NYSE corporate governance standards and Rule 10A-3 under the Exchange Act and is financially literate (as defined under the rules of the NYSE). In arriving at this determination, our Board of Directors has examined each audit committee member’s scope of experience, the nature of their prior and/or current employment and all other factors determined to be relevant under the rules and regulations of the NYSE and the SEC. +Tracy Knox serves as the chair of our Audit Committee. Our Board of Directors has determined that Ms. Knox, Ms. Schneider and Mr. Quella each qualifies as an audit committee financial expert within the meaning of SEC regulations and meets the financial sophistication requirements of the NYSE rules. In making this determination, our Boar d of Directors has considered formal education and previous professional experience in financial roles. Both our independent registered public accounting firm and management periodically meet privately with the audit committee members. +Our Board of Directors has delegated the oversight of cybersecurity risks to the Audit Committee. The Audit Committee assists the Board in its oversight of the Company’s policies and practices employed to identify, assess and manage key risks facing Getty Images, including cybersecurity risks. Members of management, including the Company’s Chief Technology Officer, provide the Audit Committee with updates on cybersecurity and information technology matters. In turn, the Audit Committee and management also provide updates to the Board of Directors. +The functions of our Audit Committee include, among other things: +• evaluating the performance, independence and qualifications of our independent auditors and determining whether to retain our existing independent auditors or engage new independent auditors; +• reviewing our financial reporting processes and disclosure controls; +• reviewing and approving the engagement of our independent auditors to perform audit services and any permissible non-audit services; +• reviewing the quality and adequacy of our internal control policies and procedures, including the responsibilities, budget and staffing of our internal audit function; +• reviewing with the independent auditors, and internal audit department, if applicable, the annual audit plan; +• obtaining and reviewing at least annually a report by the Company’s independent auditors describing the independent auditors’ internal quality control procedures, issues raised by the most recent internal quality-control review and all relationships between the independent auditor and the Company, if any; +• monitoring the rotation of the lead partner of our independent auditor on our engagement team as required by law; +• prior to engagement of any independent auditor, and at least annually thereafter, reviewing relationships that may reasonably be thought to bear on their independence, and assessing and otherwise taking the appropriate action to oversee the independence of our independent auditor; +• reviewing our annual and quarterly financial statements and reports, including the disclosures contained in Management’s Discussion and Analysis of the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and discussing the statements and reports with our independent auditors and management; +• reviewing with our independent auditors and management significant issues in internal audit reports and responses by management; +84 +Table of Conten ts +• reviewing with management and our auditors any earnings press releases and other public announcements related to financials; +• establishing and overseeing procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters; +• preparing the report that the SEC requires in our annual proxy statement; +• reviewing and providing oversight of any related party transactions in accordance with our related party transaction policy and reviewing and monitoring compliance with legal, regulatory and ethical responsibilities; +• reviewing our major financial risk exposures; and +• reviewing and evaluating on an annual basis the performance of the Audit Committee and the Audit Committee Charter. +The composition and function of the audit committee complies with all applicable requirements of the Sarbanes-Oxley Act and all applicable SEC rules and regulations. We will comply with future requirements to the extent they become applicable to the Company. +Compensation Committee +Our Compensation Committee consists of Brett Watson, Chinh Chu and Hilary Schneider. Our Board of Directors has determined that each of the members of our Compensation Committee is a non-employee director, as defined in Rule 16b-3 promulgated under the Exchange Act, and satisfies the independence requirements of the NYSE. Mr. Watson serves as the chair of our Compensation Committee. Our Board of Directors adopted a written charter for the Compensation Committee, which is available on our corporate website at https://investors.gettyimages.com/ . The information on any of our websites is deemed not to be incorporated in this Annual Report on Form 10-K. +The Compensation Committee has engaged Compensia, Inc. as our independent consultant. In 2024, Compensia, Inc. reviewed both executive and director compensation and did not provide us any other services. Compensia, Inc. reported directly to the Compensation Committee and provided guidance on trends in executive and non-employee director compensation, the development of specific executive compensation programs, the composition of our compensation peer group and other matters as directed by the Compensation Committee. +Our Compensation Committee is responsible for assisting our Board of Directors in the discharge of its responsibilities relating to the compensation of our executive officers. In fulfilling its purpose, our Compensation Committee has the following principal duties: +• reviewing and approving the corporate goals and objectives that pertain to the determination of executive compensation; +• reviewing and approving the compensation and other terms of employment of our executive officers; +• making recommendations to our Board of Directors regarding the adoption or amendment of equity and cash incentive plans and approving amendments to such plans to the extent authorized by the board; +• reviewing and making recommendations to our Board of Directors regarding the type and amount of compensation to be paid or awarded to our non-employee board members; +• reviewing and establishing stock ownership guidelines for executive officers and non-employee board members; +• reviewing and assessing the independence of compensation consultants, independent legal counsel and other advisors; +• administering our equity incentive plans; +• reviewing and approving the terms of any employment agreements, severance arrangements, transition or consulting agreements, retirement agreements and change-in-control agreements or provisions and any other material arrangements for our executive officers; +• approving or recommending for approval the creation or revision of any clawback policy allowing the Company to recoup compensation paid to officers, directors and employees; +• reviewing with management our disclosures under the caption “Compensation Discussion and Analysis” in our periodic reports or proxy statements to be filed with the SEC, to the extent such caption is included in any such report or proxy statement; +85 +Table of Conten ts +• preparing an annual report on executive compensation to be included in our annual proxy statement, to the extent any such report is required to be included in our annual proxy statement; and +• reviewing and evaluating on an annual basis the performance of our Compensation Committee and recommending such changes as deemed necessary to our Board of Directors. +The composition and function of the compensation committee complies with all applicable requirements of the Sarbanes-Oxley Act and all applicable SEC and NYSE rules and regulations. We will comply with future requirements to the extent they become applicable to the Company. +Nominating and Corporate Governance Committee +Our Nominating and Corporate Governance Committee consists of Michael Harris and Patrick Maxwell. Our Board of Directors has determined that each of the members of our Nominating and Corporate Governance Committee satisfies the independence requirements of the NYSE and the SEC. Mr. Harris serves as the chair of our Nominating and Corporate Governance Committee. +Our Nominating and Corporate Governance Committee’s responsibilities include: +• identifying, reviewing and making recommendations of candidates to serve on our Board of Directors; +• evaluating the performance of our Board of Directors, committees of the board and individual directors and determining whether continued service on our Board of Directors is appropriate; +• evaluating nominations by stockholders of candidates for election to our Board of Directors; +• evaluating the current size, composition and governance of our Board of Directors and its committees and making recommendations to the board for approvals; +• reviewing the leadership structure of our Board of Directors, including the separation of the Chair and Chief Executive Officer roles and/or appointment of a lead independent director of the board; +• reviewing corporate governance policies and principles and recommending to our Board of Directors any changes to such policies and principles; +• reviewing issues and developments related to corporate governance; +• reviewing, approving, and monitoring directors’ compliance with our Code of Business Conduct and Ethics; +• assisting the Company in fulfilling its corporate responsibility strategy; and +• reviewing periodically the Nominating and Corporate Governance Committee Charter, structure and membership requirements and recommending any proposed changes to our Board of Directors, including undertaking an annual review of its own performance. +The composition and function of the nominating and corporate governance committee complies with all applicable requirements of the Sarbanes-Oxley Act and all applicable SEC and NYSE rules and regulations. We will comply with future requirements to the extent they become applicable. +Limitation on Liability and Indemnification of Directors and Officers +Our Amended and Restated Certificate of Incorporation limits the Company’s directors’ liability to the fullest extent permitted under the DGCL. The DGCL allows for directors of a corporation to not be personally liable for monetary damages for breach of their fiduciary duties as directors, except for liability: +• for any transaction from which the director derives an improper personal benefit; +• for any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; +• for any unlawful payment of dividends or redemption of shares; or +• for any breach of a director’s duty of loyalty to the corporation or its stockholders. +If the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of our directors will be eliminated or limited to the fullest extent permitted by the DGCL, as so amended. The DGCL and the our Amended and Restated Bylaws provide that the Company will, in certain situations, indemnify the Company’s directors and officers and may indemnify other employees and other agents, to the fullest extent +86 +Table of Conten ts +permitted by law. Any indemnified person is also entitled, subject to certain limitations, to advancement, direct payment, or reimbursement of reasonable expenses (including attorneys’ fees and disbursements) in advance of the final disposition of the proceeding. +We maintain a directors’ and officers’ insurance policy pursuant to which our directors and officers are insured against liability for actions taken in their capacities as directors and officers. We believe these provisions in our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws and the indemnification agreements are necessary to attract and retain qualified persons as directors and officers. +Insider Trading Policies +The Company has adopted insider trading policies governing the purchase, sale, and/or other dispositions of our securities by our directors, officers, employees and contractors, as well as a trading policy governing the Company's repurchase of its own securities. We believe both policies are reasonably designed to promote compliance with insider trading laws, rules and regulations, and applicable NYSE exchange listing standards. Copies of our insider trading policies are filed as Exhibit 19.1 to this Annual Report on Form 10-K. +Delinquent Section 16(a) Reports +Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who own more than 10% of a registered class of our Class A common stock, to file with the SEC reports of ownership of such securities and changes in reported ownership. +Based on a review of reports filed with the SEC, or written representations from reporting persons that all reportable transactions were reported, we believe that, during 2024, our directors, executive officers, and 10% stockholders timely filed all reports that were required to be filed under Section 16(a), except one Form 4 reporting the sale of shares of Class A common stock to cover tax withholding on the vesting and settlement of outstanding RSUs was not timely filed by Daine Weston. +Item 11. Executive Compensation +We are an “emerging growth company,” as defined under the Jumpstart Our Business Startups Act, and a “smaller reporting company,” as defined under the Securities Act. As an “emerging growth company,” and “smaller reporting company, we have opted to comply with the executive compensation rules applicable to smaller reporting companies, which require compensation disclosure for our principal executive officer and our next two most highly compensated executive officers (other than our principal executive officer) as of the end of the last completed fiscal year (collectively, the “Named Executive Officers” or “NEOs”). Also, as an emerging growth company, and smaller reporting company, we are not required to include, and have not included, a Compensation Discussion and Analysis and certain of the other compensation tables required by Item 402 of Regulation S-K. Further, as an “emerging growth company,” and “smaller reporting company,” we are exempt from certain other requirements related to executive compensation, including the requirement to hold advisory votes on the compensation of our Named Executive Officers, the requirement to disclose a CEO pay ratio and the requirement to disclose “pay versus performance” information, as applicable. +The following executives were our Named Executive Officers as of December 31, 2024: +• Craig Peters, our Chief Executive Officer (“CEO”); +• Nathaniel Gandert, our Senior Vice President and Chief Technology Officer; and +• Gene Foca, our Senior Vice President and Chief Marketing and Revenue Officer. +87 +Table of Conten ts +To achieve our compensation objectives, we historically have provided our executives with a compensation package consisting of the following elements: +Compensation Element Compensation Purpose +Base Salary Provide a fixed level of cash compensation to attract, retain and reward talented and skilled executives that is competitive for such individuals specific to scope and impact of their job responsibilities and our industry. +Annual Cash Bonus (“Non-Sales Bonus Plan”) Incentivize and reward our executives for annual contributions to our performance by tying to both corporate and individual performance metrics. +Long-Term Incentive Compensation Promote an ownership culture and the maximization of long-term stockholder value by aligning the interests of our executives and stockholders. +2024 Summary Compensation Table +The following table sets forth information concerning the compensation of our Named Executive Officers for the years ended December 31, 2024 and December 31, 2023. +Named Executive Officer Year +Salary +(1) +Bonus +Stock +Awards +(2) +Option +Awards +(2) +Non-Equity +Incentive Plan +Compensation +(3) +All Other +Compensation +(4) +Total +Craig Peters, 2024 $ 887,817 $ — $ 2,751,673 $ — $ 1,159,791 $ 22,375 $ 4,821,656 +Chief Executive Officer and Director 2023 $ 983,650 $ — $ 9,092,343 $ 2,849,350 $ — $ 23,895 $ 12,949,238 +Nathaniel Gandert, 2024 $ 545,625 $ — $ 909,516 $ — $ 275,000 $ 16,061 $ 1,746,202 +Senior Vice President and Chief Technology Officer 2023 $ 531,748 $ — $ 2,819,241 $ 1,259,000 $ — $ 17,047 $ 4,627,036 +Gene Foca, 2024 $ 522,083 $ — $ 926,485 $ — $ 250,000 $ 18,601 $ 1,717,169 +Senior Vice President and Chief Marketing and Revenue Officer 2023 $ 512,514 $ — $ 2,874,108 $ 629,500 $ — $ 21,195 $ 4,037,317 +_________________________ +(1) Reflects base salary actually paid in 2024 and 2023. See “— Base Salary ” below for more information. +(2) Amounts represent the grant date fair value of the stock and option awards granted to our Named Executive Officers, as computed in accordance with FASB ASC Topic 718, excluding estimated forfeitures. See “Note 17  —  Equity-Based Compensation” in our consolidated financial statements for the assumptions used in computing the grant date fair value of such awards. For 2024, the amounts reported in the “Stock Awards” column include grant date fair values of the PSUs of $1,225,000, $326,667 and $326,667 granted to Messrs. Peters, Gandert and Foca, respectively. These amounts represent the second annual tranche equal to one-third of the units subject to an award with a three-year performance period. The performance metrics for each tranche are selected and approved annually. Consequently, in accordance with FASB ASC Topic 718, only the second tranche for which the performance metrics were approved for 2024 is considered granted in 2024 and reported in the table. The full intended target value of the PSUs is $3,675,000, $980,000 and $980,000 for Messrs. Peters, Gandert and Foca, respectively. +(3) Amounts represent non-equity incentive plan compensation earned in 2024 and paid in 2025 to each Named Executive Officer pursuant to the Non-Sales Bonus Plan. See “— Annual Cash Bonus Plan ” below for more information. +(4) Amounts for 2024 represent reportable income on our split-benefit life insurance policies ($4,198, $1,711 and $3,070 for Messrs. Peters, Gandert and Foca, respectively) and a tax gross up for such income ($4,377, $550 and $1,731 for +88 +Table of Conten ts +Messrs. Peters, Gandert and Foca, respectively), and employer matching contributions under our Section 401(k) profit sharing plan ($13,800 each for Messrs. Peters, Gandert and Foca). +Narrative Disclosure to 2024 Summary Compensation Table +For 2024, the compensation program for our Named Executive Officers consisted of base salary, a cash bonus opportunity under our Annual Cash Bonus Plan, and long-term incentive compensation in the form of equity awards. In addition, our Named Executive Officers were covered by Company-sponsored executive life and disability benefits and were eligible to participate in any employee benefit programs generally available to all our employees. +Base Salary +Base salary is set at a level that reflects the remit, scope, and impact of the role and is commensurate with our Named Executive Officer’s contributions, prior experience, and sustained performance. Initial base salaries are established through arm’s-length negotiation at the time the individual Named Executive Officer is hired, taking into consideration any relevant factors as well as experience and an analysis of competitive market data. Thereafter, our Compensation Committee has generally reviewed, and adjusted as necessary, base salaries for each of our Named Executive Officers, at a minimum annually and whenever there is a change in the scope of the Named Executive Officer’s role. In setting base salary levels for 2024, our Compensation Committee considered a range of factors, including: +• the individual’s anticipated responsibilities and experience; +• the collective experience and knowledge in compensating similarly situated individuals at other companies, including those in our selected peer group, informed by the Radford Global Technology and Radford Global Sales compensation surveys; and +• the value of the Named Executive Officer’s existing equity awards. +Non-Sales Bonus Plan (“Annual Cash Bonus Plan”) +We maintain the Annual Cash Bonus plan for our non-sales employees, including our Named Executive Officers. Like our other non-sales employees, in 2024, our Named Executive Officers received a target bonus opportunity reflected as a percentage of their base salaries, as applicable. Typically, their actual annual cash bonus payment is based on individual performance, provided the Company meets its performance measure target. +For 2024, the Annual Cash Bonus Plan was approved by our Compensation Committee on February 7, 2024. For purposes of the 2024 Annual Cash Bonus Plan, our Compensation Committee selected revenue as the Company performance measure. Further, the CEO evaluated the individual performance of each other Named Executive Officer, taking into consideration such executive’s achievement of the objectives and key performance indicators for his role, an evaluation of his performance as measured against Getty Images’ Leadership Principles, and his contribution to the overall success of Getty Images. In the case of our CEO, his individual performance was evaluated by our Board of Directors. +Our Compensation Committee evaluated the Company’s performance against the company performance component and each individual NEO’s performance against his or her individual performance component following the end of the year and exercised its discretion to determine the amount to be paid based on the level of achievement of the company performance component and the amount to be paid based on our NEOs’ individual performance and approved the amount of each NEO’s annual bonus as set forth in the “Non-Equity Incentive Plan Compensation” column of the 2024 Summary Compensation Table above. The CEO's amount was also approved by our Board of Directors. +Long-Term Incentive Compensation +In 2022, our Board of Directors adopted, and our then stockholder approved, the Getty Images Holdings, Inc. 2022 Equity Incentive Plan (the “2022 Plan”), the Getty Images Holdings, Inc. 2022 Earn Out Plan (the “Earn Out Plan”) and the Getty Images Holdings, Inc. 2022 Employee Stock Purchase Plan (the “ESPP” and together with the 2022 Plan and the Earnout Plan, the “Equity Incentive Plans”). The purpose of the Equity Incentive Plans is to align the interests of eligible participants with our stockholders by providing long-term incentive compensation opportunities in the form of time-based equity awards and/or equity awards tied to the Company’s performance based on relevant Company metrics. The intent of the Equity Incentive Plans is to advance the Company’s interests and increase stockholder value by attracting, retaining and motivating key personnel. +The 2012 Equity Incentive Plan of the Partnership and the Legacy Getty 2012 Plan (the “2012 Equity Plans”) were adopted on October 18, 2012, as amended from time to time (including most recently on September 1, 2021). +89 +Table of Conten ts +Although the 2012 Equity Plans were terminated in connection with the Business Combination, they will continue to govern the terms and conditions of any outstanding awards previously granted thereunder. See “— Securities Authorized for Issuance Under Equity Compensation Plans ” below. +In 2024, our Compensation Committee determined to grant our Named Executive Officers both RSUs and PSUs. Please see the “— Outstanding Equity Awards at 2024 Fiscal Year-End ” table and “— Potential Payments Upon Termination or Change in Control” below for a description of the vesting, termination of employment and change in control treatment of the awards granted in 2024. +Timing of Stock Option and other Equity Award Grants +Although we do not have a formal policy regarding the timing of stock option grants to our NEOs, we do not grant stock options or any other form of equity compensation in anticipation of the release of material, non-public information. Similarly, we do not time the release of material, non-public information based on stock option or other equity award grant dates for the purpose of affecting the value of any NEO award. During our 2024 fiscal year, none of our NEOs were granted any options to purchase shares of our common stock. +Section 401(k) Plan +We sponsor a tax-qualified Section 401(k) profit-sharing plan (the “401(k) Plan”) for all U.S. employees, including our Named Executive Officers. Our full-time U.S. employees are eligible to participate in the 401(k) Plan and may contribute up to a specified percentage of their base salary to the 401(k) Plan. We make "safe harbor" matching contributions to the 401(k) Plan on behalf of eligible U.S. employees who are eligible to participate in the 401(k) Plan. We match 4% of a participant’s base salary deferrals. The total matching contribution does not exceed the match allocated based on IRS annual compensation limits. +Pension Benefits and Nonqualified Deferred Compensation +None of our Named Executive Officers participated in any defined benefit pension plans in 2024. +None of our Named Executive Officers participated in any non-qualified deferred compensation plans, supplemental executive retirement plans, or any other unfunded retirement arrangements in 2024. +Other Benefits and Perquisites +We offer health and welfare benefits to our Named Executive Officers on the same basis as provided to all of our employees, including health, dental and vision insurance; life insurance; accidental death and dismemberment insurance; short-term and long-term disability insurance; a health savings account and flexible spending accounts. Additionally, some executives, including our Named Executive Officers, may receive transit subsidies and are eligible for our split-benefit life insurance policies and executive disability insurance. +Currently, we do not view perquisites or other personal benefits as a significant component of our executive compensation program. Accordingly, we do not provide significant perquisites or other personal benefits to our Named Executive Officers except as generally made available to our employees or in situations where we believe it is appropriate to assist an individual in the performance of his or her duties, to make him more efficient and effective and for recruitment and retention purposes. During 2024, none of our Named Executive Officers received perquisites or other personal benefits that were, in the aggregate, equal to $10,000 or more for any individual. +Employment Agreements +We have entered into employment agreements with each of our Named Executive Officers that generally set forth the terms and conditions of their employment, including base salary, target annual cash bonus opportunities, the opportunity to participate in our equity incentive plans and standard employee benefit plan participation. In addition, the Named Executive Officer employment agreements also contain provisions for certain payments and benefits in connection with certain terminations of employment, including a termination of employment in connection with a change in control of Getty Images as described further in “— Potential Payments upon Termination or Change in Control ” below. +Mr. Peters +We entered into an amended and restated employment agreement with Mr. Peters as of July 1, 2015, providing that commencing on December 31, 2017, and on each annual anniversary thereafter, the employment term would be automatically extended for an additional one-year term unless we or Mr. Peters provide three months’ notice not to renew +90 +Table of Conten ts +the employment agreement term. Subsequently, the employment agreement was amended on January 27, 2017 (to adjust the target annual cash bonus percentage), on November 3, 2017 (to extend its term until December 31, 2020, subject to automatic one-year extensions unless either party provided three months’ notice of non-renewal), and on January 1, 2019 (to elevate Mr. Peters to the position of Chief Executive Officer, adjust his base salary, and to extend its term until December 31, 2021, subject to automatic one-year renewals unless either party provides three months’ notice of non- renewal). On April 1, 2020, we amended Mr. Peters’ employment agreement to reduce his base salary in response to the COVID-19 pandemic and make other corresponding adjustments, and on October 1, 2020 we further amended his employment agreement to restore his base salary to its pre-COVID-19 pandemic level and make other corresponding adjustments. Effective January 1, 2024, we amended Mr. Peters’ employment agreement to reduce his base salary and make other corresponding adjustments, and, effective January 1, 2025, we amended Mr. Peters’ employment agreement to re-instate his base salary and make other corresponding adjustments. +Additionally, his employment agreement sets forth his duties as well as his annual base salary (which as of December 31, 2024 is $883,650 and subject to annual review by our Board of Directors, although the Board of Directors increased Mr. Peters' base salary to $983,650 effective January 1, 2025, restoring his previously voluntarily reduced salary), a target annual cash bonus award opportunity in an amount equal to a percentage of his annual base salary (currently 75%), the opportunity to participate in our equity incentive plan, and participation in our employee benefit plans on a no less favorable basis as those benefits are generally made available to the other senior executives of Getty Images. The employment agreement also contains certain restrictive covenants involving non-solicitation, non-competition, confidentiality of information, and the treatment and ownership of intellectual property arising during his employment with Getty Images. Further, the employment agreement provides for the rights and responsibilities of the parties in the event of certain terminations of Mr. Peters’ employment, as further described in “— Potential Payments upon Termination or Change in Control ” below. +Mr. Gandert +We entered into an employment agreement with Mr. Gandert as of June 1, 2016, providing that commencing on December 31, 2019, and on each annual anniversary thereafter, the employment term would be automatically extended for an additional one-year term unless we or Mr. Gandert provide three months’ notice not to renew the employment agreement term. On April 1, 2020, we amended Mr. Gandert’s employment agreement to reduce his base salary in response to the COVID-19 pandemic and make other corresponding adjustments, and on October 1, 2020, we further amended his employment agreement to restore his base salary to its pre-COVID-19 pandemic level and make other corresponding adjustments. +The employment agreement sets forth Mr. Gandert’s position as Chief Technology Officer and duties as well as his annual base salary (which as of December 31, 2024 is $550,000 and subject to annual review by our Compensation Committee and Board of Directors), a target annual cash bonus award opportunity in an amount equal to a percentage of Mr. Gandert’s annual base salary (currently 50%), the opportunity to participate in our equity incentive plans and participation in our employee benefit plans that are no less favorable than those generally made available to other senior executives of Getty Images. The employment agreement also contains certain restrictive covenants involving non-solicitation, non-competition, confidentiality of information, and the treatment and ownership of intellectual property arising during his employment with Getty Images. Further, the employment agreement provides for the rights and responsibilities of the parties in the event of certain terminations of Mr. Gandert’s employment, as further described in “— Potential Payments upon Termination or Change in Control ” below. +Mr. Foca +We entered into an employment agreement with Mr. Foca as of January 3, 2017, providing that commencing on December 31, 2019, and on each annual anniversary thereafter, the employment term would be automatically extended for an additional one-year term unless we or Mr. Foca provide three months’ written notice not to renew the employment agreement term. On April 1, 2020, we amended Mr. Foca’s employment agreement to reduce his base salary in response to the COVID-19 pandemic and make other corresponding adjustments, and on October 1, 2020, we further amended his employment agreement to restore his base salary to its pre-COVID-19 pandemic level and make other corresponding adjustments. On May 1, 2023, we amended Mr. Foca’s employment agreement to reflect his new title. +The employment agreement sets forth Mr. Foca’s position as Senior Vice President, Chief Marketing and Revenue Officer and duties as well as his annual base salary (which as of December 31, 2024 is $525,000 and subject to annual review by our Compensation Committee and Board of Directors), a target annual cash bonus award opportunity in an amount equal to a percentage of Mr. Foca’s annual base salary (currently 50%), the opportunity to participate in our equity incentive plans and participation in our employee benefit plans that are no less favorable than those generally made +91 +Table of Conten ts +available to other senior executives of Getty Images. The employment agreement also contains certain restrictive covenants involving confidentiality of information, and the treatment and ownership of intellectual property arising during his employment with Getty Images. Further, the employment agreement provides for the rights and responsibilities of the parties in the event of certain terminations of Mr. Foca’s employment, as further described in “— Potential Payments upon Termination or Change in Control ” below. +Outstanding Equity Awards at 2024 Fiscal Year-End Table +The following table presents information regarding outstanding equity awards held by our Named Executive Officers as of December 31, 2024: +Named Executive Officer Grant +Date Number of +securities +underlying +unexercised +options +(Exercisable) Number of +securities +underlying +unexercised +options +(Unexercisable) Option +exercise +price +Option +expiration +date Number of shares or units of stock that have not vested +Market value of shares or units of stock that have not vested (4) +Equity Incentive Plan Awards: Number of unearned shares, units, or other rights that have not vested (5) +Equity Incentive Plan Awards: Market or payout value of unearned shares, units, or other rights that have not vested (4)(5) +Craig Peters, Chief Executive Officer +2/26/2017 71,869 — (1) $ 3.13 2/25/2027 — $ — — $ — +2/26/2017 127,420 — (1) $ 3.13 2/25/2027 — $ — — $ — +2/26/2017 172,264 — (1) $ 3.13 2/25/2027 — $ — — $ — +3/1/2017 1,565,691 — (1) $ 3.13 2/28/2027 — $ — — $ — +4/10/2019 1,758,203 — (1) $ 2.74 4/9/2029 — $ — — $ — +4/10/2019 939,415 — (1) $ 2.74 4/9/2029 — $ — — $ — +3/16/2023 293,750 206,250 (2) $ 6.00 3/15/2033 309,375 (2) $ 668,250 250,000 $ 540,000 +3/16/2023 293,750 206,250 (2) $ 8.00 3/15/2033 — $ — — $ — +3/16/2023 293,750 206,250 (2) $ 10.00 3/15/2033 — $ — — $ — +7/11/2024 — — $ — — 66,500 (3) $ 143,640 66,500 $ 143,640 +Nathaniel Gandert, Senior Vice President and Chief Technology Officer +2/26/2017 13,996 — (1) $ 3.13 2/25/2027 — $ — — $ — +2/26/2017 29,535 — (1) $ 3.13 2/25/2027 — $ — — $ — +2/26/2017 39,938 — (1) $ 3.13 2/25/2027 — $ — — $ — +3/1/2017 488,216 — (1) $ 3.13 2/28/2027 — $ — — $ — +4/10/2019 986,117 — (1) $ 2.74 4/9/2029 — $ — — $ — +4/10/2019 292,930 — (1) $ 2.74 4/9/2029 — $ — — $ — +3/16/2023 293,750 206,250 (2) $ 4.90 3/15/2033 82,500 (2) $ 178,200 66,667 $ 144,001 +7/11/2024 — — $ — — 33,250 (3) $ 71,820 33,250 $ 71,820 +Gene Foca, Senior Vice President and Chief Marketing and Revenue Officer +3/1/2017 639,523 — (1) $ 3.13 2/28/2027 — $ — — $ — +4/10/2019 1,029,047 — (1) $ 2.74 4/9/2029 — $ — — $ — +3/16/2023 146,875 103,125 (2) $ 4.90 3/15/2033 82,500 (2) $ 178,200 66,667 $ 144,001 +7/11/2024 — — $ — — 33,250 (3) $ 71,820 33,250 $ 71,820 +_________________________ +(1) The stock option awards vest over four years, with 25% of the total number of shares subject to the option vesting on the first anniversary of the vesting commencement date and the remaining 75% vesting in equal quarterly installments +92 +Table of Conten ts +thereafter. In addition, the stock option will fully vest and become fully exercisable upon a Change in Control (as defined in the option agreement) of Getty Images subject to the understanding that the Business Combination did not constitute a change in control for purposes of the option agreement. +(2) One third of the stock option awards and RSUs vested on March 20, 2024, with the remaining vesting in substantially equal quarterly installments for the following two years. +(3) RSUs vest in four quarterly installments starting March 2026. +(4) Amounts are represented at a market value based upon the closing price of the Company’s Class A Common Stock on December 31, 2024, of $2.16 per share. +(5) The PSUs from the annual equity awards granted in fiscal years 2023 and 2024 for which the performance criteria have not been established as of December 31, 2024, have been treated as outstanding at target for purposes of this table but are not yet treated as granted under ASC Topic 718. +Potential Payments Upon Termination or Change in Control +Each of the Named Executive Officer’s employment agreements provides for severance payments and benefits upon certain terminations of employment with Getty Images and its affiliates, as described further below. Each Named Executive Officer’s rights with respect to his or her equity participation in Getty Images or its affiliates is governed by the applicable equity documents (as defined in the respective employment agreement) and the Named Executive Officer’s rights with respect to employee benefits will be governed by the documents governing such employee benefits. +As provided in the applicable employment agreement, upon the termination of a Named Executive Officer’s employment term and his or her employment by us for “cause” or due to his or her resignation without “good reason” (as each such term is defined in his or her respective employment agreement), the Named Executive Officer will be entitled to receive his or her base salary through the date of termination, any annual bonus earned, but unpaid, as of the termination date for the immediately preceding fiscal year, reimbursement for any unreimbursed business expenses that have been properly incurred by him or her prior to the termination date and that are or have been submitted in accordance with the applicable Getty Images policy, and such employees benefits (as defined in his or her employment agreement), if any, that the Named Executive Officer may be entitled under our employee benefit plans, which will not include payment for any unused vacation or paid time off, as applicable, unless required by applicable law (all of the amounts described in this sentence are referred to the “Accrued Rights”). +Upon the termination of a Named Executive Officer’s employment term and his or her employment due to the Named Executive Officer’s “death” or “disability” (as each such term is defined in his or her respective employment agreement), the Named Executive Officer will be entitled to receive the Accrued Rights and his or her estate will benefit from a term life insurance policy provided by Getty Images and intended to provide a payment of a death benefit equal to the “base severance” (as defined below). +In the event that a Named Executive Officer’s employment term and his or her employment is terminated by Getty Images without “cause” or by the Named Executive Officer for “good reason” (as each such term is defined in his or her respective employment agreement), the Named Executive Officer will be entitled to receive, in addition to the Accrued Rights, and subject to his or her execution and non-revocation of a release of claims in a form acceptable to Getty Images as provided in his or her employment agreement and continued compliance with the following restrictive covenants set forth in his or her employment agreement: +• payments totaling in the aggregate (i) the sum of (x) 150% (200% in the case of Mr. Peters) of the Named Executive Officer’s base salary and (y) 150% (200% in the case of Mr. Peters) of the Named Executive Officer’s target annual cash bonus opportunity in respect of the fiscal year that the termination date occurs or (ii) in the case of Mr. Peters, his base salary and target annual cash bonus opportunity for the period from the termination date through the last day of the employment term, if greater than such amount in (i), in each case, payable over a 18-month (24- month in the case of Mr. Peters) period (such amounts, the “Base Severance”); and +• continued coverage under our group health and welfare plans for a period until the later of 18 months (24 months in the case of Mr. Peters) following the termination date on the same basis (including payment of monthly premiums) as provided by us to senior-level executives (or, a monthly payment in an amount equal to our cost of providing such benefit if this benefit would trigger adverse tax consequences), which will be discontinued if the Named +93 +Table of Conten ts +Executive Officer becomes eligible for similar benefits from a successor employer (the “Continued Health Benefits”). +In the event that a Named Executive Officer elects not to extend the employment term of his or her employment agreement, unless terminated earlier, he or she will be entitled to receive the Accrued Rights. In the event we elect not to extend the employment term of a Named Executive Officer’s employment agreement, unless terminated earlier, he or she will be entitled to receive the Accrued Rights and, subject to the Named Executive Officer’s execution and non-revocation of a release of claims in a form acceptable to us as provided in the employment agreement, the Continued Health Benefits and equal payments totaling in the aggregate the base severance payable over an 18-month (24-month in the case of Mr. Peters) period. +Non-Employee Director Compensation +In 2024, five of our non-employee directors received compensation (cash retainers, equity awards, fees or other compensation) for service on our Board of Directors. Our Board of Directors expects to review director compensation periodically to ensure that director compensation remains competitive such that we are able to recruit and retain qualified directors. +On February 27, 2023, our Board of Directors adopted our Non-Employee Directors Annual Compensation Program designed to align compensation with business objectives and the creation of stockholder value, while enabling Getty Images to attract, retain, incentivize and reward directors who contribute to the long-term success of the Company. Pursuant to this policy, each member of our Board of Directors who is not our employee nor Mark Getty, Chinh Chu, Patrick Maxwell, Brett Watson, or Michael Harris, is eligible to receive the following compensation for his or her service as a member of our Board of Directors: +• Cash Fees . Commencing on July 22, 2022, an annual cash retainer of $40,000 per year. The chairs of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee receive cash retainers in the amount of $20,000, $15,000, and $10,000, respectively, for his or her respective committee service as a chair. Members of the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee receive cash retainers in the amount of $10,000, $7,500, and $5,000 respectively. All cash fees shall be pro-rated for the director’s time served on our Board of Directors; and +• Equity . Eligible directors will receive a grant of RSUs equal to the grant value of $390,000 at the time of grant, with a four-year vesting period, subject to the director’s continued service on our Board of Directors. For the initial grant, 25% of the RSUs vest on the first anniversary of the date of grant, and the remaining 75% vest in equal quarterly installments thereafter. Directors will receive a new grant every four years. Directors with existing stock options were not issued a new grant at the time of the approval of the program. +Our policy is to reimburse our non-employee directors for reasonable out of pocket expenses incurred that are integrally related to service as a member of our Board of Directors, including travel and lodging expenses related to attendance at meetings or performing other services in their capacities as directors. +The following table sets forth information regarding the compensation earned by or paid to the non-employee members of our Board of Directors during the year ended December 31, 2024. +94 +Table of Conten ts +2024 Director Compensation Table +Name +Total Fees +earned or +paid in cash +Stock +Awards +(1)(2) +All Other +Compensation +Total Amount +Chinh Chu $ — $ — $ — $ — +Mark Getty $ — $ — $ — $ — +Michael Harris $ — $ — $ — $ — +Jonathan Klein (3) +$ 22,665 $ — $ — $ 22,665 +Tracy Knox +$ 39,890 $ 390,000 $ — $ 429,890 +Patrick Maxwell $ — $ — $ — $ — +James Quella $ 50,000 $ — $ — $ 50,000 +Hilary Schneider $ 62,005 $ — $ — $ 62,005 +Jeffrey Titterton $ 40,000 $ — $ — $ 40,000 +Brett Watson $ — $ — $ — $ — +(1) Amounts represent the grant date fair value of the stock awards granted to our non-employee directors, as computed in accordance with FASB ASC Topic 718, excluding estimated forfeitures. See “Note 17  —  Equity-Based Compensation” in our consolidated financial statements for the assumptions used in computing the grant date fair value of such awards. +(2) The following table presents the number of outstanding and unexercised stock option awards and the number of outstanding RSUs held by each of the non-employee directors as of December 31, 2024. +(3) Jonathan Klein resigned from our Board of Directors on June 13, 2024. +Name +Number of Shares +Subject to Outstanding +Options +Number of RSUs +Tracy Knox +— 106,268 +James Quella +— 38,086 +Hilary Schneider +213,175 — +Jeffrey Titterton +— 38,086 +95 +Table of Conten ts +Securities Authorized for Issuance Under Equity Compensation Plans +The table below provides information about our shares of Class A common stock that may be issued upon the exercise of options and RSUs under all of our existing equity compensation plans as of December 31, 2024. +Plan Category Number of +securities to be +issued upon exercise +of outstanding +options, warrants +and rights +(a) +Weighted-average +exercise price of +outstanding options, +warrants and rights ($) +(b) +Number of +securities remaining +available for future +issuance under equity +compensation plans +(excluding securities +reflected in column (a)) +(c) +Equity compensation plans approved by security holders: +2022 Equity Incentive Plan 33,585,783 +(1) +$ 3.48 +(2) +6,243,088 +2022 Employee Share Purchase Plan — $ — 3,515,661 +2022 Earn Out Plan — $ — 20,856 +Equity compensation plans not approved by security holders (3) +N/A N/A N/A +Total +_________________________ +(1) Represents shares subject to outstanding awards granted, of which (i) 7,986,949 shares of Class A common stock are subject to outstanding RSUs and (ii) 25,598,834 shares of Class A common stock are subject to outstanding stock options. +(2) The weighted-average exercise price is calculated based solely on the exercise prices of the outstanding stock options and does not reflect the shares that will be issued upon the vesting of outstanding awards of restricted shares or RSUs, which have no exercise price. +(3) As of December 31, 2024, there were no equity compensation plans not approved by security holders under which equity securities of the Company were authorized for issuance. +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The following table sets forth, a s of March 1, 2025, the number of shares of our Class A common stock beneficially owned by each director, NEO, all directors and executive officers as a group, and each person or entity we know to be the beneficial owner of more than 5% of our Class A common stock. +In accordance with the rules of the SEC, beneficial ownership includes voting or investment power with respect to securities and includes the shares of Class A common stock issuable pursuant to options and warrants that are exercisable or settled within 60 days of the date of this table. Shares of Class A common stock issuable pursuant to options and warrants are deemed outstanding for computing the percentage of the class beneficially owned by the person holding such securities but are not deemed outstanding for computing the percentage of the class beneficially owned by any other person. Except as otherwise indicated, all share ownership is as of March 1, 2025 and the percentage of beneficial ownership is based on 412,270,402 sh ares of Class A common stock outstanding. Unless otherwise indicated, we be lieve that all persons named in the table below have sole voting and investment power with respect to all shares of Class A common stock beneficially owned by them. +96 +Table of Conten ts +The business address of each beneficial owner is c/o Getty Images Holdings, Inc., 605 5th Ave. S. Suite 400, Seattle, WA 98104, unless otherwise indicated below. +Name of Beneficial Owners +Number of +Shares of Class +A Common +Stock (#) +Percentage +Directors and Executive Officers +Mark Getty (1) +13,347,502 3.3 % +Tracy Knox +— *% +Patrick Maxwell — *% +Hilary Schneider (2) +262,724 *% +Craig Peters (3) +6,713,435 1.6 % +Brett Watson — *% +Chinh Chu (4) +15,469,230 3.8 % +Michael Harris — *% +James Quella (5) +82,846 *% +Jeffrey Titterton 42,846 *% +Gene Foca (6) +2,229,239 *% +Nate Gandert (7) +2,636,719 *% +All directors and executive officers as a group (21 total) 47,089,110 11.5 % +Five Percent Holders of the Company +The Getty Family Stockholders (8) +191,374,006 46.9 % +Koch Icon Investments, LLC (9) +80,733,607 19.8 % +NBOKS (10) +74,175,262 18.6 % +_________________________ +* Less than 1% +(1) Interests shown consist of (i) 7,794,004 shares of Class A common stock held by Mark Getty and (ii) (a) 5,089,413 shares of Class A common stock to be held by The October 1993 Trust and (b) 464,085 shares of Class A common stock held by The Options Settlement, which shares Mr. Getty may be deemed to beneficially own by virtue of his interests in such entities. This number does not include 178,026,504 shares of Class A common stock held by Getty Investments. Mr. Getty is one of three directors of Getty Investments (the other two directors being Pierre du Preez and Jan Moehl) and therefore he may be deemed to share voting and investment power over the shares held by Getty Investments. The shares of Class A common stock held by The October 1993 Trust are pledged to the Cheyne Walk Trust (see footnote 9 below) in respect of a guarantee it provides against certain credit facilities. +(2) Interests shown consist of 49,549 shares of Class A common stock and 213,175 shares of Class A common stock issuable upon exercise of vested options. +(3) Interests shown consist of 898,648 shares of Class A common stock, 174,925 shares of Class A common stock issuable upon vesting and settlement of PSUs and 5,639,862 shares of Class A common stock issuable upon exercise of vested options. +(4) According to a Form 4 filed by Mr. Chu on October 31, 2024, interests shown consist of (i) 5,762,560 shares of Class A common stock held by CC NB Sponsor 2 Holdings LLC and (ii) 9,706,670 shares of Class A common stock held by CC Capital SP, LP. CC NB Sponsor 2 Holdings LLC is a wholly owned subsidiary of CC Capital SP, LP. CC Capital SP, LP is controlled by Chinh Chu. As such, Mr. Chu is deemed to be the beneficial owner of the shares held by CC Capital SP, LP and the shares held by CC NB Sponsor 2 Holdings LLC. +(5) Interest shown consist of 82,846 shares of Class A Common Stock. +(6) Interest shown consists of 346,523 shares of Class A common stock, 46,646 shares of Class A common stock issuable upon vesting and settlement of PSUs and 1,836,070 shares of Class A common stock issuable upon exercise of vested options. +97 +Table of Conten ts +(7) Interest shown consists of 404,341 shares of Class A common stock, 46,646 shares of Class A common stock issuable upon vesting and settlement of PSUs and 2,185,732 shares of Class A common stock issuable upon exercise of vested options. +(8) Interests shown consist of (i) 178,026,504 shares of Class A common stock held by Getty Investments, (ii) 5,089,413 shares of Class A common stock held by The October 1993 Trust, (iii) 464,085 shares of Class A common stock held by The Options Settlement, and (iv) 7,794,004 shares of Class A common stock held by Mark Getty. The Cheyne Walk Trust is the sole owner of Cheyne Walk Master Fund 2 LP, which is the majority owner of Getty Investments, and the Cheyne Walk Trust may be deemed to have indirect beneficial ownership of Getty Investments’ 178,026,504 shares of Class A common stock. According to a Schedule 13D filed with the SEC on January 8, 2025, the business address of Getty Investments is 5390 Kietzke Lane, Suite 202, Reno, Nevada 89511. +(9) Interests shown consist of 80,733,607 shares of Class A common stock held by Koch Icon. According to a Schedule 13D filed with the SEC on January 8, 2025 Koch Icon Investments, LLC ("Koch Icon") is beneficially owned by Koch Equity Development LLC (“Koch Equity”), Koch Equity is beneficially owned by Koch Investments Group, LLC (“KIG”), KIG is beneficially owned by Koch Investments Group Holdings, LLC (“KIGH”), KIGH is beneficially owned by Koch Companies, LLC (“KCLLC”), and KCLLC is beneficially owned by Koch, Inc. The business address of Koch Icon, Koch Equity, KIG, KIGH, KCLLC and Koch Inc. is c/o Koch, Inc., 4111 East 37th Street North, Wichita, Kansas 67220. +(10) Held by Neuberger Berman Opportunistic Capital Solutions Master Fund LP (“NBOKS”). According to a Schedule 13D filed with the SEC on November 22, 2024, Neuberger Berman Investment Advisers LLC (“NBIA”) serves as investment adviser to NBOKS and, in such capacity, exercises voting or investment power over the shares held directly by NBOKS. Neuberger Berman Investment Advisers Holdings LLC (“NBIA Holdings”) is the holding company of NBIA and a subsidiary of Neuberger Berman Group LLC (“NB Group”). The business address of NBOKS, NB Group, NBIA Holdings and NBIA is 1290 Avenue of Americas, New York, New York 10104. +Securities Authorized for Issuance Under Equity Compensation Plans +See “ Item 11. Executive Compensation—Securities Authorized for Issuance Under Equity Compensation Plans ” for more information. +Item 13. Certain Relationships and Related Transactions, and Director Independence +Additional information regarding certain related party balances and transactions is included in “ Note 2 — Summary of Significant Accounting Policies ” to the consolidated financial statements included in this Annual Report. +Policies and Procedures for Related Person Transactions +Our Board of Directors has adopted a written related person transaction policy that sets forth the following policies and procedures for the review and approval or ratification of related person transactions. Under the policy: +• any related person transaction, and any material amendment or modification to a related person transaction, must be reviewed and approved or ratified by a committee of our Board of Directors composed solely of independent directors who are disinterested or by the disinterested members of our Board of Directors; and +• any employment relationship or transaction involving an executive officer and any related compensation must be approved by the Compensation Committee of our Board of Directors or recommended by the Compensation Committee to our Board of Directors for its approval. +In connection with the review and approval or ratification of a related person transaction: +• management must disclose to the committee or disinterested directors, as applicable, the name of the related person and the basis on which the person is a related person, the material terms of the related person transaction, including the approximate Dollar value of the amount involved in the transaction, and all the material facts as to the related person’s direct or indirect interest in, or relationship to, the related person transaction; +• management must advise the committee or disinterested directors, as applicable, as to whether the related person transaction complies with the terms of our agreements governing our material outstanding indebtedness that limit or restrict our ability to enter into a related person transaction; +• management must advise the committee or disinterested directors, as applicable, as to whether the related person transaction will be required to be disclosed in our applicable filings under the Exchange Act, and related rules, and, +98 +Table of Conten ts +to the extent required to be disclosed, management must ensure that the related person transaction is disclosed in accordance with such Act and related rules; and +• management must advise the committee or disinterested directors, as applicable, as to whether the related person transaction constitutes a “personal loan” for purposes of Section 402 of the Sarbanes-Oxley Act. +In addition, the related person transaction policy provides that the committee or disinterested directors, as applicable, in connection with any approval or ratification of a related person transaction involving a non-employee director or director nominee, should consider whether such transaction would compromise the director or director nominee’s status as an “independent” or “non-employee” director, as applicable, under the rules and regulations of the SEC and NYSE. +A “related person transaction” is a transaction, arrangement or relationship in which the Company or any of its subsidiaries was, is or will be a participant, the amount of which involved exceeds $120,000, and in which any related person had, has or will have a direct or indirect material interest. A “related person” means: +• any person who is, or at any time during the applicable period was, one of the Company’s executive officers or one of the Company’s directors; +• any person who is known to be the beneficial owner of more than 5% of the Company’s voting stock; +• any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of a director, executive officer or a beneficial owner of more than 5% of our Class A common stock, and any person (other than a tenant or employee) sharing the household of such director, executive officer or beneficial owner of more than 5% of our Class A common stock; and +• any firm, corporation or other entity in which any of the foregoing persons is a partner or principal or in a similar position or in which such person has a 10% or greater beneficial ownership interest. +Related Person Transactions +Below are transactions, arrangements and relationships that exceed or are reasonably expected to exceed $120,000 in a single fiscal year with our directors, executive officers and stockholders owning 5% or more of our outstanding Class A common stock, or any member of the immediate family of any of the foregoing persons, since January 1, 2023, other than equity and other compensation, termination, change in control and other arrangements, which are described under “Item 11 . Executive Compensation .” +Stockholders Agreement +Concurrently with the execution and delivery of the Business Combination Agreement, the Company, the Getty Family Stockholders, Koch Icon, the Sponsor, CC NB Sponsor 2 Holdings LLC, NBOKS and certain other parties thereto entered into the Stockholders Agreement, dated December 9, 2021, relating to, among other things, the composition of our Board of Directors following the Closing, certain voting provisions and lock-up restrictions. Pursuant to the Stockholders Agreement, (i) the Sponsor, Joel Alsfine, James Quella and Jonathan Gear (together with their respective successors and any permitted transferees) agreed to be subject to a twelve-month lock-up period in respect of their Founder Shares (subject to certain customary exceptions) and (ii) the Getty Family Stockholders (together with their respective successors and any permitted transferees) and Koch Icon (together with its respective successors and any permitted transferees) agreed to be subject to a 180-day lockup period in respect of their shares of Class A common stock received in the Business Combination (subject to certain customary exceptions). In accordance with the Stockholders Agreement, the composition of our Board of Directors currently is (a) three directors nominated by Getty Investments: Patrick Maxwell, Mark Getty and Tracy Knox; (b) two directors nominated by Koch Icon: Michael Harris and Brett Watson; (c) one director nominated by CC Capital: Chinh Chu; (d) the chief executive officer of the Company (which is Craig Peters) and (e) a number of independent directors sufficient to comply with the requisite independence requirements of the NYSE and the rules and regulations of the SEC. See “ Corporate Governance — Board Composition ” above for more information. +Registration Rights Agreement +Concurrently with the Closing, the Company, the Sponsor and the persons identified on Schedule A thereto, including the Getty Family Stockholders and Koch Icon, entered into the Registration Rights Agreement, which provides customary demand and piggyback registration rights. Pursuant to the Registration Rights Agreement, the Company agreed that, as soon as practicable, and in any event within 30 days after the Closing, the Company will file with the SEC a shelf registration statement. In addition, the Company will use its commercially reasonable best efforts to have such shelf registration statement declared effective as soon as practicable after the filing thereof, but no later than the 90th day (or the +99 +Table of Conten ts +120th day if the SEC notifies the Company that it will “review” such shelf registration statement) following the filing deadline, in each case subject to the terms and conditions set forth therein; and the Company will not be subject to any form of monetary penalty for its failure to do so. +Additionally, the Company, the Getty Family Stockholders, Koch Icon, and other parties to the Registration Rights Agreement, have agreed to amend and restate such agreement in connection with the closing of the transactions contemplated by the Shutterstock Merger Agreement (the “Amended and Restated Registration Rights Agreement”). Pursuant to the Amended and Restated Registration Rights Agreement, the parties will be entitled to certain piggyback registration rights and customary demand registration rights. In addition pursuant to the amendment and restatement, among other things, within 90 days following the closing of the transactions contemplated by the Shutterstock Merger Agreement, the Company will coordinate with the stockholders party to the Amended and Restated Registration Rights Agreement to complete an underwritten secondary offering of a certain number of shares of Class A common stock beneficially owned by such stockholders. +Restated Option Agreement +Getty Investments is a party to a Restated Option Agreement, dated February 9, 1998 (as amended on February 9, 1998, February 24, 2008, and August 14, 2012, the “Restated Option Agreement”) pursuant to which Getty Investments has the right to obtain ownership of the Getty Marks (as defined in the Restated Option Agreement) in the event one or more third parties acquire a controlling interest in Getty Images, Inc. In connection with the entry into the Business Combination Agreement, Getty Investments entered into the Fourth Amendment to the Restated Option Agreement, which provides that the Restated Option Agreement will automatically terminate if, and on the date following the Closing Date on which, the Getty Family Stockholders (together with their respective successors and any permitted transferees) beneficially own less than 27,500,000 shares of Class A common stock (as adjusted for stock splits, stock combinations, and similar transactions). +Significant Stockholder Agreement +Concurrently with the execution of the Shutterstock Merger Agreement, the Getty Family Stockholders, Koch Icon and Mr. Jonathan Oringer, the Executive Chairman of Shutterstock (each, a “Significant Stockholder”) entered into the Significant Stockholder Agreement. Pursuant to the Significant Stockholder Agreement, the Getty Family Stockholders, Koch Icon and Mr. Oringer have agreed to certain restrictions on transfers of their shares of Class A common stock following the closing of business combination between the Company and Shutterstock, including (a) any transfers during the 90 days following the closing or (b) thereafter, to any direct competitor of Getty Images or any activist shareholder, in each case, subject to certain limited exceptions including in sales through open market transactions. These restrictions terminate based on certain thresholds of the Significant Stockholders’ beneficial ownership. +Pursuant to the Significant Stockholder Agreement, the Getty Family Stockholders and Koch Icon are entitled to certain rights to designate directors to our Board of Directors, subject to ownership thresholds. Based on expected ownership of the Getty Family Stockholders and Koch Icon immediately following the closing, the Getty Family Stockholders are expected to be entitled to designate two directors to our Board of Directors and the Koch Icon is expected to be entitled to designate one director to our Board of Directors. For so long as the Getty Family Stockholders are entitled to designate two directors to our Board of Directors, the Getty Family Stockholders will be entitled to designate the Chairman of our Board of Directors. For so long as the Getty Family Stockholders and Koch Icon are entitled to designate at least one director to our Board of Directors, each of Getty Family Stockholders and Koch Icon, as applicable, shall be entitled to appoint an observer to our Board of Directors. +Please see the Significant Stockholder Agreement, which is attached as exhibit 10.20 to this Annual Report on Form 10-K for more information +Letter Agreements +Also concurrently with the execution of the Shutterstock Merger Agreement, the Getty Family Stockholders and Koch Icon have each entered into a letter agreement with the Company, in each case dated as of January 6, 2025, wherein (a) the Getty Family Stockholders and Koch Icon have agreed to certain restrictions on transfers of their shares of Class A common stock and associated voting rights until the earlier of (i) termination of the Shutterstock Merger Agreement in accordance with its terms or (ii) the closing of the transaction, (b) each of the Getty Family Stockholders and Koch Icon have agreed to cooperate with the Company in connection with (A) termination of the existing Stockholders Agreement, to be effective as of closing of the transaction and (B) seeking regulatory approvals required in connection with the +100 +Table of Conten ts +transaction, and (c) the Company has agreed to provide reimbursement to the Getty Family Stockholders and Koch Icon for certain expenses incurred in connection with the transaction, in each case up to a cap of $400,000 (such cap, however, does not apply to expenses incurred in connection with litigation or regulatory approvals). CC NB Sponsor 2 Holdings LLC, CC Capital and NBOKS have also each entered into a Letter Agreement with the Company, in each case dated as of January 6, 2025, which contain similar provisions with respect to reimbursement for certain of their expenses incurred in connection with the transaction and their cooperation in connection with termination of the existing Shareholders Agreement, to be effective as of the closing. +Please see the Letter Agreements, which are attached as exhibits 10.21 and 10.22 to this Annual Report on Form 10-K for more information +Indemnification Agreements +We currently indemnify our directors and executive officers to the fullest extent permitted by law. Further, we have entered into customary indemnification agreements with our directors and executive officers. These agreements require us to indemnify these individuals to the fullest extent permitted by applicable law against liabilities that may arise by reason of their service to the Company, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified. +There is currently no pending material litigation or proceeding involving any of the Company’s directors, officers or employees for which indemnification is sought. +Employment Agreements +See “Item 11. Executive Compensation” for information regarding compensation arrangements with our named executive officers and directors, which include, among other things, employment, termination of employment and change in control arrangements, stock awards and certain other benefits. +Stephanie Liverani, the spouse of Mikael Cho, Senior Vice President – CEO, Unsplash, is employed by a subsidiary of Getty Images and serves as Vice President & Co-Founder, Unsplash. In 2024 and 2023, she was paid approximately $265,000 and $220,000 in base salary and $234,000 and $78,000 in cash bonus, respectively. Additionally, Christopher Liverani, the brother-in-law of Mikael Cho, Senior Vice President – CEO, Unsplash, is employed by a subsidiary of Getty Images and serves as Brand Partnerships Executive. In 2024 and 2023, he was paid approximately $206,000 and $110,000 in base salary and $323,000 and $970,000 in commissions, respectively. Each individual participated in other regular and customary employee benefit programs generally available to all Getty Images employees. In addition, the amount of compensation was determined in accordance with the Company’s standard compensation practices applicable to similarly situated employees. +Director Independence +For information on director independence, see “ Item 10. Directors, Executive Officers and Corporate Governance .” +101 +Table of Conten ts +Item 14. Principal Accountant Fees and Services +The following is a summary of the fees billed to us by Ernst & Young LLP for professional services rendered for fiscal years ended December 31, 2024 and December 31, 2023: +Fee Category (in thousands) 2024 2023 +Audit Fees $ 3,032 $ 2,215 +Tax Fees (1) +552 581 +All Other Fees 4 4 +Total Fees $ 3,588 $ 2,800 +(1) The previously presented tax fees for the year ended December 31, 2023 were revised to reflect the actual fees associated with the services rendered by our external auditor. +Audit Fees +Audit fees consist of fees billed for professional services rendered for the annual audit of our consolidated financial statements presented within the Annual Report on Form 10-K for the year ended December 31, 2024, the review of the interim consolidated financial statements presented in our quarterly reports on Form 10-Q, our registration statement on Form S-3, and other regulatory filings. +Tax Fees +Tax fees include fees billed by Ernst & Young LLP related to tax compliance and consulting services. +All Other Fees +All other fees consisted of fees related to an accounting research software product. +The Audit Committee determined that Ernst & Young LLP’s provision of these services, and the fees that we paid for these services, are compatible with maintaining the independence of the independent registered public accounting firm. The Audit Committee approved all services that Ernst & Young LLP provided in the fiscal years ended December 31, 2024 and 2023. +102 +Table of Conten ts +PART IV +Item 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES +(a) The following documents are filed as part of this annual report. +1 Financial Statements +Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) +F- 1 +Consolidated Balance Sheets +F- 2 +Consolidated Statements of Operations +F- 3 +Consolidated Statements of Comprehensive Income (Loss) +F- 4 +Consolidated Statements of Redeemable Preferred Stock and Stockholders’ Equity +F- 5 +Consolidated Statements of Cash Flows +F- 6 +Notes to Consolidated Financial Statements +F- 7 +2 Financial Statement Schedules +All schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. +3 Exhibits +Exhibit Number Description +2.1† +Business Combination Agreement by and among CC Neuberger Principal H oldings II, Griffey Global Holdings, Inc. and the other parties thereto, dated as of December 9, 2021 (incorporated by reference to Exhibit 2.1 of Vector Holding, LLC’s Registration Statement on Form S-4, filed with the SEC on June 29, 2022) +2.2† +Agreement and Plan of Merger, dated as of January 6, 2025, by and among Getty Images, Merger Sub 2, Merger Sub 3, Shutterstock, HoldCo and Merger Sub 1 (incorporated by reference to Exhibit 2.1 of the Company’s Form 8-K filed with the SEC on January 7, 2025) +3.1 +Amended and Restated Certificate of Incorporation of Getty Images Holdings, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K, filed with the SEC on June 18, 2024) +3.2 +Amended and Restated By-Laws of Getty Images Holdings, Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Form 8-K, filed with the SEC on Ju ne 18 , 202 4 ) +4.1 +Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of Vector Holding, LLC’s Registration Statement on Form S-4, filed with the SEC on June 29, 2022) +4.2 +Indenture, dated February 19, 2019, between Getty Images, Inc. and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.2 of the Company's Form 10-K, filed with the SEC on March 14, 2023) +4.3 +First Supplemental Indenture, dated February 19, 2019, between Getty Images, Inc. and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.3 of the Company's Form 10-K, filed with the SEC on March 14, 2023) +4.4 +Second Supplemental Indenture, dated March 29, 2023, between Getty Images, Inc., Getty Images Holdings, Inc. and Wilmington Trust, National Association ( i ncorporated by reference to Exhibit 4.4 of the Company’s Annual Report on Form 10-K, filled with SEC on March 15, 2024 ) +4.5 +Description of Registrant’s securities (incorporated by reference to Exhibit 4.4 of the Company’s Form 10-K on March 14, 2023) +103 +Table of Conten ts +10.1 +Registration Rights Agreement, by and among Getty Images Holdings, Inc., CC Neuberger Principal Holdings II, the Independent Directors (as defined therein), Getty Investments L.L.C., Koch Icon Investments, LLC and certain equity holders of Getty Images, dated July 22, 2022 (incorporated by reference to Exhibit 10.8 of the Company’s Current Report on Form 8-K, filed with the SEC on July 28, 2022) +10.2^ +Form of Indemnification Agreement (incorporated by reference to Exhibit 10.9 of the Company’s Current Report on Form 8-K, filed with the SEC on July 28, 2022) +10.3 +Stockholders Agreement, by and among Vector Holdings, LLC and each of the persons listed on Schedule A thereto, dated as of December 9, 2021 (incorporated by reference to Exhibit 10.7 of Vector Holding, LLC’s Registration Statement on Form S-4, filed with the SEC on June 29, 2022) +10.4 +Incremental Commitment Amendment and Second Amendment to Credit Agreement, dated as of May 4, 2023, by and among Abe Investment Holdings, Inc., Getty Images, Inc., J.P. Morgan Chase Bank N.A., as administrative agent, as an L/C Issuer (as defined therein) and as Swing Line Lender (as defined therein), the lenders party thereto and the other loan parties party thereto (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed with the SEC on May 10, 2023) +10.5 +Second Incremental Commitment Amendment and Third Amendment to Credit Agreement, dated as of February 21, 2024, by and among Abe Investment Holdings, Inc., Getty Images, Inc., J.P. Morgan Chase Bank N.A., as administrative agent, as L/C Issuer and as swing line lender, the lenders party thereto and the other loan parties party thereto (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed with the SEC on February 21, 2025) +10.6^ +Getty Images Holdings, Inc. Earn Out Plan dated as of July 21, 2022 (incorporated by reference to Exhibit 10.1 1 of the Company’s Current Report on Form 8-K, filed with the SEC on July 28, 2022) +10.7^ +Getty Images Holdings, Inc. 2022 Employee Stock Purchase Plan dated as of July 21, 2022 (incorporated by reference to Exhibit 10.1 2 of the Company’s Current Report on Form 8-K, filed with the SEC on July 28, 2022) +10.8^ +Getty Images Holdings, Inc. 2022 Equity Incentive Plan dated as of July 21, 2022 (incorporated by reference to Exhibit 10.1 3 of the Company’s Current Report on Form 8-K, filed with the SEC on July 28, 2022) +10.9^ +Form of Award Agreement Awarding Restricted Stock Units under the Getty Images Holdings, Inc. 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10. 8 of the Company’s Annual Report on Form 10-K, filed with the SEC on March 15, 2024) +10.10^ +Form of Award Agreement Awarding Performance Restricted Stock Units under the Getty Images Holdings, Inc. 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10. 9 of the Company’s Annual Report on Form 10-K, filed with the SEC on March 15, 2024) +10.11^ +Form of Award Agreement Awarding Stock Options under the Getty Images Holdings, Inc. 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 0 of the Company ’ s Form 10-K, filed with the SEC on March 14, 2023) +10.12^ +Form of Award Agreement Awarding Restricted Stock Units under the Getty Images Holdings, Inc. 2022 Earn Out Plan (incorporated by reference to Exhibit 10.11 of the Company’s Form 10-K, filed with the SEC on March 15, 2024) +10.13*^ +Employment Agreement with Craig Peters dated July 1, 2015, as amended on January 27, 2017, November 3, 2017, January 1, 2019, April 1, 2020, October 1, 2020 January 1, 2024 and January 1, 2025 +10.14^ +Employment Agreement with Nathaniel Gandert, dated June 1, 2016, as amended on April 1, 2020 and October 1, 2020 (incorporated by reference to Exhibit 10.1 4 to Vector Holding, LLC’s Registration Statement on Form S-4, filed with the SEC on January 18, 2022) +10.15^ +Employment Agreement with Gene Foca, dated January 3, 2017, as amended on April 1, 2020, October 1, 2020, and May 1, 2023. (incorporated by reference to Exhibit 10.1 4 of the Company’s Annual Report on Form 10-K, filed with the SEC on March 15, 2024) +10.16 +Restated Option Agreement, by and among Griffey Investors, L.P., Getty Images, Inc., Getty Investments, L.L.C. and certain other parties, dated February 9, 1998, as amended on February 9, 1998, February 24, 2008, August 14, 2012, and December 9, 2021 (incorporated by reference to Exhibit 10.1 5 of Vector Holding, LLC’s Registration Statement on Form S-4, filed with the SEC on June 29, 2022) +104 +Table of Conten ts +10.17 +Side Letter to the Forward Purchase Agreement and Backstop Agreement by and between CC Neuberger Principal Holdings II, and Neuberger Berman Opportunistic Capital Solutions Master Fund L.P., dated as of December 9, 2021 (incorporated by reference to Exhibit 10.2 of Vector Holding, LLC’s Registration Statement on Form S-4, filed with the SEC on June 29, 2022) +10.18 +Sponsor Side Letter by and among CC Neuberger Principal Holdings II Sponsor, LLC, Joel Alsfine, James Quella, Jonathan Gear, CC NB Sponsor 2 Holdings LLC, Neuberger Berman Opportunistic Capital Solutions Master Fund LP, CC Neuberger Principal Holdings II, Vector Holding, LLC and Griffey Global Holdings, Inc., dated as of December 9, 2021 (incorporated by reference to Exhibit 10.3 of Vector Holding, LLC’s Registration Statement on Form S-4, filed with the SEC on June 29, 2022) +10.19 +Voting and Support Agreement, dated as of January 6, 2025, by and between Getty Images and Jonathan Oringer (incorporated by reference to Exhibit 10.1 of the Company ’ s Form 8-K, filed with the SEC on January 7, 2025) +10.20 +Significant Stockholder Agreement, dated as of January 6, 2025, by and among Getty Images, the Getty Family Stockholders, the Koch Stockholder and Jonathan Oringer (incorporated by reference to Exhibit 10.2 of the Company's Form 8-K, filed with the SEC on January 7, 2025 +10.21 +Letter Agreement, dated as of January 6, 2025, by and among Getty Images and the Getty Family Stockholders (incorporated by reference to Exhibit 10.3 of the Company ’ s Form 8-K, filed with the SEC on January 7, 2025) +10.22 +Letter Agreement, dated as of January 6, 2025, by and between Getty Images and the Koch Stockholder (incorporated by reference to Exhibit 10.4 of the Company ’ s Form 8-K, filed with the SEC on January 7, 2025) +19.1* +Getty Images Holdings, Inc. Insider Trading Policies +21.1* +Subsidiaries of Registrant +23.1* +Consent of Independent Registered Public Accounting Firm +31.1* +Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +31.2* +Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +32.1** +Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +32.2** +Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +97^ +Getty Images Holdings, Inc. Incentive-Based Compensation Recovery Policy (incorporated by reference from the Company’s Form 10-K, filed with the SEC on March 15, 2024) +101 Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive (Loss) Income, (iv) Consolidated Statement of Redeemable Preferred Stock and Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document +104 Cover Page Interactive Data File. Formatted in Inline XBRL and contained in exhibit 101. +† Certain of the exhibits and schedules to this exhibit have been omitted in accordance with Regulation S-K Item 601(b)(2). The Company agrees to furnish supplementally a copy of all omitted exhibits and schedules to the SEC upon its request. +* Filed Herewith +** Furnished Herewith +^ Indicates management contract or compensatory plan or arrangement +ITEM 16. FORM 10-K SUMMARY +Not applicable. +105 +Table of Conten ts +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +Date: March 17, 2025 +GETTY IMAGES HOLDINGS, INC. +(REGISTRANT) +By: /s/ Craig Peters +Name: Craig Peters +Title: Chief Executive Officer and Director +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +/s/ Craig Peters /s/ Jennifer Leyden +Name: Craig Peters Name: Jennifer Leyden +Title: Chief Executive Officer and Director Title: Chief Financial Officer +(Principal Executive Officer) (Principal Financial Officer) +Date: +March 17, 2025 +Date: +March 17, 2025 +/s/ Chris Hoel +Name: Chris Hoel +Title: Chief Accounting Officer +(Principal Accounting Officer) +Date: +March 17, 2025 +/s/ Mark Getty /s/ Chinh Chu +Name: Mark Getty Name: Chinh Chu +Title: Director Title: Director +Date: +March 17, 2025 +Date: +March 17, 2025 +/s/ Michael Harris /s/ Tracy Knox +Name: Michael Harris Name: Tracy Knox +Title: Director Title: Director +Date: +March 17, 2025 +Date: +March 17, 2025 +/s/ Patrick Maxwell /s/ James Quella +Name: Patrick Maxwell Name: James Quella +Title: Director Title: Director +Date: +March 17, 2025 +Date: +March 17, 2025 +/s/ Hilary Schneider /s/ Jeffrey Titterton +Name: Hilary Schneider Name: Jeffrey Titterton +Title: Director Title: Director +Date: +March 17, 2025 +Date: +March 17, 2025 +/s/ Brett Watson +Name: Brett Watson +Title: Director +Date: +March 17, 2025 +106 +Table of Conten ts +Report of Independent Registered Public Accounting Firm +To the Stockholders and the Board of Directors of Getty Images Holdings, Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheets of Getty Images Holdings, Inc. (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income (loss), redeemable preferred stock and stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles. +Basis for Opinion +These financial statements are the responsibility of the Company ’ s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company ’ s internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ Ernst & Young LLP +We have served as the Company’s auditor since 2013. +Seattle, Washington +March 17, 2025 +F-1 +Table of Conten ts +GETTY IMAGES HOLDINGS, INC. +CONSOLIDATED BALANCE SHEETS +(In thousands, except share and par value data) +December 31, +2024 2023 +ASSETS +Current assets: +Cash and cash equivalents $ 121,173 $ 136,623 +Restricted cash 4,131 4,227 +Accounts receivable – net of allowance of $ 6,164 and $ 6,527 , respectively +151,130 138,730 +Prepaid expenses 16,327 15,798 +Insurance recovery receivable 45,000 48,615 +Taxes receivable 9,577 9,758 +Other current assets 11,477 11,253 +Total current assets 358,815 365,004 +Property and equipment, net 177,292 179,378 +Operating lease right of use assets 32,453 41,098 +Goodwill 1,510,477 1,501,814 +Intangible assets, net of accumulated amortization 389,906 403,805 +Deferred income taxes, net 63,965 69,400 +Other assets 30,800 41,262 +Total assets $ 2,563,708 $ 2,601,761 +LIABILITIES AND STOCKHOLDERS’ EQUITY +Current liabilities: +Accounts payable $ 99,320 $ 102,525 +Accrued expenses 59,938 43,653 +Income taxes payable 10,913 11,325 +Litigation reserves 110,994 98,149 +Deferred revenue 172,090 176,349 +Total current liabilities 453,255 432,001 +Long-term debt, net 1,314,424 1,398,658 +Lease liabilities 29,034 39,858 +Deferred income taxes, net 24,357 21,580 +Uncertain tax positions 22,329 24,772 +Other long-term liabilities 1,969 3,462 +Total liabilities 1,845,368 1,920,331 +Commitments & contingencies (Note 13) +Stockholders’ equity: +Redeemable Preferred Stock, $ 0.0001 par value, 1.0 million shares authorized, no shares were issued or outstanding at December 31, 2024 and December 31, 2023 +— — +Class A common stock, $ 0.0001 par value: 2.0 billion shares authorized; 412.3 million shares issued and outstanding as of December 31, 2024 and 405.0 million shares issued and outstanding as of December 31, 2023 +41 40 +Class B common stock, $ 0.0001 par value: 5.1 million shares authorized; no shares issued and no shares outstanding as of December 31, 2024 and December 31, 2023 +— — +Additional paid-in capital 2,017,407 1,983,276 +Accumulated deficit ( 1,223,482 ) ( 1,263,015 ) +Accumulated other comprehensive loss ( 123,770 ) ( 87,076 ) +Total Getty Images Holdings, Inc. stockholders’ equity 670,196 633,225 +Non-controlling interest 48,144 48,205 +Total stockholders’ equity 718,340 681,430 +Total liabilities and stockholders’ equity $ 2,563,708 $ 2,601,761 +See notes to consolidated financial statements. +F-2 +Table of Conten ts +GETTY IMAGES HOLDINGS, INC. +CONSOLIDATED STATEMENTS OF OPERATIONS +(In thousands, except share and per share amounts) +Year Ended +December 31, +2024 2023 2022 +Revenue $ 939,287 $ 916,555 $ 926,244 +Operating expenses: +Cost of revenue (exclusive of depreciation and amortization) 253,068 250,249 254,990 +Selling, general and administrative expenses 407,796 402,516 375,582 +Depreciation 58,987 54,374 49,574 +Amortization 2,306 24,069 43,645 +Loss on litigation 20,491 116,051 1,101 +Recovery of loss on litigation — ( 60,000 ) — +Other operating expenses (income) – net 15,834 1,624 ( 681 ) +Total operating expenses 758,482 788,883 724,211 +Income from operations 180,805 127,672 202,033 +Other (expense) income, net: +Interest expense ( 131,408 ) ( 126,884 ) ( 117,229 ) +(Loss) gain on fair value adjustment for swaps – net ( 1,459 ) ( 7,573 ) 23,508 +Foreign exchange gain (loss) – net 36,071 ( 23,772 ) 24,643 +Loss on extinguishment of debt — — ( 2,693 ) +Net loss on fair value adjustment for warrant liabilities — — ( 160,728 ) +Other non-operating income (expense) – net 2,946 3,652 ( 3,051 ) +Total other expense – net ( 93,850 ) ( 154,577 ) ( 235,550 ) +Income (loss) before income taxes 86,955 ( 26,905 ) ( 33,517 ) +Income tax (expense) benefit ( 47,483 ) 46,482 ( 44,126 ) +Net income (loss) 39,472 19,577 ( 77,643 ) +Less: +Net income (loss) attributable to non-controlling interest ( 61 ) 238 ( 89 ) +Premium on early redemption of Redeemable Preferred Stock — — 26,678 +Redeemable Preferred Stock dividend — — 43,218 +Net income (loss) attributable to Getty Images Holdings, Inc. $ 39,533 $ 19,339 $ ( 147,450 ) +Net income (loss) share attributable to Class A Getty Images Holdings, Inc. common stockholders: +Basic $ 0.10 $ 0.05 ( 0.53 ) +Diluted $ 0.10 $ 0.05 ( 0.53 ) +Weighted-average Class A common shares outstanding: +Basic 409,144,863 399,037,805 276,942,660 +Diluted 414,870,801 411,495,025 276,942,660 +See notes to consolidated financial statements. +F-3 +Table of Conten ts +GETTY IMAGES HOLDINGS, INC. +CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) +(In thousands) +Year Ended +December 31, +2024 2023 2022 +Net income (loss) $ 39,472 $ 19,577 ( 77,643 ) +Other comprehensive (loss) income: +Net foreign currency translation adjustment (losses) gains ( 36,694 ) 21,852 ( 30,525 ) +Comprehensive income (loss) 2,778 41,429 ( 108,168 ) +Less: Comprehensive (loss) gain attributable to noncontrolling interest ( 61 ) 238 ( 89 ) +Comprehensive income (loss) attributable to Getty Images Holdings, Inc. $ 2,839 $ 41,191 $ ( 108,079 ) +See notes to consolidated financial statements. +F-4 +Table of Conten ts +GETTY IMAGES HOLDINGS, INC. +CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY +(In thousands, except share amounts) +Redeemable +Preferred Stock Class A +Common Stock Class B +Common Stock Additional +Paid-In +Capital Accumulated +Deficit Accumulated +Other +Comprehensive +Loss Total +Getty Images +Holdings, Inc. +Stockholders’ +Equity Noncontrolling +Interest Total +Stockholders’ +Equity +Shares Amount Shares Amount Shares Amount +BALANCE — December 31, 2021 677,484 $ 685,350 153,313,505 $ 1,533 — $ — $ 933,569 $ ( 1,203,440 ) $ ( 78,403 ) $ ( 346,741 ) $ 48,056 $ ( 298,685 ) +Retroactive application of recapitalization — $ — 42,781,797 $ ( 1,513 ) — $ — $ 1,513 $ — $ — $ — $ — $ — +BALANCE — December 31, 2021, after effect of recapitalization 677,484 $ 685,350 196,095,302 $ 20 — $ — $ 935,082 $ ( 1,203,440 ) $ ( 78,403 ) $ ( 346,741 ) $ 48,056 $ ( 298,685 ) +Net loss — — — — — — — ( 77,554 ) — ( 77,554 ) ( 89 ) ( 77,643 ) +Net foreign currency translation adjustment (losses) gains in comprehensive income — — — — — — — — ( 30,525 ) ( 30,525 ) ( 30,525 ) +Cumulative effect of accounting change- adoption of ASU 2019-12 (Note 2) — — — — — — — ( 1,360 ) — ( 1,360 ) — ( 1,360 ) +Issuance of common stock in connection with equity-based compensation arrangements — — 1,581,275 — — — 194 — — 194 — 194 +Common shares withheld for settlement of taxes in connection with equity-based compensation — — ( 679,914 ) — — — ( 6,267 ) — — ( 6,267 ) — ( 6,267 ) +Equity-based compensation activity — — — — — — 9,547 — — 9,547 — 9,547 +Redeemable Preferred Stock dividend 38,109 43,218 — — — — ( 43,218 ) — — ( 43,218 ) — ( 43,218 ) +Premium on early redemption of Redeemable Preferred Stock — 26,678 — — — — ( 26,678 ) — — ( 26,678 ) — ( 26,678 ) +Redemption of Redeemable Preferred Stock for cash and share consideration ( 715,593 ) ( 755,246 ) 15,000,000 2 — — 140,248 — — 140,250 — 140,250 +Issuance of Class A and Class B common stock upon Business Combination and PIPE Investment, net of tax impact and issuance costs — — 107,068,311 10 5,140,000 1 694,449 — — 694,460 — 694,460 +Issuance of Class A common stock upon exercise of Private Placement Warrants — — 11,555,996 1 — — 232,852 — — 232,853 — 232,853 +Issuance of Class A common stock upon exercise of Public Warrants — — 10,328 — — — 121 — — 121 — 121 +Issuance of Class A common stock upon vesting of Earn-out shares — — 58,999,956 6 — — ( 6 ) — — — — — +Conversion of Class B common stock to Class A common Stock — — 5,140,000 — ( 5,140,000 ) ( 1 ) — — — ( 1 ) — ( 1 ) +BALANCE — December 31, 2022 — — 394,771,254 39 — — 1,936,324 ( 1,282,354 ) ( 108,928 ) 545,081 47,967 593,048 +Net income — — — — — — — 19,339 — 19,339 238 19,577 +Net foreign currency translation adjustment (losses) gains in comprehensive income — — — — — — — — 21,852 21,852 — 21,852 +Issuance of common stock in connection with equity-based compensation arrangements — — 12,035,420 1 — — 15,049 — — 15,050 — 15,050 +Common shares withheld for settlement of taxes in connection with equity-based compensation — — ( 1,835,887 ) — — — ( 8,713 ) — — ( 8,713 ) — ( 8,713 ) +Equity-based compensation activity — — — — — — 40,616 — 40,616 — 40,616 +BALANCE — December 31, 2023 — $ — 404,970,787 $ 40 — $ — $ 1,983,276 $ ( 1,263,015 ) $ ( 87,076 ) $ 633,225 $ 48,205 $ 681,430 +Net income (loss) — — — — — — — 39,533 — 39,533 ( 61 ) 39,472 +Issuance of shares in connection with acquisition — — 1,189,061 — — — 4,875 — — 4,875 — 4,875 +Net foreign currency translation adjustment (losses) gains in comprehensive income — — — — — — — — ( 36,694 ) ( 36,694 ) — ( 36,694 ) +Issuance of common stock in connection with equity-based compensation arrangements — — 6,726,667 1 — — 7,878 — — 7,879 — 7,879 +Common shares withheld for settlement of taxes in connection with equity-based compensation — — ( 616,113 ) — — — ( 2,655 ) — — ( 2,655 ) — ( 2,655 ) +Equity-based compensation activity — — — — — — 24,033 — 24,033 — 24,033 +BALANCE — December 31, 2024 — $ — 412,270,402 $ 41 — $ — $ 2,017,407 $ ( 1,223,482 ) $ ( 123,770 ) $ 670,196 $ 48,144 $ 718,340 +See notes to consolidated financial statements. +F-5 +Table of Conten ts +GETTY IMAGES HOLDINGS, INC. +CONSOLIDATED STATEMENTS OF CASH FLOWS +(In thousands) +Year Ended +December 31, +2024 2023 2022 +CASH FLOWS FROM OPERATING ACTIVITIES: +Net income (loss) $ 39,472 $ 19,577 $ ( 77,643 ) +Adjustments to reconcile net income (loss) to net cash provided by operating activities: +Depreciation 58,987 54,374 49,574 +Amortization 2,306 24,069 43,645 +Foreign currency (losses) gain on foreign denominated debt ( 28,411 ) 16,579 ( 26,636 ) +Equity-based compensation 21,848 37,652 9,292 +Non-cash fair value adjustment for common stock warrants — — 160,728 +Deferred income taxes – net 4,094 ( 76,624 ) 15,801 +Uncertain tax positions ( 2,321 ) ( 12,561 ) ( 5,368 ) +Impairment of equity method investment 7,459 — — +Non-cash fair value adjustment for swaps and foreign currency exchange contracts 1,459 7,573 ( 22,005 ) +Amortization of debt issuance costs 2,518 3,965 6,096 +Non cash operating lease costs 11,469 12,173 9,760 +Impairment of right of use assets — — 2,563 +Loss on extinguishment of debt — — 2,693 +Transaction costs allocated to common stock warrants — — 4,262 +Non-cash fair value adjustment of contingent consideration — — ( 4,039 ) +Other 5,661 4,458 3,428 +Changes in assets and liabilities: +Accounts receivable ( 18,408 ) ( 11,704 ) 6,016 +Accounts payable ( 4,759 ) 9,799 6,001 +Accrued expenses 14,426 ( 6,808 ) ( 14,231 ) +Insurance recovery receivable 3,615 ( 48,615 ) — +Litigation reserves 12,845 98,149 — +Lease liabilities, non-current ( 12,423 ) ( 13,187 ) ( 11,408 ) +Income taxes receivable/payable ( 1,388 ) 8,027 ( 188 ) +Deferred revenue 492 4,532 9,140 +Other ( 621 ) 1,288 ( 4,364 ) +Net cash provided by operating activities 118,320 132,716 163,117 +CASH FLOWS FROM INVESTING ACTIVITIES: +Acquisition of property and equipment ( 57,450 ) ( 56,999 ) ( 59,291 ) +Purchase of a minority investment — — ( 2,000 ) +Acquisition of a business, net of cash acquired ( 15,038 ) — — +Net cash used in investing activities ( 72,488 ) ( 56,999 ) ( 61,291 ) +CASH FLOWS FROM FINANCING ACTIVITIES: +Prepayment of debt ( 57,800 ) ( 50,400 ) ( 310,400 ) +Payment of contingent consideration — — ( 10,000 ) +Payment of Redeemable Preferred Stock — — ( 614,996 ) +Cash contributions from business combination — — 864,164 +Debt issuance costs ( 3,641 ) ( 1,137 ) — +Proceeds from common stock issuance 7,878 15,050 — +Cash paid for settlement of employee taxes related to exercise of equity-based awards ( 2,655 ) ( 8,713 ) ( 6,267 ) +Cash paid for equity issuance costs — ( 150 ) ( 106,917 ) +Proceeds from option and warrant exercises — — 313 +Redemption of warrants for cash — — ( 244 ) +Net cash used in financing activities ( 56,218 ) ( 45,350 ) ( 184,347 ) +Effects of exchange rates fluctuations ( 5,160 ) 8,089 ( 6,614 ) +NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH ( 15,546 ) 38,456 ( 89,135 ) +CASH, CASH EQUIVALENTS AND RESTRICTED CASH - Beginning of period 140,850 102,394 191,529 +CASH, CASH EQUIVALENTS AND RESTRICTED CASH - End of period $ 125,304 $ 140,850 $ 102,394 +SUPPLEMENTAL DISCLOSURES: +Interest paid $ 128,804 $ 122,826 $ 110,909 +Income taxes paid, including foreign taxes withheld $ 41,400 $ 31,700 $ 30,800 +See notes to consolidated financial statements. +F-6 +Table of Conten ts +GETTY IMAGES HOLDINGS, INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +1. DESCRIPTION OF THE BUSINESS +Getty Images Holdings, Inc. (the “Company” or “Getty Images”) is a preeminent global visual content creator and marketplace that offers a full range of content solutions to meet the needs of customers around the globe, no matter their size. Through Getty Images, iStock, and Unsplash brands, websites and APIs, the Company serves customers in almost every country in the world and is one of the first places people turn to discover, purchase and share powerful visual content from the world’s best photographers and videographers. The Company offers a full range of content, with over 604 million assets available through its industry-leading sites. The Company serves businesses in almost every country in the world with websites in 23 languages bringing content to m edia outlets, advertising agencies and corporations and, increasingly, serving individual creators and prosumers. +On July 22, 2022 (the “Closing Date”), the Company consummated the transactions in the Business Combination Agreement, dated December 9, 2021 (the “Business Combination Agreement” and the consummation of such transactions, the “Closing”), by and among CC Neuberger Principal Holdings II, a Cayman Islands exempted company (“CCNB”), the Company (at such time, named Vector Holding, LLC, a Delaware limited liability company and wholly-owned subsidiary of CCNB), Vector Domestication Merger Sub, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (“Domestication Merger Sub”), Vector Merger Sub 1, LLC, a Delaware limited liability company and a wholly-owned subsidiary of CCNB (“G Merger Sub 1”), Vector Merger Sub 2, LLC, a Delaware limited liability company and a wholly-owned subsidiary of CCNB (“G Merger Sub 2”), Griffey Global Holdings, Inc., a Delaware corporation (“Legacy Getty”), and Griffey Investors, L.P., a Delaware limited partnership (the “Partnership”). On the day prior to the Closing Date, the Company statutorily converted from a Delaware limited liability company to a Delaware corporation (the “Statutory Conversion”). On the Closing Date, CCNB merged with and into Domestication Merger Sub, with Domestication Merger Sub surviving the merger as a wholly-owned direct subsidiary of the Company (the “Domestication Merger”). Following the Domestication Merger on the Closing Date, G Merger Sub 1 merged with and into Legacy Getty, with Legacy Getty surviving the merger as an indirect wholly-owned subsidiary of the Company (the “First Getty Merger”). Immediately after the First Getty Merger, Legacy Getty merged with and into G Merger Sub 2 with G Merger Sub 2 surviving the merger as an indirect wholly-owned subsidiary of the Company (the “Second Getty Merger” and together with the First Getty Merger, the “Getty Mergers” and, together with the Statutory Conversion and the Domestication Merger, the “Business Combination”). See “ Note 3 — Business Combination ” for further details. +Legacy Getty was incorporated in Delaware on September 25, 2012, and in October of the same year, indirectly acquired Getty Images, Inc. +2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Accounting Principles +The Company’s accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). +Basis of Presentation +The Business Combination in July of 2022 was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, CCNB was treated as the “acquired” company and Legacy Getty is treated as the acquirer for financial reporting purposes. For accounting purposes, the Business Combination was treated as the equivalent of Legacy Getty issuing stock for the net assets of CCNB, accompanied by a recapitalization. The net assets of CCNB are stated at historical cost, with no goodwill or other intangible assets recorded. +Legacy Getty was determined to be the accounting acquirer based on the following predominant factors: +• Legacy Getty stockholders have the greatest voting interest in the Company with approximately 72 % of the voting interest; +• Legacy Getty stockholders have the ability to nominate a majority of the initial members of the Company’s Board of Directors; +• Legacy Getty senior management is the senior management of the Company; and +F-7 +Table of Conten ts +• Legacy Getty was the larger entity based on historical operating activity and had the larger employee base. +The consolidated assets, liabilities and results of operations prior to the Business Combination are those of Legacy Getty. The shares and corresponding capital amounts and earnings per share, prior to the Business Combination, have been retroactively restated based on shares reflecting the exchange ratio of 1.27905 (the “Exchange Ratio”) established in the Business Combination. +Estimates and Assumptions +The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses reported during the period. Some of the estimates and assumptions that require the most difficult judgments are: a) the assumptions used to estimate unused capped subscription-based and credit-based products; b) the appropriateness of the amount of accrued income taxes, including the potential outcome of future tax consequences of events that have been recognized in the consolidated financial statements as well as the deferred tax asset valuation allowances and; c) the assumptions used to estimate accrued litigation reserves and insurance recoveries. These judgments are inherently uncertain which directly impacts their valuation and accounting. Actual results and outcomes may differ from management’s estimates and assumptions. +Principles of Consolidation +The consolidated financial statements and notes thereto include the accounts of Getty Images Holdings, Inc. and its wholly owned subsidiaries. Equity investments in which the Company exercises significant influence, but does not control and is not the primary beneficiary of, are accounted for using the equity method. Significant accounts and transactions between consolidated entities have been eliminated. Intercompany transactions and balances have been eliminated in consolidation. +Noncontrolling Interest +The Company’s noncontrolling interest represents the minority stockholder’s ownership interest related to the Company’s subsidiary, Getty Images SEA Holdings Co., Limited (“Getty SEA”). The Company reports its non-controlling interest in subsidiary as a separate component of stockholders’ equity in the consolidated balance sheets and reports both net income (loss) attributable to the non-controlling interest and net income (loss) attributable to the Company’s common stockholders on the Consolidated Statements of Operations. The Company’s equity interest in Getty SEA is 50 % and the non-controlling stockholder’s interest is 50 %. Net Income or Loss from this subsidiary is allocated based upon these ownership interests. This is reflected in the consolidated statements of Redeemable Preferred Stock and Stockholders’ Equity as “Noncontrolling interest”. +Net Income (Loss) Per Share Attributable to Common Stockholders +Basic net income (loss) per share attributable to common stockholders is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period, without consideration of potentially dilutive securities. Net income (loss) available to common stockholders represents net income (loss) attributable to common stockholders adjusted by (i) the Redeemable Preferred Stock dividend (ii) premium on early redemption of the Redeemable Preferred Stock and (iii) the allocation of income or losses to the noncontrolling interest. +In periods where the Company recognizes a net loss, such as the year ended December 31, 2022, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders since the effect of potentially dilutive securities is anti-dilutive. +Diluted net income per share is computed by dividing the net income attributable to common stockholders by the weighted average common shares outstanding and all potential common shares, if they are dilutive. The potentially dilutive effect of options or warrants are computed using the treasury stock method. Securities that potentially have an anti-dilutive effect are excluded from the diluted earnings per share calculation. +F-8 +Table of Conten ts +Foreign Currencies +Assets and liabilities for subsidiaries with functional currencies other than the U.S. Dollar are recorded in foreign currencies and translated at the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are charged or credited to “Other comprehensive income (loss)” (“OCI”), as a separate component of stockholders’ equity. Transaction gains and losses arising from transactions denominated in a currency other than the functional currency of the entity involved are included in “Foreign exchange gain (loss) – net” in the Consolidated Statements of Operations. For the years ended December 31, 2024, 2023, and 2022 the Company recognized net foreign currency transaction gain of $ 36.1 million, net loss of $ 23.8 million and net gain of $ 24.6 million, respectively. +Derivative Instruments +Prior to February 2024, the Company used derivative instruments to manage exposures to foreign currency and interest rate risks. The derivative instrument matured in February 2024. Generally, the objectives for holding derivatives includes reducing or eliminating the economic impact of those exposures. Derivative instruments are recorded as either assets or liabilities and are measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and whether the instrument is designated as a hedge for accounting purposes. For a derivative instrument designated as a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of OCI and is subsequently recognized in earnings when the hedged exposure affects earnings. The ineffective portion of the gain or loss is recognized in earnings. For derivative instruments designated as either fair value or cash flow hedges, changes in the time value are excluded from the assessment of hedge effectiveness and are recognized in earnings. Gains and losses from changes in fair values of derivatives that are not designated as hedges for accounting purposes are recognized in “(Loss) gain on fair value adjustment for swaps – net” in the Consolidated Statements of Operations. As of December 31, 2024, 2023, and 2022 the Company did not have any derivatives designated as hedging instruments as defined by the derivative instruments and hedging activities accounting guidance. See “ Note 6 — Derivative Instruments ” for further information. +Litigation Reserves +The Company recognizes a charge for litigation reserves when a loss is probable, and the amount is material and reasonably determinable. The amount accrued represents the Company’s best estimate of the loss, including related interest if applicable or, if no best estimate within a range of outcomes exists, the minimum amount in the range is reserved and the high end of the range is disclosed. If it is determined that a loss is only reasonably possible or that a loss is probable but the amount is not reasonably estimable, the Company discloses the nature of the possible loss and gives an estimate of the possible range of loss. The estimates and judgments could change based on new information, changes in laws or regulations, or the outcome of legal proceedings, settlements, or other factors. If different estimates and judgments were applied with respect to these matters, it is likely that reserves would be recorded for different amounts. The reserve for litigation is accrued in “ Litigation reserves ” on the consolidated balance sheets and related legal and professional fees associated with the litigation are included in “Accounts Payable” or “ Accrued expenses ” on the consolidated balance sheets. See “ Note 13 — Commitments and Contingencies ” for further discussion. +Recoveries of Losses on Litigation +The Company recognizes the benefit of recoveries of losses on litigation when it is probable that such recoveries will be received. These recoveries are recorded in “Recovery of loss on litigation” in the Consolidated Statements of Operations, and are typically receivable from third-party insurance carriers for legal claims and related costs that are included in “Loss on litigation” on the consolidated statement of operations , see “ Note 13 — Commitments and Contingencies ”. +F-9 +Table of Conten ts +Cash, Cash Equivalents and Restricted Cash +The following represents the Company’s cash, cash equivalents and restricted cash as of December 31, 2024 and 2023 (in thousands): +As of December 31, +2024 2023 +Cash and cash equivalents $ 121,173 $ 136,623 +Restricted cash 4,131 4,227 +Total cash, cash equivalents and restricted cash $ 125,304 $ 140,850 +Cash equivalents are short-term, highly liquid investments that are both readily convertible to cash and have maturities at the date of acquisition of three months or less. Cash equivalents are generally composed of investment-grade debt instruments subject to lower levels of credit risk, including certificates of deposit and money market funds. The Company’s current cash and cash equivalents consist primarily of cash on hand, bank deposits, and money market accounts. +Restricted cash consists primarily of cash held as collateral related to corporate credit cards and real estate lease obligations. +Fair Value Measurements   +The Company records its financial assets and liabilities at fair value. Fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of nonperformance risk including the Company’s own credit risk. +The three-tier fair value hierarchy prioritizes the inputs used in the valuation methodologies. Each fair value measurement is reported in one of the three levels, which is determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are: +Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets. +Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. +Level 3 — Valuations based on unobservable inputs reflecting management’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment. +Accounts Receivable —  Net +Accounts receivable are trade receivables, net of reserves for allowances for doubtful accounts totaling $ 6.2 million and $ 6.5 million as of December 31, 2024 and 2023, respectively. +Allowance for doubtful accounts is calculated based on the current estimate of expected lifetime credit losses, which includes assumptions such as historical losses, existing economic conditions, and analysis of specific older account balances of customer and delegate accounts. Trade receivables are written off when collection efforts have been exhausted. +F-10 +Table of Conten ts +Allowance for doubtful accounts changed as follows during the years presented (in thousands): +Year Ended December 31, +2024 2023 2022 +Beginning of year $ 6,527 $ 6,460 $ 5,946 +Provision 2,180 2,228 1,465 +Deductions ( 2,543 ) ( 2,161 ) ( 951 ) +End of year $ 6,164 $ 6,527 $ 6,460 +Deductions represent balances written off, net of amounts recovered that had previously been written off, and the effect of exchange rate fluctuations. +Property and Equipment — Net +Property and equipment are stated at cost, net of accumulated depreciation. Contemporary and archival imagery consists of costs to acquire imagery from third parties and internal and external costs incurred in creating imagery, including identification of marketable subject matter, art direction, digitization, mastering and the assignment of search terms, and other pertinent information to each image. Computer software developed for internal use consists of internal and external costs incurred during the application development stage of software development (except for training costs) and costs of upgrades or enhancements that result in additional software functionality. Costs incurred during the web application, infrastructure, graphics and content development stages of website development are also capitalized and included within computer software developed for internal use. Expenditures that extend the life, increase the capacity or improve the efficiency of property and equipment are capitalized, while expenditures for repairs and maintenance are expensed as incurred. +Depreciation is recognized on a straight-line basis over the estimated useful lives of the assets or, for leasehold improvements, over the shorter of the remaining original term of the lease or the estimated life of the related asset. +Minority Investment without Readily Determinable Fair Value +The carrying amount of the minority investments, which is included within “Other long-term assets” on the consolidated balance sheets, was $ 1.9 million and $ 10.0 million as December 31, 2024 and 2023, respectively. The Company uses the measurement alternative for these equity investments and their carrying value is reported at cost, adjusted for impairments or any observable price changes in ordinary transactions with identical or similar investments. Revenue related to content consumed by the minority investees was not material during any of the years end December 31, 2024, 2023 and 2022. +The investments are holdings in a privately held companies that are not exchange traded and therefore not supported with observable market prices. The Company periodically evaluates the carrying value of the minority investment, or when events and circumstances indicate that the carrying amount of an asset may not be recovered. During the year ended December 31, 2024, the Company recorded an impairment of $ 7.5 million related to a minority investment in the Consolidated Statements of Operations. The investee experienced consistent and significant decline in income, which indicated that the carrying value of the investment may not be recoverable. A s of December 31, 2023 and 2022, no adjustments to the carrying values of the Company’s long-term investments were identified as a result of this assessment. Changes in performance negatively impacting operating results and cash flows of these investments could result in the Company recording an impairment charge in future periods. +Goodwill +The Company evaluates goodwill for impairment annually or more frequently when an event occurs, or circumstances indicate it is more likely than not that the fair value of the reporting unit is below its carrying value. Circumstances that could indicate impairment and require impairment tests more frequently than annually include; significant adverse changes in legal factors or market and economic conditions, a significant decline in the financial results of the Company’s operations, significant changes in strategic plans, adverse actions by regulators, unanticipated changes in competition and market share, or a planned disposition of a significant portion of the business. Management performs the annual goodwill impairment analysis as of October 1 each year. The Company’s 2024, 2023 and 2022 goodwill impairment analyses did not result in an impairment charge. As circumstances change, it is possible that +F-11 +Table of Conten ts +future goodwill impairment analysis could result in goodwill impairments, which would be included in the calculation of income or loss from operations. +Identifiable Intangible Assets +Identifiable intangible assets are assets that do not have physical representation but that arise from contractual or other legal rights or are capable of being separated or divided from the Company and sold, transferred, licensed, rented or exchanged. Identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives, unless such life is determined to be indefinite. The remaining useful lives of identifiable intangible assets are reassessed each reporting period to determine whether events and circumstances warrant revisions to the remaining periods of amortization. Potential impairment of identifiable intangible assets with an indefinite useful life are evaluated annually or whenever circumstances indicate that it is more likely than not that the indefinite-lived asset is impaired. Intangible assets with a finite life and long-lived assets are reviewed for impairment whenever an event occurs, or circumstances change that indicate their carrying value may not be recoverable through projected undiscounted cash flows expected to be generated by the asset. If the evaluation of the projected cash flows indicates that the carrying value of the asset is not recoverable, the asset is written down to its fair value. +Loans Receivable +Loans are stated at unpaid principal balances less any allowance for loan losses. Interest is recognized over the term of the loan and is calculated using the compound interest method. Management considers a loan impaired when, based on current information or factors, it is probable that the principal and interest payment will not be collected according to the loan agreement. The Company did not recognize any loan impairment charges during the years ended December 31, 2024, 2023 or 2022. +Leases +In accordance with ASC 842, Leases ( “ASC 842”), the Company first determines if an arrangement contains a lease and the classification of that lease, if applicable, at inception. This standard requires the recognition of right of use (“ROU”) assets and lease liabilities for the Company’s operating leases. For contracts with lease and non-lease components, the Company has elected not to allocate the contract consideration, and to account for the lease and non-lease components as a single lease component. The Company has also elected not to recognize a lease liability or ROU asset for leases with a term of 12 months or less, and recognize lease payments for those short-term leases on a straight-line basis over the lease term in the Consolidated Statements of Operations. Operating leases are included in “Right of use assets”, “Accrued expenses” and “Lease liabilities” (net of current portion) in the consolidated balance sheets. +ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments under the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The implicit rate within the Company’s leases is generally not determinable and therefore the incremental borrowing rate at the lease commencement date is utilized to determine the present value of lease payments. The determination of the incremental borrowing rate requires judgment. Management determines the incremental borrowing rate for each lease using the Company’s estimated borrowing rate, adjusted for various factors including level of collateralization, term and currency to align with the terms of the lease. The ROU asset also includes any lease prepayments, offset by lease incentives. Certain of the Company’s leases include options to extend or terminate the lease. An option to extend the lease is considered in connection with determining the ROU asset and lease liability when the Company is reasonably certain that the option will be exercised. An option to terminate is considered unless the Company is reasonably certain the option will not be exercised. The ROU assets are reviewed for impairment with the Company’s long-lived assets. +Related-Party Transactions +The Company paid annual management fees to Getty Investments, LLC (“Getty Investments”) in the amount of $ 0.9 million for the year ended December 31, 2022. These costs are included in “Selling, general and administrative expenses” in the Consolidated Statements of Operations. Getty Investments was the majority partner in Partnership. With the closing of the Business Combination, the management fee contract was terminated. +F-12 +Table of Conten ts +On June 15, 2016, Getty SEA, a subsidiary of the Company, entered into various agreements with Visual China Group Holding Limited (“VCG”). As part of those agreements, Getty SEA issued $ 24.0 million in an unsecured note receivable to VCG. This note receivable bears interest at 2.5 % per annum with an August 18, 2036 due date. VCG is also a noncontrolling interest stockholder of Getty SEA. As of December 31, 2024, 2023 and 2022 this unsecured note receivable is included in “Other long-term assets” in the consolidated balance sheets. +Revenue Recognition +Revenue is derived principally from licensing rights to use images, video footage and music that are delivered digitally over the internet. Digital content licenses are generally purchased on a monthly or annual subscription basis, whereby a customer either pays for a predetermined quantity of content or for access to the Company’s content library that may be downloaded over a specific period of time, or, on a transactional basis, whereby a customer pays for individual content licenses at the time of download. Also, a significant portion of revenue is generated through the sale and subsequent use of credits. Various amounts of credits are required to license digital content. +The Company recognizes revenue gross of contributor royalties because the Company is the principal in the transaction as it is the party responsible for the performance obligation and it controls the product or service before transferring it to the customer. The Company also licenses content to customers through third-party delegates worldwide (approximately 3 % of t otal revenues for the years ended December 31, 2024, 2023 and 2022). Delegates sell the Company’s products directly to customers as the principal in those transactions. Accordingly, the Company recognizes revenue net of costs paid to delegates. Delegates typically earn and retain 35 % to 50 % of the license fee, and the Company recognizes the remaining 65 % to 50 % as revenue. +The Company maintains a credit department that sets and monitors credit policies that establish credit limits and ascertains customer creditworthiness, thus reducing the risk of potential credit loss. Revenue is not recognized unless it is determined that collectability is reasonably assured. Revenue is recorded at invoiced amounts (including discounts and applicable sales taxes) less an allowance for sales returns, which is based on historical information. Customer payments received in advance of revenue recognition are contract liabilities and are recorded as deferred revenue. Customers that do not pay in advance are invoiced and are required to make payments under standard credit terms. +The Company recognizes revenue under the core principle to depict the transfer of control to the Company’s customers in an amount reflecting the consideration to which the Company expects to be entitled. In order to achieve that core principle, the Company applies the following five-step approach: (i) identify the contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when a performance obligation is satisfied. +For digital content licenses, the Company recognizes revenue on both its capped subscription-based, credit-based sales and single image licenses when content is downloaded, at which time the license is provided. +See “ Note 14 — Revenue ” and “ Note 21 — Segment and Geographic Information ” for additional revenue disclosures. +Cost of Revenue +The ownership rights to the majority of the content licensed is retained by the owners, and licensing rights are provided to the Company by a large network of content suppliers. When the Company licenses content entrusted by content suppliers, royalties are paid to them at varying rates depending on the license model and the customers use of that content. Suppliers who choose to work with the Company under contract typically receive royalties between 20 % to 50 % of the total license fee charged customers. The Company also owns the copyright to certain content in its collections (wholly owned content), including content produced by staff photographers for the Editorial Stills product, for which the Company does not pay any third-party royalties. Cost of revenue also includes costs of assignment photo shoots but excludes depreciation and amortization associated with creating or buying content. +Sales Commissions +Internal sales commissions are generally paid in the quarter following invoicing of the commissioned receivable and is reported in “Selling, general and administrative expenses” on the Consolidated Statements of +F-13 +Table of Conten ts +Operations. The Company expenses contract acquisition costs, including internal sales commissions, as incurred, to the extent that the amortization period would otherwise be one year or less. +Equity-Based Compensation +Equity-based compensation is accounted for in accordance with authoritative guidance for equity-based payments. This guidance requires equity-based compensation cost to be measured at the grant date based on the fair value of the award and recognized as an expense over the applicable service period, which is the vesting period, net of estimated forfeitures. Compensation expense for equity-based payments that contain service conditions is recorded on a straight-line basis, over the service period of generally four years . Compensation expense for equity-based payments that contain performance conditions is not recorded until it is probable that the performance condition will be achieved. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience. Actual results and future estimates may differ substantially from current estimates. +Common Stock Warrants +The Company assumed 20,700,000 warrants originally issued in CCNB’s initial public offering (the “Public Warrants”) and 18,560,000 warrants issued in a private placement that closed concurrently with CCNB’s initial public offering, (the “Private Placement Warrants”) in the Business Combination. In addition, on the Closing Date, the Company issued 3,750,000 warrants in connection with a Forward Purchase Agreement dated August 4, 2020 (the “Forward Purchase Agreement” and the “Forward Purchase Warrants”). The Public, Private Placement and Forward Purchase Warrants entitled the holder to purchase one share of Class A common stock at an exercise price of $ 11.50 per share. +The Company evaluated the Public, Private Placement and Forward Purchase Warrants (together “the Warrants”) under ASC 815-40, Derivatives and Hedging-Contracts in Entity’s Own Equity (“ASC 815-40”), and concluded they did not meet the criteria to be indexed to the Company’s own stock as certain provisions of the warrant agreement could change the settlement amount of these warrants based on variables that would not be considered inputs to the valuation model for a fixed-for-fixed equity instrument. Since the Warrants met the definition of a derivative under ASC 815-40, the Company recorded these Warrants as liabilities in the consolidated balance sheets at fair value, with subsequent changes in their respective fair values recognized in the “Loss on fair value adjustment for warrant liabilities — net” within the Consolidated Statements of Operations at each reporting date. +The Public Warrants were publicly traded and thus had an observable market price to estimate fair value. The Forward Purchase Warrants, which had identical terms as the Public Warrants, were valued similar to the Public Warrants. The Private Placement Warrants were valued using a Black-Scholes option-pricing model as described in “ Note 7 — Fair Value of Financial Instruments ”. +As described in “ Note 5 — Common Stock Warrants ”, during the year ended December 31, 2022, all Warrants were exercised or redeemed. +Advertising and Marketing +The Company markets its products and services mainly through paid search, natural or organic search optimization, affiliate marketing channels, email and website marketing, customer events and public relations initiatives. Costs associated with marketing efforts are recorded in “Selling, general and administrative expenses” when related liabilities are incurred. For paid search and affiliate marketing, liabilities are incurred when potential new customers click through the links in the ad, generating an obligation to the internet search provider or affiliate marketing partner. Advertising and marketing costs expensed for the years ended December 31, 2024, 2023 and 2022 were $ 47.1 million, $ 48.5 million and $ 55.8 million, respectively. +Income Taxes +The Company computes income taxes and accruals for uncertain tax positions under the asset and liability method as set forth in the authoritative guidance for accounting for income taxes and uncertain tax positions. Deferred +F-14 +Table of Conten ts +income taxes are provided for the temporary differences between the consolidated financial statement carrying amounts and the tax basis of the Company’s assets and liabilities and operating loss and tax credit carryforwards. The Company establishes a valuation allowance for deferred tax assets if it is not more likely than not that the tax benefits will be realized. Periodically, the valuation allowance is reviewed and adjusted based on management’s assessments of realizable deferred tax assets. The Company accounts for the global intangible low-tax income (“GILTI”) earned by foreign subsidiaries included in gross U.S. taxable income in the period incurred. See “ Note 20 — Income Taxes ” for further information. +Segments +The Company has determined that it operates and manages one operating segment, which is the business of developing and commercializing visual content. The Company’s chief operating decision maker (the “CODM”), its Chief Executive Officer, reviews financial information on an aggregate basis for the purpose of allocating resources and making operating decisions. See “ Note 21 — Segment and Geographic Information ” for further information. +Concentration of Credit Risk +Financial instruments that are exposed to concentration of credit risk consist pri marily of cash and cash equivalents and accounts receivable balances. Cash and cash equivalents are held with financial institutions of high quality. Balances may exceed the amount of insurance provided on such deposits. +Concentration of credit risk with respect to trade receivables is limited due to the large number of customers and their dispersion across many geographic areas. No single customer represented 10% or more of the Company’s total revenue or accounts receivable in any of the years presented. +Recently Adopted Accounting Standard Updates +In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, “ Improvements to Reportable Segment Disclosures (Topic 280)” (“ASU 2023-07”) new guidance that modifies the disclosure and presentation requirements of reportable segments. The new guidance requires the disclosure of significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit and loss. In addition, the new guidance enhances interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, provides new segment disclosure requirements for entities with a single reportable segment, and contains other disclosure requirements. The Company adopted ASU 2023-07, effective December 15, 2024. The adoption of this standard only modified how the reportable segment expenses are disclosed and did not have a material impact on the consolidated financial statements or operations of the Company. See “ Note 21 — Segment and Geographic Information ” for further information. +In December 2019, the FASB issued ASU 2019-12, “ Simplifying the Accounting for Income Taxes (Topic 740)” (“ASU 2019-12”), which removes certain exceptions to the general principles in Topic 740 and improves consistent application of and simplifies U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The Company adopted ASU 2019-12, effective January 1, 2022. The adoption of this standard did not have a material impact on the consolidated financial statements. +In June 2016, the FASB issued ASU 2016-13, “ Financial Instruments — Credit Losses, (Topic 326)” (“ASU 2016-13”). ASU 2016-13 changes how to recognize expected credit losses on financial assets. The standard requires an entity to replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects current expected credit losses, requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates and provides additional transparency about credit risk. The effective date of ASU 2016-13 for the Company is beginning with fiscal years after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU 2016-13 on January 1, 2023. The adoption of this standard did not have a material impact on the consolidated financial statements. +Recently Issued Accounting Standard Updates +In November 2024, the FASB issued ASU 2023-04 (Topic 220-40), “Disaggregation of Income Statement Expenses (Topic 220-40) ” (“ASU 2023-04”), requiring additional disclosure of the nature of expenses included in the income statement. The new guidance requires disclosures about specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses. ASU 2023-04 +F-15 +Table of Conten ts +applies to all public business entities and is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. The Company is in the process of evaluating the impact of adopting this new guidance on the consolidated financial statement disclosures. +In December 2023, the FASB issued ASU 2023-09, “ Improvements to Income Tax Disclosure (Topic 740)” (“ASU 2023-09”), to amend and improve the existing income tax disclosure requirements. Under the new guidance, public business entities are required to disclose more details to the effective tax rate reconciliation and income taxes paid. The Company is in the process of evaluating the impact of adopting this new guidance on the consolidated financial statement disclosures. +3. BUSINESS COMBINATION +As discussed in “ Note 1 – Description of the Business ”, on July 22, 2022, the Company consummated the transactions contemplated by the Business Combination Agreement. At the Closing, and subject to the terms and conditions of the Business Combination Agreement, holders of 153,322,880 shares of Legacy Getty common stock received 196,938,915 shares of the Company’s Class A common stock as consideration in the Business Combination, and the previously outstanding Legacy Getty Redeemable Preferred Stock was retired in full through a combination of a cash payment of approximately $ 615.0 million and 15,000,000 shares of the Company’s Class A common stock with a fair value at issuance of $ 140.2 million. Each Legacy Getty Option (whether vested or unvested) to purchase Legacy Getty Common Shares was converted into an option to purchase a number of shares of the Company’s Class A common stock and at an exercise price converted based on the Exchange Ratio, calculated in accordance with the terms of the Business Combination Agreement. +In addition to the consideration paid at Closing, during a period to expire 10 years from the Closing Date (the “Earn-Out Period”), within 10 business days after the occurrence of an applicable triggering event, as described below, the Company was required to issue to former equity holders of Legacy Getty an aggregate of up to 59,000,000 shares of the Company’s Class A common stock (the “Earn-Out Shares”), upon the terms and subject to the conditions set forth in the Business Combination Agreement and the other agreements contemplated thereby. The Earn-Out Shares were issuable in three equal tranches if (i) the volume weighted average price of the shares of the Company’s Class A common stock over any 20 trading days within any 30 consecutive trading day period was greater than or equal to $ 12.50 , $ 15.00 and $ 17.50 , respectively, or (ii) if there was a change of control of the Company prior to the expiration of the Earn-Out Period that would result in the holders of shares of the Company’s Class A common stock receiving a price per share equal to or in excess of $ 12.50 , $ 15.00 and $ 17.50 , respectively. The Earn-Out Shares were accounted for as equity-classified equity instruments and recorded in additional paid-in capital as part of the Business Combination. +Pursuant to a certain letter agreement executed concurrently with the Business Combination Agreement (the “Sponsor Side Letter”), CC Neuberger Principal Holdings II Sponsor, LLC (the “Sponsor”), its independent directors and certain affiliates, agreed to convert, through a series of transactions, 5,140,000 of its CCNB Class B common stock into 2,570,000 Series B-1common stock and 2,570,000 Series B-2 common stock of the Company (the shares of Series B-2 common stock together with the shares of Series B-1 common stock, the “Restricted Sponsor Shares”), which were subject to forfeiture if certain vesting events are not satisfied. The Series B-1 common stock and Series B-2 common stock would vest and convert into shares of Class A common stock if (i) the volume weighted average price of the shares of the Company’s Class A common stock over any 20 trading days within any 30 consecutive trading day period was greater than or equal to $ 12.50 and $ 15.00 , respectively, or (ii) if there was a change of control of the Company that would result in the holders of shares of the Company’s Class A common stock receiving a price per share equal to or in excess of $ 12.50 and $ 15.00 , respectively. The Restricted Sponsor Shares are accounted for as equity-classified equity instruments and recorded in additional paid-in capital as part of the Business Combination. +Concurrent with the execution of the Business Combination Agreement, CCNB and the Company entered into Subscription Agreements (the “PIPE Subscription Agreements”) with the Sponsor and Getty Investments. Additionally, on December 28, 2021, CCNB and the Company entered into the Permitted Equity Subscription Agreement with Multiply Group (the “Permitted Equity Subscription Agreement”). On July 22, 2022, Getty Investments entered into an additional subscription agreement with the Company (the “Additional Getty Subscription Agreement”). Pursuant to the PIPE Subscription Agreements, the Permitted Equity Subscription Agreement and the Additional Getty Subscription Agreement, on the Closing Date, the Sponsor, Getty Investments and Multiply Group subscribed for and purchased, and CCNB and the Company issued and sold to such investors, an aggregate of +F-16 +Table of Conten ts +36,000,000 shares of the Company’s Class A common stock for a purchase price of $ 10.00 per share, for aggregate gross proceeds of $ 360.0 million (the “PIPE Financing”). +On the Closing Date, the Company completed the issuance and sale of 20,000,000 shares of the Company’s Class A common stock and 3,750,000 Forward Purchase Warrants to Neuberger Berman Opportunistic Capital Solutions Master Fund LP (“NBOKS”) for an aggregate purchase price of $ 200.0 million, in connection with the Forward Purchase Agreement. Refer to “ Note 5 – Common Stock Warrants ” for additional information on the accounting for the Forward Purchase Warrants. +Additionally, on the Closing Date, the Company completed the sale of 30,000,000 shares of the Company’s Class A common stock to NBOKS, for a purchase price of $ 10.00 per share and aggregate purchase price of $ 300.0 million, pursuant to that certain Backstop Facility Agreement dated November 16, 2020, as amended. +Upon the closing of the Business Combination, the Company’s certificate of incorporation was amended and restated to, among other things, increase the total number of authorized shares of all classes of capital stock to 2,006,140,000 shares, $ 0.0001 par value per share, of which, 2,000,000,000 shares are designated as Class A common stock, 5,140,000 shares are designated as Class B common stock, and 1,000,000 shares are designated as preferred stock. +The Business Combination was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, CCNB was treated as the “acquired” company and Getty Images is treated as the acquirer for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Getty Images issuing stock for the net assets of CCNB, accompanied by a recapitalization. The net assets of CCNB are stated at historical cost, with no goodwill or other intangible assets recorded. +The following table reconciles the elements of the Business Combination to the Consolidated Statement of Cash Flows and the Consolidated Statements of Redeemable Preferred Stock and Stockholders’ Equity for the year ended December 31, 2022 (in thousands): +Cash – CCNB trust and cash, net of redemptions $ 4,164 +Cash – PIPE Financing 360,000 +Cash – Forward Purchase Agreement 200,000 +Cash – Backstop Agreement 300,000 +Less: Cash paid to redeem Redeemable Preferred Stock ( 614,996 ) +Less: Transaction costs paid during the year ended December 31, 2023 ( 106,917 ) +Net cash contributions from the Business Combination and related transactions $ 142,251 +Add: Non-cash assets received from CCNB 806 +Add: Transaction costs allocated to warrants 4,262 +Add: Cash paid to redeem Redeemable Preferred Stock 614,996 +Add: Tax effect of change in tax basis due to business combination 6,508 +Less: Fair value of Public, Private Placement and Forward Purchase Warrants ( 72,374 ) +Less: Transaction costs previously paid by Legacy Getty during 2021 or accrued at December 31, 2023 ( 1,989 ) +Net Business Combination and related transactions, excluding Redeemable Preferred Stock redemption $ 694,460 +Add: Fair value of Class A common stock issued to redeem Redeemable Preferred Stock 140,250 +Net Business Combination and related transactions, including Redeemable Preferred Stock redemption $ 834,710 +F-17 +Table of Conten ts +The number of shares of common stock issued immediately following the consummation of the Business Combination: +Common stock of CCNB, net of redemptions 508,311 +CCNB shares held by the Sponsor 25,700,000 +Shares issued in the PIPE Financing 36,000,000 +Shares issued in the Forward Purchase Agreement 20,000,000 +Shares issued in the Backstop Agreement 30,000,000 +Total shares issued in Business Combination and related transactions 112,208,311 +Shares issued for Getty Images common stock 196,938,915 +Shares issued upon redemption of Getty Images Redeemable Preferred Stock 15,000,000 +Total shares of common stock immediately following the Business Combination 324,147,226 +___________________________________ +CCNB shares held by the Sponsor in the table above include 5,140,000 Restricted Sponsor Shares. +4. ACQUISITION +On April 1, 2024, the Company entered into a Unit Purchase Agreement with Motorsport Images LLC and Motorsport.com, Inc., to purchase 100 % of the outstanding membership interests in Motorsport Images LLC, a Florida limited liability accompany (“Motorsport Images”) for $ 15.1 million in cash and approximately 1.2 million shares of the Company’s Class A common stock. +The components of the fair value of consideration transferred are as follows (in thousands): +Cash 15,106 +Class A common stock 4,875 +Total fair value of consideration considered $ 19,981 +The transaction was accounted for using the acquisition method of accounting and, accordingly, the results of the acquired business have been included in the Company’s results of operations from the acquisition date. In connection with the acquisition, the Company incurred approximately $ 1.0 million of transaction costs for the year ended December 31, 2024, recorded in “Other operating expenses (income) – net” on the Consolidated Statements of Operations. +Motorsport Images has an extensive library of historic and contemporary motorsports photos and videos covering major racing events worldwide. With the addition of Motorsport Images’ photographic talent and premium motorsport content, this acquisition augments the Company’s customer offering in the motorsport area, bringing a greater depth and breadth of content and services. +The fair value of consideration transferred in this business combination was allocated to the intangible and tangible assets acquired and liabilities assumed at the acquisition date, with the remaining unallocated amount recorded as goodwill. Goodwill is primarily attributed to expected synergies from combining operations. Goodwill recognized for this acquisition was allocated to the Company’s one operating segment and the entire goodwill amount is deductible for U.S. tax purposes. +F-18 +Table of Conten ts +The aggregate purchase price was allocated to the assets acquired and liabilities assumed as follows (in thousands): +Assets acquired and liabilities assumed: Fair Value at +Acquisition Date +Cash and cash equivalents $ 68 +Accounts receivable 540 +Other current assets 92 +Prepaid expense 190 +Property and equipment 1,349 +Customer relationships 2,900 +Goodwill 15,939 +Total identifiable assets $ 21,078 +Accounts payable and accrued expenses ( 1,097 ) +Total liabilities assumed $ ( 1,097 ) +Net Assets Acquired $ 19,981 +The customer relationships have a useful life of approximately 11 years and are being amortized on a straight-line basis. The fair value of the customer relationships was determined using a variation of the income approach known as the multiple-period excess earnings method. The fair value of the contributor content was determined using the cost-to-recreate method. +The revenue and operating loss from Motorsport Images included in the Company’s Consolidated Statements of Operations for the year ended December 31, 2024 was not material. +Pro forma revenue and earnings amounts on a combined basis have not been presented as they are not material to the Company’s historical pre-acquisition financials. +5. COMMON STOCK WARRANTS +Public Warrants +As part of CCNB’s initial public offering, 20,700,000 Public Warrants were sold. The Public Warrants entitled the holder thereof to purchase one share of Class A common stock at a price of $ 11.50 per share, subject to adjustments. The Public Warrants were only exercisable for a whole number of shares of Class A common stock. No fractional shares were to be issued upon exercise of the warrants. The Public Warrants were set to expire at 5:00 p.m. New York City time on July 22, 2027, or earlier upon redemption or liquidation. The Public Warrants were listed on the NYSE under the symbol “GETY.WS.” +The Company redeemed the Public Warrants at a price of $ 0.01 per warrant after the sale price of Class A common stock equaled or exceeded $ 18.00 per share for 20 trading days within a 30 -trading day period. The Company had the option to require all holders that wish to exercise the Public Warrants to do so on a cashless basis. +Private Placement Warrants +Simultaneously with CCNB’s initial public offering, CCNB consummated a private placement of 18,560,000 Private Placement Warrants with CCNB’s sponsor. Each Private Placement Warrant was exercisable for one share of Class A common stock at a price of $ 11.50 per share, subject to adjustment. The Private Placement Warrants were identical to the Public Warrants, except that the Private Placement Warrants were non-redeemable so long as they were held by the initial purchasers or such purchasers’ permitted transferees, and the initial purchasers or such purchasers’ permitted transferees had the option to exercise the Private Placement Warrants on a cashless basis. If the Private Placement Warrants were held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants would be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants. +F-19 +Table of Conten ts +In August 2022, all of the Private Placement Warrants were exercised on a cashless basis for 11,555,996 shares of Class A common stock. The fair value of the Private Placement Warrants was remeasured upon the exercise of the warrants, resulting in an non-cash loss of $ 176.6 million recorded in “Loss on fair value adjustment for warrant liabilities” Consolidated Statements of Operations. +Forward Purchase Warrants +Additionally, on the Closing Date, the Company issued 3,750,000 Forward Purchase Warrants in connection with the Forward Purchase Agreement. The Forward Purchase Warrants had the same terms as the Public Warrants. +The Company concluded the Public, Private Placement and Forward Purchase Warrants meet the definition of a derivative under ASC 815-40 (as described in “ Note 2 — Summary of Significant Accounting Policies ”) and were recorded as liabilities. Upon consummation of the Business Combination, the fair value of the Public, Private Placement and Forward Purchase Warrants were recorded in the Consolidated Balance Sheet. Transaction costs allocated to the issuance of the Public, Private Placement and Forward Purchase Warrants of $ 4.3 million were recorded as “Other non-operating (expense) income — net” in the Consolidated Statements of Operations. +On September 19, 2022, the Company announced that it had elected to redeem all of the outstanding Public Warrants and Forward Purchase Warrants that remain outstanding at 5:00 p.m. New York City time on October 19, 2022 for $ 0.01 per warrant. 10,328 Public Warrants were exercised for an aggregate cash payment of $ 0.1 million. Effective October 19, 2022, the remaining Public Warrants and Forward Purchase Warrants were redeemed for $ 0.2 million. The fair value of the Public and Forward Purchase Warrants was remeasured upon the exercise and redemption of the warrants, resulting in a non-cash gain of $ 15.9 million recorded in “Loss on fair value adjustment for warrant liabilities — net” Consolidated Statements of Operations. +As of December 31, 2022, December 31, 2023 and December 31, 2024, there were no outstanding Public, Private Placement or Forward Purchase Warrants. +6. DERIVATIVE INSTRUMENTS +Foreign Currency Risk +Certain assets, liabilities and future operating transactions are exposed to foreign currency exchange rate risk. The Company had previously utilized derivative financial instruments, namely foreign currency forwards and option contracts, to reduce the impact of foreign currency exchange rate risks where natural hedges did not exist. The Company is exposed to market risk from foreign currency exchange rate fluctuations as a result of foreign currency-denominated revenues and expenses. The Company had entered into certain foreign currency derivative contracts, including foreign currency forward options to manage these risks. These contracts were economic hedges of the Company’s exposures but were not designated as hedges, as defined in the applicable accounting guidance, for financial reporting purposes. These contracts were carried at fair value, as determined by quoted market exchange rates. At December 31, 2024 and 2023, the Company held no foreign currency contracts. The Company recogn ized gain of $ 0.7 million for the year ended December 31, 2022 and none in the subsequent years in “(Loss) gain on fair value adjustment for swaps – net” in the accompanying Consolidated Statements of Operations. +Interest Rate Risk +In February 2019, the Company entered into two interest rate swaps to hedge interest rate risk associated with the Company’s debt. One of the swaps had a notional amount of $ 175.0 million and the Company paid a fixed rate of 2.5010 %. This swap matured during the year ended December 31, 2022. The other swap had a notional amount of $ 355.0 million and the Company paid a fixed rate of 2.5380 %. This swap matured in February 2024. Each swap contained an embedded floor option under which the Company received a rate of 0.0 % o r one-month LIBOR, whichever was greater, to match the terms of the Company’s debt. In June 2023 the rate transitioned to the greater of one-month CME Term SOFR or negative 0.1 %. Both swaps were considered economic hedges and had not been designated as hedges, as defined in the applicable accounting guidance, for financial reporting purposes. The changes in fair value are recognized in “(Loss) gain on fair value adjustment for swaps – net” in the accompanying Consolidated Statements of Operations. +For the interest rate swaps, the Company recognized loss of $ 1.5 million, loss of $ 7.6 million and gain of $ 22.8 million on these derivative instruments for the years ended December 31, 2024, 2023 and 2022, respectively. +F-20 +Table of Conten ts +The Company does not hold or issue derivative financial instruments for trading purposes. In general, the Company’s derivative activities do not create foreign currency exchange rate risk because fluctuations in the value of the instruments used for economic hedging purposes are offset by fluctuations in the value of the underlying exposures being hedged. Counterparties to derivative financial instruments expose the Company to credit related losses in the event of nonperformance; however, the Company entered into these instruments with creditworthy financial institutions and considers the risk of nonperformance to be minimal. +The interest rate swap of $ 1.5 million was included in “Other current assets” on the Consolidated Balance Sheet at December 31, 2023. +7. FAIR VALUE OF FINANCIAL INSTRUMENTS +The Company’s financial instruments as of December 31, 2024 and 2023 consist of cash equivalents, interest rate swaps and debt. Assets and liabilities measured at fair value on a recurring basis (cash equivalents and interest rate swaps) and a nonrecurring basis (debts) are categorized in the tables below based on the levels discussed in “ Note 2 — Summary of Significant Accounting Policies ”. +The following tables summarize the Company’s financial instruments by level in the fair value hierarchy as of December 31, 2024: +(In thousands) As of December 31, 2024 +Level 1 Level 2 Level 3 Total +Assets: +Money market funds (cash equivalents) $ 75,431 $ — $ — $ 75,431 +Liabilities: +Term Loans $ — $ 1,013,231 $ — $ 1,013,231 +Senior Notes $ — $ 298,965 $ — $ 298,965 +(In thousands) As of December 31, 2023 +Level 1 Level 2 Level 3 Total +Assets: +Money market funds (cash equivalents) $ 57,062 $ — $ — $ 57,062 +Interest rate swaps — 1,459 — 1,459 +Derivative Liabilities: +Term Loans $ — $ 1,104,237 $ — $ 1,104,237 +Senior Notes $ — $ 302,250 $ — $ 302,250 +The fair value of the Company’s money market funds is based on quoted active market prices and is determined using the market approach. The fair values of the Company’s interest rate swap contracts were based on market quotes provided by the counterparty. Quotes by the counterparty were calculated based on observable current rates and forward interest rate curves. The Company recalculated and validated this fair value using publicly available market inputs using the market approach. The fair value of the Company’s Term Loans and Senior Notes are based on market quotes provided by a third-party pricing source. See “ Note 12 — Debt ” for additional disclosures on the Term Loans and Senior Notes. +The Company’s non-financial assets and liabilities, which include goodwill and long-lived assets held and used, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur or if an annual impairment test is required, the Company would evaluate the non-financial assets and liabilities for impairment. If an impairment was to occur, the asset or liability would be recorded at its estimated fair value. +F-21 +Table of Conten ts +8. PROPERTY AND EQUIPMENT – NET +Property and equipment consisted of the following at the reported Balance Sheet dates (in thousands, except years): +Estimated +Useful +Lives +(in Years) December 31, +2024 2023 +Contemporary imagery 5 $ 392,303 $ 395,063 +Computer hardware purchased 3 5,625 2,809 +Computer software developed for internal use 3 141,209 161,317 +Leasehold improvements +2 – 20 +9,060 8,295 +Furniture, fixtures and studio equipment 5 12,384 11,341 +Archival imagery 40 93,099 96,090 +Other +3 – 4 +2,313 2,406 +Property and equipment 655,993 677,321 +Less: accumulated depreciation ( 478,701 ) ( 497,943 ) +Property and equipment, net $ 177,292 $ 179,378 +Included in archival imagery as of December 31, 2024 and 2023 was $ 9.8 million and $ 10.2 million respectively, of imagery that has an indefinite life and therefore is not amortized. +9. GOODWILL +Goodwill was tested for impairment as o f October 1, 2024 and 2023. The Company did not rec ognize a goodwill impairment charge during the year ended December 31, 2024 and 2023. The fair value of the Goodwill was estimated using both market indicators of fair value and the expected present value of future cash flows. As of December 31, 2024 and 2023, the accumulated impairment loss on Goodwill was $ 525.0 million for both years. +Goodwill changed during the years presented as follows: +(in thousands) Goodwill +before +impairment Accumulated +impairment +charge Goodwill – net +December 31, 2022 $ 2,024,578 $ ( 525,000 ) $ 1,499,578 +Effects of fluctuations in foreign currency exchange rates 2,236 — 2,236 +December 31, 2023 $ 2,026,814 $ ( 525,000 ) $ 1,501,814 +Motorsports Images acquisition 15,939 — 15,939 +Effects of fluctuations in foreign currency exchange rates ( 7,276 ) — ( 7,276 ) +December 31, 2024 $ 2,035,477 $ ( 525,000 ) $ 1,510,477 +F-22 +Table of Conten ts +10. IDENTIFIABLE INTANGIBLE ASSETS — NET +Identifiable intangible assets consisted of the following at December 31 (in thousands, except years): +As of December 31, +2024 2023 +Range of +Estimated +Useful Lives +(Years) Gross +Amount Accumulated +Amortization Net +Amount Gross +Amount Accumulated +Amortization Net +Amount +Trade name Indefinite $ 383,444 $ — $ 383,444 $ 397,495 $ — $ 397,495 +Trademarks and trade names +5 – 10 +103,976 ( 103,976 ) — 104,109 ( 104,109 ) — +Patented and unpatented technology +3 – 10 +107,669 ( 105,533 ) 2,136 111,045 ( 106,869 ) 4,176 +Customer lists, contracts, and relationships +5 – 11 +388,466 ( 384,140 ) 4,326 399,378 ( 397,244 ) 2,134 +Non-compete Covenant 3 900 ( 900 ) — 900 ( 900 ) — +Other identifiable intangible assets +3 – 13 +5,080 ( 5,080 ) — 5,089 ( 5,089 ) — +$ 989,535 $ ( 599,629 ) $ 389,906 $ 1,018,016 $ ( 614,211 ) $ 403,805 +The Getty Images and Unsplash trade names were valued using an estimated royalty rate which considered name recognition, licensing practices of the Company and its competitors for similar services, and other relevant qualitative factors. +Based on balances at December 31, 2024, the estimated aggregate amortization expense for identifiable intangible assets for the next five years is as follows (in thousands): +Years Ended +December 31, +2025 $ 2,205 +2026 $ 972 +2027 $ 520 +2028 $ 520 +2029 $ 520 +11. OTHER ASSETS AND LIABILITIES +The following table summarizes the Company’s other long-term assets: +Year end December 31, +(In thousands) 2024 2023 +Long term note receivable from a related party $ 24,000 $ 24,000 +Minority and other investments 1 +4,385 12,454 +Equity method investment 2 +1,077 2,852 +Other 1,338 1,956 +Total other long-term assets $ 30,800 $ 41,262 +F-23 +Table of Conten ts +1 During the year ended December 31, 2024, the Company recorded an impairment of $ 7.5 million related to a minority investment in the Consolidated Statements of Operations. +2 During the year ended December 31, 2024, a $ 2.2 million cash dividend was declared and paid by an investee accounted for under the equity method, which reduced the value of the equity method investment. +The following table summarizes the Company’s accrued expenses: +(In thousands) Year end December 31, +2024 2023 +Accrued compensation and related costs $ 26,419 $ 16,933 +Lease liabilities 11,252 9,780 +Interest payable 9,903 9,942 +Accrued professional fees 10,809 6,045 +Other 1,555 953 +Total accrued expenses $ 59,938 $ 43,653 +12. DEBT +Debt included the following: +(In thousands) Year end December 31, +2024 2023 +Senior Notes $ 300,000 $ 300,000 +USD Term Loans 579,200 637,000 +EUR Term Loans 1 +435,190 463,588 +Adjusted for: issuance costs, premiums and discounts amortized to interest expense 34 ( 1,930 ) +Long-term debt – net $ 1,314,424 $ 1,398,658 +1 The table above converted the EUR Term Loans to USD using currency exchange rates as of those dates. +In February of 2019, the Company issued $ 300.0 million of Senior Unsecured Notes (“Senior Notes”) and entered into a senior secured credit facility (“Credit Facility”) consisting of (i) a $ 1,040.0 million term loan facility (“USD Term Loans”), (ii) a € 450.0 million term loan facility (“EUR Term Loans”) (together with the USD Term Loans the “Term Loans”) and (iii) an $ 80.0 million revolving credit facility that could be upsized to $ 110.0 million (“Revolver”). +On May 4, 2023, the Company amended the then existing Credit Agreement to among other things, (i) upsize the total amount of commitments under the revolving credit facility capacity from $ 80.0 million to $ 150.0 million and (ii) extend the maturity of the revolving credit facility until May 4, 2028. The revolving facility is also subject to a springing maturity of 180 days inside any earlier maturity of Senior Notes or Term Loans (prior to the Amendment Effective Date) or Term B-1 Loans (on and after the Amendment Effective Date) with an aggregate principal amount exceeding $ 100.0 million. The revolving credit facility remains undrawn. The Company accounted for this amendment as a modification of the existing revolving credit facility. The unamortized debt issuance costs and the fees incurred to amend the revolving credit facility will be amortized over the term of the new revolving credit facility. The Company incurred unused commitment fees of $ 0.7 million during each of the years ended December 31, 2024, 2023 and 2022. +The Senior Notes are due March 1, 2027, and bear interest at a rate of 9.750 % per annum. Interest on the notes is payable semi-annually on March 1 and September 1 of each year. The Company may redeem the Senior Notes earlier than March 1, 2027, subject to prepayment premiums. +Prior to the Amendment Effective Date, the Term Loans were set to mature in 2026. The Company may voluntarily prepay loans or reduce commitments under the Credit Facility without premium or penalty. T he Company made voluntary prepayments of $ 57.8 million on its outstanding USD term loans during the year ended December 31, 2024 . The prepayments were made using cash on hand and did not result in any prepayment penalties. The prepayments reduced the principal balance and interest expense on the term loans. +F-24 +Table of Conten ts +In August of 2022, the Company utilized proceeds from its Business Combination along with cash on hand to repay $ 300.0 million of outstanding indebtedness on its USD Term Loans. In accordance with ASC 470-50-40-2 - Debt - Modifications and Extinguishments , the Company recorded a loss on extinguishment of debt of $ 2.7 million for the year ended December 31, 2022, in the Consolidated Statements of Operations related to this payment. The loss on extinguishment of debt represents the acceleration of amortization of issuance costs and debt discount related to the $ 300.0 million payment. Under the terms of the Credit Facility, the prepayment of $ 300.0 million was applied against the quarterly installments of $ 2.6 million. As of the Amendment Effective Date, the USD Term Loans have been repaid in full. +The face value of the EUR Term Loans was € 419.0 million as of both December 31, 2024 and 2023, respectively, converted using currency exchange rates as of those dates. As of the Amendment Effective Date, the EUR Term Loans have been repaid in full. +The Credit Facility required a principal payment with the net cash proceeds of certain events and up to 50 % of excess cash flow (subject to reduction based on the achievement of specified net first lien leverage ratios). The Amended Credit Agreement requires a principal payment of the Term B-1 Loans with the net cash proceeds of certain events and of the Dollar Fixed Rate Term B-1 Loans with up to 50 % of excess cash flow (subject to reduction based on the achievement of specified net first lien leverage ratios). No excess cash flow principal payment was required for the years ended December 31, 2024 and 2023 based on the net first lien leverage ratio. +The obligations under the Credit Facility were and the obligations under the Amended Credit Agreement continue to be secured by a first priority lien on substantially all of the loan parties’ assets. +On February 2, 2023, the Company amended the then existing Credit Facility to replace LIBOR with Adjusted Term SOFR on the USD Term Loans effective from the start of the next interest period thereafter. For the USD Term Loans, the interest rate for base rate loans was 3.50 % plus the greater of the prime rate in effect, the NYFRB Rate plus 0.5 % or the Adjusted Term SOFR rate for a one-month interest period plus 1.0 %. The interest rate for Term Benchmark loans with respect to the USD Term Loans was the sum of the applicable rate of 4.50 %, plus the Adjusted Term SOFR rate. The Adjusted Term SOFR rate was the greater of the Term SOFR rate for the applicable interest period plus 0.10 % or 0.00 %. The Term SOFR Rate for the applicable interest period, was the rate per annum published by the CME Term SOFR Administrator and identified by Administrative Agent as the forward-looking term rate based on SOFR at approximately 5:00 a.m. Chicago time, two U.S. Government Securities Business Days prior to the first day in such interest period. For the EUR Term Loans, the interest rate for loans was the sum of the applicable rate of 5.0 %, plus the Adjusted Eurodollar rate. The Eurodollar rate was defined as the greater of the EURIBOR Screen rate per annum for deposits of Euro for the applicable interest period as of approximately 11:00 a.m. Brussels time two business days prior to the first day in such interest period, or 0.0%. The Adjusted Eurodollar rate was defined as the interest rate per annum (rounded upward, if necessary, to the next 1/16 of 1%), equal to the Eurodollar Rate for the interest period multiplied by the Statutory Reserve Rate. The USD Term loans had an average interest rate of 9.67 %, 9.55 % and 6.00 % for the years ended December 31, 2024, 2023 and 2022, respectively. The EUR Term loans had an average interest rate of 8.64 %, 8.21 % and 5.27 % for the years ended December 31, 2024, 2023 and 2022, respectively. +Debt issuance costs and discounts related to the Senior Notes and Term Loans are reported in the Consolidated Balance Sheet as a direct deduction from the face amount of the debt. These costs are amortized as a component of “Interest expense” in the Consolidated Statements of Operations utilizing the effective interest method. The Company was compliant with all debt covenants and obligations at December 31, 2024 and December 31, 2023. +On February 21, 2025, the Company entered into a Second Incremental Commitment Amendment and Third Amendment to Credit Agreement, which amended the existing credit agreement. See “ Note 23 — Subsequent Events ” for further details. +13. COMMITMENTS AND CONTINGENCIES +Commitments +The Company has entered into agreements that represent significant, enforceable and legally binding contractual obligations that are noncancelable without incurring a significant penalty. If a contract is cancelable with a penalty, the amount shown in the table below is the full contractual obligation, not the penalty, as the Company currently intends to fulfill each of these obligations. +F-25 +Table of Conten ts +Liabilities for uncertain tax positions are excluded from this table due to the uncertainty of the timing of the resolution of the underlying tax positions. At December 31, 2024, net uncertain tax positions were $ 22.3 million. The entire balance as of December 31, 2024 is non-current as the timing of resolution is uncertain and no portion of these liabilities is expected to be cash settled within the next 12 months. +Payments under purchase orders, certain sponsorships, donations and other commitments that are not enforceable and legally binding contractual obligations are also excluded from this table, as are payments, guaranteed and contingent, under employment contracts because they do not constitute purchase commitments. +The Company leases real estate under operating lease agreements that expire on various dates and does not anticipate any difficulties in renewing those leases that expire within the next several years or in leasing other space or hosting facilities, if required. The Company enters into unconditional purchase obligations related to contracts for cloud-based services, infrastructure and other business services as well as minimum royalty guarantees in connection with certain content licenses. The future minimum payments under debt obligations, non-cancelable operating leases and other purchase obligations are as follows as of December 31, 2024 (in thousands): +Years ended December 31, +2025 2026 2027 2028 2029 Thereafter Total +USD Term Loans and EUR Term loans 1 : +Principal payments $ — $ 1,014,390 $ — $ — $ — $ — $ 1,014,390 +Interest payments 2 +82,633 10,986 — — — — 93,619 +Senior Notes: +Principal payments — — 300,000 — — — 300,000 +Interest payments 29,250 29,250 14,625 — — — 73,125 +Revolver commitment fee 545 — — — — — 545 +Operating lease payments on facilities leases 13,682 8,319 6,984 6,057 5,678 11,895 52,615 +Minimum royalty guarantee payments to content suppliers 42,494 26,576 13,665 12,869 5,515 4,484 105,603 +Technology purchase commitments 8,742 4,817 412 — — — 13,971 +Other commitments 3,871 477 — — — — 4,348 +Total commitments $ 181,217 $ 1,094,815 $ 335,686 $ 18,926 $ 11,193 $ 16,379 $ 1,658,217 +1 Excludes the effects of debt refinanced in the first quarter of 2025. +2 These are estimated payments based on interest rate curves valued as of December 31, 2024. Rates used for the EUR Term Loans are 7.1 % for 2025 and 6.8 % for 2026. Rates used for the USD Term Loans are 8.7 % for 2025 and 8.5 % for 2026. +Offsetting operating lease payments will be approximately $ 5.0 million and $ 1.2 million in r eceipts for subleased facilities through 2025 and 2026, respectively. Offsetting the minimum royalty guarantee payments to content suppliers will be approximately $ 2.0 million in minimum guaranteed receipts from content suppliers through 2025. +Contingencies +The Company indemnifies certain customers from claims related to alleged infringements of the intellectual property rights of third parties or misappropriation of publicity or personality rights of third parties, such as claims arising from copyright infringement or failure to secure model and property releases for images the Company licenses if such a release is required. The standard terms of these indemnifications require the Company to defend those claims upon notice and pay related damages, if any. The Company typically mitigates this risk by requiring all uses of licenses to be within the scope of the license, securing all necessary model and property releases for imagery for which the Company holds the copyright, and by contractually requiring contributing photographers and other imagery +F-26 +Table of Conten ts +partners to do the same prior to submitting any imagery to the Company and by limiting damages/liability in certain circumstances. Additionally, the Company requires all contributors and image partners, as well as potential acquisition targets to warrant that the content licensed to or purchased by the Company does not and shall not infringe upon or misappropriate the rights of third parties. The Company requires contributing photographers, other imagery partners and sellers of businesses or image collections that Getty Images has purchased to indemnify the Company in certain circumstances where a claim arises in relation to an image they have provided or sold to the Company. Imagery Partners are typically required to carry insurance policies for losses related to such claims and individual contributors are encouraged to carry such policies and the Company itself has insurance policies to cover litigation costs for such claims. The Company will record liabilities for these indemnifications if and when such claims are probable and the range of possible payments and available recourse from imagery partners can be assessed, as applicable. Historically, the exposure to such claims has been immaterial, as were the recorded liabilities for intellectual property infringement at December 31, 2024 or 2023. +In the ordinary course of business, the Company enters into certain types of agreements that contingently require the Company to indemnify counterparties against third-party claims. These may include: +• agreements with vendors and suppliers, under which the Company may indemnify them against claims arising from Getty Images’ use of their products or services; +• agreements with customers other than those licensing images, under which the Company may indemnify them against claims arising from their use of Getty Images’ products or services; +• agreements with agents, delegates and distributors, under which the Company may indemnify them against claims arising from their distribution of Getty Images’ products or services; +• real estate and equipment leases, under which the Company may indemnify lessors against third-party claims relating to use of their property; +• agreements with directors and officers, under which the Company indemnifies them to the full extent allowed by Delaware law against claims relating to their service to Getty Images; +• agreements with purchasers of businesses Getty Images has sold, under which Getty Images may indemnify the purchasers against claims arising from the Company’s operation of the businesses prior to sale; and +• agreements with initial purchasers and underwriters of the Company’s debt securities, under which Getty Images indemnifies them against claims relating to their participation in the Transactions. +The nature and terms of these indemnifications vary from contract to contract, and generally a maximum obligation is not stated. Because management does not believe a material liability is probable, no related liabilities were recorded at December 31, 2024 or 2023. +The Company previously issued 20,700,000 public warrants, which were governed by a Warrant Agreement, dated August 4, 2020 (the “Warrant Agreement”) and redeemed by the Company in October 2022. In late 2022 and early 2023, the Company was named as a defendant in two lawsuits filed by former public warrant holders in the United States District Court for the Southern District of New York, related to the Warrant Agreement: Alta Partners, LLC v. Getty Images Holdings, Inc., Case No. 1:22-cv-08916 (filed October 19, 2022), and CRCM Institutional Master Fund (BVI) LTD, et al. v. Getty Images Holdings, Inc., Case No. 1:23-cv-01074 (filed February 8, 2023) (together, the “Initial Warrant Litigation”). Alta Partners, LLC (“Alta”) and the CRCM Institutional Master Fund (BVI), LTD parties (“CRCM” and together with Alta, the “Plaintiffs”) generally alleged that the Company had breached the Warrant Agreement by purportedly refusing to permit warrant holders to exercise the public warrants beginning thirty days after the July 2022 business combination pursuant to which the Company became a public company closed and issue shares of the Company’s common stock in respect of the warrant exercises on the basis of the Company’s Form S-4 registration statement that had been filed and declared effective by the SEC in connection with the business combination, and alternative claims for violations of federal securities laws, including claims under the Securities Act of 1933 and/or the Securities Exchange Act of 1934. The Plaintiffs sought, among other things, an award of money damages measured by the difference between the market price of the Company’s common stock on the purported exercise date less the $ 11.50 exercise price of the warrant multiplied by the number of public warrants each Plaintiff purported to exercise, or would have sought to exercise, on the exercise date. On February 17, 2023, the Court consolidated the actions for purposes of discovery. The Company filed answers to the complaints, and discovery closed on August 28, 2023. On September 11, 2023, all parties filed cross-motions for summary judgment. On October 27, 2023, the Court issued its decision on the cross-motions for summary judgment and entered judgment in favor of Plaintiffs on their breach of contract claims and, in accordance with Plaintiffs’ calculations, awarded damages in the amount of $ 36.9 million for Alta with respect to 2,066,371 public warrants that it owned as of the purported exercise date and $ 51.0 million for CRCM with respect to 3,010,764 public warrants that they owned as of the purported exercise date, plus, in each case, pre-judgment interest of 9 % per annum. The Court entered judgment in favor of the Company on all other claims asserted by Plaintiffs including a similar breach of contract claim by Alta with respect to +F-27 +Table of Conten ts +11,593,149 public warrants that Alta had purchased in the open market after the date on which it had purported to exercise warrants and before the warrants were redeemed by the Company, and for which Alta sought the same per warrant money damages. The Company has appealed the portion of the Court’s judgment in favor of Plaintiffs and intends to continue to defend itself vigorously. Alta has cross-appealed the portion of the Court’s judgment in favor of the Company with respect to the later-acquired public warrants. The appeals have been fully briefed and the United States Court of Appeals for the Second Circuit heard oral argument on January 22, 2025, and the appeal is sub judice. In 2023, the Company recorded a loss on litigation relating to this matter based on the criteria under ASC 450 - Contingencies (“ASC 450”). +The Company has been named as a defendant in fourteen additional lawsuits by purported former public warrant holders alleging to have owned approximately 4.2 million public warrants in the aggregate (collectively, the “Follow-On Warrant Litigation”). Two of these additional suits were filed in the United States District Court for the Southern District of New York, Daniel Berner v. Getty Images Holdings, Inc., Case No. 1:24-cv-04483-JSR (filed June 11, 2024), and James Lapp v. Getty Images Holdings, Inc., Case No. 1: 24-cv-05129-JSR (filed July 5, 2024) (the “Berner/Lapp Actions”) and were pending before the same Judge that decided the Initial Warrant Litigation. These complaints generally allege breaches of the Warrant Agreement, and Berner has plead an alternative claim for violation of federal securities laws. The Court entered an order dismissing Berner’s alternative claims for violation of federal securities laws, and the Company filed answers to the complaints with respect to plaintiffs’ contract claims. The Plaintiffs in the Berner/Lapp Actions have argued that these matters are substantially similar to the Initial Warrant Litigation, and that the decision (including the method for calculating damages, which the Company disputes) reached in the Initial Warrant Litigation should be binding on the Company in the Berner/Lapp Actions. The federal court has consolidated the Berner/Lapp Actions for all pretrial purposes and entered a schedule, which included a hearing on motions for summary judgment on December 20, 2024. Following the summary judgement hearing, on January 27, 2025, the Court issued a bottom-line order in the Berner/ Lapp Actions granting summary judgement to plaintiffs Berner and Lapp reciting that “[a]n Opinion explaining the reasons for this ruling will issue in due course, at which time judgment will be entered.” As of the date of this filing, no Opinion or judgment has been issued. If the Judge applies the same damages calculation as the Initial Warrant Litigation, the damages are expected to be approximately $ 6.2 million plus interest. The Company expects that it will appeal the Opinion and judgment. Based on the criteria under ASC 450, the Company has included this amount in the total litigation reserve. +The other twelve additional suits since the Initial Warrant Litigation have been filed in the New York State Supreme Court, New York County: CSS, LLC v. Getty Images Holdings, Inc., Index No. 653527/2024 (filed July 12, 2024); Walleye Manager Opportunities LLC et. al. v. Getty Images Holdings, Inc., Index No. 653528/2024 (filed July 12, 2024); Funicular Funds LP v. Getty Images Holdings, Inc., Index No. 653410/2024 (filed July 5, 2024); MPF Broadway Convexity Fund I, LP et. al. v. Getty Images Holdings, Inc., Index No. 653411/2024 (filed July 5, 2024), LMR Multi-Strategy Master Fund Limited et al. v. Getty Images Holdings, Inc., Index No. 654963/2024 (filed September 20, 2024); Jordan Flannery v. Getty Images Holdings, Inc., Index No. 654961/2024 (filed September 20, 2024); Bi-Directional Disequilibrium Fund, L.P. et al. v. Getty Images Holdings, Inc., Index No. 654960/2024 (filed September 20, 2024); Holland v. Getty Images Holdings, Inc., Index No. 655746/2024 (filed October 29, 2024); Hunsicker v. Getty Images Holdings, Inc., Index. No. 655911/2024 (filed November 7, 2024); Dasher, et al. v. Getty Images Holdings, Inc., Index No. 655913/2024 (filed November 7, 2024); Parker v. Getty Images Holdings, Inc., Index No. 659240/2024 (filed November 22, 2024); Highbridge Tactical Credit Master Fund L.P et. al. v. Getty Images Holdings, Inc., Index No. 650402/2025 (filed January 21, 2025) (the “NY State Actions”). The NY State Actions generally allege breaches of the Warrant Agreement and seek an award of money damages, and the plaintiffs in these actions could seek, and the courts could award, money damages per warrant that are less than, equal to or greater than the per warrant money damages awarded in the Initial Warrant Litigation. The Company’s response to the complaints filed in the NY State Actions are not yet due. It is possible that additional purported former warrant holders of the Company could bring additional lawsuits against the Company, its directors or officers, alleging substantially similar claims, or new or different claims relating to the public warrants. The Company intends to defend itself vigorously in the Initial Warrant Litigation, the Follow-on Warrant Litigation and any future actions and is unable to estimate any potential additional loss or range of loss that may result from the ultimate resolution of these matters, which could be material to the Company’s business, financial condition, results of operations and cash flows. As of December 31, 2024, we had a remaining insurance recovery receivable related thereto of approximately $ 45.0 million, with related litigation reserves of $ 111.0 million. +Getty Images (US), Inc. is a plaintiff in a lawsuit filed in the United States District Court for the District of Delaware against Stability AI, Inc., Stability AI, Ltd. and Stability AI US Services Corp. The case, Getty Images (US), Inc. v. Stability AI, Inc., Case No. 1:23-cv-00135-JHL, arises out of the defendant’s alleged unauthorized reproduction of approximately 12.0 million in images from Getty Images’ websites, along with the accompanying captions and associated metadata, and use of the copied content in connection with various iterations of Stability AI’s generative +F-28 +Table of Conten ts +artificial intelligence model known as Stable Diffusion. Getty Images (US), Inc. has asserted claims for copyright infringement; falsification of copyright management information; trademark infringement; unfair competition; trademark dilution; and deceptive trade practices. Getty Images (US), Inc. seeks, among other things, monetary damages and injunctive relief. The case was originally filed on February 3, 2023 against Stability AI, Inc., and an Amended Complaint adding Stability AI, Ltd. as a defendant was filed on March 29, 2023. On May 2, 2023, the defendants moved to dismiss or, in the alternative, to transfer the case to the Northern District of California. The defendants’ motion was premised on their contention that Stability AI, Ltd. is not subject to personal jurisdiction in Delaware. Getty Images served jurisdictional discovery requests on Defendants on May 12, 2023, and the parties agreed to extend Getty Images (US), Inc.’s time to respond to the motion to dismiss while the parties engage in discovery relating to the defendants’ activities within Delaware and other states in the U.S. On January 26, 2024, the court dismissed the defendants’ motion to dismiss without prejudice with leave to re-file upon the completion of jurisdictional discovery. Following substantial completion of jurisdictional discovery, Getty Images (US), Inc. filed an unopposed motion for leave to file a Second Amended Complaint, which was granted on July 8, 2024. The Second Amended Complaint added Stability AI US Services Corporation as a third defendant. On July 29, 2024, the defendants filed a renewed motion to dismiss premised on their contention that Stability AI, Ltd. is not subject to personal jurisdiction in Delaware and also filed a motion to transfer the case to the Northern District of California. The motion has been fully briefed and is still pending a decision by the Court. No case schedule has been set. +Arising out of similar alleged facts, Getty Images (US), Inc., Getty Images International U.C., Getty Images (UK) Limited, Getty Images Devco UK Limited and iStockphoto LP are Claimants in proceedings issued in the High Court of England & Wales against Stability AI Limited on January 16, 2023, claim number IL2023-000007, which, together with the Particulars of Claim (the Claimants’ statement of case) were served on the defendant on May 12, 2023. The Claimants assert claims for copyright infringement, infringement of database rights, trademark infringement and passing off and seeks, amongst other things, monetary damages, injunctive relief and legal costs. In June 2023, Stability filed a motion to strike certain portions of the claim and grant summary judgment on various claims made by Getty Images including the claim for secondary infringement of copyright. The court conducted a hearing on the issues in October 2023. +Following the hearing, the Judge gave judgment and issued an order denying Stability’s motion in its entirety and granted costs to Getty Images. The order became final and public in late January 2024. Stability requested permission to appeal against the decision not to grant summary judgment on the secondary infringement claim but that request was refused in July 2024. The case schedule was set in July 2024 for the next stages of the litigation, including exchange of the trial witness evidence, disclosure and amendments to the parties’ claims or defense. The parties have now substantially completed the evidence and disclosure phases and the next key phase will be the service of expert reports. The Court has held several hearings to address procedural issues, which will be ongoing through late March 2025. A trial date has been set for early June 2025 in the High Court in London and is estimated to last about four weeks. +The Company has made certain litigation reserves in respect of the Initial and Follow-On Warrant Litigation in the Consolidated Statements of Operations. Although the Company cannot be certain of the outcome of any litigation or the disposition of any claims, or the amount of damages and exposure, if any, that the Company could incur, the Company does not currently believe that a material loss arising from the final disposition of existing matters is probable. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot determine with certainty the ultimate outcome of any such litigation or proceedings. If the final resolution of any such litigation or proceedings is unfavorable, our financial condition, results of operations and cash flows could be materially affected. Further, in the ordinary course of business, the Company is also subject to periodic threats of lawsuits, investigations and claims. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors. +The Company has open tax audits in various jurisdictions and some of these jurisdictions require taxpayers to pay assessed taxes in advance or at the time of appealing such assessments. One such jurisdiction is Canada, where one of the Company’s subsidiaries, iStockphoto ULC, received tax assessments from the Canada Revenue Agency (“CRA”) asserting additional tax is due. The position taken by the CRA is related to the transactions between iStockphoto ULC and other affiliates within the Getty Images group for the 2015 Canadian income tax return filed. The Company believes the CRA position lacks merit and intends to vigorously contest these assessments through the appeal process, including engaging with the U.S. Competent Authority. +As part of the appeal process in Canada, the Company may be required to pay a portion of the assessment amount, which the Company estimates could be up to $ 17.4 million. Such required payment is not an admission that +F-29 +Table of Conten ts +the Company believes it is subject to such taxes. The Company believes it is more likely than not it will prevail on appeal, however, if the CRA were to be successful in the appeal process, the Company estimates the maximum potential outcome could be up to $ 25.3 million. +14. REVENUE +The Company distributes its content and services offerings through three primary products: +Creative —Creative is comprised of royalty-free (“RF”) photos, illustrations, vectors, videos, and generative AI-services that are released for commercial use and cover a wide variety of commercial, conceptual, and contemporary subjects, including lifestyle, business, science, health, wellness, beauty, sports, transportation and travel. This content is available for immediate use by a wide range of customers with depth, breadth, and quality, allowing our customers to produce impactful websites, digital media, social media, marketing campaigns, corporate collateral, textbooks, movies, television and online video content relevant to their target geographies and audiences. We primarily source Creative content from a broad network of professional, semi-professional, and amateur creators, many exclusive to Getty Images. We have a global creative insights team dedicated to providing briefi ng and art direction to our exclusive contributor community. +Editorial — Editorial is comprised of photos and videos covering the world of entertainment, sports and news. We combine contemporary coverage of events around the globe with one of the largest privately held archives globally with access to images to the beginning of photography. We invest in a dedicated editorial team which includes 110 staff photographers and videographers to generate our own coverage in addition to coverage from our network of content partners +Other — The Company offers a range of additional products and services to deepen the customer relationships, enhance customer loyalty and create additional differentiation in the market. These additional products and services currently include music licensing, digital asset management and distribution services, print sales and data licensing. +The following table summarizes the Company’s revenue by product (in thousands): +Year Ended December 31, +2024 2023 2022 +Creative $ 552,828 $ 578,727 $ 585,398 +Editorial 345,932 320,643 325,779 +Other 40,527 17,185 15,067 +Total Revenue $ 939,287 $ 916,555 $ 926,244 +The December 31, 2024 deferred revenue balance will be earned as content is downloaded, services are provided or upon the expiration of subscription-based products, and nearly all is expected to be earned within the next twelve months. During the year ended December 31, 2024, the Company recognized revenue of $ 145.4 million that had been included in deferred revenue as of January 1, 2024. +15. REDEEMABLE PREFERRED STOCK +Under its second amended and restated certificate of incorporation, Legacy Getty was authorized to issue up to 900,000 shares of series A preferred stock (the “Redeemable Preferred Stock”) with a par value of $ 0.01 per share. In conjunction with the Business Combination discussed in “ Note 3 — Business Combination ”, the previously outstanding Legacy Getty Redeemable Preferred Stock was redeemed in full during the year ended December 31, 2022 through a combination of a cash payment of approximately $ 615.0 million and 15,000,000 shares of the Company’s Class A common stock with a fair value at issuance of $ 140.2 million. +Dividends declared and issued totaled $ 43.2 million ( 38,109 shares) for the year ended December 31, 2022. Redeemable Preferred Stock dividends were included in the Statements of Redeemable Preferred Stock and Stockholders’ Equity as a detriment to common stockholders and a benefit to Redeemable Preferred stockholders. Such dividends are also included as an adjustment to net income (loss) attributable to Getty Images Holdings, Inc. See “ Note 22 — Net (Loss) Income Attributable to Common Stockholders ”. +F-30 +Table of Conten ts +Per the terms of the Redeemable Preferred Stock, the Company elected to early redeem outstanding shares of Redeemable Preferred Stock at a premium. The redemption amount upon the Closing date was equal to (i) the liquidation value multiplied by (ii) the redemption percentage, which was 105 %. The Company recognized a $ 26.7 million increase in the redemption value immediately prior to the Closing. These changes were affected by charges against paid-in capital as the Company was in a retained deficit prior to the Business Combination. +16. STOCKHOLDERS’ EQUITY +Common Stock — Upon the closing of the Business Combination, the Company’s certificate of incorporation was amended and restated to, among other things, increase the total number of authorized shares of all classes of capital stock to 2,006,140,000 shares, $ 0.0001 par value per share, of which, 2,000,000,000 shares are designated as Class A common stock, 5,140,000 shares are designated as Class B common stock, and 1,000,000 shares are designated as preferred stock. +Each holder of Class A common stock is entitled to one vote for each share on all matters properly submitted to a vote, including the election of directors. Class A Stockholders do not have cumulative voting rights in the election of directors. Accordingly, holders of a majority of the voting shares are able to elect all of the directors. Holders of shares of Class A common stock are entitled to dividends, if any, as may be declared from time-to-time by the Board out of legally available funds. Holders of Class A common stock have no preemptive, conversion, subscription or other rights, and there are no redemption or sinking fund provisions applicable to Class A common stock. +Except as otherwise required by law, no holder of Class B common stock is entitled to any voting rights with respect to Class B common stock. If entitled to vote by law, each holder of Class B common stock is entitled to one vote per share. Holders of shares of Class B common stock are entitled to receive dividends, if any, as may be declared from time-to-time by the Board out of legally available funds, contingent upon the occurrence of a conversion into Class A common stock, as discussed below. The holders of shares of Class B common stock shall not be entitled to receive any assets of the Company in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. Holders of Class B common stock have no preemptive, conversion, subscription or other rights, and there are no redemption or sinking fund provisions applicable to Class B common stock. +In connection with the Business Combination, 2,570,000 shares of Class B common stock were designated as Series B-1 common stock and 2,570,000 shares of Class B common stock were designated Series B-2 common stock. The Series B-1 common stock and Series B-2 common stock would automatically vest and convert into shares of Class A common stock if (i) the volume weighted average price of the shares of the Company’s Class A common stock over any 20 trading days within any 30 consecutive trading day period was greater than or equal to $ 12.50 and $ 15.00 , respectively, or (ii) if there was a change of control of the Company that would result in the holders of shares of the Company’s Class A common stock receiving a price per share equal to or in excess of $ 12.50 and $ 15.00 , respectively. +In August 2022, the Series B-1 common stock and Series B-2 common stock automatically converted into 5,140,000 shares of Class A common stock. See “ Note 5 — Common Stock Warrants ” for further details. +In August 2022, the Earn-Out Shares issued in connection with the Business Combination vested and 58,999,956 shares of Class A common stock were issued. +17. EQUITY-BASED COMPENSATION +Equity-based compensation expense is recorded in “Selling, general and administrative expenses” in the Consolidated Statements of Oper ations, net of estimated forfeitures. The Company recognized equity-based compensation - net of estimated forfeitures of $ 24.0 million, $ 40.6 million, and $ 9.5 million for the years ended December 31, 2024, 2023 and 2022, respectively. The Company capitalized $ 2.2 million, $ 3.0 million and $ 0.3 million of stock-based compensation expense associated with the cost of developing internal-use software during the year ended December 31, 2024, 2023 and 2022 , respectively. +Prior to the Business Combination, certain employees of the Company were granted equity awards under Legacy Getty’s Amended and Restated 2012 Equity Incentive Plan of the Parent (“Legacy Getty 2012 Plan”). Upon closing of the Business Combination, awards under the Legacy Getty 2012 Plan were converted at the Exchange Ratio, and the Company’s Board of Directors approved the Getty Images Holdings, Inc. 2022 Equity Incentive Plan (“2022 Plan”). The 2022 Plan provides for the grant of stock options, including incentive stock options and nonqualified stock +F-31 +Table of Conten ts +options, stock appreciation rights, restricted stock, dividend equivalents, restricted stock units (“RSU”), performance restricted stock units (“PSU”), and other stock or cash-based awards. Equity-based awards generally vest over three or four years . Under the 2022 Plan, up to 51,104,577 shares of Class A common stock are reserved for issuance, of which 6,243,088 are available to be issued as of December 31, 2024. +Stock Options +The following tables presents a summary of the Company’s stock option activity for the year ended December 31, 2024 (in thousands except weighted average data and years): +Number +of +awards Weighted +Average +Exercise +Price Remaining +Average +Contractual +Life (in Years) +Outstanding - December 31, 2023 27,791 3.45 5.12 +Granted — — +Exercised ( 2,017 ) 2.88 +Pre-vesting forfeitures ( 44 ) 5.79 +Post-vesting cancellations ( 131 ) 4.99 +Outstanding - December 31, 2024 25,599 3.48 4.22 +Exercisable - December 31, 2024 23,997 $ 3.30 3.97 +Vested and expected to vest after December 31, 2024 25,597 $ 3.48 4.22 +Intrinsic value of stock options is calculated as the excess of market price of the Company’s common stock over the strike price of the stock options, multiplied by the number of stock options. The intrinsic value of the Company’s stock options is as follows (in thousands): +December 31, +2024 2023 +Stock options outstanding $ 104 $ 56,534 +Stock options exercisable $ 104 $ 54,944 +Stock options vested and expected to vest $ 104 $ 56,502 +The intrinsic value of stock options exercised for the years ended December 31, 2024, December 31, 2023 and December 31, 2022 was approximately $ 1.9 million, $ 14.9 million and $ 14.8 million, respectively. +No stock options were granted during the year ended December 31, 2024. The weighted-average grant-date fair value of stock options, the valuation model used to estimate the fair value, and the assumptions i nput into that model, for awards granted were as follows: +Year Ended December 31, +2023 2022 +Weighted average grant date fair value per award $ 2.20 $ 3.17 +Valuation model used Black-Scholes Black-Scholes +Expected award price volatility 50 % 50 % +Risk-free rate of return 3.70 % 4.15 % +Expected life of awards 5.89 years 5.7 years +Expected rate of dividends None None +The stock volatility assumption for award-based compensation is based on historical volatilities of the common stock of several public companies with characteristics similar to those of the Company since the Company’s common stock has only been trading in the public market for a short period of time. +F-32 +Table of Conten ts +The risk-free rate of return represents the implied yield available during the month the award was granted for a U.S. Treasury zero-coupon security issued with a term equal to the expected life of the awards. +The expected life is measured from the grant date and is based on the simplified method calculation. +As of December 31, 2024 there was $ 3.4 million of total unrecognized compensation expense related to outstanding stock options, which the Company expects to recognize over a weighted average period of approximately 1.2 years. During the years ended December 31, 2024, 2023 and 2022, the fair value of stock options that vested was $ 4.9 million, $ 3.8 million, and $ 7.9 million, respectively. +Restricted Stock Units +The following table presents a summary of RSU activity (in thousands except weighted average data): +Number +of +awards Weighted Average +Grant-Date Fair Value +Outstanding — December 31, 2023 5,644 $ 5.12 +Granted 3,097 $ 3.49 +Vested ( 2,909 ) $ 5.06 +Cancelled ( 405 ) $ 5.15 +Outstanding - December 31, 2024 5,427 $ 4.21 +As of December 31, 2024, the total unrecognized compensation expense related to RSUs is approximately $ 21.5 million, which is expected to be recognized over a weighted average period of approximately 1.82 years. +Performance Stock Units +The following table presents a summary of PSU activity (in thousands except weighted average data): +Number of awards Weighted Average +Grant-Date Fair Value +Outstanding — December 31, 2023 1 +921 $ 4.77 +Granted 1,361 $ 4.35 +Vested — $ — +Cancelled ( 963 ) $ 4.78 +Outstanding - December 31, 2024 1,319 $ 4.34 +1 Prior year amount has been reclassified to conform to the current year presentation. +The number of units subject to future vesting is based on annual Company achieved factors, such as Revenue growth and Adjusted EBITDA less Capital Expenditures growth. Unvested units are expected to vest at the determination date of March 20, 2025, and expense recognized is adjusted quarterly for expected achievement. In addition to the granted shares in the table above, the Company issued an incremental 1.24 million PSUs that will have an accounting grant date in future periods upon achieved factors being set. PSU achievement is at the discretion of the Compensation Committee of the Board of Directors. +F-33 +Table of Conten ts +Earn Out Plan +The Getty Images Holdings, Inc. Earn Out Plan (“Earn Out Plan”) provides for the grant of RSUs, which generally vest upo n grant. Under the Earn Out Plan, up to 6.0 million shares of Class A common stock are reserved for issuance, of which 20,856 shares are available to be issued as of December 31, 2024. +Number +of Weighted Average +awards Grant-Date Fair Value +Outstanding — December 31, 2023 — $ — +Granted 1,411 $ 4.37 +Vested ( 1,411 ) $ ( 4.37 ) +Cancelled $ — +Outstanding — December 31, 2024 — $ — +As of December 31, 2024, there is no unrecognized compensation expense related to RSUs granted from the Earn Out Plan, as all RSUs were fully vested upon grant. +Employee Stock Purchase Plan +The Getty Images Holdings, Inc. 2022 Employee Stock Purchase Plan (“ESPP”) provides for shares of Class A common stock to be purchased by eligible employees at six months intervals at 85 % of the fair market value of the stock on either the first or last trading day of each six months period, whichever is lower. Eligible employees are allowed to contribute up to 10 % of their compensation. The Company’s first six months period under the ESPP began on June 1, 2023. Under the ESPP, up to 5.0 million shares of Class A common stock are reserved for issuance, of which all 3.5 million shares are available to be issued as of December 31, 2024. +18. DEFINED CONTRIBUTION EMPLOYEE BENEFIT PLANS +The Company sponsors defined contribution retirement plans in which the majority of employees are able to participate. +The Company sponsors one defined contribution plan in the U.S., a 401(k) plan, in which all U.S. employees over 18 years of age are auto-enrolled unless they opt-out. The Company matches 100 % of participant contributions, up to the first 4 % of each participant’s eligible compensation (generally including salary, bonuses and commissions), not to exceed the Internal Revenue Service per person annual limitations. Additionally, the Company sponsors one defined contribution pension plan in the U.K. Employees who contribute a minimum of 3 % of their eligible compensation (generally including salary, bonuses, and commissions), generally receive a Company contribution of 5 % of eligible compensation. Lastly, the Company also has a group registered retirement savings plan (RRSP) for employees in Canada. The Company matches dollar-for-dollar up to 3 % of base salary. Employee contributions are deducted on a pre- tax basis and they may begin participating after 3 months of service. +The Company’s contributions to these plans and other defined contribution plans worldwide totaled $ 8.8 million , $ 7.8 million and $ 7.4 million for the years ended December 31, 2024, 2023 and 2022, respectively. These contributions were recorded as “Selling, general and administrative expenses” in the Consolidated Statements of Operations. +19. LEASES +The Company’s leases relate primarily to office facilities that expire on various dates from 2025 through 2034, some of which include one or more options to renew. All of the Company’s leases are classified as operating leases. Operating leases are included in “Right of use assets” in the consolidated balance sheets. Current portion of the lease liabilities are included in “Accrued expenses” and non-current portion of lease liabilities are included in “Lease liabilities” in the consolidated balance sheets. Operating lease costs, including insignificant costs related to short-term leases, were $ 8.4 million, $ 8.9 million and $ 10.0 million for the years ended December 31, 2024, 2023 and 2022, respectively. +F-34 +Table of Conten ts +Additional information related to the Company’s leases as of and for the years ended December 31, 2024 and 2023, are as follows (in thousands, except for the lease term and discount rate): +As of December 31, 2024 As of December 31, 2023 +Right of use asset $ 32,453 $ 41,098 +Lease liabilities, current 11,252 9,780 +Lease liabilities, non-current 29,034 39,858 +Total lease liabilities $ 40,286 $ 49,638 +Weighted average remaining lease term 5.3 years 5.9 years +Weighted average discount rate 5.7 % 5.7 % +Cash paid for amounts included in lease liabilities $ 12,359 $ 13,391 +Right of use asset obtained in exchange for lease obligations $ 727 $ 2,591 +Maturities of lease liabilities as of December 31, 2024 were as follows (in thousands): +Year ended December 31, +2025 $ 12,150 +2026 6,691 +2027 5,215 +2028 4,262 +2029 3,938 +Thereafter 18,493 +Total undiscounted lease payments 50,749 +Less: imputed interest ( 10,463 ) +Total lease liabilities $ 40,286 +Due to hybrid working arrangements, the Company has continued to assess its office needs and subleased several office locations during the year ended December 31, 2024 and 2023. These agreements were considered to be operating leases. The Company has not been legally released from the primary obligations under the original leases and therefore the Company continues to account for the original lease separately. The Company recorded no ROU asset impairment charge for the year ended December 31, 2024 and $ 314 thousand for the year ended December 31, 2023, which was the amount by which the carrying value of the lease ROU assets exceeded the fair values. Estimates of the fair values are based on the discounted cash flows of estimated net rental income for the office spaces subleased. The ROU asset impairment charge is included in “Other operating (income) expense - net” on the Consolidated Statement of Operations. Rent income from the sublessees is included in the Consolidated Statement of Operations on a straight-line basis as an offset to rent expense associated with the original operating lease included in “Selling, general and administrative expenses” on the Consolidated Statement of Operations. +20. INCOME TAXES +The components of income (loss) bef ore income taxes are as follows (in thousands): +Year Ended December 31, +2024 2023 2022 +United States $ 20,850 $ ( 67,496 ) $ ( 95,489 ) +Foreign 66,105 40,591 61,972 +Income (loss) before income taxes $ 86,955 $ ( 26,905 ) $ ( 33,517 ) +F-35 +Table of Conten ts +The components of income tax expense (benefit) are as follows (in thousands): +Year Ended December 31, +2024 2023 2022 +Current: +United States $ 22,965 $ 26,720 $ 20,652 +Foreign 17,611 1,823 9,487 +Total current income tax expense (benefit) 40,576 28,543 30,139 +Deferred: +United States 3,943 ( 15,169 ) 13,356 +Foreign 2,964 ( 59,856 ) 631 +Total deferred income tax expense (benefit) 6,907 ( 75,025 ) 13,987 +Total provision for income tax expense $ 47,483 $ ( 46,482 ) $ 44,126 +The items accounting for the difference between income taxes computed at the U.S. federal statutory rate and the effective income tax rate are as follows (in thousands): +Year Ended December 31, +2024 2023 2022 +Federal income tax expense (benefit) at the statutory rate $ 18,274 $ ( 5,651 ) $ ( 7,039 ) +Effect of: +State taxes, net of federal benefit 3,369 ( 1,736 ) ( 3,092 ) +Tax impact of foreign earnings and losses 16,440 11,524 11,453 +Stock-based compensation 2,657 3,633 2,230 +Nondeductible net loss on fair value adjustment for warrant liabilities — — 34,659 +Valuation allowance ( 3,656 ) ( 49,425 ) 12,223 +Tax credits 11,449 ( 5,284 ) ( 6,852 ) +Other, net ( 1,050 ) 457 544 +Income tax expense (benefit) $ 47,483 $ ( 46,482 ) $ 44,126 +Uncertain Tax Positions +The Company follows the provisions of accounting for uncertainty in income taxes. This guidance clarifies the accounting for uncertainty in income taxes recognized in the consolidated financial statements and prescribes a recognition threshold of more likely than not and a measurement attribute on all tax positions taken or expected to be taken in a tax return for their recognition in the financial statements. +F-36 +Table of Conten ts +A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands): +Year Ended December 31, +2024 2023 2022 +Uncertain tax benefits, beginning of year $ 20,155 $ 28,967 $ 33,425 +Gross increase to tax positions related to prior years — 338 31 +Gross decrease to tax positions related to prior years ( 1,457 ) ( 36 ) ( 1,109 ) +Gross increase to tax positions related to the current year 2,953 2,036 675 +Gross decrease to tax positions related to the current year — — — +Settlements — ( 4,636 ) — +Lapse of statute of limitations ( 5,235 ) ( 6,514 ) ( 4,055 ) +Uncertain tax benefits, end of year $ 16,416 $ 20,155 $ 28,967 +As of December 31, 2024, the Company had $ 16.4 million of gross unrecognized tax benefits, of which $ 16.4 million, if fully recognized, would affect the Company’s effective tax rate. The timing of resolution for these liabilities is uncertain. The resolution of these items may result in additional or reduced income tax expense. Possible releases of liabilities due to expirations of statutes of limitations will have the effect of decreasing the Company’s income tax expense and the effective tax rate, if and when they occur. Although the timing of resolution and/or closure of tax audits cannot be predicted with certainty, the Company believes it is reasonably possible that approximately $ 3.7 million of its reserves for uncertain tax positions may be released in the next 12 months. +The Company recognizes interest and penalties related to liabilities for uncertain tax positions in income tax expense in the Consolidated Statements of Operations. Interest and penalties were $ 2.2 million, $ 3.5 million, and $ 0.9 million for the years ended December 31, 2024, 2023, and 2022, respectively. The Company has recognized total accrued interest and penalties of approximately $ 6.7 million, $ 8.9 million, and $ 12.4 million as of December 31, 2024, 2023, and 2022, respectively, relating to uncertain tax positions. +The Company conducts business globally and, as a result, the Company and its subsidiaries file income tax returns in the U.S., including various states, and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The tax years 2021 and forward are open for U.S. federal income tax matters. The tax years 2018 and forward are open for U.S. state income tax matters. With few exceptions, foreign tax filings are open for years 2012 and subsequent years. As of December 31, 2024, the Company is currently undergoing audit examinations for tax years 2018 through 2021 by the New York State Department of Taxation, for tax years 2012 through 2016 by the Canada Revenue Agency, and for tax years 2015 through 2021 by Irish Revenue. +Deferred Taxes and Valuation Allowances +The Company follows authoritative guidance for accounting for income taxes, which requires the Company to reduce deferred tax by a valuation allowance if, based on the weight of all available positive and negative evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all available evidence for the realizability of U.S. deferred tax assets, the Company provided a valuation allowance of $ 145.9 million and $ 148.9 million for the years ended December 31, 2024 and December 31, 2023, respectively. In future periods, the Company will evaluate the positive and negative evidence available at the time in order to support its analysis for a valuation allowance, and as a result the Company may release its valuation allowance in part, or in total, when it becomes more likely than not that the deferred tax assets will be realized. +F-37 +Table of Conten ts +Deferred tax assets, liabilities and valuation allowance are as follows (in thousands): +December 31, +2024 2023 +Deferred tax assets +Income tax attributes $ 240,182 $ 242,234 +Accrued liabilities and reserves 27,600 18,874 +Operating lease liabilities 7,060 9,077 +Prepaid expenses — — +Stock-based compensation expense 5,388 5,893 +Other 1,003 855 +Gross deferred tax assets 281,233 276,933 +Less valuation allowance ( 164,322 ) ( 168,185 ) +Total deferred tax assets 116,911 108,748 +Deferred tax liabilities +Amortization and depreciation ( 53,012 ) ( 44,932 ) +Operating lease assets ( 5,707 ) ( 7,598 ) +Prepaid expenses ( 2,738 ) ( 3,667 ) +Unrealized foreign exchange gains/losses ( 14,949 ) ( 3,587 ) +Other 1 +( 897 ) ( 1,144 ) +Net deferred tax liabilities, net of valuation allowance $ 39,608 $ 47,820 +1 Prior year amount has been reclassified to conform to the current year presentation. Previously reported balance is included in the Foreign exchange gain (loss) - net line item above. +The deferred tax assets at December 31, 2024, with respect to net operating loss carryforwards and expiration periods are as follows (in thousands): +Deferred +Tax +Assets Net Operating +Loss +Carryforwards +United States, expiring between 2024 and 2043 $ 8,694 $ 124,310 +Foreign, expiring between 2024 and 2044 16,114 64,331 +Foreign, indefinite 54,705 425,945 +Total $ 79,513 $ 614,586 +The following is information pertaining to U.S. federal tax credits at December 31, 2024, as well as the expiration periods (in thousands): +Tax +Credits +United States, federal tax credit carryforwards: +Foreign tax credits, expiring between 2024 and 2034 $ 26,242 +Total $ 26,242 +The components of our net deferred taxes at the reported balance sheet dates are primarily comprised of amounts relating to net operating loss carryforwards, accrued assets and liabilities, and depreciable and amortizable assets. +F-38 +Table of Conten ts +21. SEGMENT AND GEOGRAPHIC INFORMATION +Getty Images is a preeminent global visual content creator and marketplace that offers a full range of content solutions to meet the needs of customers around the globe. Through Getty Images, iStock, and Unsplash brands, websites and APIs, the Company distributes content and service offerings through three primary product lines: Creative, Editorial, and Other. +As of December 31, 2024, 2023 and 2022, the Company identified one operating and reportable segment for purposes of allocating resources and evaluating financial performance. The Company determines its reportable segment primarily based on the management of the business on a consolidated basis rather than by product, as this information is not how the CODM oversees the business. +As part of its financial management practices, the Company conducts an annual budgeting process and regularly reviews forecasted and actual financial results. The Chief Executive Officer, who serves as the Company’s CODM, uses these forecast and actual results to manage the business. The metric most closely aligned with U.S. GAAP, utilized by the CODM to assess financial performance, guide strategic planning, and allocate resources for the reportable segment is net income. +The Company does not have intra-entity sales or transfers. Asset information on a segment basis is not different than that presented in the consolidated balance sheets. +Segment Financial Information +Certain financial information for the Company’s segment, including significant expenses that are used by the CODM to assess the business performance and other segment expense items are listed below: +(In thousands) Year Ended +December 31, +2024 2023 2022 +Revenue $ 939,287 $ 916,555 $ 926,244 +Less: +Significant segment expense items 1 : +Cost of revenue (exclusive of depreciation and amortization) 253,068 250,249 254,990 +Adjusted Selling, general & administrative expenses 2 +338,804 316,350 310,475 +Marketing costs 47,144 48,514 55,815 +Other segment items 3 +119,466 173,770 102,931 +Segment income from operations 180,805 127,672 202,033 +Interest expense ( 131,408 ) ( 126,884 ) ( 117,229 ) +Other non-operating income (expense) 4 +37,558 ( 27,693 ) ( 118,321 ) +Segment income (loss) before income taxes 86,955 ( 26,905 ) ( 33,517 ) +Income tax (expense) benefit ( 47,483 ) 46,482 ( 44,126 ) +Segment net income (loss) 39,472 19,577 ( 77,643 ) +Reconciliation of segment profit or loss — — — +Consolidated net income (loss) 39,472 19,577 ( 77,643 ) +F-39 +Table of Conten ts +1 The significant segment expense items are expense information that is regularly provided to the CODM. +2 Total Selling, general and administrative expenses, excluding Marketing costs and Equity compensation expenses. +3 Includes Depreciation, Amortization, Other operating expense (income) - net, Loss on litigation, Recovery of loss on litigation, and Equity compensation expenses. +4 Other segment non-operating income (expense) includes (Loss) gain on fair value adjustment for swaps – net , Foreign exchange gain (loss) – net , Loss on extinguishment of debt, Net loss on fair value adjustment for warrant liabilities and Other non-operating income - net. +See “ Note 14 — Revenue ” for a breakdown of revenue by product. +Geographic Financial Information +The following represents the Company’s geographic revenue based on customer location (in thousands): +December 31, +2024 2023 2022 +Americas $ 535,723 $ 515,374 $ 525,775 +Europe, the Middle East, and Africa 302,745 298,589 293,673 +Asia-Pacific 100,819 102,592 106,796 +Total Revenues $ 939,287 $ 916,555 $ 926,244 +Included in Americas is the United States, which comprises approx imately 52.0 %, 51.2 % and 51.7 % of total revenue for the years ended December 31, 2024, 2023 and 2022, respectively. Included in Europe, the Middle East, and Africa is the United Kingdom, which accounts for approximately 10.7 %, 11.1 % and 10.4 % of total revenue for the years ended December 31, 2024, 2023 and 2022, respectively. No other country accounts for more than 10% of the Company’s revenue in any period presented. +The Company’s long-lived tangible assets were located as follows (in thousands): +December 31, +2024 2023 +Americas $ 93,667 $ 89,728 +Europe, the Middle East, and Africa 83,169 89,164 +Asia-Pacific 456 487 +Total long-lived tangible assets $ 177,292 $ 179,379 +Included in Americas is the United States, which comprises 47.0 % and 45.2 % of total long-lived tangible assets as of December 31, 2024 and 2023, respectively. Included in Europe, the Middle East, and Africa is Ireland, which comprises 39.9 % and 42.8 % of total long-lived tangible assets as of December 31, 2024 and 2023, respectively. +F-40 +Table of Conten ts +22. NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS +The following table sets forth the computation of basic and diluted (loss) income per share of Class A common stock (amounts in thousands, except share and per share amounts): +Year end December 31, +2024 2023 2022 +NET INCOME (LOSS) $ 39,472 $ 19,577 $ ( 77,643 ) +Less: +Net income (loss) attributable to noncontrolling interest ( 61 ) 238 ( 89 ) +Premium on early redemption of Redeemable Preferred Stock — — 26,678 +Redeemable Preferred Stock dividend — — 43,218 +NET INCOME (LOSS) ATTRIBUTABLE TO GETTY IMAGES HOLDINGS, INC. - Basic $ 39,533 $ 19,339 $ ( 147,450 ) +Weighted-average Class A common stock outstanding: +Basic 409,144,863 399,037,805 276,942,660 +Effect of dilutive securities 5,725,938 12,457,220 — +Diluted 414,870,801 411,495,025 276,942,660 +Net income (loss) per share of Class A common stock attributable to Getty Images Holdings, Inc. common stockholders: +Basic $ 0.10 $ 0.05 $ ( 0.53 ) +Diluted $ 0.10 $ 0.05 $ ( 0.53 ) +The following are excluded from the computation of diluted net income per share of Class A common stock as their effect would have been anti-dilutive: +December 31, +2024 2023 2022 +Common stock options 5,173,148 4,424,674 29,934,987 +Restricted stock units 5,325,324 2,335,684 4,367,413 +10,498,472 6,760,358 34,302,400 +23. SUBSEQUENT EVENTS +Merger Agreement with Shutterstock +On January 6, 2025, Getty Images entered into an Agreement and Plan of Merger (the “Merger Agreement”) to combine in a merger-of-equals transaction with Shutterstock, Inc. (“Shutterstock”) (such transaction referred to herein as the “Merger”). Subject to terms and conditions in the Merger Agreement, the aggregate consideration to be paid by Getty Images in respect of the outstanding shares of common stock of Shutterstock will be: +• An amount in cash equal to the product of $ 9.50 multiplied by the number of shares of Shutterstock common stock outstanding immediately prior to the transaction close (including vested Shutterstock restricted stock units and performance stock units) (the “Total Cash Amount”); and +• A number of shares of Getty Images common stock equal to the product of 9.17 multiplied by the number of shares of Shutterstock common stock outstanding immediately prior to the transaction close (including vested Shutterstock restricted stock units and performance stock units) (the “Total Stock Amount”). +Each of the Total Cash Amount and the Total Stock Amount will be fixed as of immediately prior to closing of the Merger. Therefore, cash elections will be subject to proration if cash elections are oversubscribed and stock elections will be subject to proration if stock elections are oversubscribed. +F-41 +Table of Conten ts +Each holder of Shutterstock common stock immediately prior to the transaction close will have the option to receive, subject to proration, for each share of Shutterstock common stock held by such holder: +• Cash consideration of $ 9.50 and 9.17 shares of Getty Images common stock; +• Cash consideration of $ 28.8487 ; or +• 13.67237 shares of Getty Images common stock. +Following the close of the transaction, Getty Images stockholders will own approximately 54.7 % and Shutterstock stockholders will own approximately 45.3 % of the combined company on a fully diluted basis. The transaction is subject to the satisfaction of customary closing conditions, including receipt of required regulatory approvals, the approval of Getty Images and Shutterstock stockholders and other customary closing conditions. +Through December 31, 2024, Getty Images has expensed $ 4.1 million of legal, accounting, and direct costs related to this proposed Merger in “ Other operating expenses (income) – net ” on the consolidated balance sheets. +On January 28, 2025, Getty Images filed its Premerger Notification and Report Form under the HSR Act (“HSR Filing”). On February 27, 2025 Getty Images withdrew its HSR Filing and refiled it on March 3, 2025. The waiting period under the HSR Act will expire at 11:59 pm on April 2, 2025, unless earlier terminated or otherwise extended. +Refinancing Amendment +On February 21, 2025 (the “Amendment Effective Date”), Abe Investment Holdings, Inc., a Delaware corporation (the “Parent Borrower”), and Getty Images, Inc., a Delaware corporation (the “Getty Borrower”, and together with the Parent Borrower, the “Borrowers”), which are subsidiaries of Getty Images, entered into the Second Incremental Commitment Amendment and Third Amendment to Credit Agreement (the “Refinancing Amendment”), which amended their existing credit agreement, dated as of February 19, 2019 (as amended, restated, amended and restated, supplemented or otherwise modified prior to the Amendment Effective Date, the “Existing Credit Agreement” and as amended by the Refinancing Amendment, the “Amended Credit Agreement”). The Refinancing Amendment, among other things, provided for (i) a new tranche of senior secured fixed rate incremental term loans denominated in U.S. Dollars in an aggregate principal amount of $ 580.0 million (the “Dollar Fixed Rate Term B-1 Loans”) and (ii) a new tranche of senior secured term loans denominated in Euros in an aggregate principal amount of € 440.0 million (the “Euro Term B-1 Loans” and together with the Dollar Fixed Rate Term B-1 Loans, the “Term B-1 Loans”). The proceeds of the Term B-1 Loans were used to refinance in full all outstanding term loans under the Existing Credit Agreement. The Term B-1 Loans will mature on February 21, 2030; provided that, if more than $ 25.0 million of the Borrowers’ existing senior unsecured notes or refinancing indebtedness in respect thereof remain outstanding with a maturity date earlier than the date that is 91 days after February 21, 2030, then the maturity of the Euro Term B-1 Loans shall spring to the date that is 91 days prior to the maturity of such senior unsecured notes or refinancing indebtedness in respect thereof. +The Dollar Fixed Rate Term B-1 Loans will accrue interest at an initial fixed rate of 11.25 % per annum (the “Initial Fixed Rate”), which will step-up to 12.25 % per annum on May 14, 2025 and 13.25 % per annum (the “Maximum Fixed Rate”) on August 14, 2025; provided that, if the Borrowers (i) commence a Permitted Debt Exchange Offer (as defined in the Amended Credit Agreement) and (ii) either (x) consummate such Permitted Debt Exchange (as defined in the Amended Credit Agreement) or (y) if no lenders elect to exchange their Dollar Fixed Rate Term B-1 Loans, permit the full election period set forth in the definitive documentation for such Permitted Debt Exchange Offer to expire, in each case, with respect to the Dollar Fixed Term B-1 Loans on or before December 31, 2025, then the interest rate shall be the Initial Fixed Rate at all times thereafter; provided further that, if such first Permitted Debt Exchange is consummated after December 31, 2025, then the interest shall be the Maximum Fixed Rate at all times thereafter. The Dollar Fixed Rate Term B-1 Loans shall be due and payable at maturity. +The Euro Term B-1 Loans will accrue interest at the Adjusted Eurodollar Rate (as defined in the Amended Credit Agreement and based on EURIBOR) plus 6.00 % per annum. The Euro Term B-1 Loans will amortize at 5.0 % per annum, payable in equal quarterly installments beginning on June 30, 2025. +With respect to the Dollar Fixed Rate Term B-1 Loans, any optional prepayment or mandatory prepayment as a result of incurring refinancing debt on or prior to the fourth anniversary of the Amendment Effective Date will be subject to +F-42 +Table of Conten ts +a prepayment premium equal to (i) if such prepayment is made prior to the second anniversary of the Amendment Effective Date, a make-whole amount constituting the applicable Initial Prepayment Premium (as defined in the Amended Credit Agreement), (ii) if such prepayment is made on or after the second anniversary of the Amendment Effective Date but prior to the third anniversary of the Amendment Effective Date, 5.625 % of the principal amount of the Dollar Fixed Rate Term B-1 Loans prepaid and (iii) if such prepayment is made on or after the third anniversary of the Amendment Effective Date but prior to the fourth anniversary of the Amendment Effective Date, 2.813 % of the principal amount of the Dollar Fixed Rate Term B-1 Loans prepaid. With respect to the Euro Term B-1 Loans, any optional prepayment or mandatory prepayment as a result of incurring refinancing debt on or prior to the second anniversary of the Amendment Effective Date will be subject to a prepayment premium equal to (i) if such prepayment is made prior to the first anniversary of the Amendment Effective Date, a make-whole amount constituting the applicable Initial Prepayment Premium and (ii) if such prepayment is made on or after the first anniversary of the Amendment Effective Date but prior to the second anniversary of the Amendment Effective Date, 1.00 % of the principal amount of the Euro Term B-1 Loans prepaid. Any prepayment of Term B-1 Loans in connection with a Permitted Debt Exchange shall not be subject to any prepayment premium. +F-43 \ No newline at end of file diff --git a/raw/filings/0001898496/2024/0001628280-25-013103/filing_metadata.csv b/raw/filings/0001898496/2024/0001628280-25-013103/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..c28dd83197ec24241ea883ccf682d46698108fc8 --- /dev/null +++ b/raw/filings/0001898496/2024/0001628280-25-013103/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001898496,GETY,"Getty Images Holdings, Inc.",2024,10-K,2025-03-17,2024-12-31,2025-03-17T20:11:33.000Z,0001628280-25-013103,gety-20241231.htm,10-K,16192035,1,1,https://www.sec.gov/Archives/edgar/data/1898496/000162828025013103/gety-20241231.htm,https://www.sec.gov/Archives/edgar/data/1898496/000162828025013103/ diff --git a/raw/filings/0001898496/2024/0001628280-25-013103/item1.txt b/raw/filings/0001898496/2024/0001628280-25-013103/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..e77401d7f603a73e1f123c7bb7b257941bf6a6a8 --- /dev/null +++ b/raw/filings/0001898496/2024/0001628280-25-013103/item1.txt @@ -0,0 +1,105 @@ +Item 1. Business. +The Company +Getty Images Holdings, Inc. is a Delaware corporation with its corporate headquarters located at 605 5th Ave S., Suite 400, Seattle, Washington 98104, telephone number (206) 925-5000, internet website address www.gettyimages.com. Our internet website and content contained therein or connected thereto are not incorporated by reference into this Annual Report. References to “Getty Images,” the “Company,” “we,” “our” and “us” and similar terms mean Getty Images Holdings, Inc. and its subsidiaries following the completion of the Business Combination (as defined below), unless the context otherwise requires. +The Business Combination +On July 22, 2022 (the “Closing Date”), the Company consummated the transactions in the Business Combination Agreement, dated December 9, 2021 (the “Business Combination Agreement” and the consummation of such transactions, the “Closing”), by and among CC Neuberger Principal Holdings II, a Cayman Islands exempted company (“CCNB”), the Company (at such time, named Vector Holding, LLC, a Delaware limited liability company and wholly-owned subsidiary of CCNB), Vector Domestication Merger Sub, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (“Domestication Merger Sub”), Vector Merger Sub 1, LLC, a Delaware limited liability company and a wholly-owned subsidiary of CCNB (“G Merger Sub 1”), Vector Merger Sub 2, LLC, a Delaware limited liability company and a wholly-owned subsidiary of CCNB (“G Merger Sub 2”), Griffey Global Holdings, Inc., a Delaware corporation (“Legacy Getty”), and Griffey Investors, L.P., a Delaware limited partnership (the “Partnership”). On the day prior to the Closing Date, the Company statutorily converted from a Delaware limited liability company to a Delaware corporation (the “Statutory Conversion”). On the Closing Date, CCNB merged with and into Domestication Merger Sub, with Domestication Merger Sub surviving the merger as a wholly-owned direct subsidiary of the Company (the “Domestication Merger”). Following the Domestication Merger on the Closing Date, G Merger Sub 1 merged with and into Legacy Getty, with Legacy Getty surviving the merger as an indirect wholly-owned subsidiary of the Company (the “First Getty Merger”). Immediately after the First Getty Merger, Legacy Getty merged with and into G Merger Sub 2 with G Merger Sub 2 surviving the merger as an indirect wholly-owned subsidiary of the Company (the “Second Getty Merger” and together with the First Getty Merger, the “Getty Mergers” and, together with the Statutory Conversion and the Domestication Merger, the “Business Combination”). See “ Note 3 — Business Combination ” for further details. +Legacy Getty was incorporated in Delaware on September 25, 2012, and in October of the same year, indirectly acquired Getty Images, Inc. +Business Overview +Getty Images was founded in 1995, with the core mission of bringing the world’s best creative and editorial visual content solutions to our customers to engage their audiences. We have developed market enhancements across e-commerce, content subscriptions, user-generated content, diverse and inclusive content, and proprietary research alongside investment in our technology platform (which includes generative AI-services designed to be commercially safe, natural language processing, and AI based integrated APIs) to become a global, trusted industry leader in the visual content space. On January 6, 2025, Getty Images entered into an Agreement and Plan of Merger to combine in a merger-of-equals transaction with Shutterstock. See “ Item 7 – Management’s Discussion and Analysis of Financial and Results of Operations – Merger Agreement with Shutterstock ”. +3 +Table of Conten ts +Product Offerings +Our comprehensive product offering is designed to address the full spectrum of customers’ visual content needs. +Target Customer Enterprises SMBs SMBs, Prosumers, Pro & Semipro Content Creators +Asset Type Premium Creative & Editorial +(Stills, Music, Video, and Generative AI) Budget-Conscious Stills, Video, and Generative AI Free & Low-Cost Creative Stills +Asset Rights Uncapped Indemnification and Rights Customized to Customer Needs Capped Indemnification With Option for More Protection Capped / No Indemnification +Go-to-Market Premium Account Management & Dedicated Support Primarily E-Commerce and Online Service Primarily E-Commerce and Online Service +Plans and Pricing A La Carte, Subscriptions and Custom Assignments A La Carte and Subscriptions Free (Ads), Subscriptions, Ad-supported and Paid API Integrations +• Getty Images is our premium offering focused on corporate, agency, and media customers, serving the full breadth of our customers’ content needs by combining the highest quality content with premium support and customized rights and protections. Customers can purchase on an a la carte basis and through subscriptions, including our “Premium Access” product, where we enable customers to access our complete library of creative and editorial images and video and music, via one website and one set of terms. Our assignment capabilities along with our Custom Content offering, a subscription product that leverages Getty Images’ global network of photographers and videographers to create customized and exclusive project-specific content, enables Getty Images to produce cost-effective content to meet the specific needs of customers. In the fall of 2023, we launched Generative AI by Getty Images in partnership with NVIDIA Corporation (“NVIDIA”), which is designed to be a commercially safe AI image generation service that is trained exclusively with Getty Images creative content. +4 +Table of Conten ts +• iStock is our value offering of creative stills and videos, which provides a significant volume of exclusive image and video content to small to medium sized businesses, furnishing them with a powerful and cost-efficient means to produce and maintain their visual narrative. Customers can purchase on an a la carte basis and through a range of monthly and annual subscription options. Customers can also use Generative AI by iStock to create, ready to use AI generated content that is designed to be commercially safe and is trained exclusively with Getty Images creative content. +• Unsplash is a widely accessed, creative stills offering serving the fast-growing and broad-based creator economy ranging from prosumers and semi-professional creators to full time creative professionals working at corporations and agencies. Customers can purchase an unlimited subscription, which includes premium content that has specific legal protections, or download from the millions of free images. +• In addition to our websites, customers and partners can access and integrate our content, metadata, and search capabilities into their workflows via our APIs, such as through Canva, and through a range of mobile apps and plugins, including Adobe Creative Cloud, WordPress, and other publishing and workflow platforms. +• In recent years, we have shifted revenues toward subscription products including annual subscription products to drive revenue growth and durability. As of December 31, 2024, annual subscriptions represented more than half of total revenue. We offer a complete range of subscription products on our Getty Images, iStock and Unsplash websites. Our Premium Access subscription offers all of Getty Images’ Creative and Editorial image and video content and music in one subscription. We similarly continue to see more subscription adoption in e-commerce through our iStock subscription, which includes images video and music, and Unsplash+, which is an unlimited image-only subscription. In all cases, our annual subscriptions provide greater customer and revenue visibility and upside through expanded consumption and ongoing cross-sell and upsell opportunities via our dedicated Customer Success team. +Content & Services +While we go to market through our Getty Images, iStock, and Unsplash brands, we categorize our content and services into three categories — Creative, Editorial and Other. +• Creative : Creative is comprised of royalty-free (“RF”) photos, illustrations, vectors, videos, and generative AI-services that are released for commercial use and cover a wide variety of commercial, conceptual, and contemporary subjects, including lifestyle, business, science, health, wellness, beauty, sports, transportation and travel. This content is available for immediate use by a wide range of customers with depth, breadth, and quality, allowing our customers to produce impactful websites, digital media, social media, marketing campaigns, corporate collateral, textbooks, movies, television and online video content relevant to their target geographies and audiences. We primarily source Creative content from a broad network of professional, semi-professional, and amateur creators, many exclusive to Getty Images. We have a global creative insights team dedicated to providing briefi ng and art direction to our exclusive contributor community. Creative represents 58.9% , 63.1% and 63.2% of our revenue of which 56.0%, 52.2% 1 and 46.5% 1 is generated through our annual subscription products, for the years ended December 31, 2024, 2023 and 2022, respectively. Annual Subscription products include products and subscriptions with a duration of 12 months or longer, Unsplash API, and Custom Content. +• Editorial : Editorial is comprised of photos and videos covering the world of entertainment, sports and news. We combine contemporary coverage of events around the globe with one of the largest privately held archives globally with access to images spanning all the way back to the beginning of photography. We invest in a dedicated editorial team which includes 110 staff photographers and videographers to generate our own coverage in addition to coverage from our network of content partners. Editorial represents 36.8%, 35.0% and 35.2% of our revenue, of whic h 53.7% , 53.3% and 52.1% is generated through our annual subscription products, for the years ended December 31, 2024, 2023 and 2022, respectively. Annual Subscription products include subscriptions with a duration of 12 months or longer. +• Other : Other represents 4.3%, 1.9%, and 1.6% of our revenue for the years ended December 31, 2024, 2023, and 2022, respectively. This includes music licensing, digital asset management, distribution services, print sales, and data access and/or licensing. +1 Prior year percentage has been restated to conform to the current year presentation. +5 +Table of Conten ts +With a consistently differentiated, authentic and high-quality content offering at our core, we have a rich history of embracing disruption and innovation with regard to how that content is packaged, accessed, licensed, created and distributed to an evolving universe of customers. +Comprehensive Premium Product Offering +Our differentiated, authentic and high-quality content offering is generated through: +• A growing base of more tha n 583,000 contributors, of which over 81,000 are exclusive to Getty Images. +• Over 75 exclusive editorial content partners, such as AFP, Disney, Glo bo, ITN, Bloomberg, BBC Studios, CBS, The Boston Globe, Fairfax Media, NBC News Archives and Sky News, who rely upon Getty Images to manage and license their content and Formula One, NBA, NHL, MLB, NASCAR, FIFA and International Olympic Committee, who, in addition to distributing content from their events through Getty Images, grant us unique commercial rights with event and content access. +• Nearly 400 dedicated staff content experts across creative and editorial who guide and contribute to the creation of over 11 million new visual assets per quarter and have been recognized with more than 1,500 major industry awards including the 2022 Pulitzer Prize for Breaking News Photography, World Press Photo, Picture of the Year International, Sony World Photography Awards, White House Photographer of the Year, The Lucie Awards, Visa d’Or, Ville de Perpignan Remi Ochlik, UK Picture Guild Awards, Press Photographer of the Year, Sports Photographer of the Year and Creative Review Photography Annual. +• A unique comprehensive visual archival collection covering a broad range of geographies, time periods and content categories such as news, sport, celebrity, music and fashion. +Collectively, these represent a growing library of over 604 million total assets that delivers unmatched depth, breadth, and quality to meet the expanding needs of our growing customer base. For more information, see “ —Our Content Contributors ” below. +Customers +Our customers are in the categories of corporate, agency and media. For the year ended December 31, 2024, corporations, media, and agency customers contributed approximately 56%, 29%, and 15%, of revenue, respectively. Through our brands Getty Images, iStock and Unsplash, we reach customers from the largest enterprises to the smallest businesses and individual creators. In addition, we maintain deep integrations with internet platforms, ensuring broad access to our content across the creative economy. +Getty Images is privileged to work with the world’s leading companies every day. In 2024 and 2023, over 80% of our booked revenues were from customers that have a tenure of 10 years or more. In addition to maintaining strong revenue from highly tenured customers, we added more tha n 385,000 new customers during the year ended December 31, 2024. +We al so have strong revenue diversification. For the year ended December 31, 2024, our top ten customers contributed less than 7% of our booked revenue. +Proprietary Platform & Infrastructure +The Getty Images and iStock websites and related systems are on a unified, global, cloud-based platform. We source and store our content on a common, scalable, and proprietary rights and content management system that supports all content types and categories. This platform enables customers to search, select, license, and download content from our websites and supports our centralized sales order processing, customer database management, finance, and accounting. We believe that our unified platform allows for resource efficiency and its scalability, reliability and flexibility allow us to service customers in any geography, handle a variety of visual content and address changing customer demands. From this unified platform, we benefit from a comprehensive view into customer behavior and needs, which allows us to effectively evolve our content offering, services and proprietary search algorithms to deliver the unique insights to our customers. We operate multiple websites which are available on a global basis, maintained in 23 different languages, localized for their respective markets, and which provide for e-commerce transactions in 34 local currencies. +6 +Table of Conten ts +Back-end integration across the Getty Images and iStock websites and brands allows for efficiency of use by customers, enabled by natural language processing and machine learning to understand the context and meaning behind a user’s search query, along with additional search capabilities that are enabled by patented search technology that attaches metadata such as captions, keywords, and tags to our content. Our metadata is translated by proprietary and patented controlled vocabularies into multiple languages. Dynamic image placement algorithms present the most relevant content to customers based on features such as customer location, search and license history, and the businesses type. We continuously invest in our digital platform to improve our customer experience and functionality through improvements in search engine optimization and marketing analytics, dynamic image placement algorithms, customer support and partner/API access, use of image recognition technologies, and development license models that adapt to customer needs and behaviors. +In 2023, we partnered with NVIDIA to train and deliver a monetizable, generative AI image tool, enhancing our offerings to our customers. It is trained exclusively on Getty Images creative content and data and provides customers with images designed to be commercially safe, while compensating contributors for the use of their copyrighted works as training data. +Marketing +Since 2019, we have improved our marketing efficiency, which has driven acceleration in our new customer growth, with new customers per million Dollars of digital marketing spend increasing b y more than 30% in 2024 when compared to 2019, driven by marketing efficiency which helps drive new customer acquisition. We shifted our marketing mix to take advantage of free website traffic through affiliate partnerships, expanded our geographic investment, invested in search engine optimization, and implemented a rigorous data-driven e-commerce business. These steps have improved our marketing returns, resulting in decreased customer acquisition cost (since 2019 down b y over 20% to $133 in 2024) and improved revenue opportunity and customer lifetime value. +Our Business Transformation +Over the past several years, we have reoriented our strategy and made significant business investments. Key initiatives implemented include: +• Unification and migration of our end-to-end platform to the cloud. +• Investment in best-in-class customer relationship management tools and technologies such as Salesforce.com. +• Transition of a significant share of our business to a differentiated subscription offering with strong retention characteristics. +• Successfully exited legacy declining products (Creative Rights Managed, Unauthorized Use and Thinkstock) to simplify our offering, reduce customer friction, and to better focus our resources. +• Invested in search engine optimization and altered our digital marketing deployment to accelerate new customer growth through our iStock brand. +• Launched our Custom Content offering to allow customers to efficiently secure brand and product- specific imagery through our global contributor network. +• Restructured our Sales, Customer Success Management, and Customer Service functions to take advantage of our global scale to reduce costs and improve service levels. +• Acquired Unsplash, monetized API offerings on Unsplash and launched Unsplash+, the unlimited subscription model, all of which allows us to tap into the growth of the creator economy long tail. +• Partnership with leading technology companies, including NVIDIA, Bria AI and Runway, to develop image and video generative AI models and services designed to be commercially safe that compensate creators on a recurring basis for the use of their content as training data. +• Extended search experience to accept natural language queries, allowing customers to be more expressive in their searches and, in turn, we better understand their intent and serve content that meets their needs. +• Continued to deleverage our balance sheet, including the principal payment in August 2022 of $300 million and further voluntary payments totaling $57.8 million in 2024 under our Credit Facility, and recently refinanced our Term Loans in the first quarter of 2025. Please refer to “ Note 23 — Subsequent Events ” in our consolidated financial statements for more discussion on our debt refinance. +We believe that our transformation and investments, together with the changes driving industry growth, set the stage for our next phase of growth. +7 +Table of Conten ts +Growth Strategies +We believe we are well-positioned to continue generating revenue and strong cash flow by capitalizing on the increasing demand for visual content driven by long-term trends through our differentiated end-to-end content offering, our established brands and corresponding market coverage, and our strong value proposition to customers and content providers. We anticipate our future growth to be driven by the following strategies: +Capturing growth within the Corporate Market : The corporate market has been a clear and steady source of growth over the last several years and we believe a large corporate market opportunity still exists. To capture this opportunity, we realigned our sales force and their incentives to target further penetration and upsell of the corporate market. Furthermore, we increased our customer service capabilities and resources against the segment and launched new and upgraded products to better meet corporate needs. Through our Custom Content product, we are able to leverage our contributor network to deliver budget-friendly custom photos, illustrations and videos to customers. Through continued investment and focus, our management believes that it can further accelerate growth across the corporate segment. +Accelerate our penetration across high-growth geographies : We are focused on deepening our international reach by investing in digital marketing, search engine optimization and further localization of our services, offerings and content in geographies where we are unde rpenetrated. We believe we are well-positioned from a brand, content, and product perspective across 23 languages and 34 currencies to capture an increased share of these attractive, underpenetrated market opportunities. +Continued emphasis on subscription offerings : Annual subscription revenues now comprise more than half our total revenue, and we expect to further increase penetration over time through an emphasis on our e-commerce offerings and continued growth of our larger subscription offerings. +Annual Subscription Revenue 1 +1 Represents annual subscription product revenue as a percentage of total revenue (excluding certain retired products). +Continue to grow video consumption : The video attachment rate, a measure of the percentage of total paid customer downloaders who are video downloaders, increased to 16.5% for the year ended December 31, 2024 from 14.1% for the year ended December 31, 2023. However, a pproximately 30% of Getty Images and 14% of iStock customers +8 +Table of Conten ts +purchase video. We expect more customers to use video in the future, which we believe creates a stickier customer that potentially consumes and spends more on our platform. +Video Attachment Rate 1 +1 Attachment is calculated as % of downloaders who downloaded video from all offerings (inclusion of subscription and non-subscription products). +Increase wallet share within existing customer base : We expect to increase wallet share with existing customers by upselling into larger subscription products with increased download caps and including video. Additionally, we can cross sell into products such as Generative AI, Custom Content, music, and Media Manager, our digital asset management product. These offerings drive significant increases in Average Annual Revenue per User (“ARPU”) from our customers and can drive high customer retention. +Monetize and expand reach into growing long-tail creator economy : We believe our acquisition of Unsplash has strengthened our position in the rapidly growing “creative long-tail” economy. Unsplash attracts more than 16 mi llion visitors per month and has ove r 27,000 API integrations. Traffic has grown significantly in the last three years, with monthly image downloads averaging more than 96 million, which we believe reflects the significant opportunity across the “long tail” creator economy. In addition to growing the existing advertising revenue streams, we are monetizing existing API integrations through licensing fees and Unsplash+, an unlimited subscription that launched October 2022, that includes premium content (with corresponding license protections) to Unsplash users. +Opportunities for AI, data and insights : We have partnered with leading AI innovators such as NVIDIA, Bria AI and Runway, to develop generative AI models that are designed to deliver commercially safe image and video generation and editing services. As part of these efforts, in 2023 we launched Generative AI by Getty Images and in early 2024 Generative AI by iStock, which are designed to be commercially-safe AI text to image generation services, available on gettyimages.com and istock.com. We have and will continue to leverage Artificial Intelligence and Machine Learning capabilities to improve the relevance and effectiveness of our imagery, our search efficiency and enable image editing. We are continuously investing to bring unique capabilities and insights to increase customer stickiness and to drive new revenue streams. Getty Images also licenses the use of its visual assets and associated metadata to customers in connection with the development of artificial intelligence and machine learning tools. +Pursue accretive and strategic acquisitions : We have a successful track record of executing and integrating acquisitions. We have been able to leverage our content, brands, and large customer base to enter related, but adjacent markets to achieve efficiencies and accelerate growth. +Our Content Contributors +The content we license to our customers is sourced from more than 583,000 photographers, videographers, illustrators, and image partners from almost every country in the world. We do not rely on any single individual or group of suppliers to meet our content supply needs. Content sourced from any single content supplier accounted for no more than 3% of revenue in the year ended December 31, 2024. As of December 31, 2024, we owned or licensed more than 604 million images and videos. +9 +Table of Conten ts +We have 110 staff photographers and videographers and ov er 81,000 exclusive contributors, which includes premium content partners. These exclusive relationships allow for transparent information and the sharing of research and insights with contributors. Nearly 70% of our revenue was generated from exclusive content during 2024 highlighting customer demand for high quality, differentiated content in a world with nearly infinite visual content. For the year ended December 31, 2024, we paid nearly 220 million in royalties to our content contributors, which includes content partners. +Independent contributors +Independent contributors typically fund their own production costs and retain copyright ownership of their content but enter contracts with Getty Images granting global distribution and pricing rights, often on an exclusive basis. These content sourcing agreements also provide representations and warranties by content suppliers as to the copyrights and other intellectual property rights in the content, including representations as to the released nature of the content, if relevant. +Image Partners +Image partners are third-party companies that license their collection of content through us. We generally act as our image partners’ primary or exclusive distribution channel, enabling us to commercialize their editorial coverage of news, entertainment and sporting events and their fully released creative content. Image Partners provide both their wholly-owned and third-party contributor content to us for license through our extensive global network. +Staff and Freelance photographers/videographers +We have 110 full-time staff photographers and videographers, who supply Editorial photos and video content across news, sports, and entertainment. These staff professionals are award-winning experts in their fields and are employed by Getty Images. For most staff-produced content, we pay very limited, if any, royalties. We also utilize our global network of freelance photographers to cover events. In many cases, we own the resulting copyright and pay no royalties as these photographers are paid a set rate to shoot the event. +Archive +Getty Images maintains one of the largest and best privately-owned photographic archives in the world with over 150 million images across geographies, time periods and verticals. Additionally, we exclusively represent and maintain unique archives such as Hulton, Bettman, Sygma and Gamma. These key collections often hold historical significance and are irreplaceable. We believe they are a key differentiator versus competitors. +Competition +The market for digital content and related services is highly competitive and rapidly evolving. Our current and potential domestic and international competitors range from large established companies to emerging start-ups across different industries. Our competitors include: online marketplaces and traditional stock content suppliers of current and archival creative and editorial imagery and stock video; specialized visual content companies in specific geographic regions; providers of free images, music and video and related tools; websites specializing in image search, recognition, discovery and consumption; websites that host and store images, art and other related products; those providers of visual content creation and editing tools that include integrated stock content in their product or software as a service offering; providers of cloud-based digital asset management tools; social networking and social media services; generative AI-services; and freelancers, commissioned photographers and photography agencies. There are also a very large number of small stock photography and video agencies, image content aggregators and individual photographers throughout the world with whom we compete. We also compete for content contributors on the basis of several similar factors including ease and speed of the upload and content review process; the volume of customers who license their submitted content; contributor commission models and practices; the degree to which contributors are protected from legal risk; brand recognition and reputation; the effective use of technology; the global nature of our interfaces; and customer service. Additionally, we compete with in-house or self-created content. We believe our principal competitors for creative content include bundled offerings (e.g., Canva, Adobe), pre-shot digital content providers (e.g., Shutterstock, 123RF, Dreamstime and AdobeStock), freelancer networks (e.g., Fiverr) and GenAI (e.g. Midjourney, Dall-E, Stable Diffusion) and our principal competitors for editorial content include the Associated Press and Reuters. +10 +Table of Conten ts +Intellectual Property +A significant portion of the content that we distribute is licensed to us from individual photographers and videographers and image partners. Content suppliers typically prefer to retain copyright ownership of their work and, as a result, copyright to content remains with the artists in most cases, even while we maintain the right to market, display, distribute and license the imagery, illustration or video on their behalf, globally. We own the copyrights to imagery and video produced by staff photographers as well as any created on a work-for-hire basis, and to imagery and video acquired from third parties. We also own numerous trademarks and have the rights to corresponding internet domain names such as Getty Images (www.gettyimages.com), iStock (www.istock.com) and Unsplash (www.unsplash.com), which are important to the business and have significant value. Depending on the jurisdiction, trademarks are valid as long as they are in use and/or their registrations are properly maintained, and they have not been found to have become generic. We have successfully recovered domain names that include infringing trademarks in the past and intend to continue to enforce our rights in the future. Although we own the Getty Trademarks, in certain specified scenarios, Getty Investments LLC (“Getty Investments”) has the option to acquire, for a nominal sum, all rights to the Getty Trademarks. See “ \ No newline at end of file diff --git a/raw/filings/0001898496/2024/0001628280-25-013103/item13.txt b/raw/filings/0001898496/2024/0001628280-25-013103/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..9a0e6c66b91937201b8f05fb9e74b054640d74f1 --- /dev/null +++ b/raw/filings/0001898496/2024/0001628280-25-013103/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions, and Director Independence +98 \ No newline at end of file diff --git a/raw/filings/0001898496/2025/0001628280-26-018160/filing.txt b/raw/filings/0001898496/2025/0001628280-26-018160/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..467fe757877bc2159d35f31556b302cb1f87c3ee --- /dev/null +++ b/raw/filings/0001898496/2025/0001628280-26-018160/filing.txt @@ -0,0 +1,2688 @@ +gety-20251231 +0001898496 2025 FY false 139 http://fasb.org/us-gaap/2025#AccruedLiabilitiesCurrent http://fasb.org/us-gaap/2025#AccruedLiabilitiesCurrent P3Y0M0D iso4217:USD xbrli:shares iso4217:USD xbrli:shares gety:language xbrli:pure gety:segment iso4217:EUR gety:lawsuit gety:image gety:vote gety:plan gety:product 0001898496 2025-01-01 2025-12-31 0001898496 2025-06-30 0001898496 2026-03-11 0001898496 2025-10-01 2025-12-31 0001898496 gety:MichaelTeasterMember 2025-01-01 2025-12-31 0001898496 gety:MichaelTeasterMember 2025-10-01 2025-12-31 0001898496 gety:MichaelTeasterMember 2025-10-01 2025-12-31 0001898496 gety:MichaelTeasterMember gety:MichaelTeasterClassACommonStockTradingArrangementMember 2025-12-31 0001898496 gety:MichaelTeasterMember gety:MichaelTeasterOptionsTradingArrangementMember 2025-12-31 0001898496 2025-12-31 0001898496 2024-12-31 0001898496 2024-01-01 2024-12-31 0001898496 2023-01-01 2023-12-31 0001898496 us-gaap:CommonStockMember 2022-12-31 0001898496 us-gaap:AdditionalPaidInCapitalMember 2022-12-31 0001898496 us-gaap:RetainedEarningsMember 2022-12-31 0001898496 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-12-31 0001898496 us-gaap:ParentMember 2022-12-31 0001898496 us-gaap:NoncontrollingInterestMember 2022-12-31 0001898496 2022-12-31 0001898496 us-gaap:RetainedEarningsMember 2023-01-01 2023-12-31 0001898496 us-gaap:ParentMember 2023-01-01 2023-12-31 0001898496 us-gaap:NoncontrollingInterestMember 2023-01-01 2023-12-31 0001898496 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-01-01 2023-12-31 0001898496 us-gaap:CommonStockMember 2023-01-01 2023-12-31 0001898496 us-gaap:AdditionalPaidInCapitalMember 2023-01-01 2023-12-31 0001898496 us-gaap:CommonStockMember 2023-12-31 0001898496 us-gaap:AdditionalPaidInCapitalMember 2023-12-31 0001898496 us-gaap:RetainedEarningsMember 2023-12-31 0001898496 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-12-31 0001898496 us-gaap:ParentMember 2023-12-31 0001898496 us-gaap:NoncontrollingInterestMember 2023-12-31 0001898496 2023-12-31 0001898496 us-gaap:RetainedEarningsMember 2024-01-01 2024-12-31 0001898496 us-gaap:ParentMember 2024-01-01 2024-12-31 0001898496 us-gaap:NoncontrollingInterestMember 2024-01-01 2024-12-31 0001898496 us-gaap:CommonStockMember 2024-01-01 2024-12-31 0001898496 us-gaap:AdditionalPaidInCapitalMember 2024-01-01 2024-12-31 0001898496 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-01-01 2024-12-31 0001898496 us-gaap:CommonStockMember 2024-12-31 0001898496 us-gaap:AdditionalPaidInCapitalMember 2024-12-31 0001898496 us-gaap:RetainedEarningsMember 2024-12-31 0001898496 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-12-31 0001898496 us-gaap:ParentMember 2024-12-31 0001898496 us-gaap:NoncontrollingInterestMember 2024-12-31 0001898496 us-gaap:RetainedEarningsMember 2025-01-01 2025-12-31 0001898496 us-gaap:ParentMember 2025-01-01 2025-12-31 0001898496 us-gaap:NoncontrollingInterestMember 2025-01-01 2025-12-31 0001898496 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2025-01-01 2025-12-31 0001898496 us-gaap:CommonStockMember 2025-01-01 2025-12-31 0001898496 us-gaap:AdditionalPaidInCapitalMember 2025-01-01 2025-12-31 0001898496 us-gaap:CommonStockMember 2025-12-31 0001898496 us-gaap:AdditionalPaidInCapitalMember 2025-12-31 0001898496 us-gaap:RetainedEarningsMember 2025-12-31 0001898496 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2025-12-31 0001898496 us-gaap:ParentMember 2025-12-31 0001898496 us-gaap:NoncontrollingInterestMember 2025-12-31 0001898496 us-gaap:ScenarioPlanMember gety:ShutterstockMember 2025-01-06 2025-01-06 0001898496 us-gaap:ScenarioPlanMember gety:ShutterstockMember 2025-01-06 0001898496 srt:ProFormaMember gety:ShutterstockMember 2025-01-06 0001898496 gety:ShutterstockMember srt:ProFormaMember gety:ShutterstockMember 2025-01-06 0001898496 gety:ShutterstockMember 2025-01-01 2025-12-31 0001898496 gety:ShutterstockMember 2024-01-01 2024-12-31 0001898496 gety:ShutterstockMember 2025-04-02 2025-04-02 0001898496 gety:GettyImagesSeaHoldingsCo.LimitedMember 2025-12-31 0001898496 gety:A10.500SeniorSecuredNoteDue2030Member 2025-10-21 0001898496 us-gaap:RelatedPartyMember 2016-06-15 0001898496 gety:ThirdPartyDelegatesMember gety:DelegatesConcentrationRiskMember us-gaap:RevenueFromContractWithCustomerMember 2025-01-01 2025-12-31 0001898496 gety:ThirdPartyDelegatesMember gety:DelegatesConcentrationRiskMember us-gaap:RevenueFromContractWithCustomerMember 2024-01-01 2024-12-31 0001898496 gety:ThirdPartyDelegatesMember gety:DelegatesConcentrationRiskMember us-gaap:RevenueFromContractWithCustomerMember 2023-01-01 2023-12-31 0001898496 srt:MinimumMember us-gaap:RevenueFromRightsConcentrationRiskMember us-gaap:LicenseMember 2025-01-01 2025-12-31 0001898496 srt:MaximumMember us-gaap:RevenueFromRightsConcentrationRiskMember us-gaap:LicenseMember 2025-01-01 2025-12-31 0001898496 srt:MaximumMember 2025-01-01 2025-12-31 0001898496 srt:MinimumMember 2025-01-01 2025-12-31 0001898496 srt:MinimumMember us-gaap:SupplierConcentrationRiskMember us-gaap:CostOfGoodsProductLineMember 2025-01-01 2025-12-31 0001898496 srt:MaximumMember us-gaap:SupplierConcentrationRiskMember us-gaap:CostOfGoodsProductLineMember 2025-01-01 2025-12-31 0001898496 gety:MotorsportImagesLLCAndMotorsport.comInc.Member 2024-04-01 0001898496 gety:MotorsportImagesLLCAndMotorsport.comInc.Member 2024-04-01 2024-04-01 0001898496 gety:MotorsportImagesLLCAndMotorsport.comInc.Member 2024-01-01 2024-12-31 0001898496 gety:InterestRateSwapTwoMember us-gaap:NondesignatedMember 2019-02-28 0001898496 us-gaap:InterestRateSwapMember us-gaap:NondesignatedMember 2025-12-31 0001898496 us-gaap:InterestRateSwapMember us-gaap:NondesignatedMember 2023-06-30 0001898496 us-gaap:InterestRateSwapMember us-gaap:NondesignatedMember 2024-01-01 2024-12-31 0001898496 us-gaap:InterestRateSwapMember us-gaap:NondesignatedMember 2023-01-01 2023-12-31 0001898496 us-gaap:FairValueInputsLevel1Member 2025-12-31 0001898496 us-gaap:FairValueInputsLevel2Member 2025-12-31 0001898496 us-gaap:FairValueInputsLevel3Member 2025-12-31 0001898496 gety:SeniorSecuredNotesMember us-gaap:FairValueInputsLevel1Member 2025-12-31 0001898496 gety:SeniorSecuredNotesMember us-gaap:FairValueInputsLevel2Member 2025-12-31 0001898496 gety:SeniorSecuredNotesMember us-gaap:FairValueInputsLevel3Member 2025-12-31 0001898496 gety:SeniorSecuredNotesMember 2025-12-31 0001898496 gety:SeniorUnsecuredNotesMember us-gaap:FairValueInputsLevel1Member 2025-12-31 0001898496 gety:SeniorUnsecuredNotesMember us-gaap:FairValueInputsLevel2Member 2025-12-31 0001898496 gety:SeniorUnsecuredNotesMember us-gaap:FairValueInputsLevel3Member 2025-12-31 0001898496 gety:SeniorUnsecuredNotesMember 2025-12-31 0001898496 us-gaap:FairValueInputsLevel1Member 2024-12-31 0001898496 us-gaap:FairValueInputsLevel2Member 2024-12-31 0001898496 us-gaap:FairValueInputsLevel3Member 2024-12-31 0001898496 gety:SeniorUnsecuredNotesMember us-gaap:FairValueInputsLevel1Member 2024-12-31 0001898496 gety:SeniorUnsecuredNotesMember us-gaap:FairValueInputsLevel2Member 2024-12-31 0001898496 gety:SeniorUnsecuredNotesMember us-gaap:FairValueInputsLevel3Member 2024-12-31 0001898496 gety:SeniorUnsecuredNotesMember 2024-12-31 0001898496 gety:ContemporaryImageryMember 2025-12-31 0001898496 gety:ContemporaryImageryMember 2024-12-31 0001898496 us-gaap:ComputerEquipmentMember 2025-12-31 0001898496 us-gaap:ComputerEquipmentMember 2024-12-31 0001898496 us-gaap:SoftwareDevelopmentMember 2025-12-31 0001898496 us-gaap:SoftwareDevelopmentMember 2024-12-31 0001898496 srt:MinimumMember us-gaap:LeaseholdImprovementsMember 2025-12-31 0001898496 srt:MaximumMember us-gaap:LeaseholdImprovementsMember 2025-12-31 0001898496 us-gaap:LeaseholdImprovementsMember 2025-12-31 0001898496 us-gaap:LeaseholdImprovementsMember 2024-12-31 0001898496 us-gaap:FurnitureAndFixturesMember 2025-12-31 0001898496 us-gaap:FurnitureAndFixturesMember 2024-12-31 0001898496 us-gaap:CollectionsIncludingWorkOfArtAndHistoricalTreasureMember 2025-12-31 0001898496 us-gaap:CollectionsIncludingWorkOfArtAndHistoricalTreasureMember 2024-12-31 0001898496 srt:MinimumMember us-gaap:OtherCapitalizedPropertyPlantAndEquipmentMember 2025-12-31 0001898496 srt:MaximumMember us-gaap:OtherCapitalizedPropertyPlantAndEquipmentMember 2025-12-31 0001898496 us-gaap:OtherCapitalizedPropertyPlantAndEquipmentMember 2025-12-31 0001898496 us-gaap:OtherCapitalizedPropertyPlantAndEquipmentMember 2024-12-31 0001898496 us-gaap:CollectionsIncludingWorkOfArtAndHistoricalTreasureMember 2025-01-01 2025-12-31 0001898496 us-gaap:CollectionsIncludingWorkOfArtAndHistoricalTreasureMember 2024-01-01 2024-12-31 0001898496 us-gaap:TradeNamesMember 2025-12-31 0001898496 us-gaap:TradeNamesMember 2024-12-31 0001898496 srt:MinimumMember us-gaap:TrademarksAndTradeNamesMember 2025-12-31 0001898496 srt:MaximumMember us-gaap:TrademarksAndTradeNamesMember 2025-12-31 0001898496 us-gaap:TrademarksAndTradeNamesMember 2025-12-31 0001898496 us-gaap:TrademarksAndTradeNamesMember 2024-12-31 0001898496 srt:MinimumMember us-gaap:IntellectualPropertyMember 2025-12-31 0001898496 srt:MaximumMember us-gaap:IntellectualPropertyMember 2025-12-31 0001898496 us-gaap:IntellectualPropertyMember 2025-12-31 0001898496 us-gaap:IntellectualPropertyMember 2024-12-31 0001898496 srt:MinimumMember us-gaap:CustomerRelatedIntangibleAssetsMember 2025-12-31 0001898496 srt:MaximumMember us-gaap:CustomerRelatedIntangibleAssetsMember 2025-12-31 0001898496 us-gaap:CustomerRelatedIntangibleAssetsMember 2025-12-31 0001898496 us-gaap:CustomerRelatedIntangibleAssetsMember 2024-12-31 0001898496 us-gaap:NoncompeteAgreementsMember 2025-12-31 0001898496 us-gaap:NoncompeteAgreementsMember 2024-12-31 0001898496 srt:MinimumMember us-gaap:OtherIntangibleAssetsMember 2025-12-31 0001898496 srt:MaximumMember us-gaap:OtherIntangibleAssetsMember 2025-12-31 0001898496 us-gaap:OtherIntangibleAssetsMember 2025-12-31 0001898496 us-gaap:OtherIntangibleAssetsMember 2024-12-31 0001898496 gety:A2025SeniorUnsecuredNotesMember 2025-12-31 0001898496 gety:A2025SeniorUnsecuredNotesMember 2024-12-31 0001898496 gety:A10.500SeniorSecuredNoteDue2030Member 2025-12-31 0001898496 gety:A10.500SeniorSecuredNoteDue2030Member 2024-12-31 0001898496 gety:A11.250SeniorSecuredNoteDue2030Member 2025-05-05 0001898496 gety:A11.250SeniorSecuredNoteDue2030Member 2025-12-31 0001898496 gety:A11.250SeniorSecuredNoteDue2030Member 2024-12-31 0001898496 gety:A2019SeniorUnsecuredNotesMember 2025-12-31 0001898496 gety:A2019SeniorUnsecuredNotesMember 2024-12-31 0001898496 gety:OldUSDTermLoansMember 2025-12-31 0001898496 gety:OldUSDTermLoansMember 2024-12-31 0001898496 gety:OldEURTermLoansMember 2025-12-31 0001898496 gety:OldEURTermLoansMember 2024-12-31 0001898496 gety:NewUSDTermLoansMember 2025-12-31 0001898496 gety:NewUSDTermLoansMember 2024-12-31 0001898496 gety:NewEURTermLoansMember 2025-12-31 0001898496 gety:NewEURTermLoansMember 2024-12-31 0001898496 gety:A2019SeniorUnsecuredNotesMember 2019-02-19 0001898496 gety:OldUSDTermLoansMember 2019-02-19 0001898496 gety:OldEURTermLoansMember 2019-02-19 0001898496 us-gaap:RevolvingCreditFacilityMember 2019-02-19 0001898496 us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2023-05-04 0001898496 us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2023-05-04 2023-05-04 0001898496 gety:NewUSDTermLoansMember 2025-02-21 0001898496 gety:NewEURTermLoansMember 2025-02-21 0001898496 gety:OldUSDTermLoansMember 2025-02-21 0001898496 gety:OldEURTermLoansMember 2025-02-21 0001898496 gety:SeniorSecuredNotesMember 2025-05-05 0001898496 gety:NewEURTermLoansMember 2025-02-21 2025-02-21 0001898496 gety:NewUSDTermLoansMember us-gaap:DebtInstrumentRedemptionPeriodTwoMember 2025-02-21 2025-02-21 0001898496 gety:NewUSDTermLoansMember us-gaap:DebtInstrumentRedemptionPeriodThreeMember 2025-02-21 2025-02-21 0001898496 gety:A11.250SeniorSecuredNoteDue2030Member 2025-05-05 2025-05-05 0001898496 gety:A11.250SeniorSecuredNoteDue2030Member us-gaap:DebtInstrumentRedemptionPeriodOneMember 2025-05-05 2025-05-05 0001898496 gety:A11.250SeniorSecuredNoteDue2030Member us-gaap:DebtInstrumentRedemptionPeriodTwoMember 2025-05-05 2025-05-05 0001898496 gety:A11.250SeniorSecuredNoteDue2030Member us-gaap:DebtInstrumentRedemptionPeriodThreeMember 2025-05-05 2025-05-05 0001898496 gety:A11.250SeniorSecuredNoteDue2030Member gety:OptionalRedemptionEquityOfferingMember 2025-05-05 2025-05-05 0001898496 gety:A11.250SeniorSecuredNoteDue2030Member gety:ChangeOfControlRedemptionMember 2025-05-05 2025-05-05 0001898496 gety:SeniorUnsecuredNotesMember 2025-10-21 0001898496 gety:A2025SeniorUnsecuredNotesMember 2025-10-21 0001898496 gety:A2025SeniorUnsecuredNotesMember gety:OptionalRedemptionMember 2025-10-21 2025-10-21 0001898496 gety:A2025SeniorUnsecuredNotesMember us-gaap:DebtInstrumentRedemptionPeriodOneMember gety:OptionalRedemptionMember 2025-10-21 2025-10-21 0001898496 gety:A2025SeniorUnsecuredNotesMember us-gaap:DebtInstrumentRedemptionPeriodTwoMember gety:OptionalRedemptionMember 2025-10-21 2025-10-21 0001898496 gety:A2025SeniorUnsecuredNotesMember us-gaap:DebtInstrumentRedemptionPeriodThreeMember gety:OptionalRedemptionMember 2025-10-21 2025-10-21 0001898496 gety:A2025SeniorUnsecuredNotesMember us-gaap:DebtInstrumentRedemptionPeriodFourMember gety:OptionalRedemptionMember 2025-10-21 2025-10-21 0001898496 gety:A2025SeniorUnsecuredNotesMember gety:OptionalRedemptionMember srt:ScenarioForecastMember 2026-06-30 2026-06-30 0001898496 gety:A2025SeniorUnsecuredNotesMember gety:ChangeOfControlRedemptionMember 2025-10-21 2025-10-21 0001898496 gety:A2025SeniorUnsecuredNotesMember 2025-10-21 2025-10-21 0001898496 gety:A10.500SeniorSecuredNoteDue2030Member 2025-10-21 2025-10-21 0001898496 gety:A10.500SeniorSecuredNoteDue2030Member us-gaap:DebtInstrumentRedemptionPeriodOneMember 2025-10-21 2025-10-21 0001898496 gety:A10.500SeniorSecuredNoteDue2030Member us-gaap:DebtInstrumentRedemptionPeriodTwoMember 2025-10-21 2025-10-21 0001898496 gety:A10.500SeniorSecuredNoteDue2030Member us-gaap:DebtInstrumentRedemptionPeriodThreeMember 2025-10-21 2025-10-21 0001898496 gety:A10.500SeniorSecuredNoteDue2030Member gety:OptionalRedemptionEquityOfferingMember 2025-10-21 0001898496 gety:A10.500SeniorSecuredNoteDue2030Member gety:OptionalRedemptionEquityOfferingMember 2025-10-21 2025-10-21 0001898496 gety:A10.500SeniorSecuredNoteDue2030Member us-gaap:ScenarioPlanMember 2025-10-21 2025-10-21 0001898496 gety:A10.500SeniorSecuredNoteDue2030Member srt:ScenarioForecastMember 2026-10-06 2026-10-06 0001898496 gety:A10.500SeniorSecuredNoteDue2030Member gety:ChangeOfControlRedemptionMember 2025-10-21 2025-10-21 0001898496 gety:A10.500SeniorSecuredNoteDue2030Member 2025-05-05 0001898496 gety:ShutterstockMember srt:ScenarioForecastMember us-gaap:SubsequentEventMember 2026-03-18 2026-03-31 0001898496 gety:SeniorSecuredNotesMember 2025-01-01 2025-12-31 0001898496 gety:SeniorUnsecuredNotesMember 2025-12-31 0001898496 gety:UsdTermLoansAndEurTermLoansMember 2025-12-31 0001898496 gety:EurTermLoans2026Member 2025-12-31 0001898496 gety:EURTermLoans2027Member 2025-12-31 0001898496 gety:EURTermLoans2028Member 2025-12-31 0001898496 gety:EURTermLoans2029Member 2025-12-31 0001898496 gety:EURTermLoans2030Member 2025-12-31 0001898496 gety:UsdTermLoans2026Member 2025-12-31 0001898496 gety:PublicWarrantsMember 2020-08-04 2020-08-04 0001898496 gety:UnitedStatesDistrictCourtForTheSouthernDistrictOfNewYorkAltaPartnersLLCVGettyImagesHoldingsIncCaseMember 2023-10-27 2023-10-27 0001898496 gety:PublicWarrantsMember gety:UnitedStatesDistrictCourtForTheSouthernDistrictOfNewYorkAltaPartnersLLCVGettyImagesHoldingsIncCaseMember 2020-08-04 0001898496 gety:CRCMInstitutionalMasterFundBVILTDEtAlVGettyImagesHoldingsIncCaseMember 2023-10-27 2023-10-27 0001898496 gety:PublicWarrantsMember gety:CRCMInstitutionalMasterFundBVILTDEtAlVGettyImagesHoldingsIncCaseMember 2020-08-04 0001898496 gety:UnitedStatesDistrictCourtForTheSouthernDistrictOfNewYorkAltaPartnersLLCVGettyImagesHoldingsIncCaseMember 2023-10-27 0001898496 gety:CRCMInstitutionalMasterFundBVILTDEtAlVGettyImagesHoldingsIncCaseMember 2023-10-27 0001898496 gety:UnitedStatesDistrictCourtForTheSouthernDistrictOfNewYorkBernerAndLappCasesAndNewYorkStateSupremeCourtCasesMember 2025-12-31 0001898496 gety:PublicWarrantsMember gety:UnitedStatesDistrictCourtForTheSouthernDistrictOfNewYorkBernerAndLappCasesAndNewYorkStateSupremeCourtCasesMember 2025-12-31 0001898496 gety:LawsuitsFiledInNewYorkStateSupremeCourtNewYorkCountyV.GettyImagesHoldingsInc.Member 2025-12-31 0001898496 2023-02-03 0001898496 gety:TaxAssessmentCanadaRevenueAgencyMember 2025-01-01 2025-12-31 0001898496 gety:TaxAssessmentCanadaRevenueAgencyMember srt:MaximumMember 2025-01-01 2025-12-31 0001898496 gety:CreativeMember 2025-01-01 2025-12-31 0001898496 gety:CreativeMember 2024-01-01 2024-12-31 0001898496 gety:CreativeMember 2023-01-01 2023-12-31 0001898496 gety:EditorialMember 2025-01-01 2025-12-31 0001898496 gety:EditorialMember 2024-01-01 2024-12-31 0001898496 gety:EditorialMember 2023-01-01 2023-12-31 0001898496 gety:OtherMember 2025-01-01 2025-12-31 0001898496 gety:OtherMember 2024-01-01 2024-12-31 0001898496 gety:OtherMember 2023-01-01 2023-12-31 0001898496 srt:AmericasMember 2025-01-01 2025-12-31 0001898496 srt:AmericasMember 2024-01-01 2024-12-31 0001898496 srt:AmericasMember 2023-01-01 2023-12-31 0001898496 us-gaap:EMEAMember 2025-01-01 2025-12-31 0001898496 us-gaap:EMEAMember 2024-01-01 2024-12-31 0001898496 us-gaap:EMEAMember 2023-01-01 2023-12-31 0001898496 srt:AsiaPacificMember 2025-01-01 2025-12-31 0001898496 srt:AsiaPacificMember 2024-01-01 2024-12-31 0001898496 srt:AsiaPacificMember 2023-01-01 2023-12-31 0001898496 country:US us-gaap:GeographicConcentrationRiskMember us-gaap:RevenueFromContractWithCustomerMember 2025-01-01 2025-12-31 0001898496 country:US us-gaap:GeographicConcentrationRiskMember us-gaap:RevenueFromContractWithCustomerMember 2024-01-01 2024-12-31 0001898496 country:US us-gaap:GeographicConcentrationRiskMember us-gaap:RevenueFromContractWithCustomerMember 2023-01-01 2023-12-31 0001898496 country:GB us-gaap:GeographicConcentrationRiskMember us-gaap:RevenueFromContractWithCustomerMember 2025-01-01 2025-12-31 0001898496 country:GB us-gaap:GeographicConcentrationRiskMember us-gaap:RevenueFromContractWithCustomerMember 2024-01-01 2024-12-31 0001898496 country:GB us-gaap:GeographicConcentrationRiskMember us-gaap:RevenueFromContractWithCustomerMember 2023-01-01 2023-12-31 0001898496 2022-07-22 0001898496 us-gaap:CommonClassAMember 2022-07-22 0001898496 us-gaap:CommonClassBMember 2022-07-22 0001898496 us-gaap:CommonClassAMember 2022-07-22 2022-07-22 0001898496 us-gaap:CommonClassBMember 2022-07-22 2022-07-22 0001898496 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2025-01-01 2025-12-31 0001898496 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2024-01-01 2024-12-31 0001898496 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2023-01-01 2023-12-31 0001898496 srt:MinimumMember gety:EquityIncentivePlan2022Member 2025-01-01 2025-12-31 0001898496 srt:MaximumMember gety:EquityIncentivePlan2022Member 2025-01-01 2025-12-31 0001898496 gety:EquityIncentivePlan2022Member 2025-12-31 0001898496 us-gaap:RestrictedStockUnitsRSUMember 2024-12-31 0001898496 us-gaap:RestrictedStockUnitsRSUMember 2025-01-01 2025-12-31 0001898496 us-gaap:RestrictedStockUnitsRSUMember 2025-12-31 0001898496 us-gaap:PerformanceSharesMember 2024-12-31 0001898496 us-gaap:PerformanceSharesMember 2025-01-01 2025-12-31 0001898496 us-gaap:PerformanceSharesMember 2025-12-31 0001898496 gety:EarnOutPlanMember 2025-12-31 0001898496 gety:EarnOutPlanMember us-gaap:RestrictedStockUnitsRSUMember 2025-12-31 0001898496 gety:A2022EmployeeStockPurchasePlanMember us-gaap:EmployeeStockMember 2025-01-01 2025-12-31 0001898496 gety:A2022EmployeeStockPurchasePlanMember us-gaap:EmployeeStockMember 2025-12-31 0001898496 country:US 2025-12-31 0001898496 country:US 2025-01-01 2025-12-31 0001898496 country:GB 2025-12-31 0001898496 country:GB 2025-01-01 2025-12-31 0001898496 country:CA 2025-01-01 2025-12-31 0001898496 country:AU 2025-01-01 2025-12-31 0001898496 country:CA 2025-01-01 2025-12-31 0001898496 country:JP 2025-01-01 2025-12-31 0001898496 country:GB 2025-01-01 2025-12-31 0001898496 us-gaap:ForeignTaxJurisdictionOtherMember 2025-01-01 2025-12-31 0001898496 country:IE 2025-01-01 2025-12-31 0001898496 country:LU 2025-01-01 2025-12-31 0001898496 country:US 2025-12-31 0001898496 country:US 2024-12-31 0001898496 us-gaap:DomesticCountryMember 2025-12-31 0001898496 us-gaap:ForeignCountryMember 2025-12-31 0001898496 gety:ReportableSegmentMember 2025-01-01 2025-12-31 0001898496 gety:ReportableSegmentMember 2024-01-01 2024-12-31 0001898496 gety:ReportableSegmentMember 2023-01-01 2023-12-31 0001898496 srt:AmericasMember 2025-12-31 0001898496 srt:AmericasMember 2024-12-31 0001898496 us-gaap:EMEAMember 2025-12-31 0001898496 us-gaap:EMEAMember 2024-12-31 0001898496 srt:AsiaPacificMember 2025-12-31 0001898496 srt:AsiaPacificMember 2024-12-31 0001898496 country:US us-gaap:GeographicConcentrationRiskMember us-gaap:AssetsTotalMember 2025-01-01 2025-12-31 0001898496 country:US us-gaap:GeographicConcentrationRiskMember us-gaap:AssetsTotalMember 2024-01-01 2024-12-31 0001898496 country:IE us-gaap:GeographicConcentrationRiskMember us-gaap:AssetsTotalMember 2025-01-01 2025-12-31 0001898496 country:IE us-gaap:GeographicConcentrationRiskMember us-gaap:AssetsTotalMember 2024-01-01 2024-12-31 0001898496 us-gaap:EmployeeStockOptionMember 2025-01-01 2025-12-31 0001898496 us-gaap:EmployeeStockOptionMember 2024-01-01 2024-12-31 0001898496 us-gaap:EmployeeStockOptionMember 2023-01-01 2023-12-31 0001898496 us-gaap:RestrictedStockUnitsRSUMember 2025-01-01 2025-12-31 0001898496 us-gaap:RestrictedStockUnitsRSUMember 2024-01-01 2024-12-31 0001898496 us-gaap:RestrictedStockUnitsRSUMember 2023-01-01 2023-12-31 0001898496 us-gaap:SubsequentEventMember 2026-02-13 +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +(Mark One) +x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , 2025 +Or +o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from to . +Commission file number: 001-41453 +GETTY IMAGES HOLDINGS, INC. +(Exact name of registrant as specified in its charter) +Delaware +87-3764229 +State or other jurisdiction of incorporation or organization (I.R.S. Employer Identification No.) +605 5th Ave. S. Suite 400 +Seattle , WA 98104 +_________________________________________________ +(Address of principal executive offices) (zip code) +( 206 ) 925-5000 +_________________________________________________ +Registrant’s telephone number, including area code +Securities registered pursuant to Section 12(b) of the Act: +Title of each class Trading Symbol(s) Name of each exchange on which registered +Class A Common Stock GETY New York Stock Exchange +Securities registered pursuant to section 12(g) of the Act: None +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer o Accelerated filer þ +Non-accelerated filer o Smaller reporting company þ +Emerging growth company þ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. o +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ +The aggregate market value of voting stock held by non-affiliates of Getty Images Holdings, Inc. on June 30, 2025, based on the closing price of $1.66 for shares of Class A common stock of Getty Images Holdings, Inc. as reported by the New York Stock Exchange on June 30, 2025, was approximately $ 82,569,950 . For purposes of this calculation, shares of Class A common stock beneficially owned by each executive officer, director, and holders of 5% or more of our Class A common stock have been excluded since those persons may under certain circumstances be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. +As of March 11, 2026 , 417,765,616 shares of Class A common stock, par value $0.0001 per share of Getty Images Holdings, Inc. were issued and outstanding. +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the proxy statement for the 2026 Annual Meeting of Stockholders of Getty Images Holdings, Inc. are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of Getty Images Holdings, Inc.’s fiscal year ended December 31 , 2025 . +Table of Contents +GETTY IMAGES HOLDINGS, INC. +Form 10-K +Table of Contents +Page No. +Cautionary Note Regarding Forward-Looking Statements +1 +PART I +3 +Item 1. +Business +3 +Item 1A. +Risk Factors +14 +Item 1B. +Unresolved Staff Comments +44 +Item 1C. +Cybersecurity +44 +Item 2. +Properties +46 +Item 3. +Legal Proceedings +46 +Item 4. +Mine Safety Disclosures +46 +PART II +47 +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +47 +Item 6. +Reserved +48 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +49 +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +72 +Item 8. +Financial Statements and Supplementary Data +73 +Item 9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosures +73 +Item 9A. +Controls and Procedures +73 +Item 9B. +Other Information +74 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +74 +PART III +75 +Item 10. +Directors, Executive Officers and Corporate Governance +75 +Item 11. +Executive Compensation +76 +Item 12. +Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters +76 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +76 +Item 14. +Principal Accounting Fees and Services +77 +PART IV +78 +Item 15. +Exhibits, Financial Statement Schedules +78 +Item 16. +Form 10-K Summary +81 +Table of Contents +Cautionary Note Regarding Forward-Looking Statements +Certain statements included in this Annual Report on Form 10-K (the “Annual Report”) that are not historical facts are forward-looking statements for purposes of the safe harbor provisions under the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of the words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “should,” “would,” “plan,” “project,” “forecast,” “predict,” “potential,” “seem,” “seek,” “future,” “outlook,” “target” or similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These forward-looking statements include, but are not limited to, statements regarding estimates and forecasts of other financial and performance metrics and projections of market opportunity. These statements are based on various assumptions, whether or not identified in this report, and on the current expectations of our management and are not predictions of actual performance. These forward-looking statements are provided for illustrative purposes only and are not intended to serve as, and must not be relied on by any investor as, a guarantee, an assurance, a prediction or a definitive statement of fact or probability. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. Many actual events and circumstances are beyond our control. +These forward-looking statements are subject to a number of risks and uncertainties, including: +• our inability to continue to license third-party content and offer relevant quality and diversity of content to satisfy customer needs; +• our ability to attract new customers and retain and motivate an increase in spending by our existing customers; +• our ability to grow our subscriptions business; +• the user experience of our customers on our websites; +• the extent to which we are able to maintain and expand the breadth and quality of our content library through content licensed from third-party suppliers, content acquisitions and imagery captured by our staff of in-house photographers; +• the mix of and basis upon which we license our content, including the price-points at, and the license models and purchase options through, which we license our content; +• the risk that we operate in a highly competitive market; +• the risk that we are unable to successfully execute our business strategy or effectively manage costs; +• our inability to effectively manage our growth; +• our inability to maintain an effective system of internal controls and financial reporting; +• our incurrence of debt, including related interest rate volatility and rising interest costs, which could have a negative impact on our financing options and liquidity position; +• our need to seek additional capital and any related inability to obtain additional capital on commercially reasonable terms; +• the risk that we may lose the right to use “Getty Images” trademarks; +• our inability to evaluate our future prospects and challenges due to evolving markets and customers’ industries; +• the legal, social and ethical issues relating to the use of new and evolving technologies, such as Artificial Intelligence and machine learning (collectively, “AI”), including statements regarding AI and innovation momentum; +• the increased use of AI applications such as generative AI technologies that may result in harm to our brand, reputation, business, or intellectual property; +• the risk that our operations in and continued expansion into international markets bring additional business, political, regulatory, operational, financial and economic risks; +• our inability to adequately adapt our technology systems to ingest and deliver sufficient new content; +• the risk of technological interruptions or cybersecurity breaches, incidents, and vulnerabilities; +• the risk that any prolonged strike by, or lockout of, one or more of the unions that provide personnel essential to the production of films or television programs, such as the 2023 strike by the writers’ union and the actors’ unions and including its lingering effects, could further impact our entertainment business; +• the inability to expand our operations into new products, services and technologies and to increase customer and supplier awareness of our new and emerging products and services, including with respect to our AI initiatives; +• the loss of and inability to attract and retain key personnel that could negatively impact our business growth; +• the inability to protect the proprietary information of customers and networks against security breaches and protect and enforce intellectual property rights; +1 +Table of Contents +• our reliance on third parties; +• the risks related to our use of independent contractors; +• the risk that an increase in government regulation of the industries and markets in which we operate could negatively impact our business; +• the impact of worldwide and regional political, military or economic conditions, including declines in foreign currencies in relation to the value of the U.S. Dollar, hyperinflation, higher interest rates, trade wars and restrictions, devaluation, the impact of recent bank failures on the marketplace and the ability to access credit and significant political or civil disturbances in international markets where we conduct business; +• the risk that claims, judgements, lawsuits and other proceedings that have been, or may be, instituted against us or our predecessors, including pending lawsuits brought against us by former warrant holders, could adversely affect our business; +• the inability to maintain the listing of our Class A common stock on the New York Stock Exchange; +• volatility in our stock price and in the liquidity of the trading market for our Class A common stock; +• the impact of any widespread outbreak of an illness, pandemic or other local or global health issue, natural disasters, or climate change; +• changes in applicable laws or regulations; +• the risks associated with evolving corporate governance and public disclosure requirements; +• the risk of greater than anticipated tax liabilities; +• the risks associated with the storage and use of personally identifiable information; +• earnings-related risks such as those associated with late payments, goodwill or other intangible assets; +• the risks associated with being an “emerging growth company” and “smaller reporting company” within the meaning of the U.S. securities laws; +• risks associated with our reliance on information technology in critical areas of our operations; +• our potential inability to pay dividends for the foreseeable future; +• the risks associated with additional issuances of Class A common stock without stockholder approval; +• risks related to our proposed merger with Shutterstock, Inc. (“Shutterstock”); +• costs related to operating as a public company; and +• other risks and uncertainties identified in “ Item 1A. Risk Factors ” of this Annual Report. +If any of these risks materialize or our assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements. +These and other factors that could cause actual results to differ from those implied by the forward-looking statements in this Annual Report are more fully described under the heading “ Item 1A. Risk Factors ”. The risks described under the heading “ Item 1A. Risk Factors ” in this Annual Report are not exhaustive. New risk factors emerge from time to time and it is not possible to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. We undertake no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. +In addition, the statements of belief and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us, as applicable, as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements. +2 +Table of Contents +PART I +Item 1. Business. +The Company +Getty Images Holdings, Inc. is a Delaware corporation with its corporate headquarters located at 605 5th Ave S., Suite 400, Seattle, Washington 98104, telephone number (206) 925-5000, internet website address www.gettyimages.com. Our internet website and content contained therein or connected thereto are not incorporated by reference into this Annual Report. References to “Getty Images,” the “Company,” “we,” “our” and “us” and similar terms mean Getty Images Holdings, Inc. and its subsidiaries, unless the context otherwise requires. +Business Overview +Getty Images was founded in 1995, with the core mission of bringing the world’s best creative and editorial visual content solutions to our customers to engage their audiences. We have developed market enhancements across e-commerce, content subscriptions, user-generated content, diverse and inclusive content, and proprietary research alongside investment in our technology platform (which includes generative AI-services designed to be commercially safe, natural language processing, and AI based integrated APIs) to become a global, trusted industry leader in the visual content space. On January 6, 2025, Getty Images entered into an Agreement and Plan of Merger to combine in a merger-of-equals transaction with Shutterstock. See “ Item 7 – Management’s Discussion and Analysis of Financial and Results of Operations – Merger Agreement with Shutterstock ”. +3 +Table of Contents +Product Offerings +Our comprehensive product offering is designed to address the full spectrum of customers’ visual content needs. +Target Customer Enterprises SMBs SMBs, Prosumers, Pro & Semipro Content Creators +Asset Type Premium Creative & Editorial +(Stills, Music, Video, and Generative AI) Budget-Conscious Stills, Video, and Generative AI Free & Low-Cost Creative Stills +Asset Rights Uncapped Indemnification and Rights Customized to Customer Needs Capped Indemnification With Option for More Protection Capped / No Indemnification +Go-to-Market Premium Account Management & Dedicated Support Primarily E-Commerce and Online Service Primarily E-Commerce and Online Service +Plans and Pricing A La Carte, Subscriptions and Custom Assignments A La Carte and Subscriptions Free (Ads), Subscriptions, Ad-supported and Paid API Integrations +• Getty Images is our premium offering focused on corporate, agency, and media customers, serving the full breadth of our customers’ content needs by combining the highest quality content with premium support and customized rights and protections. Customers can purchase on an a la carte basis and through subscriptions, including our “Premium Access” product, where we enable customers to access our complete library of creative and editorial images and video and music, via one website and one set of terms. Our assignment capabilities along with our Custom Content offering, a subscription product that leverages Getty Images’ global network of photographers and videographers to create customized and exclusive project-specific content, enables Getty Images to produce cost-effective content to meet the specific needs of customers. In the fall of 2023, we launched Generative AI by Getty Images which is designed to be a commercially safe AI image generation service that is trained with Getty Images creative content. +• iStock is our value offering of creative stills and videos, which provides a significant volume of exclusive image and video content to small to medium sized businesses, furnishing them with a powerful and cost-efficient means to produce and maintain their visual narrative. Customers can purchase on an a la carte basis and through a range of monthly and annual subscription options. Customers can also use Generative AI by iStock to create, ready to use AI generated content that is designed to be commercially safe and is trained with Getty Images creative content. +• Unsplash is a widely accessed, creative stills offering serving the fast-growing and broad-based creator economy ranging from prosumers and semi-professional creators to full time creative professionals working at corporations and agencies. Customers can purchase an unlimited subscription, which includes premium content that has specific legal protections, or download from the millions of free images. +• In addition to our websites, customers and partners can access and integrate our content, metadata, and search capabilities into their workflows via our APIs, such as through Canva, and through a range of mobile apps and plugins, including Adobe Creative Cloud, WordPress, and other publishing and workflow platforms. +• In recent years, we have shifted revenues toward subscription products including annual subscription products to drive revenue growth and durability. As of December 31, 2025, annual subscriptions represented more than half of total revenue. We offer a complete range of subscription products on our Getty Images, iStock and Unsplash websites. Our Premium Access subscription offers all of Getty Images’ Creative and Editorial image and video content and music in one subscription. We similarly continue to see more subscription adoption in e-commerce through our iStock subscription, which includes images, video and music, and Unsplash+, which is an unlimited image-only subscription. In all cases, our annual subscriptions provide greater customer and revenue visibility and upside through expanded consumption and ongoing cross-sell and upsell opportunities via our dedicated Customer Success team. +4 +Table of Contents +Content & Services +While we go to market through our Getty Images, iStock, and Unsplash brands, we categorize our content and services into three categories — Creative, Editorial and Other. +• Creative : Creative is comprised of RF photos, illustrations, vectors, videos, and generative AI-services that are released for commercial use and cover a wide variety of commercial, conceptual, and contemporary subjects, including lifestyle, business, science, health, wellness, beauty, sports, transportation and travel. This content is available for immediate use by a wide range of customers with depth, breadth, and quality, allowing our customers to produce impactful websites, digital media, social media, marketing campaigns, corporate collateral, textbooks, movies, television, and online video content relevant to their target geographies and audiences. We primarily source Creative content from a broad network of professional, semi-professional, and amateur creators, many exclusive to Getty Images. We have a global creative insights team dedicated to providing briefing and art direction to our exclusive contributor community. Creative represents 56.7% , 58.9% and 63.1% of our revenue of w hich 58.2%, 56.0% and 52.2% 1 is generated through our annual subscription products, for the years ended December 31, 2025, 2024 and 2023, respectively. Annual Subscription products include products and subscriptions with a duration of 12 months or longer, Unsplash API, and Custom Content. +• Editorial : Editorial is comprised of photos and videos covering the world of entertainment, sports and news. We combine contemporary coverage of events around the globe with one of the largest privately held archives globally with access to images spanning all the way back to the beginning of photography. We invest in a dedicated editorial team which includes over 115 staff photographers and videographers to generate our own coverage in addition to coverage from our network of content partners. Editorial represents 37.7%, 36.8% and 35.0% of our revenue, of which 53.5%, 53.7% and 53.3% is generated through our annual subscription products, for the years ended December 31, 2025, 2024 and 2023, respectively. Annual Subscription products include subscriptions with a duration of 12 months or longer. +• Other : Other represents 5.6%, 4.3%, and 1.9% of our revenue for the years ended December 31, 2025, 2024, and 2023, respectively. This includes data access and/or licensing, music licensing, digital asset management, distribution services and print sales. +With a consistently differentiated, authentic and high-quality content offering at our core, we have a rich history of embracing disruption and innovation with regard to how that content is packaged, accessed, licensed, created and distributed to an evolving universe of customers. +Comprehensive Premium Product Offering +Our differentiated, authentic and high-quality content offering is generated through: +• A growing base of more tha n 600,000 contributors, of which over 83,000 are exclusive to Getty Images. +• Over 75 exclusive editorial content partners, such as AFP, Disney, Glo bo, ITN, Bloomberg, BBC Studios, CBS, The Boston Globe, Fairfax Media, NBC News Archives and Sky News, who rely upon Getty Images to manage and license their content and Formula One, NBA, NHL, MLB, NASCAR, FIFA and International Olympic Committee, who, in addition to distributing content from their events through Getty Images, grant us unique commercial rights with event and content access. +• Nearly 400 dedicated staff content experts across creative and editorial who guide and contribute to the creation of over 11 million new visual assets per quarter and have been recognized with more than 1,600 major industry awards including the 2022 Pulitzer Prize for Breaking News Photography, World Press Photo, Picture of the Year International, Sony World Photography Awards, White House Photographer of the Year, The Lucie Awards, Visa d’Or, Ville de Perpignan Remi Ochlik, UK Picture Guild Awards, Press Photographer of the Year, Sports Photographer of the Year and Creative Review Photography Annual. +1 Prior year percentage has been restated to conform to the current year presentation. +5 +Table of Contents +• A unique comprehensive visual archival collection covering a broad range of geographies, time periods and content categories such as news, sport, celebrity, music and fashion. +Collectively, these represent a growing library of over 645 million total assets that delivers unmatched depth, breadth, and quality to meet the expanding needs of our growing customer base. For more information, see “ —Our Content Contributors ” below. +Customers +Our customers are in the categories of corporate, agency and media. For the year ended December 31, 2025, corporate, media, and agency customers contributed approximately 59%, 29%, and 12%, of revenue, respectively. Through our brands Getty Images, iStock and Unsplash, we reach customers from the largest enterprises to the smallest businesses and individual creators. In addition, we maintain deep integrations with internet platforms, ensuring broad access to our content across the creative economy. +Getty Images is privileged to work with the world’s leading companies every day. In 2025 and 2024, over 70% of our booked revenues were from customers that have a tenure as a customer of 10 years or more. In addition to maintaining strong revenue from highly tenured customers, we added more than 365,000 new customers during the year ended December 31, 2025. +We also have strong revenue diversification. For the year ended December 31, 2025, our top ten customers contributed less than 10% of our booked revenue. +Proprietary Platform & Infrastructure +The Getty Images and iStock websites and related systems are on a unified, global, cloud-based platform. We source and store our content on a common, scalable, and proprietary rights and content management system that supports all content types and categories. This platform enables customers to search, select, license, and download content from our websites and supports our centralized sales order processing, customer database management, finance, and accounting. We believe that our unified platform allows for resource efficiency and its scalability, reliability and flexibility allow us to service customers in any geography, handle a variety of visual content and address changing customer demands. From this unified platform, we benefit from a comprehensive view into customer behavior and needs, which allows us to effectively evolve our content offering, services and proprietary search algorithms to deliver the unique insights to our customers. We operate multiple websites which are available on a global basis, maintained in 23 different languages, localized for their respective markets, and which provide for e-commerce transactions in 34 local currencies. +Back-end integration across the Getty Images and iStock websites and brands allows for efficiency of use by customers, enabled by natural language processing and machine learning to understand the context and meaning behind a user’s search query, along with additional search capabilities that are enabled by patented search technology that attaches metadata such as captions, keywords, and tags to our content. Our metadata is translated by proprietary and patented controlled vocabularies into multiple languages. Dynamic image placement algorithms present the most relevant content to customers based on features such as customer location, search and license history, and the businesses type. We continuously invest in our digital platform to improve our customer experience and functionality through improvements in search engine optimization and marketing analytics, dynamic image placement algorithms, customer support and partner/API access, use of image recognition technologies, and development license models that adapt to customer needs and behaviors. +In 2023, we launched a generative AI image tool, enhancing our offerings to our customers. It is trained on Getty Images creative content and data and provides customers with images designed to be commercially safe, while compensating contributors for the use of their copyrighted works as training data. +Marketing +Since 2019, we have improved our marketing efficiency, which has driven acceleration in our new customer growth, with new customers per million dollars of digital marketing spend increasing by more than 20% in 2025 when compared to 2019, driven by marketing efficiency which helps drive new customer acquisition. We shifted our marketing mix to take advantage of free website traffic through affiliate partnerships, expanded our geographic investment, invested in search engine optimization, and implemented a rigorous data-driven e-commerce business. These steps have improved our marketing returns, resulting in decreased customer acquisition cost (since 2019 down by over 15% to $146 in 2025) and improved revenue opportunity and customer lifetime value. +6 +Table of Contents +Our Business Transformation +Over the past several years, we have reoriented our strategy and made significant business investments. Key initiatives implemented include: +• Unification and migration of our end-to-end platform to the cloud. +• Investment in best-in-class customer relationship management tools and technologies such as Salesforce.com. +• Transition of a significant share of our business to a differentiated subscription offering with strong retention characteristics. +• Successfully exited legacy declining products (Creative Rights Managed, Unauthorized Use and Thinkstock) to simplify our offering, reduce customer friction, and to better focus our resources. +• Invested in search engine optimization and altered our digital marketing deployment to accelerate new customer growth through our iStock brand. +• Launched our Custom Content offering to allow customers to efficiently secure brand and product- specific imagery through our global contributor network. +• Restructured our Sales, Customer Success Management, and Customer Service functions to take advantage of our global scale to reduce costs and improve service levels. +• Acquired Unsplash, monetized API offerings on Unsplash and launched Unsplash+, the unlimited subscription model, all of which allows us to tap into the growth of the creator economy long tail. +• Partnered with leading technology companies to develop image and video generative AI models and services designed to be commercially safe that compensate creators on a recurring basis for the use of their content as training data. +• Extended search experience to accept natural language queries, allowing customers to be more expressive in their searches and, in turn, we better understand their intent and serve content that meets their needs. +• In 2025, Getty Images proactively managed its capital structure by: refinancing and extending its Term Loan maturities to 2030; completing the Permitted Debt Exchange Offer to exchange a portion of the 2025 USD Term Loans into 11.250% Senior Secured Notes; exchanging of its 2019 Senior Unsecured Notes for 2025 Senior Secured Notes to extend the maturities to 2028; and issuing 10.500% Senior Secured Notes in support of its proposed merger with Shutterstock, Inc. (each capitalized terms, as defined elsewhere in this Annual Report on Form 10-K) Please refer to “ Note 10 — Debt ” in our consolidated financial statements for more discussion on our debt refinance. +We believe that our transformation and investments, together with the changes driving industry growth, set the stage for our next phase of growth. +Growth Strategies +We believe we are well-positioned to continue generating revenue and cash flow by capitalizing on the increasing demand for visual content driven by long-term trends through our differentiated end-to-end content offering, our established brands and corresponding market coverage, and our strong value proposition to customers and content providers. We anticipate our future growth to be driven by the following strategies: +Capturing growth within the Corporate Market : The corporate market has been a clear and steady source of growth over the last several years and we believe a large corporate market opportunity still exists. To capture this opportunity, we aligned our sales force and their incentives to target further penetration and upsell of the corporate market. Furthermore, we increased our customer service capabilities and resources against the segment and launched new and upgraded products to better meet corporate needs. Through our Custom Content product, we are able to leverage our contributor network to deliver budget-friendly custom photos, illustrations and videos to customers. Through continued investment and focus, our management believes that it can further accelerate growth across the corporate segment. +Accelerate our penetration across high-growth geographies : We are focused on deepening our international reach by investing in digital marketing, search engine optimization and further localization of our services, offerings and content in geographies where we are underpenetrated. We believe we are well-positioned from a brand, content, and product perspective across 23 languages and 34 currencies to capture an increased share of these attractive, underpenetrated market opportunities. +7 +Table of Contents +Continued emphasis on subscription offerings : Annual subscription revenues now comprise more than half our total revenue, and we expect to further increase penetration over time through an emphasis on our e-commerce offerings and continued growth of our larger subscription offerings. +Annual Subscription Revenue 1 +1 Represents annual subscription product revenue as a percentage of total revenue (excluding certain retired products). +Continue to grow video consumption : The video attachment rate, a measure of the percentage of total paid customer downloaders who are video downloaders, decreased to 15.9% for the year ended December 31, 2025 from 16.5% for the year ended December 31, 2024. However, a pproximately 33% of Getty Images and 13% of iStock customers purchase video. We expect more customers to use video in the future, which we believe creates a stickier customer that potentially consumes and spends more on our platform. +Video Attachment Rate 1 +1 Attachment is calculated as % of downloaders who downloaded video from all offerings (inclusion of subscription and non-subscription products). +Increase wallet share within existing customer base : We expect to increase wallet share with existing customers by upselling into larger subscription products with increased download caps and breadth of content. Additionally, we can cross sell into products such as Generative AI, Custom Content, music, and Media Manager, our digital asset management product. These offerings drive increases in Average Annual Revenue per User (“ARPU”) from our customers and can drive high customer retention. +Monetize and expand reach into growing long-tail creator economy : Unsplash attracts more than 14 million visitors per month, has over 26,000 API integration, and averages over 91 million monthly image downloads, which we believe reflects the significant opportunity across the “long tail” creator economy. We are monetizing existing API +8 +Table of Contents +integrations through licensing fees and Unsplash+, an unlimited subscription that launched October 2022, that includes premium content (with corresponding license protections) to Unsplash users. +Opportunities for AI, data and insights : We have partnered with leading AI innovators to develop generative AI models that are designed to deliver commercially safe image and video generation and editing services. As part of these efforts, in 2023 we launched Generative AI by Getty Images and in early 2024 Generative AI by iStock, which are designed to be commercially-safe AI text to image generation services, available on gettyimages.com and istock.com. We have and will continue to leverage Artificial Intelligence and Machine Learning capabilities to improve the relevance and effectiveness of our imagery, our search efficiency and enable image editing. We are continuously investing to bring unique capabilities and insights to increase customer stickiness and to drive new revenue streams. Getty Images also licenses the use of its visual assets and associated metadata to customers in connection with the development of artificial intelligence and machine learning tools. +Pursue accretive and strategic acquisitions : We have a successful track record of executing and integrating acquisitions. We have been able to leverage our content, brands, and large customer base to enter related, but adjacent markets to achieve efficiencies and accelerate growth. +Our Content Contributors +The content we license to our customers is sourced from more than 600,000 photographers, videographers, illustrators, and image partners from almost every country in the world. We do not rely on any single individual or group of suppliers to meet our content supply needs. Content sourced from any single content supplier accounted for no more than 3% of revenue in the year ended December 31, 2025. As of December 31, 2025, we owned or licensed over 645 million images and videos. +We have over 115 staff photographers and videographers and ov er 83,000 exclusive contributors. These exclusive relationships allow for transparent information and the sharing of research and insights with contributors. Approximately 75% of our revenue was generated from exclusive content during 2025 highlighting customer demand for high quality, differentiated content in a world with nearly infinite visual content. For the year ended December 31, 2025, we paid over $220 million in royalties to our content contributors, which includes content partners. +Independent contributors +Independent contributors typically fund their own production costs and retain copyright ownership of their content but enter contracts with Getty Images granting global distribution and pricing rights, often on an exclusive basis. These content sourcing agreements also provide representations and warranties by content suppliers as to the copyrights and other intellectual property rights in the content, including representations as to the released nature of the content, if relevant. +Image Partners +Image partners are third-party companies that license their collection of content through us. We generally act as our image partners’ primary or exclusive distribution channel, enabling us to commercialize their editorial coverage of news, entertainment and sporting events and their fully released creative content. Image Partners provide both their wholly-owned and third-party contributor content to us for license through our extensive global network. +Staff and Freelance photographers/videographers +We have over 115 full-time staff photographers and videographers, who supply Editorial photos and video content across news, sports, and entertainment. These staff professionals are award-winning experts in their fields and are employed by Getty Images. For most staff-produced content, we pay very limited, if any, royalties. We also utilize our global network of freelance photographers to cover events. In many cases, we own the resulting copyright and pay no royalties as these photographers are paid a set rate to shoot the event. +Archive +Getty Images maintains one of the largest and best privately-owned photographic archives in the world with over 150 million images across geographies, time periods and verticals. Additionally, we exclusively represent and maintain unique archives such as Hulton, Bettman, Sygma and Gamma. These key collections often hold historical significance and are irreplaceable. We believe they are a key differentiator versus competitors. +9 +Table of Contents +Competition +The market for digital content and related services is highly competitive and rapidly evolving. Our current and potential domestic and international competitors range from large established companies to emerging start-ups across different industries. Our competitors include: online marketplaces and traditional stock content suppliers of current and archival creative and editorial imagery and stock video; specialized visual content companies in specific geographic regions; providers of free images, music and video and related tools; websites specializing in image search, recognition, discovery and consumption; websites that host and store images, art and other related products; those providers of visual content creation and editing tools that include integrated stock content in their product or software as a service offering; providers of cloud-based digital asset management tools; social networking and social media services; generative AI-services; and freelancers, commissioned photographers and photography agencies. There are also a very large number of small stock photography and video agencies, image content aggregators and individual photographers throughout the world with whom we compete. We also compete for content contributors on the basis of several similar factors including ease and speed of the upload and content review process; the volume of customers who license their submitted content; contributor commission models and practices; the degree to which contributors are protected from legal risk; brand recognition and reputation; the effective use of technology; the global nature of our interfaces; and customer service. Additionally, we compete with in-house or self-created content. We believe our principal competitors for creative content include bundled offerings (e.g., Canva, Adobe), pre-shot digital content providers (e.g., Shutterstock, 123RF, Dreamstime and AdobeStock), freelancer networks (e.g., Fiverr) and GenAI (e.g. Midjourney, Dall-E, Stable Diffusion, Google, Microsoft, Meta) and our principal competitors for editorial content include the Associated Press and Reuters, as well as a myriad of specialist agencies. +Intellectual Property +A significant portion of the content that we distribute is licensed to us from individual photographers and videographers and image partners. Content suppliers typically prefer to retain copyright ownership of their work and, as a result, copyright to content remains with the artists in most cases, even while we maintain the right to market, display, distribute and license the imagery, illustration or video on their behalf, globally. We own the copyrights to imagery and video produced by staff photographers as well as any created on a work-for-hire basis, and to imagery and video acquired from third parties. We also own numerous trademarks and have the rights to corresponding internet domain names such as Getty Images (www.gettyimages.com), iStock (www.istock.com) and Unsplash (www.unsplash.com), which are important to the business and have significant value. Depending on the jurisdiction, trademarks are valid as long as they are in use and/or their registrations are properly maintained, and they have not been found to have become generic. We have successfully recovered domain names that include infringing trademarks in the past and intend to continue to enforce our rights in the future. Although we own the Getty Trademarks, in certain specified scenarios, Getty Investments LLC (“Getty Investments”) has the option to acquire, for a nominal sum, all rights to the Getty Trademarks. See “ Item 1A. Risk Factors—Operational risks relating to our business—We may lose the right to use “Getty Images” trademarks in the event we experience a change of control. ” We also own copyrights, including certain content on our web properties, publications and designs, as well as patents, including with respect to our display systems and search capabilities. These intellectual property rights are important to our business and marketing efforts. The duration of the protection afforded to our intellectual property depends on the type of property in question, the laws and regulations of the relevant jurisdiction and the terms of our license agreements with others. We protect our intellectual property rights by relying on federal, state, and common law rights, including registration, in the United States and applicable foreign jurisdictions, as well as contractual restrictions. We enforce and protect our intellectual property rights through litigation from time to time, and by controlling access to our intellectual property and proprietary technology, in part, by entering into confidentiality and proprietary rights agreements with our employees, consultants, contractors, and vendors. In this way, we have historically chosen to protect our software and other technological intellectual property as trade secrets. We further control the use of our proprietary technology and intellectual property through provisions in our websites’ terms of use and license agreements. +Human Capital +Our Culture and Values +At the core of our business is a mission to move the world. We pursue our mission through our images, videos, and illustrations, which seek to inform, drive debate, entertain, inspire, and challenge biases. +By capturing powerful imagery, we strive to make an impact for today and for posterity. Our imagery moves hearts and minds across the globe, shifting perceptions and powering commerce and ideas at the same time. +10 +Table of Contents +Beyond our mission, we also hold ourselves accountable to a shared culture which is customer-focused, results-driven, team-oriented and which maximizes the contribution of our employees toward our shared goals (our “Leadership Principles”): +• We are trustworthy, transparent and honest. +• We always raise the bar. +• We collectively bring solutions. +• We care, are kind, courteous and respectful. +• We are inclusive of different voices, perspectives and experiences. +• We are one Getty Images with no silos. +• We deliver on our commitments and commercial goals. +• We put the customer at the heart of everything we do. +• We reject biased behavior and discrimination. +Employees +As of December 31, 2025, we had nearly 1,650 employees, of which approximately 61% were located in the Americas region, approximately 31% in the Europe, Middle East and Africa ( “ EMEA ” ) region, and the remainder in the Asia-Pacific region. Some of our employees in Brazil, Germany, France, Italy, and Spain are subject to collective bargaining agreements that set minimum salaries, benefits, working conditions and/or termination requirements. We consider our employee relations to be good. See “ Item 1A. Risk Factors—The loss of key personnel, an inability to attract and retain additional personnel or difficulties in the integration of new members of our management team into our Company could affect our ability to successfully grow our business .” +Diversity and Inclusion +Our vision for our culture is one that enables individuals to come to work as themselves, be treated with respect and be given equal opportunities, and will ensure their perspectives and experiences are included in our decision making. +We are committed to building a community and environment in which all can thrive. How we hire, develop, and compensate at all levels and in all departments, including our global network of content creators, must be free from bias. +We are committed to supporting our employees, where all experiences and backgrounds are respected and where everyone comes together to produce amazing imagery, support our customers and impact the world. We are committed to eradicating and dismantling barriers that prevent individuals from being seen, heard, valued and respected for their full authentic selves. +We are committed to a work environment that is a safe and inclusive space for all individuals. We are committed to open dialogue and provide resources and training in support of our collective learning journey. We are committed to providing authentic and positive depiction across all communities. +Employee Opportunity +Our nearly 1,650 employees co me from 32 countries, and include working parents, military spouses and veterans. They bring a wide berth of perspectives and experiences to drive our mission. +We seek to ensure our employees are recognized and rewarded, feel empowered and inspired as they live out our Leadership Principles every day. We foster an environment of transparency, always seeking to learn and improve our employee experience. We do this by engaging with employees in regular feedback loops, including live discussions and a bi-annual engagement survey, and that feedback then provides insights that fuel our employee programming from learning and development to our total rewards approaches and everything in between. Internationally, we customize our compensation and benefits to remain competitive and responsive to our employees’ needs, including global mental health and well-being programs. +We provide many opportunities for learning and growth, cultivating a culture of curiosity. These include formal and informal mentoring opportunities, high potential programming, leadership learning, content development hours to inform on our product offerings, and tailored learning across all functions. We believe in providing learning across various platforms and media as well, recognizing the learning differences of our employees. +11 +Table of Contents +We are defining a future of work that is more flexible, digital, and purposeful. Our approach aims to empower employees to do their best work in the setting that works for them, supporting employee flexibility while balancing business needs. +Government Regulation +The legal environment of the internet is evolving rapidly throughout the world. Numerous laws and regulations have been adopted at the national and state level in the United States and across the globe that could have an impact on our business. These laws and regulations include, but are not limited to, the following: +• The Digital Millennium Copyright Act, which regulates digital material and created updated copyright laws to address the unique challenges of regulating the use of digital content. +• The Directive on Copyright in the Digital Single Market, which regulates a marketplace for copyright in the European Union. +• The Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 and similar laws adopted by a number of states, which regulate the format, functionality and distribution of commercial solicitation e-mails, create criminal penalties for unmarked sexually-oriented material, and control other online marketing practices. +• The Children’s Online Privacy Protection Act and the Prosecutorial Remedies and Other Tools to End Exploitation of Children Today Act of 2003, which regulate the collection or use of information, and restrict the distribution of certain materials, as related to certain protected age groups. In addition, the Protection of Children from Sexual Predators Act of 1998 provides for reporting and other obligations by online service providers in the area of child pornography. +• The Federal Trade Commission Act and numerous state “mini-FTC” acts, which bar “deceptive” and “unfair” trade practices, including in the contexts of online advertising and representations made in privacy policies and other online representations. +• The European Union General Data Protection Regulation and UK Data Protection Act, which regulate how we can collect and process the personal data of, primarily, European Union and UK residents. +• The California Consumer Privacy Act (as amended by the California Privacy Rights Act, together the “CCPA”) which regulates how we can collect and process the personal data of California residents. +• The Colorado Privacy Act (“CPA”), which regulates how we can collect and process the personal data of Colorado residents. +• The Connecticut Data Privacy Act (“CTDPA”), which regulates how we can collect and process the personal data of Connecticut residents. +• The Florida Digital Bill of Rights (“FDBR”), which regulates how we can collect and process the personal data of Florida residents. +• The Montana Consumer Data Privacy Act (“MTCDPA”), which regulates how we can collect and process the personal data of Montana residents. +• The Oregon Consumer Privacy Act (“OCPA”), which regulates how we can collect and process the personal data of Oregon residents. +• The Texas Data Privacy and Security Act (“TDPSA”), which regulates how we can collect and process the personal data of Texas residents. +• The Utah Consumer Privacy Act (“UCPA”), which regulates how we can collect and process the personal data of Utah residents. +• The Virginia Consumer Data Protection Act (“VACDPA”), which regulates how we can collect and process the personal data of Virginia residents. +• The Illinois Biometric Information Privacy Act (“BIPA”), which regulates how we can collect and process biometric identifiers of Illinois residents. +• The Texas Capture or Use of Biometric Identifier Act (“CUBI”), which regulates how we can collect and process biometric identifiers of Texas residents. +• The Washington Biometric Privacy Law (“H.B. 1493”), which regulates how we can collect and process biometric identifiers of Washington residents. +• The Delaware Personal Data Privacy Act (“DPDPA”), which regulates how we can collect and process the personal data of Delaware residents. +• The Iowa Consumer Data Protection Act (“ICDPA”), which regulates how we can collect and process the personal data of Iowa residents. +12 +Table of Contents +• The Nebraska Data Privacy Act (“NDPA”), which regulates how we can collect and process the personal data of Nebraska residents. +• The New Hampshire Data Privacy Act (“NHDPA”), which regulates how we can collect and process the personal data of New Hampshire residents. +• The New Jersey Data Privacy Act (“NJDPA”), which regulates how we can collect and process the personal data of New Jersey residents. +• The Tennessee Information Protection Act (“TIPA”), which regulates how we can collect and process the personal data of Tennessee residents. +• The Minnesota Consumer Data Privacy Act (“MCDPA”), which regulates how we can collect and process the personal data of Minnesota residents. +• The Maryland Online Data Protection Act (“MODPA”), which regulates how we can collect and process the personal data of Maryland residents. +• The Indiana Consumer Data Protection Act (“ INCDPA”), which regulates how we can collect and process the personal data of Indiana residents. +• The Kentucky Consumer Data Protection Act (“KCDPA”), which regulates how we can collect and process the personal data of Kentucky residents. +• The Rhode Island Data Transparency and Privacy Protection Act (“ RIDTPPA”), which regulates how we can collect and process the personal data of Rhode Island residents. +• The E.U. AI Act, and the laws, rules and regulations directly relating to the use of AI or extending the application of existing laws, rules and regulations to AI systems and outputs adopted by U.S. states, including Colorado and California. +In particular, we are subject to U.S. federal and state, and foreign laws and regulations regarding privacy and data protection as well as foreign, federal and state regulation. In certain instances, we may also have obligations under several U.S. state data breach or breach notification laws. Foreign data protection, privacy, content regulation, consumer protection, and other laws and regulations can be more restrictive than those in the United States and often have extraterritorial application, and the interpretation and application of these laws are continuously evolving and remain in flux. See “ Item 1A. Risk Factors—We collect, store, process, transmit and use personal data, which subjects us to governmental regulation and other legal obligations related to privacy, information security and data protection in many jurisdictions. Any cybersecurity breaches or our actual or perceived failure to comply with such legal obligations by us, or by our third-party service providers or partners, could harm our business, and could result in regulatory investigations, enforcement actions, fines, litigation, reputational harm and increased compliance costs, any of which could materially adversely affect our business, financial condition and results of operations. ” +In addition, from a taxation perspective, there are applicable and potential government regulatory matters that may impact us. In particular, certain provisions of the Tax Cuts and Jobs Act of 2017 (the “TCJA”) have had and will continue to have an impact on our financial position and results of operations. The TCJA continues to be subject to further regulatory interpretation and technical corrections by the U.S. Treasury Department and the I.R.S. and therefore, the full impact of the TCJA on our tax provision may continue to evolve. Further, we continue to remain subject to uncertainty related to foreign jurisdictions’ potential reactions to the TCJA, as well as evolving regulatory views and legislation regarding taxation of e-commerce businesses such as the Organization for Economic Cooperation and Development’s Base Erosion and Profit Shifting proposals and other country specific digital tax initiatives. On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was enacted in the U.S. The OBBBA includes various tax provisions, such as extending and modifying certain Tax Cuts and Jobs Act provisions and the international tax framework. The Company expects these changes to reduce its annual U.S. tax liability and cash taxes in 2025 and 2026. As these and other tax laws and related regulations continue to evolve, our financial results could prospectively be materially impacted. See “ Item 1A. Risk Factors—Our operations may expose us to greater than anticipated income and transaction tax liabilities that could harm our financial condition and results of operations. ” +Seasonality +Our operating results may fluctuate from quarter to quarter and year to year as a result of a variety of factors, including as a result of major sporting events, world events or otherwise. Our quarterly and annual results may also reflect the effects of intra-period trends in customer behavior. Because a significant portion of our revenue is derived from repeat customers who have purchased subscription plans, our revenues have historically been less susceptible to quarterly seasonality. +13 +Table of Contents +In addition, expenditures on content by customers tend to be discretionary in nature, reflecting overall economic conditions, the economic prospects of specific industries, budgeting constraints, buying patterns and a variety of other factors, many of which are outside our control. As a result of these and other factors, the results of any prior quarterly or annual periods should not be relied upon as indicators of our future operating performance. +Available Information +Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as well as proxy and information statements and other information that we file, are available free of charge through our internet website as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the United States Securities and Exchange Commission (“SEC”). Our internet website and the content contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K. The SEC maintains an internet website at www.sec.gov, which also contains reports, proxy and information statements and other information that we file electronically with the SEC. We routinely post important information on our website, www.gettyimages.com. We also may use our website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor our website, in addition to following our press releases, SEC filings, public conference calls, presentations and webcasts. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this document. +Copies of the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 may also be obtained by stockholders without charge upon written request to: Getty Images Holdings, Inc., 605 5th Ave S., Suite 400, Seattle, Washington 98104, ATTN: Investor Relations. +Item 1A. Risk Factors. +In addition to the other information contained in this Annual Report, including the matters addressed under the heading “ Cautionary Note Regarding Forward-Looking Statements, ” you should carefully consider the following risk factors in this Form 10-K before investing in our securities. The risk factors described below disclose both material and other risks, and are not intended to be exhaustive and are not the only risks facing us. Additional risks not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, results of operations and cash flows in future periods or are not identified because they are generally common to businesses. +Summary Risk Factors +• Operational Risks Related to Our Business +◦ Our inability to attract new and retain existing and repeat customers; +◦ Our inability to offer relevant, quality and diversity of content to satisfy customer needs; +◦ The intense competition we face could reduce our revenues, margins and operating results; +◦ Our inability to successfully execute our business strategy; +◦ Risks resulting from increased costs incurred in implementing our business strategy; +◦ Our inability to maintain an effective system of internal control over financial reporting; +◦ Losing the right to use the “Getty Images” trademark; +◦ Our incurrence of debt, including related interest rate volatility and rising interest costs, which could have a negative impact on our financing options and liquidity position; +◦ Our need to seek additional capital and any related inability to obtain additional capital on commercially reasonable terms; +◦ Our inability to adapt to industry change; +◦ The increasing use of AI applications such as generative AI technologies that may result in harm to our brand, reputation, business, or intellectual property; +◦ Failure to develop, market, sell or enhance new or existing products and services; +◦ Our failure to successfully expand into new international markets; +◦ Risks resulting from actions by governments to restrict access to our services; +14 +Table of Contents +◦ Negative impacts of currency fluctuations; +◦ Our inability to adequately maintain, adapt and upgrade our websites and technology systems to ingest and deliver higher quantities of new content; +◦ Technological interruptions that impair access to our websites or the efficiency of our websites and technology systems damaging our reputation and brand; +◦ Our failure to protect the proprietary information of our customers and our networks against cybersecurity breaches; +◦ Our inability to acquire or integrate new businesses, content, and product lines; +◦ Potential for goodwill or other intangible asset impairment charges; +◦ The impact of worldwide economic, political and social conditions on our business; +• Risks Related to Personnel +◦ The loss of key personnel, an inability to attract and retain additional personnel or difficulties in the integration of new members of our management team into our business; +◦ Risks related to our use of independent contractors; +◦ Our inability to protect and enforce our intellectual property rights; +• Risks Related to Our Intellectual Property and Confidential Information +◦ Infringement on intellectual property rights of third parties; +◦ Risks associated with the use of “open source” software; +◦ Risks associated with scraping our content for use in training AI models and services; +• Risks Related to Legal and Regulatory Matters +◦ An increase in government regulation of the industries and markets in which we operate, including with respect to the internet, e-commerce and AI; +◦ Risks associated with public disclosure regulations and expectations, including with respect to environmental, social and governance matters; +◦ Exposure to greater than anticipated income and transaction tax liabilities; +◦ Our inability to comply with privacy, information security and data protection regulations and legal obligations; +◦ Payment-related risks that may result in higher operating costs or the inability to process payments; +◦ Complaints, judgments or litigation that may adversely affect our business and reputation; +• Risks Related to Our Class A Common Stock +◦ Risks related to our status as an “emerging growth company” and “smaller reporting company”; +◦ Class A common stock price volatility and related NYSE listing rules compliance; +◦ Lack of an active trading market for our Class A common stock; +◦ Future sales of shares by existing stockholders could cause our stock price to decline; +◦ Delaware law and provisions of our organizational documents that make a merger, tender offer, or proxy contest difficult, thereby depressing the trading price of our Class A common stock; +◦ Forum selection provisions in our Amended and Restated Certificate of Incorporation; +◦ Our inability to pay dividends for the foreseeable future; +◦ Additional issuances of shares of Class A common stock or other equity securities without shareholder approval; +• Risks Related to the Proposed Merger (the “Merger”) with Shutterstock +◦ Our inability to complete the Merger, or to complete the Merger in a timely manner, including as a result of the failure to obtain required regulatory approvals or the failure to satisfy the other conditions to the consummation of the Merger could negatively affect our business, financial condition and results of operations; +◦ Failure to complete the Merger could trigger the payment of a termination fee, and, whether or not the Merger is consummated, we have incurred and will continue to incur significant costs, fees and expenses relating to professional services and transaction fees; +15 +Table of Contents +◦ Uncertainties associated with the Merger may cause us to lose key customers or suppliers and make it more difficult to retain and hire key personnel, and the Merger may disrupt our current plans and operations or divert management’s attention from our ongoing business; +◦ We will be subject to business uncertainties and contractual restrictions while the Merger is pending. +◦ The proposed Merger and the integration of both companies may be more difficult, costly or time-consuming than expected, and we may fail to realize the anticipated benefits of the Merger; +◦ The market price of the combined company's common stock following the anticipated closing of the Merger may be affected by factors different from those that historically have affected or currently affect our common stock; +◦ We may be unable to retain personnel successfully while the Merger is pending or after the Merger is completed; +◦ We may become subject to lawsuits relating to the Merger, which could adversely affect our business, financial condition and operating results; +◦ Because the exchange ratio in the Merger Agreement is fixed and because the market price of Shutterstock and our Class A common stock has and may continue to fluctuate prior to the completion of the Merger, we cannot be sure of the market value of our Class A common stock that will be paid to Shutterstock stockholders as consideration in the Merger; and +◦ Our stockholders will have a reduced ownership and voting interest in Getty Images following the merger as compared to their ownership and voting interest in us and will exercise less influence over management. +Operational Risks Related to Our Business +Our business depends in large part on our ability to attract new and retain existing and repeat customers. +More than a majority of our revenue is derived from customers who have licensed content from us in the past. We are also increasingly seeing the mix of revenue shift to committed revenues from annual subscription products. We must ensure that existing customers remain active customers and that we are successful in renewing our committed content agreements, including Premium Access agreements and iStock annual subscriptions. Our future performance largely depends on our ability to attract new and retain existing customers. We employ various customer experience, content, marketing and pricing strategies to incentivize customers to seek and use our content. Our customer experience strategies may be unsuccessful, due to lack of available and desirable content, the depth and breadth of our current and future product offerings, lack of differentiated content, a decline or failure in the quality and accuracy of our search algorithms, the features and functionality of our websites, payment systems and effectiveness of our sales support. As new and emerging platforms and content distribution systems continue to emerge, including but not limited to generative AI generated content and services powered by generative AI, including open-source generative AI, our customers may no longer want to source content from distributors such as us. In addition, our marketing strategies may not attract new customers, our content strategies may not attract relevant content from a suitably diverse network of suppliers and our pricing strategies may discourage purchases. To the extent that we are unable to attract new customers, our costs to acquire and retain customers increase, or our existing customers do not continue to license content from us for these or any other reasons, our results of operations and financial condition could be materially and adversely affected. +We may be unable to offer relevant quality and diversity of content to satisfy customer needs, including due to an inability to license content owned by third parties, which may become unavailable to us on commercially reasonable terms or may not be available at all. +We generate a significant majority of our revenue from content that we source from third parties. We typically acquire rights in such content from suppliers through licenses, either on an exclusive or non-exclusive basis, with the ability to grant sublicenses. If we are unable to renew our supply agreements with third-party suppliers or if such suppliers otherwise fail to continue to provide us with relevant content or cease providing content that we currently or may in the future license, we may be unable to offer our customers the depth and breadth of content they may demand. In addition, other digital content distributors who currently or in the future may offer competing content and services may offer content suppliers higher royalties, easier submission workflows and platforms, less rigorous ingestion practices, and/or exclusivity incentives, and/or take other actions that could make it more difficult or impossible for us to license existing or new content +16 +Table of Contents +from third party suppliers. Such third party suppliers may choose to stop distributing new content with us or remove their existing content from our collection. If we are unable to continue to offer a wide variety of content at reasonable prices with acceptable license rights, our financial condition and results of operations could be materially and adversely affected and future growth prospects limited. +Our business is highly competitive, and we face intense competition from a number of companies and technologies, which could reduce our revenues, margins and results of operations. +The digital media content industry is fragmented and intensely competitive, and competition may intensify in the future. Increased competition may result in our loss of market share, pricing pressure and reduced profit margins, any of which could materially and adversely affect our business and results of operations. +We compete with a wide array of entities, including large media companies, individual content creators and generative AI technologies. These competitors include: +• traditional stock content providers; +• other online platforms from which imagery may be sourced that provide both paid and no-cost licenses, including content created on demand or through generative AI models; +• other specialized editorial and video content providers that are established in local, content or product-specific market segments; +• independent photographers, filmmakers, musicians and related agencies; +• crowd-sourced distribution platforms, social networking and image hosting services; +• freelancers; +• creative agencies; +• software as a service solutions that package visual content into creative and design services; and +• products and services powered by generative AI, including open-source generative AI. +Many of our competitors have or may obtain significantly greater financial, marketing or other resources or greater brand awareness than we have. Some of these competitors may be able to respond more quickly to new or expanding technology, such as generative AI technologies, and devote more resources to product development, marketing or content acquisition than we can. Industry consolidation could result in stronger competitors that are better able to compete for customers. This could lead to more variability in results of operations as we compete with larger competitors and could have a material adverse effect on our business, results of operations, and financial condition. +In addition, new competitors may enter our market, including those that rely on generative AI technologies. They and existing competitors could focus investment in creating, sourcing, archiving, indexing, reviewing, searching, purchasing or delivering content more easily, including within existing or new creative workflows such as software as a service solutions that package visual content into creative and design services, or more affordably. The barriers to creating a website platform that allows for the license of digital content are low, especially when considering open-source generative AI that requires minimal resources to produce, which could result in greater competition. New entrants, as well as existing competitors, may raise significant amounts of capital (or leverage relationships with other competitors or investors) and they may choose to prioritize increasing their market share and brand awareness over profitability, including, for example, by investing more in content offerings, marketing or pricing strategies such as delivering AI generated content, offering higher royalties for exclusivity or lowering content prices. Some of these new competitors may also invest in other existing competitors, increasing market pressure on our offerings. +Competitors could develop products or services that render ours less desirable or obsolete. External factors such as our competitors’ pricing and marketing strategies could impede our ability to meet customer expectations. Our competitors may be able to attract talented staff from us and others to devote greater resources to research and development of products and technologies. Increased competition and pricing pressures may result in reduced sales, lower margins, losses or the failure of our product and services to maintain and grow their current market share, any of which could harm our business. If we are unable to compete successfully against competitors and adapt to emerging technologies, our financial condition, growth prospects and results of operations could be materially and adversely affected. +We may be unsuccessful in executing our business strategy. +The success of our business and our future growth prospects relies on our ability to execute our business strategies in making available desired content and expanding our global customer base. There can be no assurance that we will be able to continue to execute any or all of our strategies, including our ability to provide a proprietary platform and +17 +Table of Contents +infrastructure as well as our acquisition strategy. Failure to execute these strategies on a timely and cost-effective basis could have a material and adverse effect on our financial condition and results of operations and could limit our growth prospects. +We have incurred and expect to continue to incur increased costs and our management will continue to face increased demands as a result of continuously improving our operations as a public company. +We have incurred and expect to continue to incur significant legal, tax, insurance, accounting and other expenses as a result of conducting our operations as a public company. Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and related regulations implemented by the SEC and the stock exchanges increase legal and financial compliance costs and making some activities more time-consuming. We are currently evaluating and monitoring developments with respect to new and proposed rules and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. Further, there may be uncertainty regarding the implementation of these laws due to changes in the political climate and other factors. Our compliance with Section 404 of the Sarbanes-Oxley Act requires that we incur substantial accounting expense and expend significant management efforts. We have incurred and expect to continue to incur costs to obtain directors’ and officers’ insurance as a result of operating as a public company, as well as additional costs necessitated by compliance matters and ongoing revisions to disclosure and governance standards. +These and other increased costs associated with operating as a public company have in the past and may continue to decrease our net income or increase our net loss and may cause us to reduce costs in other areas of our business or increase the prices of our products or services to offset the effect of such increased costs. Although we continue to evaluate and manage our costs, the ability to effectively manage such costs is subject to risks and uncertainties, and we cannot be sure that these activities, or any other activities that we may undertake in the future, will achieve the desired cost management or efficiencies. Failure to effectively manage our costs, whether as a result of being a public company or otherwise, could adversely affect our results of operations and financial condition and curtail investment in growth opportunities +If we fail to maintain an effective system of internal control over financial reporting, we may not be able to report our financial results accurately or in a timely fashion, and we may not be able to prevent fraud; in such case, our stockholders could lose confidence in our financial reporting, which would harm our business and could negatively impact the price of our stock. +As a public company, we are required by the Sarbanes-Oxley Act to establish and maintain corporate oversight and adequate internal control over financial reporting and disclosure controls and procedures. Effective internal control is necessary for us to provide reliable, timely financial reports and prevent fraud. +Our testing of our internal controls, or the testing by our independent registered public accounting firm, may reveal deficiencies in our internal control over financial reporting that we would be required to remediate in a timely manner to be able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act each year. If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner each year, we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources and could adversely affect the market price of our shares of Class A common stock. Furthermore, if we cannot provide reliable financial reports or prevent fraud, our business and results of operations could be harmed and investors could lose confidence in our reported financial information. +We may lose the right to use “Getty Images” trademarks in the event we experience a change of control or otherwise exceed the permitted usage of this trademark. +We own trademark registrations and applications for the name “Getty Images.” We use “Getty Images” as a corporate identity, as do certain of our subsidiaries. We refer to these trademark registrations and trademark applications as the “Getty Images Trademarks.” Pursuant to the Restated Option Agreement (as defined below) and the Fourth Amendment to the Restated Option Agreement, in the event that one or more third parties not affiliated with Getty Investments acquire a controlling interest in us, for so long as Getty Investments, Mark Getty, The October 1993 Trust and The Options Settlement (collectively, the “Getty Family Stockholders”) (together with their respective successors and any +18 +Table of Contents +permitted transferees) beneficially own more than 27,500,000 shares of Class A common stock (the “Ownership Threshold”), Getty Investments has the option to acquire, for a nominal sum, all rights to the Getty Images Trademarks. +If the Getty Family Stockholders (together with their respective successors and any permitted transferees) fall below the Ownership Threshold, their option referred to herein will terminate. After an exercise of the option, we would be permitted to continue to use the Getty Images Trademarks for 24 months, and thereafter we would have to cease such use. Getty Investments may also exercise the option if we cease all use of the Getty Images Trademarks. We may not sell, transfer or encumber the Getty Images Trademarks, or any interest therein, without the prior written consent of Getty Investments. In addition, we may not use the Getty Images Trademarks for any direct-to-consumer sales beyond an incidental and limited level. The loss of rights to the Getty Images Trademarks could have a material adverse effect on our business, results of operations and financial condition. +We operate in new and rapidly changing markets, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful. +The market for commercial digital imagery and other content is a rapidly changing market, characterized by changing technologies, intense price competition, the introduction of new competitors, evolving industry standards, changing and diverse regulatory environments, frequent new service announcements and changing consumer demands and behaviors. Our inability to anticipate these changes and adapt our business, platform, and offerings could undermine our business strategy. Our business strategy and projections, including those related to our revenue growth and profitability, rely on a number of assumptions about the market for commercial digital content, including the s ize and projected growth of the imagery and video markets over the next several years. Some or all of these assumptions may be incorrect. In particular, our growth is highly dependent upon the continued demand for commercial digital content. To the extent that demand for commercial digital content does not continue to grow as expected or decreases, our revenue growth and profitability may be materially and adversely affected. Our growth strategy is dependent, in part, on our ability to ti mely and effectively launch new products and services, the development of which are uncertain, complex and costly. In addition, we may be unable to successfully and efficiently address advancements in distribution technology, marketing and pricing strategies and content breadth and availability in certain or all of these markets, which could materially and adversely affect our growth prospects and results of operations. +The limited history of some of the markets in which we operate makes it difficult to effectively assess our future prospects, and our business and prospects should be considered in light of the risks and difficulties we may encounter in these evolving markets. We cannot accurately predict whether our products and services will achieve significant acceptance by potential customers in significantly larger numbers or at the same or higher price points than at present. Our historic growth rates should therefore not be relied upon as an indication of future growth, financial condition or results of operations. +The increasing use of AI applications such as generative AI technologies may result in harm to our brand, reputation, business, or intellectual property, and could otherwise adversely affect our results of operations. +Uncertainty around new and emerging AI applications such as generative AI content creation may require additional investment in the development of proprietary datasets and machine learning models, development of new approaches and processes to provide attribution or remuneration to content creators and building systems that enable creatives to have greater control over the use of their work in the development of AI, which may be costly and could impact our profit margin. Developing, testing, and deploying AI systems may also increase the cost profile of our offerings due to the nature of the computing costs involved in such systems. +Further, generative AI technology may negatively impact our ability to attract, engage, and retain customers; protect and monetize our intellectual property; maintain and grow other revenue streams; and retain customers and grow trust in our brand. The rapid advancement and adoption of generative AI technologies poses risks to our business operations, particularly in the licensing of creative images and videos. Generative AI presents a dual-threat scenario: the unauthorized use of our intellectual property to train AI models and the potential for these models to create competitive or substitutive content. Recent advances and continued rapid development in generative AI technology may alter the market for our products and services. +Generative AI tools powered by models that have been trained on our content, or that are able to display and produce output that contains, is similar to, or is based on, our content, without permission, fair compensation, or proper attribution, may reduce our online traffic, decrease customer demand, infringe our intellectual property rights, impair our +19 +Table of Contents +ability to attract new customers, harm existing and potential revenue streams, and adversely affect our business, revenues and results of operations. Generative AI technologies also have the potential to create images and videos that directly compete with or substitute for our licensed content. As these technologies become more accessible and capable, customers may opt for AI generated content that bypasses traditional licensing models, impacting our revenue and market position. The evolving nature of AI generated content also raises questions about copyright and originality, potentially disrupting the legal frameworks that protect our assets. +Third parties do and may continue to engage in the scraping of our intellectual property without consent, utilizing this content to train their generative AI models. Such unauthorized use infringes on our intellectual property rights and undermines the value proposition of our licensing business. Despite our efforts to monitor and enforce these rights, the volume of digital content and the sophistication of scraping technologies may limit our ability to fully prevent unauthorized use. We are actively monitoring these developments and exploring strategies to mitigate their impact, including technological solutions to prevent unauthorized scraping and participating in industry and legislative efforts to address the challenges posed by generative AI. However, there is no guarantee that these measures will be fully effective in protecting our interests, and our failure to adapt to these changes could adversely affect our business, financial condition, and operational results. +The legal landscape for generative AI remains uncertain, including with respect to intellectual property rights, and the development of the law in this area could impact our ability to protect our intellectual property from infringing and competitive uses. See “ Item 3—Legal Proceedin gs” for background on our suit against Stability AI, Inc. et al. There can be no assurance that we will be successful in these cases, or in preventing other generative AI developers or technologies from using our content without authorization or fair compensation. Our business, brand, financial condition and results of operations may suffer as a result. +We are also using and may continue to use certain generative AI tools and/or in our business. If the recommendations that these tools assist in producing are or are alleged to be deficient, inaccurate, biased or otherwise problematic, our reputation may be adversely affected. In addition, the introduction of generative AI tools into our business may negatively impact our workplace culture and ability to attract and retain employees if generative AI tools are viewed as displacing workers. Accordingly, our use of, or perceptions of the way that we use, generative AI could adversely affect our business, brand, financial condition or results of operations. In addition, we may rely on AI tools or models developed by third parties, and, to that extent, would be dependent in part on the manner in which those third parties develop and train their models, including risks arising from matters over which we may have limited visibility. +If we cannot continue to innovate technologically or develop, market and sell new products and services, or enhance existing technology and products and services to meet customer requirements, our ability to grow our revenue could be impaired. +Our growth largely depends on our ability to innovate and add value to our existing creative platform and to provide our customers and contributors with a scalable, high-performing technology infrastructure that can efficiently and reliably handle increased customer and contributor usage globally, as well as the deployment of new features. For example, AI and products, including but not limited to generative AI, require additional capital and resources. Without improvements to our technology and infrastructure, our operations might suffer from unanticipated system disruptions, slow performance or unreliable service levels, any of which could negatively affect our reputation and ability to attract and retain customers and contributors. We are currently making, and plan to continue making, investments to maintain and enhance the technology and infrastructure and to evolve our information processes and computer systems in order to run our business more efficiently and remain competitive. We may not achieve the anticipated benefits, significant growth or increased market share from these investments for several years, if at all. If we are unable to manage our investments successfully or in a cost-efficient manner, our business and results of operations may be adversely affected. +Our growth also depends, in part, on our ability to identify and develop new products and services and enhance existing products and services. The process of developing new products and services and enhancing existing products and services and bringing products or enhancements to market in a timely manner is complex, costly and uncertain and we may not execute successfully on our vision or strategy because of challenges such as product planning and timing, technical hurdles, or a lack of resources. The success of our products depends on several factors, including our ability to: +• anticipate customers’ and contributors’ changing needs or emerging technological trends; +• timely develop, complete and introduce innovative new products and enhancements; +• differentiate our products from those of our competitors; +20 +Table of Contents +• effectively market our products and gain market acceptance; +• adopt new technologies without alienating our current contributors; +• price our products competitively; and +• provide timely, effective and accurate support to our customers and contributors. +We may be unable to successfully identify new product opportunities or enhancements, develop and bring new products to market in a timely manner, or achieve market acceptance of our products. There can be no assurance that products and technologies developed by others will not render our products or technologies obsolete or less competitive. If we are unsuccessful in innovating our technology or in identifying new or enhancing our existing product offerings, our ability to compete in the marketplace, to attract and retain customers and contributors and to grow our revenue could be impaired. +Further, our customer base is diverse, but trends in their industries present risks to our business. In recent years, traditional outlets for media and advertising, such as newspapers, magazines, book publishing and television, have experienced consolidation and undergone other significant changes, and, in many cases, also experienced diminishing readership and viewership, as applicable, and ultimately periodic declines in revenues and profitability. Corporate in-house content users have experienced reduced budgets and shifts in use patterns that have changed the way they acquire and use our content, including an increase in reliance on in-house creative and marketing capabilities, and software as a service solutions that package visual content into creative and design services instead of outsourcing this work to agencies. We have also seen an increasing shift away from print media to digital and online media use. Content used online has historically been characterized by lower resolutions and lower price points but potentially significantly higher volumes than print-based applications. If we are unable to adapt our content offerings and distribution technology to address any current or future changes to customer industries, our future growth prospects and results of operation could be materially and adversely affected. +We rely on third parties to drive traffic to our website, and these providers may change their search engine algorithms or pricing in ways that could negatively affect our business, results of operations, financial condition and prospects. +Our success depends on our ability to attract customers in a cost-effective manner. With respect to our marketing channels, we rely heavily on relationships with providers of online services, search engines, social media, and affiliate websites and e-commerce businesses to provide content, advertising banners and other links that direct customers to our websites. We rely on these relationships to provide significant sources of traffic to our website. In particular, we rely on search engines as important marketing channels. Search engine companies change their natural search engine algorithms periodically, and our ranking in natural searches have been in the past, and may be in the future, adversely affected by such changes. Search engine companies may also determine that we are not in compliance with their guidelines and consequently penalize us in their algorithms as a result. If search engines change or penalize us with their algorithms, terms of service, display and featuring of search results, or if competition increases for advertisements, we may be unable to cost-effectively drive consumers to our websites. +Our relationships with our affiliate websites are not long term in nature and often do not require any specific performance commitments. As competition for online advertising has increased, the cost for some of these services has also increased. A significant increase in the cost of the affiliate websites could adversely impact our ability to attract customers cost effectively and harm our business, results of operations, financial condition and prospects. +Our operation in and continued expansion into international markets is important for our business. As we continue to expand internationally, we face additional business, political, regulatory, operational, financial and economic risks, any of which could increase our costs or otherwise limit our growth. +Operating internationally and continuing to expand our business to attract new customers and content suppliers in geographies other than North America and Western Europe is important to our continued success and growth. For each of the years ended December 31, 2025, 2024 and 2023, approximately 50% of our revenue was derived from customers located outside of the United States. We expect to continue to devote resources to international expansion through exploring acquisition and foreign distributor partnership opportunities, as well as through expanding our foreign language marketing of offerings and further localizing our content library and user experience for foreign markets. Our ability to expand our business and to attract talented employees, customers and content suppliers in an increasing number of international markets requires considerable management attention and resources and is subject to the particular challenges of supporting a growing business in an environment of multiple languages, cultures, customs, political regimes, legal systems, alternative dispute systems, regulatory systems and commercial infrastructures. Moreover, as military conflicts in Ukraine, the Middle East, and South America continue, there can be no certainty regarding whether such governments or other governments will impose additional sanctions or other economic or military measures. We cannot provide assurance +21 +Table of Contents +that current sanctions or potential future changes in sanctions will not have an adverse impact on our operations. Expanding our international focus may subject us to risks that we have not faced before or increase risks that we currently face, certain of which are described elsewhere in these “ Item 1A. Risk factors ,” including risks associated with: +• modifying and customizing our content, technology, pricing and marketing efforts to appeal to foreign customers and attract foreign content suppliers; +• changes to domestic and international intellectual property, privacy and rights of publicity laws; +• higher costs associated with doing business internationally, including increased taxes, tarrifs, and foreign currency fluctuations; +• legal, political or systemic restrictions on the ability of U.S. companies to do business in foreign countries, including, among others, restrictions imposed by the U.S. Office of Foreign Assets Control (“OFAC”) on the ability of U.S. companies to do business in certain specified foreign countries or with certain specified organizations and individuals; +• difficulty in staffing and strains on our systems and staff in managing widespread operations and ensuring compliance with foreign laws and regulations, including local laws, the U.S. Foreign Corrupt Practices Act, the U.K. Anti-Bribery Act, the U.K. Modern Slavery Act, or other anti-corruption or anti-money laundering laws, tax regulations, disclosure requirements, privacy laws, biometric, data protection, rights of publicity, human rights, employment, technology laws and laws relating to content; +• government regulation of e-commerce and restrictions on communications, distribution of content and media, including censorship; +• disruption in the political, economic or military stability of markets in which we operate; +• providing for the health and safety of our photographers and other employees around the world; +• potential legal, political or social uncertainty and volatility or catastrophic events, including wars and terrorist events, that could restrict our photographers’ travel or otherwise adversely impact our operations and business and/or those of the companies with which we do business; +• currency restrictions that may limit our ability to repatriate profits; +• differences in payment cycles, increased credit risks and increased payment fraud levels; +• lack of adoption by certain jurisdictions of e-commerce and internet payment platforms and adoption of different platforms by different jurisdictions; +• reduced and more costly protection of our intellectual property; +• currency exchange fluctuations, hyperinflation and deflation fluctuations; +• potential adverse tax consequences of doing business in certain jurisdictions; +• recruiting and retaining talented and capable management and employees in foreign countries; and +• difficulties of establishing, adapting and maintaining the systems and operations for compliance with and management of these risks. +These risks may make it impossible or prohibitively expensive to effectively maintain operations in or expand to new international markets, or delay entry into such markets, which could materially and adversely affect our ability to grow our business. Additionally, the entry of local competitors in certain markets may impede our ability to grow our business in those markets. +Actions by governments to restrict access to, or operation of, our services or the content we distribute in their countries could substantially harm our reputation, business and financial results. +Foreign governments, or internet service providers acting pursuant to foreign government policies or orders, of one or more countries may seek to limit content available through our e-commerce platform in their country, restrict access to our products and services from their country entirely, or impose other restrictions that may affect the accessibility of our services in their country for an extended period of time or indefinitely if our services, or the content we distribute, are deemed to be in violation of their local laws and regulations. For example, domestic internet service providers have previously blocked access to certain content in China and other countries, such as Iran and Russia, have previously restricted access to specific content. If access to our services is restricted, in whole or in part, in one or more countries or our competitors can successfully penetrate geographic markets that we cannot access, our reputation among our customers, contributors and employees may be negatively impacted, our ability to retain or increase our contributor and customer base may be adversely affected, we may not be able to maintain or grow our revenue as anticipated, and our financial results could be adversely affected. +22 +Table of Contents +The impact of currency fluctuations could adversely and materially affect our business and results of operations. +Our foreign operations are exposed to foreign exchange rate fluctuations as our financial results are translated from the local currency into U.S. Dollars upon consolidation. If the U.S. Dollar weakens against foreign currencies, the translation of these foreign currency denominated transactions will result in increased revenue, operating expenses and net income. Similarly, if the U.S. Dollar strengthens against foreign currencies, the translation of these foreign currency denominated transactions will result in decreased revenue, operating expenses and net income. As exchange rates vary, sales and other results of operations, when translated, may differ materially from expectations. For the years ended December 31, 2025, 2024 and 2023, 44%, 45% and 44% of our revenue was denominated in foreign currencies, respectively. In addition, approximately 38%, 36% and 35% of our SG&A (as defined below) and capital expenditures for the years ended December 31, 2025, 2024 and 2023 were denominated in foreign currencies, respectively. +Because we report our financial results in U.S. Dollars, fluctuations in foreign currencies (including the British Pound, Australian and Canadian Dollars, Japanese Yen and Euro) have had and will continue to have a material effect on our financial performance. Volatility in foreign currency fluctuations may continue as a result of economic and political circumstances beyond our control. +A decline in value of any foreign currency against the U.S. Dollar will tend to have a negative effect on our financial performance, while an increase in value of these currencies against the U.S. Dollar will tend to have a positive impact on reported financial performance. This fluctuation risk increases as we expand into foreign markets. +We have previously and may in the future, enter into certain derivatives or other financial instruments to hedge against this foreign exchange risk. It is difficult to predict the impact hedging activities have on our results of operations and any actions we have and will take with respect to hedging our foreign currency exchange risk may be unsuccessful. +We may be unable to adequately maintain, adapt and upgrade our websites and technology systems to ingest and deliver higher quantities of new content and allow existing and new customers to successfully search for our content. +To remain competitive, we must continue to add substantial quantities of the most relevant content desired by our customers. Our ability to ingest such content is directly related to the ease of access, sophistication, protections and reliability of the technology relating to our ingestion tools. Our failure to address deficiencies could result in a decrease or inability to ingest enough new content, thereby causing customers to seek other sources, which could materially and adversely affect our results of operations and financial condition. +Even if we can ingest sufficient new content, we must also add new functionality and features to our websites to allow customers to search for the relevant content we offer. A significant component of our technology strategy is the improvement of the compatibility of our websites with third-party search engines that direct traffic to our site and, specifically, to content that reflects searched key words. The search algorithms developed by third-party search engines are typically not publicly known and are subject to unanticipated changes, which could significantly affect the number of new customers we attract to our sites. In addition, we continually seek to improve search functions within our site to enable customers to locate the most relevant and appropriate content for their particular use. If we do not address any current or future deficiencies with respect to potential or existing customers’ ability to search for content on the internet or on our websites, we may be unsuccessful in acquiring and retaining customers and ultimately licensing the most relevant content, which could materially and adversely affect our results of operations and financial condition. In addition, the expansion and improvement of our systems and websites may require us to commit substantial financial, operational and technical resources, with no assurance that our business will improve. +We may not be able to continue the growth of our business at rates reflective of our historical growth rates or at all. +We have, at times, experienced growth in terms of revenues, customers and content offerings, and we may not be able to maintain our historical rate of growth in certain product lines or replicate this growth with other product lines or across geographies. Our growth strategy may require us to commit substantial financial, operational and technical resources to current operations, which may divert such resources away from other potentially profitable ventures, without any guarantee of a similar return on any such investments. Further, even if we do achieve the desired growth, such growth could also strain our ability to maintain reliable operation of our websites or our relationships with customers and content suppliers and acquire relevant content. This in turn could negatively impact our ability to develop and improve our operational, financial and management controls and systems. If we fail to effectively manage or support future growth, or if +23 +Table of Contents +we are otherwise negatively impacted by our efforts to grow our product lines, our business, results of operations and financial condition may be materially and adversely affected. +Technological interruptions that impair access to our websites or the efficiency of our websites and technology systems could damage our reputation and brand and adversely affect our results of operations. +The digitization and satisfactory internet distribution of our content is a key component of the efficient functioning of our websites and our business. We will need to continue to invest in and improve our websites and systems, network infrastructure, content ingestion, and customer experience in order to ensure consistent performance, reliability, and accessibility, and to accommodate our expanding product offerings, anticipated increased site traffic, sales volume, and processing of the resulting information and transactions. If we experience significant disruptions or difficulties as a result of or during any such technology updates or upgrades, we may face system interruptions, poor website response times, inability to refresh or add content, diminished customer services, impaired quality and speed of order processing, and potential problems with our internal control over financial reporting. Substantial or repeated system disruptions or failures would reduce the attractiveness of our websites significantly and negatively impact our brand and reputation for both customers and content providers. Even a disruption as brief as a few minutes could have a negative impact on activities on our websites or systems and could therefore result in a loss of customers, revenue, partners, content providers or data. Because some of the causes of system interruptions may be outside of our control, we may not be able to remedy such interruptions in a timely manner, or at all. +Our ability to license content and offer other related services also depends on the maintenance of a reliable network backbone with the necessary speed, data capacity and security, as well as the timely development of complementary capabilities, to provide reliable website internet access and services. The internet has experienced, and is likely to continue to experience, significant growth in the number of users and bandwidth requirements. As a result, problems caused by viruses, worms, malware and similar programs could negatively impact internet infrastructure and cause it to be unable to support the user demand associated with such users and bandwidth requirements. The internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure, and it could face outages and delays in the future, which could reduce the level of internet usage generally as well as the level of usage of our services. In addition, if telecommunications providers lose service to their customers, our customers will not be able to access our websites. Our websites and systems have in the past experienced, and may in the future experience, temporary system interruptions for a variety of reasons, including cybersecurity breaches and other security incidents, viruses, telecommunication and other network failures, power failures, programming errors, data corruption, denial-of-service attacks or an overwhelming number of visitors trying to reach our websites during periods of strong demand. Even a brief disruption in service that causes portions of our websites to be unavailable to customers or prevents us from efficiently uploading content to our websites, or taking, processing or fulfilling orders could have a significant impact on our financial performance. System disruptions and difficulties, whether as a result of our internally developed systems or those of third-party providers, may inconvenience our customers and content providers and/or result in negative publicity, and may negatively affect our ability to provide services and the volume of content we license and deliver over the internet, thereby causing users to perceive our sites as not functioning properly and causing them to use another website or other methods to obtain the products or services we offer. +We rely upon third-party service providers, such as co-location and cloud service providers, for certain of our data centers and application hosting, and we are dependent on these third parties to provide continuous power, cooling, internet connectivity and technical, administrative and physical security for our servers. Occasionally, we migrate data among data centers and to third-party hosted environments. Certain of these third-party providers have in the past experienced, and may in the future experience, interruptions in operations that could harm our business. In such events, or in the event that we are unable to agree upon satisfactory terms for continued relationships, we could be forced to enter into relationships with other service providers or assume hosting responsibilities ourselves, potentially at a greater cost or on less favorable terms to us. Although our use of cloud services and multiple production data centers enables us to provide rapid content delivery to our customers and to support business continuity in the event of an emergency, a system disruption at an active data center or third-party hosting service provider could result in a noticeable disruption and/or performance degradation on our websites. +Additionally, some of the computer and communications hardware necessary to operate our corporate functions are located in metropolitan areas worldwide, which systems and operations could be damaged or interrupted by fire, flood, power loss, telecommunications failure, earthquake and similar events. We do not have redundancy for all of our systems, many of our critical applications reside in only one of our data centers or in the cloud, and our disaster recovery planning may not account for all eventualities. In addition, we may have inadequate insurance coverage to compensate for any +24 +Table of Contents +related loss. In addition, while the long-term effects of climate change are unclear, we recognize that there are inherent climate-related risks wherever business is conducted. Any of our locations may be vulnerable to the adverse effects of climate change. Climate-related events, including the increasing frequency of extreme weather events and their impact on critical infrastructure in the United States and elsewhere, have the potential to disrupt our business, our third-party service providers or partners, and/or the business of our customers, and may cause us to experience higher attrition, losses and additional costs to maintain and resume operations. +Disruptions to our websites or internal communications and operating systems for any of the foregoing reasons could negatively impact our reputation and the perceived or actual functionality of our operations, which could harm our business and reputation, and cause a material and adverse effect on our financial condition. +Our failure to protect the proprietary information of our customers and our networks against cyberattacks, security breaches or unauthorized access could adversely affect our business and results of operations, damage our reputation and expose us to liability. +An important component of our global business is the secure transmission of proprietary information and the transaction of commerce over the internet. We and our third-party service providers collect and maintain proprietary information and personal information in connection with servicing our customers and content suppliers and other related processes on our websites and systems, and, in particular, in connection with processing and remitting payments to and from our customers and content suppliers, and are therefore exposed to security and fraud-related risks, which are likely to become more challenging as we expand our operations and as technology evolves and could be enhanced or facilitated by AI. In addition, we collect proprietary information and personal information of third-party vendors and distributors, as well as our employees. Although we maintain security features on our websites and systems, designed to detect, prevent and provide protections against compromises of our systems or data, and utilize security measures such as encryption and authentication technology, we are subject to cyberattacks and are the target of computer viruses, hackers, distributed denial of service attacks, malware infections, ransomware attacks, phishing and spear-phishing campaigns, and/or other external hazards, as well as improper or inadvertent workforce behavior which, could expose confidential company and personal data systems and information to security breaches. Our security measures may not detect or prevent all attempts to hack our systems, denial-of-service attacks, viruses, malicious software, break-ins, phishing attacks, social engineering, security breaches or other attacks and similar disruptions that may jeopardize the security of information stored in and transmitted by our websites and system. We rely on encryption and authentication technology licensed from third parties to provide the security and authentication to effectively secure transmission of the proprietary information that we process for our customers, employees, vendors, distributors and content suppliers, and such technology may fail to function properly or may be compromised or breached. Additionally, we use third-party co-location and cloud service vendors for our data centers and application hosting, and other third-party vendors for some of the software and services that we use to operate the business, and their security measures may not prevent security breaches and other disruptions that may jeopardize the security of information stored in and transmitted through their systems. Further, some of the software and services that we use to operate our business, including our internal e-mail and customer relationship management software, are hosted by third parties. It is possible that a breach of any of these systems could go undetected for an extended period of time. +We have experienced successful attacks, by various types of hacking groups, in which personal and commercially sensitive information, belonging to the Company or its clients, has been compromised. However, none of these cybersecurity incidents or attacks to our knowledge have been material to our business or financial results. +In the event of a security breach, our business operations could be disrupted, and could result in loss of revenues or market share, liability to customers or others including an obligation to notify individuals or regulatory authorities, the diversion of corporate resources, injury to our reputation or increased service and maintenance cost. An unauthorized party could misappropriate proprietary information and/or personal information, cause interruption in our operations, damage or misuse our websites or systems, distribute or delete content owned by our content suppliers, customers, vendors or employees, and misuse the information that they misappropriate. We may be required to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches. In addition, a significant cyber-security breach could result in major credit card associations’ payment networks and companies offering other payment methods prohibiting us from processing future transactions on their networks and systems. Security and fraud-related issues are likely to become more challenging as we expand our operations and the related prevention, maintenance and risks associated with them could have a material and adverse effect on our financial condition. +Although cybersecurity and the continued development and enhancement of the processes, practices and controls that are designed to protect our systems, computers, software, data and networks from attack, damage or unauthorized access are a high priority for us, our efforts may not be enough to prevent a party from circumventing our security measures, or the security measures of our third-party service providers, and accessing and misusing the proprietary +25 +Table of Contents +information of our employees, customers and contributors. Accounts created with weak or recycled passwords could allow cyber-attackers to gain access to confidential data. +Security researchers, criminal hackers and other third parties regularly develop new techniques to penetrate computer and network security measures and, certain parties have in the past managed to obtain limited unauthorized access to certain of our systems and misused some of our systems and software. Outside parties have in the past attempted and may in the future attempt to fraudulently induce our employees or users of our products or services to disclose proprietary information or sensitive, personal, or confidential information via illegal electronic spamming, phishing or other tactics. Unauthorized parties may also attempt to gain physical access to our facilities in order to infiltrate our information systems or attempt to gain logical access to our products, services, or information systems for the purpose of exfiltrating content and data. These actual and potential breaches of our security measures and the accidental loss, inadvertent disclosure or unauthorized dissemination of proprietary information or sensitive, personal or confidential data about us, our employees, our customers or their end users, including the potential loss or disclosure of such information or data as a result of hacking, fraud, trickery or other forms of deception, could expose us, our employees, our customers or the individuals affected to a risk of loss or misuse of this information. This may result in liability, compliance costs, governmental inquiry or a loss of customer confidence, any of which could harm our business or damage our brand and reputation. In addition, our failure to adequately control fraudulent credit card transactions could damage our reputation and brand. Any one of the foregoing occurrences could result in a material and adverse effect on our business and results of operations. +As the techniques used to obtain unauthorized access, attack, disable or degrade services, or sabotage systems, are constantly evolving in sophisticated ways, we may be unable to anticipate these techniques or implement adequate preventative measures. We may also be required to expend significant capital and other resources to protect against security breaches or to alleviate problems caused by such breaches. Any actual breach, the perceived threat of a breach or a perceived breach could cause our customers, contributors and other third parties to cease doing business with us, or subject us to lawsuits, regulatory fines and other action or liability, any of which could harm our reputation, business, financial condition and results of operations. +Any compromise of security may result in our being out of compliance with U.S. federal and state laws, and international laws and contractual commitments, and we may be subject to lawsuits, fines, criminal penalties, statutory damages, and other costs, including for provision of breach notices and credit monitoring to our customers. Any failure, or perceived failure, by us to comply with our posted or internal privacy and data protection policies or with any regulatory requirements or orders or other federal, state, or international privacy, security or consumer protection-related laws and regulations, could result in proceedings or actions against us by governmental entities or others, subject us to significant penalties and negative publicity, and adversely affect our results of operations. +We may not be successful in acquiring or integrating new businesses, content, and product lines. +Our strategy to increase market share and enhance profitability is to leverage our existing expertise into what we believe are underserved product and geographic markets. As part of this strategy, we have in the past acquired and invested in, and may in the future seek to acquire or invest in new businesses, products, collections and product offerings, or technologies that could complement or expand our business. Acquisitions or new partnerships may require significant capital infusions or investments and may negatively impact our results of operations. Further, the evaluation and negotiation of potential acquisitions and partnerships, as well as the integration of acquired businesses or onboarding of new partners, may divert management time and other resources. Certain other risks related to such acquisitions and investments that may have a material effect on our business or prevent us from benefiting from such investments include: +• disruption of our ongoing business, including diverting management’s attention from existing businesses and operations; +• costs incurred in performing due diligence and professional fees relating to potential acquisitions and partnerships; +• use of cash resources or incurrence of debt to fund acquisitions and investments; +• assumption of actual or contingent liabilities, known and unknown; +• amortization expense related to acquired intangible assets, impairment of any goodwill acquired and other adverse accounting consequences; +• difficulties and expenses in integrating the sales, marketing, operations, products, services, technology and financial and information systems of an acquired company, particularly in emerging geographic markets; +• information security vulnerabilities; +26 +Table of Contents +• retention of key employees, customers, and suppliers of an acquired business; and +• an adverse review of an acquisition or potential acquisition, or limitations put on such acquisitions, by a regulatory body. +These risks may make it impossible or prohibitively expensive to execute our business and investment strategies or delay execution of such strategies, which would materially and adversely affect our growth prospects and financial condition. +If our goodwill or other intangible assets become impaired, we may be required to record a significant charge to earnings. +Under generally accepted accounting principles, we review our intangible assets for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. We are required to test goodwill and any other intangible asset with an indefinite life for possible impairment on the same date each year and on an interim basis if there are indicators of a possible impairment. We are also required to evaluate amortizable intangible assets and fixed assets for impairment if there are indicators of a possible impairment. There is significant judgment required in the analysis of a potential impairment of goodwill, identified intangible assets and fixed assets. If, as a result of a general economic slowdown, deterioration in one or more of the markets in which we operate or in our financial performance and/or future outlook, the estimated fair value of our long-lived assets decreases, we may determine that one or more of our long-lived assets is impaired. An impairment charge could have a material adverse effect on our results of operations and financial position. We may be required to record a significant charge to earnings in our financial statements during the period in which any impairment of our goodwill or other intangible assets is determined, thereby materially and adversely affecting our results of operations. +Our ability to obtain additional capital on commercially reasonable terms may be limited. +Although we believe our cash, cash equivalents and short-term investments, as well as future cash from operations and cash available from financing activities, including amounts available under our revolving credit facility, provide adequate resources to fund ongoing operating requirements for the foreseeable future, we may need to seek additional financing to compete effectively. +If we are unable to obtain capital on commercially reasonable terms, it could: +• reduce funds available to us for purposes such as working capital, capital expenditures, strategic acquisitions and investments and other general corporate purposes; +• restrict our ability to introduce new products or exploit business opportunities; +• increase our vulnerability to economic downturns and competitive pressures in the markets in which we operate; and +• place us at a competitive disadvantage. +We have incurred debt, which could have a negative impact on our financing options and liquidity position, which could in turn adversely affect our business. +As of December 31, 2025, we had $2.006 billion in aggregate principal amount of total debt (inclusive of $628.4 million in connection with our merger). Additionally, our revolving credit facility has remaining borrowing capacity of $150.0 million as of December 31, 2025. Our overall leverage and the terms of our financing arrangements could: +• limit our ability to obtain additional financing in the future for working capital, capital expenditures or acquisitions, to fund growth or for general corporate purposes, even when necessary to maintain adequate liquidity; +• make it more difficult for us to satisfy the terms of our debt obligations; +• limit our ability to refinance our indebtedness on terms acceptable to us, or at all; +• limit our flexibility to plan for and to adjust to changing business and market conditions and increase our vulnerability to general adverse economic and industry conditions; +• require us to dedicate a substantial portion of our cash flow from operations to make interest and principal payments on our debt, thereby limiting the availability of our cash flow to fund future investments, capital expenditures, working capital, business activities and other general corporate requirements; and +• increase our vulnerability to adverse economic or industry conditions. +27 +Table of Contents +Our ability to meet expenses and debt service obligations, including related interest rate volatility and rising interest costs, will depend on our future performance, which could be affected by financial, business, economic and other factors. In addition, a breach of any of the covenants in our outstanding debt agreements or our inability to comply with the required financial ratios could result in a default under our debt instruments, including the revolving credit facility (as amended). If an event of default occurs, our creditors could elect to declare all borrowings outstanding, together with accrued and unpaid interest, to be immediately due and payable and/or require us to apply all of our available cash to repay borrowings. If we are not able to pay our debt service obligations we may be required to refinance all or part of our debt, sell assets, borrow more money or raise additional equity capital. +Risks Related to Global Economic Conditions +The impact of worldwide economic, political, social and other conditions may adversely affect our business and results of operations. +Global economic, political and social conditions can affect the business of our customers and the markets they serve, as well as disrupt the business of our vendors, third-party resellers and strategic partners. Numerous external forces beyond our control, including generally weak or uncertain economic conditions, economic downturns, supply chain disruptions, rising interest rates, inflation, tariffs and trade restrictions, including the imposition and enforceability of tariffs or other changes in trade policies and related uncertainties, negative or uncertain political climates, changes in government, global health epidemics (such as COVID-19), natural disasters and the impact from climate change, geopolitical conflicts and military conflicts in Europe, the Middle East, and South America, government shutdowns and/or the financial stability of the banking industry could adversely affect our financial condition. Particularly, our financial condition is affected by worldwide economic conditions and their impact on content generation and marketing and advertising spending. Expenditures by our customers generally tend to reflect overall economic conditions, and to the extent that the economy stagnates as a result of macroeconomic conditions, companies may reduce their spending with us. To the extent that overall economic conditions reduce spending on digital content, our ability to retain current and obtain new customers could be hindered, which could reduce our revenue and negatively impact our business. +Further, economic, political and social macro developments in the United States, Europe, and Asia could negatively affect our ability to conduct business in those territories. Financial difficulties experienced by our customers, third-party resellers, vendors and strategic partners due to economic volatility, rising interest rates, supply chain disruptions, inflation, tariffs, trade restrictions and related uncertainties, including the imposition or enforceability of tariffs, trade controls and other trade barriers or retaliation for those measures by other countries and uncertainties regarding the ability to obtain refunds for previously paid tariffs that have subsequently been invalidated or other unfavorable changes could result in these companies scaling back operations, exiting businesses, merging with other businesses or filing for bankruptcy protection and potentially ceasing operations, all of which could adversely affect our business, financial condition and results of operations. +In addition, while the long-term effects of climate change are unclear, we recognize that there are inherent climate-related risks wherever business is conducted. Any of our locations may be vulnerable to the adverse effects of climate change, natural disasters, pandemics, global health issues and other unforeseen environmental events. Climate-related events, natural disasters, pandemics, global health issues and other unforeseen environmental events, including the increasing frequency of extreme weather events and their impact on critical infrastructure in the United States and elsewhere, have the potential to disrupt our business, our third-party service providers or partners, and/or the business of our customers, and may cause us to experience higher attrition, losses and additional costs to maintain and resume operations. +Risks Related to Personnel +The loss of key personnel, an inability to attract and retain additional personnel or difficulties in the integration of new members of our management team into our Company could affect our ability to successfully grow our business. +Our future success depends in large part upon the continued service of the members of our executive management team and key employees. All members of our executive management team are subject to employment agreements. In addition, our success also depends on our ability to attract and retain qualified technical, sales and marketing, customer support, financial and accounting, legal and other managerial personnel, as well as high quality photographers for our product line covering entertainment, sports and news (“Editorial”). The competition for skilled personnel in the industries +28 +Table of Contents +in which we operate is intense. Our personnel generally may terminate their employment at any time for any reason. We may incur significant costs to attract and retain highly skilled personnel, and we may lose new employees to our competitors before we realize the benefit of our investment in recruiting them. As we move into new geographies, we will need to attract and recruit skilled personnel across functional areas. Some of our employees in Brazil, Germany, France, Italy, and Spain are subject to collective bargaining agreements and employees in other jurisdictions may unionize. If we fail to attract new personnel or if we suffer increases in costs or business operations interruptions as a result of a labor dispute, or fail to retain and motivate our current personnel, we might not be able to operate our businesses effectively or efficiently, serve our customers properly or maintain the quality of our content and services. +We may be exposed to risks related to our use of independent contractors. +We rely on independent third parties to provide certain services for our Company. The state of the law regarding independent contractor status varies from jurisdiction to jurisdiction and is subject to change based on court decisions and regulation. For example, on April 30, 2018, the California Supreme Court adopted a new standard for determining whether a company “employs” or is the “employer” for purposes of the California Wage Orders in its decision in the Dynamex Operations West, Inc. v. Superior Court case. This standard was expanded and codified in California via Assembly Bill 5, and became effective as of January 1, 2020. The Dynamex decision and Assembly Bill 5 altered the analysis of whether an individual, who is classified by a hiring entity as an independent contractor in California, has been properly classified as an independent contractor. Assembly Bill 5 was amended to include exclusions for photographers, videographers and editors where specific requirements are met. In addition, independent workers have been the subject of widespread national discussion and it is possible that other jurisdictions may enact laws similar to Assembly Bill 5 or that otherwise impact our business and our relationships with independent third parties. As a result, there is significant uncertainty regarding the future of the worker classification regulatory landscape. +From time to time, we may be involved in lawsuits and claims that assert that certain independent contractors should be classified as our employees. Adverse determinations regarding the status of any of our independent contractors could, among other things, entitle such individuals to the reimbursement of certain expenses and to the benefit of wage-and-hour laws, and could result in the Company being liable for income taxes, employment, social security, and withholding taxes and benefits for such individuals. Any such adverse determination could result in a material reduction of the number of subcontractors we can use for our business or significantly increase our costs to serve our customers, which could adversely affect our business, financial condition and results of operations. +Risks Related to Our Intellectual Property and Confidential Information +Our business and prospects would suffer if we are unable to protect and enforce our intellectual property rights and confidential information. +The success of our business depends on our ability to protect and enforce our patents, trade secrets, trademarks, copyrights and all of our other intellectual property rights and other confidential information, including our intellectual property rights underlying our owned content library, websites and search algorithms. Despite our efforts to protect our intellectual property rights, which may afford only limited legal protections, unauthorized parties have attempted, and may continue to, attempt to copy and use aspects of our intellectual property and other confidential information. Effective legal protection for our patents, trade secrets, trademarks, copyrights and other intellectual property assets may not be available or practical in every country in which we operate or intend to operate. Moreover, policing our intellectual property rights is difficult, costly and may not always be effective. We may commence legal proceedings to protect our IP rights, which may increase our operating expenses. We could be subject to countersuits as a result. To the extent any unauthorized parties, which may include our competitors, are successful in copying and using aspects of our intellectual property or confidential information, including our search algorithms and our trade secrets, our business could be harmed. +We or one of our affiliates have registered “Getty Images,” “iStock,” “Unsplash” and other marks and logos as trademarks in the United States and other jurisdictions. Nevertheless, competitors may adopt trademarks similar to ours, or purchase keywords in internet search engine marketing programs that are confusingly similar to our trademarks, thereby impeding our ability to build brand identity and possibly leading to confusion among existing and potential new customers. In addition, there could be infringement claims by third parties regarding any of our trademarks or our use of other intellectual property that could damage our reputation and brand, prove costly to defend irrespective of their validity, and, if such claims are ultimately validated, materially and adversely affect our financial condition and results of operations. +29 +Table of Contents +We currently own the www.gettyimages.com, www.istock.com and www.unsplash.com internet domain names in addition to various other domain names. Domain names are generally regulated by internet regulatory bodies. If we lose the ability to use a domain name in a particular country, we would be forced either to incur significant additional expenses to market our products within that country or to elect not to sell products in that country. Either result could harm our business and results of operations. The regulation of domain names in the United States and in foreign countries is subject to change, including the establishment of additional top-level domains and domain name registrars or the modification of the requirements for holding domain names. As a result, we may not be able to acquire or maintain the domain names that utilize our brand names in the United States or other countries in which we conduct business or in which we may conduct business in the future. +In order to protect our trade secrets and other confidential information, we rely in part on confidentiality agreements with our employees, consultants and third parties with whom we have relationships. These agreements may not prevent disclosure of trade secrets and other confidential information and may not provide an adequate remedy in the event of misappropriation or any unauthorized disclosure or independent discovery of our trade secrets and confidential information. Costly and time-consuming litigation could be necessary to enforce or determine the scope of our trade secret rights and related confidentiality and nondisclosure provisions. Failure to adequately protect our trade secrets and other confidential information could adversely affect our competitive business position. +Litigation or proceedings before the U.S. Patent and Trademark Office, U.S. Copyright Office or other governmental authorities and administrative bodies in the United States and foreign countries may be necessary in the future to enforce and protect our patent rights, copyrights, trademarks, trade secrets, domain names and other intellectual property rights and to determine the validity, enforcement and scope of the intellectual property rights of others. Furthermore, the monitoring and protection of our intellectual property rights may become more difficult, costly and time consuming as we continue to expand internationally, particularly in those markets, such as China and certain other developing countries in Asia, in which legal protection of intellectual property rights is less robust than in the United States and in Europe. Our efforts to enforce or protect our intellectual property rights may be ineffective and could result in substantial costs and diversion of resources and management time, each of which could materially and adversely affect our results of operations. +We rely on intellectual property laws and contractual restrictions to protect the content in our library. Intellectual property laws and protections may change and such changes may impact our protections, adversely impacting our business and financial position. Certain countries do not prioritize the enforcement of intellectual property laws, and litigation in those countries may be costly and ineffective. Consequently, these intellectual property laws afford us only limited protection. Unauthorized parties have attempted, and may continue to attempt, to improperly use our content. We cannot guarantee that we will be able to prevent the unauthorized use of our content or that we will be successful in stopping such use once it is detected. +Advancements in technology, including advancements in generative AI technology, have made unauthorized copying and wide dissemination of unlicensed content easier. At the same time, detection of unauthorized use of our intellectual property and enforcement of our intellectual property rights have become more challenging, in part due to the increasing volume and sophistication of attempts at unauthorized use of our intellectual property, including from generative AI developers or technologies. As our business and the presence and impact of bad actors become more global in scope, we may not be able to protect our proprietary rights in a cost-effective manner in other jurisdictions. In addition, intellectual property protection may not be available in every country in which our products and services are distributed or made available through the internet. +If we are unable to protect and enforce our intellectual property rights, we may not succeed in realizing the full value of our assets, our business and profitability may suffer as a result of misuse of our intellectual property. In addition, we are currently engaged in litigation in the United States and England to enforce our intellectual property rights, and we may in the future be required to do so in the United States or elsewhere, and such litigation may be costly and time consuming. See “ Item 3—Legal Proceedings ” fo r additional information. +Our products and services may infringe on intellectual property rights of third parties, which could require us to incur substantial costs and distract our management. +Media, internet and technology companies are frequently the target of litigation based on allegations of infringement, misappropriation or other violations of intellectual property rights or rights related to their use of technology. Some internet, technology and media companies, including some of our competitors, own large numbers of patents, +30 +Table of Contents +copyrights, trademarks, trade secrets and other intellectual property rights, which they may use as a basis to assert claims against us. We have developed proprietary technology and a robust infrastructure to power our products and services, and this technology is critical to our business. Third parties may in the future assert that the technology we have developed or the content that we display and distribute infringes, misappropriates or otherwise violates their intellectual property rights, and as we face increasing competition, the possibility of intellectual property rights claims against us grows. Such litigation may involve patent holding companies or other adverse patent owners who have no relevant product revenue, and therefore our own issued and pending patents may provide little or no deterrence to these patent owners in bringing intellectual property rights claims against us. Existing laws and regulations are evolving and subject to different interpretations, and various federal and state legislative or regulatory bodies may change current laws or regulations or enact new ones. We cannot guarantee that our technology is not infringing or violating any third-party intellectual property rights or rights related to the use of technology, or that it will not infringe or violate such rights in the future. +We license a significant majority of the content in our library from third parties, and we cannot guarantee that each supplier holds the rights or releases he or she claims or that such rights and releases are adequate. From time to time we receive notices from third parties claiming that certain content that we license infringes their intellectual property rights. In such circumstances, we may not be able to obtain licenses to use those rights on commercially reasonable terms or at all, we may have to stop selling such content, and we may have to pay damages or satisfy indemnification commitments to our customers, or we may incur significant expense to defend against claims of infringement. While we offer our customers indemnification for only certain specified amounts of legal costs and direct damages arising from the use of images, video or music licensed through us, our contractual liability limitations with respect to such indemnification obligations may not be enforceable in all jurisdictions. We maintain insurance policies to cover potential intellectual property disputes; however, such insurance does not cover all exposures, including the potential damages associated with any willful infringements. +We cannot predict whether assertions of third-party intellectual property rights or any infringement or misappropriation or other claims arising from such assertions will substantially harm our business or results of operations. If we are forced to defend against any infringement or misappropriation or other claims, whether they are with or without merit, are settled out of court, or are determined in our favor, we may be required to expend significant time and financial resources on the defense of such claims. +Furthermore, an adverse outcome of a dispute may require us to: pay damages, potentially including statutory damages and attorneys’ fees if we are found to have willfully infringed a party’s intellectual property rights; expend additional development resources to redesign our technology; enter into potentially unfavorable royalty or license agreements in order to obtain the right to use necessary technologies, content, or materials; and/or indemnify our partners and/or other third parties. Royalty or licensing agreements, if required or desirable, may be unavailable on terms acceptable to us, or at all, and may require significant royalty payments and other expenditures. In addition, any lawsuits regarding intellectual property rights, regardless of their success or merit, could be expensive to resolve, cause harm to our reputation, and would divert the time and attention of our management and technical personnel. +Although we may have insurance to cover indemnification claims, we have incurred, and will continue to incur, legal fees and other expenses, as well as a diversion of management time and resources related to such claims and related settlements, which may increase over time, and adversely affect our financial condition and results of operations. +Much of the software and technologies used to provide our services incorporate, or have been developed with, “open source” software, which may restrict how we use or distribute our services or require that we publicly release certain portions of our source code. +Much of the software and technologies used to provide our services incorporate, or have been developed with, “open source” software. Such “open source” software may be subject to third-party licenses that impose restrictions on our software and services depending on how such software is used, including whether it is modified, distributed or made available. Under certain open source licenses, if certain conditions were met, we could be required to publicly release or license aspects of the source code of our software or to make our software available under open source licenses free of charge. Few courts have interpreted open source licenses, and the way these licenses may be interpreted and enforced is therefore subject to some uncertainty. To avoid the public release of the affected portions of our source code, we could be required to expend substantial time and resources to re-engineer some or all of our software, which could reduce or eliminate the value of our services and technologies and materially and adversely affect our ability to sustain and grow our business. +31 +Table of Contents +If an author or other third-party that distributes open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from the sale of our services that contained the open source software and required to comply with the foregoing conditions, which could disrupt the distribution and sale of some of our services. In addition, use of open source software can lead to greater risks than use of third-party commercial software because open source licensors generally do not provide warranties or controls on the origin of the software. The use of open source software can also carry security risks arising from unknown vulnerabilities that can be exploited by malware in unanticipated ways, which can lead to disruption and/or harm to operations and protected data. Additionally, because any software source code we contribute to open source projects is publicly available, while we may benefit from the contributions of others, our ability to protect our intellectual property rights in such software source code may be limited or lost entirely, and we will be unable to prevent our competitors or others from using such contributed software source code. Similarly, we may be subject to third-party intellectual property claims as a user of or contributor to such open source software. Any of these risks could be difficult to eliminate or manage and, if not addressed, could adversely affect our business, financial performance, and growth. +Risks Related to Legal and Regulatory Matters +An increase in federal, state and foreign government regulation of the industries and markets in which we operate, including with respect to the internet and e-commerce, could have a negative impact on our business. +Existing or future laws and other regulations that may materially affect our business include, but are not limited to, those that govern or restrict: +• privacy and biometric issues and data collection, processing, retention and transmission; +• data and cybersecurity; +• subscriptions practices, including automatic contract or subscription renewal, billing and cancellation; +• credit card fraud and processing; +• consumer protection; +• advertising, marketing and sales of our content and services; +• pricing and taxation of goods and services offered over the internet; +• website content, or the manner in which products and services may be offered, paid for and/or marketed over the internet; +• sources of liability for companies involved in internet services or e-commerce; +• piracy and intellectual property rights; +• the development of AI models, including training data; +• use of AI generated content; +• internet neutrality and internet access; +• controls on overseas suppliers and other similar anti-terrorism controls, anti-bribery and anti-corruption conduct and policies; and +• outsourcing, contracting and employment. +For example, we are subject to numerous laws and regulations at the international and United States national and state level, including the following: +• The United States Foreign Corrupt Practices Act and the U.K. Anti-Bribery Act (and similar global legislation), which prohibits corporations and individuals from engaging in specified activities to obtain or retain business or to influence a person working in an official capacity. Under these acts, it is generally illegal to pay, offer to pay, or authorize the payment of anything of value to any foreign government official, government staff member, political party, or political candidate in an attempt to obtain or retain business, or to otherwise influence a person working in an official capacity. +• The U.K. Modern Slavery Act, which prohibits corporations and individuals from engaging in the trafficking of or facilitation of trafficking of humans. Under this Act, it is illegal to engage in or do business with any individual or entity that engages in such trafficking and obligates companies and individuals to put in place appropriate controls to mitigate against such risks. +• OFAC regulations, under which all U.S. individuals and businesses are prohibited from engaging in transactions with countries subject to comprehensive trade embargoes (such as Cuba and Iran) unless a specific exemption from the regulations exists (such as those for information, all materials and people-to-people exchanges) or a license is obtained from OFAC. Transactions with persons, groups or entities +32 +Table of Contents +designated as terrorists or as their supporters or associates are also prohibited. A list of Specially Designated Nationals consisting of “drug kingpins,” terrorists and others considered a danger to the United States, is maintained by the Treasury Department’s Office of Foreign Assets Control. Known as the “OFAC List,” it contains over 5,000 names and is updated often. No U.S. person, individual or business in the United States, or, in some instances, the foreign subsidiaries of U.S. companies, may conduct any kind of business with anyone on the OFAC List, and companies are expected to keep track of all changes to this list. Penalties for violations of these rules can be severe, including having the violator’s assets frozen or forfeited and up to $250,000 or twice the transaction value per violation in fines. +• The CCPA, CPA, CTDPA, FDBR, MTCDPA, OCPA, TDPSA, UCPA, VACDPA, DPDPA, ICDPA, NDPA,NHDPA, NJDPA, TIPA, MCDPA, MODPA, INCDPA, KCDPA, and RIDTPPA each regulate the collection and processing of personal data of residents of their respective state, and grant such residents certain rights in connection with such collection and processing. +• The BIPA regulates the collection, use, safeguarding, and storage of “biometric identifiers” by private entities. While the statute specifically excludes photographs from its scope to date there has been no dispositive judicial interpretation of that language. +• The H.B. 1493, which oversees the collection, use and storage of “biometric identifiers,” which include fingerprints, voiceprints, eye retinas, irises and other unique biological identifiers or characteristics used to identify a specific individual, while specifically excluding photographs from its scope. +• The CUBI regulates the capture, receipt, possession, sharing and retention of “biometric identifiers,” which include retina or iris scans, fingerprints, voiceprints, or records of hand or face geometry. +• Several foreign jurisdictions and U.S. states have adopted, and other jurisdictions are expected to enact, statutes that regulate the collection, use, transmission and storage of personal data and require reporting certain breaches of the security of personal data. +• Several jurisdictions, including the United Kingdom and the United States, are in the process of adopting or reforming or expected to adopt or reform legislation that impacts the content we distribute, including the E.U. Copyright Directive, the Copyright Act, the Digital Millennium Copyright Act, and various statutes and regulations impacting rights of publicity for those depicted in imagery. +• Several foreign jurisdictions and U.S. states have adopted, and other jurisdictions are expected to enact, statutes that purport to void or substantially limit automatic renewal provisions of certain free or discounted trial incentives. +• Several jurisdictions have adopted, and other jurisdictions are expected to enact legislation or regulation, that governs AI and the development and use of AI, including the E.U. adopting the E.U. AI Act and U.S. states, including Colorado and California, adopting laws, rules and regulations directly relating to the use of AI or extending the application of existing laws, rules and regulations to AI systems and outputs. +We currently license content to customers in virtually every country in the world, excluding Sanctioned Countries, and the different laws that apply in each of those foreign countries may be more or less restrictive than those that apply to companies operating solely within the United States, creating tension in compliance obligations across borders. The adoption, modification or interpretation of laws or regulations in any of these countries relating to our business could adversely affect the manner in which we conduct our business or the overall popularity or growth in use of the internet. +Further, the current legislative and regulatory landscape regarding the regulation of the internet is subject to uncertainty. For example, the position of the Federal Communications Commission (“FCC”) on so-called “ net neutrality” has changed in successive administrations. Net neutrality policies attempt to prevent internet service providers from blocking certain content, slowing down specific sites, or charging companies to make their websites load faster. Most recently, net neutrality regulations promulgated by the Biden Administration were struck down by the U.S. Court of Appeals for the Sixth Circuit, which held that FCC lacked authority to regulate the internet like a public utility. California and Washington have enacted net neutrality laws, and other states like New Jersey and New York have guidelines that can influence the conduct of internet service providers to varying degrees. We cannot predict the actions the FCC may take, whether any new FCC order or state initiatives regulating providers will be modified, overturned, or vacated by legal action, federal legislation, or the FCC itself, or the degree to which further regulatory action - or inaction - may adversely affect our business. Users who access our marketplace through devices such as smart phones, laptops, and tablet computers must have a high-speed internet connection, such as Wi-Fi, 3G, 4G, or 5G to use our services. Currently, this access is provided by telecommunications companies and internet access service providers that have significant and increasing market power in the broadband and internet access marketplace. If the repeal of net neutrality remains in effect, these providers could take measures that affect their customers’ ability to use our products and services, such as degrading the quality of the data packets we transmit over their lines, giving our packets low priority, giving other packets higher priority than ours, blocking our packets entirely, or attempting to charge their customers more for using our products and services. +33 +Table of Contents +To the extent that internet service providers implement usage-based pricing, including meaningful bandwidth caps, or otherwise try to monetize access to their networks, we could incur greater operating expenses and customer acquisition and retention could be negatively impacted. Furthermore, to the extent network operators were to create tiers of internet access service and either charge us or their customers for availability of our services through these tiers, our business could be negatively impacted. +In addition, the rapid growth of the internet and the proliferation in the use of content therein has created tensions and instability in the application of traditional intellectual property law concepts to such uses. +Recently, the E.U. has introduced a new regulation applicable to certain types of AI and the data used to train, test and deploy AI (the “E.U. AI Act”). The E.U. AI Act entered into force in August 2024, and its requirements will become effective on a staggered basis, with the majority of its provisions being implemented by August 2, 2026. The E.U. AI Act will impose material requirements on both the providers and deployers of AI, with infringement punishable by sanctions of up to 7% of annual worldwide turnover or €35 million (whichever is higher) for the most serious breaches. In the United States, at the federal level, government agencies, bureaus, and offices are publishing guidelines and rules regarding the application of their authority to regulate AI tools. At the U.S. state level, states such as California, Colorado, Utah, and Tennessee (among others) have enacted laws regulating aspects of AI tools. The scope, interpretation, and standards of enforcement of the laws that are or may be applicable to us are often uncertain and may be conflicting, particularly with respect to foreign laws. As a result, it is not possible to predict all of the legal, operational or technological risks related to the use of AI tools. Such uncertainty in the legal regulatory regime relating to AI tools, such as evolving review by agencies including the SEC and the U.S. Federal Trade Commission (as well as regulators abroad), may require significant resources to modify and maintain business practices to comply with U.S. and non-U.S. laws and regulations, the nature of which cannot be determined at this time. +Compliance with new regulations or legislation or new interpretations of existing regulations or legislation could cause us to incur additional expenses, lose the ability to transact business in the way we have historically done or, make it more difficult to renew subscriptions automatically, make it more difficult to attract new customers or otherwise require us to alter our business model, or cause us to divert resources and funds to address government or private investigatory or adversarial proceedings. Any of these outcomes could have a material adverse effect on our business, financial condition or results of operations. +Our business is subject to evolving corporate governance and public disclosure regulations and expectations, including with respect to environmental, social and governance matters, which could expose us to numerous risks. +We are subject to changing rules and regulations promulgated by a number of governmental and self-regulatory organizations, including the SEC, NYSE and the Financial Accounting Standards Board. These rules and regulations continue to evolve in scope and complexity and many new requirements have been created in response to laws enacted by Congress, making compliance more difficult and uncertain. In addition, regulators, customers, investors, employees and other stakeholders have focused on environmental, social and governance (“ESG”) matters and related disclosures. These changing rules, regulations and stakeholder expectations have resulted in, and may continue to result in increased general and administrative expenses and increased management time and attention spent complying with or meeting such regulations and expectations. For example, the collection, measurement and reporting of ESG-related information and metrics can be costly, difficult and time consuming and is subject to evolving reporting standards, both in the United States and internationally. We may also communicate certain initiatives and goals, regarding environmental matters, human capital, responsible sourcing and social investments and other ESG related matters, in our SEC filings or in other public disclosures. These ESG-related initiatives and goals could be difficult and expensive to implement, the technologies needed to implement them may not be cost effective and may not advance at a sufficient pace, and we could be criticized for the accuracy, adequacy or completeness of the disclosure. Further, statements about our ESG-related initiatives and goals, and progress against those goals, may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. In addition, we could be criticized for the scope or nature of such initiatives or goals, or for any revisions to these goals. If our ESG-related data, processes and reporting are incomplete or inaccurate, or if we fail to achieve progress with respect to our goals within the scope of ESG on a timely basis, or at all, our reputation, business, financial performance and growth could be adversely affected. +Further, if our ESG practices do not meet evolving investor or other stakeholder expectations and standards (including those in support of or in opposition to ESG principles), then our reputation, ability to attract or retain employees, and attractiveness as an investment, business partner, acquiror or service provider could be negatively impacted. For example, “anti-ESG” sentiment has gained momentum across the United States in recent years, with several states, federal authorities and policymakers having proposed, enacted or indicated an intent to pursue anti-ESG policies, legislation or +34 +Table of Contents +initiatives, issued related executive orders and legal opinions and pursued related investigations and litigation. These or other similar policies, legislation, initiatives, legal decisions and scrutiny could result in investigations, litigation or enforcement actions against us by governments, regulators or others. Responding to and resolving such actions may require significant time and resources, regardless of their merit, and may result in us sustaining reputational harm. +Our operations may expose us to greater than anticipated income and transaction tax liabilities that could harm our financial condition and results of operations. +We are subject to income and other taxes in the United States and numerous other jurisdictions. Significant judgment is required in determining our worldwide provision for taxes. For example, see a discussion of the tax assessments from the Canadian Revenue Agency (“CRA”) relating to a subsidiary of the Company asserting additional tax is due under the heading “ Item 7. Management’s Discussion and Analysis of Financial and Results of Operations—Liquidity and Capital Resources ”. In the ordinary course of our business, we are involved in many transactions where the ultimate tax determination may be uncertain. Although we believe our tax provisions are reasonable, the final determination of tax audits and any related litigation could be materially different from our historical income tax provisions and reserves for uncertain tax positions. We have created reserves with respect to such tax liabilities where we believe it to be appropriate. The final determination of such tax liabilities could have a material effect on our tax provision, net income, earnings per share, or cash flows in the period or periods for which that determination is made as well as subsequent periods. Furthermore, we have operations in various taxing jurisdictions in the United States and in other countries, and there is a risk that our tax liabilities in future taxable periods in one or more jurisdictions could exceed our estimated tax liabilities or our tax liabilities in prior taxable periods despite our plan to structure our activities in a manner so as to minimize our tax liabilities. +In addition, there are a number of applicable and potential government regulations that may impact the Company. For example, the U.S. federal tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”), enacted in December 2017, resulted in fundamental changes to the Code, including, among many other things, a reduction to the federal corporate income tax rate, a partial limitation on the deductibility of business interest expense, a limitation on the deductibility of certain director and officer compensation expense, limitations on net operating loss carrybacks and carryovers and changes relating to the scope and timing of U.S. taxation on earnings from international business operations. The exact impact of the TCJA for future years is difficult to quantify, but these changes could materially affect our effective tax rate in future periods. In addition, we are subject to the Inflation Reduction Act, which imposes a 1% excise tax on certain stock repurchases and a 15% alternative minimum tax on certain adjusted financial statement income. Several other legislative proposals have been set forth that would, if enacted, make significant changes to U.S. tax laws. Congress may consider, and could include, some or all of these proposals in connection with tax reform that may be undertaken. It is unclear whether these or similar changes will be enacted and, if enacted, how soon any such changes could take effect. The passage of any legislation as a result of these proposals and other similar changes in U.S. federal income tax laws could have an adverse impact on our effective rate of tax in future periods. +We may have exposure to sales or other transaction taxes (including VAT) on our past and future transactions. A successful assertion by any jurisdiction that we failed to pay such sales or other transaction taxes, or the imposition of new laws requiring the payment of such taxes, could result in substantial tax liabilities related to past sales, create increased administrative burdens or costs, discourage customers from purchasing images from us, or otherwise materially and adversely affect our financial condition and results of operations. Further, we are currently subject to and in the future may become subject to additional compliance requirements for certain of these taxes. Where appropriate, we have made accruals for these taxes, which are reflected in our consolidated financial statements. +Due to the large and expanding scale of our international business activities, any changes in the U.S. taxation of such activities may increase our worldwide effective tax rate and harm our financial condition and results of operations. In addition, tax authorities in a number of U.S. states, as well as the U.S. Congress, are currently reviewing the appropriate tax treatment of companies engaged in online commerce, and new state tax regulations might subject us to additional state sales and other taxes. If one or more U.S. local, state or non-U.S. jurisdictions impose sales tax collection obligations on us, our sales into such state or jurisdiction might decrease because the effective cost of purchasing goods from us increases for those residing in these states or jurisdictions. We might also incur significant financial and organizational burdens in order to set up the infrastructure required to comply with these applicable new tax regulations. +We collect, store, process, transmit and use personal data, which subjects us to governmental regulation and other legal obligations in many jurisdictions related to privacy, information security and data protection. Our actual or perceived failure to comply with such legal obligations by us, or by our third-party service providers or partners, could harm our business, and could result in regulatory investigations, enforcement actions, fines, litigation, reputational harm and +35 +Table of Contents +increased compliance costs, any of which could materially adversely affect our business, financial condition and results of operations. +Regulatory scrutiny of privacy, data collection, use of data and data protection continues to intensify globally. The personal data and other data we collect, store, process and use are increasingly subject to legislation and regulations in numerous jurisdictions around the world, especially in the U.K., Europe, and the United States. This may significantly increase our cost of doing business, particularly as we expand our localization efforts and develop new data driven products and services. In addition, from time to time, we may not be readily able to fully achieve compliance with the requirements of certain privacy and data security laws and regulations within the required periods for compliance, which could subject us to penalties or restrict certain business activities in affected jurisdictions. +In Europe and the U.K, we are subject to (without limitation) the General Data Protection Regulation (EU 2016/679) (“ EU GDPR”), the EU GDPR as it forms part of the laws of England and Wales, Scotland and Northern Ireland by virtue of section 3 of the European Union Withdrawal Act 2018 (“UK GDPR”), the Privacy and Electronic Communications (EC Directive) Regulations 2003, the UK Data Protection Act, and other applicable privacy laws that may be implemented or amended from time to time (“ EU-UK Privacy Laws”). The EU-UK Privacy Laws provide enhanced rights to individuals with respect to their personal data and the EU GDPR and/ or UK GDPR applies not only to organizations with a presence in the European Union and/ or the U.K. which use or hold personal data relating to living individuals, but also to those organizations that offer services to individual investors located in the European Union and/ or the U.K. Failure to comply with EU-UK Privacy Laws may result in fines, sanctions or other penalties (depending on the type and severity of the breach), which could have a financial, reputational and/ or operational impact on us. +Several other foreign jurisdictions have adopted or are considering adopting new or updated comprehensive privacy legislation to offer additional data privacy for individuals, such as: Brazil, where its General Data Protection Law that imposes detailed rules for the collection, use, processing and storage of personal data in Brazil took effect on September 18, 2020, and became enforceable on August 1, 2021; and India, where on August 9, 2023 the Digital Personal Data Protection Act was passed and came into effect in June 2024, which imposes rules regarding the collection, use, processing and storage of personal data in India. Additionally, data privacy laws have been enacted in a number of jurisdictions, including, but not limited to, the European Union and certain U.S. states such as Illinois, Texas and Washington (in addition to U.S. cities, such as New York City), which regulate the collection and use of certain biometric data regarding individuals, including their facial images, and the use of such data, including in facial recognition systems. Similar laws have also been introduced in several additional states, but have not yet been enacted. We have entered into certain contractual agreements that may implicate or make use of such technology. Such laws may have the effect of adversely impacting our ability to grow our business in that area. Although we are closely monitoring regulatory developments in this area, any actual or perceived failure by us to comply with any regulatory requirements or orders or other domestic or international privacy or consumer protection-related laws and regulations could result in proceedings or actions against us by governmental entities or others (e.g., class action litigation), subject us to significant penalties and negative publicity, require us to change our business practices, increase our costs and/or adversely affect our business and may expose us to statutory damages claims or other private rights of action in certain jurisdictions. +Data protection legislation is also becoming increasingly common in the United States at both the federal and state level. For example, in California, the California Consumer Privacy Act (“CCPA”) went into effect on January 1, 2020 and was ammended by the California Privacy Rights Act on January 1, 2023 (together referred to as the “ CCPA”). The CCPA provides enhanced rights to individuals with respect to the privacy of their personal data and applies to organizations with a presence in California which process personal data relating to individuals and others. The CCPA is enforced by both the Office of the Attorney General of California and the newly-established California Privacy Protection Agency, and failure to fully comply can result in regulatory fines of up to $2,500 per violation (which has been interpreted to mean per impacted individual) and up to $7,500 for knowing/willful violations. Compliance with the CCPA may require additional measures, including updating policies and procedures and reviewing relevant IT systems, which may create additional costs and expenses for our business and results of operations. +Further, the New York SHIELD Act and a number of other effective and proposed additional laws at the U.S. federal and state level (including Virginia, Colorado, Connecticut, Utah, Delaware, Florida, Iowa, Montana, Oregon, Texas, Maryland, Nebraska, New Hampshire, New Jersey, Tennessee, Minnesota, Indiana, Kentucky, and Rhode Island) may require additional measures, including updating policies and procedures, extending rights to data subjects and reviewing relevant IT systems, which may create additional costs and expenses for our business. Anticipated and newly promulgated U.S. privacy laws that go into effect in the coming years may be administered by new or different state agencies or by the offices of U.S. state Attorneys General. Additionally, the White House, SEC, and other regulators have also increased their focus on companies’ cybersecurity vulnerabilities and risks, including in relation to third-party service providers. Such additional laws could have a significant impact on the current and planned business activities and privacy, data protection and information security-related practices of our business. We may not be readily able to achieve full +36 +Table of Contents +compliance with the requirements of applicable data protection laws within the required time frames for compliance. Any failure to comply with U.S. privacy laws may result in fines, sanctions or other penalties (depending on the type and severity of the breach), which could have a financial, reputational and/or operational impact on our business. Unlike the UK GDPR and EU GDPR, however, most U.S. privacy laws do not require a legal basis for processing personal data and generally provide more limited rights and enforcement mechanisms. This regulatory divergence increases complexity and may result in higher costs for our business. +In the event of a security incident, we may also have obligations under foreign and U.S. breach notification laws, such as the New York SHIELD Act. Such incidents could result in remediation costs, regulatory investigations, litigation, indemnification obligations, reputational damage, and loss of customers or partners. Our marketing and promotional activities may be subject to laws such as the Controlling the Assault of Non-Solicited Pornography And Marketing Act, the Telephone Consumer Protection Act and the Telemarketing Sales Rule. +We are also subject to evolving privacy laws on cookies, tracking technologies and marketing, advertising, and other activities conducted by telephone, email, mobile devices and the internet. Regulation of cookies and similar technologies may lead to broader restrictions on our marketing and personalization activities, as well as the effectiveness of our marketing. Such regulations may have a negative effect on our business. We may also be subject to fines and penalties for non-compliance with any such laws and regulations. The decline of cookies or other online tracking technologies as a means to identify and target potential clients may increase the cost of operating our business and lead to a decline in revenues. In addition, legal uncertainties about the legality of cookies and other tracking technologies may increase regulatory scrutiny and increase potential civil liability under data protection or consumer protection laws. +Further, we may be or become subject to data localization laws mandating that data collected from a foreign country be processed and stored only within that country. For example, the Indian Parliament passed the Digital Personal Data Protection Act in 2023, which limits storage of certain personal data outside of India. Such data localization requirements may have cost implications for us, impact our ability to utilize the efficiencies and value of our global network, and affect our strategy and could require us to modify our technical architecture or limit certain operations in affected jurisdictions. . Further, if other countries in which we have customers were to adopt data localization laws, we could be required to expand our data storage facilities there or build new ones in order to comply with these laws. The expenditure this would require, as well as costs of ongoing compliance, could harm our financial condition. +Despite ongoing compliance efforts, we may still be exposed to allegations, claims, and investigations arising from perceived or actual violations of data protection laws. Failure, or perceived failure, to comply with laws relating to the collection, use, processing, storage, disclosure, and transfer of personal data or other sensitive data, whether by us and/or service providers, vendors or other parties with whom we do business, could subject us and/or service providers to significant fines, penalties, judgments and negative publicity, and require changes to business operations, which could have a material adverse effect on our business’ financial condition and results of operations. +We are subject to payments-related risks that may result in higher operating costs or the inability to process payments, either of which could harm our financial condition and results of operations. +Non-payment or late payments of amounts due to us by customers could significantly and negatively affect our business and financial performance. A portion of our customers typically purchase our products on payment terms, and therefore we assume a credit risk for non-payment in the ordinary course of business. We evaluate the credit-worthiness of new customers and perform ongoing financial condition evaluations of our existing customers; however, there can be no assurance that our allowances for uncollected accounts receivable balances will be sufficient . As of December 31, 2025, our allowance for doubtful accounts was $5.3 million. If the volume of sales to enterprise customers continues to grow, we expect to increase our allowance for doubtful accounts primarily as the result of changes in the volume of sales to customers who pay on payment terms. +We accept payments using a variety of methods, including credit cards and debit cards, which are subject to additional regulations and compliance requirements and are susceptible to incidences of fraud. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs and lower profitability, and rely on third parties to provide processing services, who may be unwilling or unable to provide these services to us. We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. We may be required to provide cash deposits to our credit card processors. If we fail to comply with these rules or requirements, we could be subject to civil and criminal penalties or forced to cease our operations, fines and higher transaction fees or we could lose our ability to accept credit and debit card payments from consumers or facilitate other types of online payments. To date, we have experienced minimal losses from credit card +37 +Table of Contents +fraud, but we continue to face the risk of significant losses from this type of fraud, which could adversely affect our financial condition and results of operations. +We are also subject to, or voluntarily comply with, several other laws and regulations relating to money laundering, international money transfers, privacy and information security and electronic fund transfers. If we were found to be in violation of applicable laws or regulations, we could be subject to civil and criminal penalties or forced to cease our operations. +We are, from time to time, subject to various litigation, the unfavorable outcomes of which might have a material adverse effect on our financial condition, results of operations and cash flow. +From time to time, we may become subject to various legal and regulatory proceedings relating to our business or otherwise. For example, see the discussion of lawsuits brought against us by former warrant holders of the Company and other litigation in “ Note 11 — Commitments and Contingencies ” of the notes to the financial statements and “ Item 7. Management’s Discussion and Analysis of Financial and Results of Operations – Liquidity and Capital Resources ”. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot determine with certainty the ultimate outcome of any such litigation or proceedings. If the final resolution of any such litigation or proceedings is unfavorable, our financial condition, results of operations and cash flows could be materially affected. +Risks Related to Our Class A Common Stock +We qualify as an “emerging growth company” and “smaller reporting company” within the meaning of the Securities Act and Exchange Act, and we take advantage of certain exemptions from disclosure requirements available to emerging growth companies and smaller reporting companies, which could make our securities less attractive to investors and may make it more difficult to compare our performance to the performance of other public companies. +We qualify as an “emerging growth company” and “smaller reporting company” under the Securities Act and Exchange Act. As such, we are eligible for and take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies and/or smaller reporting companies for as long as we continue to be an emerging growth company and/or smaller reporting company, including, but not limited to, (a) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, (b) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and (c) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, our stockholders may not have access to certain information they may deem important. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of June 30 of that fiscal year, (ii) the last day of the fiscal year in which we have total annual gross revenue of $1.235 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which we have issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) December 31, 2027, which is the last day of the fiscal year following the fifth anniversary of the date of the first sale of Class A common stock. We would cease to be a smaller reporting company if (i) the market value of our voting and non-voting common stock held by non-affiliates is more than $250 million measured on the last business day of our second fiscal quarter or (ii) our annual revenue is more than $100 million during the most recently completed fiscal year and the market value of our voting and non-voting common stock held by non-affiliates is more than $700 million measured on the last business day of our second fiscal quarter. We cannot predict whether investors will find our securities less attractive because we rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile. +Our stock price has been and will likely continue to be volatile and may decline regardless of our operating performance. +The market price of our Class A common stock has fluctuated significantly in response to numerous factors and may continue to fluctuate, causing our stockholders to lose all or part of their investment in our Class A common stock since they may sell their shares at or below the price for which they purchased such shares. The trading price of our Class A common stock depends on a number of factors, including those described in this “ Item 1A. Risk Factors ” section, many of which are beyond our control. +38 +Table of Contents +Additionally, in order to maintain our listing on the NYSE, we are required to comply with certain rules of the NYSE, including those regarding minimum stockholders’ equity, minimum share price, and certain corporate governance requirements. To resolve noncompliance, if any, we may consider available options, including a reverse stock split. The liquidity of the Company’s Class A common stock may be adversely affected by a reverse stock split due to the reduced number of shares outstanding following such an action. This effect could be further compounded if the market price of the Company’s Class A common stock does not increase proportionately as a result of the reverse stock split. +The market prices of securities of companies have experienced fluctuations that often have been unrelated or disproportionate to their operating results. In the past, stockholders have sometimes instituted securities class action litigation against companies following periods of volatility in the market price of their securities. Any similar litigation against us could result in substantial costs, divert management’s attention and resources, and harm our business, financial condition, and results of operations. +Our stock price may be exposed to additional risks because we became a public company through a “de-SPAC” transaction. There has been increased focus by government agencies on de-SPAC transactions in the last few years, and we expect that increased focus to continue, and we may be subject to increased scrutiny by the SEC and other government agencies and holders of our securities as a result, which could adversely affect the price of our Class A Common Stock. +Our stock price may also be exposed to additional risks because of uncertainties related to the pendency of the proposed merger with Shutterstock or our inability to complete the Merger, or to complete the Merger in a timely manner. +If we are unable to maintain compliance with the continued listing requirements as set forth in the NYSE listing rules, our common stock could be delisted from the NYSE, and if this were to occur, then the price and liquidity of our common stock, and our ability to raise additional capital, may be adversely affected. +Our common stock is currently listed on the New York Stock Exchange, or NYSE. Continued listing of a security on the NYSE is conditioned upon compliance with certain continued listing requirements and continued listing standards set forth in the NYSE listing rules. There can be no assurance we will continue to satisfy the requirements for maintaining a NYSE listing. +On March 9, 2026, the 30 day average closing price of our common stock failed to comply with the minimum closing bid price requirement of $1.00 per share of common stock, although we have not yet received a notice from NYSE, for which there is a 180-day cure period. Delisting of our common stock could adversely affect the liquidity of our common stock because alternatives, such as the OTC Bulletin Board and the pink sheets, are generally considered to be less efficient markets. An investor likely would find it less convenient to sell, or to obtain accurate quotations in seeking to buy our common stock on an over-the-counter market. Many investors likely would not buy or sell our common stock due to difficulty in accessing over-the-counter markets, policies preventing them from trading in securities not listed on a national exchange or other reasons. A delisting of our common stock is likely to inhibit or preclude our ability to effect strategic acquisitions and raise additional financing. +An active trading market for our Class A common stock may not be sustained. +Our Class A common stock is listed on the NYSE under the symbol “GETY” and trades on that market. We cannot assure you that an active trading market for our Class A common stock will be sustained. Accordingly, we cannot assure you of the liquidity of any trading market, your ability to sell your shares of our Class A common stock when desired or the prices that you may obtain for your shares. +Future sales of shares by existing stockholders could cause our stock price to decline. +The sale of substantial amounts of shares of our Class A common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our Class A Common Stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. +If our existing stockholders sell or indicate an intention to sell substantial amounts of our Class A common stock in the public market, the trading price of our Class A common stock could decline. For example, as of March 1, 2026, the Getty Family Stockholders and Koch Icon Investments, LLC (“Koch Icon”) held 45.9% and 27.6% of our Class A common stock, respectively. In addition, shares underlying any outstanding options and Restricted Stock Units will become eligible +39 +Table of Contents +for sale if exercised or settled, as applicable, and to the extent permitted by the provisions of various vesting agreements and Rule 144 of the Securities Act (“Rule 144”). All the shares of Class A common stock subject to stock options outstanding and reserved for issuance under its equity incentive plans were registered under the Securities Act and such shares are eligible for sale in the public markets, subject to Rule 144 limitations applicable to affiliates. If these additional shares are sold, or if it is perceived that they will be sold in the public market, the trading price of our Class A common stock could decline. +As restrictions on resale have end and the registration statements are available for use, the market price of our Class A common stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our Class A common stock or other securities. +If securities or industry analysts either do not publish research about us or publish inaccurate or unfavorable research about us, our business, or its market, or if they change their recommendations regarding our Class A common stock adversely, the trading price or trading volume of our Class A common stock could decline. +The trading market for our Class A common stock is influenced in part by the research and reports that securities or industry analysts may publish about us, its business, our market, or our competitors. If one or more of the analysts initiate research with an unfavorable rating or downgrade our Class A Common Stock, provide a more favorable recommendation about our competitors, or publish inaccurate or unfavorable research about our business, the trading price of our Class A common stock would likely decline. In addition, we currently expect that securities research analysts will establish and publish their own periodic projections for our business. These projections may vary widely and may not accurately predict the results we actually achieve. Our stock price may decline if our actual results do not match the projections of these securities research analysts. While we expect research analyst coverage, if no analysts commence or maintain coverage of us, the trading price and volume for our Class A common stock could be adversely affected. If any analyst who may cover us were to cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the trading price or trading volume of our Class A common stock to decline. +Delaware law and anti-takeover provisions in our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws could make a merger, tender offer, or proxy contest difficult, thereby depressing the trading price of our Class A Common Stock. +Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws contain provisions that could depress the trading price of our Class A common stock by acting to discourage, delay, or prevent a change of control of us or changes in our management that our stockholders may deem advantageous. These provisions include the following: +• a classified Board of Directors so that not all members of our Board of Directors are elected at one time; +• the right of our Board of Directors to establish the number of directors and fill any vacancies and newly created directorships; +• director removal solely for cause; +• “blank check” preferred stock that our Board of Directors could use to implement a stockholder rights plan; +• the right of our Board of Directors to issue our authorized but unissued Class A common stock and preferred stock without stockholder approval; +• no ability of our stockholders to call special meetings of stockholders; +• no right of our stockholders to act by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; +• limitations on the liability of, and the provision of indemnification to, our director and officers; +• the right of our Board of Directors to make, alter, or repeal our Amended and Restated Bylaws; and +• advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings. +In addition, we will continue to be subject to Section 203 of the Delaware General Corporate Law (the “DGCL”). Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date such person becomes an interested stockholder, unless the business combination or the transaction in which such person becomes an interested stockholder is approved in a prescribed manner. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction +40 +Table of Contents +resulting in a financial benefit to the interested stockholder. Generally, an “interested stockholder” is a person that, together with affiliates and associates, owns, or within three years prior to the determination of interested stockholder status did own, 15% or more of a corporation’s voting stock. The existence of this provision may have an anti-takeover effect with respect to transactions not approved in advance by our Board of Directors and the anti-takeover effect includes discouraging attempts that might result in a premium over the market price for the shares of our Class A common stock. +Any provision of our Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock, and could also affect the price that some investors are willing to pay for our Class A common stock. +Our Amended and Restated Certificate of Incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees. +Our Amended and Restated Certificate of Incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the DGCL, our Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws or any action asserting a claim against us that is governed by the internal affairs doctrine. These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees and may discourage these types of lawsuits. This provision would not apply to claims brought to enforce a duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Our Amended and Restated Certificate of Incorporation provides further that, to the fullest extent permitted by law, the federal district courts of the United States will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. However, Section 22 of the Securities Act provides that federal and state courts have concurrent jurisdiction over lawsuits brought under the Securities Act or the rules and regulations thereunder. To the extent the exclusive forum provision restricts the courts in which claims arising under the Securities Act may be brought, there is uncertainty as to whether a court would enforce such a provision. We note that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Furthermore, the enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions, and there can be no assurance that such provisions will be enforced by a court in those other jurisdictions. If a court were to find the exclusive-forum provision contained in our Amended and Restated Certificate of Incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business. +We do not intend to pay dividends for the foreseeable future. +We currently intend to retain any future earnings to finance the operation and expansion of our business and we do not expect to declare or pay any dividends in the foreseeable future. As a result, stockholders must rely on sales of their Class A common stock after price appreciation as the only way to realize any future gains on their investment. +We may issue additional shares of Class A common stock or other equity securities without your approval, which would dilute shareholder ownership interests and may depress the market price of our Class A common stock. +As of December 31, 2025, we had outstanding options to purchase up to an aggregate of 24,578,000 shares of our Class A common stock, 5,427,000 outstanding Restricted Stock Units (“RSUs”) and 1,319,167 outstanding Performance Restricted Stock Units (“PSUs”) outstanding. We also have the ability to initially issue up to 51,104,577 shares of Class A common stock under the 2022 Equity Incentive Plan, 5,000,000 shares of Class A common stock under the ESPP, 6,000,000 shares of Class A common stock under the Earn Out Plan. Further, in connection with Shutterstock Merger Agreement, we will issue additional shares of Class A common stock. +We may issue additional shares of Class A common stock or other equity securities of equal or senior rank in the future in connection with, among other things, future acquisitions or repayment of outstanding indebtedness, without stockholder approval, in a number of circumstances. +41 +Table of Contents +Our issuance of additional shares of Class A common stock or other equity securities of equal or senior rank would have the following effects: +• Our existing stockholders’ proportionate ownership interest in us will decrease; +• the amount of cash available per share, including for payment of dividends (if any) in the future, may decrease; +• the relative voting strength of each previously outstanding share of Class A common stock may be diminished; and the market price of our shares of Class A common stock may decline. +Risks Related to the Proposed Merger with Shutterstock +Our inability to complete the Merger, or to complete the Merger in a timely manner, including as a result of the failure to obtain required regulatory approvals or the failure to satisfy the other conditions to the consummation of the Merger, could negatively affect our business, financial condition and results of operations. +The Merger is subject to various closing conditions, such as receipt of required regulatory approval and the approval of Shutterstock’s stockholders, among other customary closing conditions. It is possible that the regulators may prohibit, enjoin or refuse to grant approval for the consummation of the Merger. If any condition to the closing of the Merger is not satisfied or, if permissible, not waived, the Merger will not be completed. In addition, satisfying the conditions to the closing of the Merger may take longer than we expect. There can be no assurance that the remaining conditions to closing will be satisfied or waived or that other events will not intervene to delay or result in the failure to consummate the Merger. +If the Merger is not completed or is delayed for any reason, there may be adverse consequences, and we may experience negative reactions from investors, the financial markets, our customers, our vendors and/or our employees. For example, depending on the circumstances that would have caused the Merger not to be completed, the price of our Class A common stock may decline materially. If that were to occur, it is uncertain when, if ever, our Class A common stock would return to the price levels at which the shares currently trade. +Failure to complete the Merger could trigger the payment of a termination fee, and, whether or not the Merger is consummated, we have incurred and will continue to incur significant costs, fees and expenses relating to professional services and transaction fees. +Under the Merger Agreement, we may be required to pay a termination fee if the Merger Agreement is terminated under specified circumstances in an amount of $32.7 million or $40.0 million, depending on the circumstances surrounding such termination. There can be no assurance that the Merger Agreement will not be terminated under the circumstances triggering these termination fee obligations. Furthermore, whether or not the Merger is consummated, we have incurred, and will continue to incur, significant costs, fees and expenses relating to professional services and transaction fees in connection with the proposed Merger. Payment of these costs, fees and expenses could adversely affect our business, financial condition and results of operations. +Uncertainties associated with the Merger may cause us to lose key customers or suppliers and make it more difficult to retain and hire key personnel, and the Merger may disrupt our current plans and operations or divert management’s attention from our ongoing business. +As a result of the uncertainty surrounding the conduct of our business while the Merger is pending, our relationships with customers, suppliers and other parties may be adversely affected. Due to uncertainty about our future while the Merger is pending, we may lose customers or suppliers, or customers, suppliers and other parties may alter their business relationships with us. +In addition, our employees, including key personnel, may be uncertain about their future roles and relationships with us following the completion of the Merger, which may adversely affect our ability to retain and motivate them or to hire new employees. Moreover, while the Merger is pending, the potential disruption of plans or diversion of management’s attention from our ongoing business operations could adversely affect our business, financial condition and results of operations. +We will be subject to business uncertainties and contractual restrictions while the Merger is pending. +42 +Table of Contents +The Merger Agreement subjects us to restrictions on our business activities prior to the closing of the Merger. For example, the Merger Agreement obligates us to generally conduct our business in the ordinary course until the closing and to use our reasonable best efforts to (i) preserve intact our current business organizations, (ii) preserve our assets and properties in good repair and condition and (iii) keep available the services of our current officers and other key employees and preserve our relationships with those having business dealings with us. These restrictions could prevent us from pursuing certain business opportunities that arise prior to the closing and are outside the ordinary course of business. +The proposed Merger and the integration of both companies may be more difficult, costly or time-consuming than expected, and we may fail to realize the anticipated benefits of the Merger. +The success of the Merger will depend in part on our ability to realize anticipated revenue and cost synergies and on our ability to successfully integrate the businesses. If we are not able to successfully achieve these objectives, the anticipated benefits of the Merger may not be realized fully, or at all, or may take longer to realize than expected. In addition, our ability to achieve the goals for the proposed Merger may be affected by future prospects, execution of business strategies, and our ability to manage the various factors discussed within this Annual Report on Form 10-K, including within the forward-looking statements. The actual benefits of the proposed Merger also could be less than anticipated if, for example, completion of the Merger and/or integration of the businesses are more difficult, costly or time-consuming than we expect. +The market price of the combined company’s common stock following the anticipated closing of the Merger may be affected by factors different from those that historically have affected or currently affect our common stock. +Upon completion of the Merger, the combined company’s financial position may differ from our financial positions before the completion of the Merger, and the results of operations of the combined company may be affected by factors that are different from those currently affecting our results of operations. Accordingly, the market price and performance of the combined company’s common stock is likely to be different from the performance of our common stock prior to the closing of the Merger. +We may be unable to retain personnel successfully while the Merger is pending or after the Merger is completed. +The success of the Merger will depend in part on our ability to retain key employees while the Merger is pending or after the Merger is consummated. If we are unable to retain key employees, including management, who are critical to the successful completion, integration and future operation of the combined company, we could face disruption in our operations, loss of key information, expertise or know-how, or unanticipated recruiting costs, which may impact our ability to achieve our goals related to the transaction. +We may become subject to lawsuits relating to the Merger, which could adversely affect our business, financial condition and operating results. +We and/or our respective directors and officers may become subject to lawsuits relating to the Merger. Such litigation is very common in connection with acquisitions of public companies, regardless of the merits of the underlying acquisition. While we will evaluate and defend against any actions vigorously, the costs of the defense of such lawsuits and other effects of such litigation could have an adverse effect on our business, financial condition and operating results. +Because the exchange ratio in the Merger Agreement is fixed and because the market price of Shutterstock and our Class A common stock has and will continue to fluctuate prior to the completion of the Merger, we cannot be sure of the market value of our Class A common stock that will be paid to Shutterstock stockholders as consideration in the Merger. +Under the terms of the Merger Agreement, if the Merger is completed, each holder of Shutterstock common stock immediately prior to the transaction close will have the option to receive, subject to proration, for each share of Shutterstock common stock held by such holder: +• Cash consideration of $9.50 and 9.17 shares of our Class A common stock; +• Cash consideration of $28.8487; or +• 13.67237 shares of our Class A common stock. +43 +Table of Contents +The exchange ratio of the Merger consideration is fixed, and under the Merger Agreement there will be no adjustment to the Merger consideration for changes in the market price of Shutterstock common stock or our common stock prior to the completion of the Merger. +The respective market values of Shutterstock’s common stock and our common stock have fluctuated and may continue to fluctuate during this period as a result of a variety of factors, including general market and economic conditions, changes in each company’s business, operations and prospects, commodity prices, regulatory considerations, and the market’s assessment of each company’s business and the Merger. Such factors are difficult to predict and in many cases may be beyond the control of Shutterstock and us. The actual value of the Merger consideration that will be paid to Shutterstock stockholders at the completion of the Merger will depend on the market value of our Class A common stock at that time. This market value may differ, possibly materially, from the market value of our Class A common stock at the time the Merger Agreement was entered into or at any other time. +Our stockholders will have a reduced ownership and voting interest in Getty Images following the merger and will exercise less influence over management. +Currently, our stockholders have the right to vote in the election of our Board and the power to approve or reject any matters requiring stockholder approval under Delaware law and our certificate of incorporation and bylaws. Upon completion of the merger, each of our stockholders will have a percentage ownership of Getty Images that is smaller than the their current percentage ownership. Following the close of the transaction, based on the common shares outstanding as of September 9, 2025, Getty Images stockholders will own approximately 53.5% and Shutterstock stockholders will own approximately 46.5% of the combined company on a fully diluted basis. +Consequently, even if all of our stockholders voted together on all matters presented to Getty Images stockholders from time to time following the merger, our current stockholders would exercise significantly less influence over Getty Images after the completion of the merger relative to their influence prior to the completion of the merger, and thus would have a less significant impact on the approval or rejection of future Getty Images proposals submitted to a stockholder vote. +The Getty Family Stockholders currently have the right to nominate three directors to our Board of Directors, and Koch Icon currently has the right to nominate two directors to our Board of Directors. If the Merger is completed, the Getty Family Stockholders will have the right to nominate two directors to our Board of Directors and Koch Icon will have the right to nominate one director to our Board of Directors, subject to certain ownership thresholds. +Item 1B. Unresolved Staff Comments. +None. +Item 1C. Cybersecurity. +The Company’s management is responsible for the day-to-day management of risk, and our Board of Directors, including through its committees, is responsible for understanding and overseeing the various risks facing the Company. +Cybersecurity Risk Management and Strategy +Increased global cybersecurity vulnerabilities, threats and more sophisticated and targeted cyber-related attacks pose an ongoing risk to the security of our information systems and networks. Getty Images seeks to manage cybersecurity risks consistent with its general approach to enterprise risk management. +Getty Images engages third parties to conduct assessments to help it identify, categorize and manage cyber risks and to confirm compliance with applicable legal and regulatory requirements . Additionally, management and third parties conduct ongoing vulnerability scanning and performs penetration testing from time to time to help Getty Images identify and reduce the threat of known and emerging cybersecurity risks. +Board Oversight and Governance +Getty Images’ Board of Directors has delegated the oversight of cybersecurity risks to the Audit Committee. The Audit Committee assists Getty Images’ Board of Directors in its oversight of the policies and practices used by Getty Images to identify, assess and manage key risks facing Getty Images, including cybersecurity risks. Members of management, including the Company’s Chief Technology Officer (“CTO”) , provide the Audit Committee with updates on cybersecurity and information technology matters. In turn, the Audit Committee and management also provide updates to Getty Images’ B oard of Directors . In addition to reporting to the Audit Committee and Getty Images’ Board of Directors, +44 +Table of Contents +the CTO provides periodic reports to our Chief Executive Officer and other members of our senior management as appropriate. The Audit Committee, or Getty Images’ Board of Directors, is notified of cybersecurity incidents, as appropriate, in accordance with the Company’s incident response processes. +Cybersecurity Oversight +Management plays an important role in assessing and managing Getty Images’ material risks from cybersecurity threats. The CTO is responsible for oversight of the design and implementation of the security program and strategy. Getty Images’ current CTO has served in various roles in technology for over 25 years, and has had had oversight of information technology and information security for both Getty Images (8+ years) and other organizations. +At the employee level, we maintain an experienced information technology team who is tasked with implementing our privacy and cybersecurity program and support the CTO in carrying out reporting, security, and mitigation functions. +As part of the Getty Images cybersecurity program, cross-functional teams throughout the Company address cybersecurity threats and respond to cybersecurity incidents. Through ongoing communications with these teams, the CTO and senior management are informed about and monitor the prevention, detection, mitigation and remediation of cybersecurity threats and incidents and escalate such threats and incidents as appropriate through the processes described in more detail below. +Management’s cybersecurity risk management strategy and processes focus on several key areas, including: +• Incident Response Planning: Getty Images has a global Information Security Incident Response Plan (the “Plan”) for identifying and managing cyber and data security threats. The Plan defines the roles and responsibilities of Company stakeholders involved in responding to cyber and data security events, severity levels and incident categories, and it outlines a process for incident management, including escalation and communication procedures. A cross-functional working group of security, privacy, and legal personnel review significant incidents to determine if further escalation is appropriate. If an incident could be deemed material, it is escalated to the CTO and other members of the executive team, and we consult with outside counsel during this assessment as appropriate. +• Technical Safeguards: Getty Images seeks to continuously improve technical safeguards that are designed to protect its information systems. Standards include controls for identity and access management, cyber threat and incident management, data security, encryption, human resource security, network and device security, secure asset management, secure system development, security operations and third-party security. While Getty Images seeks to maintain adequate cybersecurity controls, it may not always be effective. See “ Item 1A. Risk Factors—Our failure to protect the proprietary information of our customers and our networks against cyberattacks, security breaches or unauthorized access could adversely affect our business and results of operations, damage our reputation and expose us to liability ” and “ We collect, store, process, transmit and use personal data, which subjects us to governmental regulation and other legal obligations related to privacy, information security and data protection in many jurisdictions. Any cybersecurity breaches or our actual or perceived failure to comply with such legal obligations by us, or by our third-party service providers or partners, could harm our business, and could result in regulatory investigations, enforcement actions, fines, litigation, reputational harm and increased compliance costs, any of which could materially adversely affect our business, financial condition and results of operations ” for more information as well as related risks. +• Education and Awareness: We require annual employee trainings on privacy and cybersecurity, records and information management, and generally seek to promote awareness of cybersecurity risk through communication and education of our employee population. +• Third-Party Risk Management: We rely on certain third-party computer systems and third-party service providers in connection with providing some of our services. We also depend upon various third parties to process payments for our transactions around the world. These third-party business partners, service providers, and consultants need to access our customer and other data and in some cases connect to our computer networks. We define expected security and privacy requirements through our contracting processes with third parties and we perform third-party cyber risk assessments to monitor the cyber risk management efforts of third parties as needed. +• Threat Intelligence: Our security teams engage in threat intelligence, predictive modeling, and penetration testing to understand the Company's threat landscape and reduce the risk and impact of cybersecurity incidents. +Material Effects of Cybersecurity Incidents +As of the date of this Annual Report, we have experienced cybersecurity incidents and threats, including malware, phishing, partner and customer account takeover attacks, and denial-of-service attacks on our systems. We do not believe these cybersecurity incidents have materially affected our business strategy, results of operations, or financial condition. +45 +Table of Contents +However, there is no guarantee that a future cyber incident would not materially affect our business strategy, results of operations or financial condition. To learn more about risks from cybersecurity threats, review the risk factors included in “ Item 1A. Risk Factors ” in this Annual Report, as updated by Getty Images’ subsequent SEC filings. The risks described in such filings are not the only risks facing Getty Images. Additional risks and uncertainties not currently known or that may currently be deemed to be immaterial may materially adversely affect Getty Images’ business, financial condition, or results of operations. +Item 2. Properties. +Our major U.S. offices are located in New York and Seattle, and our major offices in the rest of the world are located in London, Dublin, and Calgary. In all, as of December 31, 2025, we have sta ff in 32 countries across the globe. We lease these offices and all of our other office spaces around the world. +For additional information regarding obligations under operating leases, see Item 8 of Part II, “Financial Statements and Supplementary Data — “Note 16 – Leases.” +We believe that our facilities are adequate for our current needs. +Item 3. Legal Proceedings. +See Item 8 of Part II, “Financial Statements and Supplementary Data — “ Note 11 — Commitments and Contingencies. ” +Item 4. Mine Safety Disclosures. +Not applicable. +46 +Table of Contents +PART II +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. +Market Information +Our Class A common stock is currently listed on the NYSE under the symbol “GETY”. As of March 11, 2026, there were 417,765,616 shares of Class A common stock issued and outstanding held of record by 44 holders. Because many of our shares of Class A common stock are held by brokers and other institu tions on behalf of sto ckholders, this number is not indicative of the total number of stockholders represented by these stockholders of record. +Dividends +We have not paid any cash dividends on our Class A common stock to date. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition. The payment of any cash dividends will be within the discretion of our Board at such time. In addition, we are not currently contemplating and do not anticipate declaring any cash dividends in the foreseeable future as it is currently expected that available cash resources will be utilized in connection with our ongoing operations. +Recent Sales of Unregistered Securities +All sales of unregistered securities during the fiscal year ended December 31, 2025 have been previously reported in our filings with the SEC. +Issuer Purchases of Equity Securities +We did not acquire any shares of Class A common stock during the three months ended December 31, 2025. +Stock Performance Graph +The following graph compares the cumulative total return to stockholders from the closing price on July 25, 2022 (the date our Class A common stock began trading on the NYSE) through December 31, 2025, relative to the performance of the Russell 2000 Index and the S&P Composite 1500 Interactive Media & Services Index. The stock performance graph +47 +Table of Contents +assumes $100 was invested in our Class A common stock and the common stock of each of the companies listed on the Russell 2000 Index and the S&P Composite 1500 Interactive Media & Services Index on July 25, 2022. +7/25/2022 12/31/2022 12/31/2023 12/31/2024 12/31/2025 +Getty Images Holdings, Inc. $ 100.00 $ 60.56 $ 57.38 $ 23.61 $ 14.64 +Russell 2000 Index $ 100.00 $ 97.57 $ 114.04 $ 127.18 $ 143.45 +S&P Composite 1500 Interactive Media & Services Index $ 100.00 $ 80.49 $ 149.55 $ 217.24 $ 314.51 +Item 6. +[Reserved] +48 +Table of Contents +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +The following discussion and analysis of the financial condition and results of operations of Getty Images should be read together with our consolidated financial statements and related notes included elsewhere in this Annual Report. The discussion should also be read together with the “Cautionary Note Regarding Forward-Looking Statements” above and the “Item 1A. Risk Factors” disclosure above for additional discussion of the risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Note the discussion below, other than the introductory note, does not consider the impact of the planned merger, announced on January 7, 2025, between Getty Images Holdings, Inc. and Shutterstock, Inc. +Merger Agreement with Shutterstock +On January 6, 2025, Getty Images entered into an Agreement and Plan of Merger (the “Merger Agreement”) to combine in a merger-of-equals transaction with Shutterstock. Subject to terms and conditions in the Merger Agreement, the aggregate consideration to be paid by Getty Images in respect of the outstanding shares of common stock of Shutterstock will be: +• An amount in cash equal to the product of $9.50 multiplied by the number of shares of Shutterstock common stock outstanding immediately prior to the transaction close (including vested Shutterstock restricted stock units and performance stock units) (the “Total Cash Amount”); and +• A number of shares of our Class A common stock equal to the product of 9.17 multiplied by the number of shares of Shutterstock common stock outstanding immediately prior to the transaction close (including vested Shutterstock restricted stock units and performance stock units) (the “Total Stock Amount”). +Each of the Total Cash Amount and the Total Stock Amount will be fixed as of immediately prior to closing of the Merger. Therefore, cash elections will be subject to proration if cash elections are oversubscribed and stock elections will be subject to proration if stock elections are oversubscribed. +Each holder of Shutterstock common stock immediately prior to the transaction close will have the option to receive, subject to proration, for each share of Shutterstock common stock held by such holder: +• Cash consideration of $9.50 and 9.17 shares of our Class A common stock; +• Cash consideration of $28.8487; or +• 13.67237 shares of our Class A common stock. +Following the close of the transaction, based on the common shares outstanding as of September 9, 2025, Getty Images stockholders will own approximately 53.5% and Shutterstock stockholders will own approximately 46.5% of the combined company on a fully diluted basis. The transaction is subject to the satisfaction of customary closing conditions, including receipt of required regulatory approvals and other customary closing conditions. +During the years ended December 31, 2025 and December 31, 2024, Getty Images has expensed $47.1 million and $4.1 million, respectively, of legal, accounting, and direct costs related to this proposed Merger in “ Other operating expenses – net ” in the Consolidated Statements of Operations. +On April 2, 2025, Getty Images and Shutterstock announced that they had each received a Request for Additional Information and Documentary Material (“Second Request”) from the U.S. Department of Justice (the “DOJ”) in connection with the transaction. The Second Request was issued under notification requirements of the HSR Act. The effect of the Second Request was to extend the waiting period imposed by the HSR Act until 30 days after Getty Images and Shutterstock have substantially complied with the request, unless that period is extended voluntarily by the parties or terminated sooner by the DOJ. +On February 23, 2026, Getty Images and Shutterstock announced that they had received notice that the DOJ has concluded its review of the proposed merger and the applicable waiting period under the Hart-Scott-Rodino Act has expired, without conditions. +49 +Table of Contents +On June 10, 2025, Shutterstock held a Special Meeting of Stockholders (the “Special Meeting”) in connection with the proposed merger with Getty Images. At the Special Meeting, Shutterstock’s stockholders approved the proposal to adopt the Merger Agreement. +On September 18, 2025, Shutterstock irrevocably waived the condition set forth in the Merger Agreement with respect to the Company having amended or otherwise refinanced its 2019 Term Loans and 2019 Senior Unsecured Notes to extend the maturity of each to no earlier than February 19, 2028. +On October 20, 2025, the Company received notice that the CMA intended to refer the proposed Merger to a Phase 2 review process unless acceptable undertakings to address their competition concerns are offered. On November 3, 2025, the Company received notice that the CMA has referred the Merger to a Phase 2 review process. On February 19, 2026, the CMA issued a provisional decision with respect to the proposed Merger and directed that any proposed remedies be submitted to the CMA by March 5, 2026. On March 11, 2026, the CMA published an Invitation to Comment on Remedies, with responses due by March 18, 2026 and published a Notice of Extension, extending its reference period by eight weeks to June 14, 2026. The Company remains committed to the proposed Merger and will continue to engage with CMA and work with Shutterstock to expeditiously secure the necessary clearances. +Refinancing Amendment +On February 21, 2025 (the “Amendment Effective Date”), the Company entered into the Second Incremental Commitment Amendment and Third Amendment to Credit Agreement (the “Refinancing Amendment”), which amended the Existing Credit Agreement. The Refinancing Amendment provided for a new tranche of senior secured fixed rate incremental term loans denominated in U.S. Dollars in an aggregate principal amount of $580.0 million (the “2025 USD Term Loans”) and a new tranche of senior secured term loans denominated in Euros in an aggregate principal amount of €440.0 million (the “2025 EUR Term Loans” and together with the 2025 USD Term Loans, the “2025 Term Loans”). +The proceeds of the 2025 Term Loans were used to refinance in full all outstanding term loans under the Existing Credit Agreement, and will mature on February 21, 2030. See “ Note 10 — Debt ” for additional discussion on our debt refinancing. +The proceeds from the 2025 Terms Loans were used to retire and repay the following debts: +• 2019 USD Term Loans, with a $579.2 million principal amount as of the Amendment Effective Date, and +• 2019 EUR Term Loans, with a €419.0 million principal amount as of the Amendment Effective Date +Permitted Debt Exchange Offering +The Company exercised its option to exchange its 2025 USD Term Loans, on a dollar-for-dollar basis, up to an aggregate principal amount of $580.0 million, pursuant to the Refinance Agreement, for newly issued 11.250% Senior Secured Notes due 2030 (the “11.250% Senior Secured Notes”). The Company issued 11.250% Senior Secured Notes in an aggregate principal amount of $539.9 million, pursuant to an Indenture, dated as of May 5, 2025 (the “Indenture”). +Additional Financing Activities +On October 21, 2025, the Company exchanged $294.7 million of its $300 million aggregate principal amount of 2019 Senior Unsecured Notes for newly issued 14.000% Senior Unsecured Notes due 2028 (the “2025 Senior Unsecured Notes”) and obtained related consents to amend the indenture governing the 2019 Senior Unsecured Notes. +Additionally, the Company closed the offering of, $628.4 million aggregate principal amount of 10.500% Senior Secured Notes due 2030 (the “10.500% Senior Secured Notes”). The Company intends to use the proceeds to facilitate the proposed Merger with Shutterstock, primarily to fund the cash portion of the merger consideration and settle Shutterstock's outstanding debt. The 10.500% Senior Secured Notes mature on November 15, 2030, unless earlier redeemed or repurchased. In the event that the Merger Agreement is terminated on or prior to October 6, 2026, the 10.500% Senior Secured Notes will be redeemed at a redemption price equal to 100% of the issue price plus accrued and unpaid interest. +50 +Table of Contents +Business Overview +Getty Images is a preeminent global visual content creator and marketplace, providing a diverse collection of high-quality photos, illustrations, videos, and music licensing to businesses, media organizations, and individuals worldwide. The Company is one of the largest and most respected providers of stock imagery and multimedia content. +For 31 years, Getty Images has embraced innovation, from analog to digital, from offline to e-commerce, from stills to video, from single image purchasing to subscriptions, from websites to application programming interfaces (“APIs”), from pre-shot content to AI generated content designed to be commercially safe. With quality content at the core of our offerings, we embrace innovation as a means to service our existing customers better and to reach new ones. +We offer comprehensive content solutions, including a la carte (“ALC”) and subscription access to our pre- shot content and coverage, generative AI-services, custom content and coverage solutions, digital asset management tools, data insights, research, and print offerings. +Through our content and coverage, Getty Images moves the world—whether the goal is commercial or philanthropic, revenue-generating or society-changing, market-disrupting or headline-driving. Through our staff, our exclusive contributors and partners, and our expertise, data, and research, Getty Images’ content grabs attention, sheds light, represents communities, and reminds us of our history. +Through Getty Images, iStock, and Unsplash, we off er a full range of content solutions to meet the needs of any customer—no matter their size—around the globe, with over 645 million visual a ssets available through its industry-leading sites. New content and coverage are added daily, with over 11 millio n new assets added each quarter an d over 2.5 billion searches annually. Th e Company has almost 700,000 purchasing customers, with customers from almost every country in the world with websites in 23 lan guages bringing the world’s best content to media outlets, advertising agencies, and corporations of all sizes and, increasingly, serving individual creators and prosumers. +In support of its content, Getty Im ages employs over 115 staff photographer s and videographers, and distributes the content of over 600,000 contribut ors and mor e than 360 premi um content partners. Over 83,000 of our contri butors are exclusive to the Company, creating content that cannot be found anywhere else. Each year, we cover mo re than 160,000 global events across news, s port, and entertainment, providing a depth and breadth of coverage that is unmatched. Getty Images also maintains one of the largest and best privately-owned photographic archives in the world, with over 150 million images across geographies, periods, and verticals. +We distribute content and services offerings through three primary product lines: +Creative +Creative is comprised of RF photos, illustrations, vectors, videos, and generative AI-services that are released for commercial use and cover a wide variety of commercial, conceptual, and contemporary subjects, including lifestyle, business, science, health, wellness, beauty, sports, transportation and travel. This content is available for immediate use by a wide range of customers with depth, breadth, and quality, allowing our customers to produce impactful websites, digital media, social media, marketing campaigns, corporate collateral, textbooks, movies, television, and online video content relevant to their target geographies and audiences. We primarily source Creative content from a broad network of professional, semi-professional, and amateur creators, many exclusive to Getty Images. We have a global creative insights team dedicated to providing briefing and art direction to our exclusive contributor community. Creative represents 56.7% , 58.9% and 63.1% of our revenue of w hich 58.2%, 56.0% and 52.2% 1 is generated through our annual subscription products, for the years ended December 31, 2025, 2024 and 2023, respectively. Annual Subscription products include products and subscriptions with a duration of 12 months or longer, Unsplash API, and Custom Content. +Editorial +Editorial is comprised of photos and videos covering the world of entertainment, sports, and news. We combine contemporary coverage of events around the globe with one of the largest privately held archives globally with access to images from the beginning of photography. We invest in a dedicated editorial team that includes over 115 staff photographers and videographers to generate our own coverage in addition to coverage from our network of content +1 Prior year percentage has been restated to conform to the current year presentation. +51 +Table of Contents +partners. Editorial represents 37.7%, 36.8% and 35.0% of our revenue, of which 53.5%, 53.7% and 53.3% is generated through our annual subscription products, for the years ended December 31, 2025, 2024 and 2023, respectively. Annual Subscription products include subscriptions with a duration of 12 months or longer. +Other +Other represents 5.6%, 4.3%, and 1.9% of our revenue for the years ended December 31, 2025, 2024, and 2023, respectively. This includes data access and/or licensing, music licensing, digital asset management, distribution services and print sales. +We service a full range of customers through our industry-leading brands and websites: +Getty Images +Gettyimages.com offers premium creative content and editorial coverage, including video, with exclusive content, and customizable rights and protections. This site primarily serves more prominent enterprise agency, media and corporate customers with global customer support from our sales and service teams. Customers can purchase on an ALC basis or through our content subscriptions, including our “Premium Access” subscription, where we uniquely offer frictionless access across all of the Getty Images and iStock content in one solution. +iStock +iStock.com is our budget-conscious e-commerce offering our customers access to creative stills and video, which includes exclusive content. This site primarily serves small and medium-sized businesses, including the growing freelance market. Customers can purchase on an ALC basis or through a range of monthly and annual subscription options with access to an extensive amount of unique and exclusive content. +Unsplash +Unsplash.com is a platform offering free stock photo downloads and paid subscriptions targeted to the high-growth prosumer and semi-professional creator segments. The Unsplash website reaches a significant and geographically diverse audience with more than 91 million image downloads every month. +In addition to our websites, customers and partners can access and integrate our content, metadata and search capabilities via our APIs and through a range of mobile apps and plugins. +We are a critical intermediary between content suppliers and a broad set of customers. We compete against a broad range of stock licensing marketplaces, editorial news agencies, creative agencies, production companies, staff and freelance photographers and videographers, photo and video archives, freelance marketplaces and amateur content creators, creative tools and services and free sources. Getty Images’ unique offering and approach offers a strong value proposition to our customers and content contributors. +For customers: +• We offer a comprehensive suite of high quality, authentic content, purchase and licensing options and services to meet the needs of our customers, regardless of project requirements, needs or budgets. +• Our content sourcing and production, rights oversight, websites and content distribution are all supported by a unique, scalable cloud-based unified platform with powerful artificial intelligence/machine learning and data addressing all customers at scale. +• Customers have access to Generative AI by Getty Images and iStock which is designed to be a commercially-safe and responsible solution designed to help embrace AI, elevate creativity, and ideate or iterate on concepts and compositions. +• Customers can avoid the costly investment and environmental impact of producing content on their own. This can include costs incurred from staffing, travel and access, model and location, hardware and production, and editing. +• Customers do not have to wait for content to be produced and distributed and can avoid the difficulties and pitfalls of searching across the internet to locate and negotiate for rights to license or use specific content. Our best-in-class, scaled infrastructure offers customers a one-stop shop for instant content access and maneuverability. +52 +Table of Contents +• Customers licensing from Getty Images and iStock receive trusted copyright claim protections, model and property releases and the ability to secure the necessary clearances for their intended use of the content. +For content contributors: +• Access to a marketplace that reaches almost every country in the world, across all customer categories and sizes and generated annual royalties of over $220 million for the year ended December 31, 2025 . +• We maintain a dedicated and experienced creative insights team focused on understanding changes in customer demand, the visual landscape, the authentic portrayal of communities and cultures, and the evolution of core creative concepts. We work closely with leading organizations to augment our proprietary research and understanding of communities and cultures to provide content with authentic depiction. We convey this research to our exclusive contributors via actionable insights allowing them to invest in and create content that accurately caters to changing consumer demand and up to date market trends. +• Not only do we provide exclusive contributors with scaled access to end markets and proprietary information, but we also provide premium royalty rates. This allows our exclusive contributors and partners to confidently invest more into their productions with the potential to generate higher returns. +• Partnering with Getty Images allows contributors to focus on content creation and avoid time and financial investment in the marketing, sales, distribution and management of their content. +• Our Generative AI by Getty Images and iStock products compensates our world-class content creators for the use of their work in our AI models, allowing them to continue to create more high-quality pre-shot imagery. +Macroeconomic Conditions +The broader implications of the macroeconomic environment, including uncertainty around international armed conflicts in Ukraine, South America, and the Middle East, geopolitical tensions, lingering supply chain shortages, tariffs, inflationary and interest rate pressures, and other related global economic conditions, remain unknown. A deterioration in macroeconomic conditions could continue to increase the risk of lower consumer spending, foreign currency exchange fluctuations, or other business interruptions, which may adversely impact our business and financial results. +Components of Operating Results +Revenue +We generate revenue by licensing content to customers through multiple license models and purchase options, as well as by providing related services to our customers. The key image licensing model in the pre-shot market is RF. Content licensed on an RF basis is subject to a standard set of terms, allowing the customer to use the image for an unlimited duration and without limitation on the use or application. Within our video offering, we also offer a licensing model known as Rights-Ready. The Rights-Ready model offers a limited selection of broader usage categories, thus simplifying the purchase process. In September 2023 and January 2024, we launched Generative AI by Getty Images and Generative AI by iStock, respectively. They are generative AI text to image and image to image tools that were trained on Getty Images’ world‑class creative content and designed for commercial use. Customers that download visuals through the tool will receive the standard RF license. +In addition to licensing imagery and video, we generate revenue from data access and/or licensing, custom content solutions, photo and video assignments, music content in some of our subscriptions, print sales and licensing our digital asset management systems to help customers manage their owned and licensed digital content. +A significant portion of the business has transitioned to an annual subscription model with strong retention characteristics. Annual subscriptions now comprise approximately 54% of total revenue for the year ended December 31, 2025 , and we continue to focus on growing subscription revenue. +References to “reported revenue” in this discussion and analysis are to our revenue as reported in our historical audited consolidated financial statements for the relevant periods and reflect the effect of changes in foreign currency exchange rates. References to “currency neutral” (“ Currency Neutral ” or “ CN ”) revenue growth or decline (expressed as a percentage) in this section refer to our revenue growth or decline (expressed as a percentage), excluding the effect of changes in foreign currency exchange rates. See “ Non-GAAP Financial Measures ” for additional information regarding Currency Neutral revenue growth or decline (expressed as a percentage). +53 +Table of Contents +Cost of revenue (exclusive of depreciation and amortization) +The ownership rights to the majority of the content we license are retained by the owners, and licensing rights are provided to us by a large network of content contributors and content partners. When we license content entrusted to us by content suppliers, we pay royalties to them at varying rates depending on the license model and the use of that content that our customers select. Suppliers who choose to work with us under contract typically receive royalties of 20% to 50% of the total license fee we charge customers, depending on the basis on which their content is licensed by our customers. Contributors are compensated for any inclusion of their content in AI data training sets and may share in the revenue generated by AI tools and services trained with their content. We also own the copyright to certain content in our collections (“wholly-owned content”), including content produced by our staff photographers for our editorial product, for which we do not pay any third-party royalties. Cost of revenue includes certain costs of our assignment photo shoots, but excludes amortization associated with creating or buying content. Cost of revenue consists primarily of royalties owed to content contributors, comprised of photographers, filmmakers, third-party companies that license their collection of content through us (“Content Partners”) and our third-party music content provider. +Going forward, we expect the cost of revenue to trend in line with overall revenue patterns. We expect our cost of revenue as a percentage of revenue to vary modestly based on changes in revenue mix by product, as royalty rates vary depending on license model and use of content. +Selling, general, and administrative expenses +Selling, general, and administrative expenses (“SG&A”) primarily consist of staff costs, marketing expenses, occupancy costs, professional fees and other general operating charges. +We expect our selling, general, and administrative expenses to increase in absolute dollars but remain relatively constant as a percentage of revenue in the near term. Absolute dollar spending will increase as certain costs increase and we continue to expand our operations and invest in our growth. Lastly, we expect our marketing to stay relatively constant as a percentage of revenue. However, the Company will continue to evaluate opportunities to incrementally invest in marketing as appropriate. +Depreciation +Depreciation expense consists of internally developed software, content and equipment depreciation. We record property and equipment at cost and reflect Consolidated Balance Sheet balances net of accumulated depreciation. We record depreciation expense on a straight-line basis. We depreciate leasehold improvements over the shorter of the respective lives of the leases or the useful lives of the improvements. +We expect depreciation expense to remain stable as we continue to innovate and invest in the design, user experience and performance of our websites. +Amortization +Amortization expense consists of the amortization of intangible assets related to acquired customer relationships, trademarks and other intangible assets. The majority of our intangible assets have been fully amortized. We expect amortization expense to be insignificant in the coming years. +Factors affecting results of operations +A shift in the product mix of our revenue may affect our overall cost of revenue as a percentage of revenue. Our revenues and profitability are also subject to fluctuations in foreign exchange rates. The weakening or strengthening of our reporting currency, the U.S. Dollar, during any given period as compared to currencies that we collect revenues in, most notably, the Euro and British pound, impacts our reported revenues. +Our future financial condition and results of operation will also be dependent upon various factors that generally affect the digital content industry, including the general trends affecting the media, marketing and advertising customer bases that we target, protection of intellectual property, and new and expanding technology such as generative AI technologies. In addition, our financial condition and results of operation will continue to be affected by factors that affect internet commerce companies and by general deterioration in macroeconomic factors that could continue to increase the +54 +Table of Contents +risks of lower consumer spending, other business interruptions, the global and economic uncertainty caused by, among other things, any lingering effects of the Hollywood actors and writers strike, the military conflicts in Ukraine, South America and in the Middle East, tariffs or trade restrictions imposed by the U.S. and other countries, changes in political climate, and high interest rates, currency fluctuations, high inflation and labor shortages. +Impact of Currency Fluctuations +Assets and liabilities for subsidiaries with functional currencies other than the U.S. Dollar are recorded in foreign currencies and translated at the exchange rate on the Balance Sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are charged or credited to “ Other comprehensive income (loss) ”, as a separate component of stockholder’s equity. The Company recognized net foreign currency translation adjustment gains of $66.1 million during the year ended December 31, 2025 and net foreign currency translation adjustment losses of $36.7 million during the year ended December 31, 2024. +Transaction gains and losses arising from transactions denominated in a currency other than the functional currency of the entity involved are included in “Foreign exchange (loss) gain – net” in the Consolidated Statements of Operations. For the year ended December 31, 2025, the Company recognized net foreign currency transaction losses of $78.9 million. For the year ended December 31, 2024, the Company recognized net foreign currency transaction gains of $36.1 million. +Results of Operations +Comparison of the Years Ended December 31, 2025 and 2024 +The following table sets forth our consolidated results of operations for the periods indicated. +(In thousands, except percentages) Years Ended +December 31, increase (decrease) +2025 2024 $ change % change +Revenue $ 981,290 $ 939,287 $ 42,003 4.5 % +Cost of revenue (exclusive of depreciation and amortization) 261,315 253,068 8,247 3.3 % +Selling, general and administrative expenses 415,968 407,796 8,172 2.0 % +Depreciation 62,459 58,987 3,472 5.9 % +Amortization 2,304 2,306 (2) (0.1) % +Loss on litigation 100,498 20,491 80,007 390.4 % +Other operating expenses – net 54,830 15,834 38,996 246.3 % +Total operating expenses 897,374 758,482 138,892 18.3 % +Income from operations 83,916 180,805 (96,889) (53.6) % +Interest expense (156,175) (131,408) (24,767) 18.8 % +Loss on fair value adjustment for swaps – net — (1,459) 1,459 NM +Foreign exchange (loss) gain – net (78,882) 36,071 (114,953) (318.7) % +Loss on extinguishment of debt (5,474) — (5,474) NM +Other non-operating (expense) income – net (5,692) 2,946 (8,638) (293.2) % +Total other expense – net (246,223) (93,850) (152,373) 162.4 % +(Loss) income before income taxes (162,307) 86,955 (249,262) (286.7) % +Income tax expense +(43,876) (47,483) 3,607 (7.6) % +Net (loss) income $ (206,183) $ 39,472 $ (245,655) (622.4) % +____________________ +NM - Not meaningful +55 +Table of Contents +Revenue by product +(In thousands) Years Ended +December 31, increase / (decrease) +2025 % of revenue 2024 % of revenue $ change % change CN % change +Creative $ 556,859 56.7 % $ 552,828 58.9 % $ 4,031 0.7 % 0.2 % +Editorial 369,643 37.7 % 345,932 36.8 % 23,711 6.9 % 6.1 % +Other 54,788 5.6 % 40,527 4.3 % 14,261 35.2 % 35.2 % +Total revenue $ 981,290 100.0 % $ 939,287 100.0 % $ 42,003 4.5 % 3.8 % +For the year ended December 31, 2025, reported revenue was $981.3 million as compared to reported revenue of $939.3 million for the year ended December 31, 2024. On a reported basis for the year ended December 31, 2025, revenue increase d by 4.5% (3.8% CN) year over year. Foreign exchange movements positively impacted reported revenue growth for the year ended December 31, 2025 by 70 basis points, largely driven by the weakening dollar relative to the EUR and GBP. Additionally, in the fourth quarter of 2025 we completed two significant multi‑year license agreements, each of which had meaningful accelerated revenue recognition that affected all of our product categories. +Creative revenue increased on a reported basis 0.7% (0.2% CN) for the year ended December 31, 2025. The increase for the year ended December 31, 2025 was driven by our Creative committed solutions, where there were increases in our Premium Access subscriptions (increased $12.8 million), video subscriptions (increased $6.1 million) and Custom Content (increased $2.0 million), partially offset by declines in our iStock annual subscriptions (decreased $7.8 million). We experienced decreases in our non-subscription based products as a result of our continued focus on driving customers to our committed solutions. The non subscription declines were seen across ALC video (decreased $6.4 million), iStock credits (decreased $4.1 million), and iStock monthly subscriptions (decreased $2.1 million), partially offset by increases in our ALC Premium RF and Ultra Pack revenue (increased $5.9 million). We saw double-digit declines from our Agency customers during the year, which are accounted for largely within Creative on an ALC basis. +Editorial revenue increased on a reported basis 6.9% (6.1% CN) for the year ended December 31, 2025. The increase was driven by Editorial subscriptions (increased $11.8 million), assignments (increased $4.1 million) and Editorial ALC (increased $7.7 million). Overall, these product increases were driven by growth in all categories; Sport, News, Entertainment and Archive. +Other r evenue for the year ended December 31, 2025 from our Other products increased on a reported basis by 35.2% (35.2% CN). The increase of $14.3 million is primarily driven by data access and/or licensing agreements, which typically result in a greater portion of revenue being recognized in an accelerated manner. +Revenue Recognition +The timing of our revenue recognition can be influenced by several factors, including the nature of the contract with the customer, and the Company’s estimates regarding unused content and customer download patterns and whether we have met our obligation to our customer. These factors can lead to variability in the timing and amount of revenue recognized in a given period. +Cost of revenue (exclusive of depreciation and amortization) +Cost of revenue for the year ended December 31, 2025 was $261.3 million (26.6% of revenue) compared to $253.1 million (26.9% of revenue) in the prior year. The change in cost of revenue as a percentage of revenue compared to the prior year was due primarily to revenue mix by product. Generally, cost of revenue rates vary modestly period over period based on changes in revenue mix by product, as royalty rates vary depending on the license model and use of content. +56 +Table of Contents +Selling, general and administrative expense +Reported SG&A expense incr eased by $8.2 million or 2.0% (1.6% CN) for the year ended December 31, 2025 as compared to the year ended December 31, 2024. SG&A fluctuations from the prior year include the following: +• increase of $13.6 million related to professional fees, primarily related to higher audit related fees due to our public company requirements and fees incurred for our ongoing AI litigation cases. +• decrease of $3.7 million related to staff costs for the year ended December 31, 2025. The decrease was driven by equity-based compensation (decreased $5.0 million) and lower healthcare costs (decreased $1.2 million), which were partially offset by increases in salary and wages (increased $2.5 million). +Depreciation expense +For the year ended December 31, 2025, depreciation expense was $62.5 million, an increase of $3.5 million or 5.9%. The increase is due to capital investments made that are primarily related to internal software development as we continue to innovate and invest in the design, user experience and performance of our websites. +Amortization expense +For the year ended December 31, 2025, amortization expense was $2.3 million which was in line with the prior year. +Loss on litigation +For the year ended December 31, 2025, the Company recognized loss on litigation of $100.5 million compared to $20.5 million in the year ended December 31, 2024. The loss on litigation consists of an estimate for claims, the interest on the estimated loss, legal fees, and amortization of fees related to appeal bond. The Company may continue to see these expenses as we navigate through the appeal of the judgment in the actions in the Initial and Follow on Warrant Litigation, and incur legal fees related to the additional warrant cases. See “ Note 11 — Commitments and Contingencies ” for additional discussion. +Other operating expenses – net +Other operating expenses - net was $54.8 million for the year ended December 31, 2025, compared to $15.8 million in the year ended December 31, 2024. This increase is primarily driven by costs incurred in connection with our proposed Merger with Shutterstock and we expect these costs to continue as we proceed through the regulatory process. Other operating expenses will continue to fluctuate from period to period as this line item is heavily influenced by non-recurring events such as mergers and acquisitions, claims, settlements, and gains/losses on asset disposals. +Interest expense +We recognized interest expense of $156.2 million and $131.4 million for the year ended December 31, 2025 and December 31, 2024, respectively. Our interest expense primarily consists of interest charges on our debt and revolving credit facility which remains undrawn, as well as the amortization of original issue discount, debt issuance costs and amortization of deferred debt financing fees. The increase relative to the prior year is largely driven by a higher level of outstanding debt combined with an increase in our effective interest rate. See “ Note 10 — Debt ” for additional discussions on our debt. +Foreign exchange (loss) gain – net +We recognized foreign exchange losses, net of $78.9 million for the year ended December 31, 2025, compared to net gains of $36.1 million for the year ended December 31, 2024. These changes are primarily driven by fluctuations in the EUR related to our 2019 EUR Term Loans and 2025 EUR Term Loans , which resulted in a foreign currency losses of $56.9 million for the year ended December 31, 2025 and a foreign currency gain of $28.4 million for the year ended December 31, 2024. +57 +Table of Contents +We expect continued volatility in foreign exchange gains and losses each period based on fluctuations in exchange rates impacting our foreign currency exposures. +Loss on extinguishment of debt +We recognized loss on extinguishment of debt of $5.5 million for the year ended December 31, 2025 from the extinguishment of our 2019 Term Loans. See “ Note 10 — Debt ” for additional discussion on the refinancing of our 2019 Term Loans. +Other non-operating (expense) income – net +We recognized other non-operating expense, net of $5.7 million and other non-operating income, net of $2.9 million for the years ended December 31, 2025 and December 31, 2024, respectively. The change of $8.6 million was primarily due to costs related to the recent debt refinance, debt exchange and exchange offer, partially offset by increased interest income from the escrow account, where the gross proceeds from the offering of the 10.500% Senior Secured Notes are held. +Income taxes +The Company’s income tax expense decreased by $3.6 million to an expense of $43.9 million for the year ended December 31, 2025, as compared to $47.5 million for the year ended December 31, 2024. The Company’s effective income tax rate for the year ended December 31, 2025 is (27.0%), compared to 54.6% for the year ended December 31, 2024. The decrease in tax expense compared to the prior year is primarily due to changes in pre-tax income (loss) and valuation allowance. +58 +Table of Contents +Comparison of the Years Ended December 31, 2024 and 2023 +Consolidated Statements of Operations +(In thousands, except percentages) +(In thousands) Years Ended +December 31, increase (decrease) +2024 2023 $ change % change +Revenue $ 939,287 $ 916,555 $ 22,732 2.5 % +Operating expenses: +Cost of revenue (exclusive of depreciation and amortization) 253,068 250,249 2,819 1.1 % +Selling, general and administrative expenses 407,796 402,516 5,280 1.3 % +Depreciation 58,987 54,374 4,613 8.5 % +Amortization 2,306 24,069 (21,763) (90.4) % +Loss on litigation 20,491 116,051 (95,560) NM +Recovery of loss on litigation — (60,000) 60,000 NM +Other operating expenses – net 15,834 1,624 14,210 NM +Total operating expenses 758,482 788,883 (30,401) (3.9) % +Income from operations 180,805 127,672 53,133 41.6 % +Other (expense) income, net: +Interest expense (131,408) (126,884) (4,524) 3.6 % +(Loss) gain on fair value adjustment for swaps – net (1,459) (7,573) 6,114 (80.7) % +Foreign exchange (loss) gain – net 36,071 (23,772) 59,843 (251.7) % +Other non-operating (expense) income – net 2,946 3,652 (706) (19.3) % +Total other expense – net (93,850) (154,577) 60,727 (39.3) % +(Loss) income before income taxes 86,955 (26,905) 113,860 (423.2) % +Income tax benefit (expense) (47,483) 46,482 (93,965) (202.2) % +Net (loss) income $ 39,472 $ 19,577 $ 19,895 101.6 % +____________________ +NM - Not meaningful +Revenue by product +(In thousands, except percentages) +Year ended +December 31, increase / (decrease) +2024 % of revenue 2023 % of revenue $ change % change CN % change +Creative $ 552,828 58.9 % $ 578,739 63.1 % $ (25,911) (4.5) % (4.4) % +Editorial 345,932 36.8 % 320,643 35.0 % 25,289 7.9 % 7.7 % +Other 40,527 4.3 % 17,173 1.9 % 23,354 136.0 % 136.4 % +Total revenue $ 939,287 100.0 % $ 916,555 100.0 % $ 22,732 2.5 % 2.5 % +Certain prior year amounts have been reclassified to conform to the current year presentation. +For the year ended December 31, 2024, reported revenue was $939.3 million as compared to reported revenue of $916.6 million for the year ended December 31, 2023. On a reported basis for the year ended December 31, 2024, revenue +59 +Table of Contents +increased by 2.5% (2.5% CN) year over year. Foreign exchange movements did not impact reported revenue for the year ended December 31, 2024. +Creative revenue decreased on a reported basis 4.5% (4.4% CN) for the year ended December 31, 2024. The decrease for the year ended December 31, 2024 was driven by declines in our ALC credit sales and ultra packs, ALC Premium RF and iStock monthly subscriptions (decreased $33.6 million). These declines were largely driven by our continued focus on driving customers to our committed solutions, as well as reduced revenue from Agency customers, which are accounted for entirely within Creative revenue and purchase mainly on an ALC basis. Additionally, within our Creative committed solutions, there were increases in our iStock annual subscriptions (increased $15.8 million) which were partially offset by decreases in our Premium Access subscriptions (decreased $11.6 million). Additional impacts to committed solutions resulted from subscriber download patterns, with major events during the year skewing downloads more toward Editorial than Creative. +Editorial revenue increased on a reported basis 7.9% (7.7% CN) for the year ended December 31, 2024. The increase was driven by editorial subscriptions (increased $14.8 million), editorial assignments (increased $6.4 million) and editorial ALC (increased $5.6 million). Overall, the increase was spurred by growth in Sport, driven by quadrennial UEFA European Championship soccer tournament and the Paris 2024 Olympics coverage; News, propelled by the U.S. political spend; and finally Entertainment, as the prior year was impacted by the Hollywood strikes. Additional impacts to committed solutions resulted from subscriber download patterns, with major events during the year skewing downloads more toward Editorial than Creative. +Other revenue includes music licensing, digital asset management and distribution services, print sales, and data access and licensing revenues. Revenue for the year ended December 31, 2024 from our Other products increased on a reported basis by 136.0% (136.4% CN). The increase of $23.4 million is primarily driven by data access and licensing agreements, which typically result in a greater portion of revenue being recognized in an accelerated manner. +Revenue Recognition +The timing of our revenue recognition can be influenced by several factors, including the nature of the contract with the customer, and the Company’s estimates regarding unused content and customer download patterns. These factors can lead to variability in the timing and amount of revenue recognized in a given period. The weakening or strengthening of our reporting currency, the U.S. Dollar, during any given period compared to currencies we collect revenues in, most notably, the Euro and British pound, impacts our reported revenues. +Cost of revenue (exclusive of depreciation and amortization) +Cost of revenue for the year ended December 31, 2024 was $253.1 million (26.9% of revenue) compared to $250.2 million (27.3% of revenue) in the prior year. The change in cost of revenue as a percentage of revenue compared to the prior year was due primarily to revenue mix by product. Generally, cost of revenue rates vary modestly period over period based on changes in revenue mix by product, as royalty rates vary depending on the license model and use of content. +Selling, general and administrative expense +Reported SG&A expense increased by $5.3 million or 1.3% (1.2% CN) for the year ended December 31, 2024 as compared to the year ended December 31, 2023. SG&A fluctuations from the prior year include the following: +• increase of $4.3 million related to staff costs for the year ended December 31, 2024. The increase was driven by higher bonus and commission expense tied to Company performance, fringe benefits and salary and wages (increased $20.2 million), which were partially offset by a decrease in equity-based compensation (decreased $15.8 million). +• increase of $2.0 million related to travel and entertainment for the year ended December 31, 2024, primarily driven by higher travel expenses related to our coverage of the Paris 2024 Olympics and U.S. political events. +• decrease in marketing spend of 2.8% ($1.4 million) for the year ended December 31, 2024. For the year ended December 31, 2024, marketing spend as a percentage of revenue decreased to 5.0%, from the year ended December 31, 2023 ratio of 5.3%, which remains in line with historical trends. +Depreciation expense +60 +Table of Contents +For the year ended December 31, 2024, depreciation expense was $59.0 million an increase of $4.6 million or 8.5%. The increase is due to capital investments made that are primarily related to internal software development as we continue to innovate and invest in the design, user experience and performance of our websites. +Amortization expense +For the year ended December 31, 2024, amortization expense was $2.3 million which was a decrease of $21.8 million or 90.4% compared to the prior year. The decline was attributed to several of the Company’s intangible assets becoming fully amortized in the prior year. +Loss on litigation +For the year ended December 31, 2024, the Company recognized loss on litigation of $20.5 million compared to $116.1 million in the year ended December 31, 2023. The loss on litigation consists of the summary judgment amounts to lawsuits filed by former public warrant holders, interest on the summary judgment, legal fees, and amortization of fees related to appeal bond. The Company may continue to see these expenses as we navigate through the appeal of the judgment in the actions captioned by Alta Partners, LLC. V Getty Images Holdings, Inc., Case No. 1:22-cv-08916 and CRCM Institutional Master Fund (BVI) LTD. et al v. Getty Images Holdings, Inc., Case No. 1:23-cv-01074, and incur legal fees related to the additional warrant cases. +Recovery of loss on litigation +For the year ended December 31, 2023, the Company recognized recovery of loss on litigation of $60.0 million, which represented the limit of the Company’s third-party insurance coverage related to the lawsuits filed by former public warrant holders. There was no such recovery of loss on litigation for the year ended December 31, 2024. +Other operating expenses – net +Other operating expenses - net was $15.8 million for the year ended December 31, 2024, compared to $1.6 million in the year ended December 31, 2023. Impairment of a long-lived asset, acquisition costs, pre-acquisition Unsplash employment tax obligations and settlements of claims primarily drove the increase. We expect other operating expenses to fluctuate from period to period as this line item is heavily influenced by non-recurring events such as claims, settlements, and gains/losses on asset disposals. +Interest expense +We recognized interest expense of $131.4 million and $126.9 million for the year ended December 31, 2024 and December 31, 2023, respectively. Our interest expense primarily consisted of interest charges on our outstanding U.S. Dollar and Euro term loans (the “2019 Term Loans”), Senior Unsecured Notes (the “2019 Senior Unsecured Notes”), and our revolving credit facility, which remained undrawn, as well as the amortization of original issue discount on our Term Loans and amortization of deferred debt financing fees. The increase in interest expense from the prior year was primarily due to the maturity of our interest rate swaps. +(Loss) gain on fair value adjustment for swaps - net +We recognized fair value adjustment net losses for our swaps of $1.5 million for the year ended December 31, 2024, as our interest rate swaps matured in February 2024. For the year ended December 31, 2023 we recognized net losses of $7.6 million for our swaps. The losses were driven by changes in interest rates relative to the rates in our derivatives. +While we have experienced volatility in the fair value adjustments on our derivative instruments, we believe hedging allows us to reduce our exposure to interest rate and foreign currency risks. We will continue to evaluate opportunities to utilize swaps, forwards, and other instruments to mitigate financial risks associated with our business. +Foreign exchange (loss) gain – net +We recognized foreign exchange gains, net of $36.1 million for the year ended December 31, 2024, compared to net losses of $23.8 million for the year ended December 31, 2023. These changes are primarily driven by fluctuations in the +61 +Table of Contents +EUR related to our 2019 EUR Term Loans and 2025 EUR Term Loans, which resulted in a $28.4 million foreign currency gain. +We expect continued volatility in foreign exchange gains and losses each period based on fluctuations in exchange rates impacting our foreign currency exposures. +Other non-operating income – net +We recognized other non-operating income, net of $2.9 million and $3.7 million for the year ended December 31, 2024 and December 31, 2023, respectively. The increase was primarily due to higher interest income, driven by an increase in U.S. interest rates. We expect continued fluctuation in this line item based on market interest rates. +Income taxes +The Company’s income tax expense increased by $94.0 million to an expense of $47.5 million for the year ended December 31, 2024, as compared to a benefit of $46.5 million for the year ended December 31, 2023. The Company’s effective income tax rate for the year ended December 31, 2024 is 54.6%, compared to 172.8% for the year ended December 31, 2023. The increase in tax expense compared to the prior year is primarily due to changes in pre-tax income (loss) and a release of Ireland valuation allowance in the prior year. +Liquidity and Capital Resources +Our sources of liquidity are our existing cash and cash equivalents, cash provided by operations and amounts available under our revolving credit facility. As of December 31, 2025, 2024 and 2023, we had cash and cash equivalents of $90.2 million, $121.2 million and $136.6 million, respectively, and $150.0 million in availability under our unused revolving credit facility, which expires May 4, 2028. +Our principal liquidity needs include debt service, settlement of warrant litigation and capital expenditures, as well as those required to support working capital, internal growth, and strategic acquisitions and investments. +We expect existing cash and cash equivalents, cash provided by operations, and cash provided by financing activities , including amounts available under our revolving credit facility to be adequate to fund our operating activities and cash required for investing and financing activities for at least the next 12 months and thereafter for the foreseeable future. +During 2025, Getty Images managed its capital structure by: refinancing and extending its Term Loan maturities to 2030; completing the Permitted Debt Exchange Offer to exchange a portion of the 2025 USD Term Loans into 11.250% Senior Secured Notes; exchanging of its 2019 Senior Unsecured Notes for 2025 Senior Secured Notes to extend the maturities to 2028; and issuing 10.500% Senior Secured Notes in support of its proposed merger with Shutterstock, Inc. (each capitalized terms, as defined elsewhere in this Annual Report on Form 10-K) Please refer to “ Note 10 — Debt ” in our consolidated financial statements for more discussion on our debt refinance. +We may also be subject to losses as a result of legal proceedings that may be in excess of amounts of insurance coverage available. In particular, we have insurance coverage of $60.0 million for losses in respect of the Initial Warrant Litigation, the Follow-on Warrant Litigation (each as defined in “ Note 11 — Commitments and Contingencies ”) and any additional litigation that is filed based on related facts or circumstances, including legal fees and expenses. As of December 31, 2025, we had a remaining insurance recovery receivable related thereto of approximately $35.0 million, with related litigation reserves of $205.3 million. In the Initial Warrant Litigation, an Opinion was issued on January 15, 2026, by the United States Court of Appeals where the Second Circuit affirmed the Court’s opinion and judgment in all respects, with one judge dissenting. On February 19, 2026, the Company filed a petition for a rehearing by the Second Circuit. The Company has posted an appeal bond in respect of the Follow-on Warrant Litigation. To date, no portion of the judgments entered in the Initial Warrant Litigation or the Follow-on Warrant Litigation, has been paid. To the extent not reimbursed by insurance, we expect to fund any payments required for the resolution of pending legal proceedings with our sources of liquidity. See “ Note 11 — Commitments and Contingencies ” herein for additional discussions of the Initial Warrant Litigation and the Follow-On Warrant Litigation. +The Company has open tax audits in various jurisdictions and some of these jurisdictions require taxpayers to pay assessed taxes in advance or at the time of appealing such assessments. One such jurisdiction is Canada, where one of the +62 +Table of Contents +Company’s subsidiaries, iStockphoto ULC, received tax assessments from the Canada Revenue Agency (“CRA”) asserting additional tax is due. The position taken by the CRA is related to the transactions between iStockphoto ULC and other affiliates within the Getty Images group for the 2015 Canadian income tax return filed. The Company believes the CRA position lacks merit and is vigorously contesting these assessments through the appeal process, including engaging with the U.S. Competent Authority. +As part of the appeal process in Canada, the Company may be required to pay a portion of the assessment amount, which the Company estimates could be up to $19.7 million. Such required payment is not an admission that the Company believes it is subject to such taxes. The Company believes it is more likely than not it will prevail on appeal, however, if the CRA were to be successful in the appeal process, the Company estimates the maximum potential outcome could be up to $28.6 million. +Future cash needs +We expect to fund our ordinary course operating activities from existing cash and cash flows from operations and financing activities, including amounts drawn under our revolving credit facility, and believe that these sources of liquidity will be sufficient to fund our ordinary course operations and other planned investing activities for at least the next 12 months and thereafter for the foreseeable future. From time to time, we may evaluate potential acquisitions, investments and other growth and strategic opportunities. While we believe we have sufficient liquidity to fund our ordinary course operations for the foreseeable future, our sources of liquidity could be affected by current and future difficult economic conditions, payment of certain restructuring costs, reliance on key personnel, international risks, intellectual property claims, the resolution of pending or future tax audits or other factors described herein under “Potential Liability and Insurance” below and “Item 7A. Quantitative and Qualitative Disclosures About Market Risk .” +We may, from time to time, incur or increase borrowings under the revolving credit facility or issue new debt securities, if market conditions are favorable, to meet our future cash needs or to reduce our borrowing costs. We or our affiliates from time to time consider potential transactions intended to rationalize our consolidated balance sheet. In connection with any such transactions, we may, among other things, seek to retire our outstanding notes or loans through cash purchases and/or exchanges for equity or other securities, in open market purchases, privately negotiated transactions, tenders or otherwise. Such repurchases, exchanges, or other transactions, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. +Our liquidity may also be adversely affected by the resolution of pending or future tax audits and legal proceedings. See discussion above. We may be subject to tax liabilities in excess of amounts reserved for liabilities for uncertain tax positions on our consolidated balance sheets. In addition, certain jurisdictions in which we have current open tax audits require taxpayers to pay assessed taxes in advance of contesting, whether by way of litigation or appeal, an adverse determination or assessment by the relevant taxing authority. The amount of any such advance payment depends upon the amount in controversy and may be material, and payment of any such amount could adversely affect our liquidity. A jurisdiction that collects any such advance payment generally will repay such amounts if we ultimately prevail in the related litigation or appeal. See “ Note 11 — Commitments and Contingencies ” and “ Note 17 — Income Taxes ” in our consolidated financial statements included elsewhere in this report, for additional discussions of our pending tax audits and our uncertain tax positions and risks related thereto. +Cash Flows +Year Ended +December 31, increase (decrease) +(Dollars in thousands) 2025 2024 $ change % change +Net cash provided by operating activities $ 65,190 $ 118,320 $ (53,130) (44.9) % +Net cash used in investing activities (59,518) (72,488) 12,970 17.9 % +Net cash provided by/(used in) financing activities 576,170 (56,218) 632,388 1124.9 % +Effects of exchange rate fluctuations 18,161 (5,160) 23,321 452.0 % +____________________ +NM - Not meaningful +Operating Activities +63 +Table of Contents +Cash provided by operating activities is primarily comprised of net income (loss), as adjusted for non-cash items, and changes in operating assets and liabilities. Non-cash adjustments consist primarily of depreciation and amortization, unrealized gains and losses on our foreign denominated debt, equity-based compensation and deferred income taxes. +For the year ended December 31, 2025, cash provided by operating activities was $65.2 million as compared to cash provided by operating activities of $118.3 million for the year ended December 31, 2024. The decrease in cash provided by operating activities was primarily driven by Merger related costs, of which $45.7 million were paid in the year ended December 31, 2025. These costs were comprised mainly of professional services fees, including legal, advisory, accounting and tax fees. In addition, our cash provided by operating activities was impacted by changes in working capital, including reduced cash flows from the change in timing of collections of accounts receivable and the payments of accrued expenses, increased cash flows from the timing of payments for accounts payable and interest, and an increase in cash paid for taxes for the year ended December 31, 2025 as compared to the year ended December 31, 2024. +Investing Activities +The changes in cash flows from investing activities relate to purchases of property and equipment and internal software development as part of our ongoing efforts to innovate in the design, user experience, and performance of our websites. +For the years ended December 31, 2025 and 2024, cash used in investing activities was $59.5 million and $72.5 million, respectively. The decrease in cash used for investing activities was related to the acquisition of Motorsport Images LLC and Motorsport.com, Inc. in the prior year period. +Financing Activities +For the years ended December 31, 2025 and 2024, our financing activities provided $576.2 million and used $56.2 million of cash, respectively. Financing activities for the year ended December 31, 2025 included proceeds from debt resulting from issuance of the 2025 Term Loans and 10.500% Senior Secured Notes and proceeds from issuances of common stock in connection with equity-based compensation arrangements. These were offset by principal payments on our 2019 Term Loans, principal payments on our 2025 Term Loans, debt issuance and refinance costs. +Year Ended +December 31, increase (decrease) +(Dollars in thousands) 2024 2023 $ change % change +Net cash provided by operating activities $ 118,320 $ 132,716 $ (14,396) (10.8) % +Net cash used in investing activities (72,488) (56,999) (15,489) (27.2) % +Net cash used in financing activities (56,218) (45,350) (10,868) (24.0) % +Effects of exchange rate fluctuations (5,160) 8,089 (13,249) NM +____________________ +NM - Not meaningful +Operating Activities +Cash provided by operating activities is primarily comprised of net income, as adjusted for non-cash items, and changes in operating assets and liabilities. Non-cash adjustments consist primarily of depreciation, amortization, foreign currency gains and losses on our foreign denominated debt, and equity-based compensation. +For the year ended December 31, 2024, cash provided by operating activities was $118.3 million as compared to cash provided by operating activities of $132.7 million for the year ended December 31, 2023. The decrease in cash provided by operating activities was impacted by changes in working capital, including reduced cash flows from the change in timing of payments related to accounts payable, interest and taxes in addition to changes in deferred revenue, increased cash flows from the timing of payments for accrued expenses. +Investing Activities +64 +Table of Contents +The changes in cash flows from investing activities relate to purchases of property and equipment and internal software development as part of our ongoing efforts to innovate in the design, user experience, and performance of our websites. +For the years ended December 31, 2024 and 2023, cash used in investing activities was $72.5 million and $57.0 million, respectively. The increase in cash used for investing activities was driven by the acquisition of Motorsport Images LLC and Motorsport.com, Inc. as we continue to expand our depth and breadth of content services. +Financing Activities +For the years ended December 31, 2024 and 2023, our financing activities used $56.2 million and $45.4 million of cash, respectively. Financing activities for the year ended December 31, 2024 included debt issuance costs, principal payments on our 2019 Term Loans and cash paid for settlement of employee tax related to equity-based awards, partially offset by the proceeds from common stock issuance. +Contractual obligations, guarantees and other potentially significant uses of cash +A summary of contractual cash obligations as of December 31, 2025 were as follows: +(Dollars in thousands) +2026-2027 +2028-2029 +2030 and +thereafter +Total +Long-term indebtedness, including current portion and interest 1 +$ 1,148,331 $ 445,477 $ 997,955 $ 2,591,763 +Operating lease obligations 2 +16,873 12,355 12,472 41,700 +Minimum royalty guarantee payments to suppliers of content 3 +76,483 50,167 18,085 144,735 +IT Commitments 9,014 195 — 9,209 +Other commitments 17,714 985 415 19,114 +Total $ 1,268,415 $ 509,179 $ 1,028,927 $ 2,806,521 +____________________ +1 Interest payments are estimated based on interest rate curves valued as of December 31, 2025. +2 Offsetting operating lease payments will be immaterial receipts for subleased facilities. +3 Offsetting the minimum royalty guarantee payments to content suppliers will be minimum guaranteed receipts from content suppliers. +Capital expenditures +We have historically had a predictable level of capital expenditures, a significant portion of which has been discretionary and growth-related. Our capital expenditures have generally consisted of costs related to imagery and other content creation, capitalized labor for development of software, purchased computer hardware, and leasehold improvements. Content creation capital expenditures include capitalized internal and external labor for ingesting and editing creative content, content acquisition, buying content collections from photographers or Content Partners, and cameras, lenses and miscellaneous imaging equipment primarily for our editorial operations. Software includes computer software developed for internal use and consists of internal and external costs incurred during the application development stage of software development and costs of upgrades or enhancements that result in additional software functionality. +Off-balance sheet arrangements +From time to time, we may issue small amounts of letters of credit to provide credit support for leases, guarantees, and contractual commitments. The fair values of the letters of credit reflect the amount of the underlying obligation and are subject to fees competitively determined in the marketplace. As of December 31, 2025, 2024 and 2023, we had no material letters of credit outstanding or other off-balance sheet arrangements except for operating leases entered into in the normal course of business. +Effects of inflation and changing prices +We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such +65 +Table of Contents +higher costs through price increases. Our inability or failure to do so could harm our business and adversely affect our financial condition and results of operations. +Potential Liability and Insurance +We indemnify certain customers from claims related to alleged infringements of the intellectual property rights of third parties or misappropriation of publicity or personality rights of third parties, such as claims arising from copyright infringement or failure to secure model and property releases for images we license if such a release is required. The standard terms of these indemnifications require us to defend those claims upon notice and pay related damages, if any. We typically mitigate this risk by requiring all uses of licenses to be within the scope of our licenses, and by securing necessary model and property releases for Creative Stills content and by contractually requiring contributing photographers and other content partners to do the same prior to submitting any content to us, and by limiting damages/liability in certain circumstances. Additionally, we require all contributors and Content Partners, as well as companies that are potential acquisition targets to warrant that the content licensed to or purchased by us does not and will not infringe upon or misappropriate the rights of third parties. We also require content providers, including contributing photographers, Content Partners and sellers of businesses or image collections that we have purchased to indemnify us in certain circumstances where a claim arises in relation to an image they have provided or sold to us. Content Partners are also typically required to carry insurance policies for losses related to such claims and individual contributors are encouraged to carry such policies and we have insurance policies to cover litigation costs for such claims. We will record liabilities for these indemnifications if and when such claims are probable and the range of possible payments and available recourse from content partners can be estimated, as applicable. Historically, the exposure to such claims has been immaterial, as were the recorded liabilities for intellectual property infringement at December 31, 2025, 2024 and 2023. As such, management believes the estimated fair value of these liabilities is minimal. +In the ordinary course of business, we also enter into certain types of agreements that contingently require us to indemnify counterparties against third-party claims. These may include: +• agreements with vendors and suppliers, under which we may indemnify them against claims arising from our use of their products or services; +• agreements with customers other than those licensing images, under which we may indemnify them against claims and uncollectible trade accounts receivable arising from their use of our products or services in their markets; +• agreements with agents, delegates and distributors, under which we may indemnify them against claims arising from their distribution of our products or services; +• real estate and equipment leases, under which we may indemnify lessors against third-party claims relating to use of their property; +• agreements with directors and officers, under which we indemnify them to the full extent allowed by Delaware law against claims relating to their service to us; and +• agreements with purchasers of businesses we have sold, under which we may indemnify the purchasers against claims arising from our operation of the businesses prior to sale. +The nature and terms of these indemnifications vary from contract to contract, and generally a maximum obligation is not stated. Because management does not believe a material liability is probable, no related liabilities were recorded at December 31, 2025, 2024 and 2023. We are subject to a variety of claims and suits that arise from time to time in the ordinary course of our business. Although management currently believes that resolving claims against us, individually or in aggregate, will not have a material adverse impact on our financial statements, these matters are subject to inherent uncertainties and management’s judgment about these matters may change in the future. Additionally, we hold insurance policies that mitigate potential losses arising from certain indemnifications, and historically, significant costs related to performance under these obligations have not been incurred. +Income taxes +We account for income taxes and accruals for uncertain tax positions using the asset and liability approach. Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management’s best assessment of current and future taxes to be paid. Our judgments, assumptions, and estimates relative to the current provision for income taxes take into account current tax laws, our interpretation of current tax laws and possible outcomes of future audits conducted by foreign and domestic tax authorities. Changes in tax law or our interpretation of tax laws and future tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements. +66 +Table of Contents +We conduct operations on a global basis and are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in evaluating and estimating our provision and accruals for these taxes. Our effective tax rate is subject to significant variation due to several factors, including variability in accurately predicting our taxable income and the geographical mix of our pre-tax earnings. In addition, we are subject to audit in various jurisdictions, and such jurisdictions may assess additional income tax liabilities. We record unrecognized tax benefits as liabilities in accordance with ASC 740, “Income Taxes” (“ASC 740”) and adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Such amounts are based on management’s judgment and best estimate as to the ultimate outcome of tax audits. +Critical accounting policies and estimates +The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses reported during the period. Some of the estimates and assumptions that require the most difficult judgments are: +• the assumptions used to estimate unused capped subscription-based and credit-based products; +• the assumptions used to allocate transaction price to multiple performance obligations for uncapped subscription arrangements; +• the assumptions used to estimate accrued litigation reserves and insurance recoveries; and +• the appropriateness of the amount of accrued income taxes, including the potential outcome of future tax consequences of events that have been recognized in the consolidated financial statements as well as the deferred tax asset valuation allowances. +These judgments are inherently uncertain which directly impacts their valuation and accounting. Actual results and outcomes may differ from our estimates and assumptions. +Revenue recognition +Revenue is derived principally from licensing rights to use images, video footage and music that are delivered digitally. Digital content licenses are generally purchased on a monthly or annual subscription basis, whereby a customer either pays for a predetermined quantity of content or for access to our content library that may be downloaded over a specific period of time, or, on a transactional basis, whereby a customer pays for individual content licenses at the time of download. Also, a significant portion of revenue is generated through the sale and subsequent use of credits. Various amounts of credits are required to license digital content. +The Company recognizes revenue under the core principle to depict the transfer of control to our customers in an amount reflecting the consideration to which we expect to be entitled. In order to achieve that core principle, we apply the following five-step approach: (i) identify the contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when a performance obligation is satisfied. +The recognition and measurement of revenue requires the use of judgments. Specifically, judgment is used in identifying the performance obligation included in each contract. At contract inception, we assess the product offerings in our contracts to identify performance obligations that are distinct. A performance obligation is distinct when it is separately identifiable from other items and if a customer can benefit from it on its own or with other resources that are readily available to the customer. +For digital content licenses, we recognize revenue on capped subscription-based, credit-based sales and single image licenses when content is downloaded, at which time the license is provided. +Litigation reserves and insurance recoveries +The Company recognizes a charge for litigation reserves when a loss is probable, and the amount is material and reasonably determinable. The amount accrued represents the Company’s best estimate of the loss, including related interest if applicable or, if no best estimate within a range of outcomes exists, the minimum amount in the range is reserved and high end of the range is disclosed. If it is determined that a loss is only reasonably possible or that a loss is probable but the amount is not reasonably estimable, the Company discloses the nature of the possible loss and gives an estimate of the +67 +Table of Contents +possible range of loss. Our estimates and judgments could change based on new information, changes in laws or regulations, or the outcome of legal proceedings, settlements, or other factors. If different estimates and judgments were applied with respect to these matters, it is likely that reserves would be recorded for different amounts. The reserve for litigation is accrued in “ Litigation Reserves ” on the consolidated balance sheets and related legal and professional fees associated with the litigation are included in “ Accounts Payable ” or “ Accrued Liabilities ” on the consolidated balance sheets. +The Company also recognizes the benefit of recoveries of losses on litigation when it is probable that such recoveries will be received. These recoveries are typically receivable from our third-party insurance carriers for legal claims and related costs that are included in “ Loss on Litigation ” on the consolidated statement of operations. +Income taxes +The Company computes income taxes and accruals for uncertain tax positions under the asset and liability method in accordance with ASC 740 for accounting for income taxes and uncertain tax positions. Deferred income taxes are provided for the temporary differences between the consolidated financial statement carrying amounts and the tax basis of the Company’s assets and liabilities and operating loss and tax credit carryforwards. The Company establishes a valuation allowance for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize their benefits or future deductibility is uncertain. Periodically, the valuation allowance is reviewed and adjusted based on management’s assessments of realizable deferred tax assets. The Company accounts for the global intangible low-tax income (“GILTI”) earned by foreign subsidiaries included in gross U.S. taxable income in the period incurred. +Recent Accounting Pronouncements +Please refer to “ Note 2 — Summary of Significant Accounting Policies ” in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. +Key Performance Indicators and Non-GAAP Financial Measures +In addition to evaluating the Company’s performance on a GAAP basis, we use the below key performance indicators (“KPIs”) and financial measures that are not calculated according to generally accepted accounting principles (“GAAP”). We believe the non-GAAP measures of Currency Neutral (“CN”) revenue growth (expressed as a percentage) and Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (“Adjusted EBITDA”), Adjusted EBITDA less capex, Adjusted EBITDA margin, Adjusted Net Income and Adjusted Earnings Per Share are useful in evaluating our operating performance. These KPIs and non-GAAP financial measures help us monitor and evaluate the effectiveness of our operations and evaluate period-to-period comparisons. Management believes that these KPIs and non-GAAP financial measures help illustrate underlying trends in our business. We use KPIs and non-GAAP financial measures to establish budgets and operational goals (communicated internally and externally), manage our business and evaluate our performance. We also believe that management and investors benefit from referring to our KPIs and non-GAAP financial measures as supplemental information in assessing our performance and when planning, forecasting, and analyzing future periods. We believe our KPIs and non-GAAP financial measures are useful to investors both because they allow for greater transparency with respect to financial measures used by management in their financial and operational decision-making and also because investors and the analyst community use them to help evaluate the health of our business. The non-GAAP financial information is presented for supplemental informational purposes only, and should not be considered a substitute for financial information presented. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most comparable GAAP financial measures. +Key Performance Indicators +Our KPIs outlined below are the metrics that provide management with the most immediate understanding of the drivers of business performance and our ability to deliver shareholder return, track to financial targets and prioritize customer satisfaction. Our KPIs are reported on a trailing, or last, 12-month basis (“LTM”), which we believe provides a more current view of the Company’s operational performance than year-to-date figures. +68 +Table of Contents +Years Ended December 31, +2025 2024 2023 +LTM total purchasing customers (thousands) +689 717 799 +LTM total active annual subscribers (thousands) +278 314 236 +LTM paid download volume (millions) 1 +92 93 95 +LTM annual subscriber revenue retention rate 89.9 % 92.9 % 92.4 % +Image collection (millions) +609 572 535 +Video collection (millions) 36 32 28 +LTM video attachment rate +15.9 % 16.5 % 14.1 % +____________________ +1 Excludes downloads from Editorial Subscriptions, Editorial feeds and certain API structured deals, including bulk unlimited deals. Excludes downloads related to an agreement signed with Amazon, as the magnitude of the potential download volume over the deal term could result in significant fluctuations in this metric without corresponding impact to revenue in the same period. +Total purchasing customers +Total purchasing customers is defined as the count of total customers who made a purchase within the reporting period based on billed revenue. This metric provides management and investors with an understanding of both how we are growing our purchasing customer base and combined with revenue, an understanding of our average revenue per purchasing customer. This metric differs from total customers, which is a count of all downloading customers, irrespective of whether they made a purchase in the period. +Total purchasing customers decreased to 689 thousand for the LTM ended December 31, 2025, compared to 717 thousand and 799 thousand for the LTM ended December 31, 2024 and 2023, respectively. This decrease can be largely attributed to a decline in iStock subscriptions with smaller download volumes, where there has been some continued impact from the discontinuation of the free-trial customer acquisition program in June, 2025. Importantly, more broadly across subscriptions, the ongoing shift into more committed solutions continues to have a positive impact on annual revenue per purchasing customer, which grew by 8.7% to $1,424 for the LTM ended December 31, 2025 from $1,310 for the LTM ended December 31, 2024. +Total active annual subscribers +Total active annual subscribers is the count of customers who were on an annual subscription product during the LTM reporting period. This metric provides management and investors with visibility into the rate at which we are growing our annual subscriber base and is highly correlated to the percentage of our revenue that comes from annual subscription products. +Total active annual subscribers decreased to 278 thousand for the LTM ended December 31, 2025 compared to 314 thousand for the LTM ended December 31, 2024 and increased from 236 thousand for the LTM ended December 31, 2023. Annual subscriber declines compared to the LTM ended December 31, 2024 was driven by iStock subscriptions, where there has been some continued impact from the discontinuation of the free-trial customer acquisition program with declines partially offset by increases in Unsplash+ subscriptions. +Paid download volume +Paid download volume is a count of the number of paid downloads by our customers in the reported period. This metric informs both management and investors about the volumes at which customers are engaging with our content over time. +Paid download volume decreased slightly for the LTM ended December 31, 2025, as compared to the LTM ended December 31, 2024 and 2023. We believe that the steady demand in paid download volumes during the last twelve month period that had a myriad of macro-economic challenges, is a strong outcome and signals that our content continues to meet our customers evolving needs. +69 +Table of Contents +Annual subscriber revenue retention rate +The annual subscriber revenue retention rate calculates retention of total revenue for customers on annual subscription products, comparing the customer’s total booked revenue (inclusive of spend for annual subscription and non-annual subscription products) in the LTM period to the prior twelve month period. For example, LTM annual subscriber booked revenue (the amount of revenue invoiced to customers) for the period ended December 31, 2025 was 89.9% of revenue from these customers in the period ended December 31, 2024. The revenue retention rate informs management and investors on the degree to which we are maintaining or growing revenue from our annual subscriber base. As we continue to focus on growing subscriptions as a percentage of total revenue, revenue retention for these customers is a key driver of the predictability of our financial model with respect to revenue. +The annual subscriber revenue retention rate decreased for the LTM ended December 31, 2025, as compared to the LTM ended December 31, 2024 and 2023. The decline in revenue retention was primarily attributable to the absence of certain high-impact events, tied to political, sporting and certain one-time spend, that occurred in the prior year that did not recur during the current year period. As these events are on a multi-year cycle, their absence in the current period led to a year-over-year decline in revenue retention. +Image and Video collection +Image and Video collection is a count of the total images and videos in our content library as of the reporting date. Management and investors can view growth in the size, both depth and breadth, of the content library as an indication of our ability to continue to expand our content offering with premium, high quality, contemporary content to meet the evolving needs of our customers. Image and video collections increased during the LTM ended December 31, 2025 as compared to LTM periods ending December 31, 2024 and 2023. Our image collection grew 6.5% to 609 million images as of December 31, 2025 compared to 572 million as of December 31, 2024. Our video collection grew 13.0% to 36 million videos over the same period. +Video attachment rate +Video attachment rate is a measure of the percentage of total paid customer downloaders who are video downloaders. Customer demand for video content continues to grow and represents a significant opportunity for revenue growth for Getty Images. The video attachment rate provides management and investors with an indication of our customers’ level of engagement with our video content offering. Our expansion of video across our subscription products is focused on further increasing the attachment rate over time. +The video attachment rate decreased to 15.9% in the LTM ended December 31, 2025 from 16.5% in the LTM ended December 31, 2024 and increased from 14.1% in the LTM ended December 31, 2023. The video attachment rate provides management and investors with an indication of our customers’ level of engagement with our video content offering. Our expansion of video across our subscription products is focused on further increasing the attachment rate over time. The strong video attachment rates reflect increased customer awareness of our video offering, improved search and site prominence for video content, and upselling of video into subscriptions. The decline from the prior year LTM period is driven by lower volumes of video downloaders on our iStock platform. +Non-GAAP Financial Measures +Currency Neutral Revenue +Currency Neutral revenue changes (expressed as a percentage) exclude the impact of fluctuating foreign currency values pegged to the U.S. Dollar between comparative periods by translating all local currencies using the current period exchange rates. We consistently apply this approach to revenue for all countries where the functional currency is not the U.S. Dollar. We believe that this presentation provides useful supplemental information regarding changes in our revenue not driven by fluctuations in the value of foreign currencies. +Reconciliation of Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted EBITDA less Capex +We define Adjusted EBITDA as net income before interest, taxes, depreciation, amortization, equity-based compensation, other operating expenses-net, and certain other expenses not directly related to the core operations of our +70 +Table of Contents +business. A reconciliation is provided below to the most comparable financial measure stated in accordance with U.S. GAAP. We define Adjusted EBITDA Margin as the ratio of Adjusted EBITDA to revenue (in thousands): +Year Ended December 31, +2025 2024 2023 +Net income (loss) $ (206,183) $ 39,472 $ 19,577 +Add/(less) non-GAAP adjustments: +Depreciation and amortization 64,763 61,293 78,443 +Loss on litigation, net of recovery 100,498 20,491 56,051 +Other operating expenses – net 54,830 15,834 1,624 +Interest expense 156,175 131,408 126,884 +Fair value adjustments, foreign exchange and other non operating (expense) income — net 1 +84,574 (37,558) 27,693 +Loss on extinguishment of debt 5,474 — — +Income tax expense (benefits) 43,876 47,483 (46,482) +Equity-based compensation expense, net of capitalization 16,856 21,848 37,652 +Adjusted EBITDA 320,863 300,271 301,442 +Capex 59,518 57,450 56,998 +Adjusted EBITDA less capex $ 261,345 $ 242,821 $ 244,444 +Net income (loss) margin (21.0) % 4.2 % 2.1 % +Adjusted EBITDA Margin 32.7 % 32.0 % 32.9 % +____________________ +1 Fair value adjustments for our swaps and foreign currency exchange contracts, foreign exchange gains (losses) and other insignificant non-operating related (expenses) income. +Reconciliation of Adjusted Net Income and Adjusted Earnings Per Share +Adjusted Net Income and Adjusted Earnings Per Share are non-GAAP financial measures that we use to provide a more meaningful comparison of our core operating results from period to period. These measures exclude the impact of certain items that we believe are not indicative of our core operating performance. These adjustments include, but are not limited to, foreign exchange gains (losses), net and other non-recurring items. The following table reconciles Net (Loss) +71 +Table of Contents +Income and (Loss) Earnings Per Share, the most directly comparable GAAP measures, to Adjusted Net (Loss) Income and Adjusted (Loss) Earnings Per Share for the periods presented (in thousands, except share and per share data): +Year Ended +December 31, +2025 2024 2023 +Net (loss) income $ (206,183) $ 39,472 $ 19,577 +Add/(less) non-GAAP adjustments: +Equity-based compensation expense 16,856 21,848 37,652 +Tax effect of equity-based compensation expense 1 +(4,370) (5,574) (9,497) +Loss on litigation 100,498 20,491 56,051 +Tax effect of loss on litigation, net of recovery 1 +(26,771) (5,333) (14,474) +Foreign exchange 78,882 (36,071) 23,772 +Tax effect on foreign exchange (loss) gain – net 1 +(23,035) 10,320 (6,064) +Acquisition related costs 47,095 5,234 — +Tax effect of acquisition related costs 1 +(12,481) (1,362) — +Stability AI judgment 5,775 — — +Tax effect of Stability AI judgment (1,538) — — +Loss on debt extinguishment and expensed financing costs 1 +19,373 — 194 +Tax effect of loss on debt extinguishment and expensed financing costs (5,160) — (50) +Adjusted net (loss) income $ (11,059) $ 49,025 $ 107,161 +Earnings per share: +Diluted earnings per share $ (0.50) $ 0.10 $ 0.05 +Adjusted diluted earnings per share $ (0.03) $ 0.12 $ 0.26 +Weighted average diluted shares 414,344,822 414,870,801 411,495,025 +1 Statutory tax rates used to calculate the tax effect of the adjustments. +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +Interest rate market risk +For the year ended December 31, 2025, we were exposed to changes in EURIBOR interest rates on the 2025 EUR Term Loans, subject to a minimum floor of 0.00%. As of December 31, 2025, the principal outstanding of our 2025 EUR Term Loans was €423.5 million. Based on the principal outstanding as of December 31, 2025, each one eighth percentage point increase in the EURIBOR rate would have correspondingly increased our interest expense on the senior secured credit facilities by approximately $0.6 million per annum. +On February 21, 2025, Getty Images amended the Existing Credit Agreement, pursuant to which, among other things, the 2019 USD Term Loans were repaid in full and 2025 USD Term Loans were incurred. The 2025 USD Term Loans are subject to a fixed interest rate. Prior to the Amendment Effective Date, Getty Images was exposed to fluctuations in Adjusted Term SOFR on the 2019 USD Term Loans. +Foreign currency market risk +We are exposed to foreign currency risk by virtue of our international operations. For each of the years ended December 31, 2025 and 2024, we derived approxima tely 44% of ou r revenue from operations outside the United States. Getty Images and its subsidiaries enter into transactions that are denominated in currencies other than Getty Images’ functional currency, including the Euro and British pounds. Some of these transactions result in foreign currency +72 +Table of Contents +denominated assets and liabilities that are revalued each month. Upon revaluation, transaction gains and losses are generated, which, with the exception of those related to long-term intercompany balances, are reported as exchange gains and losses in our Consolidated Statements of Operations in the periods in which the exchange rates fluctuate. Transaction gains and losses on foreign currency denominated long-term intercompany balances for which settlement is not planned or anticipated in the foreseeable future, are reported in “ Accumulated other comprehensive loss ” in our Consolidated Balance Sheets. +Transaction gains and losses arising from revaluation of assets and liabilities denominated in the same foreign currencies may offset each other, in part, acting as a natural hedge. Where our assets and liabilities are not naturally hedged, we may enter into non-exotic foreign currency exchange contracts to reduce our exposure to transaction gains and losses. These foreign exchange contracts are generally up to eighteen months in original maturity and primarily require the sale of either the Euro or British Pounds and the purchase of U.S. Dollars. The contracts during the current period have not been designated as hedges as defined by ASC 815, “ Derivatives and Hedging ,” and therefore gains and losses arising from revaluation of these forward contracts are recorded as “Foreign exchange gain (loss) – net” in our Consolidated Statements of Operations in the periods in which the exchange rates fluctuate. These gains and losses generally offset, at least in part, the gains and losses of the underlying exposures that are being hedged. +The statements of operations of foreign subsidiaries are translated into U.S. Dollars, our reporting currency, at the prior month’s average daily exchange rate. When these exchange rates change from period to period, they cause fluctuations in reported results of operations that are not necessarily indicative of fundamental company operating performance but instead may reflect the performance of foreign currencies. +Item 8. Financial Statements and Supplementary Data. +The information required by this item is incorporated by reference to the consolidated financial statements and accompanying notes set forth on pages F-2 throu gh F-43 of this Annual Report on Form 10-K. +Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. +None. +Item 9A. Controls and Procedures. +Evaluation of Disclosure Controls and Procedures +We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well-designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based upon the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2025, our disclosure controls and procedures were effective in accomplishing their objectives at a reasonable assurance level. +Management’s Report on Internal Control over Financial Reporting +Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal controls over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal controls over financial reporting may not prevent or detect all misstatements. No evaluation of controls can provide absolute assurance that misstatement due to error or fraud will not occur or that all control issues or instances of fraud have been detected. +Our management conducted an evaluation of the effectiveness of our internal controls over financial reporting based on the framework and criteria established in Internal Control – Integrated Framework (2013), issued by the +73 +Table of Contents +Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that, as of December 31, 2025, our internal controls over financial reporting were effective. +As we are an “emerging growth company” and “smaller reporting company,” we are exempt from the requirement to obtain an attestation report from our independent registered public accounting firm on the assessment of our internal controls pursuant to Sarbanes-Oxley Act of 2002, and this Annual Report does not include such attestation report. +Changes in Internal Control over Financial Reporting +There were no changes in our internal controls over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, that occurred during the period covered by this Annual Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. +Item 9B. Other Information. +Insider Trading Arrangements and Policies +Other than described in the table below, during the fiscal quarter ended December 31, 2025, none of our directors and officers (as defined in Section 16a-1(f) of the Securities Exchange Act of 1934, as amended) adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” as each term is defined in Item 408(a) of Regulation S-K). The trading arrangement described below was entered into during an open insider trading window and was in compliance with our insider trading policies and procedures. Actual sale transactions will be disclosed publicly in filings with the SEC in accordance with applicable securities laws, rules, and regulations. +Trading Arrangement +Name and Title Action Date Adopted/ Terminated Rule 10b5-1 Total Shares to be Sold Expiration Date +Michael Teaster , Senior Vice President, Chief of Staff +Adopt 11/12/2025 1 X 2 06/30/2026 +(1) The plan was adopted on the date set forth in the table and has an effective date of February 11, 2026. +(2) Mr. Teaster’s 10b5-1 plan provides for the sale of up to 169,000 shares of Class A common stock, plus the sale of net shares of Class A common upon exercise of up to 786,000 outstanding options. . +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not Applicable. +1 +2 +74 +Table of Contents +PART III +Item 10. Directors, Executive Officers and Corporate Governance +The information required by this item will be included under the caption “Proposal 1: Election of Directors,” “Continuing Directors,” “Executive Officers,” “Corporate Governance,” “Committees of the Board” and “Delinquent Section 16(a) Reports” of our Proxy Statement for the 2026 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2025 (the “Proxy Statement”) and is incorporated herein by reference. Additionally, a list of our executive officers and directors appears below. +Further, the Company has adopted a Code of Conduct and Business Ethics applicable to its directors, executive officers and employees, including its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions that complies with the rules and regulations of the NYSE. The Code of Conduct and Business Ethics codifies the business and ethical principles that govern all aspects of the Company’s business. A copy of the Code of Conduct and Business Ethics has been filed with the SEC and is provided on our website, gettyimages.com. The Company will disclose on its website all disclosures that are required by law or the NYSE listing standards concerning any amendments to or waivers of certain provisions of its Code of Conduct and Business Ethics. The information on any of our websites is deemed not to be incorporated in this Annual Report. +Executive Officers and Board of Directors +The following persons are the members of our Board of Directors and our executive officers as of the date of this Annual Report: +75 +Table of Contents +Name Age Position +Executive Officers +Craig Peters 56 Chief Executive Officer, Director (Class III) +Mikael Cho 40 Senior Vice President, CEO, Unsplash +Grant Farhall 50 Senior Vice President, Chief Product Officer +Gene Foca 60 Senior Vice President, Chief Marketing and Revenue Officer +Nate Gandert 52 Senior Vice President, Chief Technology Officer +Chris Hoel 54 Vice President, Chief Accounting Officer +Kjelti Kellough 52 Senior Vice President, General Counsel +Jennifer Leyden 52 Senior Vice President, Chief Financial Officer +Ken Mainardis 54 Senior Vice President, Global Content +Peter Orlowsky 57 Senior Vice President, Strategic Development +Michael Teaster 59 Senior Vice President, Chief of Staff +Jerry Jenkins 58 Senior Vice President, Chief Human Resources Officer +Daine Weston 38 Senior Vice President, Ecommerce +Non-Employee Directors +Mark Getty, self-employed, serving in various capacities including Trustee and director of various Getty family entities 65 Chair (Class II) +Patrick Maxwell, Private Equity Management 60 Director (Class I) +James Quella, self-employed 76 Director (Class I) +Jeffrey Titterton, Chief Marketing Officer, Stripe, Inc. 53 Director (Class I) +Chinh Chu, Senior Managing Director and Founder, CC Capital Partners, LLC 59 Director (Class II) +Brett Watson, President, Koch Equity Development LLC 45 Director (Class II) +Tracy Knox, self-employed 54 Director (Class II) +Michael Harris, Managing Director of Koch Equity Development LLC 46 Director (Class III) +Hilary Schneider, Chief Executive Officer of SimpliSafe, Inc. 64 Director (Class III) +Item 11. Executive Compensation +The information required by this item will be included under the caption “ Executive Compensation ” and “ Compensation Committee Interlocks and Insider Participation ” of the Proxy Statement and is incorporated herein by reference. +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The information required by this item will be included under the caption “ Security Ownership of Certain Beneficial Owners and Management ” and “ Executive Compensation-Securities Authorized for Issuance Under Equity Compensation Plans ” of the Proxy Statement and is incorporated herein by reference. +Item 13. Certain Relationships and Related Transactions, and Director Independence +The information required by this item will be included under the caption “ Certain Relationships and Related Person Transactions ” and “ Corporate Governance-Director Independence ” of the Proxy Statement and is incorporated herein by reference. Additional information regarding certain related party balances and transactions is included in “ Note 2 — Summary of Significant Accounting Policies ” to the consolidated financial statements included in this Annual Report. +76 +Table of Contents +Item 14. Principal Accountant Fees and Services +The information required by this item will be included under the caption “ Independent Registered Pubic Accounting Firm Fees and Other Matters ” of the Proxy Statement and is incorporated herein by reference. +77 +Table of Contents +PART IV +Item 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES +(a) The following documents are filed as part of this annual report. +1 Financial Statements +Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) +F- 1 +Consolidated Balance Sheets +F- 2 +Consolidated Statements of Operations +F- 3 +Consolidated Statements of Comprehensive ( Loss) Income +F- 4 +Consolidated Statements of Stockholders’ Equity +F- 5 +Consolidated Statements of Cash Flows +F- 6 +Notes to Consolidated Financial Statements +F- 7 +2 Financial Statement Schedules +All schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. +3 Exhibits +Exhibit Number Description +2.1† +Business Combination Agreement by and among CC Neuberger Principal Holdings II, Griffey Global Holdings, Inc. and the other parties thereto, dated as of December 9, 2021 (incorporated by reference to Exhibit 2.1 of Vector Holding, LLC’s Registration Statement on Form S-4, filed with the SEC on June 29, 2022) +2.2† +Agreement and Plan of Merger, dated as of January 6, 2025, by and among Getty Images, Merger Sub 2, Merger Sub 3, Shutterstock, HoldCo and Merger Sub 1 (incorporated by reference to Exhibit 2.1 of the Company’s Form 8-K filed with the SEC on January 7, 2025) +3.1 +Amended and Restated Certificate of Incorporation of Getty Images Holdings, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K, filed with the SEC on June 18, 2024) +3.2 +Amended and Restated By-Laws of Getty Images Holdings, Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Form 8-K, filed with the SEC on June 18, 2024) +4.1 +Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of Vector Holding, LLC’s Registration Statement on Form S-4, filed with the SEC on June 29, 2022) +4.2 +Indenture, dated February 19, 2019, between Getty Images, Inc. and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.2 of the Company's Form 10-K, filed with the SEC on March 14, 2023) +4.3 +First Supplemental Indenture, dated February 19, 2019, to the Indenture, dated as of February 19, 2019, between Getty Images, Inc. and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.3 of the Company's Form 10-K, filed with the SEC on March 14, 2023) +4.4 +Second Supplemental Indenture, dated March 29, 2023, to the Indent ure , dated as of February 19, 2019, between Getty Images, Inc., Getty Images Holdings, Inc. and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.4 of the Company’s Annual Report on Form 10-K, filled with SEC on March 15, 2024 ) +4.5 +Third Supplemental Indenture, dated as of October 21, 2025, to the Indenture, dated as of February 19, 2019, by and among Getty Images, Inc., the guarantors party thereto and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.4 to the Company’s Form 8-K, filed with the SEC on October 21, 2025) +78 +Table of Contents +4.6 +Indenture, dated as of May 5, 2025, by and among Getty Images, Inc. the guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee and notes collateral agent (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, filed with the SEC on May 6, 2025) +4.7 +First Lien Intercreditor Agreement, dated as of May 5, 2025, among Getty Images and Abe Investment Holdings, Inc., as Borrowers, certain subsidiaries of Getty Images, Inc., as grantors, JPMorgan Chase Bank, N.A., as credit agreement representative and credit agreement collateral agent, and U.S. Bank Trust Company, National Association, as trustee and notes collateral agent (incorporated by reference to Exhibit 4.3 of the Company’s Form 8-K, filed with the SEC on May 6, 2025) +4.8 +Indenture, dated as of October 21, 2025, by and among Getty Images, Inc., the guarantors party thereto and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, filed with the SEC on October 21, 2025) +4.9 +First Supplemental Indenture, dated as of October 21, 2025, by and among Getty Images, Inc., the guarantors party thereto and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K, filed with the SEC on October 21, 2025) +4.10 +Indenture, dated as of October 21, 2025, by and among Getty Images, Inc., the guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee and collateral agent (incorporated by reference to Exhibit 4.5 to the Company’s Form 8-K, filed with the SEC on October 21, 2025) +4.11 +Escrow Agreement, dated as of October 21, 2025, by and among U.S. Bank National Association, as Escrow Agent, U.S. Bank Trust Company, National Association, as trustee, and Getty Images, Inc. (incorporated by reference to Exhibit 4.7 to the Company’s Form 8-K, filed with the SEC on October 21, 2025) +4.12 +Description of Registrant’s securities (incorporated by reference to Exhibit 4.4 of the Company’s Form 10-K on March 14, 2023) +10.1 +Registration Rights Agreement, by and among Getty Images Holdings, Inc., CC Neuberger Principal Holdings II, the Independent Directors (as defined therein), Getty Investments L.L.C., Koch Icon Investments, LLC and certain equity holders of Getty Images, dated July 22, 2022 (incorporated by reference to Exhibit 10.8 of the Company’s Current Report on Form 8-K, filed with the SEC on July 28, 2022) +10.2^ +Form of Indemnification Agreement (incorporated by reference to Exhibit 10.9 of the Company’s Current Report on Form 8-K, filed with the SEC on July 28, 2022) +10.3 +Stockholders Agreement, by and among Vector Holdings, LLC and each of the persons listed on Schedule A thereto, dated as of December 9, 2021 (incorporated by reference to Exhibit 10.7 of Vector Holding, LLC’s Registration Statement on Form S-4, filed with the SEC on June 29, 2022) +10.4 +Incremental Commitment Amendment and Second Amendment to Credit Agreement, dated as of May 4, 2023, by and among Abe Investment Holdings, Inc., Getty Images, Inc., J.P. Morgan Chase Bank N.A., as administrative agent, as an L/C Issuer (as defined therein) and as Swing Line Lender (as defined therein), the lenders party thereto and the other loan parties party thereto (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed with the SEC on May 10, 2023) +10.5* +Fourth Amendment to Credit Agreement, dated as of December 22, 2025, by and among Abe Investment Holdings, Inc., Getty Images, Inc., J.P. Morgan Chase Bank N.A., as administrative agent, the Revolving Credit Lenders (as defined therein) party thereto and the other loan parties party thereto. +10.6 +Amendment No. 1, dated as of August 27, 2025, to Stockholders Agreement, dated as of December 9, 2021 by and among Getty Images Holdings, Inc. and each of the stockholders party thereto (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q, filed with the SEC on November 10, 2025) +10.7 +Second Incremental Commitment Amendment and Third Amendment to Credit Agreement, dated as of February 21, 2024, by and among Abe Investment Holdings, Inc., Getty Images, Inc., J.P. Morgan Chase Bank N.A., as administrative agent, as L/C Issuer and as swing line lender, the lenders party thereto and the other loan parties party thereto (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed with the SEC on February 21, 2025) +10.8^ +Getty Images Holdings, Inc. Earn Out Plan dated as of July 21, 2022 (incorporated by reference to Exhibit 10.11 of the Company’s Current Report on Form 8-K, filed with the SEC on July 28, 2022) +79 +Table of Contents +10.9^ +Getty Images Holdings, Inc. 2022 Employee Stock Purchase Plan dated as of July 21, 2022 (incorporated by reference to Exhibit 10.12 of the Company’s Current Report on Form 8-K, filed with the SEC on July 28, 2022) +10.10^ +Getty Images Holdings, Inc. 2022 Equity Incentive Plan dated as of July 21, 2022 (incorporated by reference to Exhibit 10.13 of the Company’s Current Report on Form 8-K, filed with the SEC on July 28, 2022) +10.11^ +Form of Award Agreement Awarding Restricted Stock Units under the Getty Images Holdings, Inc. 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.8 of the Company’s Annual Report on Form 10-K, filed with the SEC on March 15, 2024) +10.12^ +Form of Award Agreement Awarding Performance Restricted Stock Units under the Getty Images Holdings, Inc. 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.9 of the Company’s Annual Report on Form 10-K, filed with the SEC on March 15, 2024) +10.13^ +Form of Award Agreement Awarding Stock Options under the Getty Images Holdings, Inc. 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.10 of the Company ’ s Form 10-K, filed with the SEC on March 14, 2023) +10.14^ +Form of Award Agreement Awarding Restricted Stock Units under the Getty Images Holdings, Inc. 2022 Earn Out Plan (incorporated by reference to Exhibit 10.11 of the Company’s Form 10-K, filed with the SEC on March 15, 2024) +10.15^ +Employment Agreement with Craig Peters dated July 1, 2015, as amended on January 27, 2017, November 3, 2017, January 1, 2019, April 1, 2020, October 1, 2020 January 1, 2024 and January 1, 2025 +10.16^ +Employment Agreement with Nathaniel Gandert, dated June 1, 2016, as amended on April 1, 2020 and October 1, 2020 (incorporated by reference to Exhibit 10.14 to Vector Holding, LLC’s Registration Statement on Form S-4, filed with the SEC on January 18, 2022) +10.17^ +Employment Agreement with Gene Foca, dated January 3, 2017, as amended on April 1, 2020, October 1, 2020, and May 1, 2023. (incorporated by reference to Exhibit 10.14 of the Company’s Annual Report on Form 10-K, filed with the SEC on March 15, 2024) +10.18 +Restated Option Agreement, by and among Griffey Investors, L.P., Getty Images, Inc., Getty Investments, L.L.C. and certain other parties, dated February 9, 1998, as amended on February 9, 1998, February 24, 2008, August 14, 2012, and December 9, 2021 (incorporated by reference to Exhibit 10.15 of Vector Holding, LLC’s Registration Statement on Form S-4, filed with the SEC on June 29, 2022) +10.19 +Side Letter to the Forward Purchase Agreement and Backstop Agreement by and between CC Neuberger Principal Holdings II, and Neuberger Berman Opportunistic Capital Solutions Master Fund L.P., dated as of December 9, 2021 (incorporated by reference to Exhibit 10.2 of Vector Holding, LLC’s Registration Statement on Form S-4, filed with the SEC on June 29, 2022) +10.20 +Sponsor Side Letter by and among CC Neuberger Principal Holdings II Sponsor, LLC, Joel Alsfine, James Quella, Jonathan Gear, CC NB Sponsor 2 Holdings LLC, Neuberger Berman Opportunistic Capital Solutions Master Fund LP, CC Neuberger Principal Holdings II, Vector Holding, LLC and Griffey Global Holdings, Inc., dated as of December 9, 2021 (incorporated by reference to Exhibit 10.3 of Vector Holding, LLC’s Registration Statement on Form S-4, filed with the SEC on June 29, 2022) +10.21 +Voting and Support Agreement, dated as of January 6, 2025, by and between Getty Images and Jonathan Oringer (incorporated by reference to Exhibit 10.1 of the Company ’ s Form 8-K, filed with the SEC on January 7, 2025) +10.22 +Significant Stockholder Agreement, dated as of January 6, 2025, by and among Getty Images, the Getty Family Stockholders, the Koch Stockholder and Jonathan Oringer (incorporated by reference to Exhibit 10.2 of the Company's Form 8-K, filed with the SEC on January 7, 2025 +10.23 +Letter Agreement, dated as of January 6, 2025, by and among Getty Images and the Getty Family Stockholders (incorporated by reference to Exhibit 10.3 of the Company ’ s Form 8-K, filed with the SEC on January 7, 2025) +10.24 +Letter Agreement, dated as of January 6, 2025, by and between Getty Images and the Koch Stockholder (incorporated by reference to Exhibit 10.4 of the Company ’ s Form 8-K, filed with the SEC on January 7, 2025) +19.1 +Getty Images Holdings, Inc. Insider Trading Policie s (incorporated by reference to Ex hibit 19.1 of the Com pany's Form 10-K, filed with the SEC on March 17, 202 5) +21.1* +Subsidiaries of Registrant +80 +Table of Contents +23.1* +Consent of Independent Registered Public Accounting Firm +31.1* +Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +31.2* +Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +32.1** +Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +32.2** +Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +97^ +Getty Images Holdings, Inc. Incentive-Based Compensation Recovery Policy (incorporated by reference from the Company’s Form 10-K, filed with the SEC on March 15, 2024) +101 Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive (Loss) Income, (iv) Consolidated Statement of Redeemable Preferred Stock and Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document +104 Cover Page Interactive Data File. Formatted in Inline XBRL and contained in exhibit 101. +† Certain of the exhibits and schedules to this exhibit have been omitted in accordance with Regulation S-K Item 601(b)(2). The Company agrees to furnish supplementally a copy of all omitted exhibits and schedules to the SEC upon its request. +* Filed Herewith +** Furnished Herewith +^ Indicates management contract or compensatory plan or arrangement +ITEM 16. FORM 10-K SUMMARY +Not applicable. +81 +Table of Contents +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +Date: March 16, 2026 +GETTY IMAGES HOLDINGS, INC. +(REGISTRANT) +By: /s/ Craig Peters +Name: Craig Peters +Title: Chief Executive Officer and Director +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +/s/ Craig Peters /s/ Jennifer Leyden +Name: Craig Peters Name: Jennifer Leyden +Title: Chief Executive Officer and Director Title: Chief Financial Officer +(Principal Executive Officer) (Principal Financial Officer) +Date: +March 16, 2026 +Date: +March 16, 2026 +/s/ Chris Hoel +Name: Chris Hoel +Title: Chief Accounting Officer +(Principal Accounting Officer) +Date: +March 16, 2026 +/s/ Mark Getty /s/ Chinh Chu +Name: Mark Getty Name: Chinh Chu +Title: Director Title: Director +Date: +March 16, 2026 +Date: +March 16, 2026 +/s/ Michael Harris /s/ Tracy Knox +Name: Michael Harris Name: Tracy Knox +Title: Director Title: Director +Date: +March 16, 2026 +Date: +March 16, 2026 +/s/ Patrick Maxwell /s/ James Quella +Name: Patrick Maxwell Name: James Quella +Title: Director Title: Director +Date: +March 16, 2026 +Date: +March 16, 2026 +/s/ Hilary Schneider /s/ Jeffrey Titterton +Name: Hilary Schneider Name: Jeffrey Titterton +Title: Director Title: Director +Date: +March 16, 2026 +Date: +March 16, 2026 +/s/ Brett Watson +Name: Brett Watson +Title: Director +Date: +March 16, 2026 +82 +Table of Contents +Report of Independent Registered Public Accounting Firm +To the Stockholders and the Board of Directors of Getty Images Holdings, Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheets of Getty Images Holdings, Inc. (the Company) as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive (loss) income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with U.S. generally accepted accounting principles. +Basis for Opinion +These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ Ernst & Young LLP +We have served as the Company’s auditor since 2013. +Seattle, Washington +March 16, 2026 +F-1 +Table of Contents +GETTY IMAGES HOLDINGS, INC. +CONSOLIDATED BALANCE SHEETS +(In thousands, except share and par value data) +December 31, +2025 2024 +ASSETS +Current assets: +Cash and cash equivalents $ 90,183 $ 121,173 +Restricted cash 635,124 4,131 +Accounts receivable – net of allowance of $ 5,338 and $ 6,164 , respectively +208,468 151,130 +Prepaid expenses 20,786 16,327 +Insurance recovery receivable 34,954 45,000 +Taxes receivable 10,342 9,577 +Other current assets 11,526 11,477 +Total current assets 1,011,383 358,815 +Property and equipment, net 184,189 177,292 +Operating lease right of use assets 24,262 32,453 +Goodwill 1,516,265 1,510,477 +Intangible assets, net of accumulated amortization 414,699 389,906 +Deferred income taxes, net 57,977 63,965 +Other assets 31,513 30,800 +Total assets $ 3,240,288 $ 2,563,708 +LIABILITIES AND STOCKHOLDERS’ EQUITY +Current liabilities: +Accounts payable $ 114,231 $ 99,320 +Accrued expenses 89,854 59,938 +Income taxes payable 13,772 10,913 +Short-term debt - net 696,474 — +Litigation reserves 205,324 110,994 +Deferred revenue 188,338 172,090 +Total current liabilities 1,307,993 453,255 +Long-term debt, net 1,270,888 1,314,424 +Lease liabilities 23,553 29,034 +Deferred income taxes, net 14,217 24,357 +Uncertain tax positions 21,122 22,329 +Other long-term liabilities 1,889 1,969 +Total liabilities 2,639,662 1,845,368 +Commitments & contingencies (Note 11) +Stockholders’ equity: +Class A common stock, $ 0.0001 par value: 2.0 billion shares authorized; 417.2 million shares issued and outstanding as of December 31, 2025 and 412.3 million shares issued and outstanding as of December 31, 2024 +42 41 +Additional paid-in capital 2,039,751 2,017,407 +Accumulated deficit ( 1,429,605 ) ( 1,223,482 ) +Accumulated other comprehensive loss ( 57,646 ) ( 123,770 ) +Total Getty Images Holdings, Inc. stockholders’ equity 552,542 670,196 +Non-controlling interest 48,084 48,144 +Total stockholders’ equity 600,626 718,340 +Total liabilities and stockholders’ equity $ 3,240,288 $ 2,563,708 +See notes to consolidated financial statements. +F-2 +Table of Contents +GETTY IMAGES HOLDINGS, INC. +CONSOLIDATED STATEMENTS OF OPERATIONS +(In thousands, except share and per share amounts) +Year Ended +December 31, +2025 2024 2023 +Revenue $ 981,290 $ 939,287 $ 916,555 +Operating expenses: +Cost of revenue (exclusive of depreciation and amortization) 261,315 253,068 250,249 +Selling, general and administrative expenses 415,968 407,796 402,516 +Depreciation 62,459 58,987 54,374 +Amortization 2,304 2,306 24,069 +Loss on litigation 100,498 20,491 116,051 +Recovery of loss on litigation — — ( 60,000 ) +Other operating expenses – net 54,830 15,834 1,624 +Total operating expenses 897,374 758,482 788,883 +Income from operations 83,916 180,805 127,672 +Other (expense) income, net: +Interest expense ( 156,175 ) ( 131,408 ) ( 126,884 ) +Loss on fair value adjustment for swaps – net — ( 1,459 ) ( 7,573 ) +Foreign exchange (loss) gain – net ( 78,882 ) 36,071 ( 23,772 ) +Loss on extinguishment of debt ( 5,474 ) — — +Other non-operating (expense) income – net ( 5,692 ) 2,946 3,652 +Total other expense – net ( 246,223 ) ( 93,850 ) ( 154,577 ) +(Loss) income before income taxes ( 162,307 ) 86,955 ( 26,905 ) +Income tax (expense) benefit ( 43,876 ) ( 47,483 ) 46,482 +Net (loss) income ( 206,183 ) 39,472 19,577 +Less: +Net (loss) income attributable to non-controlling interest ( 60 ) ( 61 ) 238 +Net (loss) income attributable to Getty Images Holdings, Inc. $ ( 206,123 ) $ 39,533 $ 19,339 +Net (loss) income per share attributable to Class A Getty Images Holdings, Inc. common stockholders: +Basic $ ( 0.50 ) $ 0.10 $ 0.05 +Diluted $ ( 0.50 ) $ 0.10 $ 0.05 +Weighted-average Class A common shares outstanding: +Basic 414,344,822 409,144,863 399,037,805 +Diluted 414,344,822 414,870,801 411,495,025 +See notes to consolidated financial statements. +F-3 +Table of Contents +GETTY IMAGES HOLDINGS, INC. +CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME +(In thousands) +Year Ended +December 31, +2025 2024 2023 +Net (loss) income $ ( 206,183 ) $ 39,472 $ 19,577 +Other comprehensive (loss) income: +Net foreign currency translation adjustment gains (losses) 66,124 ( 36,694 ) 21,852 +Comprehensive (loss) income ( 140,059 ) 2,778 41,429 +Less: Comprehensive (loss) gain attributable to noncontrolling interest ( 60 ) ( 61 ) 238 +Comprehensive (loss) income attributable to Getty Images Holdings, Inc. $ ( 139,999 ) $ 2,839 $ 41,191 +See notes to consolidated financial statements. +F-4 +Table of Contents +GETTY IMAGES HOLDINGS, INC. +CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY +(In thousands, except share amounts) +Class A +Common Stock Additional +Paid-In +Capital Accumulated +Deficit Accumulated +Other +Comprehensive +Loss Total +Getty Images +Holdings, Inc. +Stockholders’ +Equity Noncontrolling +Interest Total +Stockholders’ +Equity +Shares Amount +BALANCE — December 31, 2022 394,771,254 $ 39 $ 1,936,324 $ ( 1,282,354 ) $ ( 108,928 ) $ 545,081 $ 47,967 $ 593,048 +Net income — — — 19,339 — 19,339 238 19,577 +Net foreign currency translation adjustment gains in comprehensive income — — — — 21,852 21,852 — 21,852 +Issuance of common stock in connection with equity-based compensation arrangements 12,035,420 1 15,049 — — 15,050 — 15,050 +Common shares withheld for settlement of taxes in connection with equity-based compensation ( 1,835,887 ) — ( 8,713 ) — — ( 8,713 ) — ( 8,713 ) +Equity-based compensation activity — — 40,616 — — 40,616 — 40,616 +BALANCE — December 31, 2023 404,970,787 $ 40 $ 1,983,276 $ ( 1,263,015 ) $ ( 87,076 ) $ 633,225 $ 48,205 $ 681,430 +Net income (loss) — — — 39,533 — 39,533 ( 61 ) 39,472 +Issuance of shares in connection with acquisition 1,189,061 — 4,875 — — 4,875 — 4,875 +Net foreign currency translation adjustment (losses) in comprehensive income — — — — ( 36,694 ) ( 36,694 ) — ( 36,694 ) +Issuance of common stock in connection with equity-based compensation arrangements 6,726,667 1 7,878 — — 7,879 — 7,879 +Common shares withheld for settlement of taxes in connection with equity-based compensation ( 616,113 ) — ( 2,655 ) — — ( 2,655 ) — ( 2,655 ) +Equity-based compensation activity — — 24,033 — — 24,033 — 24,033 +BALANCE — December 31, 2024 412,270,402 $ 41 $ 2,017,407 $ ( 1,223,482 ) $ ( 123,770 ) $ 670,196 $ 48,144 $ 718,340 +Net loss — — — ( 206,123 ) — ( 206,123 ) ( 60 ) ( 206,183 ) +Net foreign currency translation adjustment gains in comprehensive (loss) — — — — 66,124 66,124 — 66,124 +Issuance of common stock in connection with equity-based compensation arrangements 4,944,202 1 3,682 — — 3,683 — 3,683 +Equity-based compensation activity — — 18,662 — — 18,662 — 18,662 +BALANCE — December 31, 2025 417,214,604 $ 42 $ 2,039,751 $ ( 1,429,605 ) $ ( 57,646 ) $ 552,542 $ 48,084 $ 600,626 +See notes to consolidated financial statements. +F-5 +Table of Contents +GETTY IMAGES HOLDINGS, INC. +CONSOLIDATED STATEMENTS OF CASH FLOWS +(In thousands) +Year Ended +December 31, +2025 2024 2023 +CASH FLOWS FROM OPERATING ACTIVITIES: +Net (loss) income $ ( 206,183 ) $ 39,472 $ 19,577 +Adjustments to reconcile net (loss) income to net cash provided by operating activities: +Depreciation 62,459 58,987 54,374 +Amortization 2,304 2,306 24,069 +Foreign currency losses (gain) on foreign denominated debt 56,948 ( 28,411 ) 16,579 +Equity-based compensation 16,856 21,848 37,652 +Deferred income taxes – net 3,998 4,094 ( 76,624 ) +Uncertain tax positions ( 1,208 ) ( 2,321 ) ( 12,561 ) +Impairment of equity method investment — 7,459 — +Debt and refinance issuance transaction costs 13,899 2,431 — +Non-cash fair value adjustment for swaps and foreign currency exchange contracts — 1,459 7,573 +Amortization of debt issuance costs 7,508 2,518 3,965 +Non cash operating lease costs 11,299 11,469 12,173 +Loss on extinguishment of debt 5,474 — — +Other 1,328 3,230 4,458 +Changes in assets and liabilities: +Accounts receivable ( 52,831 ) ( 18,408 ) ( 11,704 ) +Accounts payable 12,391 ( 4,759 ) 9,799 +Accrued expenses 9,711 14,426 ( 6,808 ) +Insurance recovery receivable 10,046 3,615 ( 48,615 ) +Litigation reserves 94,330 12,845 98,149 +Lease liabilities, non-current ( 13,391 ) ( 12,423 ) ( 13,187 ) +Income taxes receivable/payable 5,131 ( 1,388 ) 8,027 +Interest payable 22,133 — — +Deferred revenue 11,608 492 4,532 +Other ( 8,620 ) ( 621 ) 1,288 +Net cash provided by operating activities 65,190 118,320 132,716 +CASH FLOWS FROM INVESTING ACTIVITIES: +Acquisition of property and equipment ( 59,518 ) ( 57,450 ) ( 56,999 ) +Acquisition of a business, net of cash acquired — ( 15,038 ) — +Net cash used in investing activities ( 59,518 ) ( 72,488 ) ( 56,999 ) +CASH FLOWS FROM FINANCING ACTIVITIES: +Payment of debt ( 1,037,040 ) ( 57,800 ) ( 50,400 ) +Proceeds from issuance of debt 1,669,272 — — +Debt issuance and refinance costs ( 59,744 ) ( 3,641 ) ( 1,137 ) +Proceeds from common stock issuance 3,682 7,878 15,050 +Cash paid for settlement of employee taxes related to exercise of equity-based awards — ( 2,655 ) ( 8,713 ) +Cash paid for equity issuance costs — — ( 150 ) +Net cash provided by (used in) financing activities 576,170 ( 56,218 ) ( 45,350 ) +Effects of exchange rates fluctuations 18,161 ( 5,160 ) 8,089 +NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 600,003 ( 15,546 ) 38,456 +CASH, CASH EQUIVALENTS AND RESTRICTED CASH - Beginning of period 125,304 140,850 102,394 +CASH, CASH EQUIVALENTS AND RESTRICTED CASH - End of period $ 725,307 $ 125,304 $ 140,850 +SUPPLEMENTAL DISCLOSURES: +Interest paid $ 126,969 $ 128,804 $ 122,826 +Income taxes paid, including foreign taxes withheld $ 44,293 $ 41,400 $ 31,700 +See notes to consolidated financial statements. +F-6 +Table of Contents +GETTY IMAGES HOLDINGS, INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +1. DESCRIPTION OF THE BUSINESS +Getty Images Holdings, Inc. (the “Company” or “Getty Images”) is a preeminent global visual content creator and marketplace that offers a full range of content solutions to meet the needs of customers around the globe, no matter their size. Through Getty Images, iStock, and Unsplash brands, websites and APIs, the Company serves customers in almost every country in the world and is one of the first places people turn to discover, purchase and share powerful visual content from the world’s best photographers and videographers. The Company offers a full range of content, with over 645 million assets available through its industry-leading sites. The Company serves businesses in almost every country in the world with websites in 23 languages bringing content to m edia outlets, advertising agencies and corporations and, increasingly, serving individual creators and prosumers. +Merger Agreement with Shutterstock +On January 6, 2025, Getty Images entered into an Agreement and Plan of Merger (the “Merger Agreement”) to combine in a merger-of-equals transaction with Shutterstock, Inc. (“Shutterstock”) (such transaction referred to herein as the “Merger”). Subject to terms and conditions in the Merger Agreement, the aggregate consideration to be paid by Getty Images in respect of the outstanding shares of common stock of Shutterstock will be: +• An amount in cash equal to the product of $ 9.50 multiplied by the number of shares of Shutterstock common stock outstanding immediately prior to the transaction close (including vested Shutterstock restricted stock units and performance stock units) (the “Total Cash Amount”); and +• A number of shares of Getty Images common stock equal to the product of 9.17 multiplied by the number of shares of Shutterstock common stock outstanding immediately prior to the transaction close (including vested Shutterstock restricted stock units and performance stock units) (the “Total Stock Amount”). +Each of the Total Cash Amount and the Total Stock Amount will be fixed as of immediately prior to closing of the Merger. Therefore, cash elections will be subject to proration if cash elections are oversubscribed and stock elections will be subject to proration if stock elections are oversubscribed. Each holder of Shutterstock common stock immediately prior to the transaction close will have the option to receive, subject to proration, for each share of Shutterstock common stock held by such holder: +• Cash consideration of $ 9.50 and 9.17 shares of Getty Images common stock; +• Cash consideration of $ 28.8487 ; or +• 13.67237 shares of Getty Images common stock. +Following the close of the transaction, based on the common shares outstanding as of September 9, 2025, Getty Images stockholders will own approximately 53.5 % and Shutterstock stockholders will own approximately 46.5 % of the combined company on a fully diluted basis. The transaction is subject to the satisfaction of customary closing conditions, including receipt of required regulatory approvals, and other customary closing conditions. +The Company has expensed $ 47.1 million and $ 4.1 million of legal, accounting, and other direct costs related to this proposed Merger for the years ended December 31, 2025 and 2024, respectively. These costs are included in “Other operating expenses – net” in the Consolidated Statements of Operations. +On January 28, 2025, Getty Images filed its Premerger Notification and Report Form under the HSR Act (“HSR Filing”). On February 27, 2025, Getty Images withdrew its HSR Filing and refiled it on March 3, 2025. +On April 2, 2025, Getty Images and Shutterstock announced that they had each received a Request for Additional Information and Documentary Material (the “Second Request”) from the U.S. Department of Justice (“DOJ”) in connection with the transaction. The Second Request was issued under notification requirements of the HSR Act. The effect of the Second Request is to extend the waiting period imposed by the HSR Act until 30 days after Getty Images and Shutterstock have substantially complied with the request, unless that period is extended voluntarily by the parties or terminated sooner by the DOJ. +On February 23, 2026, Getty Images and Shutterstock announced that they had received notice that the DOJ has concluded its review of the proposed merger and the applicable waiting period under the Hart-Scott-Rodino Act has expired, without conditions. +F-7 +Table of Contents +On June 10, 2025, Shutterstock held a Special Meeting of Stockholders (the “Special Meeting”) in connection with the proposed merger with Getty Images. At the Special Meeting, Shutterstock’s stockholders approved the proposal to adopt the Merger Agreement. +On September 18, 2025, Shutterstock irrevocably waived the condition set forth in the Merger Agreement with respect to the Company having amended or otherwise refinanced its 2019 Term Loans and 2019 Senior Unsecured Notes to extend the maturity of each to no earlier than February 19, 2028. +On October 20, 2025, the Company received notice that the CMA intended to refer the proposed Merger to a Phase 2 review process unless acceptable undertakings to address their competition concerns are offered. On November 3, 2025, the Company received notice that the CMA has referred the Merger to a Phase 2 review process. On February 19, 2026, the CMA issued a provisional decision with respect to the proposed merger and directed that any proposed remedies be submitted to the CMA by March 5, 2026. On March 11, 2026, the CMA published an Invitation to Comment on Remedies, with responses due by March 18, 2026 and published a Notice of Extension, extending its reference period by eight weeks to June 14, 2026. The Company remains committed to the proposed Merger and will continue to engage with CMA and work with Shutterstock to expeditiously secure the necessary clearances. +2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Basis of Presentation and Principles of Consolidation +The consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. +Certain immaterial changes in presentation have been made to conform the prior period presentation to current period reporting. +Estimates and Assumptions +The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses reported during the period. Some of the estimates and assumptions that require the most difficult judgments are: a) the assumptions used to estimate unused capped subscription-based and credit-based products; b) the appropriateness of the amount of accrued income taxes, including the potential outcome of future tax consequences of events that have been recognized in the consolidated financial statements as well as the deferred tax asset valuation allowances and; c) the assumptions used to estimate accrued litigation reserves and insurance recoveries. These judgments are inherently uncertain which directly impacts their valuation and accounting. Actual results and outcomes may differ from management’s estimates and assumptions. +Noncontrolling Interest +The Company’s noncontrolling interest represents the minority stockholder’s ownership interest related to the Company’s subsidiary, Getty Images SEA Holdings Co., Limited (“Getty SEA”). The Company reports its non-controlling interest in subsidiary as a separate component of stockholders’ equity in the Consolidated Balance Sheets and reports both net income (loss) attributable to the non-controlling interest and net income (loss) attributable to the Company’s common stockholders on the Consolidated Statements of Operations. The Company’s equity interest in Getty SEA is 50 % and the non-controlling stockholder’s interest is 50 %. Net Income or (Loss) from this subsidiary is allocated based upon these ownership interests. This is reflected in the Consolidated Statements of Stockholders’ Equity as “Noncontrolling interest”. +Net Income (Loss) Per Share Attributable to Common Stockholders +Basic net income (loss) per share attributable to common stockholders is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period, without consideration of potentially dilutive securities. Net income (loss) available to +F-8 +Table of Contents +common stockholders represents net income (loss) attributable to common stockholders adjusted by the allocation of income or losses to the noncontrolling interest. +In periods where the Company recognizes a net loss, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders since the effect of potentially dilutive securities is anti-dilutive. +Diluted net income per share is computed by dividing the net income attributable to common stockholders by the weighted average common shares outstanding and all potential common shares, if they are dilutive. The potentially dilutive effect of options are computed using the treasury stock method. Securities that potentially have an anti-dilutive effect are excluded from the diluted earnings per share calculation. +Foreign Currencies +Assets and liabilities for subsidiaries with functional currencies other than the U.S. Dollar are recorded in foreign currencies and translated at the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are charged or credited to “Other comprehensive income (loss)” (“OCI”), as a separate component of stockholders’ equity. Transaction gains and losses arising from transactions denominated in a currency other than the functional currency of the entity involved are included in “Foreign exchange (loss) gain – net” in the Consolidated Statements of Operations. For the years ended December 31, 2025, 2024, and 2023 the Company recognized net foreign currency transaction loss of $ 78.9 million, net gain of $ 36.1 million and net loss of $ 23.8 million, respectively. +Derivative Instruments +Prior to February 2024, the Company used derivative instruments to manage exposures to foreign currency and interest rate risks. The derivative instruments all matured by February 2024. Generally, the objectives for holding derivatives includes reducing or eliminating the economic impact of those exposures. Derivative instruments are recorded as either assets or liabilities and are measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and whether the instrument is designated as a hedge for accounting purposes. For a derivative instrument designated as a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of OCI and is subsequently recognized in earnings when the hedged exposure affects earnings. The ineffective portion of the gain or loss is recognized in earnings. For derivative instruments designated as either fair value or cash flow hedges, changes in the time value are excluded from the assessment of hedge effectiveness and are recognized in earnings. Gains and losses from changes in fair values of derivatives that are not designated as hedges for accounting purposes are recognized in “Loss on fair value adjustment for swaps – net” in the Consolidated Statements of Operations. As of December 31, 2025, 2024, and 2023 the Company did not have any derivatives designated as hedging instruments as defined by the derivative instruments and hedging activities accounting guidance. See “ Note 4 — Derivative Instruments ” for further information. +Litigation Reserves +The Company recognizes a charge for litigation reserves when a loss is probable, and the amount is material and reasonably determinable. The amount accrued represents the Company’s best estimate of the loss, including related interest if applicable or, if no best estimate within a range of outcomes exists, the minimum amount in the range is reserved and the high end of the range is disclosed. If it is determined that a loss is only reasonably possible or that a loss is probable but the amount is not reasonably estimable, the Company discloses the nature of the possible loss and gives an estimate of the possible range of loss. The estimates and judgments could change based on new information, changes in laws or regulations, or the outcome of legal proceedings, settlements, or other factors. If different estimates and judgments were applied with respect to these matters, it is likely that reserves would be recorded for different amounts. The reserve for litigation is accrued in “ Litigation reserves ” on the Consolidated Balance Sheets and related legal and professional fees associated with the litigation are included in “Accounts Payable” or “ Accrued expenses ” on the Consolidated Balance Sheets. See “ Note 11 — Commitments and Contingencies ” for further discussion. +Recoveries of Losses on Litigation +F-9 +Table of Contents +The Company recognizes the benefit of recoveries of losses on litigation when it is probable that such recoveries will be received. These recoveries are recorded in “Recovery of loss on litigation” in the Consolidated Statements of Operations, and are typically receivable from third-party insurance carriers for legal claims and related costs that are included in “Loss on litigation” on the Consolidated Statement of Operations , see “ Note 11 — Commitments and Contingencies ”. +Cash, Cash Equivalents and Restricted Cash +The following represents the Company’s cash, cash equivalents and restricted cash as of December 31, 2025 and 2024 (in thousands): +As of December 31, +2025 2024 +Cash and cash equivalents $ 90,183 $ 121,173 +Restricted cash 635,124 4,131 +Total cash, cash equivalents and restricted cash $ 725,307 $ 125,304 +Cash equivalents are short-term, highly liquid investments that are both readily convertible to cash and have maturities at the date of acquisition of three months or less. Cash equivalents are generally composed of investment-grade debt instruments subject to lower levels of credit risk, including certificates of deposit and money market funds. The Company’s current cash and cash equivalents consist primarily of cash on hand, bank deposits, and money market accounts. +In connection with the issuance of the 10.500 % Senior Secured Notes and pursuant to the Escrow Agreement, dated October 21, 2025 (the “Escrow Agreement”), the Company deposited the gross proceeds of the offering into an escrow account. The escrowed proceeds may be released only upon satisfaction of the conditions specified in the Escrow Agreement, including the consummation of the proposed merger (the “Merger”). See “ Note 10 — Debt ” for additional information. +Until the escrow conditions are satisfied, the proceeds are restricted from use for general corporate purposes and are classified as restricted cash in the Consolidated Balance Sheets. If the Merger is not consummated, the escrowed proceeds will be released or otherwise applied in accordance with the terms of the 10.500 % Senior Secured Notes and the Escrow Agreement. +The Company also holds smaller amounts of restricted cash for collateral related to corporate credit cards and real estate lease obligations. +Fair Value Measurements   +The Company records its financial assets and liabilities at fair value. Fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of nonperformance risk including the Company’s own credit risk. +The three-tier fair value hierarchy prioritizes the inputs used in the valuation methodologies. Each fair value measurement is reported in one of the three levels, which is determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are: +Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets. +Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. +F-10 +Table of Contents +Level 3 — Valuations based on unobservable inputs reflecting management’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment. +Accounts Receivable —  Net +Accounts receivable are trade receivables, net of reserves for allowances for doubtful accounts totaling $ 5.3 million and $ 6.2 million as of December 31, 2025 and 2024, respectively. +Allowance for doubtful accounts is calculated based on the current estimate of expected lifetime credit losses, which includes assumptions such as historical losses, existing economic conditions, and analysis of specific older account balances of customer and delegate accounts. Trade receivables are written off when collection efforts have been exhausted. +Allowance for doubtful accounts changed as follows during the years presented (in thousands): +Year Ended December 31, +2025 2024 2023 +Beginning of year $ 6,164 $ 6,527 $ 6,460 +Provision 319 2,180 2,228 +Deductions ( 1,145 ) ( 2,543 ) ( 2,161 ) +End of year $ 5,338 $ 6,164 $ 6,527 +Deductions represent balances written off, net of amounts recovered that had previously been written off, and the effect of exchange rate fluctuations. +Property and Equipment — Net +Property and equipment are stated at cost, net of accumulated depreciation. Contemporary and archival imagery consists of costs to acquire imagery from third parties and internal and external costs incurred in creating imagery, including identification of marketable subject matter, art direction, digitization, mastering and the assignment of search terms, and other pertinent information to each image. Computer software developed for internal use consists of internal and external costs incurred during the application development stage of software development (except for training costs) and costs of upgrades or enhancements that result in additional software functionality. Costs incurred during the web application, infrastructure, graphics and content development stages of website development are also capitalized and included within computer software developed for internal use. Expenditures that extend the life, increase the capacity or improve the efficiency of property and equipment are capitalized, while expenditures for repairs and maintenance are expensed as incurred. +Depreciation is recognized on a straight-line basis over the estimated useful lives of the assets or, for leasehold improvements, over the shorter of the remaining original term of the lease or the estimated life of the related asset. +Minority Investment without Readily Determinable Fair Value +The carrying amount of the minority investments, which is included within “Other long-term assets” on the Consolidated Balance Sheets, was $ 2.1 million and $ 1.9 million as December 31, 2025 and 2024, respectively. The Company uses the measurement alternative for these equity investments and their carrying value is reported at cost, adjusted for impairments or any observable price changes in ordinary transactions with identical or similar investments. Revenue related to content consumed by the minority investees was not material during any of the years end December 31, 2025, 2024 and 2023. +The investments are holdings in a privately held companies that are not exchange traded and therefore not supported with observable market prices. The Company periodically evaluates the carrying value of the minority investment, or when events and circumstances indicate that the carrying amount of an asset may not be recovered. During the year ended December 31, 2024, the Company recorded an impairment of $ 7.5 million related to a minority investment in the Consolidated Statements of Operations. The investee experienced consistent and signific ant decline +F-11 +Table of Contents +in income, which indicated that the carrying value of the investment may not be recoverable. A s of December 31, 2025 and 2023, no adjustments to the carrying values of the Company’s long-term investments were identified as a result of this assessment. Changes in performance negatively impacting operating results and cash flows of these investments could result in the Company recording an impairment charge in future periods. +Goodwill +The Company evaluates goodwill for impairment annually or more frequently when an event occurs, or circumstances indicate it is more likely than not that the fair value of the reporting unit is below its carrying value. Circumstances that could indicate impairment and require impairment tests more frequently than annually include; significant adverse changes in legal factors or market and economic conditions, a significant decline in the financial results of the Company’s operations, significant changes in strategic plans, adverse actions by regulators, unanticipated changes in competition and market share, or a planned disposition of a significant portion of the business. Management performs the annual goodwill impairment analysis as of October 1 each year. The Company’s 2025, 2024 and 2023 goodwill impairment analyses did not result in an impairment charge. As circumstances change, it is possible that future goodwill impairment analysis could result in goodwill impairments, which would be included in the calculation of income or loss from operations. +Identifiable Intangible Assets +Identifiable intangible assets are assets that do not have physical representation but that arise from contractual or other legal rights or are capable of being separated or divided from the Company and sold, transferred, licensed, rented or exchanged. Identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives, unless such life is determined to be indefinite. The remaining useful lives of identifiable intangible assets are reassessed each reporting period to determine whether events and circumstances warrant revisions to the remaining periods of amortization. Potential impairment of identifiable intangible assets with an indefinite useful life are evaluated annually or whenever circumstances indicate that it is more likely than not that the indefinite-lived asset is impaired. Intangible assets with a finite life and long-lived assets are reviewed for impairment whenever an event occurs, or circumstances change that indicate their carrying value may not be recoverable through projected undiscounted cash flows expected to be generated by the asset. If the evaluation of the projected cash flows indicates that the carrying value of the asset is not recoverable, the asset is written down to its fair value. +Loans Receivable +Loans are stated at unpaid principal balances less any allowance for loan losses. Interest is recognized over the term of the loan and is calculated using the compound interest method. Management considers a loan impaired when, based on current information or factors, it is probable that the principal and interest payment will not be collected according to the loan agreement. The Company did not recognize any loan impairment charges during the years ended December 31, 2025, 2024 or 2023. +Leases +In accordance with ASC 842, Leases ( “ASC 842”), the Company first determines if an arrangement contains a lease and the classification of that lease, if applicable, at inception. This standard requires the recognition of right of use (“ROU”) assets and lease liabilities for the Company’s operating leases. For contracts with lease and non-lease components, the Company has elected not to allocate the contract consideration, and to account for the lease and non-lease components as a single lease component. The Company has also elected not to recognize a lease liability or ROU asset for leases with a term of 12 months or less, and recognize lease payments for those short-term leases on a straight-line basis over the lease term in the Consolidated Statements of Operations. Operating leases are included in “Right of use assets”, “Accrued expenses” and “Lease liabilities” (net of current portion) in the Consolidated Balance Sheets. +ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments under the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The implicit rate within the Company’s leases is generally not determinable and therefore the incremental borrowing rate at the lease commencement date is utilized to determine the present value of lease payments. The determination of the incremental borrowing rate requires judgment. Management determines the incremental borrowing rate for each lease +F-12 +Table of Contents +using the Company’s estimated borrowing rate, adjusted for various factors including level of collateralization, term and currency to align with the terms of the lease. The ROU asset also includes any lease prepayments, offset by lease incentives. Certain of the Company’s leases include options to extend or terminate the lease. An option to extend the lease is considered in connection with determining the ROU asset and lease liability when the Company is reasonably certain that the option will be exercised. An option to terminate is considered unless the Company is reasonably certain the option will not be exercised. The ROU assets are reviewed for impairment with the Company’s long-lived assets. +Related-Party Transactions +On June 15, 2016, Getty SEA, a subsidiary of the Company, entered into various agreements with Visual China Group Holding Limited (“VCG”). As part of those agreements, Getty SEA issued $ 24.0 million in an unsecured note receivable to VCG. This note receivable bears interest at 2.5 % per annum with an August 18, 2036 due date. VCG is also a noncontrolling interest stockholder of Getty SEA. As of December 31, 2025, 2024 and 2023 this unsecured note receivable is included in “Other long-term assets” in the Consolidated Balance Sheets. +Revenue Recognition +Revenue is derived principally from licensing rights to use images, video footage and music that are delivered digitally over the internet. Digital content licenses are generally purchased on a monthly or annual subscription basis, whereby a customer either pays for a predetermined quantity of content or for access to the Company’s content library that may be downloaded over a specific period of time, or, on a transactional basis, whereby a customer pays for individual content licenses at the time of download. Also, a significant portion of revenue is generated through the sale and subsequent use of credits. Various amounts of credits are required to license digital content. +The Company recognizes revenue gross of contributor royalties because the Company is the principal in the transaction as it is the party responsible for the performance obligation and it controls the product or service before transferring it to the customer. The Company also licenses content to customers through third-party delegates worldwide (approximately 3 % of t otal revenues for the years ended December 31, 2025, 2024 and 2023). Delegates sell the Company’s products directly to customers as the principal in those transactions. Accordingly, the Company recognizes revenue net of costs paid to delegates. Delegates typically earn and retain 35 % to 50 % of the license fee, and the Company recognizes the remaining 65 % to 50 % as revenue. +The Company maintains a credit department that sets and monitors credit policies that establish credit limits and ascertains customer creditworthiness, thus reducing the risk of potential credit loss. Revenue is not recognized unless it is determined that collectability is reasonably assured. Revenue is recorded at invoiced amounts (including discounts and applicable sales taxes) less an allowance for sales returns, which is based on historical information. Customer payments received in advance of revenue recognition are contract liabilities and are recorded as deferred revenue. Customers that do not pay in advance are invoiced and are required to make payments under standard credit terms. +The Company recognizes revenue under the core principle to depict the transfer of control to the Company’s customers in an amount reflecting the consideration to which the Company expects to be entitled. In order to achieve that core principle, the Company applies the following five-step approach: (i) identify the contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when a performance obligation is satisfied. +For digital content licenses, the Company recognizes revenue on both its capped subscription-based, credit-based sales and single image licenses when content is downloaded, at which time the license is provided. +See “ Note 12 — Revenue ” for additional revenue disclosures. +Cost of Revenue +The ownership rights to the majority of the content licensed is retained by the owners, and licensing rights are provided to the Company by a large network of content suppliers. When the Company licenses content entrusted by content suppliers, royalties are paid to them at varying rates depending on the license model and the customers use of that content. Suppliers who choose to work with the Company under contract typically receive royalties between 20 % +F-13 +Table of Contents +to 50 % of the total license fee charged customers. The Company also owns the copyright to certain content in its collections (wholly owned content), including content produced by staff photographers for the Editorial Stills product, for which the Company does not pay any third-party royalties. Cost of revenue also includes costs of assignment photo shoots but excludes depreciation and amortization associated with creating or buying content. +Sales Commissions +Internal sales commissions are generally paid in the quarter following invoicing of the commissioned receivable and is reported in “Selling, general and administrative expenses” on the Consolidated Statements of Operations. The Company expenses contract acquisition costs, including internal sales commissions, as incurred, to the extent that the amortization period would otherwise be one year or less. +Equity-Based Compensation +Equity-based compensation is accounted for in accordance with authoritative guidance for equity-based payments. This guidance requires equity-based compensation cost to be measured at the grant date based on the fair value of the award and recognized as an expense over the applicable service period, which is the vesting period, net of estimated forfeitures. Compensation expense for equity-based payments that contain service conditions is recorded on a straight-line basis, over the service period of generally four years . Compensation expense for equity-based payments that contain performance conditions is not recorded until it is probable that the performance condition will be achieved. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience. Actual results and future estimates may differ substantially from current estimates. +Advertising and Marketing +The Company markets its products and services mainly through paid search, natural or organic search optimization, affiliate marketing channels, email and website marketing, customer events and public relations initiatives. Costs associated with marketing efforts are recorded in “Selling, general and administrative expenses” when related liabilities are incurred. For paid search and affiliate marketing, liabilities are incurred when potential new customers click through the links in the ad, generating an obligation to the internet search provider or affiliate marketing partner. Advertising and marketing costs expensed for the years ended December 31, 2025, 2024 and 2023 were $ 47.3 million, $ 47.1 million and $ 48.5 million, respectively. +Income Taxes +The Company computes income taxes and accruals for uncertain tax positions under the asset and liability method as set forth in the authoritative guidance for accounting for income taxes and uncertain tax positions. Deferred income taxes are provided for the temporary differences between the consolidated financial statement carrying amounts and the tax basis of the Company’s assets and liabilities and operating loss and tax credit carryforwards. The Company establishes a valuation allowance for deferred tax assets if it is not more likely than not that the tax benefits will be realized. Periodically, the valuation allowance is reviewed and adjusted based on management’s assessments of realizable deferred tax assets. The Company accounts for the global intangible low-tax income (“GILTI”) earned by foreign subsidiaries included in gross U.S. taxable income in the period incurred. See “ Note 17 — Income Taxes ” for further information. +Segments +The Company has determined that it operates and manages one operating segment, which is the business of developing and commercializing visual content. The Company’s chief operating decision maker (the “CODM”), its Chief Executive Officer, reviews financial information on an aggregate basis for the purpose of allocating resources and making operating decisions. See “ Note 18 — Segment and Geographic Information ” for further information. +Concentration of Credit Risk +F-14 +Table of Contents +Financial instruments that are exposed to concentration of credit risk consist pri marily of cash and cash equivalents and accounts receivable balances. Cash and cash equivalents are held with financial institutions of high quality. Balances may exceed the amount of insurance provided on such deposits. +Concentration of credit risk with respect to trade receivables is limited due to the large number of customers and their dispersion across many geographic areas. No single customer represented 10% or more of the Company’s total revenue or accounts receivable in any of the years presented. +Recently Adopted Accounting Standard Updates +In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, “ Improvements to Reportable Segment Disclosures (Topic 280)” (“ASU 2023-07”) new guidance that modifies the disclosure and presentation requirements of reportable segments. The new guidance requires the disclosure of significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit and loss. In addition, the new guidance enhances interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, provides new segment disclosure requirements for entities with a single reportable segment, and contains other disclosure requirements. The Company adopted ASU 2023-07, effective December 15, 2024. The adoption of this standard only modified how the reportable segment expenses are disclosed and did not have a material impact on the consolidated financial statements or operations of the Company. See “ Note 18 — Segment and Geographic Information ” for further information. +In June 2016, the FASB issued ASU 2016-13, “ Financial Instruments — Credit Losses, (Topic 326)” (“ASU 2016-13”). ASU 2016-13 changes how to recognize expected credit losses on financial assets. The standard requires an entity to replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects current expected credit losses, requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates and provides additional transparency about credit risk. The effective date of ASU 2016-13 for the Company is beginning with fiscal years after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU 2016-13 on January 1, 2023. The adoption of this standard did not have a material impact on the consolidated financial statements. +In December 2023, the FASB issued ASU 2023-09, “ Improvements to Income Tax Disclosure (Topic 740)” (“ASU 2023-09”), which enhances the transparency of income tax disclosures. The ASU 2023-09 requires additional disaggregation of the annual effective tax rate reconciliation and income taxes paid, net of refunds received, including jurisdictional detail for items meeting specified quantitative thresholds. Effective January 1, 2025, the Company adopted ASU 2023-09 on a prospective basis and thus, the enhanced disclosure requirements are reflected in the Company’s consolidated financial statements for the year ended December 31, 2025, and prior period disclosures have not been recast. See “ Note 17 — Income Taxes ” for further information. +Recently Issued Accounting Standard Updates +In November 2024, the FASB issued ASU 2023-04 (Topic 220-40), “Disaggregation of Income Statement Expenses (Topic 220-40) ” (“ASU 2023-04”), requiring additional disclosure of the nature of expenses included in the income statement. The new guidance requires disclosures about specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses. ASU 2023-04 applies to all public business entities and is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. The Company is in the process of evaluating the impact of adopting this new guidance on the consolidated financial statement disclosures. +In December 2025, the FASB issued ASU 2025-11, “ Interim Reporting (Topic 270): Narrow-Scope Improvements .” The standard improves the navigability of interim disclosures, clarifies when Topic 270 applies and provides additional interim disclosure guidance, including a principle to disclose material events since the most recent annual reporting period. The amendments do not change the underlying objectives of interim reporting but are designed to enhance clarity in application. The standard is effective for the Company beginning January 1, 2028, with early adoption permitted, and may be applied prospectively or retrospectively. The Company is in the process of evaluating the impact of adopting this new guidance on the consolidated financial statement disclosures. +F-15 +Table of Contents +3. ACQUISITION +On April 1, 2024, the Company entered into a Unit Purchase Agreement with Motorsport Images LLC and Motorsport.com, Inc., to purchase 100 % of the outstanding membership interests in Motorsport Images LLC, a Florida limited liability accompany (“Motorsport Images”) for $ 15.1 million in cash and approximately 1.2 million shares of the Company’s Class A common stock. +The components of the fair value of consideration transferred are as follows (in thousands): +Fair Value of Consideration Transferred +Cash $ 15,106 +Class A common stock 4,875 +Total fair value of consideration considered $ 19,981 +The transaction was accounted for using the acquisition method of accounting and, accordingly, the results of the acquired business have been included in the Company’s results of operations from the acquisition date. In connection with the acquisition, the Company incurred approximately $ 1.0 million of transaction costs for the year ended December 31, 2024, recorded in “Other operating expenses – net” on the Consolidated Statements of Operations. +Motorsport Images has an extensive library of historic and contemporary motorsports photos and videos covering major racing events worldwide. With the addition of Motorsport Images’ photographic talent and premium motorsport content, this acquisition augments the Company’s customer offering in the motorsport area, bringing a greater depth and breadth of content and services. +The fair value of consideration transferred in this business combination was allocated to the intangible and tangible assets acquired and liabilities assumed at the acquisition date, with the remaining unallocated amount recorded as goodwill. Goodwill is primarily attributed to expected synergies from combining operations. Goodwill recognized for this acquisition was allocated to the Company’s one operating segment and the entire goodwill amount is deductible for U.S. tax purposes. +The aggregate purchase price was allocated to the assets acquired and liabilities assumed as follows (in thousands): +Assets acquired and liabilities assumed: Fair Value at +Acquisition Date +Cash and cash equivalents $ 68 +Accounts receivable 540 +Other current assets 92 +Prepaid expense 190 +Property and equipment 1,349 +Customer relationships 2,900 +Goodwill 15,939 +Total identifiable assets $ 21,078 +Accounts payable and accrued expenses ( 1,097 ) +Total liabilities assumed $ ( 1,097 ) +Net Assets Acquired $ 19,981 +The customer relationships have a useful life of approximately 11 years and are being amortized on a straight-line basis. The fair value of the customer relationships was determined using a variation of the income approach known as the multiple-period excess earnings method. The fair value of the contributor content was determined using the cost-to-recreate method. +F-16 +Table of Contents +The revenue and operating loss from Motorsport Images included in the Company’s Consolidated Statements of Operations for the year ended December 31, 2024 was not material. +Pro forma revenue and earnings amounts on a combined basis have not been presented as they are not material to the Company’s historical pre-acquisition financials. +4. DERIVATIVE INSTRUMENTS +Interest Rate Risk +In February 2019, the Company entered into a swap which had a notional amount of $ 355.0 million and the Company paid a fixed rate of 2.5380 %. This swap matured in February 2024. Each swap contained an embedded floor option under which the Company received a rate of 0.0 % o r one-month LIBOR, whichever was greater, to match the terms of the Company’s debt. In June 2023 the rate transitioned to the greater of one-month CME Term SOFR or negative 0.1 %. Both swaps were considered economic hedges and had not been designated as hedges, as defined in the applicable accounting guidance, for financial reporting purposes. The changes in fair value are recognized in “Loss on fair value adjustment for swaps – net” in the accompanying Consolidated Statements of Operations. +The Company recognized a loss of $ 1.5 million and loss of $ 7.6 million on these derivative instruments for the years ended December 31, 2024 and 2023, respectively. There was no income or loss during the year ended December 31, 2025 as the swap matured in February 2024. +5. FAIR VALUE OF FINANCIAL INSTRUMENTS +The Company’s financial instruments as of December 31, 2025 and 2024 consist of cash equivalents and debt. Assets and liabilities measured at fair value on a recurring basis (cash equivalents and interest rate swaps) and a nonrecurring basis (debts) are categorized in the tables below based on the levels discussed in “ Note 2 — Summary of Significant Accounting Policies ”. +The following tables summarize the Company’s financial instruments by level in the fair value hierarchy as of December 31, 2025: +(In thousands) As of December 31, 2025 +Level 1 Level 2 Level 3 Total +Assets: +Money market funds (cash equivalents) $ 665,506 $ — $ — $ 665,506 +Liabilities: +Term Loans $ — $ 512,282 $ — $ 512,282 +Senior Secured Notes $ — $ 1,139,512 $ — $ 1,139,512 +Senior Unsecured Notes $ — $ 283,400 $ — $ 283,400 +(In thousands) As of December 31, 2024 +Level 1 Level 2 Level 3 Total +Assets: +Money market funds (cash equivalents) $ 75,431 $ — $ — $ 75,431 +Derivative Liabilities: +Term Loans $ — $ 1,013,231 $ — $ 1,013,231 +Senior Unsecured Notes $ — $ 298,965 $ — $ 298,965 +The fair value of the Company’s money market funds is based on quoted active market prices and is determined using the market approach. The fair value of the Company’s Term Loans, Senior Secured Notes and Senior Unsecured Notes are based on market quotes provided by a third-party pricing source. See “ Note 10 — Debt ” for additional disclosures. +F-17 +Table of Contents +The Company’s non-financial assets and liabilities, which include goodwill and long-lived assets held and used, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur or if an annual impairment test is required, the Company would evaluate the non-financial assets and liabilities for impairment. If an impairment was to occur, the asset or liability would be recorded at its estimated fair value. +6. PROPERTY AND EQUIPMENT – NET +Property and equipment consisted of the following at the reported Balance Sheet dates (in thousands, except years): +Estimated +Useful +Lives +(in Years) December 31, +2025 2024 +Contemporary imagery 5 $ 427,366 $ 392,303 +Computer hardware purchased 3 4,522 5,625 +Computer software developed for internal use 3 153,322 141,209 +Leasehold improvements +2 – 20 +9,028 9,060 +Furniture, fixtures and studio equipment 5 13,885 12,384 +Archival imagery 40 99,361 93,099 +Other +3 – 4 +2,497 2,313 +Property and equipment 709,981 655,993 +Less: accumulated depreciation ( 525,792 ) ( 478,701 ) +Property and equipment, net $ 184,189 $ 177,292 +Included in archival imagery as of December 31, 2025 and 2024 was $ 10.5 million and $ 9.8 million respectively, of imagery that has an indefinite life and therefore is not amortized. +7. GOODWILL +Goodwill was tested for impairment as o f October 1, 2025 and 2024. The Company did not rec ognize a goodwill impairment charge during the years ended December 31, 2025 and 2024. The fair value of the Goodwill was estimated using both market indicators of fair value and the expected present value of future cash flows. As of December 31, 2025 and 2024, the accumulated impairment loss on Goodwill was $ 525.0 million for both years. +Goodwill changed during the years presented as follows: +(in thousands) Goodwill +before +impairment Accumulated +impairment +charge Goodwill – net +December 31, 2023 $ 2,026,814 $ ( 525,000 ) $ 1,501,814 +Motorsports Images acquisition 15,939 — 15,939 +Effects of fluctuations in foreign currency exchange rates ( 7,276 ) — ( 7,276 ) +December 31, 2024 $ 2,035,477 $ ( 525,000 ) $ 1,510,477 +Effects of fluctuations in foreign currency exchange rates 5,788 — 5,788 +December 31, 2025 $ 2,041,265 $ ( 525,000 ) $ 1,516,265 +F-18 +Table of Contents +8. IDENTIFIABLE INTANGIBLE ASSETS — NET +Identifiable intangible assets consisted of the following at December 31 (in thousands, except years): +As of December 31, +2025 2024 +Range of +Estimated +Useful Lives +(Years) Gross +Amount Accumulated +Amortization Net +Amount Gross +Amount Accumulated +Amortization Net +Amount +Trade name Indefinite $ 410,216 $ — $ 410,216 $ 383,444 $ — $ 383,444 +Trademarks and copyrights +5 – 10 +104,255 ( 104,255 ) — 103,976 ( 103,976 ) — +Patented and unpatented technology +3 – 10 +113,301 ( 112,849 ) 452 107,669 ( 105,533 ) 2,136 +Customer lists, contracts, and relationships +5 – 11 +415,311 ( 411,280 ) 4,031 388,466 ( 384,140 ) 4,326 +Non-compete Covenant 3 900 ( 900 ) — 900 ( 900 ) — +Other identifiable intangible assets +3 – 13 +5,106 ( 5,106 ) — 5,080 ( 5,080 ) — +$ 1,049,089 $ ( 634,390 ) $ 414,699 $ 989,535 $ ( 599,629 ) $ 389,906 +The Getty Images and Unsplash trade names were valued using an estimated royalty rate which considered name recognition, licensing practices of the Company and its competitors for similar services, and other relevant qualitative factors. +Based on balances at December 31, 2025, the estimated aggregate amortization expense for identifiable intangible assets for the next five years is as follows (in thousands): +Years Ended +December 31, +2026 $ 1,016 +2027 566 +2028 566 +2029 566 +2030 566 +9. OTHER ASSETS AND LIABILITIES +The following table summarizes the Company’s other long-term assets: +Year end December 31, +(In thousands) 2025 2024 +Long term note receivable from a related party $ 24,000 $ 24,000 +Minority and other investments +4,630 4,385 +Equity method investment +1,664 1,077 +Other 1,219 1,338 +Total other long-term assets $ 31,513 $ 30,800 +F-19 +Table of Contents +The following table summarizes the Company’s accrued expenses: +(In thousands) Year end December 31, +2025 2024 +Accrued compensation and related costs $ 31,053 $ 26,419 +Lease liabilities 6,714 11,252 +Interest payable 32,036 9,903 +Accrued professional fees 17,938 10,809 +Other 2,113 1,555 +Total accrued expenses $ 89,854 $ 59,938 +10. DEBT +The Company’s debt obligations as of December 31, 2025 primarily comprise Senior Secured Notes, Senior Unsecured Notes, and Term Loans. The Company’s debt is summarized below: +(In thousands) Year end December 31, +2025 2024 +2025 Senior Unsecured Notes $ 294,686 $ — +10.500 % Senior Secured Notes +628,400 — +11.250 % Senior Secured Notes +539,944 — +2019 Senior Unsecured Notes 5,314 300,000 +2019 USD Term Loans — 579,200 +2019 EUR Term Loans 1 +— 435,190 +2025 USD Term Loans 40,056 — +2025 EUR Term Loans 1 +497,163 — +Adjusted for: issuance costs, premiums and discounts amortized to interest expense ( 38,201 ) 34 +Less short-term debt - net ( 696,474 ) — +Long-term debt – net $ 1,270,888 $ 1,314,424 +1 The table above converted the EUR Term Loans to USD using currency exchange rates as of those dates. +2019 Financing +On February 19, 2019, the Company issued $ 300.0 million of Senior Unsecured Notes due in 2027 (the “2019 Senior Unsecured Notes”) and entered into a senior secured credit facility (the “Existing Credit Agreement”) consisting of (i) a $ 1,040.0 million term loan facility (the “2019 USD Term Loans”), (ii) a € 450.0 million term loan facility (the “2019 EUR Term Loans” and together with the 2019 USD Term Loans the “2019 Term Loans”) and (iii) an $ 80.0 million revolving credit facility (“Revolver”). The 2019 Term Loans were refinanced during the year ended December 31, 2025, as disclosed below. +2019 Senior Unsecured Notes +The 2019 Senior Unsecured Notes are due March 1, 2027, and bear interest at a rate of 9.750 % per annum. Interest on the notes is payable semi-annually on March 1 and September 1 of each year. The Company may redeem the Senior Notes earlier than March 1, 2027, subject to prepayment premiums. +Revolver +On May 4, 2023, the Company amended the Existing Credit Agreement to (i) increase Revolver commitments to $ 150.0 million and (ii) extend the Revolver maturity to May 4, 2028. The revolving facility is also subject to a +F-20 +Table of Contents +springing maturity of 180 days prior to certain earlier debt maturities if aggregate principal of such debt exceeds $ 100.0 million. The revolving credit facility remains undrawn. The Company accounted for this amendment as a modification of the existing revolving credit facility. Related issuance costs and amendment fees are amortized over the remaining Revolver term. The Company incurred unused commitment fees of $ 0.7 million in each of the years ended December 31, 2025, 2024 and 2023. +Term Loan Refinancing +On February 21, 2025 (the “Amendment Effective Date”), the Company entered into the Second Incremental Commitment Amendment and Third Amendment to Credit Agreement (the “Term Loan Refinancing Amendment”), which amended the Existing Credit Agreement. The Term Loan Refinancing Amendment provided $ 580.0 million of U.S. Dollar term loans (the “2025 USD Term Loans”) and € 440.0 million of Euro denominated term loans (the “2025 EUR Term Loans” and together with the 2025 USD Term Loans, the “2025 Term Loans”). +The proceeds from the 2025 Term Loans were used to retire and repay the following indebtedness: +•$ 579.2 million of 2019 USD Term Loans, +• € 419.0 million of 2019 EUR Term Loans +Interest +The 2025 USD Term Loans bear a fixed interest rate of 11.25 % per year. +The 2025 EUR Term Loans accrue interest at the Adjusted Eurodollar Rate plus 6.00 % per annum. The Adjusted Eurodollar Rate is defined in the Term Loan Refinancing Amendment and is interest rate per annum, rounded upwards to the nearest 1/16 of 1.0% equal to (a) the Eurodollar Rate for such period (EURIBOR) multiplied by (b) the Statutory Reserve Rate. If this calculated rate is less than zero, it will be considered zero instead for that period. +Maturity, Repayment and Prepayment Premium +The 2025 Term Loans mature on February 21, 2030. +The 2025 EUR Term Loans will amortize at 5.0 % per annum, payable in equal quarterly installments. As of December 31, 2025, € 22.0 million was classified as Short-term debt - net on the Consolidated Balance Sheet. +Any prepayment of the 2025 EUR Term Loans on or prior to the second anniversary of the Amendment Effective Date will be subject to a prepayment premium equal to: +• a make-whole amount if made prior to the first anniversary of the Amendment Effective Date +• 1.00 % of the principal amount of the 2025 EUR Term Loans prepaid if made on or after the first anniversary of the Amendment Effective Date but prior to the second anniversary of the Amendment Effective Date +The 2025 USD Term Loans must be fully repaid at maturity. Prepayments of the 2025 USD Term Loans prior to the fourth anniversary of issuance are subject to premiums equal to: +• A make-whole premium if prepaid prior to the second anniversary +• 5.625 % if prepaid after the second anniversary but prior to the third anniversary +• 2.813 % if prepaid after the third anniversary but prior to the fourth anniversary +Priority +The obligations under the Existing Credit Agreement are secured by a first priority lien on substantially all of the loan parties’ assets. +Permitted Debt Exchange Offer +F-21 +Table of Contents +The Company had the option to exchange the 2025 USD Term Loans for notes with substantially similar economics (the “Permitted Debt Exchange Offer”). Lenders were not obligated to participate in the exchange. On May 5, 2025 (the “Permitted Debt Exchange Date” ) the Company exchanged a portion of the 2025 USD Term Loans for 11.250 % Senior Secured Notes. After the Permitted Debt Exchange Offer, the Company had $ 40.1 million in 2025 USD Term Loans outstanding. The prepayment of 2025 Term Loans in connection with the Permitted Debt Exchange was not subject to prepayment premiums. +Accounting Treatment +In accordance with applicable debt modification guidance, the Company recorded a loss on the extinguishment of debt of $ 5.5 million and expensed $ 3.2 million of third-party costs related to the Term Loan Refinancing Amendment. +11.250 % Senior Secured Note Issuance +On May 5th, 2025, the Company issued $ 539.9 million in 11.250 % Senior Secured Notes due 2030 (the “ 11.250 % Senior Secured Notes”) in a Permitted Debt Exchange for certain 2025 USD Term Loans pursuant to an Indenture, dated as of May 5, 2025 (the “Indenture”). +Interest +Interest is payable semi-annually in arrears on May 1 and November 1 of each year, at a rate of 11.250 % per year. +Maturity and Redemption +The 11.250 % Senior Secured Notes mature on February 21, 2030. Prior to February 21, 2027, the Company may redeem the 11.250 % Senior Secured Notes at its option at a redemption price equal to 100 % of the principal amount of the 11.250 % Senior Secured Notes redeemed, plus a “make-whole” premium and accrued and unpaid interest. +On or after February 21, 2027, the Company may redeem the 11.250 % Senior Secured Notes at its option. The redemption price if redeemed during the twelve-month period beginning on February 21 of the year indicated below: +• 2027 at 105.625 % +• 2028 at 102.813 % +• 2029 at 100.000 % +The Company may also redeem the 11.250 % Senior Secured Notes prior to February 21, 2027 in an amount equal to the net cash proceeds received by the Company from any equity offering at a redemption price equal to 111.250 % of the principal amount plus accrued and unpaid interest, in an aggregate principal amount for all such redemptions not to exceed 40 % of the aggregate principal amount of the 11.250 % Senior Secured Notes, provided that the redemption takes place not later than 180 days after the closing of the related equity offering; and not less than 50 % of the aggregate principal amount of the 11.250 % Senior Secured Notes remains outstanding immediately thereafter, unless all such 11.250 % Senior Secured Notes are redeemed substantially concurrently. +Ranking, Guarantees and Security +The obligations under the 11.250 % Senior Secured Notes are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by certain of the Company’s wholly-owned domestic restricted subsidiaries, and secured by a first priority security interest in substantially all of the existing and future assets of the Company. +Change of Control +If the Company experiences a change of control, the Company must offer to repurchase the 11.250 % Senior Secured Notes at a purchase price equal to 101 % of the aggregate principal amount, plus accrued and unpaid interest. +F-22 +Table of Contents +Covenants and Events of Default +The terms of the Indenture limit the ability of the Company and its restricted subsidiaries to (i) incur or guarantee additional indebtedness or issue disqualified stock or preferred stock; (ii) pay dividends and make other distributions on, or redeem or repurchase, the Company’s capital stock; (iii) make loans and investments; (iv) prepay, redeem or repurchase indebtedness; (v) incur liens securing indebtedness; (vi) enter into transactions with affiliates; (vii) consolidate, merge or convey, transfer or lease all or substantially all of its assets; (viii) enter into agreements that restrict the ability of restricted subsidiaries to make dividends or other payments to the Company; (ix) designate the Company’s subsidiaries as unrestricted subsidiaries; and (x) transfer or sell assets. +Accounting Treatment +The 11.250 % Senior Secured Note issuance was accounted for as a continuation of the refinancing of the 2019 Term Loans and, in accordance with applicable guidance, $ 2.8 million of third-party costs were expensed. +2019 Senior Unsecured Notes Exchange +On October 21, 2025, the Company exchanged $ 294.7 million of its of 2019 Senior Unsecured Notes for 14.000 % Senior Unsecured Notes due in 2028 (the “2025 Senior Unsecured Notes”) and obtained related consents to amend the indenture governing the 2019 Senior Unsecured Notes (the “Exchange Offer”). After the Exchange Offer, $ 5.3 million of 2019 Senior Unsecured Notes remained outstanding. +Interest +Interest on the 2025 Senior Unsecured Notes is payable semi-annually on March 1 and September 1 of each year at a rate of 14.000 % per year. +Maturity and Redemption +The 2025 Senior Unsecured Notes mature on March 1, 2028, unless earlier redeemed or repurchased. +The 2025 Senior Unsecured Notes are redeemable at the Company’s option at any time before the earlier of (i) March 1, 2027, and (ii) the 180 th day after the closing of the Merger at a redemption price equal to 100 % of the principal amount plus accrued and unpaid interest. After the earlier of (i) March 1, 2027, and (ii) the 180 th day after the closing of the Merger, the Company may redeem the 2025 Senior Unsecured Notes at a redemption price as described below: +• After the earlier of (i) March 1, 2027 and (ii) the 180th day after the Merger Closing Date at 101 % +• After the earlier of (i) September 1, 2027 and (ii) the 360th day after the Merger Closing Date at 102 % +• After the earlier of (i) March 1, 2028 and (ii) the 540th day after the Merger Closing Date at 103 % +• After the 720th day after the Merger Closing Date (to the extent applicable) at 104 % +On June 30, 2026, and every June 30 and December 30 thereafter, the Company will redeem $ 30 million of the outstanding 2025 Senior Unsecured Notes at a redemption price equal to the percentages in the optional redemption section above. These mandatory redemptions will be at par. +The 2025 Senior Unsecured Notes may also become redeemable upon the occurrence of certain Events of Default. +Ranking, Guarantees and Security +The new 2025 Senior Unsecured Notes are senior unsecured obligations of the Company and guaranteed on a senior basis by the same subsidiaries that guarantee the 2019 Senior Unsecured Notes. Following completion of the pending Merger, Shutterstock and certain of its subsidiaries are expected to become guarantors of the 2025 Senior Unsecured Notes. +Change of Control +F-23 +Table of Contents +If the Company experiences a change of control, the Company must offer to repurchase the 2025 Senior Unsecured Notes from the holders thereof at a purchase price equal to 101 % of the principal amount, plus accrued and unpaid interest. +Covenants and Events of Default +The terms of the 2025 Senior Unsecured Notes, among other things, limit the ability of the Company and its restricted subsidiaries to (i) incur or guarantee additional indebtedness or issue disqualified stock or preferred stock; (ii) pay dividends and make other distributions on, or redeem or repurchase, the Company’s capital stock; (iii) incur liens securing indebtedness; (iv) enter into transactions with affiliates; (v) designate the Company’s subsidiaries as unrestricted subsidiaries; and (vi) transfer or sell assets. +Accounting Treatment +While the Exchange Offer occurred contemporaneously with the issuance of the 10.500 % Senior Secured Notes, the Company accounted for the transactions separately because they were not contractually contingent and were not structured to achieve a single overall economic outcome. +The Company accounted for the Exchange Offer as a modification in accordance with applicable guidance, and accordingly $ 7.9 million of third-party costs were expensed. +10.500 % Senior Secured Note Issuance +On October 21, 2025, the Company issued $ 628.4 million of 10.500 % Senior Secured Notes due in 2030 (the “ 10.500 % Senior Secured Notes”). The Company intends to use the proceeds to facilitate the proposed Merger with Shutterstock, primarily to fund the cash portion of the Merger consideration and settle Shutterstock's outstanding debt. +Interest +Interest on the 10.500 % Senior Secured Notes is payable semi-annually on May 15 and November 15 of each year at a rate of 10.500 % per year. +Maturity and Redemption +The 10.500 % Senior Secured Notes mature on November 15, 2030. +Prior to November 15, 2027, the Company may redeem the 10.500 % Senior Secured Notes at its option at a redemption price equal to 100 % of the principal amount of the 10.500 % Senior Secured Notes redeemed, plus a “make-whole” premium and accrued and unpaid interest. +On or after November 15, 2027, the Company may redeem the 10.500 % Senior Secured Notes at its option. The redemption price if redeemed during the twelve-month period beginning on November 15 of the year is indicated below: +• 2027 at 105.250 % +• 2028 at 102.625 % +• 2029 at 100.000 % +The Company may also redeem the 10.500 % Senior Secured Notes prior to November 15, 2027 in an amount equal to the net cash proceeds received by the Company from any equity offering at a redemption price equal to 110.50 % of the principal amount plus accrued and unpaid interest, in an aggregate principal amount for all such redemptions not to exceed 40 % of the aggregate principal amount of the 10.500 % Senior Secured Notes, provided that the redemption takes place not later than 180 days after the closing of the related equity offering; and not less than 50 % of the aggregate principal amount of the 10.500 % Senior Secured Notes remains outstanding immediately thereafter, unless all such 10.500 % Senior Secured Notes are redeemed substantially concurrently. +Upon an asset disposition, if there are excess proceeds greater than $ 50 million or 15 % of EBITDA remaining after 18 months of such asset disposition, the Company must redeem the 10.500 % Senior Secured Notes at a price +F-24 +Table of Contents +equal to 100 % of the principal amount of the 10.500 % Senior Secured Notes plus accrued and unpaid interest. The Company considers a redemption upon certain asset dispositions to be optional because, upon receipt of proceeds from such asset disposition, the Company may elect to either repay the Company’s indebtedness or to invest the proceeds in capital assets. Redemption is triggered only if there are excess proceeds greater than $ 50 million or 15 % of EBITDA remaining after 18 months of such asset disposition. +In the event that the Merger Agreement is terminated or will not be consummated on or prior to October 6, 2026, the 10.500 % Senior Secured Notes will be redeemed at a redemption price equal to 100 % of the issue price plus accrued and unpaid interest. As this may require redemption within one year and is dependent on factors outside of the Company’s control, the 10.500 % Senior Secured Notes are classified as a current liability. If the Merger is consummated prior to the October 6, 2026, the Notes will be reclassified to a long-term obligation. +Ranking, Guarantees and Security +The 10.500 % Senior Secured Notes are jointly and severally guaranteed by the same guarantors that guarantee the Credit Agreement and the 11.25 % Senior Secured Notes. Following completion of the pending Merger, Shutterstock and certain of its subsidiaries are expected to become guarantors of the 10.500 % Senior Secured Notes. +Change of Control +If the Company experiences a change of control, the Company must offer to repurchase the 10.500 % Senior Secured Notes from the holders thereof at a purchase price equal to 101 % of the aggregate principal amount thereof, plus accrued and unpaid interest. +Covenants and Events of Default +The terms of the 10.500 % Senior Secured Notes, among other things, limit the ability of the Company and its restricted subsidiaries to (i) incur or guarantee additional indebtedness or issue disqualified stock or preferred stock; (ii) pay dividends and make other distributions on, or redeem or repurchase, the Company’s capital stock; (iii) make loans and investments; (iv) prepay, redeem or repurchase indebtedness; (v) incur liens securing indebtedness; (vi) enter into transactions with affiliates; (vii) consolidate, merge or convey, transfer or lease all or substantially all of its assets; (viii) enter into agreements that restrict the ability of restricted subsidiaries to make dividends or other payments to the Company; (ix) designate the Company’s subsidiaries as unrestricted subsidiaries; and (x) transfer or sell assets. +Escrow Agreement +In connection with the 10.500 % Senior Secured Notes, the Company also entered into an escrow agreement, dated as of October 21, 2025 (the “Escrow Agreement“). The Company has deposited the gross proceeds of the offering of the 10.500 % Senior Secured Notes in an escrow account. Upon release from escrow, the Company intends to use the escrowed proceeds to pay approximately $ 350.0 million in cash consideration, fees, and expenses in connection with the Merger and to use the remaining proceeds to refinance certain indebtedness of Shutterstock and pay fees and expenses in connection with that offering. +Accounting Treatment +The Company incurred and capitalized $ 13.5 million in lender fees and third-party debt issuance costs related to the issuance of the 10.500 % Senior Secured Notes. +In total, the Company expensed $ 13.9 million during the year ended December 31, 2025 in third-party costs related to the Term Loan Refinancing Amendment, Permitted Debt Exchange, and Exchange Offer that did not qualify as debt issuance costs as “ Other non-operating income (expense) – net ” and $ 5.5 million of “Loss on extinguishment of debt” in the Consolidated Statements of Operations. +Debt issuance costs and discounts are reported in the Consolidated Balance Sheets as a direct deduction from the face amount of the debt. These costs are amortized as a component of Interest expense in the Consolidated Statements of Operations utilizing the effective interest method. +The Company was in compliance with all covenants as of December 31, 2025. +F-25 +Table of Contents +11. COMMITMENTS AND CONTINGENCIES +Commitments +The Company has entered into agreements that represent significant, enforceable and legally binding contractual obligations that are noncancelable without incurring a significant penalty. If a contract is cancelable with a penalty, the amount shown in the table below is the full contractual obligation, not the penalty, as the Company currently intends to fulfill each of these obligations. +Liabilities for uncertain tax positions are excluded from this table due to the uncertainty of the timing of the resolution of the underlying tax positions. At December 31, 2025, net uncertain tax positions were $ 21.1 million . The entire balance as of December 31, 2025 is non-current as the timing of resolution is uncertain and no portion of these liabilities is expected to be cash settled within the next 12 months. +Payments under purchase orders, certain sponsorships, donations and other commitments that are not enforceable and legally binding contractual obligations are also excluded from this table, as are payments, guaranteed and contingent, under employment contracts because they do not constitute purchase commitments. +The Company leases real estate under operating lease agreements that expire on various dates and does not anticipate any difficulties in renewing those leases that expire within the next several years or in leasing other space or hosting facilities, if required. The Company enters into unconditional purchase obligations related to contracts for cloud-based services, infrastructure and other business services as well as minimum royalty guarantees in connection +F-26 +Table of Contents +with certain content licenses. The future minimum payments under debt obligations, non-cancelable operating leases and other purchase obligations are as follows as of December 31, 2025 (in thousands): +Years ended December 31, +2026 2027 2028 2029 2030 Thereafter Total +2025 Senior Unsecured Notes: +Principal payments $ 60,000 $ 60,000 $ 174,686 $ — $ — $ — $ 294,686 +Interest payments 35,864 33,533 12,228 — — — 81,625 +Redemption premium — 900 3,494 — — — 4,394 +10.5 % Senior Secured Notes: +Principal payments 628,400 — — — — — 628,400 +Interest payments 63,233 — — — — — 63,233 +11.25 % Senior Secured Notes: +Principal payments — — — — 539,944 — 539,944 +Interest payments 60,744 60,744 60,744 60,744 18,561 — 261,537 +2019 Senior Unsecured Notes: +Principal payments — 5,314 — — — — 5,314 +Interest payments 518 259 — — — — 777 +2025 USD Term Loans and EUR Term loans: +Principal payments 25,827 25,827 25,827 25,827 433,912 — 537,220 +Interest payments 1 +43,745 42,252 41,651 40,276 5,538 — 173,462 +Revolver commitment fee 608 563 — — — — 1,171 +Operating lease payments on facilities leases 9,468 7,405 6,389 5,966 5,787 6,685 41,700 +Minimum royalty guarantee payments to content suppliers 45,325 31,158 30,002 20,165 17,892 193 144,735 +Technology purchase commitments 7,325 1,689 195 — — — 9,209 +Other commitments 16,819 895 570 415 415 — 19,114 +Total commitments $ 997,876 $ 270,539 $ 355,786 $ 153,393 $ 1,022,049 $ 6,878 $ 2,806,521 +1 Interest payments for the 2025 EUR Term Loan are estimated payments based on EURIBOR interest rate curves valued as of December 31, 2025. Rates used for the 2025 EUR Term Loans are 8.0 % for 2026, and 8.1 % for 2027, 8.5 % for 2028, 8.6 % for 2029, and 8.6 % for 2030. The 2025 USD Term Loan has a fixed rate of 11.25 % . +Offsetting operating lease payments will be approximately $ 1.2 million in receipts for subleased facilities through 2026. Offsetting the minimum royalty guarantee payments to content suppliers will be approximately $ 2.0 million in annual minimum guaranteed receipts from content suppliers through 2030. +Contingencies +The Company indemnifies certain customers from claims related to alleged infringements of the intellectual property rights of third parties or misappropriation of publicity or personality rights of third parties, such as claims arising from copyright infringement or failure to secure model and property releases for images the Company licenses if such a release is required. The standard terms of these indemnifications require the Company to defend those claims upon notice and pay related damages, if any. The Company typically mitigates this risk by requiring all uses of licenses to be within the scope of the license, securing all necessary model and property releases for imagery for which the Company holds the copyright, and by contractually requiring contributing photographers and other imagery partners to do the same prior to submitting any imagery to the Company and by limiting damages/liability in certain circumstances. Additionally, the Company requires all contributors and image partners, as well as potential acquisition targets to warrant that the content licensed to or purchased by the Company does not and shall not infringe upon or misappropriate the rights of third parties. The Company requires contributing photographers, other imagery partners and sellers of businesses or image collections that Getty Images has purchased to indemnify the Company in certain circumstances where a claim arises in relation to an image they have provided or sold to the Company. Imagery Partners are typically required to carry insurance policies for losses related to such claims and individual contributors +F-27 +Table of Contents +are encouraged to carry such policies and the Company itself has insurance policies to cover litigation costs for such claims. The Company will record liabilities for these indemnifications if and when such claims are probable and the range of possible payments and available recourse from imagery partners can be assessed, as applicable. Historically, the exposure to such claims has been immaterial, as were the recorded liabilities for intellectual property infringement at December 31, 2025 or 2024. +In the ordinary course of business, the Company enters into certain types of agreements that contingently require the Company to indemnify counterparties against third-party claims. These may include: +• agreements with vendors and suppliers, under which the Company may indemnify them against claims arising from Getty Images’ use of their products or services; +• agreements with customers other than those licensing images, under which the Company may indemnify them against claims arising from their use of Getty Images’ products or services; +• agreements with agents, delegates and distributors, under which the Company may indemnify them against claims arising from their distribution of Getty Images’ products or services; +• real estate and equipment leases, under which the Company may indemnify lessors against third-party claims relating to use of their property; +• agreements with directors and officers, under which the Company indemnifies them to the full extent allowed by Delaware law against claims relating to their service to Getty Images; +• agreements with purchasers of businesses Getty Images has sold, under which Getty Images may indemnify the purchasers against claims arising from the Company’s operation of the businesses prior to sale; and +• agreements with initial purchasers and underwriters of the Company’s debt securities, under which Getty Images indemnifies them against claims relating to their participation in the Transactions. +The nature and terms of these indemnifications vary from contract to contract, and generally a maximum obligation is not stated. Because management does not believe a material liability is probable, no related liabilities were recorded at December 31, 2025 or 2024. +Warrant Litigation +The Company previously issued 20,700,000 public warrants, which were governed by a Warrant Agreement, dated August 4, 2020 (the “Warrant Agreement”) and redeemed by the Company in October 2022. On October 27 2023, the United States District Court for the Southern District of New York (the “Court”) issued a decision in the actions brought by Alta Partners, LLC (“Alta”) and the CRCM Institutional Master Fund (BVI), LTD parties (“CRCM” and together with Alta, the “Plaintiffs”) captioned: Alta Partners, LLC v. Getty Images Holdings, Inc., Case No. 1:22-cv-08916 (filed October 19, 2022), and CRCM Institutional Master Fund (BVI) LTD, et al. v. Getty Images Holdings, Inc., Case No. 1:23-cv-01074 (filed February 8, 2023) (together, the “Initial Warrant Litigation”) on cross-motions for summary judgment and entered judgment in favor of Plaintiffs on their breach of contract claims and, in accordance with Plaintiffs’ calculations, awarded damages in the amount of $ 36.9 million for Alta with respect to 2,066,371 public warrants that it owned as of the purported exercise date and $ 51.0 million for CRCM with respect to 3,010,764 public warrants that they owned as of the purported exercise date, plus, in each case, pre-judgment interest of 9 % per annum. The Court entered judgment in favor of the Company on all other claims asserted by Plaintiffs including a similar breach of contract claim by Alta with respect to 11,593,149 public warrants that Alta had purchased in the open market after the date on which it had purported to exercise warrants and before the warrants were redeemed by the Company, and for which Alta sought the same per warrant money damages. The Company appealed the portion of the Court’s judgment in favor of Plaintiffs and Alta cross-appealed the portion of the Court’s judgment in favor of the Company with respect to the later-acquired public warrants. +In an Opinion issued on January 15, 2026, the United States Court of Appeals for the Second Circuit affirmed the Court’s opinion and judgment in all respects, with one judge dissenting. The Company filed a petition for rehearing of the decision by the Second Circuit on February 19, 2026. +The Company has been named as a defendant in fourteen additional lawsuits by purported former public warrant holders alleging to have owned approximately 4.3 million public warrants in the aggregate (collectively, the “Follow-On Warrant Litigation”). Two of these additional suits were filed in the United States District Court for the Southern District of New York, Daniel Berner v. Getty Images Holdings, Inc., Case No. 1:24-cv-04483-JSR (filed June 11, 2024), and James Lapp v. Getty Images Holdings, Inc., Case No. 1: 24-cv-05129-JSR (filed July 5, 2024) (the “Berner/Lapp Actions”) and were pending before the same Judge that decided the Initial Warrant Litigation. These complaints generally allege breaches of the Warrant Agreement, and Berner has plead an alternative claim for violation of federal securities laws. The Court entered an order dismissing Berner’s alternative claims for violation of +F-28 +Table of Contents +federal securities laws, and the Company filed answers to the complaints with respect to plaintiffs’ contract claims. The Plaintiffs in the Berner/Lapp Actions have argued that these matters are substantially similar to the Initial Warrant Litigation, and that the decision (including the method for calculating damages, which the Company disputes) reached in the Initial Warrant Litigation should be binding on the Company in the Berner/Lapp Actions. The federal court has consolidated the Berner/Lapp Actions for all pretrial purposes and entered a schedule, which included a hearing on motions for summary judgment on December 20, 2024. Following the summary judgment hearing, on January 27, 2025, the Court issued a bottom-line order in the Berner/Lapp Actions granting summary judgment to plaintiffs Berner and Lapp reciting that “[a]n Opinion explaining the reasons for this ruling will issue in due course, at which time judgment will be entered.” The Judge issued its Opinion on August 7, 2025, confirming its bottom-line order, granting summary judgment to the plaintiffs Berner and Lapp and calculating damages, including pre-judgment interest at $ 7.8 million. The Company has appealed the Opinion and judgment. +The other twelve additional suits since the Initial Warrant Litigation have been filed in the New York State Supreme Court, New York County: CSS, LLC v. Getty Images Holdings, Inc., Index No. 653527/2024 (filed July 12, 2024); Walleye Manager Opportunities LLC et. al. v. Getty Images Holdings, Inc., Index No. 653528/2024 (filed July 12, 2024); Funicular Funds LP v. Getty Images Holdings, Inc., Index No. 653410/2024 (filed July 5, 2024); MPF Broadway Convexity Fund I, LP et. al. v. Getty Images Holdings, Inc., Index No. 653411/2024 (filed July 5, 2024), LMR Multi-Strategy Master Fund Limited et al. v. Getty Images Holdings, Inc., Index No. 654963/2024 (filed September 20, 2024); Jordan Flannery v. Getty Images Holdings, Inc., Index No. 654961/2024 (filed September 20, 2024); Bi-Directional Disequilibrium Fund, L.P. et al. v. Getty Images Holdings, Inc., Index No. 654960/2024 (filed September 20, 2024); Holland v. Getty Images Holdings, Inc., Index No. 655746/2024 (filed October 29, 2024); Hunsicker v. Getty Images Holdings, Inc., Index. No. 655911/2024 (filed November 7, 2024); Dasher, et al. v. Getty Images Holdings, Inc., Index No. 655913/2024 (filed November 7, 2024); Parker v. Getty Images Holdings, Inc., Index No. 659240/2024 (filed November 22, 2024); Highbridge Tactical Credit Master Fund L.P. et. al. v. Getty Images Holdings, Inc., Index No. 650402/2025 (filed January 21, 2025) (the “NY State Actions”). The NY State Actions generally allege breaches of the Warrant Agreement and seek an award of money damages, and the plaintiffs in these actions could seek, and the courts could award, money damages per warrant that are less than, equal to or greater than the per warrant money damages awarded in the Initial Warrant Litigation. The Company filed answers to each of the complaints in response to NY State Actions on April 11, 2025. During a status conference on May 8, 2025, the Court ordered the claimants to file an amended complaint, consolidating all of the claimants. The amended complaint was filed on June 6, 2025 and the Company answered on June 26, 2025. The parties completed discovery and the plaintiffs filed a note of issue and certification of readiness for trial on December 5, 2025. On December 19, 2025, plaintiffs filed a motion for summary judgment, and on December 23, 2025, the Company moved to vacate plaintiffs’ note of issue and certificate of readiness. The Company filed its response to the motion for summary judgment on February 20, 2026. Briefing with respect to the motion for summary judgment and motion to vacate are ongoing. +It is possible that additional purported former warrant holders of the Company could bring additional lawsuits against the Company, its directors or officers, alleging substantially similar claims, or new or different claims relating to the public warrants. The Company intends to defend itself vigorously in the Initial Warrant Litigation, the Follow-on Warrant Litigation and any future actions and is unable to estimate any potential additional loss or range of loss that may result from the ultimate resolution of these matters, which could be material to the Company’s business, financial condition, results of operations and cash flows. +The Company has recorded a loss on litigation relating collectively to the Initial Warrant Litigation, Berner/Lapp Actions and NY State Actions based on the criteria under ASC 450 - Contingencies (“ASC 450”) and as of December 31, 2025 held a related litigation reserve of $ 205.3 million with a remaining insurance recovery receivable related thereto of approximately $ 35.0 million in the Consolidated Balance Sheet. Although the Company cannot be certain of the outcome of any litigation or the disposition of any claims, or the amount of damages and exposure, if any, that the Company could incur, the Company does not currently believe that a material loss arising from the final disposition of existing matters, other than those in respect of which the Company has made litigation reserves as described above, is probable. Due to the inherent uncertainties of litigation and regulatory proceedings, the Company cannot determine with certainty the ultimate outcome of any such litigation or proceedings. If the final resolution of any such litigation or proceedings is unfavorable, our financial condition, results of operations and cash flows could be materially affected. Further, in the ordinary course of business, the Company is also subject to periodic threats of lawsuits, investigations and claims. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors. +Stability AI Lawsuits +F-29 +Table of Contents +Getty Images (US), Inc. is a plaintiff in a lawsuit filed on August 14, 2025 in the United States District Court for the Northern District of California against Stability AI, Inc., Stability AI, Ltd. and Stability AI US Services Corp. The case, Getty Images (US), Inc. v. Stability AI, Inc., Case. No. 3:25-CV-06891-TLT, arises out of Stability AI’s alleged unauthorized reproduction of approximately 12.0 million in images from Getty Images’ websites, along with the accompanying captions and associated metadata, and use of the copied content in connection with various iterations of Stability AI’s generative artificial intelligence model known as Stable Diffusion. Getty Images (US), Inc. has asserted claims for copyright infringement; falsification of copyright management information; trademark infringement; unfair competition; trademark dilution; and deceptive trade practices. Getty Images (US), Inc. seeks, among other things, monetary damages and injunctive relief. On October 14, 2025, the defendants moved to dismiss all of the claims other than the claim for copyright infringement. On October 28, 2025, Getty Images (US), Inc. filed its brief in opposition to the defendants’ partial motion to dismiss. The defendants’ reply brief was filed on November 4, 2025. Oral argument on that motion is scheduled for April 7, 2026. In the meantime, the parties are engaged in fact discovery. Getty Images (US), Inc. originally sought relief in the United States District Court for the District of Delaware but, following Stability AI’s challenge to personal jurisdiction over Stability AI, Ltd. in Delaware and motion to dismiss or transfer the suit to the Northern District of California, Getty Images (US), Inc. voluntarily dismissed that suit without prejudice and brought suit in California prior to any ruling by the Delaware court. +Arising out of similar alleged facts, Getty Images (US), Inc., Getty Images International U.C., Getty Images (UK) Limited, Getty Images Devco UK Limited and iStockphoto LP are Claimants in proceedings issued in the High Court of England & Wales against Stability AI Limited on January 16, 2023, claim number IL2023-000007, which, together with the Particulars of Claim (the Claimants’ statement of case) were served on the defendant on May 12, 2023. The Claimants assert claims for copyright infringement, infringement of database rights, trademark infringement and passing off seeks, amongst other things, monetary damages, injunctive relief and legal costs. +The matter went to trial in the High Court in June 2025. During the trial, the Claimants made a strategic decision to drop the claims relating to primary copyright infringement linked to the training and output of Stability AI’s model and database rights infringement, which according to Stability AI, took place outside of the United Kingdom and was thus beyond the reach of UK copyright law, and focus on the claims related to trademark infringement, passing off and secondary infringement of copyright. On November 4, 2025, the Court issued a ruling finding in favor of the Claimants only on its claims for trademark infringement. While Getty Images was unsuccessful on the secondary infringement claim, the ruling delivered a key factual finding: that, wherever the training and development did take place, Getty Images' copyright-protected works were used to train Stable Diffusion. In December, the High Court held a hearing, during which the Court granted Claimants an injunction, assessed an interim costs award to Stability AI for the matters on which Claimants did not prevail or dropped at trial, granted Getty Images’ request to appeal the decision on secondary infringement and denied Stability AI’s request to appeal the trademark decision. The Claimants have filed an appeal, which Stability AI has challenged. Stability AI has sought permission from the Court of Appeal to hear an appeal on the trademark decision. The parties await that decision. +The Court assessed an interim costs award to Stability AI for the matters on which Claimants did not prevail or dropped at trial of $ 5.8 million. This cost award was included in “Accrued expenses” in the Consolidated Balance Sheet as of December 31, 2025 and included in “Other operating expense - net” in the Consolidated Statement of Operations for the year ended December 31, 2025. +Canada Revenue Agency Tax Assessment +The Company has open tax audits in various jurisdictions and some of these jurisdictions require taxpayers to pay assessed taxes in advance or at the time of appealing such assessments. One such jurisdiction is Canada, where one of the Company’s subsidiaries, iStockphoto ULC, recently received tax assessments from the Canada Revenue Agency (“CRA”) asserting additional tax is due. The position taken by the CRA is related to the transactions between iStockphoto ULC and other affiliates within the Getty Images group for the 2015 Canadian income tax return filed. The Company believes the CRA position lacks merit and intends to appeal and vigorously contest these assessments. +As part of the appeal process in Canada, the Company may be required to pay a portion of the assessment amount, which the Company estimates could be up to $ 19.7 million. Such required payment is not an admission that the Company believes it is subject to such taxes. The Company believes it is more likely than not it will prevail on appeal, however, if the CRA were to be successful in the appeal process, the Company estimates the maximum potential outcome could be up to $ 28.6 million. +F-30 +Table of Contents +12. REVENUE +Revenue is derived from licensing rights to use images, video footage, music delivered digitally online and data. Digital content licenses are generally purchased on a monthly or annual subscription basis, whereby a customer either pays for a predetermined quantity of content or for access to the Company’s content library that may be downloaded over a specific period of time, or, on a transactional basis, whereby a customer pays for individual content licenses at the time of download. Also, a significant portion of revenue is generated through the sale and subsequent use of credits. Various amounts of credits are required to license digital content. The Company also generates revenue by providing customers with access to its data and content for machine learning and generative artificial intelligence model training uses. +The Company recognizes revenue under the core principle to depict the transfer of control to the Company’s customers in an amount reflecting the consideration to which the Company expects to be entitled. To achieve that core principle, the Company applies the following five-step approach: (i) identify the contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when a performance obligation is satisfied. +For digital content licenses, the Company recognizes revenue on its capped subscription-based, credit-based sales, single image and data access and/or licenses when content is downloaded, at which time the license is provided. In addition, management estimates expected unused licenses for capped subscription-based and credit-based products and recognizes the revenue associated with the unused licenses throughout the subscription or credit period. The estimate of unused licenses is based on historical download activity and future changes in the estimate could impact the timing of revenue recognition of the Company’s subscription products. +For uncapped digital content subscriptions, the Company has determined that access to the existing content library and future digital content updates represent two separate performance obligations. As such, a portion of the total contract consideration related to access to the existing content library is recognized as revenue at the commencement of the contract when control of the content library is transferred. The remaining contractual consideration is recognized as revenue ratably over the term of the contract when updated digital content is transferred to the licensee, in line with when the control of the new content is transferred. +Revenue associated with hosted software services is recognized ratably over the term of the license. +Disaggregation of Revenue +The following tables provide information about disaggregated revenue by major product line, primary geographic market, and timing of revenue recognition. +Revenue by major product: +(In thousands) +Year Ended December 31, +2025 2024 2023 +Creative $ 556,859 $ 552,828 $ 578,739 +Editorial 369,643 345,932 320,643 +Other 54,788 40,527 17,173 +Total Revenue $ 981,290 $ 939,287 $ 916,555 +Certain amounts for the year ended December 31, 2023 have been reclassified to conform to the current year presentation. +F-31 +Table of Contents +Revenue by region +The following represents the Company’s geographic revenue based on customer location : +Year Ended December 31, +(In thousands) 2025 2024 2023 +Americas $ 582,232 $ 535,723 $ 515,374 +Europe, the Middle East, and Africa 305,783 302,745 298,589 +Asia-Pacific 93,275 100,819 102,592 +Total Revenue $ 981,290 $ 939,287 $ 916,555 +Included in Americas is the United States, which comprises approximately 55.2 %, 52.0 % and 51.2 % of total revenue for the years ended December 31, 2025, 2024 and 2023, respectively. Included in Europe, the Middle East, and Africa is the United Kingdom, which accounts for approximately 10.5 %, 10.9 % and 11.1 % of total revenue for the years ended December 31, 2025, 2024 and 2023, respectively. No other country accounts for more than 10% of the Company’s revenue in any period presented. +The December 31, 2025 deferred revenue balance will be earned as content is downloaded, services are provided, or upon the expiration of subscription-based products, and nearly all is expected to be earned within the next twelve months. +During the year ended December 31, 2025, the Company recognized revenue of $ 143.4 million that had been included in deferred revenue as of January 1, 2025. +13. STOCKHOLDERS’ EQUITY +Common Stock — Under the Company’s certificate of incorporation, as amended and restated, the total number of authorized shares of all classes of capital stock to 2,006,140,000 shares, $ 0.0001 par value per share, of which, 2,000,000,000 shares are designated as Class A common stock, 5,140,000 shares are designated as Class B common stock, and 1,000,000 shares are designated as preferred stock. +Each holder of Class A common stock is entitled to one vote for each share on all matters properly submitted to a vote, including the election of directors. Class A Stockholders do not have cumulative voting rights in the election of directors. Accordingly, holders of a majority of the voting shares are able to elect all of the directors. Holders of shares of Class A common stock are entitled to dividends, if any, as may be declared from time-to-time by the Board out of legally available funds. Holders of Class A common stock have no preemptive, conversion, subscription or other rights, and there are no redemption or sinking fund provisions applicable to Class A common stock. +Except as otherwise required by law, no holder of Class B common stock is entitled to any voting rights with respect to Class B common stock. If entitled to vote by law, each holder of Class B common stock is entitled to one vote per share. Holders of shares of Class B common stock are entitled to receive dividends, if any, as may be declared from time-to-time by the Board out of legally available funds, contingent upon the occurrence of a conversion into Class A common stock, as discussed below. The holders of shares of Class B common stock shall not be entitled to receive any assets of the Company in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. Holders of Class B common stock have no preemptive, conversion, subscription or other rights, and there are no redemption or sinking fund provisions applicable to Class B common stock. There were no shares Class B common stock outstanding at December 31, 2025 or December 31, 2024. +Preferred Stock — Under the Company’s certificate of incorporation, as amended and restated, the Company is authorized to issue up to 1,000,000 shares of preferred stock with a par value of $ 0.0001 per share. There was no preferred stock outstanding as of December 31, 2025 or December 31, 2024. +14. EQUITY-BASED COMPENSATION +Equity-based compensation expense is recorded in “Selling, general and administrative expenses” in the Consolidated Statements of Operations, net of estimated forfeitures. The Company recognized equity-based +F-32 +Table of Contents +compensation - net of estimated forfeitures of $ 18.7 million, $ 24.0 million, and $ 40.6 million for the years ended December 31, 2025, 2024 and 2023, respectively. The Company capitalized $ 1.8 million, $ 2.2 million and $ 3.0 million of stock-based compensation expense associated with the cost of developing internal-use software during the year ended December 31, 2025, 2024 and 2023, respectively. +The Company’s Board of Directors approved the Getty Images Holdings, Inc. 2022 Equity Incentive Plan (“2022 Plan”). The 2022 Plan provides for the grant of stock options, including incentive stock options and nonqualified stock options, stock appreciation rights, restricted stock, dividend equivalents, restricted stock units (“RSU”), performance restricted stock units (“PSU”), and other stock or cash-based awards. Equity-based awards generally vest over three or four years . Under the 2022 Plan, up to 51,104,577 shares of Class A common stock are reserved for issuance, of which 2,005,612 are available to be issued as of December 31, 2025. +Stock Options +The following table presents a summary of the Company’s stock option activity for the year ended December 31, 2025 (in thousands except weighted average data and years): +Number +of +awards Weighted +Average +Exercise +Price Remaining +Average +Contractual +Life (in Years) +Outstanding - December 31, 2024 25,599 $ 3.48 4.22 +Granted — — +Exercised ( 490 ) 2.74 +Pre-vesting forfeitures ( 12 ) 5.62 +Post-vesting cancellations ( 519 ) 3.18 +Outstanding - December 31, 2025 24,578 3.50 3.34 +Exercisable - December 31, 2025 24,578 $ 3.50 3.34 +Vested and expected to vest after December 31, 2025 24,279 $ 3.46 3.29 +Intrinsic value of stock options is calculated as the excess of market price of the Company’s common stock over the strike price of the stock options, multiplied by the number of stock options. The intrinsic value of the Company’s stock options is as follows (in thousands): +December 31, +2025 2024 +Stock options outstanding $ — $ 104 +Stock options exercisable — 104 +Stock options vested and expected to vest — 104 +The intrinsic value of stock options exercised for the years ended December 31, 2025, December 31, 2024 and December 31, 2023 was approximately $ 0.2 million, $ 1.9 million and $ 14.9 million, respectively. +No stock options were granted during the years ended December 31, 2025 or 2024. The weighted-average grant-date fair value of stock options, the valuation model used to estimate the fair value, and the assumptions input into that model, for awards granted were as follows: +F-33 +Table of Contents +Year Ended December 31, +2023 +Weighted average grant date fair value per award $ 2.20 +Valuation model used Black-Scholes +Expected award price volatility 50 % +Risk-free rate of return 3.70 % +Expected life of awards 5.89 years +Expected rate of dividends None +The stock volatility assumption for award-based compensation is based on historical volatilities of the common stock of several public companies with characteristics similar to those of the Company since the Company’s common stock has only been trading in the public market for a short period of time. +The risk-free rate of return represents the implied yield available during the month the award was granted for a U.S. Treasury zero-coupon security issued with a term equal to the expected life of the awards. +The expected life is measured from the grant date and is based on the simplified method calculation. +As of December 31, 2025 there was $ 0.6 million of total unrecognized compensation expense related to outstanding stock options, which the Company expects to recognize over a weighted average period of approximately 0.3 years. During the years ended December 31, 2025, 2024 and 2023, the fair value of stock options that vested was $ 2.9 million , $ 4.9 million, and $ 3.8 million, respectively. +Restricted Stock Units +The following table presents a summary of RSU activity (in thousands except weighted average data): +Number +of +awards Weighted Average +Grant-Date Fair Value +Outstanding — December 31, 2024 5,427 $ 4.21 +Granted 4,885 1.78 +Vested ( 2,184 ) 5.04 +Cancelled ( 256 ) 3.09 +Outstanding - December 31, 2025 7,872 $ 2.52 +As of December 31, 2025, the total unrecognized compensation expense related to RSUs is approximately $ 17.1 million, which is expected to be recognized over a weighted average period of approximately 1.77 years. +Performance Stock Units +The following table presents a summary of PSU activity (in thousands except weighted average data): +Number of awards Weighted Average +Grant-Date Fair Value +Outstanding — December 31, 2024 1,319 $ 4.34 +Granted 879 4.77 +Vested ( 615 ) 4.77 +Cancelled ( 264 ) 4.77 +Outstanding - December 31, 2025 1,319 $ 4.34 +The number of units subject to future vesting is based on annual Company achieved factors, such as Revenue growth and Adjusted EBITDA less Capital Expenditures growth. Unvested units are expected to vest at the determination date of March 20, 2025, and expense recognized is adjusted quarterly for expected achievement. In +F-34 +Table of Contents +addition to the granted shares in the table above, the Company issued an incremental 0.76 million PSUs that will have an accounting grant date in future periods upon achieved factors being set. PSU achievement is at the discretion of the Compensation Committee of the Board of Directors. +Earn Out Plan +The Getty Images Holdings, Inc. Earn Out Plan (“Earn Out Plan”) provides for the grant of RSUs, which generally vest upo n grant. Under the Earn Out Plan, up to 6.0 million shares of Class A common stock are reserved for issuance, of which 20,856 shares are available to be issued as of December 31, 2025. No shares were granted, vested, canceled or outstanding during the year ended December 31, 2025. As of December 31, 2025, there is no unrecognized compensation expense related to RSUs granted from the Earn Out Plan, as all RSUs were fully vested upon grant. +Employee Stock Purchase Plan +The Getty Images Holdings, Inc. 2022 Employee Stock Purchase Plan (“ESPP”) provides for shares of Class A common stock to be purchased by eligible employees at six months intervals at 85 % of the fair market value of the stock on either the first or last trading day of each six months period, whichever is lower. Eligible employees are allowed to contribute up to 10 % of their compensation. The Company’s first six months period under the ESPP began on June 1, 2023. Under the ESPP, up to 5.0 million shares of Class A common stock are reserved for issuance, of which 1.9 million shares are available to be issued as of December 31, 2025. +15. DEFINED CONTRIBUTION EMPLOYEE BENEFIT PLANS +The Company sponsors defined contribution retirement plans in which the majority of employees are able to participate. +The Company sponsors one defined contribution plan in the U.S., a 401(k) plan, in which all U.S. employees over 18 years of age are auto-enrolled unless they opt-out. The Company matches 100 % of participant contributions, up to the first 4 % of each participant’s eligible compensation (generally including salary, bonuses and commissions), not to exceed the Internal Revenue Service per person annual limitations. Additionally, the Company sponsors one defined contribution pension plan in the U.K. Employees who contribute a minimum of 3 % of their eligible compensation (generally including salary, bonuses, and commissions), generally receive a Company contribution of 5 % of eligible compensation. Lastly, the Company also has a group registered retirement savings plan (RRSP) for employees in Canada. The Company matches dollar-for-dollar up to 3 % of base salary. Employee contributions are deducted on a pre- tax basis and they may begin participating after 3 months of service. +The Company’s contributions to these plans and other defined contribution plans worldwide totaled $ 8.6 million, $ 8.8 million and $ 7.8 million for the years ended December 31, 2025, 2024 and 2023, respectively. These contributions were recorded as “Selling, general and administrative expenses” in the Consolidated Statements of Operations. +16. LEASES +The Company’s leases relate primarily to office facilities that expire on various dates from 2026 through 2032, some of which include one or more options to renew. All of the Company’s leases are classified as operating leases. Operating leases are included in “Right of use assets” in the Consolidated Balance Sheets. Current portion of the lease liabilities are included in “Accrued expenses” and non-current portion of lease liabilities are included in “Lease liabilities” in the Consolidated Balance Sheets. Operating lease costs, including insignificant costs related to short-term leases, were $ 8.6 million, $ 8.4 million and $ 8.9 million for the years ended December 31, 2025, 2024 and 2023, respectively. +F-35 +Table of Contents +Additional information related to the Company’s leases as of and for the years ended December 31, 2025 and 2024, are as follows (in thousands, except for the lease term and discount rate): +Year End December 31, +2025 2024 +Right of use asset $ 24,262 $ 32,453 +Lease liabilities, current 6,714 11,252 +Lease liabilities, non-current 23,553 29,034 +Total lease liabilities $ 30,267 $ 40,286 +Weighted average remaining lease term 5.1 years 5.3 years +Weighted average discount rate 5.7 % 5.7 % +Cash paid for amounts included in lease liabilities $ 13,628 $ 12,359 +Right of use asset obtained in exchange for lease obligations $ — $ 727 +Maturities of lease liabilities as of December 31, 2025 were as follows (in thousands): +Year ended December 31, +2026 $ 7,127 +2027 5,414 +2028 4,358 +2029 4,016 +2030 3,770 +Thereafter 15,662 +Total undiscounted lease payments 40,347 +Less: imputed interest ( 10,080 ) +Total lease liabilities $ 30,267 +Due to hybrid working arrangements, the Company has continued to assess its office needs and subleased several office locations during the year ended December 31, 2025 and 2024. These agreements were considered to be operating leases. The Company has not been legally released from the primary obligations under the original leases and therefore the Company continues to account for the original lease separately. The Company recorded no ROU asset impairment charge for the year ended December 31, 2025 and 2024. The Company recorded $ 314 thousand in ROU asset impairment charge for the year ended December 31, 2023. Impairment is recorded as the amount by which the carrying value of the lease ROU assets exceeded the fair values. Estimates of the fair values are based on the discounted cash flows of estimated net rental income for the office spaces subleased. The ROU asset impairment charge is included in “Other operating expense - net” on the Consolidated Statement of Operations. Rent income from the sublessees is included in the Consolidated Statement of Operations on a straight-line basis as an offset to rent expense associated with the original operating lease included in “Selling, general and administrative expenses” on the Consolidated Statement of Operations. +F-36 +Table of Contents +17. INCOME TAXES +The components of net (loss) income bef ore income taxes are as follows (in thousands): +Year Ended December 31, +2025 2024 2023 +United States $ ( 221,935 ) $ 20,850 $ ( 67,496 ) +Foreign 59,628 66,105 40,591 +Net (loss) income before income taxes $ ( 162,307 ) $ 86,955 $ ( 26,905 ) +The components of income tax expense (benefit) are as follows (in thousands): +Year Ended December 31, +2025 2024 2023 +Current: +United States $ 26,327 $ 22,965 $ 26,720 +Foreign 19,401 17,611 1,823 +Total current income tax expense (benefit) 45,728 40,576 28,543 +Deferred: +United States ( 8,877 ) 3,943 ( 15,169 ) +Foreign 7,025 2,964 ( 59,856 ) +Total deferred income tax expense (benefit) ( 1,852 ) 6,907 ( 75,025 ) +Total provision for income tax expense $ 43,876 $ 47,483 $ ( 46,482 ) +Upon adoption of ASU 2023-09, the income taxes paid, net of refunds, during the year ended December 31, 2025 are as follows (in thousands): +Year Ended December 31, +2025 +United States - Federal $ 18,065 +United States - State and Local 5,299 +Foreign +Australia 3,760 +Canada 4,211 +Japan 2,462 +United Kingdom 2,580 +Other 7,916 +Total income taxes paid, net of refunds $ 44,293 +Income taxes paid, net of refunds, during the years ended December 31, 2024 and 2023 was $ 41.4 million and $ 31.7 million, respectively. Due to prospective adoption of ASU 2023-09, the income taxes paid for years ended December 31, 2024 and 2023 are not presented on a disaggregated basis. +Upon adoption of ASU 2023-09, the Company is required to present additional disaggregated information within the effective tax rate reconciliation. The following table reflects the items accounting for the difference between income taxes computed at the U.S. federal statutory rate and the effective income tax rate for the year ended December 31, 2025 , in accordance with the disclosure requirements of ASU 2023-09 (in thousands): +F-37 +Table of Contents +Year Ended December 31, +2025 +U.S. federal tax at statutory rate $ ( 34,085 ) 21.0 % +State and local income taxes, net of federal income tax effect 1 +6,486 ( 4.0 ) % +Foreign tax effects: +Ireland +Foreign jurisdiction rate differential ( 4,370 ) 2.7 % +Other 495 ( 0.3 ) % +Luxembourg +Nontaxable foreign exchange loss (gain) 2,589 ( 1.6 ) % +Nondeductible interest expense 2,650 ( 1.6 ) % +Other ( 620 ) 0.4 % +Canada +Nondeductible dividend income ( 5,245 ) 3.2 % +Changes in valuation allowances 2,223 ( 1.4 ) % +Other 1,147 ( 0.7 ) % +Australia +Withholding taxes 2,945 ( 1.8 ) % +Other 291 ( 0.2 ) % +Japan +Withholding taxes 2,161 ( 1.3 ) % +Other foreign jurisdictions +Other 7,255 ( 4.5 ) % +Effect of changes in tax laws or rates enacted in the current period — — % +Effect of cross-border tax laws: +Global intangible low-taxed income 3,899 ( 2.4 ) % +Other ( 1,116 ) 0.7 % +Tax credits: +Research and development tax credits ( 530 ) 0.3 % +Foreign tax credits 22,483 ( 13.9 ) % +Changes in valuation allowances 31,879 ( 19.6 ) % +Nontaxable or nondeductible items: +Stock-based compensation 2,474 ( 1.4 ) % +Tax impact on interest rate swap instrument 1,947 ( 1.2 ) % +Other 457 ( 0.3 ) % +Changes in unrecognized tax benefits ( 1,539 ) 0.9 % +Effective tax rate $ 43,876 ( 27.0 ) % +1 The jurisdictions that contribute to the majority of the tax effect in this category include New York and New York City. +As the Company adopted ASU 2023-09 on a prospective basis effective January 1, 2025, the enhanced disaggregation requirements do not apply to the comparative periods. Therefore, the rate reconciliations for the years +F-38 +Table of Contents +ended December 31, 2024 and 2023 are presented in accordance with the guidance in effect prior to the adoption of ASU 2023-09 (in thousands): +Year Ended December 31, +2024 2023 +Federal income tax expense (benefit) at the statutory rate $ 18,274 $ ( 5,651 ) +Effect of: +State taxes, net of federal benefit 3,369 ( 1,736 ) +Tax impact of foreign earnings and losses 16,440 11,524 +Stock-based compensation 2,657 3,633 +Valuation allowance ( 3,656 ) ( 49,425 ) +Tax credits 11,449 ( 5,284 ) +Other, net ( 1,050 ) 457 +Income tax expense (benefit) $ 47,483 $ ( 46,482 ) +Uncertain Tax Positions +The Company follows the provisions of accounting for uncertainty in income taxes. This guidance clarifies the accounting for uncertainty in income taxes recognized in the consolidated financial statements and prescribes a recognition threshold of more likely than not and a measurement attribute on all tax positions taken or expected to be taken in a tax return for their recognition in the financial statements. +A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands): +Year Ended December 31, +2025 2024 2023 +Uncertain tax benefits, beginning of year $ 16,416 $ 20,155 $ 28,967 +Gross increase to tax positions related to prior years 391 — 338 +Gross decrease to tax positions related to prior years ( 210 ) ( 1,457 ) ( 36 ) +Gross increase to tax positions related to the current year 309 2,953 2,036 +Gross decrease to tax positions related to the current year — — — +Settlements — — ( 4,636 ) +Lapse of statute of limitations ( 2,361 ) ( 5,235 ) ( 6,514 ) +Uncertain tax benefits, end of year $ 14,545 $ 16,416 $ 20,155 +As of December 31, 2025, the Company had $ 14.5 million of gross unrecognized tax benefits, of which $ 14.5 million, if fully recognized, would affect the Company’s effective tax rate. The timing of resolution for these liabilities is uncertain. The resolution of these items may result in additional or reduced income tax expense. Possible releases of liabilities due to expirations of statutes of limitations will have the effect of decreasing the Company’s income tax expense and the effective tax rate, if and when they occur. +The Company recognizes interest and penalties related to liabilities for uncertain tax positions in income tax expense in the Consolidated Statements of Operations. Interest and penalties were $ 0.7 million, $( 2.2 ) million, and $( 3.5 ) million for the years ended December 31, 2025, 2024, and 2023, respectively. The Company has recognized total accrued interest and penalties of approximately $ 7.4 million, $ 6.7 million, and $ 8.9 million as of December 31, 2025, 2024, and 2023, respectively, relating to uncertain tax positions. +The Company conducts business globally and, as a result, the Company and its subsidiaries file income tax returns in the U.S., including various states, and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The tax years 2022 and forward are open for U.S. federal income tax matters. The tax years 2018 and forward are open for U.S. state income tax matters. With few exceptions, foreign tax filings are open for years 2012 and subsequent years. As of December 31, 2025, the Company +F-39 +Table of Contents +is currently undergoing audit examinations for tax years 2018 through 2021 by the New York State Department of Taxation, for tax years 2014 through 2016 by the Canada Revenue Agency, and for tax years 2015 through 2021 by the Ireland Tax Appeals Commission. +Deferred Taxes and Valuation Allowances +The Company follows authoritative guidance for accounting for income taxes, which requires the Company to reduce deferred tax by a valuation allowance if, based on the weight of all available positive and negative evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all available evidence for the realizability of U.S. deferred tax assets, the Company provided a valuation allowance of $ 194.5 million and $ 145.9 million for the years ended December 31, 2025 and December 31, 2024, respectively. In future periods, the Company will evaluate the positive and negative evidence available at the time in order to support its analysis for a valuation allowance, and as a result the Company may release its valuation allowance in part, or in total, when it becomes more likely than not that the deferred tax assets will be realized. +Deferred tax assets, liabilities and valuation allowance are as follows (in thousands): +December 31, +2025 2024 +Deferred tax assets +Income tax attributes $ 237,791 $ 240,182 +Accrued liabilities and reserves 70,487 27,600 +Operating lease liabilities 4,841 7,060 +Prepaid expenses 395 — +Unrealized foreign exchange gains/losses 16,972 — +Stock-based compensation expense 5,364 5,388 +Other 2,126 1,003 +Gross deferred tax assets 337,976 281,233 +Less valuation allowance ( 215,425 ) ( 164,322 ) +Total deferred tax assets 122,551 116,911 +Deferred tax liabilities +Amortization and depreciation ( 73,810 ) ( 53,012 ) +Operating lease assets ( 3,935 ) ( 5,707 ) +Prepaid expenses — ( 2,738 ) +Unrealized foreign exchange gains/losses — ( 14,949 ) +Other ( 1,046 ) ( 897 ) +Net deferred tax assets, net of valuation allowance $ 43,760 $ 39,608 +The deferred tax assets at December 31, 2025, with respect to net operating loss carryforwards and expiration periods are as follows (in thousands): +Deferred +Tax +Assets Net Operating +Loss +Carryforwards +United States, expiring between 2026 and 2043 $ 8,483 $ 120,660 +Foreign, expiring between 2025 and 2045 16,624 68,994 +Foreign, indefinite 57,818 449,089 +Total $ 82,925 $ 638,743 +F-40 +Table of Contents +The following is information pertaining to U.S. federal tax credits at December 31, 2025, as well as the expiration periods (in thousands): +Tax +Credits +United States, federal tax credit carryforwards: +Foreign tax credits, expiring between 2031 and 2034 $ 3,937 +Total $ 3,937 +The components of our net deferred taxes at the reported balance sheet dates are primarily comprised of amounts relating to net operating loss carryforwards, accrued assets and liabilities, and depreciable and amortizable assets. +18. SEGMENT AND GEOGRAPHIC INFORMATION +Getty Images is a preeminent global visual content creator and marketplace that offers a full range of content solutions to meet the needs of customers around the globe. Through Getty Images, iStock, and Unsplash brands, websites and APIs, the Company distributes content and service offerings through three primary product lines: Creative, Editorial, and Other. +As of December 31, 2025, 2024 and 2023, the Company identified one operating and reportable segment for purposes of allocating resources and evaluating financial performance. The Company determines its reportable segment primarily based on the management of the business on a consolidated basis rather than by product, as this information is not how the CODM oversees the business. +As part of its financial management practices, the Company conducts an annual budgeting process and regularly reviews forecasted and actual financial results. The Chief Executive Officer, who serves as the Company’s CODM, uses these forecast and actual results to manage the business. The metric most closely aligned with U.S. GAAP, utilized by the CODM to assess financial performance, guide strategic planning, and allocate resources for the reportable segment is net income. +The Company does not have intra-entity sales or transfers. Asset information on a segment basis is not different than that presented in the Consolidated Balance Sheets. +F-41 +Table of Contents +Segment Financial Information +Certain financial information for the Company’s segment, including significant expenses that are used by the CODM to assess the business performance and other segment expense items are listed below (in thousands): +Year Ended December 31, +2025 2024 2023 +Revenue $ 981,290 $ 939,287 $ 916,555 +Less: +Significant segment expense items 1 : +Cost of revenue (exclusive of depreciation and amortization) 261,315 253,068 250,249 +Adjusted Selling, general & administrative expenses 2 +351,781 338,804 316,350 +Marketing costs 47,333 47,144 48,514 +Other segment items 3 +236,945 119,466 173,770 +Segment income from operations 83,916 180,805 127,672 +Interest expense ( 156,175 ) ( 131,408 ) ( 126,884 ) +Other non-operating (expense) income - net 4 +( 90,048 ) 37,558 ( 27,693 ) +Segment (loss) income before income taxes ( 162,307 ) 86,955 ( 26,905 ) +Income tax (expense) benefit ( 43,876 ) ( 47,483 ) 46,482 +Segment net (loss) income ( 206,183 ) 39,472 19,577 +Reconciliation of segment profit or loss — — — +Consolidated net (loss) income $ ( 206,183 ) $ 39,472 $ 19,577 +1 The significant segment expense items are expense information that is regularly provided to the CODM. +2 Total Selling, general and administrative expenses, excluding Marketing costs and Equity compensation expenses. +3 Includes Depreciation, Amortization, Other operating expense - net, Loss on litigation, Recovery of loss on litigation, and Equity compensation expenses. +4 Other segment non-operating (expense) income - net includes Loss on fair value adjustment for swaps – net , Foreign exchange (loss) gain – net , Loss on extinguishment of debt, and Other non-operating income - net. +See “ Note 12 — Revenue” for a breakdown of revenue by product and geographic revenue based on customer location. +The Company’s long-lived tangible assets were located as follows (in thousands): +December 31, +2025 2024 +Americas $ 94,673 $ 93,667 +Europe, the Middle East, and Africa 89,109 83,169 +Asia-Pacific 407 456 +Total long-lived tangible assets $ 184,189 $ 177,292 +Included in Americas is the United States, which comprises 45.2 % and 47.0 % of total long-lived tangible assets as of December 31, 2025 and 2024, respectively. Included in Europe, the Middle East, and Africa is Ireland, which comprises 41.7 % and 39.9 % of total long-lived tangible assets as of December 31, 2025 and 2024, respectively. +F-42 +Table of Contents +19. NET (LOSS) INCOME PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS +The following table sets forth the computation of basic and diluted (loss) income per share of Class A common stock (amounts in thousands, except share and per share amounts): +Year end December 31, +2025 2024 2023 +NET (LOSS) INCOME $ ( 206,183 ) $ 39,472 $ 19,577 +Less: +Net (loss) income attributable to noncontrolling interest ( 60 ) ( 61 ) 238 +NET (LOSS) INCOME ATTRIBUTABLE TO GETTY IMAGES HOLDINGS, INC. - Basic $ ( 206,123 ) $ 39,533 $ 19,339 +Weighted-average Class A common stock outstanding: +Basic 414,344,822 409,144,863 399,037,805 +Effect of dilutive securities — 5,725,938 12,457,220 +Diluted 414,344,822 414,870,801 411,495,025 +Net income (loss) per share of Class A common stock attributable to Getty Images Holdings, Inc. common stockholders: +Basic $ ( 0.50 ) $ 0.10 $ 0.05 +Diluted $ ( 0.50 ) $ 0.10 $ 0.05 +The following are excluded from the computation of diluted net income per share of Class A common stock as their effect would have been anti-dilutive: +December 31, +2025 2024 2023 +Common stock options 24,578,466 5,173,148 4,424,674 +Restricted stock units 7,872,327 5,325,324 2,335,684 +32,450,793 10,498,472 6,760,358 +20. SUBSEQUENT EVENTS +In March 2026 the Company commenced an exchange offer pursuant to which eligible option holders, may elect to tender certain outstanding stock options for cancellation in exchange for a lesser number of new stock options under the Company’s 2022 Equity Incentive Plan. As of February 13, 2026, approximately 22.6 million outstanding options were eligible to participate in the exchange. +F-43 \ No newline at end of file diff --git a/raw/filings/0001898496/2025/0001628280-26-018160/filing_metadata.csv b/raw/filings/0001898496/2025/0001628280-26-018160/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..9ee1d5e98aa4546654742b461c7ff8ea2c4f0c4d --- /dev/null +++ b/raw/filings/0001898496/2025/0001628280-26-018160/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001898496,GETY,"Getty Images Holdings, Inc.",2025,10-K,2026-03-16,2025-12-31,2026-03-16T20:10:02.000Z,0001628280-26-018160,gety-20251231.htm,10-K,16712146,1,1,https://www.sec.gov/Archives/edgar/data/1898496/000162828026018160/gety-20251231.htm,https://www.sec.gov/Archives/edgar/data/1898496/000162828026018160/ diff --git a/raw/filings/0001898496/2025/0001628280-26-018160/item1.txt b/raw/filings/0001898496/2025/0001628280-26-018160/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..c98b5465515d4872001cc41273dc9a46f54eab39 --- /dev/null +++ b/raw/filings/0001898496/2025/0001628280-26-018160/item1.txt @@ -0,0 +1,100 @@ +Item 1. Business. +The Company +Getty Images Holdings, Inc. is a Delaware corporation with its corporate headquarters located at 605 5th Ave S., Suite 400, Seattle, Washington 98104, telephone number (206) 925-5000, internet website address www.gettyimages.com. Our internet website and content contained therein or connected thereto are not incorporated by reference into this Annual Report. References to “Getty Images,” the “Company,” “we,” “our” and “us” and similar terms mean Getty Images Holdings, Inc. and its subsidiaries, unless the context otherwise requires. +Business Overview +Getty Images was founded in 1995, with the core mission of bringing the world’s best creative and editorial visual content solutions to our customers to engage their audiences. We have developed market enhancements across e-commerce, content subscriptions, user-generated content, diverse and inclusive content, and proprietary research alongside investment in our technology platform (which includes generative AI-services designed to be commercially safe, natural language processing, and AI based integrated APIs) to become a global, trusted industry leader in the visual content space. On January 6, 2025, Getty Images entered into an Agreement and Plan of Merger to combine in a merger-of-equals transaction with Shutterstock. See “ Item 7 – Management’s Discussion and Analysis of Financial and Results of Operations – Merger Agreement with Shutterstock ”. +3 +Table of Contents +Product Offerings +Our comprehensive product offering is designed to address the full spectrum of customers’ visual content needs. +Target Customer Enterprises SMBs SMBs, Prosumers, Pro & Semipro Content Creators +Asset Type Premium Creative & Editorial +(Stills, Music, Video, and Generative AI) Budget-Conscious Stills, Video, and Generative AI Free & Low-Cost Creative Stills +Asset Rights Uncapped Indemnification and Rights Customized to Customer Needs Capped Indemnification With Option for More Protection Capped / No Indemnification +Go-to-Market Premium Account Management & Dedicated Support Primarily E-Commerce and Online Service Primarily E-Commerce and Online Service +Plans and Pricing A La Carte, Subscriptions and Custom Assignments A La Carte and Subscriptions Free (Ads), Subscriptions, Ad-supported and Paid API Integrations +• Getty Images is our premium offering focused on corporate, agency, and media customers, serving the full breadth of our customers’ content needs by combining the highest quality content with premium support and customized rights and protections. Customers can purchase on an a la carte basis and through subscriptions, including our “Premium Access” product, where we enable customers to access our complete library of creative and editorial images and video and music, via one website and one set of terms. Our assignment capabilities along with our Custom Content offering, a subscription product that leverages Getty Images’ global network of photographers and videographers to create customized and exclusive project-specific content, enables Getty Images to produce cost-effective content to meet the specific needs of customers. In the fall of 2023, we launched Generative AI by Getty Images which is designed to be a commercially safe AI image generation service that is trained with Getty Images creative content. +• iStock is our value offering of creative stills and videos, which provides a significant volume of exclusive image and video content to small to medium sized businesses, furnishing them with a powerful and cost-efficient means to produce and maintain their visual narrative. Customers can purchase on an a la carte basis and through a range of monthly and annual subscription options. Customers can also use Generative AI by iStock to create, ready to use AI generated content that is designed to be commercially safe and is trained with Getty Images creative content. +• Unsplash is a widely accessed, creative stills offering serving the fast-growing and broad-based creator economy ranging from prosumers and semi-professional creators to full time creative professionals working at corporations and agencies. Customers can purchase an unlimited subscription, which includes premium content that has specific legal protections, or download from the millions of free images. +• In addition to our websites, customers and partners can access and integrate our content, metadata, and search capabilities into their workflows via our APIs, such as through Canva, and through a range of mobile apps and plugins, including Adobe Creative Cloud, WordPress, and other publishing and workflow platforms. +• In recent years, we have shifted revenues toward subscription products including annual subscription products to drive revenue growth and durability. As of December 31, 2025, annual subscriptions represented more than half of total revenue. We offer a complete range of subscription products on our Getty Images, iStock and Unsplash websites. Our Premium Access subscription offers all of Getty Images’ Creative and Editorial image and video content and music in one subscription. We similarly continue to see more subscription adoption in e-commerce through our iStock subscription, which includes images, video and music, and Unsplash+, which is an unlimited image-only subscription. In all cases, our annual subscriptions provide greater customer and revenue visibility and upside through expanded consumption and ongoing cross-sell and upsell opportunities via our dedicated Customer Success team. +4 +Table of Contents +Content & Services +While we go to market through our Getty Images, iStock, and Unsplash brands, we categorize our content and services into three categories — Creative, Editorial and Other. +• Creative : Creative is comprised of RF photos, illustrations, vectors, videos, and generative AI-services that are released for commercial use and cover a wide variety of commercial, conceptual, and contemporary subjects, including lifestyle, business, science, health, wellness, beauty, sports, transportation and travel. This content is available for immediate use by a wide range of customers with depth, breadth, and quality, allowing our customers to produce impactful websites, digital media, social media, marketing campaigns, corporate collateral, textbooks, movies, television, and online video content relevant to their target geographies and audiences. We primarily source Creative content from a broad network of professional, semi-professional, and amateur creators, many exclusive to Getty Images. We have a global creative insights team dedicated to providing briefing and art direction to our exclusive contributor community. Creative represents 56.7% , 58.9% and 63.1% of our revenue of w hich 58.2%, 56.0% and 52.2% 1 is generated through our annual subscription products, for the years ended December 31, 2025, 2024 and 2023, respectively. Annual Subscription products include products and subscriptions with a duration of 12 months or longer, Unsplash API, and Custom Content. +• Editorial : Editorial is comprised of photos and videos covering the world of entertainment, sports and news. We combine contemporary coverage of events around the globe with one of the largest privately held archives globally with access to images spanning all the way back to the beginning of photography. We invest in a dedicated editorial team which includes over 115 staff photographers and videographers to generate our own coverage in addition to coverage from our network of content partners. Editorial represents 37.7%, 36.8% and 35.0% of our revenue, of which 53.5%, 53.7% and 53.3% is generated through our annual subscription products, for the years ended December 31, 2025, 2024 and 2023, respectively. Annual Subscription products include subscriptions with a duration of 12 months or longer. +• Other : Other represents 5.6%, 4.3%, and 1.9% of our revenue for the years ended December 31, 2025, 2024, and 2023, respectively. This includes data access and/or licensing, music licensing, digital asset management, distribution services and print sales. +With a consistently differentiated, authentic and high-quality content offering at our core, we have a rich history of embracing disruption and innovation with regard to how that content is packaged, accessed, licensed, created and distributed to an evolving universe of customers. +Comprehensive Premium Product Offering +Our differentiated, authentic and high-quality content offering is generated through: +• A growing base of more tha n 600,000 contributors, of which over 83,000 are exclusive to Getty Images. +• Over 75 exclusive editorial content partners, such as AFP, Disney, Glo bo, ITN, Bloomberg, BBC Studios, CBS, The Boston Globe, Fairfax Media, NBC News Archives and Sky News, who rely upon Getty Images to manage and license their content and Formula One, NBA, NHL, MLB, NASCAR, FIFA and International Olympic Committee, who, in addition to distributing content from their events through Getty Images, grant us unique commercial rights with event and content access. +• Nearly 400 dedicated staff content experts across creative and editorial who guide and contribute to the creation of over 11 million new visual assets per quarter and have been recognized with more than 1,600 major industry awards including the 2022 Pulitzer Prize for Breaking News Photography, World Press Photo, Picture of the Year International, Sony World Photography Awards, White House Photographer of the Year, The Lucie Awards, Visa d’Or, Ville de Perpignan Remi Ochlik, UK Picture Guild Awards, Press Photographer of the Year, Sports Photographer of the Year and Creative Review Photography Annual. +1 Prior year percentage has been restated to conform to the current year presentation. +5 +Table of Contents +• A unique comprehensive visual archival collection covering a broad range of geographies, time periods and content categories such as news, sport, celebrity, music and fashion. +Collectively, these represent a growing library of over 645 million total assets that delivers unmatched depth, breadth, and quality to meet the expanding needs of our growing customer base. For more information, see “ —Our Content Contributors ” below. +Customers +Our customers are in the categories of corporate, agency and media. For the year ended December 31, 2025, corporate, media, and agency customers contributed approximately 59%, 29%, and 12%, of revenue, respectively. Through our brands Getty Images, iStock and Unsplash, we reach customers from the largest enterprises to the smallest businesses and individual creators. In addition, we maintain deep integrations with internet platforms, ensuring broad access to our content across the creative economy. +Getty Images is privileged to work with the world’s leading companies every day. In 2025 and 2024, over 70% of our booked revenues were from customers that have a tenure as a customer of 10 years or more. In addition to maintaining strong revenue from highly tenured customers, we added more than 365,000 new customers during the year ended December 31, 2025. +We also have strong revenue diversification. For the year ended December 31, 2025, our top ten customers contributed less than 10% of our booked revenue. +Proprietary Platform & Infrastructure +The Getty Images and iStock websites and related systems are on a unified, global, cloud-based platform. We source and store our content on a common, scalable, and proprietary rights and content management system that supports all content types and categories. This platform enables customers to search, select, license, and download content from our websites and supports our centralized sales order processing, customer database management, finance, and accounting. We believe that our unified platform allows for resource efficiency and its scalability, reliability and flexibility allow us to service customers in any geography, handle a variety of visual content and address changing customer demands. From this unified platform, we benefit from a comprehensive view into customer behavior and needs, which allows us to effectively evolve our content offering, services and proprietary search algorithms to deliver the unique insights to our customers. We operate multiple websites which are available on a global basis, maintained in 23 different languages, localized for their respective markets, and which provide for e-commerce transactions in 34 local currencies. +Back-end integration across the Getty Images and iStock websites and brands allows for efficiency of use by customers, enabled by natural language processing and machine learning to understand the context and meaning behind a user’s search query, along with additional search capabilities that are enabled by patented search technology that attaches metadata such as captions, keywords, and tags to our content. Our metadata is translated by proprietary and patented controlled vocabularies into multiple languages. Dynamic image placement algorithms present the most relevant content to customers based on features such as customer location, search and license history, and the businesses type. We continuously invest in our digital platform to improve our customer experience and functionality through improvements in search engine optimization and marketing analytics, dynamic image placement algorithms, customer support and partner/API access, use of image recognition technologies, and development license models that adapt to customer needs and behaviors. +In 2023, we launched a generative AI image tool, enhancing our offerings to our customers. It is trained on Getty Images creative content and data and provides customers with images designed to be commercially safe, while compensating contributors for the use of their copyrighted works as training data. +Marketing +Since 2019, we have improved our marketing efficiency, which has driven acceleration in our new customer growth, with new customers per million dollars of digital marketing spend increasing by more than 20% in 2025 when compared to 2019, driven by marketing efficiency which helps drive new customer acquisition. We shifted our marketing mix to take advantage of free website traffic through affiliate partnerships, expanded our geographic investment, invested in search engine optimization, and implemented a rigorous data-driven e-commerce business. These steps have improved our marketing returns, resulting in decreased customer acquisition cost (since 2019 down by over 15% to $146 in 2025) and improved revenue opportunity and customer lifetime value. +6 +Table of Contents +Our Business Transformation +Over the past several years, we have reoriented our strategy and made significant business investments. Key initiatives implemented include: +• Unification and migration of our end-to-end platform to the cloud. +• Investment in best-in-class customer relationship management tools and technologies such as Salesforce.com. +• Transition of a significant share of our business to a differentiated subscription offering with strong retention characteristics. +• Successfully exited legacy declining products (Creative Rights Managed, Unauthorized Use and Thinkstock) to simplify our offering, reduce customer friction, and to better focus our resources. +• Invested in search engine optimization and altered our digital marketing deployment to accelerate new customer growth through our iStock brand. +• Launched our Custom Content offering to allow customers to efficiently secure brand and product- specific imagery through our global contributor network. +• Restructured our Sales, Customer Success Management, and Customer Service functions to take advantage of our global scale to reduce costs and improve service levels. +• Acquired Unsplash, monetized API offerings on Unsplash and launched Unsplash+, the unlimited subscription model, all of which allows us to tap into the growth of the creator economy long tail. +• Partnered with leading technology companies to develop image and video generative AI models and services designed to be commercially safe that compensate creators on a recurring basis for the use of their content as training data. +• Extended search experience to accept natural language queries, allowing customers to be more expressive in their searches and, in turn, we better understand their intent and serve content that meets their needs. +• In 2025, Getty Images proactively managed its capital structure by: refinancing and extending its Term Loan maturities to 2030; completing the Permitted Debt Exchange Offer to exchange a portion of the 2025 USD Term Loans into 11.250% Senior Secured Notes; exchanging of its 2019 Senior Unsecured Notes for 2025 Senior Secured Notes to extend the maturities to 2028; and issuing 10.500% Senior Secured Notes in support of its proposed merger with Shutterstock, Inc. (each capitalized terms, as defined elsewhere in this Annual Report on Form 10-K) Please refer to “ Note 10 — Debt ” in our consolidated financial statements for more discussion on our debt refinance. +We believe that our transformation and investments, together with the changes driving industry growth, set the stage for our next phase of growth. +Growth Strategies +We believe we are well-positioned to continue generating revenue and cash flow by capitalizing on the increasing demand for visual content driven by long-term trends through our differentiated end-to-end content offering, our established brands and corresponding market coverage, and our strong value proposition to customers and content providers. We anticipate our future growth to be driven by the following strategies: +Capturing growth within the Corporate Market : The corporate market has been a clear and steady source of growth over the last several years and we believe a large corporate market opportunity still exists. To capture this opportunity, we aligned our sales force and their incentives to target further penetration and upsell of the corporate market. Furthermore, we increased our customer service capabilities and resources against the segment and launched new and upgraded products to better meet corporate needs. Through our Custom Content product, we are able to leverage our contributor network to deliver budget-friendly custom photos, illustrations and videos to customers. Through continued investment and focus, our management believes that it can further accelerate growth across the corporate segment. +Accelerate our penetration across high-growth geographies : We are focused on deepening our international reach by investing in digital marketing, search engine optimization and further localization of our services, offerings and content in geographies where we are underpenetrated. We believe we are well-positioned from a brand, content, and product perspective across 23 languages and 34 currencies to capture an increased share of these attractive, underpenetrated market opportunities. +7 +Table of Contents +Continued emphasis on subscription offerings : Annual subscription revenues now comprise more than half our total revenue, and we expect to further increase penetration over time through an emphasis on our e-commerce offerings and continued growth of our larger subscription offerings. +Annual Subscription Revenue 1 +1 Represents annual subscription product revenue as a percentage of total revenue (excluding certain retired products). +Continue to grow video consumption : The video attachment rate, a measure of the percentage of total paid customer downloaders who are video downloaders, decreased to 15.9% for the year ended December 31, 2025 from 16.5% for the year ended December 31, 2024. However, a pproximately 33% of Getty Images and 13% of iStock customers purchase video. We expect more customers to use video in the future, which we believe creates a stickier customer that potentially consumes and spends more on our platform. +Video Attachment Rate 1 +1 Attachment is calculated as % of downloaders who downloaded video from all offerings (inclusion of subscription and non-subscription products). +Increase wallet share within existing customer base : We expect to increase wallet share with existing customers by upselling into larger subscription products with increased download caps and breadth of content. Additionally, we can cross sell into products such as Generative AI, Custom Content, music, and Media Manager, our digital asset management product. These offerings drive increases in Average Annual Revenue per User (“ARPU”) from our customers and can drive high customer retention. +Monetize and expand reach into growing long-tail creator economy : Unsplash attracts more than 14 million visitors per month, has over 26,000 API integration, and averages over 91 million monthly image downloads, which we believe reflects the significant opportunity across the “long tail” creator economy. We are monetizing existing API +8 +Table of Contents +integrations through licensing fees and Unsplash+, an unlimited subscription that launched October 2022, that includes premium content (with corresponding license protections) to Unsplash users. +Opportunities for AI, data and insights : We have partnered with leading AI innovators to develop generative AI models that are designed to deliver commercially safe image and video generation and editing services. As part of these efforts, in 2023 we launched Generative AI by Getty Images and in early 2024 Generative AI by iStock, which are designed to be commercially-safe AI text to image generation services, available on gettyimages.com and istock.com. We have and will continue to leverage Artificial Intelligence and Machine Learning capabilities to improve the relevance and effectiveness of our imagery, our search efficiency and enable image editing. We are continuously investing to bring unique capabilities and insights to increase customer stickiness and to drive new revenue streams. Getty Images also licenses the use of its visual assets and associated metadata to customers in connection with the development of artificial intelligence and machine learning tools. +Pursue accretive and strategic acquisitions : We have a successful track record of executing and integrating acquisitions. We have been able to leverage our content, brands, and large customer base to enter related, but adjacent markets to achieve efficiencies and accelerate growth. +Our Content Contributors +The content we license to our customers is sourced from more than 600,000 photographers, videographers, illustrators, and image partners from almost every country in the world. We do not rely on any single individual or group of suppliers to meet our content supply needs. Content sourced from any single content supplier accounted for no more than 3% of revenue in the year ended December 31, 2025. As of December 31, 2025, we owned or licensed over 645 million images and videos. +We have over 115 staff photographers and videographers and ov er 83,000 exclusive contributors. These exclusive relationships allow for transparent information and the sharing of research and insights with contributors. Approximately 75% of our revenue was generated from exclusive content during 2025 highlighting customer demand for high quality, differentiated content in a world with nearly infinite visual content. For the year ended December 31, 2025, we paid over $220 million in royalties to our content contributors, which includes content partners. +Independent contributors +Independent contributors typically fund their own production costs and retain copyright ownership of their content but enter contracts with Getty Images granting global distribution and pricing rights, often on an exclusive basis. These content sourcing agreements also provide representations and warranties by content suppliers as to the copyrights and other intellectual property rights in the content, including representations as to the released nature of the content, if relevant. +Image Partners +Image partners are third-party companies that license their collection of content through us. We generally act as our image partners’ primary or exclusive distribution channel, enabling us to commercialize their editorial coverage of news, entertainment and sporting events and their fully released creative content. Image Partners provide both their wholly-owned and third-party contributor content to us for license through our extensive global network. +Staff and Freelance photographers/videographers +We have over 115 full-time staff photographers and videographers, who supply Editorial photos and video content across news, sports, and entertainment. These staff professionals are award-winning experts in their fields and are employed by Getty Images. For most staff-produced content, we pay very limited, if any, royalties. We also utilize our global network of freelance photographers to cover events. In many cases, we own the resulting copyright and pay no royalties as these photographers are paid a set rate to shoot the event. +Archive +Getty Images maintains one of the largest and best privately-owned photographic archives in the world with over 150 million images across geographies, time periods and verticals. Additionally, we exclusively represent and maintain unique archives such as Hulton, Bettman, Sygma and Gamma. These key collections often hold historical significance and are irreplaceable. We believe they are a key differentiator versus competitors. +9 +Table of Contents +Competition +The market for digital content and related services is highly competitive and rapidly evolving. Our current and potential domestic and international competitors range from large established companies to emerging start-ups across different industries. Our competitors include: online marketplaces and traditional stock content suppliers of current and archival creative and editorial imagery and stock video; specialized visual content companies in specific geographic regions; providers of free images, music and video and related tools; websites specializing in image search, recognition, discovery and consumption; websites that host and store images, art and other related products; those providers of visual content creation and editing tools that include integrated stock content in their product or software as a service offering; providers of cloud-based digital asset management tools; social networking and social media services; generative AI-services; and freelancers, commissioned photographers and photography agencies. There are also a very large number of small stock photography and video agencies, image content aggregators and individual photographers throughout the world with whom we compete. We also compete for content contributors on the basis of several similar factors including ease and speed of the upload and content review process; the volume of customers who license their submitted content; contributor commission models and practices; the degree to which contributors are protected from legal risk; brand recognition and reputation; the effective use of technology; the global nature of our interfaces; and customer service. Additionally, we compete with in-house or self-created content. We believe our principal competitors for creative content include bundled offerings (e.g., Canva, Adobe), pre-shot digital content providers (e.g., Shutterstock, 123RF, Dreamstime and AdobeStock), freelancer networks (e.g., Fiverr) and GenAI (e.g. Midjourney, Dall-E, Stable Diffusion, Google, Microsoft, Meta) and our principal competitors for editorial content include the Associated Press and Reuters, as well as a myriad of specialist agencies. +Intellectual Property +A significant portion of the content that we distribute is licensed to us from individual photographers and videographers and image partners. Content suppliers typically prefer to retain copyright ownership of their work and, as a result, copyright to content remains with the artists in most cases, even while we maintain the right to market, display, distribute and license the imagery, illustration or video on their behalf, globally. We own the copyrights to imagery and video produced by staff photographers as well as any created on a work-for-hire basis, and to imagery and video acquired from third parties. We also own numerous trademarks and have the rights to corresponding internet domain names such as Getty Images (www.gettyimages.com), iStock (www.istock.com) and Unsplash (www.unsplash.com), which are important to the business and have significant value. Depending on the jurisdiction, trademarks are valid as long as they are in use and/or their registrations are properly maintained, and they have not been found to have become generic. We have successfully recovered domain names that include infringing trademarks in the past and intend to continue to enforce our rights in the future. Although we own the Getty Trademarks, in certain specified scenarios, Getty Investments LLC (“Getty Investments”) has the option to acquire, for a nominal sum, all rights to the Getty Trademarks. See “ \ No newline at end of file diff --git a/raw/filings/0001898496/2025/0001628280-26-018160/item13.txt b/raw/filings/0001898496/2025/0001628280-26-018160/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..ff515cb884ec4aeff8f60d9f6579b7fd2d47ac42 --- /dev/null +++ b/raw/filings/0001898496/2025/0001628280-26-018160/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions, and Director Independence +76 \ No newline at end of file diff --git a/raw/filings/0001898604/2024/0001641172-25-000804/filing.txt b/raw/filings/0001898604/2024/0001641172-25-000804/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..4415bd56b08635484d17f06c623276a8d123e249 --- /dev/null +++ b/raw/filings/0001898604/2024/0001641172-25-000804/filing.txt @@ -0,0 +1,6361 @@ +false +FY +0001898604 +http://fasb.org/us-gaap/2024#UsefulLifeTermOfLeaseMember +0001898604 +2024-01-01 +2024-12-31 +0001898604 +2024-06-30 +0001898604 +us-gaap:CommonClassAMember +2025-03-25 +0001898604 +us-gaap:CommonClassBMember +2025-03-25 +0001898604 +2024-10-01 +2024-12-31 +0001898604 +2024-12-31 +0001898604 +2023-12-31 +0001898604 +us-gaap:CommonClassAMember +2024-12-31 +0001898604 +us-gaap:CommonClassAMember +2023-12-31 +0001898604 +us-gaap:CommonClassBMember +2024-12-31 +0001898604 +us-gaap:CommonClassBMember +2023-12-31 +0001898604 +2023-01-01 +2023-12-31 +0001898604 +us-gaap:CommonStockMember +us-gaap:CommonClassAMember +2022-12-31 +0001898604 +us-gaap:CommonStockMember +us-gaap:CommonClassBMember +2022-12-31 +0001898604 +us-gaap:AdditionalPaidInCapitalMember +2022-12-31 +0001898604 +us-gaap:ReceivablesFromStockholderMember +2022-12-31 +0001898604 +us-gaap:RetainedEarningsMember +2022-12-31 +0001898604 +2022-12-31 +0001898604 +us-gaap:CommonStockMember +us-gaap:CommonClassAMember +2023-12-31 +0001898604 +us-gaap:CommonStockMember +us-gaap:CommonClassBMember +2023-12-31 +0001898604 +us-gaap:AdditionalPaidInCapitalMember +2023-12-31 +0001898604 +us-gaap:ReceivablesFromStockholderMember +2023-12-31 +0001898604 +us-gaap:RetainedEarningsMember +2023-12-31 +0001898604 +us-gaap:CommonStockMember +us-gaap:CommonClassAMember +2023-01-01 +2023-12-31 +0001898604 +us-gaap:CommonStockMember +us-gaap:CommonClassBMember +2023-01-01 +2023-12-31 +0001898604 +us-gaap:AdditionalPaidInCapitalMember +2023-01-01 +2023-12-31 +0001898604 +us-gaap:ReceivablesFromStockholderMember +2023-01-01 +2023-12-31 +0001898604 +us-gaap:RetainedEarningsMember +2023-01-01 +2023-12-31 +0001898604 +us-gaap:CommonStockMember +us-gaap:CommonClassAMember +2024-01-01 +2024-12-31 +0001898604 +us-gaap:CommonStockMember +us-gaap:CommonClassBMember +2024-01-01 +2024-12-31 +0001898604 +us-gaap:AdditionalPaidInCapitalMember +2024-01-01 +2024-12-31 +0001898604 +us-gaap:ReceivablesFromStockholderMember +2024-01-01 +2024-12-31 +0001898604 +us-gaap:RetainedEarningsMember +2024-01-01 +2024-12-31 +0001898604 +us-gaap:CommonStockMember +us-gaap:CommonClassAMember +2024-12-31 +0001898604 +us-gaap:CommonStockMember +us-gaap:CommonClassBMember +2024-12-31 +0001898604 +us-gaap:AdditionalPaidInCapitalMember +2024-12-31 +0001898604 +us-gaap:ReceivablesFromStockholderMember +2024-12-31 +0001898604 +us-gaap:RetainedEarningsMember +2024-12-31 +0001898604 +YOSH:GlobalJJGroupIncMember +2024-01-01 +2024-12-31 +0001898604 +YOSH:GlobalAAGroupIncMember +2024-01-01 +2024-12-31 +0001898604 +YOSH:GlobalBBGroupIncMember +2024-01-01 +2024-12-31 +0001898604 +YOSH:GlobalCCGroupIncMember +2024-01-01 +2024-12-31 +0001898604 +YOSH:GlobalDDGroupIncMember +2024-01-01 +2024-12-31 +0001898604 +YOSH:YoshiharuIrvineMember +2024-01-01 +2024-12-31 +0001898604 +YOSH:YoshiharuCerritosMember +2024-01-01 +2024-12-31 +0001898604 +YOSH:YoshiharuClementeMember +2024-01-01 +2024-12-31 +0001898604 +YOSH:YoshiharuLagunaMember +2024-01-01 +2024-12-31 +0001898604 +YOSH:YoshiharuOntarioMember +2024-01-01 +2024-12-31 +0001898604 +YOSH:YoshiharuMenifeeMember +2024-01-01 +2024-12-31 +0001898604 +YOSH:YoshiharuLasVegasMember +2024-01-01 +2024-12-31 +0001898604 +YOSH:YoshiharuGardenGroveMember +2024-01-01 +2024-12-31 +0001898604 +YOSH:JamesChaeMember +2021-10-31 +0001898604 +YOSH:JamesChaeMember +2021-10-02 +2021-10-31 +0001898604 +YOSH:JamesChaeMember +srt:MaximumMember +2021-10-02 +2021-10-31 +0001898604 +YOSH:JamesChaeMember +2021-12-08 +2021-12-09 +0001898604 +YOSH:JamesChaeMember +2021-12-09 +0001898604 +us-gaap:CommonClassAMember +2023-11-22 +0001898604 +us-gaap:CommonClassBMember +2023-11-22 +0001898604 +2023-11-22 +2023-11-22 +0001898604 +us-gaap:CommonClassAMember +2023-12-31 +2023-12-31 +0001898604 +YOSH:AssetPurchaseAgreementMember +YOSH:JiyuckHwangMember +2024-06-12 +2024-06-12 +0001898604 +YOSH:AssetPurchaseAgreementMember +YOSH:JiyuckHwangMember +YOSH:RestaurantEntitiesMember +us-gaap:CashMember +2024-06-12 +2024-06-12 +0001898604 +YOSH:AssetPurchaseAgreementMember +YOSH:JiyuckHwangMember +YOSH:RestaurantEntitiesMember +YOSH:PromissoryNoteMember +2024-06-12 +0001898604 +YOSH:AssetPurchaseAgreementMember +YOSH:JiyuckHwangMember +YOSH:RestaurantEntitiesMember +YOSH:ConvertibleNoteMember +2024-06-12 +0001898604 +YOSH:FurnitureAndEquipmentMember +srt:MinimumMember +2024-12-31 +0001898604 +YOSH:FurnitureAndEquipmentMember +srt:MaximumMember +2024-12-31 +0001898604 +us-gaap:LeaseholdImprovementsMember +2024-12-31 +0001898604 +us-gaap:VehiclesMember +2024-12-31 +0001898604 +YOSH:ThreeRestaurantsMember +2024-04-20 +2024-04-20 +0001898604 +2024-04-20 +0001898604 +us-gaap:LeaseholdImprovementsMember +2023-12-31 +0001898604 +us-gaap:FurnitureAndFixturesMember +2024-12-31 +0001898604 +us-gaap:FurnitureAndFixturesMember +2023-12-31 +0001898604 +us-gaap:VehiclesMember +2023-12-31 +0001898604 +us-gaap:LineOfCreditMember +2024-12-31 +0001898604 +us-gaap:LineOfCreditMember +2024-01-01 +2024-12-31 +0001898604 +us-gaap:LineOfCreditMember +2023-12-31 +0001898604 +us-gaap:NotesPayableToBanksMember +2024-01-01 +2024-12-31 +0001898604 +YOSH:NovemberTwentySevenTwoThousandEighteenMember +2024-12-31 +0001898604 +YOSH:NovemberTwentySevenTwoThousandEighteenMember +2023-12-31 +0001898604 +YOSH:SeptemberFourteenTwoThousandTwentyOneMember +2024-12-31 +0001898604 +YOSH:SeptemberFourteenTwoThousandTwentyOneMember +2023-12-31 +0001898604 +YOSH:AprilTwentyTwoTwoThousandTwentyTwoMember +2024-12-31 +0001898604 +YOSH:AprilTwentyTwoTwoThousandTwentyTwoMember +2023-12-31 +0001898604 +YOSH:MayTwoThousandTwentyThreeMember +2024-12-31 +0001898604 +YOSH:MayTwoThousandTwentyThreeMember +2023-12-31 +0001898604 +YOSH:MayTwoThousandTwentyThreeOneMember +2024-12-31 +0001898604 +YOSH:MayTwoThousandTwentyThreeOneMember +2023-12-31 +0001898604 +YOSH:MayTwoThousandTwentyThreeTwoMember +2024-12-31 +0001898604 +YOSH:MayTwoThousandTwentyThreeTwoMember +2023-12-31 +0001898604 +YOSH:SeptemberThirteenTwoThousandTwentyThreeMember +2024-12-31 +0001898604 +YOSH:SeptemberThirteenTwoThousandTwentyThreeMember +2023-12-31 +0001898604 +YOSH:SeptemberThirteenTwoThousandTwentyThreeOneMember +2024-12-31 +0001898604 +YOSH:SeptemberThirteenTwoThousandTwentyThreeOneMember +2023-12-31 +0001898604 +YOSH:MarchTwoThousandTwentyFourMember +2024-12-31 +0001898604 +YOSH:MarchTwoThousandTwentyFourMember +2023-12-31 +0001898604 +YOSH:MarchTwoThousandTwentyFourOneMember +2024-12-31 +0001898604 +YOSH:MarchTwoThousandTwentyFourOneMember +2023-12-31 +0001898604 +YOSH:DecemberTwoThousandTwentyFourMember +2024-12-31 +0001898604 +YOSH:DecemberTwoThousandTwentyFourMember +2023-12-31 +0001898604 +YOSH:JanuaryTwoThousandTwentyFourMember +2024-12-31 +0001898604 +YOSH:JanuaryTwoThousandTwentyFourMember +2023-12-31 +0001898604 +YOSH:JuneFourTwoThousandTwentyFourMember +2024-12-31 +0001898604 +YOSH:JuneFourTwoThousandTwentyFourMember +2023-12-31 +0001898604 +us-gaap:NotesPayableToBanksMember +2024-12-31 +0001898604 +YOSH:NovemberTwentySevenTwoThousandEighteenMember +2018-11-27 +0001898604 +YOSH:NovemberTwentySevenTwoThousandEighteenMember +2018-11-27 +2018-11-27 +0001898604 +YOSH:SeptemberFourteenTwoThousandTwentyOneMember +2021-09-14 +0001898604 +YOSH:SeptemberFourteenTwoThousandTwentyOneMember +2021-09-14 +2021-09-14 +0001898604 +YOSH:AprilTwentyTwoTwoThousandTwentyTwoMember +2022-04-22 +0001898604 +YOSH:AprilTwentyTwoTwoThousandTwentyTwoMember +2022-04-22 +2022-04-22 +0001898604 +YOSH:MayTwoThousandTwentyThreeMember +2023-05-22 +0001898604 +YOSH:MayTwoThousandTwentyThreeMember +2023-05-22 +2023-05-22 +0001898604 +YOSH:MayTwoThousandTwentyThreeOneMember +2023-05-22 +0001898604 +YOSH:MayTwoThousandTwentyThreeOneMember +2023-05-22 +2023-05-22 +0001898604 +YOSH:MayTwoThousandTwentyThreeTwoMember +2023-05-22 +0001898604 +YOSH:MayTwoThousandTwentyThreeTwoMember +2023-05-22 +2023-05-22 +0001898604 +YOSH:SeptemberThirteenTwoThousandTwentyThreeMember +2023-09-13 +0001898604 +YOSH:SeptemberThirteenTwoThousandTwentyThreeMember +2023-09-13 +2023-09-13 +0001898604 +YOSH:SeptemberThirteenTwoThousandTwentyThreeOneMember +2023-09-13 +0001898604 +YOSH:SeptemberThirteenTwoThousandTwentyThreeOneMember +2023-09-13 +2023-09-13 +0001898604 +YOSH:MarchTwoThousandTwentyFourMember +2024-03-22 +0001898604 +YOSH:MarchTwoThousandTwentyFourMember +2024-03-22 +2024-03-22 +0001898604 +YOSH:MarchTwoThousandTwentyFourOneMember +2024-03-22 +0001898604 +YOSH:MarchTwoThousandTwentyFourOneMember +2024-03-22 +2024-03-22 +0001898604 +YOSH:JanuaryTwoThousandTwentyFourMember +2024-01-30 +0001898604 +YOSH:JanuaryTwoThousandTwentyFourMember +2024-08-16 +0001898604 +YOSH:JanuaryTwoThousandTwentyFourMember +2024-01-30 +2024-01-30 +0001898604 +YOSH:JuneFourTwoThousandTwentyFourMember +2024-06-04 +0001898604 +YOSH:JuneFourTwoThousandTwentyFourMember +2024-06-04 +2024-06-04 +0001898604 +YOSH:EconomicInjuryDisasterLoanMember +2024-01-01 +2024-12-31 +0001898604 +YOSH:GlobalAAGroupIncMember +2024-12-31 +0001898604 +YOSH:GlobalAAGroupIncMember +2023-12-31 +0001898604 +YOSH:GlobalBBGroupIncMember +2024-12-31 +0001898604 +YOSH:GlobalBBGroupIncMember +2023-12-31 +0001898604 +YOSH:GlobalJJGroupIncMember +2024-12-31 +0001898604 +YOSH:GlobalJJGroupIncMember +2023-12-31 +0001898604 +YOSH:EconomicInjuryDisasterLoanMember +2024-12-31 +0001898604 +YOSH:GlobalAAGroupIncMember +YOSH:EconomicInjuryDisasterLoanMember +2020-06-13 +0001898604 +YOSH:GlobalAAGroupIncMember +YOSH:EconomicInjuryDisasterLoanMember +2020-06-13 +2020-06-13 +0001898604 +YOSH:GlobalBBGroupIncMember +YOSH:EconomicInjuryDisasterLoanMember +2020-06-13 +0001898604 +YOSH:GlobalBBGroupIncMember +YOSH:EconomicInjuryDisasterLoanMember +2020-06-13 +2020-06-13 +0001898604 +YOSH:GlobalJJGroupIncMember +YOSH:EconomicInjuryDisasterLoanMember +2020-07-15 +0001898604 +YOSH:GlobalJJGroupIncMember +YOSH:EconomicInjuryDisasterLoanMember +2020-07-15 +2020-07-15 +0001898604 +YOSH:AALoanAgreementMember +2024-12-31 +0001898604 +YOSH:AALoanAgreementMember +2023-12-31 +0001898604 +YOSH:BBLoanAgreementMember +2024-12-31 +0001898604 +YOSH:BBLoanAgreementMember +2023-12-31 +0001898604 +YOSH:CCCOLoanAgreementMember +2024-12-31 +0001898604 +YOSH:CCCOLoanAgreementMember +2023-12-31 +0001898604 +YOSH:CCEVLoanAgreementMember +2024-12-31 +0001898604 +YOSH:CCEVLoanAgreementMember +2023-12-31 +0001898604 +YOSH:JJBPLoanAgreementMember +2024-12-31 +0001898604 +YOSH:JJBPLoanAgreementMember +2023-12-31 +0001898604 +YOSH:JJORLoanAgreementMember +2024-12-31 +0001898604 +YOSH:JJORLoanAgreementMember +2023-12-31 +0001898604 +YOSH:AALoanAgreementMember +2023-11-17 +0001898604 +YOSH:AALoanAgreementMember +2023-11-17 +2023-11-17 +0001898604 +YOSH:BBLoanAgreementMember +2023-11-17 +0001898604 +YOSH:BBLoanAgreementMember +2023-11-17 +2023-11-17 +0001898604 +YOSH:CCCOLoanAgreementMember +2023-11-21 +0001898604 +YOSH:CCCOLoanAgreementMember +2023-11-21 +2023-11-21 +0001898604 +YOSH:CCEVLoanAgreementMember +2023-11-30 +0001898604 +YOSH:CCEVLoanAgreementMember +2023-11-30 +2023-11-30 +0001898604 +YOSH:JJBPLoanAgreementMember +2023-11-20 +0001898604 +YOSH:JJBPLoanAgreementMember +2023-11-20 +2023-11-20 +0001898604 +YOSH:JJORLoanAgreementMember +2023-11-20 +0001898604 +YOSH:JJORLoanAgreementMember +2023-11-20 +2023-11-20 +0001898604 +YOSH:RelatedToLoansPayableToFinancialInstitutionMember +2024-01-01 +2024-12-31 +0001898604 +YOSH:RelatedToLoansPayableToFinancialInstitutionMember +2023-01-01 +2023-12-31 +0001898604 +2024-06-12 +0001898604 +us-gaap:RelatedPartyMember +2024-12-31 +0001898604 +us-gaap:RelatedPartyMember +2023-12-31 +0001898604 +YOSH:JamesChaeMember +2024-01-01 +2024-12-31 +0001898604 +YOSH:JamesChaeMember +2023-01-01 +2023-12-31 +0001898604 +YOSH:MrJihyuckHwangMember +2024-06-12 +0001898604 +YOSH:MrJihyuckHwangMember +2024-06-12 +2024-06-12 +0001898604 +YOSH:MrJihyuckHwangMember +2024-12-31 +0001898604 +YOSH:MrJihyuckHwangMember +2023-12-31 +0001898604 +us-gaap:CommonClassAMember +2024-01-01 +2024-12-31 +0001898604 +us-gaap:PrivatePlacementMember +us-gaap:CommonClassAMember +2021-12-01 +2021-12-31 +0001898604 +us-gaap:PrivatePlacementMember +us-gaap:CommonClassAMember +2021-12-31 +0001898604 +us-gaap:PrivatePlacementMember +us-gaap:CommonClassAMember +2022-01-01 +2022-03-31 +0001898604 +us-gaap:IPOMember +us-gaap:CommonClassAMember +2022-09-01 +2022-09-30 +0001898604 +us-gaap:IPOMember +us-gaap:CommonClassAMember +2022-09-30 +0001898604 +us-gaap:IPOMember +us-gaap:CommonClassAMember +YOSH:DirectorsAndConsultantsMember +2022-09-01 +2022-09-30 +0001898604 +us-gaap:IPOMember +us-gaap:CommonClassAMember +YOSH:DirectorsAndConsultantsMember +2021-12-31 +0001898604 +us-gaap:IPOMember +us-gaap:CommonClassAMember +YOSH:DirectorsAndConsultantsMember +2021-01-01 +2021-12-31 +0001898604 +us-gaap:IPOMember +YOSH:UnderwritersMember +2022-09-01 +2022-09-30 +0001898604 +us-gaap:IPOMember +us-gaap:CommonClassAMember +YOSH:UnderwritersMember +2022-09-01 +2022-09-30 +0001898604 +us-gaap:IPOMember +us-gaap:WarrantMember +2022-09-01 +2022-09-30 +0001898604 +us-gaap:CommonClassAMember +2023-11-22 +2023-11-22 +0001898604 +us-gaap:CommonClassBMember +2023-11-22 +2023-11-22 +0001898604 +YOSH:SecuritiesPurchaseAgreementMember +YOSH:AlumniCapitalLPMember +us-gaap:CommonClassAMember +2024-01-05 +2024-01-05 +0001898604 +YOSH:SecuritiesPurchaseAgreementMember +YOSH:AlumniCapitalLPMember +us-gaap:CommonClassAMember +srt:MaximumMember +2024-01-05 +2024-01-05 +0001898604 +YOSH:SecuritiesPurchaseAgreementMember +us-gaap:CommonClassAMember +us-gaap:InvestorMember +2024-01-01 +2024-12-31 +0001898604 +YOSH:SecuritiesPurchaseAgreementMember +us-gaap:CommonClassAMember +us-gaap:ShareBasedCompensationAwardTrancheOneMember +2024-01-09 +2024-01-09 +0001898604 +YOSH:SecuritiesPurchaseAgreementMember +us-gaap:CommonClassAMember +us-gaap:ShareBasedCompensationAwardTrancheTwoMember +2024-09-24 +2024-09-24 +0001898604 +us-gaap:CommonClassBMember +2024-01-01 +2024-12-31 +0001898604 +YOSH:JamesChaeMember +2024-12-31 +0001898604 +us-gaap:CommonClassAMember +YOSH:JamesChaeMember +2022-09-01 +2022-09-30 +0001898604 +us-gaap:CommonClassBMember +YOSH:JamesChaeMember +2022-09-01 +2022-09-30 +0001898604 +us-gaap:SubsequentEventMember +YOSH:PurchaseArrangementMember +2025-01-06 +0001898604 +us-gaap:SubsequentEventMember +YOSH:PurchaseArrangementMember +us-gaap:CommonClassAMember +2025-01-06 +0001898604 +us-gaap:SubsequentEventMember +2025-01-06 +0001898604 +us-gaap:SubsequentEventMember +2025-01-06 +2025-01-06 +0001898604 +us-gaap:SubsequentEventMember +YOSH:GoodMoodStudioPrivatePlacementAgreementMember +us-gaap:CommonClassAMember +2025-03-12 +2025-03-12 +0001898604 +us-gaap:SubsequentEventMember +YOSH:GoodMoodStudioPrivatePlacementAgreementMember +us-gaap:CommonClassAMember +2025-03-12 +0001898604 +us-gaap:SubsequentEventMember +YOSH:BlueOceanFundPrivatePlacementAgreementMember +us-gaap:CommonClassAMember +2025-03-12 +2025-03-12 +0001898604 +us-gaap:SubsequentEventMember +YOSH:BlueOceanFundPrivatePlacementAgreementMember +us-gaap:CommonClassAMember +2025-03-12 +0001898604 +us-gaap:SubsequentEventMember +YOSH:GreenLightFundPrivatePlacementAgreementMember +us-gaap:CommonClassAMember +2025-03-12 +2025-03-12 +0001898604 +us-gaap:SubsequentEventMember +YOSH:GreenLightFundPrivatePlacementAgreementMember +us-gaap:CommonClassAMember +2025-03-12 +0001898604 +us-gaap:SubsequentEventMember +YOSH:SubscriptionAgreementsMember +2025-03-17 +0001898604 +us-gaap:SubsequentEventMember +YOSH:SubscriptionAgreementsMember +2025-03-17 +2025-03-17 +0001898604 +us-gaap:SubsequentEventMember +YOSH:SubscriptionAgreementsMember +us-gaap:CommonClassAMember +2025-03-17 +0001898604 +us-gaap:SubsequentEventMember +YOSH:SubscriptionAgreementsMember +2025-03-24 +0001898604 +us-gaap:SubsequentEventMember +YOSH:SubscriptionAgreementsMember +2025-03-25 +2025-03-25 +0001898604 +us-gaap:SubsequentEventMember +YOSH:SubscriptionAgreementsMember +2025-03-25 +0001898604 +us-gaap:SubsequentEventMember +YOSH:SubscriptionAgreementsMember +us-gaap:CommonClassAMember +2025-03-25 +iso4217:USD +xbrli:shares +iso4217:USD +xbrli:shares +YOSH:Segment +xbrli:pure +UNITED +STATES +SECURITIES +AND EXCHANGE COMMISSION +Washington, +D.C. 20549 +FORM +10-K +(Mark +One) +☒ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the fiscal year ended December 31 , 2024 +☐ +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the transition period from __________ to __________ +Commission +file number: 001-41494 +YOSHIHARU +GLOBAL CO. +(Exact +name of registrant as specified in its charter) +Delaware +87-3941448 +(State +or other jurisdiction of +incorporation +or organization) +(I.R.S. +Employer +Identification +Number) +596 +Apollo St. +Brea , CA 92821 +(714 ) +694-2403 +(Address, +including zip code, and telephone number, including +area +code, of Registrant’s principal executive offices) +N/A +(Former +name, former address and former fiscal year, if changed since last report) +Securities +registered pursuant to Section 12(b) of the Act: +Title +of Each Class: +Trading +Symbol(s) +Name +of Each Exchange on Which Registered: +Class +A Common Stock, $0.0001 par value per share +YOSH +The +Nasdaq Stock Market LLC (Nasdaq Capital Market) +Securities +registered pursuant to Section 12(g) of the Act: None +Indicate +by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate +by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ +No ☒ +Indicate +by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange +Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) +has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate +by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule +405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant +was required to submit and post such files). Yes ☒ No ☐ +Indicate +by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting +company or an emerging growth company. See definition of “large accelerated filer,” accelerated filer, “smaller reporting +company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large +accelerated filer +☐ +Accelerated +filer +☐ +Non-accelerated +filer +☒ +Smaller +reporting company +☒ +Emerging +growth company +☒ +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying +with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate +by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness +of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered +public accounting firm that prepared or issued its audit report. ☐ +If +securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant +included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate +by check mark whether any of those error corrections are restatements that require a recovery analysis of incentive-based compensation +received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate +by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ +The +aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $ 3.0 million +based on the closing sales price on the Nasdaq Stock Market LLC on June 30, 2024, the last business day of the registrants most recently +completed second fiscal quarter. +The +registrant had 1,332,145 shares of class A common stock outstanding, and 100,000 shares of class B common stock outstanding as of March 25, 2025. +TABLE +OF CONTENTS +PAGE +PART I +Item +1. +Business +1 +Item +1A. +Risk Factors +11 +Item +1B. +Unresolved Staff Comments +28 +Item +1C. +Cybersecurity +28 +Item +2. +Properties +28 +Item +3. +Legal Proceedings +28 +Item +4. +Mine Safety Disclosures +28 +PART II +Item +5. +Market for Registrant’s Ordinary Shares, Related Shareholder Matters and Issuer Purchases of Equity Securities +28 +Item +6. +[Reserved] +29 +Item +7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +29 +Item +7A. +Quantitative and Qualitative Disclosures About Market Risk +37 +Item +8. +Financial Statements and Supplementary Data +37 +Item +9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +37 +Item +9A. +Controls and Procedure +37 +Item +9B. +Other Information +38 +Item +9C +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +38 +PART III +Item +10. +Directors, Executive Officers and Corporate Governance +38 +Item +11. +Executive Compensation +43 +Item +12. +Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters +50 +Item +13. +Certain Relationships and Related Transactions, and Director Independence +50 +Item +14. +Principal Accounting Fees and Services +51 +PART IV +Item +15. +Exhibits and Financial Statement Schedules +52 +Item +16. +Form 10-K Summary +52 +i +As +used in this Annual Report on Form 10-K, unless otherwise indicated, Yoshiharu Global Co., together with its consolidated subsidiaries, +is hereinafter referred to as “Yoshiharu,” the “registrant,” “us,” “we,” “our,” +or the “Company.” +SPECIAL +NOTE REGARDING FORWARD-LOOKING STATEMENTS +This +Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as +amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on our management’s beliefs and +assumptions and on information currently available to management, and which statements involve substantial risk and uncertainties. +All statements contained in this Annual Report on Form 10-K other than statements of historical fact, including statements regarding +our future operating results and financial position, our business strategy and plans, market growth and trends, and objectives for +future operations are forward-looking statements. Forward-looking statements generally relate to future events or our future +financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as +“may,” “will,” “should,” “expects,” “plans,” “anticipates,” +“could,” “intends,” “target,” “projects,” “contemplates,” +“believes,” “estimates,” “predicts,” “potential,” or “continue” or the +negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or +intentions. +These +risks and uncertainties include, among other things: the risk that we may not be able to successfully implement our growth strategy if +we are unable to identify appropriate sites for restaurant locations, expand in existing and new markets, obtain favorable lease terms, +attract guests to our restaurants or hire and retain personnel; the risk that we may not be able to maintain or improve our comparable +restaurant sales growth; that the restaurant industry is a highly competitive industry with many competitors; the risk that our limited +number of restaurants, the significant expense associated with opening new restaurants, and the unit volumes of our new restaurants makes +us susceptible to significant fluctuations in our results of operations; the risk that we have incurred operating losses and may not +be profitable in the future; the risk that our plans to maintain and increase liquidity may not be successful; the risk that we depend +on our senior management team and other key employees, and the loss of one or more key personnel or an inability to attract, hire, integrate +and retain highly skilled personnel could have an adverse effect on our business, financial condition or results of operations; the risk +that our operating results and growth strategies will be closely tied to the success of our future franchise partners and we will have +limited control with respect to their operations; the risk that we may face negative publicity or damage to our reputation, which could +arise from concerns regarding food safety and foodborne illness or other matters; the risk that minimum wage increases and mandated employee +benefits could cause a significant increase in our labor costs; that events or circumstances could cause the termination or limitation +of our rights to certain intellectual property critical to our business that is licensed from Yoshiharu Holdings Co., or that we could +face infringements on our intellectual property rights and be unable to protect our brand name, trademarks and other intellectual property +rights; the risk that challenging economic conditions may affect our business by adversely impacting numerous items that include, but +are not limited to: consumer confidence and discretionary spending, the future cost and availability of credit and the operations of +our third-party vendors and other service providers; the risk that we, or our point of sale and restaurant management platform partners, +may fail to secure guests’ confidential, personally identifiable, debit card or credit card information or other private data relating +to our employees or us; and the impact of the COVID-19 pandemic, or a similar public health threat, on global capital and financial markets, +general economic conditions in the United States, and our business and operations. +You +should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained +in this Annual Report on Form 10-K primarily on our current expectations and projections about future events and trends that we believe +may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking +statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere +in this Annual Report on Form 10-K. We undertake no obligation to update any forward-looking statements after the date of this Annual +Report on Form 10-K or to conform such statements to actual results or revised expectations, except as required by law. +ii +SUMMARY +OF SIGNIFICANT RISKS AFFECTING OUR COMPANY +Our +business is subject to multiple risks and uncertainties, as more fully described in “ Risk Factors ” and elsewhere in +this Annual Report on Form 10-K. We urge you to read the disclosures under the caption “ Risk Factors ” and this Annual +Report in full. Our significant risks may be summarized as follows: +● +We +have incurred operating losses and may not be profitable in the future. Our plans to maintain and increase liquidity may not be successful. +● +Our +long-term success is highly dependent on our ability to successfully identify and secure appropriate sites and timely develop and +expand our operations in existing and new markets. +● +New +restaurants, once opened, may not be profitable, and the increases in average restaurant sales and comparable restaurant sales that +we have experienced in the past may not be indicative of future results. +● +Our +limited number of restaurants, the significant expense associated with opening new restaurants, and the unit volumes of our new restaurants +makes us susceptible to significant fluctuations in our results of operations. +● +Our +sales and profit growth could be adversely affected if comparable restaurant sales are less than we expect. +● +Negative +publicity relating to one of our restaurants could reduce sales at some or all of our other restaurants. +● +The +minimum wage, particularly in California, continues to increase and is subject to factors outside of our control. +● +New +information or attitudes regarding diet and health could result in changes in regulations and consumer consumption habits that could +adversely affect our business, financial condition or results of operations. +● +We +are subject to all of the risks associated with leasing space subject to long-term non-cancelable leases. +● +Delays +In Obtaining Construction Permits Can Have A Material Adverse Effect on Our Business. +● +We +may become involved in lawsuits involving Yoshiharu Holdings Co. as the owner of intellectual property, or us as a licensee of intellectual +property from Yoshiharu Holdings Co., to protect or enforce intellectual property rights, which could be expensive, time consuming, +and unsuccessful. +● +A +breach of security of confidential consumer information related to our electronic processing of credit and debit card transactions, +as well as a breach of security of our employee information, could substantially affect our reputation, business, financial condition +of results of operations. +● +Our +marketing programs may not be successful, and our new menu items, advertising campaigns and restaurant designs and remodels may not +generate increased sales or profits. +● +We +could be party to litigation that could adversely affect us by distracting management, increasing our expenses or subjecting us to +material money damages and other remedies. +● +Our +current insurance may not provide adequate levels of coverage against claims. +● +Failure +to obtain and maintain required licenses and permits or to comply with alcoholic beverage or food control regulations could lead +to the loss of our liquor and food service licenses and, thereby, harm our business, financial condition or results of operations. +● +If +we fail to develop and maintain an effective system of internal control over financial reporting, we may not be able to accurately +report our financial results in a timely manner, which may adversely affect investor confidence in our company. +● +We +will incur increased costs as a result of being a public company. +● +We +are an “emerging growth company,” and we cannot be certain if the reduced reporting and disclosure requirements applicable +to emerging growth companies will make our common stock less attractive to investors. +● +Our +management does not have experience managing a U.S. public company and our current resources may not be sufficient to fulfill our +public company obligations. +● +Pursuant +to the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal +control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act for so long as we are an “emerging growth +company.” +iii +PART +I +Item +1. Business. +Overview +of Yoshiharu +We +are a fast-growing Japanese restaurant operator and was borne out of the idea of introducing the modernized Japanese dining experience +to customers all over the world. Specializing in Japanese ramen, we gained recognition as a leading ramen restaurant in Southern California +within six months of our 2016 debut and have continued to expand our top-notch restaurant service across Southern California, currently +operating ten restaurants with an additional three new restaurant stores under construction/development. Further, we entered into a material +definitive agreement to acquire three existing restaurants in Las Vegas and expect to complete the acquisition in early second quarter +2024. +We +take pride in our warm, hearty, smooth, and rich bone broth, which is slowly boiled for over twelve hours. Customers can taste and experience +supreme quality and deep flavors. Combining the broth with the fresh, savory, and highest-quality ingredients, we serve the perfect, +ideal ramen, as well as offers customers a wide variety of sushi rolls, bento menu and other favorite Japanese cuisine. Our acclaimed +signature Tonkotsu Black Ramen has become a customer favorite with its slow cooked pork bone broth and freshly made, tender chashu (braised +pork belly). +Our +mission is to bring our Japanese ramen and cuisine to the mainstream, by providing a meal that customers find comforting. Since the inception +of the business, we have been making our own ramen broth and other key ingredients such as pork chashu and flavored eggs from scratch, +whereby upholding the quality and taste of our foods, including the signature texture and deep, rich flavor of our handcrafted broth. +Moreover, we believe that slowly cooking the bone broth makes it high in collagen and rich in nutrients. We also strive to present food +that is not only healthy, but also affordable. We feed, entertain and delight our customers, with our active kitchens and bustling dining +rooms providing happy hours, student and senior discounts, and special holiday events. As a result of our vision, customers can comfortably +enjoy our food in a friendly and welcoming atmosphere. +In +September 2022, we consummated our initial public offering (the “IPO”) of 2,940,000 shares of our Class A common stock (pre-Reverse +Stock Split), par value $0.0001 per share (“Class A Common Stock”) at a public offering price of $4.00 per share, generating +gross proceeds of $11,760,000. Net proceeds from the IPO were approximately $10.3 million after deducting underwriting discounts and +commissions and other offering expenses of approximately $1.5 million. +We +granted the underwriters a 45-day option to purchase up to 441,000 additional shares (equal to 15% of the shares of Class A Common Stock +sold in the IPO) to cover over-allotments, if any, which the underwriters did not exercise. In addition, we issued to the representative +of the underwriters warrants to purchase a number of shares of Class A Common Stock equal to 5.0% of the aggregate number of shares of +Class A Common Stock sold in the IPO (including shares of Class A Common Stock sold upon exercise of the over-allotment option). The +representative’s warrants are exercisable at any time and from time to time, in whole or in part, during the four-and-½-year +period commencing six months from the date of commencement of the sales of the shares of Class A Common Stock in connection with the +IPO, at an initial exercise price per share of $5.00 (equal to 125% of the initial public offering price per share of Class A Common +Stock). No representative’s warrants have been exercised. +On +September 9, 2022, the our Class A Common Stock began trading on the Nasdaq Capital Market under the symbol “YOSH.” +On +November 22, 2023, we filed a Certificate of Amendment (the “Certificate of Amendment”) to our Amended and Restated Certificate +of Incorporation to effect a reverse stock split of our Class A Common Stock and Class B common stock, par value $0.0001 per share (“Class +B Common Stock” and, together with Class A common Stock, “Common Stock”), in the ratio of 1-for-10 (the “Reverse +Stock Split”) effective at 11:59 p.m. eastern on November 27, 2023. The Class A Common Stock began trading on a split-adjusted +basis at the market open on Tuesday, November 28, 2023. +No +fractional shares were issued as a result of the Reverse Stock Split. Instead, any fractional shares that would have resulted from +the Reverse Stock Split were rounded up to the next whole number. As a result, a total of 34,846 shares of Class A Common Stock were +issued and total of 1,230,246 shares of Class A Common Stock were outstanding as of December 31, 2023. The Reverse Stock Split +affects all stockholders uniformly and did not alter any stockholder’s percentage interest in our outstanding Common Stock, +except for adjustments that may result from the treatment of fractional shares. The number of authorized shares of Common Stock and +number of authorized shares of our Class B common stock were not changed. +Supply +Chain Disruption and Inflation +Our +profitability depends in part on our ability to anticipate and react to changes in food and supply costs, especially in light of recent +supply chain disruptions. We believe we have experienced higher costs due to increased commodity prices and challenges sourcing our supplies +due in part to global supply chain disruptions. Although historically, and as of December 31, 2024, global supply chain disruptions have +not materially adversely affected our business, a substantial increase in the cost of, or inability to procure, the food products most +critical to our menu, such as canola oil, rice, meats, fish and other seafood, as well as fresh vegetables, could materially and adversely +affect our business, financial condition or results from operations. Because we provide moderately priced food, we may choose not to, +or may be unable to, pass along commodity price increases to consumers. These potential changes in supply costs could materially adversely +affect our business, financial condition or results of operations. +1 +Historically +and as of the date hereof, inflation has not had a material effect on our results of operations. Severe increases in inflation, however, +could affect the global and U.S. economies and could have a materially adverse impact on our business, financial condition or results +of operations. Furthermore, future volatile, negative, or uncertain economic conditions and recessionary periods or periods of significant +inflation may adversely impact consumer spending at our restaurants, which would materially adversely affect our business, financial +condition and results of operations. Such effects can be especially pronounced during periods of economic contraction or slow economic +growth. To the extent that we are unable to offset such cost inflation through increased menu prices or increased efficiencies in our +operations and cost savings, there could be a negative impact on our business, sales and margin performance, net income, cash flows and +the trading price of our common shares. We have been able to offset to some extent these inflationary and other cost pressures through +actions such as increasing menu prices and supply chain initiatives, however, we expect these inflationary and other cost pressures to +continue into and throughout the year 2025. +Our +Strengths +Experienced +Management Team Dedicated to Growth . +Our +team is led by experienced and passionate senior management who are committed to our mission. We are led by our Chief Executive Officer, +James Chae. Mr. Chae founded Yoshiharu in 2016 and has helped grow the business since that time. Mr. Chae leads a team of talented professionals +with deep financial, operational, culinary, and real estate experience. +Compelling +Value Proposition with Broad Appeal. +Guests +can enjoy our signature ramen dishes or select from our variety of fresh sushi rolls, bento, and other Japanese cuisine. The high-quality +dishes at affordable prices are the result of our efficient operations. In addition, we believe our commitment to high-quality and fresh +ingredients in our food is at the forefront of current dining trends as customers continue to seek healthy food options. +Attractive +Restaurant-Level Economics. +At +Yoshiharu, we believe our rapid customer turnover, combined with our ability to deliver in 2 major day parts with lunch and dinner, allows +for robust and efficient sales in each of our restaurants. Our average unit volume (“AUV”, as defined herein) was $1.1 million +in 2023 and $1.0 million in 2024. +Quality +of Food and Excellence in Customer Service. +We +place a premium on serving high-quality, authentic Japanese cuisine. We believe in customer convenience and satisfaction and have created +strong, loyal and repeat customers who help expand the Yoshiharu network to their friends, family and co-workers. +2 +Our +Growth Strategies +Pursue +New Restaurant Development. +We +have pursued a disciplined new corporate owned growth strategy. Having expanded our concept and operating model across varying restaurant +sizes and geographies, we plan to leverage our expertise opening new restaurants to fill in existing markets and expand into new geographies. +While we currently aim to achieve in excess of 100% annual unit growth rate over the next three to five years, we cannot predict the +time period of which we can achieve any level of restaurant growth or whether we will achieve this level of growth at all. Our ability +to achieve new restaurant growth is impacted by a number of risks and uncertainties beyond our control, including those described under +the caption “ Risk Factors .” In particular, see “ Risk Factors—Our long-term success is highly dependent +on our ability to successfully identify and secure appropriate sites and timely develop and expand our operations in existing and new +markets ” for specific risks that could impede our ability to achieve new restaurant growth in the future. We believe there +is a significant opportunity to employ this strategy to open additional restaurants in our existing markets and in new markets with similar +demographics and retail environments. +Deliver +Consistent Comparable Restaurant Sales Growth . +We +have achieved positive comparable restaurant sales growth in recent periods. We believe we will be able to generate future comparable +restaurant sales growth by growing traffic through increased brand awareness, consistent delivery of a satisfying dining experience, +new menu offerings, and restaurant renovations. We will continue to manage our menu and pricing as part of our overall strategy to drive +traffic and increase average check. We are also exploring initiatives to grow sales of alcoholic beverages at our restaurants, including +the potential of a larger format restaurant with a sake bar concept. In addition to the strategies stated above, we expect to initiate +sales of franchises in 2024. +Increase +Profitability . +We +have invested in our infrastructure and personnel, which we believe positions us to continue to scale our business operations. As we +continue to grow, we expect to drive higher profitability both at a restaurant-level and corporate-level by taking advantage of our increasing +buying power with suppliers and leveraging our existing support infrastructure. Additionally, we believe we will be able to optimize +labor costs at existing restaurants as our restaurant base matures and AUVs increase. We believe that as our restaurant base grows, our +general and administrative costs will increase at a slower rate than our sales. +Heighten +Brand Awareness . +We +intend to continue to pursue targeted local marketing efforts and plan to increase our investment in advertising. We also are exploring +the development of instant ramen noodles which we would distribute through retail channels. We intend to explore partnerships with grocery +retailers to provide for small-format Yoshiharu kiosks in stores to promote a limited selection of Yoshiharu cuisine. +Experienced +Management Team Dedicated to Growth . +Our +team is led by experienced and passionate senior management who are committed to our mission. We are led by our Chief Executive Officer, +James Chae. Mr. Chae founded Yoshiharu in 2016 and leads a team of talented professionals with deep financial, operational, culinary, +and real estate experience. +Properties +As +of December 31, 2024, we operated twelve (12) restaurants in California and one location under construction. We also operated three restaurants +in Las Vegas since April 2024. We operate a variety of restaurant formats, including in-line and end-cap restaurants located in retail +centres of varying sizes. Our restaurants currently average approximately 1,578 square feet. We lease the property for our corporate +offices and all of the properties on which we operate our restaurants. +3 +The +table below shows the locations of our restaurants as of the date of this Report: +Store +Location +Address +Year +Launched +Orange +1891 +N Tustin St, Orange, CA 92865 +2016 +Buena +Park +6970 +Beach Blvd, #F206 Buena Park, CA 90621 +2017 +Whittier +8426 +Laurel Ave, STE A Whittier, CA 90605 +2017 +Chino +4004 +Grand Ave STE C Chino, CA 91710 +2019 +Eastvale +4910 +Hamner Ave STE 150, Eastvale, CA 91752 +2020 +Irvine +3935 +Portola Pkwy, Irvine, CA 92602 +2021 +La +Mirada +12806 +La Mirada Blvd, La Mirada, CA 90638 +2022 +Cerritos +11533 +South St, Cerritos, CA 90703 +2022 +Corona +440 +N Mckinley St STE 101, Corona, CA 92879 +2023 +Garden +Grove +9812 +Chapman Avenue Garden Grove, CA 92841 +2023 +Laguna +32341 +Golden Lantern, STE B, Laguna Niguel, CA 92677 +1Q +2024* 1 +San +Clemente +638 +Camino de Los Mares STE 16, San Clemente, CA 92673 +4Q +2024* 2 +Menifee +27311 +Newport Road, Suite 320, Menifee, CA 92584 +1Q +2025* 3 +Ontario +960 +N Haven Ave, Suite 100, Ontario, CA 91764 +1Q +2025* 3 +Las +Vegas +6125 +S. Fort Apache Road, Suite 200, Las Vegas, NV 89148 +2Q +2024* 4 +Las +Vegas +280 +E Flamingo Road, Suite C, Las Vegas, NV 89169 +2Q +2024* 4 +Las +Vegas +6572 +N Decatur Blvd., Las Vegas, NV 89131 +2Q +2024* 4 +* 1 +Opened in February 2024. +* 2 +Opened in October 2024 +* 3 +Under construction. +* 4 +Acquired in April 2024 +We +are obligated under non-cancelable leases for the majority of our restaurants, as well as our corporate offices. The majority of our +restaurant leases have lease terms of 10 years, inclusive of customary extensions which are at the option of the company. Our restaurant +leases generally require us to pay a proportionate share of real estate taxes, insurance, common area maintenance charges, and other +operating costs. Some restaurant leases provide for contingent rental payments based on sales thresholds, although we generally do not +expect to pay significant rent on these properties based on the thresholds in those leases. We do not own any real property. +We +opened one restaurant in each year from 2019 through 2021, and we have opened two restaurants in 2022, 2023 and 2024, respectively. We +also acquired three existing restaurants in Las Vegas by an Asset Purchase Agreement (“APA”) with Mr. Jihyuck Hwang (“Seller”) +(see Note 9 Related Party Transactions) via the Company’s wholly owned subsidiary, Yoshiharu Las Vegas (“YLV”). The +APA provided for the purchase of specific assets of the three restaurant businesses, including inventory, security deposits, fixed assets +and lease assignment effective as of April 20, 2024. +We +anticipate approximately $350,000 - $550,000 in costs per new location in development and has spent approximately $484,000 for the one +location under construction/development as of December 31, 2024. +Site +Development and Expansion +Site +Selection Process +We +consider site selection to be instrumental to our success. As part of our strategic site selection process, we receive potential site +locations from networks of local brokers, which are then reviewed by our Development Team. This examination consists of an analysis of +the lease terms and conditions, a profitability evaluation, as well as multiple site visits during all times of the day, e.g., lunch, +late afternoon, dinner, weekdays and weekends, to test for traffic. The Development Team holds regular meetings for site approval with +other members of our senior management team in order to get a balanced perspective on a potential site. +4 +Our +current real estate strategy focuses on high-traffic retail centers in markets with a diverse population and above-average household +income for the state. We believe we are attractive lessees for landlords given our ability to drive strong traffic comprised of above-average +household income guests, and we imagine our bargaining power will become stronger as we accumulate more stores. In site selection, we +also consider factors such as residential and commercial population density, restaurant visibility, traffic patterns, accessibility, +availability of suitable parking, proximity to highways, universities, shopping areas and office parks, the degree of competition within +the market area, and general availability of restaurant-level employees. We also invest in site analytics tools for demographic analysis +and data collection for both existing and new market areas, which we believe allows us to further understand the market area and determine +whether to open new restaurants in that location. +Our +flexible physical footprint, which has allowed us to open restaurants in size ranging from 1,500 to 2,500 square feet, allows us to open +in-line and end-cap restaurant formats at strip malls and shopping centers and penetrate markets in both suburban and urban areas. We +believe we have the ability to open additional restaurants in our existing metropolitan areas. We also believe there is significant opportunity +to employ the strategy in new markets with similar demographics across the U.S. and globally. +Expansion +Strategy +We +plan to pursue a multi-facet expansion strategy by opening new corporate restaurants or acquiring existing restaurants in both new and +existing markets, as well as utilizing the franchise market. We believe this expansion will be crucial to executing our growth strategy +and building awareness of Yoshiharu as a leading Japanese casual dining brand. Expansion into new markets occurs in parallel with ongoing +evaluation of existing markets, with the goal of maintaining a pipeline of top-tier development opportunities. As described under the +heading Site Selection Process above, we use a systematic approach to identify and review existing and new markets. +Upon +selecting a new market, we typically build one restaurant to prove concept viability in that market. We have developed a remote management +system whereby our senior operations team is able to monitor restaurants in real-time from our headquarters using approximately eight +cameras installed in each restaurant. We utilize this remote management system to maintain operational quality while minimizing inefficiencies +caused by a lack of economies of scale in new markets. +Due +to our relatively small restaurant count, new restaurants have an outsized impact on our financial performance. In order to mitigate +risk, we look to expand simultaneously in new and existing markets. We base our site selection on our most successful existing restaurants +and frequently reevaluate our strategy, pacing and markets. We believe we are in the early stages of our growth story and that our restaurant +model is designed to generate strong cash flow, attractive restaurant-level financial results and high returns on invested capital, which +we believe provides us with a strong foundation for expansion. +Restaurant +Design +Restaurant +design is handled by our Development Team in conjunction with outsourced vendor relationships, e.g., architects and general contractors. +Our restaurant size currently averages approximately 1,500 square feet. Seating in our restaurant is comprised of a combination of table +seating and bar seats with an average seating capacity of 40-50 guests. +We +are developing two main restaurant layouts. The standard restaurants will be built using our current layout and design which we believe +evokes a modern and on-trend Japanese dining atmosphere. The second layout is a larger floor plan where we will utilize a full service +restaurant and bar. We believe our see-through kitchens reflecting the cooks preparing first hand meals, amplify the lively bustle provided +by the great casual atmosphere, and serve to highlight the ambiance of getting great food in a modern Japanese style ambiance. +5 +Construction +Construction +of a new restaurant takes approximately 12 to 24 weeks once construction permits are issued. Our Development Team oversees the build-out +process from engaging architects and contractors to design and build out the restaurant. The capital resources required to develop each +new restaurant are significant. On average, we estimate our restaurant build-outs to cost approximately $350,000 - $550,000 per standard +location, net of tenant allowances and pre-opening costs and assuming that we do not purchase the underlying real estate, but this figure +could be significantly higher depending on the market, restaurant size, and condition of the premises upon delivery by landlord. On average, +we estimate that our restaurants require a cash build-out cost of approximately $350,000-$550,000 per restaurant, net of landlord tenant +improvement allowances and pre-opening costs and assuming that we do not purchase the underlying real estate. Actual costs may vary significantly +depending upon a variety of factors, including the site and size of the restaurant and conditions in the local real estate and labor +markets. +Restaurant +Management and Operations +Restaurant +Management and Employees +Our +restaurants typically employ one restaurant manager, one or two supervisors, and approximately 8 to 12 additional team members. Managers, +supervisors and management trainees are cross-trained throughout the restaurant in order to create competency across critical restaurant +functions, both in the dining area and in the kitchen. +In +addition, our senior operations team monitors restaurants in real-time from our headquarters using our remote management system of approximately +eight cameras installed in each restaurant. These team members are responsible for different components of the restaurant: cleanliness, +service, and food quality. +Training +and Employee Programs +We +devote significant resources to identifying, selecting, and training restaurant-level employees. Our training covers leadership, team +building, food safety certification, alcohol safety programs, sexual harassment training, and other topics. Management trainees undergo +training for approximately 8 to 16 weeks in order to develop a deep understanding of our operations. In addition, we are developing extensive +training manuals that cover all aspects of restaurant-level operations. +Our +traveling “opening team” provides training to team members in advance of opening a new restaurant. We believe the opening +team facilitates a smooth opening process and efficient restaurant operations from the first day a restaurant opens to the public. The +opening team is typically on-site at new restaurants from two weeks before opening to four weeks after opening. +Food +Preparation, Quality and Safety +We +are committed to consistently providing our guests high quality, freshly prepared food. For other items we believe hand preparation achieves +the best quality. Hand preparation of menu items includes, but is not limited to, frying tempura, slicing meat and fish and making pork +bone broth. We believe guests can taste the difference in freshly prepared food and that adhering to these standards is a competitive +advantage for our brand. +Food +safety is essential to our success and we have established procedures to help ensure that our guests enjoy safe, quality food. We require +each employee to complete food handler safety certification upon hiring. We have taken various additional steps to mitigate food quality +and safety risks, including undergoing internal safety audits. We also consider food safety and quality assurance when selecting our +distributors and suppliers. +Menu +We +offer a diverse menu, including our signature ramen dishes, as well as sushi rolls, bento boxes, and other Japanese cuisine. The menu +appeals to a wide range of customers, and we continue to improve upon the quality, taste and presentation. Additionally, we are able +to serve the menu in a delivery and pickup format, as our food is designed to be enjoyed on premise or at customers’ homes or offices. +We have entered the catering business through relationships with businesses who place large format orders (i.e., Bento boxes for corporate +meetings or office lunches), for delivery or pick-up. We expect that our catering business, which has a higher-than-average order value, +to grow due to the early success we have experienced in the corporate channel. +6 +New Menu Introductions +We +focus advertising efforts on new menu offerings to broaden our appeal to guests and drive traffic. Our menu changes twice per year to +introduce new items and remove underperforming items. We promote these new menu additions through various social media platforms, our +website and in-restaurant signage. +Marketing +and Advertising +We +use a variety of marketing and advertising channels to build brand awareness, attract new guests, increase dining frequency, support +new restaurant openings, and promote Yoshiharu as an authentic Japanese restaurant with high-quality cuisine and a distinctive dining +experience. Our primary advertising channels include digital, social, and print. +Social +Media +We +maintain a presence on several social media platforms including Facebook and Instagram, allowing us to regularly communicate with guests, +alert guests of new offerings, and conduct promotions. Our dining experience is built to provide our guests social media shareable moments, +which we believe extends our advertising reach. +Suppliers +We +carefully select suppliers based on product quality and authenticity and their understanding of our brand, and we seek to develop long-term +relationships with them. All supply arrangements are negotiated and managed at the Yoshiharu corporate-level. +Food. +Our Vice President of Operations identifies and procures high-quality ingredients at competitive prices. Each store separately makes +an order to the specific vendor, and the invoices are submitted and paid by Yoshiharu at the corporate-level. We source mainly through +the following Japanese-related distributors: JFC, a subsidiary of Kikkoman Corporation, Wismettac, a subsidiary of Nishimoto Co., Ltd., +and Mutual Trading Co., Inc., a California corporation. +Paper. +Our Vice President of Operations negotiates long term supply agreements for our logo-branded paper including takeout bags and bowls, +chopsticks, as well as uniforms. We make a portion of our purchases annually in bulk at fixed prices, and deliver them to our warehouse +in Anaheim, California. Each restaurant Manager receives the necessary paper supplies from our warehouse. +Management +Information Systems +We +utilize systems provided by Toast, Inc. for point of sale, contactless ordering, handheld ordering, online ordering and delivery, as +well as marketing and payroll management. We believe that Toast’s systems provide us and our customers with streamlined operations +and allows us to efficiently turn tables and improve the sales conversion cycle, while reducing third-party commissions for online orders. +Restaurant +Industry Overview +According +to the National Restaurant Association (the “NRA”), restaurant industry sales in 2024 were over $1.1 trillion, up from $1.0 +trillion in 2024 and is forecast to grow to $1.5 trillion in 2025. +The +restaurant industry is divided into several primary segments, including limited-service and full-service restaurants, which are generally +categorized by price, quality of food, service, and location. Yoshiharu sits at the intersection of these two segments offering the experience +and food quality of a full-service restaurant and the speed of service of a limited-service restaurant. We primarily compete with other +full-service restaurants, which, according to the NRA, had approximately $353 billion of sales in calendar year 2024, up from $324 billion +in 2023. The limited-service segment generated approximately $421 billion in calendar year 2024, or a roughly $26 billion increase from +the prior year. +7 +We +believe that increased multiculturalism in the United States, driven in part by growth in the Asian demographic, contributes to a favorable +macro environment for Yoshiharu’s future growth. According to the U.S. Census Bureau, the Asian population is projected to be one +of the fastest growing demographics in the United States, increasing in size from 22.4 million people in calendar year 2019 to 46 million +people by calendar year 2060. During this time, the Asian population’s share of the nation’s total population is projected +to increase by 100%, from approximately 7% to 14%. +Additionally, +we believe that Yoshiharu is well-positioned to grow our share of the restaurant market as consumers seek quality, value, healthier options, +and authentic global and regional cuisine in their dining choices. According to the National Restaurant Association 2024 State of the +Industry report, roughly 47% of family and casual dining restaurants plan to add new menu items identified as healthy or nutritious in +2024. +We +cannot provide assurance that we will benefit from these long-term demographic trends, although we believe the projected growth in the +Asian population and the Asian influence on dining trends will result in an increase in demand for Japanese and Asian foods. +Competition +We +face significant competition from a variety of locally owned restaurants regional, and national chain restaurants offering both Asian +and non-Asian cuisine, as well as takeaway options from grocery stores. Direct competition for Yoshiharu comes primarily from Asian restaurants +including other ramen noodles restaurants. Jinya Ramen Bar operates approximately 40 locations in the United States and also franchises +their restaurants. We believe that we compete primarily based on product quality, dining experience, ambience, location, convenience, +value perception, and price. Our competition continues to intensify as competitors increase the breadth and depth of their product offerings +and open new restaurants. +Seasonality +Due +to Yoshiharu’s menu breadth and diversification of offerings, we do not experience significant seasonality. +Employees +As +of December 31, 2024, we had approximately 259 employees, of whom 10 were exempt employees and the remainder were non-exempt employees. +None of our employees are unionized or covered by collective bargaining agreements, and we consider our current employee relations to +be good. +Government +Regulation and Environmental Matters +We +are subject to extensive and varied federal, state and local government regulation, including regulations relating, among others, to +public and occupational health and safety, nutritional menu labeling, healthcare, the environment, sanitation and fire prevention. We +operate each of our restaurants in accordance with standards and procedures designed to comply with applicable codes and regulations. +However, an inability to obtain or retain health department or other licenses would adversely affect our operations. Although we have +not experienced, and do not anticipate, any significant difficulties, delays or failures in obtaining required licenses, permits or approvals, +any such problem could delay or prevent the opening of, or adversely impact the viability of, a particular restaurant or group of restaurants. +Additionally, difficulties, delays or failure to retain or renew licenses, permits or approvals, or increased compliance costs due to +changed regulations, could adversely affect operations at existing restaurants. +8 +In +addition, in order to develop and construct restaurants, we must comply with applicable zoning, land use and environmental regulations. +Federal and state environmental regulations have not had a material effect on our operations to date, but more stringent and varied requirements +of local governmental bodies with respect to zoning, land use and environmental factors could delay or even prevent construction and +increase development costs for new restaurants. We are also required to comply with the accessibility standards mandated by the U.S. +Americans with Disabilities Act, which generally prohibits discrimination in accommodation or employment based on disability. We may +in the future have to modify restaurants, for example, by adding access ramps or redesigning certain architectural fixtures, to provide +service to or make reasonable accommodations for disabled persons. While these expenses could be material, our current expectation is +that any such actions will not require us to expend substantial funds. +Alcoholic +beverage control regulations require each of our restaurants to apply to a state authority and, in certain locations, county or municipal +authorities for a license that must be renewed annually and may be revoked or suspended for cause at any time. Alcoholic beverage control +regulations relate to numerous aspects of daily operations of our restaurants, including minimum age of patrons and employees, hours +of operation, advertising, trade practices, wholesale purchasing, other relationships with alcohol manufacturers, wholesalers and distributors, +inventory control and handling, storage and dispensing of alcoholic beverages. We are also subject in certain states to “dram shop” +statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully +served alcoholic beverages to the intoxicated person. We carry liquor liability coverage as part of our existing comprehensive general +liability insurance. +Further, +we are subject to the U.S. Fair Labor Standards Act, the U.S. Immigration Reform and Control Act of 1986, the Occupational Safety and +Health Act and various other federal and state laws governing similar matters including minimum wages, overtime, workplace safety and +other working conditions. Significant numbers of our food service and preparation personnel are paid at rates related to the applicable +minimum wage, and further increases in the minimum wage or other changes in these laws could increase our labor costs. Our ability to +respond to minimum wage increases by increasing menu prices will depend on the responses of our competitors and guests. Our distributors +and suppliers also may be affected by higher minimum wage and benefit standards, which could result in higher costs of goods and services +supplied by us. We may also be subject to lawsuits from our employees, the U.S. Equal Employment Opportunity Commission or others alleging +violations of federal and state laws regarding workplace and employment matters, discrimination and similar matters. +There +has been increased regulation of certain food establishments in the United States, such as the requirements to maintain a Hazard Analysis +and Critical Control Points (“HACCP”) system. HACCP refers to a management system in which food safety is addressed through +the analysis and control of potential hazards from production, procurement and handling, to manufacturing, distribution and consumption +of the finished product. Many states have required restaurants to develop and implement HACCP systems and the U.S. government continues +to expand the sectors of the food industry that must adopt and implement HACCP programs. We cannot assure you that we will not have to +expend additional time and resources to comply with new food safety requirements either required by current or future federal food safety +regulation or legislation. Additionally, our suppliers may initiate or otherwise be subject to food recalls that may impact the availability +of certain products, result in adverse publicity or require us to take actions that could be costly for us or otherwise harm our business. +A +number of states, counties and cities have enacted menu labeling laws requiring multi-unit restaurant operators to disclose to consumers +certain nutritional information or have enacted legislation restricting the use of certain types of ingredients in restaurants. Many +of these requirements are inconsistent or interpreted differently from one jurisdiction to another. These requirements may be different +or inconsistent with requirements that we are subject to under the the Patient Protection and Affordable Care Act of 2010, as amended +by the Health Care and Education Reconciliation Act, (collectively, the “ACA,”), which establishes a uniform, federal requirement +for certain restaurants to post nutritional information on their menus. Specifically, the ACA requires chain restaurants with 20 or more +locations in the United States operating under the same name and offering substantially the same menus to publish the total number of +calories of standard menu items on menus and menu boards, along with a statement that puts this calorie information in the context of +a total daily calorie intake. The ACA also requires covered restaurants to provide to consumers, upon request, a written summary of detailed +nutritional information for each standard menu item, and to provide a statement on menus and menu boards about the availability of this +information upon request. While our ability to adapt to consumer preferences is a strength of our concepts, the effect of such labeling +requirements on consumer choices, if any, is unclear at this time. +9 +We +are subject to federal, state and local environmental laws and regulations concerning waste disposal, pollution, protection of the environment, +and the presence, discharge, storage, handling, release and disposal of, or exposure to, hazardous or toxic substances (“environmental +laws”). These environmental laws can provide for significant fines and penalties for non-compliance and liabilities for remediation, +sometimes without regard to whether the owner or operator of the property knew of, or was responsible for, the release or presence of +the hazardous or toxic substances. Third parties may also make claims against owners or operators of properties for personal injuries +and property damage associated with releases of, or actual or alleged exposure to, such substances. We are not aware of any environmental +laws that will materially affect our earnings or competitive position, or result in material capital expenditures relating to our restaurants. +However, we cannot predict what environmental laws will be enacted in the future, how existing or future environmental laws will be administered, +interpreted or enforced, or the amount of future expenditures that we may need to make to comply with, or to satisfy claims relating +to, environmental laws. It is possible that we will become subject to environmental liabilities at our properties, and any such liabilities +could materially affect our business, financial condition or results of operations. +We +are also subject to laws and regulations relating to information security, privacy, cashless payments, gift cards and consumer credit, +protection and fraud, and any failure or perceived failure to comply with these laws could harm our reputation or lead to litigation, +which could adversely affect our business, financial condition or results of operations. +Furthermore, +we are subject to import laws and tariffs which could impact our ability to source and secure food products, other supplies and equipment +necessary to operate our restaurants. +For +a discussion of the various risks we face from regulation and compliance matters, see “ Risk Factors .” +Intellectual +Property and Trademarks +Yoshiharu +Holdings Co., our wholly owned subsidiary, owns a number of patents, trademarks and service marks registered or pending with the U.S. +Patent and Trademark Office (“PTO”) including the following registrant trademarks: YOSHIHARU RAMEN (Trademark Reg. No. 5030823) +and Design Mark YOSHIHARU RAMEN (Trademark Reg. No. 5045588). In addition, we have registered the Internet domain name www.yoshiharuramen.com. +The information on, or that can be accessed through, our website is not part of this Report. +We +believe that the trademarks, service marks and other intellectual property rights that we license from Yoshiharu Holdings Co. have significant +value and are important to the marketing and reputation of our brand. It is our policy to pursue registration of our intellectual property +whenever possible and to oppose vigorously any infringement thereof. However, we cannot predict whether steps taken to protect such rights +will be adequate or whether Yoshiharu Holdings Co. will take steps to enforce such rights with regard to any intellectual property that +we license from them. See “ Risk Factors—Risks Related to Our Business and Industry—We may become involved in lawsuits +involving Yoshiharu Holdings Co. as the owner of intellectual property, or us as a licensee of intellectual property from Yoshiharu Holdings +Co., to protect or enforce our intellectual property rights, which could be expensive, time consuming, and unsuccessful .” We +are aware of third-party restaurants with names similar to our restaurant name in certain limited geographical areas such as in California. +However, we believe such uses will not adversely affect us. +Legal +Proceedings +We +are currently not involved in litigation that we believe will have a materially adverse effect on our financial condition or results +of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, +self- regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries +threatened against or affecting our company, our common stock, any of our subsidiaries or of our company’s or our company’s +subsidiaries’ officers or directors in their capacities as such, in which an adverse decision is expected to have a material adverse +effect. +10 +Item +1A. Risk Factors. +Risks +Related to Our Business +We +have incurred operating losses and may not be profitable in the future. Our plans to maintain and increase liquidity may not be successful. +We +incurred a net loss of $2.7 million and $3.0 million for the years ended December 31, 2024 and 2023, respectively. We must raise capital +through the sale of equity in order to continue to sustain our operations. +On +January 5, 2024, we entered into a securities purchase agreement (the “Securities Purchase Agreement”) with Alumni Capital +LP, a Delaware limited partnership (“Alumni”) whereby we sold to Alumni 45,000 shares of Class A Common Stock in exchange +for $118 thousand on November 20, 2024. This Purchase Agreement terminated on December 31, 2024. +On +January 6, 2025, the Company issued and sold to Crom Structured Opportunities Fund I, LP, a Delaware limited partnership (“Crom”) +a 10% OID promissory note in the aggregate principal amount of $1,100,000 (the “Note”) for a purchase price of $1,000,000. +The Company repaid such Note on March 7, 2025 with the proceeds from a loan made to the Company on or about March 6, 2025. Also on January +6, 2025, we entered into an equity purchase agreement (the “Purchase Agreement”) with Crom (the “Investor”) pursuant +to which the Company shall have the right, but not the obligation, to sell to the Investor up to $10,000,000 (the “ELOC Shares”) +of the Company’s Class A common stock, $0.0001 par value per share (“Class A Common Stock”). However, we have +not yet been able to access capital under this agreement since we must first register shares issuable under the Purchase Agreement, which +we may only do after the filing of this Annual Report on Form 10-K. +On March 12, +2025, we entered into private placements with three investors for the sale of Class A common stock at a price of $2.50 per share for gross +proceeds of $714,000. However, we are obligated to register those shares and if we fail to do so in accordance with those agreements, +we may be forced to repurchase those shares at the price we had sold them for. On March 17, 2025 we sold penny warrants at a price of +$2.50 per share for gross proceeds of $1,200,000. We are obligated to register the shares underlying such warrants and if we fail to do +so in accordance with those agreements, we may be forced to repurchase those warrants for the price we sold them for. +Furthermore, +on August 21, 2024, we received a notification letter (the “Letter”) from the Nasdaq Listing Qualifications Staff of The Nasdaq +Stock Market LLC (“Nasdaq”) notifying the Company that its amount of stockholders’ equity has fallen below the $2,500,000 +required minimum for continued listing set forth in Nasdaq Listing Rule 5550(b)(1). On February 18, 2025, we received another notification +letter (the “2nd Letter”) from Nasdaq notifying the Company that it has scheduled the Company’s securities for delisting +from The Nasdaq Capital Market. Pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 series, we appealed Nasdaq’s +determination to a Hearings Panel (the “Panel”) and a hearing request has stayed the suspension of the Company’s securities +and the filing of the Form 25-NSE pending the Panel’s decision after a hearing scheduled for April 1, 2025. If we fail to remedy +our stockholder deficiency prior to April 1, 2025, we will be required to convince Nasdaq that we have a viable plan to correct the deficiency. +If Nasdaq rejects our plan, we may be delisted, which will make it more difficult for us to raise capital in order to sustain our operations. +Notwithstanding our current belief that our expected cash flow from operations, and the +proceeds from the Purchase Agreement and from the private placements set forth above (including our belief that we will satisfy our +registration requirements so that we are not forced to redeem the equity previously sold to such private placement investors) will +be adequate to fund operating lease obligations, capital expenditures and working capital obligations for at least the next 12 +months and thereafter, there are no assurances that we will be able to do so. If we fail to generate adequate capital, we may be +forced to curb our operations or cease to continue our operations altogether. +Our +long-term success is highly dependent on our ability to successfully identify and secure appropriate sites and timely develop and expand +our operations in existing and new markets. +One +of the key means of achieving our growth strategies will be through opening and operating new restaurants on a profitable basis for the +foreseeable future. We opened two new restaurants in 2023 and in 2024, respectively, we currently have two new locations under construction/development. +We identify target markets where we can enter or expand, taking into account numerous factors such as the locations of our current restaurants, +demographics, traffic patterns and information gathered from various sources. We may not be able to open our planned new restaurants +within budget or on a timely basis, if at all, given the uncertainty of these factors, which could adversely affect our business, financial +condition and results of operations. As we operate more restaurants, our rate of expansion relative to the size of our restaurant base +will eventually decline. +The +number and timing of new restaurants opened during any given period may be negatively impacted by a number of factors including, without +limitation: +● +identification +and availability of locations with the appropriate size, traffic patterns, local retail and business attractions and infrastructure +that will drive high levels of guest traffic and sales per unit; +● +competition +in existing and new markets, including competition for restaurant sites; +● +the +ability to negotiate suitable lease terms; +● +the +lack of development and overall decrease in commercial real estate due to a macroeconomic downturn; +● +recruitment +and training of qualified personnel in the local market; +● +our +ability to obtain all required governmental permits, including zonal approvals, on a timely basis; +● +our +ability to control construction and development costs of new restaurants; +● +landlord +delays; +● +the +proximity of potential sites to an existing restaurant, and the impact of cannibalization on future growth; +● +anticipated +commercial, residential and infrastructure development near our new restaurants; and +● +the +cost and availability of capital to fund construction costs and pre-opening costs. +Accordingly, +we cannot assure you that we will be able to successfully expand as we may not correctly analyze the suitability of a location or anticipate +all of the challenges imposed by expanding our operations. Our growth strategy, and the substantial investment associated with the development +of each new restaurant, may cause our operating results to fluctuate and be unpredictable or adversely affect our business, financial +condition or results of operations. If we are unable to expand in existing markets or penetrate new markets, our ability to increase +our sales and profitability may be materially harmed or we may face losses. +Our +restaurant base is geographically concentrated in California, and we could be negatively affected by conditions specific to California. +Adverse +changes in demographic, unemployment, economic, regulatory or weather conditions in California have had, and may continue to have, material +adverse effects on our business, financial condition or results of operations. As a result of our concentration in California, we have +been, and in the future may be, disproportionately affected by adverse conditions in this specific market compared to other chain restaurants +with a national footprint. +11 +Our +expansion into new markets may present increased risks due in part to our unfamiliarity with the areas and may make our future results +unpredictable. +We +opened two new restaurants in 2023 and in 2024, respectively, and completed the acquisition of three existing restaurants in April 2024. +We plan to continue to increase the number of our restaurants in the next several years as part of our expansion strategy and expect +to open an additional two to four new restaurants in 2024. We may in the future open restaurants in markets where we have little or no +operating experience. This growth strategy and the substantial investment associated with the development of each new restaurant may +cause our operating results to fluctuate and be unpredictable or adversely affect our business, financial condition or results of operations. +Restaurants we open in new markets may take longer to reach expected sales and profit levels on a consistent basis and may have higher +construction, occupancy or operating costs than restaurants we open in existing markets, thereby affecting our overall profitability. +New markets may have competitive conditions, consumer tastes and discretionary spending patterns that are more difficult to predict or +satisfy than our existing markets and there may be little or no market awareness of our brand in these new markets. We may need to make +greater investments than we originally planned in advertising and promotional activity in new markets to build brand awareness. We also +may find it more difficult in new markets to hire, motivate and keep qualified employees who share our vision, passion and business culture. +If we do not successfully execute our plans to enter new markets, our business, financial condition or results of operations could be +materially adversely affected. +New +restaurants, once opened, may not be profitable, and the increases in average restaurant sales and comparable restaurant sales that we +have experienced in the past may not be indicative of future results. +New +restaurants may not be profitable and their sales performance may not follow historical patterns. In addition, our average restaurant +sales and comparable restaurant sales may not increase at the rates achieved over the past several years. Our ability to operate new +restaurants profitably and increase average restaurant sales and comparable restaurant sales will depend on many factors, some of which +are beyond our control, including: +● +consumer +awareness and understanding of our brand; +● +general +economic conditions, which can affect restaurant traffic, local labor costs and prices we pay for the food products and other supplies +we use; +● +changes +in consumer preferences and discretionary spending; +● +competition, +either from our competitors in the restaurant industry or our own restaurants; +● +temporary +and permanent site characteristics of new restaurants; and +● +changes +in government regulation. +If +our new restaurants do not perform as planned, our business and future prospects could be harmed. In addition, if we are unable to achieve +our expected average restaurant sales, our business, financial condition or results of operations could be adversely affected. +Our +sales and profit growth could be adversely affected if comparable restaurant sales are less than we expect. +The +level of comparable restaurant sales growth, which represents the change in year-over-year sales for restaurants open for at least three +months, could affect our sales growth. Our ability to increase comparable restaurant sales depends in part on our ability to successfully +implement our initiatives to build sales. It is possible such initiatives will not be successful, that we will not achieve our target +comparable restaurant sales growth or that the change in comparable restaurant sales could be negative, which may cause a decrease in +our profitability and would materially adversely affect our business, financial condition or results of operations. See “ Management’s +Discussion and Analysis of Financial Condition and Results of Operations .” +12 +Our +failure to manage our growth effectively could harm our business and operating results. +Our +growth plan includes opening new restaurants. Our existing restaurant management systems, financial and management controls and information +systems may be inadequate to support our planned expansion. Managing our growth effectively will require us to continue to enhance these +systems, procedures and controls and to hire, train and retain managers and team members. We may not respond quickly enough to the changing +demands that our expansion will impose on our management, restaurant teams and existing infrastructure which could harm our business, +financial condition or results of operations. +Our +limited number of restaurants, the significant expense associated with opening new restaurants, and the unit volumes of our new restaurants +makes us susceptible to significant fluctuations in our results of operations. +As +of December 31, 2023 and 2024, we operated ten and fifteen restaurants, respectively. We have opened two new restaurants in February +and October 2024, respectively, and acquired three restaurants in April 2024. We currently have two new locations under construction/development. +We also plan to open an additional two to four new restaurants in 2025. The capital resources required to develop each new restaurant +are significant. On average, we estimate that our restaurants require a cash build-out cost of approximately $350,000-$550,000 per restaurant, +net of landlord tenant improvement allowances and pre-opening costs and assuming that we do not purchase the underlying real estate. +Actual costs may vary significantly depending upon a variety of factors, including the site and size of the restaurant and conditions +in the local real estate and labor markets. The combination of our relatively small number of existing restaurants, the significant investment +associated with each new restaurant, variance in the operating results in any one restaurant, or a delay or cancellation in the planned +opening of a restaurant could materially affect our business, financial condition or results of operations. +A +decline in visitors to any of the retail centers, shopping malls, lifestyle centers, or entertainment centers where our restaurants are +located could negatively affect our restaurant sales. +Our +restaurants are primarily located in high-activity areas such as retail centers, shopping malls, lifestyle centers, and entertainment +centers. We depend on high visitor rates at these centers to attract guests to our restaurants. Factors that may result in declining +visitor rates include economic or political conditions, anchor tenants closing in retail centers or shopping malls in which we operate, +changes in consumer preferences or shopping patterns, changes in discretionary consumer spending, increasing petroleum prices, or other +factors, which may adversely affect our business, financial condition or results of operations. +13 +Opening +new restaurants in existing markets may negatively affect sales at our existing restaurants. +The +consumer target area of our restaurants varies by location, depending on a number of factors, including population density, other local +retail and business attractions, area demographics and geography. As a result, the opening of a new restaurant in or near markets in +which we already have restaurants could adversely affect the sales of these existing restaurants and thereby adversely affect our business, +financial condition or results of operations. Existing restaurants could also make it more difficult to build our consumer base for a +new restaurant in the same market. Our core business strategy does not entail opening new restaurants that we believe will materially +affect sales at our existing restaurants, but we may selectively open new restaurants in and around areas of existing restaurants that +are operating at or near capacity to effectively serve our guests. Sales cannibalization between our restaurants may become significant +in the future as we continue to expand our operations and could affect our sales growth, which could, in turn, materially adversely affect +our business, financial condition or results of operations. +Our +operating results and growth strategies will be closely tied to the success of our future franchise partners and we will have limited +control with respect to their operations. Additionally, our franchise partners’ interests may conflict or diverge with our interests +in the future, which could have a negative impact on our business. +As +we grow, we will depend on the financial success and cooperation of our future franchise partners for our success. Our franchise partners +will be independent business operators and will not be our employees, and as such we have limited control over how our franchise partners +will run their businesses, and their inability to operate successfully could adversely affect our operating results. +We +will receive royalties, franchise fees, contributions to our marketing development fund, and other fees from our franchise partners. +Additionally, we will sell proprietary products to our franchise partners at a markup over our cost to produce. We expect to establish +operational standards and guidelines for our franchise partners; however, we will have limited control over how our franchise partners’ +businesses are run, including day to day operations. Even with these operation standards and guidelines, the quality of franchised stores +may be diminished by any number of factors beyond our control. Consequently, our franchise partners may not successfully operate stores +in a manner consistent with our standards and requirements, such as quality, service and cleanliness, or may not hire and train qualified +store managers and other store personnel or may not implement marketing programs and major initiatives such as store remodels or equipment +or technology upgrades, which may require financial investment. Even if such unsuccessful operations do not rise to the level of breaching +the related franchise documents, they may be attributed by customers to our brand and could have a negative impact on our business. +Our +franchise partners may not be able to secure adequate financing to open or continue operating their stores. If they incur too much debt +or if economic or sales trends deteriorate such that they are unable to repay existing debt, our franchise partners could experience +financial distress or even bankruptcy. If a significant number of our franchise partners were to become financially distressed, it could +harm our operating results through reduced royalty revenue, marketing fees, and proprietary product sales and the impact on our profitability +could be greater than the percentage decrease in these revenue streams. +14 +While +we are responsible for ensuring the success of our entire system of stores and for taking a longer term view with respect to system improvements, +our franchise partners will have individual business strategies and objectives, which might conflict with our interests. Our future franchise +partners may from time to time disagree with us and our strategies and objectives regarding the business or our interpretation of our +respective rights and obligations under the franchise agreement and the terms and conditions of the franchise partner relationship. This +may lead to disputes with our franchise partners and we expect such disputes to occur from time to time in the future. Such disputes +may result in legal action against us. To the extent we have such disputes, the attention, time and financial resources of our management +and our future franchise partners will be diverted from our stores, which could harm our business even if we have a successful outcome +in the dispute. +Actions +or omissions by our future franchise partners in violation of various laws may be attributed to us or result in negative publicity that +affects our overall brand image, which may decrease consumer demand for our products. Franchise partners may engage in online activity +via social media or activity in their personal lives that negatively impacts public perception of our franchise partners’ or our +operations or our brand as a whole. This activity may negatively affect franchise partners’ sales and in turn impact our revenue. +In +addition, various state and federal laws govern our relationship with our future franchise partners and our potential sale of a franchise. +A future franchise partner and/or a government agency may bring legal action against us based on the franchisee/franchisor relationships +that could result in the award of damages to a franchise partner and/or the imposition of fines or other penalties against us. +Operating +results at our restaurants could be significantly affected by competition in the restaurant industry in general and, in particular, within +the dining segments of the restaurant industry in which we compete. +We +face significant competition from a variety of restaurants offering both Asian and non-Asian cuisine, as well as takeout offerings from +grocery stores and other outlets where Asian food is sold. These segments are highly competitive with respect to, among other things, +product quality, dining experience, ambience, location, convenience, value perception, and price. Our competition continues to intensify +as competitors increase the breadth and depth of their product offerings and open new locations. These competitors may have, among other +things, chefs who are widely known to the public that may generate more notoriety for those competitors as compared to our brand. We +also compete with many restaurant and retail establishments for site locations and restaurant-level employees. +Several +of our competitors offering Asian and related choices may look to compete with us on price, quality and service. Any of these competitive +factors may materially adversely affect our business, financial condition or results of operations. +We +rely significantly on certain vendors and suppliers, which could adversely affect our business, financial condition or results of operations. +Our +ability to maintain consistent price and quality throughout our restaurants depends in part upon our ability to acquire specified food +products and supplies in sufficient quantities from third-party vendors and suppliers at a reasonable cost. We do not control the businesses +of our vendors and suppliers and our efforts to specify and monitor the standards under which they perform may not be successful. Furthermore, +certain food items are perishable, and we have limited control over whether these items will be delivered to us in appropriate condition +for use in our restaurants. If any of our vendors or other suppliers are unable to fulfill their obligations to our standards, or if +we are unable to find replacement providers in the event of a supply or service disruption, we could encounter supply shortages and incur +higher costs to secure adequate supplies, which could materially adversely affect our business, financial condition or results of operations. +In +addition, we use various third-party vendors to provide, support and maintain most of our management information systems. We also outsource +certain accounting, payroll and human resource functions to business process service providers. The failure of such vendors to fulfill +their obligations could disrupt our operations. Additionally, any changes we may make to the services we obtain from our vendors, or +new vendors we employ, may disrupt our operations. These disruptions could materially adversely affect our business, financial condition +or results of operations. +15 +Continued +supply chain disruptions and other forces beyond our control, and resulting changes in food and supply costs have and could continue +to adversely affect our business, financial condition or results of operations. +Our +profitability depends in part on our ability to anticipate and react to changes in food and supply costs, especially in light of recent +supply chain disruptions. We believe we have experienced higher costs due to increased commodity prices and challenges sourcing our supplies +due in part to global supply chain disruptions. For example, we believe that the cost of certain essential supplies (i.e. gloves and +canola oil) has increased as a result of lower supply attributable to supply chain disruptions. Shortages or interruptions in the availability +of certain supplies caused by unanticipated demand, problems in production or distribution, food contamination, inclement weather or +other conditions beyond our control could also adversely affect the availability, quality and cost of our ingredients, which could harm +our operations. Although historically and as of December 31, 2024, global supply chain disruptions have not materially adversely affected +our business, a substantial increase in the cost of, or inability to procure, the food products most critical to our menu, such as canola +oil, rice, meats, fish and other seafood, as well as fresh vegetables, could materially and adversely affect our business, financial +condition or results from operations. Although we try to manage the impact that these fluctuations have on our operating results by, +for example, diversifying our suppliers, we remain susceptible to continued increases in food and other essential supply costs as a result +of factors beyond our control, such as the current supply chain interruptions, general economic conditions, seasonal fluctuations, weather +conditions, demand, food safety concerns, generalized infectious diseases, product recalls and government regulations. +If +any of our distributors or suppliers performs inadequately, or our distribution or supply relationships are disrupted for any reason, +our business, financial condition, results of operations or cash flows could be adversely affected. If we cannot replace or engage distributors +or suppliers who meet our specifications in a short period of time, that could increase our expenses and cause shortages of food and +other items at our restaurants, which could cause a restaurant to remove items from its menu. If that were to happen, affected restaurants +could experience significant reductions in sales during the shortage or thereafter, if guests change their dining habits as a result. +In addition, because we provide moderately priced food, we may choose not to, or may be unable to, pass along commodity price increases +to consumers. These potential changes in food and supply costs could materially adversely affect our business, financial condition or +results of operations. +Our +operations may be subject to the effects of a rising rate of inflation which may adversely impact our financial condition and results +of operations. +Supply +chain risk could increase our costs and limit the availability of ingredients and supplies that are critical to our restaurant operations. +The markets for some of our ingredients, such as beef and produce, are particularly volatile due to factors beyond our control such as +limited sources, seasonal shifts, climate conditions, recent inflationary trends, military and geopolitical conflicts and industry demand, +including as a result of animal disease outbreaks, international commodity markets, food safety concerns, product recalls and government +regulation. In addition, for certain of our ingredients and other materials, we have a limited number of suppliers and distributors. +We remain in regular contact with our major suppliers and to date we have not experienced significant disruptions in our supply chain; +however, in 2022 costs for certain supplies and ingredients, such as produce, packaging, dairy, beef and chicken increased materially +and rapidly, and inflationary pressures could continue and/or spread to more categories as inflation increases continue across the global +supply chain. Our efforts to mitigate future price risk through forward contracts, strong partnerships with key suppliers, careful planning +and other activities may not fully insulate us from increases in commodity costs, which could have an adverse impact on our profitability. +Any +increase in the prices of the ingredients most critical to our menu, such as chicken, beef, dairy, wheat, produce, rice, and pork, would +have a particularly adverse effect on our operating results. If the cost of one or more ingredients significantly increases, we may choose +to temporarily suspend serving menu items that use those ingredients, or one of our proteins, rather than pay the increased cost. Any +such changes to our available menu may negatively impact our restaurant traffic and could adversely impact our sales and brand. +Changes +in economic conditions could materially affect our ability to maintain or increase sales at our restaurants or open new restaurants. +The +restaurant industry depends on consumer discretionary spending. The United States in general or the specific markets in which we operate +may suffer from depressed economic activity, recessionary economic cycles, higher fuel or energy costs, low consumer confidence, high +levels of unemployment, reduced home values, increases in home foreclosures, investment losses, personal bankruptcies, reduced access +to credit or other economic factors that may affect consumers’ discretionary spending. Sales in our restaurants could decline if +consumers choose to dine out less frequently or reduce the amount they spend on meals while dining out. Negative economic conditions +might cause consumers to make long-term changes to their discretionary spending behavior, including dining out less frequently on a permanent +basis. If restaurant sales decrease, our profitability could decline as we spread fixed costs across a lower level of sales. Reductions +in staff levels, asset impairment charges and potential restaurant closures could result from prolonged negative restaurant sales, which +could materially adversely affect our business, financial condition or results of operations. +16 +We +may need capital in the future, and we may not be able to raise that capital on favorable terms. +Developing +our business will require significant capital in the future. To meet our capital needs, we expect to rely on equipment financing and +facility improvements, cash flows from operations, the proceeds from the IPO, future offerings and other third-party financing. Third-party +financing in the future may not, however, be available on terms favorable to us, or at all. Our ability to obtain additional funding +will be subject to various factors, including market conditions, our operating performance, lender sentiment. These factors may make +the timing, amount, or terms and conditions of additional financings unattractive. Our inability to raise capital could impede our growth +and could materially adversely affect our business, financial condition or results of operations. +Risks +Related to Our Brand +Negative +publicity relating to one of our restaurants could reduce sales at some or all of our other restaurants. +Our +success is dependent in part upon our ability to maintain and enhance the value of our brand and consumers’ connection to our brand. +We may, from time to time, be faced with negative publicity relating to food quality, restaurant facilities, guest complaints or litigation +alleging illness or injury, health inspection scores, integrity of our or our suppliers’ food processing, employee relationships +or other matters, regardless of whether the allegations are valid or whether we are held to be responsible. The negative impact of adverse +publicity relating to one restaurant may extend far beyond the restaurant involved to affect some or all of our other restaurants, thereby +causing an adverse effect on our business, financial condition or results of operations. A similar risk exists with respect to unrelated +food service businesses, if consumers associate those businesses with our own operations. +The +considerable expansion in the use of social media over recent years can further amplify any negative publicity that could be generated +by such incidents. Many social media platforms immediately publish the content their subscribers and participants post, often without +filters or checks on accuracy of the content posted. Information posted on such platforms may be adverse to our interests and/or may +be inaccurate. The dissemination of inaccurate or irresponsible information online could harm our business, reputation, prospects, financial +condition, or results of operations, regardless of the information’s accuracy. The damage may be immediate without affording us +an opportunity for redress or correction. +17 +Additionally, +employee claims against us based on, among other things, wage and hour violations, discrimination, harassment or wrongful termination +may also create negative publicity that could adversely affect us and divert our financial and management resources that would otherwise +be used to benefit the future performance of our operations. A significant increase in the number of these claims or an increase in the +number of successful claims could materially adversely affect our business, financial condition or results of operations. Consumer demand +for our restaurants and our brand’s value could diminish significantly if any such incidents or other matters create negative publicity +or otherwise erode consumer confidence in us or our restaurants, which would likely result in lower sales and could materially adversely +affect our business, financial condition or results of operations. +Food +safety and foodborne illness concerns could have an adverse effect on our business, financial condition or results of operations. +We +cannot guarantee that our internal controls and training will be fully effective in preventing all food safety issues at our restaurants, +including any occurrences of foodborne illnesses such as salmonella, E. coli and hepatitis A. In addition, there is no guarantee that +our restaurant locations will maintain the high levels of internal controls and training we require at our restaurants. Furthermore, +we rely on third-party vendors, making it difficult to monitor food safety compliance and increasing the risk that foodborne illness +would affect multiple locations rather than a single restaurant. Some foodborne illness incidents could be caused by third-party vendors +and transporters outside of our control. New illnesses resistant to our current precautions may develop in the future, or diseases with +long incubation periods could arise, that could give rise to claims or allegations on a retroactive basis. One or more instances of foodborne +illness in any of our restaurants or markets or related to food products we sell could negatively affect our restaurant sales nationwide +if highly publicized on national media outlets or through social media. This risk exists even if it were later determined that the illness +was wrongly attributed to us or one of our restaurants. A number of other restaurant chains have experienced incidents related to foodborne +illnesses that have had a material adverse effect on their operations. The occurrence of a similar incident at one or more of our restaurants, +or negative publicity or public speculation about an incident, could materially adversely affect our business, financial condition or +results of operations. +We +have, from time to time, received borrowings from a related party controlled by James Chae, our Chairman and Chief Executive Officer, +which may become repayable on demand. Any unexpected calls for repayment of a significant amount of such borrowings may adversely affect +our business. +We +have, from time to time, received unsecured borrowings from our Chairman and Chief Executive Officer, James Chae and his affiliate APIIS +Financial, Inc., a company 100% owned and controlled by Mr. Chae, which is unsecured, non-interest bearing, and is repayable on demand. +As of December 31, 2024 and December 31, 2023, the balance was $732,710 and $24,176, respectively. If James Chae or his affiliate APIIS +Financial, Inc. chooses to call for repayment of a significant of such borrowings, we may need to use the net proceeds from the IPO, +which may adversely impact our operations. Any failure to service such indebtedness or comply with any such obligations may also cause +us to incur legal fees if lender brings an action for breach of contract, or otherwise adversely affect our business, financial condition, +results of operation and prospects. +We +are subject to all of the risks associated with leasing space subject to long-term non-cancelable leases. +We +do not own any real property. Payments under our operating leases account for a significant portion of our operating expenses and we +expect the new restaurants we open in the future will similarly be leased. The majority of our operating leases have lease terms of 10 +years, inclusive of customary extensions which are at the option of our company. Most of our leases require a fixed annual rent which +generally increases each year, and some require the payment of additional rent if restaurant sales exceed a negotiated amount. Generally, +our leases are “net” leases, which require us to pay all of the cost of insurance, taxes, maintenance and utilities. We generally +cannot cancel these leases. Additional sites that we lease are likely to be subject to similar long-term non-cancelable leases. If an +existing or future restaurant is not profitable, and we decide to close it, we may nonetheless be committed to perform our obligations +under the applicable lease including, among other things, paying the base rent for the balance of the lease term. In addition, as each +of our leases expires, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to +pay increased occupancy costs or to close restaurants in desirable locations. If we fail to negotiate renewals, we may have to dispose +of assets at such restaurant locations and incur closure costs as well as impairment of property and equipment. Furthermore, if we fail +to negotiate renewals, we may incur additional costs associated with moving transferable furniture, fixtures and equipment. These potential +increased occupancy and moving costs, as well as closures of restaurants, could materially adversely affect our business, financial condition +or results of operations. +Macroeconomic +conditions, including economic downturns, may cause landlords of our leases to be unable to obtain financing or remain in good standing +under their existing financing arrangements, resulting in failures to pay required tenant improvement allowances or satisfy other lease +covenants to us. In addition, tenants at shopping centers in which we are located or have executed leases, or to which our locations +are near, may fail to open or may cease operations. Decreases in total tenant occupancy in shopping centers in which we are located, +or to which our locations are near, may affect traffic at our restaurants. All of these factors could have a material adverse impact +on our business, financial condition or results of operations. +18 +Failure +to receive frequent deliveries of fresh food ingredients and other supplies could harm our business, financial condition or results of +operations. +Our +ability to maintain our menu depends in part on our ability to acquire ingredients that meet our specifications from reliable suppliers. +To date, notwithstanding the current supply chain disruptions which we believe have attributed to increased costs, deliveries have been +consistent and not a source of material disruption to our business. However, shortages or interruptions in the supply of ingredients +caused by unanticipated demand, problems in production or distribution, food contamination, inclement weather or other conditions could +adversely affect the availability and quality of our ingredients in the future, which could harm our business, financial condition or +results of operations. If any of our distributors or suppliers performs inadequately, or our distribution or supply relationships are +materially disrupted for any reason, our business, financial condition or results of operations could be adversely affected. If we cannot +replace or engage distributors or suppliers who meet our specifications in a short period of time, that could increase our expenses and +cause shortages of food and other items at our restaurants, which could cause a restaurant to remove items from its menu. If that were +to happen, affected restaurants could experience significant reductions in sales during the shortage or thereafter, if guests change +their dining habits as a result. This reduction in sales could materially adversely affect our business, financial condition or results +of operations. +In +addition, our approach to competing in the restaurant industry depends in large part on our continued ability to provide authentic and +traditional Japanese cuisine that is free from artificial ingredients. As we increase our use of these ingredients, the ability of our +suppliers to expand output or otherwise increase their supplies to meet our needs may be constrained. We could face difficulties to obtain +a sufficient and consistent supply of these ingredients on a cost-effective basis. +New +information or attitudes regarding diet and health could result in changes in regulations and consumer consumption habits that could +adversely affect our business, financial condition or results of operations. +Changes +in attitudes regarding diet and health or new information regarding the adverse health effects of consuming certain foods could result +in changes in government regulation and consumer eating habits that may impact our business, financial condition or results of operations. +These changes have resulted in, and may continue to result in, laws and regulations requiring us to disclose the nutritional content +of our food offerings, and they have resulted in, and may continue to result in, laws and regulations affecting permissible ingredients +and menu offerings. For example, a number of jurisdictions have enacted menu labeling laws requiring multi-unit restaurant operators +to disclose to consumers certain nutritional information, or have enacted legislation restricting the use of certain types of ingredients +in restaurants. These requirements may be different or inconsistent with requirements we are subject to under the ACA which establishes +a uniform, federal requirement for certain restaurants to post nutritional information on their menus. Specifically, the ACA requires +chain restaurants with 20 or more locations operating under the same name and offering substantially the same menus to publish the total +number of calories of standard menu items on menus and menu boards, along with a statement that puts this calorie information in the +context of a total daily calorie intake. The ACA also requires covered restaurants to provide to consumers, upon request, a written summary +of detailed nutritional information for each standard menu item, and to provide a statement on menus and menu boards about the availability +of this information upon request. Unfavorable publicity about, or guests’ reactions to, our menu ingredients, the size of our portions +or the nutritional content of our menu items could negatively influence the demand for our offerings, thereby adversely affecting our +business, financial condition or results of operations. +Compliance +with current and future laws and regulations regarding the ingredients and nutritional content of our menu items may be costly and time-consuming. +Additionally, if consumer health regulations or consumer eating habits change significantly, we may be required to modify or discontinue +certain menu items, and we may experience higher costs associated with the implementation of those changes, as well as adversely affect +the attractiveness of our restaurants to new or returning guests. We cannot predict the impact of any new nutrition labeling requirements. +The risks and costs associated with nutritional disclosures on our menus could also impact our operations, particularly given differences +among applicable legal requirements and practices within the restaurant industry with respect to testing and disclosure, ordinary variations +in food preparation among our own restaurants, and the need to rely on the accuracy and completeness of nutritional information obtained +from third-party suppliers. +We +may not be able to effectively respond to changes in consumer health perceptions or successfully implement the nutrient content disclosure +requirements and to adapt our menu offerings to trends in eating habits. The imposition of menu labeling laws and an inability to keep +up with consumer eating habits could materially adversely affect our business, financial condition or results of operations, as well +as our position within the restaurant industry in general. +19 +We +rely significantly on information technology, and any material failure, weakness, interruption or breach of security could prevent us +from effectively operating our business. +We +rely significantly on information systems, including point-of-sale processing in our restaurants for management of our supply chain, +payment of obligations, collection of cash, credit and debit card transactions and other processes and procedures. Our ability to efficiently +and effectively manage our business depends significantly on the reliability and capacity of these systems. Failures of these systems +to operate effectively, maintenance problems, upgrading or transitioning to new platforms, or a breach in security of these systems could +result in delays in customer service and reduce efficiency in our operations. Remediation of such problems could result in significant, +unplanned capital investments. +Our +marketing programs may not be successful, and our new menu items, advertising campaigns and restaurant designs and remodels may not generate +increased sales or profits. +We +incur costs and expend other resources in our marketing efforts on new menu items, advertising campaigns and restaurant designs and remodels +to raise brand awareness and attract and retain guests. These initiatives may not be successful, resulting in expenses incurred without +the benefit of higher sales. Additionally, some of our competitors have greater financial resources, which enable them to spend significantly +more on marketing and advertising and other initiatives than we are able to. Should our competitors increase spending on marketing and +advertising and other initiatives or our marketing funds decrease for any reason, or should our advertising, promotions, new menu items +and restaurant designs and remodels be less effective than our competitors, there could be a material adverse effect on our business, +financial condition or results of operations. +Our +inability or failure to recognize, respond to and effectively manage the accelerated impact of social media could materially adversely +impact our business, financial condition or results of operations. +Our +marketing efforts rely heavily on the use of social media. In recent years, there has been a marked increase in the use of social media +platforms, including weblogs (blogs), mini-blogs, chat platforms, social media websites, and other forms of Internet-based communications +which allow individuals access to a broad audience of consumers and other interested persons. Many of our competitors are expanding their +use of social media, and new social media platforms are rapidly being developed, potentially making more traditional social media platforms +obsolete. As a result, we need to continuously innovate and develop our social media strategies in order to maintain broad appeal with +guests and brand relevance. We also continue to invest in other digital marketing initiatives that allow us to reach our guests across +multiple digital channels and build their awareness of, engagement with, and loyalty to our brand. These initiatives may not be successful, +resulting in expenses incurred without the benefit of higher sales or increased brand recognition. +Risks +Related to Our People and Culture +We +depend on our senior management team and other key employees, and the loss of one or more key personnel or an inability to attract, hire, +integrate and retain highly skilled personnel could have an adverse effect on our business, financial condition or results of operations. +Our +success depends largely upon the continued services of our key executives, including James Chae. We also rely on our leadership team +in setting our strategic direction, operating our business, identifying, recruiting and training key personnel, identifying expansion +opportunities, arranging necessary financing, and for general and administrative functions. From time to time, there may be changes in +our executive management team resulting from the hiring or departure of executives, which could disrupt our business. The loss or replacement +of one or more of our executive officers or other key employees could have a serious adverse effect on our business, financial condition +or results of operations. +To +continue to execute our growth strategy, we also must identify, hire and retain highly skilled personnel. We might not be successful +in continuing to attract and retain qualified personnel. Failure to identify, hire and retain necessary key personnel could have a material +adverse effect on our business, financial condition or results of operations. +Labor +disputes may disrupt our operations and affect our profitability, thereby causing a material adverse effect on our business, financial +condition or results of operations. +As +an employer, we are presently, and may in the future be, subject to various employment-related claims, such as individual or class actions +or government enforcement actions relating to alleged employment discrimination, employee classification and related withholding, wage-hour, +labor standards or healthcare and benefit issues. Any future actions if brought against us and successful in whole or in part, may affect +our ability to compete or could materially adversely affect our business, financial condition or results of operations. +20 +The +minimum wage, particularly in California, continues to increase and is subject to factors outside of our control. +We +have a substantial number of hourly employees who are paid wage rates based on the applicable federal or state minimum wage. Since January +1, 2024, the State of California has a minimum wage of $16.00 per hour. Moreover, municipalities may set minimum wages above the applicable +state standards, including in the municipalities in which we operate. +The +federal minimum wage has been $7.25 per hour since July 24, 2009. Any of federally-mandated, state-mandated or municipality-mandated +minimum wages may be raised in the future which could have a materially adverse effect on our business, financial condition or results +of operations. If menu prices are increased by us to cover increased labor costs, the higher prices could adversely affect sales and +thereby reduce our margins and adversely affect our business, financial condition or results of operations. +Changes +in employment laws may adversely affect our business, financial condition, results of operations or cash flow. +Various +federal and state labor laws govern the relationship with our employees and affect operating costs. These laws include employee classification +as exempt/non-exempt for overtime and other purposes, minimum wage requirements, tips and gratuity payments, unemployment tax rates, +workers’ compensation rates, immigration status and other wage and benefit requirements. Significant additional government-imposed +increases in the following areas could materially affect our business, financial condition, operating results or cash flow: +● +minimum +wages; +● +tips +and gratuities; +● +mandatory +health benefits; +● +vacation +accruals; +● +paid +leaves of absence, including paid sick leave; and +● +tax +reporting. +If +we face labor shortages, increased labor costs or unionization activities, our growth, business, financial condition and operating results +could be adversely affected. +Labor +is a primary component in the cost of operating our restaurants. We are currently experiencing labor shortages which is a risk that we +share with our competitors. The availability of qualified employees is scarce. Additionally, labor costs have increased due to recent +minimum wage increases in California and the fact that we employ fewer employees who are working extended hours and therefore we are +experiencing an increase of overtime payable to such employees, If we continue to face labor shortages or increased labor costs because +of these factors or as a result of increased competition for employees, higher employee turnover rates, additional increases in federal, +state or local minimum wage rates or other employee benefits costs (including costs associated with health insurance coverage), our operating +expenses could increase and our growth could be adversely affected. In addition, our success depends in part upon our ability to attract, +motivate and retain a sufficient number of well-qualified restaurant operators and management personnel, as well as a sufficient number +of other qualified employees, to keep pace with our expansion schedule. Qualified individuals needed to fill these positions are in short +supply in some geographic areas. In addition, restaurants have traditionally experienced relatively high employee turnover rates. We +are experiencing problems in recruiting and retaining employees, and our ability to recruit and retain such individuals may delay the +planned openings of new restaurants or result in higher employee turnover in existing restaurants, which could have a material adverse +effect on our business, financial condition or results of operations. +21 +If +we are unable to recruit and retain sufficiently qualified individuals, our business and our growth could be adversely affected, thereby +adversely affecting or business, financial condition or results of operations. Competition for these employees could require us to pay +higher wages, which could result in higher labor costs. In addition, additional increases in the minimum wage would increase our labor +costs. Additionally, costs associated with workers’ compensation are rising, and these costs may continue to rise in the future. +We may be unable to increase our menu prices in order to pass these increased labor costs on to consumers, in which case our margins +would be negatively affected, which could materially adversely affect our business, financial condition or results of operations. +Although +none of our employees are currently covered under collective bargaining agreements, our employees may elect to be represented by labor +unions in the future. If a significant number of our employees were to become unionized and collective bargaining agreement terms were +significantly different from our current compensation arrangements, it could adversely affect our business, financial condition or results +of operations. +Our +business could be adversely affected by a failure to obtain visas or work permits or to properly verify the employment eligibility of +our employees. +Although +we require all workers to provide us with government-specified documentation evidencing their employment eligibility, some of our employees +may, without our knowledge, be unauthorized workers. Unauthorized workers are subject to deportation and may subject us to fines or penalties, +and if any of our workers are found to be unauthorized, we could experience adverse publicity that may negatively impact our brand and +may make it more difficult to hire and keep qualified employees. Termination of a significant number of employees who are unauthorized +employees may disrupt our operations, cause temporary increases in our labor costs as we train new employees and result in adverse publicity. +We could also become subject to fines, penalties and other costs related to claims that we did not fully comply with all recordkeeping +obligations of federal and state immigration compliance laws. These factors could materially adversely affect our business, financial +condition or results of operations. +Risks +Related to Regulation and Litigation +Failure +to comply with antibribery or anticorruption laws could adversely affect our reputation, business, financial condition or results of +operations. +The +U.S. Foreign Corrupt Practices Act and other similar applicable laws prohibiting bribery of government officials and other corrupt practices +are the subject of increasing emphasis and enforcement around the world. Although we have implemented policies and procedures designed +to promote compliance with these laws, there can be no assurance that our employees, contractors, agents, or other third parties will +not take actions in violation of our policies or applicable law. Any such violations or suspected violations could subject us to civil +or criminal penalties, including substantial fines and significant investigation costs, and could also materially damage our reputation, +brands, international expansion efforts and growth prospects, business, financial condition and results of operations. Publicity relating +to any noncompliance or alleged noncompliance could also harm our reputation and adversely affect our business, financial condition or +results of operations. +Delays +In Obtaining Construction Permits Can Have A Material Adverse Effect on Our Business. +We +typically are able to negotiate approximately 6 months to complete a construction/development of our stores before we have to make our +first lease payment. Construction/development of a new restaurant takes approximately three - six months once construction permits (e.g., +Health and City) are issued. Prior to the COVID-19 pandemic, permits took approximately two months to obtain. During the pandemic and +as of December 31, 2024, construction permits have been significantly delayed, causing us to incur lease payments prior to the opening +of such locations, which means prior to the generation of any revenues from such stores. A delay in construction permits has had a direct +impact on our ability to open our three stores currently under construction/development. We are also making lease payments on all three +of such stores. There can be no assurance that construction permits will be timely obtained on future stores, or that they will ever +be obtained (including with respect to the two restaurants under construction/development). There is also no assurance that we can successfully +negotiate an abatement on any of our existing non-cancelable leases to alleviate such costs, or that we will have the leverage to negotiate +longer periods before the first rental payment is required to be made on future leases. A significant increase in lease payments prior +to opening our stores could have a material adverse effect on our profitability and growth potential, since increased lease costs could +cause us to divert cash away from opening new stores. If we are unable to open new stores, we could be forced to cease operations. +22 +We +may become involved in lawsuits involving Yoshiharu Holdings Co. as the owner of intellectual property, or us as a licensee of intellectual +property from Yoshiharu Holdings Co., to protect or enforce intellectual property rights, which could be expensive, time consuming, and +unsuccessful. +Third +parties may sue Yoshiharu Holdings Co., our wholly owned subsidiary, or us for alleged infringement of their proprietary rights. The +party claiming infringement might have greater resources than we do to pursue its claims, and we could be forced to incur substantial +costs and devote significant management resources to defend against such litigation, even if the claims are meritless and even if we +ultimately prevail. If the party claiming infringement were to prevail, we could be forced to pay significant damages, or enter into +expensive royalty or licensing arrangements with the prevailing party. In addition, any payments we are required to make, and any injunction +we are required to comply with as a result of such infringement, could harm our reputation and our business, financial condition or results +of operations. +Infringements +on Yoshiharu Holdings Co.’s intellectual property rights, including Yoshiharu Holdings Co.’s service marks and trade secrets, +could result in additional expense and could devalue our brand equity, as well as substantially affect our business, financial condition +or results of operations. +Other +parties may infringe on our intellectual property rights, including those which we develop or otherwise license to use, and may thereby +dilute our brand in the marketplace. Any such infringement of our intellectual property rights would also likely result in a commitment +of our time and resources to protect these rights through litigation or otherwise. +Our +business prospects depend in part on our ability to develop favorable consumer recognition of the Yoshiharu name. Although the “YOSHIHARU +RAMEN” word and design marks are federally registered marks owned by Yoshiharu Holdings Co., such marks could be imitated in ways +that we or Yoshiharu Holdings Co. cannot prevent. Alternatively, third parties may attempt to cause us to change our name or not operate +in a certain geographic region if our name is confusingly similar to their name. In addition, we rely on trade secrets, proprietary know-how, +concepts, and recipes, some of which we license from Yoshiharu Holdings Co. Our methods or Yoshiharu Holdings Co.’s methods of +protecting this information may not be adequate. Moreover, we or Yoshiharu Holdings Co. may face claims of misappropriation or infringement +of third parties’ rights that could interfere with our use of this information. Defending these claims may be costly and, if unsuccessful, +may prevent us from continuing to use this proprietary information in the future, and may result in a judgment or monetary damages. We +do not maintain confidentiality and non-competition agreements with all of our executives, key personnel, or suppliers. If competitors +independently develop or otherwise obtain access to the trade secrets, proprietary know-how, concepts, or recipes we rely upon to operate +our restaurants, some of which we license from Yoshiharu Holdings Co., the appeal of our restaurants could be significantly reduced and +our business, financial condition or results of operations could be adversely affected. +Governmental +regulation may adversely affect our ability to open new restaurants or otherwise adversely affect our business, financial condition or +results of operations. +We +are subject to various federal, state and local regulations. Our restaurants are subject to state and local licensing and regulation +by health, alcoholic beverage, sanitation, food and occupational safety and other agencies. We may experience material difficulties or +failures in obtaining the necessary licenses, approvals or permits for our restaurants, which could delay planned restaurant openings +or affect the operations at our existing restaurants. In addition, stringent and varied requirements of local regulators with respect +to zoning, land use and environmental factors could delay or prevent development of new restaurants in particular locations. +We +are subject to the U.S. Americans with Disabilities Act and similar state laws that give civil rights protections to individuals with +disabilities in the context of employment, public accommodations and other areas, including our restaurants. We may in the future have +to modify restaurants, for example, by adding access ramps or redesigning certain architectural fixtures, to provide service to or make +reasonable accommodations for disabled persons. The expenses associated with these modifications could be material. +Our +operations are also subject to the U.S. Occupational Safety and Health Act, which governs worker health and safety, the U.S. Fair Labor +Standards Act, which governs such matters as minimum wages and overtime, and a variety of similar federal, state and local laws that +govern these and other employment law matters. In addition, federal, state and local proposals related to paid sick leave or similar +matters could, if implemented, materially adversely affect our business, financial condition or results of operations. +23 +Compliance +with environmental laws may negatively affect our business. +We +are subject to federal, state and local laws and regulations concerning waste disposal, pollution, protection of the environment, and +the presence, discharge, storage, handling, release and disposal of, and exposure to, hazardous or toxic substances. These environmental +laws provide for significant fines and penalties for noncompliance and liabilities for remediation, sometimes without regard to whether +the owner or operator of the property knew of, or was responsible for, the release or presence of hazardous toxic substances. Third parties +may also make claims against owners or operators of properties for personal injuries and property damage associated with releases of, +or actual or alleged exposure to, such hazardous or toxic substances at, on or from our restaurants. Environmental conditions relating +to releases of hazardous substances at prior, existing or future restaurant sites could materially adversely affect our business, financial +condition or results of operations. Further, environmental laws, and the administration, interpretation and enforcement thereof, are +subject to change and may become more stringent in the future, each of which could materially adversely affect our business, financial +condition or results of operations. +A +breach of security of confidential consumer information related to our electronic processing of credit and debit card transactions, as +well as a breach of security of our employee information, could substantially affect our reputation, business, financial condition of +results of operations. +The +majority of our restaurant sales are by credit or debit cards. Other restaurants and retailers have experienced security breaches in +which credit and debit card information has been stolen. We may in the future become subject to claims for purportedly fraudulent transactions +arising out of the actual or alleged theft of credit or debit card information, and we may also be subject to lawsuits or other proceedings +relating to these types of incidents. We may ultimately be held liable for the unauthorized use of a cardholder’s card number in +an illegal activity and be required by card issuers to pay charge-back fees. In addition, most states have enacted legislation requiring +notification of security breaches involving personal information, including credit and debit card information. Any such claim or proceeding +could cause us to incur significant unplanned expenses, which could have an adverse impact on our business, financial condition or results +of operations. Further, adverse publicity resulting from these allegations may have a material adverse effect on us and could substantially +affect our reputation and business, financial condition or results of operations. +In +addition, our business requires the collection, transmission and retention of large volumes of guest and employee data, including personally +identifiable information, in various information technology systems that we maintain and in those maintained by third parties with whom +we contract to provide services. The collection and use of such information is regulated at the federal and state levels, as well as +at the international level, in which regulatory requirements have been increasing. As our environment continues to evolve in the digital +age and reliance upon new technologies becomes more prevalent, it is imperative we secure the privacy and sensitive information we collect. +Failure to do so, whether through fault of our own information systems or those of outsourced third-party providers, could not only cause +us to fail to comply with these laws and regulations, but also could cause us to face litigation and penalties that could adversely affect +our business, financial condition or results of operations. Our brand’s reputation and image as an employer could also be harmed +by these types of security breaches or regulatory violations. +24 +We +could be party to litigation that could adversely affect us by distracting management, increasing our expenses or subjecting us to material +money damages and other remedies. +Our +guests may file complaints or lawsuits against us alleging we caused an illness or injury they suffered at or after a visit to our restaurants, +or that we have problems with food quality or operations. We may also be subject to a variety of other claims arising in the ordinary +course of our business, including personal injury claims, contract claims and claims alleging violations of federal and state law regarding +workplace and employment matters, equal opportunity, discrimination and similar matters, and we are presently subject to class action +and other lawsuits with regard to certain of these matters and could become subject to additional class action or other lawsuits related +to these or different matters in the future. Regardless of whether any claims against us are valid, or whether we are ultimately held +liable, claims may be expensive to defend and may divert time and money away from our operations and hurt our performance. A judgment +in excess of our insurance coverage for any claims could materially and adversely affect our business, financial condition or results +of operations. Any adverse publicity resulting from these allegations may also materially and adversely affect our reputation or prospects, +which in turn could materially adversely affect our business, financial condition or results of operations. +We +are subject to state and local “dram shop” statutes, which may subject us to uninsured liabilities. These statutes generally +allow a person injured by an intoxicated person to recover damages from an establishment that wrongfully served alcoholic beverages to +the intoxicated person. Because a plaintiff may seek punitive damages, which may not be fully covered by insurance, this type of action +could have an adverse impact on our business, financial condition or results of operations. A judgment in such an action significantly +in excess of, or not covered by, our insurance coverage could adversely affect our business, financial condition or results of operations. +Further, adverse publicity resulting from any such allegations may adversely affect our business, financial condition or results of operations. +Our +current insurance may not provide adequate levels of coverage against claims. +There +are types of losses we may incur that cannot be insured against or that we believe are not economically reasonable to insure. Such losses +could have a material adverse effect on our business, financial condition or results of operations. In addition, our current insurance +policies may not be adequate to protect us from liabilities that we incur in our business in areas such as workers’ compensation, +general liability, auto and property. In the future, our insurance premiums may increase, and we may not be able to obtain similar levels +of insurance on reasonable terms, or at all. Any substantial inadequacy of, or inability to obtain, insurance coverage could materially +adversely affect our business, financial condition and results of operations. As a public company, we intend to obtain directors’ +and officers’ insurance. While we expect to obtain such coverage, we may not be able to obtain such coverage at all or at a reasonable +cost now or in the future. Failure to obtain and maintain adequate directors’ and officers’ insurance would likely adversely +affect our ability to attract and retain qualified officers and directors. +Failure +to obtain and maintain required licenses and permits or to comply with alcoholic beverage or food control regulations could lead to the +loss of our liquor and food service licenses and, thereby, harm our business, financial condition or results of operations. +The +restaurant industry is subject to various federal, state and local government regulations, including those relating to the sale of food +and alcoholic beverages. Such regulations are subject to change from time to time. The failure to obtain and maintain licenses, permits +and approvals relating to such regulations could adversely affect our business, financial condition or results of operations. Typically, +licenses must be renewed annually and may be revoked, suspended or denied renewal for cause at any time if governmental authorities determine +that our conduct violates applicable regulations. Difficulties or failure to maintain or obtain the required licenses and approvals could +adversely affect our existing restaurants and delay or result in our decision to cancel the opening of new restaurants, which would adversely +affect our business, financial condition or results of operations. +Alcoholic +beverage control regulations generally require our restaurants to apply to a state authority and, in certain locations, county or municipal +authorities for a license that must be renewed annually and may be revoked or suspended for cause at any time. Alcoholic beverage control +regulations relate to numerous aspects of daily operations of our restaurants, including minimum age of patrons and employees, hours +of operation, advertising, trade practices, wholesale purchasing, other relationships with alcohol manufacturers, wholesalers and distributors, +inventory control and handling, storage and dispensing of alcoholic beverages. Any future failure to comply with these regulations and +obtain or retain liquor licenses could adversely affect our business, financial condition or results of operations. +25 +Risks +Related to Our Organizational Structure & Ownership of Our Common Stock +If +we fail to develop and maintain an effective system of internal control over financial reporting, we may not be able to accurately report +our financial results in a timely manner, which may adversely affect investor confidence in our company. +If +material weaknesses or control deficiencies occur in the future, we may be unable to report our financial results accurately on a timely +basis, which could cause our reported financial results to be materially misstated and result in the loss of investor confidence or delisting +and cause the market price of our common stock to decline. +We +have not performed an evaluation of our internal control over financial reporting, such as required by Section 404 of the Sarbanes-Oxley +Act, nor have we engaged our independent registered public accounting firm to perform an audit of our internal control over financial +reporting as of any balance sheet date or for any period reported in our financial statements. +Changes +to accounting rules or regulations may adversely affect our business, financial condition or results of operations. +Changes +to existing accounting rules or regulations may impact our business, financial condition or results of operations. Other new accounting +rules or regulations and varying interpretations of existing accounting rules or regulations have occurred and may occur in the future. +For instance, accounting regulatory authorities have recently issued new accounting rules which require lessees to capitalize operating +leases in their financial statements in the next few years. When adopted, such change would require us to record significant operating +lease obligations on our balance sheet and make other changes to our financial statements. This and other future changes to accounting +rules or regulations could materially adversely affect our business, financial condition or results of operations. +We +will incur increased costs as a result of being a public company. +As +a public company, we expect to incur significant legal, accounting and other expenses that we did not incur as a private company, particularly +after we are no longer an “emerging growth company” as defined under the JOBS Act. In addition, new and changing laws, regulations +and standards relating to corporate governance and public disclosure, including the Dodd-Frank Act and the rules and regulations promulgated +and to be promulgated thereunder, as well as under the Sarbanes-Oxley Act and the JOBS Act, have created uncertainty for public companies +and increased costs and time that boards of directors and management must devote to complying with these rules and regulations. The Sarbanes-Oxley +Act and related rules of the SEC and the Nasdaq Stock Market regulate corporate governance practices of public companies. We expect compliance +with these rules and regulations to increase our legal and financial compliance costs and lead to a diversion of management time and +attention from sales-generating activities. For example, we will be required to adopt new internal controls and disclosure controls and +procedures. In addition, we will incur additional expenses associated with our SEC reporting requirements and increased compensation +for our management team. We cannot predict or estimate the amount of additional costs we will incur as a public company or the specific +timing of such costs. +We +are an “emerging growth company,” and we cannot be certain if the reduced reporting and disclosure requirements applicable +to emerging growth companies will make our common stock less attractive to investors. +For +as long as we remain an “emerging growth company” as defined in the JOBS Act, we may take advantage of certain exemptions +from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” +These exceptions provide for, but are not limited to, relief from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley +Act, less extensive disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions +from the requirements to hold a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments +not previously approved and an extended transition period for complying with new or revised accounting standards. We may take advantage +of these reporting exemptions until we are no longer an “emerging growth company.” We will remain an “emerging growth +company” until the earliest of: (i) the last day of the fiscal year in which we have $1.07 billion or more in annual gross revenues; +(ii) the date on which we become a “large accelerated filer” (which means the year-end at which the total market value of +our common equity securities held by non-affiliates is $700 million or more as of the last business day of our most recently completed +second fiscal quarter); (iii) the date on which we have issued more than $1 billion of non-convertible debt securities over a three-year +period; and (iv) the last day of the fiscal year following the fifth anniversary of our initial public offering. We cannot predict if +investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock +to be less attractive as a result, there may be a less active trading market for our common stock and the market price of our common +stock may be more volatile. +26 +Our +management does not have experience managing a U.S. public company and our current resources may not be sufficient to fulfill our public +company obligations. +Following +the closing of the IPO, we are subject to various regulatory requirements, including those of the SEC and Nasdaq Stock Market. These +requirements include recordkeeping, financial reporting and corporate governance rules and regulations. Our management team does not +have experience in managing a U.S. public company and, historically, has not had the resources typically found in a public company. Our +internal infrastructure may not be adequate to support our increased reporting obligations and we may be unable to hire, train or retain +necessary staff and may be reliant on engaging outside consultants or professionals to overcome our lack of experience or employees. +Our business, financial condition or results of operations could be adversely affected if our internal infrastructure is inadequate, +including if we are unable to engage outside consultants or are otherwise unable to fulfill our public company obligations. +Pursuant +to the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal +control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act for so long as we are an “emerging growth company.” +Section +404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting, +starting with the second annual report that we file with the SEC as a public company, and generally requires in the same report a report +by our independent registered public accounting firm on the effectiveness of our internal control over financial reporting. However, +under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal +control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until we are no longer an “emerging growth company.” +We will be an “emerging growth company” until the earliest of: (i) the last day of the fiscal year in which we have $1.07 +billion or more in annual gross revenues; (ii) the date on which we become a “large accelerated filer” (which means the year-end +at which the total market value of our common equity securities held by non-affiliates is $700 million or more as of the last business +day of our most recently completed second fiscal quarter); (iii) the date on which we have issued more than $1 billion of non-convertible +debt securities over a three-year period; and (iv) the last day of the fiscal year following the fifth anniversary of our initial public +offering. +In +addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended +transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. An “emerging +growth company” can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to +private companies. However, we are choosing to “opt out” of such extended transition period and, as a result, we will comply +with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth +companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new +or revised accounting standards is irrevocable. +If +our stockholders’ equity fails to comply with the continued listing requirements of the Nasdaq Capital Market, we would face possible +delisting, which would result in a limited public market for our Class A Common Stock and make obtaining future debt or equity financing +more difficult for us. +Companies +listed on Nasdaq are subject to delisting for, among other things, failure to maintain stockholders’ equity of at least $2,500,000 +for continued listing, or to meet the alternatives of market value of listed securities or net income from continuing operations. On February +18, 2025, we received a letter from Nasdaq indicating that Nasdaq has scheduled our securities for delisting from The Nasdaq Capital Market +for failure to comply with the stockholders’ equity requirement pursuant to pursuant to Nasdaq Listing Rule 5550(b)(1). +This +letter was sent pursuant to an earlier notification letter warning us that we were out of compliance with Listing Rule 5550(b)(1). We +were provided an opportunity to provide Nasdaq with a specific plan to achieve and sustain compliance with all Nasdaq listing requirements, +which Nasdaq accepted such plan for compliance provided that we achieved compliance by February 17, 2025. We had not regained compliance +within the applicable timeframe and were not eligible for a further period to regain compliance. +Pursuant +to the procedures set forth in the Nasdaq Listing Rule 5800 series, we may appeal Nasdaq’s determination to a Hearings Panel (the +“Panel”), which we did on March 20, 2025 by submitting a request for hearing. A hearing request stayed the suspension of our +securities and the filing of the Form 25-NSE pending the Panel’s decision. Upon paying the non-refundable $20,000 fee, we have an +opportunity to present a plan to regain compliance to the Panel on April 1, 2025. There can be no assurance that Nasdaq will grant our +request for approval of our compliance plan, or otherwise reverse its determination that our securities ought to be delisted. +Even if we +are successful in our hearing before the Panel, we cannot guarantee that our stockholders’ equity will comply with the Nasdaq Listing +Rules for continued listing on the Nasdaq Capital Market in the future. If we cannot comply with the Nasdaq Listing Rules either now or +in the future, our Class A Common Stock would be subject to delisting and would likely trade on the over-the-counter market. If our Class +A Common Stock were to trade on the over-the-counter market, selling shares of our Class A Common Stock could be more difficult because +smaller quantities of shares would likely be bought and sold, transactions could be delayed, and security analysts’ coverage of +us may be reduced. In addition, broker-dealers have certain regulatory burdens imposed upon them, which may discourage broker-dealers +from effecting transactions in shares of our Class A Common Stock, further limiting the liquidity of our Class A Common Stock. As a result, +the market price of our Class A Common Stock may be depressed, and you may find it more difficult to sell shares of our Class A Common +Stock. Such delisting from the Nasdaq and continued or further declines in our stock price could also greatly impair our ability to raise +additional necessary capital through equity or debt financing. +27 +Item +1B. Unresolved Staff Comments. +Not +applicable. +Item +1C. Cybersecurity +Risk +Management and Strategy +We +have an information security program designed to identify, protect, detect and respond to, and manage reasonably foreseeable cybersecurity +risks and threats. To protect our information systems from cybersecurity threats, we utilize various security tools that help prevent, +identify, escalate, investigate, resolve, and recover from identified vulnerabilities and security incidents in a reasonably timely manner. +These include, but are not limited to, internal reporting and tools for monitoring and detecting cybersecurity threats. +We +evaluate the risks associated with technology and cybersecurity threats and monitor our information systems for potential weaknesses. +We review and test our information technology system on an as-needed basis and also utilize internal team personnel to evaluate and assess +the efficacy of our information technology system and enhance our controls and procedures. The results of these assessments are reported +to our Audit Committee and, from time to time, our Board of Directors. +There +can be no assurances that our cybersecurity risk management program and processes, including our policies, controls, or procedures, will +be fully implemented, complied with or are effective in protecting our systems and information. +As +of the date of this report, we are no t aware of any cybersecurity incidents, that have had a materially adverse effect on our operations, +business, results of operations, or financial condition. +Governance +Our +Board of Directors considers cybersecurity risk as part of its risk oversight function. It has delegated oversight of cybersecurity and +other information technology risks to the Audit Committee of the Board of Directors. The Audit Committee oversees the implementation +of the cybersecurity risk management program. +The +Audit Committee receives periodic reports from management on potential cybersecurity risks and threats. The Audit Committee reports to +the full Board of Directors regarding its activities, including those related to cybersecurity. The full Board of Directors also receives +briefings from management on the cybersecurity risk management program as needed. +Management +is responsible for assessing and managing our material risks from cybersecurity threats. Management has primary responsibility for our +overall cybersecurity risk management program and supervises both the internal cybersecurity personnel and external cybersecurity consultants. +The +management team supervises efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various +means, which may include briefings from internal security personnel, threat intelligence and other information obtained from governmental, +public or private sources, including external consultants; and alerts and reports produced by security tools deployed in the IT +environment. Our cybersecurity incident response plan governs our assessment and response upon the occurrence of a material cybersecurity +incident, including the process for informing senior management and our Board of Directors. Per the resignation of Jay Kim and +the appointment of Sungjoon Chae, the Company no longer has a majority independent board of directors. Per Nasdaq rules we are not required to have a majority independent board +but must still comply with certain subcommittee requirements. We may in the future appoint one +or more duly qualified independent directors to fill the current vacancy. See “Item 10. Directors, Executive Officers +and Corporate Governance—Corporate Governance and Board Structure” +Item +2. Properties. +Our +executive offices are located at 6940 Beach Blvd., Suite D-705, Buena Park, CA 90621 and our telephone number is (714) 694-2403. We consider +our current office space adequate for our current operations. See “Item 1. Business—Properties” for a comprehensive +description of our principal physical properties. +Item +3. Legal Proceedings. +To +the knowledge of our management team, there is no litigation currently pending or contemplated against us, any of our officers or directors +in their capacity as such or against any of our property. +Item +4. Mine Safety Disclosures. +Not +applicable. +PART +II +Item +5. Market for Registrant’s Ordinary Shares, Related Shareholder Matters, and Issuer Purchases of Equity Securities. +(a) +Market +Information +The +shares of our Class A Common Stock are traded on Nasdaq under the symbol “YOSH.” The shares of our Class A Common Stock commenced +public trading on September 9, 2022. +(b) +Holders +of Record +On +March 24, 2025, there were 37 holders of record of the shares of our Class A Common Stock and one holder of Class B Common Stock. The +number of record holders was determined from the records of our transfer agent and does not include beneficial owners of shares of Common +Stock whose shares are held in the names of various securities brokers, dealers, and registered clearing agencies. +(c) +Dividends +We +have not paid any cash dividends on our ordinary shares to date. The decision on whether to pay cash dividends on our Common Stock in +the future will be made by our board of directors, at its discretion, and will depend on our financial condition, operating results, +capital requirements and other factors that the board of directors considers significant. +28 +(d) +Securities +Authorized for Issuance Under Equity Compensation Plans. +None. +(e) +Recent +Sales of Unregistered Securities +On +March 12, 2025, the Company entered into a private placement securities subscription with three separate investors for the issuance and +sale of 285,600 shares in the aggregate for gross proceeds to the Company of $714,000, or $2.50 per share. Pursuant to the private placement +agreements, the Company is obligated to file a registration statement to register these shares with the SEC within thirty (30) calendar +days following the filing of this Annual Report on Form 10-K with the SEC. If the Company fails to submit the registration statement +within the timeline specified above or if the registration statement is denied, withdrawn or not declared effective by the SEC within +one-hundred twenty (120) days from the filing date, Good Mood Studio will have the option, in its sole discretion, to: (1) require the +Company to assist it in filing for an exemption under Rule 144 or other applicable SEC regulations to remove the transfer restrictions +from the shares, or, if such exemption is unavailable, demand the Company to repurchase the shares at the original purchase price or +(2) demand a full refund of the subscription amount subject to the Company’s financial capability as verified by an independent +audit conducted within 15 days of the demand. +On +March 17, 2025, the Company sold 480,000 warrants for a purchase price of $1,200,000, or $2.50 per share. Each warrant is exercisable +for one share of the Company’s Class A common stock pursuant to the terms of a warrant agreement dated as of March 17, 2025. Pursuant +to the terms of the Warrant Agreement, in the event that the Company has not obtained stockholder approval, the Company may not issue +upon exercise of the Warrants a number of shares of Common Stock, which, when aggregated with any shares of Common Stock issued pursuant +to the subscription agreements executed contemporaneously between the Company and other investors or holders of Warrants (whether for +Common Stock or Warrants) would equal twenty (20%) percent or more of the Common Stock or twenty (20%) percent or more of the voting +power of the Company outstanding before the issuance. The Company is also obligated to file a registration statement to the SEC within +thirty (30) calendar days following the filing of this Annual Report on Form 10-K with the SEC. If the Company fails to (i) submit the +registration statement within the timeline specified above or if the registration statement is denied, withdrawn or not declared effective +by the SEC within one-hundred twenty (120) days from the filing date or (ii) fail to obtain the Requisite Stockholder Approval within +75 days from the date of the Subscription Agreements, the investors will have the option, in their sole discretion, to: (1) with respect +to (i), require the Company to assist it in filing for an exemption under Rule 144 or other applicable SEC regulations to remove the +transfer restrictions from the Shares, or, if such exemption is unavailable, demand the Company to repurchase the Warrants or underlying +shares at the original purchase price; or (2) demand a full refund of the subscription amount, subject to the Company’s financial +capability as verified by an independent audit conducted within 15 days of the demand. +On March 25, 2025, the Company +entered into Subscription Agreements with certain investors pursuant to which the investors agreed to pay $1,650,000 in aggregate to purchase +an aggregate of 660,000 warrants. The Subscription Agreements contain customary representations, warranties, and indemnification provisions +and were entered into in reliance on self-certification as an accredited investor pursuant to Regulation D promulgated under the Securities +Act. Each warrant is exercisable for one share of the Company’s Class A common +stock, par value $0.0001 per share (“Class A Common Stock”), at an exercise price of $0.01 (the “Shares”) pursuant +to the terms of warrant agreements dated as of March 24, 2025 (the “Warrant Agreement”). Pursuant to the Subscription Agreements, the Company is obligated to file +a registration statement to register these shares with the SEC within thirty (30) calendar days following the filing of this Annual Report +on Form 10-K with the SEC. If the Company fails to submit the registration statement within the timeline specified above or if the registration +statement is denied, withdrawn or not declared effective by the SEC within one-hundred twenty (120) days from the filing date, the investors +will have the option, in its sole discretion, to: (1) require the Company to assist it in filing for an exemption under Rule 144 or other +applicable SEC regulations to remove the transfer restrictions from the shares, or, if such exemption is unavailable, demand the Company +to repurchase the shares at the original purchase price or (2) demand a full refund of the subscription amount subject to the Company’s +financial capability as verified by an independent audit conducted within 15 days of the demand. +(f) +Purchases +of Equity Securities by the Issuer and Affiliated Purchasers +None. +Item +6. [Reserved.] +Item +7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. +You +should read this discussion and analysis together with our audited financial statements, the notes to such statements and the other financial +information included in this Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. As +a result of many factors, such as those set forth under the section entitled “Risk Factors” and elsewhere in this Form 10-K, +our actual results may differ materially from those anticipated in these forward-looking statements. See “CAUTIONARY STATEMENTS +REGARDING FORWARD-LOOKING STATEMENTS” for a discussion of the uncertainties, risks and assumptions associated with these statements. +Overview +of Yoshiharu +We +are a fast-growing Japanese restaurant operator and was borne out of the idea of introducing the modernized Japanese dining experience +to customers all over the world. Specializing in Japanese ramen, we gained recognition as a leading ramen restaurant in Southern California +within six months of our 2016 debut and have continued to expand our top-notch restaurant service across Southern California, currently +owning and operating ten restaurant stores. We have opened two new restaurants in February and October 2024 and currently have two new +locations under construction/development. We also consummated the acquisition of three existing restaurants in Las Vegas in June 2024. +We +take pride in our warm, hearty, smooth, and rich bone broth, which is slowly boiled for over twelve hours. Customers can taste and experience +supreme quality and deep flavors. Combining the broth with the fresh, savory, and highest-quality ingredients, we serve the perfect, +ideal ramen, as well as offers customers a wide variety of sushi rolls, bento menu and other favorite Japanese cuisine. Our acclaimed +signature Tonkotsu Black Ramen has become a customer favorite with its slow cooked pork bone broth and freshly made, tender chashu (braised +pork belly). +Our +mission is to bring our Japanese ramen and cuisine to the mainstream, by providing a meal that customers find comforting. Since the inception +of the business, we have been making our own ramen broth and other key ingredients such as pork chashu and flavored eggs from scratch, +whereby upholding the quality and taste of our foods, including the signature texture and deep, rich flavor of our handcrafted broth. +Moreover, we believe that slowly cooking the bone broth makes it high in collagen and rich in nutrients. We also strive to present food +that is not only healthy, but also affordable. We feed, entertain and delight our customers, with our active kitchens and bustling dining +rooms providing happy hours, student and senior discounts, and special holiday events. As a result of our vision, customers can comfortably +enjoy our food in a friendly and welcoming atmosphere. +We +operate in a large and rapidly growing market. We believe the consumer appetite for Asian cuisine is widespread across many demographics +and have an opportunity to expand in both existing and new U.S. markets, as well as internationally. +29 +Our +Growth Strategies +Pursue +New Restaurant Development. +We +have pursued a disciplined new corporate owned growth strategy. Having expanded our concept and operating model across varying restaurant +sizes and geographies, we plan to leverage our expertise by opening new restaurants to fill in existing markets and expand into new geographies. +While we currently aim to achieve in excess of 100% annual unit growth rate over the next three to five years, we cannot predict the +time period of which we can achieve any level of restaurant growth or whether we will achieve this level of growth at all. Our ability +to achieve new restaurant growth is impacted by a number of risks and uncertainties beyond our control, including but not limited to +landlord delays; competition in existing and new markets, including competition for restaurant sites; and the lack of development and +overall decrease in commercial real estate due to macroeconomic decline. We believe there is a significant opportunity to employ this +strategy to open additional restaurants in our existing markets and in new markets with similar demographics and retail environments. +Deliver +Consistent Comparable Restaurant Sales Growth . +We +have achieved positive comparable restaurant sales growth in recent periods. We believe we will be able to generate future comparable +restaurant sales growth by growing traffic through increased brand awareness, consistent delivery of a satisfying dining experience, +new menu offerings, and restaurant renovations. We will continue to manage our menu and pricing as part of our overall strategy to drive +traffic and increase average check. We are also exploring initiatives to grow sales of alcoholic beverages at our restaurants, including +the potential of a larger format restaurant with a sake bar concept. In addition to the strategies stated above, we expect to initiate +sales of franchises in late 2024 or early 2025. +Increase +Profitability . +We +have invested in our infrastructure and personnel, which we believe position us to continue to scale our business operations. As we continue +to grow, we expect to drive higher profitability both at a restaurant-level and corporate-level by taking advantage of our increasing +buying power with suppliers and leveraging our existing support infrastructure. Additionally, we believe we will be able to optimize +labor costs at existing restaurants as our restaurant base matures and average revenues per restaurant increase. We believe that as our +restaurant base grows, our general and administrative costs will increase at a slower rate than our sales. +Heighten +Brand Awareness . +We +intend to continue to pursue targeted local marketing efforts and plan to increase our investment in advertising. We also are exploring +the development of instant ramen noodles which we would distribute through retail channels. We intend to explore partnerships with grocery +retailers to provide for small-format Yoshiharu kiosks in stores to promote a limited selection of Yoshiharu cuisine. +Appointment +of New Director +On +February 13, 2025, we accepted independent director Jay Kim’s formal resignation, effective immediately. Mr. Kim’s decision +to resign was not due to any disagreement with the company on any matter relating to our operations, policies or practices (financial +or otherwise). +On March 17, 2025, we appointed +Mr. Sungjoon Chae to fill the vacancy on the Board created by the departure of Mr. Jay Kim. Mr. S. Chae will serve on the Board until +the Company’s next annual stockholder meeting or until his successor has been duly appointed and qualified or until his earlier +death, resignation, retirement, disqualification, removal from office or other cause. He will not serve on any of the committees of the +Board. +30 +Components +of Our Results of Operations +Revenue. +Revenue represents sales of food and beverages in restaurants. Restaurant sales in a given period are directly impacted by the +number of restaurants we operate and comparable restaurant sales growth. +Food +and beverage. Food and beverage costs are variable in nature, change with sales volume and are influenced by menu mix and subject +to increases or decreases based on fluctuations in commodity costs. Other important factors causing fluctuations in food and beverage +costs include seasonality and restaurant-level management of food waste. Food and beverage costs are a substantial expense and are expected +to grow proportionally as our sales grow. +Labor. +Labor includes all restaurant-level management and hourly labor costs, including wages, employee benefits and payroll taxes. +Similar to the food and beverage costs that we incur, labor and related expenses are expected to grow proportionally as our sales increase. +Factors that influence fluctuations in our labor and related expenses include minimum wage and payroll tax legislation, the frequency +and severity of workers’ compensation claims, healthcare costs and the performance of our restaurants. +Rent +and utilities. Rent and utilities include rent for all restaurant locations and related taxes. +Depreciation +and amortization expenses. Depreciation and amortization expenses are periodic non-cash charges that consist of depreciation +of fixed assets, including equipment and capitalized leasehold improvements. Depreciation is determined using the straight-line method +over the assets’ estimated useful lives, ranging from three to ten years. +Delivery +and service fees. Our customers may order online through third party service providers such as Uber Eats, Door Dash, Grubhub +and others. These third-party service providers charge delivery and order fees to the company. +General +and administrative expenses. General and administrative expenses include expenses associated with corporate and regional supervision +functions that support the operations of existing restaurants and development of new restaurants, including compensation and benefits, +travel expenses, stock-based compensation expenses for corporate-level employees, legal and professional fees, marketing costs, information +systems, corporate office rent and other related corporate costs. General and administrative expenses are expected to grow as our sales +grows, including incremental legal, accounting, insurance and other expenses incurred as a public company. +Advertising +and marketing expenses. Advertising and marketing expenses include expenses associated with marketing campaigns and periodic +advertising. Advertising and marketing expenses are expected to grow leading up to planned openings of restaurant locations and is expected +to stabilize as an average by location as our sales grows. +Interest +expenses. Interest expenses include non-cash charges related to our capital lease obligations and bank notes payable. +Income +tax provision (benefit). Provision for income taxes represents federal, state and local current and deferred income tax expenses. +31 +Results +of Operations +The +following table presents selected comparative results of operations from our audited financial statements for the year ended December +31, 2024 compared to the year ended December 31, 2023. Our financial results for these periods are not necessarily indicative of the +financial results that we will achieve in future periods. Certain totals for the table below may not sum to 100% due to rounding. +Years +ended +December +31, +Increase +/ (Decrease) +2024 +2023 +% +Revenue +$ 12,839,137 +$ 9,214,779 +$ 3,624,358 +39.3 % +Restaurant operating expenses: +Food, beverages and supplies +3,363,182 +2,376,961 +986,221 +41.5 % +Labor +4,838,325 +4,234,905 +603,420 +14.2 % +Rent and utilities +1,770,205 +1,129,060 +641,145 +56.8 % +Delivery and service fees +528,632 +563,910 +(35,278 ) +-6.3 % +Depreciation +822,318 +545,549 +276,769 +50.7 % +Total restaurant operating +expenses +11,322,662 +8,850,385 +2,472,277 +27.9 % +Net restaurant operating +income +1,516,475 +364,394 +1,152,081 +316.2 % +General and administrative +3,831,676 +3,419,036 +412,640 +12.1 % +Compensation to related +party +139,769 +339,740 +(199,971 ) +-58.9 % +Advertising and marketing +100,059 +120,872 +(20,813 ) +-17.2 % +Total operating expenses +4,071,504 +3,879,648 +191,856 +4.9 % +Loss +from operations +(2,555,029 ) +(3,515,254 ) +960,225 +-27.3 % +Other income (expense): +RRF loan forgiveness +- +700,454 +(700,454 ) +-100.0 % +Gain on disposal of fixed +asset +- +8,920 +(8,920 ) +-100.0 % +Other income +378,621 +32,316 +346,305 +1,071.6 % +Interest +(455,224 ) +(218,153 ) +(237,071 ) +108.7 % +Loss before income taxes +(2,631,632 ) +(2,991,717 ) +360,085 +-12.0 % +Income tax provision +34,237 +48,647 +(14,410 ) +-29.6 % +Net +loss +$ (2,665,869 ) +$ (3,040,364 ) +$ 374,495 +-12.3 % +32 +Revenues. +Revenues were $12.9 million for the year ended December 31, 2024 compared to $9.2 million for the year ended December 31, 2023, representing +an increase of approximately $3.6 million, or 39.3%. The increase in sales for the year was primarily driven by $3.5 million in sales +from the acquisition of three restaurants in Las Vesgas, and another $1.0 million in sales from two new restaurants opened in February +and October 2024, which were offset by a $0.8 million decrease in sales at other restaurants. +Food, +beverage and supplies . Food, beverage and supplies costs were approximately $3.4 million for the year ended December 31, 2024 compared +to $2.4 million for the year ended December 31, 2023, representing an increase of approximately $1.0 million, or 41.5%. The increase +in costs for the year ended December 31, 2024 was primarily driven by increases in revenues from the acquisition of three restaurants +in Las Vegas. As a percentage of sales, food, beverage and supply costs were comparable during the years ended December 31, 2024 and +2023. +Labor . +Labor and related costs were approximately $4.8 million for the year ended December 31, 2024 compared to $4.2 million for the year ended +December 31, 2023, representing an increase of approximately $0.6 million, or 14.2%. The increase in costs was largely driven by additional +labor costs incurred with respect to the three acquired restaurants in Las Vegas and the two new restaurant opened in 2024. As a percentage +of sales, labor and related costs decreased during the comparable years ended December 31, 2024 and 2023 due to comparatively lower labor +costs in Las Vegas. +Rent +and utilities . Rent and utilities expenses for the year ended December 31, 2024 increased compared to the year ended in December +31, 2023 by $0.6 million primarily due to the acquisition of three restaurants in Las Vegas. As a percentage of sales, rent and utilities +expenses slightly increased to 13.7% in the year ended December 31, 2024, compared to 12.3% for the year ended December 31, 2023. The +increase in costs as a percentage of sales was primarily driven by the opening of new restaurants towards the end of the year. +Delivery +and service fees . Delivery and service fees incurred were approximately $529 thousand for the year ended December 31, 2024 compared +to $564 thousand for the year ended December 31, 2023, representing a decrease of approximately $35 thousand or 6.3%, primarily due to +a decrease in food sales via delivery during the comparable period due to the post COVID effect. As a percentage of sales, delivery and +service fees ratio for the year ended December 31, 2024 decreased due to increase in sales percentage of the dining-in compared to take-out. +Depreciation +and amortization expenses . Depreciation and amortization expenses incurred were approximately $822 thousand for the year ended December +31, 2024 compared to $546 thousand for the year ended December 31, 2023, representing an increase of approximately $277 thousand, or +50.7%. The increase was primarily due to the acquisition of three restaurants in Las Vegas together new two newly opened restaurants +in 2024. The depreciation and amortization expenses as a percentage of sales was 6.4% for the year ended December 31, 2024 compared to +5.9% for year ended December 31, 2023. +General +and administrative expenses . General and administrative expenses were approximately $3.8 million for the year ended December 31, +2024 compared to $3.4 million for the year ended December 31, 2023, representing an increase of approximately $0.4 million or 12.1%. +This increase in general and administrative expenses was primarily due to the acquisition of three restaurants in Las Vegas, hiring of +additional administrative employees, increases in professional services and corporate-level costs to support growth plans, and the construction/development +of new restaurants. As a percentage of sales, general and administrative expenses decreased to 29.7% for the year ended December 31, +2024 from 37.1% for the year ended December 31, 2023, primarily due to the significant management efforts to control manageable expenses. +Related +party compensation: Compensation to James Chae was approximately $140 thousand for the year ended December 31, 2024 compared to $340 +thousand for the year ended December 31, 2023, representing a decrease of approximately $200 thousand. The decrease was primarily due +to the management efforts to control expenses. As a percentage of sales, related party compensation was 1.1% for the year ended December +31, 2024 and 3.7% for the year ended December 31, 2023. +33 +Liquidity +and Capital Resources +Our +primary uses of cash are for operational expenditures and capital investments, including new restaurants, costs incurred for restaurant +remodels and restaurant fixtures. Historically, our main sources of liquidity have been cash flows from operations, borrowings from banks, +and sales of common shares. +On +January 5, 2024, we entered into a securities purchase agreement (the “Securities Purchase Agreement”) with Alumni Capital +LP, a Delaware limited partnership (“Alumni”) whereby we sold to Alumni 45,000 shares of Class A Common Stock in exchange +for $118 thousand on November 20, 2024. This Purchase Agreement terminated on December 31, 2024. +On +January 6, 2025, the Company issued and sold to Crom Structured Opportunities Fund I, LP, a Delaware limited partnership +(“Crom”) a 10% OID promissory note in the aggregate principal amount of $1,100,000 (the “Note”) for a +purchase price of $1,000,000. The Company repaid such Note on March 7, 2025 with the proceeds from a loan made to the Company on or +about March 6, 2025. Also on January 6, 2025, we entered into an equity purchase agreement (the “Purchase Agreement”) +with Crom (the “Investor”) pursuant to which the Company shall have the right, but not the obligation, to sell to the +Investor up to $10,000,000 (the “ELOC Shares”) of the Company’s Class A common stock, $0.0001 par value per share +(“Class A Common Stock”). However, we have not yet been able to access capital under this agreement since we must first +register shares issuable under the Purchase Agreement, which we may only do after the filing of this Annual Report on Form +10-K. +On +March 12, 2025, we entered into private placements with three investors for the sale of Class A common stock at a price of $2.50 per +share for gross proceeds of $714,000. However, we are obligated to register those shares and if we fail to do so in accordance with those +agreements, we may be forced to repurchase those shares at the price we had sold them for. On March 17, 2025 we sold penny warrants at +a price of $2.50 per share for gross proceeds of $1,200,000. We are obligated to register the shares underlying such warrants and if we +fail to do so in accordance with those agreements, we may be forced to repurchase those warrants for the price we sold them for. +On March 17, 2025, the Company sold 480,000 warrants for a purchase price +of $1,200,000, or $2.50 per share. Each warrant is exercisable for one share of the Company’s Class A common stock pursuant to the +terms of a warrant agreement dated as of March 17, 2025. Pursuant to the terms of the Warrant Agreement, in the event that the Company +has not obtained stockholder approval, the Company may not issue upon exercise of the Warrants a number of shares of Common Stock, which, +when aggregated with any shares of Common Stock issued pursuant to the subscription agreements executed contemporaneously between the +Company and other investors or holders of Warrants (whether for Common Stock or Warrants) would equal twenty (20%) percent or more of +the Common Stock or twenty (20%) percent or more of the voting power of the Company outstanding before the issuance. The Company is also +obligated to file a registration statement to the SEC within thirty (30) calendar days following the filing of this Annual Report on Form +10-K with the SEC. If the Company fails to (i) submit the registration statement within the timeline specified above or if the registration +statement is denied, withdrawn or not declared effective by the SEC within one-hundred twenty (120) days from the filing date or (ii) +fail to obtain the requisite stockholder approval within 75 days from the date of the Subscription Agreements, the investors will have +the option, in their sole discretion, to: (1) with respect to (i), require the Company to assist it in filing for an exemption under Rule +144 or other applicable SEC regulations to remove the transfer restrictions from the Shares, or, if such exemption is unavailable, demand +the Company to repurchase the Warrants or underlying shares at the original purchase price; or (2) demand a full refund of the subscription +amount, subject to the Company’s financial capability as verified by an independent audit conducted within 15 days of the demand. +On March 25, 2025, the Company entered into Subscription Agreements with +certain investors pursuant to which the investors agreed to pay $1,650,000 in aggregate to purchase an aggregate of 660,000 warrants. +The Subscription Agreements contain customary representations, warranties, and indemnification provisions and were entered into in reliance +on self-certification as an accredited investor pursuant to Regulation D promulgated under the Securities Act. Each warrant is exercisable +for one share of the Company’s Class A common stock, par value $0.0001 per share (“Class A Common Stock”), at an exercise +price of $0.01 (the “Shares”) pursuant to the terms of warrant agreements dated as of March 24, 2025 (the “Warrant Agreement”). +Pursuant to the Subscription Agreements, the Company is obligated to file a registration statement to register these shares with the SEC +within thirty (30) calendar days following the filing of this Annual Report on Form 10-K with the SEC. If the Company fails to submit +the registration statement within the timeline specified above or if the registration statement is denied, withdrawn or not declared effective +by the SEC within one-hundred twenty (120) days from the filing date, Good Mood Studio will have the option, in its sole discretion, to: +(1) require the Company to assist it in filing for an exemption under Rule 144 or other applicable SEC regulations to remove the transfer +restrictions from the shares, or, if such exemption is unavailable, demand the Company to repurchase the shares at the original purchase +price or (2) demand a full refund of the subscription amount subject to the Company’s financial capability as verified by an independent +audit conducted within 15 days of the demand. +On August 21, 2024, we received a notification letter (the “Letter”) +from the Nasdaq Listing Qualifications Staff of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that its amount +of stockholders’ equity has fallen below the $2,500,000 required minimum for continued listing set forth in Nasdaq Listing Rule +5550(b)(1). On February 18, 2025, we received another notification letter (the “2nd Letter”) from Nasdaq notifying the Company +that it has scheduled the Company’s securities for delisting from The Nasdaq Capital Market. Pursuant to the procedures set forth +in the Nasdaq Listing Rule 5800 series, we appealed Nasdaq’s determination to a Hearings Panel (the “Panel”) and a hearing +request has stayed the suspension of the Company’s securities and the filing of the Form 25-NSE pending the Panel’s decision +after a hearing scheduled for April 1, 2025. If we fail to remedy our stockholder deficiency prior to April 1, 2025, we will be required +to convince Nasdaq that we have a viable plan to correct the deficiency. If Nasdaq rejects our plan, we may be delisted, which will make +it more difficult for us to raise capital in order to sustain our operations. +Notwithstanding +our current belief that our expected cash flow from operations, and the proceeds from the Purchase Agreement and from the private placements +set forth above (including our belief that we will satisfy our registration requirements so that we are not forced to redeem the equity +previously sold to such private placement investors) will be adequate to fund operating lease obligations, capital expenditures and working +capital obligations for at least the next 12 months and thereafter, there are no assurances that we will be able to do so. If we fail +to generate adequate capital, we may be forced to curb our operations or cease to continue our operations altogether. +34 +Summary +of Cash Flows +The +following table summarizes our cash flows for the periods presented: +Years +ended December 31, +2024 +2023 +Statement of Cash Flow Data: +Net cash provided by (used in) +operating activities +$ 875,224 +$ (4,591,656 ) +Net cash used in investing activities +(2,561,527 ) +(1,471,151 ) +Net cash provided by financing activities +1,465,013 +1,386,347 +Cash +Flows Used in Operating Activities +Net +cash provided by operating activities during the year ended December 31, 2024 was $875,224, which resulted from net loss of $2,665,869, +a non-cash charge of $822,318 for depreciation and $39,828 for amortization which was offset by and net cash inflows of $2,678,947 from +changes in operating assets and liabilities. The net cash inflows from changes in operating assets and liabilities were primarily the +result of decreases in other assets of $896,567, and increases in accounts payable and accrued expenses of $198,979, due to related party +of $708,534 and other payables of $1,012,591, which was offset by an increase in accounts receivable of $84,110 and inventory of $53,614. +The decrease in other assets of $896,567 primarily consists of the escrow deposit of $729,352 to acquire assets of three restaurants +in Las Vegas in 2023 which was consummated in April 2024. The increase in other payable of $1,012,591 is primarily due to a deposit of +$1,000,000 from an individual who wanted to participate in the acquisition of Korea BBQ restaurant. +Net +cash used in operating activities during the year ended December 31, 2023 was $4,591,656, which resulted from net loss of $3,040,364, +a non-cash charge of $545,549 for depreciation and amortization which was offset by the forgiveness of Restaurant Revitalization Fund +(“RRF”) of $700,454, a gain on disposal of fixed asset of $8,920 and net cash outflows of $1,387,467 from changes in operating +assets and liabilities. The net cash outflows from changes in operating assets and liabilities were primarily the result of an increase +in other assets of $1,252,669, decreases due to related party expenses of $148,544 and accounts payable and accrued expenses of $33,915, +which was offset by an increase in other payables of $59,785. The increase in other assets of $1,252,669 primarily consists of a payment +of $729,352 in escrow to acquire assets of three restaurants in Las Vegas, $294,276 in escrow to purchase a restaurant in Southern California +and an investment of $300,000 in a financial company for a fixed interest income. +Cash +Flows Used in Investing Activities +Net +cash used in investing activities during the years ended December 31, 2024 and 2023 was $2,561,527and $1,471,151, respectively. For the +acquisition of Las Vegas restaurants in total price of $3.6 million, the Company used total $1.8 million of cash with non-cash financing +for $1.8 million. Excluding the acquisition of Las Vegas restaurants, expenditures in each period are primarily related to purchases +of property and equipment in connection with current and future restaurant openings. +35 +Cash +Flows Provided by Financing Activities +Net +cash provided by financing activities during the year ended December 31, 2024 was $1,465,013 due to $2,130,980 cash received through +bank borrowings, offset by $933,756 of repayment of bank borrowings and loan payable to financial institutions. +Net +cash provided by financing activities during the year ended December 31, 2023 was $1,386,347, primarily due to $700,000 in advance from +line of credit, refinanced and new bank borrowings of $812,000 and $595,400 in loan payable to financial institution, offset by $715,892 +of repayment of bank borrowings and $61,161 repayment of loan payable to financial institutions. +Contractual +Obligations +The +following table presents our commitments and contractual obligations as of December 31, 2024, as well as our long-term obligations: +Payments +due by period as of December 31, 2024 +Total +2025-2026 +2027-2028 +2029 +Thereafter +Capital lease payments +$ 10,134,277 +$ 2,869,960 +$ 2,786,646 +$ 1,167,352 +$ 3,310,319 +Bank note payables +3,113,961 +1,873,610 +916,527 +135,462 +188,362 +EIDL loan payables +415,414 +22,265 +23,997 +12,689 +356,463 +Loans payable to financial +institutions +34,282 +34,282 +- +- +- +Total +contractual obligations +$ 13,697,934 +$ 4,800,117 +$ 3,727,170 +$ 1,315,503 +$ 3,855,144 +Income +Taxes +We +file income tax returns in the U.S. federal and California state jurisdictions. +We +are considered a U.S. corporation and a regarded entity for U.S. federal, state and local income taxes. Accordingly, a provision will +be recorded for the anticipated tax consequences of our reported results of operations for U.S. federal, state and foreign income taxes. +JOBS +Act Accounting Election +We +are an “emerging growth company,” as defined in the JOBS Act, and may take advantage of certain exemptions from various public +company reporting requirements for up to five years or until we are no longer an emerging growth company, whichever is earlier. The JOBS +Act provides that an “emerging growth company” can delay adopting new or revised accounting standards until those standards +apply to private companies. We have elected to use this extended transition period under the JOBS Act. Accordingly, our financial statements +may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards. +Off +Balance Sheet Arrangements +As +of December 31, 2024, we did not have any material off-balance sheet arrangements. +Critical +Accounting Policies +The +preparation of financial statements in conformity with GAAP requires management to utilize estimates and make judgments that affect the +reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. These estimates +are based on historical experience and on various other assumptions that management believes to be reasonable under the circumstances. +The estimates are evaluated by management on an ongoing basis, and the results of these evaluations form a basis for making decisions +about the carrying value of assets and liabilities that are not readily apparent from other sources. Although actual results may differ +from these estimates under different assumptions or conditions, management believes that the estimates used in the preparation of our +financial statements are reasonable. The critical accounting policies affecting our financial reporting are summarized in Note 2 to the +financial statements included elsewhere in this Annual Report. +36 +Recent +Accounting Pronouncements +We +have determined that all other issued, but not yet effective accounting pronouncements are inapplicable or insignificant to us and once +adopted are not expected to have a material impact on our financial position. +Item +7A. Quantitative and Qualitative Disclosures about Market Risk. +We +are a smaller reporting company as defined in Item 10(f)(1) of Regulation S-K and are not required to provide the information otherwise +required under this item. +Item +8. Financial Statements and Supplementary Data. +The +Financial Statements and Supplementary Data required by this Item 8 are incorporated by reference to information beginning on Page F-1 +of this Form 10-K. +Item +9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. +None. +Item +9A. Controls and Procedures. +Evaluation +of Disclosure Controls and Procedures +Our +management has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under +the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of December 31, 2024. Based on such evaluation, +our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2024, our disclosure controls and procedures +were ineffective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit +under the Exchange Act (a) is recorded, processed, summarized and reported within the time periods specified by Securities and Exchange +Commission (“SEC”) rules and forms and (b) is accumulated and communicated to our management, including our Chief Executive +Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding any required disclosure. +Management +has identified control deficiencies regarding inadequate accounting resources, the lack of segregation of duties and the need for a stronger +internal control environment. Management believes that these material weaknesses are due to the small size of our accounting staff. The +small size of our accounting outsourced staff may prevent adequate controls in the future due to the cost/benefit of such remediation. +To +mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with +the use of external legal and accounting professionals. As we grow, we expect to increase our number of employees, which will enable +us to implement adequate segregation of duties within the internal control framework. +These +control deficiencies could result in a misstatement of account balances that would result in a reasonable possibility that a material +misstatement to our financial statements may not be prevented or detected on a timely basis. In light of this material weakness, we performed +additional analyses and procedures in order to conclude that our financial statements for the year ended December 31, 2024 included in +this Annual Report on Form 10-K were fairly stated in accordance with GAAP. Accordingly, management believes that despite our material +weaknesses, our financial statements for the year ended December 31, 2024 are fairly stated, in all material respects, in accordance +with GAAP. +37 +Management’s Report on Internal Control Over +Financial Reporting +Our +management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Securities +Exchange Act of 1934 Rule 13a-15(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding +the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally +accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that: +● +pertain +to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our +assets; +● +provide +reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with +generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations +of our management and directors; and +● +provide +reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that +could have a material effect on the financial statements. +Because +of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of +any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, +or that the degree of compliance with the policies or procedures may deteriorate. +Our +management assessed the effectiveness of our internal control over financial reporting as of December 31, 2024. In making this assessment, +our management used the criteria set forth by the Committee of Sponsoring Organizations of the 2013 Treadway Commission (“COSO”) +in Internal Control-Integrated Framework . Based upon this assessment, our Chief Executive Officer and Chief Financial Officer +concluded that as of December 31, 2024 our internal controls over financial reporting were ineffective. +Changes +in Internal Control Over Financial Reporting +There +were no changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially +affected, or are reasonably likely to materially affect, our internal control over financial reporting. +Limitations +on Effectiveness of Controls and Procedures +In +designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes +that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired +control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must +reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of +possible controls and procedures relative to their costs. +Item +9B. Other Information. +Trading +Plans +During +the three months ended December 31, 2024, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the company +adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term +is defined in Item 408(a) of Regulation S-K. +Item +9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. +Not +applicable. +PART +III +Item +10. Directors, Executive Officers and Corporate Governance. +The +following table sets forth certain information regarding our executive officers, directors and director nominees as of December 31, 2024. +Name +Age +Position +James +Chae +61 +President, +Chief Executive Officer, Director and Chairman of the Board +Soojae +Ryan Cho +55 +Chief +Financial Officer +Jay +Kim* +61 +Director +Harinne +Kim +51 +Director +Yusil +Yeo +45 +Director +*Resigned +on February 13, 2025 +Background +of Executive Officers and Directors +James +Chae, age 61, Chairman of the Board of Directors, Chief Executive Officer +Mr. +Chae founded Yoshiharu in 2016. Led by Mr. Chae, Yoshiharu has expanded to become a leading Japanese cuisine restaurant chain in Southern +California. The root of Mr. Chae’s business knowledge comes from over two decades leading a wide array of industries including +both the financial services and retail services segments. Mr. Chae has been a business executive for over 10 years, serving as the President +of APIIS Financial, Inc., a financial planning and wealth management firm. Prior to APIIS Financial, Inc., Mr. Chae served as the Managing +Site Partner for John Hancock from January 2002 to October 2010. +Mr. +Chae immigrated from South Korea to the United States as a teenager, and diligently worked to enroll at UCLA where he studied Economics. +Prior to graduation, Mr. Chae began his career at California Korea Bank, one of the first banks to service Koreans living in the United +States. Mr. Chae rose to the position of Loan Adjuster before venturing out on his own as an entrepreneur. While starting his own businesses, +Mr. Chae often found comfort in a warm bowl of ramen to uplift him and energize his spirit, which served as the inspiration for Yoshiharu. +Mr. Chae’s background in the financial services industry provided him access to restaurants and retailers which helped him understand +the restaurant industry and more importantly, the necessary foundations in building a successful restaurant business. Mr. Chae believed +that there was a large addressable market for ramen, and together with his experience and passion for the business, founded Yoshiharu. +As the founder and controlling stockholder of our company, Mr. Chae possesses invaluable operational knowledge and insight making him +qualified to serve as a member of our board of directors. +38 +Soojae +Ryan Cho, age 55, Chief Financial Officer +Mr. +Cho was appointed to serve as Chief Financial Officer effective May 25, 2022. For the past five years, Mr. Cho has served as a partner +in S&R Accounting Professionals, LLP where he has provided various accounting, external audit, and tax services. He has 25 years +of experience in the public accounting and industry experience with US and global companies. Mr. Cho began his career with KPMG Los Angeles +in 1996. After successfully completing 9 years at KPMG, Mr. Cho was recruited as a Controller and became a CFO for Prudential Securities +in South Korea, a wholly owned subsidiary of Prudential Securities USA. Mr. Cho later joined Ticket Monster (TMon), a leading e-Commerce +company as a Director of Finance managing over 40 accounting and finance team members. At TMon, Mr. Cho successfully led and completed +mergers and acquisitions in different times with Groupon USA, Living Social, and KKR (one of the largest private equity firms in the +USA), reported financial statements under US GAAP to its parent company, and worked closely with external auditors, PwC and E&Y. +He has extensive experience in audits for both private and public companies, SEC reporting and due diligence transactions including post-merger +integration services and IPO engagements. Mr. Cho offers specialized expertise in the automotive, manufacturing and distribution, technology, +and e-Commerce industries. +Sungjoon +Chae, age 44, Director +Mr. +Chae was appointed to serve as director effective March 17, 2025. Mr. Chae is a distinguished architect and urban designer dedicated +to shaping sustainable and innovative spaces that enhance the human experience. With a deep understanding of the interplay between space, +architecture and urban environments, he has consistently delivered designs that merge aesthetic appeal with functionality. Mr. Chae is +currently CEO of Grundot and a former adjunct professor at Hongik University. Mr. Chae has amassed extensive experience working with +some of the world’s most renowned architectural firms, including Steven Holl Architects, Weiss/Manfredi, and Michael Maltzan Architecture, +where he played a key role as a Senior Designer and Project Designer. His portfolio spans a diverse range of high-profile projects, such +as the 94-unit apartment building ‘Meander’ in Helsinki, Finland, the Franklin & Marshall Fine Arts Building in Lancaster, +PA, the Tulane University Dining Common in New Orleans, the master plan for the U.S. Embassy in New Delhi, India, and the Malibu Beach +House in California. Mr. Chae holds a Master of Architecture in Urban Design from the Harvard Graduate School of Design and a Master +and Bachelor of Architecture from the Illinois Institute of Technology. +Harinne +Kim, age 51, Director +Ms. +Kim was appointed to serve as director effective February 17, 2023. Ms. Kim is a leading financial advisor who, since June 2017, has +been the president and owner of her HariK agency. Ms. Kim is highly regarded in her field with over 23 years of experience having previously +worked with regarded financial companies which include: Fidelity Investments, Vanguard, John Hancock and many more. She also holds a +position as a wealth managing consultant for United Family Medicine, Chicago Kimchi, Acepex, Korean Daily Newspaper, and Hyundai Corporation +over the past 10 years. +Ms. +Kim has completed her education at Loyola with a specialization in Economics and Finance. Currently, she has countless list of clients +which vary from individuals to corporations. +Ms. +Kim possesses extensive expertise and experience in financial management, making her qualified to serve as a “financial expert”, +a member of our board of directors and our Audit Committee. +39 +Yusil +Yeo, age 45, Director +Ms. +Yeo was appointed to serve as a director effective May 25, 2022. Ms. Yeo is currently the president of Grace Yeo & Associates, C.P.A., +Inc, a full-service accounting firm in Los Angeles, CA and has served in such capacity for the past 5 years. She has expertise in providing +comprehensive accounting services. Ms. Yeo is a member of American Institute of Certified Public Accountants and the California Society +of Certified Public Accountants. She is licensed as a Certified Public Accountant. Ms. Yeo has gained extensive accounting and tax experience +through senior accountant and management roles for a variety of companies and CPA firms located in the Los Angeles area, including H&R +Block and KNM Associates, Inc. Ms. Yeo holds a Bachelor of Science degree from the University of California, Los Angeles. +Ms. +Yeo possesses extensive expertise and experience in financial management, making her qualified to serve as a “financial expert”, +a member of our board of directors and our Audit Committee. +There +are no family relationships among our board of directors and executive officers. +Controlled +Company +James +Chae controls a majority of the combined voting power of our outstanding equity interests. As a result, we are a “controlled company” +within the meaning of the corporate governance rules of the Nasdaq Stock Market. As a controlled company, exemptions under the standards +free us from the obligation to comply with certain corporate governance requirements, including the requirements: +● +that +a majority of our board of directors consists of “independent directors,” as defined under the rules of the Nasdaq Stock +Market; +● +that +we have, to the extent applicable, a Nominating and Corporate Governance Committee that is composed entirely of independent directors +with a written charter addressing the committee’s purpose and responsibilities; +● +that +we have a Compensation Committee composed entirely of independent directors with a written charter addressing the committee’s +purpose and responsibilities; and +● +for +an annual performance evaluation of the Nominating and Corporate Governance Committee and Compensation Committee. +Since +we intend to avail ourselves of the “controlled company” exception under the Nasdaq Stock Market rules, we do not have a +Nominating and Corporate Governance Committee. These exemptions do not modify the independence requirements for our Audit Committee, +and we are in compliance with the requirements of Rule 10A-3 of the Exchange Act and the rules of the Nasdaq Stock Market. +Based +on the Nasdaq Stock Market corporate governance rules and the independence requirements of Rule 10A-3 of the Exchange Act, our board +of directors has determined that Harinne Kim and Yusil Yeo are each an independent director. +Corporate +Governance and Board Structure +Our +board of directors currently consists of four members. Our bylaws provide that our board of directors shall consist of at least three +directors but not more than eleven directors and the authorized number of directors may be fixed from time to time by resolution of our +board of directors. Based on the corporate governance rules of the Nasdaq Stock Market, Harinne Kim and Yusil Yeo are independent directors. +Given the +resignation of Jay Kim on February 13, 2025 and the appointment of Sungjoon Chae on March 17, 2025, +we no longer have a majority independent board of directors. However, pursuant to Nasdaq Rule 5615(a)(7)(B), we do not have to comply +with the Nasdaq Rules requiring a majority independent board of directors or a majority independent compensation committee, although +we must still comply with Nasdaq’s rules concerning our audit committee. As a result of Jay Kim’s resignation, our +audit committee no longer has a minimum of three independent directors per Nasdaq Rule 5605(c)(2)(A). However, under Nasdaq Rule 5605(c)(4)(B) +we are given a grace period to cure each of this deficiency. +The +authorized number of directors may be changed by resolution of the board of directors. Vacancies on the board of directors can be filled +by the affirmative vote of a majority of the remaining directors then in office, even if less than a quorum, and shall hold office until +the next annual meeting of the stockholders or until his or her successor is duly elected and qualified. Mr. James Chae serves as the +Chairman of our board of directors. See “ Risk Factors—Risks Related to Our Organizational Structure & Ownership of +Our Common Stock. ” +Our +directors hold office until the earlier of their death, resignation, retirement, qualification or removal or until their successors have +been duly elected and qualified. +We +have not made any material changes to the procedures by which security holders may recommend nominees to the registrant’s board +of directors since our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. +40 +Our +board of directors has fully implemented our corporate governance initiatives upon the closing of the IPO. We believe these initiatives +comply with the Sarbanes-Oxley Act and the rules and regulations of the SEC adopted thereunder. In addition, we believe our corporate +governance initiatives comply with the rules of the Nasdaq Stock Market. Our board of directors will continue to evaluate, and improve +upon as appropriate, our corporate governance principles and policies. +Our +board of directors has adopted a code of business conduct and ethics that applies to each of our directors, officers and employees. The +code addresses various topics, including: +● +compliance +with laws, rules and regulations; +● +conflicts +of interest; +● +insider +trading; +● +corporate +opportunities; +● +competition +and fair dealing; +● +fair +employment practices; +● +recordkeeping; +● +confidentiality; +● +protection +and proper use of company assets; and +● +payments +to government personnel. +The +full text of the Code of Business Conduct and Ethics is posted on our website at ir.yoshiharuramen.com. We intend to provide on our website +all disclosures that are required by law or market rules in regard to any amendments to, or waivers from, any provision of the Code of +Business Conduct and Ethics. +Board +Committees +Our +board of directors has two standing committees: an Audit Committee and a Compensation Committee. Each of the committees report to the +board of directors as they deem appropriate, and as the board of directors may request. In the future, our board of directors may establish +other committees, as it deems appropriate, to assist it with its responsibilities. We comply with the requirements of the Nasdaq Stock +Market with respect to committee composition of independent directors as they become applicable to us. Each committee has the composition, +duties and responsibilities described below. +Audit +Committee +The +Audit Committee provides assistance to the board of directors in fulfilling its oversight responsibilities regarding the integrity of +financial statements, our compliance with applicable legal and regulatory requirements, the integrity of our financial reporting processes +including its systems of internal accounting and financial controls, the performance of our internal audit function and independent auditor +and our financial policy matters by approving the services performed by our independent accountants and reviewing their reports regarding +our accounting practices and systems of internal accounting controls. The Audit Committee also oversees the audit efforts of our independent +accountants and takes action as it deems necessary to satisfy itself that the accountants are independent of management. +Our +Audit Committee consists of Harinne Kim and Yusil Yeo with Ms. Yeo serving as the Audit Committee chairperson. +41 +Harinne +Kim and Yusil Yeo meet the definition of “independent directors” for the purposes of serving on an Audit Committee under +applicable SEC and Nasdaq Stock Market rules, and we are in compliance with these independence requirements. In addition, Harinne Kim +and Yusil Yeo qualify as our “audit committee financial experts,” as such term is defined in Item 407 of Regulation S-K. +In +general, an “audit committee financial expert” is an individual member of the audit committee or board of directors who: +● +understands +generally accepted accounting principles and financial statements; +● +is +able to assess the general application of such principles in connection with accounting for estimates, accruals and reserves; +● +has +experience preparing, auditing, analyzing or evaluating financial statements comparable to the breadth and complexity to our financial +statements; +● +understands +internal controls over financial reporting; and +● +understands +audit committee functions. +Our +board of directors has adopted a written charter for the Audit Committee, which is available on our corporate website at https://ir.yoshiharuramen.com/corporate-governance/governance-documents. +Compensation +Committee +The +Compensation Committee oversees our overall compensation structure, policies and programs, and assesses whether our compensation structure +establishes appropriate incentives for officers and employees. The Compensation Committee reviews and approves corporate goals and objectives +relevant to compensation of our chief executive officer and other executive officers, evaluates the performance of these officers in +light of those goals and objectives, sets the compensation of these officers based on such evaluations and reviews and recommends to +the board of directors any employment-related agreements, any proposed severance arrangements or change in control or similar agreements +with these officers. The Compensation Committee also grants stock options and other awards under our stock plans. The Compensation Committee +will review and evaluate, at least annually, the performance of the Compensation Committee and its members and the adequacy of the charter +of the Compensation Committee. +Our +Compensation Committee consists of Harinne Kim, with Harinne Kim serving as the Compensation Committee chairperson. +Our +board of directors has adopted a written charter for the Compensation Committee, which is available at https://ir.yoshiharuramen.com/corporate-governance/governance-documents. +As a controlled company, we may rely upon the exemption from the requirement that we have a Compensation Committee composed entirely +of independent directors, although our Compensation Committee consists entirely of independent directors. +Compensation +Committee Interlocks +We +anticipate that none of our employees will serve on the Compensation Committee. None of the members of our Compensation Committee has +ever been an officer or employee of us. +Corporate +Governance Guidelines +Our +board of directors has adopted corporate governance guidelines in accordance with the corporate governance rules of the Nasdaq Stock +Market. +42 +Risk +Oversight +Our +board of directors is currently responsible for overseeing our risk management process. The board of directors focuses on our general +risk management strategy and the most significant risks facing us and ensures that appropriate risk mitigation strategies are implemented +by management. The board of directors is also apprised of particular risk management matters in connection with its general oversight +and approval of corporate matters and significant transactions. +Our +board of directors does not have a standing risk management committee, but rather will administer this oversight function directly through +our board of directors as a whole, as well as through various standing committees of our board of directors that address risks inherent +in their respective areas of oversight. In particular, our board of directors will be responsible for monitoring and assessing strategic +risk exposure, our Audit Committee will be responsible for overseeing our major financial risk exposures and the steps our management +has taken to monitor and control these exposures and our Compensation Committee will assess and monitor whether any of our compensation +policies and programs has the potential to encourage unnecessary risk-taking. In addition, our Audit Committee oversees the performance +of our internal audit function and consider and approve or disapprove any related-party transactions. +Our +management is responsible for day-to-day risk management. This oversight includes identifying, evaluating, and addressing potential risks +that may exist at the enterprise, strategic, financial, operational, compliance and reporting levels. +Risk +and Compensation Policies +We +have analyzed our compensation programs and policies to determine whether those programs and policies are reasonably likely to have a +material adverse effect on us. +Leadership +Structure of the Board of Directors +The +positions of Chairman of the Board and Chief Executive Officer are presently the same person and we do not have a lead independent director. +As our bylaws and corporate governance guidelines do not require that our Chairman and Chief Executive Officer positions be separate, +our board of directors believes that having positions be held by the same person is the appropriate leadership structure for us at this +time. As of December 31, 2024, we have determined that the leadership structure of our board of directors has permitted our board of +directors to fulfil its duties effectively and efficiently and is appropriate given the size and scope of our company and its financial +condition. Per the resignation of Jay Kim and the appointment of Sungjoon Chae, the Company no longer has a majority independent board +of directors. Per Nasdaq rules we are not required to have a majority independent board +but must still comply with certain subcommittee requirements. We may in the future appoint one or more duly qualified independent directors to fill the current vacancy. See “Item 10. +Directors, Executive Officers and Corporate Governance—Corporate Governance and Board Structure” +Compliance +with Section 16(a) of the Exchange Act +Section +16(a) of the Exchange Act requires our executive officers, directors and persons who beneficially own more than 10% of a registered class +of our equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and +other equity securities. These executive officers, directors, and greater than 10% beneficial owners are required by SEC regulation to +furnish us with copies of all Section 16(a) forms filed by such reporting persons. Based solely on our review of such forms furnished +to us and written representations from certain reporting persons, we believe that during the year ended December 31, 2024, all reports +applicable to our executive officers, directors and greater than 10% beneficial owners were filed in a timely manner in accordance with +Section 16(a) of the Exchange Act. +Short +Swing Profit Disgorgement +James +Chae, our President and Chief Executive Officer, has disbursed $2,500 to us in order for us to recapture short swing profits received +by James when he acquired shares and sold them for a profit in 2023. +Insider +Trading Policy +Our +Code of Business Conduct and Ethics prohibits our directors, officers, and employees from purchasing or selling our securities while +being aware of material, non-public information about our company as well as disclosing such information to others who may trade in securities +of our company, and otherwise requires compliance with insider trading laws. We are in the process of developing a more robust insider +trading policy that will apply to our directors, officers, and employees that will prohibit: (i) trading our securities during certain +established periods and when in possession of material non-public information; (ii) unless approved in advance in limited circumstances +by the policy administrator, the hedging of our securities, including short sales or purchases or sales of derivative securities based +on our securities; and (iii) the use of our securities to secure a margin or other loan. +Item +11. Executive Compensation +Compensation +Philosophy +Our +compensation philosophy includes: +● +pay +for performance; +● +fair +compensation that is competitive with market standards; +● +compensation +mix according to growth stage of our company as well as job level; and +● +incentivizing +employees to work for long-term sustainable and profitable growth of our company. +43 +Objective +of Executive Compensation Program +The +objective of our compensation program is to provide a fair and competitive compensation package in the industry to each named executive +officer (“NEO”) that will enable us to: +● +attract +and hire outstanding individuals to achieve our mid-term and long-term visions; +● +motivate, +develop and retain employees; and +● +align +the financial interests of each named executive officer with the interests of our stakeholders including stockholders and encourage +each named executive officer to contribute to enhance value of our company. +Our +named executive officers for the year 2024, were: +● +James +Chae, our Chairman of the Board, President and Chief Executive Officer; and +● +Soojae +Ryan Cho, Chief Financial Officer. +Administration +Following +the consummation of this offering, our Compensation Committee, which includes two independent directors, will oversee our executive compensation +program and will be responsible for approving the nature and amount of the compensation paid to our NEOs. The committee will also administer +our equity compensation plan and awards. +Elements +of Compensation +Our +compensation program for NEOs consists of the following elements of compensation, each described in greater depth below: +● +base +salaries; +● +performance-based +bonuses; +● +equity-based +incentive compensation; and +● +general +benefits. +Base +Salary +Base +salaries are an annual fixed level of cash compensation to reflect each NEO’s performance, role and responsibilities, and retention +considerations. +Performance-Based +Bonus +To +incentivize management to drive strong operating performance and reward achievement of our company’s business goals, our executive +compensation program includes performance-based bonuses for NEOs. Our Compensation Committee has established annual target performance-based +bonuses for each NEO during the first quarter of the fiscal year. +44 +Equity +Compensation +We +may pay equity-based compensation to our NEOs in order to link our long-term results achieved for our stockholders and the rewards provided +to NEOs, thereby ensuring that such NEOs have a continuing stake in our long-term success. +General +Benefits +Our +NEOs are provided with other fringe benefits that we believe are commonly provided to similarly situated executives. +Summary +Compensation Table +The +following table summarizes the compensation awarded to, earned by or paid to our NEOs for the years 2024 and 2023: +Summary +Compensation Table – Officers +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +(j) +Name +and Principal Position +Year +Salary +Bonus +Stock +Awards +Option +Awards +Non-equity +Incentive plan +compensation +Change +in Pension +Value and +Nonqualified +deferred +compensation +earnings +All +other +compensation +Total +($) +($) +($) +($) +($) +($) +($) +($) +James Chae, CEO +and Chairman of the Board +2024 +$ 140,000 +$ -0- +-0- +-0- +-0- +-0- +-0- +$ 140,000 +Soojae Ryan Cho, CFO +2024 +$ 120,000 +-0- +-0- +-0- +-0- +-0- +-0- +$ 120,000 +James Chae, CEO and Chairman +of the Board +2023 +$ 285,000 +$ 55,000 +-0- +-0- +-0- +-0- +-0- +$ 340,000 +Soojae Ryan Cho, CFO +2023 +$ 144,000 +-0- +-0- +-0- +-0- +-0- +-0- +$ 144,000 +Narrative +to Summary Compensation Table +We +entered into an employment contract on November 21, 2022 with James Chae as Chief Executive Officer for an annual salary of $140,000. +There is no stock options and/or warrants program at this time, but one may be developed in the future. A copy of the employment contract +is attached hereto as an exhibit. +45 +We +engaged Soojae Ryan Cho effective May 23, 2022 to serve as Chief Financial Officer of the company, effective immediately. The company’s +offer letter provides for employment at will, for an initial term through May 22, 2023, which shall automatically renew annually, unless +we determine not to renew the term with 60 days prior written notice. We have agreed to compensate Mr. Cho $144,000 per year, with yearly +adjustments, based on performance. Mr. Cho shall also receive a restricted stock grant equal to $56,000 in shares of Class A Common Stock +which will vest 3 months from the date of engagement. A copy of the offer letter is attached hereto as an exhibit. +Except +as set forth above we do not currently have employment agreements with any of our NEOs. +Outstanding +Equity Awards at the Year End +As +of December 31, 2024, there were no outstanding equity awards for each of the NEOs. +Payments +Upon Termination or Change in Control +None +of our NEOs are entitled to receive payments or other benefits upon termination of employment or a change in control. +Retirement +Plans +We +do not maintain any deferred compensation, retirement, pension or profit-sharing plans. +Omnibus +Equity Incentive Plan +On +February 4, 2022, we adopted an incentive plan, which we refer to as the 2022 Plan, the material terms of which are described below. +Key +Features +The +2022 Plan includes a number of provisions that promote best practices by reinforcing the alignment between equity compensation arrangements +for eligible employees, non-employee directors and other service providers and stockholders’ interests. These provisions include, +but are not limited to, the following (which are qualified in their entirety by the actual text of the 2022 Plan, which is attached as +an exhibit to this Report): +● +No +Discounted Options or SARs . Stock options and SARs (as defined below) generally may not be granted with exercise prices lower +than the market value of the underlying shares on the grant date. +● +No +Repricing without Stockholder Approval . Other than in connection with a change in our capitalization, at any time when the purchase +price of a stock option or SAR is above the market value of a share, we will not, without stockholder approval, reduce the purchase +price of the stock option or SAR and will not exchange the stock option or SAR for a new award with a lower (or no) purchase price +or for cash. +● +No +Transferability . Awards generally may not be transferred, except as otherwise provided in the 2022 Plan will or the laws of descent +and distribution, unless approved by the Board and/or the Compensation Committee. +● +No +Automatic Grants . The 2022 Plan does not provide for automatic grants to any individual. +● +Multiple +Award Types . The 2022 Plan permits the issuance of nonstatutory stock options (NSOs), incentive stock options (ISOs), stock appreciation +rights (SARs), restricted stock units (RSUs), restricted stock, other stock-based awards, and cash awards. This breadth of award +types will enable us to tailor awards in light of the accounting, tax, and other standards applicable at the time of grant. +● +Clawbacks . +All awards, amounts or benefits received or outstanding under the 2022 Plan will be subject to clawback, cancellation, recoupment, +rescission, payback, reduction or other similar action in accordance with our clawback or similar policy or any applicable law related +to such actions. +● +Independent +Oversight. The 2022 Plan is administered by a committee of independent members of the board of directors. +46 +Material +Features of the 2022 Plan +The +material terms of the 2022 Plan are summarized below. This summary of the 2022 Plan is not intended to be a complete description of the +2022 Plan and is qualified in its entirety by the actual text of the 2022 Plan. +Eligibility +and Participation. Awards may be granted under the 2022 Plan to officers, employees, and consultants of the company and its subsidiaries +and to non-employee directors of the company. Any of these awards may—but need not—be made as performance incentives to reward +attainment of performance goals in accordance with the terms and conditions hereof. +Plan +Administration . The Board of Directors has power and authority related to the administration of the 2022 Plan as are consistent with +our corporate governance documents and applicable law. Pursuant to its charter, the Compensation Committee administers the 2022 Plan. +Type +of Awards . The following types of awards are available for grant under the 2022 Plan: ISOs, NSOs, SARs, restricted stock, RSUs, other +stock-based awards, and cash awards. +Number +of Authorized Shares. The total number of shares authorized to be awarded under the Plan will not exceed 1,500,000 Shares of Class +A common stock, or Shares. Shares issued under the Plan will consist in whole or in part of authorized but unissued Shares, treasury +Shares, or Shares purchased on the open market or otherwise, all as determined by us from time to time. Subject to adjustment under Section +15 of the 2022 Plan, 1,500,000 Shares available for issuance under the Plan will be available for issuance as Incentive Stock Options. +Share +Counting . Any award settled in cash will not be counted as Shares for any purpose under the Plan. If any Award expires, or is terminated, +surrendered, or forfeited, in whole or in part, the unissued Shares covered by that award will again be available for the grant of awards. +In the case of any substitute award, such substitute award will not be counted against the number of Shares reserved under the 2022 Plan. +Stock +Options and SARs +Grant +of Options and SARs . The Compensation Committee may award ISOs, NSOs (together, “options”), and SARs to grantees under +the 2022 Plan. SARs may be awarded either in tandem with or as a component of other awards or alone. +Exercise +Price of Options and SARs . A SAR will confer on a grantee a right to receive, upon exercise thereof, the excess of (1) the fair market +value of one Share on the date of exercise over (2) the SAR exercise price. The Award Agreement for a SAR (except those that constitute +substitute awards) will specify the SAR Exercise Price, which will be fixed on the grant date as not less than the fair market value +of a Share on that date. A SAR granted in tandem with an outstanding option after the grant date of such option will have a SAR Exercise +Price that is equal to the option price, provided that the SAR Exercise Price may not be less than the fair market value of a Share on +the grant date of the SAR. +Vesting +of Options and SARs . The Board and/or Compensation Committee will determine the terms and conditions (including any performance requirements) +under which an option or SAR will become exercisable and will include that information in the award agreement. +Special +Limitations on ISOs . An option will constitute an ISO only if the grantee of the option is an employee of the company or any subsidiary +of the company and to the extent that the aggregate fair market value (determined at the time the option is granted) of the Shares with +respect to which all ISOs held by such grantee become exercisable for the first time during any calendar year (under the 2022 Plan and +all other plans of the grantee’s employer and its affiliates) does not exceed $100,000. This limitation will be applied by taking +options into account in the order in which they were granted. +47 +Restricted +Shares and RSUs +At +the time of grant, the Compensation Committee may establish a period of time and any additional restrictions including the satisfaction +of corporate or individual performance objectives applicable to an award of Restricted Shares or RSUs. Each award of Restricted Shares +or RSUs may be subject to a different restricted period and additional restrictions. Neither Restricted Shares nor RSUs may be sold, +transferred, assigned, pledged or otherwise encumbered or disposed of during the Restricted Period or before the satisfaction of any +other applicable restrictions. Unless the Compensation Committee otherwise provides in an award agreement, holders of Restricted Shares +will have rights as stockholders, including voting and dividend rights. +Other +Stock-Based Awards +The +Compensation Committee may, in its discretion, grant other stock-based awards. The terms of other stock-based awards will be set forth +in the applicable award agreements, subject to the 2022 Plan requirements. +Performance +Awards +The +right of a grantee to exercise or receive a grant or settlement of any award, and the timing thereof, may be subject to such performance +terms conditions as may be specified by the Compensation Committee. It may use such business criteria and other measures of performance +as it may deem appropriate in establishing any performance terms or conditions. +Effect +of Certain Transactions +Adjustments +for Changes in Capitalization . If changes in our common stock occur by reason of any recapitalization, reclassification, stock split, +reverse split, combination of shares, exchange of shares, stock dividend or other distribution payable in stock, or other increase or +decrease in the common stock without receipt of consideration by our company, or if there occurs any spin-off, split-up, extraordinary +cash dividend or other distribution of assets by our company, the number and kinds of shares for which grants of awards may be made, +the number and kinds of shares for which outstanding awards may be exercised or settled, and the performance goals relating to outstanding +awards, will be equitably adjusted by the company. +Adjustments +for Certain Transactions . Except as otherwise provided in an award agreement, in the event of a corporate transaction, the 2022 Plan +and the awards will continue in effect in accordance with their respective terms, except that after a corporate transaction either (1) +each outstanding award will be treated as provided for in the agreement entered into in connection with the corporate transaction or +(2) if not so provided in such agreement, each grantee will be entitled to receive in respect of each Share subject to any outstanding +awards, upon exercise or payment or transfer in respect of any award, the same number and kind of stock, securities, cash, property, +or other consideration that each stockholder was entitled to receive in the corporate transaction in respect of one Share. Unless otherwise +determined by the Compensation Committee, such stock, securities, cash, property or other consideration will remain subject to all of +the terms and conditions (including performance criteria) that were applicable to the awards before such corporate transaction. Without +limiting the generality of the foregoing, the treatment of outstanding options and SARs under in connection with a corporate transaction +in which the consideration paid or distributed to the stockholders is not entirely shares of common stock of the acquiring or resulting +corporation may include the cancellation of outstanding options and SARs upon consummation of the corporate transaction as long as, at +the election of the Compensation Committee, (A) the holders of affected options and SARs have been given a period of at least 15 days +before the date of the consummation of the corporate transaction to exercise the options or SARs (to the extent otherwise exercisable) +or (B) the holders of the affected options and SARs are paid (in cash or cash equivalents) in respect of each Share covered by the Option +or SAR being canceled an amount equal to the excess, if any, of the per Share price paid or distributed to stockholders in the corporate +transaction (the value of any noncash consideration to be determined by the Compensation Committee) over the option price or SAR Exercise +Price, as applicable. +48 +Change +in Control. For any Awards outstanding as of the date of a change in control, either of the following provisions will apply, depending +on whether, and the extent to which, awards are assumed, converted, or replaced by the resulting entity in a change in control, unless +otherwise provided by an award agreement: +(1) +To the extent such awards are not assumed, converted or replaced by the resulting entity in the change in control, then upon the change +in control such outstanding awards that may be exercised will become fully exercisable, all restrictions with respect to such outstanding +awards, other than for performance awards, will lapse and become vested and nonforfeitable, and for any outstanding performance awards +the target payout opportunities attainable under such awards will be deemed to have been fully earned as of the change in control based +upon the greater of (A) an assumed achievement of all relevant performance goals at the “target” level or (B) the actual +level of achievement of all relevant performance goals against target as of our fiscal quarter end preceding the change in control. +(2) +To the extent such awards are assumed, converted, or replaced by the resulting entity in the change in control, if, within 24 months +after the date of the change in control, the service provider has a separation from service by us other than for cause (which may include +a separation from service by the service provider for “good reason” if provided in the applicable award agreement), then +such outstanding awards that may be exercised will become fully exercisable, all restrictions with respect to such outstanding awards, +other than for performance awards, will lapse and become vested and nonforfeitable, and for any outstanding performance awards the target +payout opportunities attainable under such awards will be deemed to have been fully earned as of the separation from service based on +the greater of an assumed achievement of all relevant performance goals at the “target” level or the actual level of achievement +of all relevant performance goals against target as of our fiscal quarter end preceding the change in control. +Term +of Plan . Unless earlier terminated by the Board of Directors or the Compensation Committee, the authority to make grants under the +2022 Plan will terminate on the tenth anniversary of the 2022 Plan’s effective date. +Employee +Benefits +All +of our full-time employees are eligible to participate in health and welfare plans maintained by us, including: +● +medical, +dental and vision benefits; and +● +basic +life and accidental death & dismemberment insurance. +Our +NEOs participate in these plans on the same basis as other eligible employees. We do not maintain any supplemental health and welfare +plans for our NEOs. +Nonqualified +Deferred Compensation +Our +NEOs did not earn any nonqualified deferred compensation benefits from us during the years 2023 and 2024. +Director +Compensation +Our +employee directors did not receive any compensation for serving as a member of our board of directors during the year ended December +31, 2024. We plan to implement a compensation plan for our non-employee directors, such that non-employee directors will receive an +annual cash retainer and/or an annual grant of stock options. Our committee chairpersons will receive certain additional retainer fees. +Directors +will be reimbursed for travel, food, lodging and other expenses directly related to their activities as directors, including expenses +incurred in attending board meetings. Directors are also entitled to the protection provided by their indemnification agreements and +the indemnification provisions in our current certificate of incorporation and bylaws, as well as the amended and restated certificate +of incorporation. +49 +Item +12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters +The +following table sets forth information regarding the beneficial ownership of shares of our voting securities as of March 20, 2025, based +on information obtained from the persons named below, with respect to the beneficial ownership of ordinary shares, by: +● +each +person known by us to be the beneficial owner of more than 5% of our outstanding ordinary shares; +● +each +of our executive officers and directors that beneficially owns our ordinary shares; and +● +all +our executive officers and directors as a group. +In +the table below, percentage ownership is based on 1,332,145 shares of our Class A Common Stock and 100,000 of our Class B Common Stock +issued and outstanding as of March 20, 2025. +Unless +otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all ordinary +shares beneficially owned by them. The following table does not reflect record or beneficial ownership of the private placement warrants +or rights as these warrants and rights are not exercisable or convertible within 60 days of the date of this Report. +Unless +otherwise indicated, the address of each individual listed in this table is c/o Yoshiharu Global Co., 6940 Beach Blvd. Suite D-705, Buena +Park, CA 90621. +Name of Beneficial +Owner +Number +of Class A Shares Beneficially Owned (1) +Percent +of Class A Common Stock Outstanding (2) +Number +of Class B Shares Beneficially Owned (1) +Percent +of Class B Common Stock Outstanding (2) +Percent +of Total Voting Power (2)(3) +James Chae +617,100 +46.32 % +100,000 +100.00 % +69.34 % +Soojae Ryan Cho +1,400 +* +- +- +* +Jay Kim** +10,000 +* +- +- +* +Harinne Kim +2,500 +* +- +- +* +Yusil Yeo +1,000 +* +- +- +* +All +NEOs and Directors as a Group (5 persons) +632,000 +47.44 % +100,000 +100.00 % +69.98 % +* +Beneficial +ownership of less than 1.0% is omitted. +** +Amicably resigned on February 13, 2025. +(1) +A +person is considered to beneficially own any shares: (i) over which such person, directly or indirectly, exercises sole or shared +voting or investment power, or (ii) of which such person has the right to acquire beneficial ownership at any time within 60 days +(such as through exercise of stock options or warrants). Unless otherwise indicated, voting and investment power relating to the +shares shown in the table for our directors and executive officers is exercised solely by the beneficial owner or shared by the owner +and the owner’s spouse or children. +(2) +Shares +of our Common Stock issuable upon the conversion of our Class B common stock are deemed outstanding for purposes of computing +the percentage shown above. In addition, for purposes of this table, a person or group of persons is deemed to have “beneficial +ownership” of any shares of Common Stock that such person has the right to acquire within 60 days after the date of this prospectus. +For purposes of computing the percentage of outstanding shares of our Common Stock held by each person or group of persons named +above, any shares that such person or persons has the right to acquire within 60 days after the date of this prospectus is deemed +to be outstanding but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. +The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership. +(3) +Our +Class B Common Stock has 10 votes per share, while our Class A Common Stock has one vote per share. +From +time to time, the number of our shares held in the “street name” accounts of various securities dealers for the benefit of +their clients or in centralized securities depositories may exceed 5% of the total shares of our Common Stock outstanding. +Securities +Authorized for Issuance under Equity Compensation Plans +None. +Changes +in Control +None. +Item +13. Certain Relationships and Related Transactions, and Director Independence +Relationship +with James Chae +In +September 2021, Yoshiharu Holdings Co. was formed by James Chae as an S corporation for the purpose of acquiring all of the equity in +each of the seven restaurant store entities which were previously founded and wholly owned directly by James Chae and all of the intellectual +property in the business held by James Chae in exchange for an issuance of 9,450,900 shares to James Chae, which constituted all of the +issued and outstanding equity in Yoshiharu Holdings Co. Such transfers were completed in the fourth quarter of 2021. +50 +Yoshiharu +Global Co. was incorporated on December 9, 2021 in Delaware by James Chae. On December 9, 2021, James Chae contributed 100% of the equity +in Yoshiharu Holdings Co. to Yoshiharu Global Co. in exchange for the issuance by Yoshiharu Global Co. of 9,450,900 shares of Class A +Common Stock to James Chae. On December 10, 2021, we redeemed 670,000 shares of Class A Common Stock from James Chae at par ($0.0001 +per share). In December 2021, we conducted a private placement solely to accredited investors and sold 670,000 shares of Class A Common +Stock at $2.00 per share, which our board of directors determined to reflect the then current fair market value of our Class A Common +Stock. We have exchanged 1,000,000 shares held by James Chae into 1,000,000 shares of Class B Common Stock immediately prior to the IPO. +Effective February 7, 2022, our board and stockholders unanimously approved the form of amended and restated certificate of incorporation, +which clarifies the automatic conversion of Class B common stock held by James Chae into Class A Common Stock, among other things, a +copy of which is attached to this Report as an exhibit. +As +of December 31, 2024, James Chae owned 100% of our outstanding Class B Common Stock (100,000 shares), and 47.46% of our Class A Common +Stock, and 70.3% of our total voting power. Our Class B common stock has ten votes per share, while our Class A Common Stock, which is +the class of stock we sold in the IPO and is the only class of stock that is publicly traded, has one vote per share. This concentrated +control could discourage others from initiating any potential merger, takeover or other change of control transaction that other stockholders +may view as beneficial. +From +time to time, the Company borrowed money from James Chae. The balance is non-interest bearing and due on demand. As of December 31, 2024 +and 2023, the balance was $732,710 and $24,176, respectively. +Included +in other assets, there is a loan to Won Zo Whittier, 100% owned by James Chae. The loan has 5 year term with no interest. As of December +31, 2024 and 2023, the balance was $100,300. +Procedures +for Approval of Related Party Transactions +Our +board of directors has adopted a written related person transaction policy, which sets forth the policies and procedures for the review +and approval or ratification of related party transactions. This policy will be administrated by our Audit Committee. These policies +provide that, in determining whether or not to recommend the initial approval or ratification of a related party transaction, the relevant +facts and circumstances available shall be considered, including, among other factors it deems appropriate, whether the interested transaction +is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and +the extent of the related party’s interest in the transaction. +Item +14 . Principal Accountant Fees and Services. +We +have appointed BCRG Group, Inc. (“BVRG”) to serve as our independent registered public accounting firm for the fiscal year +ending December 31, 2024. BCRG has served as our independent registered public accounting firm since 2024. +Fees +Billed to the Company in fiscal year 2024 and 2023 +The +following table sets forth the fees billed to us by our auditors, BCRG and BFB, for professional services rendered during the fiscal +years ended December 31, 2024 and December 31, 2023: +31-Dec-24 +31-Dec-23 +Audit fees (1) +$ 323,750 +$ 248,000 +Audit related fees (2) +— +— +Tax fees (3) +12,000 +All other fees +104,000 +Total fees +$ 323,750 +$ 364,000 +(1) +Audit +Fees — Audit fees consist of fees billed for the audit of our annual financial statements and the review of the interim consolidated +financial statements. +(2) +Audit-Related +Fees — These consisted principally of the aggregate fees related to audits that are not included Audit Fees. +(3) +Tax +Fees — Tax fees consist of aggregate fees for tax compliance and tax advice, including the review and preparation of our various +jurisdictions’ income tax returns. +Pre-Approval +Policy +Our +Audit Committee has the authority to appoint or replace our independent registered public accounting firm (subject, if applicable, to +stockholder ratification). Our Audit Committee is also responsible for the compensation and oversight of the work of the independent +registered public accounting firm (including resolution of disagreements between management and the independent registered public accounting +firm regarding financial reporting) for the purpose of preparing or issuing an audit report or related work. The independent registered +public accounting firm was engaged by, and reports directly to, our Audit Committee. +Our +Audit Committee pre-approves all audit services and permitted non-audit services (including the fees and terms thereof) to be performed +for us by our independent registered public accounting firm, subject to the de minimis exceptions for non-audit services described in +Section 10A(i)(1)(B) of the Exchange Act and Rule 2-01(c)(7)(i)(C) of Regulation S-X, provided that all such excepted services are subsequently +approved prior to the completion of the audit. We have complied with the procedures set forth above, and our Audit Committee has otherwise +complied with the provisions of its charter. +51 +PART +IV +Item +15. Exhibit and Financial Statement Schedules. +(a) +The following documents are filed as part of this Report: +(1) +Financial +Statements +Page +Report of Independent Registered Public Accounting Firm +F-1 +Consolidated Balance Sheets +F-2 +Consolidated Statements of Operations +F-3 +Consolidated Statements of Changes in Stockholders’ Equity +F-4 +Consolidated Statements of Cash Flows +F-5 +Notes to Financial Statements +F-6 +(2) +Financial +Statements Schedule +All +financial statement schedules are omitted because they are not applicable or the amounts are immaterial and not required, or the required +information is presented in the financial statements and notes beginning on F-1 on this Report. +(3) +Exhibits +We +hereby file as part of this Report the exhibits listed in the attached Exhibit Index. Exhibits which are incorporated herein by reference +are available on the SEC website at www.sec.gov. +Item +16. Form 10-K Summary +Not +applicable. +52 +Report +of Independent Registered Public Accounting Firm +To +the Board of Directors and +Stockholders +of Yoshiharu Global Co. and Subsidiaries +Opinion +on the Consolidated Financial Statements +We +have audited the accompanying consolidated balance sheets of Yoshiharu Global Co. and Subsidiaries (collectively, the “Company”) +as of December 31, 2024 and 2023, the related statements of operations, stockholders’ equity, and cash flows for the years then +ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial +statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2024 and 2023, +and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted +in the United States. +Basis +for Opinion +These +consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion +on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public +Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company +in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission +and the PCAOB. +We +conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain +reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company +is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, +we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion +on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our +audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or +fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding +the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant +estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits +provide a reasonable basis for our opinion. +Critical +Audit Matters +Critical +audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be +communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and +(2) involved our especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters. +/s/ +BCRG Group +BCRG +Group (PCAOB ID 7158 ) +We +have served as the Company’s auditor since 2024 +Irvine, +CA +March +26, 2025 +F- 1 +Yoshiharu +Global Co. and Subsidiaries +Consolidated +Balance Sheets +2024 +2023 +December +31, +2024 +2023 +ASSETS +Current Assets: +Cash +$ 1,241,036 +$ 1,462,326 +Accounts receivable +84,110 +- +Inventories +139,422 +73,023 +Total current assets +1,464,568 +1,535,349 +Non-Current Assets: +Property and equipment, +net +5,130,229 +4,092,950 +Operating lease right-of-use +asset, net +7,465,611 +5,459,708 +Intangible asset +491,223 +- +Goodwill +1,985,645 +- +Other +assets +1,035,990 +1,931,357 +Total non-current assets +16,108,698 +11,484,015 +Total +assets +$ 17,573,266 +$ 13,019,364 +LIABILITIES AND STOCKHOLDERS’ +EQUITY +Current Liabilities: +Accounts payable and +accrued expenses +$ 843,322 +$ 647,811 +Line of credit +1,000,000 +1,000,000 +Current portion of operating +lease liabilities +975,210 +572,230 +Current portion of bank +notes payables +1,366,350 +414,378 +Current portion of loan +payable, EIDL +10,924 +10,526 +Loans payable to financial +institutions +34,282 +534,239 +Due to related party +732,710 +24,176 +Other +payables +1,078,291 +65,700 +Total current liabilities +6,041,089 +3,269,060 +Operating lease liabilities, less current portion +7,324,677 +5,689,535 +Bank notes payables, less current portion +1,747,611 +991,951 +Loan payable, EIDL, less current portion +404,490 +415,339 +Notes payable to related party +600,000 +- +Convertible notes to related +party +1,200,000 +- +Total liabilities +17,317,867 +10,365,885 +Commitments and contingencies +- +- +Stockholders’ Equity +Class A Common Stock +- $ 0.0001 par value; 49,000,000 authorized shares; 1,300,197 and ; 1,230,246 shares issued and outstanding at December 31, 2024 and +December 31, 2023, respectively +130 +123 +Class B Common Stock +- $ 0.0001 par value; 1,000,000 authorized shares; 100,000 shares issued and outstanding at December 31, 2024 and December 31, 2023, +respectively +10 +10 +Common +Stock, value +10 +10 +Additional paid-in-capital +12,261,901 +11,994,119 +Accumulated +deficit +( 12,006,642 ) +( 9,340,773 ) +Total stockholders’ +equity +255,399 +2,653,479 +Total +liabilities and stockholders’ equity +$ 17,573,266 +$ 13,019,364 +See +Notes to the Consolidated Financial Statements +F- 2 +Yoshiharu +Global Co. and Subsidiaries +Consolidated +Statements of Operations +2024 +2023 +Years +Ended December 31, +2024 +2023 +Revenue: +Food +and beverage +$ 12,839,137 +$ 9,214,779 +Total revenue +12,839,137 +9,214,779 +Restaurant operating expenses: +Food, beverages and +supplies +3,363,182 +2,376,961 +Labor +4,838,325 +4,234,905 +Rent and utilities +1,770,205 +1,129,060 +Delivery and service +fees +528,632 +563,910 +Depreciation +822,318 +545,549 +Total restaurant operating +expenses +11,322,662 +8,850,385 +Net restaurant operating +income +1,516,475 +364,394 +Operating expenses: +General and administrative +3,831,676 +3,419,036 +Related party compensation +139,769 +339,740 +Advertising +and marketing +100,059 +120,872 +Total operating expenses +4,071,504 +3,879,648 +Loss from operations +( 2,555,029 ) +( 3,515,254 ) +Other income (expense): +RRF loan forgiveness +- +700,454 +Gain on disposal of +fixed asset +- +8,920 +Other income +378,621 +32,316 +Interest +( 455,224 ) +( 218,153 ) +Total other income +( 76,603 ) +523,537 +Loss before income taxes +( 2,631,632 ) +( 2,991,717 ) +Income tax provision +34,237 +48,647 +Net +loss +$ ( 2,665,869 ) +$ ( 3,040,364 ) +Loss per share: +Basic +and diluted +$ ( 1.98 ) +$ ( 2.29 ) +Weighted average number of common shares outstanding: +Basic +and diluted +1,345,756 +1,329,022 +See +Notes to the Consolidated Financial Statements +F- 3 +Yoshiharu +Global Co. and Subsidiaries +Consolidated +Statements of Stockholders’ Equity +Shares +Amount +Shares +Amount +Capital +Receivable +Deficit +(Deficit) +Additional +Stock +Total +Total +Stockholder’s +Class +A Shares +Class +B Shares +Paid-In +Subscription +Accumulated +Equity +Shares +Amount +Shares +Amount +Capital +Receivable +Deficit +(Deficit) +Balance at December 31, 2022 +1,228,846 +$ 123 +100,000 +$ 10 +$ 11,938,119 +$ - +$ ( 6,300,409 ) +$ 5,637,843 ) +Issuance of Class A Common Stock +1,400 +- +- +- +56,000 +- +- +56,000 +Net loss +- +- +- +- +- +- +( 3,040,364 ) +( 3,040,364 ) +Balance at December +31, 2023 +1,230,246 +$ 123 +100,000 +$ 10 +$ 11,994,119 +- +$ ( 9,340,773 ) +$ 2,653,479 +Balance +1,230,246 +$ 123 +100,000 +$ 10 +$ 11,994,119 +- +$ ( 9,340,773 ) +$ 2,653,479 +Issuance of Class A Common Stock +69,951 +7 +- +- +267,782 +- +- +267,789 +Net loss +- +- +- +- +- +- +( 2,665,869 ) +( 2,665,869 ) +Balance at December +31, 2024 +1,300,197 +$ 130 +100,000 +$ 10 +$ 12,261,901 +- +$ ( 12,006,642 ) +$ 255,399 +Balance +1,300,197 +$ 130 +100,000 +$ 10 +$ 12,261,901 +- +$ ( 12,006,642 ) +$ 255,399 +See +Notes to the Consolidated Financial Statements +F- 4 +Yoshiharu +Global Co. and Subsidiaries +Consolidated +Statements of Cash Flows +2024 +2023 +Years +ended December 31, +2024 +2023 +Cash flows from operating +activities: +Net loss +$ ( 2,665,869 ) +$ ( 3,040,364 ) +Adjustments to reconcile net loss to net cash +used in operating activities: +Depreciation +822,318 +545,549 +Amortization +39,828 +Gain on disposal of +fixed asset +- +( 8,920 ) +RRF loan forgiveness +- +( 700,454 +Changes in assets and +liabilities: +Accounts Receivable +( 84,110 ) +- +Inventories +( 53,614 ) +( 12,124 ) +Other assets +896,567 +( 1,252,669 ) +Accounts payable and +accrued expenses +198,979 +( 33,915 +Due to related party +708,534 +( 148,544 +Other +payables +1,012,591 +59,785 +Net cash provided by (used +in) operating activities +875,224 +( 4,591,656 +Cash flows from investing +activities: +Purchases of property +and equipment +( 761,527 ) +( 1,471,151 ) +Acquisition +of LV entities +( 1,800,000 ) +Net cash used in investing +activities +( 2,561,527 ) +( 1,471,151 ) +Cash flows from financing +activities: +Advance from line of +credit +- +700,000 +Proceeds from borrowings +for acquisition of LV entities +900,000 +- +Proceeds from borrowings +1,230,980 +812,000 +Repayments on bank notes +payables +( 433,799 ) +( 715,892 ) +Proceeds from loan payable +to financial institutions +- +595,400 +Repayment of loan payable +to financial institutions +( 499,957 ) +( 61,161 +Proceeds +from sale of common shares +267,789 +56,000 +Net cash provided by financing +activities +1,465,013 +1,386,347 +Net decrease in cash +( 221,290 ) +( 4,676,460 +Cash – beginning of period +1,462,326 +6,138,786 +Cash – end of period +$ 1,241,036 +$ 1,462,326 +Supplemental disclosures +of non-cash financing activities: +Note payable to related +party – acquisition of LV entities (seller carry) +$ 600,000 +$ - +Convertible notes to +related party +1,200,000 +- +Supplemental disclosures +of cash flow information +Cash paid during the +years for: +Interest +$ 443,487 +$ 218,153 +Income +taxes +$ 34,237 +$ 48,647 +See +Notes to the Consolidated Financial Statements +F- 5 +YOSHIHARU +GLOBAL CO. +NOTES +TO CONSOLIDATED FINANCIAL STATEMENTS +1. +NATURE OF OPERATIONS +Yoshiharu +Global Co. (“Yoshiharu”) was incorporated in the State of Delaware on December 9, 2021. Yoshiharu did not have significant +transactions since formation. Yoshiharu has the following wholly owned subsidiaries: +SCHEDULE OF WHOLLY OWNED SUBSIDIARIES +Name +Date +of Formation +Description +of Business +Global +JJ Group, Inc. (“JJ”) +January +8, 2015 +Ramen +stores located in Orange, California and Buena Park, California. +Global +AA Group, Inc. (“AA”) +July +21, 2016 +Ramen +store located in Whittier, California. +Global +BB Group, Inc. (“BB”) +May +19, 2017 +Ramen +store located in Chino Hills, California. +Global +CC Group, Inc. (“CC”) +September +23, 2019 +Ramen +stores located in Eastvale, California and Corona, California. +Global +DD Group, Inc. (“DD”) +December +19, 2019 +Ramen +store located in La Mirada, California. +Yoshiharu +Irvine (“YI”) +December +4, 2020 +Ramen +store located in Irvine, California. +Yoshiharu +Cerritos (“YC”) +January +21, 2021 +Ramen +store located in Cerritos, California. +Yoshiharu +Clemente (“YCT”) +May +2, 2022 +Ramen +store opened on October 31, 2024 in San Clemente, California. +Yoshiharu +Laguna (“YL”) +May +2, 2022 +Ramen +store located in Laguna, California. +Yoshiharu +Ontario (“YO”) +May +2, 2022 +Ramen +store to be opened in Ontario, California. +Yoshiharu +Menifee (“YM”) +May +2, 2022 +Ramen +store to be opened in Menifee, California. +Yoshiharu +Las Vegas (“YLV”) +Sep +21, 2023 +Ramen +store and Izakaya stores in Las Vegas, Nevada +Yoshiharu +Garden Grove (“YG”) +July +27, 2022 +Ramen +store located in Garden Grove, California. +The +Company owns restaurants specializing in Japanese ramen and other Japanese cuisines. The Company offers a variety of Japanese ramens, +rice bowls, and appetizers. Unless otherwise stated or the context otherwise requires, the terms “Yoshiharu” “we,” +“us,” “our” and the “Company” refer collectively to Yoshiharu and, where appropriate, its subsidiaries. +Prior +to September 30, 2021, the Yoshiharu business (the “Business”) consisted of the first seven separate entities listed above +(collectively, the “Entities”), each wholly owned by James Chae (“Mr. Chae”), and each holding one (1) store, +except for JJ, which held two stores and the Business’s intellectual property (the “IP”). Effective October 2021, JJ +transferred the IP to Mr. Chae. Effective October 2021, Mr. Chae contributed 100 % of the equity interests in each of the Entities to +Yoshiharu Holdings Co., a California corporation (“Holdings”), for purposes of consolidating the Business operations into +a single entity. Mr. Chae was issued an aggregate 3,205,000 shares in Holdings, which reflected the aggregate number of shares originally +issued to Mr. Chae by the Entities, in exchange for 100 % of each Entity (on a 1 for 1 share exchange basis). In addition, effective October +2021, Mr. Chae transferred the IP to Holdings in exchange for the issuance of 6,245,900 shares in Holdings in order to bring his total +shareholdings in Holdings up to an aggregate 9,450,900 shares. +On +December 9, 2021, Yoshiharu completed a share exchange agreement whereby Mr. Chae, the sole stockholder of Holdings, received 9,450,900 +shares of Yoshiharu, representing 100 % of issued shares at that time, and Yoshiharu received all of the shares of Holdings. This recapitalization +was accounted for in accordance with the “Transactions Between Entities Under Common Control” subsections of Accounting Standards +Codification (“ASC”) 805-50, Business Combinations, which requires that the receiving entity recognize the net assets received +at their historical carrying amounts. A common-control transaction has no effect on the parent’s consolidated financial statements. +No value was ascribed to the shares issued for the transfer of the IP since the only relevance of the aggregate number of shares issued +to Mr. Chae in Holdings was to effect the 1 for 1 share exchange with Yoshiharu upon its incorporation in Delaware. ASC 805-50 also prescribes +that, if the recognition of the net assets results in a “change in the reporting entity,” the receiving entity presents the +transfer in its separate financial statements retrospectively. Accordingly, the assets and liabilities and the historical operations +that are reflected in these consolidated financial statements are those of the subsidiaries and are recorded at the historical cost basis +of the subsidiaries. +On +November 22, 2023, Yoshiharu Global Co. (the “Company”) filed a Certificate of Amendment (the “Certificate of Amendment”) +to the Company’s Amended and Restated Certificate of Incorporation to effect a reverse stock split of its issued Class A common +stock, par value $ 0.0001 per share (“Class A Common Stock”) and Class B common stock, par value $ 0.0001 per share (“Class +B Common Stock” and, together with Class A common Stock, “Common Stock”), in the ratio of 1-for-10 (the “Reverse +Stock Split”) to be effective at 11:59 p.m. eastern on November 27, 2023. The Common Stock began trading on a split-adjusted basis +at the market open on Tuesday, November 28, 2023. +No +fractional shares were issued as a result of the Reverse Stock Split. Instead, any fractional shares that would have resulted from the +Reverse Stock Split were rounded up to the next whole number. As a result, total of 34,846 shares of Class A common stock were issued +and total of 1,230,246 shares of Class A common stock were outstanding as of December 31, 2023. The Reverse Stock Split affects all stockholders +uniformly and did not alter any stockholder’s percentage interest in the Company’s outstanding Common Stock, except for adjustments +that may result from the treatment of fractional shares. The number of authorized shares of Common Stock of the Company and number of +authorized shares of the Class B common stock of the Company were not changed. +F- 6 +NOTES +TO CONSOLIDATED FINANCIAL STATEMENTS +2. +SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Basis +of Presentation and Consolidation +The +accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) +as promulgated in the United States of America. The consolidated financial statements include Yoshiharu and its wholly owned subsidiaries +listed in Note 1 above as of December 31, 2024 and December 31, 2023 and for the years then ended. All intercompany accounts, transactions, +and profits have been eliminated upon consolidation. +YLV +Acquisition +On +June 12, 2024, the Company consummated the acquisition of assets of three restaurant entities (Jjanga, HJH, and Aku) for an aggregate +$ 3.6 million, consisting of $ 1.8 million in cash, a $ 600,000 promissory note, and a $ 1.2 million convertible note. +Use +of Estimates and Assumptions +The +preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that +affect the amounts reported in our consolidated financial statements and the accompanying notes. Such estimates include accounts receivables, +accrued liabilities, income taxes, long-lived assets, and deferred tax valuation allowances. These estimates generally involve complex +issues and require management to make judgments, involve analysis of historical and future trends that can require extended periods of +time to resolve, and are subject to change from period to period. In all cases, actual results could differ materially from estimates. +Marketing +Marketing +costs are charged to expense as incurred. Marketing costs were approximately $ 100,000 and $ 121,000 for the years ended December 31, 2024 +and 2023, respectively, and are included in operating expenses in the accompanying consolidated statements of income. +Delivery +Fees Charged by Delivery Service Providers +The +Company’s customers may order online through third party service providers such as Uber Eats, Door Dash, and others. These third-party +service providers charge delivery and order fees to the Company. Such fees are expensed when incurred. Delivery fees are included in +delivery and service fees in the accompanying consolidated statements of operations. +Revenue +Recognition +The +Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. The Company’s net revenue primarily +consists of revenues from food and beverage sales. Revenues from the sale of food items by Company-owned restaurants are recognized as +Company sales when a customer receives the food that they purchased, which is when our obligation to perform is satisfied. The timing +and amount of revenue recognized related to Company sales was not impacted by the adoption of ASC 606. +F- 7 +NOTES +TO CONSOLIDATED FINANCIAL STATEMENTS +2. +SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) +Inventories +Inventories, +which are stated at the lower of cost or net realizable value, consist primarily of perishable food items and supplies. Cost is determined +using the first-in, first out method. +Segment +Reporting +ASC +280, Segment Reporting, requires public companies to report financial and descriptive information about their reportable operating segments. +The Company identifies its operating segments based on how executive decision makers internally evaluates separate financial information, +business activities and management responsibility. Accordingly, the Company has one reportable segment, consisting of operating its stores. +Property +and Equipment +Property +and equipment are stated at cost less accumulated depreciation and amortization. Major improvements are capitalized, and minor replacements, +maintenance and repairs are charged to expense as incurred. Depreciation and amortization are calculated on the straight-line basis over +the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the estimated useful life or the lease +term of the related asset. The estimated useful lives are as follows: +SCHEDULE OF PROPERTY AND EQUIPMENT ESTIMATED USEFUL LIVES +Furniture +and equipment +5 +to 7 years +Leasehold +improvements +Shorter +of estimated useful life or term of lease +Vehicles +5 +years +Goodwill +and Intangible Assets +Goodwill +and certain intangible assets were recorded in connection with the YLV asset acquisition in April 2024, and were accounted for in accordance +with ASC 805, “Business Combinations.” Goodwill represents the excess of the purchase price over the fair value of the tangible +and intangible net assets acquired. Intangible assets are recorded at their fair value at the date of acquisition. Goodwill and other +intangible assets are accounted for in accordance with ASC 350, “Goodwill and Other Intangible Assets.” Goodwill and other +intangible assets are tested for impairment at least annually and any related impairment losses are recognized in earnings when identified. +No impairment was recognized during the year ended December 31, 2024. +Income +Taxes +The +accounting standard on accounting for uncertainty in income taxes addresses the determination of whether tax benefits claimed or expected +to be claimed on a tax return should be recorded in the financial statements. Under that guidance, the Company may recognize the tax +benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing +authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position +are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company +had no unrecognized tax benefits identified or recorded as liabilities as of December 31, 2023. +Impairment +of Long-Lived Assets +When +circumstances, such as adverse market conditions, indicate that the carrying value of a long-lived asset may be impaired, the Company +performs an analysis to review the recoverability of the asset’s carrying value, which includes estimating the undiscounted cash +flows (excluding interest charges) from the expected future operations of the asset. These estimates consider factors such as expected +future operating income, operating trends and prospects, as well as the effects of demand, competition and other factors. If the analysis +indicates that the carrying value is not recoverable from future cash flows, an impairment loss is recognized to the extent that the +carrying value exceeds the estimated fair value. Any impairment losses are recorded as operating expenses, which reduce net income. +F- 8 +NOTES +TO CONSOLIDATED FINANCIAL STATEMENTS +2. +SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) +Fair +Value of Financial Instruments +The +Company utilizes ASC 820-10, Fair Value Measurement and Disclosure, for valuing financial assets and liabilities measured on a recurring +basis. Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability +in an orderly transaction between market participants as of the measurement date. The guidance also establishes a hierarchy for inputs +used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that +the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or +liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that +reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance +establishes three levels of inputs that may be used to measure fair value: +Level +1. Observable inputs such as quoted prices in active markets; +Level +2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and +Level +3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. +The +Company’s financial instruments consisted of cash, operating lease right-of-use assets, net, accounts payable and accrued expenses, +notes payables, and operating lease liabilities. The estimated fair value of cash, operating lease right-of-use assets, net, and notes +payables approximate its carrying amount due to the short maturity of these instruments. +Leases +In +accordance with ASC 842, Leases, the Company determines whether an arrangement contains a lease at inception. A lease is a contract that +provides the right to control an identified asset for a period of time in exchange for consideration. For identified leases, the Company +determines whether it should be classified as an operating or finance lease. Operating leases are recorded in the balance sheet as: right-of-use +asset (“ROU asset”) and operating lease liability. An ROU asset represents the Company’s right to use an underlying +asset for the lease term and an operating lease liability represents the Company’s obligation to make lease payments arising from +the lease. ROU assets and operating lease liabilities are recognized at the commencement date of the lease and measured based on the +present value of lease payments over the lease term. The ROU asset also includes deferred rent liabilities. The Company’s lease +arrangement generally does not provide an implicit interest rate. As a result, in such situations the Company uses its incremental borrowing +rate based on the information available at commencement date in determining the present value of lease payments. The Company includes +options to extend or terminate the lease when it is reasonably certain that it will exercise that option in the measurement of its ROU +asset and operating lease liability. Lease expense for the operating lease is recognized on a straight-line basis over the lease term. +The Company has a lease agreement with lease and non-lease components, which are accounted for as a single lease component. +Recent +Accounting Pronouncements +The +Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of +any such pronouncements may be expected to cause a material impact on our financial statements. +F- 9 +NOTES +TO CONSOLIDATED FINANCIAL STATEMENTS +3. +ACQUISITION UNDER ASSET PURCHASE +On +June 12, 2024, the Company consummated the closing of the transactions contemplated by an Asset Purchase Agreement (“APA”) +with Mr. Jihyuck Hwang (“Seller”)(see Note 9 Related Party Transactions) via the Company’s wholly owned subsidiary, +Yoshiharu Las Vegas (“YLV”). The APA provided for the purchase of specific assets of the three restaurant businesses, including +inventory, security deposits, fixed assets and lease assignment effective as of April 20, 2024. The Company considered the guidance in +ASC 805, Business Combinations, and determined the transaction was an asset acquisition. As a result, the estimated fair value of the +assets acquired, and amount of liabilities assumed are included in the accompanying balance sheet as of September 30, 2024. The three +restaurants consist of one Japanese ramen restaurant, and two Izakaya style restaurants offering sushi & steak along with Japanese +ramen. +The +condensed consolidated financial statements include the results of the YLV from the date of acquisition. The purchase price has been +allocated based on estimated fair values as of the acquisition date. The purchase price was allocated as follows: +SCHEDULE OF PURCHASE PRICE ALLOCATED +Preliminary Purchase Price +April +20, 2024 +Cash +$ 900,000 +Promissory note to Seller +600,000 +Bank notes payables +900,000 +Convertible note to Seller +1,200,000 +Total purchase price +$ 3,600,000 +Preliminary Purchase Price Allocation +Fixed assets +$ 1,098,070 +Inventory and other assets +13,985 +Operating lease right-of-use asset, net +1,409,288 +Goodwill +1,985,645 +Intangible assets +531,051 +Operating lease liabilities +( 1,438,039 ) +Acquired assets, net +$ 3,600,000 +The +purchase price allocation has been prepared on a preliminary basis based on the information that was available to the Company at the +time the condensed consolidated financial statements were prepared, and revisions to the preliminary purchase price allocation may result +as additional information becomes available. +In +determining the purchase price allocation, management considered, among other factors, the Company’s intention to use the acquired +assets. The intangible assets are being amortized based upon the pattern in which the economic benefits of the intangible assets are +being utilized, with no expected residual value. +4. +INTANGIBLE ASSETS +Intangible +assets consisted of the following: +SCHEDULE OF INTANGIBLE ASSETS +Life +Average +Remining +Life +December +31, +2024 +April +20, +2024 +Brand & non-compete +10 +years +9.5 +years +$ 531,051 +$ 531,051 +Less – accumulated +amortization +( 39,828 ) +- +Total intangible assets, +net +$ 491,223 +$ 531,051 +Estimated +future amortization of intangible assets is as follows: +SCHEDULE OF ESTIMATED FUTURE AMORTIZATION OF INTANGIBLE ASSETS +Years +ending December 31, +Amount +2025 +$ 53,105 +2026 +53,105 +2027 +53,105 +2028 +53,105 +2029 +53,105 +Thereafter +225,698 +Total +$ 491,223 +Amortization +expense on intangible assets amounted to $ 39,828 and $ 0 for the year ended December 31, 2024 and 2023. +F- 10 +NOTES +TO CONSOLIDATED FINANCIAL STATEMENTS +5. +PROPERTY AND EQUIPMENT +Property +and equipment consisted of the following: +SCHEDULE OF PROPERTY AND EQUIPMENT +December +31 +December +31, +2024 +2023 +Leasehold Improvements +$ 5,401,651 +$ 4,447,705 +Furniture and equipment +1,808,387 +902,736 +Vehicles +438,521 +438,521 +Total property and equipment +7,648,559 +5,788,962 +Accumulated depreciation +( 2,518,330 ) +( 1,696,012 ) +Total +property and equipment, net +$ 5,130,229 +$ 4,092,950 +Total +depreciation was $ 822,318 and $ 545,549 and for the years ended December 31, 2024 and 2023, respectively. +6. +OTHER ASSETS +Other +assets consisted of the following: +SCHEDULE OF OTHER ASSETS +December +31 +December +31, +2024 +2023 +Escrow deposit to acquire assets +from Las Vegas restaurants +$ - +$ 729,352 +Security deposits +182,531 +209,844 +Tenant improvement receivable +300,270 +370,335 +Loan to Won Zo Whittier +100,300 +100,300 +Others +452,889 +521,526 +Total +other assets +$ 1,035,990 +$ 1,931,357 +7. +LINE OF CREDIT +The +Company has a $ 1,000,000 bank line of credit. The line bears fixed interest rate at 5.35 % per annum. It is secured by a $ 1,000,000 certificate +of deposit at the same bank. The line of credit expires in December 2025 . The Company is in compliance with certain non-financial covenants +imposed by the line of credit agreement. The outstanding balance was $ 1,000,000 at December 31, 2024 and 2023, respectively. +8. +BANK NOTES PAYABLES +SCHEDULE OF BANK NOTES PAYABLE +December +31, +December +31, +2024 +2023 +November 27, 2018 ($ 780,000 ) - JJ +$ 209,090 +$ 331,022 +September 14, 2021 ($ 197,000 ) - CC +155,976 +164,418 +April 22, 2022 ($ 195,000 ) - Cerritos +165,430 +174,492 +May 22, 2023 ($ 138,000 ) - BB +98,215 +121,951 +May 22, 2023 ($ 196,000 ) - CC +139,464 +173,169 +May 22, 2023 ($ 178,000 ) - DD +127,497 +158,309 +September 13, 2023 ($ 150,000 ) - Garden Grove +116,073 +141,484 +September 13, 2023 ($ 150,000 ) - Laguna +116,073 +141,484 +March 22, 2024 ($ 150,000 ) - YM +131,563 +- +March 22, 2024 ($ 150,000 ) - YCT +131,563 +- +December 20, 2024 ($ 250,000 ) - Ontario +250,000 +- +January 30, 2024 ($ 650,000 ) - Yoshiharu +650,000 +- +June 4, 2024 ($ 900,000 ) – YLV +823,017 +- +Total bank notes payables +3,113,961 +1,406,329 +Less - current portion +( 1,366,350 ) +( 414,378 ) +Total bank notes payables, +less current portion +$ 1,747,611 +$ 991,951 +The +following table provides future minimum payments as of December 31, 2024: +SCHEDULE OF FUTURE MINIMUM PAYMENTS +For +the years ended +Amount +2025 +$ 1,366,350 +2026 +507,260 +2027 +507,260 +2028 +409,267 +2029 +135,462 +Thereafter +188,362 +Total +$ 3,113,961 +F- 11 +NOTES +TO CONSOLIDATED FINANCIAL STATEMENTS +8. +BANK NOTES PAYABLES (Continued) +November +27, 2018 – $780,000 – Global JJ Group, Inc. +On +November 27, 2018, Global JJ Group, Inc. (the “JJ”) executed the standard loan documents required for securing a loan of +$ 780,000 from the SBA, with proceeds to be used for working capital purposes. As of December 31, 2024 and December 31, 2023, the balance +of the loan is $ 209,090 and $ 331,022 , respectively. +Pursuant +to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based +on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on +funds actually advanced from the date of each advance. The loan requires a payment of $ 12,519.51 per month which includes principal and +interest with an interest rate of 8.50 % per year. The balance of principal and interest is payable on December 1, 2025. +September +14, 2021 – $197,000 – Global CC Group, Inc. +On +September 14, 2021, the CC executed the standard loan documents required for securing a loan of $ 197,000 from the SBA, with proceeds +to be used for working capital purposes. As of December 31, 2024 and 2023, the balance of the loan is $ 155,976 and $ 164,418 , respectively. +Pursuant +to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based +on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on +funds actually advanced from the date of each advance. The loan requires a payment of $ 3,393.01 per month which includes principal and +interest with an interest rate of 9.50 %. The balance of principal and interest is payable on August 9, 2029. +F- 12 +NOTES +TO CONSOLIDATED FINANCIAL STATEMENTS +8. +BANK NOTES PAYABLES (Continued) +April +22, 2022– $195,000 – Yoshiharu Cerritos. +On +April 22, 2022, Yoshiharu Cerritos (the “YC”) executed the standard loan documents required for securing a loan of $ 195,000 +from the SBA, with proceeds to be used for working capital purposes. As of December 31, 2024 and December 31, 2023, the balance of the +loan is $ 165,430 and $ 174,492 , respectively. +Pursuant +to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based +on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on +funds actually advanced from the date of each advance. The loan requires a payment of $ 0 per month which includes principal and interest +with an interest rate of 8.50 %. The balance of principal and interest is payable on August 9, 2029. +May +22, 2023– $138,000 – Global BB Group, Inc. +On +May 22, 2023, Global BB Group, Inc. (the “BB”) executed the standard loan documents required for securing a loan of $ 138,000 +from a commercial bank, with proceeds to be used for working capital purposes. With the proceeds, BB paid off the existing SBA loan borrowed +by Global AA Group, Inc on September 17, 2017. As of December 31, 2024 and December 31, 2023, the balance of the loan is $ 98,215 and +$ 121,951 , respectively. +Pursuant +to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based +on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on +funds actually advanced from the date of each advance. The loan requires a payment of $ 2,856.81 per month which includes principal and +interest with an interest rate of 8.75 %. The balance of principal and interest is payable on April 1, 2028. +May +22, 2023– $196,000 – Global CC Group, Inc. +On +May 22, 2023, Global CC Group, Inc. (the “CC”) executed the standard loan documents required for securing a loan of $ 196,000 +from a commercial bank, with proceeds to be used for working capital purposes. With the proceeds, CC paid off the existing SBA loan borrowed +by CC on February 13, 2020. As of December 31, 2024 and December 31, 2023, the balance of the loan is $ 139,464 and $ 173,169 , respectively. +Pursuant +to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based +on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on +funds actually advanced from the date of each advance. The loan requires a payment of $ 4,056.63 per month which includes principal and +interest with an interest rate of 8.75 %. The balance of principal and interest is payable on April 1, 2028. +May +22, 2023– $178,000 – Global DD Group, Inc. +On +May 22, 2023, Global DD Group, Inc. (the “DD”) executed the standard loan documents required for securing a loan of $ 178,000 +from a commercial bank, with proceeds to be used for working capital purposes. With the proceeds, DD paid off the existing SBA loan borrowed +by DD on September 15, 2021. As of September 30, 2024 and December 31, 2023, the balance of the loan is $ 127,497 and $ 158,309 , respectively. +Pursuant +to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based +on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on +funds actually advanced from the date of each advance. The loan requires a payment of $ 3,708.53 per month which includes principal and +interest with an interest rate of 8.75 %. The balance of principal and interest is payable on April 1, 2028. +F- 13 +NOTES +TO CONSOLIDATED FINANCIAL STATEMENTS +8. +BANK NOTES PAYABLES (Continued) +September +13, 2023– $150,000 – Yoshiharu Garden Grove +On +September 13, 2023, Yoshiharu Garden Grove (the “YG”) executed the standard loan documents required for securing a loan of +$ 150,000 from a commercial bank, with proceeds to be used for working capital purposes. As of December 31, 2024 and December 31, 2023, +the balance of the loan is $ 116,073 and $ 141,484 , respectively. +Pursuant +to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based +on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on +funds actually advanced from the date of each advance. The loan requires a payment of $ 3,099.85 per month which includes principal and +interest with an initial interest rate of 8.50 %. The balance of principal and interest is payable on August 29, 2028. +September +13, 2023– $150,000 – Yoshiharu Laguna +On +September 13, 2023, Yoshiharu Laguna (the “YL”) executed the standard loan documents required for securing a loan of $ 150,000 +from a commercial bank, with proceeds to be used for working capital purposes. As of December 31, 2024 and December 31, 2023, the balance +of the loan is $ 116,073 and $ 141,484 , respectively. +Pursuant +to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based +on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on +funds actually advanced from the date of each advance. The loan requires a payment of $ 3,099.85 per month which includes principal and +interest with an initial interest rate of 8.50 %. The balance of principal and interest is payable on August 29, 2028. +March +22, 2024– $150,000 – Yoshiharu Menifee +On +March,22, 2024, Yoshiharu Menifee (the “YM”) executed the standard loan documents required for securing a loan of $ 150,000 +from a commercial bank, with proceeds to be used for working capital purposes. As of December 31, 2024 and December 31, 2023, the balance +of the loan is $ 131,563 and $ 0 , respectively. +Pursuant +to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based +on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on +funds actually advanced from the date of each advance. The loan requires a payment of $ 3,106.16 per month which includes principal and +interest with an initial interest rate of 8.50 %. The balance of principal and interest is payable on March 22, 2029. +March +22, 2024– $150,000 – Yoshiharu San Clemente +On +March,22, 2024, Yoshiharu San Clemente (the “YCT”) executed the standard loan documents required for securing a loan of $ 150,000 +from a commercial bank, with proceeds to be used for working capital purposes. As of December 31, 2024 and December 31, 2023, the balance +of the loan is $ 131,563 and $ 0 , respectively. +Pursuant +to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based +on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on +funds actually advanced from the date of each advance. The loan requires a payment of $ 3,106.16 per month which includes principal and +interest with an initial interest rate of 8.50 %. The balance of principal and interest is payable on March 22, 2029. +January +30, 2024– $650,000 – Yoshiharu +On +January 30, 2024, Yoshiharu Global Co. (the “Yoshiharu”) executed the standard loan documents required for securing a loan +of $ 500,000 from a commercial bank, with proceeds to be used for working capital purposes. On August 16, 2024, Yoshiharu borrowed additional +$ 150,000 from the commercial bank for working capital purpose. As of December 31, 2024 and December 31, 2023, the balance of the loan +is $ 650,000 and $ 0 , respectively. +Pursuant +to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based +on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on +funds actually advanced from the date of each advance. The loan requires a payment of $ 4,703.47 per month which includes interest with +an initial interest rate of 8.50 %. The balance of principal and interest is payable on August 16, 2025. +June +4, 2024– $900,000 – Yoshiharu Las Vegas +On +June 4, 2024, Yoshiharu Las Vegas (the “YLV”) executed the standard loan documents required for securing a loan of $ 900,000 +from a commercial bank, with proceeds to be used to acquire certain assets of three restaurants in Las Vegas. As of December 31, 2024 +and December 31, 2023, the balance of the loan is $ 823,017 and $ 0 , respectively. +Pursuant +to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based +on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on +funds actually advanced from the date of each advance. The loan requires a payment of $ 20,333.87 per month which includes principal and +interest with an initial interest rate of 8.50 %. The balance of principal and interest is payable on December 6, 2028. +F- 14 +NOTES +TO CONSOLIDATED FINANCIAL STATEMENTS +9. +LOAN PAYABLES, EIDL +SCHEDULE OF LOAN PAYABLES - EIDL +December +31, +December +31, +2024 +2023 +June +13, 2020 ($ 150,000 - EIDL) - AA +$ +138,616 +$ +142,104 +June +13, 2020 ($ 150,000 - EIDL) - BB +138,661 +142,119 +July +15, 2020 ($ 150,000 - EIDL) - JJ +138,137 +141,642 +Total +loans payables, EIDL +415,414 +425,865 +Less +- current portion +( 10,924 +) +( 10,526 +) +Total +loans payables, EIDL, less current portion +$ +404,490 +$ +415,339 +The +following table provides future minimum payments as of December 31, 2024: +SCHEDULE OF FUTURE MINIMUM PAYMENT +For +the years ended +Amount +2025 +$ 10,924 +2026 +11,341 +2027 +11,774 +2028 +12,223 +2029 +12,689 +Thereafter +356,463 +Total +$ 415,414 +June +13, 2020 – $150,000 – Global AA Group, Inc. +On +June 13, 2020, Global AA Group, Inc. (the “AA”) executed the standard loan documents required for securing a loan (the “EIDL +Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the +COVID-19 pandemic on the AA’s business. +Pursuant +to that certain Loan Authorization and Agreement, the AA borrowed an aggregate principal amount of the AA EIDL Loan of $ 150,000 , with +proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75 % per annum and will accrue only on funds actually +advanced from the date of each advance. installment payments, including principal and interest, are due monthly since May 14, 2021 (twelve +months from the date of the AA EIDL Loan) in the amount of $ 731 . The balance of principal and interest is payable thirty years from the +date of the AA EIDL Loan. In connection therewith, the AA also received a $ 10,000 grant, which does not have to be repaid. +In +connection therewith, the AA executed (i) a loan for the benefit of the SBA, which contains customary events of default and (ii) a security +agreement, granting the SBA a security interest in all tangible and intangible personal property of the AA, which also contains customary +events of default. +June +13, 2020 – $142,119 – Global BB Group, Inc. +On +June 13, 2020, Global BB Group, Inc. (the “BB”) executed the standard loan documents required for securing an EIDL loan (the +“BB EIDL Loan”) from the SBA in light of the impact of the COVID-19 pandemic on the BB’s business. +F- 15 +NOTES +TO CONSOLIDATED FINANCIAL STATEMENTS +9. +LOAN PAYABLES, EIDL (Continued) +Pursuant +to that certain Loan Authorization and Agreement, the BB borrowed an aggregate principal amount of the BB EIDL Loan of $ 150,000 , with +proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75 % per annum and will accrue only on funds actually +advanced from the date of each advance. Installment payments, including principal and interest, are due monthly since May 14, 2021 (twelve +months from the date of the BB EIDL Loan) in the amount of $ 731 . The balance of principal and interest is payable thirty years from the +date of the BB EIDL Loan. In connection therewith, the BB also received a $ 10,000 grant, which does not have to be repaid. +In +connection therewith, the BB executed (i) a loan for the benefit of the SBA, which contains customary events of default and (ii) a security +agreement, granting the SBA a security interest in all tangible and intangible personal property of the BB, which also contains customary +events of default. +July +15, 2020 – $150,000 – Global JJ Group, Inc. +On +July 15, 2020, Global JJ Group, Inc. (the “JJ”) executed the standard loan documents required for securing an EIDL loan (the +“JJ EIDL Loan”) from the SBA in light of the impact of the COVID-19 pandemic on the JJ’s business. +Pursuant +to that certain Loan Authorization and Agreement, the JJ borrowed an aggregate principal amount of the JJ EIDL Loan of $ 150,000 , with +proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75 % per annum and will accrue only on funds actually +advanced from the date of each advance. Installment payments, including principal and interest, are due monthly since May 14, 2021 (twelve +months from the date of the JJ EIDL Loan) in the amount of $ 731 . The balance of principal and interest is payable thirty years from the +date of the JJ EIDL Loan. +F- 16 +NOTES +TO CONSOLIDATED FINANCIAL STATEMENTS +10. +LOANS PAYABLE TO FINANCIAL INSTITUTIONS +Loans +payable to financial institutions consist of the following: +SCHEDULE OF LOANS PAYABLE FINANCIAL INSTITUTIONS +December +31, +2024 +December +31, +2023 +November 17, 2023 ($ 76,400 ) +– AA Loan agreement with principal amount of $ 76,400 and repayment rate of 44.17 % for a total of $ 93,972 . The loan payable +matures on November 11, 2024 +- +65,896 +November 17, 2023 ($ 115,600 ) - BB Loan agreement +with principal amount of $ 115,600 and repayment rate of 43.01 % for a total of $ 142,188 . The loan payable matures on November 11, +2024 +- +101,649 +November 21, 2023 ($ 91,000 ) - CC (CO) Loan +agreement with principal amount of $ 91,000 and repayment rate of 46.27 % for a total of $ 113,750 . The loan payable matures on November +15, 2024 +34,282 +85,080 +November 30, 2023 ($ 132,100 ) - CC (EV) Loan +agreement with principal amount of $ 132,100 and repayment rate of 43.39 % for a total of $ 162,483 . The loan payable matures on November +24, 2024 +- +123,276 +November 20, 2023 ($ 89,400 ) - JJ (BP) Loan +agreement with principal amount of $ 89,400 and repayment rate of 44.54 % for a total of $ 110,856 . The loan payable matures on November +14, 2024 +- +81,299 +November 20, 2023 ($ 90,900 ) +- JJ (OR) Loan agreement with principal amount of $ 90,900 and repayment rate of 43.99 % for a total of $ 111,807 . The loan payable +matures on November 14, 2024 +- +77,039 +Total loan payable +$ 34,282 +$ 534,239 +Total +interest expense was $ 52,103.41 and $ 26,227 for the years ended December 31, 2024 and 2023, respectively, related to loans payable to +financial institution. +F- 17 +NOTES +TO CONSOLIDATED FINANCIAL STATEMENTS +11. +CONVERTIBLE NOTE TO RELATED PARTY +On +June 12, 2024, the Company issued convertible note to a related party. The convertible note, maturing one year from closing, accrues +0.5 % interest annually and allows conversion into Class A common stock based on conversion price which is determined at 150 % of the average +of the highest and lowest prices of the Company’s stock (traded under the symbol “YOSH”) during the five business days +immediately after the closing date. Based on the conversion price formula, it was determined at $ 5.90 . In the event the closing price +of the stocks of the Company on the date of conversion is lower than the conversion price, the related party has the option to elect +to receive the entire principal sum and accrued interest in cash or to convert any portion of this convertible note into Class A Common +Stocks of the Company at the conversion price and receive the remaining balance of the principal sum in cash. The Company repaid such +convertible note on March 10, 2025 with the proceeds from a loan made to the Company on or about March 6, 2025. +12. +RELATED PARTY TRANSACTIONS +The +Company had the following related party transactions: +● +Due +to related party – From time to time, the Company loaned money to APIIS Financial Group, a company owned by James Chae, +who is also the majority stockholder and CEO of the Company. The balance is non-interest bearing and due on demand. As of December +31, 2024 and 2023, the balance was $ 732,710 and $ 24,176 , respectively. +● +Related +party compensation - For the years ended December 31, 2024 and 2023, the compensation to James Chae was $ 139,769 and $ 339,740 , +respectively. +● +Notes +payable and Convertible notes to related party –. On June 12, 2024, the Company +consummated the acquisition of certain assets in three Las Vegas restaurants from Mr. Jihyuck +Hwang. Total acquisition cost was $ 3.6 million, consisting of $ 1.8 million in cash, issuance +of a $ 600,000 promissory note and issuance of a $ 1.2 million convertible note to Mr. Hwang. +The promissory note will be repaid in two equal installments without interest, while the +convertible note was repaid by the Company on March 7, 2025 with the proceeds from a loan +made to the Company on or about March 6, 2025. As of December 31, 2024, the balances were +$ 600,000 and $ 1.2 million for the promissory note and the convertible note, respectively. +The balances were zero as of December 31, 2023. +Interest +expense was $ 3,024 and $ 0 for the year ended December 31, 2024 and 2023, respectively. +F- 18 +NOTES +TO CONSOLIDATED FINANCIAL STATEMENTS +13. +INCOME TAX +Total +income tax (benefit) expense consists of the following: +SCHEDULE OF INCOME TAX (BENEFIT) EXPENSE +For +the Years Ended December 31, +2024 +2023 +Current provision (benefit): +Federal +$ - +$ - +State +34,237 +48,647 +Total current provision (benefit) +34,237 +48,647 +Deferred provision (benefit): +Federal +- +- +State +- +- +Total deferred provision (benefit) +- +- +Total tax provision (benefit) +$ 34,237 +$ 48,647 +A +reconciliation of the Company’s effective tax rate to the statutory federal rate is as follows: +SCHEDULE OF RECONCILIATION EFFECTIVE TAX RATE TO THE STATUTORY FEDERAL RATE +December +31, +2024 +2023 +Statutory federal rate +21.00 % +21.00 % +State income taxes net of federal income tax +benefit and others +8.84 % +8.84 % +Permanent differences for tax purposes and +others +- % +- % +Change in valuation allowance +- 29.84 % +- 29.84 % +Effective tax rate +- % +0 % +The +income tax benefit differs from the amount computed by applying the U.S. federal statutory tax rate of 21 % and California state income +taxes of 8.84 % due to the change in the valuation allowance. +SCHEDULE OF INCOME TAX BENEFIT DIFFERS FROM AMOUNT COMPUTED +December +31, +2024 +2023 +Deferred tax assets: +Net operating +loss +$ 2,010,000 +$ 1,438,000 +Other +temporary differences +- +- +Total deferred tax assets +2,010,000 +1,438,000 +Less – valuation +allowance +( 2,010,000 ) +( 1,438,000 ) +Total +deferred tax assets, net of valuation allowance +$ - +$ - +Deferred +income taxes reflect the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes +and the amounts used for income tax purposes. The components of deferred tax assets and liabilities are as follows: +As +of December 31, 2023, the Company had available net operating loss carryovers of approximately $ 6,849,000 . Per the Tax Cuts and Jobs +Act (TCJA) implemented in 2018, the two-year carryback provision was removed and now allows for an indefinite carryforward period. The +carryforwards are limited to 80% of each subsequent year’s net income. As a result, net operating loss may be applied against future +taxable income and expires at various dates subject to certain limitations. The Company has a deferred tax asset arising substantially +from the benefits of such net operating loss deduction and has recorded a valuation allowance for the full amount of this deferred tax +asset since it is more likely than not that some or all of the deferred tax asset may not be realized. +The +Company files income tax returns in the U.S. federal jurisdiction and California and is subject to income tax examinations by federal +tax authorities for tax year ended 2018 and later and subject to California authorities for tax year ended 2017 and later. The Company +currently is not under examination by any tax authority. The Company’s policy is to record interest and penalties on uncertain +tax positions as income tax expense. As December 31, 2024 and December 31, 2023, the Company has no accrued interest or penalties related +to uncertain tax positions. +As +of December 31, 2024, the Company had cumulative net operating loss carryforwards for federal tax purposes of approximately $ 9,575,000 . +In addition, the Company had state tax net operating loss carryforwards of the same amount. The carryforwards may be applied against +future taxable income and expires at various dates subject to certain limitations. +F- 19 +NOTES +TO CONSOLIDATED FINANCIAL STATEMENTS +14. +COMMITMENTS AND CONTINGENCIES +Commitments +Operating +lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease +payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent +our obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in arrangements is not readily +determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The Company’s +incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The operating lease +ROU asset includes any lease payments made and excludes lease incentives. Our variable lease payments primarily consist of maintenance +and other operating expenses from our real estate leases. Variable lease payments are excluded from the ROU assets and lease liabilities +and are recognized in the period in which the obligation for those payments is incurred. Our lease terms may include options to extend +or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized +on a straight-line basis over the lease term. +The +Company has lease agreements with lease and non-lease components. The Company has elected to account for these lease and non-lease components +as a single lease component. +In +accordance with ASC 842, the components of lease expense were as follows: +SCHEDULE OF OPERATING LEASE EXPENSE +For +the years ended +2024 +2023 +December +31, +For +the years ended +2024 +2023 +Operating lease expense +$ 1,274,090 +$ 978,504 +Total lease expense +$ 1,274,090 +$ 978,504 +In +accordance with ASC 842, other information related to leases was as follows: +SCHEDULE OF OTHER INFORMATION RELATED TO OPERATING LEASES +For +the years ended +2024 +2023 +December +31, +For +the years ended +2024 +2023 +Operating +cash flows from operating leases +$ 1,109,475 +$ 826,307 +Cash paid for amounts +included in the measurement of lease liabilities +$ 1,109,475 +$ 826,307 +Weighted-average remaining lease term—operating +leases +6.6 +Years +Weighted-average discount rate—operating +leases +7 % +SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS +Operating +Year +ending: +Lease +2025 +$ 1,425,588 +2026 +1,444,372 +2027 +1,417,804 +2028 +1,368,842 +2029 +1,167,352 +Thereafter +3,310,319 +Total undiscounted cash +flows +$ 10,134,277 +Reconciliation of lease liabilities: +Weighted-average remaining +lease terms +6.6 +Years +Weighted-average +discount rate +7 % +Present values +$ 8,299,887 +Lease liabilities—current +975,210 +Lease +liabilities—long-term +7,324,677 +Lease +liabilities—total +$ 8,299,887 +Difference +between undiscounted and discounted cash flows +$ 1,834,390 +Contingencies +From +time to time, the Company may be involved in certain legal actions and claims arising in the normal course of business. Management is +of the opinion that such matters will be resolved without material effect on the Company’s financial condition or results of operations. +F- 20 +NOTES +TO CONSOLIDATED FINANCIAL STATEMENTS +15. +STOCKHOLDERS’ EQUITY +Class +A Common Stock +The +Company has authorization to issue and have outstanding at any one time 49,000,000 shares of class A common stock with a par value of +$ 0.0001 per share. Each share of class A common stock entitles its holder to one vote on all matters to be voted on by stockholders generally. +See +Note 1 and Note 8 above for details regarding the issuance and redemption of shares of the Company’s class A common stock to and +from James Chae, the Company’s majority stockholder, in December 2021. +In +December 2021, the Company received subscriptions for the sale of 670,000 shares of class A common stock to investors for $ 2.00 per share, +for total expected proceeds of $ 1,340,000 . As of March 31, 2022, the Company had received $ 1,340,000 of the expected proceeds. +In +September 2022, the Company consummated its initial public offering (the “IPO”) of 2,940,000 shares of its class A common +stock at a public offering price of $ 4.00 per share, generating gross proceeds of $ 11,760,000 . Net proceeds from the IPO were approximately +$ 10.3 million after deducting underwriting discounts and commissions and other offering expenses of approximately $ 1.5 million. +Immediately +prior to the IPO, the Company issued 549,100 shares of class A common stock as compensation to directors and consultants. The Company +has accrued approximately $ 1.1 million of compensation expense at December 31, 2021 for the 549,100 shares at $ 2.00 per share, which +the Company’s board of directors determined to reflect the then current fair market value of the Company’s Class A common +stock. Upon the issuance of the 549,100 shares, the accrued liability was adjusted to additional paid-in-capital. +The +Company also granted the underwriters a 45-day option to purchase up to 441,000 additional shares (equal to 15 % of the shares of class +A common stock sold in the IPO) to cover over-allotments, if any, which the underwriters did not exercise. In addition, the Company issued +to the representative of the underwriters warrants to purchase a number of shares of class A common stock equal to 5.0 % of the aggregate +number of shares of Class A common stock sold in the IPO (including shares of Class A common stock sold upon exercise of the over-allotment +option). The representative’s warrants will be exercisable at any time and from time to time, in whole or in part, during the four-and-½-year +period commencing six months from the date of commencement of the sales of the shares of Class A common stock in connection with the +IPO, at an initial exercise price per share of $ 5.00 (equal to 125 % of the initial public offering price per share of class A common +stock). No representative’s warrants have been exercised. +On +November 22, 2023, Yoshiharu Global Co. (the “Company”) filed a Certificate of Amendment (the “Certificate of Amendment”) +to the Company’s Amended and Restated Certificate of Incorporation to effect a reverse stock split of its issued Class A common +stock, par value $ 0.0001 per share (“Class A Common Stock”) and Class B common stock, par value $ 0.0001 per share (“Class +B Common Stock” and, together with Class A common Stock, “Common Stock”), in the ratio of 1-for-10 (the “Reverse +Stock Split”) to be effective at 11:59 p.m. eastern on November 27, 2023. The Common Stock began trading on a split-adjusted basis +at the market open on Tuesday, November 28, 2023. +No +fractional shares were issued as a result of the Reverse Stock Split. Instead, any fractional shares that would have resulted from the +Reverse Stock Split were rounded up to the next whole number. As a result, total of 34,846 shares of Class A common stock were issued +and total of 1,230,246 shares of Class A common stock were outstanding as of December 31, 2023. The Reverse Stock Split affects all stockholders +uniformly and did not alter any stockholder’s percentage interest in the Company’s outstanding Common Stock, except for adjustments +that may result from the treatment of fractional shares. The number of authorized shares of Common Stock of the Company and number of +authorized shares of the Class B common stock of the Company were not changed. +On +January 5, 2024, the Company entered into a Securities Purchase Agreement with Alumni Capital LP, an accredited investor (“the +Investor”), allowing the Company to sell up to $ 5,000,000 in Class A common stock to the Investor, subject to certain conditions +including SEC approval of a registration statement. The Company controls the timing and amount of these sales until September 30, 2024, +influenced by market conditions and trading prices. The shares will be sold at either 85% or 96% of the lowest trading price over the +five days prior to closing, with specific limits on the amounts for each price option. The total shares sold cannot exceed 237,885 without +stockholder approval, and the Investor’s ownership is capped at 9.99% of the outstanding shares. As consideration, the Company +issued 24,950 shares of Common Stock to the Investor, divided into two tranches of $ 12,475 shares on January 9 and September 24, 2024, +respectively. +On +April 18, 2024, the Company amended the Securities Purchase Agreement with Alumni Capital LP to extended the commitment period ending +on the earlier of (i) December 31, 2024, or (ii) the date on which the Investor shall have purchased Securities pursuant to the Securities +Purchase Agreement for an aggregate purchase price of the commitment amount. +F- 21 +NOTES +TO CONSOLIDATED FINANCIAL STATEMENTS +15. +STOCKHOLDERS’ EQUITY (Continued) +Class +B Common Stock +The +Company has authorization to issue and have outstanding at any one time 1,000,000 shares of Class B common stock with a par value of +$ 0.0001 per share. The holders of class B common stock are entitled to 10 votes per share , and to vote together as a single class with +holders of class A common stock with respect to any question or matter upon which holders of class A common stock have the right to vote, +unless otherwise required by applicable law or our amended and restated certificate of incorporation. +The +holders of class B common stock are entitled to dividends as declared by the Company’s Board of Directors from time to time at +the same rate per share as the class A common stock. +The +holders of the class B common stock have the following conversion rights with respect to the class B common stock into shares of class +A common stock: +● +all +of the shares of class B common stock will automatically convert into class A common stock on a one-for-one basis upon the earlier +of (A) the date such shares cease to be beneficially owned by James Chae and (B) 5:00 p.m. Pacific Time on the date that James Chae +ceases to beneficially own at least 25 % of the voting power of all the outstanding shares of capital stock of the Company; and +● +at +the election of the holder of class B common stock, any share of class B common stock may be voluntarily converted into one share +of class A common stock. +Immediately +prior to the IPO in September 2022, the Company exchanged 1,000,000 shares of class A common stock held by James Chae into 1,000,000 +shares of class B common stock. +On +November 22, 2023, Yoshiharu Global Co. (the “Company”) filed a Certificate of Amendment (the “Certificate of Amendment”) +to the Company’s Amended and Restated Certificate of Incorporation to effect a reverse stock split of its issued Class B common +stock, par value $ 0.0001 per share in the ratio of 1-for-10 (the “Reverse Stock Split”) to be effective at 11:59 p.m. eastern +on November 27, 2023. As a result, total of 100,000 shares of Class B common stock were issued and outstanding as of December 31, 2023. +16. +EARNINGS PER SHARE +The +Company calculates earnings per share in accordance with FASB ASC 260, Earnings Per Share, which requires a dual presentation of basic +and diluted earnings per share. Basic earnings per share are computed using the weighted average number of shares outstanding during +the year. The Company did no t have any dilutive common shares for the years ended December 31, 2024 and 2023, respectively. +17. +SUBSEQUENT EVENTS +The +Company evaluated all events or transactions that occurred after December 31, 2024 up through the date the audited consolidated financial +statements were available to be issued and are as follows: +● On +January 6, 2025, Yoshiharu Global Co. (the “Company”) entered into an equity +purchase agreement (the “Purchase Agreement”) with Crom Structured Opportunities +Fund I, LP, a Delaware limited partnership (the “Investor”) pursuant to which +the Company shall have the right, but not the obligation, to sell to the Investor up to $ 10,000,000 +(the “ELOC Shares”) of the Company’s Class A common stock, $ 0.0001 par +value per share (“Class A Common Stock”). The Company may request that the Investor +purchase the ELOC Shares at any time during the commitment period commencing on January 6, +2025 (the “Effective Date”) and terminating on January 6, 2027. +● On +January 6, 2025, the Company issued and sold to Crom Structured Opportunities Fund I, LP, +a Delaware limited partnership (“Crom”) a 10% OID promissory note in the aggregate +principal amount of $ 1,100,000 (the “Note”) for a purchase price of $ 1,000,000 . +The Company repaid such Note on March 7, 2025 with the proceeds from a loan made to the Company +on or about March 6, 2025. Also on January 6, 2025, we entered into an equity purchase agreement +(the “Purchase Agreement”) with Crom (the “Investor”) pursuant to +which the Company shall have the right, but not the obligation, to sell to the Investor up +to $ 10,000,000 (the “ELOC Shares”) of the Company’s Class A common stock, +$ 0.0001 par value per share (“Class A Common Stock”). However, we have not yet +been able to access capital under this agreement since we must first register shares issuable +under the Purchase Agreement, which we may only do after the filing of this Annual Report on +Form 10-K. +● On +March 12, 2025, the Company +entered into a private placement securities subscription agreement (the “GM Private +Placement Agreement”) with Good Mood Studio, Inc. (“Good Mood Studio”) +pursuant to which Good Mood Studio purchased $ 200,000 worth of the Company’s shares +of Class A common stock, par value $ 0.0001 per share (“Class A Common Stock”), +at a price per share of $ 2.50 per share, or 80,000 shares of Class A Common Stock (the “GM +Shares”). +● On +March 12, 2025, the Company entered into a private placement securities subscription agreement +(the “BOF Private Placement Agreement”) with Blue Ocean Fund (“Blue Ocean +Fund”) pursuant to which Blue Ocean Fund purchased $ 300,000 worth of the Company’s +Class A Common Stock, at a price per share of $ 2.50 per share, or 120,000 shares of Class +A Common Stock (the “BOF Shares”). +● On +March 12, 2025, the Company entered into a private placement securities subscription agreement +(the “GLF Private Placement Agreement”) with Green Light Fund (“Green Light +Fund”) pursuant to which Green Light Fund purchased $ 214,000 worth of the Company’s +Class A Common Stock, at a price per share of $ 2.50 per share, or 85,600 shares of Class +A Common Stock (the “GLF Shares”). +● On +March 17, 2025, the Company entered into securities subscription agreements (the “Subscription Agreements”) with certain +investors pursuant to which the investors purchased an aggregate of 480,000 +warrants for a purchase price of $ 1,200,000 . +The Subscription Agreements contain customary representations, warranties, and indemnification provisions and were entered into in reliance +on self-certification as an accredited investor pursuant to Regulation D promulgated under the Securities Act. Each warrant is exercisable +for one share of the Company’s Class A common stock at an exercise price of $ 0.01 +(the “Shares”) pursuant to the terms of a warrant +agreement dated as of March 17, 2025 (the “Warrant Agreement”). +● On +March 24, 2025, the Company +entered into securities subscription agreements (the “Subscription Agreements”) +with certain investors pursuant to which the investors agreed to cancel indebtedness in an +aggregate amount of $ 2,500,000 in exchange for the issuance of an aggregate of 1,000,000 +warrants. +● On +March 25, 2025, the Company entered into Subscription Agreements with certain investors pursuant to which the investors agreed to pay +$ 1,650,000 +in aggregate to purchase an aggregate of 660,000 +warrants. The Subscription Agreements contain customary representations, +warranties, and indemnification provisions and were entered into in reliance on self-certification as an accredited investor pursuant +to Regulation D promulgated under the Securities Act. Each warrant is exercisable for one share of the Company’s Class A common +stock at an exercise price of $ 0.01 +(the “Shares”) pursuant to the terms of warrant +agreements dated as of March 24, 2025 (the “Warrant Agreement”). +F- 22 +EXHIBIT +INDEX +3.1 +Amended and Restated Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.3 to Amendment No. 1 to our Registration Statement on Form S-1 filed on February 9, 2022) +3.2 +Certificate of Amendment to Amended and Restated Certificate of Incorporation filed November 22, 2023 (incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K filed on November 24, 2023). +3.3 +Bylaws of Registrant (incorporated by reference to Exhibit 3.2 to Amendment No. 1 to our Registration Statement on Form S-1 filed on February 9, 2022) +4.1 +Specimen Class A Common Stock Certificate (incorporated by reference to Exhibit 4.2 to our Registration Statement on Form S-1 filed on January 25, 2022) +4.2 +Form of Representative’s Warrant (incorporated by reference to Exhibit 4.2 to Quarterly report on Form 10-Q filed on November 14, 2022) +4.3 +Description of Securities +10.1 +Form of IPO Lock-Up Agreement (incorporated by reference to Exhibit 10.1 to Amendment No. 3 to our Registration Statement on Form S-1 filed on May 31, 2022) +10.2 +Form of Director and Officer Indemnity Agreement (incorporated by reference to Exhibit 10.2 to our Registration Statement on Form S-1 filed on January 25, 2022) +10.3 +Commercial Lease by and between Daniel D. Lim and Global JJ Group, Inc. dated November 1, 2015 (incorporated by reference to Exhibit 10.3 to our Registration Statement on Form S-1 filed on January 25, 2022). +10.4 +Retail Center Lease Agreement by between the Source at Beach, LLC and Global JJ Group, Inc. dated May 1, 2015 (incorporated by reference to Exhibit 10.4 to our Registration Statement on Form S-1 filed on January 25, 2022). +10.5 +Commercial Lease Agreement by and between Juan Caamano and Global AA Group, Inc. dated September 6, 2016 (incorporated by reference to Exhibit 10.5 to our Registration Statement on Form S-1 filed on January 25, 2022). +10.6 +Shopping Center Lease by and between La Miranda Center, Inc. and Global DD Group, Inc. dated July 1, 2020 (incorporated by reference to Exhibit 10.6 to our Registration Statement on Form S-1 filed on January 25, 2022). +10.7 +Retail Lease by and between Irvine Orchard Hills Retail, LLC and Yoshiharu Irvine dated December 30, 2020 (incorporated by reference to Exhibit 10.7 to our Registration Statement on Form S-1 filed on January 25, 2022). +10.8 +Lease between Tarpon Property Ownership 2 LLC and Global BB Group, Inc. dated August 22, 2019 (incorporated by reference to Exhibit 10.8 to our Registration Statement on Form S-1 filed on January 25, 2022). +10.9 +Shopping Center Lease by and between the Price Reit, Inc. and Global CC Group, Inc. dated March 2, 2021 (incorporated by reference to Exhibit 10.9 to our Registration Statement on Form S-1 filed on January 25, 2022). +10.10 +Lease Agreement by and between SY Ventures V, LLC and Global AA Group, Inc. (incorporated by reference to Exhibit 10.10 to our Registration Statement on Form S-1 filed on January 25, 2022). +10.11 +Lease by and between Cerritos West Covenant Group LLC and Yoshiharu Cerritos dated March 2, 2021 (incorporated by reference to Exhibit 10.11 to our Registration Statement on Form S-1 filed on January 25, 2022). +10.12 +Contract Agreement by and between Life Construction Development, Inc. and Yoshiharu Ramen, dated March 23, 2021 (incorporated by reference to Exhibit 10.13 to our Registration Statement on Form S-1 filed on January 25, 2022). +10.13 +Contract Agreement by and between Life Construction Development, Inc. and Yoshiharu Ramen, dated July 23, 2021 (incorporated by reference to Exhibit 10.14 to our Registration Statement on Form S-1 filed on January 25, 2022). +10.14 +Contract Agreement by and between Life Construction Development, Inc. and Yoshiharu Ramen, dated March 5, 2021 (incorporated by reference to Exhibit 10.15 to our Registration Statement on Form S-1 filed on January 25, 2022). +10.15 +Promissory Note, dated November 27, 2018, by and between Global AA Group, Inc., Global JJ Group, Inc. and Pacific City Bank (incorporated by reference to Exhibit 10.16 to our Registration Statement on Form S-1 filed on January 25, 2022). +10.16 +Yoshiharu Global Co. 2022 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 10.17 to Amendment No. 1 to our Registration Statement on Form S-1 filed on February 9, 2022). +10.17 +Employee Offer Letter between Yoshiharu Global Co. and Soojae Ryan Cho, dated May 23, 2022 (incorporated by reference to Exhibit 10.17 to Amendment No. 3 to our Registration Statement on Form S-1 filed on May 27, 2022). +10.18 +Shopping Center Lease by and between Center Pointe LLC and Yoshiharu Menifee, dated May 24, 2022 (incorporated by reference to Exhibit 10.19 to Amendment No. 5 to our Registration Statement on Form S-1 filed on August 29, 2022). +10.19 +Lease Agreement by and between California Property Owner I, LLC and Yoshiharu Clemente, dated May 31, 2022 (incorporated by reference to Exhibit 10.20 to Amendment No. 5 to our Registration Statement on Form S-1 filed on August 29, 2022). +Employment Contract between James Chae and Yoshiharu Global Co., dated November 21, 2022 (incorporated by reference to Exhibit 10.21 to our Annual Report on Form 10-K filed on March 30, 2023). +10.20 +Asset Purchase Agreement by and among Jianga LLC, HJH LLC, Ramen Aku LLC, Jihyuck Hwang, and Yoshiharu Global Co. dated November 21, 2023 (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed on November 27, 2023). +10.21 +Seller Carry Loan Note issued by Yoshiharu LV and Yoshiharu Global Co. for the benefit of Jihyuck Hwang dated November 21, 2023 (incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K filed on November 27, 2023). +10.22 +Convertible Note Agreement by and among Yoshiharu LV and Yoshiharu Global Co. for the benefit of Jihyuck Hwang dated November 21, 2023 (incorporated by reference to Exhibit 99.3 to the Current Report on Form 8-K filed on November 27, 2023). +10.23 +Securities Purchase Agreement by and between Yoshiharu Global Co. and Alumni Capital LP dated January 4, 2023 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on January 10, 2024). +10.24 +List of Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to our Registration Statement on Form S-1 filed on January 25, 2022). +10.25 +Lease agreement by and between SVAP II Chapman, LLC and Yoshiharu Garden Grove, dated as of July 15, 2022 (incorporated by reference to Exhibit 10.3 to Quarterly report on Form 10-Q filed on November 14, 2022) +10.26 +Lease +by and between Ocean Ranch II, LLC and Yoshiharu Global Co., dated July 18, 2022 (incorporated by reference to Exhibit 10.18 to Amendment +No. 5 to our Registration Statement on Form S-1 filed on August 29, 2022) +10.27 +Securities Subscription Agreement by and between the Company and Green Light Fund, dated March 12, 2025 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K/A filed on March 18, 2025). +10.28 +Securities Subscription Agreement by and between the Company and Blue Ocean Fund, dated March 12, 2025 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K/A filed on March 18, 2025). +10.29 +Securities Subscription Agreement by and between the Company and Good Mood Studio, Inc., dated March 12, 2025 (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K/A filed on March 18, 2025). +10.30 +Securities Subscription Agreement by and between the Company and Global AI Focus 1 st Fund dated March 17, 2025 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on March 18, 2025). +10.31 +Securities Subscription Agreement by and between the Company and Haru 1 st Fund dated March 17, 2025 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on March 18, 2025). +10.32 +Securities Subscription Agreement by and between the Company and Econovation Fund dated March 17, 2025 (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on March 18, 2025). +10.33 +Securities Subscription Agreement by and between the Company and Sky Line Fund dated March 17, 2025 (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed on March 18, 2025). +10.34 +Securities Subscription Agreement by and between the Company and BS1 Fund, dated March 24, 2025 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on March 25, 2025) +10.35 +Securities Subscription Agreement by and between the Company and James Chae, dated March 24, 2025 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on March 25, 2025) +10.36 +Securities Subscription Agreement by and between the Company and Golden Bridge, dated March 24, 2025 (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on March 25, 2025) +10.37 +Form of Warrant Agreement (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed on March 25, 2025) +31.1* +Certification of James Chae pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +31.2* +Certification of Soojae Ryan Cho pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +32.1** +Certification of James Chae pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +32.2** +Certification of Soojae Ryan Cho pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +97.1* +Clawback Policy +101.INS* +Inline +XBRL Instance Document +101.SCH* +Inline +XBRL Taxonomy Extension Schema Document +101.CAL* +Inline +XBRL Taxonomy Extension Calculation Linkbase Document +101.DEF* +Inline +XBRL Taxonomy Extension Definition Linkbase Document +101.LAB* +Inline +XBRL Taxonomy Extension Label Linkbase Document +101.PRE* +Inline +XBRL Taxonomy Extension Presentation Linkbase Document +104* +Cover +Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) +* +Filed +herewith. +** +Furnished +herewith. +53 +SIGNATURES +Pursuant +to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this Report to be signed on +its behalf by the undersigned, thereunto duly authorized. +March +26, 2025 +YOSHIHARU +GLOBAL CO. +By: +/s/ +James Chae +Name: +James +Chae +Title: +Chairman +of the Board of Directors, President and Chief Executive Officer and Principal Executive Officer +(Principal Executive Officer) +Pursuant +to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the +registrant and in the capacities and on the dates indicated. +Signature +Title +Date +/s/ +James Chae +Chairman +of the Board of Directors, President, Chief +March +26, 2025 +James +Chae +Executive +Officer and Principal Executive Officer +/s/ +Soojae Ryan Cho +Chief +Financial Officer, Treasurer and Secretary, +March +26, 2025 +Soojae +Ryan Cho +Principal +Financial and Accounting Officer +/s/ +Harinne Kim +Director +March +26, 2025 +Harinne +Kim +/s/ +Yusil Yeo +Director +March +26, 2025 +Yusil +Yeo +54 \ No newline at end of file diff --git a/raw/filings/0001898604/2024/0001641172-25-000804/filing_metadata.csv b/raw/filings/0001898604/2024/0001641172-25-000804/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..41715f1b6d8de3a34cf797fb7d775ac7c51ec837 --- /dev/null +++ b/raw/filings/0001898604/2024/0001641172-25-000804/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001898604,VSTD,Vestand Inc.,2024,10-K,2025-03-27,2024-12-31,2025-03-27T00:28:19.000Z,0001641172-25-000804,form10-k.htm,,7909246,1,1,https://www.sec.gov/Archives/edgar/data/1898604/000164117225000804/form10-k.htm,https://www.sec.gov/Archives/edgar/data/1898604/000164117225000804/ diff --git a/raw/filings/0001898604/2024/0001641172-25-000804/item1.txt b/raw/filings/0001898604/2024/0001641172-25-000804/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..2f7864504762301d13d98646bae4bde042abf4bc --- /dev/null +++ b/raw/filings/0001898604/2024/0001641172-25-000804/item1.txt @@ -0,0 +1,566 @@ +Item +1. Business. +Overview +of Yoshiharu +We +are a fast-growing Japanese restaurant operator and was borne out of the idea of introducing the modernized Japanese dining experience +to customers all over the world. Specializing in Japanese ramen, we gained recognition as a leading ramen restaurant in Southern California +within six months of our 2016 debut and have continued to expand our top-notch restaurant service across Southern California, currently +operating ten restaurants with an additional three new restaurant stores under construction/development. Further, we entered into a material +definitive agreement to acquire three existing restaurants in Las Vegas and expect to complete the acquisition in early second quarter +2024. +We +take pride in our warm, hearty, smooth, and rich bone broth, which is slowly boiled for over twelve hours. Customers can taste and experience +supreme quality and deep flavors. Combining the broth with the fresh, savory, and highest-quality ingredients, we serve the perfect, +ideal ramen, as well as offers customers a wide variety of sushi rolls, bento menu and other favorite Japanese cuisine. Our acclaimed +signature Tonkotsu Black Ramen has become a customer favorite with its slow cooked pork bone broth and freshly made, tender chashu (braised +pork belly). +Our +mission is to bring our Japanese ramen and cuisine to the mainstream, by providing a meal that customers find comforting. Since the inception +of the business, we have been making our own ramen broth and other key ingredients such as pork chashu and flavored eggs from scratch, +whereby upholding the quality and taste of our foods, including the signature texture and deep, rich flavor of our handcrafted broth. +Moreover, we believe that slowly cooking the bone broth makes it high in collagen and rich in nutrients. We also strive to present food +that is not only healthy, but also affordable. We feed, entertain and delight our customers, with our active kitchens and bustling dining +rooms providing happy hours, student and senior discounts, and special holiday events. As a result of our vision, customers can comfortably +enjoy our food in a friendly and welcoming atmosphere. +In +September 2022, we consummated our initial public offering (the “IPO”) of 2,940,000 shares of our Class A common stock (pre-Reverse +Stock Split), par value $0.0001 per share (“Class A Common Stock”) at a public offering price of $4.00 per share, generating +gross proceeds of $11,760,000. Net proceeds from the IPO were approximately $10.3 million after deducting underwriting discounts and +commissions and other offering expenses of approximately $1.5 million. +We +granted the underwriters a 45-day option to purchase up to 441,000 additional shares (equal to 15% of the shares of Class A Common Stock +sold in the IPO) to cover over-allotments, if any, which the underwriters did not exercise. In addition, we issued to the representative +of the underwriters warrants to purchase a number of shares of Class A Common Stock equal to 5.0% of the aggregate number of shares of +Class A Common Stock sold in the IPO (including shares of Class A Common Stock sold upon exercise of the over-allotment option). The +representative’s warrants are exercisable at any time and from time to time, in whole or in part, during the four-and-½-year +period commencing six months from the date of commencement of the sales of the shares of Class A Common Stock in connection with the +IPO, at an initial exercise price per share of $5.00 (equal to 125% of the initial public offering price per share of Class A Common +Stock). No representative’s warrants have been exercised. +On +September 9, 2022, the our Class A Common Stock began trading on the Nasdaq Capital Market under the symbol “YOSH.” +On +November 22, 2023, we filed a Certificate of Amendment (the “Certificate of Amendment”) to our Amended and Restated Certificate +of Incorporation to effect a reverse stock split of our Class A Common Stock and Class B common stock, par value $0.0001 per share (“Class +B Common Stock” and, together with Class A common Stock, “Common Stock”), in the ratio of 1-for-10 (the “Reverse +Stock Split”) effective at 11:59 p.m. eastern on November 27, 2023. The Class A Common Stock began trading on a split-adjusted +basis at the market open on Tuesday, November 28, 2023. +No +fractional shares were issued as a result of the Reverse Stock Split. Instead, any fractional shares that would have resulted from +the Reverse Stock Split were rounded up to the next whole number. As a result, a total of 34,846 shares of Class A Common Stock were +issued and total of 1,230,246 shares of Class A Common Stock were outstanding as of December 31, 2023. The Reverse Stock Split +affects all stockholders uniformly and did not alter any stockholder’s percentage interest in our outstanding Common Stock, +except for adjustments that may result from the treatment of fractional shares. The number of authorized shares of Common Stock and +number of authorized shares of our Class B common stock were not changed. +Supply +Chain Disruption and Inflation +Our +profitability depends in part on our ability to anticipate and react to changes in food and supply costs, especially in light of recent +supply chain disruptions. We believe we have experienced higher costs due to increased commodity prices and challenges sourcing our supplies +due in part to global supply chain disruptions. Although historically, and as of December 31, 2024, global supply chain disruptions have +not materially adversely affected our business, a substantial increase in the cost of, or inability to procure, the food products most +critical to our menu, such as canola oil, rice, meats, fish and other seafood, as well as fresh vegetables, could materially and adversely +affect our business, financial condition or results from operations. Because we provide moderately priced food, we may choose not to, +or may be unable to, pass along commodity price increases to consumers. These potential changes in supply costs could materially adversely +affect our business, financial condition or results of operations. +1 +Historically +and as of the date hereof, inflation has not had a material effect on our results of operations. Severe increases in inflation, however, +could affect the global and U.S. economies and could have a materially adverse impact on our business, financial condition or results +of operations. Furthermore, future volatile, negative, or uncertain economic conditions and recessionary periods or periods of significant +inflation may adversely impact consumer spending at our restaurants, which would materially adversely affect our business, financial +condition and results of operations. Such effects can be especially pronounced during periods of economic contraction or slow economic +growth. To the extent that we are unable to offset such cost inflation through increased menu prices or increased efficiencies in our +operations and cost savings, there could be a negative impact on our business, sales and margin performance, net income, cash flows and +the trading price of our common shares. We have been able to offset to some extent these inflationary and other cost pressures through +actions such as increasing menu prices and supply chain initiatives, however, we expect these inflationary and other cost pressures to +continue into and throughout the year 2025. +Our +Strengths +Experienced +Management Team Dedicated to Growth . +Our +team is led by experienced and passionate senior management who are committed to our mission. We are led by our Chief Executive Officer, +James Chae. Mr. Chae founded Yoshiharu in 2016 and has helped grow the business since that time. Mr. Chae leads a team of talented professionals +with deep financial, operational, culinary, and real estate experience. +Compelling +Value Proposition with Broad Appeal. +Guests +can enjoy our signature ramen dishes or select from our variety of fresh sushi rolls, bento, and other Japanese cuisine. The high-quality +dishes at affordable prices are the result of our efficient operations. In addition, we believe our commitment to high-quality and fresh +ingredients in our food is at the forefront of current dining trends as customers continue to seek healthy food options. +Attractive +Restaurant-Level Economics. +At +Yoshiharu, we believe our rapid customer turnover, combined with our ability to deliver in 2 major day parts with lunch and dinner, allows +for robust and efficient sales in each of our restaurants. Our average unit volume (“AUV”, as defined herein) was $1.1 million +in 2023 and $1.0 million in 2024. +Quality +of Food and Excellence in Customer Service. +We +place a premium on serving high-quality, authentic Japanese cuisine. We believe in customer convenience and satisfaction and have created +strong, loyal and repeat customers who help expand the Yoshiharu network to their friends, family and co-workers. +2 +Our +Growth Strategies +Pursue +New Restaurant Development. +We +have pursued a disciplined new corporate owned growth strategy. Having expanded our concept and operating model across varying restaurant +sizes and geographies, we plan to leverage our expertise opening new restaurants to fill in existing markets and expand into new geographies. +While we currently aim to achieve in excess of 100% annual unit growth rate over the next three to five years, we cannot predict the +time period of which we can achieve any level of restaurant growth or whether we will achieve this level of growth at all. Our ability +to achieve new restaurant growth is impacted by a number of risks and uncertainties beyond our control, including those described under +the caption “ Risk Factors .” In particular, see “ Risk Factors—Our long-term success is highly dependent +on our ability to successfully identify and secure appropriate sites and timely develop and expand our operations in existing and new +markets ” for specific risks that could impede our ability to achieve new restaurant growth in the future. We believe there +is a significant opportunity to employ this strategy to open additional restaurants in our existing markets and in new markets with similar +demographics and retail environments. +Deliver +Consistent Comparable Restaurant Sales Growth . +We +have achieved positive comparable restaurant sales growth in recent periods. We believe we will be able to generate future comparable +restaurant sales growth by growing traffic through increased brand awareness, consistent delivery of a satisfying dining experience, +new menu offerings, and restaurant renovations. We will continue to manage our menu and pricing as part of our overall strategy to drive +traffic and increase average check. We are also exploring initiatives to grow sales of alcoholic beverages at our restaurants, including +the potential of a larger format restaurant with a sake bar concept. In addition to the strategies stated above, we expect to initiate +sales of franchises in 2024. +Increase +Profitability . +We +have invested in our infrastructure and personnel, which we believe positions us to continue to scale our business operations. As we +continue to grow, we expect to drive higher profitability both at a restaurant-level and corporate-level by taking advantage of our increasing +buying power with suppliers and leveraging our existing support infrastructure. Additionally, we believe we will be able to optimize +labor costs at existing restaurants as our restaurant base matures and AUVs increase. We believe that as our restaurant base grows, our +general and administrative costs will increase at a slower rate than our sales. +Heighten +Brand Awareness . +We +intend to continue to pursue targeted local marketing efforts and plan to increase our investment in advertising. We also are exploring +the development of instant ramen noodles which we would distribute through retail channels. We intend to explore partnerships with grocery +retailers to provide for small-format Yoshiharu kiosks in stores to promote a limited selection of Yoshiharu cuisine. +Experienced +Management Team Dedicated to Growth . +Our +team is led by experienced and passionate senior management who are committed to our mission. We are led by our Chief Executive Officer, +James Chae. Mr. Chae founded Yoshiharu in 2016 and leads a team of talented professionals with deep financial, operational, culinary, +and real estate experience. +Properties +As +of December 31, 2024, we operated twelve (12) restaurants in California and one location under construction. We also operated three restaurants +in Las Vegas since April 2024. We operate a variety of restaurant formats, including in-line and end-cap restaurants located in retail +centres of varying sizes. Our restaurants currently average approximately 1,578 square feet. We lease the property for our corporate +offices and all of the properties on which we operate our restaurants. +3 +The +table below shows the locations of our restaurants as of the date of this Report: +Store +Location +Address +Year +Launched +Orange +1891 +N Tustin St, Orange, CA 92865 +2016 +Buena +Park +6970 +Beach Blvd, #F206 Buena Park, CA 90621 +2017 +Whittier +8426 +Laurel Ave, STE A Whittier, CA 90605 +2017 +Chino +4004 +Grand Ave STE C Chino, CA 91710 +2019 +Eastvale +4910 +Hamner Ave STE 150, Eastvale, CA 91752 +2020 +Irvine +3935 +Portola Pkwy, Irvine, CA 92602 +2021 +La +Mirada +12806 +La Mirada Blvd, La Mirada, CA 90638 +2022 +Cerritos +11533 +South St, Cerritos, CA 90703 +2022 +Corona +440 +N Mckinley St STE 101, Corona, CA 92879 +2023 +Garden +Grove +9812 +Chapman Avenue Garden Grove, CA 92841 +2023 +Laguna +32341 +Golden Lantern, STE B, Laguna Niguel, CA 92677 +1Q +2024* 1 +San +Clemente +638 +Camino de Los Mares STE 16, San Clemente, CA 92673 +4Q +2024* 2 +Menifee +27311 +Newport Road, Suite 320, Menifee, CA 92584 +1Q +2025* 3 +Ontario +960 +N Haven Ave, Suite 100, Ontario, CA 91764 +1Q +2025* 3 +Las +Vegas +6125 +S. Fort Apache Road, Suite 200, Las Vegas, NV 89148 +2Q +2024* 4 +Las +Vegas +280 +E Flamingo Road, Suite C, Las Vegas, NV 89169 +2Q +2024* 4 +Las +Vegas +6572 +N Decatur Blvd., Las Vegas, NV 89131 +2Q +2024* 4 +* 1 +Opened in February 2024. +* 2 +Opened in October 2024 +* 3 +Under construction. +* 4 +Acquired in April 2024 +We +are obligated under non-cancelable leases for the majority of our restaurants, as well as our corporate offices. The majority of our +restaurant leases have lease terms of 10 years, inclusive of customary extensions which are at the option of the company. Our restaurant +leases generally require us to pay a proportionate share of real estate taxes, insurance, common area maintenance charges, and other +operating costs. Some restaurant leases provide for contingent rental payments based on sales thresholds, although we generally do not +expect to pay significant rent on these properties based on the thresholds in those leases. We do not own any real property. +We +opened one restaurant in each year from 2019 through 2021, and we have opened two restaurants in 2022, 2023 and 2024, respectively. We +also acquired three existing restaurants in Las Vegas by an Asset Purchase Agreement (“APA”) with Mr. Jihyuck Hwang (“Seller”) +(see Note 9 Related Party Transactions) via the Company’s wholly owned subsidiary, Yoshiharu Las Vegas (“YLV”). The +APA provided for the purchase of specific assets of the three restaurant businesses, including inventory, security deposits, fixed assets +and lease assignment effective as of April 20, 2024. +We +anticipate approximately $350,000 - $550,000 in costs per new location in development and has spent approximately $484,000 for the one +location under construction/development as of December 31, 2024. +Site +Development and Expansion +Site +Selection Process +We +consider site selection to be instrumental to our success. As part of our strategic site selection process, we receive potential site +locations from networks of local brokers, which are then reviewed by our Development Team. This examination consists of an analysis of +the lease terms and conditions, a profitability evaluation, as well as multiple site visits during all times of the day, e.g., lunch, +late afternoon, dinner, weekdays and weekends, to test for traffic. The Development Team holds regular meetings for site approval with +other members of our senior management team in order to get a balanced perspective on a potential site. +4 +Our +current real estate strategy focuses on high-traffic retail centers in markets with a diverse population and above-average household +income for the state. We believe we are attractive lessees for landlords given our ability to drive strong traffic comprised of above-average +household income guests, and we imagine our bargaining power will become stronger as we accumulate more stores. In site selection, we +also consider factors such as residential and commercial population density, restaurant visibility, traffic patterns, accessibility, +availability of suitable parking, proximity to highways, universities, shopping areas and office parks, the degree of competition within +the market area, and general availability of restaurant-level employees. We also invest in site analytics tools for demographic analysis +and data collection for both existing and new market areas, which we believe allows us to further understand the market area and determine +whether to open new restaurants in that location. +Our +flexible physical footprint, which has allowed us to open restaurants in size ranging from 1,500 to 2,500 square feet, allows us to open +in-line and end-cap restaurant formats at strip malls and shopping centers and penetrate markets in both suburban and urban areas. We +believe we have the ability to open additional restaurants in our existing metropolitan areas. We also believe there is significant opportunity +to employ the strategy in new markets with similar demographics across the U.S. and globally. +Expansion +Strategy +We +plan to pursue a multi-facet expansion strategy by opening new corporate restaurants or acquiring existing restaurants in both new and +existing markets, as well as utilizing the franchise market. We believe this expansion will be crucial to executing our growth strategy +and building awareness of Yoshiharu as a leading Japanese casual dining brand. Expansion into new markets occurs in parallel with ongoing +evaluation of existing markets, with the goal of maintaining a pipeline of top-tier development opportunities. As described under the +heading Site Selection Process above, we use a systematic approach to identify and review existing and new markets. +Upon +selecting a new market, we typically build one restaurant to prove concept viability in that market. We have developed a remote management +system whereby our senior operations team is able to monitor restaurants in real-time from our headquarters using approximately eight +cameras installed in each restaurant. We utilize this remote management system to maintain operational quality while minimizing inefficiencies +caused by a lack of economies of scale in new markets. +Due +to our relatively small restaurant count, new restaurants have an outsized impact on our financial performance. In order to mitigate +risk, we look to expand simultaneously in new and existing markets. We base our site selection on our most successful existing restaurants +and frequently reevaluate our strategy, pacing and markets. We believe we are in the early stages of our growth story and that our restaurant +model is designed to generate strong cash flow, attractive restaurant-level financial results and high returns on invested capital, which +we believe provides us with a strong foundation for expansion. +Restaurant +Design +Restaurant +design is handled by our Development Team in conjunction with outsourced vendor relationships, e.g., architects and general contractors. +Our restaurant size currently averages approximately 1,500 square feet. Seating in our restaurant is comprised of a combination of table +seating and bar seats with an average seating capacity of 40-50 guests. +We +are developing two main restaurant layouts. The standard restaurants will be built using our current layout and design which we believe +evokes a modern and on-trend Japanese dining atmosphere. The second layout is a larger floor plan where we will utilize a full service +restaurant and bar. We believe our see-through kitchens reflecting the cooks preparing first hand meals, amplify the lively bustle provided +by the great casual atmosphere, and serve to highlight the ambiance of getting great food in a modern Japanese style ambiance. +5 +Construction +Construction +of a new restaurant takes approximately 12 to 24 weeks once construction permits are issued. Our Development Team oversees the build-out +process from engaging architects and contractors to design and build out the restaurant. The capital resources required to develop each +new restaurant are significant. On average, we estimate our restaurant build-outs to cost approximately $350,000 - $550,000 per standard +location, net of tenant allowances and pre-opening costs and assuming that we do not purchase the underlying real estate, but this figure +could be significantly higher depending on the market, restaurant size, and condition of the premises upon delivery by landlord. On average, +we estimate that our restaurants require a cash build-out cost of approximately $350,000-$550,000 per restaurant, net of landlord tenant +improvement allowances and pre-opening costs and assuming that we do not purchase the underlying real estate. Actual costs may vary significantly +depending upon a variety of factors, including the site and size of the restaurant and conditions in the local real estate and labor +markets. +Restaurant +Management and Operations +Restaurant +Management and Employees +Our +restaurants typically employ one restaurant manager, one or two supervisors, and approximately 8 to 12 additional team members. Managers, +supervisors and management trainees are cross-trained throughout the restaurant in order to create competency across critical restaurant +functions, both in the dining area and in the kitchen. +In +addition, our senior operations team monitors restaurants in real-time from our headquarters using our remote management system of approximately +eight cameras installed in each restaurant. These team members are responsible for different components of the restaurant: cleanliness, +service, and food quality. +Training +and Employee Programs +We +devote significant resources to identifying, selecting, and training restaurant-level employees. Our training covers leadership, team +building, food safety certification, alcohol safety programs, sexual harassment training, and other topics. Management trainees undergo +training for approximately 8 to 16 weeks in order to develop a deep understanding of our operations. In addition, we are developing extensive +training manuals that cover all aspects of restaurant-level operations. +Our +traveling “opening team” provides training to team members in advance of opening a new restaurant. We believe the opening +team facilitates a smooth opening process and efficient restaurant operations from the first day a restaurant opens to the public. The +opening team is typically on-site at new restaurants from two weeks before opening to four weeks after opening. +Food +Preparation, Quality and Safety +We +are committed to consistently providing our guests high quality, freshly prepared food. For other items we believe hand preparation achieves +the best quality. Hand preparation of menu items includes, but is not limited to, frying tempura, slicing meat and fish and making pork +bone broth. We believe guests can taste the difference in freshly prepared food and that adhering to these standards is a competitive +advantage for our brand. +Food +safety is essential to our success and we have established procedures to help ensure that our guests enjoy safe, quality food. We require +each employee to complete food handler safety certification upon hiring. We have taken various additional steps to mitigate food quality +and safety risks, including undergoing internal safety audits. We also consider food safety and quality assurance when selecting our +distributors and suppliers. +Menu +We +offer a diverse menu, including our signature ramen dishes, as well as sushi rolls, bento boxes, and other Japanese cuisine. The menu +appeals to a wide range of customers, and we continue to improve upon the quality, taste and presentation. Additionally, we are able +to serve the menu in a delivery and pickup format, as our food is designed to be enjoyed on premise or at customers’ homes or offices. +We have entered the catering business through relationships with businesses who place large format orders (i.e., Bento boxes for corporate +meetings or office lunches), for delivery or pick-up. We expect that our catering business, which has a higher-than-average order value, +to grow due to the early success we have experienced in the corporate channel. +6 +New Menu Introductions +We +focus advertising efforts on new menu offerings to broaden our appeal to guests and drive traffic. Our menu changes twice per year to +introduce new items and remove underperforming items. We promote these new menu additions through various social media platforms, our +website and in-restaurant signage. +Marketing +and Advertising +We +use a variety of marketing and advertising channels to build brand awareness, attract new guests, increase dining frequency, support +new restaurant openings, and promote Yoshiharu as an authentic Japanese restaurant with high-quality cuisine and a distinctive dining +experience. Our primary advertising channels include digital, social, and print. +Social +Media +We +maintain a presence on several social media platforms including Facebook and Instagram, allowing us to regularly communicate with guests, +alert guests of new offerings, and conduct promotions. Our dining experience is built to provide our guests social media shareable moments, +which we believe extends our advertising reach. +Suppliers +We +carefully select suppliers based on product quality and authenticity and their understanding of our brand, and we seek to develop long-term +relationships with them. All supply arrangements are negotiated and managed at the Yoshiharu corporate-level. +Food. +Our Vice President of Operations identifies and procures high-quality ingredients at competitive prices. Each store separately makes +an order to the specific vendor, and the invoices are submitted and paid by Yoshiharu at the corporate-level. We source mainly through +the following Japanese-related distributors: JFC, a subsidiary of Kikkoman Corporation, Wismettac, a subsidiary of Nishimoto Co., Ltd., +and Mutual Trading Co., Inc., a California corporation. +Paper. +Our Vice President of Operations negotiates long term supply agreements for our logo-branded paper including takeout bags and bowls, +chopsticks, as well as uniforms. We make a portion of our purchases annually in bulk at fixed prices, and deliver them to our warehouse +in Anaheim, California. Each restaurant Manager receives the necessary paper supplies from our warehouse. +Management +Information Systems +We +utilize systems provided by Toast, Inc. for point of sale, contactless ordering, handheld ordering, online ordering and delivery, as +well as marketing and payroll management. We believe that Toast’s systems provide us and our customers with streamlined operations +and allows us to efficiently turn tables and improve the sales conversion cycle, while reducing third-party commissions for online orders. +Restaurant +Industry Overview +According +to the National Restaurant Association (the “NRA”), restaurant industry sales in 2024 were over $1.1 trillion, up from $1.0 +trillion in 2024 and is forecast to grow to $1.5 trillion in 2025. +The +restaurant industry is divided into several primary segments, including limited-service and full-service restaurants, which are generally +categorized by price, quality of food, service, and location. Yoshiharu sits at the intersection of these two segments offering the experience +and food quality of a full-service restaurant and the speed of service of a limited-service restaurant. We primarily compete with other +full-service restaurants, which, according to the NRA, had approximately $353 billion of sales in calendar year 2024, up from $324 billion +in 2023. The limited-service segment generated approximately $421 billion in calendar year 2024, or a roughly $26 billion increase from +the prior year. +7 +We +believe that increased multiculturalism in the United States, driven in part by growth in the Asian demographic, contributes to a favorable +macro environment for Yoshiharu’s future growth. According to the U.S. Census Bureau, the Asian population is projected to be one +of the fastest growing demographics in the United States, increasing in size from 22.4 million people in calendar year 2019 to 46 million +people by calendar year 2060. During this time, the Asian population’s share of the nation’s total population is projected +to increase by 100%, from approximately 7% to 14%. +Additionally, +we believe that Yoshiharu is well-positioned to grow our share of the restaurant market as consumers seek quality, value, healthier options, +and authentic global and regional cuisine in their dining choices. According to the National Restaurant Association 2024 State of the +Industry report, roughly 47% of family and casual dining restaurants plan to add new menu items identified as healthy or nutritious in +2024. +We +cannot provide assurance that we will benefit from these long-term demographic trends, although we believe the projected growth in the +Asian population and the Asian influence on dining trends will result in an increase in demand for Japanese and Asian foods. +Competition +We +face significant competition from a variety of locally owned restaurants regional, and national chain restaurants offering both Asian +and non-Asian cuisine, as well as takeaway options from grocery stores. Direct competition for Yoshiharu comes primarily from Asian restaurants +including other ramen noodles restaurants. Jinya Ramen Bar operates approximately 40 locations in the United States and also franchises +their restaurants. We believe that we compete primarily based on product quality, dining experience, ambience, location, convenience, +value perception, and price. Our competition continues to intensify as competitors increase the breadth and depth of their product offerings +and open new restaurants. +Seasonality +Due +to Yoshiharu’s menu breadth and diversification of offerings, we do not experience significant seasonality. +Employees +As +of December 31, 2024, we had approximately 259 employees, of whom 10 were exempt employees and the remainder were non-exempt employees. +None of our employees are unionized or covered by collective bargaining agreements, and we consider our current employee relations to +be good. +Government +Regulation and Environmental Matters +We +are subject to extensive and varied federal, state and local government regulation, including regulations relating, among others, to +public and occupational health and safety, nutritional menu labeling, healthcare, the environment, sanitation and fire prevention. We +operate each of our restaurants in accordance with standards and procedures designed to comply with applicable codes and regulations. +However, an inability to obtain or retain health department or other licenses would adversely affect our operations. Although we have +not experienced, and do not anticipate, any significant difficulties, delays or failures in obtaining required licenses, permits or approvals, +any such problem could delay or prevent the opening of, or adversely impact the viability of, a particular restaurant or group of restaurants. +Additionally, difficulties, delays or failure to retain or renew licenses, permits or approvals, or increased compliance costs due to +changed regulations, could adversely affect operations at existing restaurants. +8 +In +addition, in order to develop and construct restaurants, we must comply with applicable zoning, land use and environmental regulations. +Federal and state environmental regulations have not had a material effect on our operations to date, but more stringent and varied requirements +of local governmental bodies with respect to zoning, land use and environmental factors could delay or even prevent construction and +increase development costs for new restaurants. We are also required to comply with the accessibility standards mandated by the U.S. +Americans with Disabilities Act, which generally prohibits discrimination in accommodation or employment based on disability. We may +in the future have to modify restaurants, for example, by adding access ramps or redesigning certain architectural fixtures, to provide +service to or make reasonable accommodations for disabled persons. While these expenses could be material, our current expectation is +that any such actions will not require us to expend substantial funds. +Alcoholic +beverage control regulations require each of our restaurants to apply to a state authority and, in certain locations, county or municipal +authorities for a license that must be renewed annually and may be revoked or suspended for cause at any time. Alcoholic beverage control +regulations relate to numerous aspects of daily operations of our restaurants, including minimum age of patrons and employees, hours +of operation, advertising, trade practices, wholesale purchasing, other relationships with alcohol manufacturers, wholesalers and distributors, +inventory control and handling, storage and dispensing of alcoholic beverages. We are also subject in certain states to “dram shop” +statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully +served alcoholic beverages to the intoxicated person. We carry liquor liability coverage as part of our existing comprehensive general +liability insurance. +Further, +we are subject to the U.S. Fair Labor Standards Act, the U.S. Immigration Reform and Control Act of 1986, the Occupational Safety and +Health Act and various other federal and state laws governing similar matters including minimum wages, overtime, workplace safety and +other working conditions. Significant numbers of our food service and preparation personnel are paid at rates related to the applicable +minimum wage, and further increases in the minimum wage or other changes in these laws could increase our labor costs. Our ability to +respond to minimum wage increases by increasing menu prices will depend on the responses of our competitors and guests. Our distributors +and suppliers also may be affected by higher minimum wage and benefit standards, which could result in higher costs of goods and services +supplied by us. We may also be subject to lawsuits from our employees, the U.S. Equal Employment Opportunity Commission or others alleging +violations of federal and state laws regarding workplace and employment matters, discrimination and similar matters. +There +has been increased regulation of certain food establishments in the United States, such as the requirements to maintain a Hazard Analysis +and Critical Control Points (“HACCP”) system. HACCP refers to a management system in which food safety is addressed through +the analysis and control of potential hazards from production, procurement and handling, to manufacturing, distribution and consumption +of the finished product. Many states have required restaurants to develop and implement HACCP systems and the U.S. government continues +to expand the sectors of the food industry that must adopt and implement HACCP programs. We cannot assure you that we will not have to +expend additional time and resources to comply with new food safety requirements either required by current or future federal food safety +regulation or legislation. Additionally, our suppliers may initiate or otherwise be subject to food recalls that may impact the availability +of certain products, result in adverse publicity or require us to take actions that could be costly for us or otherwise harm our business. +A +number of states, counties and cities have enacted menu labeling laws requiring multi-unit restaurant operators to disclose to consumers +certain nutritional information or have enacted legislation restricting the use of certain types of ingredients in restaurants. Many +of these requirements are inconsistent or interpreted differently from one jurisdiction to another. These requirements may be different +or inconsistent with requirements that we are subject to under the the Patient Protection and Affordable Care Act of 2010, as amended +by the Health Care and Education Reconciliation Act, (collectively, the “ACA,”), which establishes a uniform, federal requirement +for certain restaurants to post nutritional information on their menus. Specifically, the ACA requires chain restaurants with 20 or more +locations in the United States operating under the same name and offering substantially the same menus to publish the total number of +calories of standard menu items on menus and menu boards, along with a statement that puts this calorie information in the context of +a total daily calorie intake. The ACA also requires covered restaurants to provide to consumers, upon request, a written summary of detailed +nutritional information for each standard menu item, and to provide a statement on menus and menu boards about the availability of this +information upon request. While our ability to adapt to consumer preferences is a strength of our concepts, the effect of such labeling +requirements on consumer choices, if any, is unclear at this time. +9 +We +are subject to federal, state and local environmental laws and regulations concerning waste disposal, pollution, protection of the environment, +and the presence, discharge, storage, handling, release and disposal of, or exposure to, hazardous or toxic substances (“environmental +laws”). These environmental laws can provide for significant fines and penalties for non-compliance and liabilities for remediation, +sometimes without regard to whether the owner or operator of the property knew of, or was responsible for, the release or presence of +the hazardous or toxic substances. Third parties may also make claims against owners or operators of properties for personal injuries +and property damage associated with releases of, or actual or alleged exposure to, such substances. We are not aware of any environmental +laws that will materially affect our earnings or competitive position, or result in material capital expenditures relating to our restaurants. +However, we cannot predict what environmental laws will be enacted in the future, how existing or future environmental laws will be administered, +interpreted or enforced, or the amount of future expenditures that we may need to make to comply with, or to satisfy claims relating +to, environmental laws. It is possible that we will become subject to environmental liabilities at our properties, and any such liabilities +could materially affect our business, financial condition or results of operations. +We +are also subject to laws and regulations relating to information security, privacy, cashless payments, gift cards and consumer credit, +protection and fraud, and any failure or perceived failure to comply with these laws could harm our reputation or lead to litigation, +which could adversely affect our business, financial condition or results of operations. +Furthermore, +we are subject to import laws and tariffs which could impact our ability to source and secure food products, other supplies and equipment +necessary to operate our restaurants. +For +a discussion of the various risks we face from regulation and compliance matters, see “ Risk Factors .” +Intellectual +Property and Trademarks +Yoshiharu +Holdings Co., our wholly owned subsidiary, owns a number of patents, trademarks and service marks registered or pending with the U.S. +Patent and Trademark Office (“PTO”) including the following registrant trademarks: YOSHIHARU RAMEN (Trademark Reg. No. 5030823) +and Design Mark YOSHIHARU RAMEN (Trademark Reg. No. 5045588). In addition, we have registered the Internet domain name www.yoshiharuramen.com. +The information on, or that can be accessed through, our website is not part of this Report. +We +believe that the trademarks, service marks and other intellectual property rights that we license from Yoshiharu Holdings Co. have significant +value and are important to the marketing and reputation of our brand. It is our policy to pursue registration of our intellectual property +whenever possible and to oppose vigorously any infringement thereof. However, we cannot predict whether steps taken to protect such rights +will be adequate or whether Yoshiharu Holdings Co. will take steps to enforce such rights with regard to any intellectual property that +we license from them. See “ Risk Factors—Risks Related to Our Business and Industry—We may become involved in lawsuits +involving Yoshiharu Holdings Co. as the owner of intellectual property, or us as a licensee of intellectual property from Yoshiharu Holdings +Co., to protect or enforce our intellectual property rights, which could be expensive, time consuming, and unsuccessful .” We +are aware of third-party restaurants with names similar to our restaurant name in certain limited geographical areas such as in California. +However, we believe such uses will not adversely affect us. +Legal +Proceedings +We +are currently not involved in litigation that we believe will have a materially adverse effect on our financial condition or results +of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, +self- regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries +threatened against or affecting our company, our common stock, any of our subsidiaries or of our company’s or our company’s +subsidiaries’ officers or directors in their capacities as such, in which an adverse decision is expected to have a material adverse +effect. +10 \ No newline at end of file diff --git a/raw/filings/0001898604/2024/0001641172-25-000804/item13.txt b/raw/filings/0001898604/2024/0001641172-25-000804/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..358e6f7aa6c7f30985166c69bface592415e152d --- /dev/null +++ b/raw/filings/0001898604/2024/0001641172-25-000804/item13.txt @@ -0,0 +1,4 @@ +Item +13. +Certain Relationships and Related Transactions, and Director Independence +50 \ No newline at end of file diff --git a/raw/filings/0001898766/2024/0001493152-25-002760/filing.txt b/raw/filings/0001898766/2024/0001493152-25-002760/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..5a45e3ba6e8df94fcfffceb3d9d63098bb930861 --- /dev/null +++ b/raw/filings/0001898766/2024/0001493152-25-002760/filing.txt @@ -0,0 +1,9303 @@ +false +FY +0001898766 +P5Y +0001898766 +2023-11-01 +2024-10-31 +0001898766 +2024-04-30 +0001898766 +2025-01-15 +0001898766 +2024-08-01 +2024-10-31 +0001898766 +2024-10-31 +0001898766 +2023-10-31 +0001898766 +us-gaap:RelatedPartyMember +2024-10-31 +0001898766 +us-gaap:RelatedPartyMember +2023-10-31 +0001898766 +2022-11-01 +2023-10-31 +0001898766 +us-gaap:CommonStockMember +2023-10-31 +0001898766 +TPET:ShareSubscriptionReceivablesMember +2023-10-31 +0001898766 +us-gaap:AdditionalPaidInCapitalMember +2023-10-31 +0001898766 +us-gaap:RetainedEarningsMember +2023-10-31 +0001898766 +us-gaap:CommonStockMember +2022-10-31 +0001898766 +TPET:ShareSubscriptionReceivablesMember +2022-10-31 +0001898766 +us-gaap:AdditionalPaidInCapitalMember +2022-10-31 +0001898766 +us-gaap:RetainedEarningsMember +2022-10-31 +0001898766 +2022-10-31 +0001898766 +us-gaap:CommonStockMember +2023-11-01 +2024-10-31 +0001898766 +TPET:ShareSubscriptionReceivablesMember +2023-11-01 +2024-10-31 +0001898766 +us-gaap:AdditionalPaidInCapitalMember +2023-11-01 +2024-10-31 +0001898766 +us-gaap:RetainedEarningsMember +2023-11-01 +2024-10-31 +0001898766 +us-gaap:CommonStockMember +2022-11-01 +2023-10-31 +0001898766 +TPET:ShareSubscriptionReceivablesMember +2022-11-01 +2023-10-31 +0001898766 +us-gaap:AdditionalPaidInCapitalMember +2022-11-01 +2023-10-31 +0001898766 +us-gaap:RetainedEarningsMember +2022-11-01 +2023-10-31 +0001898766 +us-gaap:CommonStockMember +2024-10-31 +0001898766 +TPET:ShareSubscriptionReceivablesMember +2024-10-31 +0001898766 +us-gaap:AdditionalPaidInCapitalMember +2024-10-31 +0001898766 +us-gaap:RetainedEarningsMember +2024-10-31 +0001898766 +TPET:TrioLLCMember +TPET:SouthSalinasProjectMember +2023-10-31 +0001898766 +TPET:TrioLLCMember +TPET:SouthSalinasProjectMember +2023-04-30 +0001898766 +TPET:PurchaseAndSaleAgreementMember +TPET:TrioLLCMember +2021-09-30 +2021-09-30 +0001898766 +TPET:PurchaseAndSaleAgreementMember +TPET:TrioLLCMember +2021-09-30 +0001898766 +TPET:TrioLLCMember +2021-09-30 +0001898766 +TPET:PurchaseAndSaleAgreementMember +TPET:TrioLLCMember +2024-10-31 +0001898766 +TPET:PurchaseAndSaleAgreementMember +TPET:TrioLLCMember +2023-10-31 +0001898766 +us-gaap:IPOMember +2023-04-20 +2023-04-20 +0001898766 +TPET:TrioLLCMember +TPET:McCoolRanchPurchaseAgreementMember +2023-10-31 +0001898766 +TPET:ARLOAgreementMember +TPET:HeavySweetOilMember +2023-11-01 +2023-11-30 +0001898766 +TPET:ARLOAgreementMember +TPET:HeavySweetOilMember +2023-11-30 +0001898766 +TPET:ARLOAgreementMember +2023-12-01 +2023-12-31 +0001898766 +TPET:ARLOAgreementMember +2024-01-01 +2024-01-31 +0001898766 +TPET:ARLOAgreementMember +TPET:HeavySweetOilMember +2024-01-01 +2024-01-31 +0001898766 +TPET:TrioLLCMember +TPET:SouthSalinasProjectMember +2021-09-14 +0001898766 +TPET:TrioLLCMember +2021-09-13 +2021-09-14 +0001898766 +TPET:TrioLLCMember +2021-09-14 +0001898766 +TPET:TrioLLCMember +2024-10-31 +0001898766 +TPET:TrioLLCMember +2023-10-31 +0001898766 +us-gaap:WarrantMember +2023-11-01 +2024-10-31 +0001898766 +us-gaap:WarrantMember +2022-11-01 +2023-10-31 +0001898766 +us-gaap:ConvertibleNotesPayableMember +2023-10-01 +2023-10-31 +0001898766 +us-gaap:ConvertibleNotesPayableMember +2023-12-01 +2023-12-31 +0001898766 +srt:ChiefExecutiveOfficerMember +2024-03-01 +2024-03-31 +0001898766 +us-gaap:InvestorMember +2024-03-01 +2024-03-31 +0001898766 +us-gaap:ConvertibleNotesPayableMember +us-gaap:InvestorMember +2024-04-01 +2024-04-30 +0001898766 +us-gaap:ConvertibleNotesPayableMember +us-gaap:InvestorMember +2024-05-01 +2024-07-31 +0001898766 +TPET:AugustTwoThousandTwentyFourMember +2024-08-01 +2024-08-31 +0001898766 +TPET:AtTheMarketAgreementMember +2024-08-01 +2024-08-31 +0001898766 +us-gaap:IPOMember +2023-04-20 +0001898766 +2023-04-20 +2023-04-20 +0001898766 +us-gaap:OverAllotmentOptionMember +2023-04-20 +0001898766 +TPET:OilSalesMember +2023-11-01 +2024-10-31 +0001898766 +TPET:OilSalesMember +2022-11-01 +2023-10-31 +0001898766 +TPET:OilAndNaturalGasRevenueMember +TPET:OnePurchaserMember +us-gaap:CustomerConcentrationRiskMember +2022-11-01 +2023-10-31 +0001898766 +TPET:OilAndNaturalGasRevenueMember +TPET:OnePurchaserMember +us-gaap:CustomerConcentrationRiskMember +2023-11-01 +2024-10-31 +0001898766 +TPET:FirstLeaseMember +2022-05-27 +0001898766 +TPET:SecondLeaseMember +2024-10-31 +0001898766 +TPET:GroupOneMember +2023-02-28 +0001898766 +TPET:GroupOneMember +2023-03-01 +2023-03-31 +0001898766 +TPET:GroupTwoMember +2023-03-31 +0001898766 +TPET:GroupTwoMember +2023-03-01 +2023-03-31 +0001898766 +TPET:TrioLLCMember +2023-10-31 +0001898766 +TPET:McCoolRanchPurchaseAgreementMember +2023-10-01 +2023-10-31 +0001898766 +TPET:McCoolRanchPurchaseAgreementMember +2023-10-31 +0001898766 +TPET:ParcelOneMember +TPET:McCoolRanchOilFieldMember +2024-10-31 +0001898766 +TPET:ParcelTwoMember +TPET:McCoolRanchOilFieldMember +2024-10-31 +0001898766 +TPET:ParcelOneAndTwoMember +TPET:McCoolRanchOilFieldMember +2024-10-31 +0001898766 +TPET:OptionPayTwoInitialPaymentMember +2023-10-01 +2023-10-31 +0001898766 +TPET:FinalSubsequentPaymentMember +2023-10-01 +2023-10-31 +0001898766 +2023-10-01 +2023-10-31 +0001898766 +2024-01-01 +2024-01-31 +0001898766 +TPET:FinalSubsequentPaymentMember +2024-01-01 +2024-01-31 +0001898766 +TPET:ARLOAgreementMember +2023-11-10 +2023-11-10 +0001898766 +TPET:ARLOAgreementMember +2023-11-10 +0001898766 +TPET:ARLOAgreementMember +srt:MinimumMember +2023-11-10 +2023-11-10 +0001898766 +TPET:AmendedARAgreementMember +2023-12-29 +0001898766 +TPET:AmendedARLOAgreementMember +2023-12-29 +2023-12-29 +0001898766 +TPET:AmendedARLOAgreementMember +2023-11-01 +2024-10-31 +0001898766 +TPET:AmendedARLOAgreementMember +2024-09-01 +2024-09-30 +0001898766 +TPET:AmendedARLOAgreementMember +2024-09-30 +0001898766 +TPET:SouthSalinasProjectMember +2023-11-01 +2024-10-31 +0001898766 +TPET:SouthSalinasProjectMember +2024-10-31 +0001898766 +TPET:SouthSalinasProjectMember +2023-10-31 +0001898766 +TPET:TrioLLCMember +TPET:McCoolRanchPurchaseAgreementMember +2023-10-16 +0001898766 +TPET:McCoolRanchPurchaseAgreementMember +2023-10-16 +2023-10-16 +0001898766 +TPET:McCoolRanchPurchaseAgreementMember +2023-10-16 +0001898766 +TPET:McCoolRanchPurchaseAgreementMember +TPET:OperatorsMember +2024-10-31 +0001898766 +us-gaap:CommonStockMember +us-gaap:RestrictedStockUnitsRSUMember +2023-09-02 +2023-09-02 +0001898766 +us-gaap:CommonStockMember +us-gaap:RestrictedStockUnitsRSUMember +2023-09-02 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +srt:DirectorMember +2024-06-19 +2024-06-19 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +2024-06-19 +2024-06-19 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +srt:DirectorMember +2024-06-19 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +srt:DirectorMember +2024-10-31 +2024-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +srt:DirectorMember +2024-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +srt:DirectorMember +2023-11-01 +2024-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +srt:DirectorMember +2022-11-01 +2023-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +srt:DirectorMember +2024-10-21 +2024-10-21 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +srt:DirectorMember +2024-10-21 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:CurrentDirectorMember +2024-10-21 +2024-10-21 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:CurrentDirectorMember +2024-10-21 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:CurrentDirectorMember +2023-11-01 +2024-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:CurrentDirectorMember +2022-11-01 +2023-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:CurrentDirectorMember +2024-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:MrFrankIngriselliMember +TPET:TwoThousandTwentyTwoEquityIncentivePlanMember +2022-02-28 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:MrGregOverholtzerMember +TPET:TwoThousandTwentyTwoEquityIncentivePlanMember +2022-02-28 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:TwoThousandTwentyTwoEquityIncentivePlanMember +2022-02-01 +2022-02-28 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:ExecutivesMember +TPET:TwoThousandTwentyTwoEquityIncentivePlanMember +TPET:RestrictedShareIssuedToExecutivesAndEmployeesMember +2022-02-28 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:ExecutivesMember +TPET:TwoThousandTwentyTwoEquityIncentivePlanMember +TPET:RestrictedShareIssuedToExecutivesAndEmployeesMember +2022-10-01 +2022-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:ExecutivesMember +TPET:RestrictedShareIssuedToExecutivesAndEmployeesMember +2023-11-01 +2024-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:ExecutivesMember +TPET:RestrictedShareIssuedToExecutivesAndEmployeesMember +2022-11-01 +2023-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:SixEmployeeAgreementMember +2023-05-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:SixEmployeeAgreementMember +2023-05-01 +2023-05-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:SixEmployeeAgreementMember +2023-11-01 +2024-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:SixEmployeeAgreementMember +2022-11-01 +2023-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:SixEmployeeAgreementMember +2024-10-31 +0001898766 +TPET:MichaelLPetersonMember +2023-10-23 +2023-10-23 +0001898766 +TPET:MichaelLPetersonMember +2023-10-23 +0001898766 +us-gaap:RestrictedStockMember +TPET:MrPetersonMember +2023-10-23 +2023-10-23 +0001898766 +us-gaap:RestrictedStockMember +TPET:MrPetersonMember +2023-10-23 +0001898766 +us-gaap:RelatedPartyMember +TPET:MrPetersonMember +2024-03-26 +0001898766 +us-gaap:RestrictedStockMember +TPET:MrPetersonMember +TPET:TwoThousandTwentyTwoEquityIncentivePlanMember +2024-03-26 +2024-03-26 +0001898766 +TPET:MrPetersonMember +2023-11-01 +2024-10-31 +0001898766 +TPET:MrPetersonMember +2022-11-01 +2023-10-31 +0001898766 +TPET:MrPetersonMember +2024-07-11 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +2024-07-11 +2024-07-11 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +2024-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +2023-11-01 +2024-10-31 +0001898766 +TPET:ConsultingMember +2023-11-01 +2024-10-31 +0001898766 +TPET:ConsultingMember +2022-11-01 +2023-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:ConsultingMember +2024-07-31 +0001898766 +TPET:MrRobinRossMember +2024-07-11 +2024-07-11 +0001898766 +TPET:MrRobinRossMember +2024-07-11 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:MrRobinRossMember +2024-07-11 +2024-07-11 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:MrRobinRossMember +2024-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:MrRobinRossMember +2023-11-01 +2024-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:MrRobinRossMember +2022-11-01 +2023-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +srt:ChiefFinancialOfficerMember +2024-10-21 +2024-10-21 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +srt:ChiefFinancialOfficerMember +2024-10-21 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +srt:ChiefFinancialOfficerMember +2023-11-01 +2024-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +srt:ChiefFinancialOfficerMember +2022-11-01 +2023-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +srt:ChiefFinancialOfficerMember +2024-10-31 +0001898766 +TPET:MichaelLPetersonMember +2024-03-26 +0001898766 +TPET:MichaelLPetersonMember +2024-03-26 +2024-03-26 +0001898766 +us-gaap:RestrictedStockMember +TPET:MrPetersonMember +TPET:TwoThousandTwentyTwoEquityIncentivePlanMember +2024-03-26 +0001898766 +TPET:MichaelLPetersonMember +2024-09-26 +2024-09-26 +0001898766 +TPET:MichaelLPetersonMember +2024-10-28 +2024-10-28 +0001898766 +TPET:MichaelLPetersonMember +2024-10-31 +0001898766 +TPET:FirstAforementionedMember +TPET:UnprovedPropertyLeaseMember +2024-10-31 +0001898766 +TPET:FirstAforementionedMember +TPET:UnprovedPropertyLeaseMember +2022-10-31 +0001898766 +TPET:SecondAforementionedMember +TPET:UnprovedPropertyLeaseMember +2024-10-31 +0001898766 +TPET:ParcelOneMember +2024-10-31 +0001898766 +TPET:ParcelTwoMember +2024-10-31 +0001898766 +TPET:LeaseholdMember +2024-10-31 +0001898766 +TPET:FirstGroupMember +TPET:UnprovedPropertyLeaseMember +2023-03-31 +0001898766 +TPET:FirstGroupMember +TPET:UnprovedPropertyLeaseMember +2023-03-01 +2023-03-31 +0001898766 +TPET:SecondGroupMember +TPET:UnprovedPropertyLeaseMember +2023-03-31 +0001898766 +TPET:SecondGroupMember +TPET:UnprovedPropertyLeaseMember +2023-03-01 +2023-03-31 +0001898766 +TPET:AmendedARLOAgreementMember +2024-10-31 +2024-10-31 +0001898766 +srt:DirectorMember +2022-07-09 +2022-07-11 +0001898766 +TPET:BoardCommitteeMember +2022-07-09 +2022-07-11 +0001898766 +us-gaap:IPOMember +2023-11-01 +2024-10-31 +0001898766 +us-gaap:IPOMember +2022-11-01 +2023-10-31 +0001898766 +TPET:AdvisorsMember +2022-07-28 +0001898766 +TPET:AdvisorsMember +2022-07-27 +2022-07-28 +0001898766 +us-gaap:WarrantMember +2023-04-20 +2023-04-20 +0001898766 +us-gaap:WarrantMember +2023-04-20 +0001898766 +TPET:AdvisorsMember +2023-10-04 +2023-10-04 +0001898766 +TPET:AdvisorsMember +2023-10-04 +0001898766 +TPET:AdvisorsMember +2023-12-29 +0001898766 +2024-02-26 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +2023-10-04 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +TPET:FirstTrancheMember +2023-10-04 +2023-10-04 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +TPET:SecondTrancheMember +2023-10-04 +2023-10-04 +0001898766 +TPET:SeniorSecuredConvertiblePromissoryNoteMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +2023-10-04 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +2023-10-04 +2023-10-04 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputSharePriceMember +2023-10-04 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputExercisePriceMember +2023-10-04 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputExpectedTermMember +2023-10-04 +2023-10-04 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputOptionVolatilityMember +2023-10-04 +2023-10-04 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputExpectedDividendRateMember +2023-10-04 +2023-10-04 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputDiscountRateMember +2023-10-04 +0001898766 +us-gaap:ConvertibleNotesPayableMember +2023-12-18 +0001898766 +us-gaap:ConvertibleNotesPayableMember +2023-12-29 +0001898766 +us-gaap:ConvertibleNotesPayableMember +2024-01-12 +0001898766 +us-gaap:ConvertibleNotesPayableMember +2024-01-12 +2024-01-12 +0001898766 +us-gaap:ConvertibleNotesPayableMember +2023-12-18 +2023-12-18 +0001898766 +us-gaap:ConvertibleNotesPayableMember +2023-12-29 +2023-12-29 +0001898766 +2023-12-18 +0001898766 +2023-12-29 +0001898766 +2024-01-12 +0001898766 +TPET:ConvertibleNotesPayableOneMember +2023-12-18 +2023-12-18 +0001898766 +TPET:ConvertibleNotesPayableOneMember +2023-12-29 +2023-12-29 +0001898766 +TPET:ConvertibleNotesPayableOneMember +2024-01-12 +2024-01-12 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +TPET:SecondTrancheMember +srt:MinimumMember +2023-12-29 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +TPET:SecondTrancheMember +srt:MaximumMember +2023-12-29 +0001898766 +us-gaap:MeasurementInputSharePriceMember +TPET:OriginalIssueTermsMember +2023-12-29 +0001898766 +us-gaap:MeasurementInputExercisePriceMember +TPET:OriginalIssueTermsMember +2023-12-29 +0001898766 +us-gaap:MeasurementInputExpectedTermMember +TPET:OriginalIssueTermsMember +2023-12-29 +2023-12-29 +0001898766 +us-gaap:MeasurementInputOptionVolatilityMember +TPET:OriginalIssueTermsMember +2023-12-29 +2023-12-29 +0001898766 +us-gaap:MeasurementInputExpectedDividendRateMember +TPET:OriginalIssueTermsMember +2023-12-29 +2023-12-29 +0001898766 +us-gaap:MeasurementInputDiscountRateMember +TPET:OriginalIssueTermsMember +2023-12-29 +0001898766 +us-gaap:MeasurementInputSharePriceMember +TPET:NewModifiedTermsMember +2023-12-29 +0001898766 +us-gaap:MeasurementInputExercisePriceMember +TPET:NewModifiedTermsMember +2023-12-29 +0001898766 +us-gaap:MeasurementInputExpectedTermMember +TPET:NewModifiedTermsMember +2023-12-29 +2023-12-29 +0001898766 +us-gaap:MeasurementInputOptionVolatilityMember +TPET:NewModifiedTermsMember +2023-12-29 +2023-12-29 +0001898766 +us-gaap:MeasurementInputExpectedDividendRateMember +TPET:NewModifiedTermsMember +2023-12-29 +2023-12-29 +0001898766 +us-gaap:MeasurementInputDiscountRateMember +TPET:NewModifiedTermsMember +2023-12-29 +0001898766 +us-gaap:WarrantMember +TPET:NewModifiedTermsMember +2023-12-29 +2023-12-29 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +2024-01-02 +2024-01-02 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +2024-01-02 +0001898766 +TPET:SeniorSecuredConvertiblePromissoryNoteMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +2024-01-02 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputSharePriceMember +2024-01-02 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputExercisePriceMember +2024-01-02 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputExpectedTermMember +2024-01-02 +2024-01-02 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputOptionVolatilityMember +2024-01-02 +2024-01-02 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputExpectedDividendRateMember +2024-01-02 +2024-01-02 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputDiscountRateMember +2024-01-02 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:FirstTrancheMember +2024-02-01 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:FirstTrancheMember +2024-02-16 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:FirstTrancheMember +2024-03-22 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:FirstTrancheMember +2024-04-02 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:FirstTrancheMember +2024-04-02 +2024-04-02 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:FirstTrancheMember +2024-02-01 +2024-02-01 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:FirstTrancheMember +2024-02-16 +2024-02-16 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:FirstTrancheMember +2024-03-22 +2024-03-22 +0001898766 +us-gaap:ConvertibleNotesPayableMember +2024-02-01 +2024-02-01 +0001898766 +us-gaap:ConvertibleNotesPayableMember +2024-02-16 +2024-02-16 +0001898766 +us-gaap:ConvertibleNotesPayableMember +2024-03-22 +2024-03-22 +0001898766 +us-gaap:ConvertibleNotesPayableMember +2024-04-02 +2024-04-02 +0001898766 +2024-02-01 +0001898766 +2024-02-16 +0001898766 +2024-03-22 +0001898766 +2024-04-02 +0001898766 +TPET:ConvertibleNotesPayableOneMember +2024-02-01 +2024-02-01 +0001898766 +TPET:ConvertibleNotesPayableOneMember +2024-02-16 +2024-02-16 +0001898766 +TPET:ConvertibleNotesPayableOneMember +2024-03-22 +2024-03-22 +0001898766 +TPET:ConvertibleNotesPayableOneMember +2024-04-02 +2024-04-02 +0001898766 +us-gaap:ConvertibleNotesPayableMember +2024-04-02 +0001898766 +TPET:FirstTrancheMember +2024-02-01 +2024-02-01 +0001898766 +TPET:FirstTrancheMember +2024-04-15 +2024-04-15 +0001898766 +TPET:FirstTrancheMember +2024-02-01 +0001898766 +TPET:FirstTrancheMember +2024-04-15 +0001898766 +2024-02-05 +2024-02-05 +0001898766 +srt:MaximumMember +2024-02-05 +0001898766 +srt:MinimumMember +2024-02-05 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:SecondTrancheMember +2024-02-02 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:SecondTrancheMember +2024-02-05 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:SecondTrancheMember +2024-02-05 +2024-02-05 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:SecondTrancheMember +2024-02-02 +2024-02-02 +0001898766 +TPET:SecondTrancheMember +2024-02-02 +2024-02-02 +0001898766 +TPET:SecondTrancheMember +2024-02-05 +2024-02-05 +0001898766 +TPET:SecondTrancheMember +2024-02-02 +0001898766 +TPET:SecondTrancheMember +2024-02-05 +0001898766 +us-gaap:ConvertibleNotesPayableMember +2024-10-31 +0001898766 +us-gaap:ConvertibleNotesPayableMember +2023-10-31 +0001898766 +us-gaap:ConvertibleNotesPayableMember +2023-11-01 +2024-10-31 +0001898766 +us-gaap:ConvertibleNotesPayableMember +2022-11-01 +2023-10-31 +0001898766 +TPET:MarchTwoThousandTwentyFourDebtFinancingMember +2024-03-27 +2024-03-27 +0001898766 +TPET:MarchTwoThousandTwentyFourDebtFinancingMember +2024-03-27 +0001898766 +TPET:MarchTwoThousandTwentyFourDebtFinancingMember +2024-09-30 +0001898766 +TPET:MarchTwoThousandTwentyFourDebtFinancingMember +2024-10-30 +0001898766 +TPET:MarchTwoThousandTwentyFourDebtFinancingMember +srt:ScenarioForecastMember +2024-11-30 +0001898766 +TPET:MarchTwoThousandTwentyFourDebtFinancingMember +srt:ScenarioForecastMember +2024-12-30 +0001898766 +TPET:MarchTwoThousandTwentyFourDebtFinancingMember +srt:ScenarioForecastMember +2025-01-30 +0001898766 +TPET:MarchTwoThousandTwentyFourDebtFinancingMember +srt:MinimumMember +2024-03-27 +0001898766 +srt:MaximumMember +2024-03-27 +0001898766 +TPET:MarchTwoThousandTwentyFourDebtFinancingMember +2024-09-30 +2024-09-30 +0001898766 +TPET:MarchTwoThousandTwentyFourDebtFinancingMember +2024-10-30 +2024-10-30 +0001898766 +TPET:MarchTwoThousandTwentyFourDebtFinancingMember +2024-10-31 +0001898766 +TPET:MarchTwoThousandTwentyFourDebtFinancingMember +2023-10-31 +0001898766 +TPET:MarchTwoThousandTwentyFourDebtFinancingMember +2023-11-01 +2024-10-31 +0001898766 +TPET:MarchTwoThousandTwentyFourDebtFinancingMember +2022-11-01 +2023-10-31 +0001898766 +srt:ChiefExecutiveOfficerMember +2024-03-26 +0001898766 +2024-03-26 +0001898766 +srt:ChiefExecutiveOfficerMember +2024-03-26 +2024-03-26 +0001898766 +TPET:MichaelLPetersonMember +2023-10-31 +0001898766 +TPET:AprilTwoThousandTwentyFourDebtFinancingMember +2024-04-24 +0001898766 +TPET:AprilTwoThousandTwentyFourDebtFinancingMember +2024-04-24 +2024-04-24 +0001898766 +TPET:AprilTwoThousandTwentyFourDebtFinancingMember +TPET:CommitmentSharesMember +2024-04-24 +2024-04-24 +0001898766 +TPET:AprilTwoThousandTwentyFourDebtFinancingMember +us-gaap:CommonStockMember +2024-04-24 +0001898766 +TPET:AprilTwoThousandTwentyFourDebtFinancingMember +us-gaap:CommonStockMember +srt:MinimumMember +2024-04-24 +0001898766 +TPET:AprilTwoThousandTwentyFourDebtFinancingMember +srt:MinimumMember +2024-04-24 +0001898766 +2024-04-24 +2024-04-24 +0001898766 +srt:MinimumMember +2024-04-24 +2024-04-24 +0001898766 +TPET:SeniorSecuredConvertiblePromissoryNoteMember +2024-04-24 +0001898766 +TPET:AprilTwoThousandTwentyFourDebtFinancingMember +2024-05-31 +0001898766 +TPET:AprilTwoThousandTwentyFourDebtFinancingMember +2024-05-31 +2024-05-31 +0001898766 +TPET:AprilTwoThousandTwentyFourDebtFinancingMember +TPET:TwoCashPaymentMember +2024-08-06 +0001898766 +TPET:AprilTwoThousandTwentyFourDebtFinancingMember +2024-08-14 +0001898766 +TPET:AprilTwoThousandTwentyFourDebtFinancingMember +2024-10-01 +2024-10-01 +0001898766 +TPET:AprilTwoThousandTwentyFourDebtFinancingMember +2024-10-01 +0001898766 +TPET:AprilTwoThousandTwentyFourDebtFinancingMember +2024-10-18 +2024-10-18 +0001898766 +TPET:AprilTwoThousandTwentyFourDebtFinancingMember +2024-10-18 +0001898766 +TPET:AprilTwoThousandTwentyFourDebtFinancingMember +2024-10-31 +0001898766 +TPET:AprilTwoThousandTwentyFourDebtFinancingMember +2023-10-31 +0001898766 +TPET:AprilTwoThousandTwentyFourDebtFinancingMember +2024-10-31 +2024-10-31 +0001898766 +TPET:AprilTwoThousandTwentyFourDebtFinancingMember +2023-10-31 +2023-10-31 +0001898766 +TPET:JuneTwoThousandTwentyFourDebtFinancingMember +TPET:JuneTwoThousandTwentyFourSPAMember +2024-06-27 +0001898766 +TPET:JuneTwoThousandTwentyFourDebtFinancingMember +2024-06-27 +2024-06-27 +0001898766 +TPET:SeniorSecuredConvertiblePromissoryNoteMember +TPET:JuneTwoThousandTwentyFourSPAMember +2024-06-27 +0001898766 +TPET:JuneTwoThousandTwentyFourSPAMember +2024-06-27 +0001898766 +TPET:JuneTwoThousandTwentyFourSPAMember +2024-06-27 +2024-06-27 +0001898766 +TPET:JuneTwoThousandTwentyFourSPAMember +us-gaap:MeasurementInputSharePriceMember +2024-06-27 +0001898766 +TPET:JuneTwoThousandTwentyFourSPAMember +us-gaap:MeasurementInputExercisePriceMember +2024-06-27 +0001898766 +TPET:JuneTwoThousandTwentyFourSPAMember +us-gaap:MeasurementInputExpectedTermMember +2024-06-27 +2024-06-27 +0001898766 +TPET:JuneTwoThousandTwentyFourSPAMember +us-gaap:MeasurementInputOptionVolatilityMember +2024-06-27 +2024-06-27 +0001898766 +TPET:JuneTwoThousandTwentyFourSPAMember +us-gaap:MeasurementInputExpectedDividendRateMember +2024-06-27 +2024-06-27 +0001898766 +TPET:JuneTwoThousandTwentyFourSPAMember +us-gaap:MeasurementInputDiscountRateMember +2024-06-27 +0001898766 +TPET:JuneTwoThousandTwentyFourDebtFinancingMember +2024-06-27 +0001898766 +TPET:JuneTwoThousandTwentyFourDebtFinancingMember +2024-09-26 +0001898766 +TPET:JuneTwoThousandTwentyFourDebtFinancingMember +2024-10-01 +0001898766 +TPET:JuneTwoThousandTwentyFourDebtFinancingMember +2024-10-31 +0001898766 +us-gaap:ConvertibleNotesPayableMember +2024-10-31 +2024-10-31 +0001898766 +TPET:JuneTwoThousandTwentyFourDebtFinancingMember +2024-09-26 +2024-09-26 +0001898766 +TPET:JuneTwoThousandTwentyFourDebtFinancingMember +2024-10-01 +2024-10-01 +0001898766 +TPET:JuneTwoThousandTwentyFourDebtFinancingMember +2024-10-31 +2024-10-31 +0001898766 +TPET:JuneTwoThousandTwentyFourDebtFinancingNetMember +2024-09-26 +2024-09-26 +0001898766 +TPET:JuneTwoThousandTwentyFourDebtFinancingNetMember +2024-10-01 +2024-10-01 +0001898766 +TPET:JuneTwoThousandTwentyFourDebtFinancingNetMember +2024-10-31 +2024-10-31 +0001898766 +TPET:JuneTwoThousandTwentyFourDebtFinancingMember +2024-10-11 +2024-10-11 +0001898766 +TPET:JuneTwoThousandTwentyFourDebtFinancingMember +2024-10-11 +0001898766 +TPET:JuneTwoThousandTwentyFourDebtFinancingOneMember +2024-10-31 +0001898766 +TPET:JuneTwoThousandTwentyFourDebtFinancingMember +2023-10-31 +0001898766 +TPET:JuneTwoThousandTwentyFourDebtFinancingOneMember +2024-10-31 +2024-10-31 +0001898766 +TPET:JuneTwoThousandTwentyFourDebtFinancingMember +2023-10-31 +2023-10-31 +0001898766 +TPET:AugustOneTwoThousandAndTwentyFourFinancingMember +2024-08-01 +2024-08-01 +0001898766 +TPET:AugustOneTwoThousandAndTwentyFourFinancingMember +2024-08-01 +0001898766 +TPET:AugustOneTwoThousandAndTwentyFourFinancingMember +us-gaap:SubsequentEventMember +2025-01-30 +2025-01-30 +0001898766 +TPET:AugustOneTwoThousandAndTwentyFourFinancingMember +us-gaap:SubsequentEventMember +2025-02-28 +2025-02-28 +0001898766 +TPET:AugustOneTwoThousandAndTwentyFourFinancingMember +us-gaap:SubsequentEventMember +2025-03-30 +2025-03-30 +0001898766 +TPET:AugustOneTwoThousandAndTwentyFourFinancingMember +us-gaap:SubsequentEventMember +2025-04-30 +2025-04-30 +0001898766 +TPET:AugustOneTwoThousandAndTwentyFourFinancingMember +us-gaap:SubsequentEventMember +2025-05-30 +2025-05-30 +0001898766 +TPET:AugustOneTwoThousandAndTwentyFourFinancingMember +2024-10-31 +0001898766 +TPET:AugustOneTwoThousandAndTwentyFourFinancingMember +2023-10-31 +0001898766 +TPET:AugustOneTwoThousandAndTwentyFourFinancingMember +2024-10-31 +2024-10-31 +0001898766 +TPET:AugustOneTwoThousandAndTwentyFourFinancingMember +2023-10-31 +2023-10-31 +0001898766 +TPET:AugustSixTwoThousandAndTwentyFourFinancingMember +2024-08-06 +2024-08-06 +0001898766 +TPET:AugustSixTwoThousandAndTwentyFourFinancingMember +2024-08-06 +0001898766 +TPET:AugustSixTwoThousandAndTwentyFourFinancingMember +us-gaap:SubsequentEventMember +2025-01-30 +2025-01-30 +0001898766 +TPET:AugustSixTwoThousandAndTwentyFourFinancingMember +us-gaap:SubsequentEventMember +2025-02-28 +2025-02-28 +0001898766 +TPET:AugustSixTwoThousandAndTwentyFourFinancingMember +us-gaap:SubsequentEventMember +2025-03-30 +2025-03-30 +0001898766 +TPET:AugustSixTwoThousandAndTwentyFourFinancingMember +us-gaap:SubsequentEventMember +2025-04-30 +2025-04-30 +0001898766 +TPET:AugustSixTwoThousandAndTwentyFourFinancingMember +us-gaap:SubsequentEventMember +2025-05-30 +2025-05-30 +0001898766 +TPET:AugustSixTwoThousandAndTwentyFourFinancingMember +2024-10-31 +0001898766 +TPET:AugustSixTwoThousandAndTwentyFourFinancingMember +2024-10-31 +2024-10-31 +0001898766 +TPET:AugustSixTwoThousandAndTwentyFourFinancingMember +2023-10-31 +2023-10-31 +0001898766 +us-gaap:CommonStockMember +2022-12-01 +2022-12-31 +0001898766 +us-gaap:CommonStockMember +2022-12-31 +0001898766 +us-gaap:IPOMember +2023-04-01 +2023-04-30 +0001898766 +us-gaap:IPOMember +2023-04-30 +0001898766 +us-gaap:CommonStockMember +2023-04-20 +2023-04-20 +0001898766 +us-gaap:CommonStockMember +2023-04-20 +0001898766 +TPET:ConsultantsMember +2023-04-20 +2023-04-20 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +2023-05-01 +2023-05-01 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +2023-05-01 +0001898766 +TPET:TwoThousandTwentyTwoEquityIncentivePlanMember +2023-11-01 +2024-10-31 +0001898766 +TPET:TwoThousandTwentyTwoEquityIncentivePlanMember +2022-11-01 +2023-10-31 +0001898766 +TPET:TwoThousandTwentyTwoEquityIncentivePlanMember +2024-10-31 +0001898766 +us-gaap:CommonStockMember +2023-05-02 +2023-05-02 +0001898766 +us-gaap:CommonStockMember +2023-06-23 +2023-06-23 +0001898766 +us-gaap:CommonStockMember +2023-07-11 +2023-07-11 +0001898766 +us-gaap:CommonStockMember +2023-05-02 +0001898766 +us-gaap:CommonStockMember +2023-06-23 +0001898766 +us-gaap:CommonStockMember +2023-07-11 +0001898766 +TPET:ConsultantsMember +2023-05-02 +2023-05-02 +0001898766 +TPET:ConsultantsMember +2023-06-23 +2023-06-23 +0001898766 +TPET:ConsultantsMember +2023-07-11 +2023-07-11 +0001898766 +us-gaap:CommonStockMember +TPET:MarcumLlpMember +2023-06-30 +2023-06-30 +0001898766 +us-gaap:CommonStockMember +TPET:MarcumLlpMember +2023-06-30 +0001898766 +2023-06-30 +2023-06-30 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:MrFrankIngriselliMember +2023-07-20 +2023-07-20 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:MrFrankIngriselliMember +2023-07-20 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:FourOutsideDirectorMember +2023-09-02 +2023-09-02 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:FourOutsideDirectorMember +2023-09-02 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:FourOutsideDirectorMember +2023-11-01 +2024-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:FourOutsideDirectorMember +2022-11-01 +2023-10-31 +0001898766 +2023-10-16 +2023-10-16 +0001898766 +2023-10-16 +0001898766 +us-gaap:CommonStockMember +2023-11-11 +2023-11-11 +0001898766 +us-gaap:CommonStockMember +TPET:VendorMember +2023-11-11 +2023-11-11 +0001898766 +us-gaap:CommonStockMember +TPET:VendorMember +2023-11-11 +0001898766 +us-gaap:ConvertibleNotesPayableMember +2024-02-01 +0001898766 +us-gaap:ConvertibleNotesPayableMember +2024-02-16 +0001898766 +us-gaap:ConvertibleNotesPayableMember +2024-03-22 +0001898766 +TPET:MarketingServicesAgreementMember +TPET:ConsultantsMember +2024-03-20 +2024-03-20 +0001898766 +TPET:MarketingServicesAgreementMember +TPET:ConsultantsMember +2024-03-20 +0001898766 +TPET:MarketingServicesAgreementMember +TPET:ConsultantsMember +2024-03-26 +2024-03-26 +0001898766 +TPET:MarketingServicesAgreementMember +TPET:ConsultantsMember +2024-01-01 +2024-01-31 +0001898766 +TPET:MarketingServicesAgreementMember +TPET:ConsultantsMember +2024-03-26 +0001898766 +TPET:AprilTwoThousandTwentyFourDebtFinancingMember +TPET:InvestorsMember +2024-04-16 +2024-04-16 +0001898766 +TPET:AprilTwoThousandTwentyFourDebtFinancingMember +TPET:InvestorsMember +2024-04-24 +2024-04-24 +0001898766 +TPET:AprilTwoThousandTwentyFourDebtFinancingMember +TPET:InvestorsMember +2024-04-16 +0001898766 +TPET:AprilTwoThousandTwentyFourDebtFinancingMember +TPET:InvestorsMember +2024-04-24 +0001898766 +TPET:MarketingServicesAgreementMember +TPET:ConsultantsMember +us-gaap:CommonStockMember +2024-04-29 +2024-04-29 +0001898766 +TPET:MarketingServicesAgreementMember +TPET:ConsultantsMember +2024-04-29 +2024-04-29 +0001898766 +TPET:MarketingServicesAgreementMember +TPET:ConsultantsMember +2024-04-29 +0001898766 +2024-09-09 +2024-09-09 +0001898766 +TPET:UponSigningMember +2024-09-09 +2024-09-09 +0001898766 +TPET:AfterThirtyDaysMember +2024-09-09 +2024-09-09 +0001898766 +us-gaap:CommonStockMember +2024-09-09 +2024-09-09 +0001898766 +2024-09-09 +0001898766 +TPET:JuneTwoThousandTwentyFourNotesMember +2024-09-26 +0001898766 +TPET:JuneTwoThousandTwentyFourNotesMember +2024-10-01 +0001898766 +TPET:JuneTwoThousandTwentyFourNotesMember +2024-10-30 +0001898766 +TPET:JuneTwoThousandTwentyFourNotesMember +2024-09-26 +2024-09-26 +0001898766 +TPET:JuneTwoThousandTwentyFourNotesMember +2024-10-01 +2024-10-01 +0001898766 +TPET:JuneTwoThousandTwentyFourNotesMember +2024-10-30 +2024-10-30 +0001898766 +2024-09-26 +2024-09-26 +0001898766 +2024-10-01 +2024-10-01 +0001898766 +2024-10-30 +2024-10-30 +0001898766 +2024-09-26 +0001898766 +2024-10-01 +0001898766 +2024-10-30 +0001898766 +TPET:JuneTwoThousandTwentyFourNotesMember +2024-10-11 +2024-10-11 +0001898766 +TPET:JuneTwoThousandTwentyFourNotesMember +2024-10-11 +0001898766 +us-gaap:CommonStockMember +TPET:TwoAccreditedInvestorsMember +2022-12-31 +0001898766 +us-gaap:OverAllotmentOptionMember +2023-04-30 +0001898766 +TPET:SeniorSecuredConvertiblePromissoryNoteMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +TPET:FirstTrancheMember +2023-12-29 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputSharePriceMember +TPET:FirstTrancheMember +2023-12-29 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputExercisePriceMember +TPET:FirstTrancheMember +2023-12-29 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputExpectedTermMember +TPET:FirstTrancheMember +2023-12-29 +2023-12-29 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputOptionVolatilityMember +TPET:FirstTrancheMember +2023-12-29 +2023-12-29 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputExpectedDividendRateMember +TPET:FirstTrancheMember +2023-12-29 +2023-12-29 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputDiscountRateMember +TPET:FirstTrancheMember +2023-12-29 +0001898766 +TPET:SeniorSecuredConvertiblePromissoryNoteMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +TPET:SecondTrancheMember +2023-12-29 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputSharePriceMember +TPET:SecondTrancheMember +2023-12-29 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputExercisePriceMember +TPET:SecondTrancheMember +2023-12-29 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputExpectedTermMember +TPET:SecondTrancheMember +2023-12-29 +2023-12-29 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputOptionVolatilityMember +TPET:SecondTrancheMember +2023-12-29 +2023-12-29 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputExpectedDividendRateMember +TPET:SecondTrancheMember +2023-12-29 +2023-12-29 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputDiscountRateMember +TPET:SecondTrancheMember +2023-12-29 +0001898766 +TPET:SeniorSecuredConvertiblePromissoryNoteMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +TPET:SecondTrancheMember +2024-01-02 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputSharePriceMember +TPET:SecondTrancheMember +2024-01-02 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputExercisePriceMember +TPET:SecondTrancheMember +2024-01-02 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputExpectedTermMember +TPET:SecondTrancheMember +2024-01-02 +2024-01-02 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputOptionVolatilityMember +TPET:SecondTrancheMember +2024-01-02 +2024-01-02 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputExpectedDividendRateMember +TPET:SecondTrancheMember +2024-01-02 +2024-01-02 +0001898766 +us-gaap:ConvertibleNotesPayableMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +us-gaap:MeasurementInputDiscountRateMember +TPET:SecondTrancheMember +2024-01-02 +0001898766 +TPET:JuneTwoThousandTwentyFourSPAMember +2024-06-27 +0001898766 +TPET:JuneTwoThousandTwentyFourSPAMember +us-gaap:MeasurementInputExercisePriceMember +2024-06-27 +0001898766 +TPET:JuneTwoThousandTwentyFourSPAMember +2024-06-27 +2024-06-27 +0001898766 +TPET:JuneTwoThousandTwentyFourSPAMember +us-gaap:MeasurementInputSharePriceMember +2024-06-27 +0001898766 +TPET:JuneTwoThousandTwentyFourSPAMember +us-gaap:MeasurementInputExpectedTermMember +2024-06-27 +2024-06-27 +0001898766 +TPET:JuneTwoThousandTwentyFourSPAMember +us-gaap:MeasurementInputOptionVolatilityMember +2024-06-27 +2024-06-27 +0001898766 +TPET:JuneTwoThousandTwentyFourSPAMember +us-gaap:MeasurementInputExpectedDividendRateMember +2024-06-27 +2024-06-27 +0001898766 +TPET:JuneTwoThousandTwentyFourSPAMember +us-gaap:MeasurementInputDiscountRateMember +2024-06-27 +0001898766 +us-gaap:EmployeeStockOptionMember +TPET:ConsultantMember +2023-08-15 +2023-08-15 +0001898766 +us-gaap:EmployeeStockOptionMember +TPET:ConsultantMember +2023-08-15 +0001898766 +TPET:ExercisePriceRangeOneMember +us-gaap:WarrantMember +2024-10-31 +0001898766 +TPET:ExercisePriceRangeOneMember +us-gaap:WarrantMember +2023-11-01 +2024-10-31 +0001898766 +TPET:ExercisePriceRangeTwoMember +us-gaap:WarrantMember +2024-10-31 +0001898766 +TPET:ExercisePriceRangeTwoMember +us-gaap:WarrantMember +2023-11-01 +2024-10-31 +0001898766 +TPET:ExercisePriceRangeThreeMember +us-gaap:WarrantMember +2024-10-31 +0001898766 +TPET:ExercisePriceRangeThreeMember +us-gaap:WarrantMember +2023-11-01 +2024-10-31 +0001898766 +TPET:ExercisePriceRangeFourMember +us-gaap:WarrantMember +2024-10-31 +0001898766 +TPET:ExercisePriceRangeFourMember +us-gaap:WarrantMember +2023-11-01 +2024-10-31 +0001898766 +TPET:ExercisePriceRangeFiveMember +us-gaap:WarrantMember +2024-10-31 +0001898766 +TPET:ExercisePriceRangeFiveMember +us-gaap:WarrantMember +2023-11-01 +2024-10-31 +0001898766 +TPET:ExercisePriceRangeSixMember +us-gaap:WarrantMember +2024-10-31 +0001898766 +TPET:ExercisePriceRangeSixMember +us-gaap:WarrantMember +2023-11-01 +2024-10-31 +0001898766 +TPET:ExercisePriceRangeSevenMember +us-gaap:WarrantMember +2024-10-31 +0001898766 +TPET:ExercisePriceRangeSevenMember +us-gaap:WarrantMember +2023-11-01 +2024-10-31 +0001898766 +TPET:ExercisePriceRangeEightMember +us-gaap:WarrantMember +2024-10-31 +0001898766 +TPET:ExercisePriceRangeEightMember +us-gaap:WarrantMember +2023-11-01 +2024-10-31 +0001898766 +us-gaap:WarrantMember +2024-10-31 +0001898766 +us-gaap:WarrantMember +2023-11-01 +2024-10-31 +0001898766 +us-gaap:EmployeeStockOptionMember +2022-10-31 +0001898766 +us-gaap:EmployeeStockOptionMember +2022-11-01 +2023-10-31 +0001898766 +us-gaap:EmployeeStockOptionMember +2023-10-31 +0001898766 +us-gaap:EmployeeStockOptionMember +2023-11-01 +2024-10-31 +0001898766 +us-gaap:EmployeeStockOptionMember +2024-10-31 +0001898766 +TPET:ExercisePriceRangeOneMember +us-gaap:EmployeeStockOptionMember +2024-10-31 +0001898766 +TPET:ExercisePriceRangeOneMember +us-gaap:EmployeeStockOptionMember +2023-11-01 +2024-10-31 +0001898766 +TPET:ConsultingAgreementMember +srt:ChiefFinancialOfficerMember +2024-12-30 +2025-01-02 +0001898766 +TPET:ConsultingAgreementMember +2025-01-01 +2025-01-01 +iso4217:USD +xbrli:shares +iso4217:USD +xbrli:shares +utr:acre +xbrli:pure +TPET:Barrel +UNITED +STATES +SECURITIES +AND EXCHANGE COMMISSION +WASHINGTON +D.C. 20549 +FORM +10-K +☒ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the Fiscal Year Ended October 31 , 2024 +OR +☐ +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the transition period from _______ to ________. +Commission +file number: 001-41643 +TRIO +PETROLEUM CORP. +(Exact +name of Registrant as specified in its charter) +Delaware +87-1968201 +(State +or other jurisdiction of +(I.R.S. +Employer +incorporation +or organization) +Identification +No.) +5401 +Business Park South , Suite 115 +Bakersfield , +CA +93309 +(Address +of principal executive offices) +(Zip +Code) +Registrant’s +telephone number, including area code: (661) 324-3911 +Securities +registered pursuant to Section 12(b) of the Act: +Title +of each class +Trading +Symbol(s) +Name +of each exchange on which registered +Common +Stock, par value $0.0001 per share +TPET +NYSE +American LLC +Indicate +by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No +Indicate +by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ +No +Indicate +by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange +Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) +has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No +Indicate +by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule +405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant +was required to submit such files). ☒ Yes +☐ No +Indicate +by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, +or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging +growth company in Rule 12b-2 of the Exchange Act. +Large +Accelerated Filer +☐ +Accelerated +Filer +☐ +Non-Accelerated +Filer +☒ +Smaller +Reporting Company +☒ +Emerging +Growth Company +☒ +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying +with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate +by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness +of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered +public accounting firm that prepared or issued its audit report. ☐ +If +securities are registered pursuant to Section 12(b) of the Act, indicate by check mark, whether the financial statements of the registrant +included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate +by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation +received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate +by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No +The +aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which +the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s +most recently completed second fiscal quarter, April 30, 2024, was $ 13,754,899 . +As +of January 15, 2025, there were 6,725,702 shares of the registrant’s common stock outstanding. +TABLE +OF CONTENTS +PART +I +ITEM +1. +BUSINESS. +1 +ITEM +1A. +RISK +FACTORS. +16 +ITEM +1B. +UNRESOLVED +STAFF COMMENTS. +30 +ITEM +1C. +CYBERSECURITY. +30 +ITEM +2. +PROPERTIES. +31 +ITEM +3. +LEGAL +PROCEEDINGS. +31 +ITEM +4. +MINE +SAFETY DISCLOSURES. +31 +ITEM +5. +MARKET +FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES +31 +ITEM +6. +[RESERVED] +33 +ITEM +7. +MANAGEMENT’S +DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. +33 +ITEM +7A. +QUANTITATIVE +AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. +43 +ITEM +8. +FINANCIAL +STATEMENTS AND SUPPLEMENTAL DATA. +43 +ITEM +9. +CHANGES +IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. +43 +ITEM +9A. +CONTROLS +AND PROCEDURES. +43 +ITEM +9B. +OTHER +INFORMATION. +44 +ITEM +9C. +DISCLOSURE +REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. +44 +PART +III +ITEM +10. +DIRECTORS, +EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. +45 +ITEM +11. +EXECUTIVE +COMPENSATION. +49 +ITEM +12. +SECURITY +OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. +56 +ITEM +13. +CERTAIN +RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. +58 +ITEM +14. +PRINCIPAL +ACCOUNTANT FEES AND SERVICES. +62 +PART +IV +ITEM +15. +EXHIBITS, +FINANCIAL STATEMENTS AND SCHEDULES +63 +SPECIAL +NOTE. +On +November 5, 2024, we received notice from NYSE American that the NYSE American had suspended trading of our shares of common stock, until +the effectiveness of a reverse stock split or our shares of common stock, par value $0.0001 per share (the “common stock”) +at a ratio of one share of common stock for every 20 shares of common stock outstanding (the “Reverse Stock Split”), because +our common stock was consistently selling at a low selling price per share in violation of Section 1003(f)(v) of the NYSE American Company +Guide. Upon effecting the Reverse Stock Split on November 14, 2024, our common stock began trading again on the NYSE American on November +15, 2024. If, in the future, the price of our common stock falls out of compliance, again, with the continued listing requirements of +the NYSE American, this could result in a de-listing of our common stock from trading on the NYSE American. +Unless +otherwise specifically provided in this prospectus, all share and per share information reflect the Reverse Stock Split, at a ratio of +one share of common stock for every 20 shares of common stock outstanding, which was effective on November 14, 2024. Our common stock +began trading on the NYSE American, on a post-reverse split basis, at the beginning of trading on November 15, 2024. +ITEM +1. BUSINESS. +Overview +TPET +is a California-based oil and gas exploration and development company headquartered in Bakersfield, California, with its principal executive +offices located at 5401 Business Park South, Suite 115, Bakersfield, California 93309, and with operations in Monterey County, California, +and Uintah County, Utah. The Company was incorporated on July 19, 2021, under the laws of Delaware to acquire, fund, and operate oil +and gas exploration, development and production projects, initially focusing on one major asset in California, the South Salinas Project +(“South Salinas Project”). +We +have had revenue-generating operations since the McCool Ranch Oil Field was restarted on February 22, 2024, and as of the quarter ended +April 30, 2024, we recorded approximately $75,000 in net revenues from our McCool Ranch Oil Field. +TPET +was formed to initially acquire from Trio Petroleum LLC (“Trio LLC”) an approximate 82.75% working interest, which was subsequently +increased to an approximate 85.775% working interest, in the large, approximately 9,300-acre South Salinas Project that is located in +Monterey County, California, and subsequently partner with certain members of Trio LLC’s management team to develop and operate +those assets. TPET holds an approximate 68.62% interest after the application of royalties (“net revenue interest”) in the +South Salinas Project. Trio LLC holds an approximate 3.8% working interest in the South Salinas Project. TPET and Trio LLC are separate +and distinct companies. +California +is a significant part of TPET’s geographic focus and we recently acquired a 22% working interest in the McCool Ranch Oil Field +(the “McCool Ranch Oil Field”, “McCool Ranch Field” or “McCool Ranch”) in Monterey County, California. +TPET’s interests extend beyond California, however, and we recently acquired an interest in the Asphalt Ridge Project in Uintah +County, Utah. We may acquire additional assets both inside and outside of California and Utah. +Trio +LLC is a licensed Operator in California and currently operates the South Salinas Project and the McCool Ranch Oil Field on behalf of +TPET and other working interest owners. Trio LLC operates these assets pursuant to joint operating agreements (“JOAs”) between +and among Trio LLC and the non-operating, third-party, working interest owners. The non-operating parties have agreed under the JOAs +to have the Operator explore and develop these assets for the production of oil and gas as provided thereunder. Trio LLC, as Operator, +generally conducts and has significant control of operations, subject to the limitations and constraints of the JOAs, and acts in the +capacity of an independent contractor. Operator is obligated to conduct its activities under the JOAs as a reasonable prudent operator, +in good workmanlike manner, with due diligence and dispatch, in accordance with good oilfield practices, and in compliance with applicable +laws and regulations. +1 +Recent +Business Developments +Changes +to Company Management +Changes +were made in June 2024, to our management team including the following: 1) Robin Ross, one of the original founders of the Company, became +our new Chairman and a Director; 2) Stanford Eschner, our former Executive Chairman, became our Vice Chairman, and; 3) Frank Ingriselli +stepped down from his position as Vice Chairman and also from his position as a member of the Board of Directors. Additionally, in July 2024, Michael Peterson resigned as Chief Executive Officer (“CEO”) of the Company +and Robin Ross became our new CEO as of that date. +Changes +to Independent Registered Public Accounting Firm +On +May 6, 2024, the Company dismissed BF Borgers CPA PC as the Company’s independent registered public accounting firm. Effective +May 8, 2024, the Company retained Bush & Associates CPA LLC as its independent registered public accounting firm. +South +Salinas Project +Efforts +to obtain from Monterey County conditional use permits and a full field development permit for the South Salinas Project are progressing. +Efforts to obtain from the California Geologic Energy Management Division (“CalGEM”) and from the California Water Boards +a permit for a water disposal project at the South Salinas Project are also progressing. In the meantime, the Company recently determined +that existing permits allow production testing to continue at the HV-3A discovery well at Presidents Field and, consequently, testing +operations were restarted at this well on March 22, 2024. Oil production from this well has occurred with a generally favorable oil-water +ratio and the Company expects, in the first calendar quarter of 2025, to takes steps to attempt to increase the well’s gross production +rate, for example by adding up to 650 feet of additional perforations in the oil zone and/or acidizing the well for borehole cleanup. +First oil sales from the HV-3A well occurred in the third calendar quarter of 2024. +McCool +Ranch Oil Field +On +October 16, 2023, TPET entered into a Purchase and Sale Agreement with Trio LLC (the “McCool Ranch Purchase Agreement”) pertaining +to the McCool Ranch Oil Field. Pursuant to this agreement, effective October 1, 2023, we acquired an approximate 22% working interest +in and to certain oil and gas assets at the McCool Ranch Field, which is located in Monterey, County, California, just seven miles from +our flagship South Salinas Project. The assets are situated in what is known as the “Hangman Hollow Area” of the McCool Ranch +Field. The acquired property is a relatively new oil field (discovered in 2011) developed with six oil wells, one water-disposal well, +steam generator, boiler, three 5,000 barrel tanks, 250 barrel test tank, water softener, two freshwater tanks, two soft water tanks, +in-field steam pipelines, oil pipelines and other facilities. The property is fully and properly permitted for oil and gas production, +cyclic-steam injection and water disposal. We are acquiring the working interest at McCool Ranch through primarily work commitment expenditures +that are being allocated to restart production at the field and establish cash flow for us, with upside potential given the numerous +undrilled infill and development well locations. Oil production was restarted on February 22, 2024. +McCool +Ranch successfully restarted field operations, including the restarting of oil production at the 58X and HH-1 wells. These two wells +were restarted on February 22, 2024, and the HH-1 well at McCool Ranch has been producing about 47 barrels of oil per day since it was +put back on cold production. The 58X well at McCool Ranch was also put back on production but was temporarily idled in order to perform +a heat treatment that the Company expects to be accomplished by the first calendar quarter of 2025. +McCool +Ranch operations have been successfully restarted, including the restarting of oil production at the HH-1, 35X and 58X wells. The HH-1 +well has a short horizontal completion in the Lombardi Oil Sand, whereas the 35X and 58X wells are both vertical wells with similar oil +columns in the Lombardi Oil Sand and with similar subsurface borehole completions. The HH-1 well at McCool Ranch upon restart was initially +producing about 47 barrels of oil per day. The HH-1 and 35X wells collectively has been producing about 10 to 15 bopd. The 58X well is +temporarily idle. Oil production at the HH-1 and 35X wells has been “cold” (i.e., without steam). Both wells have been temporarily +idled pending further assessment to place on steam during the first calendar quarter of 2025. +The +aforementioned initial three wells at McCool Ranch were each restarted and produced “cold” (i.e. without steam injection), +which allows for lower operating costs, with expectation that each would be produced cold as long as profitable. The Company expects +to transition each well from cold to cyclic-steam production, also known as “huff and puff,” which is expected to significantly +increase production. The wells at McCool Ranch historically have responded favorably when cyclic-steam operations have been applied. +The +Company is assessing the viability of restarting the last two wells in the restart program, the HH-3 and HH-4 wells, in the first +calendar quarter of 2025. The HH-3 and HH-4 wells will have horizontal completions similar to but longer than that of the HH-1 well. +All water produced from these wells will be disposed in the on-site water disposal well. +2 +The +HH-1 well was initially produced cold for about 380 days in 2012-2013, during which time peak production was about 156 barrels of oil +per day (“BOPD”), average production was about 35 BOPD and cumulative production was about 13,147 barrels of oil (“BO”). +The 58X well was initially produced cold for about 230 days in 2011-2013, during which time peak production was about 41 BOPD, average +production was about 13 BOPD and cumulative production was about 2,918 BO. +KLS +Petroleum Consulting LLC (“KLSP”), a third-party, independent engineering firm, recommends that McCool Ranch be developed +with horizontal wells, each landed in the Lombardi Oil Sand with a 1,000-foot lateral. Management estimates that TPET’s property +can probably accommodate approximately 22 additional such horizontal wells. TPET expects to add the reserve value of the McCool Ranch +Field to the Company’s reserve report after a further period of observation and review of the oil production that was restarted +on February 22, 2024. +Asphalt +Ridge Option Agreement +On +November 10, 2023, TPET entered into a Leasehold Acquisition and Development Option Agreement (the “Asphalt Ridge Option Agreement”) +with Heavy Sweet Oil LLC (“HSO”). Pursuant to the Asphalt Ridge Option Agreement, the Company acquired an option to purchase +up to a 20% working interest in certain leases at a long-recognized, major oil accumulation in northeastern Utah, in Uintah County, southwest +of the city of Vernal, totaling 960 acres. HSO holds the right to such leases below 500 feet depth from surface and the Company acquired +the option to participate in HSO’s initial 960 acre drilling and production program (the “HSO Program”) on such Asphalt +Ridge Leases. TPET also holds the right of first refusal to participate with up to 20% working interest on the greater approximate 30,000 +acre leasehold at terms offered to other third-parties. On December 29, 2023, the Company and HSO entered into an Amendment to Leasehold +Acquisition and Development Agreement (the “Amendment to the Asphalt Ridge Option Agreement”), pursuant to which the Company +and HSO amended the Asphalt Ridge Option Agreement to provide that, within three (3) business days of the effective date of the Amendment +to the Asphalt Ridge Option Agreement, the Company would fund $200,000 of the $2,000,000 total purchase price in advance of HSO satisfying +the closing conditions set forth in the Asphalt Ridge Option Agreement, in exchange for the Company receiving an immediate 2% interest +in the Asphalt Ridge Leases, which advanced funds would be used solely for the building of roads and related infrastructure in furtherance +of the development plan. In January 2024, the Company funded an additional $25,000 resulting in a 2.25% working interest in the Asphalt +Ridge Leases. +The +Asphalt Ridge Project, according to J. Wallace Gwynn of Energy News, is estimated to be the largest measured tar sand resource in the +United States, and is unique given its low wax and negligible sulfur content, which is expected to make the oil produced very desirable +for many industries, including shipping. +Asphalt +Ridge is a prominent, northwest-southeast trending topographic feature (i.e., a dipping slope called a hog’s back or cuesta) that +crops-out along the northeast flank of the Uinta Basin. The outcrop is comprised largely of Tertiary and Cretaceous age sandstones that +are locally highly-saturated with heavy oil and/or tar. The oil-saturated sandstones extend into the shallow subsurface of the Uinta +Basin to the southwest, which is the site of the Asphalt Ridge Development Project, and where the sandstones are estimated in various +independent studies to contain billions of barrels of oil-in-place. The project leasehold comprises over 30,000 acres and trends northwest-southeast, +along the trend of Asphalt Ridge, over a distance of about 20 miles. +The +area has been underdeveloped for decades due, in large part, to lease ownership issues and the definition of heavy oil falling under +mining regulations in the State of Utah. These factors created conflict between surface rights and subsurface mineral rights and were +obstacles to developing the asset using proven advanced cyclic-steam production techniques. Necessary permits have now been secured that +should allow drilling to commence by our operating partner. HSO hopes to continue to work with the State of Utah to supplement prior +receipt of permits with other state incentives, including working with the State on an arrangement requiring only an 8% state royalty +in connection with this project. +An +early development phase contemplates the development of 240 acres with an estimated 119 wells in the Northwest Asphalt Ridge Area. The +plan is to develop the 240 acres using advanced cyclic-steam production techniques, including initial CO2 injection. This phase contemplates +seventeen 7-spot hexagonal well patterns on 2 ½ acre spacing (a 7-spot has a central steam/CO2 injection well that is surrounded +by six producing oil wells). Upgrades have been made to existing roads and well pads as part of this early development phase. +3 +Two +oil-saturated Cretaceous sandstones are targeted for development at Asphalt Ridge: the Rimrock Sandstone and the underlying Asphalt Ridge +Sandstone. TPET expects to add the reserve value, if any, of the Asphalt Ridge Project to the Company’s reserve report after a +brief period of observation and review of the oil development operations that commenced in the second quarter of 2024. +During +the quarterly period ended April 30, 2024, we announced the commencement of drilling activities at Asphalt Ridge. The first well, HSO +8-4 (API# 4304757202), was spud on May 10, 2024 and drilled to a total depth of 1,020 feet. The well found 100 feet of Rimrock Sandstone +tar-sand pay zone with good oil saturation and good porosity. Thirty feet of the Rimrock was cored. A small, representative piece of +Rimrock core was placed in water and brought to boiling point, and within a few minutes the sand disaggregated and the bitumen became +liquid, mobile-oil, floating on top of the water – this simple laboratory test indicates that the bitumen becomes mobile-oil at +relatively low temperatures and supports our contention that oil extraction using subsurface thermal-recovery methods may be very successful. +A second well, the HSO 2-4 (API# 430475201), was spud on May 19, 2024 and drilled to a total depth of 1,390 feet. The well drilled through +both the Rimrock tar-sand, which had a thickness of 135 feet, and the Asphalt Ridge tar-sand, which had a thickness of 59 feet. Oil production +has commenced using downhole heaters, whereas the operator plans to transition to production using advanced cyclic-steam and steam-drive +methods. +The +Company has until February 10, 2025, to pay HSO an additional $1,775,000 to exercise an option for the remaining 17.75% working interest +in the initial 960 acres. If this option is not exercised on or before the deadline or any extension thereof, the option will expire +and the Company will forfeit any further right to acquire this additional 17.75% working interest in the initial 960 acres. +Carbon +Capture and Storage Project as part of Company’s South Salinas Project +TPET +is committed to attempting to reduce its own carbon footprint and, where possible, that of others. For this reason, TPET is taking initial +steps to launch a Carbon Capture and Storage (CCS) project as part of the South Salinas Project. The South Salinas Project covers a vast +area and is uniquely situated at a deep depocenter where there are thick geologic zones (e.g., Vaqueros Sand, up to approximately 500’ +thick), about two miles deep, which could potentially accommodate and permanently store vast volumes of CO2. Four existing deep wells +in the South Salinas Project (i.e., the HV 1-35, BM 2-2, BM 1-2-RD1 and HV 3-6 wells) are excellent candidates for use as CO2 injection +wells. A CCS project in the future may help reduce TPET’s carbon footprint by sequestering and permanently storing CO2 deep underground +at one or more deep wells, away from drinking water sources. Furthermore, three of the aforementioned deep wells are directly located +on three idle oil and gas pipelines that could be used to import CO2 to the Company’s CCS Project. TPET has opened discussions +with third parties who wish to reduce their own greenhouse gas emissions and who may be interested in participating in our CCS project. +TPET believes it feasible to develop the major oil and gas resources of the South Salinas Project and to concurrently establish a substantial +CCS project and potentially a CO2 storage hub and/or Direct Air Capture (DAC) hub. +E ntry +into a Letter of Intent to Acquire Novacor Exploration Ltd. Oil and Gas Assets in Saskatchewan, Canada +On +December 18, 2024, TPET entered into a non-binding Letter of Intent (“LOI”) for the acquisition of a 100% working interest +in certain petroleum and natural gas assets held by Novacor Exploration Ltd. (“Novacor”), which are located in the prolific +Lloydminster, Saskatchewan heavy oil region (the “Proposed Novacor Acquisition”). The stated purchase price of the Proposed +Novacor Acquisition is CD$2 million (approximately US$1.4 million based on exchange rates on the date of the LOI) payable US$650,000 +in cash and the remainder in shares of common stock of Trio, which TPET would agree to use its commercially reasonable efforts to register +for resale in a registration statement filed with the United States Securities and Exchange Commission. Upon execution of the LOI, the +Company paid Novacor a good faith deposit of $65,000, which will be applied to the cash portion of the purchase price at closing. Other +than obligations of confidentiality and exclusivity contained in the LOI, no other terms are binding until definitive acquisition documents +are signed by the parties. The definitive acquisition documents would likely contain customary representations and warranties of the +parties and certain conditions to closing, including approval of the Proposed Novacor Acquisition by the board of directors of each of +Novacor and TPET, and a condition that TPET raises sufficient financing to consummate the Proposed Novacor Acquisition. Unless extended +by the mutual agreement of the parties, the LOI will terminate on the earlier of (i) the mutual agreement of Novacor and TPET, (ii) the +execution of definitive acquisition documents or (iii) on February 15, 2025. +4 +South +Salinas Project +Oil +Rights and Ownership +TPET +has an approximate 85.775% working interest in the South Salinas Project. We have a mineral-leasehold of approximately 9,300 gross mineral +acres and 7,946 net mineral -acres in one largely contiguous land package from primarily one Lessor, Bradley Minerals. The surface lands +at the approximate 9,300 mineral acres are primarily part of the private Porter Ranch. There are six existing idle wells and one active +well in the South Salinas Project, and permits are approved by Monterey County for the drilling and testing of two additional wells (i.e., +the HV-2 and HV-4 wells). +Description +of South Salinas Property and Current Operations +We +initiated operations as TPET with the acquisition from Trio LLC of an 82.75% working interest in the South Salinas Project under the +terms of a Purchase and Sale Agreement (the “South Salinas Purchase Agreement”) dated September 14, 2021. Our working interest +was later increased by 3.026471% and we currently hold an approximate 85.775% working interest and an approximate 68.62% net revenue +interest (after all royalties) in the South Salinas Project. The working interest we own includes leases, wells, inventory and 3D seismic +data. +We +believe the South Salinas Project has the potential to be significant, with an estimated 40.2 million barrels of oil (“MMBO”) +plus 42.4 billion cubic feet of gas (“BCFG”), or 47.3 million barrels of oil equivalent (“BOE”), in Probable +(P2) Undeveloped reserves and an approximate 100.7 MMBO and 168.5 BCFG, or 128.8 million BOE, in Possible (P3) Undeveloped reserves. +Note that the conversion rate used is 6.0 Mcf per 1 BOE. Note that the conversion rate used is 6.0 Mcf per 1 BOE. +Trio +LLC and its management team are part owners of the Company and will continue as Operator of the South Salinas Project on behalf of the +Company and of the other working interest partners. +There +are two contiguous areas of notable oil/gas accumulations in the South Salinas Project, being the Humpback Area (“Humpback Oil +Field”) that occurs in the northern part of the project, and the Presidents Area (“Presidents Oil Field”) that occurs +in the southern part of the project. Discovery wells have been drilled and completed at both Humpback Oil Field and Presidents Oil Field. +The HV-3A well is the first well drilled at the Presidents Oil Field and is its discovery well. About five wells have been drilled at +the Humpback Oil Field and of these we consider the BM 2-2 well as its discovery well. +The +primary oil and gas objectives in the South Salinas Project are classic fractured Monterey Formation reservoirs (i.e., zones with abundant +brittle/fractured intervals of chert, dolomite, limestone and porcelanite) and the Vaqueros Sand. Fractured Monterey Formation is one +of the most important and prolific oil/gas reservoirs in California. The primary oil and gas reservoirs occur at approximately 4,000-8,000’ +depth. The oil is mid- to high-gravity (18-40° API). The oil and gas targets are in structural traps - this is not a resource play. +The structural traps are imaged in 30 square miles of 3D seismic data that is owned by the Company. Importantly, the 3D seismic was acquired +after the drilling of all wells in the area except for our HV-3A and HV-1 wells. The 3D seismic provides critical information about how +prior wells were not properly located and, more importantly, how the South Salinas Project potentially may be successfully exploited +going forward. +The +Monterey Formation oil and gas zones have been tested at various wells at the South Salinas Project. The Vaqueros Sand has not yet been +tested but the Company believes that it is potentially productive behind-pipe in the BM 2-2 well. TPET intends to perforate and test +the Vaqueros Sand in the BM 2-2 well as soon as the necessary permits are in-hand. +We +own approximately 30 square miles of three dimensional seismic data (“3D seismic”) at the project. An integrated interpretation +of the 3D seismic data and of well data indicates that Presidents Oil Field is a large anticlinal feature covering an area of approximately +1,300 acres, with a major structural, anticlinal high at the location of the HV-3A discovery well, and with two separate, four-way closed +anticlines at the northwest, down-plunge-end of the feature. The structural feature at Presidents Oil Field is best characterized as +a positive flower structure resulting from transpressional deformation along strike slip faults including the major Rinconada Fault. +The Company has determined that production testing may resume at the HV-3A discovery well at Presidents Field. Testing on pump at this +well resumed on March 22, 2024. +5 +One +of our initial objectives was to drill the HV-1 confirmation well at the President Oil Field. This objective has been accomplished. The +following is a discussion of the HV-1 well and its significance: +● +The +HV-1 well is located about two miles northwest of the HV-3A discovery well and for this reason it is considered a “confirmation +well” intended to help confirm the size of lateral extent of the field. The HV-1 surface hole location (“SHL”) +is located in about the center of T24S-R10E-Section 14. The well was directionally drilled approximately 2,600 feet toward the southeast +and its bottom hole location (“BHL”) is located in T24S-R10E-Section 13. +● +The +HV-1 well spud on about May 5, 2023, and was completed at its total depth (“TD”) of about 6,641 feet (measured depth) +on about May 15, 2023. +● +The +HV-1 confirmation well is located on the larger of the aforementioned two down-plunge, four-way closed anticlines. +● +There +were primarily three reservoir objectives in the HV-1 well, being the Yellow Zone (aka Yellow Chert), the underlying Brown Zone (aka +Brown Chert) and the underlying Mid-Monterey Clay, all of which are stratigraphic subunits of the Miocene-age Monterey Formation. +The Yellow and Brown zones are both attributed oil and gas reserves at Presidents in the Company’s reserve report as filed +with the SEC. The Mid-Monterey Clay is nowhere assigned reserves in the Company’s reserve report, although it did have significant +oil/gas shows in the HV-3A discovery well and periodically may have contributed to the flow of oil and gas to surface at said well. +● +The +3D seismic data indicate that the Yellow and Brown zones have four-way closure (i.e., anticlinal rollover in one of the subsidiary, +down-plunge anticlines) at the location of the HV-1 well, whereas at this location the Mid-Monterey Clay may have fault closure (within +the positive flower structure) but lacks rollover. The directional drilling plan for the HV-1 well was designed such that the well +would penetrate the Yellow and Brown zones near the tops of their anticlinal closures and to continue downward into the Mid-Monterey +Clay where anticlinal closure apparently does not occur. +● +The +Yellow Zone, Brown Zone and Mid-Monterey Clay were encountered in the HV-1 well largely as predicted including with respect to depth, +thickness, lithology, wireline-log characteristics and oil and gas shows including free oil in cuttings and in the mud pit. The Company +believes that the HV-1 well has confirmed that there is a major oil and gas accumulation in the Presidents Oil Field, as the Company +announced in a press release on May 16, 2023. +● +Confirmation +of a major oil and gas accumulation by itself does not confirm whether economic oil/gas production can be established. The HV-1 has +undergone production testing to evaluate commerciality. Production testing at the HV-1 well was initially carried-out from the bottom +up (i.e., by testing the deeper Mid-Monterey Clay zone first and working upward to the shallower Brown and Yellow zones), and the +Brown and Mid-Monterey Clay zones were subsequently retested. The Mid-Monterey Clay, Brown Zone and Yellow Zone all underwent production +testing. Oil and gas were recovered but commercial production was not established. +● +Operations +may continue, for example deepening, sidetracking or additional testing, at the HV-1 well but it is currently idle. +● +The +HV-1 well is the newest well in the South Salinas Project and is the only exploratory well drilled in the last three fiscal years +at the project. +● +The +Company considers it premature to deem HV-1 either a dry development well or a net productive well. Additional operations, including +possibly deepening or sidetracking, and additional testing, are feasible at HV-1. Thus, there has been no net productive well or +dry development well drilled in the last three fiscal years at the South Salinas Project. Prior to the drilling of the HV-1 well, +the newest well at the Project was the HV-3A discovery well that was drilled in 2018. +All +of the Company’s acreage and reserves in the South Salinas Project are considered undeveloped. The HV-3A and BM 2-2 wells, and +possibly other project wells, are and/or may possibly be capable of oil and/or gas production but additional investments at these wells +are necessary prior to establishing commercial oil/gas production and, therefore, reserves and acreage are considered undeveloped. Thus, +the total gross undeveloped acreage is approximately 9,300 acres and the total net undeveloped acreage (i.e., net to the Company) is +approximately 7,927 acres (i.e., 9,300 acres x 0.8575 = 7,927 acres). The total gross developed acreage is zero acres and the total net +developed acreage (i.e., net to the Company) is also zero acres. +As +noted elsewhere, on the Company’s leases there are six existing idle wells (i.e., the BM 1-2-RD1, BM 2-2, BM 2-6, HV-1, HV 3-6 +and HV 1-35 wells) and one active well (i.e., HV-3A well). Of these seven wells perhaps only the HV-3A and BM 2-2 wells should be considered +to probably and/or possibly be capable of economic oil/gas production with their current mechanical completions, whereas it cannot be +ruled-out that economic oil/gas production could be established at the other five wells. Thus, on the Company’s leases there may +be considered to be two (2) gross productive wells (i.e., the HV-3A and BM 2-2 wells) and 1.715 net productive wells (i.e., 85.75% WI +times 2 gross wells = 1.715 net productive wells). +6 +The +Porter Ranch is an active working property that supports farming operations, livestock grazing, and the exploitation of oil and gas reserves, +as well as the preservation of open space that preserves natural habitat. There is partly overlapping ownership in Bradley Minerals (the +Lessor) and in Porter Ranch (the surface owner) and the interests and objectives of the two entities are closely aligned. In some projects +there are conflicts between surface and mineral owners, for example with the surface owner discouraging and the mineral owner encouraging +development. Importantly, in this project the mineral and surface owners have aligned interests/objectives, and this is beneficial to +the South Salinas Project. Total royalty burden at the South Salinas Project is approximately 20%, all of which is held by lessors. TPET +and Trio LLC and their associates hold no royalty interests in the South Salinas Project. +Infrastructure +at the South Salinas Project includes seven existing wells, six expansive well pads, and three idle Aera Energy oil and gas pipelines. +The expansive well pads are important because they can accommodate significant project development without additional disturbance of +the surface – the Company believes that this may help expedite the approval of necessary additional permits. +South +Salinas Project Property and Future Operations +The +Company has drilling permits from Monterey County for two additional wells at the South Salinas Project, being the HV-2 well and the +HV-4 well. The Company may drill one or both of these wells in 2025. The Company is evaluating whether to directionally drill both of +these wells into the Presidents Oil Field, or to drill one into the Presidents Oil Field and one into the Humpback Oil Field. The production +performance of the HV-3A well, which was restarted on March 22, 2024, will bear on the drilling plans for HV-2 and HV-4. +The +Company anticipates that it may be desirable in the future to obtain access or ownership of the Aera Energy pipelines (possibly jointly +owned with Chevron) to move oil and gas to markets and possibly to move produced water off-site, as well as potentially being used in +a Carbon Capture and Storage (CCS) Project. Aera Energy (“Aera”) and Chevron have significant operations a few miles north +at the San Ardo Oil Field. Aera’s holdings in California were recently acquired by the companies IKAV, an international asset management +group headquartered in Germany, and CPP Investments, a professional investment management organization that manages investments of contributors +and beneficiaries of the Canada Pension Plan. In 2024, it was announced that California Resources Corp (“CRC”) and Aera are +merging. The Company believes that there are potential synergies between our South Salinas Project and the San Ardo Oil Field that is +operated by Aera and Chevron, and possibly soon by CRC. CRC is already an approximate 8% working-interest owner in the South Salinas +Project. +There +is an application for an UIC water disposal operation at the South Salinas Project that is under review by CalGEM and being modified +and updated by Trio LLC. Approval of this water disposal project by CalGEM and Water Boards will be an important part of establishing +an economic oil and gas operations. +All +of the existing seven wells in the South Salinas Project are currently inactive and temporarily shut-in, except for the active HV-3A +well that was restarted on March 22, 2024. When the appropriate permits are in-hand, which will perhaps be in 2025, and when the +required funding is in-place, the Company will assess its plans to return the BM 2-2 well to oil and gas production, to reenter and +sidetrack three of the wells (the HV 1-35, BM 2-6 and HV 3-6 wells) to optimal locations that are indicated in the 3D seismic data +and to then put them on production, and to utilize one well (the BM 1-2-RD1 well) as a water disposal well. TPET is evaluating +options (e.g., deepening, sidetracking, recompleting, etc.) at the new HV-1 well, as discussed above. TPET may drill one or both of +the HV-2 and HV-4 wells in 2025. The HV-1, HV-2, HV-3A and HV-4 wells may each be produced for its own 18-month period, under the +Company’s current exploration/testing permits. TPET is working diligently toward the goal of obtaining permits for full field +development, including long-term production and water disposal. These permits are critical for the proper development of our South +Salinas Project asset. +TPET +is committed to attempting to reduce its own carbon footprint and, where possible, that of others. For this reason, TPET is taking initial +steps to launch a Carbon Capture and Storage (CCS) project as part of the South Salinas Project. The South Salinas Project appears ideal +for a CCS project. The South Salinas Project covers a vast area and is uniquely situated at a deep depocenter where there are thick geologic +zones (e.g., Vaqueros Sand, up to approximately 500’ thick), about two miles deep, which could accommodate and permanently store +vast volumes of CO2. Four existing deep wells in the South Salinas Project (i.e., the HV 1-35, BM 2-2, BM 1-2-RD1 and HV 3-6 wells) are +candidates for use as CO2 injection wells. A CCS project in the future may help reduce TPET’s carbon footprint by sequestering +and permanently storing CO2 deep underground at one or more deep wells, away from drinking water sources. Furthermore, three of the aforementioned +deep wells are directly located on three idle oil and gas pipelines that could be used to import CO2 to the Company’s CCS Project. +TPET has opened discussions with third parties who wish to reduce their own greenhouse gas emissions and who may be interested in participating +in our CCS project. TPET believes it feasible to develop the major oil and gas resources of the South Salinas Project and to concurrently +establish a substantial CCS project and potentially a CO2 storage hub and/or Direct Air Capture (DAC) hub. See “ Item I. Business +- Recent Developments ” for further information on the CCS project. +7 +Evaluation +of Reserves and Net Revenue +Our +evaluation and review of oil and gas reserves and future net revenue attributable to the Company’s interests in the South Salinas +Project are based on independent analyses prepared by KLS Petroleum Consulting LLC (“KLSP”), Denver, Colorado. The Company +in previous filings with the SEC provided two reserve reports by KLSP, one being entitled “Reserves Attributable to Trio Petroleum +Corp South Salinas Area for Development Plan Phases 1 and 2,” (“Prior Reserve Report 1”) and the other entitled “S. +Salinas Area, Full Development Reserves Supplement to SEC Report Dated 1-28-2022,” (“Prior Reserve Report 2”) both +of which had an effective date of October 31, 2021. KLSP has provided an updated reserve report, with an effective date of April 30, +2024, which is entitled “Reserve Attributable to Trio Petroleum Corp. South Salinas Area for Phased and Full Development” +(the “Current Reserve Report”), which is included as an exhibit filed with this Annual Report on Form 10-K (“Annual +Report”). +KLSP +is an independent, third-party, petroleum engineering firm that meets industry-standards for qualifications, independence, objectivity +and confidentiality. The primary technical person, Kenneth L. Schuessler, responsible for preparing the Reserve Report is a registered +professional petroleum engineer with decades of experience in the petroleum industry and in analyses of reserves. Mr. Schuessler has +significant experience in the petroleum industry and has held important positions with Bergeson Associates, Malkewitz-Hueni Associates, +SI International, System Technology Associates and MHA Petroleum Consultants. Importantly, Mr. Schuessler has significant experience +in the evaluation and exploitation of Monterey Formation fractured-reservoirs at the giant Elk Hills and Coles Levee Fields in the San +Joaquin Basin in California. Mr. Schuessler’s knowledge of the Monterey Formation is highly-relevant to the evaluation of our South +Salinas Project at which the fractured Monterey Formation is of critical importance. +KLSP +states that the reserves in the “Prior Reserve Report 1” referenced as Exhibit 99.1 to the Annual Report, the “Prior +Reserve Report 2” referenced as Exhibit 99.2 to the Annual Report and the “Current Reserve Report” referenced as Exhibit +99.3 to the Annual Report and their determination are consistent with definitions found in Rule 4-10 of SEC Regulation S-X (17CFR part +210), and Subpart 1200 of Regulation SK. The net reserves, costs and revenues are those attributable to the Company. Future net revenue +and discounted present value are on a before federal income tax (BFIT) basis. +KLSP +is an independent third-party that does not own an interest in any of our properties. Mr. Schuessler is not a permanent employee of our +company but we continue to employ the services of KLSP on an as-needed basis. +Our +internal staff including our geoscience, drilling, facilities, regulatory, compliance, land, legal and accounting professionals +communicated as needed with KLSP to ensure the integrity, accuracy and timeliness of data furnished to KLSP, to review and discuss +the properties, methods and assumptions used by KLSP in KLSP’s preparation of the reserve estimates, and to review and discuss +KLSP’s conclusions. As discussed immediately above, KLSP is a highly-qualified, independent, petroleum-engineering consulting +firm. Mr. Terence B. Eschner, the Company’s former President and a registered professional geologist, who is very +knowledgeable about the South Salinas Project, was the Company’s primary contact with KLSP regarding the reserve analyses that +were conducted by KLSP. Mr. T. Eschner played a key role providing the Company’s internal controls on the reserve estimation +effort that was carried-out by KLSP, while not interfering with KLSP’s analyses so as to ensure that KLSP’s analyses +would truly be that of an independent third-party. The Company recognizes that estimating volumes of economically recoverable oil +and natural gas reserves is somewhat subjective and that the accuracy of any reserve estimate is partly a function of the quality +and accuracy of the available data and interpretations: for this reason and others the Company strove to provide the best available +data and interpretations to KLSP. Reserve estimates typically require revision as new information becomes available and/or due to +change in conditions and/or due to unforeseen circumstances. Reserve estimates commonly differ from the quantities of oil and +natural gas that are ultimately recovered. Estimates of economically recoverable oil and natural gas and of future net revenues are +based on a number of variables and assumptions, some or all of which may prove to be incorrect. +8 +The +technologies utilized by KLSP in their reserve estimation efforts are discussed in detail in the Reserve Report. These technologies included +the evaluation and incorporation of data from analog oilfields. Analogs are widely used in reserves estimating, particularly in the early +development stages when direct measurement information (production history) is limited. As described in the Society of Petroleum Engineers’ +Petroleum Resource Management System (PRMS Section 4.1.1) “ The methodology is based on the assumption that the analogous reservoir +is comparable to the subject reservoir in regard to reservoir description, fluid properties, and most likely recovery mechanism(s) applied +to the project that control the ultimate recovery of petroleum. By selecting appropriate analogs, where performance data of comparable +development plans are available, a similar production profile may be forecast. Analogs are frequently applied in aiding in the assessment +of economic producibility, production decline characteristics, drainage area, and recovery factor. ” The technologies utilized +by KLSP also included constructing several numerical models that evaluated the expected oil and gas production under an appropriate range +of reservoir characteristics, and which allowed probabilistic estimates of reserves. These models required reservoir properties and, +therefore, OOIP as input. The Probabilistic method defined a distribution representing the full range of possible values for input parameters. +This included dependencies between parameters that are also defined and applied. These distributions were randomly sampled using Monte +Carlo simulation to compute a full distribution of potential in-place and recoverable quantities of oil, gas, and water. Input distributions +were included for porosity, permeability, water saturation and net productive thickness. In addition, pore volume compressibility was +described with a distribution because its range of uncertainty can impact reservoir pressure and therefore future productivity. S&P +Global’s Harmony Enterprise software was used to construct the numerical models for the various reservoir units, being Monterey +Yellow, Monterey Blue and Vaqueros Sand reservoir units. A ‘type well’ or calibration model was constructed for each reservoir +using the average conditions and reservoir properties cited above. In addition, using the probabilistic distributions of porosity, net +thickness, water saturation, permeability and pore volume compressibility, the reservoir model was run 500 times, each time the model +selecting via Monte Carlo sampling the input parameters according to the ranges and distributions defined. Each simulation run resulted +in a particular value of oil and gas recovery. The cumulative probabilities of the resulting forecasts of ultimate oil and gas recovery +were used to identify the reported reserve values. +We +have consulted with KLSP and it has provided us estimates of net reserves and/or cash flows as of the end of April 30, 2024, as: 1) there +are new technical data as a result of drilling the HV-1 well in 2023; 2) the Company’s WI has increased from approximately 82.75% +to approximately 85.775%; 3) new leases have been acquired providing additional well locations; 4) drilling and development schedules +have changed; and 5) oil prices have changed. More specifically, the completion results of the HV-1 well appear to indicate that the +productive area of the Yellow Zone at the President’s Area may be somewhat smaller than mapped in 2021. On the other hand, the +Company has acquired additional leases in the Project area that increase the net well locations targeting the Blue Zone and Vaqueros +Sand. The reserves associated with these additional net wells partially offset any possible reduction in reserves due to a smaller Yellow +Zone productive area. All of the aforementioned factors are taken into consideration in the estimates of reserves and cash flows as of +end of April 30, 2024, as documented in the Current Reserve Report included as Exhibit 99.3 to this Annual Report. +Disclosure +of Reserve Volumes and Reserve Values as of the End of April 30, 2024 +KLSP +in the aforementioned reserve analyses recognizes the occurrence at the South Salinas Project of both Probable (P2) Undeveloped reserves +and of Possible (P3) Undeveloped reserves (see: “Glossary of Terms Used to Characterize Reserves & Projects” in Table +22 in the Reserve Report). SEC criteria stipulate that reserves cannot be classified as P1 Proved (i.e., PDP or Proved Developed Producing, +PDNP or Proved Developed Not Producing, PUD or Proved Undeveloped) if said reserves are not fully permitted for long-term production. +Permits for full field development and long-term production are being sought by the Company, but have not yet been approved for the South +Salinas Project and, therefore, KLSP does not recognize Proved reserves at the South Salinas Project. +KLSP +provided estimates of net oil and gas reserves and future net revenues, attributable to the Company, for Phase 1, Phase 2 and Phase 3 +(Full Development) for the entire South Salinas Project, as shown in the below Table. Future net revenue and discounted present value +are on a before federal income tax (BFIT) basis. Both undiscounted and discounted net cash flow to the Company are shown. The discounted +dollar amounts shown in the below Table are discounted at 10% and, therefore, are net present value (“NPV”) 10 amounts, whereas +KLSP also provided estimated NPV15, 20, 30, 45 and 60. Reserve volumes are expressed in stock tank barrels (STB) of oil and thousands +of standard cubic feet of gas (MCF). +There +are uncertainties in reserve forecasts and in associated estimates of future cash flows due to uncertainties in various matters that +are elaborated above (see: We face substantial uncertainties in estimating the characteristics of our assets, so you should not place +undue reliance on any of our measures.). The Company’s estimates of Probable (P2) Undeveloped reserves, Possible (P3) Undeveloped +reserves and their respective estimated future cash flows are discussed more-fully above (see Evaluation of Reserves and Net Revenue) +and are described in detail in the Current Reserve Report. The Company’s reserve estimates are based on field analogs, numerical +models and probabilistic modeling. Copied below are two paragraphs from the Current Reserve Report that further explain the Company’s +estimated reserves: +9 +“ Because +decline curve analysis could not be used to forecast reserves, and since the development of type curves was problematic due to the early +historical time frame in which the analog fields were developed, probabilistic methods were employed. The interpretations of open hole +logs, core, and test information were used to describe ranges and distributions of key reservoir parameters. These were then input to +numerical simulation models that used Monte Carlo sampling and hundreds of runs to derive forecasts of production and ultimate recovery +representing P90 (1P), P50 (2P) and P10 (3P) reserve estimates. As indicated in the nomenclature of TABLE 22, these estimates are also +known as Proved, Proved+Probable, and Proved+Probable+Possible, respectively. The designation ‘P50’ means there is a 50 percent +probability that the actual production will exceed the value reported as the P50 reserves. The P50 value, also considered the Best or +Most Likely estimate, is derived from a cumulative frequency distribution of forecast reserves from the Monte Carlo simulations. If Proved +reserves have been assigned, Probable reserves are then represented by the difference between the P50 and P90 probabilistic estimates. +However, as explained below, Proved reserves have not been assigned in this report because project approval has not been secured by all +necessary government entities. Therefore, since there are no Proved or P90 volumes, the Probable reserves disclosed herein, derived from +the P50 probabilistic forecasts, are incremental volumes and presented as Probable (P2) reserves. The P10 reserve estimate has a 10 percent +probability of exceeding the estimated recovery and is also known as the High estimate. Possible reserves are represented by the difference +between the P10 and P50 estimates. Possible reserves are typically larger than Probable reserves. This is the result of the key reservoir +parameter distributions reflecting their variation in nature, and when the most favorable parameters are sampled together the resulting +calculation provides the highest, but least likely, values of estimated recoveries. ” +“ Probable +reserves are assigned in certain areas where, as described above, reserves could be considered Proved if all regulatory approvals and +permits were in place. Probable reserves are also assigned in areas where well control and interpretations of available data provide +sufficient geologic evidence of reservoir continuity at structural positions above lowest known hydrocarbons (LKH), and where engineering +evidence indicates the reservoir will have the requisite porosity, permeability and oil saturation to produce commercial quantities of +oil and gas. The assignment of Possible reserves does not incorporate a larger reservoir area, but rather Possible reserves are assigned +to the same wells having Probable reserves because the probabilistic methods employed indicate there may be a greater percentage recovery +of hydrocarbons than is appropriate for the ‘Most Likely’ reserve estimates. ” +The +estimates of Probable (P2) Undeveloped reserves and Possible (P3) Undeveloped reserves and their respective estimated future cash flows +have different risk and/or uncertainty profiles and should not be summed arithmetically with each other. For example, estimates of permeability, +oil saturation, reservoir thickness and estimated ultimate recovery (EUR) are higher for the P3 reserve estimates than for the P2 reserve +estimates (see for example Figure 25 and Table 2 in the Current Reserve Report). +The +Probable (P2) and Possible (P3) reserves in the below Table are considered to be undeveloped as of the report’s effective date +of April 30, 2024. The HV-3A and BM 2-2 wells are capable of oil and/or gas production but additional investments at both of these wells +are anticipated in Phase 1 prior to establishing commercial oil/gas production and, therefore, the reserves at both of these wells are +considered undeveloped. +The +effective date of the reserves and net cash flows in the Table below is April 30, 2024. If the Company’s working-interest in the +South Salinas Project, and/or the size of the Company’s leasehold position at the South Salinas Project, were in the future to +increase or decrease, then the reserve estimates would increase or decrease accordingly (note: the Company’s %WI and leasehold +position may increase but are not expected to decrease). Similarly, changes in the future of estimates of oil and/or gas that can be +economically recovered, in the market values of oil and/or gas, in estimates of reservoir properties such as thickness, oil saturation, +porosity, etc., and various other possible changes in the future, would accordingly result in revised reserve estimates and/or revised +estimates of net cash flow. No significant discovery or other favorable or adverse event has occurred since April 30, 2024, that would +cause a substantial change in estimated reserves and/or cash flow, as of that date. +The +KLSP report providing the reserves and net cash flows in the Table below describes a Project constituting the full development of South +Salinas. The Project is composed of three phases reflecting the progression of capital deployment with successful efforts and the anticipated +time frame associated with regulatory approvals. +10 +Phase +1 uses already-permitted wells and existing wells that can be quicky re-entered upon approval of the Conditional Use Permit (CUP) by +Monterey County. Phase 1 confirms the productivity of the Monterey Blue Zone over the larger area, and it establishes cash flow to partially +support on-going development. Within Phase 1, the HV-3A will be worked-over to enhance production from its existing completion in the +Yellow Zone. The HV-2 and HV-4 will be drilled and completed in the Blue Zone of the Presidents Area. The existing HV-1 is re-entered +and deepened through the Blue Zone, and three other existing wells (BM 2-2, HV 1-35-RD1, HV 3-6-RD1) will be re-entered and sidetracked +through the Blue Zone in the Humpback Area. Although targeting a completion in the Blue Zone, it is likely that each of these re-entered +wells will be drilled to the Vaqueros, immediately below the Blue, with the intention of gathering data and testing the Vaqueros to confirm +it prospectivity as a horizontal well development. Phase 1 is being assessed and under consideration to begin in the first half of 2025 with the HV-3A workover and, with receipt +of the Conditional Use Permit from Monterey County on or about April 2025, conclude with the sidetrack drilling of the HV 3-6-RD1 later in the year (which well is then scheduled for subsequent production). Phase 1 will deploy an estimated $25.8 million for drilling, +completion and associated facility costs including converting the existing BM 1-2 well for water disposal. This capital, as well as that +of Phases 2 and 3, include end-of-life plug and abandonment and surface cleanup costs per CALGEM guidelines and regulations. +Phase +2 of the South Salinas Project consists of a 12 well program. The first well is a sidetrack of an existing well (HV 2-6-RD1) through +the Blue Zone in September 2025, followed by the drilling of a new well each month thereafter through August 2026. Phase 2 begins with +receipt of the remaining (Full) Development Permits from Monterey County. Phase 2 also assumes that by September 2025 Trio should be +experiencing the timely approval of drilling permits from CALGEM. Of the 12 Phase 2 wells, four wells will target the Yellow Zone, seven +are planned for the Blue Zone, and one well is a horizontal well in the Vaqueros Zone. The capital requirement for Phase 2 well work +and facilities expansion is estimated to be $43.2 million. +Phase +3, also referred to as the Full Development Phase, is expected to begin October 2026 with the utilization of three rigs drilling continuously +for about four years. Two of the rigs will be used to drill 101 Blue Zone wells, while the third rig will be used to drill 20 Yellow +Zone wells and 16 horizontal Vaqueros wells. Phase 3 will require an estimated $467 million of capital. When combined with Phases 1 and +2 the South Salinas Project is then expected to generate positive cash flow by 2029. When considered alone Phases 1 and 2 are forecast +to generate positive cash flows in 2026 and 2027, respectively. These expectations assume the realization of the Probable (P2) reserves +that are based on the ‘most likely’ forecasts of production. The KLSP report also provides the incremental volumes and cash +flows associated with the realization of Possible (P3) reserves and are provided in the Table below. The BOE’s cited in the Table +use a conversion factor of 6 Mcf of gas per BOE. +The +combined Phases 1-3 (Total South Salinas Project) are estimated to recover 40.2 million stock tank barrels of oil (MMSTB) and 42.4 billion +standard cubic feet of gas (BCF). This represents 47.3 million BOE of Probable (P2) Undeveloped reserves. The estimated incremental reserves +associated with Possible (P3) reserves are 100.7 MMSTB of oil and 168.5 BCF of gas, or 128.7 million BOE (part “F” of the +Table below). The combined Phases 1-3 estimated net cash flow to the Company, discounted at 10%, is $474.5 million for the Probable (P2) +Undeveloped reserves. Realization of the forecasts associated with Possible reserves provides an additional $2.5 billion for Trio’s +interest in the South Salinas Project (again, as shown in part “F” of the Table below). +Table +1: Estimated Undeveloped Reserves and Cash Flow +ESTIMATED +UNDEVELOPED RESERVES AND CASH FLOW +A. +Phase +1 Undeveloped Reserve Categories +Net +Trio +Undeveloped +Oil +Reserves +(Stock +Tank +Barrels) +Net +Trio +Undeveloped +Gas +Reserves +(1000 +CF, +or +MCF) +Net +Trio +Undeveloped +Reserves +(Barrels +Oil +Equivalent) +Trio +Undiscounted +Net +Cash +Flow +($) +Trio +Net +Cash +Flow +Discounted +at +10% ($) +Probable +(P2) Undeveloped of Phase 1 +2,017,620.0 +2,133,250.0 +2,373,161.7 +$ 107,374,250.00 +$ 33,698,230.00 +Possible +(P3) Undeveloped of Phase 1 +3,841,380.0 +7,449,100.0 +5,082,896.7 +$ 307,886,460.00 +$ 139,189,600.00 +11 +B. +Phase +2 Undeveloped Reserve Categories +Net +Trio +Undeveloped +Oil +Reserves +(Stock +Tank +Barrels) +Net +Trio +Undeveloped +Gas +Reserves +(1000 +CF, +or +MCF) +Net +Trio +Undeveloped +Reserves +(Barrels +Oil +Equivalent) +Trio +Undiscounted +Net +Cash +Flow +($) +Trio +Net +Cash +Flow +Discounted +at +10% ($) +Probable +(P2) Undeveloped of Phase 2 +3,227,940.0 +3,392,940.0 +3,793,430.0 +$ 168,622,080.00 +$ 45,938,680.00 +Possible +(P3) Undeveloped of Phase 2 +6,759,630.0 +11,735,140.0 +8,715,486.7 +$ 527,635,330.00 +$ 210,766,130.00 +C. +Phase +3 (Full Development) Undeveloped Reserve Categories +Net +Trio +Undeveloped +Oil +Reserves +(Stock +Tank +Barrels) +Net +Trio +Undeveloped +Gas +Reserves +(1000 +CF, +or +MCF) +Net +Trio +Undeveloped +Reserves +(Barrels +Oil +Equivalent) +Trio +Undiscounted +Net +Cash +Flow +($) +Trio +Net +Cash +Flow +Discounted +at +10% ($) +Probable +(P2) Undeveloped of Phase 3 +34,940,100.0 +36,918,030.0 +41,093,105.0 +1,837,183,060.0 +394,874,030.0 +Possible +(P3) Undeveloped of Phase 3 +90,057,820.0 +149,348,300.0 +114,949,203.3 +7,054,575,390.0 +2,185,998,350.0 +D. +(P2) +Undeveloped Reserves for Phases 1, 2 & 3 +Net +Trio +Undeveloped +Oil +Reserves +(Stock +Tank +Barrels) +Net +Trio +Undeveloped +Gas +Reserves +(1000 +CF, +or +MCF) +Net +Trio +Undeveloped +Reserves +(Barrels +Oil +Equivalent) +Trio +Undiscounted +Net +Cash +Flow +($) +Trio +Net +Cash +Flow +Discounted +at +10% ($) +Probable +(P2) Undeveloped of Phase 1 +2,017,620.0 +2,133,250.0 +2,373,161.7 +$ 107,374,250.00 +$ 33,698,230.00 +Probable +(P2) Undeveloped of Phase 2 +3,227,940.0 +3,392,940.0 +3,793,430.0 +$ 168,622,080.00 +$ 45,938,680.00 +Probable +(P2) Undeveloped of Phase 3 +34,940,100.0 +36,918,030.0 +41,093,105.0 +$ 1,837,183,060.00 +$ 394,874,030.00 +Total +Probable (P2) Undeveloped of Phases 1, 2 & 3 +40,185,660.0 +42,444,220.0 +47,259,696.7 +$ 2,113,179,390.00 +$ 474,510,940.00 +E. +(P3) +Undeveloped Reserves for Phases 1, 2 & 3 +Net +Trio +Undeveloped +Oil +Reserves +(Stock +Tank +Barrels) +Net +Trio +Undeveloped +Gas +Reserves +(1000 +CF, +or +MCF) +Net +Trio +Undeveloped +Reserves +(Barrels +Oil +Equivalent) +Trio +Undiscounted +Net +Cash +Flow +($) +Trio +Net +Cash +Flow +Discounted +at +10% ($) +Possible +(P3) Undeveloped of Phase 1 +3,841,380.0 +7,449,100.0 +5,082,896.7 +$ 307,886,460.00 +$ 139,189,600.00 +Possible +(P3) Undeveloped of Phase 2 +6,759,630.0 +11,735,140.0 +8,715,486.7 +$ 527,635,330.00 +$ 210,766,130.00 +Possible +(P3) Undeveloped of Phase 3 +90,057,820.0 +149,348,300.0 +114,949,203.3 +$ 7,054,575,390.00 +$ 2,185,998,350.00 +Total +Possible (P3) Undeveloped of Phases 1, 2 & 3 +100,658,830.0 +168,532,540.0 +128,747,586.7 +$ 7,890,097,180.00 +$ 2,535,954,080.00 +F. +Undeveloped +Reserve Categories for Phases 1, 2 & 3 +Net +Trio +Undeveloped +Oil +Reserves +(Stock +Tank +Barrels) +Net +Trio +Undeveloped +Gas +Reserves +(1000 +CF, +or +MCF) +Net +Trio +Undeveloped +Reserves +(Barrels +Oil +Equivalent) +Trio +Undiscounted +Net +Cash +Flow +($) +Trio +Net +Cash +Flow +Discounted +at +10% ($) +Total +Probable (P2) Undeveloped of Phases 1, 2 & 3 +40,185,660.0 +42,444,220.0 +47,259,696.7 +$ 2,113,179,390.00 +$ 474,510,940.00 +Total +Possible (P3) Undeveloped of Phases 1, 2 & 3 +100,658,830.0 +168,532,540.0 +128,747,586.7 +$ 7,890,097,180.00 +$ 2,535,954,080.00 +12 +Reasonable +Expectations of Reserve Analyses +This +Annual Report provides a summary of risks and detailed discussions of risks relating to our business. The Company recognizes these risks +as being real and substantial. Nevertheless, the Company has reasonable expectations that the Company’s South Salinas Project will +prove to have reserves approximately as estimated, that the Company will have adequate funding to develop the reserves, and that there +will exist the legal right to develop the Company’s reserves in the South Salinas Project, including the rights to full-field development, +to long-term production and to deliver natural gas to market via pipeline, recognizing as discussed elsewhere hereunder that there may +be project delays and/or obstacles related to obtaining necessary permits from regulatory agencies. Furthermore and more specifically, +the Company has a reasonable expectation that the primary governmental regulatory agencies that are currently and/or that will be involved +in the permitting processes, which agencies will primarily be CalGEM, State Water Boards and Monterey County, will determine to approve +the Company’s applications for permits for various reasons that are discussed below. See “ Item 1A. Risk Factors - +Risks Relating to Our Business - We may face delays and/or obstacles in project development due to difficulties in obtaining +necessary permits from federal, state, county and/or local agencies, which may materially affect our business;” “Item 1A. +Risk Factors - Risks Relating to Our Business - We face substantial uncertainties in estimating the characteristics of our assets, +so you should not place undue reliance on any of our measures;” “Item 1A. Risk Factors - Risks Relating to Our Business +- The drilling of wells is speculative, often involving significant costs that may be more than our estimates, and drilling may not result +in any discoveries or additions to our future production or future reserves , or it may result in disproving or diminishing our current +reserves. ; “Item 1A. Risk Factors - Risks Relating to Our Business - Seismic studies do not guarantee that oil or gas +is present or, if present, will produce in economic quantities; and “Item 1A. Risk Factors - Risks Relating to Our Business +- We are subject to numerous risks inherent to the exploration and production of oil and natural gas.” +The +Company currently is preparing a full-field development plan that is expected to include the following key elements: +● +Documentation +of oil and gas reserves at the Project, including whatever results of the Phase 1 development program are both available and pertinent; +● +Documentation +of the proposed wells and facilities that would be necessary to underpin full-field development and long-term production; +● +Details +as to how the Company would minimize surface footprint by directionally drilling from existing well pads and similarly largely using +existing pads for facilities, which well pads at that time may include the currently existing six well pads plus the two wells pads +that are planned for construction at the HV-2 and HV-4 well sites. Use of these eight well pads for additional wells and facilities +will minimize the need for additional surface disturbance in the full-field development plan. The Company’s proposal to use +existing well pads to minimize surface footprint should help expedite approval of necessary permits; +● +Details +as to how the Company would endeavor to minimize surface disturbances associated with pipeline construction by utilizing the existing +Aera Energy gas pipeline and one or more of the two existing Aera Energy oil pipelines. The Company’s proposal to use existing +pipelines to minimize surface disturbance should help expedite approval of necessary permits; +● +Documentation +as to how the Company proposes to minimize or eliminate the trucking of oil by utilizing one or more of the two existing Aera Energy +oil pipelines. The Company’s proposal to use existing pipelines to minimize truck traffic should help expedite approval of +necessary permits; +● +Documentation +as to how the Company’s operations will be carried-out in an environmentally and socially responsible manner; and +● +A +Full Environment Impact Report, discussed immediately below. +● +A +Carbon Capture and Storage Project as part of the South Salinas Project. +The +Company during Phase 1 or shortly thereafter expects to engage a third-party expert consulting company (“Environmental Consultant”) +to prepare a Full Environmental Impact Report (Full EIR) on the Company’s full-field development plan. It is customary in Monterey +County in these matters for the Environmental Consultant to be chosen by and/or agreed to by the County, for the Environmental Consultant +to report directly to the County’s technical staff, and to avoid any real or perceived conflicts of interest for County to directly +compensate the Environmental Consultant from funds paid to County by the Operator. The Company has a reasonable expectation that the +Full EIR will determine that the full-development project will have “a less than significant environmental impact” with a +“mitigated negative declaration”, meaning that the Project will be deemed environmentally acceptable with specific, delineated +mitigation-measures being taken to protect and prevent, as far as possible, damage to life, health, property, natural resources, climate +and other similar matters (e.g., water and air quality, scenic views or “viewshed”, etc.). The Company has a reasonable expectation +that it will be able to obtain a Full EIR with a mitigated negative declaration for the full-field development project that should help +expedite approval of necessary permits. +The +surface lands at the Project are privately owned by the Porter Ranch and the subsurface mineral rights are privately owned by Lessor +Bradley Minerals Company. The Porter Ranch is a multi-use working-ranch with operations that include the Company’s oil and gas +operations as well as extensive agricultural and livestock operations. The Porter Ranch (surface owners) and the Bradley Minerals Company +(mineral owners) are fully-aligned in their desire to develop the oil and gas resources at the Project. The Company has a reasonable +expectation that the surface and mineral owners will be fully-aligned and fully-supportive of the Company’s full-field development +plan and that this undivided support should help expedite approval of necessary permits. +CalGEM +has statutory mandates to ensure both energy production and environmental protection. The Company has a reasonable expectation that CalGEM +will have a favorable view of the Company’s full-development plan for the South Salinas Project and that CalGEM accordingly will +determine that the Company’s applications for necessary permits should be approved. The Company furthermore has a reasonable expectation +that State Water Boards will, similarly to CalGEM, have a favorable view of the Company’s full-development plan for the South Salinas +Project and that Water Boards accordingly will determine that the Company’s applications for necessary permits should be approved. +The +Company has a reasonable expectation that the County Commissioners and more importantly the County Supervisors (the Supervisors are a +higher authority than the Commissioners) of Monterey County will determine that the Company’s applications for necessary permits +should be approved. This reasonable expectation is based, in part, on the expected benefits of the Project to the County and to the State +of California that include the following statistics and claims from Californians for Energy Independence: +● +Oil +and natural gas production in Monterey County plays a fundamental role in sustaining the energy supply and quality of life of the +County’s 440,000 residents; +● +Oil +and natural gas are vital to ensuring the health and safety of California’s communities; +13 +● +the +oil and gas industry contributes to Monterey County’s economy by providing a safe and reliable energy supply that fuels cars, +heats homes, powers businesses, grows food and produces everyday products. County residents depend on oil and gas to produce and +deliver their food and water supply, and for the countless products they use every day (e.g., cell phones, computers, medical devices, +eyeglasses, asphalt roads, plastic kayaks, wet suits, tires, car batteries, etc.) and natural gas is an important local energy source +for heating and cooking; +● +Roughly +75% of the oil and gas used in California is imported from foreign countries, many of which are unstable and/or have poor human rights, +labor and/or environmental standards; +● +Monterey +County and California lead the way in safe, affordable and environmentally responsible oil and gas production with the world’s +strictest regulations; +● +More +than 25 local, state and federal agencies oversee local oil and gas production in Monterey County; +● +Monterey +County’s oil and gas workforce includes veterans, union members, first generation citizens, single parents and others, many +of whom live and raise their families in the County and care deeply about the community; +● +Monterey +County’s oil and gas industry directly supports approximately 868 full-time jobs with benefits, and nearly 50% of the workforce +is ethnically diverse; +● +Average +annual pay is $107,000 in oil industry: these are good paying jobs and the average wage is more than double the $51,900 average for +all private sector jobs in Monterey County; +● +The +oil industry supports $69 million per year in wage payments to employees in the County; +● +The +oil industry has a positive impact on the region, providing high paying, full-time jobs, and upward mobility for workers including +those with high school and/or technical degrees; +● +Property +taxes represent the County’s largest source of general revenues, and are used to support schools, public safety, health, social +assistance, services to combat homelessness, and other services; +● +Property +taxes paid to the County from two operators at the San Ardo Oilfield are approximately $44 million per year: these operators are +among the highest property-tax taxpayers in the County; and +● +The +economic output of the oil industry in Monterey County is an estimated $644 million per year. +The +Company has a reasonable expectation that the primary governmental regulatory agencies (i.e., CalGEM, State Water Boards and Monterey +County) that are and/or that will be involved in the permitting process will endeavor to avoid any unconstitutional takings of private +property that might result from denying permits for the South Salinas Project. The Company has a reasonable expectation that governmental +regulatory agencies will wish to avoid any unconstitutional takings of private property and that this should help expedite approval of +necessary permits. +Trio +LLC, which is Operator of the South Salinas Project, has significant experience in Monterey County in obtaining necessary permits (e.g., +drilling permits for exploration and development wells, permits for Underground Injection Control water-disposal projects, permits for +constructing facilities, permits for constructing pipelines and power lines, etc.) from governmental regulatory agencies (e.g., CalGEM, +Monterey County, and other local agencies). More specifically, Trio LLC, as Operator, developed both the Lynch Canyon Oil Field and the +Hangman Hollow Area of the McCool Ranch Oil Field, both of which oilfields are located in Monterey County approximately seven miles north +of the Company’s South Salinas Project. The Company has a reasonable expectation that, given its own expertise and the expertise +and local experience of Trio LLC as an Operator, that the necessary permits may be obtained from governmental regulatory agencies and +thus that there will exist the legal right to develop the Company’s reserves in the South Salinas Project. +The +Company has a reasonable expectation that it will be able to negotiate an agreement with Aera Energy to utilize their existing idle gas +pipeline and one or more of their two idle oil pipelines that exist at the Company’s South Salinas Project. The pipelines extend +from the Company’s South Salinas Project to the San Ardo Oil Field that is located approximately three miles to the north. San +Ardo is a giant oilfield with cumulative oil recovery to-date of approximately 500 million barrels of oil - it is ranked among the largest +100 oilfields in the United States by the Energy Information Administration of the U.S. Department of Energy and is commonly cited as +being among the largest ten oilfields in California. San Ardo uses significant natural gas for operations including to run steam-generators +to generate steam for steam-injection into wells as part of thermal oil-recovery operations (i.e., to produce the heavy oil that occurs +at the field). An additional supply of natural gas would be beneficial at San Ardo and the high-gravity oil that occurs in the Company’s +South Salinas Project could be beneficially blended with the heavy oil at San Ardo (source: personal communication between Trio personnel +and Aera Energy personnel: September, 2022). It is feasible that opening the three mile section of the pipelines will be agreeable to +the Company and to Aera Energy to the financial benefit of all parties. If this arrangement cannot be realized, and if funding and the +oil and gas reserves in the Project are sufficient, the Company and the Operator Trio LLC will seek permits for new oil and/or gas pipelines, +perhaps along the right-of-way of the existing pipelines to minimize new surface disturbance. The Company has a reasonable expectation +that it will be able to establish the transport of oil and/or gas, and especially gas, to market via pipelines, whether through the existing +Aera Energy pipelines or new pipelines. +14 +The +Company has a reasonable expectation that the Company’s South Salinas Project will prove to have reserves approximately as estimated. +The Company has this reasonable expectation because it believes that: +● +The +geologic structures that contain oil and gas in the South Salinas Project occur approximately as mapped based on the integrated interpretations +of three-dimensional seismic data and data from wells already drilled at the Project, including the BM 2-2 and HV-3A discovery wells +and the recently-drilled HV-1 well; +● +The +estimated oil and gas reserves at the South Salinas Project are well-supported by geologic analogues to other large and prolific +oil and gas fields in California; and +● +The +Reserve Report and Supplemental Reserve Report as prepared by KLSP are reasonable. +The +Company has a reasonable expectation that it will have adequate funding to develop the reserves at the South Salinas Project. This reasonable +expectation of adequate funding is based on anticipated proceeds from additional capital raises and anticipated operating revenues: +● +The +Company believes that the South Salinas Project has the potential to be both beneficial to society and profitable to shareholders +and, for these and other reasons, that the Company may raise funds sufficient to cover project costs including the costs of Phase +1. As discussed elsewhere hereunder, Phase 1 is a development project with expenditures that are appropriately scaled to the capital +raise that the Company anticipates may be achieved; +● +There +are significant anticipated costs in the South Salinas Project primarily in years 2022-2027 due, in large part, to the estimated +costs of drilling and completing oil and gas wells and building Project infrastructure. It is anticipated that these costs will be +partly covered by capital raises and/or financing and, furthermore, that these costs may be partly and possibly entirely covered +by revenue from oil and gas sales; +● +The +Company has a reasonable expectation that additional capital raises will be successfully accomplished, as needed. This reasonable +expectation is based on the experience and track record of the Company’s management team which has a demonstrated ability to +secure funding for oil and gas exploration, development and production ventures, including that of Robin Ross, our Chief Executive +Officer. The Company plans to leverage the relationships and experience of Mr. Ross and other members of its management team in private +and public equity fundraising to raise capital for the Company, if and as needed. Furthermore, this reasonable expectation is based +on the confidence of Spartan Capital Securities, LLC, the Company’s investment banker, in both the Company and in the Project, +and the various methods available for securing capital including financing plans that may be developed in collaboration with our +bankers and/or future lenders based on reserves, cash flow and/or other considerations. The Company has a reasonable expectation +that, between cash and equity, it will be able to raise whatever capital is necessary to successfully develop the South Salinas Project. +For +all of the reasons discussed above in this section, the Company has a reasonable expectation that the Company’s South Salinas Project +will prove to have reserves approximately as estimated, that the Company will have adequate funding to develop the reserves, and that +there will exist the legal right to develop the Company’s reserves in the Project. +Employees +As +of December 31, 2024, we had one employee, who is located in Canada. +15 +Subsidiaries +The +Company has no subsidiaries. +ITEM +1A. RISK FACTORS. +Our +future operating results could differ materially from the results described in this Annual Report due to the risks and uncertainties +described below. You should consider carefully the following information about risks in evaluating our business. If any of the +following risks actually occur, our business, financial condition, results of operations and future growth prospects would likely be +materially and adversely affected. Additional risks and uncertainties not presently known to us or that we currently deem immaterial +also may impair our business operations in these circumstances, the market price of our securities would likely decline. In +addition, we cannot assure investors that our assumptions and expectations will prove to be correct. Important factors could cause +our actual results to differ materially from those indicated or implied by forward-looking statements. See “Item 7. +Management’s Discussion and Analysis of Financial Condition and Results Of Operations - Cautionary Statement Regarding +Forward-Looking Information” for a discussion of some of the forward-looking statements that are qualified by these risk +factors. Factors that could cause or contribute to such differences include those factors discussed below. +Summary +of Risk Factors +Investing +in our common stock involves risks. In addition, our business and operations are subject to a number of risks, which you should be aware +of prior to making a decision to invest in our common stock. These risks are discussed more-fully in the “ Item 1A. Risk Factors ” +section of this Annual Report beginning on page 16. Below is a summary of these risks. +Risks +Relating to Our Business +● +We +have a history of operating losses, our management has concluded that factors raise substantial doubt about our ability to continue +as a going concern and our auditor has included an explanatory paragraph relating to our ability to continue as a going concern in +its audit report for the years ended October 31, 2024 and 2023. +● +We +may face delays and/or obstacles in project development due to difficulties in obtaining necessary permits from federal, state, county +and/or local agencies, which may materially affect our business. +● +Due +to our contractor model for drilling operations, we will be vulnerable to any inability to engage one or more drilling rigs and associated +drilling personnel. +● +We +have faced and may in the future face conflicts of interest in negotiations with related parties, including in negotiations with +Lafayette Energy Corp and/or Trio LLC, entities which certain of our current and former employees, officers and directors serve as +employees, officers or directors, for example concerning assets where TPET and one of these entities have interests. +● +We +are operating in a highly capital-intensive industry, and any sales of produced oil and gas may be insufficient to fund, sustain, +or expand revenue-generating operations. +● +We +face substantial uncertainties in estimating the characteristics of our assets, so you should not place undue reliance on any of +our measures. +● +The +drilling of wells is speculative, often involving significant costs that may be more than our estimates, and drilling may not result +in any discoveries or additions to our future production or future reserves, or it may result in disproving or diminishing our current +reserves. +● +We +have been an exploration stage entity and our future performance is uncertain. +● +Seismic +studies do not guarantee that oil or gas is present or, if present, will produce in economic quantities. +● +The +potential lack of availability of, or cost of, drilling rigs, equipment, supplies, personnel, and crude oil field services could +adversely affect our ability to execute on a timely basis exploration and development plans within any budget. +● +Our +business plan requires substantial additional capital, which we may be unable to raise on acceptable terms in the future, which may +in turn limit our ability to develop our exploration, appraisal, development and production activities. +● +A +substantial or extended decline in global and/or local oil and/or natural gas prices may adversely affect our business, financial +condition and results of operations. +● +Unless +we replace our petroleum reserves, our reserves and production will decline over time. Our business is dependent on the successful +development of our various current petroleum assets and projects and/or on continued successful identification and exploitation of +other petroleum assets and prospects, whereas the identified locations in which we drill in the future may not yield oil or natural +gas in commercial quantities. +● +Our +inability to access appropriate equipment and infrastructure in a timely manner may hinder our access to oil and natural gas markets +or delay our future oil and natural gas production. +● +We +are subject to drilling and other operational environmental hazards. +16 +● +The +development schedule of oil and natural gas projects, including the availability and cost of drilling rigs, equipment, supplies, +personnel and oilfield services, is subject to delays and cost overruns. +● +Participants +in the oil and gas industry are subject to numerous laws that can affect the cost, manner or feasibility of doing business. +● +We +and our operations are subject to numerous environmental, health and safety regulations which may result in material liabilities +and costs. +● +Our +operations may be dependent on sources of electricity and/or natural gas that may be unreliable or costly. +● +We +expect continued and increasing attention to climate change and energy transition issues and associated regulations to constrain +and impede the oil/gas industry. +● +We +may incur substantial losses and become subject to liability claims as a result of future oil and natural gas operations, for which +we may not have adequate insurance coverage. +Risks +Relating to Our Securities +● +If we are not able to comply with the applicable continued listing requirements +or standards of the NYSE American, our common stock could be delisted from the NYSE American. +● +Our share price may be volatile, and purchasers of our common stock could +incur substantial losses. +● +We do not intend to pay dividends on our common stock. +Other +Risks +● +We +may be subject to risks in connection with acquisitions and the integration of significant acquisitions may be difficult. +● +If +we fail to realize the anticipated benefits of a significant acquisition, our results of operations may be adversely affected. +● +The +requirements of being a public company may strain our resources, result in more litigation and divert management’s attention. +● +We +are subject to the examination of our tax returns and other tax matters by the U.S. Internal Revenue Service, states in which we +conduct business, and other tax authorities. If our effective tax rates were to increase, or if the ultimate determination of our +taxes owed is for an amount in excess of amounts previously accrued, our financial condition, operating results and cash flows could +be materially adversely affected. +● +Our +amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the sole and +exclusive forum for substantially all disputes between us and our shareholders, which could limit its stockholders’ ability +to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees. +Risks +Relating to Our Business +We +have a history of operating losses, our management has concluded that factors raise substantial doubt about our ability to continue as +a going concern and our auditor has included an explanatory paragraph relating to our ability to continue as a going concern in its audit +report for the years ended October 31, 2024 and 2023. +For +the year ended October 31, 2024, we generated revenues of $213,204, reported a net loss of $9,626,797 and cash flows used in operating +activities of $3,840,744. For the year ended October 31, 2023, we generated no revenues, reported a net loss of $6,544,426, and cash +flows used in operating activities of $4,036,834. As of October 31, 2024, we had an accumulated deficit of $20,073,679. Our management +has concluded that our accumulated deficit and no source of revenue sufficient to cover our cost of operation as well as our dependence +on private equity and other financings raise substantial doubt about our ability to continue as a going concern, and our auditor has +included an explanatory paragraph relating to our ability to continue as a going concern in its audit report for the years ended October +31, 2024 and 2023. +Our +financial statements do not include any adjustments that might result from the outcome of this uncertainty. These adjustments would likely +include substantial impairment of the carrying amount of our assets and potential contingent liabilities that may arise if we are unable +to fulfill various operational commitments. In addition, the value of our securities would be greatly impaired. Our ability to continue +as a going concern is dependent upon generating sufficient cash flow from operations and obtaining additional capital and financing. +If our ability to generate cash flow from operations is delayed or reduced and we are unable to raise additional funding from other sources, +we may be unable to continue in business. For further discussion about our ability to continue as a going concern and our plan for future +liquidity, see “ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Ability +to Continue as a Going Concern .” +17 +We +may face delays and/or obstacles in project development due to difficulties in obtaining necessary permits from federal, state, county +and/or local agencies, which may materially affect our business. +We +are subject to a number of federal, state, county and local laws, regulations and other requirements relating to oil and natural gas +operations. The laws and regulations that affect the oil and natural gas industry are under constant review for amendment or expansion. +Some of these laws, regulations and requirements result in challenges, delays and/or obstacles in obtaining permits, and some carry substantial +penalties for failure to comply. The regulatory burden on the oil and natural gas industry increases our cost of doing business, can +affect and even obstruct our operations and, consequently, can affect our profitability. +Various +permits for exploratory drilling and production-testing are in-hand for the South Salinas Project, whereas permits for long-term production, +conditional use permits, water disposal and other matters have not yet been obtained. There are challenges and uncertainties in obtaining +permits, which may result in delays and/or obstacles to developing our oil/gas assets. California and Colorado are two States that are +considered to have challenging regulatory environments and Monterey County in California also has this reputation. We may experience +delays and/or obstacles to exploiting our assets, and also may be required to make large expenditures to comply with governmental laws +and regulations and to obtain permits. +The +Company currently has permits from Monterey County for the HV-1, HV-2, HV-3A and HV-4 wells, permitting each of these wells to be tested +by producing it for its own 18 month period with the Company selling the produced oil and/or gas, and disposing of produced water from +these wells by trucking it offsite to a licensed water-disposal facility and, if necessary, flaring on-site any natural gas that is not +used on-site in field operations. The Company is currently seeking a permit from CalGEM and State Water Boards to dispose of produced +water at the Project. +The +Company is seeking and/or expects to seek from regulatory agencies any and all additional permits as may be necessary, which may include +but not be limited to conditional use permits, drilling permits, permits for full-field development, permits for long-term production, +permits for additional water disposal wells, permits for transport of oil and gas via pipelines, and such similar permits as are customarily +required in oil and gas exploration and development projects. Delays and/or obstacles in obtaining necessary permits may materially affect +our business, for example: +● +it +will not be possible to produce the HV-1, HV-2, HV-3A and HV-4 wells after their individual eighteen-month production-test periods +without additional permits; +● +project +economics will be less favorable if all necessary permits for on-site water disposal are not approved; +● +it +will not be possible to drill new wells other than the HV-2 and HV-4 wells without new permits; +● +it +will not be possible to utilize five of the existing Project wells (i.e., the BM 2-2, BM 1-2-RD1, HV 2-6, HV 3-6 and/or HV 1-35) +without new permits, including conditional use permits from Monterey County, and other customary permits from local and State agencies; +● +it +will not be possible to initiate full-field development without new permits; and +● +it +will not be possible to establish long-term production without new permits. +Due +to our contractor model for drilling operations, we will be vulnerable to any inability to engage one or more drilling rigs and associated +drilling personnel. +Our +operation plan currently depends on using the services of independent drilling contractors such as Ensign Energy that operate their own +drilling rigs using their own personnel. Lack of rig availability from independent drilling contractors would hinder our operations. +Our assets include operations in California and Ensign, for example, has indicated that it is moving its drilling rigs out of California +due to decline of California’s oil and gas industry. Lack of rig availability may be a problem if there is a drilling boom and +rigs are reserved by other operators into the foreseeable future, or contrarily if there is a general lack of rigs as may occur if the +oil industry is in a slump and rigs are taken out of service. The capacities of standard oil field service companies in general (i.e., +in addition to drilling contractors) in California have declined and continue to decline in parallel with the continuing decline of California’s +oil and gas industry. +We +have faced and may in the future face conflicts of interest in negotiations with related parties, including in negotiations with Lafayette +Energy Corp and/or Trio LLC, entities which certain of our current and former employees, officers and directors serve as employees, officers +or directors, for example concerning assets where TPET and one of these entities have interests. +TPET +and Lafayette Energy Corp (“LEC”) both have equity interests in the Asphalt Ridge Project, Utah. TPET and Trio LLC both have +equity interests in the South Salinas Project and the McCool Ranch Oil Field, California. +Gregory +L. Overholtzer, our Chief Financial Officer, is also employed by Lafayette Energy Corp (“LEC”) as its Chief Financial Officer. +TPET and LEC both have interests in the Asphalt Ridge Asset in Utah. TPET has an option at this asset and potential conflicts of interests +may arise. Mr. Overholtzer, through his relationship with LEC, might benefit in the event TPET is unable to exercise its option to acquire +this asset. +18 +Stanford +Eschner, who we employed as our Vice Chairman until December 31, 2024 and +who continues as our Vice Chairman in a non-employee capacity, and Steven Rowlee, who we employed as our Chief Operating Officer until +December 31, 2024 and was officially released from his duties by the Board as of January 2, 2025, are also employed by Trio LLC. Stanford +Eschner is Trio LLC’s Chairman and Steven Rowlee is its Vice President. Terence B. Eschner, who we employed as our President until +December 31, 2024 and was officially released from his duties by the Board as of January 2, 2025, also works as a consultant to Trio LLC +through his company Sarlan Resources, Inc. Trio LLC and its management team are part owners of the Company and will continue as Operator +of the South Salinas Project and the McCool Ranch Oil Field on behalf of Trio Corp and of the other working interest partners. +In +October 2023, the Company acquired an approximate 22% working interest in the McCool Ranch Oil Field from Trio LLC, which the Company +announced in a press release on October 18, 2023. The Company is acquiring this interest in the McCool Ranch Oil Field primarily through +work commitment expenditures that will be allocated to restart production at the field. +Since +Trio LLC is partly owned and controlled by members of our management, acquisitions of Trio LLC’s assets by the Company constitute +related party transactions and, therefore, a special committee of our board of directors, currently comprised of Mr. Ross, Mr. Randall +and Mr. Hunter (the “Trio Special Committee”) was formed to evaluate and negotiate the terms of such acquisitions. In addition, +in accordance with our Related Person Transaction Policy, we will have such transactions reviewed and approved by our Board’s Audit +Committee. TPET has engaged KLS Petroleum Consulting LLC (“KLSP”) to conduct comprehensive analyses and to provide valuations +of such assets, which analyses have been delivered to the Company and evaluated by the Trio Special Committee. +Since +LEC is partly owned and controlled by current and former members of our management, transactions including acquisitions between TPET +and LEC relating to the Asphalt Ridge Asset and/or to other assets constitute related party transactions, we have formed a special committee +of our board of directors, comprised of Mr. Pernice, Mr. Randall and Mr. Hunter (the “Lafayette Special Committee”) to evaluate +and negotiate the terms of any such future transactions. In addition, in accordance with our Related Person Transaction Policy, we will +have any such future transactions reviewed and approved by our Board’s Audit Committee. TPET will engage KLS Petroleum Consulting +LLC (“KLSP”) or other third-party experts, as deemed necessary by TPET’s management and/or by the Lafayette Special +Committee, to conduct comprehensive analyses and to provide valuations of such assets, which analyses will be delivered to the Company +and evaluated by the Trio Special Committee. +We +may enter into future transactions with LEC and/or Trio LLC. These transactions can give rise to potential conflicts of interest. We +believe that the terms and conditions of our transactions have been, and will continue to be at arm’s length and on commercial +terms that are normal, considering the characteristics of the goods or services involved. However, there can be no assurance that if +such transactions had been concluded between or with third parties, such parties would have negotiated or entered into agreements or +carried out such transactions under the same or substantially similar terms and conditions. Notwithstanding the fact that we have created +the Trio Special Committee and the Lafayette Special Committee to address these potential conflicts of interest, such potential conflicts +of interests could result in the value of our securities being worth less than similarly situated companies without conflicts of interest, +or becoming devalued in the future. Additionally, such conflicts of interest could also lead to future stockholder litigation against +such conflicted officers and directors and/or the Company, which could force us to expend significant resources defending and could result +in material damages being required to be paid by the Company. +We +are operating in a highly capital-intensive industry, and any sales of produced oil and gas may be insufficient to fund, sustain, or +expand revenue-generating operations. +The +oil/gas drilling exploration and production business are capital intensive due to the cost of experienced personnel; equipment and other +assets required to drill, produce and store oil; regulatory compliance costs; potential liability exposures and financial impact; and +risk of unpredictable volatility in oil market prices and predatory pricing by competitors. Drilling requires an upfront payment of operational +costs with no guarantee that actual oil/gas production will cover such expenses. “Dry” holes and/or non-economic results +at planned oil/gas wells could deplete available funding raised by the Company and render the Company insolvent. The actual amount and +timing of our future capital expenditures may differ materially from our estimates as a result of, among other things, market oil prices, +actual drilling results, the availability of drilling rigs and other services and equipment, and regulatory, technological, and competitive +developments. +Future +cash flow from our operations and access to capital are subject to a number of variables, including: (i) the market prices at which our +produced oil and gas are sold; (ii) our oil and/or gas reserves; (iii) our ability to acquire, locate and produce new oil/gas reserves; +and (iv) the levels of our operating expenses. +We +face substantial uncertainties in estimating the characteristics of our assets, so you should not place undue reliance on any of our +measures. +In +this Annual Report, we provide numerical and other measures of the characteristics, including with regard to size and quality, of our +assets. These measures may be incorrect, as the accuracy of these measures are functions of available data, geological, geophysical, +petrophysical and engineering interpretation and judgment. Any analogies drawn by us from other wells, discoveries or producing fields +may not prove to be accurate indicators of the success of developing reserves from our assets. Furthermore, we may have inaccurately +evaluated the accuracy of the data from analog wells or prospects produced by other parties, which we may have used. +19 +There +are uncertainties in reserve forecasts and in associated estimates of future cash flows in the South Salinas Project due to uncertainties +in various matters including, for example, in the following: +● +the +areal extent of the oil and/or gas fields and/or prospects; +● +the +gross and net thicknesses of the geologic zones that comprise the oil and/or gas reservoirs (note: “oil and gas reservoirs” +are geologic zones that contain oil and/or gas); +● +the +porosity, permeability and fluid saturations (i.e., oil, gas and/or water saturation) of the oil and/or gas reservoirs; +● +the +oil, gas and/or water production rates that will be achieved initially and during extended reservoir performance; +● +the +volumes of oil and/or gas that can be economically extracted from the oil and/or gas reservoirs; +● +the +extent of natural fractures that will be encountered in the naturally-fractured Monterey Formation oil and gas reservoirs (e.g., +the Monterey Yellow Zone and Monterey Blue Zone that are discussed hereunder and in the Reserve Report and Reserve Supplement Report); +● +pore +volume compressibility and its impact on reservoir pressure and thus on reservoir performance; and +● +the +oil- and gas-prices during the life of the Project. +It +is possible that few or none of our wells to be drilled in the future will find accumulations of oil/gas in commercial quality or quantity. +Any significant variance between actual results and our assumptions could materially affect the quantities of oil attributable to any +particular prospect. +The +drilling of wells is speculative, often involving significant costs that may be more than our estimates, and drilling may not result +in any discoveries or additions to our future production or future reserves , or it may result in disproving or diminishing our +current reserves. +Exploring +for and developing oil involves a high degree of operational and financial risk, which precludes definitive statements as to the time +required and costs involved in reaching certain objectives. The budgeted costs of planning, drilling, completing and operating wells +are often exceeded and can increase significantly when drilling costs rise due to a tightening in the supply of various types of oilfield +equipment and related services or unanticipated geologic and/or mechanical conditions. Before a well is spud, we may incur significant +geological and geophysical (seismic) costs, which are incurred whether a well eventually produces commercial quantities of oil/gas, or +is drilled at all. Drilling may be unsuccessful for many reasons, including geologic conditions, weather, cost overruns, equipment shortages +and mechanical difficulties. Exploratory wells bear a much greater risk of loss than development wells. Furthermore, the successful drilling +of a well does not necessarily result in the commercially viable development of a field. A variety of factors, including regulatory, +geologic and/or market-related, can cause a field to become uneconomic or only marginally economic. All of our prospects will require +significant additional exploration and development, regulatory approval and commitments of resources prior to commercial development. +The successful drilling of a single well may not be indicative of the potential for the development of a commercially viable field. Furthermore, +if our actual drilling and development costs are significantly more than our estimated costs, we may not be able to continue our business +operations as proposed and may be forced to modify our development plans. +We +have been an exploration stage entity and our future performance is uncertain. +We +have been an exploration stage entity and will continue to be so until we generate revenue. Exploration stage entities face substantial +business risks and may suffer significant losses. We have generated substantial net losses and negative cash flows from operating activities +since our inception and expect to continue to incur substantial net losses as we continue our exploration and appraisal program. We face +challenges and uncertainties in financial planning as a result of the unavailability of historical data and uncertainties regarding the +nature, scope and results of our future activities. We will need to develop additional business relationships, establish additional operating +procedures, hire additional staff, and take other measures necessary to conduct our intended business activities. We may not be successful +in implementing our business strategies or in completing the development of the facilities necessary to conduct our business as planned. +In the event that one or more of our drilling programs is not completed, is delayed or terminated, our operating results will be adversely +affected and our operations will differ materially from the activities described in this Annual Report. There are uncertainties surrounding +our future business operations that must be navigated if we transition from an exploration stage entity and commence generating revenues, +some of which may cause a material adverse effect on our results of operations and financial condition. +20 +We +are dependent on certain members of our management and technical team. +Investors +in our common stock must rely upon the ability, expertise, judgment and discretion of our management and the success of our technical +team in identifying, discovering, evaluating and developing reserves. Our performance and success are dependent, in part, upon key members +of our management and technical team, and their loss or departure could be detrimental to our future success. We depend to a significant +degree upon our recently appointed Chief Executive Officer, Robin Ross, and our Chief Financial Officer, Gregory L. Overholtzer. Our +performance and success are dependent to a large extent on the efforts and continued employment of Mr. Ross and Mr. Overholtzer. We do +not believe that Mr. Ross and Mr. Overholtzer could be quickly replaced with personnel of equal experience and capabilities, and their +successor(s) may not be as effective. If Mr. Ross and Mr. Overholtzer, or any of our other key personnel resign or become unable to continue +in their present roles and if they are not adequately replaced, our business operations could be adversely affected. +In +making a decision to invest in our common stock, you must be willing to rely to a significant extent on our management’s discretion +and judgment. A significant amount of the interests in our Company held by members of our management were previously vested. While the +Company currently has an equity incentive plan in place, there can be no assurance that our management and technical team will remain +in place. The loss of any of our management and technical team members, and specifically, Mr. Ross, our recently appointed Chief Executive +Officer, could have a material adverse effect on our results of operations and financial condition, as well as on the market price of +our common stock. See “ Item 10. Directors, Executive Officers and Corporate Management. ” +Seismic +studies do not guarantee that oil or gas is present or, if present, will produce in economic quantities. +Oil +exploration and production companies, like the Company, rely on seismic studies to assist in assessing prospective drilling opportunities +on oil and gas properties, as well as on properties that a company may acquire. Such seismic studies are merely an interpretive tool +and do not necessarily guarantee that oil or gas is present or, if present, will produce in economic or profitable quantities. +The +potential lack of availability of, or cost of, drilling rigs, equipment, supplies, personnel, and crude oil field services could adversely +affect our ability to execute on a timely basis exploration and development plans within any budget. +We +may encounter an increase in the cost of securing needed drilling rigs, equipment, and supplies, which is increasingly a risk in California +where the oil and gas industry is contracting, due to regulatory challenges/obstacles, and some service companies are reducing their +presence in California or leaving the state entirely. Larger producers may be more likely to secure access to such equipment by offering +more lucrative terms. If we are unable to acquire access to such resources or can obtain access only at higher prices, its ability to +convert oil reserves into cash flow could be delayed, and the cost of producing from those oil reserves could increase significantly, +which would adversely affect results of operations and financial condition. Our current drilling operations are limited, and availability +of essential drilling assets may not become a risk factor until such time as we increase drilling operations. +Our +business plan requires substantial additional capital, which we may be unable to raise on acceptable terms in the future, which may in +turn limit our ability to develop our exploration, appraisal, development and production activities. +We +expect our capital outlays and operating expenditures to be substantial over the next several years as we expand our operations. Obtaining +and/or reprocessing and/or reinterpreting seismic data, as well as exploration, appraisal, development and production activities entail +considerable costs, and we expect that we will need to raise substantial additional capital, through future private or public equity +offerings, strategic alliances or debt financing. +Our +future capital requirements will depend on many factors, including: +● +the +scope, rate of progress and cost of our exploration, appraisal, development and production activities; +● +oil +prices; +● +our +ability to produce oil or natural gas; +● +the +terms and timing of any drilling and other production-related arrangements that we may enter into; +● +the +cost and timing of governmental regulatory approvals of permits, and; +● +the +effects of competition from other companies and/or third-parties operating in the oil and gas industry +21 +Additional +capital may not be available on favorable terms, or at all. In addition, if we are successful raising additional capital through the +sale of our securities, at such time our existing stockholders would, in all likelihood, be further diluted and new investors may demand +rights, preferences or privileges senior to those of existing stockholders. If we raise additional capital through debt financing, the +financing may involve covenants that restrict our business activities. If we choose to farm-out our interests, we may lose operating +control or influence over such assets. +Assuming +we are able to timely commence exploration, appraisal, development and/or production activities, and/or to maintain oil/gas production, +and/or to maintain force majeure status, then our rights to our mineral leasehold should extend for certain periods of time and/or for +life of production. If we are unable to meet our commitments we may be subject to significant potential forfeiture of all or part of +the mineral leasehold. If we are not successful in raising additional capital, we may be unable to continue our future exploration and +production activities or successfully exploit our assets, and we may lose the rights to develop said assets. +A +substantial or extended decline in global and/or local oil and/or natural gas prices may adversely affect our business, financial condition +and results of operations. +The +prices that we will receive for our oil and natural gas will significantly affect our revenue, profitability, access to capital and future +growth rate. Historically, the oil and natural gas markets have been volatile and will likely continue to be volatile in the future. +The prices that we will receive for our future production and the levels of our future production depend on numerous factors. These factors +include, but are not limited to, the following: +● +changes +in supply and demand for oil and natural gas; +● +the +actions of the Organization of the Petroleum Exporting Countries (“OPEC”); +● +speculation +as to the future price of oil and natural gas and the speculative trading of oil and natural gas futures contracts; +● +global +economic conditions; +● +political +and economic conditions, including embargoes in oil-producing countries or affecting other oil-producing activities, particularly +in the Middle East, Africa, Russia and South America; +● +the +continued threat of terrorism and the impact of military and other action, including U.S. military operations in the Middle East; +● +the +level of global oil and natural gas exploration and production activity; +● +the +level of global oil inventories and oil refining capacities; +● +weather +conditions and natural disasters; +● +technological +advances affecting energy consumption; +● +governmental +regulations and taxation policies; +● +proximity +and capacity of transportation facilities; +● +the +price and availability of competitors’ supplies of oil and natural gas; and +● +the +price and availability of alternative fuels. +Lower +oil prices may not only decrease our revenues on a per share basis but also may reduce the amount of oil that we can produce economically. +A substantial or extended decline in oil and natural gas prices may materially and adversely affect our future business, financial condition, +results of operations, liquidity or ability to finance planned capital expenditures. +22 +Unless we replace +our petroleum reserves, our reserves and production will decline over time. Our business is dependent on the successful development of +our various current petroleum assets and projects and/or on continued successful identification and exploitation of other petroleum assets +and prospects, whereas the identified locations in which we drill in the future may not yield oil or natural gas in commercial quantities. +Production +from oil properties may decline as reserves are depleted, with the rate of decline depending on reservoir characteristics and other factors. +Similarly, our current reserves will decline as the reserves are produced. Our future oil reserves and production, and therefore our +cash flows and income, are highly dependent on our success in efficiently developing our current reserves and/or economically finding +or acquiring additional recoverable reserves. While our team members have had success in identifying and developing commercially exploitable +deposits and drilling locations in the past, we may be unable to replicate that success in the future. We may not identify any more commercially +exploitable deposits or successfully drill, complete or produce more oil reserves, and the wells which we have drilled and currently +plan to drill at our assets may not discover or produce any further oil or gas or may not discover or produce additional commercially +viable quantities of oil or gas to enable us to continue to operate profitably. If we are unable to replace our future production, the +value of our reserves will decrease, and our business, financial condition and results of operations will be materially adversely affected. +Our +inability to access appropriate equipment and infrastructure in a timely manner may hinder our access to oil and natural gas markets +or delay our future oil and natural gas production. +Our +ability to market our future oil/gas production will depend substantially on the availability and capacity of processing facilities, +tanker trucks, pipelines and other infrastructure. Our failure to obtain such facilities on acceptable terms could materially harm our +business. We will rely on access to drilling rigs suitable for our projects. The availability of drilling rigs may be problematic or +delayed, and we may not be able to gain timely access to suitable rigs. We may be required to shut-in oil/gas wells because of the absence +of markets or because facilities are inadequate or nonexistent. If that were to occur, then we would be unable to realize revenue from +those wells until arrangements were made to deliver the production to market, which could cause a material adverse effect on our financial +condition and results of operations. +Additionally, +the exploitation and sale of associated and non-associated natural gas and liquids will be subject to timely commercial processing and +marketing of these products, which may depend on the contracting, financing, building and operating of infrastructure by third parties. +We +are subject to numerous risks inherent to the exploration and production of oil and natural gas. +Oil +and natural gas exploration and future production activities involve many risks that a combination of experience, knowledge and interpretation +may not be able to overcome. Our future will depend on the success of our exploration and future production activities and on the development +of infrastructure that will allow us to take advantage of our discoveries. As a result, our oil and natural gas exploration and future +production activities are subject to numerous risks, including the risk that drilling will not result in commercially viable oil and +natural gas production. Our decisions to purchase, explore or develop discoveries, prospects or licenses will depend in part on the evaluation +of seismic data through geophysical and geological analyses, production data and engineering studies, the results of which are often +inconclusive or subject to varying interpretations. +Furthermore, +the marketability of expected oil and natural gas production from any future discoveries and prospects will also be affected by numerous +factors. These factors include, but are not limited to, market fluctuations of prices, proximity, capacity and availability of processing +facilities, transportation vehicles and pipelines, equipment availability and government regulations (including, without limitation, +regulations relating to prices, taxes, royalties, allowable production, domestic supply requirements, importing and exporting of oil +and natural gas, environmental protection and climate change). The effect of these factors, individually or jointly, may result in us +not receiving an adequate return on invested capital. +In +the event that our currently undeveloped discoveries and prospects are developed and become operational, they may not produce oil and +natural gas in commercial quantities or at the costs anticipated, and our projects may cease production, in part or entirely, in certain +circumstances. Discoveries may become uneconomical as a result of an increase in operating costs to produce oil and natural gas. Our +actual operating costs may differ materially from our current estimates. Moreover, it is possible that other developments, such as increasingly +strict environmental, climate change, health and safety laws and regulations and enforcement policies thereunder and claims for damages +to property or persons resulting from our operations, could result in substantial costs and liabilities, delays, an inability to complete +the development of our discoveries or the abandonment of such discoveries, which could cause a material adverse effect on our financial +condition and results of operations. +We +are subject to drilling and other operational environmental hazards. +The +oil and natural gas business involves a variety of operating risks, including, but not limited to: +● +fires, +blowouts, spills, cratering and explosions; +● +mechanical +and equipment problems, including unforeseen engineering complications; +● +uncontrolled +flows or leaks of oil, well fluids, natural gas, brine, toxic gas or other pollution; +● +gas +flaring operations; +● +formations +with abnormal pressures; +● +pollution, +other environmental risks, and geological problems; and +● +weather +conditions and natural disasters. +23 +The +development schedule of oil and natural gas projects, including the availability and cost of drilling rigs, equipment, supplies, personnel +and oilfield services, is subject to delays and cost overruns. +Historically, +some oil and natural gas development projects have experienced delays and capital cost increases and overruns due to, among other factors, +the unavailability or high cost of drilling rigs and other essential equipment, supplies, personnel and oilfield services. To the extent +we locate commercially viable reserves through our exploration and development activities, the cost to develop our projects will not +have been fixed and will remain dependent upon a number of factors, including the completion of detailed cost estimates and final engineering, +contracting and procurement costs. Our construction and operation schedules may not proceed as planned and may experience delays or cost +overruns. Any delays may increase the costs of the project, requiring additional capital, and such capital may not be available in a +timely and cost-effective fashion. +Participants +in the oil and gas industry are subject to numerous laws that can affect the cost, manner or feasibility of doing business. +Exploration +and production activities in the oil and gas industry are subject to local laws and regulations. We may be required to make large expenditures +to comply with governmental laws and regulations, particularly in respect of the following matters: +● +permits +for drilling, long-term production, water disposal, conditional use and other matters; +● +licenses +for drilling operations; +● +tax +increases, including retroactive claims; +● +unitization +of oil accumulations; +● +local +content requirements (including the mandatory use of local partners and vendors); and +● +environmental +requirements and obligations, including remediation or investigation activities. +Under +these and other laws and regulations, we could be liable for personal injuries, property damage and other types of damages. Failure to +comply with these laws and regulations also may result in the suspension or termination of our operations and subject us to administrative, +civil and criminal penalties. Moreover, these laws and regulations could change, or their interpretations could change, in ways that +could substantially increase our costs. These risks may be higher in developing countries in which we may at some point in the future +decide to conduct our operations, where there could be a lack of clarity or lack of consistency in the application of these laws and +regulations. Any resulting liabilities, penalties, suspensions or terminations could have a material adverse effect on our financial +condition and results of operations. +We +and our operations are subject to numerous environmental, health and safety regulations which may result in material liabilities and +costs. +We +and our operations are subject to various international, foreign, federal, state and local environmental, health and safety laws and +regulations governing, among other things, the emission and discharge of pollutants into the ground, air or water, the generation, storage, +handling, use and transportation of regulated materials and the health and safety of our employees. We are required to obtain environmental +permits from governmental authorities for our operations, including drilling permits for our wells. We have not been or may not be at +all times in complete compliance with these permits and the environmental laws and regulations to which we are subject, and there is +a risk that these laws and regulations could change in the future or become more stringent. If we violate or fail to comply with these +laws, regulations or permits, we could be fined or otherwise sanctioned by regulators, including through the revocation of our permits +or the suspension or termination of our operations. If we fail to obtain permits in a timely manner or at all (due to opposition from +community or environmental interest groups, governmental delays or any other reasons), or if we face additional requirements imposed +as a result of changes in or enactment of laws or regulations, such failure to obtain permits or such changes in or enactment of laws +could impede or affect our operations, which could have a material adverse effect on our results of operations and financial condition. +We, +as an interest owner or as the designated operator of certain of our current and future discoveries and prospects, could be held liable +for some or all environmental, health and safety costs and liabilities arising out of our actions and omissions as well as those of our +block partners, third-party contractors or other operators. To the extent we do not address these costs and liabilities or if we do not +otherwise satisfy our obligations, our operations could be suspended or terminated. We have contracted with and intend to continue to +hire third parties to perform services related to our operations. There is a risk that we may contract with third parties with unsatisfactory +environmental, health and safety records or that our contractors may be unwilling or unable to cover any losses associated with their +acts and omissions. Accordingly, we could be held liable for all costs and liabilities arising out of the acts or omissions of our contractors, +which could have a material adverse effect on our results of operations and financial condition. +24 +We +maintain insurance at levels that we believe are consistent with industry practices, but we are not fully insured against all risks. +Our insurance may not cover any or all environmental claims that might arise from our future operations or at any of our asset areas. +If a significant accident or other event occurs and is not covered by insurance, such accident or event could have a material adverse +effect on our results of operations and financial condition. +Our +operations may be dependent on sources of electricity and/or natural gas that may be unreliable or costly. +Oil +and gas operations, including our operations, commonly require significant electricity and/or natural gas as power sources to operate +facilities. Some oil and gas operations are power self-sourced, for example producing natural gas to run facilities including to generate +electricity. Some oil operations historically were permitted to burn crude oil to power operations but this is commonly not permitted +today due to associated greenhouse gas emissions. Our South Salinas Project may produce sufficient natural gas to be power self-sourced +and even to deliver gas to market. The McCool Ranch Oil Field produces black oil without associated natural gas, and historically has +received natural gas through an existing pipeline that has had excess capacity. The excess capacity available might not be adequate to +meet our demand. If establishing and/or maintaining reliable sources of affordable electricity and/or natural gas are problematic or +delayed, this could have a material adverse effect on our results of operations and financial condition. +We +expect continued and increasing attention to climate change and energy transition issues and associated regulations to constrain and +impede the oil/gas industry. +We +expect continued and increasing attention to climate change and to the energy transition away from fossil fuels. Various countries and +regions have agreed to regulate emissions of greenhouse gases, including methane (a primary component of natural gas) and carbon dioxide +(a byproduct of oil and natural gas combustion). The regulation of greenhouse gases and the physical impacts of climate change in the +areas in which we, our customers and the end-users of our products operate could adversely impact our operations and the demand for our +products. +Environmental, +health and safety laws are complex, change frequently and have tended to become increasingly stringent over time. Our costs of complying +with current and future climate change, environmental, health and safety laws, the actions or omissions of our block partners and third +party contractors and our liabilities arising from releases of, or exposure to, regulated substances may adversely affect our results +of operations and financial condition. +We +may incur substantial losses and become subject to liability claims as a result of future oil and natural gas operations, for which we +may not have adequate insurance coverage. +We +intend to maintain insurance against risks in the operation of the business we plan to develop and in amounts in which we believe to +be reasonable. Such insurance, however, may contain exclusions and limitations on coverage. For example, we are not insured against political +or terrorism risks. We may elect not to obtain insurance if we believe that the cost of available insurance is excessive relative to +the risks presented. Losses and liabilities arising from uninsured and underinsured events could materially and adversely affect our +business, financial condition and results of operations. +We +may be subject to risks in connection with acquisitions and the integration of significant acquisitions may be difficult. +We +periodically evaluate acquisitions of prospects, properties, mineral leases, licenses, reserves and other strategic transactions that +appear to fit within our overall business strategy. The successful acquisition of these assets requires an assessment of several factors, +including: +● +oil +and/or gas reserves; +● +future +oil and natural gas prices and their differentials; +● +development +and operating costs; and +● +potential +environmental and other liabilities. +25 +The +accuracy of these assessments is inherently uncertain. In connection with these assessments, we perform a review of the subject assets +that we believe to be generally consistent with industry practices. Our review will not reveal all existing or potential problems nor +will it permit us to become sufficiently familiar with the assets to fully assess their deficiencies and potential recoverable reserves. +Inspections may not always be performed on every well, and environmental problems are not necessarily observable even when an inspection +is undertaken. Even when problems are identified, the seller may be unwilling or unable to provide effective contractual protection against +all or part of the problems. We may not be entitled to contractual indemnification for environmental liabilities and could acquire assets +on an “as is” basis. Significant acquisitions and other strategic transactions may involve other risks, including: +● +diversion +of our management’s attention to evaluating, negotiating and integrating significant acquisitions and strategic transactions; +● +the +challenge and cost of integrating acquired operations, information management and other technology systems and business cultures +with those of ours while carrying on our ongoing business; +● +difficulty +associated with coordinating geographically separate organizations; and +● +the +challenge of attracting and retaining personnel associated with acquired operations. +The +process of integrating operations could cause an interruption of, or loss of momentum in, the activities of our business. Members of +our senior management may be required to devote considerable amounts of time to this integration process, which will decrease the time +they will have to manage our business. If our senior management is not able to effectively manage the integration process, or if any +significant business activities are interrupted as a result of the integration process, our business could suffer. +If +we fail to realize the anticipated benefits of a significant acquisition, our results of operations may be adversely affected. +The +success of a significant acquisition will depend, in part, on our ability to realize anticipated growth opportunities from combining +the acquired assets or operations with those of ours. Even if a combination is successful, it may not be possible to realize the full +benefits we may expect in estimated proved reserves, production volume, cost savings from operating synergies or other benefits anticipated +from an acquisition or realize these benefits within the expected time frame. Anticipated benefits of an acquisition may be offset by +operating losses relating to changes in commodity prices, or in oil and gas industry conditions, or by risks and uncertainties relating +to the exploratory prospects of the combined assets or operations, or an increase in operating or other costs or other difficulties, +including the assumption of environmental or other liabilities in connection with the acquisition. If we fail to realize the benefits +we anticipate from an acquisition, our results of operations may be adversely affected. +The +requirements of being a public company may strain our resources, result in more litigation and divert management’s attention. +As +a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street +Reform and Consumer Protection Act, the listing requirements of the NYSE American and other applicable securities rules and regulations. +Complying with these rules and regulations has increased our legal and financial compliance costs, made some activities more difficult, +time consuming or costly, and increased demand on our systems and resources, including management. The Exchange Act requires, among other +things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act +requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. +We are required to disclose changes made in our internal control and procedures on a quarterly basis. In order to maintain and, if required, +improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources +and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which +could adversely affect our business and operating results. We may also need to hire additional employees or engage outside consultants +to comply with these requirements, which will increase our costs and expenses. +In +addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for +public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations +and standards are subject to varying interpretations, in many cases due to their lack of specificity and, as a result, their application +in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty +regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to +invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative +expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our +efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due +to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business +may be adversely affected. +26 +These +new rules and regulations may make it more expensive for us to obtain director and officer liability insurance and, in the future, we +may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more +difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and +compensation committee, and qualified executive officers. +By +disclosing information in this Annual Report and in other filings required of a public company, our business and financial condition +will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. +If those claims are successful, our business could be seriously harmed. Even if the claims do not result in litigation or are resolved +in our favor, the time and resources needed to resolve them could divert our management’s resources and seriously harm our business. +We +are subject to the examination of our tax returns and other tax matters by the U.S. Internal Revenue Service, states in which we conduct +business, and other tax authorities. If our effective tax rates were to increase, or if the ultimate determination of our taxes owed +is for an amount in excess of amounts previously accrued, our financial condition, operating results and cash flows could be materially +adversely affected. +U.S. +federal, state and local tax laws are being re-examined and evaluated. New laws and interpretations of the law are taken into account +for financial statement purposes in the quarter or year that they become applicable. Tax authorities are increasingly scrutinizing the +tax positions of companies. If U.S. federal, state or local tax authorities change applicable tax laws, our overall taxes could increase, +and our business, financial condition or results of operations may be adversely impacted. +In +addition, any significant changes enacted by the current U.S. presidential administration to the Code or specifically to the Tax Cuts +and Jobs Act (the “U.S. Tax Act”) enacted in 2017, or to regulatory guidance associated with the U.S. Tax Act, could materially +adversely affect our effective tax rate. +Our +amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the sole and exclusive +forum for substantially all disputes between us and our stockholders, which could limit its stockholders’ ability to obtain a favorable +judicial forum for disputes with us or our directors, officers or other employees. +Our +amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, +the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (1) any derivative action or proceeding brought +on our behalf, (2) any action asserting a claim of breach of a fiduciary duty or other wrongdoing by any of our directors, officers, +employees or agents to us or our stockholders, (3) any action asserting a claim against us arising pursuant to any provision of the Delaware +General Corporate Law (“DGCL”) or our amended and restated certificate of incorporation or amended and restated bylaws, (4) +any action to interpret, apply, enforce or determine the validity of our amended and restated certificate of incorporation or amended +and restated bylaws, or (5) any action asserting a claim governed by the internal affairs doctrine. Under our amended and restated certificate +of incorporation, this exclusive form provision will not apply to claims which are vested in the exclusive jurisdiction of a court or +forum other than the Court of Chancery of the State of Delaware, or for which the Court of Chancery of the State of Delaware does not +have subject matter jurisdiction. For instance, the exclusive forum provision in our amended and restated certificate of incorporation +does not apply to actions arising under federal securities laws, including suits brought to enforce any liability or duty created by +the Securities Act of 1933 (the “Securities Act”), the Exchange Act of 1934 (the “Exchange Act”), or the rules +and regulations thereunder. This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act. +Our amended and restated certificate of incorporation provides that any person or entity holding, purchasing or otherwise acquiring any +interest in shares of our capital stock will be deemed to have notice of and to have consented to this choice of forum provision. It +is possible that a court of law could rule that the choice of forum provision contained in our amended and restated certificate of incorporation +is inapplicable or unenforceable if it is challenged in a proceeding or otherwise. Therefore, the exclusive forum provision in our amended +and restated certificate of incorporation will not relieve us of our duty to comply with the federal securities laws and the rules and +regulations thereunder, and stockholders will not be deemed to have waived our compliance with these laws, rules and regulations. +In +addition, our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative +forum, the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the sole and exclusive +forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, or the rules and regulations +promulgated thereunder. We note, however, that there is uncertainty as to whether a court would enforce this provision and that investors +cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Section 22 of the Securities Act creates +concurrent jurisdiction for state and federal courts over all suits brought to enforce any duty or liability created by the Securities +Act or the rules and regulations thereunder. +This +exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with +us or our directors, officers or other employees, which may discourage lawsuits against us or our directors, officers or other employees. +In addition, stockholders who do bring a claim in the state or federal court in the State of Delaware could face additional litigation +costs in pursuing any such claim, particularly if they do not reside in or near Delaware. The state or federal court of the State of +Delaware may also reach different judgments or results than would other courts, including courts where a stockholder would otherwise +choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders. However, the enforceability +of similar exclusive forum provisions in other companies’ certificates of incorporation have been challenged in legal proceedings, +and it is possible that a court could find this type of provision to be inapplicable to, or unenforceable in respect of, one or more +of the specified types of actions or proceedings. If a court were to find the exclusive forum provision contained in our amended and +restated certificate of incorporation to be inapplicable or unenforceable in an action, we might incur additional costs associated with +resolving such action in other jurisdictions. +Our +business and results of operations may be materially adversely effected by inflationary pressures. +As +of the date of this Annual Report, inflationary pressures have led to increased construction materials and labor costs, specifically +associated with steel, cement, and other materials. We believe we will continue to experience such pressures in future quarters, as well +as potential delays in our contractors’ ability to requisition such materials. These pressures have led to an overall increase +in budgeted construction costs. No assurance can be given that the costs of our projects will not exceed budgets. Any such cost overruns +or delays could have a material adverse effect on our business. +27 +Risks +Relating to Our Securities +There +can be no assurance that an active and liquid trading market for our common stock will continue or that we will be able to continue to +comply with the NYSE American’s continued listing standards. +Our +common stock began trading on the NYSE American exchange in April 2023, as a result of our consummation of an initial public offering +of our shares of common stock. Our common stock is currently listed on the NYSE American under the symbol “TPET.” There can +be no assurance an active and liquid trading market in our common stock will continue. +There +is no guarantee that we will be able to maintain such listing for any period of time by perpetually satisfying the NYSE American’s +continued listing requirements. Our failure to continue to meet these requirements may result in our common stock being delisted from +the NYSE American. +If +we are not able to comply with the applicable continued listing requirements or standards of the NYSE American, our common stock could +be delisted from the NYSE American. +Our +common stock is listed on the NYSE American. In order to maintain this listing, we must maintain a certain share price, financial and +share distribution targets, including maintaining a minimum amount of stockholders’ equity and a minimum number of public stockholders. +In addition to these objective standards, the NYSE American may delist the securities of any issuer (i) if, in its opinion, the issuer’s +financial condition and/or operating results appear unsatisfactory; (ii) if it appears that the extent of public distribution or the +aggregate market value of the security has become so reduced as to make continued listing on the NYSE American inadvisable; (iii) if +the issuer sells or disposes of principal operating assets or ceases to be an operating company; (iv) if an issuer fails to comply with +the NYSE American’s listing requirements; (v) if an issuer’s securities sell at what the NYSE American considers a “low +selling price” which the exchange generally considers $0.10 per share, the NYSE American may suspend trading of our common stock, +until the issuer corrects this via a reverse split of shares after notification by the NYSE American; or (vi) if any other event occurs +or any condition exists which makes continued listing on the NYSE American, in its opinion, inadvisable. There are no assurances how +the market price of our common stock will be impacted in future periods as a result of the general uncertainties in the capital markets +and any specific impact on our Company as a result of the recent volatility in the capital markets. +On +February 26, 2024, we received written notice (the “Notice”) from the NYSE American LLC (“NYSE American”) indicating +that we were not in compliance with the continued listing standard set forth in Section 1003(f)(v) of the NYSE American Company Guide +(“Section 1003(f)(v)”) because the shares of our common stock had been selling for a substantial period of time at a low +price per share. The Notice had no immediate effect on the listing or trading of our shares of common stock and our common stock continued +to trade on the NYSE American under the symbol “TPET” with the designation of “.BC” to indicate that the Company +was not in compliance with the NYSE American’s continued listing standards. Additionally, the Notice did not result in the immediate +delisting of our common stock from the NYSE American. +On +May 1, 2024, we received notice from the NYSE American (the “Stock Price Compliance Notice”) informing us that we had resolved +the continued listing deficiency with respect to the low price of our common stock and regained compliance with the continued listing +requirements, because the 30-day average price of our common Stock was $0.25 ($5.00 on a post-reverse split basis) as of April 30, 2024. +The Stock Price Compliance Notice also provided that the NYSE American could still commence delisting proceedings and immediately suspend +trading of our common stock if it trades at levels viewed to be abnormally low, which is generally viewed as a price at or below $0.10. +On +November 5, 2024, the Company received notice from NYSE American that the NYSE American had suspended trading of our shares of common +stock, until the effectiveness of the Reverse Stock Split, because our common stock was consistently selling at a low selling price per +share in violation of Section 1003(f)(v) of the NYSE American Company Guide. Upon effecting the Reverse Stock Split, our common stock +began trading again on the NYSE American on November 15, 2024. If, in the future, the price of our common stock falls out of compliance, +again, with the continued listing requirements of the NYSE American, this could result in a de-listing of our common stock from trading +on the NYSE American. +In +the event that our common stock is delisted from the NYSE American and is not eligible for quotation on another market or exchange, trading +of our common stock could be conducted in the over-the-counter market or on an electronic bulletin board established for unlisted securities, +such as the Pink Sheets or the OTC Markets. In such event, investors may face material adverse consequences, including, but not limited +to, a lack of trading market for the common stock, reduced liquidity and market price of the common stock, decreased analyst coverage +of our common stock, and an inability for us to obtain any additional financing to fund our operations that we may need. +If +our common stock is delisted, our common stock may be subject to the so-called “penny stock” rules. The SEC has adopted regulations +that define a penny stock to be any equity security that has a market price per share of less than $5.00, subject to certain exceptions, +such as any securities listed on a national securities exchange. For any transaction involving a penny stock, unless exempt, the rules +impose additional sales practice requirements and burdens on broker-dealers (subject to certain exceptions) and could discourage broker-dealers +from effecting transactions in our stock, further limiting the liquidity of our shares, and an investor may find it more difficult to +acquire or dispose of the common stock on the secondary market. +These +factors could have a material adverse effect on the trading price, liquidity, value and marketability of the common stock. +28 +Our +share price may be volatile, and purchasers of our common stock could incur substantial losses. +Our +share price has been extremely volatile in the past and may continue to be so in the future. Since our IPO, our common stock has traded +at prices ranging from $60.00 and $1.12 (on a post-reverse stock split basis). The stock market in general has experienced extreme volatility +that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may not +be able to sell their common stock at or above the price paid for such shares. The market price for our common stock may be influenced +by many factors, including, but not limited to: +● +the +price of oil and natural gas; +● +the +success of our exploration and development operations, and the marketing of any oil and natural gas we produce; +● +regulatory +developments in the United States and/or in any foreign countries where we may have operations in the future; +● +the +recruitment or departure of key personnel; +● +quarterly +or annual variations in our financial results or those of companies that are perceived to be similar to us; +● +market +conditions in the industries in which we compete and issuance of new or changed securities; +● +analysts’ +reports or recommendations; +● +the +failure of securities analysts to cover our common stock or changes in financial estimates by analysts; +● +the +inability to meet the financial estimates of analysts who follow our common stock; +● +the +issuance of any additional securities of ours; +● +investor +perception of our company and of the industry in which we compete; and +● +general +economic, political and market conditions. +Broad +market and industry factors may significantly affect the market price of our securities, regardless of our actual operating performance. +These fluctuations may be even more pronounced in the trading market for our common stock shortly following this offering. If the market +price of shares of our common stock after this offering does not ever exceed the offering price, you may not realize any return on your +investment in us and may lose some or all of your investment. +In +addition, in the past, following periods of volatility in the overall market and in the market price of a particular company’s +securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against +us, could result in substantial costs and a diversion of our management’s attention and resources. +Certain +of our executive officers and directors have significant duties with, and spend significant time serving, entities that may compete with +us in seeking acquisitions and business opportunities and, accordingly, may have conflicts of interest in allocating time or pursuing +business opportunities. +Certain +of our executive officers and directors, who are responsible for managing the direction of our operations, hold positions of +responsibility with other entities (including affiliated entities) that are in the oil and natural gas industry. Two of these +executive officers, Terence B. Eschner and Steven Rowlee, each of whom has a controlling interest in Trio LLC, no longer serve as +executive officers of the Company, as of January 2, 2025. Stanford Eschner, who also owns a controlling interest in Trio LLC, +continues to server as Vice Chairman and a director of the Company. Greg Overholtzer, who is an executive officer of LEC. These +executive officers and directors may become aware of business opportunities that may be appropriate for presentation to us as well +as to the other entities with which they are, or may become, affiliated. Due to these existing and potential future affiliations, +they may present potential business opportunities to other entities prior to presenting them to us, which could cause additional +conflicts of interest. They may also decide that certain opportunities are more appropriate for other entities with which they are +affiliated, and as a result, they may elect not to present those opportunities to us. These conflicts may not be resolved in our +favor. For additional discussion of our management’s business affiliations and the potential conflicts of interest of which +our stockholders should be aware, see Item 13. “Certain Relationships and Related Transactions, and Director +Independence .” +For +as long as we are an emerging growth company, we will not be required to comply with certain reporting requirements, including those +relating to accounting standards and disclosure about our executive compensation, that apply to other public companies. +We +are classified as an “emerging growth company” under the JOBS Act. For as long as we are an emerging growth company, which +may be up to five full fiscal years, unlike other public companies, we will not be required to, among other things: (i) provide an auditor’s +attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant +to Section 404(b) of the Sarbanes-Oxley Act; (ii) comply with any new requirements adopted by the PCAOB requiring mandatory audit firm +rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about +the audit and the financial statements of the issuer; (iii) provide certain disclosures regarding executive compensation required of +larger public companies; or (iv) hold nonbinding advisory votes on executive compensation. We will remain an emerging growth company +for up to five years, although we will lose that status sooner if we have more than $1.235 billion of revenues in a fiscal year, have +more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1.0 billion of non-convertible +debt over a three-year period. +To +the extent that we rely on any of the exemptions available to emerging growth companies, you will receive less information about our +executive compensation and internal control over financial reporting than issuers that are not emerging growth companies. If some investors +find our common stock to be less attractive as a result, there may be a less active trading market for our common stock and our stock +price may be more volatile. +We +do not intend to pay dividends on our common stock. +We +do not plan to declare dividends on shares of our common stock in the foreseeable future. Consequently, the only opportunity to achieve +a return on an investment in us will be if the market price of our common stock appreciates, which may not occur, and our shares are +sold at a profit. There is no guarantee that the price of our common stock that will prevail in the market will ever exceed the price +that an investor pays for our common stock. +29 +ITEM +1B. UNRESOLVED STAFF COMMENTS. +None. +ITEM +1C. CYBERSECURITY. +Cybersecurity +attacks impact businesses and organizations of all sizes and sectors on a global basis. At Trio, we recognize the importance of developing, +implementing and maintaining a cybersecurity risk management program. We are currently implementing resources to protect our systems and data, from cybersecurity threats. We are dependent on internal and external information technology systems and infrastructure +to securely process, transmit, and store critical information. We are currently in the process of engaging an outsourced security firm for overseeing our cybersecurity. +We seek to reduce cybersecurity risks through a variety of cybersecurity risk management activities that are designed to identify, assess, +manage and mitigate cybersecurity threats. +Risk +Management Strategy +The +Company’s cybersecurity risk management program is focused on the following key areas: +● Governance: +The cybersecurity risk management program is led by our outsourced security team. At present our Board of +Directors does not oversee the cybersecurity risk management program, however, the Audit +Committee of our Board of Directors is in the process of implementing procedures to obtain +regular updates on our cybersecurity program, including recent developments, key initiatives +to strengthen our systems, applicable industry standards, vulnerability assessments, third-party +and independent reviews, and other information security considerations. +● Approach: +We intend to use a cross-functional approach to identifying, preventing, assessing, and mitigating +cybersecurity threats and incidents, while also implementing controls and procedures that +are designed to provide for the prompt escalation of cybersecurity incidents and support +appropriate public disclosure and reporting of incidents as required in a timely manner. +Our cybersecurity efforts will include the use of risk-based administrative, technical, and physical +controls. Trio is in the process of implementing an extensive set of policies, procedures, systems and tools +designed to help safeguard our systems and data, including firewalls, intrusion detection +systems, access controls including multi-factor authentication, vulnerability scanning, penetration +testing, independent third-party control audits, an internal bug bounty program, and other +systems and processes. +● Incident +Response Planning: We intend to maintain a breach reporting and resolution plan that includes defined +processes, roles, communications, responsibilities and procedures for responding to cybersecurity +incidents and other events that impact our operations. Our incident response plans will be tested +and evaluated on a regular basis. +● Education +and Awareness: We plan to establish a security and privacy awareness program that runs throughout +the year and includes training for all company personnel to enhance employee awareness of +how to detect and respond to cybersecurity threats as well as more targeted training for +company personnel that have increased responsibility for mitigating certain potential cybersecurity +risks. +30 +We +plan to review and update our policies, procedures, processes and practices to address changes in the threat landscape and as a +result of lessons learned from suspected, actual or simulated incidents. We also plan to review industry +best practices to assist in evaluating responses to new challenges and risks. These evaluations include testing both the design and +operational effectiveness of security controls. +Cybersecurity +Risks +While +we plan to dedicate significant efforts and resources to our cybersecurity program, we may be unable to successfully identify +threats, prevent attacks, satisfactorily resolve cybersecurity incidents, or implement adequate mitigating controls. Any breach of +our network security and information systems or other cybersecurity-related incidents that results in, or may result in, the loss, +theft or unauthorized disclosure of data, or any delay in determining the full extent of a potential breach, could have a material +adverse impact on our business, results of operations, and financial condition, including harm to our reputation and brand, reduced +demand for our solutions, time-consuming and expensive litigation, fines, penalties, and other damages. To date and except as +otherwise may be noted in this Annual Report, we are not aware of any cybersecurity threats, nor have we had any cybersecurity incidents. +ITEM +2. PROPERTIES. +Other +than our interest in the South Salinas Project, we do not own any real property. +ITEM +3. LEGAL PROCEEDINGS. +From +time to time, we are involved in various disputes, claims, suits, investigations, and legal proceedings arising in the ordinary course +of business. There are currently no pending legal proceedings or claims that we believe will have a material adverse effect on our business, +financial condition or operating results. None of our directors, officers or affiliates is involved in a proceeding adverse to our business +or has a material interest adverse to our business. +ITEM +4. MINE SAFETY DISCLOSURES +None. +ITEM +5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASERS OF EQUITY SECURITIES +Market +information +Our +common stock trades on the NYSE American LLC Market under the symbol “TPET” since April 17, 2023. Prior to that date, there +was no public market for our common stock. +Holders +of Record +As +of January 15, 2025, we had 30 holders of record of our common stock. The actual number of holders of our common stock is greater than +this number of record holders and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers +or held by other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other +entities. +Dividends +We +have never paid any cash dividends on our common stock. We currently intend to retain all available funds and any future earnings for +use in the operation of our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any +future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, +operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant. +31 +Securities +Authorized for Issuance Under Equity Incentive Plans +We +have adopted and approved the 2022 Equity Incentive Plan (the “2022 Plan”). Under the 2022 Plan, we may grant cash and equity +incentive awards to eligible service providers in order to attract, motivate and retain the talent for which we compete. Pursuant to +the 2022 Plan, we have reserved 500,000 shares of the shares of common stock for issuance thereunder. The following table sets forth +certain information about the securities authorized for issuance under our incentive plans as of October 31, 2024. +Plan +Category +Number +of +securities to +be issued upon +exercise of +outstanding +options, warrants +and rights +Weighted- +average +exercise price +of +outstanding +options, warrants and rights +Number +of +granted +restricted +stock +awards +outstanding +Number +of +securities +remaining +available for +future +issuance +under equity +compensation +plans +Equity compensation plans approved by security +holders (1) +197,994 +$ 15.09 +168,500 +272,750 +Equity compensation plans +not approved by security holders +- +- +- +- +197,994 +$ 15.09 +168,500 +272,750 +(1) +The +Company adopted the 2022 Plan originally at the closing of its initial public offering, and the 2022 Plan was amended and restated +at the 2024 annual meeting of the stockholders on August 15, 2024. As of the date of this Annual Report, all awards under the 2022 +Plan granted by the Board have been disclosed on the Form 8-Ks. +32 +Recent +Sales of Unregistered Securities +During +the year ended October 31, 2024, all sales of unregistered securities by the Company have been previously reported on a Form 8-K or Form +10-Q. +Use +of Proceeds +On +April 17, 2023, the U.S. Securities and Exchange Commission declared effective our registration statement on Form S-1 (File No. 333-267380), +as amended, filed in connection with our IPO. There has been no material change in the planned use of proceeds from our IPO from that +described in the related prospectus dated April 19, 2023, filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act. +At-the Market Offering +During +the year ended October 31, 2024, the Company implemented an at-the-market equity offering program ( “ ATM ” ), +allowing for the periodic sale of shares of common stock to the public through a designated underwriter, based on prevailing market conditions. +This program provided the Company with flexibility to raise capital as needed to fund growth initiatives and working capital requirements. +During the year ended October 31, 2024, the Company sold 361,708 shares of common stock through the ATM, generating net proceeds of $1,173,679. +As of January 15, the ATM has been fully sold, resulting in the sale of a total of 3,312,877 shares of common stock, generating net +proceeds of $4,649,329. +Issuer +Purchases of Equity Securities +We +did not repurchase any of our equity securities during the period covered by this Annual Report. +ITEM +6. [RESERVED] +ITEM +7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. +The +following discussion and analysis of the results of operations and financial condition of Trio Petroleum Corp. as of and for the years +ended October 31, 2024 and 2023 should be read in conjunction with our financial statements and the notes to those financial statements +that are included elsewhere in this Annual Report. This Management’s Discussion and Analysis of Financial Condition and Results +of Operations contains statements that are forward-looking. See “Item 7. Cautionary Statement Regarding Forward-Looking Information” +below. Actual results could differ materially because of the factors discussed in “Item 1A. Risk Factors” elsewhere in this +Annual Report, and other factors that we may not know. +Throughout +this report, the terms “our,” “we,” “us,” “TPET” and the “Company” refer +to Trio Petroleum Corp. +Cautionary +Note Regarding Forward-looking Statements +This +Annual Report contains forward-looking statements that can involve substantial risks and uncertainties. All statements other than statements +of historical facts contained in this Annual Report, including statements regarding our future results of operations and financial position, +business strategy, prospective products, product approvals, research and development costs, future revenue, timing and likelihood of +success, plans and objectives of management for future operations, future results of anticipated products and prospects, plans and objectives +of management are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors +that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements +expressed or implied by the forward-looking statements. +In +some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “contemplate,” +“continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” +“potential,” “predict,” “project,” “should,” “target,” “will,” +or “would” or the negative of these terms or other similar expressions, although not all forward-looking statements contain +these words. Forward-looking statements contained in this Annual Report include, but are not limited to, statements about: +● our +ability to find, acquire or gain access to other discoveries and prospects and to successfully +develop our current discoveries and prospects; +● uncertainties +inherent in making estimates of our oil and natural gas data; +● the +successful implementation of our prospect discovery and development and drilling plans with +the South Salinas Project; +● projected +and targeted capital expenditures and other costs, commitments and revenues; +33 +● our +dependence on our key management personnel and our ability to attract and retain qualified +technical personnel; +● the +ability to obtain financing and the terms under which such financing may be available; +● the +volatility of oil and natural gas prices; +● the +availability and cost of developing appropriate infrastructure around and transportation +to our discoveries and prospects; +● the +availability and cost of drilling rigs, production equipment, supplies, personnel and oilfield +services; +● other +competitive pressures; +● potential +liabilities inherent in oil and natural gas operations, including drilling risks and other +operational and environmental hazards; +● current +and future government regulation of the oil and gas industry; +● cost +of compliance with laws and regulations; +● changes +in environmental, health and safety or climate change laws, greenhouse gas regulation or +the implementation of those laws and regulations; +● environmental +liabilities; +● geological, +technical, drilling and processing problems; +● military +operations, terrorist acts, wars or embargoes; +● the +cost and availability of adequate insurance coverage; +● our +vulnerability to severe weather events; and +● other +risk factors discussed in the “Risk Factors” section of this Annual Report. +We +have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which +we operate and financial trends that we believe may affect our business, financial condition, results of operations and prospects, and +these forward-looking statements are not guarantees of future performance or development. These forward-looking statements speak only +as of the date of this Annual Report and are subject to a number of risks, uncertainties and assumptions described in the section titled +“Risk Factors” and elsewhere in this Annual Report. Because forward-looking statements are inherently subject to risks and +uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions +of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results +could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan +to publicly update or revise any forward-looking statements contained herein until after we distribute this Annual Report, whether as +a result of any new information, future events or otherwise. +In +addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These +statements are based upon information available to us as of the date of this Annual Report, and while we believe such information forms +a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate +that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are +inherently uncertain and you are cautioned not to unduly rely upon these statements. +Overview +We +are a California-based oil and gas exploration and development company headquartered in Bakersfield, California, with our principal executive +offices located at 5401 Business Park South, Suite 115, Bakersfield, California 93309, with operations in Monterey County, California, +and Uintah County, Utah. +We +have had revenue-generating operations since the McCool Ranch Oil Field was restarted on February 22, 2024, and recognized our first +revenues in our fiscal quarter ended April 30, 2024, and received the proceeds from these operations in June 2024. +We +were formed to initially acquire an approximate 82.75% working interest (which was subsequently increased to an approximate 85.775% working +interest) from Trio Petroleum LLC (“Trio LLC”) in the large, approximately 9,300-acre South Salinas Project that is located +in Monterey County, California, and subsequently partner with certain members of Trio LLC’s management team to develop and operate +those assets. We hold an approximate 68.62% interest after the application of royalties (“net revenue interest”) in the South +Salinas Project. Trio LLC holds an approximate 3.8% working interest in the South Salinas Project. We and Trio LLC are separate and distinct +companies. +California +is a significant part of our geographic focus and we recently acquired a 22% working interest in the McCool Ranch Oil Field (the “McCool +Ranch Oil Field”, “McCool Ranch Field” or “McCool Ranch”) in Monterey County, California. However, our +interests extend beyond California and we recently acquired an interest in the Asphalt Ridge Project in Uintah County, Utah; we may acquire +additional assets both inside and outside of California and Utah. +34 +South +Salinas Project +Efforts +to obtain from Monterey County conditional use permits and a full field development permit for the South Salinas Project are progressing. +Efforts to obtain from the California Geologic Energy Management Division (“CalGEM”) and from the California Water Boards +a permit for a water disposal project at the South Salinas Project are also progressing. In the meantime, the Company recently determined +that existing permits allow production testing to continue at the HV-3A discovery well at Presidents Field and, consequently, testing +operations were restarted at this well on March 22, 2024. Oil production from this well has occurred with a generally favorable oil-water +ratio and the Company expects, in December 2024, or the first calendar quarter of 2025, to takes steps to attempt to increase the well’s +gross production rate, for example by adding up to 650 feet of additional perforations in the oil zone and/or acidizing the well for +borehole cleanup. First oil sales from the HV-3A well occurred in the third calendar quarter of 2024. +McCool +Ranch Oil Field +On +October 16, 2023, we entered into a Purchase and Sale Agreement with Trio LLC (the “McCool Ranch Purchase Agreement”) pertaining +to the McCool Ranch Oil Field. Pursuant to this agreement, effective October 1, 2023, we acquired an approximate 22% working interest +in and to certain oil and gas assets at the McCool Ranch Field, which is located in Monterey, County, California, just seven miles from +our flagship South Salinas Project. The assets are situated in what is known as the “Hangman Hollow Area” of the McCool Ranch +Field. The acquired property is a relatively new oil field (discovered in 2011) developed with six oil wells, one water-disposal well, +a steam generator, boiler, three 5,000 barrel tanks, a 250-barrel test tank, a water softener, two freshwater tanks, two soft water tanks, +in-field steam pipelines, oil pipelines and other facilities. The property is fully and properly permitted for oil and gas production, +cyclic-steam injection and water disposal. We are acquiring the working interest at McCool Ranch primarily through work commitment expenditures, +which are being allocated to restart production at the field and establish cash flow for us, with upside potential given the numerous +undrilled infill and development well locations. Oil production was restarted on February 22, 2024. +McCool +Ranch operations have been successfully restarted, including the restarting of oil production at the HH-1, 35X and 58X wells. The HH-1 +well has a short horizontal completion in the Lombardi Oil Sand, whereas the 35X and 58X wells are both vertical wells with similar oil +columns in the Lombardi Oil Sand and with similar subsurface borehole completions. The HH-1 well at McCool Ranch upon restart was initially +producing about 47 barrels of oil per day. The HH-1 and 35X wells collectively are currently producing about 10 to 15 bopd. The 58X well +is temporarily idle. Oil production at the HH-1 and 35X wells is currently “cold” (i.e., without steam). The Company expects +to restart cyclic steam operations in December 2024 or the first calendar quarter of 2025. +The +aforementioned initial three wells at McCool Ranch were each restarted and produced “cold” (i.e. without steam injection), +which allows for lower operating costs, with expectation that each would be produced cold as long as profitable. The Company expects +to transition each well from cold to cyclic-steam production, also known as “huff and puff,” which is expected to significantly +increase production. The wells at McCool Ranch historically have responded favorably when cyclic-steam operations have been applied. +The +Company expects to restart the last two wells in the restart program, the HH-3 and HH-4 wells, in December 2024 or the first calendar +quarter of 2025. The HH-3 and HH-4 wells will have horizontal completions similar to but longer than that of the HH-1 well. All water +produced from these wells will be disposed in the on-site water disposal well. +The +HH-1 well was initially produced cold for about 380 days in 2012-2013, during which time peak production was about 156 barrels of oil +per day (“BOPD”), average production was about 35 BOPD and cumulative production was about 13,147 barrels of oil (“BO”). +The 58X well was initially produced cold for about 230 days in 2011-2013, during which time peak production was about 41 BOPD, average +production was about 13 BOPD and cumulative production was about 2,918 BO. +KLS +Petroleum Consulting LLC (“KLSP”), a third-party, independent engineering firm, recommends that McCool Ranch be developed +with horizontal wells, each landed in the Lombardi Oil Sand with a 1,000-foot lateral. Management estimates that TPET’s property +can probably accommodate approximately 22 additional horizontal wells and TPET accordingly may commence a drilling program in 2025. TPET +expects to add the reserve value of the McCool Ranch Field to the Company’s reserve report after a further period of observation +and review of the oil production that was restarted on February 22, 2024. +Asphalt +Ridge Option Agreement and the Lafayette Energy Leasehold Acquisition and Development Option Agreement +On +November 10, 2023, TPET entered into a Leasehold Acquisition and Development Option Agreement (the “Asphalt Ridge Option Agreement”) +with Heavy Sweet Oil LLC (“HSO”). Pursuant to the Asphalt Ridge Option Agreement, the Company acquired an option to purchase +up to a 20% working interest in certain leases at a long-recognized, major oil accumulation in northeastern Utah, in Uintah County, southwest +of the city of Vernal, including an initial 960 acres and a subsequent 1,920 acres, as well as a right-of-refusal option on approximately +30,000 acres. HSO holds the right to such leases below 500 feet depth from surface and the Company acquired the option to participate +in HSO’s initial 960 acre and subsequent 1,920 acre drilling and production programs (the “HSO Program”) on such Asphalt +Ridge Leases. TPET also holds the right of first refusal to participate with up to a 20% working interest on the greater approximate +30,000 acre leasehold at terms offered to other third-parties. On December 29, 2023, the Company and HSO entered into an Amendment to +Leasehold Acquisition and Development Agreement (the “Amendment to the Asphalt Ridge Option Agreement”), pursuant to which +the Company and HSO amended the Asphalt Ridge Option Agreement to provide that, within three (3) business days of the effective date +of the Amendment to the Asphalt Ridge Option Agreement, the Company would fund $200,000 of the $2,000,000 total purchase price in advance +of HSO satisfying the closing conditions set forth in the Asphalt Ridge Option Agreement, in exchange for the Company receiving an immediate +2% interest in the initial 960 acres, which advanced funds would be used solely for the building of roads and related infrastructure +in furtherance of the development plan. In January 2024, the Company funded an additional $25,000 resulting in a 2.25% working interest +in the initial 960 acres. +35 +The +Asphalt Ridge Project, according to J. Wallace Gwynn of Energy News, is estimated to be the largest measured tar sand resource in the +United States and is unique given its low wax and negligible sulfur content, which is expected to make the oil produced very desirable +for many industries, including shipping. +Asphalt +Ridge is a prominent, northwest-southeast trending topographic feature (i.e., a dipping slope called a hog’s back or cuesta) that +crops-out along the northeast flank of the Uinta Basin. The outcrop is comprised largely of Tertiary and Cretaceous age sandstones that +are locally highly saturated with heavy oil and/or tar. The oil-saturated sandstones extend into the shallow subsurface of the Uinta +Basin to the southwest, which is the site of the Asphalt Ridge Development Project, and where the sandstones are estimated in various +independent studies to contain billions of barrels of oil-in-place. The project leasehold comprises over 30,000 acres and trends northwest-southeast, +along the trend of Asphalt Ridge, over a distance of about 20 miles. +The +area has been underdeveloped for decades due, in large part, to lease ownership issues and the definition of heavy oil falling under +mining regulations in the State of Utah. These factors created conflict between surface rights and subsurface mineral rights and were +obstacles to developing the asset using proven advanced cyclic-steam production techniques. Necessary permits have now been secured that +should allow drilling to commence by our operating partner. HSO hopes to continue to work with the State of Utah to supplement prior +receipt of permits with other state incentives, including working with the State on an arrangement requiring only an 8% state royalty +in connection with this project. +An +early development phase contemplates the development of 240 acres with an estimated 119 wells in the Northwest Asphalt Ridge Area. The +plan is to develop the 240 acres using advanced cyclic-steam production techniques, including initial CO2 injection. This phase contemplates +seventeen 7-spot hexagonal well patterns on 2 ½ acre spacing (a 7-spot has a central steam/CO2 injection well that is surrounded +by six producing oil wells). Upgrades have been made to existing roads and well pads as part of this early development phase. +Two +oil-saturated Cretaceous sandstones are targeted for development at Asphalt Ridge: the Rimrock Sandstone and the underlying Asphalt Ridge +Sandstone. We expect to add the reserve value, if any, of the Asphalt Ridge Project to the Company’s reserve report after a brief +period of observation and review of the oil development operations that commenced in the third calendar quarter of 2024. +During +the quarterly period ended April 30, 2024, we announced the commencement of drilling activities at Asphalt Ridge. The first well, HSO +8-4 (API# 4304757202), was spud on May 10, 2024 and drilled to a total depth of 1,020 feet. The well found 100 feet of Rimrock Sandstone +tar-sand pay zone with good oil saturation and good porosity and thirty feet of the Rimrock was cored. A small, representative piece +of Rimrock core was placed in water and brought to boiling point, and within a few minutes the sand disaggregated and the bitumen became +liquid, mobile-oil, floating on top of the water – this simple laboratory test indicates that the bitumen becomes mobile-oil at +relatively low temperatures and supports our contention that oil extraction using subsurface thermal-recovery methods may be very successful. +A second well, the HSO 2-4 (API# 430475201), was spud on May 19, 2024 and drilled to a total depth of 1,390 feet. The well drilled through +both the Rimrock tar-sand, which had a thickness of 135 feet, and the Asphalt Ridge tar-sand, which had a thickness of 59 feet. Oil production +has commenced using downhole heaters, whereas the operator plans to transition to production using advanced cyclic-steam and steam-drive +methods. +Carbon +Capture and Storage Project as part of Company’s South Salinas Project +We +are committed to attempting to reduce our own carbon footprint and, where possible, that of others. For this reason, we are taking initial +steps to launch a Carbon Capture and Storage (“CCS”) project as part of the South Salinas Project, which appears ideal for +such a task. The South Salinas Project covers a vast area and is uniquely situated at a deep depocenter where there are thick geologic +zones (e.g., Vaqueros Sand, up to approximately 500’ thick) about two miles deep, which could accommodate and permanently store +vast volumes of CO2. Four existing deep wells in the South Salinas Project (i.e., the HV 1-35, BM 2-2, BM 1-2-RD1 and HV 3-6 wells) are +excellent candidates for use as CO2 injection wells. A CCS project in the future may help reduce our carbon footprint by sequestering +and permanently storing CO2 deep underground at one or more deep wells, away from drinking water sources. Furthermore, three of the aforementioned +deep wells are directly located on three idle oil and gas pipelines that could be used to import CO2 to our CCS Project. We have opened +discussions with third parties who wish to reduce their own greenhouse gas emissions and who may be interested in participating in our +CCS project. We believe it is feasible to develop the major oil and gas resources of the South Salinas Project and to concurrently establish +a substantial CCS project and potentially a CO2 storage hub and/or Direct Air Capture (DAC) hub. +36 +Going +Concern Considerations +We +have only begun to generate revenues in the current fiscal year and have incurred significant losses since inception. As of October 31, +2024, we have an accumulated deficit of $20,073,679 and a working capital deficit of $2,025,480, and for the year ended October 31, 2024, +a net loss of $9,626,797 and cash used in operation activities of $3,840,744. To date, we have been funding operations through proceeds +from the issuance of common stock, financing through certain investors, the consummation of our IPO in April 2023, and convertible note +financing under two tranches in October 2023 and December 2023, pursuant to which we raised total gross proceeds of $2,371,500. Additionally, +we received funds in the amount of $125,000 from an unsecured promissory note from our CEO, gross proceeds of $184,500 from a promissory +note with an investor in March 2024, gross proceeds of $720,000 from convertible debt financing with two investors in April 2024, gross +proceeds of $720,000 from convertible debt financing with two investors in June 2024, as well as additional financing secured after the +end of the period in August 2024 for gross proceeds in the aggregate amount of $359,000 from two unsecured promissory notes. +There +is substantial doubt regarding our ability to continue as a going concern as a result of our accumulated deficit and no source of revenue +sufficient to cover our costs of operations as well as our dependence on private equity and financing. +The +accompanying financial statements have been prepared assuming we will continue as a going concern. As we have only begun to generate +revenues, we need to raise a significant amount of capital to pay for our development, exploration, drilling and operating costs. While +we raised capital in April 2023 with our IPO, in October 2023, December 2023, April 2024 and June 2024 with convertible debt financing, +and in March 2024 and August 2024 with promissory notes, we expect to require additional funding in the future and there is no assurance +that we will be able to raise additional needed capital or that such capital will be available under favorable terms or at all. We are +subject to all the substantial risks inherent in the development of a new business enterprise within an extremely competitive industry. +Due to the absence of a long-standing operating history and the emerging nature of the markets in which we compete, we anticipate operating +losses until we can successfully implement our business strategy, which includes all associated revenue streams. We may never achieve +profitable operations or generate significant revenues. +We +will require additional capital funding in order to drill additional planned wells at the South Salinas, McCool Ranch and Asphalt Ridge +assets and to pay for additional development costs and other payment obligations and operating costs until our planned revenue streams +are fully implemented and begin to offset our operating costs, if ever. +Since +our inception, we have funded our operations with the proceeds from equity and debt financing. We have experienced liquidity issues due +to, among other reasons, our limited ability to raise adequate capital on acceptable terms. We have historically relied upon the issuance +of equity and promissory notes that are convertible into shares of our common stock to fund our operations and have devoted significant +efforts to reduce that exposure. We anticipate that we will need to issue equity to fund our operations for the foreseeable future. If +we are unable to achieve operational profitability or are not successful in securing other forms of financing, we will have to evaluate +alternative actions to reduce our operating expenses and conserve cash. +The +accompanying condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United +States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal +course of business. Accordingly, the financial statements do not include any adjustments relating to the recoverability of assets and +classification of liabilities that might be necessary should we be unable to continue as a going concern. The financial statements included +in this report also include a going concern footnote (see Note 3). +Optioned +Assets - McCool Ranch Oil Field +In +October 2023, we entered into an agreement (“McCool Ranch Purchase Agreement”) with Trio LLC for the purchase of a 21.918315% +working interest in the McCool Ranch Oil Field located in Monterey County near our flagship South Salinas Project; we initially recorded +a payment of $100,000 upon the execution of the McCool Ranch Purchase Agreement, at which time Trio LLC began refurbishment operations +with respect to the San Ardo WD-1 water disposal well (the “WD-1”) to determine if it was capable of reasonably serving the +produced water needs for the assets. With refurbishment successfully accomplished, we will pay an additional $400,000 per +the McCool Ranch Purchase Agreement; to date, operations have been successfully restarted at three wells, and we expect to restart the +last two wells in the restart program during the calendar quarter ending September 30, 2024. As of October 31, 2024, we have paid approximately +$284,000 during the year for restarting production operations on the assets and have a liability recorded of approximately $116,000 to +Trio LLC as of October 31, 2024. +Optioned +Assets – Asphalt Ridge Leasehold Acquisition & Development Option Agreement +On +November 10, 2023, we entered into a leasehold acquisition and development option agreement (“ARLO Agreement”) with Heavy +Sweet Oil, LLC (“HSO”) for a term of nine months, which gives the Company the exclusive right to acquire up to a 20% interest +in a 960 acre drilling and production program in the Asphalt Ridge leases for $2,000,000, which may be invested in tranches by us, with +an initial tranche closing for an amount no less than $500,000 and paid within seven days subsequent to HSO providing certain required +items to the Company. +37 +On +December 29, 2023, we entered into an amendment to the ARLO Agreement, whereby we funded $200,000 of the $500,000 payable by us to HSO +at the Initial Closing, in advance of HSO satisfying certain required items for a 2% interest in the leases; such funds are to be used +by HSO solely for the building of roads and related infrastructure in furtherance of the development of the leases. During the quarterly +period ended April 30, 2024, we announced the commencement of drilling activities at Asphalt Ridge and two wells (the HSO 8-4 and the +HSO 2-4) were spud during May 2024; a third well is planned to be drilled in the third calendar quarter of 2024. +We +have until February 10, 2025 to pay HSO an additional $1,775,000 to exercise an option for the remaining 17.75% working interest in the +initial 960 acres of the Asphalt Ridge Leases; if this option is not exercised on or before such date, we will forfeit any further right +to acquire this additional 17.75% working interest in the initial 960 acres. As of October 31, 2024, we have paid a total of $225,000 +to HSO in costs related to infrastructure and have a 2.25% interest in the leases; such costs are capitalized costs and are reflected +in the balance of the oil and gas property as of October 31, 2024. +Emerging +Growth Company Status +We +are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and it may +take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging +growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) +of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in periodic reports and proxy statements, +and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any +golden parachute payments not previously approved. Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from +being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had +a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are +required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out +of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election +to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a standard is issued +or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new +or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements +with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the +extended transition period difficult or impossible because of the potential differences in accounting standards used. +Results +of Operations +For +the Year Ended October 31, 2024 compared to the Year Ended October 31, 2023 +Our +financial results for the years ended October 31, 2024 and 2023 are summarized as follows: +For +the Years Ended +October +31, +2024 +2023 +Change +% +Change +Revenues, net +$ 213,204 +$ - +$ 213,204 +100.0 % +Operating expenses: +Exploration expenses +$ 177,416 +$ 251,743 +$ (74,327 ) +(29.5 )% +General and administrative +expenses +4,716,057 +3,315,782 +1,400,275 +42.2 % +Stock-based compensation +expense +1,534,667 +1,044,261 +490,406 +47.0 % +Accretion expenses +2,778 +2,778 +- +0.0 % +Total operating expenses +6,430,918 +4,614,564 +1,816,354 +39.4 % +Loss from operations +(6,217,714 ) +(4,614,564 ) +(1,603,150 ) +34.7 % +Other expenses: +Interest expense +2,118,548 +791,811 +1,326,737 +167.6 % +Loss on settlement +- +13,051 +(13,051 ) +(100.0 %) +Loss on note conversion +1,290,535 +1,125,000 +165,535 +14.7 % +Total other expenses +3,409,083 +1,929,862 +1,479,221 +76.6 % +Loss before income taxes +(9,626,797 ) +(6,544,426 ) +(3,082,371 ) +47.1 % +Income tax benefit +- +- +- +- +Net loss +$ (9,626,797 ) +$ (6,544,426 ) +$ (3,082,371 ) +47.1 % +38 +Revenues, +net +Revenues, +net increased for year ended October 31, 2024 by approximately $0.2 million as compared to the prior period, which had no revenue; we +sold and shipped approximately 2,900 barrels of oil, primarily produced from the HH-1 well. +Exploration +expenses +Under +the successful efforts method of accounting for crude oil and natural gas properties, exploration expenses consist primarily of exploratory +geological and geophysical costs, delay rentals and exploratory overhead, and are expensed as incurred. Exploration expenses decreased +by approximately $0.1 million as compared to the prior year period due to a decrease in exploratory, geological, and geophysical costs +incurred during the period. +General +and administrative expenses +General +and administrative expenses consist primarily of personnel expenses, including salaries, benefits and stock-based compensation expense +for employees and consultants in executive, finance and accounting, legal, operations support, information technology and human resource +functions. General and administrative expenses also include corporate facility costs including rent, utilities, depreciation, amortization +and maintenance, as well as legal fees related to intellectual property and corporate matters and fees for accounting and consulting +services. +General +and administrative expenses increased for year ended October 31, 2024 by approximately $1.4 million as compared to the prior period due +to increases in legal fees of $210,000, increased insurance expenses of $150,000, increased filing fees of $325,000, increased consulting +fees of $100,000 and increased salary expenses of approximately $550,000. +Stock-based +compensation expense +We +record stock-based compensation expenses for costs associated with options and restricted shares granted in connection with the Plan, +as well as for shares issued as payment for services. Stock-based compensation expense increased by approximately $0.5 million for the +year ended October 31, 2024 due to the amortization of 260,000 options issued in the current year period; such had not yet been granted +during the same period in the prior year. +Accretion +expenses +We +have an Asset Retirement Obligation (“ARO”) recorded that is associated with its oil and natural gas properties in the SSP; +the fair value of the ARO was recorded as a liability and is accreted over time until the date the ARO is to be paid. For the year ended +October 31, 2024, accretion expenses remained consistent with that of the prior year period. +Other +expenses, net +For +the year ended October 31, 2024, other expenses, net increased by approximately $1.5 million when compared to the prior year period. +The increase is attributable to an increase in non-cash interest expense of $1.3 million, which is recognized as debt discounts on +financings are amortized; there were less financings in the prior period. +Liquidity +and Capital Resources +Working +Capital/(Deficiency) +Our +working capital deficit as of October 31, 2024, in comparison to our working capital deficit as of October 31, 2023, can be summarized +as follows: +October +31, 2024 +October +31, 2023 +Current assets +$ 565,219 +$ 1,695,341 +Current liabilities +2,590,699 +1,851,386 +Working capital (deficiency) +$ (2,025,480 ) +$ (156,045 ) +39 +Current +assets decreased because of i) a decrease to the cash account of approximately $1.3 million due to increased payroll expenses and additional +cash outlays for capital expenditures for the oil and gas properties, offset by an increase in prepaid assets of approximately $0.2 million. +Current liabilities increased because of i) an increase in accounts payable of approximately $0.5 million, as well as an increase in +notes payable – related parties of approximately $0.3 million. +Cash +Flows +Our +cash flows for the year ended October 31, 2024, in comparison to our cash flows for the year ended October 31, 2023, can be summarized +as follows: +Years +ended October 31, +2024 +2023 +Net cash used in operating activities +$ (3,840,744 ) +$ (4,036,834 ) +Net cash used in investing activities +(1,089,882 ) +(2,189,859 ) +Net cash provided by financing +activities +3,654,647 +7,714,969 +Net change in cash +$ (1,275,979 ) +$ 1,488,276 +Cash +Flows from Operating Activities +For +the years ended October 31, 2024 and 2023, cash used in operating activities was $3,840,744 and $4,036,834, respectively. The cash used +in operations for the year ended October 31, 2024 was primarily attributable to our net loss of $9,626,797, adjusted for non-cash expenses +in the aggregate amount of $5,042,982, as well as $743,071 of net cash provided to fund changes in the levels of operating assets and +liabilities. Our cash used in operations for year ended October 31, 2023 was primarily attributable to our net loss of $6,544,426, adjusted +for non-cash expenses in the aggregate amount of $2,520,829, as well as $13,237 of net cash used to fund changes in the levels of operating +assets and liabilities. +Cash +Flows from Investing Activities +For +the years ended October 31, 2024 and 2023, cash used in investing activities was $1,089,882 and $2,189,859, respectively. The cash used +during the current period is attributable to approximately $1.2 million related to costs for capital expenditures, which were capitalized +and are reflected in the balance of the oil and gas property as of October 31, 2024. Cash used from investing activities for the year +ended October 31, 2023 was attributable to approximately $3.7 million related to drilling exploratory wells and approximately $0.4 million +related to acquisition and reserve analysis costs, both of which were capitalized and are reflected in the balance of the oil and gas +property as of October 31, 2023. These amounts were offset by approximately $1.9 million in amounts used from the Advance to Operators +account, which is designated for costs for the HV-1 well. +Cash +Flows from Financing Activities +For +the years ended October 31, 2024 and 2023, cash provided by financing activities was$ 3,654,647 and $7,714,969, respectively. Cash provided +by financing activities during the year ended October 31, 2024 was primarily attributable to proceeds of approximately $3.1 million from +the issuance of promissory notes, related party notes and convertible notes payable and proceeds of approximately $1.2 million from the +issuance of common shares in connection with an ATM agreement, offset by payments for debt in the amount of approximately $0.4 million +and debt issuance costs of $0.3 million. Cash provided by financing activities during the year ended October 31, 2023 was primarily attributable +to $6.7 million in gross proceeds from the issuance of common stock, $1.8 million in net proceeds from the exercise of warrants and $1.6 +million in net proceeds from the convertible note financing, offset by the payment of offering costs of approximately $1.0 million and +the payment of notes payables of approximately $1.5 million. +40 +Our +cash change was a decrease of approximately $1.3 million as of October 31, 2024. Management believes that the cash on hand and working +capital are sufficient to meet its current anticipated cash requirements for anticipated capital expenditures and operating expenses +for the next twelve months. +Contractual +Obligations and Commitments +Unproved +Property Leases +We +hold various leases related to the unproved properties of the South Salinas Project; two of the leases are held with the same lessor. +The first lease, which covers 8,417 acres, was amended on May 27, 2022 to provide for an extension of then-current force majeure status +for an additional, uncontested twelve months, during which we would be released from having to evidence to the lessor the existence of +force majeure conditions. As consideration for the granting of the lease extension, we paid the lessor a one-time, non-refundable payment +of $252,512; this amount was capitalized and reflected in the balance of the oil and gas property as of October 31, 2022. The extension +period commenced on June 19, 2022 and currently, the “force majeure” status has been extinguished by the drilling of the +HV-1 well. The ongoing operation and oil production at the HV-3A well maintain the validity of the lease. +The +second lease covers 160 acres of the South Salinas Project; it is currently held by delay rental and is renewed every three years. Until +drilling commences, we are required to make delay rental payments of $30/acre per year. We are currently in compliance with this requirement +and have paid in advance the delay rental payment for the period from October 2023 through October 2024. +We +hold interests in various leases related to the unproved properties of the McCool Ranch Oil Field. These leases occur in two parcels, +“Parcel 1” and “Parcel 2”. Parcel 1 comprises ten leases and approximately 480 acres, which are held by delay +rental payments that are paid-up and current. Parcel 2 comprises one lease and approximately 320 acres, which is held by production. +The total leasehold comprises approximately 800 gross and net acres. +During +February and March of 2023, we entered into additional leases related to the unproved properties of the South Salinas Project with two +groups of lessors. The first group of leases covers 360 acres and has a term of 20 years; we are required to make rental payments of +$25/acre per year. We are currently in compliance with this requirement and have paid in advance the rental payment for the period February +2024 through February 2025. The second group of leases covers 307.75 acres and has a term of 20 years; we are required to make rental +payments of $30/acre per year. We are currently in compliance with this requirement and have paid in advance the rental payment for the +period from March 2024 through March 2025. +On +November 10, 2023, we entered into the ARLO Agreement with HSO for a term of nine months which allows us the exclusive right to acquire +up to a 20% interest in a 960 acre drilling and production program in the Asphalt Ridge leases for $2,000,000, which may be invested +in tranches, with an initial tranche closing for an amount no less than $500,000 and paid within seven days subsequent to HSO providing +certain required items to us. +On +December 29, 2023, we entered into an amendment to the ARLO Agreement, whereby we funded $200,000 of the $500,000 payable by us to HSO +at the Initial Closing, in advance of HSO satisfying certain required items for a 2% interest in the leases; such funds are to be used +by HSO solely for the building of roads and related infrastructure in furtherance of the development of the leases. As of October 31, +2024, we have paid a total of $225,000 to HSO in costs related to infrastructure and has obtained a 2.25% interest in the leases; such +costs are capitalized costs and are reflected in the balance of the oil and gas property as of October 31, 2024. +Board +of Directors Compensation +On +July 11, 2022, our Board of Directors approved compensation for each of the non-employee directors of the Company, which would be effective +upon the consummation of the IPO. Such compensation is structured as follows: an annual retainer of $50,000 cash plus an additional $10,000 +for each Board committee upon which the Director serves, each paid quarterly in arrears. Payment for this approved compensation commenced +upon successful completion of our IPO in April 2023; for the years ended October 31, 2024 and 2023, the Company has recognized $223,170 +and $156,154, respectively, in directors’ fees. +Agreements +with Advisors +On +October 4, 2023 and December 29, 2023, the Company entered into placement agent agreements with Spartan Capital Securities, LLC (“Spartan”), +whereby Spartan will serve as the exclusive placement agent in connection with the closing of private placements. The agreements provide +the agent with i) a cash fee 7.5% of the aggregate proceeds raised in the sale and ii) warrants to purchase a number of common shares +equal to 5% of the number of common shares initially issuable upon conversion of each note tranche; warrants to purchase 4,167 and 2,750 +common shares with exercise prices of $26.40 and $11.00 for the first and second tranches, respectively, were issued to Spartan as of +January 31, 2024. Such warrants may be exercised beginning 6 months after issuance until four- and one-half years thereafter. +41 +Critical +Accounting Policies and Estimates +Basis +of Presentation +We +prepare our financial statements in conformity with GAAP, which requires management to make certain estimates and assumptions and apply +judgments. We base our estimates and judgments on historical experience, current trends and other factors that management believes to +be important at the time the condensed financial statements are prepared, and actual results could differ from our estimates and such +differences could be material. Due to the need to make estimates about the effect of matters that are inherently uncertain, materially +different amounts could be reported under different conditions or using different assumptions. On a regular basis, we review our critical +accounting policies and how they are applied in the preparation of our condensed financial statements, as well as the sufficiency of +the disclosures pertaining to our accounting policies in the footnotes accompanying our financial statements. Described below are the +most significant policies we apply in preparing our condensed financial statements, some of which are subject to alternative treatments +under GAAP. We also describe the most significant estimates and assumptions we make in applying these policies. See “Note 2 - Summary +of Significant Accounting Policies” to our financial statements. +Oil +and Gas Assets and Exploration Costs – Successful Efforts +Our +projects are in exploration and/or early production stages and we began generating revenue from its operations during the quarterly period +ended April 30, 2024. We apply the successful efforts method of accounting for crude oil and natural gas properties. Under this method, +exploration costs such as exploratory, geological, and geophysical costs, delay rentals and exploratory overhead are expensed as incurred. +If an exploratory property provides evidence to justify potential development of reserves, drilling costs associated with the property +are initially capitalized, or suspended, pending a determination as to whether a commercially sufficient quantity of proved reserves +can be attributed to the area as a result of drilling. At the end of each quarter, management reviews the status of all suspended exploratory +property costs considering ongoing exploration activities; in particular, whether we are making sufficient progress in our ongoing exploration +and appraisal efforts. If management determines that future appraisal drilling or development activities are unlikely to occur, associated +exploratory well costs are expensed. +Costs +to acquire mineral interests in crude oil and/or natural gas properties, drill and equip exploratory wells that find proved reserves +and drill and equip development wells are capitalized. Acquisition costs of unproved leaseholds are assessed for impairment during the +holding period and transferred to proven crude oil and/or natural gas properties to the extent associated with successful exploration +activities. Significant undeveloped leases are assessed individually for impairment, based on our current exploration plans, and a valuation +allowance is provided if impairment is indicated. Capitalized costs from successful exploration and development activities associated +with producing crude oil and/or natural gas leases, along with capitalized costs for support equipment and facilities, are amortized +to expense using the unit-of-production method based on proved crude oil and/or natural gas reserves on a field-by-field basis, as estimated +by qualified petroleum engineers. We currently have four wells that are producing (one well in President’s Field in the South Salinas +Project and three wells at the McCool Ranch Oil Field) and are evaluating the impact of production on the reserve determination for those +wells and fields. We expect to add the reserve value of such fields to our reserve report after a further period of observation and review +of oil production. +Unproved +oil and natural gas properties +Unproved +oil and natural gas properties have unproved lease acquisition costs, which are capitalized until the lease expires or otherwise until +we specifically identify a lease that will revert to the lessor, at which time we charge the associated unproved lease acquisition costs +to exploration costs. +Unproved +oil and natural gas properties are not subject to amortization and are assessed periodically for impairment on a property-by-property +basis based on remaining lease terms, drilling results or future plans to develop acreage. We currently have four wells that are producing +(one well in President’s Field in the South Salinas Project and three wells at the McCool Ranch Oil Field) and are evaluating the +impact of production on the reserve determination for those wells and fields. We expect to add the reserve value of such fields to our +reserve report after a further period of observation and review of the oil production. As of October 31, 2024 and 2023, all of our oil +and gas properties were classified as unproved properties and were not subject to depreciation, depletion and amortization. +Impairment +of Other Long-lived Assets +We +review the carrying value of our long-lived assets annually or whenever events or changes in circumstances indicate that the historical +cost-carrying value of an asset may no longer be appropriate. We assess the recoverability of the carrying value of the asset by estimating +the future net undiscounted cash flows expected to result from the asset, including eventual disposition. If the future net undiscounted +cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s +carrying value and estimated fair value. With regards to oil and gas properties, this assessment applies to proved properties; unproved +properties are assessed for impairment either at an individual property basis or a group basis. +42 +Asset +Retirement Obligations +ARO +consists of future plugging and abandonment expenses on oil and natural gas properties. In connection with the South Salinas Project +acquisition described above, we acquired the plugging and abandonment liabilities associated with six temporarily shut-in, idle wells. +The fair value of the ARO was recorded as a liability in the period in which the wells were acquired with a corresponding increase in +the carrying amount of oil and natural gas properties. We plan to utilize the six wellbores acquired in the South Salinas Project acquisition +in future production, development and/or exploration activities. The liability is accreted for the change in its present value each period +based on the expected dates that the wellbores will be required to be plugged and abandoned. The capitalized cost of ARO is included +in oil and gas properties and is a component of oil and gas property costs for purposes of impairment and, if proved reserves are found, +such capitalized costs will be depreciated using the units-of-production method. The asset and liability are adjusted for changes resulting +from revisions to the timing or the amount of the original estimate when deemed necessary. If the liability is settled for an amount +other than the recorded amount, a gain or loss is recognized. +Recent +Accounting Pronouncements +All +recently issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to us. +ITEM +7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK +Pursuant +to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as +it is a “smaller reporting company,” as defined by Rule 229.10(f)(1). +ITEM +8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA +The +information required by this Item is included in this Report as set forth in the “Index to Consolidated Financial Statements” +which appears on page F-1 of this Annual Report, after the signature pages of this Annual Report, and is incorporated by reference herein. +ITEM +9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE +On +May 3, 2024, the US Securities and Exchange Commission (“Commission”) entered an Order denying BF Borgers CPA PC (“Borgers”) +the privilege of appearing or practicing before the Commission as an accountant. As a result, Borgers may not participate in or perform +the audit or review of financial information included in Commission filings, issue audit reports included in Commission filings, provide +consents with respect to audit reports, or otherwise appear or practice before the Commission. As a result of the foregoing, on May 6, +2024, the Board of Directors terminated Borgers as the Company’s independent registered public accounting firm. Borgers had audited +the Company’s financial statements for the two fiscal years ended October 31, 2022 and 2021 since the Company’s engagement +of Borgers as its auditor on December 13, 2022. +Borger’s +report on the Company’s financial statements for the fiscal years ended October 31, 2023 and 2022 did not contain an adverse opinion +or disclaimer of opinion, nor was such report qualified or modified as to uncertainty, audit scope or accounting principle, except for +an explanatory paragraph relating to a substantial doubt regarding the Company’s ability to continue as a going concern. During +the fiscal years ended October 31, 2023, and 2022 and through May 6, 2024, there were no disagreements with BF Borgers on any matter +of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to Borgers’s +satisfaction, would have caused Borgers to make reference to the subject matter of the disagreement in connection with its report. +During +the fiscal years ended October 31, 2023, and 2022 and through May 6, 2024, there were no “reportable events” as defined under +Item 304(a)(1)(v) of Regulation S-K. +On +May 8, 2024, the Company appointed Bush & Associates (“Bush”) as its new independent registered public accounting firm, +effective immediately, for the fiscal years ended October 31, 2023, and 2022. This appointment was authorized and approved by the Audit +Committee and Board of Directors of the Company. +ITEM +9A. CONTROLS AND PROCEDURES +Evaluation +of Disclosure Controls and Procedures +Disclosure +controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed +under the Exchange Act, such as this report, is recorded, processed, summarized, and reported within the time period specified in the +SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated +and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely +decisions regarding required disclosure. Our management evaluated, with the participation of our current chief executive officer and +chief financial officer (our “Certifying Officer”), the effectiveness of our disclosure controls and procedures as of October +31, 2024, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officer concluded that, as of +October 31, 2024, our disclosure controls and procedures were effective. +43 +We +do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and +procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the +disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there +are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure +controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all +our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain +assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated +goals under all potential future conditions. +Management’s +Report on Internal Controls over Financial Reporting +The +management of Trio Petroleum Corp. is responsible for establishing and maintaining adequate internal control over financial reporting, +as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process designed +by, or under the supervision of, our principal executive officer and principal financial officer, or persons performing similar functions, +and effected by our board of directors to provide reasonable assurance regarding the reliability of financial reporting and the preparation +of financial statements in accordance with generally accepted accounting principles. A company’s internal control over financial +reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately +and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions +are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, +and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of +the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition +of the Company’s assets that could have a material effect on the financial statements. +Because +of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those +systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation, +projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because +of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. +We +are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K under the Securities Act. For as long as +we continue to be a smaller reporting company, we may take advantage of exemptions from various reporting requirements that are applicable +to other public companies that are not smaller reporting companies. Additionally, this Report does not contain an attestation report +of our registered public accounting firm regarding internal control over financial reporting since the Company, as an “emerging +growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, +is not required to provide such report. +The +management of Trio Petroleum Corp., including our principal financial officer, conducted an evaluation of the effectiveness of the Company’s +internal control over financial reporting as of October 31, 2024 using the criteria set forth by the Committee of Sponsoring Organizations +of the Treadway Commission (“COSO”) in “Internal Control - Integrated Framework” (2013). +Management +concluded that the Company’s internal control over financial reporting was effective as of October 31, 2024, based on those criteria. +Changes +in Internal Control over Financial Reporting +There +were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange +Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal +control over financial reporting. +ITEM +9B. OTHER INFORMATION. +(c) +Insider Trading Arrangements +During +the quarterly period ended October 31, 2024, none of our directors or officers (as defined in Rule 16a-1(f) promulgated under the Exchange +Act) adopted or terminated any “Rule 10b5-1 trading arrangement” or any “non-Rule 10b5-1 trading arrangement,” +as each term is defined in Item 408 of Regulation S-K. +ITEM +9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. +Not +applicable. +44 +ITEM +10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE +The +following table sets forth the name and age as of January 15, 2024, and position of the individuals who currently serve as directors +and executive officers of the Company. The following also includes certain information regarding the individual experience, qualifications, +attributes and skills of our directors and executive officers as well as brief statements of those aspects of our directors’ backgrounds +that led us to conclude that they are qualified to serve as directors. +Name +Age +Position +Executive +Officers +Robin Ross +62 +Chief Executive Officer and Chairman +Stanford Eschner +92 +Vice Chairman and Director +Gregory L. Overholtzer +67 +Chief Financial Officer +Non-Employee +Directors +William J. Hunter +56 +Director +John Randall +82 +Director +Thomas J. Pernice +62 +Director +James H. Blake +57 +Director +45 +Executive +Officers +Robin +Ross (Chief Executive Officer, Chairman and Director) has served as our Chief Executive Officer since July 2024, and Chairman +and Director since June 2024. Mr. Ross previously served as a director of the Company from August 2021 to May 2023, and was a co-founder +of the Company in July 2021. Since November 2023, Mr. Ross has served as the Chairman and CEO of Drillwaste Solutions Corp., a Canadian +private company. Since October 2019, Mr. Ross has served as the founder of Gold’n Futures Mineral Corp. (CSE: FUTR), a junior resource +company. Since 2007, Mr. Ross has served as the president of Vanross Enterprises Inc., a Canadian investment company. From 2008 until +the sale of the company in August 2010, Mr. Ross served as a Co-Founder of Canada Potash Corporation, a Canadian resource company with +access to over 1.7 million acres, or just over 15%, of the 11 million acres in the Williston Basin in South Central Saskatchewan, Canada. +Mr. Ross previously held management positions at Canadian investment dealers for over 18 years. From 1999 until 2001, Mr. Ross served +as Branch Manager and Director of Sales at Yorkton Securities, a Canadian biotechnology and investment dealer. From 1987 until 1999, +Mr. Ross served as Branch Manager at Midland Walwyn Inc., a Canadian investment dealer. +Stanford +Eschner (Vice Chairman and Director) has served as our Vice Chairman since June 2024. Prior to that, he served as our Executive Chairman +since inception. Since 1983, Mr. Eschner has served as the Chairman of Trio LLC, the operator of the South Salinas Project. From 1961 +until 1983, Mr. Eschner held various positions at Occidental Petroleum (NYSE: OXY), including geologist, Vice President of Domestic Operations +and Vice President - Chief Geologist- Worldwide. Before that, Mr. Eschner was a geologist (lieutenant) with the Army Corp of Engineers +from 1955 until 1957, and a production geologist with Shell Oil Co.1958 until 1961. Mr. Eschner has a Master of Arts degree in Geology +from University of California, Los Angeles. +Gregory +L. Overholtzer (Chief Financial Officer) has served as our Chief Financial Officer since February 2022. Since 2019, Mr. Overholtzer +has worked as a part-time Chief Financial Officer of Indonesia Energy Corp. (NYSE AMERICAN: INDO). In addition, since November 2019, +Mr. Overholtzer has served as a Consulting Director of Ravix Consulting Group. From December 2018 until November 2019, Mr. Overholtzer +served as a Field Consultant at Resources Global Professionals. From January 2012 until December 2018, Mr. Overholtzer served as the +Chief Financial Officer, Chief Accounting Officer and Controller of Pacific Energy Development (NYSE AMERICAN: PED). Mr. Overholtzer +holds a BA in Zoology and an MBA in Finance from the University of California, Berkeley. +Non-Employee +Directors +William +J. Hunter (Director) has served as a Director since July 2022. From 2015 until 2022, Mr. Hunter served as Managing Partner of Hunter +Resources LLC, a strategic and financial consulting firm. From 2017 until 2021, Mr. Hunter served as the President, Chief Financial Officer +and Director of Advent Technologies post-merger with AMCI Acquisition Corp. From 2013 until 2015, Mr. Hunter served as Managing Director +of the Industrial Group of Nomura Securities. Mr. Hunter is currently a Director at Tonogold Resources (OTCBB:TNGL) since 2022 and a +former Director at American Battery Technology Corporation (NADAQ: ABAT) from 2016 to 2022. William Hunter received his B.Sc. from DePaul +University in Chicago and an MBA with distinction from the Kellstadt School of Business at DePaul University. +John +Randall (Director) has served as a Director since November 2021. From November 2022 to March 2023, Mr. Randall served as a professional +geologist for Shopoff Reality Investment L.P. in connection with obtaining oil permits from the California Geologic Management Division +for re-abandoned oil wells in Huntington Beach, California. From April 2017 until November 2021, Mr. Randall served as a professional +geologist where he consulted to various companies and lenders. From April 2016 until April 2017, Mr. Randall was Vice President of the +California Business Unit of Azimuth Energy. Before this, from 2003 until April 2016, Mr. Randall served as Senior Geologist at Freeport-McMoran +Oil and Gas. From 1984 until 2001 Mr. Randall was a Geologist and senior manager at various divisions of Chevron in California and also +during that time spent 4 years as an expatriate as the geological operations manager at Chevron’s Tengiz operations in Kazakhstan. +From 1977 until 1984 Mr. Randall was a Geology Manager for Gulf Oil Corp and from 1970 until 1977 he was a development geologist for +Union Oil Company. Mr. Randall holds an MS in Geology and a BS in Geology from Southern Illinois University. Mr. Randall also holds a +registered professional geologic license in the states of California, Texas, Louisiana and Mississippi. +Thomas +J. Pernice (Director) has served as a Director since November 2021. Mr. Pernice has served as the President of Modena Holding Corporation, +a company providing corporate and executive advisory services, since 2000. In addition, he has served as a partner with The Abraham Group, +an international strategic consulting firm and with Green Partners USA, LLC, a private equity real estate fund dedicated to green building +since 2007. In 2004, he was appointed Senior Policy Advisor and Executive Director of the Secretary of Energy Advisory Board at the U.S. +Department of Energy where he served until 2006. He was a partner and Managing Director of Cappello Group, a boutique investment and +merchant bank in Los Angeles from 2000 to 2004. Mr. Pernice also served in the Family Offices of billionaire industrialist David H. Murdock +where he was a member of the Chairman’s Global Leadership Team and Executive Officer of Dole Food Company, Inc. (NYSE: DOL) from +1992 to 2000. Mr. Pernice was as a Presidential Appointee and member of the senior White House staff serving from 1984 to 1992 where +he traveled as a diplomatic representative of the United States to more than 92 countries. Further, Mr. Pernice has served as Executive +Vice Chairman, a member of the board of director and an officer to Vaxanix Bio, Ltd since December 2023, as a member of the board of +directors and officer to Vaxanix Bio Acquisition Corp I since January 2023, as a member of the board of director and officer to Vaxanix +Bio Acquisition Corps II, III, IV, V, VI, VII and VIII since December 2023, as a member of the board of director of DrillWaste Corp. +since October 2023, as a member of the board of directors of D3 Energy Corporation since 2022, and Panvaxal, LLC, a private biotechnology +company since 2019. Mr. Pernice is also member of the board of advisors to JMS Energy Impact Fund since October 2023 and a member of +the board of advisors to IOCharge Corp since September 2023. Mr. Pernice holds a BA in Broadcast Journalism from the University of Southern +California. +46 +James +H. Blake (Director) has served as a Director since October 2024. From 1995 to 2024, when he retired, Mr. Blake served in the banking +industry as an investment advisor and a Portfolio Manager and first Vice President overseeing a large portfolio of investments. Mr. Blake +earned a Bachelor of Commerce degree in 1991 and completed his certification as a Chartered Financial Analyst in 2003. +Family +Relationships +There +are no family relationships among our directors or executive officers. +Director +or Officer Involvement in Certain Prior Legal Proceedings +Our +directors and executive officers were not involved in any legal proceedings as described in Item 401(f) of Regulation S-K in the past +ten years, other than Mr. Pernice who served as a co-founder of Gibraltar Associates, LLC, a private company, from 2007 until 2013, which +entity went into receivership in approximately September 2014. +Board +Composition and Election of Directors +Our +board of directors currently consists of six members. Under our amended and restated bylaws, the number of directors will be determined +from time to time by our board of directors. +Director +Independence +Our +board has determined that Stanford Eschner and Robin Ross currently have relationships that would interfere with the exercise of independent +judgment in carrying out the responsibilities of a director, such that they cannot be deemed “independent” as that term is +defined under the rules of the NYSE American, or the NYSE American rules. Our board has determined that William Hunter, John Randall, +Thomas J. Pernice and James H. Blake are all “independent” as that term is defined under the NYSE American rules. As required +under the NYSE American rules a majority of the members serving on the Board are considered to be “independent.” +Classified +Board of Directors +In +accordance with our amended and restated certificate of incorporation and amended and restated bylaws, our board of directors is divided +into three classes with staggered, three-year terms. At each annual meeting of stockholders, the successors to directors whose terms +then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. Our +directors are divided among the three classes as follows: +● +the +Class I directors are John Randall and Thomas J. Pernice, and their terms will expire at our annual meeting of stockholders in 2027; +● +the +Class II directors are William J. Hunter and James H. Blake, and their term will expire at our annual meeting of stockholders in +2025, and +● +the +Class III directors are Robin Ross and Stanford Eschner, and their terms will expire at the annual meeting of stockholders in 2026. +Our +amended and restated certificate of incorporation and amended and restated bylaws provide that the authorized number of directors may +be changed only by resolution of the board of directors. Any additional directorships resulting from an increase in the number of directors +will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. The +division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management +or a change in control of our company. Our directors may be removed only for cause by the affirmative vote of the holders of at least +two-thirds of our outstanding voting stock entitled to vote in the election of directors. +Board +Leadership Structure +Our +corporate governance guidelines provide that, if the chairman of the board is a member of management or does not otherwise qualify as +independent, the independent directors of the board may elect a lead director. The lead director’s responsibilities include, but +are not limited to: presiding over all meetings of the board of directors at which the chairman is not present, including any executive +sessions of the independent directors; approving board meeting schedules and agendas; and acting as the liaison between the independent +directors and the chief executive officer and chairman of the board. Our corporate governance guidelines further provide the flexibility +for our board of directors to modify our leadership structure in the future as it deems appropriate. +47 +Role +of the Board in Risk Oversight +One +of the key functions of our board of directors is informed oversight of our risk management process. Our board of directors will not +have a standing risk management committee, but will rather administer this oversight function directly through our board of directors +as a whole, as well as through various standing committees of our board of directors that address risks inherent in their respective +areas of oversight. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure and our +Audit Committee has the responsibility to consider and discuss our major financial risk exposures and the steps our management has taken +to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management +is undertaken. Our Audit Committee also monitors compliance with legal and regulatory requirements. Our Nominating and Corporate Governance +Committee monitors the effectiveness of our corporate governance practices, including whether they are successful in preventing illegal +or improper liability-creating conduct. Our Compensation Committee assesses and monitors whether any of our compensation policies and +programs has the potential to encourage excessive risk-taking. While each committee is responsible for evaluating certain risks and overseeing +the management of such risks, our entire board of directors will be regularly informed through committee reports about such risks . +Board +Committees +We +have the following board of directors committees: an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance +Committee. The composition and responsibilities of each committee are described below. Members will serve on these committees until their +resignation or until otherwise determined by our board of directors. Each committee’s charter is available under the Corporate +Governance section of our website at www.trio-petroleum.com . The reference to our website address does not constitute incorporation +by reference of the information contained at or available through our website, and you should not consider it to be a part of this Annual +Report. +Audit +Committee . The Audit Committee’s responsibilities include: +● +appointing, +approving the compensation of, and assessing the independence of our registered public accounting firm; +● +overseeing +the work of our registered public accounting firm, including through the receipt and consideration of reports from such firm; +● +reviewing +and discussing with management and the registered public accounting firm our annual and quarterly financial statements and related +disclosures; +● +coordinating +our board of directors’ oversight of our internal control over financial reporting, disclosure controls and procedures and +code of business conduct and ethics; +● +discussing +our risk management policies; +● +meeting +independently with our internal auditing staff, if any, registered public accounting firm and management; +● +reviewing +and approving or ratifying any related person transactions; and +● +preparing +the audit committee report required by SEC rules. +The +members of our audit committee are William Hunter (chairperson), Thomas J. Pernice and John Randall. All members of our audit committee +meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NYSE American. Our board has +determined that William Hunter is an audit committee financial expert as defined under the applicable rules of the SEC and has the requisite +financial sophistication as defined under the applicable rules and regulations of the NYSE American. Under the rules of the SEC, members +of the audit committee must also meet heightened independence standards. Our board of directors has determined that all members of the +audit committee are independent under the heightened audit committee independence standards of the SEC and the NYSE American. +The +audit committee operates under a written charter that satisfies the applicable standards of the SEC and the NYSE American. +48 +Compensation +Committee . The Compensation Committee’s responsibilities include: +● +reviewing +and approving, or recommending for approval by the board of directors, the compensation of our Chief Executive Officer and our other +executive officers; +● +overseeing +and administering our cash and equity incentive plans; +● +reviewing +and making recommendations to our board of directors with respect to director compensation; +● +reviewing +and discussing annually with management our “Compensation Discussion and Analysis,” to the extent required; and +● +preparing +the annual compensation committee report required by SEC rules, to the extent required. +The +members of our compensation committee are Thomas J. Pernice (chair) and William Hunter. Each of the members of our compensation committee +is independent under the applicable rules and regulations of the NYSE American and is a “non-employee director” as defined +in Rule 16b-3 promulgated under the Exchange Act. The compensation committee operates under a written charter that satisfies the applicable +standards of the SEC and the NYSE American. +Nominating +and Corporate Governance Committee . The Nominating and Corporate Governance Committee’s responsibilities include: +● +identifying +individuals qualified to become board members; +● +recommending +to our board of directors the persons to be nominated for election as directors and to each board committee; +● +developing +and recommending to our board of directors corporate governance guidelines, and reviewing and recommending to our board of directors +proposed changes to our corporate governance guidelines from time to time; and +● +overseeing +a periodic evaluation of our board of directors. +The +members of our nominating and corporate governance committee are Thomas J. Pernice (chairperson) and John Randall. Each of the members +of our Nominating and Corporate Governance Committee is an independent director under the applicable rules and regulations of the NYSE +American relating to nominating and corporate governance committee independence. The Nominating and Corporate Governance Committee operates +under a written charter that satisfies the applicable standards of the SEC and the NYSE American. +Compensation +Committee Interlocks and Insider Participation +No +member of our compensation committee is a current or former officer or employee. None of our executive officers served as a director +or a member of a compensation committee (or other committee serving an equivalent function) of any other entity, one of whose executive +officers served as a director or member of our compensation committee during the last completed fiscal year. +Code +of Ethics and Code of Conduct +We +have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal +executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. +Our code of business conduct and ethics is available under the Corporate Governance section of our website at www.trio-petroleum.com . +In addition, we have posted on our website all disclosures that are required by law or the rules of the NYSE American concerning any +amendments to, or waivers from, any provision of the code. The reference to our website address does not constitute incorporation by +reference of the information contained at or available through our website, and you should not consider it to be a part of this Annual +Report. +Insider +Trading Policies +On +November 27, 2023, we adopted insider trading policies and procedures governing the purchase, sale, and/or other dispositions of our +securities by directors, officers and employees, which are reasonably designed to promote compliance with insider trading laws, rules +and regulations, and applicable Nasdaq listing standards (the “ Insider Trading Policy ”). +The +foregoing description of the Insider Trading Policy does not purport to be complete and is qualified in its entirety by the terms and +conditions of the Insider Trading Policy, a copy of which is attached hereto as Exhibit 19.1 and is incorporated herein by reference. +ITEM +11. EXECUTIVE COMPENSATION +Overview +We +are currently considered a “smaller reporting company” for purposes of the SEC’s executive compensation and other disclosure +rules. In accordance with such rules, we are required to provide a Summary Compensation Table and an Outstanding Equity Awards at Fiscal +Year End Table, as well as limited narrative disclosures. +We +design our executive officer compensation program to attract, motivate, and retain the key executives who drive our success and industry +leadership. Our compensation program consists of several forms of compensation: base salary, cash incentive bonuses, equity compensation +and other benefits and perquisites. Pay that reflects performance and alignment of that pay with the interests of long-term stockholders +are key principles that underlie our compensation program. The Board believes that our current executive compensation program directly +links executive compensation to our performance and aligns the interest of our executive officers with those of our shareholders. +49 +Financial +Restatement +It +is a policy of our Board that the Compensation Committee will, to the extent permitted by governing law, have the sole and absolute authority +to make retroactive adjustments to any cash or equity-based incentive compensation paid to executive officers and certain other officers +where the payment was predicated upon the achievement of certain financial results that were subsequently the subject of a restatement. +Where applicable, the Company will seek to recover any amount determined to have been inappropriately received by the individual executive. +Clawback +Policy +We +have adopted a Compensation Recovery Policy in accordance with applicable NYSE and NYSE American rules, a copy of which is filed as +the exhibit 97.1 to this Annual Report. It is generally our policy that the Company will recoup any incentive compensation +erroneously awarded to any current or former executive officers due to material noncompliance with any financial reporting +requirement under applicable securities laws during the three completed fiscal years immediately preceding the date the Company +determines that an accounting restatement is required. +Summary +Compensation +The +following sets forth the compensation paid by us to our named executive officers for the fiscal years ended October 31, 2024 and 2023. +Stock +Option +All Other +Salary +Bonus +Awards +Awards +Compensation +Total +Name +and Principal Position +Year +($) +($) +($) +($) +($) +($) +Robin Ross +2024 +25,569 +70,639 +52,541 +- +4,170 +152,919 +Chief +Executive Officer and Chairman (1) +2023 +- +- +- +- +- +- +Michael Peterson +2024 +175,000 +- +417,761 +- +- +592,761 +Chief +Executive Officer (2) +2023 +8,974 +- +- +- +31,358 +40,512 +Greg Overholtzer +2024 +90,000 +- +14,136 +- +- +104,136 +Chief +Financial Officer (3) +2023 +85,000 +- +- +- +- +85,000 +Stanford Eschner +2024 +120,417 +- +228,167 +- +- +348,584 +Vice Chairman (4) +2023 +56,667 +- +94,333 +- +- +151,000 +Steven Rowlee +2024 +127,500 +- +228,167 +- +- +355,667 +Chief Operating Officer (5) +2023 +56,667 +- +94,333 +- +- +151,000 +Terence Eschner +2024 +120,417 +- +228,167 +- +- +348,584 +President (6) +2023 +56,667 +- +94,333 +- +- +151,000 +(1) +Effective as of June 20, 2024, we appointed Mr. Ross as the Chairman of the Board of Directors; in connection with this appointment, we awarded Mr. Ross 50,000 shares of restricted stock, with 25% of the shares vesting six months after issuance and the remainder equally over the next twelve months on a quarterly basis. Effective as of July 11, 2024, we entered into an employment agreement with Mr. Ross, who became our Chief Executive Officer (“CEO”), for a term ending on December 31, 2026, which shall auto-renew for additional one-year terms. Per his employment agreement, we have agreed to pay Mr. Ross a salary at a rate of $300,000 per year. He is eligible for an annual bonus targeted at 100% of base salary, as determined by the Board based on his performance and the achievement by the Company of financial, operating and other objectives set by the Board. In connection with his appointment as the CEO, Mr. Ross was also granted an award of 100,000 shares of restricted stock, subject to Continuous Service, and which will vest with respect to 25% of the shares of restricted stock on January 9, 2025, and the remainder shall vest in equal tranches every three months thereinafter until either the shares of restricted stock are fully vested or Mr. Ross’s Continuous Service with the Company terminates, whichever occurs first. +50 +(2) +Effective +as of October 23, 2023, we entered into an employment agreement with Mr. Peterson for a term ending on December 31, 2025; such employment +agreement was terminated on July 11, 2024 as a result of his resignation as Chief Executive Officer of the Company. Per his employment +agreement, Mr. Peterson was granted 50,000 shares of restricted stock, which had fully vested as of October 31, 2024. On July 11, +2024, the Company and Mr. Peterson entered into a Consulting Agreement, effective as of July 11, 2024, and continuing through October +11, 2024; in connection with the Consulting Agreement, the Company awarded Mr. Peterson 50,000 RSUs under the 2022 Plan, which were +fully vested as of October 31, 2024. The Consulting Agreement was terminated on October 11, 2024, in accordance with its terms. +(3) +Effective +as of February 1, 2022, we entered into an employment agreement with Mr. Overholtzer, under which we agreed to pay him a salary of $60,000, +with an increase to $120,000 on the first date the Company’s shares were publicly traded. He was eligible for an annual bonus that +was targeted at 50% of his base salary beginning in 2022, and was also granted 5,000 RSUs, which were subject to Continuous Service and +had a vesting period of two years. As of October 31, 2024, all such RSUs have vested and as of December 31, 2024, such agreement and +Mr. Overholtzer’s employment with the Company expired by their terms. On January 1, 2025, we entered into an independent contractor agreement +with Mr. Overholtzer, under which he continues to serve as the Chief Financial Officer of the Company and is paid a monthly fee of $12,500; +the initial term of the agreement is for one year and will be automatically renewed unless either party provides a 30-day notice prior +to the expiration of the agreement. +(4) +Effective +as of May 1, 2023, we entered into an employment agreement with Mr. Eschner for a term ending on December 31, 2024. +Under his employment agreement, we agreed to pay Mr. Eschner a salary of $170,000, with the eligibility of an annual bonus targeted +at 50% of his base salary, as determined by the Board based on his performance and the achievement by the Company of financial, +operating and other objectives set by the Board. Mr. Eschner’s employment agreement and his employment with the Company expired by their terms on December 31, 2024. Mr. Eschner was also granted an award of 7,500 restricted shares, subject to continuous service, +with a vesting schedule in which 25% of the restricted shares vest 5 months after the employment start date, with the remainder +vesting in equal tranches every 6 months thereinafter. As of October 31, 2024, 5,625 of the shares awarded to Mr. Eschner had vested and as of December 31, 2024, the remaining +1,875 unvested shares were forfeited upon Mr. Eschner’s termination. +(5) +Effective as of May 1, 2023, we entered into an employment agreement +with Mr. Rowlee for a term ending on December 31, 2024. Under his employment agreement, we agreed to pay Mr. Rowlee a salary of +$170,000, with the eligibility of an annual bonus targeted at 50% of his base salary, as determined by the Board based on his +performance and the achievement by the Company of financial, operating and other objectives set by the Board. Mr. Rowlee’s +employment agreement and his employment with the Company expired by their terms on December 31, 2024. Mr. Rowlee was also granted an award +of 7,500 restricted shares, subject to continuous service, with a vesting schedule in which 25% of the restricted shares vest 5 +months after the employment start date, with the remainder vesting in equal tranches every 6 months thereinafter. As of October 31, 2024, 5,625 of the shares awarded to Mr. Rowlee had vested and as of December 31, 2024, the remaining +1,875 unvested shares were forfeited upon Mr. Rowlee’s termination. +(6) +Effective as of May 1, 2023, we entered into an employment agreement +with Mr. Eschner for a term ending on December 31, 2024. Under his employment agreement, we agreed to pay Mr. Eschner a salary of +$170,000, with the eligibility of an annual bonus targeted at 50% of his base salary, as determined by the Board based on his +performance and the achievement by the Company of financial, operating and other objectives set by the Board. Mr. Eschner’s +employment agreement and his employment with the Company expired by their terms on December 31, 2024. Mr. Eschner was also granted an award +of 7,500 restricted shares, subject to continuous service, with a vesting schedule in which 25% of the restricted shares vest 5 +months after the employment start date, with the remainder vesting in equal tranches every 6 months thereinafter. As of October 31, 2024, 5,625 of the shares awarded to Mr. Eschner had vested and as of December 31, 2024, the remaining +1,875 unvested shares were forfeited upon Mr. Eschner’s termination. +Outstanding +Equity Awards at Year-End +The +following table provides information on outstanding equity awards as of October 31, 2024 to our NEOs. +Equity +Equity Incentive +incentive +plan +Plan awards: +awards: +Market or +Number of +payout value +of +Number of +Market value +of +unearned shares, +unearned shares, +shares or +units of +shares or +units of +units or other +units or other +stock that +have +stock that +have +rights that +have +rights that +have +Name +not +vested +not +vested +not +vested +not +vested +Robin Ross (1) +- +- +150,000 +$ 557,850 +Michael Peterson (2) +- +- +50,000 +$ 166,000 +Greg Overholtzer (3) +- +- +10,000 +$ 31,300 +Stanford Eschner (4) +- +- +1,875 +$ 66,770 +Steven Rowlee (5) +- +- +1,875 +$ 66,770 +Terrence Eschner (6) +- +- +1,875 +$ 66,770 +(1) +Mr. Ross was granted awards of 50,000 RSUs and 100,000 shares of restricted stock, which are all subject to Continuous Service and have vesting schedules in which 25% of the shares of restricted stock will vest six months after the effective date of the award, and the remainder shall vest in equal tranches every three months thereinafter until either the shares of restricted stock are fully vested or Mr. Ross’ Continuous Service with the Company terminates, whichever occurs first. As of October 31, 2024, none of the RSUs or shares of restricted stock awarded to Mr. Ross have vested. +51 +(2) +In +connection with the Consulting Agreement that the Company and Mr. Peterson entered into on July 11, 2024, Mr. Peterson was granted +50,000 RSUs which fully vested 60 days after the date of grant; as of October 31, 2024, all of the shares of restricted stock awarded +to Mr. Peterson had vested. +(3) +Mr. +Overholtzer was granted 10,000 RSUs which are subject to Continuous Service and have a vesting period of six months after the date +of the award, at which point they will vest in full. As of October 31, 2024, none of the shares of restricted stock awarded to Mr. +Overholtzer had vested. +(4) +In connection with the employment agreement that the Company and Mr. Eschner entered into on May 1, 2023, Mr. Eschner +was granted 7,500 RSUs which are subject to Continuous Service and have a vesting period of five months after the date of the award, with +the remainder vesting in equal tranches every six months afterwards. As of October 31, 2024, all but 1,875 shares awarded to Mr. Eschner +had vested. +(5) +In connection with the employment agreement that the Company and Mr. Rowlee entered into on May 1, 2023, Mr. Rowlee +was granted 7,500 RSUs which are subject to Continuous Service and have a vesting period of five months after the date of the award, with +the remainder vesting in equal tranches every six months afterwards. As of October 31, 2024, all but 1,875 shares awarded to Mr. Rowlee +had vested. +(6) +In connection with the employment agreement that the Company and Mr. Eschner entered into on May 1, 2023, Mr. Eschner +was granted 7,500 RSUs which are subject to Continuous Service and have a vesting period of five months after the date of the award, with +the remainder vesting in equal tranches every six months afterwards. As of October 31, 2024, all but 1,875 shares awarded to Mr. Eschner +had vested. +Narrative Disclosure to Summary Compensation +Table +Employment +Agreement - Robin Ross +We +entered into an employment agreement with Robin Ross (the “Ross Employment Agreement”), who became our CEO, effective as +of July 11, 2024, for a term ending on December 31, 2026, which shall auto-renew for additional one-year terms. Mr. Ross reports directly +the Board and performs his services primarily in Toronto, Canada. +We +have agreed to pay Mr. Ross a salary at a rate of $300,000 per year. He is eligible for an annual bonus targeted at 100% of base salary, +as determined by the Board based on his performance and the achievement by the Company of financial, operating and other objectives set +by the Board. Mr. Ross was also granted an award of 100,000 shares of restricted stock, subject to Continuous Service (as such term is +defined in the Ross Employment Agreement, which award was made, and which will vest, with respect to 25% of the shares of restricted +stock on January 9, 2025, and the remainder shall vest in equal tranches every three months thereinafter until either the shares of restricted +stock are fully vested or Mr. Ross’s Continuous Service with the Company terminates, whichever occurs first. Mr. Ross also receives +a standard benefit package, and reimbursement for reasonable business and travel expenses. He also is eligible for twenty-five vacation +days per annum. Although Mr. Ross is employed pursuant to a term, either the Company or Mr. Ross may terminate his employment earlier. +We may terminate Mr. Ross’s employment with or without Cause. “Cause” means: (a) conviction of, or plea of nolo contendere +to any felony or crime involving dishonesty or moral turpitude (whether or not a felony); (b) any action by Mr. Ross involving fraud, +breach of the duty of loyalty, malfeasance or willful misconduct; (c) the failure or refusal by Mr. Ross to perform any material duties +hereunder or to follow any lawful and reasonable direction of the Company; (d) intentional damage to any property of the Company; (e) +chronic neglect or absenteeism in the performance of Mr. Ross’s duties; (f) willful misconduct, or other material violation of +Company policy or code of conduct that causes a material adverse effect upon the Company; (g) material uncured breach of any written +agreement with the Company (subject to a 10 business day cure right on behalf of the Company); or (h) any action that in the reasonable +belief of the Company shall or potentially shall subject the Company to negative or adverse publicity or effects. +Mr. +Ross may resign on 90 days’ written notice. +Employment +Agreement/Consulting Agreement - Michael L. Peterson +We +entered into an employment agreement with Michael L. Peterson, who became our CEO, effective as of October 23, 2023, for a term ending +on December 31, 2025, but his employment ended on July 11, 2024 as a result of his resignation as Chief Executive Officer +of the Company. +On +July 11, 2024, the Company and Mr. Peterson entered into a Consulting Agreement (the “Consulting Agreement”), effective as +of July 11, 2024, and continuing through October 11, 2024, with a one-time option for the Company to renew the Consulting Agreement and +Mr. Peterson’s services as a consultant for up to an additional three months thereafter. Pursuant to the Consulting Agreement, +Mr. Peterson provided services relating to investor relations, public relations, financing strategies, corporate strategies, and development +of business opportunities and providing background information with respect to Company’s history. In consideration for his consulting +services, and pursuant to the terms of the Consulting Agreement, the Company paid Mr. Peterson a cash consulting fee equal to $10,000 +per month, payable within five business days after the commencement of each calendar month during the term of the Consulting Agreement. +In addition, the Company awarded Mr. Peterson 50,000 RSUs under the 2022 Plan, which award was made after the Company’s +stockholders approved an increase in the number of shares available under the 2022 Plan at the 2024 Annual Meeting of +Stockholders on August 15, 2024, and are fully vested. Mr. Peterson was also entitled to reimbursement for certain expenses. The Consulting +Agreement was terminated on October 11, 2024, in accordance with its terms. +52 +Employment +Agreement/Independent Contractor Agreement - Gregory L. Overholtzer +Effective +as of February 1, 2022, we entered into an employment agreement with our Chief Financial Officer, Gregory L. Overholtzer. Mr. +Overholtzer was employed effective February 25, 2022, for a term ending on December 31, 2024. Mr. Overholtzer’s +employment agreement and his employment with the Company expired by their terms on December 31, 2024. On +January 1, 2025, we entered into an independent contractor agreement (the “IC Agreement”) with Mr. Overholtzer, under which +he continues to serve as the Chief Financial Officer of the Company and performs his services in California. +The +initial term of the IC Agreement continues until December 31, 2025, provided that the term will renew for successive one year periods, +unless either party notifies the other party at least 30 days prior to the end of the then current term of its desire not to renew the +IC Agreement. In addition, the IC Agreement may be terminated by either party upon 60 days’ prior written notice to the other party. +Upon any such termination by the Company, the Company may terminate the Agreement prior to such 60-day notice period, but shall be required +to pay Mr. Overholtzer the fees payable for such 60-day period. Furthermore, if Mr. Overholtzer provides notice of termination, but does +not continue to provide the required services during such 60-day period, the Company may immediately terminate the IC Agreement and shall +only be required to pay Mr. Overholtzer fees payable through such date of termination. Notwithstanding any of the foregoing, if the Company +fails to timely pay Mr. Overholtzer any monthly fee, he shall have the right to terminate the IC Agreement on 30-days’ notice. +Mr. +Overholtzer is entitled to the payment of a monthly fee of $12,500 for his services and reimbursement of all pre-approved expenses relating +to his services upon presentation of invoices and receipts reasonably acceptable to the Company. +Each of the Company and Mr. Overholtzer has made customary representations and warranties to each other, and Mr. +Overholtzer has agreed that during the term of the IC Agreement and for a period of two years, thereafter, not to solicit any employee +of the Company for employment with any other business. Mr. Overholtzer has also agreed to a standard form of confidentiality provision +under the terms of the Agreement and customary provisions relating to insider trading. Mr. Overholtzer has also agreed to assign to the +Company any intellectual property rights relating to his services to the Company. +Employment +Agreement- Steven A. Rowlee +We +entered into an employment agreement with our former Chief Operating Officer, Steven A. Rowlee, effective as of May 1, 2023, for a term ending on December 31, 2024. +Mr. Rowlee’s employment agreement and his employment with the Company expired by their terms on December 31, 2024. His position as Chief Operating Officer of the Company was officially eliminated by the Board as of January 2, 2025. +53 +Employment +Agreement- Terence B. Eschner +We +entered into an employment agreement with our former President, Terence B. Eschner, effective as of May 1, 2023, for a term ending +on December 31, 2024. Mr. Eschner’s employment agreement and his employment with the Company expired by their terms on December 31, +2024. His position as President of the Company was officially eliminated by the Board as of January 2, 2025. +Employment +Agreement- Stanford Eschner +We +entered into an employment agreement with our Vice Chairman, Stanford Eschner, effective as of May 1, 2023, for a term ending on +December 31, 2024. Mr. Eschner’s employment agreement and his employment with the Company expired by their terms on December +31, 2024. Mr. Eschner continues to serve as our Vice Chairman in a non-employee capacity. +Incentive +Award Plans +2022 +Equity Incentive Plan +We +have adopted and approved the 2022 Plan. On August 15, 2024, at the 2024 annual meeting of the stockholders of the Company, the +number of shares of common stock reserved for issuance with respect to awards granted under the 2022 Plan was approved by the +stockholders to increase from 200,000 shares of common stock to 500,000 shares of common stock. Under the 2022 Plan, we may grant +cash and equity incentive awards to eligible service providers in order to attract, motivate and retain the talent for which we +compete. The material terms of the 2022 Plan are summarized below. +Types +of Awards . The 2022 Plan provides for the grant of non-qualified stock options (“NQSOs”), incentive stock +options (“ISOs”), restricted stock awards, restricted stock and restricted stock units (“RSUs”), equity appreciation +rights, and other forms of stock-based compensation. +Eligibility +and Administration . Employees, officers, consultants, directors, and other service providers of the Company and its subsidiaries +are eligible to receive awards under the 2022 Plan. The 2022 Plan is administered by the board which may delegate +its duties and responsibilities to committees of the company’s directors and/or officers (all such bodies and delegates referred +to collectively as the plan administrator), subject to certain limitations that may be imposed under Section 16 of the Exchange Act, +and/or other applicable law or stock exchange rules, as applicable. The plan administrator has the authority to make all determinations +and interpretations under, prescribe all forms for use with, and adopt rules for the administration of, the 2022 Plan, subject +to its express terms and conditions. The plan administrator also sets the terms and conditions of all awards under the 2022 Plan, including any vesting and vesting acceleration conditions. +54 +Share +Reserve . Pursuant to the 2022 Plan, we have reserved 500,000 shares of the shares of common stock for issuance thereunder. +The share reserve is subject to the following adjustments: +● +The +share limit is increased by the number of shares subject to awards granted that later are forfeited, expire or otherwise terminate +without issuance of shares, or that are settled for cash or otherwise do not result in the issuance of shares. +● +Shares +that are withheld upon exercise to pay the exercise price of a stock option or satisfy any tax withholding requirements are added +back to the share reserve and again are available for issuance under the 2022 Plan. +Awards +issued in substitution for awards previously granted by a company that merges with, or is acquired by, the Company do not reduce the +share reserve limit under the 2022 Plan. +Stock +Options and Equity Appreciation Rights. ISOs may be granted only to employees of the Company, or to employees of a parent or +subsidiary of the Company, determined as of the date of grant of such options. An ISO granted to a prospective employee upon the condition +that such person becomes an employee shall be deemed granted effective on the date such person commences employment. The exercise price +of an ISO shall not be less than 100% of the fair market value of the shares covered by the awards on the date of grant of such option +pursuant to the Internal Revenue Code of 1986, as amended from time to time (the “Code”). Notwithstanding the foregoing, +an ISO may be granted with an exercise price lower than the minimum exercise price set forth above if such award is granted pursuant +to an assumption or substitution for another option in a manner that complies with the provisions of Section 424(a) of the Code. Notwithstanding +any other provision of the 2022 Plan to the contrary, no ISO may be granted under the 2022 Plan after 10 years from +the date that the 2022 Plan was adopted. No ISO shall be exercisable after the expiration of 10 years after the effective date +of grant of such award, subject to the following sentence. In the case of an ISO granted to a ten percent stockholder, (i) the exercise +price shall not be less than 110% of the fair market value of a share on the date of grant of such ISO, and (ii) the exercise period +shall not exceed 5 years from the effective date of grant of such ISO. Equity appreciation rights will entitle the holder to receive +a payment (in cash or in shares) based on the appreciation in the fair market value of the shares subject to the award up to a specified +date or dates. Equity appreciation rights may be granted to the holders of any stock options granted under the 2022 Equity Plan or may be granted independently of and without relation to stock options. +Restricted +Stock and Restricted Stock Units. The committee may award restricted stock and RSUs under the 2022 Plan. Restricted +stock awards consist of shares of stock that are transferred to the participant subject to restrictions that may result in forfeiture +if specified vesting conditions are not satisfied. RSU awards result in the transfer of shares of stock to the participant only after +specified vesting conditions are satisfied. A holder of restricted stock is treated as a current shareholder and shall be entitled to +dividend and voting rights, whereas the holder of a restricted stock unit is treated as a shareholder with respect to the award only +when the shares are delivered in the future. Specified vesting conditions may include performance goals to be achieved during any performance +period and the length of the performance period. The committee may, in its discretion, make adjustments to performance goals based on +certain changes in the Company’s business operations, corporate or capital structure or other circumstances. When the participant +satisfies the conditions of an RSU award, the Company may settle the award (including any related dividend equivalent rights) in shares, +cash or other property, as determined by the committee, in its sole discretion. +Other +Shares or Share-Based Awards . The committee may grant other forms of equity-based or equity-related awards other than stock options, +equity appreciation rights, restricted stock or restricted stock units. The terms and conditions of each stock-based award shall be determined +by the committee. +Sale +of the Company . Awards granted under the 2022 Plan do not automatically accelerate and vest, become exercisable (with +respect to stock options), or have performance targets deemed earned at target level if there is a sale of the Company. The Company does +not use a “liberal” definition of change in control as defined in Institutional Shareholder Services’ proxy voting +guidelines. The 2022 Plan provides flexibility to the committee to determine how to adjust awards at the time of a sale of +the Company. +Transferability +of Awards. Except as described below, awards under the 2022 Plan generally are not transferable by the recipient other +than by will or the laws of descent and distribution. Any amounts payable or shares issuable pursuant to an award generally will be paid +only to the recipient or the recipient’s beneficiary or representative. The committee has discretion, however, to permit certain +transfer of awards to other persons or entities. +Adjustments. +As is customary in incentive plans of this nature, each share limit and the number and kind of shares available under the 2022 Plan and any outstanding awards, as well as the exercise price or base price of awards, and performance targets under certain +types of performance-based awards, are subject to adjustment in the event of certain reorganizations, mergers, combinations, recapitalizations, +stock splits, stock dividends, or other similar events that change the number or kind of shares outstanding, and extraordinary dividends +or distributions of property to the stockholders. +Amendment +and Termination. The board of directors may amend, modify or terminate the 2022 Plan without stockholder approval, +except that stockholder approval must be obtained for any amendment that, in the reasonable opinion of the board or the committee, constitute +a material change requiring stockholder approval under applicable laws, policies or regulations or the applicable listing or other requirements +of a stock exchange on which shares of common stock are then listed. The 2022 Plan will terminate upon the earliest of (1) +termination of the 2022 Plan by the board of directors, or (2) the tenth anniversary of the board adoption of the 2022 Plan. Awards outstanding upon expiration of the 2022 Plan shall remain in effect until they have been exercised or terminated +or have expired. +55 +Director +Compensation +The +following table provides information for the compensation of our non-employee directors for the fiscal year ended October 31, 2024: +Fees earned +or +Stock +paid in +cash +Awards +Total +Name +($) +($) +($) +John Randall +(1) +87,500 +45,961 +133,461 +Thomas J. Pernice (2) +100,000 +45,961 +145,961 +William J. Hunter (3) +87,500 +45,961 +133,461 +James H. Blake (4) +- +2,150 +2,150 +(1) Mr. +Randall was awarded 5,000 and 12,500 restricted shares in September 2023 and October 2024, +respectively, in connection with his Board service; such shares vest in full upon the six +month anniversary and the three month anniversary, respectively, of the award dates. +(2) Mr. +Pernice was awarded 5,000 and 12,500 restricted shares in September 2023 and October 2024, +respectively, in connection with his Board service; such shares vest in full upon the six +month anniversary and the three month anniversary, respectively, of the award dates. +(3) Mr. +Hunter was awarded 5,000 and 12,500 restricted shares in September 2023 and October 2024, +respectively, in connection with his Board service; such shares vest in full upon the six +month anniversary and the three month anniversary, respectively, of the award dates. +(4) Mr. +Blake was awarded 12,500 restricted shares in October 2024 in connection with his Board service; +such shares vest in full upon the six month anniversary of the award date. +The +material terms of the non-employee director compensation program are summarized below. +The +non-employee director compensation provides for annual retainer fees and/or long-term equity awards for our non-employee directors. We +expect each non-employee director will receive an annual retainer of $50,000 plus an additional $10,000 for each board committee that +he or she is on. +Compensation +under our non-employee director compensation policy will be subject to the annual limits on non-employee director compensation set forth +in the 2022 Plan, as described above, but such limits will not apply prior to the first calendar year following the calendar +year in which our initial public offering was completed. Our board of directors or its authorized committee may modify the non-employee +director compensation program from time to time in the exercise of its business judgment, taking into account such factors, circumstances +and considerations as it shall deem relevant from time to time, subject to the annual limit on non-employee director compensation set +forth in the 2022 Plan. As provided in the 2022 Plan, our board of directors or its authorized committee may make +exceptions to this limit for individual non-employee directors in extraordinary circumstances, as the board of directors or its authorized +committee may determine in its discretion. +ITEM +12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS +The +following table sets forth information with respect to the beneficial ownership of our common stock, as of January 15, 2025 by: +● +each +person, or group of affiliated persons, known by us to beneficially own more than 5% of our outstanding shares of common stock (other +than named executive officers and directors); +● +each +of our named executive officers; +● +each +of our directors; +● +all +of our executive officers and directors as a group; +The +number of shares beneficially owned by each stockholder is determined in accordance with the rules issued by the SEC, and the information +is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial ownership includes any shares +as to which the individual or entity has sole or shared voting power or investment power, which includes the power to dispose of or to +direct the disposition of such security. Except as indicated in the footnotes below, we believe, based on the information furnished to +us, that the individuals and entities named in the table below have sole voting and investment power with respect to all shares of common +stock beneficially owned by them, subject to any community property laws. +Percentage +ownership of our common is based on 6,725,702 shares of common stock outstanding as of January 15, 2025. In computing +the number of shares beneficially owned by an individual or entity and the percentage ownership of that person, shares of common stock +subject to options, restricted units, warrants or other rights held by such person that are currently exercisable or will become exercisable +within 60 days of January 15, 2025 are considered outstanding, although these shares are not considered outstanding for purposes of computing +the percentage ownership of any other person. +To +calculate a stockholder’s percentage of beneficial ownership of common stock, we must include in the numerator and denominator +those shares of common stock, as well as those shares of common stock underlying options, warrants and convertible securities, that such +stockholder is considered to beneficially own. Shares of common stock underlying options, warrants and convertible securities, held by +other stockholders, however, are disregarded in this calculation. Therefore, the denominator used in calculating beneficial ownership +of each of the stockholders may be different. +Unless +otherwise indicated, the address of each beneficial owner listed below is c/o Trio Petroleum Corp., 5401 Business Park South, Suite 115, +Bakersfield, CA 93309. To our knowledge, there is no arrangement, including any pledge by any person of securities of the Company, the +operation of which may at a subsequent date result in a change in control of the Company. +56 +Beneficial +Ownership of Common Stock +Name +of Beneficial Owner +Shares +% +5% Stockholders: +- +- +- +Named Executive Officers +and Directors: +Robin Ross (1) +150,000 +2.23 % +Stanford Eschner (2) +57,500 +* +Gregory L. Overholtzer (3) +15,000 +* +William J. Hunter (4) +28,000 +* +John Randall (5) +16,000 +* +Thomas J. Pernice (6) +17,750 +* +James H. Blake (7) +12,500 +* +All directors and executive +officers as a group (7 persons) +296,750 +4.41 % +* +Less than 1% +(1) +Upon +his appointment as the Chairman of the Company, in June 2024, the Board agreed to grant to Mr. Ross 50,000 RSUs, of which (i) 22,500 RSUs were awarded +on June 20, 2024 and (ii) 27,500 RSUs were awarded after the Company’s stockholders approved an increase in the number of shares +available under the 2022 Plan at the 2024 Annual Meeting of Stockholders on August 15, 2024. Additionally, upon +being appointed as Chief Executive Officer of the Company on July 11, 2024, the Board agreed to grant to Mr. Ross 100,000 shares +of restricted stock under the 2022 Plan, which were awarded after the Company’s stockholders approved an increase +in the number of shares available under the 2022 Plan at the 2024 Annual Meeting of Stockholders on August 15, 2024. +The number of shares of common stock includes 12,500 shares issuable to Mr. Ross upon the vesting of RSUs, within 60 days after January +15, 2025, if he continues to be employed by the Company on such vesting date but excludes 36,500 shares issuable to be Mr. Ross +pursuant to the vesting of RSUs which do not vest within 60 days after January 15, 2025. The number of shares of common stock also includes 50,000 shares which have not yet been issued as of January 15, +2025. +(2) +Consists +of (i) 25,000 shares held by the Stanford Eschner Trust No. 1, for which Mr. Eschner holds investment and voting control over; the +address of the Stanford Eschner Trust No. 1 is 6501 Kane Way, Bakersfield, CA 93309, (ii) 25,000 shares held by Trio LLC, a California +Limited Liability Company, for which Mr. Eschner serves as the Executive Chairman, and as such may be deemed to hold investment and +voting control over Trio LLC’s shares; the address of Trio LLC is 4115 Blackhawk Plaza Circle, Suite 100, Danville, CA 94506, +and (iii) 7,500 shares held by Stanford Eschner himself. +(3) +Includes +10,000 shares of restricted stock awarded to Mr. Overholtzer pursuant to the 2022 Plan, which will fully vest on +April 21, 2025. +(4) +Includes +12,500 shares of restricted stock awarded to Mr. Hunter pursuant to the 2022 Plan, which will fully vest on January +21, 2025. +(5) +Includes +12,500 shares of restricted stock awarded to Mr. Randall pursuant to the 2022 Plan, which will fully vest on January +21, 2025. +(6) +Includes +12,500 shares of restricted stock awarded to Mr. Pernice pursuant to the 2022 Plan, which will fully vest on January +21, 2025. +(7) +Includes +12,500 shares of restricted stock awarded to Mr. Blake pursuant to the 2022 Plan, which will fully vest on April +21, 2025. +57 +ITEM +13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. +The +following includes a summary of transactions since July 19, 2021 (inception) to which we have been a party in which the amount involved +will exceed $120,000, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of +our capital stock, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material +interest, other than equity and other compensation, termination, change in control and other arrangements, which are described under +“Executive and Director Compensation.” We also describe below certain other transactions with our directors, executive officers +and stockholders. +Related +Party Transactions +Stanford +Eschner and Steven Rowlee, former members of TPET’s management team, are also members of Trio LLC’s management team. +Stanford Eschner, our Vice Chairman and a director, and Steven Rowlee, formerly our Chief Operating Officer, are employed by and/or +part owners of Trio LLC. Stanford Eschner is Trio LLC’s Chairman and Steven Rowlee is its Vice President. Trio LLC personnel +Stanford Eschner, Steven Rowlee, Gary Horace, Calli Shanley and Judy Ayler were salaried employees of TPET, until December 31, 2024, and are also employees +and/or part owners of Trio LLC. Terence B. Eschner, our President, until December 31, 2024, also works as a consultant to Trio LLC through his company +Sarlan Resources, Inc. Most of Trio LLC’s personnel are part owners of TPET. Trio LLC is Operator of the South Salinas Project +and of the McCool Ranch Oil Field on behalf of TPET and of the other working interest owners. Transactions between TPET and Trio LLC +are related party transactions because of these relationships. As a result of the related party transactions described above, a +special committee of our board of directors, currently comprised of Mr. Ross, Mr. Randall and Mr. Hunter was formed to evaluate and +negotiate the terms of any such transactions. In addition, in accordance with our Related Person Transaction Policy, we will have +any such transactions reviewed and approved by our Board’s Audit Committee. +Michael +Peterson, our former Chief Executive Officer and a former director until July 11, 2024, Frank C. Ingriselli, a former CEO of the Company +and our former Vice Chairman and a director of TPET until June 17, 2024, and Gregory L. Overholtzer, our Chief Financial Officer, are +employed by Lafayette Energy Corp (“LEC”). Michael Peterson is LEC’s Chief Executive Officer, Frank C. Ingriselli is +a director of LEC, and Gregory L. Overholtzer is LEC’s Chief Financial Officer. TPET and LEC both have interests in the Asphalt +Ridge Asset in Utah, TPET and LEC both have working interests and options for this asset. Transactions between TPET and LEC are related +party transactions because of these relationships. As a result of the related party transactions described above, a special committee +of our board of directors, comprised of Mr. Pernice, Mr. Randall and Mr. Hunter to evaluate and negotiate the terms of any such future +transactions. In addition, in accordance with our Related Person Transaction Policy, we will have any such future transactions reviewed +and approved by our Board’s Audit Committee. +South +Salinas Project Purchase +Initial +Purchase and Sale Agreement +On +September 14, 2021, we entered into a purchase and sale agreement where we acquired Trio LLC’s approximate 82.75% WI in the South +Salinas Project for consideration of $4 million and 245,000 shares of our common stock. +Fourth +Amendment to the Purchase and Sale Agreement +On +December 22, 2022, we entered into the Fourth Amendment where we acquired a subsequent additional approximate 3% WI in the South Salinas +Project from Trio LLC for $60,529.40. In addition, the Fourth Amendment granted us a 120-day option to acquire the Optioned Assets. The +Option Fee is $150,000, which was paid by the Company to Trio LLC. The Optioned Assets are as follows: +● +The +Hangman Hollow Field asset with an option to acquire Trio LLC’s 44% working interest and their Operatorship; +● +The +Kern Front Field asset with an option to acquire Trio LLC’s 22% working interest and their Operatorship; and +● +The +Union Avenue Field with an option to acquire Trio LLC’s 20% working interest and their Operatorship; +On +May 12, 2023, subsequent to the 120-day option window referenced above, TPET announced the signing of an Acquisition Agreement to potentially +acquire up to 100% of the working interest in the Union Avenue Field. The Agreement was between TPET and Trio LLC, with Trio LLC acting +on behalf of itself as Operator and holding a 20% working interest in Union Avenue Field as well as agreeing to act to help facilitate +the acquisition by TPET of the remaining 80% working interest. As Trio LLC is partly owned and controlled by members of Trio’s +management, this would have been a related party transaction, and a special committee of Trio’s board of directors (the “Trio +Special Committee”) was formed to evaluate and negotiate the terms of this acquisition. TPET engaged KLSP to conduct a comprehensive +analysis and valuation of the asset, which analysis was delivered to TPET and evaluated by the Trio Special Committee. However, TPET +and Trio LLC did not agree on the terms and transaction was not closed. +58 +Under +the Fourth Amendment, we also agreed to start the process of pursuing and consummating additional lease acquisitions in the areas deemed +by the parties to be higher priority areas lying within and around the South Salinas Project Area. Such acquisitions were approved for +an aggregate purchase price not to exceed approximately $79,000.00. Some leases were acquired in February and March, 2023, as described +more-fully elsewhere hereunder. +Further +under the Fourth Amendment, we agreed to engage the services of a contractor to do road access work and dirt-moving work (estimated to +cost approximately $170,000.00) that was necessary before the commencement of drilling the HV-1 well. We also agreed to pay a deposit +(in an amount not to exceed $25,000) to secure a drilling rig to drill the HV-1 well, which was drilled in May, 2023. This deposit was +not required and was not paid. +Finally, +we agreed, retroactively commencing on May 1, 2022, to accrue a monthly consulting fee of $35,000.00, due and payable by the Company +to Trio LLC no later than two weeks following the closing date of Company’s IPO. This fee was intended to cover the work being +done for the Company by Trio LLC’s employees prior to the closing date of our IPO. This consulting fee was paid by TPET to Trio +LLC. +McCool +Ranch Oil Field Asset Purchase +In +October 2023, TPET entered into an agreement (“McCool Ranch Purchase Agreement”) with Trio LLC for purchase of a 21.918315% +working interest in the McCool Ranch Oil Field located in Monterey County near the Company’s flagship South Salinas Project. As +Trio LLC is partly owned and controlled by members of TPET’s management, this was a related party transaction, and the aforementioned +Trio Special Committee was involved in the evaluation and negotiation of the terms of the acquisition. TPET engaged KLSP to conduct a +comprehensive analysis and valuation of the asset, which in-progress, preliminary results were delivered to TPET and evaluated by the +Trio Special Committee. The Company initially recorded a payment of $100,000 upon execution of the McCool Ranch Purchase Agreement, at +which time Trio LLC began refurbishment operations with respect to the San Ardo WD-1 water disposal well (the “WD-1”) to +determine if it was mechanically capable of reasonably serving the produced water needs for the assets. With refurbishment successfully +accomplished, the Company will pay an additional $400,000 per the McCool Ranch Purchase Agreement. TPET has paid approximately +$284,000 to date for restarting production operations on the assets and has recorded a liability of $116,000 to Trio LLC as of October +31, 2024. +Asphalt +Ridge Asset Purchase +On +November 10, 2023, TPET entered into a Leasehold Acquisition and Development Option Agreement (the “Asphalt Ridge Option Agreement”) +with Heavy Sweet Oil LLC (“HSO”). Pursuant to the Asphalt Ridge Option Agreement, the Company acquired an option to purchase +up to a 20% working interest in certain leases at a long-recognized, major oil accumulation in northeastern Utah, in Uintah County, southwest +of the city of Vernal. LEC also have a working interest in the Asphalt Ridge Asset. Since LEC is partly owned and controlled by current +and former members of our management, transactions including acquisitions between TPET and LEC relating to the Asphalt Ridge Asset and/or +to other assets constitute related party transactions and, therefore, a special committee of our board of directors, comprised of Mr. +Pernice, Mr. Randall and Mr. Hunter (the “Lafayette Special Committee”) has been formed to evaluate and negotiate the terms +of any such future transactions. In addition, in accordance with our Related Person Transaction Policy, we will have any such future +transactions reviewed and approved by our Board’s Audit Committee. TPET will engage KLS Petroleum Consulting LLC (“KLSP”) +or other third-party experts, as deemed necessary by TPET’s management and/or by the Lafayette Special Committee, to conduct comprehensive +analyses and to provide valuations of such assets, which analyses will be delivered to the Company and evaluated by the Trio Special +Committee. +Restricted +Stock Units (“RSUs”) issued to Directors +On +July 11, 2022, the Company issued 3,000 shares of its $0.0001 par common stock to each of its five outside Directors with a fair value +of $5.80 per share for an aggregate grant date value of $88,200. The fair value was calculated via a third-party valuation performed +using income and market methods, as well as a discounted cash flow method, with the terminal value using a market multiples method, adjusted +for a lack of marketability. The shares, or RSUs, vest in full upon the six-month anniversary of the IPO, subject to the directors’ +continued service on the vesting date; upon issuance, the shares will be fully paid and non-assessable. Upon consummation of the IPO, +the vesting period for these shares began and for the years ended October 31, 2023 and 2022, the Company recognized stock-based compensation +in the amount of $88,200 and $0, respectively, within stock-based compensation expenses on the income statement, with unrecognized expense +of $0 as of the period ended October 31, 2023. +59 +On +September 2, 2023, the Company issued an aggregate 21,250 shares of its $0.0001 par common stock to four outside directors with a fair +value of $12.80 per share for a grant date value of $273,275. The shares, or RSUs, vested in full upon the six-month anniversary of the +vesting commencement date (or August 28, 2023), subject to the directors’ continued service on the vesting date. For the three +months ended April 30, 2024 and 2023, the Company recognized stock-based compensation in the amount of $41,364 and $177,259, respectively, +within stock-based compensation expenses on the income statement, with no unrecognized expense as of the period ended April 30, 2024. +Restricted +Shares issued to Executives and Employees +In +February 2022, the Company entered into employee agreements with Frank Ingriselli (Chief Executive Officer or “CEO”) and +Gregory L. Overholtzer (Chief Financial Officer or “CFO”) which, among other things, provided for the grant of restricted +shares in the amounts of 50,000 and 5,000, respectively, pursuant to the 2022 Equity Incentive Plan (“the Plan”). Per the +terms of the employee agreements, subject to continued employment, the restricted shares vest over a two-year period, under which 25% +will vest upon the earlier of three months after the IPO or six months after the grant date. After this date, the remainder vest in equal +tranches every six months until fully vested. As the Plan was not adopted until October 17, 2022 (see Note 7), these shares were recorded +as of that date at a fair value of $5.88 per share; such value was calculated via a third-party valuation performed using income and +market methods, as well as a discounted cash flow method, with the terminal value using a market multiples method, adjusted for a lack +of marketability (see Note 10). As of October 31, 2022, the Company recorded 55,000 restricted shares at a fair value of $323,400, and +for the years ended October 31, 2024 and 2023, the Company recognized stock-based compensation of $155,498 and $161,700, respectively, +within stock-based compensation expenses on the income statement, with no unrecognized expense as of October 31, 2024. +In +May 2023, the Company entered into six employee agreements which, among other things, provided for the grant of an aggregate of 35,000 +restricted shares pursuant to the Plan. Per the terms of the employee agreements, subject to continued employment, the restricted shares +vest as follows: 25% of the shares will vest five months after the issuance date, after which the remainder vest in equal tranches every +six months until fully vested. The shares were recorded on the date of issuance at a fair value of $43.00 per share for an aggregate +fair value of $1,505,000, and for the years ended October 31, 2024 and 2023, the Company recognized stock-based compensation of $753,188 +and $440,219, respectively, within stock-based compensation expenses on the income statement, with no unrecognized expense as of the +period ended October 31, 2024. +On +July 20, 2023, pursuant to the Ingriselli Employment Agreement (see above), the Company issued 10,000 restricted shares (subject to the +Plan) as a discretionary annual bonus at a fair value of $21.40 per share to Mr. Ingriselli for an aggregate fair value of $213,000. +The shares vested fully on July 24, 2023 and the Company recognized stock-based compensation of $213,000 within stock-based compensation +expenses on the income statement for the period ended October 31, 2023. +On +October 16, 2023, the Company and Michael L. Peterson entered into an employment agreement (the “Peterson Employment Agreement”), +effective as of October 23, 2023, pursuant to which Mr. Peterson served as Chief Executive Officer of the Company, replacing Mr. Ingriselli. +Pursuant to the Peterson Employment Agreement, the Company issued Mr. Peterson is a grant of 50,000 shares of restricted stock pursuant +to the Company’s Omnibus Incentive Compensation Plan (the “Plan”) at a fair value of $5.40 per share for a grant date +fair value of $271,000. The restricted stock grant vests over a period of two years, with 25% of the shares of restricted stock vesting +six months after the Peterson Employment Agreement Effective Date, and the remainder vesting in equal tranches on each of the 12-, 18-, +and 24-month anniversary dates of the Peterson Employment Agreement. For the three months ended January 31, 2024 and 2023, the Company +recognized stock-based compensation of $34,153 and $0, respectively, within stock-based compensation expenses on the income statement, +with unrecognized expense of $233,505 as of the period ended January 31, 2024. On March 26, 2024, the Company borrowed $125,000 from +Mr. Peterson (the “Peterson Loan”), in connection with which the Company delivered to Mr. Peterson an Unsecured Subordinated +Promissory Note in the principal amount of $125,000 (the “Peterson Note”). As additional consideration for the Peterson Loan, +the Company accelerated the vesting of 50,000 shares of restricted stock awarded to Mr. Peterson under the Company’s 2022 Equity +Incentive Plan. For the years ended October 31, 2024 2023, the Company recognized stock-based compensation of $267,659 and $3,341, respectively, +within stock-based compensation expenses on the income statement, with no unrecognized expense as of the period ended October 31, 2024. +The Company repaid the entire outstanding principal balance of the Peterson Loan and all accrued interest thereon on November 26, 2024. +60 +Peterson +Consulting Agreement +On +July 11, 2024, Mr. Peterson delivered notice of his resignation as the Company’s Chief Executive Officer, effective on July 11, +2024. In addition, on July 11, 2024, the Company and Mr. Peterson, entered into a consulting agreement, effective as of the date of resignation +and continuing through October 11, 2024. Pursuant to the Consulting Agreement, the Company paid Mr. Peterson a cash consulting fee equal +to $10,000 per month, during the term of the Consulting Agreement. In addition, the Company awarded to Mr. Peterson 50,000 RSUs under +the 2022 Equity Incentive Plan, which award was made after the Company’s stockholders approved an increase in the number of shares +available under the 2022 Equity Incentive Plan at the 2024 Annual Meeting of Stockholders on August 15, 2024. +Ingriselli +Consulting Agreement +On +October 6, 2023, Mr. Ingriselli delivered notice of his resignation as the Company’s Chief Executive Officer, effective on October +23, 2023. Upon his resignation, Mr. Ingriselli continued as a director and continued to hold the title of “Vice Chairman” +of the Board of Directors of the Company. In addition, on October 16, 2023, the Company and Global Venture Investments LLC (“Consultant”), +a Delaware Limited Liability Company and a wholly owned consulting firm owned 100% by Mr. Ingriselli, entered into a consulting agreement, +effective as of the date of resignation and continuing through December 31, 2023. Pursuant to the Consulting Agreement, the Company will +pay Mr. Ingriselli a cash consulting fee equal to $10,000 per month, payable within five business days after the commencement of each +calendar month during the term of the Consulting Agreement. The Consulting Agreement terminated on December 31, 2023, in accordance with +its terms. Mr. Ingriselli resigned as Vice Chairman and a director of the Company on June 17, 2024. +Asphalt +Ridge Option Agreement +On +November 10, 2023, the Company entered into a Leasehold Acquisition and Development Option Agreement (the “Asphalt Ridge Option +Agreement”) with Heavy Sweet Oil LLC (“HSO”). Pursuant to the Asphalt Ridge Option Agreement, the Company acquired +an option to purchase up to a 20% production share in certain leases at a long-recognized, major oil accumulation in northeastern Utah, +in Uintah County, southwest of the city of Vernal, totaling 960 acres. HSO holds the right to such leases below 500 feet depth from surface +(the “Asphalt Ridge Leases”) and the Company acquired the option to participate in HSO’s initial 960 acre drilling +and production program on such Asphalt Ridge Leases (the “Asphalt Ridge Option”). +The +Asphalt Ridge Option had an original term of nine months, through August 10, 2024, which has been extended through February 10, 2025. +Pursuant to the Asphalt Ridge Option, the Company has the exclusive right, but not the obligation, to acquire up to a 20% working interest +in the Asphalt Ridge Leases for $2,000,000 (the “Purchase Price”), which may be invested in tranches, provided that the initial +tranche closing occurs during the Asphalt Ridge Option period and subsequent tranches occurring as soon thereafter as practical within +the Asphalt Ridge Option period, with each tranche providing the Company a portion of the ownership of the Asphalt Ridge Leases equal +to 20% multiplied by a fraction, the numerator of which is the total consideration paid by the Company, and denominator of which is $2,000,000. +Upon receipt of any funding from the Company pursuant to the Asphalt Ridge Option, HSO is required to pay that amount to the named operator +of the properties, to pay for engineering, procurement, operations, sales, and logistics activities on the properties. The Asphalt Ridge +Option Agreement provides that additional development capital is expected to be secured by HSO, and made available for the Company’s +participation, by way of a reserve base lending facility (RBL), provided that if such RBL cannot be obtained or does not cover all subsequent +capital costs, HSO agreed to fund a maximum of $5,000,000 of the first funding required for the development program, with the parties +splitting any costs thereafter according to their ownership interests. The initial target is three wells, with an estimated cost of $5,000,000 +for roads, pads, drilling, and above ground steam and storage facilities, and thereafter the parties anticipate working together to fund +further well development based on their proportionate ownership thereof. +On +or around the date the parties entered into the Asphalt Ridge Option Agreement, HSO entered into a Leasehold Acquisition and Development +Option Agreement (the “LEC Option”) with Lafayette Energy Corp (“LEC”), of which Michael Peterson, Trio’s +former Chief Executive Officer and director, is also the Chief Executive Officer and director. The LEC Option has similar terms as the +Asphalt Ridge Option Agreement, except that it allows LEC to obtain a 30% interest in the Asphalt Ridge Leases and requires LEC to pay +certain equity compensation to HSO. +The +Company and HSO further agreed that, to the extent LEC does not fully exercise the LEC Option, the Company has the right to acquire up +to all 30% of the rights set forth in the LEC Option (or such lesser amount which LEC has not exercised), from HSO, for $3,000,000 cash. +61 +The +exercise of the Asphalt Ridge Option is contingent, unless waived by the Company, upon the following: (a) HSO providing the Company the +statements of revenues and direct operating expenses for the prior two years for the asset and the unaudited stub period for 2023, through +the date of closing; (b) satisfactory due diligence review by the Company of HSO, the leases, the property and other information; (c) +the negotiating of a mutually-acceptable joint operations agreement or other development and operations agreement(s) as agreed by the +parties; and (d) HSO providing the Company an updated independent reserves report including proved undeveloped reserves (PUDs) and an +estimate of gross valuation and discounted net present values, and indicating best estimate original oil-in-place (OOIP) volumes and +gross (100%) contingent oil resources, as of a date no earlier than August 31, 2023, for discoveries located in Northwest Asphalt Ridge, +Uinta Basin, Utah. +The +Company previously exercised the Asphalt Ridge Option for a 2.25% working interest in the Asphalt Ridge Leases and has until February +10, 2025 to pay HSO an additional $1,775,000 to exercise an option for the remaining 17.75% working interest in the Asphalt Ridge Leases. +If this option is not exercised on or before such date, the option will expire and the Company will forfeit any further right to acquire +this additional 17.75% working interest. +Loan +from former Chief Executive Officer +On +March 26, 2024, the Company borrowed $125,000 from its former Chief Executive Officer, Michael L. Peterson (the “Peterson Loan”), +in connection with which the Company delivered to Mr. Peterson an Unsecured Subordinated Promissory Note in the principal amount of $125,000 +(the “Peterson Note”). As additional consideration for the Peterson Loan, the Company accelerated the vesting of 50,000 shares +of restricted stock awarded to Mr. Peterson under the Company’s 2022 Equity Incentive Plan. The Company repaid the entire outstanding +principal balance of the Peterson Loan and all accrued interest thereon on November 26, 2024. +Indemnification +Agreements +We +intend to enter into indemnification agreements with each of our directors and executive officers. These agreements, among other things, +require us or will require us to indemnify each director and executive officer to the fullest extent permitted under the NRS, including +indemnification of expenses such as attorneys’ fees, judgments, fines and settlement amounts incurred by the director or executive +officer in any action or proceeding, including any action or proceeding by or in right of us, arising out of the person’s services +as a director or executive officer. For further information, see “Description of Our Securities-Limitations on Liability and Indemnification +Matters.” +Corporate +governance and Director Independence. +See +“ Item 10. Directors, Executive Officers and Corporate Governance. - Board Composition and Election of Directors ” +beginning on page 47 of this Annual Report. +ITEM +14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. +The +following table sets forth the aggregate fees billed by Bush & Associates CPA LLC and BF Borgers CPA PC for the fiscal years ending +October 31, 2024 and 2023, respectively, as described below: +2024 +2023 +Audit Fees +$ 158,500 +$ 82,500 +Audit Related Fees +$ 27,500 +$ 27,500 +Tax Fees +$ - +$ - +All Other Fees +$ 32,500 +$ - +Total +$ 218,500 +$ 110,000 +Pre-Approval +Policies and Procedures +The +Audit Committee mandate requires that the Audit Committee pre-approve any retainer of the auditor of the Company to perform any non-audit +services to the Company that it deems advisable in accordance with applicable legal and regulatory requirements and policies and procedures +of the Board. The Audit Committee is permitted to delegate pre-approval authority to one of its members; however, the decision of any +member of the Audit Committee to whom such authority has been delegated must be presented to the full Audit Committee at its next scheduled +meeting. +62 +PART +IV +ITEM +15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES. +Exhibit +Number +Description +of Exhibit +3.1 +Amended +& Restated Certificate of Incorporation of Trio Petroleum Corp (incorporated by reference to Exhibit 3.2 of the Company’s +Amendment No. 4 to Form S-1 (File No. 333-267380), filed with the Commission on January 5, 2023). +3.2 +Certificate of Amendment to Amended and Restated Certificate of Incorporation of Trio Petroleum Corp. (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K, filed with the Commission on November 4, 2024) +3.3 +Amended +and Restated Bylaws of Trio Petroleum Corp. (incorporated by reference to Exhibit 3.4 of the Company’s Amendment No. 4 to Form +S-1 (File No. 333-267380), filed with the Commission on January 5, 2023). +4.1 +Specimen +Common Stock Certificate evidencing the shares of Common Stock (incorporated by reference to Exhibit 4.1 of the Company’s Form +S-1 (File No. 333-267380), filed with the Commission on September 12, 2022). +4.2 +Common +Stock Purchase Warrant (incorporated by reference to Exhibit 4.2 of the Company’s Form 8-K, filed with the Commission on October +4, 2023). +4.3 +Trio +Petroleum Corp. Common Stock Purchase Warrant dated January 2, 2024 (incorporated by reference to Exhibit 4.2 of the Company’s +Form 8-K, filed with the Commission on January 2, 2024). +4.4 +Trio +Petroleum Corp. Placement Agent Warrant Agreement - Common Stock Purchase Warrant dated January 2, 2024. (incorporated by reference +to Exhibit 4.3 of the Company’s Form 8-K, filed with the Commission on January 2, 2024). +4.5 +Trio +Petroleum Corp. Unsecured Subordinated Promissory Note in the principal amount of $125,000, with an issuance date of March 26, 2024 +(incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed with the Commission on April 1, 2024). +4.6 +Promissory +Note in the principal amount of $211,500, with an issue date of March 27, 2024 (incorporated by reference to Exhibit 4.1 of the Company’s +Form 8-K, filed with the Commission on April 8, 2024). +4.7 +Senior +Secured Convertible Promissory Note with an original issuance date of April 24, 2024 (incorporated by reference to Exhibit 4.1 of +the Company’s Form 8-K, filed with the Commission on April 25, 2024). +4.8 +Amended +and Restated Senior Secured Convertible Promissory Note with an original issuance date of April 16, 2024 and an amended and restated +note issuance date of April 24, 2024 (incorporated by reference to Exhibit 4.2 of the Company’s Form 8-K, filed with the Commission +on April 25, 2024). +4.9 +Promissory +Note in the principal amount of $152,000, with an issue date of August 1, 2024 (incorporated by reference to Exhibit 4.1 of the Company’s +Form 8-K, filed with the Commission on August 5, 2024). +4.10 +Promissory +Note in the principal amount of $255,225, with an issue date of August 6, 2024 (incorporated by reference to Exhibit 4.1 of the Company’s +Form 8-K, filed with the Commission on August 8, 2024). +4.11 +Senior Secured 10% Original Issue Discount Convertible Promissory Note (Aggregate Principal Amount of $800,000, dated June 27, 2024 (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K, filed with the Commission on June 28, 2024). +4.12 +Common Stock Purchase Warrant, dated June 27, 2024 (incorporated by reference to Exhibit 4.2 of the Company’s Form 8-K, filed with the Commission on June 28, 2024). +4.13 +Amendment No. 1 to Amended and Restated Senior Secured Convertible Promissory Note, dated August 14, 2024 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed with the Commission on August 16, 2024). +4.14 +Amendment No. 2 to Amended and Restated Senior Secured Convertible Promissory Note, dated September 16, 2024 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed with the Commission on September 19, 2024). +4.15 +Amendment No. 2 to Secured Convertible Promissory Note, dated September 16, 2024 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K, filed with the Commission on September 19, 2024). +4.16 +Amendment No. 1 to Unsecured Subordinated Promissory Note, dated September 26, 2024 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K, filed with the Commission on September 27, 2024). +4.17 +Description of Securities (incorporated by reference to Exhibit 4.2 of the Company’s Form 10-K, filed with the Commission on January 29, 2024). +10.1 +Bid +Proposal and Daywork Drilling Contract – U.S., by and Between Trio Petroleum LLC and Ensign United States Drilling (California) +Inc., dated April 19, 2023 (incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed with +the Commission on April 25. 2023), +10.2 +Form +of Indemnification Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Form S-1 (File No. 333-267380), filed +with the Commission on September 12, 2022). +10.3† +2022 +Incentive Plan (incorporated by reference to Exhibit 10.2 of the Company’s Form S-1 (File No. 333-267380), filed with the Commission +on September 12, 2022). +10.4† +Employment +Agreement with Gregory L. Overholtzer (incorporated by reference to Exhibit 10.4 of the Company’s Form S-1 (File No. 333-267380), +filed with the Commission on September 12, 2022. +10.5 +Purchase +and Sale Agreement with Trio Petroleum LLC (incorporated by reference to Exhibit 10.5 of the Company’s Form S-1 (File No. 333-267380), +filed with the Commission on September 12, 2022). +10.6 +First +Amendment to Purchase and Sale Agreement with Trio Petroleum LLC (incorporated by reference to Exhibit 10.6 of the Company’s +Form S-1 (File No. 333-267380), filed with the Commission on September 12, 2022). +10.7 +Second +Amendment to Purchase and Sale Agreement with Trio Petroleum LLC (incorporated by reference to Exhibit 10.7 of the Company’s +Form S-1 (File No. 333-267380), filed with the Commission on September 12, 2022). +63 +10.8 +Third +Amendment to Purchase and Sale Agreement with Trio Petroleum LLC (incorporated by reference to Exhibit 10.8 of the Company’s +Form S-1 (File No. 333-267380), filed with the Commission on September 12, 2022). +10.9 +Fourth +Amendment to Purchase and Sale Agreement with Trio Petroleum LLC (incorporated by reference to Exhibit 10.9 of the Company’s +Amendment No. 1 to Form S-1 (File No. 333-267380), filed with the Commission on January 5, 2023). +10.10 +Blue +Lease with Bradley Minerals (incorporated by reference to Exhibit 10.11 of the Company’s Form S-1 (File No. 333-267380), filed +with the Commission on September 12, 2022). +10.11 +First +Amendment to Blue Lease with Bradley Minerals (incorporated by reference to Exhibit 10.10 of the Company’s Form S-1 (File No. +333-267380), filed with the Commission on September 12, 2022). +10.12 +Red +Lease with Bradley Minerals (incorporated by reference to Exhibit 10.11 of the Company’s Form S-1 (File No. 333-267380), filed +with the Commission on September 12, 2022). +10.13 +First +Amendment to Red Lease with Bradley Minerals (incorporated by reference to Exhibit 10.12 of the Company’s Form S-1 (File No. +333-267380), filed with the Commission on September 12, 2022). +10.14 +Second +Amendment to Red Lease with Bradley Minerals (incorporated by reference to Exhibit 10.13 of the Company’s Form S-1 (File No. +333-267380), filed with the Commission on September 12, 2022). +10.15 +Third +Amendment to Red Lease with Bradley Minerals (incorporated by reference to Exhibit 10.14 of the Company’s Form S-1 (File No. +333-267380), filed with the Commission on September 12, 2022). +10.16 +Fourth +Amendment to Red Lease with Bradley Minerals (incorporated by reference to Exhibit 10.15 of the Company’s Form S-1 (File No. +333-267380), filed with the Commission on September 12, 2022. +10.17 +Fifth +Amendment to Red Lease with Bradley Minerals (incorporated by reference to Exhibit 10.16 of the Company’s Form S-1 (File No. +333-267380), filed with the Commission on September 12, 2022. +10.27 +Joint +Operating Agreement (incorporated by reference to Exhibit 10.27 of the Company’s Amendment No. 2 to Form S-1 (File No. 333-267380), +filed with the Commission on November 18, 2022, as amended). +10.28 +December +2022 Subscription Agreement (incorporated by reference to Exhibit 10.28 of the Company’s Amendment No. 5 to Form S-1 (File +No. 333-267380), filed with the Commission on January 20, 2023, as amended). +10.29 +December +2022 Warrant (incorporated by reference to Exhibit 10.29 of the Company’s Amendment No. 5 to Form S-1 (File No. 333-267380), +filed with the Commission on January 20, 2023, as amended). +10.30 +First +Amendment to Convertible Promissory Note with GenCap Fund I LLC (incorporated by reference to Exhibit 10.30 of the Company’s +Amendment No. 6 to Form S-1 (File No. 333-267380), filed with the Commission on February 6, 2023, as amended). +10.31 +Second +Amendment to Convertible Promissory Note with GenCap Fund I LLC (incorporated by reference to Exhibit 10.31 of the Company’s +Amendment No. 7 to Form S-1 (File No. 333-267380), filed with the Commission on February 28, 2023, as amended). +10.32 +Extension +Letter for Note Payable with Trio Petroleum LLC (incorporated by reference to Exhibit 10.32 of the Company’s Amendment No. +7 to Form S-1 (File No. 333-267380), filed with the Commission on February 28, 2023, as amended). +10.33 +Third +Amendment to Convertible Promissory Note with GenCap Fund I LLC (incorporated by reference to Exhibit 10.33 of the Company’s +Amendment No. 8 to Form S-1 (File No. 333-267380), filed with the Commission on March 17, 2023, as amended). +10.34 +Second +Extension Letter for Note Payable with Trio Petroleum LLC (incorporated by reference to Exhibit 10.34 of the Company’s Amendment +No. 8 to Form S-1 (File No. 333-267380), filed with the Commission on March 17, 2023, as amended). +10.35 +Extension +Letter for Original Issue Discount Note (incorporated by reference to Exhibit 10.35 of the Company’s Amendment No. 8 to Form +S-1 (File No. 333-267380), filed with the Commission on March 17, 2023, as amended). +10.36† +Form +of Employment Agreement with Stanford Eschner (incorporated by reference to Exhibit 10.31 of the Company’s Amendment No. 6 +to Form S-1 (File No. 333-267380), filed with the Commission on February 6, 2023, as amended). +64 +10.41 +Securities +Purchase Agreement, dated as of October 4, 2023, by and between the Investor and Trio Petroleum Corp (incorporated by reference to +Exhibit 10.2 of the Company’s Form 8-K, filed with the Commission on October 4, 2023). +10.44 +Registration +Rights Agreement, dated October 4, 2023, by and between the Investor and Trio Petroleum Corp. (incorporated by reference to Exhibit +10.5 of the Company’s Form 8-K, filed with the Commission on October 4, 2023). +10.46 +Amendment +to Transaction Documents between the Investor and Trio Petroleum Corp., dated December 29, 2023. (incorporated by reference to Exhibit +10.1 of the Company’s Form 8-K, filed with the Commission on January 2, 2024). +10.47 +Leasehold +Acquisition and Development Agreement, dated November 10, 2023, entered into by and between Trio Petroleum Corp and Heavy Sweet Oil +LLC (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed with the Commission on January 5, 2024). +10.48 +Amendment +to Leasehold Acquisition and Development Agreement, dated December 29, 2023, entered into by and between Trio Petroleum Corp and +Heavy Sweet Oil LLC (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K, filed with the Commission on January +5, 2024) +10.49 +Amended +and Restated Securities Purchase Agreement between the Company and the Investors signatory thereto, dated as of April 24, 2024 (incorporated +by reference to Exhibit 10.1 of the Company’s Form 8-K, filed with the Commission on April 25, 2024). +10.50 +Amended +and Restated Security Agreement between the Company and the Secured Parties signatory thereto, dated as of April 24, 2024 (incorporated +by reference to Exhibit 10.2 of the Company’s Form 8-K, filed with the Commission on April 25, 2024). +10.51† +Form +of Employment Agreement between the Company and Robin Ross, dated as of July 11, 2024 (incorporated by reference to Exhibit 10.2 +of the Company’s Form 8-K, filed with the Commission on July 15, 2024). +10.52 +Form +of Consulting Agreement between the Company and Michael L. Peterson, dated as of July 21, 2024 (incorporated by reference to Exhibit +10.1 of the Company’s Form 8-K, filed with the Commission on July 15, 2024). +10.53 +Securities +Purchase Agreement between the Company and the Investor signatory thereto, dated as of March 27, 2024 (incorporated by reference +to Exhibit 10.1 of the Company’s Form 8-K, filed with the Commission on April 8, 2024). +10.54 +Securities +Purchase Agreement between the Company and the Investor signatory thereto, dated as of August 1, 2024 (incorporated by reference +to Exhibit 10.1 of the Company’s Form 8-K, filed with the Commission on August 5, 2024). +10.55 +Securities +Purchase Agreement between the Company and the Investor signatory thereto, dated as of August 6, 2024 (incorporated by reference +to Exhibit 10.1 of the Company’s Form 8-K, filed with the Commission on August 8, 2024). +65 +10.56 +Second +Amendment to Leasehold Acquisition and Development Agreement, dated August 5, 2024, entered into by and between Trio Petroleum Corp +and Heavy Sweet Oil LLC (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K, filed with the Commission on +August 8, 2024). +10.57 +Media Advertising Agreement, dated September 9, 2024 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed with the Commission on September 12, 2024). +10.58 +Amendment No. 3 to Leasehold Acquisition and Development Option Agreement (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K, filed with the Commission on September 27, 2024). +10.59† +Independent Contractor Agreement between the Company and Greg Overholtzer, dated as of January 1, 2025 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed with the Commission on January 8, 2025). +14.1* +Code of Ethics +16.1 +Letter +from Marcum LLP to the Securities Exchange Commission (incorporated by reference to Exhibit 16.1 of the Company’s Amendment +No. 6 to Form S-1 (File No. 333-267380), filed with the Commission on February 6, 2023, as amended). +19.1 +Insider Trading Policy (incorporated by reference to Exhibit 19.1 of the Company’s Annual Report on Form 10-K filed with the Commission on January 29, 2024). +23.1* +Consent of Independent Registered Public Accounting Firm +23.2* +Consent of KLS Petroleum Consulting LLC +24.1* +Power of Attorney +31.1 +Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +31.2 +Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32.1** +Certification of the Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +32.2** +Certification of the Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97.1 +Executive Compensation Clawback Policy (incorporated by reference to Exhibit 97 of the Company’s Annual Report on Form 10-K filed with the Commission on January 29, 2024). +99.1 +Reserves +Attributable to Trio Petroleum Corp South Salinas Area for Development Plan Phases 1 and 2 (incorporated by reference to Exhibit +99.1 of the Company’s Amendment No. 2 to Form S-1 (File No. 333-267380), filed with the Commission on November 18, 2022, as +amended). +99.2 +S. +Salinas Area, Full Development Reserves Supplement to SEC Report Dated 1-28-2022 (incorporated by reference to Exhibit 99.2 of the +Company’s Amendment No. 2 to Form S-1 (File No. 333-267380), filed with the Commission on November 18, 2022, as amended). +99.3 +Reserve Attributable to Trio Petroleum Corp. South Salinas Area for Phased and Full Development (incorporated by reference to Exhibit 99.3 of the Company’s Amendment No. 2 to Form S-1 (File No. 333-280816), filed with the Commission on November 29, 2024, as amended). +101.INS* +Inline +XBRL Instance Document +101.SCH* +Inline +XBRL Taxonomy Extension Schema Document +101.CAL* +Inline +XBRL Taxonomy Extension Calculation Linkbase Document +101.DEF* +Inline +XBRL Taxonomy Extension Definition Linkbase Document +101.LAB* +Inline +XBRL Taxonomy Extension Label Linkbase Document +101.PRE* +Inline +XBRL Taxonomy Extension Presentation Linkbase Document +104* +Cover +Page Interactive Data File (Embedded as Inline XBRL document and contained in Exhibit 101). +* +Filed herewith. +** +Furnished, not filed +† +Includes management contracts and compensation plans and arrangements +66 +SIGNATURES +Pursuant +to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by +the undersigned, thereunto duly authorized. +TRIO +PETROLEUM CORP. +By: +/s/ +Robin Ross +Robin +Ross +Chief +Executive Officer +(Principal +Executive Officer) +Date: +January 17, 2025 +By: +/s/ +Greg Overholtzer +Greg +Overholtzer +Chief +Financial Officer +(Principal +Financial Officer and +Principal +Accounting Officer) +Date: +January +17, 2025 +SIGNATURES +AND POWER OF ATTORNEY +KNOW +ALL BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robin Ross and Greg Overholtzer, as his +or her true and lawful attorneys-in-fact and agents, with the full power of substitution, for him or her in his or her name, place or +stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K (including any and all exhibits, +schedules, supplements, certifications and supporting documents thereto), and to file the same, with exhibits thereto, and other documents +in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority +to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents +and purposes as he or she might or could do in person, hereby ratifying and confirming that said attorneys-in-fact and agents, or his +or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. +Pursuant +to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the +registrant and in the capacities held on the dates indicated. +Signature +Title +Date +/s/ +Robin Ross +Chief +Executive Officer and Director +Robin +Ross +(principal +executive officer) +January 17, 2025 +/s/ +Gregory L. Overholtzer +Chief +Financial Officer +Gregory +L. Overholtzer +(principal +financial officer and principal accounting officer) +January 17, 2025 +/s/ +Stanford Eschner +Executive +Chairman and Director +January 17, 2025 +Stanford +Eschner +/s/ +William J. Hunter +Director +January 17, 2025 +William +J. Hunter +/s/ +John Randall +Director +January 17, 2025 +John +Randall +/s/ +Thomas J. Pernice +Director +January 17, 2025 +Thomas +J. Pernice +/s/ +Blake James +Director +January 17, 2025 +Blake +James +67 +TRIO +PETROLEUM CORP. +Financial +Statements for the Years Ended October 31, 2024 and 2023 +TABLE +OF CONTENTS +Page +Report +of Independent Registered Public Accounting Firm (PCAOB ID 5041 ) +F-2 +Financial +Statements: +Balance +Sheets as of October 31, 2024 and 2023 +F-3 +Statements +of Operations for the Years Ended October 31, 2024 and 2023 +F-4 +Statements +of Changes in Stockholders’ Equity for the Years Ended October 31, 2024 and 2023 +F-5 +Statements +of Cash Flows for the Years Ended October 31, 2024 and 2023 +F-6 +Notes +to Financial Statements +F-7 +F- 1 +Report +of Independent Registered Public Accounting Firm +To the Board of Directors and Shareholders of +Trio Petroleum Corp. +5401 Business Park South, Suite 115 +Bakersfield, California 93309 +Opinion +on the Financial Statements +We have audited the accompanying balance sheets of Trio Petroleum Corp. +as of October 31, 2024 and 2023, and the related statements of operations, changes in stockholder’s equity, and cash flow for each +of the years then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the +financial statements present fairly, in all material respects, the financial position of Trio Petroleum Corp. as of October 31, 2024 and +2023, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles +generally accepted in the United States of America. +Basis +for Opinion +These financial statements are the responsibility of the entity’s +management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting +firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent +with respect to Trio Petroleum Corp. in accordance with the U.S. federal securities laws and the applicable rules and regulations of the +Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. +Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free +of material misstatement, whether due to error or fraud. Trio Petroleum Corp. is not required to have, nor were we engaged to perform, +an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal +control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal +control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material +misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures +included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included +evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation +of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +Critical Audit Matters +Critical audit matters are matters arising from the current period audit +of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts +or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. +We determined that there are no critical audit matters. +/s/ Bush and Associates CPA LLC +We +have served as Trio Petroleum Corp.’s auditor since 2024 +Henderson, Nevada +January +17, 2025 +F- 2 +TRIO +PETROLEUM CORP. +BALANCE +SHEETS +October +31, 2024 +October +31, 2023 +ASSETS +Current +assets: +Cash +$ 285,945 +$ 1,561,924 +Prepaid +expenses and other receivables +279,274 +133,417 +Total +current assets +565,219 +1,695,341 +Oil +and gas properties - not subject to amortization +11,119,119 +9,947,742 +Total +assets +$ 11,684,338 +$ 11,643,083 +LIABILITIES +AND STOCKHOLDERS’ EQUITY +Current +liabilities: +Accounts +payable and accrued liabilities +$ 1,036,291 +$ 609,360 +Asset +retirement obligations – current +2,778 +2,778 +Convertible +note, net of discounts +- +1,217,597 +Due +to operators +103,146 +21,651 +Promissory +notes, net of discounts +742,852 +- +Note +payable - related party +135,000 +- +Payable – related party +115,666 +- +Other +current liabilities +454,966 +- +Total +current liabilities +2,590,699 +1,851,386 +Long-term +liabilities: +Asset +retirement obligations, net of current portion +51,091 +48,313 +Total non-current liabilities +51,091 +48,313 +Total +liabilities +2,641,790 +1,899,699 +Commitments +and Contingencies (Note 8) +- +- +Stockholders’ +Equity: +Preferred stock, $ 0.0001 par value; 500,000 shares authorized; - 0 - shares issued and outstanding +at October 31, 2024 and 2023, respectively +- +- +Common stock, $ 0.0001 par value; 24,500,000 shares authorized; 3,203,068 and 1,552,328 +shares issued and outstanding as of October 31, 2024 and 2023, respectively +320 +155 +Stock +subscription receivable +( 10,010 ) +( 10,010 ) +Additional +paid-in capital +29,125,917 +20,200,121 +Accumulated +deficit +( 20,073,679 ) +( 10,446,882 ) +Total +stockholders’ equity +9,042,548 +9,743,384 +Total +liabilities and stockholders’ equity +$ 11,684,338 +$ 11,643,083 +The +accompanying notes are an integral part of these financial statements. +F- 3 +TRIO +PETROLEUM CORP. +STATEMENTS +OF OPERATIONS +For +the Years Ended +October +31, +2024 +2023 +Revenue +$ 213,204 +$ - +Operating +expenses: +Exploration +expense +$ 177,416 +$ 251,743 +General +and administrative expenses +4,716,057 +3,315,782 +Stock-based +compensation expense +1,534,667 +1,044,261 +Accretion +expense +2,778 +2,778 +Total +operating expenses +6,430,918 +4,614,564 +Loss +from operations +( 6,217,714 ) +( 4,614,564 ) +Other +expenses: +Interest +expense +2,118,548 +791,811 +Loss +on settlement +- +13,051 +Loss +on note conversion +1,290,535 +1,125,000 +Total +other expenses +3,409,083 +1,929,862 +Loss +before income taxes +( 9,626,797 ) +( 6,544,426 ) +Provision +for income taxes +- +- +Net +loss +$ ( 9,626,797 ) +$ ( 6,544,426 ) +Basic +and Diluted Net Loss per Common Share +Basic +$ ( 4.32 ) +$ ( 5.67 ) +Diluted +$ ( 4.32 ) +$ ( 5.67 ) +Weighted +Average Number of Common Shares Outstanding +Basic +2,226,320 +1,153,988 +Diluted +2,226,320 +1,153,988 +The +accompanying notes are an integral part of these financial statements. +F- 4 +TRIO +PETROLEUM CORP. +STATEMENTS +OF CHANGES IN STOCKHOLDERS’ EQUITY +Stock +Additional +Total +Common +Stock +Subscription +Paid-in +Accumulated +Stockholders’ +Shares +Amount +Receivable +Capital +Deficit +Equity +Balance +at November 1, 2023 +1,552,328 +$ 155 +$ ( 10,010 ) +$ 20,200,121 +$ ( 10,446,882 ) +$ 9,743,384 +Issuance +of common shares in lieu of cash payments +on convertible notes +816,681 +82 +- +3,323,505 +- +3,323,587 +Issuance +of common shares in lieu of cash payments +on promissory notes +312,441 +31 +- +1,079,006 +- +1,079,037 +Issuance +of common shares to consultants +107,500 +11 +- +738,289 +- +738,300 +Issuance +of equity warrants related to convertible +note +- +- +- +409,191 +- +409,191 +Issuance +of commitment shares related to April 2024 +Financings +75,000 +8 +- +667,492 +- +667,500 +Adjustment +to common stock for warrants related to +Resale S-1/A +( 22,590 ) +( 3 ) +- +3 +- +- +Issuance +of common shares related to ATM +agreement, net +361,708 +36 +- +1,173,643 +- +1,173,679 +Stock-based +compensation +- +- +- +1,534,667 +- +1,534,667 +Net +loss +- +- +- +- +( 9,626,797 ) +( 9,626,797 ) +Balance +at October 31, 2024 +3,203,068 +320 +( 10,010 ) +29,125,917 +( 20,073,679 ) +9,042,548 +Balance +at November 1, 2022 +848,640 +$ 85 +$ ( 10,010 ) +$ 6,635,505 +$ ( 3,902,456 ) +$ 2,723,124 +Balance +848,640 +$ 85 +$ ( 10,010 ) +$ 6,635,505 +$ ( 3,902,456 ) +$ 2,723,124 +Issuance +of common stock for cash, net +20,000 +2 +- +371,998 +- +372,000 +Issuance of conversion shares related to the January 2022 SPA +251,946 +25 +- +5,164,850 +- +5,164,875 +Issuance of commitment shares related to the January 2022 SPA +18,750 +2 +- +1,124,998 +- +1,125,000 +Issuance of common shares in IPO, net of underwriting discounts and offering costs +100,000 +10 +- +3,342,616 +- +3,342,626 +Issuance +of pre-funded warrants +- +- +- +4,000 +- +4,000 +Issuance of common stock upon exercise of warrants, net +122,474 +12 +- +1,812,623 +- +1,812,635 +Issuance +of common stock for services, net +14,275 +1 +- +366,658 +- +366,659 +Issuance of restricted stock units under the Equity Incentive Plan +106,250 +11 +- +( 12 ) +- +- +Issuance of common stock for warrants that can be exercised per the Resale S-1/A +59,993 +6 +- +( 6 ) +- +- +Issuance +of equity warrants in connection with convertible +debt (Tranche #1) +- +- +- +332,630 +- +332,630 +Stock-based +compensation +10,000 +1 +- +1,044,261 +- +1,044,261 +Net +loss +- +- +- +- +( 6,544,426 ) +( 6,544,426 ) +Balance +at October 31, 2023 +1,552,328 +$ 155 +$ ( 10,010 ) +$ 20,200,121 +$ ( 10,446,882 ) +$ 9,743,384 +Balance +1,552,328 +$ 155 +$ ( 10,010 ) +$ 20,200,121 +$ ( 10,446,882 ) +$ 9,743,384 +The +accompanying notes are an integral part of these financial statements. +F- 5 +TRIO +PETROLEUM CORP. +STATEMENTS +OF CASH FLOWS +For +the Years Ended October 31, +2024 +2023 +CASH +FLOWS FROM OPERATING ACTIVITIES: +Net +loss +$ ( 9,626,797 ) +$ ( 6,544,426 ) +Adjustments +to reconcile net loss to net cash used in operating activities: +Franchise +tax fees +- +( 9,450 ) +Bad +debt expense +- +25,000 +Accretion +expense +2,778 +2,778 +Conversion +of January 2022 SPA +- +1,125,000 +Debt +discount - OID +( 347,968 ) +( 140,000 ) +Amortization +of debt discounts +2,092,671 +473,240 +Write-off +of January 2022 SPA receivable +- +- +Issuance +of common shares for services +738,300 +- +Stock-based +compensation +1,534,667 +1,044,261 +Loss +on issuance of common shares in lieu of cash for debt payments +1,022,534 +- +Changes +in operating assets and liabilities: +Prepaid +expenses and other receivables +( 145,857 ) +( 123,417 ) +Other +current liabilities +454,966 +Accounts +payable and accrued liabilities +433,962 +110,180 +Net +cash used in operating activities +( 3,840,744 ) +( 4,036,834 ) +CASH +FLOWS FROM INVESTING ACTIVITIES: +Capital +expenditures for unproved oil and gas properties +( 1,171,377 ) +( 362,022 ) +Drilling +costs for exploratory well +- +( 3,749,488 ) +Advances +to operators +- +1,900,000 +Due +to operators +81,495 +21,651 +Net +cash used in investing activities +( 1,089,882 ) +( 2,189,859 ) +CASH +FLOWS FROM FINANCING ACTIVITIES: +Proceeds +from issuance of common stock, net +- +738,659 +Proceeds +from notes payable, related parties +250,666 +- +Proceeds +from convertible debt +550,000 +2,000,000 +Proceeds +from promissory notes +2,292,972 +- +Proceeds +from issuance of common shares related to ATM agreement +1,173,679 +- +Proceeds +from issuance of common shares related to IPO +- +6,000,000 +Proceeds +from exercise of warrants, net +- +1,812,635 +Repayment +of debt +( 352,767 ) +( 1,472,512 ) +Payments +for debt issuance costs +( 259,903 ) +( 350,320 ) +Payments +for deferred offering costs +- +( 1,013,493 ) +Net +cash provided by financing activities +3,654,647 +7,714,969 +NET +CHANGE IN CASH +( 1,275,979 ) +1,488,276 +Cash +- Beginning of period +1,561,924 +73,648 +Cash +- End of period +$ 285,945 +$ 1,561,924 +Supplemental +disclosures of cash flow information: +Cash +paid for interest +$ - +$ - +Cash +paid for income taxes +$ - +$ - +SUPPLEMENTAL +CASH FLOW INFORMATION: +Non-cash +investing and financing activities: +Issuance +of warrants +$ 409,191 +$ 332,630 +Issuance +of RSUs +$ 911,650 +$ 213 +Issuance +of commitment shares +$ 667,500 +$ - +Issuance +of common stock for warrants that can be exercised per the Resale S-1/A +$ - +$ 120 +Issuance +of pre-funded warrants +$ - +$ 4,000 +The +accompanying notes are an integral part of these financial statements. +F- 6 +TRIO +PETROLEUM CORP. +NOTES +TO THE FINANCIAL STATEMENTS +FOR +THE YEARS ENDED OCTOBER 31, 2024 AND 2023 +NOTE +1 – NATURE OF THE ORGANIZATION AND BUSINESS +Company +Organization +Trio +Petroleum Corp. (“Trio Petroleum”, the “Company” or “TPET”) is a California-based oil and gas exploration +and development company headquartered in Bakersfield, California, with its principal executive offices located at 5401 Business Park +South, Suite 115, Bakersfield, California 93309, and with operations in Monterey County, California, and Uintah County, Utah. The Company +was incorporated on July 19, 2021, under the laws of Delaware to acquire, fund, and operate oil and gas exploration, development and +production projects, initially focusing on one major asset in California, the South Salinas Project (“South Salinas Project”). +The Company has since acquired interests in the McCool Ranch Oil Field in Monterey County, California, and in the Asphalt Ridge Project +in Uintah County, Utah. The Company has had revenue-generating operations since the McCool Ranch Oil Field was restarted on February +22, 2024, and recognized its first revenues in the fiscal quarter ended April 30, 2024, and received the proceeds from these operations +in June 2024. +Acquisition +of South Salinas Project +The +Company was initially formed to acquire from Trio Petroleum LLC (“Trio LLC”) an approximate 82.75 % working interest (which +was subsequently increased to an approximate 85.775 % working interest in April 2023), in the large, approximately 9,300 -acre South Salinas +Project that is located in Monterey County, California, and subsequently partner with certain members of Trio LLC’s management +team to develop and operate those assets. In September 2021, the Company entered into a Purchase and Sale Agreement (“Trio LLC +PSA”) with Trio LLC to acquire the purchased percentage of the South Salinas Project’s leases, wells and inventory in exchange +for $ 300,000 cash, a non-interest-bearing note payable of $ 3,700,000 and 245,000 shares of the Company’s $ 0.0001 par value common +stock (which constituted 45 % of the total number of issued shares of the Company at that time). The Company accounted for the purchase +as an asset acquisition, as prescribed in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification +(“ASC”) 805 – Business Combinations . The assets and associated asset retirement obligations (“ARO”) +were recorded based on relative fair value at the estimated fair value of the consideration paid. The Company holds an approximate 68.62 % +interest after the application of royalties (“net revenue interest”) in the South Salinas Project, while Trio LLC holds an +approximate 3.8 % working interest in the South Salinas Project; the Company and Trio LLC are separate and distinct companies. +There +are two contiguous areas of notable oil/gas accumulations in the South Salinas Project; the first is the Humpback Area that occurs in +the northern part of the project and the second is the Presidents Area (“Presidents Oil Field”) that occurs in the southern +part of the project. As October 31, 2024 and 2023, there were no proved reserves attributable to the approximate 9,300 acres of the property. +Since it was returned to production in March 2024, the HV-3A well at the South Salinas Project has been producing oil with a generally +favorable oil-water ratio; the Company expects to take steps to improve oil production from this well in the third or fourth calendar +quarter of 2024 and expects to receive the first revenue from oil produced from the well in the third calendar quarter of 2024. +Initial +Public Offering +The +Company’s Registration Statement (Amendment No. 9) on Form S-1/A was filed with the SEC on March 24, 2023; its Initial Public Offering +was declared effective on April 17, 2023 and closed on April 20, 2023 (collectively, the “Offering” or “IPO”). +The Company sold 100,000 shares of its common stock for total gross proceeds of $ 6,000,000 , which is described more fully in Note 4. +Additional +Acquisitions - McCool Ranch Oil Field & Asphalt Ridge Leasehold +In +October 2023, the Company entered into an agreement (“McCool Ranch Purchase Agreement”) with Trio LLC for purchase of a 21.918315 % +working interest in the McCool Ranch Oil Field located in Monterey County near the Company’s flagship South Salinas Project; the +Company initially began refurbishment operations with respect to a water disposal well. After refurbishment was successfully accomplished, +the Company restarted production operations on the assets (see Note 5 for further information). In November 2023, the Company entered +into a leasehold acquisition and development option agreement (“ARLO Agreement”) with Heavy Sweet Oil, LLC (“HSO”), +which gave the Company a 9-month option for the exclusive right to acquire up to a 20 % interest in a 960 -acre drilling and production +program in the Asphalt Ridge leases for $ 2,000,000 . In December 2023, the Company amended the agreement and funded $ 200,000 in exchange +for an immediate 2 % interest in the leases; subsequently, in January 2024, the Company funded an additional $ 25,000 resulting in a total +2.25 % working interest in the leases. Such funds are to be used for the building of roads and related infrastructure in furtherance of +the development of the leases; per the most recent amendment to the ARLO Agreement signed in September 2024, the Company has until December +10, 2024 to pay HSO an additional approximate $ 1.775 million to exercise the option for the remaining 17.75 % interest in the leases (see +Note 6 for further information). +Emerging +Growth Company +The +Company is an “emerging growth company,” as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart +Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting +requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not +being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, reduced disclosure +obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding +a nonbinding advisory vote on executive compensation and approval of any golden parachute payments not previously approved. Further, +Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting +standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do +not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting +standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements +that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of +such extended transition period which means that when a standard is issued or revised and it has different application dates for public +or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies +adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which +is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult +or impossible because of the potential differences in accounting standards used. +F- 7 +NOTE +2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Basis +of Presentation +The +accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States +of America (“US GAAP”). +Use +of Estimates +The +preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the +reported amounts of assets, liabilities, equity-based transaction and disclosure of contingent assets and liabilities at the date of +the financial statements, and the revenue and expenses during the reporting period. +Making +estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of +a condition, situation or set of circumstances that existed at the date of the financial statement, which management considered in formulating +its estimate, could change in the near term due to one or more future confirming events. Some of the more significant estimates required +to be made by management include estimates of oil and natural gas reserves (when and if assigned) and related present value estimates +of future net cash flows therefrom, the carrying value of oil and natural gas properties, ARO and the valuation of equity-based transactions. +Accordingly, actual results could differ significantly from those estimates. +Cash +and cash equivalents +The +Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. +The Company had no cash equivalents as of October 31, 2024 and 2023. +Prepaid +Expenses +Prepaid +expenses consist primarily of prepaid services which will be expensed as the services are provided within twelve months. As of October +31, 2024 and 2023, the balances of the prepaids account were $ 279,274 and $ 133,417 , respectively. +Debt +Issuance Costs +Costs +incurred in connection with the issuance of the Company’s debt have been recorded as a direct reduction against the debt and amortized +over the life of the associated debt as a component of interest expense. As of October 31, 2024 and 2023, the Company recorded $ 259,903 +and $ 350,320 in debt issuance costs. +Oil +and Gas Assets and Exploration Costs – Successful Efforts +The +Company’s projects are in exploration and/or early production stages and the Company began generating revenue from its operations +during the quarterly period ended April 30, 2024. It applies the successful efforts method of accounting for crude oil and natural gas +properties. Under this method, exploration costs such as exploratory, geological, and geophysical costs, delay rentals and exploratory +overhead are expensed as incurred. If an exploratory property provides evidence to justify potential development of reserves, drilling +costs associated with the property are initially capitalized, or suspended, pending a determination as to whether a commercially sufficient +quantity of proved reserves can be attributed to the area as a result of drilling. At the end of each quarter, management reviews the +status of all suspended exploratory property costs considering ongoing exploration activities; in particular, whether the Company is +making sufficient progress in its ongoing exploration and appraisal efforts. If management determines that future appraisal drilling +or development activities are unlikely to occur, associated exploratory well costs are expensed. +Costs +to acquire mineral interests in crude oil and/or natural gas properties, drill and equip exploratory wells that find proved reserves +and drill and equip development wells are capitalized. Acquisition costs of unproved leaseholds are assessed for impairment during the +holding period and transferred to proven crude oil and/or natural gas properties to the extent associated with successful exploration +activities. Significant undeveloped leases are assessed individually for impairment, based on the Company’s current exploration +plans, and a valuation allowance is provided if impairment is indicated. Capitalized costs from successful exploration and development +activities associated with producing crude oil and/or natural gas leases, along with capitalized costs for support equipment and facilities, +are amortized to expense using the unit-of-production method based on proved crude oil and/or natural gas reserves on a field-by-field +basis, as estimated by qualified petroleum engineers. The Company currently has four wells that are producing (one well in President’s +Field in the South Salinas Project and three wells at the McCool Ranch Oil Field) and is evaluating the impact of production on the reserve +determination for those wells and fields. The Company expects to add the reserve value of such fields to the Company’s reserve +report after a further period of observation and review of the oil production. As of October 31, 2024 and 2023, all of the Company’s +oil and gas properties were classified as unproved properties and were not subject to depreciation, depletion and amortization. +F- 8 +Unproved +oil and natural gas properties +Unproved +oil and natural gas properties have unproved lease acquisition costs, which are capitalized until the lease expires or otherwise until +the Company specifically identifies a lease that will revert to the lessor, at which time the Company charges the associated unproved +lease acquisition costs to exploration costs. +Unproved +oil and natural gas properties are not subject to amortization and are assessed periodically for impairment on a property-by-property +basis based on remaining lease terms, drilling results or future plans to develop acreage. The Company currently has four wells that +are producing (one well in President’s Field in the South Salinas Project and three wells at the McCool Ranch Oil Field) and is +evaluating the impact of production on the reserve determination for those wells and fields. The Company expects to add the reserve value +of such fields to the Company’s reserve report after a further period of observation and review of the oil production. As of October +31, 2024 and 2023, all of the Company’s oil and gas properties were classified as unproved properties and were not subject to depreciation, +depletion and amortization; see further discussion in Note 6. +Impairment +of Other Long-lived Assets +The +Company reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the +historical cost-carrying value of an asset may no longer be appropriate. The Company assesses the recoverability of the carrying value +of the asset by estimating the future net undiscounted cash flows expected to result from the asset, including eventual disposition. +If the future net undiscounted cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the +difference between the asset’s carrying value and estimated fair value. With regards to oil and gas properties, this assessment +applies to proved properties . +As +of October 31, 2024 and 2023, the Company had no impairment of long-lived assets. +Asset +Retirement Obligations +ARO +consists of future plugging and abandonment expenses on oil and natural gas properties. In connection with the South Salinas Project +(“SSP”) acquisition described above, the Company acquired the plugging and abandonment liabilities associated with six non-producing +wells. The fair value of the ARO was recorded as a liability in the period in which the wells were acquired with a corresponding increase +in the carrying amount of oil and natural gas properties not subject to impairment. The Company plans to utilize the six wellbores acquired +in the SSP acquisition in future exploration, production and/or disposal (i.e., disposal of produced water or CO2 by injection) activities. +The liability is accreted for the change in its present value each period based on the expected dates that the wellbores will be required +to be plugged and abandoned. The capitalized cost of ARO is included in oil and gas properties and is a component of oil and gas property +costs for purposes of impairment and, if proved reserves are found, such capitalized costs will be depreciated using the units-of-production +method. The asset and liability are adjusted for changes resulting from revisions to the timing or the amount of the original estimate +when deemed necessary. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized. +Components +of the changes in ARO for the years ended October 31, 2023 and 2024 are shown below: +SCHEDULE +OF COMPONENTS OF CHANGES IN ARO +ARO, +ending balance – October 31, 2022 +$ 48,313 +Accretion +expense +2,778 +ARO, +ending balance – October 31, 2023 +51,091 +Accretion +expense +2,778 +ARO, +ending balance – October 31, 2024 +53,869 +Less: +ARO – current +2,778 +ARO, +net of current portion – October 31, 2024 +$ 51,091 +F- 9 +Related +Parties +Related +parties are directly or indirectly related to the Company, through one or more intermediaries and are in control, controlled by, or under +common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate +families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls +or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might +be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. On September 14, 2021, +the Company acquired an 82.75 % working interest (which was subsequently increased to an 85.775 % working interest as of April 2023) in +the SSP from Trio LLC in exchange for cash, a note payable to Trio LLC and the issuance of 245,000 shares of common stock. As of the +date of the acquisition, Trio LLC owned 45 % of the outstanding shares of the Company and was considered a related party. As of October +31, 2024 and 2023, Trio LLC owned less than 1 % and 1 %, respectively, of the outstanding shares of the Company. +Income +Taxes +Deferred +tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement +carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit +carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those +temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates +is recognized in income in the period that includes the enactment date. +The +Company utilizes ASC 740, Income Taxes , which requires the recognition of deferred tax assets and liabilities for the expected +future tax consequences of events that have been included in the financial statements or tax returns. The Company accounts for income +taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related +financial amounts, using currently enacted tax rates. A valuation allowance is recorded when it is “more likely than not” +that a deferred tax asset will not be realized. At October 31, 2024 and 2023, the Company’s net deferred tax asset has been fully +reserved. +For +uncertain tax positions that meet a “more likely than not” threshold, the Company recognizes the benefit of uncertain tax +positions in the financial statements. The Company’s practice is to recognize interest and penalties, if any, related to uncertain +tax positions in income tax expense in the statements of operations when a determination is made that such expense is likely. The Company +is subject to income tax examinations by major taxing authorities since inception. +Fair +Value Measurements +The +carrying values of financial instruments comprising cash and cash equivalents, payables, and notes payable-related party approximate +fair values due to the short-term maturities of these instruments. The notes payable- related party is considered a level 3 measurement. +As defined in ASC 820, Fair Value Measurements and Disclosures , fair value is the price that would be received to sell an asset +or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company +utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about +risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or +generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy +gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and +the lowest priority to unobservable inputs (Level 3 measurement). This fair value measurement framework applies to both initial and subsequent +measurement. +Level 1: +Quoted +prices are available in active markets for identical assets or liabilities as of the reporting date. +Level 2: +Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable +as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. +Level 3: +Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with +internally developed methodologies that result in management’s best estimate of fair value. The significant unobservable inputs +used in the fair value measurement for nonrecurring fair value measurements of long-lived assets include pricing models, discounted +cash flow methodologies and similar techniques. +F- 10 +There +are no assets or liabilities measured at fair value on a recurring basis. Assets and liabilities accounted for at fair value on a non-recurring +basis in accordance with the fair value hierarchy include the initial allocation of the asset acquisition purchase price, including asset +retirement obligations, the fair value of oil and natural gas properties and the assessment of impairment. +The +fair value measurements and allocation of assets acquired are measured on a nonrecurring basis on the acquisition date using an income +valuation technique based on inputs that are not observable in the market and therefore represent Level 3 inputs. Significant inputs +used to determine the fair value include estimates of: (i) reserves; (ii) future commodity prices; (iii) operating and development costs; +and (iv) a market-based weighted average cost of capital rate. The underlying commodity prices embedded in the Company’s estimated +cash flows are the product of a process that begins with NYMEX forward curve pricing, adjusted for estimated location and quality differentials, +as well as other factors that the Company’s management believes will impact realizable prices. These inputs require significant +judgments and estimates by the Company’s management at the time of the valuation. +The +fair value of additions to the asset retirement obligation liabilities is measured using valuation techniques consistent with the income +approach, which converts future cash flows to a single discounted amount. Significant inputs to the valuation include: (i) estimated +plug and abandonment cost per well for all oil and natural gas wells and for all disposal wells; (ii) estimated remaining life per well; +(iii) future inflation factors; and (iv) the Company’s average credit-adjusted risk-free rate. These assumptions represent Level +3 inputs. +If +the carrying amount of its proved oil and natural gas properties, which are assessed for impairment under ASC 360 – Property, +Plant and Equipment, exceeds the estimated undiscounted future cash flows, the Company will adjust the carrying amount of the oil +and natural gas properties to fair value. The fair value of its oil and natural gas properties is determined using valuation techniques +consistent with the income and market approach. The factors used to determine fair value are subject to management’s judgment and +expertise and include, but are not limited to, recent sales prices of comparable properties, the present value of future cash flows, +net of estimated operating and development costs using estimates of proved reserves, future commodity pricing, future production estimates, +anticipated capital expenditures, and various discount rates commensurate with the risk and current market conditions associated with +the expected cash flow projected. These assumptions represent Level 3 inputs. +Net +Loss Per Share +Basic +and diluted net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the +reporting period. Diluted earnings per share is computed similar to basic loss per share, except the weighted average number of common +shares outstanding are increased to include additional shares from the assumed exercise of share options, warrants and convertible notes, +if dilutive. +The +following common share equivalents are excluded from the calculation of weighted average common shares outstanding, because their inclusion +would have been anti-dilutive: +SCHEDULE +OF WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ANTI_DILUTIVE +As +of October 31, +As +of October 31, +2024 +2023 +Warrants +19,176 (1) +19,812 (2) +Total +potentially dilutive securities +19,176 +19,812 +(1) Balance +consists of potentially dilutive shares based on 191,994 and 88,336 outstanding, equity classified +warrants, respectively. +(2) Balance +consists of restricted stock units granted to five outside directors and restricted shares +issued to executives. +F- 11 +Environmental +Expenditures +The +operations of the Company have been, and may in the future be, affected from time to time to varying degrees by changes in environmental +regulations, including those for future reclamation and site restoration costs. Both the likelihood of new regulations and their overall +effect upon the Company vary greatly and are not predictable. The Company’s policy is to meet or, if possible, surpass standards +set by relevant legislation by application of technically proven and economically feasible measures. +Environmental +expenditures that relate to ongoing environmental and reclamation programs are charged against earnings as incurred or capitalized and +amortized depending on their future economic benefits. All of these types of expenditures incurred since inception have been charged +against earnings due to the uncertainty of their future recoverability. Estimated future reclamation and site restoration costs, when +the ultimate liability is reasonably determinable, are charged against earnings over the estimated remaining life of the related business +operation, net of expected recoveries. +Recent +Accounting Pronouncements +All +recently issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company. +Reclassification +of Expenses +Certain +amounts in the prior periods presented have been reclassified to the current period financial statement presentation. This reclassification +has no effect on previously reported net income. +Subsequent +Events +The +Company evaluated all events and transactions that occurred after October 31, 2024 through the date of the filing of this report. See +Note 12 for such events and transactions. +NOTE +3 – GOING CONCERN AND MANAGEMENT’S LIQUIDITY PLANS +As +of October 31, 2024, the Company had $ 285,945 in its operating bank account and a working capital deficit of $ 2,025,480 . To date, the +Company has been funding operations through proceeds from the issuance of common stock, financing through certain investors, the consummation +of its IPO in April 2023, and convertible note financing under two tranches in October 2023 and December 2023, pursuant to which the +Company raised total gross proceeds of $ 2,371,500 . Additionally, the Company received funds in the amount of $ 125,000 from an unsecured +promissory note from its former CEO, gross proceeds of $ 184,500 from a promissory note with an investor in March 2024, gross proceeds +of $ 720,000 from convertible debt financing with two investors in April 2024, gross proceeds of $ 720,000 from convertible debt financing +with two investors in June 2024, additional financing secured after the end of the period in August 2024 for gross proceeds in the aggregate +amount of $ 359,000 from two unsecured promissory notes, as well as proceeds of approximately $ 1,174,000 in connection with an “at-the-market” +agreement entered into in September 2024. +The +accompanying financial statements have been prepared on the basis that the Company will continue as a going concern over the next twelve +months from the date of issuance of these financial statements, which assumes the realization of assets and the satisfaction of liabilities +in the normal course of business. As of October 31, 2024, the Company has an accumulated deficit of $ 20,073,679 and has experienced losses +from continuing operations. Based on the Company’s cash balance as of October 31, 2024 and projected cash needs for the twelve +months following the issuance of these financial statements, management estimates that it will need to generate sufficient sales revenue +and/or raise additional capital to cover operating and capital requirements. Management will need to raise the additional funds by issuing +additional shares of common stock or other equity securities or obtaining additional debt financing. Although management has been successful +to date in raising necessary funding and obtaining financing through investors, there can be no assurance that any required future financing +can be successfully completed on a timely basis, or on terms acceptable to the Company. Based on these circumstances, management has +determined that these conditions raise substantial doubt about the Company’s ability to continue as a going concern for the twelve +months following the issuance of these financial statements. +Accordingly, +the accompanying financial statements have been prepared in conformity with U.S. GAAP, which contemplates continuation of the Company +as a going concern and the realization of assets and the satisfaction of liabilities in the normal course of business. The financial +statements do not include any adjustments that might result from the outcome of this uncertainty. +F- 12 +NOTE +4 – INITIAL PUBLIC OFFERING +The +Company’s Registration Statement (Amendment No. 9) on Form S-1/A was filed with the SEC on March 24, 2023; its Initial Public Offering +was declared effective on April 17, 2023 and closed on April 20, 2023 (collectively, the “Offering” or “IPO”). +The Company sold 100,000 shares of common stock at a public offering price of $ 60.00 per share for gross proceeds of $ 6,000,000 . After +deducting the underwriting commissions, discounts and offering expenses payable by the Company, it received net proceeds of approximately +$ 4,940,000 . The Company’s common stock is listed on the NYSE American under the symbol TPET. The Company also issued warrants to +purchase 5,000 shares of common stock to the underwriters at an exercise price of $ 66.00 per share ( 110 % of public offering price), the +cost of which was offset to additional paid-in capital upon IPO. +NOTE +5 – REVENUE FROM CONTRACTS WITH CUSTOMERS +Disaggregation +of Revenue from Contracts with Customers +The +following table disaggregates revenue by significant product type for the periods below: +SCHEDULE +OF DISAGGREGATES REVENUE +As +of October 31, +As +of October 31, +2024 +2023 +Oil +sales +$ 213,204 +$ - +Total +revenues from customers +$ 213,204 +$ - +There +were no significant contract liabilities or transaction price allocations to any remaining performance obligations as of October 31, +2024 ( no revenue in 2023). +Significant +concentrations of credit risk +For +the year ended October 31, 2024 ( no revenue in 2023), the Company had only one purchaser, which accounts for 10 % or more of the Company’s +total oil and natural gas revenue for this period. +NOTE +6 – OIL AND NATURAL GAS PROPERTIES +The +following tables summarize the Company’s oil and gas activities. +SCHEDULE OF OIL AND NATURAL GAS PROPERTIES +As +of October 31, +As +of October 31, +2024 +2023 +Oil +and gas properties – not subject to amortization +$ 11,119,119 +$ 9,947,742 +Accumulated +impairment +— +— +Oil +and gas properties – not subject to amortization, net +$ 11,119,119 +$ 9,947,742 +During +the years ended October 31, 2024 and 2023, the Company incurred aggregated exploration costs of $ 177,416 and $ 251,743 , respectively; +these expenses were exploratory, geological and geophysical costs and were expensed on the statement of operations during the applicable +periods. For capitalized costs, the Company incurred approximately $ 1.2 million and $ 4.1 million, respectively, for the years ended October +31, 2024 and 2023; these expenses were related to drilling exploratory wells and acquisition costs, both of which were capitalized and +reflected in the balance of the oil and gas property as of the respective period ends. +Leases +South +Salinas Project +As +of October 31, 2024, the Company holds interests in various leases related to the unproved properties of the South Salinas Project (see +Note 8); two of the leases are held with the same lessor. The first lease, which covers 8,417 acres, was amended on May 27, 2022 to provide +for an extension of then-current force majeure status for an additional, uncontested twelve months, during which the Company would be +released from having to evidence to the lessor the existence of force majeure conditions. As consideration for the granting of the lease +extension, the Company paid the lessor a one-time, non-refundable payment of $ 252,512 ; this amount was capitalized and reflected in the +balance of the oil and gas property as of October 31, 2022. The extension period commenced on June 19, 2022 and currently, the “force +majeure” status has been extinguished by the drilling of the HV-1 well. The ongoing operations and oil production at the HV-3A +well maintains the validity of the lease. +The +second lease covers 160 acres of the South Salinas Project; it is currently held by delay rental and is renewed every three years. Until +drilling commences, the Company is required to make delay rental payments of $ 30 /acre per year. The Company is currently in compliance +with this requirement and has paid in advance the delay rental payment for the period from October 2023 through October 2024. +During +February and March of 2023, the Company entered into additional leases related to the unproved properties of the South Salinas Project +with two groups of lessors. The first group of leases covers 360 acres and has a term of 20 years; the Company is required to make rental +payments of $ 25 /acre per year. The Company is currently in compliance with this requirement and has paid in advance the rental payment +for the period February 2024 through February 2025. The second group of leases covers 307.75 acres and has a term of 20 years; the Company +is required to make rental payments of $ 30 /acre per year. The Company is currently in compliance with this requirement and has paid in +advance the rental payment for the period from March 2024 through March 2025. +F- 13 +McCool +Ranch Oil Field +In +October 2023, the Company entered into the McCool Ranch Purchase Agreement with Trio LLC for purchase of a 21.918315 % +working interest in the McCool Ranch Oil Field located in Monterey County near the Company’s flagship South Salinas Project; +the Company initially recorded a payment of $ 100,000 +upon execution of the McCool Ranch Purchase Agreement, at which time Trio LLC began refurbishment operations with respect to the San +Ardo WD-1 water disposal well (the “WD-1”) to determine if it was capable of reasonably serving the produced water needs +for the assets. With refurbishment successfully accomplished, the Company will pay an additional $ 400,000 +per the McCool Ranch Purchase Agreement; it has paid approximately $ 284,000 +to date for restarting production operations on the assets and has recorded a liability of approximately $ 116,000 +for the remainder as of the end of the period. These additional costs are capitalized costs and are reflected in the balance of the +oil and gas property as of October 31, 2024. +The +Company holds interests in various leases related to the unproved properties of the McCool Ranch Oil Field; these leases occur in two +parcels, “Parcel 1” and “Parcel 2”. Parcel 1 comprises ten leases and approximately 480 acres, which are held +by delay rental payments that are paid-up and current. Parcel 2 comprises one lease and approximately 320 acres, which is held by production. +The total leasehold comprises approximately 800 gross and net acres. +Optioned +Assets – Old Man Prospect +In +October 2023, the Company and Lantos Energy entered into an option agreement, whereby the Company has the option to pay two initial payments +of $ 12,500 each and a final subsequent payment of $ 175,000 , for a total of $ 200,000 within 120 days of the effective date for exclusive +rights to the option to purchase 80% of the 100% Before Project Payout Working Interest (“BPPWI”) in Lantos’ oil and +gas leasehold interests in Solano County, California (referred to as the Old Man Prospect). As of January 31, 2024, the Company has paid +approximately $ 25,000 towards the purchase of this option. Due to technical risks identified during due diligence and due to other considerations, +the Company did not make the final $ 175,000 payment and as a result the 120-day option period has expired. +Optioned +Assets – Asphalt Ridge Leasehold Acquisition & Development Option Agreement +On +November 10, 2023, the Company entered into the ARLO Agreement with HSO for a term of nine months which gives the Company the exclusive +right to acquire up to a 20 % interest in a 960 acre drilling and production program in the Asphalt Ridge leases for $ 2,000,000 , which +may be invested in tranches by the Company, with an initial tranche closing for an amount no less than $ 500,000 and paid within seven +days subsequent to HSO providing certain required items to the Company. +On +December 29, 2023, the Company entered into an amendment to the ARLO Agreement, whereby the Company funded $ 200,000 of the $ 500,000 payable +by the Company to HSO at the Initial Closing, in advance of HSO satisfying certain required items for a 2 % interest in the leases; such +funds are to be used by HSO solely for the building of roads and related infrastructure in furtherance of the development of the leases. +As of October 31, 2024, the Company has paid a total of $ 225,000 to HSO in costs related to infrastructure and has obtained a 2.25 % interest +in the leases; such costs are capitalized costs and are reflected in the balance of the oil and gas property as of October 31, 2024. +Per +the most recent amendment to the ARLO Agreement signed in September 2024, the Company has until December 10, 2024 to pay HSO an additional +$ 1,775,000 to exercise an option for the remaining 17.75 % working interest in the initial 960 acres of the Asphalt Ridge Leases. If the +Company raises sufficient funds in its current public offering (for which an amendment to its Form S-1 was filed with the SEC on November +29, 2024), it will consider using $ 1,775,000 of the net proceeds received to exercise the remaining 17.75 % working interest in the Asphalt Ridge +Leases. If this option is not exercised on or before such date, the Company will forfeit any further right to acquire this additional +17.75 % working interest in the initial 960 acres. +F- 14 +NOTE +7 – RELATED PARTY TRANSACTIONS +South +Salinas Project – Related Party +Upon +its formation, the Company acquired from Trio LLC a majority working interest in the South Salinas Project and engaged the services of +certain members of Trio LLC to manage the Company’s assets (see Note 1 and Note 6). Trio LLC operates the South Salinas Project +on behalf of the Company, and as operator, conducts and has full control of the operations within the constraints of the Joint Operating +Agreement, and acts in the capacity of an independent contractor. Trio LLC currently holds a 3.8 % working interest in the South Salinas +Project and the Company holds an 85.775 % working interest. The Company provides funds to Trio LLC to develop and operate the assets in +the South Salinas Project; such funds are classified in the short-term asset/liability section of the balance sheet as Advance to Operators/Due +to Operators, respectively. As of October 31, 2024 and 2023, the balance of the Due to Operators account is $ 128,200 and $ 21,651 , respectively. +McCool +Ranch Oil Field Asset Purchase – Related Party +On +October 16, 2023, the Company entered into the McCool Ranch Purchase Agreement with Trio LLC for purchase of a 21.918315 % +working interest in the McCool Ranch Oil Field located in Monterey County near the Company’s flagship South Salinas Project +(see Note 6); the Assets are situated in what is known as the “Hangman Hollow Area” of the McCool Ranch Oil Field. The +Company initially recorded a payment of $ 100,000 +upon execution of the McCool Ranch Purchase Agreement, at which time Trio LLC began refurbishment operations with respect to the San +Ardo WD-1 to determine if it was capable of reasonably serving the produced water needs for the assets. With refurbishment +successfully accomplished, the Company will pay an additional $ 400,000 +per the McCool Ranch Purchase Agreement; to date, it has paid approximately $ 284,000 +during the year for restarting production operations on the assets and has a liability of approximately $ 116,000 +to Trio LLC as a payable – related party on the balance sheet as of October 31, 2024. +Restricted +Stock Units (“RSUs”) issued to Directors +Pursuant +to the 2022 Equity Incentive Plan (“the Plan”), on September 2, 2023, the Company issued an aggregate 21,250 shares of its +$ 0.0001 par common stock to four outside directors with a fair value of $ 12.80 per share for a grant date value of $ 273,275 . The shares, +or RSUs, vested as of February 28, 2024. +On +June 19, 2024, the Company agreed to award 50,000 restricted stock units to a newly appointed director under the Plan; as there were +only 22,750 shares remaining for issuance under the Plan at that time, 22,500 RSUs were awarded immediately with a fair value of $ 6.00 +per share for a grant date value of $ 134,550 , with the remainder to be issued when the number of shares available under the Plan had +been increased per shareholder approval. With regards to vesting, 25 % of the RSUs vest six months after the date of issuance and the +remaining RSUs will vest in equal amounts quarterly thereafter. As of October 31, 2024, remaining 27,500 units have been recorded at +a fair value of $ 3.32 per share for a grant date value of $ 91,300 and for the years ended October 31, 2024 and 2023, the Company recognized +stock-based compensation for these awards in the amount of $ 30,651 and $ 0 , respectively, within stock-based compensation expenses on +the income statement, with $ 195,199 of unrecognized expense as of the period ended October 31, 2024. +On +October 21, 2024, the Company agreed to award 12,500 restricted stock units to a newly appointed director under the Plan; the RSUs vest +at a rate of 100 % upon the six month anniversary of the commencement date and were recorded at a fair value of $ 3.13 per share for a +grant date value of $ 39,125 . Additionally, on October 21, 2024, the Company agreed to award an aggregate of 37,500 restricted stock units +to current directors under the Plan; the RSUs vest at a rate of 100 % upon the three month anniversary of the commencement date and were +recorded at a fair value of $ 3.13 per share for an aggregate grant date value of $ 117,375 . For the years ended October 31, 2024 and 2023, +the Company recognized stock-based compensation for these awards in the amount of $ 14,908 and $ 0 , respectively, within stock-based compensation +expenses on the income statement, with $ 141,592 of unrecognized expense as of the period ended October 31, 2024. +Restricted +Shares issued to Executives and Employees +In +February 2022, the Company entered into employment agreements with Frank Ingriselli (former Chief Executive Officer) and Greg Overholtzer +(Chief Financial Officer or “CFO”) which, among other things, provided for the grant of restricted shares in the amounts +of 50,000 and 5,000 , respectively, pursuant to the Plan. Per the terms of the employee agreements, subject to continued employment, the +restricted shares vest over a two-year period, under which 25 % will vest upon the earlier of three months after the IPO or six months +after the grant date. After this date, the remainder vest in equal tranches every six months until fully vested. As the Plan was not +adopted until October 17, 2022, these shares will be recorded as of that date at a fair value of $ 5.88 per share; such value was calculated +via a third-party valuation performed using income and market methods, as well as a discounted cash flow method, with the terminal value +using a market multiples method, adjusted for a lack of marketability. As of October 31, 2022, the Company recorded 55,000 restricted +shares at a fair value of $ 323,400 , and for the years ended October 31, 2024 and 2023, the Company recognized stock-based compensation +of $ 155,498 and $ 161,700 , respectively, within stock-based compensation expenses on the income statement, with no unrecognized expense +as of October 31, 2024. +In +May 2023, the Company entered into six employee agreements which, among other things, provided for the grant of an aggregate of 35,000 +restricted shares pursuant to the Plan. Per the terms of the employee agreements, subject to continued employment, the restricted shares +vest as follows: 25 % of the shares vested five months after the issuance date, after which the remainder vest in equal tranches every +six months until fully vested. The shares were recorded on the date of issuance at a fair value of $ 43.00 per share for an aggregate +fair value of $ 1,505,000 , and for the years ended October 31, 2024 and 2023, the Company recognized stock-based compensation of $ 753,188 +and $ 440,219 , respectively, within stock-based compensation expenses on the income statement, with unrecognized expense of $ 311,593 as +of the period ended October 31, 2024. +On +October 16, 2023, the Company and Michael L. Peterson entered into an employment agreement (the “Peterson Employment Agreement”), +effective as of October 23, 2023, pursuant to which Mr. Peterson will serve as Chief Executive Officer of the Company, replacing Mr. +Ingriselli. Pursuant to the Peterson Employment Agreement, Mr. Peterson will be paid an annual base salary of $ 350,000 . In addition, +Mr. Peterson is entitled to receive, subject to his continuing employment with the Company on the applicable date of the bonus payout, +an annual target discretionary bonus of up to 100 % of his annual base salary, payable at the discretion of the Compensation Committee +of the Board based upon the Company’s and Mr. Peterson’s achievement of objectives and milestones to be determined on an +annual basis by the Board. +F- 15 +Pursuant +to the Peterson Employment Agreement, the Company issued Mr. Peterson a grant of 50,000 shares of restricted stock pursuant to the Company’s +Omnibus Incentive Compensation Plan (the “Plan”) at a fair value of $ 5.40 per share for a grant date fair value of $ 271,000 . +The restricted stock grant vests over a period of two years, with 25 % of the shares of restricted stock vesting six months after the +Peterson Employment Agreement Effective Date, and the remainder vesting in equal tranches on each of the 12-, 18-, and 24-month anniversary +dates of the Peterson Employment Agreement. On March 26, 2024, the Company borrowed $ 125,000 from Mr. Peterson (the “Peterson Loan”), +in connection with which the Company delivered to Mr. Peterson an Unsecured Subordinated Promissory Note in the principal amount of $ 125,000 +(the “Peterson Note”). As additional consideration for the Peterson Loan, the Company accelerated the vesting of 50,000 shares +of restricted stock awarded to Mr. Peterson under the Company’s 2022 Equity Incentive Plan. For the years ended October 31, 2024 +and 2023, the Company recognized stock-based compensation of $ 267,659 and $ 3,341 , respectively, within stock-based compensation expenses +on the income statement, with no unrecognized expense as of the period ended October 31, 2024. +On +the same date as Mr. Peterson’s resignation as the Company’s Chief Executive Officer on July 11, 2024, the Company and Mr. +Peterson entered into a three-month consulting agreement, which includes a monthly cash fee of $ 10,000 and an award of 50,000 RSUs pursuant +to the Plan. The RSUs were to be issued when the number of shares available under the Plan had been increased per shareholder approval +and would vest sixty days after their issuance. As of October 31, 2024, the units have been recorded at a fair value of $ 3.32 per share +for a grant date value of $ 166,000 and for the years ended October 31, 2024 and 2023, the Company recognized stock-based compensation +for the award in the amount of $ 97,967 and $ 0 , respectively, within stock-based compensation expenses on the income statement, with $ 68,033 +of unrecognized expense as of the period ended October 31, 2024. +On +July 11, 2024, the Company entered into an employment agreement with Mr. Robin Ross, pursuant to which Mr. Ross will serve as Chief Executive +Officer of the Company, replacing Mr. Peterson. Pursuant to the Ross Employment Agreement, Mr. Ross will be paid an annual base salary +of $ 300,000 . In addition, Mr. Peterson is entitled to receive, subject to his continuing employment with the Company on the applicable +date of the bonus payout, an annual target discretionary bonus of up to 100 % of his annual base salary, payable at the discretion of +the Compensation Committee of the Board based upon the Company’s and Mr. Ross’ achievement of objectives and milestones to +be determined on an annual basis by the Board. Pursuant to the Ross Employment Agreement, the Company awarded Mr. Ross 100,000 RSUs pursuant +to the Plan; the RSUs were to be issued when the number of shares available under the Plan had been increased per shareholder approval +and would vest at a rate of 25 % at six months after the award was made to Mr. Ross, with the remainder vesting in equal tranches each +three months thereafter. As of October 31, 2024, the units have been recorded at a fair value of $ 3.32 per share for a grant date value +of $ 332,000 and for the years ended October 31, 2024 and 2023, the Company recognized stock-based compensation for the award in the amount +of $ 21,890 and $ 0 , respectively, within stock-based compensation expenses on the income statement, with $ 310,110 of unrecognized expense +as of the period ended October 31, 2024. +On +October 21, 2024, the Company agreed to award 10,000 restricted stock units to its CFO under the Plan; the RSUs vest at a rate of 100 % +upon the six month anniversary of the commencement date and were recorded at a fair value of $ 3.13 per share for a grant date value of +$ 31,300 . For the years ended October 31, 2024 and 2023, the Company recognized stock-based compensation for the award in the amount of +$ 1,720 and $ 0 , respectively, within stock-based compensation expenses on the income statement, with $ 29,580 of unrecognized expense as +of the period ended October 31, 2024. +Note +Payable – Related Party +On +March 26, 2024, the Company borrowed $ 125,000 +from its former Chief Executive Officer, Michael L. Peterson, in connection with which the Company delivered to Mr. Peterson an +Unsecured Subordinated Promissory Note in the principal amount of $ 125,000 . +The Note is payable on or before September 26, 2024 (the “Peterson Note Maturity Date”), upon which date the principal +balance and interest accruable at a rate of 10 % +per annum is due and payable to Mr. Peterson by the Company. The Company may prepay the Peterson Note at any time prior to the +Peterson Note Maturity Date, in whole or in part, without premium or penalty. The Company is also required to prepay the Peterson +Note, in full, prior to the Peterson Note Maturity Date from the proceeds of any equity or debt financing received by the Company of +at least $ 1,000,000 . +As additional consideration for the Peterson Loan, the Company accelerated the vesting of 50,000 +shares of restricted stock awarded to Mr. Peterson under the Company’s 2022 Equity Incentive Plan. The Peterson Note also +provides for acceleration of payment of the outstanding principal balance and all accrued and unpaid interest in the case of an +Event of Default (as such term is defined in the Peterson Note), where there is either a payment default or a bankruptcy +event. +On +September 26, 2024 and October 28, 2024, the Company entered into the first and second amendments, respectively, to the Peterson Note; +each amendment extended the maturity dates to October 28, 2024 and November 30, 2024, respectively, and added a $ 5,000 extension fee +(per amendment) to the principal of the note. As of October 31, 2024, the Peterson Note has a principal balance of $ 135,000 . +NOTE +8 – COMMITMENTS AND CONTINGENCIES +From +time to time, the Company is subject to various claims that arise in the ordinary course of business. Management believes that any liability +of the Company that may arise out of or with respect to these matters will not materially adversely affect the financial position, results +of operations, or cash flows of the Company. +Unproved +Property Leases +The +Company holds interests in various leases related to the unproved properties of the South Salinas Project (see Note 6); two of the leases +are held with the same lessor. The first lease, which covers 8,417 acres, was amended on May 27, 2022 to provide for an extension of +then-current force majeure status for an additional, uncontested twelve months, during which the Company would be released from having +to evidence to the lessor the existence of force majeure conditions. As consideration for the granting of the lease extension, the Company +paid the lessor a one-time, non-refundable payment of $ 252,512 ; this amount was capitalized and reflected in the balance of the oil and +gas property as of October 31, 2022. The extension period commenced on June 19, 2022 and currently, the “force majeure” status +has been extinguished by the drilling of the HV-1 well. The ongoing operations and oil production at the HV-3A well maintains the validity +of the lease. +The +second lease covers 160 acres of the South Salinas Project; it is currently held by delay rental and is renewed every three years. Until +drilling commences, the Company is required to make delay rental payments of $ 30 /acre per year. The Company is currently in compliance +with this requirement and has paid in advance the delay rental payment for the period from October 2023 through October 2024. +F- 16 +The +Company holds interests in various leases related to the unproved properties of the McCool Ranch Oil Field. These leases occur in two +parcels, “Parcel 1” and “Parcel 2”. Parcel 1 comprises ten leases and approximately 480 acres, which are held +by delay rental payments that are paid-up and current. Parcel 2 comprises one lease and approximately 320 acres, which is held by production. +The total leasehold comprises approximately 800 gross and net acres. +During +February and March of 2023, the Company entered into additional leases related to the unproved properties of the South Salinas Project +with two groups of lessors. The first group of leases covers 360 acres and has a term of 20 years; the Company is required to make rental +payments of $ 25 /acre per year. The Company is currently in compliance with this requirement and has paid in advance the rental payment +for the period February 2024 through February 2025. The second group of leases covers 307.75 acres and has a term of 20 years; the Company +is required to make rental payments of $ 30 /acre per year. The Company is currently in compliance with this requirement and has paid in +advance the rental payment for the period from March 2024 through March 2025. +On +November 10, 2023, the Company entered into the ARLO Agreement with HSO for a term of nine months which allows the Company the exclusive +right to acquire up to a 20 % interest in a 960 acre drilling and production program in the Asphalt Ridge leases for $ 2,000,000 , which +may be invested in tranches by the Company, with an initial tranche closing for an amount no less than $ 500,000 and paid within seven +days subsequent to HSO providing certain required items to the Company. +On +December 29, 2023, the Company entered into an amendment to the ARLO Agreement, whereby the Company funded $ 200,000 of the $ 500,000 payable +by the Company to HSO at the Initial Closing, in advance of HSO satisfying certain required items for a 2 % interest in the leases; such +funds are to be used by HSO solely for the building of roads and related infrastructure in furtherance of the development of the leases. +As of October 31, 2024, the Company has paid a total of $ 225,000 to HSO in costs related to infrastructure and has obtained a 2.25 % interest +in the leases; such costs are capitalized costs and are reflected in the balance of the oil and gas property as of July 31, 2024. +Per +the most recent amendment to the ARLO Agreement signed in September 2024, the Company has until December 10, 2024 to pay HSO an additional +$ 1,775,000 to exercise an option for the remaining 17.75 % working interest in the initial 960 acres of the Asphalt Ridge Leases. If the +Company raises sufficient funds in its current public offering (for which an amendment to its Form S-1 was filed with the SEC on November +29, 2024), it will consider using $ 1,775,000 of the net proceeds received to exercise the remaining 17.75 % working interest in the Asphalt Ridge +Leases. If this option is not exercised on or before such date, the Company will forfeit any further right to acquire this additional +17.75 % working interest in the initial 960 acres. +Board +of Directors Compensation +On +July 11, 2022, the Company’s Board of Directors approved compensation for each of the non-employee directors of the Company, which +would be effective upon the consummation of the IPO. Such compensation is structured as follows: an annual retainer of $ 50,000 cash plus +an additional $ 10,000 for each Board committee upon which the Director serves, each paid quarterly in arrears. Payment for this approved +compensation commenced upon successful completion of the Company’s IPO in April 2023; for the years ended October 31, 2024 and +2023, the Company has recognized $ 223,170 and $ 156,154 , respectively, in directors’ fees. +F- 17 +Agreements +with Advisors +On +July 28, 2022, the Company entered into a placement agent agreement with the Placement Agent with Spartan Capital Securities, LLC (“Spartan”), +whereby Spartan agreed to serve as the exclusive agent, advisor or underwriter in any offering of securities of the Company for a one-year +term. The agreement provided for a $ 25,000 non-refundable advance upon execution of the agreement and completion of a bridge offering +to be credited against the accountable expenses incurred by the Placement Agent upon successful completion of the Company’s initial +public offering (“IPO”), a cash fee of 7.5%, warrants to purchase a number of common shares equal to 5% of the aggregate +number of common shares placed in the IPO and reimbursement of other expenses. On April 20, 2023, pursuant to this agreement, the Company +issued representative warrants to Spartan to purchase up to an aggregate of 5,000 shares of common stock; such warrants have a five-year +term with an exercise price of $ 66.00 and can be exercised any time after the IPO date. +On +October 4, 2023 and December 29, 2023, the Company entered into additional placement agent agreements with Spartan, whereby Spartan would +serve as the exclusive placement agent in connection with the closing of private placements. The agreements provided the agent with i) +a cash fee 7.5% of the aggregate proceeds raised in the sale and ii) warrants to purchase a number of common shares equal to 5% of the +number of common shares initially issuable upon conversion of each note tranche; warrants to purchase 4,167 and 2,750 common shares with +exercise prices of $ 26.40 and $ 11.00 for the first and second tranches, respectively, were issued to Spartan as of January 31, 2024. +Such warrants may be exercised beginning 6 months after issuance until four- and one-half years thereafter. +Compliance +with NYSE American +On +February 26, 2024, the Company received written notice from the NYSE American LLC (“NYSE American”) indicating that the Company +is not in compliance with the continued listing standard set forth in Section 1003(f)(v) of the NYSE American Company Guide (“Section +1003(f)(v)”) because the shares of the Company’s common stock, par value $ 0.0001 per share (the “Common Stock”) +have been selling for a substantial period of time at a low price per share. The Notice has no immediate effect on the listing or trading +of the Company’s Common Stock and the Common Stock will continue to trade on the NYSE American under the symbol “TPET” +with the designation of “. BC” to indicate that the Company is not in compliance with the NYSE American’s continued +listing standards. Additionally, the Notice does not result in the immediate delisting of the Company’s Common Stock from the NYSE +American. +Pursuant +to Section 1003(f)(v), the NYSE American staff (the “Staff”) determined that the Company’s continued listing is predicated +on effecting a reverse stock split of its Common Stock or demonstrating sustained price improvement within a reasonable period of time, +which the Staff determined to be no later than August 26, 2024. +On +May 1, 2024, the NYSE American notified the Company that it had regained compliance with the NYSE American listing requirements with +respect to Section 1003(f)(v) of the NYSE American Company Guide due to its shares of common stock demonstrating sustained price improvement. +NOTE +9 – INCOME TAXES +The +Company accounts for income taxes under ASC 740-10, which provides for an asset and liability approach of accounting for income taxes. +Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences, using currently +enacted tax laws, attributed to temporary differences between the carrying amounts of assets and liabilities for financial reporting +purposes and the amounts calculated for income tax purposes. +Significant +components of the Company’s deferred tax assets are summarized below. +SCHEDULE OF DEFERRED TAX ASSETS +As +of October 31, +As +of October 31, +2024 +2023 +Deferred +tax assets: +Net +operating loss carry forwards +$ 1,699,000 +$ 1,095,000 +Total +deferred tax asset +1,699,000 +1,095,000 +Valuation +allowance +( 1,699,000 ) +( 1,095,000 ) +Deferred +tax asset, net +$ - +$ - +As +of October 31, 2024 and 2023, the Company had approximately $ 1,699,000 and $ 1,095,000 , respectively, in net operating loss carry-forwards +for federal and state income tax reporting (tax effected) purposes. As a result of the Tax Cuts Job Act 2017 (the “Act”), +certain future carryforwards do not expire. The Company has not performed a formal analysis but believes its ability to use such net +operating losses and tax credit carryforwards in the future is subject to annual limitations due to change of control provisions under +Sections 382 and 383 of the Internal Revenue Code, which will significantly impact its ability to realize these deferred tax assets. +F- 18 +The +Company recorded a valuation allowance in the full amount of its net deferred tax assets since realization of such tax benefits has been +determined by the Company’s management to be less likely than not. The valuation allowance increased $ 604,000 and $ 298,000 during +the years ended October 31, 2024 and 2023, respectively. +A +reconciliation of the statutory federal income tax benefit to actual tax benefit is as follows: +SCHEDULE OF EFFECTIVE FEDERAL INCOME TAX RATE RECONCILIATION +As +of October 31, +As +of October 31, +2024 +2023 +Federal +statutory blended income tax rates +( 21 )% +( 21 )% +State +statutory income tax rate, net of federal benefit +- % +- % +Change +in valuation allowance +21 % +21 % +Effective +tax rate +- % +- % +As +of the date of this filing, the Company has not filed its 2024 federal and state corporate income tax returns. The Company expects to +file these documents as soon as practicable. +The +Company has evaluated its income tax positions and has determined that it does not have any uncertain tax positions. The Company will +recognize interest and penalties related to any uncertain tax positions through its income tax expense. +NOTE +10 – NOTES PAYABLE +Notes +payable as of October 31, 2024 and 2023 consisted of the following: +SCHEDULE OF NOTES PAYABLE +As +of +As +of +October +31, 2024 +October +31, 2023 +Convertible +note, net of discounts +$ - +$ 1,217,597 +Promissory +notes, net of discounts +742,852 +- +Note +payable – related party +135,000 +- +Total +Notes payable +$ 877,852 +$ 1,217,597 +Convertible +note, net of discounts (October 2023 SPA) +On +October 4, 2023, the Company entered into a securities purchase agreement (the “October 2023 SPA”) with an investor; the +October 2023 SPA provides for loans in an aggregate principal amount of up to $ 3.5 million under two tranches, with first and second +tranche fund amounts of $ 2.0 million and $ 1.5 million, respectively. +In +consideration for the investor’s funding of the first tranche, the Company issued i) a senior secured convertible promissory note +in the aggregate principal amount of $ 2,000,000 (the “Note”) and ii) a warrant to purchase up to 43,336 shares of Common +Stock at an initial exercise price of $ 24.00 per share of Common Stock, subject to certain adjustments (the “Common Warrant”). +The Note was initially convertible into shares of Common Stock at conversion price of $ 24.00 , subject to certain adjustments (the “Conversion +Price”), provided that the Conversion Price shall not be reduced below $ 7.00 (the “Floor Price”). The Note did not +bear any interest and matured on April 4, 2025. +Upon +the initial funding on October 4, 2023, the Company recorded gross proceeds of approximately $ 2.0 million, a 7 % original issue discount +of $ 140,000 and debt issuance costs of $ 350,320 , for net proceeds of approximately $ 1.5 million. The Company also issued a warrant to +purchase up to 43,336 shares of common stock with an aggregate relative fair value of $ 332,630 ; the factors used to determine fair value +were a share price of $ 11.00 , an exercise price of $ 24.00 , an expected term of 5 years, annualized volatility of 137.10 %, a dividend +rate of zero percent and a discount rate of 4.72 %. +On +December 18, 2023, December 29, 2023 and January 12, 2024, the Company made principal payments towards the first tranche in the amounts +of $ 125,000 , $ 125,000 , and $ 125,000 , respectively, which it converted into shares at 103 % for conversion amounts of $ 128,750 , $ 128,750 +and $ 128,750 , respectively. Conversion shares were issued numbering 18,393 , 18,393 and 18,393 , respectively, at fair values per share +of $ 6.80 , $ 6.20 and $ 5.80 , respectively, for total amounts of $ 125,072 , $ 114,036 and $ 105,575 , with cash payments of $ 36,698 , $ 35,837 +and $ 49,935 made to the investor for the difference between the monthly conversion price and the floor price listed in the most recent +amendment to the agreement. Additionally, losses in the amounts of $ 36,770 , $ 24,873 and $ 30,510 , respectively, were recognized for the +difference between the value of the shares issued and the principal payment amounts. +On +December 29, 2023, the Company entered into an amendment to the Second Tranche Note of the October 2023 SPA, which reduced the conversion +price of note and exercise price of warrant from $ 24.00 to $ 10.00 ; the Company accounted for the amendment as a warrant modification, +whereby the effect of the modification is measured as the difference in its relative fair value immediately before the modification and +after the modification, and any increase to the relative fair value is recognized as an equity issuance cost. +To +assess for the change in relative fair value, the Company performed a Black Scholes Option Model calculation to quantify the fair value +of the common warrants under their original terms as of the modification date using the following assumptions: a share price of $ 6.20 , +an exercise price of $ 24.00 , an expected term of 5.0 years, volatility of 137.1 %, a dividend rate of 0 % and a discount rate of 3.84 %. +The Company then performed a Black Scholes Option Model calculation to quantify the fair value of the common warrants with their new +modified terms as of the modification date using the following assumptions: a share price of $ 6.20 , an exercise price of $ 10.00 , an expected +term of 5.0 years, volatility of 137.1 %, a dividend rate of 0 % and a discount rate of 3.84 %. The aggregate difference of approximately +$ 0.1 million between the two calculated amounts was recorded as an equity issuance cost within equity during the period to account for +the change in relative fair value. +On +January 2, 2024, the second tranche of the October 2023 SPA was funded, and the Company recorded gross proceeds of approximately $ 550,000 , +a 7 % original issue discount of $ 38,500 and debt issuance costs of $ 90,978 , for net proceeds of approximately $ 421,000 . The Company also +issued warrants to purchase up to 22,279 shares of common stock with an aggregate relative fair value of $ 98,708 ; the factors used to +determine fair value were a share price of $ 6.40 , an exercise price of $ 10.00 , an expected term of 5 years, annualized volatility of +137.10 %, a dividend rate of zero percent and a discount rate of 3.93 %. +F- 19 +On +February 1, 2024, February 16, 2024, March 22, 2024 and April 2, 2024, the Company made principal payments towards the first tranche +in the amounts of $ 625,000 , $ 125,000 , $ 125,000 , and $ 750,000 , respectively, which it converted into shares at 103 % for conversion amounts +of $ 643,750 , $ 128,750 , $ 128,750 and $ 772,500 , respectively. Conversion shares were issued numbering 91,965 , 42,917 , 42,917 and 257,500 , +respectively, at fair values per share of $ 4.80 , $ 2.60 , $ 2.00 and $ 3.40 , respectively, for total amounts of $ 441,428 , $ 113,300 , $ 84,117 +and $ 881,165 , with a cash payment of $ 32,247 made to the investor for the difference between the monthly conversion price and the floor +price listed in the most recent amendment to the agreement for the February 16, 2024 conversion. Additional shares of 119,796 and 17,576 , +respectively, were issued on February 1, 2024 and April 15, 2024, respectively, at fair values of $ 4.80 and $ 12.60 , respectively, for +total amounts of $ 574,779 and $ 221,449 , respectively; these share issuances were made in lieu of additional cash payments related to +the February 1, 2024 and March 22, 2024 principal payment conversions. Additionally, losses in the amounts of $ 391,447 , $ 20,547 , $ 180,566 +and $ 131,165 , respectively, were recognized for the difference between the value of the shares issued and the principal payment amounts. +On +February 5, 2024, the Company entered into the first amendment to the First Tranche Note of the October 2023 SPA; such amendment provides +for i) a reduction of the floor price of the conversion price from $ 7.00 to $ 3.00 , ii) the issuance of additional 119,796 shares of common +stock (as noted above) to the investor in lieu of the Company’s obligation to pay cash installments under the First Tranche Note, +and iii) a new obligation of the Company to request acceleration of monthly payments in installments of $250,000 as soon as possible +to repay the remaining $1,000,000 principal balance of the First Tranche Note, with the investor converting and selling shares subject +to a) the beneficial ownership limitation of 4.99% and b) market prices of the Company’s common stock being at or above the floor +price of $3.00. +On +February 2, 2024 and February 5, 2024, the Company made principal payments towards the second tranche in the amounts of $ 275,000 and +$ 275,000 , respectively, which it converted into shares at 103 % for conversion amounts of $ 283,250 and $ 283,250 , respectively. Conversion +shares were issued numbering 94,417 and 94,417 , respectively, at fair values per share of $ 3.40 and $ 3.60 , respectively, for total amounts +of $ 323,094 and $ 339,334 , respectively. Additionally, losses in the amounts of $ 48,094 and $ 64,334 , respectively, were recognized for +the difference between the value of the shares issued and the principal payment amounts. +As +of April 2024, both tranches of the October 2023 SPA were fully repaid, and as of October 31, 2024 and 2023, the balance of the convertible +notes, net of discounts, was $ 0 and $ 1,217,597 , respectively, with non-cash interest expense related to discounts recognized in the amounts +of $ 1,063,372 and $ 40,547 , respectively. +March +2024 Debt Financing +The +Company executed a Securities Purchase Agreement, dated March 27, 2024 (the “SPA”) with an institutional investor (the “March +2024 Investor”), which March 2024 Investor signed and funded on April 5, 2024, and pursuant to which the Company raised gross proceeds +of $ 184,500 and received net proceeds of $ 164,500 , after payment of offering expenses (the “March 2024 Debt Financing”). +The SPA contains certain representations and warranties by the March 2024 Investor and the Company and customary closing conditions. +In +connection with the March 2024 Debt Financing, the Company issued an unsecured promissory note to the March 2024 Investor, dated March +27, 2024, in the principal amount of $ 211,500 , having an original issue discount of $ 27,000 or approximately 13 % (the “March 2024 +Investor Note”). Interest accrues on the March 2024 Investor Note at a rate of 12 % per annum and the maturity date of the March +2024 Investor Note is January 30, 2025 (the “March 2024 Investor Note Maturity Date”). The March 2024 Investor Note provides +for five payments of principal and accrued interest which are payable: (i) $ 118,440 on September 30, 2024; (ii) $ 29,610 on October 30, +2024; (iii) $ 29,610 on November 30, 2024; (iv) $ 29,610 on December 30, 2024; and (v) $ 29,610 on January 30, 2025. The Company may prepay +the March 2024 Investor Note, in full and not in part, any time during the 180 day period after the issuance date of the Investor Note +at a 3 % discount to the outstanding amount of principal and interest due and payable; provided, that in the event of a prepayment, the +Company will still be required to pay the full amount of interest that would have been payable through the term of the March 2024 Investor +Note, in the amount of $ 25,380 . The Investor Note contains provisions constituting an Event of Default (as such term is defined in the +March 2024 Investor Note) and, upon an Event of Default, the March 2024 Investor Note will be accelerated and become due and payable +in an amount equal to 150% of all amounts due and payable under the March 2024 Investor Note with interest at a default rate of 22% per +annum. In addition, upon an Event of Default, the March 2024 Investor has the right to convert all or any outstanding amount of the March +Investor Note into shares of the Company’s common stock at a conversion price equal to the greater of (i) 75% of the Market Price +(as such term is defined in the March 2024 Investor Note) or (ii) the conversion floor price, which is $ 1.42340 (the “Floor Price”); +provided, however, that the Floor Price shall not apply after October 5, 2024, and thereafter, the conversion price will be 75% of the +Market Price. Issuance of shares of common stock to the March 2024 Investor is subject to certain beneficial ownership limitations and +not more than 19.99% of the shares of common stock outstanding on March 29, 2024 may be issued upon conversion of the March 2024 Investor +Note. The conversion price is also subject to certain adjustments or other terms in the event of (i) mergers, consolidations or recapitalization +events or (ii) certain distributions made to holders of shares of common stock. +On +September 30, 2024 and October 30, 2024, the Company made cash payments in the amounts of $ 118,440 and $ 29,610 , respectively, and as +of October 31, 2024 and 2023, the balance of the promissory note, net of discounts, was $ 67,514 and $ 0 , respectively, with non-cash interest +expense related to discounts recognized in the amounts of $ 51,064 and $ 0 for the years ended October 31, 2024 and 2023, respectively. +Note +Payable – Related Party +On +March 26, 2024, the Company borrowed $ 125,000 from its Chief Executive Officer, Michael L. Peterson, in connection with which the Company +delivered to Mr. Peterson an Unsecured Subordinated Promissory Note in the principal amount of $ 125,000 . The Note is payable on or before +September 26, 2024, upon which date the principal balance and interest accruable at a rate of 10 % per annum is due and payable to Mr. +Peterson by the Company. The Company may prepay the Peterson Note at any time prior to the Peterson Note Maturity Date, in whole or in +part, without premium or penalty. The Company is also required to prepay the Peterson Note, in full, prior to the Peterson Note Maturity +Date from the proceeds of any equity or debt financing received by the Company of at least $ 1,000,000 . As additional consideration for +the Peterson Loan, the Company accelerated the vesting of 50,000 shares of restricted stock awarded to Mr. Peterson under the Company’s +2022 Equity Incentive Plan. The Peterson Note also provides for acceleration of payment of the outstanding principal balance and all +accrued and unpaid interest in the case of an Event of Default (as such term is defined in the Peterson Note), where there is either +a payment default or a bankruptcy event. +F- 20 +On +September 26, 2024 and October 28, 2024, the Company entered into the first and second amendments, respectively, to the Peterson Note; +each amendment extended the maturity dates to October 28, 2024 and November 30, 2024, respectively, and added a $ 5,000 extension fee +(per amendment) to the principal of the note. As of October 31, 2024 and 2023, the Peterson Note had a principal balance of $ 135,000 +and $ 0 , respectively, and accrued interest on the loan in the amounts of $ 7,586 and $ 0 , respectively. +April +2024 Convertible Debt Financings +On +April 24, 2024, the Company entered into an Amended and Restated Securities Purchase Agreement (the “A&R SPA”), pursuant +to which two institutional investors (the “April 2024 Investors”) provided an aggregate of $ 720,000 in financing on April +17, 2024 and April 24, 2024 (the “April 2024 Financings’) resulting in net proceeds to the Company, after offering expenses, +of $ 664,000 . The Company also issued to the April 2024 Investors an aggregate of 75,000 shares of common stock, as and for a commitment +fee in connection with the April 2024 Financings (the “Commitment Shares”). The commitment shares were issued separately +in two amounts of 37,500 common shares at fair values of $ 9.80 per share and $ 8.00 per share for values totaling $ 366,000 and $ 301,500 , +respectively; such amounts are debt issuance costs and were recorded as debt discounts to be amortized over the life of the agreement. +Pursuant +to the provisions of the A&R SPA, the Company granted “piggy-back registration rights” to the April 2024 Investors for +the registration for resale of the Commitment Shares and the Conversion Shares (defined hereafter). Additionally, until 18 months after +the later of (i) August 16, 2024 or the full repayment of the April 2024 Investors Notes (defined hereafter), the Company provided the +April 2024 Investors with the right to jointly participate in future financings in an amount up to 100 % of any debt financing and up +to 45 % of any other type of financing. Further, the Company is prohibited from entering into any variable rate transactions for as long +as the April 2024 Investors hold any of the Commitment Shares; provided, however, that the Company is permitted to enter into At-the-Market +offerings with a nationally recognized broker-dealer. The Company has also agreed to use commercially reasonable efforts to consummate +a reverse stock split of its shares of common stock, in the event that it is required in order to maintain the listing of its common +stock on the NYSE American. +In +connection with the April 2024 Financings, the Company issued Senior Secured Convertible Promissory Notes to the April 2024 Investors +in the aggregate principal amount of $ 800,000 (the “April 2024 Investors Notes”), having an aggregate original issue discount +of $ 80,000 , or 10 % of the aggregate principal amount of the April Notes. There is no interest payable on the outstanding balance of the +April 2024 Investors Notes, unless an Event of Default has occurred, in which case interest will accrue on the outstanding balance of +the April 2024 Investors Notes at a rate of 15 % per annum until cured (the “Default Interest”). The Company may prepay all +or any portion of the April 2024 Investors Notes at any time, provided that it also makes an equal prepayment, with respect to each of +the April 2024 Investors Notes, and must prepay both of the April 2024 Investors Notes in full from the proceeds of any debt or equity +financing of the Company generating, in a single transaction or a series of related transactions, gross proceeds of not less than $ 1,000,000 , +during any time that either of the April 2024 Investors Notes remain outstanding. In May 2024, the April 2024 Investors have provided +limited waivers to the Company, which waivers require the Company to only pay 50 % of the outstanding balance of the April 2024 Investors +Notes upon any equity or debt financing generating less than $ 5,000,000 in gross proceeds if such financing takes place before June 30, +2024. The maturity date of both April 2024 Investors Notes is August 16, 2024 . The Company also incurred debt issuance costs of $ 56,000 +in connection with the issuance of the April 2024 Investor Notes; the values of such costs and the original issue discount noted above +(which total $ 136,000 ) are recorded as debt discounts and amortized as the life of the April 2024 Investors Notes. +The +April 2024 Investors Notes are convertible into shares common stock of the Company (the “Conversion Shares”) at a per share +conversion price of $ 5.00 , subject to certain adjustments. The April 2024 Investors Notes also contain certain beneficial ownership limitations +prohibiting the April 2024 Investors from converting the April 2024 Investors Notes, if any such conversion would result in an April +2024 Investor’s ownership of shares in excess of the applicable beneficial ownership limitation. The April 2024 Investors Notes +also contain customary provisions constituting an Event of Default (as such term is defined in the April 2024 Investors Notes) and, in +addition to the requirement to pay Default Interest upon an Event of Default, after an Event of Default has existed for at least 15 days +without being cured, the April 2024 Investors Notes may be accelerated by the April 2024 Investors, in which case they will become immediately +due and payable. +The +Company also granted to the April 2024 Investors a senior security interest in and to all of the Company’s assets and non-real +estate properties, subject to certain exceptions, securing repayment of the April 2024 Investors Notes as set forth in an Amended and +Restated Security Agreement, dated April 24, 2024, between the Company and the April 2024 Investors (the “A&R Security Agreement”). +On +August 6, 2024, in connection with a financing dated on that date, the Company made two cash payments of $ 25,000 each from the proceeds +of such financing to each of the April 2024 Investors Notes. +On +August 14, 2024, the Company entered into an amendment to the April 2024 Debt Financings to extend the maturity dates of the notes from +August 16, 2024 to September 16, 2024; the amendment also provided for the accrual of interest on the outstanding principal balance of +the notes at a rate of 15 % per annum from August 16, 2024, until the notes were repaid. +On +October 1, 2024, the Company made aggregate principal payments towards the April 2024 Debt Financings in the amount of $ 682,031 (of which +$ 7,031 was in interest) which it converted into 224,291 shares at a conversion price of approximately $ 3.44 per share; such share issuances +were recorded at a fair value of $ 3.66 per share for a total amount of $ 729,405 and a loss on conversion of $ 47,373 for the difference +between the value of the shares issued and the principal payment amounts. +On +October 18, 2024, the Company made a final principal payment towards the April 2024 Debt Financings in the amount of $ 75,000 which it +converted into 25,000 shares at a conversion price of approximately $ 3.00 per share; such share issuance was recorded at a fair value +of $ 3.10 per share for a total amount of $ 77,450 and a loss on conversion of $ 2,450 for the difference between the value of the shares +issued and the principal payment amount. +As +of October 31, 2024 and 2023, the balance of the April 2024 Debt Financings was $ 0 as of both dates, with non-cash interest expense related +to discounts recognized in the amounts of $ 816,445 and $ 0 for the years ended October 31, 2024 and 2023, respectively. +F- 21 +June +2024 Convertible Debt Financings +On +June 27, 2024, the Company entered into a securities purchase agreement (the “June 2024 SPA”) with the same April 2024 Investors +(the “June 2024 Investors”). Pursuant to the terms and conditions of the June 2024 SPA, each June 2024 Investor provided +financing of $ 360,000 to the Company (net of a 10 % original issuance discount as described below) in the form of the June 2024 Notes +(as defined below) for aggregate gross proceeds in the amount of $ 720,000 (the “June 2024 Financing”) and net proceeds to +the Company, after offering expenses, of $ 676,200 . In consideration of the June 2024 Investors’ funding under the June 2024 SPA, +on June 27, 2024, the Company issued and sold to each June 2024 Investor: (A) a Senior Secured 10 % Original Issue Discount Convertible +Promissory Note in the aggregate principal amount of $ 400,000 (the “June 2024 Notes”) and (B) a warrant to purchase 37,231 +shares (the “June 2024 Warrant Shares”) of the company’s Common Stock, at an initial exercise price of $ 7.90500 per +share of Common Stock, subject to certain adjustments (the “June 2024 Warrants”). The June 2024 Warrants (which are for the +purchase of an aggregate 74,461 common shares) were recorded as equity warrants with an aggregate relative fair value of $ 257,701 ; the +factors used to determine fair value were a share price of $ 6.00 , an exercise price of $ 7.90500 , an expected term of 5 years, annualized +volatility of 132.52 %, a dividend rate of zero percent and a discount rate of 4.29 %. +The +June 2024 Notes are initially convertible into shares of Common Stock (the “June 2024 Conversion Shares”) at a conversion +price of $ 7.90500 per share, subject to certain adjustments (the “June 2024 Notes Conversion Price”), provided that the June +2024 Conversion Price shall not be reduced below $ 2.40 (the “June 2024 Floor Price”), and provided further that, subject +to the applicable rules of the NYSE American, the Company may lower the June 2024 Floor Price at any time upon written notice to the +June 2024 Investors. The June 2024 Notes do not bear any interest, except in the case of an Event of Default (as such term is defined +in the June 2024 Notes), and the June 2024 Notes mature on June 27, 2025. Upon the occurrence of any Event of Default, interest shall +accrue on the June 2024 Notes at a rate equal to 10% per annum or, if less, the highest amount permitted by law. +Commencing +on the 90 th day following the original issue date of the June 2024 Notes, the Company is required to pay to the June 2024 +Investors the outstanding principal balance under the June 2024 Notes in monthly installments, on such date and each one (1) month anniversary +thereof, in an amount equal to 103 % of the total principal amount under the June 2024 Notes multiplied by the quotient determined by +dividing one by the number of months remaining until the maturity date of the June 2024 Notes, until the outstanding principal amount +under the June 2024 Notes has been paid in full or, if earlier, upon acceleration, conversion or redemption of the June 2024 Notes in +accordance with their terms. All monthly payments are payable by the Company in cash, provided that under certain circumstances, as provided +in the June 2024 Notes, the Company may elect to pay in shares of Common Stock. +The +Company may repay all or any portion of the outstanding principal amount of the June 2024 Notes, subject to a 5 % pre-payment premium; +provided that (i) the Equity Conditions (as such term is defined in the June 2024 Notes) are then met, (ii) the closing price of the +Common Stock on the trading day prior to the date that a prepayment notice is provided by the Company is not below the then June 2024 +Conversion Price, and (iii) a resale registration statement registering June 2024 Conversion Shares and June Financing Warrant Shares +has been declared effective by SEC. If the Company elects to prepay the June 2024 Notes, the June 2024 Investors have the right to convert +all of the principal amount of the June 2024 Notes at the applicable June 2024 Conversion Price into June 2024 Conversion Shares. +On +September 26, 2024, October 1, 2024, and October 30, 2024, the Company made principal payments towards the June 2024 Notes in the amounts +of $ 88,888 , $ 50,000 and $ 88,888 , respectively, which it converted into shares at 103 % for conversion amounts of $ 91,556 , $ 51,500 and +$ 91,556 , respectively. Conversion shares were issued numbering 30,520 , 17,167 and 38,150 , respectively, at fair values per share of $ 3.38 , +$ 3.66 and $ 2.58 , respectively, for total amounts of $ 103,091 , $ 62,830 and $ 98,422 , respectively. Losses in the amounts of $ 14,203 , $ 12,830 +and $ 9,534 , respectively, were recognized for the difference between the value of the shares issued and the principal payment amounts. +An additional 2,317 shares were issued on October 11, 2024 at a fair value of $ 3.38 for a total amount of $ 7,838 ; the share issuance +was made to satisfy a make-whole-share provision which the debtor is entitled to when the effective price of the shares becomes less +than the floor price. +As +of October 31, 2024 and 2023, the balance of the June 2024 Notes was $ 322,419 and $ 0 , respectively, with noncash interest expense recognized +for the amortization of debt discounts of $ 131,696 and $ 0 for the years ended October 31, 2024 and 2023, respectively. +August +1, 2024 Financing +On +August 1, 2024, the Company entered into a Securities Purchase Agreement (the “August 1 st SPA”) with an investor, +pursuant to which the Company raised gross proceeds of $ 134,000 and received net proceeds of $ 110,625 ; in connection with the financing, +the Company issued an unsecured promissory note to the investor in the principal amount of $ 152,000 and an original issue discount of +$ 18,000 or approximately 11.8 %. Interest accrues on the note at a rate of 12 % per annum and the maturity date of the note is May 30, +2025 . The note provides for five payments of principal and accrued interest which are payable: (i) $ 85,120 on January 30, 2025; (ii) +$ 21,280 on February 28, 2025; (iii) $ 21,280 on March 30, 2025; (iv) $ 21,280 on April 30, 2025; and (v) $ 21,280 on May 30, 2025. Subject +to certain restrictions, the Company may prepay the note, in full and not in part, any time during the 180 day period after the issuance +date at a 3 % discount to the outstanding amount of principal and interest due and payable; provided, that in the event of a prepayment, +the Company will still be required to pay the full amount of interest that would have been payable through the term of the note, in the +amount of $ 18,240 . +As +of October 31, 2024 and 2023, the balance of the August 1, 2024 Financing was $ 128,588 and $ 0 , respectively, with noncash interest expense +recognized for the amortization of debt discounts of $ 17,963 and $ 0 for the years ended October 31, 2024 and 2023, respectively. +August +6, 2024 Financing +On +August 6, 2024, the Company entered into a Securities Purchase Agreement (the “August 6 th SPA”) with an investor, +pursuant to which the Company raised gross proceeds of $ 225,000 and received net proceeds of $ 199,250 ; in connection with the Financing, +the Company issued an unsecured promissory note to the investor in the principal amount of $ 255,225 , having an original issue discount +of $ 30,225 or approximately 11.8 %. Interest accrues on the note at a rate of 12 % per annum and the maturity date of the note is May 30, +2025 . The note provides for five payments of principal and accrued interest which are payable: (i) $ 142,926 on January 30, 2025; (ii) +$ 35,731.50 on February 28, 2025; (iii) $ 35,731.50 on March 30, 2025; (iv) $ 35,731.50 on April 30, 2025; and (v) $ 35,731.50 on May 30, +2025. Subject to certain restrictions, the Company may prepay the note, in full and not in part, any time during the 180 day period after +the issuance date at a 3 % discount to the outstanding amount of principal and interest due and payable; provided, that in the event of +a prepayment, the Company will still be required to pay the full amount of interest that would have been payable through the term of +the note, in the amount of $ 30,627 . +F- 22 +Additionally, +in conjunction with two prior investors and the April 2024 Debt Financing, the Company will make two payments of $ 25,000 to each of the +prior investors from the net proceeds of this financing. +As +of October 31, 2024 and 2023, the balance of the August 6, 2024 Financing was $ 224,327 and $ 0 , respectively, with noncash interest expense +recognized for the amortization of debt discounts of $ 25,077 and $ 0 for the years ended October 31, 2024 and 2023, respectively. +NOTE +11 – STOCKHOLDERS’ EQUITY +Common +Shares +The +Company is authorized to issue an aggregate of 25,000,000 shares. The authorized capital stock is divided into: (i) 24,500,000 shares +of common stock having a par value of $ 0.0001 per share and (ii) 500,000 shares of preferred stock having a par value of $ 0.0001 per +share. +In +December 2022, the Company entered into subscription agreements with two accredited investors for the aggregate issuance of 20,000 common +shares for aggregate gross cash proceeds of $ 400,000 . The common shares are $ 0.0001 par value and had a purchase price of $ 20.00 per +share. +In +April 2023, the Company consummated its IPO and sold 100,000 shares of common stock at a public offering price of $ 60.00 per share for +gross proceeds of $ 6,000,000 . +In +April 2023, upon consummation of its IPO, the Company also issued 18,750 commitment shares, the number of which was calculated by taking +25 % of the outstanding principal balance of the January 2022 Notes of $ 4,500,000 and dividing it by the IPO price of $ 60.00 per share +On +April 20, 2023, the Company issued 625 shares of common stock at a fair value of $ 40.00 per share to consultants in exchange for services +rendered; the aggregate amount of $ 25,000 was recorded as fees for professional services as of the end of the period. +On +May 1, 2023, the Company issued 35,000 restricted shares to six of its employees pursuant to the Plan (see Note 6); the shares were recorded +at a fair value of $ 43.00 per share for an aggregate grant date fair value of $ 1,505,000 , and for the years ended October 31, 2024 and +2023, the Company recognized stock-based compensation of $ 753,188 and $ 440,219 , respectively, within stock-based compensation expenses +on the income statement, with unrecognized expense of $ 311,593 as of the period ended October 31, 2024. +On +May 2, 2023, June 23, 2023 and July 11, 2023, the Company issued 1,250 , 5,000 and 5,000 shares of common stock, par value of $ 0.0001 , +respectively, at a fair value of $ 42.00 , $ 17.60 and $ 24.20 , respectively, to consultants in exchange for services rendered; the aggregate +amounts of $ 52,500 , $ 88,000 and $ 121,000 , respectively, were recorded as fees for professional services as of the end of the period. +On +June 30, 2023, the Company issued 2,400 shares of common stock, par value of $ 0.0001 , at a fair value of $ 33.40 to Marcum, LLP for an +aggregate amount of $ 80,159 for partial satisfaction of an account payable. +On +June 30, 2023, the Company issued a Form S-1/A, which registered for resale (i) up to 157,466 shares of common stock, par value $0.0001 +per share which the selling stockholders may acquire upon the exercise of outstanding common warrants and (ii) up to 25,000 shares of +common stock, which the selling stockholders may acquire upon the exercise of outstanding pre-funded warrants. Such warrants were issued +to the selling stockholders in connection with securities purchase agreements entered into on January 28, 2022 and September 20, 2022. +The Company recorded 34,993 shares of common stock that are not exercised but registered in accordance with their common warrant agreements +and 25,000 shares of common stock that are not exercised but registered in accordance with their pre-funded warrant agreements upon the +filing of this Form S-1/A . +On +July 20, 2023, the Company issued 10,000 restricted shares pursuant to the Plan to Mr. Ingriselli (see Note 6) at a fair value of $ 21.40 +per share for an aggregate fair value of $ 213,000 . The shares vested fully on July 24, 2023 and the Company recognized stock-based compensation +for the full value of the shares as of the end of the period. +On +September 2, 2023, the Company issued 21,250 shares of its $ 0.0001 par common stock to four outside Directors with a fair value of $ 12.80 +per share for a grant date value of $ 273,275 . The shares, or RSUs, vest in full upon the six-month anniversary of the vesting commencement +date (or August 28,2023), subject to the directors’ continued service on the vesting date. For the years ended October 31, 2024 +and 2023, the Company recognized stock-based compensation in the amount of $ 177,259 and $ 96,016 , respectively, within stock-based compensation +expenses on the income statement, with no unrecognized expense as of the period ended October 31, 2024. +On +October 16, 2023, pursuant to the Peterson Employment Agreement, the Company issued Mr. Peterson is a grant of 50,000 shares of restricted +stock pursuant to the Plan at a fair value of $ 5.40 per share for a grant date fair value of $ 271,000 . The restricted stock grant vests +over a period of two years, with 25% of the shares of restricted stock vesting six months after the Peterson Employment Agreement Effective +Date, and the remainder vesting in equal tranches on each of the 12-, 18-, and 24-month anniversary dates of the Peterson Employment +Agreement . As of October 31, 2024 and 2023, the Company recognized stock-based compensation of $ 267,659 and $ 3,341 , respectively, within +stock-based compensation expenses on the income statement, with no unrecognized expense as of October 31, 2024. +On +November 11, 2023, the Company entered into an agreement with a vendor to provide marketing and distribution services for a period of +six months, with compensation in the form of 10,000 shares. The Company issued the vendor 10,000 common shares at a fair market value +price of $ 9.60 per share for a total amount of $ 95,200 ; this amount was recognized as marketing fees in the first and second quarters +of 2024. +F- 23 +On +December 18, 2023, December 29, 2023 and January 12, 2024, the Company issued conversion shares which numbered 18,393 , 18,393 and 18,393 , +respectively, at fair values per share of $ 6.80 , $ 6.20 and $ 5.80 , respectively, for total amounts of $ 125,072 , $ 114,036 and $ 105,575 , +with cash payments of $ 36,698 , $ 35,837 and $ 49,935 made to the investor for the difference between the monthly conversion price and the +floor price listed in the most recent amendment to the agreement (see Note 9). Additionally, losses in the amounts of $ 36,770 , $ 24,873 +and $ 30,510 , respectively, were recognized for the difference between the value of the shares issued and the principal payment amounts. +On +February 1, 2024, February 16, 2024, March 22, 2024 and April 2, 2024, the Company issued conversion shares numbering 91,965 , 42,917 , +42,917 and 257,500 , respectively, at fair values per share of $ 4.80 , $ 2.60 , $ 2.00 and $ 3.40 , respectively, for total amounts of $ 441,428 , +$ 113,300 , $ 84,117 and $ 881,165 , with a cash payment of $ 32,247 made to the investor for the difference between the monthly conversion +price and the floor price listed in the most recent amendment to the agreement for the February 16, 2024 conversion (see Note 9). Additional +shares of 119,796 and 17,576 , respectively, were issued on February 1, 2024 and April 15, 2024, respectively, at fair values of $ 4.80 +and $ 12.60 , respectively, for total amounts of $ 574,779 and $ 221,449 , respectively; these share issuances were made in lieu of additional +cash payments related to the February 1, 2024 and March 22, 2024 principal payment conversions. Additionally, losses in the amounts of +$ 391,447 , $ 20,547 , $ 180,566 and $ 131,165 , respectively, were recognized for the difference between the value of the shares issued and +the principal payment amounts. +On +February 2, 2024 and February 5, 2024, the Company made principal payments towards the second tranche in the amounts of $ 275,000 and +$ 275,000 , respectively, which it converted into shares at 103 % for conversion amounts of $ 283,250 and $ 283,250 , respectively. Conversion +shares were issued numbering 94,417 and 94,417 , respectively, at fair values per share of $ 3.40 and $ 3.60 , respectively, for total amounts +of $ 323,094 and $ 339,334 , respectively. Additionally, losses in the amounts of $ 48,094 and $ 64,334 , respectively, were recognized for +the difference between the value of the shares issued and the principal payment amounts. +On +March 20, 2024, the Company issued 5,000 shares of common stock to a consultant as a settlement for non-performed marketing services +per an agreement dated November 2021; such shares were issued at a fair value of $ 2.20 per share for a total value of $ 10,500 . +On +March 26, 2024, the Company entered into an agreement with consultants to provide marketing services; the agreement has an effective +date of April 26, 2024 and a term from April 1, 2024 through June 30, 2024. The terms provide for a one-time cash payment of $ 100,000 +or, in lieu of a cash payment, the Company may elect to complete a one-time equity issuance in the form of 50,000 shares of common stock, +as well as three monthly cash payments totaling $ 30,000 to be paid in the first fiscal half of 2024. The Company issued 50,000 shares +of common stock at a fair value of $ 7.40 per share for a total amount of $ 368,000 . +On +April 16, 2024 and April 24, 2024, the Company issued 37,500 shares of common stock and 37,500 shares of common stock respectively, to +the April 2024 Investors as and for a commitment fee in connection with the April 2024 Financings. The commitment shares were issued +at fair values of $ 9.80 per share and $ 8.00 per share, respectively, for values totaling $ 366,000 and $ 301,500 , respectively. +On +April 29, 2024, the Company entered into an agreement with consultants to provide marketing services; the agreement has a term from April +29, 2024 through October 29, 2024. The terms provide for a $ 30,000 cash payment and the issuance of 30,000 shares of common stock. The +Company issued 30,000 shares of common stock at a fair value of $ 7.40 per share for a total amount of $ 220,800 . +On +September 9, 2024, the Company entered into a media advertising agreement with a consultant; the agreement has an initial term of sixty +days and provides for a $ 100,000 cash payment ($ 50,000 upon signing and $ 50,000 after 30 days) and the issuance of 12,500 shares of common +stock. The Company issued the shares at a fair value of $ 3.60 for a total amount of $ 43,800 . +On +September 26, 2024, October 1, 2024, and October 30, 2024, the Company made principal payments towards the June 2024 Notes in the amounts +of $ 88,888 , $ 50,000 and $ 88,888 , respectively, which it converted into shares at 103 % for conversion amounts of $ 91,556 , $ 51,500 and +$ 91,556 , respectively. Conversion shares were issued numbering 30,520 , 17,167 and 38,150 , respectively, at fair values per share of $ 3.38 , +$ 3.66 and $ 2.58 , respectively, for total amounts of $ 103,091 , $ 62,830 and $ 98,422 , respectively. An additional 2,317 shares were issued +on October 11, 2024 at a fair value of $ 3.38 for a total amount of $ 7,838 ; the share issuance was made to satisfy a make-whole-share +provision which the debtor is entitled to when the effective price of the shares becomes less than the floor price. +On +October 1, 2024, the Company made aggregate principal payments towards the April 2024 Debt Financings in the amount of $ 682,031 (of which +$ 7,031 was in interest) which it converted into 224,291 shares at a conversion price of approximately $ 3.44 per share; such share issuances +were recorded at a fair value of $ 3.66 per share for a total amount of $ 729,405 and a loss on conversion of $ 47,373 for the difference +between the value of the shares issued and the principal payment amounts. +On +October 18, 2024, the Company made a final principal payment towards the April 2024 Debt Financings in the amount of $ 75,000 which it +converted into 25,000 shares at a conversion price of approximately $ 3.00 per share; such share issuance was recorded at a fair value +of $ 3.10 per share for a total amount of $ 77,450 and a loss on conversion of $ 2,450 for the difference between the value of the shares +issued and the principal payment amount. +F- 24 +Warrants +Other +Warrants +In +December 2022, the Company entered into subscription agreements with two accredited investors for the aggregate issuance of 20,000 common +shares, as well as warrants to purchase additional shares up to the initial subscription amount; the warrants are exercisable for two +years and have an exercise price equal to fifty percent of the price per share the Company sells its common shares in its IPO. The warrants +were determined to be equity classified and were recorded at fair value in additional paid-in capital on the balance sheet for the period. +Their fair value was based on the price the third-party investors paid for the original subscription agreements described above. +In +April 2023, the Company also issued warrants to purchase 5,000 shares of common stock to the underwriters at an exercise price of $ 66.00 +per share. +October +2023 SPA with Warrants +On +October 4, 2023 and December 29, 2023, the Company entered into placement agent agreements with Spartan (see Note 8 for further information) +for their role in connection with the two tranche fundings related to the October 2023 SPA; among other things, the agreements provide +the agent with equity-classified warrants to purchase a number of common shares equal to 5% of the number of common shares initially +issuable upon conversion of each note tranche. For the first tranche, the Company issued to Spartan warrants to purchase 4,167 shares +of common stock with a fair value of $ 38,029 ; the factors used to determine fair value were a share price of $ 11.00 , an exercise price +of $ 26.40 , an expected term of 5 years, annualized volatility of 137.10 %, a dividend rate of zero percent and a discount rate of 4.72 %. +For the second tranche, the Company issued to Spartan warrants to purchase 2,750 common shares of common stock with a fair value of $ 14,753 ; +the factors used to determine fair value were a share price of $ 6.40 , an exercise price of $ 11.00 , an expected term of 5 years, annualized +volatility of 137.10 %, a dividend rate of zero percent and a discount rate of 3.93 %. +On +January 2, 2024, the second tranche of the October 2023 SPA was funded (see Note 9 for further information); in connection with this +funding, the Company issued to the investor equity warrants to purchase up to 22,279 shares of common stock with an aggregate relative +fair value of $ 98,708 ; the factors used to determine fair value were a share price of $ 6.40 , an exercise price of $ 10.00 , an expected +term of 5 years, annualized volatility of 137.10 %, a dividend rate of zero percent and a discount rate of 3.93 %. +June +2024 SPA with Warrants +On +June 27, 2024, the Company entered into the June 2024 SPA with the June 2024 Investors (see Note 9 above); pursuant to the terms and +conditions of the agreement, in consideration for providing financing, the Company issued to each June 2024 Investor a warrant to purchase +37,231 shares of the Company’s common stock, at an initial exercise price of $ 7.90500 per share. The June 2024 Warrants (which +are for the purchase of an aggregate 74,461 common shares) were recorded as equity warrants with an aggregate relative fair value of +$ 257,701 ; the factors used to determine fair value were a share price of $ 6.00 , an exercise price of $ 7.90500 , an expected term of 5 +years, annualized volatility of 132.52 %, a dividend rate of zero percent and a discount rate of 4.29 %. +F- 25 +A +summary of the warrant activity during the years ended October 31, 2024 and 2023 is presented below: +SCHEDULE OF WARRANT ACTIVITY +Weighted +Weighted +Average +Average +Remaining +Number +of +Exercise +Life +in +Intrinsic +Warrants +Price +Years +Value +Outstanding, +November 1, 2022 +- +$ - +- +$ - +Issued +238,803 +20.77 +3.1 +- +Exercised +( 145,065 ) +20.51 +- +Cancelled +- +- +Expired +( 5,402 ) +- +Outstanding, +November 1, 2023 +88,336 +22.35 +3.9 +211,200 +Issued +103,658 +9.18 +4.5 +- +Exercised +- +- +- +- +Cancelled +- +- +- +- +Expired +- +- +- +- +Outstanding, +October 31, 2024 +191,994 +$ 15.24 +3.8 +$ 47,160 +Exercisable, +October 31, 2024 +191,994 +$ 15.24 +3.8 +$ 47,160 +A +summary of outstanding and exercisable warrants as of October 31, 2024 is presented below: +SCHEDULE OF OUTSTANDING AND EXERCISABLE WARRANTS +Warrants +Outstanding +Warrants +Exercisable +Weighted +Average +Exercise +Number +of +Remaining +Number +of +Price +Shares +Life +in Years +Shares +$ 0.20 +20,000 +3.5 +20,000 +$ 30.00 +20,000 +0.1 +20,000 +$ 66.00 +5,000 +3.5 +5,000 +$ 24.00 +43,336 +3.9 +43,336 +$ 26.40 +4,167 +3.9 +4,167 +$ 10.00 +22,279 +4.2 +22,279 +$ 11.00 +2,750 +4.2 +2,750 +$ 7.91 +74,462 +4.7 +74,462 +191,994 +3.8 +191,994 +F- 26 +Stock +Options +A +summary of the option activity during the years ended October 31, 2024 and 2023 is presented below: +SCHEDULE OF STOCK OPTION ACTIVITY +Weighted +Weighted +Average +Average +Remaining +Number +of +Exercise +Life +in +Intrinsic +Options +Price +Years +Value +Outstanding, +November 1, 2022 +- +$ - +- +$ - +Issued +6,000 +10.46 +4.8 +1,800 +Outstanding, +November 1, 2023 +6,000 +10.46 +4.8 +1,800 +Issued +- +- +- +- +Exercised +- +- +- +- +Cancelled +- +- +- +- +Expired +- +- +- +- +Outstanding, +October 31, 2024 +6,000 +$ 10.46 +3.8 +$ - +Exercisable, +October 31, 2024 +6,000 +$ 10.46 +3.8 +$ - +A +summary of outstanding and exercisable options as of October 31, 2024 and 2023 is presented below: +SCHEDULE OF OUTSTANDING AND EXERCISABLE OPTIONS +Options +Outstanding +Options +Exercisable +Weighted +Average +Exercise +Number +of +Remaining +Number +of +Price +Shares +Life +in Years +Shares +$ 10.46 +6,000 +3.8 +6,000 +6,000 +3.8 +6,000 +On +August 15, 2023, the Company issued five-year options to purchase 6,000 shares of the Company’s common stock to a consultant of +the Company, pursuant to the Plan. The options have an exercise price of $ 10.46 per share and vest monthly over a period of 24 months, +beginning on the vesting commencement date. The options have a grant date fair value of $ 55,711 , which will be recognized over the vesting +term. +The +assumptions used in the Black-Scholes valuation method for these options issued in 2023 were as follows: +SCHEDULE OF ASSUMPTIONS USED IN BLACK-SCHOLES VALUATION METHOD FOR OPTIONS +Risk free interest rate +4.36 % +Expected term (years) +5.0 +Expected volatility +137.1 % +Expected dividends +0 % +F- 27 +NOTE +12 – SUBSEQUENT EVENTS +In +accordance with ASC 855 – Subsequent Events, which establishes general standards of accounting for and disclosure of events that +occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events and transactions +that occurred after October 31, 2024, through the date the financial statements were issued. Except for the following, there are no subsequent +events identified that would require disclosure in the financial statements. +Notice +of Delisting or Failure to Satisfy a Continued Listing Rule or Standard from the NYSE American +On +November 5, 2024, the Company received notice from NYSE American that NYSE American had halted trading in the shares of the Common Stock +until the effectiveness of the reverse stock split the Company intended to effect because its common stock was consistently selling at +a low selling price per share in violation of Section 1003(f)(v) of the NYSE American Company Guide. NYSE American informed the Company +that it would attempt to reopen trading in the Common Stock on November 15, 2024, which is when the common stock is expected to begin +trading on a post-split basis, provided that NYSE American no longer deems the selling price of the Common Stock to be too low. +Reverse +Stock Split +On +November 14, 2024, the Company filed a Certificate of Amendment to its Certificate of Incorporation with the Secretary of State of the +State of Delaware to effect a Reverse Stock Split; once effective, every twenty (20) shares of the Company’s issued and outstanding +common stock will automatically be converted into one share of common stock, without any change in the par value per share. In addition, +(i) a proportionate adjustment will be made to the per share exercise price and the number of shares issuable upon the exercise of all +outstanding stock options and warrants to purchase shares of common stock, to the extent that the exercise price of such warrants is +not based solely on the market price of the common stock at the time of exercise, (ii) a proportionate adjustment will be made to any +fixed conversion prices for other convertible securities of the Company, including any conversion floor prices and (iii) the number of +shares reserved for issuance pursuant to the Company’s equity incentive plans will also be reduced proportionately. Any fraction +of a share of common stock that would be created as a result of the Reverse Stock Split will be rounded up to the nearest whole share. +The +Reverse Stock Split became effective as of 4:30 p.m., Eastern Time, on November 14, 2024, and the Company’s common stock began +trading on a split-adjusted basis when the market opened on November 15, 2024. +Letter +of Intent for Working Interest in NovaCor Exploration Ltd. +On +December 19, 2024, the Company issued a press release announcing that it entered into a non-binding letter of intent relating to the +acquisition of a 100% working interest in certain petroleum and natural gas assets held by NovaCor Exploration Ltd., which are located +in the Lloydminster, Saskatchewan heavy oil region in Canada. +Independent Contractor +Agreement with Greg Overholtzer +On December 31, +2024, the employment agreement between the Company and Mr. Overholtzer ended and on January 1, 2025, the Company entered into an independent +contractor agreement with Mr. Overholtzer, under which he continues to serve as the Chief Financial Officer of the Company and is paid +a monthly fee of $ 12,500 ; the initial term of the agreement is for one year and will be automatically renewed unless either party provides +a 30-day notice prior to the expiration of the agreement. +Consulting +Agreement with Redwood Empire Financial Communications, LLC +On January 1, 2025, the Company entered into a +consulting agreement with Redwood Empire Financial Communications, LLC for investor communications services; the agreement includes monthly +compensation of $ 7,500 , as well as the issuance of 20,000 restricted shares upon the funding of the Company’s Form S-1. The initial +term of the agreement is for one year and may be terminated by either party upon sixty days’ notice. +F- 28 \ No newline at end of file diff --git a/raw/filings/0001898766/2024/0001493152-25-002760/filing_metadata.csv b/raw/filings/0001898766/2024/0001493152-25-002760/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..4050259df7b9566a61a9867478a1fcbb7d4e5faf --- /dev/null +++ b/raw/filings/0001898766/2024/0001493152-25-002760/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001898766,TPET,Trio Petroleum Corp,2024,10-K,2025-01-17,2024-10-31,2025-01-17T21:05:44.000Z,0001493152-25-002760,form10-k.htm,,21923802,1,1,https://www.sec.gov/Archives/edgar/data/1898766/000149315225002760/form10-k.htm,https://www.sec.gov/Archives/edgar/data/1898766/000149315225002760/ diff --git a/raw/filings/0001898766/2024/0001493152-25-002760/item1.txt b/raw/filings/0001898766/2024/0001493152-25-002760/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..41abf29b2328f87b4f56ab7250f481ccae6f3861 --- /dev/null +++ b/raw/filings/0001898766/2024/0001493152-25-002760/item1.txt @@ -0,0 +1,938 @@ +ITEM +1. BUSINESS. +Overview +TPET +is a California-based oil and gas exploration and development company headquartered in Bakersfield, California, with its principal executive +offices located at 5401 Business Park South, Suite 115, Bakersfield, California 93309, and with operations in Monterey County, California, +and Uintah County, Utah. The Company was incorporated on July 19, 2021, under the laws of Delaware to acquire, fund, and operate oil +and gas exploration, development and production projects, initially focusing on one major asset in California, the South Salinas Project +(“South Salinas Project”). +We +have had revenue-generating operations since the McCool Ranch Oil Field was restarted on February 22, 2024, and as of the quarter ended +April 30, 2024, we recorded approximately $75,000 in net revenues from our McCool Ranch Oil Field. +TPET +was formed to initially acquire from Trio Petroleum LLC (“Trio LLC”) an approximate 82.75% working interest, which was subsequently +increased to an approximate 85.775% working interest, in the large, approximately 9,300-acre South Salinas Project that is located in +Monterey County, California, and subsequently partner with certain members of Trio LLC’s management team to develop and operate +those assets. TPET holds an approximate 68.62% interest after the application of royalties (“net revenue interest”) in the +South Salinas Project. Trio LLC holds an approximate 3.8% working interest in the South Salinas Project. TPET and Trio LLC are separate +and distinct companies. +California +is a significant part of TPET’s geographic focus and we recently acquired a 22% working interest in the McCool Ranch Oil Field +(the “McCool Ranch Oil Field”, “McCool Ranch Field” or “McCool Ranch”) in Monterey County, California. +TPET’s interests extend beyond California, however, and we recently acquired an interest in the Asphalt Ridge Project in Uintah +County, Utah. We may acquire additional assets both inside and outside of California and Utah. +Trio +LLC is a licensed Operator in California and currently operates the South Salinas Project and the McCool Ranch Oil Field on behalf of +TPET and other working interest owners. Trio LLC operates these assets pursuant to joint operating agreements (“JOAs”) between +and among Trio LLC and the non-operating, third-party, working interest owners. The non-operating parties have agreed under the JOAs +to have the Operator explore and develop these assets for the production of oil and gas as provided thereunder. Trio LLC, as Operator, +generally conducts and has significant control of operations, subject to the limitations and constraints of the JOAs, and acts in the +capacity of an independent contractor. Operator is obligated to conduct its activities under the JOAs as a reasonable prudent operator, +in good workmanlike manner, with due diligence and dispatch, in accordance with good oilfield practices, and in compliance with applicable +laws and regulations. +1 +Recent +Business Developments +Changes +to Company Management +Changes +were made in June 2024, to our management team including the following: 1) Robin Ross, one of the original founders of the Company, became +our new Chairman and a Director; 2) Stanford Eschner, our former Executive Chairman, became our Vice Chairman, and; 3) Frank Ingriselli +stepped down from his position as Vice Chairman and also from his position as a member of the Board of Directors. Additionally, in July 2024, Michael Peterson resigned as Chief Executive Officer (“CEO”) of the Company +and Robin Ross became our new CEO as of that date. +Changes +to Independent Registered Public Accounting Firm +On +May 6, 2024, the Company dismissed BF Borgers CPA PC as the Company’s independent registered public accounting firm. Effective +May 8, 2024, the Company retained Bush & Associates CPA LLC as its independent registered public accounting firm. +South +Salinas Project +Efforts +to obtain from Monterey County conditional use permits and a full field development permit for the South Salinas Project are progressing. +Efforts to obtain from the California Geologic Energy Management Division (“CalGEM”) and from the California Water Boards +a permit for a water disposal project at the South Salinas Project are also progressing. In the meantime, the Company recently determined +that existing permits allow production testing to continue at the HV-3A discovery well at Presidents Field and, consequently, testing +operations were restarted at this well on March 22, 2024. Oil production from this well has occurred with a generally favorable oil-water +ratio and the Company expects, in the first calendar quarter of 2025, to takes steps to attempt to increase the well’s gross production +rate, for example by adding up to 650 feet of additional perforations in the oil zone and/or acidizing the well for borehole cleanup. +First oil sales from the HV-3A well occurred in the third calendar quarter of 2024. +McCool +Ranch Oil Field +On +October 16, 2023, TPET entered into a Purchase and Sale Agreement with Trio LLC (the “McCool Ranch Purchase Agreement”) pertaining +to the McCool Ranch Oil Field. Pursuant to this agreement, effective October 1, 2023, we acquired an approximate 22% working interest +in and to certain oil and gas assets at the McCool Ranch Field, which is located in Monterey, County, California, just seven miles from +our flagship South Salinas Project. The assets are situated in what is known as the “Hangman Hollow Area” of the McCool Ranch +Field. The acquired property is a relatively new oil field (discovered in 2011) developed with six oil wells, one water-disposal well, +steam generator, boiler, three 5,000 barrel tanks, 250 barrel test tank, water softener, two freshwater tanks, two soft water tanks, +in-field steam pipelines, oil pipelines and other facilities. The property is fully and properly permitted for oil and gas production, +cyclic-steam injection and water disposal. We are acquiring the working interest at McCool Ranch through primarily work commitment expenditures +that are being allocated to restart production at the field and establish cash flow for us, with upside potential given the numerous +undrilled infill and development well locations. Oil production was restarted on February 22, 2024. +McCool +Ranch successfully restarted field operations, including the restarting of oil production at the 58X and HH-1 wells. These two wells +were restarted on February 22, 2024, and the HH-1 well at McCool Ranch has been producing about 47 barrels of oil per day since it was +put back on cold production. The 58X well at McCool Ranch was also put back on production but was temporarily idled in order to perform +a heat treatment that the Company expects to be accomplished by the first calendar quarter of 2025. +McCool +Ranch operations have been successfully restarted, including the restarting of oil production at the HH-1, 35X and 58X wells. The HH-1 +well has a short horizontal completion in the Lombardi Oil Sand, whereas the 35X and 58X wells are both vertical wells with similar oil +columns in the Lombardi Oil Sand and with similar subsurface borehole completions. The HH-1 well at McCool Ranch upon restart was initially +producing about 47 barrels of oil per day. The HH-1 and 35X wells collectively has been producing about 10 to 15 bopd. The 58X well is +temporarily idle. Oil production at the HH-1 and 35X wells has been “cold” (i.e., without steam). Both wells have been temporarily +idled pending further assessment to place on steam during the first calendar quarter of 2025. +The +aforementioned initial three wells at McCool Ranch were each restarted and produced “cold” (i.e. without steam injection), +which allows for lower operating costs, with expectation that each would be produced cold as long as profitable. The Company expects +to transition each well from cold to cyclic-steam production, also known as “huff and puff,” which is expected to significantly +increase production. The wells at McCool Ranch historically have responded favorably when cyclic-steam operations have been applied. +The +Company is assessing the viability of restarting the last two wells in the restart program, the HH-3 and HH-4 wells, in the first +calendar quarter of 2025. The HH-3 and HH-4 wells will have horizontal completions similar to but longer than that of the HH-1 well. +All water produced from these wells will be disposed in the on-site water disposal well. +2 +The +HH-1 well was initially produced cold for about 380 days in 2012-2013, during which time peak production was about 156 barrels of oil +per day (“BOPD”), average production was about 35 BOPD and cumulative production was about 13,147 barrels of oil (“BO”). +The 58X well was initially produced cold for about 230 days in 2011-2013, during which time peak production was about 41 BOPD, average +production was about 13 BOPD and cumulative production was about 2,918 BO. +KLS +Petroleum Consulting LLC (“KLSP”), a third-party, independent engineering firm, recommends that McCool Ranch be developed +with horizontal wells, each landed in the Lombardi Oil Sand with a 1,000-foot lateral. Management estimates that TPET’s property +can probably accommodate approximately 22 additional such horizontal wells. TPET expects to add the reserve value of the McCool Ranch +Field to the Company’s reserve report after a further period of observation and review of the oil production that was restarted +on February 22, 2024. +Asphalt +Ridge Option Agreement +On +November 10, 2023, TPET entered into a Leasehold Acquisition and Development Option Agreement (the “Asphalt Ridge Option Agreement”) +with Heavy Sweet Oil LLC (“HSO”). Pursuant to the Asphalt Ridge Option Agreement, the Company acquired an option to purchase +up to a 20% working interest in certain leases at a long-recognized, major oil accumulation in northeastern Utah, in Uintah County, southwest +of the city of Vernal, totaling 960 acres. HSO holds the right to such leases below 500 feet depth from surface and the Company acquired +the option to participate in HSO’s initial 960 acre drilling and production program (the “HSO Program”) on such Asphalt +Ridge Leases. TPET also holds the right of first refusal to participate with up to 20% working interest on the greater approximate 30,000 +acre leasehold at terms offered to other third-parties. On December 29, 2023, the Company and HSO entered into an Amendment to Leasehold +Acquisition and Development Agreement (the “Amendment to the Asphalt Ridge Option Agreement”), pursuant to which the Company +and HSO amended the Asphalt Ridge Option Agreement to provide that, within three (3) business days of the effective date of the Amendment +to the Asphalt Ridge Option Agreement, the Company would fund $200,000 of the $2,000,000 total purchase price in advance of HSO satisfying +the closing conditions set forth in the Asphalt Ridge Option Agreement, in exchange for the Company receiving an immediate 2% interest +in the Asphalt Ridge Leases, which advanced funds would be used solely for the building of roads and related infrastructure in furtherance +of the development plan. In January 2024, the Company funded an additional $25,000 resulting in a 2.25% working interest in the Asphalt +Ridge Leases. +The +Asphalt Ridge Project, according to J. Wallace Gwynn of Energy News, is estimated to be the largest measured tar sand resource in the +United States, and is unique given its low wax and negligible sulfur content, which is expected to make the oil produced very desirable +for many industries, including shipping. +Asphalt +Ridge is a prominent, northwest-southeast trending topographic feature (i.e., a dipping slope called a hog’s back or cuesta) that +crops-out along the northeast flank of the Uinta Basin. The outcrop is comprised largely of Tertiary and Cretaceous age sandstones that +are locally highly-saturated with heavy oil and/or tar. The oil-saturated sandstones extend into the shallow subsurface of the Uinta +Basin to the southwest, which is the site of the Asphalt Ridge Development Project, and where the sandstones are estimated in various +independent studies to contain billions of barrels of oil-in-place. The project leasehold comprises over 30,000 acres and trends northwest-southeast, +along the trend of Asphalt Ridge, over a distance of about 20 miles. +The +area has been underdeveloped for decades due, in large part, to lease ownership issues and the definition of heavy oil falling under +mining regulations in the State of Utah. These factors created conflict between surface rights and subsurface mineral rights and were +obstacles to developing the asset using proven advanced cyclic-steam production techniques. Necessary permits have now been secured that +should allow drilling to commence by our operating partner. HSO hopes to continue to work with the State of Utah to supplement prior +receipt of permits with other state incentives, including working with the State on an arrangement requiring only an 8% state royalty +in connection with this project. +An +early development phase contemplates the development of 240 acres with an estimated 119 wells in the Northwest Asphalt Ridge Area. The +plan is to develop the 240 acres using advanced cyclic-steam production techniques, including initial CO2 injection. This phase contemplates +seventeen 7-spot hexagonal well patterns on 2 ½ acre spacing (a 7-spot has a central steam/CO2 injection well that is surrounded +by six producing oil wells). Upgrades have been made to existing roads and well pads as part of this early development phase. +3 +Two +oil-saturated Cretaceous sandstones are targeted for development at Asphalt Ridge: the Rimrock Sandstone and the underlying Asphalt Ridge +Sandstone. TPET expects to add the reserve value, if any, of the Asphalt Ridge Project to the Company’s reserve report after a +brief period of observation and review of the oil development operations that commenced in the second quarter of 2024. +During +the quarterly period ended April 30, 2024, we announced the commencement of drilling activities at Asphalt Ridge. The first well, HSO +8-4 (API# 4304757202), was spud on May 10, 2024 and drilled to a total depth of 1,020 feet. The well found 100 feet of Rimrock Sandstone +tar-sand pay zone with good oil saturation and good porosity. Thirty feet of the Rimrock was cored. A small, representative piece of +Rimrock core was placed in water and brought to boiling point, and within a few minutes the sand disaggregated and the bitumen became +liquid, mobile-oil, floating on top of the water – this simple laboratory test indicates that the bitumen becomes mobile-oil at +relatively low temperatures and supports our contention that oil extraction using subsurface thermal-recovery methods may be very successful. +A second well, the HSO 2-4 (API# 430475201), was spud on May 19, 2024 and drilled to a total depth of 1,390 feet. The well drilled through +both the Rimrock tar-sand, which had a thickness of 135 feet, and the Asphalt Ridge tar-sand, which had a thickness of 59 feet. Oil production +has commenced using downhole heaters, whereas the operator plans to transition to production using advanced cyclic-steam and steam-drive +methods. +The +Company has until February 10, 2025, to pay HSO an additional $1,775,000 to exercise an option for the remaining 17.75% working interest +in the initial 960 acres. If this option is not exercised on or before the deadline or any extension thereof, the option will expire +and the Company will forfeit any further right to acquire this additional 17.75% working interest in the initial 960 acres. +Carbon +Capture and Storage Project as part of Company’s South Salinas Project +TPET +is committed to attempting to reduce its own carbon footprint and, where possible, that of others. For this reason, TPET is taking initial +steps to launch a Carbon Capture and Storage (CCS) project as part of the South Salinas Project. The South Salinas Project covers a vast +area and is uniquely situated at a deep depocenter where there are thick geologic zones (e.g., Vaqueros Sand, up to approximately 500’ +thick), about two miles deep, which could potentially accommodate and permanently store vast volumes of CO2. Four existing deep wells +in the South Salinas Project (i.e., the HV 1-35, BM 2-2, BM 1-2-RD1 and HV 3-6 wells) are excellent candidates for use as CO2 injection +wells. A CCS project in the future may help reduce TPET’s carbon footprint by sequestering and permanently storing CO2 deep underground +at one or more deep wells, away from drinking water sources. Furthermore, three of the aforementioned deep wells are directly located +on three idle oil and gas pipelines that could be used to import CO2 to the Company’s CCS Project. TPET has opened discussions +with third parties who wish to reduce their own greenhouse gas emissions and who may be interested in participating in our CCS project. +TPET believes it feasible to develop the major oil and gas resources of the South Salinas Project and to concurrently establish a substantial +CCS project and potentially a CO2 storage hub and/or Direct Air Capture (DAC) hub. +E ntry +into a Letter of Intent to Acquire Novacor Exploration Ltd. Oil and Gas Assets in Saskatchewan, Canada +On +December 18, 2024, TPET entered into a non-binding Letter of Intent (“LOI”) for the acquisition of a 100% working interest +in certain petroleum and natural gas assets held by Novacor Exploration Ltd. (“Novacor”), which are located in the prolific +Lloydminster, Saskatchewan heavy oil region (the “Proposed Novacor Acquisition”). The stated purchase price of the Proposed +Novacor Acquisition is CD$2 million (approximately US$1.4 million based on exchange rates on the date of the LOI) payable US$650,000 +in cash and the remainder in shares of common stock of Trio, which TPET would agree to use its commercially reasonable efforts to register +for resale in a registration statement filed with the United States Securities and Exchange Commission. Upon execution of the LOI, the +Company paid Novacor a good faith deposit of $65,000, which will be applied to the cash portion of the purchase price at closing. Other +than obligations of confidentiality and exclusivity contained in the LOI, no other terms are binding until definitive acquisition documents +are signed by the parties. The definitive acquisition documents would likely contain customary representations and warranties of the +parties and certain conditions to closing, including approval of the Proposed Novacor Acquisition by the board of directors of each of +Novacor and TPET, and a condition that TPET raises sufficient financing to consummate the Proposed Novacor Acquisition. Unless extended +by the mutual agreement of the parties, the LOI will terminate on the earlier of (i) the mutual agreement of Novacor and TPET, (ii) the +execution of definitive acquisition documents or (iii) on February 15, 2025. +4 +South +Salinas Project +Oil +Rights and Ownership +TPET +has an approximate 85.775% working interest in the South Salinas Project. We have a mineral-leasehold of approximately 9,300 gross mineral +acres and 7,946 net mineral -acres in one largely contiguous land package from primarily one Lessor, Bradley Minerals. The surface lands +at the approximate 9,300 mineral acres are primarily part of the private Porter Ranch. There are six existing idle wells and one active +well in the South Salinas Project, and permits are approved by Monterey County for the drilling and testing of two additional wells (i.e., +the HV-2 and HV-4 wells). +Description +of South Salinas Property and Current Operations +We +initiated operations as TPET with the acquisition from Trio LLC of an 82.75% working interest in the South Salinas Project under the +terms of a Purchase and Sale Agreement (the “South Salinas Purchase Agreement”) dated September 14, 2021. Our working interest +was later increased by 3.026471% and we currently hold an approximate 85.775% working interest and an approximate 68.62% net revenue +interest (after all royalties) in the South Salinas Project. The working interest we own includes leases, wells, inventory and 3D seismic +data. +We +believe the South Salinas Project has the potential to be significant, with an estimated 40.2 million barrels of oil (“MMBO”) +plus 42.4 billion cubic feet of gas (“BCFG”), or 47.3 million barrels of oil equivalent (“BOE”), in Probable +(P2) Undeveloped reserves and an approximate 100.7 MMBO and 168.5 BCFG, or 128.8 million BOE, in Possible (P3) Undeveloped reserves. +Note that the conversion rate used is 6.0 Mcf per 1 BOE. Note that the conversion rate used is 6.0 Mcf per 1 BOE. +Trio +LLC and its management team are part owners of the Company and will continue as Operator of the South Salinas Project on behalf of the +Company and of the other working interest partners. +There +are two contiguous areas of notable oil/gas accumulations in the South Salinas Project, being the Humpback Area (“Humpback Oil +Field”) that occurs in the northern part of the project, and the Presidents Area (“Presidents Oil Field”) that occurs +in the southern part of the project. Discovery wells have been drilled and completed at both Humpback Oil Field and Presidents Oil Field. +The HV-3A well is the first well drilled at the Presidents Oil Field and is its discovery well. About five wells have been drilled at +the Humpback Oil Field and of these we consider the BM 2-2 well as its discovery well. +The +primary oil and gas objectives in the South Salinas Project are classic fractured Monterey Formation reservoirs (i.e., zones with abundant +brittle/fractured intervals of chert, dolomite, limestone and porcelanite) and the Vaqueros Sand. Fractured Monterey Formation is one +of the most important and prolific oil/gas reservoirs in California. The primary oil and gas reservoirs occur at approximately 4,000-8,000’ +depth. The oil is mid- to high-gravity (18-40° API). The oil and gas targets are in structural traps - this is not a resource play. +The structural traps are imaged in 30 square miles of 3D seismic data that is owned by the Company. Importantly, the 3D seismic was acquired +after the drilling of all wells in the area except for our HV-3A and HV-1 wells. The 3D seismic provides critical information about how +prior wells were not properly located and, more importantly, how the South Salinas Project potentially may be successfully exploited +going forward. +The +Monterey Formation oil and gas zones have been tested at various wells at the South Salinas Project. The Vaqueros Sand has not yet been +tested but the Company believes that it is potentially productive behind-pipe in the BM 2-2 well. TPET intends to perforate and test +the Vaqueros Sand in the BM 2-2 well as soon as the necessary permits are in-hand. +We +own approximately 30 square miles of three dimensional seismic data (“3D seismic”) at the project. An integrated interpretation +of the 3D seismic data and of well data indicates that Presidents Oil Field is a large anticlinal feature covering an area of approximately +1,300 acres, with a major structural, anticlinal high at the location of the HV-3A discovery well, and with two separate, four-way closed +anticlines at the northwest, down-plunge-end of the feature. The structural feature at Presidents Oil Field is best characterized as +a positive flower structure resulting from transpressional deformation along strike slip faults including the major Rinconada Fault. +The Company has determined that production testing may resume at the HV-3A discovery well at Presidents Field. Testing on pump at this +well resumed on March 22, 2024. +5 +One +of our initial objectives was to drill the HV-1 confirmation well at the President Oil Field. This objective has been accomplished. The +following is a discussion of the HV-1 well and its significance: +● +The +HV-1 well is located about two miles northwest of the HV-3A discovery well and for this reason it is considered a “confirmation +well” intended to help confirm the size of lateral extent of the field. The HV-1 surface hole location (“SHL”) +is located in about the center of T24S-R10E-Section 14. The well was directionally drilled approximately 2,600 feet toward the southeast +and its bottom hole location (“BHL”) is located in T24S-R10E-Section 13. +● +The +HV-1 well spud on about May 5, 2023, and was completed at its total depth (“TD”) of about 6,641 feet (measured depth) +on about May 15, 2023. +● +The +HV-1 confirmation well is located on the larger of the aforementioned two down-plunge, four-way closed anticlines. +● +There +were primarily three reservoir objectives in the HV-1 well, being the Yellow Zone (aka Yellow Chert), the underlying Brown Zone (aka +Brown Chert) and the underlying Mid-Monterey Clay, all of which are stratigraphic subunits of the Miocene-age Monterey Formation. +The Yellow and Brown zones are both attributed oil and gas reserves at Presidents in the Company’s reserve report as filed +with the SEC. The Mid-Monterey Clay is nowhere assigned reserves in the Company’s reserve report, although it did have significant +oil/gas shows in the HV-3A discovery well and periodically may have contributed to the flow of oil and gas to surface at said well. +● +The +3D seismic data indicate that the Yellow and Brown zones have four-way closure (i.e., anticlinal rollover in one of the subsidiary, +down-plunge anticlines) at the location of the HV-1 well, whereas at this location the Mid-Monterey Clay may have fault closure (within +the positive flower structure) but lacks rollover. The directional drilling plan for the HV-1 well was designed such that the well +would penetrate the Yellow and Brown zones near the tops of their anticlinal closures and to continue downward into the Mid-Monterey +Clay where anticlinal closure apparently does not occur. +● +The +Yellow Zone, Brown Zone and Mid-Monterey Clay were encountered in the HV-1 well largely as predicted including with respect to depth, +thickness, lithology, wireline-log characteristics and oil and gas shows including free oil in cuttings and in the mud pit. The Company +believes that the HV-1 well has confirmed that there is a major oil and gas accumulation in the Presidents Oil Field, as the Company +announced in a press release on May 16, 2023. +● +Confirmation +of a major oil and gas accumulation by itself does not confirm whether economic oil/gas production can be established. The HV-1 has +undergone production testing to evaluate commerciality. Production testing at the HV-1 well was initially carried-out from the bottom +up (i.e., by testing the deeper Mid-Monterey Clay zone first and working upward to the shallower Brown and Yellow zones), and the +Brown and Mid-Monterey Clay zones were subsequently retested. The Mid-Monterey Clay, Brown Zone and Yellow Zone all underwent production +testing. Oil and gas were recovered but commercial production was not established. +● +Operations +may continue, for example deepening, sidetracking or additional testing, at the HV-1 well but it is currently idle. +● +The +HV-1 well is the newest well in the South Salinas Project and is the only exploratory well drilled in the last three fiscal years +at the project. +● +The +Company considers it premature to deem HV-1 either a dry development well or a net productive well. Additional operations, including +possibly deepening or sidetracking, and additional testing, are feasible at HV-1. Thus, there has been no net productive well or +dry development well drilled in the last three fiscal years at the South Salinas Project. Prior to the drilling of the HV-1 well, +the newest well at the Project was the HV-3A discovery well that was drilled in 2018. +All +of the Company’s acreage and reserves in the South Salinas Project are considered undeveloped. The HV-3A and BM 2-2 wells, and +possibly other project wells, are and/or may possibly be capable of oil and/or gas production but additional investments at these wells +are necessary prior to establishing commercial oil/gas production and, therefore, reserves and acreage are considered undeveloped. Thus, +the total gross undeveloped acreage is approximately 9,300 acres and the total net undeveloped acreage (i.e., net to the Company) is +approximately 7,927 acres (i.e., 9,300 acres x 0.8575 = 7,927 acres). The total gross developed acreage is zero acres and the total net +developed acreage (i.e., net to the Company) is also zero acres. +As +noted elsewhere, on the Company’s leases there are six existing idle wells (i.e., the BM 1-2-RD1, BM 2-2, BM 2-6, HV-1, HV 3-6 +and HV 1-35 wells) and one active well (i.e., HV-3A well). Of these seven wells perhaps only the HV-3A and BM 2-2 wells should be considered +to probably and/or possibly be capable of economic oil/gas production with their current mechanical completions, whereas it cannot be +ruled-out that economic oil/gas production could be established at the other five wells. Thus, on the Company’s leases there may +be considered to be two (2) gross productive wells (i.e., the HV-3A and BM 2-2 wells) and 1.715 net productive wells (i.e., 85.75% WI +times 2 gross wells = 1.715 net productive wells). +6 +The +Porter Ranch is an active working property that supports farming operations, livestock grazing, and the exploitation of oil and gas reserves, +as well as the preservation of open space that preserves natural habitat. There is partly overlapping ownership in Bradley Minerals (the +Lessor) and in Porter Ranch (the surface owner) and the interests and objectives of the two entities are closely aligned. In some projects +there are conflicts between surface and mineral owners, for example with the surface owner discouraging and the mineral owner encouraging +development. Importantly, in this project the mineral and surface owners have aligned interests/objectives, and this is beneficial to +the South Salinas Project. Total royalty burden at the South Salinas Project is approximately 20%, all of which is held by lessors. TPET +and Trio LLC and their associates hold no royalty interests in the South Salinas Project. +Infrastructure +at the South Salinas Project includes seven existing wells, six expansive well pads, and three idle Aera Energy oil and gas pipelines. +The expansive well pads are important because they can accommodate significant project development without additional disturbance of +the surface – the Company believes that this may help expedite the approval of necessary additional permits. +South +Salinas Project Property and Future Operations +The +Company has drilling permits from Monterey County for two additional wells at the South Salinas Project, being the HV-2 well and the +HV-4 well. The Company may drill one or both of these wells in 2025. The Company is evaluating whether to directionally drill both of +these wells into the Presidents Oil Field, or to drill one into the Presidents Oil Field and one into the Humpback Oil Field. The production +performance of the HV-3A well, which was restarted on March 22, 2024, will bear on the drilling plans for HV-2 and HV-4. +The +Company anticipates that it may be desirable in the future to obtain access or ownership of the Aera Energy pipelines (possibly jointly +owned with Chevron) to move oil and gas to markets and possibly to move produced water off-site, as well as potentially being used in +a Carbon Capture and Storage (CCS) Project. Aera Energy (“Aera”) and Chevron have significant operations a few miles north +at the San Ardo Oil Field. Aera’s holdings in California were recently acquired by the companies IKAV, an international asset management +group headquartered in Germany, and CPP Investments, a professional investment management organization that manages investments of contributors +and beneficiaries of the Canada Pension Plan. In 2024, it was announced that California Resources Corp (“CRC”) and Aera are +merging. The Company believes that there are potential synergies between our South Salinas Project and the San Ardo Oil Field that is +operated by Aera and Chevron, and possibly soon by CRC. CRC is already an approximate 8% working-interest owner in the South Salinas +Project. +There +is an application for an UIC water disposal operation at the South Salinas Project that is under review by CalGEM and being modified +and updated by Trio LLC. Approval of this water disposal project by CalGEM and Water Boards will be an important part of establishing +an economic oil and gas operations. +All +of the existing seven wells in the South Salinas Project are currently inactive and temporarily shut-in, except for the active HV-3A +well that was restarted on March 22, 2024. When the appropriate permits are in-hand, which will perhaps be in 2025, and when the +required funding is in-place, the Company will assess its plans to return the BM 2-2 well to oil and gas production, to reenter and +sidetrack three of the wells (the HV 1-35, BM 2-6 and HV 3-6 wells) to optimal locations that are indicated in the 3D seismic data +and to then put them on production, and to utilize one well (the BM 1-2-RD1 well) as a water disposal well. TPET is evaluating +options (e.g., deepening, sidetracking, recompleting, etc.) at the new HV-1 well, as discussed above. TPET may drill one or both of +the HV-2 and HV-4 wells in 2025. The HV-1, HV-2, HV-3A and HV-4 wells may each be produced for its own 18-month period, under the +Company’s current exploration/testing permits. TPET is working diligently toward the goal of obtaining permits for full field +development, including long-term production and water disposal. These permits are critical for the proper development of our South +Salinas Project asset. +TPET +is committed to attempting to reduce its own carbon footprint and, where possible, that of others. For this reason, TPET is taking initial +steps to launch a Carbon Capture and Storage (CCS) project as part of the South Salinas Project. The South Salinas Project appears ideal +for a CCS project. The South Salinas Project covers a vast area and is uniquely situated at a deep depocenter where there are thick geologic +zones (e.g., Vaqueros Sand, up to approximately 500’ thick), about two miles deep, which could accommodate and permanently store +vast volumes of CO2. Four existing deep wells in the South Salinas Project (i.e., the HV 1-35, BM 2-2, BM 1-2-RD1 and HV 3-6 wells) are +candidates for use as CO2 injection wells. A CCS project in the future may help reduce TPET’s carbon footprint by sequestering +and permanently storing CO2 deep underground at one or more deep wells, away from drinking water sources. Furthermore, three of the aforementioned +deep wells are directly located on three idle oil and gas pipelines that could be used to import CO2 to the Company’s CCS Project. +TPET has opened discussions with third parties who wish to reduce their own greenhouse gas emissions and who may be interested in participating +in our CCS project. TPET believes it feasible to develop the major oil and gas resources of the South Salinas Project and to concurrently +establish a substantial CCS project and potentially a CO2 storage hub and/or Direct Air Capture (DAC) hub. See “ Item I. Business +- Recent Developments ” for further information on the CCS project. +7 +Evaluation +of Reserves and Net Revenue +Our +evaluation and review of oil and gas reserves and future net revenue attributable to the Company’s interests in the South Salinas +Project are based on independent analyses prepared by KLS Petroleum Consulting LLC (“KLSP”), Denver, Colorado. The Company +in previous filings with the SEC provided two reserve reports by KLSP, one being entitled “Reserves Attributable to Trio Petroleum +Corp South Salinas Area for Development Plan Phases 1 and 2,” (“Prior Reserve Report 1”) and the other entitled “S. +Salinas Area, Full Development Reserves Supplement to SEC Report Dated 1-28-2022,” (“Prior Reserve Report 2”) both +of which had an effective date of October 31, 2021. KLSP has provided an updated reserve report, with an effective date of April 30, +2024, which is entitled “Reserve Attributable to Trio Petroleum Corp. South Salinas Area for Phased and Full Development” +(the “Current Reserve Report”), which is included as an exhibit filed with this Annual Report on Form 10-K (“Annual +Report”). +KLSP +is an independent, third-party, petroleum engineering firm that meets industry-standards for qualifications, independence, objectivity +and confidentiality. The primary technical person, Kenneth L. Schuessler, responsible for preparing the Reserve Report is a registered +professional petroleum engineer with decades of experience in the petroleum industry and in analyses of reserves. Mr. Schuessler has +significant experience in the petroleum industry and has held important positions with Bergeson Associates, Malkewitz-Hueni Associates, +SI International, System Technology Associates and MHA Petroleum Consultants. Importantly, Mr. Schuessler has significant experience +in the evaluation and exploitation of Monterey Formation fractured-reservoirs at the giant Elk Hills and Coles Levee Fields in the San +Joaquin Basin in California. Mr. Schuessler’s knowledge of the Monterey Formation is highly-relevant to the evaluation of our South +Salinas Project at which the fractured Monterey Formation is of critical importance. +KLSP +states that the reserves in the “Prior Reserve Report 1” referenced as Exhibit 99.1 to the Annual Report, the “Prior +Reserve Report 2” referenced as Exhibit 99.2 to the Annual Report and the “Current Reserve Report” referenced as Exhibit +99.3 to the Annual Report and their determination are consistent with definitions found in Rule 4-10 of SEC Regulation S-X (17CFR part +210), and Subpart 1200 of Regulation SK. The net reserves, costs and revenues are those attributable to the Company. Future net revenue +and discounted present value are on a before federal income tax (BFIT) basis. +KLSP +is an independent third-party that does not own an interest in any of our properties. Mr. Schuessler is not a permanent employee of our +company but we continue to employ the services of KLSP on an as-needed basis. +Our +internal staff including our geoscience, drilling, facilities, regulatory, compliance, land, legal and accounting professionals +communicated as needed with KLSP to ensure the integrity, accuracy and timeliness of data furnished to KLSP, to review and discuss +the properties, methods and assumptions used by KLSP in KLSP’s preparation of the reserve estimates, and to review and discuss +KLSP’s conclusions. As discussed immediately above, KLSP is a highly-qualified, independent, petroleum-engineering consulting +firm. Mr. Terence B. Eschner, the Company’s former President and a registered professional geologist, who is very +knowledgeable about the South Salinas Project, was the Company’s primary contact with KLSP regarding the reserve analyses that +were conducted by KLSP. Mr. T. Eschner played a key role providing the Company’s internal controls on the reserve estimation +effort that was carried-out by KLSP, while not interfering with KLSP’s analyses so as to ensure that KLSP’s analyses +would truly be that of an independent third-party. The Company recognizes that estimating volumes of economically recoverable oil +and natural gas reserves is somewhat subjective and that the accuracy of any reserve estimate is partly a function of the quality +and accuracy of the available data and interpretations: for this reason and others the Company strove to provide the best available +data and interpretations to KLSP. Reserve estimates typically require revision as new information becomes available and/or due to +change in conditions and/or due to unforeseen circumstances. Reserve estimates commonly differ from the quantities of oil and +natural gas that are ultimately recovered. Estimates of economically recoverable oil and natural gas and of future net revenues are +based on a number of variables and assumptions, some or all of which may prove to be incorrect. +8 +The +technologies utilized by KLSP in their reserve estimation efforts are discussed in detail in the Reserve Report. These technologies included +the evaluation and incorporation of data from analog oilfields. Analogs are widely used in reserves estimating, particularly in the early +development stages when direct measurement information (production history) is limited. As described in the Society of Petroleum Engineers’ +Petroleum Resource Management System (PRMS Section 4.1.1) “ The methodology is based on the assumption that the analogous reservoir +is comparable to the subject reservoir in regard to reservoir description, fluid properties, and most likely recovery mechanism(s) applied +to the project that control the ultimate recovery of petroleum. By selecting appropriate analogs, where performance data of comparable +development plans are available, a similar production profile may be forecast. Analogs are frequently applied in aiding in the assessment +of economic producibility, production decline characteristics, drainage area, and recovery factor. ” The technologies utilized +by KLSP also included constructing several numerical models that evaluated the expected oil and gas production under an appropriate range +of reservoir characteristics, and which allowed probabilistic estimates of reserves. These models required reservoir properties and, +therefore, OOIP as input. The Probabilistic method defined a distribution representing the full range of possible values for input parameters. +This included dependencies between parameters that are also defined and applied. These distributions were randomly sampled using Monte +Carlo simulation to compute a full distribution of potential in-place and recoverable quantities of oil, gas, and water. Input distributions +were included for porosity, permeability, water saturation and net productive thickness. In addition, pore volume compressibility was +described with a distribution because its range of uncertainty can impact reservoir pressure and therefore future productivity. S&P +Global’s Harmony Enterprise software was used to construct the numerical models for the various reservoir units, being Monterey +Yellow, Monterey Blue and Vaqueros Sand reservoir units. A ‘type well’ or calibration model was constructed for each reservoir +using the average conditions and reservoir properties cited above. In addition, using the probabilistic distributions of porosity, net +thickness, water saturation, permeability and pore volume compressibility, the reservoir model was run 500 times, each time the model +selecting via Monte Carlo sampling the input parameters according to the ranges and distributions defined. Each simulation run resulted +in a particular value of oil and gas recovery. The cumulative probabilities of the resulting forecasts of ultimate oil and gas recovery +were used to identify the reported reserve values. +We +have consulted with KLSP and it has provided us estimates of net reserves and/or cash flows as of the end of April 30, 2024, as: 1) there +are new technical data as a result of drilling the HV-1 well in 2023; 2) the Company’s WI has increased from approximately 82.75% +to approximately 85.775%; 3) new leases have been acquired providing additional well locations; 4) drilling and development schedules +have changed; and 5) oil prices have changed. More specifically, the completion results of the HV-1 well appear to indicate that the +productive area of the Yellow Zone at the President’s Area may be somewhat smaller than mapped in 2021. On the other hand, the +Company has acquired additional leases in the Project area that increase the net well locations targeting the Blue Zone and Vaqueros +Sand. The reserves associated with these additional net wells partially offset any possible reduction in reserves due to a smaller Yellow +Zone productive area. All of the aforementioned factors are taken into consideration in the estimates of reserves and cash flows as of +end of April 30, 2024, as documented in the Current Reserve Report included as Exhibit 99.3 to this Annual Report. +Disclosure +of Reserve Volumes and Reserve Values as of the End of April 30, 2024 +KLSP +in the aforementioned reserve analyses recognizes the occurrence at the South Salinas Project of both Probable (P2) Undeveloped reserves +and of Possible (P3) Undeveloped reserves (see: “Glossary of Terms Used to Characterize Reserves & Projects” in Table +22 in the Reserve Report). SEC criteria stipulate that reserves cannot be classified as P1 Proved (i.e., PDP or Proved Developed Producing, +PDNP or Proved Developed Not Producing, PUD or Proved Undeveloped) if said reserves are not fully permitted for long-term production. +Permits for full field development and long-term production are being sought by the Company, but have not yet been approved for the South +Salinas Project and, therefore, KLSP does not recognize Proved reserves at the South Salinas Project. +KLSP +provided estimates of net oil and gas reserves and future net revenues, attributable to the Company, for Phase 1, Phase 2 and Phase 3 +(Full Development) for the entire South Salinas Project, as shown in the below Table. Future net revenue and discounted present value +are on a before federal income tax (BFIT) basis. Both undiscounted and discounted net cash flow to the Company are shown. The discounted +dollar amounts shown in the below Table are discounted at 10% and, therefore, are net present value (“NPV”) 10 amounts, whereas +KLSP also provided estimated NPV15, 20, 30, 45 and 60. Reserve volumes are expressed in stock tank barrels (STB) of oil and thousands +of standard cubic feet of gas (MCF). +There +are uncertainties in reserve forecasts and in associated estimates of future cash flows due to uncertainties in various matters that +are elaborated above (see: We face substantial uncertainties in estimating the characteristics of our assets, so you should not place +undue reliance on any of our measures.). The Company’s estimates of Probable (P2) Undeveloped reserves, Possible (P3) Undeveloped +reserves and their respective estimated future cash flows are discussed more-fully above (see Evaluation of Reserves and Net Revenue) +and are described in detail in the Current Reserve Report. The Company’s reserve estimates are based on field analogs, numerical +models and probabilistic modeling. Copied below are two paragraphs from the Current Reserve Report that further explain the Company’s +estimated reserves: +9 +“ Because +decline curve analysis could not be used to forecast reserves, and since the development of type curves was problematic due to the early +historical time frame in which the analog fields were developed, probabilistic methods were employed. The interpretations of open hole +logs, core, and test information were used to describe ranges and distributions of key reservoir parameters. These were then input to +numerical simulation models that used Monte Carlo sampling and hundreds of runs to derive forecasts of production and ultimate recovery +representing P90 (1P), P50 (2P) and P10 (3P) reserve estimates. As indicated in the nomenclature of TABLE 22, these estimates are also +known as Proved, Proved+Probable, and Proved+Probable+Possible, respectively. The designation ‘P50’ means there is a 50 percent +probability that the actual production will exceed the value reported as the P50 reserves. The P50 value, also considered the Best or +Most Likely estimate, is derived from a cumulative frequency distribution of forecast reserves from the Monte Carlo simulations. If Proved +reserves have been assigned, Probable reserves are then represented by the difference between the P50 and P90 probabilistic estimates. +However, as explained below, Proved reserves have not been assigned in this report because project approval has not been secured by all +necessary government entities. Therefore, since there are no Proved or P90 volumes, the Probable reserves disclosed herein, derived from +the P50 probabilistic forecasts, are incremental volumes and presented as Probable (P2) reserves. The P10 reserve estimate has a 10 percent +probability of exceeding the estimated recovery and is also known as the High estimate. Possible reserves are represented by the difference +between the P10 and P50 estimates. Possible reserves are typically larger than Probable reserves. This is the result of the key reservoir +parameter distributions reflecting their variation in nature, and when the most favorable parameters are sampled together the resulting +calculation provides the highest, but least likely, values of estimated recoveries. ” +“ Probable +reserves are assigned in certain areas where, as described above, reserves could be considered Proved if all regulatory approvals and +permits were in place. Probable reserves are also assigned in areas where well control and interpretations of available data provide +sufficient geologic evidence of reservoir continuity at structural positions above lowest known hydrocarbons (LKH), and where engineering +evidence indicates the reservoir will have the requisite porosity, permeability and oil saturation to produce commercial quantities of +oil and gas. The assignment of Possible reserves does not incorporate a larger reservoir area, but rather Possible reserves are assigned +to the same wells having Probable reserves because the probabilistic methods employed indicate there may be a greater percentage recovery +of hydrocarbons than is appropriate for the ‘Most Likely’ reserve estimates. ” +The +estimates of Probable (P2) Undeveloped reserves and Possible (P3) Undeveloped reserves and their respective estimated future cash flows +have different risk and/or uncertainty profiles and should not be summed arithmetically with each other. For example, estimates of permeability, +oil saturation, reservoir thickness and estimated ultimate recovery (EUR) are higher for the P3 reserve estimates than for the P2 reserve +estimates (see for example Figure 25 and Table 2 in the Current Reserve Report). +The +Probable (P2) and Possible (P3) reserves in the below Table are considered to be undeveloped as of the report’s effective date +of April 30, 2024. The HV-3A and BM 2-2 wells are capable of oil and/or gas production but additional investments at both of these wells +are anticipated in Phase 1 prior to establishing commercial oil/gas production and, therefore, the reserves at both of these wells are +considered undeveloped. +The +effective date of the reserves and net cash flows in the Table below is April 30, 2024. If the Company’s working-interest in the +South Salinas Project, and/or the size of the Company’s leasehold position at the South Salinas Project, were in the future to +increase or decrease, then the reserve estimates would increase or decrease accordingly (note: the Company’s %WI and leasehold +position may increase but are not expected to decrease). Similarly, changes in the future of estimates of oil and/or gas that can be +economically recovered, in the market values of oil and/or gas, in estimates of reservoir properties such as thickness, oil saturation, +porosity, etc., and various other possible changes in the future, would accordingly result in revised reserve estimates and/or revised +estimates of net cash flow. No significant discovery or other favorable or adverse event has occurred since April 30, 2024, that would +cause a substantial change in estimated reserves and/or cash flow, as of that date. +The +KLSP report providing the reserves and net cash flows in the Table below describes a Project constituting the full development of South +Salinas. The Project is composed of three phases reflecting the progression of capital deployment with successful efforts and the anticipated +time frame associated with regulatory approvals. +10 +Phase +1 uses already-permitted wells and existing wells that can be quicky re-entered upon approval of the Conditional Use Permit (CUP) by +Monterey County. Phase 1 confirms the productivity of the Monterey Blue Zone over the larger area, and it establishes cash flow to partially +support on-going development. Within Phase 1, the HV-3A will be worked-over to enhance production from its existing completion in the +Yellow Zone. The HV-2 and HV-4 will be drilled and completed in the Blue Zone of the Presidents Area. The existing HV-1 is re-entered +and deepened through the Blue Zone, and three other existing wells (BM 2-2, HV 1-35-RD1, HV 3-6-RD1) will be re-entered and sidetracked +through the Blue Zone in the Humpback Area. Although targeting a completion in the Blue Zone, it is likely that each of these re-entered +wells will be drilled to the Vaqueros, immediately below the Blue, with the intention of gathering data and testing the Vaqueros to confirm +it prospectivity as a horizontal well development. Phase 1 is being assessed and under consideration to begin in the first half of 2025 with the HV-3A workover and, with receipt +of the Conditional Use Permit from Monterey County on or about April 2025, conclude with the sidetrack drilling of the HV 3-6-RD1 later in the year (which well is then scheduled for subsequent production). Phase 1 will deploy an estimated $25.8 million for drilling, +completion and associated facility costs including converting the existing BM 1-2 well for water disposal. This capital, as well as that +of Phases 2 and 3, include end-of-life plug and abandonment and surface cleanup costs per CALGEM guidelines and regulations. +Phase +2 of the South Salinas Project consists of a 12 well program. The first well is a sidetrack of an existing well (HV 2-6-RD1) through +the Blue Zone in September 2025, followed by the drilling of a new well each month thereafter through August 2026. Phase 2 begins with +receipt of the remaining (Full) Development Permits from Monterey County. Phase 2 also assumes that by September 2025 Trio should be +experiencing the timely approval of drilling permits from CALGEM. Of the 12 Phase 2 wells, four wells will target the Yellow Zone, seven +are planned for the Blue Zone, and one well is a horizontal well in the Vaqueros Zone. The capital requirement for Phase 2 well work +and facilities expansion is estimated to be $43.2 million. +Phase +3, also referred to as the Full Development Phase, is expected to begin October 2026 with the utilization of three rigs drilling continuously +for about four years. Two of the rigs will be used to drill 101 Blue Zone wells, while the third rig will be used to drill 20 Yellow +Zone wells and 16 horizontal Vaqueros wells. Phase 3 will require an estimated $467 million of capital. When combined with Phases 1 and +2 the South Salinas Project is then expected to generate positive cash flow by 2029. When considered alone Phases 1 and 2 are forecast +to generate positive cash flows in 2026 and 2027, respectively. These expectations assume the realization of the Probable (P2) reserves +that are based on the ‘most likely’ forecasts of production. The KLSP report also provides the incremental volumes and cash +flows associated with the realization of Possible (P3) reserves and are provided in the Table below. The BOE’s cited in the Table +use a conversion factor of 6 Mcf of gas per BOE. +The +combined Phases 1-3 (Total South Salinas Project) are estimated to recover 40.2 million stock tank barrels of oil (MMSTB) and 42.4 billion +standard cubic feet of gas (BCF). This represents 47.3 million BOE of Probable (P2) Undeveloped reserves. The estimated incremental reserves +associated with Possible (P3) reserves are 100.7 MMSTB of oil and 168.5 BCF of gas, or 128.7 million BOE (part “F” of the +Table below). The combined Phases 1-3 estimated net cash flow to the Company, discounted at 10%, is $474.5 million for the Probable (P2) +Undeveloped reserves. Realization of the forecasts associated with Possible reserves provides an additional $2.5 billion for Trio’s +interest in the South Salinas Project (again, as shown in part “F” of the Table below). +Table +1: Estimated Undeveloped Reserves and Cash Flow +ESTIMATED +UNDEVELOPED RESERVES AND CASH FLOW +A. +Phase +1 Undeveloped Reserve Categories +Net +Trio +Undeveloped +Oil +Reserves +(Stock +Tank +Barrels) +Net +Trio +Undeveloped +Gas +Reserves +(1000 +CF, +or +MCF) +Net +Trio +Undeveloped +Reserves +(Barrels +Oil +Equivalent) +Trio +Undiscounted +Net +Cash +Flow +($) +Trio +Net +Cash +Flow +Discounted +at +10% ($) +Probable +(P2) Undeveloped of Phase 1 +2,017,620.0 +2,133,250.0 +2,373,161.7 +$ 107,374,250.00 +$ 33,698,230.00 +Possible +(P3) Undeveloped of Phase 1 +3,841,380.0 +7,449,100.0 +5,082,896.7 +$ 307,886,460.00 +$ 139,189,600.00 +11 +B. +Phase +2 Undeveloped Reserve Categories +Net +Trio +Undeveloped +Oil +Reserves +(Stock +Tank +Barrels) +Net +Trio +Undeveloped +Gas +Reserves +(1000 +CF, +or +MCF) +Net +Trio +Undeveloped +Reserves +(Barrels +Oil +Equivalent) +Trio +Undiscounted +Net +Cash +Flow +($) +Trio +Net +Cash +Flow +Discounted +at +10% ($) +Probable +(P2) Undeveloped of Phase 2 +3,227,940.0 +3,392,940.0 +3,793,430.0 +$ 168,622,080.00 +$ 45,938,680.00 +Possible +(P3) Undeveloped of Phase 2 +6,759,630.0 +11,735,140.0 +8,715,486.7 +$ 527,635,330.00 +$ 210,766,130.00 +C. +Phase +3 (Full Development) Undeveloped Reserve Categories +Net +Trio +Undeveloped +Oil +Reserves +(Stock +Tank +Barrels) +Net +Trio +Undeveloped +Gas +Reserves +(1000 +CF, +or +MCF) +Net +Trio +Undeveloped +Reserves +(Barrels +Oil +Equivalent) +Trio +Undiscounted +Net +Cash +Flow +($) +Trio +Net +Cash +Flow +Discounted +at +10% ($) +Probable +(P2) Undeveloped of Phase 3 +34,940,100.0 +36,918,030.0 +41,093,105.0 +1,837,183,060.0 +394,874,030.0 +Possible +(P3) Undeveloped of Phase 3 +90,057,820.0 +149,348,300.0 +114,949,203.3 +7,054,575,390.0 +2,185,998,350.0 +D. +(P2) +Undeveloped Reserves for Phases 1, 2 & 3 +Net +Trio +Undeveloped +Oil +Reserves +(Stock +Tank +Barrels) +Net +Trio +Undeveloped +Gas +Reserves +(1000 +CF, +or +MCF) +Net +Trio +Undeveloped +Reserves +(Barrels +Oil +Equivalent) +Trio +Undiscounted +Net +Cash +Flow +($) +Trio +Net +Cash +Flow +Discounted +at +10% ($) +Probable +(P2) Undeveloped of Phase 1 +2,017,620.0 +2,133,250.0 +2,373,161.7 +$ 107,374,250.00 +$ 33,698,230.00 +Probable +(P2) Undeveloped of Phase 2 +3,227,940.0 +3,392,940.0 +3,793,430.0 +$ 168,622,080.00 +$ 45,938,680.00 +Probable +(P2) Undeveloped of Phase 3 +34,940,100.0 +36,918,030.0 +41,093,105.0 +$ 1,837,183,060.00 +$ 394,874,030.00 +Total +Probable (P2) Undeveloped of Phases 1, 2 & 3 +40,185,660.0 +42,444,220.0 +47,259,696.7 +$ 2,113,179,390.00 +$ 474,510,940.00 +E. +(P3) +Undeveloped Reserves for Phases 1, 2 & 3 +Net +Trio +Undeveloped +Oil +Reserves +(Stock +Tank +Barrels) +Net +Trio +Undeveloped +Gas +Reserves +(1000 +CF, +or +MCF) +Net +Trio +Undeveloped +Reserves +(Barrels +Oil +Equivalent) +Trio +Undiscounted +Net +Cash +Flow +($) +Trio +Net +Cash +Flow +Discounted +at +10% ($) +Possible +(P3) Undeveloped of Phase 1 +3,841,380.0 +7,449,100.0 +5,082,896.7 +$ 307,886,460.00 +$ 139,189,600.00 +Possible +(P3) Undeveloped of Phase 2 +6,759,630.0 +11,735,140.0 +8,715,486.7 +$ 527,635,330.00 +$ 210,766,130.00 +Possible +(P3) Undeveloped of Phase 3 +90,057,820.0 +149,348,300.0 +114,949,203.3 +$ 7,054,575,390.00 +$ 2,185,998,350.00 +Total +Possible (P3) Undeveloped of Phases 1, 2 & 3 +100,658,830.0 +168,532,540.0 +128,747,586.7 +$ 7,890,097,180.00 +$ 2,535,954,080.00 +F. +Undeveloped +Reserve Categories for Phases 1, 2 & 3 +Net +Trio +Undeveloped +Oil +Reserves +(Stock +Tank +Barrels) +Net +Trio +Undeveloped +Gas +Reserves +(1000 +CF, +or +MCF) +Net +Trio +Undeveloped +Reserves +(Barrels +Oil +Equivalent) +Trio +Undiscounted +Net +Cash +Flow +($) +Trio +Net +Cash +Flow +Discounted +at +10% ($) +Total +Probable (P2) Undeveloped of Phases 1, 2 & 3 +40,185,660.0 +42,444,220.0 +47,259,696.7 +$ 2,113,179,390.00 +$ 474,510,940.00 +Total +Possible (P3) Undeveloped of Phases 1, 2 & 3 +100,658,830.0 +168,532,540.0 +128,747,586.7 +$ 7,890,097,180.00 +$ 2,535,954,080.00 +12 +Reasonable +Expectations of Reserve Analyses +This +Annual Report provides a summary of risks and detailed discussions of risks relating to our business. The Company recognizes these risks +as being real and substantial. Nevertheless, the Company has reasonable expectations that the Company’s South Salinas Project will +prove to have reserves approximately as estimated, that the Company will have adequate funding to develop the reserves, and that there +will exist the legal right to develop the Company’s reserves in the South Salinas Project, including the rights to full-field development, +to long-term production and to deliver natural gas to market via pipeline, recognizing as discussed elsewhere hereunder that there may +be project delays and/or obstacles related to obtaining necessary permits from regulatory agencies. Furthermore and more specifically, +the Company has a reasonable expectation that the primary governmental regulatory agencies that are currently and/or that will be involved +in the permitting processes, which agencies will primarily be CalGEM, State Water Boards and Monterey County, will determine to approve +the Company’s applications for permits for various reasons that are discussed below. See “ \ No newline at end of file diff --git a/raw/filings/0001898766/2024/0001493152-25-002760/item13.txt b/raw/filings/0001898766/2024/0001493152-25-002760/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..e949a6d72cc2975f92d4aa540fdd54ef7d286d71 --- /dev/null +++ b/raw/filings/0001898766/2024/0001493152-25-002760/item13.txt @@ -0,0 +1,5 @@ +ITEM +13. +CERTAIN +RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. +58 \ No newline at end of file diff --git a/raw/filings/0001898766/2025/0001493152-26-002848/filing.txt b/raw/filings/0001898766/2025/0001493152-26-002848/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..f8c26c2124735dd0561811fc06a317451421769c --- /dev/null +++ b/raw/filings/0001898766/2025/0001493152-26-002848/filing.txt @@ -0,0 +1,8713 @@ +false +FY +0001898766 +0001898766 +2024-11-01 +2025-10-31 +0001898766 +2025-04-30 +0001898766 +2026-01-16 +0001898766 +2025-08-01 +2025-10-31 +0001898766 +2025-10-31 +0001898766 +2025-09-17 +2025-09-17 +0001898766 +2025-09-17 +0001898766 +2025-10-03 +2025-10-03 +0001898766 +2025-10-03 +0001898766 +2025-10-20 +2025-10-20 +0001898766 +2025-10-20 +0001898766 +2024-10-31 +0001898766 +us-gaap:RelatedPartyMember +2025-10-31 +0001898766 +us-gaap:RelatedPartyMember +2024-10-31 +0001898766 +2023-11-01 +2024-10-31 +0001898766 +us-gaap:CommonStockMember +2023-10-31 +0001898766 +TPET:ShareSubscriptionReceivablesMember +2023-10-31 +0001898766 +us-gaap:AdditionalPaidInCapitalMember +2023-10-31 +0001898766 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2023-10-31 +0001898766 +us-gaap:RetainedEarningsMember +2023-10-31 +0001898766 +2023-10-31 +0001898766 +us-gaap:CommonStockMember +2024-10-31 +0001898766 +TPET:ShareSubscriptionReceivablesMember +2024-10-31 +0001898766 +us-gaap:AdditionalPaidInCapitalMember +2024-10-31 +0001898766 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2024-10-31 +0001898766 +us-gaap:RetainedEarningsMember +2024-10-31 +0001898766 +us-gaap:CommonStockMember +2023-11-01 +2024-10-31 +0001898766 +TPET:ShareSubscriptionReceivablesMember +2023-11-01 +2024-10-31 +0001898766 +us-gaap:AdditionalPaidInCapitalMember +2023-11-01 +2024-10-31 +0001898766 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2023-11-01 +2024-10-31 +0001898766 +us-gaap:RetainedEarningsMember +2023-11-01 +2024-10-31 +0001898766 +us-gaap:CommonStockMember +2024-11-01 +2025-10-31 +0001898766 +TPET:ShareSubscriptionReceivablesMember +2024-11-01 +2025-10-31 +0001898766 +us-gaap:AdditionalPaidInCapitalMember +2024-11-01 +2025-10-31 +0001898766 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2024-11-01 +2025-10-31 +0001898766 +us-gaap:RetainedEarningsMember +2024-11-01 +2025-10-31 +0001898766 +us-gaap:CommonStockMember +2025-10-31 +0001898766 +TPET:ShareSubscriptionReceivablesMember +2025-10-31 +0001898766 +us-gaap:AdditionalPaidInCapitalMember +2025-10-31 +0001898766 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2025-10-31 +0001898766 +us-gaap:RetainedEarningsMember +2025-10-31 +0001898766 +TPET:TrioLLCMember +TPET:SouthSalinasProjectMember +2021-09-14 +0001898766 +TPET:TrioLLCMember +TPET:SouthSalinasProjectMember +2023-04-01 +2023-04-30 +0001898766 +TPET:PurchaseAndSaleAgreementMember +TPET:TrioLLCMember +2021-09-01 +2021-09-30 +0001898766 +TPET:PurchaseAndSaleAgreementMember +TPET:TrioLLCMember +2021-09-30 +0001898766 +TPET:CapitalLandAcquisitionMember +us-gaap:SubsequentEventMember +2025-11-01 +2025-11-30 +0001898766 +TPET:AssetPurchaseAgreementMember +TPET:NovacorAcquisitionMember +us-gaap:SubsequentEventMember +2025-12-30 +2025-12-30 +0001898766 +TPET:SalesAgreementMember +TPET:LadenburgThalmannCoMember +us-gaap:SubsequentEventMember +2026-01-09 +2026-01-09 +0001898766 +country:CA +2025-10-31 +0001898766 +country:CA +2024-11-01 +2025-10-31 +0001898766 +TPET:SurfaceLeaseAgreementMember +2024-11-01 +2025-10-31 +0001898766 +TPET:SurfaceLeaseAgreementMember +2025-10-31 +0001898766 +TPET:TrioLLCMember +TPET:SouthSalinasProjectMember +2023-04-30 +0001898766 +TPET:TrioLLCMember +2021-09-13 +2021-09-14 +0001898766 +TPET:TrioLLCMember +2021-09-14 +0001898766 +TPET:TrioLLCMember +2025-10-31 +0001898766 +TPET:TrioLLCMember +2024-10-31 +0001898766 +2022-10-31 +0001898766 +2022-11-01 +2023-10-31 +0001898766 +us-gaap:WarrantMember +2024-11-01 +2025-10-31 +0001898766 +us-gaap:WarrantMember +2023-11-01 +2024-10-31 +0001898766 +us-gaap:ConvertibleNotesPayableMember +2023-10-01 +2023-10-31 +0001898766 +us-gaap:ConvertibleNotesPayableMember +2023-12-01 +2023-12-31 +0001898766 +srt:ChiefExecutiveOfficerMember +2023-11-01 +2024-10-31 +0001898766 +us-gaap:InvestorMember +2023-11-01 +2024-10-31 +0001898766 +us-gaap:ConvertibleNotesPayableMember +us-gaap:InvestorMember +2023-11-01 +2024-10-31 +0001898766 +TPET:AtTheMarketAgreementMember +2024-09-01 +2024-09-30 +0001898766 +us-gaap:PrivatePlacementMember +2025-04-01 +2025-04-30 +0001898766 +us-gaap:PrivatePlacementMember +2025-08-01 +2025-08-31 +0001898766 +TPET:OilSalesMember +2024-11-01 +2025-10-31 +0001898766 +TPET:OilSalesMember +2023-11-01 +2024-10-31 +0001898766 +TPET:OilAndNaturalGasRevenueMember +us-gaap:SalesRevenueNetMember +us-gaap:CustomerConcentrationRiskMember +2024-11-01 +2025-10-31 +0001898766 +TPET:OilAndNaturalGasRevenueMember +us-gaap:SalesRevenueNetMember +us-gaap:CustomerConcentrationRiskMember +2023-11-01 +2024-10-31 +0001898766 +TPET:FirstLeaseMember +2022-05-27 +0001898766 +TPET:FirstLeaseMember +2022-10-31 +0001898766 +TPET:SecondLeaseMember +2025-10-31 +0001898766 +TPET:GroupOneMember +2023-02-28 +0001898766 +TPET:GroupOneMember +2023-02-01 +2023-02-28 +0001898766 +TPET:GroupTwoMember +2023-03-31 +0001898766 +TPET:GroupTwoMember +2023-03-01 +2023-03-31 +0001898766 +TPET:TrioLLCMember +2023-10-31 +0001898766 +TPET:McCoolRanchPurchaseAgreementMember +2023-10-01 +2023-10-31 +0001898766 +2025-05-27 +2025-05-27 +0001898766 +TPET:ARLOAgreementMember +2023-11-10 +2023-11-10 +0001898766 +TPET:ARLOAgreementMember +2023-11-10 +0001898766 +TPET:ARLOAgreementMember +srt:MinimumMember +2023-11-10 +2023-11-10 +0001898766 +TPET:AmendedARLOAgreementMember +2023-12-29 +0001898766 +TPET:AmendedARLOAgreementMember +2023-12-29 +2023-12-29 +0001898766 +TPET:AmendedARLOAgreementMember +2024-11-01 +2025-10-31 +0001898766 +TPET:AmendedARLOAgreementMember +2025-10-31 +0001898766 +TPET:AssetPurchaseAgreementMember +TPET:NovacorExplorationLtdMember +2025-04-04 +2025-04-04 +0001898766 +TPET:AssetPurchaseAgreementMember +TPET:NovacorExplorationLtdMember +TPET:TrioCanadaMember +2025-04-08 +2025-04-08 +0001898766 +TPET:AssetPurchaseAgreementMember +TPET:NovacorExplorationLtdMember +TPET:TrioCanadaMember +2025-05-22 +2025-05-22 +0001898766 +TPET:NovacorExplorationLtdMember +2024-11-01 +2025-10-31 +0001898766 +TPET:NovacorExplorationLtdMember +2024-11-01 +2025-10-31 +0001898766 +TPET:NovacorExplorationLtdMember +2025-10-31 +0001898766 +TPET:HeavySweetOilLLCMember +2025-05-15 +0001898766 +TPET:HeavySweetOilLLCMember +2025-05-15 +2025-05-15 +0001898766 +TPET:SouthSalinasProjectMember +2024-11-01 +2025-10-31 +0001898766 +TPET:SouthSalinasProjectMember +2025-10-31 +0001898766 +TPET:SouthSalinasProjectMember +2024-10-31 +0001898766 +TPET:TrioLLCMember +TPET:McCoolRanchPurchaseAgreementMember +2023-10-16 +0001898766 +TPET:McCoolRanchPurchaseAgreementMember +2023-10-16 +2023-10-16 +0001898766 +TPET:McCoolRanchPurchaseAgreementMember +2023-10-16 +0001898766 +us-gaap:CommonStockMember +us-gaap:RestrictedStockUnitsRSUMember +2023-09-02 +2023-09-02 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +us-gaap:CommonStockMember +2023-09-02 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +srt:DirectorMember +2024-06-19 +0001898766 +TPET:TwoThousandTwentyTwoEquityIncentivePlanMember +us-gaap:RestrictedStockUnitsRSUMember +2024-06-19 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +2024-06-19 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +srt:DirectorMember +2024-06-19 +2024-06-19 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +srt:DirectorMember +2024-11-01 +2025-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +srt:DirectorMember +2023-11-01 +2024-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +srt:DirectorMember +2025-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +srt:DirectorMember +2024-10-21 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +srt:DirectorMember +2024-10-21 +2024-10-21 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:CurrentDirectorMember +2024-10-21 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:CurrentDirectorMember +2024-10-21 +2024-10-21 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:CurrentDirectorMember +2024-11-01 +2025-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:CurrentDirectorMember +2023-11-01 +2024-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:CurrentDirectorMember +2025-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +srt:DirectorMember +2025-08-01 +2025-08-01 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +srt:DirectorMember +2025-08-01 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:SixEmployeeAgreementMember +2023-05-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:SixEmployeeAgreementMember +2023-05-01 +2023-05-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:FourEmployeeAgreementMember +2025-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:SixEmployeeAgreementMember +2024-11-01 +2025-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:SixEmployeeAgreementMember +2023-11-01 +2024-10-31 +0001898766 +TPET:ThreeMonthConsultingAgreementMember +TPET:MrPetersonMember +2024-07-11 +0001898766 +TPET:ThreeMonthConsultingAgreementMember +us-gaap:RestrictedStockUnitsRSUMember +2024-07-11 +2024-07-11 +0001898766 +TPET:ThreeMonthConsultingAgreementMember +us-gaap:RestrictedStockUnitsRSUMember +2024-10-31 +0001898766 +TPET:ThreeMonthConsultingAgreementMember +us-gaap:RestrictedStockUnitsRSUMember +2023-11-01 +2024-10-31 +0001898766 +TPET:ThreeMonthConsultingAgreementMember +2024-11-01 +2025-10-31 +0001898766 +TPET:ThreeMonthConsultingAgreementMember +2023-11-01 +2024-10-31 +0001898766 +TPET:ThreeMonthConsultingAgreementMember +2025-10-31 +0001898766 +TPET:MrRobinRossMember +2024-07-11 +2024-07-11 +0001898766 +TPET:MrRobinRossMember +2024-07-11 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:MrRobinRossMember +2024-07-11 +2024-07-11 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:MrRobinRossMember +2025-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:MrRobinRossMember +2024-11-01 +2025-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +TPET:MrRobinRossMember +2023-11-01 +2024-10-31 +0001898766 +TPET:MrRobinRossMember +srt:MinimumMember +2025-08-01 +2025-08-01 +0001898766 +TPET:MrRobinRossMember +srt:MaximumMember +2025-08-01 +2025-08-01 +0001898766 +TPET:MrRobinRossMember +2025-08-01 +2025-08-01 +0001898766 +TPET:MrRobinRossMember +2025-08-01 +0001898766 +TPET:MrRobinRossMember +2024-11-01 +2025-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +srt:ChiefFinancialOfficerMember +2024-10-21 +2024-10-21 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +srt:ChiefFinancialOfficerMember +2024-10-21 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +srt:ChiefFinancialOfficerMember +2024-11-01 +2025-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +srt:ChiefFinancialOfficerMember +2023-11-01 +2024-10-31 +0001898766 +us-gaap:RestrictedStockUnitsRSUMember +srt:ChiefFinancialOfficerMember +2025-10-31 +0001898766 +TPET:MrOverholtzerMember +us-gaap:RestrictedStockUnitsRSUMember +2025-08-01 +2025-08-01 +0001898766 +TPET:MrOverholtzerMember +us-gaap:RestrictedStockUnitsRSUMember +2025-08-01 +0001898766 +TPET:MichaelLPetersonMember +2024-03-26 +0001898766 +TPET:MichaelLPetersonMember +2024-03-26 +2024-03-26 +0001898766 +us-gaap:RestrictedStockMember +TPET:MrPetersonMember +TPET:TwoThousandTwentyTwoEquityIncentivePlanMember +2024-03-26 +0001898766 +TPET:MichaelLPetersonMember +2024-09-26 +2024-09-26 +0001898766 +TPET:MichaelLPetersonMember +2024-10-28 +2024-10-28 +0001898766 +TPET:MichaelLPetersonMember +2024-11-25 +0001898766 +TPET:MichaelLPetersonMember +2024-11-25 +2024-11-25 +0001898766 +TPET:ConsultingAgreementMember +srt:ChiefFinancialOfficerMember +2025-01-01 +2025-01-01 +0001898766 +TPET:LoanAndNotePurchaseAgreementMember +TPET:TrioCanadaMember +2025-04-04 +0001898766 +TPET:LoanAndNotePurchaseAgreementMember +TPET:TrioCanadaMember +2025-04-04 +2025-04-04 +0001898766 +TPET:LoanAndNotePurchaseAgreementMember +TPET:NovacorExplorationLtdMember +2025-04-04 +0001898766 +TPET:NovacorAcquisitionMember +2025-10-31 +0001898766 +TPET:ConsultingAgreementMember +TPET:StanfordEschnerMember +2025-08-01 +0001898766 +TPET:ConsultingAgreementMember +TPET:StanfordEschnerMember +2025-08-01 +2025-08-01 +0001898766 +TPET:FirstAforementionedMember +TPET:UnprovedPropertyLeaseMember +2022-05-27 +0001898766 +TPET:FirstAforementionedMember +TPET:UnprovedPropertyLeaseMember +2022-10-31 +0001898766 +TPET:SecondAforementionedMember +TPET:UnprovedPropertyLeaseMember +2025-10-31 +0001898766 +TPET:ParcelOneMember +2025-10-31 +0001898766 +TPET:ParcelTwoMember +2025-10-31 +0001898766 +TPET:ARLOAgreementMember +srt:MaximumMember +2023-11-10 +2023-11-10 +0001898766 +srt:DirectorMember +2022-07-09 +2022-07-11 +0001898766 +TPET:BoardCommitteeMember +2022-07-09 +2022-07-11 +0001898766 +us-gaap:IPOMember +2024-11-01 +2025-10-31 +0001898766 +us-gaap:IPOMember +2023-11-01 +2024-10-31 +0001898766 +TPET:AdvisorsMember +2022-07-28 +0001898766 +TPET:AdvisorsMember +2022-07-27 +2022-07-28 +0001898766 +us-gaap:WarrantMember +2023-04-20 +2023-04-20 +0001898766 +us-gaap:WarrantMember +2023-04-20 +0001898766 +TPET:AdvisorsMember +2023-10-04 +2023-10-04 +0001898766 +TPET:AdvisorsMember +2023-12-29 +2023-12-29 +0001898766 +TPET:AdvisorsMember +2023-10-04 +0001898766 +TPET:AdvisorsMember +2023-12-29 +0001898766 +TPET:MarchTwoThousandTwentyFourDebtFinancingMember +2024-03-27 +2024-03-27 +0001898766 +TPET:MarchTwoThousandTwentyFourDebtFinancingMember +2024-03-27 +0001898766 +TPET:MarchTwoThousandTwentyFourDebtFinancingMember +2024-09-30 +0001898766 +TPET:MarchTwoThousandTwentyFourDebtFinancingMember +2024-10-30 +0001898766 +TPET:MarchTwoThousandTwentyFourDebtFinancingMember +2024-11-30 +0001898766 +TPET:MarchTwoThousandTwentyFourDebtFinancingMember +2024-12-30 +0001898766 +TPET:MarchTwoThousandTwentyFourDebtFinancingMember +2025-01-30 +0001898766 +TPET:MarchTwoThousandTwentyFourDebtFinancingMember +2024-09-30 +2024-09-30 +0001898766 +TPET:MarchTwoThousandTwentyFourDebtFinancingMember +2024-10-30 +2024-10-30 +0001898766 +TPET:MarchTwoThousandTwentyFourDebtFinancingMember +2024-11-30 +2024-11-30 +0001898766 +TPET:MarchTwoThousandTwentyFourDebtFinancingMember +2024-11-01 +2025-10-31 +0001898766 +TPET:MarchTwoThousandTwentyFourDebtFinancingMember +2023-11-01 +2024-10-31 +0001898766 +srt:ChiefExecutiveOfficerMember +2024-03-26 +0001898766 +srt:ChiefExecutiveOfficerMember +2024-03-26 +2024-03-26 +0001898766 +TPET:AprilTwoThousandTwentyFourConvertibleDebtFinancingMember +2025-10-31 +0001898766 +TPET:AprilTwoThousandTwentyFourConvertibleDebtFinancingMember +TPET:CommitmentSharesMember +2024-04-30 +2024-04-30 +0001898766 +TPET:AprilTwoThousandTwentyFourConvertibleDebtFinancingMember +TPET:CommitmentSharesMember +2024-11-01 +2025-10-31 +0001898766 +TPET:JuneTwoThousandTwentyFourDebtFinancingMember +TPET:JuneTwoThousandTwentyFourSPAMember +2024-06-27 +0001898766 +TPET:JuneTwoThousandTwentyFourDebtFinancingMember +2024-06-27 +2024-06-27 +0001898766 +TPET:SeniorSecuredConvertiblePromissoryNoteMember +TPET:JuneTwoThousandTwentyFourSPAMember +2024-06-27 +0001898766 +TPET:JuneTwoThousandTwentyFourSPAMember +2024-06-27 +0001898766 +TPET:JuneTwoThousandTwentyFourDebtFinancingMember +2024-06-27 +0001898766 +TPET:JuneTwoThousandTwentyFourDebtFinancingMember +2024-11-01 +2025-10-31 +0001898766 +TPET:JuneTwoThousandTwentyFourDebtFinancingMember +2023-11-01 +2024-10-31 +0001898766 +TPET:AugustOneTwoThousandAndTwentyFourFinancingMember +2024-08-01 +2024-08-01 +0001898766 +TPET:AugustOneTwoThousandAndTwentyFourFinancingMember +2024-08-01 +0001898766 +TPET:AugustOneTwoThousandAndTwentyFourFinancingMember +2025-10-31 +0001898766 +TPET:AugustOneTwoThousandAndTwentyFourFinancingMember +2025-08-01 +2025-10-31 +0001898766 +TPET:AugustOneTwoThousandAndTwentyFourFinancingMember +2024-11-01 +2025-10-31 +0001898766 +TPET:AugustOneTwoThousandAndTwentyFourFinancingMember +2023-11-01 +2024-10-31 +0001898766 +TPET:AugustSixTwoThousandAndTwentyFourFinancingMember +2024-08-06 +2024-08-06 +0001898766 +TPET:AugustSixTwoThousandAndTwentyFourFinancingMember +2024-08-06 +0001898766 +TPET:AprilTwoThousandTwentyFourDebtFinancingMember +TPET:TwoCashPaymentMember +2024-08-06 +0001898766 +TPET:NoteExchangeAgreementMember +2025-01-28 +2025-01-28 +0001898766 +TPET:NoteExchangeAgreementMember +2025-02-10 +2025-02-10 +0001898766 +TPET:NoteExchangeAgreementMember +2025-02-10 +0001898766 +TPET:AugustSixTwoThousandAndTwentyFourFinancingMember +2025-10-31 +0001898766 +TPET:AugustSixTwoThousandAndTwentyFourFinancingMember +2024-11-01 +2025-10-31 +0001898766 +TPET:AugustSixTwoThousandAndTwentyFourFinancingMember +2023-11-01 +2024-10-31 +0001898766 +TPET:AprilTwoThousandAndTwentyFiveFinancingMember +2025-04-11 +0001898766 +TPET:AprilTwoThousandAndTwentyFiveFinancingMember +2025-04-11 +2025-04-11 +0001898766 +TPET:AprilTwoThousandAndTwentyFiveFinancingMember +2025-04-17 +0001898766 +TPET:AprilTwoThousandAndTwentyFiveFinancingMember +2025-04-17 +2025-04-17 +0001898766 +TPET:AprilTwoThousandAndTwentyFiveFinancingMember +TPET:SpartanCapitalSecuritiesLLCMember +2025-04-17 +2025-04-17 +0001898766 +TPET:AprilTwoThousandAndTwentyFiveFinancingMember +2025-06-11 +2025-06-11 +0001898766 +TPET:AprilTwoThousandAndTwentyFiveFinancingMember +2025-06-23 +2025-06-23 +0001898766 +TPET:AprilTwoThousandAndTwentyFiveFinancingMember +srt:MinimumMember +2025-06-11 +0001898766 +TPET:AprilTwoThousandAndTwentyFiveFinancingMember +srt:MinimumMember +2025-06-23 +0001898766 +TPET:AprilTwoThousandAndTwentyFiveFinancingMember +srt:MaximumMember +2025-06-11 +0001898766 +TPET:AprilTwoThousandAndTwentyFiveFinancingMember +srt:MaximumMember +2025-06-23 +0001898766 +TPET:AprilTwoThousandAndTwentyFiveFinancingMember +2024-11-01 +2025-10-31 +0001898766 +TPET:AprilTwoThousandAndTwentyFiveFinancingMember +2025-10-31 +0001898766 +TPET:AprilTwoThousandAndTwentyFiveFinancingMember +2023-11-01 +2024-10-31 +0001898766 +TPET:AugustTwoThousandAndTwentyFiveFinancingMember +2025-08-15 +0001898766 +TPET:AugustTwoThousandAndTwentyFiveFinancingMember +2025-08-15 +2025-08-15 +0001898766 +TPET:AugustTwoThousandAndTwentyFiveFinancingMember +us-gaap:InvestorMember +2025-09-12 +2025-09-12 +0001898766 +TPET:AugustTwoThousandAndTwentyFiveFinancingMember +us-gaap:InvestorMember +2025-10-23 +2025-10-23 +0001898766 +TPET:AugustTwoThousandAndTwentyFiveFinancingMember +us-gaap:InvestorMember +2025-09-12 +0001898766 +TPET:AugustTwoThousandAndTwentyFiveFinancingMember +us-gaap:InvestorMember +2025-10-23 +0001898766 +TPET:AugustTwoThousandAndTwentyFiveFinancingMember +us-gaap:InvestorMember +2024-11-01 +2025-10-31 +0001898766 +TPET:AugustTwoThousandAndTwentyFiveFinancingMember +2024-11-01 +2025-10-31 +0001898766 +TPET:AugustTwoThousandAndTwentyFiveFinancingMember +2023-11-01 +2024-10-31 +0001898766 +us-gaap:CommonStockMember +2023-11-11 +2023-11-11 +0001898766 +us-gaap:CommonStockMember +2023-11-11 +0001898766 +us-gaap:CommonStockMember +2024-03-20 +2024-03-20 +0001898766 +us-gaap:CommonStockMember +2024-03-20 +0001898766 +us-gaap:CommonStockMember +2024-04-26 +2024-04-26 +0001898766 +us-gaap:CommonStockMember +2024-04-26 +0001898766 +2024-04-26 +2024-04-26 +0001898766 +us-gaap:CommonStockMember +2024-04-29 +2024-04-29 +0001898766 +us-gaap:CommonStockMember +2024-04-29 +0001898766 +us-gaap:CommonStockMember +2024-09-09 +2024-09-09 +0001898766 +us-gaap:CommonStockMember +2024-09-09 +0001898766 +us-gaap:CommonStockMember +2025-01-01 +2025-01-01 +0001898766 +us-gaap:CommonStockMember +2025-01-01 +0001898766 +2025-08-01 +2025-08-01 +0001898766 +2025-08-01 +0001898766 +us-gaap:CommonStockMember +2025-08-13 +0001898766 +TPET:ConsultantsDirectorsandExecutivesMember +2025-08-01 +2025-08-01 +0001898766 +TPET:ConsultantsDirectorsandExecutivesMember +2024-11-01 +2025-10-31 +0001898766 +TPET:ConsultantsDirectorsandExecutivesMember +2025-10-31 +0001898766 +2023-12-18 +2023-12-18 +0001898766 +2023-12-18 +0001898766 +2023-12-29 +2023-12-29 +0001898766 +2023-12-29 +0001898766 +2024-01-12 +2024-01-12 +0001898766 +2024-01-12 +0001898766 +2024-02-01 +2024-02-01 +0001898766 +2024-02-01 +0001898766 +2024-02-02 +2024-02-02 +0001898766 +2024-02-02 +0001898766 +2024-02-05 +2024-02-05 +0001898766 +2024-02-05 +0001898766 +2024-02-16 +2024-02-16 +0001898766 +2024-02-16 +0001898766 +2024-03-22 +2024-03-22 +0001898766 +2024-03-22 +0001898766 +2024-04-02 +2024-04-02 +0001898766 +2024-04-02 +0001898766 +2024-09-26 +2024-09-26 +0001898766 +2024-09-26 +0001898766 +2024-10-01 +2024-10-01 +0001898766 +2024-10-01 +0001898766 +2024-10-11 +2024-10-11 +0001898766 +2024-10-11 +0001898766 +2024-10-30 +2024-10-30 +0001898766 +2024-10-30 +0001898766 +2024-09-29 +2024-10-01 +0001898766 +2024-10-18 +2024-10-18 +0001898766 +2024-10-18 +0001898766 +2024-12-20 +2024-12-20 +0001898766 +2024-12-20 +0001898766 +2025-02-10 +2025-02-10 +0001898766 +2025-02-10 +0001898766 +2025-05-14 +2025-05-14 +0001898766 +2025-05-14 +0001898766 +2025-06-11 +2025-06-11 +0001898766 +2025-06-23 +2025-06-23 +0001898766 +2025-06-11 +0001898766 +2025-06-23 +0001898766 +2025-09-12 +2025-09-12 +0001898766 +2025-10-23 +2025-10-23 +0001898766 +2025-09-12 +0001898766 +2025-10-23 +0001898766 +us-gaap:InvestorMember +2024-04-16 +2024-04-16 +0001898766 +us-gaap:InvestorMember +2024-04-16 +0001898766 +us-gaap:InvestorMember +2024-04-24 +2024-04-24 +0001898766 +us-gaap:InvestorMember +2024-04-24 +0001898766 +TPET:NovacorExplorationLtdMember +2025-04-11 +2025-04-11 +0001898766 +TPET:NovacorExplorationLtdMember +2025-04-11 +0001898766 +2024-11-14 +2024-11-14 +0001898766 +2024-12-05 +2024-12-05 +0001898766 +2025-01-15 +2025-01-15 +0001898766 +TPET:SeriesOnePreferredStockMember +TPET:TrioCanadaMember +2025-04-04 +2025-04-04 +0001898766 +TPET:SeriesOnePreferredStockMember +TPET:TrioCanadaMember +2025-04-04 +0001898766 +us-gaap:CommonStockMember +TPET:TwoAccreditedInvestorsMember +2022-12-31 +0001898766 +us-gaap:OverAllotmentOptionMember +2023-04-30 +0001898766 +TPET:SeniorSecuredConvertiblePromissoryNoteMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +2023-12-04 +2023-12-04 +0001898766 +TPET:SeniorSecuredConvertiblePromissoryNoteMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +2023-12-29 +2023-12-29 +0001898766 +TPET:SeniorSecuredConvertiblePromissoryNoteMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +TPET:FirstTrancheMember +2023-10-04 +0001898766 +TPET:SeniorSecuredConvertiblePromissoryNoteMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +TPET:FirstTrancheMember +2023-12-29 +0001898766 +TPET:SeniorSecuredConvertiblePromissoryNoteMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +TPET:SecondTrancheMember +2023-10-04 +0001898766 +TPET:SeniorSecuredConvertiblePromissoryNoteMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +TPET:SecondTrancheMember +2023-12-29 +0001898766 +TPET:SeniorSecuredConvertiblePromissoryNoteMember +TPET:OctoberTwoThousandTwentyThreeSPAMember +TPET:SecondTrancheMember +2024-01-02 +0001898766 +TPET:JuneTwoThousandTwentyFourSPAMember +2024-06-27 +0001898766 +TPET:JuneTwoThousandTwentyFourSPAMember +us-gaap:MeasurementInputExercisePriceMember +2024-06-27 +0001898766 +TPET:JuneTwoThousandTwentyFourSPAMember +2024-06-27 +2024-06-27 +0001898766 +us-gaap:EmployeeStockOptionMember +TPET:ConsultantMember +2023-08-15 +2023-08-15 +0001898766 +us-gaap:EmployeeStockOptionMember +TPET:ConsultantMember +2023-08-15 +0001898766 +us-gaap:EmployeeStockOptionMember +2025-10-31 +0001898766 +us-gaap:EmployeeStockOptionMember +2024-11-01 +2025-10-31 +0001898766 +us-gaap:EmployeeStockOptionMember +2023-11-01 +2024-10-31 +0001898766 +TPET:ExercisePriceRangeOneMember +us-gaap:WarrantMember +2025-10-31 +0001898766 +TPET:ExercisePriceRangeOneMember +us-gaap:WarrantMember +2024-11-01 +2025-10-31 +0001898766 +TPET:ExercisePriceRangeTwoMember +us-gaap:WarrantMember +2025-10-31 +0001898766 +TPET:ExercisePriceRangeTwoMember +us-gaap:WarrantMember +2024-11-01 +2025-10-31 +0001898766 +TPET:ExercisePriceRangeThreeMember +us-gaap:WarrantMember +2025-10-31 +0001898766 +TPET:ExercisePriceRangeThreeMember +us-gaap:WarrantMember +2024-11-01 +2025-10-31 +0001898766 +TPET:ExercisePriceRangeFourMember +us-gaap:WarrantMember +2025-10-31 +0001898766 +TPET:ExercisePriceRangeFourMember +us-gaap:WarrantMember +2024-11-01 +2025-10-31 +0001898766 +TPET:ExercisePriceRangeFiveMember +us-gaap:WarrantMember +2025-10-31 +0001898766 +TPET:ExercisePriceRangeFiveMember +us-gaap:WarrantMember +2024-11-01 +2025-10-31 +0001898766 +TPET:ExercisePriceRangeSixMember +us-gaap:WarrantMember +2025-10-31 +0001898766 +TPET:ExercisePriceRangeSixMember +us-gaap:WarrantMember +2024-11-01 +2025-10-31 +0001898766 +TPET:ExercisePriceRangeSevenMember +us-gaap:WarrantMember +2025-10-31 +0001898766 +TPET:ExercisePriceRangeSevenMember +us-gaap:WarrantMember +2024-11-01 +2025-10-31 +0001898766 +us-gaap:WarrantMember +2025-10-31 +0001898766 +us-gaap:WarrantMember +2024-11-01 +2025-10-31 +0001898766 +us-gaap:EmployeeStockOptionMember +2023-10-31 +0001898766 +us-gaap:EmployeeStockOptionMember +2022-11-01 +2023-10-31 +0001898766 +us-gaap:EmployeeStockOptionMember +2024-10-31 +0001898766 +TPET:ExercisePriceRangeOneMember +us-gaap:EmployeeStockOptionMember +2025-10-31 +0001898766 +TPET:ExercisePriceRangeOneMember +us-gaap:EmployeeStockOptionMember +2024-11-01 +2025-10-31 +0001898766 +TPET:AssetPurchaseAgreementMember +us-gaap:SubsequentEventMember +2025-11-03 +0001898766 +TPET:AssetPurchaseAgreementMember +us-gaap:SubsequentEventMember +2025-11-03 +2025-11-03 +0001898766 +us-gaap:SubsequentEventMember +TPET:AlbertaEnergyRegulatorMember +2025-11-03 +0001898766 +TPET:SalesAgreementMember +TPET:LadenburgThalmannCoMember +us-gaap:SubsequentEventMember +2026-01-09 +2026-01-09 +iso4217:USD +xbrli:shares +iso4217:USD +xbrli:shares +xbrli:pure +utr:acre +iso4217:CAD +iso4217:CAD +xbrli:shares +UNITED +STATES +SECURITIES +AND EXCHANGE COMMISSION +WASHINGTON +D.C. 20549 +FORM +10-K +☒ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the Fiscal Year Ended October 31 , 2025 +OR +☐ +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the transition period from _______ to ________. +Commission +file number: 001-41643 +TRIO +PETROLEUM CORP +(Exact +name of Registrant as specified in its charter) +Delaware +87-1968201 +(State +or other jurisdiction of +(I.R.S. +Employer +incorporation +or organization) +Identification +No.) +23823 +Malibu Road , Suite 304 +Malibu , +CA +90265 +(Address +of principal executive offices) +(Zip +Code) +Registrant’s +telephone number, including area code: (661) 324-3911 +Securities +registered pursuant to Section 12(b) of the Act: +Title +of each class +Trading +Symbol(s) +Name +of each exchange on which registered +Common +Stock, par value $0.0001 per share +TPET +NYSE +American LLC +Indicate +by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No +Indicate +by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ +No +Indicate +by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange +Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) +has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No +Indicate +by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule +405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant +was required to submit such files). ☒ Yes ☐ No +Indicate +by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, +or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging +growth company in Rule 12b-2 of the Exchange Act. +Large +Accelerated Filer +☐ +Accelerated +Filer +☐ +Non-Accelerated +Filer +☒ +Smaller +Reporting Company +☒ +Emerging +Growth Company +☒ +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying +with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate +by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness +of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered +public accounting firm that prepared or issued its audit report. ☐ +If +securities are registered pursuant to Section 12(b) of the Act, indicate by check mark, whether the financial statements of the registrant +included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate +by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation +received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate +by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No +The +aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which +the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s +most recently completed second fiscal quarter, April 30, 2025, was $ 8,775,576 . +As +of January 16, 2026, there were 12,300,752 shares of the registrant’s common stock outstanding. +TABLE +OF CONTENTS +PART +I +ITEM +1. +BUSINESS. +1 +ITEM +1A. +RISK FACTORS. +16 +ITEM +1B. +UNRESOLVED STAFF COMMENTS. +30 +ITEM +1C. +CYBERSECURITY. +30 +ITEM +2. +PROPERTIES. +31 +ITEM +3. +LEGAL PROCEEDINGS. +31 +ITEM +4. +MINE SAFETY DISCLOSURES. +31 +PART II +ITEM +5. +MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES +31 +ITEM +6. +[ RESERVED] +33 +ITEM +7. +MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. +33 +ITEM +7A. +QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. +43 +ITEM +8. +FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA. +43 +ITEM +9. +CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. +43 +ITEM +9A. +CONTROLS AND PROCEDURES. +43 +ITEM +9B. +OTHER INFORMATION. +45 +ITEM +9C. +DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. +45 +PART +III +ITEM +10. +DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. +45 +ITEM +11. +EXECUTIVE COMPENSATION. +49 +ITEM +12. +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. +55 +ITEM +13. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. +57 +ITEM +14. +PRINCIPAL ACCOUNTANT FEES AND SERVICES. +61 +PART +IV +ITEM +15. +EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES +62 +i +ITEM +1. BUSINESS. +Overview +We +are a California-based oil and gas exploration and development company headquartered in Malibu, California, with our principal executive +offices located at 23823 Malibu Road, Suite 304, Malibu, California 90265, with operations in Monterey County, California, Uintah County, +Utah and Lloydminster, Saskatchewan. +We +have had revenue-generating operations since the McCool Ranch Oil Field (defined hereafter) was restarted on February 22, 2024, and +recognized our first revenues in our fiscal quarter ended April 30, 2024, and received the proceeds from these operations in June +2024. During the period ended April 30, 2025 we began generating revenue from our newly acquired properties in Saskatchewan, +Canada. +Our +Canadian projects represent a significant growth opportunity, driven primarily by planned workovers intended to enhance production +across the acquired assets. We began executing this program immediately following the closing of our April 2025 acquisition of certain +heavy oil assets in west-central Saskatchewan, Canada, including producing heavy oil wells, from Novacor (defined below), a company recognized +as one of the lowest-cost operators in the region. In November 2025, we expanded our presence with the acquisition of a second Canadian +project from Capital Land (defined below). Our strategy continues to focus on acquiring assets that generate immediate cash flow, provide +meaningful long-term development potential, and offer the potential for transformative value creation through targeted strategic investment. +We +were formed to initially acquire an approximate 82.75% working interest (which was subsequently increased to an approximate 85.775% +working interest) from Trio LLC (“Trio LLC”) in the large, approximately 9,300-acre South Salinas Project that is +located in Monterey County, California, and subsequently partner with certain members of Trio LLC’s management team to develop +and operate those assets. We hold an approximate 68.62% interest after the application of royalties (“net revenue +interest”) in the South Salinas Project. Trio LLC holds an approximate 3.9% working interest in the South Salinas Project. We +and Trio LLC are separate and distinct companies. The remaining working interests are owned by two unrelated parties. +Initially, +California was a significant part of our geographic focus; however, due to rising drilling costs and the negative impact on +potential profitability, we have strategically shifted our efforts beyond California to pursue more economically viable +opportunities. This transition is reflected in our acquisition of an interest in oil properties that are a part of the Asphalt Ridge +Project in Uintah County, Utah, as well as our recent acquisition from Novacor, described above, in the +prolific Lloydminster, Saskatchewan heavy oil region and from Capital Land in the County of Vermilion of River (formerly known as +the Municipal District of Wellington No. 41). +Recent +Business Developments +Changes +to Company Management +Effective +as of August 1, 2025, Stanford Eschner retired as Vice Chairman and a director of the Company. +Changes +to Independent Registered Public Accounting Firm +On +May 6, 2024, the Company dismissed BF Borgers CPA PC (“Borgers”) as the Company’s independent registered public accounting +firm, as a result of Borgers no longer being able to audit the Company’s financial statements, pursuant to an order by the Securities +and Exchange Commission against Borgers (the “SEC Order”). Effective May 8, 2024, the Company retained Bush & Associates +CPA LLC (“Bush & Associates”) as its new independent registered public accounting firm. Also, pursuant to the requirements +of the SEC Order, Bush & Associates re-audited the Company’s financial statements for the fiscal years ended October 31, 2023 +and 2022, which financial statements were filed with Amendment No. 1 to the Company’s Report on Form 10-K/A filed with the SEC +on June 13, 2024. +South +Salinas Project +Efforts +to obtain from Monterey County conditional use permits and a full field development permit for the South Salinas Project are progressing. +Efforts to obtain from the California Geologic Energy Management Division (“CalGEM”) and from the California Water Boards +a permit for a water disposal project at the South Salinas Project are also progressing. In the meantime, the Company recently determined +that existing permits allow production testing to continue at the HV-3A discovery well at Presidents Field and, consequently, testing +operations were restarted at this well on March 22, 2024. Oil production from this well has occurred and the Company is assessing steps +to attempt to increase the well’s gross production rate, for example by adding up to 650 feet of additional perforations in the +oil zone and/or acidizing the well for borehole cleanup. First oil sales from the HV-3A well occurred in the third calendar quarter of +2024 but is currently idled as we further discussions with local oil and gas companies to joint venture the project. +1 +McCool +Ranch Oil Field +On +October 16, 2023, we entered into a Purchase and Sale Agreement with Trio LLC (the “McCool Ranch Purchase Agreement”) pertaining +to the McCool Ranch Oil Field. Pursuant to this agreement, effective October 1, 2023, we entered into an agreement to acquire an approximate +22% working interest in and to certain oil and gas assets at the McCool Ranch Field, located in Monterey County, California, near our +flagship South Salinas Project. +The +acquired assets included six oil wells, a water-disposal well, a steam generator, boiler, storage tanks, and various operational infrastructure. +While initial production was restarted on February 22, 2024, we have subsequently determined that under previously negotiated terms, +natural gas prices and water disposal costs, particularly in California, makes it cost prohibitive for the Company to employ cyclic-steam +operations to increase production and will not be economically feasible in the long run. On May 27, 2025, we executed a termination agreement +with Trio LLC to end operations at the location and abandon all related leases. Capitalized costs totaling $500,614 have been written +off and expensed in the statement of operations for the period ended April 30, 2025. +Asphalt +Ridge Option Agreement and the Lafayette Energy Leasehold Acquisition and Development Option Agreement +On +November 10, 2023, we entered into a Leasehold Acquisition and Development Option Agreement (the “Asphalt Ridge Option +Agreement”) with Heavy Sweet Oil LLC (“HSO”). Pursuant to the Asphalt Ridge Option Agreement, we acquired +an option to purchase up to a 20% working interest in certain leases at a long-recognized, major oil accumulation in northeastern +Utah, including an initial 960 acres and a subsequent 1,920 acres, as well as a right-of-refusal option on approximately 30,000 +acres. +On +December 29, 2023, we and HSO entered into an Amendment to the Asphalt Ridge Option Agreement, under which we funded $200,000 in +exchange for an immediate 2% working interest in the initial 960 acres. An additional $25,000 was funded in January 2024, increasing +our working interest to 2.25%. While we had the option to acquire an additional 17.75% working interest, we decided not to exercise +this option and will instead retain our existing 2.25% working interest in the initial 960 acres. +Novacor +Asset Purchase Agreement +As +of April 4, 2025, we entered into an Asset Purchase Agreement (the “April 2025 Novacor APA”) with Trio Petroleum Canada, +Corp., an Alberta, Canada corporation and a wholly owned subsidiary of the Company (“Trio Canada”), and Novacor +Exploration Ltd., a corporation incorporated under the Canada Business Corporations Act (“Novacor”), pursuant to which, +subject to the terms and conditions set forth in the April 2025 Novacor APA, Trio Canada agreed to acquire certain assets of Novacor +relating its oil and gas business, including certain contracts, leases and permits for working interests in petroleum and natural +gas and mineral rights located in the Lloydminster, Saskatchewan heavy oil region in Canada (collectively, the “April 2025 +Novacor Assets”), free and clear of any liens other than certain specified liabilities of Novacor that are being assumed +(collectively, the “Liabilities” and such acquisition of the Novacor Assets and assumption of the Liabilities together, +the “April 2025 Novacor Acquisition”) for a total purchase price of (i) US$650,000, in cash, US$65,000 of which was +previously provided as a deposit to Novacor, and (ii) the issuance to Novacor of 526,536 shares of common stock of common stock. The +April 2025 Novacor Acquisition was consummated in two closings, which was completed on May 22, 2025. All five of our currently +active wells are in the newly acquired Novacor property. +P.R. +Spring Letter of Intent and Option +On +May 15, 2025, we entered into a non-binding Letter of Intent (LOI) with HSO for the potential +acquisition of 2,000 acres of oil and gas properties at P.R. Spring, Uintah Basin, Utah (“P.R. Spring”), which is adjacent +to Asphalt Ridge. The LOI contemplates our issuance of 1,492,272 restricted shares of common stock and the payment of $850,000 at closing, +subject to execution of definitive agreements. Upon signing the LOI, we made a non-refundable $150,000 payment to HSO in consideration +for the option. The LOI requires evidence of a minimum sustained production rate of 40 barrels per day for a continuous 30-day period +from two wells at Asphalt Ridge by May 15, 2026, or the LOI will expire unless extended by us. We are not under any obligation to enter +into definitive agreements in connection with an acquisition. +Carbon +Capture and Storage Project as part of Company’s South Salinas Project +We +are committed to attempting to reduce our own carbon footprint and, where possible, that of others. For this reason, we are taking initial +steps to launch a Carbon Capture and Storage (“CCS”) project as part of the South Salinas Project, which appears ideal for +such a task. The South Salinas Project covers a vast area and is uniquely situated at a deep depocenter where there are thick geologic +zones (e.g., Vaqueros Sand, up to approximately 500’ thick) about two miles deep, which could accommodate and permanently store +vast volumes of CO2. Four existing deep wells in the South Salinas Project (i.e., the HV 1-35, BM 2-2, BM 1-2-RD1 and HV 3-6 wells) are +excellent candidates for use as CO2 injection wells. A CCS project in the future may help reduce our carbon footprint by sequestering +and permanently storing CO2 deep underground at one or more deep wells, away from drinking water sources. Furthermore, three of the aforementioned +deep wells are directly located on three idle oil and gas pipelines that could be used to import CO2 to our CCS Project. We have opened +discussions with third parties who wish to reduce their own greenhouse gas emissions and who may be interested in participating in our +CCS project. We believe it is feasible to develop the major oil and gas resources of the South Salinas Project and to concurrently establish +a substantial CCS project and potentially a CO2 storage hub and/or Direct Air Capture (DAC) hub. +2 +Market +Opportunity +We +believe that our newly established oil and gas operations in Canada strategically positions the Company to expand its operations into +one of North America’s most promising heavy oil basins, with upside potential for long term production and reserve growth. Trio +believes expanding operations into Canada offers economic development and low operational costs. Trio also believes that the market accessibility +combined with a favorable regulatory process makes this area very attractive for continued and future development. +The +oil and gas industry is operationally challenging in California, where we have the South Salinas Project, due primarily to regulatory +issues and to efforts to facilitate an energy transition away from fossil fuels. TPET believes that given the size and future anticipated +costs of exploration, it is best to seek out a joint venture partner who has the capacity to continue to operate in California with the +expectation that the market for oil and gas in California will remain strong for the foreseeable future. Furthermore, TPET is attempting +to launch a Carbon Capture and Storage Project as part of the South Salinas Project, consistent with efforts in California to reduce +carbon footprint. The Company hopes and expects TPET’s commitment to reduce carbon footprint through a Carbon Capture and Storage +Project to be viewed favorably by California regulatory bodies, perhaps helping to facilitate operations at the South Salinas Project +and elsewhere. +The +oil and gas industry currently appears operationally favorable in Utah, where we have the Asphalt Ridge asset and an option on the PR +Spring project in the same Uintah basin. TPET believes that the overall operating environment and the market for oil and gas in Utah +should remain favorable for the foreseeable future. +TPET’s +operations may help meet the USA’s demanding oil and gas needs that are expected to remain strong for the foreseeable future, while +supporting the country’s goal of energy independence, and supporting local and state economies with tax revenue and jobs. +Business +Strategies +Our +primary business strategies and objectives are to grow our recently acquired Canadian assets aggressively by acquiring projects that +generate immediate cash flow and/or offer workover opportunities without committing huge resources to new exploratory drilling, or offer +transformative growth potential with strategic investment in favorable political and economic environments such as our option on PR Spring +in Uintah Basin, Utah. TPET’s current strategy and focus at the South Salinas Project is to seek out a joint venture partner with +the knowledge and capacity to operate in California. We are also endeavoring to secure approval from CalGEM and WaterBoards of a proposed +short-term water-disposal program that should significantly reduce lease operating costs, launching a Carbon Capture and Storage Project, +pursuing permits for full field development, and similar matters. Efforts to obtain from Monterey County conditional use permits and +a full field development permit for the South Salinas Project are progressing. Efforts to obtain from the California Geologic Energy +Management Division (“CalGEM”) and from the California Water Boards a permit for a water disposal project at the South Salinas +Project are also progressing. In the meantime, the Company recently determined that existing permits allow production testing to continue +at the HV-3A discovery well at Presidents Field and, consequently, testing operations were restarted at this well on March 22, 2024. +Oil production from this well has occurred and the Company has idled operations currently pending an assessment of the viability of increasing +the well’s gross production rate, for example by adding up to 650 feet of additional perforations in the oil zone and/or acidizing +the well for borehole cleanup. First oil sales from the HV-3A well occurred in the third calendar quarter of 2024. +TPET’s +current strategy and focus at the PR Spring project is to monitor the results of the new 2-4 and 8-4 wells at the Company’s Asphalt +Ridge project. Once production attains 40 barrels per day for thirty days from both wells, TPET will be in a position to exercise its +option on the 2000-acre project and enter into a Definitive development agreement. +TPET’s +primary strategies and objectives are focused on growing the Company into a highly profitable, independent oil and gas company. +Our +Growth Strategy +TPET’s +goal is the building and growing of a substantial independent oil and gas company by acquiring projects that generate immediate cash +flow as in our Canadian assets or offer transformative growth potential with strategic investment such as our option on P.R. Spring in +Utah. +Competition +There +are many large, medium, and small-sized oil and gas companies and third-parties that are our competitors. Many of these competitors have +extensive operational histories, experienced oil and gas industry management, profitable operations, and significant reserves and funding +resources. Our efforts to acquire additional oil/gas properties in California and elsewhere may be met with competition . +Government +Regulation +We +are subject to a number of federal, state, county and local laws, regulations and other requirements relating to oil and natural gas +operations. The laws and regulations that affect the oil and natural gas industry are under constant review for amendment or expansion. +Some of these laws, regulations and requirements result in challenges, delays and/or obstacles in obtaining permits, and some carry substantial +penalties for failure to comply. The regulatory burden on the oil and natural gas industry increases our cost of doing business, can +affect and even obstruct our operations and, consequently, can affect our profitability. These burdens include regulations relating to +transportation of oil and gas, drilling and production and other regulatory matters. +3 +Certain +Recent Developments +Formation +of a Canadian Wholly-Owned Subsidiary +On +March 28, 2025, we formed Trio Petroleum Canada, Corp., an Alberta, Canada corporation and our wholly owned subsidiary (“Trio Canada”). +Our Chief Executive Officer, Robin Ross, is also the Chief Executive Officer of Trio Canada and also serves as Secretary/Treasurer. Our +Chief Financial Officer, Greg Overholtzer, is also the Chief Financial Officer of Trio Canada. Robin Ross also serves as the sole director +of Trio Canada. +Loan +to Trio Canada +As +of April 4, 2025, we entered into a Loan and Note Purchase Agreement (the “Loan Agreement”) with Trio Canada, made a loan +(the “Subsidiary Loan”) to Trio Canada, in the amount of US$1,131,000 (the “Loan Amount”), and Trio Canada issued +to us a three-year promissory note, with a maturity date of April 4, 2028, in the principal amount of US$1,131,000 (the “Subsidiary +Note”) evidencing the Loan Amount. The outstanding principal amount of the Subsidiary Note accrues interest at a rate of 12% per +annum. As of October 31, 2025, the outstanding principal balance of the Subsidiary Note was US$430,335 and accrued but unpaid +interest totaled US$27,606. +Under +the terms of the Loan Agreement, the Loan Amount was used to pay the remaining cash amount payable to Novacor, in connection with the +Novacor Acquisition, and the remainder of the Loan Amount is to be used for ongoing operating costs of Trio Canada. +Convertible +Notes Financings +April +2025 Convertible Note Financing +On +April 11, 2025, we issued an Unsecured Original Discount Convertible Promissory Note (the “April 2015 Note”) to an institutional +investor (the “April 2025 Note Investor”) in a principal amount of $321,176, having an original issue discount of $48,176, +resulting in a funding amount of $273,000. After the payment of a commission of $15,015 to Spartan Capital Securities, LLC and the payment +of $10,000 to reimburse the April Note Investor for its legal fees, we received net proceeds of $247,985. +On +April 17, 2025, we issued an amended and restated Unsecured Original Discount Convertible Promissory Note to the April 2025 Convertible +Note Investor (the “April 2025 Amended and Restated Note”), in an aggregate principal amount, with the principal amount of +the April 2025 Note, of $712,941, having an aggregate original issue discount of $106,941, including the original issue discount of the +April 2025 Note, and resulting in an aggregate funding amount, with the April 2025 Note, of $606,000. We received additional net proceeds +of $333,000. +The +April 2025 Amended and Restated Note also contained “piggyback” registration rights and the shares issuable upon conversion +of the April 2025 Amended and Restated Note were registered for resale in a registration statement declared effective by the SEC on May +22, 2025. As of October 31, 2025, the Amended and Restated Note has been fully converted by the April 2025 Note +Investor into shares of common stock. +August +2025 Convertible Note Financing +On +August 15, 2025, we closed a private placement (the “August 2025 Convertible Note Financing”) pursuant to which we +issued the August 2025 Notes to three institutional investors (the “August 2025 Note Investors”) in an aggregate +principal amount of $1,200,000 (the “August 2025 Notes Principal Amount”), having an aggregate original issue discount +of $180,000, or 15%, resulting in an aggregate funding amount of $1,020,000 (the “August 2025 Notes Funding Amount”). +After the payment of $71,400 to Ladenburg Thalman & Co. Inc, as an exclusive placement agent fee, and $20,000 to reimburse the +lead Investor for its legal fees, net proceeds of the financing was $928,600. +We +may prepay all or any portion of the August 2015 Notes at any time (without penalty or premium if prepaid on or before the maturity date +of February 15, 2026). If, during the period the August 2025 Notes remain outstanding, the Company raises any type of equity-related +financing, the August 2024 Note Investors have the right to request that an aggregate of up to 25% of the gross proceeds raised by us +in any such financing be used to repay the outstanding amounts of the August 2025 Notes. +The +August 2025 Note Investors may request conversion of the August 2025 Notes, at any time, into shares of common stock (the “Conversion +Shares”). Additionally, we have the right to require the August 2025 Note Investors to convert their August 2025 Notes in the event +that at such time, for each of the five (5) preceding trading days prior to such date (i) the daily volume weighted average price (“VWAP”) +of our common stock on the NYSE American or any other principal securities exchange on which the common stock is then traded (the “Principal +Exchange”) is greater than $0.85 (subject to adjustments for forward splits and reverse splits of the common stock and other similar +recapitalizations, as well as such other adjustments as provided in the August 2025 Notes), (ii) all of the Conversion Shares have been +registered for resale under an effective registration statement filed with the SEC, and (iii) the daily dollar trading volume for the +common stock on the Principal Exchange exceeds $500,000 per trading day; provided, however, that the amount subject to such conversion, +under any of the August 2025 Notes, shall not exceed twenty percent (20%) of the total dollar trading volume of the common stock during +such 5-day period. Furthermore, any conversion may not result in the issuance of shares of common stock to an August 2025 Note Investor, +which would cause such August 2025 Note Investor, along with its affiliates, to own more than 4.99% (9.99%, if elected by the Investor) +of the Company’s then outstanding shares of common stock nor to exceed the maximum number of shares that such Investor may convert +pursuant to its Note (the “Beneficial Ownership Limitation”). +The +conversion price of the August 2025 Notes is equal to the lesser of (i) $1.32 and (ii) 90% of the lowest daily VWAP of the common stock +on the Principal Exchange, during the five (5) trading days prior to the date of a notice of conversion (a “Conversion Notice”). +Notwithstanding the foregoing, the Conversion Price shall not be less than a floor price of $0.72, subject to certain adjustments, as +provided in the August 2025 Notes (the “Floor Price”). In the event that any August 2025 Note Investor desires to convert +its August 2025 Note at a time when the applicable Conversion Price is less than the Floor Price, such Investor may request a reduction +to the Floor Price to the then applicable Conversion Price, but, in any event, not less than $0.22, which is 20% of the closing price +of $1.10 of the common stock on the Principal Exchange on the trading day immediately prior the original issuance date of the August +2025 Notes. Upon any such reduction in the Floor Price, the Floor price of the other August 2025 Notes shall be similarly reduced. +Notwithstanding +any of the other terms of the August 2025 Notes, the maximum number of shares of common stock which may be issued upon the conversion +of all of the August 2025 Notes is 1,679,127 shares (the “Maximum Number of Conversion Shares), which is equal to 19.99% of the +8,399,839 shares of the Company’s common stock issued and outstanding on the closing date of the private placement. +Under +the terms of a Registration Rights Agreement entered into by us with each of the August 2025 Note Investors, we have agreed to register +the Conversion Shares for resale in a registration statement. The Conversion Shares were registered for resale in a Registration Statement +on Form S-3, which was declared effective by the SEC on September 11, 2025. As of October 31, 2025, a portion of the August 2025 Notes have been converted into an aggregate of 606,809 Conversion +Shares and the aggregate outstanding balance of the August 2025 Notes was $467,179. +For +additional information on the terms of the August 2025 Convertible Note Financing, see our Current Report on Form 8-K filed with the +SEC on August 18, 2025, including the August 2025 Notes and Registration Rights Agreement filed as exhibits hereto. +4 +Capital +Land Services Acquisition +On +August 20, 2025, the Company), through its wholly owned subsidiary Trio Canada, entered into an Asset Purchase Agreement +(“APA”) with Capital Land Services Ltd. (“Capital Land”). Pursuant to the APA, Trio Canada agreed to acquire +certain mineral leasehold interests and related rights located in the County of Vermilion of River, Alberta, Canada, together with +associated contracts, permits, and registrations (collectively, the “Assets”). The total purchase price consists of CAD +$150,000 in cash and the issuance of restricted shares of the Company’s common stock having an aggregate value of +CAD $150,000. +On +November 3, 2025, subsequent to the Company’s fiscal year ended October 31, 2025, the transactions contemplated under the APA +were completed (the “Capital Land Acquisition”). At closing, Trio Canada paid Capital Land CAD $150,000 in cash and we issued 104,227 restricted shares of our common +stock to Capital Land. In exchange, Trio Canada acquired the Assets, including certain wells that had been purchased out of receivership. Due to +regulatory requirements of the Alberta Energy Regulator (“AER”), the Company arranged for all applicable licenses to be +transferred to Novacor, an experienced operator with whom the Company has an existing commercial relationship. Novacor utilizes +Capital Land as its AER agent. In consideration for Capital Land’s services as AER agent, the Company granted Capital Land a +1% gross overriding royalty with respect to the mineral rights, for as long as Capital Land continues to provide such +services. +Asset Purchase Transaction with Novacor Exploration +Ltd. +As of December 30, 2025, the Company entered into +an Asset Purchase Agreement (the “December 2025 Novacor APA”) with Trio Canada, and Novacor, pursuant to which, subject to +the terms and conditions set forth in the December 2025 Novacor APA, Trio Canada agreed to acquire certain assets of Novacor’s relating +to Novacor’s oil and gas business, including certain contracts, leases and permits for working interests in petroleum and natural +gas and mineral rights located in the Lloydminster, Saskatchewan heavy oil region in Canada (collectively, the “December 2025 Novacor +Assets”), free and clear of any liens other than certain specified liabilities of Novacor that are being assumed (collectively, +the “Liabilities” and such acquisition of the Assets and assumption of the Liabilities together, the “December 2025 +Novacor Acquisition”) for a total purchase price of CAD $1,000,000 (US$730,300 based on the applicable exchange rate to U.S. Dollars). +The Company issued to Seller 912,875 restricted shares of common stock of the Company, subject to certain registration rights (the “Purchase +Price”). +The December 2025 Novacor Acquisition was closed on +December 30, 2025, simultaneously with the execution by the Company, Trio Canada and Novacor of the December 2025 Novacor APA and other +transaction documents (the “Closing”). At the Closing, title to the December 2025 Novacor Assets was delivered to the Trio +Canada, and the Company, thereafter deliver the restricted shares to Novacor. +Following the Closing, (i) operating costs for the +December 2025 Novacor Assets shall, for a period of two (2) years, be held at the levels detailed in the auditor’s report over the +eighteen (18) month period prior to the Closing, prepared for Trio Canada on the basis of the due diligence materials provided by Novacor +to Trio Canada in connection with the December 2025 Novacor Acquisition, unless mutually agreed otherwise; (ii) after such two-year period, +operating costs shall remain competitive with other operators in the area; and (iii) Trio Canada shall be entitled to terminate Novacor’s +post-Closing actions at any time on 30 days’ prior written notice to the Novacor. After the Closing, with respect to the December +2025 Novacor Assets, Novacor shall act as the on-site operator of the December 2025 Novacor Assets and perform all work and services as +provided in the December 2025 Novacor APA. +On December 30, 2025, the Company and Novacor executed +and entered into a Registration Rights Agreement with respect to the restricted shares (the “RRA”). Pursuant to the provisions +of the RRA, Novacor is entitled to certain “piggyback” registration rights, with respect to the Registrable Securities (as +such term is defined in the RRA), providing Novacor with the right to include the Registrable Securities in a registration statement filed +by the Company for the registration of its securities and/or the resale of shares of Common Stock by other stockholders of the Company +(a “Piggyback Registration Statement”), subject to certain limitations and restrictions. In the event that the Registrable +Securities are not included in a Piggyback Registration Statement filed by the Company with the Securities and Exchange Commission (“SEC”) +on or before March 31, 2026, the Company is obligated to file a registration statement on or before March 31, 2026, to register the resale +of the Registrable Securities, subject to certain limitations and restrictions. The Company has agreed to pay all fees relating to the +registration of the Registrable Securities, except any broker or similar commissions payable by a holder of Registrable Securities. +For additional information on the terms of the Asset +Purchase Transaction with Novacor, see our Current Report on Form 8-K filed with the SEC on January 5, 2026, including the APA and RRA +filed as exhibits hereto. +Ladenburg +ATM Agreement +On +January 9, 2026, we entered into an At Market Issuance Sales Agreement (the “ATM Agreement”) with Ladenburg Thalmann & +Co. Inc. (“Ladenburg”) as agent, pursuant to which the Company may issue and sell shares of our common stock from time to +time through Ladenburg (the “ATM Offering”). On January 9, 2026, the Company also filed a prospectus supplement with the +SEC covering the sale of shares of common stock having an aggregate offering price of up to $3,600,000 (the “Placement Shares”), +in connection with the ATM Offering. Upon delivery of a Placement Notice (as such term is defined in the ATM Agreement) and subject to +the terms and conditions of the ATM Agreement, Ladenburg shall use its commercially reasonable efforts to sell the Placement Shares by +(i) any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the +Securities Act of 1933, as amended (the “Securities Act”), including sales made directly on or through the NYSE American +or on any other existing trading market for the common stock and/or (ii) any other method permitted by law with the Company’s consent. +The ATM Agreement provides that Ladenburg will be entitled to aggregate compensation for its services up to 3.0% of the gross proceeds +from each sale of Placement Shares sold through Ladenburg under the ATM Agreement. +For +additional information on the terms of the ATM Agreement with Ladenburg, see our Current Report on Form 8-K filed with the SEC on January +9, 2026, including the ATM Agreement filed as an exhibit hereto. +South +Salinas Project +Oil +Rights and Ownership +TPET +has an approximate 85.775% working interest in the South Salinas Project. We have a mineral-leasehold of approximately 9,300 gross mineral +acres and 7,946 net mineral -acres in one largely contiguous land package from primarily one Lessor, Bradley Minerals. The surface lands +at the approximate 9,300 mineral acres are primarily part of the private Porter Ranch. There are six existing idle wells and one active +well in the South Salinas Project, and permits are approved by Monterey County for the drilling and testing of two additional wells (i.e., +the HV-2 and HV-4 wells). +Description +of South Salinas Property and Current Operations +We +initiated operations as TPET with the acquisition from Trio LLC of an 82.75% working interest in the South Salinas Project under the +terms of a Purchase and Sale Agreement (the “South Salinas Purchase Agreement”) dated September 14, 2021. Our working interest +was later increased by 3.026471% and we currently hold an approximate 85.775% working interest and an approximate 68.62% net revenue +interest (after all royalties) in the South Salinas Project. The working interest we own includes leases, wells, inventory and 3D seismic +data. +We +believe the South Salinas Project has the potential to be significant, with an estimated 40.2 million barrels of oil (“MMBO”) +plus 42.4 billion cubic feet of gas (“BCFG”), or 47.3 million barrels of oil equivalent (“BOE”), in Probable +(P2) Undeveloped reserves and an approximate 100.7 MMBO and 168.5 BCFG, or 128.8 million BOE, in Possible (P3) Undeveloped reserves. +Note that the conversion rate used is 6.0 Mcf per 1 BOE. Note that the conversion rate used is 6.0 Mcf per 1 BOE. +Trio +LLC and its management team are part owners of the Company and will continue as Operator of the South Salinas Project on behalf of the +Company and of the other working interest partners. +There +are two contiguous areas of notable oil/gas accumulations in the South Salinas Project, being the Humpback Area (“Humpback Oil +Field”) that occurs in the northern part of the project, and the Presidents Area (“Presidents Oil Field”) that occurs +in the southern part of the project. Discovery wells have been drilled and completed at both Humpback Oil Field and Presidents Oil Field. +The HV-3A well is the first well drilled at the Presidents Oil Field and is its discovery well. About five wells have been drilled at +the Humpback Oil Field and of these we consider the BM 2-2 well as its discovery well. +The +primary oil and gas objectives in the South Salinas Project are classic fractured Monterey Formation reservoirs (i.e., zones with abundant +brittle/fractured intervals of chert, dolomite, limestone and porcelanite) and the Vaqueros Sand. Fractured Monterey Formation is one +of the most important and prolific oil/gas reservoirs in California. The primary oil and gas reservoirs occur at approximately 4,000-8,000’ +depth. The oil is mid- to high-gravity (18-40° API). The oil and gas targets are in structural traps - this is not a resource play. +The structural traps are imaged in 30 square miles of 3D seismic data that is owned by the Company. Importantly, the 3D seismic was acquired +after the drilling of all wells in the area except for our HV-3A and HV-1 wells. The 3D seismic provides critical information about how +prior wells were not properly located and, more importantly, how the South Salinas Project potentially may be successfully exploited +going forward. +The +Monterey Formation oil and gas zones have been tested at various wells at the South Salinas Project. The Vaqueros Sand has not yet been +tested but the Company believes that it is potentially productive behind-pipe in the BM 2-2 well. TPET intends to perforate and test +the Vaqueros Sand in the BM 2-2 well as soon as the necessary permits are in-hand. +5 +We +own approximately 30 square miles of three dimensional seismic data (“3D seismic”) at the project. An integrated interpretation +of the 3D seismic data and of well data indicates that Presidents Oil Field is a large anticlinal feature covering an area of approximately +1,300 acres, with a major structural, anticlinal high at the location of the HV-3A discovery well, and with two separate, four-way closed +anticlines at the northwest, down-plunge-end of the feature. The structural feature at Presidents Oil Field is best characterized as +a positive flower structure resulting from transpressional deformation along strike slip faults including the major Rinconada Fault. +The Company has determined that production testing may resume at the HV-3A discovery well at Presidents Field. Testing on pump at this +well resumed on March 22, 2024. +One +of our initial objectives was to drill the HV-1 confirmation well at the President Oil Field. This objective has been accomplished. The +following is a discussion of the HV-1 well and its significance: +● +The +HV-1 well is located about two miles northwest of the HV-3A discovery well and for this reason it is considered a “confirmation +well” intended to help confirm the size of lateral extent of the field. The HV-1 surface hole location (“SHL”) +is located in about the center of T24S-R10E-Section 14. The well was directionally drilled approximately 2,600 feet toward the southeast +and its bottom hole location (“BHL”) is located in T24S-R10E-Section 13. +● +The +HV-1 well spud on about May 5, 2023, and was completed at its total depth (“TD”) of about 6,641 feet (measured depth) +on about May 15, 2023. +● +The +HV-1 confirmation well is located on the larger of the aforementioned two down-plunge, four-way closed anticlines. +● +There +were primarily three reservoir objectives in the HV-1 well, being the Yellow Zone (aka Yellow Chert), the underlying Brown Zone (aka +Brown Chert) and the underlying Mid-Monterey Clay, all of which are stratigraphic subunits of the Miocene-age Monterey Formation. +The Yellow and Brown zones are both attributed oil and gas reserves at Presidents in the Company’s reserve report as filed +with the SEC. The Mid-Monterey Clay is nowhere assigned reserves in the Company’s reserve report, although it did have significant +oil/gas shows in the HV-3A discovery well and periodically may have contributed to the flow of oil and gas to surface at said well. +● +The +3D seismic data indicate that the Yellow and Brown zones have four-way closure (i.e., anticlinal rollover in one of the subsidiary, +down-plunge anticlines) at the location of the HV-1 well, whereas at this location the Mid-Monterey Clay may have fault closure (within +the positive flower structure) but lacks rollover. The directional drilling plan for the HV-1 well was designed such that the well +would penetrate the Yellow and Brown zones near the tops of their anticlinal closures and to continue downward into the Mid-Monterey +Clay where anticlinal closure apparently does not occur. +● +The +Yellow Zone, Brown Zone and Mid-Monterey Clay were encountered in the HV-1 well largely as predicted including with respect to depth, +thickness, lithology, wireline-log characteristics and oil and gas shows including free oil in cuttings and in the mud pit. The Company +believes that the HV-1 well has confirmed that there is a major oil and gas accumulation in the Presidents Oil Field, as the Company +announced in a press release on May 16, 2023. +● +Confirmation +of a major oil and gas accumulation by itself does not confirm whether economic oil/gas production can be established. The HV-1 has +undergone production testing to evaluate commerciality. Production testing at the HV-1 well was initially carried-out from the bottom +up (i.e., by testing the deeper Mid-Monterey Clay zone first and working upward to the shallower Brown and Yellow zones), and the +Brown and Mid-Monterey Clay zones were subsequently retested. The Mid-Monterey Clay, Brown Zone and Yellow Zone all underwent production +testing. Oil and gas were recovered but commercial production was not established. +● +Operations +may continue, for example deepening, sidetracking or additional testing, at the HV-1 well but it is currently idle. +● +The +HV-1 well is the newest well in the South Salinas Project and is the only exploratory well drilled in the last three fiscal years +at the project. +● +The +Company considers it premature to deem HV-1 either a dry development well or a net productive well. Additional operations, including +possibly deepening or sidetracking, and additional testing, are feasible at HV-1. Thus, there has been no net productive well or +dry development well drilled in the last three fiscal years at the South Salinas Project. Prior to the drilling of the HV-1 well, +the newest well at the Project was the HV-3A discovery well that was drilled in 2018. +All +of the Company’s acreage and reserves in the South Salinas Project are considered undeveloped. The HV-3A and BM 2-2 wells, and +possibly other project wells, are and/or may possibly be capable of oil and/or gas production but additional investments at these wells +are necessary prior to establishing commercial oil/gas production and, therefore, reserves and acreage are considered undeveloped. Thus, +the total gross undeveloped acreage is approximately 9,300 acres and the total net undeveloped acreage (i.e., net to the Company) is +approximately 7,927 acres (i.e., 9,300 acres x 0.8575 = 7,927 acres). The total gross developed acreage is zero acres and the total net +developed acreage (i.e., net to the Company) is also zero acres; see the following table below. +Region +Developed acres +Undeveloped acres +Term (in years) +Gross +Net +Gross +Net +California +- +- +9,245 +7,927 +1-3 +As +noted elsewhere, on the Company’s leases there are six existing idle wells (i.e., the BM 1-2-RD1, BM 2-2, BM 2-6, HV-1, HV 3-6 +and HV 1-35 wells) and one active well (i.e., HV-3A well). Of these seven wells perhaps only the HV-3A and BM 2-2 wells should be considered +to probably and/or possibly be capable of economic oil/gas production with their current mechanical completions, whereas it cannot be +ruled-out that economic oil/gas production could be established at the other five wells. Thus, on the Company’s leases there may +be considered to be two (2) gross productive wells (i.e., the HV-3A and BM 2-2 wells) and 1.715 net productive wells (i.e., 85.75% WI +times 2 gross wells = 1.715 net productive wells). +6 +The +Porter Ranch is an active working property that supports farming operations, livestock grazing, and the exploitation of oil and gas reserves, +as well as the preservation of open space that preserves natural habitat. There is partly overlapping ownership in Bradley Minerals (the +Lessor) and in Porter Ranch (the surface owner) and the interests and objectives of the two entities are closely aligned. In some projects +there are conflicts between surface and mineral owners, for example with the surface owner discouraging and the mineral owner encouraging +development. Importantly, in this project the mineral and surface owners have aligned interests/objectives, and this is beneficial to +the South Salinas Project. Total royalty burden at the South Salinas Project is approximately 20%, all of which is held by lessors. TPET +and Trio LLC and their associates hold no royalty interests in the South Salinas Project. +Infrastructure +at the South Salinas Project includes seven existing wells, six expansive well pads, and three idle Aera Energy oil and gas pipelines. +The expansive well pads are important because they can accommodate significant project development without additional disturbance of +the surface – the Company believes that this may help expedite the approval of necessary additional permits. +South +Salinas Project Property and Future Operations +The +Company has drilling permits from Monterey County for two additional wells at the South Salinas Project, being the HV-2 well and the +HV-4 well. When appropriate funding is in place, the Company will evaluate whether to directionally drill both of +these wells into the Presidents Oil Field, or to drill one into the Presidents Oil Field and one into the Humpback Oil Field. The production +performance of the HV-3A well, which was restarted on March 22, 2024, will bear on the drilling plans for HV-2 and HV-4. +The +Company anticipates that it may be desirable in the future to obtain access or ownership of the Aera Energy pipelines (possibly jointly +owned with Chevron) to move oil and gas to markets and possibly to move produced water off-site, as well as potentially being used in +a Carbon Capture and Storage (CCS) Project. Aera Energy (“Aera”) and Chevron have significant operations a few miles north +at the San Ardo Oil Field. Aera’s holdings in California were recently acquired by the companies IKAV, an international asset management +group headquartered in Germany, and CPP Investments, a professional investment management organization that manages investments of contributors +and beneficiaries of the Canada Pension Plan. In 2024, it was announced that California Resources Corp (“CRC”) and Aera are +merging. The Company believes that there are potential synergies between our South Salinas Project and the San Ardo Oil Field that is +operated by Aera and Chevron, and possibly soon by CRC. CRC is already an approximate 8% working-interest owner in the South Salinas +Project. +There +is an application for an UIC water disposal operation at the South Salinas Project that is under review by CalGEM and being modified +and updated by Trio LLC. Approval of this water disposal project by CalGEM and Water Boards will be an important part of establishing +an economic oil and gas operations. +All +of the existing seven wells in the South Salinas Project are currently inactive and temporarily shut-in, except for the active HV-3A +well that was restarted on March 22, 2024. When the appropriate permits are in-hand, which will perhaps be in 2026, and when the required +funding is in-place, the Company will assess its plans to return the BM 2-2 well to oil and gas production, to reenter and sidetrack +three of the wells (the HV 1-35, BM 2-6 and HV 3-6 wells) to optimal locations that are indicated in the 3D seismic data and to then +put them on production, and to utilize one well (the BM 1-2-RD1 well) as a water disposal well. TPET is evaluating options (e.g., deepening, +sidetracking, recompleting, etc.) at the new HV-1 well, as discussed above. TPET may drill one or both of the HV-2 and HV-4 wells in +2026. The HV-1, HV-2, HV-3A and HV-4 wells may each be produced for its own 18-month period, under the Company’s current exploration/testing +permits. TPET is working toward the goal of obtaining permits for full field development, including long-term production and +water disposal. These permits are critical for the proper development of our South Salinas Project asset. +7 +Evaluation +of Reserves and Net Revenue +Our +evaluation and review of oil and gas reserves and future net revenue attributable to the Company’s interests in the South Salinas +Project are based on independent analyses prepared by KLS Petroleum Consulting LLC (“KLSP”), Denver, Colorado. The Company +in previous filings with the SEC provided two reserve reports by KLSP, one being entitled “Reserves Attributable to Trio Petroleum +Corp South Salinas Area for Development Plan Phases 1 and 2,” (“Prior Reserve Report 1”) and the other entitled “S. +Salinas Area, Full Development Reserves Supplement to SEC Report Dated 1-28-2022,” (“Prior Reserve Report 2”) both +of which had an effective date of October 31, 2021. KLSP has provided an updated reserve report, with an effective date of April 30, +2024, which is entitled “Reserve Attributable to Trio Petroleum Corp South Salinas Area for Phased and Full Development” +(the “Current Reserve Report”), which is included as an exhibit filed with this Annual Report on Form 10-K (“Annual +Report”). +KLSP +is an independent, third-party, petroleum engineering firm that meets industry-standards for qualifications, independence, objectivity +and confidentiality. The primary technical person, Kenneth L. Schuessler, responsible for preparing the Reserve Report is a registered +professional petroleum engineer with decades of experience in the petroleum industry and in analyses of reserves. Mr. Schuessler has +significant experience in the petroleum industry and has held important positions with Bergeson Associates, Malkewitz-Hueni Associates, +SI International, System Technology Associates and MHA Petroleum Consultants. Importantly, Mr. Schuessler has significant experience +in the evaluation and exploitation of Monterey Formation fractured-reservoirs at the giant Elk Hills and Coles Levee Fields in the San +Joaquin Basin in California. Mr. Schuessler’s knowledge of the Monterey Formation is highly-relevant to the evaluation of our South +Salinas Project at which the fractured Monterey Formation is of critical importance. +KLSP +states that the reserves in the “Prior Reserve Report 1” referenced as Exhibit 99.1 to the Annual Report, the “Prior +Reserve Report 2” referenced as Exhibit 99.2 to the Annual Report and the “Current Reserve Report” referenced as Exhibit +99.3 to the Annual Report and their determination are consistent with definitions found in Rule 4-10 of SEC Regulation S-X (17CFR part +210), and Subpart 1200 of Regulation SK. The net reserves, costs and revenues are those attributable to the Company. Future net revenue +and discounted present value are on a before federal income tax (BFIT) basis. +KLSP +is an independent third-party that does not own an interest in any of our properties. Mr. Schuessler is not a permanent employee of our +company but we continue to employ the services of KLSP on an as-needed basis. +Our +internal staff including our geoscience, drilling, facilities, regulatory, compliance, land, legal and accounting professionals communicated +as needed with KLSP to ensure the integrity, accuracy and timeliness of data furnished to KLSP, to review and discuss the properties, +methods and assumptions used by KLSP in KLSP’s preparation of the reserve estimates, and to review and discuss KLSP’s conclusions. +As discussed immediately above, KLSP is a highly-qualified, independent, petroleum-engineering consulting firm. Mr. Terence B. Eschner, +the Company’s former President and a registered professional geologist, who is very knowledgeable about the South Salinas Project, +was the Company’s primary contact with KLSP regarding the reserve analyses that were conducted by KLSP. Mr. T. Eschner played a +key role providing the Company’s internal controls on the reserve estimation effort that was carried-out by KLSP, while not interfering +with KLSP’s analyses so as to ensure that KLSP’s analyses would truly be that of an independent third-party. The Company +recognizes that estimating volumes of economically recoverable oil and natural gas reserves is somewhat subjective and that the accuracy +of any reserve estimate is partly a function of the quality and accuracy of the available data and interpretations: for this reason and +others the Company strove to provide the best available data and interpretations to KLSP. Reserve estimates typically require revision +as new information becomes available and/or due to change in conditions and/or due to unforeseen circumstances. Reserve estimates commonly +differ from the quantities of oil and natural gas that are ultimately recovered. Estimates of economically recoverable oil and natural +gas and of future net revenues are based on a number of variables and assumptions, some or all of which may prove to be incorrect. +8 +The +technologies utilized by KLSP in their reserve estimation efforts are discussed in detail in the Reserve Report. These technologies included +the evaluation and incorporation of data from analog oilfields. Analogs are widely used in reserves estimating, particularly in the early +development stages when direct measurement information (production history) is limited. On page 25 of the Reserve Report in the Society +of Petroleum Engineers’ Petroleum Resource Management System (PRMS Section 4.1.1), use of analogs is described as “ The +methodology is based on the assumption that the analogous reservoir is comparable to the subject reservoir in regard to reservoir description, +fluid properties, and most likely recovery mechanism(s) applied to the project that control the ultimate recovery of petroleum. By selecting +appropriate analogs, where performance data of comparable development plans are available, a similar production profile may be forecast. +Analogs are frequently applied in aiding in the assessment of economic producibility, production decline characteristics, drainage area, +and recovery factor. ” While the use of analogs for the South Salinas Project were consistent with the PRMS guidelines, the +Reserve Report cover letter emphasized “ The reserves and their determination are consistent with definitions found in Rule 4-10 +of SEC Regulation S-X (17CFR part 210), and Subpart 1200 of Regulation S-K .” And, specifically, in 210.4-10(a)(2) “ Analogous +reservoirs have similar rock and fluid properties, reservoir conditions (depth, temperature, and pressure) and drive mechanisms, but +are typically at a more advanced stage of development than the reservoir of interest and thus may provide concepts to assist in the interpretation +of more limited data and estimation of recovery. When used to support proved reserves, an “analogous reservoir” refers to +a reservoir that shares the following characteristics with the reservoir of interest: (i) same geological formation (but not necessarily +in pressure communication with the reservoir of interest); (ii) same environment of deposition; (iii) similar geological structure; and +(iv) same drive mechanism.” +The +technologies utilized by KLSP also included constructing several numerical models that evaluated the expected oil and gas production +under an appropriate range of reservoir characteristics, and which allowed probabilistic estimates of reserves. These models required +reservoir properties and, therefore, OOIP as input. The Probabilistic method defined a distribution representing the full range of possible +values for input parameters. This included dependencies between parameters that are also defined and applied. These distributions were +randomly sampled using Monte Carlo simulation to compute a full distribution of potential in-place and recoverable quantities of oil, +gas, and water. Input distributions were included for porosity, permeability, water saturation and net productive thickness. In addition, +pore volume compressibility was described with a distribution because its range of uncertainty can impact reservoir pressure and therefore +future productivity. S&P Global’s Harmony Enterprise software was used to construct the numerical models for the various reservoir +units, being Monterey Yellow, Monterey Blue and Vaqueros Sand reservoir units. A ‘type well’ or calibration model was constructed +for each reservoir using the average conditions and reservoir properties cited above. In addition, using the probabilistic distributions +of porosity, net thickness, water saturation, permeability and pore volume compressibility, the reservoir model was run 500 times, each +time the model selecting via Monte Carlo sampling the input parameters according to the ranges and distributions defined. Each simulation +run resulted in a particular value of oil and gas recovery. The cumulative probabilities of the resulting forecasts of ultimate oil and +gas recovery were used to identify the reported reserve values. +We +have consulted with KLSP and it has provided us estimates of net reserves and/or cash flows as of the end of April 30, 2024, as: 1) there +are new technical data as a result of drilling the HV-1 well in 2023; 2) the Company’s WI has increased from approximately 82.75% +to approximately 85.775%; 3) new leases have been acquired providing additional well locations; 4) drilling and development schedules +have changed; and 5) oil prices have changed. More specifically, the completion results of the HV-1 well appear to indicate that the +productive area of the Yellow Zone at the President’s Area may be somewhat smaller than mapped in 2021. On the other hand, the +Company has acquired additional leases in the Project area that increase the net well locations targeting the Blue Zone and Vaqueros +Sand. The reserves associated with these additional net wells partially offset any possible reduction in reserves due to a smaller Yellow +Zone productive area. All of the aforementioned factors are taken into consideration in the estimates of reserves and cash flows as of +end of April 30, 2024, as documented in the Current Reserve Report included as Exhibit 99.3 to this Annual Report. +Disclosure +of Reserve Volumes and Reserve Values as of the End of April 30, 2024 +KLSP +in the aforementioned reserve analyses recognizes the occurrence at the South Salinas Project of both Probable (P2) Undeveloped reserves +and of Possible (P3) Undeveloped reserves (see: “Glossary of Terms Used to Characterize Reserves & Projects” in Table +22 in the Reserve Report). SEC criteria stipulate that reserves cannot be classified as P1 Proved (i.e., PDP or Proved Developed Producing, +PDNP or Proved Developed Not Producing, PUD or Proved Undeveloped) if said reserves are not fully permitted for long-term production. +Permits for full field development and long-term production are being sought by the Company, but have not yet been approved for the South +Salinas Project and, therefore, KLSP does not recognize Proved reserves at the South Salinas Project. +KLSP +provided estimates of net oil and gas reserves and future net revenues, attributable to the Company, for Phase 1, Phase 2 and Phase 3 +(Full Development) for the entire South Salinas Project, as shown in the below Table. Future net revenue and discounted present value +are on a before federal income tax (BFIT) basis. Both undiscounted and discounted net cash flow to the Company are shown. The discounted +dollar amounts shown in the below Table are discounted at 10% and, therefore, are net present value (“NPV”) 10 amounts, whereas +KLSP also provided estimated NPV15, 20, 30, 45 and 60. Reserve volumes are expressed in stock tank barrels (STB) of oil and thousands +of standard cubic feet of gas (MCF). +There +are uncertainties in reserve forecasts and in associated estimates of future cash flows due to uncertainties in various matters that +are elaborated above (see: We face substantial uncertainties in estimating the characteristics of our assets, so you should not place +undue reliance on any of our measures.). The Company’s estimates of Probable (P2) Undeveloped reserves, Possible (P3) Undeveloped +reserves and their respective estimated future cash flows are discussed more-fully above (see Evaluation of Reserves and Net Revenue) +and are described in detail in the Current Reserve Report. The Company’s reserve estimates are based on field analogs, numerical +models and probabilistic modeling. Copied below are two paragraphs from the Current Reserve Report that further explain the Company’s +estimated reserves: +9 +“ Because +decline curve analysis could not be used to forecast reserves, and since the development of type curves was problematic due to the early +historical time frame in which the analog fields were developed, probabilistic methods were employed. The interpretations of open hole +logs, core, and test information were used to describe ranges and distributions of key reservoir parameters. These were then input to +numerical simulation models that used Monte Carlo sampling and hundreds of runs to derive forecasts of production and ultimate recovery +representing P90 (1P), P50 (2P) and P10 (3P) reserve estimates. As indicated in the nomenclature of TABLE 22, these estimates are also +known as Proved, Proved+Probable, and Proved+Probable+Possible, respectively. The designation ‘P50’ means there is a 50 percent +probability that the actual production will exceed the value reported as the P50 reserves. The P50 value, also considered the Best or +Most Likely estimate, is derived from a cumulative frequency distribution of forecast reserves from the Monte Carlo simulations. If Proved +reserves have been assigned, Probable reserves are then represented by the difference between the P50 and P90 probabilistic estimates. +However, as explained below, Proved reserves have not been assigned in this report because project approval has not been secured by all +necessary government entities. Therefore, since there are no Proved or P90 volumes, the Probable reserves disclosed herein, derived from +the P50 probabilistic forecasts, are incremental volumes and presented as Probable (P2) reserves. The P10 reserve estimate has a 10 percent +probability of exceeding the estimated recovery and is also known as the High estimate. Possible reserves are represented by the difference +between the P10 and P50 estimates. Possible reserves are typically larger than Probable reserves. This is the result of the key reservoir +parameter distributions reflecting their variation in nature, and when the most favorable parameters are sampled together the resulting +calculation provides the highest, but least likely, values of estimated recoveries. ” +“ Probable +reserves are assigned in certain areas where, as described above, reserves could be considered Proved if all regulatory approvals and +permits were in place. Probable reserves are also assigned in areas where well control and interpretations of available data provide +sufficient geologic evidence of reservoir continuity at structural positions above lowest known hydrocarbons (LKH), and where engineering +evidence indicates the reservoir will have the requisite porosity, permeability and oil saturation to produce commercial quantities of +oil and gas. The assignment of Possible reserves does not incorporate a larger reservoir area, but rather Possible reserves are assigned +to the same wells having Probable reserves because the probabilistic methods employed indicate there may be a greater percentage recovery +of hydrocarbons than is appropriate for the ‘Most Likely’ reserve estimates. ” +The +estimates of Probable (P2) Undeveloped reserves and Possible (P3) Undeveloped reserves and their respective estimated future cash flows +have different risk and/or uncertainty profiles and should not be summed arithmetically with each other. For example, estimates of permeability, +oil saturation, reservoir thickness and estimated ultimate recovery (EUR) are higher for the P3 reserve estimates than for the P2 reserve +estimates (see for example Figure 25 and Table 2 in the Current Reserve Report). +The +Probable (P2) and Possible (P3) reserves in the below Table are considered to be undeveloped as of the report’s effective date +of April 30, 2024. The HV-3A and BM 2-2 wells are capable of oil and/or gas production but additional investments at both of these wells +are anticipated in Phase 1 prior to establishing commercial oil/gas production and, therefore, the reserves at both of these wells are +considered undeveloped. +The +effective date of the reserves and net cash flows in the Table below is April 30, 2024. If the Company’s working-interest in the +South Salinas Project, and/or the size of the Company’s leasehold position at the South Salinas Project, were in the future to +increase or decrease, then the reserve estimates would increase or decrease accordingly (note: the Company’s %WI and leasehold +position may increase but are not expected to decrease). Similarly, changes in the future of estimates of oil and/or gas that can be +economically recovered, in the market values of oil and/or gas, in estimates of reservoir properties such as thickness, oil saturation, +porosity, etc., and various other possible changes in the future, would accordingly result in revised reserve estimates and/or revised +estimates of net cash flow. No significant discovery or other favorable or adverse event has occurred since April 30, 2024, that would +cause a substantial change in estimated reserves and/or cash flow, as of that date. +The +KLSP report providing the reserves and net cash flows in the Table below describes a Project constituting the full development of South +Salinas. The Project is composed of three phases reflecting the progression of capital deployment with successful efforts and the anticipated +time frame associated with regulatory approvals. +10 +Phase +1 uses already-permitted wells and existing wells that can be quicky re-entered upon approval of the Conditional Use Permit (CUP) by +Monterey County. Phase 1 confirms the productivity of the Monterey Blue Zone over the larger area, and it establishes cash flow to partially +support on-going development. Within Phase 1, the HV-3A will be worked-over to enhance production from its existing completion in the +Yellow Zone. The HV-2 and HV-4 will be drilled and completed in the Blue Zone of the Presidents Area. The existing HV-1 is re-entered +and deepened through the Blue Zone, and three other existing wells (BM 2-2, HV 1-35-RD1, HV 3-6-RD1) will be re-entered and sidetracked +through the Blue Zone in the Humpback Area. Although targeting a completion in the Blue Zone, it is likely that each of these re-entered +wells will be drilled to the Vaqueros, immediately below the Blue, with the intention of gathering data and testing the Vaqueros to confirm +it prospectivity as a horizontal well development. Phase 1 is being assessed and under consideration to begin in the first half of 2025 +with the HV-3A workover and, with receipt of the Conditional Use Permit from Monterey County on or about April 2025, conclude with the +sidetrack drilling of the HV 3-6-RD1 later in the year (which well is then scheduled for subsequent production). Phase 1 will deploy +an estimated $25.8 million for drilling, completion and associated facility costs including converting the existing BM 1-2 well for water +disposal. This capital, as well as that of Phases 2 and 3, include end-of-life plug and abandonment and surface cleanup costs per CALGEM +guidelines and regulations. +Phase +2 of the South Salinas Project consists of a 12 well program. The first well is a sidetrack of an existing well (HV 2-6-RD1) through +the Blue Zone in September 2025, followed by the drilling of a new well each month thereafter through August 2026. Phase 2 begins +with receipt of the remaining (Full) Development Permits from Monterey County. Phase 2 also assumed that by September 2025 Trio +should be experiencing the timely approval of drilling permits from CALGEM which have been delayed. Of the 12 Phase 2 wells, four wells will target the +Yellow Zone, seven are planned for the Blue Zone, and one well is a horizontal well in the Vaqueros Zone. The capital requirement +for Phase 2 well work and facilities expansion is estimated to be $43.2 million. +Phase +3, also referred to as the Full Development Phase, is expected to begin October 2026 with the utilization of three rigs drilling continuously +for about four years. Two of the rigs will be used to drill 101 Blue Zone wells, while the third rig will be used to drill 20 Yellow +Zone wells and 16 horizontal Vaqueros wells. Phase 3 will require an estimated $467 million of capital. When combined with Phases 1 and +2 the South Salinas Project is then expected to generate positive cash flow by 2029. When considered alone Phases 1 and 2 are forecast +to generate positive cash flows in 2026 and 2027, respectively. These expectations assume the realization of the Probable (P2) reserves +that are based on the ‘most likely’ forecasts of production. The KLSP report also provides the incremental volumes and cash +flows associated with the realization of Possible (P3) reserves and are provided in the Table below. The BOE’s cited in the Table +use a conversion factor of 6 Mcf of gas per BOE. +The +combined Phases 1-3 (Total South Salinas Project) are estimated to recover 40.2 million stock tank barrels of oil (MMSTB) and 42.4 billion +standard cubic feet of gas (BCF). This represents 47.3 million BOE of Probable (P2) Undeveloped reserves. The estimated incremental reserves +associated with Possible (P3) reserves are 100.7 MMSTB of oil and 168.5 BCF of gas, or 128.7 million BOE (part “F” of the +Table below). The combined Phases 1-3 estimated net cash flow to the Company, discounted at 10%, is $474.5 million for the Probable (P2) +Undeveloped reserves. Realization of the forecasts associated with Possible reserves provides an additional $2.5 billion for Trio’s +interest in the South Salinas Project (again, as shown in part “F” of the Table below). +Table +1: Estimated Undeveloped Reserves and Cash Flow +ESTIMATED +UNDEVELOPED RESERVES AND CASH FLOW +A . +Phase 1 +Undeveloped +Reserve Categories +Net Trio +Undeveloped +Oil Reserves +(Stock Tank +Barrels) +Net Trio +Undeveloped +Gas Reserves +(1000 CF, +or MCF) +Net Trio +Undeveloped +Reserves +(Barrels Oil +Equivalent) +Trio +Undiscounted +Net Cash +Flow ($) +Trio Net +Cash Flow +Discounted +at 10% ($) +Probable (P2) Undeveloped of Phase 1 +2,017,620.0 +2,133,250.0 +2,373,161.7 +$ 107,374,250.00 +$ 33,698,230.00 +Possible (P3) Undeveloped of Phase 1 +3,841,380.0 +7,449,100.0 +5,082,896.7 +$ 307,886,460.00 +$ 139,189,600.00 +11 +B. +Phase 2 +Undeveloped +Reserve Categories +Net Trio +Undeveloped +Oil Reserves +(Stock Tank +Barrels) +Net Trio +Undeveloped +Gas Reserves +(1000 CF, +or MCF) +Net Trio +Undeveloped +Reserves +(Barrels Oil +Equivalent) +Trio +Undiscounted +Net Cash +Flow ($) +Trio Net +Cash Flow +Discounted +at 10% ($) +Probable (P2) Undeveloped of Phase 2 +3,227,940.0 +3,392,940.0 +3,793,430.0 +$ 168,622,080.00 +$ 45,938,680.00 +Possible (P3) Undeveloped of Phase 2 +6,759,630.0 +11,735,140.0 +8,715,486.7 +$ 527,635,330.00 +$ 210,766,130.00 +C. +Phase 3 (Full Development) Undeveloped Reserve Categories +Net Trio +Undeveloped +Oil Reserves +(Stock Tank +Barrels) +Net Trio +Undeveloped +Gas Reserves +(1000 CF, +or MCF) +Net Trio +Undeveloped +Reserves +(Barrels Oil +Equivalent) +Trio +Undiscounted +Net Cash +Flow ($) +Trio Net +Cash Flow +Discounted +at 10% ($) +Probable (P2) Undeveloped of Phase 3 +34,940,100.0 +36,918,030.0 +41,093,105.0 +1,837,183,060.0 +394,874,030.0 +Possible (P3) Undeveloped of Phase 3 +90,057,820.0 +149,348,300.0 +114,949,203.3 +7,054,575,390.0 +2,185,998,350.0 +D. +(P2) Undeveloped Reserves for Phases 1, 2 & 3 +Net Trio +Undeveloped +Oil Reserves +(Stock Tank +Barrels) +Net Trio +Undeveloped +Gas Reserves +(1000 CF, +or MCF) +Net Trio +Undeveloped +Reserves +(Barrels Oil +Equivalent) +Trio +Undiscounted +Net Cash +Flow ($) +Trio Net +Cash Flow +Discounted +at 10% ($) +Probable (P2) Undeveloped of Phase 1 +2,017,620.0 +2,133,250.0 +2,373,161.7 +$ 107,374,250.00 +$ 33,698,230.00 +Probable (P2) Undeveloped of Phase 2 +3,227,940.0 +3,392,940.0 +3,793,430.0 +$ 168,622,080.00 +$ 45,938,680.00 +Probable (P2) Undeveloped of Phase 3 +34,940,100.0 +36,918,030.0 +41,093,105.0 +$ 1,837,183,060.00 +$ 394,874,030.00 +Total Probable (P2) Undeveloped of Phases 1, 2 & 3 +40,185,660.0 +42,444,220.0 +47,259,696.7 +$ 2,113,179,390.00 +$ 474,510,940.00 +E. +(P3) Undeveloped Reserves for Phases 1, 2 & 3 +Net Trio +Undeveloped +Oil Reserves +(Stock Tank +Barrels) +Net Trio +Undeveloped +Gas Reserves +(1000 CF, +or MCF) +Net Trio +Undeveloped +Reserves +(Barrels Oil +Equivalent) +Trio +Undiscounted +Net Cash +Flow ($) +Trio Net +Cash Flow +Discounted +at 10% ($) +Possible (P3) Undeveloped of Phase 1 +3,841,380.0 +7,449,100.0 +5,082,896.7 +$ 307,886,460.00 +$ 139,189,600.00 +Possible (P3) Undeveloped of Phase 2 +6,759,630.0 +11,735,140.0 +8,715,486.7 +$ 527,635,330.00 +$ 210,766,130.00 +Possible (P3) Undeveloped of Phase 3 +90,057,820.0 +149,348,300.0 +114,949,203.3 +$ 7,054,575,390.00 +$ 2,185,998,350.00 +Total Possible (P3) Undeveloped of Phases 1, 2 & 3 +100,658,830.0 +168,532,540.0 +128,747,586.7 +$ 7,890,097,180.00 +$ 2,535,954,080.00 +F. +Undeveloped Reserve Categories for Phases 1, 2 & 3 +Net Trio +Undeveloped +Oil Reserves +(Stock Tank +Barrels) +Net Trio +Undeveloped +Gas Reserves +(1000 CF, +or MCF) +Net Trio +Undeveloped +Reserves +(Barrels Oil +Equivalent) +Trio +Undiscounted +Net Cash +Flow ($) +Trio Net +Cash Flow +Discounted +at 10% ($) +Total Probable (P2) Undeveloped of Phases 1, 2 & 3 +40,185,660.0 +42,444,220.0 +47,259,696.7 +$ 2,113,179,390.00 +$ 474,510,940.00 +Total Possible (P3) Undeveloped of Phases 1, 2 & 3 +100,658,830.0 +168,532,540.0 +128,747,586.7 +$ 7,890,097,180.00 +$ 2,535,954,080.00 +12 +Reasonable +Expectations of Reserve Analyses +This +Annual Report provides a summary of risks and detailed discussions of risks relating to our business. The Company recognizes these risks +as being real and substantial. Nevertheless, the Company has reasonable expectations that the Company’s South Salinas Project will +prove to have reserves approximately as estimated and that there +will exist the legal right to develop the Company’s reserves in the South Salinas Project, including the rights to full-field development, +to long-term production and to deliver natural gas to market via pipeline, recognizing as discussed elsewhere hereunder that there may +be project delays and/or obstacles related to obtaining necessary permits from regulatory agencies. See “ Item 1A. Risk Factors - +Risks Relating to Our Business - We may face delays and/or obstacles in project development due to difficulties in obtaining +necessary permits from federal, state, county and/or local agencies, which may materially affect our business;” “Item 1A. +Risk Factors - Risks Relating to Our Business - We face substantial uncertainties in estimating the characteristics of our assets, +so you should not place undue reliance on any of our measures;” “Item 1A. Risk Factors - Risks Relating to Our Business +- The drilling of wells is speculative, often involving significant costs that may be more than our estimates, and drilling may not result +in any discoveries or additions to our future production or future reserves , or it may result in disproving or diminishing our current +reserves. ; “Item 1A. Risk Factors - Risks Relating to Our Business - Seismic studies do not guarantee that oil or gas +is present or, if present, will produce in economic quantities; and “Item 1A. Risk Factors - Risks Relating to Our Business +- We are subject to numerous risks inherent to the exploration and production of oil and natural gas.” +The +Company currently is preparing a full-field development plan that is expected to include the following key elements: +● +Documentation +of oil and gas reserves at the Project, including whatever results of the Phase 1 development program are both available and pertinent; +● +Documentation +of the proposed wells and facilities that would be necessary to underpin full-field development and long-term production; +● +Details +as to how the Company would minimize surface footprint by directionally drilling from existing well pads and similarly largely using +existing pads for facilities, which well pads at that time may include the currently existing six well pads plus the two wells pads +that are planned for construction at the HV-2 and HV-4 well sites. Use of these eight well pads for additional wells and facilities +will minimize the need for additional surface disturbance in the full-field development plan. The Company’s proposal to use +existing well pads to minimize surface footprint should help expedite approval of necessary permits; +● +Details +as to how the Company would endeavor to minimize surface disturbances associated with pipeline construction by utilizing the existing +Aera Energy gas pipeline and one or more of the two existing Aera Energy oil pipelines. The Company’s proposal to use existing +pipelines to minimize surface disturbance should help expedite approval of necessary permits; +● +Documentation +as to how the Company proposes to minimize or eliminate the trucking of oil by utilizing one or more of the two existing Aera Energy +oil pipelines. The Company’s proposal to use existing pipelines to minimize truck traffic should help expedite approval of +necessary permits; +● +Documentation +as to how the Company’s operations will be carried-out in an environmentally and socially responsible manner; and +● +A +Full Environment Impact Report, discussed immediately below. +The +Company during Phase 1 or shortly thereafter expects to engage a third-party expert consulting company (“Environmental Consultant”) +to prepare a Full Environmental Impact Report (Full EIR) on the Company’s full-field development plan. It is customary in Monterey +County in these matters for the Environmental Consultant to be chosen by and/or agreed to by the County, for the Environmental Consultant +to report directly to the County’s technical staff, and to avoid any real or perceived conflicts of interest for County to directly +compensate the Environmental Consultant from funds paid to County by the Operator. The Company has a reasonable expectation that the +Full EIR will determine that the full-development project will have “a less than significant environmental impact” with a +“mitigated negative declaration”, meaning that the Project will be deemed environmentally acceptable with specific, delineated +mitigation-measures being taken to protect and prevent, as far as possible, damage to life, health, property, natural resources, climate +and other similar matters (e.g., water and air quality, scenic views or “viewshed”, etc.). The Company has a reasonable expectation +that it will be able to obtain a Full EIR with a mitigated negative declaration for the full-field development project that should help +expedite approval of necessary permits. +The +surface lands at the Project are privately owned by the Porter Ranch and the subsurface mineral rights are privately owned by Lessor +Bradley Minerals Company. The Porter Ranch is a multi-use working-ranch with operations that include the Company’s oil and gas +operations as well as extensive agricultural and livestock operations. The Porter Ranch (surface owners) and the Bradley Minerals Company +(mineral owners) are fully-aligned in their desire to develop the oil and gas resources at the Project. The Company has a reasonable +expectation that the surface and mineral owners will be fully-aligned and fully-supportive of the Company’s full-field development +plan and that this undivided support should help expedite approval of necessary permits. +CalGEM +has statutory mandates to ensure both energy production and environmental protection. The Company has a reasonable expectation that CalGEM +will have a favorable view of the Company’s full-development plan for the South Salinas Project and that CalGEM accordingly will +determine that the Company’s applications for necessary permits should be approved. The Company furthermore has a reasonable expectation +that State Water Boards will, similarly to CalGEM, have a favorable view of the Company’s full-development plan for the South Salinas +Project and that Water Boards accordingly will determine that the Company’s applications for necessary permits should be approved. +The +Company has a reasonable expectation that the County Commissioners and more importantly the County Supervisors (the Supervisors are a +higher authority than the Commissioners) of Monterey County will determine that the Company’s applications for necessary permits +should be approved. This reasonable expectation is based, in part, on the expected benefits of the Project to the County and to the State +of California that include the following statistics and claims from Californians for Energy Independence: +● +Oil +and natural gas production in Monterey County plays a fundamental role in sustaining the energy supply and quality of life of the +County’s 440,000 residents; +● +Oil +and natural gas are vital to ensuring the health and safety of California’s communities; +13 +● +the +oil and gas industry contributes to Monterey County’s economy by providing a safe and reliable energy supply that fuels cars, +heats homes, powers businesses, grows food and produces everyday products. County residents depend on oil and gas to produce and +deliver their food and water supply, and for the countless products they use every day (e.g., cell phones, computers, medical devices, +eyeglasses, asphalt roads, plastic kayaks, wet suits, tires, car batteries, etc.) and natural gas is an important local energy source +for heating and cooking; +● +Roughly +75% of the oil and gas used in California is imported from foreign countries, many of which are unstable and/or have poor human rights, +labor and/or environmental standards; +● +Monterey +County and California lead the way in safe, affordable and environmentally responsible oil and gas production with the world’s +strictest regulations; +● +More +than 25 local, state and federal agencies oversee local oil and gas production in Monterey County; +● +Monterey +County’s oil and gas workforce includes veterans, union members, first generation citizens, single parents and others, many +of whom live and raise their families in the County and care deeply about the community; +● +Monterey +County’s oil and gas industry directly supports approximately 868 full-time jobs with benefits, and nearly 50% of the workforce +is ethnically diverse; +● +Average +annual pay is $107,000 in oil industry: these are good paying jobs and the average wage is more than double the $51,900 average for +all private sector jobs in Monterey County; +● +The +oil industry supports $69 million per year in wage payments to employees in the County; +● +The +oil industry has a positive impact on the region, providing high paying, full-time jobs, and upward mobility for workers including +those with high school and/or technical degrees; +● +Property +taxes represent the County’s largest source of general revenues, and are used to support schools, public safety, health, social +assistance, services to combat homelessness, and other services; +● +Property +taxes paid to the County from two operators at the San Ardo Oilfield are approximately $44 million per year: these operators are +among the highest property-tax taxpayers in the County; and +● +The +economic output of the oil industry in Monterey County is an estimated $644 million per year. +The +Company has a reasonable expectation that the primary governmental regulatory agencies (i.e., CalGEM, State Water Boards and Monterey +County) that are and/or that will be involved in the permitting process will endeavor to avoid any unconstitutional takings of private +property that might result from denying permits for the South Salinas Project. The Company has a reasonable expectation that governmental +regulatory agencies will wish to avoid any unconstitutional takings of private property and that this should help expedite approval of +necessary permits. +Trio +LLC, which is Operator of the South Salinas Project, has significant experience in Monterey County in obtaining necessary permits (e.g., +drilling permits for exploration and development wells, permits for Underground Injection Control water-disposal projects, permits for +constructing facilities, permits for constructing pipelines and power lines, etc.) from governmental regulatory agencies (e.g., CalGEM, +Monterey County, and other local agencies). More specifically, Trio LLC, as Operator, developed both the Lynch Canyon Oil Field and the +Hangman Hollow Area of the McCool Ranch Oil Field, both of which oilfields are located in Monterey County approximately seven miles north +of the Company’s South Salinas Project. The Company has a reasonable expectation that, given its own expertise and the expertise +and local experience of Trio LLC as an Operator, that the necessary permits may be obtained from governmental regulatory agencies and +thus that there will exist the legal right to develop the Company’s reserves in the South Salinas Project. +The +Company has a reasonable expectation that it will be able to negotiate an agreement with Aera Energy to utilize their existing idle gas +pipeline and one or more of their two idle oil pipelines that exist at the Company’s South Salinas Project. The pipelines extend +from the Company’s South Salinas Project to the San Ardo Oil Field that is located approximately three miles to the north. San +Ardo is a giant oilfield with cumulative oil recovery to-date of approximately 500 million barrels of oil - it is ranked among the largest +100 oilfields in the United States by the Energy Information Administration of the U.S. Department of Energy and is commonly cited as +being among the largest ten oilfields in California. San Ardo uses significant natural gas for operations including to run steam-generators +to generate steam for steam-injection into wells as part of thermal oil-recovery operations (i.e., to produce the heavy oil that occurs +at the field). An additional supply of natural gas would be beneficial at San Ardo and the high-gravity oil that occurs in the Company’s +South Salinas Project could be beneficially blended with the heavy oil at San Ardo (source: personal communication between Trio personnel +and Aera Energy personnel: September, 2022). It is feasible that opening the three mile section of the pipelines will be agreeable to +the Company and to Aera Energy to the financial benefit of all parties. If this arrangement cannot be realized, and if funding and the +oil and gas reserves in the Project are sufficient, the Company and the Operator Trio LLC will seek permits for new oil and/or gas pipelines, +perhaps along the right-of-way of the existing pipelines to minimize new surface disturbance. The Company has a reasonable expectation +that it will be able to establish the transport of oil and/or gas, and especially gas, to market via pipelines, whether through the existing +Aera Energy pipelines or new pipelines. +14 +The +Company has a reasonable expectation that the Company’s South Salinas Project will prove to have reserves approximately as estimated. +The Company has this reasonable expectation because it believes that: +● +The +geologic structures that contain oil and gas in the South Salinas Project occur approximately as mapped based on the integrated interpretations +of three-dimensional seismic data and data from wells already drilled at the Project, including the BM 2-2 and HV-3A discovery wells +and the recently-drilled HV-1 well; +● +The +estimated oil and gas reserves at the South Salinas Project are well-supported by geologic analogues to other large and prolific +oil and gas fields in California; and +● +The +Reserve Report and Supplemental Reserve Report as prepared by KLSP are reasonable. +The +Company’s expectation that it will have adequate funding to develop the reserves at the South Salinas Project is based on anticipated proceeds from additional capital raises and anticipated operating revenues: +● +The +Company believes that the South Salinas Project has the potential to be both beneficial to society and profitable to shareholders +and, for these and other reasons, that the Company may raise funds sufficient to cover project costs including the costs of Phase +1. As discussed elsewhere hereunder, Phase 1 is a development project with expenditures that are appropriately scaled to the capital +raise that the Company anticipates may be achieved; +● +There +are significant anticipated costs in the South Salinas Project primarily in years 2022-2027 due, in large part, to the estimated +costs of drilling and completing oil and gas wells and building Project infrastructure. It is anticipated that these costs will be +partly covered by capital raises and/or financing and, furthermore, that these costs may be partly and possibly entirely covered +by revenue from oil and gas sales; +● +The Company has a reasonable expectation that additional capital raises +will be successfully accomplished as needed based on the various methods available for securing capital including financing plans that +may be developed in collaboration with our bankers and/or future lenders based on reserves, cash flow and/or other considerations. The +Company has a reasonable expectation that, between cash and equity, it will be able to raise whatever capital is necessary to successfully +develop the South Salinas Project. +For +all of the reasons discussed above in this section, the Company has a reasonable expectation that the Company’s South Salinas Project +will prove to have reserves approximately as estimated, and that +there will exist the legal right to develop the Company’s reserves in the Project. +Employees +As +of December 31, 2025, we had one employee, who is located in Canada. +15 +Subsidiaries +Our +only subsidiary is Trio Petroleum Canada, Corp., an Alberta, Canada corporation. Our Chief Executive Officer, Robin Ross, is also the +Chief Executive Officer of Trio Canada and also serves as Secretary/Treasurer. Our Chief Financial Officer, Greg Overholtzer, is also +the Chief Financial Officer of Trio Canada. Robin Ross also serves as the sole director of Trio Canada. +Implications +of Being an Emerging Growth Company and a Smaller Reporting Company +We +qualify as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). +As an “emerging growth company” we may take advantage of reduced reporting requirements that are otherwise applicable to +public companies. These provisions include, but are not limited to: +● +the +option to present only two years of audited financial statements and only two years of related “Management’s Discussion +and Analysis of Financial Condition and Results of Operations” in this prospectus; +● +not +being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the +“Sarbanes-Oxley Act”); +● +not +being required to comply with any requirements that may be adopted by the Public Company Accounting Oversight Board regarding mandatory +audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial +statements (i.e., an auditor discussion and analysis); +● +reduced +disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and +● +exemptions +from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute +payments not previously approved. +ITEM +1A. RISK FACTORS. +Our +future operating results could differ materially from the results described in this Annual Report due to the risks and uncertainties +described below. You should consider carefully the following information about risks in evaluating our business. If any of the following +risks actually occur, our business, financial condition, results of operations and future growth prospects would likely be materially +and adversely affected. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair +our business operations in these circumstances, the market price of our securities would likely decline. In addition, we cannot assure +investors that our assumptions and expectations will prove to be correct. Important factors could cause our actual results to differ +materially from those indicated or implied by forward-looking statements. See “Item 7. Management’s Discussion and Analysis +of Financial Condition and Results Of Operations - Cautionary Statement Regarding Forward-Looking Information” for a discussion +of some of the forward-looking statements that are qualified by these risk factors. Factors that could cause or contribute to such differences +include those factors discussed below. +Summary +of Risk Factors +Investing +in our common stock involves risks. In addition, our business and operations are subject to a number of risks, which you should be aware +of prior to making a decision to invest in our common stock. These risks are discussed more-fully in the “ Item 1A. Risk Factors ” +section of this Annual Report beginning on page 16. Below is a summary of these risks. +Risks +Relating to Our Business +● +We +have a history of operating losses, our management has concluded that factors raise substantial doubt about our ability to continue +as a going concern and our auditor has included an explanatory paragraph relating to our ability to continue as a going concern in +its audit report for the years ended October 31, 2025 and 2024. +● +We +may face delays and/or obstacles in project development due to difficulties in obtaining necessary permits from federal, state, county +and/or local agencies, which may materially affect our business. +● +Due +to our contractor model for drilling operations, we will be vulnerable to any inability to engage one or more drilling rigs and associated +drilling personnel. +● +We +are operating in a highly capital-intensive industry, and any sales of produced oil and gas may be insufficient to fund, sustain, +or expand revenue-generating operations. +● +We +face substantial uncertainties in estimating the characteristics of our assets, so you should not place undue reliance on any of +our measures. +● +There are uncertainties and risks in the +drilling of wells, often involving significant costs that may be more than our estimates, and drilling may not result +in any discoveries or additions to our future production or future reserves, or it may result in disproving or diminishing our current +reserves. +● +We +have been an exploration stage entity and our future performance is uncertain. +● +We are dependent on certain members of our management and technical team. +● +Seismic +studies do not guarantee that oil or gas is present or, if present, will produce in economic quantities. +● +The +potential lack of availability of, or cost of, drilling rigs, equipment, supplies, personnel, and crude oil field services could +adversely affect our ability to execute on a timely basis exploration and development plans within any budget. +● +Our +business plan requires substantial additional capital, which we may be unable to raise on acceptable terms in the future, which may +in turn limit our ability to develop our exploration, appraisal, development and production activities. +● +A +substantial or extended decline in global and/or local oil and/or natural gas prices may adversely affect our business, financial +condition and results of operations. +● +Unless +we replace our petroleum reserves, our reserves and production will decline over time. Our business is dependent on the successful +development of our various current petroleum assets and projects and/or on continued successful identification and exploitation of +other petroleum assets and prospects, whereas the identified locations in which we drill in the future may not yield oil or natural +gas in commercial quantities. +● +Our +inability to access appropriate equipment and infrastructure in a timely manner may hinder our access to oil and natural gas markets +or delay our future oil and natural gas production. +● +We are subject to numerous risks inherent to the exploration and production of oil and natural gas. +● +We +are subject to drilling and other operational environmental hazards. +16 +● +The +development schedule of oil and natural gas projects, including the availability and cost of drilling rigs, equipment, supplies, +personnel and oilfield services, is subject to delays and cost overruns. +● +Participants +in the oil and gas industry are subject to numerous laws that can affect the cost, manner or feasibility of doing business. +● +We +and our operations are subject to numerous environmental, health and safety regulations which may result in material liabilities +and costs. +● +Our +operations may be dependent on sources of electricity and/or natural gas that may be unreliable or costly. +● +We +expect continued and increasing attention to climate change and energy transition issues and associated regulations to constrain +and impede the oil/gas industry. +● +We +may incur substantial losses and become subject to liability claims as a result of future oil and natural gas operations, for which +we may not have adequate insurance coverage. +● +We +may be subject to risks in connection with acquisitions and the integration of significant acquisitions may be difficult. +● +If +we fail to realize the anticipated benefits of a significant acquisition, our results of operations may be adversely affected. +● +The +requirements of being a public company may strain our resources, result in more litigation and divert management’s attention. +● +We +are subject to the examination of our tax returns and other tax matters by the U.S. Internal Revenue Service, states in which we +conduct business, and other tax authorities. If our effective tax rates were to increase, or if the ultimate determination of our +taxes owed is for an amount in excess of amounts previously accrued, our financial condition, operating results and cash flows could +be materially adversely affected. +● +Our +amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the sole and +exclusive forum for substantially all disputes between us and our shareholders, which could limit its stockholders’ ability +to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees. +Risks Relating to Our Securities +● +There can be no assurance that an active and liquid trading market for our common stock will continue or that we will be able to continue to comply with the NYSE American’s continued listing standard +● +Our share price may be volatile, and purchasers of our common stock could incur substantial losses. +● +A substantial portion of our total issued and outstanding shares may be sold into the market at any time. This could cause the market price of our common stock to drop significantly, even if our business is doing well. +● +Our common stock may be subject to the “penny stock” rules in the future. It may be more difficult to resell securities classified as “penny stock.” +● +For as long as we are an emerging growth company, we will not be required to comply with certain reporting requirements, including those relating to accounting standards and disclosure about our executive compensation, that apply to other public companies. +● +We do not intend to pay dividends on our common stock and, consequently, your only opportunity to achieve a return on your investment is if the price of our shares appreciates. +Risks +Relating to Our Business +We +have a history of operating losses, our management has concluded that factors raise substantial doubt about our ability to continue as +a going concern and our auditor has included an explanatory paragraph relating to our ability to continue as a going concern in its audit +report for the years ended October 31, 2025 and 2024. +For +the year ended October 31, 2025, we generated revenues of $398,734, reported a net loss of $7,282,133 and cash flows used in +operating activities of $2,604,749. For the year ended October 31, 2024, we generated revenues of $213,204, reported a net loss of +$9,626,797, and cash flows used in operating activities of $3,840,744. As of October 31, 2025, we had an accumulated deficit of +$27,355,812. Our management has concluded that our accumulated deficit and limited source of revenue sufficient to cover our cost of +operation as well as our dependence on private equity and other financings raise substantial doubt about our ability to continue as +a going concern, and our auditor has included an explanatory paragraph relating to our ability to continue as a going concern in its +audit report for the years ended October 31, 2025 and 2024. +Our +financial statements do not include any adjustments that might result from the outcome of this uncertainty. These adjustments would likely +include substantial impairment of the carrying amount of our assets and potential contingent liabilities that may arise if we are unable +to fulfill various operational commitments. In addition, the value of our securities would be greatly impaired. Our ability to continue +as a going concern is dependent upon generating sufficient cash flow from operations and obtaining additional capital and financing. +If our ability to generate cash flow from operations is delayed or reduced and we are unable to raise additional funding from other sources, +we may be unable to continue in business. For further discussion about our ability to continue as a going concern and our plan for future +liquidity, see “ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Going Concern Considerations .” +17 +We +may face delays and/or obstacles in project development due to difficulties in obtaining necessary permits from federal, state, county +and/or local agencies, which may materially affect our business. +We +are subject to a number of federal, state, county and local laws, regulations and other requirements relating to oil and natural gas +operations. The laws and regulations that affect the oil and natural gas industry are under constant review for amendment or expansion. +Some of these laws, regulations and requirements result in challenges, delays and/or obstacles in obtaining permits, and some carry substantial +penalties for failure to comply. The regulatory burden on the oil and natural gas industry increases our cost of doing business, can +affect and even obstruct our operations and, consequently, can affect our profitability. +Various +permits for exploratory drilling and production-testing are in-hand for the South Salinas Project, whereas permits for long-term production, +conditional use permits, water disposal and other matters have not yet been obtained. There are challenges and uncertainties in obtaining +permits, which may result in delays and/or obstacles to developing our oil/gas assets. California and Colorado are two States that are +considered to have challenging regulatory environments and Monterey County in California also has this reputation. We may experience +delays and/or obstacles to exploiting our assets, and also may be required to make large expenditures to comply with governmental laws +and regulations and to obtain permits. +The +Company currently has permits from Monterey County for the HV-1, HV-2, HV-3A and HV-4 wells, permitting each of these wells to be tested +by producing it for its own 18 month period with the Company selling the produced oil and/or gas, and disposing of produced water from +these wells by trucking it offsite to a licensed water-disposal facility and, if necessary, flaring on-site any natural gas that is not +used on-site in field operations. The Company is currently seeking a permit from CalGEM and State Water Boards to dispose of produced +water at the Project. +The +Company is seeking and/or expects to seek from regulatory agencies any and all additional permits as may be necessary, which may include +but not be limited to conditional use permits, drilling permits, permits for full-field development, permits for long-term production, +permits for additional water disposal wells, permits for transport of oil and gas via pipelines, and such similar permits as are customarily +required in oil and gas exploration and development projects. Delays and/or obstacles in obtaining necessary permits may materially affect +our business, for example: +● +it +will not be possible to produce the HV-1, HV-2, HV-3A and HV-4 wells after their individual eighteen-month production-test periods +without additional permits; +● +project +economics will be less favorable if all necessary permits for on-site water disposal are not approved; +● +it +will not be possible to drill new wells other than the HV-2 and HV-4 wells without new permits; +● +it +will not be possible to utilize five of the existing Project wells (i.e., the BM 2-2, BM 1-2-RD1, HV 2-6, HV 3-6 and/or HV 1-35) +without new permits, including conditional use permits from Monterey County, and other customary permits from local and State agencies; +● +it +will not be possible to initiate full-field development without new permits; and +● +it +will not be possible to establish long-term production without new permits. +Due +to our contractor model for drilling operations, we will be vulnerable to any inability to engage one or more drilling rigs and associated +drilling personnel. +Our +operation plan currently depends on using the services of independent drilling contractors such as Ensign Energy that operate their own +drilling rigs using their own personnel. Lack of rig availability from independent drilling contractors would hinder our operations. +Our assets include operations in California and Ensign, for example, has indicated that it is moving its drilling rigs out of California +due to decline of California’s oil and gas industry. Lack of rig availability may be a problem if there is a drilling boom and +rigs are reserved by other operators into the foreseeable future, or contrarily if there is a general lack of rigs as may occur if the +oil industry is in a slump and rigs are taken out of service. The capacities of standard oil field service companies in general (i.e., +in addition to drilling contractors) in California have declined and continue to decline in parallel with the continuing decline of California’s +oil and gas industry. +18 +We +are operating in a highly capital-intensive industry, and any sales of produced oil and gas may be insufficient to fund, sustain, or +expand revenue-generating operations. +The +oil/gas drilling exploration and production business are capital intensive due to the cost of experienced personnel; equipment and other +assets required to drill, produce and store oil; regulatory compliance costs; potential liability exposures and financial impact; and +risk of unpredictable volatility in oil market prices and predatory pricing by competitors. Drilling requires an upfront payment of operational +costs with no guarantee that actual oil/gas production will cover such expenses. “Dry” holes and/or non-economic results +at planned oil/gas wells could deplete available funding raised by the Company and render the Company insolvent. The actual amount and +timing of our future capital expenditures may differ materially from our estimates as a result of, among other things, market oil prices, +actual drilling results, the availability of drilling rigs and other services and equipment, and regulatory, technological, and competitive +developments. +Future +cash flow from our operations and access to capital are subject to a number of variables, including: (i) the market prices at which our +produced oil and gas are sold; (ii) our oil and/or gas reserves; (iii) our ability to acquire, locate and produce new oil/gas reserves; +and (iv) the levels of our operating expenses. +We +face substantial uncertainties in estimating the characteristics of our assets, so you should not place undue reliance on any of our +measures. +In +this Annual Report, we provide numerical and other measures of the characteristics, including with regard to size and quality, of our +assets. These measures may be incorrect, as the accuracy of these measures are functions of available data, geological, geophysical, +petrophysical and engineering interpretation and judgment. Any analogies drawn by us from other wells, discoveries or producing fields +may not prove to be accurate indicators of the success of developing reserves from our assets. Furthermore, we may have inaccurately +evaluated the accuracy of the data from analog wells or prospects produced by other parties, which we may have used. +19 +There +are uncertainties in reserve forecasts and in associated estimates of future cash flows in the South Salinas Project due to uncertainties +in various matters including, for example, in the following: +● +the +areal extent of the oil and/or gas fields and/or prospects; +● +the +gross and net thicknesses of the geologic zones that comprise the oil and/or gas reservoirs (note: “oil and gas reservoirs” +are geologic zones that contain oil and/or gas); +● +the +porosity, permeability and fluid saturations (i.e., oil, gas and/or water saturation) of the oil and/or gas reservoirs; +● +the +oil, gas and/or water production rates that will be achieved initially and during extended reservoir performance; +● +the +volumes of oil and/or gas that can be economically extracted from the oil and/or gas reservoirs; +● +the +extent of natural fractures that will be encountered in the naturally-fractured Monterey Formation oil and gas reservoirs (e.g., +the Monterey Yellow Zone and Monterey Blue Zone that are discussed hereunder and in the Reserve Report and Reserve Supplement Report); +● +pore +volume compressibility and its impact on reservoir pressure and thus on reservoir performance; and +● +the +oil- and gas-prices during the life of the Project. +It +is possible that few or none of our wells to be drilled in the future will find accumulations of oil/gas in commercial quality or quantity. +Any significant variance between actual results and our assumptions could materially affect the quantities of oil attributable to any +particular prospect. +The +drilling of wells is speculative, often involving significant costs that may be more than our estimates, and drilling may not result +in any discoveries or additions to our future production or future reserves , or it may result in disproving or diminishing our +current reserves. +Exploring +for and developing oil involves a high degree of operational and financial risk, which precludes definitive statements as to the time +required and costs involved in reaching certain objectives. The budgeted costs of planning, drilling, completing and operating wells +are often exceeded and can increase significantly when drilling costs rise due to a tightening in the supply of various types of oilfield +equipment and related services or unanticipated geologic and/or mechanical conditions. Before a well is spud, we may incur significant +geological and geophysical (seismic) costs, which are incurred whether a well eventually produces commercial quantities of oil/gas, or +is drilled at all. Drilling may be unsuccessful for many reasons, including geologic conditions, weather, cost overruns, equipment shortages +and mechanical difficulties. Exploratory wells bear a much greater risk of loss than development wells. Furthermore, the successful drilling +of a well does not necessarily result in the commercially viable development of a field. A variety of factors, including regulatory, +geologic and/or market-related, can cause a field to become uneconomic or only marginally economic. All of our prospects will require +significant additional exploration and development, regulatory approval and commitments of resources prior to commercial development. +The successful drilling of a single well may not be indicative of the potential for the development of a commercially viable field. Furthermore, +if our actual drilling and development costs are significantly more than our estimated costs, we may not be able to continue our business +operations as proposed and may be forced to modify our development plans. +We +have been an exploration stage entity and our future performance is uncertain. +We +have been an exploration stage entity and will continue to be so until we generate material and recurring revenue. Exploration stage +entities face substantial business risks and may suffer significant losses. We have generated substantial net losses and negative +cash flows from operating activities since our inception and expect to continue to incur substantial net losses as we continue our +exploration and appraisal program. We face challenges and uncertainties in financial planning as a result of the unavailability of +historical data and uncertainties regarding the nature, scope and results of our future activities. We will need to develop +additional business relationships, establish additional operating procedures, hire additional staff, and take other measures +necessary to conduct our intended business activities. We may not be successful in implementing our business strategies or in +completing the development of the facilities necessary to conduct our business as planned. In the event that one or more of our +drilling programs is not completed, is delayed or terminated, our operating results will be adversely affected and our operations +will differ materially from the activities described in this Annual Report. There are uncertainties surrounding our future business +operations that must be navigated if we transition from an exploration stage entity and commence generating material and recurring +revenues, some of which may cause a material adverse effect on our results of operations and financial condition. +20 +We +are dependent on certain members of our management and technical team. +Investors +in our common stock must rely upon the ability, expertise, judgment and discretion of our management and the success of our technical +team in identifying, discovering, evaluating and developing reserves. Our performance and success are dependent, in part, upon key members +of our management and technical team, and their loss or departure could be detrimental to our future success. We depend to a significant +degree upon our recently appointed Chief Executive Officer, Robin Ross, and our Chief Financial Officer, Gregory L. Overholtzer. Our +performance and success are dependent to a large extent on the efforts and continued employment of Mr. Ross and Mr. Overholtzer. We do +not believe that Mr. Ross and Mr. Overholtzer could be quickly replaced with personnel of equal experience and capabilities, and their +successor(s) may not be as effective. If Mr. Ross and Mr. Overholtzer, or any of our other key personnel resign or become unable to continue +in their present roles and if they are not adequately replaced, our business operations could be adversely affected. +In +making a decision to invest in our common stock, you must be willing to rely to a significant extent on our management’s discretion +and judgment. A significant amount of the interests in our Company held by members of our management were previously vested. While the +Company currently has an equity incentive plan in place, there can be no assurance that our management and technical team will remain +in place. The loss of any of our management and technical team members, and specifically, Mr. Ross, our recently appointed Chief Executive +Officer, could have a material adverse effect on our results of operations and financial condition, as well as on the market price of +our common stock. See “ Item 10. Directors, Executive Officers and Corporate Management. ” +Seismic +studies do not guarantee that oil or gas is present or, if present, will produce in economic quantities. +Oil +exploration and production companies, like the Company, rely on seismic studies to assist in assessing prospective drilling opportunities +on oil and gas properties, as well as on properties that a company may acquire. Such seismic studies are merely an interpretive tool +and do not necessarily guarantee that oil or gas is present or, if present, will produce in economic or profitable quantities. +The +potential lack of availability of, or cost of, drilling rigs, equipment, supplies, personnel, and crude oil field services could adversely +affect our ability to execute on a timely basis exploration and development plans within any budget. +We +may encounter an increase in the cost of securing needed drilling rigs, equipment, and supplies, which is increasingly a risk in California +where the oil and gas industry is contracting, due to regulatory challenges/obstacles, and some service companies are reducing their +presence in California or leaving the state entirely. Larger producers may be more likely to secure access to such equipment by offering +more lucrative terms. If we are unable to acquire access to such resources or can obtain access only at higher prices, its ability to +convert oil reserves into cash flow could be delayed, and the cost of producing from those oil reserves could increase significantly, +which would adversely affect results of operations and financial condition. Our current drilling operations are limited, and availability +of essential drilling assets may not become a risk factor until such time as we increase drilling operations. +Our +business plan requires substantial additional capital, which we may be unable to raise on acceptable terms in the future, which may in +turn limit our ability to develop our exploration, appraisal, development and production activities. +We +expect our capital outlays and operating expenditures to be substantial over the next several years as we expand our operations. Obtaining +and/or reprocessing and/or reinterpreting seismic data, as well as exploration, appraisal, development and production activities entail +considerable costs, and we expect that we will need to raise substantial additional capital, through future private or public equity +offerings, strategic alliances or debt financing. +Our +future capital requirements will depend on many factors, including: +● +the +scope, rate of progress and cost of our exploration, appraisal, development and production activities; +● +oil +prices; +● +our +ability to produce oil or natural gas; +● +the +terms and timing of any drilling and other production-related arrangements that we may enter into; +● +the +cost and timing of governmental regulatory approvals of permits, and; +● +the +effects of competition from other companies and/or third-parties operating in the oil and gas industry +21 +Additional +capital may not be available on favorable terms, or at all. In addition, if we are successful raising additional capital through the +sale of our securities, at such time our existing stockholders would, in all likelihood, be further diluted and new investors may demand +rights, preferences or privileges senior to those of existing stockholders. If we raise additional capital through debt financing, the +financing may involve covenants that restrict our business activities. If we choose to farm-out our interests, we may lose operating +control or influence over such assets. +Assuming +we are able to timely commence exploration, appraisal, development and/or production activities, and/or to maintain oil/gas production, +and/or to maintain force majeure status, then our rights to our mineral leasehold should extend for certain periods of time and/or for +life of production. If we are unable to meet our commitments we may be subject to significant potential forfeiture of all or part of +the mineral leasehold. If we are not successful in raising additional capital, we may be unable to continue our future exploration and +production activities or successfully exploit our assets, and we may lose the rights to develop said assets. +A +substantial or extended decline in global and/or local oil and/or natural gas prices may adversely affect our business, financial condition +and results of operations. +The +prices that we will receive for our oil and natural gas will significantly affect our revenue, profitability, access to capital and future +growth rate. Historically, the oil and natural gas markets have been volatile and will likely continue to be volatile in the future. +The prices that we will receive for our future production and the levels of our future production depend on numerous factors. These factors +include, but are not limited to, the following: +● +changes +in supply and demand for oil and natural gas; +● +the +actions of the Organization of the Petroleum Exporting Countries (“OPEC”); +● +speculation +as to the future price of oil and natural gas and the speculative trading of oil and natural gas futures contracts; +● +global +economic conditions; +● +political +and economic conditions, including embargoes in oil-producing countries or affecting other oil-producing activities, particularly +in the Middle East, Africa, Russia and South America; +● +the +continued threat of terrorism and the impact of military and other action, including U.S. military operations in the Middle East; +● +the +level of global oil and natural gas exploration and production activity; +● +the +level of global oil inventories and oil refining capacities; +● +weather +conditions and natural disasters; +● +technological +advances affecting energy consumption; +● +governmental +regulations and taxation policies; +● +proximity +and capacity of transportation facilities; +● +the +price and availability of competitors’ supplies of oil and natural gas; and +● +the +price and availability of alternative fuels. +Lower +oil prices may not only decrease our revenues on a per share basis but also may reduce the amount of oil that we can produce economically. +A substantial or extended decline in oil and natural gas prices may materially and adversely affect our future business, financial condition, +results of operations, liquidity or ability to finance planned capital expenditures. +22 +Unless +we replace our petroleum reserves, our reserves and production will decline over time. Our business is dependent on the successful development +of our various current petroleum assets and projects and/or on continued successful identification and exploitation of other petroleum +assets and prospects, whereas the identified locations in which we drill in the future may not yield oil or natural gas in commercial +quantities. +Production +from oil properties may decline as reserves are depleted, with the rate of decline depending on reservoir characteristics and other factors. +Similarly, our current reserves will decline as the reserves are produced. Our future oil reserves and production, and therefore our +cash flows and income, are highly dependent on our success in efficiently developing our current reserves and/or economically finding +or acquiring additional recoverable reserves. While our team members have had success in identifying and developing commercially exploitable +deposits and drilling locations in the past, we may be unable to replicate that success in the future. We may not identify any more commercially +exploitable deposits or successfully drill, complete or produce more oil reserves, and the wells which we have drilled and currently +plan to drill at our assets may not discover or produce any further oil or gas or may not discover or produce additional commercially +viable quantities of oil or gas to enable us to continue to operate profitably. If we are unable to replace our future production, the +value of our reserves will decrease, and our business, financial condition and results of operations will be materially adversely affected. +Our +inability to access appropriate equipment and infrastructure in a timely manner may hinder our access to oil and natural gas markets +or delay our future oil and natural gas production. +Our +ability to market our future oil/gas production will depend substantially on the availability and capacity of processing facilities, +tanker trucks, pipelines and other infrastructure. Our failure to obtain such facilities on acceptable terms could materially harm our +business. We will rely on access to drilling rigs suitable for our projects. The availability of drilling rigs may be problematic or +delayed, and we may not be able to gain timely access to suitable rigs. We may be required to shut-in oil/gas wells because of the absence +of markets or because facilities are inadequate or nonexistent. If that were to occur, then we would be unable to realize revenue from +those wells until arrangements were made to deliver the production to market, which could cause a material adverse effect on our financial +condition and results of operations. +Additionally, +the exploitation and sale of associated and non-associated natural gas and liquids will be subject to timely commercial processing and +marketing of these products, which may depend on the contracting, financing, building and operating of infrastructure by third parties. +We +are subject to numerous risks inherent to the exploration and production of oil and natural gas. +Oil +and natural gas exploration and future production activities involve many risks that a combination of experience, knowledge and interpretation +may not be able to overcome. Our future will depend on the success of our exploration and future production activities and on the development +of infrastructure that will allow us to take advantage of our discoveries. As a result, our oil and natural gas exploration and future +production activities are subject to numerous risks, including the risk that drilling will not result in commercially viable oil and +natural gas production. Our decisions to purchase, explore or develop discoveries, prospects or licenses will depend in part on the evaluation +of seismic data through geophysical and geological analyses, production data and engineering studies, the results of which are often +inconclusive or subject to varying interpretations. +Furthermore, +the marketability of expected oil and natural gas production from any future discoveries and prospects will also be affected by numerous +factors. These factors include, but are not limited to, market fluctuations of prices, proximity, capacity and availability of processing +facilities, transportation vehicles and pipelines, equipment availability and government regulations (including, without limitation, +regulations relating to prices, taxes, royalties, allowable production, domestic supply requirements, importing and exporting of oil +and natural gas, environmental protection and climate change). The effect of these factors, individually or jointly, may result in us +not receiving an adequate return on invested capital. +In +the event that our currently undeveloped discoveries and prospects are developed and become operational, they may not produce oil and +natural gas in commercial quantities or at the costs anticipated, and our projects may cease production, in part or entirely, in certain +circumstances. Discoveries may become uneconomical as a result of an increase in operating costs to produce oil and natural gas. Our +actual operating costs may differ materially from our current estimates. Moreover, it is possible that other developments, such as increasingly +strict environmental, climate change, health and safety laws and regulations and enforcement policies thereunder and claims for damages +to property or persons resulting from our operations, could result in substantial costs and liabilities, delays, an inability to complete +the development of our discoveries or the abandonment of such discoveries, which could cause a material adverse effect on our financial +condition and results of operations. +We +are subject to drilling and other operational environmental hazards. +The +oil and natural gas business involves a variety of operating risks, including, but not limited to: +● +fires, +blowouts, spills, cratering and explosions; +● +mechanical +and equipment problems, including unforeseen engineering complications; +● +uncontrolled +flows or leaks of oil, well fluids, natural gas, brine, toxic gas or other pollution; +● +gas +flaring operations; +● +formations +with abnormal pressures; +● +pollution, +other environmental risks, and geological problems; and +● +weather +conditions and natural disasters. +23 +The +development schedule of oil and natural gas projects, including the availability and cost of drilling rigs, equipment, supplies, personnel +and oilfield services, is subject to delays and cost overruns. +Historically, +some oil and natural gas development projects have experienced delays and capital cost increases and overruns due to, among other factors, +the unavailability or high cost of drilling rigs and other essential equipment, supplies, personnel and oilfield services. To the extent +we locate commercially viable reserves through our exploration and development activities, the cost to develop our projects will not +have been fixed and will remain dependent upon a number of factors, including the completion of detailed cost estimates and final engineering, +contracting and procurement costs. Our construction and operation schedules may not proceed as planned and may experience delays or cost +overruns. Any delays may increase the costs of the project, requiring additional capital, and such capital may not be available in a +timely and cost-effective fashion. +Participants +in the oil and gas industry are subject to numerous laws that can affect the cost, manner or feasibility of doing business. +Exploration +and production activities in the oil and gas industry are subject to local laws and regulations. We may be required to make large expenditures +to comply with governmental laws and regulations, particularly in respect of the following matters: +● +permits +for drilling, long-term production, water disposal, conditional use and other matters; +● +licenses +for drilling operations; +● +tax +increases, including retroactive claims; +● +unitization +of oil accumulations; +● +local +content requirements (including the mandatory use of local partners and vendors); and +● +environmental +requirements and obligations, including remediation or investigation activities. +Under +these and other laws and regulations, we could be liable for personal injuries, property damage and other types of damages. Failure to +comply with these laws and regulations also may result in the suspension or termination of our operations and subject us to administrative, +civil and criminal penalties. Moreover, these laws and regulations could change, or their interpretations could change, in ways that +could substantially increase our costs. These risks may be higher in developing countries in which we may at some point in the future +decide to conduct our operations, where there could be a lack of clarity or lack of consistency in the application of these laws and +regulations. Any resulting liabilities, penalties, suspensions or terminations could have a material adverse effect on our financial +condition and results of operations. +We +and our operations are subject to numerous environmental, health and safety regulations which may result in material liabilities and +costs. +We +and our operations are subject to various international, foreign, federal, state and local environmental, health and safety laws and +regulations governing, among other things, the emission and discharge of pollutants into the ground, air or water, the generation, storage, +handling, use and transportation of regulated materials and the health and safety of our employees. We are required to obtain environmental +permits from governmental authorities for our operations, including drilling permits for our wells. We have not been or may not be at +all times in complete compliance with these permits and the environmental laws and regulations to which we are subject, and there is +a risk that these laws and regulations could change in the future or become more stringent. If we violate or fail to comply with these +laws, regulations or permits, we could be fined or otherwise sanctioned by regulators, including through the revocation of our permits +or the suspension or termination of our operations. If we fail to obtain permits in a timely manner or at all (due to opposition from +community or environmental interest groups, governmental delays or any other reasons), or if we face additional requirements imposed +as a result of changes in or enactment of laws or regulations, such failure to obtain permits or such changes in or enactment of laws +could impede or affect our operations, which could have a material adverse effect on our results of operations and financial condition. +We, +as an interest owner or as the designated operator of certain of our current and future discoveries and prospects, could be held liable +for some or all environmental, health and safety costs and liabilities arising out of our actions and omissions as well as those of our +block partners, third-party contractors or other operators. To the extent we do not address these costs and liabilities or if we do not +otherwise satisfy our obligations, our operations could be suspended or terminated. We have contracted with and intend to continue to +hire third parties to perform services related to our operations. There is a risk that we may contract with third parties with unsatisfactory +environmental, health and safety records or that our contractors may be unwilling or unable to cover any losses associated with their +acts and omissions. Accordingly, we could be held liable for all costs and liabilities arising out of the acts or omissions of our contractors, +which could have a material adverse effect on our results of operations and financial condition. +24 +We +maintain insurance at levels that we believe are consistent with industry practices, but we are not fully insured against all risks. +Our insurance may not cover any or all environmental claims that might arise from our future operations or at any of our asset areas. +If a significant accident or other event occurs and is not covered by insurance, such accident or event could have a material adverse +effect on our results of operations and financial condition. +Our +operations may be dependent on sources of electricity and/or natural gas that may be unreliable or costly. +Oil +and gas operations, including our operations, commonly require significant electricity and/or natural gas as power sources to operate +facilities. Some oil and gas operations are power self-sourced, for example producing natural gas to run facilities including to generate +electricity. Some oil operations historically were permitted to burn crude oil to power operations but this is commonly not permitted +today due to associated greenhouse gas emissions. Our South Salinas Project may produce sufficient natural gas to be power self-sourced +and even to deliver gas to market. The McCool Ranch Oil Field produces black oil without associated natural gas, and historically has +received natural gas through an existing pipeline that has had excess capacity. The excess capacity available might not be adequate to +meet our demand. If establishing and/or maintaining reliable sources of affordable electricity and/or natural gas are problematic or +delayed, this could have a material adverse effect on our results of operations and financial condition. +We +expect continued and increasing attention to climate change and energy transition issues and associated regulations to constrain and +impede the oil/gas industry. +We +expect continued and increasing attention to climate change and to the energy transition away from fossil fuels. Various countries and +regions have agreed to regulate emissions of greenhouse gases, including methane (a primary component of natural gas) and carbon dioxide +(a byproduct of oil and natural gas combustion). The regulation of greenhouse gases and the physical impacts of climate change in the +areas in which we, our customers and the end-users of our products operate could adversely impact our operations and the demand for our +products. +Environmental, +health and safety laws are complex, change frequently and have tended to become increasingly stringent over time. Our costs of complying +with current and future climate change, environmental, health and safety laws, the actions or omissions of our block partners and third +party contractors and our liabilities arising from releases of, or exposure to, regulated substances may adversely affect our results +of operations and financial condition. +We +may incur substantial losses and become subject to liability claims as a result of future oil and natural gas operations, for which we +may not have adequate insurance coverage. +We +intend to maintain insurance against risks in the operation of the business we plan to develop and in amounts in which we believe to +be reasonable. Such insurance, however, may contain exclusions and limitations on coverage. For example, we are not insured against political +or terrorism risks. We may elect not to obtain insurance if we believe that the cost of available insurance is excessive relative to +the risks presented. Losses and liabilities arising from uninsured and underinsured events could materially and adversely affect our +business, financial condition and results of operations. +We +may be subject to risks in connection with acquisitions and the integration of significant acquisitions may be difficult. +We +periodically evaluate acquisitions of prospects, properties, mineral leases, licenses, reserves and other strategic transactions that +appear to fit within our overall business strategy. The successful acquisition of these assets requires an assessment of several factors, +including: +● +oil +and/or gas reserves; +● +future +oil and natural gas prices and their differentials; +● +development +and operating costs; and +● +potential +environmental and other liabilities. +25 +The +accuracy of these assessments is inherently uncertain. In connection with these assessments, we perform a review of the subject assets +that we believe to be generally consistent with industry practices. Our review will not reveal all existing or potential problems nor +will it permit us to become sufficiently familiar with the assets to fully assess their deficiencies and potential recoverable reserves. +Inspections may not always be performed on every well, and environmental problems are not necessarily observable even when an inspection +is undertaken. Even when problems are identified, the seller may be unwilling or unable to provide effective contractual protection against +all or part of the problems. We may not be entitled to contractual indemnification for environmental liabilities and could acquire assets +on an “as is” basis. Significant acquisitions and other strategic transactions may involve other risks, including: +● +diversion +of our management’s attention to evaluating, negotiating and integrating significant acquisitions and strategic transactions; +● +the +challenge and cost of integrating acquired operations, information management and other technology systems and business cultures +with those of ours while carrying on our ongoing business; +● +difficulty +associated with coordinating geographically separate organizations; and +● +the +challenge of attracting and retaining personnel associated with acquired operations. +The +process of integrating operations could cause an interruption of, or loss of momentum in, the activities of our business. Members of +our senior management may be required to devote considerable amounts of time to this integration process, which will decrease the time +they will have to manage our business. If our senior management is not able to effectively manage the integration process, or if any +significant business activities are interrupted as a result of the integration process, our business could suffer. +If +we fail to realize the anticipated benefits of a significant acquisition, our results of operations may be adversely affected. +The +success of a significant acquisition will depend, in part, on our ability to realize anticipated growth opportunities from combining +the acquired assets or operations with those of ours. Even if a combination is successful, it may not be possible to realize the full +benefits we may expect in estimated proved reserves, production volume, cost savings from operating synergies or other benefits anticipated +from an acquisition or realize these benefits within the expected time frame. Anticipated benefits of an acquisition may be offset by +operating losses relating to changes in commodity prices, or in oil and gas industry conditions, or by risks and uncertainties relating +to the exploratory prospects of the combined assets or operations, or an increase in operating or other costs or other difficulties, +including the assumption of environmental or other liabilities in connection with the acquisition. If we fail to realize the benefits +we anticipate from an acquisition, our results of operations may be adversely affected. +The +requirements of being a public company may strain our resources, result in more litigation and divert management’s attention. +As +a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street +Reform and Consumer Protection Act, the listing requirements of the NYSE American and other applicable securities rules and regulations. +Complying with these rules and regulations has increased our legal and financial compliance costs, made some activities more difficult, +time consuming or costly, and increased demand on our systems and resources, including management. The Exchange Act requires, among other +things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act +requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. +We are required to disclose changes made in our internal control and procedures on a quarterly basis. In order to maintain and, if required, +improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources +and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which +could adversely affect our business and operating results. We may also need to hire additional employees or engage outside consultants +to comply with these requirements, which will increase our costs and expenses. +In +addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for +public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations +and standards are subject to varying interpretations, in many cases due to their lack of specificity and, as a result, their application +in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty +regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to +invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative +expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our +efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due +to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business +may be adversely affected. +26 +These +new rules and regulations may make it more expensive for us to obtain director and officer liability insurance and, in the future, we +may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more +difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and +compensation committee, and qualified executive officers. +By +disclosing information in this Annual Report and in other filings required of a public company, our business and financial condition +will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. +If those claims are successful, our business could be seriously harmed. Even if the claims do not result in litigation or are resolved +in our favor, the time and resources needed to resolve them could divert our management’s resources and seriously harm our business. +We +are subject to the examination of our tax returns and other tax matters by the U.S. Internal Revenue Service, states in which we conduct +business, and other tax authorities. If our effective tax rates were to increase, or if the ultimate determination of our taxes owed +is for an amount in excess of amounts previously accrued, our financial condition, operating results and cash flows could be materially +adversely affected. +U.S. +federal, state and local tax laws are being re-examined and evaluated. New laws and interpretations of the law are taken into account +for financial statement purposes in the quarter or year that they become applicable. Tax authorities are increasingly scrutinizing the +tax positions of companies. If U.S. federal, state or local tax authorities change applicable tax laws, our overall taxes could increase, +and our business, financial condition or results of operations may be adversely impacted. +In +addition, any significant changes enacted by the current U.S. presidential administration to the Code or specifically to the Tax Cuts +and Jobs Act (the “U.S. Tax Act”) enacted in 2017, or to regulatory guidance associated with the U.S. Tax Act, could materially +adversely affect our effective tax rate. +Our +amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the sole and exclusive +forum for substantially all disputes between us and our stockholders, which could limit its stockholders’ ability to obtain a favorable +judicial forum for disputes with us or our directors, officers or other employees. +Our +amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, +the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (1) any derivative action or proceeding brought +on our behalf, (2) any action asserting a claim of breach of a fiduciary duty or other wrongdoing by any of our directors, officers, +employees or agents to us or our stockholders, (3) any action asserting a claim against us arising pursuant to any provision of the Delaware +General Corporate Law (“DGCL”) or our amended and restated certificate of incorporation or amended and restated bylaws, (4) +any action to interpret, apply, enforce or determine the validity of our amended and restated certificate of incorporation or amended +and restated bylaws, or (5) any action asserting a claim governed by the internal affairs doctrine. Under our amended and restated certificate +of incorporation, this exclusive form provision will not apply to claims which are vested in the exclusive jurisdiction of a court or +forum other than the Court of Chancery of the State of Delaware, or for which the Court of Chancery of the State of Delaware does not +have subject matter jurisdiction. For instance, the exclusive forum provision in our amended and restated certificate of incorporation +does not apply to actions arising under federal securities laws, including suits brought to enforce any liability or duty created by +the Securities Act of 1933 (the “Securities Act”), the Exchange Act of 1934 (the “Exchange Act”), or the rules +and regulations thereunder. This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act. +Our amended and restated certificate of incorporation provides that any person or entity holding, purchasing or otherwise acquiring any +interest in shares of our capital stock will be deemed to have notice of and to have consented to this choice of forum provision. It +is possible that a court of law could rule that the choice of forum provision contained in our amended and restated certificate of incorporation +is inapplicable or unenforceable if it is challenged in a proceeding or otherwise. Therefore, the exclusive forum provision in our amended +and restated certificate of incorporation will not relieve us of our duty to comply with the federal securities laws and the rules and +regulations thereunder, and stockholders will not be deemed to have waived our compliance with these laws, rules and regulations. +In +addition, our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative +forum, the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the sole and exclusive +forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, or the rules and regulations +promulgated thereunder. We note, however, that there is uncertainty as to whether a court would enforce this provision and that investors +cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Section 22 of the Securities Act creates +concurrent jurisdiction for state and federal courts over all suits brought to enforce any duty or liability created by the Securities +Act or the rules and regulations thereunder. +This +exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with +us or our directors, officers or other employees, which may discourage lawsuits against us or our directors, officers or other employees. +In addition, stockholders who do bring a claim in the state or federal court in the State of Delaware could face additional litigation +costs in pursuing any such claim, particularly if they do not reside in or near Delaware. The state or federal court of the State of +Delaware may also reach different judgments or results than would other courts, including courts where a stockholder would otherwise +choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders. However, the enforceability +of similar exclusive forum provisions in other companies’ certificates of incorporation have been challenged in legal proceedings, +and it is possible that a court could find this type of provision to be inapplicable to, or unenforceable in respect of, one or more +of the specified types of actions or proceedings. If a court were to find the exclusive forum provision contained in our amended and +restated certificate of incorporation to be inapplicable or unenforceable in an action, we might incur additional costs associated with +resolving such action in other jurisdictions. +Our +business and results of operations may be materially adversely affected by inflationary pressures. +As +of the date of this Annual Report, inflationary pressures have led to increased construction materials and labor costs, specifically +associated with steel, cement, and other materials. We believe we will continue to experience such pressures in future quarters, as well +as potential delays in our contractors’ ability to requisition such materials. These pressures have led to an overall increase +in budgeted construction costs. No assurance can be given that the costs of our projects will not exceed budgets. Any such cost overruns +or delays could have a material adverse effect on our business. +27 +Risks +Relating to Our Securities +There +can be no assurance that an active and liquid trading market for our common stock will continue or that we will be able to continue to +comply with the NYSE American’s continued listing standards. +Our +common stock began trading on the NYSE American exchange in April 2023, as a result of our consummation of an initial public offering +of our shares of common stock. Our common stock is currently listed on the NYSE American under the symbol “TPET.” There can +be no assurance an active and liquid trading market in our common stock will continue. +There +is no guarantee that we will be able to maintain such listing for any period of time by perpetually satisfying the NYSE American’s +continued listing requirements. Our failure to continue to meet these requirements may result in our common stock being delisted from +the NYSE American. +If +we are not able to comply with the applicable continued listing requirements or standards of the NYSE American, our common stock could +be delisted from the NYSE American. +Our +common stock is listed on the NYSE American. In order to maintain this listing, we must maintain a certain share price, financial and +share distribution targets, including maintaining a minimum amount of stockholders’ equity and a minimum number of public stockholders. +In addition to these objective standards, the NYSE American may delist the securities of any issuer (i) if, in its opinion, the issuer’s +financial condition and/or operating results appear unsatisfactory; (ii) if it appears that the extent of public distribution or the +aggregate market value of the security has become so reduced as to make continued listing on the NYSE American inadvisable; (iii) if +the issuer sells or disposes of principal operating assets or ceases to be an operating company; (iv) if an issuer fails to comply with +the NYSE American’s listing requirements; (v) if an issuer’s securities sell at what the NYSE American considers a “low +selling price” which the exchange generally considers $0.10 per share, the NYSE American may suspend trading of our common stock, +until the issuer corrects this via a reverse split of shares after notification by the NYSE American; or (vi) if any other event occurs +or any condition exists which makes continued listing on the NYSE American, in its opinion, inadvisable. There are no assurances how +the market price of our common stock will be impacted in future periods as a result of the general uncertainties in the capital markets +and any specific impact on our Company as a result of the recent volatility in the capital markets. +In +the event that our common stock is delisted from the NYSE American and is not eligible for quotation on another market or exchange, trading +of our common stock could be conducted in the over-the-counter market or on an electronic bulletin board established for unlisted securities, +such as the Pink Sheets or the OTC Markets. In such event, investors may face material adverse consequences, including, but not limited +to, a lack of trading market for the common stock, reduced liquidity and market price of the common stock, decreased analyst coverage +of our common stock, and an inability for us to obtain any additional financing to fund our operations that we may need. +If +our common stock is delisted, our common stock may be subject to the so-called “penny stock” rules. The SEC has adopted regulations +that define a penny stock to be any equity security that has a market price per share of less than $5.00, subject to certain exceptions, +such as any securities listed on a national securities exchange. For any transaction involving a penny stock, unless exempt, the rules +impose additional sales practice requirements and burdens on broker-dealers (subject to certain exceptions) and could discourage broker-dealers +from effecting transactions in our stock, further limiting the liquidity of our shares, and an investor may find it more difficult to +acquire or dispose of the common stock on the secondary market. +These +factors could have a material adverse effect on the trading price, liquidity, value and marketability of the common stock. +Our +share price may be volatile, and purchasers of our common stock could incur substantial losses. +Our +share price has been extremely volatile in the past and may continue to be so in the future. Since our IPO, our common stock has traded +at prices ranging from $60.00 and $0.74 (on a post-reverse stock split basis). The stock market in general has experienced extreme volatility +that has often been unrelated to the operating performance of particular companies. This is particularly applicable to small-capitalized +companies with relatively smaller public floats like us. As a relatively small-capitalization company with a relatively small public +float, we may experience greater stock price volatility, extreme price run-ups, lower trading volume and less liquidity than large-capitalization +companies. In particular, our common stock may be subject to rapid and substantial price volatility, low volumes of trades and large +spreads in bid and ask prices. Such volatility, including any stock-run up, may be unrelated to our actual or expected operating performance, +financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our common stock. +The market price for our common stock may be influenced +by many factors. Specifically, oil and gas stocks are also particularly volatile because the price of oil itself is highly volatile, which +is largely driven by the complex interplay of supply and demand factors, heavily influenced by geopolitical events, making it sensitive +to disruptions in production or sudden shifts in global demand, often causing large price swings in a short period of time; this directly +impacts the profitability of oil and gas companies, leading to stock price fluctuations. Large moves in the price of our common stock +either up or down, is also more likely on or around the times we make public announcements relating to our business, including updates +in drilling operations at our sites. +28 +The market price for our common stock may be influenced +by many other factors, including, but not limited to: +● +the +price of oil and natural gas; +● +the +success of our exploration and development operations, and the marketing of any oil and natural gas we produce; +● +regulatory +developments in the United States and/or in any foreign countries where we may have operations in the future; +● +the +recruitment or departure of key personnel; +● +quarterly +or annual variations in our financial results or those of companies that are perceived to be similar to us; +● +market +conditions in the industries in which we compete and issuance of new or changed securities; +● +analysts’ +reports or recommendations; +● +the +failure of securities analysts to cover our common stock or changes in financial estimates by analysts; +● +the +inability to meet the financial estimates of analysts who follow our common stock; +● +the +issuance of any additional securities of ours; +● +investor +perception of our company and of the industry in which we compete; and +● +general +economic, political and market conditions. +Broad market and industry factors may significantly affect the market price of our securities, regardless of our +actual operating performance. In addition, if the trading volumes of our common stock are low, persons buying or selling in relatively +small quantities may easily influence prices of our common stock. This low volume of trades could also cause the price of our common stock +to fluctuate greatly, with large percentage changes in price occurring in any trading day session. Holders of our common stock may also +not be able to readily liquidate their investment or may be forced to sell at depressed prices due to low volume trading. Broad market +fluctuations and general economic and political conditions may also adversely affect the market price of our common stock. As a result +of this volatility, investors may experience losses on their investment in our common stock. A decline in the market price of our common +stock also could adversely affect our ability to issue additional shares of common stock or other securities and our ability to obtain +additional financing in the future. +In +addition, in the past, following periods of volatility in the overall market and in the market price of a particular company’s +securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against +us, could result in substantial costs and a diversion of our management’s attention and resources. +Our +common stock may be subject to the “penny stock” rules in the future. It may be more difficult to resell securities classified +as “penny stock.” +Our +common stock may be subject to “penny stock” rules (generally defined as non-exchange traded stock with a per-share price +below $5.00) in the future. While our common stock is not currently considered a “penny stock” since it is listed on the +NYSE American, if we are unable to maintain listing and our common stock is no longer listed on the NYSE American, unless we maintain +a per-share price above $5.00, our common stock will become a “penny stock.” These rules impose additional sales practice +requirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as “established +customers” or “accredited investors.” For example, broker-dealers must determine the appropriateness for non-qualifying +persons of investments in penny stocks. Broker-dealers must also provide, prior to a transaction in a penny stock not otherwise exempt +from the rules, a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock +market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, disclose the compensation +of the broker-dealer and its salesperson in the transaction, furnish monthly account statements showing the market value of each penny +stock held in the customer’s account, provide a special written determination that the penny stock is a suitable investment for +the purchaser, and receive the purchaser’s written agreement to the transaction. +Legal +remedies available to an investor in “penny stocks” may include the following: +● +If +a “penny stock” is sold to the investor in violation of the requirements listed above, or other federal or states securities +laws, the investor may be able to cancel the purchase and receive a refund of the investment. +● +If +a “penny stock” is sold to the investor in a fraudulent manner, the investor may be able to sue the persons and firms +that committed the fraud for damages. +These +requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes +subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers +from effecting transactions in our securities, which could severely limit the market price and liquidity of our securities. These requirements +may restrict the ability of broker-dealers to sell our common stock and may affect your ability to resell our common stock. +Many +brokerage firms will discourage or refrain from recommending investments in penny stocks. Most institutional investors will not invest +in penny stocks. In addition, many individual investors will not invest in penny stocks due, among other reasons, to the increased financial +risk generally associated with these investments. +For +these reasons, penny stocks may have a limited market and, consequently, limited liquidity. We can give no assurance at what time, if +ever, our common stock will not be classified as a “penny stock” in the future. +For +as long as we are an emerging growth company, we will not be required to comply with certain reporting requirements, including those +relating to accounting standards and disclosure about our executive compensation, that apply to other public companies. +We +are classified as an “emerging growth company” under the JOBS Act. For as long as we are an emerging growth company, which +may be up to five full fiscal years, unlike other public companies, we will not be required to, among other things: (i) provide an auditor’s +attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant +to Section 404(b) of the Sarbanes-Oxley Act; (ii) comply with any new requirements adopted by the PCAOB requiring mandatory audit firm +rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about +the audit and the financial statements of the issuer; (iii) provide certain disclosures regarding executive compensation required of +larger public companies; or (iv) hold nonbinding advisory votes on executive compensation. We will remain an emerging growth company +for up to five years, although we will lose that status sooner if we have more than $1.235 billion of revenues in a fiscal year, have +more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1.0 billion of non-convertible +debt over a three-year period. +To +the extent that we rely on any of the exemptions available to emerging growth companies, you will receive less information about our +executive compensation and internal control over financial reporting than issuers that are not emerging growth companies. If some investors +find our common stock to be less attractive as a result, there may be a less active trading market for our common stock and our stock +price may be more volatile. +We +do not intend to pay dividends on our common stock and, consequently, your only opportunity to achieve a return on your investment +is if the price of our shares appreciates. +We +do not plan to declare dividends on shares of our common stock in the foreseeable future. Consequently, your only opportunity to +achieve a return on your investment in us will be if the market price of our common stock appreciates, which may not occur, and you +sell your shares at a profit. There is no guarantee that the price of our common stock that will prevail in the market will +ever exceed the price that you pay. +29 +ITEM +1B. UNRESOLVED STAFF COMMENTS. +None. +ITEM +1C. CYBERSECURITY. +Cybersecurity attacks impact businesses and organizations +of all sizes and sectors on a global basis. At Trio, we recognize the importance of developing, implementing, and maintaining a cybersecurity +risk management program. Although the Company does not operate a centralized server environment, our operations rely on distributed devices +and cloud-based platforms provided by third-party vendors. While this architecture reduces certain single-point-of-failure risks, it does +not eliminate exposure to cybersecurity threats. We remain dependent on internal systems, employee devices, and external cloud-based infrastructure +to securely process, transmit, and store critical information. We are continuing to implement resources designed to protect our systems +and data from cybersecurity threats and are in the process of engaging an outsourced security firm to oversee our cybersecurity program. +We seek to reduce cybersecurity risks through a variety +of risk management activities intended to identify, assess, manage, and mitigate cybersecurity threats. +Risk +Management Strategy +Our cybersecurity risk management program is focused on the following key areas: +● +Governance: +Our cybersecurity risk management program is led by our outsourced security team. At present, our Board of Directors +does not directly oversee the cybersecurity risk management program; however, the Audit Committee is in the process of implementing procedures +to obtain regular updates on our cybersecurity program, including recent developments, key initiatives to strengthen our systems, applicable +industry standards, vulnerability assessments, third-party and independent reviews, and other information security considerations. +● +Approach: +We intend to use a cross-functional approach to identifying, preventing, assessing, and mitigating cybersecurity +threats and incidents, while implementing controls and procedures designed to provide for the prompt escalation of cybersecurity incidents +and support appropriate public disclosure and reporting. Our cybersecurity efforts include, or are expected to include, risk-based administrative, +technical, and physical controls. Trio is in the process of implementing an extensive set of policies, procedures, systems, and tools +designed to help safeguard our distributed systems and cloud-based data, including firewalls, intrusion detection systems, access controls +such as multi-factor authentication, vulnerability scanning, penetration testing, independent third-party control audits, an internal +bug bounty program, and other systems and processes. +● +Incident +Response Planning: We intend to maintain a breach reporting and resolution plan that includes defined processes, roles, communications, +responsibilities, and procedures for responding to cybersecurity incidents and other events that impact our operations. Our incident response +plans will be tested and evaluated on a regular basis. +● +Education +and Awareness: We plan to establish a security and privacy awareness program that runs throughout the year and includes training +for all company personnel to enhance employee awareness of how to detect and respond to cybersecurity threats, as well as more targeted +training for personnel with increased responsibility for mitigating certain cybersecurity risks. +We plan to review and update our policies, procedures, processes, and practices to address changes in the threat +landscape and lessons learned from suspected, actual, or simulated incidents. We also plan to review industry best practices to assist +in evaluating responses to new challenges and risks. These evaluations include testing both the design and operational effectiveness of +security controls. +30 +Cybersecurity +Risks +While we plan to dedicate significant efforts and +resources to our cybersecurity program, we may be unable to successfully identify threats, prevent attacks, satisfactorily resolve cybersecurity +incidents, or implement adequate mitigating controls. Any cybersecurity incident affecting our distributed systems, employee devices, +cloud-based platforms, or third-party service providers that results in, or may result in, the loss, theft, or unauthorized disclosure +of data—or any delay in determining the full extent of a potential breach—could have a material adverse impact on our business, +results of operations, and financial condition. Potential impacts include harm to our reputation and brand, reduced demand for our solutions, +time-consuming and expensive litigation, fines, penalties, and other damages. +To date, and except as otherwise noted in this Annual Report, we are not aware of any cybersecurity threats that +have materially affected us, nor have we experienced any cybersecurity incidents. +ITEM +2. PROPERTIES. +Our +principal properties consist of interests in oil and natural gas projects in California and Canada. +South +Salinas Project (California) +We +hold a working interest of approximately 85.775% in the South Salinas Project located in Monterey County, California. The Project currently +consists of seven wells, of which six are inactive and temporarily shut-in. The HV-3A well was restarted on March 22, 2024 and is producing +under our exploration/testing permits. We have drilling permits for two additional wells, HV-2 and HV-4, which may be drilled in 2026. +We are also evaluating re-entry and sidetrack opportunities for certain existing wells based on 3D seismic data, as well as pursuing +permits for full field development and water disposal operations. +Our +evaluation of reserves and future net revenue attributable to the South Salinas Project is based on independent analyses prepared by +KLS Petroleum Consulting LLC (“KLSP”), Denver, Colorado. KLSP has provided an updated reserve report with an effective date +of April 30, 2024, entitled “Reserve Attributable to Trio Petroleum Corp South Salinas Area for Phased and Full Development” , +which is filed as Exhibit 99.3 to this Annual Report. +Saskatchewan +Properties (Canada) +In April 2025, we acquired working interests in certain natural gas and mineral leases located in Saskatchewan, +Canada. These properties consist of leasehold interests in Township 47, Range 26 W3M and Township 48, Range 24 W3M. The leases are held +by production or have primary terms extending to 2027. Our interests are subject to customary royalties and overriding royalty interests. +These acquisitions expand our portfolio of oil and gas properties and are expected to contribute to future exploration and development +activities. +Alberta +Properties (Canada) +In November 2025, subsequent to our fiscal year end of October 31, 2025, we completed the acquisition of certain +mineral leasehold interests and related rights located in Alberta, Canada. This acquisition is disclosed as a subsequent event in the +notes to our financial statements and will be reflected prospectively in fiscal 2026. +Other +than the properties described above, we do not own any material real property. +ITEM +3. LEGAL PROCEEDINGS. +From +time to time, we are involved in various disputes, claims, suits, investigations, and legal proceedings arising in the ordinary course +of business. There are currently no pending legal proceedings or claims that we believe will have a material adverse effect on our business, +financial condition or operating results. None of our directors, officers or affiliates is involved in a proceeding adverse to our business +or has a material interest adverse to our business. +ITEM +4. MINE SAFETY DISCLOSURES +None. +ITEM +5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASERS OF EQUITY SECURITIES +Market +information +Our +common stock trades on the NYSE American LLC Market under the symbol “TPET” since April 17, 2023. Prior to that date, there +was no public market for our common stock. +Holders +of Record +As +of January 16, 2026, we had 34 holders of record of our common stock. The actual number of holders of our common stock is greater than +this number of record holders and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers +or held by other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other +entities. +Dividends +We +have never paid any cash dividends on our common stock. We currently intend to retain all available funds and any future earnings for +use in the operation of our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any +future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, +operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant. +31 +Securities +Authorized for Issuance Under Equity Incentive Plans +We +have adopted and approved the 2022 Equity Incentive Plan (the “2022 Plan”). Under the 2022 Plan, we may grant cash and equity +incentive awards to eligible service providers in order to attract, motivate and retain the talent for which we compete. Pursuant to +the 2022 Plan, we have reserved 2,500,000 shares of the shares of common stock for issuance thereunder. The following table sets forth +certain information about the securities authorized for issuance under our incentive plans as of October 31, 2025. +Plan Category +Number of +securities to +be issued upon +exercise of +outstanding +options, warrants and rights +Weighted- +average +exercise price +of +outstanding +options, warrants and rights +Number of +granted +restricted +stock +awards +outstanding +Number of +securities +remaining +available for +future +issuance +under equity +compensation +plans +Equity compensation plans approved by security holders (1) +177,994 +$ 13.42 +395,844 +510,250 +Equity compensation plans not approved by security holders +- +- +- +- +177,994 +$ 13.42 +395,844 +510,250 +(1) +The +Company adopted the 2022 Plan originally at the closing of its initial public offering, and the 2022 Plan was amended and restated +at the 2025 annual meeting of the stockholders on July 30, 2025. +32 +Recent +Sales of Unregistered Securities +During +the year ended October 31, 2025, all sales of unregistered securities by the Company have been previously reported on a Form 8-K or Form +10-Q. +Use +of Proceeds +On +April 17, 2023, the U.S. Securities and Exchange Commission declared effective our registration statement on Form S-1 (File No. 333-267380), +as amended, filed in connection with our IPO. There has been no material change in the planned use of proceeds from our IPO from that +described in the related prospectus dated April 19, 2023, filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act. +At-the +Market Offerings +During +the year ended October 31, 2024, the Company implemented an at-the-market equity offering program (“Spartan ATM”) with +Spartan Capital Securities, LLC (“Spartan”), allowing for the periodic sale of shares of common stock to the public +through Spartan, based on prevailing market conditions. This program provided the Company with flexibility to raise capital as +needed to fund growth initiatives and working capital requirements. During the year ended October 31, 2025, the Company sold +2,951,169 shares of common stock through the Spartan ATM, generating net proceeds of $3,475,650. As of January 15, 2025, the Spartan +ATM was fully sold, resulting in the sale of a total of 3,312,877 shares of common stock, generating net proceeds of +$4,649,329. +Subsequent to the year ended October 31, 2025, the Company implemented a new at-the-market equity offering program (“Ladenburg ATM”) +with Ladenburg Thalman & Co. Inc., however no sales have been made as of the date of this report. +Issuer +Purchases of Equity Securities +We +did not repurchase any of our equity securities during the period covered by this Annual Report. +ITEM +6. [RESERVED] +ITEM +7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. +The +following discussion and analysis of the results of operations and financial condition of Trio Petroleum Corp as of and for the years +ended October 31, 2025 and 2024 should be read in conjunction with our financial statements and the notes to those financial statements +that are included elsewhere in this Annual Report. This Management’s Discussion and Analysis of Financial Condition and Results +of Operations contains statements that are forward-looking. See “Item 7. Cautionary Statement Regarding Forward-Looking Information” +below. Actual results could differ materially because of the factors discussed in “Item 1A. Risk Factors” elsewhere in this +Annual Report, and other factors that we may not know. +Throughout +this report, the terms “our,” “we,” “us,” “TPET” and the “Company” refer +to Trio Petroleum Corp +33 +Cautionary +Note Regarding Forward-looking Statements +This +Annual Report contains forward-looking statements that can involve substantial risks and uncertainties. All statements other than statements +of historical facts contained in this Annual Report, including statements regarding our future results of operations and financial position, +business strategy, prospective products, product approvals, research and development costs, future revenue, timing and likelihood of +success, plans and objectives of management for future operations, future results of anticipated products and prospects, plans and objectives +of management are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors +that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements +expressed or implied by the forward-looking statements. +In +some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “contemplate,” +“continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” +“potential,” “predict,” “project,” “should,” “target,” “will,” +or “would” or the negative of these terms or other similar expressions, although not all forward-looking statements contain +these words. Forward-looking statements contained in this Annual Report include, but are not limited to, statements about: +● +our +ability to find, acquire or gain access to other discoveries and prospects and to successfully develop our current discoveries and +prospects; +● +uncertainties +inherent in making estimates of our oil and natural gas data; +● +the +successful implementation of our prospect discovery and development and drilling plans with the South Salinas Project; +● +projected +and targeted capital expenditures and other costs, commitments and revenues; +● +our +dependence on our key management personnel and our ability to attract and retain qualified technical personnel; +● +the +ability to obtain financing and the terms under which such financing may be available; +● +the +volatility of oil and natural gas prices; +● +the +availability and cost of developing appropriate infrastructure around and transportation to our discoveries and prospects; +● +the +availability and cost of drilling rigs, production equipment, supplies, personnel and oilfield services; +● +other +competitive pressures; +● +potential +liabilities inherent in oil and natural gas operations, including drilling risks and other operational and environmental hazards; +● +current +and future government regulation of the oil and gas industry; +● +cost +of compliance with laws and regulations; +● +changes +in environmental, health and safety or climate change laws, greenhouse gas regulation or the implementation of those laws and regulations; +● +environmental +liabilities; +● +geological, +technical, drilling and processing problems; +● +military +operations, terrorist acts, wars or embargoes; +● +the +cost and availability of adequate insurance coverage; +● +our +vulnerability to severe weather events; and +● +other +risk factors discussed in the “Risk Factors” section of this Annual Report. +We +have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which +we operate and financial trends that we believe may affect our business, financial condition, results of operations and prospects, and +these forward-looking statements are not guarantees of future performance or development. These forward-looking statements speak only +as of the date of this Annual Report and are subject to a number of risks, uncertainties and assumptions described in the section titled +“Risk Factors” and elsewhere in this Annual Report. Because forward-looking statements are inherently subject to risks and +uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions +of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results +could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan +to publicly update or revise any forward-looking statements contained herein until after we distribute this Annual Report, whether as +a result of any new information, future events or otherwise. +In +addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These +statements are based upon information available to us as of the date of this Annual Report, and while we believe such information forms +a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate +that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are +inherently uncertain and you are cautioned not to unduly rely upon these statements. +Overview +We +are a California-based oil and gas exploration and development company headquartered in Malibu, California, with our principal executive +offices located at 23823 Malibu Road, Suite 304, Malibu, California 90265, with operations in Monterey County, California, Uintah County, +Utah and Lloydminster, Saskatchewan. +We +have had revenue-generating operations since the McCool Ranch Oil Field was restarted on February 22, 2024, and recognized our first +revenues in our fiscal quarter ended April 30, 2024, and received the proceeds from these operations in June 2024. During the period ended April 30, 2025, we began generating revenue from our newly acquired properties in Saskatchewan, Canada. +Our +Canadian projects represent a significant growth opportunity, driven primarily by planned workovers intended to enhance production +across the acquired assets. We began executing this program immediately following the closing of our April 2025 acquisition of certain +heavy oil assets in west-central Saskatchewan, Canada, including producing heavy oil wells, from Novacor, a company recognized as one +of the lowest-cost operators in the region. In November 2025, we expanded our presence with the acquisition of a second Canadian project +from Capital Land. Our strategy continues to focus on acquiring assets that generate immediate cash flow, provide meaningful long-term +development potential, and offer the potential for transformative value creation through targeted strategic investment. +We +were formed to initially acquire an approximate 82.75% working interest (which was subsequently increased to an approximate 85.775% +working interest) from Trio LLC (“Trio LLC”) in the large, approximately 9,300-acre South Salinas Project that is +located in Monterey County, California, and subsequently partner with certain members of Trio LLC’s management team to develop +and operate those assets. We hold an approximate 68.62% interest after the application of royalties (“net revenue +interest”) in the South Salinas Project. Trio LLC holds an approximate 3.9% working interest in the South Salinas Project. We +and Trio LLC are separate and distinct companies. The remaining working interests are owned by two unrelated parties. +Initially, +California was a significant part of our geographic focus; however, due to rising drilling costs and the negative impact on +potential profitability, we have strategically shifted our efforts beyond California to pursue more economically viable +opportunities. This transition is reflected in our acquisition of an interest in oil properties that are a part of the Asphalt Ridge +Project in Uintah County, Utah, as well as our recent acquisition from Novacor, as described above, in the +prolific Lloydminster, Saskatchewan heavy oil region and from Capital Land in the County of Vermilion of River (formerly known as +the Municipal District of Wellington No. 41). +34 +South +Salinas Project +Efforts +to obtain from Monterey County conditional use permits and a full field development permit for the South Salinas Project are progressing. +Efforts to obtain from the California Geologic Energy Management Division (“CalGEM”) and from the California Water Boards +a permit for a water disposal project at the South Salinas Project are also progressing. In the meantime, the Company recently determined +that existing permits allow production testing to continue at the HV-3A discovery well at Presidents Field and, consequently, testing +operations were restarted at this well on March 22, 2024. Oil production from this well has occurred and the Company is assessing steps +to attempt to increase the well’s gross production rate, for example by adding up to 650 feet of additional perforations in the +oil zone and/or acidizing the well for borehole cleanup. First oil sales from the HV-3A well occurred in the third calendar quarter of +2024 but is currently idled as we further discussions with local oil and gas companies to joint venture the project. +McCool +Ranch Oil Field +On +October 16, 2023, we entered into a Purchase and Sale Agreement with Trio LLC (the “McCool Ranch Purchase Agreement”) pertaining +to the McCool Ranch Oil Field. Pursuant to this agreement, effective October 1, 2023, we entered into an agreement to acquire an approximate +22% working interest in and to certain oil and gas assets at the McCool Ranch Field, located in Monterey County, California, near our +flagship South Salinas Project. +The +acquired assets included six oil wells, a water-disposal well, a steam generator, boiler, storage tanks, and various operational infrastructure. +While initial production was restarted on February 22, 2024, we have subsequently determined that under previously negotiated terms, +natural gas prices and water disposal costs, particularly in California, makes it cost prohibitive for the Company to employ cyclic-steam +operations to increase production and will not be economically feasible in the long run. On May 27, 2025, we executed a termination agreement +with Trio LLC to end operations at the location and abandon all related leases. Capitalized costs totaling $500,614 have been written +off and expensed in the statement of operations for the period ended October 31, 2025. +Asphalt +Ridge Option Agreement and the Lafayette Energy Leasehold Acquisition and Development Option Agreement +On +November 10, 2023, we entered into a Leasehold Acquisition and Development Option Agreement (the “Asphalt Ridge Option +Agreement”) with Heavy Sweet Oil LLC (“HSO”). Pursuant to the Asphalt Ridge Option Agreement, we acquired +an option to purchase up to a 20% working interest in certain leases at a long-recognized, major oil accumulation in northeastern +Utah, including an initial 960 acres and a subsequent 1,920 acres, as well as a right-of-refusal option on approximately 30,000 +acres. +On +December 29, 2023, we and HSO entered into an Amendment to the Asphalt Ridge Option Agreement, under which we funded +$200,000 in exchange for an immediate 2% working interest in the initial 960 acres. An additional $25,000 was funded in January 2024, +increasing our working interest to 2.25%. While we had the option to acquire an additional 17.75% working interest, +we decided not to exercise this option and will instead retain our existing 2.25% working interest in the initial 960 acres. +35 +Novacor +Asset Purchase Agreement +As +of April 4, 2025, we entered into an Asset Purchase Agreement (the “April 2025 Novacor APA”) with Trio Canada and +Novacor Exploration Ltd., a corporation incorporated under the Canada Business Corporations Act (“Novacor”), pursuant to +which, subject to the terms and conditions set forth in the April 2025 Novacor APA, Trio Canada agreed to acquire certain assets of +Novacor relating its oil and gas business, including certain contracts, leases and permits for working interests in petroleum and +natural gas and mineral rights located in the Lloydminster, Saskatchewan heavy oil region in Canada (collectively, the “April +2025 Novacor Assets”), free and clear of any liens other than certain specified liabilities of Novacor that are being assumed +(collectively, the “Liabilities” and such acquisition of the Novacor Assets and assumption of the Liabilities together, +the “April 2025 Novacor Acquisition”) for a total purchase price of (i) US$650,000, in cash, US$65,000 of which was +previously provided as a deposit to Novacor, and (ii) the issuance to Novacor of 526,536 shares of common stock of common stock. The +April 2025 Novacor Acquisition was consummated in two closings, with the first closing being consummated on April 8, 2025 and the +second closing consummated on May 22, 2025. All five of our currently active wells are in the newly acquired Novacor +property +P.R. +Spring Letter of Intent and Option +On +May 15, 2025, we entered into a non-binding Letter of Intent (LOI) with HSO for the potential +acquisition of 2,000 acres of oil and gas properties at P.R. Spring, Uintah Basin, Utah (“P.R. Spring”), which is adjacent +to Asphalt Ridge. The LOI contemplates our issuance of 1,492,272 restricted shares of common stock and the payment of $850,000 at closing, +subject to execution of definitive agreements. Upon signing the LOI, we made a non-refundable $150,000 payment to HSO in consideration +for the option. The LOI requires evidence of a minimum sustained production rate of 40 barrels per day for a continuous 30-day period +from two wells at Asphalt Ridge by May 15, 2026, or the LOI will expire unless extended by us. We are not under any obligation to enter +into definitive agreements in connection with an acquisition. +Carbon +Capture and Storage Project as part of Company’s South Salinas Project +We +are committed to attempting to reduce our own carbon footprint and, where possible, that of others. For this reason, we are taking initial +steps to launch a Carbon Capture and Storage (“CCS”) project as part of the South Salinas Project, which appears ideal for +such a task. The South Salinas Project covers a vast area and is uniquely situated at a deep depocenter where there are thick geologic +zones (e.g., Vaqueros Sand, up to approximately 500’ thick) about two miles deep, which could accommodate and permanently store +vast volumes of CO2. Four existing deep wells in the South Salinas Project (i.e., the HV 1-35, BM 2-2, BM 1-2-RD1 and HV 3-6 wells) are +excellent candidates for use as CO2 injection wells. A CCS project in the future may help reduce our carbon footprint by sequestering +and permanently storing CO2 deep underground at one or more deep wells, away from drinking water sources. Furthermore, three of the aforementioned +deep wells are directly located on three idle oil and gas pipelines that could be used to import CO2 to our CCS Project. We have opened +discussions with third parties who wish to reduce their own greenhouse gas emissions and who may be interested in participating in our +CCS project. We believe it is feasible to develop the major oil and gas resources of the South Salinas Project and to concurrently establish +a substantial CCS project and potentially a CO2 storage hub and/or Direct Air Capture (DAC) hub. +Capital Land Services Acquisition +On August 20, 2025, the Company), through its +wholly owned subsidiary Trio Canada, entered into an Asset Purchase Agreement (“APA”) with Capital Land Services Ltd. +(“Capital Land”). Pursuant to the APA, Trio Canada agreed to acquire certain mineral leasehold interests and related +rights located in the County of Vermilion of River, Alberta, Canada, together with associated contracts, permits, and registrations +(collectively, the “Assets”). The total purchase price consists of CAD $150,000 in cash and the issuance of restricted +shares of the Company’s common stock having an aggregate value of CAD $150,000. +On November 3, 2025, subsequent to the +Company’s fiscal year ended October 31, 2025, the transactions contemplated under the APA were completed (the “Capital Land Acquisition”). At closing, Trio Canada paid Capital Land CAD $150,000 in cash and we issued 104,227 restricted shares of our common +stock to Capital Land. In exchange, Trio Canada acquired the Assets, including certain wells that had been purchased out of receivership. Due to regulatory requirements of the Alberta +Energy Regulator (“AER”), the Company arranged for all applicable licenses to be transferred to Novacor, an experienced +operator with whom the Company has an existing commercial relationship. Novacor utilizes Capital Land as its AER agent. In +consideration for Capital Land’s services as AER agent, the Company granted Capital Land a 1% gross overriding royalty with +respect to the mineral rights, for as long as Capital Land continues to provide such services. +Asset +Purchase Transaction with Novacor Exploration Ltd. +As +of December 30, 2025, the Company entered into an Asset Purchase Agreement (the “December 2025 Novacor APA”) with Trio Canada, +and Novacor, pursuant to which, subject to the terms and conditions set forth in the December 2025 Novacor APA, Trio Canada agreed to +acquire certain assets of Novacor’s relating to Novacor’s oil and gas business, including certain contracts, leases and permits +for working interests in petroleum and natural gas and mineral rights located in the Lloydminster, Saskatchewan heavy oil region in Canada +(collectively, the “December 2025 Novacor Assets”), free and clear of any liens other than certain specified liabilities +of Novacor that are being assumed (collectively, the “Liabilities” and such acquisition of the Assets and assumption of the +Liabilities together, the “December 2025 Novacor Acquisition”) for a total purchase price of CAD $1,000,000 (US$730,300 based +on the applicable exchange rate to U.S. Dollars). The Company issued to Seller 912,875 restricted shares of common stock of the Company, +subject to certain registration rights (the “Purchase Price”). +The +December 2025 Novacor Acquisition was closed on December 30, 2025, simultaneously with the execution by the Company, Trio Canada and +Novacor of the December 2025 Novacor APA and other transaction documents (the “Closing”). At the Closing, title to the December +2025 Novacor Assets was delivered to the Trio Canada, and the Company, thereafter deliver the restricted shares to Novacor. +Following +the Closing, (i) operating costs for the December 2025 Novacor Assets shall, for a period of two (2) years, be held at the levels detailed +in the auditor’s report over the eighteen (18) month period prior to the Closing, prepared for Trio Canada on the basis of the +due diligence materials provided by Novacor to Trio Canada in connection with the December 2025 Novacor Acquisition, unless mutually +agreed otherwise; (ii) after such two-year period, operating costs shall remain competitive with other operators in the area; and (iii) +Trio Canada shall be entitled to terminate Novacor’s post-Closing actions at any time on 30 days’ prior written notice to +the Novacor. After the Closing, with respect to the December 2025 Novacor Assets, Novacor shall act as the on-site operator of the December +2025 Novacor Assets and perform all work and services as provided in the December 2025 Novacor APA. +On +December 30, 2025, the Company and Novacor executed and entered into a Registration Rights Agreement with respect to the restricted shares +(the “RRA”). Pursuant to the provisions of the RRA, Novacor is entitled to certain “piggyback” registration rights, +with respect to the Registrable Securities (as such term is defined in the RRA), providing Novacor with the right to include the Registrable +Securities in a registration statement filed by the Company for the registration of its securities and/or the resale of shares of Common +Stock by other stockholders of the Company (a “Piggyback Registration Statement”), subject to certain limitations and restrictions. +In the event that the Registrable Securities are not included in a Piggyback Registration Statement filed by the Company with the Securities +and Exchange Commission (“SEC”) on or before March 31, 2026, the Company is obligated to file a registration statement on +or before March 31, 2026, to register the resale of the Registrable Securities, subject to certain limitations and restrictions. The +Company has agreed to pay all fees relating to the registration of the Registrable Securities, except any broker or similar commissions +payable by a holder of Registrable Securities. +Ladenburg +ATM Agreement +On January 9, 2026, +we entered into an At Market Issuance Sales Agreement (the “ATM Agreement”) with Ladenburg Thalmann & Co. Inc. (“Ladenburg”) +as agent, pursuant to which the Company may issue and sell shares of our common stock from time to time through Ladenburg (the “ATM +Offering”). On January 9, 2026, the Company also filed a prospectus supplement with the SEC covering the sale of shares of common +stock having an aggregate offering price of up to $3,600,000 (the “Placement Shares”), in connection with the ATM Offering. +Upon delivery of a Placement Notice (as such term is defined in the ATM Agreement) and subject to the terms and conditions of the ATM +Agreement, Ladenburg shall use its commercially reasonable efforts to sell the Placement Shares by (i) any method permitted by law deemed +to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended (the +“Securities Act”), including sales made directly on or through the NYSE American or on any other existing trading market +for the common stock and/or (ii) any other method permitted by law with the Company’s consent. The ATM Agreement provides that +Ladenburg will be entitled to aggregate compensation for its services up to 3.0% of the gross proceeds from each sale of Placement Shares +sold through Ladenburg under the ATM Agreement. +36 +Going +Concern Considerations +We +began generating revenues in the prior fiscal year but have incurred significant losses since inception. As of October 31, 2025, we had +an accumulated deficit of $27,355,812 and a working capital deficit of $785,902. For the year ended October 31, 2025, we reported a net +loss of $7,282,133 and used $2,604,749 in cash for operating activities. +To +date, we have funded our operations primarily through equity and debt financings, including: +● +Proceeds +from the issuance of common stock and financing from certain investors +● +Net +proceeds from our initial public offering (“IPO”) in April 2023 +● +Convertible +note financings totaling $2,371,500 in October and December 2023 +● +An +unsecured promissory note of $125,000 from our former CEO in 2024 +● +Gross +proceeds of $543,500 from promissory notes with investors in 2024 +● +Gross +proceeds of $1,440,000 from convertible debt financing in 2024 +● +Net +proceeds of approximately $4,650,000 under an “at-the-market” agreement entered into in September 2024 +● +Gross +proceeds of $606,000 from a private placement of convertible debt financing in April 2025 +● +Gross +proceeds of $1,020,000 from a private placement of convertible debt financing in August 2025 +Despite +these financings, our recurring losses, accumulated deficit, and working capital deficit raise substantial doubt about our ability to +continue as a going concern. Our current revenue levels are insufficient to cover operating costs, and we remain dependent on external +financing to sustain operations and fund planned development activities. +We +will require additional capital to advance drilling and development at our South Salinas and Asphalt Ridge assets, meet payment obligations, +and support ongoing operations. There is no assurance that we will be able to raise such capital on favorable terms or at all. If we +are unable to secure adequate funding or achieve operational profitability, we may need to pursue alternative strategies to reduce expenses +and conserve cash. +The +accompanying condensed consolidated financial statements have been prepared in accordance with U.S. GAAP on a going concern basis, which +assumes the realization of assets and settlement of liabilities in the normal course of business. These financial statements do not include +any adjustments that might result from the outcome of this uncertainty. Additional information is provided in Note 3 to the condensed +consolidated financial statements. +Factors +and Trends Affecting Our Business and Results of Operations +We +are mindful of global economic trends and their potential influence on commodity prices. Recent fluctuations in global oil prices, political +considerations and tariffs can impact cash flow and ultimately profitability. Mitigating factors include our relatively low lift costs +and a continued commitment to cost management and efficient production techniques. Our ability to continue to grow our business will +in large part depend on continued access to receptive capital markets. +Our +primary business strategies and objectives are to grow our recently acquired Canadian assets aggressively by acquiring projects that +generate immediate cash flow and/or offer workover opportunities without committing huge resources to new exploratory drilling, or offer +transformative growth potential with strategic investment in favorable political and economic environments such as our option on PR Spring +in Uintah Basin, Utah. TPET’s current strategy and focus at the South Salinas Project is to seek out a joint venture partner with +the knowledge and capacity to operate in California. We are also endeavoring to secure approval from CalGEM and WaterBoards of a proposed +short-term water-disposal program that should significantly reduce lease operating costs, launching a Carbon Capture and Storage Project, +pursuing permits for full field development, and similar matters. Efforts to obtain from Monterey County conditional use permits and +a full field development permit for the South Salinas Project are progressing. Efforts to obtain from the California Geologic Energy +Management Division (“CalGEM”) and from the California Water Boards a permit for a water disposal project at the South Salinas +Project are also progressing. In the meantime, the Company recently determined that existing permits allow production testing to continue +at the HV-3A discovery well at Presidents Field and, consequently, testing operations were restarted at this well on March 22, 2024. +Oil production from this well has occurred and the Company has idled operations currently pending an assessment of the viability of increasing +the well’s gross production rate, for example by adding up to 650 feet of additional perforations in the oil zone and/or acidizing +the well for borehole cleanup. First oil sales from the HV-3A well occurred in the third calendar quarter of 2024. +TPET’s +current strategy and focus at the PR Spring project is to monitor the results of the new 2-4 and 8-4 wells at the Company’s Asphalt +Ridge project. Once production attains 40 barrels per day for thirty days from both wells, TPET will be in a position to exercise its +option on the 2000-acre project and enter into a definitive development agreement. +Emerging +Growth Company Status +We +are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and it may +take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging +growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) +of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in periodic reports and proxy statements, +and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any +golden parachute payments not previously approved. Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from +being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had +a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are +required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out +of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election +to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a standard is issued +or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new +or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our condensed consolidated +financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has +opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards +used. +37 +Results +of Operations +For +the Year Ended October 31, 2025 compared to the Year Ended October 31, 2024 +Our +financial results for the years ended October 31, 2025 and 2024 are summarized as follows: +For the Years Ended +October 31, +2025 +2024 +Change +% Change +Revenues, net +$ 398,734 +$ 213,204 +$ 185,230 +87.0 % +Cost of goods sold +175,729 +- +175,729 +100.0 % +Gross profit +223,005 +213,204 +9,801 +4.6 % +Operating expenses: +Exploration expenses +$ 45,594 +$ 177,416 +$ (131,822 ) +(74.3 )% +General and administrative expenses +2,817,626 +4,716,057 +(1,898,431 ) +(40.3 )% +Stock-based compensation expense +2,629,110 +1,534,667 +1,094,443 +71.3 % +Accretion expenses +2,778 +2,778 +- +0.0 % +Total operating expenses +5,495,108 +6,430,918 +(935,810 ) +(14.6 )% +Loss from operations +(5,272,103 ) +(6,217,714 ) +945,611 +(15.2 )% +Other expenses: +Interest expense +605,515 +2,118,548 +(1,513,033 ) +(71.4 )% +Loss on abandonment of properties +611,763 +- +611,763 +100.0 % +Loss on extinguishment +89,339 +- +89,339 +100.0 % +Loss on conversion +712,253 +1,290,535 +(578,282 ) +(44.8 )% +Gain on foreign currency translation +(8,840 ) +- +(8,840 ) +100.0 % +Total other expenses +2,010,030 +3,409,083 +(1,399,053 ) +(41.0 )% +Loss before income taxes +(7,282,133 ) +(9,626,797 ) +2,344,664 +(24.4 )% +Income tax benefit +- +- +- +- +Net loss +$ (7,282,133 ) +$ (9,626,797 ) +$ (2,344,664 ) +(24.4 )% +Revenues, +net +Revenues, +net for the year ended October 31, 2025 increased by approximately $0.2 million, or 87.0%, compared to revenue in the prior year. The +increase was primarily attributable to higher oil production volumes following the acquisition of properties in the Lloydminster region +of Saskatchewan, Canada. During fiscal 2025, we sold and shipped approximately 8,400 barrels of +oil from the Saskatchewan region, compared to approximately 2,900 barrels in fiscal 2024, which were primarily produced from the HH-1 +well. +Exploration +expenses +Under +the successful efforts method of accounting for crude oil and natural gas properties, exploration expenses consist primarily of exploratory +geological and geophysical costs, delay rentals and exploratory overhead, and are expensed as incurred. Exploration expenses decreased +by approximately $0.1 million as compared to the prior year due to a decrease in exploratory, geological, and geophysical costs incurred +during the period. +General +and administrative expenses +General +and administrative expenses consist primarily of personnel expenses, including salaries, benefits and stock-based compensation expense +for employees and consultants in executive, finance and accounting, legal, operations support, information technology and human resource +functions. General and administrative expenses also include corporate facility costs including rent, utilities, depreciation, amortization +and maintenance, as well as legal fees related to intellectual property and corporate matters and fees for accounting and consulting +services. +General +and administrative expenses decreased by approximately $1.9 million for the year ended October 31, 2025, compared to the prior year. +This reduction was primarily driven by lower salary expenses (approximately $900,000), advertising and marketing fees ($435,000), filing +fees ($200,000), consulting fees ($380,000), and legal fees ($170,000); the decrease reflects both structural and strategic actions taken by the Company during the fiscal year. Specifically, +the Company reduced the size of its management team, resulting in lower compensation and related benefit costs. In addition, management +implemented a company-wide initiative to streamline operations and reduce discretionary spending. These efforts included scaling back +external marketing campaigns, renegotiating vendor contracts, limiting reliance on outside consultants, and consolidating legal and filing +activities. +Stock-based +compensation expense +We +record stock-based compensation expenses for costs associated with options and restricted shares granted in connection with the Plan, +as well as for shares issued as payment for services. For the year ended October 31, 2025, stock-based compensation expense increased +by approximately $1.1 million, primarily reflecting the grant and immediate recognition of expense for 1,552,500 options issued during +the fourth quarter of fiscal 2025. +Accretion +expenses +We +have an Asset Retirement Obligation (“ARO”) recorded that is associated with its oil and natural gas properties in the SSP; +the fair value of the ARO was recorded as a liability and is accreted over time until the date the ARO is to be paid. For the year ended +October 31, 2025, accretion expenses remained consistent with that of the prior year period. +Other +expenses, net +For +the year ended October 31, 2025, other expenses, net decreased by approximately $1.4 million when compared to the prior year period. +This decline was primarily driven by (i) an approximate $1.5 million reduction in non-cash interest expense resulting from lower debt +levels in the current period (non-cash interest expense is recognized as debt discounts on financings are amortized), as well as (ii) +an approximate $0.6 million decrease in the loss on a note conversion recorded in the prior period, which stemmed from principal payments +made via conversion shares under the October 2023 Securities Purchase Agreement. These reductions were partially offset by a $0.6 million +loss incurred in the current period due to the abandonment of oil and gas properties. +38 +Liquidity +and Capital Resources +Working +Capital/(Deficiency) +Our +working capital deficit as of October 31, 2025, in comparison to our working capital deficit as of October 31, 2024, can be summarized +as follows: +October 31, +2025 +October 31, +2024 +Current assets +$ 1,070,988 +$ 565,219 +Current liabilities +1,856,890 +2,590,699 +Working capital (deficiency) +$ (785,902 ) +$ (2,025,480 ) +Current +assets increased primarily due to a $3.4 million rise in cash, driven by proceeds from the sale of common shares under the Company’s +at-the-market (ATM) offering agreement during the fiscal quarter ended January 31, 2025. Current liabilities decreased overall, reflecting +reductions in promissory notes (approximately $0.7 million), notes payable to related parties ($0.2 million), and other current liabilities +($0.4 million). These decreases were partially offset by an increase in accounts payable of approximately $0.2 million and an increase +in convertible notes of approximately $0.5 million. +Cash Flows +Our +cash flows for the year ended October 31, 2025, in comparison to our cash flows for the year ended October 31, 2024, can be summarized +as follows: +Years ended October 31, +2025 +2024 +Net cash used in operating activities +$ (2,604,749 ) +$ (3,840,744 ) +Net cash used in investing activities +(978,563 ) +(1,089,882 ) +Net cash provided by financing activities +4,165,058 +3,654,647 +Effect of foreign currency exchange +14,471 +- +Net change in cash +$ 596,217 +$ (1,275,979 ) +Cash +Flows from Operating Activities +For +the years ended October 31, 2025 and 2024, cash used in operating activities was $2,604,749 and $3,840,744, respectively. The cash used +in operations for the year ended October 31, 2025 was primarily attributable to our net loss of $7,282,133, adjusted for non-cash expenses +in the aggregate amount of $4,706,442, as well as $109,058 of net cash used to fund changes in the levels of operating assets and liabilities. +The cash used in operations for the year ended October 31, 2024 was primarily attributable to our net loss of $9,626,797, adjusted for +non-cash expenses in the aggregate amount of $5,042,982, as well as $743,071 of net cash provided to fund changes in the levels of operating +assets and liabilities. +Cash +Flows from Investing Activities +For +the years ended October 31, 2025 and 2024, cash used in investing activities was $978,563 and $1,089,882, respectively. The decrease +in cash used during the current year primarily reflects slightly lower capital investment activity; for the year ended October 31, 2025, +cash outflows were primarily attributable to approximately $0.9 million in connection with the acquisition of assets related to the Lloydminster, +Saskatchewan properties. Cash used from investing activities for the year ended October 31, 2024 was attributable to approximately $1.2 +million related to costs for capital expenditures, which were capitalized and are reflected in the balance of the oil and gas property +as of October 31, 2024. +Cash +Flows from Financing Activities +For +the years ended October 31, 2025 and 2024, cash provided by financing activities was $4,165,058 and $3,654,647, respectively. Cash provided +by financing activities during the year ended October 31, 2025 was primarily attributable to (i) proceeds approximately $3.5 million +from the issuance of shares of common stock in connection with an ATM agreement, (ii) proceeds from the issuance of convertible debt +of approximately $1.6 million, offset by repayments of related party debt and promissory notes of approximately $0.2 million and $0.6 +million, respectively, as well as payments of debt issuance costs of approximately $0.1 million. Cash provided by financing activities +during the year ended October 31, 2024 was primarily attributable to proceeds of approximately $3.1 million from the issuance of promissory +notes, related party notes and convertible notes payable and proceeds of approximately $1.2 million from the issuance of common shares +in connection with an ATM agreement, offset by payments for debt in the amount of approximately $0.4 million and debt issuance costs +of $0.3 million. +39 +Capital +Resources +Since +our inception, we have funded our operations with the proceeds from equity and debt financing. We have experienced liquidity issues due +to, among other reasons, our limited ability to raise adequate capital on acceptable terms. We have historically relied upon the issuance +of equity and promissory notes that are convertible into shares of our common stock to fund our operations and have devoted significant +efforts to reduce that exposure. Unless we are able to raise additional capital through equity and/or debt financing, we believe our +existing cash and cash flow from operations will be sufficient to meet our working capital and capital expenditure needs for not more +than six months from the date of this report. Future capital requirements will depend on many factors, including the time period in which +we are able to ramp up the operation of wells and the acquisition of additional properties. To the extent that existing capital and revenue +growth are not sufficient to fund future activities, we will need to raise capital through additional equity or debt financings. Additional +funds may not be available on terms favorable to us or at all. Failure to raise additional capital, if needed, could have a material +adverse effect on our financial position, results of operations and cash flows. See Going Consideration Concerns above in which +we raise substantial doubt about our ability to continue as a going concern. +Contractual +Obligations and Commitments +Unproved +Property Leases +South +Salinas Project +We +hold various leases related to unproved properties in the South Salinas Project, including two leases with the same lessor: +● +Lease +1 (8,417 acres): Such lease was amended on May 27, 2022 to extend force majeure status for an additional uncontested twelve months, +releasing us from evidencing force majeure conditions during that period. A one-time, non-refundable payment of $252,512 was made +and capitalized as part of oil and gas property as of October 31, 2022. The force majeure status was extinguished following the drilling +of the HV-1 well. Continued operations and oil production at the HV-3A well maintain the lease’s validity. +● +Lease +2 (160 acres): Such lease is held by delay rental, renewed every three years. We are required to pay $30 per acre annually until +drilling commences. The delay rental payment for October 2024 through October 2025 has been paid in advance, and we remain in compliance. +In +February and March 2023, we entered into additional leases covering unproved properties in the South Salinas Project: +● +Group +1: Covers 360 acres with a 20-year term; annual rental payments of $25 per acre +● +Group +2: Covers 307.75 acres with a 20-year term; annual rental payments of $30 per acre +During +the second and third quarters of fiscal 2025, we strategically terminated all additional leases in the South Salinas Project. All associated +exploration and development costs, including capitalized expenditures for equipment and facilities, were expensed in accordance with +applicable accounting standards. This decision followed a comprehensive evaluation of the leases’ economic viability, market conditions, +regulatory factors, and operational constraints. +McCool +Ranch Oil Field +We +previously held interests in two parcels of unproved leases in the McCool Ranch Oil Field: +● +Parcel +1: Ten leases totaling approximately 480 acres, held by delay rental payments +● +Parcel +2: One lease totaling approximately 320 acres, held by production +As +of the second quarter of 2025, we elected to terminate all McCool Ranch leases. These leases have been written off and expensed in the +statement of operations. No further rental payments or development activities will be pursued. +Asphalt +Ridge Leases – ARLO Agreement +On +November 10, 2023, we entered into the ARLO Agreement with HSO, granting the exclusive right to acquire up to a 20% working interest +in a 960-acre drilling and production program in the Asphalt Ridge leases for $2,000,000. The agreement allowed for investment in tranches, +with an initial tranche of no less than $500,000 payable within seven days of HSO satisfying certain conditions. +On +December 29, 2023, we amended the ARLO Agreement and funded $200,000 of the initial $500,000 tranche in advance of HSO satisfying +the required conditions. In exchange, we acquired a 2% interest in the leases. These funds were designated for infrastructure +development, including road construction. As of October 31, 2025, we had paid a total of $225,000 to HSO and hold a 2.25% working +interest in the leases. These costs have been capitalized and are reflected in the oil and gas property balance as of October 31, +2025. +Under +the most recent amendment signed in April 2025, we had until May 10, 2025 to pay an additional $1,775,000 to exercise its option for +the remaining 17.75% interest. The option expired unexercised and we forfeited our right to acquire the additional +interest. We retain our existing 2.25% interest. +Proved +Property Leases +Saskatchewan, +Canada +In +April 2025, we acquired oil and gas lease rights for four proved properties located in Saskatchewan, Canada (see Note 5). The leases +total 320 net acres and are all held by production. +Board +of Directors Compensation +On +July 11, 2022, our Board of Directors approved a compensation plan for non-employee directors, effective upon the consummation of our +initial public offering (IPO). Under this plan, each non-employee director is entitled to an annual cash retainer of $50,000, plus an +additional $10,000 per Board committee served, with all payments made quarterly in arrears. Compensation payments commenced following +the successful completion of the IPO in April 2023. +For +the years ended October 31, 2025 and 2024, we recognized director compensation expense of $321,689 and $223,170, respectively. +40 +Critical +Accounting Policies and Estimates +Basis +of Presentation +We +prepare our consolidated financial statements in conformity with GAAP, which requires management to make certain estimates and assumptions +and apply judgments. We base our estimates and judgments on historical experience, current trends and other factors that management believes +to be important at the time the consolidated financial statements are prepared, and actual results could differ from our estimates and +such differences could be material. Due to the need to make estimates about the effect of matters that are inherently uncertain, materially +different amounts could be reported under different conditions or using different assumptions. On a regular basis, we review our critical +accounting policies and how they are applied in the preparation of our consolidated financial statements, as well as the sufficiency +of the disclosures pertaining to our accounting policies in the footnotes accompanying our consolidated financial statements. Described +below are the most significant policies we apply in preparing our consolidated financial statements, some of which are subject to alternative +treatments under GAAP. We also describe the most significant estimates and assumptions we make in applying these policies. See “Note +2 - Summary of Significant Accounting Policies” to our consolidated financial statements. +Oil +and Gas Assets and Exploration Costs – Successful Efforts +Our +projects are in exploration and/or early production stages and we began generating revenue from its operations during the quarterly period +ended April 30, 2024. We apply the successful efforts method of accounting for crude oil and natural gas properties. Under this method, +exploration costs such as exploratory, geological, and geophysical costs, delay rentals and exploratory overhead are expensed as incurred. +If an exploratory property provides evidence to justify potential development of reserves, drilling costs associated with the property +are initially capitalized, or suspended, pending a determination as to whether a commercially sufficient quantity of proved reserves +can be attributed to the area as a result of drilling. At the end of each quarter, management reviews the status of all suspended exploratory +property costs considering ongoing exploration activities; in particular, whether we are making sufficient progress in our ongoing exploration +and appraisal efforts. If management determines that future appraisal drilling or development activities are unlikely to occur, associated +exploratory well costs are expensed. +Costs +to acquire mineral interests in crude oil and/or natural gas properties, drill and equip exploratory wells that find proved reserves +and drill and equip development wells are capitalized. Acquisition costs of unproved leaseholds are assessed for impairment during the +holding period and transferred to proven crude oil and/or natural gas properties to the extent associated with successful exploration +activities. Significant undeveloped leases are assessed individually for impairment, based on our current exploration plans, and a valuation +allowance is provided if impairment is indicated. Capitalized costs from successful exploration and development activities associated +with producing crude oil and/or natural gas leases, along with capitalized costs for support equipment and facilities, are amortized +to expense using the unit-of-production method based on proved crude oil and/or natural gas reserves on a field-by-field basis, as estimated +by qualified petroleum engineers. +As +of October 31, 2025, we had seven wells that are producing, all of which are located in the newly acquired Saskatchewan property, plus +two workovers. We expect to add the reserve value of such fields to our reserve report after a further period of observation and review +of the oil production; once this has been determined, we will estimate the necessary depreciation, depletion and amortization (“DD&A”) +for such wells. +Proved +and unproved oil and natural gas properties +Unproved +oil and natural gas properties have unproved lease acquisition costs, which are capitalized until the lease expires or otherwise until +we specifically identify a lease that will revert to the lessor, at which time we charge the associated unproved lease acquisition costs +to exploration costs. +Unproved +oil and natural gas properties are not subject to amortization and are assessed periodically for impairment on a property-by-property +basis based on remaining lease terms, drilling results or future plans to develop acreage. As of October 31, 2025 and 2024, such oil +and gas properties were classified as unproved properties and were not subject to depreciation, depletion and amortization. +41 +Proved +oil and natural gas properties include developed and undeveloped reserves that have been confirmed through drilling and production activities. +These properties are subject to DD&A, which is calculated using the unit-of-production method based on total proved reserves. +● +Proved +developed reserves are amortized over the expected production life of the wells. +● +Proved +undeveloped reserves remain capitalized until development activities commence. +● +The +Company assesses impairment of proved properties periodically based on commodity prices, production forecasts, and reserve estimates. +As +of October 31, 2025, we have proved reserves in the newly acquired Saskatchewan properties and expect to add the reserves values of such +fields to our reserve report; once this has been done, we will estimate the necessary DD&A for such wells. +Impairment +of Other Long-lived Assets +We +review the carrying value of our long-lived assets annually or whenever events or changes in circumstances indicate that the historical +cost-carrying value of an asset may no longer be appropriate. We assess the recoverability of the carrying value of the asset by estimating +the future net undiscounted cash flows expected to result from the asset, including eventual disposition. If the future net undiscounted +cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s +carrying value and estimated fair value. With regards to oil and gas properties, this assessment applies to proved properties; unproved +properties are assessed for impairment either at an individual property basis or a group basis. +Asset +Retirement Obligations +ARO +consists of future plugging and abandonment expenses on oil and natural gas properties. In connection with the South Salinas Project +acquisition described above, we acquired the plugging and abandonment liabilities associated with six temporarily shut-in, idle wells. +The fair value of the ARO was recorded as a liability in the period in which the wells were acquired with a corresponding increase in +the carrying amount of oil and natural gas properties. We plan to utilize the six wellbores acquired in the South Salinas Project acquisition +in future production, development and/or exploration activities. The liability is accreted for the change in its present value each period +based on the expected dates that the wellbores will be required to be plugged and abandoned. The capitalized cost of ARO is included +in oil and gas properties and is a component of oil and gas property costs for purposes of impairment and, if proved reserves are found, +such capitalized costs will be depreciated using the units-of-production method. The asset and liability are adjusted for changes resulting +from revisions to the timing or the amount of the original estimate when deemed necessary. If the liability is settled for an amount +other than the recorded amount, a gain or loss is recognized. +Fair +Value Measurements +The +carrying values of financial instruments comprising cash and cash equivalents, payables, and notes payable-related party approximate +fair values due to the short-term maturities of these instruments. The notes payable- related party is considered a level 3 measurement. +As defined in ASC 820, Fair Value Measurements and Disclosures , fair value is the price that would be received to sell an asset +or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company +utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about +risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or +generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy +gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and +the lowest priority to unobservable inputs (Level 3 measurement). This fair value measurement framework applies to both initial and subsequent +measurement. +Level +1: +Quoted +prices are available in active markets for identical assets or liabilities as of the reporting date. +Level +2: +Pricing +inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as +of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. +Level +3: +Pricing +inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally +developed methodologies that result in management’s best estimate of fair value. The significant unobservable inputs used in +the fair value measurement for nonrecurring fair value measurements of long-lived assets include pricing models, discounted cash +flow methodologies and similar techniques. +There +are no assets or liabilities measured at fair value on a recurring basis. Assets and liabilities accounted for at fair value on a non-recurring +basis in accordance with the fair value hierarchy include the initial allocation of the asset acquisition purchase price, including asset +retirement obligations, the fair value of oil and natural gas properties and the assessment of impairment. +The +fair value measurements and allocation of assets acquired are measured on a nonrecurring basis on the acquisition date using an income +valuation technique based on inputs that are not observable in the market and therefore represent Level 3 inputs. Significant inputs +used to determine the fair value include estimates of: (i) reserves; (ii) future commodity prices; (iii) operating and development costs; +and (iv) a market-based weighted average cost of capital rate. The underlying commodity prices embedded in the Company’s estimated +cash flows are the product of a process that begins with NYMEX forward curve pricing, adjusted for estimated location and quality differentials, +as well as other factors that the Company’s management believes will impact realizable prices. These inputs require significant +judgments and estimates by the Company’s management at the time of the valuation. +42 +The +fair value of additions to the asset retirement obligation liabilities is measured using valuation techniques consistent with the income +approach, which converts future cash flows to a single discounted amount. Significant inputs to the valuation include: (i) estimated +plug and abandonment cost per well for all oil and natural gas wells and for all disposal wells; (ii) estimated remaining life per well; +(iii) future inflation factors; and (iv) the Company’s average credit-adjusted risk-free rate. These assumptions represent Level +3 inputs. +If +the carrying amount of its proved oil and natural gas properties, which are assessed for impairment under ASC 360 – Property, +Plant and Equipment , exceeds the estimated undiscounted future cash flows, the Company will adjust the carrying amount of the oil +and natural gas properties to fair value. The fair value of its oil and natural gas properties is determined using valuation techniques +consistent with the income and market approach. The factors used to determine fair value are subject to management’s judgment and +expertise and include, but are not limited to, recent sales prices of comparable properties, the present value of future cash flows, +net of estimated operating and development costs using estimates of proved reserves, future commodity pricing, future production estimates, +anticipated capital expenditures, and various discount rates commensurate with the risk and current market conditions associated with +the expected cash flow projected. These assumptions represent Level 3 inputs. +Recent +Accounting Pronouncements +All +recently issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to us. +ITEM +7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK +Pursuant +to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as +it is a “smaller reporting company,” as defined by Rule 229.10(f)(1). +ITEM +8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA +The +information required by this Item is included in this Report as set forth in the “Index to Consolidated Financial Statements” +which appears on page F-1 of this Annual Report, after the signature pages of this Annual Report, and is incorporated by reference herein. +ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS +ON ACCOUNTING AND FINANCIAL DISCLOSURE +On May 3, 2024, the US Securities and Exchange Commission +(“Commission”) entered an Order denying BF Borgers CPA PC (“Borgers”) the privilege of appearing or practicing +before the Commission as an accountant. As a result, Borgers may not participate in or perform the audit or review of financial information +included in Commission filings, issue audit reports included in Commission filings, provide consents with respect to audit reports, or +otherwise appear or practice before the Commission. As a result of the foregoing, on May 6, 2024, the Board of Directors terminated Borgers +as the Company’s independent registered public accounting firm. Borgers had audited the Company’s financial statements for +the two fiscal years ended October 31, 2022 and 2021 since the Company’s engagement of Borgers as its auditor on December 13, 2022. +Borger’s report on the Company’s financial +statements for the fiscal years ended October 31, 2023 and 2022 did not contain an adverse opinion or disclaimer of opinion, nor was such +report qualified or modified as to uncertainty, audit scope or accounting principle, except for an explanatory paragraph relating to a +substantial doubt regarding the Company’s ability to continue as a going concern. During the fiscal years ended October 31, 2023, +and 2022 and through May 6, 2024, there were no disagreements with BF Borgers on any matter of accounting principles or practices, financial +statement disclosure, or auditing scope or procedure which, if not resolved to Borgers’s satisfaction, would have caused Borgers +to make reference to the subject matter of the disagreement in connection with its report. +During the fiscal years ended October 31, 2023, and +2022 and through May 6, 2024, there were no “reportable events” as defined under Item 304(a)(1)(v) of Regulation S-K. +On May 8, 2024, the Company appointed Bush & Associates +(“Bush”) as its new independent registered public accounting firm, effective immediately, for the fiscal years ended October +31, 2023, and 2022. This appointment was authorized and approved by the Audit Committee and Board of Directors of the Company. +ITEM +9A. CONTROLS AND PROCEDURES +Evaluation +of Disclosure Controls and Procedures +Disclosure +controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed +under the Exchange Act, such as this report, is recorded, processed, summarized, and reported within the time period specified in the +SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated +and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely +decisions regarding required disclosure. Our management evaluated, with the participation of our current chief executive officer and +chief financial officer (our “Certifying Officer”), the effectiveness of our disclosure controls and procedures as of October +31, 2025, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officer concluded that, as of +October 31, 2025, our disclosure controls and procedures were effective. +43 +We +do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and +procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the +disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there +are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure +controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all +our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain +assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated +goals under all potential future conditions. +Management’s +Report on Internal Controls over Financial Reporting +The +management of Trio Petroleum Corp is responsible for establishing and maintaining adequate internal control over financial reporting, +as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process designed +by, or under the supervision of, our principal executive officer and principal financial officer, or persons performing similar functions, +and effected by our board of directors to provide reasonable assurance regarding the reliability of financial reporting and the preparation +of financial statements in accordance with generally accepted accounting principles. A company’s internal control over financial +reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately +and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions +are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, +and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of +the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition +of the Company’s assets that could have a material effect on the financial statements. +Because +of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those +systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation, +projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because +of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. +We +are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K under the Securities Act. For as long as +we continue to be a smaller reporting company, we may take advantage of exemptions from various reporting requirements that are applicable +to other public companies that are not smaller reporting companies. Additionally, this Report does not contain an attestation report +of our registered public accounting firm regarding internal control over financial reporting since the Company, as an “emerging +growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, +is not required to provide such report. +The +management of Trio Petroleum Corp, including our principal financial officer, conducted an evaluation of the effectiveness of the Company’s +internal control over financial reporting as of October 31, 2025 using the criteria set forth by the Committee of Sponsoring Organizations +of the Treadway Commission (“COSO”) in “Internal Control - Integrated Framework” (2013). +Management +concluded that the Company’s internal control over financial reporting was effective as of October 31, 2025, based on those criteria. +Changes +in Internal Control over Financial Reporting +There +were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange +Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal +control over financial reporting. +44 +ITEM +9B. OTHER INFORMATION. +(c) +Insider Trading Arrangements +As previously reported on the Company’s +Quarterly Report on Form 10-Q for the period ended January 31, 2025, on January 22, 2025, Robin +Ross , the Chief +Executive Officer and Director of the Company, entered into a 10b5-1 sales plan (the “Ross January 2025 10b5-1 Sales +Plan”) intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act, which Ross January 2025 10b5-1 +Sales Plan provided for the sale of up to 150,000 shares of common stock and was set to remain in effect until the earlier of (1) +July 22, 2026; or (2) the date on which an aggregate of 150,000 +shares of common stock have been sold under the Ross 10b5-1 Sales Plan. On December 4, 2024, the Ross January 2025 10b5-1 Sales Plan +was terminated. +As of the date of termination, none of the shares +were sold and no other adjustments were made to the Ross January 2025 10b5-1 Sales Plan during the quarterly period prior to termination. +On September 17, 2025, Robin Ross , Chief +Executive Officer and a Director of the Company, entered into a 10b5-1 sales plan (the “Ross 10b5-1 Sales Plan”) intended +to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act. The Ross 10b5-1 Sales Plan provides for the sale of up +to 150,000 shares of common stock and will remain in effect until the earlier of (1) August 17, 2026; or (2) the date on +which an aggregate of 150,000 shares of common stock have been sold under the Ross 10b5-1 Sales Plan. As of the date of this +Annual Report, 37,500 of the shares were sold and no other adjustments were made to the plan during the period covered by this Annual +Report. +On October 3, 2025, Thomas J. Pernice , a Director +of the Company, entered into a 10b5-1 sales plan (the “Pernice 10b5-1 Sales Plan”) intended to satisfy the affirmative defense +of Rule 10b5-1(c) under the Exchange Act. The Pernice 10b5-1 Sales Plan provides for the sale of up to 250,000 shares of common +stock and will remain in effect until the earlier of (1) October 10, 2026; or (2) the date on which an aggregate of 250,000 shares +of common stock have been sold under the Pernice 10b5-1 Sales Plan. As of the date of this Annual Report, 25,000 of the shares were sold and +no other adjustments were made to the plan during the period covered by this Annual Report. +On October 20, 2025, John W. Randall , a Director of the Company, entered into a 10b5-1 sales plan (the “Randall 10b5-1 Sales Plan”) +intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act. The Randall 10b5-1 Sales Plan provides for the sale +of up to 50,000 shares of common stock and will remain in effect until the earlier of (1) July 31, 2026; or (2) the date on which an aggregate +of 50,000 shares of common stock have been sold under the Randall 10b5-1 Sales Plan. As of the date of this Annual Report, none of the +shares were sold and no other adjustments were made to the plan during the period covered by this Annual Report; provided, however, that +the Randall 10b5-1 Sales Plan provides for the first sale of 20,000 shares of common stock on February 1, 2026. +No other directors or executive officers of the Company adopted , modified or terminated any +contract, instruction or written plan for the purchase or sale of the Company’s securities that was intended to satisfy the affirmative +defense conditions of Rule 10b5-1(c) or any non-Rule 10b5 trading arrangement, (as defined in Item 408(c) of Regulation S-K) during the +fiscal quarter ended October 31, 2025. +ITEM +9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. +Not +applicable. +ITEM +10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE +The +following table sets forth the name and age as of January 20, 2026, and position of the individuals who currently serve as directors +and executive officers of the Company. The following also includes certain information regarding the individual experience, qualifications, +attributes and skills of our directors and executive officers as well as brief statements of those aspects of our directors’ backgrounds +that led us to conclude that they are qualified to serve as directors. +Name +Age +Position +Executive Officers +Robin Ross +72 +Chief Executive Officer and Chairman +Gregory L. Overholtzer +69 +Chief Financial Officer +Non-Employee Directors +William J. Hunter +57 +Director +John Randall +84 +Director +Thomas J. Pernice +63 +Director +James H. Blake +58 +Director +45 +Executive +Officers +Robin +Ross (Chief Executive Officer, Chairman and Director) has served as our Chief Executive Officer since July 2024, and +Chairman and Director since June 2024. Mr. Ross previously served as a director of the Company from August 2021 to May 2023 and was +a co-founder of the Company in July 2021. Since November 2023, Mr. Ross has served as the Chairman and CEO of Drillwaste Solutions Corp., a Canadian private +company. Since October 2019, Mr. Ross has served as the founder of Gold’n Futures Mineral +Corp. (CSE: FUTR), a junior resource company. Since 2007, Mr. Ross has served as the president of Vanross Enterprises Inc., a +Canadian investment company. From 2008 until the sale of the company in August 2010, Mr. Ross served as a Co-Founder of Canada +Potash Corporation, a Canadian resource company with access to over 1.7 million acres, or just over 15%, of the 11 million acres in +the Williston Basin in South Central Saskatchewan, Canada. Mr. Ross previously held management positions at Canadian investment +dealers for over 18 years. From 1999 until 2001, Mr. Ross served as Branch Manager and Director of Sales at Yorkton Securities, a +Canadian biotechnology and investment dealer. From 1987 until 1999, Mr. Ross served as Branch Manager at Midland Walwyn Inc., a +Canadian national investment dealer. +Gregory +L. Overholtzer (Chief Financial Officer) has served as our Chief Financial Officer since February 2022. Since 2019, Mr. +Overholtzer has worked as a part-time Chief Financial Officer of Indonesia Energy Corp. (NYSE AMERICAN: INDO). In addition, from +November 2019 until October 2024, Mr. Overholtzer served as a Consulting Director of Ravix Consulting Group. From December 2018 until November +2019, Mr. Overholtzer served as a Field Consultant at Resources Global Professionals. From January 2012 until December 2018, Mr. +Overholtzer served as the Chief Financial Officer, Chief Accounting Officer and Controller of Pacific Energy Development (NYSE +AMERICAN: PED). Mr. Overholtzer holds a BA in Zoology and an MBA in Finance from the University of California, Berkeley. +Non-Employee +Directors +William +J. Hunter (Director) has served as a Director since July 2022. From 2015 until 2022, Mr. Hunter served as Managing Partner of +Hunter Resources LLC, a strategic and financial consulting firm. From 2017 until 2021, Mr. Hunter served as the President, Chief +Financial Officer and Director of Advent Technologies post-merger with AMCI Acquisition Corp. From 2013 until 2015, Mr. Hunter +served as Managing Director of the Industrial Group of Nomura Securities. Mr. Hunter is currently Chief Executive Officer and a +Director at Uranium American Resources Inc. (OTCBB:UARI) f/ka/Tonogold Resources, since 2022 and a former Director at American Battery Technology Corporation (NADAQ: +ABAT) from 2016 to 2022. William Hunter received his B.Sc. from DePaul University in Chicago and an MBA with distinction from the +Kellstadt School of Business at DePaul University. +John +Randall (Director) has served as a Director since November 2021. From May 2017 to March 2023, Mr. Randall worked as a sole proprietor to provide Professional +Geologist, to companies and lenders. In such role, Mr. Randall identified oil and gas properties to buy, analysis, and value creation +for Arcadius Capital, Azimuth, GE Capital, and Tetra Tech. From April 2016 to April 2017, Mr. Randall was Vice President of the California +Business Unit of Azimuth Energy. Prior to that, from 2003 to April 2016, Mr. Randall served as Senior Geologist at Freeport-McMoRan Oil +and Gas. From 1984 to 2001, Mr. Randall District and Division Geologist for Chevron in California, and spent his final four years with +the company as an expatriate serving as Geological Operations Manager at Chevron’s Tengiz operations in Kazakhstan. From 1977 to +1984, Mr. Randall was a Geology Manager for Gulf Oil Corp., and from 1970 t0 1977, he was a Development Geologist for Union Oil Company. +Mr. Randall holds both an M.S. and a B.S. in Geology from Southern Illinois University. Mr. Randall also holds registered professional +geological licenses in the states of California, Texas, Louisiana, and Mississippi. +Thomas +J. Pernice (Director) has served as a Director since November 2021. Mr. Pernice has served as the President of Modena Holding +Corporation, a company providing corporate and executive advisory services, since 2000. In addition, he has served as a partner with +The Abraham Group, an international strategic consulting firm and with Green Partners USA, LLC, a private equity real estate fund +dedicated to green building since 2007. In 2004, he was appointed Senior Policy Advisor and Executive Director of the Secretary of +Energy Advisory Board at the U.S. Department of Energy where he served until 2006. He was a partner and Managing Director of +Cappello Group, a boutique investment and merchant bank in Los Angeles from 2000 to 2004. Mr. Pernice also served in the Family +Offices of billionaire industrialist David H. Murdock where he was a member of the Chairman’s Global Leadership Team and +Executive Officer of Dole Food Company, Inc. (NYSE: DOL) from 1992 to 2000. Mr. Pernice was as a Presidential Appointee and member +of the senior White House staff serving from 1984 to 1992 where he traveled as a diplomatic representative of the United States to +more than 92 countries. Further, Mr. Pernice has served as Executive Vice Chairman, a member of the board of director and an officer +to Vaxanix Bio, Ltd since December 2023, as a member of the board of directors and officer to Vaxanix Bio Acquisition Corp I since +January 2023, as a member of the board of director and officer to Vaxanix Bio Acquisition Corps II, III, IV, V, VI, VII and VIII +since December 2023, as a member of the board of directors of DrillWaste Corp. since October 2023, as a member of the board of +directors of D3 Energy Corporation since 2022 until March 2025, when D3 Energy Corporation was dissolved, and Panvaxal, LLC, a private biotechnology company since 2019. Mr. Pernice is also +member of the board of advisors to JMS Energy Impact Fund since October 2023 and a member of the board of advisors to IOCharge Corp +since September 2023. Mr. Pernice holds a BA in Broadcast Journalism from the University of Southern California. +46 +James +H. Blake (Director) has served as a Director since October 2024. From 1995 to 2024, when he retired, Mr. Blake served in the banking +industry as an investment advisor and a Portfolio Manager and first Vice President overseeing a large portfolio of investments. Mr. Blake +earned a Bachelor of Commerce degree in 1991 and completed his certification as a Chartered Financial Analyst in 2003. +Family +Relationships +There +are no family relationships among our directors or executive officers. +Director +or Officer Involvement in Certain Prior Legal Proceedings +Our +directors and executive officers were not involved in any legal proceedings as described in Item 401(f) of Regulation S-K in the past +ten years, other than Mr. Pernice who served as a co-founder of Gibraltar Associates, LLC, a private company, from 2007 until 2013, which +entity went into receivership in approximately September 2014. +Board +Composition and Election of Directors +Our +board of directors currently consists of five members. Under our amended and restated bylaws, the number of directors will be determined +from time to time by our board of directors. +Director +Independence +Our +board has determined that Robin Ross currently has relationships that would interfere with the exercise of independent judgment in +carrying out the responsibilities of a director, such that he cannot be deemed “independent” as that term is defined +under the rules of the NYSE American, or the NYSE American rules. Our board has determined that William Hunter, John Randall, Thomas +J. Pernice and James H. Blake are all “independent” as that term is defined under the NYSE American rules. As required +under the NYSE American rules a majority of the members serving on the Board are considered to be +“independent.” +Classified +Board of Directors +In +accordance with our amended and restated certificate of incorporation and amended and restated bylaws, our board of directors is divided +into three classes with staggered, three-year terms. At each annual meeting of stockholders, the successors to directors whose terms +then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. Our +directors are divided among the three classes as follows: +● +the +Class I directors are John Randall and Thomas J. Pernice, and their terms will expire at our annual meeting of stockholders in 2027; +● +the +Class II directors are William J. Hunter and James H. Blake, and their term will expire at our annual meeting of stockholders in +2028, and +● +the +Class III director is Robin Ross, and his term will expire at the annual meeting of stockholders in +2026. +Our +amended and restated certificate of incorporation and amended and restated bylaws provide that the authorized number of directors may +be changed only by resolution of the board of directors. Any additional directorships resulting from an increase in the number of directors +will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. The +division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management +or a change in control of our company. Our directors may be removed only for cause by the affirmative vote of the holders of at least +two-thirds of our outstanding voting stock entitled to vote in the election of directors. +Board +Leadership Structure +Our +corporate governance guidelines provide that, if the chairman of the board is a member of management or does not otherwise qualify as +independent, the independent directors of the board may elect a lead director. The lead director’s responsibilities include, but +are not limited to: presiding over all meetings of the board of directors at which the chairman is not present, including any executive +sessions of the independent directors; approving board meeting schedules and agendas; and acting as the liaison between the independent +directors and the chief executive officer and chairman of the board. Our corporate governance guidelines further provide the flexibility +for our board of directors to modify our leadership structure in the future as it deems appropriate. +47 +Role +of the Board in Risk Oversight +One +of the key functions of our board of directors is informed oversight of our risk management process. Our board of directors will not +have a standing risk management committee, but will rather administer this oversight function directly through our board of directors +as a whole, as well as through various standing committees of our board of directors that address risks inherent in their respective +areas of oversight. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure and our +Audit Committee has the responsibility to consider and discuss our major financial risk exposures and the steps our management has taken +to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management +is undertaken. Our Audit Committee also monitors compliance with legal and regulatory requirements. Our Nominating and Corporate Governance +Committee monitors the effectiveness of our corporate governance practices, including whether they are successful in preventing illegal +or improper liability-creating conduct. Our Compensation Committee assesses and monitors whether any of our compensation policies and +programs has the potential to encourage excessive risk-taking. While each committee is responsible for evaluating certain risks and overseeing +the management of such risks, our entire board of directors will be regularly informed through committee reports about such risks . +Board +Committees +We +have the following board of directors committees: an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance +Committee. The composition and responsibilities of each committee are described below. Members will serve on these committees until their +resignation or until otherwise determined by our board of directors. Each committee’s charter is available under the Corporate +Governance section of our website at www.trio-petroleum.com . The reference to our website address does not constitute incorporation +by reference of the information contained at or available through our website, and you should not consider it to be a part of this Annual +Report. +Audit +Committee . The Audit Committee’s responsibilities include: +● +appointing, +approving the compensation of, and assessing the independence of our registered public accounting firm; +● +overseeing +the work of our registered public accounting firm, including through the receipt and consideration of reports from such firm; +● +reviewing +and discussing with management and the registered public accounting firm our annual and quarterly financial statements and related +disclosures; +● +coordinating +our board of directors’ oversight of our internal control over financial reporting, disclosure controls and procedures and +code of business conduct and ethics; +● +discussing +our risk management policies; +● +meeting +independently with our internal auditing staff, if any, registered public accounting firm and management; +● +reviewing +and approving or ratifying any related person transactions; and +● +preparing +the audit committee report required by SEC rules. +The +members of our audit committee are William Hunter (chairperson), Thomas J. Pernice and John Randall. All members of our audit committee +meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NYSE American. Our board has +determined that William Hunter is an audit committee financial expert as defined under the applicable rules of the SEC and has the requisite +financial sophistication as defined under the applicable rules and regulations of the NYSE American. Under the rules of the SEC, members +of the audit committee must also meet heightened independence standards. Our board of directors has determined that all members of the +audit committee are independent under the heightened audit committee independence standards of the SEC and the NYSE American. +The +audit committee operates under a written charter that satisfies the applicable standards of the SEC and the NYSE American. +Compensation +Committee . The Compensation Committee’s responsibilities include: +● +reviewing +and approving, or recommending for approval by the board of directors, the compensation of our Chief Executive Officer and our other +executive officers; +● +overseeing +and administering our cash and equity incentive plans; +● +reviewing +and making recommendations to our board of directors with respect to director compensation; +● +reviewing +and discussing annually with management our “Compensation Discussion and Analysis,” to the extent required; and +● +preparing +the annual compensation committee report required by SEC rules, to the extent required. +The +members of our compensation committee are Thomas J. Pernice (chair) and William Hunter. Each of the members of our compensation committee +is independent under the applicable rules and regulations of the NYSE American and is a “non-employee director” as defined +in Rule 16b-3 promulgated under the Exchange Act. The compensation committee operates under a written charter that satisfies the applicable +standards of the SEC and the NYSE American. +48 +Nominating +and Corporate Governance Committee . The Nominating and Corporate Governance Committee’s responsibilities include: +● +identifying +individuals qualified to become board members; +● +recommending +to our board of directors the persons to be nominated for election as directors and to each board committee; +● +developing +and recommending to our board of directors corporate governance guidelines, and reviewing and recommending to our board of directors +proposed changes to our corporate governance guidelines from time to time; and +● +overseeing +a periodic evaluation of our board of directors. +The +members of our nominating and corporate governance committee are Thomas J. Pernice (chairperson) and John Randall. Each of the members +of our Nominating and Corporate Governance Committee is an independent director under the applicable rules and regulations of the NYSE +American relating to nominating and corporate governance committee independence. The Nominating and Corporate Governance Committee operates +under a written charter that satisfies the applicable standards of the SEC and the NYSE American. +Compensation +Committee Interlocks and Insider Participation +No +member of our compensation committee is a current or former officer or employee. None of our executive officers served as a director +or a member of a compensation committee (or other committee serving an equivalent function) of any other entity, one of whose executive +officers served as a director or member of our compensation committee during the last completed fiscal year. +Code +of Ethics and Code of Conduct +We +have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal +executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. +Our code of business conduct and ethics is available under the Corporate Governance section of our website at www.trio-petroleum.com . +In addition, we have posted on our website all disclosures that are required by law or the rules of the NYSE American concerning any +amendments to, or waivers from, any provision of the code. The reference to our website address does not constitute incorporation by +reference of the information contained at or available through our website, and you should not consider it to be a part of this Annual +Report. +Insider +Trading Policies +On +November 27, 2023, we adopted insider trading policies and procedures governing the purchase, sale, and/or other dispositions of our +securities by directors, officers and employees, which are reasonably designed to promote compliance with insider trading laws, rules +and regulations, and applicable Nasdaq listing standards (the “ Insider Trading Policy ”). +The +foregoing description of the Insider Trading Policy does not purport to be complete and is qualified in its entirety by the terms and +conditions of the Insider Trading Policy, a copy of which is attached hereto as Exhibit 19.1 and is incorporated herein by reference. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Exchange Act requires that our +directors and executive officers and persons who beneficially own more than 10% of our common stock (referred to herein as the “reporting +persons”) file with the SEC various reports as to their ownership of and activities relating to our common stock. Such reporting +persons are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file. +Based solely upon a review of copies of Section 16(a) +reports and representations received by us from reporting persons, and without conducting any independent investigation of our own, in +fiscal year 2025, all Forms 3, 4 and 5 were timely filed with the SEC by such reporting persons except for (i) Mr. Randall filed two +late Form 4s covering two transaction, (ii) Mr. Blake filed one late Form 3, and filed one late Form 4 covering one transaction, (iii) +Mr. Hunter filed one late Form 4 covering one transaction, (iv) Mr. Pernice filed one late Form 4 covering one transaction, (v) Mr. Ross +filed one late Form 4 covering one transaction, and (vi) Mr. Overholtzer filed one late Form 4 covering one transaction. +ITEM +11. EXECUTIVE COMPENSATION +Overview +We +are currently considered a “smaller reporting company” for purposes of the SEC’s executive compensation and other disclosure +rules. In accordance with such rules, we are required to provide a Summary Compensation Table and an Outstanding Equity Awards at Fiscal +Year End Table, as well as limited narrative disclosures. +We +design our executive officer compensation program to attract, motivate, and retain the key executives who drive our success and industry +leadership. Our compensation program consists of several forms of compensation: base salary, cash incentive bonuses, equity compensation +and other benefits and perquisites. Pay that reflects performance and alignment of that pay with the interests of long-term stockholders +are key principles that underlie our compensation program. The Board believes that our current executive compensation program directly +links executive compensation to our performance and aligns the interest of our executive officers with those of our shareholders. +49 +Financial +Restatement +It +is a policy of our Board that the Compensation Committee will, to the extent permitted by governing law, have the sole and absolute authority +to make retroactive adjustments to any cash or equity-based incentive compensation paid to executive officers and certain other officers +where the payment was predicated upon the achievement of certain financial results that were subsequently the subject of a restatement. +Where applicable, the Company will seek to recover any amount determined to have been inappropriately received by the individual executive. +Clawback +Policy +We +have adopted a Compensation Recovery Policy in accordance with applicable NYSE and NYSE American rules, a copy of which is filed as the +exhibit 97.1 to this Annual Report. It is generally our policy that the Company will recoup any incentive compensation erroneously awarded +to any current or former executive officers due to material noncompliance with any financial reporting requirement under applicable securities +laws during the three completed fiscal years immediately preceding the date the Company determines that an accounting restatement is +required. +Summary +Compensation +The +following sets forth the compensation paid by us to our named executive officers for the fiscal years ended October 31, 2025 and 2024. +Stock +Option +All +Other +Salary +Bonus +Awards +Awards +Compensation +Total +Name +and Principal Position +Year +($) +($) +($) +($) +($) +($) +Robin +Ross +2025 +335,950 +- +1,115,910 +- +- +1,451,860 +Chief +Executive Officer and Chairman (1) +2024 +25,569 +70,639 +52,541 +- +4,170 +152,919 +Greg +Overholtzer +2025 +145,000 +- +103,236 +- +- +248,236 +Chief +Financial Officer (2) +2024 +90,000 +- +14,136 +- +- +104,136 +Stanford Eschner +2025 +28,333 +- +17,678 +- +- +46,011 +Vice Chairman (3) +2024 +120,417 +- +228,167 +- +- +348,584 +Terence Eschner +2025 +28,333 +- +- +- +- +28,333 +President (4) +2024 +120,417 +- +228,167 +- +- +348,584 +Steven Rowlee +2025 +28,333 +- +- +- +- +28,333 +Chief Operating Officer +(5) +2024 +127,500 +- +228,167 +- +- +355,667 +(1) +Effective +as of June 20, 2024, we appointed Mr. Ross as the Chairman of the Board of Directors; in connection with this appointment, we awarded +Mr. Ross 50,000 shares of restricted stock, with 25% of the shares vesting six months after issuance and the remainder equally over +the next twelve months on a quarterly basis. Effective as of July 11, 2024, we entered into an employment agreement with Mr. Ross, +who became our Chief Executive Officer (“CEO”), for a term ending on December 31, 2026, which shall auto-renew for additional +one-year terms. Per his employment agreement, we have agreed to pay Mr. Ross a salary at a rate of $300,000 per year. He is eligible +for an annual bonus targeted at 100% of base salary, as determined by the Board based on his performance and the achievement by the +Company of financial, operating and other objectives set by the Board. In connection with his appointment as the CEO, Mr. Ross was +also granted an award of 100,000 shares of restricted stock, subject to Continuous Service, and which will vest with respect to 25% +of the shares of restricted stock on January 9, 2025, and the remainder shall vest in equal tranches every three months thereinafter +until either the shares of restricted stock are fully vested or Mr. Ross’s Continuous Service with the Company terminates, +whichever occurs first. Additionally, in August 2025, the Compensation Committee approved an increase in Mr. Ross’ salary to $400,000 +per year, a cash bonus of $150,000, as well as the one-time award of 625,000 shares of common stock, which vested upon grant and thus +were expensed immediately. As of October 31, 2025, such shares had not yet been issued, but were subsequently issued on December 16, 2025. +(2) +Effective as of February 1, 2022, we entered into an employment agreement +with Mr. Overholtzer, under which we agreed to pay him a salary of $60,000, with an increase to $120,000 on the first date the Company’s +shares were publicly traded. He was eligible for an annual bonus that was targeted at 50% of his base salary beginning in 2022, and was +also granted 5,000 RSUs, which were subject to Continuous Service and had a vesting period of two years. As of October 31, 2024, all such +RSUs have vested and as of December 31, 2024, such agreement and Mr. Overholtzer’s employment with the Company expired by their +terms. On January 1, 2025, we entered into an independent contractor agreement with Mr. Overholtzer, under which he continues to serve +as the Chief Financial Officer of the Company and is paid a monthly fee of $12,500; the initial term of the agreement is for one year +and will be automatically renewed unless either party provides a 30-day notice prior to the expiration of the agreement. On August 1, +2025, the Compensation Committee authorized a one-time award of 62,500 common shares to Mr. Overholtzer, pursuant to the Plan. Such shares +vested upon grant and thus were expensed immediately. As of October 31, 2025, such shares had not yet been issued, but were subsequently issued on December 16, 2025. +(3) +Effective +as of May 1, 2023, we entered into an employment agreement with Mr. Eschner for a term ending on December 31, 2024. Under his employment +agreement, we agreed to pay Mr. Eschner a salary of $170,000, with the eligibility of an annual bonus targeted at 50% of his base +salary, as determined by the Board based on his performance and the achievement by the Company of financial, operating and other +objectives set by the Board. Mr. Eschner’s employment agreement and his employment with the Company expired by their terms +on December 31, 2024. Mr. Eschner was also granted an award of 7,500 restricted shares, subject to continuous service, with a vesting +schedule in which 25% of the restricted shares vest 5 months after the employment start date, with the remainder vesting in equal +tranches every 6 months thereinafter. As of October 31, 2024, 5,625 of the shares awarded to Mr. Eschner had vested and as of December +31, 2024, the remaining 1,875 unvested shares were forfeited upon Mr. Eschner’s termination. +On +August 1, 2025, Mr. Eschner resigned from his positions as Vice Chairman and director of Trio Petroleum Corp, effective immediately. +His resignation was not the result of any disagreement with the Company’s management or Board of Directors regarding operations, +policies, or practices. Concurrently, the Board approved Mr. Eschner’s engagement as a consultant to the Company through December +31, 2025. Under the Consulting Agreement, Mr. Eschner is entitled to receive a monthly cash fee of $4,167 and a one-time grant of +15,000 shares of common stock pursuant to the Plan. +(4) +Effective as of May 1, +2023, we entered into an employment agreement with Mr. Eschner for a term ending on December 31, 2024. Under his employment agreement, +we agreed to pay Mr. Eschner a salary of $170,000, with the eligibility of an annual bonus targeted at 50% of his base salary, as +determined by the Board based on his performance and the achievement by the Company of financial, operating and other objectives +set by the Board. Mr. Eschner’s employment agreement and his employment with the Company expired by their terms on December +31, 2024. Mr. Eschner was also granted an award of 7,500 restricted shares, subject to continuous service, with a vesting schedule +in which 25% of the restricted shares vest 5 months after the employment start date, with the remainder vesting in equal tranches +every 6 months thereinafter. As of October 31, 2024, 5,625 of the shares awarded to Mr. Eschner had vested and as of December 31, +2024, the remaining 1,875 unvested shares were forfeited upon Mr. Eschner’s termination. +(5) +Effective as of May 1, +2023, we entered into an employment agreement with Mr. Rowlee for a term ending on December 31, 2024. Under his employment agreement, +we agreed to pay Mr. Rowlee a salary of $170,000, with the eligibility of an annual bonus targeted at 50% of his base salary, as +determined by the Board based on his performance and the achievement by the Company of financial, operating and other objectives +set by the Board. Mr. Rowlee’s employment agreement and his employment with the Company expired by their terms on December +31, 2024. Mr. Rowlee was also granted an award of 7,500 restricted shares, subject to continuous service, with a vesting schedule +in which 25% of the restricted shares vest 5 months after the employment start date, with the remainder vesting in equal tranches +every 6 months thereinafter. As of October 31, 2024, 5,625 of the shares awarded to Mr. Rowlee had vested and as of December 31, +2024, the remaining 1,875 unvested shares were forfeited upon Mr. Rowlee’s termination. +50 +Outstanding +Equity Awards at Year-End +The +following table provides information on outstanding equity awards as of October 31, 2025 to our NEOs. +Equity +Equity Incentive +incentive plan +Plan awards: +awards: +Market or +Number of +payout value of +Number of +Market value of +unearned shares, +unearned shares, +shares or units of +shares or units of +units or other +units or other +stock that have +stock that have +rights that have +rights that have +Name +not vested +not vested +not vested +not vested +Robin Ross (1) +- +- +52,031 +$ 125,962 +Greg Overholtzer (2) +- +- +- +$ +- +(1) +Mr. +Ross was granted awards of 50,000 RSUs and 100,000 shares of restricted stock, which are all subject to Continuous Service and have +vesting schedules in which 25% of the shares of restricted stock will vest six months after the effective date of the award, and +the remainder shall vest in equal tranches every three months thereinafter until either the shares of restricted stock are fully +vested or Mr. Ross’ Continuous Service with the Company terminates, whichever occurs first. As of October 31, 2025, 97,969 of +the RSUs or shares of restricted stock awarded to Mr. Ross have vested. +(2) +Mr. +Overholtzer was granted 10,000 RSUs which are subject to Continuous Service and have a vesting period of six months after the date +of the award, at which point they will vest in full. As of October 31, 2025, all of the shares of restricted stock awarded to Mr. +Overholtzer had vested. +Narrative +Disclosure to Summary Compensation Table +Employment +Agreement - Robin Ross +We +entered into an employment agreement with Robin Ross (the “Ross Employment Agreement”), who became our CEO, effective as +of July 11, 2024, for a term ending on December 31, 2026, which shall auto-renew for additional one-year terms. Mr. Ross reports directly +the Board and performs his services primarily in Toronto, Canada. +We +agreed to pay Mr. Ross a salary at a rate of $300,000 per year, which was subsequently increased to $400,000 per year effective +August 1, 2025, as memorialized in the amendment to the Ross Employment Agreement dated +August 1, 2025. He is eligible for an annual bonus targeted at 100% of base salary, as determined by the Board based on his +performance and the achievement by the Company of financial, operating and other objectives set by the Board. Mr. Ross was also +granted an award of 100,000 shares of restricted stock, subject to Continuous Service (as such term is defined in the Ross +Employment Agreement, which award was made, and which will vest, with respect to 25% of the shares of restricted stock on January 9, +2025, and the remainder shall vest in equal tranches every three months thereinafter until either the shares of restricted stock are +fully vested or Mr. Ross’s Continuous Service with the Company terminates, whichever occurs first. Mr. Ross also receives a +standard benefit package, and reimbursement for reasonable business and travel expenses. He also is eligible for twenty-five +vacation days per annum. Although Mr. Ross is employed pursuant to a term, either the Company or Mr. Ross may terminate his +employment earlier. We may terminate Mr. Ross’s employment with or without Cause. “Cause” means: (a) conviction +of, or plea of nolo contendere to any felony or crime involving dishonesty or moral turpitude (whether or not a felony); (b) any +action by Mr. Ross involving fraud, breach of the duty of loyalty, malfeasance or willful misconduct; (c) the failure or refusal by +Mr. Ross to perform any material duties hereunder or to follow any lawful and reasonable direction of the Company; (d) intentional +damage to any property of the Company; (e) chronic neglect or absenteeism in the performance of Mr. Ross’s duties; (f) willful +misconduct, or other material violation of Company policy or code of conduct that causes a material adverse effect upon the Company; +(g) material uncured breach of any written agreement with the Company (subject to a 10 business day cure right on behalf of the +Company); or (h) any action that in the reasonable belief of the Company shall or potentially shall subject the Company to negative +or adverse publicity or effects. +Mr. +Ross may resign on 90 days’ written notice. +51 +Employment +Agreement/Independent Contractor Agreement - Gregory L. Overholtzer +Effective +as of February 1, 2022, we entered into an employment agreement with our Chief Financial Officer, Gregory L. Overholtzer. Mr. Overholtzer +was employed effective February 25, 2022, for a term ending on December 31, 2024. Mr. Overholtzer’s employment agreement and his +employment with the Company expired by their terms on December 31, 2024. On January 1, 2025, we entered into an independent contractor +agreement (the “IC Agreement”) with Mr. Overholtzer, under which he continues to serve as the Chief Financial Officer of +the Company and performs his services in California. +The +initial term of the IC Agreement continues until December 31, 2025, provided that the term will renew for successive one year periods, +unless either party notifies the other party at least 30 days prior to the end of the then current term of its desire not to renew the +IC Agreement. In addition, the IC Agreement may be terminated by either party upon 60 days’ prior written notice to the other party. +Upon any such termination by the Company, the Company may terminate the Agreement prior to such 60-day notice period, but shall be required +to pay Mr. Overholtzer the fees payable for such 60-day period. Furthermore, if Mr. Overholtzer provides notice of termination, but does +not continue to provide the required services during such 60-day period, the Company may immediately terminate the IC Agreement and shall +only be required to pay Mr. Overholtzer fees payable through such date of termination. Notwithstanding any of the foregoing, if the Company +fails to timely pay Mr. Overholtzer any monthly fee, he shall have the right to terminate the IC Agreement on 30-days’ notice. +Mr. +Overholtzer is entitled to the payment of a monthly fee of $12,500, which was subsequently increased to $15,000 per month, +effective as of January 1, 2026 for his services and reimbursement of all pre-approved expenses relating to his services upon presentation +of invoices and receipts reasonably acceptable to the Company. The Company entered into a new independent contractor agreement with Mr. Overholtzer effective on January 1, 2026, +to memorialize this increase in payment, and which otherwise contains the same terms as the IC Agreement. +Each +of the Company and Mr. Overholtzer has made customary representations and warranties to each other, and Mr. Overholtzer has agreed that +during the term of the IC Agreement and for a period of two years, thereafter, not to solicit any employee of the Company for employment +with any other business. Mr. Overholtzer has also agreed to a standard form of confidentiality provision under the terms of the Agreement +and customary provisions relating to insider trading. Mr. Overholtzer has also agreed to assign to the Company any intellectual property +rights relating to his services to the Company. +Employment +Agreement- Steven A. Rowlee +We +entered into an employment agreement with our former Chief Operating Officer, Steven A. Rowlee, effective as of May 1, 2023, for a term +ending on December 31, 2024. Mr. Rowlee’s employment agreement and his employment with the Company expired by their terms on December +31, 2024. His position as Chief Operating Officer of the Company was officially eliminated by the Board as of January 2, 2025. +52 +Employment +Agreement- Terence B. Eschner +We +entered into an employment agreement with our former President, Terence B. Eschner, effective as of May 1, 2023, for a term ending on +December 31, 2024. Mr. Eschner’s employment agreement and his employment with the Company expired by their terms on December 31, +2024. His position as President of the Company was officially eliminated by the Board as of January 2, 2025. +Employment +Agreement- Stanford Eschner +We +entered into an employment agreement with our Vice Chairman, Stanford Eschner, effective as of May 1, 2023, for a term ending on December +31, 2024. Mr. Eschner’s employment agreement and his employment with the Company expired by their terms on December 31, 2024. Mr. +Eschner resigned as Vice Chairman and Director of the Company effective August 1, 2025. +Incentive +Award Plans +2022 +Equity Incentive Plan +We +have adopted and approved the 2022 Plan. On August 15, 2024, at the 2024 annual meeting of the stockholders of the Company, the +number of shares of common stock reserved for issuance with respect to awards granted under the 2022 Plan was approved by the +stockholders to increase from 200,000 shares of common stock to 500,000 shares of common stock. On July 30, 2025, at the 2025 annual +meeting of the stockholders of the Company, the stockholders approved an increase in the number of shares of common stock reserved +for issuance under the 2022 Plan to 2,500,000 shares of common stock and increased the maximum number of shares of common stock that +may be issued pursuant to the exercise of incentive stock options under the 2022 Plan to 2,500,000 shares of common stock. +Additionally, the stockholders approved an amendment to the 2022 Plan to include an “evergreen” provision. Under the +2022 Plan, we may grant cash and equity incentive awards to eligible service providers in order to attract, motivate and retain the +talent for which we compete. The material terms of the 2022 Plan are summarized below. +Types +of Awards . The 2022 Plan provides for the grant of non-qualified stock options (“NQSOs”), incentive stock options +(“ISOs”), restricted stock awards, restricted stock and restricted stock units (“RSUs”), equity appreciation +rights, and other forms of stock-based compensation. +Eligibility +and Administration . Employees, officers, consultants, directors, and other service providers of the Company and its subsidiaries +are eligible to receive awards under the 2022 Plan. The 2022 Plan is administered by the board which may delegate its duties and responsibilities +to committees of the company’s directors and/or officers (all such bodies and delegates referred to collectively as the plan administrator), +subject to certain limitations that may be imposed under Section 16 of the Exchange Act, and/or other applicable law or stock exchange +rules, as applicable. The plan administrator has the authority to make all determinations and interpretations under, prescribe all forms +for use with, and adopt rules for the administration of, the 2022 Plan, subject to its express terms and conditions. The plan administrator +also sets the terms and conditions of all awards under the 2022 Plan, including any vesting and vesting acceleration conditions. +53 +Share +Reserve . Pursuant to the 2022 Plan, we have reserved 2,500,000 shares of the shares of common stock for issuance thereunder. The +share reserve is subject to the following adjustments: +● +Pursuant to the “evergreen” provision, +on each November 1st, through and including November 1, 2031, a number of shares of common stock will be added to the 2022 Plan equal +to the lesser of (i) 5% of the number of shares of common stock issued and outstanding on the immediately preceding October 31st and (ii) +an amount determined by the Company’s Board. +● +The +share limit is increased by the number of shares subject to awards granted that later are forfeited, expire or otherwise terminate +without issuance of shares, or that are settled for cash or otherwise do not result in the issuance of shares. +● +Shares +that are withheld upon exercise to pay the exercise price of a stock option or satisfy any tax withholding requirements are added +back to the share reserve and again are available for issuance under the 2022 Plan. +Awards +issued in substitution for awards previously granted by a company that merges with, or is acquired by, the Company do not reduce the +share reserve limit under the 2022 Plan. +Stock +Options and Equity Appreciation Rights. ISOs may be granted only to employees of the Company, or to employees of a parent or +subsidiary of the Company, determined as of the date of grant of such options. An ISO granted to a prospective employee upon the condition +that such person becomes an employee shall be deemed granted effective on the date such person commences employment. The exercise price +of an ISO shall not be less than 100% of the fair market value of the shares covered by the awards on the date of grant of such option +pursuant to the Internal Revenue Code of 1986, as amended from time to time (the “Code”). Notwithstanding the foregoing, +an ISO may be granted with an exercise price lower than the minimum exercise price set forth above if such award is granted pursuant +to an assumption or substitution for another option in a manner that complies with the provisions of Section 424(a) of the Code. Notwithstanding +any other provision of the 2022 Plan to the contrary, no ISO may be granted under the 2022 Plan after 10 years from the date that the +2022 Plan was adopted. No ISO shall be exercisable after the expiration of 10 years after the effective date of grant of such award, +subject to the following sentence. In the case of an ISO granted to a ten percent stockholder, (i) the exercise price shall not be less +than 110% of the fair market value of a share on the date of grant of such ISO, and (ii) the exercise period shall not exceed 5 years +from the effective date of grant of such ISO. Equity appreciation rights will entitle the holder to receive a payment (in cash or in +shares) based on the appreciation in the fair market value of the shares subject to the award up to a specified date or dates. Equity +appreciation rights may be granted to the holders of any stock options granted under the 2022 Equity Plan or may be granted independently +of and without relation to stock options. +Restricted +Stock and Restricted Stock Units. The committee may award restricted stock and RSUs under the 2022 Plan. Restricted stock awards +consist of shares of stock that are transferred to the participant subject to restrictions that may result in forfeiture if specified +vesting conditions are not satisfied. RSU awards result in the transfer of shares of stock to the participant only after specified vesting +conditions are satisfied. A holder of restricted stock is treated as a current shareholder and shall be entitled to dividend and voting +rights, whereas the holder of a restricted stock unit is treated as a shareholder with respect to the award only when the shares are +delivered in the future. Specified vesting conditions may include performance goals to be achieved during any performance period and +the length of the performance period. The committee may, in its discretion, make adjustments to performance goals based on certain changes +in the Company’s business operations, corporate or capital structure or other circumstances. When the participant satisfies the +conditions of an RSU award, the Company may settle the award (including any related dividend equivalent rights) in shares, cash or other +property, as determined by the committee, in its sole discretion. +Other +Shares or Share-Based Awards . The committee may grant other forms of equity-based or equity-related awards other than stock options, +equity appreciation rights, restricted stock or restricted stock units. The terms and conditions of each stock-based award shall be determined +by the committee. +Sale +of the Company . Awards granted under the 2022 Plan do not automatically accelerate and vest, become exercisable (with respect +to stock options), or have performance targets deemed earned at target level if there is a sale of the Company. The Company does not +use a “liberal” definition of change in control as defined in Institutional Shareholder Services’ proxy voting guidelines. +The 2022 Plan provides flexibility to the committee to determine how to adjust awards at the time of a sale of the Company. +Transferability +of Awards. Except as described below, awards under the 2022 Plan generally are not transferable by the recipient other than by +will or the laws of descent and distribution. Any amounts payable or shares issuable pursuant to an award generally will be paid only +to the recipient or the recipient’s beneficiary or representative. The committee has discretion, however, to permit certain transfer +of awards to other persons or entities. +Adjustments. +As is customary in incentive plans of this nature, each share limit and the number and kind of shares available under the 2022 +Plan and any outstanding awards, as well as the exercise price or base price of awards, and performance targets under certain types of +performance-based awards, are subject to adjustment in the event of certain reorganizations, mergers, combinations, recapitalizations, +stock splits, stock dividends, or other similar events that change the number or kind of shares outstanding, and extraordinary dividends +or distributions of property to the stockholders. +Amendment +and Termination. The board of directors may amend, modify or terminate the 2022 Plan without stockholder approval, except that +stockholder approval must be obtained for any amendment that, in the reasonable opinion of the board or the committee, constitute a material +change requiring stockholder approval under applicable laws, policies or regulations or the applicable listing or other requirements +of a stock exchange on which shares of common stock are then listed. The 2022 Plan will terminate upon the earliest of (1) termination +of the 2022 Plan by the board of directors, or (2) the tenth anniversary of the board adoption of the 2022 Plan. Awards outstanding upon +expiration of the 2022 Plan shall remain in effect until they have been exercised or terminated or have expired. +54 +Director +Compensation +The +following table provides information for the compensation of our non-employee directors for the fiscal year ended October 31, 2025: +Fees +earned or +Stock +paid +in cash +Awards +Total +Name +($) +($) +($) +John +Randall (1) +75,840 +241,110 +316,950 +Thomas +J. Pernice (2) +86,670 +329,497 +416,167 +William +J. Hunter (3) +75,840 +241,110 +316,950 +James +H. Blake (4) +41,670 +331,600 +373,270 +(1) +In +connection with his service on the Board, Mr. Randall was granted 12,500 restricted shares in October 2024 and 175,000 restricted +shares in August 2025. The October 2024 grant vested in full three months following the grant date, and the August 2025 grant vested +in full immediately upon the grant date. +(2) +In +connection with his service on the Board, Mr. Pernice was granted 12,500 restricted shares +in October 2024 and 250,000 restricted shares in August 2025. The October 2024 grant vested +in full three months following the grant date, and the August 2025 grant vested in full immediately +upon the grant date. +(3) +In +connection with his service on the Board, Mr. Hunter was granted 12,500 restricted shares in October 2024 and 175,000 restricted +shares in August 2025. The October 2024 grant vested in full three months following the grant date, and the August 2025 grant vested +in full immediately upon the grant date. +(4) +In +connection with his service on the Board, Mr. Blake was granted 12,500 restricted shares in October 2024 and 250,000 restricted shares +in August 2025. The October 2024 grant vested in full three months following the grant date, and the August 2025 grant vested in +full immediately upon the grant date. +The +material terms of the non-employee director compensation program are summarized below. +The +non-employee director compensation provides for annual retainer fees and/or long-term equity awards for our non-employee directors. We +expect each non-employee director will receive an annual retainer of $50,000 plus an additional $10,000 for each board committee that +he or she is on. +Compensation +under our non-employee director compensation policy will be subject to the annual limits on non-employee director compensation set forth +in the 2022 Plan, as described above, but such limits will not apply prior to the first calendar year following the calendar year in +which our initial public offering was completed. Our board of directors or its authorized committee may modify the non-employee director +compensation program from time to time in the exercise of its business judgment, taking into account such factors, circumstances and +considerations as it shall deem relevant from time to time, subject to the annual limit on non-employee director compensation set forth +in the 2022 Plan. As provided in the 2022 Plan, our board of directors or its authorized committee may make exceptions to this limit +for individual non-employee directors in extraordinary circumstances, as the board of directors or its authorized committee may determine +in its discretion. +ITEM +12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS +The +following table sets forth information with respect to the beneficial ownership of our common stock, as of January 16, 2026 by: +● +each +person, or group of affiliated persons, known by us to beneficially own more than 5% of our outstanding shares of common stock (other +than named executive officers and directors); +● +each +of our named executive officers; +● +each +of our directors; +● +all +of our executive officers and directors as a group; +The +number of shares beneficially owned by each stockholder is determined in accordance with the rules issued by the SEC, and the information +is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial ownership includes any shares +as to which the individual or entity has sole or shared voting power or investment power, which includes the power to dispose of or to +direct the disposition of such security. Except as indicated in the footnotes below, we believe, based on the information furnished to +us, that the individuals and entities named in the table below have sole voting and investment power with respect to all shares of common +stock beneficially owned by them, subject to any community property laws. +Percentage +ownership of our common is based on 12,300,752 shares of common stock outstanding as of January 16, 2026. In computing the number of shares +beneficially owned by an individual or entity and the percentage ownership of that person, shares of common stock subject to options, +restricted units, warrants or other rights held by such person that are currently exercisable or will become exercisable within 60 days +of January 16, 2026 are considered outstanding, although these shares are not considered outstanding for purposes of computing the percentage +ownership of any other person. +To +calculate a stockholder’s percentage of beneficial ownership of common stock, we must include in the numerator and denominator +those shares of common stock, as well as those shares of common stock underlying options, warrants and convertible securities, that such +stockholder is considered to beneficially own. Shares of common stock underlying options, warrants and convertible securities, held by +other stockholders, however, are disregarded in this calculation. Therefore, the denominator used in calculating beneficial ownership +of each of the stockholders may be different. +Unless +otherwise indicated, the address of each beneficial owner listed below is c/o Trio Petroleum Corp, 23823 Malibu Road, Suite 304, Malibu, California 9026. To our knowledge, there is no arrangement, including any pledge by any person of securities of the Company, the +operation of which may at a subsequent date result in a change in control of the Company. +55 +Beneficial +Ownership of +Common +Stock +Name of Beneficial Owner +Shares +% +5% Stockholders: +Robin Ross (1) +737,500 +6.00 % +Novacor Exploration Ltd. (2) +927,899 +7.54 % +Named Executive Officers and Directors: +Robin Ross (1) +737,500 +6.00 % +Gregory L. Overholtzer (3) +77,500 +* +William J. Hunter (4) +203,000 +1.65 % +John Randall (5) +175,500 +1.43 % +Thomas J. Pernice (6) +225,000 +1.83 % +James H. Blake (7) +262,500 +2.13 % +All directors and executive officers as a group (6 persons) +1,681,000 +13.67 % +* +Less than 1% +(1) +Includes +675,000 of 712,500 vested restricted shares granted on August 1, 2025 that were unissued as of October 31, 2025, and were issued on +December 16, 2025. 37,500 of such shares were sold, pursuant to the Ross 10b-1 Sales Plan, on January 14, 2026. +(2) +The address of Novacor +Exploration Ltd. is 5014 48 Street, Lloydminster, AB T9V 0H8. Includes 912,875 restricted shares of the Company’s common stock +that were issued to Novacor Exploration Ltd. as the Purchase Price for the December 2025 Novacor Acquisition. +(3) +Includes +62,500 vested restricted shares granted on August 1, 2025 that were unissued as of October 31, 2025, and were issued on December 16, +2025. +(4) +Includes +175,000 vested restricted shares granted on August 1, 2025 that were unissued as of October 31, 2025, and were issued on December 16, 2025. +(5) +Includes +175,000 vested restricted shares granted on August 1, 2025 that were unissued as of October 31, 2025, and were issued on December 16, 2025. 20,000 of such shares are scheduled to be sold, pursuant to the Randall 10b-1 Sales Plan, on February 1, 2026. +(6) +Includes +225,000 of 250,000 vested restricted shares granted on August 1, 2025 that were unissued as of October 31, 2025, and were issued on December 16, 2025. 25,000 of such shares were sold, pursuant to the Pernice 10b-1 Sales Plan, on January 8, 2026 +(7) +Includes +250,000 vested restricted shares granted on August 1, 2025 that were unissued as of October 31, 2025, and were issued on December 16, 2025. +56 +ITEM +13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. +The +following includes a summary of transactions since October 31, 2023 to which we have been a party in which the amount +involved will exceed $120,000, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more +than 5% of our capital stock, or any member of the immediate family of any of the foregoing persons had or will have a direct or +indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which +are described under “Executive and Director Compensation.” We also describe below certain other transactions with our +directors, executive officers and stockholders. +Related +Party Transactions +Stanford +Eschner and Steven Rowlee, former members of TPET’s management team, are also members of Trio LLC’s management team. +Stanford Eschner, our former Vice Chairman and director of the Company, and Steven Rowlee, formerly our Chief Operating Officer, are employed by +and/or part owners of Trio LLC. Stanford Eschner is Trio LLC’s Chairman and Steven Rowlee is its Vice President. Trio LLC +personnel Stanford Eschner, Steven Rowlee, Gary Horace, Calli Shanley and Judy Ayler were salaried employees of TPET, until December +31, 2024, and are also employees and/or part owners of Trio LLC. Terence B. Eschner, our President, until December 31, 2024, also +works as a consultant to Trio LLC through his company Sarlan Resources, Inc. Most of Trio LLC’s personnel are part owners of +TPET. Trio LLC is Operator of the South Salinas Project and of the McCool Ranch Oil Field on behalf of TPET and of the other working +interest owners. Transactions between TPET and Trio LLC are related party transactions because of these relationships. As a result +of the related party transactions described above, a special committee of our board of directors, currently comprised of Mr. Ross, +Mr. Randall and Mr. Hunter was formed to evaluate and negotiate the terms of any such transactions. In addition, in accordance with +our Related Person Transaction Policy, we will have any such transactions reviewed and approved by our Board’s Audit +Committee. +South +Salinas Project Purchase +Initial +Purchase and Sale Agreement +On +September 14, 2021, we entered into a purchase and sale agreement where we acquired Trio LLC’s approximate 82.75% WI in the South +Salinas Project for consideration of $4 million and 245,000 shares of our common stock. +Fourth +Amendment to the Purchase and Sale Agreement +On +December 22, 2022, we entered into the Fourth Amendment where we acquired a subsequent additional approximate 3% WI in the South Salinas +Project from Trio LLC for $60,529.40. In addition, the Fourth Amendment granted us a 120-day option to acquire the Optioned Assets. The +Option Fee is $150,000, which was paid by the Company to Trio LLC. The Optioned Assets are as follows: +● +The +Hangman Hollow Field asset with an option to acquire Trio LLC’s 44% working interest and their Operatorship; +● +The +Kern Front Field asset with an option to acquire Trio LLC’s 22% working interest and their Operatorship; and +● +The +Union Avenue Field with an option to acquire Trio LLC’s 20% working interest and their Operatorship; +On +May 12, 2023, subsequent to the 120-day option window referenced above, TPET announced the signing of an Acquisition Agreement to potentially +acquire up to 100% of the working interest in the Union Avenue Field. The Agreement was between TPET and Trio LLC, with Trio LLC acting +on behalf of itself as Operator and holding a 20% working interest in Union Avenue Field as well as agreeing to act to help facilitate +the acquisition by TPET of the remaining 80% working interest. As Trio LLC is partly owned and controlled by members of Trio’s +management, this would have been a related party transaction, and a special committee of Trio’s board of directors (the “Trio +Special Committee”) was formed to evaluate and negotiate the terms of this acquisition. TPET engaged KLSP to conduct a comprehensive +analysis and valuation of the asset, which analysis was delivered to TPET and evaluated by the Trio Special Committee. However, TPET +and Trio LLC did not agree on the terms and transaction was not closed. +57 +Under +the Fourth Amendment, we also agreed to start the process of pursuing and consummating additional lease acquisitions in the areas deemed +by the parties to be higher priority areas lying within and around the South Salinas Project Area. Such acquisitions were approved for +an aggregate purchase price not to exceed approximately $79,000.00. Some leases were acquired in February and March, 2023, as described +more-fully elsewhere hereunder. +Further +under the Fourth Amendment, we agreed to engage the services of a contractor to do road access work and dirt-moving work (estimated to +cost approximately $170,000.00) that was necessary before the commencement of drilling the HV-1 well. We also agreed to pay a deposit +(in an amount not to exceed $25,000) to secure a drilling rig to drill the HV-1 well, which was drilled in May, 2023. This deposit was +not required and was not paid. +Finally, +we agreed, retroactively commencing on May 1, 2022, to accrue a monthly consulting fee of $35,000.00, due and payable by the Company +to Trio LLC no later than two weeks following the closing date of Company’s IPO. This fee was intended to cover the work being +done for the Company by Trio LLC’s employees prior to the closing date of our IPO. This consulting fee was paid by TPET to Trio +LLC. +The Company provides funds to Trio LLC to develop +and operate the assets in the South Salinas Project; such funds are classified in the short-term asset/liability section of the balance +sheet as Advance to Operators/Due to Operators, respectively. As of October 31, 2025 and 2024, the balance of the Due to Operators account +is $5,668 and $103,146, respectively. +McCool +Ranch Oil Field Asset Purchase +In +October 2023, TPET entered into an agreement (“McCool Ranch Purchase Agreement”) with Trio LLC for purchase of a +21.918315% working interest in the McCool Ranch Oil Field located in Monterey County near the Company’s flagship South Salinas +Project. As Trio LLC is partly owned and controlled by members of TPET’s management, this was a related party transaction, and +the aforementioned Trio Special Committee was involved in the evaluation and negotiation of the terms of the acquisition. TPET +engaged KLSP to conduct a comprehensive analysis and valuation of the asset, which in-progress, preliminary results were delivered +to TPET and evaluated by the Trio Special Committee. The Company initially recorded a payment of $100,000 upon execution of the +McCool Ranch Purchase Agreement, at which time Trio LLC began refurbishment operations with respect to the San Ardo WD-1 water +disposal well (the “WD-1”) to determine if it was mechanically capable of reasonably serving the produced water needs +for the assets. With refurbishment successfully accomplished, the Company committed to pay an additional $400,000 per the McCool +Ranch Purchase Agreement. On May 27, 2025, the Company made the decision to terminate the McCool Ranch Oil Field leases. Accordingly, all capitalized +costs related to the acquisition, refurbishment, and production restart—including costs for support equipment and facilities—totaling +$500,614 have been written off and expensed in the statement of operations. +Asphalt +Ridge Asset Purchase +On +November 10, 2023, TPET entered into a Leasehold Acquisition and Development Option Agreement (the “Asphalt Ridge Option Agreement”) +with Heavy Sweet Oil LLC (“HSO”). Pursuant to the Asphalt Ridge Option Agreement, the Company acquired an option to purchase +up to a 20% working interest in certain leases at a long-recognized, major oil accumulation in northeastern Utah, in Uintah County, southwest +of the city of Vernal. LEC also have a working interest in the Asphalt Ridge Asset. Since LEC is partly owned and controlled by current +and former members of our management, transactions including acquisitions between TPET and LEC relating to the Asphalt Ridge Asset and/or +to other assets constitute related party transactions and, therefore, a special committee of our board of directors, comprised of Mr. +Pernice, Mr. Randall and Mr. Hunter (the “Lafayette Special Committee”) has been formed to evaluate and negotiate the terms +of any such future transactions. In addition, in accordance with our Related Person Transaction Policy, we will have any such future +transactions reviewed and approved by our Board’s Audit Committee. TPET will engage KLS Petroleum Consulting LLC (“KLSP”) +or other third-party experts, as deemed necessary by TPET’s management and/or by the Lafayette Special Committee, to conduct comprehensive +analyses and to provide valuations of such assets, which analyses will be delivered to the Company and evaluated by the Trio Special +Committee. +Restricted +Stock Units (“RSUs”) issued to Directors +Pursuant +to the Company’s 2022 Equity Incentive Plan (the “Plan”), on September 2, 2023, the Company granted an aggregate of +21,250 restricted stock units (“RSUs”) to four non-employee directors. The RSUs were measured at the grant-date fair value +of $12.80 per share, resulting in a total grant-date fair value of $273,275. The RSUs vested in full on February 28, 2024. +On +June 19, 2024, pursuant to the Plan, the Board approved the grant of 50,000 RSUs to a newly appointed director. At the time of grant, +only 22,750 shares remained available under the Plan; accordingly, 22,500 RSUs were granted immediately at a grant-date fair value of +$6.00 per share, for a total fair value of approximately $134,550. The remaining 27,500 RSUs were granted in the following quarter at +a grant-date fair value of $3.32 per share, for a total fair value of approximately $91,300. For the years ended October 31, 2025 and +2024, the Company recognized stock-based compensation expense of $157,406 and $30,651, respectively, related to these awards, which is +included in stock-based compensation expense in the consolidated statements of operations. As of October 31, 2025, $37,793 of unrecognized +compensation cost remained to be recognized over the remaining vesting period +On +October 21, 2024, pursuant to the Plan, the Board approved the grant of 12,500 RSUs to a newly appointed director. These RSUs vested +in full on the six-month anniversary of the director’s commencement date and were measured at a grant-date fair value of $3.13 +per share, for a total fair value of approximately $39,125. On the same date, the Company also granted an aggregate of 37,500 RSUs to +current directors under the Plan. These RSUs vested in full on the three-month anniversary of the commencement date and were measured +at a grant-date fair value of $3.13 per share, for a total fair value of approximately $117,375. For the years ended October 31, 2025 +and 2024, the Company recognized stock-based compensation expense of $141,592 and $14,908, respectively, related to these awards, which +is included in stock-based compensation expense in the consolidated statements of operations. As of October 31, 2025, there was no remaining +unrecognized compensation cost related to these grants. +58 +On August 1, 2025, the Company’s Board of Directors +approved the grant of an aggregate of 850,000 restricted stock units (“RSUs”) to four non-employee directors. The RSUs were +fully vested on the grant date, which was the same date as Board approval. The awards were measured at the grant-date fair value of $1.18 +per share, resulting in a total grant-date fair value of approximately $1,001,725. As of October 31, 2025, although the shares underlying +the RSUs had not yet been issued, the obligation was both probable and estimable. In accordance with ASC 718, Compensation—Stock +Compensation, and ASC 450, Contingencies, the Company recognized the full amount of stock-based compensation expense related to these +awards in the consolidated statement of operations for the year ended October 31, 2025. +Restricted +Shares issued to Executives and Employees +In +May 2023, the Company entered into six employee agreements which, among other things, provided for the grant of an aggregate of 35,000 +restricted shares pursuant to the Plan. Per the terms of the employee agreements, subject to continued employment, the restricted shares +vest as follows: 25% of the shares will vest five months after the issuance date, after which the remainder vest in equal tranches every +six months until fully vested. The shares were recorded on the date of issuance at a fair value of $43.00 per share for an aggregate +fair value of $1,505,000. During fiscal 2025, four of the employee agreements were not renewed, resulting in the forfeiture of 4,375 +restricted shares. For the years ended October 31, 2025 and 2024, the Company recognized stock-based compensation expense of $180,936 +and $753,188, respectively, related to these awards, which is included in stock-based compensation expense in the consolidated statements +of operations. As of October 31, 2025, all awards had either vested or been forfeited, and there was no remaining unrecognized compensation +cost. +On July 11, 2024, the Company entered into a three-month +consulting agreement with Mr. Peterson, the Company’s former Chief Executive Officer. Under the terms of the agreement, Mr. Peterson +received a monthly cash fee of $10,000 and was granted 50,000 RSUs pursuant to the Plan. The RSUs were measured at a grant-date fair +value of $3.32 per share, for a total fair value of approximately $166,000. For the years ended October 31, 2025 and 2024, the Company +recognized stock-based compensation expense of $68,033 and $97,967, respectively, related to these awards, which is included in stock-based +compensation expense in the consolidated statements of operations. As of October 31, 2025, all compensation cost related to the RSUs +had been recognized, with no remaining unrecognized expense. +On July 11, 2024, the Company entered into an +employment agreement with Mr. Robin Ross, pursuant to which Mr. Ross was appointed Chief Executive Officer, succeeding Mr. Peterson. +Under the terms of the agreement, Mr. Ross received an initial annual base salary of $300,000 and is eligible for an annual discretionary +bonus of up to 100% of his base salary, subject to continued employment and achievement of objectives and milestones established annually +by the Board’s Compensation Committee. In connection with his appointment, Mr. Ross was granted 100,000 RSUs under the Plan, measured +at a grant-date fair value of $3.32 per share, for a total fair value of approximately $332,000. For the years ended October 31, 2025 +and 2024, the Company recognized stock-based compensation expense of $221,941 and $21,890, respectively, related to these awards, with +$88,168 of unrecognized compensation cost remaining as of October 31, 2025. On August 1, 2025, the Compensation Committee approved an +amendment to Mr. Ross’s employment agreement, increasing his annual base salary from $300,000 to $400,000, effective immediately. +As part of the amendment, Mr. Ross was granted a one-time award of 625,000 RSU’s under the Plan; the RSUs were fully vested on +the grant date, which was the same date as Board approval. The awards were measured at the grant-date fair value of $1.18 per share, +resulting in a total grant-date fair value of approximately $736,563. As of October 31, 2025, although the shares underlying the RSUs +had not yet been issued, the obligation was both probable and estimable. In accordance with ASC 718, Compensation—Stock Compensation, +and ASC 450, Contingencies, the Company recognized the full amount of stock-based compensation expense related to these awards in the +consolidated statement of operations for the year ended October 31, 2025. In addition, the Compensation Committee authorized a cash bonus +of $150,000, payable at the Board’s discretion, pursuant to Section 4 of his employment agreement. +On October 21, 2024, the Company granted 10,000 +RSUs to Gregory Overholtzer, the Company’s Chief Financial Officer, under the Plan. The RSUs vested in full on the six-month anniversary +of the commencement date and were measured at a grant-date fair value of $3.13 per share, for a total fair value of approximately $31,300. +For the years ended October 31, 2025 and 2024, the Company recognized stock-based compensation expense of $29,580 and $1,720, respectively, +related to these awards, with no remaining unrecognized compensation cost as of October 31, 2025. On August 1, 2025, the Compensation +Committee approved a one-time grant of 62,500 RSUs to Mr. Overholtzer under the Plan. The awards were measured at the grant-date fair +value of $1.18 per share, resulting in a total grant-date fair value of approximately $73,656. As of October 31, 2025, although the shares +underlying the RSUs had not yet been issued, the obligation was both probable and estimable. In accordance with ASC 718, Compensation—Stock +Compensation, and ASC 450, Contingencies, the Company recognized the full amount of stock-based compensation expense related to these +awards in the consolidated statement of operations for the year ended October 31, 2025. +59 +Peterson Loan +On +March 26, 2024, the Company borrowed $125,000 from its former Chief Executive Officer, Michael L. Peterson, in connection with which +the Company delivered to Mr. Peterson an Unsecured Subordinated Promissory Note in the principal amount of $125,000. The Note is payable +on or before September 26, 2024 (the “Peterson Note Maturity Date”), upon which date the principal balance and interest accruable +at a rate of 10% per annum is due and payable to Mr. Peterson by the Company. The Company may prepay the Peterson Note at any time prior +to the Peterson Note Maturity Date, in whole or in part, without premium or penalty. The Company is also required to prepay the Peterson +Note, in full, prior to the Peterson Note Maturity Date from the proceeds of any equity or debt financing received by the Company of +at least $1,000,000. As additional consideration for the Peterson Loan, the Company accelerated the vesting of 50,000 shares of restricted +stock awarded to Mr. Peterson under the Plan. The Peterson Note also provides for acceleration of payment of the outstanding principal +balance and all accrued and unpaid interest in the case of an Event of Default (as such term is defined in the Peterson Note), where +there is either a payment default or a bankruptcy event. +On +September 26, 2024 and October 28, 2024, the Company entered into the first and second amendments, respectively, to the Peterson Note; +each amendment extended the maturity dates to October 28, 2024 and November 30, 2024, respectively, and added a $5,000 extension fee +(per amendment) to the principal of the note. On November 25, 2024, the Company paid off the Peterson Note in the amount of $143,516, +with $135,000 in satisfaction of the principal amount owed and $8,516 towards accrued interest. +Consulting +Agreements +On +July 11, 2024, Mr. Peterson delivered notice of his resignation as the Company’s Chief Executive Officer, effective on July 11, +2024. In addition, on July 11, 2024, the Company and Mr. Peterson, entered into a consulting agreement, effective as of the date of resignation +and continuing through October 11, 2024. Pursuant to the Consulting Agreement, the Company paid Mr. Peterson a cash consulting fee equal +to $10,000 per month, during the term of the Consulting Agreement. In addition, the Company awarded to Mr. Peterson 50,000 RSUs under +the 2022 Equity Incentive Plan, which award was made after the Company’s stockholders approved an increase in the number of shares +available under the 2022 Equity Incentive Plan at the 2024 Annual Meeting of Stockholders on August 15, 2024. +On +October 6, 2023, Mr. Ingriselli delivered notice of his resignation as the Company’s Chief Executive Officer, effective on +October 23, 2023. Upon his resignation, Mr. Ingriselli continued as a director and continued to hold the title of “Vice +Chairman” of the Board of Directors of the Company. In addition, on October 16, 2023, the Company and Global Venture +Investments LLC (“Consultant”), a Delaware Limited Liability Company and a wholly owned consulting firm owned 100% by +Mr. Ingriselli, entered into a consulting agreement, effective as of the date of resignation and continuing through December 31, +2023. Pursuant to the Consulting Agreement, the Company would pay Mr. Ingriselli a cash consulting fee equal to $10,000 per month, +payable within five business days after the commencement of each calendar month during the term of the Consulting Agreement. The +Consulting Agreement terminated on December 31, 2023, in accordance with its terms. Mr. Ingriselli resigned as Vice Chairman and a +director of the Company on June 17, 2024. +On December 31, 2024, the employment agreement between +the Company and Mr. Overholtzer ended, and on January 1, 2025, the Company entered into an independent contractor agreement with Mr. Overholtzer, +under which he continues to serve as the Chief Financial Officer of the Company and is paid a monthly fee of $12,500; the initial term +of the agreement is for one year and will be automatically renewed unless either party provides a 30-day notice prior to the expiration +of the agreement. The Company subsequently entered into a new agreement with Mr. Overholtzer effective January 1, 2026, to increase +the monthly fee paid from $12,500 to $15,000, and which otherwise contains the same terms as the prior employment agreement with Mr. Overholtzer. +On August 1, 2025, Mr. Stanford Eschner resigned from +his positions as Vice Chairman and director of Trio Petroleum Corp, effective immediately. His resignation was not the result of any +disagreement with the Company’s management or Board of Directors regarding operations, policies, or practices. Concurrently, the +Board approved Mr. Eschner’s engagement as a consultant to the Company through December 31, 2025. Under the Consulting Agreement, +Mr. Eschner is entitled to receive a monthly cash fee of $4,167 and a one-time grant of 15,000 shares of common stock pursuant to the +Plan. +Asphalt +Ridge Option Agreement +On +November 10, 2023, the Company entered into a Leasehold Acquisition and Development Option Agreement (the “Asphalt Ridge Option +Agreement”) with Heavy Sweet Oil LLC (“HSO”). Pursuant to the Asphalt Ridge Option Agreement, the Company acquired +an option to purchase up to a 20% production share in certain leases at a long-recognized, major oil accumulation in northeastern Utah, +in Uintah County, southwest of the city of Vernal, totaling 960 acres. HSO holds the right to such leases below 500 feet depth from surface +(the “Asphalt Ridge Leases”) and the Company acquired the option to participate in HSO’s initial 960 acre drilling +and production program on such Asphalt Ridge Leases (the “Asphalt Ridge Option”). +The +Asphalt Ridge Option had an original term of nine months, through August 10, 2024, which was extended through February 10, 2025. +Pursuant to the Asphalt Ridge Option, the Company had the exclusive right, but not the obligation, to acquire up to a 20% working +interest in the Asphalt Ridge Leases for $2,000,000 (the “Purchase Price”), which may be invested in tranches, provided +that the initial tranche closing occurs during the Asphalt Ridge Option period and subsequent tranches occurring as soon thereafter +as practical within the Asphalt Ridge Option period, with each tranche providing the Company a portion of the ownership of the +Asphalt Ridge Leases equal to 20% multiplied by a fraction, the numerator of which is the total consideration paid by the Company, +and denominator of which is $2,000,000. Upon receipt of any funding from the Company pursuant to the Asphalt Ridge Option, HSO is +required to pay that amount to the named operator of the properties, to pay for engineering, procurement, operations, sales, and +logistics activities on the properties. The Asphalt Ridge Option Agreement provides that additional development capital is expected +to be secured by HSO, and made available for the Company’s participation, by way of a reserve base lending facility (RBL), +provided that if such RBL cannot be obtained or does not cover all subsequent capital costs, HSO agreed to fund a maximum of +$5,000,000 of the first funding required for the development program, with the parties splitting any costs thereafter according to +their ownership interests. The initial target was three wells, with an estimated cost of $5,000,000 for roads, pads, drilling, and +above ground steam and storage facilities, and thereafter the parties anticipate working together to fund further well development +based on their proportionate ownership thereof. +On +or around the date the parties entered into the Asphalt Ridge Option Agreement, HSO entered into a Leasehold Acquisition and Development +Option Agreement (the “LEC Option”) with Lafayette Energy Corp (“LEC”), of which Michael Peterson, Trio’s +former Chief Executive Officer and director, is also the Chief Executive Officer and director. The LEC Option has similar terms as the +Asphalt Ridge Option Agreement, except that it allows LEC to obtain a 30% interest in the Asphalt Ridge Leases and requires LEC to pay +certain equity compensation to HSO. +The +Company and HSO further agreed that, to the extent LEC does not fully exercise the LEC Option, the Company had the right to +acquire up to all 30% of the rights set forth in the LEC Option (or such lesser amount which LEC has not exercised), from HSO, for +$3,000,000 cash. +60 +The +exercise of the Asphalt Ridge Option was contingent, unless waived by the Company, upon the following: (a) HSO providing the Company +the statements of revenues and direct operating expenses for the prior two years for the asset and the unaudited stub period for +2023, through the date of closing; (b) satisfactory due diligence review by the Company of HSO, the leases, the property and other +information; (c) the negotiating of a mutually-acceptable joint operations agreement or other development and operations +agreement(s) as agreed by the parties; and (d) HSO providing the Company an updated independent reserves report including proved +undeveloped reserves (PUDs) and an estimate of gross valuation and discounted net present values, and indicating best estimate +original oil-in-place (OOIP) volumes and gross (100%) contingent oil resources, as of a date no earlier than August 31, 2023, for +discoveries located in Northwest Asphalt Ridge, Uinta Basin, Utah. +The +Company previously exercised the Asphalt Ridge Option for a 2.25% working interest in the Asphalt Ridge Leases and had until +February 10, 2025 to pay HSO an additional $1,775,000 to exercise an option for the remaining 17.75% working interest in the Asphalt +Ridge Leases. While the Company had the option to acquire an additional 17.75% working interest, it has decided not to exercise +this option and will instead retain its existing 2.25% working interest in the initial 960 acres. +Loan +to Trio Canada +As +of April 4, 2025, the Company entered into a Loan and Note Purchase Agreement (the “Loan Agreement”) with Trio Canada, whereby +it made a loan (the “Subsidiary Loan”) to Trio Canada in the amount of $1,131,000 (the “Loan Amount”); in return, +Trio Canada issued to the Company a three-year promissory note with a maturity date of April 4, 2028 in the principal amount of $1,131,000 +(the “Subsidiary Note”). The outstanding principal amount of the Subsidiary Note accrues interest at a rate of 12% per annum. +Under +the terms of the Loan Agreement, $585,000 of the Loan Amount is required to be used to pay the remaining cash amount payable to Novacor +in connection with the Novacor Acquisition; the remainder of the Loan Amount is to be used for ongoing operating costs of Trio Canada. +As of October 31, 2025, $700,665 has been utilized, primarily for consideration in the Novacor acquisition, with a small portion applied +to other operating cash needs of Trio Canada. The remaining unused portion of the Subsidiary Loan is $430,335. +For +the year ended October 31, 2025, the Company recorded intercompany interest income of $27,606 on the Subsidiary Loan, based on an interest +rate of 8% per annum, with the corresponding interest expense recognized by Trio Canada. +Indemnification +Agreements +We +intend to enter into indemnification agreements with each of our directors and executive officers. These agreements, among other things, +require us or will require us to indemnify each director and executive officer to the fullest extent permitted under the NRS, including +indemnification of expenses such as attorneys’ fees, judgments, fines and settlement amounts incurred by the director or executive +officer in any action or proceeding, including any action or proceeding by or in right of us, arising out of the person’s services +as a director or executive officer. For further information, see “Description of Our Securities-Limitations on Liability and Indemnification +Matters.” +Corporate +governance and Director Independence. +See +“ Item 10. Directors, Executive Officers and Corporate Governance. - Board Composition and Election of Directors ” beginning +on page 47 of this Annual Report. +ITEM +14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. +The +following table sets forth the aggregate fees billed by Bush & Associates CPA LLC for the fiscal years ending +October 31, 2025 and 2024, respectively, as described below: +2025 +2024 +Audit Fees +$ 117,000 +$ 158,500 +Audit Related Fees +$ 5,000 +$ 27,500 +Tax Fees +$ - +$ - +All Other Fees +$ - +$ 32,500 +Total +$ 122,000 +$ 218,500 +Pre-Approval +Policies and Procedures +The +Audit Committee mandate requires that the Audit Committee pre-approve any retainer of the auditor of the Company to perform any non-audit +services to the Company that it deems advisable in accordance with applicable legal and regulatory requirements and policies and procedures +of the Board. The Audit Committee is permitted to delegate pre-approval authority to one of its members; however, the decision of any +member of the Audit Committee to whom such authority has been delegated must be presented to the full Audit Committee at its next scheduled +meeting. +61 +PART +IV +ITEM +15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES. +Exhibit +Number +Description +of Exhibit +3.1 +Amended & Restated Certificate of Incorporation of Trio Petroleum Corp (incorporated by reference to Exhibit 3.2 of the Company’s Amendment No. 4 to Form S-1 (File No. 333-267380), filed with the Commission on January 5, 2023). +3.2 +Certificate of Amendment to Amended and Restated Certificate of Incorporation of Trio Petroleum Corp (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K, filed with the Commission on November 4, 2024) +3.3 +Amended and Restated Bylaws of Trio Petroleum Corp (incorporated by reference to Exhibit 3.4 of the Company’s Amendment No. 4 to Form S-1 (File No. 333-267380), filed with the Commission on January 5, 2023). +3.4 +Amendment to Amended and Restated Bylaws of Trio Petroleum Corp (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K, filed with the Commission on May 21, 2025) +3.5 +Certificate of Amendment of Amended and Restated Certificate of Incorporation. filed July 30, 2025 (incorporated by reference to Exhibit 4.1 of the Company’s Quarterly Report on Form 10-Q, filed with the Commission on September 12, 2025) +4.1 +Specimen Common Stock Certificate evidencing the shares of Common Stock (incorporated by reference to Exhibit 4.1 of the Company’s Form S-1 (File No. 333-267380), filed with the Commission on September 12, 2022). +4.2 +Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.2 of the Company’s Form 8-K, filed with the Commission on October 4, 2023). +4.3 +Trio Petroleum Corp Common Stock Purchase Warrant dated January 2, 2024 (incorporated by reference to Exhibit 4.2 of the Company’s Form 8-K, filed with the Commission on January 2, 2024). +4.4 +Trio Petroleum Corp Placement Agent Warrant Agreement - Common Stock Purchase Warrant dated January 2, 2024. (incorporated by reference to Exhibit 4.3 of the Company’s Form 8-K, filed with the Commission on January 2, 2024). +4.5 +Common Stock Purchase Warrant, dated June 27, 2024 (incorporated by reference to Exhibit 4.2 of the Company’s Form 8-K, filed with the Commission on June 28, 2024). +4.6 +Description of Securities (incorporated by reference to Exhibit 4.2 of the Company’s Form 10-K, filed with the Commission on January 29, 2024). +4.7 +Amendment No. 1 to Promissory Note, dated January 28, 2025 (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K, filed with the Commission on January 29, 2025) +4.8 +Promissory Note, issued by Trio Petroleum Canada, Corp. to Trio Petroleum Corp, dated as of April 4, 2025 (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K, filed with the Commission on April 10, 2025) +4.9 +Unsecured Convertible Promissory Note, issued by Trio Petroleum Corp, dated as of April 11, 2025 (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K, filed with the Commission on April 17, 2025) +4.10 +Amended and Restated Convertible Promissory Note, issued by Trio Petroleum Corp, dated as of April 17, 2025. (incorporated by reference to Exhibit 4.2 of the Company’s Form 8-K, filed with the Commission on April 17, 2025) +4.11 +Unsecured Convertible Promissory Note, dated August 15, 2025, issued by Trio Petroleum Corp in the principal amount of $660,000, due February 15, 2026 (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K, filed with the Commission on August 18, 2025) +4.12 +Unsecured Convertible Promissory Note, dated August 15, 2025, issued by Trio Petroleum Corp in the principal amount of $270,000, due February 15, 2026 (incorporated by reference to Exhibit 4.2 of the Company’s Form 8-K, filed with the Commission on August 18, 2025) +4.13 +Unsecured Convertible Promissory Note, dated August 15, 2025, issued by Trio Petroleum Corp in the principal amount of $270,000, due February 15, 2026 (incorporated by reference to Exhibit 4.3 of the Company’s Form 8-K, filed with the Commission on August 18, 2025) +10.1 +Bid Proposal and Daywork Drilling Contract – U.S., by and Between Trio Petroleum LLC and Ensign United States Drilling (California) Inc., dated April 19, 2023 (incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed with the Commission on April 25. 2023), +10.2 +Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Form S-1 (File No. 333-267380), filed with the Commission on September 12, 2022). +10.3† +2022 Incentive Plan (incorporated by reference to Exhibit 10.2 of the Company’s Form S-1 (File No. 333-267380), filed with the Commission on September 12, 2022). +62 +10.4† +Employment Agreement with Gregory L. Overholtzer (incorporated by reference to Exhibit 10.4 of the Company’s Form S-1 (File No. 333-267380), filed with the Commission on September 12, 2022. +10.5 +Purchase and Sale Agreement with Trio Petroleum LLC (incorporated by reference to Exhibit 10.5 of the Company’s Form S-1 (File No. 333-267380), filed with the Commission on September 12, 2022). +10.6 +First Amendment to Purchase and Sale Agreement with Trio Petroleum LLC (incorporated by reference to Exhibit 10.6 of the Company’s Form S-1 (File No. 333-267380), filed with the Commission on September 12, 2022). +10.7 +Second Amendment to Purchase and Sale Agreement with Trio Petroleum LLC (incorporated by reference to Exhibit 10.7 of the Company’s Form S-1 (File No. 333-267380), filed with the Commission on September 12, 2022). +10.8 +Third Amendment to Purchase and Sale Agreement with Trio Petroleum LLC (incorporated by reference to Exhibit 10.8 of the Company’s Form S-1 (File No. 333-267380), filed with the Commission on September 12, 2022). +10.9 +Fourth Amendment to Purchase and Sale Agreement with Trio Petroleum LLC (incorporated by reference to Exhibit 10.9 of the Company’s Amendment No. 1 to Form S-1 (File No. 333-267380), filed with the Commission on January 5, 2023). +10.10 +Blue Lease with Bradley Minerals (incorporated by reference to Exhibit 10.11 of the Company’s Form S-1 (File No. 333-267380), filed with the Commission on September 12, 2022). +10.11 +First Amendment to Blue Lease with Bradley Minerals (incorporated by reference to Exhibit 10.10 of the Company’s Form S-1 (File No. 333-267380), filed with the Commission on September 12, 2022). +10.12 +Red Lease with Bradley Minerals (incorporated by reference to Exhibit 10.11 of the Company’s Form S-1 (File No. 333-267380), filed with the Commission on September 12, 2022). +10.13 +First Amendment to Red Lease with Bradley Minerals (incorporated by reference to Exhibit 10.12 of the Company’s Form S-1 (File No. 333-267380), filed with the Commission on September 12, 2022). +10.14 +Second Amendment to Red Lease with Bradley Minerals (incorporated by reference to Exhibit 10.13 of the Company’s Form S-1 (File No. 333-267380), filed with the Commission on September 12, 2022). +10.15 +Third Amendment to Red Lease with Bradley Minerals (incorporated by reference to Exhibit 10.14 of the Company’s Form S-1 (File No. 333-267380), filed with the Commission on September 12, 2022). +10.16 +Fourth Amendment to Red Lease with Bradley Minerals (incorporated by reference to Exhibit 10.15 of the Company’s Form S-1 (File No. 333-267380), filed with the Commission on September 12, 2022. +10.17 +Fifth Amendment to Red Lease with Bradley Minerals (incorporated by reference to Exhibit 10.16 of the Company’s Form S-1 (File No. 333-267380), filed with the Commission on September 12, 2022. +10.18 +Joint Operating Agreement (incorporated by reference to Exhibit 10.27 of the Company’s Amendment No. 2 to Form S-1 (File No. 333-267380), filed with the Commission on November 18, 2022, as amended). +10.19 +Registration Rights Agreement, dated October 4, 2023, by and between the Investor and Trio Petroleum Corp (incorporated by reference to Exhibit 10.5 of the Company’s Form 8-K, filed with the Commission on October 4, 2023). +10.20 +Leasehold Acquisition and Development Agreement, dated November 10, 2023, entered into by and between Trio Petroleum Corp and Heavy Sweet Oil LLC (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed with the Commission on January 5, 2024). +10.21 +Amendment to Leasehold Acquisition and Development Agreement, dated December 29, 2023, entered into by and between Trio Petroleum Corp and Heavy Sweet Oil LLC (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K, filed with the Commission on January 5, 2024) +10.22 +Amended and Restated Securities Purchase Agreement between the Company and the Investors signatory thereto, dated as of April 24, 2024 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed with the Commission on April 25, 2024). +10.23 +Amended and Restated Security Agreement between the Company and the Secured Parties signatory thereto, dated as of April 24, 2024 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K, filed with the Commission on April 25, 2024). +10.25† +Form of Employment Agreement between the Company and Robin Ross, dated as of July 11, 2024 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K, filed with the Commission on July 15, 2024). +10.26 +Second Amendment to Leasehold Acquisition and Development Agreement, dated August 5, 2024, entered into by and between Trio Petroleum Corp and Heavy Sweet Oil LLC (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K, filed with the Commission on August 8, 2024). +10.27 +Media Advertising Agreement, dated September 9, 2024 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed with the Commission on September 12, 2024). +10.28 +Amendment No. 3 to Leasehold Acquisition and Development Option Agreement (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K, filed with the Commission on September 27, 2024). +10.29† +Independent Contractor Agreement between the Company and Greg Overholtzer, dated as of January 1, 2025 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed with the Commission on January 8, 2025). +63 +10.30 +Note Exchange Agreement, dated as of January 28, 2025 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed with the Commission on January 29, 2025) +10.31 +Amendment No. 4 to Leasehold Acquisition and Development Option Agreement, dated as of November 20, 2024 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed with the Commission on February 26, 2025) +10.32 +Amendment No. 5 to Leasehold Acquisition and Development Option Agreement, dated as of January 27, 2025 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K, filed with the Commission on February 26, 2025) +10.33 +Asset Purchase Agreement, dated as of April 4, 2025, by and among, Trio Petroleum Corp, Trio Petroleum Canada, Corp., and Novacor Exploration Ltd. (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed with the Commission on April 10, 2025) +10.34 +Loan and Note Purchase Agreement, dated as of April 4, 2025, by and between Trio Petroleum Corp and Trio Petroleum Canada, Corp. (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K, filed with the Commission on April 10, 2025) +10.35 +Amendment No.6 to Leasehold Acquisition and Development Option Agreement, dated as of April 9. 2025 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed with the Commission on April 18, 2025) +10.36 +Letter of Intent, dated as of May 15, 2025, entered into by and between the Company and Heavy Sweet Oil LLC (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed with the Commission on May 20, 2025) +10.37 +Mutual Termination Agreement, dated May 27, 2025, by and between Trio Petroleum Corp and Trio Petroleum LLC (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed with the Commission on May 29, 2025) +10.38 +Consulting Agreement, effective as of August 1, 2025, between the Company and Stanford Eschner (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed with the Commission on August 05, 2025) +10.39 +Registration Rights Agreement, dated August 15, 2025, among Trio Petroleum Corp and purchasers thereto (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed with the Commission on August 18, 2025) +10.40 +Asset Acquisition Agreement dated as of August 20, 2025 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed with the Commission on October 27, 2025) +10.41 +Consulting Agreement between Trio Petroleum Corp and Redwood Empire Financial Communications LLC, effective as of January 1, 2026 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed with the Commission on December 29, 2025) +10.42 +Asset Purchase Agreement, dated as of December 30, 2025, by and among, Trio Petroleum Corp, Trio Petroleum Canada, Corp. and Novacor Exploration Ltd (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed with the Commission on January 5, 2026) +10.43 +Registration Rights Agreement, dated as of December 30, 2025, by and between, Trio Petroleum Corp and Novacor Exploration Ltd (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K, filed with the Commission on January 5, 2026) +10.44 +At Market Issuance Sales Agreement, dated January 9, 2026, between the Trio Petroleum Corp and Ladenburg Thalmann Co. Inc (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed with the Commission on January 9, 2026) +10.45* +Amendment No.1 to the Form of Employment Agreement between the Company and Robin Ross, dated as of August 1, 2025 +10.46* +Independent Contractor Agreement between the Company and Greg Overholtzer, dated as of January 1, 2026 +14.1 +Code of Ethics (filed with 2024 Annual Report on Form 10-K filed with the Commission on January 17, 2025) +16.1 +Letter from Marcum LLP to the Securities Exchange Commission (incorporated by reference to Exhibit 16.1 of the Company’s Amendment No. 6 to Form S-1 (File No. 333-267380), filed with the Commission on February 6, 2023, as amended). +19.1 +Insider Trading Policy (incorporated by reference to Exhibit 19.1 of the Company’s Annual Report on Form 10-K filed with the Commission on January 29, 2024). +21.1* +List of Subsidiaries +23.1* +Consent of Independent Registered Public Accounting Firm +23.2* +Consent of KLS Petroleum Consulting LLC +24.1* +Power of Attorney (included on signature page of 2024 Annual Report on Form 10-K filed with the Commission on January 17, 2025) +31.1* +Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +31.2* +Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32.1** +Certification of the Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +32.2** +Certification of the Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97.1 +Executive Compensation Clawback Policy (incorporated by reference to Exhibit 97 of the Company’s Annual Report on Form 10-K filed with the Commission on January 29, 2024). +99.1 +Reserves Attributable to Trio Petroleum Corp South Salinas Area for Development Plan Phases 1 and 2 (incorporated by reference to Exhibit 99.1 of the Company’s Amendment No. 2 to Form S-1 (File No. 333-267380), filed with the Commission on November 18, 2022, as amended). +99.2 +S. Salinas Area, Full Development Reserves Supplement to SEC Report Dated 1-28-2022 (incorporated by reference to Exhibit 99.2 of the Company’s Amendment No. 2 to Form S-1 (File No. 333-267380), filed with the Commission on November 18, 2022, as amended). +99.3 +Reserve Attributable to Trio Petroleum Corp South Salinas Area for Phased and Full Development (incorporated by reference to Exhibit 99.3 of the Company’s Amendment No. 2 to Form S-1 (File No. 333-280816), filed with the Commission on November 29, 2024, as amended). +101.INS* +Inline +XBRL Instance Document +101.SCH* +Inline +XBRL Taxonomy Extension Schema Document +101.CAL* +Inline +XBRL Taxonomy Extension Calculation Linkbase Document +101.DEF* +Inline +XBRL Taxonomy Extension Definition Linkbase Document +101.LAB* +Inline +XBRL Taxonomy Extension Label Linkbase Document +101.PRE* +Inline +XBRL Taxonomy Extension Presentation Linkbase Document +104* +Cover +Page Interactive Data File (Embedded as Inline XBRL document and contained in Exhibit 101). +* +Filed herewith. +** +Furnished, not filed +† +Includes management contracts and compensation plans and arrangements +64 +SIGNATURES +Pursuant +to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by +the undersigned, thereunto duly authorized. +TRIO +PETROLEUM CORP +By: +/s/ +Robin Ross +Robin +Ross +Chief +Executive Officer +(Principal +Executive Officer) +Date: January 20, 2026 +By: +/s/ +Greg Overholtzer +Greg +Overholtzer +Chief +Financial Officer +(Principal +Financial Officer and +Principal +Accounting Officer) +Date: January 20, 2026 +SIGNATURES AND POWER OF ATTORNEY +KNOW +ALL BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robin Ross and Greg Overholtzer, as his +or her true and lawful attorneys-in-fact and agents, with the full power of substitution, for him or her in his or her name, place or +stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K (including any and all exhibits, +schedules, supplements, certifications and supporting documents thereto), and to file the same, with exhibits thereto, and other documents +in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority +to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents +and purposes as he or she might or could do in person, hereby ratifying and confirming that said attorneys-in-fact and agents, or his +or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. +Pursuant +to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the +registrant and in the capacities held on the dates indicated. +Signature +Title +Date +/s/ +Robin Ross +Chairman +and Chief Executive Officer +January +20, 2026 +Robin +Ross +(principal +executive officer) +/s/ +Gregory L. Overholtzer +Chief +Financial Officer +January +20, 2026 +Gregory +L. Overholtzer +(principal +financial officer and principal accounting officer) +/s/ +William J. Hunter +Director +January +20, 2026 +William +J. Hunter +/s/ +John Randall +Director +January +20, 2026 +John +Randall +/s/ +Thomas J. Pernice +Director +January +20, 2026 +Thomas +J. Pernice +/s/ +James Blake +Director +January +20, 2026 +James +Blake +65 +TRIO +PETROLEUM CORP +Consolidated +Financial Statements for the Years Ended October 31, 2025 and 2024 +TABLE +OF CONTENTS +Page +Report of Independent Registered Public Accounting Firm (PCAOB ID 5041 ) +F-2 +Consolidated +Financial Statements: +Consolidated Balance Sheets as of October 31, 2025 and 2024 +F-3 +Consolidated Statements of Operations for the Years Ended October 31, 2025 and 2024 +F-4 +Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended October 31, 2025 and 2024 +F-5 +Consolidated Statements of Cash Flows for the Years Ended October 31, 2025 and 2024 +F-6 +Notes to Consolidated Financial Statements +F-7 +F- 1 +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Board of Directors and Stockholders +Trio Petroleum Corp. +23823 Malibu Road, Suite 304, +Malibu, CA 90265 +Opinion on the Financial Statements +We have audited the accompanying balance sheets of Trio Petroleum +Corp. (the “Company”) as of October 31, 2025, and the related statements of operations, stockholders’ equity, +and cash flows for the years then ended October 31, 2025, and the related notes (collectively referred to as the “financial statements”). +In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October +31, 2025, and the results of its operations and its cash flows for the years then ended October 31, 2025, in conformity with accounting +principles generally accepted in the United States of America. +Going Concern +The accompanying financial statements have been prepared assuming +that the entity will continue as a going concern. As discussed in Note 3 to the financial statements, the entity has suffered loss from +operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s +plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result +from the outcome of this uncertainty. +Basis for Opinion +These financial statements are the responsibility of the entity’s +management. Our responsibility is to express an opinion on these financial statements based on our audit. We are a public accounting firm +registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with +respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities +and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of +the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements +are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, +an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal +control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal +control over financial reporting. Accordingly, we express no such opinion. +Our audit included performing procedures to assess the risks +of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. +Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit +also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall +presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. +Critical Audit Matters +The critical audit matters communicated below are matters +arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee +and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, +subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, +taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit +matters or on the accounts or disclosures to which they relate. +We determined that there are no critical audit matters. +Bush & Associates CPA LLC +We have served as the Company’s auditor since 2024. +Las Vegas, Nevada +January 20, 2026 +PCAOB ID Number 6797 +F- 2 +TRIO +PETROLEUM CORP +CONSOLIDATED +BALANCE SHEETS +October 31, 2025 +October 31, 2024 +ASSETS +Current assets: +Cash +$ 882,162 +$ 285,945 +Prepaid expenses and other receivables +128,856 +279,274 +Accounts receivable +59,970 +- +Total current assets +1,070,988 +565,219 +Oil and gas properties - not subject to amortization +12,143,122 +11,119,119 +Total assets +$ 13,214,110 +$ 11,684,338 +LIABILITIES AND STOCKHOLDERS’ EQUITY +Current liabilities: +Accounts payable and accrued liabilities +$ 1,305,997 +$ 1,036,291 +Asset retirement obligations – current +2,778 +2,778 +Convertible notes, net of discounts +467,179 +- +Due to operators +5,668 +103,146 +Promissory notes, net of discounts +- +742,852 +Note payable - related party +- +135,000 +Payable – related party +- +115,666 +Other current liabilities +75,268 +454,966 +Total current liabilities +1,856,890 +2,590,699 +Long-term liabilities: +Asset retirement obligations, net of current portion +53,869 +51,091 +Total non-current liabilities +53,869 +51,091 +Total liabilities +1,910,759 +2,641,790 +Commitments and Contingencies (Note 7) +- +- +Stockholders’ Equity: +Preferred stock, $ 0.0001 par value; 10,000,000 shares authorized; - 0 - shares issued and outstanding at October 31, 2025 and 2024, respectively +- +- +Common stock, $ 0.0001 par value; 150,000,000 shares authorized; 9,047,568 and 3,203,068 shares issued and outstanding as of October 31, 2025 and 2024, respectively +906 +320 +Stock subscription receivable +( 10,010 ) +( 10,010 ) +Additional paid-in capital +38,653,796 +29,125,917 +Accumulated other comprehensive income +14,471 +Accumulated deficit +( 27,355,812 ) +( 20,073,679 ) +Total stockholders’ equity +11,303,351 +9,042,548 +Total liabilities and stockholders’ equity +$ 13,214,110 +$ 11,684,338 +The +accompanying notes are an integral part of these consolidated financial statements. +F- 3 +TRIO +PETROLEUM CORP +CONSOLIDATED +STATEMENTS OF OPERATIONS +For the Years Ended +October 31, +2025 +2024 +Revenue +$ 398,734 +$ 213,204 +Cost of goods sold +175,729 +- +Gross profit +223,005 +213,204 +Operating expenses: +Exploration expense +$ 45,594 +$ 177,416 +General and administrative expenses +2,817,626 +4,716,057 +Stock-based compensation expense +2,629,110 +1,534,667 +Accretion expense +2,778 +2,778 +Total operating expenses +5,495,108 +6,430,918 +Loss from operations +( 5,272,103 ) +( 6,217,714 ) +Other expenses (income): +Interest expense +605,515 +2,118,548 +Settlement fees +- +- +Loss on abandonment of oil and gas properties +611,763 +- +Loss on extinguishment +89,339 +- +Loss on conversion +712,253 +1,290,535 +Gain on foreign currency translation +( 8,840 ) +- +Total other expenses +2,010,030 +3,409,083 +Loss before income taxes +( 7,282,133 ) +( 9,626,797 ) +Provision for income taxes +- +- +Net loss +$ ( 7,282,133 ) +$ ( 9,626,797 ) +Basic and Diluted Net Loss per Common Share +Basic +$ ( 0.80 ) +$ ( 4.32 ) +Diluted +$ ( 0.80 ) +$ ( 4.32 ) +Weighted Average Number of Common Shares Outstanding +Basic +9,116,944 +2,226,320 +Diluted +9,116,944 +2,226,320 +Comprehensive loss +Net loss +( 7,282,133 ) +( 9,626,797 ) +Foreign currency translation adjustment +14,471 +- +Comprehensive loss +$ ( 7,267,662 ) +$ ( 9,626,797 ) +The +accompanying notes are an integral part of these consolidated financial statements. +F- 4 +TRIO PETROLEUM CORP +CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY +FOR THE YEARS ENDED OCTOBER 31, 2025 AND 2024 +Common Stock +Stock +Subscription +Additional Paid-in +Accumulated Other Comprehensive +Accumulated +Total +Stockholders’ +Shares +Amount +Receivable/Payable +Capital +Income +Deficit +Equity +Balance at November 1, 2023 +1,552,328 +$ 155 +$ ( 10,010 ) +$ 20,200,121 +- +$ ( 10,446,882 ) +$ 9,743,384 +Issuance of common shares in lieu of cash payments on convertible note +816,682 +82 +- +3,323,505 +- +- +3,323,587 +Issuance of common shares in lieu of cash payments on promissory notes +312,442 +31 +- +1,079,006 +- +- +1,079,037 +Issuance of common shares to consultants +107,500 +11 +- +738,289 +- +- +738,300 +Issuance of equity warrants in connection with convertible note +- +0 +- +409,191 +- +- +409,191 +Issuance of commitment shares in connection with the April 2024 Financings +75,000 +8 +- +667,492 +- +- +667,500 +Adjustment to common stock for warrants related to the Resale S-1/A +( 22,592 ) +( 3 ) +- +3 +- +- +0 +Issuance of common shares in connection with an at-the-market offering program +361,708 +36 +- +1,173,643 +- +- +1,173,679 +Stock-based compensation +- +0 +- +1,534,667 +- +- +1,534,667 +Net loss +- +0 +- +- +- +$ ( 9,626,797 ) +( 9,626,797 ) +Balance at October 31, 2024 +3,203,068 +$ 320 +$ ( 10,010 ) +$ 29,125,917 +$ - +$ ( 20,073,679 ) +$ 9,042,548 +Balance at November 1, 2024 +3,203,068 +$ 320 +$ ( 10,010 ) +$ 29,125,917 +$ - +$ ( 20,073,679 ) +$ 9,042,548 +Balance +3,203,068 +$ 320 +$ ( 10,010 ) +$ 29,125,917 +$ - +$ ( 20,073,679 ) +$ 9,042,548 +Issuance of common shares to executives and board members +210,000 +21 +- +( 21 ) +- +- +- +Issuance of common shares in connection with an at-the-market offering program +2,951,169 +295 +- +3,460,599 +- +- +3,460,894 +Issuance of common shares in lieu of cash payments on promissory notes +1,848,212 +185 +- +2,239,215 +- +- +2,239,400 +Issuance of beneficial ownership round-up shares for participants +21,046 +2 +- +( 2 ) +- +- +- +Issuance of common shares in connection with asset acquisition +526,536 +53 +- +747,628 +- +- +747,681 +Issuance of common shares in connection with Note Exchange Agreement +230,992 +23 +- +392,665 +- +- +392,688 +Issuance of common shares to a consultant +46,010 +5 +- +58,687 +- +- +58,692 +Reduction in shares due to option forfeitures +( 4,375 ) +- +- +- +- +- +- +Stock-based compensation +15,000 +2 +- +2,629,108 +- +- +2,629,110 +Net loss +- +- +- +- +- +( 7,282,133 ) +( 7,282,133 ) +Other comprehensive income +- +- +- +- +14,471 +- +14,471 +Balance at October 31, 2025 +9,047,658 +$ 906 +$ ( 10,010 ) +$ 38,653,796 +$ 14,471 +$ ( 27,355,812 ) +$ 11,303,351 +Balance +9,047,658 +$ 906 +$ ( 10,010 ) +$ 38,653,796 +$ 14,471 +$ ( 27,355,812 ) +$ 11,303,351 +The +accompanying notes are an integral part of these consolidated financial statements. +F- 5 +TRIO +PETROLEUM CORP +CONSOLIDATED +STATEMENTS OF CASH FLOWS +For the Years Ended October 31, +2025 +2024 +CASH FLOWS FROM OPERATING ACTIVITIES: +Net loss +$ ( 7,282,133 ) +$ ( 9,626,797 ) +Adjustments to reconcile net loss to net cash used in operating activities: +Accretion expense +2,778 +2,778 +Debt discount - OID +- +( 347,968 ) +Amortization of debt discounts +603,447 +2,092,671 +Loss on abandonment of oil and gas properties +611,763 +- +Issuance of common shares for services +58,692 +738,300 +Stock-based compensation +2,629,110 +1,534,667 +Loss on issuance of common shares in lieu of cash for debt payments +711,312 +1,022,534 +Loss on debt extinguishment +89,339 +- +Changes in operating assets and liabilities: +Accounts receivable +( 59,970 ) +- +Prepaid expenses and other receivables +143,418 +( 145,857 ) +Other liabilities +( 379,699 ) +454,966 +Accounts payable and accrued liabilities +267,194 +433,962 +Net cash used in operating activities +( 2,604,749 ) +( 3,840,744 ) +CASH FLOWS FROM INVESTING ACTIVITIES: +Capital expenditures for unproved oil and gas properties +( 881,085 ) +( 1,171,377 ) +Due to operators +( 97,478 ) +81,495 +Net cash used in investing activities +( 978,563 ) +( 1,089,882 ) +CASH FLOWS FROM FINANCING ACTIVITIES: +Proceeds from issuance of notes payable from related parties +- +250,666 +Proceeds from issuance of convertible notes payable +1,626,000 +550,000 +Proceeds from issuance of promissory notes +- +2,292,972 +Proceeds from issuance of common stock under at-the-market offering program +3,460,894 +1,173,679 +Repayment of notes payable from related parties +( 198,471 ) +- +Repayment of convertible notes payable +- +( 154,717 ) +Repayment of promissory notes +( 588,635 ) +( 198,050 ) +Payments of debt issuance costs +( 134,730 ) +( 259,903 ) +Net cash provided by financing activities +4,165,058 +3,654,647 +Effect of foreign currency exchange +14,471 +- +NET CHANGE IN CASH +596,217 +( 1,275,979 ) +Cash - Beginning of period +285,945 +1,561,924 +Cash - End of period +$ 882,162 +$ 285,945 +Supplemental disclosures of cash flow information: +Cash paid for interest +$ - +$ - +Cash paid for income taxes +$ - +$ - +SUPPLEMENTAL CASH FLOW INFORMATION: +Non-cash investing and financing activities: +Issuance of warrants in connection with financing arrangement +$ - +$ 409,191 +Issuance of common stock upon vesting of RSUs +$ 21 +$ 134,550 +Issuance of commitment shares in connection with financing arrangement +$ - +$ 667,500 +The +accompanying notes are an integral part of these consolidated financial statements. +F- 6 +TRIO +PETROLEUM CORP +NOTES +TO THE CONSOLIDATED FINANCIAL STATEMENTS +FOR +THE YEARS ENDED OCTOBER 31, 2025 AND 2024 +NOTE +1 – NATURE OF THE ORGANIZATION AND BUSINESS +Company +Organization +Trio +Petroleum Corp (“Trio Petroleum,” the “Company,” or “TPET”) is a California-based oil and gas exploration +and development company incorporated under the laws of the State of Delaware on July 19, 2021. The Company is headquartered in Bakersfield, +California, with its principal executive offices located at 23823 Malibu Road, Suite 304, Malibu, California 90265. +The Company was formed to acquire, finance, and operate oil and gas exploration, development, and production projects. +Since inception, the Company’s asset base has expanded beyond its initial California focus to include interests in the South Salinas +Project in Monterey County, California, the Asphalt Ridge Project in Uintah County, Utah, and heavy-oil assets in the Lloydminster region +of Saskatchewan, Canada. +Nature of Operations +The Company commenced revenue-generating +operations on February 22, 2024, when production was restarted at the McCool Ranch Oil Field in Monterey County, California. Initial revenues +were recognized during the fiscal quarter ended April 30, 2024. Operations at McCool Ranch were discontinued in May 2025, and all related +leases were terminated. +During +the fiscal quarter ended April 30, 2025, the Company recognized its first revenues from its Saskatchewan assets acquired through the +Novacor transaction (see “Novacor Acquisition” below). Revenues from these assets continued throughout the second half of +fiscal 2025. As of October 31, 2025, all the Company’s producing wells were located in Saskatchewan. +The Company has shifted its operational emphasis toward +jurisdictions and assets with more favorable economic conditions. While California remains part of the Company’s portfolio, rising +drilling and operating costs in the state have reduced the economic viability of certain development activities. As a result, the Company +has increased its focus on assets in Utah and Canada. +South Salinas Project +The +Company was initially formed to acquire from Trio LLC (“Trio LLC”) an approximate 82.75 % +working interest in the approximately 9,300 -acre +South Salinas Project located in Monterey County, California. This interest was subsequently increased to approximately 85.775 % in +April 2023. In September 2021, the Company entered into a Purchase and Sale Agreement (“Trio LLC PSA”) with Trio LLC to +acquire the working interest in exchange for $ 300,000 in +cash, a non-interest-bearing note payable of $ 3,700,000 , and 245,000 shares +of the Company’s common stock. The transaction was accounted for as an asset acquisition under ASC 805, Business +Combinations . The Company holds an approximate 68.62 % +net revenue interest in the South Salinas Project after the application of royalties. Trio LLC holds +an approximate 3.9 % +working interest. The Company and Trio LLC are separate and distinct entities. The remaining working interests are owned by two unrelated parties. +As of October 31, 2025 and 2024, no proved reserves had been established +for the South Salinas Project. The HV-3A discovery well produced oil following the restart of production testing in March 2024 but is +currently idled pending further evaluation of potential operational enhancements. +Formation of Canadian Subsidiary +On March 28, 2025, the Company formed Trio Petroleum Canada Corp. (“Trio +Canada”), an Alberta corporation and wholly owned subsidiary of the Company, to facilitate the acquisition and operation of oil +and gas assets in Canada. The Company’s Chief Executive Officer and Chief Financial Officer also serve in the same respective roles +for Trio Canada, and the Chief Executive Officer serves as its sole director. +Novacor Acquisition (April 2025) +On April 4, 2025, the Company entered into an Asset +Purchase Agreement (the “Novacor APA”) among the Company, Trio Canada, and Novacor Exploration Ltd. (“Novacor”), +pursuant to which Trio Canada agreed to acquire certain oil and gas assets located in the Lloydminster, Saskatchewan heavy-oil region. +The acquired assets included working interests in petroleum, natural gas, and mineral rights, along with associated contracts, leases, +and permits. The acquisition was completed in two closings, with the final closing occurring on May 22, 2025. The transaction is accounted +for as an asset acquisition under ASC 805. See Note 5 for additional information. +Emerging Growth Company +The Company is an “emerging growth company,” +as defined in Section 2(a)(19) of the Securities Act and as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS +Act”). As an emerging growth company, the Company may take advantage of certain exemptions from reporting requirements applicable +to other public companies, including exemptions from auditor attestation requirements under Section 404(b) of the Sarbanes-Oxley Act, +reduced executive compensation disclosures, and delayed adoption of new or revised accounting standards applicable to public companies. +The Company has elected to use the extended transition period for adopting new or revised accounting standards. +Subsequent Events +The Company evaluated subsequent events through the date the consolidated +financial statements were issued. +Capital Land Acquisition (November 2025) +In November 2025, the Company, +through Trio Canada, completed the acquisition of additional heavy-oil assets in the County of Vermilion River, Saskatchewan, from Capital +Land. Total consideration consisted of CAD $ 150,000 in cash and the issuance of 104,227 restricted shares of the Company’s common +stock. The acquired assets included producing wells and certain wells acquired out of receivership. The transaction will be accounted +for as an asset acquisition under ASC 805. +Novacor Acquisition (December 2025) +On December 30, 2025, the Company, +through Trio Canada, entered into and closed an Asset Purchase Agreement with Novacor Exploration Ltd. to acquire additional oil and gas +assets located in the Lloydminster, Saskatchewan heavy-oil region. The acquired assets include working interests in petroleum, natural +gas, and mineral rights, along with associated contracts, leases, and permits. Total consideration consisted of CAD $ 1,000,000 in cash +(approximately US $ 730,300 based on the exchange rate on the transaction date) and the issuance of 912,875 restricted shares of the Company’s +common stock. The transaction will be accounted for as an asset acquisition under ASC 805. In connection with the acquisition, the Company +and Novacor entered into a registration rights agreement providing Novacor with customary piggyback registration rights with respect to +the restricted shares issued as consideration. +ATM +Offering (January 2026) +On +January 9, 2026, the Company entered into an At Market Issuance Sales Agreement (the “ATM Agreement”) with Ladenburg +Thalmann & Co. Inc. (“Ladenburg”), pursuant to which the Company may offer and sell shares of its common stock from +time to time through Ladenburg, acting as sales agent. On the same date, the Company filed a prospectus supplement with the +Securities and Exchange Commission covering the offer and sale of shares of common stock having an aggregate offering price of up to +$ 3,600,000 . Under the terms of the ATM Agreement, Ladenburg will use its commercially reasonable efforts to sell shares in +transactions deemed to be “at-the-market offerings” under Rule 415(a)(4) of the Securities Act of 1933, as amended, or +by other methods permitted by law and agreed to by the Company. Ladenburg is entitled to compensation of up to 3.0% of the gross +proceeds from each sale of shares under the ATM Agreement. No sales had occurred under the ATM Agreement as of the date the +consolidated financial statements were issued +F- 7 +NOTE +2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Basis +of Consolidation +The +consolidated financial statements of Trio Petroleum Corp include the accounts of TPET and our wholly owned Canadian subsidiary Trio Canada. +All significant intercompany profits, losses, transactions and balances have been eliminated in consolidation in the consolidated financial +statements. +Basis +of Presentation +The +accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the +United States of America (“U.S. GAAP”). These consolidated financial statements include the accounts of Trio Petroleum Corp +and its subsidiaries and reflect all significant intercompany balances and transactions eliminated in consolidation. The consolidated +balance sheets as of October 31, 2025 and 2024, and the related statements of operations, stockholders’ equity, and cash flows +for the years then ended, have been audited by independent registered public accountants. In the opinion of management, the consolidated +financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of the Company +for the periods presented. +Use +of Estimates +The +preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that +affect the reported amounts of assets, liabilities, equity-based transactions and disclosure of contingent assets and liabilities at +the date of the consolidated financial statements, and the revenue and expenses during the reporting period. +Making +estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of +a condition, situation or set of circumstances that existed at the date of the financial statement, which management considered in formulating +its estimate, could change in the near term due to one or more future confirming events. Some of the more significant estimates required +to be made by management include estimates of oil and natural gas reserves (when and if assigned) and related present value estimates +of future net cash flows therefrom, the carrying value of oil and natural gas properties, accounts receivable, bad debt expense, ARO +and the valuation of equity-based transactions. Accordingly, actual results could differ significantly from those estimates. +Foreign +Currency Translation +The +Company’s reporting currency is the United States dollar. In March 2025, the Company formed Trio Canada, its wholly owned subsidiary, +whose functional currency is the Canadian Dollar (“CAD”). Balance sheet accounts of Trio Canada are translated at the exchange +rate in effect at the balance sheet date ( 0.7317 CAD to 1 US dollar as of October 31, 2025). Income and expense accounts are translated +at the weighted average exchange rate for the fiscal year ( 0.7140 CAD to 1 US dollar for the year ended October 31, 2025). Equity accounts +are translated at historical exchange rates. The resulting translation adjustments are recognized in stockholders’ equity as a +component of accumulated other comprehensive income. +F- 8 +Comprehensive +income represents the change in equity from transactions and other events and circumstances from non-owner sources. It includes all changes +in equity during a period except those resulting from investments by and distributions to owners. As described above, this includes foreign +currency translation adjustments. For the year ended October 31, 2025, the Company recorded other comprehensive income of $ 14,471 related +to foreign currency translation adjustments. No such amount was recorded for the year ended October 31, 2024. +Foreign +currency gains and losses arising from transactions denominated in currencies other than the Company’s functional currency, including +intercompany transactions, are recognized in the consolidated statements of operations as incurred. For the year ended October 31, 2025, +the Company recognized a foreign currency transaction loss of $ 8,840 , with no such gain or loss recognized during the comparable period +in 2024. This amount is classified within general and administrative expenses in the accompanying consolidated statements of operations +and comprehensive income (loss). +Cash +and cash equivalents +The +Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. +The Company had no cash equivalents as of October 31, 2025 and 2024. +Prepaid +Expenses +Prepaid +expenses consist primarily of payments made in advance for goods or services to be received in future periods. These include prepaid +insurance, software subscriptions, and lease-related costs. Prepaid expenses are recorded as current assets and amortized on a straight-line +basis over the period of benefit. +During +the year ended October 31, 2025, the Company entered into a short-term surface lease agreement for access to land in Saskatchewan, +Canada, related to oil and gas development activities, including a well site and access road. In accordance with ASC 842 - Leases +and the Company’s lease accounting policy, the full lease payment of CAD $ 15,535 +was made on May 1, 2025 and recorded as a Prepaid Lease Expense. The lease term is 12 +months, and the expense is recognized ratably over the lease period. As of October 31, 2025, CAD $ 9,543 +has been recognized in Operating Expenses, with the remaining CAD $ 10,559 +classified as a current asset. +As +of October 31, 2025 and 2024, the balances of the prepaids account were $ 128,856 and $ 279,274 , respectively. +Loan +Receivables +Loan +receivables are recorded at their outstanding principal balance, net of any allowance for credit losses. The Company evaluates the collectability +of loan receivables based on historical experience, current economic conditions, and the creditworthiness of borrowers. The Company maintains +an allowance for credit losses to cover estimated losses; the allowance is determined based on historical loss experience, current economic +conditions and specific borrower risk assessments. Adjustments to the allowance are recorded through provision for credit losses in the +statement of operations. Interest income on loan receivables is recognized using the effective interest method. Loans are placed on nonaccrual +status when collection of principal or interest is uncertain. Loan receivables are reviewed periodically for impairment. If a loan is +deemed uncollectible, the Company records a charge-off against the allowance for credit losses. +Debt +Issuance Costs +Costs +incurred in connection with the issuance of the Company’s debt have been recorded as a direct reduction against the debt and amortized +over the life of the associated debt as a component of interest expense. As of October 31, 2025 and 2024, the Company recorded $ 134,730 +and $ 259,903 in debt issuance costs. +Oil +and Gas Assets and Exploration Costs – Successful Efforts +The +Company’s projects are in exploration and/or early production stages and the Company began generating revenue from its operations +during the quarterly period ended April 30, 2024. It applies the successful efforts method of accounting for crude oil and natural gas +properties. Under this method, exploration costs such as exploratory, geological, and geophysical costs, delay rentals and exploratory +overhead are expensed as incurred. If an exploratory property provides evidence to justify potential development of reserves, drilling +costs associated with the property are initially capitalized, or suspended, pending a determination as to whether a commercially sufficient +quantity of proved reserves can be attributed to the area as a result of drilling. At the end of each quarter, management reviews the +status of all suspended exploratory property costs considering ongoing exploration activities; in particular, whether the Company is +making sufficient progress in its ongoing exploration and appraisal efforts. If management determines that future appraisal drilling +or development activities are unlikely to occur, associated exploratory well costs are expensed. +Costs +to acquire mineral interests in crude oil and/or natural gas properties, drill and equip exploratory wells that find proved reserves +and drill and equip development wells are capitalized. Acquisition costs of unproved leaseholds are assessed for impairment during the +holding period and transferred to proven crude oil and/or natural gas properties to the extent associated with successful exploration +activities. Significant undeveloped leases are assessed individually for impairment, based on the Company’s current exploration +plans, and a valuation allowance is provided if impairment is indicated. Capitalized costs from successful exploration and development +activities associated with producing crude oil and/or natural gas leases, along with capitalized costs for support equipment and facilities, +are amortized to expense using the unit-of-production method based on proved crude oil and/or natural gas reserves on a field-by-field +basis, as estimated by qualified petroleum engineers. +As +of October 31, 2025, the Company had seven wells that are producing, all of which are located in the newly acquired Saskatchewan property. +The Company expects to add the reserve value of such fields to the Company’s reserve report after a further period of observation +and review of the oil production; once this has been determined, it will estimate the necessary depreciation, depletion and amortization +(“DD&A”) for such wells. +F- 9 +Proved +and unproved oil and natural gas properties +Unproved +oil and natural gas properties have unproved lease acquisition costs, which are capitalized until the lease expires or otherwise until +the Company specifically identifies a lease that will revert to the lessor, at which time the Company charges the associated unproved +lease acquisition costs to exploration costs. +Unproved +oil and natural gas properties are not subject to amortization and are assessed periodically for impairment on a property-by-property +basis based on remaining lease terms, drilling results or future development plans. As of October 31, 2025 and 2024, such oil and gas +properties were classified as unproved properties and were not subject to DD&A. +Proved +oil and natural gas properties include developed and undeveloped reserves that have been confirmed through drilling and production activities. +These properties are subject to DD&A, which is calculated using the unit-of-production method based on total proved reserves. +● +Proved +developed reserves are amortized over the expected production life of the wells. +● +Proved +undeveloped reserves remain capitalized until development activities commence. +● +The +Company assesses impairment of proved properties periodically based on commodity prices, production forecasts, and reserve estimates. +As +of October 31, 2025, the Company has proved reserves in the newly acquired Saskatchewan properties and expects to add the reserves values +of such fields to the Company’s reserve report; once this has been done, it will estimate the necessary DD&A for such wells. +Impairment +of Other Long-lived Assets +The +Company reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the +historical cost-carrying value of an asset may no longer be appropriate. The Company assesses the recoverability of the carrying value +of the asset by estimating the future net undiscounted cash flows expected to result from the asset, including eventual disposition. +If the future net undiscounted cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the +difference between the asset’s carrying value and estimated fair value. With regards to oil and gas properties, this assessment +applies to proved properties. +As +of October 31, 2025 and 2024, the Company had no impairment of long-lived assets. +Asset +Retirement Obligations +ARO +consists of future plugging and abandonment expenses on oil and natural gas properties. In connection with the South Salinas Project +(“SSP”) acquisition described above, the Company acquired the plugging and abandonment liabilities associated with six non-producing +wells. The fair value of the ARO was recorded as a liability in the period in which the wells were acquired with a corresponding increase +in the carrying amount of oil and natural gas properties not subject to impairment. The Company plans to utilize the six wellbores acquired +in the SSP acquisition in future exploration, production and/or disposal (i.e., disposal of produced water or CO2 by injection) activities. +The liability is accreted for the change in its present value each period based on the expected dates that the wellbores will be required +to be plugged and abandoned. The capitalized cost of ARO is included in oil and gas properties and is a component of oil and gas property +costs for purposes of impairment and, if proved reserves are found, such capitalized costs will be depreciated using the units-of-production +method. The asset and liability are adjusted for changes resulting from revisions to the timing or the amount of the original estimate +when deemed necessary. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized. +Components +of the changes in ARO for the years ended October 31, 2025 and 2025 are shown below: +SCHEDULE +OF COMPONENTS OF CHANGES IN ARO +ARO, ending balance – October 31, 2023 +$ 51,091 +Accretion expense +2,778 +ARO, ending balance – October 31, 2024 +53,869 +Accretion expense +2,778 +ARO, ending balance – October 31, 2025 +56,647 +Less: ARO – current +2,778 +ARO, net of current portion – October 31, 2025 +$ 53,869 +F- 10 +Revenue +Recognition +ASU +2014-09, “ Revenue from Contracts with Customers ” (“Topic 606”) requires an entity to recognize revenue +when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled +to in exchange for those goods or services; refer to Note 4 – Revenue from Contracts with Customers for additional information. +The +Company’s revenue is comprised of revenue from exploration and production activities to produce oil. The Company’s oil is +sold to one customer who is a marketer, and payment is received in the month following delivery. +The +Company recognizes sales revenues from oil when control transfers to the customer at the time of delivery. Revenue is measured based +on the contract price, which may include adjustments for market differentials and downstream costs incurred by the customer, including +gathering, transportation or short load fees. +Revenues +are recognized for the sale of the Company’s percentage of working interest, adjusted for any incoming and outstanding expenses +and oil and gas assessments. +Related +Parties +Related +parties are directly or indirectly related to the Company, through one or more intermediaries and are in control, controlled by, or under +common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate +families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls +or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might +be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. On September 14, 2021, +the Company acquired an 82.75 % working interest (which was subsequently increased to an 85.775 % working interest as of April 2023) in +the SSP from Trio LLC in exchange for cash, a note payable to Trio LLC and the issuance of 245,000 shares of common stock. As of the +date of the acquisition, Trio LLC owned 45 % of the outstanding shares of the Company and was considered a related party. As of October +31, 2025 and 2024, Trio LLC owned less than 1 % and 1 %, respectively, of the outstanding shares of the Company. +Income +Taxes +Deferred +tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement +carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit +carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those +temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates +is recognized in income in the period that includes the enactment date. +The +Company utilizes ASC 740, Income Taxes , which requires the recognition of deferred tax assets and liabilities for the expected +future tax consequences of events that have been included in the consolidated financial statements or tax returns. The Company accounts +for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and +the related financial amounts, using currently enacted tax rates. A valuation allowance is recorded when it is “more likely than +not” that a deferred tax asset will not be realized. At October 31, 2025 and 2024, the Company’s net deferred tax asset has +been fully reserved. +For +uncertain tax positions that meet a “more likely than not” threshold, the Company recognizes the benefit of uncertain tax +positions in the consolidated financial statements. The Company’s practice is to recognize interest and penalties, if any, related +to uncertain tax positions in income tax expense in the statements of operations when a determination is made that such expense is likely. +The Company is subject to income tax examinations by major taxing authorities since inception. +The +Company’s wholly owned Canadian subsidiary is subject to taxation under Canadian federal and provincial tax laws. The subsidiary’s +income tax provision is calculated based on applicable Canadian tax rates, and any differences between U.S. and Canadian tax treatments +are considered in the consolidated financial statements. The Company also considers the impact of the U.S.-Canada Tax Treaty in determining +its tax obligations, including withholding taxes on intercompany transactions. +Fair +Value Measurements +The +carrying values of financial instruments comprising cash and cash equivalents, payables, and notes payable-related party approximate +fair values due to the short-term maturities of these instruments. The notes payable- related party is considered a level 3 measurement. +As defined in ASC 820, Fair Value Measurements and Disclosures , fair value is the price that would be received to sell an asset +or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company +utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about +risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or +generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy +gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and +the lowest priority to unobservable inputs (Level 3 measurement). This fair value measurement framework applies to both initial and subsequent +measurement. +Level +1: +Quoted +prices are available in active markets for identical assets or liabilities as of the reporting date. +Level +2: +Pricing +inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as +of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. +Level +3: +Pricing +inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally +developed methodologies that result in management’s best estimate of fair value. The significant unobservable inputs used in +the fair value measurement for nonrecurring fair value measurements of long-lived assets include pricing models, discounted cash +flow methodologies and similar techniques. +F- 11 +There +are no assets or liabilities measured at fair value on a recurring basis. Assets and liabilities accounted for at fair value on a non-recurring +basis in accordance with the fair value hierarchy include the initial allocation of the asset acquisition purchase price, including asset +retirement obligations, the fair value of oil and natural gas properties and the assessment of impairment. +The +fair value measurements and allocation of assets acquired are measured on a nonrecurring basis on the acquisition date using an income +valuation technique based on inputs that are not observable in the market and therefore represent Level 3 inputs. Significant inputs +used to determine the fair value include estimates of: (i) reserves; (ii) future commodity prices; (iii) operating and development costs; +and (iv) a market-based weighted average cost of capital rate. The underlying commodity prices embedded in the Company’s estimated +cash flows are the product of a process that begins with NYMEX forward curve pricing, adjusted for estimated location and quality differentials, +as well as other factors that the Company’s management believes will impact realizable prices. These inputs require significant +judgments and estimates by the Company’s management at the time of the valuation. +The +fair value of additions to the asset retirement obligation liabilities is measured using valuation techniques consistent with the income +approach, which converts future cash flows to a single discounted amount. Significant inputs to the valuation include: (i) estimated +plug and abandonment cost per well for all oil and natural gas wells and for all disposal wells; (ii) estimated remaining life per well; +(iii) future inflation factors; and (iv) the Company’s average credit-adjusted risk-free rate. These assumptions represent Level +3 inputs. +If +the carrying amount of its proved oil and natural gas properties, which are assessed for impairment under ASC 360 – Property, +Plant and Equipment, exceeds the estimated undiscounted future cash flows, the Company will adjust the carrying amount of the oil +and natural gas properties to fair value. The fair value of its oil and natural gas properties is determined using valuation techniques +consistent with the income and market approach. The factors used to determine fair value are subject to management’s judgment and +expertise and include, but are not limited to, recent sales prices of comparable properties, the present value of future cash flows, +net of estimated operating and development costs using estimates of proved reserves, future commodity pricing, future production estimates, +anticipated capital expenditures, and various discount rates commensurate with the risk and current market conditions associated with +the expected cash flow projected. These assumptions represent Level 3 inputs. +Net +Loss Per Share +Basic +and diluted net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the +reporting period. Diluted net loss per share is computed in the same manner as basic net loss per share, as the inclusion of potential +common shares would be anti-dilutive. +The +following common share equivalents were excluded from the calculation of diluted weighted average common shares outstanding, as their +effect would have been anti-dilutive: +SCHEDULE OF WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ANTI-DILUTIVE +As of October 31, +As of October 31, +2025 +2024 +Warrants +16,937 (1) +19,176 (1) +Total potentially dilutive securities +16,937 +19,176 +(1) +Represents +potentially dilutive shares based on 171,994 and 191,994 outstanding, equity classified warrants, respectively. +F- 12 +Environmental +Expenditures +The +operations of the Company have been, and may in the future be, affected from time to time to varying degrees by changes in environmental +regulations, including those for future reclamation and site restoration costs. Both the likelihood of new regulations and their overall +effect upon the Company vary greatly and are not predictable. The Company’s policy is to meet or, if possible, surpass standards +set by relevant legislation by application of technically proven and economically feasible measures. +Environmental +expenditures that relate to ongoing environmental and reclamation programs are charged against earnings as incurred or capitalized and +amortized depending on their future economic benefits. All of these types of expenditures incurred since inception have been charged +against earnings due to the uncertainty of their future recoverability. Estimated future reclamation and site restoration costs, when +the ultimate liability is reasonably determinable, are charged against earnings over the estimated remaining life of the related business +operation, net of expected recoveries. +Recent +Accounting Pronouncements +All +recently issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company. +Reclassification +of Expenses +Certain +amounts in the prior periods presented have been reclassified to the current period financial statement presentation. This reclassification +has no effect on previously reported net income. +Subsequent +Events +The +Company evaluated all events and transactions that occurred after October 31, 2025 through the date of the filing of this report. See +Note 11 for such events and transactions. +NOTE +3 – GOING CONCERN AND MANAGEMENT’S LIQUIDITY PLANS +As +of October 31, 2025, the Company had $ 882,162 in its operating bank account and a working capital deficit of $ 785,902 . The Company has +incurred significant losses since inception and, as of October 31, 2025, had an accumulated deficit of $ 27,355,812 . +To +date, the Company has funded its operations primarily through equity and debt financings, including: +● +Proceeds +from the issuance of common stock and financing from certain investors +● +Net +proceeds from its initial public offering (“IPO”) in April 2023 +● +Convertible +note financings totaling $ 2,371,500 in October and December 2023 +● +An +unsecured promissory note of $ 125,000 from the Company’s former CEO in 2024 +● +Gross +proceeds of $ 543,500 from promissory notes with investors in 2024 +● +Gross +proceeds of $ 1,440,000 from convertible debt financing in 2024 +● +Net +proceeds of approximately $ 4,650,000 under an “at-the-market” agreement entered into in September 2024 +● +Gross +proceeds of $ 606,000 from a private placement of convertible debt financing in April 2025 +● +Gross +proceeds of $ 1,020,000 from a private placement of convertible debt financing in August 2025 +The +accompanying consolidated financial statements have been prepared on a going concern basis, which assumes the Company will continue to +operate and meet its obligations over the twelve months following the issuance of these financial statements. However, the Company has +experienced recurring losses from operations and negative cash flows, and its current cash resources are not sufficient to meet projected +operating and capital requirements for the next twelve months. +Management +plans to address this liquidity shortfall by seeking additional capital through the issuance of equity securities, debt financing, or +other strategic arrangements. While the Company has been successful in raising capital to date, there can be no assurance that future +financing will be available on acceptable terms, or at all. +These +factors raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements +do not include any adjustments that might result from the outcome of this uncertainty. +F- 13 +NOTE +4 – REVENUE FROM CONTRACTS WITH CUSTOMERS +Disaggregation +of Revenue from Contracts with Customers +The +following table disaggregates revenue by significant product type for the periods below: +SCHEDULE OF DISAGGREGATES REVENUE +As of October 31, +As of October 31, +2025 +2024 +Oil sales +$ 398,734 +$ 213,204 +Total revenues from customers +$ 398,734 +$ 213,204 +There +were no significant contract liabilities or transaction price allocations to any remaining performance obligations as of October 31, +2025 or 2024. +Significant +concentrations of credit risk +The +Company’s revenue is primarily generated from oil and gas sales in California, United States, and Saskatchewan, Canada. For the +years ended October 31, 2025 and 2024, 100 % of total revenue comes from customers located in these regions. Changes in state and provincial +regulations, market conditions, or environmental policies could significantly impact the Company’s financial performance. Additionally, +fluctuations in commodity pricing and regional demand trends within California and Saskatchewan may affect future revenues. +NOTE +5 – OIL AND NATURAL GAS PROPERTIES +The +following tables summarize the Company’s oil and gas activities. +SCHEDULE OF OIL AND NATURAL GAS PROPERTIES +As of October 31, +As of October 31, +2025 +2024 +Oil and gas properties – not subject to amortization +$ 12,143,122 +$ 11,119,119 +Accumulated impairment +— +— +Oil and gas properties – not subject to amortization, net +$ 12,143,122 +$ 11,119,119 +During +the years ended October 31, 2025 and 2024, the Company incurred aggregated exploration costs of $ 45,594 and $ 177,416 , respectively. These +expenses primarily consisted of exploratory, geological, and geophysical costs, and were expensed in the consolidated statements of operations +during the applicable periods. +For +capitalized costs, the Company incurred approximately $ 0.9 million and approximately $ 1.2 million for the years ended October 31, 2025 +and 2024, respectively; these expenses were related to drilling exploratory wells and acquisition costs, both of which were capitalized +and are reflected in the balance of the oil and gas property as of October 31, 2025 and 2024, respectively. +Leases +South +Salinas Project +As +of October 31, 2025, the Company holds interests in various leases related to the unproved properties of the South Salinas Project (see +Note 5). Two of these leases are held with the same lessor: +● +Lease +1 – 8,417 acres; this lease was amended on May 27, 2022, to extend the then-active force majeure status for an uncontested +twelve-month period, during which the Company was not required to demonstrate the existence of force majeure conditions. As consideration, +the Company paid a one-time, non-refundable fee of $ 252,512 , which was capitalized and included in the oil and gas property balance +as of October 31, 2022. The extension period commenced on June 19, 2022. The force majeure status has since been extinguished by +the drilling of the HV-1 well. The lease remains valid due to ongoing operations and oil production at the HV-3A well. +● +Lease +2 – 160 acres; this lease is held by delay rental and is renewed every three years. Until drilling commences, the Company is +required to make annual delay rental payments of $ 30 per acre. The Company is in compliance and has prepaid the rental for the period +October 2024 through October 2025. +During +February and March 2023, the Company entered into additional leases with two groups of lessors: +● +Group +1 – 360 acres; these leases have a 20 -year term and require annual rental payments of $ 25 per acre. +● +Group +2 – 307.75 acres; these leases also have a 20 -year term, with annual rental payments of $ 30 per acre. +During +the current fiscal year, the Company made a strategic decision to abandon these additional leases. As a result, all associated exploration +and development costs—including capitalized costs for support equipment and facilities—have been expensed in accordance with +applicable accounting standards. The total expense recognized in connection with this abandonment was $ 111,149 and is reflected in the +Company’s statement of operations for the year-to-date period. +F- 14 +McCool +Ranch Oil Field +In +October 2023, the Company entered into the McCool Ranch Purchase Agreement with Trio LLC for the purchase of a 21.918315 % working interest +in the McCool Ranch Oil Field, located in Monterey County near the Company’s flagship South Salinas Project. The Company initially +recorded a payment of $ 100,000 upon execution of the agreement, at which time Trio LLC began refurbishment operations on the San Ardo +WD-1 water disposal well to assess its ability to serve the produced water needs for the assets. +On +May 27, 2025, the Company made the decision to terminate the McCool Ranch Oil Field leases; accordingly, all capitalized costs related +to the acquisition, refurbishment, and production restart (including costs for support equipment and facilities) totaling $ 500,614 have +been written off and expensed in the statement of operations for the year ended October 31, 2025. +The +Company will not make any further payments under the McCool Ranch Purchase Agreement, and all previously recorded liabilities associated +with the project have been recognized as an expense. The Company no longer holds any interest in the McCool Ranch Oil Field, and the +abandonment decision will be reflected in the financial statements. +Optioned +Assets – Asphalt Ridge Leasehold Acquisition & Development Option Agreement +On +November 10, 2023, the Company entered into the ARLO Agreement with HSO for a term of nine months which gives the Company the exclusive +right to acquire up to a 20 % interest in a 960 acre drilling and production program in the Asphalt Ridge leases for $ 2,000,000 , which +may be invested in tranches by the Company, with an initial tranche closing for an amount no less than $ 500,000 and paid within seven +days subsequent to HSO providing certain required items to the Company. +On +December 29, 2023, the Company entered into an amendment to the ARLO Agreement, whereby the Company funded $ 200,000 of the $ 500,000 payable +by the Company to HSO at the Initial Closing, in advance of HSO satisfying certain required items for a 2 % interest in the leases; such +funds are to be used by HSO solely for the building of roads and related infrastructure in furtherance of the development of the leases. +As of October 31, 2025, the Company has paid a total of $ 225,000 to HSO in costs related to infrastructure and has obtained a 2.25 % interest +in the leases; such costs are capitalized costs and are reflected in the balance of the oil and gas property as of October 31, 2025. +Per +the most recent amendment to the ARLO Agreement signed in April 2025, the Company had until May 10, 2025 to pay HSO an additional $ 1,775,000 +to exercise an option for the remaining 17.75 % working interest in the initial 960 acres of the Asphalt Ridge Leases. The option expired +after the reporting period on May 10, 2025 due to the Company’s failure to exercise it before the expiration date. As a result, +the Company forfeited any further right to acquire the additional 17.75 % working interest but will retain its existing 2.25 % interest +in the leases. +Novacor +Acquisition +On +April 4, 2025, the Company entered into the Novacor APA with Trio Canada and Novacor Exploration Ltd. (“Novacor”), a Canadian +corporation. Under the Novacor APA, Trio Canada agreed to acquire certain oil and gas assets from Novacor, including contracts, leases, +and permits for working interests in petroleum, natural gas, and mineral rights located in the Lloydminster, Saskatchewan heavy oil region +(the “Novacor Assets”), free and clear of liens other than specified assumed liabilities. +The +total purchase price was (i) US$ 650,000 in cash, including a previously paid deposit of $ 65,000 , and (ii) the issuance of 526,536 shares +of the Company’s common stock. +The +Novacor APA provided for two closings, both of which have been consummated on the respective dates below: +● +First +Closing – April 8, 2025: Title to a portion of the Novacor Assets was transferred to Trio Canada. The Company delivered $ 260,000 +in cash (net of the deposit) and issued the 526,536 Novacor Shares. +● +Second +Closing – May 22, 2025: Title to the remaining Novacor Assets was transferred, and the Company paid $ 325,000 in cash. +The +Company has accounted for the transaction as an asset acquisition under ASC 805 – Business Combinations; the total capitalized +cost of the Novacor Assets was $ 1,406,081 , comprising: +● +$ 333,400 +in cash payments, including $ 8,400 in capitalizable Canadian Provincial Sales Tax (“PST”) +● +$ 747,681 +in equity consideration, based on a fair value of $ 1.42 per share +● +$ 325,000 +in deferred consideration paid at the Second Closing +Following +the closings, operating costs for the Novacor Assets have been and will be maintained at levels consistent with the auditor’s report +for the 18-month period prior to acquisition, unless otherwise agreed upon. After two years, operating costs will remain competitive +with other operators in the region; Novacor will serve as the on-site operator and perform all work and services under the Novacor APA +and Trio Canada may terminate Novacor’s operational role with 30 days’ prior written notice. +Optioned +Assets – P.R. Spring, Uintah Basin, Utah +On +May 15, 2025, the Company entered into a non-binding Letter of Intent (LOI) with HSO for the potential acquisition of 2,000 acres at +P.R. Spring, Uintah Basin, Utah. Under the LOI, the Company would issue 1,492,272 restricted shares and pay $ 850,000 at closing, subject +to execution of definitive agreements. Upon signing the LOI, the Company made a non-refundable $ 150,000 Option Payment to HSO. The LOI +requires evidence of a minimum sustained production rate of 40 barrels per day for a continuous 30-day period from two wells at Asphalt +Ridge by May 15, 2026, or the LOI will expire unless extended. +F- 15 +NOTE +6 – RELATED PARTY TRANSACTIONS +South +Salinas Project – Related Party +Upon +its formation, the Company acquired from Trio LLC a majority working interest in the South Salinas Project and engaged the services of +certain members of Trio LLC to manage the Company’s assets (see Note 1 and Note 5). Trio LLC operates the South Salinas Project +on behalf of the Company, and as operator, conducts and has full control of the operations within the constraints of the Joint Operating +Agreement, and acts in the capacity of an independent contractor. Trio LLC currently holds a 3.8 % working interest in the South Salinas +Project and the Company holds an 85.775 % working interest. The Company provides funds to Trio LLC to develop and operate the assets in +the South Salinas Project; such funds are classified in the short-term asset/liability section of the balance sheet as Advance to Operators/Due +to Operators, respectively. As of October 31, 2025 and 2024, the balance of the Due to Operators account is $ 5,668 and $ 103,146 , respectively. +McCool +Ranch Oil Field Asset Purchase – Related Party +On +October 16, 2023, the Company entered into the McCool Ranch Purchase Agreement with Trio LLC for purchase of a 21.918315 % working interest +in the McCool Ranch Oil Field located in Monterey County near the Company’s flagship South Salinas Project (see Note 5); the Assets +were situated in what is known as the “Hangman Hollow Area” of the McCool Ranch Oil Field. The Company initially recorded +a payment of $ 100,000 upon execution of the McCool Ranch Purchase Agreement, at which time Trio LLC began refurbishment operations with +respect to the San Ardo WD-1 to determine if it was capable of reasonably serving the produced water needs for the assets. Following +successful refurbishment, the Company committed to an additional $ 400,000 payment under the agreement. +On +May 27, 2025, the Company made the decision to terminate the McCool Ranch Oil Field leases. Accordingly, all capitalized costs related +to the acquisition, refurbishment, and production restart—including costs for support equipment and facilities—totaling $ 500,614 +have been written off and expensed in the statement of operations. +Restricted +Stock Units (“RSUs”) issued to Directors +Pursuant +to the Company’s 2022 Equity Incentive Plan (the “Plan”), on September 2, 2023, the Company granted an aggregate of +21,250 restricted stock units (“RSUs”) to four non-employee directors. The RSUs were measured at the grant-date fair value +of $ 12.80 per share, resulting in a total grant-date fair value of $ 273,275 . The RSUs vested in full on February 28, 2024. +On +June 19, 2024, pursuant to the Plan, the Board approved the grant of 50,000 RSUs to a newly appointed director. At the time of grant, +only 22,750 shares remained available under the Plan; accordingly, 22,500 RSUs were granted immediately at a grant-date fair value of +$ 6.00 per share, for a total fair value of approximately $ 134,550 . The remaining 27,500 RSUs were granted in the following quarter at +a grant-date fair value of $ 3.32 per share, for a total fair value of approximately $ 91,300 . +For +the years ended October 31, 2025 and 2024, the Company recognized stock-based compensation expense of $ 157,406 and $ 30,651 , respectively, +related to these awards, which is included in stock-based compensation expense in the consolidated statements of operations. As of October +31, 2025, $ 37,793 of unrecognized compensation cost remained to be recognized over the remaining vesting period. +On +October 21, 2024, pursuant to the Plan, the Board approved the grant of 12,500 RSUs to a newly appointed director. These RSUs vested +in full on the six-month anniversary of the director’s commencement date and were measured at a grant-date fair value of $ 3.13 +per share, for a total fair value of approximately $ 39,125 . On the same date, the Company also granted an aggregate of 37,500 RSUs to +current directors under the Plan. These RSUs vested in full on the three-month anniversary of the commencement date and were measured +at a grant-date fair value of $ 3.13 per share, for a total fair value of approximately $ 117,375 . +For +the years ended October 31, 2025 and 2024, the Company recognized stock-based compensation expense of $ 141,592 and $ 14,908 , respectively, +related to these awards, which is included in stock-based compensation expense in the consolidated statements of operations. As of October +31, 2025, there was no remaining unrecognized compensation cost related to these grants. +On +August 1, 2025, the Company’s Board of Directors approved the grant of an aggregate of 850,000 restricted stock units (“RSUs”) +to four non-employee directors. The RSUs were fully vested on the grant date, which was the same date as Board approval. The awards were +measured at the grant-date fair value of $ 1.18 per share, resulting in a total grant-date fair value of approximately $ 1,001,725 . +As +of October 31, 2025, although the shares underlying the RSUs had not yet been issued, the obligation was both probable and estimable. +In accordance with ASC 718, Compensation—Stock Compensation , and ASC 450, Contingencies , the Company recognized the +full amount of stock-based compensation expense related to these awards in the consolidated statement of operations for the year ended +October 31, 2025. +Restricted +Shares issued to Executives and Employees +In +May 2023, the Company entered into six employee agreements that provided for the grant of an aggregate of 35,000 restricted shares pursuant +to the Plan. Subject to continued employment, 25 % of the shares vested five months after the grant date, with the remainder vesting in +equal tranches every six months until fully vested. The restricted shares were measured at a grant-date fair value of $ 43.00 per share, +for an aggregate fair value of approximately $ 1,505,000 . During fiscal 2025, four of the employee agreements were not renewed, resulting +in the forfeiture of 4,375 restricted shares. For the years ended October 31, 2025 and 2024, the Company recognized stock-based compensation +expense of $ 180,936 and $ 753,188 , respectively, related to these awards, which is included in stock-based compensation expense in the +consolidated statements of operations. As of October 31, 2025, all awards had either vested or been forfeited, and there was no remaining +unrecognized compensation cost. +F- 16 +On +July 11, 2024, the Company entered into a three-month consulting agreement with Mr. Peterson, the Company’s former Chief Executive +Officer. Under the terms of the agreement, Mr. Peterson received a monthly cash fee of $ 10,000 and was granted 50,000 RSUs pursuant to +the Plan. The RSUs were measured at a grant-date fair value of $ 3.32 per share, for a total fair value of approximately $ 166,000 . For +the years ended October 31, 2025 and 2024, the Company recognized stock-based compensation expense of $ 68,033 and $ 97,967 , respectively, +related to these awards, which is included in stock-based compensation expense in the consolidated statements of operations. As of October +31, 2025, all compensation cost related to the RSUs had been recognized, with no remaining unrecognized expense. +On +July 11, 2024, the Company entered into an employment agreement with Mr. Robin Ross, pursuant to which Mr. Ross was appointed Chief Executive +Officer, succeeding Mr. Peterson. Under the terms of the agreement, Mr. Ross received an initial annual base salary of $ 300,000 and is +eligible for an annual discretionary bonus of up to 100 % of his base salary, subject to continued employment and achievement of objectives +and milestones established annually by the Board’s Compensation Committee. In connection with his appointment, Mr. Ross was granted +100,000 RSUs under the Plan, measured at a grant-date fair value of $ 3.32 per share, for a total fair value of approximately $ 332,000 . +For the years ended October 31, 2025 and 2024, the Company recognized stock-based compensation expense of $ 221,941 and $ 21,890 , respectively, +related to these awards, with $ 88,168 of unrecognized compensation cost remaining as of October 31, 2025. +On +August 1, 2025, the Compensation Committee approved an amendment to Mr. Ross’s employment agreement, increasing his annual base +salary from $ 300,000 to $ 400,000 , effective immediately. As part of the amendment, Mr. Ross was granted a one-time award of 625,000 RSU’s +under the Plan; the RSUs were fully vested on the grant date, which was the same date as Board approval. The awards were measured at +the grant-date fair value of $ 1.18 per share, resulting in a total grant-date fair value of approximately $ 736,563 . As of October 31, +2025, although the shares underlying the RSUs had not yet been issued, the obligation was both probable and estimable. In accordance +with ASC 718, Compensation—Stock Compensation , and ASC 450, Contingencies , the Company recognized the full amount +of stock-based compensation expense related to these awards in the consolidated statement of operations for the year ended October 31, +2025. In addition, the Compensation Committee authorized a cash bonus of $ 150,000 , payable at the Board’s discretion, pursuant +to Section 4 of his employment agreement. +On +October 21, 2024, the Company granted 10,000 RSUs to Gregory Overholtzer, the Company’s Chief Financial Officer, under the Plan. +The RSUs vested in full on the six-month anniversary of the commencement date and were measured at a grant-date fair value of $ 3.13 per +share, for a total fair value of approximately $ 31,300 . For the years ended October 31, 2025 and 2024, the Company recognized stock-based +compensation expense of $ 29,580 and $ 1,720 , respectively, related to these awards, with no remaining unrecognized compensation cost as +of October 31, 2025. +On +August 1, 2025, the Compensation Committee approved a one-time grant of 62,500 RSUs to Mr. Overholtzer under the Plan. The awards were +measured at the grant-date fair value of $ 1.18 per share, resulting in a total grant-date fair value of approximately $ 73,656 . As of +October 31, 2025, although the shares underlying the RSUs had not yet been issued, the obligation was both probable and estimable. In +accordance with ASC 718, Compensation—Stock Compensation , and ASC 450, Contingencies , the Company recognized the +full amount of stock-based compensation expense related to these awards in the consolidated statement of operations for the year ended +October 31, 2025. +Note +Payable – Related Party +On +March 26, 2024, the Company borrowed $ 125,000 from its former Chief Executive Officer, Michael L. Peterson, in connection with which +the Company delivered to Mr. Peterson an Unsecured Subordinated Promissory Note in the principal amount of $ 125,000 . The Note is payable +on or before September 26, 2024 (the “Peterson Note Maturity Date”), upon which date the principal balance and interest accruable +at a rate of 10 % per annum is due and payable to Mr. Peterson by the Company. The Company may prepay the Peterson Note at any time prior +to the Peterson Note Maturity Date, in whole or in part, without premium or penalty. The Company is also required to prepay the Peterson +Note, in full, prior to the Peterson Note Maturity Date from the proceeds of any equity or debt financing received by the Company of +at least $ 1,000,000 . As additional consideration for the Peterson Loan, the Company accelerated the vesting of 50,000 shares of restricted +stock awarded to Mr. Peterson under the Plan. The Peterson Note also provides for acceleration of payment of the outstanding principal +balance and all accrued and unpaid interest in the case of an Event of Default (as such term is defined in the Peterson Note), where +there is either a payment default or a bankruptcy event. +F- 17 +On +September 26, 2024 and October 28, 2024, the Company entered into the first and second amendments, respectively, to the Peterson Note; +each amendment extended the maturity dates to October 28, 2024 and November 30, 2024, respectively, and added a $ 5,000 extension fee +(per amendment) to the principal of the note. On November 25, 2024, the Company paid off the Peterson Note in the amount of $ 143,516 , +with $ 135,000 in satisfaction of the principal amount owed and $ 8,516 towards accrued interest. +Consulting +Agreement +On +December 31, 2024, the employment agreement between the Company and Mr. Overholtzer ended, and on January 1, 2025, the Company entered +into an independent contractor agreement with Mr. Overholtzer, under which he continues to serve as the Chief Financial Officer of the +Company and is paid a monthly fee of $ 12,500 ; the initial term of the agreement is for one year and will be automatically renewed unless +either party provides a 30-day notice prior to the expiration of the agreement. +Loan +to Trio Canada +As +of April 4, 2025, the Company entered into a Loan and Note Purchase Agreement (the “Loan Agreement”) with Trio Canada, whereby +it made a loan (the “Subsidiary Loan”) to Trio Canada in the amount of $ 1,131,000 (the “Loan Amount”); in return, +Trio Canada issued to the Company a three-year promissory note with a maturity date of April 4, 2028 in the principal amount of $ 1,131,000 +(the “Subsidiary Note”). The outstanding principal amount of the Subsidiary Note accrues interest at a rate of 12 % per annum. +Under +the terms of the Loan Agreement, $ 585,000 of the Loan Amount is required to be used to pay the remaining cash amount payable to Novacor +in connection with the Novacor Acquisition; the remainder of the Loan Amount is to be used for ongoing operating costs of Trio Canada. +As of October 31, 2025, $ 700,665 has been utilized, primarily for consideration in the Novacor acquisition, with a small portion applied +to other operating cash needs of Trio Canada. The remaining unused portion of the Subsidiary Loan is $ 430,335 . +For +the year ended October 31, 2025, the Company recorded intercompany interest income of $ 27,606 on the Subsidiary Loan, based on an interest +rate of 8 % per annum, with the corresponding interest expense recognized by Trio Canada. +Resignation +and Consulting Agreement - Stanford Eschner +On +August 1, 2025, Mr. Stanford Eschner resigned from his positions as Vice Chairman and director of Trio Petroleum Corp, effective immediately. +His resignation was not the result of any disagreement with the Company’s management or Board of Directors regarding operations, +policies, or practices. Concurrently, the Board approved Mr. Eschner’s engagement as a consultant to the Company through December +31, 2025. Under the Consulting Agreement, Mr. Eschner is entitled to receive a monthly cash fee of $ 4,167 and a one-time grant of 15,000 +shares of common stock pursuant to the Plan. +NOTE +7 – COMMITMENTS AND CONTINGENCIES +Legal +Matters +From +time to time, the Company may be subject to claims and legal proceedings arising in the ordinary course of business. Management currently +believes that any potential liabilities arising from such matters will not have a material adverse effect on the Company’s financial +position, results of operations, or cash flows. +F- 18 +Unproved +Property Leases +South +Salinas Project +The +Company holds various leases related to unproved properties in the South Salinas Project, including two leases with the same lessor: +● +Lease +1 ( 8,417 acres): Amended on May 27, 2022 to extend force majeure status for an additional uncontested twelve months, releasing the +Company from evidencing force majeure conditions during that period. A one-time, non-refundable payment of $ 252,512 was made and +capitalized as part of oil and gas property as of October 31, 2022. The force majeure status was extinguished following the drilling +of the HV-1 well. Continued operations and oil production at the HV-3A well maintain the lease’s validity. +● +Lease +2 ( 160 acres): Held by delay rental, renewed every three years. The Company is required to pay $ 30 per acre annually until drilling +commences. The delay rental payment for October 2024 through October 2025 has been paid in advance, and the Company remains in compliance. +In +February and March 2023, the Company entered into additional leases covering unproved properties in the South Salinas Project: +● +Group +1: Covers 360 acres with a 20 -year term; annual rental payments of $ 25 per acre +● +Group +2: Covers 307.75 acres with a 20 -year term; annual rental payments of $ 30 per acre +During +the second and third quarters of fiscal 2025, the Company strategically abandoned all additional leases in the South Salinas Project. +All associated exploration and development costs, including capitalized expenditures for equipment and facilities, were expensed in accordance +with applicable accounting standards. This decision followed a comprehensive evaluation of the leases’ economic viability, market +conditions, regulatory factors, and operational constraints. +McCool +Ranch Oil Field +The +Company previously held interests in two parcels of unproved leases in the McCool Ranch Oil Field: +● +Parcel +1: Ten leases totaling approximately 480 acres, held by delay rental payments +● +Parcel +2: One lease totaling approximately 320 acres, held by production +As +of the second quarter of 2025, the Company elected to terminate all McCool Ranch leases. These leases have been written off and expensed +in the statement of operations. No further rental payments or development activities will be pursued. +Asphalt +Ridge Leases – ARLO Agreement +On +November 10, 2023, the Company entered into the ARLO Agreement with HSO, granting the exclusive right to acquire up to a 20 % working +interest in a 960 -acre drilling and production program in the Asphalt Ridge leases for $ 2,000,000 . The agreement allowed for investment +in tranches, with an initial tranche of no less than $ 500,000 payable within seven days of HSO satisfying certain conditions. +On +December 29, 2023, the Company amended the ARLO Agreement and funded $ 200,000 of the initial $ 500,000 tranche in advance of HSO satisfying +the required conditions. In exchange, the Company acquired a 2 % interest in the leases. These funds were designated for infrastructure +development, including road construction. As of October 31, 2025, the Company had paid a total of $ 225,000 to HSO and holds a 2.25 % working +interest in the leases. These costs have been capitalized and are reflected in the oil and gas property balance as of October 31, 2025. +Under +the most recent amendment signed in April 2025, the Company had until May 10, 2025 to pay an additional $ 1,775,000 to exercise its option +for the remaining 17.75 % interest. The option expired unexercised after the reporting period, and the Company forfeited its right to +acquire the additional interest. The Company retains its existing 2.25 % interest. +F- 19 +Proved +Property Leases +Saskatchewan, +Canada +In +April 2025, the Company acquired oil and gas lease rights for four proved properties located in Saskatchewan, Canada (see Note 5). The +leases total 320 net acres and are all held by production. +Board +of Directors Compensation +On +July 11, 2022, the Company’s Board of Directors approved a compensation plan for non-employee directors, effective upon the consummation +of the Company’s initial public offering (IPO). Under this plan, each non-employee director is entitled to an annual cash retainer +of $ 50,000 , plus an additional $ 10,000 per Board committee served, with all payments made quarterly in arrears. Compensation payments +commenced following the successful completion of the IPO in April 2023. +For +the years ended October 31, 2025 and 2024, the Company recognized director compensation expense of $ 321,689 and $ 223,170 , respectively. +Agreements +with Advisors +On +July 28, 2022, the Company entered into a placement agent agreement with the Placement Agent with Spartan Capital Securities, LLC (“Spartan”), +whereby Spartan agreed to serve as the exclusive agent, advisor or underwriter in any offering of securities of the Company for a one-year +term. The agreement provided for a $ 25,000 non-refundable advance upon execution of the agreement and completion of a bridge offering +to be credited against the accountable expenses incurred by the Placement Agent upon successful completion of the Company’s IPO, +a cash fee of 7.5%, warrants to purchase a number of common shares equal to 5% of the aggregate number of common shares placed in the +IPO and reimbursement of other expenses. On April 20, 2023, pursuant to this agreement, the Company issued representative warrants to +Spartan to purchase up to an aggregate of 5,000 shares of common stock; such warrants have a 5 five-year term with an exercise price of +$ 66.00 and can be exercised any time after the IPO date. +On +October 4, 2023 and December 29, 2023, the Company entered into additional placement agent agreements with Spartan, whereby Spartan would +serve as the exclusive placement agent in connection with the closing of private placements. The agreements provided the agent with i) +a cash fee 7.5% of the aggregate proceeds raised in the sale and ii) warrants to purchase a number of common shares equal to 5% of the +number of common shares initially issuable upon conversion of each note tranche; warrants to purchase 4,167 and 2,750 common shares with +exercise prices of $ 26.40 and $ 11.00 for the first and second tranches, respectively, were issued to Spartan as of January 31, 2024. +Such warrants may be exercised beginning 6 months after issuance until four- and one-half years thereafter. +NOTE +8 – INCOME TAXES +The +Company accounts for income taxes under ASC 740-10, which provides for an asset and liability approach of accounting for income taxes. +Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences, using currently +enacted tax laws, attributed to temporary differences between the carrying amounts of assets and liabilities for financial reporting +purposes and the amounts calculated for income tax purposes. +Significant +components of the Company’s deferred tax assets are summarized below. +SCHEDULE OF DEFERRED TAX ASSETS +As of October 31, +As of October 31, +2025 +2024 +Deferred tax assets: +Net operating loss carry forwards +$ 960,000 +$ 1,699,000 +Total deferred tax asset +960,000 +1,699,000 +Valuation allowance +( 960,000 ) +( 1,699,000 ) +Net deferred tax asset +$ - +$ - +F- 20 +As +of October 31, 2025 and 2024, the Company had approximately $ 960,000 and $ 1,669,000 , respectively, in net operating loss carry-forwards +for federal and state income tax reporting (tax effected) purposes. During fiscal 2025, the Company also formed Trio Canada, its wholly +owned subsidiary, which generated approximately $ 30,000 (USD) of net income, which has been excluded from the U.S. tax provision and considered +immaterial. +As +a result of the Tax Cuts and Jobs Act of 2017, certain U.S. net operating loss carryforwards do not expire but are subject to an annual +limitation on utilization. +The +Company recorded a valuation allowance in the full amount of its net deferred tax assets since realization of such tax benefits has been +determined by management to be less likely than not. The valuation allowance decreased by $ 739,000 and increased by $ 604,000 during the +years ended October 31, 2025 and 2024, respectively. +A +reconciliation of the statutory federal income tax benefit to actual tax benefit is as follows: +SCHEDULE OF EFFECTIVE FEDERAL INCOME TAX RATE RECONCILIATION +As of October 31, +As of October 31, +2025 +2024 +Federal statutory blended income tax rates +( 21 )% +( 21 )% +State statutory income tax rate, net of federal benefit +- % +- % +Change in valuation allowance +21 % +21 % +Effective tax rate +- % +- % +As +of the date of this filing, the Company has not filed its 2025 federal and state corporate income tax returns. The Company expects to +file these documents as soon as practicable. Trio Canada has not yet filed its Canadian federal and provincial corporate income tax returns +for the fiscal year ended October 31, 2025. +The +Company has evaluated its income tax positions and has determined that it does not have any uncertain tax positions in either the U.S. +or Canada. The Company will recognize interest and penalties related to any uncertain tax positions through its income tax expense. +NOTE +9 – NOTES PAYABLE +Notes +payable as of October 31, 2025 and 2024 consisted of the following: +SCHEDULE OF NOTES PAYABLE +As of +As of +October 31, 2025 +October 31, 2024 +Convertible notes, net of discounts +$ 467,179 +$ - +Promissory notes, net of discounts +- +742,852 +Payable – related party +- +115,666 +Note payable – related party +- +135,000 +Total notes payable +$ 467,179 +$ 993,518 +Payable +– related party +See +Note 6 - McCool Ranch Oil Field Asset Purchase – Related Party for further information. +March +2024 Debt Financing +On +March 27, 2024, the Company entered into a Securities Purchase Agreement (the “SPA”) with an institutional investor (the +“March 2024 Investor”), which was funded on April 5, 2024. Pursuant to the SPA, the Company raised gross proceeds of $ 184,500 +and received net proceeds of $ 164,500 , after payment of offering expenses (the “March 2024 Debt Financing”). +F- 21 +In +connection with the March 2024 Debt Financing, the Company issued an unsecured promissory note to the March 2024 Investor in the principal +amount of $ 211,500 , reflecting an original issue discount of $ 27,000 (approximately 13 %). The note accrued interest at 12 % per annum +and matured on January 30, 2025. The note provided for five scheduled payments of principal and accrued interest, which were due on September +30, 2024 ($ 118,440 ), October 30, 2024 ($ 29,610 ), November 30, 2024 ($ 29,610 ), December 30, 2024 ($ 29,610 ), and January 30, 2025 ($ 29,610 ). +The +Company made cash payments of $ 118,440 on September 30, 2024, $ 29,610 on October 30, 2024, and $ 88,830 on November 30, 2024, which satisfied +the full principal balance of the note. +For +the years ended October 31, 2025 and 2024, the Company recognized non-cash interest expense related to debt discounts of $ 21,316 and +$ 51,064 , respectively, within interest expense in the consolidated statements of operations. Over the life of the note, the Company recognized +a total of $ 72,380 in non-cash interest expense related to discounts. As of October 31, 2025, there was no remaining balance outstanding +under the note. +Note +Payable – Related Party +On +March 26, 2024, the Company borrowed $ 125,000 from its former Chief Executive Officer, Michael L. Peterson, in connection with which +the Company delivered to Mr. Peterson an Unsecured Subordinated Promissory Note in the principal amount of $ 125,000 . The Note is payable +on or before September 26, 2024 (the “Peterson Note Maturity Date”), upon which date the principal balance and interest accruable +at a rate of 10 % per annum is due and payable to Mr. Peterson by the Company. The Company may prepay the Peterson Note at any time prior +to the Peterson Note Maturity Date, in whole or in part, without premium or penalty. The Company is also required to prepay the Peterson +Note, in full, prior to the Peterson Note Maturity Date from the proceeds of any equity or debt financing received by the Company of +at least $ 1,000,000 . As additional consideration for the Peterson Loan, the Company accelerated the vesting of 50,000 shares of restricted +stock awarded to Mr. Peterson under the Plan. The Peterson Note also provides for acceleration of payment of the outstanding principal +balance and all accrued and unpaid interest in the case of an Event of Default (as such term is defined in the Peterson Note), where +there is either a payment default or a bankruptcy event. +On +September 26, 2024 and October 28, 2024, the Company entered into the first and second amendments, respectively, to the Peterson Note; +each amendment extended the maturity dates to October 28, 2024 and November 30, 2024 , respectively, and added a $ 5,000 extension fee +(per amendment) to the principal of the note. On November 25, 2024, the Company paid off the Peterson Note in the amount of $ 143,516 , +with $ 135,000 in satisfaction of the principal amount owed and $ 8,516 towards accrued interest. +April +2024 Convertible Debt Financings +The +April 2024 Convertible Debt Financings, which provided net proceeds of $ 664,000 and included the issuance of 75,000 commitment shares +and $ 800,000 of senior secured convertible notes, were fully repaid and converted into common stock during fiscal 2024. As of October +31, 2025, no amounts remained outstanding and no expense was recognized in fiscal 2025. +F- 22 +June +2024 Convertible Debt Financings +On +June 27, 2024, the Company entered into a Securities Purchase Agreement (the “June 2024 SPA”) with the April 2024 Investors +(the “June 2024 Investors”). Pursuant to the June 2024 SPA, the Company received aggregate gross proceeds of $ 720,000 (net +of a 10 % original issue discount) and net proceeds of $ 676,200 after offering expenses (the “June 2024 Financing”). In connection +with the financing, the Company issued to each investor a Senior Secured 10 % Original Issue Discount Convertible Promissory Note in the +principal amount of $ 400,000 (the “June 2024 Notes”) and warrants to purchase an aggregate of 74,461 shares of common stock +at an initial exercise price of $ 7.905 per share (the “June 2024 Warrants”). The warrants were recorded as equity instruments +with an aggregate relative fair value of $ 257,701 . +The +June 2024 Notes were initially convertible into shares of common stock at a conversion price of $ 7.905 per share, subject to adjustment, +with a floor price of $ 2.40 . The notes did not bear interest unless an Event of Default occurred, in which case interest accrued at 10% +per annum. The notes matured on June 27, 2025 and required monthly installment payments commencing 90 days after issuance, payable in +cash or, under certain conditions, in shares of common stock. +During +fiscal 2024 and early fiscal 2025, the Company satisfied the obligations under the June 2024 Notes through a combination of cash payments +and conversions into common stock. On September 26, October 1, and October 30, 2024, the Company converted principal payments totaling +$227,776 into 85,837 shares, resulting in recognized losses of $14,203, $12,830, and $9,534, respectively. On October 11, 2024, the Company +issued 2,317 shares pursuant to a make-whole provision. On December 2, 2024, December 20, 2024, and January 7, 2025, the Company made +final principal payments totaling $572,224, of which $290,844 was converted into 340,419 shares, resulting in a recognized loss of $8,725. +The remaining payments were made in cash, with additional losses of $2,668 and $69,310 recognized under make-whole provisions. +As +of October 31, 2025, the balance of the June 2024 Notes was $ 0 . For the years ended October 31, 2025 and 2024, the Company recognized +non-cash interest expense related to debt discounts of $ 249,805 and $ 131,696 , respectively, within interest expense in the consolidated +statements of operations. Over the life of the notes, the Company recognized $381,501 in non-cash interest expense related to discounts. +August +1, 2024 Financing +On +August 1, 2024, the Company entered into a Securities Purchase Agreement (the “August 1st SPA”) with an investor, pursuant +to which the Company raised gross proceeds of $ 134,000 and received net proceeds of $ 110,625 . In connection with the financing, the Company +issued an unsecured promissory note in the principal amount of $ 152,000 , reflecting an original issue discount of $ 18,000 (approximately +11.8 %). The note accrued interest at 12 % per annum and matured on May 30, 2025 . +During +fiscal 2025, the Company made aggregate principal payments of $ 148,960 in cash. In addition, during the third quarter of fiscal 2025, +the Company issued 23,644 shares of common stock to the investor in satisfaction of a principal payment obligation. The shares were issued +at a conversion price of $ 0.90 per share, representing a total value of $ 28,846 . The fair value of the shares on the issuance date exceeded +the principal amount settled, resulting in a recognized loss of $ 7,566 , which was recorded in the consolidated statement of operations. +As +of October 31, 2025, the balance of the note was $ 0 . For the years ended October 31, 2025 and 2024, the Company recognized non-cash interest +expense related to debt discounts of $ 41,652 and $ 17,963 , respectively, within interest expense in the consolidated statements of operations. +August +6, 2024 Financing +On +August 6, 2024, the Company entered into a Securities Purchase Agreement (the “August 6th SPA”) with an investor, pursuant +to which the Company raised gross proceeds of $ 225,000 and received net proceeds of $ 199,250 . In connection with the financing, the Company +issued an unsecured promissory note in the principal amount of $ 255,225 , reflecting an original issue discount of $ 30,225 (approximately +11.8 %). The note accrued interest at 12 % per annum and matured on May 30, 2025 . +In +conjunction with the April 2024 Debt Financing, the Company also made two payments of $ 25,000 each to prior investors from the net proceeds +of this financing. +On +January 28, 2025, the Company entered into a Note Exchange Agreement with the investor to exchange the outstanding balance of $ 285,852 +for shares of the Company’s common stock. The exchange was completed on February 10, 2025, through the issuance of 230,992 shares +of common stock at $ 1.24 per share. The Company recorded the exchange as a debt extinguishment and recognized a loss of $ 141,534 . +As +of October 31, 2025, the balance of the August 6, 2024 Financing was $ 0 . +For the years ended October 31, 2025 and 2024, the Company recognized non-cash interest expense related to debt discounts of $ 26,826 +and $ 25,077 , +respectively, within interest expense in the consolidated statements of operations. +F- 23 +April +2025 Financing +On +April 11, 2025, the Company issued an Unsecured Original Issue Discount Convertible Promissory Note (the “Note”) to an institutional +investor in the principal amount of $ 321,176 , reflecting an original issue discount of $ 48,176 , for net funding of $ 273,000 . After reimbursing +the investor $ 10,000 for legal fees, the Company received net proceeds of $ 263,000 . +On +April 17, 2025, the Company issued an Amended and Restated Unsecured Original Issue Discount Convertible Promissory Note (the “Amended +and Restated Note”) in the aggregate principal amount of $ 712,941 , inclusive of the original note, with an aggregate original issue +discount of $ 106,941 . The aggregate funding amount was $ 606,000 , from which the Company received additional net proceeds of $ 333,000 +and paid a commission of $ 33,330 to Spartan Capital Securities, LLC. +Between +June 11 and June 23, 2025, the Company issued an aggregate of 877,340 shares of common stock to the investor in satisfaction of principal +obligations under the note. The issuances occurred at conversion prices ranging from $ 0.81 to $ 0.83 per share, for a total value of $ 1,240,054 . +The fair value of the shares issued exceeded the principal amounts settled, resulting in a total recognized loss of $ 528,054 , which was +recorded in the consolidated statement of operations. +As +of October 31, 2025, the balance of the April 2025 Financing was immaterial. The Company derecognized the remaining carrying value of +$ 861 related to the Jutland note at maturity on October 10, 2025, and recorded a gain on extinguishment of debt. For the years ended +October 31, 2025 and 2024, the Company recognized non-cash interest expense related to debt discounts of $ 150,271 and $ 0 , respectively, +within interest expense in the consolidated statements of operations. +August +2025 Financing +On +August 15, 2025, the Company closed a private placement pursuant to which it issued three unsecured convertible promissory notes (the +“Notes”) to institutional investors in an aggregate principal amount of $ 1,200,000 . The Notes included an original issue +discount of $ 180,000 ( 15 %), resulting in aggregate funding of $ 1,020,000 . After payment of $ 71,400 in placement agent fees and $ 20,000 +in legal fee reimbursements, the Company received net proceeds of $ 928,600 . +The +Notes mature on February 15, 2026 and may be prepaid at any time without penalty. The Notes are convertible, at the option of the investors, +into shares of the Company’s common stock at a conversion price equal to the lesser of (i) $1.32 or (ii) 90% of the lowest daily +VWAP of the Company’s common stock during the five trading days prior to conversion, subject to a floor price of $0.72 (adjustable +under certain circumstances, but not below $0.22). The Notes also contain provisions allowing the Company to require conversion under +specified trading and registration conditions, subject to beneficial ownership limitations of 4.99% (or 9.99% if elected by the investor). +The maximum number of shares issuable upon conversion of the Notes is 1,679,127, representing 19.99% of the Company’s outstanding +common stock as of the closing date. +Between +September 12 and October 23, 2025, investors converted $ 575,000 of principal into 606,809 shares of common stock at conversion prices +between $ 0.93 and $ 1.02 per share. The fair value of the shares issued exceeded the principal amounts settled, resulting in a total recognized +loss on conversion of $ 95,931 , which was recorded in the consolidated statement of operations. Following these conversions, the Notes +had a remaining principal balance of $ 625,000 and a net carrying value of $ 467,179 as of October 31, 2025. +For +the years ended October 31, 2025 and 2024, the Company recognized non-cash interest expense related to debt discounts of $ 113,575 and +$ 0 , respectively, within interest expense in the consolidated statements of operations. +NOTE +10 – STOCKHOLDERS’ EQUITY +Common +Shares +The +Company is authorized to issue an aggregate of 160,000,000 shares, consisting of 150,000,000 shares of common stock and 10,000,000 shares +of preferred stock, each with a par value of $ 0.0001 per share. On July 30, 2025, the stockholders approved an amendment to the Company’s +Amended and Restated Certificate of Incorporation to reduce the authorized shares to this level. The amendment was filed with the Secretary +of State of Delaware on July 30, 2025 and became effective upon filing. +F- 24 +Consultant +and Service Provider Issuances +On +November 11, 2023, the Company issued 10,000 shares of common stock to a vendor for marketing and distribution services, valued at $ 9.60 +per share for a total of $ 95,200 , which was recognized as marketing fees in the first and second quarters of 2024. +On +March 20, 2024, the Company issued 5,000 shares to a consultant as settlement for non-performed marketing services under a prior agreement, +valued at $ 2.20 per share for a total of $ 10,500 . +On +April 26, 2024, the Company entered into an agreement with consultants to provide marketing services and elected to issue 50,000 shares +in lieu of cash, valued at $ 7.40 per share for a total of $ 368,000 ; a loss of $ 268,000 was recognized. +On +April 29, 2024, the Company issued 30,000 shares to consultants for marketing services, valued at $ 7.40 per share for a total of $ 220,800 . +On +September 9, 2024, the Company issued 12,500 shares to a consultant under a media advertising agreement, valued at $ 3.60 per share for +a total of $ 43,800 . +On +January 1, 2025, the Company issued 20,000 shares to a consulting firm for investor communications and public relations services, valued +at $ 1.40 per share for a total of $ 28,000 . +On +August 1, 2025, the Board approved the issuance of 26,010 shares to a consultant for services performed in June 2025. The grant-date +fair value was $ 1.18 per share, or $ 30,692 in total, which exceeded the $ 22,629 originally accrued based on the consultant’s invoice. +The difference of $ 8,063 was recorded as additional compensation expense, with the full $ 30,692 recognized in the consolidated statement +of operations. The shares were issued on August 13, 2025 at a market price of $ 1.09 per share. +The +aggregate compensation expense recognized for consultant and service provider issuances was $ 58,692 and $ 738,300 for the years ended +October 31, 2025 and 2024, respectively. +Restricted +Stock Awards +On +August 1, 2025, the Board approved the grant of 1,552,500 restricted shares to consultants, directors, and executives. The awards vest +immediately upon issuance and therefore require no future service. Although only 15,000 shares had been issued as of October 31, 2025, +the Company determined the obligation was both probable and estimable based on Board authorization and the grant-date fair value of $ 1.18 +per share. Accordingly, compensation expense of $ 1,829,621 was recognized for the year ended October 31, 2025. The unrecognized compensation +cost related to these awards was $ 0 as of October 31, 2025. +Debt +Conversions and Exchanges +On +December 18, 2023, the Company issued 18,393 shares at a fair value of $ 6.80 per share for a total of $ 125,072 , with a cash payment of +$ 36,698 made to the investor for the difference between the monthly conversion price and the floor price. A loss of $ 36,770 was recognized. +On +December 29, 2023, the Company issued 18,393 shares at a fair value of $ 6.20 per share for a total of $ 114,036 , with a cash payment +of $ 35,837 made to the investor for the difference between the monthly conversion price and the floor price. A loss of $ 24,873 was +recognized. +On +January 12, 2024, the Company issued 18,393 shares at a fair value of $ 5.80 per share for a total of $ 105,575 , with a cash payment of +$ 49,935 made to the investor for the difference between the monthly conversion price and the floor price. A loss of $ 30,510 was recognized. +F- 25 +On +February 1, 2024, the Company issued 91,965 shares at a fair value of $ 4.80 per share for a total of $ 441,428 . An additional 119,796 +shares were issued in lieu of cash payments, valued at $ 574,779 . A loss of $ 391,447 was recognized. +On +February 2, 2024, the Company issued 94,417 shares at a fair value of $ 3.40 per share for a total of $ 323,094 . A loss of $ 48,094 was +recognized. +On +February 5, 2024, the Company issued 94,417 shares at a fair value of $ 3.60 per share for a total of $ 339,334 . A loss of $ 64,334 was +recognized. +On +February 16, 2024, the Company issued 42,917 shares at a fair value of $ 2.60 per share for a total of $ 113,300 , with a cash payment of +$ 32,247 made to the investor for the difference between the monthly conversion price and the floor price. A loss of $ 20,547 was recognized. +On +March 22, 2024, the Company issued 42,917 shares at a fair value of $ 2.00 per share for a total of $ 84,117 . An additional 17,576 shares +were issued in lieu of cash payments, valued at $ 221,449 . A loss of $ 180,566 was recognized. +On +April 2, 2024, the Company issued 257,500 shares at a fair value of $ 3.40 per share for a total of $ 881,165 . A loss of $ 131,165 was recognized. +On +September 26, 2024, the Company issued 30,520 shares at a fair value of $ 3.38 per share for a total of $ 103,091 . A loss of $ 14,203 was +recognized. +On +October 1, 2024, the Company issued 17,167 shares at a fair value of $ 3.66 per share for a total of $ 62,830 . A loss of $ 12,830 was recognized. +On +October 11, 2024, the Company issued 2,317 shares at a fair value of $ 3.38 per share for a total of $ 7,838 . +On +October 30, 2024, the Company issued 38,150 shares at a fair value of $ 2.58 per share for a total of $ 98,422 . A loss of $ 9,534 was recognized. +On +October 1, 2024, the Company issued 224,291 shares at a fair value of $ 3.66 per share for a total of $ 729,405 . A loss of +$ 47,373 was recognized. +On +October 18, 2024, the Company issued 25,000 shares at a fair value of $ 3.10 per share for a total of $ 77,450 . A loss of $ 2,450 was recognized. +On +December 20, 2024, the Company issued 340,419 shares at a fair value of $ 0.88 per share for a total of $ 299,569 . A loss of $ 8,725 was +recognized. +On +January 28, 2025, the Company entered into a Note Exchange Agreement with the investor from the August 6, 2024 Financing. On February +10, 2025, the Company issued 230,992 shares at a conversion price of $ 1.24 per share, with a fair value of $ 1.70 per share for a total +of $ 392,686 . The exchange was accounted for as a debt extinguishment, with a recognized loss of $ 141,534 . +On +May 14, 2025, the Company issued 23,644 shares at a conversion price of $ 0.90 per share, valued at $ 28,846 . A loss of $ 7,566 was recognized. +Between +June 11 and June 23, 2025, the Company issued 877,340 shares at conversion prices between $ 0.81 and $ 0.83 per share, valued at $ 1,240,054 . +A loss of $ 528,054 was recognized. +Between +September 12 and October 23, 2025, the Company converted $ 575,000 of principal into 606,809 shares at conversion prices between $ 0.93 +and $ 1.02 per share, with a fair value of $ 670,931 . A loss of $ 95,931 was recognized. +F- 26 +The +aggregate shares issued in debt conversions and exchanges were 1,848,212 and 1,129,122 for the years ended October 31, 2025 and 2024, +respectively; the aggregate losses recognized on conversions (excluding the extinguishment loss of $ 141,534 ) were $ 640,276 and $ 1,022,534 +for the years ended October 31, 2025 and 2024, respectively. +Commitment +Shares +On +April 16, 2024, the Company issued 37,500 shares to investors as commitment fees in connection with the April 2024 Financings. The shares +were valued at $ 9.80 per share for a total of $ 366,000 . +On +April 24, 2024, the Company issued 37,500 shares to investors as commitment fees in connection with the April 2024 Financings. The shares +were valued at $ 8.00 per share for a total of $ 301,500 . +Asset +Acquisition +On +April 11, 2025, the Company issued 526,536 shares at a fair value of $ 1.42 per share for a total value of $ 747,681 in connection with +the first closing of an asset acquisition from Novacor. +Reverse +Stock Split +On +November 14, 2024, the Company filed a Certificate of Amendment to its Certificate of Incorporation to effect a 1-for-20 reverse stock +split . The reverse split became effective at 4:30 p.m. Eastern Time on November 14, 2024, and the Company’s common stock began +trading on a split-adjusted basis on November 15, 2024. +On +December 5, 2024, the Company issued 21,046 shares to round up fractional shares for beneficial owners. +At-the-market +Offering Program +During +fiscal 2024, the Company established an at-the-market offering program (“ATM”), under which shares of common stock could +be sold from time to time through a designated underwriter based on prevailing market conditions. +During +the year ended October 31, 2024, the Company sold 361,708 shares under the ATM, generating net proceeds of $ 1,173,679 . +During +fiscal 2025, and prior to January 15, 2025, the Company completed the program, selling an additional 2,951,169 shares. +In +total, 3,312,877 shares were sold under the ATM program, generating aggregate net proceeds of $ 4,649,329 . +No +shares were sold under the ATM program after January 15, 2025. +Series +1 Preferred Shares +Trio +Canada is authorized to issue an unlimited number of Series 1 Preferred Shares; under the terms of the shares, (i) holders of such +shares may require the entity to purchase their shares upon submission of a retraction notice, (ii) Trio Canada is obligated to +redeem the shares within 30 days of receiving a retraction notice and (iii) Trio Canada may redeem the shares at its discretion at +any time. On April 4, 2025, Trio Canada issued 1,071,886 +Series 1 Preferred shares (which are redeemable at CAD $ 1.00 ) +at a value of US$ 754,000 . +F- 27 +Warrants +Other +Warrants +In +December 2022, the Company entered into subscription agreements with two accredited investors for the aggregate issuance of 20,000 common +shares, as well as warrants to purchase additional shares up to the initial subscription amount. The warrants were exercisable for two +years and had an exercise price equal to fifty percent of the price per share the Company sells its common shares in its IPO. The warrants +were determined to be equity classified and were recorded at fair value in additional paid-in capital on the balance sheet for the period. +Their fair value was based on the price the third-party investors paid for the original subscription agreements described above. These +warrants expired in December 2024 and are no longer outstanding as of October 31, 2025. +In +April 2023, the Company issued warrants to purchase 5,000 shares of common stock to the underwriters at an exercise price of $ 66.00 per +share. These warrants remain outstanding as of October 31, 2025. +October +2023 SPA with Warrants +On +October 4, 2023 and December 29, 2023, the Company entered into placement agent agreements with Spartan (see Note 7 for further information) +for their role in connection with the two tranche fundings related to the October 2023 SPA. Among other things, the agreements provided +the agent with equity-classified warrants to purchase a number of common shares equal to 5 % of the number of common shares initially +issuable upon conversion of each note tranche. For the first tranche, the Company issued to Spartan warrants to purchase 4,167 shares +of common stock with a fair value of $ 38,029 . For the second tranche, the Company issued to Spartan warrants to purchase 2,750 shares +of common stock with a fair value of $ 14,753 . +On +January 2, 2024, the second tranche of the October 2023 SPA was funded (see Note 9 for further information). In connection with this +funding, the Company issued to the investor equity warrants to purchase up to 22,279 shares of common stock with an aggregate relative +fair value of $ 98,708 . These warrants remain outstanding as of October 31, 2025. +June +2024 SPA with Warrants +On +June 27, 2024, the Company entered into the June 2024 SPA with the June 2024 Investors (see Note 9 above). Pursuant to the terms and +conditions of the agreement, in consideration for providing financing, the Company issued to each June 2024 Investor a warrant to purchase +37,231 shares of the Company’s common stock, at an initial exercise price of $ 7.90500 per share. The June 2024 Warrants (which +are for the purchase of an aggregate 74,461 common shares) were recorded as equity warrants with an aggregate relative fair value of +$ 257,701 . These warrants remain outstanding as of October 31, 2025. +F- 28 +Fiscal +2025 Activity +There +were no warrant issuances during the fiscal year ended October 31, 2025. Warrant activity during the year consisted only of the expiration +of the December 2022 warrants described above. All other warrants issued in prior years remain outstanding as of October 31, 2025. +A +summary of the warrant activity during the years ended October 31, 2025 and 2024 is presented below: +SCHEDULE OF WARRANT ACTIVITY +Weighted +Weighted +Average +Average +Remaining +Number of +Exercise +Life in +Intrinsic +Warrants +Price +Years +Value +Outstanding, November 1, 2023 +88,336 +$ 22.35 +3.9 +$ 211,200 +Issued +103,658 +9.18 +4.5 +- +Exercised +- +- +— +- +Cancelled +- +- +- +- +Expired +- +- +- +- +Outstanding, November 1, 2024 +191,994 +15.24 +3.8 +47,160 +Issued +- +- +- +- +Exercised +- +- +- +- +Cancelled +- +- +- +- +Expired +( 20,000 ) +30.00 +- +- +Outstanding, October 31, 2025 +171,994 +$ 13.52 +3.2 +$ 16,600 +Exercisable, October 31, 2025 +171,994 +$ 13.52 +3.2 +$ 16,600 +A +summary of outstanding and exercisable warrants as of October 31, 2025 is presented below: +SCHEDULE OF OUTSTANDING AND EXERCISABLE WARRANTS +Warrants Outstanding +Warrants Exercisable +Weighted +Average +Exercise +Number of +Remaining +Number of +Price +Shares +Life in Years +Shares +$ 0.20 +20,000 +3.5 +20,000 +$ 66.00 +5,000 +3.5 +5,000 +$ 24.00 +43,336 +3.9 +43,336 +$ 26.40 +4,167 +3.9 +4,167 +$ 10.00 +22,279 +4.2 +22,279 +$ 11.00 +2,750 +4.2 +2,750 +$ 7.91 +74,462 +4.7 +74,462 +171,994 +3.8 +171,994 +F- 29 +Stock +Options +A +summary of the option activity during the years ended October 31, 2025 and 2024 is presented below: +SCHEDULE OF STOCK OPTION ACTIVITY +Weighted +Weighted +Average +Average +Remaining +Number of +Exercise +Life in +Intrinsic +Options +Price +Years +Value +Outstanding, November 1, 2023 +6,000 +$ 10.46 +4.8 +$ 1,800 +Issued +- +- +- +- +Exercised +- +- +Expired +- +- +Outstanding, November 1, 2024 +6,000 +10.46 +3.8 +- +Issued +- +- +- +- +Exercised +- +- +- +- +Expired +- +- +- +- +Outstanding, October 31, 2025 +6,000 +$ 10.46 +2.8 +$ - +Exercisable, October 31, 2025 +6,000 +$ 10.46 +2.8 +$ - +A +summary of outstanding and exercisable options as of October 31, 2025 and 2024 is presented below: +SCHEDULE OF OUTSTANDING AND EXERCISABLE OPTIONS +Options Outstanding +Options Exercisable +Weighted +Average +Exercise +Number of +Remaining +Number of +Price +Shares +Life in Years +Shares +$ 10.46 +6,000 +2.8 +6,000 +6,000 +2.8 +6,000 +On +August 15, 2023, the Company issued five-year options to purchase 6,000 shares of the Company’s common stock to a consultant of +the Company, pursuant to the Plan. The options have an exercise price of $ 10.46 per share and vested monthly over a period of 24 months, +beginning on the vesting commencement date. The options had a grant-date fair value of $ 55,711 , which was recognized as compensation +expense over the vesting term. As of April 30, 2024, the options were fully vested. +The +assumptions used in the Black-Scholes valuation method for these options issued in 2023 were as follows: a risk-free interest rate of +4.36 %, an expected term of 5.0 years, expected volatility of 137.1 %, and an expected dividend yield of 0 %. +There +were no option issuances during the fiscal year ended October 31, 2025; there was no option activity during fiscal year 2025, and the +only activity during fiscal year 2024 was the continued vesting of the August 2023 grant through April 30, 2024, after which the options +became fully vested. As of October 31, 2025, all 6,000 options remain outstanding and exercisable. +Stock-based +compensation expense related to these options was $ 0 for the year ended October 31, 2025 and $ 13,928 for the year ended October 31, 2024. +As of October 31, 2025, the Company had no unrecognized compensation cost related to non-vested options, as all options were fully vested +as of April 30, 2024. +At +October 31, 2025, the Company had 2,500,000 shares authorized under the Plan, of which 510,250 shares remained available for future grant. +F- 30 +NOTE +11 – SUBSEQUENT EVENTS +In +accordance with ASC 855 – Subsequent Events, which establishes general standards of accounting for and disclosure of events that +occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events and transactions +that occurred after October 31, 2025, through the date the financial statements were issued. Except for the following, there are no subsequent +events identified that would require disclosure in the financial statements. +Capital +Land Acquisition +On November 3, 2025, the Company, through its wholly owned subsidiary Trio Petroleum Canada Corp. (“Trio Canada”), +completed the acquisition of certain mineral leasehold interests and related rights located in the County of Vermilion River, Alberta, +Canada, pursuant to the Asset Purchase Agreement entered into with Capital Land Services Ltd. (“Capital Land”) on August 20, +2025. At closing, Trio Canada acquired the assets, which included certain wells that had been acquired out of receivership. In connection +with the acquisition, Trio Canada paid CAD $ 150,000 in cash, and the Company issued 104,227 restricted shares of its common stock to Capital +Land. Due to regulatory requirements of the Alberta Energy Regulator (“AER”), the Company arranged for all applicable licenses +associated with the acquired assets to be transferred to Novacor Exploration Ltd. (“Novacor”), an experienced operator with +whom the Company has an existing commercial relationship. Novacor utilizes Capital Land as its AER agent. In consideration for Capital +Land’s services as AER agent, the Company granted Capital Land a 1 % gross overriding royalty on the mineral rights associated with +the acquired assets for so long as such services continue. The Capital Land acquisition will be accounted for as an asset acquisition +under ASC 805-50, with the purchase price allocated to the acquired mineral leasehold interests and related rights based on their relative +fair values as of the acquisition date. +Novacor Acquisition (December 2025) +On December 30, 2025, the Company, through Trio Canada, +entered into and closed an Asset Purchase Agreement with Novacor to acquire additional oil and gas assets located in the Lloydminster, +Saskatchewan heavy-oil region. The acquired assets include working interests in petroleum, natural gas, and mineral rights, together with +associated contracts, leases, and permits. Total consideration consisted of CAD $ 1,000,000 in cash (approximately US$ 730,300 based on +the exchange rate on the transaction date) and the issuance of 912,875 restricted shares of the Company’s common stock. The transaction +will be accounted for as an asset acquisition under ASC 805-50, with the purchase price allocated to the acquired assets based on their +relative fair values as of the acquisition date. In connection with the acquisition, the Company and Novacor entered into a registration +rights agreement providing Novacor with customary piggyback registration rights with respect to the restricted shares issued as consideration. +At-the-Market +(“ATM”) Sales Agreement (January 2026) +On +January 9, 2026, the Company entered into an At Market Issuance Sales Agreement (the “ATM Agreement”) with Ladenburg Thalmann +& Co. Inc. (“Ladenburg”), pursuant to which the Company may offer and sell shares of its common stock from time to time +through Ladenburg, acting as sales agent. On the same date, the Company filed a prospectus supplement with the Securities and Exchange +Commission covering the offer and sale of shares of common stock having an aggregate offering price of up to $ 3,600,000 in connection +with the ATM program. +Under +the terms of the ATM Agreement, sales of common stock, if any, may be made by Ladenburg using commercially reasonable efforts in +transactions deemed to be “at-the-market offerings” as defined in Rule 415(a)(4) under the Securities Act of 1933, as +amended, or by any other method permitted by applicable law and agreed to by the Company. Ladenburg is entitled to compensation of +up to 3.0% of the gross proceeds from each sale of shares under the ATM Agreement. +F- 31 \ No newline at end of file diff --git a/raw/filings/0001898766/2025/0001493152-26-002848/filing_metadata.csv b/raw/filings/0001898766/2025/0001493152-26-002848/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..a0b4a68679f7971138dc79c90c4ed1670a134692 --- /dev/null +++ b/raw/filings/0001898766/2025/0001493152-26-002848/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001898766,TPET,Trio Petroleum Corp,2025,10-K,2026-01-20,2025-10-31,2026-01-20T21:06:19.000Z,0001493152-26-002848,form10-k.htm,10-K,15499084,1,1,https://www.sec.gov/Archives/edgar/data/1898766/000149315226002848/form10-k.htm,https://www.sec.gov/Archives/edgar/data/1898766/000149315226002848/ diff --git a/raw/filings/0001898766/2025/0001493152-26-002848/item1.txt b/raw/filings/0001898766/2025/0001493152-26-002848/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..cbc37e6266599757adb113b98f18d34bd838cd72 --- /dev/null +++ b/raw/filings/0001898766/2025/0001493152-26-002848/item1.txt @@ -0,0 +1,1006 @@ +ITEM +1. BUSINESS. +Overview +We +are a California-based oil and gas exploration and development company headquartered in Malibu, California, with our principal executive +offices located at 23823 Malibu Road, Suite 304, Malibu, California 90265, with operations in Monterey County, California, Uintah County, +Utah and Lloydminster, Saskatchewan. +We +have had revenue-generating operations since the McCool Ranch Oil Field (defined hereafter) was restarted on February 22, 2024, and +recognized our first revenues in our fiscal quarter ended April 30, 2024, and received the proceeds from these operations in June +2024. During the period ended April 30, 2025 we began generating revenue from our newly acquired properties in Saskatchewan, +Canada. +Our +Canadian projects represent a significant growth opportunity, driven primarily by planned workovers intended to enhance production +across the acquired assets. We began executing this program immediately following the closing of our April 2025 acquisition of certain +heavy oil assets in west-central Saskatchewan, Canada, including producing heavy oil wells, from Novacor (defined below), a company recognized +as one of the lowest-cost operators in the region. In November 2025, we expanded our presence with the acquisition of a second Canadian +project from Capital Land (defined below). Our strategy continues to focus on acquiring assets that generate immediate cash flow, provide +meaningful long-term development potential, and offer the potential for transformative value creation through targeted strategic investment. +We +were formed to initially acquire an approximate 82.75% working interest (which was subsequently increased to an approximate 85.775% +working interest) from Trio LLC (“Trio LLC”) in the large, approximately 9,300-acre South Salinas Project that is +located in Monterey County, California, and subsequently partner with certain members of Trio LLC’s management team to develop +and operate those assets. We hold an approximate 68.62% interest after the application of royalties (“net revenue +interest”) in the South Salinas Project. Trio LLC holds an approximate 3.9% working interest in the South Salinas Project. We +and Trio LLC are separate and distinct companies. The remaining working interests are owned by two unrelated parties. +Initially, +California was a significant part of our geographic focus; however, due to rising drilling costs and the negative impact on +potential profitability, we have strategically shifted our efforts beyond California to pursue more economically viable +opportunities. This transition is reflected in our acquisition of an interest in oil properties that are a part of the Asphalt Ridge +Project in Uintah County, Utah, as well as our recent acquisition from Novacor, described above, in the +prolific Lloydminster, Saskatchewan heavy oil region and from Capital Land in the County of Vermilion of River (formerly known as +the Municipal District of Wellington No. 41). +Recent +Business Developments +Changes +to Company Management +Effective +as of August 1, 2025, Stanford Eschner retired as Vice Chairman and a director of the Company. +Changes +to Independent Registered Public Accounting Firm +On +May 6, 2024, the Company dismissed BF Borgers CPA PC (“Borgers”) as the Company’s independent registered public accounting +firm, as a result of Borgers no longer being able to audit the Company’s financial statements, pursuant to an order by the Securities +and Exchange Commission against Borgers (the “SEC Order”). Effective May 8, 2024, the Company retained Bush & Associates +CPA LLC (“Bush & Associates”) as its new independent registered public accounting firm. Also, pursuant to the requirements +of the SEC Order, Bush & Associates re-audited the Company’s financial statements for the fiscal years ended October 31, 2023 +and 2022, which financial statements were filed with Amendment No. 1 to the Company’s Report on Form 10-K/A filed with the SEC +on June 13, 2024. +South +Salinas Project +Efforts +to obtain from Monterey County conditional use permits and a full field development permit for the South Salinas Project are progressing. +Efforts to obtain from the California Geologic Energy Management Division (“CalGEM”) and from the California Water Boards +a permit for a water disposal project at the South Salinas Project are also progressing. In the meantime, the Company recently determined +that existing permits allow production testing to continue at the HV-3A discovery well at Presidents Field and, consequently, testing +operations were restarted at this well on March 22, 2024. Oil production from this well has occurred and the Company is assessing steps +to attempt to increase the well’s gross production rate, for example by adding up to 650 feet of additional perforations in the +oil zone and/or acidizing the well for borehole cleanup. First oil sales from the HV-3A well occurred in the third calendar quarter of +2024 but is currently idled as we further discussions with local oil and gas companies to joint venture the project. +1 +McCool +Ranch Oil Field +On +October 16, 2023, we entered into a Purchase and Sale Agreement with Trio LLC (the “McCool Ranch Purchase Agreement”) pertaining +to the McCool Ranch Oil Field. Pursuant to this agreement, effective October 1, 2023, we entered into an agreement to acquire an approximate +22% working interest in and to certain oil and gas assets at the McCool Ranch Field, located in Monterey County, California, near our +flagship South Salinas Project. +The +acquired assets included six oil wells, a water-disposal well, a steam generator, boiler, storage tanks, and various operational infrastructure. +While initial production was restarted on February 22, 2024, we have subsequently determined that under previously negotiated terms, +natural gas prices and water disposal costs, particularly in California, makes it cost prohibitive for the Company to employ cyclic-steam +operations to increase production and will not be economically feasible in the long run. On May 27, 2025, we executed a termination agreement +with Trio LLC to end operations at the location and abandon all related leases. Capitalized costs totaling $500,614 have been written +off and expensed in the statement of operations for the period ended April 30, 2025. +Asphalt +Ridge Option Agreement and the Lafayette Energy Leasehold Acquisition and Development Option Agreement +On +November 10, 2023, we entered into a Leasehold Acquisition and Development Option Agreement (the “Asphalt Ridge Option +Agreement”) with Heavy Sweet Oil LLC (“HSO”). Pursuant to the Asphalt Ridge Option Agreement, we acquired +an option to purchase up to a 20% working interest in certain leases at a long-recognized, major oil accumulation in northeastern +Utah, including an initial 960 acres and a subsequent 1,920 acres, as well as a right-of-refusal option on approximately 30,000 +acres. +On +December 29, 2023, we and HSO entered into an Amendment to the Asphalt Ridge Option Agreement, under which we funded $200,000 in +exchange for an immediate 2% working interest in the initial 960 acres. An additional $25,000 was funded in January 2024, increasing +our working interest to 2.25%. While we had the option to acquire an additional 17.75% working interest, we decided not to exercise +this option and will instead retain our existing 2.25% working interest in the initial 960 acres. +Novacor +Asset Purchase Agreement +As +of April 4, 2025, we entered into an Asset Purchase Agreement (the “April 2025 Novacor APA”) with Trio Petroleum Canada, +Corp., an Alberta, Canada corporation and a wholly owned subsidiary of the Company (“Trio Canada”), and Novacor +Exploration Ltd., a corporation incorporated under the Canada Business Corporations Act (“Novacor”), pursuant to which, +subject to the terms and conditions set forth in the April 2025 Novacor APA, Trio Canada agreed to acquire certain assets of Novacor +relating its oil and gas business, including certain contracts, leases and permits for working interests in petroleum and natural +gas and mineral rights located in the Lloydminster, Saskatchewan heavy oil region in Canada (collectively, the “April 2025 +Novacor Assets”), free and clear of any liens other than certain specified liabilities of Novacor that are being assumed +(collectively, the “Liabilities” and such acquisition of the Novacor Assets and assumption of the Liabilities together, +the “April 2025 Novacor Acquisition”) for a total purchase price of (i) US$650,000, in cash, US$65,000 of which was +previously provided as a deposit to Novacor, and (ii) the issuance to Novacor of 526,536 shares of common stock of common stock. The +April 2025 Novacor Acquisition was consummated in two closings, which was completed on May 22, 2025. All five of our currently +active wells are in the newly acquired Novacor property. +P.R. +Spring Letter of Intent and Option +On +May 15, 2025, we entered into a non-binding Letter of Intent (LOI) with HSO for the potential +acquisition of 2,000 acres of oil and gas properties at P.R. Spring, Uintah Basin, Utah (“P.R. Spring”), which is adjacent +to Asphalt Ridge. The LOI contemplates our issuance of 1,492,272 restricted shares of common stock and the payment of $850,000 at closing, +subject to execution of definitive agreements. Upon signing the LOI, we made a non-refundable $150,000 payment to HSO in consideration +for the option. The LOI requires evidence of a minimum sustained production rate of 40 barrels per day for a continuous 30-day period +from two wells at Asphalt Ridge by May 15, 2026, or the LOI will expire unless extended by us. We are not under any obligation to enter +into definitive agreements in connection with an acquisition. +Carbon +Capture and Storage Project as part of Company’s South Salinas Project +We +are committed to attempting to reduce our own carbon footprint and, where possible, that of others. For this reason, we are taking initial +steps to launch a Carbon Capture and Storage (“CCS”) project as part of the South Salinas Project, which appears ideal for +such a task. The South Salinas Project covers a vast area and is uniquely situated at a deep depocenter where there are thick geologic +zones (e.g., Vaqueros Sand, up to approximately 500’ thick) about two miles deep, which could accommodate and permanently store +vast volumes of CO2. Four existing deep wells in the South Salinas Project (i.e., the HV 1-35, BM 2-2, BM 1-2-RD1 and HV 3-6 wells) are +excellent candidates for use as CO2 injection wells. A CCS project in the future may help reduce our carbon footprint by sequestering +and permanently storing CO2 deep underground at one or more deep wells, away from drinking water sources. Furthermore, three of the aforementioned +deep wells are directly located on three idle oil and gas pipelines that could be used to import CO2 to our CCS Project. We have opened +discussions with third parties who wish to reduce their own greenhouse gas emissions and who may be interested in participating in our +CCS project. We believe it is feasible to develop the major oil and gas resources of the South Salinas Project and to concurrently establish +a substantial CCS project and potentially a CO2 storage hub and/or Direct Air Capture (DAC) hub. +2 +Market +Opportunity +We +believe that our newly established oil and gas operations in Canada strategically positions the Company to expand its operations into +one of North America’s most promising heavy oil basins, with upside potential for long term production and reserve growth. Trio +believes expanding operations into Canada offers economic development and low operational costs. Trio also believes that the market accessibility +combined with a favorable regulatory process makes this area very attractive for continued and future development. +The +oil and gas industry is operationally challenging in California, where we have the South Salinas Project, due primarily to regulatory +issues and to efforts to facilitate an energy transition away from fossil fuels. TPET believes that given the size and future anticipated +costs of exploration, it is best to seek out a joint venture partner who has the capacity to continue to operate in California with the +expectation that the market for oil and gas in California will remain strong for the foreseeable future. Furthermore, TPET is attempting +to launch a Carbon Capture and Storage Project as part of the South Salinas Project, consistent with efforts in California to reduce +carbon footprint. The Company hopes and expects TPET’s commitment to reduce carbon footprint through a Carbon Capture and Storage +Project to be viewed favorably by California regulatory bodies, perhaps helping to facilitate operations at the South Salinas Project +and elsewhere. +The +oil and gas industry currently appears operationally favorable in Utah, where we have the Asphalt Ridge asset and an option on the PR +Spring project in the same Uintah basin. TPET believes that the overall operating environment and the market for oil and gas in Utah +should remain favorable for the foreseeable future. +TPET’s +operations may help meet the USA’s demanding oil and gas needs that are expected to remain strong for the foreseeable future, while +supporting the country’s goal of energy independence, and supporting local and state economies with tax revenue and jobs. +Business +Strategies +Our +primary business strategies and objectives are to grow our recently acquired Canadian assets aggressively by acquiring projects that +generate immediate cash flow and/or offer workover opportunities without committing huge resources to new exploratory drilling, or offer +transformative growth potential with strategic investment in favorable political and economic environments such as our option on PR Spring +in Uintah Basin, Utah. TPET’s current strategy and focus at the South Salinas Project is to seek out a joint venture partner with +the knowledge and capacity to operate in California. We are also endeavoring to secure approval from CalGEM and WaterBoards of a proposed +short-term water-disposal program that should significantly reduce lease operating costs, launching a Carbon Capture and Storage Project, +pursuing permits for full field development, and similar matters. Efforts to obtain from Monterey County conditional use permits and +a full field development permit for the South Salinas Project are progressing. Efforts to obtain from the California Geologic Energy +Management Division (“CalGEM”) and from the California Water Boards a permit for a water disposal project at the South Salinas +Project are also progressing. In the meantime, the Company recently determined that existing permits allow production testing to continue +at the HV-3A discovery well at Presidents Field and, consequently, testing operations were restarted at this well on March 22, 2024. +Oil production from this well has occurred and the Company has idled operations currently pending an assessment of the viability of increasing +the well’s gross production rate, for example by adding up to 650 feet of additional perforations in the oil zone and/or acidizing +the well for borehole cleanup. First oil sales from the HV-3A well occurred in the third calendar quarter of 2024. +TPET’s +current strategy and focus at the PR Spring project is to monitor the results of the new 2-4 and 8-4 wells at the Company’s Asphalt +Ridge project. Once production attains 40 barrels per day for thirty days from both wells, TPET will be in a position to exercise its +option on the 2000-acre project and enter into a Definitive development agreement. +TPET’s +primary strategies and objectives are focused on growing the Company into a highly profitable, independent oil and gas company. +Our +Growth Strategy +TPET’s +goal is the building and growing of a substantial independent oil and gas company by acquiring projects that generate immediate cash +flow as in our Canadian assets or offer transformative growth potential with strategic investment such as our option on P.R. Spring in +Utah. +Competition +There +are many large, medium, and small-sized oil and gas companies and third-parties that are our competitors. Many of these competitors have +extensive operational histories, experienced oil and gas industry management, profitable operations, and significant reserves and funding +resources. Our efforts to acquire additional oil/gas properties in California and elsewhere may be met with competition . +Government +Regulation +We +are subject to a number of federal, state, county and local laws, regulations and other requirements relating to oil and natural gas +operations. The laws and regulations that affect the oil and natural gas industry are under constant review for amendment or expansion. +Some of these laws, regulations and requirements result in challenges, delays and/or obstacles in obtaining permits, and some carry substantial +penalties for failure to comply. The regulatory burden on the oil and natural gas industry increases our cost of doing business, can +affect and even obstruct our operations and, consequently, can affect our profitability. These burdens include regulations relating to +transportation of oil and gas, drilling and production and other regulatory matters. +3 +Certain +Recent Developments +Formation +of a Canadian Wholly-Owned Subsidiary +On +March 28, 2025, we formed Trio Petroleum Canada, Corp., an Alberta, Canada corporation and our wholly owned subsidiary (“Trio Canada”). +Our Chief Executive Officer, Robin Ross, is also the Chief Executive Officer of Trio Canada and also serves as Secretary/Treasurer. Our +Chief Financial Officer, Greg Overholtzer, is also the Chief Financial Officer of Trio Canada. Robin Ross also serves as the sole director +of Trio Canada. +Loan +to Trio Canada +As +of April 4, 2025, we entered into a Loan and Note Purchase Agreement (the “Loan Agreement”) with Trio Canada, made a loan +(the “Subsidiary Loan”) to Trio Canada, in the amount of US$1,131,000 (the “Loan Amount”), and Trio Canada issued +to us a three-year promissory note, with a maturity date of April 4, 2028, in the principal amount of US$1,131,000 (the “Subsidiary +Note”) evidencing the Loan Amount. The outstanding principal amount of the Subsidiary Note accrues interest at a rate of 12% per +annum. As of October 31, 2025, the outstanding principal balance of the Subsidiary Note was US$430,335 and accrued but unpaid +interest totaled US$27,606. +Under +the terms of the Loan Agreement, the Loan Amount was used to pay the remaining cash amount payable to Novacor, in connection with the +Novacor Acquisition, and the remainder of the Loan Amount is to be used for ongoing operating costs of Trio Canada. +Convertible +Notes Financings +April +2025 Convertible Note Financing +On +April 11, 2025, we issued an Unsecured Original Discount Convertible Promissory Note (the “April 2015 Note”) to an institutional +investor (the “April 2025 Note Investor”) in a principal amount of $321,176, having an original issue discount of $48,176, +resulting in a funding amount of $273,000. After the payment of a commission of $15,015 to Spartan Capital Securities, LLC and the payment +of $10,000 to reimburse the April Note Investor for its legal fees, we received net proceeds of $247,985. +On +April 17, 2025, we issued an amended and restated Unsecured Original Discount Convertible Promissory Note to the April 2025 Convertible +Note Investor (the “April 2025 Amended and Restated Note”), in an aggregate principal amount, with the principal amount of +the April 2025 Note, of $712,941, having an aggregate original issue discount of $106,941, including the original issue discount of the +April 2025 Note, and resulting in an aggregate funding amount, with the April 2025 Note, of $606,000. We received additional net proceeds +of $333,000. +The +April 2025 Amended and Restated Note also contained “piggyback” registration rights and the shares issuable upon conversion +of the April 2025 Amended and Restated Note were registered for resale in a registration statement declared effective by the SEC on May +22, 2025. As of October 31, 2025, the Amended and Restated Note has been fully converted by the April 2025 Note +Investor into shares of common stock. +August +2025 Convertible Note Financing +On +August 15, 2025, we closed a private placement (the “August 2025 Convertible Note Financing”) pursuant to which we +issued the August 2025 Notes to three institutional investors (the “August 2025 Note Investors”) in an aggregate +principal amount of $1,200,000 (the “August 2025 Notes Principal Amount”), having an aggregate original issue discount +of $180,000, or 15%, resulting in an aggregate funding amount of $1,020,000 (the “August 2025 Notes Funding Amount”). +After the payment of $71,400 to Ladenburg Thalman & Co. Inc, as an exclusive placement agent fee, and $20,000 to reimburse the +lead Investor for its legal fees, net proceeds of the financing was $928,600. +We +may prepay all or any portion of the August 2015 Notes at any time (without penalty or premium if prepaid on or before the maturity date +of February 15, 2026). If, during the period the August 2025 Notes remain outstanding, the Company raises any type of equity-related +financing, the August 2024 Note Investors have the right to request that an aggregate of up to 25% of the gross proceeds raised by us +in any such financing be used to repay the outstanding amounts of the August 2025 Notes. +The +August 2025 Note Investors may request conversion of the August 2025 Notes, at any time, into shares of common stock (the “Conversion +Shares”). Additionally, we have the right to require the August 2025 Note Investors to convert their August 2025 Notes in the event +that at such time, for each of the five (5) preceding trading days prior to such date (i) the daily volume weighted average price (“VWAP”) +of our common stock on the NYSE American or any other principal securities exchange on which the common stock is then traded (the “Principal +Exchange”) is greater than $0.85 (subject to adjustments for forward splits and reverse splits of the common stock and other similar +recapitalizations, as well as such other adjustments as provided in the August 2025 Notes), (ii) all of the Conversion Shares have been +registered for resale under an effective registration statement filed with the SEC, and (iii) the daily dollar trading volume for the +common stock on the Principal Exchange exceeds $500,000 per trading day; provided, however, that the amount subject to such conversion, +under any of the August 2025 Notes, shall not exceed twenty percent (20%) of the total dollar trading volume of the common stock during +such 5-day period. Furthermore, any conversion may not result in the issuance of shares of common stock to an August 2025 Note Investor, +which would cause such August 2025 Note Investor, along with its affiliates, to own more than 4.99% (9.99%, if elected by the Investor) +of the Company’s then outstanding shares of common stock nor to exceed the maximum number of shares that such Investor may convert +pursuant to its Note (the “Beneficial Ownership Limitation”). +The +conversion price of the August 2025 Notes is equal to the lesser of (i) $1.32 and (ii) 90% of the lowest daily VWAP of the common stock +on the Principal Exchange, during the five (5) trading days prior to the date of a notice of conversion (a “Conversion Notice”). +Notwithstanding the foregoing, the Conversion Price shall not be less than a floor price of $0.72, subject to certain adjustments, as +provided in the August 2025 Notes (the “Floor Price”). In the event that any August 2025 Note Investor desires to convert +its August 2025 Note at a time when the applicable Conversion Price is less than the Floor Price, such Investor may request a reduction +to the Floor Price to the then applicable Conversion Price, but, in any event, not less than $0.22, which is 20% of the closing price +of $1.10 of the common stock on the Principal Exchange on the trading day immediately prior the original issuance date of the August +2025 Notes. Upon any such reduction in the Floor Price, the Floor price of the other August 2025 Notes shall be similarly reduced. +Notwithstanding +any of the other terms of the August 2025 Notes, the maximum number of shares of common stock which may be issued upon the conversion +of all of the August 2025 Notes is 1,679,127 shares (the “Maximum Number of Conversion Shares), which is equal to 19.99% of the +8,399,839 shares of the Company’s common stock issued and outstanding on the closing date of the private placement. +Under +the terms of a Registration Rights Agreement entered into by us with each of the August 2025 Note Investors, we have agreed to register +the Conversion Shares for resale in a registration statement. The Conversion Shares were registered for resale in a Registration Statement +on Form S-3, which was declared effective by the SEC on September 11, 2025. As of October 31, 2025, a portion of the August 2025 Notes have been converted into an aggregate of 606,809 Conversion +Shares and the aggregate outstanding balance of the August 2025 Notes was $467,179. +For +additional information on the terms of the August 2025 Convertible Note Financing, see our Current Report on Form 8-K filed with the +SEC on August 18, 2025, including the August 2025 Notes and Registration Rights Agreement filed as exhibits hereto. +4 +Capital +Land Services Acquisition +On +August 20, 2025, the Company), through its wholly owned subsidiary Trio Canada, entered into an Asset Purchase Agreement +(“APA”) with Capital Land Services Ltd. (“Capital Land”). Pursuant to the APA, Trio Canada agreed to acquire +certain mineral leasehold interests and related rights located in the County of Vermilion of River, Alberta, Canada, together with +associated contracts, permits, and registrations (collectively, the “Assets”). The total purchase price consists of CAD +$150,000 in cash and the issuance of restricted shares of the Company’s common stock having an aggregate value of +CAD $150,000. +On +November 3, 2025, subsequent to the Company’s fiscal year ended October 31, 2025, the transactions contemplated under the APA +were completed (the “Capital Land Acquisition”). At closing, Trio Canada paid Capital Land CAD $150,000 in cash and we issued 104,227 restricted shares of our common +stock to Capital Land. In exchange, Trio Canada acquired the Assets, including certain wells that had been purchased out of receivership. Due to +regulatory requirements of the Alberta Energy Regulator (“AER”), the Company arranged for all applicable licenses to be +transferred to Novacor, an experienced operator with whom the Company has an existing commercial relationship. Novacor utilizes +Capital Land as its AER agent. In consideration for Capital Land’s services as AER agent, the Company granted Capital Land a +1% gross overriding royalty with respect to the mineral rights, for as long as Capital Land continues to provide such +services. +Asset Purchase Transaction with Novacor Exploration +Ltd. +As of December 30, 2025, the Company entered into +an Asset Purchase Agreement (the “December 2025 Novacor APA”) with Trio Canada, and Novacor, pursuant to which, subject to +the terms and conditions set forth in the December 2025 Novacor APA, Trio Canada agreed to acquire certain assets of Novacor’s relating +to Novacor’s oil and gas business, including certain contracts, leases and permits for working interests in petroleum and natural +gas and mineral rights located in the Lloydminster, Saskatchewan heavy oil region in Canada (collectively, the “December 2025 Novacor +Assets”), free and clear of any liens other than certain specified liabilities of Novacor that are being assumed (collectively, +the “Liabilities” and such acquisition of the Assets and assumption of the Liabilities together, the “December 2025 +Novacor Acquisition”) for a total purchase price of CAD $1,000,000 (US$730,300 based on the applicable exchange rate to U.S. Dollars). +The Company issued to Seller 912,875 restricted shares of common stock of the Company, subject to certain registration rights (the “Purchase +Price”). +The December 2025 Novacor Acquisition was closed on +December 30, 2025, simultaneously with the execution by the Company, Trio Canada and Novacor of the December 2025 Novacor APA and other +transaction documents (the “Closing”). At the Closing, title to the December 2025 Novacor Assets was delivered to the Trio +Canada, and the Company, thereafter deliver the restricted shares to Novacor. +Following the Closing, (i) operating costs for the +December 2025 Novacor Assets shall, for a period of two (2) years, be held at the levels detailed in the auditor’s report over the +eighteen (18) month period prior to the Closing, prepared for Trio Canada on the basis of the due diligence materials provided by Novacor +to Trio Canada in connection with the December 2025 Novacor Acquisition, unless mutually agreed otherwise; (ii) after such two-year period, +operating costs shall remain competitive with other operators in the area; and (iii) Trio Canada shall be entitled to terminate Novacor’s +post-Closing actions at any time on 30 days’ prior written notice to the Novacor. After the Closing, with respect to the December +2025 Novacor Assets, Novacor shall act as the on-site operator of the December 2025 Novacor Assets and perform all work and services as +provided in the December 2025 Novacor APA. +On December 30, 2025, the Company and Novacor executed +and entered into a Registration Rights Agreement with respect to the restricted shares (the “RRA”). Pursuant to the provisions +of the RRA, Novacor is entitled to certain “piggyback” registration rights, with respect to the Registrable Securities (as +such term is defined in the RRA), providing Novacor with the right to include the Registrable Securities in a registration statement filed +by the Company for the registration of its securities and/or the resale of shares of Common Stock by other stockholders of the Company +(a “Piggyback Registration Statement”), subject to certain limitations and restrictions. In the event that the Registrable +Securities are not included in a Piggyback Registration Statement filed by the Company with the Securities and Exchange Commission (“SEC”) +on or before March 31, 2026, the Company is obligated to file a registration statement on or before March 31, 2026, to register the resale +of the Registrable Securities, subject to certain limitations and restrictions. The Company has agreed to pay all fees relating to the +registration of the Registrable Securities, except any broker or similar commissions payable by a holder of Registrable Securities. +For additional information on the terms of the Asset +Purchase Transaction with Novacor, see our Current Report on Form 8-K filed with the SEC on January 5, 2026, including the APA and RRA +filed as exhibits hereto. +Ladenburg +ATM Agreement +On +January 9, 2026, we entered into an At Market Issuance Sales Agreement (the “ATM Agreement”) with Ladenburg Thalmann & +Co. Inc. (“Ladenburg”) as agent, pursuant to which the Company may issue and sell shares of our common stock from time to +time through Ladenburg (the “ATM Offering”). On January 9, 2026, the Company also filed a prospectus supplement with the +SEC covering the sale of shares of common stock having an aggregate offering price of up to $3,600,000 (the “Placement Shares”), +in connection with the ATM Offering. Upon delivery of a Placement Notice (as such term is defined in the ATM Agreement) and subject to +the terms and conditions of the ATM Agreement, Ladenburg shall use its commercially reasonable efforts to sell the Placement Shares by +(i) any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the +Securities Act of 1933, as amended (the “Securities Act”), including sales made directly on or through the NYSE American +or on any other existing trading market for the common stock and/or (ii) any other method permitted by law with the Company’s consent. +The ATM Agreement provides that Ladenburg will be entitled to aggregate compensation for its services up to 3.0% of the gross proceeds +from each sale of Placement Shares sold through Ladenburg under the ATM Agreement. +For +additional information on the terms of the ATM Agreement with Ladenburg, see our Current Report on Form 8-K filed with the SEC on January +9, 2026, including the ATM Agreement filed as an exhibit hereto. +South +Salinas Project +Oil +Rights and Ownership +TPET +has an approximate 85.775% working interest in the South Salinas Project. We have a mineral-leasehold of approximately 9,300 gross mineral +acres and 7,946 net mineral -acres in one largely contiguous land package from primarily one Lessor, Bradley Minerals. The surface lands +at the approximate 9,300 mineral acres are primarily part of the private Porter Ranch. There are six existing idle wells and one active +well in the South Salinas Project, and permits are approved by Monterey County for the drilling and testing of two additional wells (i.e., +the HV-2 and HV-4 wells). +Description +of South Salinas Property and Current Operations +We +initiated operations as TPET with the acquisition from Trio LLC of an 82.75% working interest in the South Salinas Project under the +terms of a Purchase and Sale Agreement (the “South Salinas Purchase Agreement”) dated September 14, 2021. Our working interest +was later increased by 3.026471% and we currently hold an approximate 85.775% working interest and an approximate 68.62% net revenue +interest (after all royalties) in the South Salinas Project. The working interest we own includes leases, wells, inventory and 3D seismic +data. +We +believe the South Salinas Project has the potential to be significant, with an estimated 40.2 million barrels of oil (“MMBO”) +plus 42.4 billion cubic feet of gas (“BCFG”), or 47.3 million barrels of oil equivalent (“BOE”), in Probable +(P2) Undeveloped reserves and an approximate 100.7 MMBO and 168.5 BCFG, or 128.8 million BOE, in Possible (P3) Undeveloped reserves. +Note that the conversion rate used is 6.0 Mcf per 1 BOE. Note that the conversion rate used is 6.0 Mcf per 1 BOE. +Trio +LLC and its management team are part owners of the Company and will continue as Operator of the South Salinas Project on behalf of the +Company and of the other working interest partners. +There +are two contiguous areas of notable oil/gas accumulations in the South Salinas Project, being the Humpback Area (“Humpback Oil +Field”) that occurs in the northern part of the project, and the Presidents Area (“Presidents Oil Field”) that occurs +in the southern part of the project. Discovery wells have been drilled and completed at both Humpback Oil Field and Presidents Oil Field. +The HV-3A well is the first well drilled at the Presidents Oil Field and is its discovery well. About five wells have been drilled at +the Humpback Oil Field and of these we consider the BM 2-2 well as its discovery well. +The +primary oil and gas objectives in the South Salinas Project are classic fractured Monterey Formation reservoirs (i.e., zones with abundant +brittle/fractured intervals of chert, dolomite, limestone and porcelanite) and the Vaqueros Sand. Fractured Monterey Formation is one +of the most important and prolific oil/gas reservoirs in California. The primary oil and gas reservoirs occur at approximately 4,000-8,000’ +depth. The oil is mid- to high-gravity (18-40° API). The oil and gas targets are in structural traps - this is not a resource play. +The structural traps are imaged in 30 square miles of 3D seismic data that is owned by the Company. Importantly, the 3D seismic was acquired +after the drilling of all wells in the area except for our HV-3A and HV-1 wells. The 3D seismic provides critical information about how +prior wells were not properly located and, more importantly, how the South Salinas Project potentially may be successfully exploited +going forward. +The +Monterey Formation oil and gas zones have been tested at various wells at the South Salinas Project. The Vaqueros Sand has not yet been +tested but the Company believes that it is potentially productive behind-pipe in the BM 2-2 well. TPET intends to perforate and test +the Vaqueros Sand in the BM 2-2 well as soon as the necessary permits are in-hand. +5 +We +own approximately 30 square miles of three dimensional seismic data (“3D seismic”) at the project. An integrated interpretation +of the 3D seismic data and of well data indicates that Presidents Oil Field is a large anticlinal feature covering an area of approximately +1,300 acres, with a major structural, anticlinal high at the location of the HV-3A discovery well, and with two separate, four-way closed +anticlines at the northwest, down-plunge-end of the feature. The structural feature at Presidents Oil Field is best characterized as +a positive flower structure resulting from transpressional deformation along strike slip faults including the major Rinconada Fault. +The Company has determined that production testing may resume at the HV-3A discovery well at Presidents Field. Testing on pump at this +well resumed on March 22, 2024. +One +of our initial objectives was to drill the HV-1 confirmation well at the President Oil Field. This objective has been accomplished. The +following is a discussion of the HV-1 well and its significance: +● +The +HV-1 well is located about two miles northwest of the HV-3A discovery well and for this reason it is considered a “confirmation +well” intended to help confirm the size of lateral extent of the field. The HV-1 surface hole location (“SHL”) +is located in about the center of T24S-R10E-Section 14. The well was directionally drilled approximately 2,600 feet toward the southeast +and its bottom hole location (“BHL”) is located in T24S-R10E-Section 13. +● +The +HV-1 well spud on about May 5, 2023, and was completed at its total depth (“TD”) of about 6,641 feet (measured depth) +on about May 15, 2023. +● +The +HV-1 confirmation well is located on the larger of the aforementioned two down-plunge, four-way closed anticlines. +● +There +were primarily three reservoir objectives in the HV-1 well, being the Yellow Zone (aka Yellow Chert), the underlying Brown Zone (aka +Brown Chert) and the underlying Mid-Monterey Clay, all of which are stratigraphic subunits of the Miocene-age Monterey Formation. +The Yellow and Brown zones are both attributed oil and gas reserves at Presidents in the Company’s reserve report as filed +with the SEC. The Mid-Monterey Clay is nowhere assigned reserves in the Company’s reserve report, although it did have significant +oil/gas shows in the HV-3A discovery well and periodically may have contributed to the flow of oil and gas to surface at said well. +● +The +3D seismic data indicate that the Yellow and Brown zones have four-way closure (i.e., anticlinal rollover in one of the subsidiary, +down-plunge anticlines) at the location of the HV-1 well, whereas at this location the Mid-Monterey Clay may have fault closure (within +the positive flower structure) but lacks rollover. The directional drilling plan for the HV-1 well was designed such that the well +would penetrate the Yellow and Brown zones near the tops of their anticlinal closures and to continue downward into the Mid-Monterey +Clay where anticlinal closure apparently does not occur. +● +The +Yellow Zone, Brown Zone and Mid-Monterey Clay were encountered in the HV-1 well largely as predicted including with respect to depth, +thickness, lithology, wireline-log characteristics and oil and gas shows including free oil in cuttings and in the mud pit. The Company +believes that the HV-1 well has confirmed that there is a major oil and gas accumulation in the Presidents Oil Field, as the Company +announced in a press release on May 16, 2023. +● +Confirmation +of a major oil and gas accumulation by itself does not confirm whether economic oil/gas production can be established. The HV-1 has +undergone production testing to evaluate commerciality. Production testing at the HV-1 well was initially carried-out from the bottom +up (i.e., by testing the deeper Mid-Monterey Clay zone first and working upward to the shallower Brown and Yellow zones), and the +Brown and Mid-Monterey Clay zones were subsequently retested. The Mid-Monterey Clay, Brown Zone and Yellow Zone all underwent production +testing. Oil and gas were recovered but commercial production was not established. +● +Operations +may continue, for example deepening, sidetracking or additional testing, at the HV-1 well but it is currently idle. +● +The +HV-1 well is the newest well in the South Salinas Project and is the only exploratory well drilled in the last three fiscal years +at the project. +● +The +Company considers it premature to deem HV-1 either a dry development well or a net productive well. Additional operations, including +possibly deepening or sidetracking, and additional testing, are feasible at HV-1. Thus, there has been no net productive well or +dry development well drilled in the last three fiscal years at the South Salinas Project. Prior to the drilling of the HV-1 well, +the newest well at the Project was the HV-3A discovery well that was drilled in 2018. +All +of the Company’s acreage and reserves in the South Salinas Project are considered undeveloped. The HV-3A and BM 2-2 wells, and +possibly other project wells, are and/or may possibly be capable of oil and/or gas production but additional investments at these wells +are necessary prior to establishing commercial oil/gas production and, therefore, reserves and acreage are considered undeveloped. Thus, +the total gross undeveloped acreage is approximately 9,300 acres and the total net undeveloped acreage (i.e., net to the Company) is +approximately 7,927 acres (i.e., 9,300 acres x 0.8575 = 7,927 acres). The total gross developed acreage is zero acres and the total net +developed acreage (i.e., net to the Company) is also zero acres; see the following table below. +Region +Developed acres +Undeveloped acres +Term (in years) +Gross +Net +Gross +Net +California +- +- +9,245 +7,927 +1-3 +As +noted elsewhere, on the Company’s leases there are six existing idle wells (i.e., the BM 1-2-RD1, BM 2-2, BM 2-6, HV-1, HV 3-6 +and HV 1-35 wells) and one active well (i.e., HV-3A well). Of these seven wells perhaps only the HV-3A and BM 2-2 wells should be considered +to probably and/or possibly be capable of economic oil/gas production with their current mechanical completions, whereas it cannot be +ruled-out that economic oil/gas production could be established at the other five wells. Thus, on the Company’s leases there may +be considered to be two (2) gross productive wells (i.e., the HV-3A and BM 2-2 wells) and 1.715 net productive wells (i.e., 85.75% WI +times 2 gross wells = 1.715 net productive wells). +6 +The +Porter Ranch is an active working property that supports farming operations, livestock grazing, and the exploitation of oil and gas reserves, +as well as the preservation of open space that preserves natural habitat. There is partly overlapping ownership in Bradley Minerals (the +Lessor) and in Porter Ranch (the surface owner) and the interests and objectives of the two entities are closely aligned. In some projects +there are conflicts between surface and mineral owners, for example with the surface owner discouraging and the mineral owner encouraging +development. Importantly, in this project the mineral and surface owners have aligned interests/objectives, and this is beneficial to +the South Salinas Project. Total royalty burden at the South Salinas Project is approximately 20%, all of which is held by lessors. TPET +and Trio LLC and their associates hold no royalty interests in the South Salinas Project. +Infrastructure +at the South Salinas Project includes seven existing wells, six expansive well pads, and three idle Aera Energy oil and gas pipelines. +The expansive well pads are important because they can accommodate significant project development without additional disturbance of +the surface – the Company believes that this may help expedite the approval of necessary additional permits. +South +Salinas Project Property and Future Operations +The +Company has drilling permits from Monterey County for two additional wells at the South Salinas Project, being the HV-2 well and the +HV-4 well. When appropriate funding is in place, the Company will evaluate whether to directionally drill both of +these wells into the Presidents Oil Field, or to drill one into the Presidents Oil Field and one into the Humpback Oil Field. The production +performance of the HV-3A well, which was restarted on March 22, 2024, will bear on the drilling plans for HV-2 and HV-4. +The +Company anticipates that it may be desirable in the future to obtain access or ownership of the Aera Energy pipelines (possibly jointly +owned with Chevron) to move oil and gas to markets and possibly to move produced water off-site, as well as potentially being used in +a Carbon Capture and Storage (CCS) Project. Aera Energy (“Aera”) and Chevron have significant operations a few miles north +at the San Ardo Oil Field. Aera’s holdings in California were recently acquired by the companies IKAV, an international asset management +group headquartered in Germany, and CPP Investments, a professional investment management organization that manages investments of contributors +and beneficiaries of the Canada Pension Plan. In 2024, it was announced that California Resources Corp (“CRC”) and Aera are +merging. The Company believes that there are potential synergies between our South Salinas Project and the San Ardo Oil Field that is +operated by Aera and Chevron, and possibly soon by CRC. CRC is already an approximate 8% working-interest owner in the South Salinas +Project. +There +is an application for an UIC water disposal operation at the South Salinas Project that is under review by CalGEM and being modified +and updated by Trio LLC. Approval of this water disposal project by CalGEM and Water Boards will be an important part of establishing +an economic oil and gas operations. +All +of the existing seven wells in the South Salinas Project are currently inactive and temporarily shut-in, except for the active HV-3A +well that was restarted on March 22, 2024. When the appropriate permits are in-hand, which will perhaps be in 2026, and when the required +funding is in-place, the Company will assess its plans to return the BM 2-2 well to oil and gas production, to reenter and sidetrack +three of the wells (the HV 1-35, BM 2-6 and HV 3-6 wells) to optimal locations that are indicated in the 3D seismic data and to then +put them on production, and to utilize one well (the BM 1-2-RD1 well) as a water disposal well. TPET is evaluating options (e.g., deepening, +sidetracking, recompleting, etc.) at the new HV-1 well, as discussed above. TPET may drill one or both of the HV-2 and HV-4 wells in +2026. The HV-1, HV-2, HV-3A and HV-4 wells may each be produced for its own 18-month period, under the Company’s current exploration/testing +permits. TPET is working toward the goal of obtaining permits for full field development, including long-term production and +water disposal. These permits are critical for the proper development of our South Salinas Project asset. +7 +Evaluation +of Reserves and Net Revenue +Our +evaluation and review of oil and gas reserves and future net revenue attributable to the Company’s interests in the South Salinas +Project are based on independent analyses prepared by KLS Petroleum Consulting LLC (“KLSP”), Denver, Colorado. The Company +in previous filings with the SEC provided two reserve reports by KLSP, one being entitled “Reserves Attributable to Trio Petroleum +Corp South Salinas Area for Development Plan Phases 1 and 2,” (“Prior Reserve Report 1”) and the other entitled “S. +Salinas Area, Full Development Reserves Supplement to SEC Report Dated 1-28-2022,” (“Prior Reserve Report 2”) both +of which had an effective date of October 31, 2021. KLSP has provided an updated reserve report, with an effective date of April 30, +2024, which is entitled “Reserve Attributable to Trio Petroleum Corp South Salinas Area for Phased and Full Development” +(the “Current Reserve Report”), which is included as an exhibit filed with this Annual Report on Form 10-K (“Annual +Report”). +KLSP +is an independent, third-party, petroleum engineering firm that meets industry-standards for qualifications, independence, objectivity +and confidentiality. The primary technical person, Kenneth L. Schuessler, responsible for preparing the Reserve Report is a registered +professional petroleum engineer with decades of experience in the petroleum industry and in analyses of reserves. Mr. Schuessler has +significant experience in the petroleum industry and has held important positions with Bergeson Associates, Malkewitz-Hueni Associates, +SI International, System Technology Associates and MHA Petroleum Consultants. Importantly, Mr. Schuessler has significant experience +in the evaluation and exploitation of Monterey Formation fractured-reservoirs at the giant Elk Hills and Coles Levee Fields in the San +Joaquin Basin in California. Mr. Schuessler’s knowledge of the Monterey Formation is highly-relevant to the evaluation of our South +Salinas Project at which the fractured Monterey Formation is of critical importance. +KLSP +states that the reserves in the “Prior Reserve Report 1” referenced as Exhibit 99.1 to the Annual Report, the “Prior +Reserve Report 2” referenced as Exhibit 99.2 to the Annual Report and the “Current Reserve Report” referenced as Exhibit +99.3 to the Annual Report and their determination are consistent with definitions found in Rule 4-10 of SEC Regulation S-X (17CFR part +210), and Subpart 1200 of Regulation SK. The net reserves, costs and revenues are those attributable to the Company. Future net revenue +and discounted present value are on a before federal income tax (BFIT) basis. +KLSP +is an independent third-party that does not own an interest in any of our properties. Mr. Schuessler is not a permanent employee of our +company but we continue to employ the services of KLSP on an as-needed basis. +Our +internal staff including our geoscience, drilling, facilities, regulatory, compliance, land, legal and accounting professionals communicated +as needed with KLSP to ensure the integrity, accuracy and timeliness of data furnished to KLSP, to review and discuss the properties, +methods and assumptions used by KLSP in KLSP’s preparation of the reserve estimates, and to review and discuss KLSP’s conclusions. +As discussed immediately above, KLSP is a highly-qualified, independent, petroleum-engineering consulting firm. Mr. Terence B. Eschner, +the Company’s former President and a registered professional geologist, who is very knowledgeable about the South Salinas Project, +was the Company’s primary contact with KLSP regarding the reserve analyses that were conducted by KLSP. Mr. T. Eschner played a +key role providing the Company’s internal controls on the reserve estimation effort that was carried-out by KLSP, while not interfering +with KLSP’s analyses so as to ensure that KLSP’s analyses would truly be that of an independent third-party. The Company +recognizes that estimating volumes of economically recoverable oil and natural gas reserves is somewhat subjective and that the accuracy +of any reserve estimate is partly a function of the quality and accuracy of the available data and interpretations: for this reason and +others the Company strove to provide the best available data and interpretations to KLSP. Reserve estimates typically require revision +as new information becomes available and/or due to change in conditions and/or due to unforeseen circumstances. Reserve estimates commonly +differ from the quantities of oil and natural gas that are ultimately recovered. Estimates of economically recoverable oil and natural +gas and of future net revenues are based on a number of variables and assumptions, some or all of which may prove to be incorrect. +8 +The +technologies utilized by KLSP in their reserve estimation efforts are discussed in detail in the Reserve Report. These technologies included +the evaluation and incorporation of data from analog oilfields. Analogs are widely used in reserves estimating, particularly in the early +development stages when direct measurement information (production history) is limited. On page 25 of the Reserve Report in the Society +of Petroleum Engineers’ Petroleum Resource Management System (PRMS Section 4.1.1), use of analogs is described as “ The +methodology is based on the assumption that the analogous reservoir is comparable to the subject reservoir in regard to reservoir description, +fluid properties, and most likely recovery mechanism(s) applied to the project that control the ultimate recovery of petroleum. By selecting +appropriate analogs, where performance data of comparable development plans are available, a similar production profile may be forecast. +Analogs are frequently applied in aiding in the assessment of economic producibility, production decline characteristics, drainage area, +and recovery factor. ” While the use of analogs for the South Salinas Project were consistent with the PRMS guidelines, the +Reserve Report cover letter emphasized “ The reserves and their determination are consistent with definitions found in Rule 4-10 +of SEC Regulation S-X (17CFR part 210), and Subpart 1200 of Regulation S-K .” And, specifically, in 210.4-10(a)(2) “ Analogous +reservoirs have similar rock and fluid properties, reservoir conditions (depth, temperature, and pressure) and drive mechanisms, but +are typically at a more advanced stage of development than the reservoir of interest and thus may provide concepts to assist in the interpretation +of more limited data and estimation of recovery. When used to support proved reserves, an “analogous reservoir” refers to +a reservoir that shares the following characteristics with the reservoir of interest: (i) same geological formation (but not necessarily +in pressure communication with the reservoir of interest); (ii) same environment of deposition; (iii) similar geological structure; and +(iv) same drive mechanism.” +The +technologies utilized by KLSP also included constructing several numerical models that evaluated the expected oil and gas production +under an appropriate range of reservoir characteristics, and which allowed probabilistic estimates of reserves. These models required +reservoir properties and, therefore, OOIP as input. The Probabilistic method defined a distribution representing the full range of possible +values for input parameters. This included dependencies between parameters that are also defined and applied. These distributions were +randomly sampled using Monte Carlo simulation to compute a full distribution of potential in-place and recoverable quantities of oil, +gas, and water. Input distributions were included for porosity, permeability, water saturation and net productive thickness. In addition, +pore volume compressibility was described with a distribution because its range of uncertainty can impact reservoir pressure and therefore +future productivity. S&P Global’s Harmony Enterprise software was used to construct the numerical models for the various reservoir +units, being Monterey Yellow, Monterey Blue and Vaqueros Sand reservoir units. A ‘type well’ or calibration model was constructed +for each reservoir using the average conditions and reservoir properties cited above. In addition, using the probabilistic distributions +of porosity, net thickness, water saturation, permeability and pore volume compressibility, the reservoir model was run 500 times, each +time the model selecting via Monte Carlo sampling the input parameters according to the ranges and distributions defined. Each simulation +run resulted in a particular value of oil and gas recovery. The cumulative probabilities of the resulting forecasts of ultimate oil and +gas recovery were used to identify the reported reserve values. +We +have consulted with KLSP and it has provided us estimates of net reserves and/or cash flows as of the end of April 30, 2024, as: 1) there +are new technical data as a result of drilling the HV-1 well in 2023; 2) the Company’s WI has increased from approximately 82.75% +to approximately 85.775%; 3) new leases have been acquired providing additional well locations; 4) drilling and development schedules +have changed; and 5) oil prices have changed. More specifically, the completion results of the HV-1 well appear to indicate that the +productive area of the Yellow Zone at the President’s Area may be somewhat smaller than mapped in 2021. On the other hand, the +Company has acquired additional leases in the Project area that increase the net well locations targeting the Blue Zone and Vaqueros +Sand. The reserves associated with these additional net wells partially offset any possible reduction in reserves due to a smaller Yellow +Zone productive area. All of the aforementioned factors are taken into consideration in the estimates of reserves and cash flows as of +end of April 30, 2024, as documented in the Current Reserve Report included as Exhibit 99.3 to this Annual Report. +Disclosure +of Reserve Volumes and Reserve Values as of the End of April 30, 2024 +KLSP +in the aforementioned reserve analyses recognizes the occurrence at the South Salinas Project of both Probable (P2) Undeveloped reserves +and of Possible (P3) Undeveloped reserves (see: “Glossary of Terms Used to Characterize Reserves & Projects” in Table +22 in the Reserve Report). SEC criteria stipulate that reserves cannot be classified as P1 Proved (i.e., PDP or Proved Developed Producing, +PDNP or Proved Developed Not Producing, PUD or Proved Undeveloped) if said reserves are not fully permitted for long-term production. +Permits for full field development and long-term production are being sought by the Company, but have not yet been approved for the South +Salinas Project and, therefore, KLSP does not recognize Proved reserves at the South Salinas Project. +KLSP +provided estimates of net oil and gas reserves and future net revenues, attributable to the Company, for Phase 1, Phase 2 and Phase 3 +(Full Development) for the entire South Salinas Project, as shown in the below Table. Future net revenue and discounted present value +are on a before federal income tax (BFIT) basis. Both undiscounted and discounted net cash flow to the Company are shown. The discounted +dollar amounts shown in the below Table are discounted at 10% and, therefore, are net present value (“NPV”) 10 amounts, whereas +KLSP also provided estimated NPV15, 20, 30, 45 and 60. Reserve volumes are expressed in stock tank barrels (STB) of oil and thousands +of standard cubic feet of gas (MCF). +There +are uncertainties in reserve forecasts and in associated estimates of future cash flows due to uncertainties in various matters that +are elaborated above (see: We face substantial uncertainties in estimating the characteristics of our assets, so you should not place +undue reliance on any of our measures.). The Company’s estimates of Probable (P2) Undeveloped reserves, Possible (P3) Undeveloped +reserves and their respective estimated future cash flows are discussed more-fully above (see Evaluation of Reserves and Net Revenue) +and are described in detail in the Current Reserve Report. The Company’s reserve estimates are based on field analogs, numerical +models and probabilistic modeling. Copied below are two paragraphs from the Current Reserve Report that further explain the Company’s +estimated reserves: +9 +“ Because +decline curve analysis could not be used to forecast reserves, and since the development of type curves was problematic due to the early +historical time frame in which the analog fields were developed, probabilistic methods were employed. The interpretations of open hole +logs, core, and test information were used to describe ranges and distributions of key reservoir parameters. These were then input to +numerical simulation models that used Monte Carlo sampling and hundreds of runs to derive forecasts of production and ultimate recovery +representing P90 (1P), P50 (2P) and P10 (3P) reserve estimates. As indicated in the nomenclature of TABLE 22, these estimates are also +known as Proved, Proved+Probable, and Proved+Probable+Possible, respectively. The designation ‘P50’ means there is a 50 percent +probability that the actual production will exceed the value reported as the P50 reserves. The P50 value, also considered the Best or +Most Likely estimate, is derived from a cumulative frequency distribution of forecast reserves from the Monte Carlo simulations. If Proved +reserves have been assigned, Probable reserves are then represented by the difference between the P50 and P90 probabilistic estimates. +However, as explained below, Proved reserves have not been assigned in this report because project approval has not been secured by all +necessary government entities. Therefore, since there are no Proved or P90 volumes, the Probable reserves disclosed herein, derived from +the P50 probabilistic forecasts, are incremental volumes and presented as Probable (P2) reserves. The P10 reserve estimate has a 10 percent +probability of exceeding the estimated recovery and is also known as the High estimate. Possible reserves are represented by the difference +between the P10 and P50 estimates. Possible reserves are typically larger than Probable reserves. This is the result of the key reservoir +parameter distributions reflecting their variation in nature, and when the most favorable parameters are sampled together the resulting +calculation provides the highest, but least likely, values of estimated recoveries. ” +“ Probable +reserves are assigned in certain areas where, as described above, reserves could be considered Proved if all regulatory approvals and +permits were in place. Probable reserves are also assigned in areas where well control and interpretations of available data provide +sufficient geologic evidence of reservoir continuity at structural positions above lowest known hydrocarbons (LKH), and where engineering +evidence indicates the reservoir will have the requisite porosity, permeability and oil saturation to produce commercial quantities of +oil and gas. The assignment of Possible reserves does not incorporate a larger reservoir area, but rather Possible reserves are assigned +to the same wells having Probable reserves because the probabilistic methods employed indicate there may be a greater percentage recovery +of hydrocarbons than is appropriate for the ‘Most Likely’ reserve estimates. ” +The +estimates of Probable (P2) Undeveloped reserves and Possible (P3) Undeveloped reserves and their respective estimated future cash flows +have different risk and/or uncertainty profiles and should not be summed arithmetically with each other. For example, estimates of permeability, +oil saturation, reservoir thickness and estimated ultimate recovery (EUR) are higher for the P3 reserve estimates than for the P2 reserve +estimates (see for example Figure 25 and Table 2 in the Current Reserve Report). +The +Probable (P2) and Possible (P3) reserves in the below Table are considered to be undeveloped as of the report’s effective date +of April 30, 2024. The HV-3A and BM 2-2 wells are capable of oil and/or gas production but additional investments at both of these wells +are anticipated in Phase 1 prior to establishing commercial oil/gas production and, therefore, the reserves at both of these wells are +considered undeveloped. +The +effective date of the reserves and net cash flows in the Table below is April 30, 2024. If the Company’s working-interest in the +South Salinas Project, and/or the size of the Company’s leasehold position at the South Salinas Project, were in the future to +increase or decrease, then the reserve estimates would increase or decrease accordingly (note: the Company’s %WI and leasehold +position may increase but are not expected to decrease). Similarly, changes in the future of estimates of oil and/or gas that can be +economically recovered, in the market values of oil and/or gas, in estimates of reservoir properties such as thickness, oil saturation, +porosity, etc., and various other possible changes in the future, would accordingly result in revised reserve estimates and/or revised +estimates of net cash flow. No significant discovery or other favorable or adverse event has occurred since April 30, 2024, that would +cause a substantial change in estimated reserves and/or cash flow, as of that date. +The +KLSP report providing the reserves and net cash flows in the Table below describes a Project constituting the full development of South +Salinas. The Project is composed of three phases reflecting the progression of capital deployment with successful efforts and the anticipated +time frame associated with regulatory approvals. +10 +Phase +1 uses already-permitted wells and existing wells that can be quicky re-entered upon approval of the Conditional Use Permit (CUP) by +Monterey County. Phase 1 confirms the productivity of the Monterey Blue Zone over the larger area, and it establishes cash flow to partially +support on-going development. Within Phase 1, the HV-3A will be worked-over to enhance production from its existing completion in the +Yellow Zone. The HV-2 and HV-4 will be drilled and completed in the Blue Zone of the Presidents Area. The existing HV-1 is re-entered +and deepened through the Blue Zone, and three other existing wells (BM 2-2, HV 1-35-RD1, HV 3-6-RD1) will be re-entered and sidetracked +through the Blue Zone in the Humpback Area. Although targeting a completion in the Blue Zone, it is likely that each of these re-entered +wells will be drilled to the Vaqueros, immediately below the Blue, with the intention of gathering data and testing the Vaqueros to confirm +it prospectivity as a horizontal well development. Phase 1 is being assessed and under consideration to begin in the first half of 2025 +with the HV-3A workover and, with receipt of the Conditional Use Permit from Monterey County on or about April 2025, conclude with the +sidetrack drilling of the HV 3-6-RD1 later in the year (which well is then scheduled for subsequent production). Phase 1 will deploy +an estimated $25.8 million for drilling, completion and associated facility costs including converting the existing BM 1-2 well for water +disposal. This capital, as well as that of Phases 2 and 3, include end-of-life plug and abandonment and surface cleanup costs per CALGEM +guidelines and regulations. +Phase +2 of the South Salinas Project consists of a 12 well program. The first well is a sidetrack of an existing well (HV 2-6-RD1) through +the Blue Zone in September 2025, followed by the drilling of a new well each month thereafter through August 2026. Phase 2 begins +with receipt of the remaining (Full) Development Permits from Monterey County. Phase 2 also assumed that by September 2025 Trio +should be experiencing the timely approval of drilling permits from CALGEM which have been delayed. Of the 12 Phase 2 wells, four wells will target the +Yellow Zone, seven are planned for the Blue Zone, and one well is a horizontal well in the Vaqueros Zone. The capital requirement +for Phase 2 well work and facilities expansion is estimated to be $43.2 million. +Phase +3, also referred to as the Full Development Phase, is expected to begin October 2026 with the utilization of three rigs drilling continuously +for about four years. Two of the rigs will be used to drill 101 Blue Zone wells, while the third rig will be used to drill 20 Yellow +Zone wells and 16 horizontal Vaqueros wells. Phase 3 will require an estimated $467 million of capital. When combined with Phases 1 and +2 the South Salinas Project is then expected to generate positive cash flow by 2029. When considered alone Phases 1 and 2 are forecast +to generate positive cash flows in 2026 and 2027, respectively. These expectations assume the realization of the Probable (P2) reserves +that are based on the ‘most likely’ forecasts of production. The KLSP report also provides the incremental volumes and cash +flows associated with the realization of Possible (P3) reserves and are provided in the Table below. The BOE’s cited in the Table +use a conversion factor of 6 Mcf of gas per BOE. +The +combined Phases 1-3 (Total South Salinas Project) are estimated to recover 40.2 million stock tank barrels of oil (MMSTB) and 42.4 billion +standard cubic feet of gas (BCF). This represents 47.3 million BOE of Probable (P2) Undeveloped reserves. The estimated incremental reserves +associated with Possible (P3) reserves are 100.7 MMSTB of oil and 168.5 BCF of gas, or 128.7 million BOE (part “F” of the +Table below). The combined Phases 1-3 estimated net cash flow to the Company, discounted at 10%, is $474.5 million for the Probable (P2) +Undeveloped reserves. Realization of the forecasts associated with Possible reserves provides an additional $2.5 billion for Trio’s +interest in the South Salinas Project (again, as shown in part “F” of the Table below). +Table +1: Estimated Undeveloped Reserves and Cash Flow +ESTIMATED +UNDEVELOPED RESERVES AND CASH FLOW +A . +Phase 1 +Undeveloped +Reserve Categories +Net Trio +Undeveloped +Oil Reserves +(Stock Tank +Barrels) +Net Trio +Undeveloped +Gas Reserves +(1000 CF, +or MCF) +Net Trio +Undeveloped +Reserves +(Barrels Oil +Equivalent) +Trio +Undiscounted +Net Cash +Flow ($) +Trio Net +Cash Flow +Discounted +at 10% ($) +Probable (P2) Undeveloped of Phase 1 +2,017,620.0 +2,133,250.0 +2,373,161.7 +$ 107,374,250.00 +$ 33,698,230.00 +Possible (P3) Undeveloped of Phase 1 +3,841,380.0 +7,449,100.0 +5,082,896.7 +$ 307,886,460.00 +$ 139,189,600.00 +11 +B. +Phase 2 +Undeveloped +Reserve Categories +Net Trio +Undeveloped +Oil Reserves +(Stock Tank +Barrels) +Net Trio +Undeveloped +Gas Reserves +(1000 CF, +or MCF) +Net Trio +Undeveloped +Reserves +(Barrels Oil +Equivalent) +Trio +Undiscounted +Net Cash +Flow ($) +Trio Net +Cash Flow +Discounted +at 10% ($) +Probable (P2) Undeveloped of Phase 2 +3,227,940.0 +3,392,940.0 +3,793,430.0 +$ 168,622,080.00 +$ 45,938,680.00 +Possible (P3) Undeveloped of Phase 2 +6,759,630.0 +11,735,140.0 +8,715,486.7 +$ 527,635,330.00 +$ 210,766,130.00 +C. +Phase 3 (Full Development) Undeveloped Reserve Categories +Net Trio +Undeveloped +Oil Reserves +(Stock Tank +Barrels) +Net Trio +Undeveloped +Gas Reserves +(1000 CF, +or MCF) +Net Trio +Undeveloped +Reserves +(Barrels Oil +Equivalent) +Trio +Undiscounted +Net Cash +Flow ($) +Trio Net +Cash Flow +Discounted +at 10% ($) +Probable (P2) Undeveloped of Phase 3 +34,940,100.0 +36,918,030.0 +41,093,105.0 +1,837,183,060.0 +394,874,030.0 +Possible (P3) Undeveloped of Phase 3 +90,057,820.0 +149,348,300.0 +114,949,203.3 +7,054,575,390.0 +2,185,998,350.0 +D. +(P2) Undeveloped Reserves for Phases 1, 2 & 3 +Net Trio +Undeveloped +Oil Reserves +(Stock Tank +Barrels) +Net Trio +Undeveloped +Gas Reserves +(1000 CF, +or MCF) +Net Trio +Undeveloped +Reserves +(Barrels Oil +Equivalent) +Trio +Undiscounted +Net Cash +Flow ($) +Trio Net +Cash Flow +Discounted +at 10% ($) +Probable (P2) Undeveloped of Phase 1 +2,017,620.0 +2,133,250.0 +2,373,161.7 +$ 107,374,250.00 +$ 33,698,230.00 +Probable (P2) Undeveloped of Phase 2 +3,227,940.0 +3,392,940.0 +3,793,430.0 +$ 168,622,080.00 +$ 45,938,680.00 +Probable (P2) Undeveloped of Phase 3 +34,940,100.0 +36,918,030.0 +41,093,105.0 +$ 1,837,183,060.00 +$ 394,874,030.00 +Total Probable (P2) Undeveloped of Phases 1, 2 & 3 +40,185,660.0 +42,444,220.0 +47,259,696.7 +$ 2,113,179,390.00 +$ 474,510,940.00 +E. +(P3) Undeveloped Reserves for Phases 1, 2 & 3 +Net Trio +Undeveloped +Oil Reserves +(Stock Tank +Barrels) +Net Trio +Undeveloped +Gas Reserves +(1000 CF, +or MCF) +Net Trio +Undeveloped +Reserves +(Barrels Oil +Equivalent) +Trio +Undiscounted +Net Cash +Flow ($) +Trio Net +Cash Flow +Discounted +at 10% ($) +Possible (P3) Undeveloped of Phase 1 +3,841,380.0 +7,449,100.0 +5,082,896.7 +$ 307,886,460.00 +$ 139,189,600.00 +Possible (P3) Undeveloped of Phase 2 +6,759,630.0 +11,735,140.0 +8,715,486.7 +$ 527,635,330.00 +$ 210,766,130.00 +Possible (P3) Undeveloped of Phase 3 +90,057,820.0 +149,348,300.0 +114,949,203.3 +$ 7,054,575,390.00 +$ 2,185,998,350.00 +Total Possible (P3) Undeveloped of Phases 1, 2 & 3 +100,658,830.0 +168,532,540.0 +128,747,586.7 +$ 7,890,097,180.00 +$ 2,535,954,080.00 +F. +Undeveloped Reserve Categories for Phases 1, 2 & 3 +Net Trio +Undeveloped +Oil Reserves +(Stock Tank +Barrels) +Net Trio +Undeveloped +Gas Reserves +(1000 CF, +or MCF) +Net Trio +Undeveloped +Reserves +(Barrels Oil +Equivalent) +Trio +Undiscounted +Net Cash +Flow ($) +Trio Net +Cash Flow +Discounted +at 10% ($) +Total Probable (P2) Undeveloped of Phases 1, 2 & 3 +40,185,660.0 +42,444,220.0 +47,259,696.7 +$ 2,113,179,390.00 +$ 474,510,940.00 +Total Possible (P3) Undeveloped of Phases 1, 2 & 3 +100,658,830.0 +168,532,540.0 +128,747,586.7 +$ 7,890,097,180.00 +$ 2,535,954,080.00 +12 +Reasonable +Expectations of Reserve Analyses +This +Annual Report provides a summary of risks and detailed discussions of risks relating to our business. The Company recognizes these risks +as being real and substantial. Nevertheless, the Company has reasonable expectations that the Company’s South Salinas Project will +prove to have reserves approximately as estimated and that there +will exist the legal right to develop the Company’s reserves in the South Salinas Project, including the rights to full-field development, +to long-term production and to deliver natural gas to market via pipeline, recognizing as discussed elsewhere hereunder that there may +be project delays and/or obstacles related to obtaining necessary permits from regulatory agencies. See “ \ No newline at end of file diff --git a/raw/filings/0001898766/2025/0001493152-26-002848/item13.txt b/raw/filings/0001898766/2025/0001493152-26-002848/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..efd3d71500b02675f4d9fb3379c2581b8d84a91b --- /dev/null +++ b/raw/filings/0001898766/2025/0001493152-26-002848/item13.txt @@ -0,0 +1,4 @@ +ITEM +13. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. +57 \ No newline at end of file diff --git a/raw/filings/0001898795/2024/0001898795-25-000055/filing.txt b/raw/filings/0001898795/2024/0001898795-25-000055/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..ecf7f6d7f8de6b0f2118436fde9e62f4b66c4118 --- /dev/null +++ b/raw/filings/0001898795/2024/0001898795-25-000055/filing.txt @@ -0,0 +1,2150 @@ +lvwr-20241231 +0001898795 2024 FY false false false false false .5 P1Y P1Y 33.33 33.33 33.33 33.33 33.33 33.33 P6M http://fasb.org/us-gaap/2024#SellingGeneralAndAdministrativeExpense iso4217:USD xbrli:shares iso4217:USD xbrli:shares lvwr:segment xbrli:pure lvwr:day lvwr:employee 0001898795 2024-01-01 2024-12-31 0001898795 us-gaap:CommonStockMember 2024-01-01 2024-12-31 0001898795 us-gaap:WarrantMember 2024-01-01 2024-12-31 0001898795 2024-06-30 0001898795 2025-02-19 0001898795 2023-01-01 2023-12-31 0001898795 2022-01-01 2022-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:ServiceAgreementMember 2024-01-01 2024-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:ServiceAgreementMember 2023-01-01 2023-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:ServiceAgreementMember 2022-09-27 2022-12-31 0001898795 us-gaap:RelatedPartyMember 2024-01-01 2024-12-31 0001898795 us-gaap:RelatedPartyMember 2023-01-01 2023-12-31 0001898795 us-gaap:RelatedPartyMember 2022-01-01 2022-12-31 0001898795 2024-12-31 0001898795 2023-12-31 0001898795 us-gaap:NonrelatedPartyMember 2024-12-31 0001898795 us-gaap:NonrelatedPartyMember 2023-12-31 0001898795 us-gaap:RelatedPartyMember 2024-12-31 0001898795 us-gaap:RelatedPartyMember 2023-12-31 0001898795 2022-12-31 0001898795 2021-12-31 0001898795 us-gaap:CommonStockMember 2021-12-31 0001898795 us-gaap:AdditionalPaidInCapitalMember 2021-12-31 0001898795 us-gaap:RetainedEarningsMember 2021-12-31 0001898795 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-12-31 0001898795 lvwr:NetParentCompanyInvestmentMember 2021-12-31 0001898795 us-gaap:TreasuryStockCommonMember 2021-12-31 0001898795 lvwr:NetParentCompanyInvestmentMember 2022-06-27 2022-09-25 0001898795 2022-06-27 2022-09-25 0001898795 us-gaap:RetainedEarningsMember 2022-09-26 2022-12-31 0001898795 2022-09-26 2022-12-31 0001898795 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-01-01 2022-12-31 0001898795 lvwr:NetParentCompanyInvestmentMember 2022-01-01 2022-12-31 0001898795 us-gaap:CommonStockMember 2022-01-01 2022-12-31 0001898795 us-gaap:AdditionalPaidInCapitalMember 2022-01-01 2022-12-31 0001898795 us-gaap:CommonStockMember lvwr:ABICSponsorStockholdersMember 2022-01-01 2022-12-31 0001898795 us-gaap:AdditionalPaidInCapitalMember lvwr:ABICSponsorStockholdersMember 2022-01-01 2022-12-31 0001898795 lvwr:ABICSponsorStockholdersMember 2022-01-01 2022-12-31 0001898795 us-gaap:CommonStockMember lvwr:HDBackstopMember 2022-01-01 2022-12-31 0001898795 us-gaap:AdditionalPaidInCapitalMember lvwr:HDBackstopMember 2022-01-01 2022-12-31 0001898795 lvwr:HDBackstopMember 2022-01-01 2022-12-31 0001898795 us-gaap:CommonStockMember lvwr:KYMCOGroupMember 2022-01-01 2022-12-31 0001898795 us-gaap:AdditionalPaidInCapitalMember lvwr:KYMCOGroupMember 2022-01-01 2022-12-31 0001898795 lvwr:KYMCOGroupMember 2022-01-01 2022-12-31 0001898795 us-gaap:CommonStockMember 2022-12-31 0001898795 us-gaap:AdditionalPaidInCapitalMember 2022-12-31 0001898795 us-gaap:RetainedEarningsMember 2022-12-31 0001898795 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-12-31 0001898795 lvwr:NetParentCompanyInvestmentMember 2022-12-31 0001898795 us-gaap:TreasuryStockCommonMember 2022-12-31 0001898795 us-gaap:RetainedEarningsMember 2023-01-01 2023-12-31 0001898795 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-01-01 2023-12-31 0001898795 us-gaap:CommonStockMember 2023-01-01 2023-12-31 0001898795 us-gaap:AdditionalPaidInCapitalMember 2023-01-01 2023-12-31 0001898795 us-gaap:TreasuryStockCommonMember 2023-01-01 2023-12-31 0001898795 us-gaap:CommonStockMember 2023-12-31 0001898795 us-gaap:AdditionalPaidInCapitalMember 2023-12-31 0001898795 us-gaap:RetainedEarningsMember 2023-12-31 0001898795 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-12-31 0001898795 lvwr:NetParentCompanyInvestmentMember 2023-12-31 0001898795 us-gaap:TreasuryStockCommonMember 2023-12-31 0001898795 us-gaap:RetainedEarningsMember 2024-01-01 2024-12-31 0001898795 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-01-01 2024-12-31 0001898795 us-gaap:CommonStockMember 2024-01-01 2024-12-31 0001898795 us-gaap:AdditionalPaidInCapitalMember 2024-01-01 2024-12-31 0001898795 us-gaap:TreasuryStockCommonMember 2024-01-01 2024-12-31 0001898795 us-gaap:CommonStockMember 2024-12-31 0001898795 us-gaap:AdditionalPaidInCapitalMember 2024-12-31 0001898795 us-gaap:RetainedEarningsMember 2024-12-31 0001898795 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-12-31 0001898795 lvwr:NetParentCompanyInvestmentMember 2024-12-31 0001898795 us-gaap:TreasuryStockCommonMember 2024-12-31 0001898795 lvwr:AEABridgesImpactCorpMember 2022-09-23 0001898795 lvwr:AEABridgesImpactCorpMember 2022-09-26 0001898795 us-gaap:CommonStockMember lvwr:AEABridgesImpactCorpMember 2022-09-26 0001898795 2022-09-26 0001898795 2022-09-26 2022-09-26 0001898795 lvwr:EarnOutSharesMember 2022-09-26 2022-09-26 0001898795 lvwr:LegacyLiveWireMember lvwr:AEABridgesImpactCorpMember 2022-09-26 0001898795 us-gaap:CommonClassAMember lvwr:AEABridgesImpactCorpMember 2022-09-26 2022-09-26 0001898795 us-gaap:CommonClassBMember lvwr:AEABridgesImpactCorpMember 2022-09-26 2022-09-26 0001898795 us-gaap:CommonClassBMember lvwr:AEABridgesImpactCorpMember 2022-09-26 2022-09-26 0001898795 lvwr:KYMCOGroupMember 2022-09-26 2022-09-26 0001898795 lvwr:KYMCOGroupMember 2022-09-26 0001898795 lvwr:LegacyLiveWireMember 2022-09-26 2022-09-26 0001898795 lvwr:LegacyLiveWireMember 2022-09-26 0001898795 lvwr:BackStopShareMember 2022-09-26 2022-09-26 0001898795 lvwr:BackStopShareMember 2022-09-26 0001898795 srt:AffiliatedEntityMember lvwr:HarleyDavidsonMember 2022-09-26 2022-09-26 0001898795 lvwr:AEABridgeWarrantsMember lvwr:AEABridgesImpactCorpMember 2022-09-26 0001898795 lvwr:KTMMember us-gaap:CustomerConcentrationRiskMember us-gaap:AccountsReceivableMember 2023-01-01 2023-12-31 0001898795 srt:MinimumMember 2024-01-01 2024-12-31 0001898795 srt:MaximumMember 2024-01-01 2024-12-31 0001898795 us-gaap:LeaseholdImprovementsMember 2024-12-31 0001898795 srt:MinimumMember us-gaap:MachineryAndEquipmentMember 2024-12-31 0001898795 srt:MaximumMember us-gaap:MachineryAndEquipmentMember 2024-12-31 0001898795 srt:MinimumMember lvwr:ToolingAndSoftwareMember 2024-12-31 0001898795 srt:MaximumMember lvwr:ToolingAndSoftwareMember 2024-12-31 0001898795 lvwr:ElectricMotorcyclesMember lvwr:ElectricMotorcycleSegmentMember 2024-01-01 2024-12-31 0001898795 lvwr:ElectricMotorcyclesMember lvwr:ElectricMotorcycleSegmentMember 2023-01-01 2023-12-31 0001898795 lvwr:ElectricMotorcyclesMember lvwr:ElectricMotorcycleSegmentMember 2022-01-01 2022-12-31 0001898795 lvwr:PartAccessoriesAndApparelMember lvwr:ElectricMotorcycleSegmentMember 2024-01-01 2024-12-31 0001898795 lvwr:PartAccessoriesAndApparelMember lvwr:ElectricMotorcycleSegmentMember 2023-01-01 2023-12-31 0001898795 lvwr:PartAccessoriesAndApparelMember lvwr:ElectricMotorcycleSegmentMember 2022-01-01 2022-12-31 0001898795 lvwr:ElectricMotorcycleSegmentMember 2024-01-01 2024-12-31 0001898795 lvwr:ElectricMotorcycleSegmentMember 2023-01-01 2023-12-31 0001898795 lvwr:ElectricMotorcycleSegmentMember 2022-01-01 2022-12-31 0001898795 lvwr:ElectricBalanceBikesMember lvwr:STACYCSegmentMember 2024-01-01 2024-12-31 0001898795 lvwr:ElectricBalanceBikesMember lvwr:STACYCSegmentMember 2023-01-01 2023-12-31 0001898795 lvwr:ElectricBalanceBikesMember lvwr:STACYCSegmentMember 2022-01-01 2022-12-31 0001898795 lvwr:PartAccessoriesAndApparelMember lvwr:STACYCSegmentMember 2024-01-01 2024-12-31 0001898795 lvwr:PartAccessoriesAndApparelMember lvwr:STACYCSegmentMember 2023-01-01 2023-12-31 0001898795 lvwr:PartAccessoriesAndApparelMember lvwr:STACYCSegmentMember 2022-01-01 2022-12-31 0001898795 lvwr:STACYCSegmentMember 2024-01-01 2024-12-31 0001898795 lvwr:STACYCSegmentMember 2023-01-01 2023-12-31 0001898795 lvwr:STACYCSegmentMember 2022-01-01 2022-12-31 0001898795 lvwr:HarleyDavidsonMember 2022-09-26 2022-09-26 0001898795 lvwr:ABICMember 2022-09-26 2022-09-26 0001898795 lvwr:DerivativeInstrumentPeriodOneMember lvwr:EarnOutSharesMember 2022-09-26 2022-09-26 0001898795 lvwr:DerivativeInstrumentPeriodTwoMember lvwr:EarnOutSharesMember 2022-09-26 2022-09-26 0001898795 lvwr:DerivativeInstrumentPeriodTwoMember lvwr:EarnOutSharesMember srt:MinimumMember 2022-09-26 2022-09-26 0001898795 lvwr:DerivativeInstrumentPeriodTwoMember lvwr:EarnOutSharesMember srt:MaximumMember 2022-09-26 2022-09-26 0001898795 lvwr:CommonShareholdersMember 2022-09-26 2022-09-26 0001898795 lvwr:LegacyLiveWireEquityholdersMember 2022-09-26 2022-09-26 0001898795 lvwr:AEABridgesImpactCorpMember 2022-09-26 2022-09-26 0001898795 lvwr:JohnReplogleMember 2022-09-26 2022-09-26 0001898795 lvwr:GeorgeSerafeimMember 2022-09-26 2022-09-26 0001898795 lvwr:HarleyDavidsonMember 2022-09-25 0001898795 lvwr:HarleyDavidsonMember 2022-12-31 0001898795 2022-09-25 2022-09-25 0001898795 us-gaap:EmployeeStockMember 2024-01-01 2024-12-31 0001898795 us-gaap:EmployeeStockMember 2023-01-01 2023-12-31 0001898795 us-gaap:EmployeeStockMember 2022-01-01 2022-12-31 0001898795 us-gaap:WarrantMember 2024-01-01 2024-12-31 0001898795 us-gaap:WarrantMember 2023-01-01 2023-12-31 0001898795 us-gaap:WarrantMember 2022-01-01 2022-12-31 0001898795 us-gaap:ConstructionInProgressMember 2024-12-31 0001898795 us-gaap:ConstructionInProgressMember 2023-12-31 0001898795 us-gaap:ToolsDiesAndMoldsMember 2024-12-31 0001898795 us-gaap:ToolsDiesAndMoldsMember 2023-12-31 0001898795 us-gaap:MachineryAndEquipmentMember 2024-12-31 0001898795 us-gaap:MachineryAndEquipmentMember 2023-12-31 0001898795 us-gaap:SoftwareDevelopmentMember 2024-12-31 0001898795 us-gaap:SoftwareDevelopmentMember 2023-12-31 0001898795 us-gaap:LeaseholdImprovementsMember 2023-12-31 0001898795 lvwr:SupplierCaseMember 2024-12-01 2024-12-31 0001898795 srt:MinimumMember 2024-12-31 0001898795 srt:MaximumMember 2024-12-31 0001898795 us-gaap:TrademarksMember 2024-12-31 0001898795 us-gaap:TrademarksMember 2023-12-31 0001898795 us-gaap:NoncompeteAgreementsMember 2024-12-31 0001898795 us-gaap:NoncompeteAgreementsMember 2023-12-31 0001898795 us-gaap:OtherIntangibleAssetsMember 2024-12-31 0001898795 us-gaap:OtherIntangibleAssetsMember 2023-12-31 0001898795 2024-12-01 2024-12-31 0001898795 lvwr:PublicWarrantMember 2022-09-26 0001898795 lvwr:PrivatePlacementWarrantMember 2022-09-26 0001898795 lvwr:PublicWarrantMember 2023-12-31 0001898795 lvwr:PublicWarrantMember 2024-12-31 0001898795 lvwr:PrivatePlacementWarrantMember 2023-12-31 0001898795 lvwr:PrivatePlacementWarrantMember 2024-12-31 0001898795 lvwr:PriceRangeOneMember lvwr:PublicWarrantMember us-gaap:CommonStockMember 2024-12-31 0001898795 lvwr:PriceRangeOneMember lvwr:PublicWarrantMember us-gaap:CommonStockMember 2024-01-01 2024-12-31 0001898795 lvwr:PriceRangeTwoMember lvwr:PublicWarrantMember us-gaap:CommonStockMember 2024-12-31 0001898795 lvwr:PriceRangeTwoMember lvwr:PublicWarrantMember us-gaap:CommonStockMember 2024-01-01 2024-12-31 0001898795 lvwr:PriceRangeOneMember lvwr:PrivatePlacementWarrantMember us-gaap:CommonStockMember 2024-12-31 0001898795 lvwr:PriceRangeTwoMember lvwr:PrivatePlacementWarrantMember us-gaap:CommonStockMember 2024-12-31 0001898795 lvwr:PublicWarrantMember 2024-01-01 2024-12-31 0001898795 lvwr:PrivatePlacementWarrantMember 2024-01-01 2024-12-31 0001898795 lvwr:PublicWarrantMember 2023-01-01 2023-12-31 0001898795 lvwr:PrivatePlacementWarrantMember 2023-01-01 2023-12-31 0001898795 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2024-12-31 0001898795 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2024-12-31 0001898795 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2024-12-31 0001898795 us-gaap:MoneyMarketFundsMember us-gaap:FairValueMeasurementsRecurringMember 2024-12-31 0001898795 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember lvwr:PublicWarrantMember 2024-12-31 0001898795 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember lvwr:PublicWarrantMember 2024-12-31 0001898795 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember lvwr:PublicWarrantMember 2024-12-31 0001898795 us-gaap:FairValueMeasurementsRecurringMember lvwr:PublicWarrantMember 2024-12-31 0001898795 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember lvwr:PrivatePlacementWarrantsMember 2024-12-31 0001898795 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember lvwr:PrivatePlacementWarrantsMember 2024-12-31 0001898795 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember lvwr:PrivatePlacementWarrantsMember 2024-12-31 0001898795 us-gaap:FairValueMeasurementsRecurringMember lvwr:PrivatePlacementWarrantsMember 2024-12-31 0001898795 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2024-12-31 0001898795 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2024-12-31 0001898795 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2024-12-31 0001898795 us-gaap:FairValueMeasurementsRecurringMember 2024-12-31 0001898795 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2023-12-31 0001898795 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2023-12-31 0001898795 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2023-12-31 0001898795 us-gaap:FairValueMeasurementsRecurringMember 2023-12-31 0001898795 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember lvwr:PublicWarrantMember 2023-12-31 0001898795 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember lvwr:PublicWarrantMember 2023-12-31 0001898795 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember lvwr:PublicWarrantMember 2023-12-31 0001898795 us-gaap:FairValueMeasurementsRecurringMember lvwr:PublicWarrantMember 2023-12-31 0001898795 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember lvwr:PrivatePlacementWarrantsMember 2023-12-31 0001898795 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember lvwr:PrivatePlacementWarrantsMember 2023-12-31 0001898795 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember lvwr:PrivatePlacementWarrantsMember 2023-12-31 0001898795 us-gaap:FairValueMeasurementsRecurringMember lvwr:PrivatePlacementWarrantsMember 2023-12-31 0001898795 lvwr:ElectricMotorcyclesMember 2024-01-01 2024-12-31 0001898795 lvwr:BatteryForElectricMotorcyclesMember 2024-01-01 2024-12-31 0001898795 lvwr:RecallCampaignMember 2024-12-31 0001898795 lvwr:RecallCampaignMember 2023-12-31 0001898795 2024-10-01 2024-12-31 0001898795 lvwr:TimeBasedRSUsMember 2024-01-01 2024-12-31 0001898795 lvwr:TimeBasedRSUsMember srt:DirectorMember 2024-01-01 2024-12-31 0001898795 lvwr:TimeBasedRSUsMember 2023-01-01 2023-12-31 0001898795 lvwr:TimeBasedRSUsMember 2022-01-01 2022-12-31 0001898795 us-gaap:PerformanceSharesMember 2022-01-01 2022-12-31 0001898795 us-gaap:PerformanceSharesMember us-gaap:ScenarioAdjustmentMember 2024-01-01 2024-12-31 0001898795 us-gaap:PerformanceSharesMember 2023-01-01 2023-12-31 0001898795 us-gaap:PerformanceSharesMember 2024-01-01 2024-12-31 0001898795 lvwr:TimeBasedRSUsMember 2023-12-31 0001898795 us-gaap:PerformanceSharesMember 2023-12-31 0001898795 us-gaap:RestrictedStockUnitsRSUMember 2023-12-31 0001898795 us-gaap:RestrictedStockUnitsRSUMember 2024-01-01 2024-12-31 0001898795 lvwr:TimeBasedRSUsMember 2024-12-31 0001898795 us-gaap:PerformanceSharesMember 2024-12-31 0001898795 us-gaap:RestrictedStockUnitsRSUMember 2024-12-31 0001898795 lvwr:TimeBasedRSUsMember 2022-12-31 0001898795 us-gaap:PerformanceSharesMember 2022-12-31 0001898795 us-gaap:RestrictedStockUnitsRSUMember 2022-12-31 0001898795 us-gaap:RestrictedStockUnitsRSUMember 2023-01-01 2023-12-31 0001898795 lvwr:TimeBasedRSUsMember 2021-12-31 0001898795 us-gaap:PerformanceSharesMember 2021-12-31 0001898795 us-gaap:RestrictedStockUnitsRSUMember 2021-12-31 0001898795 us-gaap:RestrictedStockUnitsRSUMember 2022-01-01 2022-12-31 0001898795 lvwr:TimeBasedRSUsSettledInCashMember 2023-12-31 0001898795 lvwr:PerformanceRSUsSettledInCashMember 2023-12-31 0001898795 lvwr:RestrictedStockUnitsSettledInCashMember 2023-12-31 0001898795 lvwr:TimeBasedRSUsSettledInCashMember 2024-01-01 2024-12-31 0001898795 lvwr:PerformanceRSUsSettledInCashMember 2024-01-01 2024-12-31 0001898795 lvwr:RestrictedStockUnitsSettledInCashMember 2024-01-01 2024-12-31 0001898795 lvwr:TimeBasedRSUsSettledInCashMember 2024-12-31 0001898795 lvwr:PerformanceRSUsSettledInCashMember 2024-12-31 0001898795 lvwr:RestrictedStockUnitsSettledInCashMember 2024-12-31 0001898795 lvwr:TimeBasedRSUsSettledInCashMember 2022-12-31 0001898795 lvwr:PerformanceRSUsSettledInCashMember 2022-12-31 0001898795 lvwr:RestrictedStockUnitsSettledInCashMember 2022-12-31 0001898795 lvwr:TimeBasedRSUsSettledInCashMember 2023-01-01 2023-12-31 0001898795 lvwr:PerformanceRSUsSettledInCashMember 2023-01-01 2023-12-31 0001898795 lvwr:RestrictedStockUnitsSettledInCashMember 2023-01-01 2023-12-31 0001898795 lvwr:TimeBasedRSUsSettledInCashMember 2021-12-31 0001898795 lvwr:PerformanceRSUsSettledInCashMember 2021-12-31 0001898795 lvwr:RestrictedStockUnitsSettledInCashMember 2021-12-31 0001898795 lvwr:TimeBasedRSUsSettledInCashMember 2022-01-01 2022-12-31 0001898795 lvwr:PerformanceRSUsSettledInCashMember 2022-01-01 2022-12-31 0001898795 lvwr:RestrictedStockUnitsSettledInCashMember 2022-01-01 2022-12-31 0001898795 lvwr:HistoricalHDPlanMember 2024-01-01 2024-12-31 0001898795 lvwr:HistoricalHDPlanMember 2023-01-01 2023-12-31 0001898795 lvwr:HistoricalHDPlanMember 2022-01-01 2022-12-31 0001898795 us-gaap:RestrictedStockMember lvwr:HistoricalHDPlanMember 2022-01-01 2022-12-31 0001898795 us-gaap:RestrictedStockMember lvwr:HistoricalHDPlanMember 2024-12-31 0001898795 us-gaap:RestrictedStockMember lvwr:HistoricalHDPlanMember 2023-12-31 0001898795 us-gaap:RestrictedStockUnitsRSUMember lvwr:HistoricalHDPlanMember 2023-12-31 0001898795 us-gaap:RestrictedStockUnitsRSUMember lvwr:HistoricalHDPlanMember 2024-01-01 2024-12-31 0001898795 us-gaap:RestrictedStockUnitsRSUMember lvwr:HistoricalHDPlanMember 2024-12-31 0001898795 us-gaap:RestrictedStockUnitsRSUMember lvwr:HistoricalHDPlanMember 2022-12-31 0001898795 us-gaap:RestrictedStockUnitsRSUMember lvwr:HistoricalHDPlanMember 2023-01-01 2023-12-31 0001898795 us-gaap:RestrictedStockUnitsRSUMember lvwr:HistoricalHDPlanMember 2021-12-31 0001898795 us-gaap:RestrictedStockUnitsRSUMember lvwr:HistoricalHDPlanMember 2022-01-01 2022-12-31 0001898795 us-gaap:RestrictedStockUnitsRSUMember us-gaap:ShareBasedCompensationAwardTrancheOneMember 2024-01-01 2024-12-31 0001898795 us-gaap:RestrictedStockUnitsRSUMember us-gaap:ShareBasedCompensationAwardTrancheTwoMember 2024-01-01 2024-12-31 0001898795 us-gaap:RestrictedStockUnitsRSUMember us-gaap:ShareBasedCompensationAwardTrancheThreeMember 2024-01-01 2024-12-31 0001898795 us-gaap:PerformanceSharesMember us-gaap:ShareBasedCompensationAwardTrancheOneMember 2024-01-01 2024-12-31 0001898795 us-gaap:PerformanceSharesMember us-gaap:ShareBasedCompensationAwardTrancheTwoMember 2024-01-01 2024-12-31 0001898795 us-gaap:PerformanceSharesMember us-gaap:ShareBasedCompensationAwardTrancheThreeMember 2024-01-01 2024-12-31 0001898795 srt:MinimumMember 2024-02-14 2024-02-14 0001898795 srt:MaximumMember 2024-02-14 2024-02-14 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:ContractManufacturingAgreementMember 2024-01-01 2024-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:ContractManufacturingAgreementMember 2023-01-01 2023-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:ContractManufacturingAgreementMember 2022-09-27 2022-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:ExcessInventoryChargeMember 2024-01-01 2024-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:ExcessInventoryChargeMember 2023-01-01 2023-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:ContractManufacturingAgreementMember 2024-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:ContractManufacturingAgreementMember 2023-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:ServiceAgreementMember 2024-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:ServiceAgreementMember 2023-12-31 0001898795 lvwr:ConvertibleTermLoanMember us-gaap:RelatedPartyMember 2024-02-14 0001898795 lvwr:ConvertibleTermLoanMember us-gaap:RelatedPartyMember 2024-02-14 2024-02-14 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:ElectricMotorcyclesMember us-gaap:SalesMember 2024-01-01 2024-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember 2024-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember 2023-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember us-gaap:SalesMember 2024-01-01 2024-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember us-gaap:SalesMember 2023-01-01 2023-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember us-gaap:SalesMember 2022-09-27 2022-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember 2024-01-01 2024-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember 2023-01-01 2023-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember 2022-09-27 2022-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:STACYCSegmentMember 2024-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:STACYCSegmentMember 2023-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:LeaseAgreementMember 2023-08-23 2023-08-23 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:LeaseAgreementMember 2024-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:LeaseAgreementMember 2023-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember srt:ScenarioForecastMember lvwr:LeaseAgreementMember 2025-03-31 0001898795 us-gaap:RelatedPartyMember us-gaap:SubsequentEventMember us-gaap:ScenarioAdjustmentMember lvwr:HarleyDavidsonIncMember lvwr:LeaseAgreementMember 2025-01-30 0001898795 us-gaap:RelatedPartyMember us-gaap:SubsequentEventMember lvwr:HarleyDavidsonIncMember lvwr:LeaseAgreementMember 2025-01-30 0001898795 2022-01-01 2022-09-25 0001898795 2022-09-27 2022-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember 2022-01-01 2022-09-25 0001898795 us-gaap:LineOfCreditMember us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember 2022-06-23 2022-06-23 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember 2022-01-01 2022-12-31 0001898795 lvwr:ElectronicMotorCycleSegmentMember 2024-01-01 2024-12-31 0001898795 lvwr:ElectronicMotorCycleSegmentMember 2023-01-01 2023-12-31 0001898795 lvwr:ElectronicMotorCycleSegmentMember 2022-01-01 2022-12-31 0001898795 lvwr:ElectricMotorcycleSegmentMember 2024-12-31 0001898795 lvwr:STACYCSegmentMember 2024-12-31 0001898795 lvwr:ElectricMotorcycleSegmentMember 2023-12-31 0001898795 lvwr:STACYCSegmentMember 2023-12-31 0001898795 lvwr:ElectricMotorcycleSegmentMember 2022-12-31 0001898795 lvwr:STACYCSegmentMember 2022-12-31 0001898795 lvwr:KTMMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-31 0001898795 lvwr:KTMMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember 2022-01-01 2022-12-31 0001898795 country:US 2024-01-01 2024-12-31 0001898795 country:US 2023-01-01 2023-12-31 0001898795 country:US 2022-01-01 2022-12-31 0001898795 country:AT 2024-01-01 2024-12-31 0001898795 country:AT 2023-01-01 2023-12-31 0001898795 country:AT 2022-01-01 2022-12-31 0001898795 us-gaap:NonUsMember 2024-01-01 2024-12-31 0001898795 us-gaap:NonUsMember 2023-01-01 2023-12-31 0001898795 us-gaap:NonUsMember 2022-01-01 2022-12-31 0001898795 country:US 2024-12-31 0001898795 country:US 2023-12-31 0001898795 country:US 2022-12-31 0001898795 us-gaap:NonUsMember 2024-12-31 0001898795 us-gaap:NonUsMember 2023-12-31 0001898795 us-gaap:NonUsMember 2022-12-31 0001898795 srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember lvwr:ElectronicMotorCycleSegmentMember 2024-01-01 2024-12-31 0001898795 srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember us-gaap:OneTimeTerminationBenefitsMember lvwr:ElectronicMotorCycleSegmentMember 2024-01-01 2024-12-31 0001898795 lvwr:ElectronicMotorCycleSegmentMember 2024-12-31 0001898795 lvwr:September2024PlanMember 2024-01-01 2024-12-31 0001898795 lvwr:September2024PlanMember us-gaap:OneTimeTerminationBenefitsMember 2024-01-01 2024-12-31 0001898795 lvwr:September2024PlanMember 2024-12-31 0001898795 us-gaap:ScenarioAdjustmentMember 2024-01-01 2024-12-31 0001898795 us-gaap:EmployeeSeveranceMember 2023-12-31 0001898795 us-gaap:OtherRestructuringMember 2023-12-31 0001898795 us-gaap:EmployeeSeveranceMember lvwr:April2024PlanMember 2024-01-01 2024-12-31 0001898795 us-gaap:OtherRestructuringMember lvwr:April2024PlanMember 2024-01-01 2024-12-31 0001898795 lvwr:April2024PlanMember 2024-01-01 2024-12-31 0001898795 us-gaap:EmployeeSeveranceMember lvwr:September2024PlanMember 2024-01-01 2024-12-31 0001898795 us-gaap:OtherRestructuringMember lvwr:September2024PlanMember 2024-01-01 2024-12-31 0001898795 lvwr:September2024PlanMember 2024-01-01 2024-12-31 0001898795 us-gaap:EmployeeSeveranceMember 2024-01-01 2024-12-31 0001898795 us-gaap:OtherRestructuringMember 2024-01-01 2024-12-31 0001898795 us-gaap:EmployeeSeveranceMember 2024-12-31 0001898795 us-gaap:OtherRestructuringMember 2024-12-31 0001898795 us-gaap:AllowanceForCreditLossMember 2023-12-31 0001898795 us-gaap:AllowanceForCreditLossMember 2022-12-31 0001898795 us-gaap:AllowanceForCreditLossMember 2021-12-31 0001898795 us-gaap:AllowanceForCreditLossMember 2024-01-01 2024-12-31 0001898795 us-gaap:AllowanceForCreditLossMember 2023-01-01 2023-12-31 0001898795 us-gaap:AllowanceForCreditLossMember 2022-01-01 2022-12-31 0001898795 us-gaap:AllowanceForCreditLossMember 2024-12-31 0001898795 us-gaap:InventoryValuationReserveMember 2023-12-31 0001898795 us-gaap:InventoryValuationReserveMember 2022-12-31 0001898795 us-gaap:InventoryValuationReserveMember 2021-12-31 0001898795 us-gaap:InventoryValuationReserveMember 2024-01-01 2024-12-31 0001898795 us-gaap:InventoryValuationReserveMember 2023-01-01 2023-12-31 0001898795 us-gaap:InventoryValuationReserveMember 2022-01-01 2022-12-31 0001898795 us-gaap:InventoryValuationReserveMember 2024-12-31 0001898795 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2023-12-31 0001898795 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2022-12-31 0001898795 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2021-12-31 0001898795 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2024-01-01 2024-12-31 0001898795 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2023-01-01 2023-12-31 0001898795 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2022-01-01 2022-12-31 0001898795 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2024-12-31 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D. C. 20549 +FORM 10-K +☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended: December 31 , 2024 +or +☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +Commission file number 001-41511 +LiveWire Group, Inc. +(Exact name of registrant as specified in its charter) +Delaware 87-4730333 +(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) +3700 West Juneau Avenue +( 650 ) 447-8424 +Milwaukee , Wisconsin 53208 +(Address of principal executive office) +(Issuer’s Telephone Number, including area code) +Securities registered pursuant to Section 12(b) of the Act: +Title of each class Trading Symbol(s) Name of each exchange on which registered +Common Stock, $0.0001 par value per share LVWR New York Stock Exchange +Warrants to purchase common stock LVWR WS New York Stock Exchange +Securities registered pursuant to Section 12(g) of the Act: NONE +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer ☐ Accelerated filer +☒ +Emerging growth company +☒ +Non-accelerated filer ☐ Smaller reporting company ☐ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal controls over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report Yes ☐ No ☒ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ +The aggregate market value of the voting stock held by non-affiliates on June 30, 2024 of the registrant based on the closing price of $7.66 per share was $ 171,000,000 . +Number of shares of the registrant’s common stock outstanding at February 19, 2025: 203,474,743 shares +Documents Incorporated by Reference +Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, relating to the registrant’s Annual Meeting of Stockholders to be held on or about May 14, 2025, are incorporated herein by reference for purposes of Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K. The definitive proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year ended December 31, 2024. +LiveWire Group, Inc. +Annual Report on Form 10-K +For The Year Ended December 31, 2024 +Part I +5 +Item 1. +Business +5 +Item 1A. +Risk Factors +16 +Item 1B. +Unresolved Staff Comments +55 +Item 1C. +Cybersecurity +55 +Item 2. +Properties +56 +Item 3. +Legal Proceedings +56 +Item 4. +Mine Safety Disclosures +57 +Part II +58 +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +58 +Item 6. +[Reserved] +60 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +60 +Item 7A. +Quantitative and Qualitative Disclosures about Market Risk +71 +Item 8. +Financial Statements and Supplementary Data +73 +Item 9. +Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +111 +Item 9A. +Controls and Procedures +112 +Item 9B. +Other information +112 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +112 +Part III +112 +Item 10. +Directors, Executive Officers and Corporate Governance +113 +Item 11. +Executive Compensation +116 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +116 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +116 +Item 14. +Principal Accountant Fees and Services +116 +Part IV +117 +Item 15. +Exhibits and Financial Statement Schedules +117 +Item 16. +Form 10-K Summary +122 +Signatures +123 +Cautionary Note Regarding Forward-Looking Statements +This Annual Report on Form 10-K (“Form 10-K”) contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Form 10-K may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “commits,” “projects,” “contemplates,” “believes,” “estimates,” “forecasts,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Form 10-K include, but are not limited to statements regarding our future results of operations and financial position, industry and business trends, equity compensation, business strategy, plans, market growth, plans and objectives relating to our climate commitment, and our objectives for future operations. +3 +The forward-looking statements in this Form 10-K are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the important factors discussed in Part I, Item 1A. “Risk Factors” in this Form 10-K for the year ended December 31, 2024. The forward-looking statements are made as of the date of the filing of this report, and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. The forward-looking statements in this Form 10-K are based upon information available to us as of the date of this Form 10-K, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. +You should read this Form 10-K and the documents that we reference in this Form 10-K and have filed as exhibits to this Form 10-K with the understanding that our actual future results, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. The forward-looking statements in this report speak only as of the date of this Form 10-K. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this Form 10-K, whether as a result of any new information, future events or otherwise. +As used in this Form 10-K, unless otherwise stated or the context requires otherwise, references to “LiveWire,” the “Company,” “we,” “us,” and “our,” refer to LiveWire Group, Inc. and its consolidated subsidiaries. +4 +PART I +Item 1. Business +General +LiveWire Group, Inc., a Delaware corporation, and its consolidated subsidiaries are referred to in this Form 10-K as “we,” “our,” “us,” the “Company,” or “LiveWire.” LiveWire is an industry-leading all-electric motorcycle brand with a focus on pioneering the growing two-wheel electric motorcycle space. +LiveWire was a direct, wholly owned subsidiary of AEA-Bridges Impact Corp (“ABIC”), which was originally incorporated as a Cayman Islands exempted company on July 29, 2020, as a special purpose acquisition company (“SPAC”) with the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities. In connection with the transactions (the “Business Combination”) pursuant to the business combination agreement, dated as of December 12, 2021 (the “Business Combination Agreement”), by and among ABIC, LiveWire EV Holdings, Inc., a Delaware corporation (now known as “LiveWire Group, Inc.”), LW EV Merger Sub, Inc., a Delaware corporation (“Merger Sub”), Harley-Davidson, Inc. (“H-D”), and LiveWire EV, LLC (“Legacy LiveWire”), a wholly-owned subsidiary of H-D, we entered into a number of agreements with H-D, including the Separation Agreement, dated as of September 26, 2022, by and between H-D and Legacy LiveWire and consummated the separation of the Legacy LiveWire business and other transaction contemplated by the Separation Agreement (the “Separation”). +The Company assessed that it has two reportable segments based upon how management reviews the operations of the business: Electric Motorcycles (“Electric Motorcycles”) and STACYC (“STACYC”). The Company's reportable segments are strategic business units that offer different products and services and are managed separately based on the fundamental differences in their operations. The Electric Motorcycles segment primarily focuses on the designing and selling of electric motorcycles and also sells electric motorcycle parts, accessories, and apparel. Electric motorcycles are sold at wholesale to a network of independent dealers and retailers, at retail through a Company-owned dealership, and through online sales. The STACYC segment primarily focuses on the designing and selling of electric balance bikes for kids, and related parts and accessories. The STACYC segment products are sold at wholesale to independent dealers and independent distributors, as well as direct to consumers online. +Vision and Growth Strategy +LiveWire’s vision is to lead the next generation of motorcycling with products that combine the experience of electric powertrains with the soulful connection that comes from riding a motorcycle. The underpinning strategy is to accelerate the electric vehicle transformation of the two-wheel industry while building a leadership position in the market. Directing the shift to electric vehicles is a mission-driven leadership team with the competitive advantages of strategic partnerships with H-D and the KYMCO Group and having a pipeline of future products for both Electric Motorcycles and STACYC segments. +LiveWire’s Strategic Priorities +Lead in Electric and the Transformation of Motorcycling - The electric vehicle market will include both established manufacturers and new entrants. To establish market share and scale our business, LiveWire plans to continue building global distribution capabilities and make investments in research and development for the commercialization of future generations of LiveWire electric motorcycles, related technologies and other products. +Capture Global Share of the Electric Motorcycle Market - LiveWire strategically selects our retail partners based upon their commitment to electric, location and capabilities to support the electric vehicle capture. Our 2025 priority markets include the United States, Canada and leading countries in Europe such as Germany, France, Switzerland, the Netherlands, the United Kingdom, Spain, and Italy. +Lead in Brand Desirability - LiveWire’s ambition is to create the most desirable electric motorcycle brand in the world. As a brand, LiveWire leverages Soulful by Design as its consumer-facing position. This differentiates LiveWire from others in the category, showcasing a rider’s connection to the world through the LiveWire riding experience. LiveWire’s go-to-market model allows for a consumer-defined journey across digital and physical platforms for an omni-channel experience. +In addition to the network of retail partners, LiveWire is currently making investments to provide potential customers with other opportunities to engage with the LiveWire brand and try LiveWire products. Our location in Malibu, California opened in +5 +February 2022, giving riders an additional venue to experience the LiveWire brand. In August 2023, we added another location in Los Angeles, California to provide riders with the opportunity to experience the LiveWire brand. +Share the Love of Riding - STACYC’s mission has been to Share the Love of Riding , designing and selling electric stability bikes for kids, enabling the development of their skillset and powering their journey to independence on two wheels while preparing them to become the next generation of riders. STACYC’s current portfolio includes four sizes of product for kids ages 3 to 12. The Company sells through powersports dealers, in addition to digital channels, while leveraging licensing deals with traditional powersport Original Equipment Manufacturers (“OEM”) to increase reach and scale. +Strategic Partnerships +LiveWire benefits from two important strategic partners: H-D and Kwang Yang Motor Co., Ltd., KYMCO Capital Fund I Co., Ltd., SunBright Investment Co., Ltd., CycleLoop Co., Ltd. and Kwang Yang Holdings Limited (collectively, the “KYMCO Group”). These partners have been selected based on their track record in their respective segments, the strength of their global capabilities, and the complementary fit with the LiveWire business. These partnerships give LiveWire a unique ability to deliver high-quality products to the global market in a capital-efficient approach. +H-D is one of the most recognized motorcycle brands in the world, with capabilities to design, develop, manufacture, market and distribute vehicles to major markets around the globe. Beyond the various service agreements tied to the Separation (as defined below), LiveWire intends to leverage H-D’s capabilities in two key areas: technical and other services and contract manufacturing. +The KYMCO Group sells a globally recognized brand of scooters, motorcycles and side-by-side ATVs. The KYMCO Group goes to market with a sales footprint covering over 100 countries, including a growing subset of electric vehicle-specific distribution points. In addition to core sales activities of the KYMCO Group brand, it is a trusted design and manufacturing partner to other premium two-wheel original equipment manufacturers. On November 5, 2024, LiveWire announced a non-binding Memorandum of Understanding with Kwang Yang Motor Co., LTD. and its relevant subsidiaries (“KYMCO”) to collaborate on a new electric maxi-scooter project. +LiveWire will draw on H-D’s and the KYMCO Group’s best-in-class operations, benefiting from knowledge, scale and infrastructure across material sourcing, electric vehicle building and global distribution. +Strategic Agreements with H-D +In connection with the Business Combination , we entered into a number of agreements with H-D to govern the Separation and provide a framework for the relationship between the parties going forward pursuant to which we and/or H-D have continuing obligations to each other . All transactions with H-D subsequent to the Business Combination are considered related party transactions. Agreements that the Company entered into in connection with the Separation include: +Transition Services Agreement +On September 26, 2022, we entered into a Transition Services Agreement with H-D (the “Transition Services Agreement”) pursuant to which H-D provided to us various services and support on a transitional basis to allow LiveWire to develop the capability to support ourselves or to engage a third-party provider to provide those services and support. +The charges for the services were on a cost-plus basis (with a mark-up to reflect the management and administrative cost of providing the serv ices). The services generally commenced on the date of the Separation and were intended to terminate between six and twelve months of the date of the Separation, with the option to extend or convert the services to longer term under the Master Service Agreement. All services under the Transition Services Agreement have either terminated or have been included in the Master Services Agreement executed on December 23, 2024 and effective on January 1, 2025 discussed below. +6 +Master Services Agreement +On September 26, 2022, we entered into a master services agreement with H-D pursuant to which H-D provided us with certain services that we did not yet have the capability to perform for ourselves, including services related to testing and development, product regulatory support, color materials, finishes, paint and graphics, technical publication, application support and maintenance, service desk support, warehousing support, safety investigation, and marketing vehicle and fleet center, as we may request from time to time. On December 23, 2024, we entered into a new Master Services Agreement (the “Master Services Agreement”) with H-D. The Master Services Agreement became effective on January 1, 2025, and terminated the master services agreement, dated September 22, 2022, between LiveWire and H-D. Pursuant to the Master Services Agreement, H-D will continue to provide LiveWire with certain services that LiveWire determined would be better outsourced at this time, including services that support testing and development, product regulatory support, color materials, finishes, paint and graphics, technical publication, application support and maintenance, service desk support, warehousing support, and other corporate support services. The new Master Services Agreement incorporates a subset of support services previously provided under the now expired Transition Services Agreement including services where LiveWire utilizes H-D’s subject matter experts for targeted guidance or allow LiveWire to leverage H-D’s systems or equipment for cost savings purposes. The Master Services Agreement contemplates that each of the services shall be provided to LiveWire as detailed under the terms of the Master Services Agreement and the exhibit thereto or as set forth in a separate, mutually agreed upon letter agreement. The Master Services Agreement also provides that any service or project not contemplated by the Master Services Agreement will be set forth in a separate, mutually agreed upon side letter or letter agreement, and any fee for such service or project will be separate than the fee provided for in the Master Services Agreement. The Master Services Agreement has an initial term of seven years and will be renewable upon mutual agreement. The Master Services Agreement or any related letter agreement for additional services may be terminated by either party upon the other party’s material, uncured breach. H-D may also terminate the agreement upon LiveWire’s change of control or, at the end of a calendar year upon 180 days written notice, in the event that LiveWire failed to engage H-D to manufacture at least forty percent of LiveWire’s production during that calendar year. The charges for the services will be a flat monthly fee representing cost plus a markup. A joint steering committee composed of senior executives and/or designees of each party will meet annually to formulate a forecast and plan for LiveWire’s anticipated service needs, as well as adjust the monthly fee as appropriate, and will oversee the progress of the services and address any disputes. +Contract Manufacturing Agreement +On September 26, 2022, we entered into a Contract Manufacturing Agreement with H-D (the “Contract Manufacturing Agreement”) pursuant to which H-D provides contract manufacturing and procurement services to us for the products in our LiveWire platform, as well as future anticipated platforms. H-D is our exclusive manufacturer for these platforms for five years from the date that H-D begins manufacturing the relevant platform (and five years from the Separation for the LiveWire platform). Following this exclusivity period, we may terminate the agreement for one or more products within the relevant platform upon two years’ notice, subject to payment of certain termination charges (which are intended to compensate H-D for its capital investment and other sunken costs). The Contract Manufacturing Agreement may also be terminated, in whole or part, by either party upon the other party’s material, uncured breach, inability to perform its obligations for more than six months due to a force majeure event, bankruptcy or insolvency, or change of control. On February 14, 2024, the Contract Manufacturing Agreement was amended to extend the period of which H-D is the exclusive manufacturer from five years as described above to six years. +Beginning for calendar year 2026, LiveWire will be subject to a minimum annual volume commitment for each product and pay a deficit fee for failure to meet the minimum under the Contract Manufacturing Agreement. The products that H-D manufactures for us are priced on a cost-plus basis, with a mark-up of H-D’s cost for manufacturing the relevant product. An operational committee consisting of designated employees of each party will meet quarterly for administrative purposes, including for the review of changes to pricing, minimum volumes and other terms. H-D will procure, on our behalf, equipment and materials that are used in both H-D’s and our products, and we will procure all other equipment and materials, as well as tooling, needed to manufacture the products. +Intellectual Property License Agreement +On September 26, 2022, we entered into an Intellectual Property License Agreement with H-D (the “Intellectual Property License Agreement”) pursuant to which each party granted to the other party a license to certain intellectual property on a perpetual, non-exclusive basis for the purpose of making and selling the licensee’s products. +H-D perpetually licenses to us all H-D intellectual property (other than marks or software) used in our business as of the Separation and certain additional specified intellectual property, as well as all improvements to the foregoing (but excluding (i) any H-D manufacturing intellectual property and (ii) intellectual property relating to motorcycle riding apparel and related general merchandise). We perpetually license to H-D all intellectual property (other than marks or software) that we own as of +7 +the Separation and all improvements thereto. If either party makes improvements to the other party’s intellectual property, such improvements will be jointly owned by the parties. +The licenses are generally royalty-free. However, if either party desires to exercise its license with respect to improvements introduced by the other party in next-generation vehicles (rather than a “carry over” or a “model refresh”), then the parties will mutually agree in good faith on a reasonable royalty to be paid. In addition, if H-D desires to sell any products that incorporate our intellectual property outside of the Large Cruiser, Touring and Adventure Touring markets during the seven-year period following the Separation, the parties will mutually agree in good faith on a reasonable royalty to be paid on such sales (but not on sales relating to LiveWire-branded H-D motorcycles or related LiveWire parts and accessories). +Each party owns improvements that it creates to its own intellectual property, and the parties jointly own improvements that one party creates to the other party’s intellectual property, without a right of accounting. +Trademark License Agreement +On September 26, 2022, we entered into a Trademark License Agreement with H-D (the “Trademark License Agreement”) pursuant to which H-D granted to us a royalty-free license to use certain H-D trademarks with respect to our products. The Trademark License Agreement automatically renewed on September 26, 2024 and automatically renews for successive two-year periods unless either party gives notice of non-renewal at least 60 days prior to the end of the then-current term. H-D may terminate the agreement earlier upon our breach under certain circumstances, our bankruptcy or insolvency, or our unpermitted assignment of the agreement. +Joint Development Agreement +On September 26, 2022, we entered into a Joint Development Agreement with H-D (the “Joint Development Agreement”) pursuant to which the parties may agree to engage in joint development projects, which would be set forth in one or more mutually agreed project work statements. The Joint Development Agreement remains in effect until we and H-D mutually agree to terminate it and can be terminated earlier by either party upon the other party’s material, uncured breach. +Under the Joint Development Agreement, H-D is required to notify us of any development projects for H-D’s business that are primarily related to electric vehicles, and we have the right to make a proposal with respect to the joint development of such a project. The parties will discuss in good faith whether or not it is beneficial for the parties to enter into a joint development project with respect to such project. If H-D engages in any development projects that are primarily related to electric vehicles and fails to consult with us so that we can make a proposal with respect such potential project, then the intellectual property developed pursuant to such H-D development project will be owned and licensed in accordance with the default intellectual property terms of the agreement (described below). Unless we and H-D agree otherwise for a particular project, each party bears its own costs and expenses in connection with each project under the Joint Development Agreement. +Unless otherwise mutually agreed for a particular project under the Joint Development Agreement, we own project intellectual property relating exclusively to electric vehicles and H-D owns all other project intellectual property. Each party is granted a perpetual license to use the project intellectual property in connection with that party’s products, which, for us, are limited to two-, three-, or four-wheeled electric vehicles, related parts and accessories and electric vehicle systems. +Tax Matters Agreement +On September 26, 2022, LiveWire entered into a Tax Matters Agreement with H-D (the “Tax Matters Agreement”). The Tax Matters Agreement sets forth the principles and responsibilities regarding the allocation of taxes, adjustments with respect to taxes, preparation of tax returns, tax audits and certain other tax matters that affect LiveWire and H-D in the event LiveWire or any of its subsidiaries are members of any of H-D’s consolidated, combined, unitary and other similar groups for federal, state or local income tax purposes (or LiveWire has certain income, gain, loss and deduction included in the tax returns of such groups). LiveWire and its subsidiaries are currently members of H-D’s consolidated, combined, unitary and other similar groups for federal, state and local income tax purposes. +With respect to U.S. federal income tax returns for any taxable period in which LiveWire (or any of its subsidiaries) are included in H-D’s consolidated group for U.S. federal income tax purposes, the amount of taxes to be paid by us is generally determined, subject to certain adjustments, as if LiveWire and each of its subsidiaries filed its own separate consolidated federal income tax return (LiveWire’s “separate federal tax liability”). With respect to state and local income tax returns for any taxable period in which LiveWire or any of its subsidiaries are included in H-D’s combined, consolidated or unitary group for state or local income tax purposes, the amount of taxes to be paid by LiveWire is determined, subject to certain adjustments using +8 +principles analogous to the principles used to compute LiveWire’s separate federal tax liability, as if LiveWire and each of its subsidiaries included in such combined, consolidated or unitary group filed its own combined, consolidated or unitary group state or local income tax return. +LiveWire’s inclusion in H-D’s consolidated group may result in H-D utilizing certain tax attributes that LiveWire generates, including net operating losses and credits, and LiveWire will receive no compensation from H-D for the use of such attributes, but they may be used to offset any future liabilities that may be owed by LiveWire to H-D under the Tax Matters Agreement. +The Tax Matters Agreement applies as of the closing of the Business Combination, which is the date that H-D’s ownership of LiveWire met the applicable minimum threshold required to file either a combined return or a consolidated return and will remain in effect unless the parties agree in writing to terminate the agreement. Notwithstanding any termination of the Tax Matters Agreement, the agreement will continue in effect with respect to any payment or indemnification due for all taxable periods prior to the termination during which the Tax Matters Agreement was in effect. +Electric Motorcycles Segment +The Electric Motorcycles segment focuses on the development and sales of electric motorcycles as well as parts, accessories, and apparel. Electric motorcycles are sold by combining both digital and physical touchpoints to a network of independent dealers, at retail direct to consumers through a Company-owned dealership, and online sales. Prior to November 5, 2024, the Company’s products were sold at retail through select international partners primarily in Europe. +Electric Motorcycles segment revenue by product line for the last three fiscal years was as follows (in thousands): +2024 2023 2022 +Electric motorcycles $ 7,644 $ 11,087 $ 13,171 +Parts, accessories and apparel 737 461 828 +Revenue, net $ 8,381 $ 11,548 $ 13,999 +Electric Motorcycles – The Electric Motorcycles segment sells electric powered motorcycles under the LiveWire brand. LiveWire launched the LiveWire ONE model in July 2021. The electric motorcycles are developed in accordance with a set of proprietary design principles that elevate the brand, deliver differentiated riding experiences and bring emotion to electric propulsion. Starting from the LiveWire ONE, the portfolio will expand on our ARROW architecture. This approach establishes a path to grow the product set, beginning with the System2 (“S2”) Del Mar®, to meet a broad set of segments and price points. ARROW was developed in-house to take advantage of the benefits of scalable, modular architectures across the electric vehicle, electric vehicle systems and software. ARROW is an integrated vehicle architecture, utilizing the battery pack and motor as the primary vehicle structure to deliver simple, elegant lightweight designs. +The software backbone that supports every LiveWire S2 electric motorcycle is developed ground-up to maximize efficiency and performance, integrating all electric vehicle systems and vehicle functions. The electric motorcycle connects to the cloud through a telematics control unit (“TCU”) with built-in cellular connectivity. The connection enables remote monitoring of the vehicle, with status data including charge, range and tamper alerts. The LiveWire app allows riders to interact with the electric motorcycle, delivering maps, audio and ride planning via an integrated user profile. Our S2 mobile app remotely bridges the rider to the bike using built-in cellular connectivity and GPS, providing status, notifications, and alerts. In combination with the cloud system and the TCU, the mobile app enables an ecosystem of services provided to LiveWire electric motorcycle riders +Our Firmware Over the Air (“FOTA”) allows for continual upgrades and refinements to the electric motorcycle in the field, greatly reducing the need and inconvenience for service or repair appointments for setting or software updates. With FOTA-enabled electronic control units on the vehicle, each subsystem becomes remotely addressable and updatable. In addition to the benefits to the Electric Motorcycles segment as the original equipment manufacturers, FOTA capability enables remote updates to bring the rider new features, functionality and enhancements as they are developed to continually improve the LiveWire electric motorcycle riding and ownership experience. +Industry – The relevant internal combustion engine (“ICE”) and electric vehicle markets for the Electric Motorcycles segment include: +• Small and large scooters +• Light, medium and heavy weight motorcycles +• Three-wheeled motorcycles and automobiles +• Side-by-side ATVs and four-wheelers +9 +Competition – The Electric Motorcycles segment expects competition from two primary segments: +• Leading ICE-focused motorcycle companies: These incumbent motorcycle companies have the ability to scale manufacturing and leverage global distribution capabilities. Several of these companies have begun to enter the electric motorcycle market through the release or public announcement and planned release of electric motorcycles or scooters. +• Small scale electric mobility companies: These start-ups and smaller companies may have products in the market today, but typically lack the global manufacturing and distribution capabilities of the major ICE players. +While we expect competition to grow in the market as competitors invest in the total addressable electric two-wheel market, we believe the Electric Motorcycles segment is primarily positioned with the combination of technology, manufacturing, and market position to lead the growing electric motorcycle market. +Parts, accessories, and apparel – Parts, accessories, and apparel products include replacement parts and mechanical and cosmetic accessories, clothing and accessories. +Marketing – The Electric Motorcycles segment’s brand, products and the riding experience are marketed to consumers in the United States and select international markets. Marketing occurs primarily through digital and experiential activities as well as through more traditional promotional and advertising activities. The Electric Motorcycles segment is making investments to provide potential customers with many other opportunities to engage with the brand and try Electric Motorcycles segment products. Additionally, the Electric Motorcycles segment’s dealers engage in a wide range of local marketing and events. +Seasonality – The seasonality of the Electric Motorcycles segment’s wholesale motorcycle shipments generally correlates with the timing of retail sales made by dealers. Retail sales generally track closely with regional riding seasons, generally from mid-March through August. +Electric Motorcycle Manufacturing – The Electric Motorcycles segment leverages its strategic partners to enable an asset-light approach which allows the business to scale with less investment than would be necessary if it had its own manufacturing operations. The Electric Motorcycles segment purchases electric motorcycles from H-D through the Contract Manufacturing Agreement. With the introduction of the S2 platform, LiveWire powertrains are assembled in H-D’s Powertrain Operations in Menomonee Falls, Wisconsin, and overall vehicle assembly will continue to be in the York facility. On November 5, 2024, LiveWire announced a non-binding Memorandum of Understanding with KYMCO to collaborate on a new electric maxi-scooter project. +Raw Materials and Purchased Components – The Electric Motorcycles segment continues to establish and reinforce long-term, mutually beneficial relationships with its suppliers. Through these collaborative relationships, the Electric Motorcycles segment gains access to technical and commercial resources for application directly to product design, development and manufacturing initiatives. In addition, through a continued focus on collaboration and strong supplier relationships, the Electric Motorcycles segment believes it is positioned to achieve its strategic objectives and deliver cost and quality improvements over the long-term. +The principal raw materials in Electric Motorcycles segment’s products include battery cells, semi-conductor chips, steel and aluminum castings, forgings, steel sheet and bar. Additional raw materials in Electric Motorcycles segment’s products include certain motorcycle components including, but not limited to, batteries, tires, seats, electrical components, instruments and wheels. The Electric Motorcycles segment closely monitors the overall viability of its supply base. The Electric Motorcycles segment is proactively working with its suppliers in an effort to minimize disruptions resulting from supply chain challenges. +STACYC Segment +The STACYC segment primarily focuses on the designing and selling of electric balance bikes for kids, and related parts and accessories. The STACYC segment products are sold at wholesale to independent dealers and independent distributors, as well as, direct to consumers online. +STACYC segment revenue by product line for the last three fiscal years was as follows (in thousands): +2024 2023 2022 +Electric balance bikes $ 14,043 $ 22,865 $ 29,669 +Parts, accessories and apparel 4,209 3,610 3,165 +Revenue, net $ 18,252 $ 26,475 $ 32,834 +10 +Electric Balance Bikes – STACYC focuses on developing products and experiences that help kids develop sooner and empower them to define their own ride. STACYC sells electric balance bikes under the STACYC brand while working with brand partners on co-branded products. +The current product portfolio starts with 12- and 16-inch electric balance bikes built for 3- to 8-year-old riders. With a growing segment of young riders graduating out of the 16-inch product, during 2022, STACYC introduced the 18- and 20-inch electric balance bikes that expanded the range of STACYC riders from 3 to 12 years old. +Industry/Competition – STACYC is a category creator, and while there have been some competitors who have entered the market, their products lack STACYC’s product maturity and features, and their distribution generally lacks the breadth of the STACYC network. STACYC sponsors and supports off road racing events across the nation and is the first motorized vehicle allowed on USA BMX’s 300 tracks in the U.S., allowing kids to practice and race in USA BMX’s national series. While we expect competition to grow as the market shifts to younger riders and more players begin to make serious investments, we believe STACYC’s established brand with the combination of commitment, capabilities and market position allows STACYC to compete effectively in the growing electric balance bike market. +Parts, accessories, and apparel – Parts and accessories products include replacement parts and mechanical and cosmetic accessories, clothing and riding gear. +Marketing – STACYC’s brand, products and the riding experience are marketed to consumers worldwide. Marketing occurs primarily through digital and experiential activities as well as through more traditional promotional and advertising activities. Additionally, STACYC’s dealers, distributors, and OEM partners engage in a wide range of local and global marketing and events. +Seasonality – The seasonality of STACYC’s electric balance bike sales generally correlates with the timing of retail sales made by dealers. Retail sales generally track closely with regional riding and holiday purchasing seasons, generally from mid-March through December. +Manufacturing – STACYC purchases electric balance bikes through a contract manufacturing agreement from strategic partners and bike assemblers located in Taiwan and China. +Purchased Components – STACYC continues to establish and reinforce long-term, mutually beneficial relationships with its suppliers. Through these collaborative relationships, STACYC gains access to technical and commercial resources for application directly to product design, development and manufacturing initiatives. +Human Capital Management +Our People and Culture +As of December 31, 2024, the Company’s global workforce was comprised of approximately 182 employees, including approximately 162 and 20 employees within the Electric Motorcycles and STACYC segments, respectively. Of all employees, 93% are based in the U.S., and substantially all employees are salaried. A significant portion of our workforce is comprised of engineering and technology teams that are poised to design and develop future products and services. None of our employees are represented by a labor union. We have never experienced any work stoppages and we believe that our employee relations are good. +Our employees are a significant asset, and we aim to create an environment that is collaborative and challenging in which our employees can grow and advance their careers, with the overall goal of developing, expanding and retaining our workforce to support our current and future business goals. We value simplicity, passion and teamwork, and strive to build and maintain a positive environment where our employees can thrive and one that inspires exceptional contributions and professional and personal development to achieve our goal of pioneering the next era of electric vehicle technology. +Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing, and integrating our existing and new employees. We aim to achieve this through both financial plans as well as non-financial policies such as flexible vacation and time off, flexible work schedules, and access to fitness and wellness programs. The principal purposes of our equity and cash incentive plans are to attract, retain and reward personnel through the granting of stock-based and cash-based compensation awards to eligible employees to increase stockholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives. All of our exempt associates participate in our cash-based incentive plans, which provides eligible associates with cash bonus opportunities based upon the Company’s +11 +achievement of financial and other key performance metrics. Under the LiveWire Group, Inc. 2022 Incentive Award Plan (the “Incentive Award Plan”), we grant equity compensation awards, such as restricted stock units and performance awards, which vest over a period of time, to eligible associates to attract and retain key personnel, strengthen their commitment to the welfare of the Company, and align their interests with those of our stockholders. In December 2022, the Company extended ownership to all employees by making a one-time equity grant, including to those employees that are not otherwise eligible for equity grants. Additionally, our comprehensive health and welfare benefits program provides our employees with a variety of medical and dental plans, plus voluntary benefits like vision or critical illness protection. +Regulatory Considerations +Environmental, Health and Safety Regulations +Environmental, Health and Safety Regulations in the United States +Certain of our operations, properties and products are subject to stringent and comprehensive international, federal, state and local laws and regulations governing matters including environmental protection, occupational health and safety, and the release or discharge of materials into the environment (including air emissions and wastewater discharges). Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of investigatory and remedial obligations, and the issuance of orders enjoining some or all of our operations in affected areas. +We are also subject to permitting, registration, and other government approval requirements under environmental, health and safety laws and regulations applicable in the jurisdictions in which we operate. Those requirements obligate us to obtain permits, registrations, and other government approvals from one or more governmental agencies to conduct our operations and sell our products. The requirements vary depending on the location where our regulated activities are conducted. +The following summarizes certain, but not all, existing environmental, health and safety laws and regulations applicable to our operations and products. +National Highway Traffic Safety Administration (“NHTSA”) Safety and Self-Certification Obligations. As a manufacturer of electric vehicles, our electric vehicles are subject to, and must comply with, numerous regulatory requirements established by NHTSA, including all applicable United States Federal Motor Vehicle Safety Standards (“Safety Standards” or “US FMVSS”). As set forth by the National Traffic and Motor Vehicle Safety Act, we must certify that our electric vehicles meet all applicable Safety Standards. Electric Motorcycles’ current products are, and future products will be expected to be, at the time of production, fully compliant with all such Safety Standards without the need for any exemptions. +We are also required to comply with or demonstrate exemptions from other requirements of federal laws administered by NHTSA, including the consumer information labeling and owner’s manual requirements and various reporting requirements, such as “early warning” reports regarding warranty claims and field incidents, death and injury reports, foreign recall reports and safety defects reports. In addition, our products are also subject to certain laws and regulations that have been enacted or proposed, e.g., “Right to Repair” laws, that could require us to provide third-party access to our network and/or vehicle systems. +Environmental Protection Agency (“EPA”) Certificates of Conformity and Regulations. The Clean Air Act requires that we obtain an EPA-issued Certificate of Conformity with respect to emissions from our electric vehicles and include labeling providing consumer information such as maximum range on a single charge. The Certificate of Conformity is required each model year for electric vehicles sold in states covered by the Clean Air Act’s standards and is also required each model year for vehicles sold in states that have sought and received a waiver from the EPA to utilize California’s mobile source standards. +Battery Safety and Testing. Our battery packs are tested in accordance with industry safety standards, including selected tests specified in the SAE J2464 and J2929 standards as well as tests defined by other standards and regulatory bodies and LiveWire’s own internal safety and quality tests. These tests evaluate battery function and performance as well as resilience to conditions including immersion, humidity, fire and other potential hazards. +Hazardous Substances. We are subject to regulations governing the proper handling, storage, transportation and disposal of hazardous substances, including those contained in our battery packs. Transportation of our battery packs (and of equipment containing them) is governed by regulations that address risks posed during different modes of transport (e.g.¸ air, rail, ground, ocean). Governing transportation regulations in the U.S., issued by the Pipeline and Hazardous Materials Safety Administration (“PHMSA”), are based on the United Nations (“UN”) Recommendations and Model Regulations on the Transport of Dangerous Goods as well as related UN Manual Tests and Criteria. We have completed the applicable UN Manual tests for our +12 +production battery packs, and the test results demonstrate our compliance with the PHMSA regulations. For example, our battery packs have received UN38.3 compliance for shipping of the units. +We currently use transition metal oxide cells in our high-voltage battery packs. Our battery packs include certain packaging materials that contain trace amounts of hazardous chemicals whose use, storage and disposal is regulated under federal law. As a result, our battery packs are subject to federal and state environmental laws and regulations that govern regarding the handling and disposal of waste, including, in some instances, the remanufacture, recycling and disposal of hazardous waste. +The laws governing hazardous substances and hazardous waste also may impose strict, joint and several liability for the investigation and remediation of areas where hazardous substances may have been released or disposed. In the course of ordinary operations, we, directly and through third parties and contractors, may handle hazardous substances within the meaning of the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and similar federal and state statutes and, as a result, may be jointly and severally liable for all or part of the costs required to clean up sites at which any such hazardous substances have been released into the environment. +Workplace Safety. Our operations are also subject to federal, state, and local workplace safety laws and regulations, including the U.S. Occupational Health and Safety Act, and equivalent laws and regulations, which require compliance with various workplace safety requirements, including requirements related to environmental safety. These laws and regulations can give rise to liability for oversight costs, compliance costs, bodily injury (including workers’ compensation), fines, and penalties. Additionally, non-compliance could result in delay or suspension of production or cessation of operations. +Environmental, Health and Safety Regulations in the European Union +Europe Type Approval. We have begun to export electric vehicles to certain countries in Europe. Unlike the United States, once we started operating in this market, we had to obtain pre-approval from regulators to import and sell our electric vehicles into the EU and countries that recognize EU certification or have regulatory regimes aligned with the EU (collectively referred to as “Europe”). The process for certification in Europe is known as “Type Approval” and requires LiveWire to demonstrate to a regulatory agency in the EU, referred to as the Competent Authority, that our electric vehicles meet all EU safety and emission standards. The vehicles being exported to Europe have received these approvals and comply with all EU safety and emission standards, with new standards (known as Euro 5+) coming into full effect for motorcycles from January 2025. +Type Approval is accomplished through witness testing of vehicles as well as inspection of a representative vehicle intended for production and sale. Once the vehicle type is approved, all vehicles manufactured based on the approved type of vehicle may be produced or imported and sold in Europe. +Any changes to an approved vehicle type must go through updated Type Approval by the Competent Authority. +EU Emissions Regulations. We believe Europe’s regulatory environment is generally conducive to the development, production and sale of electric vehicles. Through emission legislation, tax incentives and direct subsidies, EU and non-EU countries in Europe are taking a progressive stance in reducing carbon emissions in the transport sector which may lead to increasing demand for electric vehicles. +This is reflected in the EU-wide target of a 90% reduction in greenhouse gas emissions from the transport sector by 2050 (compared to 1990 levels), as part of an economy-wide carbon-neutral target. In 2023, the EU enacted revisions to its climate legislation framework that created “ETS2”, which will (i) introduce a pricing emissions trading system that applies to the road transport sector from 2027 (subject to a potential one year delay if energy prices in the EU exceed certain amounts); and (ii) require increased levels of national greenhouse gas reduction commitments (which include the transport sector) pursuant to a revision of the Effort Sharing Regulation, as part of efforts to reduce EU emissions by 40% by 2030 (compared to 2005 levels) in certain sectors including transport and by 55% overall by 2030 (compared to 1990 levels). +In addition, the EU adopted its Batteries Regulation in 2023, which introduced seeks to introduce certain sustainability requirements in relation to batteries sold on the Union market, including electric vehicle batteries. While certain provisions of the Batteries Regulation are already in effect, many of the specific obligations will only enter into effect in the coming years, and in many cases will be dependent on details set out in secondary legislation the remains to be adopted. Further, aspects of the Energy Performance of Buildings Directive (“EPBD”) entered into effect in 2024, which require new infrastructure such as homes and businesses must be built so there is enough power to support charging stations for electric vehicles including motorcycles. +Hazardous Substances. We are subject to regulations governing the proper handling, and disposal of products containing hazardous substances in the EU, including the EU Waste Framework Directive, in relation to which the European Commission has begun a consultation process to revise. In relation to our batteries, disposal will be governed by specific provisions of the +13 +Batteries Directive (in addition to existing Member State-specific waste disposal laws), which imposes, among other obligations, certain requirements in relation to the disposal of batteries, such as that producers of batteries and producers of other products that incorporate a battery are responsible for the waste management of batteries that they place on the market, in particular the financing of collection and recycling schemes. +Environmental, Health and Safety Regulations in Canada +In Canada, vehicles must meet the Motor Vehicle Safety Act (MVSA) requirements. Canadian regulations in many ways follow those of the U.S. FMVSS and the EU regulatory requirements for compliance and our vehicles will meet the applicable Canadian requirements. Moreover, Canada Interference-Causing Equipment Standards (ICES) are applicable and our vehicles are properly marked for meeting compliance requirements to ICES-002 (identified on our Vehicle Emission Control Information (VECI) Label. +Environmental, Health and Safety Regulations in the United Kingdom +Europe Type Approval. Type Approval is accomplished through witness testing of vehicles as well as inspection of a representative vehicle intended for production and sale. Once the vehicle type is approved, all vehicles manufactured based on the approved type of vehicle may be produced or imported and sold in the United Kingdom. The United Kingdom allows for the EU Whole Vehicle Type Approval (WVTA) to be used as means of showing compliance without the need for additional witness testing activities. LiveWire submits and obtains the provisional GB type approvals necessary to comply with UK law and regulations. +Any changes to an approved vehicle type, must go through updated Type Approval by the Competent Authority. +Environmental, Health and Safety Regulations in the Rest of World +Should we expand into jurisdictions outside of the USA, Canada, and the EU, other jurisdictions also have a favorable regulatory environment with respect to electric motorcycles. +For example, in the UK, the government is consulting on future plans that all new motorcycles are to be fully zero emissions at the tailpipe from 2035, or earlier if it is determined that a faster transition seems feasible. This plan is subject to feedback from a consultation process but reflects the UK’s broader strategy to phase out new combustion engines in all transport (including heavy duty vehicles) by 2040. +Manufacturer and Dealer Regulation – United States +State laws regulate the manufacture, distribution, sale, and service (including delivery) of motorcycles and generally require vehicle manufacturers and dealers to be licensed to sell vehicles directly to customers in the state. +Some states, however, do not permit motorcycle manufacturers to be licensed as dealers or to act in the capacity of a dealer. To sell vehicles directly to residents of these states, we must conduct the sale out of state through our California location, over the internet or telephonically or through LiveWire retail partners who have obtained dealer licenses within these certain states to sell vehicles directly to residents within these states. California has recently updated certain dealer laws which may, in the future, impact our ability to sell out of our California location. +In addition, certain states and territories require service facilities to be available for vehicles sold in the state or territory, which may be interpreted to require service facilities to be available for vehicles sold through our California location over the internet or telephonically to residents of the state or territory. Puerto Rico, for example, is one such jurisdiction. Such laws could limit our ability to sell vehicles in states either where we do not maintain service facilities or where we do not have retail partners licensed to act as service dealers who maintain appropriate service facilities within these states. +We believe that, as a matter of interstate commerce, we may sell an electric vehicle to any consumer in any state in the United States from a LiveWire retail partner that is duly licensed as a dealer by a state in the United States. That customer may contact a licensed LiveWire retail partner through the internet, by telephone or visiting the location directly. However, some states may take an alternative approach or interpretation and attempt to prohibit direct sales and/or also restrict traditional marketing, pre-sale and/or sales activities. +14 +Data Privacy and Cybersecurity Laws and Regulations +Our business collects, uses, handles, stores, receives, transmits and otherwise processes different types of information about a range of individuals, including our customers, riders of our electric vehicles, website visitors, users of our mobile application, our employees and job applicants, and employees of companies we do business with (such as our vendors and suppliers). As a result, we are and may become subject to existing and emerging federal, state, local and international laws and regulations related to the privacy, security and protection of such information, such as the Federal Trade Commission Act, the GLBA, the TCPA, the CAN-SPAM Act, California Consumer Privacy Act as amended by the California Privacy Rights Act (“CCPA”) and other comprehensive state privacy laws. +In the United States, while there is not a single generally applicable federal law governing the processing of personal information, there are federal laws that apply to the processing of certain types of information, or the processing of personal information by certain types of entities, and the Federal Trade Commission and state attorneys general may bring enforcement actions against companies that engage in processing of personal information in a manner that constitutes an “unfair” or “deceptive” trade practice. +In addition, certain states have enacted or modified laws relating to data privacy and the processing of information about residents in those states. The CCPA, which went into effect on January 1, 2020 and applies to our business, imposes obligations and restrictions on businesses that handle personal information of California residents and provides data privacy rights to California residents, including the right to know, the right to delete and the right to opt out of the sale of personal information as well as additional protections for minors. Other states have also enacted, or are considering the enactment of their own comprehensive data privacy laws. Additionally, laws, regulations, and standards covering marketing and advertising activities conducted by telephone, email, mobile devices, and the Internet may be applicable to our business, such as the TCPA, the CAN-SPAM Act and similar state and federal consumer protection laws. We are also subject to certain laws and regulations that have been enacted or proposed, such as “Right to Repair” laws, that could require us to provide third-party access to our network and/or vehicle systems. +Due to our operations in Europe, including the United Kingdom, we are subject to laws, regulations and standards covering data protection and marketing and advertising, including the EU General Data Protection Regulation (“GDPR”) and the United Kingdom data protection regime, consisting primarily of the UK General Data Protection Regulation and the UK Data Protection Act (together referred to as the “UK GDPR”). The GDPR and UK GDPR regulate the processing of data relating to an identifiable individual (personal data) and impose stringent data protection requirements on organizations with significant penalties for noncompliance. The European Data Protection Board has also released data guidelines for connected vehicles, and the upcoming ePrivacy Regulation is in its final stages. +Regulators and legislators in jurisdictions around the world continue to propose and enact more stringent data protection and privacy laws. New laws as well as any significant changes to applicable laws, regulations, interpretations of laws or regulations, or market practices regarding privacy and data protection or regarding the manner in which we seek to comply with applicable laws and regulations could require us to make modifications to our products, services, policies, procedures, notices and business practices. Until prevailing compliance practices standardize, the impact of worldwide privacy regulations on our business and, consequently, our revenue, could be negatively impacted. +Intellectual Property +Our intellectual property is a core asset of our company, and an important tool to drive value and differentiation in our products and services. We protect, use and defend our intellectual property in support of our business objectives to increase our return on investment, enhance our competitive position, and create stockholder value. Through strategic and business assessments of our intellectual property, we rely on a combination of patents, trade secrets, copyrights, service marks, trademarks, domains, contractual terms and enforcement mechanisms across various international jurisdictions to establish and protect intellectual property related to our current and future business and operations. +15 +As of December 31, 2024, we held 23 utility patents and 25 design patents, and had filed an additional 10 utility patent applications and 7 design patent applications in the U.S. We also held 137 patents and 12 patent applications that are foreign counterparts of some of our U.S. patents and patent applications with foreign patent offices. We do not view any individual patent as being material to our business. Subject to required payments of annuities or maintenance fees, United States design patents have a term of 15 years from the date of issuance, and United States utility patents have a term of 20 years from the priority application date. Accordingly, our U.S. patents that have already been issued will expire between 2031 and 2042. Our foreign patents generally have similar expiration dates, but may vary from country to country, the duration being set according to the laws of the jurisdiction in which the patent issues. Our trademarks, logos, domain names, and service marks are used to establish and maintain our reputation with our customers, and the goodwill associated with our businesses. As of December 31, 2024, we had 90 registered trademarks and had an additional 27 pending trademark applications with domestic and foreign trademark offices. The duration of trademark registrations varies from country to country, but it is typically for ten years with unlimited ten-year renewal terms, subject to the payment of maintenance and renewal fees and the laws of the jurisdiction in which the trademark is registered. +We intend to continue to vigorously pursue intellectual property protection to the extent we believe it would be advantageous to our business objectives. Despite our efforts to protect our intellectual property, we may be unsuccessful in enforcing our intellectual property, and third parties may seek to circumvent invalidate, or otherwise challenge our intellectual property. For additional information, see the section entitled “ Risk Factors—Risks Related to Information Technology, Intellectual Property, Data Security and Privacy. ” +Internet Access +The Company’s website address is http://www.livewire.com . The Company’s website address for investor relations is http://investor.livewire.com/ . +The Company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and any amendments to those reports, are available on its investor relations website free of charge as soon as reasonably practicable after it electronically files such material with, or furnishes such material to, the United States Securities and Exchange Commission (“SEC”). +In addition, the Company makes available, through its investor relations website, the following corporate governance materials: (i) the Corporate Governance Guidelines; (ii) Committee Charters approved by the Company’s Board of Directors for the Audit and Finance Committee, Human Resources Committee, Nominating and Corporate Governance Committee, Sustainability and Safety Committee, and the Conflicts Committee; (iii) the Code of Business Conduct and Ethics (the “Code of Conduct”); (iv) a list of the Board of Directors; (v) the Bylaws; (vi) the Company’s Policy for Managing Disclosure of Material Information; (vii) the Company’s Insider Trading Policy ; (viii) the Related Party Transaction Policy; and (ix) the Whistleblower Policy. +The Company's Notice of Annual Meeting and Proxy Statement for its 2025 annual meeting of shareholders, which will include information related to the compensation of the Company's named executive officers, will be made available through its investor relations website. +The Company satisfies the disclosure requirements under the Code of Conduct, the Conflict Process and applicable New York Stock Exchange (“NYSE”) listing requirements regarding waivers of the Code of Conduct or the Conflict Process by disclosing the information in the Company’s proxy statement for its annual meeting of shareholders or on its investor relations website. +The Company is not including the information contained on or available through any of its websites as a part of, or incorporating such information by reference into, this Form 10-K. +Item 1A. Risk Factors +LiveWire Group, Inc. is subject to risks and uncertainties, including those discussed below. Discussions of our business and operations included in this Annual Report on Form 10-K should be read together with the risk factors set forth below. Some of these risks and uncertainties, including those described below, may cause our business, financial condition and results of operations to vary, and they may materially or adversely affect our financial performance. The risks and uncertainties described below are not the only ones we face. Other risks and uncertainties, which are not currently known to us or which we currently believe are immaterial, may also materially or adversely affect our business, financial condition and results of operations. References to “electric vehicles” throughout this Risk Factors section refer to both electric motorcycles and electric balance bikes. +16 +Summary of Risk Factors +Our business is subject to a number of risks and uncertainties, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flows, strategies or prospects. An investment in LiveWire involves risks, including those discussed below. These risk factors should be considered carefully before deciding whether to invest in the Company. +• We are an early-stage company with a history of losses and expect to incur significant expenses and continuing losses for several years. We have yet to achieve positive operating cash flow and, given our projected funding needs, our ability to generate positive cash flow is uncertain. +• Our research and development efforts may not yield the expected results, or results on expected timelines or at expected costs. +• Increases in costs, disruption of supply, or shortage of materials and components necessary for our electric vehicles, could materially and negatively affect our business. +• Our limited operating history makes evaluating our business and future prospects difficult. +• We may be unable to develop and produce electric vehicles of sufficient quality, on a schedule and at scale, that would appeal to a large customer base. +• The electric vehicle sector is growing and our products and services are and will be subject to competition from competitors. +• Our business and prospects depend significantly on our ability to build the LiveWire brand and consumers’ recognition, acceptance and adoption of the LiveWire brand. We may not succeed in continuing to maintain and strengthen the LiveWire brand. +• We have an established standard of quality and associated consumer expectations through our H-D motorcycle lineage. If we are unable to continue providing quality services and customer service, our business and reputation may be materially and adversely affected. +• Our relationship with H-D presents potential opportunities, synergies and risks. Our brand and reputation could be materially and negatively affected through negative publicity regarding H-D and its products and services. +• We may experience operational and financial risks if we fail to effectively and appropriately separate the LiveWire business from the H-D business. +• H-D could make decisions for the benefit of its overall business that could negatively impact our overall business. +• Our relationship with H-D may impact our other business relationships or potential business relationships. +• Leveraging contract manufacturers, including H-D, KYMCO and other potential partners, to contract manufacture electric vehicles is subject to risks. +• If retail partners are unwilling to participate in our go-to-market business model or are unable or ineffective in establishing or maintaining relationships with customers for electric vehicles, it may adversely impact our business. +• If we are unable to establish and maintain confidence in our long-term business prospects among customers and analysts and within our industry, or are subject to negative publicity, then our business, prospects, financial condition and operating results may suffer materially. +• We, our service providers, and our suppliers are subject to numerous regulations. Unfavorable changes to, or failure by us, our service providers or our suppliers to comply with these regulations could materially and negatively affect our business, prospects, financial condition and operating results. +• Electric vehicles are inherently new products. We may experience significant delays in the design, production and launch of our electric vehicles, which could materially and negatively affect our business, prospects, financial condition and operating results. +• Our business may suffer if our products or features contain defects or fail to perform as expected. We may choose to or be compelled to undertake product recalls or take other similar actions, which could adversely affect our brand image, business and operating results. +• We depend on suppliers, including critical and single sourced suppliers, to deliver components according to schedules, prices, quality and volumes that are acceptable to us. We may be unable to effectively manage these suppliers. Uncertainties in the global economy may negatively impact suppliers and other business partners, which may interrupt the supply chain and require other changes to operations. These and other factors may adversely impact revenues and operating income. +• The success of our business depends on the availability of power and charging infrastructure for electric vehicles. Limitations on that infrastructure may negatively impact our business. +• We may face challenges in expanding our business and operations internationally and our ability to conduct business in international markets may be adversely affected by legal, regulatory, political and economic risks. +17 +Risks Related to Our Business +We are an early-stage company with a history of losses and expect to incur significant expenses and continuing losses for several years. We have yet to achieve positive operating cash flow and, given our projected funding needs, our ability to generate positive cash flow is uncertain. +We have incurred net losses since our inception, including net losses of $93,925 thousand, $109,550 thousand and $78,938 thousand for the years ended December 31, 2024, 2023, and 2022, respectively. We believe that we will continue to incur operating and net losses in the future until at least the time we begin significant deliveries of our electric vehicles which may occur later than we expect or not at all. We do not expect to be profitable for the foreseeable future as we invest in our business, build capacity and ramp-up operations, and we cannot assure you that we will ever achieve or be able to maintain profitability in the future. Even if we are able to successfully develop our electric vehicles and attract customers, there can be no assurance that we will be financially successful. For example, as we expand our electric vehicle portfolio, including the introduction of lower-priced electric motorcycles, and expand internationally, we will need to manage costs effectively to sell those products at our expected margins. Failure to become profitable could materially and adversely affect the value of our Common Stock. If we are ever to achieve profitability, it will be dependent upon the successful development and commercial introduction and acceptance of our electric vehicles, and our services, which may not occur. Our business also will at times require significant amounts of working capital to support the growth of additional electric vehicle platforms and electric vehicle models. An inability to generate positive cash flow for the near term may adversely affect our ability to raise needed capital for our business on reasonable terms, diminish supplier or customer willingness to enter into transactions with us, and have other adverse effects that may decrease our long-term viability. There can be no assurance that we will achieve positive cash flow in the near future or at all. +Our research and development efforts may not yield the expected results or results on expected timelines or at expected costs. +Technological innovation is critical to our success, and we have strategically developed most of the key technologies in-house, such as energy dense battery packs and battery management systems (“BMS”), high power, high efficiency inverters and motors, efficient onboard charger and DC-DC converter and best-in-class software and controls. We have been investing heavily in our research and development efforts. In the years ended December 31, 2024, 2023, and 2022, our research and development expenses amounted to $41,742 thousand, $54,070 thousand, and $35,612 thousand, respectively. Our research and development expenses accounted for 156.73%, 142.20%, and 76.04% of our total revenues for the years ended December 31, 2024, 2023, and 2022, respectively. The electric vehicle industry can experience rapid technological changes, and we often need to invest significant resources in research and development to lead or maintain technological advances and remain competitive in the market. Therefore, we expect that our research and development expenses will continue to be significant. Furthermore, research and development activities are inherently uncertain, and there can be no assurance that we will continue to achieve technological breakthroughs and successfully commercialize such breakthroughs. As a result, our significant expenditures on research and development may not generate corresponding benefits. If our research and development efforts fail to keep up with the latest technological developments, we may suffer a decline in our competitive position. +Apart from our in-house expertise, we also rely on certain technologies of our suppliers to enhance the performance of our electric vehicles. In particular, we do not manufacture battery cells, which makes us dependent upon suppliers for the relevant technologies. As technologies change, we plan to upgrade our existing models and introduce new models to provide our electric vehicles with the latest technologies, including battery cells, which could involve substantial costs and lower our return on investment for existing models. +Even if we are able to keep pace with changes in technologies and develop new models, our prior models could become obsolete more quickly than expected, potentially reducing our return on investment. +18 +Increases in costs, disruption of supply, or shortage of materials and components necessary for our electric vehicles, could materially and negatively affect our business. +We and our suppliers may experience increases in the cost of or a sustained interruption in the supply or shortage of materials. Any such cost increase, supply interruption or shortage could materially and negatively impact our business, prospects, financial condition and operating results. We and our suppliers use various materials in our businesses and products, including, for example, lithium-ion battery cells, semiconductor chips and steel, and the prices for these materials fluctuate. The available supply of these materials may be unstable, depending on market conditions and global demand. For example, global trade issues and changes in and uncertainties with respect to trade and export regulations, trade policies and sanctions, tariffs, international trade disputes, particularly those relating to exports of certain technologies to China, geopolitical events and related actions that may occur between mainland China and Taiwan, the conflict in Ukraine, the Israeli-Palestinian military conflict, and inflationary pressure, may cause disruptions to and delays in our operations, including shortages and delays in the supply of certain parts, including semiconductors, materials and equipment necessary for the production of our vehicles, and the various internal designs and processes we may adopt in an effort to remedy or mitigate impacts of such disruptions and delays may result in higher costs. In addition, our business also depends on the continued supply of battery cells for our electric vehicles. We are exposed to multiple risks relating to lithium‑ion battery cells. These risks include, but are not limited to: +• an increase in the cost, or decrease in the available supply, of materials used in the cells, including as a result of new regulation; +• disruption in the supply of cells due to quality issues or recalls by battery cell manufacturers; and +• fluctuations in the value of any foreign currencies in which battery cell and related raw material purchases are or may be denominated against the US dollar. +Our business is dependent on the continued supply of battery cells for the battery packs used in our electric vehicles. The Arrow powertrain will utilize the industry-standard 21700 cylindrical cell form factor that enables rapid implementation of alternate cells from a wide variety of manufacturers with minimal mechanical changes and targeted adjustments to the BMS algorithms. LiveWire’s ongoing cell manufacturer relationship development, cell assessment, and cell characterization work positions LiveWire to respond in a nimble manner to potential disruptions. However, there is still a risk of disruption to production if a need arises to change suppliers with insufficient advance notice. +Semiconductor chips and other electronics subcomponents are also a vital input component to the electrical architecture of our electric vehicles, controlling wide aspects of the electric vehicles’ operations. Many of the key semiconductor chips and electronics subcomponents used in our electric vehicles come from single-source or limited-source suppliers, and therefore, a disruption with any one manufacturer or supplier in our supply chain could have an adverse effect on our ability to effectively produce and timely deliver our electric vehicles. Due to our reliance on these semiconductor chips and electronics subcomponents, we are subject to the risk of shortages and long lead times in their supply. While LiveWire has entered into supply agreements to acquire some of the critical semiconductor chips and electronics subcomponents, we may have limited flexibility to immediately change suppliers in the event of any disruption in the supply of those chips and electronics subcomponents, which could then disrupt production of our electric vehicles. LiveWire has in the past experienced, and we may in the future experience, semiconductor chip and electronics subcomponents shortages, and the availability and cost of these components would be difficult to predict. +Furthermore, fluctuations or shortages in petroleum and changes in economic conditions may cause us to experience significant increases in freight charges and material costs. Substantial increases in the prices for our materials or prices charged to us, such as those charged by battery cell or semiconductor chip suppliers, would increase our operating costs and could reduce our margins. For example, supply chain issues, resulting from global trade issues and changes in and uncertainties with respect to trade and export regulations, trade policies and sanctions, tariffs, international trade disputes, particularly those relating to exports of certain technologies to China, geopolitical events and related actions that may occur between mainland China and Taiwan, the conflict in Ukraine, the Israeli-Palestinian military conflict, and inflationary pressure, may result in increases in the cost of input materials, components and processes required to produce our electric vehicles, and we may need to increase the prices of our electric vehicles in response to these cost pressures. Price increases and other measures taken by us to offset higher costs could materially and adversely affect our reputation and brand, result in negative publicity and loss of customers and sales, and adversely affect our business, prospects, financial condition and operating results. In addition, a growth in popularity of electric vehicles without a significant expansion in battery cell production capacity could result in shortages which would result in increased materials costs to us and would impact our projected manufacturing and delivery timelines, and adversely affect our business, prospects, financial condition and operating results. +19 +Our limited operating history makes evaluating our business and future prospects difficult. +H-D began making initial deliveries of our predecessor electric motorcycle, the Harley-Davidson LiveWire, in September 2019. We then launched the LiveWire One model in July 2021 followed by a special launch edition of the S2 Del Mar® in May 2022 with full production and sales beginning in the third quarter of 2023. In 2024, additional models on the S2 platform were sold. In 2019, H-D acquired STACYC Inc. and began selling electric balance bikes, which are currently sold under the STACYC and H-D brands, as well as through private label arrangements. As new products, there is limited historical basis for making judgments on the demand for our electric vehicles, our ability to develop, produce and deliver electric vehicles, or our profitability in the future. It is difficult to predict our future revenues and appropriately budget for our expenses, and trends may emerge in this quickly evolving industry that may be outside our visibility and may affect our business. You should consider our business and prospects in light of the risks and challenges we face as a pioneer in a new industry, including with respect to our ability to continuously advance our electric vehicle technologies; develop safe, reliable and quality electric vehicles that appeal to customers; deliver and service a large volume of electric vehicles; turn profitable; build a globally recognized and respected brand cost-effectively; expand our electric vehicles lineup; navigate the evolving regulatory environment; improve and maintain our operational efficiency; manage supply chain effectively; adapt to changing market conditions, including technological developments and changes in competitive landscape; and manage our growth effectively. +While our Electric Motorcycles segment currently focuses on the LiveWire One and the S2 platform, we expect our product roadmap to expand beyond the LiveWire One and the S2 platform and introduce new models in other categories or using other technologies that we have less experience in as we may adjust our strategies and plans from time to time to remain competitive as a pioneer in a new industry. +If we fail to address any or all of these risks and challenges, our business may be materially and adversely affected. +We may be unable to develop and produce electric vehicles of sufficient quality, on a schedule and at scale that would appeal to a large customer base. +Our business depends in large part on our ability to develop, market, produce and sell our electric vehicles. The continued development of and the ability to sell our electric vehicles at scale, including the LiveWire One, the S2 platform, and future electric vehicles, are and will be subject to risks, including with respect to: +• our ability to secure necessary funding; +• our ability to develop and launch a light model electric vehicle at scale and at competitive profit margins for our business; +• our ability to negotiate and execute definitive agreements, and maintain arrangements on reasonable terms, with our various suppliers for hardware, software or services necessary to engineer or manufacture parts or components of our electric vehicles; +• securing necessary components, services or licenses on acceptable terms and in a timely manner; +• delays by us in delivering final component designs to our suppliers; +• our ability to accurately produce electric vehicles within specified design tolerances; +• quality controls, including within our production operations, that prove to be ineffective or inefficient; +• defects in design and/or manufacture that cause our electric vehicles not to perform as expected or that require repair, field actions, product recalls or design changes; +• delays, disruptions or increased costs in our third-party service providers’ and our third-party suppliers’ supply chain, including raw material supplies; +• other delays, cost overruns and backlog in manufacturing and research and development of new models; +• obtaining required regulatory approvals and certifications; +• compliance with environmental, safety and similar regulations; and +• our ability to attract, recruit, hire, retain and train skilled employees. +Historically, motorcycle customers have expected motorcycle manufacturers to periodically introduce new and improved vehicle models. To meet these expectations, we intend to introduce new electric motorcycle models and enhanced versions of existing models. The electric vehicle market is new and quickly evolving. As a pioneer in a new industry, we inherently have limited experience as a company, designing, testing, manufacturing, marketing and selling our electric motorcycles and therefore cannot assure you that we will be able to meet customer expectations. Any of the foregoing could have a material adverse effect on our business, prospects, financial condition and operating results. +20 +The electric vehicle sector is growing and our products and services are and will be subject to competition from competitors. +Both the vehicle industry generally, and the electric motorcycle sector in particular, are highly competitive, and our Electric Motorcycle segment will be competing for sales with both leading internal combustion engine-focused companies and smaller electric motorcycle-focused companies. Several major motorcycle companies currently have electric motorcycles available, and other current and prospective motorcycle manufacturers are also developing electric motorcycles. STACYC is a category creator for electric balance bikes. There have been some competitors who have entered the market, but we expect competition to grow as the market shifts to younger riders and more players begin to make serious investments in the category. +Factors affecting competition include product performance and quality, technological innovation, customer experience, brand differentiation, product design, pricing and manufacturing scale and efficiency. Increased competition may lead to lower vehicle unit sales and increased inventory, which may result in downward price pressure and adversely affect our business, prospects, financial condition and operating results. We also expect competition for electric vehicle customers to intensify due to current and potential future demand constraints. Further, as a result of new entrants in the electric vehicle market, we may experience increased competition for components and other parts of our electric vehicles, including internal competition between our Electric Motorcycle and STACYC segments, which may have limited or single-source supply. +Our business and prospects depend significantly on our ability to build the LiveWire brand and consumers’ recognition, acceptance and adoption of the LiveWire brand. We may not succeed in continuing to maintain and strengthen the LiveWire brand. +Our business and prospects are heavily dependent on our ability to develop, maintain and strengthen our brand. If we do not continue to establish, maintain and strengthen our brand, we may lose the opportunity to build a critical mass of customers. Promoting and positioning our brand will likely depend significantly on our ability to provide high-quality electric vehicles and engage with our customers as intended. In addition, our ability to develop, maintain and strengthen our brand will depend heavily on the success of our customer development and branding efforts. Such efforts mainly include building a community of customers engaged with our branding initiatives, such as at automotive shows and events. To effectively build our brand with a new customer in a new industry, such efforts may be non-traditional and may not achieve the desired results. To promote our brand, we may be required to change our customer development and branding practices, which could result in substantially increased expenses, including the potential to use traditional media such as television, radio and print and engage celebrity talent or brand ambassadors. If we do not develop and maintain a strong brand, our business, prospects, financial condition and operating results may be materially and adversely impacted. +In addition, if negative incidents occur or are perceived to have occurred, whether or not such incidents are our fault, we could be subject to adverse publicity. In particular, given the popularity of social media, any negative publicity, whether true or not, could quickly proliferate and materially and negatively affect consumer perceptions and confidence in the LiveWire brand. Furthermore, there is the risk of potential adverse publicity related to our manufacturing partners or other partners whether or not such publicity is related to their collaboration with us. Our ability to successfully position our brand could also be adversely affected by perceptions about the quality of ours or our competitors’ vehicles. +In addition, from time to time, our electric vehicles may be evaluated and reviewed by third parties. Any negative reviews or reviews that compare us unfavorably to competitors or unfavorably to ICE motorcycle products could adversely affect consumer perception about our electric vehicles or electric vehicles in general. +We have an established standard of quality and associated consumer expectations through our H-D motorcycle lineage. If we are unable to continue providing quality services and customer service, our business and reputation may be materially and adversely affected. +Our business and prospects heavily depend on our ability to develop, maintain and strengthen the LiveWire standard of quality and associated consumer expectations, including maintaining the established standard of quality and associated consumer expectations through our H-D motorcycle lineage. If we are not able to establish, maintain and strengthen the LiveWire standard of quality and associated consumer expectations with our brand, we may lose the opportunity to build a critical mass of customers. Our ability to develop, maintain and strengthen the LiveWire brand will depend heavily on our ability to provide high-quality electric vehicles and engage with our customers as intended, as well as the success of our customer development and marketing efforts. If we do not develop and maintain a strong brand associated with the LiveWire brand, our business, prospects, financial condition and operating results could be materially and adversely impacted. +21 +Our relationship with H-D presents potential opportunities, synergies and risks. Our brand and reputation could be materially and negatively affected through negative publicity regarding H-D and its products and services. +Our relationship with H-D presents potential opportunities, synergies and risks for us. However, the association of our business and brand to H-D and its business could subject us to reputational and regulatory risks. Any negative developments with respect to H-D may materially and adversely affect our business and brand. Additionally, the anticipated benefits of the synergies with H-D may not be realized or the value of goodwill and other intangible assets could be impacted by one or more continuing unfavorable events or trends, which could result in significant impairment charges. The occurrence of any of these events could have a material adverse effect on our business, prospects, financial condition and operating results. +We may experience operational and financial risks if we fail to effectively and appropriately separate the LiveWire business from the H-D business. +We may experience operational and financial risks in connection with separating from H-D if we are unable to: +• successfully separate the operations, as well as the accounting, financial controls, management information, technology, data, human resources and other administrative systems and functions, of H‑D from our operations and systems; +• successfully identify, validate, qualify and contract with replacement or second-source manufacturing, engineering, development and testing service providers (or stand up such capabilities internally) to act as second sources or replacement sources of such services in the event H-D is unable to provide such services or our agreements with H-D to provide the same expire or are terminate; +• successfully identify and realize potential synergies with H-D; and +• fully identify potential risks and liabilities associated with H-D, including intellectual property infringement claims, violations of laws, commercial disputes, tax liabilities, litigation or other claims in connection with H-D, including claims from terminated employees, former stockholders, H-D dealers, or other third parties, and other known and unknown liabilities. +H-D could make decisions for the benefit of its overall business that could negatively impact our overall business. +As a result of the Separation, H-D, through the Legacy ElectricSoul, LLC (the “Legacy LiveWire Equityholder”), is our majority stockholder. To ensure we are making decisions that benefit our business and our stockholders, we have a conflicts committee (the “Conflicts Committee”) of the board of directors of LiveWire (the “Board”) to review and approve any matter involving a conflict of interest between us and H-D. Outside of our business, H-D may make certain decisions that benefit its overall business, including its relationships with its suppliers and dealers, that could negatively impact our overall business, including our supplier partnerships, pricing, approach to manufacturing or ability to expand distribution. These decisions by H-D about its business may have a material and adverse effect on our business, prospects, financial condition and operating results. +Our relationship with H-D may impact our other business relationships or potential business relationships. +H-D has many longstanding business relationships that we expect to largely be able to leverage to our benefit through our relationship with H-D. Our relationship with H-D may also affect our ability to develop and maintain our own relationships with companies providing services and capabilities to, or for the benefit of, our business, including supply, distribution, marketing and operations. Depending upon the relationship between H-D and these other companies, the other companies may be less willing or unwilling to develop and maintain relationships with us. Additionally, they may favor our competitors or may view us as competitors because of our relationship with H-D. We may also enter into certain agreements with H-D pursuant to which we and/or H-D have continuing obligations to provide services to each other. Our inability to maintain the business relationships necessary to maintain and grow our business may materially and negatively impact our results. +Leveraging contract manufacturers, including H-D, KYMCO and other potential partners, to contract manufacture electric vehicles is subject to risks. +A key financial benefit to our business is our asset-light operating model in which we rely on contract manufacturers to produce our electric vehicles. We have secured the experience and expertise of H-D and KYMCO, as well as other vendors for STACYC products, to serve as our long-term contract manufacturing partners to provide manufacturing, procurement, logistics and distribution services for our platforms and certain other products. If these contract manufacturing agreements terminate or expire, or if H-D or KYMCO, or other vendors for STACYC products, fail to perform or meet our expected quality standards, timelines, capacity requirements, costs, manufacturing capabilities or manufacturing footprint, we may need to engage another +22 +third‑party contract manufacturer or build our own in-house manufacturing capabilities, which could cause us to incur significant cost and expense. Additionally, our contractual exclusivity requirements and potential recourse against H-D for their failure to perform or meet our expected quality standards is limited. We do not currently have alternate manufacturing arrangements in place so it may take time to transition to another contract manufacturer, and there is no guarantee that they would be able to meet our capacity, capability or quality requirements, or otherwise be an effective and acceptable manufacturing solution. Any of the foregoing could adversely affect our business, prospects, financial condition and operating results. +If retail partners are unwilling to participate in our go-to-market business model or are unable or ineffective in establishing or maintaining relationships with customers for electric vehicles, it may adversely impact our business. +We employ a go-to-market business model whereby our revenue is generated primarily by selling at wholesale to a network of independent dealers, which currently are largely drawn from H-D’s traditional motorcycle dealer network, while we also seek to develop new retail partners. We depend on the capability of these retail partners to develop and implement effective retail sales plans to create demand among retail purchasers for our electric vehicles and related products and services that the retail partners may purchase from us. We provide our retail partners with specific training and programs to assist them in selling our products, but there can be no assurance that these steps will be effective. If our retail partners are not able to establish, maintain and strengthen our brand, we may lose the opportunity to build a critical mass of customers. Our retail partners’ ability to develop, maintain and strengthen their relationships with customers for electric vehicles will depend heavily on our ability to provide high-quality electric vehicles and engage with our customers as intended, as well as the success of our customer development and marketing efforts. The electric vehicle industry is intensely competitive, and we may not be successful in building, maintaining and strengthening our relationship with customers. If we do not develop and maintain a strong brand, our business, prospects, financial condition and operating results could be materially and adversely impacted. +Some of these retail partners may also market, sell and support offerings that may be competitive with ours, may devote more resources to the marketing, sales and support of such competitive offerings or may have incentives to promote other offerings to the detriment of our own. Our retail partners could subject us to lawsuits, potential liability, and reputational harm if, for example, any of our retail partners misrepresents the functionality of our electric vehicles to customers or violates laws or our or their corporate policies. Our ability to achieve revenue growth in the future will depend, in part, on our success in maintaining successful relationships with our retail partners, identifying additional retail partners, including in new markets, and training our retail partners to independently sell our electric vehicles. For example, we recently changed our go-to-market strategy in Europe from selling direct to customers through international partners to selling at wholesale to independent dealers. If our current retail partners in Europe do not commit to our new go-to-market strategy by continuing to be a part of our network going forward, or if we are unable to enter into arrangements with or retain a sufficient number of high-quality retail partners in each of the regions in which we sell our electric vehicles and keep them motivated to sell our electric vehicles, our business, prospects, financial condition and operating results could be adversely affected. +If we are unable to establish and maintain confidence in our long-term business prospects among customers and analysts and within our industry, or are subject to negative publicity, then our business, prospects, financial condition and operating results may suffer materially. +Customers may be less likely to purchase our electric vehicles if they are not convinced that our business will succeed or that our service and support and other operations will continue in the long-term. Similarly, suppliers and other third parties may be less likely to invest time and resources in developing business relationships with us if they are not convinced that our business will succeed. Accordingly, to build and maintain our business, we must maintain confidence among customers, suppliers, analysts, ratings agencies and other parties in our electric vehicles, long-term financial viability and business prospects. Maintaining such confidence may be complicated by certain factors, including those that are largely outside of our control, such as our limited operating history; customer unfamiliarity with our electric vehicles and electric vehicles and electric motorcycles in general; any delays in scaling production, delivery and service operations to meet demand; competition and uncertainty regarding the future of our electric vehicles and electric vehicles and electric motorcycles in general; and our production and sales performance compared with market expectations. +23 +We, our service providers, and our suppliers are subject to numerous regulations. Unfavorable changes to, or failure by us, our service providers or our suppliers to comply with these regulations could materially and negatively affect our business, prospects, financial condition and operating results. +We and our electric vehicles, and vehicles in general, as well as our third-party service providers partners and our suppliers, are or will be subject to substantial regulation under foreign, federal, state and local laws. We continue to evaluate requirements for licenses, approvals, certificates and governmental authorizations necessary to manufacture, sell, deploy or service our electric vehicles in the jurisdictions in which we plan to operate and, to the extent we have not already, intend to take such actions necessary to comply. We may experience difficulties in obtaining or complying with various licenses, approvals, certifications and other governmental authorizations necessary to manufacture, sell, deploy or service our electric vehicles in any of these jurisdictions. If we, our third‑party service providers or our suppliers are unable to obtain or comply with any of the licenses, approvals, certifications or other governmental authorizations necessary to carry out our operations in the jurisdictions in which we or they currently operate, or those jurisdictions in which we or they plan to operate in the future, our business, prospects, financial condition and operating results could be materially adversely affected. We expect to incur significant costs in complying with these regulations. Regulations related to the electric and alternative energy vehicle industry are evolving and we face risks associated with changes to these regulations, including, but not limited to: +• increased support for other alternative fuel systems, which could have an impact on the acceptance of our electric vehicles; and +• increased sensitivity by regulators to the needs of established automobile and motorcycle manufacturers, which could lead them to pass regulations that could reduce the compliance costs of such established manufacturers or mitigate the effects of government efforts to promote alternative fuel vehicles. +To the extent the laws change, our electric vehicles may not comply with or be positioned to take advantage of applicable foreign, federal, state or local laws, which may have an adverse effect on our business. Compliance with changing regulations could be burdensome, time consuming and expensive. To the extent compliance with new regulations is cost prohibitive, our business, prospects, financial condition and operating results could be adversely affected. +Electric vehicles are inherently new products. We may experience significant delays in the design, production and launch of our electric vehicles, which could materially and negatively affect our business, prospects, financial condition and operating results. +Our future business depends in large part on our ability to execute on our plans to develop, produce, market and sell our electric vehicles. Electric vehicle companies experience delays in the design, production and commercial release of new products. To the extent we delay the launch of future models of electric vehicles, our growth prospects could be adversely affected as we may fail to establish or grow our market share. Furthermore, we rely on contract manufacturers for the manufacturing of electric vehicles. We could experience delays if our contract manufacturers do not meet agreed upon timelines or experience capacity constraints. Additionally, we rely on third‑party suppliers for the provision and development of the key components and materials used in our electric vehicles. To the extent our suppliers experience any delays in providing our outsourced manufacturing partners with or developing necessary components, we could experience delays in delivering on our timelines. See “-Increases in costs, disruption of supply, or shortage of materials and components could materially and negatively affect our business.” +24 +Our business may suffer if our products or features contain defects or fail to perform as expected. We may choose to or be compelled to undertake product recalls or take other similar actions, which could adversely affect our brand image, business and operating results. +If our electric vehicles contain design or manufacturing defects that cause them not to perform as expected or that require repair, our ability to develop, market and sell our products and services may be materially and negatively affected, and we may experience delivery delays, product recalls, product liability, breach of warranty and consumer protection claims and significant warranty and other expenses. In particular, our electric vehicles are highly dependent on software, which is inherently complex and may contain latent defects or errors or be subject to external attacks. Although we attempt to remedy any issues we observe in our electric vehicles as effectively and rapidly as possible, such efforts may not be timely, may hamper production or may not completely satisfy our customers. While we perform extensive internal testing on our electric vehicles and features, we currently have a limited frame of reference by which to evaluate their long-term quality, reliability, durability and performance characteristics when operating in the field. There can be no assurance that we will be able to detect and fix all defects in our electric vehicles prior to their sale to or installation for customers. Despite safety and quality reviews, the Consumer Product Safety Commission or other applicable regulatory bodies may require, or we may voluntarily institute, the recall, repair or replacement of our electric vehicles if our electric vehicles are found not to be in compliance with applicable standards or regulations. +Any product recall in the future, whether initiated by a regulator, us or a supplier, and whether the product recall involves our or a competitor’s product, may result in adverse publicity, damage our brand image, and adversely affect our business, prospects, financial condition and operating results. Such recalls, whether caused by systems or components engineered or manufactured by us or our suppliers, may involve significant expense, the possibility of lawsuits, and diversion of management’s attention and other resources, which could adversely affect our brand image and our business, prospects, financial condition and operating results. +We depend on suppliers, including critical and single source suppliers, to deliver components according to schedules, prices, quality and volumes that are acceptable to us. We may be unable to effectively manage these suppliers. Uncertainties in the global economy may negatively impact suppliers and other business partners, which may interrupt the supply chain and require other changes to operations. These and other factors may adversely impact revenues and operating income. +Our success will be dependent upon our ability to enter into supplier agreements and maintain our relationships with existing suppliers who are critical to the output and production of our electric vehicles. The supply agreements we may enter into with suppliers in the future may have provisions where such agreements can be terminated in various circumstances, including potentially without cause. If our suppliers become unable to provide, or experience delays in providing, components or if the supply agreements we enter into are terminated, it may be difficult to find replacement components. Additionally, our products contain parts that we purchase from single-source or limited-source suppliers, for which no immediate or readily available alternative supplier exists. While we believe that we would be able to establish alternate supply relationships and can obtain or engineer replacement components for our single-source components, we may be unable to do so in the short-term (or at all) at prices or quality levels that are acceptable to us. In addition, as we evaluate opportunities and take steps to insource certain components and parts, supply arrangements with current or future suppliers (with respect to other components and parts offered by such suppliers) may be available on less favorable terms or not at all, especially in light of the increases in materials pricing. Unexpected changes in business conditions, materials pricing, including inflation of raw material costs, labor issues, wars, trade policies, tariffs, natural disasters, health epidemics, trade and shipping disruptions, port congestions and other factors beyond our or our suppliers’ control could also affect these suppliers’ ability to deliver components to us or to remain solvent and operational. For example, a global shortage of semiconductor chips was reported beginning in early 2021 and caused challenges in the manufacturing industry and impacted our supply chain and production as well. Additionally, if our suppliers do not accurately forecast and effectively allocate production or if they are not willing to allocate sufficient production to us, it may reduce our access to components and require us to search for new suppliers. The unavailability of any component or supplier could result in production delays, product design changes and loss of access to important technology and tools for producing and supporting our products, as well as impact our capacity expansion and our ability to fulfill our obligations under customer contracts. Moreover, significant increases in our production or product design changes by us may in the future require us to procure additional components in a short amount of time. Our suppliers may not be willing or able to sustainably meet our timelines or our cost, quality and volume needs, or to do so may cost us more, which may require us to replace them with other sources. +In addition, if our suppliers experience substantial financial difficulties, cease operations or otherwise face business disruptions, we would be required to take measures to ensure components and materials remain available. Any disruption could affect our ability to deliver electric vehicles and could increase our costs and negatively affect our liquidity and financial performance. +25 +Also, if a supplied vehicle component becomes the subject of a product recall, we may be required to find an alternative component, which could increase our costs and cause vehicle production delays. Additionally, we may become subject to costly litigation surrounding the component. +If we do not enter into long-term supply agreements with guaranteed pricing for our parts or components, we may be exposed to fluctuations in prices of components, materials and equipment comprising the products purchased from our contract manufacturers, including H-D. Agreements for the purchase of battery cells contain or are likely to contain pricing provisions that are subject to adjustments based on changes in market prices of key commodities. Substantial increases in the prices for such components, materials and equipment would increase our operating costs and could reduce our margins if we cannot recoup the increased costs. Any attempts to increase the announced or expected prices of our electric vehicles in response to increased costs could be viewed negatively by our potential customers and could adversely affect our business, prospects, financial condition and operating results. +The success of our business depends on the availability of power and charging infrastructure for electric vehicles. Limitations on that infrastructure may negatively impact our business. +Demand for our electric vehicles will depend in part upon the availability of public charging infrastructure. We do not plan to develop or invest in our own network of charging stations, but will instead rely on the use of at‑home charging, which makes up the majority of electric vehicle charging today, along with a growing publicly accessible charging infrastructure provided by third parties and the government. We have limited experience in the actual provision of charging solutions to customers, and the facilitation of these services is subject to challenges, which include: +• successful integration with existing third-party charging networks, including obtaining necessary licenses for charging solutions on commercially acceptable terms; +• inadequate capacity or over capacity in certain areas, security risks or risk of damage to vehicles, charging equipment or real or personal property; +• access to sufficient charging infrastructure; +• the potential for lack of customer acceptance of our charging solutions; and +• the risk that government support for electric vehicle and alternative fuel solutions and infrastructure may not continue. +While the prevalence of charging stations generally has been increasing, charging station locations are significantly less widespread than gas stations. Some potential customers may choose not to purchase our electric vehicles because of the lack of a more widespread charging infrastructure. To provide our customers with access to sufficient charging infrastructure, we will rely on the availability and successful integration of our electric vehicles with third-party charging networks. Any failure of third-party charging networks to meet customer expectations or needs, including quality of experience, could impact the demand for electric vehicles, including ours. For example, where charging bays exist, the number of electric vehicles could oversaturate the available charging bays, leading to increased wait times and dissatisfaction for customers. To the extent we are unable to meet user expectations or experience difficulties in facilitating access to charging solutions, our reputation and business, prospects, financial condition and operating results may be materially and adversely affected. +We may face challenges in expanding our business and operations internationally, and our ability to conduct business in international markets may be adversely affected by legal, regulatory, political and economic risks. +Our business plan includes operations in international markets, including, but not limited to, Germany, France, Netherlands, Switzerland, Spain, Italy, United Kingdom, and Canada, and eventual expansion into other international markets. We will face risks associated with any potential international operations, including possible unfavorable legal, regulatory, political and economic risks, which could materially and negatively affect our business. We anticipate having international operations and subsidiaries that are subject to the legal, political, regulatory and social requirements and economic conditions in these jurisdictions. Furthermore, conducting and launching operations on an international scale requires close coordination of activities across multiple jurisdictions and time zones and consumes significant management resources. We will be subject to a number of risks associated with international business activities that may increase our costs, impact our ability to sell our electric vehicles and require significant management attention. These risks include: +• conforming our electric vehicles to various international regulatory requirements where our electric vehicles are sold and serviced, which requirements may change over time; +• expenditures related to foreign lawsuits and liability; +• difficulties in staffing and managing foreign operations; +• difficulties establishing relationships with, or disruption in the supply chain from, international suppliers; +26 +• difficulties attracting customers in new jurisdictions; +• difficulties in attracting effective distributors, dealers or sales agents, as the case may be; +• foreign government taxes, regulations and permit requirements, including foreign taxes that we may not be able to offset against taxes imposed upon us in the United States, and foreign tax and other laws limiting our ability to repatriate funds to the United States; +• fluctuations in foreign currency exchange rates and interest rates, including risks related to any foreign currency swap or other hedging activities we undertake; +• United States and foreign government trade restrictions, tariffs and price or exchange controls; +• foreign labor laws, regulations and restrictions; +• changes in diplomatic and trade relationships; +• laws and business practices favoring local companies; +• difficulties protecting or procuring intellectual property; +• the adoption of the LiveWire brand versus competitive foreign brands; +• political instability, natural disasters, war or events of terrorism and health epidemics, such as the conflict in Ukraine or the Israeli-Palestinian conflict; and +• the strength of international economies. +If we fail to successfully address these risks, our business, prospects, financial condition and operating results could be materially and adversely affected. +The battery’s range and life will deteriorate with usage and time, which, if material, could negatively influence potential customers’ decisions to purchase our electric vehicles. +All lithium-ion batteries are consumable components that become less effective as they chemically age. As lithium-ion batteries chemically age, the amount of charge they can hold diminishes, which may result in a perceptible decrease in range for an electric vehicle. This can be referred to as the battery’s maximum capacity, i.e., the measure of battery capacity relative to when it was new. In addition, a battery’s ability to deliver maximum instantaneous performance, or “peak power,” may decrease and impact acceleration performance in an electric vehicle. A normal battery is designed to retain up to 80% of its original capacity after 30,000 miles when operating under normal conditions. Although common to all electric vehicles, lithium-ion battery aging may negatively influence potential customers’ electric vehicle purchase decisions. +Unexpected termination of leases or failure to renew the lease of our existing premises or to renew such leases at acceptable terms could materially and adversely affect our business. +We lease the premises for our research and development facility, retails stores and offices. We cannot assure you that we would be able to renew the relevant lease agreements without substantial additional cost or increase in the rental cost payable by us. If a lease agreement is renewed at a rent substantially higher than the current rate, or currently existing favorable terms granted by the lessor are not extended, our business and results of operations may be adversely affected. Additionally, if our sublease at our Company-owned dealership location is either terminated or not renewed by our landlord, or otherwise prohibited for legal or regulatory reasons, and we do not have an existing alternate dealership location, that could jeopardize our dealer license, which would impact our ability to make direct sales to consumers and could materially and adversely affect our business. +We may be unable to complete environmental, social and governance (“ESG”) initiatives, in whole or in part, which could lead to less opportunity for us to have ESG investors and partners and could negatively impact ESG‑focused investors when evaluating us. +There remains significant attention, including by consumers, investors, employees and other stockholders, as well as by governmental and non-governmental organizations, on ESG matters generally and with regard to our industry specifically. +We have undertaken, ESG initiatives, which may be costly and not have the desired effect. Any failure (or perceived failure) to meet commitments that we have set in relation to ESG matters, or loss of confidence on the part of customers, investors, employees, brand partners and other stockholders as it relates to our ESG initiatives could negatively impact our brand, our business, prospects, financial condition and operating results. These impacts could be difficult and costly to overcome, even if such concerns were based on inaccurate or misleading information, and our reputation and brand image could be damaged, and our business, financial condition and results of operations could be adversely impacted. +In addition, achieving our ESG initiatives may result in increased costs in our supply chain, fulfillment, and/or corporate business operations, and could deviate from our initial estimates and have a material adverse effect on our business and financial condition. As with other companies, our approach to such matters has evolved over time, and we expect it will +27 +continue to evolve, but we cannot guarantee that our approach will ultimately align with any particular stakeholder’s preferences or expectations. In addition, regulation, standards and research regarding ESG initiatives and disclosure requirements could change and become more onerous for both us and our third-party suppliers and vendors to meet successfully. Evolving data and research could undermine or refute our current claims and beliefs that we have made in reliance on current research, which could also result in costs, a decrease in revenue, and negative market perception that could have a material adverse effect on our business and financial condition. +A variety of organizations measure the performance of companies on such ESG topics, and the results of these assessments are widely publicized, and are used in investment decision making processes. In addition, there is investment in funds that specialize in companies that perform well in such assessments, and certain investors have publicly emphasized the importance of such ESG measures to their investment decisions. Topics taken into account in such assessments include, among others, the company’s efforts and impacts on climate change and human rights, ethics and compliance with law and the role of the company’s board of directors in supervising various sustainability issues. In light of investors’ increased focus on ESG matters, there can be no certainty that we will manage such issues successfully or that we will successfully meet society’s ESG expectations or achieve our financial goals. Simultaneously, there are efforts by some stakeholders to reduce companies’ efforts on certain ESG-related matters. Both advocates and opponents to certain ESG matters are increasingly resorting to a range of activism forms, including media campaigns and litigation, to advance their perspectives. To the extent we are subject to such activism, it may require us to incur costs or otherwise adversely impact our business. +While we may create and publish voluntary disclosures regarding ESG matters from time to time, many of the statements in those voluntary disclosures are based on methodologies and data that continue to evolve and that are subject to varying stakeholder interpretations and preferences. In addition, emerging regulation requiring additional ESG public disclosure by certain companies in a number of jurisdictions and/or additional ESG obligations may lead to heightened scrutiny of our ESG performance, to the extent we are required to publish additional information in relation to our ESG performance or to meet such additional ESG obligations. For example, various policymakers—including the SEC, European Union, and the State of California—have adopted or are considering adopting requirements for certain companies to undertake certain climate- or other-ESG related disclosures or actions. Policymakers’ approaches are not uniform, which may increase the cost or complexity of compliance, as well as increase the general risk of litigation or enforcement on such matters. +Additionally, there are increasing expectations in various jurisdictions that companies monitor the environmental and social performance of their suppliers and otherwise consider a wide range of potential environmental and social matters for their products and value chain (such as in relation to forced labor considerations). Certain of our suppliers operate and source materials in China and Taiwan, and their presence in our supply chain could present unique risks for us due to risks associated with the U.S. Uyghur Forced Labor Prevention Act (UFLPA), as well as the strain in U.S.-China relations, and China’s unique regulatory landscape. Prohibitions on forced labor or related human rights or environmental diligence requirements have also been adopted or proposed in other jurisdictions, such as the European Union, and represents a topic that will likely be subject to further regulation in the markets we operate within. Compliance with such requirements can be costly and complex and may impact how we are able or willing to engage with suppliers. +Regulation in this area has also evolved considerably over recent years and is likely to continue to do so, which may lead to additional costs and challenges associated with ensuring compliance with changing standards. Furthermore, industry and market practices may further develop to become even more robust than what is required under any new laws and regulations, and we may have to expend significant efforts and resources to keep up with market trends and stay competitive among our peers, which could result in higher associated compliance costs and penalties for failure to comply with such laws and regulations. At the same time, there are efforts by some stakeholders and policymakers to reduce companies’ attention to certain ESG-related matters. Advocates and opponents of ESG matters are increasingly resulting to a range of activism to promote their viewpoints, which may require us to incur additional costs or otherwise adversely impact our business. This and other stakeholder expectations will likely lead to increased compliance costs as well as scrutiny that could heighten all of the risks identified in this risk factor. Additionally, many of our customers, retailers, suppliers, or other stakeholders are subject to similar expectations, which may augment or create additional risks. +Our electric vehicles use lithium-ion battery cells. When not properly managed, lithium-ion battery cells have been observed to catch fire or vent smoke and flame on rare occasions. If our electric vehicles exhibit those conditions, it could have a negative effect on our reputation and business. +The battery packs within our electric vehicles make use of lithium-ion cells. If not properly managed or subject to environmental stresses, lithium-ion cells can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials as well as other lithium-ion cells. While the battery pack is designed to contain any single cell’s release of energy without spreading to neighboring cells, a field or testing failure of battery packs in our electric vehicles could occur, which could result in bodily injury or death and could subject us to lawsuits, product recalls or redesign efforts, all of which would be time consuming and expensive and could materially and negatively affect our brand image and results of +28 +operation. Also, negative public perceptions regarding the suitability of lithium-ion cells for automotive applications, the social and environmental impacts of mineral mining or procurement associated with the constituents of lithium-ion cells, or any future incident involving lithium-ion cells, such as a vehicle or other fire, could materially and adversely affect our reputation and business. +Our industry and its technology are rapidly evolving and may be subject to unforeseen changes. Developments in alternative technologies or improvements in current and future enabling and competitive technologies may adversely affect the demand for our electric vehicles. +We may be unable to keep up with changes in electric vehicle technology or alternatives to electricity as a fuel source, and as a result, our competitiveness may suffer. Developments in alternative technologies, such as advanced diesel, hydrogen, ethanol, fuel cells or compressed natural gas, or improvements in the fuel economy of the internal combustion engine or the cost of gasoline, may materially and adversely affect our business and prospects in ways we do not currently anticipate. Existing and other battery cell technologies, fuels or sources of energy may emerge as customers’ preferred alternative to our electric vehicles. Any failure by us to develop new or enhanced technologies or processes, or to react to changes in existing technologies, could materially delay our development and introduction of new and enhanced alternative fuel and electric vehicles, which could result in the loss of competitiveness of our electric vehicles, decreased revenue and a loss of market share to competitors. Our research and development efforts may not be sufficient to adapt to changes in alternative fuel and electric vehicle technology. As technologies change, we plan to upgrade or adapt our electric vehicle with the latest technology. However, our electric vehicles may not compete effectively with alternative systems if we are not able to source and integrate the latest technology into our electric vehicles. Additionally, the introduction and integration of new technologies into our electric vehicles may increase our costs and capital expenditures required for the production and manufacture of our electric vehicles. In addition, upgrades and adaptations to our vehicles will also require, from time to time, planned and temporary manufacturing shutdowns. Plant shutdowns, whether associates with product changes or other factors, can have a negative impact on our revenues. If we are unable to cost efficiently implement new technologies, our business, prospects, financial condition and operating results could be materially and adversely affected. +Our future growth and success are dependent upon consumers’ adoption of, and their demand for, two- and three-wheeled electric vehicles in a sector that is generally competitive, cyclical and volatile. +Our future growth is dependent on the demand for, and upon consumers’ willingness to adopt two- and three-wheeled electric vehicles and, even if electric vehicles become more mainstream, consumers choosing us over other electric vehicles manufacturers. Demand for electric vehicles may be affected by factors directly impacting electric vehicle prices or the cost of purchasing and operating electric vehicles such as sales and financing incentives, prices of raw materials and parts and components, cost of fuel and governmental regulations, including tariffs, import regulation and other taxes. Volatility in demand may lead to lower vehicle unit sales, which may result in downward price pressure and adversely affect our business, prospects, financial condition and operating results. +In addition, the demand for our electric vehicles and services will highly depend upon the adoption by consumers of new energy vehicles in general and electric motorcycles and electric balance bikes in particular. The market for new energy vehicles is still rapidly evolving, characterized by rapidly changing technologies, competitive pricing and competitive factors, evolving government regulation and industry standards, and changing consumer demands and behaviors. +Other factors that may influence the adoption of alternative fuel vehicles, and specifically electric vehicles, include: +• perceptions about electric vehicles quality, safety, design, performance and cost, especially if adverse events or accidents occur that are linked to the quality or safety of electric vehicles, whether or not such electric vehicles are produced by us or other manufacturers; +• perceptions about electric vehicles’ safety in general, in particular safety issues that may be attributed to the use of advanced technology, including electric vehicles systems; +• range anxiety, including the decline of an electric vehicle’s range resulting from deterioration over time in the battery’s ability to hold a charge; +• the availability of new energy vehicles; +• the availability of service and charging stations for electric vehicles; +• the costs and challenges of installing home charging equipment, including for multi-family, rental and densely populated urban housing; +• the environmental consciousness of consumers, and their adoption of electric vehicles; +• the occurrence of negative incidents, or perception that negative incidents have occurred, with respect to our or our competitors’ electric vehicles resulting in adverse publicity and harm to consumer perceptions in electric vehicles generally; +29 +• the higher initial upfront purchase price of electric vehicles, despite lower cost of ongoing operating and maintenance costs, compared to internal combustion engines vehicles; +• perceptions about and the actual cost of alternative fuel, including the capacity and reliability of the electric grid; +• belief that electric vehicles may subject riders and passengers to greater risks because electric vehicles are quieter compared to internal combustion engine vehicles; +• regulatory, legislative and political changes, trade disputes and tariffs; and +• macroeconomic factors. +The unavailability, reduction or elimination of government and economic incentives or government policies that are favorable for electric vehicles and domestically-produced vehicles could have a material adverse effect on our business, prospects, financial condition and operating results. +Any reduction, elimination, or discriminatory application of government subsidies and economic incentives because of policy changes, or the reduced need for such subsidies and incentives due to the perceived success of the electric vehicle or other reasons, may result in the diminished competitiveness of the alternative fuel and electric vehicle industry generally or our electric vehicles in particular. Additionally, federal, state and local laws may impose additional barriers to electric vehicle adoption, including additional costs. For example, many states have enacted laws imposing additional registration fees for certain hybrid and electric vehicles to support transportation infrastructure, such as highway repairs and improvements, which have traditionally been funded through federal and state gasoline taxes. Any of these conditions could materially and adversely affect the growth of the alternative fuel automobile markets and our business, prospects, financial condition and operating results. +Certain current state tax incentives for two wheeled vehicles and federal tax credits and other incentives for alternative energy production and alternative fuel will expire in the future if not renewed or extended and there is no guarantee these programs will be renewed or extended. If these incentives are not extended or if new federal and state tax incentives for two wheeled vehicles are not enacted in the future, our business, prospects, financial condition and operating results could be materially and negatively affected. +Our electric motorcycles’ quiet performance compared to internal combustion engine motorcycles may subject riders to greater risks. +Our electric motorcycles are quieter compared to internal combustion engine motorcycles, which may subject riders to greater risks. To the extent accidents associated with our quieter electric motors occur, we could be subject to liability, negative publicity, government scrutiny and further regulation. Any of these results could materially and adversely affect our business, prospects, financial condition and operating results. +Vehicle retail sales depend heavily on affordable interest rates and availability of credit for vehicle financing and a substantial increase in interest rates could materially and adversely affect our business, prospects, financial condition and operating results. +In certain regions, including North America and Europe, financing for new vehicle sales has been available at relatively low interest rates for several years due to, among other things, expansive government monetary policies. As interest rates have risen, market rates for new vehicle financing have also risen, which may make our electric vehicles less affordable to customers or steer customers to less expensive vehicles that would be less profitable for us, adversely affecting our financial condition and operating results. Additionally, all sales of electric motorcycles and related products to H-D independent dealers in the US and Canada are financed through Harley-Davidson Financial Services, Inc. (“HDFS”), therefore we face the risk that HDFS could change its lending policies in the future, which could have a material adverse effect on our business, prospects, financial condition and operating results. Additionally, if consumer interest rates increase substantially or if financial service providers tighten lending standards or restrict their lending to certain classes of credit, customers may not desire or be able to obtain financing to purchase our electric vehicles. As a result, a substantial increase in customer interest rates or tightening of lending standards could have a material adverse effect on our business, prospects, financial condition and operating results. +Our inability to effectively grow or manage our financing and credit risk could materially and adversely affect our business, prospects, financial condition and operating results +We provide financing for sales of electric motorcycles and related products to non-H-D independent dealers in the US and Canada and independent dealers in Europe. As such, we are subject to credit risk of our customers, and our operating results depend on receipt of timely payments from our customers under these arrangements. In addition, STACYC is subject to credit risk of its customers, and its operating results depend on receipt of timely payments from its customers. Any delay in payment by our customers may have an adverse effect on revenue and operating results. There is no assurance that we will be able to +30 +collect all or any of the amounts owed in a timely matter. If any of our customers face unexpected situations such as financial difficulties, we may not be able to receive full or any payment of the uncollected sums or enforce any judgment debts against such clients, and our business, prospects, financial condition and operating results could be materially and adversely affected. +Our warranty reserves may be insufficient to cover future warranty claims which could adversely affect our business, prospects, financial condition and operating results. +As our electric vehicles are produced, we will need to maintain warranty reserves to cover warranty-related claims. If our warranty reserves are insufficient to cover future warranty claims on our electric vehicles, our business, prospects, financial condition and operating results could be materially and adversely affected. We record and adjust warranty reserves based on changes in estimated costs and actual warranty costs. However, as we have limited operating experience with our electric motorcycles, we have limited experience with warranty claims for these electric motorcycles and other electric vehicles and with estimating warranty reserves. In the future, we may become subject to significant and unexpected warranty expenses. There can be no assurances that then-existing warranty reserves will be sufficient to cover all claims. +We may become subject to product liability claims, which could materially and negatively affect our financial condition and liquidity if we are not able to successfully defend or insure against such claims. +We may become subject to product liability claims, which could materially and negatively affect our financial condition and liquidity. The vehicle, motorcycle and bicycle industries experience an abundance of product liability claims. We face the risk of significant monetary exposure to claims in the event our electric vehicles do not perform as expected or contain design, manufacturing, or warning defects and to claims without merit, or in connection with malfunctions resulting in personal injury or death. Moreover, a product liability claim could generate substantial negative publicity about our electric vehicles and business and inhibit or prevent commercialization of other future electric motorcycle vehicles or electric balance bikes, which could have a material adverse effect on our financial condition and liquidity. Any insurance coverage might not be sufficient to cover all potential product liability claims. Any lawsuit seeking significant monetary damages either in excess of our coverage or outside of our coverage may have a material adverse effect on our reputation and financial condition and liquidity. We may not be able to secure additional product liability insurance coverage on commercially acceptable terms or at reasonable costs when needed, particularly if we face liability for our products and are forced to make a claim under our policies. +We depend on revenue generated from a limited number of models and in the foreseeable future will be significantly dependent on a limited number of models. +H-D began making initial deliveries of our predecessor electric motorcycle, the Harley-Davidson LiveWire, in September 2019. We then launched the LiveWire One model in July 2021 followed by a special launch edition of the S2 Del Mar® in May 2022 with full production and sales beginning in the third quarter of 2023. During 2024, we introduced additional models off the S2 platform, including Mulholland™ and Alpinista™. For the foreseeable future, the Electric Motorcycles segment will depend on revenue generated from a limited number of models. Historically, motorcycle customers have come to expect a variety of vehicle models offered in a company’s fleet and new and improved vehicle models to be introduced frequently. +STACYC’s current product portfolio ranges from 12- to 20-inch electric balance bikes built for 3 to 12 year-old riders. For the foreseeable future, STACYC will depend on revenue generated from these limited number of models, until STACYC can expand the range of STACYC riders. +Given that for the foreseeable future our business will depend on a limited number of models, to the extent a particular model is not well received by the market, our sales volume, business, prospects, financial condition and operating results could be materially and adversely affected. +We are subject to risks associated with exchange rate fluctuations, interest rate changes, commodity and credit risk. +We operate in numerous markets worldwide and are exposed to risks stemming from fluctuations in currency and interest rates. The exposure to currency risk will be mainly linked to differences in the geographic distribution of our manufacturing and commercial activities, resulting in cash flows from sales being denominated in currencies different from those of purchases or production activities. Although we may manage risks associated with fluctuations in currency and interest rates and commodity prices through financial hedging instruments, significant changes in currency or interest rates or commodity prices could have a material adverse effect on our business, prospects, financial condition and operating results. In addition, we may use various forms of financing to cover future funding requirements for our activities and changes in interest rates can affect our finance costs and margins. Furthermore, many competitors headquartered outside the U.S. experience a financial benefit from a +31 +strengthening in the U.S. dollar relative to their home currency that can enable them to reduce prices to U.S. consumers. We are also subject to risks associated with changes in prices of commodities. +The loss of key personnel could adversely affect the operations and profitability of our business. +We are highly dependent on our senior management and other key personnel. Our success will depend on our ability to retain senior management and to attract, recruit, retain, manage and motivate qualified personnel in the future. The loss of members of our senior management, sales and marketing professionals and engineers could result in delays in product development and materially and negatively affect our business. If we are not successful in attracting and retaining highly qualified personnel, it could have a material adverse effect on our business, financial condition and operating results. +Our business, prospects, financial condition and operating results may be adversely affected by health pandemics and epidemics, natural disasters, actual or threatened war, terrorist activities, political unrest, and other outbreaks. +We face various risks related to public health issues, including epidemics, pandemics and other outbreaks, such as the pandemic related to COVID-19 and associated variants. We also face various risks related to natural disasters, including hurricanes, earthquakes, tsunamis or other natural disasters. Such public health issues or natural disasters could disrupt our business operations, reduce or restrict our supply of materials and services, result in us incurring significant costs to protect our employees and facilities or result in regional or global economic distress, which may materially and adversely affect our business, financial condition and operating results. Actual or threatened war, including the conflict in Ukraine, the Israeli-Palestinian conflict, terrorist activities, political unrest, geopolitical events and related actions that may occur between mainland China and Taiwan, civil strife and other geopolitical uncertainty could have a similar adverse effect on our business, prospects, financial condition and operating results. Any one or more of these events may impede our production and delivery efforts and adversely affect our sales results, which could materially and adversely affect our business, financial condition and operating results. +Epidemics, pandemics, and other outbreaks could result in government authorities implementing numerous measures to try to contain the such outbreaks, such as travel bans and restrictions, quarantines, stay-at-home or shelter-in-place orders and business shutdowns. These measures in the past have adversely impacted our employees and operations, the operations of our suppliers, vendors and business partners, resulted in delays and shortages of certain parts and materials necessary to produce our vehicles, and the activities of our retail customers and negatively impact our production plans, sales and marketing activities, business and results of operations. In addition, various aspects of our business cannot be conducted remotely. If significant portions of our workforce are unable to work effectively, including due to illness, quarantines, social distancing, government actions or other restrictions in connection with public health issues, our operations may be adversely impacted. If government authorities reinstitute such measures or if existing measures remain in place for a significant period of time, they are likely to adversely affect our sales and marketing activities, and our business, prospects, financial condition and operating results. +Specifically, difficult macroeconomic conditions, such as decreases in per capita income and level of disposable income, increased and prolonged unemployment, or a decline in consumer confidence as a result of future epidemics, pandemics and other outbreaks, the conflict in Ukraine, the Israeli-Palestinian conflict, geopolitical events and related actions that may occur between mainland China and Taiwan and inflationary pressure could have a material adverse effect on the demand for our vehicles or sourcing of components. Under difficult economic conditions, potential customers may seek to reduce spending by forgoing our electric vehicles for other traditional options, increase use of public and mass transportation options or choose to keep their existing vehicles. +We are also vulnerable to natural disasters and other calamities. Although we have servers that are hosted in an offsite location, our backup system does not capture data on a real-time basis and we may be unable to recover certain data in the event of a server failure. We cannot assure you that any backup systems will be adequate to protect us from the effects of fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks or similar events. Any of these events may give rise to interruptions, damage to our property, delays in production, breakdowns, system failures, technology platform failures or Internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect our business, prospects, financial condition and operating results. +32 +Weather may impact retail sales by our independent dealers. +We have observed that abnormally cold and/or wet conditions in a region, including impacts from hurricanes or unusual storms, which may be exacerbated by the effects of climate change, could have the effect of reducing demand or changing the timing for purchases of our electric motorcycles at independent dealerships. Reduced demand for new electric motorcycles ultimately leads to reduced shipments by us. +Any financial or economic crisis, or perceived threat of such a crisis, including a significant decrease in consumer confidence, may materially and adversely affect our business, prospects, financial condition and operating results. +The global macroeconomic environment is facing challenges. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States. There have been concerns over the downturn in economic output caused by global trade issues and changes in and uncertainties with respect to trade and export regulations, trade policies and sanctions, tariffs, international trade disputes, particularly those relating to exports of certain technologies to China, geopolitical events and related actions that may occur between mainland China and Taiwan, the conflict in Ukraine, the Israeli-Palestinian military conflict, and inflationary pressure. It is unclear whether these challenges will be contained and what effects they each may have. Economic conditions in the United States are sensitive to global economic conditions. Any prolonged slowdown in the United States economic growth might lead to tighter credit markets, increased market volatility, sudden drops in business and consumer confidence and dramatic changes in business and consumer behaviors. Credit risks of customers and suppliers and other counterparty risks may also increase. +Sales of our electric vehicles depend in part on discretionary consumer spending and are even more exposed to adverse changes in general economic conditions. In response to their perceived uncertainty in economic conditions, consumers might delay, reduce or cancel purchases of our electric vehicles, and our results of operations may be materially and adversely affected. +Our financial results may vary significantly from period to period due to fluctuations in our operating costs, product demand and other factors. +We expect our period-to-period financial results to vary based on our operating costs and product demand, which we anticipate will fluctuate as we continue to design, develop, produce and distribute new electric vehicles. Additionally, our revenue from period to period may fluctuate as we build out global distribution, add new product derivatives based on market demand and margin opportunities and introduce new or existing electric vehicles to new markets. Additionally, our revenue from period to period may fluctuate due to seasonality. As a result of these factors, we believe that quarter-to-quarter comparisons of our financial results, especially in the short term, are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance. Moreover, our financial results may not meet the expectations of equity research analysts, ratings agencies or investors, who may be focused only on quarterly financial results and holding us to the same standard of expectation as H-D. If any of this occurs, the trading price of our Common Stock could fall substantially, either suddenly or over time. +We may seek to obtain future financing through the issuance of debt or equity, which may have an adverse effect on our stockholders or may otherwise adversely affect our business. +If we raise funds through the issuance of additional equity or debt, including convertible debt or debt secured by some or all of our assets, holders of any debt securities or preferred shares issued will have rights, preferences and privileges senior to those of holders of our Common Stock in the event of liquidation. If we issue additional debt, there is a possibility that once all senior claims are settled, there may be no assets remaining to pay out to the holders of Common Stock. In addition, if we raise funds through the issuance of additional equity, whether through private placements or public offerings, such an issuance would dilute ownership of our current stockholders that do not participate in the issuance. If we are unable to obtain any needed additional funding, we may be required to reduce the scope of, delay or eliminate some or all of our planned research, development, production and marketing activities, any of which could materially affect our business. +Furthermore, the terms of any additional debt securities we may issue in the future may impose restrictions on our operations, which may include limiting our ability to incur additional indebtedness, pay dividends on or repurchase our share capital or make certain acquisitions or investments. In addition, we may be subject to covenants requiring us to satisfy certain financial tests and ratios, and our ability to satisfy such covenants may be affected by events outside of our control. +33 +We intend to continue to grant equity awards under our Incentive Award Plan, which has resulted and will result in additional share-based compensation expenses. +We adopted the Incentive Award Plan for the purpose of granting share-based compensation to employees, directors and consultants to incentivize their performance and align their interests with ours. We believe the granting of share-based compensation may be important to our ability to attract and retain key personnel and employees. As a result, our expenses associated with share-based compensation has increased and will increase, which will have an adverse effect on our operating results. +If our electric vehicle owners modify our electric vehicles regardless of whether third-party aftermarket products are used, the electric vehicle may not operate properly, which may create negative publicity and could materially and negatively affect our business. +Vehicle enthusiasts may seek to alter our electric vehicles to modify their performance which could compromise vehicle safety and security systems. Also, customers may customize their electric vehicles with aftermarket parts that can compromise rider safety. We may not test, nor do we endorse, such changes or products. In addition, customers may attempt to modify our electric vehicles’ charging systems or use improper external cabling or unsafe charging outlets that can compromise the vehicle systems or expose our customers to injury from high-voltage electricity. Such unauthorized modifications could reduce the safety and security of our electric vehicles and any injuries resulting from such modifications could result in adverse publicity, which would negatively affect our brand and thus materially and negatively affect our business, prospects, financial condition and operating results. +Our inability to obtain and/or retain necessary licenses and permits to operate the business may negatively impact our financial results. +It may be necessary for us to use the patented or proprietary technology of third parties to develop or commercialize our products, in which case we would be required to obtain a license or acquire intellectual property from these third parties. The licensing or acquisition of third-party intellectual property is a competitive area, and several more established companies may pursue strategies to license or acquire third-party intellectual property that we may consider attractive or necessary and thereby prevent us from obtaining the right to use such intellectual property ourselves. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. If we are unable to license such technology, or if we are forced to license such technology on unfavorable terms, our business could be materially and negatively affected. If we are unable to obtain a necessary license, we may be unable to develop or commercialize the affected product models, which could materially and negatively affect our business, and the third parties owning such intellectual property could seek either an injunction prohibiting our sales or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. +Moreover, some of our patents and patent applications in the future may be jointly owned with third parties. If we are unable to obtain an exclusive license to any such third-party joint owners’ interests in such patents or patent applications, such joint owners may be able to license their rights to other third parties, including our competitors, who could market competing products and technology. In addition, we may need the cooperation of any such joint owners to enforce such patents against third parties, and such cooperation may not be provided to us. Any of these factors could materially and negatively affect our business, financial condition and results of operations. +If our goodwill becomes impaired, our operating results could be negatively impacted. +We have goodwill, which is susceptible to valuation adjustments as a result of changes in various factors or conditions. We assess the potential impairment of goodwill on an annual basis. Whenever events or changes in circumstances indicate that the carrying value may not be recoverable, we will be required to assess the potential impairment of goodwill. Factors that could trigger an impairment of such assets include the following: +• changes in our organization or management reporting structure that could result in additional reporting units, which may require alternative methods of estimating fair values or greater disaggregation or aggregation in our analysis by reporting unit; +• significant under performance relative to historical or projected future operating results; +• significant changes in the strategy for our overall business; +• significant negative industry or economic trends; +• significant decline in our stock price for a sustained period; and +• our market capitalization declining to below net book value. +34 +Future adverse changes in these or other unforeseeable factors could result in goodwill or other intangible assets impairment charges that could materially and negatively affect our business, financial condition and results of operations. +Risks Related to the Separation and Our Ongoing Relationship with H-D +Our business and H-D’s business overlap and we may compete, or be perceived as competitors, in certain markets. +Both LiveWire and H-D are companies whose primary business involves producing, marketing and selling vehicles and related products. While we intend to operate in a different business segment than H-D, neither we nor H-D is prohibited from competing against each other. Additionally, under the Intellectual Property License Agreement, H-D has the right to use all of our existing intellectual property and incremental improvements to our existing intellectual property, which could facilitate H-D’s development of products that compete with ours; however, H-D may be required in some cases to pay us royalties for the use of our existing intellectual property and their rights to our newly-developed intellectual property would be limited as defined under the Joint Development Agreement. If we were in competition with H-D, it could have a material adverse effect on our results of operations or our ability to pursue opportunities which may otherwise be available to us. +Our inability to maintain a strong relationship with H-D or to resolve favorably any disputes that may arise between us and H-D could result in a significant reduction of our revenue. +Maintaining a strong relationship with H-D and its management team will be important to our success for at least as long as H-D remains a majority stockholder. Disputes may arise between H-D and us in a number of areas relating to our ongoing relationship, including: +• our strategy, direction and objectives as a business; +• labor, tax, employee benefit, indemnification and other matters arising from our separation from H-D; +• employee retention and recruiting; +• business combinations involving us; +• our ability to engage in activities with certain customers, suppliers, and partners; +• sales or dispositions by H-D of all or any portion of its ownership interest in us; +• the nature, quality and pricing of services H-D has agreed to provide us; +• supply chain, including access to parts and raw material supplies, as well as allocation of manufacturing labor, parts and other supplies shared across H-D’s York manufacturing facility; +• business opportunities that may be attractive to both H-D and us; and +• product or technology development or marketing activities that may require the consent of H-D. +While we have the Conflicts Committee to help resolve any potential conflict between us and H-D, we may not be able to resolve all potential conflicts. Assuming we are able to resolve such a potential conflict, we intend for such resolution to be comparable to the resolution that we would reach with an unaffiliated party. However, the resolution that we actually reach may be less favorable than if we were dealing with an unaffiliated party. +The agreements we entered into with H-D may be amended upon agreement between the parties. While we are controlled by H-D, we may not have the leverage to negotiate agreements or amendments to these agreements, if required, on terms as favorable to us as those we would negotiate with an unaffiliated third party. +35 +We are a smaller company relative to H-D which could result in increased costs because of a decrease in our purchasing power and difficulty maintaining existing customer relationships and obtaining new customers. +Prior to the Separation, we were able to take advantage of H-D’s size and purchasing power in procuring goods, technology and services, including insurance, employee benefit support and audit and other professional services. While this may continue in some ways with H-D as a majority stockholder and contract manufacturer, we are a smaller company than H-D, and we cannot assure you that we will have access to financial and other resources comparable to those available to us prior to the Separation. As a standalone company, we may be unable to obtain office space, goods, technology and services at prices or on terms as favorable as those available to us prior to the Separation, which could increase our costs and reduce our profitability. Likewise, we may find it more difficult to attract and retain high-quality employees as a smaller company than we were operating within as a wholly owned subsidiary of H-D, which could impact our results of operations. Our future success also depends on our ability to develop and maintain relationships with customers. Our reduced relationship with H-D and our smaller relative size as a result of the Separation may make it more difficult to develop and maintain relationships with customers, which could adversely affect our prospects. +We are dependent on H-D for a number of services, including services relating to quality and safety testing. If those service arrangements terminate, it will require significant investment for us to build our own safety and testing facilities, or we may be required to obtain such services from another third party at increased costs. +We are dependent on H-D for a number of services, including services relating to quality and safety testing. If these service arrangements terminate, we do not currently have alternate arrangements in place that will allow us to fully execute our business plan, including, without limitation, agreements for quality and safety testing, and as such, we will be required to deploy significant resources to build our own safety and testing facilities, or may be required to obtain such services from another third party at increased costs. If we are unable to maintain such arrangements and agreements, or if we are unable to effectively build our own facilities or obtain such services from another third party, our business, prospects, financial condition and operating results may be materially and adversely affected. +Any decision by us to help electrify H-D products, or the products of any other company, may not achieve the intended results or return on investment when compared to developing our own motorcycle portfolio. +We may decide to help electrify H-D’s and other companies’ products in the future. While we expect electrifying H-D’s motorcycle portfolio to be a key piece of our future success, these efforts require resources that may otherwise be used on our electric vehicle portfolio. All project scopes, resource allocation, time commitment, and investment dollars dedicated to the electrification of H-D’s core products will be governed by separate joint development agreements that will be established and agreed upon by the LiveWire and H-D management teams. If the available resources do not support both LiveWire and H-D electrification efforts, it could negatively impact development of our electric vehicles and ultimately our ability to deliver targeted revenues and operating income. +H-D may fail to perform under various transaction agreements that were executed as part of the Separation or we may fail to have necessary systems and services in place when certain of the transaction agreements expire. +We entered into a number of agreements with H-D as a result of the Separation, including the Trademark License Agreement, Contract Manufacturing Agreement, Tax Matters Agreement, Master Services Agreement, Joint Development Agreement and Intellectual Property License Agreement, pursuant to which we and/or H-D have continuing obligations to each other. If we or H-D fail to perform obligations under such agreements, our business may be negatively impacted. Furthermore, upon the expiration or termination of such agreements, we may not have necessary or comparable systems and services in place to replace the services provided under such agreements, which may negatively impact our business. +We will be required to make payments to H-D under the Contract Manufacturing Agreement, Tax Matters Agreement, Master Services Agreement, and certain other agreements, and the amounts of such payments could be significant. +We have entered into certain agreements pursuant to which we will be obligated to make payments to H-D. Such agreements include the Contract Manufacturing Agreement, Tax Matters Agreement, Master Services Agreement, and certain others. The amounts payable under these agreements could be significant and could prohibit or restrict us from using these funds in other aspects of our business. Additionally, if we fail to make payments under the contracts we have with H-D, it may be determined that we are in breach of contract, and we may have to pay damages or renegotiate those contracts. We can provide no assurance that we will be able to renegotiate the contracts we have with H-D or that any renegotiated terms will be favorable to us. The occurrence of such events could materially and adversely affect our business and financial condition. +36 +As we are a “controlled company” within the meaning of the NYSE listing standards and rely on exemptions from certain corporate governance requirements, our stockholders may not have the same protections afforded to stockholders of companies that are subject to all NYSE corporate governance requirements. +As a result of the Separation, H-D owns more than 50% of the total voting power of our Common Stock and we are a “controlled company” within the meaning of the corporate governance rules of the NYSE. Under these corporate governance standards, a “controlled company” may elect not to comply with certain corporate governance requirements. For example, controlled companies are not required to have: +• a board that is composed of a majority of “independent directors,” as defined under the NYSE rules; +• a compensation committee that is composed entirely of independent directors; and +• director nominations be made, or recommended to the full board of directors, by its independent directors, or by a nominations/governance committee that is composed entirely of independent directors. +We utilize these exemptions. Accordingly, you do not have the same protections afforded to stockholders of companies that are subject to all the corporate governance requirements of the NYSE. +We may not be successful as an independent, publicly traded company, and we will not enjoy the same benefits that we did as a wholly owned subsidiary of H-D. +The historical financial information through the Closing of the Business Combination we have included in this Form 10-K does not necessarily reflect what our financial position, results of operations or cash flows would have been had we been an independent entity during the historical periods presented. The historical costs and expenses reflected in our consolidated financial statements include an allocation for certain corporate functions historically provided by H-D, including tax, accounting, treasury, legal, human resources, compliance, insurance, sales and marketing services. The historical financial information is not necessarily indicative of what our results of operations, financial position, cash flows or costs and expenses will be in the future. We have not made pro forma adjustments to reflect many significant changes that have occurred in our cost structure, funding and operations as a result of our transition to becoming a public company, including changes in our employee base, potential increased costs associated with reduced economies of scale and increased costs associated with being a publicly traded, standalone company. +As a result of the Separation, H-D indemnifies us for certain liabilities and we indemnify H-D for certain liabilities. If we are required to act on these indemnities for the benefit of H-D, we may need to divert cash to meet those obligations and our financial results could be negatively impacted. Additionally, any indemnity from H-D may not be sufficient to insure us against the full amount of liabilities for which we may be allocated responsibility, and H-D may not be able to satisfy its indemnification obligations in the future. +Third parties may seek to hold us responsible for H-D’s liabilities. Likewise, our relationship with H-D, as a much larger company and our majority stockholder, may make us more of a target for litigation than we otherwise would be on our own. Under certain agreements entered into with H-D in connection with the Separation, we indemnify H-D for claims and losses relating to liabilities related to our business, and H-D indemnifies us for claims and losses relating to liabilities related to H-D’s business and not related to our business. However, if those liabilities are significant and we are ultimately held liable for them, we cannot assure you that we will be able to recover the full amount of our losses from H-D. +Pursuant to the Separation Agreement and certain other agreements with H-D, H-D agreed to indemnify us for certain liabilities, as discussed further in Note 16, Related Party Transactions, in our consolidated financial statements. However, third parties could also seek to hold us responsible for any of the liabilities that H-D has agreed to retain, and there can be no assurance that the indemnity from H-D will be sufficient to protect us against the full amount of such liabilities or that H-D will be able to fully satisfy its indemnification obligations. In addition, H-D’s insurers may deny coverage to us for liabilities associated with certain occurrences of indemnified liabilities prior to the Separation. Moreover, even if we ultimately succeed in recovering from H-D or such insurance providers any amounts for which we are held liable, we may be temporarily required to bear these losses. Each of these risks could negatively affect our businesses, financial position and operating results. +Some of our directors and executive officers own restricted stock units and/or stock options covering H-D common stock that fluctuate in value in accordance with the value of H-D’s share price and/or other performance metrics, which could cause conflicts of interest that could result in us not acting on opportunities we otherwise may have. +Some of our directors and executive officers own H-D restricted stock units and/or stock options that fluctuate in value in accordance with the value of H-D’s share price. In addition, some of our executive officers and directors are executive officers +37 +and/or directors of H-D. Ownership of restricted stock units and options that fluctuate in value in accordance with the value of H-D’s share price by our directors and officers after the Separation and the presence of executive officers or directors of H-D on our Board could create, or appear to create, conflicts of interest with respect to matters involving both us and H-D that could have different implications for H-D than they do for us. Provisions of our certificate of incorporation address corporate opportunities that are presented to our directors or officers that are also directors or officers of H-D. We cannot assure you that the provisions in our certificate of incorporation adequately address potential conflicts of interest, that potential conflicts of interest will be resolved in our favor or that we will be able to take advantage of corporate opportunities presented to individuals who are officers or directors of both us and H-D. As a result, we may be precluded from pursuing certain growth initiatives, which could adversely affect our business. +H-D holds the direct contractual relationship with many key suppliers required for us to produce our electric vehicles. Disputes between H-D and these critical suppliers may negatively impact our electric vehicle production. +Our existing and potential relationships with partners and suppliers may be affected by our relationship with H-D. We partner with and purchase from a number of suppliers with whom H-D has a direct contractual relationship. H-D’s majority ownership in us might affect our ability to develop and maintain relationships with these suppliers, including because H-D may require us to limit our relationships with them or not work with them at all. Additionally, H-D might choose not to pursue enforcement of these contracts on our behalf to preserve H-D’s relationship with the partner or supplier. Likewise, these suppliers may be less willing or unwilling to develop and maintain relationships with us, and may favor our competitors or may view us as competitors, because of our relationship with H-D. +H-D may compete with certain of our significant channel, technology and other marketing partners as well as certain of our suppliers. Pursuant to our certificate of incorporation and certain agreements that we have entered into with H-D as a result of the Separation, H-D may have the ability to impact our relationship with these suppliers, which could have a material adverse effect on our results of operations, and our ability to pursue opportunities which may otherwise be available to us or electric vehicle production. +Risks Related to Information Technology, Intellectual Property, Data Security and Privacy +We collect and process significant information about our customers and their vehicles and are subject to various privacy, marketing and consumer protection laws. +We collect, receive, store, transmit and otherwise process different types of information about or related to a range of individuals, including our customers, riders of our electric vehicles, website visitors, users of our mobile application, our employees, job applicants and employees of other companies that we do business with (such as our vendors and suppliers). In addition to the information we collect from our customers to complete a sale or transaction, we use our electric vehicles’ onboard electronic systems to capture information about each electric vehicle’s use, such as location, charge time, battery usage, mileage and driving behavior, among other things, to aid us in providing services including electric vehicle diagnostics, repair, maintenance, insurance, roadside assistance and vehicle emergency services. Further we can, via data collection and analysis, customize and optimize the driving and riding experiences of our electric vehicles. Our customers may in the future choose not to provide this data, which may materially and negatively affect our business and our ability to properly maintain the vehicle. Possession and use of our customers’ driving behavior, electric vehicle use and other information may subject us to legislative and regulatory burdens and risks, and we will be required to comply with increasingly complex and rigorous regulatory standards enacted to protect business and personal information in the United States, Europe and elsewhere. +38 +A wide variety of state, federal and international laws as well as regulations, industry standards and contractual obligations apply to the collection, use, retention, protection, disclosure, transfer and other processing of personal information and other types of information. Evolving and changing definitions of personal data and personal information within the United States, Europe, the United Kingdom (the “UK”) and elsewhere, may limit or inhibit our ability to operate or expand our business and some jurisdictions require that certain types of data be retained on servers within these jurisdictions or place restrictions on the export of data to other jurisdictions. Additionally, laws, regulations, and standards covering marketing and advertising activities conducted by telephone, email, mobile devices and the Internet may be applicable to our business, such as the Telephone Consumer Protection Act (as implemented by the Telemarketing Sales Rule) (the “TCPA”), the Controlling the Assault of Non‑Solicited Pornography and Marketing Act (the “CAN-SPAM Act”) and similar state and foreign consumer protection laws. The Federal Trade Commission and many state attorneys general are also interpreting federal and state consumer protection laws (including the Federal Trade Commission Act) as imposing standards for the online collection, use, dissemination, and security of data. In addition, by providing financing to and collecting related information from customers, we are subject to financial privacy laws such as the Gramm-Leach-Bliley Act of 1999 and its implementing regulations (the “GLBA”), which restricts certain collection, use, disclosure and other processing of certain information and contains compliance requirements such as providing notice to individuals of privacy practices and implementing data security standards. The Federal Trade Commission updated its Safeguards Rule, which requires certain companies to implement specific safeguards to protect personal information processed in relation to providing a financial product or service, including to require certain financial institutions to report certain data security breaches to the FTC. The FTC and state attorneys general have also focused particular attention on the processing of vehicle-related and location data in recent years, which elevates the risk of our processing of such data. We are also subject to certain laws and regulations that have been enacted or proposed, such as “Right to Repair” laws, that could require us to provide third-party access to our network and/or vehicle systems. Our failure to comply with applicable laws, directives, and regulations may result in private claims or enforcement actions against us, including liabilities, fines and damage to our reputation, any of which may have a material adverse effect on our business, prospects, financial condition and operating results. +Data protection and privacy-related laws and regulations are evolving and may result in ever increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions. For example, the State of California adopted the CCPA, and prior to that the EU (and the UK) adopted General Data Protection Regulation (the “GDPR”). These laws (and other laws that have since been enacted) impose additional regulatory obligations regarding the handling of personal data and further provide certain individual privacy rights to persons whose data is processed by covered organizations. +In the United States, the CCPA became operative on January 1, 2020 and became enforceable by the California Attorney General on July 1, 2020, along with related regulations. Additionally, the California Privacy Rights Act (the “CPRA”), which amended and expanded upon the CCPA, was passed on November 3, 2020, and became effective on January 1, 2023. The CCPA requires covered companies to, among other things, provide certain disclosures to California consumers and affords such consumers certain privacy rights such as rights to access and delete their personal information, opt out of certain sales of personal information (a concept that is defined broadly) and receive detailed information about how their personal information is collected, used and shared. The CCPA provides for civil penalties for violations, as well as a private right of action for certain security breaches that may increase security breach litigation. The CPRA’s amendments to the CCPA have imposed additional data protection obligations on covered companies, including certain consumer rights processes, the right to correct personal information, and opt-outs for certain uses of sensitive personal information and the sharing of personal information for targeted advertising purposes. The CPRA’s amendments also created a new enforcement bureau, the California Privacy Protection Agency. The CCPA has encouraged similar laws in other states across the country, which creates a patchwork of overlapping but different state laws. We cannot fully predict the impact of such laws, or subsequent guidance, regulations or rules on our business or operations, including those that are still in draft form, but it may increase our compliance costs and potential liability, particularly in the event of a data breach, and could have a material adverse effect on our business, including how we use personal information, our financial condition, and the results of our operations or prospects. A number of other proposals exist for new federal and state privacy legislation that, if passed, could increase our potential liability, increase our compliance costs, modify our data processing practices and materially and adversely affect our business, prospects, financial condition and operating results. +In the EU and UK, we are subject to the EU GDPR and applicable national supplementing laws and the UK data protection regime consisting primarily of the UK General Data Protection Regulation and the UK Data Protection Act 2018 (together referred to as the “GDPR”). The GDPR imposes stringent data protection requirements in relation to our collection, processing, sharing, disclosure, transfer and other use of personal data, some of which are different from requirements under existing United States data privacy laws. +39 +The GDPR generally prohibits the transfer of personal data subject to those regimes outside of the EU/UK (including to the United States) unless a lawful data transfer solution has been implemented or a data transfer derogation applies. Recent legal developments in Europe have created complexity and uncertainty regarding transfers of personal information from the EU and the UK to third countries, including the United States. As the enforcement landscape further develops, and supervisory authorities issue further guidance on international data transfers, we could suffer additional costs, complaints and/or regulatory investigations or fines; we may have to stop using certain tools and vendors and make other operational changes; we have had to and will have to implement revised standard contractual clauses for existing intragroup, customer and vendor arrangements within required time frames; and/or it could otherwise affect the manner in which we provide our services, and could adversely affect our business, operations and financial condition. +The EU and UK also have evolving privacy laws on cookies, tracking technologies, and e-marketing. In the EU and the UK, regulators are increasingly focusing on compliance with requirements in the online behavioral advertising ecosystem. In the EU and the UK, informed consent is required for the placement of most cookies or similar technologies that store information, or access information stored, on a user’s device and for direct electronic marketing. Consent is tightly defined and includes a prohibition on pre-checked consents and a requirement to obtain separate consents for each type of cookie or similar technology. If the trend of increasing enforcement by regulators of the strict approach to opt-in consent for all but essential use cases, as seen in recent guidance and decisions, continues, this could lead to substantial costs, require significant systems changes, limit the effectiveness of our marketing activities, divert the attention of our technology personnel, adversely affect our margins, and subject us to additional liabilities. In light of the complex and evolving nature of EU, EU Member State and UK privacy laws on cookies and tracking technologies, there can be no assurances that we will be successful in our efforts to comply with such laws; violations of such laws could result in regulatory investigations, fines, orders to cease/change our use of such technologies, as well as civil claims including class actions, and reputational damage. +In addition, in the EU, the Data Act came into force on January 11, 2024, laying down rules to foster a competitive data market by making data more accessible and usable. The Data Act may apply to certain data arising from the use of our connected products in the EU, and may require us to make such data available to consumers and other businesses. This may require additional compliance measures and changes to our operations and processes, and/or result in increased compliance costs and potential increases in civil claims against us, and could adversely affect our business, operations and financial condition. +Additionally, other countries outside of Europe and the United States, including countries we either operate or may in the future operate within, are considering enacting legislation implementing data protection requirements or imposing cross-border data transfer restrictions or laws requiring local data residency. For example, Brazil enacted the General Data Protection Law, New Zealand enacted the New Zealand Privacy Act, China enacted its Personal Information Protection Law, and Canada introduced the Digital Charter Implementation Act. Also, in the U.S. there has been a noticeable uptick in class actions wherein plaintiffs have utilized a variety of laws, including the Video Privacy Protection Act of 1988 and state wiretapping laws, in relation to companies’ use of tracking technologies, such as cookies and pixels. Such litigation may lead legislatures to consider responsive regulation. For additional information, see “We are, and may in the future be, subject to legal proceedings in the ordinary course of our business. If the outcomes of these proceedings are adverse to us, it could have a material adverse effect on our business, prospects, financial condition and operating results.” +Compliance with additional laws and regulations could be expensive and result in significant penalties (for example, fines for certain breaches of the GDPR or the UK GDPR are up to the greater of €20 million/£17.5 million or 4% of total global annual turnover) and may place restrictions on the conduct of our business and the manner in which we interact with our customers. Failure to comply with applicable laws and regulations could result in lawsuits, orders to cease or change our data processing activities, regulatory enforcement notices or actions against us or other liability. For example, our misuse of or failure to secure personal information could result in violation of data privacy laws and regulations, proceedings against us by governmental entities or others, and/or result in significant liability and damage to our reputation and credibility. In addition, we may also face civil claims including representative actions and other class action type litigation (where individuals have alleged to suffered harm) potentially amounting to significant compensation or damages liabilities, as well as associated costs, diversion of internal resources, and reputational harm. These possibilities, if borne out, could have a negative impact on revenues and profits. If a third party alleges that we have violated applicable data privacy laws, we could face legal claims and damages as well as reputational harm among consumers, investors, and strategic partners. +40 +Although we make reasonable efforts to comply with all applicable data protection laws and regulations, our interpretations and efforts may have been or may prove to be insufficient or incorrect. We also make public statements about our use and disclosure of personal information through our privacy policy, information provided on our website and other public statements. Although we endeavor to ensure that our public statements are complete, accurate and fully implemented, we may at times fail to do so or be alleged to have failed to do so. We may be subject to potential regulatory or other legal action if such policies or statements are found to be deceptive, unfair or misrepresentative of our actual practices. In addition, from time to time, concerns may be expressed about whether our products and services compromise the privacy of our customers, riders and others. Any concerns about our data privacy and security practices (even if unfounded), or any failure, real or perceived, by us to comply with our posted privacy policies or with any legal or regulatory requirements, standards, certifications or orders or other privacy or consumer protection-related laws and regulations applicable to us, could cause our customers, riders and users to reduce their use of our products and services. +In addition, the regulatory framework for data privacy issues worldwide is currently evolving and is likely to remain uncertain for the foreseeable future, and it is possible that applicable laws and regulations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules, or our practices. Any failure or perceived failure by us to comply with applicable privacy and data security laws and regulations, our privacy policies, or our privacy-related obligations to users or other third parties, or any compromise of security that results in the unauthorized access to or transfer of personal information or other customer data, may result in governmental enforcement actions, litigation or public statements against us by consumer advocacy groups or others and could cause our customers, riders and users to lose trust in us, which could have an adverse effect on our reputation and business. We may also incur significant expenses to comply with privacy, consumer protection and security standards and controls imposed by laws, regulations, industry standards or contractual obligations. +Any significant change to applicable laws, regulations or industry practices regarding the use or disclosure of our users’ data, or regarding the manner in which the express or implied consent of users for the use and disclosure of such data is obtained, or in how these applicable laws, regulations or industry practices are interpreted and enforced by state, federal and international privacy regulators, could require us to modify our services and features, possibly in a material and costly manner, may subject us to legal claims, regulatory enforcement actions and fines, and may limit our ability to develop new services and features that make use of the data that our users voluntarily share with us. +We are subject to cybersecurity risks to our various information systems and software and any material failure, weakness, interruption, cyber event, incident or breach of security could prevent us from effectively operating our business. +We are at risk for interruptions, outages and breaches of (a) operational systems, including business, financial, accounting, product development, data processing or production processes, owned by us or our third-party vendors or suppliers; (b) facility security systems, owned by us or our third-party vendors or suppliers; (c) transmission control modules or other in-product technology, owned by us or our third-party vendors or suppliers; (d) the integrated software in our electric vehicles; (e) our mobile application software; or (f) customer or rider data that we process or our third-party vendors or suppliers process on our behalf. In addition, we and our third-party vendors or suppliers that host our data may encounter attempted attacks on their networks and information systems that may take a variety of forms, including denial of service attacks, infrastructure attacks, botnets, malicious file attacks, cross-site scripting, credential abuse, phishing, social engineering, ransomware, bugs, viruses, worms, and malicious software programs. All of these types of cybersecurity incidents can give rise to a variety of losses and costs, including legal claims or proceedings (such as class actions), regulatory investigations and enforcement actions, fines and penalties, damages to reputation, significant incident response, restoration and remediation costs, and others. These incidents could also materially disrupt operational systems; result in loss of intellectual property, trade secrets, confidential information, other proprietary or competitively sensitive information and data generally (including personal information); compromise certain information of customers, employees, suppliers, riders, users or others; harm our reputation or brand; or affect the performance of transmission control modules or other in‑product technology and the integrated software in our electric vehicles. +41 +A cybersecurity incident could be caused by disasters, insiders (through inadvertence or with malicious intent) or malicious third parties (including nation-states or nation-state supported actors) using sophisticated, targeted methods to circumvent firewalls, encryption and other security defenses, including hacking, fraud, trickery or other forms of deception. The techniques used by threat actors change frequently, are becoming increasingly diverse and sophisticated, and may be difficult to detect for long periods of time. We receive information technology services, including cybersecurity support, from H-D through the Master Services Agreement. Although we maintain information technology measures designed to protect the confidentiality, integrity and availability of our information systems, and protect us against intellectual property theft, data breaches and other cybersecurity incidents, such measures will require updates and improvements, and we cannot guarantee that such measures will be adequate to detect, prevent or mitigate cybersecurity threats or incidents. The implementation, maintenance, segregation and improvement of these information systems requires significant management time, support and cost. Moreover, there are inherent risks associated with developing, improving, expanding and updating current systems, including the disruption of our data management, procurement, production execution, finance, supply chain and sales and service processes. These risks may affect our ability to manage our data and inventory, procure parts or supplies or produce, sell, deliver and service our electric powertrain solutions, adequately protect our intellectual property or achieve and maintain compliance with, or realize available benefits under, applicable laws, regulations and contracts. We cannot be sure that these information systems upon which we rely, including those of our third-party vendors or suppliers, will be effectively implemented, maintained or expanded as planned. If we do not successfully implement, maintain or expand these systems as planned, our operations may be disrupted, our ability to accurately and timely report our financial results could be impaired, and deficiencies may arise in our internal control over financial reporting, which may impact our ability to certify our financial results. Moreover, our proprietary information, confidential information, intellectual property or personal information that we hold could be compromised or misappropriated and our reputation may be adversely affected. If these systems do not operate as we expect them to, we may be required to expend significant resources to make corrections or find alternative sources for performing these functions. +A significant cybersecurity incident could impact production capability, harm our reputation, cause us to breach our contracts with other parties or subject us to regulatory actions or litigation, any of which could materially affect our business, prospects, financial condition and operating results. In addition, while we maintain insurance coverage, our insurance coverage for cyberattacks may not be sufficient to cover all the losses, liabilities and costs we may experience as a result of a cybersecurity incident, including any disruptions resulting from such an incident, or that applicable insurance will be available to us in the future on economically reasonable terms or at all. +We also work with partners and third-party service providers or vendors that collect, store and process such data on our behalf and in connection with our products and services. There can be no assurance that any security measures that we or our third-party service providers or vendors have implemented will be fully implemented, complied with or effective in protecting our systems and information, including against current or future cybersecurity threats. While we have developed systems and processes designed to protect the availability, integrity, confidentiality and security of us and our customers’, riders’, website visitors’, employees’ and others’ data and information, our security measures or those of our third-party service providers or vendors could fail and result in security incidents, including unauthorized access to or disclosure, acquisition, encryption, modification, misuse, loss, destruction or other compromise of such data. If a compromise of such data were to occur, we may have liability under our contracts with other parties and under applicable law for damages and incur penalties and other costs to respond to, investigate and remedy such an incident. Laws in all 50 U.S. states require us to provide notice to customers, regulators, credit reporting agencies or others when certain sensitive information has been compromised as a result of a security breach. Laws outside of the U.S., including in Europe and the UK, may also require us to provide notice to individuals or other third parties. There are significant differences between the laws of the various U.S. states and other jurisdictions, and as a result compliance in the event of a widespread data breach could be complicated, in addition to being costly. Depending on the facts and circumstances of such an incident, these damages, penalties, fines and costs could be significant. Such an event could harm our reputation and result in litigation against us. Any of these results could materially adversely affect our business, prospects, financial condition and operating results. +We may need to defend ourselves against intellectual property infringement claims, which may be time consuming and would cause us to incur substantial costs. +Companies, organizations, or individuals, including our competitors, may currently hold or obtain in the future patents, trademarks or other proprietary or intellectual property that would prevent, limit or interfere with our ability to make, use, develop, sell or market our vehicles, components or other goods and services, which could make it more difficult for us to operate our business. From time to time, we may receive communications from holders of patents, trademarks, trade secrets or other intellectual property or proprietary rights alleging that we are infringing, misappropriating, diluting or otherwise violating such rights. Such parties may bring suits against us alleging infringement or other violation of such rights, or otherwise assert their rights and urge us to take licenses to their intellectual property. While we try to avoid infringing the rights of others, we may unknowingly do so. For example, we may not be aware of existing patents or patent applications that could be pertinent to +42 +our business as many patent applications are filed confidentially in the United States and are not published until 18 months following the applicable filing date. In the event that a claim relating to intellectual property is asserted against us, our suppliers or our third-party licensors, or if third parties not affiliated with us hold patents that relate to our products or technology, we may need to seek licenses to such intellectual property or seek to challenge those patents. Even if we are able to obtain a license, it could be non-exclusive, thereby giving our competitors and other third parties access to the same technologies licensed to us. In addition, we may be unable to obtain these licenses on commercially reasonable terms, if at all, and our challenge of third-party patents may be unsuccessful. Litigation or other legal proceedings relating to intellectual property claims, regardless of merit, may cause us to incur significant expenses and could distract our technical and management personnel from their normal responsibilities. Further, if we are determined to have infringed upon a third party’s intellectual property, we may be required to do one or more of the following: +• cease selling, incorporating certain components into, or using vehicles or offering goods or services that incorporate or use the intellectual property that we allegedly infringe, misappropriate, dilute or otherwise violate; +• pay substantial royalty or license fees or other damages; +• seek a license from the holder of the allegedly infringed intellectual property, which license may not be available on reasonable terms, or at all; +• redesign or reengineer our vehicles or other technology, goods or services, which may be costly, time‑consuming or impossible; or +• establish and maintain alternative branding for our products and services. +In the event of a successful claim of infringement against us and our failure or inability to obtain a license to the infringed technology or other intellectual property on acceptable terms, our business, prospects, financial condition and operating results could be materially and adversely affected. In addition, any litigation or claims, whether or not valid, could result in substantial costs, negative publicity and diversion of resources and management attention. +If we are unable to maintain, protect or enforce our rights in our proprietary technology, brands or other intellectual property, our competitive advantage, business, financial condition and results of operations could be materially and negatively affected. +Our failure to obtain or maintain adequate protection of, or prevent others from unauthorized use of, our intellectual property could materially and negatively affect our competitive advantage, business, financial condition and results of operations. We rely on a combination of patent, trade secret, trademark and other intellectual property laws, employee and third-party nondisclosure agreements, intellectual property licenses, and other contractual rights, to establish and protect our rights in our technology and intellectual property. +We have applied for patent protection relating to certain of our existing and proposed products, processes and services. However, we cannot assure you that any of our patent applications will issue as patents, or if they do issue, that they will be of sufficient scope or strength to provide our technologies with any meaningful protection or our business with any commercial protection. Further, once issued, the patents we own could be challenged, invalidated or circumvented by others. Some patent applications in the US are maintained in secrecy for a period of time after they are filed, and since publication of discoveries in the scientific or patent literature tends to lag behind actual discoveries by several months, we cannot be certain that we will be the first creator of inventions covered by any patent application we make or the first to file patent applications on such inventions. Further, we cannot assure you that competitors will not infringe our patents, or that we will have adequate resources to enforce our patents. +We also rely on unpatented proprietary technology. It is possible that others will independently develop the same or similar technology or otherwise obtain access to our unpatented technology. To protect our trade secrets and other proprietary information, our policy is to require that relevant employees, consultants, advisors and collaborators enter into confidentiality agreements. We cannot assure you that these agreements will provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. If we are unable to maintain the proprietary nature of our technologies, our competitive position, business, financial condition and results of operations could be materially and negatively affected. +We rely on our trademarks, trade names, and brand names to distinguish our products from those of our competitors and have registered or applied to register certain of these trademarks. We cannot assure you that our trademark applications will be approved. Third parties may also oppose our trademark applications, or otherwise challenge our use of our trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition, and could require us to devote resources to advertising and marketing new brands. Further, we cannot assure you that competitors will not infringe our trademarks, or that we will have adequate resources to enforce our trademarks. +43 +Despite our efforts to protect our intellectual property, third parties may attempt to copy or otherwise obtain and use our intellectual property or seek court declarations that our intellectual property is invalid or unenforceable, or that they do not infringe upon our intellectual property. Monitoring unauthorized use of our intellectual property is difficult and costly, and the steps we have taken or may take in the future in an effort to prevent infringement or misappropriation may not be successful. From time to time, we may have to resort to litigation to enforce our intellectual property, which could result in substantial costs and diversion of our resources. +Patent, trademark, trade secret and other intellectual property laws vary significantly throughout the world. A number of foreign countries do not protect intellectual property to the same extent as they are protected in the United States. Therefore, our intellectual property may not be as strong or as easily enforced outside of the United States. Failure to adequately protect our intellectual property could result in our competitors offering similar products, potentially resulting in the loss of some of our competitive advantage and a decrease in our revenue which would adversely affect our business, prospects, financial condition and operating results. +Risks Related to Other Legal, Regulatory and Tax Matters +We are subject to substantial regulation and unfavorable changes to, or failure by us to comply with, current or future regulations could materially and negatively affect our business and operating results. Increased environmental, safety, emissions or other regulations, including those intended to address climate change, may result in higher costs, cash expenditures and/or sales restrictions. +Our electric vehicles, and the sale of motorcycles and electric balance bikes for kids in general, are subject to substantial regulation under international, federal, state and local laws. We expect to incur significant costs in complying with these regulations. Regulations related to the electric vehicle industry and alternative energy are currently evolving and we face risks associated with changes to these regulations, such as: +• the imposition of a carbon tax or the introduction of a cap-and-trade system on electric utilities, either of which could increase the cost of electricity and thereby the cost of operating an electric vehicle; +• new state regulations of electric vehicles fees could discourage consumer demand for electric vehicles; +• the increase of subsidies for alternative fuels such as corn and ethanol could reduce the operating cost of vehicles that use such alternative fuels and gasoline, and thereby reduce the appeal of electric vehicles; +• changes to the regulations governing the sourcing, assembly, transportation and labeling of battery cells (such as the Batteries Regulation in the EU and related secondary legislation) could increase the cost of battery cells or make such commodities more difficult to obtain; +• changes in regulation, for example relating to the noise required to be emitted by electric vehicles, may impact the design or function of electric vehicles, and thereby lead to decreased consumer appeal; +• changes in regulations governing the range and miles per gallon of gasoline-equivalent calculations could lower our electric vehicles’ ratings, making electric vehicles less appealing to consumers; and +• changes in the U.S. NHTSA Corporate Average Fuel Economy (“CAFE”) standards could reduce new business opportunities for our business. +In particular, jurisdictions, including the EU, continue to progress initiatives that may have a significant impact on the sourcing of batteries. In the EU, these include: (i) the revised Batteries Regulation, which entered into force in August 2023 and which will introduce, in a phased in manner, considerable new requirements in relation to batteries placed on the EU market; (ii) the Critical Raw Materials Act, which enacted in April 2024and will, among other areas, set targets in relation to the EU’s domestic extraction, processing and recycling of certain raw materials; and (iii) the Corporate Sustainability Due Diligence Directive, which was enacted in July 2024 and will impose additional obligations on certain entities in relation to their supply chains. To the extent that our current practices do not align with these and other updated and/or proposed regulatory developments, this may lead to additional costs to the sourcing, assembly, transportation, and labeling of batteries. +In addition, to the extent the laws change, our electric vehicles may not comply with applicable international, federal, state or local laws, which could have an adverse effect on our business. Compliance with changing regulations could be burdensome, time consuming and expensive. To the extent compliance with new regulations is cost prohibitive, our business, prospects, financial condition, and operating results could be materially and adversely affected. +Internationally, there may be laws in jurisdictions we have not yet entered or laws we are unaware of in jurisdictions we have entered that may restrict our sales or other business practices. Even for those jurisdictions we have analyzed, the laws in this area can be complex, difficult to interpret and may change over time. Continued regulatory limitations and other obstacles +44 +interfering with our ability to sell electric vehicles directly to consumers could have a negative and material impact on our business, prospects, financial condition and operating results. +Our operations may impact the environment or cause exposure to hazardous substances, and our properties may have environmental contamination, which could result in material liabilities to us. +Our operations currently use hazardous materials and generate limited quantities of hazardous wastes from time to time. We could become subject to claims for toxic torts, natural resource damages and other damages as well as for the investigation and cleanup of contamination in the soil, surface water, groundwater, air, and other media. Such claims may arise, for example, out of conditions at sites that we currently lease, own or operate, as well as at sites that we previously leased, owned or operated, at sites that we may acquire, or at third-party disposal sites. Under certain federal and state environmental laws, our liability for such conditions may be joint and several with other owners/operators or through our contract manufacturer, so that we may be held responsible for more than our share, or even for the entire share, of the contamination or other damages. Liability under these laws is generally strict. Accordingly, we may incur liability without regard to fault or to the legality of the conduct giving rise to the conditions. These and other similar unforeseen impacts that our operations may have on the environment, as well as exposures to hazardous substances or wastes associated with our operations, could result in costs and liabilities that could materially and adversely affect us. +We are also subject to permitting, registration, and other government approval requirements under environmental, health and safety laws and regulations applicable in the jurisdictions in which we operate. Those requirements obligate us to obtain permits, registrations, certifications, and other government approvals from one or more governmental agencies to conduct our operations and sell our products. The requirements vary depending on the location where our regulated activities are conducted. Any failure to obtain or delay in obtaining required permits, registrations, and other government approvals could result in production delays or the ability to sell direct to customers and materially and adversely impact our operations and business. +Changes in US or international trade policy, including the continuation or imposition of tariffs and the resulting consequences, could adversely affect our business, prospects, financial condition, and operating results. +The US government has in the past and could in the future adopt a new approach to trade policy, renegotiate or terminate certain existing bilateral or multilateral trade agreements or impose tariffs on certain foreign goods, including steel and certain vehicle parts. For example, these changes in the past have resulted in increased costs for goods imported into the United States. Many of these restrictions could remain in place or could escalate under the new Administration. In response to these tariffs, a number of US trading partners have in the past imposed retaliatory tariffs on a wide range of US products and may do so in the future, which makes it more costly for us to export our electric vehicles to those countries. China and the United States have each imposed tariffs, indicating the potential for further trade barriers which may escalate a nascent trade war between China and the United States. In addition, additional trade restrictions or barriers could be implemented on a broader range of products or raw materials with additional countries or regions such as China, Canada, Mexico, the European Union or other countries and / or regions. If we are unable to pass price increases on to our customer base or otherwise mitigate the costs, or if demand for our exported electric vehicles decreases due to the higher cost, our business, prospects, financial condition and operating results could be materially adversely affected. The resulting environment of retaliatory trade or other practices could have a material adverse effect on our business, prospects, financial condition, operating results, customers, suppliers and the global economy. +The strategic partnership with KYMCO, as well as relationships with STACYC’s key vendors, could be negatively impacted by geopolitical events that might occur between mainland China and Taiwan. +Our strategic partnership with KYMCO, as well as STACYC’s relationships with its key vendors, may be negatively affected by the impact of geopolitical events and related actions that may occur between mainland China and Taiwan because KYMCO and STACYC’s key vendors are based in Taiwan. In recent years, there have been political and trade tensions between mainland China and Taiwan, which have resulted in the implementation of trade barriers, including the use of economic sanctions and export control restrictions. Violations of these economic sanctions and export control restrictions can result in significant civil and criminal penalties. Prolonged or increased use of trade barriers may result in a decrease in the growth of the global economy and electric vehicle industry and could cause turmoil in global markets. which could decrease demand for our products and services. Also, any increase in the use of economic sanctions or export control restrictions could impact our ability to continue supplying products and services to those customers and our customers’ demand for our products and services. Further escalation of trade tensions, the increased use of economic sanctions or export control restrictions could negatively affect our strategic partnership with KYMCO or STACYC’s relationships with its key vendors. +We are subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws, and noncompliance with such laws can subject us to administrative, civil and criminal fines and penalties, collateral +45 +consequences, remedial measures and legal expenses, all of which could adversely affect our business, results of operations, financial condition and reputation. +We are subject to anti-corruption, anti-bribery, anti-money laundering and similar laws and regulations in various jurisdictions in which we conduct or in the future may conduct activities, including the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act 2010 (the “U.K. Bribery Act”), and other anti-corruption laws and regulations. The FCPA and the U.K. Bribery Act prohibit us and our officers, directors, employees and business partners acting on our behalf, including agents, from corruptly offering, promising, authorizing or providing anything of value to a “foreign official” for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. The FCPA also requires companies to make and keep books, records and accounts that accurately reflect transactions and dispositions of assets and to maintain a system of adequate internal accounting controls. The U.K. Bribery Act also prohibits non-governmental “commercial” bribery and soliciting or accepting bribes. A violation of these laws or regulations could adversely affect our business, results of operations, financial condition and reputation. Our policies and procedures designed to ensure compliance with these regulations may not be sufficient and our directors, officers, employees, representatives, consultants, agents, and business partners could engage in improper conduct for which we may be held responsible. +Our business also must be conducted in compliance with applicable economic and trade sanctions laws and regulations, such as those administered and enforced by the U.S. Department of Treasury’s Office of Foreign Assets Control, the U.S. Department of State, the U.S. Department of Commerce, the United Nations Security Council and other relevant sanctions authorities. Our global operations expose us to the risk of violating, or being accused of violating, anti-corruption laws and economic and trade sanctions laws and regulations. Our failure to comply with these laws and regulations may expose us to reputational harm as well as significant penalties, including criminal fines, imprisonment, civil fines, disgorgement of profits, injunctions and debarment from government contracts, as well as other remedial measures. Investigations of alleged violations can be expensive and disruptive. Despite our compliance efforts and activities we cannot assure compliance by our employees or representatives for which we may be held responsible, and any such violation could materially adversely affect our reputation, business, prospects, financial condition and operating results. +Non-compliance with anti-corruption, anti-bribery, anti-money laundering or financial and economic sanctions laws could subject us to whistleblower complaints, adverse media coverage, investigations and severe administrative, civil and criminal sanctions, collateral consequences, remedial measures and legal expenses, all of which could materially and adversely affect our business, prospects, financial condition and operating results. In addition, changes in economic sanctions laws in the future could adversely impact our business and investments in our common stock. +We are or may be subject to risks associated with strategic alliances or acquisitions. +We may from time to time consider entering into strategic alliances, including joint ventures, minority equity investments or other transactions, with various third parties to further our business purpose. These alliances could subject us to a number of risks, including risks associated with sharing proprietary information, with non‑performance by the third party and with increased expenses in establishing new strategic alliances, any of which may materially and adversely affect our business. We may have limited ability to monitor or control the actions of these third parties, and to the extent any of these strategic third parties suffers negative publicity or harm to their reputation from events relating to their business, we may also suffer negative publicity or harm to our reputation by virtue of our association with any such third party. +When appropriate opportunities arise, we may acquire additional assets, products, technologies or businesses that are complementary to our existing business. In addition to possible stockholder approval, we may need approvals and licenses from relevant government authorities for the acquisitions and to comply with any applicable laws and regulations, which could result in increased delay and costs, and may disrupt our business strategy if we fail to do so. Furthermore, acquisitions and the subsequent integration of new assets and businesses into our own require significant attention from our management and could result in a diversion of resources from our existing business, which in turn could have an adverse effect on our operations. Acquired assets or businesses may not generate the financial results we expect. Acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities, the occurrence of significant goodwill impairment charges, amortization expenses for other intangible assets and exposure to potential unknown liabilities of the acquired business. Moreover, the costs of identifying and consummating acquisitions may be significant. +46 +We are, and may in the future be, subject to legal proceedings in the ordinary course of our business. If the outcomes of these proceedings are adverse to us, it could have a material adverse effect on our business, prospects, financial condition and operating results. +We are subject to various litigation matters from time to time, the outcome of which could have a material adverse effect on our business, prospects, financial condition and operating results. Claims arising out of actual or alleged violations of law could be asserted against us by individuals, either individually or through class actions, by governmental entities in civil or criminal investigations and proceedings or by other entities. These claims could be asserted under a variety of laws, including but not limited to consumer finance laws, consumer protection laws, tort laws, environmental laws, intellectual property laws, privacy laws, labor and employment laws, securities laws and employee benefit laws. We may also become subject to allegations of discrimination or other similar misconduct, which, regardless of the ultimate outcome, may result in adverse publicity that could harm our brand, reputation and operations. Claims may also arise out of actual or alleged breaches of contract or other actual or alleged acts or omissions by or on behalf of us. These actions could expose us to adverse publicity and to substantial monetary damages and legal defense costs, injunctive relief and criminal and civil fines and penalties, including but not limited to suspension or revocation of licenses to conduct business. Even if we are successful in defending against legal claims, litigation could result in substantial costs and demand on management resources. See “Business-Legal Proceedings.” +Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our results of operations and financial condition. +We may be subject to taxes by the U.S. federal, state, local and foreign tax authorities. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including: +• allocation of expenses to and among different jurisdictions; +• changes in the valuation of our deferred tax assets and liabilities; +• expected timing and amount of the release of any tax valuation allowances; +• tax effects of stock-based compensation; +• costs related to intercompany restructurings; +• changes in tax laws, tax treaties, regulations or interpretations thereof; or +• lower than anticipated future earnings in jurisdictions where we have lower statutory tax rates and higher than anticipated future earnings in jurisdictions where we have higher statutory tax rates. +In addition, we may be subject to audits of our income, sales and other taxes by U.S. federal, state, and local and foreign taxing authorities. Outcomes from these audits could have an adverse effect on our operating results and financial condition. +Changes in tax laws or regulations that are applied adversely to us or our customers may materially adversely affect our business, prospects, financial condition and operating results. +New income, sales, use or other tax laws, statutes, rules, regulation or ordinances could be enacted at any time, or interpreted, changed, modified or applied adversely to us or our customers, any of which could adversely affect our business, prospects, financial performance and operating results. In particular, presidential, congressional, state and local elections in the United States could result in significant changes in, and uncertainty with respect to, tax legislation, regulation and government policy directly affecting our business or indirectly affecting us because of impacts on our customers, suppliers and manufacturers. For example, the United States government has, from time to time, proposed and may enact significant changes to the taxation of business entities including, among others, an increase in the corporate income tax rate and surtaxes on certain types of income. The likelihood of these changes being enacted or implemented is unclear. We are currently unable to predict whether such changes will occur and, if so, the ultimate impact on our business. To the extent that such changes have a negative impact on us, our suppliers, manufacturers or our customers, including as a result of related uncertainty, these changes may materially and adversely affect our business, prospects, financial condition and operating results. +Risks Related to the Common Stock and Warrants +The price of our Common Stock may be volatile, and you may be unable to resell your Common Stock at or above the price at which you purchased such stock, or at all. +The market price for our Common Stock may fluctuate significantly in response to a number of factors, most of which we cannot control, including, among others: +• the development and sustainability of an active trading market for our Common Stock; +47 +• trends and changes in consumer preferences in the industries in which we operate; +• changes in general economic or market conditions or trends in our industry or the economy as a whole and, in particular, in the consumer and advertising marketplaces; +• changes in key personnel; +• our entry into new markets; +• changes in our operating performance; +• investors’ perceptions of our prospects and the prospects of the businesses in which we participate; +• fluctuations in quarterly revenue and operating results, as well as differences between our actual financial and operating results and those expected by investors; +• the public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC; +• announcements relating to litigation; +• guidance, if any, that we provide to the public, any changes in such guidance or our failure to meet such guidance; +• changes in financial estimates or ratings by any securities analysts who follow our Common Stock, our failure to meet such estimates or failure of those analysts to initiate or maintain coverage of our Common Stock; +• downgrades in our credit ratings or the credit ratings of our competitors; +• investor perceptions of the investment opportunity associated with our Common Stock relative to other investment alternatives; +• the inclusion, exclusion or deletion of our stock from any trading indices; +• future sales of our Common Stock by our officers, directors and significant stockholders; +• other events or factors, including those resulting from system failures and disruptions, hurricanes, wars, acts of terrorism, other natural disasters or responses to such events; +• price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; and +• changes in accounting principles. +These and other factors may lower the market price of our Common Stock, regardless of our actual operating performance. As a result, our Common Stock may trade at prices significantly below the price at which you purchased such Common Stock. +In addition, the stock markets, including the NYSE, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, we could incur substantial costs and our resources and the attention of management could be diverted from our business. +Our stock price may be exposed to additional risks because our business became a public company through a “de-SPAC” transaction. There has been increased focus by government agencies on such transactions, and we expect that increased focus to continue, and we may be subject to increased scrutiny by the SEC and other government agencies on holders of our securities as a result, which could adversely affect the price of our Common Stock. +If we fail to implement and maintain an effective system of internal control over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud. +Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requires us to evaluate the effectiveness of our internal control over financial reporting as of the end of each fiscal year. Additionally, once we cease to be an emerging growth company, our independent registered accounting firm will also be required to attest to the effectiveness of our internal controls over financial reporting in each Annual Report on Form 10-K to be filed with the SEC. We may in the future identify material weaknesses or significant deficiencies that we may be unable to remedy before the requisite deadline for those reports. Our ability to comply with the annual internal control reporting requirements will depend on the effectiveness of our financial reporting and data systems and controls across our company. We expect these systems and controls to involve significant expenditures and to become increasingly complex as our business grows. To effectively manage this complexity, we will need to continue to improve our operational, financial and management controls and our reporting systems and procedures. Any weaknesses or deficiencies or any failure to implement required new or improved controls, or difficulties encountered in the implementation or operation of these controls, could materially and negatively affect our operating results and cause us to fail to meet our financial reporting obligations or result in material misstatements in our financial statements, which could adversely affect our business and reduce our stock price. +48 +A market for our securities may not continue, which would adversely affect the liquidity and price of its securities. +The price of our securities may fluctuate significantly due to general market and economic conditions. An active trading market for our securities may never develop or, if developed, it may not be sustained. In addition, the price of our securities can vary due to general economic conditions and forecasts, its general business condition and the release of its financial reports. Additionally, if our securities are not listed on, or become delisted from, NYSE for any reason, and are quoted on the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, the liquidity and price of its securities may be more limited than if it were quoted or listed on NYSE or another national securities exchange. You may be unable to sell your securities unless a market can be established or sustained. +If securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our market, or if they change their recommendations regarding our Common Stock adversely, then the price and trading volume of our Common Stock could decline. +The trading market for our Common Stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. Securities and industry analysts do not currently, and may never, publish research on our company. If one or more of the analysts who do cover us downgrade our Common Stock or our industry, or the common stock of any of our competitors, or publish inaccurate or unfavorable research about our business, the price of our Common Stock could decline. If one or more of these analysts stops covering us or fails to publish reports on us regularly, we could lose visibility in the market, which, in turn, could cause our Common Stock price or trading volume to decline. +Additionally, any fluctuation in the credit rating of us or our subsidiaries may impact our ability to access debt markets in the future or increase our cost of future debt, which could have a material adverse effect on our operations and financial condition, which in turn may adversely affect the trading price of shares of our Common Stock. +Concentration of ownership among our existing directors, executive officers and principal stockholders may prevent new investors from influencing significant corporate decisions. +Our directors and executive officers and their affiliates beneficially own a significant amount of our Common Stock. Subject to any fiduciary duties owed to our other stockholders under Delaware law, these stockholders may be able to exercise significant influence over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, and will have some control over our management and policies. Some of these persons or entities may have interests that are different from yours. For example, these stockholders may support proposals and actions with which you may disagree or which are not in your best interests. The concentration of ownership could delay or prevent a change in control of us, or otherwise discourage a potential acquirer from attempting to obtain control of us, which in turn could reduce the price of our Common Stock. +In addition, these stockholders could use their voting influence to maintain our existing management and directors in office or support or reject other management and Board proposals that are subject to stockholder approval, such as amendments to our employee stock plans and approvals of significant financing transactions. +We may acquire other businesses or form other joint ventures or make investments in other companies or technologies that could negatively affect our operating results, dilute our stockholders’ ownership, increase our debt or cause us to incur significant expense. +We may pursue acquisitions of businesses and assets. We also may pursue strategic alliances and additional joint ventures that leverage our technology and industry experience to expand our offerings or distribution. We have no experience with acquiring other companies and limited experience with forming strategic partnerships. We may not be able to find suitable partners or acquisition candidates, and we may not be able to complete such transactions on favorable terms, if at all. If we make any acquisitions, we may not be able to integrate these acquisitions successfully into our existing business, and we could assume unknown or contingent liabilities. Any future acquisitions also could result in the incurrence of debt, contingent liabilities or future write-offs of intangible assets or goodwill, any of which could have a material adverse effect on our financial condition and operating results. Integration of an acquired company also may disrupt ongoing operations and require management resources that we would otherwise focus on developing our existing business. We may experience losses related to investments in other companies, which could have a material negative effect on our results of operations and financial condition. We may not realize the anticipated benefits of any acquisition, technology license, strategic alliance or joint venture. To finance any acquisitions or joint ventures, we may choose to issue shares of our common stock as consideration, which would dilute the ownership of our stockholders. Additional funds may not be available on terms that are favorable to us, or at all. If the price of +49 +our common stock is low or volatile, we may not be able to acquire other companies or fund a joint venture project using our stock as consideration. +We also expect to continue to carry out internal strategic initiatives that we believe are necessary to grow our revenues and expand our business, both in the U.S. and abroad. For example, we have continued to invest in international expansion programs designed to increase our worldwide presence and take advantage of market expansion opportunities around the world. Although we believe our investments in these initiatives continue to be in the long-term best interests of LiveWire and our stockholders, there are no assurances that such initiatives will yield favorable results for us. Accordingly, if these initiatives are not successful, our business, financial condition and results of operations could be adversely affected. +If these risks materialize, our stock price could be materially adversely affected. Any difficulties in the integration of acquired businesses or unexpected penalties, liabilities or asset impairments in connection with such acquisitions or investments could have a material adverse effect on our business, financial condition and results of operations. +We are a holding company with no business operations of our own and will depend on cash flow from our subsidiaries to meet our obligations. +We are a holding company with no business operations of our own or material assets other than the stock of our subsidiaries. All of our operations are conducted by our subsidiaries. As a holding company, we require dividends and other payments from our subsidiaries to meet cash requirements. The terms of any credit facility may restrict our subsidiaries from paying dividends and otherwise transferring cash or other assets to us. If there is an insolvency, liquidation or other reorganization of any of our subsidiaries, our stockholders may have no right to proceed against their assets. Creditors of those subsidiaries will be entitled to payment in full from the sale or other disposal of the assets of those subsidiaries before we, as an equity holder, would be entitled to receive any distribution from that sale or disposal. If our subsidiaries are unable to pay dividends or make other payments to us when needed, we will be unable to satisfy our obligations. +Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain. +We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, under certain circumstances, any loan and security agreement and any future debt or preferred securities or future debt agreements we may enter may preclude us from paying dividends. As a result, capital appreciation, if any, of our Common Stock will be your sole source of gain for the foreseeable future. +Our corporate documents and Delaware law contain provisions that could discourage, delay or prevent a change in control of our company, prevent attempts to replace or remove current management and reduce the market price of our Common Stock and warrants. +Provisions in our certificate of incorporation and bylaws may have an anti-takeover effect and may delay, defer or prevent a merger, acquisition, tender offer, takeover attempt or other change of control transaction that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by our stockholders. +These provisions provide for, among other things: +• the ability of the Board to issue one or more series of preferred stock; +• advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at our annual meetings; +• certain limitations on convening special stockholder meetings; +• certain limitations on the ability of stockholders to act by written consent; and +• the express authority of the Board to make, alter or repeal the bylaws. +These anti-takeover provisions could make it more difficult for a third party to acquire us, even if the third party’s offer may be considered beneficial by many of our stockholders. As a result, our stockholders may be limited in their ability to obtain a premium for their shares. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire. See “Description of Our Securities.” +50 +We are an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may make our Common Stock and warrants less attractive to investors. +We are an “emerging growth company,” as defined in the JOBS Act. As an emerging growth company, we may follow reduced disclosure requirements and do not have to make all of the disclosures that public companies that are not emerging growth companies do. We will remain an emerging growth company until the earlier of (a) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more; (b) the last day of the fiscal year following the fifth anniversary of the date of the completion of the IPO of ABIC; (c) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (d) the date on which we are deemed to be a large accelerated filer under the rules of the SEC, which means the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of the prior June 30th. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include: +• not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes‑Oxley Act; +• not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis); +• reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and +• exemptions from the requirements of holding a nonbinding advisory vote of stockholders on executive compensation, stockholder approval of any golden parachute payments not previously approved and having to disclose the ratio of the compensation of our chief executive officer to the median compensation of our employees. +In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period for complying with new or revised accounting standards; and as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. +We may choose to take advantage of some, but not all, of the available exemptions for emerging growth companies. We cannot predict whether investors will find our Common Stock or warrants less attractive if we rely on these exemptions. If some investors find our Common Stock or warrants less attractive as a result, there may be a less active trading market for our Common Stock and warrants and our share and warrant price may be more volatile. +Our certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders. +The certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery (the “Chancery Court”) of the State of Delaware (or, in the event the Chancery Court does not have jurisdiction, the federal district court for the District of Delaware or other state courts of the State of Delaware) is the sole and exclusive forum for (1) any derivative action, suit or proceeding brought on behalf of us; (2) any action, suit or proceeding asserting a claim of breach of a fiduciary duty owed by any director or officer of us to us or our stockholders; (3) any action, suit or proceeding arising pursuant to any provision of the DGCL or the certificate of incorporation or the bylaws (as either may be amended from time to time); and (4) any action, suit or proceeding asserting a claim against us governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of Common Stock shall be deemed to have notice of and to have consented to the provisions of the certificate of incorporation described above. Notwithstanding the foregoing, the provisions of Article X of the certificate of incorporation provide that unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, including all causes of action asserted against any defendant to such complaint. We intend to apply this exclusive forum provision to derivative actions or breach of fiduciary duty claims purportedly brought under the Exchange Act, which would be required to be filed in the federal district court for the District of Delaware. Although we believe this provision benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, a court may determine that this provision is unenforceable, and to the extent it is enforceable, the provision may have the effect of discouraging lawsuits against our directors and officers, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder. Alternatively, if a court were to find these provisions of the certificate of incorporation inapplicable to, or +51 +unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition. +You may only be able to exercise the public warrants on a “cashless basis” under certain circumstances, and if you do so, you will receive fewer shares of Common Stock from such exercise than if you were to exercise such warrants for cash. +The Warrant Agreement provides that in the following circumstances holders of warrants who seek to exercise their warrants will not be permitted to do so for cash and will, instead, be required to do so on a cashless basis in accordance with Section 3(a)(9) of the Securities Act: (i) if the shares of Common Stock issuable upon exercise of the warrants are not registered under the Securities Act in accordance with the terms of the Warrant Agreement; (ii) if we have so elected and the shares of Common Stock are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition of “covered securities” under Section 18(b)(1) of the Securities Act; and (iii) if we have so elected and we call the public warrants for redemption. If you exercise your public warrants on a cashless basis, you would pay the warrant exercise price by surrendering the warrants for that number of shares of Common Stock equal to (A) the quotient obtained by dividing (x) the product of the number of shares of Common Stock underlying the warrants, multiplied by the excess of the “Fair Market Value” (as defined in the next sentence) over the exercise price of the warrants by (y) the Fair Market Value and (B) 0.361 per whole warrant. The “Fair Market Value” is the average reported last sale price of the Common Stock as reported for the 10 trading day period ending on the trading day prior to the date on which the notice of exercise is received by the warrant agent or on which the notice of redemption is sent to the holders of warrants, as applicable. As a result, you would receive fewer shares of Common Stock from such exercise than if you were to exercise such warrants for cash. +We may amend the terms of the warrants in a manner that may have an adverse effect on holders of Public warrants with the approval by the holders of at least 65% of the then outstanding public warrants. As a result, the exercise price of your warrants could be increased, the exercise period could be shortened and the number of shares of Common Stock purchasable upon exercise of a warrant could be decreased, all without your approval. +Our warrants were issued in registered form under a Warrant Agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. The Warrant Agreement provides that the terms of the warrants may be amended without the consent of any holder for the purpose of (i) curing any ambiguity or curing, correcting or supplementing any defective provision or (ii) adding or changing any provisions with respect to matters or questions arising under the Warrant Agreement as the parties to the Warrant Agreement may deem necessary or desirable and that the parties deem to not adversely affect the interests of the registered holders of the warrants, provided that the approval by the holders of at least 65% of the then-outstanding public warrants is required to make any change that adversely affects the rights of the registered holders of public warrants. Accordingly, we may amend the terms of the public warrants in a manner adverse to a holder of public warrants if holders of at least 65% of the then outstanding public warrants approve of such amendment. Although our ability to amend the terms of the public warrants with the consent of at least 65% of the then outstanding public warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the warrants, convert the warrants into cash or shares, shorten the exercise period or decrease the number of shares of Common Stock purchasable upon exercise of a warrant. +Our Warrant Agreement designates the courts of the State of New York or the U.S. District Court for the Southern District of New York as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of the warrants, which could limit the ability of warrant holders to obtain a favorable judicial forum for disputes with us. +Our Warrant Agreement provides that, subject to applicable law, (i) any action, proceeding or claim against us arising out of or relating in any way to the Warrant Agreement, including under the Securities Act, will be brought and enforced in the courts of the State of New York or the U.S. District Court for the Southern District of New York, and (ii) that we irrevocably submit to such jurisdiction, which jurisdiction shall be the exclusive forum for any such action, proceeding or claim. We will waive any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Notwithstanding the foregoing, these provisions of the Warrant Agreement will not apply to suits brought to enforce any liability or duty created by the Exchange Act (which provides for the exclusive jurisdiction of the federal courts with respect to all suits brought to enforce a duty or liability created by the Exchange Act or the rules and regulations thereunder) or any other claim for which the federal district courts of the United States of America are the sole and exclusive forum. Any person or entity purchasing or otherwise acquiring any interest in any of our warrants shall be deemed to have notice of and to have consented to the forum provisions in the Warrant Agreement. If any action, the subject matter of which is within the scope the forum provisions of the Warrant Agreement, is filed in a court other than a court of the State of New York or the United States District Court for the Southern District of New York (a “foreign action”) in the name of any holder of our warrants, such holder shall be deemed to have consented to (x) the personal jurisdiction of the state and federal courts located in the State of New York in connection with any action brought in any such court to enforce the forum provisions (an “enforcement action”); and (y) having service of process +52 +made upon such warrant holder in any such enforcement action by service upon such warrant holder’s counsel in the foreign action as agent for such warrant holder. +This choice-of-forum provision may limit a warrant holder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us, which may discourage such lawsuits. Alternatively, if a court were to find this provision of the Warrant Agreement inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect our business, financial condition and operating results and could result in a diversion of the time and resources of our management and the Board. +We may redeem your unexpired warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless. +We have the ability to redeem outstanding public warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant; provided that the last reported sale price of our Common Stock equals or exceeds $18.00 per share (as adjusted for adjustments to the number of shares issuable upon exercise or the exercise price of a warrant) for any 20 trading days within a 30 trading-day period ending on the third trading day prior to the date on which we send the notice of redemption to the warrant holders. We will not redeem the warrants unless an effective registration statement under the Securities Act covering the issuance of our Common Stock issuable upon the exercise of the warrants is effective and a current prospectus relating to those Common Stock is available throughout the 30-day redemption period, except if the warrants may be exercised on a cashless basis and such cashless exercise is exempt from registration under the Securities Act. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding warrants could force you to (i) exercise your warrants and pay the exercise price therefore at a time when it may be disadvantageous for you to do so, (ii) sell your warrants at the then-current market price when you might otherwise wish to hold your warrants or (iii) accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, we expect would be substantially less than the market value of your warrants. +In addition, we have the ability to redeem the outstanding public warrants at any time after they become exercisable and prior to their expiration, at a price of $0.10 per warrant if, among other things, the last reported sale price of our Common Stock equals or exceeds $10.00 per share (as adjusted for share subdivisions, share capitalizations, reorganizations, recapitalizations and the like). In such a case, the holders will be able to exercise their warrants prior to redemption for a number of shares of Common Stock determined based on the redemption date and the fair market value of our Common Stock. The value received upon exercise of the warrants (1) may be less than the value the holders would have received if they had exercised their warrants at a later time where the underlying share price is higher and (2) may not compensate the holders for the value of the warrants, including because the number of shares of Common Stock received is capped at 0.361 Common Stock per warrant (subject to adjustment) irrespective of the remaining life of the warrants. +The private placement warrants will not be redeemable by us so long as (i) they are held by the initial purchasers of the private placement warrants or its permitted transferees and (ii) the reference value exceeds $18.00 per share. +There is no guarantee that the exercise price of our warrants will ever be less than the trading price of our Common Stock on NYSE, and they may expire worthless. In addition, we may reduce the exercise price of the warrants in accordance with the provisions of the Warrant Agreement, and a reduction in exercise price of the warrants would decrease the maximum amount of cash proceeds we could receive upon the exercise in full of the warrants for cash. +The exercise price for a warrant is $11.50 per share of Common Stock. On December 31, 2024, the closing price of our Common Stock was $4.81. If the price of our shares of Common Stock remains below $11.50 per share, which is the exercise price of our warrants, we believe our warrant holders will be unlikely to cash exercise their warrants, resulting in little or no cash proceeds to us. There is no guarantee that our warrants will be in the money prior to their expiration, and as such, our warrants may expire worthless. +In addition, at the current exercise price of $11.50 per share, we will receive up to $349.2 million from the exercise of the warrants, assuming the exercise in full of all of the warrants for cash. However, we may lower the exercise price of the warrants in accordance with Section 9.8 of the Warrant Agreement. We may effect such reduction in exercise price without the consent of warrant holders and such reduction would decrease the maximum amount of cash proceeds we would receive upon the exercise in full of the warrants for cash. +53 +General Risk Factors +The obligations associated with being a public company involve significant expenses and require significant resources and management attention, which may divert from our business operations. +We are subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal control over financial reporting. Our entire management team and many of our other employees will need to devote substantial time to compliance and may not effectively or efficiently manage our transition into a public company. +In addition, the need to establish the corporate infrastructure demanded of a public company may also divert management’s attention from implementing our business strategy, which could prevent us from improving our business, results of operations and financial condition. We have made, and will continue to make, changes to our internal control over financial reporting, including IT controls, and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company. However, the measures we take may not be sufficient to satisfy our obligations as a public company. If we do not continue to develop and implement the right processes and tools to manage our changing enterprise and maintain our culture, our ability to compete successfully and achieve our business objectives could be impaired, which could negatively impact our business, financial condition and results of operations. In addition, we cannot predict or estimate the amount of additional costs we may incur to comply with these requirements. We anticipate that these costs will materially increase our general and administrative expenses. +These rules and regulations result in our incurring legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified people to serve on our Board, on our Board committees or as executive officers. +As a public reporting company, we are subject to rules and regulations established from time to time by the SEC regarding our internal control over financial reporting. If we fail to establish and maintain effective internal control over financial reporting and disclosure controls and procedures, we may not be able to accurately report our financial results or report them in a timely manner. +We are subject to the rules and regulations established from time to time by the SEC and NYSE. These rules and regulations require, among other things that we establish and periodically evaluate procedures with respect to our internal control over financial reporting. Reporting obligations as a public company are likely to place a considerable strain on our financial and management systems, processes and controls, as well as on our personnel. +In addition, as a public company, we are required to document and test our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act so that our management can certify as to the effectiveness of our internal control over financial reporting. +Our accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we are subject as a public company. +In the past, our operations have been a part of H-D and H-D provided us with certain financial, operational and managerial resources for conducting our business. Following the Separation, while a number of these resources will continue to be at H-D and used to provide services to us under the Master Services Agreement, we now perform certain of our own financial, operational and managerial functions. There are no assurances that we will be able to successfully put in place the financial, operational and managerial resources necessary to perform these functions. +Our transition to being a public company has also subjected us to significant regulatory oversight and financial reporting obligations under the federal securities laws and in accordance with Generally Accepted Accounting Principles, as well as the continuous scrutiny of securities analysts and investors. These new obligations and constituents require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition, and operating results. We may not have adequate personnel with the appropriate level of knowledge, experience and training in the accounting policies, practices or internal control over financial reporting required of public companies in the US. The development and implementation of the standards and controls necessary for us to achieve the level of accounting standards required of a public company in the US may require costs greater than +54 +expected. It is possible that we will be required to expand our employee base and hire additional employees to support our operations as a public company which will increase our operating costs in future periods. +Our facilities, and our suppliers’ facilities, are vulnerable to disruption due to natural or man-made disasters, which could become more frequent and severe due to phenomena such as climate change. +There is growing concern that a gradual increase in global average temperatures as a result of climate change may result in an increase in the frequency and severity of extreme weather events or other natural disasters. Natural or man-made disasters, as well as chronic changes (such as changes to temperature and hydrological patterns), may disrupt the productivity of our facilities, the operation of our supply chain or impact demand for our products. In addition, the increasing concern over climate change may result in more local, regional, federal and global legal and regulatory requirements and could increase the costs to comply with such requirements that we incur in our operations. +Our insurance coverage strategy may not be adequate to protect us from all business risks. +We may be subject, in the ordinary course of business, to losses resulting from product liability, accidents, acts of God and other claims against us, for which we may have no insurance coverage. Our policies may include significant deductibles or self-insured retentions, policy limitations and exclusions, and we cannot be certain that our insurance coverage will be sufficient to cover all future losses or claims against us. A loss that is uninsured or which exceeds policy limits may require us to pay substantial amounts, which may materially and negatively affect our financial condition and operating results. +Item 1B. Unresolved Staff Comments +None. +Item 1C. Cybersecurity +Risk Management Strategy +The Company has implemented a cybersecurity program intended to assess, identify, manage and reduce cybersecurity risk. Through our partnership with Harley-Davidson we maintain an IT incident response plan that is designed to protect against, identify, evaluate, respond to, and recover from an incident. The plan is designed to be flexible so it may be adapted to an array of potential scenarios and includes a cybersecurity incident response team in the event of a cyber incident. The incident response team is a cross-functional group that is composed of both Company and Harley-Davidson personnel and external service providers, and which is tailored to a particular incident so that individuals with appropriate experience and expertise are available. Currently the Company contracts for such cybersecurity services through the Master Services Agreement with Harley-Davidson, in addition to leveraging its own information technology and security tools and teams. +We have invested in tools and technologies intended to protect our data and business systems, and we monitor our computing environment on an ongoing basis to help identify and assess risk. In addition, we have implemented a cybersecurity training program designed to educate and train employees how to identify, potentially avoid and report cybersecurity threats. It is focused on helping our workforce recognize, avoid falling victim to and raise the visibility of potential cyber threats and scams. In addition, periodic cybersecurity awareness messages are posted to employees on the Company portal as new threats and scams develop throughout the year. +Through the Master Services Agreement with Harley-Davidson, we take measures to regularly update and improve our cybersecurity program, including conducting assessments, performing penetration testing and scanning of our systems for vulnerabilities using external third-party tools and techniques to test security controls, auditing applicable data policies, and monitoring emerging laws and regulations related to information security. We design our program based on the National Institute of Standards and Technology (NIST) Cybersecurity Framework. However, this does not imply that we meet any particular technical standards, specifications or requirements, only that we use the NIST Cybersecurity Framework as a guide to help us identify, assess and manage cybersecurity risks relevant to our business. In addition, we periodically engage third-party advisors to assess the effectiveness of our cybersecurity program, policies and practices. We rely on Harley-Davidson to regularly consult with external advisors and cybersecurity providers regarding opportunities and enhancements to strengthen our policies and practices. +With respect to third-party service providers, our cybersecurity program includes conducting due diligence of relevant and material service providers’ information security programs prior to onboarding. In general we also contractually require material third-party service providers with access to our information technology systems, sensitive business data or personal information to implement and maintain reasonably appropriate security controls and to use our personal information only to provide services to us, except as required by law. +55 +While the Company has experienced, and may in the future experience, cybersecurity incidents, prior incidents have not materially affected the Company’s business, results of operations or financial condition. Although the Company has invested in the protection of its data and information technology and monitors its systems on an ongoing basis, there can be no assurance that such efforts will in the future prevent material compromises to Company information technology systems that could have a material adverse effect on the Company’s business. See Item 1A. Risk Factors, which are incorporated by reference into this Item 1C. +Governance +Our Board of Directors has risk oversight responsibility for the Company and administers this responsibility both directly and with assistance from the Audit and Finance Committee, which periodically reports to the Board of Directors on its risk oversight activities. Cybersecurity is a critical component of our overall risk management program. Our Board of Directors is actively involved in reviewing our information security and technology risks and opportunities (including cybersecurity) and discusses these topics on a regular basis. +The Audit and Finance Committee, comprised solely of independent directors, oversees our enterprise risk management program and assists the Board of Directors in fulfilling its oversight responsibility with respect to our information security and technology risks (including cybersecurity), which are fully integrated into our enterprise risk management systems. The Audit and Finance Committee reviews and discusses our information security and technology risks (such as cybersecurity), including our information security and risk management programs. +Our cybersecurity program is contracted through and led by Harley-Davidson’s Chief Information Security and Privacy Officer (CISO) who is responsible for assessing and managing the Company’s data privacy function and information security and technology risks (including cybersecurity). The CISO has over 20 years of cyber industry and compliance experience, serving in a CISO capacity for over ten of those years. The CISO reports to Harley Davidson’s Chief Digital and Operations Officer, who has extensive experience in leading information systems management, strategy and operational execution, including information security and incident management, prevention and response. +The Harley-Davidson CISO meets regularly with the appropriate management to review and discuss our cybersecurity and other information technology risks and opportunities. Our cybersecurity incident response plan sets forth a security incident management and reporting protocol, with escalation timelines and responsibilities. +The Audit and Finance Committee receives periodic updates from the Harley-Davidson CISO or his designee on our cybersecurity program, including industry trends, the current state of our business systems, and any current known risks or concerns related thereto. The Audit and Finance Committee is involved in reviewing our information security and technology risks, including with respect to cybersecurity and reports on such matters to the Board as necessary, and at least annually. +Item 2. Properties +A summary of the principal operating properties as of December 31, 2024 is as follows: +Type of Facility Location Status +Electric Motorcycles - corporate office Milwaukee, WI Leased +Electric Motorcycles - product development center Wauwatosa, WI Leased +Electric Motorcycles - customer experience center Malibu, CA Leased +Electric Motorcycles - retail operations Carson, CA Leased +Electric Motorcycles - marketing displays and test rides Los Angeles, CA Leased +STACYC - corporate office and research and development activities Fort Worth, TX Leased +Item 3. Legal Proceedings +56 +The Company from time to time may be subject to lawsuits and other claims related to product, commercial, supplier, employee, environmental and other matters in the normal course of business. In determining costs to accrue related to these items, the Company carefully analyzes cases and considers the likelihood of adverse judgments or outcomes, as well as the potential range of possible loss. The Company accrues for matters when losses are both probable and estimable. Any amounts accrued for these matters are monitored on an ongoing basis and are updated based on new developments or new information as it becomes available for each matter. The Company, through H-D, also maintains insurance coverage for product liability exposures. The Company believes that its accruals and insurance coverage are adequate and there are no material exposures to loss in excess of amounts accrued and insured for losses related to these matters. Refer to Note 14, Commitments and Contingencies, to the Notes to consolidated financial statements. +Item 4. Mine Safety Disclosures +Not Applicable. +57 +PART II +Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +Market Information +Our Common Stock and warrants to purchase our Common Stock are traded on the NYSE under the trading symbols “LVWR” and “LVWR WS”, respectively. +Holders of Record +As of February 19, 2025, there were 11 shareholders of record of our Common Stock and 3 holders of record of our warrants to purchase our Common Stock. The number of holders of record does not include a substantially greater number of “street name” holders or beneficial holders, whose shares and/or warrants are held of record by banks, brokers and other financial institutions. +Dividend Policy +We have not paid any cash dividends on our Common Stock to date. The payment of cash dividends in the future is dependent upon our revenues and earnings, if any, capital requirements, the terms of any indebtedness and general financial condition. The payment of any cash dividends will be within the discretion of the Board at such time. In addition, the Board is not currently contemplating and does not anticipate declaring any stock dividends in the foreseeable future. +Recent Sales of Unregistered Securities; Use of Proceeds from Registered Offerings; Purchases of Equity Securities by the Issuer or Affiliated Purchaser +Sales of Unregistered Equity Securities +Other than the information that has been previously disclosed in our Current Report on Form 8-K filed with the Securities and Exchange Commission on September 30, 2022, there were no unregistered sales of equity securities for the years ended December 31, 2024 and 2023, or for the period between September 30, 2022 and December 31, 2022. +Use of Proceeds +On October 5, 2020, ABIC consummated its initial public offering of 40,000,000 units. The units were sold at an offering price of $10.00 per unit, generating total gross proceeds of $400 million. The securities in the offering were registered under the Securities Act on a registration statement on Form S-1 (No. 333-248785). The SEC declared the registration statement effective on October 1, 2020. Of the gross proceeds received from ABIC’s initial public offering, the full exercise of the over-allotment option and the sale of private placement warrants in connection with the initial public offering, $400 million was placed in a trust account. +On September 26, 2022, (i) pursuant to investments agreements entered into in connection with the Business Combination, we issued 10,000,000 shares of Common Stock to KYMCO Group at a price per share of $10.00, generating gross proceeds of $100,000,000, (ii) pursuant to the Business Combination and an investments agreement entered into in connection with the Business Combination, we issued 10,000,000 shares of Common Stock to the Legacy LiveWire Equityholder at a price per share of $10.00, generating gross proceeds of $100,000,000 and (iii) 10,000,000 shares of Common Stock as part of the H-D Backstop Amount (as defined herein) at a price per share of $10.00, generating gross proceeds of $100,000,000. +After deducting payments to existing stockholders of approximately $368.1 million in connection with their exercise of redemption rights, the remaining balance immediately prior to closing of the Business Combination (the “Closing”) (as defined herein) of approximately $34 million remained in the trust account. The remaining amount in the trust account and the PIPE Investment were used to fund the Business Combination and related transaction expenses. +58 +Purchases of Equity Securities +The Company’s share repurchases, which consisted of shares of Common Stock surrendered to satisfy withholding taxes in connection with the vesting of restricted stock units were as follows during the quarter ended December 31, 2024: +2024 Fiscal Date of Vest Total Number of Shares Repurchased Average Price Per Share Paid Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs +December 1 - December 31 88,371 $ 5.85 — — +The LiveWire Group, Inc. 2022 Incentive Award Plan provides that the withholding obligations be settled by the Company retaining shares that are part of the award. During the fourth quarter of 2024, there were 88 thousand shares of common stock retained to satisfy withholding taxes in connection with the vesting of restricted stock units. +Stock Performance Graph +The following information in this Item 5 is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 or to the liabilities of Section 18 of the Securities Exchange Act of 1934, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates it by reference into such a filing. The SEC requires the Company to include a line graph presentation comparing cumulative five-year common stock returns, or in the case of LiveWire the Business Combination date, with a broad-based stock index and either a nationally recognized industry index or an index of peer companies selected by the Company. The Company has chosen to use the Standard & Poor’s (“S&P”) 500 Index as the broad-based index. The S&P 500 Index was chosen as the Company does not believe any other published industry or line-of-business index adequately represents the current operations of the Company. The graph assumes a beginning investment of $100 on September 26, 2022, the Business Combination date, and that all dividends are reinvested. We have never declared or paid cash dividends on our common stock nor do we anticipate paying any such cash dividends in the foreseeable future. +9/26/2022 9/30/2022 12/31/2022 3/31/2023 6/30/2023 9/30/2023 12/31/2023 3/31/2024 6/30/2024 9/30/2024 12/31/2024 +LiveWire Group, Inc. $100 $76 $52 $69 $126 $74 $120 $77 $82 $65 $51 +S&P 500 Index $100 $98 $106 $113 $124 $123 $137 $152 $159 $168 $174 +59 +Item 6. Selected Financial Data +[Reserved] +Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations +The following discussion and analysis is intended to help the reader understand LiveWire, our financial condition and results of operations, and our present business environment. The following discussion and analysis should be read together with the consolidated financial statements and related notes included elsewhere in this Form 10-K. The following discussion may contain forward-looking statements. Actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this Form 10-K, particularly in “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” discussions. +Overview and 2024 Highlights +LiveWire is an industry-leading all-electric vehicle brand with a mission to pioneer the growing two-wheel electric motorcycle space. The Company operates in two segments: Electric Motorcycles and STACYC. +LiveWire’s Electric Motorcycles segment sells electric motorcycles, related parts and accessories and apparel in the United States and certain international markets, while the STACYC segment sells electric balance bikes for kids, related parts and accessories and apparel in the United States and certain international markets. H-D introduced its first electric motorcycle in late 2019 as the “Harley-Davidson LiveWire.” In 2021, building on early success and the continued growth in the global market demand for electric vehicles, H-D launched LiveWire as a standalone electric vehicle division, with the first LiveWire-branded product, the LiveWire ONE, debuting in July 2021, followed by a special launch edition of S2 Del Mar® in May 2022 with full production and sales beginning in the third quarter of 2023. During 2024, the Company began production and selling of additional models off the S2 platform, including Mulholland™ and Alpinista™. In 2019, H-D acquired STACYC Inc. and began selling electric balance bikes for kids. +Electric motorcycles are sold at wholesale to a network of Independent Retail Partners, and at retail through a Company-owned dealership and through online sales. Prior to November 5, 2024, the Company’s products were sold at retail through select international partners primarily in Europe. Electric balance bikes are sold at wholesale to independent dealers and independent distributors, as well as direct to consumers online. LiveWire is focused on innovating and developing technology in the electric vehicle market. LiveWire’s vision is to create the next generation of electric motorcycles with products and experiences that merge the power and technology of electric with the unique soulful connection that comes from an analog machine. As discussed below, on September 26, 2022 as part of the Business Combination, LiveWire, which included LiveWire branded electric motorcycles and STACYC, became a separate, publicly traded company. +LiveWire’s net loss for the year ended December 31, 2024 was $93,925 thousand compared to $109,550 thousand for the year ended December 31, 2023. LiveWire’s net losses reflect the early-stage nature of LiveWire’s business including investments in product development as LiveWire continues to focus on technological innovation that it expects will support future products and growth, and investments in talent and capabilities to support the new company. +The Electric Motorcycles segment operating loss for the year ended December 31, 2024 was $105,500 thousand, compared to an operating loss of $116,611 thousand for the year ended December 31, 2023. Refer to the Electric Motorcycles segment analysis below for further discussion. +The STACYC segment operating loss for the year ended December 31, 2024 was $4,856 thousand, as compared to operating income of $622 thousand for the year ended December 31, 2023. Refer to the STACYC segment analysis below for further discussion. +Recent Developments +On April 24, 2024, the Company announced a plan to both relocate the operations of LiveWire Labs, the Company’s west coast product development facility, from Mountain View, California to Milwaukee, Wisconsin and streamline headcount at the Company. The Company believes this plan will enable synergies and optimize efficiencies in product development and simplify the Company’s overall path to future profitability. +60 +Under this plan, the Company recorded $3,752 thousand of expense related to employee termination benefits and other costs, of which $3,448 thousand was paid in cash during the year ended December 31, 2024. The remaining amount will be paid in 2025 and there are no other amounts expected to be incurred under this plan. +In September 2024, continuing its focus on the Company’s path to profitability and furthering its strategy, the Company executed a reorganization of its Sales and Marketing function and Product Development and Design function, including consolidating each of these functions under singular leadership and other headcount reductions. In conjunction with this reorganization, the Company recorded $1,271 thousand of employee termination benefits, primarily severance, during the year ended December 31, 2024, of which $900 thousand was paid as of December 31, 2024. The remaining amount will be paid in 2025 and there are no other amounts expected to be incurred under this reorganization. +The Company also recognized a noncash reduction in stock compensation expense of $3,753 thousand during the year ended December 31, 2024 resulting from forfeitures of awards related to employees who terminated during 2024 as a result of the above actions. The Company also recorded $863 thousand of accelerated depreciation related to LiveWire Labs leasehold improvements resulting from the move from Mountain View, California to Milwaukee, Wisconsin during the year ended December 31, 2024. +Effective November 5, 2024, the Company’s go-to-market strategy in Europe changed from selling direct to customers through international partners to selling at wholesale to independent dealers. Management believes this change will allow the Company to leverage the business practices and expertise of the dealer network in each region to further grow the business and increase unit sales in Europe. This change also aligns the business model in Europe to the business model in the United States. +On November 5, 2024, the Company announced a non-binding Memorandum of Understanding with KYMCO to collaborate on a new electric maxi-scooter project. +Business Combination +On December 12, 2021, H-D entered into the Business Combination Agreement with ABIC, to effect the separation of its electric vehicle business. On September 16, 2022, the Business Combination was approved in an ABIC shareholder vote, and it closed on September 26, 2022. +The Business Combination was accounted for as a reverse recapitalization. Under this method of accounting, ABIC was treated as the “acquired” company for financial reporting purposes. Accordingly, the Business Combination was treated as the equivalent of LiveWire issuing stock for the net assets of ABIC, accompanied by a recapitalization. The net assets of ABIC were stated at historical cost, with no goodwill or other intangible assets recorded resulting from the Business Combination. Operations prior to the Business Combination are those of Legacy LiveWire. +Upon closing of the Business Combination and PIPE Investments, the most significant change in the Company’s future reported financial position and results was an increase in cash due to net proceeds received of approximately $293.7 million, including a $100 million investment from the Legacy LiveWire Equityholder and a $100 million investment from certain members of the KYMCO Group, through a PIPE. Additionally, the increase in cash reflects the amount of cash released from ABIC’s trust account of $13.6 million (net of the SPAC share redemption amount) and the $100 million equity backstop (the “H-D Backstop Amount”) provided by H-D in exchange for 10,000,000 shares of Common Stock for a purchase price of $10.00 per share pursuant to the terms of the Business Combination Agreement. +See Note 4, Business Combination, in the consolidated financial statements for further detail related to the Business Combination. +2025 Outlook +For 2025, LiveWire's focus continues to be on cost improvements, product innovation and development, and market growth. +Basis of Presentation +Refer to Note 1, Description of Business and Basis of Presentation, in the consolidated financial statements for a discussion of the underlying basis used to prepare the consolidated financial statements. +61 +Key Business Metrics +To analyze LiveWire’s business performance, determine financial forecasts and help develop long-term strategic plans, management reviews the following key business metrics, which are important measures that represent the growth of the business: +• Wholesale Motorcycle Unit Sales – LiveWire defines Wholesale Motorcycle Unit Sales as the number of electric motorcycles sold by LiveWire to independent dealers for which LiveWire recognized revenue during the period. +• Company Retail Motorcycle Unit Sales – LiveWire defines Company Retail Motorcycle Unit Sales as the number of new electric motorcycles sold at retail by LiveWire through its Company-owned dealership, through online sales or direct to customers through select international partners for which LiveWire recognized revenue during the period. +• Independent Retail Motorcycle Unit Sales – LiveWire defines Independent Retail Motorcycle Unit Sales as the number of new electric motorcycles sold at retail by Independent Retail Partners. These unit sales do not generate revenues for LiveWire but generate revenues for individual retail partners. The data source for electric motorcycle retail sales figures is new sales warranty and registration information provided by Independent Retail Partners and compiled by LiveWire. LiveWire must rely on information that its Independent Retail Partners supply concerning new retail sales, and LiveWire does not regularly verify the information that its Independent Retail Partners supply. This information is subject to revision. +• Retail Motorcycle Unit Sales – LiveWire defines Retail Motorcycle Unit Sales as the sum of Company Retail Motorcycle Unit Sales and Independent Retail Motorcycle Unit Sales. +• Company-owned dealership – Dealership owned and operated by LiveWire to sell electric motorcycles, related products, and services. +• Independent Retail Partners (Electric Motorcycles) – Independent Retail Partners as used with Electric Motorcycles are dealers owned and operated by independent entities under contract with LiveWire to sell LiveWire electric motorcycles, related products and services. +• Electric Balance Bike Unit Sales (STACYC) – LiveWire defines Electric Balance Bike Unit Sales as the number of electric balance bikes sold by LiveWire for which LiveWire recognized revenue during the period. +• Independent Retail Partners (STACYC) – Independent Retail Partners as used with STACYC are independent entities under contract with STACYC to sell electric balance bikes, related products and services. +62 +The following table details the key business metric amounts for the periods indicated: +Year Ended +2024 2023 +Wholesale Motorcycle Unit Sales: +US 422 533 +International (1) +89 — +Total Wholesale Motorcycle Unit Sales 511 533 +Company Retail Motorcycle Unit Sales: +US 23 95 +International (1) +78 32 +Total Company Retail Motorcycle Unit Sales 101 127 +Total LiveWire Motorcycle Unit Sales 612 660 +Retail Motorcycle Unit Sales: +Company Retail Motorcycle Unit Sales (2) +101 127 +Independent Retail Partners (3) +391 210 +Total Retail Motorcycle Unit Sales 492 337 +Retail Motorcycle Unit Sales: +US 414 305 +International 78 32 +Total Retail Motorcycle Unit Sales 492 337 +Electric Balance Bike Unit Sales: +US 16,925 21,172 +International 1,624 10,941 +Total Electric Balance Bike Unit Sales +18,549 32,113 +(1) Effective November 5, 2024, the Company’s go-to-market strategy in Europe changed from selling direct to customers through international partners to selling at wholesale to independent dealers. International unit sales prior to November 5, 2024 are reflected as Company Retail Motorcycle Unit Sales, while unit sales November 5, 2024 and beyond are reflected as Wholesale Motorcycle Unit Sales. +(2) Data source for Company Retail Motorcycle Unit Sales figures shown above is LiveWire’s records. +(3) Data source for Independent Retail Motorcycle Unit Sales figures shown above is new sales warranty and registration information provided by retail partners and compiled by LiveWire. LiveWire must rely on information that its Independent Retail Partners supply concerning new retail sales, and LiveWire does not regularly verify the information that its Independent Retail Partners supply. This information is subject to revision. +63 +The following table details the number of retail partners: +As of As of +December 31, 2024 December 31, 2023 +Electric Motorcycles +Company-owned dealership 1 1 +Independent Retail Partners: +U.S. 61 83 +International 27 43 +Total Electric Motorcycles Independent Retail Partners 88 126 +Total Electric Motorcycles Retail Partners 89 127 +STACYC +Independent Retail Partners: +U.S. 2,041 1,975 +International 151 137 +Total STACYC Independent Retail Partners 2,192 2,112 +The Electric Motorcycles retail partners shown above include those that have been contracted by LiveWire to sell LiveWire motorcycles. As of December 31, 2024 and 2023, there were zero and 4 partners, respectively, that were actively working to complete the licensing required to sell LiveWire motorcycles as of the end of the period. LiveWire intends to grow this network as it expands its distribution capabilities. +LiveWire believes these key business metrics provide useful information to help investors understand and evaluate LiveWire’s business performance. Wholesale Motorcycle Unit shipments and Company Retail Motorcycle Unit Sales are key drivers of revenue and profit for the Electric Motorcycles segment. Retail Motorcycle Unit Sales made through both the Company-owned dealership and Independent Retail Partners are a key measure of consumer demand and market share for LiveWire’s electric motorcycles. Total Electric Balance Bike Unit Sales is a key driver of revenue and profit for STACYC. +Results of Operations +The following table presents consolidated results of operations for the years ended December 31, 2024 and 2023 (in thousands): +2024 2023 $ Change % Change +Operating loss from Electric Motorcycles $ (105,500) $ (116,611) $ 11,111 9.5 % +Operating (loss) income from STACYC (4,856) 622 (5,478) (880.7) % +Total operating loss (110,356) (115,989) 5,633 4.9 % +Interest income 5,704 10,537 (4,833) (45.9) % +Change in fair value of warrant liabilities 10,770 (4,020) 14,790 367.9 % +Loss before income taxes (93,882) (109,472) 15,590 (14.2) % +Income tax provision 43 78 (35) (44.9) % +Net loss (93,925) (109,550) 15,625 14.3 % +Other comprehensive loss: +Foreign currency translation adjustments (5) 17 (22) (129.4) % +Comprehensive loss $ (93,930) $ (109,533) $ 15,603 14.2 % +Net loss per share, basic and diluted $ (0.46) $ (0.54) $ (0.08) 14.8 % +Operating Income (Loss) +The Company reported an operating loss of $110,356 thousand for the year ended December 31, 2024 compared to an operating loss of $115,989 thousand for the year ended December 31, 2023. The Electric Motorcycles segment reported an operating loss of $105,500 thousand for the year ended December 31, 2024, as compared to an operating loss of $116,611 thousand for the +64 +year ended December 31, 2023. Operating loss from the STACYC segment was $4,856 thousand for the year ended December 31, 2024, compared to operating income of $622 thousand for the year ended December 31, 2023. Refer to the Electric Motorcycles and STACYC Segment discussions for a more detailed analysis of the factors affecting operating results. +Interest Income +Interest income for the year ended December 31, 2024 was $5,704 thousand compared to $10,537 thousand for the year ended December 31, 2023. The change was primarily driven by the decrease in the Company’s investment in money market funds from $161,000 thousand at December 31, 2023 to $52,000 thousand at December 31, 2024. +Change in Fair Value of Warrant Liabilities +Change in fair value of warrant liabilities for the year ended December 31, 2024 was income of $10,770 thousand compared to a loss of $4,020 thousand for the year ended December 31, 2023. The income recognized of $10,770 thousand for the year ended December 31, 2024 was due to the decrease in the estimated fair value of the warrants from December 31, 2023 related to fluctuations in the market price of the warrants. The loss recognized of $4,020 thousand for the year ended December 31, 2023 was due to the increase in the estimated fair value of the warrants from December 31, 2022 related to fluctuations in the market price of the warrants. See Note 10, Warrant Liabilities, in the consolidated financial statements for further discussion. +Income Tax Provision +The income tax provision for the year ended December 31, 2024 was $43 thousand, as compared to an income tax provision of $78 thousand for the year ended December 31, 2023. The income tax provision in 2024 and 2023 was driven by the change in deferred tax liability associated with the amortization of the taxable temporary difference related to indefinite lived intangibles that are not amortized for book purposes. +65 +Segment Results +Electric Motorcycles +The following table presents consolidated results of operations for the Electric Motorcycles segment for the years ended December 31, 2024 and 2023 (in thousands): +2024 2023 $ Change % Change +Revenue: +Electric motorcycles $ 7,644 $ 11,087 $ (3,443) (31.1) % +Parts, accessories and apparel 737 461 276 59.9 % +Revenue, net 8,381 11,548 (3,167) (27.4) % +Cost of goods sold 27,018 27,297 279 1.0 % +Gross profit (18,637) (15,749) (2,888) (18.3) % +Operating expenses: +Selling, administrative and engineering expense 86,863 100,862 (13,999) (13.9) % +Operating loss $ (105,500) $ (116,611) $ 11,111 9.5 % +Revenue +Revenue for the year ended December 31, 2024 decreased by $3,167 thousand, or 27.4%, to $8,381 thousand from $11,548 thousand for the year ended December 31, 2023. Unit sales decreased 7% to 612 in 2024 from 660 in 2023 resulting in a decrease in revenue of $806 thousand. Additionally, revenue decreased by $1,226 thousand from product mix primarily related to reduced selling prices on a one-time large volume sale of units previously used as company owned vehicles for demonstration purposes, and $1,058 thousand from additional incentives introduced in 2024 as compared to 2023. +Cost of Goods Sold +Cost of goods sold for the year December 31, 2024 decreased by $279 thousand, or 1.0%, to $27,018 thousand from $27,297 thousand for the year ended December 31, 2023. The decrease was due to the decrease in unit sales discussed above, the non -recurrence of the provision for a liability for excess inventory components held by H-D under the terms of the Contract Manufacturing Agreement recorded in the year ended December 31, 2023 resulting in a decrease of $6,126 thousand , offset by higher net realizable value and other reserve adjustments on increased inventory on hand of $3,941 thousand , increased depreciation expense of $1,463 thousand , and the impact of an unfavorable arbitration ruling related to a supplier claim of $1,370 thousand . +Selling, Administrative and Engineering Expense +Selling, administrative and engineering expense for the year ended December 31, 2024 decreased by $13,999 thousand, or 13.9%, to $86,863 thousand from $100,862 thousand for the year ended December 31, 2023. The decrease was due to a decrease in product development expense of $9,933 thousand in the current year as 2023 included increased expenses related to the initial development of the S2 platform. Additionally, the Company continues to focus on cost reduction activities in 2024, including decreases of $5,097 thousand in personnel costs in the year ended December 31, 2024 primarily from headcount reductions in 2024, and $1,011 thousand from reductions in insurance premiums compared to the year ended December 31, 2023. These decreases were offset by an increase in depreciation expense of $2,796 thousand, including $863 thousand related to accelerated depreciation on leasehold improvements related to LiveWire Labs resulting from the move from Mountain View, California to Milwaukee, Wisconsin. As discussed above, related to the move of LiveWire Labs as well as the Company’s plan to streamline headcount, the Company recorded $5,023 thousand of expense in the year ended December 31, 2024 related to employee termination benefits and other costs. The Company also recognized a noncash reduction in stock compensation expense of $3,753 thousand in the year ended December 31, 2024 resulting from forfeitures of awards related to employees who terminated in the year ended December 31, 2024 resulting from these actions. +66 +STACYC +The following table presents consolidated results of operations for the STACYC segment for the years ended December 31, 2024 and 2023 (in thousands): +2024 2023 $ Change % +Change +Revenue: +Electric balance bikes $ 14,043 $ 22,865 $ (8,822) (38.6) % +Parts, accessories and apparel 4,209 3,610 599 16.6 % +Revenue, net 18,252 26,475 (8,223) (31.1) % +Cost of goods sold 12,398 16,498 (4,100) (24.9) % +Gross profit 5,854 9,977 (4,123) (41.3) % +Operating expenses: +Selling, administrative and engineering expense 10,710 9,355 1,355 14.5 % +Operating (loss) income $ (4,856) $ 622 $ (5,478) (880.7) % +Revenue +Revenue for the year ended December 31, 2024 decreased by $8,223 thousand, or 31.1%, to $18,252 thousand from $26,475 thousand for the year ended December 31, 2023. The decrease was primarily due to lower revenue from electric balance bikes of $8,822 thousand. The decrease in revenue from electric balance bikes was driven by lower shipment volumes of $6,144 thousand primarily to our independent distributors, along with a decrease of $2,678 thousand due to pricing and promotions for the year ended December 31, 2024. +Cost of Goods Sold +Cost of goods sold for the year December 31, 2024 decreased by $4,100 thousand, or 24.9%, to $12,398 thousand from $16,498 thousand for the year ended December 31, 2023. The decrease was primarily due to lower volumes in alignment with the decreased revenue described above. +Selling, Administrative and Engineering Expense +Selling, administrative and engineering expense for the year ended December 31, 2024 increased by $1,355 thousand, or 14.5%, to $10,710 thousand from $9,355 thousand for the year ended December 31, 2023. The increase was primarily due to increased research and development costs related to new product development of $955 thousand, increased people costs of $388 thousand, and an increase in the provision for doubtful accounts of $147 thousand, offset by $175 thousand of decreased depreciation and amortization and decreased marketing expense of $138 thousand. +Results of Operations 2023 Compared to 2022 +Refer to “Management's Discussion and Analysis of Financial Condition and Results of Operations” within our Annual Report on Form 10-K for the year ended December 31, 2023 filed on February 23, 2024 with the SEC for a detailed discussion of the results of operations for 2023 compared to 2022. +Liquidity and Capital Resources +As of December 31, 2024 and 2023, LiveWire’s cash and cash equivalents were $64,437 thousand and $167,904 thousand, respectively. +As an early growth company, LiveWire does not expect to generate positive cash flow from operations over the next twelve months. Prior to the Business Combination, H-D supported LiveWire’s operating, investing and financing activities. Following the Business Combination, LiveWire received net proceeds of approximately $293.7 million as more fully described below. +On September 26, 2022, LiveWire consummated the Business Combination with ABIC resulting in net proceeds of approximately $293.7 million, including a $100 million investment from H-D and a $100 million investment from KYMCO through a PIPE. Additionally, LiveWire received ABIC’s cash held in trust account of $13.6 million and the $100 million +67 +equity backstop provided by the H-D Backstop Amount in exchange for 10,000,000 shares of Common Stock for a purchase price of $10.00 per share pursuant to the terms of the Business Combination Agreement. +In the event of the exercise of any of Warrants for cash, LiveWire will receive the proceeds from such exercise. Assuming the exercise in full of all of Warrants for cash, LiveWire would receive an aggregate of approximately $349.2 million, but would not receive any proceeds from the sale of the shares of Common Stock issuable upon such exercise. To the extent any of the Warrants are exercised on a “cashless basis,” LiveWire will not receive any proceeds upon such exercise. LiveWire expects to use any proceeds it receives from Warrant exercises for general corporate and working capital purposes, which would increase its liquidity. LiveWire believes the likelihood that warrant holders will exercise their Warrants, and therefore the amount of cash proceeds LiveWire would receive, is dependent upon the trading price of its Common Stock. As of December 31, 2024, the reported sales price of Common Stock was $4.81 per share. If the trading price of Common Stock is less than the $11.50 exercise price per share of the Warrants, LiveWire expects that warrant holders will not exercise their Warrants. There is no guarantee the Warrants will be in the money following the time they become exercisable and prior to their expiration, and as such, the Warrants may expire worthless and LiveWire may receive no proceeds from the exercise of Warrants. As a result, LiveWire does not expect to rely on the cash exercise of Warrants to fund its operations and LiveWire does not believe that it needs such proceeds to support working capital and capital expenditure requirements for the next twelve months. LiveWire will continue to evaluate the probability of Warrant exercises and the merit of including potential cash proceeds from the exercise of the Warrants in its future liquidity projections. LiveWire instead currently expects to rely on the sources of funding described below, if available on reasonable terms or at all. +On February 14, 2024, the Company entered into a Convertible Delayed Draw Term Loan Agreement (the “Convertible Term Loan”) with H-D providing for term loans from H-D to the Company in one or more advances up to an aggregate principal amount of $100 million. The outstanding principal under the Convertible Term Loan bears interest at a floating rate per annum, as calculated by H-D as of the date of each advance and as of each June 1 and December 1 thereafter, equal to the sum of (i) the forward-looking term rate based on SOFR (i.e., the secured overnight financing rate published by the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate)) for a 6-month interest period, plus (ii) 4.00%. The Company may elect to pay up to 100% of the amount of any interest due by increasing the outstanding principal amount of the applicable advance. The Convertible Term Loan does not include affirmative covenants impacting the operations of the Company. The Convertible Term Loan includes negative covenants restricting the ability of the Company to incur indebtedness, create liens, sell assets, make investments, make fundamental changes, make dividends or other restricted payments and enter into affiliate transactions. The Convertible Term Loan has a maturity date of the earlier of (i) 24 months from the date of the first draw on the loan or (ii) October 31, 2026. In the event that the Convertible Term Loan cannot be settled in cash by the Company at maturity, unless otherwise agreed between the Company and H-D, the Convertible Term Loan will be converted to equity of Company at a conversion price per share of common stock of the Company equal to 90% of the volume weighted average price per share of Common Stock for the 30 trading days immediately preceding the conversion date. As of December 31, 2024 , there were no amounts outstanding under the Convertible Term Loan and the Company remained in compliance with all of the existing covenants. +Management believes that cash on hand, including the proceeds received from the Business Combination, and the Convertible Term Loan, will provide sufficient liquidity to meet LiveWire’s projected obligations, including those related to existing contractual obligations, for at least the next twelve months. +LiveWire plans to use its current cash on hand and available funds under the Convertible Term Loan to support its core business operations and strategic plan, invest in new product development, and enhance its global manufacturing and distribution capabilities. LiveWire had $8,468 thousand of purchase order commitments related to capital expenditures and other spending to support its business operations and strategic plan as of December 31, 2024 related to fiscal year 2025. +The Company enters into purchase orders with vendors and other parties in the ordinary course of business. During the year ended December 31, 2023, the Company entered into a long-term commitment with a vendor to provide certain inventory components. As of December 31, 2024, the Company’s estimated payments are $605 thousand and $410 thousand for fiscal years 2025 and 2026, respectively, and no estimated payments thereafter. +The Company also has a liability of $6,156 thousand as of December 31, 2024 thousand for excess inventory components held by H-D that the Company expects to be obligated to reimburse H-D under the terms of the Contract Manufacturing Agreement. Refer to Note 16, Related Party Transactions, for discussion of commitments with H-D. Otherwise, there have been no material changes in the Company’s cash obligations and commitments since the end of fiscal year 2024. +68 +LiveWire’s material contractual operating cash commitments at December 31, 2024 relate to leases as discussed further in Note 9, Leases, in the consolidated financial statements. In addition, as a result of the Business Combination completed on September 26, 2022, LiveWire will be subject to certain payments in the event minimum purchase commitments under the Contract Manufacturing Agreement with H-D are not met beginning in the year 2026. +Cash Flow Activity +The following table presents condensed highlights from our consolidated statements of cash flows for the years ended December 31, 2024 and 2023 (in thousands): +2024 2023 +Net cash used by operating activities $ (93,859) $ (83,462) +Net cash used by investing activities (8,068) (13,462) +Net cash used by financing activities (1,444) (412) +Effect of exchange rate changes on cash and cash equivalents (96) — +Net decrease in cash and cash equivalents $ (103,467) $ (97,336) +The overall decrease in cash during the year ended December 31, 2024 was due primarily to an increase in net cash used by operating activities. The overall decrease in cash during the year ended December 31, 2023 was due primarily to a decrease in net cash provided by financing activities. +Operating Activities +The Company had negative cash flow from operating activities during the years ended December 31, 2024 and 2023. Net cash used in operating activities increased by $10,397 thousand to $93,859 thousand for the year ended December 31, 2024 compared to $83,462 thousand for the year ended December 31, 2023. The increase in negative cash flow from operating activities in 2024 was primarily driven by unfavorable changes in accounts payable to related party, accounts payable and accrued liabilities, and other current assets offset by a reduction in net loss adjusted for non-cash items, and favorable changes in accounts receivable, net, accounts receivable from related parties, and inventories compared to 2023. +Investing Activities +Net cash used in investing activities decreased by $5,394 thousand to $8,068 thousand for the year ended December 31, 2024 compared to $13,462 thousand for the year ended December 31, 2023. The decrease was due to lower capital expenditures in 2024. +LiveWire expects to fund future cash flows used in investing activities with cash on hand and available funds under the Convertible Term Loan. LiveWire estimates capital expenditures to be between $8 million and $12 million in 2025. +Financing Activities +Net cash used by financing activities increased by $1,032 thousand to $1,444 thousand net cash used by financing activities for the year ended December 31, 2024 compared to $412 thousand net cash used by financing activities for the year ended December 31, 2023. The increase was primarily due to cash received in 2023 for the exercise of warrants of $1,557 thousand. +Commitments and Contingencies +The Company is subject to lawsuits and other claims related to product, commercial, employee, environmental and other matters. In determining costs to accrue related to these items, the Company carefully analyzes cases and considers the likelihood of adverse judgments or outcomes, as well as the potential range of possible loss. Any amounts accrued for these matters are monitored on an ongoing basis and are updated based on new developments or new information as it becomes available for each matter. Refer to Note 14, Commitments and Contingencies, in the consolidated financial statements for a discussion of the Company's commitments and contingencies. +69 +Other Matters +Critical Accounting Policies and Estimates +LiveWire’s financial statements are based on the selection and application of significant accounting policies, which require management to make significant estimates and assumptions. Management believes that the following are some of the more critical judgment areas in the application of accounting policies that currently affect LiveWire’s financial condition and results of operations. +Revenue Recognition - Revenue from the sale of LiveWire One electric motorcycles, electric balance bikes as well as parts and accessories and apparel are recorded when control is transferred to the customer, generally at the time of shipment to independent dealers and distributors or at the time of delivery to retail customers. S2 electric motorcycles contain two performance obligations, which is the sale of the electric motorcycle and a stand ready obligation to transfer Firmware Over The Air (“FOTA”) software updates to the electric motorcycle, when-and-if available, to the customer. Revenue on the sale of the S2 electric motorcycle is recorded at a point-in-time when control is transferred to the customer. As the unspecified FOTA software updates to the S2 electric motorcycles are provided when-and-if they become available, revenue related to these updates is recognized ratably over the period the updates will be provided, estimated by management to be five years, commencing when control of the electric motorcycle is transferred to the customer. The standalone selling prices of performance obligations are estimated by considering costs to develop and deliver the good or service, third-party pricing of similar goods or services and other information that may be available. The Company allocates the transaction price among the performance obligations in proportion to the standalone selling price of the Company’s performance obligations. +Goodwill - Goodwill represents the excess of acquisition cost over the fair value of the net assets purchased. Goodwill is tested for impairment, based on financial data related to the reporting unit to which it has been assigned, at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and an impairment loss is recognized for the amount by which the carrying amount exceeds the fair value, limited to the total goodwill allocated to the reporting unit. +For goodwill, the reporting units used in assessing impairment is the same as the Company’s two operating segments and reportable segments as described in Note 17, Reportable Segments and Geographic Information. The Company’s assessment for impairment of goodwill utilized a discounted cash flow analysis and a guideline public company market approach to determine the fair value of the reporting unit for comparison to the corresponding carrying value, and a reconciliation of the Company’s concluded values for each reporting unit to the Company’s market capitalization. The income approach is based on discounted future cash flows and requires significant assumptions, including estimates regarding future revenue, profitability, capital requirements and discount rates. Because the projections are estimated over a significant future period of time, those estimates and assumptions are subject to uncertainty. The market approach is based on market multiples and requires an estimate of appropriate multiples based on market data for comparable companies. The market valuation models, and other financial ratios used by the Company require certain assumptions and estimates regarding the applicability of those models to the Company’s facts and circumstances. During 2024 and 2023, the Company tested its goodwill balances for impairment and no impairment charges were recorded to goodwill as a result of those impairment tests. +Product Warranty and Recalls - LiveWire provides a limited warranty on the new electric motorcycles for a period of two years, except for the battery which is covered for five years. LiveWire also provides limited warranties on parts and accessories and electric balance bikes. Estimated warranty costs are recorded at the time of sale and are based primarily on historical LiveWire claim and industry information. +Additionally, LiveWire may from time-to-time initiate certain voluntary recall campaigns or field actions. The estimated costs associated with voluntary recalls or field actions are recorded when the liability is both probable and estimable. This generally occurs when LiveWire’s management approves and commits to a recall or field action. The accrued cost of a recall or field action is based on an estimate of the cost to repair each affected vehicle and the number of vehicles expected to be repaired based on historical data concerning the percentage of affected customers that take advantage of recall or field action offers. In the case of both warranty and recall costs, as actual experience becomes available it is used to update the accruals. +The factors affecting actual warranty and recall or field action costs can be volatile. As a result, actual warranty claims experience and recall or field action costs may differ from estimates, which could lead to material changes in our accrued warranty and recall or field actions costs. LiveWire’s warranty and recall or field action liabilities are discussed further in Note 12, Product Warranty and Recall Campaigns, in the consolidated financial statements. +70 +Corporate Allocations - Historically, prior to the Business Combination, LiveWire had been managed and operated in the normal course of business by H-D. Accordingly for carve-out financial statement purposes, certain shared costs have been allocated to LiveWire and are reflected as expenses in the accompanying consolidated financial statements prior to the Business Combination. Management considers the expense methodology and resulting allocation to be reasonable for all periods presented; however, the allocations may not be indicative of actual expenses that would have been incurred had LiveWire operated as an independent, publicly traded company for the periods presented prior to the Business Combination. See Note 16, Related Party Transactions, in the consolidated financial statements for further details. +Valuation of Warrant Liabilities - Upon consummation of the Business Combination, the Company assumed 30,499,990 warrants to purchase LiveWire's Common Stock, comprised of 19,999,990 public warrants, originally issued by ABIC as part of its IPO of units (the “Public Warrants”) and 10,500,000 of outstanding warrants originally issued in a private placement in connection with the IPO of ABIC (the “Private Placement Warrants”, collectively with the Public Warrants, the “Warrants”). LiveWire accounts for its Warrants assumed as part of the Business Combination in accordance with the guidance contained in ASC 815-40 under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, LiveWire classifies the Warrants as liabilities at their fair value and adjust the Warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our consolidated statements of operations and comprehensive loss. The fair value of the Public Warrants is determined using the quoted market price as of the valuation date. The fair value of the Private Placement Warrants is determined by using the quoted market price of the Public Warrants as the Private Warrants have terms and provisions that impact the fair value assessment that are identical to those of the Public Warrants, including the exercise price, exercisability and exercise period. See Note 10, Warrant Liabilities, in the consolidated financial statements for more information concerning accounting for the Warrant liabilities. +Emerging Growth Company Status +Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable. +LiveWire is an “emerging growth company” as defined in Section 2(a) of the Securities Act and has elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards, although it may decide to early adopt such new or revised accounting standards to the extent permitted by such standards. This may make it difficult or impossible to compare LiveWire’s financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used. +New Accounting Standards Issued But Not Yet Adopted +For a discussion of recent accounting pronouncements, see Note 2, Summary of Significant Accounting Policies, in the consolidated financial statements. +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +As of December 31, 2024, LiveWire’s cash and cash equivalents amounted to $64,437 thousand. LiveWire manages its liquidity risk by effectively managing its working capital, capital expenditures and cash flows. +Financial instruments that potentially subject LiveWire to concentrations of credit risk principally consist of accounts receivable. LiveWire limits its credit risk with respect to accounts receivable by performing credit evaluations and requiring collateral to secure amounts owed to LiveWire by its customers, each when deemed necessary. +Inflationary factors, such as cost increases for logistics, manufacturing, raw materials and purchased components, may adversely affect LiveWire’s operating results. Although LiveWire does not believe inflation has had a material impact on its financial condition given its lower production volumes, a high rate of inflation in the future may have an adverse effect on LiveWire’s ability to maintain and increase its gross margin or decrease its operating expenses as a percentage of its revenues if the selling prices of its products do not increase as much or more than its increase in costs. +71 +LiveWire is also exposed to possible disruption of supply or shortage of materials, including, but not limited to, lithium-ion battery cells and key semiconductor chip components necessary for electric vehicles, and any inability to purchase raw materials and components could negatively impact LiveWire’s operations. +LiveWire sells its electric motorcycles, electric balance bikes and related products internationally, and in most markets, those sales are made in the foreign country’s local currency. As a result, LiveWire’s operating results are affected by fluctuations in the values of the U.S. dollar relative to foreign currencies, however, the impact of such fluctuations on LiveWire’s operations to date are not material given the majority of LiveWire’s sales are currently in the U.S. LiveWire plans to expand its business and operations internationally and expects its exposure to currency rate risk to increase as it grows its international presence. +72 +Item 8. Financial Statements and Supplementary Data +Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) +74 +Consolidated Statements of Operations and Comprehensive Loss +75 +Consolidated Balance Sheets +76 +Consolidated Statements of Cash Flows +77 +Consolidated Statements of Shareholders’ Equity +78 +Notes to Consolidated Financial Statements +79 +1. Description of Business and Basis of Presentation +79 +2. Summary of Significant Accounting Policies +81 +3. Revenue +84 +4. Business Combination +86 +5. Income Taxes +88 +6. Earnings Per Share +90 +7. Additional Balance Sheet Information +91 +8. Goodwill and Intangible Assets +92 +9. Leases +93 +10. Warrant Liabilities +95 +11. Fair Value +96 +12. Product Warranty and Recall Campaigns +97 +13. Employee Benefit Plans +97 +14. Commitments and Contingencies +98 +15. Share-Based Awards +98 +16. Related Party Transactions +103 +17. Reportable Segments and Geographic Information +108 +18. Restructuring +111 +73 +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To the Shareholders and the Board of Directors of LiveWire Group, Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheets of LiveWire Group, Inc. (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles. +Basis for Opinion +These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ Ernst & Young LLP +We have served as the Company’s auditor since 2021 +Milwaukee, Wisconsin +February 21, 2025 +74 +LIVEWIRE GROUP, INC. +CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS +(In thousands, except per share amounts) +Years Ended +2024 2023 2022 +Revenue, net $ 26,633 $ 38,023 $ 46,833 +Costs and expenses: +Cost of goods sold (including related party amounts of $ 19,533 , $ 23,433 , and $ 1,685 in 2024, 2023, and 2022, respectively, as described in Note 16) +39,416 43,795 43,929 +Selling, administrative and engineering expense (including related party amounts of $ 10,164 , $ 14,993 , and $ 3,485 in 2024, 2023, and 2022, respectively, as described in Note 16) +97,573 110,217 87,859 +Total operating costs and expenses 136,989 154,012 131,788 +Operating loss ( 110,356 ) ( 115,989 ) ( 84,955 ) +Other income, net — — 235 +Interest expense related party — — ( 475 ) +Interest income 5,704 10,537 1,191 +Change in fair value of warrant liabilities 10,770 ( 4,020 ) 5,033 +Loss before income taxes ( 93,882 ) ( 109,472 ) ( 78,971 ) +Income tax provision (benefit) 43 78 ( 33 ) +Net loss ( 93,925 ) ( 109,550 ) ( 78,938 ) +Other comprehensive loss: +Foreign currency translation adjustments ( 5 ) 17 ( 145 ) +Comprehensive loss $ ( 93,930 ) $ ( 109,533 ) $ ( 79,083 ) +Net loss per share, basic and diluted (Note 6) $ ( 0.46 ) $ ( 0.54 ) $ ( 0.46 ) +The accompanying notes are integral to the consolidated financial statements. +75 +LIVEWIRE GROUP, INC. +CONSOLIDATED BALANCE SHEETS +(In thousands, except par value) +December 31, 2024 December 31, 2023 +ASSETS +Current assets: +Cash and cash equivalents $ 64,437 $ 167,904 +Accounts receivable, net 3,874 4,295 +Accounts receivable from related party 399 3,402 +Inventories, net 26,942 32,122 +Other current assets 2,709 3,004 +Total current assets 98,361 210,727 +Property, plant and equipment, net 34,012 37,682 +Goodwill 8,327 8,327 +Deferred tax assets 7 4 +Lease assets 765 1,868 +Intangible assets, net 1,058 1,347 +Other long-term assets 5,430 6,192 +Total assets $ 147,960 $ 266,147 +LIABILITIES AND SHAREHOLDERS’ EQUITY +Current liabilities: +Accounts payable $ 1,738 $ 3,554 +Accounts payable to related party 9,762 20,371 +Accrued liabilities 17,960 21,189 +Current portion of lease liabilities 394 1,152 +Total current liabilities 29,854 46,266 +Long-term portion of lease liabilities 405 792 +Deferred tax liabilities 118 93 +Warrant liabilities 1,549 12,319 +Other long-term liabilities 919 814 +Total liabilities 32,845 60,284 +Commitments and contingencies (Note 14) +Shareholders' equity: +Preferred Stock, $ 0.0001 par value; 20,000 shares authorized; no shares issued and outstanding as of December 31, 2024 and 2023 +— — +Common Stock, $ 0.0001 par value; 800,000 shares authorized; 203,787 shares issued and 203,423 shares outstanding as of December 31, 2024 and 203,210 shares issued and 203,030 shares outstanding as of December 31, 2023 +20 20 +Treasury Stock, at cost: December 31, 2024 - 364 shares, December 31, 2023 - 180 shares +( 3,413 ) ( 1,969 ) +Additional paid-in-capital 344,409 339,783 +Accumulated deficit ( 225,913 ) ( 131,988 ) +Accumulated other comprehensive income 12 17 +Total shareholders' equity 115,115 205,863 +Total liabilities and shareholders' equity $ 147,960 $ 266,147 +The accompanying notes are integral to the consolidated financial statements. +76 +LIVEWIRE GROUP, INC. +CONSOLIDATED STATEMENTS OF CASH FLOWS +(In thousands) +Years Ended +2024 2023 2022 +Cash flows from operating activities: +Net loss $ ( 93,925 ) $ ( 109,550 ) $ ( 78,938 ) +Adjustments to reconcile net loss to net cash used in operating activities +Depreciation and amortization 10,041 5,832 4,401 +Payment of contingent consideration in excess of acquisition date fair value — — ( 413 ) +Change in fair value of warrant liabilities ( 10,770 ) 4,020 ( 5,033 ) +Stock compensation expense 4,626 8,926 394 +Provision for doubtful accounts 230 53 145 +Deferred income taxes 22 74 ( 125 ) +Inventory write-down 5,750 2,719 1,074 +Cloud computing arrangements development costs ( 45 ) ( 1,312 ) ( 4,894 ) +Other, net ( 244 ) ( 117 ) ( 144 ) +Changes in current assets and liabilities: +Accounts receivable, net 192 ( 2,023 ) 4,156 +Accounts receivable from related party 3,003 ( 2,877 ) ( 593 ) +Inventories ( 569 ) ( 5,626 ) ( 21,068 ) +Other current assets 540 1,621 ( 1,283 ) +Accounts payable and accrued liabilities ( 2,101 ) 160 6,371 +Accounts payable to related party ( 10,609 ) 14,638 6,269 +Net cash used by operating activities ( 93,859 ) ( 83,462 ) ( 89,681 ) +Cash flows from investing activities: +Capital expenditures ( 8,068 ) ( 13,462 ) ( 14,081 ) +Net cash used by investing activities ( 8,068 ) ( 13,462 ) ( 14,081 ) +Cash flows from financing activities: +Repurchase of common stock ( 1,444 ) ( 1,969 ) — +Proceeds received from exercise of warrants (Note 6) — 1,557 — +Borrowings on notes payable to related party (Note 16) — — 15,333 +Net proceeds from the Business Combination and PIPE Investments (Note 4) — — 293,717 +Payment of contingent consideration up to acquisition date fair value — — ( 1,767 ) +Transfers from Parent (Note 16) — — 59,051 +Net cash (used) provided by financing activities ( 1,444 ) ( 412 ) 366,334 +Effect of exchange rate changes on cash and cash equivalents $ ( 96 ) $ — $ — +Net (decrease) increase in cash and cash equivalents $ ( 103,467 ) $ ( 97,336 ) $ 262,572 +Cash and cash equivalents: +Cash and cash equivalents—beginning of period $ 167,904 $ 265,240 $ 2,668 +Net (decrease) increase in cash and cash equivalents ( 103,467 ) ( 97,336 ) 262,572 +Cash and cash equivalents—end of period $ 64,437 $ 167,904 $ 265,240 +The accompanying notes are integral to the consolidated financial statements. +77 +LIVEWIRE GROUP, INC. +CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY +(In thousands) +Common Stock Additional +paid-in +capital Accumulated +Deficit Accumulated +other +comprehensive +income (loss) Net Parent company investment Treasury Stock Total +Issued +shares Balance +Balance, December 31, 2021 — $ — $ — $ — $ 145 $ 19,780 $ — $ 19,925 +Net loss prior to the Business Combination — — — — — ( 56,500 ) — ( 56,500 ) +Net loss post Business Combination — — — ( 22,438 ) — — — ( 22,438 ) +Other comprehensive loss, net of tax — — — — ( 154 ) — — ( 154 ) +Net contribution from H-D prior to the Business Combination — — — — — 79,922 — 79,922 +Issuance of common stock to +H-D upon separation and reclassification of Net Parent company investment, including separation adjustments 161,000 16 48,360 — 9 ( 43,202 ) — 5,183 +Issuance of common stock to ABIC public and sponsor stockholders 11,403 1 429 — — — — 430 +Issuance of common stock upon H-D PIPE & Backstop 20,000 2 179,865 — — — — 179,867 +Issuance of common stock upon KYMCO PIPE 10,000 1 99,999 — — — — 100,000 +Share-based compensation — — 565 — — — — 565 +Balance, December 31, 2022 202,403 20 329,218 ( 22,438 ) — — — 306,800 +Net loss — — — ( 109,550 ) — — — ( 109,550 ) +Other comprehensive loss, net of tax — — — — 17 — — 17 +Share-based compensation 672 — 8,926 — — — — 8,926 +Shareholder warrants exercised 135 — 1,639 — — — — 1,639 +Repurchase of common stock — — — — — — ( 1,969 ) ( 1,969 ) +Balance, December 31, 2023 203,210 20 339,783 ( 131,988 ) 17 — ( 1,969 ) 205,863 +Net loss — — — ( 93,925 ) — — — ( 93,925 ) +Other comprehensive loss, net of tax — — — — ( 5 ) — — ( 5 ) +Share-based compensation 577 — 4,626 — — — 4,626 +Repurchase of common stock — — — — — — ( 1,444 ) ( 1,444 ) +Balance, December 31, 2024 203,787 $ 20 $ 344,409 $ ( 225,913 ) $ 12 $ — $ ( 3,413 ) $ 115,115 +The accompanying notes are integral to the consolidated financial statements. +78 +LIVEWIRE GROUP, INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +1. Description of Business and Basis of Presentation +LiveWire Group, Inc., a Delaware corporation, and its consolidated subsidiaries are referred to in these consolidated financial statements and notes as “we,” “our,” “us,” the “Company,” or “LiveWire.” The Company designs and sells electric motorcycles and electric balance bikes for kids with related electric motorcycle parts, accessories, and apparel. The Company operates in two segments: Electric Motorcycles and STACYC. +LiveWire was a direct, wholly owned subsidiary of AEA-Bridges Impact Corp (“ABIC”), which was originally incorporated as a Cayman Islands exempted company on July 29, 2020 as a special purpose acquisition company (“SPAC”) with the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities. +On September 26, 2022, the Company consummated a previously announced business combination and related financing transactions (collectively the “Business Combination”) pursuant to a business combination agreement, dated as of December 12, 2021 (the “Business Combination Agreement”), by and among AEA-Bridges Impact Corp (“ABIC”), LiveWire Group Inc., (formerly known as LW EV Holdings, Inc.), LW EV Merger Sub, Inc., a Delaware corporation (“Merger Sub”), Harley-Davidson, Inc., a Wisconsin corporation (“H-D”), and LiveWire EV, LLC (“Legacy LiveWire”), a wholly-owned subsidiary of H-D. +Pursuant to the terms of the Business Combination Agreement: (a) on September 23, 2022, ABIC migrated to and domesticated as a Delaware corporation (“Domesticated ABIC”) (the “Domestication”), in connection with which all of the ABIC’s (i) outstanding ordinary shares were converted, on a one -for-one basis, into common stock, par value $ 0.0001 per share, of Domesticated ABIC, (ii) outstanding warrants were converted, on a one -for-one basis, into warrants to acquire one share each of common stock of Domesticated ABIC and (iii) outstanding units were canceled and instead entitle the holder thereof to, per unit, one share of common stock of Domesticated ABIC and one-half of one warrant of Domesticated ABIC; (b) on September 26, 2022, H-D and Legacy LiveWire consummated the separation of the Legacy LiveWire business and the other transactions contemplated by the Separation Agreement (the “Separation Agreement”), by and between H-D and Legacy LiveWire, dated as of September 26, 2022 (the “Separation”); (c) following the Domestication and immediately following the Separation, Merger Sub merged with and into Domesticated ABIC, with Domesticated ABIC surviving as a direct, wholly owned subsidiary of LiveWire (the “Merger”), and LiveWire continuing as the public company in the Merger, with each share of common stock of Domesticated ABIC being converted into the right of the holder thereof to receive one share of common stock, par value $ 0.0001 (“Common Stock”); (d) immediately following the Merger, H-D caused all of the membership interests of Legacy LiveWire (“Legacy LiveWire Equity” ) held by ElectricSoul, LLC (the “Legacy LiveWire Equityholder”), a Delaware limited liability company and a subsidiary of H-D, to be contributed to LiveWire in exchange for 161,000,000 shares of Common Stock and the right to receive up to an additional 12,500,000 shares of Common Stock in the future (the “Earn-Out Shares”, and the transactions contemplated by this clause (d), collectively, the “Exchange”), and as a result of the Exchange, Legacy LiveWire became a direct, wholly owned subsi diary of LiveWire; (e) immediately following the consummation of the Exchange, LiveWire contributed 100 % of the outstanding equity interests of Legacy LiveWire to Domesticated ABIC (clauses (a) through (e) collectively, the “Business Combination”). +Holders of 36,597,112 of ABIC’s Class A Ordinary Shares sold in its initial public offering (the “Initial Shares”) properly exercised their right to have such shares redeemed for a full pro rata portion of the trust account holding the proceeds from ABIC’s initial public offering, calculated as of two business days prior to the consummation of the Business Combination, which was approximately $ 10.06 per share, or $ 368.1 million in the aggregate. +An aggregate of $ 368.1 million was paid from the ABIC’s trust account to holders who properly exercised their right to have their Initial Shares redeemed, and the remaining balance immediately prior to the Closing of approximately $ 34 million remained in the trust account and was used to fund the Business Combination. +In connection with the Business Combination, the AEA-Bridges Impact Sponsor, LLC, a Cayman Islands limited liability company (the “Sponsor”), forfeited an aggregate of 2,000,000 Class B Ordinary Shares of ABIC in accordance with the Investor Support Agreement, dated as of December 12, 2021 (the “Investor Support Agreement”), by and among the Sponsor, LiveWire, ABIC, John Garcia, John Replogle and George Serafeim. The remaining Class B Ordinary Shares of ABIC held by the Sponsor automatically converted to 7,950,000 shares of Common Stock. +79 +Pursuant to investment agreements entered into in connection with the Business Combination Agreement, Kwang Yang Motor Co., Ltd., KYMCO Capital Fund I Co., Ltd., SunBright Investment Co., Ltd., CycleLoop Co., Ltd. and Kwang Yang Holdings Limited (collectively, “KYMCO Group”) agreed to subscribe for an aggregate of 10,000,000 newly-issued shares of Common Stock at a purchase price of $ 10.00 per share for an aggregate purchase price of $ 100 million (the “KYMCO PIPE Investment”). +Pursuant to the Business Combination Agreement, and an investment agreement entered into prior to the Closing, the Legacy LiveWire Equityholder agreed to subscribe for an aggregate of 10,000,000 newly-issued shares of Common Stock at a purchase price of $ 10.00 per share for an aggregate purchase price of $ 100 million (the “Legacy LiveWire Equityholder PIPE Investment” and, together with the KYMCO PIPE Investment, the “PIPE Investments”). At the closing of the Business Combination, LiveWire consummated the PIPE Investments. +Pursuant to the Business Combination Agreement, H-D caused the Legacy LiveWire Equityholder to pay and deliver to LiveWire an amount in cash equal to $ 100 million, which is the H-D Backstop Amount (as defined in the Business Combination Agreement) in exchange for 10,000,000 shares of Common Stock (the “H-D Backstop Shares”) at a purchase price of $ 10.00 per H-D Backstop Share. Additionally, H-D was reimbursed for $ 20.1 million of transaction costs and advisory fees incurred through a reduction of the proceeds provided. +After giving effect to the Business Combination, the redemption of Initial Shares as described above, the issuance of the H-D Backstop Shares and the consummation of the PIPE Investments, there were 202,402,888 shares of Common Stock issued and outstanding. +The Business Combination was accounted for as a reverse recapitalization. See Note 4, Business Combination, for more information. Throughout the notes to the consolidated financial statements, unless otherwise noted, the “Company,” “we,” “us” or “our” and similar terms refer to Legacy LiveWire and its subsidiaries prior to the consummation of the Business Combination, and LiveWire and its subsidiaries after the consummation of the Business Combination. References to ABIC refer to the SPAC entity prior to consummation of the Business Combination. Operating results for the periods presented prior to the consummation of the Business Combination represent those of Legacy LiveWire. +The Company's reportable segments are strategic business units that offer different products and services and are managed separately based on the fundamental differences in their operations. The Electric Motorcycles segment primarily focuses on the designing and selling of electric motorcycles and also sells motorcycle parts, accessories, and apparel. Electric Motorcycles are sold at wholesale to a network of independent dealers and at retail through a Company-owned dealership and through online sales. Prior to November 5, 2024, the Company’s products were sold at retail through selection international partners primarily in Europe. The STACYC segment primarily focuses on the designing and selling of electric balance bike for kids, and related parts and accessories. The STACYC segment products are sold at wholesale to independent dealers and independent distributors, as well as direct to consumers online. +Basis of Presentation +On September 26, 2022, the Company consummated the Separation and Business Combination and became a standalone publicly traded company, and its financial statements are now presented on a consolidated basis. Prior to the Separation and Business Combination on September 26, 2022, the Company's historical combined financial statements were prepared on a standalone carve-out basis and were derived from H-D's consolidated financial statements and accounting records. The financial statements for all periods presented, including historical periods prior to September 26, 2022, are now referred to as “consolidated financial statements”, and have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). +Periods prior to the Separation +Prior to the Separation, the Company’s financial information is presented as consolidated carve-out financial information using the historical results of operations and the historical bases of assets and liabilities of H-D, Legacy LiveWire's parent company. Intercompany transactions within the Company have been eliminated in preparing the consolidated financial statements. +80 +Management of the Company believes assumptions underlying the historical consolidated financial statements are reasonable. However, the consolidated financial statements may not be indicative of the consolidated financial position, results of operations, and cash flows of the Company in the future or if it had operated independently from H-D. Actual costs that would have been incurred if the Company had operated as a standalone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, primarily including technology support, marketing, finance, engineering, usage of shared assets, and other general corporate and administrative costs, such as treasury, human resources, and others. The Company also may incur additional costs associated with being a standalone, publicly listed company that were not included in the expense allocations and, therefore, may result in additional costs that are not reflected in the historical results of operations, financial position, and cash flows. Principal assumptions underlying the consolidated financial statements for periods prior to the Separation include: +• The consolidated statements of operations and comprehensive loss include all revenues and costs directly attributable to the Company as well as an allocation of expenses from H-D related to shared manufacturing costs; engineering expenses, selling expenses, general and administrative expenses, marketing expenses, employee-related expenses, charges for use of shared assets, and other expenses related to H-D’s corporate functions that provide support to the Company. H-D allocated these costs to the Company using methodologies that management believes are appropriate and reasonable. Costs are generally attributed based on specific identification, legal obligation, or in another manner that best reflects the nature of how the expense is incurred, such as gross revenue, wholesale motorcycle shipments, standard cost, production units, and other allocation methods as deemed appropriate. +• The Consolidated balance sheets include the attribution of certain assets and liabilities that have historically been held at the corporate level by H-D, but which are specifically identifiable or attributable to the Company. H-D’s cash management and financing activities are centralized. Accordingly, no cash has been attributed to the Consolidated financial statements, except for certain cash accounts legally held by entities included in the Consolidated financial statements. +• Net Parent company investment in the consolidated statements of shareholders' equity and the consolidated balance sheets represents the accumulation of the Company’s net loss over time and the net effect of transactions with and allocations from H-D. +• Transactions between H-D and the Company are generally considered to be effectively settled in cash at the time the transaction is recorded except for the Notes payable to related party and Accounts receivable from related party (see disclosure in Note 16, Related Party Transactions). The net effect of the settlement of transactions with H-D is reflected in the consolidated statements of cash flows as a financing activity and in the consolidated balance sheets as “Net Parent company investment.” +2. Summary of Significant Accounting Policies +Principles of Consolidation – The consolidated financial statements include the accounts of LiveWire Group, Inc. and its subsidiaries, all of which are wholly-owned. All intercompany accounts and material intercompany transactions have been eliminated. +Foreign Currency - The Company’s international subsidiaries use their respective local currency as their functional currency. Assets and liabilities of international subsidiaries have been translated at period-end exchange rates, and revenues and expenses have been translated using average exchange rates for the period. Monetary assets and liabilities denominated in a currency that is different from an entity's functional currency are remeasured from the transactional currency to the entity's functional currency on a monthly basis. The aggregate transaction losses resulting from foreign currency remeasurements was $ 206 thousand, $ 97 thousand, and $ 0 for the years ended December 31, 2024, 2023 and 2022, respectively. +Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ from those estimates. +Cash and Cash Equivalents – The Company considers all highly liquid investments with a maturity of 90 days or less when purchased to be cash equivalents. +Concentrations of Credit Risk – Financial instruments that potentially subject the Company t o concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company limits its credit risk with respect to cash by maintaining cash and cash equivalents with high quality financial institutions. At times, the Company’s cash and cash +81 +equivalents may exceed federally insured limits. We perform periodic credit evaluations of our customers’ financial condition and generally do not require collateral. At December 31, 2023, 56.2 % of our net accounts receivable balance was due from the KTM customer group, driven by sales through the STACYC segment. No other single customer or customer group represented 10% or greater of net accounts receivable at December 31, 2024 and 2023. +Accounts Receivable, net – Accounts receivable primarily relate to sales of electric balance bikes to independent dealers and independent distributors, electric motorcycle sales to non-H-D dealers in the United States, and electric motorcycle sales in Europe, and are presented in Accounts receivable, net on the consolidated balance sheets. Payment terms from these customers range from 30 days to 364 days. The Company has elected the practical expedient available under ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) that allows entities to not adjust the promised amount of consideration for the effects of a significant financing component if the entity expects, at contract inception, that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. +All sales of electric motorcycles and related products to independent H-D dealers in the U.S. and Canada are financed by the purchasing independent H-D dealers through Harley-Davidson Financial Services, Inc. (“HDFS”), a wholly owned subsidiary of H-D. Sales to online and retail customers may also be financed by HDFS. Amounts financed through HDFS, not yet remitted to the Company by HDFS are generally settled within 30 days. Accounts receivable related to these sales are recorded in Accounts receivable from related party on the consolidated balance sheets. +The allowance for doubtful accounts deducted from total accounts receivable was $ 302 thousand and $ 140 thousand as of December 31, 2024 and 2023, respectively. The Company’s evaluation of the allowance for doubtful accounts includes a review to identify non-performing accounts which are evaluated individually. The remaining accounts receivable balances are evaluated in the aggregate based on an aging analysis. The allowance for doubtful accounts is based on factors including past loss experience, the value of collateral, and if applicable, reasonable and supportable economic forecasts. Accounts receivables are written down once management determines that the specific customer does not have the ability to repay the balance in full. +Inventories, net – Total inventories are valued at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method for electric motorcycles and related products and average costing method for electric balance bikes. The Company’s determination of net realizable value considers the impact of sales incentives and excess and obsolete inventory based upon an assessment of historical trends, current market conditions and forecasted product demand. +Property, Plant and Equipment, net – Property, plant and equipment is recorded at cost, net of accumulated depreciation and amortization. Depreciation is determined using the straight-line method over the estimated useful lives of the assets. The estimated useful lives of each class of property, plant and equipment generally consist of 7 years for leasehold improvements, 5 to 10 years for machinery and equipment, and 3 to 7 years for tooling and software. +Goodwill – Goodwill represents the excess of acquisition cost over the fair value of the net assets purchased. Goodwill is tested for impairment, based on financial data related to the reporting unit to which it has been assigned, at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and an impairment loss is recognized for the amount by which the carrying amount exceeds the fair value, limited to the total goodwill allocated to the reporting unit. During 2024 and 2023, the Company tested its goodwill balances for impairment and no impairment charges were recorded to goodwill as a result of those impairment tests. +Intangible Assets – Intangible assets are comprised of trademarks, patents, distributor relationships, and non-compete agreements. Intangible assets are amortized over their useful lives in a manner that reflects the pattern in which the economic benefit of the intangible assets is consumed. Intangible assets are assessed for impairment when a triggering event occurs. +Cloud Computing Arrangements – The Company incurs costs to implement cloud computing arrangements that are hosted by a third party vendor. Implementation costs incurred during the application development stage are capitalized and amortized over the term of the hosting arrangement on a straight-line basis. The Company capitalized $ 45 thousand, $ 1,312 thousand, and $ 4,930 thousand of costs during the years ended December 31, 2024, 2023, and 2022, respectively, to implement cloud computing arrangements. Capitalized cloud computing arrangement costs are included within Other long-term assets on the consolidated balance sheets. Amortization expense totaled $ 957 thousand, $ 839 thousand, and $ 35 thousand for the years ended December 31, 2024, 2023, and 2022, respectively, and is presented within Selling, administrative and engineering expense on the consolidated statements of operations and comprehensive loss. +Impairment of Long-Lived Assets – The Company periodically evaluates the carrying value of long-lived assets, which consist of property, plant and equipment, intangible assets, and cloud computing arrangements, to be held and used when events and circumstances indicate the carrying amount may not be recoverable. Such events and circumstances include significant +82 +decreases in the market price for similar assets, significant adverse changes to the extent and manner in which the asset is used, an adverse change in legal factors or business climate, an accumulation of costs that exceed the estimated cost to acquire or develop a similar asset, and continuing losses that exceed forecasted costs. When the carrying value of a long-lived asset is not recoverable based on the existence of one or more of the above indicators, recoverability is determined by comparing the carrying amount of the asset to net future undiscounted cash flows that the asset is expected to generate. An impairment charge would then be recognized equal to the amount by which the carrying amount exceeds the fair value of the asset. The Company also reviews the useful life of its long-lived assets when events and circumstances indicate that the actual useful life may be shorter than originally estimated. In the event the actual useful life is deemed to be shorter than the original useful life, depreciation or amortization is adjusted prospectively so that the remaining book value is depreciated or amortized over the revised useful life. +Research and Development Expenses – Expenditures for research activities relating to product development are charged against income as incurred. Research and development expenses were $ 41,742 thousand, $ 54,070 thousand and $ 35,612 thousand for 2024, 2023 and 2022, respectively, and presented within Selling, administrative and engineering expense on the consolidated statements of operations and comprehensive loss. +Advertising Costs – The Company expenses the production cost of advertising the first time the advertising takes place within Selling, administrative and engineering expense on the consolidated statements of operations and comprehensive loss. Advertising costs relate to the Company’s efforts to promote its products and brands through the use of media and other means. During the years ended December 31, 2024, 2023 and 2022, the Company incurred $ 5,226 thousand, $ 4,671 thousand and $ 7,940 thousand in advertising costs, respectively. +Income Taxes – LiveWire’s income taxes as presented are calculated on a separate tax return basis. LiveWire’s operations have historically been and continue to be included in H-D’s U.S. federal and state tax returns or non-U.S. jurisdictions tax returns. LiveWire accounts for income taxes in accordance with Accounting Standards Codification (“ASC”) Topic 740, Income Taxes (“ASC740”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and other loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. LiveWire reviews its deferred income tax asset valuation allowances on a quarterly basis or whenever events or changes in circumstances indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or combined group recording the net deferred income tax asset is considered, along with any positive or negative evidence including tax law changes. Since future financial results and tax law may differ from previous estimates, periodic adjustments to LiveWire’s valuation allowances may be necessary. LiveWire has generated operating losses in each of the years presented, however, any hypothetical net operating loss attributes generated (and related valuation allowances) utilized by H-D are not recorded on the balance sheet. +Warrant Liabilities - The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued share purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to the Financial Accounting Standards Board (“FASB”) ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC Topic 815, Derivatives and Hedging (“ASC 815”). The Company accounts for the Public Warrants and Private Placement Warrants, both further described in Note 10, Warrants Liabilities , in accordance with the guidance contained in ASC 815 under which the Public and Private Warrants (collectively, the “Warrants”) do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the Warrants as liabilities at their fair value and adjusts the Warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the consolidated statements of operations and comprehensive loss. +New Accounting Standards +Accounting Standards Adopted in 2024 +In November 2023, FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07). ASU 2023-07 is intended to improve reportable segment disclosures, primarily through enhanced disclosures about significant segment expenses. The main provisions of ASU 2023-07 require a public entity to disclose on an annual and interim basis: (i) significant segment expenses provided to the chief operating decision maker, (ii) an amount representing the difference between segment revenue less segment expenses disclosed under the significant segment expense principle and each reported measure of segment profit or loss and a description of its composition, (iii) provide all annual disclosures about a reportable segment's profit or loss and assets currently required under Topic 280 in interim periods, (iv) +83 +clarify that if the chief operating decision maker uses more than one measure of a segment's profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit, (v) the title and position of the chief operating decision maker and an explanation of how the chief operating decision maker uses the reported measure of segment profit or loss in assessing segment performance and deciding how to allocate resources, and (vi) all disclosures required by ASU 2023-07 and all existing segment disclosures under Topic 280 for an entity with a single reportable segment. The new guidance was effective for the fiscal years beginning after December 15, 2023. The Company adopted this guidance as of December 31, 2024, which resulted in enhanced quantitative and qualitative disclosures provided in Note 17 Reportable Segments and Geographic Information related to the items described above. +Accounting Standards Not Yet Adopted +In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which is intended to enhance the transparency and decision usefulness of income tax disclosures. The main provisions of ASU 2023-09 require a public entity to disclose on an annual basis (i) specific prescribed categories in the rate reconciliation, (ii) provide additional information for reconciling items that meet a quantitative threshold, (iii) the amount of income taxes paid, net of refunds received, disaggregated by federal, state, and foreign taxes, (iv) the amount of income taxes paid, net of refunds received, disaggregated by individual jurisdictions in which income taxes paid is equal to greater than 5 percent of total income taxes paid, (v) income or loss from continuing operations before income tax expense or benefit disaggregated between domestic and foreign, and (vi) income tax expense or benefit from continuing operations disaggregated by federal, state, and foreign. ASU 2023-09 also removes certain disclosure requirements related to unrecognized tax benefits and cumulative unrecognized temporary differences. The new guidance is effective for the fiscal years beginning after December 15, 2024. Early +adoption is permitted. The Company is still evaluating the impact ASU 2023-09 will have on the Company's consolidated financial statement disclosures. +In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40), which is intended to improve the disclosures about a public business entity's expenses and provide more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions (such as cost of goods sold and selling, administrative and engineering expense). The main provisions of ASU 2024-03 require a public entity at each interim and annual reporting period to (i) disclose the amounts of purchases of inventory, employee compensation, depreciation, intangible asset amortization, and depletion included in each relevant expense caption presented on the face of the income statement within continuing operations, (ii) include certain amounts that are already required to be disclosed under current generally accepted accounting principles in the same disclosure as the other disaggregation requirements, (iii) disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively, and (iv) disclose the total amount of selling expenses and, in annual reporting periods, an entity's definition of selling expenses. In January 2025, the FASB issued ASU No. 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40) Clarifying the Effective Date, which is intended to clarify the effective date of ASU No. 2024-03. As clarified in ASU 2025-01, the new guidance is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is still evaluating the impact ASU 2024-03 will have on the Company's consolidated financial statement disclosures. +3. Revenue +The Company recognizes revenue when it satisfies a performance obligation by transferring control of a good or service to a customer. Revenue is measured based on the consideration that the Company expects to be entitled to in exchange for the goods or services transferred. Taxes that are collected from a customer concurrent with revenue-producing activities are excluded from revenue. +84 +Disaggregated revenue, net by major source was as follows for the years ended December 31, (in thousands): +2024 2023 2022 +Electric Motorcycles +Electric motorcycles $ 7,644 $ 11,087 $ 13,171 +Parts, accessories and apparel 737 461 828 +$ 8,381 $ 11,548 $ 13,999 +STACYC +Electric balance bikes $ 14,043 $ 22,865 $ 29,669 +Parts, accessories and apparel 4,209 3,610 3,165 +$ 18,252 $ 26,475 $ 32,834 +Total Revenue, net $ 26,633 $ 38,023 $ 46,833 +Revenue from the sale of LiveWire One electric motorcycles, electric balance bikes, as well as parts and accessories and apparel are recorded when control is transferred to the customer, generally at the time of shipment to independent dealers and distributors or at the time of delivery to retail customers. S2 electric motorcycles, being motorcycles produced from LiveWire’s S2 platform using the Arrow Architecture model, contain two performance obligations, which is the sale of the electric motorcycle and a stand ready obligation to transfer Firmware Over The Air (“FOTA”) software updates to the electric motorcycle, when-and-if available, to the customer. Revenue on the sale of the S2 electric motorcycles is recorded at a point-in-time when control is transferred to the customer. As the unspecified FOTA software updates to S2 electric motorcycles are provided when-and-if they become available, revenue related to these updates is recognized ratably over the period the updates will be provided, estimated by management to be five years, commencing when control of the electric motorcycle is transferred to the customer. The standalone selling prices of performance obligations are estimated by considering costs to develop and deliver the good or service, third-party pricing of similar goods or services and other information that may be available. The Company allocates the transaction price among the performance obligations in proportion to the standalone selling price of the Company’s performance obligations. +The Company offers sales incentive programs to independent dealers, distributors and retail customers designed to promote the sale of its products. The Company estimates its variable consideration related to its sales incentive programs using the expected value method. The Company accounts for consideration payable as part of its sales incentives as a reduction of revenue, which is accrued at the later of the date the related sale is recorded or the date the incentive program is both approved and communicated. Variable consideration related to sales incentives and rights to return is adjusted at the earliest of when the amount of consideration the Company expects to receive changes, or the consideration becomes fixed. During 2024, the Company revised its retail partner strategy in the Electric Motorcycles segment and introduced new incentives with its retail partners. As a result of incentives, for the year ended December 31, 2024, the Company recorded $ 848 thousand of adjustments for variable consideration related to previously recognized sales. Adjustments for variable consideration related to previously recognized sales was no t material for the years ended December 31, 2023 and 2022. +The Company offers the right to return eligible parts and accessories and apparel, electric balance bikes, and, in limited circumstances, on electric motorcycles. The Company estimates returns based on an analysis of historical trends and probability of returns and records revenue on the initial sale only in the amount that it expects to be entitled. The remaining consideration is deferred in a refund liability account. The refund liability is remeasured for changes in the estimate at each reporting date with a corresponding adjustment to revenue. The Company records a refund asset at the carrying amount of the goods at the time of sale, less any expected costs to recover the goods and any expected reduction in value as a reduction to Cost of goods sold. This amount is monitored and adjusted for any change in value as necessary. The refund asset of $ 377 thousand and $ 299 thousand were included in Other current assets as of December 31, 2024 and 2023, respectively, and $ 154 thousand and $ 52 thousand of the refund liability were included in Accrued liabilities as of December 31, 2024 and 2023, respectively, in the Company’s consolidated balance sheets. The remainder of the refund liability of $ 252 thousand and $ 275 thousand were recorded as an offset to Accounts Receivable from related party as of December 31, 2024 and 2023, respectively, in the Company’s consolidated balance sheets, as these amounts will be repaid to HDFS. +Shipping and handling costs associated with freight after control of a product has transferred to a customer are accounted for as fulfillment costs in Cost of goods sold. The Company accrues for the shipping and handling in the same period that the related revenue is recognized. +85 +The Company offers standard, limited warranties on its electric motorcycles, electric balance bikes, and parts and accessories. These warranties provide assurance that the product will function as expected and are not separate performance obligations. The Company accounts for estimated warranty costs as a liability when control of the product transfers to the customer. +Contract Liabilities +The Company maintains certain contract liability balances related to payments received at contract inception in advance of the Company’s performance under the contract that generally relates to customer deposits for electric balance bikes and electric motorcycles and consideration received upon transfer of control of the S2 motorcycles for FOTA software updates. Contract liabilities are recognized as revenue once the Company performs under the contract. The current portion of contract liabilities of $ 174 thousand and $ 214 thousand were included in Accrued liabilities and the long-term portion of contract liabilities of $ 393 thousand and $ 245 thousand were included in Other long-term liabilities in the Company's consolidated balance sheets as of December 31, 2024 and December 31, 2023, respectively. The Company expects to recognize $ 174 thousand included in Accrued Liabilities over of the next twelve months. The Company expects to recognize $ 393 thousand included in Other long-term liabilities over the next five years. +Previously deferred revenue recognized as revenue in 2024 and 2023 was $ 125 thousand and $ 163 thousand, respectively. +4. Business Combination +As discussed in Note 1, Description of Business and Basis of Presentation, the Company completed the Business Combination on September 26, 2022. The Business Combination was accounted for as a reverse recapitalization, in accordance with GAAP. Under this method of accounting, ABIC was treated as the acquired company for financial reporting purposes. The net assets of ABIC were stated at carrying value, with no goodwill or other intangible assets recorded resulting from the Business Combination. Operations prior to the Business Combination are those of Legacy LiveWire. Legacy LiveWire was determined to be the accounting acquirer based on evaluation of the following facts and circumstances: +• Legacy LiveWire’s majority shareholder, the Legacy LiveWire Equityholder, has the largest voting interest in the combined company +• Legacy LiveWire’s executive management makes up the majority of the management of the combined company; +• Legacy LiveWire’s majority shareholder, the Legacy LiveWire Equityholder, has the ability to designate the majority of the initial LiveWire Board and subsequent decisions on the LiveWire Board will be based on shareholder vote, of which the Legacy LiveWire Equityholder has the largest voting interest; +• the combined company assumed the name “LiveWire Group Inc.”; and +• Legacy LiveWire is the larger entity based on revenue. Additionally, Legacy LiveWire has a larger employee base and substantive operations. +The Business Combination resulted in net proceeds of approximately $ 293.7 million, which included: i) $ 100 million PIPE investment from H-D; ii) $ 100 million PIPE investment from KYMCO, iii) ABIC’s remaining cash held in trust account and operating cash in aggregate of $ 13.8 million (net of the SPAC share redemption amount of $ 368.1 million and payment of transaction costs incurred by ABIC of $ 20.6 million); and iv) the $ 100 million H-D Backstop Amount pursuant to the terms of the Business Combination Agreement and as a result of public shareholders exercising their redemption rights with respect to 36,597,112 shares of ABIC Class A common stock for $ 368.1 million in the aggregate, at a redemption price of approximately $ 10.06 per share. These proceeds were net of $ 20.1 million of transaction costs and advisory fees incurred by H-D. After giving effect to the business combination, the redemption of ABIC Class A common stock as described above, the issuance of the H-D Backstop Shares and the consummation of the PIPE Investments, were 202,402,888 shares of Common Stock issued and outstanding as of the closing date. The Company also assumed the Public Warrants and Private Warrants upon consummation of the Business Combination. See further detail in Note 10, Warrant Liabilities. +As discussed in Note 1, Description of Business and Basis of Presentation, in connection with the Business Combination, H-D has the right to receive up to an additional 12,500,000 shares of the Company's Common stock as Earn-Out Shares upon the occurrence of certain triggering events: (i) a one-time issuance of 6,250,000 Earn Out Shares if the volume-weighted average price (“VWAP”) of Common Stock is greater than or equal to $ 14.00 over any 20 trading days within any 30 consecutive trading day period; and (ii) a one-time issuance of 6,250,000 Earn Out Shares if the VWAP of Common Stock is greater than or equal to $ 18.00 over any 20 trading days within any 30 consecutive trading-day period ((i) and (ii) each, a “Triggering Event”), +86 +in each case, during a period beginning 18 months from the Closing Date and expiring five years thereafter (the “Earn Out Period”). +Additionally, if there is a change of control of the Company prior to the expiration of the Earn Out Period that will result in the holders of Common Stock receiving a price per share equal to or in excess of the applicable share price of LiveWire in connection with a Triggering Event, then immediately prior to the consummation of such change of control, any Triggering Event that has not occurred will be deemed to have occurred, LiveWire will issue the applicable Earn Out Shares to H-D and H-D will be eligible to participate in such change of control. +The total number of shares of the Company’s common stock outstanding immediately following the Business Combination was comprised as follows: +Shares +ABIC public shares, prior to redemptions 40,000,000 +Less: redemption of ABIC public shares ( 36,597,112 ) +LiveWire public stockholders 3,402,888 +Legacy LiveWire Equityholder (1) +161,000,000 +H-D PIPE investment 10,000,000 +H-D Backstop investment 10,000,000 +KYMCO PIPE investment 10,000,000 +ABIC sponsor stockholders (2) +8,000,000 +Total shares outstanding at close 202,402,888 +(1) Excludes 12,500,000 Common Stock in estimated potential earn out shares as the price threshold for each tranche has not yet been triggered. +(2) Shares presented are net of 2,000,000 Sponsor forfeited shares and includes 25,000 shares of Common Stock held by John Replogle and 25,000 shares of Common Stock held by George Serafeim, each in his individual capacity. +In connection with the Business Combination, H-D incurred transaction fees and other costs considered direct and incremental, consisting of legal, accounting, financial advisory and other professional fees. These amounts were reimbursed by the Company as a reduction of the proceeds received and are deducted from the Company’s additional paid-in capital. The following table reconciles the elements of the Business Combination to the consolidated statement of cash flows for the year ended December 31, 2022 and the consolidated statement of shareholders’ equity for the year ended December 31, 2022 (in thousands): +September 26, 2022 +Cash - ABIC trust and cash, net of redemptions and ABIC transaction costs (1) +$ 13,849 +Cash - Legacy LiveWire Equityholder PIPE Investment 100,000 +Cash - KYMCO PIPE Investment 100,000 +Cash - H-D Backstop 100,000 +Less: transaction costs and advisory fees incurred by H-D ( 20,132 ) +Net cash proceeds from Business Combination 293,717 +Less: Non-cash fair value of Public Warrants and Private Placement Warrants ( 13,420 ) +Net equity infusion from Business Combination $ 280,297 +(1) Proceeds from ABIC consisted of the $ 34,230 thousand of cash in the ABIC trust account and $ 240 thousand of cash in an ABIC operating bank account, less $ 20,621 thousand of ABIC transaction costs. +On September 26, 2022, prior to the consummation of the Business Combination, the Company consummated the Separation subject to the terms of the Separation Agreement. As a result, certain assets and liabilities were retained and settled by H-D and did not transfer to the Company. As of September 25, 2022, the value of assets and liabilities and related tax effects to be retained by H-D at Separation was $ 8,192 thousand and $ 13,375 thousand, respectively. Adjustments for transfers and separations are reflected in the Company's consolidated financial statements for the year ended December 31, 2022 and were comprised of the retention of assets and liabilities by H-D including Accounts receivable, net of $ 339 thousand, Inventories, net of $ 7,576 thousand, Other current assets of $ 205 thousand, Deferred tax assets of $ 72 thousand, Accounts payable of $ 4,427 thousand, Accrued liabilities of $ 5,184 thousand, Deferred tax liabilities of $ 46 thousand, Long-term supplier liability of +87 +$ 3,435 thousand and Other long-term liabilities of $ 283 thousand. The net balance of separation-related adjustments of $ 5,183 thousand was transferred to Additional paid-in capital prior to the consummation of the Business Combination, as represented in the consolidated statements of shareholders’ equity. +The most significant assets retained by the Parent included materials that relate to the manufacture of LiveWire One electric motorcycles. The most significant liabilities retained and settled by the Parent included employee liabilities related to service rendered prior to the closing of the business combination, accounts payable outstanding for amounts owed to suppliers to manufacture electric motorcycles, a supplier liability for an excess firm purchase commitment, and certain warranty liabilities associated with the Harley-Davidson branded LiveWire motorcycle. +5. Income Taxes +The income tax provision (benefit) has been calculated using the separate return method, which is meant to reflect how taxes would have been recorded, had the Company filed its own tax return. +The income tax provision (benefit) for the years ended December 31, consists of the following (in thousands): +2024 2023 2022 +Current: +Federal $ — $ 3 $ — +State — ( 10 ) — +Foreign 21 11 66 +Current income tax provision $ 21 $ 4 $ 66 +Deferred: +Federal $ 26 $ 78 $ ( 95 ) +State 5 — ( 4 ) +Foreign ( 9 ) ( 4 ) — +Deferred income tax provision (benefit) 22 74 ( 99 ) +Total income tax provision (benefit) $ 43 $ 78 $ ( 33 ) +The components of loss before income taxes for the years ended December 31, were as follows (in thousands): +2024 2023 2022 +Domestic $ ( 93,909 ) $ ( 109,491 ) $ ( 79,262 ) +Foreign 27 19 291 +Loss before income taxes $ ( 93,882 ) $ ( 109,472 ) $ ( 78,971 ) +The reconciliation of the provision (benefit) for income taxes at the U.S. federal statutory income tax rate of 21% to the Company’s income tax provision (benefit) for the years ended December 31, is shown below (in thousands): +2024 2023 2022 +Benefit at statutory rate $ ( 19,715 ) $ ( 22,989 ) $ ( 16,584 ) +State taxes, net of federal benefit ( 2,959 ) ( 2,747 ) ( 1,367 ) +Foreign rate differential 4 3 5 +Nondeductible expenses (benefits) 609 ( 293 ) 43 +Unbenefited losses and credits 27,421 28,250 11,582 +Valuation allowance 3,555 1,381 7,397 +Change in value of warrants ( 2,262 ) 844 ( 1,144 ) +Research & Development Tax Credit ( 6,478 ) ( 4,057 ) — +Other ( 132 ) ( 314 ) 35 +Income tax provision (benefit) $ 43 $ 78 $ ( 33 ) +88 +The Company generated operating losses in each of the years presented. The income tax provision (benefit) recognized related to these losses was zero for each of the years ended December 31, 2024, 2023, and 2022. Operating results of the U.S. entities are included in the consolidated U.S. federal and combined state tax returns of H-D and these tax attributes have been fully utilized by H-D and are no longer available to the Company for future use. Future income tax provisions (benefits) may be impacted by future changes in the utilization of LiveWire attributes by H-D. The difference between the benefit at the statutory rate and the income tax provision (benefit) related to these operating losses is reflected in the table above as unbenefited losses. +After an assessment of the positive and negative evidence regarding the realizability of the separate state NOLs reflected in the financials, it was determined a valuation allowance continues to be required on separate state NOLs. Additionally, it was necessary to assess the positive and negative evidence of the realizability of the U.S. federal and consolidated state net deferred tax asset balance remaining after H-D utilization of LiveWire attributes for the periods ended December 31, 2024 and 2023. After such an assessment, it was determined a valuation allowance continues to be required. The difference between the benefit at the statutory rate and the income tax provision (benefit) related to these valuation allowances is reflected in the table above as valuation allowance. +The Company’s Non-US entities generated both income tax and operating losses for a net income tax provision of $ 12 thousand and $ 7 thousand for the years ended December 31, 2024 and 2023, respectively. Non-US operating losses cannot be utilized by H-D, therefore a deferred tax asset was recorded. After assessment of the positive and negative evidence regarding realizability of the Non-US deferred tax assets, it was determined the deferred tax assets are more likely than not to be realized and no valuation allowance was recorded. +The principal components of the Company’s deferred income tax assets and liabilities as of December 31, include the following (in thousands): +2024 2023 +Deferred tax assets: +Capitalized research & experimental expenditures $ 14,495 $ 11,827 +Accruals not yet tax deductible 1,919 1,585 +Stock compensation 1,002 1,490 +Net operating loss and credit carryforwards 7 4 +UNICAP 138 91 +Amortization, book in excess of tax 1,051 1,018 +Lease liability 191 458 +Deferred tax assets before valuation allowance 18,803 16,473 +Less: Valuation allowance ( 13,248 ) ( 9,693 ) +Total deferred tax assets 5,555 6,780 +Deferred tax liabilities: +Depreciation, tax in excess of book $ ( 4,863 ) $ ( 5,961 ) +Amortization, tax in excess of book ( 620 ) ( 468 ) +Right-of-use asset ( 183 ) ( 440 ) +Total deferred liabilities ( 5,666 ) ( 6,869 ) +Net deferred tax liability $ ( 111 ) $ ( 89 ) +The net deferred tax liability balance increased from December 31, 2024 to December 31, 2023 primarily due to an increase in the deferred tax liability balance related to tax basis amortizable goodwill that is not amortized for book purposes. +The tax operating loss and tax credit carryforwards, calculated on the separate return method for allocating tax expense, have been utilized by H-D in the consolidated tax return, and therefore are not available to the Company in future periods. Under the terms of the Company’s Tax Matters Agreement with H-D, LiveWire will receive no compensation from H-D for the use of such attributes, but they may be used to offset any future liabilities that may be owed by LiveWire to H-D under the Tax Matters Agreement. In addition, these tax loss and credit carryforwards would not have been realized on a separate return basis. As a result, consistent with prior periods, neither the deferred tax assets nor the full valuation allowances have been recorded for these hypothetical attributes. For the period from the close of the Business Combination and effective date of the Tax Matters Agreement, the unrecorded tax net operating loss and tax credit carryforward, unbenefited by LiveWire, was $ 59,436 thousand. +89 +The Company recognizes interest and penalties related to unrecognized tax benefits in the income tax (benefit) provision. Changes in the Company’s gross liability for unrecognized tax benefits, excluding interest and penalties, were as follows (in thousands): +2024 2023 +Unrecognized tax benefits, beginning of period $ — $ 162 +Decrease in unrecognized tax benefits for tax positions take in prior period — ( 162 ) +Unrecognized tax benefits, end of period $ — $ — +There were no unrecognized tax benefits as of December 31, 2024 and 2023 that, if recognized, would affect the effective tax rate due to the NOL and valuation allowance positions. +There was zero interest and penalties associated with unrecognized tax benefits recognized in the consolidated statements of operations and comprehensive loss during 2024, 2023, and 2022. +There were zero gross interest and penalties associated with unrecognized tax benefits recognized in the consolidated balance sheets at December 31, 2024 and 2023, respectively, due to the NOL and valuation allowance positions. +The Company made $ 7 thousand in income tax payments for the year ended December 31, 2024. The Company did not make any income tax payments for the years ended December 31, 2023 and 2022. +LiveWire and its subsidiaries are currently members of H-D’s consolidated, combined, unitary and other similar groups for federal, state and local income tax purposes. The consolidated group files U.S. federal and various state income tax returns which are no longer subject to examination before 2019. LiveWire has separate state and non-US filing requirements that will remain open to tax authority examination through 2029. +6. Earnings Per Share +The Company computes earnings per share (“EPS”) in accordance with ASC 260, Earnings per Share . Basic EPS is computed by dividing net income (loss) available to common shareholders by the weighted-average number of shares of common stock outstanding. Diluted EPS is computed using the weighted-average number of shares of common stock, plus the effect of potentially dilutive securities. The Company applies the treasury method to calculate the dilution impact of share-based awards- restricted stock, performance share units, and warrants. Because the Company has reported a net loss for all periods presented, diluted net loss per share is the same as basic net loss per share as all of the potentially dilutive shares were anti-dilutive in those periods. +Computation of basic and diluted earnings per share for the years ended December 31, was as follows (in thousands, except per share amounts): +2024 2023 2022 +Net loss $ ( 93,925 ) $ ( 109,550 ) $ ( 78,938 ) +Basic weighted-average shares outstanding 203,206 202,504 172,003 +Effect of dilutive securities – Warrants — — — +Effect of dilutive securities – employee stock compensation awards — — — +Diluted weighted-average shares outstanding 203,206 202,504 172,003 +Earnings per share (1) : +Basic $ ( 0.46 ) $ ( 0.54 ) $ ( 0.46 ) +Diluted $ ( 0.46 ) $ ( 0.54 ) $ ( 0.46 ) +(1) Earnings per share amounts are calculated discretely and, therefore, may not add up to the total due to rounding +90 +Prior to the Business Combination date, the Company did not have any issued and outstanding common stock or any common share equivalents. Accordingly, prior to the consummation of the Business Combination, the weighted average-shares deemed outstanding was calculated based on the 161,000,000 shares of Common Stock distributed to H-D in exchange for the membership interests of Legacy LiveWire. At the time of the Business Combination, additional shares of Common Stock were issued, which are reflected in the weighted-average shares outstanding as of December 31, 2024, 2023, and 2022. +Diluted net loss per share is computed by giving effect to all potential shares of common stock, to the extent dilutive, including unvested restricted stock units (“RSUs”), unvested performance share units (“PSUs”), and Warrants (as defined in Note 10, Warrant Liabilities). Potential shares of common stock are excluded from the computation of diluted net loss per share if their effect would have been anti-dilutive for the periods presented or if the issuance of shares is contingent upon events that did not occur by the end of the period. For the years ended December 31, 2024, 2023, and 2022, 1,377 thousand, 2,617 thousand and 2,495 thousand employee stock compensation plan awards, respectively, were excluded from the computation of diluted net loss per share because the effect would have been anti-dilutive. For the years ended December 31, 2024, 2023, and 2022, 30,365 thousand, 30,365 thousand, and 30,500 thousand warrants, respectively, were excluded from the computation of diluted net loss per share because the effect would have been anti-dilutive. Additionally, the Company has not included the impact of the Earn-Out Shares, discussed in Note 1, Description of Business and Basis of Presentation, in the calculation of EPS as the triggering events have not occurred. +7. Additional Balance Sheet Information +Inventories, net consisted of the following (in thousands): +2024 2023 +Raw materials and work in process $ — $ 486 +Electric motorcycles and electric balance bikes 24,862 28,205 +Parts and accessories and apparel 2,080 3,431 +Inventories, net $ 26,942 $ 32,122 +Inventory valuation reserves deducted from cost were $ 4,661 thousand and $ 3,539 thousand as of December 31, 2024 and 2023, respectively. +Other current assets primarily include prepaid expenses of $ 2,422 thousand and $ 1,905 thousand as of December 31, 2024 and 2023, respectively. +Property, plant and equipment, net consisted of the following as of December 31, (in thousands): +2024 2023 +Construction in progress $ 3,201 $ 6,697 +Tooling 27,438 23,627 +Machinery and equipment 7,280 5,147 +Software 18,632 17,310 +Leasehold improvements 2,533 2,023 +$ 59,084 $ 54,804 +Accumulated depreciation ( 25,072 ) ( 17,122 ) +Property, plant and equipment, net $ 34,012 $ 37,682 +Depreciation was $ 8,794 thousand, $ 4,531 thousand and $ 3,939 thousand for the years ending December 31, 2024, 2023 and 2022, respectively. Software, net of accumulated amortization, included in Property, plant and equipment, net, was $ 12,072 thousand and $ 14,395 thousand as of December 31, 2024 and 2023, respectively. The Company had $ 1,989 thousand, $ 4,933 thousand, and $ 7,748 thousand related to purchases of property, plant and equipment included in Accrued liabilities as of December 31, 2024, 2023, and 2022, respectively. +Other long-term assets consisted primarily of capitalized implementation costs incurred in connection with cloud computing arrangements that do not include a license to internal-use software in accordance with Accounting Standards Update 2018-15. +91 +Accrued liabilities consisted of the following as of December 31, (in thousands): +2024 2023 +Payroll and employee benefits $ 5,757 $ 7,077 +Accrued restructuring 675 — +Engineering 2,614 5,215 +Warranty and recalls 673 730 +Deferred revenue 174 214 +Sales incentives 737 78 +Taxes 863 579 +Accrued capital expenditures 1,989 4,933 +Other (1) +4,478 2,363 +Accrued liabilities $ 17,960 $ 21,189 +(1) For the year ended December 31, 2024, included in “Other” is an accrual for $ 1,802 thousand for an unfavorable arbitration ruling related to a supplier claim discussed in Note 14. +8. Goodwill and Other Intangible Assets +Goodwill includes the cost of acquired businesses in excess of the fair value of the tangible and other intangible net assets acquired. The carrying amount of goodwill was $ 8,327 thousand as of December 31, 2024 and 2023. +Intangible assets, excluding goodwill, consist of trademarks, developer technology, patents, distributor relationships, and non-compete agreements, with estimated useful lives ranging from 5 to 10 years. Intangible assets are amortized on a straight-line basis. The total weighted-average amortization period for all amortizable intangible assets is 8.5 years. The weighted average amortization period for trademarks, the most significant intangible asset, is 10 years. +Intangible assets at December 31, were as follows (in thousands): +2024 2023 +Gross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value Accumulated Amortization Net Carrying Value +Trademarks $ 2,500 $ ( 1,458 ) $ 1,042 $ 2,500 $ ( 1,208 ) $ 1,292 +Non-compete agreement 640 ( 640 ) — 640 ( 619 ) 21 +Others 440 ( 424 ) 16 440 ( 406 ) 34 +$ 3,580 $ ( 2,522 ) $ 1,058 $ 3,580 $ ( 2,233 ) $ 1,347 +Amortization of intangible assets, net, excluding goodwill, recorded in Selling, administrative and engineering expense on the consolidated statements of operations and comprehensive loss was $ 289 thousand for the year ended December 31, 2024 and $ 462 thousand for the years ended December 31, 2023 and 2022, respectively. Future amortization of the Company's intangible assets as of December 31, 2024 is as follows (in thousands): +2025 $ 254 +2026 254 +2027 254 +2028 254 +2029 42 +$ 1,058 +92 +The Company assesses for impairment of intangible assets with definite lives only if events occur that indicate that the carrying amount of an intangible asset may not be recoverable. The Company assesses goodwill for impairment annually, or more frequently if events occur that indicate an asset may be impaired. +For goodwill, the reporting units used in assessing impairment is the same as the Company’s two operating segments and reportable segments as described in Note 17, Reportable Segments and Geographic Information. The Company’s assessment for impairment of goodwill utilized a discounted cash flow analysis and a guideline public company market approach to determine the fair value of the reporting unit for comparison to the corresponding carrying value, and a reconciliation of the Company’s concluded values for each reporting unit to the Company’s market capitalization. Based upon the Company’s annual goodwill impairment analyses, the Company concluded there were no impairments to goodwill for any periods presented. +9. Leases +The Company determines if an arrangement is or contains a lease at contract inception. +Right of Use (“ROU”) assets represent the Company’s right to use an underlying asset over the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of future lease payments over the lease term. The ROU asset also includes prepaid lease payments and initial direct costs and is reduced for lease incentives paid by the lessor. The discount rate used to determine the present value is generally H-D’s incremental borrowing rate, as allowed under GAAP for subsidiaries, because the implicit rate in the lease is not readily determinable. The lease term used to calculate the ROU asset and lease liabilities includes periods covered by options to extend or terminate when the Company is reasonably certain the lease term will include these optional periods. +In accordance with ASC Topic 842, Leases , (“ASC 842”) the Company elected the short-term lease practical expedient that allows entities to recognize lease payments on a straight-line basis over the lease term for leases with a term of 12 months or less. The Company has also elected the practical expedient under ASC 842 allowing entities to not separate non-lease components from lease components, but instead account for such components as a single lease component for all leases except leases involving assets used in manufacturing and distribution processes. +The Company has operating lease arrangements for real estate. The Company’s leases have a remaining lease term of one to three years . The Company’s leases do not contain any material residual value guarantees or material restrictive covenants. +93 +Balance sheet information related to the Company's leases at December 31, was as follows (in thousands): +2024 2023 +Assets: +Lease assets $ 765 $ 1,868 +Liabilities: +Current portion of lease liabilities 394 1,152 +Long-term portion of lease liabilities 405 792 +Total lease liabilities $ 799 $ 1,944 +The following table presents the components of lease costs as of December 31, (in thousands): +2024 2023 2022 +Lease Cost: +Operating lease cost $ 1,163 $ 1,435 $ 1,300 +Short-term lease cost 63 38 37 +Variable lease cost 78 37 143 +Net lease cost $ 1,304 $ 1,510 $ 1,480 +Future maturities of the Company's operating lease liabilities as of December 31, 2024 were as follows (in thousands): +Future lease payments: +2025 $ 414 +2026 300 +2027 117 +Thereafter — +$ 831 +Present value discount ( 32 ) +Lease liabilities $ 799 +Other lease information surrounding the Company's operating leases as of December 31, was as follows (dollars in thousands): +2024 2023 2022 +Cash outflows for amounts included in the measurement of lease liabilities $ 1,181 $ 1,456 $ 1,300 +ROU assets obtained in exchange for lease obligations — 109 910 +Lease modifications (1) ( 87 ) — — +Weighted-average remaining lease term (in years) 2.16 2.10 2.80 +Weighted-average discount rate 3.60 % 2.69 % 2.35 % +(1) In December 2024, the Company issued notice of early termination for a lease agreement with H-D. This termination resulted in a reduction of the right of use asset and lease liability by $ 87 thousand. +94 +10. Warrant Liabilities +Upon consummation of the Business Combination, the Company assumed 30,499,990 Warrants to purchase the Company's Common Stock, comprised of 19,999,990 public warrants, originally issued by ABIC as part of ABIC’s IPO of units (the “Public Warrants”) and 10,500,000 of outstanding warrants originally issued in a private placement in connection with the IPO of ABIC (the “Private Placement Warrants”), collectively with the Public Warrants, the “Warrants”). The Warrants expire five years from the completion of the Business Combination. There were 19,865,207 Public Warrants outstanding as of both December 31, 2024 and 2023, and 10,500,000 Private Warrants outstanding as of both December 31, 2024 and 2023. +Each Warrant entitles the registered holder to purchase one share of Common Stock at a price of $ 11.50 per share. A Warrant holder may exercise its Warrants only for a whole number of shares of Common Stock. This means only a whole Warrant may be exercised at a given time by a Warrant holder. No fractional Warrants were issued upon separation of the units and only whole warrants trade. The Company will receive the proceeds from the exercise of any warrants in cash. The Warrants will expire five years after the completion of the Business Combination, or earlier upon redemption or liquidation. +Public Warrants +Redemption of Warrants when the price per Common Stock share equals or exceeds $ 18.00 : The Company may redeem the outstanding Warrants (except as described with respect to the Private Placement Warrants): +• in whole and not in part; +• at a price of $ 0.01 per Warrant; +• upon not less than 30 days’ prior written notice of redemption; and +• if, and only if, the reported last sales price of the Company’s Common Stock equals or exceeds $ 18.00 per share for any 20 trading days within a 30 -trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the Warrant holders. +Redemption of Warrants when the price per Common Stock share equals or exceeds $ 10.00 : Once the Warrants become exercisable, the Company may redeem the outstanding Warrants: +• in whole and not in part; +• at $ 0.10 per Warrant upon a minimum 30 days’ prior written notice of redemption provided that holders will be able to exercise their Warrants on a cashless basis prior to redemption and receive that number of shares determined by reference to the agreed table, based on the redemption date and the “fair market value” of Common Stock; +• if, and only if, the closing price of the shares of Common Stock equals or exceeds $ 10.00 per share (as adjusted for adjustments to the number of shares issuable upon exercise or the exercise price of a Warrant) for any 20 trading days within the 30 -trading day period ending three trading days before we send the notice of redemption to the Warrant holders; and +• if the closing price of the shares of Common Stock for any 20 trading days within a 30 -trading day period ending on the third trading day prior to the date on which we send the notice of redemption to the Warrant holders is less than $ 18.00 per share (as adjusted for adjustments to the number of shares issuable upon exercise or the exercise price of a Warrant), the Private Placement Warrants must also be concurrently called for redemption on the same terms as the outstanding Warrants, as described above. +Private Placement Warrants +The Private Placement Warrants have terms and provisions that are similar to those of the Public Warrants, including as to the exercise price, exercisability and exercise period. The Private Placement Warrants will not be redeemable by the Company so long as they are (i) held by the initial purchasers of the Private Placement Warrants or its permitted transferees and (ii) the reference value exceeds $ 18.00 per share. The initial Private Placement Warrant purchasers, or its permitted transferees, have the option to exercise the Private Placement Warrants on a cashless basis if the reference value is between $ 10.00 and $ 18.00 . If the Private Placement Warrants are held by holders other than AEA-Bridges Impact Sponsor, LLC (the “Sponsor”) or its permitted transferees, the Private Placement Warrants will be redeemable by the Company in all redemption scenarios and exercisable by the holders on the same basis as the Public Warrants. +During the year ended December 31, 2024, there were no redemptions or exercises of the Public Warrants and no redemptions or exercises of the Private Warrants. During the year ended December 31, 2023, there were no redemptions and 135 thousand exercises of the Public Warrants and no redemptions or exercises of the Private Warrants. +95 +The Company recognized income of $ 10,770 thousand and expense of $ 4,020 thousand as a change in fair value of warrant liabilities in the consolidated statements of operations and comprehensive loss for years ended December 31, 2024 and 2023, respectively. The Company determined the Public Warrants and Private Placement Warrants do not meet the criteria to be classified in stockholders’ equity and the fair value of the warrants should be classified as a liability. At December 31, 2024 and 2023, the Company’s Warrant liability was $ 1,549 thousand and $ 12,319 thousand, respectively. +11. Fair Value +The Company assesses the inputs used to measure fair value using a three-tier hierarchy. +• Level 1 inputs include quoted prices for identical instruments and are the most observable. +• Level 2 inputs include quoted prices for similar assets and observable inputs. +• Level 3 inputs are not observable in the market and include the Company’s judgments about the assumptions market participants would use in pricing the asset or liability. +The Company’s assets and liabilities measured at fair value on a recurring basis, aggregated by the level in the fair value hierarchy within which those measurements fall, were as follows as of December 31, (in thousands): +2024 +Level 1 Level 2 Level 3 Total +Assets: +Money market funds $ 52,000 $ — $ — $ 52,000 +Liabilities: +Public Warrants $ 1,013 $ — $ — $ 1,013 +Private Placement Warrants — 536 — 536 +Share-based awards settled in cash 269 — — 269 +$ 1,282 $ 536 $ — $ 1,818 +2023 +Level 1 Level 2 Level 3 Total +Assets +Money market funds $ 161,000 $ — $ — $ 161,000 +Liabilities +Public Warrants $ 8,059 $ — $ — $ 8,059 +Private Placement Warrants — 4,260 — 4,260 +Share-based awards settled in cash 1,268 — — 1,268 +$ 9,327 $ 4,260 $ — $ 13,587 +There were no significant assets or liabilities on the Company’s consolidated balance sheets measured at fair value on a nonrecurring basis. +Recurring Fair Value Measurements +Money Market Funds +Money market funds include highly liquid investments with an original maturity of three or fewer months and are presented within Cash and cash equivalents in the consolidated balance sheets. They are valued using quoted market prices in active markets and are classified under Level 1 within the fair value hierarchy. +96 +Warrant Liabilities +The Warrants were accounted for as liabilities in accordance with ASC 815 and are presented within Warrant liabilities in the accompanying consolidated balance sheets. The Warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within Change in fair value of warrant liabilities in the consolidated statements of operations and comprehensive loss. +The Public Warrants are publicly traded under the symbol “LVWR WS” and the fair value of the Public Warrants at a specific date is determined by the closing price of the Public Warrants as of that date. As such, the Public Warrants are classified within Level 1 of the fair value hierarchy. The fair value of the Private Placement Warrants was determined using the closing price of the Public Warrants as the Private Placement Warrants have terms and provisions that are economically similar to those of the Public Warrants. The Private Placement Warrants are classified as Level 2 of the fair value hierarchy due to the use of an observable market quote for a similar asset in an active market. +Share-based awards settled in cash +Share-based awards settled in cash represent grants of share-based awards that will be settled with employees in cash and are presented within Accrued liabilities and Other long-term liabilities in the consolidated balance sheets. They are valued using the market price of the Company’s and Harley-Davidson, Inc.’s stock and are remeasured at each balance sheet date and are classified under Level 1 under the fair value hierarchy. +Other Fair Value Measurements +The fair value of financial instruments classified as Cash and cash equivalents, Accounts receivable, net, and Accounts payable on the consolidated balance sheets approximate carrying value due to the short-term nature and the relative liquidity of the instruments. +12. Product Warranty and Recall Campaigns +The Company provides a limited warranty on new electric motorcycles for a period of two years , except for the battery which is covered for five years . The Company also provides limited warranties on parts and accessories and electric balance bikes. The warranty coverage for the retail customer generally begins when the product is sold to the retail customer. The Company accrues future warranty claims at the time of sale by the Company using an estimated cost based primarily on historical Company claim information. In the case of both warranty and recall costs, as actual experience becomes available it is used to update the accruals. +Additionally, the Company may from time-to-time initiate certain voluntary recall campaigns. The Company records estimated recall costs when the liability is both probable and estimable. This generally occurs when the Company’s management approves and commits to a recall. The warranty and recall liability are included in Accrued liabilities and Other long-term liabilities on the consolidated balance sheets. +Changes in the Company’s warranty and recall liability were as follows as of December 31, (in thousands): +2024 2023 +Balance, beginning of period $ 1,011 $ 566 +Warranties issued during the period 795 878 +Settlements made during the period ( 1,035 ) ( 452 ) +Recalls and changes to pre-existing warranty liabilities 110 19 +Balance, end of period $ 881 $ 1,011 +The liability for recall campaigns included in the above table was $ 120 thousand and zero as of December 31, 2024 and 2023, respectively. +13. Employee Benefit Plans +Defined Contribution Plans +97 +On March 1, 2022, the Company established a LiveWire 401(k) plan for the benefit of the Company's employees. In connection with the establishment of the LiveWire 401(k) plan, H-D made all employer contributions to its 401(k) plan on behalf of the Company's employees, prorated for the portion of the plan year ending March 1, 2022. Upon establishment of the LiveWire 401(k) plan, each of the Company's employees then-participating in H-D's 401(k) plan became fully vested in his or her account balance under H-D's 401(k) plan and their account balances under H-D's 401(k) plan were transferred to the LiveWire 401(k) plan. +The Company expensed $ 2,230 thousand, $ 2,752 thousand and $ 2,143 thousand for the years ended December 31, 2024, 2023 and 2022, respectively, related to defined contribution benefits plans contributions. +14. Commitments and Contingencies +Contingencies – The Company is subject to claims related to product and other commercial matters. In determining costs to accrue related to these items, the Company carefully analyzes cases and considers the likelihood of adverse judgments or outcomes, as well as the potential range of possible loss. The Company accrues for matters when losses are both probable and estimable. Any amounts accrued for these matters are monitored on an ongoing basis and are updated based on new developments or new information as it becomes available for each matter. Refer to Note 12, Product Warranty and Recall Campaigns, for a discussion of warranty and recall liabilities. The Company had no product liability claims as of December 31, 2024 and 2023. +Litigation and Other Claims – The Company from time to time may be subject to lawsuits and other claims related to product, commercial, supplier, employee, environmental and other matters in the normal course of business. In determining costs to accrue related to these items, the Company carefully analyzes cases and considers the likelihood of adverse judgments or outcomes, as well as the potential range of possible loss. The Company accrues for matters when losses are both probable and estimable. Any amounts accrued for these matters are monitored on an ongoing basis and are updated based on new developments or new information as it becomes available for each matter. The Company, through H-D, also maintains insurance coverage for product liability exposures. The Company believes that its accruals and insurance coverage are adequate and there are no material exposures to loss in excess of amounts accrued and insured for losses related to these matters. +In December 2024, the Company received an unfavorable arbitration ruling related to the resolution of a claim from a supplier. As a result of the ruling, the Company will pay $ 1,802 thousand to the supplier which is recorded in Accrued liabilities on the consolidated balance sheet as of December 31, 2024. The Company recorded $ 1,664 thousand of expense in Cost of Sales in the fourth quarter of 2024 related to this ruling. +15. Share-Based Awards +LiveWire Share-Based Awards +Our long-term incentive plans provide for the grant of various forms of share-based awards to our directors, officers and other eligible employees under which our Board of Directors may grant to employees share-based awards including restricted stock units and performance share units. A maximum of 29,293,509 shares were authorized for awards under the long-term incentive plans. +The Company recognizes the cost of its share-based awards in the consolidated statements of operations and comprehensive loss. The cost of each share-based equity award is based on the grant date fair value and the cost of each share-based cash-settled award is based on the settlement date fair value. Share-based award expense is recognized on a straight-line basis over the service or performance periods of each separately vesting tranche within the awards. Forfeitures are recognized as incurred. The expense recognized reflects the number of awards that are ultimately expected to vest based on the service and, if applicable, performance requirements of each award. Total compensation expense related to LiveWire share-based awards was $ 4,519 thousand, $ 9,378 thousand, and $ 579 thousand for the years ended December 31, 2024, 2023, and 2022, respectively. +98 +See separate discussion below related to historical H-D Share-Based Awards for description of awards and related expense. +Restricted Stock Units - Settled in Stock and Cash +Certain directors, executive officers and other eligible employees have been granted time-based restricted stock units (the “Time-Based RSUs”) and performance-based restricted stock units (the “Performance RSUs,” collectively with the Time-Based RSUs, the “RSUs”). The Time-Based RSUs generally vest ratably over a three-year period, starting on the anniversary date of the grant. Time-Based RSUs for directors vest over a one -year period. +The Company recognized $ 5,588 thousand, $ 7,305 thousand and $ 416 thousand for the years ended December 31, 2024, 2023, and 2022, respectively, in share-based compensation expense related to the Time-Based RSUs. +During the year ended December 31, 2022, the Company granted Performance RSUs to certain executive officers and other eligible employees. These Performance RSUs awards vest at the end of a three-year performance period contingent on our achievement of certain total shareholder return performance (“TSR”) targets during the performance period. The grant date fair value of the Performance RSUs was estimated using a Monte-Carlo simulation. The Company recognized a reduction in expense of $ 1,069 thousand for the year ended December 31, 2024 and recognized $ 2,073 thousand, and $ 163 thousand of share-based compensation expense for the years ended December 31, 2023 and 2022, respectively, for the Performance RSUs. The reduction in expense in 2024 is a result of the impact of forfeitures in 2024 of $ 2,150 thousand related to employees who terminated during 2024. There were no Performance RSUs granted in the years ended December 31, 2024 and 2023. +Restricted Stock Units - Settled in Stock – The fair value of the Time-Based RSUs settled in stock is determined based on the market price of the Company’s stock on the grant date. The Performance RSUs settled in stock granted in 2022 contain TSR market conditions. The Company estimated the fair value of the TSR component using a Monte Carlo simulation. Expected volatility is calculated using the historical volatility of public companies similar to LiveWire Group, Inc. The risk-free rate for periods within the contractual life of the grant is based on the U.S. Treasury rates at the time of grant. +Assumptions used to calculate the grant date fair value of the performance shares granted during 2022 were as follows: +December 2022 +Expected volatility 76.76 % +Risk-free interest rate 3.89 % +99 +The activity for these awards for the year ended December 31, 2024 was as follows (in thousands, expect for per share amounts): +Time-Based +RSUs Performance RSUs Total +RSUs Weighted-Average Grant Date Fair Value Per Share +Nonvested, beginning of period 1,992 625 2,617 $ 7.56 +Granted 912 — 912 $ 8.59 +Vested ( 687 ) — ( 687 ) $ 7.64 +Forfeited ( 1,012 ) ( 453 ) ( 1,465 ) $ 8.08 +Nonvested, end of period 1,205 172 1,377 $ 8.39 +The activity for these awards for the year ended December 31, 2023 was as follows (in thousands, expect for per share amounts): +Time-Based +RSUs Performance RSUs Total +RSUs Weighted-Average Grant Date Fair Value Per Share +Nonvested, beginning of period 1,870 625 2,495 $ 7.34 +Granted 1,080 — 1,080 $ 8.17 +Vested ( 697 ) — ( 697 ) $ 6.91 +Forfeited ( 261 ) — ( 261 ) $ 6.98 +Nonvested, end of period 1,992 625 2,617 $ 7.56 +The activity for these awards for the year ended December 31, 2022 was as follows (in thousands, expect for per share amounts): +Time-Based +RSUs Performance RSUs Total +RSUs Weighted-Average Grant Date Fair Value Per Share +Nonvested, beginning of period — — — $ — +Granted 1,870 625 2,495 $ 7.34 +Vested — — — $ — +Forfeited — — — $ — +Nonvested, end of period 1,870 625 2,495 $ 7.34 +As of December 31, 2024, there was $ 7,635 thousand of unrecognized compensation cost related to RSUs settled in stock that is expected to be recognized over a weighted-average period of 1.5 years. +Restricted Stock Units - Settled in Cash – The current portion of Time-Based RSUs and Performance RSUs settled in cash are recorded in Accrued liabilities and the long-term portion is recorded in Other long-term liabilities in the consolidated balance sheets until vested. The fair value is determined based on the market price of the Company’s stock and is remeasured at each balance sheet date. +The activity for these awards for the year ended December 31, 2024 was as follows (in thousands, except for per share amounts): +Time-Based +RSUs Performance RSUs Total +RSUs Weighted-Average Grant Date Fair Value Per Share +Nonvested, beginning of period 71 24 95 $ 7.01 +Granted 18 — 18 $ 8.91 +Vested ( 18 ) — ( 18 ) $ 7.10 +Forfeited ( 52 ) ( 24 ) ( 76 ) $ 7.29 +Nonvested, end of period 19 — 19 $ 7.61 +100 +The activity for these awards for the year ended December 31, 2023 was as follows (in thousands, except for per share amounts): +Time-Based +RSUs Performance RSUs Total +RSUs Weighted-Average Grant Date Fair Value Per Share +Nonvested, beginning of period 64 24 88 $ 7.52 +Granted 28 — 28 $ 7.31 +Vested ( 21 ) — ( 21 ) $ 6.88 +Forfeited — — — $ — +Nonvested, end of period 71 24 95 $ 7.01 +The activity for these awards for the year ended December 31, 2022 was as follows (in thousands, expect for per share amounts): +Time-Based +RSUs Performance RSUs Total +RSUs Weighted-Average Grant Date Fair Value Per Share +Nonvested, beginning of period — — — $ — +Granted 64 24 88 $ 7.52 +Vested — — — $ — +Forfeited — — — $ — +Nonvested, end of period 64 24 88 $ 7.52 +During the year ended December 31, 2024, there were cash payments of $ 149 thousand related to these awards. As of December 31, 2024, there was $ 80 thousand of unrecognized compensation cost related to RSUs settled in cash that is expected to be recognized over a weighted-average period of 1.3 years. +Historical H-D Share-Based Awards +Prior to consummation of the Business Combination, certain employees of the Company participated in H-D’s share-based compensation plan under which H-D’s Board of Directors may grant to employees share-based awards, including RSUs and performance shares. Prior to consummation of the Business Combination, as employees transferred from H-D to the Company, any outstanding share-based awards previously granted have been retained by the employees and have been transferred to the Company. Share-based compensation included in the consolidated statements of operations and comprehensive loss includes expense attributable to the Company based on the awards and terms previously granted to the Company’s employees. Total share-based award compensation expense recognized by the Company for the Historical H-D Share-Based Awards for the years ended December 31, 2024, 2023 and 2022 was $ 386 thousand, $ 1,119 thousand and $ 1,694 thousand, respectively. +During 2022, the Company elected to cancel and convert outstanding RSUs held by 91 of the Company's employees into the right to receive cash payments (each, an “RSU Payment”) on the date which the RSU award would otherwise become vested in accordance with the vesting schedule applied to such award immediately prior to cancellation of the award. The cancellation of the equity-classified awards resulted in a reduction to Net Parent company investment and share-based expense of $ 171 thousand. The conversion to RSU Payments, which are liability-classified awards, resulted in an increase to Accrued liabilities and shared-based award expense of $ 474 thousand. The incremental compensation cost resulting from the modification of the RSUs was immaterial. As of December 31, 2024 and 2023, the accrued liability for the cash awards was $ 271 thousand and $ 1,017 thousand, respectively. +Each RSU Payment is a liability-classified award, which will (i) be in amount equal to (x) the number of shares of H-D's common stock subject to such RSU award that would have otherwise become vested on the applicable RSU vesting date in accordance with the applicable RSU vesting schedule, multiplied by (y) the closing trading price of a share of H-D's common stock on such RSU vesting date and (ii) be paid to the applicable employee of the Company on or within 30 days following the applicable RSU vesting date, subject to and conditioned upon such employee's continued employment or service as applicable, to the Company through the applicable vesting date. +101 +The activity for these awards for the year ended December 31, 2024 was as follows (in thousands, except for per share amounts): +Shares & Units Weighted-Average Fair Value Per Share +Nonvested, beginning of period 28 $ 37 +Awards transferred to cash payment 19 $ 41 +Granted — $ — +Vested ( 29 ) $ 40 +Forfeited ( 6 ) $ 43 +Nonvested, end of period 12 $ 42 +During the year ended December 31, 2024, there were $ 1,086 thousand of cash payments related to these awards. As of December 31, 2024, there was $ 83 thousand of unrecognized compensation cost related to liability-classified awards that is expected to be recognized over a weighted-average period of 0.4 years. +The activity for these awards for the year ended December 31, 2023 was as follows (in thousands, except for per share amounts): +Shares & Units Weighted-Average Fair Value Per Share +Nonvested, beginning of period 73 $ 38 +Granted — $ — +Vested ( 40 ) $ 38 +Forfeited ( 5 ) $ 36 +Nonvested, end of period 28 $ 37 +The activity for these awards for the year ended December 31, 2022 was as follows (in thousands, except for per share amounts): +Shares & Units Weighted-Average Fair Value Per Share +Nonvested, beginning of period — $ — +Awards transferred to cash payment 76 $ 33 +Granted 44 $ 43 +Vested ( 36 ) $ 36 +Forfeited ( 11 ) $ 37 +Nonvested, end of period 73 $ 38 +The total income tax benefit associated with share-based compensation recorded in the Company's consolidated statements of operations and comprehensive loss was $ 1,062 thousand, $ 2,201 thousand, and $ 670 thousand before valuation allowance impact for the years ended December 31, 2024, 2023, and 2022, respectively. +Treasury Stock +The Company retained $ 1,444 thousand, or 184 thousand shares of common stock, and $ 1,969 thousand, or 180 thousand shares of common stock, to satisfy withholding taxes in connection with the vesting of restricted stock units during the years ended December 31, 2024 and 2023, respectively. These retained shares were recorded at cost as Treasury Stock. There were no shares of common stock retained by the Company to satisfy withholding taxes in connection with the vesting of restricted stock units for the year ended December 31, 2022. +102 +16. Related Party Transactions +In connection with the Business Combination, the Company entered into a number of agreements with H-D to govern the Separation and provide a framework for the relationship between the parties going forward pursuant to which the Company and/or H-D have continuing obligations to each other . All transactions with H-D subsequent to the Business Combination are considered related party transactions. Agreements that the Company entered into in connection with the Separation include: +Transition Services Agreement +On September 26, 2022, we entered into a Transition Services Agreement with H-D (the “Transition Services Agreement”) pursuant to which H-D provided to us various services and support on a transitional basis to allow LiveWire to develop the capability to support ourselves or to engage a third-party provider to provide those services and support. The charges for the services were on a cost-plus basis (with a mark-up to reflect the management and administrative cost of providing the services). The services generally commenced on the date of the Separation and were intended to terminate between six and twelve months of the date of the Separation, with the option to extend or convert the services to longer term under the Master Service Agreement. All services under the Transition Services Agreement have either terminated or have been included in the Master Services Agreement executed on December 23, 2024 and effective on January 1, 2025 discussed below. +Master Services Agreement +On September 26, 2022, we entered into a master services agreement with H-D pursuant to which H-D provided us with certain services that we did not yet have the capability to perform for ourselves, including services related to testing and development, product regulatory support, color materials, finishes, paint and graphics, technical publication, application support and maintenance, service desk support, warehousing support, safety investigation, and marketing vehicle and fleet center, as we may request from time to time. On December 23, 2024, we entered into a new Master Services Agreement (the “Master Services Agreement”) with H-D. The Master Services Agreement became effective on January 1, 2025, and terminated the master services agreement, dated September 22, 2022, between LiveWire and H-D. Pursuant to the Master Services Agreement, H-D will continue to provide LiveWire with certain services that LiveWire determined would be better outsourced at this time, including services that support testing and development, product regulatory support, color materials, finishes, paint and graphics, technical publication, application support and maintenance, service desk support, warehousing support, and other corporate support services. The new Master Services Agreement incorporates a subset of support services previously provided under the now expired Transition Services Agreement including services where LiveWire utilizes H-D’s subject matter experts for targeted guidance or allow LiveWire to leverage H-D’s systems or equipment for cost savings purposes. The Master Services Agreement contemplates that each of the services shall be provided to LiveWire as detailed under the terms of the Master Services Agreement and the exhibit thereto or as set forth in a separate, mutually agreed upon letter agreement. The Master Services Agreement also provides that any service or project not contemplated by the Master Services Agreement will be set forth in a separate, mutually agreed upon side letter or letter agreement, and any fee for such service or project will be separate than the fee provided for in the Master Services Agreement. The Master Services Agreement has an initial term of seven years and will be renewable upon mutual agreement. The Master Services Agreement or any related letter agreement for additional services may be terminated by either party upon the other party’s material, uncured breach. H-D may also terminate the agreement upon LiveWire’s change of control or, at the end of a calendar year upon 180 days written notice, in the event that LiveWire failed to engage H-D to manufacture at least forty percent of LiveWire’s production during that calendar year. The charges for the services will be a flat monthly fee representing cost plus a markup. A joint steering committee composed of senior executives and/or designees of each party will meet annually to formulate a forecast and plan for LiveWire’s anticipated service needs, as well as adjust the monthly fee as appropriate, and will oversee the progress of the services and address any disputes. +Contract Manufacturing Agreement +On September 26, 2022, we entered into a Contract Manufacturing Agreement with H-D (the “Contract Manufacturing Agreement”) pursuant to which H-D provides contract manufacturing and procurement services to us for the products in our LiveWire platform, as well as future anticipated platforms. H-D is our exclusive manufacturer for these platforms for five years from the date that H-D begins manufacturing the relevant platform (and five years from the Separation for the LiveWire platform). Following this exclusivity period, we may terminate the agreement for one or more products within the relevant platform upon two years notice, subject to payment of certain termination charges (which are intended to compensate H-D for its capital investment and other sunken costs). The Contract Manufacturing Agreement may also be terminated, in whole or part, by either party upon the other party’s material, uncured breach, inability to perform its obligations for more than six months due to a force majeure event, bankruptcy or insolvency, or change of control. On February 14, 2024, the Contract Manufacturing Agreement was amended to extend the period of which H-D is the exclusive manufacturer from five years as described above to six years . +103 +Beginning for calendar year 2026, LiveWire will be subject to a minimum annual volume commitment for each product and pay a deficit fee for failure to meet the minimum under the Contract Manufacturing Agreement. The products that H-D manufactures for us are priced on a cost-plus basis, with a mark-up on H-D’s cost for manufacturing the relevant product. An operational committee consisting of designated employees of each party will meet quarterly for administrative purposes, including for the review of changes to pricing, minimum volumes and other terms. H-D will procure, on our behalf, equipment and materials that are used in both H-D’s and our products, and we will procure all other equipment and materials, as well as tooling, needed to manufacture the products. +Joint Development Agreement +On September 26, 2022, we entered into a Joint Development Agreement with H-D (the “Joint Development Agreement”) pursuant to which the parties may agree to engage in joint development projects, which would be set forth in one or more mutually agreed project work statements. The Joint Development Agreement remains in effect until we and H-D mutually agree to terminate it and can be terminated earlier by either party upon the other party’s material, uncured breach. +Under the Joint Development Agreement, H-D is required to notify us of any development projects for H-D’s business that are primarily related to electric vehicles, and we have the right to make a proposal with respect to the joint development of such a project. The parties will discuss in good faith whether or not it is beneficial for the parties to enter into a joint development project with respect to such project. If H-D engages in any development projects that are primarily related to electric vehicles and fails to consult with us so that we can make a proposal with respect such potential project, then the intellectual property developed pursuant to such H-D development project will be owned and licensed in accordance with the default intellectual property terms of the agreement (described below). Unless we and H-D agree otherwise for a particular project, each party bears its own costs and expenses in connection with each project under the Joint Development Agreement. +Unless otherwise mutually agreed for a particular project under the Joint Development Agreement, we own project intellectual property relating exclusively to electric vehicles and H-D owns all other project intellectual property. Each party is granted a perpetual license to use the project intellectual property in connection with that party’s products, which, for us, are limited to two-, three-, or four-wheeled electric vehicles, related parts and accessories and electric vehicle systems. +Tax Matters Agreement +On September 26, 2022, LiveWire entered into a Tax Matters Agreement with H-D (the “Tax Matters Agreement”). The Tax Matters Agreement sets forth the principles and responsibilities regarding the allocation of taxes, adjustments with respect to taxes, preparation of tax returns, tax audits and certain other tax matters that affect LiveWire and H-D in the event LiveWire or any of its subsidiaries become members of any of H-D’s consolidated, combined, unitary and other similar groups for federal, state or local income tax purposes (or LiveWire has certain income, gain, loss and deduction included in the tax returns of such groups). LiveWire and its subsidiaries are currently members of H-D’s consolidated, combined, unitary and other similar groups for federal, state and local income tax purposes. +With respect to U.S. federal income tax returns for any taxable period in which LiveWire (or any of its subsidiaries) are included in H-D’s consolidated group for U.S. federal income tax purposes, the amount of taxes to be paid by us is generally determined, subject to certain adjustments, as if LiveWire and each of its subsidiaries filed its own separate consolidated federal income tax return (LiveWire’s “separate federal tax liability”). With respect to state and local income tax returns for any taxable period in which LiveWire or any of its subsidiaries are included in H-D’s combined, consolidated or unitary group for state or local income tax purposes, the amount of taxes to be paid by LiveWire is determined, subject to certain adjustments using principles analogous to the principles used to compute LiveWire’s separate federal tax liability, as if LiveWire and each of its subsidiaries included in such combined, consolidated or unitary group filed its own combined, consolidated or unitary group state or local income tax return. +LiveWire’s inclusion in H-D’s consolidated group may result in H-D utilizing certain tax attributes that LiveWire generates, including net operating losses, and LiveWire will receive no compensation from H-D for the use of such attributes, but they may be used to offset any future liabilities that may be owed by LiveWire to H-D under the Tax Matters Agreement. +The Tax Matters Agreement applies as of the closing of the Business Combination, which is the date that H-D’s ownership of LiveWire met the applicable minimum threshold required to file either a combined return or a consolidated return and will remain in effect unless the parties agree in writing to terminate the agreement. Notwithstanding any termination of the Tax Matters Agreement, the agreement will continue in effect with respect to any payment or indemnification due for all taxable periods prior to the termination during which the Tax Matters Agreement was in effect. +104 +Related Party Sales and Purchases in the Ordinary Course of Business +Transactions Associated with Service Agreements with H-D +Cost of goods sold - For the years ended December 31, 2024, 2023, and the period subsequent to the Business Combination in 2022 there are $ 19,533 thousand, $ 23,433 thousand, and $ 1,685 thousand respectively, of Cost of goods sold with H-D on the consolidated statements of operations and comprehensive loss. Of the Costs of goods sold with H-D, $ 19,611 thousand, $ 17,053 thousand, and $ 1,585 thousand are related to purchases, primarily motorcycles, under the terms of the Contract Manufacturing Agreement for the years ended December 31, 2024, 2023, and the period subsequent to the Business Combination in 2022, respectively. These purchases of electric motorcycles from H-D are sold to the Company’s customers resulting in Cost of goods sold. Also included in the total Cost of goods sold with H-D for the years ended December 31, 2024 and 2023 is a reduction in expense of $ 153 thousand and a provision of $ 6,309 thousand, respectively, related to a liability for excess inventory components held by H-D that the Company expects to be obligated to reimburse H-D under the terms of the Contract Manufacturing Agreement. +Selling, administrative and engineering - During the years ended December 31, 2024, 2023, and the period subsequent to the Business Combination in 2022 there were $ 10,164 thousand, $ 14,993 thousand, and $ 3,485 thousand respectively, in expenses associated with services rendered in conjunction with the various service agreements with H-D, which are presented within Selling, administrative and engineering on the consolidated statements of operations and comprehensive loss. +Accounts payable to related party - As of December 31, 2024 and 2023, there is $ 9,762 thousand and $ 20,371 thousand, respectively, due to H-D and presented as Accounts payable to related party on the consolidated balance sheets. Of the amount outstanding to H-D, as of December 31, 2024 and 2023, $ 2,914 thousand and $ 10,020 thousand, respectively, is associated with inventory purchased under the Contract Manufacturing Agreement, $ 692 thousand and $ 4,042 thousand, respectively, is associated with services under the various service agreements with H-D, and $ 6,156 thousand and $ 6,309 thousand, respectively, is associated with the obligation to reimburse H-D for excess inventory components held by H-D that the Company expects to be obligated to reimburse H-D under the terms of the Contract Manufacturing Agreement. This amount represents the Company’s best estimate of the liability as of each of the balance sheet dates and is subject to adjustment based on final negotiations with H-D regarding amounts owed under the terms of the Contract Manufacturing Agreement. +Financing from Business Combination +The Business Combination resulted in net proceeds of approximately $ 293.7 million from related parties as described in Note 4, Business Combination. The Business Combination further resulted in adjustments for assets and liabilities, and the related currency translation adjustments, which will remain with H-D in accordance with the separation agreement. As of the year ended December 31, 2022 the adjustments resulted in a net increase of $ 5,183 thousand to Additional paid-in capital. For additional information around the Business Combination, refer to Note 4 Business Combination. +105 +Convertible Delayed Draw Term Loan Agreement +On February 14, 2024, the Company entered into a Convertible Delayed Draw Term Loan Agreement (the “Convertible Term Loan”) with H-D providing for term loans from H-D to the Company in one or more advances up to an aggregate principal amount of $ 100 million. The outstanding principal under the Convertible Term Loan bears interest at a floating rate per annum, as calculated by H-D as of the date of each advance and as of each June 1 and December 1 thereafter, equal to the sum of (i) the forward-looking term rate based on SOFR (i.e., the secured overnight financing rate published by the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate)) for a 6 -month interest period, plus (ii) 4.00 %. The Company may elect to pay up to 100% of the amount of any interest due by increasing the outstanding principal amount of the applicable advance. The Convertible Term Loan does not include affirmative covenants impacting the operations of the Company. The Convertible Term Loan includes negative covenants restricting the ability of the Company to incur indebtedness, create liens, sell assets, make investments, make fundamental changes, make dividends or other restricted payments and enter into affiliate transactions. The Convertible Term Loan has a maturity date of the earlier of (i) 24 months from the date of the first draw on the loan or (ii) October 31, 2026. In the event that the Convertible Term Loan cannot be settled in cash by the Company at maturity, unless otherwise agreed between the Company and H-D, the Convertible Term Loan will be converted to equity of Company at a conversion price per share of common stock of the Company equal to 90 % of the volume weighted average price per share of Common Stock for the 30 trading days immediately preceding the conversion date. As of December 31, 2024 , there were no amounts outstanding under the Convertible Term Loan and the Company remained in compliance with all of the existing covenants. +Other Transactions +S ales of electric motorcycles and related products to independent dealers in the U.S. and Canada are primarily financed through Harley Davidson Financial Services (“HDFS”), a wholly owned subsidiary of H-D; therefore, the Company’s accounts receivable related to these sales are recorded in Accounts receivable from related party on the consolidated balance sheets . Amounts financed through HDFS, not yet remitted to the Company by HDFS are generally settled within 30 days. As of December 31, 2024 and 2023, there is $ 356 thousand and $ 3,351 thousand, respectively, due from HDFS and other related receivables due from H-D, which is presented within Accounts receivable from related party on the consolidated balance sheets. +During the years ended December 31, 2024, 2023, and the period subsequent to the Business Combination in 2022, the Company recorded $ 96 thousand, $ 113 thousand, and $ 141 thousand, respectively, in related party sales between the Company and H-D with $ 74 thousand, $ 71 thousand, and $ 100 thousand, respectively, in Cost of goods sold. All sales were for the STACYC segment which sells electric balance bikes to H-D. As of December 31, 2024 and 2023, there was $ 43 thousand and $ 51 thousand, respectively, due from H-D, which is presented within Accounts receivable from related party on the consolidated balance sheets. +On September 26, 2022, the Company entered into a lease agreement with H-D to sublease a Product Development Center. The Company provided notice to H-D to terminate this lease effective February 28, 2025. On August 28, 2023, the Company amended a lease agreement with H-D for office space to extend the term of the lease to a 12 -month period, which expired on September 26, 2024 and is now renewed on a month-to-month basis. On September 4, 2024, the Company entered into a lease agreement with H-D to sublease office space in California, which expires on October 31, 2027. These are classified as operating leases. As of December 31, 2024, the right of use assets included within Lease assets, short-term lease liabilities included within Current portion of lease liabilities, and long-term lease liabilities included within Long-term portion of lease liabilities in the consolidated balance sheets were $ 82 thousand, $ 43 thousand, and $ 40 thousand, respectively. As of December 31, 2023, the right of use asset included within Lease assets, short-term lease liability included within Current portion of lease liabilities, and long-term lease liability included within Long-term portion of lease liabilities in the consolidated balance sheets were $ 274 thousand, $ 162 thousand, and $ 112 thousand, respectively. In addition, the Company incurred $ 177 thousand, $ 176 thousand, and $ 45 thousand respectively, in rent expense during the years ended December 31, 2024, 2023, and the period subsequent to the Business Combination in 2022, which is included within Selling, administrative and engineering expense on the consolidated statements of operations and comprehensive loss. +In conjunction with the relocation of LiveWire Labs from California, announced in 2024, the Company moved its equipment from LiveWire Labs to an H-D location in Milwaukee, Wisconsin in September 2024. During the fourth quarter of 2024, the Company began occupying a portion of the space in the H-D location, including operating certain of its equipment, and using a portion for office space. As of December 31, 2024, the Company and H-D were finalizing the terms of a lease for space in this as building. +The Company and H-D finalized negotiations and executed a lease agreement related to this space on January 30, 2025. The Company will record an ROU asset and ROU liability of approximately $ 500 thousand in the first quarter of 2025, which has been reduced for a $ 500 thousand lease incentive to be provided from H-D for tenant improvements. The initial term of the +106 +agreement is 60 months with a renewal option for another 60 months. As of the current date, the Company does not believe it is reasonably certain of exercising the renewal option and, therefore, the lease term is 60 months. +Prior to the Separation, the Company did not operate as a standalone business and the consolidated financial statements were derived from the consolidated financial statements and accounting records of H-D. +Allocation of Expenses and Related Party Activity Prior to the Separation +Prior to the Business Combination, certain costs were allocated to the Company and are reflected as expenses in the consolidated statements of operations and comprehensive loss. The Company considers the allocation methodologies used to be reasonable, such that the allocations appropriately reflected H-D’s historical expenses attributable to the Company for purposes of the consolidated financial statements. However, the expenses reflected in the consolidated financial statements may not be indicative of the actual expenses that would have been incurred during the periods presented if the Company had historically operated as a standalone independent entity. +Manufacturing cost of goods sold +The Company’s electric motorcycles are produced in manufacturing facilities shared with H-D. Certain costs of goods sold for shared facilities and shared manufacturing of $ 3,402 thousand for the period prior to the Business Combination in the year ended December 31, 2022 were specifically identified or allocated, mainly based on standard cost of production. +Operating expense allocation +H-D provided technology support, marketing, engineering, shared assets, finance, and other corporate and administrative services such as treasury, human resources, and legal, to the Company. These expenses of $ 2,702 thousand, in the year ended December 31, 2022 subsequent to Business Combination in the year ended December 31, 2022, have been allocated to the Company and are included in Selling, administrative and engineering expense in the consolidated statements of operations and comprehensive loss, where direct assignment of costs incurred by H-D was not possible or practical. These costs were allocated using related drivers associated with the nature of the business, such as gross revenue and wholesale motorcycle shipments. As a result, the allocations of these costs fluctuated based on changes in these drivers. Other cost allocation metrics, such as headcount and square footage, were not deemed appropriate given the Company’s reliance on facilities and personnel that are shared with H-D. +Cash management and financing +Prior to the Business Combination, the Company’s treasury function maintained by H-D utilized a centralized approach to cash management and the financing of its operations. Under this centralized cash management approach, H-D provided funds to the Company. +Cash transfers from H-D related to services and funding for operations provided by H-D were $ 59,051 thousand for the nine months ended September 25, 2022. Net contributions from H-D are included within Net Parent company investment in the consolidated statements of shareholders' equity. +For the 9 months ended +Net contribution from H-D reconciliation to transfers from H-D September 25, 2022 +Net contribution from H-D $ 79,922 +Settlement of notes payable to related party and accrued interest ( 21,610 ) +Transfer of assets to H-D 568 +Stock compensation expense 171 +Transfers from H-D per cash flow statement $ 59,051 +During the year ended December 31, 2022, the Company borrowed $ 15,333 thousand under the lines of credit agreements prior to their final settlement on June 24, 2022. Pursuant to the Separation Agreement, H-D elected to settle all notes payable to related party outstanding as of June 24, 2022, including accrued interest, through capital contribution and without any cash being exchanged between the Company and H-D. The settlement included the principal amount and accrued interest of $ 20,766 thousand and $ 844 thousand, respectively. The capital contribution to settle the notes payable and accrued interest increased the Net Parent company investment on the consolidated balance sheets. +107 +17. Reportable Segments and Geographic Information +The Company’s reportable segments and significant segment expenses are determined based on how the Company’s Chief Operating Decision Maker (CODM) assesses performance and decides how to allocate resources for the Company. +The Company’s Chief Executive Officer is the Company’s CODM. Operating loss is the measure of profit and loss used by the CODM to assess performance and to decide how to allocate resources for each of the Company’s reportable segments. +Operating loss is used to monitor actual results versus planned and prior period results for each segment based on their respective profitability objectives and business models. Operating loss is also used to allocate human and capital resources among the reportable segments. Additionally, operating loss is a key metric used to establish and pay variable compensation to employees at all levels. +The Company operates in two segments: Electric Motorcycles and STACYC. The Company’s reportable segments are strategic business units that offer different products and services and are managed separately based on the fundamental differences in their operations. +The Electric Motorcycles segment consists of the business activities related to the design and sales of electric motorcycles. The Electric Motorcycles segment also sells electric motorcycle parts, accessories, and apparel. The Company’s products are sold at wholesale to a network of independent dealers and at retail through a Company-owned dealership and through online sales. Prior to November 5, 2024, the Company’s products were sold at retail through select international partners primarily in Europe. +The STACYC segment consists of the business activities related to the design and sales of the STACYC brand of electric balance bikes for kids. The STACYC segment also sells electric balance bike parts, accessories and apparel. STACYC products are sold in the U.S., Canada, Australia and Europe. The STACYC segment products are sold through independent retail partners in the U.S. and Canada, including powersports dealers, H-D dealers, bicycle retailers and direct to customers online. In Australia and Europe, STACYC sells its products through independent distributors and direct to customers online in Europe. +108 +Selected segment information is set forth below for the years ended December 31, (in thousands): +2024 2023 2022 +Electric Motorcycles +Electric motorcycles, parts and accessories and apparel revenue, net $ 8,381 $ 11,548 $ 13,999 +Cost of goods sold 27,018 27,297 23,268 +Selling, administrative and engineering expense: +People Costs (1) +45,507 49,672 34,938 +Other segment items (2) +41,356 51,190 44,898 +Total selling, administrative and engineering expense 86,863 100,862 79,836 +Operating loss $ ( 105,500 ) $ ( 116,611 ) $ ( 89,105 ) +STACYC +Electric balance bikes, parts and accessories and apparel revenue, net 18,252 26,475 32,834 +Cost of goods sold 12,398 16,498 20,661 +Selling, administrative and engineering expense: +People Costs (1) +3,877 3,489 2,473 +Marketing (3) +2,894 3,032 2,431 +Other segment items (4) +3,939 2,834 3,119 +Total selling, administrative and engineering expense 10,710 9,355 8,023 +Operating (loss) income $ ( 4,856 ) $ 622 $ 4,150 +Consolidated operating loss ( 110,356 ) ( 115,989 ) ( 84,955 ) +Other income, net — — 235 +Interest expense related party — — ( 475 ) +Interest income 5,704 10,537 1,191 +Change in fair value of warrant liabilities 10,770 ( 4,020 ) 5,033 +Loss before income taxes $ ( 93,882 ) $ ( 109,472 ) $ ( 78,971 ) +(1) People expenses include salary and related fringe costs, including payroll tax and health and welfare costs, as well as short-term incentive compensation and long-term incentive compensation in the form of share-based awards. +(2) Other segment items for Electric Motorcycles include depreciation and amortization, marketing, rent and facilities costs, warranty, supplies and materials, costs paid for services performed by H-D under the TSA and MSA agreements, travel costs, other professional services and miscellaneous expenses. These costs are all included in Selling, administrative and engineering expense. +(3) Marketing expenses include costs related to digital and print media, social media, website maintenance, consumer experiences, product placement, sponsorships and market research. +(4) Other segment items for STACYC include depreciation and amortization, rent and facilities costs, warranty, supplies and materials, travel costs, other professional services and miscellaneous expenses. These costs are all included in Selling, administrative and engineering expense. These costs are all included in Selling, administrative and engineering expense. +109 +Additional segment information is set forth below as of December 31, (in thousands): +Electric Motorcycles STACYC Consolidated +2024: +Assets $ 120,530 $ 27,430 $ 147,960 +Goodwill $ 7,668 $ 659 $ 8,327 +Depreciation and amortization $ 9,690 $ 351 $ 10,041 +Non-cash stock compensation expense $ 4,159 $ 467 $ 4,626 +Capital expenditures $ 7,972 $ 96 $ 8,068 +2023: +Assets $ 232,981 $ 33,166 $ 266,147 +Goodwill $ 7,668 $ 659 $ 8,327 +Depreciation and amortization $ 5,312 $ 520 $ 5,832 +Non-cash stock compensation expense $ 8,506 $ 420 $ 8,926 +Capital expenditures $ 13,453 $ 9 $ 13,462 +2022: +Assets $ 323,108 $ 28,697 $ 351,805 +Goodwill $ 7,668 $ 659 $ 8,327 +Depreciation and amortization $ 3,882 $ 519 $ 4,401 +Non-cash stock compensation expense $ 367 $ 27 $ 394 +Capital expenditures $ 14,081 $ — $ 14,081 +Customer Information - For the year ended December 31, 2024, no single customer or customer group represented 10% or greater of net accounts receivable. For the years ended December 31, 2023 and 2022, LiveWire generated more than 10% of its consolidated sales from the KTM customer group. T hese sales amounted to 31 %, and 33 % for the years ended 2023 and 2022, respectively, and were included in the STACYC segment. +Geographic Information – Included in the consolidated financial statements are the following amounts relating to geographic locations for the years ended December 31, (in thousands): +2024 2023 2022 +Revenue, net (1) : +United States $ 21,413 $ 30,457 $ 36,256 +Austria 1,055 4,585 4,975 +Other countries 4,165 2,981 5,602 +$ 26,633 $ 38,023 $ 46,833 +Long-lived assets (2) : +United States $ 34,012 $ 37,682 $ 31,567 +International — — — +$ 34,012 $ 37,682 $ 31,567 +(1) Revenue is attributed to geographic regions based on location of customer. +(2) Long-lived assets include all long-term assets except those specifically excluded under ASC Topic 280, Segment Reporting , such as deferred income taxes. +110 +18. Restructuring +On April 24, 2024, the Company announced a plan (“April 2024 Plan”) to both relocate the operations of LiveWire Labs, the Company’s west coast product development facility, from Mountain View, California, to Milwaukee, Wisconsin, and streamline headcount at the Company. The Company believes this plan will enable synergies and optimize efficiencies in product development and simplify the Company’s overall path to future profitability. +In conjunction with this plan, the Company recorded $ 3,043 thousand of employee termination benefits, primarily severance, during the year ended December 31, 2024 within Selling, administrative and engineering expense on the consolidated statements of operations and comprehensive loss in the Electric Motorcycle segment. Of this amount, $ 1,797 thousand related to one-time employee termination benefits recorded pursuant to ASC 420, Exit or Disposal Cost Obligations (“ASC 420”) and the remainder was related to existing contractual arrangements with employees recorded pursuant to ASC 712, Compensation – Nonretirement Postemployment Benefits (“ASC 712”). Additionally, the Company incurred $ 709 thousand of expenses for the year ended December 31, 2024 related to employee relocation and equipment move costs in conjunction with these actions, which was recorded within Selling, administrative and engineering expense on the consolidated statements of operations and comprehensive loss in the Electric Motorcycles segment. As of December 31, 2024, there is $ 304 thousand remaining to be paid related to this reorganization. This amount will be paid in 2025 and there are no other amounts expected to be incurred under this plan. +In September 2024, continuing its focus on the Company’s path to profitability and furthering its strategy, the Company executed a reorganization of its Sales and Marketing function and Product Development and Design function (“September 2024 reorganization”), including consolidating each of these functions under singular leadership and other headcount reductions. In conjunction with this reorganization, the Company recorded $ 1,271 thousand of employee termination benefits, primarily severance, for the year ended December 31, 2024. This amount was recorded within the Electric Motorcycles segment and presented within Selling, administrative and engineering on the consolidated statements of operations and comprehensive loss. Of this amount, $ 776 thousand related to one-time employee termination benefits recorded pursuant to ASC 420, and the remainder was related to existing contractual arrangements with employees recorded pursuant to ASC 712. As of December 31, 2024, there is $ 371 thousand remaining to be paid related to this reorganization. This amount will be paid in 2025 and there are no other amounts expected to be incurred under this reorganization. +The Company recognized a reduction in stock compensation expense of $ 3,753 thousand in the year ended December 31, 2024 resulting from forfeitures of awards related to employees who terminated during 2024 resulting from the above actions. The Company also recorded $ 863 thousand of accelerated depreciation related to LiveWire Labs leasehold improvements resulting from the move from Mountain View, California to Milwaukee, Wisconsin in the year ended December 31, 2024. These amounts were recorded within Selling, administrative and engineering expense on the consolidated statements of operations and comprehensive loss in the Electric Motorcycles segment. +The following table displays a roll-forward of the restructuring liability recorded within the Company’s consolidated balance sheets and the related cash flow activity (in thousands): +Employee Termination Benefits Other Total +Balance at December 31, 2023 $ — $ — $ — +Reserve Established: +April 2024 Plan 3,043 709 3,752 +September 2024 reorganization 1,271 — 1,271 +Total Reserve Established 4,314 709 5,023 +Payments: +April 2024 Plan ( 2,751 ) ( 697 ) ( 3,448 ) +September 2024 reorganization ( 900 ) — ( 900 ) +Total Payments ( 3,651 ) ( 697 ) ( 4,348 ) +Balance at December 31, 2024 $ 663 $ 12 $ 675 +Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +None. +111 +Item 9A. Controls and Procedures +Limitations on effectiveness of controls and procedures +In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. +Evaluation of Disclosure Controls and Procedures +Our management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Form 10-K, the effectiveness of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15d-15(e) under the Exchange Act). Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes are in accordance with U.S. GAAP. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2024, our disclosure controls and procedures were effective. +Management’s Report on Internal Control over Financial Reporting +Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13(a)-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934 (the “Exchange Act”). Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the criteria established in Internal Control – Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management’s evaluation under the framework in Internal Control – Integrated Framework, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2024. +Attestation Report of Independent Registered Public Accounting Firm +This Form 10-K does not include an attestation report of the effectiveness of the Company's internal control over financial reporting as of December 31, 2024 by the Company's registered public accounting firm due to our status as an emerging growth company under the JOBS Act. +Changes in Internal Control over Financial Reporting +There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fourth quarter ended 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. +Item 9B. Other Information +During the three months ended December 31, 2024, no director or Section 16 officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K. +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not applicable. +PART III +112 +Item 10. Directors, Executive Officers and Corporate Governance +Our current directors and executive officers as of the date of this Annual Report are as follows: +Name Age* Position +Executive Officers: +Karim Donnez 48 Chief Executive Officer +Tralisa Maraj 49 Chief Financial Officer +Ryan Ragland 49 Head of Product Development & Design +Allen Gerrard 52 General Counsel & Board Secretary +Jon Bekefy 48 Head of Global Sales & Marketing +Non-Employee Directors: +William Cornog 60 Director +John Garcia 68 Director +Kjell Gruner 57 Director +Glen Koval 50 Director +Paul Krause 46 Director +Luke Mansfield 48 Director +Hiromichi Mizuno 59 Director +Jonathan Root 51 Director +Jochen Zeitz 61 Board Chairman +*As of February 21, 2025 +Executive Officers +Karim Donnez is Chief Executive Officer of LiveWire. Mr. Donnez joins LiveWire from Bombardier Recreational Products Inc. (“BRP”) where he was most recently President of BRP’s Marine Group, having held various roles since joining the company in 2015, including SVP, Strategy, Business Development, IS&T and Transformation. Prior to joining BRP, Mr. Donnez held leadership positions at Rio Tinto, where most recently Mr. Donnez served as General Manager, Refinery & Energy for Rio Tinto Kennecott. Mr. Donnez also oversaw business transformation initiatives as part of corporate global functions. Mr. Donnez started his career at Accenture as an Analyst (formerly Anderson Consulting) in 2000 and departed in 2008 as a Senior Manager. Mr. Donnez holds an MSc in Engineering from Arts et Métiers Paris Tech and an MBA from HEC Montréal. Mr. Donnez currently serves on the board of directors of Oliva Tech. +Tralisa Maraj is our Chief Financial Officer. Ms. Maraj has served as Chief Financial Officer of LiveWire since summer 2022. Prior to joining LiveWire, Ms. Maraj was Chief Financial Officer of CGX Energy Inc. from January 2012 to November 2021. Before joining CGX Energy Inc., Ms. Maraj held the role of Corporate Controller at Remora Energy from October 2009 to October 2011. Prior to this, Ms. Maraj spent a total of 14 years at PricewaterhouseCoopers from September 1995 to October 2009 with her last position being that of Senior Manager. Ms. Maraj is a Charted Accountant under the Association of Chartered Certified Accountants in the UK and CPA licensed in the State of Texas. +Ryan Ragland was appointed as our Head of Product Development and Design at LiveWire in November 2024 where he leads innovative product and design strategies. In 2016, Mr. Ragland co-founded StaCyc which introduced the first electric balance bike and transformed how young riders experience motorcycling. Upon StaCyc being acquired by Harley-Davidson in 2019, Mr. Ragland continued in a leadership role as CEO and Chief of Brand and Product of StaCyc. Mr. Ragland previously worked as a Principal Engineer at Rev.1 Engineering where he contributed to medical device advancements. Mr. Ragland also held several titles at KTM North America, Inc., where he managed R&D programs and advanced product testing strategies. Mr. Ragland holds a Bachelor of Science degree in Mechanical Engineering from San Diego State University. +113 +Allen Gerrard is our General Counsel & Board Secretary. Mr. Gerrard joins LiveWire from Harley-Davidson (“H-D”) where he was most recently Assistant General Counsel, Products & Strategy and Assistant Secretary. Mr. Gerrard held several legal leadership roles at H-D providing guidance to H-D’s leadership team since 2017. Prior to joining H-D, Mr. Gerrard held various legal positions at PepsiCo, Inc., GE Healthcare and Fiserv, Inc. Mr. Gerrard holds a J.D. from Pace University Elizabeth Haub School of Law in White Plains, N.Y. and a B.A. in Political Science from the University of Colorado Boulder. +Jon Bekefy was appointed as our Head of Global Sales & Marketing at LiveWire in November 2024 where he leads global sales, marketing, and digital efforts. Prior to joining LiveWire, Mr. Bekefy served as the GM of Brand Marketing for Harley-Davidson from 2019-2021. Prior to Harley-Davidson, Mr. Bekefy was instrumental in electric vehicle start-ups at Alta Motors from 2015-2017 serving in marketing leadership, and at Mission Motors from 2013 to 2015. Jon Holds a B.A. from the University of Delaware. +Non-Employee Directors +William L. Cornog has served on the Board since September 2022 and serves as the Chairman of the Audit and Finance Committee and the Conflicts Committee. Mr. Cornog is the former head of KKR Capstone (2002-2022), the portfolio operations team of KKR & Co. In addition to leading Capstone, Mr. Cornog chaired KKR’s Portfolio Management Committees for the Americas, Europe, Asia, Infrastructure, Impact & Technology Growth and was a member of the Investment & Distribution and Valuation Committees. Prior to joining KKR, Mr. Cornog was with Williams Communications Group as the Senior Vice President and General Manager of Network Services. Prior to that, Mr. Cornog was a partner at The Boston Consulting Group and worked at Age Wave Communications and SmithKline Beckman Corporation (GSK). Mr. Cornog served as a board member at Channel Control Merchants from June 2020-March 2024, which was a KKR portfolio company. Mr. Cornog currently serves as a board member of Brightview Holdings, Inc. (NYSE: BV), and as a board member and Chairman of the Value Creation Committee at Azenta (AZTA), both publicly traded companies. Private company and philanthropic boards include Griffin Highline, Blue Crow Sports Group, and The Knight Campus at the University of Oregon. Mr. Cornog earned a B.A. from Stanford University and an M.B.A. from Harvard Business School. +Dr. John Garcia has served on the Board since September 2022 and is the Executive Chairman of AEA Investors LP. Dr. Garcia joined AEA in 1999 as a Partner. In 2002, Dr. Garcia became President of AEA Investors LP. In 2006, Dr. Garcia also became Chief Executive Officer of AEA Investors LP, during which time he was responsible for all operational aspects of AEA including fundraising, investment review process, growth and strategy and operations. Dr. Garcia was also named Chairman of AEA Investors LP in 2012 and in 2019, in connection with relinquishing the title of Chief Executive Officer, he became the Executive Chairman. Since 1999, under his leadership, AEA has made over 90 private equity investments totaling over $11 billion of invested capital. Dr. Garcia was also instrumental in the creation of the AEA Private Debt Funds in 2005 and the AEA Small Business Funds in 2004. Dr. Garcia has served on the board of numerous AEA portfolio companies in addition to various other companies. Dr. Garcia has a long history of working together with family owned and entrepreneur-led businesses and investors to help them maximize their potential. Dr. Garcia earned a B.Sc. from the University of Kent, an M.A. and Ph.D. in Organic Chemistry from Princeton University, and an MBA from Wharton School of the University of Pennsylvania. +Dr. Kjell Gruner has served on the Board since September 2022. Dr. Gruner is currently the President and CEO of the Volkswagen Group of America since December 2024, and served previously as Chief Commercial Officer and President, Business Growth of Rivian from September 2023. Previously he was the President and Chief Executive Officer of Porsche Cars North America from November 2020 to July 2023. Dr. Gruner served as the global Chief Marketing Officer of Porsche from September 2010 to October 2020 and as Director of Strategy Mercedes-Benz Cars during his tenure at Daimler AG from 2004 to 2010. Prior to that time, he worked for Porsche and for the Boston Consulting Group (BCG). Dr. Gruner earned a Master’s Degree from Karlsruhe Institute of Technology and a PhD S.C.L in Marketing from WHU–Otto Beisheim School of Management. +Glen Koval has served on the Board since September 2022 and is currently the Senior Vice President of Global Motorcycle Development at Harley-Davidson. Mr. Koval has held several leadership positions at Harley-Davidson that includes serving as Vice President of Motorcycle Development from August 2022 to July 2024, Vice President of Engineering from January 2021 to July 2022, General Manager of Engineering from May 2020 to January 2021, and Chief Engineer from January 2017 to May 2020. Mr. Koval holds a Bachelor of Engineering from Marquette University and an MBA from Concordia University-Wisconsin. +Paul Krause has served on the Board since June 2023 and is currently the Chief Legal Officer, Chief Compliance Officer, and Corporate Secretary of Harley-Davidson, Inc. Mr. Krause joined Harley-Davidson in 2016 where he has served in various roles, which includes Interim Chief Legal Officer and Assistant General Counsel. Additionally, Mr. Krause is responsible for leading the global legal support for Harley-Davidson, Inc. in all areas including public company operations, corporate governance, global compliance, manufacturing, sales, dealer support, litigation, trademarks, and intellectual property. Mr. Krause oversaw the separation of LiveWire from Harley-Davidson in March 2020 and the process of establishing LiveWire +114 +Group, Inc. as a separate public company. Prior to joining Harley-Davidson, Mr. Krause was an attorney for ArcelorMittal, a global steel manufacturer, and the law firm of Littler Mendelson. Mr. Krause graduated from Marquette University Law School in 2004 and from Drake University, with a Bachelor of Science in Business Administration in 2000. +Luke Mansfield has served on the Board since February 2024 and has over 20-years of experience leading growth, product, strategy, and innovation for some of the world’s most iconic companies. Mr. Mansfield joined Harley-Davidson in October 2018 and is currently the Chief Commercial Officer. At Harley-Davidson, Mr. Mansfield has held various leadership roles including Vice President – Chief Strategy Officer from 2018 to 2020 and Vice President-Motorcycle Management from 2020 to January 2024. Additionally, Mr. Mansfield has held and succeeded in global leadership roles within automotive, consumer electronics, and FMCG companies. Mr. Mansfield holds a Master’s Degree in Chemistry from the University of Oxford. +Hiromichi Mizuno has served as an Independent Board Member since June 2023 and is the Founder and CEO of Good Steward Partners, LLC. He currently serves as Special Advisor to CEO of MSCI, Inc. and Mission Committee Member of Danone S.A. He is the former Special Envoy of U.N. Secretary General on Innovative Finance and Sustainable Investments, the former Non-Executive Board Member of Tesla, Inc., and the former Special Advisor to the Minister of Economy, Trade and Industry of Japan. He previously served as Executive Managing Director and Chief Investment Officer of Government Pension Investment Fund of Japan (GPIF), the largest pension fund in the world with AUM $1.5 trillion. Prior to joining GPIF, Hiromichi was a partner at Coller Capital, a London-based private equity firm after working for Sumitomo Trust & Banking Co., Ltd. in Japan. His involvements with academic institutions include Executive Fellow of Harvard Business School, Harvard University, Executive in Residence and Global Leadership Council Member of Said Business School, Oxford University, Visiting Fellow of Cambridge Judge Business School, University of Cambridge, Senior Fellow of Kellogg School of Management, Northwestern University, Guest Professor of Osaka University Graduate School of Medicine, Advisor, and CiRA (Center for iPS Cell Research and Application, Kyoto University) Foundation. +Jonathan Root has served on the Board since July 2023 and is the Chief Financial Officer and President Commercial of Harley-Davidson, Inc. He previously served as the SVP of Harley-Davidson Financial Services (“HDFS”) where he oversaw the global HDFS business as President of Eaglemark Savings Bank, President of Harley-Davidson Insurance, and President of all other HDFS subsidiaries. Mr. Root has been responsible for both strategy and execution of Harley-Davidson’s motorcycle retail lending, branded credit card partnerships, commercial lending, and retail/commercial/insurance operations. Mr. Root has over 25 years of financial services and corporate finance experience. Mr. Root joined HDFS in 2011 and has held multiple roles across Harley-Davidson including VP, Insurance. Prior to HDFS, Mr. Root held a variety of roles at Ally Financial, Inc., GMAC Financial Services, Inc., and General Motors, Inc. Mr. Root holds an MBA from the University of Detroit Mercy and a Bachelor of Science in Corporate Finance from Wayne State University. +Jochen Zeitz is our Chairman of the Board. Mr. Zeitz has been a director of Harley-Davidson since 2007 and served as its Acting President and Chief Executive Officer from February 2020 until May 2020, when he was appointed as H-D’s President and Chief Executive Officer. Mr. Zeitz has also served as H-D’s Chairman of the Board since February 2020. Mr. Zeitz served as Chairman and Chief Executive Officer of the sporting goods company PUMA AG from 1993 to 2011. He was also PUMA’s Chief Financial Officer from 1993 to 2005. Mr. Zeitz served as a director of luxury goods company Kering (formerly PPR) from 2012 to 2016. He was a member of Kering’s Executive Committee and Chief Executive Officer of its Sport & Lifestyle division from 2010 to 2012. Mr. Zeitz is an Advisor and Board Member of the Cranemere Group Limited and co-founded The B Team with Sir Richard Branson. He is also the Founder and Chairman of the ZEITZ foundation, Founder of Segera Conservancy and The Long Run, and Co-Founder of the Zeitz Museum of Contemporary Art Africa (Zeitz MOCAA) in Cape Town, which preserves and exhibits contemporary art from Africa and its diaspora. +Family Relationships +There are no family relationships between any of LiveWire’s executive officers and directors. +Code of Ethics +We have adopted a written code of business conduct and ethics, which applies to all of our directors, officers and employees, including our principal executive officer, our principal financial officer, our principal accounting officer, and other persons performing similar finance functions. Our Code of Business Conduct and Ethics is available on our website www.livewire.com in the “Governance & Leadership” section under “Governance Documents.” In addition, we intend to post on our website all disclosures that are required by law or listing rules of the New York Stock Exchange concerning any amendments to, or waivers from, any provision of our Code of Business Conduct and Ethics. The information contained on our website is not incorporated by reference into this Annual Report on Form 10-K. +115 +The other information required by this Item will be included in the Proxy Statement under the caption Board Matters and Corporate Governance and is incorporated by reference herein. The information on beneficial ownership reporting compliance will be contained under the caption Delinquent Section 16(a) Reports in the Proxy Statement and is incorporated by reference herein. +Item 11. Executive Compensation +The information required by this Item will be included in the Proxy Statement under the captions Executive Compensation and is incorporated by reference herein. +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The information required by this Item will be included in the Proxy Statement under the caption Common Stock Ownership of Certain Beneficial Owners and Management and is incorporated by reference herein. +Item 13. Certain Relationships and Related Transactions, and Director Independence +The information required by this Item will be included in the Company's Proxy Statement under the captions Certain Transactions and Relationships and Board Matters and Corporate Governance and are incorporated by reference herein. +Item 14. Principal Accountant Fees and Services +The information required by this Item will be included in the Company's Proxy Statement under the caption Independent Registered Public Accounting Firm and is incorporated by reference herein. +116 +PART IV +Item 15. Exhibits and Financial Statement Schedules +(a) The following documents are filed as part of this Form 10-K: +(1) +Financial Statements under Item 8. Consolidated Financial Statements and Supplementary Data +Report of Independent Registered Public Accounting Firm +74 +Consolidated statements of operations and comprehensive loss for the years ended December 31, 202 4 , 202 3 , and 2 0 2 2 +75 +Consolidated balance sheets at December 31, 202 4 and 202 3 +76 +Consolidated statements of cash flows for the years ended December 31, 202 4 , 202 3 , and 202 2 +77 +Consolidated statements of shareholders’ equity for the years ended December 31, 202 4 , 202 3 , and 202 2 +78 +Notes to Consolidated financial statements +79 +(2) Financial Statement Schedule +Schedule II – Valuation and qualifying accounts +118 +(3) +Exhibits +119 +Reference is made to the separate Index to Exhibits contained on the following pages filed herewith. +All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedules. +117 +LIVEWIRE GROUP, INC. +SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS +(In thousands) +Years Ended +2024 2023 2022 +Accounts receivable - Allowance for doubtful accounts +Balance, beginning of period $ 140 $ 211 $ 66 +Provision charged to expense 231 52 169 +Reserve adjustments — — ( 16 ) +Write-offs, net of recoveries ( 69 ) ( 123 ) ( 8 ) +Balance, end of period $ 302 $ 140 $ 211 +Inventories - Allowance for obsolescence +Balance, beginning of period $ 3,539 $ 1,320 $ 7,021 +Provision charged to expense 1,957 2,219 1,074 +Reserve adjustments (1) +— — ( 6,691 ) +Write-offs, net of recoveries ( 835 ) — ( 84 ) +Balance, end of period $ 4,661 $ 3,539 $ 1,320 +Deferred tax assets - Valuation allowance +Balance, beginning of period $ 9,693 $ 8,312 $ 915 +Adjustments 3,555 1,381 7,397 +Balance, end of period $ 13,248 $ 9,693 $ 8,312 +(1) In connection with the Business Combination, the reserve adjustments represent the inventory reserves retained by H-D related to H-D branded electric motorcycles and related products. See Note 4, Business Combination, for further details. +118 +INDEX TO EXHIBITS +Items 15(a)(3) and 15(c) +Exhibit No. Description Form File No. Filing Date Exhibit Number Filed/Furnished herewith +2.1† +Business Combination Agreement, dated as of December 12, 2021, by and among Harley-Davidson, Inc., AEA-Bridges Impact Corp., LW EV Holdings, Inc., LW EV Merger Sub, Inc. and LiveWire EV, LLC 8-K 001-39584 12/15/2021 2.1 +3.1 +Amended and Restated Certificate of Incorporation of LiveWire Group, Inc. 8-K 001-41511 9/30/2022 3.1 +3.2 +Amended and Restated Bylaws of LiveWire Group, Inc. 8-K 001-41511 9/30/2022 3.2 +4.1 +Warrant Agreement, dated as of October 1, 2020, by and between the Company and Continental Stock Transfer & Trust Company, as Warrant Agent 8-K 001-39584 10/7/2020 4.4 +4.2 +Specimen Warrant Certificate S-1 333-248785 9/14/2020 4.3 +4.3 +Description of our Securities * +10.1 +Form of Indemnification Agreement 8-K 001-41511 9/30/2022 10.1 +10.2 +Form of Investment Agreement S-4 333-262573 2/7/2022 10.3 +10.3 +Registration Rights Agreement, dated as of September 26, 2022, by and among LiveWire EV, LLC and the holders party thereto 8-K 001-41511 9/30/2022 10.3 +10.4+ +LiveWire Group, Inc. 2022 Incentive Award Plan 8-K 001-41511 9/30/2022 10.4 +10.5# +Separation Agreement, dated as of September 26, 2022, by and among LiveWire EV, LLC and Harley-Davidson, Inc. 8-K 001-41511 9/30/2022 10.5 +10.6 +Tax Matters Agreement, dated September 26, 2022, by and among LiveWire Group, Inc. and Harley-Davidson, Inc. 8-K 001-41511 9/30/2022 10.6 +10.7# +Contract Manufacturing Agreement, dated as of September 26, 2022, by and among LiveWire EV, LLC and Harley-Davidson Motor Company Group, LLC 8-K 001-41511 9/30/2022 10.7 +10. 8# +Amended and Restated Master Services Agreement, dated as of December 23, 2024, by and among LiveWire EV, LLC and Harley-Davidson, Inc. 8-K 001-41511 12/26/2024 10.1# +10. 9# +Intellectual Property Agreement, dated as of September 26, 2022, by and among LiveWire EV, LLC and Harley-Davidson, Inc. 8-K 001-41511 9/30/2022 10.10 +10.1 0# +Trademark License Agreement, dated as of September 26, 2022, by and among LiveWire EV, LLC and Harley-Davidson, Inc. 8-K 001-41511 9/30/2022 10.11 +10.1 1# +Joint Development Agreement, dated as of September 26, 2022, by and among LiveWire EV, LLC and Harley-Davidson, Inc. 8-K 001-41511 9/30/2022 10.12 +10.1 2+ +Employee Matters Agreement, dated as of September 26, 2022, by and among LiveWire EV, LLC and Harley-Davidson, Inc. 8-K 001-41511 9/30/2022 10.13 +10.1 3 # +KYMCO Contract Manufacturing Agreement, dated as of September 26, 2022, by and among LiveWire EV, LLC and Kwang Yang Motor Co., Ltd 8-K 001-41511 9/30/2022 10.14 +119 +INDEX TO EXHIBITS +Items 15(a)(3) and 15(c) +Exhibit No. Description Form File No. Filing Date Exhibit Number Filed/Furnished herewith +10.1 4 +Investor Support Agreement, dated as of December 12, 2021, by and among AEA-Bridges Sponsor LLC, LiveWire EV, LLC, LiveWire Group, Inc. (formerly known as LW EV Holdings, Inc.), Harley-Davidson, Inc., John Garcia, John Replogle, and George Serafeim S-4 333-262573 5/20/2022 10.16 +10.1 5 # +Long Term Collaboration Agreement, dated as of December 12, 2021, by and between LiveWire EV, LLC and Kwang Yang Motor Co., Ltd. S-4 333-262573 2/7/2022 10.7 +10.1 6 + +Director Compensation Policy * +10.1 7 + +LiveWire Group, Inc. Non-Employee Director Compensation Policy * +10.1 8 + +Form of Restricted Stock Unit Award Agreement * +10.19+ +Form of Restricted Stock Unit Award Agreement – Non-compete * +10.20+ +Form of Restricted Stock Unit Award – International * +10.21+ +Form of Performance Stock Unit Award Agreement * +10.2 2 +LiveWire Group, Inc. Executive Severance Plan 8-K 001-41511 5/10/2023 10.1 +10.2 3 +Convertible Delayed Draw Term Loan Agreement 8-K 001-41511 2/16/2024 10.1 +19.1 +LiveWire Group, Inc. Insider Trading Compliance Policy * +21.1 +Listing of LiveWire Group, Inc. Subsidiaries * +23.1 +Consent of Independent Registered Public Accounting Firm * +31.1 +Chief Executive Officer Certification pursuant to Rule 13a-14(a) * +31.2 +Chief Financial Officer Certification pursuant to Rule 13a-14(a) * +32.1 +Written Statement of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. §1350 ** +97 +LiveWire Group, Inc. Clawback Policy 10-K 001-41511 2/23/2024 97 +101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document * +101.SCH XBRL Taxonomy Extension Schema Document * +101.CAL XBRL Taxonomy Extension Calculation Linkbase Document * +101.DEF XBRL Taxonomy Extension Definition Linkbase Document * +120 +INDEX TO EXHIBITS +Items 15(a)(3) and 15(c) +Exhibit No. Description Form File No. Filing Date Exhibit Number Filed/Furnished herewith +101.LAB XBRL Taxonomy Extension Label Linkbase Document * +101.PRE XBRL Taxonomy Extension Presentation Linkbase Document * +104 Cover Page Interactive Data File - formatted in Inline XBRL and contained in Exhibit 101 * +† The annexes, schedules and certain exhibits to this Exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Registrant hereby agrees to furnish supplementally a copy of any omitted annex, scheduled or exhibit to the SEC upon request. +# Certain portions of this exhibit (indicated by “[***]”) have been omitted pursuant to Regulation S-K, item 601(b)(10). +* Filed herewith. +** Furnished herewith. ++ Indicates a management contract or compensatory plan, contract or arrangement. +121 +Item 16. Form 10-K Summary +Not applicable. +122 +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 21, 2025. +LiveWire Group, Inc. +By: /s/ Karim Donnez +Karim Donnez +Chief Executive Officer +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 21, 2025. +Name Title +/s/ Karim Donnez Chief Executive Officer +Karim Donnez (Principal Executive Officer) +/s/ Tralisa Maraj Chief Financial Officer +Tralisa Maraj (Principal Financial Officer and Principal Accounting Officer) +/s/ William Cornog Director +William Cornog +/s/ John Garcia Director +John Garcia +/s/ Kjell Gruner Director +Kjell Gruner +/s/ Glen Koval Director +Glen Koval +/s/ Paul Krause Director +Paul Krause +/s/ Luke Mansfield Director +Luke Mansfield +/s/ Hiromichi Mizuno Director +Hiromichi Mizuno +/s/ Jonathan Root Director +Jonathan Root +/s/ Jochen Zeitz Board Chairman +Jochen Zeitz +123 \ No newline at end of file diff --git a/raw/filings/0001898795/2024/0001898795-25-000055/filing_metadata.csv b/raw/filings/0001898795/2024/0001898795-25-000055/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..9c4583a819e5fb1a89256d89fcbf2fa3a41c187a --- /dev/null +++ b/raw/filings/0001898795/2024/0001898795-25-000055/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001898795,LVWR-WT,"LiveWire Group, Inc.",2024,10-K,2025-02-21,2024-12-31,2025-02-21T22:06:10.000Z,0001898795-25-000055,lvwr-20241231.htm,10-K,12606449,1,1,https://www.sec.gov/Archives/edgar/data/1898795/000189879525000055/lvwr-20241231.htm,https://www.sec.gov/Archives/edgar/data/1898795/000189879525000055/ diff --git a/raw/filings/0001898795/2024/0001898795-25-000055/item1.txt b/raw/filings/0001898795/2024/0001898795-25-000055/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..cd8c53a3e351499c42f2e837e419f84442f09a92 --- /dev/null +++ b/raw/filings/0001898795/2024/0001898795-25-000055/item1.txt @@ -0,0 +1,158 @@ +Item 1. Business +General +LiveWire Group, Inc., a Delaware corporation, and its consolidated subsidiaries are referred to in this Form 10-K as “we,” “our,” “us,” the “Company,” or “LiveWire.” LiveWire is an industry-leading all-electric motorcycle brand with a focus on pioneering the growing two-wheel electric motorcycle space. +LiveWire was a direct, wholly owned subsidiary of AEA-Bridges Impact Corp (“ABIC”), which was originally incorporated as a Cayman Islands exempted company on July 29, 2020, as a special purpose acquisition company (“SPAC”) with the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities. In connection with the transactions (the “Business Combination”) pursuant to the business combination agreement, dated as of December 12, 2021 (the “Business Combination Agreement”), by and among ABIC, LiveWire EV Holdings, Inc., a Delaware corporation (now known as “LiveWire Group, Inc.”), LW EV Merger Sub, Inc., a Delaware corporation (“Merger Sub”), Harley-Davidson, Inc. (“H-D”), and LiveWire EV, LLC (“Legacy LiveWire”), a wholly-owned subsidiary of H-D, we entered into a number of agreements with H-D, including the Separation Agreement, dated as of September 26, 2022, by and between H-D and Legacy LiveWire and consummated the separation of the Legacy LiveWire business and other transaction contemplated by the Separation Agreement (the “Separation”). +The Company assessed that it has two reportable segments based upon how management reviews the operations of the business: Electric Motorcycles (“Electric Motorcycles”) and STACYC (“STACYC”). The Company's reportable segments are strategic business units that offer different products and services and are managed separately based on the fundamental differences in their operations. The Electric Motorcycles segment primarily focuses on the designing and selling of electric motorcycles and also sells electric motorcycle parts, accessories, and apparel. Electric motorcycles are sold at wholesale to a network of independent dealers and retailers, at retail through a Company-owned dealership, and through online sales. The STACYC segment primarily focuses on the designing and selling of electric balance bikes for kids, and related parts and accessories. The STACYC segment products are sold at wholesale to independent dealers and independent distributors, as well as direct to consumers online. +Vision and Growth Strategy +LiveWire’s vision is to lead the next generation of motorcycling with products that combine the experience of electric powertrains with the soulful connection that comes from riding a motorcycle. The underpinning strategy is to accelerate the electric vehicle transformation of the two-wheel industry while building a leadership position in the market. Directing the shift to electric vehicles is a mission-driven leadership team with the competitive advantages of strategic partnerships with H-D and the KYMCO Group and having a pipeline of future products for both Electric Motorcycles and STACYC segments. +LiveWire’s Strategic Priorities +Lead in Electric and the Transformation of Motorcycling - The electric vehicle market will include both established manufacturers and new entrants. To establish market share and scale our business, LiveWire plans to continue building global distribution capabilities and make investments in research and development for the commercialization of future generations of LiveWire electric motorcycles, related technologies and other products. +Capture Global Share of the Electric Motorcycle Market - LiveWire strategically selects our retail partners based upon their commitment to electric, location and capabilities to support the electric vehicle capture. Our 2025 priority markets include the United States, Canada and leading countries in Europe such as Germany, France, Switzerland, the Netherlands, the United Kingdom, Spain, and Italy. +Lead in Brand Desirability - LiveWire’s ambition is to create the most desirable electric motorcycle brand in the world. As a brand, LiveWire leverages Soulful by Design as its consumer-facing position. This differentiates LiveWire from others in the category, showcasing a rider’s connection to the world through the LiveWire riding experience. LiveWire’s go-to-market model allows for a consumer-defined journey across digital and physical platforms for an omni-channel experience. +In addition to the network of retail partners, LiveWire is currently making investments to provide potential customers with other opportunities to engage with the LiveWire brand and try LiveWire products. Our location in Malibu, California opened in +5 +February 2022, giving riders an additional venue to experience the LiveWire brand. In August 2023, we added another location in Los Angeles, California to provide riders with the opportunity to experience the LiveWire brand. +Share the Love of Riding - STACYC’s mission has been to Share the Love of Riding , designing and selling electric stability bikes for kids, enabling the development of their skillset and powering their journey to independence on two wheels while preparing them to become the next generation of riders. STACYC’s current portfolio includes four sizes of product for kids ages 3 to 12. The Company sells through powersports dealers, in addition to digital channels, while leveraging licensing deals with traditional powersport Original Equipment Manufacturers (“OEM”) to increase reach and scale. +Strategic Partnerships +LiveWire benefits from two important strategic partners: H-D and Kwang Yang Motor Co., Ltd., KYMCO Capital Fund I Co., Ltd., SunBright Investment Co., Ltd., CycleLoop Co., Ltd. and Kwang Yang Holdings Limited (collectively, the “KYMCO Group”). These partners have been selected based on their track record in their respective segments, the strength of their global capabilities, and the complementary fit with the LiveWire business. These partnerships give LiveWire a unique ability to deliver high-quality products to the global market in a capital-efficient approach. +H-D is one of the most recognized motorcycle brands in the world, with capabilities to design, develop, manufacture, market and distribute vehicles to major markets around the globe. Beyond the various service agreements tied to the Separation (as defined below), LiveWire intends to leverage H-D’s capabilities in two key areas: technical and other services and contract manufacturing. +The KYMCO Group sells a globally recognized brand of scooters, motorcycles and side-by-side ATVs. The KYMCO Group goes to market with a sales footprint covering over 100 countries, including a growing subset of electric vehicle-specific distribution points. In addition to core sales activities of the KYMCO Group brand, it is a trusted design and manufacturing partner to other premium two-wheel original equipment manufacturers. On November 5, 2024, LiveWire announced a non-binding Memorandum of Understanding with Kwang Yang Motor Co., LTD. and its relevant subsidiaries (“KYMCO”) to collaborate on a new electric maxi-scooter project. +LiveWire will draw on H-D’s and the KYMCO Group’s best-in-class operations, benefiting from knowledge, scale and infrastructure across material sourcing, electric vehicle building and global distribution. +Strategic Agreements with H-D +In connection with the Business Combination , we entered into a number of agreements with H-D to govern the Separation and provide a framework for the relationship between the parties going forward pursuant to which we and/or H-D have continuing obligations to each other . All transactions with H-D subsequent to the Business Combination are considered related party transactions. Agreements that the Company entered into in connection with the Separation include: +Transition Services Agreement +On September 26, 2022, we entered into a Transition Services Agreement with H-D (the “Transition Services Agreement”) pursuant to which H-D provided to us various services and support on a transitional basis to allow LiveWire to develop the capability to support ourselves or to engage a third-party provider to provide those services and support. +The charges for the services were on a cost-plus basis (with a mark-up to reflect the management and administrative cost of providing the serv ices). The services generally commenced on the date of the Separation and were intended to terminate between six and twelve months of the date of the Separation, with the option to extend or convert the services to longer term under the Master Service Agreement. All services under the Transition Services Agreement have either terminated or have been included in the Master Services Agreement executed on December 23, 2024 and effective on January 1, 2025 discussed below. +6 +Master Services Agreement +On September 26, 2022, we entered into a master services agreement with H-D pursuant to which H-D provided us with certain services that we did not yet have the capability to perform for ourselves, including services related to testing and development, product regulatory support, color materials, finishes, paint and graphics, technical publication, application support and maintenance, service desk support, warehousing support, safety investigation, and marketing vehicle and fleet center, as we may request from time to time. On December 23, 2024, we entered into a new Master Services Agreement (the “Master Services Agreement”) with H-D. The Master Services Agreement became effective on January 1, 2025, and terminated the master services agreement, dated September 22, 2022, between LiveWire and H-D. Pursuant to the Master Services Agreement, H-D will continue to provide LiveWire with certain services that LiveWire determined would be better outsourced at this time, including services that support testing and development, product regulatory support, color materials, finishes, paint and graphics, technical publication, application support and maintenance, service desk support, warehousing support, and other corporate support services. The new Master Services Agreement incorporates a subset of support services previously provided under the now expired Transition Services Agreement including services where LiveWire utilizes H-D’s subject matter experts for targeted guidance or allow LiveWire to leverage H-D’s systems or equipment for cost savings purposes. The Master Services Agreement contemplates that each of the services shall be provided to LiveWire as detailed under the terms of the Master Services Agreement and the exhibit thereto or as set forth in a separate, mutually agreed upon letter agreement. The Master Services Agreement also provides that any service or project not contemplated by the Master Services Agreement will be set forth in a separate, mutually agreed upon side letter or letter agreement, and any fee for such service or project will be separate than the fee provided for in the Master Services Agreement. The Master Services Agreement has an initial term of seven years and will be renewable upon mutual agreement. The Master Services Agreement or any related letter agreement for additional services may be terminated by either party upon the other party’s material, uncured breach. H-D may also terminate the agreement upon LiveWire’s change of control or, at the end of a calendar year upon 180 days written notice, in the event that LiveWire failed to engage H-D to manufacture at least forty percent of LiveWire’s production during that calendar year. The charges for the services will be a flat monthly fee representing cost plus a markup. A joint steering committee composed of senior executives and/or designees of each party will meet annually to formulate a forecast and plan for LiveWire’s anticipated service needs, as well as adjust the monthly fee as appropriate, and will oversee the progress of the services and address any disputes. +Contract Manufacturing Agreement +On September 26, 2022, we entered into a Contract Manufacturing Agreement with H-D (the “Contract Manufacturing Agreement”) pursuant to which H-D provides contract manufacturing and procurement services to us for the products in our LiveWire platform, as well as future anticipated platforms. H-D is our exclusive manufacturer for these platforms for five years from the date that H-D begins manufacturing the relevant platform (and five years from the Separation for the LiveWire platform). Following this exclusivity period, we may terminate the agreement for one or more products within the relevant platform upon two years’ notice, subject to payment of certain termination charges (which are intended to compensate H-D for its capital investment and other sunken costs). The Contract Manufacturing Agreement may also be terminated, in whole or part, by either party upon the other party’s material, uncured breach, inability to perform its obligations for more than six months due to a force majeure event, bankruptcy or insolvency, or change of control. On February 14, 2024, the Contract Manufacturing Agreement was amended to extend the period of which H-D is the exclusive manufacturer from five years as described above to six years. +Beginning for calendar year 2026, LiveWire will be subject to a minimum annual volume commitment for each product and pay a deficit fee for failure to meet the minimum under the Contract Manufacturing Agreement. The products that H-D manufactures for us are priced on a cost-plus basis, with a mark-up of H-D’s cost for manufacturing the relevant product. An operational committee consisting of designated employees of each party will meet quarterly for administrative purposes, including for the review of changes to pricing, minimum volumes and other terms. H-D will procure, on our behalf, equipment and materials that are used in both H-D’s and our products, and we will procure all other equipment and materials, as well as tooling, needed to manufacture the products. +Intellectual Property License Agreement +On September 26, 2022, we entered into an Intellectual Property License Agreement with H-D (the “Intellectual Property License Agreement”) pursuant to which each party granted to the other party a license to certain intellectual property on a perpetual, non-exclusive basis for the purpose of making and selling the licensee’s products. +H-D perpetually licenses to us all H-D intellectual property (other than marks or software) used in our business as of the Separation and certain additional specified intellectual property, as well as all improvements to the foregoing (but excluding (i) any H-D manufacturing intellectual property and (ii) intellectual property relating to motorcycle riding apparel and related general merchandise). We perpetually license to H-D all intellectual property (other than marks or software) that we own as of +7 +the Separation and all improvements thereto. If either party makes improvements to the other party’s intellectual property, such improvements will be jointly owned by the parties. +The licenses are generally royalty-free. However, if either party desires to exercise its license with respect to improvements introduced by the other party in next-generation vehicles (rather than a “carry over” or a “model refresh”), then the parties will mutually agree in good faith on a reasonable royalty to be paid. In addition, if H-D desires to sell any products that incorporate our intellectual property outside of the Large Cruiser, Touring and Adventure Touring markets during the seven-year period following the Separation, the parties will mutually agree in good faith on a reasonable royalty to be paid on such sales (but not on sales relating to LiveWire-branded H-D motorcycles or related LiveWire parts and accessories). +Each party owns improvements that it creates to its own intellectual property, and the parties jointly own improvements that one party creates to the other party’s intellectual property, without a right of accounting. +Trademark License Agreement +On September 26, 2022, we entered into a Trademark License Agreement with H-D (the “Trademark License Agreement”) pursuant to which H-D granted to us a royalty-free license to use certain H-D trademarks with respect to our products. The Trademark License Agreement automatically renewed on September 26, 2024 and automatically renews for successive two-year periods unless either party gives notice of non-renewal at least 60 days prior to the end of the then-current term. H-D may terminate the agreement earlier upon our breach under certain circumstances, our bankruptcy or insolvency, or our unpermitted assignment of the agreement. +Joint Development Agreement +On September 26, 2022, we entered into a Joint Development Agreement with H-D (the “Joint Development Agreement”) pursuant to which the parties may agree to engage in joint development projects, which would be set forth in one or more mutually agreed project work statements. The Joint Development Agreement remains in effect until we and H-D mutually agree to terminate it and can be terminated earlier by either party upon the other party’s material, uncured breach. +Under the Joint Development Agreement, H-D is required to notify us of any development projects for H-D’s business that are primarily related to electric vehicles, and we have the right to make a proposal with respect to the joint development of such a project. The parties will discuss in good faith whether or not it is beneficial for the parties to enter into a joint development project with respect to such project. If H-D engages in any development projects that are primarily related to electric vehicles and fails to consult with us so that we can make a proposal with respect such potential project, then the intellectual property developed pursuant to such H-D development project will be owned and licensed in accordance with the default intellectual property terms of the agreement (described below). Unless we and H-D agree otherwise for a particular project, each party bears its own costs and expenses in connection with each project under the Joint Development Agreement. +Unless otherwise mutually agreed for a particular project under the Joint Development Agreement, we own project intellectual property relating exclusively to electric vehicles and H-D owns all other project intellectual property. Each party is granted a perpetual license to use the project intellectual property in connection with that party’s products, which, for us, are limited to two-, three-, or four-wheeled electric vehicles, related parts and accessories and electric vehicle systems. +Tax Matters Agreement +On September 26, 2022, LiveWire entered into a Tax Matters Agreement with H-D (the “Tax Matters Agreement”). The Tax Matters Agreement sets forth the principles and responsibilities regarding the allocation of taxes, adjustments with respect to taxes, preparation of tax returns, tax audits and certain other tax matters that affect LiveWire and H-D in the event LiveWire or any of its subsidiaries are members of any of H-D’s consolidated, combined, unitary and other similar groups for federal, state or local income tax purposes (or LiveWire has certain income, gain, loss and deduction included in the tax returns of such groups). LiveWire and its subsidiaries are currently members of H-D’s consolidated, combined, unitary and other similar groups for federal, state and local income tax purposes. +With respect to U.S. federal income tax returns for any taxable period in which LiveWire (or any of its subsidiaries) are included in H-D’s consolidated group for U.S. federal income tax purposes, the amount of taxes to be paid by us is generally determined, subject to certain adjustments, as if LiveWire and each of its subsidiaries filed its own separate consolidated federal income tax return (LiveWire’s “separate federal tax liability”). With respect to state and local income tax returns for any taxable period in which LiveWire or any of its subsidiaries are included in H-D’s combined, consolidated or unitary group for state or local income tax purposes, the amount of taxes to be paid by LiveWire is determined, subject to certain adjustments using +8 +principles analogous to the principles used to compute LiveWire’s separate federal tax liability, as if LiveWire and each of its subsidiaries included in such combined, consolidated or unitary group filed its own combined, consolidated or unitary group state or local income tax return. +LiveWire’s inclusion in H-D’s consolidated group may result in H-D utilizing certain tax attributes that LiveWire generates, including net operating losses and credits, and LiveWire will receive no compensation from H-D for the use of such attributes, but they may be used to offset any future liabilities that may be owed by LiveWire to H-D under the Tax Matters Agreement. +The Tax Matters Agreement applies as of the closing of the Business Combination, which is the date that H-D’s ownership of LiveWire met the applicable minimum threshold required to file either a combined return or a consolidated return and will remain in effect unless the parties agree in writing to terminate the agreement. Notwithstanding any termination of the Tax Matters Agreement, the agreement will continue in effect with respect to any payment or indemnification due for all taxable periods prior to the termination during which the Tax Matters Agreement was in effect. +Electric Motorcycles Segment +The Electric Motorcycles segment focuses on the development and sales of electric motorcycles as well as parts, accessories, and apparel. Electric motorcycles are sold by combining both digital and physical touchpoints to a network of independent dealers, at retail direct to consumers through a Company-owned dealership, and online sales. Prior to November 5, 2024, the Company’s products were sold at retail through select international partners primarily in Europe. +Electric Motorcycles segment revenue by product line for the last three fiscal years was as follows (in thousands): +2024 2023 2022 +Electric motorcycles $ 7,644 $ 11,087 $ 13,171 +Parts, accessories and apparel 737 461 828 +Revenue, net $ 8,381 $ 11,548 $ 13,999 +Electric Motorcycles – The Electric Motorcycles segment sells electric powered motorcycles under the LiveWire brand. LiveWire launched the LiveWire ONE model in July 2021. The electric motorcycles are developed in accordance with a set of proprietary design principles that elevate the brand, deliver differentiated riding experiences and bring emotion to electric propulsion. Starting from the LiveWire ONE, the portfolio will expand on our ARROW architecture. This approach establishes a path to grow the product set, beginning with the System2 (“S2”) Del Mar®, to meet a broad set of segments and price points. ARROW was developed in-house to take advantage of the benefits of scalable, modular architectures across the electric vehicle, electric vehicle systems and software. ARROW is an integrated vehicle architecture, utilizing the battery pack and motor as the primary vehicle structure to deliver simple, elegant lightweight designs. +The software backbone that supports every LiveWire S2 electric motorcycle is developed ground-up to maximize efficiency and performance, integrating all electric vehicle systems and vehicle functions. The electric motorcycle connects to the cloud through a telematics control unit (“TCU”) with built-in cellular connectivity. The connection enables remote monitoring of the vehicle, with status data including charge, range and tamper alerts. The LiveWire app allows riders to interact with the electric motorcycle, delivering maps, audio and ride planning via an integrated user profile. Our S2 mobile app remotely bridges the rider to the bike using built-in cellular connectivity and GPS, providing status, notifications, and alerts. In combination with the cloud system and the TCU, the mobile app enables an ecosystem of services provided to LiveWire electric motorcycle riders +Our Firmware Over the Air (“FOTA”) allows for continual upgrades and refinements to the electric motorcycle in the field, greatly reducing the need and inconvenience for service or repair appointments for setting or software updates. With FOTA-enabled electronic control units on the vehicle, each subsystem becomes remotely addressable and updatable. In addition to the benefits to the Electric Motorcycles segment as the original equipment manufacturers, FOTA capability enables remote updates to bring the rider new features, functionality and enhancements as they are developed to continually improve the LiveWire electric motorcycle riding and ownership experience. +Industry – The relevant internal combustion engine (“ICE”) and electric vehicle markets for the Electric Motorcycles segment include: +• Small and large scooters +• Light, medium and heavy weight motorcycles +• Three-wheeled motorcycles and automobiles +• Side-by-side ATVs and four-wheelers +9 +Competition – The Electric Motorcycles segment expects competition from two primary segments: +• Leading ICE-focused motorcycle companies: These incumbent motorcycle companies have the ability to scale manufacturing and leverage global distribution capabilities. Several of these companies have begun to enter the electric motorcycle market through the release or public announcement and planned release of electric motorcycles or scooters. +• Small scale electric mobility companies: These start-ups and smaller companies may have products in the market today, but typically lack the global manufacturing and distribution capabilities of the major ICE players. +While we expect competition to grow in the market as competitors invest in the total addressable electric two-wheel market, we believe the Electric Motorcycles segment is primarily positioned with the combination of technology, manufacturing, and market position to lead the growing electric motorcycle market. +Parts, accessories, and apparel – Parts, accessories, and apparel products include replacement parts and mechanical and cosmetic accessories, clothing and accessories. +Marketing – The Electric Motorcycles segment’s brand, products and the riding experience are marketed to consumers in the United States and select international markets. Marketing occurs primarily through digital and experiential activities as well as through more traditional promotional and advertising activities. The Electric Motorcycles segment is making investments to provide potential customers with many other opportunities to engage with the brand and try Electric Motorcycles segment products. Additionally, the Electric Motorcycles segment’s dealers engage in a wide range of local marketing and events. +Seasonality – The seasonality of the Electric Motorcycles segment’s wholesale motorcycle shipments generally correlates with the timing of retail sales made by dealers. Retail sales generally track closely with regional riding seasons, generally from mid-March through August. +Electric Motorcycle Manufacturing – The Electric Motorcycles segment leverages its strategic partners to enable an asset-light approach which allows the business to scale with less investment than would be necessary if it had its own manufacturing operations. The Electric Motorcycles segment purchases electric motorcycles from H-D through the Contract Manufacturing Agreement. With the introduction of the S2 platform, LiveWire powertrains are assembled in H-D’s Powertrain Operations in Menomonee Falls, Wisconsin, and overall vehicle assembly will continue to be in the York facility. On November 5, 2024, LiveWire announced a non-binding Memorandum of Understanding with KYMCO to collaborate on a new electric maxi-scooter project. +Raw Materials and Purchased Components – The Electric Motorcycles segment continues to establish and reinforce long-term, mutually beneficial relationships with its suppliers. Through these collaborative relationships, the Electric Motorcycles segment gains access to technical and commercial resources for application directly to product design, development and manufacturing initiatives. In addition, through a continued focus on collaboration and strong supplier relationships, the Electric Motorcycles segment believes it is positioned to achieve its strategic objectives and deliver cost and quality improvements over the long-term. +The principal raw materials in Electric Motorcycles segment’s products include battery cells, semi-conductor chips, steel and aluminum castings, forgings, steel sheet and bar. Additional raw materials in Electric Motorcycles segment’s products include certain motorcycle components including, but not limited to, batteries, tires, seats, electrical components, instruments and wheels. The Electric Motorcycles segment closely monitors the overall viability of its supply base. The Electric Motorcycles segment is proactively working with its suppliers in an effort to minimize disruptions resulting from supply chain challenges. +STACYC Segment +The STACYC segment primarily focuses on the designing and selling of electric balance bikes for kids, and related parts and accessories. The STACYC segment products are sold at wholesale to independent dealers and independent distributors, as well as, direct to consumers online. +STACYC segment revenue by product line for the last three fiscal years was as follows (in thousands): +2024 2023 2022 +Electric balance bikes $ 14,043 $ 22,865 $ 29,669 +Parts, accessories and apparel 4,209 3,610 3,165 +Revenue, net $ 18,252 $ 26,475 $ 32,834 +10 +Electric Balance Bikes – STACYC focuses on developing products and experiences that help kids develop sooner and empower them to define their own ride. STACYC sells electric balance bikes under the STACYC brand while working with brand partners on co-branded products. +The current product portfolio starts with 12- and 16-inch electric balance bikes built for 3- to 8-year-old riders. With a growing segment of young riders graduating out of the 16-inch product, during 2022, STACYC introduced the 18- and 20-inch electric balance bikes that expanded the range of STACYC riders from 3 to 12 years old. +Industry/Competition – STACYC is a category creator, and while there have been some competitors who have entered the market, their products lack STACYC’s product maturity and features, and their distribution generally lacks the breadth of the STACYC network. STACYC sponsors and supports off road racing events across the nation and is the first motorized vehicle allowed on USA BMX’s 300 tracks in the U.S., allowing kids to practice and race in USA BMX’s national series. While we expect competition to grow as the market shifts to younger riders and more players begin to make serious investments, we believe STACYC’s established brand with the combination of commitment, capabilities and market position allows STACYC to compete effectively in the growing electric balance bike market. +Parts, accessories, and apparel – Parts and accessories products include replacement parts and mechanical and cosmetic accessories, clothing and riding gear. +Marketing – STACYC’s brand, products and the riding experience are marketed to consumers worldwide. Marketing occurs primarily through digital and experiential activities as well as through more traditional promotional and advertising activities. Additionally, STACYC’s dealers, distributors, and OEM partners engage in a wide range of local and global marketing and events. +Seasonality – The seasonality of STACYC’s electric balance bike sales generally correlates with the timing of retail sales made by dealers. Retail sales generally track closely with regional riding and holiday purchasing seasons, generally from mid-March through December. +Manufacturing – STACYC purchases electric balance bikes through a contract manufacturing agreement from strategic partners and bike assemblers located in Taiwan and China. +Purchased Components – STACYC continues to establish and reinforce long-term, mutually beneficial relationships with its suppliers. Through these collaborative relationships, STACYC gains access to technical and commercial resources for application directly to product design, development and manufacturing initiatives. +Human Capital Management +Our People and Culture +As of December 31, 2024, the Company’s global workforce was comprised of approximately 182 employees, including approximately 162 and 20 employees within the Electric Motorcycles and STACYC segments, respectively. Of all employees, 93% are based in the U.S., and substantially all employees are salaried. A significant portion of our workforce is comprised of engineering and technology teams that are poised to design and develop future products and services. None of our employees are represented by a labor union. We have never experienced any work stoppages and we believe that our employee relations are good. +Our employees are a significant asset, and we aim to create an environment that is collaborative and challenging in which our employees can grow and advance their careers, with the overall goal of developing, expanding and retaining our workforce to support our current and future business goals. We value simplicity, passion and teamwork, and strive to build and maintain a positive environment where our employees can thrive and one that inspires exceptional contributions and professional and personal development to achieve our goal of pioneering the next era of electric vehicle technology. +Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing, and integrating our existing and new employees. We aim to achieve this through both financial plans as well as non-financial policies such as flexible vacation and time off, flexible work schedules, and access to fitness and wellness programs. The principal purposes of our equity and cash incentive plans are to attract, retain and reward personnel through the granting of stock-based and cash-based compensation awards to eligible employees to increase stockholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives. All of our exempt associates participate in our cash-based incentive plans, which provides eligible associates with cash bonus opportunities based upon the Company’s +11 +achievement of financial and other key performance metrics. Under the LiveWire Group, Inc. 2022 Incentive Award Plan (the “Incentive Award Plan”), we grant equity compensation awards, such as restricted stock units and performance awards, which vest over a period of time, to eligible associates to attract and retain key personnel, strengthen their commitment to the welfare of the Company, and align their interests with those of our stockholders. In December 2022, the Company extended ownership to all employees by making a one-time equity grant, including to those employees that are not otherwise eligible for equity grants. Additionally, our comprehensive health and welfare benefits program provides our employees with a variety of medical and dental plans, plus voluntary benefits like vision or critical illness protection. +Regulatory Considerations +Environmental, Health and Safety Regulations +Environmental, Health and Safety Regulations in the United States +Certain of our operations, properties and products are subject to stringent and comprehensive international, federal, state and local laws and regulations governing matters including environmental protection, occupational health and safety, and the release or discharge of materials into the environment (including air emissions and wastewater discharges). Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of investigatory and remedial obligations, and the issuance of orders enjoining some or all of our operations in affected areas. +We are also subject to permitting, registration, and other government approval requirements under environmental, health and safety laws and regulations applicable in the jurisdictions in which we operate. Those requirements obligate us to obtain permits, registrations, and other government approvals from one or more governmental agencies to conduct our operations and sell our products. The requirements vary depending on the location where our regulated activities are conducted. +The following summarizes certain, but not all, existing environmental, health and safety laws and regulations applicable to our operations and products. +National Highway Traffic Safety Administration (“NHTSA”) Safety and Self-Certification Obligations. As a manufacturer of electric vehicles, our electric vehicles are subject to, and must comply with, numerous regulatory requirements established by NHTSA, including all applicable United States Federal Motor Vehicle Safety Standards (“Safety Standards” or “US FMVSS”). As set forth by the National Traffic and Motor Vehicle Safety Act, we must certify that our electric vehicles meet all applicable Safety Standards. Electric Motorcycles’ current products are, and future products will be expected to be, at the time of production, fully compliant with all such Safety Standards without the need for any exemptions. +We are also required to comply with or demonstrate exemptions from other requirements of federal laws administered by NHTSA, including the consumer information labeling and owner’s manual requirements and various reporting requirements, such as “early warning” reports regarding warranty claims and field incidents, death and injury reports, foreign recall reports and safety defects reports. In addition, our products are also subject to certain laws and regulations that have been enacted or proposed, e.g., “Right to Repair” laws, that could require us to provide third-party access to our network and/or vehicle systems. +Environmental Protection Agency (“EPA”) Certificates of Conformity and Regulations. The Clean Air Act requires that we obtain an EPA-issued Certificate of Conformity with respect to emissions from our electric vehicles and include labeling providing consumer information such as maximum range on a single charge. The Certificate of Conformity is required each model year for electric vehicles sold in states covered by the Clean Air Act’s standards and is also required each model year for vehicles sold in states that have sought and received a waiver from the EPA to utilize California’s mobile source standards. +Battery Safety and Testing. Our battery packs are tested in accordance with industry safety standards, including selected tests specified in the SAE J2464 and J2929 standards as well as tests defined by other standards and regulatory bodies and LiveWire’s own internal safety and quality tests. These tests evaluate battery function and performance as well as resilience to conditions including immersion, humidity, fire and other potential hazards. +Hazardous Substances. We are subject to regulations governing the proper handling, storage, transportation and disposal of hazardous substances, including those contained in our battery packs. Transportation of our battery packs (and of equipment containing them) is governed by regulations that address risks posed during different modes of transport (e.g.¸ air, rail, ground, ocean). Governing transportation regulations in the U.S., issued by the Pipeline and Hazardous Materials Safety Administration (“PHMSA”), are based on the United Nations (“UN”) Recommendations and Model Regulations on the Transport of Dangerous Goods as well as related UN Manual Tests and Criteria. We have completed the applicable UN Manual tests for our +12 +production battery packs, and the test results demonstrate our compliance with the PHMSA regulations. For example, our battery packs have received UN38.3 compliance for shipping of the units. +We currently use transition metal oxide cells in our high-voltage battery packs. Our battery packs include certain packaging materials that contain trace amounts of hazardous chemicals whose use, storage and disposal is regulated under federal law. As a result, our battery packs are subject to federal and state environmental laws and regulations that govern regarding the handling and disposal of waste, including, in some instances, the remanufacture, recycling and disposal of hazardous waste. +The laws governing hazardous substances and hazardous waste also may impose strict, joint and several liability for the investigation and remediation of areas where hazardous substances may have been released or disposed. In the course of ordinary operations, we, directly and through third parties and contractors, may handle hazardous substances within the meaning of the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and similar federal and state statutes and, as a result, may be jointly and severally liable for all or part of the costs required to clean up sites at which any such hazardous substances have been released into the environment. +Workplace Safety. Our operations are also subject to federal, state, and local workplace safety laws and regulations, including the U.S. Occupational Health and Safety Act, and equivalent laws and regulations, which require compliance with various workplace safety requirements, including requirements related to environmental safety. These laws and regulations can give rise to liability for oversight costs, compliance costs, bodily injury (including workers’ compensation), fines, and penalties. Additionally, non-compliance could result in delay or suspension of production or cessation of operations. +Environmental, Health and Safety Regulations in the European Union +Europe Type Approval. We have begun to export electric vehicles to certain countries in Europe. Unlike the United States, once we started operating in this market, we had to obtain pre-approval from regulators to import and sell our electric vehicles into the EU and countries that recognize EU certification or have regulatory regimes aligned with the EU (collectively referred to as “Europe”). The process for certification in Europe is known as “Type Approval” and requires LiveWire to demonstrate to a regulatory agency in the EU, referred to as the Competent Authority, that our electric vehicles meet all EU safety and emission standards. The vehicles being exported to Europe have received these approvals and comply with all EU safety and emission standards, with new standards (known as Euro 5+) coming into full effect for motorcycles from January 2025. +Type Approval is accomplished through witness testing of vehicles as well as inspection of a representative vehicle intended for production and sale. Once the vehicle type is approved, all vehicles manufactured based on the approved type of vehicle may be produced or imported and sold in Europe. +Any changes to an approved vehicle type must go through updated Type Approval by the Competent Authority. +EU Emissions Regulations. We believe Europe’s regulatory environment is generally conducive to the development, production and sale of electric vehicles. Through emission legislation, tax incentives and direct subsidies, EU and non-EU countries in Europe are taking a progressive stance in reducing carbon emissions in the transport sector which may lead to increasing demand for electric vehicles. +This is reflected in the EU-wide target of a 90% reduction in greenhouse gas emissions from the transport sector by 2050 (compared to 1990 levels), as part of an economy-wide carbon-neutral target. In 2023, the EU enacted revisions to its climate legislation framework that created “ETS2”, which will (i) introduce a pricing emissions trading system that applies to the road transport sector from 2027 (subject to a potential one year delay if energy prices in the EU exceed certain amounts); and (ii) require increased levels of national greenhouse gas reduction commitments (which include the transport sector) pursuant to a revision of the Effort Sharing Regulation, as part of efforts to reduce EU emissions by 40% by 2030 (compared to 2005 levels) in certain sectors including transport and by 55% overall by 2030 (compared to 1990 levels). +In addition, the EU adopted its Batteries Regulation in 2023, which introduced seeks to introduce certain sustainability requirements in relation to batteries sold on the Union market, including electric vehicle batteries. While certain provisions of the Batteries Regulation are already in effect, many of the specific obligations will only enter into effect in the coming years, and in many cases will be dependent on details set out in secondary legislation the remains to be adopted. Further, aspects of the Energy Performance of Buildings Directive (“EPBD”) entered into effect in 2024, which require new infrastructure such as homes and businesses must be built so there is enough power to support charging stations for electric vehicles including motorcycles. +Hazardous Substances. We are subject to regulations governing the proper handling, and disposal of products containing hazardous substances in the EU, including the EU Waste Framework Directive, in relation to which the European Commission has begun a consultation process to revise. In relation to our batteries, disposal will be governed by specific provisions of the +13 +Batteries Directive (in addition to existing Member State-specific waste disposal laws), which imposes, among other obligations, certain requirements in relation to the disposal of batteries, such as that producers of batteries and producers of other products that incorporate a battery are responsible for the waste management of batteries that they place on the market, in particular the financing of collection and recycling schemes. +Environmental, Health and Safety Regulations in Canada +In Canada, vehicles must meet the Motor Vehicle Safety Act (MVSA) requirements. Canadian regulations in many ways follow those of the U.S. FMVSS and the EU regulatory requirements for compliance and our vehicles will meet the applicable Canadian requirements. Moreover, Canada Interference-Causing Equipment Standards (ICES) are applicable and our vehicles are properly marked for meeting compliance requirements to ICES-002 (identified on our Vehicle Emission Control Information (VECI) Label. +Environmental, Health and Safety Regulations in the United Kingdom +Europe Type Approval. Type Approval is accomplished through witness testing of vehicles as well as inspection of a representative vehicle intended for production and sale. Once the vehicle type is approved, all vehicles manufactured based on the approved type of vehicle may be produced or imported and sold in the United Kingdom. The United Kingdom allows for the EU Whole Vehicle Type Approval (WVTA) to be used as means of showing compliance without the need for additional witness testing activities. LiveWire submits and obtains the provisional GB type approvals necessary to comply with UK law and regulations. +Any changes to an approved vehicle type, must go through updated Type Approval by the Competent Authority. +Environmental, Health and Safety Regulations in the Rest of World +Should we expand into jurisdictions outside of the USA, Canada, and the EU, other jurisdictions also have a favorable regulatory environment with respect to electric motorcycles. +For example, in the UK, the government is consulting on future plans that all new motorcycles are to be fully zero emissions at the tailpipe from 2035, or earlier if it is determined that a faster transition seems feasible. This plan is subject to feedback from a consultation process but reflects the UK’s broader strategy to phase out new combustion engines in all transport (including heavy duty vehicles) by 2040. +Manufacturer and Dealer Regulation – United States +State laws regulate the manufacture, distribution, sale, and service (including delivery) of motorcycles and generally require vehicle manufacturers and dealers to be licensed to sell vehicles directly to customers in the state. +Some states, however, do not permit motorcycle manufacturers to be licensed as dealers or to act in the capacity of a dealer. To sell vehicles directly to residents of these states, we must conduct the sale out of state through our California location, over the internet or telephonically or through LiveWire retail partners who have obtained dealer licenses within these certain states to sell vehicles directly to residents within these states. California has recently updated certain dealer laws which may, in the future, impact our ability to sell out of our California location. +In addition, certain states and territories require service facilities to be available for vehicles sold in the state or territory, which may be interpreted to require service facilities to be available for vehicles sold through our California location over the internet or telephonically to residents of the state or territory. Puerto Rico, for example, is one such jurisdiction. Such laws could limit our ability to sell vehicles in states either where we do not maintain service facilities or where we do not have retail partners licensed to act as service dealers who maintain appropriate service facilities within these states. +We believe that, as a matter of interstate commerce, we may sell an electric vehicle to any consumer in any state in the United States from a LiveWire retail partner that is duly licensed as a dealer by a state in the United States. That customer may contact a licensed LiveWire retail partner through the internet, by telephone or visiting the location directly. However, some states may take an alternative approach or interpretation and attempt to prohibit direct sales and/or also restrict traditional marketing, pre-sale and/or sales activities. +14 +Data Privacy and Cybersecurity Laws and Regulations +Our business collects, uses, handles, stores, receives, transmits and otherwise processes different types of information about a range of individuals, including our customers, riders of our electric vehicles, website visitors, users of our mobile application, our employees and job applicants, and employees of companies we do business with (such as our vendors and suppliers). As a result, we are and may become subject to existing and emerging federal, state, local and international laws and regulations related to the privacy, security and protection of such information, such as the Federal Trade Commission Act, the GLBA, the TCPA, the CAN-SPAM Act, California Consumer Privacy Act as amended by the California Privacy Rights Act (“CCPA”) and other comprehensive state privacy laws. +In the United States, while there is not a single generally applicable federal law governing the processing of personal information, there are federal laws that apply to the processing of certain types of information, or the processing of personal information by certain types of entities, and the Federal Trade Commission and state attorneys general may bring enforcement actions against companies that engage in processing of personal information in a manner that constitutes an “unfair” or “deceptive” trade practice. +In addition, certain states have enacted or modified laws relating to data privacy and the processing of information about residents in those states. The CCPA, which went into effect on January 1, 2020 and applies to our business, imposes obligations and restrictions on businesses that handle personal information of California residents and provides data privacy rights to California residents, including the right to know, the right to delete and the right to opt out of the sale of personal information as well as additional protections for minors. Other states have also enacted, or are considering the enactment of their own comprehensive data privacy laws. Additionally, laws, regulations, and standards covering marketing and advertising activities conducted by telephone, email, mobile devices, and the Internet may be applicable to our business, such as the TCPA, the CAN-SPAM Act and similar state and federal consumer protection laws. We are also subject to certain laws and regulations that have been enacted or proposed, such as “Right to Repair” laws, that could require us to provide third-party access to our network and/or vehicle systems. +Due to our operations in Europe, including the United Kingdom, we are subject to laws, regulations and standards covering data protection and marketing and advertising, including the EU General Data Protection Regulation (“GDPR”) and the United Kingdom data protection regime, consisting primarily of the UK General Data Protection Regulation and the UK Data Protection Act (together referred to as the “UK GDPR”). The GDPR and UK GDPR regulate the processing of data relating to an identifiable individual (personal data) and impose stringent data protection requirements on organizations with significant penalties for noncompliance. The European Data Protection Board has also released data guidelines for connected vehicles, and the upcoming ePrivacy Regulation is in its final stages. +Regulators and legislators in jurisdictions around the world continue to propose and enact more stringent data protection and privacy laws. New laws as well as any significant changes to applicable laws, regulations, interpretations of laws or regulations, or market practices regarding privacy and data protection or regarding the manner in which we seek to comply with applicable laws and regulations could require us to make modifications to our products, services, policies, procedures, notices and business practices. Until prevailing compliance practices standardize, the impact of worldwide privacy regulations on our business and, consequently, our revenue, could be negatively impacted. +Intellectual Property +Our intellectual property is a core asset of our company, and an important tool to drive value and differentiation in our products and services. We protect, use and defend our intellectual property in support of our business objectives to increase our return on investment, enhance our competitive position, and create stockholder value. Through strategic and business assessments of our intellectual property, we rely on a combination of patents, trade secrets, copyrights, service marks, trademarks, domains, contractual terms and enforcement mechanisms across various international jurisdictions to establish and protect intellectual property related to our current and future business and operations. +15 +As of December 31, 2024, we held 23 utility patents and 25 design patents, and had filed an additional 10 utility patent applications and 7 design patent applications in the U.S. We also held 137 patents and 12 patent applications that are foreign counterparts of some of our U.S. patents and patent applications with foreign patent offices. We do not view any individual patent as being material to our business. Subject to required payments of annuities or maintenance fees, United States design patents have a term of 15 years from the date of issuance, and United States utility patents have a term of 20 years from the priority application date. Accordingly, our U.S. patents that have already been issued will expire between 2031 and 2042. Our foreign patents generally have similar expiration dates, but may vary from country to country, the duration being set according to the laws of the jurisdiction in which the patent issues. Our trademarks, logos, domain names, and service marks are used to establish and maintain our reputation with our customers, and the goodwill associated with our businesses. As of December 31, 2024, we had 90 registered trademarks and had an additional 27 pending trademark applications with domestic and foreign trademark offices. The duration of trademark registrations varies from country to country, but it is typically for ten years with unlimited ten-year renewal terms, subject to the payment of maintenance and renewal fees and the laws of the jurisdiction in which the trademark is registered. +We intend to continue to vigorously pursue intellectual property protection to the extent we believe it would be advantageous to our business objectives. Despite our efforts to protect our intellectual property, we may be unsuccessful in enforcing our intellectual property, and third parties may seek to circumvent invalidate, or otherwise challenge our intellectual property. For additional information, see the section entitled “ Risk Factors—Risks Related to Information Technology, Intellectual Property, Data Security and Privacy. ” +Internet Access +The Company’s website address is http://www.livewire.com . The Company’s website address for investor relations is http://investor.livewire.com/ . +The Company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and any amendments to those reports, are available on its investor relations website free of charge as soon as reasonably practicable after it electronically files such material with, or furnishes such material to, the United States Securities and Exchange Commission (“SEC”). +In addition, the Company makes available, through its investor relations website, the following corporate governance materials: (i) the Corporate Governance Guidelines; (ii) Committee Charters approved by the Company’s Board of Directors for the Audit and Finance Committee, Human Resources Committee, Nominating and Corporate Governance Committee, Sustainability and Safety Committee, and the Conflicts Committee; (iii) the Code of Business Conduct and Ethics (the “Code of Conduct”); (iv) a list of the Board of Directors; (v) the Bylaws; (vi) the Company’s Policy for Managing Disclosure of Material Information; (vii) the Company’s Insider Trading Policy ; (viii) the Related Party Transaction Policy; and (ix) the Whistleblower Policy. +The Company's Notice of Annual Meeting and Proxy Statement for its 2025 annual meeting of shareholders, which will include information related to the compensation of the Company's named executive officers, will be made available through its investor relations website. +The Company satisfies the disclosure requirements under the Code of Conduct, the Conflict Process and applicable New York Stock Exchange (“NYSE”) listing requirements regarding waivers of the Code of Conduct or the Conflict Process by disclosing the information in the Company’s proxy statement for its annual meeting of shareholders or on its investor relations website. +The Company is not including the information contained on or available through any of its websites as a part of, or incorporating such information by reference into, this Form 10-K. \ No newline at end of file diff --git a/raw/filings/0001898795/2024/0001898795-25-000055/item13.txt b/raw/filings/0001898795/2024/0001898795-25-000055/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..6b96b11ca5d877c7d254aa904236bc88bf5b923a --- /dev/null +++ b/raw/filings/0001898795/2024/0001898795-25-000055/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions, and Director Independence +116 \ No newline at end of file diff --git a/raw/filings/0001898795/2025/0001898795-26-000028/filing.txt b/raw/filings/0001898795/2025/0001898795-26-000028/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..2d6a7fa10db37872f58de46727bcbca90242977d --- /dev/null +++ b/raw/filings/0001898795/2025/0001898795-26-000028/filing.txt @@ -0,0 +1,2050 @@ +lvwr-20251231 +0001898795 2025 FY false .5 P1Y 33.33 33.33 33.33 33.33 33.33 33.33 P1Y P6M http://fasb.org/us-gaap/2025#SellingGeneralAndAdministrativeExpense http://fasb.org/us-gaap/2025#SellingGeneralAndAdministrativeExpense iso4217:USD xbrli:shares iso4217:USD xbrli:shares lvwr:segment xbrli:pure lvwr:day lvwr:performance_obligation lvwr:employee lvwr:advance 0001898795 2025-01-01 2025-12-31 0001898795 us-gaap:CommonStockMember 2025-01-01 2025-12-31 0001898795 us-gaap:WarrantMember 2025-01-01 2025-12-31 0001898795 2025-06-30 0001898795 2026-02-18 0001898795 2024-01-01 2024-12-31 0001898795 2023-01-01 2023-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:ServiceAgreementMember 2025-01-01 2025-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:ServiceAgreementMember 2024-01-01 2024-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:ServiceAgreementMember 2023-01-01 2023-12-31 0001898795 2025-12-31 0001898795 2024-12-31 0001898795 us-gaap:NonrelatedPartyMember 2025-12-31 0001898795 us-gaap:NonrelatedPartyMember 2024-12-31 0001898795 us-gaap:RelatedPartyMember 2025-12-31 0001898795 us-gaap:RelatedPartyMember 2024-12-31 0001898795 2023-12-31 0001898795 2022-12-31 0001898795 us-gaap:CommonStockMember 2022-12-31 0001898795 us-gaap:AdditionalPaidInCapitalMember 2022-12-31 0001898795 us-gaap:RetainedEarningsMember 2022-12-31 0001898795 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-12-31 0001898795 lvwr:NetParentCompanyInvestmentMember 2022-12-31 0001898795 us-gaap:TreasuryStockCommonMember 2022-12-31 0001898795 us-gaap:RetainedEarningsMember 2023-01-01 2023-12-31 0001898795 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-01-01 2023-12-31 0001898795 us-gaap:CommonStockMember 2023-01-01 2023-12-31 0001898795 us-gaap:AdditionalPaidInCapitalMember 2023-01-01 2023-12-31 0001898795 us-gaap:TreasuryStockCommonMember 2023-01-01 2023-12-31 0001898795 us-gaap:CommonStockMember 2023-12-31 0001898795 us-gaap:AdditionalPaidInCapitalMember 2023-12-31 0001898795 us-gaap:RetainedEarningsMember 2023-12-31 0001898795 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-12-31 0001898795 lvwr:NetParentCompanyInvestmentMember 2023-12-31 0001898795 us-gaap:TreasuryStockCommonMember 2023-12-31 0001898795 us-gaap:RetainedEarningsMember 2024-01-01 2024-12-31 0001898795 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-01-01 2024-12-31 0001898795 us-gaap:CommonStockMember 2024-01-01 2024-12-31 0001898795 us-gaap:AdditionalPaidInCapitalMember 2024-01-01 2024-12-31 0001898795 us-gaap:TreasuryStockCommonMember 2024-01-01 2024-12-31 0001898795 us-gaap:CommonStockMember 2024-12-31 0001898795 us-gaap:AdditionalPaidInCapitalMember 2024-12-31 0001898795 us-gaap:RetainedEarningsMember 2024-12-31 0001898795 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-12-31 0001898795 lvwr:NetParentCompanyInvestmentMember 2024-12-31 0001898795 us-gaap:TreasuryStockCommonMember 2024-12-31 0001898795 us-gaap:RetainedEarningsMember 2025-01-01 2025-12-31 0001898795 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2025-01-01 2025-12-31 0001898795 us-gaap:CommonStockMember 2025-01-01 2025-12-31 0001898795 us-gaap:AdditionalPaidInCapitalMember 2025-01-01 2025-12-31 0001898795 lvwr:AtTheMarketPublicOfferingMember 2025-01-01 2025-12-31 0001898795 lvwr:AtTheMarketPublicOfferingMember us-gaap:CommonStockMember 2025-01-01 2025-12-31 0001898795 lvwr:AtTheMarketPublicOfferingMember us-gaap:AdditionalPaidInCapitalMember 2025-01-01 2025-12-31 0001898795 us-gaap:TreasuryStockCommonMember 2025-01-01 2025-12-31 0001898795 us-gaap:CommonStockMember 2025-12-31 0001898795 us-gaap:AdditionalPaidInCapitalMember 2025-12-31 0001898795 us-gaap:RetainedEarningsMember 2025-12-31 0001898795 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2025-12-31 0001898795 lvwr:NetParentCompanyInvestmentMember 2025-12-31 0001898795 us-gaap:TreasuryStockCommonMember 2025-12-31 0001898795 lvwr:AEABridgesImpactCorpMember 2022-09-23 0001898795 lvwr:AEABridgesImpactCorpMember 2022-09-26 0001898795 lvwr:AEABridgesImpactCorpMember us-gaap:CommonStockMember 2022-09-26 0001898795 2022-09-26 0001898795 2022-09-26 2022-09-26 0001898795 lvwr:EarnOutSharesMember 2022-09-26 2022-09-26 0001898795 lvwr:LegacyLiveWireMember lvwr:AEABridgesImpactCorpMember 2022-09-26 0001898795 lvwr:AEABridgesImpactCorpMember us-gaap:CommonClassAMember 2022-09-26 2022-09-26 0001898795 lvwr:AEABridgesImpactCorpMember us-gaap:CommonClassBMember 2022-09-26 2022-09-26 0001898795 lvwr:AEABridgesImpactCorpMember us-gaap:CommonClassBMember 2022-09-26 2022-09-26 0001898795 lvwr:KYMCOGroupMember 2022-09-26 2022-09-26 0001898795 lvwr:KYMCOGroupMember 2022-09-26 0001898795 lvwr:LegacyLiveWireMember 2022-09-26 2022-09-26 0001898795 lvwr:LegacyLiveWireMember 2022-09-26 0001898795 lvwr:BackStopShareMember 2022-09-26 2022-09-26 0001898795 lvwr:BackStopShareMember 2022-09-26 0001898795 lvwr:HarleyDavidsonMember srt:AffiliatedEntityMember 2022-09-26 2022-09-26 0001898795 lvwr:HarleyDavidsonMember 2022-09-26 2022-09-26 0001898795 lvwr:AEABridgesImpactCorpMember 2022-09-26 2022-09-26 0001898795 lvwr:DerivativeInstrumentPeriodOneMember lvwr:EarnOutSharesMember 2022-09-26 2022-09-26 0001898795 lvwr:DerivativeInstrumentPeriodTwoMember lvwr:EarnOutSharesMember 2022-09-26 2022-09-26 0001898795 lvwr:DerivativeInstrumentPeriodTwoMember lvwr:EarnOutSharesMember srt:MinimumMember 2022-09-26 2022-09-26 0001898795 lvwr:DerivativeInstrumentPeriodTwoMember lvwr:EarnOutSharesMember srt:MaximumMember 2022-09-26 2022-09-26 0001898795 lvwr:ATMProgramShelfRegistrationMember 2025-08-22 2025-08-22 0001898795 lvwr:ATMProgramMember 2025-08-22 0001898795 lvwr:MizuhoSecuritiesIncMember lvwr:ATMProgramMember 2025-08-22 0001898795 lvwr:ConvertibleTermLoanMember 2025-11-09 2025-11-09 0001898795 lvwr:ATMProgramMember 2025-01-01 2025-12-31 0001898795 lvwr:ATMProgramMember 2025-12-31 0001898795 lvwr:ATMProgramMember 2025-08-22 2025-12-31 0001898795 lvwr:AEABridgeWarrantsMember lvwr:AEABridgesImpactCorpMember 2022-09-26 0001898795 srt:MinimumMember 2025-01-01 2025-12-31 0001898795 srt:MaximumMember 2025-01-01 2025-12-31 0001898795 us-gaap:LeaseholdImprovementsMember 2025-12-31 0001898795 srt:MinimumMember us-gaap:MachineryAndEquipmentMember 2025-12-31 0001898795 srt:MaximumMember us-gaap:MachineryAndEquipmentMember 2025-12-31 0001898795 srt:MinimumMember lvwr:ToolingAndSoftwareMember 2025-12-31 0001898795 srt:MaximumMember lvwr:ToolingAndSoftwareMember 2025-12-31 0001898795 lvwr:ElectricMotorcyclesMember lvwr:ElectricMotorcycleSegmentMember 2025-01-01 2025-12-31 0001898795 lvwr:ElectricMotorcyclesMember lvwr:ElectricMotorcycleSegmentMember 2024-01-01 2024-12-31 0001898795 lvwr:ElectricMotorcyclesMember lvwr:ElectricMotorcycleSegmentMember 2023-01-01 2023-12-31 0001898795 lvwr:PartAccessoriesAndApparelMember lvwr:ElectricMotorcycleSegmentMember 2025-01-01 2025-12-31 0001898795 lvwr:PartAccessoriesAndApparelMember lvwr:ElectricMotorcycleSegmentMember 2024-01-01 2024-12-31 0001898795 lvwr:PartAccessoriesAndApparelMember lvwr:ElectricMotorcycleSegmentMember 2023-01-01 2023-12-31 0001898795 lvwr:ElectricMotorcycleSegmentMember 2025-01-01 2025-12-31 0001898795 lvwr:ElectricMotorcycleSegmentMember 2024-01-01 2024-12-31 0001898795 lvwr:ElectricMotorcycleSegmentMember 2023-01-01 2023-12-31 0001898795 lvwr:ElectricBalanceBikesAndElectricBikesMember lvwr:STACYCSegmentMember 2025-01-01 2025-12-31 0001898795 lvwr:ElectricBalanceBikesAndElectricBikesMember lvwr:STACYCSegmentMember 2024-01-01 2024-12-31 0001898795 lvwr:ElectricBalanceBikesAndElectricBikesMember lvwr:STACYCSegmentMember 2023-01-01 2023-12-31 0001898795 lvwr:PartAccessoriesAndApparelMember lvwr:STACYCSegmentMember 2025-01-01 2025-12-31 0001898795 lvwr:PartAccessoriesAndApparelMember lvwr:STACYCSegmentMember 2024-01-01 2024-12-31 0001898795 lvwr:PartAccessoriesAndApparelMember lvwr:STACYCSegmentMember 2023-01-01 2023-12-31 0001898795 lvwr:STACYCSegmentMember 2025-01-01 2025-12-31 0001898795 lvwr:STACYCSegmentMember 2024-01-01 2024-12-31 0001898795 lvwr:STACYCSegmentMember 2023-01-01 2023-12-31 0001898795 2026-01-01 2025-12-31 0001898795 lvwr:TimeBasedRSUsMember 2025-01-01 2025-12-31 0001898795 srt:DirectorMember lvwr:TimeBasedRSUsMember 2025-01-01 2025-12-31 0001898795 lvwr:TimeBasedRSUsMember 2024-01-01 2024-12-31 0001898795 lvwr:TimeBasedRSUsMember 2023-01-01 2023-12-31 0001898795 us-gaap:PerformanceSharesMember 2022-01-01 2022-12-31 0001898795 lvwr:TimeBasedRSUsMember 2025-12-02 2025-12-02 0001898795 us-gaap:ScenarioAdjustmentMember us-gaap:PerformanceSharesMember 2025-01-01 2025-12-31 0001898795 us-gaap:PerformanceSharesMember 2024-01-01 2024-12-31 0001898795 us-gaap:PerformanceSharesMember 2023-01-01 2023-12-31 0001898795 us-gaap:PerformanceSharesMember 2025-01-01 2025-12-31 0001898795 lvwr:TimeBasedRSUsMember 2024-12-31 0001898795 us-gaap:PerformanceSharesMember 2024-12-31 0001898795 us-gaap:RestrictedStockUnitsRSUMember 2024-12-31 0001898795 us-gaap:RestrictedStockUnitsRSUMember 2025-01-01 2025-12-31 0001898795 lvwr:TimeBasedRSUsMember 2025-12-31 0001898795 us-gaap:PerformanceSharesMember 2025-12-31 0001898795 us-gaap:RestrictedStockUnitsRSUMember 2025-12-31 0001898795 lvwr:TimeBasedRSUsMember 2023-12-31 0001898795 us-gaap:PerformanceSharesMember 2023-12-31 0001898795 us-gaap:RestrictedStockUnitsRSUMember 2023-12-31 0001898795 us-gaap:RestrictedStockUnitsRSUMember 2024-01-01 2024-12-31 0001898795 lvwr:TimeBasedRSUsMember 2022-12-31 0001898795 us-gaap:PerformanceSharesMember 2022-12-31 0001898795 us-gaap:RestrictedStockUnitsRSUMember 2022-12-31 0001898795 us-gaap:RestrictedStockUnitsRSUMember 2023-01-01 2023-12-31 0001898795 lvwr:TimeBasedRSUsSettledInCashMember 2024-12-31 0001898795 lvwr:PerformanceRSUsSettledInCashMember 2024-12-31 0001898795 lvwr:RestrictedStockUnitsSettledInCashMember 2024-12-31 0001898795 lvwr:TimeBasedRSUsSettledInCashMember 2025-01-01 2025-12-31 0001898795 lvwr:PerformanceRSUsSettledInCashMember 2025-01-01 2025-12-31 0001898795 lvwr:RestrictedStockUnitsSettledInCashMember 2025-01-01 2025-12-31 0001898795 lvwr:TimeBasedRSUsSettledInCashMember 2025-12-31 0001898795 lvwr:PerformanceRSUsSettledInCashMember 2025-12-31 0001898795 lvwr:RestrictedStockUnitsSettledInCashMember 2025-12-31 0001898795 lvwr:TimeBasedRSUsSettledInCashMember 2023-12-31 0001898795 lvwr:PerformanceRSUsSettledInCashMember 2023-12-31 0001898795 lvwr:RestrictedStockUnitsSettledInCashMember 2023-12-31 0001898795 lvwr:TimeBasedRSUsSettledInCashMember 2024-01-01 2024-12-31 0001898795 lvwr:PerformanceRSUsSettledInCashMember 2024-01-01 2024-12-31 0001898795 lvwr:RestrictedStockUnitsSettledInCashMember 2024-01-01 2024-12-31 0001898795 lvwr:TimeBasedRSUsSettledInCashMember 2022-12-31 0001898795 lvwr:PerformanceRSUsSettledInCashMember 2022-12-31 0001898795 lvwr:RestrictedStockUnitsSettledInCashMember 2022-12-31 0001898795 lvwr:TimeBasedRSUsSettledInCashMember 2023-01-01 2023-12-31 0001898795 lvwr:PerformanceRSUsSettledInCashMember 2023-01-01 2023-12-31 0001898795 lvwr:RestrictedStockUnitsSettledInCashMember 2023-01-01 2023-12-31 0001898795 lvwr:HistoricalHDPlanMember 2025-01-01 2025-12-31 0001898795 lvwr:HistoricalHDPlanMember 2024-01-01 2024-12-31 0001898795 lvwr:HistoricalHDPlanMember 2023-01-01 2023-12-31 0001898795 2022-01-01 2022-12-31 0001898795 lvwr:HistoricalHDPlanMember us-gaap:RestrictedStockMember 2025-12-31 0001898795 lvwr:HistoricalHDPlanMember us-gaap:RestrictedStockMember 2024-12-31 0001898795 lvwr:HistoricalHDPlanMember us-gaap:RestrictedStockUnitsRSUMember 2024-12-31 0001898795 lvwr:HistoricalHDPlanMember us-gaap:RestrictedStockUnitsRSUMember 2025-01-01 2025-12-31 0001898795 lvwr:HistoricalHDPlanMember us-gaap:RestrictedStockUnitsRSUMember 2025-12-31 0001898795 lvwr:HistoricalHDPlanMember us-gaap:RestrictedStockUnitsRSUMember 2023-12-31 0001898795 lvwr:HistoricalHDPlanMember us-gaap:RestrictedStockUnitsRSUMember 2024-01-01 2024-12-31 0001898795 lvwr:HistoricalHDPlanMember us-gaap:RestrictedStockUnitsRSUMember 2022-12-31 0001898795 lvwr:HistoricalHDPlanMember us-gaap:RestrictedStockUnitsRSUMember 2023-01-01 2023-12-31 0001898795 us-gaap:RestrictedStockUnitsRSUMember us-gaap:ShareBasedCompensationAwardTrancheOneMember 2025-01-01 2025-12-31 0001898795 us-gaap:RestrictedStockUnitsRSUMember us-gaap:ShareBasedCompensationAwardTrancheTwoMember 2025-01-01 2025-12-31 0001898795 us-gaap:RestrictedStockUnitsRSUMember us-gaap:ShareBasedCompensationAwardTrancheThreeMember 2025-01-01 2025-12-31 0001898795 us-gaap:PerformanceSharesMember us-gaap:ShareBasedCompensationAwardTrancheOneMember 2025-01-01 2025-12-31 0001898795 us-gaap:PerformanceSharesMember us-gaap:ShareBasedCompensationAwardTrancheTwoMember 2025-01-01 2025-12-31 0001898795 us-gaap:PerformanceSharesMember us-gaap:ShareBasedCompensationAwardTrancheThreeMember 2025-01-01 2025-12-31 0001898795 us-gaap:DomesticCountryMember 2024-01-01 2024-12-31 0001898795 us-gaap:DomesticCountryMember 2023-01-01 2023-12-31 0001898795 us-gaap:NonUsMember 2025-12-31 0001898795 us-gaap:NonUsMember 2024-12-31 0001898795 us-gaap:NonUsMember 2023-12-31 0001898795 country:US 2025-12-31 0001898795 us-gaap:EmployeeStockMember 2025-01-01 2025-12-31 0001898795 us-gaap:EmployeeStockMember 2024-01-01 2024-12-31 0001898795 us-gaap:EmployeeStockMember 2023-01-01 2023-12-31 0001898795 us-gaap:WarrantMember 2024-01-01 2024-12-31 0001898795 us-gaap:WarrantMember 2025-01-01 2025-12-31 0001898795 us-gaap:WarrantMember 2023-01-01 2023-12-31 0001898795 us-gaap:ConstructionInProgressMember 2025-12-31 0001898795 us-gaap:ConstructionInProgressMember 2024-12-31 0001898795 us-gaap:ToolsDiesAndMoldsMember 2025-12-31 0001898795 us-gaap:ToolsDiesAndMoldsMember 2024-12-31 0001898795 us-gaap:MachineryAndEquipmentMember 2025-12-31 0001898795 us-gaap:MachineryAndEquipmentMember 2024-12-31 0001898795 us-gaap:SoftwareDevelopmentMember 2025-12-31 0001898795 us-gaap:SoftwareDevelopmentMember 2024-12-31 0001898795 us-gaap:LeaseholdImprovementsMember 2024-12-31 0001898795 lvwr:SupplierCaseMember 2025-12-31 0001898795 lvwr:SupplierCaseMember 2024-12-31 0001898795 srt:MinimumMember 2025-12-31 0001898795 srt:MaximumMember 2025-12-31 0001898795 us-gaap:TrademarksMember 2025-12-31 0001898795 us-gaap:TrademarksMember 2024-12-31 0001898795 us-gaap:NoncompeteAgreementsMember 2025-12-31 0001898795 us-gaap:NoncompeteAgreementsMember 2024-12-31 0001898795 us-gaap:OtherIntangibleAssetsMember 2025-12-31 0001898795 us-gaap:OtherIntangibleAssetsMember 2024-12-31 0001898795 2024-12-01 2024-12-31 0001898795 lvwr:PublicWarrantMember 2022-09-26 0001898795 lvwr:PrivatePlacementWarrantMember 2022-09-26 0001898795 lvwr:PublicWarrantMember 2024-12-31 0001898795 lvwr:PublicWarrantMember 2025-12-31 0001898795 lvwr:PrivatePlacementWarrantMember 2024-12-31 0001898795 lvwr:PrivatePlacementWarrantMember 2025-12-31 0001898795 lvwr:PublicWarrantMember lvwr:PriceRangeOneMember us-gaap:CommonStockMember 2025-12-31 0001898795 lvwr:PublicWarrantMember lvwr:PriceRangeOneMember us-gaap:CommonStockMember 2025-01-01 2025-12-31 0001898795 lvwr:PublicWarrantMember lvwr:PriceRangeTwoMember us-gaap:CommonStockMember 2025-12-31 0001898795 lvwr:PublicWarrantMember lvwr:PriceRangeTwoMember us-gaap:CommonStockMember 2025-01-01 2025-12-31 0001898795 lvwr:PrivatePlacementWarrantMember lvwr:PriceRangeOneMember us-gaap:CommonStockMember 2025-12-31 0001898795 lvwr:PrivatePlacementWarrantMember lvwr:PriceRangeTwoMember us-gaap:CommonStockMember 2025-12-31 0001898795 lvwr:PublicWarrantMember 2024-01-01 2024-12-31 0001898795 lvwr:PublicWarrantMember 2025-01-01 2025-12-31 0001898795 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member 2025-12-31 0001898795 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel2Member 2025-12-31 0001898795 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel3Member 2025-12-31 0001898795 us-gaap:MoneyMarketFundsMember 2025-12-31 0001898795 lvwr:PublicWarrantMember us-gaap:FairValueInputsLevel1Member 2025-12-31 0001898795 lvwr:PublicWarrantMember us-gaap:FairValueInputsLevel2Member 2025-12-31 0001898795 lvwr:PublicWarrantMember us-gaap:FairValueInputsLevel3Member 2025-12-31 0001898795 lvwr:PublicWarrantMember 2025-12-31 0001898795 lvwr:PrivatePlacementWarrantsMember us-gaap:FairValueInputsLevel1Member 2025-12-31 0001898795 lvwr:PrivatePlacementWarrantsMember us-gaap:FairValueInputsLevel2Member 2025-12-31 0001898795 lvwr:PrivatePlacementWarrantsMember us-gaap:FairValueInputsLevel3Member 2025-12-31 0001898795 lvwr:PrivatePlacementWarrantsMember 2025-12-31 0001898795 us-gaap:FairValueInputsLevel1Member 2025-12-31 0001898795 us-gaap:FairValueInputsLevel2Member 2025-12-31 0001898795 us-gaap:FairValueInputsLevel3Member 2025-12-31 0001898795 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member 2024-12-31 0001898795 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel2Member 2024-12-31 0001898795 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel3Member 2024-12-31 0001898795 us-gaap:MoneyMarketFundsMember 2024-12-31 0001898795 lvwr:PublicWarrantMember us-gaap:FairValueInputsLevel1Member 2024-12-31 0001898795 lvwr:PublicWarrantMember us-gaap:FairValueInputsLevel2Member 2024-12-31 0001898795 lvwr:PublicWarrantMember us-gaap:FairValueInputsLevel3Member 2024-12-31 0001898795 lvwr:PublicWarrantMember 2024-12-31 0001898795 lvwr:PrivatePlacementWarrantsMember us-gaap:FairValueInputsLevel1Member 2024-12-31 0001898795 lvwr:PrivatePlacementWarrantsMember us-gaap:FairValueInputsLevel2Member 2024-12-31 0001898795 lvwr:PrivatePlacementWarrantsMember us-gaap:FairValueInputsLevel3Member 2024-12-31 0001898795 lvwr:PrivatePlacementWarrantsMember 2024-12-31 0001898795 us-gaap:FairValueInputsLevel1Member 2024-12-31 0001898795 us-gaap:FairValueInputsLevel2Member 2024-12-31 0001898795 us-gaap:FairValueInputsLevel3Member 2024-12-31 0001898795 lvwr:ElectricMotorcyclesMember 2025-01-01 2025-12-31 0001898795 lvwr:BatteryForElectricMotorcyclesMember 2025-01-01 2025-12-31 0001898795 lvwr:RecallCampaignMember 2025-12-31 0001898795 lvwr:RecallCampaignMember 2024-12-31 0001898795 2024-10-01 2024-12-31 0001898795 srt:MinimumMember 2024-02-14 2024-02-14 0001898795 srt:MaximumMember 2024-02-14 2024-02-14 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:ContractManufacturingAgreementMember 2025-01-01 2025-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:ContractManufacturingAgreementMember 2024-01-01 2024-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:ContractManufacturingAgreementMember 2023-01-01 2023-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:ExcessInventoryChargeMember 2025-01-01 2025-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:ExcessInventoryChargeMember 2024-01-01 2024-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:ExcessInventoryChargeMember 2023-01-01 2023-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:ContractManufacturingAgreementMember 2025-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:ContractManufacturingAgreementMember 2024-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:ServiceAgreementMember 2025-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:ServiceAgreementMember 2024-12-31 0001898795 lvwr:ConvertibleTermLoanMember us-gaap:RelatedPartyMember 2024-02-14 0001898795 lvwr:ConvertibleTermLoanMember us-gaap:RelatedPartyMember 2024-02-14 2024-02-14 0001898795 lvwr:ConvertibleTermLoanMember us-gaap:RelatedPartyMember 2025-11-09 0001898795 lvwr:ConvertibleTermLoanMember us-gaap:RelatedPartyMember 2025-11-09 2025-11-09 0001898795 lvwr:ConvertibleTermLoanMember us-gaap:RelatedPartyMember 2025-12-15 0001898795 lvwr:ConvertibleTermLoanMember us-gaap:RelatedPartyMember 2025-12-31 0001898795 lvwr:ConvertibleTermLoanMember us-gaap:RelatedPartyMember 2025-01-01 2025-12-31 0001898795 lvwr:ElectricMotorcyclesMember us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember us-gaap:SalesMember 2025-01-01 2025-12-31 0001898795 lvwr:HarleyDavidsonIncMember us-gaap:RelatedPartyMember 2025-12-31 0001898795 lvwr:HarleyDavidsonIncMember us-gaap:RelatedPartyMember 2024-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember us-gaap:SalesMember 2025-01-01 2025-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember us-gaap:SalesMember 2024-01-01 2024-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember us-gaap:SalesMember 2023-01-01 2023-12-31 0001898795 lvwr:HarleyDavidsonIncMember us-gaap:RelatedPartyMember 2025-01-01 2025-12-31 0001898795 lvwr:HarleyDavidsonIncMember us-gaap:RelatedPartyMember 2024-01-01 2024-12-31 0001898795 lvwr:HarleyDavidsonIncMember us-gaap:RelatedPartyMember 2023-01-01 2023-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:STACYCSegmentMember 2025-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:STACYCSegmentMember 2024-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:LeaseAgreementMember 2023-08-28 2023-08-28 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:LeaseAgreementMember 2025-03-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember us-gaap:ScenarioAdjustmentMember lvwr:LeaseAgreementMember 2025-01-30 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:LeaseAgreementMember 2025-01-30 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:LeaseAgreementMember 2025-09-26 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:LeaseAgreementMember 2025-12-31 0001898795 us-gaap:RelatedPartyMember lvwr:HarleyDavidsonIncMember lvwr:LeaseAgreementMember 2024-12-31 0001898795 lvwr:ElectronicMotorCycleSegmentMember 2025-01-01 2025-12-31 0001898795 lvwr:ElectronicMotorCycleSegmentMember 2024-01-01 2024-12-31 0001898795 lvwr:ElectronicMotorCycleSegmentMember 2023-01-01 2023-12-31 0001898795 lvwr:ElectricMotorcycleSegmentMember 2025-12-31 0001898795 lvwr:STACYCSegmentMember 2025-12-31 0001898795 lvwr:ElectricMotorcycleSegmentMember 2024-12-31 0001898795 lvwr:STACYCSegmentMember 2024-12-31 0001898795 lvwr:ElectricMotorcycleSegmentMember 2023-12-31 0001898795 lvwr:STACYCSegmentMember 2023-12-31 0001898795 lvwr:KTMMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-31 0001898795 country:US 2025-12-31 0001898795 country:US 2024-12-31 0001898795 country:US 2023-12-31 0001898795 us-gaap:NonUsMember 2025-12-31 0001898795 us-gaap:NonUsMember 2024-12-31 0001898795 us-gaap:NonUsMember 2023-12-31 0001898795 country:US 2025-01-01 2025-12-31 0001898795 country:US 2024-01-01 2024-12-31 0001898795 country:US 2023-01-01 2023-12-31 0001898795 country:AT 2025-01-01 2025-12-31 0001898795 country:AT 2024-01-01 2024-12-31 0001898795 country:AT 2023-01-01 2023-12-31 0001898795 us-gaap:NonUsMember 2025-01-01 2025-12-31 0001898795 us-gaap:NonUsMember 2024-01-01 2024-12-31 0001898795 us-gaap:NonUsMember 2023-01-01 2023-12-31 0001898795 us-gaap:OneTimeTerminationBenefitsMember lvwr:ElectronicMotorCycleSegmentMember 2024-01-01 2024-12-31 0001898795 lvwr:April2024PlanMember 2025-12-31 0001898795 lvwr:September2024PlanMember 2024-01-01 2024-12-31 0001898795 us-gaap:OneTimeTerminationBenefitsMember lvwr:September2024PlanMember 2024-01-01 2024-12-31 0001898795 lvwr:September2024PlanMember 2025-12-31 0001898795 lvwr:September2024PlanMember 2025-01-01 2025-12-31 0001898795 us-gaap:ScenarioAdjustmentMember 2024-01-01 2024-12-31 0001898795 us-gaap:EmployeeSeveranceMember 2023-12-31 0001898795 us-gaap:OtherRestructuringMember 2023-12-31 0001898795 us-gaap:EmployeeSeveranceMember lvwr:April2024PlanMember 2024-01-01 2024-12-31 0001898795 us-gaap:OtherRestructuringMember lvwr:April2024PlanMember 2024-01-01 2024-12-31 0001898795 lvwr:April2024PlanMember 2024-01-01 2024-12-31 0001898795 us-gaap:EmployeeSeveranceMember lvwr:September2024PlanMember 2024-01-01 2024-12-31 0001898795 us-gaap:OtherRestructuringMember lvwr:September2024PlanMember 2024-01-01 2024-12-31 0001898795 us-gaap:EmployeeSeveranceMember 2024-01-01 2024-12-31 0001898795 us-gaap:OtherRestructuringMember 2024-01-01 2024-12-31 0001898795 us-gaap:EmployeeSeveranceMember 2024-12-31 0001898795 us-gaap:OtherRestructuringMember 2024-12-31 0001898795 us-gaap:EmployeeSeveranceMember lvwr:April2024PlanMember 2025-01-01 2025-12-31 0001898795 us-gaap:OtherRestructuringMember lvwr:April2024PlanMember 2025-01-01 2025-12-31 0001898795 lvwr:April2024PlanMember 2025-01-01 2025-12-31 0001898795 us-gaap:EmployeeSeveranceMember lvwr:September2024PlanMember 2025-01-01 2025-12-31 0001898795 us-gaap:OtherRestructuringMember lvwr:September2024PlanMember 2025-01-01 2025-12-31 0001898795 us-gaap:EmployeeSeveranceMember 2025-01-01 2025-12-31 0001898795 us-gaap:OtherRestructuringMember 2025-01-01 2025-12-31 0001898795 us-gaap:EmployeeSeveranceMember 2025-12-31 0001898795 us-gaap:OtherRestructuringMember 2025-12-31 0001898795 2025-10-01 2025-12-31 0001898795 us-gaap:AllowanceForCreditLossMember 2024-12-31 0001898795 us-gaap:AllowanceForCreditLossMember 2023-12-31 0001898795 us-gaap:AllowanceForCreditLossMember 2022-12-31 0001898795 us-gaap:AllowanceForCreditLossMember 2025-01-01 2025-12-31 0001898795 us-gaap:AllowanceForCreditLossMember 2024-01-01 2024-12-31 0001898795 us-gaap:AllowanceForCreditLossMember 2023-01-01 2023-12-31 0001898795 us-gaap:AllowanceForCreditLossMember 2025-12-31 0001898795 us-gaap:InventoryValuationReserveMember 2024-12-31 0001898795 us-gaap:InventoryValuationReserveMember 2023-12-31 0001898795 us-gaap:InventoryValuationReserveMember 2022-12-31 0001898795 us-gaap:InventoryValuationReserveMember 2025-01-01 2025-12-31 0001898795 us-gaap:InventoryValuationReserveMember 2024-01-01 2024-12-31 0001898795 us-gaap:InventoryValuationReserveMember 2023-01-01 2023-12-31 0001898795 us-gaap:InventoryValuationReserveMember 2025-12-31 0001898795 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2024-12-31 0001898795 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2023-12-31 0001898795 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2022-12-31 0001898795 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2025-01-01 2025-12-31 0001898795 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2024-01-01 2024-12-31 0001898795 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2023-01-01 2023-12-31 0001898795 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2025-12-31 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D. C. 20549 +FORM 10-K +☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended: December 31 , 2025 +or +☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +Commission file number 001-41511 +LiveWire Group, Inc. +(Exact name of registrant as specified in its charter) +Delaware 87-4730333 +(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) +3700 West Juneau Avenue +Milwaukee , Wisconsin 53208 +(Address of principal executive office) (Zip Code) +( 650 ) 447-8424 +(Registrant’s Telephone Number, including area code) +Securities registered pursuant to Section 12(b) of the Act: +Title of each class Trading Symbol(s) Name of each exchange on which registered +Common Stock, $0.0001 par value per share LVWR New York Stock Exchange +Warrants to purchase common stock LVWR WS New York Stock Exchange +Securities registered pursuant to Section 12(g) of the Act: NONE +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer ☐ Accelerated filer +☒ +Emerging growth company +☒ +Non-accelerated filer ☐ Smaller reporting company ☐ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal controls over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report ☐ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ +The aggregate market value of the voting stock held by non-affiliates on June 30, 2025 of the registrant based on the closing price of $4.60 per share was $ 105,000,000 . +Number of shares of the registrant’s common stock outstanding at February 18, 2026: 204,341,376 shares +Documents Incorporated by Reference +Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, relating to the registrant’s Annual Meeting of Stockholders to be held on or about May 21, 2026, are incorporated herein by reference for purposes of Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K. The definitive proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year ended December 31, 2025. +LiveWire Group, Inc. +Annual Report on Form 10-K +For The Year Ended December 31, 2025 +Part I +5 +Item 1. +Business +5 +Item 1A. +Risk Factors +17 +Item 1B. +Unresolved Staff Comments +56 +Item 1C. +Cybersecurity +56 +Item 2. +Properties +57 +Item 3. +Legal Proceedings +57 +Item 4. +Mine Safety Disclosures +57 +Part II +58 +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +58 +Item 6. +[Reserved] +59 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +59 +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +71 +Item 8. +Financial Statements and Supplementary Data +73 +Item 9. +Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +112 +Item 9A. +Controls and Procedures +112 +Item 9B. +Other Information +113 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +113 +Part III +113 +Item 10. +Directors, Executive Officers and Corporate Governance +113 +Item 11. +Executive Compensation +114 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +115 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +115 +Item 14. +Principal Accountant Fees and Services +115 +Part IV +116 +Item 15. +Exhibits and Financial Statement Schedules +116 +Item 16. +Form 10-K Summary +121 +Signatures +122 +Cautionary Note Regarding Forward-Looking Statements +This Annual Report on Form 10-K (“Form 10-K”) contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Form 10-K may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “commits,” “projects,” “contemplates,” “believes,” “estimates,” “forecasts,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Form 10-K include, but are not limited to statements regarding our future results of operations and financial position, industry and business trends, equity compensation, business strategy, plans, market growth, plans and objectives relating to our climate commitment, and our objectives for future operations. +3 +The forward-looking statements in this Form 10-K are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the important factors discussed in Part I, Item 1A. “Risk Factors” in this Form 10-K for the year ended December 31, 2025. The forward-looking statements are made as of the date of the filing of this report, and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. The forward-looking statements in this Form 10-K are based upon information available to us as of the date of this Form 10-K, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. +You should read this Form 10-K and the documents that we reference in this Form 10-K and have filed as exhibits to this Form 10-K with the understanding that our actual future results, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. The forward-looking statements in this report speak only as of the date of this Form 10-K. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this Form 10-K, whether as a result of any new information, future events or otherwise. +As used in this Form 10-K, unless otherwise stated or the context requires otherwise, references to “LiveWire,” the “Company,” “we,” “us,” and “our,” refer to LiveWire Group, Inc. and its consolidated subsidiaries. +4 +PART I +Item 1. Business +General +LiveWire Group, Inc., a Delaware corporation, and its consolidated subsidiaries are referred to in this Form 10-K as “we,” “our,” “us,” the “Company,” or “LiveWire.” LiveWire is an industry-leading all-electric motorcycle brand with a focus on pioneering the growing two-wheel electric motorcycle space. +LiveWire was a direct, wholly owned subsidiary of AEA-Bridges Impact Corp (“ABIC”), which was originally incorporated as a Cayman Islands exempted company on July 29, 2020, as a special purpose acquisition company (“SPAC”) with the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities. In connection with the transactions (the “Business Combination”) pursuant to the business combination agreement, dated as of December 12, 2021 (the “Business Combination Agreement”), by and among ABIC, LiveWire EV Holdings, Inc., a Delaware corporation (now known as “LiveWire Group, Inc.”), LW EV Merger Sub, Inc., a Delaware corporation (“Merger Sub”), Harley-Davidson, Inc. (“H-D”), and LiveWire EV, LLC (“Legacy LiveWire”), a wholly-owned subsidiary of H-D, we entered into a number of agreements with H-D, including the Separation Agreement, dated as of September 26, 2022, by and between H-D and Legacy LiveWire and consummated the separation of the Legacy LiveWire business and other transaction contemplated by the Separation Agreement (the “Separation”). +The Company assessed that it has two reportable segments based upon how management reviews the operations of the business: Electric Motorcycles (“Electric Motorcycles”) and STACYC (“STACYC”). The Company's reportable segments are strategic business units that offer different products and services and are managed separately based on the fundamental differences in their operations. The Electric Motorcycles segment primarily focuses on the designing and selling of electric motorcycles and also sells electric motorcycle parts, accessories, and apparel. Electric motorcycles are sold at wholesale to a network of independent dealers and retailers, at retail through a Company-owned dealership, and through online sales. The STACYC segment primarily focuses on the designing and selling of electric balance bikes for kids, adult pedal assist electric bikes that were introduced in March 2025, and related parts and accessories. The STACYC segment products are sold at wholesale to independent dealers and independent distributors, as well as direct to consumers online. +Vision and Growth Strategy +LiveWire’s vision is to lead the next generation of products that combine the experience of electric powertrains with the soulful connection that comes from riding. The underpinning strategy is to accelerate the electric vehicle transformation of the industry while building a leadership position in the market. Directing the shift to electric vehicles is a mission-driven leadership team with the competitive advantages of strategic partnerships with H-D and the KYMCO Group (Kwang Yang Motor Co., Ltd., KYMCO Capital Fund I Co., Ltd., SunBright Investment Co., Ltd., CycleLoop Co., Ltd. and Kwang Yang Holdings Limited (collectively, the “KYMCO Group”)) and having a pipeline of future products for both Electric Motorcycles and STACYC youth segments. From advanced electric motorcycles to youth-focused balance bikes, the Electric Motorcycles and STACYC segments together represent a vision for the future – one that blends performance, accessibility, and global reach. We believe these portfolios signal the next step in shaping the next generation of twist & go riders and electric powersports enthusiasts worldwide. +LiveWire’s Strategic Priorities +Lead in Electric and the Transformation of Motorcycling - The electric vehicle market will include both established manufacturers and new entrants. To establish market share and scale our business, LiveWire plans to continue building global distribution capabilities and make investments in research and development for the commercialization of future generations of LiveWire electric motorcycles, related technologies and other products. +Capture Global Share of the Electric Motorcycle Market - LiveWire strategically selects our retail partners based upon their commitment to electric, location and capabilities to support the electric vehicle capture. Our 2026 priority markets include the United States, Canada and leading countries in Europe such as Germany, France, Switzerland, the Netherlands, the United Kingdom, Spain, Italy, Poland, Portugal, Finland, Belgium and Luxembourg. +5 +Lead in Brand Desirability - LiveWire’s ambition is to create the most desirable electric motorcycle brand in the world. As a brand, LiveWire leverages Soulful by Design as its consumer-facing position. This differentiates LiveWire from others in the category, showcasing a rider’s connection to the world through the LiveWire riding experience. LiveWire’s go-to-market model allows for a consumer-defined journey across digital and physical platforms for an omni-channel experience. +Share the Love of Riding - STACYC’s mission has been to Share the Love of Riding , designing and selling electric stability bikes for kids, enabling the development of their skillset and powering their journey to independence on two wheels while preparing them to become the next generation of riders. STACYC’s current portfolio includes four sizes of product for kids ages 3 to 12, and an adult pedal-assist electric bike. The Company’s priority markets continue to be North America, with expansion in Europe and Australia, selling through powersports dealers, in addition to digital channels, while leveraging licensing deals with traditional powersport Original Equipment Manufacturers (“OEM”) to increase reach and scale. +Strategic Partnerships +LiveWire benefits from two important strategic partners: H-D and KYMCO Group. These partners have been selected based on their track record in their respective segments, the strength of their global capabilities, and the complementary fit with the LiveWire business. These partnerships give LiveWire a unique ability to deliver high-quality products to the global market in a capital-efficient approach. +H-D is one of the most recognized motorcycle brands in the world, with capabilities to design, develop, manufacture, market and distribute vehicles to major markets around the globe. Beyond the various service agreements tied to the Separation, LiveWire intends to leverage H-D’s capabilities in two key areas: technical and other services and contract manufacturing. +The KYMCO Group sells a globally recognized brand of scooters, motorcycles and side-by-side ATVs. The KYMCO Group goes to market with a sales footprint covering over 100 countries, including a growing subset of electric vehicle-specific distribution points. In addition to core sales activities of the KYMCO Group brand, it is a trusted design and manufacturing partner to other premium two-wheel original equipment manufacturers. +LiveWire will draw on H-D’s and the KYMCO Group’s best-in-class operations, benefiting from knowledge, scale and infrastructure across material sourcing, electric vehicle building and global distribution. +Strategic Agreements with H-D +In connection with the Business Combination , we entered into a number of agreements with H-D to govern the Separation and provide a framework for the relationship between the parties going forward pursuant to which we and/or H-D have continuing obligations to each other . All transactions with H-D subsequent to the Business Combination are considered related party transactions. Agreements that the Company entered into in connection with the Separation include: +6 +Master Services Agreement +On September 26, 2022, we entered into a master services agreement with H-D pursuant to which H-D provided us with certain services that we did not yet have the capability to perform for ourselves, including services related to testing and development, product regulatory support, color materials, finishes, paint and graphics, technical publication, application support and maintenance, service desk support, warehousing support, safety investigation, and marketing vehicle and fleet center, as we may request from time to time. On December 23, 2024, we entered into a new Master Services Agreement (the “Master Services Agreement”) with H-D. The Master Services Agreement became effective on January 1, 2025, and terminated the master services agreement, dated September 26, 2022, between LiveWire and H-D. Pursuant to the Master Services Agreement, H-D will continue to provide LiveWire with certain services that LiveWire determined would be better outsourced at this time, including services that support testing and development, product regulatory support, color materials, finishes, paint and graphics, technical publication, application support and maintenance, service desk support, warehousing support, and other corporate support services. The new Master Services Agreement incorporates a subset of support services previously provided under the now expired Transition Services Agreement including services where LiveWire utilizes H-D’s subject matter experts for targeted guidance or allow LiveWire to leverage H-D’s systems or equipment for cost savings purposes. The Master Services Agreement contemplates that each of the services shall be provided to LiveWire as detailed under the terms of the Master Services Agreement and the exhibit thereto or as set forth in a separate, mutually agreed upon letter agreement. The Master Services Agreement also provides that any service or project not contemplated by the Master Services Agreement will be set forth in a separate, mutually agreed upon side letter or letter agreement, and any fee for such service or project will be separate than the fee provided for in the Master Services Agreement. The Master Services Agreement has an initial term of seven years and will be renewable upon mutual agreement. The Master Services Agreement or any related letter agreement for additional services may be terminated by either party upon the other party’s material, uncured breach. H-D may also terminate the agreement upon LiveWire’s change of control or, at the end of a calendar year upon 180 days written notice, in the event that LiveWire failed to engage H-D to manufacture at least forty percent of LiveWire’s production during that calendar year. The charges for the services will be a flat monthly fee representing cost plus a markup. A joint steering committee composed of senior executives and/or designees of each party will meet annually to formulate a forecast and plan for LiveWire’s anticipated service needs, as well as adjust the monthly fee as appropriate, and will oversee the progress of the services and address any disputes. +Contract Manufacturing Agreement +On September 26, 2022, we entered into a Contract Manufacturing Agreement with H-D (the “Contract Manufacturing Agreement”) pursuant to which H-D provides contract manufacturing and procurement services to us for the products in our LiveWire platform, as well as future anticipated platforms. H-D is our exclusive manufacturer for these platforms for five years from the date that H-D begins manufacturing the relevant platform (and five years from the Separation for the LiveWire platform). Following this exclusivity period, we may terminate the agreement for one or more products within the relevant platform upon two years’ notice, subject to payment of certain termination charges (which are intended to compensate H-D for its capital investment and other sunken costs). The Contract Manufacturing Agreement may also be terminated, in whole or part, by either party upon the other party’s material, uncured breach, inability to perform its obligations for more than six months due to a force majeure event, bankruptcy or insolvency, or change of control. On February 14, 2024, the Contract Manufacturing Agreement was amended to extend the period of which H-D is the exclusive manufacturer from five years as described above to six years. +Beginning for calendar year 2027, LiveWire will be subject to a minimum annual volume commitment for each product and pay a deficit fee for failure to meet the minimum under the Contract Manufacturing Agreement. The products that H-D manufactures for us are priced on a cost-plus basis, with a mark-up of H-D’s cost for manufacturing the relevant product. An operational committee consisting of designated employees of each party will meet quarterly for administrative purposes, including for the review of changes to pricing, minimum volumes and other terms. H-D will procure, on our behalf, equipment and materials that are used in both H-D’s and our products, and we will procure all other equipment and materials, as well as tooling, needed to manufacture the products. +Intellectual Property License Agreement +On September 26, 2022, we entered into an Intellectual Property License Agreement with H-D (the “Intellectual Property License Agreement”) pursuant to which each party granted to the other party a license to certain intellectual property on a perpetual, non-exclusive basis for the purpose of making and selling the licensee’s products. +7 +H-D perpetually licenses to us all H-D intellectual property (other than marks or software) used in our business as of the Separation and certain additional specified intellectual property, as well as all improvements to the foregoing (but excluding (i) any H-D manufacturing intellectual property and (ii) intellectual property relating to motorcycle riding apparel and related general merchandise). We perpetually license to H-D all intellectual property (other than marks or software) that we own as of the Separation and all improvements thereto. If either party makes improvements to the other party’s intellectual property, such improvements will be jointly owned by the parties. +The licenses are generally royalty-free. However, if either party desires to exercise its license with respect to improvements introduced by the other party in next-generation vehicles (rather than a “carry over” or a “model refresh”), then the parties will mutually agree in good faith on a reasonable royalty to be paid. In addition, if H-D desires to sell any products that incorporate our intellectual property outside of the Large Cruiser, Touring and Adventure Touring markets during the seven-year period following the Separation, the parties will mutually agree in good faith on a reasonable royalty to be paid on such sales (but not on sales relating to LiveWire-branded H-D motorcycles or related LiveWire parts and accessories). +Each party owns improvements that it creates to its own intellectual property, and the parties jointly own improvements that one party creates to the other party’s intellectual property, without a right of accounting. +Trademark License Agreement +On September 26, 2022, we entered into a Trademark License Agreement with H-D (the “Trademark License Agreement”) pursuant to which H-D granted to us a royalty-free license to use certain H-D trademarks with respect to our products. The Trademark License Agreement automatically renewed on September 26, 2024 and automatically renews for successive two-year periods unless either party gives notice of non-renewal at least 60 days prior to the end of the then-current term. H-D may terminate the agreement earlier upon our breach under certain circumstances, our bankruptcy or insolvency, or our unpermitted assignment of the agreement. +Joint Development Agreement +On September 26, 2022, we entered into a Joint Development Agreement with H-D (the “Joint Development Agreement”) pursuant to which the parties may agree to engage in joint development projects, which would be set forth in one or more mutually agreed project work statements. The Joint Development Agreement remains in effect until we and H-D mutually agree to terminate it and can be terminated earlier by either party upon the other party’s material, uncured breach. +Under the Joint Development Agreement, H-D is required to notify us of any development projects for H-D’s business that are primarily related to electric vehicles, and we have the right to make a proposal with respect to the joint development of such a project. The parties will discuss in good faith whether or not it is beneficial for the parties to enter into a joint development project with respect to such project. If H-D engages in any development projects that are primarily related to electric vehicles and fails to consult with us so that we can make a proposal with respect such potential project, then the intellectual property developed pursuant to such H-D development project will be owned and licensed in accordance with the default intellectual property terms of the agreement (described below). Unless we and H-D agree otherwise for a particular project, each party bears its own costs and expenses in connection with each project under the Joint Development Agreement. +Unless otherwise mutually agreed for a particular project under the Joint Development Agreement, we own project intellectual property relating exclusively to electric vehicles and H-D owns all other project intellectual property. Each party is granted a perpetual license to use the project intellectual property in connection with that party’s products, which, for us, are limited to two-, three-, or four-wheeled electric vehicles, related parts and accessories and electric vehicle systems. +Tax Matters Agreement +On September 26, 2022, LiveWire entered into a Tax Matters Agreement with H-D (the “Tax Matters Agreement”). The Tax Matters Agreement sets forth the principles and responsibilities regarding the allocation of taxes, adjustments with respect to taxes, preparation of tax returns, tax audits and certain other tax matters that affect LiveWire and H-D in the event LiveWire or any of its subsidiaries are members of any of H-D’s consolidated, combined, unitary and other similar groups for federal, state or local income tax purposes (or LiveWire has certain income, gain, loss and deduction included in the tax returns of such groups). LiveWire and its subsidiaries are currently members of H-D’s consolidated, combined, unitary and other similar groups for federal, state and local income tax purposes. +8 +With respect to U.S. federal income tax returns for any taxable period in which LiveWire (or any of its subsidiaries) are included in H-D’s consolidated group for U.S. federal income tax purposes, the amount of taxes to be paid by us is generally determined, subject to certain adjustments, as if LiveWire and each of its subsidiaries filed its own separate consolidated federal income tax return (LiveWire’s “separate federal tax liability”). With respect to state and local income tax returns for any taxable period in which LiveWire or any of its subsidiaries are included in H-D’s combined, consolidated or unitary group for state or local income tax purposes, the amount of taxes to be paid by LiveWire is determined, subject to certain adjustments using principles analogous to the principles used to compute LiveWire’s separate federal tax liability, as if LiveWire and each of its subsidiaries included in such combined, consolidated or unitary group filed its own combined, consolidated or unitary group state or local income tax return. +LiveWire’s inclusion in H-D’s consolidated group may result in H-D utilizing certain tax attributes that LiveWire generates, including net operating losses and credits, and LiveWire will receive no compensation from H-D for the use of such attributes, but they may be used to offset any future liabilities that may be owed by LiveWire to H-D under the Tax Matters Agreement. +The Tax Matters Agreement applies as of the closing of the Business Combination, which is the date that H-D’s ownership of LiveWire met the applicable minimum threshold required to file either a combined return or a consolidated return and will remain in effect unless the parties agree in writing to terminate the agreement. Notwithstanding any termination of the Tax Matters Agreement, the agreement will continue in effect with respect to any payment or indemnification due for all taxable periods prior to the termination during which the Tax Matters Agreement was in effect. +Electric Motorcycles Segment +The Electric Motorcycles segment focuses on the development and sales of electric motorcycles as well as parts, accessories, and apparel. Electric motorcycles are sold by combining both digital and physical touchpoints to a network of independent dealers, at retail direct to consumers through a Company-owned dealership, and online sales. Prior to November 5, 2024, the Company’s products were sold at retail through select international partners primarily in Europe. +Electric Motorcycles segment revenue by product line for the last three fiscal years was as follows (in thousands): +2025 2024 2023 +Electric motorcycles $ 4,691 $ 7,644 $ 11,087 +Parts, accessories and apparel 1,373 737 461 +Revenue, net $ 6,064 $ 8,381 $ 11,548 +Electric Motorcycles – The Electric Motorcycles segment sells electric powered motorcycles under the LiveWire brand. The electric motorcycles are developed in accordance with a set of proprietary design principles that elevate the brand, deliver differentiated riding experiences and bring heightened emotional responses to electric propulsion. Starting from the LiveWire ONE, the portfolio expanded on our ARROW architecture beginning with the System2 (“S2”) Del Mar®, followed by the Mulholland® and Alpinista®. ARROW was developed in-house to take advantage of the benefits of scalable, modular architectures across the electric vehicle, electric vehicle systems and software. ARROW is an integrated vehicle architecture, utilizing the battery pack and motor as the primary vehicle structure to deliver simple, elegant lightweight designs. +The software backbone that supports every LiveWire S2 electric motorcycle is developed ground-up to maximize efficiency and performance, integrating all electric vehicle systems and vehicle functions. The electric motorcycle connects to the cloud through a telematics control unit (“TCU”) with built-in cellular connectivity. The connection enables remote monitoring of the vehicle, with status data including charge, range and tamper alerts. The LiveWire app allows riders to interact with the electric motorcycle, delivering maps, audio and ride planning via an integrated user profile. Our S2 mobile app remotely bridges the rider to the bike using built-in cellular connectivity and GPS, providing status, notifications, and alerts. In combination with the cloud system and the TCU, the mobile apps enable an ecosystem of services provided to LiveWire electric motorcycle riders. +Our Firmware Over the Air (“FOTA”) allows for continual upgrades and refinements to the electric motorcycle in the field, greatly reducing the need and inconvenience for service or repair appointments for setting or software updates. With FOTA-enabled electronic control units on the vehicle, each subsystem becomes remotely addressable and updatable. In addition to the benefits to the Electric Motorcycles segment as the original equipment manufacturers, FOTA capability enables remote updates to bring the rider new features, functionality and enhancements as they are developed to continually improve the LiveWire electric motorcycle riding and ownership experience. +9 +The Electric Motorcycles segment is continuing to focus on strategic expansion of its product offerings, including the planned production in the spring of 2026 of two new 125 cc-equivalent mini-motos, the S4 Honcho TM products, which are designed to expand access and affordability for riders globally. +Industry – The relevant internal combustion engine (“ICE”) and electric vehicle markets for the Electric Motorcycles segment include: +• Small and large scooters +• Light, medium and heavy weight motorcycles +• Three-wheeled motorcycles and automobiles +• Side-by-side ATVs and four-wheelers +Competition – The Electric Motorcycles segment expects competition from two primary segments: +• Leading ICE-focused motorcycle companies: These incumbent motorcycle companies have the ability to scale manufacturing and leverage global distribution capabilities. Several of these companies have begun to enter the electric motorcycle market through the release or public announcement and planned release of electric motorcycles or scooters. +• Small scale electric mobility companies: These start-ups and smaller companies may have products in the market today, but typically lack the global manufacturing and distribution capabilities of the major ICE players. +While we expect competition to grow in the market as competitors invest in the total addressable electric two-wheel market, we believe the Electric Motorcycles segment is primarily positioned with the combination of technology, manufacturing, and market position to lead the growing electric motorcycle market. +Parts, accessories, and apparel – Parts, accessories, and apparel products include replacement parts and mechanical and cosmetic accessories, clothing and accessories. +Marketing – The Electric Motorcycles segment’s brand, products and the riding experience are marketed to consumers in the United States and select international markets. Marketing occurs primarily through digital and experiential activities as well as through more traditional promotional and advertising activities. The Electric Motorcycles segment is making investments to provide potential customers with many other opportunities to engage with the brand and try Electric Motorcycles segment products. Additionally, the Electric Motorcycles segment’s dealers engage in a wide range of local marketing and events. +Seasonality – The seasonality of the Electric Motorcycles segment’s wholesale motorcycle shipments generally correlates with the timing of retail sales made by dealers. Retail sales generally track closely with regional riding seasons, generally from mid-March through August. +Electric Motorcycle Manufacturing – The Electric Motorcycles segment leverages its strategic partners to enable an asset-light approach which allows the business to scale with less investment than would be necessary if it had its own manufacturing operations. The Electric Motorcycles segment purchases S2 electric motorcycles from H-D through the Contract Manufacturing Agreement. For the S2 platform, LiveWire powertrains are assembled in H-D’s Powertrain Operations in Menomonee Falls, Wisconsin, and overall vehicle assembly will continue to be in the York facility. +Raw Materials and Purchased Components – The Electric Motorcycles segment continues to establish and reinforce long-term, mutually beneficial relationships with its suppliers. Through these collaborative relationships, the Electric Motorcycles segment gains access to technical and commercial resources for application directly to product design, development and manufacturing initiatives. In addition, through a continued focus on collaboration and strong supplier relationships, the Electric Motorcycles segment believes it is positioned to achieve its strategic objectives and deliver cost and quality improvements over the long-term. +The principal raw materials in Electric Motorcycles segment’s products include battery cells, semi-conductor chips, steel and aluminum castings, forgings, steel sheet and bar. Additional raw materials in Electric Motorcycles segment’s products include certain motorcycle components including, but not limited to, batteries, tires, seats, electrical components, instruments and wheels. The Electric Motorcycles segment closely monitors the overall viability of its supply base. The Electric Motorcycles segment is proactively working with its suppliers in an effort to minimize disruptions resulting from supply chain challenges. +10 +STACYC Segment +The STACYC segment primarily focuses on the designing and selling of electric balance bikes for kids, an adult pedal assist electric bike that was introduced in March 2025, and related parts and accessories. The STACYC segment products are sold at wholesale to independent dealers and independent distributors, as well as, direct to consumers online. +STACYC segment revenue by product line for the last three fiscal years was as follows (in thousands): +2025 2024 2023 +Electric balance bikes and electric bikes $ 15,808 $ 14,043 $ 22,865 +Parts, accessories and apparel 3,800 4,209 3,610 +Revenue, net $ 19,608 $ 18,252 $ 26,475 +Electric Balance Bikes – STACYC focuses on developing products and experiences that help kids develop riding skills sooner and empower them to define their own ride. STACYC sells electric balance bikes under the STACYC brand while working with brand partners on co-branded products. +The current product portfolio starts with 12- and 16-inch electric balance bikes built for 3- to 8-year-old riders. With a growing segment of young riders graduating out of the 16-inch product, during 2022, STACYC introduced the 18- and 20-inch electric balance bikes that expanded the range of STACYC riders from 3 to 12 years old. +Electric Bikes - STACYC introduced a bicycle equipped with an electric motor to assist with pedaling for adults riders in the United States in March 2025. It includes a rechargeable battery, allowing riders to travel greater distances or tackle challenging terrain with less effort than a traditional bicycle. +Industry/Competition – STACYC is a category creator of electric balance bikes, and while there have been some competitors who have entered the market, their products lack STACYC’s product maturity and features, and their distribution generally lacks the breadth of the STACYC network. STACYC sponsors and supports off road racing events across the nation and was the first motorized vehicle allowed on USA BMX’s 300 tracks in the U.S., allowing kids to practice and race in USA BMX’s national series. While we expect competition to grow as the market shifts to younger riders and more players begin to make serious investments, we believe STACYC’s established brand with the combination of commitment, capabilities and market position allows STACYC to compete effectively in the growing electric balance bike market, while leveraging the electric bike market. +Parts, accessories, and apparel – Parts and accessories products include replacement parts and mechanical and cosmetic accessories, clothing and riding gear. +Marketing – STACYC’s brand, products and the riding experience are marketed to consumers worldwide. Marketing occurs primarily through digital and experiential activities as well as through more traditional promotional and advertising activities. Additionally, STACYC’s dealers, distributors, and OEM partners engage in a wide range of local and global marketing and events. +Seasonality – The seasonality of STACYC’s electric balance bike and electric bike sales generally correlates with the timing of retail sales made by dealers. Retail sales generally track closely with regional riding and holiday purchasing seasons, generally from mid-March through December. +Manufacturing – STACYC purchases electric balance bikes and electric bikes through a contract manufacturing agreement from strategic partners and bike assemblers located in Taiwan and China. +Purchased Components – STACYC continues to establish and reinforce long-term, mutually beneficial relationships with its suppliers. Through these collaborative relationships, STACYC gains access to technical and commercial resources for application directly to product design, development and manufacturing initiatives. +11 +Human Capital Management +Our People and Culture +As of December 31, 2025, the Company’s global workforce was comprised of 151 employees, including 132 and 19 employees within the Electric Motorcycles and STACYC segments, respectively. Of all employees, 93% are based in the U.S., and substantially all employees are salaried. A significant portion of our workforce is comprised of engineering and technology teams that are poised to design and develop future products and services. None of our employees are represented by a labor union. We have never experienced any work stoppages and we believe that our employee relations are good. +Our employees are a significant asset, and we aim to create an environment that is collaborative and challenging in which our employees can grow and advance their careers, with the overall goal of developing, expanding and retaining our workforce to support our current and future business goals. We value simplicity, passion and teamwork, and strive to build and maintain a positive environment where our employees can thrive and one that inspires exceptional contributions and professional and personal development to achieve our goal of pioneering the next era of electric vehicle technology. +Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing, and integrating our existing and new employees. We aim to achieve this through both financial plans as well as non-financial policies such as flexible vacation and time off, flexible work schedules, and access to fitness and wellness programs. The principal purposes of our equity and cash incentive plans are to attract, retain and reward personnel through the granting of stock-based and cash-based compensation awards to eligible employees to increase stockholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives. All of our associates participate in our cash-based incentive plans, which provides eligible associates with cash bonus opportunities based upon the Company’s achievement of financial and other key performance metrics. Under the LiveWire Group, Inc. 2022 Incentive Award Plan (the “Incentive Award Plan”), we grant equity compensation awards, such as restricted stock units and performance awards, which vest over a period of time, to eligible associates to attract and retain key personnel, strengthen their commitment to the welfare of the Company, and align their interests with those of our stockholders. Additionally, our comprehensive health and welfare benefits program provides our employees with a variety of medical and dental plans, plus voluntary benefits like vision or critical illness protection. +Regulatory Considerations +Environmental, Health and Safety Regulations +Environmental, Health and Safety Regulations in the United States +Certain of our operations, properties and products are subject to stringent and comprehensive international, federal, state and local laws and regulations governing matters including environmental protection, occupational health and safety, and the release or discharge of materials into the environment (including air emissions and wastewater discharges). Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of investigatory and remedial obligations, and the issuance of orders enjoining some or all of our operations in affected areas. +We are also subject to permitting, registration, and other government approval requirements under environmental, health and safety laws and regulations applicable in the jurisdictions in which we operate. Those requirements obligate us to obtain permits, registrations, and other government approvals from one or more governmental agencies to conduct our operations and sell our products. The requirements vary depending on the location where our regulated activities are conducted. +The following summarizes certain, but not all, existing environmental, health and safety laws and regulations applicable to our operations and products. +National Highway Traffic Safety Administration (“NHTSA”) Safety and Self-Certification Obligations – As a manufacturer of electric vehicles, our electric vehicles are subject to, and must comply with, numerous regulatory requirements established by NHTSA, including all applicable United States Federal Motor Vehicle Safety Standards (“Safety Standards” or “US FMVSS”). As set forth by the National Traffic and Motor Vehicle Safety Act, we must certify that our electric vehicles meet all applicable Safety Standards. Electric Motorcycles’ current products are, and future products will be expected to be, at the time of production, fully compliant with all such Safety Standards without the need for any exemptions. +12 +We are also required to comply with or demonstrate exemptions from other requirements of federal laws administered by NHTSA, including the consumer information labeling and owner’s manual requirements and various reporting requirements, such as “early warning” reports regarding warranty claims and field incidents, death and injury reports, foreign recall reports and safety defects reports. In addition, our products are also subject to certain laws and regulations that have been enacted or proposed, e.g., “Right to Repair” laws, that could require us to provide third-party access to our network and/or vehicle systems. +Environmental Protection Agency (“EPA”) Certificates of Conformity and Regulations – The Clean Air Act requires that we obtain an EPA-issued Certificate of Conformity with respect to emissions from our electric vehicles and include labeling providing consumer information such as maximum range on a single charge. The Certificate of Conformity is required each model year for electric vehicles sold in states covered by the Clean Air Act’s standards and is also required each model year for vehicles sold in states that have sought and received a waiver from the EPA to utilize California’s mobile source standards. +Battery Safety and Testing – Our battery packs are tested in accordance with industry safety standards, including selected tests specified in the SAE J2464 and J2929 standards as well as tests defined by other standards and regulatory bodies and LiveWire’s own internal safety and quality tests. These tests evaluate battery function and performance as well as resilience to conditions including immersion, humidity, fire and other potential hazards. +Hazardous Substances – We are subject to regulations governing the proper handling, storage, transportation and disposal of hazardous substances, including those contained in our battery packs. Transportation of our battery packs (and of equipment containing them) is governed by regulations that address risks posed during different modes of transport (e.g.¸ air, rail, ground, ocean). Governing transportation regulations in the U.S., issued by the Pipeline and Hazardous Materials Safety Administration (“PHMSA”), are based on the United Nations (“UN”) Recommendations and Model Regulations on the Transport of Dangerous Goods as well as related UN Manual Tests and Criteria. We have completed the applicable UN Manual tests for our production battery packs, and the test results demonstrate our compliance with the PHMSA regulations. For example, our battery packs have received UN38.3 compliance for shipping of the units. +We currently use transition metal oxide cells in our high-voltage battery packs. Our battery packs include certain packaging materials that contain trace amounts of hazardous chemicals whose use, storage and disposal is regulated under federal law. As a result, our battery packs are subject to federal and state environmental laws and regulations that govern regarding the handling and disposal of waste, including, in some instances, the remanufacture, recycling and disposal of hazardous waste. +The laws governing hazardous substances and hazardous waste also may impose strict, joint and several liability for the investigation and remediation of areas where hazardous substances may have been released or disposed. In the course of ordinary operations, we, directly and through third parties and contractors, may handle hazardous substances within the meaning of the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and similar federal and state statutes and, as a result, may be jointly and severally liable for all or part of the costs required to clean up sites at which any such hazardous substances have been released into the environment. +Workplace Safety – Our operations are also subject to federal, state, and local workplace safety laws and regulations, including the U.S. Occupational Health and Safety Act, and equivalent laws and regulations, which require compliance with various workplace safety requirements, including requirements related to environmental safety. These laws and regulations can give rise to liability for oversight costs, compliance costs, bodily injury (including workers’ compensation), fines, and penalties. Additionally, non-compliance could result in delay or suspension of production or cessation of operations. +Environmental, Health and Safety Regulations in the European Union +Europe Type Approval – We export electric vehicles to certain countries in Europe. Unlike the United States, once we started operating in this market, we had to obtain pre-approval from regulators to import and sell our electric vehicles into the EU and countries that recognize EU certification or have regulatory regimes aligned with the EU (collectively referred to as “Europe”). The process for certification in Europe is known as “Type Approval” and requires LiveWire to demonstrate to a regulatory agency in the EU, referred to as the Competent Authority, that our electric vehicles meet all EU safety and emission standards. The vehicles being exported to Europe have received these approvals and comply with all EU safety and emission standards, with new standards (known as Euro 5+) coming into full effect for motorcycles from January 2025. +Type Approval is accomplished through witness testing of vehicles as well as inspection of a representative vehicle intended for production and sale. Once the vehicle type is approved, all vehicles manufactured based on the approved type of vehicle may be produced or imported and sold in Europe. +13 +Any changes to an approved vehicle type must go through updated Type Approval by the Competent Authority. +EU Emissions Regulations – We believe Europe’s regulatory environment is generally conducive to the development, production and sale of electric vehicles. Through emission legislation, tax incentives and direct subsidies, EU and non-EU countries in Europe are taking a progressive stance in reducing carbon emissions in the transport sector which may lead to increasing demand for electric vehicles. +Hazardous Substances. We are subject to regulations governing the proper handling, and disposal of products containing hazardous substances in the EU, including the EU Waste Framework Directive, in relation to which the European Commission has begun a consultation process to revise. In relation to our batteries, disposal will be governed by specific provisions of the Batteries Directive (in addition to existing Member State-specific waste disposal laws), which imposes, among other obligations, certain requirements in relation to the disposal of batteries, such as that producers of batteries and producers of other products that incorporate a battery are responsible for the waste management of batteries that they place on the market, in particular the financing of collection and recycling schemes. +Environmental, Health and Safety Regulations in Canada +In Canada, vehicles must meet the Motor Vehicle Safety Act (MVSA) requirements. Canadian regulations in many ways follow those of the U.S. FMVSS and the EU regulatory requirements for compliance and our vehicles will meet the applicable Canadian requirements. Moreover, Canada Interference-Causing Equipment Standards (ICES) are applicable and our vehicles are properly marked for meeting compliance requirements to ICES-002 (identified on our Vehicle Emission Control Information (VECI) Label). +Environmental, Health and Safety Regulations in the United Kingdom +Europe Type Approval. Type Approval is accomplished through witness testing of vehicles as well as inspection of a representative vehicle intended for production and sale. Once the vehicle type is approved, all vehicles manufactured based on the approved type of vehicle may be produced or imported and sold in the United Kingdom. The United Kingdom allows for the EU Whole Vehicle Type Approval (WVTA) to be used as means of showing compliance without the need for additional witness testing activities. LiveWire submits and obtains the provisional GB type approvals necessary to comply with UK law and regulations. +Any changes to an approved vehicle type, must go through updated Type Approval by the Competent Authority. +Manufacturer and Dealer Regulation – United States +State laws regulate the manufacture, distribution, sale, and service (including delivery) of motorcycles and generally require vehicle manufacturers and dealers to be licensed to sell vehicles directly to customers in the state. +Some states, however, do not permit motorcycle manufacturers to be licensed as dealers or to act in the capacity of a dealer. For a manufacturer to sell vehicles directly to residents of these states, we must conduct the sale through our California manufacturer-owned dealer, over the internet or telephonically or through LiveWire retail partners who have obtained dealer licenses within these certain states to sell vehicles directly to residents within these states. California has recently updated certain dealer laws which may, in the future, impact our ability to sell out of our California manufacturer-owned dealer. +In addition, certain states and territories require service facilities to be available for vehicles sold in the state or territory, which may be interpreted to require service facilities to be available for vehicles sold through our California location over the internet or telephonically to residents of the state or territory. Puerto Rico, for example, is one such jurisdiction. Such laws could limit our ability to sell vehicles in states or territories either where we do not maintain service facilities or where we do not have retail partners licensed to act as service dealers who maintain appropriate service facilities within these states. +We believe that, as a matter of interstate commerce, we may sell an electric vehicle to any consumer in any state in the United States from a LiveWire retail partner that is duly licensed as a dealer by a state in the United States, including from our California manufacturer-owned dealer. That customer may contact a licensed LiveWire retail partner through the internet, by telephone or visiting the location directly. However, some states may take an alternative approach or interpretation and attempt to prohibit direct sales and/or also restrict traditional marketing, pre-sale and/or sales activities. +14 +Data Privacy and Cybersecurity Laws and Regulations +Our business collects, uses, handles, stores, receives, transmits and otherwise processes different types of information about a range of individuals, including our customers, riders of our electric vehicles, website visitors, users of our mobile applications, our employees and job applicants, and employees of companies we do business with (such as our vendors and suppliers). As a result, we are and may become subject to existing and emerging federal, state, local and international laws and regulations related to the privacy, security and protection of such information, such as the Federal Trade Commission Act, the GLBA, the Telephone Consumer Protection Act ("TCPA"), the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (“CAN-SPAM Act”), California Consumer Privacy Act as amended by the California Privacy Rights Act (“CCPA”) and other comprehensive state privacy laws. +In the United States, while there is not a single generally applicable federal law governing the processing of personal information, there are federal laws that apply to the processing of certain types of information, or the processing of personal information by certain types of entities, and the Federal Trade Commission and state attorneys general may bring enforcement actions against companies that engage in processing of personal information in a manner that constitutes an “unfair” or “deceptive” trade practice. +In addition, certain states have enacted or modified laws relating to data privacy and the processing of information about residents in those states. The CCPA, which went into effect on January 1, 2020 and applies to our business, imposes obligations and restrictions on businesses that handle personal information of California residents and provides data privacy rights to California residents, including the right to know, the right to delete and the right to opt out of the sale of personal information as well as additional protections for minors. Other states have also enacted, or are considering the enactment of their own comprehensive data privacy laws. Additionally, laws, regulations, and standards covering marketing and advertising activities conducted by telephone, email, mobile devices, and the Internet may be applicable to our business, such as the TCPA, the CAN-SPAM Act and similar state and federal consumer protection laws. We are also subject to certain laws and regulations that have been enacted or proposed, such as “Right to Repair” laws, that could require us to provide third-party access to our network and/or vehicle systems. +Due to our operations in Europe, including the United Kingdom, we are subject to laws, regulations and standards covering data protection and marketing and advertising, including the EU General Data Protection Regulation (“GDPR”) and the United Kingdom data protection regime, consisting primarily of the UK General Data Protection Regulation and the UK Data Protection Act (together referred to as the “UK GDPR”). The GDPR and UK GDPR regulate the processing of data relating to an identifiable individual (personal data) and impose stringent data protection requirements on organizations with significant penalties for noncompliance. The European Data Protection Board has also released data guidelines for connected vehicles, and the upcoming ePrivacy Regulation is in its final stages. +Regulators and legislators in jurisdictions around the world continue to propose and enact more stringent data protection and privacy laws. New laws as well as any significant changes to applicable laws, regulations, interpretations of laws or regulations, or market practices regarding privacy and data protection or regarding the manner in which we seek to comply with applicable laws and regulations could require us to make modifications to our products, services, policies, procedures, notices and business practices. Until prevailing compliance practices standardize, the impact of worldwide privacy regulations on our business and, consequently, our revenue, could be negatively impacted. +Intellectual Property +Our intellectual property is a core asset of our company, and an important tool to drive value and differentiation in our products and services. We protect, use and defend our intellectual property in support of our business objectives to increase our return on investment, enhance our competitive position, and create stockholder value. Through strategic and business assessments of our intellectual property, we rely on a combination of patents, trade secrets, copyrights, service marks, trademarks, domains, contractual terms and enforcement mechanisms across various international jurisdictions to establish and protect intellectual property related to our current and future business and operations. +15 +As of December 31, 2025, we held 25 utility patents and 27 design patents, and had filed an additional 15 utility patent applications and 12 design patent applications in the U.S. We also held 165 patents and 26 patent applications that are foreign counterparts of some of our U.S. patents and patent applications with foreign patent offices. We do not view any individual patent as being material to our business. Subject to required payments of annuities or maintenance fees, United States design patents have a term of 15 years from the date of issuance, and United States utility patents have a term of 20 years from the priority application date. Accordingly, our U.S. patents that have already been issued will expire between 2031 and 2042. Our foreign patents generally have similar expiration dates, but may vary from country to country, the duration being set according to the laws of the jurisdiction in which the patent issues. Our trademarks, logos, domain names, and service marks are used to establish and maintain our reputation with our customers, and the goodwill associated with our businesses. As of December 31, 2025, we had 106 registered trademarks and had an additional 14 pending trademark applications with domestic and foreign trademark offices. The duration of trademark registrations varies from country to country, but it is typically for ten years with unlimited ten-year renewal terms, subject to the payment of maintenance and renewal fees and the laws of the jurisdiction in which the trademark is registered. Our trademarks include LIVEWIRE, the LiveWire logo, LIVEWIRE ONE, MULHOLLAND, ALPINISTA, DEL MAR, S2 and MAKE EVERY SECOND COUNT, as well as STACYC, STACYC STABILITY CYCLE, and unique designs of each. +We intend to continue to vigorously pursue intellectual property protection to the extent we believe it would be advantageous to our business objectives. Despite our efforts to protect our intellectual property, we may be unsuccessful in enforcing our intellectual property, and third parties may seek to circumvent invalidate, or otherwise challenge our intellectual property. For additional information, see the section entitled “ Risk Factors—Risks Related to Information Technology, Intellectual Property, Data Security and Privacy. ” +Internet Access +The Company’s website address is http://www.livewire.com . The Company’s website address for investor relations is http://investor.livewire.com/ . +The Company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and any amendments to those reports, are available on its investor relations website free of charge as soon as reasonably practicable after it electronically files such material with, or furnishes such material to, the United States Securities and Exchange Commission (“SEC”). +In addition, the Company makes available, through its investor relations website, the following corporate governance materials: (i) the Corporate Governance Guidelines; (ii) Committee Charters approved by the Company’s Board of Directors for the Audit and Finance Committee, Human Resources Committee, Nominating and Corporate Governance Committee, Sustainability and Safety Committee, and the Conflicts Committee; (iii) the Code of Business Conduct and Ethics (the “Code of Conduct”); (iv) a list of the Board of Directors; (v) the Bylaws; (vi) the Company’s Policy for Managing Disclosure of Material Information; (vii) the Company’s Insider Trading Policy ; (viii) the Related Party Transaction Policy; and (ix) the Whistleblower Policy. +The Company's Notice of Annual Meeting and Proxy Statement for its 2025 annual meeting of shareholders, which will include information related to the compensation of the Company's named executive officers, will be made available through its investor relations website. +The Company satisfies the disclosure requirements under the Code of Conduct, the Conflict Process and applicable New York Stock Exchange (“NYSE”) listing requirements regarding waivers of the Code of Conduct or the Conflict Process by disclosing the information in the Company’s proxy statement for its annual meeting of shareholders or on its investor relations website. +The Company is not including the information contained on or available through any of its websites as a part of, or incorporating such information by reference into, this Form 10-K. +16 +Item 1A. Risk Factors +LiveWire Group, Inc. is subject to risks and uncertainties, including those discussed below. Discussions of our business and operations included in this Annual Report on Form 10-K should be read together with the risk factors set forth below. Some of these risks and uncertainties, including those described below, may cause our business, financial condition and results of operations to vary, and they may materially or adversely affect our financial performance. The risks and uncertainties described below are not the only ones we face. Other risks and uncertainties, which are not currently known to us or which we currently believe are immaterial, may also materially or adversely affect our business, financial condition and results of operations. References to “electric vehicles” throughout this Risk Factors section refer to electric motorcycles, electric balance bikes, and electric bikes. +Summary of Risk Factors +Our business is subject to a number of risks and uncertainties, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flows, strategies or prospects. An investment in LiveWire involves risks, including those discussed below. These risk factors should be considered carefully before deciding whether to invest in the Company. +• We are an early-stage company with a history of losses and expect to incur significant expenses and continuing losses for several years. We have yet to achieve positive operating cash flow and, given our projected funding needs, our ability to generate positive cash flow is uncertain. +• Our research and development efforts may not yield the expected results, or results on expected timelines or at expected costs. +• Increases in costs, disruption of supply, or shortage of materials and components necessary for our electric vehicles, could materially and negatively affect our business. +• Our limited operating history makes evaluating our business and future prospects difficult. +• We may be unable to develop and produce electric vehicles of sufficient quality, on a schedule and at scale, that would appeal to a large customer base. +• The electric vehicle sector is growing and our products and services are and will be subject to competition from competitors. +• Our business and prospects depend significantly on our ability to build the LiveWire brand and consumers’ recognition, acceptance and adoption of the LiveWire brand. We may not succeed in continuing to maintain and strengthen the LiveWire brand. +• We have an established standard of quality and associated consumer expectations through our H-D motorcycle lineage. If we are unable to continue providing quality services and customer service, our business and reputation may be materially and adversely affected. +• Our relationship with H-D presents potential opportunities, synergies and risks. Our brand and reputation could be materially and negatively affected through negative publicity regarding H-D and its products and services. +• H-D could make decisions for the benefit of its overall business that could negatively impact our overall business. +• Our relationship with H-D may impact our other business relationships or potential business relationships. +• Leveraging contract manufacturers, including H-D, KYMCO Group and other potential partners, to contract manufacture electric vehicles is subject to risks. +• If retail partners are unwilling to participate in our go-to-market business model or are unable or ineffective in establishing or maintaining relationships with customers for electric vehicles, it may adversely impact our business. +• If we are unable to establish and maintain confidence in our long-term business prospects among customers and analysts and within our industry, or are subject to negative publicity, then our business, prospects, financial condition and operating results may suffer materially. +• We, our service providers, and our suppliers are subject to numerous regulations. Unfavorable changes to, or failure by us, our service providers or our suppliers to comply with these regulations could materially and negatively affect our business, prospects, financial condition and operating results. +• Electric vehicles are inherently new products. We may experience significant delays in the design, production and launch of our electric vehicles, which could materially and negatively affect our business, prospects, financial condition and operating results. +• Our business may suffer if our products or features contain defects or fail to perform as expected. We may choose to or be compelled to undertake product recalls or take other similar actions, which could adversely affect our brand image, business and operating results. +17 +• We depend on suppliers, including critical and single sourced suppliers, to deliver components according to schedules, prices, quality and volumes that are acceptable to us. We may be unable to effectively manage these suppliers. Uncertainties in the global economy may negatively impact suppliers and other business partners, which may interrupt the supply chain and require other changes to operations. These and other factors may adversely impact revenues and operating income. +• The success of our business depends on the availability of power and charging infrastructure for electric vehicles. Limitations on that infrastructure may negatively impact our business. +• We may face challenges in expanding our business and operations internationally and our ability to conduct business in international markets may be adversely affected by legal, regulatory, political and economic risks. +Risks Related to Our Business +We are an early-stage company with a history of losses and expect to incur significant expenses and continuing losses for several years. We have yet to achieve positive operating cash flow and, given our projected funding needs, our ability to generate positive cash flow is uncertain. +We have incurred net losses since our inception, including net losses of $75,114 thousand, $93,925 thousand and $109,550 thousand for the years ended December 31, 2025, 2024, and 2023, respectively. We believe that we will continue to incur operating and net losses in the future until at least the time we begin significant deliveries of our electric vehicles which may occur later than we expect or not at all. We do not expect to be profitable for the foreseeable future as we invest in our business, build capacity and ramp-up operations, and we cannot assure you that we will ever achieve or be able to maintain profitability in the future. Even if we are able to successfully develop our electric vehicles and attract customers, there can be no assurance that we will be financially successful. For example, as we expand our electric vehicle portfolio, including the introduction of lower-priced electric motorcycles, and further expand internationally, we will need to manage costs effectively to sell those products at our expected margins. Failure to become profitable could materially and adversely affect the value of our Common Stock. If we are ever to achieve profitability, it will be dependent upon the successful development and commercial introduction and acceptance of our electric vehicles, and our services, which may not occur. Our business also may at times require significant amounts of working capital to support the growth of additional electric vehicle platforms and electric vehicle models. An inability to generate positive cash flow for the near term may adversely affect our ability to raise needed capital for our business on reasonable terms, diminish supplier or customer willingness to enter into transactions with us, and have other adverse effects that may decrease our long-term viability. There can be no assurance that we will achieve positive cash flow in the near future or at all. +Our research and development efforts may not yield the expected results or results on expected timelines or at expected costs. +Technological innovation is critical to our success, and we have strategically developed most of the key technologies in-house, such as energy dense battery packs and battery management systems (“BMS”), high power, high efficiency inverters and motors, efficient onboard charger and DC-DC converter and best-in-class software and controls. We have been investing heavily in our research and development efforts. In the years ended December 31, 2025, 2024, and 2023, our research and development expenses amounted to $23,894 thousand, $41,742 thousand, and $54,070 thousand, respectively. Our research and development expenses accounted for 93.07%, 156.73%, and 142.20% of our total revenues for the years ended December 31, 2025, 2024, and 2023, respectively. The electric vehicle industry can experience rapid technological changes, and we often need to invest significant resources in research and development to lead or maintain technological advances and remain competitive in the market. Therefore, we expect that our research and development expenses will continue to be significant. Furthermore, research and development activities are inherently uncertain, and there can be no assurance that we will continue to achieve technological breakthroughs and successfully commercialize such breakthroughs. As a result, our significant expenditures on research and development may not generate corresponding benefits. If our research and development efforts fail to keep up with the latest technological developments, we may suffer a decline in our competitive position. +Apart from our in-house expertise, we also rely on certain technologies of our suppliers to enhance the performance of our electric vehicles. In particular, we do not manufacture battery cells, which makes us dependent upon suppliers for the relevant technologies. As technologies change, we plan to upgrade our existing models and introduce new models to provide our electric vehicles with the latest technologies, including battery cells, which could involve substantial costs and lower our return on investment for existing models. +Even if we are able to keep pace with changes in technologies and develop new models, our prior models could become obsolete more quickly than expected, potentially reducing our return on investment. +18 +Increases in costs, disruption of supply, or shortage of materials and components necessary for our electric vehicles, could materially and negatively affect our business. +We and our suppliers may experience increases in the cost of or a sustained interruption in the supply or shortage of materials. Any such cost increase, supply interruption or shortage could materially and negatively impact our business, prospects, financial condition and operating results. We and our suppliers use various materials in our businesses and products, including, for example, lithium-ion battery cells, semiconductor chips and steel, and the prices for these materials fluctuate. The available supply of these materials may be unstable, depending on market conditions and global demand. For example, global trade issues and changes in and uncertainties with respect to trade and export regulations, trade policies and sanctions, tariffs, international trade disputes, particularly those relating to exports of certain technologies to China, geopolitical events and related actions that may occur between mainland China and Taiwan, the conflict in Ukraine, the Israeli-Palestinian military conflict, and inflationary pressure, may cause disruptions to and delays in our operations, including shortages and delays in the supply of certain parts, including semiconductors, materials and equipment necessary for the production of our vehicles, and the various internal designs and processes we may adopt in an effort to remedy or mitigate impacts of such disruptions and delays may result in higher costs. In addition, our business also depends on the continued supply of battery cells for our electric vehicles. We are exposed to multiple risks relating to lithium‑ion battery cells. These risks include, but are not limited to: +• an increase in the cost, or decrease in the available supply, of materials used in the cells, including as a result of new regulation; +• disruption in the supply of cells due to quality issues or recalls by battery cell manufacturers; and +• fluctuations in the value of any foreign currencies in which battery cell and related raw material purchases are or may be denominated against the US dollar. +Our business is dependent on the continued supply of battery cells for the battery packs used in our electric vehicles. The Arrow powertrain will utilize the industry-standard 21700 cylindrical cell form factor that enables rapid implementation of alternate cells from a wide variety of manufacturers with minimal mechanical changes and targeted adjustments to the BMS algorithms. LiveWire’s ongoing cell manufacturer relationship development, cell assessment, and cell characterization work positions LiveWire to respond in a nimble manner to potential disruptions. However, there is still a risk of disruption to production if a need arises to change suppliers with insufficient advance notice. +Semiconductor chips and other electronics subcomponents are also a vital input component to the electrical architecture of our electric vehicles, controlling wide aspects of the electric vehicles’ operations. Many of the key semiconductor chips and electronics subcomponents used in our electric vehicles come from single-source or limited-source suppliers, and therefore, a disruption with any one manufacturer or supplier in our supply chain could have an adverse effect on our ability to effectively produce and timely deliver our electric vehicles. Due to our reliance on these semiconductor chips and electronics subcomponents, we are subject to the risk of shortages and long lead times in their supply. While LiveWire has entered into supply agreements to acquire some of the critical semiconductor chips and electronics subcomponents, we may have limited flexibility to immediately change suppliers in the event of any disruption in the supply of those chips and electronics subcomponents, which could then disrupt production of our electric vehicles. LiveWire has in the past experienced, and we may in the future experience, semiconductor chip and electronics subcomponents shortages, and the availability and cost of these components would be difficult to predict. +Furthermore, fluctuations or shortages in petroleum and changes in economic conditions may cause us to experience significant increases in freight charges and material costs. Substantial increases in the prices for our materials or prices charged to us, such as those charged by battery cell or semiconductor chip suppliers, would increase our operating costs and could reduce our margins. For example, supply chain issues, resulting from global trade issues and changes in and uncertainties with respect to trade and export regulations, trade policies and sanctions, tariffs, international trade disputes, particularly those relating to exports of certain products and technologies to or from China, geopolitical events and related actions that may occur between mainland China and Taiwan, the conflict in Ukraine, the Israeli-Palestinian military conflict, and inflationary pressure, may result in increases in the cost of input materials, components and processes required to produce our electric vehicles, and we may need to increase the prices of our electric vehicles in response to these cost pressures. Price increases and other measures taken by us to offset higher costs could materially and adversely affect our reputation and brand, result in negative publicity and loss of customers and sales, and adversely affect our business, prospects, financial condition and operating results. In addition, a growth in popularity of electric vehicles without a significant expansion in battery cell production capacity could result in shortages which would result in increased materials costs to us and would impact our projected manufacturing and delivery timelines, and adversely affect our business, prospects, financial condition and operating results. +19 +Our limited operating history makes evaluating our business and future prospects difficult. +H-D began making initial deliveries of our predecessor electric motorcycle, the Harley-Davidson LiveWire, in September 2019. We then launched the LiveWire One model in July 2021 followed by a special launch edition of the S2 Del Mar® in May 2022 with full production and sales beginning in the third quarter of 2023. In 2024, additional models on the S2 platform were sold. In 2019, H-D acquired STACYC Inc. and began selling electric balance bikes, which are currently sold under the STACYC and H-D brands, as well as through private label arrangements. As new products, there is limited historical basis for making judgments on the demand for our electric vehicles, our ability to develop, produce and deliver electric vehicles, or our profitability in the future. It is difficult to predict our future revenues and appropriately budget for our expenses, and trends may emerge in this quickly evolving industry that may be outside our visibility and may affect our business. You should consider our business and prospects in light of the risks and challenges we face as a pioneer in a new industry, including with respect to our ability to continuously advance our electric vehicle technologies; develop safe, reliable and quality electric vehicles that appeal to customers; deliver and service a large volume of electric vehicles; turn profitable; build a globally recognized and respected brand cost-effectively; expand our electric vehicles lineup; navigate the evolving regulatory environment; improve and maintain our operational efficiency; manage supply chain effectively; adapt to changing market conditions, including technological developments and changes in competitive landscape; and manage our growth effectively. +While our Electric Motorcycles segment currently focuses on the LiveWire One and the S2 platform, we expect our product roadmap to expand beyond the LiveWire One and the S2 platform and introduce new models in other categories, including on-road and off-road vehicles, such as the S4 Honcho TM . or using other technologies that we have less experience in as we may adjust our strategies and plans from time to time to remain competitive as a pioneer in a new industry. +If we fail to address any or all of these risks and challenges, our business may be materially and adversely affected. +We may be unable to develop and produce electric vehicles of sufficient quality, on a schedule and at scale that would appeal to a large customer base. +Our business depends in large part on our ability to develop, market, produce and sell our electric vehicles. The continued development of and the ability to sell our electric vehicles at scale, including the LiveWire One, the S2 platform, the S4 Honcho TM , our electric balance bike, and future electric vehicles, are and will be subject to risks, including with respect to: +• our ability to secure necessary funding; +• our ability to develop and launch a light model electric vehicle at scale and at competitive profit margins for our business; +• our ability to negotiate and execute definitive agreements, and maintain arrangements on reasonable terms, with our various suppliers for hardware, software or services necessary to engineer or manufacture parts or components of our electric vehicles; +• securing necessary components, services or licenses on acceptable terms and in a timely manner; +• delays by us in delivering final component designs to our suppliers; +• our ability to accurately produce electric vehicles within specified design tolerances; +• quality controls, including within our production operations, that prove to be ineffective or inefficient; +• defects in design and/or manufacture that cause our electric vehicles not to perform as expected or that require repair, field actions, product recalls or design changes; +• delays, disruptions or increased costs in our third-party service providers’ and our third-party suppliers’ supply chain, including raw material supplies, tariffs or other trade protection actions; +• other delays, cost overruns and backlog in manufacturing and research and development of new models; +• obtaining required regulatory approvals and certifications; +• compliance with environmental, safety and similar regulations; and +• our ability to attract, recruit, hire, retain and train skilled employees. +Historically, motorcycle customers have expected motorcycle manufacturers to periodically introduce new and improved vehicle models. To meet these expectations, we intend to introduce new electric motorcycle models and enhanced versions of existing models. The electric vehicle market is new and quickly evolving. As a pioneer in a new industry, we inherently have limited experience as a company, designing, testing, manufacturing, marketing and selling our electric motorcycles and therefore cannot assure you that we will be able to meet customer expectations. Any of the foregoing could have a material adverse effect on our business, prospects, financial condition and operating results. +20 +The electric vehicle sector is growing and our products and services are and will be subject to competition from competitors. +Both the vehicle industry generally, and the electric motorcycle sector in particular, are highly competitive, and our Electric Motorcycle segment will be competing for sales with both leading internal combustion engine-focused companies and smaller electric motorcycle-focused companies. Several major motorcycle companies currently have electric motorcycles available, and other current and prospective motorcycle manufacturers are also developing electric motorcycles. STACYC is a category creator for electric balance bikes. There have been some competitors who have entered the market, but we expect competition to grow as the market shifts to younger riders and more players begin to make serious investments in the category. +Factors affecting competition include product performance and quality, technological innovation, customer experience, brand differentiation, product design, pricing and manufacturing scale and efficiency. Increased competition may lead to lower vehicle unit sales and increased inventory, which may result in downward price pressure and adversely affect our business, prospects, financial condition and operating results. Competitive pricing, promotional activity, and excess capacity may require us to lower prices or increase incentives, adversely affecting our margins, brand positioning, and results. We also expect competition for electric vehicle customers to intensify due to current and potential future demand constraints. Further, as a result of new entrants in the electric vehicle market, we may experience increased competition for components and other parts of our electric vehicles, including internal competition between our Electric Motorcycle and STACYC segments, which may have limited or single-source supply. +Our business and prospects depend significantly on our ability to build the LiveWire brand and consumers’ recognition, acceptance and adoption of the LiveWire brand. We may not succeed in continuing to maintain and strengthen the LiveWire brand. +Our business and prospects are heavily dependent on our ability to develop, maintain and strengthen our brand. If we do not continue to establish, maintain and strengthen our brand, we may lose the opportunity to build a critical mass of customers. Promoting and positioning our brand will likely depend significantly on our ability to provide high-quality electric vehicles and engage with our customers as intended. In addition, our ability to develop, maintain and strengthen our brand will depend heavily on the success of our customer development and branding efforts. Such efforts mainly include building a community of customers engaged with our branding initiatives, such as at automotive shows and events. To effectively build our brand with a new customer in a new industry, such efforts may be non-traditional and may not achieve the desired results. To promote our brand, we may be required to change our customer development and branding practices, which could result in substantially increased expenses, including the potential to use traditional media such as television, radio and print and engage celebrity talent or brand ambassadors. If we do not develop and maintain a strong brand, our business, prospects, financial condition and operating results may be materially and adversely impacted. +In addition, if negative incidents occur or are perceived to have occurred, whether or not such incidents are our fault, we could be subject to adverse publicity. In particular, given the popularity of social media, any negative publicity, whether true or not, could quickly proliferate and materially and negatively affect consumer perceptions and confidence in the LiveWire brand. Furthermore, there is the risk of potential adverse publicity related to our manufacturing partners or other partners whether or not such publicity is related to their collaboration with us. Our ability to successfully position our brand could also be adversely affected by perceptions about the quality of ours or our competitors’ vehicles. +In addition, from time to time, our electric vehicles may be evaluated and reviewed by third parties. Any negative reviews or reviews that compare us unfavorably to competitors or unfavorably to ICE motorcycle products could adversely affect consumer perception about our electric vehicles or electric vehicles in general. +We have an established standard of quality and associated consumer expectations through our H-D motorcycle lineage. If we are unable to continue providing quality services and customer service, our business and reputation may be materially and adversely affected. +Our business and prospects heavily depend on our ability to develop, maintain and strengthen the LiveWire standard of quality and associated consumer expectations, including maintaining the established standard of quality and associated consumer expectations through our H-D motorcycle lineage. If we are not able to establish, maintain and strengthen the LiveWire standard of quality and associated consumer expectations with our brand, we may lose the opportunity to build a critical mass of customers. Our ability to develop, maintain and strengthen the LiveWire brand will depend heavily on our ability to provide high-quality electric vehicles and engage with our customers as intended, as well as the success of our customer development and marketing efforts. If we do not develop and maintain a strong brand associated with the LiveWire brand, our business, prospects, financial condition and operating results could be materially and adversely impacted. +21 +Our relationship with H-D presents potential opportunities, synergies and risks. Our brand and reputation could be materially and negatively affected through negative publicity regarding H-D and its products and services. +Our relationship with H-D presents potential opportunities, synergies and risks for us. However, the association of our business and brand to H-D and its business could subject us to reputational and regulatory risks. Any negative developments with respect to H-D may materially and adversely affect our business and brand. Additionally, the anticipated benefits of the synergies with H-D may not be realized or the value of goodwill and other intangible assets could be impacted by one or more continuing unfavorable events or trends, which could result in significant impairment charges. The occurrence of any of these events could have a material adverse effect on our business, prospects, financial condition and operating results. +H-D could make decisions for the benefit of its overall business that could negatively impact our overall business. +As a result of the Separation, H-D, through the Legacy ElectricSoul, LLC (the “Legacy LiveWire Equityholder”), is our majority stockholder. To ensure we are making decisions that benefit our business and our stockholders, we have a conflicts committee (the “Conflicts Committee”) of the board of directors of LiveWire (the “Board”) to review and approve any matter involving a conflict of interest between us and H-D. Outside of our business, H-D may make certain decisions that benefit its overall business, including its relationships with its shareholders, suppliers, and dealers, that could negatively impact our overall business, including our supplier partnerships, pricing, approach to manufacturing or ability to access funding or expand distribution. These decisions by H-D about its business may have a material and adverse effect on our business, prospects, financial condition and operating results. +Our relationship with H-D may impact our other business relationships or potential business relationships. +H-D has many longstanding business relationships that we expect to largely be able to leverage to our benefit through our relationship with H-D. Our relationship with H-D may also affect our ability to develop and maintain our own relationships with companies providing services and capabilities to, or for the benefit of, our business, including supply, distribution, marketing and operations. Depending upon the relationship between H-D and these other companies, the other companies may be less willing or unwilling to develop and maintain relationships with us. Additionally, they may favor our competitors or may view us as competitors because of our relationship with H-D. We may also enter into certain agreements with H-D pursuant to which we and/or H-D have continuing obligations to provide services to each other. Our inability to maintain the business relationships necessary to maintain and grow our business may materially and negatively impact our results. +Leveraging contract manufacturers, including H-D, KYMCO Group and other potential partners, to contract manufacture electric vehicles is subject to risks. +A key financial benefit to our business is our asset-light operating model in which we rely on contract manufacturers to produce our electric vehicles. We have secured the experience and expertise of H-D and KYMCO Group, as well as other vendors for STACYC products, to serve as our long-term contract manufacturing partners to provide manufacturing, procurement, logistics and distribution services for our platforms and certain other products. If these contract manufacturing agreements terminate or expire, or if H-D or KYMCO Group, or other vendors for STACYC products, fail to perform or meet our expected quality standards, timelines, capacity requirements, costs, manufacturing capabilities or manufacturing footprint, we may need to engage another third‑party contract manufacturer or build our own in-house manufacturing capabilities, which could cause us to incur significant cost and expense. Additionally, our contractual exclusivity requirements limit our manufacturing portability and potential recourse against our contract manufacturers for their failure to perform or meet our expected quality standards is limited. We do not currently have alternate manufacturing arrangements in place so it may take time to transition to another contract manufacturer, and there is no guarantee that they would be able to meet our capacity, capability or quality requirements, or otherwise be an effective and acceptable manufacturing solution. Any of the foregoing could adversely affect our business, prospects, financial condition and operating results. +22 +If retail partners are unwilling to participate in our go-to-market business model or are unable or ineffective in establishing or maintaining relationships with customers for electric vehicles, it may adversely impact our business. +We employ a go-to-market business model whereby our revenue is generated primarily by selling at wholesale to a network of independent dealers, which currently are largely drawn from H-D’s traditional motorcycle dealer network, while we also seek to develop new retail partners. We depend on the capability of these retail partners to develop and implement effective retail sales plans to create demand among retail purchasers for our electric vehicles and related products and services that the retail partners may purchase from us. We provide our retail partners with specific training and programs to assist them in selling our products, but there can be no assurance that these steps will be effective. If our retail partners are not able to establish, maintain and strengthen our brand, we may lose the opportunity to build a critical mass of customers. Our retail partners’ ability to develop, maintain and strengthen their relationships with customers for electric vehicles will depend heavily on our ability to provide high-quality electric vehicles and engage with our customers as intended, as well as the success of our customer development and marketing efforts. The electric vehicle industry is intensely competitive, and we may not be successful in building, maintaining and strengthening our relationship with customers. If we do not develop and maintain a strong brand, our business, prospects, financial condition and operating results could be materially and adversely impacted. +Some of these retail partners may also market, sell and support offerings that may be competitive with ours, may devote more resources to the marketing, sales and support of such competitive offerings or may have incentives to promote other offerings to the detriment of our own. Our retail partners could subject us to lawsuits, potential liability, and reputational harm if, for example, any of our retail partners misrepresents the functionality of our electric vehicles to customers or violates laws or our or their corporate policies. Our ability to achieve revenue growth in the future will depend, in part, on our success in maintaining successful relationships with our retail partners, identifying additional retail partners, including in new markets, and training our retail partners to independently sell and service our electric vehicles. If we are unable to enter into arrangements with or retain a sufficient number of retail partners in each of the regions in which we sell our electric vehicles and keep them motivated to sell our electric vehicles, our business, prospects, financial condition and operating results could be adversely affected. +If we are unable to establish and maintain confidence in our long-term business prospects among customers and analysts and within our industry, or are subject to negative publicity, then our business, prospects, financial condition and operating results may suffer materially. +Customers may be less likely to purchase our electric vehicles if they are not convinced that our business will succeed or that our service, warranty, and support and other operations will continue in the long-term. Similarly, suppliers, dealers, retailers, and other third parties may be less likely to invest time and resources in developing business relationships with us if they are not convinced that our business will succeed. Accordingly, to build and maintain our business, we must maintain confidence among customers, suppliers, analysts, ratings agencies and other parties in our electric vehicles, long-term financial viability and business prospects. Maintaining such confidence may be complicated by certain factors, including those that are largely outside of our control, such as our limited operating history; customer unfamiliarity with our electric vehicles and electric vehicles and electric motorcycles in general; any delays in scaling production, delivery and service operations to meet demand; competition and uncertainty regarding the future of our electric vehicles and electric vehicles and electric motorcycles in general; and our production and sales performance compared with market expectations. If we are unable to establish and maintain confidence with our suppliers, dealers, retailers and other third parties our business, prospects, financial condition and operating results could be materially and adversely impacted. +23 +We, our service providers, and our suppliers are subject to numerous regulations. Unfavorable changes to, or failure by us, our service providers or our suppliers to comply with these regulations could materially and negatively affect our business, prospects, financial condition and operating results. +We and our electric vehicles, and vehicles in general, as well as our third-party service providers partners and our suppliers, are or will be subject to substantial regulation under foreign, federal, state and local laws. We continue to evaluate requirements for licenses, approvals, certificates and governmental authorizations necessary to manufacture, sell, deploy or service our electric vehicles in the jurisdictions in which we plan to operate and, to the extent we have not already, intend to take such actions necessary to comply. We may experience difficulties in obtaining or complying with various licenses, approvals, certifications and other governmental authorizations necessary to manufacture, sell, deploy or service our electric vehicles in any of these jurisdictions. If we, our third‑party service providers or our suppliers are unable to obtain or comply with any of the licenses, approvals, certifications or other governmental authorizations necessary to carry out our operations in the jurisdictions in which we or they currently operate, or those jurisdictions in which we or they plan to operate in the future, our business, prospects, financial condition and operating results could be materially adversely affected. We expect to incur significant costs in complying with these regulations. Regulations related to the electric and alternative energy vehicle industry are evolving and we face risks associated with changes to these regulations, including, but not limited to: +• increased support for other alternative fuel systems, which could have an impact on the acceptance of our electric vehicles; and +• increased sensitivity by regulators to the needs of established automobile and motorcycle manufacturers, which could lead them to pass regulations that could reduce the compliance costs of such established manufacturers or mitigate the effects of government efforts to promote alternative fuel vehicles. +To the extent the laws change, our electric vehicles may not comply with or be positioned to take advantage of applicable foreign, federal, state or local laws, including import/export, customs duties, tariffs, and applicable taxes, which may have an adverse effect on our business. Compliance with changing regulations could be burdensome, time consuming and expensive. To the extent compliance with new regulations is cost prohibitive, our business, prospects, financial condition and operating results could be adversely affected. +Electric vehicles are inherently new products. We may experience significant delays in the design, production and launch of our electric vehicles, which could materially and negatively affect our business, prospects, financial condition and operating results. +Our future business depends in large part on our ability to execute on our plans to develop, produce, market and sell our electric vehicles. Electric vehicle companies experience delays in the design, production and commercial release of new products. To the extent we delay the launch of future models of electric vehicles, our growth prospects could be adversely affected as we may fail to establish or grow our market share. Furthermore, we rely on contract manufacturers for the manufacturing of electric vehicles. We could experience delays if our contract manufacturers do not meet agreed upon timelines or experience capacity constraints. Additionally, we rely on third‑party suppliers for the provision and development of the key components and materials used in our electric vehicles. To the extent our suppliers experience any delays in providing our outsourced manufacturing partners with or developing necessary components, we could experience delays in delivering on our timelines. See “-Increases in costs, disruption of supply, or shortage of materials and components could materially and negatively affect our business.” +24 +Our business may suffer if our products or features contain defects or fail to perform as expected. We may choose to or be compelled to undertake product recalls or take other similar actions, which could adversely affect our brand image, business and operating results. +If our electric vehicles contain design or manufacturing defects that cause them not to perform as expected or that require repair, our ability to develop, market and sell our products and services may be materially and negatively affected, and we may experience delivery delays, product recalls, product liability, breach of warranty and consumer protection claims and significant warranty and other expenses. In particular, our electric vehicles are highly dependent on software, which is inherently complex and may contain latent defects or errors or be subject to external attacks. Although we attempt to remedy any issues we observe in our electric vehicles as effectively and rapidly as possible, such efforts may not be timely, may hamper production or may not completely satisfy our customers. While we perform extensive internal testing on our electric vehicles and features, we currently have a limited frame of reference by which to evaluate their long-term quality, reliability, durability and performance characteristics when operating in the field. There can be no assurance that we will be able to detect and fix all defects in our electric vehicles prior to their sale to or installation for customers. Despite safety and quality reviews, the Consumer Product Safety Commission or other applicable regulatory bodies may require, or we may voluntarily institute, the recall, repair or replacement of our electric vehicles if our electric vehicles are found not to be in compliance with applicable standards or regulations. +Any product recall in the future, whether initiated by a regulator, us or a supplier, and whether the product recall involves our or a competitor’s product, may result in adverse publicity, damage our brand image, and adversely affect our business, prospects, financial condition and operating results. Such recalls, whether caused by systems or components engineered or manufactured by us or our suppliers, may involve significant expense, the possibility of lawsuits, and diversion of management’s attention and other resources, which could adversely affect our brand image and our business, prospects, financial condition and operating results. +We depend on suppliers, including critical and single source suppliers, to deliver components according to schedules, prices, quality and volumes that are acceptable to us. We may be unable to effectively manage these suppliers. Uncertainties in the global economy may negatively impact suppliers and other business partners, which may interrupt the supply chain and require other changes to operations. These and other factors may adversely impact revenues and operating income. +Our success will be dependent upon our ability to enter into supplier agreements and maintain our relationships with existing suppliers who are critical to the output and production of our electric vehicles. The supply agreements we may enter into with suppliers in the future may have provisions where such agreements can be terminated in various circumstances, including potentially without cause. If our suppliers become unable to provide, or experience delays in providing, components or if the supply agreements we enter into are terminated, or if unfavorable tariffs or other protectionist measures are implemented, it may be difficult to find replacement components, or replacement components at similar costs. Additionally, our products contain parts that we purchase from single-source or limited-source suppliers, for which no immediate or readily available alternative supplier exists. While we believe that we would be able to establish alternate supply relationships and can obtain or engineer replacement components for our single-source components, we may be unable to do so in the short-term (or at all) at prices or quality levels that are acceptable to us. In addition, as we evaluate opportunities and take steps to insource certain components and parts, supply arrangements with current or future suppliers (with respect to other components and parts offered by such suppliers) may be available on less favorable terms or not at all, especially in light of the increases in materials pricing. Unexpected changes in business conditions, materials pricing, including inflation of raw material costs, labor issues, wars, trade policies, tariffs, natural disasters, health epidemics, trade and shipping disruptions, port congestions and other factors beyond our or our suppliers’ control could also affect these suppliers’ ability to deliver components to us or to remain solvent and operational. Additionally, if our suppliers do not accurately forecast and effectively allocate production or if they are not willing to allocate sufficient production to us, it may reduce our access to components and require us to search for new suppliers. The unavailability of any component or supplier could result in production delays, product design changes and loss of access to important technology and tools for producing and supporting our products, as well as impact our capacity expansion and our ability to fulfill our obligations under customer contracts. Moreover, significant increases in our production or product design changes by us may in the future require us to procure additional components in a short amount of time. Our suppliers may not be willing or able to sustainably meet our timelines or our cost, quality and volume needs, or to do so may cost us more, which may require us to replace them with other sources. +In addition, if our suppliers experience substantial financial difficulties, cease operations or otherwise face business disruptions, we would be required to take measures to ensure components and materials remain available. Any disruption could affect our ability to deliver electric vehicles and could increase our costs and negatively affect our liquidity and financial performance. +25 +Also, if a supplied vehicle component becomes the subject of a product recall, we may be required to find an alternative component, which could increase our costs and cause vehicle production delays. Additionally, we may become subject to costly litigation surrounding the component. +If we do not enter into long-term supply agreements with guaranteed pricing for our parts or components, we may be exposed to fluctuations in prices of components, materials and equipment comprising the products purchased from our contract manufacturers, including H-D. Agreements for the purchase of battery cells contain or are likely to contain pricing provisions that are subject to adjustments based on changes in market prices of key commodities. Substantial increases in the prices for such components, materials and equipment would increase our operating costs and could reduce our margins if we cannot recoup the increased costs. Any attempts to increase the announced or expected prices of our electric vehicles in response to increased costs could be viewed negatively by our potential customers and could adversely affect our business, prospects, financial condition and operating results. +The success of our business depends on the availability of power and charging infrastructure for electric vehicles. Limitations on that infrastructure may negatively impact our business. +Demand for our electric vehicles will depend in part upon the availability of public charging infrastructure. We do not plan to develop or invest in our own network of charging stations, but will instead rely on the use of at‑home charging, which makes up the majority of electric vehicle charging today, along with a growing publicly accessible charging infrastructure provided by third parties and the government. We have limited experience in the actual provision of charging solutions to customers, and the facilitation of these services is subject to challenges, which include: +• successful integration with existing third-party charging networks, including obtaining necessary licenses for charging solutions on commercially acceptable terms; +• inadequate capacity or over capacity in certain areas, security risks or risk of damage to vehicles, charging equipment or real or personal property; +• access to sufficient charging infrastructure; +• the potential for lack of customer acceptance of our charging solutions; and +• the risk that government support for electric vehicle and alternative fuel solutions and infrastructure may not continue. +While the prevalence of charging stations generally has been increasing, charging station locations are significantly less widespread than gas stations. Some potential customers may choose not to purchase our electric vehicles because of the lack of a more widespread charging infrastructure. To provide our customers with access to sufficient charging infrastructure, we will rely on the availability and successful integration of our electric vehicles with third-party charging networks. Any failure of third-party charging networks to meet customer expectations or needs, including quality of experience, could impact the demand for electric vehicles, including ours. For example, where charging bays exist, the number of electric vehicles could oversaturate the available charging bays, leading to increased wait times and dissatisfaction for customers. Additionally, industry shifts in charging standards and protocols and interoperability issues with third‑party networks may require product updates or adapters and could adversely affect customer experience and demand. To the extent we are unable to meet user expectations or experience difficulties in facilitating access to charging solutions, our reputation and business, prospects, financial condition and operating results may be materially and adversely affected. +We may face challenges in expanding our business and operations internationally, and our ability to conduct business in international markets may be adversely affected by legal, regulatory, political and economic risks. +Our business plan includes operations in international markets, including, but not limited to, Germany, France, Netherlands, Switzerland, Spain, Italy, United Kingdom, and Canada, and eventual expansion into other international markets. We will face risks associated with any potential international operations, including possible unfavorable legal, regulatory, political and economic risks, which could materially and negatively affect our business. We anticipate having international operations and subsidiaries that are subject to the legal, political, regulatory and social requirements and economic conditions in these jurisdictions. Furthermore, conducting and launching operations on an international scale requires close coordination of activities across multiple jurisdictions and time zones and consumes significant management resources. We will be subject to a number of risks associated with international business activities that may increase our costs, impact our ability to sell our electric vehicles and require significant management attention. These risks include: +• conforming our electric vehicles to various international regulatory requirements where our electric vehicles are sold and serviced, which requirements may change over time; +• expenditures related to foreign lawsuits and liability; +• difficulties in staffing and managing foreign operations; +26 +• difficulties establishing relationships with, or disruption in the supply chain from, international suppliers; +• difficulties attracting customers in new jurisdictions; +• difficulties in attracting effective distributors, dealers or sales agents, as the case may be; +• foreign government taxes, regulations and permit requirements, including foreign taxes that we may not be able to offset against taxes imposed upon us in the United States, and foreign tax and other laws limiting our ability to repatriate funds to the United States; +• fluctuations in foreign currency exchange rates and interest rates, including risks related to any foreign currency swap or other hedging activities we undertake; +• United States and foreign government trade restrictions, tariffs and price or exchange controls; +• foreign labor laws, regulations and restrictions; +• changes in diplomatic and trade relationships; +• laws and business practices favoring local companies; +• difficulties protecting or procuring intellectual property; +• the adoption of the LiveWire or STACYC brands versus competitive foreign brands; +• political instability, natural disasters, war or events of terrorism and health epidemics, such as the conflict in Ukraine or the Israeli-Palestinian conflict; and +• the strength of international economies. +If we fail to successfully address these risks, our business, prospects, financial condition and operating results could be materially and adversely affected. +The battery’s range and life will deteriorate with usage and time, which, if material, could negatively influence potential customers’ decisions to purchase our electric vehicles. +All lithium-ion batteries are consumable components that become less effective as they chemically age. As lithium-ion batteries chemically age, the amount of charge they can hold diminishes, which may result in a perceptible decrease in range for an electric vehicle. This can be referred to as the battery’s maximum capacity, i.e., the measure of battery capacity relative to when it was new. In addition, a battery’s ability to deliver maximum instantaneous performance, or “peak power,” may decrease and impact acceleration performance in an electric vehicle. For our S2 products, a normal battery is designed to retain up to 80% of its original capacity after 30,000 miles when operating under normal conditions. Although common to all electric vehicles, lithium-ion battery aging may negatively influence potential customers’ electric vehicle purchase decisions, which could lead to adverse impacts on our business, prospects, financial condition, and operating results. +Unexpected termination of leases or failure to renew the lease of our existing premises or to renew such leases at acceptable terms could materially and adversely affect our business. +We lease the premises for our research and development facility, retail stores and offices. We cannot assure you that we would be able to renew the relevant lease agreements without substantial additional cost or increase in the rental cost payable by us. If a lease agreement is renewed at a rent substantially higher than the current rate, or currently existing favorable terms granted by the lessor are not extended, our business and results of operations may be adversely affected. Additionally, if our sublease at our Company-owned dealership location is either terminated or not renewed by our landlord, or otherwise prohibited for legal or regulatory reasons, and we do not have an existing alternate dealership location, that could jeopardize our dealer license, which would impact our ability to make direct sales to consumers and could materially and adversely affect our business. +We are subject to scrutiny associated with environmental, social and governance (“ESG”) matters. +Certain consumers, investors, employees and other stockholders, as well as by governmental and non-governmental organizations, focus on climate change, human capital, and other ESG matters generally and with regard to our industry specifically. +Initiatives to address ESG matters or stakeholder expectations may not have the desired effect. Any failure (or perceived failure) to meet commitments that we have set in relation to ESG matters or other stakeholder expectations on such matters could negatively impact our brand, our business, prospects, financial condition and operating results. These impacts could be difficult and costly to overcome, even if such concerns were based on inaccurate or misleading information, and our reputation and brand image could be damaged, and our business, financial condition and results of operations could be adversely impacted. +27 +In addition, pursuing our ESG initiatives may result in increased costs in our supply chain, fulfillment, and/or corporate business operations, and could deviate from our initial estimates and have a material adverse effect on our business and financial condition. As with other companies, our approach to such matters has evolved over time, and we expect it will continue to evolve, but we cannot guarantee that our approach will ultimately align with any particular stakeholder’s preferences or expectations. Stakeholder expectations vary and, at times, can conflict. Both advocates and opponents to certain ESG matters are increasingly resorting to a range of activism forms, including media campaigns and litigation, to advance their perspectives. To the extent we are subject to such activism, it may require us to incur costs or otherwise adversely impact our business. +While we may create and publish voluntary disclosures regarding ESG matters from time to time, many of the statements in those voluntary disclosures are based on methodologies and data that continue to evolve and that are subject to varying stakeholder interpretations and preferences. Evolving data and research could undermine or refute our current claims and beliefs that we have made in reliance on current research, which could also result in costs, a decrease in revenue, and negative market perception that could have a material adverse effect on our business and financial condition. In addition, emerging regulation requiring additional ESG public disclosure by certain companies in a number of jurisdictions and/or additional ESG obligations may lead to heightened scrutiny of our ESG performance, to the extent we are required to publish additional information in relation to our ESG performance or to meet such additional ESG obligations. For example, various policymakers have adopted or are considering adopting requirements for certain companies to undertake certain climate- or other-ESG related disclosures or actions. Policymakers’ approaches are not uniform, which may increase the cost or complexity of compliance, as well as increase the general risk of litigation or enforcement on such matters. +Additionally, there are increasing expectations in various jurisdictions that companies monitor the environmental and social performance of their suppliers and otherwise consider a wide range of potential environmental and social matters for their products and value chain (such as in relation to forced labor considerations). Certain of our suppliers operate and source materials in China and Taiwan, and their presence in our supply chain could present unique risks for us due to risks associated with the U.S. Uyghur Forced Labor Prevention Act (UFLPA), as well as the strain in U.S.-China relations, and China’s unique regulatory landscape. Prohibitions on forced labor or related human rights or environmental diligence requirements have also been adopted or proposed in other jurisdictions, such as the European Union, and represents a topic that will likely be subject to further regulation in the markets we operate within. Compliance with such requirements can be costly and complex and may impact how we are able or willing to engage with suppliers. +Regulation in this area has also evolved considerably over recent years and is likely to continue to do so, which may lead to additional costs and challenges associated with ensuring compliance with changing standards. Furthermore, industry and market practices may further develop to become even more robust than what is required under any new laws and regulations, and we may have to expend significant efforts and resources to keep up with market trends and stay competitive among our peers, which could result in higher associated compliance costs and penalties for failure to comply with such laws and regulations. Failure to successfully address stakeholder expectations, including any regulatory obligations, may result in increased costs, reputational harm with various stakeholders (including through ratings), litigation, or other adverse business impacts.. Additionally, many of our customers, retailers, suppliers, or other stakeholders are subject to similar expectations, which may augment or create additional risks. +Our electric vehicles use lithium-ion battery cells. When not properly managed, lithium-ion battery cells have been observed to catch fire or vent smoke and flame on rare occasions. If our electric vehicles exhibit those conditions, it could have a negative effect on our reputation and business. +The battery packs within our electric vehicles make use of lithium-ion cells. If not properly managed or subject to environmental stresses, lithium-ion cells can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials as well as other lithium-ion cells. While the battery pack is designed to contain any single cell’s release of energy without spreading to neighboring cells, a field or testing failure of battery packs in our electric vehicles could occur, which could result in bodily injury or death and could subject us to lawsuits, product recalls or redesign efforts, all of which would be time consuming and expensive and could materially and negatively affect our brand image and results of operation. Also, negative public perceptions regarding the suitability of lithium-ion cells for automotive applications, the social and environmental impacts of mineral mining or procurement associated with the constituents of lithium-ion cells, or any future incident involving lithium-ion cells, such as a vehicle or other fire, could materially and adversely affect our reputation and business. +28 +Our industry and its technology are rapidly evolving and may be subject to unforeseen changes. Developments in alternative technologies or improvements in current and future enabling and competitive technologies may adversely affect the demand for our electric vehicles. +We may be unable to keep up with changes in electric vehicle technology or alternatives to electricity as a fuel source, and as a result, our competitiveness may suffer. Developments in alternative technologies, such as advanced diesel, hydrogen, ethanol, fuel cells or compressed natural gas, or improvements in the fuel economy of the internal combustion engine or the cost of gasoline, may materially and adversely affect our business and prospects in ways we do not currently anticipate. Existing and other battery cell technologies, fuels or sources of energy may emerge as customers’ preferred alternative to our electric vehicles. Any failure by us to develop new or enhanced technologies or processes, or to react to changes in existing technologies, could materially delay our development and introduction of new and enhanced alternative fuel and electric vehicles, which could result in the loss of competitiveness of our electric vehicles, decreased revenue and a loss of market share to competitors. Our research and development efforts may not be sufficient to adapt to changes in alternative fuel and electric vehicle technology. As technologies change, we plan to upgrade or adapt our electric vehicle with the latest technology. However, our electric vehicles may not compete effectively with alternative systems if we are not able to source and integrate the latest technology into our electric vehicles. Additionally, the introduction and integration of new technologies into our electric vehicles may increase our costs and capital expenditures required for the production and manufacture of our electric vehicles. In addition, upgrades and adaptations to our vehicles will also require, from time to time, planned and temporary manufacturing shutdowns. Plant shutdowns, whether associates with product changes or other factors, can have a negative impact on our revenues. If we are unable to cost efficiently implement new technologies, our business, prospects, financial condition and operating results could be materially and adversely affected. +Our future growth and success are dependent upon consumers’ adoption of, and their demand for, two- and three-wheeled electric vehicles in a sector that is generally competitive, cyclical and volatile. +Our future growth is dependent on the demand for, and upon consumers’ willingness to adopt two- and three-wheeled electric vehicles and, even if electric vehicles become more mainstream, consumers choosing us over other electric vehicles manufacturers. Demand for electric vehicles may be affected by factors directly impacting electric vehicle prices or the cost of purchasing and operating electric vehicles such as sales and financing incentives, prices of raw materials and parts and components, cost of fuel and governmental regulations, including tariffs, import regulation and other taxes. Volatility in demand may lead to lower vehicle unit sales, which may result in downward price pressure and adversely affect our business, prospects, financial condition and operating results. +In addition, the demand for our electric vehicles and services will highly depend upon the adoption by consumers of new energy vehicles in general and electric motorcycles, electric balance bikes, and electric bikes in particular. The market for new energy vehicles is still rapidly evolving, characterized by rapidly changing technologies, competitive pricing and competitive factors, evolving government regulation and industry standards, and changing consumer demands and behaviors. +Other factors that may influence the adoption of alternative fuel vehicles, and specifically electric vehicles, include: +• perceptions about electric vehicles quality, safety, design, performance and cost, especially if adverse events or accidents occur that are linked to the quality or safety of electric vehicles, whether or not such electric vehicles are produced by us or other manufacturers; +• perceptions about electric vehicles’ safety in general, in particular safety issues that may be attributed to the use of advanced technology, including electric vehicles systems; +• range anxiety, including the decline of an electric vehicle’s range resulting from deterioration over time in the battery’s ability to hold a charge; +• the availability of new energy vehicles; +• the availability of service and charging stations for electric vehicles; +• the costs and challenges of installing home charging equipment, including for multi-family, rental and densely populated urban housing; +• the environmental consciousness of consumers, and their adoption of electric vehicles; +• the occurrence of negative incidents, or perception that negative incidents have occurred, with respect to our or our competitors’ electric vehicles resulting in adverse publicity and harm to consumer perceptions in electric vehicles generally; +• the higher initial upfront purchase price of electric vehicles, despite lower cost of ongoing operating and maintenance costs, compared to internal combustion engines vehicles; +• perceptions about and the actual cost of alternative fuel, including the capacity and reliability of the electric grid; +29 +• belief that electric vehicles may subject riders and passengers to greater risks because electric vehicles are quieter compared to internal combustion engine vehicles; +• regulatory, legislative and political changes, trade disputes and tariffs; and +• macroeconomic factors. +The unavailability, reduction or elimination of government and economic incentives or government policies that are favorable for electric vehicles and domestically-produced vehicles could have a material adverse effect on our business, prospects, financial condition and operating results. +Any reduction, elimination, or discriminatory application of government subsidies and economic incentives because of policy changes, or the reduced need for such subsidies and incentives due to the perceived success of the electric vehicle or other reasons, may result in the diminished competitiveness of the alternative fuel and electric vehicle industry generally or our electric vehicles in particular. Additionally, federal, state and local laws may impose additional barriers to electric vehicle adoption, including additional costs. For example, many states have enacted laws imposing additional registration fees for certain hybrid and electric vehicles to support transportation infrastructure, such as highway repairs and improvements, which have traditionally been funded through federal and state gasoline taxes. Any of these conditions could materially and adversely affect the growth of the alternative fuel automobile markets and our business, prospects, financial condition and operating results. +Certain current state tax incentives for two wheeled vehicles and federal tax credits and other incentives for alternative energy production and alternative fuel have expired and there is no guarantee these programs will be renewed or extended. If these incentives are not extended or if new federal and state tax incentives for two wheeled vehicles are not enacted in the future, our business, prospects, financial condition and operating results could be materially and negatively affected. +Our electric motorcycles’ quiet performance compared to internal combustion engine motorcycles may subject riders to greater risks. +Our electric motorcycles are quieter compared to internal combustion engine motorcycles, which may subject riders to greater risks. To the extent accidents associated with our quieter electric motors occur, we could be subject to liability, negative publicity, government scrutiny and further regulation. Any of these results could materially and adversely affect our business, prospects, financial condition and operating results. +Vehicle retail sales depend heavily on affordable interest rates and availability of credit for vehicle financing and a substantial increase in interest rates could materially and adversely affect our business, prospects, financial condition and operating results. +In certain regions, including North America and Europe, financing for new vehicle sales has been available at relatively low interest rates for several years due to, among other things, expansive government monetary policies. As interest rates have risen, market rates for new vehicle financing have also risen, which may make our electric vehicles less affordable, adversely affecting our financial condition and operating results. Additionally, all sales of electric motorcycles and related products to H-D independent dealers in the US and Canada are financed through Harley-Davidson Financial Services, Inc. (“HDFS”), therefore we face the risk that HDFS could change its lending policies in the future or be unwilling to finance our future products, which could have a material adverse effect on our business, prospects, financial condition and operating results. Additionally, if consumer interest rates increase substantially or if financial service providers tighten lending standards or restrict their lending to certain classes of credit, customers may not desire or be able to obtain financing to purchase our electric vehicles. As a result, a substantial increase in customer interest rates or tightening of lending standards could have a material adverse effect on our business, prospects, financial condition and operating results. +Our inability to effectively grow or manage our financing and credit risk could materially and adversely affect our business, prospects, financial condition and operating results +We provide financing for sales of electric motorcycles and related products to non-H-D independent dealers in the US and Canada and independent dealers in Europe. As such, we are subject to credit risk of our customers, and our operating results depend on receipt of timely payments from our customers under these arrangements. In addition, STACYC is subject to credit risk of its customers, and its operating results depend on receipt of timely payments from its customers. Any delay in payment by our customers may have an adverse effect on revenue and operating results. There is no assurance that we will be able to collect all or any of the amounts owed in a timely matter. If any of our customers face unexpected situations such as financial difficulties, we may not be able to receive full or any payment of the uncollected sums or enforce any judgment debts against such clients, and our business, prospects, financial condition and operating results could be materially and adversely affected. +30 +Our warranty reserves may be insufficient to cover future warranty claims which could adversely affect our business, prospects, financial condition and operating results. +As our electric vehicles are produced, we will need to maintain warranty reserves to cover warranty-related claims. If our warranty reserves are insufficient to cover future warranty claims on our electric vehicles, our business, prospects, financial condition and operating results could be materially and adversely affected. We record and adjust warranty reserves based on changes in estimated costs and actual warranty costs. However, we have limited experience with warranty claims for these electric motorcycles and other electric vehicles and with estimating warranty reserves. In the future, we may become subject to significant and unexpected warranty expenses. There can be no assurances that then-existing warranty reserves will be sufficient to cover all claims. +We may become subject to product liability claims, which could materially and negatively affect our financial condition and liquidity if we are not able to successfully defend or insure against such claims. +We may become subject to product liability claims, which could materially and negatively affect our financial condition and liquidity. The vehicle, motorcycle and bicycle industries experience an abundance of product liability claims. We face the risk of significant monetary exposure to claims in the event our electric vehicles do not perform as expected or contain design, manufacturing, or warning defects and to claims without merit, or in connection with malfunctions resulting in personal injury or death. Moreover, a product liability claim could generate substantial negative publicity about our electric vehicles and business and inhibit or prevent commercialization of other future electric motorcycle vehicles, electric balance bikes, or electric bikes, which could have a material adverse effect on our financial condition and liquidity. Any insurance coverage might not be sufficient to cover all potential product liability claims. Any lawsuit seeking significant monetary damages either in excess of our coverage or outside of our coverage may have a material adverse effect on our reputation and financial condition and liquidity. We may not be able to secure additional product liability insurance coverage on commercially acceptable terms or at reasonable costs when needed, particularly if we face liability for our products and are forced to make a claim under our policies. +We depend on revenue generated from a limited number of models and in the foreseeable future will be significantly dependent on a limited number of models. +H-D began making initial deliveries of our predecessor electric motorcycle, the Harley-Davidson LiveWire, in September 2019. We then launched the LiveWire One model in July 2021 followed by a special launch edition of the S2 Del Mar® in May 2022 with full production and sales beginning in the third quarter of 2023. During 2024, we introduced additional models off the S2 platform, including Mulholland™ and Alpinista™. For the foreseeable future, the Electric Motorcycles segment will depend on revenue generated from a limited number of models. Historically, motorcycle customers have come to expect a variety of vehicle models offered in a company’s fleet and new and improved vehicle models to be introduced frequently. +STACYC’s current product portfolio ranges from 12- to 20-inch electric balance bikes built for 3 to 12 year-old riders and an adult pedal assist electric bike that was launched in 2025. For the foreseeable future, STACYC will depend on revenue generated from these limited number of models, until STACYC can expand the range of STACYC riders. +Given that for the foreseeable future our business will depend on a limited number of models, to the extent a particular model is not well received by the market, our sales volume, business, prospects, financial condition and operating results could be materially and adversely affected. +We are subject to risks associated with exchange rate fluctuations, interest rate changes, commodity and credit risk. +We operate in numerous markets worldwide and are exposed to risks stemming from fluctuations in currency and interest rates. The exposure to currency risk will be mainly linked to differences in the geographic distribution of our manufacturing and commercial activities, resulting in cash flows from sales being denominated in currencies different from those of purchases or production activities. Although we may manage risks associated with fluctuations in currency and interest rates and commodity prices through financial hedging instruments, significant changes in currency or interest rates or commodity prices could have a material adverse effect on our business, prospects, financial condition and operating results. In addition, we may use various forms of financing to cover future funding requirements for our activities and changes in interest rates can affect our finance costs and margins. Furthermore, many competitors headquartered outside the U.S. experience a financial benefit from a strengthening in the U.S. dollar relative to their home currency that can enable them to reduce prices to U.S. consumers. We are also subject to risks associated with changes in prices of commodities. +31 +The loss of key personnel could adversely affect the operations and profitability of our business. +We are highly dependent on our senior management and other key personnel. Our success will depend on our ability to retain senior management and to attract, recruit, retain, manage and motivate qualified personnel in the future. The loss of members of our senior management, sales and marketing professionals and engineers could result in delays in product development and materially and negatively affect our business. If we are not successful in attracting and retaining highly qualified personnel, it could have a material adverse effect on our business, financial condition and operating results. +Our business, prospects, financial condition and operating results may be adversely affected by health pandemics and epidemics, natural disasters, actual or threatened war, terrorist activities, political unrest, and other outbreaks. +We face various risks related to public health issues, including epidemics, pandemics and other outbreaks, such as the pandemic related to COVID-19 and associated variants. We also face various risks related to natural disasters, including hurricanes, earthquakes, tsunamis or other natural disasters. Such public health issues or natural disasters could disrupt our business operations, reduce or restrict our supply of materials and services, result in us incurring significant costs to protect our employees and facilities or result in regional or global economic distress, which may materially and adversely affect our business, financial condition and operating results. Actual or threatened war, including the conflict in Ukraine, the Israeli-Palestinian conflict, terrorist activities, political unrest, geopolitical events and related actions that may occur between mainland China and Taiwan, civil strife, tariffs, trade wars, and other geopolitical uncertainty could have a similar adverse effect on our business, prospects, financial condition and operating results. Any one or more of these events may impede our production and delivery efforts and adversely affect our sales results, which could materially and adversely affect our business, financial condition and operating results. +Epidemics, pandemics, and other outbreaks could result in government authorities implementing numerous measures to try to contain the such outbreaks, such as travel bans and restrictions, quarantines, stay-at-home or shelter-in-place orders and business shutdowns. These measures in the past have adversely impacted our employees and operations, the operations of our suppliers, vendors and business partners, resulted in delays and shortages of certain parts and materials necessary to produce our vehicles, and the activities of our retail customers and negatively impact our production plans, sales and marketing activities, business and results of operations. In addition, various aspects of our business cannot be conducted remotely. If significant portions of our workforce are unable to work effectively, including due to illness, quarantines, social distancing, government actions or other restrictions in connection with public health issues, our operations may be adversely impacted. If government authorities reinstitute such measures or if existing measures remain in place for a significant period of time, they are likely to adversely affect our sales and marketing activities, and our business, prospects, financial condition and operating results. +Specifically, difficult macroeconomic conditions, such as decreases in per capita income and level of disposable income, increased and prolonged unemployment, or a decline in consumer confidence as a result of future epidemics, pandemics and other outbreaks, the conflict in Ukraine, the Israeli-Palestinian conflict, geopolitical events and related actions that may occur between mainland China and Taiwan and inflationary pressure could have a material adverse effect on the demand for our vehicles or sourcing of components. Under difficult economic conditions, potential customers may seek to reduce spending by forgoing our electric vehicles for other traditional options, increase use of public and mass transportation options or choose to keep their existing vehicles. +We are also vulnerable to natural disasters and other calamities. Although we have servers that are hosted in an offsite location, our backup system does not capture data on a real-time basis and we may be unable to recover certain data in the event of a server failure. We cannot assure you that any backup systems will be adequate to protect us from the effects of fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks or similar events. Any of these events may give rise to interruptions, damage to our property, delays in production, breakdowns, system failures, technology platform failures or Internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect our business, prospects, financial condition and operating results. +Weather may impact retail sales by our independent dealers. +We have observed that abnormally cold and/or wet conditions in a region, including impacts from hurricanes or unusual storms, which may be exacerbated by the effects of climate change, could have the effect of reducing demand or changing the timing for purchases of our electric motorcycles at independent dealerships. Reduced demand for new electric motorcycles ultimately leads to reduced shipments by us. +32 +Any financial or economic crisis, or perceived threat of such a crisis, including a significant decrease in consumer confidence, may materially and adversely affect our business, prospects, financial condition and operating results. +The global macroeconomic environment is facing challenges. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States. There have been concerns over the downturn in economic output caused by global trade issues and changes in and uncertainties with respect to trade and export regulations, trade policies and sanctions, tariffs, international trade disputes, particularly those relating to exports of certain technologies to China, geopolitical events and related actions that may occur between mainland China and Taiwan, the conflict in Ukraine, the Israeli-Palestinian military conflict, and inflationary pressure. It is unclear whether these challenges will be contained and what effects they each may have. Economic conditions in the United States are sensitive to global economic conditions. Any prolonged slowdown in the United States economic growth might lead to tighter credit markets, increased market volatility, sudden drops in business and consumer confidence and dramatic changes in business and consumer behaviors. Credit risks of customers and suppliers and other counterparty risks may also increase. +Sales of our electric vehicles depend in part on discretionary consumer spending and are even more exposed to adverse changes in general economic conditions. In response to their perceived uncertainty in economic conditions, consumers might delay, reduce or cancel purchases of our electric vehicles, and our results of operations may be materially and adversely affected. +Our financial results may vary significantly from period to period due to fluctuations in our operating costs, product demand and other factors. +We expect our period-to-period financial results to vary based on our operating costs and product demand, which we anticipate will fluctuate as we continue to design, develop, produce and distribute new electric vehicles. Additionally, our revenue from period to period may fluctuate as we build out global distribution, add new product derivatives based on market demand and margin opportunities and introduce new or existing electric vehicles to new markets. Additionally, our revenue from period to period may fluctuate due to seasonality. Unfavorable weather during peak riding seasons or shortened seasons in key markets can reduce retail demand, elevate dealer inventories, and increase working capital needs. As a result of these factors, we believe that quarter-to-quarter comparisons of our financial results, especially in the short term, are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance. Moreover, our financial results may not meet the expectations of equity research analysts, ratings agencies or investors, who may be focused only on quarterly financial results and holding us to the same standard of expectation as H-D. If any of this occurs, the trading price of our Common Stock could fall substantially, either suddenly or over time. +We may seek to obtain future financing through the issuance of debt or equity, which may have an adverse effect on our stockholders or may otherwise adversely affect our business. +If we raise funds through the issuance of additional equity or debt, including convertible debt or debt secured by some or all of our assets, holders of any debt securities or preferred shares issued will have rights, preferences and privileges senior to those of holders of our Common Stock in the event of liquidation. If we issue additional debt, there is a possibility that once all senior claims are settled, there may be no assets remaining to pay out to the holders of Common Stock. Furthermore, the terms of any additional debt securities we may issue in the future may impose restrictions on our operations, which may include limiting our ability to incur additional indebtedness, pay dividends on or repurchase our share capital or make certain acquisitions or investments. In addition, we may be subject to covenants requiring us to satisfy certain financial tests and ratios, and our ability to satisfy such covenants may be affected by events outside of our control. On November 9, 2025, we entered into an Amended and Restated Delayed Draw Term Loan Agreement (the “Term Loan”) with H-D. All of the obligations under the Term Loan are collateralized by a security interest in substantially all of our assets and the Term Loan subjects us to restrictive covenants that could affect our financial and operational flexibility. See “— The Term Loan contains covenants that may restrict our business and financing activities ” and Note 15 to our consolidated financial statements for more information about the Term Loan. +In addition, in August 2025, we entered into an At-The-Market Issuance Sales Agreement with Mizuho Securities USA LLC, as agent (the “Agent”), under which we may offer and sell, from time to time at our sole discretion, an aggregate gross sale price of up to $50.0 million of shares of our common stock through the Agent (the “ATM Program”) . There were 448,171 shares of common stock sold under the ATM Program in the year ended December 31, 2025. At December 31, 2025, $47.8 million in capacity remained available under the ATM Program. If we raise funds through the issuance of additional equity, whether through private placements or public offerings, such an issuance would dilute ownership of our current stockholders that do not participate in the issuance. +33 +If we are unable to obtain any needed additional funding, we may be required to reduce the scope of, delay or eliminate some or all of our planned research, development, production and marketing activities, any of which could materially affect our business. +We intend to continue to grant equity awards under our Incentive Award Plan, which has resulted and will result in additional share-based compensation expenses. +We adopted the Incentive Award Plan for the purpose of granting share-based compensation to employees, directors and consultants to incentivize their performance and align their interests with ours. We believe the granting of share-based compensation may be important to our ability to attract and retain key personnel and employees. As a result, our expenses associated with share-based compensation has increased and will increase, which will have an adverse effect on our operating results. +If our electric vehicle owners modify our electric vehicles regardless of whether third-party aftermarket products are used, the electric vehicle may not operate properly, which may create negative publicity and could materially and negatively affect our business. +Vehicle enthusiasts may seek to alter our electric vehicles to modify their performance which could compromise vehicle safety and security systems. Also, customers may customize their electric vehicles with aftermarket parts that can compromise rider safety. We may not test, nor do we endorse, such changes or products. In addition, customers may attempt to modify our electric vehicles’ charging systems or use improper external cabling or unsafe charging outlets that can compromise the vehicle systems or expose our customers to injury from high-voltage electricity. Such unauthorized modifications could reduce the safety and security of our electric vehicles and any injuries resulting from such modifications could result in adverse publicity, which would negatively affect our brand and thus materially and negatively affect our business, prospects, financial condition and operating results. +Our inability to obtain and/or retain necessary licenses and permits to operate the business may negatively impact our financial results. +It may be necessary for us to use the patented or proprietary technology of third parties to develop or commercialize our products, in which case we would be required to obtain a license or acquire intellectual property from these third parties. The licensing or acquisition of third-party intellectual property is a competitive area, and several more established companies may pursue strategies to license or acquire third-party intellectual property that we may consider attractive or necessary and thereby prevent us from obtaining the right to use such intellectual property ourselves. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. If we are unable to license such technology, or if we are forced to license such technology on unfavorable terms, our business could be materially and negatively affected. If we are unable to obtain a necessary license, we may be unable to develop or commercialize the affected product models, which could materially and negatively affect our business, and the third parties owning such intellectual property could seek either an injunction prohibiting our sales or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. +Moreover, some of our patents and patent applications in the future may be jointly owned with third parties. If we are unable to obtain an exclusive license to any such third-party joint owners’ interests in such patents or patent applications, such joint owners may be able to license their rights to other third parties, including our competitors, who could market competing products and technology. In addition, we may need the cooperation of any such joint owners to enforce such patents against third parties, and such cooperation may not be provided to us. Any of these factors could materially and negatively affect our business, financial condition and results of operations. +If our goodwill becomes impaired, our operating results could be negatively impacted. +We have goodwill, which is susceptible to valuation adjustments as a result of changes in various factors or conditions. Goodwill is tested for impairment, based on financial data related to the reporting unit to which it has been assigned, at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that could trigger an impairment of such assets include the following: +• changes in our organization or management reporting structure that could result in additional reporting units, which may require alternative methods of estimating fair values or greater disaggregation or aggregation in our analysis by reporting unit; +34 +• significant under performance relative to historical or projected future operating results; +• significant changes in the strategy for our overall business; +• significant negative industry or economic trends; +• significant decline in our stock price for a sustained period; and +• our market capitalization declining to below net book value. +Future adverse changes in these or other unforeseeable factors could result in goodwill or other intangible assets impairment charges that could be material to the consolidated financial statements. +The Term Loan contains covenants that may restrict our business and financing activities. +On November 9, 2025, we entered into the Term Loan Agreement with H-D. Our Term Loan provides us with access of up to $75.0 million to be drawn by the Company between November 17, 2025 and December 15, 2025. On December 15, 2025, we borrowed $75.0 million under the Term Loan. All of the obligations under the Term Loan are collateralized by a security interest in substantially all of our assets. The maturity date of the Term Loan is December 15, 2027. For more information on the Term Loan, see Note 15 to our consolidated financial statements. +The Term Loan subjects us to restrictive covenants that could affect our financial and operational flexibility. The covenants in the Term Loan, as well as any future financing arrangements that we may enter into, may restrict our ability to finance our operations, engage in, expand, or otherwise pursue its business activities and strategies. Our ability to comply with these or other covenants may be affected by events beyond our control, and future breaches of these or other covenants could result in a default under the Term Loan. If not waived, future defaults could cause all of the outstanding indebtedness under the Term Loan to become immediately due and payable, and the Term Loan may terminate. If we do not have or are unable to generate sufficient cash to repay its debt obligations when they become due and payable, either upon maturity or in the event of a default, we would be required to obtain additional debt or equity financing, which may not be available on favorable terms, or at all, which may negatively impact our ability to operate and continue our business as a going concern. +Risks Related to the Separation and Our Ongoing Relationship with H-D +Our business and H-D’s business overlap and we may compete, or be perceived as competitors, in certain markets. +Both LiveWire and H-D are companies whose primary business involves producing, marketing and selling vehicles and related products. While we intend to operate in a different business segment than H-D, neither we nor H-D is prohibited from competing against each other. Additionally, under the Intellectual Property License Agreement, H-D has the right to use our existing intellectual property and incremental improvements to our existing intellectual property, which could facilitate H-D’s development of products that compete with ours; however, H-D may be required in some cases to pay us royalties for the use of our existing intellectual property and their rights to our newly-developed intellectual property would be limited as defined under the Joint Development Agreement. If we were in competition with H-D, it could have a material adverse effect on our results of operations or our ability to pursue opportunities which may otherwise be available to us. +Our inability to maintain a strong relationship with H-D or to resolve favorably any disputes that may arise between us and H-D could result in a significant reduction of our revenue. +Maintaining a strong relationship with H-D and its management team will be important to our success for at least as long as H-D remains a majority stockholder. Disputes may arise between H-D and us in a number of areas relating to our ongoing relationship, including: +• our strategy, direction and objectives as a business; +• labor, tax, employee benefit, indemnification and other matters arising from our separation from H-D; +• employee retention and recruiting; +• acquisitions, joint ventures, or business combinations involving us; +• our ability to engage in activities with certain customers, suppliers, partners or other contract manufacturers; +• sales or dispositions by H-D of all or any portion of its ownership interest in us; +• the nature, quality and pricing of loans, contract manufacturing, and other services H-D has agreed to provide us; +• supply chain, including access to parts and raw material supplies, as well as allocation of manufacturing labor, parts and other supplies shared across H-D’s manufacturing facilities; +• business opportunities that may be attractive to us or both H-D and us; and +• product or technology development or marketing activities that may require the consent of H-D. +35 +While we have the Conflicts Committee to help resolve any potential conflict between us and H-D, we may not be able to resolve all potential conflicts. Assuming we are able to resolve such a potential conflict, we intend for such resolution to be comparable to the resolution that we would reach with an unaffiliated party. However, the resolution that we actually reach may be less favorable than if we were dealing with an unaffiliated party. +The agreements we entered into with H-D may be amended upon agreement between the parties. While we are controlled by H-D, we may not have the leverage to negotiate agreements or amendments to these agreements, if required, on terms as favorable to us as those we would negotiate with an unaffiliated third party. +We are a smaller company relative to H-D which could result in increased costs because of a decrease in our purchasing power and difficulty maintaining existing customer relationships and obtaining new customers. +Prior to the Separation, we were able to take advantage of H-D’s size and purchasing power in procuring goods, technology and services, including insurance, employee benefit support and audit and other professional services. While this may continue in some ways with H-D as a majority stockholder and contract manufacturer, we are a smaller company than H-D, and we cannot assure you that we will have access to financial and other resources comparable to those available to us prior to the Separation. As a standalone company, we may be unable to obtain office space, goods, technology, insurance and services at prices or on terms as favorable as those available to us prior to the Separation, which could increase our costs and reduce our profitability. Likewise, we may find it more difficult to attract and retain high-quality employees as a smaller company than we were operating within as a wholly owned subsidiary of H-D, which could impact our results of operations. Our future success also depends on our ability to develop and maintain relationships with customers. Our reduced relationship with H-D and our smaller relative size as a result of the Separation may make it more difficult to develop and maintain relationships with customers, which could adversely affect our prospects. +We are dependent on H-D for a number of services, including services relating to quality and safety testing. If those service arrangements terminate, it will require significant investment for us to build our own safety and testing facilities, or we may be required to obtain such services from another third party at increased costs. +We are dependent on H-D for a number of services, including services relating to quality and safety testing. If these service arrangements terminate, we do not currently have alternate arrangements in place that will allow us to fully execute our business plan, including, without limitation, agreements for quality and safety testing, and as such, we will be required to deploy significant resources to build our own safety and testing facilities, or may be required to obtain such services from another third party at increased costs. If we are unable to maintain such arrangements and agreements, or if we are unable to effectively build our own facilities or obtain such services from another third party, our business, prospects, financial condition and operating results may be materially and adversely affected. +Any decision by us to help electrify H-D products, or the products of any other company, may not achieve the intended results or return on investment when compared to developing our own motorcycle portfolio. +We may decide to help electrify H-D’s and other companies’ products in the future. While we expect electrifying H-D’s motorcycle portfolio to be a key piece of our future success, these efforts require resources that may otherwise be used on our electric vehicle portfolio. All project scopes, resource allocation, time commitment, and investment dollars dedicated to the electrification of H-D’s core products will be governed and costs allocated by separate joint development agreements that will be established and agreed upon by the LiveWire and H-D management teams. If the available resources do not support both LiveWire and H-D electrification efforts, it could negatively impact development of our electric vehicles and ultimately our ability to deliver targeted revenues and operating income. +H-D may fail to perform under various transaction agreements that were executed as part of the Separation or we may fail to have necessary systems and services in place when certain of the transaction agreements expire. +We entered into a number of agreements with H-D as a result of the Separation, including the Trademark License Agreement, Contract Manufacturing Agreement, Tax Matters Agreement, Master Services Agreement, Joint Development Agreement and Intellectual Property License Agreement, pursuant to which we and/or H-D have continuing obligations to each other. If we or H-D fail to perform obligations under such agreements, our business may be negatively impacted. Furthermore, upon the expiration or termination of such agreements, we may not have necessary or comparable systems and services in place to replace the services provided under such agreements, which may negatively impact our business. +36 +We will be required to make payments to H-D under the Contract Manufacturing Agreement, Tax Matters Agreement, Master Services Agreement, and certain other agreements, and the amounts of such payments could be significant. +We have entered into certain agreements pursuant to which we will be obligated to make payments to H-D. Such agreements include the Contract Manufacturing Agreement, Tax Matters Agreement, Master Services Agreement, and certain others. The amounts payable under these agreements could be significant and could prohibit or restrict us from using these funds in other aspects of our business. Additionally, if we fail to make payments under the contracts we have with H-D, it may be determined that we are in breach of contract, and we may have to pay damages or renegotiate those contracts. We can provide no assurance that we will be able to renegotiate the contracts we have with H-D or that any renegotiated terms will be favorable to us. The occurrence of such events could materially and adversely affect our business and financial condition. +As we are a “controlled company” within the meaning of the NYSE listing standards and rely on exemptions from certain corporate governance requirements, our stockholders may not have the same protections afforded to stockholders of companies that are subject to all NYSE corporate governance requirements. +As a result of the Separation, H-D owns more than 50% of the total voting power of our Common Stock and we are a “controlled company” within the meaning of the corporate governance rules of the NYSE. Under these corporate governance standards, a “controlled company” may elect not to comply with certain corporate governance requirements. For example, controlled companies are not required to have: +• a board that is composed of a majority of “independent directors,” as defined under the NYSE rules; +• a compensation committee that is composed entirely of independent directors; and +• director nominations be made, or recommended to the full board of directors, by its independent directors, or by a nominations/governance committee that is composed entirely of independent directors. +We utilize these exemptions. Accordingly, you do not have the same protections afforded to stockholders of companies that are subject to all the corporate governance requirements of the NYSE. +We may not be successful as an independent, publicly traded company, and we will not enjoy the same benefits that we did as a wholly owned subsidiary of H-D. +As a result of the Separation, H-D indemnifies us for certain liabilities and we indemnify H-D for certain liabilities. If we are required to act on these indemnities for the benefit of H-D, we may need to divert cash to meet those obligations and our financial results could be negatively impacted. Additionally, any indemnity from H-D may not be sufficient to insure us against the full amount of liabilities for which we may be allocated responsibility, and H-D may not be able to satisfy its indemnification obligations in the future. +Third parties may seek to hold us responsible for H-D’s liabilities. Likewise, our relationship with H-D, as a much larger company and our majority stockholder, may make us more of a target for litigation than we otherwise would be on our own. Under certain agreements entered into with H-D in connection with the Separation, we indemnify H-D for claims and losses relating to liabilities related to our business, and H-D indemnifies us for claims and losses relating to liabilities related to H-D’s business and not related to our business. However, if those liabilities are significant and we are ultimately held liable for them, we cannot assure you that we will be able to recover the full amount of our losses from H-D. +Pursuant to the Separation Agreement and certain other agreements with H-D, H-D agreed to indemnify us for certain liabilities. However, third parties could also seek to hold us responsible for any of the liabilities that H-D has agreed to retain, and there can be no assurance that the indemnity from H-D will be sufficient to protect us against the full amount of such liabilities or that H-D will be able to fully satisfy its indemnification obligations. In addition, H-D’s insurers may deny coverage to us for liabilities associated with certain occurrences of indemnified liabilities prior to the Separation. Moreover, even if we ultimately succeed in recovering from H-D or such insurance providers any amounts for which we are held liable, we may be temporarily required to bear these losses. Each of these risks could negatively affect our businesses, financial position and operating results. +37 +Some of our directors and executive officers own restricted stock units and/or stock options covering H-D common stock that fluctuate in value in accordance with the value of H-D’s share price and/or other performance metrics, which could cause conflicts of interest that could result in us not acting on opportunities we otherwise may have. +Some of our directors and executive officers own H-D restricted stock units and/or stock options that fluctuate in value in accordance with the value of H-D’s share price. In addition, some of our directors are executive officers of H-D. Ownership of restricted stock units and options that fluctuate in value in accordance with the value of H-D’s share price by our directors after the Separation and the presence of executive officers of H-D on our Board could create, or appear to create, conflicts of interest with respect to matters involving both us and H-D that could have different implications for H-D than they do for us. Provisions of our certificate of incorporation address corporate opportunities that are presented to our directors or officers that are also directors or officers of H-D. We cannot assure you that the provisions in our certificate of incorporation adequately address potential conflicts of interest, that potential conflicts of interest will be resolved in our favor or that we will be able to take advantage of corporate opportunities presented to individuals who are officers or directors of both us and H-D. As a result, we may be precluded from pursuing certain growth initiatives, which could adversely affect our business. +H-D holds the direct contractual relationship with many key suppliers required for us to produce our electric vehicles. Disputes between H-D and these critical suppliers may negatively impact our electric vehicle production. +Our existing and potential relationships with partners and suppliers may be affected by our relationship with H-D. We partner with and purchase from a number of suppliers with whom H-D has a direct contractual relationship. H-D’s majority ownership in us might affect our ability to develop and maintain relationships with these suppliers, including because H-D may require us to limit our relationships with them or not work with them at all. Additionally, H-D might choose not to pursue enforcement of these contracts on our behalf to preserve H-D’s relationship with the partner or supplier. Likewise, these suppliers may be less willing or unwilling to develop and maintain relationships with us, and may favor our competitors or may view us as competitors, because of our relationship with H-D. +H-D may compete with certain of our significant channel, technology and other marketing partners as well as certain of our suppliers. Pursuant to our certificate of incorporation and certain agreements that we have entered into with H-D as a result of the Separation, H-D may have the ability to impact our relationship with these suppliers, which could have a material adverse effect on our results of operations, and our ability to pursue opportunities which may otherwise be available to us or electric vehicle production. +Risks Related to Information Technology, Intellectual Property, Data Security and Privacy +We collect and process significant information about our customers and their vehicles and are subject to various privacy, marketing and consumer protection laws. +We collect, receive, store, transmit and otherwise process different types of information about or related to a range of individuals, including our customers, riders of our electric vehicles, website visitors, users of our mobile application, our employees, job applicants and employees of other companies that we do business with (such as our vendors and suppliers). By providing financing to customers, we also collect financing related information subject to financial privacy laws, such as the Gramm-Leach-Bliley Act of 1999 and its implementing regulations. In addition to the information we collect from our customers to complete a sale or transaction, we use our electric vehicles’ onboard electronic systems to capture information about each electric vehicle’s use, such as location, charge time, battery usage, mileage and driving behavior, among other things, to aid us in providing services including electric vehicle diagnostics, repair, maintenance, insurance, roadside assistance and vehicle emergency services. Our customers may in the future choose not to provide this data, which may materially and negatively affect our business and our ability to properly maintain the vehicle. Possession and use of our customers’ driving behavior, electric vehicle use and other information may subject us to legislative and regulatory burdens and risks, and we will be required to comply with increasingly complex and rigorous regulatory standards enacted to protect business and personal information in the United States, Europe and elsewhere. +38 +A wide variety of state, federal and international laws as well as regulations, industry standards and contractual obligations apply to the collection, use, retention, protection, disclosure, transfer and other processing of personal information and other types of information. Evolving and changing privacy laws and regulations within the United States, Europe, the United Kingdom (the “UK”) and elsewhere, may limit or inhibit our ability to operate or expand our business and some jurisdictions. The Federal Trade Commission (“FTC”) and many state attorneys general are also interpreting federal and state consumer protection laws (including the Federal Trade Commission Act) as imposing standards for the online collection, use, dissemination and security of data and connected products. The FTC and state attorneys general have focused particular attention on the processing of vehicle-related and location data in recent years, which elevates the risk of our processing of such data. We are also subject to certain laws and regulations that have been enacted or proposed, such as “Right to Repair” laws, which could require us to provide third-party access to our network and/or vehicle systems. Our failure to comply with applicable laws, directives and regulations may result in civil claims or enforcement actions against us, including liabilities, fines and damage to our reputation, any of which may have a material adverse effect on our business, prospects, financial condition and operating results. The rapid evolution and increased adoption of artificial intelligence technologies may intensify these risks. +Data protection and privacy-related laws and regulations are evolving and may result in ever increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions. For example, various states have enacted and amended privacy laws, such as the California Consumer Privacy Act (“CCPA”), and prior to that the EU adopted General Data Protection Regulation (the “GDPR”). These privacy laws impose additional regulatory obligations regarding the handling of personal information and further provide certain individual privacy rights to persons whose data is processed by covered organizations. Some of these privacy laws provide for civil penalties for violations, as well as a private right of action for certain security breaches that may increase security breach litigation. The various state, federal and international privacy laws create a patchwork of overlapping but different privacy compliance requirements. As these laws evolve, we cannot fully predict the impact of such laws, or subsequent guidance, regulations or rules on our business or operations, including those that are still in draft form, but it may increase our compliance costs and potential liability, particularly in the event of a data breach, and could have a material adverse effect on our business, including how we use personal information, our financial condition and the results of our operations or prospects. A number of other proposals exist for new international, federal and state privacy legislation that, if passed, could increase our potential liability, increase our compliance costs, modify our data processing practices and materially and adversely affect our business, prospects, financial condition and operating results. +The GDPR and other foreign privacy laws generally prohibit the international transfer of personal information (including to the United States) unless a lawful data transfer solution has been implemented or applies. Recent legal developments in Europe have created complexity and uncertainty regarding transfers of personal information from the EU and the UK to third countries, including the United States. As the enforcement landscape further develops, and supervisory authorities issue further guidance on international data transfers, we could suffer additional costs, complaints and/or regulatory investigations or fines; we may have to stop using certain tools and vendors and make other operational changes; we have had to and will have to implement and update lawful data transfer solutions, including the Standard Contractual Clauses; and/or it could otherwise affect the manner in which we provide our services and adversely affect our business, operations and financial condition. +The EU, UK, and US also have evolving privacy laws on cookies, tracking technologies, and e-marketing. Regulators are increasingly focusing on compliance with requirements in the online behavioral advertising ecosystem. In the U.S. there has been a noticeable uptick in class actions wherein plaintiffs have utilized a variety of laws, including the Video Privacy Protection Act of 1988 and state wiretapping laws, in relation to companies’ use of tracking technologies, such as cookies and pixels. For additional information, and if applicable, see “We are, and may in the future be, subject to legal proceedings in the ordinary course of our business. If the outcomes of these proceedings are adverse to us, it could have a material adverse effect on our business, prospects, financial condition and operating results.” If the trend of increasing enforcement by regulators and increasing civil privacy claims related to online tracking technologies continues, this could lead to substantial costs, require significant systems changes, limit the effectiveness of our marketing activities, divert the attention of our technology personnel, adversely affect our margins, and subject us to additional liabilities. In light of the complex and evolving nature of privacy laws on cookies and tracking technologies, there can be no assurances that we will be successful in our efforts to comply with such laws; violations of such laws could result in regulatory investigations, fines, orders to cease/change our use of such technologies, reputational damage as well as significant costs related to civil claims including class actions. +In addition, in the EU, the Data Act came into force on January 11, 2024, laying down rules to foster a competitive data market by making data more accessible and usable. The Data Act may apply to certain data arising from the use of our connected products in the EU and may require us to make such data available to consumers and other businesses. This may require additional compliance measures and changes to our operations and processes, and/or result in increased compliance costs and potential increases in civil claims against us, and could adversely affect our business, operations and financial condition. +39 +Although we make reasonable efforts to comply with all applicable data protection laws and regulations, our interpretations and efforts may have been or may prove to be insufficient or incorrect. We also make public statements about our use and disclosure of personal information through our privacy policy, information provided on our websites and other public statements. Although we endeavor to ensure that our public statements are complete, accurate and fully implemented, we may at times fail to do so or be alleged to have failed to do so. We may be subject to potential regulatory or other legal action if such policies or statements are found to be deceptive, unfair or misrepresentative of our actual practices. In addition, from time to time, concerns may be expressed about whether our products and services compromise the privacy of our customers, riders and others. Any concerns about our data privacy and security practices (even if unfounded), or any failure, real or perceived, by us to comply with our posted privacy policies or with any legal or regulatory requirements, standards, certifications or orders or other privacy or consumer protection-related laws and regulations applicable to us, could cause our customers, riders and users to reduce their use of our products and services. +The regulatory framework for data privacy issues worldwide is currently evolving and is likely to remain uncertain for the foreseeable future, and it is possible that applicable laws and regulations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any failure or perceived failure by us to comply with applicable privacy and data security laws and regulations, our privacy policies or our privacy-related obligations to users or other third parties, or any compromise of security that results in the unauthorized access to or transfer of personal information or other customer data, may result in governmental enforcement actions, litigation or public statements against us by consumer advocacy groups or others and could cause our customers, riders and users to lose trust in us, which could have an adverse effect on our reputation and business. If a third party alleges that we have violated applicable data privacy laws, we could face legal claims and damages as well as reputational harm among consumers, investors and strategic partners. We may also incur significant expenses to comply with privacy, consumer protection and security standards and controls imposed by laws, regulations, industry standards or contractual obligations. Changes in applicable privacy laws could also require us to modify our services and features—possibly in a material and costly manner—and may limit our ability to develop new services and features that make use of the data that our users voluntarily share with us. These possibilities, if borne out, could have a negative impact on revenues and profits. +We are subject to cybersecurity risks to our various information systems and software and any material failure, weakness, interruption, cyber event, incident or breach of security could prevent us from effectively operating our business. +We are at risk for interruptions, outages and breaches of (a) operational systems, including business, financial, accounting, product development, data processing or production processes, owned by us or our third-party vendors or suppliers; (b) facility security systems, owned by us or our third-party vendors or suppliers; (c) transmission control modules or other in-product technology, owned by us or our third-party vendors or suppliers; (d) the integrated software in our electric vehicles, including connected vehicle functionality; (e) our mobile application software; or (f) customer or rider data that we process or our third-party vendors or suppliers process on our behalf. In addition, we and our third-party vendors or suppliers that host our data may encounter attempted attacks on their networks and information systems that may take a variety of forms, including denial of service attacks, infrastructure attacks, botnets, malicious file attacks, cross-site scripting, credential abuse, phishing, social engineering, ransomware, bugs, viruses, worms, and malicious software programs. All of these types of cybersecurity incidents can give rise to a variety of losses and costs, including legal claims or proceedings (such as class actions), regulatory investigations and enforcement actions, fines and penalties, damages to reputation, significant incident response, restoration and remediation costs, and others. These incidents could also materially disrupt operational systems; result in loss of intellectual property, trade secrets, confidential information, other proprietary or competitively sensitive information and data generally (including personal information); compromise certain information of customers, employees, suppliers, riders, users or others; harm our reputation or brand; or affect the performance of transmission control modules or other in‑product technology and the integrated software in our electric vehicles. +40 +A cybersecurity incident could be caused by disasters, insiders (through inadvertence or with malicious intent) or malicious third parties (including nation-states or nation-state supported actors) using sophisticated, targeted methods to circumvent firewalls, encryption and other security defenses, including hacking, fraud, trickery or other forms of deception. The techniques used by threat actors change frequently, are becoming increasingly diverse and sophisticated, and may be difficult to detect for long periods of time. We receive information technology services, including cybersecurity support, from H-D through the Master Services Agreement. Although we maintain information technology and other measures designed to protect the confidentiality, integrity and availability of our information systems, and protect us against intellectual property theft, data breaches and other cybersecurity incidents, such measures will require updates and improvements, and we cannot guarantee that such measures will be adequate to detect, prevent or mitigate cybersecurity threats or incidents. The implementation, maintenance, segregation and improvement of these information systems requires significant management time, support and cost. Moreover, there are inherent risks associated with developing, improving, expanding and updating current systems, including the disruption of our data management, procurement, production execution, finance, supply chain and sales and service processes. These risks may affect our ability to manage our data and inventory, procure parts or supplies or produce, sell, deliver and service our electric vehicles, adequately protect our intellectual property or achieve and maintain compliance with, or realize available benefits under, applicable laws, regulations and contracts. We cannot be sure that these information systems upon which we rely, including those of our third-party vendors or suppliers, will be effectively implemented, maintained or expanded as planned. If we do not successfully implement, maintain or expand these systems as planned, our operations may be disrupted, our ability to accurately and timely report our financial results could be impaired, and deficiencies may arise in our internal control over financial reporting, which may impact our ability to certify our financial results. Moreover, our proprietary information, confidential information, intellectual property or personal information that we hold could be compromised or misappropriated and our reputation may be adversely affected. If these systems do not operate as we expect them to, we may be required to expend significant resources to make corrections or find alternative sources for performing these functions. +A significant cybersecurity incident could impact production capability, harm our reputation, cause us to breach our contracts with other parties or subject us to regulatory actions or litigation, any of which could materially affect our business, prospects, financial condition and operating results. In addition, while we maintain insurance coverage, our insurance coverage for cyberattacks may not be sufficient to cover all the losses, liabilities and costs we may experience as a result of a cybersecurity incident, including any disruptions resulting from such an incident, or that applicable insurance will be available to us in the future on economically reasonable terms or at all. +We also work with partners and third-party service providers or vendors that collect, store and process data on our behalf and in connection with our products and services. There can be no assurance that any security measures that we or our third-party service providers or vendors have implemented will be fully implemented, complied with or effective in protecting our systems and information, including against current or future cybersecurity threats. While we have developed systems and processes designed to protect the availability, integrity, confidentiality and security of us and our customers’, riders’, website visitors’, employees’ and others’ data and information, our security measures or those of our third-party service providers or vendors could fail and result in security incidents, including unauthorized access to or disclosure, acquisition, encryption, modification, misuse, loss, destruction or other compromise of such data. If a compromise of such data were to occur, we may have liability under our contracts with other parties and under applicable law for damages and incur penalties and other costs to respond to, investigate and remedy such an incident. Laws in all 50 U.S. states require us to provide notice to customers, regulators, credit reporting agencies or others when certain sensitive information has been compromised as a result of a security breach. Laws outside of the U.S., including in Europe and the UK, may also require us to provide notice to individuals or other third parties. There are significant differences between the laws of the various U.S. states and other jurisdictions, and as a result, compliance in the event of a widespread data breach could be complicated, in addition to being costly. Depending on the facts and circumstances of such an incident, these damages, penalties, fines and costs could be significant. Such an event could harm our reputation and result in litigation against us. Any of these results could materially adversely affect our business, prospects, financial condition and operating results. +41 +We may need to defend ourselves against intellectual property infringement claims, which may be time consuming and would cause us to incur substantial costs. +Companies, organizations, or individuals, including our competitors, may currently hold, or obtain in the future, patents, trademarks or other proprietary or intellectual property that would prevent, limit or interfere with our ability to make, use, develop, sell or market our vehicles, components or other goods and services, which could make it more difficult for us to operate our business. From time to time, we may receive communications from holders of patents, trademarks, trade secrets or other intellectual property or proprietary rights alleging that we are infringing, misappropriating, diluting or otherwise violating such rights. Such parties may bring suits against us alleging infringement or other violation of such rights, or otherwise assert their rights and urge us to take licenses to their intellectual property. While we try to avoid infringing the rights of others, we may unknowingly do so. For example, we may not be aware of existing patents or patent applications that could be pertinent to our business as many patent applications are filed confidentially in the United States and are not published until 18 months following the applicable filing date. In the event that a claim relating to intellectual property is asserted against us, our suppliers or our third-party licensors, or if third parties not affiliated with us hold patents that relate to our products or technology, we may need to seek licenses to such intellectual property or seek to challenge those patents. Even if we are able to obtain a license, it could be non-exclusive, thereby giving our competitors and other third parties access to the same technologies licensed to us. In addition, we may be unable to obtain these licenses on commercially reasonable terms, if at all, and our challenge of third-party patents may be unsuccessful. Litigation or other legal proceedings relating to intellectual property claims, regardless of merit, may cause us to incur significant expenses and could distract our technical, legal, and management personnel from their normal responsibilities. Further, if we are determined to have infringed upon a third party’s intellectual property, we may be required to do one or more of the following: +• cease selling, incorporating certain components into, or using vehicles or offering goods or services that incorporate or use the intellectual property that we allegedly infringe, misappropriate, dilute or otherwise violate; +• pay substantial royalty or license fees or other damages; +• seek a license from the holder of the allegedly infringed intellectual property, which license may not be available on reasonable terms, or at all; +• redesign or reengineer our vehicles or other technology, goods or services, which may be costly, time‑consuming or impossible; or +• establish and maintain alternative branding for our products and services. +In the event of a successful claim of infringement against us and our failure or inability to obtain a license to the infringed technology or other intellectual property on acceptable terms, our business, prospects, financial condition and operating results could be materially and adversely affected. In addition, any litigation or claims, whether or not valid, could result in substantial costs, negative publicity and diversion of resources and management attention. +If we are unable to maintain, protect or enforce our rights in our proprietary technology, brands or other intellectual property, our competitive advantage, business, financial condition and results of operations could be materially and negatively affected. +Our failure to obtain or maintain adequate protection of, or prevent others from unauthorized use of, our intellectual property could materially and negatively affect our competitive advantage, business, financial condition and results of operations. We rely on a combination of patent, trade secret, trademark and other intellectual property laws, employee and third-party nondisclosure agreements, intellectual property licenses, and other contractual rights, to establish and protect our rights in our technology and intellectual property. +We have applied for patent protection relating to certain of our existing and proposed products, processes and services. However, we cannot assure you that our patent applications will issue as patents, or if they do issue, that they will be of sufficient scope or strength to provide our technologies with meaningful protection or our business with commercial protection. Further, the issued patents we own could be challenged, invalidated or circumvented by others. Some patent applications in the US are maintained in secrecy for a period of time after they are filed, and since publication of discoveries in the scientific or patent literature tends to lag behind actual discoveries by several months, we cannot be certain that we will be the first to invent the inventions covered by any of our patent applications or the first to file patent applications on such inventions. Further, we cannot assure you that competitors will not infringe our patents, or that we will have adequate resources to enforce our patents. +We also rely on unpatented proprietary technology. It is possible that others will independently develop the same or similar technology or otherwise obtain access to our unpatented technology. To protect our trade secrets and other proprietary information, our policy is to require that relevant employees, consultants, advisors and collaborators enter into confidentiality agreements. We cannot assure you that these agreements will provide meaningful protection for our trade secrets, know-how or +42 +other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. If we are unable to maintain the proprietary nature of our technologies, our competitive position, business, financial condition and results of operations could be materially and negatively affected. +We rely on our trademarks, trade names, and brand names to distinguish our products, services and business from those of our competitors and have registered or applied to register certain of these trademarks. We cannot assure you that our trademark applications will be approved. Third parties may also oppose our trademark applications, or otherwise challenge our use of our trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition, and could require us to devote resources to advertising and marketing new brands. Further, we cannot assure you that competitors will not infringe our trademarks, or that we will have adequate resources to enforce our trademarks. +Despite our efforts to protect our intellectual property, third parties may attempt to copy or otherwise obtain and use our intellectual property or seek court declarations that our intellectual property is invalid or unenforceable, or that they do not infringe upon our intellectual property. Monitoring unauthorized use of our intellectual property is difficult and costly, and the steps we have taken or may take in the future in an effort to prevent infringement or misappropriation may not be successful. From time to time, we may have to resort to litigation to enforce our intellectual property, which could result in substantial costs and diversion of our resources. +Patent, trademark, trade secret and other intellectual property laws vary significantly throughout the world. A number of foreign countries do not protect intellectual property to the same extent as they are protected in the United States. Therefore, our intellectual property may not be as strong or as easily enforced outside of the United States. Failure to adequately protect our intellectual property could result in our competitors offering similar products, potentially resulting in the loss of some of our competitive advantage and a decrease in our revenue which would adversely affect our business, prospects, financial condition and operating results. +Risks Related to Other Legal, Regulatory and Tax Matters +We are subject to substantial regulation and unfavorable changes to, or failure by us to comply with, current or future regulations could materially and negatively affect our business and operating results. Increased environmental, safety, emissions or other regulations, including those intended to address climate change, may result in higher costs, cash expenditures and/or sales restrictions. +Our electric vehicles, and the sale of motorcycles, electric balance bikes for kids, and electric bikes in general, are subject to substantial regulation under international, federal, state and local laws. We expect to incur significant costs in complying with these regulations. Regulations related to the electric vehicle industry and alternative energy are currently evolving and we face risks associated with changes to these regulations, such as: +• the imposition of a carbon tax or the introduction of a cap-and-trade system on electric utilities, either of which could increase the cost of electricity and thereby the cost of operating an electric vehicle; +• new state regulations of electric vehicles fees could discourage consumer demand for electric vehicles; +• the increase of subsidies for alternative fuels such as corn and ethanol could reduce the operating cost of vehicles that use such alternative fuels and gasoline, and thereby reduce the appeal of electric vehicles; +• changes to the regulations governing the sourcing, assembly, transportation and labeling of battery cells (such as the Batteries Regulation in the EU and related secondary legislation) could increase the cost of battery cells or make such commodities more difficult to obtain; +• changes in regulation, for example relating to the noise required to be emitted by electric vehicles, may impact the design or function of electric vehicles, and thereby lead to decreased consumer appeal; +• changes in regulations governing the range and miles per gallon of gasoline-equivalent calculations could lower our electric vehicles’ ratings, making electric vehicles less appealing to consumers; and +• changes in the U.S. NHTSA Corporate Average Fuel Economy (“CAFE”) standards could reduce new business opportunities for our business. +In particular, jurisdictions, including the EU, continue to progress initiatives that may have a significant impact on the sourcing of batteries. In the EU, these include: (i) the revised Batteries Regulation, which entered into force in August 2023 and which will introduce, in a phased in manner, considerable new requirements in relation to batteries placed on the EU market; (ii) the Critical Raw Materials Act, which enacted in April 2024 and will, among other areas, set targets in relation to the EU’s domestic extraction, processing and recycling of certain raw materials; and (iii) the Corporate Sustainability Due Diligence Directive, which was enacted in July 2024 and will impose additional obligations on certain entities in relation to their supply +43 +chains. To the extent that our current practices do not align with these and other updated and/or proposed regulatory developments, this may lead to additional costs to the sourcing, assembly, transportation, and labeling of batteries. +In addition, to the extent the laws change, our electric vehicles may not comply with applicable international, federal, state or local laws, which could have an adverse effect on our business. Compliance with changing regulations could be burdensome, time consuming and expensive. To the extent compliance with new regulations is cost prohibitive, our business, prospects, financial condition, and operating results could be materially and adversely affected. +Internationally, there may be laws in jurisdictions we have not yet entered or laws we are unaware of in jurisdictions we have entered that may restrict our sales or other business practices. Even for those jurisdictions we have analyzed, the laws in this area can be complex, difficult to interpret and may change over time. Continued regulatory limitations and other obstacles interfering with our ability to sell electric vehicles directly to consumers could have a negative and material impact on our business, prospects, financial condition and operating results. +Our operations may impact the environment or cause exposure to hazardous substances, and our properties may have environmental contamination, which could result in material liabilities to us. +Our operations currently use hazardous materials and generate limited quantities of hazardous wastes from time to time. We could become subject to claims for toxic torts, natural resource damages and other damages as well as for the investigation and cleanup of contamination in the soil, surface water, groundwater, air, and other media. Such claims may arise, for example, out of conditions at sites that we currently lease, own or operate, as well as at sites that we previously leased, owned or operated, at sites that we may acquire, or at third-party disposal sites. Under certain federal and state environmental laws, our liability for such conditions may be joint and several with other owners/operators or through our contract manufacturer, so that we may be held responsible for more than our share, or even for the entire share, of the contamination or other damages. Liability under these laws is generally strict. Accordingly, we may incur liability without regard to fault or to the legality of the conduct giving rise to the conditions. These and other similar unforeseen impacts that our operations may have on the environment, as well as exposures to hazardous substances or wastes associated with our operations, could result in costs and liabilities that could materially and adversely affect us. +We are also subject to permitting, registration, and other government approval requirements under environmental, health and safety laws and regulations applicable in the jurisdictions in which we operate. Those requirements obligate us to obtain permits, registrations, certifications, and other government approvals from one or more governmental agencies to conduct our operations and sell our products. The requirements vary depending on the location where our regulated activities are conducted. Any failure to obtain or delay in obtaining required permits, registrations, and other government approvals could result in production delays or the ability to sell direct to customers and materially and adversely impact our operations and business. +Changes in US or international trade policy, including the continuation or imposition of tariffs and the resulting consequences, could adversely affect our business, prospects, financial condition, and operating results. +There is currently significant uncertainty about the future relationship between the U.S. government and its trading partners with respect to trade policies, tariffs, and similar policies affecting cross-border operations. The U.S. government has in the past and could in the future adopt a new approach to trade policy, renegotiate or terminate certain existing bilateral or multilateral trade agreements or impose tariffs on certain foreign goods, including steel and certain vehicle parts. For example, in January 2025, the global tariff landscape began to quickly change with the U.S. implementing tariffs on various foreign countries, either generally or with respect to certain products, and certain of those foreign countries implementing rebalancing tariffs on the U.S., either generally or with respect to certain products. In certain circumstances the U.S. and certain foreign countries temporarily suspended tariffs they had recently implemented, either in whole or in part. Since then, the U.S. has continued to impose tariffs on imported goods, and affected countries have responded by imposing tariffs on U.S. goods. The U.S. government recently escalated tariffs on the import of goods from most U.S. trading partners. For example, the United States has recently announced tariffs, certain of which have been temporarily suspended, on imported goods from most countries and select countries have announced retaliatory tariffs in response, contributing to volatility in the markets. China and the United States have each imposed tariffs, indicating the potential for further trade barriers which may escalate a nascent trade war between China and the United States. In addition, additional trade restrictions or barriers could be implemented on a broader range of products or raw materials with additional countries or regions such as China, Canada, Mexico, the European Union or other countries and / or regions. If we are unable to pass price increases on to our customer base or otherwise mitigate the costs, or if demand for our exported electric vehicles decreases due to the higher cost, our business, prospects, financial condition and operating results could be materially adversely affected. The resulting environment of retaliatory trade or other practices could have a material adverse effect on our business, prospects, financial condition, operating results, customers, suppliers and the global economy. +44 +The strategic partnership with KYMCO Group, as well as relationships with STACYC’s key vendors, could be negatively impacted by geopolitical events that might occur between mainland China and Taiwan. +Our strategic partnership with KYMCO Group, as well as STACYC’s relationships with its key vendors, may be negatively affected by the impact of geopolitical events and related actions that may occur between mainland China and Taiwan because KYMCO Group and STACYC’s key vendors are based in Taiwan. In recent years, there have been political and trade tensions between mainland China and Taiwan, which have resulted in the implementation of trade barriers, including the use of economic sanctions and export control restrictions. Violations of these economic sanctions and export control restrictions can result in significant civil and criminal penalties. Additionally, if a trade war, tariff, physical or economic blockade, or war ensued and impacted access to or from the Taiwan or Chinese markets or workforce, we may face challenges in maintaining production plans or output, accessing the skilled labor necessary to manufacture our products without interruption, accessing and/or shipping our finished goods, work in progress, or other inventories located in Taiwan or otherwise experience significant disruptions in our business. Prolonged or increased use of trade barriers may result in a decrease in the growth of the global economy and electric vehicle industry and could cause turmoil in global markets. which could decrease demand for our products and services. Also, any increase in the use of economic sanctions or export control restrictions could impact our ability to continue supplying products and services to those customers and our customers’ demand for our products and services. Further escalation of trade tensions, the increased use of economic sanctions or export control restrictions could negatively affect our strategic partnership with KYMCO Group or STACYC’s relationships with its key vendors. +We are subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws, and noncompliance with such laws can subject us to administrative, civil and criminal fines and penalties, collateral consequences, remedial measures and legal expenses, all of which could adversely affect our business, results of operations, financial condition and reputation. +We are subject to anti-corruption, anti-bribery, anti-money laundering and similar laws and regulations in various jurisdictions in which we conduct or in the future may conduct activities, including the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act 2010 (the “U.K. Bribery Act”), and other anti-corruption laws and regulations. The FCPA and the U.K. Bribery Act prohibit us and our officers, directors, employees and business partners acting on our behalf, including agents, from corruptly offering, promising, authorizing or providing anything of value to a “foreign official” for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. The FCPA also requires companies to make and keep books, records and accounts that accurately reflect transactions and dispositions of assets and to maintain a system of adequate internal accounting controls. The U.K. Bribery Act also prohibits non-governmental “commercial” bribery and soliciting or accepting bribes. A violation of these laws or regulations could adversely affect our business, results of operations, financial condition and reputation. Our policies and procedures designed to ensure compliance with these regulations may not be sufficient and our directors, officers, employees, representatives, consultants, agents, and business partners could engage in improper conduct for which we may be held responsible. +Our business also must be conducted in compliance with applicable economic and trade sanctions laws and regulations, such as those administered and enforced by the U.S. Department of Treasury’s Office of Foreign Assets Control, the U.S. Department of State, the U.S. Department of Commerce, the United Nations Security Council and other relevant sanctions authorities. Our global operations expose us to the risk of violating, or being accused of violating, anti-corruption laws and economic and trade sanctions laws and regulations. Our failure to comply with these laws and regulations may expose us to reputational harm as well as significant penalties, including criminal fines, imprisonment, civil fines, disgorgement of profits, injunctions and debarment from government contracts, as well as other remedial measures. Investigations of alleged violations can be expensive and disruptive. Despite our compliance efforts and activities we cannot assure compliance by our employees or representatives for which we may be held responsible, and any such violation could materially adversely affect our reputation, business, prospects, financial condition and operating results. +Non-compliance with anti-corruption, anti-bribery, anti-money laundering or financial and economic sanctions laws could subject us to whistleblower complaints, adverse media coverage, investigations and severe administrative, civil and criminal sanctions, collateral consequences, remedial measures and legal expenses, all of which could materially and adversely affect our business, prospects, financial condition and operating results. In addition, changes in economic sanctions laws in the future could adversely impact our business and investments in our common stock. +45 +We are or may be subject to risks associated with strategic alliances or acquisitions. +We may from time to time consider entering into strategic alliances, including joint ventures, minority equity investments or other transactions, with various third parties to further our business purpose. These alliances could subject us to a number of risks, including risks associated with sharing proprietary information, with non‑performance by the third party and with increased expenses in establishing new strategic alliances, any of which may materially and adversely affect our business. We may have limited ability to monitor or control the actions of these third parties, and to the extent any of these strategic third parties suffers negative publicity or harm to their reputation from events relating to their business, we may also suffer negative publicity or harm to our reputation by virtue of our association with any such third party. +When appropriate opportunities arise, we may acquire additional assets, products, technologies or businesses that are complementary to our existing business. In addition to possible stockholder approval, we may need approvals and licenses from relevant government authorities for the acquisitions and to comply with any applicable laws and regulations, which could result in increased delay and costs, and may disrupt our business strategy if we fail to do so. Furthermore, acquisitions and the subsequent integration of new assets and businesses into our own require significant attention from our management and could result in a diversion of resources from our existing business, which in turn could have an adverse effect on our operations. Acquired assets or businesses may not generate the financial results we expect. Acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities, the occurrence of significant goodwill impairment charges, amortization expenses for other intangible assets and exposure to potential unknown liabilities of the acquired business. Moreover, the costs of identifying and consummating acquisitions may be significant. +We are, and may in the future be, subject to legal proceedings in the ordinary course of our business. If the outcomes of these proceedings are adverse to us, it could have a material adverse effect on our business, prospects, financial condition and operating results. +We are subject to various litigation matters from time to time, the outcome of which could have a material adverse effect on our business, prospects, financial condition and operating results. Claims arising out of actual or alleged violations of law could be asserted against us by individuals, either individually or through class actions, by governmental entities in civil or criminal investigations and proceedings or by other entities. These claims could be asserted under a variety of laws, including but not limited to consumer finance laws, consumer protection laws, tort laws, environmental laws, intellectual property laws, privacy laws, labor and employment laws, securities laws and employee benefit laws. We may also become subject to allegations of discrimination or other similar misconduct, which, regardless of the ultimate outcome, may result in adverse publicity that could harm our brand, reputation and operations. Claims may also arise out of actual or alleged breaches of contract or other actual or alleged acts or omissions by or on behalf of us. These actions could expose us to adverse publicity and to substantial monetary damages and legal defense costs, injunctive relief and criminal and civil fines and penalties, including but not limited to suspension or revocation of licenses to conduct business. Even if we are successful in defending against legal claims, arbitration or litigation could result in substantial costs and demand on management resources. See “Business-Legal Proceedings.” +Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our results of operations and financial condition. +We may be subject to taxes by the U.S. federal, state, local and foreign tax authorities. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including: +• allocation of expenses to and among different jurisdictions; +• changes in the valuation of our deferred tax assets and liabilities; +• expected timing and amount of the release of any tax valuation allowances; +• tax effects of stock-based compensation; +• costs related to intercompany restructurings; +• changes in tax laws, tax treaties, regulations or interpretations thereof; or +• lower than anticipated future earnings in jurisdictions where we have lower statutory tax rates and higher than anticipated future earnings in jurisdictions where we have higher statutory tax rates. +In addition, we may be subject to audits of our income, sales and other taxes by U.S. federal, state, and local and foreign taxing authorities. Outcomes from these audits could have an adverse effect on our operating results and financial condition. +46 +Changes in tax laws or regulations that are applied adversely to us or our customers may materially adversely affect our business, prospects, financial condition and operating results. +New income, sales, use or other tax laws, statutes, rules, regulation or ordinances could be enacted at any time, or interpreted, changed, modified or applied adversely to us or our customers, any of which could adversely affect our business, prospects, financial condition and operating results. In particular, presidential, congressional, state and local elections in the United States could result in significant changes in, and uncertainty with respect to, tax legislation, regulation and government policy directly affecting our business or indirectly affecting us because of impacts on our customers, suppliers and manufacturers. For example, the One Big Beautiful Bill Act (“OBBBA”), enacted on July 4, 2025, significantly changed the U.S. tax landscape by implementing revisions to key business tax provisions, including the reinstatement of bonus depreciation deductions for acquisitions of qualified property, the restoration of EBITDA-based business interest expense limitation, the expansion of rules related to deductibility of executive compensation, and the implementation of changes relating to the computation of certain taxes in respect of non-U.S. activities. The initial impact of changes brought about by OBBBA does not have a material impact on our effective tax rate. The long-term effects on the results of operations and cash flows remain uncertain and could be significant. Additionally, the Organisation for Economic Cooperation and Development (the “OECD”) has announced an accord commonly referred to as “Pillar Two” to set a minimum global corporate tax rate of 15%, which is being or may be implemented in many jurisdictions. The OECD is also issuing guidelines that are different, in some respects, than current international tax principles. If countries amend their tax laws to adopt all or part of the OECD guidelines, this may increase tax uncertainty and increase taxes that we are required to pay. On January 5, 2026, the OECD released a “side-by-side” package (the “SbS Package”) that generally establishes an exemption for U.S. multinationals from the 15% global minimum tax. However, the implementation of the SbS Package depends on domestic legislation and regulation in OECD member countries and is subject to subsequent review. We cannot predict whether the U.S. Congress or any other governmental body, whether in the United States or in other jurisdictions, will enact new tax legislation (including increases to tax rates), whether the U.S. Internal Revenue Service or any other tax authority will issue new regulations or other guidance, whether the OECD or any other intergovernmental organization will publish any guidelines on global taxation or whether member states will implement such guidelines, nor can we predict what effect such legislation, regulations or international guidelines might have. To the extent that such changes have a negative impact on us, our suppliers, manufacturers or our customers, including as a result of related uncertainty, these changes may materially and adversely affect our business, prospects, financial condition and operating results. +Risks Related to the Common Stock and Warrants +The price of our Common Stock may be volatile, and you may be unable to resell your Common Stock at or above the price at which you purchased such stock, or at all. +The market price for our Common Stock may fluctuate significantly in response to a number of factors, most of which we cannot control, including, among others: +• the development and sustainability of an active trading market for our Common Stock; +• trends and changes in consumer preferences in the industries in which we operate; +• changes in general economic or market conditions or trends in our industry or the economy as a whole and, in particular, in the consumer and advertising marketplaces; +• changes in key personnel; +• our entry into new markets; +• changes in our operating performance; +• investors’ perceptions of our prospects and the prospects of the businesses in which we participate; +• fluctuations in quarterly revenue and operating results, as well as differences between our actual financial and operating results and those expected by investors; +• the public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC; +• announcements relating to litigation; +• guidance, if any, that we provide to the public, any changes in such guidance or our failure to meet such guidance; +• changes in financial estimates or ratings by any securities analysts who follow our Common Stock, our failure to meet such estimates or failure of those analysts to initiate or maintain coverage of our Common Stock; +• downgrades in our credit ratings or the credit ratings of our competitors; +• investor perceptions of the investment opportunity associated with our Common Stock relative to other investment alternatives; +• the inclusion, exclusion or deletion of our stock from any trading indices; +• future sales of our Common Stock by our officers, directors and significant stockholders; +• future sales of our Common Stock under the ATM Program; +47 +• other events or factors, including those resulting from system failures and disruptions, hurricanes, wars, acts of terrorism, other natural disasters or responses to such events; +• price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; and +• changes in accounting principles. +These and other factors may lower the market price of our Common Stock, regardless of our actual operating performance. As a result, our Common Stock may trade at prices significantly below the price at which you purchased such Common Stock. +In addition, the stock markets, including the NYSE, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, we could incur substantial costs and our resources and the attention of management could be diverted from our business. +Our stock price may be exposed to additional risks because our business became a public company through a “de-SPAC” transaction. There has been increased focus by government agencies on such transactions, and we expect that increased focus to continue, and we may be subject to increased scrutiny by the SEC and other government agencies on holders of our securities as a result, which could adversely affect the price of our Common Stock. +If we fail to implement and maintain an effective system of internal control over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud. +Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requires us to evaluate the effectiveness of our internal control over financial reporting as of the end of each fiscal year. Additionally, once we cease to be an emerging growth company, our independent registered accounting firm will also be required to attest to the effectiveness of our internal controls over financial reporting in each Annual Report on Form 10-K to be filed with the SEC. We may in the future identify material weaknesses or significant deficiencies that we may be unable to remedy before the requisite deadline for those reports. Our ability to comply with the annual internal control reporting requirements will depend on the effectiveness of our financial reporting and data systems and controls across our company. We expect these systems and controls to involve significant expenditures and to become increasingly complex as our business grows. To effectively manage this complexity, we will need to continue to improve our operational, financial and management controls and our reporting systems and procedures. Any weaknesses or deficiencies or any failure to implement required new or improved controls, or difficulties encountered in the implementation or operation of these controls, could materially and negatively affect our operating results and cause us to fail to meet our financial reporting obligations or result in material misstatements in our financial statements, which could adversely affect our business and reduce our stock price. +A market for our securities may not continue, which would adversely affect the liquidity and price of its securities. +The price of our securities may fluctuate significantly due to general market and economic conditions. An active trading market for our securities may never develop or, if developed, it may not be sustained. In addition, the price of our securities can vary due to general economic conditions and forecasts, its general business condition and the release of its financial reports. Additionally, if our securities are not listed on, or become delisted from, the NYSE for any reason, and are quoted on the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, the liquidity and price of its securities may be more limited than if it were quoted or listed on the NYSE or another national securities exchange. You may be unable to sell your securities unless a market can be established or sustained. +If securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our market, or if they change their recommendations regarding our Common Stock adversely, then the price and trading volume of our Common Stock could decline. +The trading market for our Common Stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. Securities and industry analysts do not currently, and may never, publish research on our company. If one or more of the analysts who do cover us downgrade our Common Stock or our industry, or the common stock of any of our competitors, or publish inaccurate or unfavorable research about our business, the price of our Common Stock could decline. If one or more of these analysts stops covering us or fails to publish reports on us regularly, we could lose visibility in the market, which, in turn, could cause our Common Stock price or trading volume to decline. +48 +Additionally, any fluctuation in the credit rating of us or our subsidiaries may impact our ability to access debt markets in the future or increase our cost of future debt, which could have a material adverse effect on our operations and financial condition, which in turn may adversely affect the trading price of shares of our Common Stock. +Concentration of ownership among our existing directors, executive officers and principal stockholders may prevent new investors from influencing significant corporate decisions. +Our principal stockholders, directors and executive officers and their affiliates beneficially own a significant amount of our Common Stock. Subject to any fiduciary duties owed to our other stockholders under Delaware law, these stockholders may be able to exercise significant influence over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, and will have some control over our management and policies. Some of these persons or entities may have interests that are different from yours. For example, these stockholders may support proposals and actions with which you may disagree or which are not in your best interests. The concentration of ownership could delay or prevent a change in control of us, or otherwise discourage a potential acquirer from attempting to obtain control of us, which in turn could reduce the price of our Common Stock. +In addition, these stockholders could use their voting influence to maintain our existing management and directors in office or support or reject other management and Board proposals that are subject to stockholder approval, such as amendments to our employee stock plans and approvals of significant financing transactions. +We may acquire other businesses or form other joint ventures or make investments in other companies or technologies that could negatively affect our operating results, dilute our stockholders’ ownership, increase our debt or cause us to incur significant expense. +We may pursue acquisitions of businesses and assets. We also may pursue strategic alliances and additional joint ventures that leverage our technology and industry experience to expand our offerings or distribution. We have no experience with acquiring other companies and limited experience with forming strategic partnerships. We may not be able to find suitable partners or acquisition candidates, and we may not be able to complete such transactions on favorable terms, if at all. If we make any acquisitions, we may not be able to integrate these acquisitions successfully into our existing business, and we could assume unknown or contingent liabilities. Any future acquisitions also could result in the incurrence of debt, contingent liabilities or future write-offs of intangible assets or goodwill, any of which could have a material adverse effect on our financial condition and operating results. Integration of an acquired company also may disrupt ongoing operations and require management resources that we would otherwise focus on developing our existing business. We may experience losses related to investments in other companies, which could have a material negative effect on our results of operations and financial condition. We may not realize the anticipated benefits of any acquisition, technology license, strategic alliance or joint venture. To finance any acquisitions or joint ventures, we may choose to issue shares of our common stock as consideration, which would dilute the ownership of our stockholders. Additional funds may not be available on terms that are favorable to us, or at all. If the price of our common stock is low or volatile, we may not be able to acquire other companies or fund a joint venture project using our stock as consideration. +We also expect to continue to carry out internal strategic initiatives that we believe are necessary to grow our revenues and expand our business, both in the U.S. and abroad. For example, we have continued to invest in international expansion programs designed to increase our worldwide presence and take advantage of market expansion opportunities around the world. Although we believe our investments in these initiatives continue to be in the long-term best interests of LiveWire and our stockholders, there are no assurances that such initiatives will yield favorable results for us. Accordingly, if these initiatives are not successful, our business, financial condition and results of operations could be adversely affected. +If these risks materialize, our stock price could be materially adversely affected. Any dilution related to the issuance of our common stock as consideration for an acquisition or joint venture, difficulties in the integration of acquired businesses or unexpected penalties, liabilities or asset impairments in connection with such acquisitions or investments could have a material adverse effect on our business, financial condition and results of operations. +49 +We are a holding company with no business operations of our own and will depend on cash flow from our subsidiaries to meet our obligations. +We are a holding company with no business operations of our own or material assets other than the stock of our subsidiaries. All of our operations are conducted by our subsidiaries. As a holding company, we require dividends and other payments from our subsidiaries to meet cash requirements. The terms of any credit facility, including our Term Loan, may restrict our subsidiaries from paying dividends and otherwise transferring cash or other assets to us. See “ -The Term Loan contains covenants that may restrict our business and financing activities. ” If there is an insolvency, liquidation or other reorganization of any of our subsidiaries, our stockholders may have no right to proceed against their assets. Creditors of those subsidiaries will be entitled to payment in full from the sale or other disposal of the assets of those subsidiaries before we, as an equity holder, would be entitled to receive any distribution from that sale or disposal. If our subsidiaries are unable to pay dividends or make other payments to us when needed, we will be unable to satisfy our obligations. +Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain. +We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, under certain circumstances, any loan and security agreement and any future debt or preferred securities or future debt agreements we may enter may preclude us from paying dividends, including the Term Loan. As a result, capital appreciation, if any, of our Common Stock will be your sole source of gain for the foreseeable future. +Our corporate documents and Delaware law contain provisions that could discourage, delay or prevent a change in control of our company, prevent attempts to replace or remove current management and reduce the market price of our Common Stock and warrants. +Provisions in our certificate of incorporation and bylaws may have an anti-takeover effect and may delay, defer or prevent a merger, acquisition, tender offer, takeover attempt or other change of control transaction that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by our stockholders. +These provisions provide for, among other things: +• the ability of the Board to issue one or more series of preferred stock; +• advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at our annual meetings; +• certain limitations on convening special stockholder meetings; +• certain limitations on the ability of stockholders to act by written consent; and +• the express authority of the Board to make, alter or repeal the bylaws. +These anti-takeover provisions could make it more difficult for a third party to acquire us, even if the third party’s offer may be considered beneficial by many of our stockholders. As a result, our stockholders may be limited in their ability to obtain a premium for their shares. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire. See “Description of Our Securities.” +50 +We are an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may make our Common Stock and warrants less attractive to investors. +We are an “emerging growth company,” as defined in the JOBS Act. As an emerging growth company, we may follow reduced disclosure requirements and do not have to make all of the disclosures that public companies that are not emerging growth companies do. We will remain an emerging growth company until the earlier of (a) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more; (b) the last day of the fiscal year of the issuer following the fifth anniversary of the date of the first sale of common equity securities of the issuer pursuant to an effective registration statement; (c) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (d) the date on which we are deemed to be a large accelerated filer under the rules of the SEC, which means the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of the prior June 30th. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include: +• not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes‑Oxley Act; +• not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis); +• reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and +• exemptions from the requirements of holding a nonbinding advisory vote of stockholders on executive compensation, stockholder approval of any golden parachute payments not previously approved and having to disclose the ratio of the compensation of our chief executive officer to the median compensation of our employees. +In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period for complying with new or revised accounting standards; and as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. +We may choose to take advantage of some, but not all, of the available exemptions for emerging growth companies. We cannot predict whether investors will find our Common Stock or warrants less attractive if we rely on these exemptions. If some investors find our Common Stock or warrants less attractive as a result, there may be a less active trading market for our Common Stock and warrants and our share and warrant price may be more volatile. +51 +Our certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders. +The certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery (the “Chancery Court”) of the State of Delaware (or, in the event the Chancery Court does not have jurisdiction, the federal district court for the District of Delaware or other state courts of the State of Delaware) is the sole and exclusive forum for (1) any derivative action, suit or proceeding brought on behalf of us; (2) any action, suit or proceeding asserting a claim of breach of a fiduciary duty owed by any director or officer of us to us or our stockholders; (3) any action, suit or proceeding arising pursuant to any provision of the DGCL or the certificate of incorporation or the bylaws (as either may be amended from time to time); and (4) any action, suit or proceeding asserting a claim against us governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of Common Stock shall be deemed to have notice of and to have consented to the provisions of the certificate of incorporation described above. Notwithstanding the foregoing, the provisions of Article X of the certificate of incorporation provide that unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, including all causes of action asserted against any defendant to such complaint. We intend to apply this exclusive forum provision to derivative actions or breach of fiduciary duty claims purportedly brought under the Exchange Act, which would be required to be filed in the federal district court for the District of Delaware. Although we believe this provision benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, a court may determine that this provision is unenforceable, and to the extent it is enforceable, the provision may have the effect of discouraging lawsuits against our directors and officers, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder. Alternatively, if a court were to find these provisions of the certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition. +You may only be able to exercise the public warrants on a “cashless basis” under certain circumstances, and if you do so, you will receive fewer shares of Common Stock from such exercise than if you were to exercise such warrants for cash. +The Warrant Agreement provides that in the following circumstances holders of warrants who seek to exercise their warrants will not be permitted to do so for cash and will, instead, be required to do so on a cashless basis in accordance with Section 3(a)(9) of the Securities Act: (i) if the shares of Common Stock issuable upon exercise of the warrants are not registered under the Securities Act in accordance with the terms of the Warrant Agreement; (ii) if we have so elected and the shares of Common Stock are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition of “covered securities” under Section 18(b)(1) of the Securities Act; and (iii) if we have so elected and we call the public warrants for redemption. If you exercise your public warrants on a cashless basis, you would pay the warrant exercise price by surrendering the warrants for that number of shares of Common Stock equal to (A) the quotient obtained by dividing (x) the product of the number of shares of Common Stock underlying the warrants, multiplied by the excess of the “Fair Market Value” (as defined in the next sentence) over the exercise price of the warrants by (y) the Fair Market Value and (B) 0.361 per whole warrant. The “Fair Market Value” is the average reported last sale price of the Common Stock as reported for the 10 trading day period ending on the trading day prior to the date on which the notice of exercise is received by the warrant agent or on which the notice of redemption is sent to the holders of warrants, as applicable. As a result, you would receive fewer shares of Common Stock from such exercise than if you were to exercise such warrants for cash. +52 +We may amend the terms of the warrants in a manner that may have an adverse effect on holders of Public warrants with the approval by the holders of at least 65% of the then outstanding public warrants. As a result, the exercise price of your warrants could be increased, the exercise period could be shortened and the number of shares of Common Stock purchasable upon exercise of a warrant could be decreased, all without your approval. +Our warrants were issued in registered form under a Warrant Agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. The Warrant Agreement provides that the terms of the warrants may be amended without the consent of any holder for the purpose of (i) curing any ambiguity or curing, correcting or supplementing any defective provision or (ii) adding or changing any provisions with respect to matters or questions arising under the Warrant Agreement as the parties to the Warrant Agreement may deem necessary or desirable and that the parties deem to not adversely affect the interests of the registered holders of the warrants, provided that the approval by the holders of at least 65% of the then-outstanding public warrants is required to make any change that adversely affects the rights of the registered holders of public warrants. Accordingly, we may amend the terms of the public warrants in a manner adverse to a holder of public warrants if holders of at least 65% of the then outstanding public warrants approve of such amendment. Although our ability to amend the terms of the public warrants with the consent of at least 65% of the then outstanding public warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the warrants, convert the warrants into cash or shares, shorten the exercise period or decrease the number of shares of Common Stock purchasable upon exercise of a warrant. +Our Warrant Agreement designates the courts of the State of New York or the U.S. District Court for the Southern District of New York as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of the warrants, which could limit the ability of warrant holders to obtain a favorable judicial forum for disputes with us. +Our Warrant Agreement provides that, subject to applicable law, (i) any action, proceeding or claim against us arising out of or relating in any way to the Warrant Agreement, including under the Securities Act, will be brought and enforced in the courts of the State of New York or the U.S. District Court for the Southern District of New York, and (ii) that we irrevocably submit to such jurisdiction, which jurisdiction shall be the exclusive forum for any such action, proceeding or claim. We will waive any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Notwithstanding the foregoing, these provisions of the Warrant Agreement will not apply to suits brought to enforce any liability or duty created by the Exchange Act (which provides for the exclusive jurisdiction of the federal courts with respect to all suits brought to enforce a duty or liability created by the Exchange Act or the rules and regulations thereunder) or any other claim for which the federal district courts of the United States of America are the sole and exclusive forum. Any person or entity purchasing or otherwise acquiring any interest in any of our warrants shall be deemed to have notice of and to have consented to the forum provisions in the Warrant Agreement. If any action, the subject matter of which is within the scope the forum provisions of the Warrant Agreement, is filed in a court other than a court of the State of New York or the United States District Court for the Southern District of New York (a “foreign action”) in the name of any holder of our warrants, such holder shall be deemed to have consented to (x) the personal jurisdiction of the state and federal courts located in the State of New York in connection with any action brought in any such court to enforce the forum provisions (an “enforcement action”); and (y) having service of process made upon such warrant holder in any such enforcement action by service upon such warrant holder’s counsel in the foreign action as agent for such warrant holder. +This choice-of-forum provision may limit a warrant holder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us, which may discourage such lawsuits. Alternatively, if a court were to find this provision of the Warrant Agreement inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect our business, financial condition and operating results and could result in a diversion of the time and resources of our management and the Board. +53 +We may redeem your unexpired warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless. +We have the ability to redeem outstanding public warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant; provided that the last reported sale price of our Common Stock equals or exceeds $18.00 per share (as adjusted for adjustments to the number of shares issuable upon exercise or the exercise price of a warrant) for any 20 trading days within a 30 trading-day period ending on the third trading day prior to the date on which we send the notice of redemption to the warrant holders. We will not redeem the warrants unless an effective registration statement under the Securities Act covering the issuance of our Common Stock issuable upon the exercise of the warrants is effective and a current prospectus relating to those Common Stock is available throughout the 30-day redemption period, except if the warrants may be exercised on a cashless basis and such cashless exercise is exempt from registration under the Securities Act. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding warrants could force you to (i) exercise your warrants and pay the exercise price therefore at a time when it may be disadvantageous for you to do so, (ii) sell your warrants at the then-current market price when you might otherwise wish to hold your warrants or (iii) accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, we expect would be substantially less than the market value of your warrants. +In addition, we have the ability to redeem the outstanding public warrants at any time after they become exercisable and prior to their expiration, at a price of $0.10 per warrant if, among other things, the last reported sale price of our Common Stock equals or exceeds $10.00 per share (as adjusted for share subdivisions, share capitalizations, reorganizations, recapitalizations and the like). In such a case, the holders will be able to exercise their warrants prior to redemption for a number of shares of Common Stock determined based on the redemption date and the fair market value of our Common Stock. The value received upon exercise of the warrants (1) may be less than the value the holders would have received if they had exercised their warrants at a later time where the underlying share price is higher and (2) may not compensate the holders for the value of the warrants, including because the number of shares of Common Stock received is capped at 0.361 Common Stock per warrant (subject to adjustment) irrespective of the remaining life of the warrants. +The private placement warrants will not be redeemable by us so long as (i) they are held by the initial purchasers of the private placement warrants or its permitted transferees and (ii) the reference value exceeds $18.00 per share. +There is no guarantee that the exercise price of our warrants will ever be less than the trading price of our Common Stock on NYSE, and they may expire worthless. In addition, we may reduce the exercise price of the warrants in accordance with the provisions of the Warrant Agreement, and a reduction in exercise price of the warrants would decrease the maximum amount of cash proceeds we could receive upon the exercise in full of the warrants for cash. +The exercise price for a warrant is $11.50 per share of Common Stock. On December 31, 2025, the closing price of our Common Stock was $4.42. If the price of our shares of Common Stock remains below $11.50 per share, which is the exercise price of our warrants, we believe our warrant holders will be unlikely to cash exercise their warrants, resulting in little or no cash proceeds to us. There is no guarantee that our warrants will be in the money prior to their expiration in September 2027, and as such, our warrants may expire worthless. +In addition, at the current exercise price of $11.50 per share, we would receive up to $349.2 million from the exercise of the warrants, assuming the exercise in full of all of the warrants for cash. However, we may lower the exercise price of the warrants in accordance with Section 9.8 of the Warrant Agreement. We may effect such reduction in exercise price without the consent of warrant holders and such reduction would decrease the maximum amount of cash proceeds we would receive upon the exercise in full of the warrants for cash. +General Risk Factors +The obligations associated with being a public company involve significant expenses and require significant resources and management attention, which may divert from our business operations. +We are subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal control over financial reporting. Our entire management team and many of our other employees will need to devote substantial time to compliance and maintaining the corporate infrastructure demanded of a public company, which may divert management’s attention from implementing our business strategy, which could prevent us from improving our business, results of operations and financial condition. +54 +We have made, and will continue to make, changes to our internal control over financial reporting, including IT controls, and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company. However, the measures we take may not be sufficient to satisfy our obligations as a public company. If we do not continue to develop and implement the right processes and tools to manage our changing enterprise and maintain our culture, our ability to compete successfully and achieve our business objectives could be impaired, which could negatively impact our business, financial condition and results of operations. In addition, we cannot predict or estimate the amount of additional costs we may incur to comply with these requirements. We anticipate that these costs will materially increase our general and administrative expenses. +These rules and regulations result in our incurring legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified people to serve on our Board, on our Board committees or as executive officers. +As a public reporting company, we are subject to rules and regulations established from time to time by the SEC regarding our internal control over financial reporting. If we fail to establish and maintain effective internal control over financial reporting and disclosure controls and procedures, we may not be able to accurately report our financial results or report them in a timely manner. +We are subject to the rules and regulations established from time to time by the SEC and NYSE. These rules and regulations require, among other things that we establish and periodically evaluate procedures with respect to our internal control over financial reporting. In addition, as a public company, we are required to document and test our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act so that our management can certify as to the effectiveness of our internal control over financial reporting. Reporting obligations as a public company are likely to place a considerable strain on our financial and management systems, processes and controls, as well as on our personnel, and could lead to additional costs to comply with these rules and regulations. +Our accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we are subject as a public company. +In the past, our operations have been a part of H-D and H-D provided us with certain financial, operational and managerial resources for conducting our business. Following the Separation, while a number of these resources will continue to be at H-D and used to provide services to us under the Master Services Agreement, we now perform certain of our own financial, operational and managerial functions. There are no assurances that we will be able to successfully put in place the financial, operational and managerial resources necessary to perform these functions. +Our transition to being a public company has also subjected us to significant regulatory oversight and financial reporting obligations under the federal securities laws and in accordance with Generally Accepted Accounting Principles, as well as the continuous scrutiny of securities analysts and investors. These new obligations and constituents require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition, and operating results. We may not have adequate personnel with the appropriate level of knowledge, experience and training in the accounting policies, practices or internal control over financial reporting required of public companies in the US. The development and implementation of the standards and controls necessary for us to achieve the level of accounting standards required of a public company in the US may require costs greater than expected. It is possible that we will be required to expand our employee base, hire additional employees, or rely on third-party advisors to support our operations as a public company which will increase our operating costs in future periods. +Our facilities, and our suppliers’ facilities, are vulnerable to disruption due to natural or man-made disasters, which could become more frequent and severe due to phenomena such as climate change. +There is growing concern that a gradual increase in global average temperatures as a result of climate change may result in an increase in the frequency and severity of extreme weather events or other natural disasters. Natural or man-made disasters, as well as chronic changes (such as changes to temperature and hydrological patterns), may disrupt the productivity of our facilities, the operation of our supply chain or impact demand for our products. In addition, the increasing concern over climate change may result in more local, regional, federal and global legal and regulatory requirements and could increase the costs to comply with such requirements that we incur in our operations. +Our insurance coverage strategy may not be adequate to protect us from all business risks. +55 +We may be subject, in the ordinary course of business, to losses resulting from product liability, accidents, acts of God and other claims against us, for which we may have no insurance coverage. Our policies may include significant deductibles or self-insured retentions, policy limitations and exclusions, and we cannot be certain that our insurance coverage will be sufficient to cover all future losses or claims against us. A loss that is uninsured or which exceeds policy limits may require us to pay substantial amounts, which may materially and negatively affect our financial condition and operating results. +Item 1B. Unresolved Staff Comments +None. +Item 1C. Cybersecurity +Risk Management Strategy +We have implemented a cybersecurity program intended to assess, identify, manage and reduce cybersecurity risks. Through our partnership with Harley-Davidson, we maintain an IT incident response plan that is designed to protect against, identify, evaluate, respond to, and recover from an incident. The plan is designed to be flexible so it may be adapted to an array of potential scenarios and includes a cybersecurity incident response team in the event of a cyber incident. The incident response team is a cross-functional group that is composed of both Company and Harley-Davidson personnel and external service providers, and which is tailored to a particular incident so that individuals with appropriate experience and expertise are available. Currently, we contract for such cybersecurity services through the Master Services Agreement with Harley-Davidson, in addition to leveraging our own information technology and security tools and teams. +We have invested in tools and technologies intended to protect our data and business systems, and we monitor our computing environment on an ongoing basis to help identify and assess risk. In addition, we have implemented a cybersecurity training program designed to educate and train employees how to identify, potentially avoid and report cybersecurity threats. It is focused on helping our workforce recognize, avoid falling victim to and raise the visibility of potential cyber threats and scams. In addition, periodic cybersecurity awareness messages are communicated to employees as new threats and scams develop throughout the year. To reinforce these practices, routine phishing simulations are conducted across the organization to test employees awareness and provide targeted follow-up training, as needed. +Through the Master Services Agreement with Harley-Davidson, we take measures to regularly update and improve our cybersecurity program, including conducting assessments, performing penetration testing and scanning of our systems for vulnerabilities using external third-party tools and techniques to test security controls, auditing applicable data policies, and monitoring emerging laws and regulations related to information security. The program is designed based on the National Institute of Standards and Technology (NIST) Cybersecurity Framework. However, this does not imply that we meet any particular technical standards, specifications or requirements, only that we use the NIST Cybersecurity Framework as a guide to help us identify, assess and manage cybersecurity risks relevant to our business. In addition, we periodically engage third-party advisors to assess the effectiveness of our cybersecurity program, policies and practices. We rely on Harley-Davidson to regularly consult with external advisors and cybersecurity providers regarding opportunities and enhancements to strengthen our policies and practices. +With respect to third-party service providers, our cybersecurity program includes conducting due diligence of relevant and material service providers’ information security programs prior to onboarding. In general, we also contractually require material third-party service providers with access to our information technology systems, sensitive business data or personal information to implement and maintain reasonably appropriate security controls and to use our personal information only to provide services to us, except as required by law. +While we have experienced, and may in the future experience, cybersecurity incidents, prior incidents have not materially affected the Company’s business, results of operations or financial condition. Although we have invested in the protection of our data and information technology and monitor our systems on an ongoing basis, there can be no assurance that such efforts will in the future prevent material compromises to our information technology systems that could have a material adverse effect on our business. See Item 1A. Risk Factors, which are incorporated by reference into this Item 1C. +Governance +Our Board of Directors has risk oversight responsibility for us and administers this responsibility both directly and with assistance from the Audit and Finance Committee, which periodically reports to the Board of Directors on its risk oversight +56 +activities. Cybersecurity is a critical component of our overall risk management program. Our Board of Directors is actively involved in reviewing our information security and technology risks and opportunities (including cybersecurity) and discusses these topics on a regular basis. +The Audit and Finance Committee, comprised solely of independent directors, oversees our enterprise risk management program and assists the Board of Directors in fulfilling its oversight responsibility with respect to our information security and technology risks (including cybersecurity), which are included as part of our enterprise risk management systems. The Audit and Finance Committee reviews and discusses our information security and technology risks (such as cybersecurity), including our information security and risk management programs. +Our cybersecurity program is contracted through and led by Harley-Davidson’s Chief Information Security (CISO) , who is responsible for assessing and managing our data privacy function and information security and technology risks (including cybersecurity). In October 2025, the CISO left Harley-Davidson and the Chief Digital and Operations Officer assumed the responsibilities of acting CISO from October until his departure on December 31, 2025. Harley-Davidson’s IT Security Manager is serving as acting CISO, executing all the responsibilities of the CISO, while Harley-Davidson conducts a search to fill the position. The Company's IT Security Manager has over 20 years of experience in Information Technology, including 13 years focused on cybersecurity and regulatory compliance, with leadership roles spanning Enterprise Security Architecture, Security Operations and Incident Response, Cybersecurity Engineering, and Application Security. This background includes developing and executing security strategies, managing incident prevention and response, and leading operational risk programs. The CISO reports to Harley-Davidson’s Chief Legal, Compliance and Corporate Affairs Officer, who has been providing legal support to the Harley-Davidson’s Corporate Information Security Office for over nine years. +The Harley-Davidson CISO meets regularly with the appropriate management to review and discuss our cybersecurity and other information technology risks and opportunities. Our cybersecurity incident response plan sets forth a security incident management and reporting protocol, with escalation timelines and responsibilities. +The Audit and Finance Committee receives periodic updates from the Harley-Davidson CISO or his designee on our cybersecurity program, including industry trends, the current state of our business systems, and any current known risks or concerns related thereto. The Audit and Finance Committee is involved in reviewing our information security and technology risks, including with respect to cybersecurity and reports on such matters to the Board as necessary, and at least annually. +Item 2. Properties +A summary of the principal operating properties as of December 31, 2025 is as follows: +Type of Facility Location Status +Electric Motorcycles - Corporate Office & Product Development Center Milwaukee, WI Leased +Electric Motorcycles - Customer Experience Center Malibu, CA Leased +Electric Motorcycles - Retail Operations Carson, CA Leased +STACYC - Corporate Office and Research and Development Activities Fort Worth, TX Leased +Item 3. Legal Proceedings +The Company from time to time may be subject to lawsuits and other claims related to product, commercial, supplier, employee, environmental and other matters in the normal course of business. In determining costs to accrue related to these items, the Company carefully analyzes cases and considers the likelihood of adverse judgments or outcomes, as well as the potential range of possible loss. The Company accrues for matters when losses are both probable and estimable. Any amounts accrued for these matters are monitored on an ongoing basis and are updated based on new developments or new information as it becomes available for each matter. The Company, through H-D, also maintains insurance coverage for product liability exposures. The Company believes that its accruals and insurance coverage are adequate and there are no material exposures to loss in excess of amounts accrued and insured for losses related to these matters. Refer to Note 14, Commitments and Contingencies, in the Notes to consolidated financial statements. +Item 4. Mine Safety Disclosures +Not Applicable. +57 +PART II +Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +Market Information +Our Common Stock and warrants to purchase our Common Stock are traded on the NYSE under the trading symbols “LVWR” and “LVWR WS”, respectively. +Holders of Record +As of February 18, 2026, there were 8 shareholders of record of our Common Stock and 1 holder of record of our warrants to purchase our Common Stock. The number of holders of record does not include a substantially greater number of “street name” holders or beneficial holders, whose shares and/or warrants are held of record by banks, brokers and other financial institutions. +Dividend Policy +We have not paid any cash dividends on our Common Stock to date. The payment of cash dividends in the future is dependent upon our revenues and earnings, if any, capital requirements, the terms of any indebtedness and general financial condition. The payment of any cash dividends will be within the discretion of the Board at such time. In addition, the Board is not currently contemplating and does not anticipate declaring any stock dividends in the foreseeable future. +Recent Sales of Unregistered Securities; Purchases of Equity Securities by the Issuer or Affiliated Purchaser +Sales of Unregistered Equity Securities +There were no unregistered sales of equity securities for the years ended December 31, 2025, 2024 and 2023. +Purchases of Equity Securities +The Company’s share repurchases, which consisted of shares of Common Stock surrendered to satisfy withholding taxes in connection with the vesting of restricted stock units were as follows during the quarter ended December 31, 2025: +2025 Fiscal Date of Vest Total Number of Shares Repurchased Average Price Per Share Paid Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs +December 1 - December 31 62,996 $ 4.21 — — +Stock Performance Graph +The following information in this Item 5 is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 or to the liabilities of Section 18 of the Securities Exchange Act of 1934, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates it by reference into such a filing. The SEC requires the Company to include a line graph presentation comparing cumulative five-year common stock returns, or in the case of LiveWire the Business Combination date, with a broad-based stock index and either a nationally recognized industry index or an index of peer companies selected by the Company. The Company has chosen to use the Standard & Poor’s (“S&P”) 500 Index as the broad-based index. The S&P 500 Index was chosen as the Company does not believe any other published industry or line-of-business index adequately represents the current operations of the Company. The graph assumes a beginning investment of $100 on September 26, 2022, the Business Combination date, and that all dividends are reinvested. We have never declared or paid cash dividends on our common stock nor do we anticipate paying any such cash dividends in the foreseeable future. +58 +9/26/2022 9/30/2022 12/31/2022 3/31/2023 6/30/2023 9/30/2023 12/31/2023 3/31/2024 6/30/2024 9/30/2024 12/31/2024 3/31/2025 6/30/2025 9/30/2025 12/31/2025 +LiveWire Group, Inc. $100 $76 $52 $69 $126 $74 $120 $77 $82 $65 $51 $21 $49 $51 $47 +S&P 500 Index $100 $98 $106 $113 $124 $123 $137 $152 $159 $168 $174 $166 $176 $203 $239 +Item 6. Selected Financial Data +[Reserved] +Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations +The following discussion and analysis is intended to help the reader understand LiveWire, our financial condition and results of operations, and our present business environment. The following discussion and analysis should be read together with the consolidated financial statements and related notes included elsewhere in this Form 10-K. The following discussion may contain forward-looking statements. Actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this Form 10-K, particularly in “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” discussions. +Overview +LiveWire is an industry-leading all-electric vehicle brand with a mission to pioneer the rapidly growing two-wheel electric motorcycle space. The Company operates in two segments: Electric Motorcycles and STACYC. +The Electric Motorcycles segment sells electric motorcycles, related parts and accessories and apparel in the United States and certain international markets, while the STACYC segment sells electric balance bikes, electric bikes, related parts and accessories and apparel in the United States and certain international markets. The STACYC segment launched an adult pedal assist electric bike in the United States in March 2025. +Electric motorcycles are sold at wholesale to a network of Independent Retail Partners, at retail through a Company-owned dealership and through online sales. Prior to November 5, 2024, the Company’s products were sold at retail through select international partners primarily in Europe. Electric balance bikes and electric bikes are sold at wholesale to independent dealers and independent distributors, as well as direct to customers online. As discussed below, on September 26, 2022 as part of the +59 +Business Combination, the Company, which included LiveWire branded electric motorcycles and STACYC, became a separate, publicly traded company. +During the third quarter of 2025, the Company initiated the “Twist & Go Promotion” offering temporary pricing incentives on its S2 electric motorcycles from August 28, 2025 to October 31, 2025, which resulted in increased sales volumes in the third quarter of 2025. In late October 2025, the promotion was extended by the Company through December 15, 2025. +LiveWire’s net loss for the year ended December 31, 2025 was $75,114 thousand compared to $93,925 thousand for the year ended December 31, 2024. LiveWire’s net losses reflect the early-stage nature of LiveWire’s business including investments in product development as LiveWire continues to focus on technological innovation that it expects will support future products and growth. +The Electric Motorcycles segment operating loss for the year ended December 31, 2025 was $73,831 thousand, compared to an operating loss of $105,500 thousand for the year ended December 31, 2024. Refer to the Electric Motorcycles segment analysis below for further discussion. +The STACYC segment operating loss for the year ended December 31, 2025 was $1,653 thousand, as compared to operating loss of $4,856 thousand for the year ended December 31, 2024. Refer to the STACYC segment analysis below for further discussion. +In response to the market challenges facing the electric vehicle segment and the overall boarder powersports industry, the Company is continuing to focus on strategic expansion of its product offerings, including the planned production in the spring of 2026 of two new 125 cc-equivalent mini-motos, the S4 Honcho TM products, which are designed to expand access and affordability for riders globally. As the Company evaluates its long-term strategy and product offerings, it will continue to focus on cost savings to reduce cash usage while focusing on developing and producing profitable products to align with evolving customer preferences and broader electric vehicle adoption trends that will allow the Company to continue to reduce operating losses and fund its operations through profitability. +On August 22, 2025, LiveWire entered into an At-The-Market Issuance Sales Agreement with Mizuho Securities USA LLC, as agent (the “Agent”), under which LiveWire may offer and sell, from time to time at its sole discretion, an aggregate gross sale price of up to $50.0 million of shares of its common stock through the Agent (the “ATM Program”), pursuant to an effective shelf registration statement on Form S-3 (Registration No. 333-289699), which was declared effective by the SEC on August 21, 2025. LiveWire filed a prospectus supplement with the SEC on August 22, 2025 in connection with the ATM Program. +Business Combination +On December 12, 2021, H-D entered into the Business Combination Agreement with ABIC, to effect the separation of its electric vehicle business. On September 16, 2022, the Business Combination was approved in an ABIC shareholder vote, and it closed on September 26, 2022. +The Business Combination was accounted for as a reverse recapitalization. Under this method of accounting, ABIC was treated as the “acquired” company for financial reporting purposes. Accordingly, the Business Combination was treated as the equivalent of LiveWire issuing stock for the net assets of ABIC, accompanied by a recapitalization. The net assets of ABIC were stated at historical cost, with no goodwill or other intangible assets recorded resulting from the Business Combination. Operations prior to the Business Combination are those of Legacy LiveWire. +Upon closing of the Business Combination and PIPE Investments, the most significant change in the Company’s future reported financial position and results was an increase in cash due to net proceeds received of approximately $293.7 million, including a $100.0 million investment from the Legacy LiveWire Equityholder and a $100.0 million investment from certain members of the KYMCO Group, through a PIPE. Additionally, the increase in cash reflects the amount of cash released from ABIC’s trust account of $13.6 million (net of the SPAC share redemption amount) and the $100.0 million equity backstop (the “H-D Backstop Amount”) provided by H-D in exchange for 10,000,000 shares of Common Stock for a purchase price of $10.00 per share pursuant to the terms of the Business Combination Agreement. +2026 Outlook +For 2026, LiveWire's focus is on the launch of its two new 125 cc-equivalent mini-motors, the S4 Honcho TM products, continued network expansion, cost savings and improvements, product innovation and development focused on profitable products, and continued growth of the STACYC segment. +60 +Basis of Presentation +Refer to Note 1, Description of Business and Basis of Presentation, in the Notes to the consolidated financial statements for a discussion of the underlying basis used to prepare the consolidated financial statements. +Key Business Metrics +To analyze LiveWire’s business performance, determine financial forecasts and help develop long-term strategic plans, management reviews the following key business metrics, which are important measures that represent the growth of the business: +• Wholesale Motorcycle Unit Sales – LiveWire defines Wholesale Motorcycle Unit Sales as the number of electric motorcycles sold by LiveWire to independent dealers for which LiveWire recognized revenue during the period. +• Company Retail Motorcycle Unit Sales – LiveWire defines Company Retail Motorcycle Unit Sales as the number of new electric motorcycles sold at retail by LiveWire through its Company-owned dealership, through online sales or direct to customers through select international partners for which LiveWire recognized revenue during the period. +• Independent Retail Motorcycle Unit Sales – LiveWire defines Independent Retail Motorcycle Unit Sales as the number of new electric motorcycles sold at retail by Independent Retail Partners. These unit sales do not generate revenues for LiveWire but generate revenues for individual retail partners. The data source for electric motorcycle retail sales figures is new sales warranty and registration information provided by Independent Retail Partners and compiled by LiveWire. LiveWire must rely on information that its Independent Retail Partners supply concerning new retail sales, and LiveWire does not regularly verify the information that its Independent Retail Partners supply. This information is subject to revision. +• Retail Motorcycle Unit Sales – LiveWire defines Retail Motorcycle Unit Sales as the sum of Company Retail Motorcycle Unit Sales and Independent Retail Motorcycle Unit Sales. +• Company-owned dealership – Dealership owned and operated by LiveWire to sell electric motorcycles, related products, and services. +• Independent Retail Partners (Electric Motorcycles) – Independent Retail Partners as used with Electric Motorcycles are dealers owned and operated by independent entities under contract with LiveWire to sell LiveWire electric motorcycles, related products and services. +• Electric Balance Bike and Electric Bike Unit Sales (STACYC) – LiveWire defines Electric Balance Bike and Electric Bike Unit Sales as the number of electric balance bikes and pedal assist electric bikes sold by LiveWire for which LiveWire recognized revenue during the period. +• Independent Retail Partners (STACYC) – Independent Retail Partners as used with STACYC are independent entities under contract with STACYC to sell electric balance bikes, electric bikes and related products and services. +61 +The following table details the key business metric amounts for the periods indicated: +Year Ended +2025 2024 +Wholesale Motorcycle Unit Sales: +US 226 422 +International (1) +363 89 +Total Wholesale Motorcycle Unit Sales 589 511 +Company Retail Motorcycle Unit Sales: +US 64 23 +International (1) +— 78 +Total Company Retail Motorcycle Unit Sales 64 101 +Total LiveWire Motorcycle Unit Sales 653 612 +Retail Motorcycle Unit Sales: +Company Retail Motorcycle Unit Sales (2) +64 101 +Independent Retail Partners (3) +780 391 +Total Retail Motorcycle Unit Sales 844 492 +Retail Motorcycle Unit Sales: +US 506 414 +International 338 78 +Total Retail Motorcycle Unit Sales 844 492 +Electric Balance Bike and Electric Bike Unit Sales: +US 16,799 16,925 +International 4,834 1,624 +Total Electric Balance Bike and Electric Bike Unit Sales +21,633 18,549 +(1) Effective November 5, 2024, the Company’s go-to-market strategy in Europe changed from selling direct to customers through international partners to selling at wholesale to independent dealers. International unit sales prior to November 5, 2024 are reflected as Company Retail Motorcycle Unit Sales, while international unit sales after November 5, 2024 are reflected as Wholesale Motorcycle Unit Sales. +(2) Data source for Company Retail Motorcycle Unit Sales figures shown above is LiveWire’s records. +(3) Data source for Independent Retail Motorcycle Unit Sales figures shown above is new sales warranty and registration information provided by retail partners and compiled by LiveWire. LiveWire must rely on information that its Independent Retail Partners supply concerning new retail sales, and LiveWire does not regularly verify the information that its Independent Retail Partners supply. This information is subject to revision. +62 +The following table details the number of retail partners: +As of As of +December 31, 2025 December 31, 2024 +Electric Motorcycles +Company-owned dealership 1 1 +Independent Retail Partners: +U.S. 47 61 +International 49 27 +Total Electric Motorcycles Independent Retail Partners 96 88 +Total Electric Motorcycles Retail Partners 97 89 +STACYC +Independent Retail Partners: +U.S. 1,986 2,041 +International (1) +31 151 +Total STACYC Independent Retail Partners 2,017 2,192 +(1) In May 2025, STACYC moved to a distributor model in Canada whereby the previous independent retail partners are now contracted through STACYC’s distributor. +The Electric Motorcycles retail partners shown above include those that have been contracted by LiveWire to sell LiveWire motorcycles. LiveWire intends to grow this network as it expands its distribution capabilities. +LiveWire believes these key business metrics provide useful information to help investors understand and evaluate LiveWire’s business performance. Wholesale Motorcycle Unit shipments and Company Retail Motorcycle Unit Sales are key drivers of revenue and profit for the Electric Motorcycles segment. Retail Motorcycle Unit Sales made through both the Company-owned dealership and Independent Retail Partners are a key measure of consumer demand and market share for LiveWire’s electric motorcycles. Total Electric Balance Bike and Electric Bike Unit Sales is a key driver of revenue and profit for STACYC. +Results of Operations +The following table presents consolidated results of operations for the years ended December 31, 2025 and 2024 (in thousands): +2025 2024 $ Change % Change +Operating loss from Electric Motorcycles $ (73,831) $ (105,500) $ 31,669 30.0 % +Operating loss from STACYC (1,653) (4,856) 3,203 66.0 % +Total operating loss (75,484) (110,356) 34,872 31.6 % +Interest expense, related party (255) — (255) (100.0) % +Interest income 1,166 5,704 (4,538) (79.6) % +Change in fair value of warrant liabilities (352) 10,770 (11,122) (103.3) % +Loss before income taxes (74,925) (93,882) 18,957 20.2 % +Income tax provision 189 43 146 339.5 % +Net loss (75,114) (93,925) 18,811 20.0 % +Other comprehensive loss: +Foreign currency translation adjustments (29) (5) (24) (480.0) % +Comprehensive loss $ (75,143) $ (93,930) $ 18,787 20.0 % +Net loss per share, basic and diluted $ (0.37) $ (0.46) $ 0.09 19.6 % +63 +Operating Loss +The Company reported an operating loss of $75,484 thousand for the year ended December 31, 2025 compared to an operating loss of $110,356 thousand for the year ended December 31, 2024. The Electric Motorcycles segment reported an operating loss of $73,831 thousand for the year ended December 31, 2025, as compared to an operating loss of $105,500 thousand for the year ended December 31, 2024. Operating loss from the STACYC segment was $1,653 thousand for the year ended December 31, 2025 compared to operating loss of $4,856 thousand for the year ended December 31, 2024. Refer to the Electric Motorcycles and STACYC Segment discussions for a more detailed analysis of the factors affecting operating results. +Interest Expense, Related Party +Interest expense, related party, for the year ended December 31, 2025 was $255 thousand compared to zero for the year ended December 31, 2024. The expense is related to the Company borrowing $75.0 million from H-D under the Term Loan on December 15, 2025. +Interest Income +Interest income for the year ended December 31, 2025 was $1.2 million compared to $5.7 million for the year ended December 31, 2024. The change was primarily driven by the decrease in the Company’s investment in money market funds during the year prior to the Company borrowing $75.0 million under the Term Loan on December 15, 2025. The investment in money market funds increased from $5.0 million at September 30, 2025 to $72.0 million at December 31, 2025 after the Company borrowed $75.0 million under the Term Loan. The investment in money market funds was $52.0 million at December 31, 2024. +Change in Fair Value of Warrant Liabilities +Change in fair value of warrant liabilities for the year ended December 31, 2025 was loss of $352 thousand compared to income of $10,770 thousand for the year ended December 31, 2024. The loss recognized of $352 thousand for the year ended December 31, 2025 was due to the increase in the estimated fair value of the warrants from December 31, 2024 related to fluctuations in the market price of the warrants. The income recognized of $10,770 thousand for the year ended December 31, 2024 was due to the decrease in the estimated fair value of the warrants from December 31, 2023 related to fluctuations in the market price of the warrants. See Note 10, Warrant Liabilities, in the consolidated financial statements for further discussion. +Income Tax Provision +The income tax provision for the year ended December 31, 2025 was $189 thousand compared to $43 thousand for the year ended December 31, 2024. The increase in the income tax provision in 2025 compared to 2024 was primarily driven by profits generated by the non-U.S. entities. +64 +Segment Results +Electric Motorcycles +The following table presents consolidated results of operations for the Electric Motorcycles segment for the years ended December 31, 2025 and 2024 (in thousands): +2025 2024 $ Change % Change +Revenue: +Electric motorcycles $ 4,691 $ 7,644 $ (2,953) (38.6) % +Parts, accessories and apparel 1,373 737 636 86.3 % +Revenue, net 6,064 8,381 (2,317) (27.6) % +Cost of goods sold 18,058 27,018 (8,960) (33.2) % +Gross profit (11,994) (18,637) 6,643 35.6 % +Operating expenses: +Selling, administrative and engineering expense 61,837 86,863 (25,026) (28.8) % +Operating loss $ (73,831) $ (105,500) $ 31,669 30.0 % +Revenue +Revenue for the year ended December 31, 2025 decreased by $2,317 thousand, or 27.6%, to $6,064 thousand from $8,381 thousand for the year ended December 31, 2024. While unit sales increased 7% in 2025 compared to 2024, the increase was offset by new incentives announced during the third quarter 2025, including the Twist & Go Promotion, resulting in decreases to revenue of $3,248 thousand related to unit sales in the year ended December 31, 2025 and $987 thousand related to previously recognized sales during the year ended December 31, 2025. This decrease was partially offset by parts, accessories and apparel revenue increasing $636 thousand from $737 thousand in the year ended December 31, 2024 to $1,373 thousand in the year ended December 31, 2025. +Cost of Goods Sold +Cost of goods sold for the year December 31, 2025 decreased by $8,960 thousand, or 33.2%, to $18,058 thousand from $27,018 thousand for the year ended December 31, 2024. The decrease was primarily driven by a significant decrease of the number of motorcycles purchased in 2025 as compared to 2024 resulting in lower net realizable value adjustments, as well as the effect of motorcycles that were purchased in 2024 and sold in 2025 that were already written down to net realizable value resulting in lower cost of sales in 2025 relative to 2024. Additionally, cost of goods sold in 2025 decreased by $1,586 thousand from the impact of an unfavorable arbitration ruling related to a supplier claim that was recorded in 2024. This decrease was offset by increased depreciation expense of $1,390 thousand primarily from accelerated depreciation on certain tooling being replaced as part of the Company’s cost reduction activities. +Selling, Administrative and Engineering Expense +Selling, administrative and engineering expense for the year ended December 31, 2025 decreased by $25,026 thousand, or 28.8%, to $61,837 thousand from $86,863 thousand for the year ended December 31, 2024. The decrease was primarily driven by cost reduction activities, including $13,571 thousand decrease in personnel costs primarily from headcount reductions in 2024, $3,739 thousand reduction in fees paid to H-D for services under the new master services arrangement, $1,309 thousand reduction in product development spending due to the relocation of the LiveWire Labs and the completion of two new models, Mulholland and Alpinista, in 2024, $1,231 thousand decrease in accelerated depreciation related to LiveWire Labs assets recorded in 2024, $1,092 thousand reduction in rent related to the movement of LiveWire Labs from California to Milwaukee, Wisconsin in 2024, and $797 thousand reduction in travel costs in the year ended December 31, 2025 compared to the year ended December 31, 2024. These decreases were offset by an increase to warranty expense of $1,370 thousand in the year ended December 31, 2025 compared to the year ended December 31, 2024. +The Company recorded $5,023 thousand of expense in the year ended December 31, 2024 related to employee termination benefits and other costs related to the move of LiveWire Labs from California to Wisconsin, as well as the Company’s actions to streamline headcount. The Company also recognized a noncash reduction in stock compensation expense of $3,753 thousand in the year ended December 31, 2024 resulting from forfeitures of awards related to employees who terminated in the year ended December 31, 2024 resulting from these actions. +65 +STACYC +The following table presents consolidated results of operations for the STACYC segment for the years ended December 31, 2025 and 2024 (in thousands): +2025 2024 $ Change % +Change +Revenue: +Electric balance bikes and electric bikes $ 15,808 $ 14,043 $ 1,765 12.6 % +Parts, accessories and apparel 3,800 4,209 (409) (9.7) % +Revenue, net 19,608 18,252 1,356 7.4 % +Cost of goods sold 12,047 12,398 (351) (2.8) % +Gross profit 7,561 5,854 1,707 29.2 % +Operating expenses: +Selling, administrative and engineering expense 9,214 10,710 (1,496) (14.0) % +Operating loss $ (1,653) $ (4,856) $ 3,203 66.0 % +Revenue +Revenue for the year ended December 31, 2025 increased by $1,356 thousand, or 7.4%, to $19,608 thousand from $18,252 thousand for the year ended December 31, 2024. The increase in revenue of $1,765 thousand was driven by a $2,351 thousand increase from higher volumes due to new products and new markets, and higher shipment volumes to our third party distributors, offset by a reduction in electric balance bikes and electric bikes revenue from lower product pricing and promotions of $586 thousand in the year ended December 31, 2025 compared to the year December 31, 2024. The increase in electric balance bikes and electric bikes revenue was offset by a decrease of $409 thousand in parts, accessories and apparel revenue in the year ended December 31, 2025 compared to the year ended December 31, 2024. +Cost of Goods Sold +Cost of goods sold for the year December 31, 2025 decreased by $351 thousand, or 2.8%, to $12,047 thousand from $12,398 thousand for the year ended December 31, 2024 and was primarily due to product mix and lower fulfillment costs. +Selling, Administrative and Engineering Expense +Selling, administrative and engineering expense for the year ended December 31, 2025 decreased by $1,496 thousand, or 14.0%, to $9,214 thousand from $10,710 thousand for the year ended December 31, 2024. The decrease was primarily due to lower marketing expense of $943 thousand in the year ended December 31, 2025 compared to the year ended December 31, 2024. +Results of Operations 2024 Compared to 2023 +Refer to “Management's Discussion and Analysis of Financial Condition and Results of Operations” within our Annual Report on Form 10-K for the year ended December 31, 2024 filed on February 21, 2025 with the SEC for a detailed discussion of the results of operations for 2024 compared to 2023. +Liquidity and Capital Resources +As of December 31, 2025 and 2024, LiveWire’s cash and cash equivalents were $82,777 thousand and $64,437 thousand, respectively. +As an early growth company, LiveWire does not expect to generate positive cash flow from operations over the next twelve months. Prior to the Business Combination, H-D supported LiveWire’s operating, investing and financing activities. Following the Business Combination, LiveWire received net proceeds of approximately $293.7 million. The Company also assumed the Public Warrants and Private Warrants upon consummation of the Business Combination. See further detail in Note 10 to the consolidated financial statements, Warrant Liabilities. +66 +In the event of the exercise of any Warrants for cash, LiveWire will receive the proceeds from such exercise. Assuming the exercise in full of all of Warrants for cash, LiveWire would receive an aggregate of approximately $349.2 million, but would not receive any proceeds from the sale of the shares of Common Stock issuable upon such exercise. To the extent any of the Warrants are exercised on a “cashless basis,” LiveWire will not receive any proceeds upon such exercise. LiveWire expects to use any proceeds it receives from Warrant exercises for general corporate and working capital purposes, which would increase its liquidity. LiveWire believes the likelihood that warrant holders will exercise their Warrants, and therefore the amount of cash proceeds LiveWire would receive, is dependent upon the trading price of its Common Stock. As of December 31, 2025, the reported sales price of Common Stock was $4.42 per share. If the trading price of Common Stock is less than the $11.50 exercise price per share of the Warrants, LiveWire expects that warrant holders will not exercise their Warrants. There is no guarantee the Warrants will be in the money following the time they become exercisable and prior to their expiration, and as such, the Warrants may expire worthless and LiveWire may receive no proceeds from the exercise of Warrants. As a result, LiveWire does not expect to rely on the cash exercise of Warrants to fund its operations and LiveWire does not believe that it needs such proceeds to support working capital and capital expenditure requirements for the next twelve months. LiveWire will continue to evaluate the probability of Warrant exercises and the merit of including potential cash proceeds from the exercise of the Warrants in its future liquidity projections. LiveWire instead currently expects to rely on the sources of funding described below, if available on reasonable terms or at all. +On February 14, 2024, the Company entered into a Convertible Delayed Draw Term Loan Agreement (the “Convertible Term Loan”) with H-D providing for term loans from H-D to the Company in one or more advances up to an aggregate principal amount of $100 million. The Convertible Term Loan had a maturity date of the earlier of (i) 24 months from the date of the first draw on the loan or (ii) October 31, 2026. The Convertible Term Loan contained a provision that provided for H-D to convert amounts outstanding to equity at the Maturity Date if, on the Maturity Date, H-D determined, acting reasonably and in good faith, that the Company does not have the financial wherewithal to repay all amounts outstanding. +On November 9, 2025, the Company entered into an Amended and Restated Delayed Draw Term Loan Agreement (the “Term Loan”) with H-D, which amended the Convertible Term Loan. The Term Loan provided the Company with access of up to $75.0 million to be drawn by the Company between November 17, 2025 and December 15, 2025. The maturity date of the amount outstanding under the Term Loan, including interest, is December 15, 2027 (“Term Loan Maturity Date”). The Term Loan requires mandatory prepayment of the principal amount of the Term Loan from the first $10.0 million of net ATM proceeds (defined as gross ATM proceeds less offering costs) from the funding of the Term Loan through the Term Loan Maturity Date. No other scheduled principal payments are required to be made on the Term Loan and the remaining principal balance must be paid in full on the Term Loan Maturity Date. The amount outstanding under the Term Loan bears interest at a floating rate per annum, as calculated by H-D as of the date of funding of the Term Loan and as of each June 1 and December 1 thereafter, equal to the sum of (i) the forward-looking term rate based on SOFR (i.e., the secured overnight financing rate published by the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate)) for a 6-month interest period, plus (ii) 4.00%. Interest is compounded on a semi-annual basis on May 31 and November 30 and is required to be paid in full on the Term Loan Maturity Date. The Term Loan includes negative covenants restricting the ability of the Company to incur indebtedness, create liens, sell assets, make investments, make fundamental changes, make dividends or other restricted payments and enter into affiliate transactions. All of the obligations under the Term Loan are collateralized by a security interest in substantially all of the assets of the Company. +On December 15, 2025, the Company borrowed $75.0 million under the Term Loan. As of December 31, 2025, there was $800 thousand presented as Current portion of term loan - related party, net, for the mandatory prepayment of the principal amount of the Term Loan due from the first $10.0 million of net ATM proceeds and $74.2 million presented as Long-term portion of term loan - related party, net, on the consolidated balance sheet. During the year ended December 31, 2025, the Company recorded $255 thousand in interest expense, which is presented in Interest expense, related party on the consolidated statements of operations and comprehensive loss. The amount due to H-D for interest as of December 31, 2025 of $255 thousand is presented in Other long-term liabilities on the consolidated balance sheet. The effective interest rate was 7.64% for the year ended December 31, 2025. The Company remained in compliance with all of the existing covenants as of December 31, 2025. +67 +On August 22, 2025, LiveWire entered into an At-The-Market Issuance Sales Agreement with Mizuho Securities USA LLC, as agent (the “Agent”), under which LiveWire may offer and sell, from time to time at its sole discretion, an aggregate gross sale price of up to $50.0 million of shares of its common stock through the Agent (the “ATM Program”), pursuant to an effective shelf registration statement on Form S-3 (Registration No. 333-289699), which was declared effective by the SEC on August 21, 2025. LiveWire filed a prospectus supplement with the SEC on August 22, 2025 in connection with the ATM Program. There were 448,171 shares of common stock s old under the ATM Program in the year ended December 31, 2025 for an aggregate offering price of $2,213 thousand . Additional sales under this program are subject to market demand, outside of management’s control, and subject to approval by the H-D Board of Directors as we are a controlled company. As described above, the Term Loan requires mandatory prepayment of the principal amount of the Term Loan from the first $10.0 million of net ATM proceeds (as defined in the Term Loan) from the funding of the Term Loan through the Term Loan Maturity Date. +Management continues to assess the Company’s liquidity position and has the flexibility to adjust spending as needed through cost reduction initiatives in order to preserve liquidity. At the same time, the Company continues to explore additional means for raising capital to continue to support ongoing operations and future investments. Additionally, the Company continues to focus on the development of products that are profitable while reducing its use of cash. Based on its current plans and projections, the Company expects that its current resources will be sufficient to fund its ongoing operations and capital expenditure requirements for at least the next twelve months from the issuance date of these consolidated financial statements. The Company will require additional capital in order to continue to finance its operations and execute its business plan before eventually attaining and maintaining profitable operations. The amount and timing of future funding requirements will depend on many factors, including the pace and results of the Company’s product development and sales efforts, as well as timing and size of funds raised under the ATM Program or other financing vehicles. +LiveWire’s material contractual operating cash commitments at December 31, 2025 relate to leases as discussed further in Note 9, Leases, in the consolidated financial statements. LiveWire estimates capital expenditures to be between $3 million and $8 million in 2026. +As a result of the Business Combination completed on September 26, 2022, LiveWire will be subject to certain payments in the event minimum purchase commitments under the Contract Manufacturing Agreement with H-D are not met beginning in the year 2027. The Company also has a liability of $6,080 thousand as of December 31, 2025 thousand for excess inventory components held by H-D that the Company expects to be obligated to reimburse H-D under the terms of the Contract Manufacturing Agreement. Refer to Note 15, Related Party Transactions, for discussion of commitments with H-D. +Cash Flow Activity +The following table presents condensed highlights from our consolidated statements of cash flows for the years ended December 31, 2025 and 2024 (in thousands): +2025 2024 +Net cash used by operating activities $ (53,548) $ (93,859) +Net cash used by investing activities (3,811) (8,068) +Net cash provided (used) by financing activities 75,735 (1,444) +Effect of exchange rate changes on cash and cash equivalents (36) (96) +Net increase (decrease) in cash and cash equivalents $ 18,340 $ (103,467) +The overall increase in cash during the year ended December 31, 2025 was due primarily to an increase in net cash provided by financing activities, offset by a decrease in net cash used by operating activities. The overall decrease in cash during the year ended December 31, 2024 was due primarily to a decrease in net cash used by operating activities. +Operating Activities +The Company had net cash outflow from operating activities during the years ended December 31, 2025 and 2024. Net cash used in operating activities decreased by $40,311 thousand to $53,548 thousand for the year ended December 31, 2025 compared to $93,859 thousand for the year ended December 31, 2024. The decrease in net cash outflow from operating activities in 2025 was primarily driven by a reduction in net loss adjusted for non-cash items and favorable changes in inventory and accounts payable to related party offset by unfavorable changes in accounts receivable from related party and accounts payable and accrued liabilities compared to 2024. +68 +Investing Activities +Net cash used in investing activities decreased by $4,257 thousand to $3,811 thousand for the year ended December 31, 2025 compared to $8,068 thousand for the year ended December 31, 2024. The year ended December 31, 2024 reflected capital expenditures related to the Mulholland and Alpinista models, which did not recur in 2025. +Financing Activities +Net cash provided by financing activities increased by $77,179 thousand to $75,735 thousand for the year ended December 31, 2025 compared to $1,444 thousand net cash used by financing activities for the year ended December 31, 2024. The cash inflow was driven by borrowings under the Term Loan of $75.0 million and net proceeds received from the issuance of common stock in conjunction with the Company’s ATM Program of $1,759 thousand, offset by the repurchase of common stock of $1,024 thousand to satisfy withholding taxes in connection with the vesting of restricted stock for the year ended December 31, 2025. The cash outflow in the prior year is related to the repurchase of common stock of $1,444 thousand to satisfy withholding taxes in connection with the vesting of restricted stock for the year ended December 31, 2024. +Commitments and Contingencies +The Company is subject to lawsuits and other claims related to product, commercial, employee, environmental and other matters. In determining costs to accrue related to these items, the Company carefully analyzes cases and considers the likelihood of adverse judgments or outcomes, as well as the potential range of possible loss. Any amounts accrued for these matters are monitored on an ongoing basis and are updated based on new developments or new information as it becomes available for each matter. Refer to Note 14, Commitments and Contingencies, in the consolidated financial statements for a discussion of the Company's commitments and contingencies. +69 +Other Matters +Critical Accounting Policies and Estimates +LiveWire’s financial statements are based on the selection and application of significant accounting policies, which require management to make significant estimates and assumptions. Management believes that the following are some of the more critical judgment areas in the application of accounting policies that currently affect LiveWire’s financial condition and results of operations. +Revenue Recognition - Revenue from the sale of LiveWire One electric motorcycles, electric balance bikes, electric bikes, as well as parts and accessories and apparel are recorded when control is transferred to the customer, generally at the time of shipment to independent dealers and distributors or at the time of delivery to retail customers. S2 electric motorcycles contain two performance obligations, which is the sale of the electric motorcycle and a stand ready obligation to transfer Firmware Over The Air (“FOTA”) software updates to the electric motorcycle, when-and-if available, to the customer. Revenue on the sale of the S2 electric motorcycle is recorded at a point-in-time when control is transferred to the customer. As the unspecified FOTA software updates to the S2 electric motorcycles are provided when-and-if they become available, revenue related to these updates is recognized ratably over the period the updates will be provided, estimated by management to be five years, commencing when control of the electric motorcycle is transferred to the customer. The standalone selling prices of performance obligations are estimated by considering costs to develop and deliver the good or service, third-party pricing of similar goods or services and other information that may be available. The Company allocates the transaction price among the performance obligations in proportion to the standalone selling price of the Company’s performance obligations. +Goodwill - Goodwill represents the excess of acquisition cost over the fair value of the net assets purchased. Goodwill is tested for impairment, based on financial data related to the reporting unit to which it has been assigned, at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and an impairment loss is recognized for the amount by which the carrying amount exceeds the fair value, limited to the total goodwill allocated to the reporting unit. +For goodwill, the reporting units used in assessing impairment is the same as the Company’s two operating segments and reportable segments as described in Note 16, Reportable Segments and Geographic Information. The Company’s assessment for impairment of goodwill utilized a discounted cash flow analysis and a guideline public company market approach to determine the fair value of the reporting unit for comparison to the corresponding carrying value, and a reconciliation of the Company’s concluded values for each reporting unit to the Company’s market capitalization. The income approach is based on discounted future cash flows and requires significant assumptions, including estimates regarding future revenue, profitability, capital requirements and discount rates. Because the projections are estimated over a significant future period of time, those estimates and assumptions are subject to uncertainty. The market approach is based on market multiples and requires an estimate of appropriate multiples based on market data for comparable companies. The market valuation models, and other financial ratios used by the Company require certain assumptions and estimates regarding the applicability of those models to the Company’s facts and circumstances. During 2025 and 2024, the Company tested its goodwill balances for impairment and no impairment charges were recorded to goodwill as a result of those impairment tests. +Product Warranty and Recalls - LiveWire provides a limited warranty on the new electric motorcycles for a period of two years, except for the battery which is covered for five years. LiveWire also provides limited warranties on parts and accessories, electric balance bikes, and electric bikes. Estimated warranty costs are recorded at the time of sale and are based primarily on historical LiveWire claim and industry information. +Additionally, LiveWire may from time-to-time initiate certain voluntary recall campaigns or field actions. The estimated costs associated with voluntary recalls or field actions are recorded when the liability is both probable and estimable. This generally occurs when LiveWire’s management approves and commits to a recall or field action. The accrued cost of a recall or field action is based on an estimate of the cost to repair each affected vehicle and the number of vehicles expected to be repaired based on historical data concerning the percentage of affected customers that take advantage of recall or field action offers. In the case of both warranty and recall costs, as actual experience becomes available it is used to update the accruals. +The factors affecting actual warranty and recall or field action costs can be volatile. As a result, actual warranty claims experience and recall or field action costs may differ from estimates, which could lead to material changes in our accrued warranty and recall or field actions costs. LiveWire’s warranty and recall or field action liabilities are discussed further in Note 12, Product Warranty and Recall Campaigns, in the consolidated financial statements. +70 +Valuation of Warrant Liabilities - Upon consummation of the Business Combination, the Company assumed 30,499,990 warrants to purchase LiveWire's Common Stock, comprised of 19,999,990 public warrants, originally issued by ABIC as part of its IPO of units (the “Public Warrants”) and 10,500,000 of outstanding warrants originally issued in a private placement in connection with the IPO of ABIC (the “Private Placement Warrants”, collectively with the Public Warrants, the “Warrants”). LiveWire accounts for its Warrants assumed as part of the Business Combination in accordance with the guidance contained in ASC 815-40 under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, LiveWire classifies the Warrants as liabilities at their fair value and adjust the Warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our consolidated statements of operations and comprehensive loss. The fair value of the Public Warrants is determined using the quoted market price as of the valuation date. The fair value of the Private Placement Warrants is determined by using the quoted market price of the Public Warrants as the Private Warrants have terms and provisions that impact the fair value assessment that are economically similar to those of the Public Warrants, including the exercise price, exercisability and exercise period. See Note 10, Warrant Liabilities, in the consolidated financial statements for more information concerning accounting for the Warrant liabilities. +Emerging Growth Company Status +Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable. +LiveWire is an “emerging growth company” as defined in Section 2(a) of the Securities Act and has elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards, although it may decide to early adopt such new or revised accounting standards to the extent permitted by such standards. This may make it difficult or impossible to compare LiveWire’s financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used. +New Accounting Standards Issued But Not Yet Adopted +For a discussion of recent accounting pronouncements, see Note 2, Summary of Significant Accounting Policies, in the consolidated financial statements. +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +As of December 31, 2025, LiveWire’s cash and cash equivalents amounted to $82,777 thousand. LiveWire manages its liquidity risk by effectively managing its working capital, capital expenditures and cash flows. +Financial instruments that potentially subject LiveWire to concentrations of credit risk principally consist of accounts receivable. LiveWire limits its credit risk with respect to accounts receivable by performing credit evaluations and requiring collateral to secure amounts owed to LiveWire by its customers, each when deemed necessary. +Inflationary factors, such as cost increases for logistics, manufacturing, raw materials and purchased components, may adversely affect LiveWire’s operating results. Although LiveWire does not believe inflation has had a material impact on its financial condition given its lower production volumes, a high rate of inflation in the future may have an adverse effect on LiveWire’s ability to maintain and increase its gross margin or decrease its operating expenses as a percentage of its revenues if the selling prices of its products do not increase as much or more than its increase in costs. +LiveWire is also exposed to possible disruption of supply or shortage of materials, including, but not limited to, lithium-ion battery cells and key semiconductor chip components necessary for electric vehicles, and any inability to purchase raw materials and components could negatively impact LiveWire’s operations. +71 +LiveWire sells its electric motorcycles, electric balance bikes, electric bikes and related products internationally, and in most markets, those sales are made in the foreign country’s local currency. As a result, LiveWire’s operating results are affected by fluctuations in the values of the U.S. dollar relative to foreign currencies, however, the impact of such fluctuations on LiveWire’s operations to date are not material given the majority of LiveWire’s sales are currently in the U.S. LiveWire plans to expand its business and operations internationally and expects its exposure to currency rate risk to increase as it grows its international presence. +72 +Item 8. Financial Statements and Supplementary Data +Report of Independent Registered Public Accounting Firm (PCAOB ID: 185 ) +74 +Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) +75 +Consolidated Statements of Operations and Comprehensive Loss +76 +Consolidated Balance Sheets +77 +Consolidated Statements of Cash Flows +78 +Consolidated Statements of Shareholders’ Equity +79 +Notes to Consolidated Financial Statements +80 +1. Description of Business and Basis of Presentation +80 +2. Summary of Significant Accounting Policies +82 +3. Revenue +87 +4. Share-Based Awards +88 +5. Income Taxes +93 +6. Earnings Per Share +96 +7. Additional Balance Sheet Information +96 +8. Goodwill and Intangible Assets +97 +9. Leases +98 +10. Warrant Liabilities +100 +11. Fair Value +101 +12. Product Warranty and Recall Campaigns +102 +13. Employee Benefit Plans +103 +14. Commitments and Contingencies +103 +15. Related Party Transactions +104 +16. Reportable Segments and Geographic Information +108 +17. Restructuring +111 +73 +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To the Shareholders and the Board of Directors +LiveWire Group, Inc.: +Opinion on the Consolidated Financial Statements +We have audited the accompanying consolidated balance sheet of LiveWire Group, Inc. (the Company) as of December 31, 2025, the related consolidated statements of operations and comprehensive loss, shareholders’ equity, and cash flows for the year ended December 31, 2025, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and the results of its operations and its cash flows for the year ended December 31, 2025, in conformity with U.S. generally accepted accounting principles. +Basis for Opinion +These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. +/s/ KPMG LLP +We have served as the Company’s auditor since 2025. +Chicago, Illinois +February 20, 2026 +74 +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To the Shareholders and the Board of Directors of LiveWire Group, Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheet of LiveWire Group, Inc. (the Company) as of December 31, 2024, the related consolidated statements of operations and comprehensive loss, shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2024, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles. +Basis for Opinion +These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ Ernst & Young LLP +We served as the Company’s auditor from 2021 to 2025. +Milwaukee, Wisconsin +February 21, 2025 +75 +LIVEWIRE GROUP, INC. +CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS +(In thousands, except per share amounts) +Years Ended +2025 2024 2023 +Revenue, net $ 25,672 $ 26,633 $ 38,023 +Costs and expenses: +Cost of goods sold (including related party amounts of $ 10,926 , $ 19,533 , and $ 23,433 in 2025, 2024, and 2023, respectively, as described in Note 15) +30,105 39,416 43,795 +Selling, administrative and engineering expense (including related party amounts of $ 5,234 , $ 10,164 , and $ 14,993 in 2025, 2024, and 2023, respectively, as described in Note 15) +71,051 97,573 110,217 +Total operating costs and expenses 101,156 136,989 154,012 +Operating loss ( 75,484 ) ( 110,356 ) ( 115,989 ) +Interest expense, related party ( 255 ) — — +Interest income 1,166 5,704 10,537 +Change in fair value of warrant liabilities ( 352 ) 10,770 ( 4,020 ) +Loss before income taxes ( 74,925 ) ( 93,882 ) ( 109,472 ) +Income tax provision 189 43 78 +Net loss ( 75,114 ) ( 93,925 ) ( 109,550 ) +Other comprehensive loss: +Foreign currency translation adjustments ( 29 ) ( 5 ) 17 +Comprehensive loss $ ( 75,143 ) $ ( 93,930 ) $ ( 109,533 ) +Net loss per share, basic and diluted (Note 6) $ ( 0.37 ) $ ( 0.46 ) $ ( 0.54 ) +The accompanying notes are integral to the consolidated financial statements. +76 +LIVEWIRE GROUP, INC. +CONSOLIDATED BALANCE SHEETS +(In thousands, except par value) +December 31, 2025 December 31, 2024 +ASSETS +Current assets: +Cash and cash equivalents $ 82,777 $ 64,437 +Accounts receivable, net 3,383 3,874 +Accounts receivable from related party 585 399 +Inventories, net 15,255 26,942 +Other current assets 2,887 2,709 +Total current assets 104,887 98,361 +Property, plant and equipment, net 27,556 34,012 +Goodwill 8,327 8,327 +Deferred tax assets 6 7 +Lease assets 823 765 +Intangible assets, net 804 1,058 +Other long-term assets 4,008 5,430 +Total assets $ 146,411 $ 147,960 +LIABILITIES AND SHAREHOLDERS’ EQUITY +Current liabilities: +Accounts payable $ 2,299 $ 1,738 +Accounts payable to related party 6,716 9,762 +Accrued liabilities 12,362 17,960 +Current portion of lease liabilities 496 394 +Current portion of term loan - related party, net 800 — +Total current liabilities 22,673 29,854 +Long-term portion of lease liabilities 246 405 +Deferred tax liabilities 149 118 +Long-term portion of term loan - related party, net 74,183 — +Warrant liabilities 1,901 1,549 +Other long-term liabilities 1,231 919 +Total liabilities 100,383 32,845 +Commitments and contingencies (Note 14) +Shareholders' equity: +Preferred Stock, $ 0.0001 par value; 0 shares authorized; no shares issued and outstanding as of December 31, 2025 and 2024 +— — +Common Stock, $ 0.0001 par value; 800,000 shares authorized; 204,925 shares issued and 204,309 shares outstanding as of December 31, 2025 and 203,787 shares issued and 203,423 shares outstanding as of December 31, 2024 +20 20 +Treasury Stock, at cost: December 31, 2025 - 616 shares, December 31, 2024 - 364 shares +( 4,437 ) ( 3,413 ) +Additional paid-in-capital 351,489 344,409 +Accumulated deficit ( 301,027 ) ( 225,913 ) +Accumulated other comprehensive (loss) income ( 17 ) 12 +Total shareholders' equity 46,028 115,115 +Total liabilities and shareholders' equity $ 146,411 $ 147,960 +The accompanying notes are integral to the consolidated financial statements. +77 +LIVEWIRE GROUP, INC. +CONSOLIDATED STATEMENTS OF CASH FLOWS +(In thousands) +Years Ended +2025 2024 2023 +Cash flows from operating activities: +Net loss $ ( 75,114 ) $ ( 93,925 ) $ ( 109,550 ) +Adjustments to reconcile net loss to net cash used in operating activities +Depreciation and amortization 10,141 10,041 5,832 +Change in fair value of warrant liabilities 352 ( 10,770 ) 4,020 +Stock compensation expense 4,939 4,626 8,926 +Provision for expected credit losses 124 230 53 +Deferred income taxes 32 22 74 +Inventory write-down 3,046 5,750 2,719 +Cloud computing arrangements development costs — ( 45 ) ( 1,312 ) +Interest expense, related party 255 — — +Other, net ( 75 ) ( 244 ) ( 117 ) +Changes in current assets and liabilities: +Accounts receivable, net 535 192 ( 2,023 ) +Accounts receivable from related party ( 186 ) 3,003 ( 2,877 ) +Inventories 8,798 ( 569 ) ( 5,626 ) +Other current assets 629 540 1,621 +Accounts payable and accrued liabilities ( 3,978 ) ( 2,101 ) 160 +Accounts payable to related party ( 3,046 ) ( 10,609 ) 14,638 +Net cash used by operating activities ( 53,548 ) ( 93,859 ) ( 83,462 ) +Cash flows from investing activities: +Capital expenditures ( 3,811 ) ( 8,068 ) ( 13,462 ) +Net cash used by investing activities ( 3,811 ) ( 8,068 ) ( 13,462 ) +Cash flows from financing activities: +Borrowings under term loan - related party (Note 15) 75,000 — — +Gross proceeds from the sale of common stock pursuant to the at-the-market public offering (Note 1) 2,213 — — +Payment of offering costs from the at-the-market public offering (Note 1) ( 454 ) — — +Repurchase of common stock ( 1,024 ) ( 1,444 ) ( 1,969 ) +Proceeds received from exercise of warrants (Note 6) — — 1,557 +Net cash provided (used) by financing activities 75,735 ( 1,444 ) ( 412 ) +Effect of exchange rate changes on cash and cash equivalents $ ( 36 ) $ ( 96 ) $ — +Net increase (decrease) in cash and cash equivalents $ 18,340 $ ( 103,467 ) $ ( 97,336 ) +Cash and cash equivalents: +Cash and cash equivalents—beginning of period $ 64,437 $ 167,904 $ 265,240 +Net increase (decrease) in cash and cash equivalents 18,340 ( 103,467 ) ( 97,336 ) +Cash and cash equivalents—end of period $ 82,777 $ 64,437 $ 167,904 +The accompanying notes are integral to the consolidated financial statements. +78 +LIVEWIRE GROUP, INC. +CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY +(In thousands) +Common Stock Additional +paid-in +capital Accumulated +Deficit Accumulated +other +comprehensive +income (loss) Net Parent company investment Treasury Stock Total +Issued +shares Balance +Balance, December 31, 2022 202,403 $ 20 $ 329,218 $ ( 22,438 ) $ — $ — $ — $ 306,800 +Net loss — — — ( 109,550 ) — — — ( 109,550 ) +Other comprehensive loss, net of tax — — — — 17 — — 17 +Share-based compensation 672 — 8,926 — — — — 8,926 +Shareholder warrants exercised 135 — 1,639 — — — — 1,639 +Repurchase of common stock — — — — — — ( 1,969 ) ( 1,969 ) +Balance, December 31, 2023 203,210 20 339,783 ( 131,988 ) 17 — ( 1,969 ) 205,863 +Net loss — — — ( 93,925 ) — — — ( 93,925 ) +Other comprehensive loss, net of tax — — — — ( 5 ) — — ( 5 ) +Share-based compensation 577 — 4,626 — — — 4,626 +Repurchase of common stock — — — — — — ( 1,444 ) ( 1,444 ) +Balance, December 31, 2024 203,787 20 344,409 ( 225,913 ) 12 — ( 3,413 ) 115,115 +Net loss — — — ( 75,114 ) — — — ( 75,114 ) +Other comprehensive loss, net of tax — — — — ( 29 ) — — ( 29 ) +Share-based compensation 690 — 4,939 — — — 4,939 +Issuance of common stock in at-the-market public offering, net of issuance cost of $ 72 thousand +448 — 2,141 — — — — 2,141 +Repurchase of common stock — — — — — — ( 1,024 ) ( 1,024 ) +Balance, December 31, 2025 204,925 $ 20 $ 351,489 $ ( 301,027 ) $ ( 17 ) $ — $ ( 4,437 ) $ 46,028 +The accompanying notes are integral to the consolidated financial statements. +79 +LIVEWIRE GROUP, INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +1. Description of Business and Basis of Presentation +LiveWire Group, Inc., a Delaware corporation, and its consolidated subsidiaries are referred to in these consolidated financial statements and notes as “we,” “our,” “us,” the “Company,” or “LiveWire.” The Company designs and sells electric motorcycles, electric balance bikes, and electric bikes with related parts, accessories, and apparel. The Company operates in two segments: Electric Motorcycles and STACYC. +LiveWire was a direct, wholly owned subsidiary of AEA-Bridges Impact Corp (“ABIC”), which was originally incorporated as a Cayman Islands exempted company on July 29, 2020 as a special purpose acquisition company (“SPAC”) with the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities. +On September 26, 2022, the Company consummated a previously announced business combination and related financing transactions (collectively the “Business Combination”) pursuant to a business combination agreement, dated as of December 12, 2021 (the “Business Combination Agreement”), by and among AEA-Bridges Impact Corp (“ABIC”), LiveWire Group Inc., (formerly known as LW EV Holdings, Inc.), LW EV Merger Sub, Inc., a Delaware corporation (“Merger Sub”), Harley-Davidson, Inc., a Wisconsin corporation (“H-D”), and LiveWire EV, LLC (“Legacy LiveWire”), a wholly-owned subsidiary of H-D. +Pursuant to the terms of the Business Combination Agreement: (a) on September 23, 2022, ABIC migrated to and domesticated as a Delaware corporation (“Domesticated ABIC”) (the “Domestication”), in connection with which all of the ABIC’s (i) outstanding ordinary shares were converted, on a one -for-one basis, into common stock, par value $ 0.0001 per share, of Domesticated ABIC, (ii) outstanding warrants were converted, on a one -for-one basis, into warrants to acquire one share each of common stock of Domesticated ABIC and (iii) outstanding units were canceled and instead entitle the holder thereof to, per unit, one share of common stock of Domesticated ABIC and one-half of one warrant of Domesticated ABIC; (b) on September 26, 2022, H-D and Legacy LiveWire consummated the separation of the Legacy LiveWire business and the other transactions contemplated by the Separation Agreement (the “Separation Agreement”), by and between H-D and Legacy LiveWire, dated as of September 26, 2022 (the “Separation”); (c) following the Domestication and immediately following the Separation, Merger Sub merged with and into Domesticated ABIC, with Domesticated ABIC surviving as a direct, wholly owned subsidiary of LiveWire (the “Merger”), and LiveWire continuing as the public company in the Merger, with each share of common stock of Domesticated ABIC being converted into the right of the holder thereof to receive one share of common stock, par value $ 0.0001 (“Common Stock”); (d) immediately following the Merger, H-D caused all of the membership interests of Legacy LiveWire (“Legacy LiveWire Equity” ) held by ElectricSoul, LLC (the “Legacy LiveWire Equityholder”), a Delaware limited liability company and a subsidiary of H-D, to be contributed to LiveWire in exchange for 161,000,000 shares of Common Stock and the right to receive up to an additional 12,500,000 shares of Common Stock in the future (the “Earn-Out Shares”, and the transactions contemplated by this clause (d), collectively, the “Exchange”), and as a result of the Exchange, Legacy LiveWire became a direct, wholly owned subsi diary of LiveWire; and (e) immediately following the consummation of the Exchange, LiveWire contributed 100 % of the outstanding equity interests of Legacy LiveWire to Domesticated ABIC (clauses (a) through (e) collectively, the “Business Combination”). +Holders of 36,597,112 of ABIC’s Class A Ordinary Shares sold in its initial public offering (the “Initial Shares”) properly exercised their right to have such shares redeemed for a full pro rata portion of the trust account holding the proceeds from ABIC’s initial public offering, calculated as of two business days prior to the consummation of the Business Combination, which was approximately $ 10.06 per share, or $ 368.1 million in the aggregate. +An aggregate of $ 368.1 million was paid from the ABIC’s trust account to holders who properly exercised their right to have their Initial Shares redeemed, and the remaining balance immediately prior to the Closing of approximately $ 34 million remained in the trust account and was used to fund the Business Combination. +In connection with the Business Combination, the AEA-Bridges Impact Sponsor, LLC, a Cayman Islands limited liability company (the “Sponsor”), forfeited an aggregate of 2,000,000 Class B Ordinary Shares of ABIC in accordance with the Investor Support Agreement, dated as of December 12, 2021 (the “Investor Support Agreement”), by and among the Sponsor, LiveWire, ABIC, John Garcia, John Replogle and George Serafeim. The remaining Class B Ordinary Shares of ABIC held by the Sponsor automatically converted to 7,950,000 shares of Common Stock. +80 +Pursuant to investment agreements entered into in connection with the Business Combination Agreement, Kwang Yang Motor Co., Ltd., KYMCO Capital Fund I Co., Ltd., SunBright Investment Co., Ltd., CycleLoop Co., Ltd. and Kwang Yang Holdings Limited (collectively, “KYMCO Group”) agreed to subscribe for an aggregate of 10,000,000 newly-issued shares of Common Stock at a purchase price of $ 10.00 per share for an aggregate purchase price of $ 100.0 million (the “KYMCO PIPE Investment”). +Pursuant to the Business Combination Agreement, and an investment agreement entered into prior to the Closing, the Legacy LiveWire Equityholder agreed to subscribe for an aggregate of 10,000,000 newly-issued shares of Common Stock at a purchase price of $ 10.00 per share for an aggregate purchase price of $ 100.0 million (the “Legacy LiveWire Equityholder PIPE Investment” and, together with the KYMCO PIPE Investment, the “PIPE Investments”). At the closing of the Business Combination, LiveWire consummated the PIPE Investments. +Pursuant to the Business Combination Agreement, H-D caused the Legacy LiveWire Equityholder to pay and deliver to LiveWire an amount in cash equal to $ 100.0 million, which is the H-D Backstop Amount (as defined in the Business Combination Agreement) in exchange for 10,000,000 shares of Common Stock (the “H-D Backstop Shares”) at a purchase price of $ 10.00 per H-D Backstop Share. Additionally, H-D was reimbursed for $ 20.1 million of transaction costs and advisory fees incurred through a reduction of the proceeds provided. +In summary, the Business Combination resulted in net proceeds of approximately $ 293.7 million, which included: i) $ 100 million PIPE investment from H-D; ii) $ 100 million PIPE investment from KYMCO Group; iii) ABIC’s remaining cash held in trust account and operating cash in aggregate of $ 13.8 million (net of the SPAC share redemption amount of $ 368.1 million and payment of transaction costs incurred by ABIC of $ 20.6 million); and iv) the $ 100 million H-D Backstop Amount pursuant to the terms of the Business Combination Agreement and as a result of public shareholders exercising their redemption rights with respect to 36,597,112 shares of ABIC Class A common stock for $ 368.1 million in the aggregate, at a redemption price of approximately $ 10.06 per share. These proceeds were net of $ 20.1 million of transaction costs and advisory fees incurred by H-D. After giving effect to the business combination, the redemption of ABIC Class A common stock as described above, the issuance of the H-D Backstop Shares and the consummation of the PIPE Investments, were 202,402,888 shares of Common Stock issued and outstanding as of the closing date. The Company also assumed the Public Warrants and Private Warrants upon consummation of the Business Combination. See further detail in Note 10, Warrant Liabilities. +As discussed above, in connection with the Business Combination, H-D has the right to receive up to an additional 12,500,000 shares of the Company's Common stock as Earn-Out Shares upon the occurrence of certain triggering events: (i) a one-time issuance of 6,250,000 Earn Out Shares if the volume-weighted average price (“VWAP”) of Common Stock is greater than or equal to $ 14.00 over any 20 trading days within any 30 consecutive trading day period; and (ii) a one-time issuance of 6,250,000 Earn Out Shares if the VWAP of Common Stock is greater than or equal to $ 18.00 over any 20 trading days within any 30 consecutive trading-day period ((i) and (ii) each, a “Triggering Event”), in each case, during a period beginning 18 months from the Closing Date and expiring five years thereafter (the “Earn Out Period”). +Additionally, if there is a change of control of the Company prior to the expiration of the Earn Out Period that will result in the holders of Common Stock receiving a price per share equal to or in excess of the applicable share price of LiveWire in connection with a Triggering Event, then immediately prior to the consummation of such change of control, any Triggering Event that has not occurred will be deemed to have occurred, LiveWire will issue the applicable Earn Out Shares to H-D and H-D will be eligible to participate in such change of control. +The Business Combination was accounted for as a reverse recapitalization. Under this method of accounting, ABIC was treated as the “acquired” company for financial reporting purposes. The net assets of ABIC were stated at historical cost, with no goodwill or other intangible assets recorded resulting from the Business Combination. +The Company's reportable segments are strategic business units that offer different products and services and are managed separately based on the fundamental differences in their operations. The Electric Motorcycles segment primarily focuses on the designing and selling of electric motorcycles and also sells motorcycle parts, accessories, and apparel. Electric Motorcycles are sold at wholesale to a network of independent dealers and at retail through a Company-owned dealership and through online sales. Prior to November 5, 2024, the Company’s products were sold at retail through selected international partners primarily in Europe. The STACYC segment primarily focuses on the designing and selling of electric balance bikes, electric bikes, and related parts and accessories. The STACYC segment products are sold at wholesale to independent dealers and independent distributors, as well as direct to consumers online. +81 +ATM Program +On August 18, 2025, the Company filed an automatic shelf registration statement on Form S-3 (the “2025 Shelf Registration Statement”) with the SEC registering $ 100.0 million of its common stock, which the SEC declared effective on August 21, 2025. A Prospectus Supplement, inclusive of the 2025 Shelf Registration, was filed and became effective on August 22, 2025 under registration No. 333-289699. The Prospectus Supplement allows the Company to sell, from time to time and at its discretion, common stock having an aggregate offering price of up to $ 50.0 million pursuant to the Company’s At-The-Market Issuance Sales Agreement (“Sales Agreement”), dated as of August 22, 2025, with Mizuho Securities, Inc. (“Mizuho”), as sales agent, under an at-the-market offering program (“ATM Program”). The Sales Agreement stipulates that the Company will pay Mizuho a commission of up to 3.0 % of the gross offering proceeds of any shares of common stock sold to or through Mizuho pursuant to the Sales Agreement. The Company is required to repay up to $ 10.0 million of the amount borrowed under the Amended and Restated Delayed Draw Term Loan Agreement (the “Term Loan”) from net proceeds from sales of common stock issued under the ATM Program as described in Note 15. The Company intends to use the remainder of the net proceeds from sales of common stock issued under the ATM Program for general corporate purposes, including working capital and capital expenditures, potential future investments. The timing of any sales and the number of shares sold will depend on a variety of factors to be determined and considered by the Company. The Company is not obligated to sell any shares under the Sales Agreement. +There were 448,171 shares of common stock sold under the ATM Program in the year ended December 31, 2025 for an aggregate offering price of $ 2,213 thousand. Total offering costs and commissions related to the ATM Program for the year ended December 31, 2025 were $ 454 thousand, of which $ 72 thousand were offset against Additional-paid-in-capital. The remaining $ 382 thousand of unamortized issuance costs related to the ATM Program are included in Other current assets on the consolidated balance sheet and will be offset against Additional paid-in-capital on a ratable basis as additional proceeds are received under the ATM Program. Additionally, there were $ 86 thousand in expenses associated with maintaining the ATM Program included in Selling, administrative and engineering on the consolidated statements of operations and comprehensive loss for the year ended December 31, 2025. At December 31, 2025, $ 47.8 million in capacity remained available under the ATM Program. +Basis of Presentation +These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) on the going concern basis of accounting and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). +As of December 31, 2025, the Company had a cash balance of $ 82.8 million. As discussed above, the Company initiated an ATM Program on August 22, 2025, which allows the Company to sell, from time to time and at its discretion, common stock having an aggregate offering price of up to $ 50.0 million. Through December 31, 2025, the Company raised net proceeds of $ 1.7 million under this program. Additional sales under this program are subject to market demand, outside of management’s control, and subject to approval by the H-D Board of Directors as we are a controlled company. As described in Note 15, the Term Loan requires mandatory prepayment of the principal amount of the Term Loan from the first $ 10.0 million of net ATM proceeds (as defined in the Term Loan) from the funding of the Term Loan through the Term Loan Maturity Date. +Management continues to assess the Company’s liquidity position and has the flexibility to adjust spending as needed through cost reduction initiatives in order to preserve liquidity. At the same time, the Company continues to explore additional means for raising capital to continue to support ongoing operations and future investments. Additionally, the Company continues to focus on the development of products that are profitable while reducing its use of cash. Based on its current plans and projections, the Company expects that its current resources will be sufficient to fund its ongoing operations and capital expenditure requirements for at least the next twelve months from the issuance date of these consolidated financial statements. The Company will require additional capital in order to continue to finance its operations and execute its business plan before eventually attaining and maintaining profitable operations. The amount and timing of future funding requirements will depend on many factors, including the pace and results of the Company’s product development and sales efforts, as well as timing and size of funds raised under the ATM Program or other possible financing vehicles. +82 +2. Summary of Significant Accounting Policies +Principles of Consolidation – The consolidated financial statements include the accounts of LiveWire Group, Inc. and its subsidiaries, all of which are wholly-owned. All intercompany accounts and material intercompany transactions have been eliminated. +Foreign Currency - The Company’s international subsidiaries use their respective local currency as their functional currency. Assets and liabilities of international subsidiaries have been translated at period-end exchange rates, and revenues and expenses have been translated using average exchange rates for the period. Monetary assets and liabilities denominated in a currency that is different from an entity's functional currency are remeasured from the transactional currency to the entity's functional currency on a monthly basis. The aggregate transaction gains and losses resulting from foreign currency remeasurements was $ 321 thousand gain, $ 206 thousand loss, and $ 97 thousand loss for the years ended December 31, 2025, 2024 and 2023, respectively. +Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ from those estimates. +Cash and Cash Equivalents – The Company considers all highly liquid investments with a maturity of 90 days or less when purchased to be cash equivalents. +Concentrations of Credit Risk – Financial instruments that potentially subject the Company t o concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company limits its credit risk with respect to cash by maintaining cash and cash equivalents with high quality financial institutions. At times, the Company’s cash and cash equivalents may exceed federally insured limits. We perform periodic credit evaluations of our customers’ financial condition and generally do not require collateral. No single customer or customer group represented 10% or greater of net accounts receivable at December 31, 2025 and 2024. +Accounts Receivable, net – Accounts receivable primarily relate to sales of electric balance bikes and electric bikes to independent dealers and independent distributors, electric motorcycle sales to non-H-D dealers in the United States, and electric motorcycle sales in Europe, and are presented in Accounts receivable, net on the consolidated balance sheets. Payment terms from these customers range from 30 days to 364 days. The Company has elected the practical expedient available under ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) that allows entities to not adjust the promised amount of consideration for the effects of a significant financing component if the entity expects, at contract inception, that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. +All sales of electric motorcycles and related products to independent H-D dealers in the U.S. and Canada are financed by the purchasing independent H-D dealers through Harley-Davidson Financial Services, Inc. (“HDFS”), a wholly owned subsidiary of H-D. Sales to online and retail customers may also be financed by HDFS. Amounts financed through HDFS, not yet remitted to the Company by HDFS, are generally settled within 30 days. Accounts receivable related to these sales are recorded in Accounts receivable from related party on the consolidated balance sheets. +The provision for expected credit losses deducted from total accounts receivable was $ 214 thousand and $ 302 thousand as of December 31, 2025 and 2024, respectively. The Company’s evaluation of the provision for expected credit losses includes a review to identify non-performing accounts which are evaluated individually. The remaining accounts receivable balances are evaluated in the aggregate based on an aging analysis. The provision for expected credit losses is based on factors including past loss experience, the value of collateral, and if applicable, reasonable and supportable economic forecasts. Accounts receivables are written down once management determines that the specific customer does not have the ability to repay the balance in full. +Inventories, net – Total inventories are valued at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method for electric motorcycles and related products and average costing method for electric balance bikes and electric bikes. The Company’s determination of net realizable value considers the impact of sales incentives and excess and obsolete inventory based upon an assessment of historical trends, current market conditions and forecasted product demand. +83 +Property, Plant and Equipment, net – Property, plant and equipment is recorded at cost, net of accumulated depreciation and amortization. Depreciation is determined using the straight-line method over the estimated useful lives of the assets. The estimated useful lives of each class of property, plant and equipment generally consist of 7 years for leasehold improvements, 5 to 10 years for machinery and equipment, and 3 to 7 years for tooling and software. +Goodwill – Goodwill represents the excess of acquisition cost over the fair value of the net assets purchased. Goodwill is tested for impairment, based on financial data related to the reporting unit to which it has been assigned, at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and an impairment loss is recognized for the amount by which the carrying amount exceeds the fair value, limited to the total goodwill allocated to the reporting unit. During 2025 and 2024, the Company tested its goodwill balances for impairment and no impairment charges were recorded to goodwill as a result of those impairment tests. +Intangible Assets – Intangible assets are comprised of trademarks, patents, distributor relationships, and non-compete agreements. Intangible assets are amortized over their useful lives in a manner that reflects the pattern in which the economic benefit of the intangible assets is consumed. Intangible assets are assessed for impairment when a triggering event occurs. +Cloud Computing Arrangements – The Company incurs costs to implement cloud computing arrangements that are hosted by a third party vendor. Implementation costs incurred during the application development stage are capitalized and amortized over the term of the hosting arrangement on a straight-line basis. The Company capitalized zero , $ 45 thousand, and $ 1,312 thousand of costs during the years ended December 31, 2025, 2024, and 2023, respectively, to implement cloud computing arrangements. Capitalized cloud computing arrangement costs are included within Other long-term assets on the consolidated balance sheets. Amortization expense totaled $ 1,005 thousand, $ 957 thousand, and $ 839 thousand for the years ended December 31, 2025, 2024, and 2023, respectively, and is presented within Selling, administrative and engineering expense on the consolidated statements of operations and comprehensive loss. +Impairment of Long-Lived Assets – The Company periodically evaluates the carrying value of long-lived assets, which consist of property, plant and equipment, intangible assets, and cloud computing arrangements, to be held and used when events and circumstances indicate the carrying amount may not be recoverable. Such events and circumstances include significant decreases in the market price for similar assets, significant adverse changes to the extent and manner in which the asset is used, an adverse change in legal factors or business climate, an accumulation of costs that exceed the estimated cost to acquire or develop a similar asset, and continuing losses that exceed forecasted costs. When the carrying value of a long-lived asset is not recoverable based on the existence of one or more of the above indicators, recoverability is determined by comparing the carrying amount of the asset to net future undiscounted cash flows that the asset is expected to generate. An impairment charge would then be recognized equal to the amount by which the carrying amount exceeds the fair value of the asset. The Company also reviews the useful life of its long-lived assets when events and circumstances indicate that the actual useful life may be shorter than originally estimated. In the event the actual useful life is deemed to be shorter than the original useful life, depreciation or amortization is adjusted prospectively so that the remaining book value is depreciated or amortized over the revised useful life. +Research and Development Expenses – Expenditures for research activities relating to product development are charged against income as incurred. Research and development expenses were $ 23,894 thousand, $ 41,742 thousand and $ 54,070 thousand for the years ended December 31, 2025, 2024 and 2023, respectively, and presented within Selling, administrative and engineering expense on the consolidated statements of operations and comprehensive loss. +Advertising Costs – The Company expenses the production cost of advertising the first time the advertising takes place within Selling, administrative and engineering expense on the consolidated statements of operations and comprehensive loss. Advertising costs relate to the Company’s efforts to promote its products and brands through the use of media and other means. During the years ended December 31, 2025, 2024 and 2023, the Company incurred $ 4,235 thousand, $ 5,226 thousand and $ 4,671 thousand in advertising costs, respectively. +84 +Income Taxes – LiveWire’s income taxes as presented are calculated on a separate tax return basis. LiveWire’s U.S. operations have historically been and continue to be included in H-D’s U.S. federal and state tax returns. LiveWire’s non-U.S. entities file corporate income tax returns in their respective jurisdictions. LiveWire accounts for income taxes in accordance with Accounting Standards Codification (“ASC”) Topic 740, Income Taxes (“ASC740”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and other loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. LiveWire reviews its deferred income tax asset valuation allowances on a quarterly basis or whenever events or changes in circumstances indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or combined group recording the net deferred income tax asset is considered, along with any positive or negative evidence including tax law changes. Since future financial results and tax law may differ from previous estimates, periodic adjustments to LiveWire’s valuation allowances may be necessary. LiveWire has generated operating losses in each of the years presented, however, any hypothetical net operating loss attributes generated (and related valuation allowances) utilized by H-D are not recorded on the balance sheet. +Warrant Liabilities - The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued share purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to the Financial Accounting Standards Board (“FASB”) ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC Topic 815, Derivatives and Hedging (“ASC 815”). The Company accounts for the Public Warrants and Private Placement Warrants, both further described in Note 10, Warrants Liabilities , in accordance with the guidance contained in ASC 815 under which the Public and Private Warrants (collectively, the “Warrants”) do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the Warrants as liabilities at their fair value and adjusts the Warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the consolidated statements of operations and comprehensive loss. +New Accounting Standards +Accounting Standards Adopted in 2025 +In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which is intended to enhance the transparency and decision usefulness of income tax disclosures. The main provisions of ASU 2023-09 require a public entity to disclose on an annual basis (i) specific prescribed categories in the rate reconciliation, (ii) additional information for reconciling items that meet a quantitative threshold, (iii) the amount of income taxes paid, net of refunds received, disaggregated by federal, state, and foreign taxes, (iv) the amount of income taxes paid, net of refunds received, disaggregated by individual jurisdictions in which income taxes paid is equal to greater than 5 percent of total income taxes paid, (v) income or loss from continuing operations before income tax expense or benefit disaggregated between domestic and foreign, and (vi) income tax expense or benefit from continuing operations disaggregated by federal, state, and foreign. ASU 2023-09 also removes certain disclosure requirements related to unrecognized tax benefits and cumulative unrecognized temporary differences. The new guidance is effective for the fiscal years beginning after December 15, 2024. The Company adopted this guidance as of January 1, 2025, which resulted in additional disclosures in Note 5 Income Taxes related to the items described above. The guidance will be applied prospectively. +85 +Accounting Standards Not Yet Adopted +In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40), which is intended to improve the disclosures about a public business entity's expenses and provide more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions (such as cost of goods sold and selling, administrative and engineering expense). The main provisions of ASU 2024-03 require a public entity at each interim and annual reporting period to (i) disclose the amounts of purchases of inventory, employee compensation, depreciation, intangible asset amortization, and depletion included in each relevant expense caption presented on the face of the income statement within continuing operations, (ii) include certain amounts that are already required to be disclosed under current generally accepted accounting principles in the same disclosure as the other disaggregation requirements, (iii) disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively, and (iv) disclose the total amount of selling expenses and, in annual reporting periods, an entity's definition of selling expenses. In January 2025, the FASB issued ASU No. 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40) Clarifying the Effective Date, which is intended to clarify the effective date of ASU No. 2024-03. As clarified in ASU 2025-01, the new guidance is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is still evaluating the impact ASU 2024-03 will have on the Company's consolidated financial statement disclosures. +In July 2025, the FASB issued ASU No. 2025-05, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which is intended to reduce complexity related to estimating expected credit losses for current accounts receivable and current contract asset balances accounted for under Topic 606. The main provisions of ASU 2025-05 provide (i) a practical expedient that allows all entities to assume that conditions as of the balance sheet date will not change for the remaining life of the asset when developing reasonable and supportable forecasts as part of estimating expected credit losses accounted for under Topic 606 and (ii) an accounting policy election available to entities other than public business entities which allows such entities that elect the practical expedient to consider collection activity after the balance sheet date when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606. The new guidance is effective for the fiscal years beginning after December 15, 2025. Early adoption is permitted in both interim and annual reporting periods. If elected, the amendments in ASU 2025-05 should be applied prospectively. The adoption of ASU 2025-05 is not expected to have a material impact on the consolidated financial statements. +In September 2025, the FASB issued ASU No. 2025-06, Intangibles – Goodwill and Other Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which is intended to modernize the accounting for internal-use software costs. The main provisions of ASU 2025-06 remove all references to prescriptive and sequential software development stages and require capitalization of software costs when both (i) management has authorized and committed to funding the software project and (ii) it is probable the project will be completed and the software will be used to perform the function intended (the “probable-to-complete recognition threshold”). In evaluating the probable-to-complete recognition threshold, consideration is given to whether there is significant uncertainty associated with the development activities of the software (“significant development uncertainty”). Significant development uncertainty considers whether (i) the software being developed has technological innovations or novel, unique, or unproven functions or features, and the uncertainty related to those technological innovations, functions, or features, if identified, that have not been resolved through coding and testing and (ii) a determination has been made regarding what the software needs to do (for example, functions or features), including whether the software’s significant performance requirements have been identified or are being substantially revised. The new guidance is effective for annual reporting periods beginning after December 15, 2027, including interim periods within those annual periods. Early adoption is permitted at the beginning of an annual reporting period. Entities may apply the guidance using one of three transition approaches: prospective, modified, or retrospective. The prospective approach applies the new guidance to software costs incurred from the adoption date forward. The modified approach also applies prospectively but requires derecognition of certain in-process project costs through a cumulative-effect adjustment to retained earnings. The retrospective approach involves restating prior periods and adjusting retained earnings at the beginning of the first period presented. The Company is still evaluating the impact ASU 2025-06 will have on its consolidated financial statements and related disclosures. +86 +In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements, which is intended to improve the navigability of the required interim disclosures and clarify when the guidance is applicable. The amendments also provide additional guidance on what disclosures should be provided in interim reporting periods. The amendments add to Topic 270 a principle that requires entities to disclose events since the end of the last annual reporting period that have a material impact on the entity. The Board does not intend to change the fundamental nature of interim reporting or expand or reduce current interim disclosure requirements, which were determined by prior Boards when the disclosure requirements were initially issued. Rather, the objective of the amendments is to provide clarity on the current interim reporting requirements. The new guidance is effective for the fiscal years beginning after December 15, 2027. Early adoption is permitted in both interim and annual reporting periods. If elected, the amendments in ASU 2025-11 may be applied prospectively or retrospectively. The Company is still evaluating the impact ASU 2025-06 will have on its consolidated financial statements and related disclosures. +3. Revenue +The Company recognizes revenue when it satisfies a performance obligation by transferring control of a good or service to a customer. Revenue is measured based on the consideration that the Company expects to be entitled to in exchange for the goods or services transferred. Taxes that are collected from a customer concurrent with revenue-producing activities are excluded from revenue. +Disaggregated revenue, net by major source was as follows for the years ended December 31, (in thousands): +2025 2024 2023 +Electric Motorcycles +Electric motorcycles $ 4,691 $ 7,644 $ 11,087 +Parts, accessories and apparel 1,373 737 461 +$ 6,064 $ 8,381 $ 11,548 +STACYC +Electric balance bikes and electric bikes $ 15,808 $ 14,043 $ 22,865 +Parts, accessories and apparel 3,800 4,209 3,610 +$ 19,608 $ 18,252 $ 26,475 +Total Revenue, net $ 25,672 $ 26,633 $ 38,023 +Revenue from the sale of LiveWire One electric motorcycles, electric balance bikes, electric bikes, as well as parts and accessories and apparel are recorded when control is transferred to the customer, generally at the time of shipment to independent dealers and distributors or at the time of delivery to retail customers. In March 2025, STACYC launched an adult pedal assist electric bike (“electric bike”) that can operate with or without a battery. Currently, the electric bike is only sold with batteries and revenue related to both performance obligations is recognized when control is transferred to the customer, as discussed above. S2 electric motorcycles, being motorcycles produced from LiveWire’s S2 platform using the Arrow Architecture model, contain two performance obligations, which is the sale of the electric motorcycle and a stand ready obligation to transfer Firmware Over The Air (“FOTA”) software updates to the electric motorcycle, when-and-if available, to the customer. Revenue on the sale of the S2 electric motorcycles is recorded at a point-in-time when control is transferred to the customer. As the unspecified FOTA software updates to S2 electric motorcycles are provided when-and-if they become available, revenue related to these updates is recognized ratably over the period the updates will be provided, estimated by management to be five years , commencing when control of the electric motorcycle is transferred to the customer. The standalone selling prices of performance obligations are estimated by considering costs to develop and deliver the good or service, third-party pricing of similar goods or services and other information that may be available. The Company allocates the transaction price among the performance obligations in proportion to the standalone selling price of the Company’s performance obligations. +The Company offers sales incentive programs to independent dealers, distributors and retail customers designed to promote the sale of its products. The Company estimates its variable consideration related to its sales incentive programs using the expected value method. The Company accounts for consideration payable as part of its sales incentives as a reduction of revenue, which is accrued at the later of the date the related sale is recorded or the date the incentive program is both approved and communicated. Variable consideration related to sales incentives and rights to return is adjusted at the earliest of when the amount of consideration the Company expects to receive changes, or the consideration becomes fixed. +87 +During the first quarter of 2024, the Company revised its retail partner strategy in the Electric Motorcycles segment and introduced new incentives with its retail partners. During the third quarter of 2024, the Company introduced additional incentives. As a result of the incentives in 2024, for the year ended December 31, 2024, the Company recorded $ 848 thousand of adjustments for variable consideration related to previously recognized sale. Adjustments for variable consideration related to previously recognized sales was not material for the year ended December 31, 2023. +In July 2025, the Company announced a new retail partner incentive program effective through December 31, 2025. In August 2025, the Company announced the “Twist & Go Promotion” offering temporary incentives from August 28, 2025 to October 31, 2025 on S2 electric motorcycles. In late October 2025, the Company approved and subsequently announced the extension of the Twist & Go Promotion through December 15, 2025. As a result of these incentives in 2025, for the year ended December 31, 2025, the Company recorded $ 987 thousand of adjustments for variable consideration related to previously recognized sales. +The Company offers the right to return eligible parts and accessories and apparel, electric balance bikes, electric bikes, and, in limited circumstances, on electric motorcycles. The Company estimates returns based on an analysis of historical trends and probability of returns and records revenue on the initial sale only in the amount that it expects to be entitled. The remaining consideration is deferred in a refund liability account. The refund liability is remeasured for changes in estimate at each reporting date with a corresponding adjustment to revenue. The Company records a refund asset at the carrying amount of the goods at the time of sale, less any expected costs to recover the goods and any expected reduction in value as a reduction to Cost of goods sold. This amount is monitored and adjusted for any impairment as necessary. The refund asset of $ 298 thousand and $ 377 thousand were included in Other current assets as of December 31, 2025 and 2024, respectively, and $ 326 thousand and $ 154 thousand of the refund liability were included in Accrued liabilities as of December 31, 2025 and 2024, respectively, in the Company’s consolidated balance sheets. The remainder of the refund liability as of December 31, 2024 of $ 252 thousand was recorded as an offset to Accounts payable to related party, in the Company’s consolidated balance sheets, as this amount was repaid to Harley-Davidson Financial Services (“HDFS”), a wholly-owned subsidiary of H-D. +Shipping and handling costs associated with freight after control of a product has transferred to a customer are accounted for as fulfillment costs in Cost of goods sold. The Company accrues for the shipping and handling in the same period that the related revenue is recognized. +The Company offers standard, limited warranties on its electric motorcycles, electric balance bikes, electric bikes, and parts and accessories. These warranties provide assurance that the product will function as expected and are not separate performance obligations. The Company accounts for estimated warranty costs as a liability when control of the product transfers to the customer. +Contract Liabilities +The Company maintains certain contract liability balances related to payments received at contract inception in advance of the Company’s performance under the contract that generally relates to customer deposits for electric balance bikes, electric bikes, and electric motorcycles and consideration received upon transfer of control of the S2 motorcycles for FOTA software updates. Contract liabilities are recognized as revenue once the Company performs under the contract. The current portion of contract liabilities of $ 662 thousand and $ 174 thousand were included in Accrued liabilities and the long-term portion of contract liabilities of $ 410 thousand and $ 393 thousand were included in Other long-term liabilities in the Company's consolidated balance sheets as of December 31, 2025 and December 31, 2024, respectively. The Company expects to recognize $ 410 thousand included in Other long-term liabilities over the next five years . +Previously deferred revenue recognized as revenue in 2025 and 2024 was $ 122 thousand and $ 125 thousand, respectively. +4. Share-Based Awards +LiveWire Share-Based Awards +Our long-term incentive plans provide for the grant of various forms of share-based awards to our directors, officers and other eligible employees under which our Board of Directors may grant to employees share-based awards including restricted stock units and performance share units. A maximum of 29,293,509 shares were authorized for awards under the long-term incentive plans. +88 +The Company recognizes the cost of its share-based awards in the consolidated statements of operations and comprehensive loss. The cost of each share-based equity award is based on the grant date fair value and the cost of each share-based cash-settled award is based on the settlement date fair value. Share-based award expense is recognized on a straight-line basis over the service or performance periods of each separately vesting tranche within the awards. Forfeitures are recognized as incurred. The expense recognized reflects the number of awards that are ultimately expected to vest based on the service and, if applicable, performance requirements of each award. Total compensation expense related to LiveWire share-based awards was $ 4,951 thousand, $ 4,519 thousand, and $ 9,378 thousand for the years ended December 31, 2025, 2024, and 2023, respectively. +See separate discussion below related to historical H-D Share-Based Awards for description of awards and related expense. +Restricted Stock Units - Settled in Stock and Cash +Certain directors, executive officers and other eligible employees have been granted time-based restricted stock units (the “Time-Based RSUs”) and performance-based restricted stock units (the “Performance RSUs,” collectively with the Time-Based RSUs, the “RSUs”). The Time-Based RSUs generally vest ratably over a three-year period, starting on the anniversary date of the grant. Time-Based RSUs for directors vest over a one -year period. +The Company recognized $ 5,578 thousand, $ 5,588 thousand and $ 7,305 thousand for the years ended December 31, 2025, 2024, and 2023, respectively, in share-based compensation expense related to the Time-Based RSUs. +During the year ended December 31, 2022, the Company granted Performance RSUs to certain executive officers and other eligible employees that vested at the end of a three-year performance period on December 2, 2025 contingent on the achievement of certain total shareholder return performance (“TSR”) targets during the performance period. The grant date fair value of the Performance RSUs was estimated using a Monte-Carlo simulation. On December 2, 2025, based on the actual TSR performance against the targets, 5,050 shares vested and 46,476 shares were forfeited. The Company recognized a reduction in expense of $ 627 thousand and $ 1,069 thousand for the years ended December 31, 2025 and 2024, respectively, and recognized $ 2,073 thousand of share-based compensation expense for the year ended December 31, 2023 for the Performance RSUs. The reduction in expense in the years ended December 31, 2025 and 2024 is a result of the impact of forfeitures of $ 967 thousand and $ 2,150 thousand, respectively, related to employees who terminated during the years. There were no Performance RSUs granted in the years ended December 31, 2025 and 2024. +Restricted Stock Units - Settled in Stock – The fair value of the Time-Based RSUs settled in stock is determined based on the market price of the Company’s stock on the grant date. The Performance RSUs settled in stock granted in 2022 contain TSR market conditions. The Company estimated the fair value of the TSR component using a Monte Carlo simulation. Expected volatility is calculated using the historical volatility of public companies similar to LiveWire Group, Inc. The risk-free rate for periods within the contractual life of the grant is based on the U.S. Treasury rates at the time of grant. +Assumptions used to calculate the grant date fair value of the performance shares granted during 2022 were as follows: +December 2022 +Expected volatility 76.76 % +Risk-free interest rate 3.89 % +The activity for these awards for the year ended December 31, 2025 was as follows (in thousands, expect for per share amounts): +Time-Based +RSUs Performance RSUs Total +RSUs Weighted-Average Grant Date Fair Value Per Share +Nonvested, beginning of period 1,205 172 1,377 $ 8.39 +Granted 2,755 — 2,755 $ 2.14 +Vested ( 676 ) ( 5 ) ( 681 ) $ 7.27 +Forfeited ( 606 ) ( 167 ) ( 773 ) $ 4.83 +Nonvested, end of period 2,678 — 2,678 $ 3.28 +89 +The activity for these awards for the year ended December 31, 2024 was as follows (in thousands, expect for per share amounts): +Time-Based +RSUs Performance RSUs Total +RSUs Weighted-Average Grant Date Fair Value Per Share +Nonvested, beginning of period 1,992 625 2,617 $ 7.56 +Granted 912 — 912 $ 8.59 +Vested ( 687 ) — ( 687 ) $ 7.64 +Forfeited ( 1,012 ) ( 453 ) ( 1,465 ) $ 8.08 +Nonvested, end of period 1,205 172 1,377 $ 8.39 +The activity for these awards for the year ended December 31, 2023 was as follows (in thousands, expect for per share amounts): +Time-Based +RSUs Performance RSUs Total +RSUs Weighted-Average Grant Date Fair Value Per Share +Nonvested, beginning of period 1,870 625 2,495 $ 7.34 +Granted 1,080 — 1,080 $ 8.17 +Vested ( 697 ) — ( 697 ) $ 6.91 +Forfeited ( 261 ) — ( 261 ) $ 6.98 +Nonvested, end of period 1,992 625 2,617 $ 7.56 +As of December 31, 2025, there was $ 5,301 thousand of unrecognized compensation cost related to RSUs settled in stock that is expected to be recognized over a weighted-average period of 1.69 years. +Restricted Stock Units - Settled in Cash – The current portion of Time-Based RSUs and Performance RSUs settled in cash are recorded in Accrued liabilities and the long-term portion is recorded in Other long-term liabilities in the consolidated balance sheets until vested. The fair value is determined based on the market price of the Company’s stock and is remeasured at each balance sheet date. +The activity for these awards for the year ended December 31, 2025 was as follows (in thousands, except for per share amounts): +Time-Based +RSUs Performance RSUs Total +RSUs Weighted-Average Grant Date Fair Value Per Share +Nonvested, beginning of period 19 — 19 $ 7.61 +Granted — — — $ — +Vested ( 8 ) — ( 8 ) $ 7.29 +Forfeited ( 7 ) — ( 7 ) $ 7.56 +Nonvested, end of period 4 — 4 $ 8.39 +The activity for these awards for the year ended December 31, 2024 was as follows (in thousands, except for per share amounts): +Time-Based +RSUs Performance RSUs Total +RSUs Weighted-Average Grant Date Fair Value Per Share +Nonvested, beginning of period 71 24 95 $ 7.01 +Granted 18 — 18 $ 8.91 +Vested ( 18 ) — ( 18 ) $ 7.10 +Forfeited ( 52 ) ( 24 ) ( 76 ) $ 7.29 +Nonvested, end of period 19 — 19 $ 7.61 +90 +The activity for these awards for the year ended December 31, 2023 was as follows (in thousands, expect for per share amounts): +Time-Based +RSUs Performance RSUs Total +RSUs Weighted-Average Grant Date Fair Value Per Share +Nonvested, beginning of period 64 24 88 $ 7.52 +Granted 28 — 28 $ 7.31 +Vested ( 21 ) — ( 21 ) $ 6.88 +Forfeited — — — $ — +Nonvested, end of period 71 24 95 $ 7.01 +During the year ended December 31, 2025, there were cash payments of $ 24 thousand related to these awards. As of December 31, 2025, there was $ 7 thousand of unrecognized compensation cost related to RSUs settled in cash that is expected to be recognized over a weighted-average period of 0.98 years. +Historical H-D Share-Based Awards +Prior to consummation of the Business Combination, certain employees of the Company participated in H-D’s share-based compensation plan under which H-D’s Board of Directors may grant to employees share-based awards, including RSUs and performance shares. Prior to consummation of the Business Combination, as employees transferred from H-D to the Company, any outstanding share-based awards previously granted have been retained by the employees and have been transferred to the Company. Share-based compensation included in the consolidated statements of operations and comprehensive loss includes expense attributable to the Company based on the awards and terms previously granted to the Company’s employees. Total share-based award compensation expense recognized by the Company for the Historical H-D Share-Based Awards for the years ended December 31, 2025, 2024 and 2023 was $ 6 thousand, $ 386 thousand and $ 1,119 thousand, respectively. +During 2022, the Company elected to cancel and convert outstanding RSUs held by 91 of the Company's employees into the right to receive cash payments (each, an “RSU Payment”) on the date which the RSU award would otherwise become vested in accordance with the vesting schedule applied to such award immediately prior to cancellation of the award. As of December 31, 2025 and 2024, the accrued liability for the cash awards was $ 36 thousand and $ 271 thousand, respectively. +Each RSU Payment is a liability-classified award, which will (i) be in amount equal to (x) the number of shares of H-D's common stock subject to such RSU award that would have otherwise become vested on the applicable RSU vesting date in accordance with the applicable RSU vesting schedule, multiplied by (y) the closing trading price of a share of H-D's common stock on such RSU vesting date and (ii) be paid to the applicable employee of the Company on or within 30 days following the applicable RSU vesting date, subject to and conditioned upon such employee's continued employment or service as applicable, to the Company through the applicable vesting date. +The activity for these awards for the year ended December 31, 2025 was as follows (in thousands, except for per share amounts): +Shares & Units Weighted-Average Fair Value Per Share +Nonvested, beginning of period 12 $ 42 +Awards transferred to cash payment — $ — +Granted — $ — +Vested ( 9 ) $ 42 +Forfeited — $ — +Nonvested, end of period 3 $ 40 +During the year ended December 31, 2025, there were $ 241 thousand of cash payments related to these awards. As of December 31, 2025, there was $ 56 thousand of unrecognized compensation cost related to liability-classified awards that is expected to be recognized over a weighted-average period of 0.92 years. +91 +The activity for these awards for the year ended December 31, 2024 was as follows (in thousands, except for per share amounts): +Shares & Units Weighted-Average Fair Value Per Share +Nonvested, beginning of period 28 $ 37 +Awards transferred to cash payment 19 $ 41 +Granted — $ — +Vested ( 29 ) $ 40 +Forfeited ( 6 ) $ 43 +Nonvested, end of period 12 $ 42 +The activity for these awards for the year ended December 31, 2023 was as follows (in thousands, except for per share amounts): +Shares & Units Weighted-Average Fair Value Per Share +Nonvested, beginning of period 73 $ — +Granted — $ — +Vested ( 40 ) $ 38 +Forfeited ( 5 ) $ 36 +Nonvested, end of period 28 $ 37 +The total income tax benefit associated with share-based compensation recorded in the Company's consolidated statements of operations and comprehensive loss was $ 1,686 thousand, $ 1,062 thousand, and $ 2,201 thousand before valuation allowance impact for the years ended December 31, 2025, 2024, and 2023, respectively. +Treasury Stock +The Company retained $ 1,024 thousand, or 252 thousand shares of common stock, $ 1,444 thousand, or 184 thousand shares of common stock, and $ 1,969 thousand, or 180 thousand shares of common stock, to satisfy withholding taxes in connection with the vesting of restricted stock units during the years ended December 31, 2025, 2024, and 2023, respectively. These retained shares were recorded at cost as Treasury Stock. +92 +5. Income Taxes +The income tax provision has been calculated using the separate return method, which is meant to reflect how taxes would have been recorded, had the Company filed its own tax return. +The income tax provision for the years ended December 31, consists of the following (in thousands): +2025 2024 2023 +Current: +Federal $ — $ — $ 3 +State — — ( 10 ) +Foreign 157 21 11 +Current income tax provision $ 157 $ 21 $ 4 +Deferred: +Federal $ 32 $ 26 $ 78 +State 4 5 — +Foreign ( 4 ) ( 9 ) ( 4 ) +Deferred income tax provision 32 22 74 +Total income tax provision $ 189 $ 43 $ 78 +The components of loss before income taxes for the years ended December 31, were as follows (in thousands): +2025 2024 2023 +Domestic $ ( 75,576 ) $ ( 93,909 ) $ ( 109,491 ) +Foreign 651 27 19 +Loss before income taxes $ ( 74,925 ) $ ( 93,882 ) $ ( 109,472 ) +The table below provides the updated requirements of ASU 2023-09 for 2025. See Note 2, Summary of Significant Accounting Policies — Accounting Standards Adopted in 2025 for additional details on the adoption of ASU 2023-09. The Company has adopted the ASU on a prospective basis. +Income tax provision differs from the amount that would be provided by applying the statutory U.S. corporate income tax rate for the year ended December 31, 2025 due to the following items (in thousands): +Amount Percentage +United States Statutory Tax Rate $ ( 15,734 ) 21.00 % +State and Local Income Taxes, Net of Federal Income Tax Effect 4 ( 0.01 %) +Foreign Tax Effects 17 ( 0.02 %) +Tax Credits ( 488 ) 0.65 % +Changes in Valuation Allowances 313 ( 0.42 %) +Nontaxable or Nondeductible items 965 ( 1.29 %) +Other Adjustments +Unbenefited losses and credits 15,638 ( 20.87 %) +Other ( 526 ) 0.70 % +Effective Tax Rate $ 189 ( 0.25 %) +During the year ended December 31, 2025, state taxes in California, Minnesota, New York and Wisconsin made up the majority of the tax effect in this category. +93 +As previously disclosed for the years ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09, the effective income tax rate differs from the statutory federal income tax rate as follows: +2024 2023 +Benefit at statutory rate $ ( 19,715 ) $ ( 22,989 ) +State taxes, net of federal benefit ( 2,959 ) ( 2,747 ) +Foreign rate differential 4 3 +Nondeductible expenses (benefits) 609 ( 293 ) +Unbenefited losses and credits 27,421 28,250 +Valuation allowance 3,555 1,381 +Change in value of warrants ( 2,262 ) 844 +Research & Development Tax Credit ( 6,478 ) ( 4,057 ) +Other ( 132 ) ( 314 ) +Income tax provision $ 43 $ 78 +The Company generated operating losses in each of the years presented. The income tax provision (benefit) recognized related to these losses was zero for each of the years ended December 31, 2025, 2024, and 2023. Operating results of the U.S. entities are included in the consolidated U.S. federal and combined state tax returns of H-D and these tax attributes have been fully utilized by H-D and are no longer available to the Company for future use. Future income tax provisions (benefits) may be impacted by future changes in the utilization of LiveWire attributes by H-D. The difference between the benefit at the statutory rate and the income tax provision (benefit) related to these operating losses is reflected in the table above as unbenefited losses. +After an assessment of the positive and negative evidence regarding the realizability of the separate state NOLs reflected in the financials, it was determined a valuation allowance continues to be required on separate state NOLs. Additionally, it was necessary to assess the positive and negative evidence of the realizability of the U.S. federal and consolidated state net deferred tax asset balance remaining after H-D utilization of LiveWire attributes for the periods ended December 31, 2025 and 2024. After such an assessment, it was determined a valuation allowance continues to be required. The difference between the benefit at the statutory rate and the income tax provision (benefit) related to these valuation allowances is reflected in the table above as valuation allowance. +The Company’s non-US entities generated both income tax and operating losses for a net income tax provision of $ 153 thousand, $ 12 thousand, and $ 7 thousand for the years ended December 31, 2025, 2024, and 2023, respectively. Non-US operating losses cannot be utilized by H-D, therefore a deferred tax asset was recorded. After assessment of the positive and negative evidence regarding realizability of the non-US deferred tax assets, it was determined the deferred tax assets are more likely than not to be realized and no valuation allowance was recorded. +94 +The principal components of the Company’s deferred income tax assets and liabilities as of December 31, include the following (in thousands): +2025 2024 +Deferred tax assets: +Capitalized research & experimental expenditures $ 13,929 $ 14,495 +Accruals not yet tax deductible 1,749 1,919 +Stock compensation 933 1,002 +Net operating loss and credit carryforwards — 7 +UNICAP 138 138 +Amortization, book in excess of tax 1,061 1,051 +Lease liability 177 191 +Deferred tax assets before valuation allowance 17,987 18,803 +Less: Valuation allowance ( 13,605 ) ( 13,248 ) +Total deferred tax assets 4,382 5,555 +Deferred tax liabilities: +Depreciation, tax in excess of book $ ( 3,563 ) $ ( 4,863 ) +Amortization, tax in excess of book ( 765 ) ( 620 ) +Right-of-use asset ( 197 ) ( 183 ) +Total deferred liabilities ( 4,525 ) ( 5,666 ) +Net deferred tax liability $ ( 143 ) $ ( 111 ) +The net deferred tax liability balance increased from December 31, 2025 to December 31, 2024 primarily due to an increase in the deferred tax liability balance related to tax basis amortizable goodwill that is not amortized for book purposes. +The tax operating loss and tax credit carryforwards, calculated on the separate return method for allocating tax expense, have been utilized by H-D in the consolidated tax return, and therefore are not available to the Company in future periods. Under the terms of the Company’s Tax Matters Agreement with H-D, LiveWire will receive no compensation from H-D for the use of such attributes, but they may be used to offset any future liabilities that may be owed by LiveWire to H-D under the Tax Matters Agreement. In addition, these tax loss and credit carryforwards would not have been realized on a separate return basis. As a result, consistent with prior periods, neither the deferred tax assets nor the full valuation allowances have been recorded for these hypothetical attributes. For the period from the close of the Business Combination and effective date of the Tax Matters Agreement, the unrecorded tax net operating loss and tax credit carryforward, unbenefited by LiveWire, was $ 77,741 thousand. +The Company recognizes interest and penalties related to unrecognized tax benefits in the income tax (benefit) provision. There were no unrecognized tax benefits as of December 31, 2025 and 2024. +The Company made $ 14 thousand in foreign income tax payments for the year ended December 31, 2025. The Company made $ 7 thousand in foreign income tax payments for the year ended December 31, 2024 and did not make any income tax payments for the year ended December 31, 2023. +LiveWire and its subsidiaries are currently members of H-D’s consolidated, combined, unitary and other similar groups for federal, state and local income tax purposes. The consolidated group files U.S. federal and various state income tax returns which are no longer subject to examination before 2019. LiveWire has separate state and non-US filing requirements that will remain open to tax authority examination through 2029. +95 +6. Earnings Per Share +The Company computes earnings per share (“EPS”) in accordance with ASC 260, Earnings per Share . Basic EPS is computed by dividing net loss available to common shareholders by the weighted-average number of shares of common stock outstanding. Diluted EPS is computed using the weighted-average number of shares of common stock, plus the effect of potentially dilutive securities. The Company applies the treasury method to calculate the dilution impact of share-based awards- restricted stock, performance share units, and warrants. Because the Company has reported a net loss for all periods presented, diluted net loss per share is the same as basic net loss per share as all of the potentially dilutive shares were anti-dilutive in those periods. +Computation of basic and diluted earnings per share for the years ended December 31, was as follows (in thousands, except per share amounts): +2025 2024 2023 +Net loss $ ( 75,114 ) $ ( 93,925 ) $ ( 109,550 ) +Basic weighted-average shares outstanding 203,730 203,206 202,504 +Effect of dilutive securities – warrants — — — +Effect of dilutive securities – employee stock compensation awards — — — +Diluted weighted-average shares outstanding 203,730 203,206 202,504 +Earnings per share (1) : +Basic $ ( 0.37 ) $ ( 0.46 ) $ ( 0.54 ) +Diluted $ ( 0.37 ) $ ( 0.46 ) $ ( 0.54 ) +(1) Earnings per share amounts are calculated discretely and, therefore, may not add up to the total due to rounding. +Diluted net loss per share is computed by giving effect to all potential shares of common stock, to the extent dilutive, including unvested restricted stock units (“RSUs”), unvested performance share units (“PSUs”), and Warrants (as defined in Note 10, Warrant Liabilities). Potential shares of common stock are excluded from the computation of diluted net loss per share if their effect would have been anti-dilutive for the periods presented or if the issuance of shares is contingent upon events that did not occur by the end of the period. For the years ended December 31, 2025, 2024, and 2023, 2,679 thousand, 1,377 thousand, and 2,617 thousand employee stock compensation plan awards, respectively, were excluded from the computation of diluted net loss per share because the effect would have been anti-dilutive. For the years ended December 31, 2025, 2024, and 2023, 30,365 thousand warrants were excluded from the computation of diluted net loss per share because the effect would have been anti-dilutive. Additionally, the Company has not included the impact of the Earn-Out Shares, discussed in Note 1, Description of Business and Basis of Presentation, in the calculation of EPS as the triggering events have not occurred. +7. Additional Balance Sheet Information +Inventories, net consisted of the following (in thousands): +2025 2024 +Raw materials and work in process $ 49 $ — +Electric motorcycles, electric balance bikes, and electric bikes 14,167 24,862 +Parts and accessories and apparel 1,039 2,080 +Inventories, net $ 15,255 $ 26,942 +Inventory valuation reserves deducted from cost were $ 4,394 thousand and $ 4,661 thousand as of December 31, 2025 and 2024, respectively. +Other current assets primarily include prepaid expenses of $ 2,097 thousand and $ 2,422 thousand as of December 31, 2025 and 2024, respectively. +96 +Property, plant and equipment, net consisted of the following as of December 31, (in thousands): +2025 2024 +Construction in progress $ 3,824 $ 3,201 +Tooling 24,362 27,438 +Machinery and equipment 7,030 7,280 +Software 21,844 18,632 +Leasehold improvements 2,539 2,533 +$ 59,599 $ 59,084 +Accumulated depreciation and amortization ( 32,043 ) ( 25,072 ) +Property, plant and equipment, net $ 27,556 $ 34,012 +Depreciation and amortization expense for property, plant and equipment was $ 8,882 thousand, $ 8,794 thousand and $ 4,531 thousand for the years ending December 31, 2025, 2024 and 2023, respectively. Software, net of accumulated amortization, included in Property, plant and equipment, net, was $ 11,258 thousand and $ 12,072 thousand as of December 31, 2025 and 2024, respectively. The Company had $ 604 thousand, $ 1,989 thousand, and $ 4,933 thousand related to purchases of property, plant and equipment included in Accrued liabilities as of December 31, 2025, 2024, and 2023, respectively. +Other long-term assets consisted primarily of capitalized implementation costs incurred in connection with cloud computing arrangements that do not include a license to internal-use software in accordance with Accounting Standards Update 2018-15. +Accrued liabilities consisted of the following as of December 31, (in thousands): +2025 2024 +Payroll and employee benefits $ 4,553 $ 5,757 +Accrued restructuring — 675 +Engineering 1,356 2,614 +Warranty and recalls 1,449 673 +Deferred revenue 662 174 +Sales incentives 199 737 +Taxes 692 863 +Accrued capital expenditures 604 1,989 +Other (1) +2,847 4,478 +Accrued liabilities $ 12,362 $ 17,960 +(1) As of December 31, 2025 and 2024, included in “Other” is an accrual for zero and $ 1,802 thousand, respectively, for an unfavorable arbitration ruling related to a supplier claim discussed in Note 14. +8. Goodwill and Other Intangible Assets +Goodwill includes the cost of acquired businesses in excess of the fair value of the tangible and other intangible net assets acquired. The carrying amount of goodwill was $ 8,327 thousand as of December 31, 2025 and 2024, respectively. +Intangible assets, excluding goodwill, consist of trademarks, developer technology, patents, distributor relationships, and non-compete agreements, with estimated useful lives ranging from 5 to 10 years. Intangible assets are amortized on a straight-line basis. The total weighted-average amortization period for all amortizable intangible assets is 8.5 years. The weighted average amortization period for trademarks, the most significant intangible asset, is 7 years. +97 +Intangible assets at December 31, were as follows (in thousands): +2025 2024 +Gross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value Accumulated Amortization Net Carrying Value +Trademarks $ 2,500 $ ( 1,708 ) $ 792 $ 2,500 $ ( 1,458 ) $ 1,042 +Non-compete agreement 640 ( 640 ) — 640 ( 640 ) — +Others 440 ( 428 ) 12 440 ( 424 ) 16 +$ 3,580 $ ( 2,776 ) $ 804 $ 3,580 $ ( 2,522 ) $ 1,058 +Amortization of intangible assets, net, excluding goodwill, recorded in Selling, administrative and engineering expense on the consolidated statements of operations and comprehensive loss was $ 254 thousand, $ 289 thousand and $ 462 thousand for the years ended December 31, 2025, 2024 and 2023, respectively. Future amortization of the Company's intangible assets as of December 31, 2025 is as follows (in thousands): +2026 $ 254 +2027 254 +2028 254 +2029 42 +2030 — +$ 804 +The Company assesses for impairment of intangible assets with definite lives only if events occur that indicate that the carrying amount of an intangible asset may not be recoverable. The Company assesses goodwill for impairment annually, or more frequently if events occur that indicate an asset may be impaired. +For goodwill, the reporting units used in assessing impairment are the same as the Company’s two operating segments and reportable segments as described in Note 16, Reportable Segments and Geographic Information. The Company’s assessment for impairment of goodwill utilized a discounted cash flow analysis and a guideline public company market approach to determine the fair value of the reporting unit for comparison to the corresponding carrying value, and a reconciliation of the Company’s concluded values for each reporting unit to the Company’s market capitalization. Based upon the Company’s annual goodwill impairment analyses, the Company concluded there were no impairments to goodwill for any periods presented. +9. Leases +The Company determines if an arrangement is or contains a lease at contract inception. +Right of Use (“ROU”) assets represent the Company’s right to use an underlying asset over the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of future lease payments over the lease term. The ROU asset also includes prepaid lease payments and initial direct costs and is reduced for lease incentives paid by the lessor. The discount rate used to determine the present value is generally H-D’s incremental borrowing rate, as allowed under GAAP for subsidiaries, because the implicit rate in the lease is not readily determinable. The lease term used to calculate the ROU asset and lease liabilities includes periods covered by options to extend or terminate when the Company is reasonably certain the lease term will include these optional periods. +In accordance with ASC Topic 842, Leases , (“ASC 842”) the Company elected the short-term lease practical expedient that allows entities to recognize lease payments on a straight-line basis over the lease term for leases with a term of 12 months or less. The Company has also elected the practical expedient under ASC 842 allowing entities to not separate non-lease components from lease components, but instead account for such components as a single lease component for all leases except leases involving assets used in manufacturing and distribution processes. +98 +The Company has operating lease arrangements for real estate. The Company’s leases have a remaining lease term of approximately one to four years . The Company’s leases do not contain any material residual value guarantees or material restrictive covenants. +Balance sheet information related to the Company's leases at December 31, was as follows (in thousands): +2025 2024 +Assets: +Lease assets $ 823 $ 765 +Liabilities: +Current portion of lease liabilities 496 394 +Long-term portion of lease liabilities 246 405 +Total lease liabilities $ 742 $ 799 +The following table presents the components of lease costs as of December 31, (in thousands): +2025 2024 2023 +Lease Cost: +Operating lease cost $ 476 $ 1,163 $ 1,435 +Short-term lease cost 52 63 38 +Variable lease cost 186 78 37 +Net lease cost $ 714 $ 1,304 $ 1,510 +Future maturities of the Company's operating lease liabilities as of December 31, 2025 were as follows (in thousands): +Future lease payments: +2026 518 +2027 340 +2028 228 +2029 233 +2030 1 +Thereafter — +$ 1,320 +Lease incentive from H-D lease, see Note 15 Related Party Transactions ( 500 ) +Present value discount ( 78 ) +Lease liabilities $ 742 +Other lease information surrounding the Company's operating leases as of December 31, was as follows (dollars in thousands): +2025 2024 2023 +Cash outflows for amounts included in the measurement of lease liabilities $ 617 $ 1,181 $ 1,456 +ROU assets obtained in exchange for lease obligations — — 109 +Lease modifications (1) +— ( 87 ) — +Weighted-average remaining lease term (in years) 2.58 2.16 2.10 +Weighted-average discount rate 4.73 % 3.60 % 2.69 % +(1) In December 2024, the Company issued notice of early termination for a lease agreement with H-D. This termination resulted in a reduction of the right of use asset and lease liability by $ 87 thousand. +99 +10. Warrant Liabilities +Upon consummation of the Business Combination, the Company assumed 30,499,990 Warrants to purchase the Company's Common Stock, comprised of 19,999,990 public warrants, originally issued by ABIC as part of ABIC’s IPO of units (the “Public Warrants”) and 10,500,000 of outstanding warrants originally issued in a private placement in connection with the IPO of ABIC (the “Private Placement Warrants”, collectively with the Public Warrants, the “Warrants”). The Warrants expire five years from the completion of the Business Combination. There were 19,865,207 Public Warrants outstanding as of December 31, 2025 and 2024, and 10,500,000 Private Warrants outstanding as of December 31, 2025 and 2024. +Each Warrant entitles the registered holder to purchase one share of Common Stock at a price of $ 11.50 per share. A Warrant holder may exercise its Warrants only for a whole number of shares of Common Stock. This means only a whole Warrant may be exercised at a given time by a Warrant holder. No fractional Warrants were issued upon separation of the units and only whole warrants trade. The Company will receive the proceeds from the exercise of any warrants in cash. The Warrants will expire five years after the completion of the Business Combination, or earlier upon redemption or liquidation. +Public Warrants +Redemption of Warrants when the price per Common Stock share equals or exceeds $ 18.00 : The Company may redeem the outstanding Warrants (except as described with respect to the Private Placement Warrants): +• in whole and not in part; +• at a price of $ 0.01 per Warrant; +• upon not less than 30 days’ prior written notice of redemption; and +• if, and only if, the reported last sales price of the Company’s Common Stock equals or exceeds $ 18.00 per share for any 20 trading days within a 30 -trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the Warrant holders. +Redemption of Warrants when the price per Common Stock share equals or exceeds $ 10.00 : Once the Warrants become exercisable, the Company may redeem the outstanding Warrants: +• in whole and not in part; +• at $ 0.10 per Warrant upon a minimum 30 days’ prior written notice of redemption provided that holders will be able to exercise their Warrants on a cashless basis prior to redemption and receive that number of shares determined by reference to the agreed table, based on the redemption date and the “fair market value” of Common Stock; +• if, and only if, the closing price of the shares of Common Stock equals or exceeds $ 10.00 per share (as adjusted for adjustments to the number of shares issuable upon exercise or the exercise price of a Warrant) for any 20 trading days within the 30 -trading day period ending three trading days before we send the notice of redemption to the Warrant holders; and +• if the closing price of the shares of Common Stock for any 20 trading days within a 30 -trading day period ending on the third trading day prior to the date on which we send the notice of redemption to the Warrant holders is less than $ 18.00 per share (as adjusted for adjustments to the number of shares issuable upon exercise or the exercise price of a Warrant), the Private Placement Warrants must also be concurrently called for redemption on the same terms as the outstanding Warrants, as described above. +Private Placement Warrants +The Private Placement Warrants have terms and provisions that are similar to those of the Public Warrants, including as to the exercise price, exercisability and exercise period. The Private Placement Warrants will not be redeemable by the Company so long as they are (i) held by the initial purchasers of the Private Placement Warrants or its permitted transferees and (ii) the reference value exceeds $ 18.00 per share. The initial Private Placement Warrant purchasers, or its permitted transferees, have the option to exercise the Private Placement Warrants on a cashless basis if the reference value is between $ 10.00 and $ 18.00 . If the Private Placement Warrants are held by holders other than AEA-Bridges Impact Sponsor, LLC (the “Sponsor”) or its permitted transferees, the Private Placement Warrants will be redeemable by the Company in all redemption scenarios and exercisable by the holders on the same basis as the Public Warrants. +During the years ended December 31, 2025 and 2024, there were no redemptions or exercises of the Public or Private Warrants. +100 +The Company recognized expense of $ 352 thousand and income of $ 10,770 thousand as a change in fair value of warrant liabilities in the consolidated statements of operations and comprehensive loss for years ended December 31, 2025 and 2024, respectively. The Company determined the Public Warrants and Private Placement Warrants do not meet the criteria to be classified in stockholders’ equity and the fair value of the warrants should be classified as a liability. At December 31, 2025 and 2024, the Company’s Warrant liability was $ 1,901 thousand and $ 1,549 thousand, respectively. +11. Fair Value +The Company assesses the inputs used to measure fair value using a three-tier hierarchy. +• Level 1 inputs include quoted prices for identical instruments and are the most observable. +• Level 2 inputs include quoted prices for similar assets and observable inputs. +• Level 3 inputs are not observable in the market and include the Company’s judgments about the assumptions market participants would use in pricing the asset or liability. +The Company’s assets and liabilities measured at fair value on a recurring basis, aggregated by the level in the fair value hierarchy within which those measurements fall, were as follows as of December 31, (in thousands): +2025 +Level 1 Level 2 Level 3 Total +Assets: +Money market funds $ 72,000 $ — $ — $ 72,000 +Liabilities: +Public Warrants 1,244 — — 1,244 +Private Placement Warrants — 657 — 657 +Share-based awards settled in cash 46 — — 46 +$ 1,290 $ 657 $ — $ 1,947 +2024 +Level 1 Level 2 Level 3 Total +Assets +Money market funds $ 52,000 $ — $ — $ 52,000 +Liabilities +Public Warrants 1,013 — — 1,013 +Private Placement Warrants — 536 — 536 +Share-based awards settled in cash 269 — — 269 +$ 1,282 $ 536 $ — $ 1,818 +There were no significant assets or liabilities on the Company’s consolidated balance sheets measured at fair value on a nonrecurring basis. +Recurring Fair Value Measurements +Money Market Funds +Money market funds include highly liquid investments with an original maturity of three or fewer months and are presented within Cash and cash equivalents in the consolidated balance sheets. They are valued using quoted market prices in active markets and are classified under Level 1 within the fair value hierarchy. +101 +Warrant Liabilities +The Warrants were accounted for as liabilities in accordance with ASC 815 and are presented within Warrant liabilities in the accompanying consolidated balance sheets. The Warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within Change in fair value of warrant liabilities in the consolidated statements of operations and comprehensive loss. +The Public Warrants are publicly traded under the symbol “LVWR WS” and the fair value of the Public Warrants at a specific date is determined by the closing price of the Public Warrants as of that date. As such, the Public Warrants are classified within Level 1 of the fair value hierarchy. The fair value of the Private Placement Warrants was determined using the closing price of the Public Warrants as the Private Placement Warrants have terms and provisions that are economically similar to those of the Public Warrants. The Private Placement Warrants are classified as Level 2 of the fair value hierarchy due to the use of an observable market quote for a similar asset in an active market. +Share-based awards settled in cash +Share-based awards settled in cash represent grants of share-based awards that will be settled with employees in cash and are presented within Accrued liabilities and Other long-term liabilities in the consolidated balance sheets. They are valued using the market price of the Company’s and Harley-Davidson, Inc.’s stock and are remeasured at each balance sheet date and are classified under Level 1 under the fair value hierarchy. +Other Fair Value Measurements +The fair value of financial instruments classified as Cash and cash equivalents, Accounts receivable, net, and Accounts payable on the consolidated balance sheets approximate carrying value due to the short-term nature and the relative liquidity of the instruments. The carrying value of the Term loan - related party, net, approximates the fair value. +12. Product Warranty and Recall Campaigns +The Company provides a limited warranty on new electric motorcycles for a period of two years , except for the battery which is covered for five years . The Company also provides limited warranties on parts and accessories, electric balance bikes, and electric bikes. The warranty coverage for the retail customer generally begins when the product is sold to the retail customer. The Company accrues future warranty claims at the time of sale by the Company using an estimated cost based primarily on historical Company claim information. In the case of both warranty and recall costs, as actual experience becomes available it is used to update the accruals. +Additionally, the Company may from time-to-time initiate certain voluntary recall campaigns. The Company records estimated recall costs when the liability is both probable and estimable. This generally occurs when the Company’s management approves and commits to a recall. The warranty and recall liability are included in Accrued liabilities and Other long-term liabilities on the consolidated balance sheets. +Changes in the Company’s warranty and recall liability were as follows as of December 31, (in thousands): +2025 2024 +Balance, beginning of period $ 881 $ 1,011 +Warranties issued during the period 1,452 795 +Settlements made during the period ( 1,506 ) ( 1,035 ) +Recalls and changes to pre-existing warranty liabilities 1,189 110 +Balance, end of period $ 2,016 $ 881 +The liability for recall campaigns included in the above table was $ 29 thousand and $ 120 thousand as of December 31, 2025 and 2024, respectively. +102 +13. Employee Benefit Plans +Defined Contribution Plans +On March 1, 2022, the Company established a LiveWire 401(k) plan for the benefit of the Company's employees. The Company expensed $ 1,762 thousand, $ 2,230 thousand and $ 2,752 thousand for the years ended December 31, 2025, 2024 and 2023, respectively, related to defined contribution benefits plans contributions. +14. Commitments and Contingencies +Contingencies – The Company is subject to claims related to product and other commercial matters. In determining costs to accrue related to these items, the Company carefully analyzes cases and considers the likelihood of adverse judgments or outcomes, as well as the potential range of possible loss. The Company accrues for matters when losses are both probable and estimable. Any amounts accrued for these matters are monitored on an ongoing basis and are updated based on new developments or new information as it becomes available for each matter. Refer to Note 12, Product Warranty and Recall Campaigns, for a discussion of warranty and recall liabilities. The Company had no product liability claims as of December 31, 2025 and 2024. +Litigation and Other Claims – The Company from time to time may be subject to lawsuits and other claims related to product, commercial, supplier, employee, environmental and other matters in the normal course of business. In determining costs to accrue related to these items, the Company carefully analyzes cases and considers the likelihood of adverse judgments or outcomes, as well as the potential range of possible loss. The Company accrues for matters when losses are both probable and estimable. Any amounts accrued for these matters are monitored on an ongoing basis and are updated based on new developments or new information as it becomes available for each matter. The Company, through H-D, also maintains insurance coverage for product liability exposures. The Company believes that its accruals and insurance coverage are adequate and there are no material exposures to loss in excess of amounts accrued and insured for losses related to these matters. +In December 2024, the Company received an unfavorable arbitration ruling related to the resolution of a claim from a supplier, which was recorded in Accrued liabilities on the consolidated balance sheet as of December 31, 2024. As a result of the ruling, the Company paid $ 1,802 thousand to the supplier in the year ended December 31, 2025. The Company recorded $ 1,664 thousand of expense in Cost of Sales in the fourth quarter of 2024 related to this ruling. +103 +15. Related Party Transactions +In connection with the Business Combination, the Company entered into a number of agreements with H-D to govern and provide a framework for the relationship between the parties going forward pursuant to which the Company and/or H-D have continuing obligations to each other . All transactions with H-D subsequent to the Business Combination are considered related party transactions. Agreements that the Company entered into in connection with the Separation include: +Transition Services Agreement +On September 26, 2022, we entered into a Transition Services Agreement with H-D (the “Transition Services Agreement”) pursuant to which H-D provided to us various services and support on a transitional basis to allow LiveWire to develop the capability to support ourselves or to engage a third-party provider to provide those services and support. The charges for the services were on a cost-plus basis (with a mark-up to reflect the management and administrative cost of providing the services). The services generally commenced on the date of the Separation and were intended to terminate between six and twelve months of the date of the Separation, with the option to extend or convert the services to longer term under the Master Service Agreement. All services under the Transition Services Agreement have either terminated or have been included in the Master Services Agreement executed on December 23, 2024 and effective on January 1, 2025 discussed below. +Master Services Agreement +On September 26, 2022, we entered into a master services agreement with H-D pursuant to which H-D provided us with certain services that we did not yet have the capability to perform for ourselves, including services related to testing and development, product regulatory support, color materials, finishes, paint and graphics, technical publication, application support and maintenance, service desk support, warehousing support, safety investigation, and marketing vehicle and fleet center, as we may request from time to time. On December 23, 2024, we entered into a new Master Services Agreement (the “Master Services Agreement”) with H-D. The Master Services Agreement became effective on January 1, 2025, and terminated the master services agreement, dated September 26, 2022, between LiveWire and H-D. Pursuant to the Master Services Agreement, H-D will continue to provide LiveWire with certain services that LiveWire determined would be better outsourced at this time, including services that support testing and development, product regulatory support, color materials, finishes, paint and graphics, technical publication, application support and maintenance, service desk support, warehousing support, and other corporate support services. The new Master Services Agreement incorporates a subset of support services previously provided under the now expired Transition Services Agreement including services where LiveWire utilizes H-D’s subject matter experts for targeted guidance or allow LiveWire to leverage H-D’s systems or equipment for cost savings purposes. The Master Services Agreement contemplates that each of the services shall be provided to LiveWire as detailed under the terms of the Master Services Agreement and the exhibit thereto or as set forth in a separate, mutually agreed upon letter agreement. The Master Services Agreement also provides that any service or project not contemplated by the Master Services Agreement will be set forth in a separate, mutually agreed upon side letter or letter agreement, and any fee for such service or project will be separate than the fee provided for in the Master Services Agreement. The Master Services Agreement has an initial term of seven years and will be renewable upon mutual agreement. The Master Services Agreement or any related letter agreement for additional services may be terminated by either party upon the other party’s material, uncured breach. H-D may also terminate the agreement upon LiveWire’s change of control or, at the end of a calendar year upon 180 days written notice, in the event that LiveWire failed to engage H-D to manufacture at least forty percent of LiveWire’s production during that calendar year. The charges for the services will be a flat monthly fee representing cost plus a markup. A joint steering committee composed of senior executives and/or designees of each party will meet annually to formulate a forecast and plan for LiveWire’s anticipated service needs, as well as adjust the monthly fee as appropriate, and will oversee the progress of the services and address any disputes. +104 +Contract Manufacturing Agreement +On September 26, 2022, we entered into a Contract Manufacturing Agreement with H-D (the “Contract Manufacturing Agreement”) pursuant to which H-D provides contract manufacturing and procurement services to us for the products in our LiveWire platform, as well as future anticipated platforms. H-D is our exclusive manufacturer for these platforms for five years from the date that H-D begins manufacturing the relevant platform (and five years from the Separation for the LiveWire platform). Following this exclusivity period, we may terminate the agreement for one or more products within the relevant platform upon two years notice, subject to payment of certain termination charges (which are intended to compensate H-D for its capital investment and other sunken costs). The Contract Manufacturing Agreement may also be terminated, in whole or part, by either party upon the other party’s material, uncured breach, inability to perform its obligations for more than six months due to a force majeure event, bankruptcy or insolvency, or change of control. On February 14, 2024, the Contract Manufacturing Agreement was amended to extend the period of which H-D is the exclusive manufacturer from five years as described above to six years . +Beginning for calendar year 2027, LiveWire will be subject to a minimum annual volume commitment for each product and pay a deficit fee for failure to meet the minimum under the Contract Manufacturing Agreement. The products that H-D manufactures for us are priced on a cost-plus basis, with a mark-up on H-D’s cost for manufacturing the relevant product. An operational committee consisting of designated employees of each party will meet quarterly for administrative purposes, including for the review of changes to pricing, minimum volumes and other terms. H-D will procure, on our behalf, equipment and materials that are used in both H-D’s and our products, and we will procure all other equipment and materials, as well as tooling, needed to manufacture the products. +Joint Development Agreement +On September 26, 2022, we entered into a Joint Development Agreement with H-D (the “Joint Development Agreement”) pursuant to which the parties may agree to engage in joint development projects, which would be set forth in one or more mutually agreed project work statements. The Joint Development Agreement remains in effect until we and H-D mutually agree to terminate it and can be terminated earlier by either party upon the other party’s material, uncured breach. +Under the Joint Development Agreement, H-D is required to notify us of any development projects for H-D’s business that are primarily related to electric vehicles, and we have the right to make a proposal with respect to the joint development of such a project. The parties will discuss in good faith whether or not it is beneficial for the parties to enter into a joint development project with respect to such project. If H-D engages in any development projects that are primarily related to electric vehicles and fails to consult with us so that we can make a proposal with respect such potential project, then the intellectual property developed pursuant to such H-D development project will be owned and licensed in accordance with the default intellectual property terms of the agreement (described below). Unless we and H-D agree otherwise for a particular project, each party bears its own costs and expenses in connection with each project under the Joint Development Agreement. +Unless otherwise mutually agreed for a particular project under the Joint Development Agreement, we own project intellectual property relating exclusively to electric vehicles and H-D owns all other project intellectual property. Each party is granted a perpetual license to use the project intellectual property in connection with that party’s products, which, for us, are limited to two-, three-, or four-wheeled electric vehicles, related parts and accessories and electric vehicle systems. +Tax Matters Agreement +On September 26, 2022, LiveWire entered into a Tax Matters Agreement with H-D (the “Tax Matters Agreement”). The Tax Matters Agreement sets forth the principles and responsibilities regarding the allocation of taxes, adjustments with respect to taxes, preparation of tax returns, tax audits and certain other tax matters that affect LiveWire and H-D in the event LiveWire or any of its subsidiaries become members of any of H-D’s consolidated, combined, unitary and other similar groups for federal, state or local income tax purposes (or LiveWire has certain income, gain, loss and deduction included in the tax returns of such groups). LiveWire and its subsidiaries are currently members of H-D’s consolidated, combined, unitary and other similar groups for federal, state and local income tax purposes. +105 +With respect to U.S. federal income tax returns for any taxable period in which LiveWire (or any of its subsidiaries) are included in H-D’s consolidated group for U.S. federal income tax purposes, the amount of taxes to be paid by us is generally determined, subject to certain adjustments, as if LiveWire and each of its subsidiaries filed its own separate consolidated federal income tax return (LiveWire’s “separate federal tax liability”). With respect to state and local income tax returns for any taxable period in which LiveWire or any of its subsidiaries are included in H-D’s combined, consolidated or unitary group for state or local income tax purposes, the amount of taxes to be paid by LiveWire is determined, subject to certain adjustments using principles analogous to the principles used to compute LiveWire’s separate federal tax liability, as if LiveWire and each of its subsidiaries included in such combined, consolidated or unitary group filed its own combined, consolidated or unitary group state or local income tax return. +LiveWire’s inclusion in H-D’s consolidated group may result in H-D utilizing certain tax attributes that LiveWire generates, including net operating losses, and LiveWire will receive no compensation from H-D for the use of such attributes, but they may be used to offset any future liabilities that may be owed by LiveWire to H-D under the Tax Matters Agreement. +The Tax Matters Agreement applies as of the closing of the Business Combination, which is the date that H-D’s ownership of LiveWire met the applicable minimum threshold required to file either a combined return or a consolidated return and will remain in effect unless the parties agree in writing to terminate the agreement. Notwithstanding any termination of the Tax Matters Agreement, the agreement will continue in effect with respect to any payment or indemnification due for all taxable periods prior to the termination during which the Tax Matters Agreement was in effect. +Related Party Sales and Purchases in the Ordinary Course of Business +Transactions Associated with Service Agreements with H-D +Cost of goods sold - For the years ended December 31, 2025, 2024, and 2023, there are $ 10,926 thousand, $ 19,533 thousand, and $ 23,433 thousand respectively, of Cost of goods sold with H-D on the consolidated statements of operations and comprehensive loss. Of the Costs of goods sold with H-D, $ 11,018 thousand, $ 19,611 thousand, and $ 17,053 thousand are related to purchases, primarily motorcycles, under the terms of the Contract Manufacturing Agreement for the years ended December 31, 2025, 2024, and 2023, respectively. These purchases of electric motorcycles from H-D are sold to the Company’s customers resulting in Cost of goods sold. Also included in the total Cost of goods sold with H-D for the years ended December 31, 2025, 2024 and 2023 is a reduction in expense of $ 128 thousand, $ 153 thousand, and a provision of $ 6,309 thousand, respectively, related to a liability for excess inventory components held by H-D that the Company is obligated to reimburse H-D under the terms of the Contract Manufacturing Agreement. +Selling, administrative and engineering - During the years ended December 31, 2025, 2024 and 2023, there were $ 5,234 thousand, $ 10,164 thousand, and $ 14,993 thousand, respectively, in expenses associated with services rendered in conjunction with the various service agreements with H-D, which are presented within Selling, administrative and engineering on the consolidated statements of operations and comprehensive loss. +Accounts payable to related party - As of December 31, 2025 and 2024, there is $ 6,716 thousand and $ 9,762 thousand, respectively, due to H-D and presented as Accounts payable to related party on the consolidated balance sheets. Of the amount outstanding to H-D, as of December 31, 2025 and 2024, $ 275 thousand and $ 2,914 thousand, respectively, is associated with inventory purchased under the Contract Manufacturing Agreement, $ 361 thousand and $ 692 thousand, respectively, is associated with services under the various service agreements with H-D, and $ 6,080 thousand and $ 6,156 thousand, respectively, is associated with the obligation to reimburse H-D for excess inventory components held by H-D under the terms of the Contract Manufacturing Agreement. This amount represents the Company’s best estimate of the liability as of each of the balance sheet dates and is subject to adjustment based on final negotiations with H-D regarding amounts owed under the terms of the Contract Manufacturing Agreement. +106 +Amended and Restated Delayed Draw Term Loan +On February 14, 2024, the Company entered into a Convertible Delayed Draw Term Loan Agreement with H-D providing for term loans from H-D to the Company in one or more advances up to an aggregate principal amount of $ 100 million. The Convertible Term Loan had a maturity date of the earlier of (i) 24 months from the date of the first draw on the loan or (ii) October 31, 2026. The Convertible Term Loan contained a provision that provided for H-D to convert amounts outstanding to equity at the Maturity Date if, on the Maturity Date, H-D determined, acting reasonably and in good faith, that the Company does not have the financial wherewithal to repay all amounts outstanding. The Company did not draw any amounts under the Convertible Term Loan. +On November 9, 2025, the Company entered into an Amended and Restated Delayed Draw Term Loan Agreement (the “Term Loan”) with H-D, which amended the Convertible Delayed Draw Term Loan. The Term Loan provided the Company with access of up to $ 75.0 million to be drawn by the Company between November 17, 2025 and December 15, 2025. The maturity date of the amount outstanding under the Term Loan, including interest, is December 15, 2027 (“Term Loan Maturity Date”). The Term Loan requires mandatory prepayment of the principal amount of the Term Loan from the first $ 10.0 million of net ATM proceeds (defined as gross ATM proceeds less offering costs) from the funding of the Term Loan through the Term Loan Maturity Date. No other scheduled principal payments are required to be made on the Term Loan and the remaining principal balance must be paid in full on the Term Loan Maturity Date. The amount outstanding under the Term Loan bears interest at a floating rate per annum, as calculated by H-D as of the date of funding of the Term Loan and as of each June 1 and December 1 thereafter, equal to the sum of (i) the forward-looking term rate based on SOFR (i.e., the secured overnight financing rate published by the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate)) for a 6-month interest period, plus (ii) 4.00 %. Interest is compounded on a semi-annual basis on May 31 and November 30 and is required to be paid in full on the Term Loan Maturity Date. The Term Loan includes negative covenants restricting the ability of the Company to incur indebtedness, create liens, sell assets, make investments, make fundamental changes, make dividends or other restricted payments and enter into affiliate transactions. All of the obligations under the Term Loan are collateralized by a security interest in substantially all of the assets of the Company. +On December 15, 2025, the Company borrowed $ 75.0 million under the Term Loan. As of December 31, 2025, there was $ 800 thousand presented as Current portion of term loan - related party, net, for the mandatory prepayment of the principal amount of the Term Loan due from the first $ 10.0 million of net ATM proceeds and $ 74.2 million presented as Long-term portion of term loan - related party, net, on the consolidated balance sheet. During the year ended December 31, 2025, the Company recorded $ 255 thousand in interest expense, which is presented in Interest expense, related party on the consolidated statements of operations and comprehensive loss. The amount due to H-D for interest as of December 31, 2025 of $ 255 thousand is presented in Other long-term liabilities on the consolidated balance sheet. The effective interest rate was 7.64 % for the year ended December 31, 2025. The Company remained in compliance with all of the existing covenants as of December 31, 2025. +Other Transactions +S ales of electric motorcycles and related products to independent dealers in the U.S. and Canada are primarily financed through Harley Davidson Financial Services (“HDFS”), a wholly owned subsidiary of H-D; therefore, the Company’s accounts receivable related to these sales are recorded in Accounts receivable from related party on the consolidated balance sheets . Amounts financed through HDFS, not yet remitted to the Company by HDFS are generally settled within 30 days. As of December 31, 2025 and 2024, there is $ 564 thousand and $ 356 thousand, respectively, due from HDFS and other related receivables due from H-D, which is presented within Accounts receivable from related party on the consolidated balance sheets. +During the years ended December 31, 2025, 2024, and 2023, the Company recorded $ 51 thousand, $ 96 thousand, and $ 113 thousand, respectively, in related party sales between the Company and H-D with $ 36 thousand, $ 74 thousand, and $ 71 thousand, respectively, in Cost of goods sold. All sales were for the STACYC segment which sells electric balance bikes and electric bikes to H-D. As of December 31, 2025 and 2024, there was $ 21 thousand and $ 43 thousand, respectively, due from H-D, which is presented within Accounts receivable from related party on the consolidated balance sheets. +On September 26, 2022, the Company entered into a lease agreement with H-D to sublease a Product Development Center. The lease was terminated effective February 28, 2025. On August 28, 2023, the Company amended a lease agreement with H-D for office space to extend the term of the lease to a 12-month period, which expired on September 26, 2024 and was then renewed on a month-to-month basis and terminated effective January 31, 2025. On September 4, 2024, the Company entered into a lease agreement with H-D to sublease office space in California, which expires on October 31, 2027. These are classified as operating leases. +107 +In conjunction with the relocation of LiveWire Labs from California, announced in 2024, the Company moved its equipment from LiveWire Labs to an H-D location in Milwaukee, Wisconsin in September 2024. During the fourth quarter of 2024, the Company began occupying a portion of the space in the H-D location, including operating certain of its equipment, and using a portion for office space. The Company and H-D finalized negotiations and executed a lease agreement related to this space on January 30, 2025. The Company recorded an ROU asset and ROU liability of $ 488 thousand and $ 456 thousand, respectively, in the first quarter of 2025, which were reduced for a $ 500 thousand lease incentive to be provided from H-D for tenant improvements. The initial term of the agreement is 60 months with a renewal option for another 60 months. As of the current date, the Company does not believe it is reasonably certain of exercising the renewal option and, therefore, the lease term is 60 months. This lease was amended effective September 26, 2025 to move the location of the office space and extend the timing of the lease incentive from 2025 to 2026 resulting in an increase to the current lease liability of $ 203 thousand and a decrease to long-term lease liability of $ 184 thousand. +These leases are classified as operating leases. As of December 31, 2025, the right of use assets included within Lease assets, short-term lease liabilities included within Current portion of lease liabilities, and long-term lease liabilities included within Long-term portion of lease liabilities in the consolidated balance sheets were $ 437 thousand, $ 206 thousand, and $ 131 thousand, respectively. As of December 31, 2024, the right of use asset included within Lease assets, short-term lease liability included within Current portion of lease liabilities, and long-term lease liability included within Long-term portion of lease liabilities in the consolidated balance sheets were $ 82 thousand, $ 43 thousand, and $ 40 thousand, respectively. In addition, the Company incurred $ 261 thousand, $ 177 thousand, and $ 176 thousand, respectively, in rent expense during the years ended December 31, 2025, 2024, and 2023, which is included within Selling, administrative and engineering expense on the consolidated statements of operations and comprehensive loss. +16. Reportable Segments and Geographic Information +The Company’s reportable segments and significant segment expenses are determined based on how the Company’s Chief Operating Decision Maker (CODM) assesses performance and decides how to allocate resources for the Company. +The Company’s Chief Executive Officer is the Company’s CODM. Operating loss is the measure of profit and loss used by the CODM to assess performance and to decide how to allocate resources for each of the Company’s reportable segments. +Operating loss is used to monitor actual results versus planned and prior period results for each segment based on their respective profitability objectives and business models. Operating loss is also used to allocate human and capital resources among the reportable segments. Additionally, operating loss is a key metric used to establish and pay variable compensation to employees at all levels. +The Company operates in two segments: Electric Motorcycles and STACYC. The Company’s reportable segments are strategic business units that offer different products and services and are managed separately based on the fundamental differences in their operations. +The Electric Motorcycles segment consists of the business activities related to the design and sales of electric motorcycles. The Electric Motorcycles segment also sells electric motorcycle parts, accessories, and apparel. The Company’s products are sold at wholesale to a network of independent dealers and at retail through a Company-owned dealership and through online sales. Prior to November 5, 2024, the Company’s products were sold at retail through select international partners primarily in Europe. +The STACYC segment consists of the business activities related to the design and sales of the STACYC brand of electric balance bikes for kids and an adult pedal assist electric bike that was introduced in March 2025. The STACYC segment also sells related parts, accessories, and apparel. STACYC products are sold in the U.S., Canada, Australia, Europe, and other international markets. The STACYC segment products are sold through independent retail partners in the U.S. and Europe, including powersports dealers, H-D dealers, bicycle retailers and direct to customers online. In Canada, Australia and Europe, STACYC sells its products through independent distributors. +108 +Selected segment information is set forth below for the years ended December 31, (in thousands): +2025 2024 2023 +Electric Motorcycles +Electric motorcycles, parts and accessories and apparel revenue, net $ 6,064 $ 8,381 $ 11,548 +Cost of goods sold 18,058 27,018 27,297 +Selling, administrative and engineering expense: +People Costs (1) +31,936 45,507 49,672 +Other segment items (2) +29,901 41,356 51,190 +Total selling, administrative and engineering expense 61,837 86,863 100,862 +Operating loss $ ( 73,831 ) $ ( 105,500 ) $ ( 116,611 ) +STACYC +Electric balance bikes and electric bikes, parts and accessories and apparel revenue, net 19,608 18,252 26,475 +Cost of goods sold 12,047 12,398 16,498 +Selling, administrative and engineering expense: +People Costs (1) +3,667 3,877 3,489 +Marketing (3) +1,951 2,894 3,032 +Other segment items (4) +3,596 3,939 2,834 +Total selling, administrative and engineering expense 9,214 10,710 9,355 +Operating (loss) income $ ( 1,653 ) $ ( 4,856 ) $ 622 +Consolidated operating loss ( 75,484 ) ( 110,356 ) ( 115,989 ) +Interest expense, related party ( 255 ) — — +Interest income 1,166 5,704 10,537 +Change in fair value of warrant liabilities ( 352 ) 10,770 ( 4,020 ) +Loss before income taxes $ ( 74,925 ) $ ( 93,882 ) $ ( 109,472 ) +(1) People expenses include salary and related fringe costs, including payroll tax and health and welfare costs, as well as short-term incentive compensation and long-term incentive compensation in the form of share-based awards. +(2) Other segment items for Electric Motorcycles include depreciation and amortization, marketing, rent and facilities costs, warranty, supplies and materials, costs paid for services performed by H-D under the TSA and MSA agreements, travel costs, other professional services and miscellaneous expenses. These costs are all included in Selling, administrative and engineering expense. +(3) Marketing expenses include costs related to digital and print media, social media, website maintenance, consumer experiences, product placement, sponsorships and market research. +(4) Other segment items for STACYC include depreciation and amortization, rent and facilities costs, warranty, supplies and materials, travel costs, other professional services and miscellaneous expenses. These costs are all included in Selling, administrative and engineering expense. +109 +Additional segment information is set forth below as of December 31, (in thousands): +Electric Motorcycles STACYC Consolidated +2025: +Assets $ 124,034 $ 22,377 $ 146,411 +Goodwill $ 7,668 $ 659 $ 8,327 +Depreciation and amortization $ 9,849 $ 292 $ 10,141 +Non-cash stock compensation expense $ 4,475 $ 464 $ 4,939 +Capital expenditures $ 3,758 $ 53 $ 3,811 +2024: +Assets $ 120,530 $ 27,430 $ 147,960 +Goodwill $ 7,668 $ 659 $ 8,327 +Depreciation and amortization $ 9,690 $ 351 $ 10,041 +Non-cash stock compensation expense $ 4,159 $ 467 $ 4,626 +Capital expenditures $ 7,972 $ 96 $ 8,068 +2023: +Assets $ 232,981 $ 33,166 $ 266,147 +Goodwill $ 7,668 $ 659 $ 8,327 +Depreciation and amortization $ 5,312 $ 520 $ 5,832 +Non-cash stock compensation expense $ 8,506 $ 420 $ 8,926 +Capital expenditures $ 13,453 $ 9 $ 13,462 +Customer Information - For the year ended December 31, 2025 and 2024, no single customer or customer group represented 10% or greater of consolidated revenue, net. For the year ended December 31, 2023, LiveWire generated more than 10% of its consolidated sales from the KTM customer group. T hese sales amounted to 31 % for the year ended December 31, 2023 and were included in the STACYC segment. +Geographic Information – Included in the consolidated financial statements are the following amounts relating to geographic locations for the years ended December 31, (in thousands): +2025 2024 2023 +Long-lived assets (1) : +United States $ 27,556 $ 34,012 $ 37,682 +International — — — +$ 27,556 $ 34,012 $ 37,682 +(1) Long-lived assets include all long-term assets except those specifically excluded under ASC Topic 280, Segment Reporting , such as deferred income taxes. +2025 2024 2023 +Revenue, net (1) : +United States 19,054 21,413 30,457 +Austria 457 1,055 4,585 +Other 6,161 4,165 2,981 +Total $ 25,672 $ 26,633 $ 38,023 +(1) Revenue is attributed to geographic regions based on location of customer. +110 +17. Restructuring +On April 24, 2024, the Company announced a plan (“April 2024 Plan”) to both relocate the operations of LiveWire Labs, the Company’s west coast product development facility, from Mountain View, California, to Milwaukee, Wisconsin, and streamline headcount at the Company. The Company believes this plan will enable synergies and optimize efficiencies in product development and simplify the Company’s overall path to future profitability. +In conjunction with this plan, the Company recorded $ 3,043 thousand of employee termination benefits, primarily severance, during the year ended December 31, 2024 within Selling, administrative and engineering expense on the consolidated statements of operations and comprehensive loss in the Electric Motorcycle segment. Of this amount, $ 1,797 thousand related to one-time employee termination benefits recorded pursuant to ASC 420, Exit or Disposal Cost Obligations (“ASC 420”) and the remainder was related to existing contractual arrangements with employees recorded pursuant to ASC 712, Compensation – Nonretirement Postemployment Benefits (“ASC 712”). Additionally, the Company incurred $ 709 thousand of expenses for the year ended December 31, 2024 related to employee relocation and equipment move costs in conjunction with these actions, which was recorded within Selling, administrative and engineering expense on the consolidated statements of operations and comprehensive loss in the Electric Motorcycles segment. As of December 31, 2025, there are no amounts remaining to be paid related to this reorganization. There are no other amounts expected to be incurred under this plan and all costs associated with this plan were recognized in the prior year. +In September 2024, continuing its focus on the Company’s path to profitability and furthering its strategy, the Company executed a reorganization of its Sales and Marketing function and Product Development and Design function (“September 2024 reorganization”), including consolidating each of these functions under singular leadership and other headcount reductions. In conjunction with this reorganization, the Company recorded $ 1,271 thousand of employee termination benefits, primarily severance, for the year ended December 31, 2024. This amount was recorded within the Electric Motorcycles segment and presented within Selling, administrative and engineering on the consolidated statements of operations and comprehensive loss. Of this amount, $ 776 thousand related to one-time employee termination benefits recorded pursuant to ASC 420, and the remainder was related to existing contractual arrangements with employees recorded pursuant to ASC 712. As of December 31, 2025, there are no amounts remaining to be paid related to this reorganization. There are no other amounts expected to be incurred under this plan and all costs associated with this plan were recognized in the prior year. +The Company recognized a reduction in stock compensation expense of $ 3,753 thousand in the year ended December 31, 2024 resulting from forfeitures of awards related to employees who terminated during 2024 resulting from the above actions. The Company also recorded $ 863 thousand of accelerated depreciation related to LiveWire Labs leasehold improvements resulting from the move from Mountain View, California to Milwaukee, Wisconsin in the year ended December 31, 2024. These amounts were recorded within Selling, administrative and engineering expense on the consolidated statements of operations and comprehensive loss in the Electric Motorcycles segment. +The following table displays a roll-forward of the restructuring liability recorded within the Company’s consolidated balance sheets and the related cash flow activity (in thousands): +111 +Employee Termination Benefits Other Total +Balance at December 31, 2023 $ — $ — $ — +Reserve Established: +April 2024 Plan 3,043 709 3,752 +September 2024 reorganization 1,271 — 1,271 +Total Reserve Established 4,314 709 5,023 +Payments: +April 2024 Plan ( 2,751 ) ( 697 ) ( 3,448 ) +September 2024 reorganization ( 900 ) — ( 900 ) +Total Payments ( 3,651 ) ( 697 ) ( 4,348 ) +Balance at December 31, 2024 $ 663 $ 12 $ 675 +Reserve Established: +April 2024 Plan — — — +September 2024 reorganization — — — +Total Reserve Established 663 12 675 +Payments: +April 2024 Plan ( 292 ) ( 12 ) ( 304 ) +September 2024 reorganization ( 371 ) — ( 371 ) +Total Payments ( 663 ) ( 12 ) ( 675 ) +Balance at December 31, 2025 $ — $ — $ — +Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +None. +Item 9A. Controls and Procedures +Limitations on effectiveness of controls and procedures +In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. +Evaluation of Disclosure Controls and Procedures +Our management, with the participation of the Company's Chief Executive Officer (Principle Executive Officer) and Head Accounting Officer (Principal Financial Officer), evaluated, as of the end of the period covered by this Form 10-K, the effectiveness of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15d-15(e) under the Exchange Act). Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes are in accordance with U.S. GAAP. Based on that evaluation, the Company's Chief Executive Officer and Head Accounting Officer concluded that, as of December 31, 2025, our disclosure controls and procedures were effective at the reasonable assurance level. +112 +Management’s Report on Internal Control over Financial Reporting +Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13(a)-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934 (the “Exchange Act”). Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the criteria established in Internal Control – Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management’s evaluation under the framework in Internal Control – Integrated Framework, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2025. +Attestation Report of Independent Registered Public Accounting Firm +This Form 10-K does not include an attestation report of the effectiveness of the Company's internal control over financial reporting as of December 31, 2025 by the Company's registered public accounting firm due to our status as an emerging growth company under the JOBS Act. +Changes in Internal Control over Financial Reporting +There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fourth quarter ended 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. +Item 9B. Other Information +During the three months ended December 31, 2025, no director or Section 16 officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K. +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not applicable. +PART III +Item 10. Directors, Executive Officers and Corporate Governance +Our current executive officers as of the date of this Annual Report are as follows: +Name Age* Position +Executive Officers: +Karim Donnez 49 Chief Executive Officer +Jennifer Hoover 49 Head Accounting Officer +Ryan Ragland 50 Head of Product Development & Design +Allen Gerrard 53 General Counsel & Board Secretary +Jon Bekefy 49 Head of Global Sales & Marketing +*As of February 20, 2026 +113 +Executive Officers +Karim Donnez is Chief Executive Officer of LiveWire. Mr. Donnez joined LiveWire from Bombardier Recreational Products Inc. (“BRP”) where he was most recently President of BRP’s Marine Group, having held various roles since joining the company in 2015, including SVP, Strategy, Business Development, IS&T and Transformation. Prior to joining BRP, Mr. Donnez held leadership positions at Rio Tinto, most recently as General Manager, Refinery & Energy for Rio Tinto Kennecott, where he oversaw business transformation initiatives as part of corporate global functions. Donnez started his career at Accenture. Mr. Donnez holds an MSc in Engineering from Arts et Metiers Paris Tech and an MBA from HEC Montréal. +Jennifer Hoover is Head Accounting Officer of LiveWire. Ms. Hoover has served as Head Accounting Officer of LiveWire since July 2025. Prior to this, Ms. Hoover was the Director of Financial Reporting and Accounting since joining LiveWire in August 2023. Before joining LiveWire, Ms. Hoover spent a total of 25 years at PricewaterhouseCoopers from 1998 to 2023 with her last position being that of Director. Ms. Hoover is a CPA licensed in the State of Michigan. Ms. Hoover holds a Bachelor of Arts degree in Accounting from Michigan State University. +Ryan Ragland is our Head of Product Development and Design where he leads innovative product and design strategies. In 2016, Mr. Ragland co-founded StaCyc which introduced the first electric balance bike and transformed how young riders experience motorcycling. Upon StaCyc being acquired by Harley-Davidson in 2019, Mr. Ragland continued in a leadership role as CEO and Chief of Brand and Product of StaCyc. Mr. Ragland previously worked as a Principal Engineer at Rev.1 Engineering where he contributed to medical device advancements. Mr. Ragland also held several titles at KTM North America, Inc., where he managed R&D programs and advanced product testing strategies. Mr. Ragland holds a Bachelor of Science degree in Mechanical Engineering from San Diego State University. +Allen Gerrard is our General Counsel and Board Secretary. Mr. Gerrard joined LiveWire from Harley-Davidson (“H-D”) where he was most recently Assistant General Counsel, Products & Strategy and Assistant Secretary. Mr. Gerrard held several legal leadership roles at H-D providing guidance to H-D’s leadership team since 2017. Prior to joining H-D, Mr. Gerrard held various legal positions at PepsiCo, Inc., GE Healthcare and Fiserv, Inc. Mr. Gerrard holds a J.D. from Pace University Elizabeth Haub School of Law in White Plains, N.Y. and a B.A. in Political Science from the University of Colorado Boulder. +Jon Bekefy is our Head of Marketing and Digital. Prior to joining LiveWire, Mr. Bekefy served as the GM of Brand Marketing for Harley-Davidson from 2019-2021. Prior to Harley-Davidson, Mr. Bekefy was instrumental in electric vehicle start-ups at Alta Motors from 2015-2017 serving in marketing leadership, and at Mission Motors from 2013 to 2015. Jon Holds a B.A. from the University of Delaware. +Family Relationships +There are no family relationships between any of LiveWire’s executive officers and directors. +Code of Ethics +We have adopted a written code of business conduct and ethics, which applies to all of our directors, officers and employees, including our principal executive officer, our principal financial officer, our principal accounting officer, and other persons performing similar finance functions. Our Code of Business Conduct and Ethics is available on our website www.livewire.com in the “Governance & Leadership” section under “Governance Documents.” In addition, we intend to post on our website all disclosures that are required by law or listing rules of the New York Stock Exchange concerning any amendments to, or waivers from, any provision of our Code of Business Conduct and Ethics. The information contained on our website is not incorporated by reference into this Annual Report on Form 10-K. +The other information required by this Item will be included in the Proxy Statement under the caption Board Matters and Corporate Governance and is incorporated by reference herein. The information on beneficial ownership reporting compliance will be contained under the caption Delinquent Section 16(a) Reports in the Proxy Statement and is incorporated by reference herein. +Item 11. Executive Compensation +The information required by this Item will be included in the Proxy Statement under the captions Executive Compensation and is incorporated by reference herein. +114 +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The information required by this Item will be included in the Proxy Statement under the caption Common Stock Ownership of Certain Beneficial Owners and Management and is incorporated by reference herein. +Item 13. Certain Relationships and Related Transactions, and Director Independence +The information required by this Item will be included in the Company's Proxy Statement under the captions Certain Transactions and Relationships and Board Matters and Corporate Governance and are incorporated by reference herein. +Item 14. Principal Accountant Fees and Services +The information required by this Item will be included in the Company's Proxy Statement under the caption Independent Registered Public Accounting Firm and is incorporated by reference herein. +115 +PART IV +Item 15. Exhibits and Financial Statement Schedules +(a) The following documents are filed as part of this Form 10-K: +(1) +Financial Statements under Item 8. Consolidated Financial Statements and Supplementary Data +Report of Independent Registered Public Accounting Firm (PCAOB ID: 185 ) +74 +Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) +75 +Consolidated statements of operations and comprehensive loss for the years ended December 31, 2025, 2024, and 2023 +76 +Consolidated balance sheets at December 31, 2025 and 2024 +77 +Consolidated statements of cash flows for the years ended December 31, 2025, 2024, and 2023 +78 +Consolidated statements of shareholders’ equity for the years ended December 31, 2025, 2024, and 2023 +79 +Notes to Consolidated financial statements +80 +(2) Financial Statement Schedule +Schedule II – Valuation and qualifying accounts +117 +(3) +Exhibits +118 +Reference is made to the separate Index to Exhibits contained on the following pages filed herewith. +All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedules. +116 +LIVEWIRE GROUP, INC. +SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS +(In thousands) +Years Ended +2025 2024 2023 +Accounts receivable - provision for expected credit losses +Balance, beginning of period $ 302 $ 140 $ 211 +Provision charged to expense 124 231 52 +Reserve adjustments — — — +Write-offs, net of recoveries ( 210 ) ( 69 ) ( 123 ) +Balance, end of period $ 216 $ 302 $ 140 +Inventories - allowance for obsolescence +Balance, beginning of period $ 4,661 $ 3,539 $ 1,320 +Provision charged to expense 770 1,957 2,219 +Reserve adjustments — — — +Write-offs, net of recoveries ( 1,037 ) ( 835 ) — +Balance, end of period $ 4,394 $ 4,661 $ 3,539 +Deferred tax assets - valuation allowance +Balance, beginning of period $ 13,248 $ 9,693 $ 8,312 +Adjustments 357 3,555 1,381 +Balance, end of period $ 13,605 $ 13,248 $ 9,693 +117 +INDEX TO EXHIBITS +Items 15(a)(3) and 15(c) +Exhibit No. Description Form File No. Filing Date Exhibit Number Filed/Furnished herewith +2.1† +Business Combination Agreement, dated as of December 12, 2021, by and among Harley-Davidson, Inc., AEA-Bridges Impact Corp., LW EV Holdings, Inc., LW EV Merger Sub, Inc. and LiveWire EV, LLC 8-K 001-39584 12/15/2021 2.1 +3.1 +Amended and Restated Certificate of Incorporation of LiveWire Group, Inc. 8-K 001-41511 9/30/2022 3.1 +3.2 +Amended and Restated Bylaws of LiveWire Group, Inc. 8-K 001-41511 9/30/2022 3.2 +4.1 +Warrant Agreement, dated as of October 1, 2020, by and between the Company and Continental Stock Transfer & Trust Company, as Warrant Agent 8-K 001-39584 10/7/2020 4.4 +4.2 +Specimen Warrant Certificate S-1 333-248785 9/14/2020 4.3 +4.3 +Description of our Securities * +10.1 +Form of Indemnification Agreement 8-K 001-41511 9/30/2022 10.1 +10.2 +Form of Investment Agreement S-4 333-262573 2/7/2022 10.3 +10.3 +Registration Rights Agreement, dated as of September 26, 2022, by and among LiveWire EV, LLC and the holders party thereto 8-K 001-41511 9/30/2022 10.3 +10.4+ +LiveWire Group, Inc. 2022 Incentive Award Plan 8-K 001-41511 9/30/2022 10.4 +10.5# +Separation Agreement, dated as of September 26, 2022, by and among LiveWire EV, LLC and Harley-Davidson, Inc. 8-K 001-41511 9/30/2022 10.5 +10.6 +Tax Matters Agreement, dated September 26, 2022, by and among LiveWire Group, Inc. and Harley-Davidson, Inc. 8-K 001-41511 9/30/2022 10.6 +10.7# +Contract Manufacturing Agreement, dated as of September 26, 2022, by and among LiveWire EV, LLC and Harley-Davidson Motor Company Group, LLC 8-K 001-41511 9/30/2022 10.7 +10.8# +Amended and Restated Master Services Agreement, dated as of December 23, 2024, by and among LiveWire EV, LLC and Harley-Davidson, Inc. 8-K 001-41511 12/26/2024 10.1# +10.9# +Intellectual Property Agreement, dated as of September 26, 2022, by and among LiveWire EV, LLC and Harley-Davidson, Inc. 8-K 001-41511 9/30/2022 10.10 +10.10# +Trademark License Agreement, dated as of September 26, 2022, by and among LiveWire EV, LLC and Harley-Davidson, Inc. 8-K 001-41511 9/30/2022 10.11 +10.11# +Joint Development Agreement, dated as of September 26, 2022, by and among LiveWire EV, LLC and Harley-Davidson, Inc. 8-K 001-41511 9/30/2022 10.12 +10.12+ +Employee Matters Agreement, dated as of September 26, 2022, by and among LiveWire EV, LLC and Harley-Davidson, Inc. 8-K 001-41511 9/30/2022 10.13 +10.13# +KYMCO Contract Manufacturing Agreement, dated as of September 26, 2022, by and among LiveWire EV, LLC and Kwang Yang Motor Co., Ltd 8-K 001-41511 9/30/2022 10.14 +118 +INDEX TO EXHIBITS +Items 15(a)(3) and 15(c) +Exhibit No. Description Form File No. Filing Date Exhibit Number Filed/Furnished herewith +10.14 +Investor Support Agreement, dated as of December 12, 2021, by and among AEA-Bridges Sponsor LLC, LiveWire EV, LLC, LiveWire Group, Inc. (formerly known as LW EV Holdings, Inc.), Harley-Davidson, Inc., John Garcia, John Replogle, and George Serafeim S-4 333-262573 5/20/2022 10.16 +10.15# +Long Term Collaboration Agreement, dated as of December 12, 2021, by and between LiveWire EV, LLC and Kwang Yang Motor Co., Ltd. S-4 333-262573 2/7/2022 10.7 +10.16+ +Director Compensation Policy * +10.17+ +LiveWire Group, Inc. Non-Employee Director Compensation Policy * +10.18+ +Form of Restricted Stock Unit Award Agreement * +10.19+ +Form of Restricted Stock Unit Award Agreement – Non-compete * +10.20+ +Form of Restricted Stock Unit Award – International * +10.22 +LiveWire Group, Inc. Executive Severance Plan 8-K 001-41511 5/10/2023 10.1 +10.25 +Amended and Restated Delayed Draw Term Loan Agreement dated as of November 9, 2025 between LiveWire EV, LLC, and Harley Davidson, Inc. 10-Q 001-41511 11/10/2025 10.2 +19.1 +LiveWire Group, Inc. Insider Trading Compliance Policy * +21.1 +Listing of LiveWire Group, Inc. Subsidiaries * +23.1 +Consent of Independent Registered Public Accounting Firm * +23.2 +Consent of Independent Registered Public Accounting Firm * +31.1 +Principal Executive Officer Certification pursuant to Rule 13a-14(a) and 15d-14(a) * +31.2 +Principal Financial Officer Certification pursuant to Rule 13a-14(a) and 15d-14(a) * +32.1 +Written Statement of the Principal Executive Officer and the Principal Financial Officer pursuant to 18 U.S.C. §1350 ** +97 +LiveWire Group, Inc. Clawback Policy 10-K 001-41511 2/23/2024 97 +101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document * +101.SCH XBRL Taxonomy Extension Schema Document * +101.CAL XBRL Taxonomy Extension Calculation Linkbase Document * +101.DEF XBRL Taxonomy Extension Definition Linkbase Document * +119 +INDEX TO EXHIBITS +Items 15(a)(3) and 15(c) +Exhibit No. Description Form File No. Filing Date Exhibit Number Filed/Furnished herewith +101.LAB XBRL Taxonomy Extension Label Linkbase Document * +101.PRE XBRL Taxonomy Extension Presentation Linkbase Document * +104 Cover Page Interactive Data File - formatted in Inline XBRL and contained in Exhibit 101 * +† The annexes, schedules and certain exhibits to this Exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Registrant hereby agrees to furnish supplementally a copy of any omitted annex, scheduled or exhibit to the SEC upon request. +# Certain portions of this exhibit (indicated by “[***]”) have been omitted pursuant to Regulation S-K, item 601(b)(10). +* Filed herewith. +** Furnished herewith. ++ Indicates a management contract or compensatory plan, contract or arrangement. +120 +Item 16. Form 10-K Summary +Not applicable. +121 +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 20, 2026. +LiveWire Group, Inc. +By: /s/ Karim Donnez +Karim Donnez +Chief Executive Officer +(Principal Executive Officer) +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 20, 2026. +Name Title +/s/ Karim Donnez Chief Executive Officer +Karim Donnez (Principal Executive Officer) +/s/ Jennifer Hoover Head Accounting Officer +Jennifer Hoover (Principal Financial Officer and Principal Accounting Officer) +/s/ William Cornog Director +William Cornog +/s/ Kjell Gruner Director +Kjell Gruner +/s/ Glen Koval Director +Glen Koval +/s/ Paul Krause Director +Paul Krause +/s/ Hiromichi Mizuno Director +Hiromichi Mizuno +/s/ Bryan Niketh Director +Bryan Niketh +/s/ Jonathan Root Board Chairman +Jonathan Root +122 \ No newline at end of file diff --git a/raw/filings/0001898795/2025/0001898795-26-000028/filing_metadata.csv b/raw/filings/0001898795/2025/0001898795-26-000028/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..dce8d8cd2649b0c5f342ef2d7a77e8b0cf69306e --- /dev/null +++ b/raw/filings/0001898795/2025/0001898795-26-000028/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001898795,LVWR-WT,"LiveWire Group, Inc.",2025,10-K,2026-02-20,2025-12-31,2026-02-20T21:32:07.000Z,0001898795-26-000028,lvwr-20251231.htm,10-K,12116556,1,1,https://www.sec.gov/Archives/edgar/data/1898795/000189879526000028/lvwr-20251231.htm,https://www.sec.gov/Archives/edgar/data/1898795/000189879526000028/ diff --git a/raw/filings/0001898795/2025/0001898795-26-000028/item1.txt b/raw/filings/0001898795/2025/0001898795-26-000028/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..8d889b549c57b87c87a98b8a52e230618fef9403 --- /dev/null +++ b/raw/filings/0001898795/2025/0001898795-26-000028/item1.txt @@ -0,0 +1,146 @@ +Item 1. Business +General +LiveWire Group, Inc., a Delaware corporation, and its consolidated subsidiaries are referred to in this Form 10-K as “we,” “our,” “us,” the “Company,” or “LiveWire.” LiveWire is an industry-leading all-electric motorcycle brand with a focus on pioneering the growing two-wheel electric motorcycle space. +LiveWire was a direct, wholly owned subsidiary of AEA-Bridges Impact Corp (“ABIC”), which was originally incorporated as a Cayman Islands exempted company on July 29, 2020, as a special purpose acquisition company (“SPAC”) with the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities. In connection with the transactions (the “Business Combination”) pursuant to the business combination agreement, dated as of December 12, 2021 (the “Business Combination Agreement”), by and among ABIC, LiveWire EV Holdings, Inc., a Delaware corporation (now known as “LiveWire Group, Inc.”), LW EV Merger Sub, Inc., a Delaware corporation (“Merger Sub”), Harley-Davidson, Inc. (“H-D”), and LiveWire EV, LLC (“Legacy LiveWire”), a wholly-owned subsidiary of H-D, we entered into a number of agreements with H-D, including the Separation Agreement, dated as of September 26, 2022, by and between H-D and Legacy LiveWire and consummated the separation of the Legacy LiveWire business and other transaction contemplated by the Separation Agreement (the “Separation”). +The Company assessed that it has two reportable segments based upon how management reviews the operations of the business: Electric Motorcycles (“Electric Motorcycles”) and STACYC (“STACYC”). The Company's reportable segments are strategic business units that offer different products and services and are managed separately based on the fundamental differences in their operations. The Electric Motorcycles segment primarily focuses on the designing and selling of electric motorcycles and also sells electric motorcycle parts, accessories, and apparel. Electric motorcycles are sold at wholesale to a network of independent dealers and retailers, at retail through a Company-owned dealership, and through online sales. The STACYC segment primarily focuses on the designing and selling of electric balance bikes for kids, adult pedal assist electric bikes that were introduced in March 2025, and related parts and accessories. The STACYC segment products are sold at wholesale to independent dealers and independent distributors, as well as direct to consumers online. +Vision and Growth Strategy +LiveWire’s vision is to lead the next generation of products that combine the experience of electric powertrains with the soulful connection that comes from riding. The underpinning strategy is to accelerate the electric vehicle transformation of the industry while building a leadership position in the market. Directing the shift to electric vehicles is a mission-driven leadership team with the competitive advantages of strategic partnerships with H-D and the KYMCO Group (Kwang Yang Motor Co., Ltd., KYMCO Capital Fund I Co., Ltd., SunBright Investment Co., Ltd., CycleLoop Co., Ltd. and Kwang Yang Holdings Limited (collectively, the “KYMCO Group”)) and having a pipeline of future products for both Electric Motorcycles and STACYC youth segments. From advanced electric motorcycles to youth-focused balance bikes, the Electric Motorcycles and STACYC segments together represent a vision for the future – one that blends performance, accessibility, and global reach. We believe these portfolios signal the next step in shaping the next generation of twist & go riders and electric powersports enthusiasts worldwide. +LiveWire’s Strategic Priorities +Lead in Electric and the Transformation of Motorcycling - The electric vehicle market will include both established manufacturers and new entrants. To establish market share and scale our business, LiveWire plans to continue building global distribution capabilities and make investments in research and development for the commercialization of future generations of LiveWire electric motorcycles, related technologies and other products. +Capture Global Share of the Electric Motorcycle Market - LiveWire strategically selects our retail partners based upon their commitment to electric, location and capabilities to support the electric vehicle capture. Our 2026 priority markets include the United States, Canada and leading countries in Europe such as Germany, France, Switzerland, the Netherlands, the United Kingdom, Spain, Italy, Poland, Portugal, Finland, Belgium and Luxembourg. +5 +Lead in Brand Desirability - LiveWire’s ambition is to create the most desirable electric motorcycle brand in the world. As a brand, LiveWire leverages Soulful by Design as its consumer-facing position. This differentiates LiveWire from others in the category, showcasing a rider’s connection to the world through the LiveWire riding experience. LiveWire’s go-to-market model allows for a consumer-defined journey across digital and physical platforms for an omni-channel experience. +Share the Love of Riding - STACYC’s mission has been to Share the Love of Riding , designing and selling electric stability bikes for kids, enabling the development of their skillset and powering their journey to independence on two wheels while preparing them to become the next generation of riders. STACYC’s current portfolio includes four sizes of product for kids ages 3 to 12, and an adult pedal-assist electric bike. The Company’s priority markets continue to be North America, with expansion in Europe and Australia, selling through powersports dealers, in addition to digital channels, while leveraging licensing deals with traditional powersport Original Equipment Manufacturers (“OEM”) to increase reach and scale. +Strategic Partnerships +LiveWire benefits from two important strategic partners: H-D and KYMCO Group. These partners have been selected based on their track record in their respective segments, the strength of their global capabilities, and the complementary fit with the LiveWire business. These partnerships give LiveWire a unique ability to deliver high-quality products to the global market in a capital-efficient approach. +H-D is one of the most recognized motorcycle brands in the world, with capabilities to design, develop, manufacture, market and distribute vehicles to major markets around the globe. Beyond the various service agreements tied to the Separation, LiveWire intends to leverage H-D’s capabilities in two key areas: technical and other services and contract manufacturing. +The KYMCO Group sells a globally recognized brand of scooters, motorcycles and side-by-side ATVs. The KYMCO Group goes to market with a sales footprint covering over 100 countries, including a growing subset of electric vehicle-specific distribution points. In addition to core sales activities of the KYMCO Group brand, it is a trusted design and manufacturing partner to other premium two-wheel original equipment manufacturers. +LiveWire will draw on H-D’s and the KYMCO Group’s best-in-class operations, benefiting from knowledge, scale and infrastructure across material sourcing, electric vehicle building and global distribution. +Strategic Agreements with H-D +In connection with the Business Combination , we entered into a number of agreements with H-D to govern the Separation and provide a framework for the relationship between the parties going forward pursuant to which we and/or H-D have continuing obligations to each other . All transactions with H-D subsequent to the Business Combination are considered related party transactions. Agreements that the Company entered into in connection with the Separation include: +6 +Master Services Agreement +On September 26, 2022, we entered into a master services agreement with H-D pursuant to which H-D provided us with certain services that we did not yet have the capability to perform for ourselves, including services related to testing and development, product regulatory support, color materials, finishes, paint and graphics, technical publication, application support and maintenance, service desk support, warehousing support, safety investigation, and marketing vehicle and fleet center, as we may request from time to time. On December 23, 2024, we entered into a new Master Services Agreement (the “Master Services Agreement”) with H-D. The Master Services Agreement became effective on January 1, 2025, and terminated the master services agreement, dated September 26, 2022, between LiveWire and H-D. Pursuant to the Master Services Agreement, H-D will continue to provide LiveWire with certain services that LiveWire determined would be better outsourced at this time, including services that support testing and development, product regulatory support, color materials, finishes, paint and graphics, technical publication, application support and maintenance, service desk support, warehousing support, and other corporate support services. The new Master Services Agreement incorporates a subset of support services previously provided under the now expired Transition Services Agreement including services where LiveWire utilizes H-D’s subject matter experts for targeted guidance or allow LiveWire to leverage H-D’s systems or equipment for cost savings purposes. The Master Services Agreement contemplates that each of the services shall be provided to LiveWire as detailed under the terms of the Master Services Agreement and the exhibit thereto or as set forth in a separate, mutually agreed upon letter agreement. The Master Services Agreement also provides that any service or project not contemplated by the Master Services Agreement will be set forth in a separate, mutually agreed upon side letter or letter agreement, and any fee for such service or project will be separate than the fee provided for in the Master Services Agreement. The Master Services Agreement has an initial term of seven years and will be renewable upon mutual agreement. The Master Services Agreement or any related letter agreement for additional services may be terminated by either party upon the other party’s material, uncured breach. H-D may also terminate the agreement upon LiveWire’s change of control or, at the end of a calendar year upon 180 days written notice, in the event that LiveWire failed to engage H-D to manufacture at least forty percent of LiveWire’s production during that calendar year. The charges for the services will be a flat monthly fee representing cost plus a markup. A joint steering committee composed of senior executives and/or designees of each party will meet annually to formulate a forecast and plan for LiveWire’s anticipated service needs, as well as adjust the monthly fee as appropriate, and will oversee the progress of the services and address any disputes. +Contract Manufacturing Agreement +On September 26, 2022, we entered into a Contract Manufacturing Agreement with H-D (the “Contract Manufacturing Agreement”) pursuant to which H-D provides contract manufacturing and procurement services to us for the products in our LiveWire platform, as well as future anticipated platforms. H-D is our exclusive manufacturer for these platforms for five years from the date that H-D begins manufacturing the relevant platform (and five years from the Separation for the LiveWire platform). Following this exclusivity period, we may terminate the agreement for one or more products within the relevant platform upon two years’ notice, subject to payment of certain termination charges (which are intended to compensate H-D for its capital investment and other sunken costs). The Contract Manufacturing Agreement may also be terminated, in whole or part, by either party upon the other party’s material, uncured breach, inability to perform its obligations for more than six months due to a force majeure event, bankruptcy or insolvency, or change of control. On February 14, 2024, the Contract Manufacturing Agreement was amended to extend the period of which H-D is the exclusive manufacturer from five years as described above to six years. +Beginning for calendar year 2027, LiveWire will be subject to a minimum annual volume commitment for each product and pay a deficit fee for failure to meet the minimum under the Contract Manufacturing Agreement. The products that H-D manufactures for us are priced on a cost-plus basis, with a mark-up of H-D’s cost for manufacturing the relevant product. An operational committee consisting of designated employees of each party will meet quarterly for administrative purposes, including for the review of changes to pricing, minimum volumes and other terms. H-D will procure, on our behalf, equipment and materials that are used in both H-D’s and our products, and we will procure all other equipment and materials, as well as tooling, needed to manufacture the products. +Intellectual Property License Agreement +On September 26, 2022, we entered into an Intellectual Property License Agreement with H-D (the “Intellectual Property License Agreement”) pursuant to which each party granted to the other party a license to certain intellectual property on a perpetual, non-exclusive basis for the purpose of making and selling the licensee’s products. +7 +H-D perpetually licenses to us all H-D intellectual property (other than marks or software) used in our business as of the Separation and certain additional specified intellectual property, as well as all improvements to the foregoing (but excluding (i) any H-D manufacturing intellectual property and (ii) intellectual property relating to motorcycle riding apparel and related general merchandise). We perpetually license to H-D all intellectual property (other than marks or software) that we own as of the Separation and all improvements thereto. If either party makes improvements to the other party’s intellectual property, such improvements will be jointly owned by the parties. +The licenses are generally royalty-free. However, if either party desires to exercise its license with respect to improvements introduced by the other party in next-generation vehicles (rather than a “carry over” or a “model refresh”), then the parties will mutually agree in good faith on a reasonable royalty to be paid. In addition, if H-D desires to sell any products that incorporate our intellectual property outside of the Large Cruiser, Touring and Adventure Touring markets during the seven-year period following the Separation, the parties will mutually agree in good faith on a reasonable royalty to be paid on such sales (but not on sales relating to LiveWire-branded H-D motorcycles or related LiveWire parts and accessories). +Each party owns improvements that it creates to its own intellectual property, and the parties jointly own improvements that one party creates to the other party’s intellectual property, without a right of accounting. +Trademark License Agreement +On September 26, 2022, we entered into a Trademark License Agreement with H-D (the “Trademark License Agreement”) pursuant to which H-D granted to us a royalty-free license to use certain H-D trademarks with respect to our products. The Trademark License Agreement automatically renewed on September 26, 2024 and automatically renews for successive two-year periods unless either party gives notice of non-renewal at least 60 days prior to the end of the then-current term. H-D may terminate the agreement earlier upon our breach under certain circumstances, our bankruptcy or insolvency, or our unpermitted assignment of the agreement. +Joint Development Agreement +On September 26, 2022, we entered into a Joint Development Agreement with H-D (the “Joint Development Agreement”) pursuant to which the parties may agree to engage in joint development projects, which would be set forth in one or more mutually agreed project work statements. The Joint Development Agreement remains in effect until we and H-D mutually agree to terminate it and can be terminated earlier by either party upon the other party’s material, uncured breach. +Under the Joint Development Agreement, H-D is required to notify us of any development projects for H-D’s business that are primarily related to electric vehicles, and we have the right to make a proposal with respect to the joint development of such a project. The parties will discuss in good faith whether or not it is beneficial for the parties to enter into a joint development project with respect to such project. If H-D engages in any development projects that are primarily related to electric vehicles and fails to consult with us so that we can make a proposal with respect such potential project, then the intellectual property developed pursuant to such H-D development project will be owned and licensed in accordance with the default intellectual property terms of the agreement (described below). Unless we and H-D agree otherwise for a particular project, each party bears its own costs and expenses in connection with each project under the Joint Development Agreement. +Unless otherwise mutually agreed for a particular project under the Joint Development Agreement, we own project intellectual property relating exclusively to electric vehicles and H-D owns all other project intellectual property. Each party is granted a perpetual license to use the project intellectual property in connection with that party’s products, which, for us, are limited to two-, three-, or four-wheeled electric vehicles, related parts and accessories and electric vehicle systems. +Tax Matters Agreement +On September 26, 2022, LiveWire entered into a Tax Matters Agreement with H-D (the “Tax Matters Agreement”). The Tax Matters Agreement sets forth the principles and responsibilities regarding the allocation of taxes, adjustments with respect to taxes, preparation of tax returns, tax audits and certain other tax matters that affect LiveWire and H-D in the event LiveWire or any of its subsidiaries are members of any of H-D’s consolidated, combined, unitary and other similar groups for federal, state or local income tax purposes (or LiveWire has certain income, gain, loss and deduction included in the tax returns of such groups). LiveWire and its subsidiaries are currently members of H-D’s consolidated, combined, unitary and other similar groups for federal, state and local income tax purposes. +8 +With respect to U.S. federal income tax returns for any taxable period in which LiveWire (or any of its subsidiaries) are included in H-D’s consolidated group for U.S. federal income tax purposes, the amount of taxes to be paid by us is generally determined, subject to certain adjustments, as if LiveWire and each of its subsidiaries filed its own separate consolidated federal income tax return (LiveWire’s “separate federal tax liability”). With respect to state and local income tax returns for any taxable period in which LiveWire or any of its subsidiaries are included in H-D’s combined, consolidated or unitary group for state or local income tax purposes, the amount of taxes to be paid by LiveWire is determined, subject to certain adjustments using principles analogous to the principles used to compute LiveWire’s separate federal tax liability, as if LiveWire and each of its subsidiaries included in such combined, consolidated or unitary group filed its own combined, consolidated or unitary group state or local income tax return. +LiveWire’s inclusion in H-D’s consolidated group may result in H-D utilizing certain tax attributes that LiveWire generates, including net operating losses and credits, and LiveWire will receive no compensation from H-D for the use of such attributes, but they may be used to offset any future liabilities that may be owed by LiveWire to H-D under the Tax Matters Agreement. +The Tax Matters Agreement applies as of the closing of the Business Combination, which is the date that H-D’s ownership of LiveWire met the applicable minimum threshold required to file either a combined return or a consolidated return and will remain in effect unless the parties agree in writing to terminate the agreement. Notwithstanding any termination of the Tax Matters Agreement, the agreement will continue in effect with respect to any payment or indemnification due for all taxable periods prior to the termination during which the Tax Matters Agreement was in effect. +Electric Motorcycles Segment +The Electric Motorcycles segment focuses on the development and sales of electric motorcycles as well as parts, accessories, and apparel. Electric motorcycles are sold by combining both digital and physical touchpoints to a network of independent dealers, at retail direct to consumers through a Company-owned dealership, and online sales. Prior to November 5, 2024, the Company’s products were sold at retail through select international partners primarily in Europe. +Electric Motorcycles segment revenue by product line for the last three fiscal years was as follows (in thousands): +2025 2024 2023 +Electric motorcycles $ 4,691 $ 7,644 $ 11,087 +Parts, accessories and apparel 1,373 737 461 +Revenue, net $ 6,064 $ 8,381 $ 11,548 +Electric Motorcycles – The Electric Motorcycles segment sells electric powered motorcycles under the LiveWire brand. The electric motorcycles are developed in accordance with a set of proprietary design principles that elevate the brand, deliver differentiated riding experiences and bring heightened emotional responses to electric propulsion. Starting from the LiveWire ONE, the portfolio expanded on our ARROW architecture beginning with the System2 (“S2”) Del Mar®, followed by the Mulholland® and Alpinista®. ARROW was developed in-house to take advantage of the benefits of scalable, modular architectures across the electric vehicle, electric vehicle systems and software. ARROW is an integrated vehicle architecture, utilizing the battery pack and motor as the primary vehicle structure to deliver simple, elegant lightweight designs. +The software backbone that supports every LiveWire S2 electric motorcycle is developed ground-up to maximize efficiency and performance, integrating all electric vehicle systems and vehicle functions. The electric motorcycle connects to the cloud through a telematics control unit (“TCU”) with built-in cellular connectivity. The connection enables remote monitoring of the vehicle, with status data including charge, range and tamper alerts. The LiveWire app allows riders to interact with the electric motorcycle, delivering maps, audio and ride planning via an integrated user profile. Our S2 mobile app remotely bridges the rider to the bike using built-in cellular connectivity and GPS, providing status, notifications, and alerts. In combination with the cloud system and the TCU, the mobile apps enable an ecosystem of services provided to LiveWire electric motorcycle riders. +Our Firmware Over the Air (“FOTA”) allows for continual upgrades and refinements to the electric motorcycle in the field, greatly reducing the need and inconvenience for service or repair appointments for setting or software updates. With FOTA-enabled electronic control units on the vehicle, each subsystem becomes remotely addressable and updatable. In addition to the benefits to the Electric Motorcycles segment as the original equipment manufacturers, FOTA capability enables remote updates to bring the rider new features, functionality and enhancements as they are developed to continually improve the LiveWire electric motorcycle riding and ownership experience. +9 +The Electric Motorcycles segment is continuing to focus on strategic expansion of its product offerings, including the planned production in the spring of 2026 of two new 125 cc-equivalent mini-motos, the S4 Honcho TM products, which are designed to expand access and affordability for riders globally. +Industry – The relevant internal combustion engine (“ICE”) and electric vehicle markets for the Electric Motorcycles segment include: +• Small and large scooters +• Light, medium and heavy weight motorcycles +• Three-wheeled motorcycles and automobiles +• Side-by-side ATVs and four-wheelers +Competition – The Electric Motorcycles segment expects competition from two primary segments: +• Leading ICE-focused motorcycle companies: These incumbent motorcycle companies have the ability to scale manufacturing and leverage global distribution capabilities. Several of these companies have begun to enter the electric motorcycle market through the release or public announcement and planned release of electric motorcycles or scooters. +• Small scale electric mobility companies: These start-ups and smaller companies may have products in the market today, but typically lack the global manufacturing and distribution capabilities of the major ICE players. +While we expect competition to grow in the market as competitors invest in the total addressable electric two-wheel market, we believe the Electric Motorcycles segment is primarily positioned with the combination of technology, manufacturing, and market position to lead the growing electric motorcycle market. +Parts, accessories, and apparel – Parts, accessories, and apparel products include replacement parts and mechanical and cosmetic accessories, clothing and accessories. +Marketing – The Electric Motorcycles segment’s brand, products and the riding experience are marketed to consumers in the United States and select international markets. Marketing occurs primarily through digital and experiential activities as well as through more traditional promotional and advertising activities. The Electric Motorcycles segment is making investments to provide potential customers with many other opportunities to engage with the brand and try Electric Motorcycles segment products. Additionally, the Electric Motorcycles segment’s dealers engage in a wide range of local marketing and events. +Seasonality – The seasonality of the Electric Motorcycles segment’s wholesale motorcycle shipments generally correlates with the timing of retail sales made by dealers. Retail sales generally track closely with regional riding seasons, generally from mid-March through August. +Electric Motorcycle Manufacturing – The Electric Motorcycles segment leverages its strategic partners to enable an asset-light approach which allows the business to scale with less investment than would be necessary if it had its own manufacturing operations. The Electric Motorcycles segment purchases S2 electric motorcycles from H-D through the Contract Manufacturing Agreement. For the S2 platform, LiveWire powertrains are assembled in H-D’s Powertrain Operations in Menomonee Falls, Wisconsin, and overall vehicle assembly will continue to be in the York facility. +Raw Materials and Purchased Components – The Electric Motorcycles segment continues to establish and reinforce long-term, mutually beneficial relationships with its suppliers. Through these collaborative relationships, the Electric Motorcycles segment gains access to technical and commercial resources for application directly to product design, development and manufacturing initiatives. In addition, through a continued focus on collaboration and strong supplier relationships, the Electric Motorcycles segment believes it is positioned to achieve its strategic objectives and deliver cost and quality improvements over the long-term. +The principal raw materials in Electric Motorcycles segment’s products include battery cells, semi-conductor chips, steel and aluminum castings, forgings, steel sheet and bar. Additional raw materials in Electric Motorcycles segment’s products include certain motorcycle components including, but not limited to, batteries, tires, seats, electrical components, instruments and wheels. The Electric Motorcycles segment closely monitors the overall viability of its supply base. The Electric Motorcycles segment is proactively working with its suppliers in an effort to minimize disruptions resulting from supply chain challenges. +10 +STACYC Segment +The STACYC segment primarily focuses on the designing and selling of electric balance bikes for kids, an adult pedal assist electric bike that was introduced in March 2025, and related parts and accessories. The STACYC segment products are sold at wholesale to independent dealers and independent distributors, as well as, direct to consumers online. +STACYC segment revenue by product line for the last three fiscal years was as follows (in thousands): +2025 2024 2023 +Electric balance bikes and electric bikes $ 15,808 $ 14,043 $ 22,865 +Parts, accessories and apparel 3,800 4,209 3,610 +Revenue, net $ 19,608 $ 18,252 $ 26,475 +Electric Balance Bikes – STACYC focuses on developing products and experiences that help kids develop riding skills sooner and empower them to define their own ride. STACYC sells electric balance bikes under the STACYC brand while working with brand partners on co-branded products. +The current product portfolio starts with 12- and 16-inch electric balance bikes built for 3- to 8-year-old riders. With a growing segment of young riders graduating out of the 16-inch product, during 2022, STACYC introduced the 18- and 20-inch electric balance bikes that expanded the range of STACYC riders from 3 to 12 years old. +Electric Bikes - STACYC introduced a bicycle equipped with an electric motor to assist with pedaling for adults riders in the United States in March 2025. It includes a rechargeable battery, allowing riders to travel greater distances or tackle challenging terrain with less effort than a traditional bicycle. +Industry/Competition – STACYC is a category creator of electric balance bikes, and while there have been some competitors who have entered the market, their products lack STACYC’s product maturity and features, and their distribution generally lacks the breadth of the STACYC network. STACYC sponsors and supports off road racing events across the nation and was the first motorized vehicle allowed on USA BMX’s 300 tracks in the U.S., allowing kids to practice and race in USA BMX’s national series. While we expect competition to grow as the market shifts to younger riders and more players begin to make serious investments, we believe STACYC’s established brand with the combination of commitment, capabilities and market position allows STACYC to compete effectively in the growing electric balance bike market, while leveraging the electric bike market. +Parts, accessories, and apparel – Parts and accessories products include replacement parts and mechanical and cosmetic accessories, clothing and riding gear. +Marketing – STACYC’s brand, products and the riding experience are marketed to consumers worldwide. Marketing occurs primarily through digital and experiential activities as well as through more traditional promotional and advertising activities. Additionally, STACYC’s dealers, distributors, and OEM partners engage in a wide range of local and global marketing and events. +Seasonality – The seasonality of STACYC’s electric balance bike and electric bike sales generally correlates with the timing of retail sales made by dealers. Retail sales generally track closely with regional riding and holiday purchasing seasons, generally from mid-March through December. +Manufacturing – STACYC purchases electric balance bikes and electric bikes through a contract manufacturing agreement from strategic partners and bike assemblers located in Taiwan and China. +Purchased Components – STACYC continues to establish and reinforce long-term, mutually beneficial relationships with its suppliers. Through these collaborative relationships, STACYC gains access to technical and commercial resources for application directly to product design, development and manufacturing initiatives. +11 +Human Capital Management +Our People and Culture +As of December 31, 2025, the Company’s global workforce was comprised of 151 employees, including 132 and 19 employees within the Electric Motorcycles and STACYC segments, respectively. Of all employees, 93% are based in the U.S., and substantially all employees are salaried. A significant portion of our workforce is comprised of engineering and technology teams that are poised to design and develop future products and services. None of our employees are represented by a labor union. We have never experienced any work stoppages and we believe that our employee relations are good. +Our employees are a significant asset, and we aim to create an environment that is collaborative and challenging in which our employees can grow and advance their careers, with the overall goal of developing, expanding and retaining our workforce to support our current and future business goals. We value simplicity, passion and teamwork, and strive to build and maintain a positive environment where our employees can thrive and one that inspires exceptional contributions and professional and personal development to achieve our goal of pioneering the next era of electric vehicle technology. +Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing, and integrating our existing and new employees. We aim to achieve this through both financial plans as well as non-financial policies such as flexible vacation and time off, flexible work schedules, and access to fitness and wellness programs. The principal purposes of our equity and cash incentive plans are to attract, retain and reward personnel through the granting of stock-based and cash-based compensation awards to eligible employees to increase stockholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives. All of our associates participate in our cash-based incentive plans, which provides eligible associates with cash bonus opportunities based upon the Company’s achievement of financial and other key performance metrics. Under the LiveWire Group, Inc. 2022 Incentive Award Plan (the “Incentive Award Plan”), we grant equity compensation awards, such as restricted stock units and performance awards, which vest over a period of time, to eligible associates to attract and retain key personnel, strengthen their commitment to the welfare of the Company, and align their interests with those of our stockholders. Additionally, our comprehensive health and welfare benefits program provides our employees with a variety of medical and dental plans, plus voluntary benefits like vision or critical illness protection. +Regulatory Considerations +Environmental, Health and Safety Regulations +Environmental, Health and Safety Regulations in the United States +Certain of our operations, properties and products are subject to stringent and comprehensive international, federal, state and local laws and regulations governing matters including environmental protection, occupational health and safety, and the release or discharge of materials into the environment (including air emissions and wastewater discharges). Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of investigatory and remedial obligations, and the issuance of orders enjoining some or all of our operations in affected areas. +We are also subject to permitting, registration, and other government approval requirements under environmental, health and safety laws and regulations applicable in the jurisdictions in which we operate. Those requirements obligate us to obtain permits, registrations, and other government approvals from one or more governmental agencies to conduct our operations and sell our products. The requirements vary depending on the location where our regulated activities are conducted. +The following summarizes certain, but not all, existing environmental, health and safety laws and regulations applicable to our operations and products. +National Highway Traffic Safety Administration (“NHTSA”) Safety and Self-Certification Obligations – As a manufacturer of electric vehicles, our electric vehicles are subject to, and must comply with, numerous regulatory requirements established by NHTSA, including all applicable United States Federal Motor Vehicle Safety Standards (“Safety Standards” or “US FMVSS”). As set forth by the National Traffic and Motor Vehicle Safety Act, we must certify that our electric vehicles meet all applicable Safety Standards. Electric Motorcycles’ current products are, and future products will be expected to be, at the time of production, fully compliant with all such Safety Standards without the need for any exemptions. +12 +We are also required to comply with or demonstrate exemptions from other requirements of federal laws administered by NHTSA, including the consumer information labeling and owner’s manual requirements and various reporting requirements, such as “early warning” reports regarding warranty claims and field incidents, death and injury reports, foreign recall reports and safety defects reports. In addition, our products are also subject to certain laws and regulations that have been enacted or proposed, e.g., “Right to Repair” laws, that could require us to provide third-party access to our network and/or vehicle systems. +Environmental Protection Agency (“EPA”) Certificates of Conformity and Regulations – The Clean Air Act requires that we obtain an EPA-issued Certificate of Conformity with respect to emissions from our electric vehicles and include labeling providing consumer information such as maximum range on a single charge. The Certificate of Conformity is required each model year for electric vehicles sold in states covered by the Clean Air Act’s standards and is also required each model year for vehicles sold in states that have sought and received a waiver from the EPA to utilize California’s mobile source standards. +Battery Safety and Testing – Our battery packs are tested in accordance with industry safety standards, including selected tests specified in the SAE J2464 and J2929 standards as well as tests defined by other standards and regulatory bodies and LiveWire’s own internal safety and quality tests. These tests evaluate battery function and performance as well as resilience to conditions including immersion, humidity, fire and other potential hazards. +Hazardous Substances – We are subject to regulations governing the proper handling, storage, transportation and disposal of hazardous substances, including those contained in our battery packs. Transportation of our battery packs (and of equipment containing them) is governed by regulations that address risks posed during different modes of transport (e.g.¸ air, rail, ground, ocean). Governing transportation regulations in the U.S., issued by the Pipeline and Hazardous Materials Safety Administration (“PHMSA”), are based on the United Nations (“UN”) Recommendations and Model Regulations on the Transport of Dangerous Goods as well as related UN Manual Tests and Criteria. We have completed the applicable UN Manual tests for our production battery packs, and the test results demonstrate our compliance with the PHMSA regulations. For example, our battery packs have received UN38.3 compliance for shipping of the units. +We currently use transition metal oxide cells in our high-voltage battery packs. Our battery packs include certain packaging materials that contain trace amounts of hazardous chemicals whose use, storage and disposal is regulated under federal law. As a result, our battery packs are subject to federal and state environmental laws and regulations that govern regarding the handling and disposal of waste, including, in some instances, the remanufacture, recycling and disposal of hazardous waste. +The laws governing hazardous substances and hazardous waste also may impose strict, joint and several liability for the investigation and remediation of areas where hazardous substances may have been released or disposed. In the course of ordinary operations, we, directly and through third parties and contractors, may handle hazardous substances within the meaning of the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and similar federal and state statutes and, as a result, may be jointly and severally liable for all or part of the costs required to clean up sites at which any such hazardous substances have been released into the environment. +Workplace Safety – Our operations are also subject to federal, state, and local workplace safety laws and regulations, including the U.S. Occupational Health and Safety Act, and equivalent laws and regulations, which require compliance with various workplace safety requirements, including requirements related to environmental safety. These laws and regulations can give rise to liability for oversight costs, compliance costs, bodily injury (including workers’ compensation), fines, and penalties. Additionally, non-compliance could result in delay or suspension of production or cessation of operations. +Environmental, Health and Safety Regulations in the European Union +Europe Type Approval – We export electric vehicles to certain countries in Europe. Unlike the United States, once we started operating in this market, we had to obtain pre-approval from regulators to import and sell our electric vehicles into the EU and countries that recognize EU certification or have regulatory regimes aligned with the EU (collectively referred to as “Europe”). The process for certification in Europe is known as “Type Approval” and requires LiveWire to demonstrate to a regulatory agency in the EU, referred to as the Competent Authority, that our electric vehicles meet all EU safety and emission standards. The vehicles being exported to Europe have received these approvals and comply with all EU safety and emission standards, with new standards (known as Euro 5+) coming into full effect for motorcycles from January 2025. +Type Approval is accomplished through witness testing of vehicles as well as inspection of a representative vehicle intended for production and sale. Once the vehicle type is approved, all vehicles manufactured based on the approved type of vehicle may be produced or imported and sold in Europe. +13 +Any changes to an approved vehicle type must go through updated Type Approval by the Competent Authority. +EU Emissions Regulations – We believe Europe’s regulatory environment is generally conducive to the development, production and sale of electric vehicles. Through emission legislation, tax incentives and direct subsidies, EU and non-EU countries in Europe are taking a progressive stance in reducing carbon emissions in the transport sector which may lead to increasing demand for electric vehicles. +Hazardous Substances. We are subject to regulations governing the proper handling, and disposal of products containing hazardous substances in the EU, including the EU Waste Framework Directive, in relation to which the European Commission has begun a consultation process to revise. In relation to our batteries, disposal will be governed by specific provisions of the Batteries Directive (in addition to existing Member State-specific waste disposal laws), which imposes, among other obligations, certain requirements in relation to the disposal of batteries, such as that producers of batteries and producers of other products that incorporate a battery are responsible for the waste management of batteries that they place on the market, in particular the financing of collection and recycling schemes. +Environmental, Health and Safety Regulations in Canada +In Canada, vehicles must meet the Motor Vehicle Safety Act (MVSA) requirements. Canadian regulations in many ways follow those of the U.S. FMVSS and the EU regulatory requirements for compliance and our vehicles will meet the applicable Canadian requirements. Moreover, Canada Interference-Causing Equipment Standards (ICES) are applicable and our vehicles are properly marked for meeting compliance requirements to ICES-002 (identified on our Vehicle Emission Control Information (VECI) Label). +Environmental, Health and Safety Regulations in the United Kingdom +Europe Type Approval. Type Approval is accomplished through witness testing of vehicles as well as inspection of a representative vehicle intended for production and sale. Once the vehicle type is approved, all vehicles manufactured based on the approved type of vehicle may be produced or imported and sold in the United Kingdom. The United Kingdom allows for the EU Whole Vehicle Type Approval (WVTA) to be used as means of showing compliance without the need for additional witness testing activities. LiveWire submits and obtains the provisional GB type approvals necessary to comply with UK law and regulations. +Any changes to an approved vehicle type, must go through updated Type Approval by the Competent Authority. +Manufacturer and Dealer Regulation – United States +State laws regulate the manufacture, distribution, sale, and service (including delivery) of motorcycles and generally require vehicle manufacturers and dealers to be licensed to sell vehicles directly to customers in the state. +Some states, however, do not permit motorcycle manufacturers to be licensed as dealers or to act in the capacity of a dealer. For a manufacturer to sell vehicles directly to residents of these states, we must conduct the sale through our California manufacturer-owned dealer, over the internet or telephonically or through LiveWire retail partners who have obtained dealer licenses within these certain states to sell vehicles directly to residents within these states. California has recently updated certain dealer laws which may, in the future, impact our ability to sell out of our California manufacturer-owned dealer. +In addition, certain states and territories require service facilities to be available for vehicles sold in the state or territory, which may be interpreted to require service facilities to be available for vehicles sold through our California location over the internet or telephonically to residents of the state or territory. Puerto Rico, for example, is one such jurisdiction. Such laws could limit our ability to sell vehicles in states or territories either where we do not maintain service facilities or where we do not have retail partners licensed to act as service dealers who maintain appropriate service facilities within these states. +We believe that, as a matter of interstate commerce, we may sell an electric vehicle to any consumer in any state in the United States from a LiveWire retail partner that is duly licensed as a dealer by a state in the United States, including from our California manufacturer-owned dealer. That customer may contact a licensed LiveWire retail partner through the internet, by telephone or visiting the location directly. However, some states may take an alternative approach or interpretation and attempt to prohibit direct sales and/or also restrict traditional marketing, pre-sale and/or sales activities. +14 +Data Privacy and Cybersecurity Laws and Regulations +Our business collects, uses, handles, stores, receives, transmits and otherwise processes different types of information about a range of individuals, including our customers, riders of our electric vehicles, website visitors, users of our mobile applications, our employees and job applicants, and employees of companies we do business with (such as our vendors and suppliers). As a result, we are and may become subject to existing and emerging federal, state, local and international laws and regulations related to the privacy, security and protection of such information, such as the Federal Trade Commission Act, the GLBA, the Telephone Consumer Protection Act ("TCPA"), the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (“CAN-SPAM Act”), California Consumer Privacy Act as amended by the California Privacy Rights Act (“CCPA”) and other comprehensive state privacy laws. +In the United States, while there is not a single generally applicable federal law governing the processing of personal information, there are federal laws that apply to the processing of certain types of information, or the processing of personal information by certain types of entities, and the Federal Trade Commission and state attorneys general may bring enforcement actions against companies that engage in processing of personal information in a manner that constitutes an “unfair” or “deceptive” trade practice. +In addition, certain states have enacted or modified laws relating to data privacy and the processing of information about residents in those states. The CCPA, which went into effect on January 1, 2020 and applies to our business, imposes obligations and restrictions on businesses that handle personal information of California residents and provides data privacy rights to California residents, including the right to know, the right to delete and the right to opt out of the sale of personal information as well as additional protections for minors. Other states have also enacted, or are considering the enactment of their own comprehensive data privacy laws. Additionally, laws, regulations, and standards covering marketing and advertising activities conducted by telephone, email, mobile devices, and the Internet may be applicable to our business, such as the TCPA, the CAN-SPAM Act and similar state and federal consumer protection laws. We are also subject to certain laws and regulations that have been enacted or proposed, such as “Right to Repair” laws, that could require us to provide third-party access to our network and/or vehicle systems. +Due to our operations in Europe, including the United Kingdom, we are subject to laws, regulations and standards covering data protection and marketing and advertising, including the EU General Data Protection Regulation (“GDPR”) and the United Kingdom data protection regime, consisting primarily of the UK General Data Protection Regulation and the UK Data Protection Act (together referred to as the “UK GDPR”). The GDPR and UK GDPR regulate the processing of data relating to an identifiable individual (personal data) and impose stringent data protection requirements on organizations with significant penalties for noncompliance. The European Data Protection Board has also released data guidelines for connected vehicles, and the upcoming ePrivacy Regulation is in its final stages. +Regulators and legislators in jurisdictions around the world continue to propose and enact more stringent data protection and privacy laws. New laws as well as any significant changes to applicable laws, regulations, interpretations of laws or regulations, or market practices regarding privacy and data protection or regarding the manner in which we seek to comply with applicable laws and regulations could require us to make modifications to our products, services, policies, procedures, notices and business practices. Until prevailing compliance practices standardize, the impact of worldwide privacy regulations on our business and, consequently, our revenue, could be negatively impacted. +Intellectual Property +Our intellectual property is a core asset of our company, and an important tool to drive value and differentiation in our products and services. We protect, use and defend our intellectual property in support of our business objectives to increase our return on investment, enhance our competitive position, and create stockholder value. Through strategic and business assessments of our intellectual property, we rely on a combination of patents, trade secrets, copyrights, service marks, trademarks, domains, contractual terms and enforcement mechanisms across various international jurisdictions to establish and protect intellectual property related to our current and future business and operations. +15 +As of December 31, 2025, we held 25 utility patents and 27 design patents, and had filed an additional 15 utility patent applications and 12 design patent applications in the U.S. We also held 165 patents and 26 patent applications that are foreign counterparts of some of our U.S. patents and patent applications with foreign patent offices. We do not view any individual patent as being material to our business. Subject to required payments of annuities or maintenance fees, United States design patents have a term of 15 years from the date of issuance, and United States utility patents have a term of 20 years from the priority application date. Accordingly, our U.S. patents that have already been issued will expire between 2031 and 2042. Our foreign patents generally have similar expiration dates, but may vary from country to country, the duration being set according to the laws of the jurisdiction in which the patent issues. Our trademarks, logos, domain names, and service marks are used to establish and maintain our reputation with our customers, and the goodwill associated with our businesses. As of December 31, 2025, we had 106 registered trademarks and had an additional 14 pending trademark applications with domestic and foreign trademark offices. The duration of trademark registrations varies from country to country, but it is typically for ten years with unlimited ten-year renewal terms, subject to the payment of maintenance and renewal fees and the laws of the jurisdiction in which the trademark is registered. Our trademarks include LIVEWIRE, the LiveWire logo, LIVEWIRE ONE, MULHOLLAND, ALPINISTA, DEL MAR, S2 and MAKE EVERY SECOND COUNT, as well as STACYC, STACYC STABILITY CYCLE, and unique designs of each. +We intend to continue to vigorously pursue intellectual property protection to the extent we believe it would be advantageous to our business objectives. Despite our efforts to protect our intellectual property, we may be unsuccessful in enforcing our intellectual property, and third parties may seek to circumvent invalidate, or otherwise challenge our intellectual property. For additional information, see the section entitled “ Risk Factors—Risks Related to Information Technology, Intellectual Property, Data Security and Privacy. ” +Internet Access +The Company’s website address is http://www.livewire.com . The Company’s website address for investor relations is http://investor.livewire.com/ . +The Company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and any amendments to those reports, are available on its investor relations website free of charge as soon as reasonably practicable after it electronically files such material with, or furnishes such material to, the United States Securities and Exchange Commission (“SEC”). +In addition, the Company makes available, through its investor relations website, the following corporate governance materials: (i) the Corporate Governance Guidelines; (ii) Committee Charters approved by the Company’s Board of Directors for the Audit and Finance Committee, Human Resources Committee, Nominating and Corporate Governance Committee, Sustainability and Safety Committee, and the Conflicts Committee; (iii) the Code of Business Conduct and Ethics (the “Code of Conduct”); (iv) a list of the Board of Directors; (v) the Bylaws; (vi) the Company’s Policy for Managing Disclosure of Material Information; (vii) the Company’s Insider Trading Policy ; (viii) the Related Party Transaction Policy; and (ix) the Whistleblower Policy. +The Company's Notice of Annual Meeting and Proxy Statement for its 2025 annual meeting of shareholders, which will include information related to the compensation of the Company's named executive officers, will be made available through its investor relations website. +The Company satisfies the disclosure requirements under the Code of Conduct, the Conflict Process and applicable New York Stock Exchange (“NYSE”) listing requirements regarding waivers of the Code of Conduct or the Conflict Process by disclosing the information in the Company’s proxy statement for its annual meeting of shareholders or on its investor relations website. +The Company is not including the information contained on or available through any of its websites as a part of, or incorporating such information by reference into, this Form 10-K. +16 \ No newline at end of file diff --git a/raw/filings/0001898795/2025/0001898795-26-000028/item13.txt b/raw/filings/0001898795/2025/0001898795-26-000028/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..c9fe262eff96a3993bc003779c01a7e698e453e7 --- /dev/null +++ b/raw/filings/0001898795/2025/0001898795-26-000028/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions, and Director Independence +115 \ No newline at end of file diff --git a/raw/filings/0001899287/2024/0001899287-25-000012/filing.txt b/raw/filings/0001899287/2024/0001899287-25-000012/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..ecef088da352da7a34410fc09e41b2c92c5fd9db --- /dev/null +++ b/raw/filings/0001899287/2024/0001899287-25-000012/filing.txt @@ -0,0 +1,1860 @@ +ampx-20241231 +0001899287 2024 FY false http://fasb.org/us-gaap/2024#Revenues 4 iso4217:USD xbrli:shares iso4217:USD xbrli:shares xbrli:pure ampx:platform ampx:day ampx:extensionOption ampx:lease 0001899287 2024-01-01 2024-12-31 0001899287 us-gaap:CommonStockMember 2024-01-01 2024-12-31 0001899287 ampx:RedeemableWarrantsMember 2024-01-01 2024-12-31 0001899287 2024-06-30 0001899287 2025-03-13 0001899287 2024-12-31 0001899287 2023-12-31 0001899287 2023-01-01 2023-12-31 0001899287 us-gaap:CommonStockMember 2022-12-31 0001899287 us-gaap:AdditionalPaidInCapitalMember 2022-12-31 0001899287 us-gaap:RetainedEarningsMember 2022-12-31 0001899287 2022-12-31 0001899287 us-gaap:CommonStockMember ampx:PurchaseAgreementMember 2023-01-01 2023-12-31 0001899287 us-gaap:AdditionalPaidInCapitalMember ampx:PurchaseAgreementMember 2023-01-01 2023-12-31 0001899287 ampx:PurchaseAgreementMember 2023-01-01 2023-12-31 0001899287 us-gaap:CommonStockMember ampx:AtMarketIssuanceSalesAgreementMember 2023-01-01 2023-12-31 0001899287 us-gaap:AdditionalPaidInCapitalMember ampx:AtMarketIssuanceSalesAgreementMember 2023-01-01 2023-12-31 0001899287 ampx:AtMarketIssuanceSalesAgreementMember 2023-01-01 2023-12-31 0001899287 us-gaap:CommonStockMember 2023-01-01 2023-12-31 0001899287 us-gaap:AdditionalPaidInCapitalMember 2023-01-01 2023-12-31 0001899287 us-gaap:RetainedEarningsMember 2023-01-01 2023-12-31 0001899287 us-gaap:CommonStockMember 2023-12-31 0001899287 us-gaap:AdditionalPaidInCapitalMember 2023-12-31 0001899287 us-gaap:RetainedEarningsMember 2023-12-31 0001899287 us-gaap:CommonStockMember ampx:AtMarketIssuanceSalesAgreementMember 2024-01-01 2024-12-31 0001899287 us-gaap:AdditionalPaidInCapitalMember ampx:AtMarketIssuanceSalesAgreementMember 2024-01-01 2024-12-31 0001899287 ampx:AtMarketIssuanceSalesAgreementMember 2024-01-01 2024-12-31 0001899287 us-gaap:CommonStockMember 2024-01-01 2024-12-31 0001899287 us-gaap:AdditionalPaidInCapitalMember 2024-01-01 2024-12-31 0001899287 us-gaap:RetainedEarningsMember 2024-01-01 2024-12-31 0001899287 us-gaap:CommonStockMember 2024-12-31 0001899287 us-gaap:AdditionalPaidInCapitalMember 2024-12-31 0001899287 us-gaap:RetainedEarningsMember 2024-12-31 0001899287 ampx:PurchaseAgreementMember 2024-01-01 2024-12-31 0001899287 ampx:AmpriusHoldingsMember 2024-10-23 0001899287 ampx:AtMarketIssuanceSalesAgreementMember 2023-10-02 2023-10-02 0001899287 ampx:AtMarketIssuanceSalesAgreementMember 2023-10-02 2024-12-31 0001899287 us-gaap:EmployeeStockOptionMember ampx:EquityIncentivePlansMember 2024-01-01 2024-12-31 0001899287 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member 2024-12-31 0001899287 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member 2023-12-31 0001899287 ampx:CustomerTwoMember us-gaap:CustomerConcentrationRiskMember us-gaap:AccountsReceivableMember 2024-01-01 2024-12-31 0001899287 ampx:ThreeCustomersMember us-gaap:CustomerConcentrationRiskMember us-gaap:AccountsReceivableMember 2023-01-01 2023-12-31 0001899287 srt:MinimumMember ampx:ProductionEquipmentMember 2024-12-31 0001899287 srt:MaximumMember ampx:ProductionEquipmentMember 2024-12-31 0001899287 ampx:LaboratoryEquipmentMember 2024-12-31 0001899287 srt:MinimumMember us-gaap:FurnitureAndFixturesMember 2024-12-31 0001899287 srt:MaximumMember us-gaap:FurnitureAndFixturesMember 2024-12-31 0001899287 country:US 2024-01-01 2024-12-31 0001899287 country:US 2023-01-01 2023-12-31 0001899287 us-gaap:NonUsMember 2024-01-01 2024-12-31 0001899287 us-gaap:NonUsMember 2023-01-01 2023-12-31 0001899287 ampx:CustomerOneMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember 2024-01-01 2024-12-31 0001899287 ampx:CustomerTwoMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember 2024-01-01 2024-12-31 0001899287 ampx:CustomerThreeMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember 2024-01-01 2024-12-31 0001899287 ampx:CustomerOneMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-31 0001899287 ampx:CustomerTwoMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-31 0001899287 ampx:CustomerThreeMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember 2023-01-01 2023-12-31 0001899287 ampx:SaleOfBatteryProductsMember 2024-01-01 2024-12-31 0001899287 ampx:SaleOfBatteryProductsMember 2023-01-01 2023-12-31 0001899287 ampx:CustomizedDesignServicesMember 2024-01-01 2024-12-31 0001899287 ampx:CustomizedDesignServicesMember 2023-01-01 2023-12-31 0001899287 us-gaap:TransferredAtPointInTimeMember 2024-01-01 2024-12-31 0001899287 us-gaap:TransferredAtPointInTimeMember 2023-01-01 2023-12-31 0001899287 2022-01-01 0001899287 2025-01-01 2024-12-31 0001899287 2026-01-01 2024-12-31 0001899287 us-gaap:MachineryAndEquipmentMember 2024-12-31 0001899287 us-gaap:MachineryAndEquipmentMember 2023-12-31 0001899287 ampx:LaboratoryEquipmentMember 2023-12-31 0001899287 us-gaap:LeaseholdImprovementsMember 2024-12-31 0001899287 us-gaap:LeaseholdImprovementsMember 2023-12-31 0001899287 us-gaap:FurnitureAndFixturesMember 2024-12-31 0001899287 us-gaap:FurnitureAndFixturesMember 2023-12-31 0001899287 us-gaap:ConstructionInProgressMember 2024-12-31 0001899287 us-gaap:ConstructionInProgressMember 2023-12-31 0001899287 ampx:TwentyTwentyTwoEquityIncentivePlanMember 2024-12-31 0001899287 ampx:EquityIncentivePlansMember 2024-01-01 2024-12-31 0001899287 us-gaap:EmployeeStockOptionMember 2023-12-31 0001899287 us-gaap:EmployeeStockOptionMember 2023-01-01 2023-12-31 0001899287 us-gaap:EmployeeStockOptionMember 2024-01-01 2024-12-31 0001899287 us-gaap:EmployeeStockOptionMember 2024-12-31 0001899287 2024-10-23 2024-10-23 0001899287 2024-10-23 0001899287 ampx:TwentyTwentyTwoEquityIncentivePlanMember 2023-01-01 2023-12-31 0001899287 ampx:TwentyTwentyTwoEquityIncentivePlanMember 2024-01-01 2024-12-31 0001899287 us-gaap:EmployeeStockOptionMember ampx:AmpriusHoldingsSecondEquityIncentivePlanMember 2024-01-01 2024-12-31 0001899287 us-gaap:EmployeeStockOptionMember ampx:AmpriusHoldingsSecondEquityIncentivePlanMember 2023-01-01 2023-12-31 0001899287 ampx:EquityIncentivePlansMember 2023-01-01 2023-12-31 0001899287 us-gaap:RestrictedStockUnitsRSUMember ampx:EquityIncentivePlansMember 2024-01-01 2024-12-31 0001899287 us-gaap:RestrictedStockUnitsRSUMember 2023-12-31 0001899287 us-gaap:RestrictedStockUnitsRSUMember 2024-01-01 2024-12-31 0001899287 us-gaap:RestrictedStockUnitsRSUMember 2024-12-31 0001899287 us-gaap:RestrictedStockUnitsRSUMember 2023-01-01 2023-12-31 0001899287 us-gaap:EmployeeStockMember ampx:TwentyTwentyTwoEmployeeStockPurchasePlanMember 2024-12-31 0001899287 ampx:TwentyTwentyTwoEmployeeStockPurchasePlanMember us-gaap:EmployeeStockMember srt:MaximumMember 2024-01-01 2024-12-31 0001899287 us-gaap:EmployeeStockMember ampx:TwentyTwentyTwoEmployeeStockPurchasePlanMember 2024-01-01 2024-12-31 0001899287 ampx:ExecutiveIncentiveCompensationPlanMember 2024-01-01 2024-12-31 0001899287 ampx:PublicWarrantsMember 2023-12-31 0001899287 ampx:PrivateWarrantsMember 2023-12-31 0001899287 ampx:PIPEWarrantsMember 2023-12-31 0001899287 ampx:PublicWarrantsMember 2024-01-01 2024-12-31 0001899287 ampx:PrivateWarrantsMember 2024-01-01 2024-12-31 0001899287 ampx:PIPEWarrantsMember 2024-01-01 2024-12-31 0001899287 ampx:PublicWarrantsMember 2024-12-31 0001899287 ampx:PrivateWarrantsMember 2024-12-31 0001899287 ampx:PIPEWarrantsMember 2024-12-31 0001899287 2024-05-13 0001899287 ampx:PublicWarrantsMember 2024-05-13 2024-05-13 0001899287 ampx:PrivateWarrantsMember 2024-05-13 2024-05-13 0001899287 ampx:PrivateWarrantsMember us-gaap:CommonStockMember 2024-06-24 2024-06-24 0001899287 ampx:PrivateWarrantsMember 2024-10-01 2024-12-31 0001899287 ampx:PrivateWarrantsMember 2024-06-24 2024-06-24 0001899287 2022-03-01 0001899287 ampx:PublicWarrantsMember 2022-09-14 2022-09-14 0001899287 ampx:PIPEWarrantsMember 2022-09-14 0001899287 ampx:PIPEWarrantsMember 2022-09-14 2022-09-14 0001899287 ampx:PurchaseAgreementMember ampx:BRPCIIMember 2022-09-27 2022-09-27 0001899287 ampx:PurchaseAgreementMember ampx:BRPCIIMember 2022-09-27 0001899287 ampx:PurchaseAgreementMember ampx:BRPCIIMember 2024-12-31 0001899287 us-gaap:CostOfSalesMember 2024-01-01 2024-12-31 0001899287 us-gaap:CostOfSalesMember 2023-01-01 2023-12-31 0001899287 us-gaap:ResearchAndDevelopmentExpenseMember 2024-01-01 2024-12-31 0001899287 us-gaap:ResearchAndDevelopmentExpenseMember 2023-01-01 2023-12-31 0001899287 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2024-01-01 2024-12-31 0001899287 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2023-01-01 2023-12-31 0001899287 ampx:PostDecemberThirtyOneTwoThousandAndSeventeenMember us-gaap:DomesticCountryMember 2024-12-31 0001899287 ampx:PreJanuaryOneTwoThousandAndEighteenMember us-gaap:DomesticCountryMember 2024-12-31 0001899287 us-gaap:StateAndLocalJurisdictionMember 2024-12-31 0001899287 us-gaap:DomesticCountryMember 2024-12-31 0001899287 ampx:FremontCaliforniaLeaseMember srt:MinimumMember 2024-12-31 0001899287 ampx:FremontCaliforniaLeaseMember srt:MaximumMember 2024-12-31 0001899287 ampx:BrightonColoradoMember srt:MinimumMember 2024-12-31 0001899287 ampx:BrightonColoradoMember srt:MaximumMember 2024-12-31 0001899287 us-gaap:WarrantMember 2024-01-01 2024-12-31 0001899287 us-gaap:WarrantMember 2023-01-01 2023-12-31 0001899287 us-gaap:EmployeeStockOptionMember 2024-01-01 2024-12-31 0001899287 us-gaap:EmployeeStockOptionMember 2023-01-01 2023-12-31 0001899287 us-gaap:RestrictedStockUnitsRSUMember 2024-01-01 2024-12-31 0001899287 us-gaap:RestrictedStockUnitsRSUMember 2023-01-01 2023-12-31 0001899287 2024-10-01 2024-12-31 +Table of Contents +Index to Consolidated Financial Statements +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +__________________________________ +FORM 10-K +__________________________________ +(Mark One) +x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , 2024 +OR +o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from ________ to ________ +Commission file number 001-41314 +__________________________________ +A MPRIUS T ECHNOLOGIES, I NC. +(Exact name of registrant as specified in its charter) +__________________________________ +Delaware +98-1591811 +(State or other jurisdiction of incorporation or organization) +(I.R.S. Employer Identification No.) +1180 Page Avenue , Fremont , California +94538 +(Address of Principal Executive Offices) +(Zip Code) +(800) 425-8803 +Registrant’s telephone number, including area code +__________________________________ +Securities registered pursuant to Section 12(b) of the Act: +Title of each class Trading Symbol(s) Name of each exchange on which registered +Common stock, $0.0001 par value AMPX The New York Stock Exchange +Redeemable warrants, each exercisable for one share of common stock at an exercise price of $11.50 AMPX.W The New York Stock Exchange +Securities registered pursuant to section 12(g) of the Act: None +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x +Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer o Accelerated filer o +Non-accelerated filer x Smaller reporting company x +Emerging growth company x +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. o +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x +The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, as of June 30, 2024 (the last business day of the registrant’s most recently completed second fiscal quarter), was approximately $ 50.6 million. Solely for purposes of this disclosure, shares of common stock held by executive officers and directors and by each person who owns 5% or more of the outstanding common stock as of such date have been excluded because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. +The registrant had 117,926,808 shares of common stock outstanding as of March 13, 2025. +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the registrant’s definitive proxy statement for its 2025 Annual Meeting of Stockholders (the “Proxy Statement”) to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, are incorporated by reference in Part III where indicated. Except with respect to information specifically incorporated by reference in this Annual Report, the Proxy Statement shall not be deemed to be filed as part hereof. +Table of Contents +Index to Consolidated Financial Statements +Table of Contents +Page Number +Cautionary Note Regarding Forward-Looking Statements +1 +Part I +3 +Item 1. Business +3 +Item 1A. Risk Factors +15 +Item 1B. Unresolved Staff Comments +44 +Item 1C. Cybersecurity +44 +Item 2. Properties +45 +Item 3. Legal Proceedings +46 +Item 4. Mine Safety Disclosures +46 +Part II +47 +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +47 +Item 6. Reserved +47 +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +47 +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +56 +Item 8. Financial Statements and Supplementary Data +57 +Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures +81 +Item 9A. Controls and Procedures +81 +Item 9B. Other Information +82 +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +82 +Part III +83 +Item 10. Directors, Executive Officers and Corporate Governance +83 +Item 11. Executive Compensation +83 +Item 12. Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters +83 +Item 13. Certain Relationships and Related Transactions, and Director Independence +83 +Item 14. Principal Accountant Fees and Services +83 +Part IV +84 +Item 15. Exhibit and Financial Statement Schedules +84 +Item 16. Form 10-K Summary +86 +Signatures +87 +Table of Contents +Index to Consolidated Financial Statements +Cautionary Note Regarding Forward-Looking Statements +Certain statements in this Annual Report on Form 10-K of Amprius Technologies, Inc. (hereafter referred to as “Amprius,” the “Company,” “we,” “us,” or “our”) and in documents incorporated herein by reference may constitute “forward-looking statements” for purposes of the federal securities laws. Such forward-looking statements include, but are not limited to, statements regarding our expectations, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this Annual Report on Form 10-K may include, for example, statements about: +• our financial and business performance, including financial and business metrics; +• changes in our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects and plans; +• our ability to add manufacturing capacity and the costs and timing to add such capacity; +• the expected addressable market for our products; +• developments relating to our competitors and industry; +• our expectations regarding our ability to obtain and maintain intellectual property protection and not infringe on the rights of others; +• our ability to develop a high-volume manufacturing line and otherwise scale in a cost-effective manner; +• our future capital requirements and sources and uses of cash; +• our ability to obtain funding for our operations; and +• our business, expansion plans and opportunities. +These forward-looking statements are based on information available as of the date of this Annual Report on Form 10-K, including current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. +In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Annual Report on Form 10-K, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. +As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include: +• our ability to execute our business model, including scaling production and increasing the addressable market for our products and services; +• our ability to raise capital; +• the ability to maintain the listing of our securities on the New York Stock Exchange (the “NYSE”); +• the possibility that we may be adversely affected by other economic, business or competitive factors, including supply chain interruptions and developments in alternative technologies, and may not be able to manage other risks and uncertainties; +• the outcome of any legal proceedings that may be instituted against us; +• changes in applicable laws or regulations; +1 +Table of Contents +Index to Consolidated Financial Statements +• the effect of macroeconomic factors, such as tariffs, trade barriers, abrupt political change, geopolitics, currency fluctuations, embargoes, shortages, terrorist activity, armed conflict and public health emergencies, on our business; and +• other risks and uncertainties described in this Annual Report on Form 10-K, including risk factors discussed in Part I, Item 1A under the heading, “Risk Factors.” +2 +Table of Contents +Index to Consolidated Financial Statements +Part I +Item 1. Business +Overview +We develop, manufacture and market lithium-ion batteries for mobility applications, including the aviation, electric vehicle (“EV”) and light electric vehicle (“LEV”) industries. Our disruptive silicon anode technology is intended to enable batteries with higher energy density, higher power density and fast charging capabilities over a wide range of operating temperatures. This results in our batteries providing superior performance compared to conventional graphite lithium-ion batteries. Our silicon anodes are a direct drop-in replacement of the graphite anode in traditional lithium-ion batteries, and our manufacturing processes leverage the manufacturing processes for conventional lithium-ion batteries and the related supply chain. +Currently, our batteries are primarily used for existing and emerging aviation applications, including unmanned aerial systems (“UAS”), such as drones and high-altitude pseudo satellites (“HAPS”). We believe our proprietary technology has the potential for broad application in electric transportation. Our batteries and their performance specifications have been tested and validated for application by various customers, including our longtime partners such as AALTO Airbus, AeroVironment, BAE Systems, Kraus Hamdani Aerospace, Teledyne FLIR and the U.S. Army. Our total customer engagements since inception grew to over 260 with shipments to 235 customers during the year ended December 31, 2024. In addition, from our inception through December 31, 2024, we have shipped over 800,000 units of batteries, which have enabled mission critical applications. Our proprietary silicon anode structures, battery cell designs and manufacturing processes are protected by our portfolio of patents, trade secrets and know-how developed over 15 years of research and development. +We currently offer high performance silicon anode batteries under the following product platforms: (i) SiCore and (ii) SiMaxx. +Our SiCore batteries were developed in collaboration with Berzelius (Nanjing) Co., Ltd. (“Berzelius”), a former subsidiary of Amprius, Inc. (“Amprius Holdings”), our former parent company. We began limited shipment of SiCore batteries in 2023, which generated a strong demand from our customers. In order to support such demand, we entered into a supply agreement with Berzelius in November 2023 (the “Exclusive Supply Agreement”), which gives us exclusive rights to purchase its proprietary silicon anode materials in the United States, Canada and Mexico. In January 2024, we announced the full commercial launch of our SiCore batteries and accelerated engagement with our addressable markets. We entered into manufacturing supply agreements with three global contract manufacturing companies, which provided us an opportunity to rapidly scale production and ship a large volume of SiCore batteries to our customers. As of December 31, 2024, we had access, through our manufacturing supply agreements with our global contract manufacturers, to annual production of up to 800 MWh of SiCore batteries in pouch form and up to 1 GWh of SiCore batteries in cylindrical form. +Our SiMaxx batteries are currently manufactured at our facility in Fremont, California. We believe that the demand for our SiMaxx batteries exceeds our existing kWh-scale manufacturing capacity and, in order to support such demand, we are expanding this facility into a MWh-scale manufacturing facility. The completion of the expansion has been delayed through the first quarter of 2025 due to a delay in our customers’ order commitments. We believe that this facility will be able to manufacture batteries up to 2 MWh capacity annually when our expansion is completed, which is approximately 10 times our existing production capacity. +In April 2023, we entered into a lease agreement to lease approximately 774,000 square feet of premises in Brighton, Colorado and announced a plan to build a GWh-scale manufacturing facility in those premises. As of December 31, 2024, we completed our pre-construction planning for this facility. However, the scope and schedule of the construction of this facility will be determined based on, among other factors, the availability and timing of funding. In addition, we are currently monitoring the larger industry dynamics. Changes in demand, supply, battery cost structure, government incentives, trade tariffs, and other considerations may also influence our decision, including whether to proceed with the construction at all. +History, Corporate Information and Website +We have been commercially producing batteries since 2018. +3 +Table of Contents +Index to Consolidated Financial Statements +On September 14, 2022, we completed a business combination pursuant to a Business Combination Agreement, dated May 11, 2022, by and among Amprius Technologies Operating, Inc. (formerly known as Amprius Technologies, Inc. or “Legacy Amprius”), Kensington Capital Acquisition Corp. IV (“Kensington”), and Kensington Capital Merger Sub Corp. (a wholly owned subsidiary of Kensington or “Merger Sub”). The business combination was effected through the merger of Merger Sub with and into Legacy Amprius, with Legacy Amprius surviving as a wholly owned subsidiary of Kensington. Upon consummation of the business combination, Kensington changed its jurisdiction of incorporation by domesticating as a corporation incorporated under the laws of the State of Delaware and changed its name to “Amprius Technologies, Inc.” The business combination was treated as a reverse recapitalization for financial reporting purposes, whereby Legacy Amprius was determined as the “accounting acquirer” and Kensington as the “accounting acquiree.” I mmediately prior to the closing of the business combination, a number of private investors purchased from us an aggregate of 2,052,000 units at a price of $10.00 per share (such transaction, the “PIPE”), pursuant to separate subscription agreements. Each PIPE unit consisted of (i) one share of common stock and (ii) one warrant (each, a “PIPE warrant”) to purchase one share of common stock at an exercise price of $12.50 per share. Please refer to Note 7 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information about the PIPE warrants. +On October 23, 2024, our former majority stockholder and parent company, Amprius Holdings, which owned an aggregate of 65.2 million shares, or 58.6%, of our common stock at that time, voluntarily liquidated and dissolved. As a result of such liquidation and dissolution, Amprius Holdings distributed, on a pro rata basis, an aggregate of approximately 57.2 million shares of our common stock to its stockholders, and we assumed all of Amprius Holdings’ outstanding options to purchase shares of Amprius Holdings’ Class A common stock in exchange for, among other things, Amprius Holdings contributing to us a total of 5.5 million shares of our common stock that it owned, which were immediately cancelled and returned to our authorized but unissued share capital. +Our principal executive offices are located at 1180 Page Avenue, Fremont, California 94538, and our telephone number is (800) 425-8803. +Our website is www.amprius.com. We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission (the “SEC”). These reports and other information are also available, free of charge, at www.sec.gov . Information contained on, or that can be accessed through, the websites referenced in this Annual Report on Form 10-K are not a part of, and are not incorporated by reference into, this Annual Report on Form 10-K. +Industry Background +Traditional transportation has been powered by fossil fuel-based engines which have led to significant greenhouse gas emissions. A rising focus on sustainable energy use in transportation is leading to increased investments in technology, government incentives and consumer demand for the electrification of passenger and payload mobility. Among the mobility mediums experiencing a shift to electrification due to these trends are aircraft such as UAS, which includes drones and HAPS, and electric vertical take-off and landing (“eVTOL”) vehicles, as well as ground-based EVs and LEVs. Critical and breakthrough battery technologies can facilitate and, in certain cases, enable the mass adoption of these electric transportation mediums by improving energy density, accelerating fast charging capabilities, extending battery life, and improving safety. +Aviation Industry +Unmanned Aerial Systems: UAS are aircraft that operate with no crew or passengers onboard and are guided by remote control or autonomously. Examples of UAS include drones and HAPS. UAS are the next generation aerial transportation technology utilized for surveillance, assessment, logistics, delivery, communications, and imaging, among other uses. Emerging technologies, such as Amprius’ silicon anode battery, offer lighter weight and/or more energy dense batteries, potentially overcoming current battery technology barriers and enabling faster adoption of UAS. Based on a January 2025 Fortune Business Insights article and management estimates, the total addressable market for UAS batteries is expected to reach approximately $27.0 billion by 2030 . +Drones: Drones are the most common type of UAS and are increasingly being utilized in various industries, including military and defense, agricultural, construction and logistics. One of the key barriers to wider adoption is the existing battery technology, which limits the drones’ flight range and payload capacity. Our batteries offer higher energy +4 +Table of Contents +Index to Consolidated Financial Statements +density, which enables longer range endurance, and, depending on customer specifications, lighter weight, which facilitates higher payload capacity. Amprius offers advanced battery technology suitable for application in drones, which is currently in use by the U.S. Army, AeroVironment and Teledyne FLIR. +High Altitude Pseudo Satellites: HAPS are alternatives for traditional satellites. When deployed, HAPS typically operate at stratospheric altitudes, approximately 12 miles (approximately 65,000 feet) above sea level. HAPS are being increasingly utilized to provide high-quality broadcast features, particularly in remote regions, which have limited terrestrial network coverage. HAPS generally use solar energy and battery storage as the power source to operate for long durations of time. As a result, lightweight, higher energy density batteries with the ability to operate in extreme temperature and pressure conditions are critical enablers. Amprius offers advanced battery technology suitable for application in HAPS, which is currently in use by prominent aerospace companies, including AALTO Airbus and BAE Systems. +Electric Air Transportation: Population growth and urbanization are key megatrends that are stretching ground transportation infrastructure to its limits and resulting in significant greenhouse gas emissions. A potential mitigation strategy is expanding intracity and other short-distance travel into the air utilizing eVTOL vehicles, which include passenger aircraft that use electric power to hover, takeoff, and land vertically. Historically, the electrification of passenger and cargo aircraft has lagged the adoption of electric automobiles in part because of the greater technical challenges. However, over the last few years there have been significant advancements in the key enabling technologies for eVTOL aircraft, including the high energy density and robust performance batteries offered by Amprius. Continued improvements in battery energy density could allow eVTOL aircraft to increase their range, speed and payload, dramatically expanding the range of trips and further accelerating the adoption of electric air mobility. Based on a January 2025 Skyquest report and management estimates, the total global addressable electric air mobility battery market is expected to reach approximately $2.9 billion by 2032 . +Electric Vehicle Industry +The electrification of ground transportation is being accelerated by regulatory pressure to meet sustainability benchmarks and growing consumer preference. For example, some states in the United States had promulgated regulations mandating automobile manufacturers to sell 100% of new vehicles in those states that have zero-emission by 2035. Based on a February 2025 Markets and Markets report and management estimates, the global EV battery market is expected to reach approximately $251.3 billion by 2035 . While multiple battery chemistries exist today that meet current EV specifications, we believe there is room for significant improvement. Our batteries, which have been tested and validated by the U.S. Advanced Battery Consortium (“USABC”), as further described below, have the potential to help address both these concerns. As such, while our EV capable battery needs to be improved with respect to cycle life, form factor, cost and production quantity, for us to compete with existing commercially available EV batteries, we believe that, as we grow and improve, we may be able to compete in the EV battery market. +Light Electric Vehicle Industry +The LEV market is expected to grow rapidly primarily due to the rising demand for e-motorcycles. Based on a January 2025 report from The Business Research Company, the LEV market size is expected to reach approximately $136.0 billion by 2029 . As this market grows, we expect an increase in demand for high-performance batteries across the LEV sector. We believe that the form factor and cost-competitiveness of our high-energy-density SiCore batteries can support such growing demand in the LEV sector. As of December 31, 2024 , we had access, through our manufacturing supply agreements with our global contract manufacturers, to annual production of up to 800 MWh of SiCore batteries in pouch form and up to 1 GWh of SiCore batteries in cylindrical form . +Battery Requirements for Electric Transportation +Current battery technology creates a barrier in the near-term for the electric transportation market, especially for electric air mobility applications, as battery weight, size and recharging times would need to be improved for these operations to become commercial. The battery system must fulfill several key requirements: +• high energy density and specific energy in order to achieve long range endurance while enabling lighter weight; +• high power density to provide sufficient power at a specific instance, such as during aircraft take-off or landing; +• fast charging capabilities to enable high infrastructure throughput; +• operational in wide temperature and pressure ranges; +• safe to operate in a wide variety of conditions; +5 +Table of Contents +Index to Consolidated Financial Statements +• a long calendar life and cycle life; and +• acceptable cost, which varies by application. +Our Solution +Today’s batteries typically utilize graphite as the anode material. Based on management’s estimates, we believe that graphite anodes have reached their theoretical limits for energy storage. We estimate that graphite anodes can only provide up to 355 mAh/g capacity for lithium storage, which can further degrade in extreme environments. We believe additional increases in the energy density for lithium-ion batteries are possible only by using active anode materials that have a higher capacity for lithium storage. Among such active materials, silicon is known to have the highest lithium storage capacity per unit mass or volume over any other element besides lithium itself. +Our SiCore and SiMaxx batteries have replaced the graphite anode with a highly engineered silicon material that has a lithium storage capacity of approximately up to 3,400 mAh/g, which is nearly 10 times the highest capacity of known graphite anodes. By replacing graphite with silicon in the anode, we have significantly enhanced performance in batteries across energy density, power, charging time, safety and ability to operate in extreme environments. +Our Competitive Strengths +SiCore and SiMaxx performance greatly exceeds conventional lithium-ion batteries commercially available today. We believe that our battery cells significantly outperform commercially available conventional graphite battery cells. As shown in the table below, as of December 31, 2024 , our batteries, particularly our SiMaxx batteries, have approximately double the specific energy and energy density of graphite battery cells, and enable significantly faster charging time. We believe other next-generation battery technologies will require significant additional research, development and investment prior to being commercially viable. +Performance Metric +Graphite Anode +Battery Cells (1) +(2) +Specific Energy (Wh/kg) ~215-285 +320-500 (3) +Energy Density (Wh/L) ~530-715 +805-1,300 (3) +Charging Time to 80% 30 minutes +<6 minutes (4) +Rate Capability/Power Up to 10C Up to 10C +Cycle Life 500-1,000 cycles 200-1,200 cycles +Operating Temperature +-20 to 60 o C +-30 to 55 o C +(1) Other than cycle life, based on a survey of 18,650 technical datasheets (e.g., Panasonic NCR18650G), Sony VTC6 technical datasheet, iFixit reports on iPhone and Samsung batteries, and Y. Sun et al: Li-ion Battery Reliability – A Case Study of the Apple iPhone. For cycle life, based on Shmuel De-Leon: Li-Ion NCA/NMC Cylindrical Hard Case Cells Market 2021. +(2) Includes both released and unreleased SiMaxx battery cells with energy and power cell designs. +(3) Based on SiMaxx 500 Wh/kg, 1,300 Wh/L battery cells that were in the development stage as of December 31, 2024 . +(4) Based on SiMaxx High Power cells commercially available in 2024. +Unique suitability for aviation markets that require high power, specific energy and energy density. We believe the increased performance of our SiCore and SiMaxx batteries enable certain electric aviation applications. For example, our batteries have high specific energy and energy density to maximize payload and reduce weight, thereby extending flight radius; high power density, to enable vertical take-off and landing functionality; fast charge, to minimize the time required to recharge a battery; wide operating temperature, for high altitude applications operating in extremely low temperatures; and cycle life parity with graphite batteries, depending on customer specifications. +In January 2025, we announced the expansion of our SiCore product platform with a SiCore battery cell that provides energy density of 370 Wh/kg, extending runtimes while still exceeding 3,000 W/kg, with discharge rates of up to 10C without cooling and 15C with active cooling. This SiCore battery cell ensures quick power delivery without +6 +Table of Contents +Index to Consolidated Financial Statements +compromising runtime, which makes it ideal for aviation applications, including drones, as well as high-performance electric vehicle applications that require both endurance and rapid energy delivery. +In August 2023, we unveiled a breakthrough battery cell chemistry and design that enables 400 Wh/kg energy density with 10C continuous discharge capability. The energy and power delivered by this ultra-high-power-high-energy lithium-ion battery make it an ideal solution for electric mobility applications. This battery, which is part of our SiMaxx product platform, became commercially available in 2024. +In March 2023, we unveiled a prototype battery cell that delivers an energy density of >500 Wh/kg and >1,300 Wh/L at 25°C. The performance of this battery cell was verified by a leading testing house offering comprehensive battery regulatory compliance, safety and performance testing. At approximately half the weight and volume compared to other existing state-of-the-art, commercially available lithium-ion cells, we believe that this type of battery will deliver a potential industry-disrupting performance. As of December 31, 2024, this battery cell, which will be part of our SiMaxx product platform, was in the development stage. +We will continue to develop next-generation battery cells, and we believe that when they become commercially available, those battery cells will have the potential to expand boundaries for our customers and provide a tailored solution for applications that require heightened discharge times without compromising key features, such as aircraft payload, and without having to increase vehicle weight. +First mover advantage in emerging aviation markets. As a result of our success with AALTO Airbus and other tier-one customers, we have become an established market pioneer in providing high performance batteries to the aviation industry. Our reputation and commitment to delivering ultra-high performance batteries have enabled us to enter into several development and master supply arrangements with our customers. From our inception through December 31, 2024, over 260 customers had tested and validated our SiCore and SiMaxx batteries for their applications, and we believe our market leadership in aviation will enable us to continue to grow our customer base. +Proven performance in demanding and abuse-tested environments. Safety is recognized as one of the most important factors of lithium-ion battery technology. Our silicon anodes operate at a voltage that is at least 100 mV higher than that of graphite anodes, which not only enables faster charging but also cell operation at lower temperatures, thereby improving cell safety and mitigating the risk of overcharging. Our batteries are also designed to be ultra-resilient and undergo rigorous abuse testing, including air cargo certification and specific tests for defense applications. +For example, in December 2022, an independent third-party testing lab validated that our SiMaxx 390 Wh/kg polymer electrolyte cell successfully passed the nail penetration test per the requirements of section 4.7.4.4. of the MIL-PRF-32383 (Military Performance Specification). The test is used to determine the feasibility of a specific product in combat scenarios. Cells tested in accordance with section 4.7.4.4. should not burn or explode, and the external temperature of each test sample should not be greater than 338 degrees Fahrenheit (170 degrees Celsius) when penetrated by sharp objects. When conducting the test, a 0.113-inch diameter stainless steel nail is driven through a fully charged cell at a prescribed speed. The cell is deemed to have passed if there is no smoke or flame following the nail penetration. +Robust IP portfolio and know-how related to our silicon nanowire ecosystem. Our silicon anode technology has been refined and improved upon for over 15 years , and is protected by over 80 patents that were issued to us or are pending applications as of December 31, 2024 . Core aspects of our technologies and processes are also protected by know-how and trade secrets developed by our team for over 15 years . +Our Products and Customers +As evidenced by customer validation, design wins and recurring orders with AALTO Airbus, AeroVironment, BAE Systems, Kraus Hamdani Aerospace, Teledyne FLIR and the U.S. Army, among others, our battery technology is well positioned to address the rapidly growing markets within the aviation industry, specifically UAS and eVTOL, as well as LEVs. UAS and eVTOL applications have historically used conventional lithium-ion batteries as a means to promote product prototypes, but market participants are seeking advancements in battery technology. We believe that our silicon anode technology can be part of the solution. +We currently offer high performance batteries under the following product platforms: SiCore and SiMaxx. In addition, we are also currently developing EV-capable products. +7 +Table of Contents +Index to Consolidated Financial Statements +SiCore Product Platform +Our SiCore batteries, which were developed in collaboration with Berzelius and launched commercially in January 2024, are based on an innovative, proprietary silicon anode material system delivering high-energy-density silicon anode batteries that surpass current state-of-the-art graphite cell performance. The silicon anode cell chemistry in our SiCore batteries is designed to offer high energy density, up to 400 Wh/kg, and long cycle life, as long as 1,000 cycles. Our SiCore battery cell chemistry may be combined with other materials, such as binders and conductive agents, including graphite, to meet performance specifications. +We offer our SiCore batteries with the following design and performance factors: Energy, Power and Balanced Energy/Power. +Energy . This design of SiCore battery cell delivers a specific energy of up to 400 Wh/kg or 872 Wh/L at a maximum discharge rate of up to 1C and a cycle life of up to 300 cycles at full depth of discharge. +Power . This design of SiCore battery cell delivers a specific energy of up to 360 Wh/kg or 800 Wh/L at a maximum discharge rate of up to 5C and a cycle life of up to 300 cycles at full depth of discharge. +Balanced Energy/Power . This design of SiCore battery cell delivers a specific energy of up to 355 Wh/kg or 805 Wh/L at a maximum discharge rate of up to 3C, and a cycle life of up to 700 cycles at full depth of discharge or 1,000 cycles at approximately 90% depth of discharge. +Our SiCore batteries have been validated across various applications in the electric mobility market, and since we began our limited shipment in 2023 and our commercial launch in January 2024, they have garnered positive feedback from customers with demanding performance requirements. Our SiCore battery chemistries are applied into a wide range of form factors, including both pouch and cylindrical cells. The cylindrical cell form factors offer balanced energy and power capabilities providing an industry leading capacity of 4Ah in 18650 format and 6Ah in 21700 format, and a cycle life of up to 600 cycles. +As of December 31, 2024, we had access, through our manufacturing supply agreements with our global contract manufacturers, to annual production of up to 800 MWh of SiCore batteries in pouch form and up to 1 GWh of SiCore batteries in cylindrical form. +SiMaxx Product Platform +We offer our SiMaxx batteries with the following design and performance factors: High Energy, High Power and Balanced Energy/Power. +High Energy . Our SiMaxx high energy battery cells are designed to maximize specific energy for applications with low power requirements. For applications that have a continuous discharge rate of less than 2C, these battery cells deliver a specific energy of up to 500 Wh/kg or 1,300 Wh/L at a discharge rate up to 1C. SiMaxx high energy battery cells are most frequently used by HAPS, which are designed to carry a payload at high altitudes for extended periods, typically for weeks or months at a time, as they rely on solar power for operations during the day and need to store sufficient energy in the battery to keep the aircraft aloft during the night. +We continue to make improvements on our SiMaxx high energy battery cells. For example, in November 2023, we developed and delivered three additional formats of 450 Wh/kg cells. These custom cells were made in collaboration with our strategic customers to address their unique HAPS qualification requirements and to assist in operating in highly challenging environments. With greater energy density and longer cycle life than our previous high-energy batteries, we believe that our 450 Wh/kg cells are the only commercially available batteries of their kind known to us that can provide enough power and endurance for HAPS’ overnight stratospheric flight. +Our SiMaxx high energy battery cells have also powered AALTO Airbus’ Zephyr S stratospheric vehicle to numerous records since 2018. The Zephyr S is designed to fly for months at a time, at an altitude of approximately 70,000 feet. After integrating our battery cells into the Zephyr S, AALTO Airbus set endurance and altitude records by flying continuously for over 25 days in 2018 and 64 days in 2022. We continue to support the Zephyr S program and were presented the 2021 Innovative Supplier of the Year Award by Airbus. +High Power . Our SiMaxx high power battery cells are designed for applications that place a premium on power. These high power battery cells offer 400 Wh/kg and 820 Wh/L energy density with up to 10C continuous discharge +8 +Table of Contents +Index to Consolidated Financial Statements +capability. This performance is well suited for the air transportation industry, which requires high power capabilities to lift the aircraft from the ground into the air. In addition, our SiMaxx high power battery cells are capable of fast charging, from 0% to 80% in less than 6 minutes. This level of power capability, energy density, and fast charge capability is optimal for urban air mobility and other air transportation industry applications. Once the vehicle has landed, the turnaround time to get the vehicle back into the air becomes critical, which is why we have designed our SiMaxx high power batteries with fast charge capabilities. +Since 2021, we have engaged in technical evaluations with certain tier-one eVTOL manufacturers to develop an eVTOL-optimized battery system to support the development and commercialization of their eVTOL fleet. We plan to continue expanding our technical evaluation engagements with other eVTOL manufacturers as the eVTOL market grows. +Balanced Energy/Power . We designed our SiMaxx balanced energy/power battery cells for applications that require a balance between power and energy. These battery cells offer energy density as high as 395 Wh/kg or 800 Wh/L at up to 4C discharge rate. This range of power capability is important to customers in the UAS sector. Our SiMaxx balanced energy/power battery cells typically meet the requirements of UAS devices’ needs for high initial power, as well as higher energy requirements for longer sustained cruising. +Since 2021, our SiMaxx balanced energy/power battery cells have been designed into UAS programs at AeroVironment and Teledyne FLIR, with commercial shipments since 2022. +EV capable Products +We are also currently developing an EV capable cell. Competition in the EV industry is intense, with high production volume requirements, low pricing, and balanced performance criteria, creating a high barrier to entry against the incumbent solutions. Prior to us being able to effectively compete in the EV space, we will need to further improve cycle life, increase cell form factors, increase production quantity and reduce our costs. +Since 2017, we have been sampling our batteries with USABC, which had independently verified that we have met or exceeded the majority of their 2025 EV cell performance goals, including usable energy density, usable specific energy, power density and charge time. +In November 2024, we shipped to USABC our SiMaxx A-Sample EV cells. Our testing of SiMaxx A-Sample EV cells showed that the cells can achieve a specific energy of 360 Wh/kg at the beginning of life, which surpassed USABC’s target of 275 Wh/kg at end of life, and deliver a power density of 1,200 W/kg. We believe that this development could result in a significant increase in range compared to most commercial EV batteries available today. In addition, the SiMaxx A-Sample EV cells can charge up to 90% of their rated energy in just 15 minutes, which exceeds USABC’s target of 80% within the same timeframe. +Our Technology +SiCore +Our SiCore batteries are based on an innovative, proprietary silicon anode material system, delivering batteries with high-energy-density and long cycle life. Developed in collaboration with Berzelius, the anode in our SiCore batteries have a unique bottom-up structure with an ultra-fine silicon nanostructure interior and multilayer surface protection. This silicon anode technology may also be combined with other active materials, such as binders and conductive agents, including graphite. The particle type of our SiCore anode materials can be processed in the same equipment and environment as graphite anode materials, offering a drop-in replacement of graphite materials and fast transfer to manufacturing of our SiCore cell designs. Due to their robust structure, our SiCore materials can be pressed into high density and thin electrodes, a precondition for high energy density and fast charge capability. +SiMaxx +Our proprietary SiMaxx silicon anode technologies solve for the inherent limitations of silicon anodes in lithium-ion cells. Silicon has historically been investigated as an anode material due to its intrinsic capability to store larger quantities of lithium per unit mass and volume compared to graphite. The main barrier preventing silicon from becoming more widely adopted across the battery industry is that the silicon material expands during charging as it absorbs lithium ions. For example, silicon particles may expand up to 300% during charging. After multiple charge and discharge cycles, silicon particles will crack, causing anode degradation and device breakdown. +9 +Table of Contents +Index to Consolidated Financial Statements +Our proprietary SiMaxx silicon anode technology solves for the material expansion inherent in silicon. Our nanowire anodes start with a metal foil that is layered with a nanowire template and metallurgically attached to the metal foil substrate by a growth process. The nanowire template is coated with a low-density silicon and then encased by a thin layer of high-density silicon. +Our SiMaxx silicon anode generally contains more than 1,000,000 nanowires per square centimeter. The nano-porosity of the low-density layer of silicon on each nanowire and the micro-porosity between the wires in our technology allows the silicon to expand at nano- and micro- meter levels when the anode is charged, with little to no damage to the anode. +Our SiMaxx anode structure also enables ions and electrons to travel in a straight path between and through the nanowires. In contrast, a particle structure results in ions and electrons traveling in a nonlinear, tortuous path. The straight path of our anode facilitates high electric and ionic conductivity, enabling high power and fast charging. Nanowires are always in electrical contact with the metal foil due to their growth rooted fabrication, while particles have to rely on particle-to-particle contact for electron transfer, which can easily be broken during cycling. +Our SiMaxx silicon anodes are considered 100% silicon based on their actual silicon content, which ranges from 99.5% to 99.9% and meets the acceptable purity standards for classification 100%. +Manufacturing and Supply +We invented the proprietary silicon anode and its fabrication process for our SiMaxx batteries. Our silicon anode is fabricated using chemical vapor deposition (“CVD”) technology, and consists of three sequential steps. First, the nanowire template is grown by a thermally activated chemical reaction. Second, a low-density silicon coating is deposited by plasma enhanced CVD. Third, a high-density thin silicon surface layer is deposited by a thermally activated CVD process. These three steps replace all powder processing steps typically used in making graphite anodes, including powder mixing, slurry mixing, slurry coating, electrode drying and electrode calendaring. After fabrication, our product is the fully processed anode. This anode can then be assembled in cells with cathodes produced by manufacturing lines similar to those used in graphite anode cells. This fabrication process has been in commercial operation since 2018 at our manufacturing facility in our Fremont headquarters. +To develop the high-volume anode fabrication tool needed for a GWh-scale manufacturing line, we have partnered with centrotherm international AG (“centrotherm”), a leading global supplier of tools used to produce solar cells. We received large-scale anode production equipment from centrotherm as part of our ongoing expansion of our manufacturing line at our Fremont headquarters into a MWh-scale facility. The equipment supplied by centrotherm requires certain modifications for our needs, which includes designing and developing automated material handling for the foils and processes for silicon deposition. These hardware design modifications are in progress. Completing design and development of the tool as well as the automated material handling and high-volume production processes requires significant engineering. Moreover, our manufacturing costs will depend not only on the cost of the tools but also on throughput, yield, efficiency of silane gas utilization, among other factors. The ability to design and develop this tool successfully and the timing of this effort may be subje ct to unforeseen complexities, component supply delays and other risks. For more information, see the section titled “Risk Factors” be low. +Although our anode manufacturing processes differ from traditional anode manufacturing, the cathode and the rest of the cell, including electrolytes and separators, use conventional lithium-ion battery manufacturing tools and materials. Our silicon anodes are a direct drop-in replacement of the graphite anode in traditional lithium-ion batteries. The dominant raw materials for our silicon anode include silane gas, which is used in making the silicon anodes, and nickel foil, which is used for the anode current collector substrate. As we increase our manufacturing capacity, we expect to procure the silane gas from a global supplier of silane and silicon materials and will procure nickel foil from global suppliers of metals. Both silane gas and nickel foil are available commodity materials. +Due to its high capacity to store lithium relative to cathode materials, and to further increase the available lithium in the cell, the silicon anode can be prelithiated to a certain level (i.e., 10% to 20%) of its capacity before cell assembly. Prelithiation can be done electrochemically at low scale and by physical vapor deposition for large manufacturing volume. Equipment vendors have scaled-up or are scaling lithium evaporation equipment to GWh+ manufacturing volumes. We use electrochemical prelithiation in our current SiMaxx production and will integrate lithium evaporation steps in the anode manufacturing line. +In order to support the demand for our batteries, we are currently expanding our existing kWh-scale manufacturing facility in Fremont, California into a MWh-scale manufacturing facility; are planning to expand our contract manufacturing +10 +Table of Contents +Index to Consolidated Financial Statements +partnerships globally; and may build a GWh-scale manufacturing facility in our leased premises in Brighton, Colorado. The completion of the expansion of our Fremont facility has been delayed through the first quarter of 2025 due to a delay in our customers’ order commitments. We believe that this facility will be able to manufacture batteries up to 2 MWh capacity annually when our expansion is completed, which is approximately 10 times our existing production capacity. Also, as of December 31, 2024, we completed pre-construction planning to build a GWh-scale manufacturing facility at our leased premises in Brighton, Colorado. However, the scope and schedule of the construction of this facility will be determined based on, among other factors, the availability and timing of funding. In addition, we are currently monitoring the larger industry dynamics. Changes in demand, supply, battery cost structure, government incentives, trade tariffs, and other considerations may also influence our decision, including whether to proceed with the construction at all. +As of December 31, 2024, we produce SiCore batteries by leveraging Berzelius’ existing production line and through our manufacturing supply agreements with three global contract manufacturers. In order to meet the increased demand for our SiCore batteries, we are planning to expand our contract manufacturing partnerships globally. Some of the challenges that we may encounter when we enter into a manufacturing supply arrangement include, among others, risk of losing control over the manufacturing process of our SiCore batteries, which could lead to quality control issues, delay in production, increase in production costs, and non-compliance with our established standards. In addition, we may encounter a risk of losing control of some of our intellectual property. While we plan to set up business processes, including adding oversight and quality control procedures, in order to manage our contract manufacturing supply arrangements, there can be no assurance that such processes will be effective. As of December 31, 2024, we had access, through our manufacturing supply agreements with our global contract manufacturers, to annual production of up to 800 MWh of SiCore batteries in pouch form and up to 1 GWh of SiCore batteries in cylindrical form. For more information, see the section titled "Risk Factors" below. In addition, if we partner with other contract manufacturers in the future, we plan to select large, experienced and reputable contract manufacturing companies. +Our Growth Strategy +Our goal is to become the market leader in high performance lithium-ion batteries for the transportation industry. In order to achieve that goal, we are pursuing the following growth strategies: +Leverage existing contract manufacturing capacity to produce SiCore batteries. We believe that our existing Exclusive Supply Agreement with Berzelius, which gives us exclusive rights to purchase Berzelius’ proprietary silicon anode materials in the United States, Canada and Mexico, and our existing manufacturing supply agreements with three global contract manufacturers will allow us to continue supporting the increasing demand for our SiCore batteries. As of December 31, 2024, we had access, through our manufacturing supply agreements with our global contract manufacturers, to annual production of up to 800 MWh of SiCore batteries in pouch form and up to 1 GWh of SiCore batteries in cylindrical form. +Expanding existing manufacturing facility to meet increase in demand and optimize costs. Although we had access to annual production of up to 800 MWh of SiCore batteries in pouch form and up to 1 GWh of SiCore batteries in cylindrical form through our existing manufacturing supply agreements with our global contract manufacturers as of December 31, 2024, we believe that expanding our existing manufacturing facility would help us meet the growing demand of our customers and optimize costs in the long-term. We currently operate a kWh-scale manufacturing line for our SiMaxx batteries at our facility in Fremont, California and are expanding it into a MWh-scale manufacturing facility. The completion of the expansion has been delayed through the first quarter of 2025 due to a delay in our customers’ order commitments. We believe that this facility will be able to manufacture batteries up to 2 MWh capacity annually when our expansion is completed, which is approximately 10 times our existing production capacity. In April 2023, we announced a plan to build a GWh-scale manufacturing facility in our leased premises in Brighton, Colorado. As of December 31, 2024, we completed our pre-construction planning for this facility. However, the scope and schedule of the construction of this facility will be determined based on, among other factors, the availability and timing of funding. In addition, we are currently monitoring the larger industry dynamics. Changes in demand, supply, battery cost structure, government incentives, trade tariffs, and other considerations may also influence our decision, including whether to proceed with the construction at all. +Reduce our SiMaxx battery manufacturing costs . We believe our ability to reduce the manufacturing costs of our SiMaxx batteries on a $/kWh basis will accelerate the adoption of our SiMaxx batteries and allow us to further broaden our customer base. As we scale, we believe we will benefit from reduced per-unit costs, including overhead, labor and capital expenditures, improved tool utilization and volume pricing for equipment and materials. We will also seek to reduce SiMaxx battery costs by optimizing material utilization, throughput and yield. However, until we are able to complete our optimization process, including designing and implementing our silicon anode production process, we cannot accurately +11 +Table of Contents +Index to Consolidated Financial Statements +forecast our manufacturing costs. Since our SiMaxx silicon anode process requires different equipment than traditional anode manufacturing, our capital equipment costs are likely to be higher than the equipment used for production of graphite anodes. +Extend first-mover advantage to become the market leader in lithium-ion batteries for aviation. We believe we are the leading company in the market today with a high-performance battery that can meet the requirements of aviation applications. We have built a strong reputation in the industry by delivering ultra-high performance batteries with high safety standards that meet or exceed industry standards and customer requirements. We expect to extend our presence in the aviation market, while also serving other transportation-related markets that require improvements in their electrification solutions. From our inception through December 31, 2024, over 260 customers had tested and validated our batteries for their applications. +Further improve performance characteristics of our anode and battery cells . We believe we have the highest-performing commercially available batteries in the market. We intend to maintain our performance advantage by continuing to invest in our anode and cathode chemistries. We expect to continue to increase the performance characteristics of our batteries, particularly around power, energy density and cycle life. For example, in March 2023, we unveiled the development of a battery cell that delivers an energy density of >500 Wh/kg and >1,300 Wh/L at 25°C. The performance of this battery cell was verified by a leading testing house offering comprehensive battery regulatory compliance, safety and performance testing. As of December 31, 2024, this battery cell, which will be part of our SiMaxx product platform, was in the development stage. We believe our next-generation cells, when commercially available, will have the potential to expand boundaries for our customers and provide a tailored solution for applications that require heightened discharge times without compromising key features, such as aircraft payload, and without having to increase vehicle weight. We plan to continue to invest in optimizing combinations of these performance characteristics as well as the requisite form factors to meet the specific needs of our customers and drive adoption of our battery cells in other areas of electrified transportation. As a result of these efforts, our goal is to fully realize the benefits of our silicon anode technology and develop the highest performing products in the market. +Expand our end markets and applications . As we increase our production capabilities and partnership with global contract manufacturers, we will be able to supply our batteries in larger volumes to fulfill our customers’ battery prototyping and procurement requirements. Our current customer base consists primarily of aviation and other air transportation companies. We believe the batteries we have developed for the aviation industries can be adapted for larger form factors to meet the energy density and fast-charge requirements of the EV market once we are able to improve the cycle life, increase form factors, reduce cost and improve production quantity for our EV capable battery cells. +Research and Development +Our original silicon anode technology was developed at Stanford University in 2008, and for over 15 years , we have refined and improved upon the technology for use in commercial applications. We have conducted research and development initiatives focused on improving certain performance characteristics and expanding the applications of our silicon anode battery technology. We expect to continue our research and development efforts in the following areas: +• Improving battery life. We are working with chemical compounds as potential additives to the silane gas we use to produce our silicon anodes which have demonstrated the potential to improve cycle life without negatively impacting other performance characteristics such as energy density. +• Further improvements to energy density . We are engaged in ongoing development activities to explore different cathode materials, including a conversion cathode, to further improve the energy density of our batteries. +• Advanced cell chemistries and designs. We have developed advanced battery cell designs tailored to respond to our customers’ requirements for high performance, including extreme high power and fast charge performance, safety, wide operating temperature range, and calendar life. Our proprietary electrolyte formulations enhance operations at high voltage and high temperature. In addition, our polymer/semi-solid formulations add safety to nail and ballistic performance. +• Larger cell form factors . The batteries we have developed and are developing for our customers are typically approximately up to 15Ah for small-sized aircraft. As we expand our customer base, we are in the process of developing larger form factor batteries for broader aviation applications as well as LEV and EV customers. +We utilize our research and development capabilities not only to improve existing products but also to build custom-designed batteries for our customers. We have generated revenue from these design services. However, as we grow our manufacturing capacity, we expect that the relative percentage of our revenue from these activities will decrease. +12 +Table of Contents +Index to Consolidated Financial Statements +Intellectual Property +Our proprietary silicon anode technologies, including the related processes, design and manufacturing, are protected by our patent portfolio and know-how and trade secrets. +As of December 31, 2024, we had a total of 86 patents, which consisted of : +• 74 patents issued to us (35 patents issued in the United States and a total of 39 patents issued in the European Union, Korea, Japan, China, Taiwan and Israel) with expiration periods ranging between 2030 and 2039 ; +• 10 patent applications that are pending (2 patent applications in the United States and a total of 8 patent applications in the European Union, Korea, Japan, China and Taiwan); and +• 2 U.S. patents that we licensed from Stanford University. +As of December 31, 2024, we also held a total of 10 registered trademarks that were issued to us, which consisted of 2 trademarks issued in the United States and a total of 8 trademarks issued in the European Union, Great Britain, Japan, Korea and China. +Our patents cover the following: +• Silicon structures – rooted nanowire template, tapered morphology, silicon dopants and multi-layered structure; +• Materials technologies – solid electrolyte interphase formation, electrolyte formulations and scalable prelithiation; and +• Silicon anode manufacturing processes, design and equipment. +In addition, we rely on non-disclosure agreements with employees, independent contractors, customers and other third parties to protect our intellectual property and proprietary rights. +Circumstances outside our control could pose a threat to our intellectual property rights. For more information, see the section titled “Risk Factors” below. +Competition +We compete directly and indirectly with current battery manufacturers and with an increasing number of companies that are developing new battery technologies and chemistries to address the growing market for electrified mobility solutions. Specifically, within the aviation markets, we primarily compete with conventional graphite anode batteries and silicon composite anode batteries. Silicon composites are graphite-based anodes that incorporate some silicon, typically in the form of particles of silicon or silicon monoxide. +Graphite anode battery companies include tier-one manufacturers such as Amperex Technology Limited (ATL), Contemporary Amperex Technology Co., Limited (CATL), LG Chem Ltd., Murata Manufacturing Co., Ltd., Panasonic Industry Co., Ltd., and Samsung SDI Co., Ltd., which provide higher quality and higher performance solutions, and tier-two manufacturers which provide lower cost solutions. We expect the manufacturers of those batteries will continue to invest in improving the capabilities of their batteries. +While we believe we are currently the only known battery manufacturer making approximately 100% silicon anodes, there are many companies making or developing silicon composite batteries or anode materials and companies seeking to develop 100% silicon anodes. Companies making or developing silicon composite anodes or materials include both large manufacturers as well as many well-funded new technology companies. These include Berzelius, BTR New Energy Material Ltd., Enevate Corporation, Enovix Corporation, Group 14 Technologies, Inc., Nexeon Ltd., Shanshan Corporation, Sila Nanotechnologies Inc., and Storedot Ltd. Silicon composite anodes may offer higher energy density and other improvements over conventional graphite anodes, and may be less expensive to manufacture than our silicon anodes. +For aviation applications, we believe that the defining characteristics of our battery cells make our silicon anode technologies the only battery solutions currently available and suitable for broad aviation adoption. These characteristics of industry-leading specific energy and energy density, high power density, low operating temperature and fast charge capability, in addition to commercial validation, significantly differentiates us from graphite anode and silicon composite anode alternatives. However, we expect additional competitors to enter the market as their battery technologies continue to improve. +13 +Table of Contents +Index to Consolidated Financial Statements +The EV and LEV battery industries are fast-growing and highly competitive. Unlike the aviation industry, where there are a limited number of commercially available batteries that meet the minimum performance specifications, there are many battery manufacturers in the EV and LEV industries that can produce commercially acceptable batteries, and they may be able to produce those batteries at lower cost and higher volumes than we are currently able to. Future entrants may include companies developing different technologies, such as lithium metal anodes, which are not yet in commercial production. In order to effectively compete, we will need to further improve our batteries’ life cycles, increase their form factors, increase their production quantity and reduce their production costs. +Many of our competitors and potential future entrants, both in the aviation, EV and LEV industries, may be better capitalized and have greater resources to commercialize and expand their production capacities. These competitors may have greater access to customers and may be able to establish cooperative or strategic relationships amongst themselves or with third parties that may further enhance their resources and competitive positioning. If there are significant advances in battery chemistries that we cannot adapt, or if competitors are able to scale their production capacities before we are able to, our business may be materially impacted. For more information, see the section titled “Risk Factors” below. +Government Regulation and Compliance +Our business activities are global and are subject to various federal, state, local, and foreign laws, rules and regulations. For example, there are various government regulations pertaining to battery safety, transportation of batteries, use of batteries in vehicles, factory safety, and disposal of hazardous materials. +In many cases, our products are or may in the future be subject to trade and export control laws and regulations in the United States and other jurisdictions where we do business. Such laws include the Export Administration Regulations, trade and economic sanctions maintained by the Office of Foreign Asset Control as well as foreign direct investment rules and regulations, tariffs and quotas, and other related regulations in jurisdictions in which we operate, and we may in the future be subject to other laws and regulations, such as the International Traffic in Arms Regulations, among others. In particular, the export or re-export of our products and technology to certain countries or end-users or for certain end-uses in some cases requires an export license or may be prohibited. Additionally, we may be required to register with the Directorate of Defense Trade Controls in order to conduct some aspects of our future business activities and we may be required to obtain licenses in order to conduct development activities. Obtaining the necessary export license for a particular sale or offering or business activity may not be possible or may be time-consuming and may result in the delay or loss of sales opportunities. Any failure to adequately address these legal obligations could result in civil fines or suspension or loss of our export privileges, any of which could materially adversely affect our business, financial condition, and results of operations. +In addition, our business is subject to the Foreign Corrupt Practices Act and other anti-corruption, anti-bribery, and anti-money laundering laws and regulations in the jurisdictions in which we have offices or do business, both domestic and abroad. Any failure to adequately comply with any of these obligations, or future changes with respect to any of these legal regimes, could cause us to incur significant costs, including the potential for new overhead costs, fines, sanctions, and third-party claims. +As a government contractor and/or subcontractor, we must comply with laws, regulations, and contractual provisions relating to the formation, administration, and performance of government contracts and grants, which affect how we and our partners do business with government agencies. Government contracts often contain provisions and are subject to laws and regulations that provide government customers with additional rights and remedies not typically found in commercial contracts. Ensuring compliance with government contracting laws, regulations, or contractual provisions may impose other added costs on our business, and failure to comply with these or other applicable regulations and requirements could lead to claims for damages, civil or criminal penalties, termination of contracts and/or suspension or debarment from obtaining government contracts and grants. Any such damages, penalties, disruption, or limitation in our ability to do business with a government could have a material adverse effect on our business, results of operations, financial condition, public perception and growth prospects. +Human Capital +We believe that our success is driven by our team of technology innovators and experienced business leaders. We also believe that our employees are the foundation for developing and commercializing our silicon anode technology. Many on our leadership team have been with us for over a decade. We seek to hire and develop individuals who are dedicated to our strategic mission. +14 +Table of Contents +Index to Consolidated Financial Statements +As of December 31, 2024, our total headcount was 108, which consisted of 99 full-time employees and 9 temporary hires and contractors. Our employees are primarily located in our headquarters in Fremont, California. +As of December 31, 2024, a total of 27 full-time employees worked in research and development (“R&D”) and a total of 52 full-time employees worked in manufacturing. Certain employees in the R&D and manufacturing departments hold a Ph.D. or an advanced degree in material science, chemical, aerospace, structural and nanoscale engineering, physics or chemistry. +We are committed to maintaining equitable compensation programs including equity participation. In order to attract or retain team members capable of making exceptional contributions to our success, we offer market-competitive salaries and strong equity compensation. Our compensation decisions are guided by the external market, role criticality and the contributions of each team member. +To date, we have not experienced any work stoppages and we consider our relationship with our employees to be good. None of our employees are either represented by a labor union or subject to a collective bargaining agreement. +Item 1A. Risk Factors +Investing in our securities involves a high degree of risk. Before making an investment decision, you should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. Our business, financial condition, results of operations or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material. If any of the risks actually occur, our business, financial condition, results of operations and prospects could be adversely affected. In that event, the market price of our securities could decline, and you could lose part or all of your investment. +Summary of Risk Factors +Certain of the material risks that we face include: +• If our batteries fail to perform as expected, our ability to develop, market and sell our batteries would be adversely affected. +• Our reliance on third parties to manufacture certain of our batteries or battery materials subjects us to certain risks. +• We may not succeed in developing new high-volume manufacturing lines that meet our requirements for cell quality, yield, throughput and other performance metrics. +• We may not meet our manufacturing cost targets, which would limit the size of our market opportunities. +• We rely on, and will continue to rely on, complex equipment for our operations, and production involves a significant degree of risk and uncertainty in terms of operational performance and costs. +• Our establishment of a volume manufacturing facility is subject to many risks, including, among others, risks relating to construction, permitting, delays, cost overruns, supply chain constraints, and operating in a new geographic area away from our headquarters. +• We may not succeed in retaining and attracting key employees, particularly technical talent, needed to operate and build our business successfully. +• We have pursued new product platforms and expanded our product portfolio. We may expend our limited resources to pursue a particular product and fail to capitalize on products that may be more profitable or for which there is a greater likelihood of success. +• We may encounter delays and technical obstacles in developing new battery products such as different cell formats to meet varied market requirements. +• Certain components of our batteries are hazardous and pose safety risks that may cause accidents in our manufacturing facility. +• We may be subject to financial and reputational risks due to product recalls and product liability claims, and we could face substantial liabilities that exceed our resources. +15 +Table of Contents +Index to Consolidated Financial Statements +• We may not be able to accurately estimate the future supply and demand for our batteries, which could result in a variety of inefficiencies in our business and hinder our ability to generate revenue. If we fail to accurately predict our manufacturing requirements, we could incur additional costs or experience delays. +• We may not be able to establish supply relationships for necessary finished batteries, materials, components or equipment or may be required to pay more than anticipated for components or equipment, which could negatively impact our business. +• The battery market is intensely competitive. Competitors include new entrants and established companies, many of which have significantly greater resources than us. +• Our future sales opportunities depend in part on the growth of markets for battery-powered applications. These applications may develop slower or at a size that is less than expected, to the extent they develop at all. +• Developments in alternative technology or other fossil fuel alternatives may adversely affect the demand for our battery products. +• We have pursued and may continue to pursue development agreements and other strategic alliances, which could have an adverse impact on our business if they are unsuccessful. +• If our customers choose to reduce purchases, or do not purchase at all, batteries manufactured outside of the United States, our revenue could decline and our prospects may be adversely affected. +• We may require additional capital to support business growth, and this capital might not be available on commercially reasonable terms or at all. +• We are an early-stage company with a history of financial losses and expect to incur significant expenses and continuing losses for the foreseeable future. +• We are obligated to develop and maintain proper and effective internal control over financial reporting. If we are unable to develop and maintain an effective system of internal controls and procedures required by Section 404 of the Sarbanes-Oxley Act, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us and materially and adversely affect our stock price, business and operating results. +• We have customers from the public sector, and our failure to receive and maintain government contracts or changes in the contracting or fiscal policies of the public sector could have a material adverse effect on our business. +• We rely heavily on our intellectual property portfolio. If we are unable to protect our intellectual property rights, our business and competitive position would be harmed. +• We may need to defend ourselves against intellectual property infringement claims, which may be time-consuming and could cause us to incur substantial costs. +• Our operations expose us to litigation, environmental and other legal compliance risks. Compliance with laws and regulations can be expensive, and our failure to comply with these laws and regulations may result in monetary damages and fines, adverse publicity and a material adverse effect on our business. +• We are or will be subject to anti-corruption and anti-bribery and anti-money laundering and similar laws, and non-compliance with such laws can subject us to administrative, civil and criminal fines and penalties, collateral consequences, remedial measures and legal expenses, all of which could adversely affect our business, results of operations, financial condition and reputation. +• Recent and potential tariffs imposed by the United States government or a global trade war could increase the cost of our products, which could have a material adverse effect on our business, financial condition and results of operations. +• Our reliance on suppliers in foreign countries, including China, subjects us to risks and uncertainties relating to foreign laws and regulations and changes in relations between the United States and such foreign countries. +• There can be no assurance that we will be able to comply with the continued listing standards of the NYSE. +• Sales of substantial amounts of our common stock in the public markets, or the perception that such sales could occur, could cause the market price of our common stock to drop significantly, even if our business is doing well. +16 +Table of Contents +Index to Consolidated Financial Statements +• There is no guarantee that our warrants will be in the money, and they may expire worthless. +Risks Related to Our Technology, Products and Manufacturing +If our batteries fail to perform as expected, our ability to develop, market and sell our batteries would be adversely affected. +Our batteries may contain defects in design and manufacture that may cause them to not perform as expected or that may require repairs, recalls and design changes. Our batteries are inherently complex and incorporate technology and components that have not been used for certain applications and that may contain defects and errors, particularly when first introduced to such applications. Although our batteries undergo quality control testing prior to release for shipment, there can be no assurance that we will be able to detect and fix all defects prior to shipment, and nonconformances, defects or errors could occur or be present in batteries that we release for shipment to customers. If our batteries fail to perform as expected, our customers may delay deliveries, or terminate orders, or we may initiate product recalls, each of which could adversely affect our sales and brand and could adversely affect our business, financial condition, results of operations and prospects. +Our battery architecture is different from our peers’ and may behave differently in customer use applications, certain applications of which we have not yet evaluated. This could limit our ability to deliver to certain applications. In addition, our historical data on the performance and reliability of our batteries is limited, and therefore, our batteries could fail unexpectedly in the field resulting in significant warranty costs or brand damage in the market. Further, the silicon anode structure of our battery is different from traditional lithium-ion batteries and therefore, our batteries could be susceptible to different and unknown failure modes leading our batteries to fail and cause a safety event in the field. Such an event could result in the failure of our end customers’ product as well as the loss of life or property, resulting in severe financial penalties for us, including the loss of revenue, cancellation of supply contracts and the inability to win new business due to reputational damage in the market. In addition, some of our supply agreements may require us to bear certain costs relating to recalls and replacements of end products when such recalls and replacements are due to defects of our battery products that are incorporated in such end products. +Our reliance on third parties to manufacture certain of our batteries or battery materials subjects us to certain risks. +Our SiCore batteries are based on the innovative, proprietary material system developed by Berzelius and are currently manufactured by our manufacturing partners. Our SiCore batteries have been produced under contract manufacturing agreements with Berzelius and other partners. However, to facilitate this product expansion, we entered into the Exclusive Supply Agreement with Berzelius, pursuant to which Berzelius agreed, among other things, (i) to manufacture for, and sell exclusively to, Amprius its proprietary silicon anode materials in the United States, Canada and Mexico and (ii) to use best efforts to prioritize fulfillment of Amprius’ forecasted orders, if any. The Exclusive Supply Agreement does not include any commercial terms, and until such time as we are able to establish mutually agreeable commercial terms thereunder, if we are able to at all, the purchase of the materials under the Exclusive Supply Agreement by Amprius will be specified in written purchase orders mutually agreeable to the parties. In addition, as of December 31, 2024, we had access, through our manufacturing supply agreements with our global contract manufacturers, to annual production of up to 800 MWh of SiCore batteries in pouch form and up to 1 GWh of SiCore batteries in cylindrical form, and are engaging with potential additional partners across a network of established Asia-based contract manufacturers. Our reliance on Berzelius or other third parties to manufacture our batteries or battery materials subjects us to certain risks, including but not limited to: +• Because we have not established commercial terms for future SiCore battery or battery material purchases and, therefore, must agree to commercial terms on each of our purchase orders, if Berzelius or our manufacturing partners increase their prices, we may not be able to establish commercially reasonable terms for future purchases; +• We may purchase SiCore battery materials from Berzelius or our manufacturing partners before we receive purchase orders for our SiCore batteries from our customers, or we may accept purchaser orders for SiCore batteries from our customers before establishing any commercial terms with Berzelius or our manufacturing partners, and if we cannot establish commercially reasonable terms with Berzelius or our manufacturing partners, we may not be able to fulfill customers’ orders or we may incur losses when trying to meet our obligations, which may result in our customers seeking alternative batteries, and in turn, we could lose customers and face reputational harm or penalties; +17 +Table of Contents +Index to Consolidated Financial Statements +• If any of our manufacturing partners cease to provide manufacturing services to us, either permanently or temporarily, we may be required to arrange for alternative manufacturing arrangements, which we may not be able to arrange on financially attractive terms, on a timely basis or at all; +• We do not control Berzelius or other third party manufacturers, and there is no guarantee that these partners will reserve any capacity for us, they will not have disruptions in their supply chain or manufacturing processes, and that our batteries or battery materials will be delivered to us within the agreed timeline, or at all, or be free from defects; +• If we do not receive the batteries on time or if the batteries contain defects, we may have to delay deliveries, and our customers may terminate their orders or we may initiate product recalls; +• If we are unable to grow the market for SiCore batteries manufactured by Berzelius or our manufacturing partners within our product portfolio, our business, financial condition and results of operations will be adversely affected; +• Although we have exclusive rights to purchase Berzelius’ proprietary silicon anode materials in the United States, Canada and Mexico, we do not have exclusivity arrangements with respect to marketing, and there is no guarantee that Berzelius will not compete with us for customers; +• We plan to establish a global network of contract manufacturing partnerships in the future and we may face certain risks as part of this process, including, among other things, the risk of losing control over the manufacturing process of our SiCore batteries, which could lead to quality control issues, delay in production, increase in production costs, and non-compliance with our established standards, or we may encounter a risk of losing control of some of our intellectual property, and while we plan to set up business processes, including oversight and quality control procedures in order to manage our contract manufacturing arrangements, there can be no assurance that such processes will be effective; and +• Relying on global third parties subjects us to certain risks beyond our control including, tariffs, currency fluctuations, geopolitics, trade barriers, or other general economic or political conditions, any of which may materially and adversely affect our business. +In the event any of the above risks, or any other adverse events resulting from our reliance on third parties, including those risks described below, occurs, our business, financial condition, results of operations and prospects may be adversely affected. +We may not succeed in developing new high-volume manufacturing lines that meet our requirements for cell quality, yield, throughput and other performance metrics. Additionally, assuming we are able to develop the high-volume manufacturing lines, they may be unreliable, require regular and significant maintenance and could be capital and resource intensive to operate. +To date, we have manufactured on a kWh-scale capacity. Our ability to manufacture our batteries at scale depends on the successful development of an automated, high-volume manufacturing line for our SiMaxx silicon anode that meets our requirements for cell quality, throughput, yield, and other performance metrics. Currently, we do not have a manufacturing line capable of producing our silicon anode batteries at scale. As part of our manufacturing expansion plans, in addition to designing a GWh-scale manufacturing facility, we are in the process of developing an automated, high-volume manufacturing line. +We have been customizing our first large-scale anode equipment for our SiMaxx production processes and have recently completed the qualification process for this equipment. Before we use the equipment for production purposes, we must complete tuning and testing. There is no guarantee that the customization, development, testing and implementation of this equipment will be successful. In addition, there is no guarantee that we will also be able to correspondingly expand our manufacturing capacity for other battery components. We and our potential suppliers and other equipment vendors may encounter significant engineering challenges, performance issues, delays, unforeseen development costs and other obstacles in building the high-volume manufacturing lines, and if we are not successful, or if we encounter significant delays, our business, financial condition, results of operations and prospects would be adversely affected. +We are reliant on Berzelius and third party manufacturers to provide us the necessary technology and support to build our own manufacturing line to produce the SiCore batteries. In that process, we may encounter significant engineering challenges, performance issues, permitting issues, delays, unforeseen development costs and other obstacles. +18 +Table of Contents +Index to Consolidated Financial Statements +In addition, in order for us to produce our batteries at scale and at a cost advantage, we must achieve levels of quality, throughput, and yield demonstrated for mature battery production. As we have not yet produced our batteries at such scale, our ability to achieve such rates is untested and subject to significant constraints and uncertainties. Operational performance and costs can be difficult to predict and are often influenced by factors outside of our control, such as, but not limited to, failures by suppliers to deliver necessary components of our batteries in a timely manner and at prices and volumes acceptable to us, environmental hazards and remediation costs, costs associated with commissioning of machines, difficulty or delays in obtaining governmental permits, damages or defects in electronic systems, industrial accidents, fires, seismic activity and natural disasters, and problems with equipment vendors. Should operational risks materialize, they may result in lower yield, which would negatively affect our revenue growth and profitability. +Additionally, the development of the manufacturing line will require us to make intensive capital expenditures before we are able to benefit from such development. The manufacturing line may also suffer unexpected malfunctions from time to time and will depend on repairs and spare parts to resume operations, which may not be available when needed. Further, unexpected equipment malfunctions may significantly affect the intended operational efficiency. +We may not meet our manufacturing cost targets, which would limit the size of our market opportunities. +We may require significant capital to develop and grow our business and expect to incur significant expenses, including those relating to the expansion of our manufacturing capacity, development and establishment of our high-volume manufacturing lines, raw material procurement, leases, sales and distribution as we build our brand and market our batteries, and general and administrative costs. Our profitability will not only depend on our ability to successfully market our batteries, but also our ability to control our costs. Some of the processes in the manufacturing of our silicon anodes require chemical vapor deposition, for which equipment is more costly than those involved in standard anode production techniques. If we are unable to cost efficiently, design, manufacture, market, sell and distribute our batteries, our margins, profitability and prospects would be materially and adversely affected. We have not yet commenced high-volume production of our batteries, and any cost advantage for the production of our batteries at scale, compared to conventional lithium-ion batteries, will require us to manufacture at rates of cell quality, throughput, and yield demonstrated for mature batteries and battery material that we have not yet achieved. If we are unable to achieve these targeted rates, our business will be adversely impacted. +We rely on, and will continue to rely on, complex equipment for our operations, and manufacturing involves a significant degree of risk and uncertainty in terms of operational performance and costs. +For our SiMaxx batteries, we rely heavily on, and will continue to rely heavily on, complex equipment for our operations and the production of our batteries, which involves a significant degree of uncertainty and risk in terms of operational performance and costs. Our manufacturing equipment consists of many components, which may suffer unexpected malfunctions from time to time and may depend on repairs and spare parts to resume operations, which may not be available when needed. Problems with our manufacturing processes could result in the loss of manufacturing equipment, damage to manufacturing facilities, monetary losses, delays, unanticipated fluctuations in production and personal injury to or death of workers. Should our precautions be inadequate or an event be larger than expected, we could have significant equipment or facility damage that would impact our ability to deliver our battery products and require additional resources to recover. In addition, in some cases, operational problems may result in environmental damage, administrative fines, increased insurance costs and potential legal liabilities. Any of these operational problems, or a combination of them could have a material adverse effect on our cash flows, business, financial condition, results of operations or prospects. +Furthermore, manufacturing technology may evolve rapidly, and we may decide to update our manufacturing processes more quickly than expected. Moreover, as we scale the commercial production of our batteries, our experience may cause us to discontinue the use of already modified or installed equipment in favor of different or additional equipment. The useful life of any equipment that would be retired early as a result would be shortened, causing the depreciation on such equipment to be accelerated, and our results of operations could be negatively impacted. +Our establishment of a volume manufacturing facility is subject to many risks, including, among others, risks relating to construction, permitting, delays, cost overruns, supply chain constraints, and operating in a new geographic area away from our headquarters. +Our Fremont, California facility currently operates only at a kWh-scale manufacturing capacity and we are in the process of expanding this facility into a MWh-scale manufacturing facility. In April 2023, we entered into a lease agreement for premises consisting of approximately 774,000 square feet of space located in Brighton, Colorado and announced a plan to build a GWh-scale manufacturing facility in those premises. As of December 31, 2024, we completed +19 +Table of Contents +Index to Consolidated Financial Statements +our pre-construction planning for this facility. However, the scope and schedule of the construction of this facility will be determined based on, among other factors, the availability and timing of funding. In addition, we are currently monitoring the larger industry dynamics. Changes in demand, supply, battery cost structure, government incentives, trade tariffs, and other considerations may also influence our decision, including whether to proceed with the construction at all. If we decide not to proceed with the project, we may incur significant costs, which may adversely affect us, our financial condition and our growth prospects. +We may need to operate the new manufacturing facility in this new geographic area away from our headquarters. Our potential suppliers and other equipment vendors may also encounter delays, additional costs, and other obstacles in building our manufacturing lines, which are currently unknown. Additionally, although we have tested and validated the performance of our SiMaxx batteries on one of our suppliers’ platform, there is uncertainty as to whether manufacturing SiMaxx batteries in the new manufacturing facility will be successful. Further, if we manufacture SiCore batteries at the new manufacturing facility, our ability to manufacture them depends on our ability to establish mutually agreeable commercial terms with Berzelius under the relevant purchase orders. If we fail to achieve large-scale production of our SiCore batteries, due to our inability to reach an agreement with Berzelius, or if we encounter significant engineering or other challenges, performance issues, delays, unforeseen development costs and other obstacles in building the manufacturing line for SiCore batteries, we may have to continue purchasing SiCore materials and batteries to support our customers’ demands, our results of operations would be negatively impacted. +Achieving capacity at commercial scale of high energy density lithium-ion batteries may require us to make significant and increasing capital expenditures to scale our production capacity and improve our supply chain processes. Further, because our silicon anode process requires different equipment than traditional anode manufacturing, our capital equipment costs are likely to be higher than equipment used for production of graphite anodes. Although, we completed our pre-construction planning to build a GWh-scale manufacturing facility on our leased premises in Brighton, Colorado as of December 31, 2024, the scope and schedule of the construction will be determined based on, among other factors, the availability and timing of funding. The actual costs and time to complete our silicon anode process may materially exceed our estimates, if we are able to complete it at all. Even if we are successful in the establishment of the new facility, our manufacturing capabilities could be affected by cost-overruns, permitting issues, unexpected delays, equipment failures, supply chain constraints, natural disasters, including earthquakes, fire, floods and typhoons, power failures, telecommunications failures, break-ins, war, riots, terrorist attacks, pandemics, and numerous other factors that could prevent us from realizing the intended benefits of our manufacturing strategy, or cause the loss or corruption of data or malfunctions of software or hardware, and have a material adverse effect on our business. +We may not succeed in retaining and attracting key employees, particularly technical talent, needed to operate and build our business successfully. +Our success depends on our ability to attract and retain our executive officers, key employees and other qualified personnel, particularly technical talent, and as a relatively small company with key talent residing in a limited number of employees, our operations may be severely disrupted if we lost their services. In particular, we are highly dependent on the services of Dr. Kang Sun, our Chief Executive Officer (“CEO”), and other senior technical and management personnel, including our executive officers, who would be difficult to replace. +If Dr. Sun or any other key personnel were to depart, we may not be able to successfully attract and retain senior leadership necessary to grow our business. As we build our brand and become better known, there is increased risk that competitors or other companies will seek to hire our personnel. The failure to attract, integrate, train, motivate and retain these personnel could seriously harm our business and prospects. +In addition, designing, building and operating our new manufacturing facility and large-scale production tools will require us to hire highly skilled personnel, including battery factory design and operations experts. There are currently a limited number of people with this experience in the United States. Recruiting and training skilled engineers, workers and other laborers will take significant cost and time, and an inability to do so timely or at all would inhibit the successful design, build-out and operation of the new manufacturing facility, thus negatively affecting our business and our results of operations. +We have pursued new product platforms and expanded our product portfolio. We may expend our limited resources to pursue a particular product and fail to capitalize on products that may be more profitable or for which there is a greater likelihood of success. +We recently expanded our product portfolio with the addition of SiCore and have made substantial investments to develop new products and enhancements to our existing products. We may forgo or delay pursuit of other opportunities +20 +Table of Contents +Index to Consolidated Financial Statements +that could have had greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable products or profitable market opportunities. If we fail to pursue products that meet market demand, we may lose our competitive position, our products may become obsolete, and our business, financial condition and results of operations could be adversely affected. +Certain of our officers and directors provide services to other entities formerly affiliated with Amprius Holdings. +Dr. Kang Sun, our CEO and a member of our board of directors, serves on the boards of certain entities that were formerly affiliated with Amprius Holdings, including serving on the board of directors of Berzelius. There could be competition for the time and effort of such officers and directors and, further, potential conflicts of interests in our transactions with such entities. If such officers and directors do not devote sufficient attention to the management and operation of our business or if such conflicts of interest are not resolved, our business and financial results may suffer. +We may encounter delays and technical obstacles in developing new battery products such as different cell formats to meet varied market requirements. +Our customers may require unique battery configurations or custom designs for their products. Once we enter into contracts with customers to produce batteries for their products, we may expect to tailor the design of our batteries specifically to the products that these customers manufacture. This development process requires not only substantial lead time between the commencement of design efforts for customized batteries and the commencement of volume shipments of the battery cells to the customer, but also the cooperation and assistance of the customer in order to determine the requirements for each specific application. Technical problems may arise that affect the acceptance of our battery products by the customers. Our ability to tailor our batteries to meet the needs of our customers is affected by whether we can, amongst other things: +• receive and maintain necessary intellectual property protections; +• obtain governmental approvals and registrations; +• comply with governmental regulations; +• further develop and refine our technology; and +• anticipate customer needs and preferences successfully. +If we are unable to design and develop new battery products that meet our customers’ requirements, we may lose opportunities to obtain purchase orders, and our reputation and prospects may be damaged. +Certain components of our batteries are hazardous and pose safety risks that may cause accidents in our manufacturing facility. We may be subject to financial and reputational risks due to product recalls and product liability claims, and we could face substantial liabilities that exceed our resources. +Due to the high energy density inherent in lithium-ion batteries, our batteries can pose certain safety risks, including the risk of fire. Accidents causing death, personal injury or property damage, can occur, and no high energy density battery will ever be 100% safe. For example, under certain abuse conditions, lithium-ion batteries can go into thermal runaway, which can result in fire. Although we incorporate safety procedures in the research, development, manufacture and transportation of our batteries that are designed to minimize safety risks, the manufacture or use of our battery products may still cause accidents. Any accident, whether occurring at our manufacturing facilities or from the use of our battery products, may result in significant production interruption, delays or claims for substantial damages caused by personal injuries or property damage. +In addition, due to the harsh environments in which batteries are used including extremely low temperature and pressure, and combat for military applications, our batteries go through rigorous testing to ensure safe behavior under abuse-case conditions. Although such tests have been successful to date, we cannot assure you such tests will be successful in the future. If we have to make design changes to address any safety issues, we may have to delay or suspend our planned production, which could materially damage our brand, business, financial condition, results of operations and prospects. +Product liability claims, even those without merit or those that do not involve our battery products, could harm our business, financial condition, results of operations and prospects. +A successful product liability claim against us, resulting from safety issues or otherwise, could require us to pay a substantial monetary award. We may not be able to cover any substantial monetary judgment against us. Moreover, a +21 +Table of Contents +Index to Consolidated Financial Statements +product liability claim against us or our competitors could generate substantial negative publicity about our battery products and could have a material adverse effect on our brand, business, financial condition, results of operations and prospects. +We may not be able to accurately estimate the future supply and demand for our batteries, which could result in a variety of inefficiencies in our business and hinder our ability to generate revenue. If we fail to accurately predict our manufacturing requirements, we could incur additional costs or experience delays. +We anticipate being required to provide forecasts of our demand to our current and future suppliers prior to the scheduled delivery of products to potential customers. Currently, there is limited historical basis for making judgments on the demand for our batteries and our ability to develop, manufacture, and deliver our battery products. Our customers’ final purchase orders may not be consistent with our estimates. If we overestimate our requirements, our suppliers may deliver excess inventory, which indirectly would increase our costs and may result in unprofitable sales or write-offs. Given that our batteries may be customized to meet our customers’ specifications, they are susceptible to obsolescence due to their limited shelf life. Because we have no history of large-scale production, we may also be unable to forecast accurately the pace of manufacturing or the take-up of our battery products by our customers. +If we underestimate our requirements, our suppliers may have inadequate inventory, which could interrupt manufacturing of our battery products and result in delays in shipments and revenues. In addition, lead times for materials and components that our suppliers order may vary significantly and depend on factors unique to the specific supplier, contract terms and demand for each component at a given time. If we fail to order sufficient quantities of battery components in a timely manner, the delivery of our batteries to our potential customers could be delayed, which would harm our business, financial condition and results of operations. Producing additional battery products to make up for any shortages within a short time frame may be difficult, making us unable to fulfill the purchase orders, especially due to the customized nature of our batteries. In either case, our business, financial condition, results of operations and prospects may be adversely affected. +We may not be able to establish supply relationships for necessary finished batteries, materials, components or equipment or may be required to pay more than anticipated for components or equipment, which could negatively impact our business. +We rely on third party suppliers, including Berzelius and other manufacturing partners, for batteries and components necessary to develop and manufacture our batteries, including key supplies such as our anode materials, electrolytes, separators, and cathode materials. We face risks relating to the availability of these materials and components, including that we will be subject to demand shortages and supply chain challenges and generally may not have sufficient purchasing power to eliminate the risk of price increases for the raw materials and lines we need. To the extent that we are unable to enter into commercial agreements with any of our suppliers on beneficial terms, or any of our suppliers experience difficulties ramping up their supply of materials to meet our requirements, the production of our batteries will be delayed and we will not be able to meet our production timelines. +Separately, we may be subject to various supply chain requirements regarding, among other things, conflict minerals and labor practices. We may be required to incur substantial costs to comply with these and potential future requirements, which may include locating new suppliers to replace existing ones. We may not be able to find any new suppliers for certain raw materials or components required for our operations, or such suppliers may be unwilling or unable to provide us with products. +We expect to incur significant costs related to procuring various materials required to manufacture and assemble our batteries that will require us to negotiate purchase agreements and delivery lead-times on advantageous terms. We may not be able to control fluctuation in the prices for these materials or negotiate agreements with suppliers on terms that are beneficial to us. Substantial increases in the prices for our raw materials, or our inability to reduce our raw material costs as we scale, would negatively impact our prospects. +Any disruption in the supply of components or materials could temporarily disrupt research and development activities or production of our batteries until an alternative supplier is able to supply the required material. Changes in business conditions, unforeseen circumstances, governmental and regulatory changes, and other factors beyond our control or which we do not presently anticipate, could also affect our suppliers’ ability to deliver components to us on a timely basis. Any of the foregoing could materially and adversely affect our business, financial condition, results of operations and prospects. +22 +Table of Contents +Index to Consolidated Financial Statements +We are actively monitoring the impacts of armed conflicts between Russia and Ukraine and in the Middle East and are continuing to assess their potential to adversely affect our business. Our business has not been directly impacted by these ongoing armed conflicts, as we have no assets or operations, and we have not purchased materials from Russia, Belarus, Ukraine or the Middle East. To date, we have not experienced any material disruption in our business. Accordingly, we have not yet taken measures to mitigate potential adverse effects of such armed conflicts. However, the length and outcome of such conflicts is highly unpredictable. These conflicts may continue to cause significant market and other disruptions, including significant volatility in commodity prices, supply of components and supply chain interruptions, which could adversely affect our business, financial condition, results of operations and prospects. +Currency fluctuations, geopolitics, trade barriers, embargoes, tariffs or shortages and other general economic or political conditions may limit our ability to obtain key components for our batteries or significantly increase freight charges, raw material costs and other expenses associated with our business, which could materially and adversely affect our business, financial condition, results of operations and prospects. +Risks Related to Our Business and Industry +The battery market is intensely competitive. Competitors include new entrants and established companies, many of which have significantly greater resources than us. Our battery products must compete with advances in new battery chemistries and manufacturing methods as well as continued improvements in conventional batteries and battery anodes. +The battery market in which we compete continues to evolve rapidly and is highly competitive. To date, we have focused our efforts on our silicon anode technology, which is designed to outperform conventional lithium-ion battery technology and other battery technologies. However, lithium-ion battery technology has been widely adopted and our current competitors have, and future competitors may have, greater resources than us and may also be able to devote greater resources to the development of their current and future technologies. These competitors also may have greater access to customers and may be able to establish cooperative or strategic relationships amongst themselves or with third parties that may further enhance their resources and competitive positioning. In addition, lithium-ion battery manufacturers may make improvements in energy density faster than they have historically, continue to reduce cost and expand supply of conventional batteries and therefore reduce our energy density advantage, which would negatively impact the prospects for our business or negatively impact our ability to sell our battery products at a market-competitive price and with sufficient margins. +There are a number of companies seeking to develop alternative approaches to lithium-ion battery technology. We expect competition in battery technology to intensify. Developments in alternative technologies or improvements in batteries technology made by competitors may materially adversely affect the sales, pricing and gross margins of our batteries. If a competing technology is developed that has superior operational or price performance, or if we fail to accurately predict and ensure that our battery technology can address customers’ changing needs or emerging technological trends, or if our customers fail to achieve the benefits expected from our silicon anode technology, our business prospects would be adversely affected. +We expect to commit significant resources to scale our battery manufacturing capacity, including partnering with global contract manufacturers, and maintain a competitive position, and these commitments may be made without knowing whether such investments will result in products potential customers will accept. There is no assurance we will successfully identify new customer requirements, develop and bring our batteries to market on a timely basis, or that products and technologies developed by others will not render our batteries obsolete or noncompetitive, any of which would adversely affect our business, financial condition and results of operations. +Customers will be less likely to purchase our batteries if they are not convinced that our business will succeed in the long term. Similarly, suppliers and other third parties will be less likely to invest time and resources in developing business relationships with us if they are not convinced that our business will succeed in the long term. Accordingly, in order to build and maintain our business, we must maintain confidence among current and future partners, customers, suppliers, analysts, ratings agencies and other parties in our long-term financial viability and business prospects. Maintaining such confidence may be particularly complicated by certain factors including those that are largely outside of our control, such as our limited operating history, market unfamiliarity with our battery products, any delays in scaling manufacturing, delivery and service operations to meet demand, competition and uncertainty regarding our production and sales performance compared with market expectations. +Our future sales opportunities depend in part on the growth of markets for battery-powered applications. These applications may develop slower or at a size that is less than expected, to the extent they develop at all. +23 +Table of Contents +Index to Consolidated Financial Statements +Our growth and future demand for our battery products is dependent in part upon the adoption by consumers of alternative fuel vehicles in general and battery-powered aviation applications and other electrically powered modes of transportation in particular. The market for new energy vehicles is still evolving, characterized by changing technologies, competitive pricing and competitive factors, evolving government regulation and industry standards, and changing consumer demands and behaviors. +Market estimates and growth forecasts are also subject to significant uncertainty and are based on assumptions and estimates that may prove to be inaccurate. For example, if the assumptions that we base our market forecasts on, including the continued development and availability of high performance batteries at a competitive price point, OEM investment in aircraft, cars and software, consumer preference and, with respect to electric air transportation, regulatory approval and the requisite infrastructure, are incorrect, this expected growth may occur slower than expected, if it occurs at all. If the market for battery-powered applications in general does not develop as expected, or develops more slowly than expected, our business, financial condition, prospects and results of operations could be adversely affected. +Developments in alternative technology or other fossil fuel alternatives may adversely affect the demand for our battery products. +Significant developments in alternative technologies, such as fuel cell technology, advanced diesel, ethanol or natural gas, or breathing batteries, may materially and adversely affect our business, financial condition, results of operations and prospects in ways that we may not currently anticipate. Existing and other battery technologies, fuels or sources of energy may emerge as customers’ preferred alternatives to our battery products. Any failure by us to develop new or enhanced technologies or processes, or to react to changes in existing technologies, could materially delay our development and introduction of new and enhanced alternative products, which could result in decreased revenue and adversely affect our prospects. +Our research and development efforts may not be sufficient to adapt to changes in alternative fuels or aviation and EV technology. As technologies evolve, we plan to develop more efficient manufacturing processes, and advanced battery chemistry, which may also negatively impact the adoption of our other battery products. However, we may not compete effectively with alternative systems if we are not able to develop, source and integrate the latest technology into our battery products. +We have pursued and may continue to pursue development agreements and other strategic alliances, which could have an adverse impact on our business if they are unsuccessful. +We have entered into development agreements and master supply agreements with certain of our customers, and may in the future enter into similar arrangements and development agreements with our customers, including with AALTO Airbus and the U.S. Army. While offering potential benefits, these strategic alliances with OEMs and others could subject us to a number of risks, including risks associated with sharing proprietary information, non-performance by our partners and costs of establishing and maintaining new strategic alliances, any of which may materially and adversely affect our business. We may have limited ability to monitor or control the actions of our partners and, to the extent any of them suffers negative publicity or harm to their reputation from events relating to their business, we may also suffer negative publicity or harm to our reputation by virtue of our association with them. For example, if we rely on our partners’ manufacturing facilities, those operations would be outside of our control. We could experience delays if our partners do not meet agreed-upon timelines or experience capacity constraints, and in turn, we could lose customers and face reputational harm. +Our ability to grow will depend, in part, on our ability to contract with aviation, EV and LEV OEMs to incorporate our batteries in their products, which will require significant time and expense, and may not come to fruition. +Our success, and our ability to increase revenue and operate profitably, depends in part on our ability to contract with aviation, EV and LEV OEMs. This process will require significant time and resources, especially for incorporation into EVs. For example, EV manufacturers frequently require several years of evaluation prior to incorporating new products, like our batteries, into their EVs. This evaluation process includes, among other things, extensive safety and abuse tests, performance tests and cost modeling. We have not begun this process with any EV manufacturers. Thus, our efforts to expand our manufacturing and sales to OEMs may not be successful, and may never result in products that achieve market acceptance, create additional revenue or become profitable, thus adversely impacting our business, financial condition, results of operations and prospects. +Our research and development efforts strive to create products that are on the cutting edge of technology and meeting the evolving requirements of our customers, but competition in our industry is high. To secure acceptance of our battery +24 +Table of Contents +Index to Consolidated Financial Statements +products, we must also constantly develop and introduce cost-effective, increasingly more scalable silicon anode batteries with enhanced functionality and performance to meet evolving industry standards. If we are unable to retain and grow our existing customer relationships, or convert early trial deployments into meaningful orders, our business, financial condition, results of operations and prospects could be materially adversely affected. +If existing customers do not make subsequent purchases from us or renew their contracts with us, our revenue could decline, and our results of operations would be adversely impacted. +Historically, we derived a significant portion of our revenue from existing customers that expand their relationships with us. Increasing the size and number of the deployments of our existing customers is an important part of our growth strategy. We may not be effective in executing this or any other aspect of our growth strategy. +For our customers who individually represent 10% or more of our revenue, three customers together accounted for approximately 47% and 67% of our revenue during each of the years ended December 31, 2024 and 2023, respectively. Certain of our customers, including customers that represent a significant portion of our business, have in the past reduced their spend with us or terminated their agreements with us, which has reduced our anticipated future cash receipts or revenue from these customers. It is not possible for us to predict the future level of demand from our larger customers for our battery products, and there can be no assurance that our existing customers will continue to purchase from us. +Achieving renewal or expansion of deployments may require us to increasingly engage in sophisticated and costly sales efforts that may not result in additional sales. In addition, our customers’ decisions to expand the use of our battery products depends on a number of factors, including general economic conditions, the functioning of our batteries, and our customers’ satisfaction with our battery products. If our efforts to expand within our existing customer base are not successful, our business may suffer. +If our customers choose to reduce purchases, or do not purchase at all, batteries manufactured outside of the United States, our revenue could decline and our prospects may be adversely affected. +Our SiCore batteries are based on the innovative, proprietary material system developed by Berzelius, which is a Chinese corporation, and are currently manufactured by our manufacturing partners in China. Our customers may choose to reduce future purchases, or not purchase at all, SiCore batteries manufactured outside of the United States. As such, if the construction of our large-scale facility or our development of manufacturing lines that can produce SiCore batteries are delayed, our business and prospects may be materially and adversely affected. +We may require additional capital to support business growth, and this capital might not be available on commercially reasonable terms or at all. +On October 2, 2023, we entered into the At Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley Securities, Inc., Cantor Fitzgerald & Co. and H.C. Wainwright & Co., LLC, as sales agents (collectively, the “Sales Agents” ) , pursuant to which we may offer and sell, from time to time, through or to any Sales Agent, shares of our common stock with an aggregate offering price of not more than $100.0 million (the “At Market Financing”), as described in the prospectus supplement dated October 10, 2023 filed with the SEC. +We may need additional capital before we commence production at scale, and it may not be available on acceptable terms, if at all. For example, our capital forecast assumes, among other things, that our development timeline progresses as planned and our corresponding expenditures are consistent with current expectations, both of which are subject to various risks and uncertainties, including those described herein, and, as needed, that we are able to utilize the At Market Financing. +More specifically, while the construction schedule for our GWh-scale manufacturing facility will be determined based on, among other factors, the availability and timing of funding, we expect our capital expenditures and working capital requirements may increase materially, if we construct our automated, high-volume manufacturing lines and scale up production. Additionally, we expect our operating expenses may increase substantially on account of increased headcount and other general and administrative expenses necessary to support a rapidly growing company. +As a result, we expect to need to access the debt and equity capital markets, including through the At Market Financing, to obtain additional financing in the future. However, these sources of financing may not be available on acceptable terms, or at all. Our ability to obtain additional financing will be subject to a number of factors, including: +• market conditions; +25 +Table of Contents +Index to Consolidated Financial Statements +• the level of success with our current manufacturing capabilities; +• our operating performance; +• investor sentiment; and +• our ability to incur debt in compliance with any agreements governing our then capital structure. +Further, abrupt political change, terrorist activity, and armed conflict has had an impact on the global economy and financial markets. Although our business has not been directly impacted by such events, as we have no assets or operations, and we have not purchased materials from, Russia, Belarus, Ukraine or the Middle East, it is impossible to predict the extent to which our operations, or those of our customers, suppliers and manufacturers, will be impacted in the short and long term, or the ways in which the conflict may impact our business. The extent and duration of military action, sanctions and resulting market disruptions are impossible to predict, but could be material. +In addition, actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity challenges. These factors may make the timing, amount, terms or conditions of additional financings unattractive to us. If we raise additional funds by issuing equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of our currently issued and outstanding equity or debt, and our existing stockholders may experience dilution. If we are unable to generate sufficient funds from operations, raise additional capital or access our existing funds, we may be forced to take actions to reduce our capital or operating expenditures, including by eliminating redundancies, or reducing or delaying our production facility expansions, which may adversely affect our business, financial condition, results of operations and prospects. +It is not possible to predict the actual number of shares we will sell under the Sales Agreement, if any, or the gross proceeds resulting from those sales. +Under the Sales Agreement, we may offer and sell, from time to time, through the Sales Agents, shares of our common stock with an aggregate offering price of not more than $100.0 million. During the year ended December 31, 2024 and from the date of the Sales Agreement through December 31, 2024, we sold shares of our common stock under the Sales Agreement resulting in aggregate net proceeds of approximately $33.4 million and $33.8 million, respectively. +Subject to certain limitations in the Sales Agreement and compliance with applicable law, we have the discretion to deliver a placement notice to any Sales Agents at any time throughout the term of the Sales Agreement. The number of shares that are sold to or through the Sales Agents after delivering a placement notice will fluctuate based on a number of factors, including the market price of our common stock during the sales period, the limits we set with the Sales Agents in any applicable placement notice, and the demand for, and trading volume of, our common stock during the sales period. Because the price per share of each share sold will fluctuate during the sales period, it is not possible to predict the number of shares that will be sold or the gross proceeds to be raised in connection with such sales. +Our future growth and success depend in part on our ability to grow our customer base and effectively sell to a wide variety of customers. +Our future success will depend on our ability to grow our customer base and effectively sell to a wide variety of customers. Potential customers include manufacturers of products that tend to be large enterprises or governmental agencies. Sales to these end-customers involve risks that may not be present (or that are present to a lesser extent) with sales to smaller customers. These risks include, but are not limited to, (i) increased purchasing power and leverage held by large customers in negotiating contractual arrangements with us and (ii) longer sales cycles and the associated risk that substantial time and resources may be spent on a potential end-customer that elects not to purchase our solutions. +Large organizations often undertake a significant evaluation process that results in a lengthy sales cycle. In addition, product purchases by large organizations are frequently subject to budget constraints, multiple approvals and unanticipated administrative, processing and other delays. Finally, large organizations typically have longer implementation cycles, require greater product functionality and scalability, require a broader range of services, demand that vendors take on a larger share of risks, require acceptance provisions that can lead to a delay in revenue recognition and expect greater payment flexibility. All of these factors can add further risk to business conducted with these potential customers. +If we were unable to maintain or increase our customer retention rates or generate new customers in a cost-effective manner, our business, financial condition and results of operations would likely be adversely affected. We cannot assure +26 +Table of Contents +Index to Consolidated Financial Statements +you that we will be able to maintain or grow our customer base in a cost-effective way. If we are unable to develop high quality products at scale, or introduce new products, we may fail to attract new customers or lose our existing customers, which could adversely affect our growth and profitability. +Our business model has yet to be tested and any failure to realize our strategic plans would have an adverse effect on our operating results and business, harm our reputation and could result in substantial liabilities that exceed our resources. +There is additional risk associated with new enterprises like Amprius, that are encountering new challenges and issues for the first time, many of which are beyond our control, including substantial risks and expenses in the course of establishing or entering new markets, implementing novel manufacturing processes, organizing operations and undertaking marketing activities. The likelihood of our success must be considered in light of these risks, expenses, complications, delays and the competitive environment in which we operate. There is, therefore, nothing at this time upon which to base an assumption that our business plan will prove successful, and we may not be able to generate significant revenue, raise additional capital or operate profitably. We will continue to encounter risks and difficulties frequently experienced by early commercial stage companies, including scaling up our infrastructure and headcount, and may encounter unforeseen expenses, difficulties or delays in connection with our growth. In addition, as a result of the capital requirements of our business, we can be expected to continue to sustain substantial operating expenses without generating sufficient revenue to cover expenditures. Any investment in our company is therefore highly speculative and could result in the loss of some or all of your entire investment. +It is difficult to predict our future revenues and appropriately budget for our expenses, and we have limited insight into trends that may emerge and affect our business. In the event that actual results differ from our estimates or we adjust our estimates in future periods, our business, financial condition, results of operations and prospects could be materially affected. +We are an early-stage company with a history of financial losses and expect to incur significant expenses and continuing losses for the foreseeable future. +We have incurred net losses since our inception. For example, during the years ended December 31, 2024 and 2023, we generated net losses of $44.7 million and $36.8 million, respectively, with revenue of $24.2 million and $9.1 million, respectively. We may continue incurring net losses in the future as we, among other things, endeavor to hire the experienced scientific, quality-control, and manufacturing personnel needed to operate our scaled manufacturing processes; increase our sales and marketing activities; expand our distribution infrastructure; and increase our general and administrative functions to support our growing operations. We may find that these efforts are more expensive than we currently anticipate or that these efforts may not result in revenues, which would further increase our losses. +If we fail to effectively manage our future personnel growth, we may not be able to market and sell our batteries successfully. +Our future success depends upon our ability to grow, and if we are unable to manage our personnel growth effectively, we may incur unexpected expenses and be unable to meet our eventual customers’ requirements, all of which could materially adversely affect our business, financial condition, results of operations and prospects. To manage our current and anticipated future growth effectively, we must continue to maintain and enhance our infrastructure, financial and accounting systems, and controls. We must also attract, train and retain a significant number of scientists, engineers, sales and marketing personnel, technical and manufacturing personnel, and management personnel, and the availability of such personnel may be constrained. See above for more information about the risk on retaining and attracting key employees. +As we continue to grow, including from the integration of employees and businesses acquired in connection with future acquisitions, we may find it difficult to maintain important aspects of our corporate culture, which could negatively affect our profitability and our ability to retain and recruit qualified personnel who are essential for our future success. If we do not effectively manage our growth, we may not be able to execute on our growth plan, respond to competitive pressures, take advantage of market opportunities, satisfy customer requirements or manufacture high-quality battery products. Additionally, we may not be able to expand and upgrade our infrastructure to accommodate future growth. +Failure to effectively manage our growth could also lead us to over-invest or under-invest in development and operations; result in weaknesses in our infrastructure, systems or controls; give rise to operational mistakes, financial losses, loss of productivity or business opportunities; and result in loss of employees and reduced productivity of remaining employees. Our growth may require significant capital expenditures, which may lower our earnings, and may divert +27 +Table of Contents +Index to Consolidated Financial Statements +financial resources from other projects such as the development of new products and services. If we are unable to manage our growth effectively, our expenses may increase more than expected, our revenue may not increase or may grow more slowly than expected and we may be unable to implement our business strategy. +Certain members of our management do not have experience in operating a public company. +Certain of our executive officers have limited experience in the management of a publicly traded company. Public companies are subject to significant regulatory oversight and reporting obligations under federal securities laws and the continuous scrutiny of securities analysts and investors. As a result, we may be required to pay higher outside legal, accounting or consulting costs than our competitors, and our management team members may have to devote a higher proportion of their time to issues relating to compliance with the laws applicable to public companies, both of which might put us at a disadvantage relative to competitors. +Our insurance coverage may not be adequate to protect us from all business risks. +We may be subject, in the ordinary course of business, to losses resulting from product liability, accidents, acts of God, and other claims against us, for which we may have no insurance coverage. As a general matter, the policies that we do have may include significant deductibles or self-insured retentions, and we cannot be certain that our insurance coverage will be sufficient to cover all future losses or claims against us. A loss that is uninsured or which exceeds policy limits may require us to pay substantial amounts, which could adversely affect our business, financial condition and results of operations. +Our cash and money market funds could be adversely affected if the financial institutions in which we hold our cash and money market funds fail. +We deposit and maintain our cash and money market funds with third party financial institutions. A failure of these financial institutions to return our cash deposits and money market funds, or if a depository institution is subject to other adverse conditions in the financial or credit markets, could impact our access to our cash or money market funds and could adversely impact our operating liquidity and financial performance. +We are obligated to develop and maintain proper and effective internal control over financial reporting. If we are unable to develop and maintain an effective system of internal controls and procedures required by Section 404 of the Sarbanes-Oxley Act, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us and materially and adversely affect our stock price, business and operating results. +Effective internal control over financial reporting is necessary for us to provide reliable financial reports in a timely manner. The effectiveness of our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the possibility of human error and the risk of fraud. If we are unable to develop and maintain effective internal control over our financial reporting, or remediate any material weaknesses we identify in the future, we may not be able to accurately report our financial results in a timely manner, or prepare our financial statements within the time periods specified by the forms of the SEC, which may adversely affect our reputation and business and the market price of our common stock. In addition, any such failures could result in litigation or regulatory actions by the SEC or other regulatory authorities, loss of investor confidence, delisting of our securities and harm to our reputation and financial condition, or diversion of financial and management resources from the operation of our business. +During the years ended December 31, 2023 and 2022, we identified material weaknesses in our internal control over financial reporting pertaining to the inadequate design and maintenance of our internal control over our financial reporting and close activities and inadequate segregation of duties. Although those material weaknesses were remediated and there were no material weaknesses identified as of December 31, 2024, there can be no assurance that we will not experience additional material weaknesses in the future. We continue to assess our internal controls and procedures and intend to take further actions as necessary or appropriate to address any other matters we may identify in the future. We cannot assure you that the measures we have taken to date and may take in the future, will be sufficient to prevent or avoid potential future material weaknesses in internal control over financial reporting. In addition, it is possible that control deficiencies or significant deficiencies could be identified by our management or by our independent registered public accounting firm in the future or may occur without being identified. Such a failure could result in regulatory scrutiny and cause investors to lose confidence in our reported financial condition, lead to a default under future indebtedness, and could have a material adverse effect on our business, financial condition, cash flow or results of operations. +28 +Table of Contents +Index to Consolidated Financial Statements +As a public company, we are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for annual reports on Form 10-K that we file with the SEC. In such report, we are required to disclose any material weaknesses identified by our management on our internal control over financial reporting. Additionally, we are required to disclose changes made on our internal control over financial reporting on a quarterly basis. Failure to comply with the Sarbanes-Oxley Act could potentially subject us to sanctions or investigations by the SEC, the applicable stock exchange or other regulatory authorities, which would require additional financial and management resources. As of December 31, 2024, management assessed the effectiveness of our internal control over financial reporting and concluded that such internal controls and procedures were effective. See the section titled "Controls and Procedures – Management's Report on Internal Control over Financial Reporting" for more information. +Eventually, it is possible that our independent registered public accounting firm will also be required to audit the effectiveness of our internal control over financial reporting in future annual reports on Form 10-K to be filed with the SEC. +Our ability to utilize our net operating losses, tax credit carryforwards, and certain other tax attributes to offset future taxable income may be subject to certain limitations. +In general, under Section 382 of the Internal Revenue Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to use its pre-change net operating loss carryforwards (“NOLs”) to offset future taxable income. The limitations apply if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a three-year period. If we experienced an ownership change at any time since our incorporation, we may already be subject to limitations on our ability to utilize our existing NOLs and other tax attributes to offset taxable income or tax liability. In addition, future changes in our stock ownership, which may be outside of our control, may trigger an ownership change. Similar provisions of state tax law may also apply to limit our use of accumulated state tax attributes. As a result, even if we earn net taxable income in the future, our ability to use our NOL carryforwards and other tax attributes to offset such taxable income or tax liability may be subject to limitations, which could potentially result in increased future income tax liability to us. Further, because we and Amprius Holdings were members of a consolidated group for U.S. federal income tax purposes up to September 14, 2022, the closing date of our business combination with Kensington, NOLs and our other tax attributes are available to be utilized by any member of the consolidated group. Accordingly, our existing NOLs and other tax attributes may not be available to offset future income tax liabilities. +With the recent change in presidential administration, there is also a risk that there will be substantial changes in law or regulations. In addition, many of the states are seeking to increase tax revenues. Such changes may include, but are not limited to, changes in the tax rate or possible suspensions on the use of net operating losses, tax credits, and other tax attributes. The Internal Revenue Code now requires taxpayers to capitalize research and development expenditures and to amortize domestic expenditures over five years and foreign expenditures over 15 years. If Congress does not modify or repeal this provision, it may result in the acceleration of future taxable income (and associated income tax liabilities) for us. Any resulting income tax liabilities may reduce our future cash flows. +The unavailability, reduction or elimination of government and economic incentives could have a material adverse effect on our business, financial condition, results of operations and prospects. +We benefit from certain government subsidies and economic incentives from time to time, including tax credits, rebates and other incentives that support the development and adoption of clean energy technology. For example, the Inflation Reduction Act of 2022 introduces or extends a number of tax credits to promote clean energy development. We cannot assure you that we will be able to benefit from such programs or that these subsidies and incentive programs will be available to us at the same or comparable levels in the future, including as a result of changes to the leadership within the United States government administration. +We have received commitments of state and local incentive packages providing approximately $10.0 million in total tax incentives relating to our design and buildout of a GWh-scale facility in Brighton, Colorado. Specifically, the Colorado Economic Development Commission approved up to approximately $5.5 million in Job Growth Incentive Tax Credits for us, over an eight-year period, which are contingent upon us meeting net new job creation and salary requirements. The City of Brighton also approved incentives with a total estimated value of approximately $0.9 million, including a five-year property tax rebate of 100% and a 50% rebate on the city’s use tax collected on construction materials. In addition, the Adams County Regional Economic Partnership approved incentives in the form of tax abatement with performance-based +29 +Table of Contents +Index to Consolidated Financial Statements +contingencies. If we are not able to achieve the performance-based goals set for the incentives, we may not receive any funding or benefits from the state and local governments of Colorado. +Further, government incentives are subject to uncertainties and may be discontinued at any time. Any reduction, elimination or discriminatory application of government subsidies and economic incentives because of policy changes, or the reduced need for such subsidies and incentives due to the perceived success of clean and renewable energy products or other reasons, may require us to seek additional financing, which may not be obtainable on commercially attractive terms or at all, and may result in the diminished competitiveness of the battery cell industry generally or our silicon anode battery cells in particular. Any change in the level of subsidies and incentives from which we benefit could materially and adversely affect our business, financial condition, results of operations and prospects. +We have customers from the public sector, and our failure to receive and maintain government contracts or changes in the contracting or fiscal policies of the public sector could have a material adverse effect on our business. +We have contracts with certain government agencies of the United States (as a prime contractor or subcontractor). +Sales to government agencies are subject to a number of challenges and risks. Selling to government agencies can be highly competitive, expensive, and time-consuming, often requiring significant upfront time and expense without any assurance that these efforts will generate a sale. We also must comply with laws and regulations relating to the formation, administration, and performance of contracts, which provide public sector customers rights, many of which are not typically found in commercial contracts. +Accordingly, our business, financial condition, results of operations and prospects may be adversely affected by certain events or activities, including, but not limited to: +• changes in fiscal or contracting policies or decreases in available government funding; +• changes in government programs or applicable requirements; +• changes in the political environment, including before or after a change to the leadership within the government administration, and any resulting uncertainty or changes in policy or priorities and resultant funding; +• appeals, disputes, or litigation relating to government procurement, including but not limited to bid protests by unsuccessful bidders on potential or actual awards of contracts to us or our partners by the government; +• the adoption of new laws or regulations or changes to existing laws or regulations; +• influence by, or competition from, third parties with respect to pending, new, or existing contracts with government customers; and +• increased or unexpected costs or unanticipated delays caused by other factors outside of our control, such as performance failures of our prime contractors or subcontractors. +Any such event or activity, among others, could cause governments and governmental agencies to delay or refrain from purchasing our battery products in the future, reduce the size or payment amounts of purchases from existing or new government customers, or otherwise have an adverse effect on our business, financial condition, results of operations and prospects. +Government contracts often also contain provisions and are subject to laws and regulations that provide government customers with additional rights and remedies not typically found in commercial contracts. These rights and remedies allow government customers, among other things, to: +• terminate existing contracts for convenience; +• reduce orders under or otherwise modify contracts; +• for contracts subject to the Truth in Negotiations Act, reduce the contract price or cost where it was increased because a contractor or subcontractor furnished cost or pricing data during negotiations that was not complete, accurate, and current; +• for some contracts, (i) demand a refund, make a forward price adjustment, or terminate a contract for default if a contractor provided inaccurate or incomplete data during the contract negotiation process and (ii) reduce the contract price under triggering circumstances, including the revision of price lists or other documents upon which the contract award was predicated; +30 +Table of Contents +Index to Consolidated Financial Statements +• decline to exercise an option to renew a multi-year contract; +• claim rights in solutions, systems, or technology produced by us, appropriate such work-product for their continued use without continuing to contract for our services, and disclose such work-product to third parties, including other government agencies and our competitors, which could harm our competitive position; +• prohibit future procurement awards with a particular agency due to a finding of organizational conflicts of interest; +• suspend or debar us from doing business with the applicable government; and +• control or prohibit the export of our battery products and technology. +Government contracts are also generally subject to greater scrutiny, whereby the government can initiate reviews, audits and investigations regarding our compliance with government contract requirements. Current and new regulations or procurement requirements (including, for example regulations regarding counterfeit and corrupt parts, country of origin restrictions, supply chain diligence, mandatory socioeconomic compliance requirements and cybersecurity) or changes to current requirements could limit contracting opportunities and also increase our costs and risk of non-compliance. Failure to comply with government contracting laws, regulations and contract requirements, or adverse findings from a government audit or investigation can lead to criminal, civil or administrative proceedings (including pursuant to the False Claims Act), termination of contracts, forfeiture of profits, suspension of payments, adverse media coverage, fines and suspension or debarment from doing business with U.S. government agencies, all of which may have an adverse effect on our reputation, business, financial condition, results of operations and prospects. +Our technology and our website, systems, and data we maintain may be subject to intentional disruption, security breaches and other security incidents, or alleged violations of laws, regulations, or other obligations relating to data handling that could result in liability and adversely impact our reputation and future sales. We may be required to expend significant resources to continue to modify or enhance our protective measures to detect, investigate and remediate vulnerabilities to security breaches and incidents. Any actual or alleged failure to comply with applicable cybersecurity or data privacy legislation or regulation could have a material adverse effect on our business, reputation, results of operations or financial condition. +We expect to face significant challenges with respect to information security and maintaining the security and integrity of our information systems and other systems used in our business, as well as with respect to the data stored on or processed by these systems. We also anticipate receiving and storing confidential business information of our partners and customers. Advances in technology, an increased level of sophistication and expertise of hackers, and new discoveries in the field of cryptography can result in a compromise or breach of the systems used in our business or of security measures used in our business to protect confidential information, personal information, and other data. We may be a target for attacks designed to disrupt our operations or to attempt to gain access to our systems or to data that we possess, including proprietary information that we obtain from our partners pursuant to our agreements with them. We also are at risk for interruptions, outages and breaches of our and our outsourced service providers’ operational systems and security systems, our integrated software and technology, and data that we or our third party service providers process or possess. These may be caused by, among other causes, physical theft, viruses or other malicious code, denial or degradation of service attacks, ransomware, social engineering schemes, and insider theft or misuse. We have suffered security incidents in the past. In December 2021, we experienced a ransomware incident and notified certain employees of such incident. The security risks we and our outsourced service providers face could also be elevated in connection with the Russian invasion of Ukraine or the conflict in the Middle East, as we and our outsourced service providers are vulnerable to a heightened risk of cyberattacks from or affiliated with nation-state actors, including retaliatory attacks from Russian actors against U.S.-based companies. +The availability and effectiveness of our silicon anode technology and our ability to conduct our business and operations depend on the continued operation of information technology and communications systems, some of which we have yet to develop or otherwise obtain the ability to use. Systems we currently use or may use in the future in conducting our business, including data centers and other information technology systems, will be vulnerable to damage or interruption. Such systems could also be subject to break-ins, sabotage and intentional acts of vandalism, as well as disruptions and security breaches and security incidents as a result of non-technical issues, including intentional or inadvertent acts or omissions by employees, service providers, or others. We currently use, and may use in the future, outsourced service providers to help provide certain services, and any such outsourced service providers face similar security and system disruption risks as us. Our ability to monitor our outsourced service providers’ security measures is limited, and, in any event, third parties may be able to circumvent those security measures, resulting in the unauthorized access to, misuse, acquisition, disclosure, loss, alteration, or destruction of personal, financial, confidential, or other data, +31 +Table of Contents +Index to Consolidated Financial Statements +including data relating to individuals. Some of the systems used in our business will not be fully redundant, and our disaster recovery planning cannot account for all eventualities. Any data security incidents or other disruptions to any data centers or other systems used in our business could result in lengthy interruptions in our service and may adversely affect our reputation, business, financial condition, results of operations and prospects. +Significant capital and other resources may be required in efforts to protect against information security breaches, security incidents, and system disruptions, or to alleviate problems caused by actual or suspected information security breaches and other data security incidents and system disruptions. The resources required may increase over time as the methods used by hackers and others engaged in online criminal activities and otherwise seeking to obtain unauthorized access to systems or data, and to disrupt systems, are increasingly sophisticated and constantly evolving. In particular, ransomware attacks have become more prevalent in the industrial sector, which could materially and adversely affect our ability to operate and may result in significant expense or reputational harm. +In addition, we may face increased compliance burdens regarding such requirements with regulators and customers regarding our battery products and also incur additional costs for oversight and monitoring of our supply chain. These additional compliance and logistical burdens are attenuated through our international partnerships. We also cannot be certain that these systems, networks, and other infrastructure or technology upon which we rely, including those of our third party suppliers or service providers, will be effectively implemented, maintained or expanded as planned, or will be free from bugs, defects, errors, vulnerabilities, viruses, ransomware, or other malicious code. We may be required to expend significant resources to make corrections or to remediate issues that are identified or to find alternative sources. +Any failure or perceived failure by us or our service providers to prevent information security breaches or other security incidents or system disruptions, or any compromise of security that results in or is perceived or reported to result in unauthorized access to, or loss, theft, alteration, release or transfer of, our information, or any personal information, confidential information, or other data could result in loss or theft of proprietary or sensitive data and intellectual property, could harm our reputation and competitive position and could expose us to legal claims, regulatory investigations and proceedings, and fines, penalties, and other liability. Any such actual or perceived security breach, security incident or disruption could also divert the efforts of our technical and management personnel and could require us to incur significant costs and operational consequences in connection with investigating, remediating, eliminating and putting in place additional tools, devices, policies, and other measures designed to prevent actual or perceived security breaches and other incidents and system disruptions. Moreover, we could be required or otherwise find it appropriate to expend significant capital and other resources to respond to, notify third parties of, and otherwise address the incident or breach and its root cause, and most jurisdictions have enacted laws requiring companies to notify individuals, regulatory authorities and others of security breaches involving certain types of data. +Further, we cannot assure that any limitations of liability provisions in our current or future contracts that may be applicable would be enforceable or adequate or would otherwise protect us from any liabilities or damages with respect to any particular claim relating to a security breach or other security-related matter. We also cannot be sure that our existing insurance coverage will continue to be available on acceptable terms or will be available in sufficient amounts to cover claims related to a security breach or incident, or that the insurer will not deny coverage as to any future claim. The successful assertion of claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our reputation, financial condition and results of operations. +Additionally, laws, regulations, and other actual and potential obligations relating to privacy, data hosting and other processing of data, data protection, and data security are evolving rapidly, and we expect to potentially be subject to new laws and regulations, or new interpretations of laws and regulations, in the future in various jurisdictions. These laws, regulations, and other obligations, and changes in their interpretation, could require us to modify our operations and practices, restrict our activities, and increase our costs. Further, these laws, regulations, and other obligations are complex and evolving rapidly, and we cannot provide assurance that we will not be subject to claims, allegations, or other proceedings related to actual or alleged obligations relating to privacy, data protection, or data security. It is possible that these laws, regulations, and other obligations may be inconsistent with one another or be interpreted or asserted to be inconsistent with our business or practices. We anticipate needing to dedicate substantial resources to comply with laws, regulations, and other obligations relating to privacy and data security in order to comply. Any failure or alleged or perceived failure to comply with any applicable laws, regulations, or other obligations relating to privacy, data protection, or data security could also result in regulatory investigations and proceedings, and misuse of or failure to secure data relating to individuals could also result in claims and proceedings against us by governmental entities or others, penalties and other liability, and damage to our reputation and credibility, and could have a negative impact on our business, financial condition, results of operations and prospects. +32 +Table of Contents +Index to Consolidated Financial Statements +Risks Related to Intellectual Property +We rely heavily on our intellectual property portfolio. If we are unable to protect our intellectual property rights, our business and competitive position would be harmed. +We may not be able to prevent unauthorized use of our intellectual property, which could harm our business and competitive position. We rely upon a combination of various intellectual property protections afforded by patent, copyright, trademark and trade secret laws in the United States and other jurisdictions, as well as contractual protections afforded by license agreements and other agreements, to establish, maintain and enforce rights in our proprietary technologies. In addition, we seek to protect our intellectual property rights through nondisclosure and invention assignment agreements with our employees and consultants, and through non-disclosure agreements with business partners and other third parties. Despite our efforts to protect our proprietary rights, third parties may, without proper authorization, attempt to copy or otherwise obtain and use our intellectual property or be able to design around our intellectual property. Monitoring unauthorized use of our intellectual property is difficult and costly, and the steps we have taken or will take to prevent misappropriation may not be adequate, sufficient, or effective. Any enforcement efforts we undertake, including litigation, could be time-consuming and expensive and could divert management’s attention, which could harm our business, results of operations and financial condition. Moreover, certain proprietary technology that is stored on computer systems could be penetrated by intruders and potentially misappropriated. There is no guarantee that our efforts to protect our computer systems will be effective. In addition, existing intellectual property laws and contractual remedies may afford less protection than needed to safeguard our intellectual property portfolio. +Patent, copyright, trademark and trade secret laws vary significantly throughout the world. A number of foreign countries do not protect intellectual property rights to the same extent as do the laws of the United States. Therefore, our intellectual property rights may not be as strong or as easily enforced outside of the United States and efforts to protect against the unauthorized use of our intellectual property rights, technology and other proprietary rights may be more expensive and difficult outside of the United States. Further, we have not established our intellectual property rights in all countries in the world, and competitors may copy our designs and technology and operate in countries in which we have not enforced our intellectual property rights. Failure to adequately protect our intellectual property rights could result in our competitors using our intellectual property to offer products, and competitors’ ability to design around our intellectual property would enable competitors to offer similar or better batteries, in each case potentially resulting in the loss of some of our competitive advantage and a decrease in our revenue which, would adversely affect our business, financial condition, results of operations and prospects. +We may need to defend ourselves against intellectual property infringement claims, which may be time-consuming and could cause us to incur substantial costs. +Companies, organizations or individuals, including our current and future competitors, may hold or obtain patents, trademarks or other proprietary rights that would prevent, limit or interfere with our ability to make, use, develop, distribute, or sell our battery products, which could make it more difficult for us to operate our business. From time to time, we may receive inquiries from holders of patents or trademarks inquiring whether we are infringing their proprietary rights and/or seek court declarations that they do not infringe upon our intellectual property rights. Companies holding patents or other intellectual property rights relating to batteries, electric motors or electronic power management systems may bring suits alleging infringement by our battery products of such rights or otherwise asserting their rights and seeking licenses. In addition, if we are determined to have infringed upon a third party’s intellectual property rights, we may be required to do one or more of the following: +• cease selling, incorporating or using products that incorporate the challenged intellectual property; +• pay substantial damages; +• obtain a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms or at all; or +• redesign our batteries. +We have in the past experienced infringement claims from non-practicing organizations (sometimes referred to as “patent trolls”) filing lawsuits for patent infringement. For example, in December 2020, we settled a patent infringement case against us and agreed to make licensing payments in connection with such settlement. We may be subject to additional infringement claims in the future, and even if we believe such claims are without merit, such claims are time-consuming, expensive to litigate or settle and can divert management’s resources and attention. An adverse determination could require that we pay damages, which could be substantial, or that we stop using technologies found to be in violation of a third +33 +Table of Contents +Index to Consolidated Financial Statements +party’s rights and could prevent us from selling our batteries. In order to avoid these restrictions, we may have to seek a license for the technology. Any such license may not be available on reasonable terms or at all, could require us to pay significant royalties and may significantly increase our operating expenses or otherwise seriously harm our business or results of operations. +In the event of a successful claim of infringement against us and our failure or inability to obtain a license to the infringed technology, our business, financial condition, results of operations and prospects could be materially adversely affected. In addition, any litigation or claims, whether or not valid, could result in substantial costs and diversion of resources and management’s attention. +We also license patents and other intellectual property from third parties, and we may face claims that our use of this intellectual property infringes the rights of others. In such cases, we may seek indemnification from our licensors under our license contracts with them. However, our rights to indemnification may be unavailable or insufficient to cover our costs and losses, depending on our use of the technology, whether we choose to retain control over conduct of the litigation, and other factors. +Our patent applications may not result in issued patents or our patent rights may be contested, circumvented, invalidated or limited in scope, any of which could have a material adverse effect on our ability to prevent others from interfering with our commercialization of our batteries. +Our patent applications may not result in issued patents, which may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours. The status of patents involves complex legal and factual questions and the breadth of claims allowed is uncertain. As a result, we cannot be certain that the patent applications that we file will result in patents being issued, or that our patents and any patents that may be issued to us will afford protection against competitors with similar technology. Numerous patents and pending patent applications owned by others exist in the fields in which we have developed and is and will be developing our technology. In addition to those who may claim priority, any of our existing or pending patents may also be challenged by others on the basis that they are otherwise invalid or unenforceable. Furthermore, patent applications filed in foreign countries are subject to laws, rules and procedures that differ from those of the United States, and thus we cannot be certain that foreign patent applications related to issued U.S. patents will be issued. +Even if our patent applications succeed and we are issued patents in accordance with them, it is still uncertain whether these patents will be contested, circumvented, invalidated or limited in scope in the future. The rights granted under any issued patents may not provide us with meaningful protection or competitive advantages, and some foreign countries provide significantly less effective patent enforcement than what the United States provides. In addition, the claims under any patents that issued to us may not be broad enough to prevent others from developing technologies that are similar or that achieve results similar to ours. The intellectual property rights of others could also bar or limit us from licensing, exploiting, or enforcing any patents issued to us. In addition, patents issued to us may be infringed upon or designed around by others and others may obtain patents that they need to license or design around, either of which would increase costs and may adversely affect our business, financial condition, results of operations and prospects. +We may obtain licenses on technology that has not been commercialized or has been commercialized only to a limited extent, and the success of our business may be adversely affected if such technology does not perform as expected. +From time to time, we may license from third parties, technologies that have not been commercialized or which have been commercialized only to a limited extent. These technologies may not perform as expected within our silicon anode battery cells and related products. If the cost, performance characteristics, manufacturing process or other specifications of these licensed technologies fall short of our targets, our expected sales, costs, time to market, competitive advantage, future product pricing and potential operating margins may be adversely affected. +Risks Related to Litigation and Regulatory Compliance +Our operations expose us to litigation, environmental and other legal compliance risks. Compliance with laws and regulations can be expensive, and our failure to comply with these laws and regulations may result in monetary damages and fines, adverse publicity and a material adverse effect on our business. +We are subject to a variety of litigation, environmental, health and safety, investment screening and national security laws, and other legal compliance risks. These risks include, among other things, possible liability relating to product liability matters, personal injuries, intellectual property rights, contract-related claims, health and safety liabilities, +34 +Table of Contents +Index to Consolidated Financial Statements +employment-related liabilities, environmental matters, investment screening and national security laws, and compliance with U.S. and foreign laws, competition laws and laws governing improper business practices. +Our operations in the United States are subject to numerous environmental laws and regulations, including federal, state and local laws and regulations relating to, among other things: water; natural resources; discharges; emissions; chemicals; solid and hazardous waste storage, treatment and disposal; remediation of releases of hazardous materials; and contamination. Compliance with these laws can be difficult and costly. For example, battery life cycle management regulations and regulations governing the transport of batteries may impose substantial requirements on our operations in the United States. Our operations may be required to obtain and comply with environmental permits, many of which may be difficult and expensive to obtain and must be renewed on a periodic basis. A failure to comply with these laws, regulations or permits could result in substantial liabilities, including fines, penalties, the suspension or loss of permits, and possibly orders to cease the non-compliant operations. Our manufacturing process will have hazards such as, but not limited to, hazardous materials, machines with moving parts, and high voltage and/or high current electrical systems typical of large manufacturing equipment and related safety incidents. There may be safety incidents that damage machinery or manufacturing components, slow or stop production, or harm employees. Consequences may include litigation, regulation, fines, increased insurance premiums, mandates to temporarily halt production, workers’ compensation claims, or other actions that impact our brand, finances or ability to operate. +As a business with international reach, we are subject to complex laws and regulations, including investment screening laws, in jurisdictions in which we operate. Those laws and regulations may be interpreted in different ways. They may also change from time to time, as may related interpretations and other guidance. Changes in laws or regulations could result in higher expenses and payments, and uncertainty relating to laws or regulations may also affect how we conduct our operations and structure our investments and could limit our ability to enforce our rights. +Changes in environmental and climate laws or regulations, including laws relating to greenhouse gas emissions, could lead to new or additional investment in manufacturing designs, subject us to additional costs and restrictions, including increased energy and raw materials costs, and could increase environmental compliance expenditures. We are subject to various environmental laws and regulations on air emission, wastewater discharge, solid waste, noise and the disposal of hazardous materials. Cobalt and lithium are toxic materials that are important raw materials in our batteries. We also use, generate and discharge other toxic, volatile and hazardous chemicals and wastes in our research, development and manufacturing activities. Under U.S. environmental regulations, we are required to maintain the pollutant emission levels at the facility within the levels prescribed by the relevant governmental authorities and obtain a pollution discharge permit for water and air emissions. Future changes to environmental laws or permit requirements could require us to install new control equipment or otherwise change operations in order to comply with any such change in laws or permit requirements. In addition, certain laws and regulations require enterprises like us that generate hazardous wastes to engage companies which are licensed and qualified to process the hazardous wastes, and to collect, store, dispose of and transfer the hazardous waste. +If we fail to comply with national and local environmental protection laws and regulations, the relevant governmental authorities may impose fines or deadlines to cure instances of noncompliance, and may even order us to cease operations if we fail to comply with their requirements. In particular, any breach by us in connection with requirements relating to the handling of hazardous wastes may subject us to monetary damages and fines. In addition, if any third party suffers any loss as a result of our pollutant emission practices, our improper handling of hazardous wastes or our noncompliance with environmental regulations, such third parties may seek damages from us. +We cannot assure that we will be able to comply with all environmental laws and regulations at all times as the environmental legal regime is evolving and becoming more stringent. Therefore, if these or other governments where we do business impose more stringent regulations in the future, we will have to incur additional substantial costs and expenses in order to comply with new regulations, which may negatively affect our results of operations. If we fail to comply with any of the present or future environmental regulations in any material aspect or cause any loss to any third parties due to our pollutant emission practices, improper handling of hazardous wastes or other environmental noncompliance, we may suffer from negative publicity and may be required to pay substantial fines, pay damages to such third parties, or suspend or even cease operations, all of which may materially and adversely affect our business, financial condition, results of operations and prospects. Environmental laws and regulations may become more stringent in the future, which could increase costs of compliance or require us to manufacture with alternative technologies and materials. +We may be subject to review and enforcement actions under domestic and foreign laws that screen investments and to other national-security-related laws and regulations. In certain jurisdictions, these legal and regulatory requirements may be more stringent than in the United States and may impact battery companies more specifically. As a result of these laws +35 +Table of Contents +Index to Consolidated Financial Statements +and regulations, investments by particular investors may need to be filed with local regulators, which in turn may impose added costs on our business, impact our operations, and/or limit our ability to engage in strategic transactions that might otherwise be beneficial to us and our investors. +We are subject to a variety of laws and regulations related to the safety and transportation of our batteries. Our failure to comply with these laws and regulations may have a material adverse effect on our business and results of operations. +Many federal, state and local authorities require certification by Underwriters Laboratory, Inc., an independent, not-for-profit corporation engaged in the testing of products for compliance with certain public safety standards, or other safety regulation certification prior to marketing battery cells. Foreign jurisdictions also have regulatory authorities overseeing the safety of consumer products. Our batteries may not meet the specifications required by these authorities. A determination that any of our battery products are not in compliance with these rules and regulations could result in the imposition of fines or an award of damages to private litigants. +In addition, lithium batteries have been identified as a Class 9 dangerous good during transport. To be safely transported (by air, sea, rail or roadways), they must meet various international, national, state and local regulations, including, for example, the provisions laid out in United Nations standard UN 38.3. This standard applies to batteries transported either on their own or installed in a device. UN 38.3 has been adopted by regulators and competent authorities around the world, thus making it a requirement for global market access. Our failure to manage the transportation of our batteries could subject us to increased costs or future liabilities. +Failure to comply with certain health and production safety laws and regulations governing hazardous materials could materially adversely affect our business and results of operations. +In the sourcing of our battery products throughout the world, we process, store, dispose of and otherwise use large amounts of hazardous materials. As a result, we are subject to extensive and evolving health and production safety laws and regulations governing, among other things: the health of our employees and safety production requirements regarding the generation, handling, storage, use and transportation of hazardous materials. Compliance with these laws and regulations results in ongoing costs. Failure to comply with these laws or regulations, or to obtain or comply with the relevant permits, could result in fines, criminal charges or other sanctions by regulators. Furthermore, we may be ordered to rectify a noncompliance within a stipulated deadline; and if we fail to do so, we may be ordered to cease operations. Our ongoing compliance with health and safety laws, regulations and permits could require us to incur significant expenses, limit our ability to modify or expand our facilities or continue manufacturing and make other capital improvements. In addition, private parties, including current or former employees, could bring personal injury or other claims against us due to the presence of, or exposure to, hazardous substances used, stored or disposed of by us or contained in our batteries. +We are or will be subject to anti-corruption and anti-bribery and anti-money laundering and similar laws, and non-compliance with such laws can subject us to administrative, civil and criminal fines and penalties, collateral consequences, remedial measures and legal expenses, all of which could adversely affect our business, results of operations, financial condition and reputation. +We are subject to the Foreign Corrupt Practices Act (the “FCPA”), the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, and possibly other anti-bribery and anti-corruption laws and anti-money laundering laws in various jurisdictions in which we conduct, or in the future may conduct, activities. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly to generally prohibit us and our officers, directors, employees, business partners, agents, representatives and third party intermediaries from corruptly offering, promising, authorizing or providing, directly or indirectly anything of value to recipients in the public or private sector. +We may leverage third parties to sell our battery products and conduct our business abroad. We, our officers, directors, employees, business partners, agents, representatives and third party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and we may be held liable for the corrupt or other illegal activities of these employees, agents, representatives, business partners or third party intermediaries even if we do not explicitly authorize such activities. We cannot assure you that all of our officers, directors, employees, business partners, agents, representatives and third party intermediaries will not take actions in violation of applicable law, for which we may be ultimately held responsible. As our international activities and sales expand, our risks under these laws may increase. +These laws also require companies to make and keep books, records and accounts that accurately reflect transactions and dispositions of assets and to maintain a system of adequate internal accounting controls and compliance procedures designed to prevent any such actions. While we have certain policies and procedures to address compliance with such laws, +36 +Table of Contents +Index to Consolidated Financial Statements +we cannot assure you that none of our officers, directors, employees, business partners, agents, representatives and third party intermediaries will take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. +Any allegations or violation of the FCPA or other applicable anti-bribery and anti-corruption laws and anti-money laundering laws could subject us to whistleblower complaints, adverse media coverage, investigations, settlements, prosecutions, enforcement actions, fines, damages, loss of export privileges, and severe administrative, civil and criminal sanctions, suspension or debarment from government contracts, collateral consequences, remedial measures and legal expenses, all of which could materially and adversely affect our reputation, business, financial condition, results of operations and prospects. Responding to any investigation or action will likely result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees. +We are subject to governmental export and import controls that could impair our ability to compete in international markets or subject us to liability if we violate these controls. +Our battery products may be subject to U.S. export control laws and regulations including the Export Administration Regulations, the International Traffic in Arms Regulations, and trade and economic sanctions maintained by the Office of Foreign Assets Control. As such, an export license is required to export, reexport, or transfer certain battery products to certain countries, end-users, and end-uses. If we were to fail to comply with such U.S. export controls laws and regulations, U.S. economic sanctions, or other similar laws, we could be subject to both civil and criminal penalties, including substantial fines, possible incarceration for employees and managers for willful violations, and the possible loss of our export or import privileges. Obtaining the necessary export license for a particular sale or offering may not be possible and may be time-consuming and may result in the delay or loss of sales opportunities. Furthermore, U.S. export control laws and economic sanctions prohibit the export of products to certain U.S. embargoed or sanctioned countries, governments, and persons, as well as for prohibited end-uses. Even though we take precautions to ensure that we and our partners comply with all relevant export control laws and regulations, any failure by us or our partners to comply with such laws and regulations could have negative consequences for us, including reputational harm, government investigations and penalties. +Changes in our battery products or changes in export and import regulations in such countries may create delays in the introduction of our products into international markets, prevent our end-customers with international operations from deploying our battery products globally or, in some cases, prevent or delay the export or import of our battery products to certain countries, governments or persons altogether. Any change in export or import laws or regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing export, import or sanctions laws or regulations, or change in the countries, governments, persons, or technologies targeted by such export, import or sanctions laws or regulations, could result in decreased use of our battery products by, or in our decreased ability to export or sell our battery products to, existing or potential end-customers with international operations. Any decreased use of our battery products or limitation on our ability to export to or sell our battery products in international markets could adversely affect our business, financial condition and results of operations. +We may be subject to U.S. foreign investment regulations which may impose conditions on or limit certain investors’ ability to purchase our stock, potentially making the stock less attractive to investors. Our future investments in U.S. companies may also be subject to U.S. foreign investment regulations. +Certain investments that involve the acquisition of, or investment in, a U.S. business by a non-U.S. investor may be subject to review and approval by the Committee on Foreign Investment in the United States (“CFIUS”). Whether CFIUS has jurisdiction to review an acquisition or investment transaction depends on, among other factors, the nature and structure of the transaction, including the level of beneficial ownership interest and the nature of any information or governance rights involved. For example, investments that result in “control” of a U.S. business by a foreign person always are subject to CFIUS jurisdiction. Significant CFIUS reform legislation, which was fully implemented through regulations that became effective on February 13, 2020, expanded the scope of CFIUS’s jurisdiction to investments that do not result in control of a U.S. business by a foreign person but afford certain foreign investors certain information or governance rights in a U.S. business that has a nexus to “critical technologies,” “critical infrastructure” and/or “sensitive personal data.” Based on its export control classification, some of our battery technology is considered a “critical technology.” +CFIUS could choose to review past or proposed transactions involving us or new or existing foreign investors in us even if a filing with CFIUS is or was not required at the time of the transaction. Any review and approval of an investment or transaction by CFIUS may have outsized impacts on transaction certainty, timing, feasibility, and cost, among other things. CFIUS policies and practices are rapidly evolving, and in the event that CFIUS reviews one or more proposed or existing transactions involving us, there can be no assurances that the transaction parties will be able to maintain, or +37 +Table of Contents +Index to Consolidated Financial Statements +proceed with, such transactions on terms acceptable to them. For example, CFIUS could seek to impose limitations or restrictions on, or prohibit, investments by such investors (including, but not limited to, limits on purchasing our stock, limits on information sharing with such investors, requiring a voting trust, governance modifications, or forced divestiture, among other things). +Recent and potential tariffs imposed by the United States government or a global trade war could increase the cost of our products, which could have a material adverse effect on our business, financial condition and results of operations. +The United States government has and continues to make significant changes in United States trade policy and has taken certain actions that could negatively impact trade, including imposing tariffs on certain goods imported into the United States. More specifically, the United States government has imposed or threatened to impose significant tariffs on certain product categories imported from China and other nations. These countries have taken or have threatened to take retaliatory actions, including imposing additional tariffs on their importation of a wide range of products from the United States, which could lead to adverse impacts to global trade. Such tariffs imposed by the United States, if expanded to other categories, could have a significant impact on our business, particularly the importation of parts of our batteries and certain production equipment that are manufactured in China. If we attempt to renegotiate prices with suppliers or diversify our supply chain in response to tariffs, such efforts may not yield immediate results or may be ineffective. We might also consider increasing prices to the end consumer; however, this could reduce the competitiveness of our products and adversely affect net sales. If we fail to manage these dynamics successfully, gross margins and profitability could be adversely affected. As of December 31, 2024, tariffs have not had a material impact on our business, but increased tariffs or trade restrictions implemented by the United States or other countries could have a material adverse effect on our business, financial condition and results of operations. We cannot predict what actions may ultimately be taken with respect to tariffs or trade relations between the United States, China, or other countries, what products may be subject to such actions, or what actions may be taken by the other countries in retaliation. Any further deterioration in the relations between the United States, China, or other countries could exacerbate these actions and other governmental intervention. +In June 2022, the import restrictions contained in the Uyghur Forced Labor Prevention Act (“UFLPA”) became effective. The UFLPA creates a rebuttable presumption that any goods mined, produced or manufactured, wholly or in part in the Xinjiang Uyghur Autonomous Region (“XUAR”) of China, or produced by a listed entity, were made with forced labor and are not entitled to entry into the United States. If a shipment is detained, importers are required to present clear and convincing evidence that such goods are not made with forced labor. While we do not source goods from the XUAR or from listed parties, because we import from China, there is risk that our ability to import components and products may be adversely affected by the UFLPA. +The U.S. or foreign governments may take additional administrative, legislative, or regulatory action that could materially interfere with our ability to source from or sell products in certain countries. Sustained uncertainty about, or worsening of, current global economic conditions and further escalation of trade tensions between the United States and its trading partners, especially China, could result in a global economic slowdown and long-term changes to global trade, including retaliatory trade restrictions that restrict our ability to operate in China. Any alterations to our business strategy or operations made in order to adapt to or comply with any such changes would be time-consuming and expensive, and certain of our competitors may be better suited to withstand or react to these changes. +Our reliance on suppliers in foreign countries, including China, subjects us to risks and uncertainties relating to foreign laws and regulations and changes in relations between the United States and such foreign countries. +Our battery materials are sourced primarily from China and we rely on contract manufacturing partners from China for our SiCore batteries. Under its current leadership, the government of China has been pursuing economic reform policies, including by encouraging foreign trade and investment. However, there is no assurance that the Chinese government will continue to pursue such policies, that such policies will be successfully implemented, that such policies will not be significantly altered, or that such policies will be beneficial to our partners in China. +China’s regulations affecting the exporting of battery materials and batteries can be unpredictable. China has implemented significant restrictions on the export of graphite, a key material for traditional lithium-ion batteries. We cannot predict if China will expand such exporting restrictions to other battery materials or to any finished products. Although our battery materials are generally available from multiple suppliers, China is the predominant producer of certain of these materials. If China were to restrict or stop exporting these materials, our ability to obtain such supply may be constrained and we may be unable to obtain sufficient quantities, or obtain supply in a timely manner, or at a commercially reasonable cost, or our contract manufacturers may be unable to export finished batteries that incorporate these materials to us. Constrained supply of battery materials may restrict our ability to manufacture certain of our products +38 +Table of Contents +Index to Consolidated Financial Statements +and make it difficult or impossible to compete with other battery companies who are able to obtain sufficient quantities of materials from China or other countries. Additionally, China may restrict or prohibit exports of batteries made in China or that utilize technology from China, including our SiCore batteries. If China were to restrict or stop exporting key materials and/or finished batteries, including our SiCore batteries, we may not be able to fulfill customers’ orders or we may incur losses when trying to meet our obligations, which may result in our customers seeking alternative batteries, and in turn, we could lose customers and face reputational harm or penalties. +Any regulatory changes and changes in United States and China relations, or changes in relations with the United States and any other country where we may source battery materials or batteries in the future, may have a material adverse effect on our partners in China and other such countries which could adversely affect our business, financial condition, results of operations and prospects. +From time to time, we may be involved in legal proceedings and commercial or contractual disputes, which could have an adverse impact on our profitability and financial position. +We may be involved in legal proceedings and commercial or contractual disputes that, from time to time, are significant. These are typically claims that arise in the normal course of business including, without limitation, commercial or contractual disputes, including warranty claims and other disputes with potential customers and suppliers, intellectual property matters, personal injury claims, environmental issues, tax matters and employment matters. +Furthermore, our predecessor, Kensington, was a special purpose acquisition company (“SPAC”). SPACs have been subject to increased regulatory oversight and scrutiny, including from the SEC. Any governmental or regulatory investigation or inquiry related to our business combination with Kensington on September 14, 2022 or otherwise could have a material adverse effect on our business and negatively affect our reputation. +It is difficult to predict the outcome or ultimate financial exposure, if any, represented by these matters, and there can be no assurance that any such exposure will not be material. Such claims may also negatively affect our reputation. +Risks Related to Ownership of Our Common Stock +There can be no assurance that we will be able to comply with the continued listing standards of the NYSE. +On November 1, 2024, we were notified by the NYSE that we regained compliance with the Section 802.01C of the NYSE Listed Company Manual (the “Listing Rule”), following notification by the NYSE on September 19, 2024 that we were not in compliance with the Listing Rule, because the average closing stock price of a share of our common stock was less than $1.00 per share over a consecutive 30 trading-day period. Pursuant to the Listing Rule, we had six months following the NYSE notification to regain compliance with the Listing Rule, during which time our common stock will continue to be listed on the NYSE. +However, if we receive a subsequent notification from the NYSE regarding noncompliance with the Listing Rule and we do not regain compliance with the Listing Rule within six months of receipt of the NYSE notification, or we are otherwise unable to comply with the NYSE continued listing requirements, our securities may be delisted. If the NYSE delists our securities from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect our securities could be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including: +• a limited availability of market quotations for our securities; +• reduced liquidity for our securities; +• determination that our common stock is a “penny stock,” which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; +• the incurrence of additional costs under state blue sky laws in connection with any sales of our securities; +• a limited amount of news and analyst coverage; and +• a decreased ability to issue additional securities or obtain additional financing in the future. +Anti-takeover provisions in our certificate of incorporation, bylaws and Delaware law could make an acquisition of us more difficult, limit attempts by stockholders to replace or remove our management and limit the market price of our common stock. +39 +Table of Contents +Index to Consolidated Financial Statements +Our certificate of incorporation (the “Certificate of Incorporation”), amended and restated bylaws (the “Bylaws”) and Delaware law contain provisions that could have the effect of rendering more difficult, delaying or preventing an acquisition deemed undesirable by our board of directors. These provisions include: +• authorizing “blank check” preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock; +• limiting the liability of, and providing indemnification to, our directors and officers; +• prohibiting cumulative voting in the election of directors; +• providing that vacancies on our board of directors may be filled only by majority of directors then in office of the board of directors, even though less than a quorum; +• prohibiting the ability of our stockholders to call special meetings; +• establishing an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to the board of directors; +• dividing directorships of our board of directors into three classes, each to be elected for a term of three years, so that only one class of directorships is up for election at each annual meeting of the stockholders; and +• specifying that special meetings of our stockholders can be called only by a majority of the board of directors, the chair of the board of directors, or our CEO. +These provisions may frustrate or prevent any attempts by stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, it is governed by the provisions of Section 203 of the Delaware General Corporation Law (“DGCL”), which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder. +Our Bylaws provide, subject to limited exceptions, that the Court of Chancery of the State of Delaware and the federal district courts of the United States will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a chosen judicial forum for disputes with us or our directors, officers, employees or stockholders. +Our Bylaws provide that, unless otherwise consented to by us in writing, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, another State court in Delaware or the federal district court for the District of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for the following types of actions or proceedings: (i) any derivative action or proceeding brought on behalf of us; (ii) any action asserting a claim of breach of a fiduciary duty owed by, or otherwise wrongdoing by, any of our directors, officers, or other employees to us or our stockholders; (iii) any action arising pursuant to any provision of the DGCL or our Certificate of Incorporation or our Bylaws; (iv) any action to interpret, apply, enforce or determine the validity of our Certificate of Incorporation or our Bylaws; or (v) any other action asserting a claim that is governed by the internal affairs doctrine, in all cases subject to the court having jurisdiction over indispensable parties named as defendants. This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the U.S. federal courts have exclusive jurisdiction. The Bylaws further provide that, unless otherwise consented to by us in writing, the federal district courts of the United States will be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. +Any person or entity purchasing or otherwise acquiring any interest in our securities shall be deemed to have notice of and consented to this provision. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims. There is uncertainty as to whether a court would enforce such provisions, and the enforceability of similar choice of forum provisions in other companies’ charter documents has been challenged in legal proceedings. It is possible that a court could find these types of provisions to be inapplicable or unenforceable, and if a court were to find the choice of forum provision contained in the Bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition. +Concentration of ownership among our executive officers, directors and affiliates may prevent new investors from influencing significant corporate decisions. +40 +Table of Contents +Index to Consolidated Financial Statements +As of December 31, 2024, our executive officers and directors as a group beneficially own approximately 12.9% of our outstanding common stock. These stockholders are able to exercise a significant level of control over all matters requiring stockholder approval, including the election of directors, any amendment of the Certificate of Incorporation and approval of significant corporate transactions. This control could have the effect of delaying or preventing a change of control or changes in our management and will make the approval of certain transactions difficult or impossible without the support of these stockholders and of their votes. +We incurred and may continue to incur significant expenses and administrative burdens as result of operating as a public company, which could have an adverse effect on our business, financial condition and results of operations. +As a public company, we incurred and may continue to incur significant amounts of legal, accounting, insurance, other administrative expenses and other costs. The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), including the requirements of Section 404, as well as rules and regulations subsequently implemented by the SEC, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations promulgated and to be promulgated thereunder, the Public Company Accounting Oversight Board and the securities exchanges imposed and may impose additional reporting and other obligations on public companies. The development and implementation of any additional work to comply with those or other requirements imposed on public companies may result in an increase in our operating costs. For example, we may expand our employee base to support our operations as a public company, which may increase our operating costs in future periods. In addition, if we encounter any issues in complying with those requirements, such as if we identify a material weakness or significant deficiency on our internal controls over financial reporting, we may incur additional costs to remediate those issues. Moreover, the existence of those issues could adversely affect our reputation or our investors’ perceptions of us. The additional reporting and other obligations imposed by these rules and regulations have and will continue to increase legal and financial compliance costs of related legal, accounting and administrative expenses. These increased costs will require us to use our funds that could otherwise be used for our research and development programs and to achieve our strategic objectives. Advocacy efforts by stockholders and third parties may also prompt additional changes in governance and reporting requirements, which could further increase costs. +We do not expect to declare any dividends in the foreseeable future. +We do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors may need to rely on sales of their shares after price appreciation, which may never occur, as the only way to realize any future gains on their investment. +If securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our market, or if they change their recommendations regarding our securities adversely, the price and trading volume of our securities could decline. +The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, market or competitors. If any of the analysts who may cover us change their recommendation regarding our common stock adversely, or provide more favorable relative recommendations about our competitors, the price of our common stock and warrants would likely decline. If any analyst who may cover us were to cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. +We qualify as an “emerging growth company” and a “smaller reporting company” within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies or smaller reporting companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies. +We qualify as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startups (the “JOBS Act”). As such, we are eligible for and intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies for as long as we continue to be an emerging growth company, including (i) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act, (ii) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (iii) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. As a result, our stockholders may not have access to certain information they may deem important. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which the market value of our common stock that are held by non-affiliates exceeds $700.0 million as of June 30 of that fiscal year, (ii) the last day of the fiscal year in which we have total annual gross revenue of $1.235 billion or more during such fiscal year (as indexed for inflation), (iii) the date +41 +Table of Contents +Index to Consolidated Financial Statements +on which we have issued more than $1.0 billion in non-convertible debt in the prior three-year period or (iv) December 31, 2027. In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the exemption from complying with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act as long as we are an emerging growth company. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected not to opt out of such extended transition period and, therefore, we may not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. Investors may find our common stock less attractive because we rely on these exemptions, which may result in a less active trading market for our common stock and its price may be more volatile. +Additionally, we qualify as a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We expect to remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of our common stock held by non-affiliates exceeds $250.0 million as of the prior June 30, or (ii) our annual revenues exceeded $100.0 million during such completed fiscal year and the market value of our common stock held by non-affiliates exceeds $700.0 million as of the prior June 30. To the extent we take advantage of such reduced disclosure obligations, comparison of our financial statements with other public companies may be difficult or impossible. +Sales of substantial amounts of our common stock in the public markets, or the perception that such sales could occur, could cause the market price of our common stock to drop significantly, even if our business is doing well. +Sales of a substantial number of shares of our securities in the public market could occur at any time. For example, we filed a resale registration in September 2022 that covered at initial effectiveness the resale of up to 105,680,194 shares of our common stock (assuming the exercise in full of all of the warrants registered thereunder), as well as the shares underlying the remainder of our public warrants, and we have and we may from time to time take additional actions to register offerings of currently outstanding or newly issued shares of our common stock. +These sales and any future sales of a substantial number of shares of our securities in the public market or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our securities. Despite such a decline in the public trading price, certain securityholders may still experience a positive rate of return on the securities they purchased due to the lower price that they purchased their shares compared to other public investors and be incentivized to sell securities when others are not. +Additionally, we have filed registration statements to register the following: +i. Shares reserved for future issuance, including shares issuable upon vesting of the outstanding restricted stock units, under the Amprius Technologies, Inc. 2022 Equity Incentive Plan, which totaled 17,716,822 shares as of December 31, 2024; +ii. Shares reserved for future issuance under the Amprius Technologies, Inc. 2022 Employee Stock Purchase Plan, which totaled 2,724,333 shares as of December 31, 2024; +iii. Shares issuable upon exercise of the options outstanding under the Amprius Technologies, Inc. 2016 Equity Incentive Plan, which totaled 11,017,298 shares as of December 31, 2024; and +iv. Shares issuable upon exercise of the options outstanding under the Amprius Holdings 2008 Stock Plan and the Amprius Holdings Second Equity Incentive Plan, which totaled 7,003,043 shares as of December 31, 2024. +Subject to applicable securities laws and the satisfaction of any vesting restriction, the shares issued thereunder will be available for immediate resale in the public market. +Further, we have filed a prospectus supplement relating to our offering and sale of up to $100.0 million of shares of our common stock under the Sales Agreement. The purchase price for the shares that we may sell to the Sales Agents in the At Market Financing will fluctuate based on the price of our common stock. Depending on market liquidity at the time, sales of such shares may cause the trading price of our common stock to fall. If and when we do sell shares to the Sales Agents, they may resell the shares subject to the terms and conditions of the Sales Agreement. Therefore, sales to the Sales Agents made by us could result in substantial dilution to the interests of other holders of our common stock. Additionally, the sale of a substantial number of shares of our common stock to the Sales Agents, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales. +42 +Table of Contents +Index to Consolidated Financial Statements +We may issue additional shares of common stock under an employee incentive plan (including the 2022 Equity Incentive Plan and the Employee Stock Purchase Plan), or may issue preferred stock. Any such issuances would dilute the interest of our stockholders and likely present other risks. +We may issue a substantial number of additional shares of common stock under our employee incentive plan (including the 2022 Equity Incentive Plan and the Employee Stock Purchase Plan) or we may issue preferred stock. The issuance of additional securities: +• may significantly dilute the equity interests of our investors; +• may subordinate the rights of our stockholders if preferred stock is issued with rights senior to those afforded our common stock; +• could cause a change in control if a substantial number of securities are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors; and +• may adversely affect prevailing market prices for our common stock and/or warrants. +Risks Related to Our Warrants +There is no guarantee that our warrants will be in the money, and they may expire worthless. +On May 13, 2024, we offered the holders of our public and private warrants the opportunity to exercise their warrants for cash at a temporarily reduced exercise price of $1.10 per share. This cash tender offer expired on June 11, 2024. Subsequent to the expiration of such cash tender offer, on June 24, 2024, we made a separate tender offer to the holders of the unexercised private warrants an opportunity to exchange their warrants for shares of our common stock based on an exchange ratio of 0.197 as approved by the board of directors. Such exchange offer expired on July 23, 2024. The exercise price of our outstanding private warrants and public warrants is $11.50 per share. The exercise price of our warrants issued as part of units in a private placement (the “PIPE warrants”) is $12.50 per share. +We do not currently have any plan of additional arrangements for our outstanding private warrants, public warrants and PIPE warrants. The likelihood that warrant holders will exercise the warrants and any cash proceeds that we would receive is dependent upon the market price of our common stock. If the market price for our common stock is less than $11.50 per share, in the case of our private warrants and public warrants, or $12.50 per share, in the case of our PIPE warrants, we believe warrant holders will be unlikely to exercise their warrants. There is no guarantee that the warrants will be in the money prior to their expiration, and as such, the warrants may expire worthless. +We may redeem unexpired public warrants prior to their exercise at a time that is disadvantageous to the warrant holders, thereby making the public warrants worthless. +We have the ability to redeem outstanding public warrants or PIPE warrants at any time prior to their expiration, at a price of $0.01 per warrant, provided that the last reported sales price of our common stock equals or exceeds $18.00 per share (as may be adjusted), in the case of the public warrants, or $20.00 per share (as may be adjusted), in the case of the PIPE warrants, for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which we send the notice of redemption to public warrant or PIPE warrant holders and provided certain other conditions are met. If and when the public warrants or PIPE warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. As a result, we may redeem the public warrants or PIPE warrants as set forth above even if the holders are otherwise unable to exercise the public warrants or PIPE warrants. Redemption of the outstanding public warrants or PIPE warrants could force holders (i) to exercise public warrants or PIPE warrants and pay the exercise price therefor at a time when it may be disadvantageous, (ii) to sell public warrants or PIPE warrants at the then-current market price when holders might otherwise wish to hold public warrants or PIPE warrants or (iii) to accept the nominal redemption price that, at the time the outstanding public warrants or PIPE warrants are called for redemption, may be substantially less than the market value of the public warrants or PIPE warrants. +We may amend the terms of the warrants in a manner that may be adverse to holders of warrants with the approval by the holders of at least 50% of the then outstanding warrants. As a result, the exercise price of warrants could be increased, the exercise period could be shortened and the number of shares of common stock purchasable upon exercise of a warrant could be decreased, all without warrant holder approval. +43 +Table of Contents +Index to Consolidated Financial Statements +The public warrants and private warrants were issued in registered form under the respective warrant agreements. The Warrant Agreement, dated as of March 1, 2022 (as amended, the “Warrant Agreement”), by and among us and Continental Stock Transfer & Trust Company, provides that the terms of the public warrants and private warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision but requires the approval by the holders of at least 50% of the then outstanding public warrants to make any change that adversely affects the interests of the registered holders of public warrants and, solely with respect to any amendment to the terms of the private warrants or any provision of the Warrant Agreement with respect to the private warrants, 50% of the number of the then outstanding private warrants. The Warrant Agreement, dated as of September 14, 2022, by and among us and Continental Stock Transfer & Trust Company, provides that the terms of the PIPE warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision but requires the approval by the holders of at least 50% of the then outstanding PIPE warrants to make any change that adversely affects the interests of the registered holders of PIPE warrants. Accordingly, we may amend the terms of the warrants in a manner adverse to a holder if holders of at least 50% of such then-outstanding warrants approve of such amendment. Although our ability to amend the terms of the warrants with the consent of at least 50% of such then-outstanding warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the warrants, convert the warrants into cash or shares, shorten the exercise period or decrease the number of shares of common stock issuable upon exercise of a warrant. +The warrants are exercisable for common stock, which would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders. +As of December 31, 2024, outstanding warrants to purchase an aggregate of 19,045,072 shares of common stock are exercisable in accordance with the terms of the warrant agreement governing those securities. The exercise price of the private warrants and public warrants is $11.50 per share, and the exercise price of the PIPE warrants is $12.50 per share, though we and, in certain cases, the warrant agent have the ability to amend the applicable warrant agreement to reduce the exercise price, including to a price that is below the current trading price for our common stock. To the extent the warrants are exercised, additional shares of common stock will be issued, which will result in dilution to the holders of common stock and increase the number of shares eligible for resale in the public market. Shares of common stock issuable pursuant to the warrants are not subject to lock-up restrictions. As such, once the warrants are exercised, the holder of such shares issuable upon the exercise of the warrants will be able to resell the shares to the market, subject to other applicable laws. Sales of substantial numbers of such shares in the public market or the fact that such warrants may be exercised could adversely affect the market price of our common stock. Further, there is no guarantee that the warrants will ever be in the money prior to their expiration, and as such, such warrants may expire worthless. +Item 1B. Unresolved Staff Comments +None. +Item 1C. Cybersecurity +We recognize the critical importance of maintaining the safety and security of our systems and data and we believe we have a holistic process for assessing, identifying and managing cybersecurity and related risks. In general, we seek to address cybersecurity risks through a comprehensive, cross-functional approach. Our board of directors is actively involved in oversight of our risk management program, and cybersecurity represents an important component of our overall approach to enterprise risk management. Senior management also devotes significant resources to cybersecurity and risk management processes as well as to adapting to the changing cybersecurity landscape and responding to emerging threats in a timely and effective manner. +Risk Management and Strategy +We devote significant resources and designate high-level personnel, including our Chief Technology Officer (“CTO”), to manage the risk assessment and mitigation process. We conduct periodic risk assessments to identify cybersecurity threats, as well as assessments in the event of a material change in our business practices that may affect information systems that are vulnerable to such cybersecurity threats. These risk assessments include identification of reasonably foreseeable internal and external risks, the likelihood and potential damage that could result from such risks, and the sufficiency of existing policies, procedures, systems, and safeguards in place to manage such risks. +Following these risk assessments, we re-design, implement, and maintain reasonable safeguards to minimize identified risks; reasonably address any identified gaps in existing safeguards; and regularly monitor the effectiveness of our safeguards. +44 +Table of Contents +Index to Consolidated Financial Statements +As part of our overall risk management system, we monitor and test our safeguards and train our employees on these safeguards, in collaboration with human resources, IT, and management. Personnel at all levels and departments are made aware of our cybersecurity policies through trainings and related documentation. +We engage third parties in connection with our risk assessment processes . These service providers assist us in designing and implementing our cybersecurity policies and procedures, as well as in monitoring and testing our safeguards. We also engage third-party service providers in connection with our business. We require each such third-party service provider to certify that it has the ability to implement and maintain appropriate security measures, consistent with all applicable laws, to implement and maintain reasonable security measures in connection with their work with us, and to promptly report any suspected breach of its security measures that may affect our company. +For additional information regarding cybersecurity threats that are reasonably likely to materially affect our company, including our business strategy, results of operations, or financial condition, please refer to the section titled “Risk Factors” above. +Governance +Our board of directors, led by the Audit Committee, oversees our enterprise risk management, including the management of risks arising from cybersecurity threats. Management provides the board of directors with quarterly cybersecurity reports, which include a review of key performance indicators, test results and related remediation, and recent threats and how the Company is managing those threats. Our board of directors also receives prompt and timely information regarding any cybersecurity incident that meets established reporting thresholds, as well as ongoing updates regarding any such incident until it has been remediated. The chairman of our board of directors, Mr. Donald R. Dixon, is a Director for Business Executives for National Security (BENS.org), and a member of the Aspen Institute’s Cybersecurity Group, the nation’s leading cross-sector public-private cybersecurity forum and he has extensive experience leading cyber security oversight. +Our CTO is responsible for developing and implementing our information security program and reporting on cybersecurity matters to our board of directors. Our CTO has over 20 years of experience in managing IT, software and hardware systems and leading cybersecurity oversight. He works closely with our third-party managed service provider and managed security service provider to oversee cybersecurity risks, advise on employee trainings and respond to new risks and threats when they occur. We view cybersecurity as a shared responsibility by all operations, and we engage third-party vendors to periodically perform simulations and tabletop exercises across our company and incorporate other external resources and advisors as needed. All employees are required to complete online cybersecurity trainings every six months containing topics about cybersecurity risks awareness and how to prevent them, such as phishing, ransomware, malware, and social engineering attacks, among others. In addition, all newly hired employees are required to complete a one-hour online cybersecurity training during their onboarding process. +We face a number of cybersecurity risks in connection with our business. Although such risks have not materially affected us, including our business strategy, results of operations or financial condition, to date, we have, from time to time, experienced threats to and breaches of our data and systems, including ransomware. While we maintain cybersecurity insurance, the costs related to cybersecurity threats or disruptions may not be fully insured. For more information about the cybersecurity risks we face, see the section titled “Risk Factors” above. +Item 2. Properties +We lease our corporate headquarters and manufacturing facilities, which consisted of the following as of December 31, 2024: +• Approximately 51,000 square feet of leased space located in Fremont, California. This leased property, which we use for our corporate headquarters, research and development, and manufacturing of SiMaxx batteries, expires in June 2027 with an option to extend for an additional 5-year period up to June 2032. +• Approximately 774,000 square feet of leased space located in Brighton, Colorado, which expires in May 2039 with an option to extend for two additional 5-year periods up to May 2049. When we signed the lease agreement in April 2023, we announced a plan to build a GWh-scale manufacturing facility in those premises. As of December 31, 2024, we completed our pre-construction planning for this facility. However, the scope and schedule of the construction of this facility will be determined based on, among other factors, the availability and timing of funding. In addition, we are currently monitoring the larger industry dynamics. Changes in demand, +45 +Table of Contents +Index to Consolidated Financial Statements +supply, battery cost structure, government incentives, trade tariffs, and other considerations may also influence our decision, including whether to proceed with the construction at all. +We believe that our facilities are adequate to meet our needs for the immediate future, and that, should it be needed, suitable additional space will be available to accommodate any such expansion of our operations. +Item 3. Legal Proceedings +From time to time, we may become involved in litigation or other legal proceedings. We are not currently a party to any litigation or legal proceedings that are likely to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors . +Item 4. Mine Safety Disclosures +None +46 +Table of Contents +Index to Consolidated Financial Statements +Part II +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +Market Information +Our common stock and public warrants began trading on the NYSE under the symbol “AMPX” and “AMPX.W”, respectively, on September 15, 2022. Prior to that date, there was no public trading market for our common stock and public warrants. +Holders +As of March 13, 2025, there were 127 holders of record of our common stock and 17 holders of record of our public warrants. The actual number of stockholders of our common stock is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares of common stock are held in street name by banks, brokers and other nominees. +Dividends +We have not declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our capital stock in the foreseeable future. Any future determination to declare dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant. +Recent Sales of Unregistered Equity Securities +None. +Item 6. Reserved +Not applicable. +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +You should read the following discussion and analysis of our financial condition and results of operations together with our audited financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the sections titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” in this Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. +Overview +We develop, manufacture and market lithium-ion batteries for mobility applications, including the aviation, electric vehicle (“EV”) and light electric vehicle (“LEV”) industries. We have been in commercial battery production since 2018 and our disruptive silicon anode technology is intended to enable batteries with higher energy density, higher power density and fast charging capabilities over a wide range of operating temperatures. This results in our batteries providing superior performance compared to conventional graphite lithium-ion batteries. Our silicon anodes are a direct drop-in replacement of the graphite anode in traditional lithium-ion batteries, and our manufacturing processes leverage the manufacturing processes for conventional lithium-ion batteries and the related supply chain. +Currently, our batteries are primarily used for existing and emerging aviation applications, including UAS, such as drones and HAPS. We believe our proprietary technology has the potential for broad application in electric transportation. Our batteries and their performance specifications have been tested and validated for application by various customers, including our longtime partners such as AALTO Airbus, AeroVironment, BAE Systems, Kraus Hamdani Aerospace, Teledyne FLIR and the U.S. Army. Our total customer engagements since inception grew to over 260 with shipments to 235 customers during the year ended December 31, 2024. In addition, from our inception through December 31, 2024, we +47 +Table of Contents +Index to Consolidated Financial Statements +have shipped over 800,000 units of batteries, which have enabled mission critical applications. Our proprietary silicon anode structures, battery cell designs and manufacturing processes are protected by our portfolio of patents, trade secrets and know-how developed over 15 years of research and development. +We currently offer high performance silicon anode batteries under the following product platforms: (i) SiCore and (ii) SiMaxx. +Our SiCore batteries were developed in collaboration with Berzelius. We began limited shipment of SiCore batteries in 2023, which generated a strong demand from our customers. In order to support such demand, we entered into the Exclusive Supply Agreement with Berzelius in November 2023, which gives us exclusive rights to purchase its proprietary silicon anode materials in the United States, Canada and Mexico. In January 2024, we announced the full commercial launch of our SiCore batteries and accelerated engagement with our addressable markets. We entered into manufacturing supply agreements with three global contract manufacturing companies, which provided us an opportunity to rapidly scale production and ship a large volume of SiCore batteries to our customers. As of December 31, 2024, we had access, through our manufacturing supply agreements with our global contract manufacturers, to annual production of up to 800 MWh of SiCore batteries in pouch form and up to 1 GWh of SiCore batteries in cylindrical form. +Our SiMaxx batteries are currently manufactured at our facility in Fremont, California. We believe that the demand for our SiMaxx batteries exceeds our existing kWh-scale manufacturing capacity and, in order to support such demand, we are expanding this facility into a MWh-scale manufacturing facility. The completion of the expansion has been delayed through the first quarter of 2025 due to a delay in our customers’ order commitments. We believe that this facility will be able to manufacture batteries up to 2 MWh capacity annually when our expansion is completed, which is approximately 10 times our existing production capacity. +In April 2023, we entered into a lease agreement to lease approximately 774,000 square feet of premises in Brighton, Colorado and announced a plan to build a GWh-scale manufacturing facility in those premises. As of December 31, 2024, we completed our pre-construction planning for this facility. However, the scope and schedule of the construction of this facility will be determined based on, among other factors, the availability and timing of funding. In addition, we are currently monitoring the larger industry dynamics. Changes in demand, supply, battery cost structure, government incentives, trade tariffs, and other considerations may also influence our decision, including whether to proceed with the construction at all. +Sales Agreement +On October 2, 2023, we entered into the Sales Agreement with the Sales Agents, pursuant to which we may offer and sell, from time to time, through or to any Sales Agent, shares of our common stock with an aggregate offering price of not more than $100.0 million, as described in the prospectus supplement, dated October 10, 2023, filed with the SEC. +During the year ended December 31, 2024 and from the date of the Sales Agreement through December 31, 2024, we sold shares of our common stock under the Sales Agreement resulting in aggregate net proceeds of approximately $33.4 million and $33.8 million, respectively. +Known Trends, Demands, Commitments, Events, or Uncertainties Impacting Our Business +We believe that our performance and future success depends on several factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in the section titled “Risk Factors.” +Establishing Global Network of Contract Manufacturing Partnerships +As of December 31, 2024, we produce SiCore batteries by leveraging Berzelius’ existing production line and through our manufacturing supply agreements with three global contract manufacturers. In order to meet the increased demand for our SiCore batteries, we plan to expand our global network of contract manufacturing partnerships in the future. Some of the challenges that we may encounter when we enter into a manufacturing supply arrangement include, among others, risk of losing control over the manufacturing process of our SiCore batteries, which could lead to quality control issues, delay in production, increase in production costs, and non-compliance with our established standards. In addition, we may encounter a risk of losing control of some of our intellectual property. While we plan to set up business processes, including adding oversight and quality control procedures, in order to manage our contract manufacturing supply arrangements, there can be no assurance that such processes will be effective. In 2024, we entered into manufacturing supply agreements with three global contract manufacturing companies. As of December 31, 2024, we had access, through our manufacturing supply agreements with our global contract manufacturers, to annual production of up to 800 MWh of +48 +Table of Contents +Index to Consolidated Financial Statements +SiCore batteries in pouch form and up to 1 GWh of SiCore batteries in cylindrical form. In addition, if we partner with other contract manufacturers in the future, we plan to select large, experienced and reputable contract manufacturing companies. +Establishing Manufacturing Capacity +Although, as of December 31, 2024, we had access to annual production of up to 800 MWh of SiCore batteries in pouch form and up to 1 GWh of SiCore batteries in cylindrical form through our existing manufacturing supply agreements with our global contract manufacturers, we believe that expanding our existing manufacturing facility would help us meet the growing demand of our customers. In order to meet the increased demand for our batteries, we are expanding our existing manufacturing capacity in Fremont, California. The completion of the expansion has been delayed through the first quarter of 2025 due to a delay in our customers’ order commitments. We believe that this facility will be able to manufacture batteries up to 2 MWh capacity annually when our expansion is completed, which is approximately 10 times our existing production capacity. We have also announced a plan to build a GWh-scale manufacturing facility in our leased premises in Brighton, Colorado. As of December 31, 2024, we completed our pre-construction planning for this facility. However, the scope and schedule of the construction of this facility will be determined based on, among other factors, the availability and timing of funding. In addition, we are currently monitoring the larger industry dynamics. Changes in demand, supply, battery cost structure, government incentives, trade tariffs, and other considerations may also influence our decision, including whether to proceed with the construction at all. +Achieving capacity at commercial scale of our high energy density lithium-ion batteries may require us to make significant and increasing capital expenditures to scale our manufacturing capacity and improve our supply chain processes. Our ability in the future to generate revenue sufficient to achieve profitability will depend largely on our ability to scale production to meet the expected market demand for our products. Accordingly, the drivers of our future financial results, as well as the components of such results, may not be comparable to our historical results of operations. +Highly Competitive Market +Our competition includes both established manufacturers and new entrants that are developing new battery technologies and chemistries to address the growing market for electrified transportation solutions. We believe the manufacturers of these batteries will continue to invest funds, time and effort to improve the capabilities of their batteries with the recent developments of silicon anode batteries as a potential alternative to conventional graphite batteries. Currently, we believe that we are the only known manufacturer using a 100% silicon anode that is free of any inactive additives. In addition, we believe that we are the leading company in the market that has a high-performance battery that can meet the requirements of aviation and LEV applications. We are not currently producing batteries for EVs. The EV battery industry has a limited number of commercially available batteries that meet the minimum performance specifications. This creates a fast-growing and highly competitive industry for many battery manufacturers to claim market share for commercially acceptable batteries. We believe that there is significant room for improvement in the EV industry in driving range and fast charging capabilities that our silicon technology may address. To compete in the EV industry, we expect that we will need to significantly reduce our manufacturing costs, increase form factors and increase production quantity. One or more of our competitors and potential future entrants may be better capitalized to expand production capacities, have greater resources to commercialize and have greater access to customers in either or both the aviation and EV markets. As such, we may be at a competitive disadvantage and be unable to retain or grow our market share. +We expect to continue investing in the development of battery technology with the goal of enabling commercial production. We continue to develop customized battery solutions and deliver standardized samples (i.e., prototypes) of batteries to industry leading manufacturers as well as to certain federal government agencies. We plan to focus our research and development on the following key areas: +• Improving battery life. To continue to meet the specific needs of our customers and drive adoption of our batteries in new areas of electrified transportation, including the EV space. We are working with chemical compounds as potential additives to the silane gas we use to produce our silicon anodes, which have demonstrated the potential to improve cycle life without negatively impacting other performance characteristics such as energy density. +• Further improvements to energy density. We are engaged in ongoing development activities to explore different cathode materials, including a conversion cathode, to further improve the energy density of our batteries. +• Larger cell form factors. The batteries we have developed and are developing for our customers are typically approximately up to 15Ah for small-sized aircraft. As we expand our customer base, we expect to develop larger form factor batteries for broader electrified transportation applications. +49 +Table of Contents +Index to Consolidated Financial Statements +As a result of these efforts, our goal is to fully realize the benefits of our silicon anode technology and develop the highest performing products in the market. +Regulatory Landscape +We operate in an industry that is subject to many established environmental regulations, which have generally become more stringent over time. As we process, store, dispose of, transport, and use hazardous materials, we are subject to laws and regulations surrounding battery safety and transportation, as well as health and production safety laws and regulations governing hazardous materials. If we fail to comply with existing and future laws and regulations, our business and results of operations could be adversely affected, such as the imposition of fines, litigation, criminal charges, sanctions by regulators, or other liabilities. As future regulatory changes are uncertain, we are unable to measure the impact of such changes on our business and our results of operations. +Global Risks +Abrupt political change, terrorist activity, and armed conflict has had an adverse impact on the global economy and financial markets. Although our business has not been directly impacted by such events, as we have no assets or operations, and we have not purchased materials from Russia, Belarus, Ukraine or the Middle East, it is impossible to predict the extent to which our operations, or those of our customers, suppliers and manufacturers, will be impacted in the short and long term, or the ways in which the conflict may impact our business. +In addition, we face risks related to significant changes in the United States’ trade policy, such as the imposition or plan to impose significant tariffs on certain product categories imported from China and other countries. These countries have taken or plan to take retaliatory actions, including imposing additional tariffs on their importation of a wide range of products from the United States, which could potentially lead to adverse impacts on global trade. +The extent and future outcome of these global risks are highly unpredictable and uncertain and may adversely affect our future financial condition, results of operations and cash flows. +Components of Our Results of Operations +Revenue +We generate revenue from the (i) sale of finished battery products and (ii) arrangements for customization design services. The customization design services generally include designing and developing custom batteries by applying our existing technology into a customer’s required specifications and delivery of prototype batteries. We recognize revenue at the point in time when control is transferred to the customers, which is generally (i) upon shipment, in the case of sale of finished battery products, and (ii) upon completion and/or delivery of prototype batteries, in the case of customization design services. We also receive government grants from time to time, which we present as a component of revenue. We recognize and measure government grants at fair value when there is a reasonable assurance that we will comply with the conditions of the grants and we will receive the grants. We recognize government grants on a systematic basis over the periods in which we recognize as expenses the related costs for which the grants are intended to compensate. +Cost of Revenue +Cost of revenue, which includes the cost of finished goods sold and the cost of customization design services, are comprised primarily of purchase costs of SiCore batteries from Berzelius and our global contract manufacturing partners, costs of raw materials, labor costs, and allocation of overhead costs incurred in producing SiMaxx batteries or in performing the customization design services. Labor costs consist of personnel-related expenses such as salaries, employee benefits and stock-based compensation expense. Overhead and other costs consist primarily of outside services, utilities, rent, depreciation expense and other facilities-related costs. Costs related to batteries and design services are recognized in the same period as the associated revenue is recognized. In addition, we include under cost of revenue certain non-capitalizable expenses incurred during the preliminary stage of our plan to construct a GWh-scale manufacturing facility in Brighton, Colorado, such as re-zoning costs and engineering studies. We expect that our cost of revenue will increase for the foreseeable future as we increase the volume of orders for SiCore batteries and scale our business. +Research and Development (“R&D”) Expenses +R&D expenses consist mainly of personnel-related expenses such as salaries, employee benefits and stock-based compensation expense of our R&D personnel, outside contractors, materials, R&D equipment for which there is no +50 +Table of Contents +Index to Consolidated Financial Statements +alternative future use, and allocation of overhead costs, which include utilities, rent, depreciation expense and other facilities-related costs. Our R&D activities include the conceptual formulation and design of preproduction experimental prototypes and models. R&D expenses are expensed as incurred. We expect that our R&D expenses will increase for the foreseeable future as we continue to invest in activities to develop and enhance product capabilities, as well as build and test battery prototypes to meet the expected market demand. +Selling, General and Administrative (“SG&A”) Expenses +SG&A expenses consist mainly of personnel-related expenses such as salaries, employee benefits and stock-based compensation expense of our executive and administrative employees, as well as fees for professional and advisory services such as legal, accounting and audit. Selling, general and administrative expenses also include corporate insurance expense, including directors’ and officers’ insurance costs, and allocation of overhead costs, which include utilities, rent, depreciation expense and other facilities-related costs. We expect that our selling, general and administrative expenses will increase for the foreseeable future primarily due to costs for compliance-related requirements resulting from being a public company and investment in additional SG&A personnel to support the growth of our business. +Loss on Retirement of Property, Plant and Equipment +Loss on retirement of property, plant during the year ended December 31, 2024 pertained to the retirement of certain equipment that management decided not to use for our operations. In addition, such equipment had no alternative use. +Other Income, Net +Other income, net consists mainly of interest income. Other expense during the year ended December 31, 2023 pertained mainly to a non-recurring loss on write-off of deferred stock issuance costs. +Provision for Income Taxes +Our provision for income tax consists of an estimate for U.S. federal and state income taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities, and changes in tax law. We maintain a valuation allowance against the full value of our U.S. federal and state net deferred tax assets because it is not more likely that our deferred tax assets will be recoverable. +Results of Operations +Comparison of the Year Ended December 31, 2024 to the Year Ended December 31, 2023 +The following table summarizes our results of operations during the years ended December 31, 2024 and 2023 (amounts in thousands): +Year ended December 31, Change +2024 2023 $ % +Revenue $ 24,167 $ 9,053 $ 15,114 167 % +Cost of revenue 42,497 23,729 18,768 79 % +Gross loss (18,330) (14,676) (3,654) 25 % +Gross margin (76) % (162) % +Operating expenses: +Research and development 7,344 3,677 3,667 100 % +Selling, general and administrative 18,726 20,356 (1,630) (8) % +Loss on retirement of property, plant and equipment 1,862 — 1,862 — % +Total operating expenses 27,932 24,033 3,899 16 % +Loss from operations (46,262) (38,709) (7,553) 20 % +Other income, net: +Interest income and other 1,591 2,514 (923) (37) % +Loss on write-off of deferred stock issuance costs — (581) 581 (100) % +Total other income, net 1,591 1,933 (342) (18) % +Net loss $ (44,671) $ (36,776) $ (7,895) 21 % +51 +Table of Contents +Index to Consolidated Financial Statements +Cost of revenue and operating expenses reported above include stock-based compensation as follows (amounts in thousands): +Year ended December 31, Change +2024 2023 $ % +Cost of revenue $ 871 $ 865 $ 6 1 % +Research and development expense 936 186 750 403 % +Selling, general and administrative expense 5,536 2,829 2,707 96 % +Total stock-based compensation $ 7,343 $ 3,880 $ 3,463 89 % +Revenue +Revenue increased by $15.1 million, or 167%, to $24.2 million during the year ended December 31, 2024 from $9.1 million in the prior year. The increase was primarily due to a $17.2 million increase in sales of batteries, including a $14.9 million increase in sales of our SiCore batteries, resulting from an increase in new customers and the overall increase in volume of orders from new and existing customers; and a $0.3 million increase in government grants. The increase in revenue was offset by a $2.4 million decrease in customization design service revenue, which is non-recurring revenue. +Cost of Revenue +Cost of revenue increased by $18.8 million, or 79%, to $42.5 million during the year ended December 31, 2024 from $23.7 million in the prior year. The increase was primarily due to the increase in the volume of purchases for resale of finished SiCore batteries, as well as the increase in costs to produce SiMaxx batteries including increases in personnel-related costs, the cost of materials, and overhead-related costs, primarily shared-facility costs, equipment and utilities. +Research and Development (“R&D”) Expense +R&D expense increased by $3.6 million, or 100%, to $7.3 million during the year ended December 31, 2024 from $3.7 million in the prior year. The increase was primarily due to the increase in R&D headcount, which resulted in the increase in personnel-related costs, including stock-based compensation expense, and increase in overhead-related costs, primarily shared-facility costs, equipment and utility costs. +Selling, General and Administrative (“SG&A”) Expense +SG&A expense decreased by $1.7 million, or 8%, to $18.7 million during the year ended December 31, 2024 from $20.4 million in the prior year. The decrease was primarily due to a $5.3 million decrease in non-recurring professional fees and corporate insurance costs, including a decrease in directors’ and officers’ insurance costs, offset by a $3.6 million increase in personnel-related and other administrative costs, including an increase in stock-based compensation expense, due to the hiring of additional SG&A personnel. +Loss on Retirement of Property, Plant and Equipment +The $1.9 million loss on retirement of property, plant and equipment during the year ended December 31, 2024 pertained to the retirement of certain equipment that management decided not to use for our operations. In addition, such equipment had no alternative use. +Other Income, Net +Other income, net decreased by $0.3 million, or 18%, to $1.6 million during the year ended December 31, 2024 from $1.9 million in the prior year. The net decrease was primarily due to a decrease in interest income, offset by a $0.6 million non-recurring loss on write-off of deferred stock issuance costs in the prior year. +Liquidity and Capital Resources +Sources and Uses of Liquidity +Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, debt service, acquisitions, contractual obligations and other commitments. We assess liquidity in terms of our cash flows from operations and their sufficiency to fund our operating and investing activities. To meet our obligations, we must continually have sufficient liquid assets. +52 +Table of Contents +Index to Consolidated Financial Statements +During the years ended December 31, 2024 and 2023, we have financed our operations primarily though revenue generated from operations and proceeds from the issuance of shares of our common stock. We expect to rely on our cash and cash equivalents, which was $55.2 million as of December 31, 2024, and revenue that we expect to generate from operations to meet our working capital and capital expenditure requirements for a period of at least twelve months from the date our financial statements included in this Annual Report on Form 10-K are issued. +As described below, we may receive additional cash if we sell shares of our common stock under the At Market Financing and if our stock warrants are exercised for cash. +Under the At Market Financing, we may receive additional cash from the offering and sale of our shares of our common stock with an aggregate offering price of not more than $100.0 million. From the date of the Sales Agreement through December 31, 2024, the cumulative proceeds from the sales of shares of our common stock under the Sales Agreement totaled $33.8 million. As of December 31, 2024, the remaining cash that we could potentially raise under the At Market Financing was approximately $66.2 million. However, future sales, if any, of shares of common stock under the At Market Financing will depend on a variety of factors to be determined by us from time to time, including, among other things, market conditions, the trading price of our common stock and determinations by us as to appropriate sources of funding for our business and operations. We cannot guarantee the extent to which we may be able to raise funds through the At Market Financing. +We may also receive additional cash from our outstanding stock warrants if those stock warrants are exercised for cash. During the year ended December 31, 2024, we offered the holders of the public and private warrants the opportunity to exercise, for cash, their warrants at a temporarily reduced exercise price of $1.10 per warrant, and we also made a separate tender offer to the holders of private warrants to exchange their warrants, on a cashless basis, for shares of our common stock. The net proceeds from our cash tender offer, which expired on June 11, 2024, totaled $13.6 million. As of December 31, 2024, we had a total of 16,692,572 public warrants, 300,000 private warrants and 2,052,500 PIPE warrants outstanding. The exercise price of our public warrants and private warrants is $11.50 per warrant, and the exercise price of the PIPE warrants is $12.50 per warrant, although we have, and, in certain cases, together with the warrant agent have, the ability to amend the applicable warrant agreement to reduce the exercise price, including to a price that is below the trading price of our common stock at that time. We believe that the likelihood that warrant holders will exercise the warrants and any cash proceeds that we would receive is dependent upon market conditions. +Our ability to become profitable is dependent upon future events, including obtaining adequate financing to fund our business plan, optimizing our manufacturing capacity, obtaining adequate supplier relationships, building our customer base, successfully executing our business and marketing strategy and hiring appropriate personnel. +We have incurred net losses to date. We expect our working capital requirements may increase materially in the near future as we scale our business, which could result in additional net losses. During the year ended December 31, 2024, our net loss was $44.7 million. We expect that the additional net losses in the future could be attributed to an increase in our operating expenses as we increase our headcount and incur costs to continue developing new products and other R&D initiatives. +We also expect that our capital expenditure requirements may increase materially as we continue to expand our kWh-scale manufacturing facility in Fremont, California into a MWh-scale manufacturing facility and as we plan to build a GWh-scale manufacturing facility in Brighton, Colorado. The completion of the expansion of our Fremont, California facility had been delayed through the first quarter of 2025 due to the delay in our customers’ order commitments. As of December 31, 2024, we completed our pre-construction planning to build a GWh-scale manufacturing facility on our leased premises in Brighton, Colorado. However, the scope and schedule of the construction of this facility will be determined based on, among other factors, the availability and timing of funding. In addition, we are currently monitoring the larger industry dynamics. Changes in demand, supply, battery cost structure, government incentives, trade tariffs, and other considerations may also influence our decision, including whether to proceed with the construction at all. +As of December 31, 2024, our contractual obligations consisted primarily of our noncancellable operating lease agreements for our corporate headquarters and manufacturing facilities in Fremont, California and in Brighton, Colorado. As of December 31, 2024, the total future minimum lease payable, net of tenant improvement allowance, over the remaining weighted-average lease term of 13.5 years was approximately $70.0 million. Approximately $3.5 million of which is payable over the next twelve months. Please refer to Note 9 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information about our leases. +To the extent that our resources are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing. If financing is not available, or if the terms of financing are less desirable than we expect, we may +53 +Table of Contents +Index to Consolidated Financial Statements +be forced to take actions to reduce our capital or operating expenditures, including by reducing or delaying our production capacity expansion, which may adversely affect our business, operating results, financial condition and prospects. +Cash Flows +The following table summarizes our cash flows from operating, investing and financing activities for the periods presented (in thousands): +Year ended December 31, Change +2024 2023 $ +Net cash used in operating activities $ (33,352) $ (25,553) $ (7,799) +Net cash used in investing activities $ (3,207) $ (17,550) $ 14,343 +Net cash provided by financing activities $ 47,153 $ 19,168 $ 27,985 +Net Cash Used in Operating Activities +Our primary source of cash provided by operations is revenue from the sale of batteries and from non-recurring customization design services. Our uses of cash in our operating activities primarily include payments for personnel-related costs, procurement of SiCore batteries, procurement of materials used to produce SiMaxx batteries and to conduct research, as well as professional fees, and other general corporate expenses. +Net cash used in operating activities increased to $33.4 million during the year ended December 31, 2024 from $25.6 million during the year ended December 31, 2023 primarily due to the increase in the volume of purchases for resale of finished SiCore batteries and personnel-related costs as we hired additional employees. +Net Cash Used in Investing Activities +Our primary use of cash in investing activities is for purchases of property, plant and equipment. +Net cash used in investing activities decreased to $3.2 million during the year ended December 31, 2024 from $17.6 million during the year ended December 31, 2023 primarily due the timing of the construction of leasehold improvements in our manufacturing facilities and the timing of purchases of other production equipment in connection with our planned expansion as well as a $4.2 million refund that we received during the fourth fiscal quarter of 2024 pertaining to a cash deposit that we made to a vendor in 2023 related to plans to expand our manufacturing capacity. +Net Cash Provided by Financing Activities +Our primary source of cash provided by financing activities consists of proceeds from issuance of common stock. Our primary cash usage for financing activities consists of payments related to the issuance of common stock. +Net cash provided by financing activities increased to $47.2 million during the year ended December 31, 2024 from $19.2 million during the year ended December 31, 2023. Our primary source of cash from financing activities during the year ended December 31, 2024 consisted primarily of the net proceeds from the issuance of common stock under the Sales Agreement and exercise of our public and private warrants. Our primary source of cash from financing activities in the prior year consisted primarily of the net proceeds from the issuance of common stock in connection with the Common Stock Purchase Agreement with B. Riley Principal Capital II, LLC, which was terminated in October 2023. +Related Party and Other Transactions +Related Party Transactions +On October 23, 2024, our former parent company, Amprius Holdings, voluntarily liquidated and dissolved. As a result of such liquidation and dissolution, Amprius Holdings distributed, on a pro rata basis, an aggregate of approximately 57.2 million shares of our common stock to its stockholders, which include some of our executive officers and directors. In addition, we assumed all of Amprius Holdings’ outstanding options to purchase shares of Amprius Holdings’ Class A common stock, which include outstanding options held by some of our executive officers and directors, in exchange for, among other things, Amprius Holdings contributing to us a total of 5.5 million shares of our common stock that it owned. Those shares that were contributed to us were immediately cancelled and returned to our authorized but unissued share capital. Please refer to Notes 1 and 7 to our consolidated financial statements included elsewhere in this Annual Report on +54 +Table of Contents +Index to Consolidated Financial Statements +Form 10-K for additional information about the liquidation and dissolution of Amprius Holdings and the assumption of its outstanding options. +Other Transactions +Our CEO serves as a member of the board of directors of Berzelius and its holding company. As of December 31, 2024 and 2023, our CEO and our company had no direct or indirect controlling interest in Berzelius and its affiliates and, similarly, Berzelius and its affiliates had no direct or indirect controlling interest in our company. We developed our SiCore batteries through our collaboration with Berzelius. In November 2023, we entered into the Exclusive Supply Agreement with Berzelius, which gives us exclusive rights to purchase its proprietary silicon anode materials in the United States, Canada and Mexico. We purchased, and may continue to purchase, SiCore batteries and raw materials for our SiMaxx battery production and R&D activities from Berzelius. As of December 31, 2024, we had no purchase commitments with Berzelius. +Our CEO also served as a member of the board of directors of Amprius Wuxi Co., Ltd (“Wuxi”), a former subsidiary of Amprius Holdings, until November 2023. We also purchased, and may continue to purchase, raw materials for our SiMaxx battery production and R&D activities from Wuxi. +Emerging Growth Company and Smaller Reporting Company Status +We are an emerging growth company as defined in the JOBS Act and may take advantage of reduced reporting requirements that are otherwise applicable to public companies. Section 107 of the JOBS Act exempts an emerging growth company from being required to comply with new or revised financial accounting standards until private companies are required to comply with those standards. This means that when a standard is issued or revised and it has different application dates for public and nonpublic companies, we have the option to adopt the new or revised standard at the time nonpublic companies adopt the new or revised standard and can do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. We have elected to use the extended transition period for complying with new or revised accounting standards unless we otherwise early adopt select standards. +We are also a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of our common stock held by non-affiliates exceeds $250.0 million as of the prior June 30 or (ii) our annual revenue exceeds $100.0 million during such completed fiscal year and the market value of our common stock held by non-affiliates exceeds $700.0 million as of the prior June 30. +Critical Accounting Estimates +Our management’s discussion and analysis of our financial condition and results of operations is based on our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions. Our critical accounting estimates include estimates that require significant assumptions or that involve a significant level of uncertainty at the time the estimate was made, and changes in them may likely have a material effect on our financial condition or results of operations. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. +Our summary of significant accounting policies are more fully described in Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. +Leases +Our lease liabilities and right-of-use (“ROU”) assets are recognized based upon estimates. Our lease liabilities are initially recognized based upon the present value of the fixed lease payments while our ROU assets are initially recognized based upon the amount of the initial lease liabilities and adjustments for certain lease-related transactions. When we estimate the present value of our fixed lease payments, we generally use an incremental borrowing rate (“IBR”) since the implicit rates of our leases are not determinable. The IBR is determined based on an estimation process that includes subjective inputs, such as using a hypothetical credit analysis about the company, leveraging the corporate default and recovery rates published by a credit rating agency, and using risk-free and undiscounted rates of comparable companies. A +55 +Table of Contents +Index to Consolidated Financial Statements +change in the IBR, or the assumptions used to estimate the IBR, could have a significant effect on the amounts of the lease liabilities and ROU assets that we initially recorded and the amounts that are currently shown on our consolidated balances sheets included elsewhere in this Annual Form 10-K. +Stock-Based Compensation +Stock option grants are measured at fair value on the date of grant and recognized as stock-based compensation expense over the vesting period. The grant date fair value of our stock option grants is estimated using the Black-Scholes option-pricing model, which requires inputs that are based on subjective assumptions, such as the following: +• Expected term . Since we do not have a sufficient historical experience for determining the expected term, we derive the expected term based on the simplified method for awards that qualify as plain-vanilla options. +• Expected volatility . Since there is no sufficient trading history on the underlying common stock, we estimate volatility by evaluating the average historical volatility of a peer group of companies for the period immediately preceding the option grant for a term that is approximately equal to the option’s expected term. +• Risk-free interest rate. This is estimated based on a term equivalent to the estimated expected term of the option. +• Expected dividend . We use an expected dividend yield of zero because there had been no dividend payments in the past and there is no plan to pay dividends in the future associated with the underlying common stock. +• Fair value of the underlying common stock . For stock option grants made by Amprius Holdings to our employees or board members, the fair value of its common stock, which had no public market, is determined by its board of directors by considering a number of factors, including a valuation performed by an independent third party, which requires various assumptions. +Since the inputs used in the Black-Scholes option-pricing model described above are based on estimates, a change in any of those inputs could have a significant effect on the amount of stock-based compensation expense that we have already recognized and the remaining amount that we still have to recognize. +Recent Accounting Pronouncements +See Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition and results of operations. +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide information under Item 7A. +56 +Table of Contents +Index to Consolidated Financial Statements +Item 8. Financial Statements and Supplementary Data +Index to Consolidated Financial Statements +Page Number +Report of Independent Registered Public Accounting Firm (BDO USA, P.C., Houston, TX) (PCAOB ID: 243 ) +58 +Consolidated Balance Sheets +59 +Consolidated Statements of Operations +60 +Consolidated Statements of Stockholders’ Equity +61 +Consolidated Statements of Cash Flows +62 +Notes to Consolidated Financial Statements +63 +Note 1. Overview +63 +Note 2. Summary of Significant Accounting Policies +64 +Note 3. Revenue +71 +Note 4. Inventories +72 +Note 5. Property, Plant and Equipment, Net +72 +Note 6. Accrued and Other Current Liabilities +73 +Note 7. Stockholders’ Equity +73 +Note 8. Income Taxes +77 +Note 9. Leases +79 +Note 10. Commitments and Contingencies +79 +Note 11. Net Loss Per Share +80 +57 +Table of Contents +Index to Consolidated Financial Statements +Report of Independent Registered Public Accounting Firm +Shareholders and Board of Directors +Amprius Technologies, Inc. +Fremont, California +Opinion on the Consolidated Financial Statements +We have audited the accompanying consolidated balance sheets of Amprius Technologies, Inc. (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended , in conformity with accounting principles generally accepted in the United States of America. +Basis for Opinion +These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ BDO USA, P.C. +We have served as the Company’s auditor since 2022. +Houston, Texas +March 20, 2025 +58 +Table of Contents +Index to Consolidated Financial Statements +A MPRIUS T ECHNOLOGIES, I NC. +C ONSOLIDATED B ALANCE S HEETS +December 31, +(In thousands, except share and par value data) +2024 2023 +ASSETS +Current assets: +Cash and cash equivalents $ 55,155 $ 45,761 +Accounts receivable, net 5,580 1,265 +Inventories 6,574 730 +Deferred costs — 779 +Prepaid expenses and other current assets 1,454 1,987 +Total current assets 68,763 50,522 +Non-current assets: +Property, plant and equipment, net 17,481 21,760 +Operating lease right-of-use assets, net 33,512 35,149 +Other assets 1,369 305 +Total assets $ 121,125 $ 107,736 +LIABILITIES AND STOCKHOLDERS’ EQUITY +Current liabilities: +Accounts payable $ 7,424 $ 3,341 +Accrued and other current liabilities 4,832 5,594 +Deferred revenue 1,638 3,434 +Operating lease liabilities 3,316 1,088 +Total current liabilities 17,210 13,457 +Non-current liabilities: +Operating lease liabilities 34,443 34,479 +Total liabilities 51,653 47,936 +Commitments and contingencies (Note 10) +Stockholders’ equity: +Preferred stock; $ 0.0001 par value; 50,000,000 shares authorized; +no shares issued and outstanding +— — +Common stock; $ 0.0001 par value; 950,000,000 shares authorized; +116,934,314 and 88,869,463 shares issued and outstanding at +December 31, 2024 and 2023, respectively +12 9 +Additional paid-in capital 243,794 189,454 +Accumulated deficit ( 174,334 ) ( 129,663 ) +Total stockholders’ equity 69,472 59,800 +Total liabilities and stockholders’ equity $ 121,125 $ 107,736 +The accompanying notes are an integral part of these consolidated financial statements. +59 +Table of Contents +Index to Consolidated Financial Statements +A MPRIUS T ECHNOLOGIES, I NC. +C ONSOLIDATED S TATEMENTS OF O PERATIONS +Year ended December 31, +(In thousands, except share and per share data) 2024 2023 +Revenue $ 24,167 $ 9,053 +Cost of revenue 42,497 23,729 +Gross loss ( 18,330 ) ( 14,676 ) +Operating expenses: +Research and development 7,344 3,677 +Selling, general and administrative 18,726 20,356 +Loss on retirement of property, plant and equipment 1,862 — +Total operating expenses 27,932 24,033 +Loss from operations ( 46,262 ) ( 38,709 ) +Other income, net: +Interest income and other 1,591 2,514 +Loss on write-off of deferred stock issuance costs — ( 581 ) +Total other income, net 1,591 1,933 +Net loss $ ( 44,671 ) $ ( 36,776 ) +Weighted-average common shares outstanding: +Basic and diluted 101,872,347 86,196,391 +Net loss per share of common stock: +Basic and diluted $ ( 0.45 ) $ ( 0.43 ) +The accompanying notes are an integral part of these consolidated financial statements. +60 +Table of Contents +Index to Consolidated Financial Statements +A MPRIUS T ECHNOLOGIES, I NC. +C ONSOLIDATED S TATEMENTS OF S TOCKHOLDERS’ E QUITY +F OR T HE Y EARS E NDED D ECEMBER 31, 2024 AND 2023 +Common Stock Additional +Paid-in +Capital Accumulated +Deficit Total +Stockholders’ +Equity +(In thousands, except share data) Shares Amount +Balance as of January 1, 2023 84,610,114 $ 8 $ 165,912 $ ( 92,887 ) $ 73,033 +Issuance of common stock in connection with +the Stock Purchase Agreement, net of +issuance cost 2,952,763 1 18,981 — 18,982 +Issuance of common stock in connection with +the At Market Issuance Sales Agreement, +net of issuance cost 89,383 — 370 — 370 +Issuance of common stock upon exercise of +stock options and vesting of restricted stock +units 1,217,103 — 310 — 310 +Exercise of stock warrants 100 — 1 — 1 +Stock-based compensation — — 3,880 — 3,880 +Net loss — — — ( 36,776 ) ( 36,776 ) +Balance, December 31, 2023 88,869,463 9 189,454 ( 129,663 ) 59,800 +Issuance of common stock in connection with +the At Market Issuance Sales Agreement, +net of issuance cost 14,701,388 2 33,261 — 33,263 +Issuance of common stock upon exercise of +stock warrants, net of issuance cost 13,075,664 2 13,626 — 13,628 +Issuance of common stock upon exchange of +stock warrants for shares of common stock 3,073,200 — — — — +Issuance of common stock upon exercise of +stock options and vesting of restricted stock +units 2,714,599 — 109 — 109 +Cancellation and retirement of common stock ( 5,500,000 ) ( 1 ) 1 — — +Stock-based compensation — — 7,343 — 7,343 +Net loss — — — ( 44,671 ) ( 44,671 ) +Balance as of December 31, 2024 116,934,314 $ 12 $ 243,794 $ ( 174,334 ) $ 69,472 +The accompanying notes are an integral part of these consolidated financial statements. +61 +Table of Contents +Index to Consolidated Financial Statements +A MPRIUS T ECHNOLOGIES, I NC. +C ONSOLIDATED S TATEMENTS OF C ASH F LOWS +Year ended December 31, +(In thousands) 2024 2023 +Cash flows from operating activities: +Net loss $ ( 44,671 ) $ ( 36,776 ) +Adjustments to reconcile net loss to net cash used in operating activities: +Stock-based compensation 7,343 3,880 +Depreciation and amortization 3,808 1,806 +Amortization of deferred costs 1,246 3,057 +Non-cash operating lease expense 5,143 1,148 +Loss on retirement of property, plant and equipment 1,862 — +Loss on write-off of deferred stock issuance costs — 581 +Changes in operating assets and liabilities: +Accounts receivable ( 4,315 ) ( 579 ) +Inventories ( 5,844 ) ( 230 ) +Deferred costs ( 467 ) ( 1,572 ) +Prepaid expenses and other current assets 533 407 +Other assets ( 17 ) ( 9 ) +Accounts payable 5,884 616 +Accrued and other current liabilities ( 747 ) 3,065 +Deferred revenue ( 1,796 ) 54 +Operating lease liabilities ( 1,314 ) ( 1,001 ) +Net cash used in operating activities ( 33,352 ) ( 25,553 ) +Cash flows from investing activities: +Purchase of property, plant and equipment ( 3,207 ) ( 17,550 ) +Net cash used in investing activities ( 3,207 ) ( 17,550 ) +Cash flows from financing activities: +Proceeds from issuance of common stock in connection with the +At Market Issuance Sales Agreement 33,416 371 +Proceeds from issuance of common stock upon exercise of stock warrants 14,384 1 +Proceeds from issuance of common stock in connection with the +Stock Purchase Agreement — 19,087 +Payment of equity financing costs ( 756 ) ( 601 ) +Proceeds from exercise of stock options 109 310 +Net cash provided by financing activities 47,153 19,168 +Net increase (decrease) in cash, cash equivalents and restricted cash equivalents 10,594 ( 23,935 ) +Cash, cash equivalents and restricted cash equivalents, beginning of year 45,817 69,752 +Cash, cash equivalents and restricted cash equivalents, end of year $ 56,411 $ 45,817 +Reconciliation of cash, cash equivalents and restricted cash equivalents +shown on the consolidated balance sheets: +Cash and cash equivalents $ 55,155 $ 45,761 +Restricted cash equivalents included in other assets 1,256 56 +Total cash, cash equivalents and restricted cash equivalents $ 56,411 $ 45,817 +Supplemental non-cash investing and financing activities: +Unpaid purchases of property, plant and equipment $ 48 $ 1,864 +Increase in fair value of modified stock warrants $ 727 $ — +Cancellation and retirement of common stock $ 1 $ — +The accompanying notes are an integral part of these consolidated financial statements. +62 +Table of Contents +Index to Consolidated Financial Statements +A MPRIUS T ECHNOLOGIES, I NC. +N OTES T O C ONSOLIDATED F INANCIAL S TATEMENTS +Note 1. Overview +Company Background and Nature of Operations +Amprius Technologies, Inc. (hereafter referred to as the “Company,” “we,” “us,” or “our”) develops, manufactures and markets lithium-ion batteries for mobility applications, including the aviation, electric vehicle (“EV”) and light electric vehicle (“LEV”) industries. We have been in commercial battery production since 2018 and our disruptive silicon anode technology is intended to enable batteries with higher energy density, higher power density and fast charging capabilities over a wide range of operating temperatures. We are incorporated in the State of Delaware. Our corporate headquarters is located in Fremont, California. +On October 23, 2024, our former majority stockholder and parent company, Amprius Inc. (“Amprius Holdings”), which owned an aggregate of 65.2 million shares, or 58.6 %, of our common stock at that time, voluntarily liquidated and dissolved. As a result of such liquidation and dissolution, Amprius Holdings distributed, on a pro rata basis, an aggregate of approximately 57.2 million shares of our common stock to its stockholders, which include some of our executive officers and directors, and we assumed all of Amprius Holdings’ outstanding options to purchase shares of Amprius Holdings’ Class A common stock in exchange for, among other things, Amprius Holdings contributing to us a total of 5.5 million shares of our common stock that it owned, which were immediately cancelled and returned to our authorized but unissued share capital. +Liquidity and Capital Resources +As of December 31, 2024, we had cash and cash equivalents of $ 55.2 million. We believe that our cash and cash equivalents will be sufficient to fund our obligations over twelve months from the date these consolidated financial statements are issued. In addition, we may receive additional funds from the issuance and sale of our shares of our common stock under the At Market Issuance Sales Agreement (the “Sales Agreement”), which we entered into with B. Riley Securities, Inc., Cantor Fitzgerald & Co. and H.C. Wainwright & Co., LLC, as sales agents (the “Sales Agents”) on October 2, 2023. Under the Sales Agreement, we may offer and sell, from time to time, shares of our common stock for an aggregate offering price of not more than $ 100.0 million. During the year ended December 31, 2024 and from the date of the Sales Agreement through December 31, 2024, we sold shares of our common stock under the Sales Agreement resulting in aggregate net proceeds of approximately $ 33.4 million and $ 33.8 million, respectively. We may also receive additional funds if our stock warrants are exercised for cash. During the year ended December 31, 2024, we received a total of $ 13.6 million, after deducting stock issuance costs, from the cash exercise of our stock warrants at a temporarily reduced exercise price of $ 1.10 per warrant. +Since our inception, we have incurred recurring losses and negative cash flows from operations. During the year ended December 31, 2024, we incurred a net loss of $ 44.7 million and at December 31, 2024, our accumulated deficit was $ 174.3 million. We expect to incur additional losses in the future as we scale our business and increase our operating expenditures, such as increasing our headcount. We may need to raise additional funds in order to meet our future operating and capital expenditure requirements, and we may be unable to raise additional funds or enter into such other agreements when needed on favorable terms or at all. If sufficient funding is not raised, we may need to reduce our spending activities, which may negatively affect our ability to achieve our operating goals. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience additional dilution. +Other Risk and Uncertainties +We face risks related to political change, terrorist activity, and armed conflict such as the military conflicts between Russia and Ukraine and in the Middle East. These military conflicts have led to volatility in the global economy, and may contribute to inflation, volatility in the credit and capital markets, and interruption in the global supply chain. In addition, we face risks related to significant changes in the United States’ trade policy, such as the imposition or plan to impose significant tariffs on certain product categories imported from China and other countries. These countries have taken or may plan to take retaliatory actions, including imposing additional tariffs on their importation of a wide range of products from the United States, which could potentially lead to adverse impacts on global trade. +63 +Table of Contents +Index to Consolidated Financial Statements +Although these global risks did not have an adverse impact on us as of December 31, 2024, the extent and future outcome of such risks are highly unpredictable and uncertain and may adversely affect our future financial condition, results of operations and cash flows. +Note 2. Summary of Significant Accounting Policies +Basis of Presentation and Principles of Consolidation +The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All intercompany accounts and transactions have been eliminated. +The significant accounting policies described below, together with Note 1 and other notes that follow, are an integral part of the consolidated financial statements. +Emerging Growth Company +We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. Furthermore, the JOBS Act exempts an emerging growth company from being required to comply with new or revised accounting standards until private companies are required to comply with such standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected to not opt out of such extended transition period. This means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt such new or revised standard unless we are no longer deemed an emerging growth company. As a result, the accompanying consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of the public company effective dates. +Use of Estimates +The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances; the results of which form the basis for making judgements that are not readily apparent from other sources. Actual results could materially differ from management estimates using different assumptions or under different conditions. +Our significant accounting estimates include useful lives of property, plant and equipment; valuation of deferred taxes; lower of cost or net realizable value adjustments of inventory; incremental borrowing rate used in calculating lease obligations and right-of-use assets; and certain inputs used to measure the fair value of stock option grants using the Black-Scholes option-pricing model. +Revenue Recognition +We generate revenue from the (i) sale of finished battery products and (ii) arrangements for customization design services. The customization design services generally include designing and developing custom batteries by applying our existing technology into a customer’s required specifications and delivery of the customized batteries. Since the technology that we apply to the customized batteries is the same as the technology that we apply to our other product offerings, such customized batteries could be repurposed as part of our product offerings. +We recognize revenue when all of the core principles of revenue recognition are met pursuant to Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers . Generally, we enter into a contract with our customers whereby we identify our performance obligations, determine the considerations that we expect to receive from our customers, and allocate such considerations to the identified performance obligations. We recognize revenue at a point in time when we transfer control of the finished battery products and the deliverables from the customization design services to our customers, which is generally upon shipment and completion of the services, respectively. +64 +Table of Contents +Index to Consolidated Financial Statements +From time to time, we have “bill-and-hold” arrangements with certain customers whereby they request us to ship the finished battery products to our own locations and hold them temporarily until they are picked up. Pursuant to the terms of the “bill-and-hold” arrangements, we recognize revenue when the finished battery products are shipped to our own locations, which is the point in time when we transfer the control of the finished battery products to the customers. +Grant Revenue +Contracts with government agencies are treated as government grants if they do not meet the criteria for recognizing them as research and development contracts with a federal government pursuant to Topic 912-730, Contractors–Federal Government–Research and Development or as contracts with customers pursuant to Topic 606, Revenue from Contracts with Customers . +In the absence of explicit US GAAP, we recognize and measure government grants by following, as an analogy, the recognition and measurement guidance of International Accounting Standard 20, Accounting for Government Grants and Disclosure of Government Assistance (“IAS 20”). Under IAS 20, we recognize and measure government grants at fair value when there is a reasonable assurance that we will comply with the conditions of the grants and we will receive the grants. We recognize government grants on a systematic basis over the periods in which we recognize as expenses the related costs for which the grants are intended to compensate and show them as a component of revenue in the accompanying consolidated statements of operations. +Cost of Revenue +Cost of revenue, which includes the cost of finished goods sold and the cost of customization design services, are comprised primarily of purchase costs of silicon anode batteries from Berzelius (Nanjing) Co., Ltd. (“Berzelius”), a former subsidiary of Amprius Holdings, and our global contract manufacturing partners, costs of raw materials, labor costs and the allocation of overhead costs incurred in producing batteries or performing the customization design services. Labor costs consist of personnel-related expenses such as salaries, employee benefits and stock-based compensation expense. Overhead and other costs consist primarily of outside services, utilities, rent, depreciation expense and other facilities-related costs. Costs related to batteries and design services are recognized in the same period as the associated revenue is recognized. In addition, we include under cost of revenue certain non-capitalizable expenses incurred during the preliminary stage of our plan to construct a GWh-scale manufacturing facility in Brighton, Colorado, such as re-zoning costs and engineering studies. +Research and Development (“R&D”) Costs +R&D costs are expensed as incurred. These costs consist mainly of personnel-related costs such as salaries, employee benefits and stock-based compensation expense of our R&D personnel, outside contractors, materials, R&D equipment for which there is no alternative future use, and allocation of overhead costs, which include utilities, rent, depreciation expense and other facilities-related costs. R&D activities relate to the conceptual formulation and design of preproduction experimental prototypes and models. +Stock-Based Compensation +We measure stock-based compensation for stock options and restricted stock units (“RSUs”) at fair value on the date of grant. The fair value of stock option grants is measured using the Black-Scholes option-pricing model while the fair value of RSU grants is measured based on the market closing price of our common stock. We recognize stock-based compensation expense on a straight-line basis over the vesting period of the grants. Most of our stock-based compensation grants generally vest over a period of four years , subject to the continued employment or services of the grantee. We have elected to account for forfeitures as they occur. +The Black-Scholes option-pricing model requires the following inputs that are based on subjective assumptions: +• Expected term – This is the period that the stock options are expected to be outstanding. We estimate the expected term using the simplified method for stock option grants that qualify as plain-vanilla options because we have no sufficient historical experience for determining the expected term. +• Expected volatility – Since there is no sufficient trading history on the underlying common stock, we estimate volatility by evaluating the average historical volatility of a peer group of companies for the period immediately preceding the option grant for a term that is approximately equal to the option’s expected term. +65 +Table of Contents +Index to Consolidated Financial Statements +• Risk-free interest rate – We determine the risk-free interest rate based on the implied yield available on the U.S. Treasury zero coupon issues with a remaining term equivalent to the expected term of the stock options. +• Expected dividend – We use an expected dividend yield of zero because there had been no dividend payments in the past and there is no plan to pay dividends in the future associated with the underlying common stock. +The Black-Scholes option-pricing model also requires input on the fair value of the underlying common stock. For stock option grants made by Amprius Holdings to our employees and a board member during the year ended December 31, 2024, the fair value of its common stock, which had no public market, was determined by its board of directors at the time of grant by considering a number of objective and subjective factors, including a valuation performed by an independent third party. The third-party valuation was performed in accordance with the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, which identifies various available methods for allocating the enterprise value across classes of capital stock in determining the fair value of the underlying common stock at the valuation date. +Advertising Costs +Advertising costs, which were de minimis during the years ended December 31, 2024 and 2023, are expensed as incurred. +Foreign Currency +Foreign currency gains or losses were de minimis during the years ended December 31, 2024 and 2023 and resulted from the effect of exchange rate changes on transactions and remeasurement of monetary assets and liabilities denominated in foreign currencies. Such gains or losses are recognized as other income (expense), net within the accompanying consolidated statements of operations. +Income Taxes +We account for income taxes in accordance with ASC 740, Income Taxes . Deferred tax balances are recognized for the estimated future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets are also recognized for temporary differences that arise from net operating losses and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax balances of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. +ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. We recognize accrued interest and penalties related to unrecognized tax benefits, if any, as income tax expense. +Net Loss Per Share +Basic net loss per share of common stock is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share of common stock is calculated by dividing the net loss attributable to common stockholders by the sum of the weighted-average number of shares of common stock outstanding and potentially dilutive securities during the period. Potentially dilutive securities include shares issuable upon the exercise of stock options, vesting of RSUs and exercise of common stock warrants; however, these have been excluded from the diluted net loss per share calculation because the effect was anti-dilutive due to our net loss. Therefore, the basic and diluted net loss per share of common stock for all periods presented were the same. +66 +Table of Contents +Index to Consolidated Financial Statements +Fair Value Measurement +Assets and liabilities recorded at fair value in the financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, which are directly related to the amount of subjectivity, associated with the inputs to the valuation of these assets or liabilities are as follows: +Level 1 – Inputs that are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. +Level 2 – Inputs (other than quoted prices included in Level 1) that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life. +Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, and which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. +In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considering counterparty credit risk in our assessment of fair value. +We had money market funds totaling $ 23.5 million and $ 36.7 million as of December 31, 2024 and 2023, respectively, which were measured at Level 1 fair value based on the active market price of the instruments and included in cash and cash equivalents and in other assets in the accompanying consolidated balance sheets. +We did not have assets or liabilities measured at fair value on a recurring basis using Level 2 or Level 3 inputs as of December 31, 2024 and 2023. +We also had no transfers of financial instruments between Level 1, Level 2 and Level 3 during the years ended December 31, 2024 and 2023. +Concentration of Risk +Credit Risk +Financial instruments that potentially subject us to concentration of credit risk consist of cash, cash equivalents, restricted cash equivalents and accounts receivable. +We maintain our cash, cash equivalents and restricted cash equivalents with major financial institutions that may at times exceed federally insured limits. We have not experienced losses on our financial assets held in these financial institutions. Management believes that these financial institutions are financially sound with minimal credit risk. +Many of our customers are in the aviation industry though our batteries have applications across all segments of electric mobility. As of December 31, 2024 and 2023, we had two and three major customers that in the aggregate represented 50 % and 80 %, respectively, of our total accounts receivable. An adverse impact on the aviation industry may affect our relationship with our customers, which could affect our future financial condition, results of operations and cash flows. +Supply Risk +We are dependent on Berzelius and our third party contract manufacturing partners to manufacture one of our primary battery platforms. The inability of these suppliers to provide manufacturing services or deliver batteries on time may cause a delay in fulfilling our customers’ orders, which could adversely impact our business, financial condition and results of operations. +Cash, Cash Equivalents and Restricted Cash Equivalents +Cash consists of bank and demand deposits. Cash equivalents and restricted cash equivalents consist of money market funds with original maturity of less than 90 days from the date of purchase. Restricted cash equivalents pertain to the amount of cash deposits required by our lessors to satisfy letter of credit requirements under our lease agreements. +67 +Table of Contents +Index to Consolidated Financial Statements +Restricted cash equivalents, which are included in other assets in the accompanying consolidated balance sheets, were $ 1.3 million and $ 56.0 thousand as of December 31, 2024 and 2023, respectively. +Accounts Receivable +Accounts receivable are recorded at the invoiced amount, less any estimated allowance for credit losses. An allowance for credit losses is recognized based on our evaluation of relevant information, such as the age of the receivable, collection experience and certain credit risk factors affecting our customers. A receivable deemed to be uncollectible is written off against a previously established allowance and recoveries are recognized when the cash is received. We do not accrue interest on past due balances and require no collateral. We have not experienced any significant losses from accounts receivable. Our allowance for expected credit losses on our accounts receivable was de minimis as of December 31, 2024 and none as of December 31, 2023. +Inventories +Inventories, which consist of raw materials, work-in-process and finished goods, are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. Net realizable value is determined based upon the estimated selling price of the inventory in the ordinary course of business, less reasonably predictable costs of completion or disposal and transportation. The cost of raw materials, work-in-process and finished goods manufactured at our Fremont, California facility generally exceeds their respective realizable value. When an inventory is adjusted to its net realizable value, a new cost basis is established and such cost is not adjusted for any potential recovery or increase in cost. Obsolete inventories are written off to cost of goods sold. +Property, Plant and Equipment, Net +Property, plant and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the respective assets as shown below. +Production equipment +4 to 7 years +Lab equipment 4 years +Furniture, fixtures and other equipment +3 to 5 years +Leasehold improvements Lesser of their useful lives or the term of the lease +Assets that are being built or constructed are recorded as construction in progress. Depreciation for those assets begins when the assets are ready for their intended use. +Expenditures for repairs and maintenance are expensed as incurred. Upon disposition or retirement, the cost and related accumulated depreciation and amortization are removed from the accounts and any resulting gain (loss) is included within operating expenses in the accompanying consolidated statements of operations. +Impairment of Long-Lived Assets +We review the valuation of long-lived assets, which consisted mainly of property, plant and equipment, whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The recoverability of long-lived assets or asset groups is calculated based on the estimated undiscounted future cash flows expected to result from the use and eventual disposition of the asset. An impairment loss is recognized based on the amount by which the carrying value exceeds the fair value of the asset. Fair value is determined using the estimated cash flows discounted at a rate commensurate with the risk involved. Based on management’s assessment, there were no impairment losses recorded during the years ended December 31, 2024 and 2023. +Deferred Costs +Certain costs, which consist primarily of payroll-related costs, are initially deferred when (i) the costs relate directly to a customer contract, (ii) the costs generate or enhance our resources that will be used in satisfying future performance obligations, and (iii) the costs are expected to be recovered. If these criteria are not met, the costs are expensed as incurred. Deferred costs are recognized as cost of revenues in the period when the related revenue is recognized, except when the costs incurred exceed the amount expected to be recovered, in which case they are expensed as incurred. The recoverable +68 +Table of Contents +Index to Consolidated Financial Statements +amount is estimated to equal the amount of consideration that we have received but not yet recognized as revenue, plus the amount that we expect to receive in the future. +Leases +We determine if an arrangement is a lease, or contains a lease, by evaluating whether there is an identified asset and whether we control the use of the identified asset throughout the period of use. We determine the classification of the lease, whether operating or finance lease, at the lease commencement date, which is the date we obtain control of the leased asset. +We recognize the right-of-use (“ROU”) assets and lease liabilities on the lease commencement date based upon the present value of the fixed lease payments over the non-cancelable lease term, unless it is reasonably certain that any renewal or termination option will be exercised. Variable costs, such as common area maintenance fees, property insurance and property taxes, are not included in the measurement of the ROU assets and lease liabilities, but are expensed as incurred. As the implicit rate of the leases is not determinable, we use an incremental borrowing rate in determining the present value of the lease payments. We do not recognize ROU assets on lease arrangements with a term of 12 months or less. Lease expense for such arrangements is recognized on a straight-line basis over the term of the lease. We account for the lease components and non-lease components as a single lease component. Modifications are assessed to determine whether incremental differences result in new contract terms and should be accounted for as a new lease or whether the additional right of use should be included in the original lease and continue to be accounted for with the remaining ROU asset. +Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right-of-use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right-of-use asset results in front-loaded expense over the lease term. +Product Warranty Liability +We provide a guarantee that our sale of battery products to customers will meet published or agreed upon specifications. We replace battery products that do not meet the specification requirements at no additional cost to our customers during our standard or agreed-upon performance warranty period. Based on our historical experience and our assessment, we have not recorded a product warranty liability as of December 31, 2024 and 2023. +Loss Contingencies +In the normal course of business, we may be involved in claims and legal proceedings. We record a liability for such matters when it is probable that a loss has been incurred and the amounts can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. Legal costs associated with these loss contingencies are expensed as incurred. +Common Stock Warrants +We have classified our freestanding common stock warrants as equity in accordance with the applicable guidance in ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity . Accordingly, a freestanding instrument, such as a stock warrant, is classified as equity when (i) the instrument is considered indexed to an entity’s own stock and (ii) when certain criteria for equity classification are met. +When assessing whether our stock warrants are indexed to our own stock, we evaluated the stock warrants’ exercise contingencies and adjustment features. The stock warrants’ exercise contingencies, which are not based on observable market or index, include a restriction to exercise a portion of the stock warrants if the holder exceeds specified beneficial ownership limitations and the holder being required to exercise the stock warrants in the event of a reorganization or a warrant redemption. Since the exercise contingencies are not based on observable market or index, the stock warrants were not precluded from being considered indexed to our own stock. In addition, the stock warrants’ adjustment features, such as a change in exercise price in the event of a stock split or stock dividend and a downward adjustment on the exercise price at our discretion, did not preclude the stock warrants from being considered indexed to our own stock. +We also evaluated other provisions in the warrant agreement, such as the share-settlement provision and the replacement of the instrument in the event of a reorganization, and determined that those provisions do not preclude the stock warrants from being classified as equity. +69 +Table of Contents +Index to Consolidated Financial Statements +Segment Reporting and Geographic Data +We have a single operating and reportable segment; that is, the battery segment. Our battery segment derives revenue from the sale of finished battery products and customization services of our batteries. Our Chief Executive Officer is our Chief Operating Decision Maker (“CODM”). +Our CODM assesses performance of our battery segment and decides how to allocate resources based on the battery segment’s profit, if any, or loss. Our measure of segment profit or loss is the consolidated net income or net loss, which is also reported as such in the accompanying consolidated statements of operations. Our CODM measures segment profit or loss by comparing the actual consolidated net income or net loss to expectations. Since we only have a single operating and reportable segment, our CODM is provided segment expense information that is based on the expense categories shown in the accompanying consolidated statements of operations. Depreciation and amortization expenses, which are disclosed in Note 4 below, are included within cost of revenue, research and development expenses, and selling, general and administrative expenses in the accompanying consolidated statements of operations. Other segment items within the segment profit or loss include primarily of interest income as shown within other income, net in the accompanying consolidated statements of operations. +Our CODM does not measure segment assets for the purposes of allocating resources to, and assessing the performance of, our battery segment. +The following table shows our revenue by geographic area based on the delivery location of our battery products and services (in thousands): +Year ended December 31, +2024 2023 +United States $ 8,216 $ 6,219 +Rest of the world 15,951 2,834 +Total revenue $ 24,167 $ 9,053 +All of our property, plant and equipment are geographically located in the United States. +During each of the years ended December 31, 2024 and 2023, we generated revenue from three major customers who individually represented more than 10% of our revenue. Revenue from each of the three major customers during the year ended December 31, 2024 was (i) $ 5.4 million, (ii) $ 2.8 million, and (iii) $ 2.8 million, respectively. Revenue from each of the three major customers during the year ended December 31, 2023 was (i) $ 3.3 million, (ii) $ 1.5 million, and (iii) $ 1.1 million, respectively. +Recent Accounting Pronouncements +In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-03, Income Statement–Reporting Comprehensive Income–Expense Disaggregation Disclosures (Subtopic 220-40) . This ASU requires entities to disclose, in the notes to the financial statements: (i) amounts of (a) purchases of inventory, (b) employee compensation and (c) depreciation; (ii) include certain amounts that are already required to be disclosed under current U.S. GAAP in the same disclosure as the other disaggregation requirements; (iii) a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively; and (iv) the total amount of selling expenses and, in annual reporting periods, a definition of selling expenses. This ASU, which is effective starting with our annual reporting for the year ending December 31, 2027 and interim reporting periods beginning January 1, 2028, is required to be adopted either: (i) prospectively to financial statements issued for reporting periods after the effective date of this ASU or (ii) retrospectively to any or all prior periods presented in the financial statements. Early adoption is permitted. We are currently evaluating this ASU. We believe that the impact of the additional required disclosures will enhance our current financial statement disclosure. +In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . This ASU requires entities to disclose, among others: (i) specific categories in the rate reconciliation table (ii) additional information for reconciling items that meet a quantitative threshold and (iii) the amount of income taxes paid on a disaggregated level. This ASU is required to be adopted on a prospective basis. As an emerging growth company, this ASU is effective starting with our annual reporting for the year ending December 31, 2026. Early adoption is permitted. We are currently evaluating this ASU. We believe that the impact of the additional required disclosures will enhance our current financial statement disclosure. +70 +Table of Contents +Index to Consolidated Financial Statements +Note 3. Revenue +Disaggregation of Revenue +We disaggregate our revenue from customers by the type of arrangement, primarily from the sale of battery products and from providing customization design services, as this depicts how the nature, amount, timing, and uncertainty of our revenue and cash flows are affected by economic factors. The table below shows the composition of revenue from customers, as disaggregated by type of arrangement in accordance with Topic 606, and other revenue from government grants, which were accounted for following IAS 20 (in thousands). +Year ended December 31, +2024 2023 +Revenue from customers: +Sale of battery products $ 22,067 $ 4,900 +Customization design services 1,500 3,891 +Total revenue from customers 23,567 8,791 +Other revenue – government grants 600 262 +Total revenue $ 24,167 $ 9,053 +Revenue from sale of battery products includes bill-and-hold arrangements with certain customers, which totaled $ 4.9 million and $ 1.1 million during the years ended December 31, 2024 and 2023, respectively. +Contract Balances +The timing of revenue recognition, billings and cash collections can result in accounts receivable, contract assets recorded as unbilled receivables, and contract liabilities recorded as deferred revenue. +Accounts receivable represents our right to consideration that is unconditional. A right to consideration is unconditional if only the passage of time is required before payment of that consideration is due. Accounts receivable was $ 5.6 million, $ 1.3 million and $ 0.7 million as of December 31, 2024, December 31, 2023 and January 1, 2023, respectively. +Contract assets primarily relate to the rights to consideration for progress on contractual requirements performed but not billed at the reporting date. The contract assets are transferred to accounts receivable when the rights become unconditional. We had no contract assets as of December 31, 2024 and 2023. +Contract liabilities consist primarily of deferred revenue, which is the amount of progress payments received or billed in advance of recognizing those payments as revenue. Deferred revenue is subsequently recognized as revenue when the performance obligation is satisfied. Deferred revenue was $ 1.6 million, $ 3.4 million and $ 3.4 million as of December 31, 2024, December 31, 2023, and January 1, 2023, respectively. Deferred revenue as of December 31, 2024 decreased compared to prior years primarily due to the recognition of a non-recurring customization design service that was completed in the current fiscal year. During the years ended December 31, 2024 and 2023, revenue recognized from the prior year deferred revenue balance was $ 2.2 million and $ 2.7 million, respectively. +Remaining Performance Obligations +We have performance obligations associated with commitments in customer contracts for future delivery of battery products that have not yet been recognized as revenue. As of December 31, 2024, the aggregate amount of the transaction price allocated to the remaining performance obligations related to customer contracts that were unsatisfied or partially unsatisfied, including deferred revenue, was approximately $ 15.9 million. Given the applicable contract terms, we expect all of our remaining performance obligations to be recognized as revenue within one year . This amount does not include contracts to which the customer is not committed. The estimated timing of the recognition of remaining unsatisfied performance obligations is subject to change and is affected by changes to scope, changes in timing of delivery of products and services, or contract modifications. +Deferred Costs +Deferred costs, which consisted primarily of capitalized payroll-related costs to fulfill obligations under our customer contracts, were fully amortized as of December 31, 2024. The total deferred costs as of December 31, 2023 were $ 0.8 +71 +Table of Contents +Index to Consolidated Financial Statements +million. The amortization of deferred costs, which is included in cost of revenue in the accompanying consolidated statements of operations, was $ 1.2 million and $ 3.1 million during the years ended December 31, 2024 and 2023, respectively. +The Company evaluates deferred costs for impairment and recognizes any impairment loss in cost of revenues in the current period. During the years ended December 31, 2024 and 2023, cost of revenues includes costs incurred on certain customization design service contracts that were in excess of the recoverable amount. +Other Revenue – Government Grant +Grant revenue during the years ended December 31, 2024 and 2023 pertained to the funds received from government agencies to support some of our R&D efforts. +Note 4. Inventories +Inventories consisted of the following (in thousands): +December 31, +2024 2023 +Raw materials $ 146 $ 172 +Work in process 117 113 +Finished goods 6,311 445 +Inventories $ 6,574 $ 730 +Note 5. Property, Plant and Equipment, Net +Property, plant and equipment, net consisted of the following (in thousands): +December 31, +2024 2023 +Production equipment $ 7,474 $ 6,253 +Lab equipment 1,921 2,502 +Leasehold improvements 11,555 11,152 +Furniture, fixtures and other equipment 300 376 +Construction in progress 8,219 10,527 +Property, plant and equipment, at cost 29,469 30,810 +Less: accumulated depreciation and amortization ( 11,988 ) ( 9,050 ) +Property, plant and equipment, net $ 17,481 $ 21,760 +Construction in progress consisted primarily of production and other equipment that have not been placed in service as of December 31, 2024 and 2023. +Depreciation and amortization expense was $ 3.8 million and $ 1.8 million during the years ended December 31, 2024 and 2023, respectively. +Due to a change in our plan regarding certain production equipment for our manufacturing facility in Fremont, California, we retired such equipment because it had no alternative use, and we recognized a loss of $ 1.9 million during the year ended December 31, 2024. There were no retirements of assets during the year ended December 31, 2023. +72 +Table of Contents +Index to Consolidated Financial Statements +Note 6. Accrued and Other Current Liabilities +Accrued and other current liabilities consisted of the following (in thousands): +December 31, +2024 2023 +Accrued compensation and benefits $ 3,428 $ 3,070 +Accrued professional fees 418 1,703 +Accrued purchases of finished goods for resale 783 447 +Other 203 374 +Total accrued and other current liabilities $ 4,832 $ 5,594 +Note 7. Stockholders’ Equity +Common Stock and Preferred Stock +As of December 31, 2024, we had a total of 1,000,000,000 shares of stock authorized to be issued, of which 950,000,000 shares are designated as common stock, $ 0.0001 par value per share, and 50,000,000 shares are designated as preferred stock, $ 0.0001 par value per share. Holders of common stock are entitled to one vote for each share held and entitled to receive dividends when and if declared by the board of directors. We have not declared any dividends as of and through December 31, 2024. +Equity Incentive Plans +As of December 31, 2024, our Equity Incentive Plans consisted of the following: (i) the 2022 Equity Incentive Plan (the “2022 Plan”), (ii) the 2016 Equity Incentive Plan (the “2016 Plan”) and (iii) Amprius Holdings’ the 2008 Stock Plan and the Second Equity Incentive Plan (the “Amprius Holdings Plans”), which we assumed from Amprius Holdings on October 23, 2024, collectively referred herein as “Equity Incentive Plans.” +2022 Plan. The 2022 Plan was adopted effective September 14, 2022. The 2022 Plan authorizes awards in the form of stock options, stock appreciation rights, restricted stock, RSUs, or performance awards and may be granted to directors, employees or consultants. As of December 31, 2024, the total number of shares reserved for issuance, including shares issuable upon vesting of outstanding RSUs, under the 2022 Plan was 17,716,822 . Such number of shares also include the annual increase in shares reserved pursuant to the evergreen provisions contained in the 2022 Plan and the number of shares from equity awards under the 2016 Plan that were cancelled, expired or otherwise terminated without having been exercised in full, were tendered to or withheld for payment of an exercise price or for tax withholding obligations, or were forfeited to or repurchased due to failure to vest. The number of shares available for issuance under the 2022 Plan may be increased annually at the beginning of the fiscal year, subject to certain limitations. +2016 Plan. The 2016 Plan was terminated concurrently with the adoption of the 2022 Plan. However, the 2016 Plan continues to govern the terms and conditions of the outstanding awards previously granted under the 2016 Plan. +Amprius Holdings Plans. Upon approval by our board of directors, we assumed the Amprius Holdings Plans on October 23, 2024 when Amprius Holdings voluntarily liquidated and dissolved. Upon assumption of Amprius Holdings’ outstanding stock options, those options became exercisable with shares of our common stock. The Amprius Holdings 2008 Stock Plan was already expired when we assumed it while the Amprius Holdings Second Equity Incentive Plan was immediately terminated when we assumed it. The Amprius Holdings Plans continue to govern the terms and conditions of the outstanding awards previously granted under the Amprius Holdings Plans. Prior to the assumption of stock options under the Amprius Holdings Plans, Amprius Holdings had stock option awards granted to some of our employees or consultants. We recorded the stock-based compensation costs associated with those stock option awards. +As of December 31, 2024, all grants made under our Equity Incentive Plans had been stock options or RSUs. +Stock Options +Stock options granted under our Equity Incentive Plans provided an exercise price of not less than 100 % of the fair value at the grant date, unless the optionee is a 10 % stockholder, in which case the option price would not be less than 110 % of such fair market value. Options granted generally have a maximum term of ten years from the grant date or 90 days from the termination of the optionee and are exercisable upon vesting unless otherwise designated for early exercise +73 +Table of Contents +Index to Consolidated Financial Statements +by the board of directors at the time of grant. Most of our stock option grants generally vest over a period of four years , subject to the continued employment or services of the optionee. +A summary of option activity under our Equity Incentive Plans as of December 31, 2024, and changes during the year ended December 31, 2024, is as follows: +Number of +shares Weighted- +average +exercise price +per share Weighted- +average +remaining +contractual +term +(in years) Aggregate +intrinsic +value +(in thousands) +Outstanding at January 1, 2024 12,812,942 $ 1.43 6.3 $ 49,466 +Assumed stock option grants (1) +7,043,587 $ 2.10 — — +Granted — $ — — — +Exercised ( 1,742,299 ) $ 0.06 — — +Expired / forfeited ( 66,121 ) $ 2.23 — — +Outstanding at December 31, 2024 18,048,109 $ 1.82 6.1 $ 19,839 +Vested and exercisable at December 31, 2024 15,975,885 $ 1.75 6.0 $ 19,007 +Vested and expected to vest at December 31, 2024 18,048,109 $ 1.82 6.1 $ 19,839 +(1) The assumed stock option grants pertain to the outstanding stock option under the Amprius Holdings Plans, which we assumed when Amprius Holdings liquidated and dissolved on October 23, 2024. The number of option shares assumed and the associated exercise prices were adjusted. Those adjustments did not result in an increase in the fair value of the assumed stock options. Out of the total stock options assumed, as adjusted, a total of 7,029,124 shares were already vested and a total of 14,463 shares were unvested at the date of the assumption. +There were no stock option grants under the 2022 Plan during the years ended December 31, 2024 and 2023. On the other hand, there were fully vested stock option grants in September 2024 under the Amprius Holdings Second Equity Incentive Plan that included grants made to some of our employees and a board member. Those fully vested stock option grants are included within the assumed stock option grants in the table above. The fair value of the fully vested stock option grants to those employees and board member, which we recognized as stock-based compensation cost, was $ 0.34 per share and was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: (i) expected term of 5 years, (ii) expected volatility of 75.0 %, (iii) risk-free interest rate of 3.6 %, and (iv) expected dividend yield of 0 %. Amprius Holdings did not grant stock options to our employees during the year ended December 31, 2023. +The total intrinsic value of options exercised during the years ended December 31, 2024 and 2023 was $ 4.2 million and $ 5.1 million, respectively. The intrinsic value was calculated as the difference between the market price of our common stock and the exercise price of the in-the-money stock options at exercise. +The fair value of stock options that vested during the year ended December 31, 2024, including those fully vested stock option grants made by Amprius Holdings to some of our employees and a board member, was $ 3.3 million. The fair value of stock options that vested during the year ended December 31, 2023 was $ 2.7 million. +As of December 31, 2024, the total unamortized stock-based compensation expense related to the unvested stock options was approximately $ 2.9 million, which we expect to amortize over a weighted-average period of 1.4 years. +RSUs +Most of our RSU grants generally vest over a period of four years , subject to the continued employment or services of the grantee. +74 +Table of Contents +Index to Consolidated Financial Statements +A summary of RSU activity under our Equity Incentive Plans as of December 31, 2024, and changes during the year ended December 31, 2024, is as follows: +Number of +shares Weighted-average +grant date fair value +Outstanding at January 1, 2024 545,141 $ 7.91 +Granted 5,025,472 $ 2.39 +Vested ( 972,300 ) $ 4.04 +Forfeited ( 287,042 ) $ 2.10 +Outstanding at December 31, 2024 4,311,271 $ 2.74 +The fair value of RSUs is determined based upon the market closing price of our common stock on the date of grant. The weighted-average grant date fair value of RSUs granted during the years ended December 31, 2024 and 2023 was $ 2.39 per share and $ 7.06 per share, respectively. The fair value of RSUs that vested during the years ended December 31, 2024 and 2023 was $ 3.9 million and $ 0.5 million, respectively. As of December 31, 2024, the total unamortized stock-based compensation expense related to the unvested RSUs was approximately $ 10.9 million, which we expect to amortize over a weighted-average period of 2.9 years. +Employee Stock Purchase Plan (“ ESPP”) +We adopted the ESPP effective September 14, 2022. As of December 31, 2024, the total number of shares reserved for issuance was 2,724,333 , which number may be increased annually at the beginning of the fiscal year, subject to certain limitations. The ESPP is intended to qualify under Section 423 of the Internal Revenue Code of 1986 (as amended) and will provide eligible employees an opportunity to purchase our common stock at a discount through payroll deductions. Under the ESPP, we may specify offering periods, provided that no offering period will have a duration exceeding 27 months. The purchase price per share is equal to 85 % of the fair market value of our common stock on the (i) offering date or (ii) purchase date, whichever is lower. As of December 31, 2024, there were no offerings established under the ESPP. +Executive Incentive Compensation Plan +On September 14, 2022, our board of directors approved our Executive Incentive Compensation Plan, which will allow us to grant incentive awards to certain executive employees, generally payable in cash, based upon achieving specified goals. We have the right to settle the award by granting an equity award, which may be subject to vesting conditions. All awards under the Executive Incentive Compensation Plan will be subject to reduction, cancellation, forfeiture, or recoupment in accordance with any clawback policy that we are required to adopt pursuant to applicable laws. As of December 31, 2024, there were no grants under the Executive Incentive Compensation Plan. +Common Stock Warrants +Shown below is a summary of the activity of the stock warrants as of and during the year ended December 31, 2024: +Public +warrants Private +warrants PIPE +warrants Total +Outstanding, January 1, 2024 29,268,236 16,400,000 2,052,500 47,720,736 +Exercise for cash ( 12,575,664 ) ( 500,000 ) — ( 13,075,664 ) +Noncash exercise in exchange for +shares of common stock — ( 15,600,000 ) — ( 15,600,000 ) +Outstanding, December 31, 2024 16,692,572 300,000 2,052,500 19,045,072 +On May 13, 2024, we offered the holders of the public and private warrants the opportunity to exercise their warrants for cash at a temporarily reduced exercise price of $ 1.10 per warrant. This cash tender offer expired on June 11, 2024. A total of 12,575,664 public warrants and 500,000 private warrants were exercised in connection with this cash tender offer. Gross proceeds from the exercise of the public and private warrants totaled $ 14.4 million. Incremental costs incurred, which were charged against the proceeds from the issuance of our shares of common stock, totaled $ 0.8 million. This cash tender offer was treated as a modification of the public and private warrants. However, we have not recognized the effect of such modification because the incremental fair value was de minimis. +75 +Table of Contents +Index to Consolidated Financial Statements +On June 24, 2024, we made a separate tender offer to the holders of the unexercised private warrants pursuant to which such holders were given the opportunity to exchange their warrants, on a cashless basis, for shares of our common stock based on an exchange ratio of 0.197 for each warrant validly tendered. This cashless tender offer expired on July 23, 2024. A total of 15,600,000 private warrants were exchanged for a total of 3,073,200 shares of our common stock in connection with this cashless tender offer. This cashless tender offer was treated as a modification of the private warrants, which resulted in an increase in the private warrants’ fair value by approximately $ 0.7 million. The incremental fair value of the modified private warrants, which are classified as equity, was presented as an increase in additional paid-in capital in the accompanying consolidated statements of stockholders’ equity. In addition, the incremental fair value was treated as a noncash deemed dividend and was presented as a reduction of additional paid-in capital, instead of a reduction of retained earnings due to our accumulated deficit position, which resulted in a net zero effect on the accompanying consolidated statements of stockholders’ equity. +The outstanding public warrants and private warrants, which expire on September 14, 2027, are exercisable for one share of our common stock at a price of $ 11.50 per warrant subject to adjustment pursuant to the Warrant Agreement, dated as of March 1, 2022, as amended. Holders of private warrants may be able to exercise their warrants on a cashless basis pursuant to the Warrant Agreement, but holders of public warrants cannot exercise on a cashless basis. The public warrants are listed on the New York Stock Exchange and are redeemable by us when the price per share of our common stock equals or exceeds $ 18.00 per share for at least 20 trading days during a period of 30 consecutive trading days prior to the redemption date. The private warrants are not listed on any securities exchange and are not redeemable. +The outstanding PIPE warrants, which expire on September 14, 2027, are substantially identical to the public warrants, except that the exercise price of each PIPE warrant is $ 12.50 per warrant and they are not listed on any securities exchange. In addition, the PIPE warrants are redeemable by us if the price per share of our common stock equals or exceeds $ 20.00 per share for at least 20 trading days during a period of 30 consecutive trading days prior to the redemption date. +The warrants described above are classified as equity in accordance with the guidance under ASC 815-40, Derivatives and Hedging–Contracts in Entity’s Own Equity . Equity-classified contracts, such as stock warrants, are initially measured at fair value or allocated value. Any subsequent changes in fair value are not recognized as long as the contracts continue to be classified in equity. +Sales Agreement +On October 2, 2023, we entered into the Sales Agreement with the Sales Agents, pursuant to which we may offer and sell, from time to time, through or to any Sales Agent, shares of our common stock with an aggregate offering price of not more than $ 100.0 million, as described in our prospectus supplement dated October 10, 2023 filed with the Securities and Exchange Commission (“SEC”). +During the year ended December 31, 2024 and from the date of the Sales Agreement through December 31, 2024, we sold shares of our common stock under the Sales Agreement resulting in aggregate net proceeds of approximately $ 33.4 million and $ 33.8 million, respectively. +The unamortized deferred stock issuance cost related to the Sales Agreement, which is included in other assets in the accompanying consolidated balance sheets and will be charged proportionally against the proceeds from issuance of shares, was $ 0.1 million as of December 31, 2024. +Common Stock Purchase Agreement (“Purchase Agreement”) +On September 27, 2022, we entered into a Purchase Agreement with B. Riley Principal Capital II, LLC (“BRPC II”), pursuant to which BRPC II committed to purchase up to $ 200.0 million of our common stock until January 1, 2025. On October 2, 2023, we and BRPC II mutually agreed to terminate the Purchase Agreement concurrent with our execution of the Sales Agreement. The termination of the Purchase Agreement became effective on October 10, 2023 upon the effectiveness of our registration statement on Form S-3 filed with the SEC. +The cumulative proceeds from the sale of shares of common stock under the Purchase Agreement, which totaled 2,952,763 shares, was $ 19.1 million. The purchase price under the Purchase Agreement was determined by reference to the volume weighted average price of our common stock, less a discount of 3.0 %. The unamortized balance of the deferred stock issuance costs related to the Purchase Agreement, which amounted to $ 0.6 million, was expensed upon the termination of the Purchase Agreement on October 10, 2023. +76 +Table of Contents +Index to Consolidated Financial Statements +Stock-Based Compensation +Stock-based compensation from stock options and RSUs under our Equity Incentive Plans were included in the following lines in the accompanying consolidated statements of operations during the periods presented (in thousands): +Year ended December 31, +2024 2023 +Cost of revenue $ 871 $ 865 +Research and development 936 186 +Selling, general and administrative 5,536 2,829 +Total stock-based compensation expense $ 7,343 $ 3,880 +Note 8. Income Taxes +The components of loss before provision for income taxes were as follows (in thousands): +Year ended December 31, +2024 2023 +Domestic $ ( 44,671 ) $ ( 36,776 ) +Foreign — — +Total $ ( 44,671 ) $ ( 36,776 ) +There were no provision for income taxes during the years ended December 31, 2024 and 2023. +The provision for income taxes differed from the amount computed by applying the federal statutory rate, which was 21.0 % during the years ended December 31, 2024 and 2023, to the loss before provision for income taxes as follows (in thousands): +Year ended December 31, +2024 2023 +U.S. federal statutory tax rate 21.0 % 21.0 % +Expected benefit at U.S. federal statutory tax rate ( 9,381 ) ( 7,723 ) +State tax ( 277 ) ( 1,449 ) +Change in valuation allowance 9,323 8,228 +Stock-based compensation 543 424 +Transaction costs — 515 +Other ( 208 ) 5 +Provision for income taxes $ — $ — +77 +Table of Contents +Index to Consolidated Financial Statements +The components of deferred tax assets and deferred tax liabilities were as follows (in thousands): +December 31, +2024 2023 +Deferred tax assets: +Net operating loss (“NOL”) carryforwards $ 23,045 $ 16,699 +Operating lease liabilities 8,434 9,078 +Tax credits 1,515 1,080 +Capitalized research and development 2,490 1,511 +Accruals and other 1,560 1,016 +Stock-based compensation 892 715 +Total deferred tax assets 37,936 30,099 +Valuation allowance ( 30,451 ) ( 21,128 ) +Deferred tax assets 7,485 8,971 +Deferred tax liabilities: +Operating lease right-of-use assets ( 7,485 ) ( 8,971 ) +Net deferred taxes $ — $ — +In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some portion or all the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences will become deductible. We assess available positive and negative evidences to estimate whether sufficient future taxable income will be generated to permit the use of existing deferred tax assets. A significant piece of objective negative evidence is the cumulative losses incurred since inception, supported by negative subjective evidence of no expectations of future taxable income. Based on this evaluation, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance. The valuation allowance increased by $ 9.3 million and $ 8.2 million during the years ended December 31, 2024 and 2023, respectively. +NOL and tax credit carryforwards were as follows as of December 31, 2024 (in thousands): +Amount Expiration +years +NOL, federal (after December 31, 2017) $ 87,642 Do not expire +NOL, federal (before January 1, 2018) $ 3,799 2037 +NOL, state $ 54,194 2037 to 2044 +Tax credits, federal $ 1,334 2037 to 2044 +Tax credits, state $ 867 Do not expire +The utilization of NOL and tax credit carryforwards are subject to certain limitations under Section 382 of the Internal Revenue Code of 1986, as amended, in the event of a change in our ownership, as defined in the current income tax regulations. Ownership changes prior to the business combination that we consummated with Kensington Capital Acquisition Corp. IV on September 14, 2022 did not result in a limitation that will materially reduce the total amount of NOL carryforwards and credits that can be utilized. However, utilization of the Company’s net operating loss carryforwards and other tax attributes to offset federal taxable income may be subject to annual limitations due to subsequent changes in ownership.. +Below is a reconciliation of the unrecognized tax benefits (in thousands): +Year ended December 31, +2024 2023 +Balance at beginning of year $ 393 $ 297 +Addition based on tax positions during the current year 158 96 +Reduction of tax positions from prior years — — +Balance at end of year $ 551 $ 393 +78 +Table of Contents +Index to Consolidated Financial Statements +The entire amount of the unrecognized tax benefits would not impact our effective tax rate if recognized and there would be no cash tax impact. We have elected to include interest and penalties as a component of income tax expense. During the years ended December 31, 2024 and 2023, we did no t recognize interest and penalties related to unrecognized tax benefits. We do not anticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease during the next 12 months. +Our federal and state income tax returns from inception to December 31, 2024 remain subject to examination. +Note 9. Leases +As of December 31, 2024, we had non-cancelable operating leases for our corporate headquarters and manufacturing facilities located in Fremont, California and in Brighton, Colorado. Our Fremont, California lease, which expires in June 2027, provides us an option to extend the term for one additional five-year period and we determined with reasonable certainty that we will exercise such option. Our Brighton, Colorado lease, which expires in May 2039, provides us an option to extend the term for two additional five-year periods, but we have not determined with reasonable certainty that we will exercise such option. Our operating leases do not contain any material residual value guarantees. We had no leases that were classified as finance leases as of December 31, 2024 and 2023. +The components of lease expense during the years ended December 31, 2024 and 2023 are shown in the table below (in thousands). +Year ended December 31, +2024 2023 +Operating lease expense $ 5,143 $ 1,147 +Variable lease expense 1,741 456 +Short-term lease expense 95 81 +Total lease expense $ 6,979 $ 1,684 +Other information about our operating leases during the years ended December 31, 2024 and 2023 are shown in the table below (amounts in thousands). +Year ended December 31, +2024 2023 +Cash paid for amounts included in the measurement of operating lease +liabilities $ 1,314 $ 1,001 +Right-of-use assets obtained in exchange for new operating lease liabilities $ — $ 32,966 +Weighted-average remaining lease term 13.5 years 14.4 years +Weighted-average discount rate 9.5 % 9.4 % +Future operating lease payments as of December 31, 2024 are as follows (in thousands): +Year ending December 31: Amount +2025 $ 3,450 +2026 2,534 +2027 5,025 +2028 5,185 +2029 5,344 +Thereafter 48,440 +Gross lease payments 69,978 +Less - present value adjustments ( 32,219 ) +Total operating lease liabilities $ 37,759 +Note 10. Commitments and Contingencies +From time to time, we may be involved in lawsuits, claims or legal proceedings that arise in the ordinary course of business. We accrue a contingent liability when it is probable that a liability has been incurred and the amount of loss can +79 +Table of Contents +Index to Consolidated Financial Statements +be reasonably estimated. Management believes that there are no claims against us for which the outcome is expected to have a material effect on our financial position, results of operations or cash flows. +Note 11. Net Loss Per Share +The following table presents the calculation of basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share amounts): +Year ended December 31, +2024 2023 +Numerator: +Net loss $ ( 44,671 ) $ ( 36,776 ) +Add - increase in net loss due to the increase in fair value of the +modified stock warrants ( 727 ) — +Net loss attributable to common stockholders $ ( 45,398 ) $ ( 36,776 ) +Denominator: +Weighted-average number of common shares outstanding 101,872,347 86,196,391 +Basic and diluted net loss per common share $ ( 0.45 ) $ ( 0.43 ) +The following table summarizes the outstanding shares of potentially dilutive securities that were excluded from the calculation of diluted net loss per share because their inclusion would have been anti-dilutive: +December 31, +2024 2023 +Stock warrants 19,045,072 47,720,736 +Stock options 18,048,109 12,812,942 +RSUs 4,311,271 545,141 +Total 41,404,452 61,078,819 +80 +Table of Contents +Index to Consolidated Financial Statements +Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures +None. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +Our management, with the participation and supervision of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Annual Report on Form 10-K. Our disclosure controls and procedures are designed to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our CEO and our CFO, as appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation, our CEO and our CFO have concluded that our disclosure controls and procedures were effective as of December 31, 2024. +Management’s Annual Report on Internal Control Over Financial Reporting +Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-13(f) and 15d-15(f) under the Exchange Act. Our management, with the participation of our CEO and CFO, assessed the effectiveness of our internal control over financial reporting as of December 31, 2024 based on the 2013 framework established in the “Internal Control-Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2024. +This Annual Report on Form 10-K does not include an auditor attestation of our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act because of our status as an “emerging growth company.” +Remediation of Previously Identified Material Weaknesses +As of December 31, 2023, we had material weaknesses in our internal controls over financial reporting due to the inadequate controls in our implementation, use and monitoring of certain application systems that we implemented in 2023, which resulted in inadequate review of certain transactions. During the year ended December 31, 2024, our management implemented the following controls to remediate those material weaknesses: +• Enhanced our controls over the use of application systems that we implemented in 2023 by removing inappropriate level of access of our employees, periodically reviewing their access, documenting our review of their access, and ensuring that no one from the accounting and finance department could add or modify users in those application systems; +• Enhanced our controls over the recording of transactions entered into our accounting system by ensuring that they were properly reviewed and approved by the appropriate level of personnel; and +• Engaged external specialists who assisted us in enhancing, designing, reviewing, testing and monitoring our internal controls on a periodic basis. +As a result of the implementation and enhancement of the internal controls described above, management determined that our material weaknesses had been remediated and our internal control over financial reporting was effective as of December 31, 2024. +Changes in Internal Control Over Financial Reporting +Except for the enhancement of our internal controls described above to remediate the previously identified material weaknesses, we have not identified changes in our internal control over financial reporting in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. +81 +Table of Contents +Index to Consolidated Financial Statements +Inherent Limitation on the Effectiveness of Internal Control +Our management, including our CEO and our CFO, do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Due to inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. +Item 9B. Other Information +Rule 10b5-1 Trading Plans +During our last fiscal quarter, no other director or officer, as defined in Rule 16a-1(f), adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” each as defined in Regulation S-K Item 408. +Departure of Directors or Certain Officers. +On March 17, 2025, Jonathan Bornstein, President of Amprius Lab, informed us of his plans to retire, following 12 years of dedicated service at the Company. His last day with the Company will be April 4, 2025. Aaron Bakke, who currently serves as Vice President of Operations, has been promoted as General Manager of US Operations effective April 4, 2025. Mr. Bakke, age 47, joined the Company in September 2019. +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +None. +82 +Table of Contents +Index to Consolidated Financial Statements +Part III +Item 10. Directors, Executive Officers and Corporate Governance +The information required by this item is incorporated by reference to the definitive Proxy Statement for our 2025 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after December 31, 2024. +We have adopted an insider trading policy which governs transactions involving our securities by our directors, officers, employees, consultants, contractors, and advisors. It is our policy to comply with applicable securities laws and regulations when engaging in transactions in our own securities. We believe that our insider trading policies and procedures are reasonably designed to promote compliance with insider trading laws, rules and regulations, and listing standards applicable to us. A copy of our insider trading policy is filed with this Annual Report on Form 10-K as Exhibit 19.1. +Item 11. Executive Compensation +The information required by this item is incorporated by reference to the definitive Proxy Statement for our 2025 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after December 31, 2024. +Item 12. Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters +The information required by this item is incorporated by reference to the definitive Proxy Statement for our 2025 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after December 31, 2024. +Item 13. Certain Relationships and Related Transactions, and Director Independence +The information required by this item is incorporated by reference to the definitive Proxy Statement for our 2025 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after December 31, 2024. +Item 14. Principal Accountant Fees and Services +The information required by this item is incorporated by reference to the definitive Proxy Statement for our 2025 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after December 31, 2024. +83 +Table of Contents +Index to Consolidated Financial Statements +Part IV +Item 15. Exhibit and Financial Statement Schedules +(a) We have filed the following documents as part of this Annual Report on Form 10-K: +1. Financial Statements +See Index to Consolidated Financial Statements under Part II, Item 8 of this Annual Report on Form 10-K. +2. Financial Statement Schedules +All financial statement schedules have been omitted as the information is not required under the related instructions or is not applicable or because the information required is already included in the financial statements or the notes to those financial statements. +3. Exhibits +The exhibits listed below are filed as part of this Annual Report on Form 10-K or are incorporated herein by reference, in each case as indicated below: +Incorporated by Reference +Exhibit Number Description Form File No. Exhibit Number Filing +Date Filed Herewith +2.1† +Business Combination Agreement, dated as of May 11, 2022, by and among Kensington Capital Acquisition Corp. IV, Kensington Capital Merger Sub Corp. and Amprius Technologies, Inc. +Form 8-K File No. 001-41314 2.1 May 12, 2022 +3.1 +Certificate of Incorporation of Amprius Technologies, Inc. +Form 8-K File No. 001-41314 3.1 September 16, 2022 +3.2 +Amended and Restated Bylaws of Amprius Technologies, Inc. +Form 8-K File No. 001-41314 3.1 March 23, 2023 +4.1 +Specimen Common Stock Certificate +Form 8-K File No. 001-41314 4.1 September 16, 2022 +4.2 +Warrant Agreement, dated as of September 14, 2022, between the Company and Continental Stock Transfer & Trust Company, as warrant agent +Form 8-K File No. 001-41314 4.2 September 16, 2022 +4.3 +Form of Warrant Certificate (included in Exhibit 4.2) +Form 8-K File No. 001-41314 4.2 September 16, 2022 +4.4 +Warrant Agreement, dated as of March 1, 2022, between the Company and Continental Stock Transfer & Trust Company +Form 8-K File No. 001-41314 4.1 March 4, 2022 +4.5 +Form of Warrant Certificate (included in Exhibit 4.4) +Form 8-K File No. 001-41314 4.1 March 4, 2022 +4.6 +Description of Capital Stock +Form 10-K File No. 001-41314 4.6 March 28, 2024 +4.7 +First Amendment to Warrant Agreement, dated as of May 13, 2024, by and between the Company and Continental Transfer & Trust Company +Schedule TO File No. 005-93595 (d)(2) May 13, 2024 +10.1 +Registration Rights Agreement, dated September 14, 2022, by and among Amprius Technologies, Inc., Amprius, Inc. and the Original Holder +Form 8-K File No. 001-41314 10.1 September 16, 2022 +10.2 +Form of Indemnification Agreement by and between the Company and its directors and officers +Form S-4/A File No. 333-265740 10.12 August 9, 2022 +10.3# +Confirmatory Employment Letter with Dr. Kang Sun +Form 8-K File No. 001-41314 10.3 September 16, 2022 +10.4# +Confirmatory Employment Letter with Sandra Wallach +Form 8-K File No. 001-41314 10.4 September 16, 2022 +10.5# +Amended and Restated Confirmatory Employment Letter with Jonathan Bornstein +Form S-1 File No. +333-267683 10.10 September 30, 2022 +84 +Table of Contents +Index to Consolidated Financial Statements +Incorporated by Reference +Exhibit Number Description Form File No. Exhibit Number Filing +Date Filed Herewith +10.6# +Amended and Restated Confirmatory Employment Letter with Dr. Constantin Ionel Stefan +Form S-1 File No. +333-267683 10.11 September 30, 2022 +10.7# +Amprius Technologies, Inc. 2022 Equity Incentive Plan and forms of agreements thereunder +Form 8-K File No. 001-41314 10.7 September 16, 2022 +10.8# +Amprius Technologies, Inc. 2022 Employee Stock Purchase Plan +424B3 File No. 333-265740 Annex E September 1, 2022 +10.9# +Amprius Technologies, Inc. Outside Director Compensation Policy +Form 8-K File No. 001-41314 10.9 September 16, 2022 +10.10# +Amprius Technologies, Inc. Executive Incentive Compensation Plan +Form 8-K File No. 001-41314 10.10 September 16, 2022 +10.11# +Amprius Technologies, Inc. 2016 Equity Incentive Plan and forms of agreements thereunder +Form 8-K File No. 001-41314 10.11 September 16, 2022 +10.12 +At Market Issuance Sales Agreement, dated October 2, 2023, by and among the registrant, B. Riley Securities, Inc., Cantor Fitzgerald & Co. and H.C. Wainwright & Co., LLC +Form S-3 File No. 333-278434 1.2 October 2, 2023 +10.13† +Exclusive Supply Agreement dated November 28, 2023, by and between the Company and Berzelius (Nanjing) Co., Ltd. +Form 8-K File No. 001-41314 10.1 January 16, 2024 +10.14† +Lease, dated January 30, 2019, by and between Los Altos Fields, LLC and Amprius, Inc. +Form 8-K File No. 001-41314 10.12 September 16, 2022 +10.15 +Assignment of Lease, dated May 1, 2022, by and between Amprius, Inc. and Amprius Technologies, Inc. +Form 8-K File No. 001-41314 10.13 September 16, 2022 +10.16 +First Amendment to Lease Agreement, dated January 4, 2023, between the Company and Los Altos Fields, LLC +Form10-K File No. 001-41314 10.16 March 30, 2023 +10.17 +Lease Agreement, dated April 15, 2023, by and between Amprius Technologies, Inc. and Starboard Platform Brighton JV LLC +Form 8-K File No. 001-41314 10.1 April 19, 2023 +10.18 +Form of PIPE Subscription Agreement +Form 8-K File No. 001-41314 10.1 September 7, 2022 +10.19 +Tender and Support Agreement, dated June 24, 2024, by and among the Company, Justin Mirro and Kensington Capital Partners, LLC +Form S-4 File No. 333-280445 10.19 July 3, 2024 +10.20 +Amprius, Inc. 2008 Stock Plan and form of option award agreement thereunder +Form S-4 File No. 333-272466 10.21 June 7, 2023 +10.21 +Amprius, Inc. Second Equity Incentive Plan and form of option award agreement thereunder +Form 8-K File No. 001-41314 10.2 October 23, 2024 +10.22 +Lock-Up Agreement, dated as of October 23, 2024, by and among Amprius Technologies, Inc. and the other parties thereto +Form 8-K File No. 001-41314 10.3 October 23, 2024 +16.1 +Letter from Marcum LLP to the Securities and Exchange Commission, dated September 16, 2022 +Form 8-K File No. 001-41314 16.1 September 16, 2022 +16.2 +Letter from SingerLewak LLP to the Securities and Exchange Commission +Form 8-K File No. 001-41314 16.2 September 16, 2022 +19.1 +A mprius Techn o logies , Inc. Insider Trading Policy +X +21.1 +List of Significant Subsidiaries +X +23.1 +Consent of BDO USA, P.C. +X +24.1 +Power of Attorney (included in the signature page to this Annual Report on Form 10-K) +X +31.1 +Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +X +85 +Table of Contents +Index to Consolidated Financial Statements +Incorporated by Reference +Exhibit Number Description Form File No. Exhibit Number Filing +Date Filed Herewith +31.2 +Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +X +32.1* +Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +X +32.2* +Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +X +97.1 +Compensation Recovery Policy +Form 10-K File No. 001-41314 97.1 March 28, 2024 +101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. X +101.SCH Inline XBRL Taxonomy Extension Schema Document X +101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X +101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X +101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X +101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X +104 Cover Page Interactive Data File (embedded within the Inline XBRL document) X +* These certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Annual Report on Form 10-K and are not deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall they be deemed incorporated by reference into any filing under the Securities Act of the Exchange Act. +† Certain schedules and exhibits have been omitted in accordance with Regulation S-K Item 601(a)(5). A copy of any omitted schedule or exhibit will be finished to the SEC upon request. +# Indicates management contract or compensatory plan. +Item 16. Form 10-K Summary +None. +86 +Table of Contents +Index to Consolidated Financial Statements +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. +AMPRIUS TECHNOLOGIES, INC. +Date: March 20, 2025 +By: /s/ Dr. Kang Sun +Name: Dr. Kang Sun +Title: Chief Executive Officer +POWER OF ATTORNEY +KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Dr. Kang Sun and Sandra Wallach, and each of them, as his or her true and lawful attorney-in-fact and agent with full power of substitution, for him or her in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact, proxy and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact, proxy and agent, or his or her substitute, may lawfully do or cause to be done by virtue hereof. +Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: +Signature Title Date +/s/ Dr. Kang Sun Chief Executive Officer and Director March 20, 2025 +Dr. Kang Sun +(Principal Executive Officer) +/s/ Sandra Wallach Chief Financial Officer March 20, 2025 +Sandra Wallach +(Principal Financial and Accounting Officer) +/s/ Donald R. Dixon Director March 20, 2025 +Donald R. Dixon +/s/ Kathleen Ann Bayless Director March 20, 2025 +Kathleen Ann Bayless +/s/ Dr. Steven Chu Director March 20, 2025 +Dr. Steven Chu +/s/ Dr. Wen Hsieh Director March 20, 2025 +Dr. Wen Hsieh +/s/ Livingston Satterthwaite Director March 20, 2025 +Livingston Satterthwaite +87 \ No newline at end of file diff --git a/raw/filings/0001899287/2024/0001899287-25-000012/filing_metadata.csv b/raw/filings/0001899287/2024/0001899287-25-000012/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..cdd6674006ca0ad806ce35c3b80bc456674c5d2e --- /dev/null +++ b/raw/filings/0001899287/2024/0001899287-25-000012/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001899287,AMPX-WT,"Amprius Technologies, Inc.",2024,10-K,2025-03-20,2024-12-31,2025-03-20T21:01:53.000Z,0001899287-25-000012,ampx-20241231.htm,10-K,10774320,1,1,https://www.sec.gov/Archives/edgar/data/1899287/000189928725000012/ampx-20241231.htm,https://www.sec.gov/Archives/edgar/data/1899287/000189928725000012/ diff --git a/raw/filings/0001899287/2024/0001899287-25-000012/item1.txt b/raw/filings/0001899287/2024/0001899287-25-000012/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..4a91d459b06b91de434c6efc8a111c25e3c05d2f --- /dev/null +++ b/raw/filings/0001899287/2024/0001899287-25-000012/item1.txt @@ -0,0 +1,194 @@ +Item 1. Business +Overview +We develop, manufacture and market lithium-ion batteries for mobility applications, including the aviation, electric vehicle (“EV”) and light electric vehicle (“LEV”) industries. Our disruptive silicon anode technology is intended to enable batteries with higher energy density, higher power density and fast charging capabilities over a wide range of operating temperatures. This results in our batteries providing superior performance compared to conventional graphite lithium-ion batteries. Our silicon anodes are a direct drop-in replacement of the graphite anode in traditional lithium-ion batteries, and our manufacturing processes leverage the manufacturing processes for conventional lithium-ion batteries and the related supply chain. +Currently, our batteries are primarily used for existing and emerging aviation applications, including unmanned aerial systems (“UAS”), such as drones and high-altitude pseudo satellites (“HAPS”). We believe our proprietary technology has the potential for broad application in electric transportation. Our batteries and their performance specifications have been tested and validated for application by various customers, including our longtime partners such as AALTO Airbus, AeroVironment, BAE Systems, Kraus Hamdani Aerospace, Teledyne FLIR and the U.S. Army. Our total customer engagements since inception grew to over 260 with shipments to 235 customers during the year ended December 31, 2024. In addition, from our inception through December 31, 2024, we have shipped over 800,000 units of batteries, which have enabled mission critical applications. Our proprietary silicon anode structures, battery cell designs and manufacturing processes are protected by our portfolio of patents, trade secrets and know-how developed over 15 years of research and development. +We currently offer high performance silicon anode batteries under the following product platforms: (i) SiCore and (ii) SiMaxx. +Our SiCore batteries were developed in collaboration with Berzelius (Nanjing) Co., Ltd. (“Berzelius”), a former subsidiary of Amprius, Inc. (“Amprius Holdings”), our former parent company. We began limited shipment of SiCore batteries in 2023, which generated a strong demand from our customers. In order to support such demand, we entered into a supply agreement with Berzelius in November 2023 (the “Exclusive Supply Agreement”), which gives us exclusive rights to purchase its proprietary silicon anode materials in the United States, Canada and Mexico. In January 2024, we announced the full commercial launch of our SiCore batteries and accelerated engagement with our addressable markets. We entered into manufacturing supply agreements with three global contract manufacturing companies, which provided us an opportunity to rapidly scale production and ship a large volume of SiCore batteries to our customers. As of December 31, 2024, we had access, through our manufacturing supply agreements with our global contract manufacturers, to annual production of up to 800 MWh of SiCore batteries in pouch form and up to 1 GWh of SiCore batteries in cylindrical form. +Our SiMaxx batteries are currently manufactured at our facility in Fremont, California. We believe that the demand for our SiMaxx batteries exceeds our existing kWh-scale manufacturing capacity and, in order to support such demand, we are expanding this facility into a MWh-scale manufacturing facility. The completion of the expansion has been delayed through the first quarter of 2025 due to a delay in our customers’ order commitments. We believe that this facility will be able to manufacture batteries up to 2 MWh capacity annually when our expansion is completed, which is approximately 10 times our existing production capacity. +In April 2023, we entered into a lease agreement to lease approximately 774,000 square feet of premises in Brighton, Colorado and announced a plan to build a GWh-scale manufacturing facility in those premises. As of December 31, 2024, we completed our pre-construction planning for this facility. However, the scope and schedule of the construction of this facility will be determined based on, among other factors, the availability and timing of funding. In addition, we are currently monitoring the larger industry dynamics. Changes in demand, supply, battery cost structure, government incentives, trade tariffs, and other considerations may also influence our decision, including whether to proceed with the construction at all. +History, Corporate Information and Website +We have been commercially producing batteries since 2018. +3 +Table of Contents +Index to Consolidated Financial Statements +On September 14, 2022, we completed a business combination pursuant to a Business Combination Agreement, dated May 11, 2022, by and among Amprius Technologies Operating, Inc. (formerly known as Amprius Technologies, Inc. or “Legacy Amprius”), Kensington Capital Acquisition Corp. IV (“Kensington”), and Kensington Capital Merger Sub Corp. (a wholly owned subsidiary of Kensington or “Merger Sub”). The business combination was effected through the merger of Merger Sub with and into Legacy Amprius, with Legacy Amprius surviving as a wholly owned subsidiary of Kensington. Upon consummation of the business combination, Kensington changed its jurisdiction of incorporation by domesticating as a corporation incorporated under the laws of the State of Delaware and changed its name to “Amprius Technologies, Inc.” The business combination was treated as a reverse recapitalization for financial reporting purposes, whereby Legacy Amprius was determined as the “accounting acquirer” and Kensington as the “accounting acquiree.” I mmediately prior to the closing of the business combination, a number of private investors purchased from us an aggregate of 2,052,000 units at a price of $10.00 per share (such transaction, the “PIPE”), pursuant to separate subscription agreements. Each PIPE unit consisted of (i) one share of common stock and (ii) one warrant (each, a “PIPE warrant”) to purchase one share of common stock at an exercise price of $12.50 per share. Please refer to Note 7 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information about the PIPE warrants. +On October 23, 2024, our former majority stockholder and parent company, Amprius Holdings, which owned an aggregate of 65.2 million shares, or 58.6%, of our common stock at that time, voluntarily liquidated and dissolved. As a result of such liquidation and dissolution, Amprius Holdings distributed, on a pro rata basis, an aggregate of approximately 57.2 million shares of our common stock to its stockholders, and we assumed all of Amprius Holdings’ outstanding options to purchase shares of Amprius Holdings’ Class A common stock in exchange for, among other things, Amprius Holdings contributing to us a total of 5.5 million shares of our common stock that it owned, which were immediately cancelled and returned to our authorized but unissued share capital. +Our principal executive offices are located at 1180 Page Avenue, Fremont, California 94538, and our telephone number is (800) 425-8803. +Our website is www.amprius.com. We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission (the “SEC”). These reports and other information are also available, free of charge, at www.sec.gov . Information contained on, or that can be accessed through, the websites referenced in this Annual Report on Form 10-K are not a part of, and are not incorporated by reference into, this Annual Report on Form 10-K. +Industry Background +Traditional transportation has been powered by fossil fuel-based engines which have led to significant greenhouse gas emissions. A rising focus on sustainable energy use in transportation is leading to increased investments in technology, government incentives and consumer demand for the electrification of passenger and payload mobility. Among the mobility mediums experiencing a shift to electrification due to these trends are aircraft such as UAS, which includes drones and HAPS, and electric vertical take-off and landing (“eVTOL”) vehicles, as well as ground-based EVs and LEVs. Critical and breakthrough battery technologies can facilitate and, in certain cases, enable the mass adoption of these electric transportation mediums by improving energy density, accelerating fast charging capabilities, extending battery life, and improving safety. +Aviation Industry +Unmanned Aerial Systems: UAS are aircraft that operate with no crew or passengers onboard and are guided by remote control or autonomously. Examples of UAS include drones and HAPS. UAS are the next generation aerial transportation technology utilized for surveillance, assessment, logistics, delivery, communications, and imaging, among other uses. Emerging technologies, such as Amprius’ silicon anode battery, offer lighter weight and/or more energy dense batteries, potentially overcoming current battery technology barriers and enabling faster adoption of UAS. Based on a January 2025 Fortune Business Insights article and management estimates, the total addressable market for UAS batteries is expected to reach approximately $27.0 billion by 2030 . +Drones: Drones are the most common type of UAS and are increasingly being utilized in various industries, including military and defense, agricultural, construction and logistics. One of the key barriers to wider adoption is the existing battery technology, which limits the drones’ flight range and payload capacity. Our batteries offer higher energy +4 +Table of Contents +Index to Consolidated Financial Statements +density, which enables longer range endurance, and, depending on customer specifications, lighter weight, which facilitates higher payload capacity. Amprius offers advanced battery technology suitable for application in drones, which is currently in use by the U.S. Army, AeroVironment and Teledyne FLIR. +High Altitude Pseudo Satellites: HAPS are alternatives for traditional satellites. When deployed, HAPS typically operate at stratospheric altitudes, approximately 12 miles (approximately 65,000 feet) above sea level. HAPS are being increasingly utilized to provide high-quality broadcast features, particularly in remote regions, which have limited terrestrial network coverage. HAPS generally use solar energy and battery storage as the power source to operate for long durations of time. As a result, lightweight, higher energy density batteries with the ability to operate in extreme temperature and pressure conditions are critical enablers. Amprius offers advanced battery technology suitable for application in HAPS, which is currently in use by prominent aerospace companies, including AALTO Airbus and BAE Systems. +Electric Air Transportation: Population growth and urbanization are key megatrends that are stretching ground transportation infrastructure to its limits and resulting in significant greenhouse gas emissions. A potential mitigation strategy is expanding intracity and other short-distance travel into the air utilizing eVTOL vehicles, which include passenger aircraft that use electric power to hover, takeoff, and land vertically. Historically, the electrification of passenger and cargo aircraft has lagged the adoption of electric automobiles in part because of the greater technical challenges. However, over the last few years there have been significant advancements in the key enabling technologies for eVTOL aircraft, including the high energy density and robust performance batteries offered by Amprius. Continued improvements in battery energy density could allow eVTOL aircraft to increase their range, speed and payload, dramatically expanding the range of trips and further accelerating the adoption of electric air mobility. Based on a January 2025 Skyquest report and management estimates, the total global addressable electric air mobility battery market is expected to reach approximately $2.9 billion by 2032 . +Electric Vehicle Industry +The electrification of ground transportation is being accelerated by regulatory pressure to meet sustainability benchmarks and growing consumer preference. For example, some states in the United States had promulgated regulations mandating automobile manufacturers to sell 100% of new vehicles in those states that have zero-emission by 2035. Based on a February 2025 Markets and Markets report and management estimates, the global EV battery market is expected to reach approximately $251.3 billion by 2035 . While multiple battery chemistries exist today that meet current EV specifications, we believe there is room for significant improvement. Our batteries, which have been tested and validated by the U.S. Advanced Battery Consortium (“USABC”), as further described below, have the potential to help address both these concerns. As such, while our EV capable battery needs to be improved with respect to cycle life, form factor, cost and production quantity, for us to compete with existing commercially available EV batteries, we believe that, as we grow and improve, we may be able to compete in the EV battery market. +Light Electric Vehicle Industry +The LEV market is expected to grow rapidly primarily due to the rising demand for e-motorcycles. Based on a January 2025 report from The Business Research Company, the LEV market size is expected to reach approximately $136.0 billion by 2029 . As this market grows, we expect an increase in demand for high-performance batteries across the LEV sector. We believe that the form factor and cost-competitiveness of our high-energy-density SiCore batteries can support such growing demand in the LEV sector. As of December 31, 2024 , we had access, through our manufacturing supply agreements with our global contract manufacturers, to annual production of up to 800 MWh of SiCore batteries in pouch form and up to 1 GWh of SiCore batteries in cylindrical form . +Battery Requirements for Electric Transportation +Current battery technology creates a barrier in the near-term for the electric transportation market, especially for electric air mobility applications, as battery weight, size and recharging times would need to be improved for these operations to become commercial. The battery system must fulfill several key requirements: +• high energy density and specific energy in order to achieve long range endurance while enabling lighter weight; +• high power density to provide sufficient power at a specific instance, such as during aircraft take-off or landing; +• fast charging capabilities to enable high infrastructure throughput; +• operational in wide temperature and pressure ranges; +• safe to operate in a wide variety of conditions; +5 +Table of Contents +Index to Consolidated Financial Statements +• a long calendar life and cycle life; and +• acceptable cost, which varies by application. +Our Solution +Today’s batteries typically utilize graphite as the anode material. Based on management’s estimates, we believe that graphite anodes have reached their theoretical limits for energy storage. We estimate that graphite anodes can only provide up to 355 mAh/g capacity for lithium storage, which can further degrade in extreme environments. We believe additional increases in the energy density for lithium-ion batteries are possible only by using active anode materials that have a higher capacity for lithium storage. Among such active materials, silicon is known to have the highest lithium storage capacity per unit mass or volume over any other element besides lithium itself. +Our SiCore and SiMaxx batteries have replaced the graphite anode with a highly engineered silicon material that has a lithium storage capacity of approximately up to 3,400 mAh/g, which is nearly 10 times the highest capacity of known graphite anodes. By replacing graphite with silicon in the anode, we have significantly enhanced performance in batteries across energy density, power, charging time, safety and ability to operate in extreme environments. +Our Competitive Strengths +SiCore and SiMaxx performance greatly exceeds conventional lithium-ion batteries commercially available today. We believe that our battery cells significantly outperform commercially available conventional graphite battery cells. As shown in the table below, as of December 31, 2024 , our batteries, particularly our SiMaxx batteries, have approximately double the specific energy and energy density of graphite battery cells, and enable significantly faster charging time. We believe other next-generation battery technologies will require significant additional research, development and investment prior to being commercially viable. +Performance Metric +Graphite Anode +Battery Cells (1) +(2) +Specific Energy (Wh/kg) ~215-285 +320-500 (3) +Energy Density (Wh/L) ~530-715 +805-1,300 (3) +Charging Time to 80% 30 minutes +<6 minutes (4) +Rate Capability/Power Up to 10C Up to 10C +Cycle Life 500-1,000 cycles 200-1,200 cycles +Operating Temperature +-20 to 60 o C +-30 to 55 o C +(1) Other than cycle life, based on a survey of 18,650 technical datasheets (e.g., Panasonic NCR18650G), Sony VTC6 technical datasheet, iFixit reports on iPhone and Samsung batteries, and Y. Sun et al: Li-ion Battery Reliability – A Case Study of the Apple iPhone. For cycle life, based on Shmuel De-Leon: Li-Ion NCA/NMC Cylindrical Hard Case Cells Market 2021. +(2) Includes both released and unreleased SiMaxx battery cells with energy and power cell designs. +(3) Based on SiMaxx 500 Wh/kg, 1,300 Wh/L battery cells that were in the development stage as of December 31, 2024 . +(4) Based on SiMaxx High Power cells commercially available in 2024. +Unique suitability for aviation markets that require high power, specific energy and energy density. We believe the increased performance of our SiCore and SiMaxx batteries enable certain electric aviation applications. For example, our batteries have high specific energy and energy density to maximize payload and reduce weight, thereby extending flight radius; high power density, to enable vertical take-off and landing functionality; fast charge, to minimize the time required to recharge a battery; wide operating temperature, for high altitude applications operating in extremely low temperatures; and cycle life parity with graphite batteries, depending on customer specifications. +In January 2025, we announced the expansion of our SiCore product platform with a SiCore battery cell that provides energy density of 370 Wh/kg, extending runtimes while still exceeding 3,000 W/kg, with discharge rates of up to 10C without cooling and 15C with active cooling. This SiCore battery cell ensures quick power delivery without +6 +Table of Contents +Index to Consolidated Financial Statements +compromising runtime, which makes it ideal for aviation applications, including drones, as well as high-performance electric vehicle applications that require both endurance and rapid energy delivery. +In August 2023, we unveiled a breakthrough battery cell chemistry and design that enables 400 Wh/kg energy density with 10C continuous discharge capability. The energy and power delivered by this ultra-high-power-high-energy lithium-ion battery make it an ideal solution for electric mobility applications. This battery, which is part of our SiMaxx product platform, became commercially available in 2024. +In March 2023, we unveiled a prototype battery cell that delivers an energy density of >500 Wh/kg and >1,300 Wh/L at 25°C. The performance of this battery cell was verified by a leading testing house offering comprehensive battery regulatory compliance, safety and performance testing. At approximately half the weight and volume compared to other existing state-of-the-art, commercially available lithium-ion cells, we believe that this type of battery will deliver a potential industry-disrupting performance. As of December 31, 2024, this battery cell, which will be part of our SiMaxx product platform, was in the development stage. +We will continue to develop next-generation battery cells, and we believe that when they become commercially available, those battery cells will have the potential to expand boundaries for our customers and provide a tailored solution for applications that require heightened discharge times without compromising key features, such as aircraft payload, and without having to increase vehicle weight. +First mover advantage in emerging aviation markets. As a result of our success with AALTO Airbus and other tier-one customers, we have become an established market pioneer in providing high performance batteries to the aviation industry. Our reputation and commitment to delivering ultra-high performance batteries have enabled us to enter into several development and master supply arrangements with our customers. From our inception through December 31, 2024, over 260 customers had tested and validated our SiCore and SiMaxx batteries for their applications, and we believe our market leadership in aviation will enable us to continue to grow our customer base. +Proven performance in demanding and abuse-tested environments. Safety is recognized as one of the most important factors of lithium-ion battery technology. Our silicon anodes operate at a voltage that is at least 100 mV higher than that of graphite anodes, which not only enables faster charging but also cell operation at lower temperatures, thereby improving cell safety and mitigating the risk of overcharging. Our batteries are also designed to be ultra-resilient and undergo rigorous abuse testing, including air cargo certification and specific tests for defense applications. +For example, in December 2022, an independent third-party testing lab validated that our SiMaxx 390 Wh/kg polymer electrolyte cell successfully passed the nail penetration test per the requirements of section 4.7.4.4. of the MIL-PRF-32383 (Military Performance Specification). The test is used to determine the feasibility of a specific product in combat scenarios. Cells tested in accordance with section 4.7.4.4. should not burn or explode, and the external temperature of each test sample should not be greater than 338 degrees Fahrenheit (170 degrees Celsius) when penetrated by sharp objects. When conducting the test, a 0.113-inch diameter stainless steel nail is driven through a fully charged cell at a prescribed speed. The cell is deemed to have passed if there is no smoke or flame following the nail penetration. +Robust IP portfolio and know-how related to our silicon nanowire ecosystem. Our silicon anode technology has been refined and improved upon for over 15 years , and is protected by over 80 patents that were issued to us or are pending applications as of December 31, 2024 . Core aspects of our technologies and processes are also protected by know-how and trade secrets developed by our team for over 15 years . +Our Products and Customers +As evidenced by customer validation, design wins and recurring orders with AALTO Airbus, AeroVironment, BAE Systems, Kraus Hamdani Aerospace, Teledyne FLIR and the U.S. Army, among others, our battery technology is well positioned to address the rapidly growing markets within the aviation industry, specifically UAS and eVTOL, as well as LEVs. UAS and eVTOL applications have historically used conventional lithium-ion batteries as a means to promote product prototypes, but market participants are seeking advancements in battery technology. We believe that our silicon anode technology can be part of the solution. +We currently offer high performance batteries under the following product platforms: SiCore and SiMaxx. In addition, we are also currently developing EV-capable products. +7 +Table of Contents +Index to Consolidated Financial Statements +SiCore Product Platform +Our SiCore batteries, which were developed in collaboration with Berzelius and launched commercially in January 2024, are based on an innovative, proprietary silicon anode material system delivering high-energy-density silicon anode batteries that surpass current state-of-the-art graphite cell performance. The silicon anode cell chemistry in our SiCore batteries is designed to offer high energy density, up to 400 Wh/kg, and long cycle life, as long as 1,000 cycles. Our SiCore battery cell chemistry may be combined with other materials, such as binders and conductive agents, including graphite, to meet performance specifications. +We offer our SiCore batteries with the following design and performance factors: Energy, Power and Balanced Energy/Power. +Energy . This design of SiCore battery cell delivers a specific energy of up to 400 Wh/kg or 872 Wh/L at a maximum discharge rate of up to 1C and a cycle life of up to 300 cycles at full depth of discharge. +Power . This design of SiCore battery cell delivers a specific energy of up to 360 Wh/kg or 800 Wh/L at a maximum discharge rate of up to 5C and a cycle life of up to 300 cycles at full depth of discharge. +Balanced Energy/Power . This design of SiCore battery cell delivers a specific energy of up to 355 Wh/kg or 805 Wh/L at a maximum discharge rate of up to 3C, and a cycle life of up to 700 cycles at full depth of discharge or 1,000 cycles at approximately 90% depth of discharge. +Our SiCore batteries have been validated across various applications in the electric mobility market, and since we began our limited shipment in 2023 and our commercial launch in January 2024, they have garnered positive feedback from customers with demanding performance requirements. Our SiCore battery chemistries are applied into a wide range of form factors, including both pouch and cylindrical cells. The cylindrical cell form factors offer balanced energy and power capabilities providing an industry leading capacity of 4Ah in 18650 format and 6Ah in 21700 format, and a cycle life of up to 600 cycles. +As of December 31, 2024, we had access, through our manufacturing supply agreements with our global contract manufacturers, to annual production of up to 800 MWh of SiCore batteries in pouch form and up to 1 GWh of SiCore batteries in cylindrical form. +SiMaxx Product Platform +We offer our SiMaxx batteries with the following design and performance factors: High Energy, High Power and Balanced Energy/Power. +High Energy . Our SiMaxx high energy battery cells are designed to maximize specific energy for applications with low power requirements. For applications that have a continuous discharge rate of less than 2C, these battery cells deliver a specific energy of up to 500 Wh/kg or 1,300 Wh/L at a discharge rate up to 1C. SiMaxx high energy battery cells are most frequently used by HAPS, which are designed to carry a payload at high altitudes for extended periods, typically for weeks or months at a time, as they rely on solar power for operations during the day and need to store sufficient energy in the battery to keep the aircraft aloft during the night. +We continue to make improvements on our SiMaxx high energy battery cells. For example, in November 2023, we developed and delivered three additional formats of 450 Wh/kg cells. These custom cells were made in collaboration with our strategic customers to address their unique HAPS qualification requirements and to assist in operating in highly challenging environments. With greater energy density and longer cycle life than our previous high-energy batteries, we believe that our 450 Wh/kg cells are the only commercially available batteries of their kind known to us that can provide enough power and endurance for HAPS’ overnight stratospheric flight. +Our SiMaxx high energy battery cells have also powered AALTO Airbus’ Zephyr S stratospheric vehicle to numerous records since 2018. The Zephyr S is designed to fly for months at a time, at an altitude of approximately 70,000 feet. After integrating our battery cells into the Zephyr S, AALTO Airbus set endurance and altitude records by flying continuously for over 25 days in 2018 and 64 days in 2022. We continue to support the Zephyr S program and were presented the 2021 Innovative Supplier of the Year Award by Airbus. +High Power . Our SiMaxx high power battery cells are designed for applications that place a premium on power. These high power battery cells offer 400 Wh/kg and 820 Wh/L energy density with up to 10C continuous discharge +8 +Table of Contents +Index to Consolidated Financial Statements +capability. This performance is well suited for the air transportation industry, which requires high power capabilities to lift the aircraft from the ground into the air. In addition, our SiMaxx high power battery cells are capable of fast charging, from 0% to 80% in less than 6 minutes. This level of power capability, energy density, and fast charge capability is optimal for urban air mobility and other air transportation industry applications. Once the vehicle has landed, the turnaround time to get the vehicle back into the air becomes critical, which is why we have designed our SiMaxx high power batteries with fast charge capabilities. +Since 2021, we have engaged in technical evaluations with certain tier-one eVTOL manufacturers to develop an eVTOL-optimized battery system to support the development and commercialization of their eVTOL fleet. We plan to continue expanding our technical evaluation engagements with other eVTOL manufacturers as the eVTOL market grows. +Balanced Energy/Power . We designed our SiMaxx balanced energy/power battery cells for applications that require a balance between power and energy. These battery cells offer energy density as high as 395 Wh/kg or 800 Wh/L at up to 4C discharge rate. This range of power capability is important to customers in the UAS sector. Our SiMaxx balanced energy/power battery cells typically meet the requirements of UAS devices’ needs for high initial power, as well as higher energy requirements for longer sustained cruising. +Since 2021, our SiMaxx balanced energy/power battery cells have been designed into UAS programs at AeroVironment and Teledyne FLIR, with commercial shipments since 2022. +EV capable Products +We are also currently developing an EV capable cell. Competition in the EV industry is intense, with high production volume requirements, low pricing, and balanced performance criteria, creating a high barrier to entry against the incumbent solutions. Prior to us being able to effectively compete in the EV space, we will need to further improve cycle life, increase cell form factors, increase production quantity and reduce our costs. +Since 2017, we have been sampling our batteries with USABC, which had independently verified that we have met or exceeded the majority of their 2025 EV cell performance goals, including usable energy density, usable specific energy, power density and charge time. +In November 2024, we shipped to USABC our SiMaxx A-Sample EV cells. Our testing of SiMaxx A-Sample EV cells showed that the cells can achieve a specific energy of 360 Wh/kg at the beginning of life, which surpassed USABC’s target of 275 Wh/kg at end of life, and deliver a power density of 1,200 W/kg. We believe that this development could result in a significant increase in range compared to most commercial EV batteries available today. In addition, the SiMaxx A-Sample EV cells can charge up to 90% of their rated energy in just 15 minutes, which exceeds USABC’s target of 80% within the same timeframe. +Our Technology +SiCore +Our SiCore batteries are based on an innovative, proprietary silicon anode material system, delivering batteries with high-energy-density and long cycle life. Developed in collaboration with Berzelius, the anode in our SiCore batteries have a unique bottom-up structure with an ultra-fine silicon nanostructure interior and multilayer surface protection. This silicon anode technology may also be combined with other active materials, such as binders and conductive agents, including graphite. The particle type of our SiCore anode materials can be processed in the same equipment and environment as graphite anode materials, offering a drop-in replacement of graphite materials and fast transfer to manufacturing of our SiCore cell designs. Due to their robust structure, our SiCore materials can be pressed into high density and thin electrodes, a precondition for high energy density and fast charge capability. +SiMaxx +Our proprietary SiMaxx silicon anode technologies solve for the inherent limitations of silicon anodes in lithium-ion cells. Silicon has historically been investigated as an anode material due to its intrinsic capability to store larger quantities of lithium per unit mass and volume compared to graphite. The main barrier preventing silicon from becoming more widely adopted across the battery industry is that the silicon material expands during charging as it absorbs lithium ions. For example, silicon particles may expand up to 300% during charging. After multiple charge and discharge cycles, silicon particles will crack, causing anode degradation and device breakdown. +9 +Table of Contents +Index to Consolidated Financial Statements +Our proprietary SiMaxx silicon anode technology solves for the material expansion inherent in silicon. Our nanowire anodes start with a metal foil that is layered with a nanowire template and metallurgically attached to the metal foil substrate by a growth process. The nanowire template is coated with a low-density silicon and then encased by a thin layer of high-density silicon. +Our SiMaxx silicon anode generally contains more than 1,000,000 nanowires per square centimeter. The nano-porosity of the low-density layer of silicon on each nanowire and the micro-porosity between the wires in our technology allows the silicon to expand at nano- and micro- meter levels when the anode is charged, with little to no damage to the anode. +Our SiMaxx anode structure also enables ions and electrons to travel in a straight path between and through the nanowires. In contrast, a particle structure results in ions and electrons traveling in a nonlinear, tortuous path. The straight path of our anode facilitates high electric and ionic conductivity, enabling high power and fast charging. Nanowires are always in electrical contact with the metal foil due to their growth rooted fabrication, while particles have to rely on particle-to-particle contact for electron transfer, which can easily be broken during cycling. +Our SiMaxx silicon anodes are considered 100% silicon based on their actual silicon content, which ranges from 99.5% to 99.9% and meets the acceptable purity standards for classification 100%. +Manufacturing and Supply +We invented the proprietary silicon anode and its fabrication process for our SiMaxx batteries. Our silicon anode is fabricated using chemical vapor deposition (“CVD”) technology, and consists of three sequential steps. First, the nanowire template is grown by a thermally activated chemical reaction. Second, a low-density silicon coating is deposited by plasma enhanced CVD. Third, a high-density thin silicon surface layer is deposited by a thermally activated CVD process. These three steps replace all powder processing steps typically used in making graphite anodes, including powder mixing, slurry mixing, slurry coating, electrode drying and electrode calendaring. After fabrication, our product is the fully processed anode. This anode can then be assembled in cells with cathodes produced by manufacturing lines similar to those used in graphite anode cells. This fabrication process has been in commercial operation since 2018 at our manufacturing facility in our Fremont headquarters. +To develop the high-volume anode fabrication tool needed for a GWh-scale manufacturing line, we have partnered with centrotherm international AG (“centrotherm”), a leading global supplier of tools used to produce solar cells. We received large-scale anode production equipment from centrotherm as part of our ongoing expansion of our manufacturing line at our Fremont headquarters into a MWh-scale facility. The equipment supplied by centrotherm requires certain modifications for our needs, which includes designing and developing automated material handling for the foils and processes for silicon deposition. These hardware design modifications are in progress. Completing design and development of the tool as well as the automated material handling and high-volume production processes requires significant engineering. Moreover, our manufacturing costs will depend not only on the cost of the tools but also on throughput, yield, efficiency of silane gas utilization, among other factors. The ability to design and develop this tool successfully and the timing of this effort may be subje ct to unforeseen complexities, component supply delays and other risks. For more information, see the section titled “Risk Factors” be low. +Although our anode manufacturing processes differ from traditional anode manufacturing, the cathode and the rest of the cell, including electrolytes and separators, use conventional lithium-ion battery manufacturing tools and materials. Our silicon anodes are a direct drop-in replacement of the graphite anode in traditional lithium-ion batteries. The dominant raw materials for our silicon anode include silane gas, which is used in making the silicon anodes, and nickel foil, which is used for the anode current collector substrate. As we increase our manufacturing capacity, we expect to procure the silane gas from a global supplier of silane and silicon materials and will procure nickel foil from global suppliers of metals. Both silane gas and nickel foil are available commodity materials. +Due to its high capacity to store lithium relative to cathode materials, and to further increase the available lithium in the cell, the silicon anode can be prelithiated to a certain level (i.e., 10% to 20%) of its capacity before cell assembly. Prelithiation can be done electrochemically at low scale and by physical vapor deposition for large manufacturing volume. Equipment vendors have scaled-up or are scaling lithium evaporation equipment to GWh+ manufacturing volumes. We use electrochemical prelithiation in our current SiMaxx production and will integrate lithium evaporation steps in the anode manufacturing line. +In order to support the demand for our batteries, we are currently expanding our existing kWh-scale manufacturing facility in Fremont, California into a MWh-scale manufacturing facility; are planning to expand our contract manufacturing +10 +Table of Contents +Index to Consolidated Financial Statements +partnerships globally; and may build a GWh-scale manufacturing facility in our leased premises in Brighton, Colorado. The completion of the expansion of our Fremont facility has been delayed through the first quarter of 2025 due to a delay in our customers’ order commitments. We believe that this facility will be able to manufacture batteries up to 2 MWh capacity annually when our expansion is completed, which is approximately 10 times our existing production capacity. Also, as of December 31, 2024, we completed pre-construction planning to build a GWh-scale manufacturing facility at our leased premises in Brighton, Colorado. However, the scope and schedule of the construction of this facility will be determined based on, among other factors, the availability and timing of funding. In addition, we are currently monitoring the larger industry dynamics. Changes in demand, supply, battery cost structure, government incentives, trade tariffs, and other considerations may also influence our decision, including whether to proceed with the construction at all. +As of December 31, 2024, we produce SiCore batteries by leveraging Berzelius’ existing production line and through our manufacturing supply agreements with three global contract manufacturers. In order to meet the increased demand for our SiCore batteries, we are planning to expand our contract manufacturing partnerships globally. Some of the challenges that we may encounter when we enter into a manufacturing supply arrangement include, among others, risk of losing control over the manufacturing process of our SiCore batteries, which could lead to quality control issues, delay in production, increase in production costs, and non-compliance with our established standards. In addition, we may encounter a risk of losing control of some of our intellectual property. While we plan to set up business processes, including adding oversight and quality control procedures, in order to manage our contract manufacturing supply arrangements, there can be no assurance that such processes will be effective. As of December 31, 2024, we had access, through our manufacturing supply agreements with our global contract manufacturers, to annual production of up to 800 MWh of SiCore batteries in pouch form and up to 1 GWh of SiCore batteries in cylindrical form. For more information, see the section titled "Risk Factors" below. In addition, if we partner with other contract manufacturers in the future, we plan to select large, experienced and reputable contract manufacturing companies. +Our Growth Strategy +Our goal is to become the market leader in high performance lithium-ion batteries for the transportation industry. In order to achieve that goal, we are pursuing the following growth strategies: +Leverage existing contract manufacturing capacity to produce SiCore batteries. We believe that our existing Exclusive Supply Agreement with Berzelius, which gives us exclusive rights to purchase Berzelius’ proprietary silicon anode materials in the United States, Canada and Mexico, and our existing manufacturing supply agreements with three global contract manufacturers will allow us to continue supporting the increasing demand for our SiCore batteries. As of December 31, 2024, we had access, through our manufacturing supply agreements with our global contract manufacturers, to annual production of up to 800 MWh of SiCore batteries in pouch form and up to 1 GWh of SiCore batteries in cylindrical form. +Expanding existing manufacturing facility to meet increase in demand and optimize costs. Although we had access to annual production of up to 800 MWh of SiCore batteries in pouch form and up to 1 GWh of SiCore batteries in cylindrical form through our existing manufacturing supply agreements with our global contract manufacturers as of December 31, 2024, we believe that expanding our existing manufacturing facility would help us meet the growing demand of our customers and optimize costs in the long-term. We currently operate a kWh-scale manufacturing line for our SiMaxx batteries at our facility in Fremont, California and are expanding it into a MWh-scale manufacturing facility. The completion of the expansion has been delayed through the first quarter of 2025 due to a delay in our customers’ order commitments. We believe that this facility will be able to manufacture batteries up to 2 MWh capacity annually when our expansion is completed, which is approximately 10 times our existing production capacity. In April 2023, we announced a plan to build a GWh-scale manufacturing facility in our leased premises in Brighton, Colorado. As of December 31, 2024, we completed our pre-construction planning for this facility. However, the scope and schedule of the construction of this facility will be determined based on, among other factors, the availability and timing of funding. In addition, we are currently monitoring the larger industry dynamics. Changes in demand, supply, battery cost structure, government incentives, trade tariffs, and other considerations may also influence our decision, including whether to proceed with the construction at all. +Reduce our SiMaxx battery manufacturing costs . We believe our ability to reduce the manufacturing costs of our SiMaxx batteries on a $/kWh basis will accelerate the adoption of our SiMaxx batteries and allow us to further broaden our customer base. As we scale, we believe we will benefit from reduced per-unit costs, including overhead, labor and capital expenditures, improved tool utilization and volume pricing for equipment and materials. We will also seek to reduce SiMaxx battery costs by optimizing material utilization, throughput and yield. However, until we are able to complete our optimization process, including designing and implementing our silicon anode production process, we cannot accurately +11 +Table of Contents +Index to Consolidated Financial Statements +forecast our manufacturing costs. Since our SiMaxx silicon anode process requires different equipment than traditional anode manufacturing, our capital equipment costs are likely to be higher than the equipment used for production of graphite anodes. +Extend first-mover advantage to become the market leader in lithium-ion batteries for aviation. We believe we are the leading company in the market today with a high-performance battery that can meet the requirements of aviation applications. We have built a strong reputation in the industry by delivering ultra-high performance batteries with high safety standards that meet or exceed industry standards and customer requirements. We expect to extend our presence in the aviation market, while also serving other transportation-related markets that require improvements in their electrification solutions. From our inception through December 31, 2024, over 260 customers had tested and validated our batteries for their applications. +Further improve performance characteristics of our anode and battery cells . We believe we have the highest-performing commercially available batteries in the market. We intend to maintain our performance advantage by continuing to invest in our anode and cathode chemistries. We expect to continue to increase the performance characteristics of our batteries, particularly around power, energy density and cycle life. For example, in March 2023, we unveiled the development of a battery cell that delivers an energy density of >500 Wh/kg and >1,300 Wh/L at 25°C. The performance of this battery cell was verified by a leading testing house offering comprehensive battery regulatory compliance, safety and performance testing. As of December 31, 2024, this battery cell, which will be part of our SiMaxx product platform, was in the development stage. We believe our next-generation cells, when commercially available, will have the potential to expand boundaries for our customers and provide a tailored solution for applications that require heightened discharge times without compromising key features, such as aircraft payload, and without having to increase vehicle weight. We plan to continue to invest in optimizing combinations of these performance characteristics as well as the requisite form factors to meet the specific needs of our customers and drive adoption of our battery cells in other areas of electrified transportation. As a result of these efforts, our goal is to fully realize the benefits of our silicon anode technology and develop the highest performing products in the market. +Expand our end markets and applications . As we increase our production capabilities and partnership with global contract manufacturers, we will be able to supply our batteries in larger volumes to fulfill our customers’ battery prototyping and procurement requirements. Our current customer base consists primarily of aviation and other air transportation companies. We believe the batteries we have developed for the aviation industries can be adapted for larger form factors to meet the energy density and fast-charge requirements of the EV market once we are able to improve the cycle life, increase form factors, reduce cost and improve production quantity for our EV capable battery cells. +Research and Development +Our original silicon anode technology was developed at Stanford University in 2008, and for over 15 years , we have refined and improved upon the technology for use in commercial applications. We have conducted research and development initiatives focused on improving certain performance characteristics and expanding the applications of our silicon anode battery technology. We expect to continue our research and development efforts in the following areas: +• Improving battery life. We are working with chemical compounds as potential additives to the silane gas we use to produce our silicon anodes which have demonstrated the potential to improve cycle life without negatively impacting other performance characteristics such as energy density. +• Further improvements to energy density . We are engaged in ongoing development activities to explore different cathode materials, including a conversion cathode, to further improve the energy density of our batteries. +• Advanced cell chemistries and designs. We have developed advanced battery cell designs tailored to respond to our customers’ requirements for high performance, including extreme high power and fast charge performance, safety, wide operating temperature range, and calendar life. Our proprietary electrolyte formulations enhance operations at high voltage and high temperature. In addition, our polymer/semi-solid formulations add safety to nail and ballistic performance. +• Larger cell form factors . The batteries we have developed and are developing for our customers are typically approximately up to 15Ah for small-sized aircraft. As we expand our customer base, we are in the process of developing larger form factor batteries for broader aviation applications as well as LEV and EV customers. +We utilize our research and development capabilities not only to improve existing products but also to build custom-designed batteries for our customers. We have generated revenue from these design services. However, as we grow our manufacturing capacity, we expect that the relative percentage of our revenue from these activities will decrease. +12 +Table of Contents +Index to Consolidated Financial Statements +Intellectual Property +Our proprietary silicon anode technologies, including the related processes, design and manufacturing, are protected by our patent portfolio and know-how and trade secrets. +As of December 31, 2024, we had a total of 86 patents, which consisted of : +• 74 patents issued to us (35 patents issued in the United States and a total of 39 patents issued in the European Union, Korea, Japan, China, Taiwan and Israel) with expiration periods ranging between 2030 and 2039 ; +• 10 patent applications that are pending (2 patent applications in the United States and a total of 8 patent applications in the European Union, Korea, Japan, China and Taiwan); and +• 2 U.S. patents that we licensed from Stanford University. +As of December 31, 2024, we also held a total of 10 registered trademarks that were issued to us, which consisted of 2 trademarks issued in the United States and a total of 8 trademarks issued in the European Union, Great Britain, Japan, Korea and China. +Our patents cover the following: +• Silicon structures – rooted nanowire template, tapered morphology, silicon dopants and multi-layered structure; +• Materials technologies – solid electrolyte interphase formation, electrolyte formulations and scalable prelithiation; and +• Silicon anode manufacturing processes, design and equipment. +In addition, we rely on non-disclosure agreements with employees, independent contractors, customers and other third parties to protect our intellectual property and proprietary rights. +Circumstances outside our control could pose a threat to our intellectual property rights. For more information, see the section titled “Risk Factors” below. +Competition +We compete directly and indirectly with current battery manufacturers and with an increasing number of companies that are developing new battery technologies and chemistries to address the growing market for electrified mobility solutions. Specifically, within the aviation markets, we primarily compete with conventional graphite anode batteries and silicon composite anode batteries. Silicon composites are graphite-based anodes that incorporate some silicon, typically in the form of particles of silicon or silicon monoxide. +Graphite anode battery companies include tier-one manufacturers such as Amperex Technology Limited (ATL), Contemporary Amperex Technology Co., Limited (CATL), LG Chem Ltd., Murata Manufacturing Co., Ltd., Panasonic Industry Co., Ltd., and Samsung SDI Co., Ltd., which provide higher quality and higher performance solutions, and tier-two manufacturers which provide lower cost solutions. We expect the manufacturers of those batteries will continue to invest in improving the capabilities of their batteries. +While we believe we are currently the only known battery manufacturer making approximately 100% silicon anodes, there are many companies making or developing silicon composite batteries or anode materials and companies seeking to develop 100% silicon anodes. Companies making or developing silicon composite anodes or materials include both large manufacturers as well as many well-funded new technology companies. These include Berzelius, BTR New Energy Material Ltd., Enevate Corporation, Enovix Corporation, Group 14 Technologies, Inc., Nexeon Ltd., Shanshan Corporation, Sila Nanotechnologies Inc., and Storedot Ltd. Silicon composite anodes may offer higher energy density and other improvements over conventional graphite anodes, and may be less expensive to manufacture than our silicon anodes. +For aviation applications, we believe that the defining characteristics of our battery cells make our silicon anode technologies the only battery solutions currently available and suitable for broad aviation adoption. These characteristics of industry-leading specific energy and energy density, high power density, low operating temperature and fast charge capability, in addition to commercial validation, significantly differentiates us from graphite anode and silicon composite anode alternatives. However, we expect additional competitors to enter the market as their battery technologies continue to improve. +13 +Table of Contents +Index to Consolidated Financial Statements +The EV and LEV battery industries are fast-growing and highly competitive. Unlike the aviation industry, where there are a limited number of commercially available batteries that meet the minimum performance specifications, there are many battery manufacturers in the EV and LEV industries that can produce commercially acceptable batteries, and they may be able to produce those batteries at lower cost and higher volumes than we are currently able to. Future entrants may include companies developing different technologies, such as lithium metal anodes, which are not yet in commercial production. In order to effectively compete, we will need to further improve our batteries’ life cycles, increase their form factors, increase their production quantity and reduce their production costs. +Many of our competitors and potential future entrants, both in the aviation, EV and LEV industries, may be better capitalized and have greater resources to commercialize and expand their production capacities. These competitors may have greater access to customers and may be able to establish cooperative or strategic relationships amongst themselves or with third parties that may further enhance their resources and competitive positioning. If there are significant advances in battery chemistries that we cannot adapt, or if competitors are able to scale their production capacities before we are able to, our business may be materially impacted. For more information, see the section titled “Risk Factors” below. +Government Regulation and Compliance +Our business activities are global and are subject to various federal, state, local, and foreign laws, rules and regulations. For example, there are various government regulations pertaining to battery safety, transportation of batteries, use of batteries in vehicles, factory safety, and disposal of hazardous materials. +In many cases, our products are or may in the future be subject to trade and export control laws and regulations in the United States and other jurisdictions where we do business. Such laws include the Export Administration Regulations, trade and economic sanctions maintained by the Office of Foreign Asset Control as well as foreign direct investment rules and regulations, tariffs and quotas, and other related regulations in jurisdictions in which we operate, and we may in the future be subject to other laws and regulations, such as the International Traffic in Arms Regulations, among others. In particular, the export or re-export of our products and technology to certain countries or end-users or for certain end-uses in some cases requires an export license or may be prohibited. Additionally, we may be required to register with the Directorate of Defense Trade Controls in order to conduct some aspects of our future business activities and we may be required to obtain licenses in order to conduct development activities. Obtaining the necessary export license for a particular sale or offering or business activity may not be possible or may be time-consuming and may result in the delay or loss of sales opportunities. Any failure to adequately address these legal obligations could result in civil fines or suspension or loss of our export privileges, any of which could materially adversely affect our business, financial condition, and results of operations. +In addition, our business is subject to the Foreign Corrupt Practices Act and other anti-corruption, anti-bribery, and anti-money laundering laws and regulations in the jurisdictions in which we have offices or do business, both domestic and abroad. Any failure to adequately comply with any of these obligations, or future changes with respect to any of these legal regimes, could cause us to incur significant costs, including the potential for new overhead costs, fines, sanctions, and third-party claims. +As a government contractor and/or subcontractor, we must comply with laws, regulations, and contractual provisions relating to the formation, administration, and performance of government contracts and grants, which affect how we and our partners do business with government agencies. Government contracts often contain provisions and are subject to laws and regulations that provide government customers with additional rights and remedies not typically found in commercial contracts. Ensuring compliance with government contracting laws, regulations, or contractual provisions may impose other added costs on our business, and failure to comply with these or other applicable regulations and requirements could lead to claims for damages, civil or criminal penalties, termination of contracts and/or suspension or debarment from obtaining government contracts and grants. Any such damages, penalties, disruption, or limitation in our ability to do business with a government could have a material adverse effect on our business, results of operations, financial condition, public perception and growth prospects. +Human Capital +We believe that our success is driven by our team of technology innovators and experienced business leaders. We also believe that our employees are the foundation for developing and commercializing our silicon anode technology. Many on our leadership team have been with us for over a decade. We seek to hire and develop individuals who are dedicated to our strategic mission. +14 +Table of Contents +Index to Consolidated Financial Statements +As of December 31, 2024, our total headcount was 108, which consisted of 99 full-time employees and 9 temporary hires and contractors. Our employees are primarily located in our headquarters in Fremont, California. +As of December 31, 2024, a total of 27 full-time employees worked in research and development (“R&D”) and a total of 52 full-time employees worked in manufacturing. Certain employees in the R&D and manufacturing departments hold a Ph.D. or an advanced degree in material science, chemical, aerospace, structural and nanoscale engineering, physics or chemistry. +We are committed to maintaining equitable compensation programs including equity participation. In order to attract or retain team members capable of making exceptional contributions to our success, we offer market-competitive salaries and strong equity compensation. Our compensation decisions are guided by the external market, role criticality and the contributions of each team member. +To date, we have not experienced any work stoppages and we consider our relationship with our employees to be good. None of our employees are either represented by a labor union or subject to a collective bargaining agreement. \ No newline at end of file diff --git a/raw/filings/0001899287/2024/0001899287-25-000012/item13.txt b/raw/filings/0001899287/2024/0001899287-25-000012/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..dc15044e332980a220240bb55c2273771d50ada3 --- /dev/null +++ b/raw/filings/0001899287/2024/0001899287-25-000012/item13.txt @@ -0,0 +1,2 @@ +Item 13. Certain Relationships and Related Transactions, and Director Independence +83 \ No newline at end of file diff --git a/raw/filings/0001899287/2025/0001899287-26-000015/filing.txt b/raw/filings/0001899287/2025/0001899287-26-000015/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..20199a2ed911fbbff98d931b1c45df0bd0c8aafc --- /dev/null +++ b/raw/filings/0001899287/2025/0001899287-26-000015/filing.txt @@ -0,0 +1,1879 @@ +ampx-20251231 +0001899287 2025 FY false http://fasb.org/us-gaap/2025#NonoperatingIncomeExpense iso4217:USD xbrli:shares iso4217:USD xbrli:shares xbrli:pure ampx:platform ampx:vote ampx:day ampx:extensionOption ampx:lease utr:sqft 0001899287 2025-01-01 2025-12-31 0001899287 us-gaap:CommonStockMember 2025-01-01 2025-12-31 0001899287 ampx:RedeemableWarrantsMember 2025-01-01 2025-12-31 0001899287 2025-06-30 0001899287 2026-02-27 0001899287 2025-12-31 0001899287 2024-12-31 0001899287 2024-01-01 2024-12-31 0001899287 us-gaap:CommonStockMember 2023-12-31 0001899287 us-gaap:AdditionalPaidInCapitalMember 2023-12-31 0001899287 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-12-31 0001899287 us-gaap:RetainedEarningsMember 2023-12-31 0001899287 2023-12-31 0001899287 ampx:AtMarketIssuanceSalesAgreementMember us-gaap:CommonStockMember 2024-01-01 2024-12-31 0001899287 ampx:AtMarketIssuanceSalesAgreementMember us-gaap:AdditionalPaidInCapitalMember 2024-01-01 2024-12-31 0001899287 ampx:AtMarketIssuanceSalesAgreementMember 2024-01-01 2024-12-31 0001899287 us-gaap:CommonStockMember 2024-01-01 2024-12-31 0001899287 us-gaap:AdditionalPaidInCapitalMember 2024-01-01 2024-12-31 0001899287 us-gaap:RetainedEarningsMember 2024-01-01 2024-12-31 0001899287 us-gaap:CommonStockMember 2024-12-31 0001899287 us-gaap:AdditionalPaidInCapitalMember 2024-12-31 0001899287 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-12-31 0001899287 us-gaap:RetainedEarningsMember 2024-12-31 0001899287 ampx:AtMarketIssuanceSalesAgreementMember us-gaap:CommonStockMember 2025-01-01 2025-12-31 0001899287 ampx:AtMarketIssuanceSalesAgreementMember us-gaap:AdditionalPaidInCapitalMember 2025-01-01 2025-12-31 0001899287 ampx:AtMarketIssuanceSalesAgreementMember 2025-01-01 2025-12-31 0001899287 us-gaap:CommonStockMember 2025-01-01 2025-12-31 0001899287 us-gaap:AdditionalPaidInCapitalMember 2025-01-01 2025-12-31 0001899287 us-gaap:RetainedEarningsMember 2025-01-01 2025-12-31 0001899287 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2025-01-01 2025-12-31 0001899287 us-gaap:CommonStockMember 2025-12-31 0001899287 us-gaap:AdditionalPaidInCapitalMember 2025-12-31 0001899287 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2025-12-31 0001899287 us-gaap:RetainedEarningsMember 2025-12-31 0001899287 ampx:AmpriusHoldingsMember 2024-10-23 0001899287 ampx:EquityIncentivePlansMember us-gaap:EmployeeStockOptionMember 2025-01-01 2025-12-31 0001899287 ampx:EquityIncentivePlansMember us-gaap:RestrictedStockUnitsRSUMember 2025-01-01 2025-12-31 0001899287 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member 2025-12-31 0001899287 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member 2024-12-31 0001899287 ampx:CustomerOneMember us-gaap:CustomerConcentrationRiskMember us-gaap:AccountsReceivableMember 2025-01-01 2025-12-31 0001899287 ampx:CustomerTwoMember us-gaap:CustomerConcentrationRiskMember us-gaap:AccountsReceivableMember 2024-01-01 2024-12-31 0001899287 srt:MinimumMember ampx:ProductionEquipmentMember 2025-12-31 0001899287 srt:MaximumMember ampx:ProductionEquipmentMember 2025-12-31 0001899287 ampx:LaboratoryEquipmentMember 2025-12-31 0001899287 srt:MinimumMember us-gaap:FurnitureAndFixturesMember 2025-12-31 0001899287 srt:MaximumMember us-gaap:FurnitureAndFixturesMember 2025-12-31 0001899287 srt:NorthAmericaMember 2025-01-01 2025-12-31 0001899287 srt:NorthAmericaMember 2024-01-01 2024-12-31 0001899287 us-gaap:EMEAMember 2025-01-01 2025-12-31 0001899287 us-gaap:EMEAMember 2024-01-01 2024-12-31 0001899287 srt:AsiaPacificMember 2025-01-01 2025-12-31 0001899287 srt:AsiaPacificMember 2024-01-01 2024-12-31 0001899287 country:UA 2025-01-01 2025-12-31 0001899287 country:UA 2024-01-01 2024-12-31 0001899287 ampx:CustomerOneMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember 2025-01-01 2025-12-31 0001899287 ampx:CustomerOneMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember 2024-01-01 2024-12-31 0001899287 ampx:CustomerTwoMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember 2024-01-01 2024-12-31 0001899287 ampx:CustomerThreeMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember 2024-01-01 2024-12-31 0001899287 ampx:SaleOfBatteryProductsMember 2025-01-01 2025-12-31 0001899287 ampx:SaleOfBatteryProductsMember 2024-01-01 2024-12-31 0001899287 ampx:CustomizedDesignServicesMember 2025-01-01 2025-12-31 0001899287 ampx:CustomizedDesignServicesMember 2024-01-01 2024-12-31 0001899287 us-gaap:TransferredAtPointInTimeMember 2025-01-01 2025-12-31 0001899287 us-gaap:TransferredAtPointInTimeMember 2024-01-01 2024-12-31 0001899287 2024-01-01 0001899287 2023-01-01 0001899287 2026-01-01 2025-12-31 0001899287 ampx:ProductionEquipmentMember 2025-12-31 0001899287 ampx:ProductionEquipmentMember 2024-12-31 0001899287 ampx:LaboratoryEquipmentMember 2024-12-31 0001899287 us-gaap:LeaseholdImprovementsMember 2025-12-31 0001899287 us-gaap:LeaseholdImprovementsMember 2024-12-31 0001899287 us-gaap:FurnitureAndFixturesMember 2025-12-31 0001899287 us-gaap:FurnitureAndFixturesMember 2024-12-31 0001899287 us-gaap:ConstructionInProgressMember 2025-12-31 0001899287 us-gaap:ConstructionInProgressMember 2024-12-31 0001899287 us-gaap:ConstructionInProgressMember 2025-01-01 2025-12-31 0001899287 ampx:TwentyTwentyTwoEquityIncentivePlanMember 2025-12-31 0001899287 ampx:EquityIncentivePlansMember 2025-01-01 2025-12-31 0001899287 us-gaap:EmployeeStockOptionMember 2024-12-31 0001899287 us-gaap:EmployeeStockOptionMember 2024-01-01 2024-12-31 0001899287 us-gaap:EmployeeStockOptionMember 2025-01-01 2025-12-31 0001899287 us-gaap:EmployeeStockOptionMember 2025-12-31 0001899287 ampx:TwentyTwentyTwoEquityIncentivePlanMember 2025-01-01 2025-12-31 0001899287 ampx:TwentyTwentyTwoEquityIncentivePlanMember 2024-01-01 2024-12-31 0001899287 ampx:AmpriusHoldingsSecondEquityIncentivePlanMember us-gaap:EmployeeStockOptionMember 2025-01-01 2025-12-31 0001899287 ampx:EquityIncentivePlansMember 2024-01-01 2024-12-31 0001899287 us-gaap:RestrictedStockUnitsRSUMember 2024-12-31 0001899287 us-gaap:RestrictedStockUnitsRSUMember 2025-01-01 2025-12-31 0001899287 us-gaap:RestrictedStockUnitsRSUMember 2025-12-31 0001899287 us-gaap:RestrictedStockUnitsRSUMember 2024-01-01 2024-12-31 0001899287 ampx:TwentyTwentyTwoEmployeeStockPurchasePlanMember us-gaap:EmployeeStockMember 2025-12-31 0001899287 us-gaap:EmployeeStockMember srt:MaximumMember ampx:TwentyTwentyTwoEmployeeStockPurchasePlanMember 2025-01-01 2025-12-31 0001899287 ampx:TwentyTwentyTwoEmployeeStockPurchasePlanMember us-gaap:EmployeeStockMember 2025-01-01 2025-12-31 0001899287 ampx:ExecutiveIncentiveCompensationPlanMember 2025-01-01 2025-12-31 0001899287 ampx:PublicWarrantsMember 2024-12-31 0001899287 ampx:PrivateWarrantsMember 2024-12-31 0001899287 ampx:PIPEWarrantsMember 2024-12-31 0001899287 ampx:PublicWarrantsMember 2025-01-01 2025-12-31 0001899287 ampx:PrivateWarrantsMember 2025-01-01 2025-12-31 0001899287 ampx:PIPEWarrantsMember 2025-01-01 2025-12-31 0001899287 ampx:PublicWarrantsMember 2025-12-31 0001899287 ampx:PrivateWarrantsMember 2025-12-31 0001899287 ampx:PIPEWarrantsMember 2025-12-31 0001899287 2024-05-13 0001899287 ampx:PublicWarrantsMember 2024-05-13 2024-05-13 0001899287 ampx:PrivateWarrantsMember 2024-05-13 2024-05-13 0001899287 ampx:PrivateWarrantsMember us-gaap:CommonStockMember 2024-06-24 2024-06-24 0001899287 ampx:PrivateWarrantsMember 2025-10-01 2025-12-31 0001899287 ampx:PrivateWarrantsMember 2024-06-24 2024-06-24 0001899287 2022-03-01 0001899287 ampx:PublicWarrantsMember 2022-09-14 2022-09-14 0001899287 ampx:PIPEWarrantsMember 2022-09-14 0001899287 ampx:PIPEWarrantsMember 2022-09-14 2022-09-14 0001899287 ampx:AtMarketIssuanceSalesAgreementMember 2023-10-02 2023-10-02 0001899287 ampx:AtMarketIssuanceSalesAgreementMember 2023-10-02 2025-12-31 0001899287 ampx:AtMarketIssuanceSalesAgreementMember 2023-10-02 2025-09-30 0001899287 us-gaap:CostOfSalesMember 2025-01-01 2025-12-31 0001899287 us-gaap:CostOfSalesMember 2024-01-01 2024-12-31 0001899287 us-gaap:ResearchAndDevelopmentExpenseMember 2025-01-01 2025-12-31 0001899287 us-gaap:ResearchAndDevelopmentExpenseMember 2024-01-01 2024-12-31 0001899287 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2025-01-01 2025-12-31 0001899287 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2024-01-01 2024-12-31 0001899287 country:CN 2025-01-01 2025-12-31 0001899287 us-gaap:DomesticCountryMember ampx:PostDecemberThirtyOneTwoThousandAndSeventeenMember 2025-12-31 0001899287 us-gaap:DomesticCountryMember ampx:PreJanuaryOneTwoThousandAndEighteenMember 2025-12-31 0001899287 us-gaap:StateAndLocalJurisdictionMember 2025-12-31 0001899287 us-gaap:ForeignCountryMember 2025-12-31 0001899287 us-gaap:DomesticCountryMember 2025-12-31 0001899287 srt:MinimumMember ampx:FremontCaliforniaLeaseMember 2025-12-31 0001899287 srt:MaximumMember ampx:FremontCaliforniaLeaseMember 2025-12-31 0001899287 srt:MinimumMember ampx:BrightonColoradoMember 2025-12-31 0001899287 srt:MaximumMember ampx:BrightonColoradoMember 2025-12-31 0001899287 ampx:BrightonColoradoMember 2025-12-31 0001899287 ampx:BrightonColoradoMember 2025-12-19 2025-12-19 0001899287 us-gaap:FairValueInputsLevel3Member 2025-12-19 2025-12-19 0001899287 us-gaap:WarrantMember 2025-01-01 2025-12-31 0001899287 us-gaap:WarrantMember 2024-01-01 2024-12-31 0001899287 us-gaap:EmployeeStockOptionMember 2025-01-01 2025-12-31 0001899287 us-gaap:EmployeeStockOptionMember 2024-01-01 2024-12-31 0001899287 us-gaap:RestrictedStockUnitsRSUMember 2025-01-01 2025-12-31 0001899287 us-gaap:RestrictedStockUnitsRSUMember 2024-01-01 2024-12-31 0001899287 2023-04-30 0001899287 us-gaap:SubsequentEventMember 2026-01-30 0001899287 srt:ScenarioForecastMember us-gaap:SubsequentEventMember 2026-03-31 0001899287 srt:ScenarioForecastMember us-gaap:SubsequentEventMember 2026-01-01 2026-03-31 0001899287 2025-10-01 2025-12-31 +Table of Contents +Index to Consolidated Financial Statements +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +__________________________________ +FORM 10-K +__________________________________ +(Mark One) +x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , 2025 +OR +o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from ________ to ________ +Commission file number 001-41314 +__________________________________ +A MPRIUS T ECHNOLOGIES, I NC. +(Exact name of registrant as specified in its charter) +__________________________________ +Delaware +98-1591811 +(State or other jurisdiction of incorporation or organization) +(I.R.S. Employer Identification No.) +1180 Page Avenue , Fremont , California +94538 +(Address of Principal Executive Offices) +(Zip Code) +(800) 425-8803 +Registrant’s telephone number, including area code +__________________________________ +Securities registered pursuant to Section 12(b) of the Act: +Title of each class Trading Symbol(s) Name of each exchange on which registered +Common stock, $0.0001 par value AMPX The New York Stock Exchange +Redeemable warrants, each exercisable for one share of common stock at an exercise price of $11.50 AMPX.W The New York Stock Exchange +Securities registered pursuant to section 12(g) of the Act: None +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x +Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer o Accelerated filer o +Non-accelerated filer x Smaller reporting company x +Emerging growth company x +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. o +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x +The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, as of June 30, 2025 (the last business day of the registrant’s most recently completed second fiscal quarter), was approximately $ 518.4 million. Solely for purposes of this disclosure, shares of common stock held by executive officers and directors and by each person who owns 5% or more of the outstanding common stock as of such date have been excluded because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. +The registrant had 137,019,004 sh ares of common stock outstanding as of February 27, 2026. +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the registrant’s definitive proxy statement for its 2026 Annual Meeting of Stockholders (the “Proxy Statement”) to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, are incorporated by reference in Part III where indicated. Except with respect to information specifically incorporated by reference in this Annual Report, the Proxy Statement shall not be deemed to be filed as part hereof. +1 +Table of Contents +Index to Consolidated Financial Statements +Table of Contents +Page Number +Cautionary Note Regarding Forward-Looking Statements +4 +Part I +6 +Item 1. Business +6 +Item 1A. Risk Factors +17 +Item 1B. Unresolved Staff Comments +45 +Item 1C. Cybersecurity +45 +Item 2. Properties +46 +Item 3. Legal Proceedings +46 +Item 4. Mine Safety Disclosures +46 +Part II +47 +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +47 +Item 6. Reserved +47 +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +47 +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +57 +Item 8. Financial Statements and Supplementary Data +58 +Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures +85 +Item 9A. Controls and Procedures +85 +Item 9B. Other Information +85 +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +85 +Part III +87 +Item 10. Directors, Executive Officers and Corporate Governance +87 +Item 11. Executive Compensation +87 +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +87 +Item 13. Certain Relationships and Related Transactions, and Director Independence +87 +Item 14. Principal Accountant Fees and Services +87 +Part IV +88 +Item 15. Exhibit and Financial Statement Schedules +88 +Item 16. Form 10-K Summary +90 +Signatures +91 +3 +Table of Contents +Index to Consolidated Financial Statements +Cautionary Note Regarding Forward-Looking Statements +Certain statements in this Annual Report on Form 10-K of Amprius Technologies, Inc. (hereafter referred to as “Amprius,” the “Company,” “we,” “us,” or “our”) and in documents incorporated herein by reference may constitute “forward-looking statements” for purposes of the federal securities laws. Such forward-looking statements include, but are not limited to, statements regarding our expectations, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this Annual Report on Form 10-K may include, for example, statements about: +• our financial and business performance, including financial and business metrics; +• changes in our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects and plans; +• our ability to add manufacturing capacity and the costs and timing to add such capacity; +• the expected addressable market for our products; +• developments relating to our competitors and industry; +• our expectations regarding our ability to obtain and maintain intellectual property protection and not infringe on the rights of others; +• our future capital requirements and sources and uses of cash; +• our ability to obtain funding for our operations; and +• our business, expansion plans and opportunities. +These forward-looking statements are based on information available as of the date of this Annual Report on Form 10-K, including current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. +In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Annual Report on Form 10-K, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. +As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include: +• our ability to execute our business model and strategy, including expanding manufacturing capacity, developing production lines that meet our requirements and increasing the addressable market for our products and services; +• our ability to raise capital; +• the possibility that we may be adversely affected by economic, business or competitive factors, including supply chain interruptions and developments in alternative technologies, and may not be able to manage other risks and uncertainties; +• the outcome of any legal proceedings that may be instituted against us; +• changes in applicable laws or regulations; +• the effect of macroeconomic factors, such as tariffs, trade barriers, abrupt political change, geopolitics, currency fluctuations, embargoes, shortages, terrorist activity, armed conflict and public health emergencies, on our business; +4 +Table of Contents +Index to Consolidated Financial Statements +• risks related to any change in demand from existing customers; and +• other risks and uncertainties described in this Annual Report on Form 10-K, including risk factors discussed in Part I, Item 1A under the heading, “Risk Factors.” +5 +Table of Contents +Index to Consolidated Financial Statements +Part I +Item 1. Business +Overview +Amprius Technologies, Inc. develops, manufactures and markets lithium-ion batteries for mobility applications, including aviation, ground and marine vehicles. Our disruptive silicon anode technology is intended to enable batteries with high energy density, high power density and fast charging capabilities over a wide range of operating temperatures. This results in our batteries providing superior performance compared to conventional graphite lithium-ion batteries. Our silicon anodes are a direct drop-in replacement of the graphite anode in traditional lithium-ion batteries, and our manufacturing processes leverage the manufacturing processes for conventional lithium-ion batteries and the related supply chain. +Currently, our batteries are primarily used for existing and emerging aviation applications, including unmanned aerial systems or “UAS”, such as drones and high-altitude pseudo satellites or “HAPS”. We believe our proprietary technology has the potential for broad application in electric transportation. Our batteries and their performance specifications have been tested and validated for application by various customers, including AALTO Airbus, AeroVironment, BAE Systems, Kraus Hamdani Aerospace, Nokia Drone Networks, Nordic Wing, Teledyne FLIR and the U.S. Army. Our total customer engagements since inception grew to over 500 customers with shipments to hundreds of customers during the year ended December 31, 2025. In addition, from our inception through December 31, 2025, we have shipped over 4.2 million battery cells, which have enabled mission critical applications. Our proprietary silicon anode structures, battery cell designs and manufacturing processes are protected by our portfolio of patents, trade secrets and know-how developed over 15 years of research and development. +Our SiCore batteries were developed in collaboration with Berzelius (Nanjing) Co., Ltd. (“Berzelius”), a former affiliated company. We began limited shipment of SiCore batteries in 2023, which generated a strong demand from our customers. In order to support such demand, we entered into a supply agreement with Berzelius in November 2023 (the “Exclusive Supply Agreement”), which gives us exclusive rights to purchase its proprietary silicon anode materials in the United States, Canada and Mexico. In January 2024, we announced the full commercial launch of our SiCore batteries and accelerated engagement with our addressable markets. As of December 31, 2025, we had access, through our manufacturing supply agreements with our global contract manufacturers, including our participation in a consortium of South Korean companies that contribute capabilities across the lithium-ion battery value chain (the “Amprius Korea Battery Alliance”), to annual production exceeding 2.0 GWh of SiCore batteries in pouch, cylindrical and prismatic formats. These agreements provide us an opportunity to scale production and ship a large volume of SiCore batteries to our customers. +During 2025, we manufactured our SiMaxx batteries in our facility in Fremont, California. To support increased demand of our SiCore batteries, as of December 2025 and going forward into 2026, we are expanding this facility to increase the capacity of our pilot line to 10 MWh and expand our capabilities to support quick turn SiCore customer prototypes. This expansion is accelerated by a $14.8 million contract awarded to us in July 2025, as amended, through the U.S. Government Defense Innovation Unit (“DIU”). +In April 2023, we entered into a lease agreement to lease approximately 774,000 square feet of premises in Brighton, Colorado. As of December 31, 2025, due to larger industry dynamics, particularly our ability to access global contract manufacturing to rapidly service the demand from our customers, we recorded $19.1 million in impairment charges to the associated right-of-use asset and construction-in-progress to reflect our intention to terminate the lease of the Brighton facility. On January 30, 2026, we entered into an agreement with the lessor to terminate this lease in exchange for a one-time payment of $20.0 million. The termination of the lease will be reflected in our financial results in our fiscal first quarter of 2026. We believe that our outsource contract manufacturing strategy enables rapid capacity expansion with minimal capital investment. +History, Corporate Information and Website +We have been commercially producing batteries since 2018. +On September 14, 2022, we completed a business combination pursuant to a Business Combination Agreement, dated May 11, 2022, by and among Amprius Technologies Operating, Inc. (formerly known as Amprius Technologies, Inc. or “Legacy Amprius”), Kensington Capital Acquisition Corp. IV (“Kensington”), and Kensington Capital Merger Sub Corp. (a wholly owned subsidiary of Kensington or “Merger Sub”). The business combination was effected through the +6 +Table of Contents +Index to Consolidated Financial Statements +merger of Merger Sub with and into Legacy Amprius, with Legacy Amprius surviving as a wholly owned subsidiary of Kensington. Upon consummation of the business combination, Kensington changed its jurisdiction of incorporation by domesticating as a corporation incorporated under the laws of the State of Delaware and changed its name to “Amprius Technologies, Inc.” The business combination was treated as a reverse recapitalization for financial reporting purposes, whereby Legacy Amprius was determined as the “accounting acquirer” and Kensington as the “accounting acquiree.” I mmediately prior to the closing of the business combination, a number of private investors purchased from us an aggregate of 2,052,000 units at a price of $10.00 per share (such transaction, the “PIPE”), pursuant to separate subscription agreements. Each PIPE unit consisted of (i) one share of common stock and (ii) one warrant (each, a “PIPE warrant”) to purchase one share of common stock at an exercise price of $12.50 per share. Please refer to Note 7 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information about the PIPE warrants. +On October 23, 2024, our former majority stockholder and parent company, Amprius Holdings, which owned an aggregate of 65.2 million shares, or 58.6%, of our common stock at that time, voluntarily liquidated and dissolved. As a result of such liquidation and dissolution, Amprius Holdings distributed, on a pro rata basis, an aggregate of approximately 57.2 million shares of our common stock to its stockholders, and we assumed all of Amprius Holdings’ outstanding options to purchase shares of Amprius Holdings’ Class A common stock in exchange for, among other things, Amprius Holdings contributing to us a total of 5.5 million shares of our common stock that it owned, which were immediately cancelled and returned to our authorized but unissued share capital. +Our principal executive offices are located at 1180 Page Avenue, Fremont, California 94538, and our telephone number is (800) 425-8803. +Our website is www.amprius.com. We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission (the “SEC”). These reports and other information are also available, free of charge, at www.sec.gov . Information contained on, or that can be accessed through, the websites referenced in this Annual Report on Form 10-K are not a part of, and are not incorporated by reference into, this Annual Report on Form 10-K. +Industry Background +Traditional transportation has historically relied on fossil fuel-based internal combustion engines for propulsion which are considered to be significant contributors to greenhouse gas emissions. The growing emphasis on sustainable and resilient energy use in transportation is leading to increased capital investment, government incentives and commercial demand for the electrification of both passenger and payload mobility. This transition is particularly evident in the rapid advancement of UAS, commonly referred to as drones, as well as HAPS and electric vertical take-off and landing (“eVTOL”) aircraft. Beyond aerospace, the market is also experiencing robust growth in ground-based electric vehicles (“EVs”) and light electric vehicles (“LEVs”). Critical and breakthrough battery technologies are central to this shift, enabling mass adoption by improving energy density, accelerating fast charging capabilities, extending battery life, and enhancing safety. +Aviation Industry +Unmanned Aerial Systems: UAS are aircraft that operate with no crew or passengers onboard and are guided by remote control or autonomously. Examples of UAS include drones and HAPS. UAS are the next generation aerial transportation technology utilized for surveillance, assessment, logistics, delivery, communications, and imaging, among other uses. Leading batteries, such as Amprius’ silicon anode battery, offer lighter weight and/or more energy, potentially overcoming current battery technology barriers, enabling longer flight times and faster adoption of UAS. +Drones: Drones are the most common type of UAS and are increasingly being utilized across diverse industrial and government sectors, including military and defense, agricultural, energy and utilities, infrastructure and construction, logistics and delivery, and public safety. One of the key barriers to wider adoption is the existing battery technology, which limits the drones’ flight range and payload capacity. Our batteries offer higher energy density, which enables longer range endurance, and, depending on customer specifications, lighter weight, which facilitates higher payload capacity. Amprius offers advanced battery technology suitable for application in drones designs, including multi-rotor, single-rotor, fixed wing and hybrid VTOL. +High Altitude Pseudo Satellites: HAPS are alternatives for traditional satellites. When deployed, HAPS typically operate at stratospheric altitudes, approximately 12 miles (approximately 65,000 feet) above sea level. HAPS are +7 +Table of Contents +Index to Consolidated Financial Statements +increasingly utilized to provide high-quality broadcast features, particularly in remote regions, which have limited terrestrial network coverage. HAPS generally use solar energy and battery storage as the power source to operate for long durations of time. As a result, lightweight, higher energy density batteries with the ability to operate in extreme temperature and pressure conditions are critical enablers. Amprius offers advanced battery technology suitable for application in HAPS, which is currently in use by prominent aerospace companies, including AALTO Airbus and BAE Systems. +Electric Air Transportation : Population growth and urbanization are key megatrends that are stretching ground transportation infrastructure to its limits and resulting in significant greenhouse gas emissions. A potential mitigation strategy is expanding intracity and other short-distance travel into the air utilizing eVTOL vehicles, which include passenger aircraft that use electric power to hover, takeoff, and land vertically. Historically, the electrification of passenger and cargo aircraft has lagged the adoption of electric automobiles in part because of the greater technical challenges. However, over the last few years there have been significant advancements in key enabling technologies for eVTOL aircraft, including high energy density and robust performance batteries offered by Amprius. Continued improvements in battery energy density could allow eVTOL aircraft to increase their range, speed and payload, dramatically expanding the range of trips and further accelerating the adoption of electric air mobility. +Light Electric Vehicle Industry +The LEV market is expected to grow rapidly primarily due to the rising demand for electric two and three wheel vehicles. As this market grows, we expect an increase in demand for high-performance batteries across the LEV sector. We believe that the form factor and cost-competitiveness of our high-energy-density SiCore batteries can support such growing demand in the LEV sector. As of December 31, 2025 , we had access, through our manufacturing supply agreements with our global contract manufacturers, to annual production exceeding 2.0 GWh of SiCore batteries in pouch, cylindrical and prismatic formats . +Electric Vehicle Industry +The electrification of ground transportation is being accelerated by regulatory pressure to meet sustainability benchmarks and growing consumer preference. While multiple battery chemistries exist today that meet current EV specifications, we believe there is room for significant improvement. Our batteries have been tested and validated by the U.S. Advanced Battery Consortium (“USABC”), as further described below. They have the potential to help address both sustainability and preference concerns. We are not focused on the EV market today. However, we plan to improve our battery cycle life, cost and production quantity, to allow us to better compete with existing commercially available EV batteries in the future. +Battery Requirements for Electric Transportation +Current battery technology creates a barrier in the near-term for the electric transportation market, especially for electric air mobility applications, as battery weight, size and recharging times would need to be improved for these operations to become commercial. The battery system must fulfill several key requirements: +• high energy density and specific energy in order to achieve long range endurance while enabling lighter weight; +• high power density to provide sufficient power at a specific instance, such as during aircraft take-off or landing; +• fast charging capabilities to enable high infrastructure throughput; +• operational in wide temperature and pressure ranges; +• safe to operate in a wide variety of conditions; +• a long calendar life and cycle life; and +• acceptable cost, which varies by application. +Our Solution +Today’s batteries typically utilize graphite as the anode material. Based on management’s estimates, we believe that graphite anodes have reached their theoretical limits for energy storage. We estimate that lithium-ion batteries with graphite anodes have an upper limit capacity of 355 mAh/g. We believe additional increases in the energy density for lithium-ion batteries may be achieved by using active anode materials that have a higher capacity for lithium storage. Among such active materials, silicon is known to have the highest lithium storage capacity per unit mass or volume over any other element besides lithium itself. +8 +Table of Contents +Index to Consolidated Financial Statements +Our batteries have replaced the graphite anode with a highly engineered silicon material that has a lithium storage capacity of approximately up to 3,400 mAh/g, nearly 10 times the highest capacity of known graphite anodes. By replacing graphite with silicon in the anode, we have significantly enhanced performance in batteries across energy density, power, charging time and ability to operate in extreme environments. +Our Competitive Strengths +SiCore and SiMaxx performance greatly exceeds conventional lithium-ion batteries commercially available today. We believe that our battery cells significantly outperform commercially available conventional graphite battery cells. As shown in the table below, as of December 31, 2025 , our batteries have approximately up to double the specific energy and energy density of graphite battery cells, and enable significantly faster charging time. We believe other next-generation battery technologies will require significant additional research, development and investment prior to being commercially viable. +(1) Other than cycle life, based on a survey of 18650 technical datasheets (e.g., Panasonic NCR18650G), Sony VTC6 technical datasheet, iFixit reports on iPhone and Samsung batteries, and Y. Sun et al: Li-ion Battery Reliability – A Case Study of the Apple iPhone. For cycle life, based on Shmuel De-Leon: Li-Ion NCA/NMC Cylindrical Hard Case Cells Market 2021. Includes both released and unreleased SiMaxx and SiCore battery cells with high-energy, high-power, and balanced cell designs. +Unique suitability for aviation markets that require high power, specific energy and energy density. We believe the increased performance of our batteries enable certain electric aviation applications. For example, our batteries have high specific energy and energy density to maximize payload and reduce weight, thereby extending flight radius; high power density, to enable vertical take-off and landing functionality; fast charge, to minimize the time required to recharge a battery; wide operating temperature, for high altitude applications operating in extremely low temperatures; and cycle life parity with graphite batteries, depending on customer specifications. +In January 2025, we announced the expansion of our SiCore product platform with a SiCore battery cell that provides energy density of 360 Wh/kg, extending runtimes while still exceeding 3,000 W/kg, with discharge rates of up to 10C without cooling and 15C with active cooling. This SiCore battery cell ensures quick power delivery without compromising runtime, which makes it ideal for aviation applications, including drones and high-performance electric mobility applications that require both endurance and rapid energy delivery. +In March 2023, we unveiled a prototype battery cell that delivers an energy density of >500 Wh/kg and >1,300 Wh/L at 25°C. The performance of this battery cell was verified by a leading testing house offering comprehensive battery regulatory compliance, safety and performance testing. At approximately half the weight and volume compared to other existing state-of-the-art, commercially available lithium-ion cells, we believe that this type of battery will deliver a potential industry-disrupting performance. As of December 31, 2025, this SiMaxx battery was in the development stage. +We will continue to develop next-generation battery cells, and we believe that when they become commercially available, those battery cells will have the potential to expand boundaries for our customers and provide a tailored solution for applications that require extended range and heightened discharge times without compromising key features, such as aircraft payload, and without having to increase vehicle weight. +9 +Table of Contents +Index to Consolidated Financial Statements +First mover advantage in emerging aviation markets. As a result of our success with AALTO Airbus, Nokia Drone Networks, and other tier-one customers, we have become an established market pioneer in providing high performance batteries to the aviation industry. Our reputation and commitment to delivering ultra-high performance batteries have enabled us to enter into several development and master supply arrangements with our customers. From our inception through December 31, 2025, over 500 customers had tested and validated our SiCore and SiMaxx batteries for their applications, and we believe our market leadership in aviation will enable us to continue to grow our customer base. +Proven performance in demanding and abuse-tested environments. Safety is recognized as one of the most important factors of lithium-ion battery technology. Our silicon anodes operate at a voltage that is at least 100 mV higher than that of graphite anodes, which not only enables faster charging but also cell operation at lower temperatures, thereby improving cell safety and mitigating the risk of overcharging. Our batteries are also designed to be ultra-resilient and undergo rigorous abuse testing, including air cargo certification and specific tests for defense applications. +For example, in December 2022, an independent third-party testing lab validated that our SiMaxx 390 Wh/kg polymer electrolyte cell successfully passed the nail penetration test per the requirements of section 4.7.4.4. of the MIL-PRF-32383 (Military Performance Specification). The test is used to determine the feasibility of a specific product in combat scenarios. Cells tested in accordance with section 4.7.4.4. should not burn or explode, and the external temperature of each test sample should not be greater than 338 degrees Fahrenheit (170 degrees Celsius) when penetrated by sharp objects. When conducting the test, a 0.113-inch diameter stainless steel nail is driven through a fully charged cell at a prescribed speed. The cell is deemed to have passed if there is no smoke or flame following the nail penetration. In our fiscal fourth quarter of 2025, we delivered these cells to one of our partners for integration testing in military batteries. +Robust IP portfolio and know-how related to our silicon anode ecosystem. Our silicon anode technology has been refined and improved upon for over 15 years , and is protected by over 80 patents that were issued to us or are pending applications as of December 31, 2025 . Core aspects of our technologies and processes are also protected by know-how and trade secrets developed by our team for over 15 years . +Our Products and Customers +As evidenced by customer validation, design wins and recurring orders with AALTO Airbus, AeroVironment, BAE Systems, Kraus Hamdani Aerospace, Nokia Drone Networks, Nordic Wing, Teledyne FLIR and the U.S. Army, among others, our battery technology is well positioned to address the rapidly growing markets within the aviation industry, specifically UAS and eVTOL, and LEVs. UAS and eVTOL applications have historically used conventional lithium-ion batteries as a means to promote product prototypes, but market participants are seeking advancements in battery technology. We believe that our silicon anode technology can be part of the solution. We sell to customers located inside and outside the United States, and a significant portion of our sales are to customers located in Europe. While we continue expanding and diversifying our customer base, during the year ended December 31, 2025, one customer represented $27.1 million of our total revenue. +We currently offer high performance batteries under our silicon anode platform to supply the aviation, ground and marine vehicle industries. +SiCore Product Platform +Our SiCore batteries, which were developed in collaboration with Berzelius and launched commercially in January 2024, are based on an innovative, proprietary silicon anode material system delivering high-energy-density silicon anode batteries that surpass current state-of-the-art graphite cell performance. The silicon anode cell chemistry in our SiCore batteries is designed to offer high energy density, up to 450 Wh/kg, and long cycle life, as long as 1,400 cycles. Our SiCore battery cell chemistry may be combined with other materials, such as binders and conductive agents, including graphite, to meet performance specifications. +We offer our SiCore batteries with the following design and performance factors: Energy, Power and Balanced Energy/Power. +Energy . This design of SiCore battery cell delivers a specific energy of up to 450 Wh/kg or 950 Wh/L at a maximum discharge rate of up to 1C and a cycle life of up to 150 cycles at full depth of discharge. +Power . This design of SiCore battery cell delivers a specific energy of up to 360 Wh/kg or 800 Wh/L at a maximum discharge rate of up to 10C and a cycle life of up to 200 cycles at full depth of discharge. +10 +Table of Contents +Index to Consolidated Financial Statements +Balanced Energy/Power . This design of SiCore battery cell delivers a specific energy of up to 340 Wh/kg or 770 Wh/L at a maximum discharge rate of up to 3C, and a cycle life of up to 700 cycles at full depth of discharge or 1,000 cycles at approximately 90% depth of discharge. +Our SiCore batteries have been validated across various applications in the electric mobility market, and since our commercial launch in January 2024, they have garnered positive feedback from customers with demanding performance requirements. Our SiCore battery chemistries are applied into a wide range of form factors, including pouch, cylindrical and prismatic cells. The cylindrical cell form factors offer balanced energy and power capabilities providing an industry leading capacity of 4Ah in 18650 format and 6.5 Ah in 21700 format, and a cycle life of up to 500 cycles. +As of December 31, 2025, we had access, through our manufacturing supply agreements with our global contract manufacturers, to annual production exceeding 2.0 GWh of SiCore batteries in pouch, cylindrical and prismatic formats. +EV capable Products +We are also currently developing an EV capable cell. Competition in the EV industry is intense, with high production volume requirements, low pricing, and balanced performance criteria, creating a high barrier to entry against the incumbent solutions. Prior to us being able to effectively compete in the EV space, we will need to further improve cycle life, increase production quantity, and reduce our costs. +Since 2017, we have been sampling our batteries with USABC, which had independently verified that we have met or exceeded the majority of their 2025 EV cell performance goals, including usable energy density, usable specific energy, power density and charge time. +In November 2024, we shipped to USABC our SiMaxx A-Sample EV cells. Our testing of SiMaxx A-Sample EV cells showed that the cells can achieve a specific energy of 360 Wh/kg at the beginning of life, which surpassed USABC’s target of 275 Wh/kg at end of life, and deliver a power density of 1,200 W/kg. The SiMaxx A-Sample EV cells can charge up to 90% of their rated energy in just 15 minutes, which exceeds USABC’s target of 80% within the same timeframe. +Our Technology +SiCore Generation 2 Cells +Our SiCore batteries are based on an innovative, proprietary silicon anode material system, delivering batteries with high-energy-density, high discharge rates, and long cycle life. Developed in collaboration with Berzelius, the anode in our SiCore batteries have a unique bottom-up structure with an ultra-fine silicon nanostructure interior and multilayer surface protection. This silicon anode technology may also be combined with other active materials, such as binders and conductive agents, including graphite. The particle type of our SiCore anode materials can be processed in the same equipment and environment as graphite anode materials, offering a drop-in replacement of graphite materials and fast transfer to manufacturing of our SiCore cell designs. Due to their robust structure, our SiCore materials can be pressed into high density and thin electrodes, a precondition for high energy density and fast charge capability. +SiMaxx Generation 1 Cells +Our proprietary SiMaxx silicon anode technologies solve for the inherent limitations of silicon anodes in lithium-ion cells. Silicon has historically been investigated as an anode material due to its intrinsic capability to store larger quantities of lithium per unit mass and volume compared to graphite. The main barrier preventing silicon from becoming more widely adopted across the battery industry is that the silicon material expands during charging as it absorbs lithium ions. For example, silicon particles may expand up to 300% during charging. After multiple charge and discharge cycles, silicon particles may crack, causing anode degradation and device breakdown. +Our proprietary SiMaxx silicon anode technology is designed to accommodate for the material expansion inherent in silicon. Our nanowire anodes start with a metal foil that is layered with a nanowire template and metallurgically attached to the metal foil substrate by a growth process. The nanowire template is coated with a low-density silicon and then encased by a thin layer of high-density silicon. +SiMaxx silicon anodes generally contain more than 1,000,000 nanowires per square centimeter. The nano-porosity of the low-density layer of silicon on each nanowire and the micro-porosity between the wires in our technology allows the silicon to expand at nano- and micro- meter levels when the anode is charged, with little to no damage to the anode. +11 +Table of Contents +Index to Consolidated Financial Statements +Our SiMaxx anode structure enables ions and electrons to travel in a straight path between and through the nanowires. In contrast, a particle structure results in ions and electrons traveling in a nonlinear, tortuous path. The straight path of our anode facilitates high electric and ionic conductivity, enabling high power and fast charging. Nanowires are always in electrical contact with the metal foil due to their growth rooted fabrication, while particles have to rely on particle-to-particle contact for electron transfer, which can easily be broken during cycling. +Our SiMaxx silicon anodes are considered 100% silicon based on their actual silicon content, which ranges from 99.5% to 99.9% and meets the acceptable purity standards for classification 100%. +As of December 31, 2025, most of our customers have transitioned to SiCore Generation 2 cells from SiMaxx Generation 1 cells. +Product Portfolio +Amprius offers commercially available batteries with the following design and performance factors: High Energy, High Power, and Balanced Energy/Power. +High Energy . Our high energy battery cells are designed to maximize specific energy for applications with low power requirements. For applications that have a continuous discharge rate of less than 2C, these battery cells deliver a specific energy of up to 450 Wh/kg or 950 Wh/L at a discharge rate up to 1C. Amprius high energy SiCore cells are most frequently used by HAPS, which are designed to carry a payload at high altitudes for extended periods, typically for weeks or months at a time, as they rely on solar power for operations during the day and need to store sufficient energy in the battery to keep the aircraft aloft during the night. +Our high energy battery cells have powered AALTO Airbus’ Zephyr S stratospheric vehicle to numerous records since 2018. The Zephyr S is designed to fly for months at a time, at an altitude of approximately 70,000 feet. After integrating our battery cells into the Zephyr S, AALTO Airbus set endurance and altitude records by flying continuously for over 25 days in 2018 and 67 days in 2025. Airbus presented us with the 2021 Innovative Supplier of the Year Award. +High Power . Our high power SiCore cells are designed for applications that place a premium on power. These high power battery cells offer up to 360 Wh/kg and 800 Wh/L energy density with up to 10C continuous discharge capability. This performance is well suited for the air transportation industry, which requires high power capabilities to lift the aircraft from the ground into the air. In addition, our high power battery cells are capable of fast charging, from 0% to 80% in less than 6 minutes. This level of power capability, energy density, and fast charge capability is optimal for urban air mobility and other air transportation industry applications. Once the vehicle has landed, the turnaround time to get the vehicle back into the air becomes critical, which is why we believe customers value our high power batteries with fast charge capabilities. +Since 2021, we have engaged in technical evaluations with certain tier-one eVTOL manufacturers to develop an eVTOL-optimized battery system to support the development and commercialization of their eVTOL fleet. We plan to continue expanding our technical evaluation engagements with other eVTOL manufacturers as the eVTOL market grows. +Balanced Energy/Power . We designed our balanced energy/power battery cells for applications that require a balance between power and energy. These battery cells offer energy density as high as 340 Wh/kg or 770 Wh/L at up to 3C discharge rate. This range of power capability is important to customers in the UAS sector. Our balanced energy/power battery cells typically meet the requirements of UAS devices’ needs for high initial power, as well as higher energy requirements for longer sustained cruising. +With commercial shipments since 2022, our balanced energy/power battery cells have been designed to accomodate UAS programs at AeroVironment and Teledyne FLIR, with recent customer additions including Nokia Drone Networks, Nordic Wing and ESAero. +Manufacturing and Supply +As of December 31, 2025, we produce SiCore batteries through our manufacturing supply agreements with global contract manufacturers. In order to meet the increased demand for our SiCore batteries, we are planning to expand our contract manufacturing partnerships globally. Some of the challenges that we may encounter when we enter into a manufacturing supply arrangement include, among others, supply chain risks, risk of losing control over the manufacturing process of our SiCore batteries, which could lead to quality control issues, delay in production, increase in production costs, and non-compliance with our established standards. In addition, we may encounter a risk of losing control of some of +12 +Table of Contents +Index to Consolidated Financial Statements +our intellectual property. While we plan to set up business processes, including adding oversight and quality control procedures, in order to manage our contract manufacturing supply arrangements, there can be no assurance that such processes will be effective. As of December 31, 2025, we had access, through our manufacturing supply agreements with our global contract manufacturers, including the Amprius Korea Battery Alliance, to annual production exceeding 2.0 GWh of SiCore batteries in pouch, cylindrical and prismatic formats. For more information, see the section titled "Risk Factors" below. +We plan to partner with other contract manufacturers in the future, and we plan to select large, experienced and reputable contract manufacturing companies. In January 2026, we announced our first partnership with a United States contract manufacturer, Nanotech Energy, located in California. +Our Growth Strategy +Our goal is to become the market leader in high performance lithium-ion batteries. In order to achieve that goal, we are pursuing the following growth strategies: +Leverage existing contract manufacturing capacity to produce SiCore batteries. We believe that our existing Exclusive Supply Agreement with Berzelius, which gives us exclusive rights to purchase Berzelius’ proprietary silicon anode materials in the United States, Canada and Mexico, and our existing manufacturing supply agreements with global contract manufacturers will allow us to continue supporting the increasing demand for our SiCore batteries. As of December 31, 2025, we had access, through our manufacturing supply agreements with our global contract manufacturers, including the Amprius Korea Battery Alliance, to annual production exceeding 2.0 GWh of SiCore batteries in pouch, cylindrical and prismatic formats. +Expanding existing manufacturing facility to meet increase in demand and optimize costs. Although we had access to annual production exceeding 2.0 GWh of SiCore batteries in pouch, cylindrical and prismatic formats through our existing manufacturing supply agreements with our global contract manufacturers as of December 31, 2025, we believe that expanding our existing manufacturing facility would help us grow our customer base and optimize costs in the long-term. We are currently transitioning our kWh-scale manufacturing line for our SiMaxx batteries at our facility in Fremont, California to a 10 MWh-scale SiCore pilot line, accelerated by our contract with the DIU. +Extend first-mover advantage to become the market leader in lithium-ion batteries for aviation. We believe we are the leading company in the market today with a high-performance battery that can meet the requirements of aviation applications. We have built a strong reputation in the industry by delivering ultra-high performance batteries with high safety standards that meet or exceed industry standards and customer requirements. We expect to extend our presence in the aviation market, while also serving other transportation-related markets that require improvements in their electrification solutions. From our inception through December 31, 2025, over 500 customers had tested and validated our batteries for their applications. +Further improve performance characteristics of our anode and battery cells . We believe we have the highest-performing commercially available batteries in the market. We intend to maintain our performance advantage by continuing to invest in our anode and cathode chemistries. We expect to continue to increase the performance characteristics of our batteries, particularly around power, energy density and cycle life. We believe our next-generation cells, when commercially available, will have the potential to expand boundaries for our customers and provide a tailored solution for applications that require longer discharge times without compromising key features, such as payload and vehicle weight. We plan to continue to invest in optimizing combinations of these performance characteristics as well as the requisite form factors to meet the specific needs of our customers and drive adoption of our battery cells in other areas of electrified transportation. As a result of these efforts, our goal is to fully realize the benefits of our silicon anode technology and remain a developer of industry-leading batteries. +Expand our end markets and applications . As we increase our production capabilities and partnerships with global contract manufacturers, we will be able to supply our batteries in larger volumes to fulfill our customers’ battery prototyping and procurement requirements. Our current customer base consists primarily of aviation and other air transportation companies as well as LEV’s. We believe the batteries we have developed for the aviation industries can be adapted for larger form factors to meet the energy density and fast-charge requirements of the EV market once we are able to improve the cycle life, increase form factors, reduce cost and improve production quantity for our EV capable battery cells. +13 +Table of Contents +Index to Consolidated Financial Statements +Research and Development +Our original silicon anode technology was developed at Stanford University in 2008. For over 15 years , we have refined and improved upon the technology for use in commercial applications. We have conducted research and development initiatives focused on improving performance characteristics and expanding the applications of our silicon anode battery technology. We expect to continue our research and development efforts in the following areas: +• Improving battery life. We are working with chemical compounds as potential additives to improve cycle life without negatively impacting other performance characteristics such as energy density. +• Further improvements to energy density . We are engaged in ongoing development activities to explore different cathode materials, including a conversion cathode, to further improve the energy density of our batteries. +• Advanced cell chemistries and designs. We have developed advanced battery cell designs tailored to respond to our customers’ requirements for high performance, including extreme high power and fast charge performance, safety, wide operating temperature range, and calendar life. Our proprietary electrolyte formulations enhance operations at high voltage and high temperature. +• Larger cell form factors . The batteries we have developed and are developing for our customers are typically approximately up to 15Ah for small-sized aircraft. As we expand our customer base, we are in the process of developing larger form factor batteries, up to 70 Ah, for broader aviation applications as well as LEV and EV customers. +We utilize our research and development capabilities to improve existing products and build custom batteries for our customers. We typically structure these customer programs such that we receive revenue from our design services as well as from our initial sample cells. +Intellectual Property +Our proprietary silicon anode technologies, including the related processes, design and manufacturing, are protected by our patent portfolio and know-how and trade secrets. +As of December 31, 2025, we had a total of 86 patents, which consisted of : +• 74 patents issued to us (35 patents issued in the United States and a total of 39 patents issued in the European Union, Korea, Japan, China, Taiwan and Israel) with expiration periods ranging between 2030 and 2039 ; +• 10 patent applications that are pending (2 patent applications in the United States and a total of 8 patent applications in the European Union, Korea, Japan, China and Taiwan); and +• 2 U.S. patents licensed from Stanford University. +Our patents cover the following: +• Silicon structures – rooted nanowire template, tapered morphology, silicon dopants and multi-layered structure; +• Materials technologies – solid electrolyte interphase formation, electrolyte formulations and scalable prelithiation; and +• Silicon anode manufacturing processes, design and equipment. +As of December 31, 2025, we also held a total of 10 registered trademarks that were issued to us, which consisted of 2 trademarks issued in the United States and a total of 8 trademarks issued in the European Union, Great Britain, Japan, Korea and China. +We rely on non-disclosure agreements with employees, independent contractors, customers and other third parties to protect our intellectual property and proprietary rights. +Circumstances outside our control could pose a threat to our intellectual property rights. For more information, see the section titled “Risk Factors” below. +Competition +We compete directly and indirectly with current battery manufacturers and with an increasing number of companies that are developing new battery technologies and chemistries to address the growing market for electrified mobility +14 +Table of Contents +Index to Consolidated Financial Statements +solutions. Specifically, within the aviation markets, we primarily compete with conventional graphite anode batteries and silicon and silicon composite anode batteries. +Graphite anode battery companies include tier-one manufacturers such as Amperex Technology Limited (ATL), Contemporary Amperex Technology Co., Limited (CATL), E-One Moli Energy Corp., LG Energy Solution, Murata Manufacturing Co., Ltd., Panasonic Industry Co., Ltd., and Samsung SDI Co., Ltd., which provide high quality and high performance solutions, and tier-two manufacturers which tend to provide lower cost solutions. We expect the manufacturers of those batteries will continue to invest in improving the capabilities of their batteries. +Companies making or developing silicon composite anodes or materials include both large manufacturers as well as many well-funded new technology companies. These include Berzelius, BTR New Energy Material Ltd., Enevate Corporation, Enovix Corporation, Group 14 Technologies, Inc., Nexeon Ltd., Shanshan Corporation, Sila Nanotechnologies Inc., and Storedot Ltd. Silicon composite anodes may offer higher energy density and other improvements over conventional graphite anodes, and may be less expensive to manufacture than our SiCore products. +For aviation applications, we believe that the defining characteristics of our battery cells make our silicon anode technologies the only battery solutions currently available and suitable for broad aviation adoption. These characteristics of industry-leading specific energy and energy density, high power density, low operating temperature and fast charge capability, in addition to commercial validation, significantly differentiates us from graphite anode and silicon composite anode alternatives. However, we expect additional competitors to enter the market as their battery technologies continue to improve. +The EV and LEV battery industries are fast-growing and highly competitive. Unlike the aviation industry, where there are a limited number of commercially available batteries that meet the minimum performance specifications, there are many battery manufacturers in the EV and LEV industries that can produce commercially acceptable batteries, and they may be able to produce those batteries at lower cost and higher volumes than we are currently able to. Future entrants may include companies developing different and less mature technologies, including lithium metal anodes and solid state batteries. In order to effectively compete, we will need to further improve our batteries’ life cycles, increase their form factors, increase their production quantity, and reduce production costs. +Many of our competitors and potential future entrants, both in the aviation, EV and LEV industries, may be better capitalized and have greater resources to commercialize and expand their production capacities. These competitors may have greater access to customers and may be able to establish cooperative or strategic relationships amongst themselves or with third parties that may further enhance their resources and competitive positioning. If there are significant advances in battery chemistries that we cannot adapt, or if competitors are able to scale their production capacities before we are able to, our business may be materially impacted. For more information, see the section titled “Risk Factors” below. +Government Regulation and Compliance +Our business activities are global and are subject to various federal, state, local, and foreign laws, rules and regulations. For example, there are various government regulations pertaining to battery safety, transportation of batteries, use of batteries in vehicles, factory safety, and disposal of hazardous materials. +In many cases, our products are or may in the future be subject to trade and export control laws and regulations in the United States and other jurisdictions where we do business. Such laws include the Export Administration Regulations, trade and economic sanctions maintained by the Office of Foreign Asset Control as well as foreign direct investment rules and regulations, tariffs and quotas, and other related regulations in jurisdictions in which we operate, and we may in the future be subject to other laws and regulations, such as the International Traffic in Arms Regulations, among others. In particular, the export or re-export of our products and technology to certain countries or end-users or for certain end-uses in some cases requires an export license or may be prohibited. Additionally, we may be required to register with the Directorate of Defense Trade Controls in order to conduct some aspects of our future business activities and we may be required to obtain licenses in order to conduct development activities. Obtaining the necessary export license for a particular sale or offering or business activity may not be possible or may be time-consuming and may result in the delay or loss of sales opportunities. Any failure to adequately address these legal obligations could result in civil fines or suspension or loss of our export privileges, any of which could materially adversely affect our business, financial condition, and results of operations. +Our business is subject to the Foreign Corrupt Practices Act and other anti-corruption, anti-bribery, and anti-money laundering laws and regulations in the jurisdictions in which we have offices or do business, both domestic and abroad. Any failure to adequately comply with any of these obligations, or future changes with respect to any of these legal +15 +Table of Contents +Index to Consolidated Financial Statements +regimes, could cause us to incur significant costs, including the potential for new overhead costs, fines, sanctions, and third-party claims. +As a government contractor and/or subcontractor, we must comply with laws, regulations, and contractual provisions relating to the formation, administration, and performance of government contracts and grants, which affect how we and our partners do business with government agencies. Government contracts often contain provisions and are subject to laws and regulations that provide government customers with additional rights and remedies not typically found in commercial contracts. Ensuring compliance with government contracting laws, regulations, or contractual provisions may impose other added costs on our business, and failure to comply with these or other applicable regulations and requirements could lead to claims for damages, civil or criminal penalties, termination of contracts and/or suspension or debarment from obtaining government contracts and grants. Any such damages, penalties, disruption, or limitation in our ability to do business with a government could have a material adverse effect on our business, results of operations, financial condition, public perception and growth prospects. +In addition, recent regulatory developments in China have introduced new export controls on certain lithium-ion batteries, the materials used in their production, and related manufacturing equipment and technologies. Enforcement of these controls has been suspended until at least November 2026, pending the outcome of further negotiations between United States and China. These measures, once they are enforced, could affect our partners and suppliers, disrupt our supply chain, increase costs, or require us to diversify our supply chain. +Furthermore, our operations and growth prospects may be impacted by the National Defense Authorization Act ("NDAA"), which includes regulations to be implemented in the future which are aimed at securing the United States defense industrial base and domestic supply chains. Specifically, the latest NDAA and related measures will, in the future, prohibit the Department of Defense from procuring certain advanced batteries and battery components that are sourced, produced, or refined by "foreign entities of concern." Pursuant to our program with the DIU, we are required to secure future sources or qualify individual lithium-ion battery components from NDAA compliant suppliers. We may not be successful in sourcing such components or identifying compliant suppliers who can meet our technical specifications and cost targets. Our inability to qualify compliant components at an acceptable cost could jeopardize opportunities with government agencies and government contractors, as well as our standing under the DIU program, or our business, financial condition, results of operations and prospects could be negatively affected. +For more information, see the section titled “Risk Factors—Risks Related to Litigation and Regulatory Compliance.” +Human Capital +We believe that our success is driven by our team of technology innovators and experienced business leaders. We also believe that our employees are the foundation for developing and commercializing our silicon anode technology. Many on our leadership team have been with us for over a decade. We seek to hire and develop individuals who are dedicated to our strategic mission. +As of December 31, 2025, our total headcount was 109 , which consisted of 97 full-time employees and 12 temporary hires and contractors. Our employees are primarily located in our headquarters in Fremont, California. +As of December 31, 2025, a total of 27 full-time employees worked in research and development (“R&D”) and a total of 45 full-time employees worked in manufacturing. Certain employees in the R&D and manufacturing departments hold a Ph.D. or an advanced degree in material science, chemical, aerospace, structural and nanoscale engineering, physics or chemistry. +We are committed to maintaining equitable compensation programs including equity participation. In order to attract or retain team members capable of making exceptional contributions to our success, we offer market-competitive salaries and strong equity compensation. Our compensation decisions are guided by the external market, role criticality and the contributions of each team member. +To date, we have not experienced any work stoppages and we consider our relationship with our employees to be good. None of our employees are either represented by a labor union or subject to a collective bargaining agreement. +16 +Table of Contents +Index to Consolidated Financial Statements +Item 1A. Risk Factors +Investing in our securities involves a high degree of risk. Before making an investment decision, you should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. Our business, financial condition, results of operations or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material. If any of the risks actually occur, our business, financial condition, results of operations and prospects could be adversely affected. In that event, the market price of our securities could decline, and you could lose part or all of your investment. +Summary of Risk Factors +Certain of the material risks that we face include: +• If our batteries fail to perform as expected, our ability to develop, market and sell our batteries would be adversely affected. +• Our primary reliance on third parties to manufacture our batteries or battery materials subjects us to certain risks. +• We may not succeed in expanding our manufacturing capacity or developing production lines that meet our requirements for quality, yield, and throughput. Additionally, our reliance on third-party partners and requirements to source National Defense Authorization Act (NDAA)-compliant components at acceptable cost targets may result in significant delays, increased capital expenditures, or operational inefficiencies. +• We may not meet our manufacturing cost targets, which would limit the size of our market opportunities. +• We rely on, and will continue to rely on, complex equipment for our operations, and production involves a significant degree of risk and uncertainty in terms of operational performance and costs. +• We may not succeed in retaining and attracting key employees, particularly technical talent, needed to operate and build our business successfully. +• We have pursued new product platforms and expanded our product portfolio. We may expend our limited resources to pursue a particular product and fail to capitalize on products that may be more profitable or for which there is a greater likelihood of success. +• We may encounter delays and technical obstacles in developing new battery products such as different cell formats to meet varied market requirements. +• Certain components of our batteries are hazardous and pose safety risks that may cause accidents in our manufacturing facility. +• We may be subject to financial and reputational risks due to product recalls and product liability claims, and we could face substantial liabilities that exceed our resources. +• We may not be able to accurately estimate the future supply and demand for our batteries, which could result in a variety of inefficiencies in our business and hinder our ability to generate revenue. If we fail to accurately predict our manufacturing requirements, we could incur additional costs or experience delays. +• We may not be able to establish supply relationships for necessary finished batteries, materials, components or equipment or may be required to pay more than anticipated for components or equipment, which could negatively impact our business. +• The battery market is intensely competitive. Competitors include new entrants and established companies, many of which have significantly greater resources than us. +• Our future sales opportunities depend in part on the growth of markets for battery-powered applications. These applications may develop slower or at a size that is less than expected, to the extent they develop at all. +• Developments in alternative technology or other fossil fuel alternatives may adversely affect the demand for our battery products. +• We have pursued and may continue to pursue development agreements and other strategic alliances, which could have an adverse impact on our business if they are unsuccessful. +17 +Table of Contents +Index to Consolidated Financial Statements +• If our customers choose to reduce purchases, or do not purchase at all, batteries manufactured outside of the United States, our revenue could decline and our prospects may be adversely affected. +• We may require additional capital to support business growth, and this capital might not be available on commercially reasonable terms or at all. +• We are an early-stage company with a history of financial losses and expect to incur significant expenses and continuing losses for the foreseeable future. +• We are obligated to develop and maintain proper and effective internal control over financial reporting. If we are unable to develop and maintain an effective system of internal controls and procedures required by Section 404 of the Sarbanes-Oxley Act, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us and materially and adversely affect our stock price, business and operating results. +• We have customers from the public sector, and our failure to receive and maintain government contracts or changes in the contracting or fiscal policies of the public sector could have a material adverse effect on our business. +• We rely heavily on our intellectual property portfolio. If we are unable to protect our intellectual property rights, our business and competitive position would be harmed. +• We may need to defend ourselves against intellectual property infringement claims, which may be time-consuming and could cause us to incur substantial costs. +• Our operations expose us to litigation, environmental and other legal compliance risks. Compliance with laws and regulations can be expensive, and our failure to comply with these laws and regulations may result in monetary damages and fines, adverse publicity and a material adverse effect on our business. +• We are or will be subject to anti-corruption and anti-bribery and anti-money laundering and similar laws, and non-compliance with such laws can subject us to administrative, civil and criminal fines and penalties, collateral consequences, remedial measures and legal expenses, all of which could adversely affect our business, results of operations, financial condition and reputation. +• Recent and potential tariffs imposed by the United States government or a global trade war has and could continue to increase the cost of our products, which could have a material adverse effect on our business, financial condition and results of operations. +• Our reliance on suppliers in foreign countries, including China, subjects us to risks and uncertainties relating to foreign laws and regulations and changes in relations between the United States and such foreign countries. +• Any change in demand by existing customers, including customers representing a significant amount of our sales, could decrease our revenue and our results of operations would be adversely affected. +• A significant portion of our sales are to customers who are located outside of the United States, particularly in Europe. Such sales expose us to geopolitical risks. +• Sales of substantial amounts of our common stock in the public markets, or the perception that such sales could occur, could cause the market price of our common stock to drop significantly, even if our business is doing well. +• There is no guarantee that our warrants will be in the money, and they may expire worthless. +Risks Related to Our Technology, Products and Manufacturing +If our batteries fail to perform as expected, our ability to develop, market and sell our batteries would be adversely affected. +Our batteries may contain defects in design and manufacture that may cause them to not perform as expected or that would require repairs, recalls and design changes, and in certain limited instances, we have previously performed immaterial repairs on our batteries. Our batteries are inherently complex and incorporate technology and components that have not been used for certain applications and that may contain defects and errors, particularly when first introduced to such applications. Although our batteries undergo quality control testing prior to release for shipment, there can be no assurance that we will be able to detect and fix all defects prior to shipment, and nonconformances, defects or errors could occur or be present in batteries that we release for shipment to customers. If our batteries fail to perform as expected, our +18 +Table of Contents +Index to Consolidated Financial Statements +customers may delay deliveries, or terminate orders, or we may initiate product recalls, each of which could adversely affect our sales and brand and could adversely affect our business, financial condition, results of operations and prospects. +Our battery architecture is different from our peers’ and may behave differently in customer use applications, certain applications of which we have not yet evaluated. This could limit our ability to deliver to certain applications. In addition, our historical data on the performance and reliability of our batteries is limited, and therefore, our batteries could fail unexpectedly in the field resulting in significant warranty costs or brand damage in the market. Further, the silicon anode structure of our battery is different from traditional lithium-ion batteries and therefore, our batteries could be susceptible to different and unknown failure modes leading our batteries to fail and cause a safety event in the field. Such an event could result in the failure of our end customers’ product as well as the loss of life or property, resulting in severe financial penalties for us, including the loss of revenue, cancellation of supply contracts and the inability to win new business due to reputational damage in the market. In addition, some of our supply agreements require us to bear certain costs relating to recalls and replacements of end products when such recalls and replacements are due to defects of our battery products that are incorporated in such end products. +Our reliance on third parties to manufacture certain of our batteries or battery materials subjects us to certain risks. +Our SiCore batteries are based on the innovative, proprietary material system developed by Berzelius and are currently manufactured by our manufacturing partners. Our SiCore batteries have been produced under contract manufacturing agreements with Berzelius and other partners. However, to facilitate product expansion, we entered into the Exclusive Supply Agreement with Berzelius, pursuant to which Berzelius agreed, among other things, (i) to manufacture for, and sell exclusively to, Amprius its proprietary silicon anode materials in the United States, Canada and Mexico and (ii) to use best efforts to prioritize fulfillment of Amprius’ forecasted orders, if any. The Exclusive Supply Agreement does not include any commercial terms, and until such time as we are able to establish mutually agreeable commercial terms thereunder, if we are able to at all, the purchase of the materials under the Exclusive Supply Agreement by Amprius will be specified in written purchase orders mutually agreeable to the parties. In addition, we have access, through our manufacturing supply agreements with our global contract manufacturers, including battery manufacturers in South Korea, to annual production exceeding 2.0 GWh of SiCore batteries in pouch, cylindrical and prismatic formats, and are engaging with potential additional partners across a network of established contract manufacturers. Our reliance on Berzelius or other third parties to manufacture our batteries or battery materials subjects us to certain risks, including but not limited to: +• Because we have not established commercial terms for future SiCore battery or battery material purchases and, therefore, must agree to commercial terms on each of our purchase orders, if Berzelius or our manufacturing partners increase their prices, we may not be able to establish commercially reasonable terms for future purchases; +• We may purchase SiCore battery materials from Berzelius or our manufacturing partners before we receive purchase orders for our SiCore batteries from our customers, or we may accept purchaser orders for SiCore batteries from our customers before establishing any commercial terms with Berzelius or our manufacturing partners, and if we cannot establish commercially reasonable terms with Berzelius or our manufacturing partners, we may not be able to fulfill customers’ orders or we may incur losses when trying to meet our obligations, which may result in our customers seeking alternative batteries, and in turn, we could lose customers and face reputational harm or penalties; +• If any of our manufacturing partners cease to provide manufacturing services to us, either permanently or temporarily, we may be required to arrange for alternative manufacturing arrangements, which we may not be able to arrange on financially attractive terms, on a timely basis or at all; +• We do not control Berzelius or other third party material suppliers, and there is no guarantee that these partners will reserve any capacity for us, they will not have disruptions in their supply chain or manufacturing processes, and that our batteries or battery materials will be delivered to us within the agreed timeline, or at all, or be free from defects; +• If we do not receive the batteries on time or if the batteries contain defects, we may have to delay deliveries, and our customers may terminate their orders or we may initiate product recalls; +• If we are unable to grow the market for SiCore batteries manufactured by Berzelius or our manufacturing partners within our product portfolio, our business, financial condition and results of operations will be adversely affected; +19 +Table of Contents +Index to Consolidated Financial Statements +• Although we have exclusive rights to purchase Berzelius’ proprietary silicon anode materials in the United States, Canada and Mexico, we do not have exclusivity arrangements with respect to marketing, and there is no guarantee that Berzelius will not compete with us for customers; +• We plan to establish a global network of contract manufacturing partnerships in the future and we may face certain risks as part of this process, including, among other things, the risk of losing control over the manufacturing process of our SiCore batteries, which could lead to quality control issues, delay in production, increase in production costs, and non-compliance with our established standards, or we may encounter a risk of losing control of some of our intellectual property, and while we plan to set up business processes, including oversight and quality control procedures in order to manage our contract manufacturing arrangements, there can be no assurance that such processes will be effective; and +• Relying on global third parties subjects us to certain risks beyond our control including, currency fluctuations, trade barriers, trade wars, retaliatory actions or restrictions imposed on such third parties, inflation or other general economic and geopolitical uncertainty, including the recent economic uncertainty and volatility, any of which could negatively impact our operations, or those of our customers, suppliers and manufacturers. +In the event any of the above risks, or any other adverse events resulting from our reliance on third parties, including those risks described below, occurs, our business, financial condition, results of operations and prospects may be adversely affected. +We may not succeed in expanding our manufacturing capacity or developing production lines that meet our requirements for quality, yield, and throughput. Additionally, our reliance on third-party partners and requirements to source NDAA-compliant components at acceptable cost targets may result in significant delays, increased capital expenditures, and operational inefficiencies. +We manufacture on a kWh-scale capacity and are working to increase our manufacturing capacity of our Fremont, California pilot line. Our operations and growth prospects may be impacted by the National Defense Authorization Act (NDAA), which includes regulations to be implemented in the future which are aimed at securing the United States defense industrial base and domestic supply chains. Specifically, the latest NDAA and related measures will, in the future, prohibit the Department of Defense from procuring certain advanced batteries and battery components that are sourced, produced, or refined by “foreign entities of concern.” Pursuant to our program with the Defense Innovation Unit (DIU), we are required to source or qualify individual lithium-ion battery components from National Defense Authorization Act (NDAA) compliant suppliers. We may not be successful in sourcing such components or identifying compliant suppliers who can meet our technical specifications and cost targets. Our inability to qualify compliant components at an acceptable cost could jeopardize our standing under the DIU program, or our business, financial condition, results of operations and prospects could be negatively affected. +Furthermore, we are reliant on Berzelius and third-party manufacturers to provide us the necessary technology and support to build our own manufacturing line to produce SiCore batteries. In that process, we and our potential suppliers and other equipment vendors may encounter significant engineering challenges, performance issues, permitting or licensing issues, delays, unforeseen development costs, and other obstacles. Additionally, our ability to manufacture SiCore batteries depends on our ability to establish mutually agreeable commercial terms with Berzelius under the relevant purchase orders. If we fail to reach an agreement with Berzelius or other third party material suppliers, our standing under the DIU program could be jeopardized or our business, financial condition, results of operations and prospects could be negatively affected. +In addition, operational performance and costs can be difficult to predict and are often influenced by factors outside of our control, such as, but not limited to, failures by suppliers to deliver necessary components of our batteries in a timely manner and at prices and volumes acceptable to us, environmental hazards and remediation costs, costs associated with commissioning of machines, difficulty or delays in obtaining governmental permits, damages or defects in electronic systems, industrial accidents, fires, seismic activity and natural disasters, and problems with equipment vendors. Should operational risks materialize, they may impact our ability to support our customers on a timely basis, which would negatively affect our revenue growth and profitability. +Additionally, the development of our SiCore manufacturing line at our Fremont, California facility may require us to make intensive capital expenditures before we are able to benefit from such development. The SiCore manufacturing line may also suffer unexpected malfunctions from time to time and will depend on repairs and spare parts to resume operations, which may not be available when needed. Further, unexpected equipment malfunctions may significantly affect the intended operational efficiency. +We may not meet our production cost targets, which would limit the size of our market opportunities. +20 +Table of Contents +Index to Consolidated Financial Statements +We may require significant capital to develop and grow our business and expect to incur significant capital expenditures and other expenses, including those relating to the expansion of our manufacturing capacity, management of our contract manufacturers, development and establishment of our manufacturing lines, raw material procurement, leases, sales and distribution as we build our brand and market our batteries, and general and administrative costs. Our profitability will not only depend on our ability to successfully market our batteries, but also our ability to control our costs. Some of the processes in the manufacturing of our silicon anodes require equipment that is more costly than those involved in standard anode production techniques. If we are unable to cost efficiently, design, manufacture, market, sell and distribute our batteries, our margins, profitability and prospects would be materially and adversely affected. We partner with our existing contract manufacturers to manufacture and deliver our SiCore cells, and any cost advantage for the production of our batteries, compared to conventional lithium-ion batteries, require us to manufacture at rates of cell quality, throughput, and yield demonstrated for mature batteries and battery material that we have not yet achieved. If we are unable to achieve these targeted rates through our existing contract manufacturers, our business will be adversely impacted. +We rely on, and will continue to rely on, complex equipment for our operations, and manufacturing involves a significant degree of risk and uncertainty in terms of operational performance and costs. +We rely heavily on, and will continue to rely heavily on, complex equipment for our operations and the production of our batteries, which involves a significant degree of uncertainty and risk in terms of operational performance and costs. Our manufacturing equipment consists of many components, which may suffer unexpected malfunctions from time to time and may depend on repairs and spare parts to resume operations, which may not be available when needed. Problems with our manufacturing processes could result in the loss of manufacturing equipment, damage to manufacturing facilities, monetary losses, delays, unanticipated fluctuations in production and personal injury to or death of workers. Should our precautions be inadequate or an event be larger than expected, we could have significant equipment or facility damage that would impact our ability to deliver our battery products and require additional resources to recover. In addition, in some cases, operational problems may result in environmental damage, administrative fines, increased insurance costs and potential legal liabilities. Any of these operational problems, or a combination of them could have a material adverse effect on our cash flows, business, financial condition, results of operations or prospects. +Furthermore, manufacturing technology may evolve rapidly, and we may decide to update our manufacturing processes more quickly than expected. Moreover, as we increase our efforts to expand the commercial production of our batteries, our experience may cause us to discontinue the use of already modified or installed equipment in favor of different or additional equipment. The useful life of any equipment that would be retired early as a result would be shortened, causing the depreciation on such equipment to be accelerated, and our results of operations could be negatively impacted. +We may not succeed in retaining and attracting key employees, particularly technical talent, needed to operate and build our business successfully. +Our success depends on our ability to attract and retain our executive officers, key employees and other qualified personnel, particularly technical talent, and as a relatively small company with key talent residing in a limited number of employees, our operations may be severely disrupted if we lost their services. In particular, we are highly dependent on the services of senior technical and management personnel, including our executive officers, who would be difficult to replace. +If any key personnel were to depart, we may not be able to successfully attract and retain senior leadership necessary to grow our business. As we build our brand and become better known, there is increased risk that competitors or other companies will seek to hire our personnel. The failure to attract, integrate, train, motivate and retain these personnel could seriously harm our business and prospects. +In addition, expanding our manufacturing capacity and operating our manufacturing facility and production tools will require us to hire highly skilled personnel. There are currently a limited number of people with this experience in the United States. Recruiting and training skilled engineers, workers and other laborers will take significant cost and time, and an inability to do so timely or at all would inhibit the successful expansion of our manufacturing capacity and operation of our manufacturing facility, thus negatively affecting our business and our results of operations. +We have pursued new product platforms and expanded our product portfolio. We may expend our limited resources to pursue a particular product and fail to capitalize on products that may be more profitable or for which there is a greater likelihood of success. +We expanded our product portfolio with the addition of SiCore in 2024 and have made substantial investments to develop new products and enhancements to our existing products. We may forgo or delay pursuit of other opportunities +21 +Table of Contents +Index to Consolidated Financial Statements +that could have had greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable products or profitable market opportunities. If we fail to pursue products that meet market demand, we may lose our competitive position, our products may become obsolete, and our business, financial condition and results of operations could be adversely affected. +We may compete for time and efforts of certain of our officers and directors. +Certain of our officers and directors are, or may in the future be, officers, directors, and employees of other entities and we may have to compete with the other entities for their time, attention and efforts. For example, Dr. Kang Sun, our Executive Advisor, our former Chief Executive Officer, and a member of our board of directors, serves on the board of directors of Berzelius. There could be competition for the time and effort of such individuals, and, further, potential conflicts of interests in our transactions with Berzelius, or other entities, as could arise. If such individuals do not devote sufficient attention to the management and operation of our business or if such conflicts of interest are not resolved, our business and financial results may suffer. +We may encounter delays and technical obstacles in developing new battery products such as different cell formats to meet varied market requirements. +Our customers may require unique battery configurations or custom designs for their products. Once we enter into contracts with customers to produce batteries for their products, we may expect to tailor the design of our batteries specifically to the products that these customers manufacture. This development process requires not only substantial lead time between the commencement of design efforts for customized batteries and the commencement of volume shipments of the battery cells to the customer, but also the cooperation and assistance of the customer in order to determine the requirements for each specific application. Technical problems may arise that affect the acceptance of our battery products by the customers. Our ability to tailor our batteries to meet the needs of our customers is affected by whether we can, amongst other things: +• receive and maintain necessary intellectual property protections; +• obtain governmental approvals and registrations; +• comply with governmental regulations; +• further develop and refine our technology; and +• anticipate customer needs and preferences successfully. +If we are unable to design and develop new battery products that meet our customers’ requirements, we may lose opportunities to obtain purchase orders, and our reputation and prospects may be damaged. +Certain components of our batteries are hazardous and pose safety risks that may cause accidents in our manufacturing facility. We may be subject to financial and reputational risks due to product recalls and product liability claims, and we could face substantial liabilities that exceed our resources. +Due to the high energy density inherent in lithium-ion batteries, our batteries can pose certain safety risks, including the risk of fire. Accidents causing death, personal injury or property damage, can occur, and no high energy density battery will ever be 100% safe. For example, under certain abuse conditions, lithium-ion batteries can go into thermal runaway, which can result in fire. Although we incorporate safety procedures in the research, development, manufacture and transportation of our batteries that are designed to minimize safety risks, the manufacture or use of our battery products may still cause accidents. Any accident, whether occurring at our manufacturing facilities or from the use of our battery products, may result in significant production interruption, delays or claims for substantial damages caused by personal injuries or property damage. +In addition, due to the harsh environments in which batteries are used including extremely low temperature and pressure, and combat for military applications, our batteries go through rigorous testing to ensure safe behavior under abuse-case conditions. Although such tests have been successful to date, we cannot assure you such tests will be successful in the future. If we have to make design changes to address any safety issues, we may have to delay or suspend our planned production, which could materially damage our brand, business, financial condition, results of operations and prospects. +Product liability claims, even those without merit or those that do not involve our battery products, could harm our business, financial condition, results of operations and prospects. +22 +Table of Contents +Index to Consolidated Financial Statements +A successful product liability claim against us, resulting from safety issues or otherwise, could require us to pay a substantial monetary award. We may not be able to cover any substantial monetary judgment against us. Moreover, a product liability claim against us or our competitors could generate substantial negative publicity about our battery products and could have a material adverse effect on our brand, business, financial condition, results of operations and prospects. +We may not be able to accurately estimate the future supply and demand for our batteries, which could result in a variety of inefficiencies in our business and hinder our ability to generate revenue. If we fail to accurately predict our manufacturing requirements, we could incur additional costs or experience delays. +We anticipate being required to provide forecasts of our demand to our current and future suppliers prior to the scheduled delivery of products to customers. Currently, there is limited historical basis for making judgments on the demand for our batteries and our ability to develop, manufacture, and deliver our battery products. Our customers’ final purchase orders may not be consistent with our estimates. If we overestimate our requirements, our suppliers may deliver excess inventory, which indirectly would increase our costs and may result in unprofitable sales or write-offs. Given that our batteries may be customized to meet our customers’ specifications, they are susceptible to obsolescence due to their limited shelf life. Because we have no history of large-scale production and limited history of managing contract manufacturers, we may also be unable to forecast accurately the pace of manufacturing or the take-up of our battery products by our customers. +If we underestimate our requirements, our suppliers may have inadequate inventory, which could interrupt manufacturing of our battery products and result in delays in shipments and revenues. In addition, lead times for materials and components that our suppliers order may vary significantly and depend on factors unique to the specific supplier, contract terms and demand for each component at a given time. If we fail to order sufficient quantities of battery components in a timely manner, the delivery of our batteries to our customers could be delayed, which would harm our business, financial condition and results of operations. Producing additional battery products to make up for any shortages within a short time frame may be difficult, making us unable to fulfill the purchase orders, especially due to the customized nature of our batteries. In either case, our business, financial condition, results of operations and prospects may be adversely affected. +We may not be able to establish supply relationships for necessary finished batteries, materials, components or equipment or may be required to pay more than anticipated for components or equipment, which could negatively impact our business. +We rely on third party suppliers, including Berzelius and other manufacturing partners, for batteries and components necessary to develop and manufacture our batteries, including key supplies such as our anode materials, electrolytes, separators, and cathode materials. We face risks relating to the availability of these materials and components, including that we will be subject to demand shortages and supply chain challenges and generally may not have sufficient purchasing power to eliminate the risk of price increases for the raw materials and lines we need. To the extent that we are unable to enter into commercial agreements with any of our suppliers on beneficial terms, or any of our suppliers experience difficulties ramping up their supply of materials to meet our requirements, the production of our batteries will be delayed and we will not be able to meet our production timelines. +Separately, we may be subject to various supply chain requirements regarding, among other things, conflict minerals and labor practices. We may be required to incur substantial costs to comply with these and potential future requirements, which may include locating new suppliers to replace existing ones. We may not be able to find any new suppliers for certain raw materials or components required for our operations, or such suppliers may be unwilling or unable to provide us with products. +We expect to incur significant costs related to procuring various materials required to manufacture and assemble our batteries that will require us to negotiate purchase agreements and delivery lead-times on advantageous terms. We may not be able to control fluctuation in the prices for these materials or negotiate agreements with suppliers on terms that are beneficial to us. Substantial increases in the prices for our raw materials, or our inability to reduce our raw material costs as we scale, would negatively impact our prospects. +Any disruption in the supply of components or materials could temporarily disrupt research and development activities or production of our batteries until an alternative supplier is able to supply the required material. Changes in business conditions, unforeseen circumstances, governmental and regulatory changes, and other factors beyond our control or which we do not presently anticipate, could also affect our suppliers’ ability to deliver components to us on a timely +23 +Table of Contents +Index to Consolidated Financial Statements +basis. Any of the foregoing could materially and adversely affect our business, financial condition, results of operations and prospects. +We face risks related to significant changes in the United States’ trade policy, such as the imposition or plan to impose tariffs on certain product categories imported from China and other countries. These countries have taken or may plan to take retaliatory actions, including imposing additional tariffs on the importation of a wide range of products from the United States, which could potentially lead to adverse impacts on global trade. In addition, such events could also cause inflation or general economic and geopolitical uncertainty, including the recent economic uncertainty and volatility, any of which could negatively impact our operations, or those of our customers, suppliers and manufacturers. +We face risks related to global economic, geopolitical, and market conditions, in part due to the geographies in which some of our customers are located. +We face geopolitical and other risks associated with a significant portion of our sales being made to customers located outside of the United States, particularly in Europe. We and our customers are subject to risks related to political change, terrorist activity, and armed conflict, such as the military conflicts between Russia and Ukraine and in the Middle East. These military conflicts have led to volatility in the global economy, and may contribute to inflation, volatility in the credit and capital markets, and interruption in the global supply chain. +In addition, our batteries are incorporated into end products used in the defense industry by customers in jurisdictions experiencing military conflict. As a result, any cessation or escalation of such conflicts could limit economic activity in the affected regions or impact our future sales. Conversely, any cessation or de-escalation of these conflicts could alter regional market dynamics and competitive conditions, which may create both opportunities and challenges. For example, while there is risk that a cessation of hostilities could curb demand for our products, due to a decrease of the need for combat zone drones, it is also possible that a cessation of hostilities could result in increased demand for our batteries for use in proactive defense, peace keeping or reconstruction efforts. We cannot accurately predict the timing, outcome or broader impact of these developments. +Additionally, currency fluctuations, geopolitics, trade barriers, embargoes, increased tariffs and retaliatory actions or shortages and other general economic or political conditions may limit our ability to obtain batteries or key components for our batteries or significantly increase freight charges, raw material costs and other expenses associated with our business, which could materially and adversely affect our business, financial condition, results of operations and prospects. +Risks Related to Our Business and Industry +The battery market is intensely competitive. Competitors include new entrants and established companies, many of which have significantly greater resources than us. Our battery products must compete with advances in new battery chemistries and manufacturing methods as well as continued improvements in conventional batteries and battery anodes. +The battery market in which we compete continues to evolve rapidly and is highly competitive. To date, we have focused our efforts on our silicon anode technology, which is designed to outperform conventional lithium-ion battery technology and other battery technologies. However, lithium-ion battery technology has been widely adopted and our current competitors have, and future competitors may have, greater resources than us and may also be able to devote greater resources to the development of their current and future technologies. These competitors also may have greater access to customers and may be able to establish cooperative or strategic relationships amongst themselves or with third parties that may further enhance their resources and competitive positioning. In addition, lithium-ion battery manufacturers may make improvements in energy density faster than they have historically, continue to reduce cost and expand supply of conventional batteries and therefore reduce our energy density advantage, which would negatively impact the prospects for our business or negatively impact our ability to sell our battery products at a market-competitive price and with sufficient margins. +There are a number of companies seeking to develop alternative approaches to lithium-ion battery technology. We expect competition in battery technology to intensify. Developments in alternative technologies or improvements in batteries technology made by competitors may materially adversely affect the sales, pricing and gross margins of our batteries. If a competing technology is developed that has superior operational or price performance, or if we fail to accurately predict and ensure that our battery technology can address customers’ changing needs or emerging technological trends, or if our customers fail to achieve the benefits expected from our silicon anode technology, our business prospects would be adversely affected. +24 +Table of Contents +Index to Consolidated Financial Statements +We expect to commit significant resources to expand our battery manufacturing capacity, including partnering with global contract manufacturers, and maintain a competitive position, and these commitments may be made without knowing whether such investments will result in products potential customers will accept. There is no assurance we will successfully identify new customer requirements, develop and bring our batteries to market on a timely basis, or that products and technologies developed by others will not render our batteries obsolete or noncompetitive, any of which would adversely affect our business, financial condition and results of operations. +Customers will be less likely to purchase our batteries if they are not convinced that our business will succeed in the long term. Similarly, suppliers and other third parties will be less likely to invest time and resources in developing business relationships with us if they are not convinced that our business will succeed in the long term. Accordingly, in order to build and maintain our business, we must maintain confidence among current and future partners, customers, suppliers, analysts, ratings agencies and other parties in our long-term financial viability and business prospects. Maintaining such confidence may be particularly complicated by certain factors including those that are largely outside of our control, such as our limited operating history, market unfamiliarity with our battery products, any delays in expanding our manufacturing capacity, delivery and service operations to meet demand, competition and uncertainty regarding our production and sales performance compared with market expectations. +Our future sales opportunities depend in part on the growth of markets for battery-powered applications. These applications may develop slower or at a size that is less than expected, to the extent they develop at all. +Our growth and future demand for our battery products is dependent in part upon the adoption by consumers of alternative fuel vehicles in general and battery-powered aviation applications and other electrically powered modes of transportation in particular. The market for new energy vehicles is still evolving, characterized by changing technologies, competitive pricing and competitive factors, evolving government regulation and industry standards, and changing consumer demands and behaviors. +Market estimates and growth forecasts are also subject to significant uncertainty and are based on assumptions and estimates that may prove to be inaccurate. For example, if the assumptions that we base our market forecasts on, including the continued development and availability of high performance batteries at a competitive price point, OEM investment in aircraft, cars and software, consumer preference and, with respect to electric air transportation, regulatory approval and the requisite infrastructure, are incorrect, this expected growth may occur slower than expected, if it occurs at all. If the market for battery-powered applications in general does not develop as expected, or develops more slowly than expected, our business, financial condition, prospects and results of operations could be adversely affected. +Developments in alternative technology or other fossil fuel alternatives may adversely affect the demand for our battery products. +Significant developments in alternative technologies, such as fuel cell technology, advanced diesel, ethanol or natural gas, or breathing batteries, may materially and adversely affect our business, financial condition, results of operations and prospects in ways that we may not currently anticipate. Existing and other battery technologies, fuels or sources of energy may emerge as customers’ preferred alternatives to our battery products. Any failure by us to develop new or enhanced technologies or processes, or to react to changes in existing technologies, could materially delay our development and introduction of new and enhanced alternative products, which could result in decreased revenue and adversely affect our prospects. +Our research and development efforts may not be sufficient to adapt to changes in alternative fuels or aviation and EV technology. As technologies evolve, we plan to develop more efficient manufacturing processes, and advanced battery chemistry, which may also negatively impact the adoption of our other battery products. However, we may not compete effectively with alternative systems if we are not able to develop, source and integrate the latest technology into our battery products. +We have pursued and may continue to pursue development agreements and other strategic alliances, which could have an adverse impact on our business if they are unsuccessful. +We have entered into development agreements and master supply agreements with certain of our customers and may in the future enter into similar arrangements and development agreements with our customers. While offering potential benefits, these strategic alliances with OEMs and others could subject us to a number of risks, including risks associated with sharing proprietary information, non-performance by our partners and costs of establishing and maintaining new strategic alliances, any of which may materially and adversely affect our business. We may have limited ability to monitor or control the actions of our partners and, to the extent any of them suffers negative publicity or harm to their reputation +25 +Table of Contents +Index to Consolidated Financial Statements +from events relating to their business, we may also suffer negative publicity or harm to our reputation by virtue of our association with them. For example, we rely on our partners’ manufacturing facilities and their operations are outside of our control. We could experience delays if our partners do not meet agreed-upon timelines or experience capacity constraints, and in turn, we could lose customers and face reputational harm. +Our ability to grow will depend, in part, on our ability to contract with aviation, EV and LEV OEMs to incorporate our batteries in their products, which will require significant time and expense, and may not come to fruition. +Our success, and our ability to increase revenue and operate profitably, depends in part on our ability to contract with aviation, EV and LEV OEMs. This process will require significant time and resources, especially for incorporation into EVs. For example, EV manufacturers frequently require several years of evaluation prior to incorporating new products, like our batteries, into their EVs. This evaluation process includes, among other things, extensive safety and abuse tests, performance tests and cost modeling. We have not begun this process with any EV manufacturers. Thus, our efforts to expand our manufacturing and sales to OEMs may not be successful, and may never result in products that achieve market acceptance, create additional revenue or become profitable, thus adversely impacting our business, financial condition, results of operations and prospects. +Our research and development efforts strive to create products that are on the cutting edge of technology and meeting the evolving requirements of our customers, but competition in our industry is high. To secure acceptance of our battery products, we must also constantly develop and introduce cost-effective, increasingly more scalable silicon anode batteries with enhanced functionality and performance to meet evolving industry standards. If we are unable to retain and grow our existing customer relationships, or convert early trial deployments into meaningful orders, our business, financial condition, results of operations and prospects could be materially adversely affected. +If existing customers do not make subsequent purchases from us or renew their contracts with us, our revenue could decline, and our results of operations would be adversely impacted. +Historically, we derived a significant portion of our revenue from existing customers that expand their relationships with us. For example, one customer during the year ended December 31, 2025 represented $27.1 million of our revenue. Increasing the size and number of the deployments of our existing customers is an important part of our growth strategy. We may not be effective in executing this or any other aspect of our growth strategy. Any such decrease or change in our customers’ purchasing of our products could adversely impact our business, financial conditions or results of operations. +Certain of our customers, including customers that represent a significant portion of our business, have in the past reduced their spending with us or terminated their agreements with us, which has reduced our anticipated future cash receipts or revenue from these customers. It is not possible for us to predict the future level of demand from our larger customers for our battery products, and there can be no assurance that our existing customers will continue to purchase from us. +Achieving renewal or expansion of deployments may require us to increasingly engage in sophisticated and costly sales efforts that may not result in additional sales. In addition, our customers’ decisions to continue or expand the use of our battery products may depend on a number of factors, including general economic conditions, the functioning of our batteries, and our customers’ satisfaction with our battery products. If our efforts to expand within our existing customer base are not successful, our business may suffer. +If our customers choose to reduce purchases, or do not purchase at all, batteries manufactured outside of the United States, our revenue could decline and our prospects may be adversely affected. +Our SiCore batteries are based on the innovative, proprietary material system developed by Berzelius, which is a Chinese corporation, and are currently manufactured by our manufacturing partners in other countries such as China and South Korea. Our customers may choose to reduce future purchases, or not purchase at all, SiCore batteries manufactured outside of the United States. As such, if the construction of our large-scale facility or our development of manufacturing lines that can produce SiCore batteries are delayed, our business and prospects may be materially and adversely affected. +We may require additional capital to support business growth, and this capital might not be available on commercially reasonable terms or at all. +We may need additional capital to support our business growth, and it may not be available on acceptable terms, if at all. For example, our capital forecast assumes, among other things, that our development timeline progresses as planned +26 +Table of Contents +Index to Consolidated Financial Statements +and our corresponding expenditures are consistent with current expectations, both of which are subject to various risks and uncertainties, including those described herein. +Additionally, we expect our operating expenses may increase substantially on account of increased headcount and other general and administrative expenses necessary to support a rapidly growing company. +As a result, we may need to access the debt and equity capital markets, to obtain additional financing in the future. However, these sources of financing may not be available on acceptable terms, or at all. Our ability to obtain additional financing will be subject to a number of factors, including: +• market or economic conditions; +• the level of success with our current manufacturing capabilities; +• our operating performance; +• investor sentiment; and +• our ability to incur debt in compliance with any agreements governing our then capital structure. +Further, abrupt political change, terrorist activity, and armed conflict has had an impact on the global economy and financial markets. Although our business operations have not been directly impacted by such events to date, our batteries are incorporated into end products that are used by defense industry customers in jurisdictions experiencing military conflict and it is difficult to accurately predict the extent to which our operations, or those of our customers, suppliers and manufacturers, will be impacted in the short and long term, or the ways in which the conflict may impact our business. The extent and duration of military action, sanctions and resulting market disruptions are difficult to accurately predict, but could be material. Sales could be impacted by any cessation or escalation of the conflicts in these regions. +In addition, actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, the financial services industry or the financial markets generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity challenges. These factors may make the timing, amount, terms or conditions of additional financings unattractive to us. If we raise additional funds by issuing equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of our currently issued and outstanding equity or debt, and our existing stockholders may experience dilution. If we are unable to generate sufficient funds from operations, raise additional capital or access our existing funds, we may be forced to take actions to reduce our capital or operating expenditures, including by eliminating redundancies, or reducing or delaying our production facility expansion, which may adversely affect our business, financial condition, results of operations and prospects. +Our future growth and success depend in part on our ability to grow our customer base and effectively sell to a wide variety of customers. +Our future success will depend on our ability to grow our customer base and effectively sell to a wide variety of customers. Potential customers include manufacturers of products that tend to be large enterprises or governmental agencies. Sales to these end-customers involve risks that may not be present (or that are present to a lesser extent) with sales to smaller customers. These risks include, but are not limited to, (i) increased purchasing power and leverage held by large customers in negotiating contractual arrangements with us and (ii) longer sales cycles and the associated risk that substantial time and resources may be spent on a potential end-customer that elects not to purchase our solutions. +Large organizations often undertake a significant evaluation process that results in a lengthy sales cycle. In addition, product purchases by large organizations are frequently subject to budget constraints, multiple approvals and unanticipated administrative, processing and other delays. Finally, large organizations typically have longer implementation cycles, require greater product functionality and scalability, require a broader range of services, demand that vendors take on a larger share of risks, require acceptance provisions that can lead to a delay in revenue recognition and expect greater payment flexibility. All of these factors can add further risk to business conducted with these potential customers. +If we were unable to maintain or increase our customer retention rates or generate new customers in a cost-effective manner, our business, financial condition and results of operations would likely be adversely affected. We cannot assure you that we will be able to maintain or grow our customer base in a cost-effective way. If we are unable to develop high quality products at scale, or introduce new products, we may fail to attract new customers or lose our existing customers, which could adversely affect our growth and profitability. +27 +Table of Contents +Index to Consolidated Financial Statements +We continue to test our business model and any failure to realize our strategic plans would have an adverse effect on our operating results and business, harm our reputation and could result in substantial liabilities that exceed our resources. +There is additional risk associated with enterprises like Amprius, that are encountering new challenges and issues for the first time, many of which are beyond our control, including substantial risks and expenses in the course of establishing or entering new markets, implementing novel manufacturing processes, organizing operations and undertaking marketing activities. The likelihood of our success must be considered in light of these risks, expenses, complications, delays and the competitive environment in which we operate. There is, therefore, nothing at this time upon which to base an assumption that our business plan will prove successful, and we may not be able to generate significant revenue, raise additional capital or operate profitably. We will continue to encounter risks and difficulties frequently experienced by early commercial stage companies, including expanding our manufacturing capacity and increasing our headcount, and may encounter unforeseen expenses, difficulties or delays in connection with our growth. In addition, as a result of the capital requirements of our business, we can be expected to continue to sustain substantial operating expenses without generating sufficient revenue to cover expenditures. Any investment in our company is therefore highly speculative and could result in the loss of some or all of your entire investment. +It is difficult to predict our future revenues and appropriately budget for our expenses, and we have limited insight into trends that may emerge and affect our business. In the event that actual results differ from our estimates or we adjust our estimates in future periods, our business, financial condition, results of operations and prospects could be materially affected. +We are an early-stage company with a history of financial losses and expect to incur significant expenses and continuing losses for the foreseeable future. +We have incurred net losses since our inception. We may continue incurring net losses in the future as we, among other things, endeavor to hire the experienced scientific, quality-control, and manufacturing personnel needed to operate our manufacturing processes; increase our sales and marketing activities; expand our distribution infrastructure; and increase our general and administrative functions to support our growing operations. We may find that these efforts are more expensive than we currently anticipate or that these efforts may not result in revenues, which would further increase our losses. +If we fail to effectively manage our future personnel growth, we may not be able to market and sell our batteries successfully. +Our future success depends upon our ability to grow, and if we are unable to manage our personnel growth effectively, we may incur unexpected expenses and be unable to meet our eventual customers’ requirements, all of which could materially adversely affect our business, financial condition, results of operations and prospects. To manage our current and anticipated future growth effectively, we must continue to maintain and enhance our infrastructure, financial and accounting systems, and controls. We must also attract, train and retain a significant number of scientists, engineers, sales and marketing personnel, technical and manufacturing personnel, and management personnel, and the availability of such personnel may be constrained. See above for more information about the risk on retaining and attracting key employees. +As we continue to grow, including from the integration of employees and businesses acquired in connection with future acquisitions, we may find it difficult to maintain important aspects of our corporate culture, which could negatively affect our profitability and our ability to retain and recruit qualified personnel who are essential for our future success. If we do not effectively manage our growth, we may not be able to execute on our growth plan, respond to competitive pressures, take advantage of market opportunities, satisfy customer requirements or manufacture high-quality battery products. Additionally, we may not be able to expand and upgrade our infrastructure to accommodate future growth. +Failure to effectively manage our growth could also lead us to over-invest or under-invest in development and operations; result in weaknesses in our infrastructure, systems or controls; give rise to operational mistakes, financial losses, loss of productivity or business opportunities; and result in loss of employees and reduced productivity of remaining employees. Our growth may require significant capital expenditures, which may lower our earnings, and may divert financial resources from other projects such as the development of new products and services. If we are unable to manage our growth effectively, our expenses may increase more than expected, our revenue may not increase or may grow more slowly than expected and we may be unable to implement our business strategy. +Certain members of our management do not have experience in operating a public company. +28 +Table of Contents +Index to Consolidated Financial Statements +Certain of our executive officers have limited experience in the management of a publicly traded company. Public companies are subject to significant regulatory oversight and reporting obligations under federal securities laws and the continuous scrutiny of securities analysts and investors. As a result, we may be required to pay higher outside legal, accounting or consulting costs than our competitors, and our management team members may have to devote a higher proportion of their time to issues relating to compliance with the laws applicable to public companies, both of which might put us at a disadvantage relative to competitors. +Our insurance coverage may not be adequate to protect us from all business risks. +We may be subject, in the ordinary course of business, to losses resulting from product liability, accidents, acts of God, and other claims against us, for which we may have no insurance coverage. As a general matter, the policies that we do have may include significant deductibles or self-insured retentions, and we cannot be certain that our insurance coverage will be sufficient to cover all future losses or claims against us. A loss that is uninsured or which exceeds policy limits may require us to pay substantial amounts, which could adversely affect our business, financial condition and results of operations. +Our cash and money market funds could be adversely affected if the financial institutions in which we hold our cash and money market funds fail. +We deposit and maintain our cash and money market funds with third party financial institutions. A failure of these financial institutions to return our cash deposits and money market funds, or if a depository institution is subject to other adverse conditions in the financial or credit markets, could impact our access to our cash or money market funds and could adversely impact our operating liquidity and financial performance. +We are obligated to develop and maintain proper and effective internal control over financial reporting. If we are unable to develop and maintain an effective system of internal controls and procedures required by Section 404 of the Sarbanes-Oxley Act, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us and materially and adversely affect our stock price, business and operating results. +Effective internal control over financial reporting is necessary for us to provide reliable financial reports in a timely manner. The effectiveness of our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the possibility of human error and the risk of fraud. If we are unable to develop and maintain effective internal control over our financial reporting, or remediate any material weaknesses we identify in the future, we may not be able to accurately report our financial results in a timely manner, or prepare our financial statements within the time periods specified by the forms of the SEC, which may adversely affect our reputation and business and the market price of our common stock. In addition, any such failures could result in litigation or regulatory actions by the SEC or other regulatory authorities, loss of investor confidence, delisting of our securities and harm to our reputation and financial condition, or diversion of financial and management resources from the operation of our business. +In 2023 and 2022, we identified material weaknesses in our internal control over financial reporting pertaining to the inadequate design and maintenance of our internal control over our financial reporting and close activities and inadequate segregation of duties. Although those material weaknesses were remediated prior to December 31, 2024 and there were no material weaknesses identified as of December 31, 2025, there can be no assurance that we will not experience additional material weaknesses in the future. We continue to assess our internal controls and procedures and intend to take further actions as necessary or appropriate to address any other matters we may identify in the future. We cannot assure you that the measures we have taken to date and may take in the future, will be sufficient to prevent or avoid potential future material weaknesses in internal control over financial reporting. In addition, it is possible that control deficiencies or significant deficiencies could be identified by our management or by our independent registered public accounting firm in the future or may occur without being identified. Such a failure could result in regulatory scrutiny and cause investors to lose confidence in our reported financial condition, lead to a default under future indebtedness, and could have a material adverse effect on our business, financial condition, cash flow or results of operations. +As a public company, we are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for annual reports on Form 10-K that we file with the SEC. In such report, we are required to disclose any material weaknesses identified by our management on our internal control over financial reporting. Additionally, we are required to disclose changes made on our internal control over financial reporting on a quarterly basis. Failure to comply with the Sarbanes-Oxley Act could +29 +Table of Contents +Index to Consolidated Financial Statements +potentially subject us to sanctions or investigations by the SEC, the applicable stock exchange or other regulatory authorities, which would require additional financial and management resources. +Eventually, it is possible that our independent registered public accounting firm will also be required to audit the effectiveness of our internal control over financial reporting in future annual reports on Form 10-K to be filed with the SEC. +Our ability to utilize our net operating losses, tax credit carryforwards, and certain other tax attributes to offset future taxable income may be subject to certain limitations. +In general, under Section 382 of the Internal Revenue Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to use its pre-change net operating loss carryforwards (“NOLs”) to offset future taxable income. The limitations apply if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a three-year period. If we experienced an ownership change at any time since our incorporation, we may already be subject to limitations on our ability to utilize our existing NOLs and other tax attributes to offset taxable income or tax liability. In addition, future changes in our stock ownership, which may be outside of our control, may trigger an ownership change. Similar provisions of state tax law may also apply to limit our use of accumulated state tax attributes. As a result, even if we earn net taxable income in the future, our ability to use our NOL carryforwards and other tax attributes to offset such taxable income or tax liability may be subject to limitations, which could potentially result in increased future income tax liability to us. Further, because we and Amprius Holdings were members of a consolidated group for U.S. federal income tax purposes up to September 14, 2022, the closing date of our business combination with Kensington, NOLs and our other tax attributes are available to be utilized by any member of the consolidated group. Accordingly, our existing NOLs and other tax attributes may not be available to offset future income tax liabilities. +In July 2025, the One Big Beautiful Bill Act (the “OBBB Act”) made changes to certain international foreign tax credit and domestic tax provisions in the United States, and there is a risk of additional changes in law or regulations under the current presidential administration. We continue to evaluate the potential impact of the OBBB Act and whether it could have a negative impact on our future cash flows. The current presidential administration has also issued Executive Orders calling for substantial overhaul of the U.S. Treasury regulations. As a result, there could be substantial changes to regulations, in connection with both the OBBB Act and with the regulatory overhaul pursuant to Executive Orders, or other changes to tax laws. In addition, many of the states are seeking to increase tax revenues. Such changes may include, but are not limited to, changes in the tax rate or possible suspensions on the use of net operating losses, tax credits, and other tax attributes. Any resulting income tax liabilities may reduce our future cash flows. +The unavailability, reduction or elimination of government and economic incentives could have a material adverse effect on our business, financial condition, results of operations and prospects. +We benefit from certain government subsidies and economic incentives from time to time, including tax credits, rebates and other incentives that support the development and adoption of clean energy technology. Such government subsidies and economic incentives are subject to uncertainties and may be discontinued at any time. For example, the Inflation Reduction Act of 2022 introduced or extended a number of federal tax credits to promote clean energy development. However, some of these tax credits were reduced, limited or eliminated by the OBBB Act, and certain provisions of the OBBB Act may impact our eligibility for tax credits we have utilized in the past. Thus, we cannot assure you that we will be able to benefit from government subsidies and economic incentives or that these subsidies and incentive programs will be available to us in the future at the same or comparable levels as they have been in the past. Any reduction, elimination or discriminatory application of government subsidies and economic incentives because of policy changes, or the reduced need for such subsidies and incentives due to the perceived success of clean and renewable energy products or other reasons, may require us to seek additional financing, which may not be obtainable on commercially attractive terms or at all, and may result in the diminished competitiveness of the battery cell industry generally or our silicon anode battery cells in particular. Any change in the level of subsidies and incentives from which we benefit could materially and adversely affect our business, financial condition, results of operations and prospects. +We have customers from the public sector, and our failure to receive and maintain government contracts or changes in the contracting or fiscal policies of the public sector could have a material adverse effect on our business. +We have contracts with certain government agencies of the United States (as a prime contractor or subcontractor), including, for example, the U.S. Department of War (“U.S. DoW”). +30 +Table of Contents +Index to Consolidated Financial Statements +Sales to government agencies are subject to a number of challenges and risks. Selling to government agencies can be highly competitive, expensive, and time-consuming, often requiring significant upfront time and expense without any assurance that these efforts will generate a sale. We also must comply with laws and regulations relating to the formation, administration, and performance of contracts, which provide public sector customers rights, many of which are not typically found in commercial contracts. +Accordingly, our business, financial condition, results of operations and prospects may be adversely affected by certain events or activities, including, but not limited to: +• changes in fiscal or contracting policies or decreases in spending, including defense spending, by government agencies and contractors or available government funding; +• changes in government programs or applicable requirements; +• changes in the political environment, including before or after a change to the leadership within the government administration, and any resulting uncertainty or changes in policy or priorities and resultant funding; +• appeals, disputes, or litigation relating to government procurement, including but not limited to bid protests by unsuccessful bidders on potential or actual awards of contracts to us or our partners by the government; +• the adoption of new laws or regulations or changes to existing laws or regulations; +• influence by, or competition from, third parties with respect to pending, new, or existing contracts with government customers; and +• increased or unexpected costs or unanticipated delays caused by other factors outside of our control, such as performance failures of our prime contractors or subcontractors. +Any such event or activity, among others, could cause governments and governmental agencies to delay or refrain from purchasing our battery products in the future, reduce the size or payment amounts of purchases from existing or new government customers, or otherwise have an adverse effect on our business, financial condition, results of operations and prospects. +Government contracts often also contain provisions and are subject to laws and regulations that provide government customers with additional rights and remedies not typically found in commercial contracts. These rights and remedies allow government customers, among other things, to: +• terminate existing contracts for convenience; +• reduce orders under or otherwise modify contracts; +• for contracts subject to the Truth in Negotiations Act, reduce the contract price or cost where it was increased because a contractor or subcontractor furnished cost or pricing data during negotiations that was not complete, accurate, and current; +• for some contracts, (i) demand a refund, make a forward price adjustment, or terminate a contract for default if a contractor provided inaccurate or incomplete data during the contract negotiation process and (ii) reduce the contract price under triggering circumstances, including the revision of price lists or other documents upon which the contract award was predicated; +• decline to exercise an option to renew a multi-year contract; +• claim rights in solutions, systems, or technology produced by us, appropriate such work-product for their continued use without continuing to contract for our services, and disclose such work-product to third parties, including other government agencies and our competitors, which could harm our competitive position; +• prohibit future procurement awards with a particular agency due to a finding of organizational conflicts of interest; +• suspend or debar us from doing business with the applicable government; and +• control or prohibit the export of our battery products and technology. +Government contracts are also generally subject to greater scrutiny, whereby the government can initiate reviews, audits and investigations regarding our compliance with government contract requirements. Current and new regulations or procurement requirements (including, for example regulations regarding counterfeit and corrupt parts, country of origin restrictions, supply chain diligence, mandatory socioeconomic compliance requirements and cybersecurity) or changes to +31 +Table of Contents +Index to Consolidated Financial Statements +current requirements could limit contracting opportunities and also increase our costs and risk of non-compliance. Failure to comply with government contracting laws, regulations and contract requirements, or adverse findings from a government audit or investigation can lead to criminal, civil or administrative proceedings (including pursuant to the False Claims Act), termination of contracts, forfeiture of profits, suspension of payments, adverse media coverage, fines and suspension or debarment from doing business with U.S. government agencies, all of which may have an adverse effect on our reputation, business, financial condition, results of operations and prospects. +Changes in levels of U.S. government defense spending could negatively impact our financial position and results of operations. +We derive a portion of our revenue from the U.S. government, including from defense-related programs with the U.S. DoW and we expect this to continue, as exemplified by our collaboration with the DIU. Levels of U.S. defense spending are very difficult to predict and may be impacted by numerous factors such as the political environment, U.S. foreign policy, macroeconomic conditions, ongoing or emerging geopolitical conflicts such as conflict between Russia and Ukraine and developments in the conflict in the Middle East, and the ability of the U.S. government to enact relevant legislation such as authorization and appropriations bills. Accordingly, long-term uncertainty remains with respect to overall levels of defense spending. Future budget cuts associated with the authorizations and appropriations process could result in reductions, cancellations, and/or delays of existing contracts or programs. Any of these impacts could have a material effect on our financial condition or results of operations. +Our technology and our website, systems, and data we maintain may be subject to intentional disruption, security breaches and other security incidents, or alleged violations of laws, regulations, or other obligations relating to data handling that could result in liability and adversely impact our reputation and future sales. We may be required to expend significant resources to continue to modify or enhance our protective measures to detect, investigate and remediate vulnerabilities to security breaches and incidents. Any actual or alleged failure to comply with applicable cybersecurity or data privacy legislation or regulation could have a material adverse effect on our business, reputation, results of operations or financial condition. +We expect to face significant challenges with respect to information security and maintaining the security and integrity of our information systems and other systems used in our business, as well as with respect to the data stored on or processed by these systems. We also anticipate receiving and storing confidential business information of our partners and customers. Advances in technology, an increased level of sophistication and expertise of hackers, and new discoveries in the field of cryptography can result in a compromise or breach of the systems used in our business or of security measures used in our business to protect confidential information, personal information, and other data. We may be a target for attacks designed to disrupt our operations or to attempt to gain access to our systems or to data that we possess, including proprietary information that we obtain from our partners pursuant to our agreements with them. We also are at risk for interruptions, outages and breaches of our and our outsourced service providers’ operational systems and security systems, our integrated software and technology, and data that we or our third party service providers process or possess. These may be caused by, among other causes, physical theft, viruses or other malicious code, denial or degradation of service attacks, ransomware, social engineering schemes, and insider theft or misuse. We have suffered security incidents in the past. In December 2021, we experienced a ransomware incident and notified certain employees of such incident. The security risks we and our outsourced service providers face could also be elevated in connection with the Russian invasion of Ukraine or the conflict in the Middle East, as we and our outsourced service providers are vulnerable to a heightened risk of cyberattacks from or affiliated with nation-state actors, including retaliatory attacks from Russian actors against U.S.-based companies. +The availability and effectiveness of our silicon anode technology and our ability to conduct our business and operations depend on the continued operation of information technology and communications systems, some of which we have yet to develop or otherwise obtain the ability to use. Systems we currently use or may use in the future in conducting our business, including data centers and other information technology systems, will be vulnerable to damage or interruption. Such systems could also be subject to break-ins, sabotage and intentional acts of vandalism, as well as disruptions and security breaches and security incidents as a result of non-technical issues, including intentional or inadvertent acts or omissions by employees, service providers, or others. We currently use, and may use in the future, outsourced service providers to help provide certain services, and any such outsourced service providers face similar security and system disruption risks as us. Our ability to monitor our outsourced service providers’ security measures is limited, and, in any event, third parties may be able to circumvent those security measures, resulting in the unauthorized access to, misuse, acquisition, disclosure, loss, alteration, or destruction of personal, financial, confidential, or other data, including data relating to individuals. Some of the systems used in our business will not be fully redundant, and our disaster recovery planning cannot account for all eventualities. Any data security incidents or other disruptions to any data +32 +Table of Contents +Index to Consolidated Financial Statements +centers or other systems used in our business could result in lengthy interruptions in our service and may adversely affect our reputation, business, financial condition, results of operations and prospects. +Significant capital and other resources may be required in efforts to protect against information security breaches, security incidents, and system disruptions, or to alleviate problems caused by actual or suspected information security breaches and other data security incidents and system disruptions. The resources required may increase over time as the methods used by hackers and others engaged in online criminal activities and otherwise seeking to obtain unauthorized access to systems or data, and to disrupt systems, are increasingly sophisticated and constantly evolving. In particular, ransomware attacks have become more prevalent in the industrial sector, which could materially and adversely affect our ability to operate and may result in significant expense or reputational harm. +In addition, we may face increased compliance burdens regarding such requirements with regulators and customers regarding our battery products and also incur additional costs for oversight and monitoring of our supply chain. These additional compliance and logistical burdens are attenuated through our international partnerships. We also cannot be certain that these systems, networks, and other infrastructure or technology upon which we rely, including those of our third party suppliers or service providers, will be effectively implemented, maintained or expanded as planned, or will be free from bugs, defects, errors, vulnerabilities, viruses, ransomware, or other malicious code. We may be required to expend significant resources to make corrections or to remediate issues that are identified or to find alternative sources. +Any failure or perceived failure by us or our service providers to prevent information security breaches or other security incidents or system disruptions, or any compromise of security that results in or is perceived or reported to result in unauthorized access to, or loss, theft, alteration, release or transfer of, our information, or any personal information, confidential information, or other data could result in loss or theft of proprietary or sensitive data and intellectual property, could harm our reputation and competitive position and could expose us to legal claims, regulatory investigations and proceedings, and fines, penalties, and other liability. Any such actual or perceived security breach, security incident or disruption could also divert the efforts of our technical and management personnel and could require us to incur significant costs and operational consequences in connection with investigating, remediating, eliminating and putting in place additional tools, devices, policies, and other measures designed to prevent actual or perceived security breaches and other incidents and system disruptions. Moreover, we could be required or otherwise find it appropriate to expend significant capital and other resources to respond to, notify third parties of, and otherwise address the incident or breach and its root cause, and most jurisdictions have enacted laws requiring companies to notify individuals, regulatory authorities and others of security breaches involving certain types of data. +Further, we cannot assure that any limitations of liability provisions in our current or future contracts that may be applicable would be enforceable or adequate or would otherwise protect us from any liabilities or damages with respect to any particular claim relating to a security breach or other security-related matter. We also cannot be sure that our existing insurance coverage will continue to be available on acceptable terms or will be available in sufficient amounts to cover claims related to a security breach or incident, or that the insurer will not deny coverage as to any future claim. The successful assertion of claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our reputation, financial condition and results of operations. +Additionally, laws, regulations, and other actual and potential obligations relating to privacy, data hosting and other processing of data, data protection, and data security are evolving rapidly, and we expect to potentially be subject to new laws and regulations, or new interpretations of laws and regulations, in the future in various jurisdictions. These laws, regulations, and other obligations, and changes in their interpretation, could require us to modify our operations and practices, restrict our activities, and increase our costs. Further, these laws, regulations, and other obligations are complex and evolving rapidly, and we cannot provide assurance that we will not be subject to claims, allegations, or other proceedings related to actual or alleged obligations relating to privacy, data protection, or data security. It is possible that these laws, regulations, and other obligations may be inconsistent with one another or be interpreted or asserted to be inconsistent with our business or practices. We anticipate needing to dedicate substantial resources to comply with laws, regulations, and other obligations relating to privacy and data security in order to comply. Any failure or alleged or perceived failure to comply with any applicable laws, regulations, or other obligations relating to privacy, data protection, or data security could also result in regulatory investigations and proceedings, and misuse of or failure to secure data relating to individuals could also result in claims and proceedings against us by governmental entities or others, penalties and other liability, and damage to our reputation and credibility, and could have a negative impact on our business, financial condition, results of operations and prospects. +33 +Table of Contents +Index to Consolidated Financial Statements +Risks Related to Intellectual Property +We rely heavily on our intellectual property portfolio. If we are unable to protect our intellectual property rights, our business and competitive position would be harmed. +We may not be able to prevent unauthorized use of our intellectual property, which could harm our business and competitive position. We rely upon a combination of various intellectual property protections afforded by patent, copyright, trademark and trade secret laws in the United States and other jurisdictions, as well as contractual protections afforded by license agreements and other agreements, to establish, maintain and enforce rights in our proprietary technologies. In addition, we seek to protect our intellectual property rights through nondisclosure and invention assignment agreements with our employees and consultants, and through non-disclosure agreements with business partners and other third parties. Despite our efforts to protect our proprietary rights, third parties may, without proper authorization, attempt to copy or otherwise obtain and use our intellectual property or be able to design around our intellectual property. Monitoring unauthorized use of our intellectual property is difficult and costly, and the steps we have taken or will take to prevent misappropriation may not be adequate, sufficient, or effective. Any enforcement efforts we undertake, including litigation, could be time-consuming and expensive and could divert management’s attention, which could harm our business, results of operations and financial condition. Moreover, certain proprietary technology that is stored on computer systems could be penetrated by intruders and potentially misappropriated. There is no guarantee that our efforts to protect our computer systems will be effective. In addition, existing intellectual property laws and contractual remedies may afford less protection than needed to safeguard our intellectual property portfolio. +Patent, copyright, trademark and trade secret laws vary significantly throughout the world. A number of foreign countries do not protect intellectual property rights to the same extent as do the laws of the United States. Therefore, our intellectual property rights may not be as strong or as easily enforced outside of the United States and efforts to protect against the unauthorized use of our intellectual property rights, technology and other proprietary rights may be more expensive and difficult outside of the United States. Further, we have not established our intellectual property rights in all countries in the world, and competitors may copy our designs and technology and operate in countries in which we have not enforced our intellectual property rights. Failure to adequately protect our intellectual property rights could result in our competitors using our intellectual property to offer products, and competitors’ ability to design around our intellectual property would enable competitors to offer similar or better batteries, in each case potentially resulting in the loss of some of our competitive advantage and a decrease in our revenue which, would adversely affect our business, financial condition, results of operations and prospects. +We may need to defend ourselves against intellectual property infringement claims, which may be time-consuming and could cause us to incur substantial costs. +Companies, organizations or individuals, including our current and future competitors, may hold or obtain patents, trademarks or other proprietary rights that would prevent, limit or interfere with our ability to make, use, develop, distribute, or sell our battery products, which could make it more difficult for us to operate our business. From time to time, we may receive inquiries from holders of patents or trademarks inquiring whether we are infringing their proprietary rights and/or seek court declarations that they do not infringe upon our intellectual property rights. Companies holding patents or other intellectual property rights relating to batteries, electric motors or electronic power management systems may bring suits alleging infringement by our battery products of such rights or otherwise asserting their rights and seeking licenses. In addition, if we are determined to have infringed upon a third party’s intellectual property rights, we may be required to do one or more of the following: +• cease selling, incorporating or using products that incorporate the challenged intellectual property; +• pay substantial damages; +• obtain a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms or at all; or +• redesign our batteries. +We have in the past experienced infringement claims from non-practicing organizations (sometimes referred to as “patent trolls”) filing lawsuits for patent infringement. For example, in December 2020, we settled a patent infringement case against us and agreed to make licensing payments in connection with such settlement. We may be subject to additional infringement claims in the future, and even if we believe such claims are without merit, such claims are time-consuming, expensive to litigate or settle and can divert management’s resources and attention. An adverse determination could require that we pay damages, which could be substantial, or that we stop using technologies found to be in violation of a third +34 +Table of Contents +Index to Consolidated Financial Statements +party’s rights and could prevent us from selling our batteries. In order to avoid these restrictions, we may have to seek a license for the technology. Any such license may not be available on reasonable terms or at all, could require us to pay significant royalties and may significantly increase our operating expenses or otherwise seriously harm our business or results of operations. +In the event of a successful claim of infringement against us and our failure or inability to obtain a license to the infringed technology, our business, financial condition, results of operations and prospects could be materially adversely affected. In addition, any litigation or claims, whether or not valid, could result in substantial costs and diversion of resources and management’s attention. +We also license patents and other intellectual property from third parties, and we may face claims that our use of this intellectual property infringes the rights of others. In such cases, we may seek indemnification from our licensors under our license contracts with them. However, our rights to indemnification may be unavailable or insufficient to cover our costs and losses, depending on our use of the technology, whether we choose to retain control over conduct of the litigation, and other factors. +Our patent applications may not result in issued patents or our patent rights may be contested, circumvented, invalidated or limited in scope, any of which could have a material adverse effect on our ability to prevent others from interfering with our commercialization of our batteries. +Our patent applications may not result in issued patents, which may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours. The status of patents involves complex legal and factual questions and the breadth of claims allowed is uncertain. As a result, we cannot be certain that the patent applications that we file will result in patents being issued, or that our patents and any patents that may be issued to us will afford protection against competitors with similar technology. Numerous patents and pending patent applications owned by others exist in the fields in which we have developed and is and will be developing our technology. In addition to those who may claim priority, any of our existing or pending patents may also be challenged by others on the basis that they are otherwise invalid or unenforceable. Furthermore, patent applications filed in foreign countries are subject to laws, rules and procedures that differ from those of the United States, and thus we cannot be certain that foreign patent applications related to issued U.S. patents will be issued. +Even if our patent applications succeed and we are issued patents in accordance with them, it is still uncertain whether these patents will be contested, circumvented, invalidated or limited in scope in the future. The rights granted under any issued patents may not provide us with meaningful protection or competitive advantages, and some foreign countries provide significantly less effective patent enforcement than what the United States provides. In addition, the claims under any patents that issued to us may not be broad enough to prevent others from developing technologies that are similar or that achieve results similar to ours. The intellectual property rights of others could also bar or limit us from licensing, exploiting, or enforcing any patents issued to us. In addition, patents issued to us may be infringed upon or designed around by others and others may obtain patents that they need to license or design around, either of which would increase costs and may adversely affect our business, financial condition, results of operations and prospects. +We may obtain licenses on technology that has not been commercialized or has been commercialized only to a limited extent, and the success of our business may be adversely affected if such technology does not perform as expected. +From time to time, we may license from third parties, technologies that have not been commercialized or which have been commercialized only to a limited extent. These technologies may not perform as expected within our silicon anode battery cells and related products. If the cost, performance characteristics, manufacturing process or other specifications of these licensed technologies fall short of our targets, our expected sales, costs, time to market, competitive advantage, future product pricing and potential operating margins may be adversely affected. +Risks Related to Litigation and Regulatory Compliance +Our operations expose us to litigation, environmental and other legal compliance risks. Compliance with laws and regulations can be expensive, and our failure to comply with these laws and regulations may result in monetary damages and fines, adverse publicity and a material adverse effect on our business. +We are subject to a variety of litigation, environmental, health and safety, investment screening and national security laws, and other legal compliance risks. These risks include, among other things, possible liability relating to product liability matters, personal injuries, intellectual property rights, contract-related claims, health and safety liabilities, +35 +Table of Contents +Index to Consolidated Financial Statements +employment-related liabilities, environmental matters, investment screening and national security laws, and compliance with U.S. and foreign laws, competition laws and laws governing improper business practices. +Our operations in the United States are subject to numerous environmental laws and regulations, including federal, state and local laws and regulations relating to, among other things: water; natural resources; discharges; emissions; chemicals; solid and hazardous waste storage, treatment and disposal; remediation of releases of hazardous materials; and contamination. Compliance with these laws can be difficult and costly. For example, battery life cycle management regulations and regulations governing the transport of batteries may impose substantial requirements on our operations in the United States. Our operations may be required to obtain and comply with environmental permits, many of which may be difficult and expensive to obtain and must be renewed on a periodic basis. A failure to comply with these laws, regulations or permits could result in substantial liabilities, including fines, penalties, the suspension or loss of permits, and possibly orders to cease the non-compliant operations. Our manufacturing process will have hazards such as, but not limited to, hazardous materials, machines with moving parts, and high voltage and/or high current electrical systems typical of large manufacturing equipment and related safety incidents. There may be safety incidents that damage machinery or manufacturing components, slow or stop production, or harm employees. Consequences may include litigation, regulation, fines, increased insurance premiums, mandates to temporarily halt production, workers’ compensation claims, or other actions that impact our brand, finances or ability to operate. +As a business with international reach, we are subject to complex laws and regulations, including investment screening laws, in jurisdictions in which we operate. Those laws and regulations may be interpreted in different ways. They may also change from time to time, as may related interpretations and other guidance. Changes in laws or regulations could result in higher expenses and payments, and uncertainty relating to laws or regulations may also affect how we conduct our operations and structure our investments and could limit our ability to enforce our rights. +Changes in environmental and climate laws or regulations, including laws relating to greenhouse gas emissions, could lead to new or additional investment in manufacturing designs, subject us to additional costs and restrictions, including increased energy and raw materials costs, and could increase environmental compliance expenditures. We are subject to various environmental laws and regulations on air emission, wastewater discharge, solid waste, noise and the disposal of hazardous materials. Cobalt and lithium are toxic materials that are important raw materials in our batteries. We also use, generate and discharge other toxic, volatile and hazardous chemicals and wastes in our research, development and manufacturing activities. Under U.S. environmental regulations, we are required to maintain the pollutant emission levels at the facility within the levels prescribed by the relevant governmental authorities and obtain a pollution discharge permit for water and air emissions. Future changes to environmental laws or permit requirements could require us to install new control equipment or otherwise change operations in order to comply with any such change in laws or permit requirements. In addition, certain laws and regulations require enterprises like us that generate hazardous wastes to engage companies which are licensed and qualified to process the hazardous wastes, and to collect, store, dispose of and transfer the hazardous waste. +If we fail to comply with national and local environmental protection laws and regulations, the relevant governmental authorities may impose fines or deadlines to cure instances of noncompliance and may even order us to cease operations if we fail to comply with their requirements. In particular, any breach by us in connection with requirements relating to the handling of hazardous wastes may subject us to monetary damages and fines. In addition, if any third party suffers any loss as a result of our pollutant emission practices, our improper handling of hazardous wastes or our noncompliance with environmental regulations, such third parties may seek damages from us. +We cannot assure that we will be able to comply with all environmental laws and regulations at all times as the environmental legal regime is evolving and becoming more stringent. Therefore, if these or other governments where we do business impose more stringent regulations in the future, we will have to incur additional substantial costs and expenses in order to comply with new regulations, which may negatively affect our results of operations. If we fail to comply with any of the present or future environmental regulations in any material aspect or cause any loss to any third parties due to our pollutant emission practices, improper handling of hazardous wastes or other environmental noncompliance, we may suffer from negative publicity and may be required to pay substantial fines, pay damages to such third parties, or suspend or even cease operations, all of which may materially and adversely affect our business, financial condition, results of operations and prospects. Environmental laws and regulations may become more stringent in the future, which could increase costs of compliance or require us to manufacture with alternative technologies and materials. +We may be subject to review and enforcement actions under domestic and foreign laws that screen investments and to other national-security-related laws and regulations. In certain jurisdictions, these legal and regulatory requirements may be more stringent than in the United States and may impact battery companies more specifically. As a result of these laws +36 +Table of Contents +Index to Consolidated Financial Statements +and regulations, investments by particular investors may need to be filed with local regulators, which in turn may impose added costs on our business, impact our operations, and/or limit our ability to engage in strategic transactions that might otherwise be beneficial to us and our investors. +We are subject to a variety of laws and regulations related to the safety and transportation of our batteries. Our failure to comply with these laws and regulations may have a material adverse effect on our business and results of operations. +Many federal, state and local authorities require certification by Underwriters Laboratory, Inc., an independent, not-for-profit corporation engaged in the testing of products for compliance with certain public safety standards, or other safety regulation certification prior to marketing battery cells. Foreign jurisdictions also have regulatory authorities overseeing the safety of consumer products. Our batteries may not meet the specifications required by these authorities. A determination that any of our battery products are not in compliance with these rules and regulations could result in the imposition of fines or an award of damages to private litigants. +In addition, lithium batteries have been identified as a Class 9 dangerous good during transport. To be safely transported (by air, sea, rail or roadways), they must meet various international, national, state and local regulations, including, for example, the provisions laid out in United Nations standard UN 38.3. This standard applies to batteries transported either on their own or installed in a device. UN 38.3 has been adopted by regulators and competent authorities around the world, thus making it a requirement for global market access. Our failure to manage the transportation of our batteries could subject us to increased costs or future liabilities. +Failure to comply with certain health and production safety laws and regulations governing hazardous materials could materially adversely affect our business and results of operations. +In the sourcing of our battery products throughout the world, we process, store, dispose of and otherwise use large amounts of hazardous materials. As a result, we are subject to extensive and evolving health and production safety laws and regulations governing, among other things: the health of our employees and safety production requirements regarding the generation, handling, storage, use and transportation of hazardous materials. Compliance with these laws and regulations results in ongoing costs. Failure to comply with these laws or regulations, or to obtain or comply with the relevant permits, could result in fines, criminal charges or other sanctions by regulators. Furthermore, we may be ordered to rectify a noncompliance within a stipulated deadline; and if we fail to do so, we may be ordered to cease operations. Our ongoing compliance with health and safety laws, regulations and permits could require us to incur significant expenses, limit our ability to modify or expand our facilities or continue manufacturing and make other capital improvements. In addition, private parties, including current or former employees, could bring personal injury or other claims against us due to the presence of, or exposure to, hazardous substances used, stored or disposed of by us or contained in our batteries. +We are or will be subject to anti-corruption and anti-bribery and anti-money laundering and similar laws, and non-compliance with such laws can subject us to administrative, civil and criminal fines and penalties, collateral consequences, remedial measures and legal expenses, all of which could adversely affect our business, results of operations, financial condition and reputation. +We are subject to the Foreign Corrupt Practices Act (the “FCPA”), the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, and possibly other anti-bribery and anti-corruption laws and anti-money laundering laws in various jurisdictions in which we conduct, or in the future may conduct, activities. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly to generally prohibit us and our officers, directors, employees, business partners, agents, representatives and third party intermediaries from corruptly offering, promising, authorizing or providing, directly or indirectly anything of value to recipients in the public or private sector. +We may leverage third parties to sell our battery products and conduct our business abroad. We, our officers, directors, employees, business partners, agents, representatives and third party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and we may be held liable for the corrupt or other illegal activities of these employees, agents, representatives, business partners or third party intermediaries even if we do not explicitly authorize such activities. We cannot assure you that all of our officers, directors, employees, business partners, agents, representatives and third party intermediaries will not take actions in violation of applicable law, for which we may be ultimately held responsible. As our international activities and sales expand, our risks under these laws may increase. +These laws also require companies to make and keep books, records and accounts that accurately reflect transactions and dispositions of assets and to maintain a system of adequate internal accounting controls and compliance procedures designed to prevent any such actions. While we have certain policies and procedures to address compliance with such laws, +37 +Table of Contents +Index to Consolidated Financial Statements +we cannot assure you that none of our officers, directors, employees, business partners, agents, representatives and third party intermediaries will take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. +Any allegations or violation of the FCPA or other applicable anti-bribery and anti-corruption laws and anti-money laundering laws could subject us to whistleblower complaints, adverse media coverage, investigations, settlements, prosecutions, enforcement actions, fines, damages, loss of export privileges, and severe administrative, civil and criminal sanctions, suspension or debarment from government contracts, collateral consequences, remedial measures and legal expenses, all of which could materially and adversely affect our reputation, business, financial condition, results of operations and prospects. Responding to any investigation or action will likely result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees. +We and our partners and suppliers are subject to governmental export and import controls that could impair our ability to compete in international markets or subject us to liability if we violate these controls. +Our battery products may be subject to U.S. and international export control laws and regulations including the Export Administration Regulations, the International Traffic in Arms Regulations, and trade and economic sanctions maintained by the Office of Foreign Assets Control. As such, an export license is required to export, re-export, or transfer certain battery products to certain countries, end-users, and end-uses. For example, recent regulatory developments in China have introduced new export controls on certain lithium-ion batteries, the materials used in their production, and related manufacturing equipment and technologies. Enforcement of these controls has been suspended until at least November 2026, pending the outcome of further negotiations between United States and China. These measures, once they are enforced, could affect our partners and suppliers, disrupt our supply chain, increase costs, or require us to diversify our supply chain. If we were to fail to comply with such export controls laws and regulations, economic sanctions, or other similar laws, we could be subject to both civil and criminal penalties, including substantial fines, possible incarceration for employees and managers for willful violations, and the possible loss of our export or import privileges. Obtaining the necessary export license for a particular sale or offering may not be possible and may be time-consuming and may result in the delay or loss of sales opportunities. Furthermore, U.S. export control laws and economic sanctions prohibit the export of products to certain U.S. embargoed or sanctioned countries, governments, and persons, as well as for prohibited end-uses. Even though we take precautions to ensure that we and our partners comply with all relevant export control laws and regulations, any failure by us or our partners to comply with such laws and regulations could have negative consequences for us, including reputational harm, government investigations and penalties. +Changes in our battery products or additional changes in export and import regulations in such countries may create delays in the introduction of our products into international markets, prevent our end-customers with international operations from deploying our battery products globally or, in some cases, prevent or delay the export or import of our battery products to certain countries, governments or persons altogether. Any change in export or import laws or regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing export, import or sanctions laws or regulations, or change in the countries, governments, persons, or technologies targeted by such export, import or sanctions laws or regulations, could result in decreased use of our battery products by, or in our decreased ability to export or sell our battery products to, existing or potential end-customers with international operations. Any decreased use of our battery products or limitation on our ability to export to or sell our battery products in international markets could adversely affect our business, financial condition and results of operations. +We may be subject to U.S. foreign investment regulations which may impose conditions on or limit certain investors’ ability to purchase our stock, potentially making the stock less attractive to investors. Our future investments in U.S. companies may also be subject to U.S. foreign investment regulations. +Certain investments that involve the acquisition of, or investment in, a U.S. business by a non-U.S. investor may be subject to review and approval by the Committee on Foreign Investment in the United States (“CFIUS”). Whether CFIUS has jurisdiction to review an acquisition or investment transaction depends on, among other factors, the nature and structure of the transaction, including the level of beneficial ownership interest and the nature of any information or governance rights involved. For example, investments that result in “control” of a U.S. business by a foreign person always are subject to CFIUS jurisdiction. Significant CFIUS reform legislation, which was fully implemented through regulations that became effective on February 13, 2020, expanded the scope of CFIUS’s jurisdiction to investments that do not result in control of a U.S. business by a foreign person but afford certain foreign investors certain information or governance rights in a U.S. business that has a nexus to “critical technologies,” “critical infrastructure” and/or “sensitive personal data.” Based on its export control classification, some of our battery technology is considered a “critical technology.” +38 +Table of Contents +Index to Consolidated Financial Statements +CFIUS could choose to review past or proposed transactions involving us or new or existing foreign investors in us even if a filing with CFIUS is or was not required at the time of the transaction. Any review and approval of an investment or transaction by CFIUS may have outsized impacts on transaction certainty, timing, feasibility, and cost, among other things. CFIUS policies and practices are rapidly evolving, and in the event that CFIUS reviews one or more proposed or existing transactions involving us, there can be no assurances that the transaction parties will be able to maintain, or proceed with, such transactions on terms acceptable to them. For example, CFIUS could seek to impose limitations or restrictions on, or prohibit, investments by such investors (including, but not limited to, limits on purchasing our stock, limits on information sharing with such investors, requiring a voting trust, governance modifications, or forced divestiture, among other things). +Recent and potential tariffs imposed by the United States government or a global trade war has and could continue to increase the cost of our products, which could have a material adverse effect on our business, financial condition and results of operations. +The United States government has and continues to make significant changes in United States trade policy and has taken certain actions that has and could continue to negatively impact trade, including imposing tariffs on certain goods imported into the United States. For example, the United States government has imposed and threatened to continue to impose significant tariffs on certain product categories imported from China and other nations. These countries have taken or have threatened to take retaliatory actions, including imposing additional tariffs on their importation of a wide range of products from the United States, which may lead to adverse impacts to global trade. Such tariffs imposed by the United States, if increased and/or expanded to other categories, could have a significant impact on our business, particularly the importation of parts of our batteries and certain production equipment that are manufactured in China. If we attempt to renegotiate prices with suppliers or diversify our supply chain in response to tariffs, such efforts may not yield immediate results or may be ineffective. We might also consider increasing prices to the end consumer; however, this could reduce the competitiveness of our products and adversely affect net sales. If we fail to manage these dynamics successfully, gross margins and profitability could be adversely affected. Increased tariffs or trade restrictions implemented by the United States and retaliatory actions by other countries could have a material adverse effect on our business, financial condition and results of operations. We cannot predict what actions may ultimately be taken with respect to tariffs or trade relations between the United States, China, or other countries, what products may be subject to such actions, or what actions may be taken by the other countries in retaliation. Any further deterioration in the relations between the United States, China, or other countries could exacerbate these actions and other governmental intervention. +In June 2022, the import restrictions contained in the Uyghur Forced Labor Prevention Act (“UFLPA”) became effective. The UFLPA creates a rebuttable presumption that any goods mined, produced or manufactured, wholly or in part in the Xinjiang Uyghur Autonomous Region (“XUAR”) of China, or produced by a listed entity, were made with forced labor and are not entitled to entry into the United States. If a shipment is detained, importers are required to present clear and convincing evidence that such goods are not made with forced labor. While we do not source goods from the XUAR or from listed parties, because we import from China, there is risk that our ability to import components and products may be adversely affected by the UFLPA. +The U.S. or foreign governments may take additional administrative, legislative, or regulatory action that could materially interfere with our ability to source from or sell products in certain countries. Sustained uncertainty about, or worsening of, current global economic conditions and further escalation of trade tensions between the United States and its trading partners, especially China, could result in economic downturns, business interruptions affecting the global economy and capital markets, such as uncertainty in the global markets, inflation, recessionary trends, and long-term changes to global trade, including retaliatory trade restrictions that restrict our ability to operate in China or other countries. Any alterations to our business strategy or operations made in order to adapt to or comply with any such changes would be time-consuming and expensive, and certain of our competitors may be better suited to withstand or react to these changes. +Our reliance on suppliers in foreign countries, including China and South Korea, subjects us to risks and uncertainties relating to foreign laws and regulations and changes in relations between the United States and such foreign countries. +Our battery materials are sourced primarily from China and we rely on contract manufacturing partners from China and South Korea for our SiCore batteries. In particular, under its current leadership, the government of China has been pursuing economic reform policies. However, there is no assurance that the Chinese government will continue to pursue such policies, that such policies will be successfully implemented, that such policies will not be significantly altered, or that such policies will be beneficial to our partners in China. +39 +Table of Contents +Index to Consolidated Financial Statements +China’s regulations affecting the exporting of battery materials and batteries can be unpredictable. China has implemented significant restrictions on the export of graphite, a key material for traditional lithium-ion batteries and recently announced that it plans to implement significant restrictions on other lithium battery materials, equipment and technology. Although our battery materials are generally available from multiple suppliers, China is the predominant producer of certain of these materials. If China were to restrict or stop exporting these materials, our ability to obtain such supply may be constrained and we may be unable to obtain sufficient quantities, or obtain supply in a timely manner, or at a commercially reasonable cost, or our contract manufacturers may be unable to export finished batteries that incorporate these materials to us. Constrained supply of battery materials may restrict our ability to manufacture certain of our products and make it difficult or impossible to compete with other battery companies who are able to obtain sufficient quantities of materials from China or other countries. Additionally, China announced recently that it plans to implement export licensing requirements on certain finished battery products. If China were to further restrict or stop exporting key materials and/or finished batteries, including our SiCore batteries, we may not be able to fulfill customers’ orders or we may incur losses when trying to meet our obligations, which may result in our customers seeking alternative batteries, and in turn, we could lose customers and face reputational harm or penalties. +Any regulatory changes and changes in United States and China relations, or changes in relations with the United States and any other country where we may source battery materials or batteries in the future, may have a material adverse effect on our partners in China and other such countries which could adversely affect our business, financial condition, results of operations and prospects. +From time to time, we may be involved in legal proceedings and commercial or contractual disputes, which could have an adverse impact on our profitability and financial position. +We may be involved in legal proceedings and commercial or contractual disputes that, from time to time, are significant. These are typically claims that arise in the normal course of business including, without limitation, commercial or contractual disputes, including warranty claims and other disputes with potential customers and suppliers, intellectual property matters, personal injury claims, environmental issues, tax matters and employment matters. +Furthermore, our predecessor, Kensington, was a special purpose acquisition company (“SPAC”). SPACs have been subject to increased regulatory oversight and scrutiny, including from the SEC. Any governmental or regulatory investigation or inquiry related to our business combination with Kensington on September 14, 2022 or otherwise could have a material adverse effect on our business and negatively affect our reputation. +It is difficult to predict the outcome or ultimate financial exposure, if any, represented by these matters, and there can be no assurance that any such exposure will not be material. Such claims may also negatively affect our reputation. +Risks Related to Ownership of Our Common Stock +Anti-takeover provisions in our certificate of incorporation, bylaws and Delaware law could make an acquisition of us more difficult, limit attempts by stockholders to replace or remove our management and limit the market price of our common stock. +Our certificate of incorporation (the “Certificate of Incorporation”), amended and restated bylaws (the “Bylaws”) and Delaware law contain provisions that could have the effect of rendering more difficult, delaying or preventing an acquisition deemed undesirable by our board of directors. These provisions include: +• authorizing “blank check” preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock; +• limiting the liability of, and providing indemnification to, our directors and officers; +• prohibiting cumulative voting in the election of directors; +• providing that vacancies on our board of directors may be filled only by majority of directors then in office of the board of directors, even though less than a quorum; +• prohibiting the ability of our stockholders to call special meetings; +• establishing an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to the board of directors; +• dividing directorships of our board of directors into three classes, each to be elected for a term of three years, so that only one class of directorships is up for election at each annual meeting of the stockholders; and +40 +Table of Contents +Index to Consolidated Financial Statements +• specifying that special meetings of our stockholders can be called only by a majority of the board of directors, the chair of the board of directors, or our CEO. +These provisions may frustrate or prevent any attempts by stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, it is governed by the provisions of Section 203 of the Delaware General Corporation Law (“DGCL”), which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder. +Our Bylaws provide, subject to limited exceptions, that the Court of Chancery of the State of Delaware and the federal district courts of the United States will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a chosen judicial forum for disputes with us or our directors, officers, employees or stockholders. +Our Bylaws provide that, unless otherwise consented to by us in writing, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, another State court in Delaware or the federal district court for the District of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for the following types of actions or proceedings: (i) any derivative action or proceeding brought on behalf of us; (ii) any action asserting a claim of breach of a fiduciary duty owed by, or otherwise wrongdoing by, any of our directors, officers, or other employees to us or our stockholders; (iii) any action arising pursuant to any provision of the DGCL or our Certificate of Incorporation or our Bylaws; (iv) any action to interpret, apply, enforce or determine the validity of our Certificate of Incorporation or our Bylaws; or (v) any other action asserting a claim that is governed by the internal affairs doctrine, in all cases subject to the court having jurisdiction over indispensable parties named as defendants. This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the U.S. federal courts have exclusive jurisdiction. The Bylaws further provide that, unless otherwise consented to by us in writing, the federal district courts of the United States will be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. +Any person or entity purchasing or otherwise acquiring any interest in our securities shall be deemed to have notice of and consented to this provision. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims. There is uncertainty as to whether a court would enforce such provisions, and the enforceability of similar choice of forum provisions in other companies’ charter documents has been challenged in legal proceedings. It is possible that a court could find these types of provisions to be inapplicable or unenforceable, and if a court were to find the choice of forum provision contained in the Bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition. +Concentration of ownership by shareholders of our common stock may prevent new investors from influencing significant corporate decisions. +Our stockholders, including our executive officers and directors who are stockholders, individually or collectively, may be able to exercise a significant level of control over all matters requiring stockholder approval, including the election of directors, any amendment of the Certificate of Incorporation and approval of significant corporate transactions. This control could have the effect of delaying or preventing a change of control or changes in our management and will make the approval of certain transactions difficult or impossible without the support of these stockholders and of their votes. +We incurred and may continue to incur significant expenses and administrative burdens as result of operating as a public company, which could have an adverse effect on our business, financial condition and results of operations. +As a public company, we incurred and may continue to incur significant amounts of legal, accounting, insurance, other administrative expenses and other costs. The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), including the requirements of Section 404, as well as rules and regulations subsequently implemented by the SEC, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations promulgated and to be promulgated thereunder, the Public Company Accounting Oversight Board and the securities exchanges imposed and may impose additional reporting and other obligations on public companies. The development and implementation of any additional work to comply with those or other requirements imposed on public companies may result in an increase in our operating costs. For example, we may expand our employee base to support our operations as a public company, which may increase our operating costs in future periods. In addition, if we encounter any issues in complying with those requirements, such as +41 +Table of Contents +Index to Consolidated Financial Statements +if we identify a material weakness or significant deficiency on our internal controls over financial reporting, we may incur additional costs to remediate those issues. Moreover, the existence of those issues could adversely affect our reputation or our investors’ perceptions of us. The additional reporting and other obligations imposed by these rules and regulations have and will continue to increase legal and financial compliance costs of related legal, accounting and administrative expenses. These increased costs will require us to use our funds that could otherwise be used for our research and development programs and to achieve our strategic objectives. Advocacy efforts by stockholders and third parties may also prompt additional changes in governance and reporting requirements, which could further increase costs. +We do not expect to declare any dividends in the foreseeable future. +We do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors may need to rely on sales of their shares after price appreciation, which may never occur, as the only way to realize any future gains on their investment. +If securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our market, or if they change their recommendations regarding our securities adversely, the price and trading volume of our securities could decline. +The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, market or competitors. If any of the analysts who may cover us change their recommendation regarding our common stock adversely, or provide more favorable relative recommendations about our competitors, the price of our common stock and warrants would likely decline. If any analyst who may cover us were to cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. +We qualify as an “emerging growth company” and a “smaller reporting company” within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies or smaller reporting companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies. +We qualify as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startups (the “JOBS Act”). As such, we are eligible for and currently take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies for as long as we continue to be an emerging growth company, including (i) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act, (ii) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (iii) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. As a result, our stockholders may not have access to certain information they may deem important. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which the market value of our common stock that are held by non-affiliates exceeds $700.0 million as of June 30 of that fiscal year, (ii) the last day of the fiscal year in which we have total annual gross revenue of $1.235 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which we have issued more than $1.0 billion in non-convertible debt in the prior three-year period or (iv) December 31, 2027. In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the exemption from complying with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act as long as we are an emerging growth company. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected not to opt out of such extended transition period and, therefore, we may not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. Investors may find our common stock less attractive because we rely on these exemptions, which may result in a less active trading market for our common stock and its price may be more volatile. +Additionally, we qualify as a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We expect to remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of our common stock held by non-affiliates exceeds $250.0 million as of the prior June 30, or (ii) our annual revenues exceeded $100.0 million during such completed fiscal year and the market value of our common stock held by non-affiliates exceeds $700.0 million as of the prior June 30. To the extent we take advantage of such reduced disclosure obligations, comparison of our financial statements with other public companies may be difficult or impossible. +42 +Table of Contents +Index to Consolidated Financial Statements +Sales of substantial amounts of our common stock in the public markets, or the perception that such sales could occur, could cause the market price of our common stock to drop significantly, even if our business is doing well. +Sales of a substantial number of shares of our securities in the public market could occur at any time. For example, we filed a resale registration in September 2022 that covered at initial effectiveness the resale of up to 105,680,194 shares of our common stock (assuming the exercise in full of all of the warrants registered thereunder), as well as the shares underlying the remainder of our public warrants, and we have and we may from time to time take additional actions to register offerings of currently outstanding or newly issued shares of our common stock. +These sales and any future sales of a substantial number of shares of our securities in the public market or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our securities. Despite such a decline in the public trading price, certain securityholders may still experience a positive rate of return on the securities they purchased due to the lower price that they purchased their shares compared to other public investors and be incentivized to sell securities when others are not. +Additionally, we have filed registration statements to register the following: +i. Shares reserved for future issuance, including shares issuable upon vesting of the outstanding restricted stock units, under the Amprius Technologies, Inc. 2022 Equity Incentive Plan; +ii. Shares reserved for future issuance under the Amprius Technologies, Inc. 2022 Employee Stock Purchase Plan; +iii. Shares issuable upon exercise of the options outstanding under the Amprius Technologies, Inc. 2016 Equity Incentive Plan; and +iv. Shares issuable upon exercise of the options outstanding under the Amprius Holdings 2008 Stock Plan and the Amprius Holdings Second Equity Incentive Plan. +Subject to applicable securities laws and the satisfaction of any vesting restriction, the shares issued thereunder will be available for immediate resale in the public market. +We may issue additional shares of common stock under an employee incentive plan (including the 2022 Equity Incentive Plan and the Employee Stock Purchase Plan), or may issue preferred stock. Any such issuances would dilute the interest of our stockholders and likely present other risks. +We may issue a substantial number of additional shares of common stock under our employee incentive plan (including the 2022 Equity Incentive Plan and the Employee Stock Purchase Plan) or we may issue preferred stock. The issuance of additional securities: +• may significantly dilute the equity interests of our investors; +• may subordinate the rights of our stockholders if preferred stock is issued with rights senior to those afforded our common stock; +• could cause a change in control if a substantial number of securities are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors; and +• may adversely affect prevailing market prices for our common stock and/or warrants. +Risks Related to Our Warrants +There is no guarantee that our warrants will be in the money, and they may expire worthless. +On May 13, 2024, we offered the holders of our public and private warrants the opportunity to exercise their warrants for cash at a temporarily reduced exercise price of $1.10 per share. This cash tender offer expired on June 11, 2024. Subsequent to the expiration of such cash tender offer, on June 24, 2024, we made a separate tender offer to the holders of the unexercised private warrants an opportunity to exchange their warrants for shares of our common stock based on an exchange ratio of 0.197 as approved by the board of directors. Such exchange offer expired on July 23, 2024. The exercise price of our outstanding private warrants and public warrants is $11.50 per share. The exercise price of our warrants issued as part of units in a private placement (the “PIPE warrants”) is $12.50 per share. +We do not currently have any plan of additional arrangements for our outstanding private warrants, public warrants and PIPE warrants. The likelihood that warrant holders will exercise the warrants and any cash proceeds that we would +43 +Table of Contents +Index to Consolidated Financial Statements +receive is dependent upon the market price of our common stock. If the market price for our common stock is less than $11.50 per share, in the case of our private warrants and public warrants, or $12.50 per share, in the case of our PIPE warrants, we believe warrant holders will be unlikely to exercise their warrants. There is no guarantee that the warrants will be in the money prior to their expiration, and as such, the warrants may expire worthless. +We may redeem unexpired public warrants prior to their exercise at a time that is disadvantageous to the warrant holders, thereby making the public warrants worthless. +We have the ability to redeem outstanding public warrants or PIPE warrants at any time prior to their expiration, at a price of $0.01 per warrant, provided that the last reported sales price of our common stock equals or exceeds $18.00 per share (as may be adjusted), in the case of the public warrants, or $20.00 per share (as may be adjusted), in the case of the PIPE warrants, for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which we send the notice of redemption to public warrant or PIPE warrant holders and provided certain other conditions are met. If and when the public warrants or PIPE warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. As a result, we may redeem the public warrants or PIPE warrants as set forth above even if the holders are otherwise unable to exercise the public warrants or PIPE warrants. Redemption of the outstanding public warrants or PIPE warrants could force holders (i) to exercise public warrants or PIPE warrants and pay the exercise price therefor at a time when it may be disadvantageous, (ii) to sell public warrants or PIPE warrants at the then-current market price when holders might otherwise wish to hold public warrants or PIPE warrants or (iii) to accept the nominal redemption price that, at the time the outstanding public warrants or PIPE warrants are called for redemption, may be substantially less than the market value of the public warrants or PIPE warrants. +We may amend the terms of the warrants in a manner that may be adverse to holders of warrants with the approval by the holders of at least 50% of the then outstanding warrants. As a result, the exercise price of warrants could be increased, the exercise period could be shortened and the number of shares of common stock purchasable upon exercise of a warrant could be decreased, all without warrant holder approval. +The public warrants and private warrants were issued in registered form under the respective warrant agreements. The Warrant Agreement, dated as of March 1, 2022 (as amended, the “Warrant Agreement”), by and among us and Continental Stock Transfer & Trust Company, provides that the terms of the public warrants and private warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision but requires the approval by the holders of at least 50% of the then outstanding public warrants to make any change that adversely affects the interests of the registered holders of public warrants and, solely with respect to any amendment to the terms of the private warrants or any provision of the Warrant Agreement with respect to the private warrants, 50% of the number of the then outstanding private warrants. The Warrant Agreement, dated as of September 14, 2022, by and among us and Continental Stock Transfer & Trust Company, provides that the terms of the PIPE warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision but requires the approval by the holders of at least 50% of the then outstanding PIPE warrants to make any change that adversely affects the interests of the registered holders of PIPE warrants. Accordingly, we may amend the terms of the warrants in a manner adverse to a holder if holders of at least 50% of such then-outstanding warrants approve of such amendment. Although our ability to amend the terms of the warrants with the consent of at least 50% of such then-outstanding warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the warrants, convert the warrants into cash or shares, shorten the exercise period or decrease the number of shares of common stock issuable upon exercise of a warrant. +The warrants are exercisable for common stock, which would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders. +As of December 31, 2025, we had a total of 16,492,472 public warrants, 300,000 private warrants and 2,052,500 PIPE warrants outstanding. The exercise price of the private warrants and public warrants is $11.50 per share, and the exercise price of the PIPE warrants is $12.50 per share, though we and, in certain cases, the warrant agent have the ability to amend the applicable warrant agreement to reduce the exercise price, including to a price that is below the current trading price for our common stock. To the extent the warrants are exercised, additional shares of common stock will be issued, which will result in dilution to the holders of common stock and increase the number of shares eligible for resale in the public market. Shares of common stock issuable pursuant to the warrants are not subject to lock-up restrictions. As such, once the warrants are exercised, the holder of such shares issuable upon the exercise of the warrants will be able to resell the shares to the market, subject to other applicable laws. Sales of substantial numbers of such shares in the public market or the fact that such warrants may be exercised could adversely affect the market price of our common stock. +44 +Table of Contents +Index to Consolidated Financial Statements +Further, there is no guarantee that the warrants will ever be in the money prior to their expiration, and as such, such warrants may expire worthless. +Item 1B. Unresolved Staff Comments +None. +Item 1C. Cybersecurity +We recognize the critical importance of maintaining the safety and security of our systems and data and we believe we have a holistic process for assessing, identifying and managing cybersecurity and related risks. In general, we seek to address cybersecurity risks through a comprehensive, cross-functional approach. Our board of directors is actively involved in oversight of our risk management program, and cybersecurity represents an important component of our overall approach to enterprise risk management. Senior management also devotes significant resources to cybersecurity and risk management processes as well as to adapting to the changing cybersecurity landscape and responding to emerging threats in a timely and effective manner. +Risk Management and Strategy +We devote significant resources and designate high-level personnel, including our Chief Financial Officer (“CFO”), to manage the risk assessment and mitigation process. We conduct periodic risk assessments to identify cybersecurity threats, as well as assessments in the event of a material change in our business practices that may affect information systems that are vulnerable to such cybersecurity threats. These risk assessments include identification of reasonably foreseeable internal and external risks, the likelihood and potential damage that could result from such risks, and the sufficiency of existing policies, procedures, systems, and safeguards in place to manage such risks. +Following these risk assessments, we re-design, implement, and maintain reasonable safeguards to minimize identified risks; reasonably address any identified gaps in existing safeguards; and regularly monitor the effectiveness of our safeguards. +As part of our overall risk management system, we monitor and test our safeguards and train our employees on these safeguards, in collaboration with human resources, IT, and management. Personnel at all levels and departments are made aware of our cybersecurity policies through trainings and related documentation. +We engage third parties in connection with our risk assessment processes . These service providers assist us in designing and implementing our cybersecurity policies and procedures, as well as in monitoring and testing our safeguards. We also engage third-party service providers in connection with our business. We require each such third-party service provider to certify that it has the ability to implement and maintain appropriate security measures, consistent with all applicable laws, to implement and maintain reasonable security measures in connection with their work with us, and to promptly report any suspected breach of its security measures that may affect our company. +For additional information regarding cybersecurity threats that are reasonably likely to materially affect our company, including our business strategy, results of operations, or financial condition, please refer to the section titled “Risk Factors” above. +Governance +Our board of directors, led by the Audit Committee, oversees our enterprise risk management, including the management of risks arising from cybersecurity threats. Management provides the board of directors with quarterly cybersecurity reports, which include a review of key performance indicators, test results and related remediation, and recent threats and how the Company is managing those threats. Our board of directors also receives prompt and timely information regarding any cybersecurity incident that meets established reporting thresholds, as well as ongoing updates regarding any such incident until it has been remediated. The chairman of our board of directors, Mr. Donald R. Dixon, is a Director for Business Executives for National Security (BENS.org), and a member of the Aspen Institute’s Cybersecurity Group, the nation’s leading cross-sector public-private cybersecurity forum and he has extensive experience leading cyber security oversight. +Our CFO is responsible for developing and implementing our information security program and reporting on cybersecurity matters to our board of directors. Our CFO has extensive experience in managing IT, software and hardware systems and leading cybersecurity oversight. He works closely with our third-party managed service provider and managed +45 +Table of Contents +Index to Consolidated Financial Statements +security service provider to oversee cybersecurity risks, advise on employee trainings and respond to new risks and threats when they occur. We view cybersecurity as a shared responsibility by all operations, and we engage third-party vendors to periodically perform simulations and tabletop exercises across our company and incorporate other external resources and advisors as needed. All employees are required to complete online cybersecurity trainings every six months containing topics about cybersecurity risks awareness and how to prevent them, such as phishing, ransomware, malware, and social engineering attacks, among others. In addition, all newly hired employees are required to complete a one-hour online cybersecurity training during their onboarding process. +We face a number of cybersecurity risks in connection with our business. Although such risks have not materially affected us, including our business strategy, results of operations or financial condition, to date, we have, from time to time, experienced threats to and breaches of our data and systems, including ransomware. While we maintain cybersecurity insurance, the costs related to cybersecurity threats or disruptions may not be fully insured. For more information about the cybersecurity risks we face, see the section titled “Risk Factors” above. +Item 2. Properties +We lease our corporate headquarters and manufacturing facilities, which consisted of the following as of December 31, 2025: +• Approximately 51,000 square feet of leased space located in Fremont, California. This leased property, which we use for our corporate headquarters, research and development, and manufacturing of our batteries, expires in June 2027 with an option to extend for an additional 5-year period up to June 2032. +• Approximately 774,000 square feet of leased space located in Brighton, Colorado, which expires in May 2039 with an option to extend for two additional 5-year periods up to May 2049. When we signed the lease agreement in April 2023, we announced a plan to build a GWh-scale manufacturing facility in those premises. As of December 31, 2025, due to larger industry dynamics, particularly our ability to access global contract manufacturing to rapidly service the demand from our customers, we recorded $19.1 million in impairment charges to the associated right-of-use asset and construction-in-progress to reflect our intention to terminate the lease of the Brighton facility. On January 30, 2026, we entered into an agreement with the lessor to terminate this lease in exchange for a one-time payment of $20.0 million. The termination of the lease will be reflected in our financial results in our fiscal first quarter of 2026. +We believe that our facilities are adequate to meet our needs for the immediate future, and that, should it be needed, suitable additional space will be available to accommodate any such expansion of our operations. +Item 3. Legal Proceedings +From time to time, we may become involved in litigation or other legal proceedings. We are not currently a party to any litigation or legal proceedings that are likely to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors . +Item 4. Mine Safety Disclosures +None +46 +Table of Contents +Index to Consolidated Financial Statements +Part II +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +Market Information +Our common stock and public warrants began trading on the NYSE under the symbol “AMPX” and “AMPX.W”, respectively, on September 15, 2022. Prior to that date, there was no public trading market for our common stock and public warrants. +Holders +A s of February 27, 2026, there were 82 holders of record of our common stock and 9 holders of record of our public warrants. Th e actual number of stockholders of our common stock is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares of common stock are held in street name by banks, brokers and other nominees. +Dividends +We have not declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our capital stock in the foreseeable future. Any future determination to declare dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant. +Recent Sales of Unregistered Equity Securities +None. +Issuer Purchases of Equity Securities +None. +Item 6. Reserved +Not applicable. +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +You should read the following discussion and analysis of our financial condition and results of operations together with our audited financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the sections titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” in this Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. +Overview +We develop, manufacture and market lithium-ion batteries for mobility applications, including aviation, ground and marine vehicles. We have been in commercial battery production since 2018 and our disruptive silicon anode technology is intended to enable batteries with higher energy density, higher power density and fast charging capabilities over a wide range of operating temperatures. This results in our batteries providing superior performance compared to conventional graphite lithium-ion batteries. Our silicon anodes are a direct drop-in replacement of the graphite anode in traditional lithium-ion batteries, and our manufacturing processes leverage the manufacturing processes for conventional lithium-ion batteries and the related supply chain. +Currently, our batteries are primarily used for existing and emerging aviation applications, including UAS, such as drones and HAPS. We believe our proprietary technology has the potential for broad application in electric transportation. +47 +Table of Contents +Index to Consolidated Financial Statements +Our batteries and their performance specifications have been tested and validated for application by various customers, including our longtime partners such as AALTO Airbus, AeroVironment, BAE Systems, Kraus Hamdani Aerospace, Teledyne FLIR and the U.S. Army. Our total customer engagements since inception grew to over 500 with shipments to hundreds of customers during the year ended December 31, 2025. In addition, from our inception through December 31, 2025, we have shipped over 4.2 million units of batteries, which have enabled mission critical applications. Our proprietary silicon anode structures, battery cell designs and manufacturing processes are protected by our portfolio of patents, trade secrets and know-how developed over 15 years of research and development. +Our SiCore batteries were developed in collaboration with Berzelius. We began limited shipment of SiCore batteries in 2023, which generated a strong demand from our customers. In order to support such demand, we entered into the Exclusive Supply Agreement with Berzelius in November 2023, which gives us exclusive rights to purchase its proprietary silicon anode materials in the United States, Canada and Mexico. In January 2024, we announced the full commercial launch of our SiCore batteries and accelerated engagement with our addressable markets. We entered into manufacturing supply agreements with three global contract manufacturing companies, which provided us an opportunity to rapidly scale production and ship a large volume of SiCore batteries to our customers. As of December 31, 2025, we had access, through our manufacturing supply agreements with our global contract manufacturers, including the addition of a consortium of South Korean companies that contribute capabilities across the lithium-ion battery value chain (the “Amprius Korea Battery Alliance”), to annual production exceeding 2.0 GWh of SiCore batteries in pouch, cylindrical and prismatic formats. +During 2025, we manufactured our SiMaxx batteries in our facility in Fremont, California. To support increased demand for our SiCore batteries, as of December 2025 and going forward into 2026, we are expanding this facility to increase the capacity of our pilot line to 10 MWh and expand our capabilities to support quick turn SiCore customer prototypes. This expansion is accelerated by our contract with the DIU. +In April 2023, we entered into a lease agreement to lease approximately 774,000 square feet of premises in Brighton, Colorado and announced a plan to build a GWh-scale manufacturing facility in those premises. As of December 31, 2025, we completed our pre-construction planning for this facility. However due to larger industry dynamics, particularly our ability to access global contract manufacturing to rapidly service the demand from our customers, we recorded a $19.1 million impairment charge to the associated right-of-use asset and construction-in-progress to reflect our intention to terminate the lease of the Brighton facility. On January 30, 2026, we entered into an agreement with the lessor to terminate this lease in exchange for a one-time payment of $20.0 million. The termination of the lease will be reflected in our financial results in our fiscal first quarter of 2026. We believe that our contract manufacturing strategy enables rapid capacity expansion with minimal capital investment. +Sales Agreement +On October 2, 2023, we entered into the Sales Agreement with the Sales Agents, pursuant to which we may offer and sell, from time to time, through or to any Sales Agent, shares of our common stock with an aggregate offering price of not more than $100.0 million, as described in the prospectus supplement, dated October 10, 2023, filed with the SEC. On December 4, 2025, we completed the sale of shares of our common stock available under the Sales Agreement. +During the year ended December 31, 2025 and from the date of the Sales Agreement through December 31, 2025, we sold shares of our common stock under the Sales Agreement resulting in aggregate net proceeds of approximately $63.7 million and $97.5 million, respectively. +Known Trends, Demands, Commitments, Events, or Uncertainties Impacting Our Business +We believe that our performance and future success depends on several factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in the section titled “Risk Factors.” +Establishing Global Network of Contract Manufacturing Partnerships +As of December 31, 2025, we produce SiCore batteries by leveraging Berzelius’ existing production line and through our manufacturing supply agreements with global contract manufacturers, including our participation in the Amprius Korea Battery Alliance. In order to meet the increased demand for our SiCore batteries, we plan to expand our global network of contract manufacturing partnerships in the future. Some of the challenges that we may encounter when we enter into a manufacturing supply arrangement include, among others, supply chain risks, risk of losing control over the manufacturing process of our SiCore batteries, which could lead to quality control issues, delay in production, increase in production costs, and non-compliance with our established standards. In addition, we may encounter a risk of losing control of some of +48 +Table of Contents +Index to Consolidated Financial Statements +our intellectual property. While we plan to set up business processes, including adding oversight and quality control procedures, in order to manage our contract manufacturing supply arrangements, there can be no assurance that such processes will be effective. As of December 31, 2025, we had access, through our manufacturing supply agreements with our global contract manufacturers including the Amprius Korea Battery Alliance, to annual production exceeding 2.0 GWh of SiCore batteries in pouch, cylindrical and prismatic formats. These agreements provide us an opportunity to scale production and ship a large volume of SiCore batteries to our customers. In addition, if we partner with other contract manufacturers in the future, we plan to select large, experienced and reputable contract manufacturing companies. +Establishing Manufacturing Capacity +As of December 31, 2025, we had access to annual production exceeding 2.0 GWh of SiCore batteries in pouch, cylindrical and prismatic formats through our existing manufacturing supply agreements with our global contract manufacturers, including the Amprius Korea Battery Alliance. During 2025, we manufactured our SiMaxx batteries in our facility in Fremont, California. To support increased demand of our SiCore batteries, as of December 2025 and going forward into 2026, we are expanding this facility to increase the capacity of our pilot line to 10 MWh and expand our capabilities to support quick turn SiCore customer prototypes. This expansion is accelerated by our contract with the DIU. +In April 2023, we entered into a lease agreement to lease approximately 774,000 square feet of premises in Brighton, Colorado. As of December 31, 2025, due to larger industry dynamics, particularly our ability to access global contract manufacturing to rapidly service the demand from our customers, we recorded $19.1 million in impairment charges to the associated right-of-use asset and construction-in-progress to reflect our intention to terminate the lease of the Brighton facility. On January 30, 2026, we entered into an agreement with the lessor to terminate this lease in exchange for a one-time payment of $20.0 million. The termination of the lease will be reflected in our financial results in our fiscal first quarter of 2026. We believe that our contract manufacturing strategy enables rapid capacity expansion with minimal capital investment. +Achieving capacity at commercial scale of our high energy density lithium-ion batteries may require us to make significant and increasing capital expenditures to scale our contract manufacturing capacity and improve our supply chain processes. Our ability in the future to generate revenue sufficient to achieve profitability will depend largely on our ability to scale production to meet the expected market demand for our products. Accordingly, the drivers of our future financial results, as well as the components of such results, may not be comparable to our historical results of operations. +The fiscal 2026 National Defense Authorization Act (“NDAA”) includes new provisions and rules that are expected to impact battery suppliers to the United States Government over the next several years. Defense contractors must adapt to new restrictions regarding the source of battery components and materials. Our contract with the DIU includes provisions for us to research and adapt our supply chain to meet the new requirements. +Highly Competitive Market +Our competition includes both established manufacturers and new entrants that are developing new battery technologies and chemistries to address the growing market for electrified transportation solutions. We believe the manufacturers of these batteries will continue to invest funds, time and effort to improve the capabilities of their batteries with the recent developments of silicon anode batteries as a potential alternative to conventional graphite batteries. Currently, we believe that we have the only known anode technology using a 100% silicon anode that is free of any inactive additives. In addition, we believe that we are the leading company in the market that has a high-performance battery that can meet the requirements of aviation and LEV applications. We are not currently producing batteries for EVs. The EV battery industry has a limited number of commercially available batteries that meet the minimum performance specifications. This creates a fast-growing and highly competitive industry for many battery manufacturers to claim market share for commercially acceptable batteries. We believe that there is significant room for improvement in the EV industry in driving range and fast charging capabilities that our silicon technology may address. To compete in the EV industry, we expect that we will need to significantly reduce our manufacturing costs, increase form factors and increase production quantity. One or more of our competitors and potential future entrants may be better capitalized to expand production capacities, have greater resources to commercialize and have greater access to customers in either or both the aviation and EV markets. As such, we may be at a competitive disadvantage and be unable to retain or grow our market share. +We expect to continue investing in the development of battery technology with the goal of enabling commercial production. We continue to develop customized battery solutions and deliver standardized samples (i.e., prototypes) of +49 +Table of Contents +Index to Consolidated Financial Statements +batteries to industry leading manufacturers as well as to certain federal government agencies. We plan to focus our research and development on the following key areas: +• Improving battery life. To continue to meet the specific needs of our customers and drive adoption of our batteries in new areas of electrified transportation, including the EV space. We are working with chemical compounds as potential additives to the silane gas we use to produce our silicon anodes, which have demonstrated the potential to improve cycle life without negatively impacting other performance characteristics such as energy density. +• Further improvements to energy density. We are engaged in ongoing development activities to explore different cathode materials, including a conversion cathode, to further improve the energy density of our batteries. +• Larger cell form factors. The batteries we have developed and are developing for our customers are typically approximately up to 15Ah for small-sized aircraft. As we expand our customer base, we expect to develop larger form factor batteries for broader electrified transportation applications. +As a result of these efforts, our goal is to fully realize the benefits of our silicon anode technology and develop the highest performing products in the market. +Regulatory Landscape +We operate in an industry that is subject to many established environmental regulations, which have generally become more stringent over time. As we process, store, dispose of, transport, and use hazardous materials, we are subject to laws and regulations surrounding battery safety and transportation, as well as health and production safety laws and regulations governing hazardous materials. If we fail to comply with existing and future laws and regulations, our business and results of operations could be adversely affected, such as the imposition of fines, litigation, criminal charges, sanctions by regulators, or other liabilities. As future regulatory changes are uncertain, we are unable to measure the impact of such changes on our business and our results of operations. +Global Risks +Abrupt political change, terrorist activity, and armed conflict, including the conflicts between Ukraine and Russia and in the Middle East has had an adverse impact on the global economy and financial markets. Although our business operations have not been directly impacted by such events to date, our batteries are incorporated into end products that are used by defense industry customers in jurisdictions experiencing military conflict. As a result, any cessation or escalation of such conflicts could limit economic activity in the affected regions or impact our future sales. Conversely, any cessation or de-escalation of these conflicts could alter regional market dynamics and competitive conditions, which may create both opportunities and challenges. For example, while there is risk that a cessation of hostilities could curb demand for our products, due to a decrease of the need for combat zone drones, it is also possible that a cessation of hostilities could result in increased demand for our batteries for use in proactive defense, peace keeping or reconstruction efforts. The conflicts in these regions could impact our operations and sales, as well as those of our customers, suppliers and manufacturers, and we are not able to accurately predict the timing, outcome or broader impact to our financial condition and results of operations. +In addition, we face risks related to significant changes in the United States’ trade policy, such as the imposition or plan to impose significant tariffs on certain product categories imported from China and other countries. These countries have taken or plan to take retaliatory actions, including imposing additional tariffs on their importation of a wide range of products from the United States, which could potentially lead to adverse impacts on global trade. +The extent and future outcome of these global risks are highly unpredictable and uncertain and may adversely affect our future financial condition, results of operations and cash flows. +Components of Our Results of Operations +Revenue +We generate revenue from the (i) sale of finished battery products and (ii) arrangements for customization design services. The customization design services generally include designing and developing custom batteries by applying our existing technology into a customer’s required specifications and delivery of prototype batteries. We recognize revenue at the point in time when control is transferred to the customers, which is generally (i) upon shipment, in the case of sale of finished battery products, and (ii) upon completion and/or delivery of prototype batteries, in the case of customization design services. We also receive government grants and related arrangements from time to time, which we may present as a component of revenue or other income, and if related to assets as deferred grants, depending on the nature of the arrangement. We recognize and measure government grants at fair value when there is a reasonable assurance that we will +50 +Table of Contents +Index to Consolidated Financial Statements +comply with the conditions of the grants and we will receive the grants. We recognize government grants on a systematic basis over the periods in which we recognize as expenses the related costs for which the grants are intended to compensate. +Cost of Revenue +Cost of revenue, which includes the cost of finished goods sold and the cost of customization design services, are comprised primarily of purchase costs of SiCore batteries from Berzelius and our global contract manufacturing partners, costs of raw materials, labor costs, and allocation of overhead costs incurred in producing SiMaxx batteries or in performing the customization design services. Labor costs consist of personnel-related expenses such as salaries, employee benefits and stock-based compensation expense. Overhead and other costs consist primarily of outside services, utilities, rent, depreciation expense and other facilities-related costs. Costs related to batteries and design services are recognized in the same period as the associated revenue is recognized. In addition, we include under cost of revenue certain non-capitalizable expenses incurred during the preliminary stage of our plan to construct a GWh-scale manufacturing facility in Brighton, Colorado, such as re-zoning costs and engineering studies. We expect that our cost of revenue will increase for the foreseeable future as we increase the volume of orders for SiCore batteries and scale our business. +Research and Development (“R&D”) Expenses +R&D expenses consist mainly of personnel-related expenses such as salaries, employee benefits and stock-based compensation expense of our R&D personnel, outside contractors, materials, R&D equipment for which there is no alternative future use, and allocation of overhead costs, which include utilities, rent, depreciation expense and other facilities-related costs. Our R&D activities include the conceptual formulation and design of preproduction experimental prototypes and models. R&D expenses are expensed as incurred. We expect that our R&D expenses will increase for the foreseeable future as we continue to invest in activities to develop and enhance product capabilities, as well as build and test battery prototypes to meet the expected market demand. +Selling, General and Administrative (“SG&A”) Expenses +SG&A expenses consist mainly of personnel-related expenses such as salaries, employee benefits and stock-based compensation expense of our executive and administrative employees, as well as fees for professional and advisory services such as legal, accounting and audit. Selling, general and administrative expenses also include corporate insurance expense, including directors’ and officers’ insurance costs, and allocation of overhead costs, which include utilities, rent, depreciation expense and other facilities-related costs. We expect that our selling, general and administrative expenses will increase for the foreseeable future primarily due to costs for compliance-related requirements resulting from being a public company and investment in additional SG&A personnel to support the growth of our business. +Impairment and other +During the year ended December 31, 2025, these charges related to the impairment of the right-of-use asset for the lease of the Brighton, Colorado facility and related construction-in-progress for drawings and plans at that facility as well as the retirement of certain equipment in our Fremont, California facility that management decided to no longer use in our operations. +Other Income, Net +Other income, net consists mainly of interest income and the receipt in fiscal 2025 of a Federal manufacturing tax credit. +Provision for Income Taxes +Our provision for income tax consists of an estimate for U.S. federal and state income taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities, and changes in tax law. We maintain a valuation allowance against the full value of our U.S. federal and state net deferred tax assets because it is not more likely that our deferred tax assets will be recoverable. +51 +Table of Contents +Index to Consolidated Financial Statements +Results of Operations +Comparison of the Year Ended December 31, 2025 to the Year Ended December 31, 2024 +The following table summarizes our results of operations during the years ended December 31, 2025 and 2024 (Dollars in thousands): +Year ended December 31, Change +2025 2024 $ % +Revenue $ 73,011 $ 24,167 $ 48,844 202 % +Cost of revenue 64,747 42,497 22,250 52 % +Gross profit (loss) 8,264 (18,330) 26,594 (145) % +Gross margin 11% (76)% +Operating expenses: +Research and development 9,430 7,344 2,086 28 % +Selling, general and administrative 22,956 18,726 4,230 23 % +Impairment and other 22,524 1,862 20,662 1110 % +Total operating expenses 54,910 27,932 26,978 97 % +Loss from operations (46,646) (46,262) (384) 1 % +Other income, net: +Interest income and other, net 2,622 1,591 1,031 65 % +Total other income, net 2,622 1,591 1,031 65 % +Net loss $ (44,024) $ (44,671) $ 647 (1) % +Cost of revenue and operating expenses reported above include stock-based compensation as follows (amounts in thousands): +Year ended December 31, Change +2025 2024 $ % +Cost of revenue $ 633 $ 871 $ (238) (27) % +Research and development expense 1,246 936 310 33 % +Selling, general and administrative expense 5,531 5,536 (5) — % +Total stock-based compensation $ 7,410 $ 7,343 $ 67 1 % +Revenue +Revenue increased by $48.8 million, or 202%, to $73.0 million during the year ended December 31, 2025 from $24.2 million in the prior year. The increase was primarily due to a $49.5 million increase in sales of batteries, including a $48.1 million increase in sales of our SiCore batteries, resulting from an increase in new customers and the overall increase in volume of orders from new and existing customers; and a $0.5 million increase in government grants. The increase in revenue was offset by a $1.2 million decrease in customization design service revenue, which is non-recurring revenue. +Cost of Revenue +Cost of revenue increased by $22.2 million, or 52%, to $64.7 million during the year ended December 31, 2025 from $42.5 million in the prior year. The increase was primarily due to the increase in the volume of purchases for resale of finished SiCore batteries, as well as costs to produce SiMaxx batteries including personnel-related costs, the cost of materials, and overhead-related costs, primarily shared-facility costs, equipment and utilities. Cost of revenue includes cost related to our facility in Brighton, Colorado, that decreased to $6.6 million during the year ended December 31, 2025 from $9.8 million in the prior year. These were primarily facility-related costs for the lease that we terminated in January 2026. +Research and Development (“R&D”) Expense +R&D expense increased by $2.1 million, or 28%, to $9.4 million during the year ended December 31, 2025 from $7.3 million in the prior year. The increase was primarily due to the increase in R&D headcount, which resulted in the +52 +Table of Contents +Index to Consolidated Financial Statements +increase in personnel-related costs, including stock-based compensation expense, and increase in overhead-related costs, primarily shared-facility costs, equipment and utility costs. +Selling, General and Administrative (“SG&A”) Expense +SG&A expense increased by $4.2 million, or 23%, to $23.0 million during the year ended December 31, 2025 from $18.7 million in the prior year. The increase was primarily due to increases of $2.0 million in personnel-related costs related to hiring additional personnel and $2.2 million in professional fees and other administrative costs, partially offset by a decrease in corporate insurance costs, including a decrease in directors’ and officers’ insurance costs. +Impairment and other +The $22.5 million impairment and other during the year ended December 31, 2025 included $14.4 million for the impairment of the right-of-use asset and $4.7 million for construction-in-progress assets for the Brighton, Colorado facility as well as $3.5 million pertaining to the retirement of certain equipment at our Fremont facility. During the year ended December 31, 2024, we recognized a $1.9 million similar loss associated with the retirement of certain production equipment at our Fremont facility due to a change in our operating plans. +Other Income, Net +Other income, net increased by $1.0 million, or 65%, to $2.6 million during the year ended December 31, 2025 from $1.6 million in the prior year. The net increase was primarily due to receipt of a $0.5 million Federal manufacturing tax credit and $0.4 million proceeds from a government contract as well as an increase in interest income. +Liquidity and Capital Resources +Sources and Uses of Liquidity +Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, debt service, acquisitions, contractual obligations and other commitments. We assess liquidity in terms of our cash flows from operations and their sufficiency to fund our operating and investing activities. To meet our obligations, we must continually have sufficient liquid assets. +During the years ended December 31, 2025 and 2024, we have not incurred debt and have financed our operations primarily though revenue generated from operations and proceeds from the issuance of shares of our common stock. We expect to rely on our cash and cash equivalents, which was $90.5 million as of December 31, 2025, and revenue that we expect to generate from operations to meet our working capital and capital expenditure requirements for a period of at least twelve months from the date our financial statements included in this Annual Report on Form 10-K are issued. +As described below, we may receive additional cash if our stock warrants are exercised for cash. +As of December 31, 2025, we had completed the sale of shares of our common stock available under the Sales Agreement. The At Market Financing Sales Agreement provided the ability to receive additional cash from the offering and sale of our shares of our common stock with an aggregate offering price of not more than $100.0 million. From the date of the Sales Agreement through December 31, 2025, the cumulative net proceeds from the sales of shares of our common stock under the Sales Agreement totaled $97.5 million. As of December 31, 2025, there is no remaining cash that we could potentially raise under the At Market Financing. +We may also receive additional cash from our outstanding stock warrants if those stock warrants are exercised for cash. On May 13, 2024, we offered the holders of the public and private warrants the opportunity to exercise, for cash, their warrants at a temporarily reduced exercise price of $1.10 per warrant, and we also made a separate tender offer to the holders of private warrants to exchange their warrants, on a cashless basis, for shares of our common stock. The net proceeds from our cash tender offer, which expired on June 11, 2024, totaled $13.6 million. As of December 31, 2025, we had a total of 16,492,472 public warrants, 300,000 private warrants and 2,052,500 PIPE warrants outstanding. The exercise price of our public warrants and private warrants is $11.50 per warrant, and the exercise price of the PIPE warrants is $12.50 per warrant, although we have, and, in certain cases, together with the warrant agent have, the ability to amend the applicable warrant agreement to reduce the exercise price, including to a price that is below the trading price of our common stock at that time. We believe that the likelihood that warrant holders will exercise the warrants and any cash proceeds that we would receive is dependent upon market conditions. +53 +Table of Contents +Index to Consolidated Financial Statements +Our ability to become profitable is dependent upon future events, including obtaining adequate financing to fund our business plan, optimizing our manufacturing capacity, obtaining adequate supplier relationships, building our customer base, successfully executing our business and marketing strategy and hiring appropriate personnel. +We have incurred net losses to date. We expect our working capital requirements may increase materially in the near future as we scale our business, which could result in additional net losses. During the year ended December 31, 2025, our net loss was $44.0 million. We expect that the additional net losses in the future could be attributed to an increase in our operating expenses as we increase our headcount and incur costs to continue developing new products and other R&D initiatives. +We also expect that our capital expenditure requirements may increase materially as we build out our 10 MWh manufacturing pilot line in Fremont, California, though this expansion is partially funded through our $14.8 million contract with the DIU. In April 2023, we entered into a lease agreement to lease approximately 774,000 square feet of premises in Brighton, Colorado. As of December 31, 2025, due to larger industry dynamics, particularly our ability to access global contract manufacturing to rapidly service the demand from our customers, we recorded an $19.1 million impairment charge to the associated right-of-use asset and construction-in-progress to reflect our intention to terminate the lease of the Brighton facility. On January 30, 2026, we entered into an agreement with the lessor to terminate the lease in exchange for a one-time payment of $20.0 million. The termination of the lease will be reflected in our financial results in our fiscal first quarter of 2026. Our contract manufacturing strategy enables rapid capacity expansion with minimal capital investment. +As of December 31, 2025, our contractual obligations consisted primarily of our noncancellable operating lease agreements for our corporate headquarters and manufacturing facilities in Fremont, California and in Brighton, Colorado. As of December 31, 2025, the total future minimum lease payable, net of tenant improvement allowance, over the remaining weighted-average lease term of 12.6 years was approximately $68.9 million. Approximately $4.9 million of which is payable over the next twelve months. On January 30, 2026, we entered into an agreement with the lessor to terminate the lease of the Brighton facility in exchange for a one-time payment of $20.0 million. The termination of the lease is not adjusted in our December 31, 2025 results and will be reflected in our financial results in our fiscal first quarter of 2026. Please refer to Note 9 and Note 12 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information about our leases. +To the extent that our resources are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing. If financing is not available, or if the terms of financing are less desirable than we expect, we may be forced to take actions to reduce our capital or operating expenditures, including by reducing or delaying our production capacity expansion, which may adversely affect our business, operating results, financial condition and prospects. +Cash Flows +The following table summarizes our cash flows from operating, investing and financing activities for the periods presented (in thousands): +Year ended December 31, Change +2025 2024 $ +Net cash used in operating activities $ (31,134) $ (33,352) $ 2,218 +Net cash used in investing activities $ (4,400) $ (3,207) $ (1,193) +Net cash provided by financing activities $ 71,040 $ 47,153 $ 23,887 +Net Cash Used in Operating Activities +Our primary source of cash provided by operations is revenue from the sale of batteries and proceeds from a government grant. Our uses of cash in our operating activities primarily include payments for personnel-related costs, procurement of SiCore batteries, procurement of materials used to produce SiMaxx batteries and to conduct research, as well as professional fees, and other general corporate expenses. +Net cash used in operating activities decreased, to $31.1 million during the year ended December 31, 2025 from $33.4 million during the year ended December 31, 2024 primarily due to activity related to our 202% increase in revenue. +54 +Table of Contents +Index to Consolidated Financial Statements +Net Cash Used in Investing Activities +Our primary use of cash in investing activities is for purchases of property, plant and equipment. +Net cash used in investing activities increased to $4.4 million during the year ended December 31, 2025 from $3.2 million during the year ended December 31, 2024 primarily due the timing of equipment purchases and the construction of leasehold improvements in our manufacturing facility at Fremont in connection with our planned expansion. +Net Cash Provided by Financing Activities +Our primary source of cash provided by financing activities consists of proceeds from issuance of common stock. Our primary cash usage for financing activities consists of payments related to the issuance of common stock. +Net cash provided by financing activities increased to $71.0 million during the year ended December 31, 2025 from $47.2 million during the year ended December 31, 2024. Our primary sources of cash from financing activities for the year ended December 31, 2025 consisted of the net proceeds from the issuance of common stock under the Sales Agreement and the exercise of stock options, and for the year ended December 31, 2024 consisted of the net proceeds from the issuance of common stock under the Sales Agreement and the exercise of our public and private warrants. +Related Party and Other Transactions +Related Party Transactions +On October 23, 2024, our former parent company, Amprius Holdings, voluntarily liquidated and dissolved. As a result of such liquidation and dissolution, Amprius Holdings distributed, on a pro rata basis, an aggregate of approximately 57.2 million shares of our common stock to its stockholders, which include some of our executive officers and directors. In addition, we assumed all of Amprius Holdings’ outstanding options to purchase shares of Amprius Holdings’ Class A common stock, which include outstanding options held by some of our executive officers and directors, in exchange for, among other things, Amprius Holdings contributing to us a total of 5.5 million shares of our common stock that it owned. Those shares that were contributed to us were immediately cancelled and returned to our authorized but unissued share capital. Please refer to Notes 1 and 7 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information about the liquidation and dissolution of Amprius Holdings and the assumption of its outstanding options. +Other Transactions +Kang Sun, our then CEO at December 31, 2025, and our current director, serves as a member of the board of directors of Berzelius and its holding company. As of December 31, 2025 and 2024, Dr. Sun and our company had no direct or indirect controlling interest in Berzelius and its affiliates and, similarly, Berzelius and its affiliates had no direct or indirect controlling interest in our company. We developed our SiCore batteries through our collaboration with Berzelius. In November 2023, we entered into the Exclusive Supply Agreement with Berzelius, which gives us exclusive rights to purchase its proprietary silicon anode materials in the United States, Canada and Mexico. We purchased, and may continue to purchase, SiCore batteries and raw materials for our SiMaxx battery production and R&D activities from Berzelius. As of December 31, 2025, we had no purchase commitments with Berzelius. +Emerging Growth Company and Smaller Reporting Company Status +We are an emerging growth company as defined in the JOBS Act and may take advantage of reduced reporting requirements that are otherwise applicable to public companies. Section 107 of the JOBS Act exempts an emerging growth company from being required to comply with new or revised financial accounting standards until private companies are required to comply with those standards. This means that when a standard is issued or revised and it has different application dates for public and nonpublic companies, we have the option to adopt the new or revised standard at the time nonpublic companies adopt the new or revised standard and can do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. We have elected to use the extended transition period for complying with new or revised accounting standards unless we otherwise early adopt select standards. +We are also a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year +55 +Table of Contents +Index to Consolidated Financial Statements +in which (i) the market value of our common stock held by non-affiliates exceeds $250.0 million as of the prior June 30 or (ii) our annual revenue exceeds $100.0 million during such completed fiscal year and the market value of our common stock held by non-affiliates exceeds $700.0 million as of the prior June 30. +Critical Accounting Estimates +Our management’s discussion and analysis of our financial condition and results of operations is based on our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions. Our critical accounting estimates include estimates that require significant assumptions or that involve a significant level of uncertainty at the time the estimate was made, and changes in them may likely have a material effect on our financial condition or results of operations. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. +Our summary of significant accounting policies are more fully described in Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. +Leases +Our lease liabilities and right-of-use (“ROU”) assets are recognized based upon estimates. Our lease liabilities are initially recognized based upon the present value of the fixed lease payments while our ROU assets are initially recognized based upon the amount of the initial lease liabilities and adjustments for certain lease-related transactions. When we estimate the present value of our fixed lease payments, we generally use an incremental borrowing rate (“IBR”) since the implicit rates of our leases are not determinable. The IBR is determined based on an estimation process that includes subjective inputs, such as using a hypothetical credit analysis about the company, leveraging the corporate default and recovery rates published by a credit rating agency, and using risk-free and undiscounted rates of comparable companies. A change in the IBR, or the assumptions used to estimate the IBR, could have a significant effect on the amounts of the lease liabilities and ROU assets that we initially recorded and the amounts that are currently shown on our consolidated balances sheets included elsewhere in this Annual Form 10-K. +Stock-Based Compensation +Stock option grants are measured at fair value on the date of grant and recognized as stock-based compensation expense over the vesting period. The grant date fair value of our stock option grants is estimated using the Black-Scholes option-pricing model, which requires inputs that are based on subjective assumptions, such as the following: +• Expected term . Since we do not have a sufficient historical experience for determining the expected term, we derive the expected term based on the simplified method for awards that qualify as plain-vanilla options. +• Expected volatility . Since there is no sufficient trading history on the underlying common stock, we estimate volatility by evaluating the average historical volatility of a peer group of companies for the period immediately preceding the option grant for a term that is approximately equal to the option’s expected term. +• Risk-free interest rate. This is estimated based on a term equivalent to the estimated expected term of the option. +• Expected dividend . We use an expected dividend yield of zero because there had been no dividend payments in the past and there is no plan to pay dividends in the future associated with the underlying common stock. +• Fair value of the underlying common stock . For stock option grants made by Amprius Holdings to our employees or board members, the fair value of its common stock, which had no public market, is determined by its board of directors by considering a number of factors, including a valuation performed by an independent third party, which requires various assumptions. +Since the inputs used in the Black-Scholes option-pricing model described above are based on estimates, a change in any of those inputs could have a significant effect on the amount of stock-based compensation expense that we have already recognized and the remaining amount that we still have to recognize. +Recent Accounting Pronouncements +See Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further information about recent accounting pronouncements, the timing +56 +Table of Contents +Index to Consolidated Financial Statements +of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition and results of operations. +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide information under Item 7A. +57 +Table of Contents +Index to Consolidated Financial Statements +Item 8. Financial Statements and Supplementary Data +Index to Consolidated Financial Statements +Page Number +Report of Independent Registered Public Accounting Firm (BDO USA, P.C., Houston, TX) (PCAOB ID: 243 ) +59 +Consolidated Balance Sheets +60 +Consolidated Statements of Operations +61 +Consolidated Statements of Comprehensive Loss +62 +Consolidated Statements of Stockholders’ Equity +63 +Consolidated Statements of Cash Flows +64 +Notes to Consolidated Financial Statements +65 +Note 1. Overview +65 +Note 2. Summary of Significant Accounting Policies +66 +Note 3. Revenue +74 +Note 4. Inventories +75 +Note 5. Property, Plant and Equipment, Net +75 +Note 6. Accrued and Other Current Liabilities +76 +Note 7. Stockholders’ Equity +76 +Note 8. Income Taxes +80 +Note 9. Leases +82 +Note 10. Commitments and Contingencies +83 +Note 11. Net Loss Per Share +84 +Note 12. Subsequent Event +84 +58 +Table of Contents +Index to Consolidated Financial Statements +Report of Independent Registered Public Accounting Firm +Shareholders and Board of Directors +Amprius Technologies, Inc. +Fremont, California +Opinion on the Consolidated Financial Statements +We have audited the accompanying consolidated balance sheets of Amprius Technologies, Inc (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America. +Basis for Opinion +These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ BDO USA, P.C. +We have served as the Company's auditor since 2022. +Houston, Texas +March 6, 2026 +59 +Table of Contents +Index to Consolidated Financial Statements +A MPRIUS T ECHNOLOGIES, I NC. +C ONSOLIDATED B ALANCE S HEETS +December 31, +(In thousands, except share and par value data) +2025 2024 +ASSETS +Current assets: +Cash and cash equivalents $ 90,465 $ 55,155 +Accounts receivable, net 23,737 5,580 +Inventories 6,735 6,574 +Prepaid expenses and other current assets 5,500 1,454 +Total current assets 126,437 68,763 +Non-current assets: +Property, plant and equipment, net 9,680 17,481 +Operating lease right-of-use assets, net 19,518 33,512 +Other assets 1,256 1,369 +Total assets $ 156,891 $ 121,125 +LIABILITIES AND STOCKHOLDERS’ EQUITY +Current liabilities: +Accounts payable $ 6,700 $ 7,424 +Accrued and other current liabilities 3,666 4,832 +Deferred revenue 100 1,638 +Deferred grant 2,738 — +Operating lease liabilities 4,665 3,316 +Total current liabilities 17,869 17,210 +Non-current liabilities: +Operating lease liabilities 35,207 34,443 +Total liabilities 53,076 51,653 +Commitments and contingencies (Note 10) +Stockholders’ equity: +Preferred stock; $ 0.0001 par value; 50,000,000 shares authorized; +no shares issued and outstanding +— — +Common stock; $ 0.0001 par value; 950,000,000 shares authorized; +134,536,592 and 116,934,314 shares issued and outstanding at +December 31, 2025 and 2024, respectively +13 12 +Additional paid-in capital 322,156 243,794 +Accumulated other comprehensive income 4 — +Accumulated deficit ( 218,358 ) ( 174,334 ) +Total stockholders’ equity 103,815 69,472 +Total liabilities and stockholders’ equity $ 156,891 $ 121,125 +The accompanying notes are an integral part of these consolidated financial statements. +60 +Table of Contents +Index to Consolidated Financial Statements +A MPRIUS T ECHNOLOGIES, I NC. +C ONSOLIDATED S TATEMENTS OF O PERATIONS +Year ended December 31, +(In thousands, except share and per share data) 2025 2024 +Revenue $ 73,011 $ 24,167 +Cost of revenue 64,747 42,497 +Gross profit (loss) 8,264 ( 18,330 ) +Operating expenses: +Research and development 9,430 7,344 +Selling, general and administrative 22,956 18,726 +Impairment and other 22,524 1,862 +Total operating expenses 54,910 27,932 +Loss from operations ( 46,646 ) ( 46,262 ) +Other income, net: +Interest income and other, net 2,622 1,591 +Total other income, net 2,622 1,591 +Net loss $ ( 44,024 ) $ ( 44,671 ) +Weighted-average common shares outstanding: +Basic and diluted 124,639,991 101,872,347 +Net loss per share of common stock: +Basic and diluted $ ( 0.35 ) $ ( 0.45 ) +The accompanying notes are an integral part of these consolidated financial statements. +61 +Table of Contents +Index to Consolidated Financial Statements +A MPRIUS T ECHNOLOGIES, I NC. +C ONSOLIDATED S TATEMENTS OF C OMPREHENSIVE L OSS +Year ended December 31, +(In thousands) 2025 2024 +Net loss $ ( 44,024 ) $ ( 44,671 ) +Other comprehensive income: +Change in foreign currency translation adjustment 4 — +Comprehensive loss $ ( 44,020 ) $ ( 44,671 ) +The accompanying notes are an integral part of these consolidated financial statements. +62 +Table of Contents +Index to Consolidated Financial Statements +A MPRIUS T ECHNOLOGIES, I NC. +C ONSOLIDATED S TATEMENTS OF S TOCKHOLDERS’ E QUITY +F OR T HE Y EARS E NDED D ECEMBER 31, 2025 AND 2024 +Common Stock Additional +Paid-in +Capital Accumulated Other Comprehensive Loss Accumulated +Deficit Total +Stockholders’ +Equity +(In thousands, except share data) Shares Amount +Balance as of January 1, 2024 88,869,463 $ 9 $ 189,454 $ — $ ( 129,663 ) $ 59,800 +Issuance of common stock in connection with +the At Market Issuance Sales Agreement, +net of issuance cost 14,701,388 2 33,261 — — 33,263 +Issuance of common stock upon exercise of +stock warrants, net of issuance cost 13,075,664 2 13,626 — — 13,628 +Issuance of common stock upon exchange of +stock warrants for shares of common stock 3,073,200 — — — — — +Issuance of common stock upon exercise of +stock options and vesting of restricted stock +units 2,714,599 — 109 — — 109 +Cancellation and retirement of common stock ( 5,500,000 ) ( 1 ) 1 — — — +Stock-based compensation — — 7,343 — — 7,343 +Net loss — — — — ( 44,671 ) ( 44,671 ) +Balance, December 31, 2024 116,934,314 12 243,794 — ( 174,334 ) 69,472 +Issuance of common stock in connection with +the At Market Issuance Sales Agreement, +net of issuance cost 10,719,196 1 63,580 — — 63,581 +Issuance of common stock upon exchange of +stock warrants for shares of common stock 200,100 — 2,301 — — 2,301 +Issuance of common stock upon exercise of +stock options and vesting of restricted stock +units 6,682,982 — 5,071 — — 5,071 +Stock-based compensation — — 7,410 — — 7,410 +Net loss — — — — ( 44,024 ) ( 44,024 ) +Other comprehensive income — — — 4 — 4 +Balance as of December 31, 2025 134,536,592 $ 13 $ 322,156 $ 4 $ ( 218,358 ) $ 103,815 +The accompanying notes are an integral part of these consolidated financial statements. +63 +Table of Contents +Index to Consolidated Financial Statements +A MPRIUS T ECHNOLOGIES, I NC. +C ONSOLIDATED S TATEMENTS OF C ASH F LOWS +Year ended December 31, +(In thousands) 2025 2024 +Cash flows from operating activities: +Net loss $ ( 44,024 ) $ ( 44,671 ) +Adjustments to reconcile net loss to net cash used in operating activities: +Stock-based compensation 7,410 7,343 +Depreciation and amortization 4,366 3,808 +Amortization of deferred costs — 1,246 +Non-cash operating lease expense 5,143 5,143 +Impairment and other 22,524 1,862 +Other non-cash items 454 — +Changes in operating assets and liabilities: +Accounts receivable, net ( 18,609 ) ( 4,315 ) +Inventories ( 161 ) ( 5,844 ) +Deferred costs — ( 467 ) +Prepaid expenses and other current assets ( 3,846 ) 533 +Other assets 28 ( 17 ) +Accounts payable ( 998 ) 5,884 +Accrued and other current liabilities ( 1,170 ) ( 747 ) +Deferred revenue ( 1,538 ) ( 1,796 ) +Deferred grant 2,738 — +Operating lease liabilities ( 3,451 ) ( 1,314 ) +Net cash used in operating activities ( 31,134 ) ( 33,352 ) +Cash flows from investing activities: +Purchase of property, plant and equipment ( 4,400 ) ( 3,207 ) +Net cash used in investing activities ( 4,400 ) ( 3,207 ) +Cash flows from financing activities: +Proceeds from issuance of common stock in connection with the +At Market Issuance Sales Agreement, net 63,668 33,416 +Proceeds from issuance of common stock upon exercise of stock warrants 2,301 14,384 +Payment of equity financing costs — ( 756 ) +Proceeds from exercise of stock options 5,071 109 +Net cash provided by financing activities 71,040 47,153 +Net increase in cash, cash equivalents and restricted cash equivalents 35,506 10,594 +Effect of exchange rate changes on cash, cash equivalents and restricted +cash equivalents 4 — +Cash, cash equivalents and restricted cash equivalents, beginning of year 56,411 45,817 +Cash, cash equivalents and restricted cash equivalents, end of year $ 91,921 $ 56,411 +Reconciliation of cash, cash equivalents and restricted cash equivalents +shown on the consolidated balance sheets: +Cash and cash equivalents $ 90,465 $ 55,155 +Restricted cash equivalents included in prepaid expenses and other current assets +200 — +Restricted cash equivalents included in other assets 1,256 1,256 +Total cash, cash equivalents and restricted cash equivalents $ 91,921 $ 56,411 +Supplemental non-cash investing and financing activities: +Unpaid purchases of property, plant and equipment $ 322 $ 48 +Increase in fair value of modified stock warrants $ — $ 727 +Cancellation and retirement of common stock $ — $ 1 +The accompanying notes are an integral part of these consolidated financial statements. +64 +Table of Contents +Index to Consolidated Financial Statements +A MPRIUS T ECHNOLOGIES, I NC. +N OTES T O C ONSOLIDATED F INANCIAL S TATEMENTS +Note 1. Overview +Company Background and Nature of Operations +Amprius Technologies, Inc. (hereafter referred to as the “Company,” “we,” “us,” or “our”) develops, manufactures and markets lithium-ion batteries for mobility applications, including the aviation, electric vehicle (“EV”) and light electric vehicle (“LEV”) industries. We have been in commercial battery production since 2018 and our disruptive silicon anode technology is intended to enable batteries with high energy density, high power density and fast charging capabilities over a wide range of operating temperatures. We are incorporated in the State of Delaware. Our corporate headquarters is located in Fremont, California. +On October 23, 2024, our former majority stockholder and parent company, Amprius Inc. (“Amprius Holdings”), which owned an aggregate of 65.2 million shares, or 58.6 %, of our common stock at that time, voluntarily liquidated and dissolved. As a result of such liquidation and dissolution, Amprius Holdings distributed, on a pro rata basis, an aggregate of approximately 57.2 million shares of our common stock to its stockholders, which include some of our executive officers and directors, and we assumed all of Amprius Holdings’ outstanding options to purchase shares of Amprius Holdings’ Class A common stock in exchange for, among other things, Amprius Holdings contributing to us a total of 5.5 million shares of our common stock that it owned, which were immediately cancelled and returned to our authorized but unissued share capital. +Liquidity and Capital Resources +As of December 31, 2025, we had cash and cash equivalents of $ 90.5 million. We believe that our cash and cash equivalents will be sufficient to fund our obligations over twelve months from the date these consolidated financial statements are issued. We may receive funds from the issuance and sale of our shares of our common stock or if our stock warrants are exercised for cash. During the year ended December 31, 2025, we sold shares of our common stock under the Sales Agreement resulting in aggregate gross proceeds of approximately $ 65.3 million, offset by related commissions and transaction fees of approximately $ 1.7 million, and received a total of $ 2.3 million from the cash exercise of our stock warrants. +Since our inception, we have incurred recurring losses and negative cash flows from operations. During the year ended December 31, 2025, we incurred a net loss of $ 44.0 million and at December 31, 2025, our accumulated deficit was $ 218.4 million. We expect to incur additional losses in the future as we scale our business and increase our operating expenditures, such as increasing our headcount. We may need to raise additional funds in order to meet our future operating and capital expenditure requirements, and we may be unable to raise additional funds or enter into such other agreements when needed on favorable terms or at all. If sufficient funding is not raised, we may need to reduce our spending activities, which may negatively affect our ability to achieve our operating goals. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience additional dilution. +Other Risk and Uncertainties +We face risks related to political change, terrorist activity, and armed conflict such as the military conflicts between Russia and Ukraine and in the Middle East. These military conflicts have led to volatility in the global economy and may contribute to inflation, volatility in the credit and capital markets, and interruption in the global supply chain. Our batteries are incorporated into end products used in the defense industry by customers in jurisdictions experiencing military conflict. Any cessation or escalation of these conflicts could also impact future sales. Conversely, any cessation or de‑escalation of these conflicts could alter regional market dynamics and competitive conditions. It is difficult to accurately predict the timing, outcome, or broader impact of these developments. +In addition, we face risks related to significant changes in the United States’ trade policy, such as the imposition or plan to impose significant tariffs on certain product categories imported from China and other countries. These countries have taken or may plan to take retaliatory actions, including imposing additional tariffs on their importation of a wide range of products from the United States, which could potentially lead to adverse impacts on global trade. +65 +Table of Contents +Index to Consolidated Financial Statements +Although these global risks did not have an adverse impact on us as of December 31, 2025, the extent and future outcome of such risks are highly unpredictable and uncertain and may adversely affect our future financial condition, results of operations and cash flows. +Note 2. Summary of Significant Accounting Policies +Basis of Presentation and Principles of Consolidation +The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All intercompany accounts and transactions have been eliminated. +In January 2025, we formed Amprius Energy Co., Ltd., a wholly owned subsidiary, established to support the expansion of our commercial sales operation in China and is in included in our consolidated financial statements. The new subsidiary was organized to streamline customer engagement, enhance regional sales capabilities, and improve operational efficiency within our go‑to‑market structure. The subsidiary’s activities primarily relate to sales, distribution, and customer support functions. +The significant accounting policies described below, together with Note 1 and other notes that follow, are an integral part of the consolidated financial statements. +Emerging Growth Company +We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. Furthermore, the JOBS Act exempts an emerging growth company from being required to comply with new or revised accounting standards until private companies are required to comply with such standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected to not opt out of such extended transition period. This means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt such new or revised standard unless we are no longer deemed an emerging growth company. As a result, the accompanying consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of the public company effective dates. +Use of Estimates +The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances; the results of which form the basis for making judgments that are not readily apparent from other sources. Actual results could materially differ from management estimates using different assumptions or under different conditions. +Our significant accounting estimates include useful lives of property, plant and equipment; valuation of long-lived assets; valuation of deferred taxes; lower of cost or net realizable value adjustments of inventory; incremental borrowing rate used in calculating lease obligations and right-of-use assets; and certain inputs used to measure the fair value of stock option grants using the Black-Scholes option-pricing model. +Revenue Recognition +We generate revenue from the (i) sale of finished battery products and (ii) arrangements for customization design services. The customization design services generally include designing and developing custom batteries by applying our existing technology into a customer’s required specifications and delivery of the customized batteries. Since the technology that we apply to the customized batteries is the same as the technology that we apply to our other product offerings, such customized batteries could be repurposed as part of our product offerings. +66 +Table of Contents +Index to Consolidated Financial Statements +We recognize revenue when all of the core principles of revenue recognition are met pursuant to Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers . Generally, we enter into a contract with our customers whereby we identify our performance obligations, determine the considerations that we expect to receive from our customers, and allocate such considerations to the identified performance obligations. We recognize revenue at a point in time when we transfer control of the finished battery products and the deliverables from the customization design services to our customers, which is generally upon shipment and completion of the services, respectively. +From time to time, we have “bill-and-hold” arrangements with certain customers whereby they request us to ship the finished battery products to our own locations and hold them temporarily until they are picked up. Pursuant to the terms of the “bill-and-hold” arrangements, we recognize revenue when the finished battery products are shipped to our own locations, which is the point in time when we transfer the control of the finished battery products to the customers. +Government Grants +In December 2025, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2025-10, which establishes in the future authoritative guidance for the recognition, measurement, and presentation of government grants received by business entities. ASU 2025-10 is not yet effective for public business entities. Prior to this, US GAAP has not explicitly addressed accounting for such grants. In the absence of explicit US GAAP, we recognize and measure government grants by following, as an analogy, the recognition and measurement guidance of International Accounting Standard 20, Accounting for Government Grants and Disclosure of Government Assistance (“IAS 20”). Under IAS 20, Government grants are recognized when there is reasonable assurance that we will comply with the conditions of each milestone and that the grant funds will be received. +Government grants related to income are recognized as grant revenue or a component of other income on a systematic basis over the periods in which we recognize as expenses, the related costs for which the grants are intended to compensate. Based on our assessment of the U.S. Government Defense Innovation Unit (“DIU”) $ 14.8 million contract awarded in July 2025, as amended, we determined which milestones related to assets. The remaining milestones were assessed as related to income and, for the year ended December 31, 2025, we recorded $ 0.4 million within Other income, net , on our consolidated statement of operations. This contract is expected to be completed in our fiscal first quarter of 2027. +Government grants related to assets are presented as deferred grant on our consolidated balance sheets and are recognized in the consolidated statements of operations on a systematic basis over the useful life of the related asset when those assets are placed in service. Due to the timing of the receipt from the government, a grant receivable may be recognized in our consolidated balance sheet. As of December 31, 2025, no receivable related to government grants was outstanding, and $ 2.7 million of deferred grant related to government grants was recognized on our consolidated balance sheet. +Cost of Revenue +Cost of revenue, which includes the cost of finished goods sold and the cost of customization design services, are comprised primarily of purchase costs of silicon anode batteries from Berzelius (Nanjing) Co., Ltd. (“Berzelius”), a former subsidiary of Amprius Holdings, and our global contract manufacturing partners, costs of raw materials, labor costs and the allocation of overhead costs incurred in producing batteries or performing the customization design services. Labor costs consist of personnel-related expenses such as salaries, employee benefits and stock-based compensation expense. Overhead and other costs consist primarily of outside services, utilities, rent, depreciation expense and other facilities-related costs. Costs related to batteries and design services are recognized in the same period as the associated revenue is recognized. In addition, we include under cost of revenue certain non-capitalizable expenses incurred during the preliminary stage of our plan to construct a GWh-scale manufacturing facility in Brighton, Colorado, such as re-zoning costs and engineering studies. +Research and Development (“R&D”) Costs +R&D costs are expensed as incurred. These costs consist mainly of personnel-related costs such as salaries, employee benefits and stock-based compensation expense of our R&D personnel, outside contractors, materials, R&D equipment for which there is no alternative future use, and allocation of overhead costs, which include utilities, rent, depreciation expense and other facilities-related costs. R&D activities relate to the conceptual formulation and design of preproduction experimental prototypes and models. +67 +Table of Contents +Index to Consolidated Financial Statements +Stock-Based Compensation +We measure stock-based compensation for stock options and restricted stock units (“RSUs”) at fair value on the date of grant. The fair value of stock option grants is measured using the Black-Scholes option-pricing model while the fair value of RSU grants is measured based on the market closing price of our common stock. We recognize stock-based compensation expense on a straight-line basis over the vesting period of the grants. Most of our stock-based compensation grants generally vest over a period of four years , subject to the continued employment or services of the grantee. We have elected to account for forfeitures as they occur. +The Black-Scholes option-pricing model requires the following inputs that are based on subjective assumptions: +• Expected term – This is the period that the stock options are expected to be outstanding. We estimate the expected term using the simplified method for stock option grants that qualify as plain-vanilla options because we have no sufficient historical experience for determining the expected term. +• Expected volatility – Since there is no sufficient trading history on the underlying common stock, we estimate volatility by evaluating the average historical volatility of a peer group of companies for the period immediately preceding the option grant for a term that is approximately equal to the option’s expected term. +• Risk-free interest rate – We determine the risk-free interest rate based on the implied yield available on the U.S. Treasury zero coupon issues with a remaining term equivalent to the expected term of the stock options. +• Expected dividend – We use an expected dividend yield of zero because there had been no dividend payments in the past and there is no plan to pay dividends in the future associated with the underlying common stock. +The Black-Scholes option-pricing model also requires input on the fair value of the underlying common stock. For stock option grants made by Amprius Holdings to our employees and a board member during the year ended December 31, 2024, the fair value of its common stock, which had no public market, was determined by its board of directors at the time of grant by considering a number of objective and subjective factors, including a valuation performed by an independent third party. The third-party valuation was performed in accordance with the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, which identifies various available methods for allocating the enterprise value across classes of capital stock in determining the fair value of the underlying common stock at the valuation date. +Advertising Costs +Advertising costs, which were de minimis during the years ended December 31, 2025 and 2024, are expensed as incurred. +Foreign Currency +We determine the functional and reporting currency of our foreign subsidiary based on the primary currency in which it operates. In cases where the functional currency is not the U.S. dollar, the financial statements of our foreign subsidiary are translated into U.S. dollars using the exchange rate in effect as of the balance sheet date for assets and liabilities, and the weighted-average exchange rate during the period for revenue, cost and expenses. The translation gain (loss) is recorded as accumulated other comprehensive income (loss) within the stockholders’ equity. +Foreign currency gains or losses were de minimis during the years ended December 31, 2025 and 2024 and resulted from the effect of exchange rate changes on transactions and remeasurement of monetary assets and liabilities denominated in foreign currencies. Such gains or losses are recognized as other income (expense), net within the accompanying consolidated statements of operations. +Income Taxes +We account for income taxes in accordance with ASC 740, Income Taxes . Deferred tax balances are recognized for the estimated future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets are also recognized for temporary differences that arise from net operating losses and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax balances of a change in tax rates is recognized in income in +68 +Table of Contents +Index to Consolidated Financial Statements +the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. +ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. We recognize accrued interest and penalties related to unrecognized tax benefits, if any, as income tax expense. +Net Loss Per Share +Basic net loss per share of common stock is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share of common stock is calculated by dividing the net loss attributable to common stockholders by the sum of the weighted-average number of shares of common stock outstanding and potentially dilutive securities during the period. Potentially dilutive securities include shares issuable upon the exercise of stock options, vesting of RSUs and exercise of common stock warrants; however, these have been excluded from the diluted net loss per share calculation because the effect was anti-dilutive due to our net loss. Therefore, the basic and diluted net loss per share of common stock for all periods presented were the same. +Fair Value Measurement +Assets and liabilities recorded at fair value in the financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, which are directly related to the amount of subjectivity, associated with the inputs to the valuation of these assets or liabilities are as follows: +Level 1 – Inputs that are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. +Level 2 – Inputs (other than quoted prices included in Level 1) that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life. +Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, and which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. +In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considering counterparty credit risk in our assessment of fair value. +We had money market funds totaling $ 27.0 million and $ 23.5 million as of December 31, 2025 and 2024, respectively, which were measured at Level 1 fair value based on the active market price of the instruments and included in cash and cash equivalents and in other assets in the accompanying consolidated balance sheets. +We did not have assets or liabilities measured at fair value on a recurring basis using Level 2 or Level 3 inputs as of December 31, 2025 and 2024. +We also had no transfers of financial instruments between Level 1, Level 2 and Level 3 during the years ended December 31, 2025 and 2024. +Concentration of Risk +Credit Risk +Financial instruments that potentially subject us to concentration of credit risk consist of cash, cash equivalents, restricted cash equivalents and accounts receivable. +We maintain our cash, cash equivalents and restricted cash equivalents with major financial institutions that may at times exceed federally insured limits. We have not experienced losses on our financial assets held in these financial institutions. Management believes that these financial institutions are financially sound with minimal credit risk. +69 +Table of Contents +Index to Consolidated Financial Statements +Many of our customers are in the aviation industry though our batteries have applications across all segments of electric mobility. As of December 31, 2025 and 2024, we had one and two major customers that in the aggregate represented 64 % and 50 %, respectively, of our total accounts receivable. An adverse impact on the aviation industry may affect our relationship with our customers, which could affect our future financial condition, results of operations and cash flows. +Supply Risk +We are dependent on Berzelius and our third party contract manufacturing partners to manufacture one of our primary battery platforms. The inability of these suppliers to provide manufacturing services or deliver batteries on time may cause a delay in fulfilling our customers’ orders, which could adversely impact our business, financial condition and results of operations. +Cash, Cash Equivalents and Restricted Cash Equivalents +Cash consists of bank and demand deposits. Cash equivalents and restricted cash equivalents consist of money market funds with original maturity of less than 90 days from the date of purchase. Restricted cash equivalents pertain to the amount of cash deposits required to satisfy the insurance bond requirement for our importation of goods and by our lessors to satisfy letter of credit requirements under our lease agreements . Restricted cash equivalents included within prepaid expenses and other current assets was $ 0.2 million and other assets was $ 1.3 million, as of December 31, 2025. Restricted cash equivalents included within other assets in the accompanying consolidated balance sheets was $ 1.3 million as of December 31, 2024. +Accounts Receivable +Accounts receivable are recorded at the invoiced amount, less any estimated allowance for credit losses. An allowance for credit losses is recognized based on our evaluation of relevant information, such as the age of the receivable, collection experience and certain credit risk factors affecting our customers. A receivable deemed to be uncollectible is written off against a previously established allowance and recoveries are recognized when the cash is received. We do not accrue interest on past due balances and require no collateral. We have not experienced any significant losses from accounts receivable. Our allowance for expected credit losses on our accounts receivable was $ 0.5 million as of December 31, 2025 and none as of December 31, 2024. +Inventories +Inventories, which consist of raw materials, work-in-process and finished goods, are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. Net realizable value is determined based upon the estimated selling price of the inventory in the ordinary course of business, less reasonably predictable costs of completion or disposal and transportation. The cost of raw materials, work-in-process and finished goods manufactured at our Fremont, California facility generally exceeds their respective realizable value. When an inventory is adjusted to its net realizable value, a new cost basis is established and such cost is not adjusted for any potential recovery or increase in cost. Obsolete inventories are written off to cost of goods sold. +Property, Plant and Equipment, Net +Property, plant and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the respective assets as shown below. +Production equipment +4 to 7 years +Lab equipment 4 years +Furniture, fixtures and other equipment +3 to 5 years +Leasehold improvements Lesser of their useful lives or the term of the lease +Assets that are being built or constructed are recorded as construction in progress. Depreciation for those assets begins when the assets are ready for their intended use. +70 +Table of Contents +Index to Consolidated Financial Statements +Expenditures for repairs and maintenance are expensed as incurred. Upon disposition or retirement, the cost and related accumulated depreciation and amortization are removed from the accounts and any resulting gain (loss) is included within operating expenses in the accompanying consolidated statements of operations. +Impairment of Long-Lived Assets +We review the valuation of long-lived assets, including right-of-use (“ROU”) assets, whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The recoverability of long-lived assets or asset groups is calculated based on the estimated undiscounted future cash flows expected to result from the use and eventual disposition of the asset. An impairment loss is recognized based on the amount by which the carrying value exceeds the fair value of the asset. Fair value is determined using the estimated cash flows discounted at a rate commensurate with the risk involved. +For the purpose of our long-lived asset impairment test in the year ended December 31, 2025, we identified two asset groups, with the Colorado facility assessed as a separate group. In accordance with ASC 360, Property, Plant and Equipment , our assessment indicated that all long‑lived assets were recoverable except those within the Colorado asset group. Based on management’s assessment, we recognized an impairment loss of $ 19.1 million with $ 14.4 million related to the ROU asset and $ 4.7 million related to other long‑lived assets, particularly construction-in-progress. These charges are presented within the $ 22.5 million of “Impairment and other” on our Consolidated Statements of Operations. See Note 5. Property, Plant and Equipment and Note 9. Leases for additional information. +Based on management’s assessment, there were no impairment losses recorded during the year ended December 31, 2024. During the year ended December 31, 2024, we recognized a $ 1.9 million loss associated with the retirement of certain production equipment at our Fremont facility due to a change in operating plans. These retirement losses are presented within “Impairment and other” on our Consolidated Statements of Operations. +Deferred Costs +Certain costs, which consist primarily of payroll-related costs, are initially deferred when (i) the costs relate directly to a customer contract, (ii) the costs generate or enhance our resources that will be used in satisfying future performance obligations, and (iii) the costs are expected to be recovered. If these criteria are not met, the costs are expensed as incurred. Deferred costs are recognized as cost of revenues in the period when the related revenue is recognized, except when the costs incurred exceed the amount expected to be recovered, in which case they are expensed as incurred. The recoverable amount is estimated to equal the amount of consideration that we have received but not yet recognized as revenue, plus the amount that we expect to receive in the future. +Leases +We determine if an arrangement is a lease, or contains a lease, by evaluating whether there is an identified asset and whether we control the use of the identified asset throughout the period of use. We determine the classification of the lease, whether operating or finance lease, at the lease commencement date, which is the date we obtain control of the leased asset. +We recognize the ROU assets and lease liabilities on the lease commencement date based upon the present value of the fixed lease payments over the non-cancelable lease term, unless it is reasonably certain that any renewal or termination option will be exercised. Variable costs, such as common area maintenance fees, property insurance and property taxes, are not included in the measurement of the ROU assets and lease liabilities, but are expensed as incurred. As the implicit rate of the leases is not determinable, we use an incremental borrowing rate in determining the present value of the lease payments. We do not recognize ROU assets on lease arrangements with a term of 12 months or less. Lease expense for such arrangements is recognized on a straight-line basis over the term of the lease. We account for the lease components and non-lease components as a single lease component. Modifications are assessed to determine whether incremental differences result in new contract terms and should be accounted for as a new lease or whether the additional right of use should be included in the original lease and continue to be accounted for with the remaining ROU asset. +Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right-of-use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right-of-use asset results in front-loaded expense over the lease term. +We review ROU assets for impairment whenever there are events or changes in circumstances and test in a similar manner as long-lived assets in accordance with ASC 360, Property, Plant and Equipment. +71 +Table of Contents +Index to Consolidated Financial Statements +Product Warranty Liability +We provide a guarantee that our sale of battery products to customers will meet published or agreed upon specifications. We replace battery products that do not meet the specification requirements at no additional cost to our customers during our standard or agreed-upon performance warranty period. Based on our historical experience and our assessment, we have not recorded a product warranty liability as of December 31, 2025 and 2024. +Loss Contingencies +In the normal course of business, we may be involved in claims and legal proceedings. We record a liability for such matters when it is probable that a loss has been incurred and the amounts can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. Legal costs associated with these loss contingencies are expensed as incurred. +Common Stock Warrants +We have classified our freestanding common stock warrants as equity in accordance with the applicable guidance in ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity . Accordingly, a freestanding instrument, such as a stock warrant, is classified as equity when (i) the instrument is considered indexed to an entity’s own stock and (ii) when certain criteria for equity classification are met. +When assessing whether our stock warrants are indexed to our own stock, we evaluated the stock warrants’ exercise contingencies and adjustment features. The stock warrants’ exercise contingencies, which are not based on observable market or index, include a restriction to exercise a portion of the stock warrants if the holder exceeds specified beneficial ownership limitations and the holder being required to exercise the stock warrants in the event of a reorganization or a warrant redemption. Since the exercise contingencies are not based on observable market or index, the stock warrants were not precluded from being considered indexed to our own stock. In addition, the stock warrants’ adjustment features, such as a change in exercise price in the event of a stock split or stock dividend and a downward adjustment on the exercise price at our discretion, did not preclude the stock warrants from being considered indexed to our own stock. +We also evaluated other provisions in the warrant agreement, such as the share-settlement provision and the replacement of the instrument in the event of a reorganization, and determined that those provisions do not preclude the stock warrants from being classified as equity. +Segment Reporting and Geographic Data +We have a single operating and reportable segment; that is, the battery segment. Our battery segment derives revenue from the sale of finished battery products and customization services of our batteries. Our Chief Executive Officer is our Chief Operating Decision Maker (“CODM”). +Our CODM assesses performance of our battery segment and decides how to allocate resources based on the battery segment’s profit, if any, or loss. Our measure of segment profit or loss is the consolidated net income or net loss, which is also reported as such in the accompanying consolidated statements of operations. Our CODM measures segment profit or loss by comparing the actual consolidated net income or net loss to expectations. Since we only have a single operating and reportable segment, our CODM is provided segment expense information that is based on the expense categories shown in the accompanying consolidated statements of operations. Depreciation and amortization expenses, which are disclosed in Note 4 below, are included within cost of revenue, research and development expenses, and selling, general and administrative expenses in the accompanying consolidated statements of operations. Other segment items within the segment profit or loss include primarily of interest income as shown within other income, net in the accompanying consolidated statements of operations. +Our CODM does not measure segment assets for the purposes of allocating resources to, and assessing the performance of, our battery segment. +The following table shows our revenue by geographic area based on the delivery location of our battery products and services (in thousands): +72 +Table of Contents +Index to Consolidated Financial Statements +Year ended December 31, +2025 2024 +North America $ 11,808 $ 8,218 +EMEA 52,572 10,691 +Asia Pacific +8,631 5,258 +Total revenue $ 73,011 $ 24,167 +Revenue in the EMEA region, consisting of Europe, the Middle East and Africa, includes $ 33.0 million and $ 6.4 million related to shipments to customers based in Ukraine, for the years ended December 31, 2025 and 2024, respectively. +All of our property, plant and equipment are geographically located in the United States. +During the years ended December 31, 2025 and 2024, we generated revenue from one and three major customers, respectively, who individually represented more than 10% of our revenue. Revenue from the one major customer during the year ended December 31, 2025 was $ 27.1 million. Revenue from each of the three major customers during the year ended December 31, 2024 was (i) $ 5.4 million, (ii) $ 2.8 million, and (iii) $ 2.8 million, respectively. +Recently Adopted Accounting Pronouncements +In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . This ASU requires entities to disclose, among others: (i) specific categories in the rate reconciliation table (ii) additional information for reconciling items that meet a quantitative threshold and (iii) the amount of income taxes paid on a disaggregated level. As an emerging growth company, this ASU is effective starting with our annual reporting for the year ending December 31, 2026. Early adoption is permitted. We adopted this standard on January 1, 2025 using a prospective method of application. Accordingly, in Note 8. Income Tax, prior period income tax disclosures for the year ended December 31, 2024 have not been adjusted to reflect the new disclosure requirements. The adoption of this guidance resulted in enhanced disclosures in our consolidated financial statements but had no impact on our financial statements. +Recently Issued Accounting Pronouncements (Not Yet Adopted) +In December 2025, the FASB issued Accounting Standards Update (“ASU”) 2025-10, which establishes authoritative guidance for the recognition, measurement, and presentation of government grants received by business entities. Prior to this, US GAAP did not explicitly address accounting for such grants. The guidance applies to transfers of monetary or tangible nonmonetary assets (e.g., cash, land, or buildings) from a government. It explicitly excludes income taxes (ASC 740), below-market interest rate loans, and government guarantees. For public business entities, the standard is effective for fiscal years beginning after December 15, 2028. Early adoption is permitted. Companies may adopt the guidance using a modified prospective, modified retrospective, or full retrospective transition method. We are currently evaluating the impact of this new guidance on our consolidated financial statements and related disclosures. +In December 2025, the FASB issued Accounting Standards Update No. 2025-11, Interim Reporting (Topic 270) Narrow-Scope Improvements (“ASU 2025-11”), to improve the navigability and clarity of interim reporting guidance in the FASB Accounting Standards Codification and clarify when Topic 270 applies. The amendments add a comprehensive list of interim disclosure requirements currently required by GAAP and a new disclosure principle requiring an entity to disclose events since the end of the most recent fiscal year that have a material impact on the entity’s interim financial statements. ASU 2025-11 is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027 for public business entities and after December 15, 2028 for entities other than public business entities. Early adoption is permitted. We are currently evaluating the potential impact of adopting ASU 2025-11 on our interim reporting practices and related disclosures. +In July 2025, the FASB issued ASU 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets . This ASU introduces a practical expedient for estimating expected credit losses on current accounts receivable and current contract assets arising from transactions accounted for under ASC 606, Revenue from Contracts with Customers. Under the expedient, entities may assume that the current conditions applied in determining credit loss allowances remain unchanged for the remaining life of those assets. This ASU is required to be adopted on a prospective basis. ASU 2025-05 is effective for annual reporting periods beginning after December 15, 2025, including interim periods within those years, with early adoption permitted. We will adopt this +73 +Table of Contents +Index to Consolidated Financial Statements +standard effective January 1, 2026. We are currently evaluating the impact that the adoption of this standard will have on our consolidated financial statements. +In November 2024, the FASB issued ASU 2024-03, Income Statement–Reporting Comprehensive Income–Expense Disaggregation Disclosures (Subtopic 220-40) . This ASU requires entities to disclose, in the notes to the financial statements: (i) amounts of (a) purchases of inventory, (b) employee compensation and (c) depreciation; (ii) include certain amounts that are already required to be disclosed under current U.S. GAAP in the same disclosure as the other disaggregation requirements; (iii) a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively; and (iv) the total amount of selling expenses and, in annual reporting periods, a definition of selling expenses. This ASU, which is effective starting with our annual reporting for the year ending December 31, 2027 and interim reporting periods beginning January 1, 2028, is required to be adopted either: (i) prospectively to financial statements issued for reporting periods after the effective date of this ASU or (ii) retrospectively to any or all prior periods presented in the financial statements. Early adoption is permitted. We are currently evaluating this ASU. +Note 3. Revenue +Disaggregation of Revenue +We disaggregate our revenue from customers by the type of arrangement, primarily from the sale of battery products and from providing customization design services, as this depicts how the nature, amount, timing, and uncertainty of our revenue and cash flows are affected by economic factors. The table below shows the composition of revenue from customers, as disaggregated by type of arrangement in accordance with Topic 606, and other revenue from government grants, which were accounted for following IAS 20 (in thousands). +Year ended December 31, +2025 2024 +Revenue from customers: +Sale of battery products $ 71,586 $ 22,067 +Customization design services 325 1,500 +Total revenue from customers 71,911 23,567 +Other revenue – government grants 1,100 600 +Total revenue $ 73,011 $ 24,167 +Revenue from sale of battery products includes bill-and-hold arrangements with certain customers, which were $ 15.7 million and $ 4.9 million at December 31, 2025 and 2024, respectively. +Contract Balances +The timing of revenue recognition, billings and cash collections can result in accounts receivable, contract assets recorded as unbilled receivables, and contract liabilities recorded as deferred revenue. +Accounts receivable represents our right to consideration that is unconditional. A right to consideration is unconditional if only the passage of time is required before payment of that consideration is due. Accounts receivable was $ 23.7 million, $ 5.6 million and $ 1.3 million as of December 31, 2025, December 31, 2024, and January 1, 2024, respectively. +Contract assets primarily relate to the rights to consideration for progress on contractual requirements performed but not billed at the reporting date. The contract assets are transferred to accounts receivable when the rights become unconditional. We had no contract assets as of December 31, 2025 and 2024. +Contract liabilities consist primarily of deferred revenue, which is the amount of progress payments received or billed in advance of recognizing those payments as revenue. Deferred revenue is subsequently recognized as revenue when the performance obligation is satisfied. Deferred revenue was $ 0.1 million, $ 1.6 million and $ 3.4 million as of December 31, 2025, December 31, 2024, and January 1, 2024, respectively. Deferred revenue balances fluctuate due to timing of the billings made versus revenue being recognized upon transfer of control. During the years ended +74 +Table of Contents +Index to Consolidated Financial Statements +December 31, 2025 and 2024, revenue recognized from the prior year deferred revenue balance was $ 1.6 million and $ 2.2 million, respectively. +Remaining Performance Obligations +We have performance obligations associated with commitments in customer contracts for future delivery of battery products that have not yet been recognized as revenue. As of December 31, 2025, the aggregate amount of the transaction price allocated to the remaining performance obligations related to customer contracts that were unsatisfied or partially unsatisfied, including deferred revenue, was approximately $ 44.5 million. Given the applicable contract terms, we expect all of our remaining performance obligations to be recognized as revenue within one year . This amount does not include contracts to which the customer is not committed. The estimated timing of the recognition of remaining unsatisfied performance obligations is subject to change and is affected by changes to scope, changes in timing of delivery of products and services, or contract modifications. +Deferred Costs +Deferred costs consisted primarily of capitalized payroll-related costs to fulfill obligations under our customer contracts, No deferred costs were incurred in the year ended December 31, 2025. All the deferred costs were fully amortized as of December 31, 2024. The amortization of deferred costs, which is included in cost of revenue in the accompanying consolidated statements of operations, was $ 1.2 million during the year ended December 31, 2024. +The Company evaluates deferred costs for impairment and recognizes any impairment loss in cost of revenues in the current period. During the year ended December 31, 2024, cost of revenues includes costs incurred on certain customization design service contracts that were in excess of the recoverable amount. +Other Revenue – Government Grant +Grant revenue during the years ended December 31, 2025 and 2024 pertained to the funds received from government agencies to support some of our R&D efforts. +Note 4. Inventories +Inventories consisted of the following (in thousands): +December 31, +2025 2024 +Raw materials $ 404 $ 146 +Work in process 353 117 +Finished goods 5,978 6,311 +Inventories $ 6,735 $ 6,574 +Note 5. Property, Plant and Equipment, Net +Property, plant and equipment, net consisted of the following (in thousands): +December 31, +2025 2024 +Production equipment $ 2,839 $ 7,474 +Lab equipment 1,032 1,921 +Leasehold improvements 11,163 11,555 +Furniture, fixtures and other equipment 219 300 +Construction in progress 4,340 8,219 +Property, plant and equipment, at cost 19,593 29,469 +Less: accumulated depreciation and amortization ( 9,913 ) ( 11,988 ) +Property, plant and equipment, net $ 9,680 $ 17,481 +75 +Table of Contents +Index to Consolidated Financial Statements +Construction in progress consisted primarily of production and other equipment that have not been placed in service as of December 31, 2025 and 2024. +Depreciation and amortization expense was $ 4.4 million and $ 3.8 million during the years ended December 31, 2025 and 2024, respectively. +During the year ended December 31, 2025, we recorded a $ 4.7 million impairment loss related to construction-in-progress assets for our manufacturing facility in Brighton, Colorado, in connection with our decision to terminate the lease. Please refer to Note 9. Leases for our discussion of the methodology and significant inputs used to determine the estimated fair value. In addition, we recorded a $ 3.5 million loss related to the retirement of production equipment at our Fremont, California facility that was no longer expected to generate future economic benefit. During the year ended December 31, 2024, we recognized a $ 1.9 million loss associated with the retirement of certain production equipment at our Fremont facility due to a change in operating plans. These impairment and retirement losses are presented within “Impairment and other” in our Consolidated Statements of Operations. +Note 6. Accrued and Other Current Liabilities +Accrued and other current liabilities consisted of the following (in thousands): +December 31, +2025 2024 +Accrued compensation and benefits $ 3,181 $ 3,428 +Accrued professional fees 242 418 +Accrued purchases of finished goods for resale 11 783 +Other 232 203 +Total accrued and other current liabilities $ 3,666 $ 4,832 +Note 7. Stockholders’ Equity +Common Stock and Preferred Stock +As of December 31, 2025, we had a total of 1,000,000,000 shares of stock authorized to be issued, of which 950,000,000 shares are designated as common stock, $ 0.0001 par value per share, and 50,000,000 shares are designated as preferred stock, $ 0.0001 par value per share. Holders of common stock are entitled to one vote for each share held and entitled to receive dividends when and if declared by the board of directors. We have not declared any dividends as of and through December 31, 2025. +Equity Incentive Plans +As of December 31, 2025, our Equity Incentive Plans consisted of the following: (i) the 2022 Equity Incentive Plan (the “2022 Plan”), (ii) the 2016 Equity Incentive Plan (the “2016 Plan”) and (iii) Amprius Holdings’ the 2008 Stock Plan and the Second Equity Incentive Plan (the “Amprius Holdings Plans”), which we assumed from Amprius Holdings on October 23, 2024, collectively referred herein as “Equity Incentive Plans.” +2022 Plan. The 2022 Plan was adopted effective September 14, 2022. The 2022 Plan authorizes awards in the form of stock options, stock appreciation rights, restricted stock, RSUs, or performance awards and may be granted to directors, employees or consultants. As of December 31, 2025, the total number of shares reserved for issuance, including shares issuable upon vesting of outstanding RSUs, under the 2022 Plan was 21,814,469 . Such number of shares also include the annual increase in shares reserved pursuant to the evergreen provisions contained in the 2022 Plan and the number of shares from equity awards under the 2016 Plan that were cancelled, expired or otherwise terminated without having been exercised in full, were tendered to or withheld for payment of an exercise price or for tax withholding obligations, or were forfeited to or repurchased due to failure to vest. The number of shares available for issuance under the 2022 Plan may be increased annually at the beginning of the fiscal year, subject to certain limitations. +2016 Plan. The 2016 Plan was terminated concurrently with the adoption of the 2022 Plan. However, the 2016 Plan continues to govern the terms and conditions of the outstanding awards previously granted under the 2016 Plan. +Amprius Holdings Plans. Upon approval by our board of directors, we assumed the Amprius Holdings Plans on October 23, 2024 when Amprius Holdings voluntarily liquidated and dissolved. Upon assumption of Amprius Holdings’ +76 +Table of Contents +Index to Consolidated Financial Statements +outstanding stock options, those options became exercisable with shares of our common stock. The Amprius Holdings 2008 Stock Plan was already expired when we assumed it while the Amprius Holdings Second Equity Incentive Plan was immediately terminated when we assumed it. The Amprius Holdings Plans continue to govern the terms and conditions of the outstanding awards previously granted under the Amprius Holdings Plans. Prior to the assumption of stock options under the Amprius Holdings Plans, Amprius Holdings had stock option awards granted to some of our employees or consultants. We recorded the stock-based compensation costs associated with those stock option awards. +As of December 31, 2025, all grants made under our Equity Incentive Plans had been stock options or RSUs. +Stock Options +Stock options granted under our Equity Incentive Plans provided an exercise price of not less than 100 % of the fair value at the grant date, unless the optionee is a 10 % stockholder, in which case the option price would not be less than 110 % of such fair market value. Options granted generally have a maximum term of ten years from the grant date or 90 days from the termination of the optionee and are exercisable upon vesting unless otherwise designated for early exercise by the board of directors at the time of grant. Most of our stock option grants generally vest over a period of four years , subject to the continued employment or services of the optionee. +A summary of option activity under our Equity Incentive Plans as of December 31, 2025, and changes during the year ended December 31, 2025, is as follows: +Number of +shares Weighted- +average +exercise price +per share Weighted- +average +remaining +contractual +term +(in years) Aggregate +intrinsic +value +(in thousands) +Outstanding at January 1, 2025 18,048,109 $ 1.82 6.1 $ 19,839 +Granted — $ — — — +Exercised ( 4,674,357 ) $ 1.09 — — +Expired / forfeited ( 321,801 ) $ 2.18 — — +Outstanding at December 31, 2025 13,051,951 $ 2.07 5.7 $ 76,006 +Vested and exercisable at December 31, 2025 12,600,574 $ 2.04 5.7 $ 73,624 +Vested and expected to vest at December 31, 2025 13,051,951 $ 2.07 5.7 $ 76,006 +There were no stock option grants under the 2022 Plan during the years ended December 31, 2025 and 2024. On the other hand, there were fully vested stock option grants in September 2024 under the Amprius Holdings Second Equity Incentive Plan that included grants made to some of our employees and a board member. During the year ended December 31, 2024, the fair value of the fully vested stock option grants to those employees and board member was $ 0.7 million and recognized as stock-based compensation cost, at $ 0.34 per share and was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: (i) expected term of 5 years, (ii) expected volatility of 75.0 %, (iii) risk-free interest rate of 3.6 %, and (iv) expected dividend yield of 0 %. +The total intrinsic value of options exercised during the years ended December 31, 2025 and 2024 was $ 31.7 million and $ 4.2 million, respectively. The intrinsic value was calculated as the difference between the market price of our common stock and the exercise price of the in-the-money stock options at exercise. +The fair value of stock options that vested during the year ended December 31, 2025, including those fully vested stock option grants made by Amprius Holdings to some of our employees and a board member, was $ 1.9 million. The fair value of stock options that vested during the year ended December 31, 2024 was $ 3.3 million. +As of December 31, 2025, the total unamortized stock-based compensation expense related to the unvested stock options was approximately $ 0.6 million, which we expect to amortize over a weighted-average period of 1 year. +RSUs +Most of our RSU grants generally vest over a period of 4 years, subject to the continued employment or services of the grantee. +77 +Table of Contents +Index to Consolidated Financial Statements +A summary of RSU activity under our Equity Incentive Plans as of December 31, 2025, and changes during the year ended December 31, 2025, is as follows: +Number of +shares Weighted-average +grant date fair value +Outstanding at January 1, 2025 4,311,271 $ 2.74 +Granted 3,598,402 $ 3.81 +Vested ( 2,021,697 ) $ 2.47 +Forfeited ( 672,321 ) $ 3.40 +Outstanding at December 31, 2025 5,215,655 $ 3.49 +The fair value of RSUs is determined based upon the market closing price of our common stock on the date of grant. The weighted-average grant date fair value of RSUs granted during the years ended December 31, 2025 and 2024 was $ 3.81 per share and $ 2.39 per share, respectively. The fair value of RSUs that vested during the years ended December 31, 2025 and 2024 was $ 5.0 million and $ 3.9 million, respectively. As of December 31, 2025, the total unamortized stock-based compensation expense related to the unvested RSUs was approximately $ 16.8 million, which we expect to amortize over a weighted-average period of 3 years. +Employee Stock Purchase Plan (“ ESPP”) +We adopted the ESPP effective September 14, 2022. As of December 31, 2025, the total number of shares reserved for issuance was 3,893,560 , which number may be increased annually at the beginning of the fiscal year, subject to certain limitations. The ESPP is intended to qualify under Section 423 of the Internal Revenue Code of 1986 (as amended) and will provide eligible employees an opportunity to purchase our common stock at a discount through payroll deductions. Under the ESPP, we may specify offering periods, provided that no offering period will have a duration exceeding 27 months. The purchase price per share is equal to 85 % of the fair market value of our common stock on the (i) offering date or (ii) purchase date, whichever is lower. As of December 31, 2025, there were no offerings established under the ESPP. +Executive Incentive Compensation Plan +On September 14, 2022, our board of directors approved our Executive Incentive Compensation Plan, which will allow us to grant incentive awards to certain executive employees, generally payable in cash, based upon achieving specified goals. We have the right to settle the award by granting an equity award, which may be subject to vesting conditions. All awards under the Executive Incentive Compensation Plan will be subject to reduction, cancellation, forfeiture, or recoupment in accordance with any clawback policy that we are required to adopt pursuant to applicable laws. As of December 31, 2025, there were no grants under the Executive Incentive Compensation Plan. +Common Stock Warrants +Shown below is a summary of the activity of the stock warrants as of and during the year ended December 31, 2025: +Public +warrants Private +warrants PIPE +warrants Total +Outstanding, December 31, 2024 16,692,572 300,000 2,052,500 19,045,072 +Exercise of stock warrants ( 200,100 ) — — ( 200,100 ) +Outstanding, December 31, 2025 16,492,472 300,000 2,052,500 18,844,972 +On May 13, 2024, we offered the holders of the public and private warrants the opportunity to exercise their warrants for cash at a temporarily reduced exercise price of $ 1.10 per warrant. This cash tender offer expired on June 11, 2024. A total of 12,575,664 public warrants and 500,000 private warrants were exercised in connection with this cash tender offer. Gross proceeds from the exercise of the public and private warrants totaled $ 14.4 million. Incremental costs incurred, which were charged against the proceeds from the issuance of our shares of common stock, totaled $ 0.8 million, during the year ended December 31, 2024. This cash tender offer was treated as a modification of the public and private warrants. However, we have not recognized the effect of such modification because the incremental fair value was de minimis. +On June 24, 2024, we made a separate tender offer to the holders of the unexercised private warrants pursuant to which such holders were given the opportunity to exchange their warrants, on a cashless basis, for shares of our common +78 +Table of Contents +Index to Consolidated Financial Statements +stock based on an exchange ratio of 0.197 for each warrant validly tendered. This cashless tender offer expired on July 23, 2024. A total of 15,600,000 private warrants were exchanged for a total of 3,073,200 shares of our common stock in connection with this cashless tender offer. This cashless tender offer was treated as a modification of the private warrants, which resulted in an increase in the private warrants’ fair value by approximately $ 0.7 million. The incremental fair value of the modified private warrants, which are classified as equity, was presented as an increase in additional paid-in capital in the accompanying consolidated statements of stockholders’ equity during the year ended December 31, 2024. In addition, the incremental fair value was treated as a noncash deemed dividend and was presented as a reduction of additional paid-in capital, instead of a reduction of retained earnings due to our accumulated deficit position, which resulted in a net zero effect on the accompanying consolidated statements of stockholders’ equity. +The outstanding public warrants and private warrants, which expire on September 14, 2027, are exercisable for one share of our common stock at a price of $ 11.50 per warrant subject to adjustment pursuant to the Warrant Agreement, dated as of March 1, 2022, as amended. Holders of private warrants may be able to exercise their warrants on a cashless basis pursuant to the Warrant Agreement, but holders of public warrants cannot exercise on a cashless basis. The public warrants are listed on the New York Stock Exchange and are redeemable by us when the price per share of our common stock equals or exceeds $ 18.00 per share for at least 20 trading days during a period of 30 consecutive trading days prior to the redemption date. The private warrants are not listed on any securities exchange and are not redeemable. +The outstanding PIPE warrants, which expire on September 14, 2027, are substantially identical to the public warrants, except that the exercise price of each PIPE warrant is $ 12.50 per warrant and they are not listed on any securities exchange. In addition, the PIPE warrants are redeemable by us if the price per share of our common stock equals or exceeds $ 20.00 per share for at least 20 trading days during a period of 30 consecutive trading days prior to the redemption date. +The warrants described above are classified as equity in accordance with the guidance under ASC 815-40, Derivatives and Hedging–Contracts in Entity’s Own Equity . Equity-classified contracts, such as stock warrants, are initially measured at fair value or allocated value. Any subsequent changes in fair value are not recognized as long as the contracts continue to be classified in equity. +Sales Agreement +On October 2, 2023, we entered into the Sales Agreement with the Sales Agents, pursuant to which we may offer and sell, from time to time, through or to any Sales Agent, shares of our common stock with an aggregate offering price of not more than $ 100.0 million, as described in our prospectus supplement dated October 10, 2023 filed with the Securities and Exchange Commission (“SEC”). +During the year ended December 31, 2025, we sold 1.8 million shares of our common stock under the Sales Agreement generating $ 65.3 million in gross proceeds and incurred $ 1.7 million related commissions and transaction fees. From the date of the Sales Agreement through December 31, 2025, we sold 25.5 million shares of our common stock in aggregate gross proceeds of approximately $ 100.0 million, offset by related commissions and transaction fees of approximately $ 2.5 million. As of December 31, 2025, the $ 100.0 million aggregate offering capacity under the Sales Agreement has been utilized and the agreement has been terminated following the sale of all shares available thereunder. +The unamortized deferred stock issuance cost related to the Sales Agreement, which is included in other assets in the accompanying consolidated balance sheets and will be charged proportionally against the proceeds from issuance of shares, was fully amortized as of December 31, 2025 and $ 0.1 million as of December 31, 2024. +Stock-Based Compensation +Stock-based compensation from stock options and RSUs under our Equity Incentive Plans were included in the following lines in the accompanying consolidated statements of operations during the periods presented (in thousands): +Year ended December 31, +2025 2024 +Cost of revenue $ 633 $ 871 +Research and development 1,246 936 +Selling, general and administrative 5,531 5,536 +Total stock-based compensation expense $ 7,410 $ 7,343 +79 +Table of Contents +Index to Consolidated Financial Statements +Note 8. Income Taxes +The components of loss before provision for income taxes were as follows (in thousands): +Year ended December 31, +2025 2024 +Domestic $ ( 44,007 ) $ ( 44,671 ) +Foreign ( 17 ) — +Total $ ( 44,024 ) $ ( 44,671 ) +There was no provision for income taxes during the years ended December 31, 2025 and 2024. +A reconciliation of the provision for income taxes to the amount computed by applying the 21.0% statutory U.S. federal income tax rate to income before income taxes after the adoption of ASU 2023-09 is as follows (Dollars in thousands): +Year ended December 31, +2025 +Amount Percent +Tax at U.S. statutory rate $ ( 9,245 ) 21.0 % +State and local income taxes — — % +Foreign tax effects +China ( 1 ) 0.0 % +Effect of cross-border tax laws +GILTI inclusion 3 0.0 % +Tax credits +Research and development tax credits ( 1,064 ) 2.4 % +Changes in valuation allowances 13,433 ( 30.5 ) % +Nontaxable and nondeductible items +Share-based payment awards ( 6,777 ) 15.4 % +Section 162(m) 3,588 ( 8.2 ) % +Others 63 ( 0.1 ) % +Effective tax rate $ — $ — +A reconciliation of the provision for income taxes to the amount computed by applying the 21.0% statutory U.S. federal income tax rate to income before income taxes for the year prior to the adoption of ASU 2023-09 is as follows (Dollars in thousands): +Year ended December 31, +2024 +U.S. federal statutory tax rate 21.0 % +Expected benefit at U.S. federal statutory tax rate ( 9,381 ) +State tax ( 277 ) +Change in valuation allowance 9,323 +Stock-based compensation 543 +Other ( 208 ) +Provision for income taxes $ — +80 +Table of Contents +Index to Consolidated Financial Statements +The components of deferred tax assets and deferred tax liabilities were as follows (in thousands): +December 31, +2025 2024 +Deferred tax assets: +Net operating loss (“NOL”) carryforwards $ 31,090 $ 23,045 +Operating lease liabilities 8,820 8,434 +Tax credits 3,073 1,515 +Capitalized research and development 1,801 2,490 +Accruals and other 2,893 1,560 +Stock-based compensation 926 892 +Total deferred tax assets 48,603 37,936 +Valuation allowance ( 44,286 ) ( 30,451 ) +Deferred tax assets 4,317 7,485 +Deferred tax liabilities: +Operating lease right-of-use assets ( 4,317 ) ( 7,485 ) +Net deferred taxes $ — $ — +In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some portion or all the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences will become deductible. We assess available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of existing deferred tax assets. A significant piece of objective negative evidence is the cumulative losses incurred since inception, supported by negative subjective evidence of no expectations of future taxable income. Based on this evaluation, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance. The valuation allowance increased by $ 13.8 million and $ 9.3 million during the years ended December 31, 2025 and 2024, respectively. +NOL and tax credit carryforwards were as follows as of December 31, 2025 (in thousands): +Amount Expiration +years +NOL, federal (after December 31, 2017) $ 127,163 Do not expire +NOL, federal (before January 1, 2018) $ 3,799 2037 +NOL, state $ 52,775 2037 to 2045 +NOL, foreign +$ 17 2030 +Tax credits, federal $ 2,753 2037 to 2045 +Tax credits, state $ 1,701 Do not expire +The utilization of NOL and tax credit carryforwards are subject to certain limitations under Section 382 of the Internal Revenue Code of 1986, as amended, in the event of a change in our ownership, as defined in the current income tax regulations. Ownership changes prior to the business combination that we consummated with Kensington Capital Acquisition Corp. IV on September 14, 2022 did not result in a limitation that will materially reduce the total amount of NOL carryforwards and credits that can be utilized. However, utilization of the Company’s net operating loss carryforwards and other tax attributes to offset federal taxable income may be subject to annual limitations due to subsequent changes in ownership. +81 +Table of Contents +Index to Consolidated Financial Statements +Below is a reconciliation of the unrecognized tax benefits (in thousands): +Year ended December 31, +2025 2024 +Balance at beginning of year $ 551 $ 393 +Addition based on tax positions during the current year 561 158 +Addition of tax positions from prior years 2 — +Balance at end of year $ 1,114 $ 551 +The entire amount of the unrecognized tax benefits would not impact our effective tax rate if recognized and there would be no cash tax impact. We have elected to include interest and penalties as a component of income tax expense. During the years ended December 31, 2025 and 2024, we did no t recognize interest and penalties related to unrecognized tax benefits. We do not anticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease during the next 12 months. +Our federal and state income tax returns from inception to December 31, 2025 remain subject to examination. +Note 9. Leases +As of December 31, 2025, we had non-cancelable operating leases for our corporate headquarters and manufacturing facilities located in Fremont, California and in Brighton, Colorado. Our Fremont, California lease, which expires in June 2027, provides us an option to extend the term for one additional five-year period and we determined with reasonable certainty that we will exercise such option. Our Brighton, Colorado lease, which expires in May 2039, provides us an option to extend the term for two additional five-year periods, but we have determined that we will not exercise such option. Our operating leases do not contain any material residual value guarantees. We had no leases that were classified as finance leases as of December 31, 2025 and 2024. +During the year ended December 31, 2025, we remeasured the lease liability and ROU asset at our Colorado facility to reflect the updated expectation that the tenant improvement allowance, which had originally been accounted for as a reduction of lease payments, were no longer expected to be received. The remeasurement resulted in an increase of approximately $ 2.2 million of both ROU asset and lease liability with no impact on our net loss. +As of December 31, 2025, due to larger industry dynamics, particularly our ability to access global contract manufacturing to rapidly service the demand from our customers, we decided to terminate the lease of the Colorado facility. In connection, management determined that changes in expected utilization and forecasted cash flows associated with the facility represented a triggering event to test for recoverability under ASC 360, Property, Plant, and Equipment. +In accordance with ASC 360, we performed a two-step impairment analysis: +• Step I (Recoverability Test): We compared the carrying value of the Colorado asset group to the estimated undiscounted future cash flows expected to be generated by the Colorado asset group. The analysis indicated that the carrying value of the asset group was not recoverable, as the undiscounted cash flows were significantly lower than the carrying value of the operating lease ROU asset. +• Step II (Measurement of Loss): We measured the impairment loss as the amount by which the carrying value of the assets exceeded their fair value. The measurement date was December 19, 2025, the date that we decided to discontinue manufacturing plans. We measured the impairment loss as the amount by which the carrying value of the assets exceeded their fair value that we determined was $ 13.4 million. Fair value was determined using the Income Approach, specifically, a discounted cash flow model based on management’s estimates of future cash flows over a forecast period of 13.5 years, reflecting the remaining lease term, and discounted using a rate of 9.5 %. The discount rate, intended to reflect market participant assumptions, was determined based on a review of publicly-available return expectations that indicated rates of return for prevailing market return expectations. The fair value measurement is classified as Level 3 within the fair value hierarchy due to the use of significant unobservable inputs. +Based on this analysis, at December 31, 2025, we determined that the carrying amount of the ROU asset exceeded its fair value and recorded an impairment charge of $ 14.4 million. The impairment charge is included within “Impairment and Other” in our consolidated financial statements for the period ended December 31, 2025. At December 31, 2025, we remain obligated for future lease payments under the lease terms so we have not recognized any adjustment to the related lease liability nor the future operating lease payments presented below. See Note. 12 Subsequent Event for our discussion of the termination of the lease. +82 +Table of Contents +Index to Consolidated Financial Statements +The components of lease expense during the years ended December 31, 2025 and 2024 are shown in the table below (in thousands). +Year ended December 31, +2025 2024 +Operating lease expense $ 5,143 $ 5,143 +Variable lease expense 2,915 1,741 +Short-term lease expense 99 95 +Total lease expense $ 8,157 $ 6,979 +Other information about our operating leases during the years ended December 31, 2025 and 2024 are shown in the table below (amounts in thousands). +Year ended December 31, +2025 2024 +Cash paid for amounts included in the measurement of operating lease +liabilities $ 3,450 $ 1,314 +Weighted-average remaining lease term 12.6 years 13.5 years +Weighted-average discount rate 9.5 % 9.5 % +Future operating lease payments as of December 31, 2025 are as follows (in thousands): +Year ending December 31: Amount +2026 $ 4,859 +2027 5,025 +2028 5,185 +2029 5,344 +2030 5,509 +Thereafter 42,931 +Gross lease payments 68,853 +Less - present value adjustments ( 28,981 ) +Total operating lease liabilities $ 39,872 +Note 10. Commitments and Contingencies +From time to time, we may be involved in lawsuits, claims or legal proceedings that arise in the ordinary course of business. We accrue a contingent liability when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Management believes that there are no claims against us for which the outcome is expected to have a material effect on our financial position, results of operations or cash flows. +83 +Table of Contents +Index to Consolidated Financial Statements +Note 11. Net Loss Per Share +The following table presents the calculation of basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share amounts): +Year ended December 31, +2025 2024 +Numerator: +Net loss $ ( 44,024 ) $ ( 44,671 ) +Add - increase in net loss due to the increase in fair value of the +modified stock warrants — ( 727 ) +Net loss attributable to common stockholders $ ( 44,024 ) $ ( 45,398 ) +Denominator: +Weighted-average number of common shares outstanding 124,639,991 101,872,347 +Basic and diluted net loss per common share $ ( 0.35 ) $ ( 0.45 ) +The following table summarizes the outstanding shares of potentially dilutive securities that were excluded from the calculation of diluted net loss per share because their inclusion would have been anti-dilutive: +December 31, +2025 2024 +Stock warrants 18,844,972 19,045,072 +Stock options 13,051,951 18,048,109 +RSUs 5,215,655 4,311,271 +Total 37,112,578 41,404,452 +Note 12. Subsequent Event +In April 2023, we entered into a lease agreement to lease approximately 774,000 square feet of premises in Brighton, Colorado and announced a plan to build a GWh-scale manufacturing facility in those premises. As of December 31, 2025, due to larger industry dynamics, particularly our ability to access global contract manufacturing to rapidly service the demand from our customers, we decided to terminate this lease. +On January 30, 2026, we entered into an agreement with the lessor to terminate this operating lease facility in exchange for a one-time payment of $ 20.0 million. To account for the effect of the lease termination on our results of operations, we derecognize the related lease liability of $ 33.2 million and the remaining right‑of‑use asset of $ 13.3 million, and recorded a net loss on lease termination of approximately $ 0.1 million. The effects of the lease termination will be reflected in our consolidated condensed financial statements for the three months ending March 31, 2026. +84 +Table of Contents +Index to Consolidated Financial Statements +Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures +None. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +Our management, with the participation and supervision of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Annual Report on Form 10-K. Our disclosure controls and procedures are designed to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our CEO and our CFO, as appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation, our CEO and our CFO have concluded that our disclosure controls and procedures were effective as of December 31, 2025. +Management’s Annual Report on Internal Control Over Financial Reporting +Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-13(f) and 15d-15(f) under the Exchange Act. Our management, with the participation of our CEO and CFO, assessed the effectiveness of our internal control over financial reporting as of December 31, 2025 based on the 2013 framework established in the “Internal Control-Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2025. +This Annual Report on Form 10-K does not include an auditor attestation of our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act because of our status as an “emerging growth company.” +Changes in Internal Control Over Financial Reporting +There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. +Inherent Limitation on the Effectiveness of Internal Control +Our management, including our CEO and our CFO, do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Due to inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. +Item 9B. Other Information +Rule 10b5-1 Trading Plans +During our last fiscal quarter, no director or officer, as defined in Rule 16a-1(f), adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” each as defined in Regulation S-K Item 408. +85 +Table of Contents +Index to Consolidated Financial Statements +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +None. +86 +Table of Contents +Index to Consolidated Financial Statements +Part III +Item 10. Directors, Executive Officers and Corporate Governance +The information required by this item is incorporated by reference to the definitive Proxy Statement for our 2026 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after December 31, 2025. +We have adopted an insider trading policy which governs transactions involving our securities by our directors, officers, employees, consultants, contractors, and advisors. It is our policy to comply with applicable securities laws and regulations when engaging in transactions in our own securities. We believe that our insider trading policies and procedures are reasonably designed to promote compliance with insider trading laws, rules and regulations, and listing standards applicable to us. A copy of our insider trading policy is incorporated by reference in this Annual Report on Form 10-K as Exhibit 19.1. +Item 11. Executive Compensation +The information required by this item is incorporated by reference to the definitive Proxy Statement for our 2026 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after December 31, 2025. +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The information required by this item is incorporated by reference to the definitive Proxy Statement for our 2026 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after December 31, 2025. +Item 13. Certain Relationships and Related Transactions, and Director Independence +The information required by this item is incorporated by reference to the definitive Proxy Statement for our 2026 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after December 31, 2025. +Item 14. Principal Accountant Fees and Services +The information required by this item is incorporated by reference to the definitive Proxy Statement for our 2026 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after December 31, 2025. +87 +Table of Contents +Index to Consolidated Financial Statements +Part IV +Item 15. Exhibit and Financial Statement Schedules +(a) We have filed the following documents as part of this Annual Report on Form 10-K: +1. Financial Statements +See Index to Consolidated Financial Statements under Part II, Item 8 of this Annual Report on Form 10-K. +2. Financial Statement Schedules +All financial statement schedules have been omitted as the information is not required under the related instructions or is not applicable or because the information required is already included in the financial statements or the notes to those financial statements. +3. Exhibits +The exhibits listed below are filed as part of this Annual Report on Form 10-K or are incorporated herein by reference, in each case as indicated below: +Incorporated by Reference +Exhibit Number Description Form File No. Exhibit Number Filing +Date Filed Herewith +2.1† +Business Combination Agreement, dated as of May 11, 2022, by and among Kensington Capital Acquisition Corp. IV, Kensington Capital Merger Sub Corp. and Amprius Technologies, Inc. +Form 8-K File No. 001-41314 2.1 May 12, 2022 +3.1 +Certificate of Incorporation of Amprius Technologies, Inc. +Form 8-K File No. 001-41314 3.1 September 16, 2022 +3.2 +Amended and Restated Bylaws of Amprius Technologies, Inc. +Form 8-K File No. 001-41314 3.1 March 23, 2023 +4.1 +Specimen Common Stock Certificate +Form 8-K File No. 001-41314 4.1 September 16, 2022 +4.2 +Warrant Agreement, dated as of September 14, 2022, between the Company and Continental Stock Transfer & Trust Company, as warrant agent +Form 8-K File No. 001-41314 4.2 September 16, 2022 +4.3 +Form of Warrant Certificate (included in Exhibit 4.2) +Form 8-K File No. 001-41314 4.2 September 16, 2022 +4.4 +Warrant Agreement, dated as of March 1, 2022, between the Company and Continental Stock Transfer & Trust Company +Form 8-K File No. 001-41314 4.1 March 4, 2022 +4.5 +Form of Warrant Certificate (included in Exhibit 4.4) +Form 8-K File No. 001-41314 4.1 March 4, 2022 +4.6 +Description of Capital Stock +Form 10-K File No. 001-41314 4.6 March 28, 2024 +4.7 +First Amendment to Warrant Agreement, dated as of May 13, 2024, by and between the Company and Continental Transfer & Trust Company +Schedule TO File No. 005-93595 (d)(2) May 13, 2024 +10.1 +Registration Rights Agreement, dated September 14, 2022, by and among Amprius Technologies, Inc., Amprius, Inc. and the Original Holder +Form 8-K File No. 001-41314 10.1 September 16, 2022 +10.2 +Form of Indemnification Agreement by and between the Company and its directors and officers +Form S-4/A File No. 333-265740 10.12 August 9, 2022 +10.3# +Confirmatory Employment Letter with Dr. Kang Sun +Form 8-K File No. 001-41314 10.3 September 16, 2022 +10.4# +Confirmatory Employment Letter with Sandra Wallach +Form 8-K File No. 001-41314 10.4 September 16, 2022 +10.5# +Amended and Restated Confirmatory Employment Letter with Dr. Constantin Ionel Stefan +Form S-1 File No. +333-267683 10.11 September 30, 2022 +88 +Table of Contents +Index to Consolidated Financial Statements +Incorporated by Reference +Exhibit Number Description Form File No. Exhibit Number Filing +Date Filed Herewith +10.6# +Amprius Technologies, Inc. 2022 Equity Incentive Plan and forms of agreements thereunder +Form 8-K File No. 001-41314 10.7 September 16, 2022 +10.7# +Amprius Technologies, Inc. 2022 Employee Stock Purchase Plan +424B3 File No. 333-265740 Annex E September 1, 2022 +10.8# +Amprius Technologies, Inc. Outside Director Compensation Policy, as amended on May 6, 2025 +Form 10-Q File No. 001-41314 10.1 August 7, 2025 +10.9# +Amprius Technologies, Inc. Executive Incentive Compensation Plan +Form 8-K File No. 001-41314 10.10 September 16, 2022 +10.10# +Amprius Technologies, Inc. 2016 Equity Incentive Plan and forms of agreements thereunder +Form 8-K File No. 001-41314 10.11 September 16, 2022 +10.11 +At Market Issuance Sales Agreement, dated October 2, 2023, by and among the registrant, B. Riley Securities, Inc., Cantor Fitzgerald & Co. and H.C. Wainwright & Co., LLC +Form S-3 File No. 333-278434 1.2 October 2, 2023 +10.12† +Exclusive Supply Agreement dated November 28, 2023, by and between the Company and Berzelius (Nanjing) Co., Ltd. +Form 8-K File No. 001-41314 10.1 January 16, 2024 +10.13† +Lease, dated January 30, 2019, by and between Los Altos Fields, LLC and Amprius, Inc. +Form 8-K File No. 001-41314 10.12 September 16, 2022 +10.14 +Assignment of Lease, dated May 1, 2022, by and between Amprius, Inc. and Amprius Technologies, Inc. +Form 8-K File No. 001-41314 10.13 September 16, 2022 +10.15 +First Amendment to Lease Agreement, dated January 4, 2023, between the Company and Los Altos Fields, LLC +Form10-K File No. 001-41314 10.16 March 30, 2023 +10.16 +Lease Agreement, dated April 15, 2023, by and between Amprius Technologies, Inc. and Starboard Platform Brighton JV LLC +Form 8-K File No. 001-41314 10.1 April 19, 2023 +10.17 +L ease Termination Agreement, dated January 30, 2026, between the Company and Starboard Platform Brighton JV, LLC +X +10.18 +Form of PIPE Subscription Agreement +Form 8-K File No. 001-41314 10.1 September 7, 2022 +10.19 +Amprius, Inc. 2008 Stock Plan and form of option award agreement thereunder +Form S-4 File No. 333-272466 10.21 June 7, 2023 +10.20 +Amprius, Inc. Second Equity Incentive Plan and form of option award agreement thereunder +Form 8-K File No. 001-41314 10.2 October 23, 2024 +10.21 +Offer Letter Agreement for Thomas M Stepien , dated April 21, 2025 +Form 10-Q File No. 001-41314 10.1 May 8, 2025 +10.22 +Offer Letter Agreement for Ricardo C. Rodriguez, dated September 24, 2025 +Form 10-Q File No. 001-41314 10.1 November 6, 2025 +10.23 +Consulting Agreement for Sandra Wallach, dated October 6, 2025 +Form 10-Q File No. 001-41314 10.2 November 6, 2025 +10.24 +Amended and Restated Employment Letter Agreement with Dr. Kang Sun, dated January 1, 2026 +X +16.1 +Letter from Marcum LLP to the Securities and Exchange Commission, dated September 16, 2022 +Form 8-K File No. 001-41314 16.1 September 16, 2022 +16.2 +Letter from SingerLewak LLP to the Securities and Exchange Commission +Form 8-K File No. 001-41314 16.2 September 16, 2022 +19.1 +Amprius Technologies, Inc. Insider Trading Policy +Form 10-K File No. 001-41314 19.1 March 20, 2025 +21.1 +List of Significant Subsidiaries +X +23.1 +Consent of BDO USA, P.C. +X +24.1 +Power of Attorney (included in the signature page to this Annual Report on Form 10-K) +X +89 +Table of Contents +Index to Consolidated Financial Statements +Incorporated by Reference +Exhibit Number Description Form File No. Exhibit Number Filing +Date Filed Herewith +31.1 +Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +X +31.2 +Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +X +32.1* +Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +X +32.2* +Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +X +97.1 +Compensation Recovery Policy +Form 10-K File No. 001-41314 97.1 March 28, 2024 +101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. X +101.SCH Inline XBRL Taxonomy Extension Schema Document X +101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X +101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X +101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X +101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X +104 Cover Page Interactive Data File (embedded within the Inline XBRL document) X +* These certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Annual Report on Form 10-K and are not deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall they be deemed incorporated by reference into any filing under the Securities Act of the Exchange Act. +† Certain schedules and exhibits have been omitted in accordance with Regulation S-K Item 601(a)(5). A copy of any omitted schedule or exhibit will be finished to the SEC upon request. +# Indicates management contract or compensatory plan. +Item 16. Form 10-K Summary +None. +90 +Table of Contents +Index to Consolidated Financial Statements +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. +AMPRIUS TECHNOLOGIES, INC. +Date: March 6, 2026 +By: +/s/ Thomas M. Stepien +Name: +Thomas M. Stepien +Title: Chief Executive Officer +POWER OF ATTORNEY +KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Thomas M. Stepien and Ricardo C. Rodriguez, and each of them, as his or her true and lawful attorney-in-fact and agent with full power of substitution, for him or her in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact, proxy and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact, proxy and agent, or his or her substitute, may lawfully do or cause to be done by virtue hereof. +Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: +Signature Title Date +/s/ Thomas M. Stepien +Chief Executive Officer and Director March 6, 2026 +Thomas M. Stepien +(Principal Executive Officer) +/s/ Ricardo C. Rodriguez Chief Financial Officer March 6, 2026 +Ricardo C. Rodriguez +(Principal Financial and Accounting Officer) +/s/ Donald R. Dixon Director March 6, 2026 +Donald R. Dixon +/s/ Kathleen Bayless +Director March 6, 2026 +Kathleen Bayless +/s/ Dr. Steven Chu Director March 6, 2026 +Dr. Steven Chu +/s/ Dr. Wen Hsieh Director March 6, 2026 +Dr. Wen Hsieh +/s/ Livingston Satterthwaite Director March 6, 2026 +Livingston Satterthwaite +/s/ Dr. Kang Sun Director March 6, 2026 +Dr. Kang Sun +91 \ No newline at end of file diff --git a/raw/filings/0001899287/2025/0001899287-26-000015/item1.txt b/raw/filings/0001899287/2025/0001899287-26-000015/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..1ad457f0cafee961f57bcf87365de29181bb09f4 --- /dev/null +++ b/raw/filings/0001899287/2025/0001899287-26-000015/item1.txt @@ -0,0 +1,169 @@ +Item 1. Business +Overview +Amprius Technologies, Inc. develops, manufactures and markets lithium-ion batteries for mobility applications, including aviation, ground and marine vehicles. Our disruptive silicon anode technology is intended to enable batteries with high energy density, high power density and fast charging capabilities over a wide range of operating temperatures. This results in our batteries providing superior performance compared to conventional graphite lithium-ion batteries. Our silicon anodes are a direct drop-in replacement of the graphite anode in traditional lithium-ion batteries, and our manufacturing processes leverage the manufacturing processes for conventional lithium-ion batteries and the related supply chain. +Currently, our batteries are primarily used for existing and emerging aviation applications, including unmanned aerial systems or “UAS”, such as drones and high-altitude pseudo satellites or “HAPS”. We believe our proprietary technology has the potential for broad application in electric transportation. Our batteries and their performance specifications have been tested and validated for application by various customers, including AALTO Airbus, AeroVironment, BAE Systems, Kraus Hamdani Aerospace, Nokia Drone Networks, Nordic Wing, Teledyne FLIR and the U.S. Army. Our total customer engagements since inception grew to over 500 customers with shipments to hundreds of customers during the year ended December 31, 2025. In addition, from our inception through December 31, 2025, we have shipped over 4.2 million battery cells, which have enabled mission critical applications. Our proprietary silicon anode structures, battery cell designs and manufacturing processes are protected by our portfolio of patents, trade secrets and know-how developed over 15 years of research and development. +Our SiCore batteries were developed in collaboration with Berzelius (Nanjing) Co., Ltd. (“Berzelius”), a former affiliated company. We began limited shipment of SiCore batteries in 2023, which generated a strong demand from our customers. In order to support such demand, we entered into a supply agreement with Berzelius in November 2023 (the “Exclusive Supply Agreement”), which gives us exclusive rights to purchase its proprietary silicon anode materials in the United States, Canada and Mexico. In January 2024, we announced the full commercial launch of our SiCore batteries and accelerated engagement with our addressable markets. As of December 31, 2025, we had access, through our manufacturing supply agreements with our global contract manufacturers, including our participation in a consortium of South Korean companies that contribute capabilities across the lithium-ion battery value chain (the “Amprius Korea Battery Alliance”), to annual production exceeding 2.0 GWh of SiCore batteries in pouch, cylindrical and prismatic formats. These agreements provide us an opportunity to scale production and ship a large volume of SiCore batteries to our customers. +During 2025, we manufactured our SiMaxx batteries in our facility in Fremont, California. To support increased demand of our SiCore batteries, as of December 2025 and going forward into 2026, we are expanding this facility to increase the capacity of our pilot line to 10 MWh and expand our capabilities to support quick turn SiCore customer prototypes. This expansion is accelerated by a $14.8 million contract awarded to us in July 2025, as amended, through the U.S. Government Defense Innovation Unit (“DIU”). +In April 2023, we entered into a lease agreement to lease approximately 774,000 square feet of premises in Brighton, Colorado. As of December 31, 2025, due to larger industry dynamics, particularly our ability to access global contract manufacturing to rapidly service the demand from our customers, we recorded $19.1 million in impairment charges to the associated right-of-use asset and construction-in-progress to reflect our intention to terminate the lease of the Brighton facility. On January 30, 2026, we entered into an agreement with the lessor to terminate this lease in exchange for a one-time payment of $20.0 million. The termination of the lease will be reflected in our financial results in our fiscal first quarter of 2026. We believe that our outsource contract manufacturing strategy enables rapid capacity expansion with minimal capital investment. +History, Corporate Information and Website +We have been commercially producing batteries since 2018. +On September 14, 2022, we completed a business combination pursuant to a Business Combination Agreement, dated May 11, 2022, by and among Amprius Technologies Operating, Inc. (formerly known as Amprius Technologies, Inc. or “Legacy Amprius”), Kensington Capital Acquisition Corp. IV (“Kensington”), and Kensington Capital Merger Sub Corp. (a wholly owned subsidiary of Kensington or “Merger Sub”). The business combination was effected through the +6 +Table of Contents +Index to Consolidated Financial Statements +merger of Merger Sub with and into Legacy Amprius, with Legacy Amprius surviving as a wholly owned subsidiary of Kensington. Upon consummation of the business combination, Kensington changed its jurisdiction of incorporation by domesticating as a corporation incorporated under the laws of the State of Delaware and changed its name to “Amprius Technologies, Inc.” The business combination was treated as a reverse recapitalization for financial reporting purposes, whereby Legacy Amprius was determined as the “accounting acquirer” and Kensington as the “accounting acquiree.” I mmediately prior to the closing of the business combination, a number of private investors purchased from us an aggregate of 2,052,000 units at a price of $10.00 per share (such transaction, the “PIPE”), pursuant to separate subscription agreements. Each PIPE unit consisted of (i) one share of common stock and (ii) one warrant (each, a “PIPE warrant”) to purchase one share of common stock at an exercise price of $12.50 per share. Please refer to Note 7 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information about the PIPE warrants. +On October 23, 2024, our former majority stockholder and parent company, Amprius Holdings, which owned an aggregate of 65.2 million shares, or 58.6%, of our common stock at that time, voluntarily liquidated and dissolved. As a result of such liquidation and dissolution, Amprius Holdings distributed, on a pro rata basis, an aggregate of approximately 57.2 million shares of our common stock to its stockholders, and we assumed all of Amprius Holdings’ outstanding options to purchase shares of Amprius Holdings’ Class A common stock in exchange for, among other things, Amprius Holdings contributing to us a total of 5.5 million shares of our common stock that it owned, which were immediately cancelled and returned to our authorized but unissued share capital. +Our principal executive offices are located at 1180 Page Avenue, Fremont, California 94538, and our telephone number is (800) 425-8803. +Our website is www.amprius.com. We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission (the “SEC”). These reports and other information are also available, free of charge, at www.sec.gov . Information contained on, or that can be accessed through, the websites referenced in this Annual Report on Form 10-K are not a part of, and are not incorporated by reference into, this Annual Report on Form 10-K. +Industry Background +Traditional transportation has historically relied on fossil fuel-based internal combustion engines for propulsion which are considered to be significant contributors to greenhouse gas emissions. The growing emphasis on sustainable and resilient energy use in transportation is leading to increased capital investment, government incentives and commercial demand for the electrification of both passenger and payload mobility. This transition is particularly evident in the rapid advancement of UAS, commonly referred to as drones, as well as HAPS and electric vertical take-off and landing (“eVTOL”) aircraft. Beyond aerospace, the market is also experiencing robust growth in ground-based electric vehicles (“EVs”) and light electric vehicles (“LEVs”). Critical and breakthrough battery technologies are central to this shift, enabling mass adoption by improving energy density, accelerating fast charging capabilities, extending battery life, and enhancing safety. +Aviation Industry +Unmanned Aerial Systems: UAS are aircraft that operate with no crew or passengers onboard and are guided by remote control or autonomously. Examples of UAS include drones and HAPS. UAS are the next generation aerial transportation technology utilized for surveillance, assessment, logistics, delivery, communications, and imaging, among other uses. Leading batteries, such as Amprius’ silicon anode battery, offer lighter weight and/or more energy, potentially overcoming current battery technology barriers, enabling longer flight times and faster adoption of UAS. +Drones: Drones are the most common type of UAS and are increasingly being utilized across diverse industrial and government sectors, including military and defense, agricultural, energy and utilities, infrastructure and construction, logistics and delivery, and public safety. One of the key barriers to wider adoption is the existing battery technology, which limits the drones’ flight range and payload capacity. Our batteries offer higher energy density, which enables longer range endurance, and, depending on customer specifications, lighter weight, which facilitates higher payload capacity. Amprius offers advanced battery technology suitable for application in drones designs, including multi-rotor, single-rotor, fixed wing and hybrid VTOL. +High Altitude Pseudo Satellites: HAPS are alternatives for traditional satellites. When deployed, HAPS typically operate at stratospheric altitudes, approximately 12 miles (approximately 65,000 feet) above sea level. HAPS are +7 +Table of Contents +Index to Consolidated Financial Statements +increasingly utilized to provide high-quality broadcast features, particularly in remote regions, which have limited terrestrial network coverage. HAPS generally use solar energy and battery storage as the power source to operate for long durations of time. As a result, lightweight, higher energy density batteries with the ability to operate in extreme temperature and pressure conditions are critical enablers. Amprius offers advanced battery technology suitable for application in HAPS, which is currently in use by prominent aerospace companies, including AALTO Airbus and BAE Systems. +Electric Air Transportation : Population growth and urbanization are key megatrends that are stretching ground transportation infrastructure to its limits and resulting in significant greenhouse gas emissions. A potential mitigation strategy is expanding intracity and other short-distance travel into the air utilizing eVTOL vehicles, which include passenger aircraft that use electric power to hover, takeoff, and land vertically. Historically, the electrification of passenger and cargo aircraft has lagged the adoption of electric automobiles in part because of the greater technical challenges. However, over the last few years there have been significant advancements in key enabling technologies for eVTOL aircraft, including high energy density and robust performance batteries offered by Amprius. Continued improvements in battery energy density could allow eVTOL aircraft to increase their range, speed and payload, dramatically expanding the range of trips and further accelerating the adoption of electric air mobility. +Light Electric Vehicle Industry +The LEV market is expected to grow rapidly primarily due to the rising demand for electric two and three wheel vehicles. As this market grows, we expect an increase in demand for high-performance batteries across the LEV sector. We believe that the form factor and cost-competitiveness of our high-energy-density SiCore batteries can support such growing demand in the LEV sector. As of December 31, 2025 , we had access, through our manufacturing supply agreements with our global contract manufacturers, to annual production exceeding 2.0 GWh of SiCore batteries in pouch, cylindrical and prismatic formats . +Electric Vehicle Industry +The electrification of ground transportation is being accelerated by regulatory pressure to meet sustainability benchmarks and growing consumer preference. While multiple battery chemistries exist today that meet current EV specifications, we believe there is room for significant improvement. Our batteries have been tested and validated by the U.S. Advanced Battery Consortium (“USABC”), as further described below. They have the potential to help address both sustainability and preference concerns. We are not focused on the EV market today. However, we plan to improve our battery cycle life, cost and production quantity, to allow us to better compete with existing commercially available EV batteries in the future. +Battery Requirements for Electric Transportation +Current battery technology creates a barrier in the near-term for the electric transportation market, especially for electric air mobility applications, as battery weight, size and recharging times would need to be improved for these operations to become commercial. The battery system must fulfill several key requirements: +• high energy density and specific energy in order to achieve long range endurance while enabling lighter weight; +• high power density to provide sufficient power at a specific instance, such as during aircraft take-off or landing; +• fast charging capabilities to enable high infrastructure throughput; +• operational in wide temperature and pressure ranges; +• safe to operate in a wide variety of conditions; +• a long calendar life and cycle life; and +• acceptable cost, which varies by application. +Our Solution +Today’s batteries typically utilize graphite as the anode material. Based on management’s estimates, we believe that graphite anodes have reached their theoretical limits for energy storage. We estimate that lithium-ion batteries with graphite anodes have an upper limit capacity of 355 mAh/g. We believe additional increases in the energy density for lithium-ion batteries may be achieved by using active anode materials that have a higher capacity for lithium storage. Among such active materials, silicon is known to have the highest lithium storage capacity per unit mass or volume over any other element besides lithium itself. +8 +Table of Contents +Index to Consolidated Financial Statements +Our batteries have replaced the graphite anode with a highly engineered silicon material that has a lithium storage capacity of approximately up to 3,400 mAh/g, nearly 10 times the highest capacity of known graphite anodes. By replacing graphite with silicon in the anode, we have significantly enhanced performance in batteries across energy density, power, charging time and ability to operate in extreme environments. +Our Competitive Strengths +SiCore and SiMaxx performance greatly exceeds conventional lithium-ion batteries commercially available today. We believe that our battery cells significantly outperform commercially available conventional graphite battery cells. As shown in the table below, as of December 31, 2025 , our batteries have approximately up to double the specific energy and energy density of graphite battery cells, and enable significantly faster charging time. We believe other next-generation battery technologies will require significant additional research, development and investment prior to being commercially viable. +(1) Other than cycle life, based on a survey of 18650 technical datasheets (e.g., Panasonic NCR18650G), Sony VTC6 technical datasheet, iFixit reports on iPhone and Samsung batteries, and Y. Sun et al: Li-ion Battery Reliability – A Case Study of the Apple iPhone. For cycle life, based on Shmuel De-Leon: Li-Ion NCA/NMC Cylindrical Hard Case Cells Market 2021. Includes both released and unreleased SiMaxx and SiCore battery cells with high-energy, high-power, and balanced cell designs. +Unique suitability for aviation markets that require high power, specific energy and energy density. We believe the increased performance of our batteries enable certain electric aviation applications. For example, our batteries have high specific energy and energy density to maximize payload and reduce weight, thereby extending flight radius; high power density, to enable vertical take-off and landing functionality; fast charge, to minimize the time required to recharge a battery; wide operating temperature, for high altitude applications operating in extremely low temperatures; and cycle life parity with graphite batteries, depending on customer specifications. +In January 2025, we announced the expansion of our SiCore product platform with a SiCore battery cell that provides energy density of 360 Wh/kg, extending runtimes while still exceeding 3,000 W/kg, with discharge rates of up to 10C without cooling and 15C with active cooling. This SiCore battery cell ensures quick power delivery without compromising runtime, which makes it ideal for aviation applications, including drones and high-performance electric mobility applications that require both endurance and rapid energy delivery. +In March 2023, we unveiled a prototype battery cell that delivers an energy density of >500 Wh/kg and >1,300 Wh/L at 25°C. The performance of this battery cell was verified by a leading testing house offering comprehensive battery regulatory compliance, safety and performance testing. At approximately half the weight and volume compared to other existing state-of-the-art, commercially available lithium-ion cells, we believe that this type of battery will deliver a potential industry-disrupting performance. As of December 31, 2025, this SiMaxx battery was in the development stage. +We will continue to develop next-generation battery cells, and we believe that when they become commercially available, those battery cells will have the potential to expand boundaries for our customers and provide a tailored solution for applications that require extended range and heightened discharge times without compromising key features, such as aircraft payload, and without having to increase vehicle weight. +9 +Table of Contents +Index to Consolidated Financial Statements +First mover advantage in emerging aviation markets. As a result of our success with AALTO Airbus, Nokia Drone Networks, and other tier-one customers, we have become an established market pioneer in providing high performance batteries to the aviation industry. Our reputation and commitment to delivering ultra-high performance batteries have enabled us to enter into several development and master supply arrangements with our customers. From our inception through December 31, 2025, over 500 customers had tested and validated our SiCore and SiMaxx batteries for their applications, and we believe our market leadership in aviation will enable us to continue to grow our customer base. +Proven performance in demanding and abuse-tested environments. Safety is recognized as one of the most important factors of lithium-ion battery technology. Our silicon anodes operate at a voltage that is at least 100 mV higher than that of graphite anodes, which not only enables faster charging but also cell operation at lower temperatures, thereby improving cell safety and mitigating the risk of overcharging. Our batteries are also designed to be ultra-resilient and undergo rigorous abuse testing, including air cargo certification and specific tests for defense applications. +For example, in December 2022, an independent third-party testing lab validated that our SiMaxx 390 Wh/kg polymer electrolyte cell successfully passed the nail penetration test per the requirements of section 4.7.4.4. of the MIL-PRF-32383 (Military Performance Specification). The test is used to determine the feasibility of a specific product in combat scenarios. Cells tested in accordance with section 4.7.4.4. should not burn or explode, and the external temperature of each test sample should not be greater than 338 degrees Fahrenheit (170 degrees Celsius) when penetrated by sharp objects. When conducting the test, a 0.113-inch diameter stainless steel nail is driven through a fully charged cell at a prescribed speed. The cell is deemed to have passed if there is no smoke or flame following the nail penetration. In our fiscal fourth quarter of 2025, we delivered these cells to one of our partners for integration testing in military batteries. +Robust IP portfolio and know-how related to our silicon anode ecosystem. Our silicon anode technology has been refined and improved upon for over 15 years , and is protected by over 80 patents that were issued to us or are pending applications as of December 31, 2025 . Core aspects of our technologies and processes are also protected by know-how and trade secrets developed by our team for over 15 years . +Our Products and Customers +As evidenced by customer validation, design wins and recurring orders with AALTO Airbus, AeroVironment, BAE Systems, Kraus Hamdani Aerospace, Nokia Drone Networks, Nordic Wing, Teledyne FLIR and the U.S. Army, among others, our battery technology is well positioned to address the rapidly growing markets within the aviation industry, specifically UAS and eVTOL, and LEVs. UAS and eVTOL applications have historically used conventional lithium-ion batteries as a means to promote product prototypes, but market participants are seeking advancements in battery technology. We believe that our silicon anode technology can be part of the solution. We sell to customers located inside and outside the United States, and a significant portion of our sales are to customers located in Europe. While we continue expanding and diversifying our customer base, during the year ended December 31, 2025, one customer represented $27.1 million of our total revenue. +We currently offer high performance batteries under our silicon anode platform to supply the aviation, ground and marine vehicle industries. +SiCore Product Platform +Our SiCore batteries, which were developed in collaboration with Berzelius and launched commercially in January 2024, are based on an innovative, proprietary silicon anode material system delivering high-energy-density silicon anode batteries that surpass current state-of-the-art graphite cell performance. The silicon anode cell chemistry in our SiCore batteries is designed to offer high energy density, up to 450 Wh/kg, and long cycle life, as long as 1,400 cycles. Our SiCore battery cell chemistry may be combined with other materials, such as binders and conductive agents, including graphite, to meet performance specifications. +We offer our SiCore batteries with the following design and performance factors: Energy, Power and Balanced Energy/Power. +Energy . This design of SiCore battery cell delivers a specific energy of up to 450 Wh/kg or 950 Wh/L at a maximum discharge rate of up to 1C and a cycle life of up to 150 cycles at full depth of discharge. +Power . This design of SiCore battery cell delivers a specific energy of up to 360 Wh/kg or 800 Wh/L at a maximum discharge rate of up to 10C and a cycle life of up to 200 cycles at full depth of discharge. +10 +Table of Contents +Index to Consolidated Financial Statements +Balanced Energy/Power . This design of SiCore battery cell delivers a specific energy of up to 340 Wh/kg or 770 Wh/L at a maximum discharge rate of up to 3C, and a cycle life of up to 700 cycles at full depth of discharge or 1,000 cycles at approximately 90% depth of discharge. +Our SiCore batteries have been validated across various applications in the electric mobility market, and since our commercial launch in January 2024, they have garnered positive feedback from customers with demanding performance requirements. Our SiCore battery chemistries are applied into a wide range of form factors, including pouch, cylindrical and prismatic cells. The cylindrical cell form factors offer balanced energy and power capabilities providing an industry leading capacity of 4Ah in 18650 format and 6.5 Ah in 21700 format, and a cycle life of up to 500 cycles. +As of December 31, 2025, we had access, through our manufacturing supply agreements with our global contract manufacturers, to annual production exceeding 2.0 GWh of SiCore batteries in pouch, cylindrical and prismatic formats. +EV capable Products +We are also currently developing an EV capable cell. Competition in the EV industry is intense, with high production volume requirements, low pricing, and balanced performance criteria, creating a high barrier to entry against the incumbent solutions. Prior to us being able to effectively compete in the EV space, we will need to further improve cycle life, increase production quantity, and reduce our costs. +Since 2017, we have been sampling our batteries with USABC, which had independently verified that we have met or exceeded the majority of their 2025 EV cell performance goals, including usable energy density, usable specific energy, power density and charge time. +In November 2024, we shipped to USABC our SiMaxx A-Sample EV cells. Our testing of SiMaxx A-Sample EV cells showed that the cells can achieve a specific energy of 360 Wh/kg at the beginning of life, which surpassed USABC’s target of 275 Wh/kg at end of life, and deliver a power density of 1,200 W/kg. The SiMaxx A-Sample EV cells can charge up to 90% of their rated energy in just 15 minutes, which exceeds USABC’s target of 80% within the same timeframe. +Our Technology +SiCore Generation 2 Cells +Our SiCore batteries are based on an innovative, proprietary silicon anode material system, delivering batteries with high-energy-density, high discharge rates, and long cycle life. Developed in collaboration with Berzelius, the anode in our SiCore batteries have a unique bottom-up structure with an ultra-fine silicon nanostructure interior and multilayer surface protection. This silicon anode technology may also be combined with other active materials, such as binders and conductive agents, including graphite. The particle type of our SiCore anode materials can be processed in the same equipment and environment as graphite anode materials, offering a drop-in replacement of graphite materials and fast transfer to manufacturing of our SiCore cell designs. Due to their robust structure, our SiCore materials can be pressed into high density and thin electrodes, a precondition for high energy density and fast charge capability. +SiMaxx Generation 1 Cells +Our proprietary SiMaxx silicon anode technologies solve for the inherent limitations of silicon anodes in lithium-ion cells. Silicon has historically been investigated as an anode material due to its intrinsic capability to store larger quantities of lithium per unit mass and volume compared to graphite. The main barrier preventing silicon from becoming more widely adopted across the battery industry is that the silicon material expands during charging as it absorbs lithium ions. For example, silicon particles may expand up to 300% during charging. After multiple charge and discharge cycles, silicon particles may crack, causing anode degradation and device breakdown. +Our proprietary SiMaxx silicon anode technology is designed to accommodate for the material expansion inherent in silicon. Our nanowire anodes start with a metal foil that is layered with a nanowire template and metallurgically attached to the metal foil substrate by a growth process. The nanowire template is coated with a low-density silicon and then encased by a thin layer of high-density silicon. +SiMaxx silicon anodes generally contain more than 1,000,000 nanowires per square centimeter. The nano-porosity of the low-density layer of silicon on each nanowire and the micro-porosity between the wires in our technology allows the silicon to expand at nano- and micro- meter levels when the anode is charged, with little to no damage to the anode. +11 +Table of Contents +Index to Consolidated Financial Statements +Our SiMaxx anode structure enables ions and electrons to travel in a straight path between and through the nanowires. In contrast, a particle structure results in ions and electrons traveling in a nonlinear, tortuous path. The straight path of our anode facilitates high electric and ionic conductivity, enabling high power and fast charging. Nanowires are always in electrical contact with the metal foil due to their growth rooted fabrication, while particles have to rely on particle-to-particle contact for electron transfer, which can easily be broken during cycling. +Our SiMaxx silicon anodes are considered 100% silicon based on their actual silicon content, which ranges from 99.5% to 99.9% and meets the acceptable purity standards for classification 100%. +As of December 31, 2025, most of our customers have transitioned to SiCore Generation 2 cells from SiMaxx Generation 1 cells. +Product Portfolio +Amprius offers commercially available batteries with the following design and performance factors: High Energy, High Power, and Balanced Energy/Power. +High Energy . Our high energy battery cells are designed to maximize specific energy for applications with low power requirements. For applications that have a continuous discharge rate of less than 2C, these battery cells deliver a specific energy of up to 450 Wh/kg or 950 Wh/L at a discharge rate up to 1C. Amprius high energy SiCore cells are most frequently used by HAPS, which are designed to carry a payload at high altitudes for extended periods, typically for weeks or months at a time, as they rely on solar power for operations during the day and need to store sufficient energy in the battery to keep the aircraft aloft during the night. +Our high energy battery cells have powered AALTO Airbus’ Zephyr S stratospheric vehicle to numerous records since 2018. The Zephyr S is designed to fly for months at a time, at an altitude of approximately 70,000 feet. After integrating our battery cells into the Zephyr S, AALTO Airbus set endurance and altitude records by flying continuously for over 25 days in 2018 and 67 days in 2025. Airbus presented us with the 2021 Innovative Supplier of the Year Award. +High Power . Our high power SiCore cells are designed for applications that place a premium on power. These high power battery cells offer up to 360 Wh/kg and 800 Wh/L energy density with up to 10C continuous discharge capability. This performance is well suited for the air transportation industry, which requires high power capabilities to lift the aircraft from the ground into the air. In addition, our high power battery cells are capable of fast charging, from 0% to 80% in less than 6 minutes. This level of power capability, energy density, and fast charge capability is optimal for urban air mobility and other air transportation industry applications. Once the vehicle has landed, the turnaround time to get the vehicle back into the air becomes critical, which is why we believe customers value our high power batteries with fast charge capabilities. +Since 2021, we have engaged in technical evaluations with certain tier-one eVTOL manufacturers to develop an eVTOL-optimized battery system to support the development and commercialization of their eVTOL fleet. We plan to continue expanding our technical evaluation engagements with other eVTOL manufacturers as the eVTOL market grows. +Balanced Energy/Power . We designed our balanced energy/power battery cells for applications that require a balance between power and energy. These battery cells offer energy density as high as 340 Wh/kg or 770 Wh/L at up to 3C discharge rate. This range of power capability is important to customers in the UAS sector. Our balanced energy/power battery cells typically meet the requirements of UAS devices’ needs for high initial power, as well as higher energy requirements for longer sustained cruising. +With commercial shipments since 2022, our balanced energy/power battery cells have been designed to accomodate UAS programs at AeroVironment and Teledyne FLIR, with recent customer additions including Nokia Drone Networks, Nordic Wing and ESAero. +Manufacturing and Supply +As of December 31, 2025, we produce SiCore batteries through our manufacturing supply agreements with global contract manufacturers. In order to meet the increased demand for our SiCore batteries, we are planning to expand our contract manufacturing partnerships globally. Some of the challenges that we may encounter when we enter into a manufacturing supply arrangement include, among others, supply chain risks, risk of losing control over the manufacturing process of our SiCore batteries, which could lead to quality control issues, delay in production, increase in production costs, and non-compliance with our established standards. In addition, we may encounter a risk of losing control of some of +12 +Table of Contents +Index to Consolidated Financial Statements +our intellectual property. While we plan to set up business processes, including adding oversight and quality control procedures, in order to manage our contract manufacturing supply arrangements, there can be no assurance that such processes will be effective. As of December 31, 2025, we had access, through our manufacturing supply agreements with our global contract manufacturers, including the Amprius Korea Battery Alliance, to annual production exceeding 2.0 GWh of SiCore batteries in pouch, cylindrical and prismatic formats. For more information, see the section titled "Risk Factors" below. +We plan to partner with other contract manufacturers in the future, and we plan to select large, experienced and reputable contract manufacturing companies. In January 2026, we announced our first partnership with a United States contract manufacturer, Nanotech Energy, located in California. +Our Growth Strategy +Our goal is to become the market leader in high performance lithium-ion batteries. In order to achieve that goal, we are pursuing the following growth strategies: +Leverage existing contract manufacturing capacity to produce SiCore batteries. We believe that our existing Exclusive Supply Agreement with Berzelius, which gives us exclusive rights to purchase Berzelius’ proprietary silicon anode materials in the United States, Canada and Mexico, and our existing manufacturing supply agreements with global contract manufacturers will allow us to continue supporting the increasing demand for our SiCore batteries. As of December 31, 2025, we had access, through our manufacturing supply agreements with our global contract manufacturers, including the Amprius Korea Battery Alliance, to annual production exceeding 2.0 GWh of SiCore batteries in pouch, cylindrical and prismatic formats. +Expanding existing manufacturing facility to meet increase in demand and optimize costs. Although we had access to annual production exceeding 2.0 GWh of SiCore batteries in pouch, cylindrical and prismatic formats through our existing manufacturing supply agreements with our global contract manufacturers as of December 31, 2025, we believe that expanding our existing manufacturing facility would help us grow our customer base and optimize costs in the long-term. We are currently transitioning our kWh-scale manufacturing line for our SiMaxx batteries at our facility in Fremont, California to a 10 MWh-scale SiCore pilot line, accelerated by our contract with the DIU. +Extend first-mover advantage to become the market leader in lithium-ion batteries for aviation. We believe we are the leading company in the market today with a high-performance battery that can meet the requirements of aviation applications. We have built a strong reputation in the industry by delivering ultra-high performance batteries with high safety standards that meet or exceed industry standards and customer requirements. We expect to extend our presence in the aviation market, while also serving other transportation-related markets that require improvements in their electrification solutions. From our inception through December 31, 2025, over 500 customers had tested and validated our batteries for their applications. +Further improve performance characteristics of our anode and battery cells . We believe we have the highest-performing commercially available batteries in the market. We intend to maintain our performance advantage by continuing to invest in our anode and cathode chemistries. We expect to continue to increase the performance characteristics of our batteries, particularly around power, energy density and cycle life. We believe our next-generation cells, when commercially available, will have the potential to expand boundaries for our customers and provide a tailored solution for applications that require longer discharge times without compromising key features, such as payload and vehicle weight. We plan to continue to invest in optimizing combinations of these performance characteristics as well as the requisite form factors to meet the specific needs of our customers and drive adoption of our battery cells in other areas of electrified transportation. As a result of these efforts, our goal is to fully realize the benefits of our silicon anode technology and remain a developer of industry-leading batteries. +Expand our end markets and applications . As we increase our production capabilities and partnerships with global contract manufacturers, we will be able to supply our batteries in larger volumes to fulfill our customers’ battery prototyping and procurement requirements. Our current customer base consists primarily of aviation and other air transportation companies as well as LEV’s. We believe the batteries we have developed for the aviation industries can be adapted for larger form factors to meet the energy density and fast-charge requirements of the EV market once we are able to improve the cycle life, increase form factors, reduce cost and improve production quantity for our EV capable battery cells. +13 +Table of Contents +Index to Consolidated Financial Statements +Research and Development +Our original silicon anode technology was developed at Stanford University in 2008. For over 15 years , we have refined and improved upon the technology for use in commercial applications. We have conducted research and development initiatives focused on improving performance characteristics and expanding the applications of our silicon anode battery technology. We expect to continue our research and development efforts in the following areas: +• Improving battery life. We are working with chemical compounds as potential additives to improve cycle life without negatively impacting other performance characteristics such as energy density. +• Further improvements to energy density . We are engaged in ongoing development activities to explore different cathode materials, including a conversion cathode, to further improve the energy density of our batteries. +• Advanced cell chemistries and designs. We have developed advanced battery cell designs tailored to respond to our customers’ requirements for high performance, including extreme high power and fast charge performance, safety, wide operating temperature range, and calendar life. Our proprietary electrolyte formulations enhance operations at high voltage and high temperature. +• Larger cell form factors . The batteries we have developed and are developing for our customers are typically approximately up to 15Ah for small-sized aircraft. As we expand our customer base, we are in the process of developing larger form factor batteries, up to 70 Ah, for broader aviation applications as well as LEV and EV customers. +We utilize our research and development capabilities to improve existing products and build custom batteries for our customers. We typically structure these customer programs such that we receive revenue from our design services as well as from our initial sample cells. +Intellectual Property +Our proprietary silicon anode technologies, including the related processes, design and manufacturing, are protected by our patent portfolio and know-how and trade secrets. +As of December 31, 2025, we had a total of 86 patents, which consisted of : +• 74 patents issued to us (35 patents issued in the United States and a total of 39 patents issued in the European Union, Korea, Japan, China, Taiwan and Israel) with expiration periods ranging between 2030 and 2039 ; +• 10 patent applications that are pending (2 patent applications in the United States and a total of 8 patent applications in the European Union, Korea, Japan, China and Taiwan); and +• 2 U.S. patents licensed from Stanford University. +Our patents cover the following: +• Silicon structures – rooted nanowire template, tapered morphology, silicon dopants and multi-layered structure; +• Materials technologies – solid electrolyte interphase formation, electrolyte formulations and scalable prelithiation; and +• Silicon anode manufacturing processes, design and equipment. +As of December 31, 2025, we also held a total of 10 registered trademarks that were issued to us, which consisted of 2 trademarks issued in the United States and a total of 8 trademarks issued in the European Union, Great Britain, Japan, Korea and China. +We rely on non-disclosure agreements with employees, independent contractors, customers and other third parties to protect our intellectual property and proprietary rights. +Circumstances outside our control could pose a threat to our intellectual property rights. For more information, see the section titled “Risk Factors” below. +Competition +We compete directly and indirectly with current battery manufacturers and with an increasing number of companies that are developing new battery technologies and chemistries to address the growing market for electrified mobility +14 +Table of Contents +Index to Consolidated Financial Statements +solutions. Specifically, within the aviation markets, we primarily compete with conventional graphite anode batteries and silicon and silicon composite anode batteries. +Graphite anode battery companies include tier-one manufacturers such as Amperex Technology Limited (ATL), Contemporary Amperex Technology Co., Limited (CATL), E-One Moli Energy Corp., LG Energy Solution, Murata Manufacturing Co., Ltd., Panasonic Industry Co., Ltd., and Samsung SDI Co., Ltd., which provide high quality and high performance solutions, and tier-two manufacturers which tend to provide lower cost solutions. We expect the manufacturers of those batteries will continue to invest in improving the capabilities of their batteries. +Companies making or developing silicon composite anodes or materials include both large manufacturers as well as many well-funded new technology companies. These include Berzelius, BTR New Energy Material Ltd., Enevate Corporation, Enovix Corporation, Group 14 Technologies, Inc., Nexeon Ltd., Shanshan Corporation, Sila Nanotechnologies Inc., and Storedot Ltd. Silicon composite anodes may offer higher energy density and other improvements over conventional graphite anodes, and may be less expensive to manufacture than our SiCore products. +For aviation applications, we believe that the defining characteristics of our battery cells make our silicon anode technologies the only battery solutions currently available and suitable for broad aviation adoption. These characteristics of industry-leading specific energy and energy density, high power density, low operating temperature and fast charge capability, in addition to commercial validation, significantly differentiates us from graphite anode and silicon composite anode alternatives. However, we expect additional competitors to enter the market as their battery technologies continue to improve. +The EV and LEV battery industries are fast-growing and highly competitive. Unlike the aviation industry, where there are a limited number of commercially available batteries that meet the minimum performance specifications, there are many battery manufacturers in the EV and LEV industries that can produce commercially acceptable batteries, and they may be able to produce those batteries at lower cost and higher volumes than we are currently able to. Future entrants may include companies developing different and less mature technologies, including lithium metal anodes and solid state batteries. In order to effectively compete, we will need to further improve our batteries’ life cycles, increase their form factors, increase their production quantity, and reduce production costs. +Many of our competitors and potential future entrants, both in the aviation, EV and LEV industries, may be better capitalized and have greater resources to commercialize and expand their production capacities. These competitors may have greater access to customers and may be able to establish cooperative or strategic relationships amongst themselves or with third parties that may further enhance their resources and competitive positioning. If there are significant advances in battery chemistries that we cannot adapt, or if competitors are able to scale their production capacities before we are able to, our business may be materially impacted. For more information, see the section titled “Risk Factors” below. +Government Regulation and Compliance +Our business activities are global and are subject to various federal, state, local, and foreign laws, rules and regulations. For example, there are various government regulations pertaining to battery safety, transportation of batteries, use of batteries in vehicles, factory safety, and disposal of hazardous materials. +In many cases, our products are or may in the future be subject to trade and export control laws and regulations in the United States and other jurisdictions where we do business. Such laws include the Export Administration Regulations, trade and economic sanctions maintained by the Office of Foreign Asset Control as well as foreign direct investment rules and regulations, tariffs and quotas, and other related regulations in jurisdictions in which we operate, and we may in the future be subject to other laws and regulations, such as the International Traffic in Arms Regulations, among others. In particular, the export or re-export of our products and technology to certain countries or end-users or for certain end-uses in some cases requires an export license or may be prohibited. Additionally, we may be required to register with the Directorate of Defense Trade Controls in order to conduct some aspects of our future business activities and we may be required to obtain licenses in order to conduct development activities. Obtaining the necessary export license for a particular sale or offering or business activity may not be possible or may be time-consuming and may result in the delay or loss of sales opportunities. Any failure to adequately address these legal obligations could result in civil fines or suspension or loss of our export privileges, any of which could materially adversely affect our business, financial condition, and results of operations. +Our business is subject to the Foreign Corrupt Practices Act and other anti-corruption, anti-bribery, and anti-money laundering laws and regulations in the jurisdictions in which we have offices or do business, both domestic and abroad. Any failure to adequately comply with any of these obligations, or future changes with respect to any of these legal +15 +Table of Contents +Index to Consolidated Financial Statements +regimes, could cause us to incur significant costs, including the potential for new overhead costs, fines, sanctions, and third-party claims. +As a government contractor and/or subcontractor, we must comply with laws, regulations, and contractual provisions relating to the formation, administration, and performance of government contracts and grants, which affect how we and our partners do business with government agencies. Government contracts often contain provisions and are subject to laws and regulations that provide government customers with additional rights and remedies not typically found in commercial contracts. Ensuring compliance with government contracting laws, regulations, or contractual provisions may impose other added costs on our business, and failure to comply with these or other applicable regulations and requirements could lead to claims for damages, civil or criminal penalties, termination of contracts and/or suspension or debarment from obtaining government contracts and grants. Any such damages, penalties, disruption, or limitation in our ability to do business with a government could have a material adverse effect on our business, results of operations, financial condition, public perception and growth prospects. +In addition, recent regulatory developments in China have introduced new export controls on certain lithium-ion batteries, the materials used in their production, and related manufacturing equipment and technologies. Enforcement of these controls has been suspended until at least November 2026, pending the outcome of further negotiations between United States and China. These measures, once they are enforced, could affect our partners and suppliers, disrupt our supply chain, increase costs, or require us to diversify our supply chain. +Furthermore, our operations and growth prospects may be impacted by the National Defense Authorization Act ("NDAA"), which includes regulations to be implemented in the future which are aimed at securing the United States defense industrial base and domestic supply chains. Specifically, the latest NDAA and related measures will, in the future, prohibit the Department of Defense from procuring certain advanced batteries and battery components that are sourced, produced, or refined by "foreign entities of concern." Pursuant to our program with the DIU, we are required to secure future sources or qualify individual lithium-ion battery components from NDAA compliant suppliers. We may not be successful in sourcing such components or identifying compliant suppliers who can meet our technical specifications and cost targets. Our inability to qualify compliant components at an acceptable cost could jeopardize opportunities with government agencies and government contractors, as well as our standing under the DIU program, or our business, financial condition, results of operations and prospects could be negatively affected. +For more information, see the section titled “Risk Factors—Risks Related to Litigation and Regulatory Compliance.” +Human Capital +We believe that our success is driven by our team of technology innovators and experienced business leaders. We also believe that our employees are the foundation for developing and commercializing our silicon anode technology. Many on our leadership team have been with us for over a decade. We seek to hire and develop individuals who are dedicated to our strategic mission. +As of December 31, 2025, our total headcount was 109 , which consisted of 97 full-time employees and 12 temporary hires and contractors. Our employees are primarily located in our headquarters in Fremont, California. +As of December 31, 2025, a total of 27 full-time employees worked in research and development (“R&D”) and a total of 45 full-time employees worked in manufacturing. Certain employees in the R&D and manufacturing departments hold a Ph.D. or an advanced degree in material science, chemical, aerospace, structural and nanoscale engineering, physics or chemistry. +We are committed to maintaining equitable compensation programs including equity participation. In order to attract or retain team members capable of making exceptional contributions to our success, we offer market-competitive salaries and strong equity compensation. Our compensation decisions are guided by the external market, role criticality and the contributions of each team member. +To date, we have not experienced any work stoppages and we consider our relationship with our employees to be good. None of our employees are either represented by a labor union or subject to a collective bargaining agreement. +16 +Table of Contents +Index to Consolidated Financial Statements \ No newline at end of file diff --git a/raw/filings/0001899287/2025/0001899287-26-000015/item13.txt b/raw/filings/0001899287/2025/0001899287-26-000015/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..2547134f60af1a8ddb898ce85d77f6ab86e1e421 --- /dev/null +++ b/raw/filings/0001899287/2025/0001899287-26-000015/item13.txt @@ -0,0 +1,2 @@ +Item 13. Certain Relationships and Related Transactions, and Director Independence +87 \ No newline at end of file